Punjab Irrigated Agriculture Investment Program - Asian ...

Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 37231 December 2006

Proposed Multitranche Financing Facility Islamic Republic of Pakistan: Punjab Irrigated Agriculture Investment Program

CURRENCY EQUIVALENTS (as of 15 November 2006)

Currency Unit – Pakistan rupee/s (PRs)

PR1.00 = $0.0164 $1.00 = PRs60.8

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund AWB – area water board EAF – environmental assessment framework EIA – environmental impact assessment EMP – environmental monitoring plan FFA – financial framework agreement DOFWM – Directorate of On-Farm Water Management GDP – gross domestic product GIS – geographic information system IEE – initial environmental examination IMU – irrigation management unit IPPMU – investment program planning and management unit JBIC – Japan Bank for International Cooperation LAR – land acquisition and resettlement LBDC – Lower Bari Doab Canal LBDCIP – Lower Bari Doab Canal Improvement Project LCC – Lower Chenab Canal MFF – multitranche financing facility MIS – management information system NDP – National Drainage Program O&M – operation and maintenance OFWM – on-farm water management PFR – periodic financing request PIAIP – Punjab Irrigated Agriculture Investment Program PIAPPF – Punjab irrigated agriculture project preparation facility PIDA – Punjab Irrigation and Drainage Authority PIPD – Punjab Irrigation and Power Department PISRP – Punjab Irrigation Sector Reform Program PIU – project implementation unit PMO – project management office PMU – project management unit PSC – project steering committee R&U – rehabilitation and upgrading

WEIGHTS AND MEASURES

cumecs – cubic meters per second km – kilometer ha – hectare mm – millimeter

GLOSSARY

abiana – irrigation service fee biraderi – clan conjunctive use – use of surface water and groundwater to meet water needs in

the same geographic area rabi – crop growing season from about October to March khal panchayat water user association based on a common irrigation field outlet

from the canal kharif – crop growing season from about April to September

NOTES

(i) The fiscal year (FY) of the Government of Pakistan ends on 30 June.

(ii) In this report, "$" refers to US dollars.

Vice President L. Jin, Operations Group 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director K. Matsunami, Agriculture, Environment, and Natural Resources Division,

CWRD Team leader T. Panella, Senior Water Resources Management Specialist, CWRD Team members A. Aleem, Programs Officer, CWRD L. Blanchetti-Revelli, Social Development Specialist (Resettlement), CWRD H. Gunatilake, Senior Economist, Economics and Research Department L. Nazarbekova, Counsel, Office of the General Counsel

CONTENTS Page

INVESTMENT PROGRAM SUMMARY i

MAPS xi

I. THE PROPOSAL 1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2

III. THE PROPOSED INVESTMENT PROGRAM 6 A. Impact and Outcome 6 B. Outputs 7 C. Special Features 15 D. Investment Plan 15 E. Financing Plan 16 F. Implementation Arrangements 17

IV. BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 23 A. Economic Benefits 23 B. Social and Other Benefits and Impacts 24 C. Risks 25

V. ASSURANCES 25 VI. RECOMMENDATION 29

APPENDIXES 1. Design and Monitoring Framework 30 2. Sector and Subsector Analysis 33 3. External Assistance to the Sector 39 4. Detailed Cost Estimates 41 5. Management Organization Charts 42 6. Implementation Schedule 43 7. Procurement Plan 44 8. Summary Economic and Financial Analysis 47 9. Summary Poverty Reduction and Social Strategy 54 10. Summary Environmental Impact Analysis 57 11. Summary Social Safeguards 63

SUPPLEMENTARY APPENDIXES (available on request) A. Detailed Terms of Reference B. Economic and Financial Analysis C. Environmental Impact Assessment D. Resettlement Framework and Plans

INVESTMENT PROGRAM SUMMARY Borrower Islamic Republic of Pakistan Classification Targeting classification: General intervention

Sector: Agriculture and natural resources Subsectors: Irrigation and drainage Themes: Sustainable economic growth, governance, environmental sustainability Subthemes: Developing rural areas, public governance, natural resources conservation

Environment Assessment

Category B. An environmental impact assessment was completed.

Investment Program Description

The Punjab Irrigated Agriculture Investment Program (PIAIP) will support physical and nonphysical investments in the water resource and irrigated agriculture sectors in Punjab, Pakistan. The PIAIP takes a holistic and integrated approach to improving sector performance supported through institutional reform with a focus on sustainability, decentralized management, transparency, and accountability. The PIAIP will finance (i) comprehensive rehabilitation and upgrading (R&U) of all water resource and irrigation infrastructure; (ii) improved groundwater, conjunctive-use, and surface water management strategies and practices; (iii) on-farm water management (OFWM), improved irrigation technologies, and agricultural support services; and (iv) sector reforms, improved management methods, institutional strengthening and restructuring for water resource management, and irrigated agriculture. The PIAIP is expected to support investments in the (i) Lower Bari Doab Canal and Balloki Barrage, (ii) Pakpattan Canal and Sulemanki Barrage, (iii) Thal Canal distribution system, (iv) Sidhnai Canal distribution system, and (v) Trimmu and Punjnad barrages. This will impact between 25% and 30% of the irrigated area in Punjab and given the magnitude and duration of the PIAIP, will have a transformative impact on the irrigated agriculture, mainstreaming best practices and institutional reform. To support implementation of the PIAIP, a Punjab irrigated agriculture project preparation facility (PIAPPF) will be developed as part of the first project to be funded. The PIAPPF will ensure that (i) forthcoming projects are expeditiously prepared to fully utilize PIAIP resources, (ii) future projects are well designed and meet Asian Development Bank (ADB) guidelines, and (iii) the PIAIP is well managed. It will support (i) reconnaissance; (ii) feasibility studies; (iii) detailed design for the remaining PIAIP projects identified using the selection criteria in the Financial Framework Agreement (FFA), schedule 4; and (iv) capacity development for project management and planning.

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The Lower Bari Doab Canal Improvement Project (LBDCIP), the first PIAIP project, will define the approach and modalities to be used for subsequent PIAIP-supported projects, and therefore define the primary activities to be supported through the PIAIP. Close monitoring and evaluation of the LBDCIP will facilitate the incorporation of lessons into subsequent projects. The Project involves the Lower Bari Doab Canal (LBDC) with a 200 kilometer (km)-long main canal and more than 1,500 km of associated minor and distributary canals that supply irrigation water to more than 700,000 hectares in central Punjab. The system was built between 1914 and 1917, and has become an important agricultural area serving the markets of Lahore and Multan. The LBDCIP has five components and includes the PIAPPF: (i) Component 1: R&U of the Balloki Barrage will (a) allow more

irrigation water to flow to the LBDC main and Balloki–Sulemanki link canals, (b) enhance infrastructure safety, and (c) mitigate flood risks and impacts.

(ii) Component 2: R&U of the LBDC distribution network (includes the main, branch, distributary and minor canals, and field outlets) will increase the capacity to deliver irrigation water efficiently, enhance safety, and fully involve farmer organizations in R&U of their particular distributary and minor canals as well as help execute civil works.

(iii) Component 3: groundwater management will develop management actions to conserve groundwater, provide options for conjunctive use, and establish best practices for salinity and sodicity management to conserve land resources by (a) supporting farmers’ training through farmer organizations and the field programs of the OFWM component (4), (b) establishing a well-drillers training and certification program, and (c) supporting provincial initiatives on groundwater management.

(iv) Component 4: on farm water management and agriculture will develop a field program in every farmer organization area to demonstrate (a) improved field channel layouts resulting in improved irrigation efficiencies; (b) alternative water application technologies and other management techniques optimizing the unit productivity of water; (c) laser controlled land leveling; and (d) conjunctive-use strategies, particularly in saline groundwater areas.

(v) Component 5: institutional strengthening and operation modernization will (a) support formation of farmer organizations to be responsible for operation and maintenance (O&M) of the distributary and minor canals; (b) form irrigation management units to support farmer organizations in undertaking O&M and engineering, groundwater management, OFWM support, agricultural support services, and administration and financial management; (c) support analysis of LBDC’s operation

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procedures, assets, financial flows, staffing, and other management concerns as the basis for an operation modernization strategy for improved management; and (d) support decentralized management of LBDC and its transition to an area water board (AWB) governed by a board with farmer representation.

Rationale Irrigated agriculture in Punjab (i) accounts for 28% of Punjab’s

gross domestic product (GDP) output, (ii) employs 54% of the labor force, (iii) produces 90% of Punjab’s agricultural output, and (iv) uses more than 95% of the water resources. Punjab’s agricultural GDP is 66% of the national agricultural GDP. Irrigated agriculture is crucial to generating higher incomes and attaining Punjab’s targeted 6%–7% growth rate. The Punjab Irrigation and Power Department (PIPD) is responsible for O&M, and management of surface irrigation that covers 8.4 million hectares. PIPD’s infrastructure has an estimated replacement value of $20 billion and includes 13 barrages, 6,429 km of main canals, 31,214 km of distributary and minor canals, more than 58,000 field outlets, 3,228 km of flood embankments, and 33 small dams. The infrastructure has seriously deteriorated due to (i) age (much is nearly 100 years old), (ii) no asset management planning, and (iii) chronic underfunding and ineffective implementation of O&M. The estimated cost of deferred maintenance is about $2 billion; the estimated cost to upgrade the system to modern standards is $3.5 billion. The poor condition of some large infrastructure poses serious risks, yet the deteriorated system more generally means unreliable irrigation service delivery, particularly to the tail ends of the canals. Farmers have adapted to unreliable and inadequate canal water by developing private tubewells. Due to (i) lack of reliable flow measurement devices, (ii) inadequate mobility and communication of staff, and (iii) no accountability for accurate reporting of measurements currently taken, the monitoring of water distribution is weak. System operation is based on antiquated modalities not employing technically advanced contemporary management tools. Staffing levels, positions, and skills mix need to be updated to complement improved infrastructure and optimized operational procedures introduced. PIPD has nearly 50,000 employees who account for more than 65% of the annual O&M budget; many professional staff lack incentives or a dynamic career path and receive compensation considerably below private sector norms. Farmers are dissatisfied with the irrigation service delivery. They (i) have not been involved with system O&M, management, or governance; (ii) are poorly informed of irrigation scheduling and system operation; (iii) see little effect of their irrigation fees in system improvement; (iv) experience little accountability and transparency on behalf of PIPD staff; (v) have no assurances with

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regard to the standard of service delivery; and (vi) have little recourse for grievance redress. Due to this situation, some farmers take more than their share of water, tamper with canals to their advantage, and disregard other rules. Institutional changes that (i) improve transparency and accountability; (ii) align system operation with user needs; and (iii) give users control over systems management are needed, along with improved infrastructure and operating procedures to achieve maximum improvement in service delivery and agricultural productivity. Private tubewells provide over half the irrigation water in some LBDC areas. Yet their rampant, uncontrolled growth compounded by poor drilling has led to falling water tables and associated water quality problems from migration of saline and sodic water into sweet-water areas. Use of low-quality groundwater has led to soil salinity and sodicity, and consequent low-crop yields, particularly in canal tail reaches. In Punjab, most groundwater recharge originates from the surface irrigation system, so management of groundwater and surface water needs to be undertaken conjunctively from both quantity and quality perspectives. The layout of water courses and field channels is inefficient. In many cases, the problem is made more complex through the use of the surface water field channels to convey groundwater. The Government of Punjab, with support from the World Bank, initiated the Punjab Irrigation Sector Reform Program based on the following four pillars: (i) policy reforms to improve irrigation O&M and financial and asset management; (ii) water resource management reforms to improve allocation, transparency, and improved groundwater management; (iii) reforms to improve irrigation quality, efficiency, and accountability through greater farmer participation; and (iv) reforms to encourage introduction of efficient and productive irrigation technologies. Effective implementation of these reforms requires capacity development and strategies for their operationalization at the irrigation system level. The Punjab Irrigation and Drainage Authority (PIDA) Act (passed 1997) establishes (i) farmer organizations to manage the distributary and minor canals, and collect and retain a share of the irrigation fees for O&M, and (ii) AWBs to manage irrigation systems and be governed by a board of farmer members. Initial progress of the reforms was slow in Punjab; however, since 2003 85 farmer organizations and two AWBs have been formed. PIPD has committed to the establishment of 100 more farmer organizations and two additional AWBs. The experience has been positive with strong farmer organizations and improved fee collection and O&M, although a stronger institutional framework is needed to reinforce the process. Conditions are favorable for continued sector reform as (i) Punjab has meaningful reform under way in many sectors and has strong

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economic growth; (ii) the current Government of Punjab is providing strong leadership for reforms and sector investment; (iii) the Government of Punjab is focusing on the irrigated agriculture and water resource sectors; and (iv) ADB, Japan Bank for International Cooperation, and World Bank are actively engaged in irrigation and water resources and aid coordination around a common reform agenda.

Impact and Outcome The PIAIP will result in economic growth and increased

sustainability of water and land resources through improved management of Punjab’s water resources and increased productivity of irrigated agriculture. The outcomes include (i) physical R&U of irrigation infrastructure, (ii) improved practices and strengthened institutional frameworks for ground and surface water management, (iii) modernized irrigation management systems operation and procedures, (iv) reformed and restructured institutions for water resources management and irrigation service delivery, (v) improved financial management and sustainability, and (vi) capacity development to support management and institutional changes.

Program Investment Plan

The overall investment plan for the irrigated agriculture sector in Punjab is estimated at $3.5 billion. The investment cost of the PIAIP to be financed by ADB under the PIAIP is $900 million. The estimated cost of the LBDCIP, the first project under the PIAIP is $281.4 million, including taxes and duties of $15.5 million.

Multitranche Financing Facility

The Pakistan Government asked ADB to extend financing of $900 million over 10 years through a multitranche financing facility (MFF). This financing represents about 26% of the total financing requirements envisaged under the investment plan over the next decade. The ADB funding covers physical and nonphysical interventions. Individual periodic financing requests (PFRs) will be converted into individual or separate loans. The national Government and the Government of Punjab have entered into an FFA with ADB. Pursuant to the FFA, the Government submitted the first PFR for $227.8 million equivalent to ADB, comprising two loans: (i) $217.8 million equivalent from ADB’s ordinary capital resources, and (ii) $10 million equivalent in Special Drawing Rights from ADB’s Special Funds resources (Asian Development Fund). The first PFR is presented to the Board for information together with the FFA. Prior to ADB acceptance of a PFR, ADB will ensure that the Government and the Government of Punjab comply in full with the terms and conditions of the FFA. ADB teams will conduct due diligence on these to ensure they are being satisfactorily adhered to. The minimum amount of each individual PFR or loan request at any one time will not be less than $50 million equivalent.

Financing Plan An MFF of up to $900 million equivalent will provide loans for (i) up

to an aggregate of $890 million equivalent from ADB’s ordinary capital resources (OCR) under ADB’s London interbank offered rate

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(LIBOR)-based lending facility, and (ii) up to $10 million equivalent in Special Drawing Rights from ADB’s Special Fund resources. Each loan will be extended to finance projects subject to submission of related PFRs by the Government. The Government intends to finance the PIAIP with the submission of at least four PFRs. The last loan is expected to be executed no later than 31 December 2015.

Financing Plan ($ million)a

Source

Total ($)

Share (%)

Asian Development Bank 900 26 Japan Bank for International Cooperation 400 11 World Bank 600 17 Others 100 3 Governments of Punjab and Pakistan 200 6 To be identified 1,300 37 Total 3,500 100

a The figures reflect approximate values based on ongoing projects and those in the pipeline. In the case of World Bank and Japan Bank for International Cooperation (JBIC), $300 million to $400 million is proposed as budget support to the Punjab government under development policy loans linked to sector reforms. The category “Others” refers to a proposed JICA grant of $40 million and other assumed bilateral grant cofinancing to the sector including Dutch funding for the Lower Bari Doab Canal Improvement Project. These figures for the sector needs and estimated financing are being updated as part of Punjab Irrigation and Power Department’s asset management plan currently being undertaken as a part of Punjab irrigation.

Allocation and Relending Terms

All loans from OCR and the Special Funds resources will be onlent by the Government to the Government of Punjab at the same terms and conditions as those of the ADB loans to the Government. The Government of Punjab will bear the foreign exchange risk for all loans.

Period of Utilization 31 March 2007 to 30 September 2017 Estimated Program Completion Date

31 March 2017

Executing Agency Punjab Irrigation and Power Department (PIPD) Implementation Arrangements

The Project Steering Committee chaired by the chairman of the Planning and Development Board of the Government of Punjab will provide oversight and policy guidance for the PIAIP, LBDCIP, and all subsequent projects. An investment program planning and management unit (IPPMU) will be established within PIPD’s Strategic Planning Cell that will (i) have responsibility for overall PIAIP management and coordination; (ii) support individual project management units (PMUs) for PIAIP projects; (iii) manage preparation and detailed design of projects under the PIAIP; and

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(iv) monitor, evaluate, and report on PIAIP activities. For the LBDCIP, PIPD will be the Executing Agency. The implementing agencies will be (i) Punjab Irrigation and Drainage Authority (PIDA) for farmer organization formation and capacity building, and (ii) Directorate of On-Farm Water Management (DOFWM) of the Department of Agriculture for the OFWM and agriculture component. A PMU will be established in Lahore with three divisional project implementation units throughout the LBDC. The PMU will be headed by a project director, supported by three PIPD departmental directors. The PMU will (i) recruit all consultants; (ii) supervise the design and construction supervision consultants, and process payments on all contracts; (iii) coordinate and monitor the civil works; (iv) ensure that project works are implemented in accordance with ADB’s safeguard policies; (v) supervise project groundwater management, OFWM, and agriculture initiatives; and (vi) undertake financial management.

Procurement All procurement under the PIAIP and LBDCIP will be undertaken

following ADB’s Procurement Guidelines (April 2006, as amended from time to time). A procurement plan will be prepared for each project under the MFF.

Consulting Services All consultants will be recruited in accordance with ADB Guidelines

on the Use of Consultants (April 2006, as amended from time to time). The Government of Punjab has requested ADB agreement for advance contracting with respect to recruitment of consultants for the LBDCIP and has requested ADB to consider approval of retroactive financing for the consultants. The Government of Punjab has been advised that (i) procedures for advanced contracting are normally used for recruitment of consultants; however, the contract is not signed prior to signing of the loan; and (ii) approval of advanced contracting and retroactive financing does not commit ADB to finance the loan project or recruitment costs. Nongovernment organizations may be contracted or subcontracted to support resettlement activities. Retroactive financing in subsequent tranches of the MFF for eligible expenditures, excepting civil works, may be considered and allowed by management if the request is indicated in a PFR.

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Project Benefits and Beneficiaries

The greatest benefit is improved agricultural production from increased yields, greater cropping intensity, and some diversification into high-value crops. Improved water supply from the system R&U is responsible for this, and the majority of the PIAIP benefits are expected to stem from improved irrigation leading to increased agricultural productivity. The R&U will increase safe distribution capacity from a current maximum capacity of about 248 cubic meters a second (cumecs) to 278 cumecs for the LBDCIP. The analysis takes into account that farmers at the tail end of canals, who have poorer access to canal water and more frequently rely on low quality groundwater, will benefit more from the Project, while those at the head end with better canal and groundwater supply will benefit less. This has important productivity and equity implications. Crops yields are anticipated to increase from about 2% to 7% depending on the existing crop water requirement deficits, with cotton, wheat, and sugarcane seeing the highest gains. Cropping intensity throughout the LBDCIP area is anticipated to increase by about 10% to an annual average of 172%, which will be driven by demographic pressures and further farm fragmentation. The Project, through the OFWM and agriculture component, will help accelerate diversification to high-value crops within the LBDC. The LBDCIP will help mitigate the risk and damage from floods from the Balloki Barrage and its associated infrastructure and from rehabilitation of the LBDC main canals, which have several sections prone to breaching. This infrastructure R&U and development will (i) ensure that the water supply to the rehabilitated LBDC and the cropping areas supplied by the Balloki–Sulemanki Link Canal is secure, (ii) pass moderate floods through a new spillway reducing the needs to breach upstream levies and inundate adjacent areas as is the current practice, and (iii) construct two bridges to allow traffic to pass during and following flood events. R&U and development under the PIAIP is expected to provide similar benefits for barrages and other large infrastructure. More than half the 450,000 farms in the LBDC are less than 2 hectares: for farmers with less than 1 hectare, the Project will yield an 11% rise in income. As a whole, about 275,000 farm families or almost 2 million people will benefit from the LBDCIP. The overall Project provides an economic internal rate of return of 19.2% and a financial internal rate of return of 16.1%. The institutional changes supported by the Project will also provide important benefits including (i) more sustainable O&M; (ii) improved monitoring, measurement, and management of water distribution; and (iii) irrigation service delivery that is more responsive to farmers’ needs.

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Risks and Assumptions

Commitment to Reform. The Government of Punjab has shown its commitment to reform through development of the Punjab Irrigation Sector Reform Program as well as through on the ground action and establishment of farmer organizations and AWBs. The MFF ensures long-term engagement by ADB with multiple projects to work with the Government of Punjab to evaluate and strengthen sector reforms.

Robust Farmer Organizations. Development of effective farmer organizations to support sustainable O&M is key to the project outcome. To ensure effective farmer organizations, the Project will support (i) comprehensive training, (ii) facilities and equipment to bolster farmer organization capacity, (iii) irrigation management units to ensure requisite technical support for O&M, and (iv) allocation of an increased abiana (irrigation service fee) share if needed to ensure financial sustainability for farmer organizations. Utilization of Funds. To address the risk that program funds will not be fully or effectively utilized, provision is provided for (i) establishment of a dedicated IPPMU for project preparation, (ii) the PIAPPF with detailed terms of reference to prepare subsequent PIAIP projects supported by $10 million from the Asian Development Fund, (iii) a dedicated PMU for each project, and (iv) the MFF modality, which allows IPPMU and PMU staff to gain experience from each project undertaken so that implementation will improve as the program progresses.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed multitranche financing facility to the Islamic Republic of Pakistan for the Punjab Irrigated Agriculture Investment Program. The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. Water resources and irrigated agriculture are vital to Punjab, and their improved management and productivity are fundamental to continued economic development. Irrigated agriculture (i) accounts for 28% of Punjab’s gross domestic product (GDP) output, (ii) employs 54% of the labor force, (iii) produces 90% of agricultural output, and (iv) uses over 95% of the water resources. Punjab provides about 58% of the national GDP, and 66% of the national agricultural GDP. Irrigated agriculture is crucial to generating higher incomes and attaining the targeted 6%–7% growth rate for Punjab (Appendix 2). The Midterm Development Framework of the Government of Punjab identifies the total outlay for the irrigation sector at $142 million in 2006/07, a 21% increase over the sector’s allocation for 2005/06 and accounts for 13% of the core Annual Development Program for Punjab (2006/07). The projected outlays for the sector in 2007/08 and 2008/09 are $200 million and $267 million, reflecting annual increases of 41% and 33% (includes both foreign and domestic sources of funds). 3. The Indus River canal irrigation system in Pakistan, of which about 56% lies in Punjab, is the largest contiguous irrigation system in the world. The Punjab Irrigation and Power Department (PIPD) is responsible for operation and maintenance (O&M) and management of the surface irrigation system in Punjab and is the primary agency concerned with water resource management. Irrigated agriculture covers a gross command area of 9.5 million hectares (ha), and has a cultivable command area of 8.4 million ha (Table 1). This extensive infrastructure was initially developed under the British, with a later significant development thrust under the Indus Basin Program during the 1960s, and provides the foundation for irrigated agriculture in Punjab. The replacement value of government-owned irrigation and water resources management infrastructure in Punjab is about $20 billion.1

Table 1: Key Infrastructure of the Punjab Irrigation Systems

Infrastructure Quantity Headworks/Barrages 13 Main Canal Systems 24–6,429 kilometers (km) Distributary and Minor Canals 2,794–31,214 km. Total Off-Take Capacity and Field Outlets 3,399 m3/sec; 58,000 total Gross Command Area 9.45 million ha Cultivable Command Area 8.41 million ha Off-Take Capacity and Length of Link Canals 3,115 m3/sec; 850 km Tubewells 3,544 Length of Surface Drains 9,856 km Length of Flood Embankments 3,228 km Small Dams 33

ha = hectare, km = kilometer, m3/sec = cubic meters/second. Source: Punjab Irrigation Sector Reform Program (Punjab Irrigation and Power Department), March 2006.

1 This does not include Chasma, Mangla, and Tarbela dams, watercourses, or private investment in tubewells.

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B. Analysis of Key Problems and Opportunities

4. Increased Demand. Irrigated agriculture in Punjab is constrained by both technical and institutional factors. Population growth and farm fragmentation has resulted in significantly increased cropping intensities, driving demand for irrigation water far beyond the original design capacity. The systems were initially designed for low cropping intensities of 60%–80% with assumed fallow land. Current annual cropping intensity in Punjab is 122% and in more productive systems such as the Lower Bari Doab Canal, it may reach 200% in some areas. This has led to increasing water supply shortfalls that are exacerbated during drought and because Pakistan has lost nearly 30% in its Indus Basin water storage due to reservoir sedimentation. 5. In the immediate future, kharif season irrigation supplies could become greater as global climate change melts glaciers, which currently provide regular flows to the Indus River. However, in the longer term, shortages will become more severe as glaciers recede and higher temperatures result in increased evaporation from storage reservoirs and higher crop water requirements. Under this scenario, groundwater recharge and sustainable aquifer yields will also decrease. Surface and groundwater pollution is an increasing problem with little effective regulation resulting in untreated industrial and municipal effluent discharged into rivers and surface drains, contaminating surface water, and potentially rendering the underlying groundwater unfit for potable use. 6. Irrigation Infrastructure Deterioration. While the irrigation and water management infrastructure has provided a seminal development change for Punjab, the condition of much of the infrastructure has seriously deteriorated due to (i) age (much is nearly 100 years old), (ii) lack of asset management planning, and (iii) serious underfunding and ineffective implementation of O&M. In 2006, PIPD conducted an inventory of irrigation infrastructure assets to develop a management plan to comply with the recently approved Punjab Irrigation Sector Development Policy loan.2 The infrastructure needs significant investment, and the estimated cost of deferred maintenance is about $2 billion. To rehabilitate and upgrade the system and its structures for enhanced water management, efficiency, and equity, the cost is estimated at $3.5 million. The poor condition of some large infrastructure including barrages and main canals poses failure risks and potential civil damage. In most instances, the deteriorated system condition translates to unreliable irrigation service delivery, particularly at the tail ends of the canals. Farmers have adapted to unreliable surface water irrigation supply by installing private tubewells to increase reliability and augment surface water supplies to meet crop demands. 7. Financial Constraints. Abiana (irrigation service fees) to farmers have not kept pace with inflation and O&M assistance is needed for distributary and minor canal networks, which are more prone to rapid degradation.3 In addition, a low percentage of abiana is collected due to poor service delivery, and inefficient arrangements and lack of incentives for collection. The district revenue department collects abiana as part of the general revenue, rather than allowing it to be retained for canal O&M. This lack of relationship between collection and allocation of funds for O&M compounds farmers’ unwillingness to pay (in addition to poor service delivery). PIPD is currently reviewing the system’s O&M requirements and comparing them with budgetary allocations to assess the adequacy of the budget. A thorough analysis of all financial flows and expenditure requirements is needed to (i) collect information regarding O&M requirements at all operational levels of the system; (ii) provide a basis to guide decision making for improved collection, allocation, and expenditure; and (iii) quantify the benefits to be gained through sector reform and institutional change. 2 The loan, which provides budget support, was approved on 1 June 2006 for $100 million, and is the first of three

tranches that will be processed as individual loans, with the next loan anticipated for approval in 2007. 3 The collection rates are declining; currently only about 47% of the assessed abiana is estimated to be collected.

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8. Irrigation Management Concerns. The measurement and monitoring of water distribution is constrained by (i) degraded canal conditions and lack of recalibration of flow measurement facilities, (ii) lack of design of many structures to accurately measure variable flows, (iii) lack of mobility and communications of staff, and (iv) lack of accountability of accurate reporting. System operation is based on antiquated modalities and does not take advantage of technically advanced management information systems (MIS), improved communications, simulation software, and other contemporary management tools that could increase irrigation efficiency and equity. PIPD has nearly 50,000 employees who account for more than 65% of the annual O&M budget. PIPD professional staff lack incentives and a dynamic career path, and receive compensation considerably below private sector norms. Staffing levels, position descriptions, and skills mix need to be updated. PIPD’s ability to improve system efficiency and equity of water distribution could be greatly enhanced by (i) irrigation structures that increase the ability to measure and manage water distribution, (ii) optimized operational procedures supported with the new technology, and (iii) fewer but better trained staff. 9. The current situation has led to farmer dissatisfaction. Farmers (i) have not been involved with irrigation system O&M, management, or governance; (ii) are poorly informed about irrigation scheduling and perceive the system is not operated in response to their irrigation needs, (iii) see little effect of their abiana on system O&M, (iv) experience little accountability and transparency on behalf of PIPD staff, (v) have no assurances about service delivery standards, and (vi) have little recourse for grievance redress. Thus some farmers take more than their share of water, tamper with the canals to their advantage, and disregard rules. Institutional changes that (i) improve transparency and accountability, (ii) align system operation with user needs, and (iii) give users control over systems and governance at all levels are needed along, with improved infrastructure and operating procedures to achieve maximum improvement in service delivery. 10. Groundwater and Conjunctive Use. Private tubewells provide excellent flexibility for critical watering and supplemental irrigation water; and provide half the supply in some systems. Yet their uncontrolled growth has led to overexploitation of groundwater and falling water tables in many areas.4 This also leads to water quality problems from lateral migration of saline water into sweet-water zones. Indiscriminate use of low-quality groundwater adversely affects soil quality and productivity, particularly in tail reaches of canals where reliance on groundwater is higher due to shortage of canal supplies. Many areas suffer from secondary soil salinity and sodicity, and consequently crop yields are low. In the Punjab irrigation systems, almost all groundwater recharge originates from the surface irrigation system, so management of groundwater and surface water needs to be undertaken conjunctively from both quantity and quality perspectives. Likewise, farmers use both surface and groundwater for irrigation, often blending brackish groundwater with high-quality canal water. They need information on options to optimize conjunctive use and sustainably manage both groundwater and land resources. 11. On-Farm Water Management. Distribution and field application of water below the canal outlet provides an opportunity to improve productivity and sustainable management of land and water resources. The layout of water courses and field channels is often inefficient; the problem is made more complex through the use of the surface water field channels to convey groundwater. Farm distribution systems need to be designed to take advantage of both water sources to support conjunctive-use objectives. Laser land leveling and improved irrigation application techniques tailored to crop, soil, and growing conditions would greatly increase irrigation efficiency. Similarly, improved irrigation technology such as drip and sprinkler systems show tremendous promise to increase productivity and water use efficiency of high-value crops. 4 In many cases, wells may be drilled and constructed improperly, resulting in inefficient operation and increased

salinity.

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C. Institutional Reform and Lessons Learned

12. Framework for Sector Reform. Reform in the irrigated agriculture sector in Punjab is moving forward. The irrigation sector vision set forth in Punjab’s Vision 2020 (from the Midterm Development Framework) is to “provide adequate, equitable and reliable irrigation supplies to the cultivable lands of Punjab, aiming at enhanced agricultural productivity and sustainable development with focus on holistic management and broad based reforms.” The Government of Punjab has initiated the Punjab Irrigation Sector Reform Program (PISRP), which is supported by the World Bank’s Punjab Irrigation Sector Development Policy loan and a corresponding policy matrix with comprehensive policy actions. The PISRP is based on four pillars: (i) institutional and policy reforms to improve irrigation system management and O&M to ensure long-term physical and financial sustainability; (ii) water resource management reforms to make water allocation and distribution more transparent and improve groundwater management; (iii) reforms to improve irrigation service quality, efficiency, and accountability through greater participation of farmers and institutional reforms; and (iv) reforms to encourage introduction of technology to improve water use efficiency and on-farm productivity. Adoption of these reforms requires capacity development and effective implementation strategies at the system level. 13. Institutional Change. The Punjab Irrigation and Drainage Authority (PIDA) Act (July 1997) (i) established PIDA as a separate entity from PIPD for decentralized irrigation management; and (ii) provided for (a) farmer organizations to manage the distributary and minor canals, and collect and retain a share of abiana for O&M, and (b) area water boards (AWBs) to manage main canal irrigation systems and be governed by a board of directors with farmer members. The formation of PIDA and associated institutional changes were part of reforms associated with the National Drainage Program (NDP), a multi-provincial project funded by ADB, Japan Bank for International Cooperation (JBIC), and World Bank (Appendix 3 presents external assistance to the sector). Initial progress of the NDP reforms was limited; no farmer organizations or AWBs were established. However, since 2003 in the Lower Chenab Canal (LCC) East, 85 farmer organizations have been formed and an AWB established as part of an irrigation rehabilitation project financed under the NDP.5 PIPD has also committed to establish 100 more farmer organizations and two additional AWBs in 2006/07 as part of the PISRP.6 As of 2006, the experience of farmer organizations in the LCC has been positive, with higher collections for abiana and improved management and O&M of the distributary and minor canal. However, the AWB in the LCC plays an advisory role with no farmer representation yet, and PIPD still maintains management of the rest of the system. Although significant progress is being made, a strengthened institutional and legal framework for farmer organizations and higher level reforms for decentralized management would support the process.7 14. Conditions for Reform. International experience indicates that current conditions in Pakistan support advancement of institutional reform and their progress can be accelerated through ADB support that builds on lessons from Pakistan and globally. Reform in a single sector is more likely to succeed in the context of overall reform, and Punjab is presently in a much more progressive state, with meaningful reform under way in key sectors with far stronger economic 5 The LCC East project is financed by JBIC. It was initiated using NDP funds during the latter stages of the NDP in

2002 with the condition of farmer organizations being formed as a requirement for civil works. In 2006 JBIC started the LCC West project under separate funding.

6 Notification to form farmer organizations and establish an AWB in the Lower Bari Doab Canal (LBDC) was given on 11 July 2006, specifying the PIPD superintending engineer for the LBDC Circle as its chief executive officer.

7 The Government of Punjab has committed to (i) development of a strengthened irrigation management transfer agreement and amended rules for farmer organizations and AWBs for the Government of Punjab’s consideration by 30 June 2008, and (ii) development of options for sources of legal authority for farmer organizations independent of PIDA or the PIDA Act to be submitted for consideration to the Provincial Assembly by 31 December 2008.

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performance than during the NDP. Current political leadership in the Government of Punjab is providing a catalytic dynamism for reforms with focused attention on investment and improved productivity of the irrigated agriculture and water resources sectors. Importantly, the Government of Punjab through the PISRP is leading the reform effort with on the ground action. PIPD is effectively coordinating the support of ADB, JBIC, and World Bank around a common reform agenda; continued development partner engagement will help keep the reform process moving forward. 15. Lessons Learned. In addition to the less favorable climate for reform, the NDP faced challenges relating to implementation and design. As an umbrella project, the NDP attempted to institute reforms throughout the country instead of exerting more focused effort in a targeted area or province. The NDP included civil works, but did not provide a comprehensive rehabilitation program carried out with appropriate farmer involvement targeted at turning over fully rehabilitated and upgraded distributary and minor canals for farmer management. Capacity development and institutional change for farmer organizations and the provincial irrigation departments were new activities under the NDP and consultant recruitment to support these efforts was significantly delayed. Currently, PIDA is directly engaged in forming farmer organizations and has a strong mandate to mobilize more. The NDP also did not provide a clear transition strategy for irrigation departments to shift to the new management paradigm nor did it address the details of issues such as staff displacement, staff reporting, financial flows and sustainability, or improved management and system operations. 16. ADB has not been engaged in irrigation lending in Pakistan since the NDP. However, ADB’s reengagement with irrigated agriculture in Punjab is supported by recent sector developments and current conditions, ongoing sector reform, and a pragmatic approach supported by lessons from the NDP and from irrigation reform across Asia: (i) reforms in the irrigation sector need to be comprehensive and address interrelated issues simultaneously; (ii) reforms require the commitment of affected agencies, and wide commitment and acceptance by all stakeholders; (iii) institutional changes should be implemented and reinforced through concurrent development of physical infrastructure; (iv) capacity building for all institutions and stakeholders is essential; (v) development and participation of farmer organizations and farmers are vital elements of reform; and (vi) a focus on project management is essential to (a) strengthen administrative capacity for effective implementation, (b) ensure safeguards, and (c) develop effective monitoring and evaluation systems. ADB’s experience with farmer organizations shows that (i) farmer organization development and reform is a long-term process, (ii) farmer organizations need to be involved in all aspects of irrigation development (including rehabilitation) and management for sustainable O&M and improved service delivery, (iii) executing agencies require focused engagement and capacity development to create effective farmer organizations, and (iv) an emphasis on financial resources and O&M is necessary for sustainable improvements. All these factors support a substantial, sustained long-term investment program with linked reforms in irrigated agriculture to support continued economic growth. The multitranche financing facility (MFF) provides an excellent modality to support this long-term approach and incorporate lessons into project design. From a broader development perspective, strong engagement in the water sector in Pakistan is supported by (i) the ADB Pakistan country strategy and program,8 which identifies water as one of the key areas for economic development; (ii) ADB’s Medium-Term Strategy II, which lists investment in water resources as a core ADB activity; and (iii) the national Government and the Government of Punjab, which both identify investment in irrigation and water management as a priority for Pakistan for economic development and poverty reduction.

8 ADB. 2005. Country Strategy and Program Update (2006–2008): Pakistan. Manila.

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III. THE PROPOSED INVESTMENT PROGRAM

A. Impact and Outcome

17. The Punjab Irrigated Agriculture Investment Program (PIAIP) will result in economic growth and improved sustainability of water and land resources. This will be achieved through improved management of Punjab’s water resources and resulting increased productivity of irrigated agriculture. The outcomes from the PIAIP and its investment projects include (i) physical rehabilitation and upgrading (R&U) of irrigation infrastructure, (ii) improved practices and strengthened institutional frameworks for surface and groundwater management, 9 (iii) modernized irrigation management systems operation and procedures, (iv) reformed and restructured institutions for improved and sustainable irrigation service delivery, and (v) capacity development at all levels to support the management and institutional changes. The approach to implementation of projects supported under the PIAIP is based on integrating components to achieve these outcomes. This approach combined with sustained ADB engagement through the MFF modality will have a transformative effect on the entire sector. 18. The PIAIP is based on the principle that physical and nonphysical investments must work together for effective development of the irrigated agriculture sector. The PIAIP will use infrastructure development as means to achieve policy reform by facilitating meaningful changes in practice at the field level. The four pillars of the PISRP (para. 12) provide an excellent basis for addressing current problems in irrigated agriculture. The value added of the PIAIP will be to implement PISRP policies along with other institutional reforms at the irrigation system level on a widespread basis in Punjab. This requires development of procedures and implementation arrangements, and mandates mobilization of resources to translate recommended policy reforms into action at the farmer level. At the same time, the PIAIP will help support a strengthened legal and institutional framework to deepen the reform process. 19. The PIAIP strategy is to use the activities and modalities developed through preparation of the Lower Bari Doab Canal Improvement Project (LBDCIP), the first project investment under the PIAIP, as a model for replication in other canal systems within Punjab. The LBDCIP components and their implementation arrangements will be replicated in subsequent canal projects and thus the LBDCIP provides a comprehensive example that defines the PIAIP’s activities and objectives. The program and project staff will closely monitor LBDCIP as a basis for improving design and implementation of successive projects. The MFF modality facilitates incorporating lessons identified throughout the PIAIP to enhance development effectiveness. 20. ADB Special Funds resources are provided with the first tranche as a part of LBDCIP funding to establish the Punjab irrigated agriculture project preparation facility (PIAPPF) to support timely preparation of the remaining investments under the PIAIP. The subsequent project investments include the (i) Pakpattan Canal (about 550,000 hectares [ha]) and Sulemanki Barrage, (ii) Thal Canal (about 800,000 ha), (iii) Sidhnai Canal (about 330,000 ha), and (iv) Trimmu and Punjnad barrages. The second tranche is anticipated to include civil works for the (i) Pakpattan main canal; (ii) Sulemanki Barrage; (iii) Trimmu Barrage; and (iv) development of farmer organizations in the Pakpattan, Sidhnai, and Thal distribution networks. The third tranche is anticipated to include civil works for the majority of the distributary and minor canals in the

9 The Government of Punjab has committed to (i) a process and framework for multistakeholder discussions to review

water sector institutions for management of the water resources and service delivery by 30 April 2007, assessing sector concerns including (a) resource management for surface and groundwater, (b) irrigation and drainage service delivery, (c) flood control, (d) water quality, (e) hydropower, and (f) water supply and sanitation among others; and (ii) development of an overall water sector road map and action plan with time-bound milestones and action plan in place by 30 April 2009.

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Pakpattan, Sidhnai, and Thal command areas. The fourth tranche is anticipated to include the remaining distributary and minor canals and Punjnad Barrage. 21. The Pakpattan (and Sulemanki Barrage) and Sidhnai canals are similar to the Lower Bari Doab Canal (LBDC) and are located adjacent to the LBDC in the Multan Zone of PIPD. Once all these canals are addressed through the PIAIP, they will form a large contiguous block of irrigation systems with (i) vastly improved infrastructure, (ii) reformed irrigation service delivery institutions, and (iii) enhanced management and O&M practices that will provide a critical mass to facilitate adoption of best practices in other systems. The Thal Canal and Trimmu and Punjab barrages are in urgent need of R&U; the PIAIP will substantially improve the physical performance and safety of these facilities while supporting institutional reforms for the Thal Canal system. 22. The PIAIP outputs will impact between 25% and 30% of the irrigated land in Punjab (about 2.3 million ha), starting with the LBDCIP. Due to the investment size and duration of sector engagement provided through the MFF, the PIAIP will facilitate mainstreaming of institutional reforms, new modalities for service delivery, and improved water resource management into the irrigated agriculture sector in Punjab. B. Outputs

1. Lower Bari Doab Canal Improvement Project 23. The LBDC was built between 1913 and 1917 and is located between Lahore and Multan. The Balloki Barrage on the Ravi River diverts water into the LBDC head regulator and the Balloki–Sulemanki Link Canal.10 The LBDC main canal stretches over 200 km and supplies water to about 1,500 km of distributary and minor canals, which feed about 3,500 outlets to irrigate over 700,000 ha. Approximately 275,000 farm families derive their livelihoods directly from crops grown in the LBDC command area including wheat, rice, maize, cotton, sugarcane, fodder, flowers, vegetables, and citrus and other orchard crops. LBDC is an important and progressive agricultural area in Punjab and offers significant potential for increased productivity. The LBDCIP takes a holistic view of sector improvement for water resources and irrigated agriculture that includes (i) R&U of infrastructure, (ii) improved management of groundwater, (iii) improved practices for on-farm water management (OFWM) and irrigated agriculture; and (iv) capacity building, sector reforms, and institutional strengthening. The LBDCIP contains the following five components along with the PIAPPF.

a. Component 1: R&U of the Balloki Barrage Complex 24. The Project will (i) support development of detailed designs and execution of civil works for R&U of Balloki Barrage, the LBDC head regulator, and the Balloki–Sulemanki Link Canal head regulator; (ii) construct a spillway and associated bridges to mitigate flood risks and damages; and (iii) prior to the civil works, undertake a hydrological analysis to identify upstream effects of the Thein Dam in India, and natural and handmade changes to the Ravi River channel to guide infrastructure design and system operation (ponding levels, etc.) of the Balloki Barrage, with respect to probabilities and magnitude of flood flows.11

10 The majority of the Ravi River flows are diverted upstream in India, and only about 5% of the water diverted at

Balloki annually originates from the Ravi itself. The bulk of the water supply diverted to LBDC at Balloki comes from other link canals, which convey water to the barrage from Mangla Reservoir and the Jhelum and Chenab rivers.

11 Results of the analysis will be tested with the physical model at the Research Institute at Nandipur. River morphological studies will be conducted to support R&U of the Balloki Barrage Complex.

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25. Balloki Barrage. Balloki Barrage will have upstream sediment deposition and a small stone-pitched island removed to improve flow. To preclude the recurrence of sedimentation, guidewalls will be constructed above and lead to designated clusters of bays on the right side of the barrage, so that each group can be operated independently to route low flood flows through the individual channels created by the guidewalls, transporting sediment downstream of the barrage. Electomechanical equipment will be upgraded, including installation of motors to operate gates. The barrage R&U package will include new piezometers to monitor uplift pressures, grouting, downstream bank protection, friction blocks to improve energy dissipation, repair to the stone masonry, and strengthening of the downstream apron. 26. Head Regulators. The Balloki–Sulemanki Link Canal has a water allocation of 694 cubic meters/second (cumecs); however, passing this flow through existing structures poses operating risks. The LBDCIP will support development of an additional head regulator adjacent to the existing head regulator to safely deliver supplies to 694 cumecs. To improve the existing Balloki–Sulemanki Link head regulator, the Project will support grouting under the weir crest, an additional sheet pile cutoff downstream, and extension of the stone apron downstream. The LBDC head regulator was renovated in the 1960s and requires no structural changes; yet will be equipped with motors for gate operation and undergo grouting, plastering, and other remedial works. 27. Flood Improvements. The LBDCIP will provide a concrete spillway with a design capacity of about 1,416 cumecs adjacent to the right side of the barrage. This will pass intermediate flood flows, reduce the risk of damage to the barrage, and significantly reduce the need to breach the upstream flood levies to inundate local areas during flood events as is the current operating procedure. Additional earth works will integrate the spillway into the existing river levy network and ensure flood flows are properly directed to the spillway. The spillway will channel flood flows around the barrage and back to the river. Two vehicle bridges crossing the spillway and an auxillary flood channel will be constructed on the right side of the barrage to carry traffic on the Balloki–Faisalbad road that crosses the Ravi River on the Balloki Barrage. Together, these measures safeguard the barrage and mitigate resulting floods to both the roadway and adjacent land between the spillway and the river.

b. Component 2: R&U of the LBDC Canal Network 28. The entire LBDC system including the main, branch, distributary, and minor canals will have R&U to address deterioration from age and deferred maintenance, and to ensure their capacity to safely distribute the full sanctioned discharge of 278 cumecs at the head of the LBDC main canal.12 An important outcome of the LBDCIP is to significantly upgrade the ability to measure, monitor, and control canal flows to improve water management and enhance equity between the head and tail of the distribution system. The need for improved control is heightened by the marked seasonal fluctuations in water deliveries at the head of the LBDC and the expanded command area. These infrastructure improvements along with improved management methods using modern technology and updated procedures, and institutional reforms for decentralized management will support significantly improved operation and more efficient water use. Two subprojects were prepared to feasibility during project preparation, 15-L and Jhandraka distributary canals, which were used to develop the R&U approach for the distributary and minor canals. These two canals will have detailed designs prepared and be contracted immediately at the start of the LBDCIP. 29. LBDC Main Canal. The LBDC main canal will be excavated, reshaped, and enlarged in some areas to redress sediment deposition and deterioration of the original profile, which 12 The system was designed in 1914 for a maximum discharge of 248 cumecs to irrigate 570,000 ha.

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constrict capacity and encroach on canal safety. Berms and canal banks will be strengthened, especially in areas prone to breaching, and emergency escape capacity increased. Brick lining will be used rather than widening the earthen section to support the increased flows while minimizing land acquisition and disruption to populated areas. 30. The LBDCIP will rehabilitate numerous main canal structures including 55 distributary head regulators, 20 fall bridges and fall flumes, 14 road bridges, numerous direct off-takes, an aqueduct, drainage siphons, and other structures. Most new head regulators will be the constant head orifice type that allow easy and accurate flow measurement and improved water control, and are key to improved management in the upgraded system. Twenty existing brick and masonry bridges with drops will be replaced with new reinforced concrete structures. Gated cross regulation will be incorporated in a number of structures enhancing control in diverting discharges to off-taking canals. Upstream and downstream sections of the fall structures will be replaced and energy dissipation enhanced for improved safety. Except where load and roadway width requirements have greatly increased, road and footbridges not serving hydraulic functions will be retained and strengthened. New structures crossing the main canal will require temporary diversion of all or part of the main canal flow. Adequate contracting capacity and equipment will be available to ensure that construction activities for the main canal can be completed over two to three seasons during normal canal closure periods or extended closures with adequate notification and no impacts. 31. The Distribution Network. The condition of distributary and minor canals is inferior to the main canal due to high sediment deposition, substantial buffalo trespass, and less assiduous maintenance. Extensive earthworks for reshaping are required in some areas, and buffalo ghats will be constructed.13 Head regulators with higher crests and, where possible, increased canal gradients and narrowing of canals will be used to pass sediment loads more effectively to the fields. Canal lining will be provided in saline groundwater areas to prevent seepage and to supply more canal water to these farmers where fresh water is needed for mixing with groundwater, leaching, and land reclamation. About 20% of the distributary and minor canal length will be lined, using concrete over a geomembrane protected by geotextile. 32. Structures for distributary and minor canals will include gated constant head orifice regulators at the head of the channel and additional structures including weirs to ensure equitable distribution and eliminate the need for gate operation. To ensure maximum operating efficiency and minimize sediment deposition, discharge through the distributary and minor canals will be maintained at between 80% and 105% of their design discharge. Head regulators in the minors will be the constant head orifice type except in tail reaches where flumes will be used at the head of the off-takes due to small discharges. Measurement capacity will be increased through improved structures at the head of the canal and the use of measuring flumes in the tail reaches. All outlets from the canals to the field distribution network will be replaced with structures that ensure equitable distribution and adjusted to maximize sediment passage. Bridges, village access for washing, and other minor infrastructure throughout the distributary and minor canal network will undergo R&U or be newly constructed.14 33. R&U and Farmer Organization Participation. A vital project activity is the integration of the institutional development of farmer organizations and their direct involvement in the R&U process for their particular canal.15 Important outputs from this process include (i) the opportunity for farmer organizations to develop their management capacity and social capital, (ii) a sense of

13 Buffalo ghats are designated areas for buffalos to wallow to prevent damage to the canal. 14 In the cases of bridges, washing access areas, and other small canal-related infrastructure in or near villages,

women’s committees will be formed and consulted regarding the location and design of the structures. 15 No R&U will take place in canals prior to the formation of farmer organizations.

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ownership over their canal, and (iii) hands-on experience to teach O&M skills for use as they take control to manage the system. The Project will ensure the following farmer organization participation: (i) farmer organizations will identify and propose civil works on the basis of a system walk-through with project management unit (PMU) consultant staff; (ii) PMU consultants will carry out surveys and design in consultation with the farmer organizations; and (iii) farmer organizations will be part of a PMU staff and PIPD committee that will facilitate dialogue, feedback, and if necessary, actions to address the concerns of the farmer organization with the R&U. The walk-through will also be used to identify small-scale civil works that are within the farmer organization’s capacity to execute under community contracting with appropriate supervision as a means of generating additional revenue, leverage R&U resources, and contribute to farmer organization development. These works will be included in the larger civil works contracts for the distributary and minor canals. 16 Procedures for farmer organization participation will be refined in the two initial subprojects, 15-L and Jhandraka.

c. Component 3: Groundwater Management 34. The LBDCIP will support a comprehensive approach to groundwater and conjunctive-use management that includes (i) improving the knowledge base and research, (ii) policy planning, (iii) awareness raising, (iv) targeted interventions and improved practices, and (v) monitoring and evaluation. Although data exists from agencies such as the Water and Power Development Authority, Directorate of Land Reclamation (under PIPD), and Public Health Engineering Department, it has not been collected regularly with consistent protocols and coordinated under a single agency. The Project will establish a cell within the PMU to collect, manage, and analyze groundwater data in LBDC starting with compilation of historical data and identification of existing monitoring wells to initiate development of a quality and quantity groundwater model. Additional wells that provide water quality samples as a function of depth will be developed as needed to enhance the model’s accuracy; this may be supported by other remote sensing or assessment techniques. Wells for controlled pumping tests aimed at quantifying aquifer characteristics will be constructed at sites within the LBDC command. A comprehensive geographic information system database will be developed to support groundwater management and all project activities.17 Although, the primary groundwater activity will address agriculture water issues, potable supply wells will be addressed for monitoring and analysis. An important part of the activity will be to monitor the impacts of project interventions to improve the knowledge base to support comprehensive groundwater management. 35. The analysis and modeling of groundwater provide the opportunity to confirm trends in water table fluctuations during and after project implementation to identity areas at risk where interventions are needed. The groundwater component will develop policies and management actions for farm and canal command to address agricultural issues, as well as coordinate with PIPD’s provincial groundwater management cell and address aquifer and provincial groundwater concerns.18 Due to the size of the LBDC and the number of tubewells, the initial policy approach will be one of awareness and education. An important output of the groundwater component will be to work with the PMU and provincial officials to develop farm strategies and interventions for groundwater management and conjunctive use (including alternative technologies, e.g.,

16 The LBDCIP will support a pilot trial for full farmer organization management of civil works in a small and technically

appropriate minor or distributary canal undergoing R&U later in the Project. The farmer organization participation will be supported by the PMU. This experience could be replicated later under the PIAIP in subsequent canals.

17 Although the geographic information system will be developed under the groundwater component, the geographic information system database will be expanded and managed by the PMU as a general management tool for all project activities.

18 A provincial groundwater cell within PIPD is being established under the Punjab Irrigation Sector Development Policy loan.

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skimming wells). These practices and interventions will be (i) demonstrated independently, (ii) incorporated into the Project’s field programs under the OFWM and agriculture component, and (iii) disseminated by other stakeholders and scaled up and implemented by the irrigation management units (IMUs), farmer organizations, and other stakeholders. 36. Given the rapid growth of tubewells, a pivotal leverage point is the well-drilling industry. Technical drilling specialists will work with the drilling community to observe current practices, create training programs, develop a certification program, and make recommendations for a regulatory framework to govern the drilling industry. Field and classroom training will be provided for drillers and other stakeholders, along with a certification program targeting both drillers and farmers. 19 Materials and programs targeted at farmers will be developed to increase their knowledge of well technology, drilling practices, and the certification program to make them better informed consumers of drilling services. These materials and a list of certified drillers where applicable will be distributed through the IMUs, farmer organizations, and other channels.

d. Component 4: On-Farm Water Management and Agriculture 37. The OFWM and agriculture component will ensure that improved water delivery through canal systems is complemented by improved water management at the field level and results in higher agricultural productivity. This component will support development of field programs on selected watercourses in the service area of each farmer organization. Each field program will include a 40 ha area that combines (i) improved field channel layout and operation of the water course, including application of conjunctive use strategies, particularly in saline groundwater areas where mixing or alternating surface and groundwater irrigations is required; (ii) practices for improved application efficiency, scheduling irrigation based on crop water requirements, and other management techniques to maximize production per unit volume of irrigation water; and (iii) laser leveling. This approach will provide an opportunity for farmers to observe best practice and ensure a strong linkage between the groundwater component and the OFWM and agriculture component to (i) disseminate conjunctive use strategies, (ii) demonstrate alternative irrigation technologies reliant on groundwater, and (iii) monitor impacts. The OFWM activities will be implemented by the Directorate of On-Farm Water Management (DOWFM), a part of the Department of Agriculture, which will have staff in each of the IMUs. 38. The component will establish demonstration plots employing drip and sprinkler irrigation technology within the field program areas. Selection of the field program areas will depend upon existing cropping patterns that can benefit from these technologies and must be targeted at a range of farmers, especially those who can readily adopt these practices. Involvement of private sector and other service providers who can work with farmers to develop strategies to scale up these applications will be facilitated through the Project. 39. The LBDC command area has relatively progressive farmers, a growing percentage of diversified and higher value crops, and good access to markets in Lahore and Multan. The LBDCIP will demonstrate the benefits of improved inputs for increased productivity, integrated pest management techniques, polythene tunnels and seed beds for early vegetable production, postharvest activities, and other production and management options. Field program agricultural activities will be developed to provide strategies for saline or sodic soils. They will provide an opportunity to observe a range of improved agricultural practices, OFWM and conjunctive-use strategies, and advanced irrigation technologies in a single location throughout the LBDC. The

19 Findings from project preparation indicate that many wells are spaced inappropriately, completed and screened at

the wrong depth with inappropriate perforation size and pattern, constructed using inappropriate materials, and are generally of poor quality.

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Project will support farmer and farmer organization exchanges and training courses to help ensure farmers’ exposure to improved practices and build capacity.

e. Component 5: Institutional Strengthening and Operation Modernization

40. To derive maximum benefit from the LBDC system R&U, institutional reforms and capacity development for irrigation O&M and management are required. The Project will support (i) development of farmer organizations and supporting IMUs, (ii) modernized operation and management methods, (iii) effective and accountable decentralized management through an AWB, and (iv) enhanced capacity for all stakeholders. 41. Khal Panchayats. At the water course level, the LBDCIP will support development of khal panchayats, water user associations. PIDA, with support from the PMU and project consultants, will develop and implement a mobilization program for the approximately 3,200 water courses in the LBDC.20 The mobilization program will (i) include awareness raising of the farmer organization program objectives, and rights and responsibilities; (ii) identify khal panchayat members and conduct elections for officers; (iii) establish management procedures for khal panchayat officers; and (iv) select a khal panchayat chairperson who will represent the khal panchayat in the farmer organization and be responsible for khal panchayat abiana collection. 42. Farmer Organizations. Formation of 60 to 70 farmer organizations on the distributary and minor canals of the LBDC is a fundamental project output.21 Following mobilization of the khal panchayats and formation of the farmer organizations, a farmer organization management committee will be formed and intensive training for farmer organization members provided.22 The Project will fund establishment costs and office renovation for farmer organizations; the Government of Punjab will provide office space for each farmer organization from existing PIPD or other Government of Punjab facilities. The Project will support development of a comprehensive and explicit service agreement between the farmer organizations and AWB that transparently specifies the responsibility, authority, accountability, and actions to be taken should either party fail to fulfill its obligations. 43. Irrigation Management Units. To ensure successful execution of farmer organization responsibilities, IMUs will be developed and supported. The IMUs will report to a committee of farmer organization members they serve and provide requisite professional capacity to manage the distributary and minor canals. The IMUs will be formed concurrently with the farmer organizations, and support farmer organization participation in the minor and distributary R&U to facilitate the process and develop skills to manage the system. The IMUs will respond to needs of the khal panchayats and farmer organizations, and provide the following technical services: (i) O&M and engineering guidance for minor and distributary canals; (ii) groundwater, conjunctive-use, and OFWM strategies; and monitoring of these activities; (iii) agricultural services; and (iv) 20 The Project will coordinate efforts and where feasible build upon work already undertaken by the DOFWM, which is

implementing the National Program on Watercourse Improvement to improve water courses and field channels. This program provides legal registration of water user associations often having the same members as the khal panchayats.

21 The general principle is that farmer organizations will be formed according to hydrologic boundaries and the average size will be about 10,000 ha. However, in very large distributary canals, multiple farmer organizations may be formed along various reaches of the canal with a federated structure for management.

22 The farmer organization will have a general body consisting of all the khal panchayats chairpersons and elect a management committee consisting of a president, vice president, secretary, treasurer, and five executive members with three from the tail reaches. Each farmer organization will develop a communication plan to provide information to the khal panchayats. Standing committees for ongoing functions of the farmer organization may be formed, and maintenance plans, financial management plans, and other plans will be developed.

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administration and financial management including billing and record keeping for abiana. About 12 IMUs will be established in the LBDC command, each supporting six or seven farmer organizations. The IMUs will provide the technical interface on behalf of the farmer organizations with the AWB for scheduling, rotation, and other operation and management functions of the main and branch canals that affect delivery to the distributary and minor canals. 44. The Project will enable IMUs to fulfill their role through training and provision of essential equipment, including (i) basic office equipment and computers, (ii) technical equipment for O&M, (iii) vehicles, and (iv) communications to ensure responsiveness. The Government of Punjab will provide office space for each IMU from existing PIPD or other Government of Punjab facilities. The IMUs will employ qualified technical staff dedicated to serve the farmer organizations achieving economies of scale, precluding the need for each farmer organization to expend excessive funds to support staff for its particular service area.23 IMU staff will be hired by the farmer organizations with PIDA and PMU assistance. Staff will initially be supported with project funds that will eventually decline and be replaced with the farmer organization’s abiana share. Each IMU will be assigned a DOFWM officer, who will be responsible for managing the field programs in each the member farmer organization and provide OFWM service within the IMU service area. One PIDA staff member will also serve in the IMU to provide ongoing training and coordination. 45. Farmer Mobilization and Training. The mobilization of the khal panchayats and farmer organizations, and training of the farmer organizations and IMUs will be provided through three farmer organization support offices located at the project implementation units (PIUs). PIDA will maintain a project management office (PMO) in Sahiwal for overall coordination. The farmer organization support offices will manage the farmer organization and IMU training program that will include (i) institutional overview, and roles and responsibilities of stakeholders in the irrigation sector; (ii) administrative management; (iii) financial management; (iv) water charge assessment and billing procedures; (v) system maintenance; (vi) gender; and (vii) system operation and water management. Consultant support will strengthen PIDA’s training and program delivery with specialists who have international experience. Training of farmer organizations will be independently evaluated including performance-based benchmarking of farmer organizations and PIDA. 46. Operation Modernization and Change Management. For the main canal, the Project will support an analysis of all LBDC management and operation procedures to develop a strategic plan to transform the AWB for the LBDC into a more efficient and responsive organization. The strategy will define an operation and management improvement process based on the principles of decentralization, transparency, accountability, and efficiency. The initial activities will involve analysis of (i) the LBDC AWB’s institutional mandate and activities; (ii) all operation procedures including financial management, procurement, O&M, monitoring and evaluation, water distribution, and other activities; (iii) current staffing assignments and future human resource needs in light of the (a) system R&U, (b) updated management procedures, (c) the goal to improve staff capacity and revitalize a culture of corporate professionalism, and (d) the use of improved information technology and MIS; and (iv) financial and asset management.24

23 A PIDA study found that an area greater than 40,000 ha is required for a technical manager to be financially viable. 24 A detailed financial analysis will be undertaken to (i) identify fund flows throughout the system, (ii) assess O&M and

management costs for existing operation as a basis to estimate rationalized costs for a modernized system at various management levels (farmer organization/minor distributary; AWB/main and branch canals; and barrages); (iii) provide a basis for the equitable share of abiana between farmer organizations; AWB; as well as entities operating the barrage, link canals, and Mangla Dam; (iv) make transparent all subsidies for delivery of service; and (v) provide a basis for enhanced cost recovery and financial viability of irrigation service delivery.

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An awareness program and staff participation will be promoted to solicit suggestions, gain acceptance, and provide strategy input. 47. Implementation of the Modernization Strategic Plan. Based on the comprehensive assessment, a strategic plan will be developed that presents a blueprint for more effective AWB management and transition options. The strategic plan will focus on LBDC, yet provide a basis for replication in subsequent canals under the PIAIP. The Project will support implementation of the strategic plan including (i) revised operating procedures and manuals to exploit the new infrastructure and use of information technology and MIS in all aspects of operation, and be more efficient and responsive to fluctuations in water supply and irrigation service demands; (ii) a rationalized staffing plan with revised positions and job descriptions, recruitment standards, compensation, and redeployment plan; (iii) intensive capacity development that includes classroom, on-the-job, and regional and foreign training for senior staff; and (iv) purchase of computers and other information technology, MIS, communications, and other equipment to supplement existing assets of the LBDC AWB. A financial and asset management strategy will be developed to ensure all levels of the system have adequate operational resources and a rationalized sharing plan for abiana.25 The modernization plan will focus on integrating farmer organization and IMU responsibilities into overall system operation. 48. Management Transformation. New procedures include improved monitoring and evaluation, revised staff evaluation procedures consistent with modern management, and accountable service contracts between the AWB, farmer organizations, and the Government of Punjab. Once the new operational procedures, enhanced staff capacity, and revised organizational structure are in place, the strategic plan will ensure the capacity of AWB senior officers to manage LBDC operations without PIPD support. This final phase will include competitive recruitment of the AWB director and senior staff who will manage all lower level staff and be supported with funds from abiana and any needed subsidy would not be tied to PIPD. The AWB will have transparent accounting with the eventual goal of financial sustainability. Senior staff would report to and be supported by a board with mixed representation of PIDA, PIPD, other technical experts, and farmers representation.26 The management transfer will have close monitoring and supervision until such time that performance is judged to be fully satisfactory.

2. Punjab Irrigated Agriculture Project Preparation Facility 49. The PIAPPF will ensure that (i) forthcoming projects are expeditiously prepared to fully utilize program resources, (ii) future projects are well designed and meet ADB guidelines, and (iii) the PIAIP is well managed. The PIAPPF will support capacity development for the investment program planning and management unit (IPPMU), which will have overall responsibility for the PIAIP and PIPD staff within PIPD’s Strategic Planning Cell. The PIAPPF activities will include (i) 25 Since abiana is the primary source of revenue available for farmer organizations, the organization’s abiana share

should be adequate to cover the O&M costs of the minor and distributary canals. While the goal is full cost recovery for the AWB, subsidy may need to be continued for some time as is the case with PIPD’s current operation. This should be phased out as R&U and operating efficiency under the AWB will lead to lower O&M costs. Short-term change in the abiana rate is not supported through the LBDCIP, but a rationalized abiana rate will be needed in the longer term.

26 A timetable with milestones that defines this transformative process for the LBDC AWB will be a precondition for approval of the second tranche of the PIAIP. While the AWB would be responsible for operation of the LBDC, the Government of Punjab would still have significant control over operations through the following measures: (i) the Government of Punjab would own the LBDC assets; (ii) the AWB would be fully accountable to the Government of Punjab through the signing of the service agreement; (iii) all decisions will need to be consistent with the service agreement; (iv) the Government of Punjab would retain the right to inspect and audit the AWB according to terms and conditions specified in the service agreement; and (v) the Government of Punjab would have the right to intervene if the AWB does not perform according to the terms of the service agreement.

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support to the IPPMU in reconnaissance analyses and reports on candidate projects to ensure conformance with the program selection criteria; (ii) feasibility studies, institutional analyses, environmental assessments, resettlement plans, and preliminary design to establish economic, technical, and social viability of subsequent investments; (iii) analyses of design options for R&U of barrages, headworks, main canals, distributary and minor canals, and other infrastructure; (iv) agreements with concerned farmer organizations over the package of R&U improvements for their distributary and minor canals; (v) surveys and geotechnical, hydrological, and other investigations necessary for final design; (vi) detailed design, construction drawings, bills of quantities, technical specifications, and tender documentation for bid packages for subsequent projects; and (iv) detailed implementation arrangements, service delivery mechanisms, and monitoring and evaluation procedures for subsequent projects under the PIAIP. C. Special Features

50. As demonstrated through the LBDCIP, the PIAIP takes a holistic and integrated approach to improvement of irrigated agriculture and management of water resources through (i) R&U of all system infrastructure, from the minor canals to the barrage, and stresses OFWM to ensure enhanced water supply is used productively; (ii) explicit consideration of groundwater and conjunctive use to address productivity and sustainability; (iii) strengthened operational systems and improved water management capacity, and (iv) strengthened policy frameworks for improved water management and decentralized institutions through farmer organizations and AWBs mainstreaming reform into irrigated agriculture and water resources. D. Program Investment Plan

51. The total cost of the PIAIP is $3.5 billion. The MFF will finance up to an equivalent of $900 million and total project costs will be shared with the Government of Punjab and cofinanciers. The MFF first tranche is estimated at $281.4 million, including taxes and duties of $15.5 million, and includes the LBDCIP and PIAPPF (Appendix 4 provides detailed costs). Table 2 provides costs by component for the LBDCIP and the cost of the PIAPPF.

Table 2: LBDCIP and PIAIPF Cost Estimates ($ million)

Item AmountA. Base Component Cost of the LBDCIP 1. R&U of the Balloki Barrage Complex 21.9 2. R&U of the LBDC Distribution Network 146.9 3. Groundwater Management 2.6 4. OFWM and Agriculture 6.5 5. Institutional Strengthening and Operation Modernization 10.9 6. Project Management 9.5 Subtotal (A) 198.3B. Base Cost for the PIAPPF 9.4 Subtotal (B) 9.4

C. Contingencies for the LBDCIP and PIAPPF

Physical Contingencies 3.4 Price Contingencies 57.6 Subtotal (C) 61.0D. Financing Charges during Implementation (LBDCIP) 12.7 Total Cost (A+B+C+D) 281.4

LBDC = Lower Bari Doab Canal, LBDCIP = Lower Bari Doab Canal Improvement Project, OFWM = On-Farm Water Management, PIAPPF = Punjab Irrigated Agricultural Project Preparation Facility, R&U = rehabilitation and upgrade. Source: Asian Development Bank estimates.

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E. Financing Plan

52. The Government has requested loans for up to an equivalent of $900,000,000 to finance the PIAIP: up to $890,000,000 equivalent from ADB’s ordinary capital resources (OCR) and a loan of $10,000,000 equivalent in Special Drawing Rights from ADB’s Special Funds resources (Asian Development Fund [ADF]) to help finance the PIAIP. The financing will be provided under an MFF according to ADB policy. Under the MFF, separate multiple loans will be extended to finance projects subject to submission of related periodic financing requests (PFRs) by the Government. The Government and the Government of Punjab have entered into the financial framework agreement (FFA) with ADB, and will comply with FFA requirements. The FFA satisfies the requirements set forth in Pilot Financing Instruments and Modalities. 27 The Government intends to finance the PIAIP with the submission of at least four PFRs for individual loans. The last loan is expected to be executed no later than 31 December 2015. Pursuant to the FFA, the Government submitted to ADB the first PFR for $227.8 million equivalent, which comprises $217.8 million equivalent in OCR funds and $10 million equivalent in Special Drawing Rights from ADB’s Special Funds resources.28 The first PFR is submitted to the Board together with the FFA for information. The investment amount of the PIAIP was determined based on sector needs, funds devoted to the sector, identified projects, the absorptive capacity of PIPD and the Government of Punjab, and anticipated inflation over the program period. Table 3 provides the financing for the LBDIC and Table 4 the indicative financing plan for the remaining projects.

Table 3: Financing Plan for the First Periodic Financing Request ($ million)

Source Total % ADB Ordinary Capital Resources 217.8 77.7 ADB Special Funds Resources a 10.0 3.2 Government of Punjab b 53.6 19.1 Total 281.4 100.0 ADB = Asian Development Bank. a Note that ADB Special Fund Resources will be used for the PIAPPF. b This amount includes $15.5 million in taxes and duties. Source: ADB estimates.

Table 4: Financing Plan for Subsequent Projects

($ million) Sourcea Total % ADB Ordinary Capital Resources 682.2 80 Government of Punjab 171.4 20 Other Cofinanciersa TBD TBD

Total 853.6 100 TBD = to be determined. a Grant cofinancing will be sought for future projects. Source: Asian Development Bank estimates.

53. All OCR loans will have an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.75% per annum,

27 ADB. 2005. Innovation and Efficiency Initiative: Pilot Financing Instruments and Modalities. Manila. (Appendix 4).

ADB. 2006. Staff Instructions on the Use of the Multitranche Financing Facility. Manila. 28 ADB is currently pursuing grant cofinancing with the Government of the Netherlands to support the institutional

development components. This cofinancing is not confirmed, however once the cofinancing is secured, it will be used to offset the Government of Punjab’s contribution to the Project.

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and other terms and conditions set forth in the draft loan and project agreements as applicable. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. 54. The ADF (Special Funds resources) loan will be used under the first PFR for capacity building, institutional strengthening, support of the IPPMU, and preparation of subsequent projects. The loan will have a 32-year term, including a grace period of 8 years, an interest rate of 1% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions set forth in the loan and project agreements. 55. For all the loans, the Borrower will be the Islamic Republic of Pakistan, which will make the proceeds available to the Government of Punjab on the same terms and conditions. The Government of Punjab will bear the foreign exchange risk for all loans. F. Implementation Arrangements

1. Program and Project Management

56. PIPD will be the Executing Agency for the PIAIP, LBDCIP, and subsequent projects financed under the PIAIP. PIPD will have overall responsibility for (i) implementation, (ii) reporting on both physical and financial progress, and (iii) assuming direct responsibility for all irrigation system R&U works. For the LBDCIP, the implementing agencies will be (i) PIDA for khal panchayat, farmer organization, and IMU mobilization and training; and (ii) DOFWM for the OFWM and agriculture component. 57. The PIAIP and PIAPPF. PIPD will establish the IPPMU within PIPD’s Strategic Planning Cell to oversee program implementation. With the support of consultants and in full coordination with PIPD, the IPPMU will be responsible for the prioritization, feasibility preparation, and detailed design of the subsequent investment packages under the PIAIP. The IPPMU will manage the PIAPPF, monitor and evaluate the progress of the overall investment program, and consolidate reporting on the individual projects by the respective PMUs. The IPPMU will be headed by a program director supported by a deputy director planning, economist, and agronomist. It will be able to utilize the resources of the Strategic Planning Cell as required and agreed with PIPD. 58. The LBDCIP. A PMU will be established within PIPD to oversee the project and will comprise a headquarters office situated in Lahore; three divisional PIUs at Okara, Sahiwal, and

Khaniwal; and a barrage-based PIU located at Balloki Barrage that will have the PMO for barrages under PIPD responsible for implementation of Balloki Barrage activities. The PMU will be headed by a qualified project director, who will be supported by three PIPD departmental directors: (i) director, engineering; (ii) director, finance and procurement;29 and (iii) director, monitoring and evaluation30 at PMU headquarters and three deputy project directors at the

29 The director, finance and procurement will (i) coordinate the overall financial management aspects of the Project; (ii)

provide training for all relevant PMU, PIU, and PIDA staff regarding the maintenance of accounts and proper management of the project imprest accounts; (iii) consolidate accounts from the PMU, PIU, and PIDA for submission to both PIPD and ADB; (iv) ensure that necessary audit work is completed on a timely basis; and (v) oversee project procurement.

30 The director, monitoring and evaluation, will be responsible for four units: (i) monitoring and evaluation, (ii) groundwater, (iii) resettlement, and (iv) environment.

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associated PIPD divisions, each heading a PIU.31 The PMO-barrages will have a deputy project director heading the Balloki works. The project director and directors will be selected and appointed in accordance with the Government of Punjab’s procedures and be acceptable to ADB. Each will serve on a full-time basis and be assisted by adequate professional and support staff.32 The LBDC Circle of PIPD will be attached to the PMU throughout the duration of the LBDCIP and the Balloki Barrage Division will be attached to the PMO-barrages during work on Balloki Barrage and related infrastructure.33 The project management organization chart is in Appendix 5. 59. The PMU will be responsible for project management and overall project coordination, overseeing day-to-day implementation of the LBDCIP. PMU responsibilities include (i) recruit all consultants; (ii) supervise the work of the design and construction supervision consultants for all works, and process progress and other payments on all contracts upon receiving certification from the engineer; (iii) coordinate and monitor the civil works on various system components; (iv) ensure that project works are implemented in accordance with the provisions of both the approved environmental impact assessment (EIA) and resettlement plans; (v) maintain liaison with PIPD, PIDA, and farmer organizations ensuring that progress related to institutional reform keeps pace with the civil works; (vi) coordinate and supervise the groundwater management initiatives under the Project; and (vii) undertake financial accounting and management ensuring that funds are allocated and made available to all operating units and implementing agencies to ensure expeditious project implementation.34 60. DOFWM will establish a PMO for LBDC OFWM and agriculture support activities, which will be headed by a director who will maintain close regular liaison with the PMU regarding all project-related activities, establish formal project ties with the three relevant district agriculture offices, and provide the services of 12 deputy water management officers to the LBDC IMUs. Each of these officers will be responsible for the establishment and operation of about six farmer organization field programs. PIDA will establish an LBDC program management office at Sahiwal, headed by a program director with supporting staff to (i) oversee initial farmer organization mobilization and establishment activities, (ii) coordinate longer term training and support activities provided through the IMUs, and (iii) and carry out monitoring and evaluation. PIDA will maintain a liaison officer in the program management office to provide coordination and support for PIDA and PMU activities, particularly farmer organization participation in civil works. Mobilization and establishment of farmer organizations during the initial 3 years of the Project will be through temporary farmer organization support offices to be established by PIDA in parallel with the three canal division PIUs. 61. The Project Steering Committee (PSC) established for the implementation of the project preparatory technical assistance35 will be retained for both the overview of the PIAIP and the LBDCIP implementation. The PSC is chaired by the chairman of the Punjab Planning and Development Board. Members include the secretaries of the finance irrigation, agriculture, and environment departments; member engineering Punjab Planning and Development Board; and managing director of PIDA. The PMU and IPPMU will serve as the secretariat for the PSC. The 31 The project director and program director, IPPMU will be grade 20 officers. The directors will be grade 19 officers

and assistant project director, and deputy program directors will be at least grade 18. The project director, directors, and assistant project directors will be supported by the services of PMU consultants.

32 By the middle of year 3 of LBDCIP implementation and as multiple projects financed under MFF come on line, the organization of and terms of reference for the IPPMU and PMU will be reevaluated with a view to centralize functions common to the multiple PMUs.

33 Circle is the PIPD management unit responsible for all of LBDC and other large canal systems in Punjab. 34 As additional projects are added under the PIAIP, additional dedicated PMUs will be established. 35 ADB. 2005. Technical Assistance to the Islamic Republic of Pakistan for the Punjab Irrigated Agriculture

Development Sector Project. Manila (TA 4642-PAK).

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PSC will meet whenever issues requiring resolution are submitted for its consideration, but at least every 6 months to provide policy guidance and review both project and investment program performance.

2. Project Implementation Processes by Component

62. R&U of Balloki Barrage and the main, branch, distributary, and minor canals including appurtenant works will be the responsibility of the PMU and PMO-barrages assisted by consulting services provided under a single contract covering detailed design and construction supervision services for both the Balloki Barrage and its associated works and the LBDC and its distribution system. For both the barrage and the canal civil works contracts, the role of the engineer36 will be assigned to the design and supervision consultants who in turn will provide design services, contract document preparation, and help with prequalification exercises and evaluation of bids received from prequalified contractors as well as provide subsequent detailed construction supervision. Payment to civil works contractors will be made by the PMU on certification by the engineer, and R&U of the distributary and minor canals will be implemented using similar procedures and approval authorities but providing for full consultation with relevant farmer organizations. 63. Groundwater database generation, groundwater level and quality monitoring, modeling of the aquifer system, and liaison with province-wide groundwater management organizations will be handled by a groundwater cell within the PMU headed by a deputy director, groundwater under the director, monitoring and evaluation, which will be supported by consultants. OFWM and associated agricultural support demonstration activities envisaged under the proposed field programs will be carried out by DOFWM through an LBDC OFWM project office in liaison with the PMU. This office will support the full-time services of 12 deputy OFWM officers, one assigned to each IMU. 64. Social mobilization and capacity building for the khal panchayats and farmer organizations will be managed by the transition wing of PIDA. PIDA staff responsible for these activities will be posted to the three farmer organization support offices to be temporarily established (for the initial 3 years of the Project) at Okara, Sihawal, and Khaniwal. The farmer organization support offices will maintain full liaison with the relevant PIU to ensure optimal meshing of institutional and system improvement activities. Following initial mobilization and training, continuing training and support targeted at strengthening farmer organizations will be provided by the 12 IMUs with support of PIDA. PIDA will provide one coordinator and DOFWM will have one officer assigned to each IMU to assist the farmer organizations and manage the field programs. The remaining staff, including the IMU manager, will be hired by the farmer organizations with PIDA and PMU support. The Project will support IMU staff for about 4 years after which time declining project funds will be provided for 2 additional years while farmer organizations transition to support IMU staff from abiana collections. The IMU will be governed by a committee of members from farmer organization management committees from the farmer organizations served by the IMU.

3. Implementation Period

65. ADB’s financial support for the PIAIP will be extended over 10 years commencing in 2007 and ending in 2017. The last date on which disbursement under any loan under the MFF may be made is 30 September 2017. It is expected that the last loan will be executed no later than 31 December 2015. The LBDCIP will be implemented over 6 years commencing in early 2007.

36 The engineer has final approval authority for technical matters, development of bidding materials, and sign off on

contracting supervision as defined in standard FIDIC general conditions of contract.

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Formation and training of farmer organizations will start in year 1 and be completed by year 3. Survey and detailed design work necessary prior to award of civil works contracts will commence in year 1 with construction commencing in mid-2008 and completed by the end of 2012. The project implementation schedule is presented in Appendix 6.

4. Procurement

66. All procurement under the PIAIP and LBDCIP will be undertaken following ADB’s Procurement Guidelines (April 2006) as amended from time to time. With respect to the LBDCIP civil works packages for R&U of Balloki Barrage, LBDC main canal, and bulk of the irrigation distribution system will be awarded under international competitive bidding among suitably prequalified contractors.37 Civil works contracts costing less than $5.0 million including those for R&U of the Jhandraka and 15-L distributary canals, which will be awarded in two distributary-defined civil works contracts of only medium scale (to facilitate their early construction), will not be suitable for or of interest to international contractors. Moreover, adequate national contracting capacity exists to successfully undertake these works at a reasonable cost; thus they will be undertaken under national competitive bidding procedures among suitably prequalified local contractors.38 Before the commencement of any procurement activity under national competitive bidding, ADB and the Government will review the Government’s public procurement law to ensure consistency with ADB’s Procurement Guidelines. Any necessary modifications or clarifications will be reflected in the procurement plan. Supply contracts estimated to cost the equivalent of $500,000 equivalent and more will awarded on the basis of international competitive bidding; those costing $100,000 up to $500,000 equivalent will be awarded on the basis of limited international bidding; and minor items costing $100,000 equivalent or less will be procured under shopping. The procurement plan is in Appendix 7. In addition, procurement plans will be prepared for each project to be financed under the MFF indicating the particular contracts for goods, works, and consulting services required; proposed methods of procurement; thresholds; and related ADB procedures.

5. Consulting Services

67. Given the increasing demands on PIPD capacity, consulting support for both overseeing the PIAIP and implementing the LBDCIP is required. The IPPMU will be supported by a package of consulting services for the PIAPPF to prepare and carry out final design for the ensuing projects to be financed under the MFF. This package will provide for 159 person-months of international consultants and 1,250 person-months of national specialists to prioritize investment options, prepare projects to the feasibility level, and carry out detailed design and tender document preparation.39 For the LBDCIP, contracts for five packages of consultant services will be awarded comprising about 333 person-months of international specialists and 1,423 person-months of national experts to support all facets of project implementation. Details with regard to all packages, staffing, and terms of reference are presented in Supplementary Appendix A. All consultants to be financed under the PIAIP including those for the LBDCIP will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (April 2006, as amended from time to time). The selection and engagement of required services will be through firms selected under quality- and cost-based selection procedures and individuals as required. The PMU will recruit

37 While the packaging reflected in the procurement plan will be generally adhered to, the PMU and their consultants

will design the prequalification exercises and tendering procedures such that qualified bidders can bid on multiple packages to ensure an acceptable level of competition while maintaining the interest of the larger international contractors, the result being both quality and cost-effective civil works.

38 All civil works contracts awarded under international competitive bidding and national competitive bidding will be subject to ADB’s prior approval procedures.

39 The consultants to support the IPPMU will be recruited by the PMU on behalf of the IPPMU in view of the procurement and contracting expertise available within the PMU.

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nongovernment organizations for resettlement activities that will be contracted on a competitive basis acceptable to ADB. 68. The Government of Punjab has asked ADB to provide advance contracting with respect to recruitment of all consulting packages for the LBDCIP. ADB has advised the Government of Punjab that procedures for advanced contracting are normally used for recruitment of consultants without delay, however, the contract is not signed prior to signing of the loan; and advanced contracting does not commit ADB to finance the Project or recruitment costs. The Government of Punjab has asked ADB to consider approval of retroactive financing for the aforementioned activities. The Government of Punjab was informed that expenditures are eligible for retroactive financing up to 12 months prior to signing of the financing agreement not to exceed 20% of the loan amount. Retroactive financing may be used in subsequent tranches from the MFF for eligible expenditures, except civil works, with management approval. Retroactive financing in subsequent tranches of the MFF for eligible expenditures, excepting civil works, may be considered and allowed by management if the request is indicated in a PFR.

6. Anticorruption Policy

69. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with PIPD. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the PIAIP. To support these efforts, relevant provisions of ADB’s anticorruption policy are included in the loan regulations and the bidding documents for projects under the PIAIP. In particular, all contracts financed by ADB in connection with the projects under the PIAIP will include provisions specifying the right of ADB to audit and examine the records and accounts of PIPD and all contractors, suppliers, consultants, and other service providers as they relate to the PIAIP. 70. A number of implementation arrangements have been formulated specifically to ensure good governance under the Project and will be incorporated in the loan agreements for future projects to be financed under the PIAIP, particularly in the area of financial management. PMU staff at the director level (grade 19) have been provided within the PMU specifically addressing financial management issues associated with project implementation. Both the project director and the director, finance, will be supported by the services of a project/financial management specialist during the initial 5 years of the Project, which will also serve to build up the requisite capacity at all levels of the PMU. A procurement specialist will be placed in the PMU during the initial period of the Project to support procurement activities and develop procurement capacity. In addition, each of the consulting teams providing design and construction supervision services for major project works will include a contracts engineer to ensure that bid evaluation and contract award procedures comply with ADB guidelines and internationally accepted practice.

7. Disbursement Arrangements

71. To expedite implementation of projects, including the LBDCIP, through the timely release of funds, imprest accounts will be established. Under the LBDCIP an imprest account will be established in Lahore for the use of the PMU. All imprest accounts will be established with the National Bank of Pakistan; and be managed, replenished, and liquidated in accordance with ADB’s Loan Disbursement Handbook (2001) and detailed arrangements agreed to by the Government of Punjab and ADB. The initial amount to be deposited in an imprest account and ceiling will not exceed 6 months of estimated expenditure or 10% of the total loan amount, whichever is less. The currency will be US dollars. Statement of expenditures procedures will be used to reimburse eligible expenditures, or to liquidate and replenish the imprest accounts for any individual payment under $100,000. Loan disbursements for goods and services under

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major civil works and consultant’s contracts will be made using direct payment methods as outlined in the Loan Disbursement Handbook. Subsequent PFRs will be mutually exclusive, i.e., each PFR will be under a separate loan agreement. The loan agreement will describe the detailed disbursement arrangements for a specified PFR, which will be discussed between ADB and the Government. Loan disbursements will be in accordance with ADB’s Loan Disbursement Handbook, as amended from time to time.

8. Accounting, Auditing, and Reporting

72. DOFWM, IPPMU, PIDA, PMO-barrages, and PMU, will prepare and maintain separate accounts for project-related expenditures adequate to identify goods and services financed from the loan proceeds, financing resources received, expenditures incurred for the Project, and use of local funds. The PMU, through the director, finance, and staff supported by the project/financial management consultant, will consolidate and review accounts; and after auditing submit them to PIPD, Department of Agriculture, Department of Finance, and ADB.40 Project accounts will be audited annually by the auditor general of Pakistan and the audited accounts and audit report submitted to ADB no later than 6 months following the close of the fiscal year to which they relate. The audit report will include a statement verifying that funds disbursed by ADB against statements of expenditure have been used for the purpose for which they were provided. The imprest accounts and statement of expenditures will be audited as a part of the regular audit of project accounts and should have separate opinions. 73. DOFWM, PIDA, PIU, and PIU will be responsible for preparing quarterly financial and physical progress reports on their respective LBDCIP activities and submitting these to the PMU for consolidation. Subsequently, the PMU will provide quarterly progress reports relating to the LBDCIP to the IPPMU, PIPD, and ADB. The quarterly reports are to be submitted within 1 month following the end of the quarter to which they relate.41 Within 3 months of Project completion, the PMU will submit to ADB a project completion report. In addition to quantifying physical progress and monitoring the utilization of loan funds, all reports will include a progress statement regarding the mobilization of farmer organizations, their effectiveness in discharging their responsibilities, and progress in establishing and staffing IMUs to provide necessary technical backstopping to the farmer organizations. Information with respect to compliance with covenants, implementation progress, land acquisition, resettlement progress, and major issues and problems will also be included. 74. The IPPMU will prepare and submit to ADB quarterly and annual progress reports on PIAIP implementation, the form and content of which will be agreed with ADB. The IPPMU will actively monitor feasibility preparation and final design activities in accordance with the program implementation schedule, and will keep ADB informed of any significant deviations from the schedule. Details regarding specific project activities reported on by the relevant PMUs need not be duplicated but succinctly summarized. At the end of the MFF period, a program completion report will be provided to ADB within 3 months.

9. Project Performance Monitoring and Evaluation

75. A project performance management system for the LBDCIP will be established in the PMU with links to each PIU divisional office, the PIDA management office, and DOFWM within 6 months of loan effectiveness. The system will be tailored to project-specific requirements and prepared in consultation with PIPD, PIDA, and DOFWM as well as concerned (and initially 40 The findings and recommendations of the financial management assessment during the project preparatory

technical assistance will be incorporated in the project administration memorandum. 41 In addition, PMU will prepare other such information and reports relating to the Project and its implementation as

ADB may reasonably request.

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mobilized) khal panchayats and farmer organizations. Participatory monitoring and evaluation systems will be introduced. A database of key benchmark indicators will be established by the PMU and become a part of the project monitoring system by 6 months and be routinely updated and monitored at least twice a year and in greater detail immediately prior to midterm review and project completion.

10. Project Review

76. During the initial 3 years of LBDCIP implementation, ADB will carry out semiannual reviews to (i) ensure that the implementation arrangements are in place and appropriate; (ii) gauge implementation progress against the agreed implementation schedule, identify bottlenecks, and in consultation with the Government of Punjab recommend remedial measures for smoother implementation; (iii) ensure that ADB safeguards and other conditions set out in the loan and project agreements are being met; and (iv) assess progress made in mobilizing and training khal panchayats and farmer organizations and the discharge of their responsibilities. Two years following the effective date, ADB will field a comprehensive midterm review mission for the LBDCIP, which will assess performance, identify problems affecting project implementation, and reach formal agreement with the Government of Punjab on changes on the scope or implementation arrangements of the Project required to address these shortfalls. The terms of reference of the midterm review mission will be developed jointly by PIPD and ADB during the second and third year of the Project. Prior to the mission, the Government of Punjab will submit a detailed progress report. Project review arrangements for subsequent projects financed under the PIAIP will be similar to those detailed for LBDCIP.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS A. Economic Benefits

77. Economic and Financial Benefits. The economic and financial benefits for the LBDCIP are based on two sources. Nearly all the benefits come from improved agricultural production from increased yields, greater cropping intensity, and some diversification into high-value crops. This is due to the improved water supply from the system R&U. The majority of benefits under the PIAIP are expected to stem from increased agricultural productivity from improved irrigation service delivery. The R&U will safely increase distribution capacity from a current maximum of about 244 cumecs to 278 cumecs. The economic and financial analyses also reveal that farmers at the tail end of canals who have most limited access to canal water and more frequently rely on low-quality groundwater will benefit the most from the Project, which has important productivity and equity implications. Crop yields are anticipated to increase from 2% to 7% depending on the existing deficits in crop water requirements, with cotton, wheat, and sugarcane seeing the highest gains. Cropping intensity throughout the LBDCIP area is anticipated to increase by about 10% to an annual average of 172%, which will be driven by demographic pressures and further farm fragmentation. The Project’s OFWM and agriculture component will help accelerate diversification to high-value crops within the LBDC command area to supply adjacent markets of Lahore and Multan. 78. The LBDCIP will mitigate the risks and damage from floods from the Balloki Barrage and its associated infrastructure, and from R&U of the LBDC main canal, which has several sections prone to breaching. The infrastructure R&U and development will (i) ensure that the water supply to the rehabilitated LBDC and the cropping areas supplied by the Balloki–Sulemanki Link Canal are secure, (ii) pass moderate floods through a new spillway reducing the need to breach upstream levies and inundate adjacent areas as is the current practice, and (iii) construct two bridges to facilitate traffic flow during and following flood events. R&U and development for barrages and other large infrastructure under the PIAIP are expected to provide similar benefits.

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More than half the 450,000 farms in the LBDC are less than 2 ha; for farmers with less than 1 ha in the tail areas, the Project will yield an 11% rise in income. A total of about 275,000 farm families or almost 2 million people will benefit from the LBDCIP. The overall Project provides an economic internal rate of return of 19.2% and a financial internal rate of return of 16.1%. In addition, the Project will help stabilize groundwater extraction to a sustainable level, which will reduce pumping costs to farmers and ensure that this vital resource continues to be available. B. Social and Other Benefits and Impacts

77. Institutional Reform and System Sustainability. Although not quantified in the LBDCIP benefits, formation of farmer organizations responsible for distributary and minor canals supported by IMUs and reformed and strengthened management for LBDC with user participation and better trained staff will lead to the following: (i) greater responsiveness of service to irrigation demands, (ii) more efficient and equitable water distribution, (iii) improved accountability and transparency, and (iv) improved collection of abiana with higher expenditures on system O&M. This will lead to more sustainable systems with better performance. The summary poverty reduction and social strategy is in Appendix 9. 78. Environmental Impacts. The LBDCIP is an ADB category B project for the environment. As a precautionary measure, a full EIA was conducted according to ADB guidelines. The Government of Punjab regulations required a full EIA due to the presence of two protected areas and the size of the LBDC command area. The EIA included extensive stakeholder consultation. The findings of the EIA indicate no significant long-term environmental impacts from the LBDCIP; rather it will yield environmental benefits due to improved groundwater management and associated conservation of groundwater and land resources (Appendix 10). Any negative impacts are expected to be temporary, mainly associated with the construction work, and mitigated through the Project. In addition to the full EIA, a summary EIA, two EIAs and summary EIAs for the 15-L and Jhandraka subprojects, an environmental assessment framework, and an environmental monitoring plan with adequate funding have been prepared for the Project. The design and supervision contract for civil works has environmental specialists included for long-term inputs to deal with temporary environmental impacts during construction. Environmental capacity development for PIPD will be supported by having a dedicated unit with consultant support under the director for monitoring and evaluation in the PMU for the LBDCIP. All subsequent tranches and their associated projects and subprojects under the PIAIP will be assessed independently for environmental categorization and then be prepared in compliance with ADB guidelines (Schedule 5 of the FFA). The PIAIP will provide capacity development through training, development of procedures, and consultant support as needed for the Strategic Planning Unit that will house the IPPMU. 79. Resettlement. Land acquisition and resettlement is expected to be minimal, as in many cases the land along the canals is already owned by the Government of Punjab and is unused. Impacts on buildings and structures will be minimal and most likely will occur only in proximity to the bridges to be rebuilt. The LBDCIP appraisal was based on preparation of a resettlement framework for the whole PIAIP and of resettlement plans for the two subprojects under the LBDCIP: (i) the 15-L distributary canal subproject, representing the typical distributary canal system that will be rehabilitated through Project and Program, and (ii) Sahiwal town main canal rehabilitation subproject, representing a situation where a relatively densely populated area will be affected. Approval of civil works contract awards for the 15-L distributary and Sahiwal town will require review and updating of the resettlement plans based on detailed design. In addition, resettlement plans will be prepared for (i) the main canal based on three contract packages, (ii) Balloki Barrage, and (iii) the remaining distribution network based on the award of three large contract packages with each consisting of approximately four plans (12 plans, based on detailed

25

design) and two individual packages including one for 15-L and Jandraka canals. Notice to proceed for all other subprojects of the LBDCIP and under the PIAIP will be conditional on the preparation and approval of resettlement plans. Affected people will be provided with certain resettlement entitlements such as land and asset compensation and transfer allowances, prior to their displacement, dispossession, or restricted access. Appraisal of the successive PFRs will require a review of the resettlement framework and preparation of resettlement plans for all projects and subprojects with land acquisition and resettlement issues to be presented for ADB approval with submission of the PFR. The resettlement framework details compensation provisions, and land acquisition and resettlement preparation/implementation procedures for the whole MFF. The LBDCIP’s land acquisition and resettlement impacts are detailed in Appendix 11. The resettlement framework is attached as annexes to the FFA and the resettlement plans for 15-L and Sahiwal town are included in Supplementary Appendix D. 80. Indigenous Peoples. No impacts on indigenous peoples are expected. Punjab has no population fitting the ADB definition of indigenous peoples. C. Risks 81. Commitment to Reform. The Government of Punjab has shown its commitment to reform through development of the PISRP and active support for the World Bank’s Punjab Irrigation Sector Development Policy loan. The Government of Punjab has undertaken action through the establishment of farmer organizations and AWBs and is committed to continue decentralized management. The MFF facility ensures long-term engagement by ADB with multiple projects to sustain the reform process. 82. Robust Farmer Organizations. Development of effective farmer organizations to support sustainable O&M is a key project outcome. A risk exists that farmer organizations may not be developed or sustainable. The experience in LCC East has shown (i) a strong demand of farmer organization formation by farmers, (ii) improved collection rates of abiana, and (iii) effective O&M being undertaken by farmers’ own initiatives. To ensure effective farmer organizations, the Project will support (i) intensive and ongoing training, (ii) facilities and equipment to establish farmer organization capacity, (iii) IMUs to ensure requisite technical guidance for O&M, and (iv) adequate allocation of the abiana share to ensure financial sustainability. 83. PIAIP Utilization. A risk exists that program funds will not be fully or effectively utilized. The Program provides for (i) establishment of a dedicated IPPMU within the PIPD Strategic Planning Cell, (ii) $10 million in ADF support along with consultant terms of reference to establish the PIAPPF to prepare subsequent projects, and (iii) a dedicated PMU for each project; in addition the MFF modality allows PIPD staff to gain experience and lessons from past projects so implementation will improve. PIPD has substantial positive experience with aid-funded projects.

V. ASSURANCES

84. In addition to the standard assurances and to the assurances included in the FFA, the Government and the Government of Punjab have given the following assurances, which will be incorporated, as appropriate in the legal documents for individual projects financed under the MFF. 85. Counterpart Funding. The Government of Punjab will ensure that necessary counterpart funds are available and released on a timely basis to implement the PIAIP and related projects it finances. The Government of Punjab will annually update its irrigation sector

26

development program to incorporate revised estimates of the funding requirements for the projects/subprojects under the PIAIP. 86. Policy Dialogue. The Government of Punjab will keep ADB informed of, and exchange views on, sector issues, policy reform discussions with other multilateral or bilateral agencies that may have implications for implementation of the PIAIP, and progress on institutional reforms and will provide ADB with an opportunity to comment on any resulting policy proposals. The Government of Punjab will submit to ADB its annually updated irrigation sector development program. 87. O&M. The Government of Punjab will ensure that adequate funds are allocated in its annual budgets and made available throughout the PIAIP period for the O&M of irrigation assets until such time that AWBs become financially self-sustaining. 88. Abiana. The Government of Punjab will cause PIPD and farmer organizations to establish adequate procedures for assessing and auditing the collection of abiana. The Government of Punjab will ensure that, by year 3 of LBDCIP implementation, a clear cost-sharing arrangement is established by PIPD and adopted for the LBDC based on a detailed financial analysis of the actual O&M requirements for farmer organizations. 89. Safeguards. The Government of Punjab will ensure that (i) all projects financed under the Program are carried out in full compliance with all applicable laws and regulations of the Government and the Government of Punjab, and ADB’s safeguard policies, including the policies on involuntary resettlement42 and the environment;43 (ii) the safeguard frameworks agreed on and set forth in Schedule 5 to the FFA, which are to be reviewed and, if necessary, updated by each new tranche/loan appraisal, and (iii) respective resettlement plans, initial environmental assessment reports, and environmental management plans included therein, prepared for each project or subproject under the MFF that must be selected in accordance with criteria agreed on and set forth in Schedule 4 to the FFA. 90. With regard to the LBDCIP, the Government of Punjab will update each resettlement plans prepared for (i) the 15-L distributary canal subproject; and (ii) the Sahiwal Town main canal system upon completion of detailed technical design, and submit those to ADB for review and approval. The updated resettlement plans will be disclosed to affected people. No civil works contract will be awarded under the subproject until ADB has approved the updated resettlement plan for 15-L distributary or Sahiwal town. In addition, the Government of Punjab will prepare resettlement plans based on the resettlement framework for all remaining subprojects within the LBDCIP: (i) the main canal subproject that is based on three contract packages, (ii) the Balloki Barrage and associated works, and (iii) the remaining distribution network based on three contract packages with multiple subprojects. The Government of Punjab will ensure that resettlement plans (i) are based upon detailed design and detailed measurement survey of the subprojects; (ii) include complete information on full census, final asset inventory and valuation, and final budget; (iii) are made available to the affected people in draft and final forms, including information on measurement of losses, detailed asset valuation, entitlements and special provisions, grievance procedures, timing for payment and displacement schedule; and (iv) are submitted to review and approval by ADB. No notice to proceed will be given to the civil works contractors for any section or part of the subproject until ADB has approved the respective resettlement plan.

42 ADB. 1995. Involuntary Resettlement. Manila. 43 ADB. 2002. Environment Policy. Manila.

27

91. For future projects to be financed under subsequent individual tranches/loans, the Government of Punjab will ensure that completed resettlement plans for all projects and subproject included under a PFR are submitted with the PFR for approval. Each resettlement plan is (i) to be prepared based on the detailed design and detailed measurement survey of the subproject, (ii) to include complete information on full census, final asset inventory and valuation, and final budget; (iii) to be made available to the affected people in draft and final forms, including information on measurement of losses, detailed asset valuation, entitlements and special provisions, grievance procedures, timing for payment, and displacement schedule; and (iv) to be approved by ADB prior to notice to proceed for civil works contractors. Affected people will be provided certain resettlement entitlements such as land and asset compensation and transfer allowances, prior to their displacement, dispossession, or restricted access. 92. Throughout the Program implementation period, the Government of Punjab will ensure that sufficient funds are made available as and when necessary for the efficient and timely implementation of resettlement activities. 93. All subsequent tranches and their associated projects and subprojects under the PIAIP will be assessed independently for environmental categorization and then prepared in compliance with ADB guidelines The Government of Punjab will prepare an initial environmental assessment or initial environmental examination, including an environmental management plan or a full EIA as required to be approved by relevant government authority. These will be submitted to ADB for review and approval. All civil works and consultant contracts under the projects will contain provisions requiring compliance with the initial environmental assessment or initial environmental examination during project design, construction, and operation. 94. External Monitoring. The Government of Punjab will engage an external agency or a nongovernment organization, acceptable to ADB, to conduct external monitoring and evaluation of the resettlement process and impacts. Reports of the independent monitoring agency will be submitted to ADB on a semiannual basis. 95. Future Project and/or Subprojects. Any changes to the location, land alignment of facilitating roads, environmental or social impacts on account of detailed designs of related projects will be subject to prior approval by the relevant provincial agency of Punjab and ADB, as needed. 96. Social Aspects. The Government of Punjab will ensure that all civil works contractors (i) comply with all applicable labor laws, (ii) use their best efforts to employ women and local people living in the vicinity of the project/subproject, (iii) disseminate information at worksites on the risks of sexually transmitted diseases and HIV/AIDS for those employed during construction, and (iv) are required not to differentiate between men and women’s wages or benefits for work of equal value, and use child labor. Contracts for all projects to be financed under the PIAIP must include specific clauses on these undertakings, and compliance will be strictly monitored. 97. Good Governance and Anticorruption. The Government of Punjab will ensure that (i) relevant provisions of ADB’s Anticorruption Policy (1998, as amended to date) are included in all bidding documents for the Project, and (ii) all contracts financed by ADB in connection with the projects/subproject financed under the MFF include provisions specifying the right of ADB to audit and examine the records and accounts of DOFWM; farmer organizations; PIDA; PMO-barrages; PIPD; and all contractors, suppliers, consultants, and other service providers as they relate to the Project. All procurement activities will be subject to an independent performance audit by an independent auditor appointed by the Government of Punjab and acceptable to ADB. The performance audit will be performed at least twice during PIAIP implementation. The auditor will also perform random or spot checks for contract implementation activities under each

28

project/subproject’s contracts. All external costs related to such investigations will be borne by the applicable project/subproject. Punjab will ensure that PIPD establishes a website for the PIAIP that will present financial statements and track procurement contract awards, and include information on, among others, the list of participating bidders, name of the winning bidder, basic details on bidding procedures adopted, amount of the contract awarded, the list of goods and/or services purchased, and their intended and actual utilization.

1. Specific Assurances for Farmer Organizations

98. Punjab shall ensure that (i) all vehicles and equipment procured under the Project for the use of PIDA and DOFWM remain with IMUs or farmer organizations following the completion of the work by PIDA or DOFWM; (ii) farmer organizations and IMUs are provided with adequate offices at no cost to the farmer organizations or IMUs throughout project implementation and thereafter; (iii) accounts and related financial statements of each farmer organization established under the Project are properly audited; and, (iv) external monitoring and evaluation for the entire farmer organization program, including mobilization and training by PIDA, is carried out during project implementation. 99. Punjab shall also ensure that the following farmer organization participation takes place: (i) civil works will be identified and proposed by farmer organizations on the basis of a system walk-through with PMU consultant staff; (ii) PMU consultants will carry out surveys and design in consultation with the farmer organizations; and (iii) farmer organizations will be part of a PMU staff and PIPD committee that will facilitate dialogue, feedback, and if necessary actions to address the concerns of the farmer organization with the R&U. The walk-through will be used to identify small-scale civil works that are within the farmer organization’s capacity to execute under community contracting with appropriate supervision. These farmer organization works will be included in the larger civil works contracts for the distributary and minor canals. Farmer organization participation procedures will be refined in the two project preparatory technical assistance subprojects, 15-L and Jhandraka. Punjab will ensure that a pilot trial for full farmer organization management of civil works in a small and technically appropriate minor or distributary canal undergoing R&U later in the Project. The farmer organization participation will include design, tender, contract award and supervisions, and financial management; and will be supported by the PMU.

2. Specific Assurances for the LBDC Circle and AWB

100. Punjab shall ensure that LBDC Circle of PIPD reports directly to the PMU throughout project implementation. Punjab shall, by 30 June 2011, develop and adopt a rationalized staffing plan and personnel procedures for LBDC, based on an operations modernization strategy to be developed under the Project. 101. Punjab shall ensure that by 30 June 2009 (i) adequate procedures are established for assessing and auditing the collection of abiana, (ii) financial analyses are undertaken to determine the cost of adequate O&M at all levels of LBDC system management, and (iii) clear and equitable cost-sharing arrangements are established by PIPD so that farmer organizations either (a) retain a share of abiana adequate to cover O&M costs, or (b) receive adequate funds from the provincial budget to sustain O&M costs until abiana is adjusted to cover these costs. 102. Punjab shall ensure that, prior to submission of the next PFR, a time-bound action plan for changing the LBDC management to a decentralized AWB management structure with farmers representation is agreed with ADB.

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3. Specific Assurances for the Water Sector Institutional Framework

103. Punjab shall ensure that it will (i) by no later than 30 April 2007, develop a framework for stakeholders discussions for assessing, among others: (a) resource management for surface and groundwater, (b) irrigation and drainage service delivery, (c) flood control, (d) water quality, (e) hydropower, and (f) water supply and sanitation; (ii) by no later than 30 June 2009, develop a time-bound sector road map based on the stakeholders discussions; (iii) by no later than 31 December 2008, adopt the revised rules for farmer organizations and AWB, and a model irrigation management transfer agreement developed under the Project; and (iv) by no later than 31 December 2008, submit to the Provincial Assembly for consideration legislation on a source of independent legal authority and establishment of farmer organizations independent of the Punjab Irrigation and Drainage Authority Act dated 2 July 1997.

VI. RECOMMENDATION

104. I am satisfied that the proposed multitranche financing facility would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the provision of loans under the multitranche financing facility in an aggregate principal amount not exceeding $900,000,000 equivalent to the Islamic Republic of Pakistan for the Punjab Irrigated Agriculture Investment Program comprising

(i) the loans not exceeding $890,000,000 equivalent from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; and

(ii) the loan in various currencies equivalent to $10,000,000 in Special Drawing Rights from ADB Special Fund resources, with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years;

and such other terms and conditions as are substantially in accordance with those set forth in the Framework Financing Agreement presented to the Board.

Haruhiko Kuroda President 20 November 2006

30 Appendix 1

Sri DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets/Indicators

Data Sources/ Reporting Mechanisms

Assumptions and Risks

Impact Economic growth in Program areas of Punjab. Conservation of water and land resources.

Increased incomes and poverty reduced in project areas supported by Program. Average farmer income up by 10%. Stabilized groundwater tables in 65% of Punjab Irrigated Agriculture Investment Program (PIAIP – the Program) project areas by end of Program. No increase of saline or sodic soils in project areas by end of Program.

District data in Punjab for rural livelihoods and poverty Department of Agriculture statistics for agricultural production of both yields and cropping type Monitoring and evaluation (M&E) parameters established for Project Performance Management System (PPMS) for Program and for each project

Assumption Government will continue to see Program outcome as important means to achieve Program impact.

Outcome The sustainable improved delivery of services for irrigated agriculture and better water management in Punjab.

Irrigation water is being delivered throughout the Program command areas according to the sanctioned flows and transparently scheduled at least 90% of the year. Groundwater and surface water being used conjunctively in Program command areas for optimal productivity of irrigated agriculture.

ADB review missions Regular reporting from Investment Program Project Management Unit (IPPMU) and Project Management Units (PMUs) through PPMS Reporting by Punjab Irrigation and Power Department (PIPD) and farmers organizations Ongoing dialogue with PIPD and development partners Monitoring by ADB Pakistan Resident Mission (PRM)

Assumption Governments of Pakistan and Punjab will continue to see the delivery of irrigation water critical to achieving agricultural growth Risk Changes to water allocations or availability affect overall LBDC irrigation supplies

Outputs 1. The Lower Bari Doab Canal Improvement Project (LBDCIP – the Project) that will serve as prototype for other physical and nonphysical investments under the PIAIP. 2. Using the modalities developed for LBDCIP refined with lessons from the PIAIP, execution of subsequent projects including: (i) Pakpattan Canal, (ii) Sulemanki Barrage, (iii) Thal Canal,

All components of the LBDCIP completed as scheduled and achieving anticipated outcome and impact by the end of the Project.

Monitoring by PIPD, Department of Agriculture, farmer organizations, PMUs, PRM, and ADB review missions

Assumptions Contractors are responsive to tenders and have capacity to execute the works Government of Punjab commitment to irrigation reform process does not falter The Government of Punjab will support an integrated water resources management (IWRM) reform process Risk Farmers may not be willing to take on the responsibility of

Appendix 1 31

Design Summary Performance Targets/Indicators

Data Sources/ Reporting Mechanisms

Assumptions and Risks

(iv) Sidhnai Canal, (v) Trimmu Barrage, and (vi) Punjnad Barrage completed within the scope of the PIAIP. 2a. Rehabilitation and upgrading (R&U) of the Pakpattan, Sindhnai, and Thal Canals (about 1.5 million hectares). 2b. R&U of Sulemanki, Trimmu, and Panjnad barrages and head works. 2c. Groundwater, conjunctive use, and on farm water management (OFWM) activities developed and implemented in all project areas. 2d. Farmer organizations established to undertake O&M and managing the minor and distributary canals. 2e. Decentralized management strategies, upgraded operational procedures, and rationalized staffing plans. 3. Improved Punjab provincial institutional framework for IWRM. 4. Resettlement and environment plans and procedures developed and executed.

All parts of the systems receiving at least 90% of their allocated discharge, including the tails, by end of Program. All infrastructure operating within design parameters at full discharge and with greater control over variable discharge by end of Program. Groundwater and OFWM activities developed by the third year of each project under the Program. Farmer organizations executing O&M and management with less grievances and 75% collection efficiency for irrigation fess over 90% of the PIAIP area by end of the Program. New management practices in place for all PIAIP projects by year 9 of the Program. IWRM action plan drafted by 30 June 2009. Draft provincial water law, improved guidelines, and enhanced IWRM capacity institutional framework for IWRM in place by year 7 of the Program. All safeguards activities implemented according to ADB guidelines.

Monitoring by PIPD, farmer organizations, IPPMU, and PMUs Monitoring by PIPD, farmer organizations, IPPMU, and PMUs Monitoring by PIPD, Department of Agriculture, farmer organizations, IPPMU, and PMUs Monitoring by PIPD, farmer organizations, IPPMU, and PMUs Monitoring by PIPD, farmer organizations, IPPMU, PMUs, and ADB review missions Monitoring by PIPD, IPPMU, PRM, and ADB review missions Monitoring by PIPD, IPPMU, and ADB review missions Monitoring by PIPD, IPPMU, external monitors, and ADB review missions

operations and maintenance (O&M) and management of the distributary and minor canals

32 Appendix 1

Activities with Milestones 1.1 Complete project preparation including detailed design and tender documents for the LBDCIP followed by the (i) Lower Bari Doab Canal, (ii) Pakpattan Canal and Sulemanki Barrage, (ii) Thal Canal, (iii) Sidhnai Canal, and (iv) Trimmu and Punjnad Barrages by year 6 of Program. 1.2 Resettlement plans and environmental activities executed are consistent with project preparation. 1.3 Detailed design and safeguards fully completed prior to application for all periodic financial requests (PFR) following the first PFR. 2.1 Establishment of groundwater activities consistent with approach of LBDCIP in all project areas. Groundwater well monitoring network, database, and model established by year 3 in each subsequent project. 2.2 Development and institutionalization of a drillers program within the provincial groundwater management cell by year 7 of the Program. 2.3 Establishment of OFWM activities consistent with approach of LBDCIP in all project areas established by year 3 in each subsequent project. 2.4 Draft IWRM action plan finalized by 30 June 2009 and ongoing dialogue process prior to this. 3.1 Using LBDCIP as the first case, develop a complete upgraded operation plan and technical management structure for LBDCIP using modern technology and management principles and implement by year 4 of the Program. 3.2 Standardized capacity development program in place for improved system operation available to all PIPD staff and systems by year 7 of the Program. 3.3 Approved policy on rationalized staffing for PIPD with detailed plan under implementation and required resources by year 7 of the Program. 3.4 New management practices in place throughout the all Program projects by year 9 of the Program. 4.1 Farmer organization (i) training mobilization and training methodology, (ii) service agreements, (iii) farmer organization and irrigation management units operational procedures established, and (iv) appropriate share of irrigation fee finalized by year 3 of the Program and refined successively throughout the Program. 4.2 Decentralized management strategy and action plan in place with new institutional arrangements for all levels of irrigation system management in place by the end of the Program. 5.1 Financial analysis of the LBDC undertaken as a model for subsequent analyses to be conducted for other projects under the Program by year 3 of the Program. 5.2. Revised irrigation fee share assessed by year 4 of the Program. 5.3 Financial assessment of all PIPD consistent with development of long-term institutional reform strategy for the irrigation sectors. Options developed for cost recovery within system, with exception of barrage and head works by year 6 of the Program. 5.4 All other projects under the Program operating with cost recovery for O&M by the end of the Program. 5.5 System of audits in place for farmer organizations throughout the Program. 6.1 IPPMU established in year 1 of the Program. 6.2 Safeguards planning, implementation, and capacity development in all PIAIP projects starting in year 1 and continuing throughout the Program.

Inputs 1. ADB will provide (i) inception mission as part of LBDCIP, (ii) at least 2 annual review missions for the first five years of the Program, (iii) a mid-term review mission by year two for LBDCIP that will also include Program review, (iv) annual review of the Roadmap and Investment Plan, (v) ongoing support from the ADB Pakistan Resident Mission, and (vi) $890 million in Ordinary Capital Fund loan resources and $10 in Asian Development Fund resources for the Punjab Irrigated Agriculture Project Preparation Facility. 2. The PIPD will provide (i) a Program Director, (ii) a Deputy Director of Planning, and (iii) staff from the Strategic Planning for the IPPMU Cell and other supporting staff. PMUs for PIAIP projects. Up to $225 million in counterpart cofinancing for all PIAIP projects. 3. The Government of Punjab will provide Program oversight and guidance and support for institutional reforms. 4. Farmers will participate in farmer organizations and support irrigation management and O&M for distributary and minor canals 5. The LBDCIP will provide 333 international and 1,423 domestic consulting person months to support implementation. The Punjab Irrigated Agriculture Project Preparation Facility will provide 159 international and 1,250 domestic consulting person months to support preparation of the remaining Program projects.

IPPMU = investment program project management unit, IWRM = integrated water resources management, LBDCIP = Lower Bari Doab Canal Improvement Project, O&M = operations and maintenance, OFWM = on farm water management, PFR = periodic financial request, PIAIP = Punjab Irrigated Agriculture Investment Program, PIPD = Punjab Irrigation and Power Department, PMU = project management units, PPMS = Project Performance Management System, PRM = Pakistan Resident Mission

Appendix 2 33

PUNJAB IRRIGATION SECTOR ANALYSIS

A. Irrigation, Water Resources, and Agriculture in Pakistan 1. Pakistan is one of the world’s most arid countries with an average annual rainfall of less than 240 millimeters (mm). It is heavily dependent on an average annual inflow to the Indus River system (including the mainstream Indus and the five Punjab tributaries: the Beas, Chenab, Jhelum, Ravi, and Sutlej rivers) of about 180 billion cubic meters of water. This runoff, for the most part, originates in neighboring countries and is largely a result of snowmelt in the Himalayas coupled with summer monsoon rains. Large-scale irrigation emerged in the 19th century and following intensive development during the British period, the Indus irrigation system became the largest contiguous irrigation system in the world. Following partition, Pakistan and India negotiated the Indus Waters Treaty (signed in 1960) giving Pakistan rights to the waters of the Chenab, Indus, and Jhelum rivers, which represented about 75% of the flow of the Indus system as a whole. 2. A number of challenges, including the critical need for storage, interbasin transfer of water, and water-logging and salinity, have been met with varying degrees of success since signing of the accord, and irrigated agriculture remains a major part of the Pakistan economy. The country has about 17 million hectares (ha) of irrigated cropland; the vast majority is served by the Indus basin system. However, agriculture’s role as a major contributor to Pakistan’s economy is declining modestly as other sectors develop. In 1985 agriculture represented 29% of Pakistan’s gross domestic product; this declined to 26% in 1985 and was only 21% in 2005. Sector growth slowed significantly in the late 1990s, registering only 2.7% during 1995–2005, just over half of the 4.1% growth rate recorded from 1985 to 1995. However, 2005 growth was 7.5%, indicating that recovery from the growth slump has commenced. 3. Water is the critical factor both for the economy and agriculture. About 80% of the arable land and 90% of the agricultural output are entirely dependent on irrigation; irrigation uses about 95% of the country’s water resources. Accordingly, irrigated agriculture is a vital sector and effective management of irrigation represents the most important critical challenge of integrated water resource management. Pakistan faces a number of serious water resource issues that have serious economic and environmental implications, including (i) rapidly declining water availability per capita as a result of increasing population and declining storage capacity as a result of reservoir sedimentation; (ii) mistrust and lack of consensus among the provinces on the provision of additional storage on the Indus to both replace storage lost and add additional storage to meet increasing demands; 1 (iii) overexploitation and deteriorating quality of groundwater caused by the recent drought (2000–2005), undependable and inequitable canal water delivery, and increasing pollution; (iv) deteriorating, unreliable, and inefficient irrigation infrastructure resulting from aging improper asset management, and inadequate operation and maintenance; (v) poor governance, transparency, and accountability of irrigation service delivery largely due to the absence of user participation in system management; (vi) low water-use efficiency and agricultural production; and (vii) seawater intrusion and serious environmental degradation of the Indus delta and adjoining coastal areas from inadequate water releases from environmental flows.

1 Pakistan has a long tradition of water entitlements, and the 1991 Inter-provincial Water Accord establishes clear

entitlements for each province. Implicit in the accord, is a set of water entitlements at the canal command level. Rules are also well-established for distributing water to distributary canals although implementation by system managers of these provisions is weak. At the outlets, farmers practice well-established rotational schedules.

34 Appendix 2

B. Agriculture in Punjab 4. Agriculture is the mainstay of Punjab’s economy. Given Punjab’s size, Punjab’s economic indicators to a large degree drive the same indicators for Pakistan. However, composition of the indicators differs. Agriculture’s role in the overall economy is marginally higher in Punjab than in the country as a whole, accounting for about 26% of the provincial gross domestic product (GDP) and providing direct employment to more than 50% of the labor force. 5. Performance of agriculture in Punjab has been strong over the past 20 years, growing at around 4%–5% per annum. Since the 1960s, agricultural growth in Punjab has resulted largely from the adoption of improved inputs including high-yielding varieties, fertilizer, and pesticides, coupled with an increased supply of irrigation water.2 Recently, however, agricultural appears to be decelerating. For the past 30 years the productivity of the water used in agriculture (i.e., production per unit volume of water used) has been slowly declining as a result of water-logging and salinity, as well as the deteriorating quality of groundwater sources. The recently noted decline in agricultural growth may well be attributable to the fact that water availability, both surface and groundwater, is increasingly becoming a limiting factor.3 Given the position of irrigated agriculture as the driving force in the provincial economy, a reasonable growth in the sector is essential to sustain overall economic growth and performance. This will require (i) investment targeted at rehabilitating and upgrading irrigation infrastructure; (ii) systematic regulation and management of groundwater resources; and (iii) establishment and development of institutions responsible for improving the efficiency and reliability of irrigation service delivery, and ensuring equitable sharing of irrigation supplies. C. Irrigated Agriculture in Punjab

6. Irrigated agriculture is crucial for Punjab. The province accounts for 80% of Pakistan’s agricultural production, and over 90% of Punjab’s agricultural production is derived from the 8.4 million ha of irrigated land served by Punjab’s irrigation and drainage system. Irrigated agriculture uses over 95% of the water resources. Punjab provides about 58% of the country’s GDP and Punjab’s agricultural GDP represents 66% of the national agricultural GDP. The irrigated agriculture sector is crucial to any strategy for generating additional employment, increasing incomes, and attaining the targeted 6%–7% annual growth rate for Punjab.4 7. More than half of Pakistan’s irrigated land lies in Punjab and the associated irrigation infrastructure is managed and operated by the province.5 Irrigated agriculture in Punjab covers a cultivable command area of 8.41 million ha with a provincial irrigated cropping intensity of about 122%. Much of the extensive irrigation infrastructure was initially developed under the British; a later period of significant development occurred under the Indus Basin Project during the 1960s. This infrastructure base provides the foundation for irrigated agriculture in Punjab (Table A2). The total estimated value of the irrigation and water resource management infrastructure in 2 The increased irrigation supplies have resulted from the exponential growth of tubewells throughout Punjab within

the past decade. Exemplifying this growth is the Lower Bari Doab Canal (LBDC) command where the number of irrigation tubewells increased from 19,960 in 1994 to more than 48,000 in 2005. This relates to an increase in the abstraction of groundwater of 1,964 million cubic meters over 10 years suggesting an annual increase of about 200 million cubic meters.

3 The decline in agricultural growth over the past 4 years corresponds with a period of extreme drought. 4 ADB, Department for International Development, Government of the Punjab, and World Bank. 2005. Pakistan

Punjab Economic Report: Towards a Medium-Term Strategy. Pakistan. 5 Major storage reservoirs including Tarbela on the Indus River and Mangla on the Jhelum River and Chashma

Barrage are managed and operated by the Water and Power Development Authority.

Appendix 2 35

Punjab is about $20 billion.6 Crop water supplies delivered through this vast water resources network of irrigation infrastructure are vital to Punjab; and improved management and ensuing agricultural productivity gains are fundamental to continued economic development and provincial growth. The Punjab Irrigation and Power Department (PIPD) is responsible for development, operation and maintenance (O&M), and management of surface irrigation facilities in Punjab.

Table A2: Key Infrastructure of the Punjab Irrigation System

Item Quantity Headworks/Barrages 13 Main Canal Systems. 24–6,429 km Distributary and Minor Canals 2,794–31,214 km Total Off-Take Capacity and Field Outlets 3,399 cumec; 58,000 units Gross Command Area 9.45 million ha Cultivable Command Area 8.41 million ha Off-Take Capacity and Length of Link Canals 3,115 cumec; 850 km Tubewells 3,544 Length of Surface Drains 9,856 km Length of Flood Embankments 3,228 km Small Dams 33

cumec = cubic meter per second, ha = hectare, km = kilometers. Source: Punjab Irrigation Sector Reform Program (PIPD), March 2006.

D. Irrigation Sector Performance In Punjab 8. Like the rest of Pakistan, Punjab faces major challenges with respect to water resources and irrigated agriculture, which have serious economic and environmental implications. As a result, the full potential of irrigated agriculture contribution to economic growth and employment is not being achieved. 9. Population growth and farm fragmentation have resulted in significantly increased cropping intensities driving irrigation water demand far beyond the original design capacity. The systems were designed for low cropping intensities of 60%–80% with assumed fallow land. Annual cropping intensity in Punjab is 122%, and in more productive systems such as the LBDC it averages about 160%, reaching 200% in some areas. This has led to increasing water supply shortfalls that are exacerbated during drought and because Pakistan has lost nearly 30% in its effective Indus Basin water storage due to reservoir sedimentation. 10. All irrigation and water resource management infrastructure has deteriorated over time due to a combination of age and lack of adequate maintenance. 7 In certain cases, the dilapidated state of a few major structures is dangerous in view of the physical risk to the well-being of downstream residents. For the most part, the poor condition of the canals simply means that the infrastructure does not provide reliable service delivery, and farmers have to adapt to unreliable, substandard delivery of irrigation water. 11. Poor irrigation service delivery by the public sector, which is characterized by unreliable and inequitable irrigation deliveries, low accountability, absence of water-user participation in 6 This does not include the storage facilities of Chasma, Mangla, and Tarbela dams, watercourses, or private

investment in tubewells. 7 The accumulated deferred maintenance is estimated to be about $2.0 billion, the requirement for deferred

maintenance plus justifiable upgrading about $3.5 billion.

36 Appendix 2

system management, and lack of communication with farmers contributes significantly to suboptimal utilization of water resources. 8 Low O&M cost recovery is a reflection of user dissatisfaction with irrigation service delivery. Abiana (irrigation service fee) proceeds are collected by the district revenue department and subsequently become a part of provincial revenues and resources, rather than being retained and used for O&M in the command areas where they are collected. Consequently, farmers correctly conclude that there is no relationship between the revenue generated and allocation of funds for O&M on a given canal. 12. PIPD has grown over time and failed to put into place the required conditions of accountability and transparency that guarantee efficiency. PIPD has about 50,000 employees, costing 65% of the annual O&M budget, leaving only 35% for maintenance. The organizational structure, skill mix, assignment of responsibility, and institutional culture remain unchanged from the British period, and the once good institutional discipline has largely broken down. Staff salaries are well below those in the private sector. Lack of transparency in water allocation,9 measurement,10 and delivery result in uncertainties and inequities in water distribution and opportunities for rent seeking. Farmers comprehend the natural variability of their water supply, but want to know what their share is and when it will be delivered. Having this information, they are better equipped to make informed and lower risk decisions on how best to use both the water and their land. 13. As a result of unreliable surface water supply, the explosive growth in the number of tubewells in Punjab has led to overexploitation of groundwater resources with resulting drops in water tables signifying mining of groundwater.11 The rapid increase in volume of groundwater pumped partly reflects the unreliability of canal water deliveries, which forces farmers to increasingly rely on groundwater, particularly in the tail reaches of the canal system. As water tables decline increasing regional groundwater inflows, a rapid deterioration in groundwater quality often accompanies the declining aquifers.12 In many cases, the indiscriminate use of low-quality groundwater is leading to an increasing expanse of cultivable command within Punjab that suffers from secondary soil salinity or is becoming sodium affected. Consequently crop yields in the affected areas are quite low. E. Government of Punjab Actions to Address Sector Problems 14. Institutional reforms in the water sector in Punjab were initiated under the National Drainage Program (NDP), which was supported by ADB, Japan Bank for International Cooperation, and World Bank.13 The initial results were modest with respect to Punjab; little 8 Rent seeking by public sector operating entities, water theft by upstream farmers, and the poor condition of the

canal system all contribute to tail-end farmers rarely receiving irrigation deliveries from the system and invariably not receiving their fair share of water.

9 Pakistan’s 1991 interprovincial Water Apportion Accord lays out provincial entitlements. However, administration of intraprovincial water entitlement needs to be much more transparent. Farmers get little information on water availability in the system, amounts supplied, and/or the reliability of future delivery.

10 Most canal systems are not equipped with calibrated water measuring devices. 11 Mining occurs when pumping exceeds recharge and regional inflow (sustainable yield) and groundwater is

permanently removed from storage within the aquifer. Water balance studies conducted on the LBDC command indicate that 411 million cubic meters are being mined annually resulting in a water table decline of 0.37 meters per year.

12 The origins of the aquifer system largely dictate the distribution of groundwater quality. Geologically, the subsiding depositional basin retained brackish water at depth. Adjacent to rivers, which constantly adjusted their courses, the deposits were continually flushed by fresh water, displacing the original more brackish depositional waters. As a result, groundwater near the rivers is generally less saline than that in adjacent areas.

13 To support the reforms in the NDP, the Punjab Irrigation and Drainage Authority (PIDA) Bill was passed on 27 June 1997 that (i) established PIDA as separate entity from PIPD for decentralized irrigation management and gave all

Appendix 2 37

progress was made with the reform agenda. This situation has changed dramatically as a reform-minded leadership has emerged that targeted water sector issues among Punjab’s top development priorities. In 2005, the chief minister appointed a senior committee headed by the chairman of the Planning and Development Board with members from key provincial departments including finance, agriculture, environment, and PIPD, to oversee the development of the Irrigation Sector Reform Program and an action plan. 15. The Irrigation Sector Reform Program supports the broader multisector provincial strategy that emphasizes (i) improving governance by enhancing the accountability of state institutions, (ii) improving social service delivery systems, (iii) accelerating growth and generating employment through focus on productive sectors, and (iv) enhancing the effectiveness of public sector expenditures through budgetary and institutional reforms. The program is being implemented in conjunction with the recently approved Punjab Irrigation Sector Development Policy loan,14 a program-type loan with an associated policy matrix for sector reform that corresponds to the Irrigation Sector Reform Program and its four interrelated pillars. 16. Pillar I: Institutional and Policy Reforms to Improve Management and Maintenance of the Irrigation System. The objective is to ensure long-term physical and financial sustainability of Punjab’s irrigation system. A multipronged strategy is provided with short- and medium-term measures for (i) improving asset management, progressively reducing the backlog of deferred maintenance; (ii) reducing operating and administrative costs; (iii) rationalizing and improving recovery of abiana through a new system of inflation adjustments and user participation in assessment and collection; (iv) introducing a transparent policy for maintenance and repair cost sharing (i.e., government plus user charges); and (v) developing institutional capacity for efficient O&M with improved attention to social and environmental considerations. 17. Pillar II: Water Resource Management Reforms. The objective is to emphasize the importance of water entitlements, measurements, and transparency; and build on Punjab’s existing platform of water entitlements, 15 to make intraprovincial water allocations and distribution more transparent, and to extend the system of entitlements to groundwater. These reforms would serve to enhance farmer confidence, reduce uncertainties associated with irrigation deliveries, and help increase agricultural productivity. Over the longer term, the opportunity cost for water would become more transparent and provide incentives for allocation of water to uses resulting in higher return, through a market mechanism. As a first step in this direction, PIPD is taking actions to ensure reliable water measurement, and is publicizing water entitlements and actual diversions at the main canal level. 16 PIPD has also initiated development of a strategy to help ensure the sustainable use of groundwater, among others, through improved monitoring, information dissemination, and farmer participation; the drafting of the strategy or its implementation has not yet commenced.

responsibility and assets to PIDA for irrigation service delivery, and (ii) provided a legal framework to establish (a) farmers organizations to manage the distributary and minor canals, and collect and retain a share of abiana for O&M, and (b) area water boards to direct management of irrigation systems at the main canal level and that would be governed by a board of directors with a majority of farmer members.

14 The loan was approved 1 June 2006 for $100 million. It is the first of three tranches that will be processed as individual loans with the next loan anticipated for approval in 2007. The loan provides budget support.

15 Implicit in the 1991 Inter-provincial Water Accord is a set of water entitlements at the canal command level beyond provincial allocations. It provides well-established rules for distributing water to the distributaries and outlets. Below the outlets, the warabandi (farmer rotation) is a proxy to a water right, through which a farmer has a right to time of delivery. The administration of intraprovincial water entitlements needs to be made more transparent and implemented in a participatory manner.

16 Gradually these arrangements will be instituted for distributary canals and ultimately for individual users.

38 Appendix 2

18. Pillar III: Irrigation Service Delivery Reforms. The objective is to improve the quality, efficiency, and accountability with which irrigation services are delivered. Irrigation institutions in Pakistan have not yet made the transition from the era of development and construction to management of assets; service delivery is the primary objective.17 This challenge will be met through a combination of organizational changes and introduction of incentives. Essentially, this would involve (i) decentralization of management and O&M of the system; (ii) entry of new participants, including farmer organizations, in the management and distribution of water; and (iii) the use of contracts that specify the rights and obligations of water providers and users. 19. Pillar IV: On-Farm Agricultural Water Management Reforms. Full benefits of the initial three sets of sector reform can only be realized if irrigation application efficiency at farms is improved and productivity increases. The objective of these reforms is to improve water use efficiency and on-farm productivity through the introduction of changes in field irrigation infrastructure, agronomic practices, irrigation technology, and institutional structure conducive to a sustainable, efficient, and more demand-responsive irrigation. The Punjab provincial government is simultaneously addressing these through (i) clearly defined agricultural policies, and (ii) an effective applied agricultural research program that will generate appropriate water management technology and improved agronomic practice. 20. Progress in the Field. The Punjab provincial government is moving forward aggressively with on-the-ground action in relation to Pillar III and establishment of decentralized management through implementation of the reforms related to the NDP. Since 2003, in the Lower Chenab Canal East, 83 farmer organizations have been formed and an area water board (AWB) established as part of an irrigation rehabilitation project financed under the NDP by Japan Bank for International Cooperation.18 PIPD has also committed to establishing 100 more farmer organizations and two additional AWBs under the Punjab Irrigation Sector Development Policy loan. Notification to form farmer organizations and establish an AWB in the LBDC was given on 11 July 2006, specifying the PIPD superintending engineer for the LBDC Circle as its chief executive officer. Initially, the AWB will serve an advisory function. As of 2006, the experience of the farmer organizations in LCC has been positive with financial sustainability and much improved O&M. All these elements support a substantial, sustained long-term investment program with linked reforms in irrigated agriculture to support continued economic growth.

17 Initiating the transition to a modern irrigation service delivery structure was one of the major objectives of the NDP.

While achievements under the NDP were modest, a number of lessons were learned such as focusing on a manageable number of key objectives and encouraging experimentation with different models for institutional reform. The institutional reform objectives of the NDP remain valid.

18 The LCC East project is financed by JBIC and the project was initiated using NDP funds during the latter stages of the NDP in 2002 with the condition of farmer organizations being formed as a requirement for civil works. Since this time, JBIC has started the LCC West project under separate funding; work started in 2006.

Appendix 3 39

EXTERNAL ASSISTANCE TO THE SECTOR

Table A3.1: Asian Development Bank Lending to the Water Sector

Loan Project Amount ($ million) Date Approved

800-PAK Punjab Community Water Supply and Sanitation Sector 50.0 28 Nov 2002 1679-PAK Punjab Farmer-Managed Irrigation 7.8 25 Mar 1999 1578-PAK Second Flood Protection (Sector) 100.0 13 Nov 1997 874-PAK Korangi Wastewater Management 70.0 18 Sep 1997 1413-PAK National Drainage (Sector) 140.0 12 Dec 1995 837-PAK Punjab Rural Water Supply and Sanitation (Sector) 46.0 31 Jan 1995 1297-PAK Third Punjab On-Farm Water Management 62.1 08 Mar 1994 1294-PAK Pehur High-Level Canal 127.6 22 Dec 1993 901-PAK Urban Water Supply and Sanitation 72.0 04 Nov 1993 1209-PAK Flood Damage Restoration (Sector) 100.0 15 Dec 1992 976-PAK Karachi Sewerage 51.0 14 Dec 1989 957-PAK Karachi Sewerage 34.0 14 Dec 1989 1101-PAK Faisalabad Water Supply, Sewerage, and Drainage 39.5 15 Dec 1977 1146-PAK Hyderabad Water Supply and Sewerage 22.0 13 Apr 1976

Total 922.0 Source: Asian Development Bank estimates.

Table A3.2: World Bank Lending to the Water Sector

Project Amount ($ million) Date Approved

Punjab Irrigation Sector Development Policy Loan 100.0 01 June 2006 Sindh On-Farm Water Management Project 61.1 20 May 2004 AJK Community Infrastructure 20.0 09 July 2002 NWFP On-Farm Water Management Project 21.4 12 Jun 2001 Biodiversity Conservation Project 10.1 24 Apr 2001 National Drainage Program Project 285.0 04 Nov 1997 Punjab Private Sector Groundwater Development Project 56.0 11 Jul 1996 2nd Karachi Water Supply 91.9 09 Feb 1993 Fordwah Eastern Sadiqia (South) Irrigation and Drainage Project 54.2 02 Jul 1992 Scarp Transition Project (02) 20.0 04 Jun 1991 Karachi Port Modernization Project 91.4 30 May 1991 On-Farm Water Management Project (03) 83.6 21 May 1991 Rural Water Supply and Sanitation Project 136.7 23 Apr 1991 Private Tubewell Development 34.4 11 Apr 1989 Karachi Water Supply and Sanitation Project (02) 125.0 28 Feb 1989 Punjab Urban Development Project 90.0 12 Apr 1988 Irrigation Systems Rehabilitation Project (02) 79.5 29 Mar 1988

Subtotal 1,360.3 Total 2,282.8

AJK = Azad Jammu Kashmir, NWFP = North-West Frontier Province Source: Asian Development Bank estimates.

Table A3.3: Asian Development Bank Nonlending to Water Supply, Sanitation and Waste

Management

Loan Project Amount ($) Date Approved 4534-PAK Sindh Basic Urban Services 0 23 Dec 2004 4432-PAK Capacity Building for Environmental Management in Sindh 400,000 12 Nov 2004 4098-PAK Rawalpindi Environmental Improvement 350,000 21 Apr 2003 3862-PAK Punjab Community Water Supply and Sanitation 125,000 04 May 2002 2928-PAK Quetta Water Supply and Environmental Improvement 0 05 Dec 1997 2006-PAK Second Urban Water Supply and Sanitation 0 03 Dec 1993

40 Appendix 3

Loan Project Amount ($) Date Approved 1744-PAK Water Supply and Sanitation Authority for Rawalpindi 100,000 18 Aug 1992 1736-PAK Punjab Rural Water Supply Sector 0 23 Jul 1992 1349-PAK Urban Water Supply and Sanitation 0 08 Aug 1990 1246-PAK Strengthening of Billing and Collection Operations of the KWSB 183,700 14 Dec 1989 1245-PAK Marine Outfall Study 281,700 14 Dec 1989 0963-PAK Urban Water Supply and Sanitation Sector Study 350,000 11 Mar 1988 0297-PAK Rawalpindi Water Supply and Sewerage 200,000 28 Jun 1979 0120-PAK Hyderabad Water Supply, Sewerage and Drainage Development 150,000 02 Jul 1974 0119-PAK Lyalipur Water Supply, Sewerage and Drainage Development 150,000 02 Jul 1974 Subtotal 2,290,400

Source: Asian Development Bank estimates.

Appendix 4 41

DETAILED COST ESTIMATES ($ ‘000)

ADB Loan Item OCR ADF Gov’t. of

Punjab Total Foreign

Exchange Local

(Excluding Taxes)

Duties & Taxes

I. Investment Costs A. Civil Works 1. R&U of the Balloki Barrage Complex 19,435.9 0 2,159.5 21,595.4 1,495.0 19,020.6 1,079.8 2. LBDC Main Canal 157,200.1 0 18,123.7 175,103.9 7,478.7 158,898.7 8,726.5 Subtotal (A) 176,636.0 0 20,283.3 196,919.3 8,973.7 177,919.3 9,806.2 B. Mechanical and Civil Works 1. Services 18.3 0 7.8 26.1 0 24.8 1.3 2. Equipment 386.2 27.6 584.4 998.2 397.0 453.4 147.8 3. Vehicles 1,243.8 150.4 1,655.2 3,049.3 1,459.6 1,137.2 452.6 4. Vehicles O&M (nonrecurrent) 0 314.6 134.8 449.4 277.4 105.2 66.8 Subtotal (B) 1,648.3 492.5 2,382.3 4,523.1 2,134.0 1,720.7 668.5 C. Environment and Social Mitigation 1. Land Acquisition, Resettlement/

Compensation, and Environmental Mgmt 108.1 0 8,254.9 8,363.0 0 8,332.1 30.9

2. Surveys 533.4 0 228.6 762.0 69.6 585.6 106.7 Subtotal (C) 641.5 0 8,483.5 9,125.0 69.6 8,917.7 137.6 D. Consultants 1. International Consultants 6,783.1 0 1,644.1 8,427.2 8,348.1 33.8 45.3 2. National Consultants 11,936.5 0 2,589.9 14,526.4 305.0 12,226.3 1,995.1 3. Project Preparation Facility 0 9,271.0 0 9,271.0 8,477.7 793.3 0 Subtotal (D) 18,719.6 9,271.0 4,234.0 32,224.6 17,130.8 13,053.4 2,040.4 E. Project Management 1. Project Management 25.2 0 0.0 25.2 0 23.9 1.3 F. Capacity Development 1. Institutional Capacity Development 174.3 0 3,354.5 3,528.7 320.5 2,780.0 428.2 2. Groundwater Management Training 62.8 0 26.9 89.7 0 84.4 5.3 3. Agriculture Support and Training 532.1 0 0.0 532.1 0 526.8 5.3 4. Demonstrations 4,188.2 0 0 4,188.2 0 4,188.2 0 Subtotal (F) 4,957.4 0 3,381.4 8,338.8 320.5 7,579.5 438.8 Total Investment Costs 204,628.0 9,763.6 38,544.4 250,936.0 28,628.6 209,214.6 13,092.8 II. Recurrent Costs A. Incremental Salaries and Allowances 0 0 11,145.9 11,145.9 0 9,672.3 1,473.6 B. Operations and Maintenance (O&M) 1. O&M Infrastructure 0 0 1,304.3 1,304.3 55.1 1,053.5 195.6 2. O&M Vehicles 236.3 0 1,144.1 1,380.3 605.5 570.9 204.0 3. Office O&M (Supplies and Consumables) 2,547.6 0 1,224.5 3,772.1 285.3 2,921.6 565.1 Subtotal (B) 2,783.9 0 3,672.9 6,456.7 945.9 4,546.0 964.8 Subtotal Recurrent Costs 2,783.9 0 14,818.8 17,602.6 945.9 14,218.3 2,438.4 Total Project Costs 205,411.9 9,763.6 53,363.2 268,538.6 29,574.6 223,432.9 15,531.2 Interest during Implementation 8,948.2 236.4 0 9,184.6 0 0 0 Commitment Charges 3,456.5 0 0 3,456.5 0 0 0 Total Disbursement 217,816.6 10,000.0 53,583.2 281,399.7 29,574.6 223,432.9 15,531.2 Cost estimates include price and physical contingencies. LBDC = Lower Bari Doab Canal, O&M = operations and maintenance, R&U = rehabilitation and upgrade. Source: Asian Development Bank estimates.

42 A

ppendix 5

Project Steering CommitteeChair Planning and Development Board

Punjab Irrigation and Drainage Authority (PIDA)

PIPD Strategic Planning Cell Investment Program Planning

and Management Unit• Program Director• Deputy Director Planning

Project Management Unit• Project Director• Director Engineer• Director Finance and Procurement• Director Monitoring and Evaluation (includes environment, resettlement, and groundwater)

Punjab Irrigation and Power Department (PIPD)

Executing Agency

Department of AgricultureDirectorate of On Farm Water

Management (DOFWM)

Project Management Office• DOFWM Project Director

PIDA Program Management Office (Sahiwal)

• Program Director

PIPD/AWBLower Bari Doab Canal Circle

KhaniwalProject Implementation Unit• Deputy Project DirectorDesign/Construction SupervisionGroundwater

PIPD Divisional Office

OkaraProject Implementation Unit• Deputy Project DirectorDesign/Construction SupervisionGroundwater

PIPD Divisional Office

SahiwalProject Implementation Unit• Deputy Project DirectorDesign/Construction SupervisionGroundwater

PIPD Divisional Office

Regional Farmer Organization (FO) Support Office

BallokiPIPD PMO Barrages

• Deputy Project Director

PIPD Office

12 IrrigationManagement Units

• 12 DOFWM Officers• 12 PIDA Coordinators

PROGRAM AND PROJECT MANAGEMENT ORGANIZATION CHART

Regional Farmer Organization (FO) Support Office

Regional Farmer Organization (FO) Support Office

Appendix 6 43

IMPLEMENTATION SCHEDULE

Design & Supervision Activities1. Bolloki Barrage R&Ua. Recruit D&S Consultantsb. Detailed Designc. Resettlement Activitiesd. Construction2. LBDC & Dist System R&Ua. Recruit D&S Consultantsb. Detailed Design LBDCc. Construction LBDCd. Detailed Design Dist Syse. Resettlement Activitiesf. Construction Dist Sys3. Groundwater Mgmta. Recruit Consultantsb. Design of Drilling Programc. Drilling and Testingd. W ell Monitoringe. Groundwater Modelingf. Driller Trainingg. Groundwater Mgmt4. OFWM and Agr Supporta. Recruit Consultantsb. Mobilize DOFW Mc. Select FP W trcoursesd. Establish Field Programse. Operate Field Programs5. Institutional Buildinga. Recruit Consultantsb. Mobilize and Form FOsc. Train and Support FOsd. Assist FOs, Establish IMUs e. Train and Support IMUsf. LBDC Operational Plang. Area W ater Board Support6. Project Managementa. Consultant Recruitmentb. Procure Vehicles & Eqptc. Establish PPMSd. Undertake PME

20122007 2008 2009 2010 2011

D&S = design and supervision, DOFWM = Directorate of On Farm Water Management, FO = farmer organization, FP = field program, IMU = irrigation management unit, LBDC = Lower Bari Doab Canal, PME = project monitoring and evaluation, PPMS = project performance management system, R&U = rehabilitation and upgrade

44 Appendix 7

PROCUREMENT PLAN

Project Information PAK: Lower Bari Doab Canal Improvement Project and the Punjab Irrigated Agriculture Investment Program

Country Pakistan Name of Borrower Islamic Republic of Pakistan Project Name Lower Bari Doab Canal Improvement Project Loan or TA Reference TA 4642-PAK: Punjab Irrigated Agriculture Sector

Development Program Date of Effectiveness March 2007 anticipated Amount $ $217.8 million ordinary capital resources (first tranche)

$10.0 million Asian Development Fund (first tranche) Of Which Committed, $ $ Executing Agency Punjab Irrigation and Power Department Approval Date of Original Procurement Plan Loan Appraisal: 27 September 2006 Approval of most recent Procurement Plan --------------------- Publication for Local Advertisements Assortment of nation-wide Urdu and English language

newspapers. Period Covered by this Plan 18 months

Procurement Thresholds, Goods & Related Services, Works and Supply and Install Procurement Method To be used above

(Value $) International Competitive Bidding (ICB) Works $5.0 million and more ICB Goods $500.0 thousand and more National Competitive Bidding (NCB) Works Less than $5.0 million Limited International Bidding (LIB) Goods $100.0 thousand to 500.0 thousand Shopping Goods $100.0 thousand and less Exceptional Methods Community participation Community contracting, anticipated to

take the form of subcontracts under the main civil works contracts will be employed as appropriate. Direct contract award and administration of civil works by the farmer organizations will be limited to one or two pilot trials.

Procurement Thresholds, Consultants Services

Procurement Method To be used above (Value $)

Quality- and Cost-Based Selection (QCBS) All identified consulting packages under both the Project and Investment Program

Individual consultants Short-term assignments on project implementation

Appendix 7 45

List of Contract Packages in Excess of $100,000, Goods, Works and Consulting Services

Ref Contract Description

Estimated Cost ($)

Procurement Method

Expected Date of Advertisement

Prior Review

Y/N

Comments

CW-1 Rehabilitation and upgrading (R&U) of Balloki Barrage and LBDC and Balloki–Sulemanki head regulators and bridges

17,800,000 ICB November 2007 Yes

CW-2-a R&U main canal RD 0–227

22,000,000 ICB January 2008 Yes Includes R&U of Gugera Branch and associated structures

CW-2-b R&U main canal RD 227–461

17,600,000 ICB July 2008 Yes Includes slope brick facing in Sihawal town

CW-2-c R&U main canal RD 461–RD 661

15,400,000 ICB December 2008 Yes Includes R&U of Kasowali escape, other escapes as appropriate and the LBDC aqueduct

CW-2-d R&U Jhandraka distributary

1,500,000 NCB September 2007 Yes

CW-2-e R&U 15-L distributary

3,700,000 NCB September 2007 Yes

CW-2-f R&U of distributary/minor canals off-taking RD 0–227

15,700,000 ICB July 2008 Yes Excluding Jhandraka Distributary

CW-2-g R&U of distributary/minor canals off-taking RD 227–461

29,900,000 ICB December 2008 Yes

CW-2-h R&U of distributary/minor canals off-taking below RD 461

25,700,000 ICB July 2009 Yes Excluding 15-L Distributary

CW-3-a Test and monitoring well drilling

415,000 NCB April 2008 No

Sup-V-a Motorcycles (96) 128,000 Shopping April/October 2007 No Two packages Sup-V-b Automobile

sedans (11) 210,000 Shopping April/October 2007 No Two packages

Sup-V-c 4x4 double cab pickups (33)

588,000 Shopping April/October 2007 No Two packages

Sup-V-d Local 4x4 “Jeep-type” vehicles (90)

1,530,000 Shopping April/June/October/ December 2007

March 2008

No Five packages

Sup-Eqpt-a

Computers (150) 300,000 Shopping April/December 2007

No Two packages

Serv a External farmer organization monitoring and evaluation services

200,000 QCBS February 2008 Yes

46 Appendix 7

Ref Contract Description

Estimated Cost ($)

Procurement Method

Expected Date of Advertisement

Prior Review

Y/N

Comments

Serv b International management training

400,000 QCBS January 2009 Yes

Conslts 1A

Design and construction supervision Balloki Barrage

2,100,000 QCBS October 2006 Yes To be awarded in conjunction with 1B

Conslts 1B

Design and construction supervision LBDC main canal, distributaries and minors

7,200,000 QCBS October 2006 Yes To be awarded in conjunction with 1A

Conslts 2 Project management unit support

2,800,000 QCBS October 2006 Yes

Conslts 3 Groundwater monitoring, modeling, and management

1,800,000 QCBS December 2006 Yes

Conslts 4 On-farm water management and agriculture support

1,060,000 QCBS January 2007 Yes

Conslts 5 Institutional strengthening, capacity building and improved operation and maintenance

2,060,000 QCBS December 2006 Yes

Conslts 6 Preparation and detailed design of Sulemanki headworks and Pakpattan Canal, Thal Canal, Sidhnai Canal, and Trimmu Barrage

7,400,000 QCBS January 2007 Yes The consulting services in this package are for the investment program (PIAIP) and not for the Project (LBDCIP)

ICB = international competitive bidding, LBDC = Lower Bari Doab Canal, NCB = national competitive bidding, QCBS = quality and cost-based selection, R&U = rehabilitation and upgrade, RD = reduced distance (from 1,000 feet) Source: Asian Development Bank estimates.

Appendix 8 47

SUMMARY ECONOMIC AND FINANCIAL ANALYSIS A. Background 105. Sector Overview. Improved productivity of irrigated agriculture and water resources is vital to Punjab’s economic development. Irrigated agriculture (i) accounts for 28% of Punjab’s gross domestic product (GDP), (ii) employs more than 50% of the labor force, (iii) produces 90% of Punjab’s agricultural output, and (iv) uses more than 95% of the water resources. Punjab provides about 58% of the Pakistan’s GDP, and Punjab agricultural GDP is 66% of the national agricultural GDP. The irrigated agriculture sector is crucial to attaining the 6%–7% growth targeted by the Government of Punjab. The Government of Punjab’s total outlay for irrigation in 2006/07 is $142 million; a 21% increase over the allocation for 2005/06, and accounts for 13% of the core Annual Development Program (2006/07). The projected outlays are $200 million in 2007/08 (41% increase) and $267 million in 2008/09 (33% increase). 106. The Punjab Irrigation and Power Department (PIPD) is responsible for operation and maintenance (O&M) and management of surface irrigation systems in Punjab that cover a gross command area of 9.5 million hectares (ha) and have a cultivable command area (CCA) of 8.4 million ha. The replacement value of government-owned irrigation and water resources management infrastructure in Punjab is about $20 billion. The condition of infrastructure has seriously deteriorated due to (i) age (much is nearly 100 years old), (ii) lack of asset management planning, and (iii) underfunding and ineffective O&M. The estimated cost of deferred maintenance is about $2 billion; the cost to modernize the systems for enhanced management capacity is about $3.5 billion. The poor condition of some large infrastructure poses failure risks, and overall irrigation service delivery is unreliable, particularly at tail ends of canals. Population growth and farm fragmentation has resulted in significantly increased cropping intensities, driving demand for irrigation water far beyond the original design capacity for cropping intensity. To meet their needs, farmers have installed private tubewells for increased reliability and water supply; no effective groundwater management is in place, and much of Punjab has rapidly declining water tables. B. The Program and Project 107. The Punjab Irrigated Agriculture Investment Program (PIAIP). The PIAIP and its first project, the Lower Bari Doab Canal Improvement Project (LBDCIP), will result in economic growth and improved sustainability of water and land resources. The PIAIP is a $900 million investment program proposed for financing through the multitranche financing facility of the Asian Development Bank (ADB). It will provide (i) rehabilitation and upgrading (R&U) of irrigation infrastructure, (ii) institutional reform for water management, (iii) reformed and restructured institutions for improved and sustainable irrigation service delivery, and (iv) capacity development. Investments subsequent to the LBDCIP include the: (i) Pakpattan Canal and Sulemanki Barrage, (ii) Thal Canal, (iii) Sidhnai Canal, and (iv) Trimmu and Punjnad barrages. The investment amount for the PIAIP is based on sector needs, funds devoted to the sector, identified projects, the absorptive capacity of PIPD and Government of Punjab, and anticipated inflation during the program period. 108. The LBDCIP. The Balloki Barrage diverts water to the Lower Bari Doab Canal (LBDC) irrigation system and the Balloki–Sulemanki Link Canal to supply irrigation to more than 1.82 million ha. The barrage and LBDC irrigation system needs substantial R&U due to deterioration and to enhance management capacity for water distribution. The present CCA area of the LBDC is about 703,500 ha; originally designed to meet a cropping intensity of about 70%, which has increased to 160%. Farmers have installed private tubewells to supplement canal water, and the

48 Appendix 8

conjunctive use of surface and groundwater makes meeting increasing irrigation demands possible. The groundwater table has been declining; salinity of groundwater has been increasing, and mixing of surface and groundwater is required in some areas to ensure acceptable salinity levels. 109. The LBDCIP has five components related to the LBDC: (i) R&U of the Balloki Barrage; (ii) R&U of the LBDC distribution network, (iii) groundwater management, (iv) on-farm water management and agriculture, and (v) institutional strengthening and operation modernization. The LBDCIP includes development of the Punjab irrigated agriculture project preparation facility, which will prepare subsequent projects under the PIAIP. The LBDCIP base costs are approximately $198.3 million for the five components directly related to the LBDC and will be financed from ADB’s ordinary capital resources. The Punjab irrigated agriculture project preparation facility will be financed from ADB’s Special Funds resources (Asian Development Fund) with a base cost of $9.4 million.1 Together with contingencies, finances charges, and taxes, the total cost of the LBDCIP is $281.4 million of which $217.8 million will be a loan from ADB’s ordinary capital resources; $10 million will be a loan from ADB’s Special Funds resources, and $53.6 million will be financed by the Government of Punjab. C. Overview of the Economic and Financial Analyses 110. Demand Analysis. PIPD, a public agency, supplies canal water to the LBDC system at a fixed-rate based on a per acre rate of PRs80 for the kharif season and PRs55 for the rabi season (total of PRs135 per year per acre or about PRs337 per ha), providing no direct connection between the volume of water consumed and the prices paid. Similarly, the cost for canal water is not based on the full cost of service provision; a subsidy supports PIPD operations. PIPD is a monopoly supplier so that the farmer has no choice with regard to the market for surface irrigation. Pricing and consumption is therefore distorted for many reasons including political pressure to keep fees low. Irrespective of the pricing, in terms of demand, all of the irrigation water supplied by the canal is consumed, and the substantial development of groundwater reflects that demand for irrigation water is significantly greater than what can be supplied through the canal system.2 This is underscored by the fact that groundwater may cost 10 times as much as surface water, and is used by nearly 100% of the farmers in the LBDC area.3 The additional canal provided by the LBDCIP is not expected to affect demand or the price for canal water within a market framework. However, the improved service delivery and institutional changes with management oversight by water users makes the increase of fees possible to improve cost recovery and O&M. Improved canal water delivery will provide a substitute for more expensive and poorer quality groundwater, stabilize the water table, and lead to a more sustainable agricultural production system. 111. With- and Without-Project Scenario. The approach to the economic and financial analyses is based on projected outcomes with and without the Project. The without-project scenario is characterized by continued degradation of the entire LBDC irrigation system. This will reduce canal water distribution, especially at the tails, and limit groundwater recharge, while pumping of groundwater increases to make up for the lack of canal water. This will result in further decline of the water table with subsequent higher pumping costs, replacement of centrifugal tubewell pumps with more powerful turbine pumps, and possible loss of access to groundwater by poorer farmers and those in saline-affected areas. Mixing of canal water with saline groundwater is critical to sustain the current cropping intensity at the tail end. While 1 The PIAPPF is excluded from the economic and financial analysis of the LBDCIP. 2 The number of tubewells in the LBDCIP area has increased from about 10,000 to 48,000 during the last 15 years. 3 Groundwater may cost from PRs150 to PRs300 per hour, which is generally the amount needed for an average

size field. Anywhere from 4 to 8 waterings may be required depending on the crop and soil conditions.

Appendix 8 49

overall productivity will decline and all farmers will suffer in the without-project scenario, tailenders, who are already the worst off, will suffer the most. In the with-project scenario, these negative outcomes will be avoided. Not only will important productivity gains for the entire LBDC occur, but also significant positive equity implications for the tail ends will result. 112. Under the without-project scenario, the Balloki Barrage and its associated works will continue to deteriorate, and continued use without R&U will increase the probability of damage or failure during a severe flood. This will cause a dire water shortage for the LBDC and Balloki–Sulemanki Link command areas and result in excessive pumping and further depletion of groundwater to try and meet irrigation needs. In addition, moderate to severe floods are currently accommodated by breaching of the right bank levy above the barrage in order to protect it. This causes flood damage to crops and other assets in adjacent areas and inundates an important roadway to Faisalabad. 113. CCA Assumptions. The economic and financial analyses of the LBDCIP were carried out based on changes in gross margins from the incremental agriculture productivity. To account for the heterogeneity of LBDC’s large 703,500 ha CCA, it was divided into three broad categories based on water availability: (i) head reaches where canal water supplies are adequate and shortages are easily met from high-quality groundwater recharged from the canal water; about 40% of the CCA (281,500 ha); (ii) middle-tail reaches with similar water availability to head reaches, but more shortage and less groundwater recharge; about 40% of the command (281,500 ha); and (iii) tail-saline where surface water supplies are usually inadequate and shortages not easily met from groundwater that is of poor quality, about 20% of the CCA or (140,500 ha). The density of tubewells is less in the head reach due to sufficient surface supplies, and higher in middle and tail reaches. However, the marginal or brackish groundwater causes less tubewell utilization in tail-saline areas because it diminishes crop productivity. 114. Prices. The LBDC has intensive and progressive farming compared to other parts of Punjab with crops sold in numerous markets throughout the area. Most inputs like seed, fertilizers, and pesticides are provided through a well-developed network of private dealers located in local markets. Farmgate prices in the analysis were established after market assessments and discussions with farmers. Financial prices were converted to economic prices through standard methods. The shadow exchange rate was estimated by weighting the effective export and import exchange rates by the proportion of total trade. The standard conversion factor for traded goods, the reciprocal of the shadow exchange rate, is estimated at 90%. Import and export border parity prices for the main agricultural commodities and factors of production were calculated to establish the price relationship between the local market value of traded commodities produced on the farm and their internationally traded values. Financial prices were adjusted to economic values by eliminating transfer payments (subsidies and taxes) and adjusting the costs of traded inputs involved in the production chain (e.g., storage, haulage, and processing). Specific economic conversion factors were calculated for internationally traded agricultural commodities including both farm produce and inputs used (e.g., chemical fertilizers). D. Project Benefits and Assumptions 115. Nearly all the project benefits (93%) accrue from increased agricultural productivity within the LBDC CCA including (i) increased cropping intensity, (ii) increased yields, and (iii) crop diversification. Benefits are anticipated to increase to their full potential over 10 years with cropped area and yield figures being interpolated in a linear fashion between years 1 and 10. Benefits start to be realized in year 5 of the Project for the R&U of the barrage, and in year 6 from increased productivity within the LBDC. The R&U is assumed to enable the LBDC to safely

50 Appendix 8

pass its maximum flow allocation of 278 cumecs when completed; an increase from the current maximum of about 244 cumecs. Distribution of water supply will be improved through canal R&U. The Project is assumed to have a 30-year life, although R&U of some infrastructure should yield benefits far longer than this. 116. Agricultural Productivity Benefits and Assumptions. To assess crop production and projections, field surveys throughout the LBDC CCA were conducted during project preparation, and secondary data sources such as the Punjab Agriculture Census (2000) were consulted. Based on the analysis, cropping intensity is projected to continually increase from about the current 162% to 172% with the Project. Without the Project, cropping intensity is assumed to decrease by 1%, although this may be much greater if groundwater tables continue to fall. Crop yields are anticipated to increase from about 2% to 7% depending on the location within the LBDC. Crops currently with the greatest deficiencies in crop water requirements, which may be up to 30%–40% for cotton and wheat in some parts of the LBDC, will experience the greatest gains. Accordingly, cotton is anticipated to increase by 7%, potatoes by 5%, and wheat by 4.5%. Maize and most other crops are anticipated to increase by around 3%. The cropping intensity and yields are based on a weighted average of the three defined reaches of the distribution system: head, middle-tail, and saline-tail. Diversification to high-value crops is also anticipated under the Project due to the greater reliability of water. Table A8.1 provides cropping data.

Table A8.1: LBDC Cropping With the Project and Incremental Production

Crop Current

(hectares) Without the Project

(hectares) With the Project

(hectares)

Annual Incremental Production

(tons) Cotton 236,771 234,768 258,553 75,353 Maize Autumn 45,056 44,923 46,182 11,730 Rice 86,551 86,335 86,656 9,005 Fodder (kharif) 73,325 72,942 75,024 47,642 Fodder (kharif): maize 17,480 17,471 18,780 42,556 Vegetables (kharif) 15,585 15,432 16,190 12,387 Potato 23,172 22,914 25,969 105,240 Other Kharif Crops 49,984 47,459 50,973 11,550 Wheat 385,243 383,053 409,556 140,889 Maize Spring 54,569 54,321 58,644 50,739 Fodder (rabi): alfalfa, clover 90,642 90,097 92,722 288,181 Other Rabi Crops 11,123 11,110 11,127 223 Sugarcane 35,373 34,667 36,666 148,541 Orchards (mango, citrus) 17,919 17,725 19,489 38,453 Total Cropped Area 1,142,794 1,133,217 1,208,451 Cropping Intensity 162.4% 161.1% 171.8% Source: Asian Development Bank estimates. 117. Incremental Production. The production of crops was calculated by multiplying unit area yield with area planted under those crops. Slight decreases anticipated in the head reaches for fodder (sorghum) and vegetables were attributed to assumed crop diversification. In the lower reaches including the saline areas, the production is likely to increase. Area under sugarcane and orchards is likely to increase owing to high returns and soil/climatic suitability. Without the Project, production is likely to slightly decrease for all crops, particularly in the tail-saline area. Incremental production is computed as the difference between with and without the Project at full development.

Appendix 8 51

118. Barrage Benefits and Assumptions. Barrage benefits are based on (i) damage to the Balloki Barrage and related infrastructure during an extreme flood event and reduced irrigation supply to the LBDC and irrigation areas supplied by the Balloki–Sulemanki Link Canal; (ii) flooding of adjacent areas upstream of the barrage due to forced breaching of the right embankment during floods to protect the Balloki Barrage and losses from damage to crops, assets, and infrastructure; and (iii) disruption to traffic on the Faisalabad road during floods. 119. The following assumptions were made in quantifying the barrage benefits. If fully breached, complete reconstruction will take place in 3 years, and the LBDC and Balloki–Sulemanki link systems will encounter water shortage for the same period.4 This will result in (i) incremental costs of groundwater pumping to substitute for canal water; (ii) reduction of cropping intensity by 7.5% in the first 3 years due to water shortage, with cropping intensity gradually restored during the next 6 years; (iii) 20% reduction in irrigation applications causing 10% yield loss; and (iv) reduction of number of tubewells by 50% due to lowered water table and replacement with turbine pumps. A 5% reduction in the gross margins is assumed as farmers use more brackish or marginal quality groundwater in the middle and tail sections of the LBDC. The avoided costs of these changes were calculated as part of barrage benefits. The estimation of direct damage caused by breaching the right upstream embankments to pass floods is based on loss of crops, private assets, and public infrastructure was based on an area of 8,868 ha from historical flooding. Flooding of the road to Faisalabad causes traffic diversion resulting in loss of bridge tolls and higher transportation costs by freight trucks due to alternate increased travel distances. The avoided losses are used as benefits for 3 years following the barrage failure. E. Project-Wide Analysis 120. Economic Analysis. To assess the economic performance of the entire LBDCIP, the economic benefits from increased agricultural productivity and from R&U of the Balloki Barrage and its related infrastructure were aggregated. The benefits of all other LBDCIP components were subsumed into the LBDCIP benefits in terms of water-use efficiency and yield gains. The economic internal rate of return; net present value at 12% discount rate, which is assumed to be the opportunity cost of capital; and benefit-cost ratios were calculated using the economic base project costs (total cost excluding contingencies). Table A8.2 presents the results of the economic analysis, showing that the LBDCIP is economically feasible and generates benefits in excess of costs with a benefit-cost ratio of 1.96. A sensitivity analysis was conducted by decreasing benefits and increasing costs by 20%; the economic internal rate of return is robust even when costs increase and benefits decrease.

Table A8.2: Results of Economic Analysis Item EIRR NPV (PRs, m) Benefit-Cost RatioBase Case 19.1% 8,033 1.96 Sensitivity Analysis Cost Increases by 20% 17.1% 6,353 1.63 Benefits Decrease by 20% 16.7% 4,746 1.57 Cost Increases by 20% and Benefits Decrease by 20% 14.7% 3,066 1.30 Switching Value at 12% Opportunity Cost of Capital Increase in Total Cost Decrease in Benefits

87% 47%

EIRR = economic internal rate of return, NPV = net present value, PRs, m = Pakistani rupees, in millions Source: Asian Development Bank estimates. 4 About one third of the supply is assumed to be provided with a temporary structure during construction.

52 Appendix 8

121. Financial Analysis. Table A8.3 indicates that the Project is financially feasible; the financial internal rate of return is well above 12% with a benefit-cost ratio of 1.82. A sensitivity analysis was conducted by decreasing benefits and increasing costs by 20%. The financial internal rate of return is robust above a 12% return in all cases except the combined increase in costs and decrease in benefits where it dips slightly below to 11.8%, but the financial returns will be important to LBDC farmers.

Table A8.3: Results of Financial Analysis FIRR (%) NPV (PRs, m) Benefit-Cost RatioBase Case 16.1 4,458 1.47 Sensitivity Analysis Cost Increases by 20% 14.1 2,576 1.23 Benefits Decrease by 20% 13.7 1,684 1.18 Cost Increases by 20% and Benefits Decrease by 20% 11.8 (198) 0.98 Switching Value at 12% Opportunity Cost of Capital Increase in Total Cost Decrease in Benefits

47 32

FIRR = financial internal rate of return, NPV = net present value, PRs, m = Pakistani rupees, in millions Source: Asian Development Bank estimates.

122. Farmer Benefits Based on social and land tenure data gathered during preparation of the LBDCIP, the Project will have an important impact on rural incomes and rural poverty. About 275,000 farm families live in the LBDC command area with an average family size of 6.8, so the Project will impact nearly 2 million people. Land ownership is skewed, with about 12% of farm families holding nearly 45% of the farm area in the medium- to large-farm category (farm size is above 5 ha). Their average landholding is 9.6 ha. However, the vast majority are smaller farms below 5 ha, which is about 55% of the LBDC command area, 88% of all farms, and owned by about 240,000 farm families (1.65 million people). The average landholding within this group is 1.6 ha. Based on this, a representative small-farm model was created to simulate the project impact on a 1.64 ha average farm. Based on this model, the gross margin of the average small farm will see an annual increase in income from about $1,204 to $1,284 or an annual increase of income of 7% at full development. Within the LBDC, about 20% of the command area is occupied by farms that are less than 2 ha, yet due to the skewed land tenure this 20% of the area supports 58% of the farms and farm families or over 1 million people. The average landholding for this group of farmers is 0.9 ha; many of these farmers are operating at a subsistence level. Project impacts were simulated on a small farm (0.91 ha) in the tail-saline portion of the command area. Under the Project, this farmer will see an annual increase in gross margins from about $694 to $772, or an annual increase of income of 11% at full development. Project benefits will thus have the greatest impact on farmers who are currently the worst off in the LBDC. 19. Risk Analysis. Most benefits come from incremental agricultural production. The Project is more sensitive to a decrease in benefits than to an increase in costs; thus loss or delay of benefits poses the largest risk. The comprehensive and integrated approach of the Project helps to mitigate this risk. The Project addresses water management at all levels including the canal system, on-farm water management, and groundwater management to ensure that supplemental irrigation water and improved conveyance efficiency result in water reaching the root zone of the plant and greater productivity. In addition to improved water supply and management, the Project includes support for agricultural support services that will help farmers make the best use of the improved irrigation water to achieve productive benefits.

Appendix 8 53

20. Additional Benefits. In addition to the quantified benefits in the analysis, the PIAIP and the LBDCIP have other benefits that are not quantified, but will help ensure a robust economic and financial return. The institutional changes will enhance irrigation service delivery, especially O&M, improving water distribution with important equity and productivity gains; however, project benefits are not directly contingent upon the institutional reforms. Emphasis on the management of groundwater will ensure that this resource is conserved and used in a sustainable manner, which will reduce pumping costs to farmers and ensure current cropping intensity can be maintained.

54 Appendix 9

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national priority in country poverty analysis?

Yes

No

Is the sector identified as a national priority in country poverty partnership agreement?

Yes

No

Contribution of the sector or subsector to reduce poverty in Pakistan: Land and water resources are among Pakistan’s most valuable assets and fundamental to the agriculture sector, particularly in Punjab. The province’s irrigation system is the largest in Pakistan, but due to deterioration caused by neglect and inadequate resources, requires rehabilitation. The Program will address these problems starting with its first intervention in the Lower Bari Doab Canal (LBDC) command area, not only to benefit landowners with access to irrigation, but to improve management of irrigation systems by farmers, benefiting share croppers and the landless. Seventy percent of the LBDC population is rural, depending almost entirely on agriculture for its livelihood. Irrigated agriculture is vital to sustain the livelihood base, and surface water an essential source, particularly in areas suffering from groundwater contamination. Punjab is the most agriculturally productive province in Pakistan. Despite being labeled the “bread basket” of Pakistan, it has a surprisingly high incidence of poverty at 32.4% of the rural and 26.5% of the urban population. While Punjab has districts producing the most food surplus in all of Pakistan, it also demonstrates high intensities of food insecurity, particularly in rural areas. The Pakistan Human Condition Report (2002) states that the incidence of food insecurity in rural Punjab increased during 5 years, from 24.5% of the rural population in 1993/1994, to 35.8% by 1998/1999. By 2003, rural communities in the four districts in the LBDC command area were experiencing food insecurity: Khanewal the highest intensity at 37% of the rural population; Kasur at 33.8%; Sahiwal at 33.6%; and Okara at 32.4%. Landholdings have fragmented due to inheritance patterns, while parts of the command area are affected by water and soil salinity. Coupled with insecurity of surface water supply, these factors have contributed to degradation of land resources, causing land shortages, increased marginalization of small farmers, and increased stress migration of working males in some parts of the command area. In response to these factors, the intensity of agriculture has increased to squeeze more productivity out of land that is becoming less productive. Cropping intensity in the area has increased over time from the historical design of about 60% to 70% to close to 160%, placing excess demand on irrigation water. Shortage of irrigation water is particularly acute in the tail reaches of canals where limited or often no water at all reaches farmers. In response to the need for additional water, farmers have installed tubewells, which has in some cases accelerated degradation of land resources through increased salinity from saline groundwater, and water tables have been dropping, increasing the pumping costs for farmers who own wells and the remaining farmers who are forced to purchase tubewell water. As the water table continues to drop, only more expensive turbine pumps will be viable, favoring better-off farmers. The Project will stem this downward cycle through improved surface water irrigation supplies, reduce the amount of groundwater needed, as well as stabilize the groundwater table to allow sustainable exploitation of this vital resource for all farmers.

B. Poverty Analysis Targeting Classification: General Intervention

What type of poverty analysis is needed? Apart from the general assessment of poverty and its characteristics, the required poverty analysis has addressed the linkages between the rural poor and irrigated agriculture, and the needs of poor agriculture-dependent households. The Project comprises a number of elements that will have direct benefits for the poor. A social and poverty assessment was carried out for each of the subprojects in compliance with the Asian Development Bank (ADB) Guidelines on the Incorporation of Social Dimensions in Bank Operations (1993). It included an assessment of the incidence of poverty, which revealed the nature and perceptions of its causes: (i) gender bias, (ii) landholding fragmentation, (iii) inequitable access to infrastructure and facilities, (iv) poor health, (v) basic needs not met (health, nutrition, education), and (vi) lack of alternative livelihoods to agriculture. The social analysis identified especially vulnerable groups within the population, who would be unable to benefit fully from project interventions without some social preparation. These include (i) households headed by women, (ii) landless, (iii) marginal farmers owning less than 2 hectares (ha) of land, (iv) tenants and sharecroppers dependent on less than 2 ha of land, and (v) landless persons living on and using right-of-way land. The Project will ensure that services delivered through the field programs under the on-farm water management and agriculture component will have programs targeted for marginal and landless farmers.

Appendix 9 55

C. Participation Process

Is there a stakeholder analysis? Yes No Is there a participation strategy? Yes No Stakeholders, beneficiaries, and people directly affected have been consulted, and will continue to be consulted during finalization of project design and implementation. A participatory and consultative methodology was adopted to undertake social analysis during the project preparatory technical assistance. It involved (i) initial field reconnaissance discussions with project stakeholders, (ii) focus group discussions with women in core subproject areas, (iii) detailed household survey with male respondents in core subproject areas, (iv) key informant interviews, and (v) detailed survey questionnaires of households directly affected by land acquisition and civil works on the rights-of-way. During project implementation, the participation of stakeholders will be supported and deepened with the assistance of key project staff and local nongovernment organizations. Communication strategies will be developed for farmers concerning schedules of canal closures. A dedicated resettlement cell will be part of the project management unit to ensure resettlement activities are addressed according to ADB guidelines. Farmers organizations will be an output of the Project so the Project is inherently participation oriented, and the farmer organizations will ensure close linkages are established between the project implementation team and the community. The Project will ensure a participatory approach to detailed design of the irrigation works, and the institutional capacity of farmer organizations will subsequently be developed to facilitate sustainable operation and maintenance of the irrigation system. Community facilitators will be responsible for identifying and assisting disadvantaged and vulnerable groups. Participation Strategy required: Yes, included in resettlement and participatory development activities.

D. Gender Development

Strategy to maximize impacts on women: The social analysis confirmed that women from poor households are proportionately at greater disadvantage. Compared to women in households headed by men, households headed by women are especially vulnerable: they have a lower level of education; inadequate adult labor; limited access to land, credit, and agricultural extension; and lower income. A high proportion lives below the poverty line. A gender strategy will be developed in the first year of the Project, ensuring the implementation of gender-sensitive activities to be delivered through the on-farm water management and agriculture component. In addition to these targeted components, mainstream gender activities will take place through the Project. Women’s groups will be formed during implementation of civil works in the minor and distributary canals for consultation about the placement of minor infrastructure such as bridges and required access points for washing or other nonirrigation uses. An international gender specialist has been hired to assist with developing these activities and a full-time domestic gender specialist will support these activities throughout implementation of the Project. A similar approach will be used in subsequent projects under the Program, and activities and implementation modalities will be refined based on close monitoring and evaluation lessons identified.

Has an output been prepared? Yes No

56 Appendix 9

E. Social Safeguards and other Social Risks Item

Significant/

Not Significant/ None

Strategy to Address Issues

Plan Required

Resettlement

Significant

Not significant

None

A draft resettlement framework was prepared during the project preparatory technical assistance, as well as two resettlement plans, one of a representative project activity, the other where the highest potential impacts are possible. The resettlement outputs will need to be revised on the basis of the final detailed design. Additional resettlement plans will be required when the scope, location, and design of all civil works are finalized.

Full

Short

None

Affordability

Significant

Not significant

None

Project interventions will not reduce the financial burden on farmers in terms of water user fees, but will increase their incomes and ensure more equity of project benefits to a wider range of land-dependent households. Greater participation of farmers in on-farm water management and agriculture will reduce costs, and could provide additional income for poorer farmers.

Yes

No

Labor

Significant

Not significant

None

Farmer organizations will participate in community contracting under the Project providing income to local communities. Contractors will be encouraged to hire local workers and be bound by standard ADB labor covenants.

Yes

No

Indigenous Peoples

Significant

Not significant

None

No indigenous people reside in the project area.

Yes

No

Other Risks and/or Vulnerabilities

Significant

Not significant

None

Yes

No

Appendix 11 57

SUMMARY ENVIRONMENTAL IMPACT ASSESSMENT 1. Environmental Assessment. All tranches and their associated projects and subprojects under the Punjab Irrigated Agriculture Investment Program (PIAIP) will be given an environmental categorization independent of previous tranches, The Government of Punjab will ensure that an environmental impact assessmemt (EIA) or initial environmental examination (IEE) is prepared in accordance with the Government’s requirements and the Asian Development Bank (ADB) Environment Policy. The Government of Punjab will ensure that all EIAs and/or IEEs are approved by ADB and that relevant government agencies adhere to them during design, construction, and operation phases. 2. The Lower Bari Doab Canal Improvement Project (LBDCIP) will be the first activity financed under the PIAIP and is classified as category B in accordance with ADB guidelines. Environmental impacts were assessed through a full EIA, as required by the Punjab provincial government due to the presence of two protected areas within the project area, the fact that the project area is larger than 20,000 hectares (ha), and resettlement is expected. The Project is not expected to have major or long-term adverse impacts, and negative impacts are expected to be only temporary and mainly associated with construction, or will be mitigated during the life of the Project. The Project is expected to have an overall positive impact, through improved water resource management from the main LBDC system down to the on-farm level. Significant project benefits are expected, as the activities will help reverse the present trend of falling groundwater tables and reduce groundwater salinity. 3. The Project’s EIA was carried out following the rules and regulations of the Pakistan Environmental Protection Act (1997), Pakistan EIA Review Regulations (2000), Pakistan Environmental Assessment Procedures (1997), and ADB Environmental Assessment Guidelines (2003). These were followed as a minimum, and various other guidelines were consulted and followed during the course of the study. The EIA study components included scoping, screening, stakeholder consultation, secondary and primary data collection, review of alternatives, identification and assessment of impacts, recommendations for mitigation measures, and development of an environmental monitoring plan (EMP) and environmental assessment framework (EAF) (Supplementary Appendix C for the EIA, EMP, and EAF). The activities for preparation of the EIA satisfy all ADB procedures for a category A project. 4. Public Consultation. Extensive public consultations were held with various stakeholders including local communities, government agencies, and nongovernment organizations. A number of workshops were organized. Public workshops and general meetings were held in (i) Sahiwal on 14 July and 12 August 2006, (ii) Miachannu on 14 August 2006, and (iii) a civil society workshop was held with nongovernment organizations and stakeholders in Lahore on 4 August 2006. Surveys of the current environmental situation were undertaken as part of the preparation of the EIA, and a wide cross-section of stakeholders’ concerns and suggestions were recorded and incorporated into the EIA. Following EIA submission for approval by the Environmental Protection Department, a public hearing will be held. Prior to the public hearing, the department will circulate copies of the EIA to the concerned agencies. A. The Project Area 5. LBDC Physical Environment. The LBDC command area, approximately 700,000 ha, is part of a vast plain of alluvial deposits from tributary rivers of the Indus. The command area is bounded by the Ravi River in the north and the Sukh Beas drainage channel in the south. The Upper Bari Doab Canal command area forms its north-eastern boundary and the Sidhnai Canal command forms the south-western boundary. The climate of the project area is characterized by

58 Appendix 10

hot summers and moderate and pleasant winters. The average annual rainfall varies from 650 millimeters (mm) for Lahore in the east, to 210 mm in the southwest for Multan. 6. The LBDC overlies a large groundwater aquifer, which is made up of alluvial sediments deposited through the river system. The depth of the water table has changed significantly due to irrigation system construction in the area. Before the irrigation system, the water table was at an average depth of about 30 meters (m), but it rose to 0–1.5 m in certain parts of the command area due to seepage from the canal system, and caused significant land degradation. Due to the rampant growth of tubewells over the last decades, the groundwater table has been dropping,1 as evidenced by the decrease in the amount of water-logged areas: from 10% in 1962–1965 to virtually 0% in 2001/2002. The total number of private tubewells in the command area is estimated to be around 48,000. The command area is a conjunctive-use farming system due to growing cropping intensity and demand for canal water; reliance on groundwater has increased over the years. Presently groundwater abstraction is estimated to be around 4,564 million cubic meters per year, accounting for more than 50% of crop water requirements. 7. The main surface water resource in the project area is the canal irrigation system. The LBDC exits the left bank of Ravi River at the Balloki Barrage. The current canal design capacity is 244 cumecs against a sanctioned discharge of 278 cumecs. Any shortfall in irrigation is met by pumping groundwater and occasional rainfall, although overall the system is in deficit. Pollution in Ravi River is the highest of any river in Punjab. Most wastewater discharges in the river reach between Lahore and the Balloki Barrage Complex. The Ravi receives untreated wastewater from the city of Lahore through a number of discharge points. The industries located in the city also discharge their untreated wastewater into the system; during low flows the river has a high concentration of wastewater effluent. 8. The current macro habitats within the project area include agricultural lands, wetlands (including the reservoir, canal system, and small water impoundments), and forests (Chichawatni and Khanewal plantations—the protected areas). Agricultural land occupies more than 90% of the project area. The current habitats are a modification of an old land use regime where the area supported tropical plains thorn forests, mainly comprising woodlands. These woodlands were subjected to heavy grazing and uncontrolled felling of trees, and were further modified by the introduction of the canal irrigation system in the early 1900s. 9. Due to long-term anthropogenic disturbance, the area has limited value for fauna. However, the two protected areas within the LBDC command area, the Chichawatni and the Pirowal forest plantations, are both classified as wildlife sanctuaries under provincial law and cover an area of approximately 4,610 ha and 4,800 ha and have a protective buffer zone of 4.8 kilometers. Kharal Lake, previously a wildlife sanctuary, has recently been declassified due to total desiccation of the lake. 10. Human Environment. The population of the area is about 4.5 million to 5.0 million. The average population growth rates in the districts covering the command area vary from 2.4 to 3.3. The average family size is 8.6. Population density is very high throughout the command area, among the highest in Punjab. The bulk of the population is located in Khanewal. The project area is characterized by numerous identity groups, organized into biraderis (clans). The biraderi remains important in demarcating social and economic relationships. Respondents during social surveys confirmed that the biraderi still defines what they do and who they do it with. The nature of inter-biraderi relationships is commonly cooperative. Mostly farmers from the same biraderi

1 In 1990, the LDC had about 10,000 tubewells; in 2005 this number was estimated to be 48,000.

Appendix 11 59

settle around a water course; however, this pattern varies and is most dominant in the Sahiwal division. Dispute resolution is also through biraderis and formal institutions are rarely accessed. 11. The project area has better than average access to facilities such as schools, health units, hospitals, and animal extension services compared to most of Punjab. Electricity and public transportation are also generally available. However, the level of access and service varies between villages, and between facilities as well. Sanitation conditions are very poor, with few covered sewerage systems. In urban areas adjacent to the main LBDC, open sewers discharge into the canal. The project area is a part of the Indus Valley civilization, which is one of the world's first urban civilizations. Three major sites of archaeological interest are in the project area: Bawani, Harappa, and Tulamba. 12. Almost 94% of the farms in the command area are less than 10 ha. The number of large farms (> 10 ha) and the amount of land cultivated by them has reduced over the years. The land tenure system is characterized by owner, owner-and-tenant, and tenant farmers. More than 60% of the farms and 53% of the farm area is cultivated by the owners. B. Project Impacts 13. The impacts were identified and assessed for their significance keeping in view their likelihood, consequence, reversibility, duration, location, and timing. Where necessary or possible, the impacts of construction and postconstruction (operation) were assessed separately. The EIA includes recommendations for mitigation, management, and monitoring measures based on best practices. 14. Groundwater and Irrigation Water Supplies. Groundwater pumping has resulted in a decline in the groundwater table by about 0.37 meters per year across the command area.2 If the water table continues to fall at this rate, many centrifugal pumps (those that currently supply tubewells) will no longer be viable, and only turbine pumps that are more expensive to purchase and operate will be viable. This change would (i) favor more wealthy farmers who could make the investment in turbine pumps, (ii) increase the cost of groundwater to farmers who purchase water, and (iii) possibly limit groundwater availability for farmers who are currently reliant on it. 15. Due to the abstraction of groundwater and the falling water table, saline and water-logged areas within the command area have been reduced from 17% to less than 5% in the last 10 years. However, the overdraft of groundwater in freshwater zones may lead to the lateral migration and intrusion of saline groundwater into freshwater zones, which could ultimately render it unfit for drinking and irrigation. Additional canal supplies through the Project will provide more water to the command area; the additional water is expected to increase recharge to the water table and offset the current imbalance (where withdrawals exceed recharge). If the situation is reversed where recharge exceeds abstraction, the water table could start to rise and possibly cause soil salinity and water logging. 16. A return to high water tables is considered very improbable due to the current pumping; the additional canal supplies are expected to enable (i) increased cropping in the command area, and (ii) increased pumping of groundwater. Groundwater levels will be monitored during the Project under the groundwater component and if the groundwater table starts to rise to where it poses dangers, mitigation measures such as increasing the share of groundwater within the conjunctive-use system and reducing canal water supplies to that particular area will be employed.

2 Severe drought occurred from about 2000 to 2003.

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17. Protected Areas. Impacts on the protected areas (Chichawatni and Pirowal plantation forests) and their buffer zones are minimal. The main canal or the construction works will not encroach into the Pirowal plantation areas, which are more than 1 km from the main canal. The main canal will not encroach or enter the Chichawatni plantation as a result of canal widening, as the canal right-of-way within this reach is at least 100 m from the canal centerline, leaving a strip of at least 50 m on either side of the canal, which is sufficient to accommodate the proposed canal widening. No civil works are proposed for the distributaries within the areas. Potential impacts will be limited to temporary disturbance to wildlife during construction works. Recommended measures to minimize noise, wastes, and impacts on wildlife and vegetation will mitigate impacts. Wildlife surveys will be undertaken before, during, and after construction to ascertain the level of impacts and adopt any required additional mitigation measures. As per the Punjab Wildlife Act (1974), no person can enter or reside in a wildlife sanctuary or the buffer zone of a wildlife sanctuary that extends 3 miles from the boundary on all sides. Prior to construction activities, the boundary of the protected areas will be identified and marked with sign boards. 18. Tree Felling. A potential impact will be the felling of trees along the main canal due to its widening and/or reinforcement. The total number of trees is estimated at 62,000; however, many will not be affected by the civil works, and most are second growth timber planted during the canal construction. Felling of trees along the distributaries should be minimal, as less widening is required for the civil works. Depending on the location of the trees, their removal could benefit or negatively impact the integrity of the canal bank and all efforts will be made to maximize safety. Removal of trees may cause disturbance to wildlife that rely on the trees. Prior to execution of civil works, an inventory of trees to be cut will be prepared with the assistance of the forest officials, and a reforestation program will be prepared. The program will give details of the species to be planted, number of saplings required, layout of the planting, operation and maintenance requirements, and a detailed cost estimate. Budget is included for the reforestation program. 19. Fish. Fish stocks in Ravi River in Pakistan have declined over the years due to reduced flows; the Indus Water Treaty of 1960 gives the vast majority of the water rights of the Ravi to India (the Ravi only delivers about 5% of the supply to the LBDC and the rest is from diversions through the link canal system) and increased industrial and domestic pollution (from Lahore city and industrial areas). However, this impact has been muted at the Balloki Barrage Complex due to water received through the link canal system; fishing continues to result in productive catch from the area. The main canal is also stocked annually through the release of hatchlings. Fishing rights are currently contracted and fish catch in the main canal takes place during closure when all fish for that year are captured. 20. Reduction in fish stock due to construction activities is unlikely, however, temporary displacement of fish from the immediate area of the civil works within the barrage pond area may occur. Most species of river fish spawn during the flood seasons with spawning grounds over the flood plain. In the Balloki Barrage Complex, this occurs upstream in the shallow confines of the marginal bunds. Local fisherfolk confirm that fish spawning occurs mostly in shallow depths on the periphery of the pond area behind the barrage where vegetation cover is suitable. Breeding and spawning occurs May through August, when fishing is not permitted. 21. After the rehabilitation works, the barrage may be operated at a finished surface level of the pond of 193.2 m, which is an increase from the design finished surface level of 192.9 m for the pond behind the Balloki Barrage Complex. The raising of the pond’s finished surface level

Appendix 11 61

will increase the backwater aerial coverage of the pond within the marginal bunds as well as the water depth at the periphery of the pond; yet the possible increase will not diminish the spawning sites. Currently, the Balloki Barrage Complex is operated at levels higher than 192.9 m (193.4 m recorded on 2 June 2006) and hence the possible new operating finished surface level will not be a significant change from the present conditions. 22. The proposed rehabilitation and upgrading (R&U) works at the barrage lie outside of the fishing grounds and hence will not interfere with fishing activity, nor are they expected to reduce fish catch. Fishing in the main canal is normally only undertaken at the time of canal closure. This is usually done in the first week after the canal closure, as after that the volume and quality of water cannot sustain fish life. C. Environmental Management and Mitigation 23. An EMP was prepared that addresses impacts of the Project to enhance project benefits and to introduce standards of good practice to be adopted for all project works. The EMP, along with all other activities and outputs from the Project, also provide guidance for subsequent projects to be taken up under the Program. The overall responsibility for compliance with the EMP rests on the Punjab Irrigation and Power Department (PIPD). The project management unit (PMU) will be headed by an overall project director who will be assisted by five departmental directors. One of the directors will be the director, monitoring and evaluation, who will oversee implementation and compliance with the EMP, as well as all resettlement activities. This director will be assisted by a dedicated assistant directors for the environment and resettlement, who will be recruited from the market and be specialists in their respective fields. 24. The PMU will be supported by consultants for design and supervision of the civil works. Both the PMU and design and supervision consultants will have staff dedicated to environment and resettlement activities, and the PMU will have overall responsibility to supervise and monitor environmental and social compliance of the civil works contractors. Each contractor will be required to appoint a dedicated field environmental and social officer at the project site, who will be responsible for ensuring implementation of the EMP. The EMP includes a mitigation program that lists the mitigation measures to be implemented during the Project, defines responsibilities for implementation of the mitigation measures, and provides rough cost estimates for impact mitigation (which are included in the overall project costs). 25. The monitoring program will have two types of monitoring: compliance monitoring by the PMU, consultants, and contractors to ensure that the requirements of the EMP are being met; and effects monitoring to monitor unanticipated impacts of the Project. The effects monitoring program includes noise monitoring at selected construction sites; monitoring of groundwater level and salinity; fish surveys and wildlife surveys (in protected areas) to validate the EIA’s assessment of impacts; and identification of any needed additional mitigation measures and/or social surveys for affected communities. 26. As part of the environmental preparations for the Project and the PIAIP, an EAF was drafted. The EAF provides guidance for PIPD staff and consultants through detailed procedures for assessing and mitigating environmental impacts to be integrated into subsequent projects under the PIAIP, and for execution of the EMP for the LBDCIP. All processes and procedures in the EAF will ensure compliance to Punjab government environmental policies and legislation and ADB environmental safeguard guidelines. The EAF will ensure incorporation of environmentally sound practices in the project design and mainstream environmental sensitivity in the PIPD.

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27. The LBDCIP will support R&U of various water resources and irrigation, and will include activities expected to have some limited environmental impacts such as the modernization of the Balloki Barrage and other activities on a much smaller scale with relatively insignificant environmental impacts, such as remodeling existing smaller distributary systems. All of the project activities are classified as category B and C, and IEE reports and a summary IEE will be prepared. D. Conclusions 28. The LBDCIP is anticipated to bring about a net-positive benefit in terms of improved water resource management (from the on-farm level through to the LBDC system) and agricultural productivity in the area. Negative environmental and social impacts of the Project will be associated with the construction phase, and will be temporary or reversible, phased, localized, and manageable. 29. The significant beneficial effects of the Project will be reversing the present trend of the falling groundwater table and improving groundwater salinity levels through both increased canal water recharge and reduced groundwater abstraction because of the increased canal water supplies. The groundwater management component will support improved groundwater and conjunctive-use management and practices. Without the Project, the lowering groundwater table and increasing salinity would mean a high risk to farmer livelihoods in the medium to long term. 30. The Project will improve some of the social infrastructure, such as bridges, as part of the R&U of the irrigation structures, and will reduce the exposure of local communities to flooding events and the associated social and economic damages. The livelihoods of farming communities will also improve through increased and equitable canal water availability and improved agricultural productivity through improved agricultural practices. 31. The Project will not have any significant impacts on fish, fisher communities, and protected ecological and archaeological sites. However, monitoring measures have been recommended to ensure that any unforeseen impacts can be identified and mitigated during implementation. 32. The most serious impacts of the Project will be resettlement of affected communities, felling of the canal-side tree plantation, and possible relocation of cultural sites that lie within the canal right-of-way. Detailed action plans to mitigate these impacts guided by the EFA (and resettlement framework) will be developed at the time of detailed design. Costs for a reforestation program are included in the EMP, alternatives to protecting cultural sites such as widening the canal on the opposite bank, providing retaining structures, or using canal lining are recommended in the EIA. 33. Implementation of and adherence to the EMP and compliance with the EAF will be necessary to minimize adverse impacts and maximize positive gains. This will be ensured through extensive consultation with all project stakeholders, follow-up during construction to identify and mitigate any impacts that might be unforeseen at this stage, and extensive capacity development for the PIPD.

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SUMMARY SOCIAL SAFEGUARDS

1. The Punjab Irrigated Agriculture Development Investment Program is proposed to be financed by a multitranche finance facility (MFF), with multiple loans to finance stand-alone projects or portions of projects. Each project will support rehabilitation and upgrading (R&U) of irrigation and water resources infrastructure that is anticipated to require land acquisition and resettlement (LAR). The first activity to be supported under the Program will be the Lower Bari Doab Canal (LBDC) Improvement Project to be carried out in East Punjab. Under the R&U component, LBDC civil works are subdivided into two subcomponents: (i) Balloki Barrage R&U; and (ii) canal network R&U inclusive of (a) main canal R&U and (b) distribution system R&U. The LBDC civil works will cause dispersed impacts on land, houses, and businesses; and some relocation of people affected. A. General Procedures 2. The LAR will follow Pakistan law and Asian Development Bank (ADB) policy on involuntary resettlement,1 and Operations Manual F2 on Involuntary Resettlement (2003). The appraisal of the MFF and each tranche, and the approval and implementation of each activity involving LAR will require the preparation and/or updating of the following documents:

(i) a resettlement framework for the whole MFF to be reviewed, updated, and submitted for ADB approval annually and before the preparation of each tranche;

(ii) an initial poverty and social assessment indicating whether LAR impacts are expected, and if so their type and magnitude for each tranche; and

(iii) a resettlement plan based on detailed design/impact figures and inclusive of compensation budgets and schedules for each subproject under a loan.2

3. The appraisal of the MFF and of each periodic financing request and the approval and implementation of each subproject under a loan will follow the following LAR-related conditions:

(i) MFF and tranche 1 appraisal conditional to preparation of (a) a resettlement framework for the whole MFF and (b) resettlement plans for the first project 1 core-subprojects, both acceptable to ADB;

(ii) Appraisal of other tranches conditional to (a) resettlement framework review and/or update, and (b) preparation of a resettlement plan for the projects and subprojects presented with submission of the loan’s periodic financing request; and

(iii) Start of all subproject civil works subject to ADB approval of the resettlement plan, however, affected people will be provided certain resettlement entitlements such as land and asset compensation and transfer allowances, prior to their displacement, dispossession, or restricted access.

4. To fit these requirements, the Punjab Irrigation and Power Department (PIPD), the Executing Agency, has prepared a resettlement framework and plans for the core subprojects under the first loan.

1 ADB. 1995. Involuntary Resettlement. Manila. 2 Resettlement will be significant where 200 people or more experience major impacts. Major impacts are defined as

involving affected people being physically displaced from housing and/or having more than 10% of their productive, income generating assets lost. Compensation needs to be based on full replacement value.

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B. Resettlement Framework 5. The resettlement framework lists the following principles: (i) LAR will be avoided or at least minimized, (ii) compensation will guarantee the maintenance of the pre-project living standards of those affected, (iii) people affected will be fully informed/consulted on compensation options, (iv) sociocultural institutions of those affected will be supported and used, (v) LAR provisions will equally apply to women and men, (vi) lack of formal title will not impede compensation/rehabilitation, (vii) particular attention will be paid to households headed by women and vulnerable groups, (viii) LAR will be conceived and executed as an integral part of the Project and LAR budgets will be included in project costs, and (ix) compensation will be fully provided prior to ground leveling and demolition. The framework also covers all issues relevant for the effective conduction of LAR tasks as required by ADB policy and sets the eligibility and entitlement provisions outlined in Table A11.

Table A11: Compensation Entitlements Matrix Asset a Specification Affected People Compensation Entitlements

Farmer/titleholder Land-for-land compensation in plots of equal value/productivity or; cash compensation at replacement cost based on market valueb free of taxes, registration, and transfer costs plus 15% compulsory land acquisition surcharge.

Leaseholder (registered or not)

Lease renewal in other plots of equal value/productivity, or cash equal to market value of gross yield of affected land for the remaining lease years (up to a 3 year maximum).

Sharecroppers (registered or not)

Cash compensation equal to market value of the lost harvest share once (temporary impact) or twice (permanent impact)

Agriculture workers losing their contract

Cash indemnity corresponding to salary (including portions in kind) for the remaining part of the agricultural year.

All land losses independent from impact severity

Squatters 1 rehabilitation allowance equal to market value of 1 gross harvest (in addition to crop compensation) for land use loss.

Farmer/titleholder Leaseholder

1 severe impact allowance equal to market value of gross harvest of the affected land for 1 year (inclusive of winter and summer crop and additional to standard crop compensation)

Permanent Impact on Arable Land

Additional provisions for severe impacts (>10% land loss)

Sharecroppers (registered or not)

1 severe impact allowance equal to market value of share of harvest lost (additional to standard crop compensation)

Squatters 1 severe impact allowance equal to market value of gross harvest of the affected land for 1 year (inclusive of winter and summer crop and additional to standard crop compensation)

Titleholder Land for land compensation in a plot equal in value/location to plot lost or cash for affected land at full replacement cost free of taxes, registration, and transfer costs.

Renter/Leaseholder 1–3 months allowance

Residential/ Commercial Land

Squatters Plot in a public resettlement area or self-relocation allowance

Houses and Structures

All relevant people affectedc

Cash at replacement rates for affected house/structure free of salvageable materials, depreciation, and transaction costs; for partial impacts full cash assistance to restore structure

Crops Crops affected All people affectedc Crop compensation in cash at full market rate for harvest actually lost (winter or summer crop or both as is the case)

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Asset a Specification Affected People Compensation Entitlements Trees Trees affected All people affectedc Cash compensation will reflect income replacement Business Employment

Temporary or permanent loss of business or employment

All people affectedc Business owner: (i) Cash compensation equal to 1 year income, if loss is permanent; (ii) cash compensation for the period of business interruption, if loss is temporary Worker/employees: Indemnity for lost wages for the period of business interruption up to a maximum of 3 months

Relocation Transport/transition livelihood costs

All people affected by relocationc

Provision of sufficient allowance to cover transport expenses and livelihood expenses for 1 month

Community assets

Rehabilitation/substitution of affected structures/utilities (i.e., mosques, footbridges, roads, schools, health centers)

Vulnerable people affected

People affected living below poverty line

Employment priority in project-related jobs.

a Other impacts so far identified may occur in noncore subprojects of the first loans or during core subproject implementation. Following their identification during subproject preparation or implementation this entitlement matrix and description of compensation entitlements will be revised and updated accordingly.

b For the detailed definition of the methodology to evaluate land replacement cost/market value, see resettlement plans in Supplementary Appendix D.

c Including squatters. Source: Asian Development Bank estimates. 6. Institutional Responsibilities. Overall LAR preparation, implementation, financing, and coordination responsibility falls on PIPD, which will exercise these functions via a project management unit (PMU), tasked with general project execution, and the project implementation units (PIUs), tasked with activities at district level. At the PMU, LAR will be assigned to a LAR unit, handling and monitoring resettlement plan preparation, implementation, approval, and LAR coordination. The LAR unit will be aided by a resettlement team under the PMU consultants, a nongovernment organization, or a national consultant hired for on-site impact surveys and monitoring assistance. The PMU will coordinate with the local governments, which have jurisdiction on land administration, valuation, and acquisition through two committees: (i) a LAR steering committee (provincial) and a LAR coordination committee (district) ensuring provincial and district coordination. The LAR coordination committee will include members of communities with people affected and their representatives, and will provide facilitation both during LAR implementation and in the solution of complaints and grievances. Provincial LAR functions rest with the Board of Revenue; district functions with the district collector office and the land acquisition collector. Minor agents, like the patwari, (records keepers), will identify and verify titles. Compensation of assets other than land (buildings, crops, etc.) or income rehabilitation falls on the relevant district department. ADB clearance of category B resettlement plans will handled by a resettlement specialist hired at ADB’s Pakistan Resident Mission.3 Category A projects will be cleared at ADB headquarters. 7. Disclosure/Public Consultation. Resettlement plan tasks will involve intense consultation with those affected. As an appraisal condition, the resettlement framework and relevant resettlement plans in English will be disclosed on the ADB website, while the resettlement framework and resettlement plans in local language will be disclosed in the communities of those affected. 8. Grievance Procedures. Individuals affected will first lodge a complaint with the land acquisition collector. If settlement is not reached within 15 days, the complaint will be sent to the PMU. If the grievance is still not settled within 1 month, the people affected can seek redress at

3 To be confirmed prior to submission of first resettlement plan or optional approval mechanisms agreeable to RSDD

will be adopted.

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the appropriate court. The LAR coordination committee composed by senior members of the communities of people affected and by their elected representatives will assist the individuals affected in these cases.

9. Monitoring and Evaluation. The PMU will internally monitor and report to PIPD on LAR implementation. PIPD will report to ADB quarterly. PIPD will assign external monitoring to an independent agency and external monitoring reports will be submitted to ADB twice a year. At the end of project implementation, the independent monitoring agency will carry out a general evaluation of LAR implementation. 10. Finances and Schedules. The resettlement framework prescribes that each resettlement plan will detail LAR budgets and provide clear schedules linking LAR tasks with the initiation of civil works. C. Indigenous Peoples Issues 12. No impacts on indigenous peoples are expected as the Program will be implemented in Punjab where no resident population fits the ADB definition of indigenous peoples.

D. Specific Land Acquisition and Resettlement Plans 11. Two core-subprojects with LAR have been prepared as a condition for tranche 1 appraisal, namely: Distributary System 15-L and the Main Canal Rehabilitation Works at Shaiwal town (Shaiwal town subproject). For both, a resettlement plan fitting ADB’s policy and resettlement framework requirements has been prepared. 12. The 15-L Distributary system will affect 1.920 m2 ha of residential land occupied by 15 houses, 38 commercial establishments, 36 sheds, 41 kiosks, 13 stalls, and 23 minor structures, which will be compensated at replacement cost. As all these buildings are built on public premises, land will be compensated through land-for-land mechanisms. A total of 1,400 m2 of land has been earmarked in various areas of the Project to be distributed as replacement plots. In addition to private assets the Project will cause the relocation of two mosques and require the compensation of two tubewells and three hand pumps. In all 112 families are affected (2,645 individuals), of these 15 families will have to be resettled. LAR costs are assessed at $220,000. 13. The Shaiwal Town subproject will affect 6,116 m2 of residential land occupied by 25 houses, 27 commercial establishments, 13 sheds, 9 kiosks, 14 stalls, and 21 minor structures, which will be compensated at replacement cost. These buildings are built on public land, which will be compensated with earmarked replacement plots for a total of 7,714 m2 and located in various areas of the city along the main canal. In addition to private assets, the Project will cause the relocation of one mosque, two Imam Barghas, and one shrine; and will require the compensation of several electrical and telephone poles. In all 108 families are affected (867 individuals), of these 25 will have to be resettled. LAR costs are assessed at $305,000.