BOARD

OF DIRECTORS

STER
ASIAN DEVELOPMENT BANK--

RESTRI CTED IN. 314-90 21 November 1990

PROJECT PERFORMANCE AUDIT REPORT The following Project Performance Audit Report prepared by the Post-Evaluation Office is attached for information: Chashma Right Bank Irrigation Project (Pakistan) (Loan No. 330-PAK(SF))

R E ST'+CT-EO. PPA:PAK 11037 L- 330- PAK(SF)

ASIAN DEVELOPMENT BANK

Post-Evaluation Office

This Report has been prepared for the exclusive use of the Bank.

PROJECT PERFORMANCE AUDIT REPORT

CHASHMA RIGHT BANK IRRIGATION PROJECT

IN

PAKISTAN

November 1990

CURRENCY EQUIVALENTS Currency Unit - Pakistan Rupee (PRs) At Appraisal (August 1977) $1.00 Rs 1.00

= =

Rs 9.90 $0.10

At Reformulation (March 1984) $1.00 = Rs 1.00 =

Rs 14.00 $0.07

At Project Completion Review (Nay 1989) $1.00 = Rs 21.00 Rs 1.00 = $0.05 At Post-Evaluation (Ma y 1990) $1.00 = Rs 1.00 =

Rs 21.91 $0.05

ABBREVIATIONS AND GLOSSARY AR CCADP CRB I P DIPHE EA EEC EIRR NWP NWFP OFWMP PC FCC PCR PEN P's PPAR WAPDA WFP Appraisal Report Chashma Command Area Development Project Chashma Right Bank Irrigation Project Department of Irrigation and Public Health Engineering Executing Agency European Economic Community Economic Internal Rate of Return Ministry of Water and Power North West Frontier Province On-Farm Water Management Project Project Coordinator Project Coordination Office Project Completion Report Post-Evaluation Mission Paharpur Irrigation System Proj ect Performance Audit Report Water and Power Development Authority World Food Programme

Kharif - The hot (summer) season (April to September) - The cool (winter) season (October to March) Rabi Nullah - Gully (flood or hill torrent channel) WEIGHTS AND MEASURES 1 en. ft/sec (cusee) = NOTES (i) (ii) The fiscal year of the Federal and NWFP Provincial Government ends on 30 June. In this Report "$" refers to US dollars. 0.028 m 3 /sec (cuinsec)

PE-319

TABLE OF CONTENTS

BASIC PROJECT DATA MAP: Chashma Right Bank Irrigation Project I. HIGHLIGHTS II. BACKGROUND A. B. C. D. E. F. Rationale Formulation Objectives and Scope Financing Arrangements Completion Ex-Post Evaluation

(ii) (iii) 1 1 1 2 2 3 3 3 3 3 5 5 6 6 7 7 7 7 8 9 9 10 11 12 12 12 12 13 14 14 14 14 15 16

III. IMPLEMENTATION PERFORMANCE A. B. C. D. E. F. G. IV Design Contracting, Construction and Commissioning Organization and Management Actual Cost and Financing Implementation Schedule Effectiveness of Technical Assistance Compliance with Loan Covenants

PROJECT RESULTS A. B. C. D. E. F. G. H. Operational Performance Institutional Development Financial Performance Financial and Economic Re-Evaluation Socioeconomic and Sociocultural Results Women in Development Environmental Impact Gestation and Sustainability

V.

KEY ISSUES FOR THE FUTURE A. B. C. Irrigation Service Fee Demand Management Agricultural Development

VI

CONCLUSIONS A. B. C. Overall Assessment Lessons Learned Follow-Up Actions

APPENDIXES

(ii)

BASIC PROJECT DATA CHASHMA RIGHT BANK IRRIGATION PROJECT (LOAN NO. 33O-PAK(SF))

KEY PROJECT DATA ($mn): Total Project Cost Foreign Currency Cost Bank Loan Amount/Utilization Bank Loan Amount/Cancellation Amount of Co-financing

As per Bank Loan Documents 104.41 27.65 31.50 31.50 23. 62!!

Actual 104.12 23.86 31.50 none 5.48!'

KEY DATES: Fact- Finding Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectivity Proj ect Completion Loan Closing Months (Effectivity to Completion)

Exp ected Actual October 1976 and June 1-23 August 9-16 November 15 December 23 December 23 March 1978 29 May December 1982 February 31 December 1984 11 July 57 105

1977 1977 1977 1977 1977 1978 1987 1989

KEY PERFORMANCE INDICATORS (%): Economic Internal Rate of Return

App raisal 19%

PCR not calculated

PPAR 10.4%

BORROWER: Islamic Republic of Pakistan EXECUTING AGENCY: North West Frontier Province (NWFP) Government of Punjab Water and Power Development Authority (WAPDA)

MISSION DATA: Type of Mission Fact - Finding/Pre -Appraisal Appraisal/Loan Negotiations Re-Appraisal (Supplementary Loan) Project Administration - Inception - Review - Disbursement - Special Project Administration - Project Completion Post- Evaluation

No. of Missions 2 1

Person- days

1 5 3 1 1

21 130 45 34 33

EEC $4.48 million (actual $5.14 million) and World Food Programme Grant $19.14 million (actual $0.70 million).

(iii) 71E 72E

M Iii
0 10 20 30 40 50 KM SCALE COMPLETED STAGE 1 //j/

ISLAMIC REPUBLIC OF PAKISTAN CHASHMA RIGHT BANK IRRIGATION PROJECT (CRBIP)

Stage - 1 and General Plan

LEGEND: ....p. CHASHMARIGHTBANKCANAL (CRBC)) _,,.,. PAHARPUR CANAL (Existing) 32N

32N ON-GOING L STAGE II [

I RD260/--.. I RD380---

'

DARV KHAN

STAGE I AREA (CCA 58 800 Ha) STAGE II AREA (CCA 38,000 Ha.)

I 4 4

//f
1 STAGE III AREA (CCA 133,000 Ha)
PROVINCIAL BOUNDARIES METALLED ROAD UNMETALLED ROAD

PROPOSED STAGE III

k"0 /

4I"
"I

4 4
31N

LOCATION MAP

Tarbela Dam

k ISLAMABAD1 )NWFP ,.) Mangla Dam% jnu.

32N

I RD847
TAUNSA BARRAGEL-

D. I.

Sargodha / fi AN1Darya Khan PUNJAB

320N Lahore

I /

0 Multan
-r
/

' .:'
.

.: (D.G.t KHAN
! -

NOTE : "AD" means Reduced Distance (for indicating Station Number): One unit of RD represents 1000 canal feet. 71E

(0 f

70E

72E

International Boundaries not necessarily authoritative.

I. HIGHLIGHTS 1. The Chashma Right Bank Irrigation Project aimed at improving crop production over 230,000 ha. The area completed under the Project is only a quarter of that but required about the same investment. Considerable underestimation of Project scope and cost had taken place both during preparation by the Government and during appraisal. This situation required reformulation of the Project to comprise only about 58,000 ha with an investment basically the same as at appraisal. In addition to Project investment and in order to achieve target production, several other investments were needed. This overlap has made identification and attribution of benefits difficult. The Bank is currently financing a second stage project and the feasibility of a third stage to cover the remainder of the original Project area. 2. The Project scope essentially comprised large irrigation structures. Increases in production were sought from rehabilitation of existing and construction of new schemes and strengthening of agricultural support services. 3. The Project was a pioneering venture for the Government since it was the first time it conceived, designed and implemented such a large irrigation scheme on its own. The Project had a difficult time after commissioning because the main canal experienced heavy seepage which waterlogged much of the area and reduced production. Incremental benefits per unit area are expected to exceed appraisal targets but production will be much lower because of the area reduction. 4. Production increases are still modest but should markedly improve with completion of ongoing drainage works financed under another project. Irrigation management, service fees, and extension and research support remain minimally effective. The potential for further growth is considerable, more lucrative crops are grown than projected at appraisal and the value of irrigated lands has increased many times with the Project. 5. When analyzed together with related projects in the same area, the Project meets criteria for classifying it as generally successful. The impact would have been enhanced if the Project's design, management system and approach to pricing water had been more geared to meeting farmers' demand and ensuring economic efficiency. II. BACKGROUND A. Rationale

6. The construction of the Tarbela and Mangla dams made possible the integrated development of irrigated agriculture in the Indus river basin. It was considered at appraisal that development of the overall Chashma Scheme comprising about 570,000 ha under four phases would significantly increase crop production and the general standard of living in the food deficit areas of D.I. Khan and D.C. Khan districts in the North West Frontier Province (NWFP) and the Punjab. Owing to the large scope of the Scheme and its cost, estimated at $440 million in 1977, and because of uncertainty in the allocation of the required amount of water from the Indus River, the Project comprised only the first phase (gravity irrigation) of the Scheme covering some 230,000 ha. At the time of Project formulation, the Government was considering the 7. details of the Fifth Six-Year Plan which sought to substantially increase crop production through provision of agricultural inputs and irrigation and drainage.

2 B. Formulation

8. A Project feasibility study was begun in 1970 and revised in 1973 by the Water and Power Development Authority (WAPDA). Arising from this study and additional information gathered by Bank missions from 1976 to 1977, the Chashma Right Bank Irrigation Project (Loan No. 330-PAK(SF)) was approved on 15 December 1977. 9. Considerable cost overruns were identified by 1979 and the Bank felt that the Project had to be reassessed through a Bank technical assistance which the Government did not agree to until 1982. As a result, the loan was suspended until early 1984 when completion of a Bank technical assistance proposed reformulation of the Project.V The reformulated scope and costs were presented in the appraisal report of the Chashma Command Area Development Project.V C. Objectives and Scope

10. The objective of the Project was to increase irrigated crop production in the Phase I area of the Chashma Scheme of which about 60 per cent is located in NWFP and the remainder in Punjab. 11. The Project was designed to increase irrigation intensity in the preexisting irrigated area of Paharpur covering about 15 per cent of Phase I and introduce gravity irrigation farming in the rest of the area. Accordingly, the scope of the Project included: (i) irrigation and related civil works; (ii) strengthening of the existing agricultural supporting services; (iii) consulting services for monitoring Project progress and agricultural development programs; and (iv) technical assistance for the preparation of feasibility studies for agricultural processing facilities in the Project area. At full development, the Project was expected to produce an additional 3.13 million mt of food crops generating $82 million annually, about decuple the farm income of about 27,000 families, create 11 million person-days of employment during construction and 29 million person-days annually in farming and stimulate agro-industrial development in the Chashma. The reformulated Project (Stage I of Phase I) maintained the initial 12. objectives. However, the area was reduced to about a quarter of the appraisal target with a similar investment for financing a much more intensive infrastructure. Extensive drainage facilities and development of irrigation watercourses were added. The entire pre-existing Paharpur irrigation area (42,000 ha) was retained for rehabilitation and improvement in addition to 16,200 ha of new irrigation lands. Benefits expected from the reformulated Project amounted to about half a million tons of a somewhat different mix of crops. WAPDA under the supervision of the Ministry of Water and Power (MWP) 13. and the Provincial Governments of NWFP and Punjab were nominated at appraisal as the Executing Agencies (EAs).

See Revised Chashma Right Bank Irrigation Project, T.A. No. 457-PAK, April 1982. Loan No. 723-PAK(SF) dated 13 December 1984. Including 2.31 million mt of sugarcane, 0.4 million mt of wheat, 107,000 mt of fodder, 62,000 mt of maize and 53,000 mt of cotton.

3 D. Financing Arrangements

14. The Project was to be ' financed by a Bank loan of $31.5 million, an EEC grant of $4.48 million, a World Food Program (WFP) grant of $19.14 million to support labor costs, and a technical assistance grant of $0.15 million from the Bank. The foreign exchange component was $27.65 million. Of the local costs totalling $76.76 million, the Bank financed $7.91 million and the Government $49.14 million. The Bank's share of funding represented more than 30 percent of the total Project cost at appraisal, that of the Government about 47 per cent. E. Completion

15. The Project was essentially completed by mid-1989 compared with the completion target of December 1984 envisaged at the time of appraisal. A Project Completion Report (PCR) prepared by the Bank's Agricultural Department which has been circulated separately discusses the design, scope, implementation and operational aspects of the Project and provides detailed Project information. F. Ex-Post Evaluation

16. This Project Performance Audit Report (PPAR) focusses on pertinent aspects and presents the findings of a Post-Evaluation Mission (PEM) fielded in April/May 1990. The PPAR presents an assessment of the Project's efficiency and effectiveness in terms of achieving its objectives, generating benefits and sustaining operations. It also examines an alternative design that could have made the Project more effective. 17. The PPAR is based on a review of the earlier circulated PCR, the Appraisal Report (AR), materials in Bank files, records of the EAs, discussions with staff members of the Bank, the Government, the EAs, various field level entities, consultants and beneficiaries. Copies of the draft PPAR were provided to the Borrower, the EAs and the Bank staff concerned for review and comments. Comments received were considered in finalizing the Report. III. IXPLENENTATION PERFORMANCE A. Design

18. The rationale for the Chashma Scheme envisaged introducing irrigation to essentially rainfed lands. Such lands are located mostly in the NWFP which, compared with other provinces such as the Punjab and Sindh, is sparsely irrigated in spite of being a significant source of impounded and river water in Pakistan. The NWFP is also relatively less developed. While on grounds of equity, the Project was fully justified, the rationale was less clear from the viewpoint of efficiency. It would, for example, have required less investment to profitably increase cropping intensity downstream in the Sindh irrigation schemes particularly in winter when they get little or no water. This, however, would have required that interprovincial water sharing agreements be modified which is politically problematic. 19. Shortly after Loan approval, it was found out that with the financing provided, only about a quarter of the Phase I area could be developed. In addition, about three quarters of the reduced area only needed remodelling of the existing Paharpur irrigation system (PIS). To further save on costs, it was decided that more than 30 km of the Chashma canal headreach with the largest cross-section passing through sandy areas would not be lined. In spite of this

4 significant design change, it was accepted that interceptor drains would not be dug to collect canal seepage water. The rationale was that canal banks would seal with silt over a reasonable period of time which has now occurred in part. 20. The decision not to line the canal headreach was an important departure from the original design. It had both positive and negative implications. The unlined canal cost much less to construct which maintained Project viability. However, subsequent problems and associated costs were not entirely foreseen. Labor intensive earth moving methods were adopted because they are in Pakistan about half the cost of capital intensive approaches. The fact that adequate canal fill materials could not be found in close proximity for laborers to transport was not fully appreciated. Substandard borrow materials were taken from the outer toe of canal banks and the canal bed which, by increasing embankment height, reduced stability of the earthen structure and removed finer bed materials leaving a porous sandy bed. A canal cross section much larger than that of the final regime was 21. adopted to further reduce costs which lining with fine soil material would imply. (This also had the advantage of reducing costs associated with heavy desilting of canals during operation.) Construction quality control of large labor intensive civil works like the Chashma's has proved to be problematic. Overall, design changes resulted in widespread canal seepage, flooding of the Project area, and risk and uncertainty as to the extent of sealing and hydraulic stability of the canal in the future. The AR also anticipated that agricultural production would markedly 22. increase without developing on-farm water systems and without providing for a drainage system other than an insufficient number of storm drainage crossings under the Chashma canal.V To compensate for Project omissions the Government, the Bank and other 23. donors provided for complementary facilities and projects. Bank-assisted projects include the On-Farm Water Management Project (OFWMP) and the Chashma Command Area Development Project (CCADP) which constructed lined tertiary canals (to save water and reduce waterlogging) and a complete drainage system.' Overall therefore, the Project underwent considerable changes in scope and design. Two more shortcomings affect economic efficiency. Given the method 24. and actual performance of water management and their likely improvement, the water-carrying capacity of the Chashma canal is not large enough to irrigate adequately over the entire Phase I area the crops currently grown or to achieve the target for cropping intensity of 150 per cent set at appraisal. Not only

The risk of waterlogging was recognized when the Project was reformulated and interceptor drains provided in the design to limit the spread of canal seepage water. Drains have not been dug. Waterlogging was a problem in Paharpur before the Project. The decision not to line the headreach of the Chashma canal in sandy soils and doubling of water supply to farms was bound to further increase waterlogging until sealing of the canal with silt could take place after years of operation. Loan No. 495-PAK(SF): On-Farm Water Management Project approved on 15 December 1980 for $25 million. Loan No. 723-PAK(SF): Chashma Command Area Development Project approved on 13 December 1984 for $40 million.

5 would the type of crops, the cropping intensity or the extent of irrigation coverage of the command area have to change but the efficiency of water use would have to improve significantly. 25. A second design shortcoming is that the irrigation infrastructure and operation rules are based on the premise that a fixed cropping pattern is practiced and that a given flow of water is delivered at the inlet of water courses. This is too inflexible for the range of conditions that exist in Chashma and have evolved over time. Such rigidity, which prevents water supplies from meeting farmers' demand, is not conducive to economic efficiency. B. Contracting. Construction and Commissioning

A detailed description of this topic is given throughout the PCR. Many 26. small local contractors participated in constructing the main canal and in remodelling the PIS. All except two completed their contract after long extensions and many had to be replaced. Major reasons include lack of experience and insufficient financial resources. To accommodate their level of competence, many of the Project works had to be done using labor intensive methods which posed serious supervision problems and required cancelling most equipment procurement. 27. NESPAK, a local consulting firm, was recruited for supervision but for too short a period to ensure adequate quality control. Canal embankments were not well compacted, varied in width and apparently did not conform to any standard design. The same applies to inspection roads which in addition lacked a gravel surface. The quality of bricks and lining is substandard in several locations and repairs will be needed at an early date. 28. The main canal has not been fully commissioned. In early 1987, flows lower than one fifth of design for the entire scheme filled the canal to a level lower than its final bed level (expected to be achieved after several years of siltation). Liquefaction and sloughing of the embankment base took place which highlighted the poor stability of the structure and resulted in heavy seepage and flooding of the Project area. For the following three years, water levels in the unlined section of the canal never much exceeded the final design bed level. This allowed partial sealing which progressively reduced seepage in most places. But the canal has never been tested beyond that bottom level, and berming has not progressed to higher levels along embankments. C. Organization and Management

29. The Borrower generally discharged its responsibilities in a satisfactory manner. However, Government budget releases were usually 14 per cent less than scheduled. WAPDA carried out irrigation and related civil works components while the provincial government of NWFP was responsible for strengthening the existing agricultural support services and is to assume responsibility for operation of the irrigation system within its boundary. The Punjab provincial government did not participate in the Project after its part of the Project area was deleted. 30. The PEM concurs with the PCR view that political pressures contributed to the inadequacy of initial Project planning and the premature commissioning of the main canal in early 1987 in spite of Bank objection. Overall, WAPDA's performance with this complex and large Project can be rated as satisfactory considering the capabilities of small local contractors, and the financial and

6 political constraints. WAPDA should actually be complimented on its efforts in saving the main canal during commissioning when it nearly collapsed. Nevertheless, its over-cautious approach to canal operation after commissioning has resulted in a lack of silt berming above the design bed level; a more forward looking approach would have done more to prepare the canal for full capacity operation. 31. NWFP through Department of Irrigation and Public Health Engineering (DIPHE) went beyond the scope of work envisioned and satisfactorily constructed its part of the Project under difficult financial and time constraints. However, the irrigation system is managed using a supply management approach which results in inefficiencies and does not maximize agricultural benefits. Collection of irrigation service fees is low and maintenance expenditures inadequate. 32. The WAPDA-prepared study upon which the appraisal was based was inadequate. Major changes in design and scope were required soon after appraisal (see paras. 19-23). In spite of the size and complexity of the Project and its poor preparation, few review missions were dispatched to the Project area in the early months of implementation. The Bank was right in insisting that resumption of loan disbursement be conditional upon reassessment of the Project by the Bank and the request by the Government of a loan for the CCADP. The Bank should also have maintained throughout a firmer attitude as regards the type and extent of consultant services needed for both construction management and supervision and for agricultural and water management components. Both aspects were critical. D. Actual Cost and Financing

33. Project cost totalled $104.12 million. Foreign exchange costs were $23.86 million which the Bank provided in full, and local costs were $80.26 million (equivalent) of which the Bank financed $7.64 million. The Bank loan utilization was $23.86 million and the amount of co-financing by the EEC and WFP totalled $5.48 million. The Bank's loan was fully disbursed. 34. The Project cost underrun is a mere $0.29 million despite a time overrun of about 140 per cent. The underrun figure is misleading, however, since for the work actually done there was a large overrun. 35. The Government contributed $67.14 million which is more than 36 per cent above the appraisal estimate. The EEC grant was fully utilized but the WFP commodity assistance proved essentially impractical for the Project and generated only about $0.7 million or about 5 per cent of the expected assistance. E. Implementation Schedule

36. The Project was completed in about 12 years compared to the five-year period envisaged at appraisal. The time overrun is about 140 per cent which is significant for this type of Project in the context of Pakistan. It should be noted, however, that a significant part of the delay is due to overoptimistic expectations at the time of appraisal and suspension of the Bank loan for four years.

7 F. Effectiveness of Technical Assistance

The AR provided for technical assistance in preparation of agro37. industrial feasibility studies. These studies were not carried out. The PEN cannot confirm that they were excluded when the Project was drastically scaled down in early 1984. It is the PEN's opinion that the studies are in any case not needed as agricultural marketing is not seen as a major constraint on increased crop production in the Project area. The 110 man-months of consulting assistance in monitoring Project 38. progress and in construction management were reduced by two-thirds when the Project was revised in 1984. This decision was ill-advised considering the critical need for such services and protracted Project construction. Some 37 man-months in place of 45 envisaged at appraisal were provided in accordance with revised terms of reference in engineering, hydrology, irrigation and soil study. The Consultants made estimates of water requirements and system losses but did not set up a system for monitoring irrigation performance. As a result, the original objectives of the consultancy were not achieved. Finally, 30 man-months of studies in agricultural extension, water 39. management and agricultural institutions were transferred to subsequent projects assisted by the Bank in the area, such as the OFWMP and CCADP, but they have yet to be carried out. C. Compliance with Loan Covenants

The PCR (para. 76) provides an analysis of compliance with major loan 40. covenants. Most covenants were complied with. One exception relates to the fact that the NWFP had initially not accepted the turnover of the Project but now has. The situation is uncertain at present. The Punjab Government is requesting that since the Chashma scheme overlaps two provinces, it should be the responsibility of a federal institution. WAPDA concurs with this request. Another exception is that water charges are low (see paras. 53 and 54). 41. The program of irrigation system performance monitoring to determine water losses has not, despite its urgent need, been implemented except for the main canal (see para. 38) because of a change in consultants' terms of reference agreed by the Bank. Finally, the Project's socioeconomic completion survey has not yet been effected. IV. PROJECT RESULTS A. Operational Performance

About 80 per cent of the Project area was already irrigated before 42. appraisal in the PIS using less than half the Project design water duty. The PIS was partly waterlogged. The remainder of the area was rainfed. Crop production was only moderately affected during remodelling because 43. most works were concentrated during the annual water cut off period for canal maintenance. Starting at commissioning, seepage mostly from the canal headreach has taken place over large sections of the Project area. Seepage resulted in waterlogging and persistent flooding which damaged crops, houses and infrastructure. The intensity of cropping in PIS had already reached 93 per cent in 1980/81 and it fluctuated between 86 and 92 per cent over 1981-85 during construction. It had reached 97 per cent by commissioning time when heavy

8 waterlogging took place. Cropping intensity fell to pre-Project levels but recovered progressively in the subsequent two years after partial sealing of the canal with silt had taken place and drainage under the CCADP had become effective in limited areas. Improvement after commissioning of deficiencies in the irrigation system took place during the same period)-1 44. Yields of major crops such as wheat, rice and sugarcane, fodder and maize have increased on average by about 40 per cent with the Project. Yields are expected to increase by between 50-75 per cent over the without project situation in 1995 after improvement of both drainage under the CCADP and of research and extension support. By the same date, cropping intensities of irrigated lands should reach about 150 per cent or two thirds more than at present. Major contributing factors would be effective drainage and reduction in on-farm water losses in water courses under OFWMP. Total crop production has currently about doubled, reaching some 0.4 million tons and is expected to further increase by 1995. Current results are much less than the appraisal forecast of more than three million tons for an area about four times larger than completed. 45. Compared to expectations under the reformulated Project having an irrigated area similar to that achieved, the Project has fared well. The shortfall in crop production is currently only about one-fifth and it is expected to disappear at full agricultural development if the CCADP is successfully implemented. 46. Cropping patterns have changed much since appraisal and not necessarily as expected. Appendix 1 shows that crops such as sugarcane, rice, maize, and fodder are grown over larger areas than before the Project in 1981/82, but that the opposite is true for wheat and cotton. Changes in crop composition are important for the way irrigation is 47. managed. At present, significantly more water than was allowed for during design is being allocated for sealing purposes to Stage I (see para. 28), and this has encouraged the planting of considerably more rice than expected in the headreach of the Chashma Scheme. Wheat and cotton which consume less water occupy less area than planned. This situation - - which may further develop in the future - in combination with certain design features of the Project is resulting in tracts of land not being irrigated in the Stage I area and would result, if not corrected, in under-irrigation of subsequent stages and phases of the Chashma. B. Institutional Development

The Project has had a major impact on federal and provincial 48. institutions involved in irrigation. It has contributed skills development, improved technical and infrastructural administration and given an impetus to decentralization in decision making and administration. Above all, the Project is the first such venture which the Government 49. has carried out on its own with minimal consultant input from formulation and design to operation. WAPDA and DIPHE, with the assistance of Consultants and

1"

Project staff comment that "the seepage and subsequent waterlogging affected not more than 2,000 - 6,000 ha adjacent to the unlined portion of the main canal."

advice from the Bank, have successfully solved most major problems facing the Project over its protracted implementation under difficult conditions. 50. Perhaps the major benefit of the Project resides in the problem-solving capability and self-confidence to undertake major irrigation development that WAPDA has acquired. This is not to say that significant improvements are not required. One example is Project Approval Report (PC1) which considerably limits the ability of public agencies to alter a project's design in response to changing circumstances. As a result, changes in design suggested in feasibility studies carried out after appraisal or identified during Project implementation have generally not been possible. 51. Key shortcomings in the institutional development of the Project include the failure to: (i) establish an institutional structure to coordinate interagency activities beyond the completion time; and (ii) secure the participation of public and private bodies and beneficiary groups in ongoing operations of irrigation and agriculture systems. There were no apparent efforts at developing water user associations or establishing operational linkages with any existing ones. Cooperation between WAPDA, DIPHE, the Department of Agricultural Extension and beneficiaries is minimal. C. Financial Performance

52. The significant increase in land value is a major taxable benefit not fully reflected in the tax base. The value of previously semi-arid rainfed lands converted to irrigation is reported to have increased ten-fold in the vicinity of roads and towns and to have added considerably to the net worth of Project beneficiaries. 53. Beneficiaries were to pay irrigation service fees to cover the full costs of operating and maintaining the system and about 30 per cent of the investment cost (see para. 41). This level of fee is much higher than before appraisal when fees covered about 35 per cent of 0&M expenditures. Fees collected in 1988-89 averaged only Rs 60 per hectare. Forecast 0&M costs at full development are Rs 580 per hectare or about Rs 30 million. By that time if current fee levels prevail, about 17 per cent of 0&M costs would be raised. 54. Rather than increasing, irrigation service fees have fallen in real terms since appraisal; they would need to increase about six-fold to Rs 366 per hectare to cover O&M costs. This is double the three-fold increase envisaged in the AR. If fees cover O&M and 30 per cent of capital costs as proposed at appraisal, more than Rs 1,000 per hectare or Rs 54 million would have to be raised annually. This would likely not be affordable considering incremental earnings, notwithstanding the increased value of irrigated land. D. Financial and Economic Re-Evaluation

55. In view of the many changes in design and scope, it is difficult to compare the completed Project with the one approved. The initial Project had an expected economic internal rate of return (EIRR) of 19 per cent. 56. A tracer survey of 14 water courses located in the PIS was commissioned by the Post-Evaluation Office prior to the PEM. Surveyed water courses were the same as those earlier included in baseline and impact surveys carried out under the OFWMP. These earlier surveys were of limited value mostly because they included only wheat and the samples were too small (see Appendix 2). The PEM

10 conducted a limited survey of 44 farmers in 32 water courses distributed throughout the Project area, including newly irrigated areas. Data on all investment costs In the area, income and operating expenses, and other pertinent information were collected. The ex-post evaluation presented in Appendix 3 is based to a large 57. extent on forecasts of expected future crop yields and cropping intensities because most benefits have yet to be realized. At full development, incremental production is expected to exceed 0.55 million tons which is close to expectations during reformulation of the Project and only about one-fifth of the appraisal target. Relative to the land area, actual production would thus be less than expected at appraisal. Production reflects the effects of investments made both under the Project and other projects like OFWMP, CCADP, ongoing Government programs and other projects by various donors. Consequently, all investments in the area have been considered. The cost of the main canal allocated to the Project's Stage I is 58. proportional to the Stage I share of the total area (one quarter). This estimate is conservative for two reasons. First, remodelling of the existing Paharpur canal would have cost less than one quarter of the Chashma canal. Second, the Project cost includes the cost of tubewell supplies that farmers would incur if additional O&M is not provided for the surface system. Ex-post evaluation indicates a rate of return of about 10 per cent. 59. Major reasons for the shortfall below the appraisal expectation are: (i) the sizeable increase in capital cost per unit area; (ii) the lower incremental production from a much reduced crop area where 80 per cent of the land was already partly irrigated; and (iii) a 140 per cent delay in Project completion. A mitigating factor is the increased proportion of higher value crops. Analysis shows that the Project is highly sensitive to changes in yield 60. which to a large extent, as indicated in para. 44, have yet to materialize and mostly depend on the early and successful implementation of the CCADP. A mere 10-20 per cent shortfall in yield achievement would result in an EIRR of about 3-7 per cent. Doubling of 0&M costs yields an EIRR as high as 9.6 per cent without accounting for related production increases. Given the current low level of 0&M inputs, even small increases should yield good returns.!1' E. Socioeconomic and Sociocultural Results

The Project has had a generally positive socioeconomic and 61. sociocultural impact reflected in increased employment and alleviation of poverty. Its contribution to the development of D.I. Khan and the Project towns and villages is reflected In increased commercialization and establishment of trade infrastructure such as retail shops. A large sugar mill will be constructed near D.I. Khan. As indicated above (para. 53) appreciation in values of urban and rural land is probably the most dramatic impact of the Project.

See "Benefits to 0&M Expenditure in the Canal System in Punjab," Policy Options Briefing Paper Series No.2, Ministry of Food, Agriculture, and Cooperatives, Government of Pakistan, June 1989. A 10 per cent permanent increase in O&M expenditure would increase agricultural productivity by 30 per cent in six years. The marginal value product of one Rupee investment in 0&M spending is Rs 19 over six years.

11 62. Incremental employment due to construction amounts to 20 million mandays or about double the appraisal expectation. Annual farm labor requirements before the Project were 1.5 million man-days and should rise to about 4.3 million at full development. Most labor will be provided by farm families. The AR had expected farm labor requirements to reach 29 million man-days, mostly because of the larger area envisaged. Other factors explaining the gap include increased mechanization and the reluctance of farmers to select labor-intensive crops. Recent surveys show that farms are significantly smaller than at 63. appraisal. Over half of them cover less than 2.5 ha with many unregistered tenants. This suggests that Project benefits may be spread over a larger number of farmers than originally planned. The annual household income of a median farm of 2.5 ha is expected to rise to Rs 17,000 or more, an increase of 130 per cent in constant prices over the situation prevailing before the Project. The AR projected a more than four-fold increase. The current increase is estimated at less than 10 per cent (see Appendix 4). A visible sociocultural impact is the accelerated integration of hill 64. and plain communities. Waziri Pathans have immigrated and bought land with earnings from overseas employment. These farmers are generally more enterprising and progressive and were among the first to grow sugarcane, the most profitable crop. The Project should assist disadvantaged farmers by bringing irrigation 65. to rainfed areas, increasing flows in existing canal systems thereby supplying more water to tail reaches and draining waterlogged areas. The Project expected an especially large rise in income (in the order of 15 times) for farmers whose land is converted to irrigation. However, there is evidence that some of these farmers have moved to other rainfed areas, making way for new settlers. If they were able to realize the increased value of their land by selling it, then they would have benefited. In contrast, larger landlords have in several cases sold land at high prices to the detriment of former tenants. Both buyer and seller benefit through free exchange. The proportion of farm work done by employed labor will probably 66. increase. These workers are amongst the poorest and most disadvantaged members of rural society. A strong demand for labor partly brought about by the Project has meant a relatively rapid increase in wages, approximately doubling in the past four years, while the price of wheat has risen by only a quarter. This indicates that the welfare of the poorest groups has improved. The Project will increase the amount of "usher" raised. Usher is an 67. Islamic tax to alleviate poverty. It amounts to some 5 per cent of the net output of each crop. The Project is expected to raise the amount of usher levied from Rs 5.5 million to about Rs 17.9 million at full development. F. Women in Development

The Project has had a significant impact on women particularly in newly 68. irrigated areas. Increased cropping intensity has expanded opportunities for employment of female labor particularly in post-harvest activities. Involvement of women in these activities has meant an additional income to families. Given the legal and cultural status of women, an increase in income has not necessarily resulted in more assets belonging to women. Women interviewed do not consider their active participation in farming activities as an additional burden. EAs

12 and the Department of Agricultural Extension report that they are not aware of female staff working on the Project. G. Environmental Impact

69. Irrigation of the Chashma area has started to convert a semi-arid area endowed with fertile soils into one of intensive cropping. Trees have been planted along roads and canals, and moving sand dunes have been fixed by a vegetal cover. A drainage system is reclaiming lands previously flooded and badly eroded. 70. Seepage from canals, oversaturation of crop lands and poor management of water have resulted in extensive waterlogging in the Project area. However, evidence is not available to indicate whether salinization has changed since appraisal. Monitoring this key aspect is essential. Malaria is spreading to formerly rainfed areas, but it is expected that the situation will improve as canals seal off and the CCADP becomes effective. H. Gestation and Sustainability

71. More than three years after commissioning, the build up of benefits has barely started and the area is still plagued by waterlogging. Limited areas already drained under the CCADP have seen their production increase rapidly. Opening the outlet of the main drain alone is expected to boost production Proj ectwide. Unlocking of the crop output potential is conditional on early completion of CCADP. It is expected, however, that as the Chashma Scheme further develops renewed seepage will take place through the as yet unsealed portions of unlined canal embankments and affect achievement of production targets. Constraints related to rigidities in both irrigation design and operation management along with the lack of water users associations and effective crop extension will also slow the pace of output growth. 72. Questions concerning the sustainability of the Project also generally apply to other irrigated lands in Pakistan. Can the facilities established be maintained to levels of efficiency which ensure adequate benefits? And can sufficient funds be provided given the large gap between O&M costs and the likely revenue from irrigation fees? Another question is whether there will be enough water in the Indus River to meet the demands of all of the irrigated areas of the country. As the Tarbela dam silts up faster than planned, its capacity will gradually be reduced. Plans for new storage capacity have yet to be finalized. The long term availability of water may not be guaranteed. The effect on salinization of agricultural lands of sizeable canal seepage and waterlogging may be large but it will remain unknown as long as it is not monitored. V. KEY ISSUES FOR THE FUTURE A. Irrigation Service Fee

Current water allocation procedures in Pakistan, particularly in the 73. Project area, are generally not conducive to economic efficiency. Alternative allocation systems which could reduce inefficiencies exist and should be evaluated. Reform of irrigation water pricing policy with the aim of increasing efficiency in the use of water is essential. Irrigation water in Chashma is distributed following a rigid supply 74. management system which is unresponsive to demand. Irrigation service fees set

13 for each crop are only partly proportional to crop water consumption and do not seem to reflect the economic value of crops. B. Demand Management 75. The Project lacks flexibility in planning, design and operation. This lack of flexibility has implications for achievement of benefits and overall economic efficiency. The Project has been designed and is managed to meet the needs of a moderately water using cropping pattern. At present, cropping patterns vary considerably throughout the area and differ from design as conditions have changed. With water-demanding crops likely to further expand because of their profitability, the demand for water may exceed the capacity of the supply system. 76. There is therefore an urgent need to prepare for meeting demand so as to make full use of the system potential and also improve equity in water use. Demand can be influenced by an appropriate system of irrigation service fees approximating economic efficiency (see paras. 73 and 74). In turn, meeting the demand for water requires that the current rigid supply system of irrigation management be progressively turned into a mechanism for continuously meeting the varying demand at any particular time. 77. At preseht, significantly more water than the design permitted is used. Excess water is diverted from the main canal which, for canal sealing purposes, carries about twice as much water as currently needed. Water-intensive cropping patterns, including sugarcane cultivation, are increasingly being adopted and a sizeable mill is planned for cane areas extending over Stages I and II. Water shortages may well develop in Stages II and III in the future. The implications for the main canal length, redesign of irrigation facilities and management systems, and on cropping patterns need to be urgently identified. 78. If a pricing and demand study in the PIS area is undertaken, it should include the newly irrigated areas of the Project since subsequent stages comprise such lands. Shifting from a supply to a demand system implies institutional changes and a beneficiary participation approach. This will prove difficult and require time. WAPDA, DIPHE, OFWM and agricultural service agencies will have to closely coordinate with one another, and perhaps also with private sector entities or non-governmental organizations and water users groups. Adaption of facilities and perhaps use of tubewell irrigation will also have to be progressively introduced along with changes in the fee system. 79. As waterlogging is constraining production, drainage is the key to viability. Indeed until the main surface drain is completed under the CCADP, it will be difficult to identify remaining wet spots which could justify subsurface drains. Where such drains have been completed, farmers interviewed by PEM reported a sudden change from waterlogging to shortage; in consequence, in some cases, farmers are supplementing gravity flows through tubewell supplies, as they did before the Project. Thus, it seems that if future demand for water exceeds surface supplies, tubewell development is likely to take place which will also provide some of the required drainage. In areas with permeable soils, tubewells could be widely spaced and be viable for farmers to install and operate. It would reduce O&M problems for DIPHE and shift the burden to users.

14 C. Agricultural Development

80. Problems faced by agricultural extension throughout Pakistan are also present in the Project area. One of them is the capability of extension agents to deliver what farmers need in post-green revolution irrigated agriculture. Farmers' problems have become more complex and a "use high yielding varieties" message is no longer relevant since these have already been adopted. Instead, farmers need a problem-solving service for a variety of complex issues. The future may well lie with graduate level staff dealing with specific farmer problems and communicating with the bulk of farmers via mass media. 81. Demonstrations of "improved packages" have met with little response as they do not fit the physical, managerial or economic conditions of the farmers. The way irrigation is managed and the content of extension advice do not seem to match well. The Agricultural Research Institute and the Model Farm established in the Project area need to examine such issues. VI. CONCLUSIONS A. Overall Assessment

82. The Project aimed at increasing agricultural production through irrigation in an area about four times as large as that completed. The same capital budget has been concentrated in the reduced area; however, the headworks and main canal constructed are intended to eventually supply the needs of the original area. Supplementary investments along with the Project have begun to yield agricultural and environmental benefits. The Project is the first irrigation venture of this magnitude successfully completed by the Government on its own. 83. In order to reduce costs, the main canal headreach was not lined. Use of permeable embankment material has reduced canal stability and resulted in intensive waterlogging of Project lands which has required development of an extensive drainage system. In fact, build up of benefits has barely started, but the potential of the Project is expected to be more fully realized after drainage becomes effective. Another positive development is that crops of higher value than were expected at appraisal are extensively grown. On conservative assumptions regarding O&M, drainage and production, and after inclusion of related projects such as OFWMP and CCADP, the EIRR will be about 10 per cent. Therefore, the Project may be considered to be generally successful. B. Lessons Learned

84. In an irrigation project concerned with large civil engineering structures, detailed preparation is needed before appraisal lest major design deficiencies occur which ultimately result in considerable project changes and cost overruns. In such projects, rapid realization of benefits depends on early provision of additional inputs beyond the basic physical infrastructure, including measures still needed to develop effective water user associations and provide improved crop extension packages matching the physical, managerial and economic conditions of the farmers. 85. Economic efficiency is the ultimate objective of irrigation ventures. Central to efficiency is the role of water pricing and the impact of irrigation service fees on production systems and resource use. Rigidities of supply

15 systems reflected in both irrigation facilities and management unduly constrain crop production. When irrigation projects extend over more than one province or state, 86. proper allocation of water can be better ensured through a federal institution than by provincial authorities. It appears that a significant, though often neglected result of 87. economic benefits from irrigation projects is the large increase in land value accruing to owners. The policy implications for equity, efficiency and resource use are considerable. C. Follow-Up Actions

In light of the above post-evaluation findings, the practical 88. conditions of introducing a demand management system in the Project area need be studied. Results of the study should be reflected in all stages of the Chashma Scheme. Much could also be done to increase crop yields. CCADP funds could 89. be used to identify improved crop technologies. Drainage under the CCADP should be accelerated because of its critical importance in achieving Project benefits. Account should be taken of the possibility of overdrainage under the 90. CCADP. The relative suitability of using tubewell in place of subsurface tile drainage needs to be considered in relation to tubewell supplies providing additional irrigation water for water-intensive cropping patterns prevailing in the Stage I area. The implications for redesign and management of the ongoing Stages II 91. and III of the Chashma Scheme need be studied in relation to current overuse of water upstream in the completed Stage I. A mid-term review followed by an appropriate study is urgently required.

16

APPENDIXES Aptendix 1 2 3 Project Agricultural Production Page 17 20 21 27

Project Monitoring and Evaluation Ex-Post Economic Re-Evaluation Farm Benefits

17 Appendix 1 Page 1

PROJECT AGRICULTURAL PRODUCTION Table 1: Cropp ing Intensity in the Project Area (in per cent) APPRAI SAL Before After Project Project Kharif Season Sugarcane Rice Cotton Fodder Maize Millet Orchard Other Sub- total Rabi Season Wheat Fodder Oilseeds Gram Sugarc ane Orchard Other Sub - total Total 5.2 3.3 0.0 3.0 2.4 3.1 0.8 3.5 21.3 23.4 3.7 1.0 3.7 5.2 1.1 0.3 38.4 59.7 15.0 2.0 10.0 10.0 10.0 3.0 5.0 5.0 60.0 45.0 10.0 5.0 5.0 15.0 5.0 5.0 90.0 150.0 POST - EVALUATION PROJECTION ACTUAL Full . Development 1995 1988/9 1981/2 7.3 8.3 2.2 2.6 4.9 0.3 1.1 2.3 29.0 36.0 7.2 0.4 2.7 7.3 1.1 2.2 56.9 85.9 8.2 12.0 0.7 4.9 5.3 0.5 0.9 1.2 33.7 34.8 7.5 0.4 4.7 6.9 0.9 1.2 56.4 90.1 16.0 15.0 2.0 7.0 10.0 2.0 4.0 4.0 60.0 45.0 10.0 1.0 9.0 16.0 4.0 5.0 90.0 150.0

(Reference in text: page 8, para. 46)

18 Appendix 1 Page 2

Table 2: Project Cro pp ed Areas (in hectares)

1981/2 1982/3 1983/4 1984/5 1985/6 1986/7 1987/8 1988/9 1989/90 1990/1 1991/2 1992/3 1993/4 1994/5 hartf Season Sugarcane 3164 3569 Rice 949 Cotton Fodder 1123 Maize 2123 708 Orchards Other 860 Total 3005 2933 4195 4878 958 1213 1032 1708 2337 2323 621 713 1206 60 2574 4932 1134 1466 2857 777 63 1996 5493 1011 2109 3196 865 69 2129 5952 866 2153 2862 893 45 2680 4708 664 2221 2866 828 75 3789 5965 645 2712 2800 963 160 4561 6698 380 3010 2966 1083 123 5027 7261 559 3351 3351 559 1117 5586 7820 559 3910 3910 559 1396 6703 8378 1117 4468 4468 1117 1676 7820 8378 1117 5027 5027 1117 1955 8937 8378 1117 5027 5586 2234 2234

12496 13354 13828 13803 14739 14900 14042 17034 18821

21225 23740 27927 30441 33513

Rabi Season Wheat: Irrigated 15496 15869 15606 16179 17057 16493 18540 19181 20108 canal 2571 2571 2571 2571 2186 61 0 tubewell 2571 2571 1590 1590 1590 1590 421 184 0 Rainfed 1590 1590 3789 3005 2933 2574 1996 2129 2680 4561 Sugarcane 3164 4449 4019 4156 4468 3102 3411 3638 4150 3896 Fodder 1814 1734 2022 2415 1819 2581 2793 1152 2064 Gram 894 851 1004 942 920 970 782 Orchard 903 812 182 132 143 180 387 1117 649 578 91 Other Total 28627 29900 29137 29831 30821 30179 30765 31309 33829

21225 22342 23459 24576 25135 0 0 0 0 0 0 0 0 0 0 5027 7820 8937 5586 6703 4748 5027 5306 5586 5586 3072 3351 3910 4468 5027 1117 1396 1676 2234 1955 1396 1676 2234 2793 3351 36585 39378 43288 47198 50270 55855 55855 55855 55855 55855

Cultivated Comand 43067 43067 42254 42705 42648 42096 47742 55066 55855 Area

Percent of crops improved benefited by the Project 0.00% 5.71% 11.43% 17.14% 22.86% 28.57% 34.29% 40.00% 48.57% 57.14% 65.71% 74.29% 82.861100.001 Note: Rainfed and tubewell irrigated wheat remain unimproved.

19 Appendix 1 Page 3

Table 3: Project Cro p Yields (in mt/ha) WITHOUT PROJECT start 1981-2 1.6 2.4 1.6 27 0.8 0.7 18 30 1.2 WITH PROJECT
________________

INCREASE 1981 to 1995 75.0% 50.0% 56.3% 55.6% 50.0% 85.7% 55.6% 66.7% -

Crop wheat paddy maize sugarcane cotton gram kharif fodder berseem (fodder) wheat (rainfed)

now 1988-9 2.08 2.88 1.96 33 0.96 0.94 22 38 1.2

future 1994-5 2.8 3.6 2.5 42 1.2 1.3 28 50 -

Table 4: Project Production (in mt) 1981/2 Sugarcane Rice Cotton Kh.fodder Maize Wheat Berseem Gram Total Incremental 85428 8566 759 20214 3397 30815 93060 806 243045 1988/9 125037 17179 619 59664 5488 40215 157928 2426 408556 1994/5 375354 30161 1340 140756 13965 70378 279300 6535 917789

0 165511 551441

20 Appendix 2

PROJECT MONITORING AND EVALUATION 1. The Appraisal Report specified that baseline and impact surveys of Project beneficiaries be carried out. No such surveys were done, but the OFWMP conducted a baseline survey in 1983 and an impact survey in 1985/86 on 14 watercourses in the PIS. The data obtained is of little use as an indicator of the impact of the Project for two reasons: (i) only the PIS command area was covered, and (ii) the impact survey is not recent enough to reflect the operation of the Chashma main canal. 2. In fact, even as a tool for monitoring the OFWMP the surveys are of minimal value. First, the sample size was too small (30 farms on four watercourses) and split into two groups of unequal size ("control" and "improved" watercourses). The uneven size of the samples means that statistical comparison of the results for each group is not possible. Second, wheat was the only crop reported in the survey to be grown on all farms. As a result, samples for other crops were even smaller (as low as one farmer), making estimates of average yields even less accurate. 3. It is also thought that the sample of improved watercourses included all those that were initially improved in the PIS. If that is the case, the sample was not randomly selected and cannot be representative of the PIS area as a whole. Furthermore, examination of the data for individual farms in the baseline survey reveals a number of suspect entries. These include, for example, very large farms with very small areas of crop, which can only be errors. 4. Reporting of overall cropping intensity was done on the basis of the farm average not the average per unit area or hectare, which is needed to assess the impact of the Project on overall production and for comparison with published statistics. Table 1 below compares cropping intensities calculated on a farm average basis and on the basis of an average per ha. Table 1: Comparison of Cro pp ing Intensities

1983 Imp roved water courses per ha average per farm average Unimp roved Water course per ha average per farm average

1986

58% 55%

80% 75%

119% 145%

128% 142%

5. Differences are quite significant. There is also no apparent reason for the difference between improved and unimproved watercourses.

(Reference in text: page 9, para. 56)

21 Appendix 3 Page 1

EX-POST ECONOMIC RE-EVALUATION 1. The EIRR is based on EAs monitoring of crop production and on the PEM field investigations and interviews. Irrigation development in the Project area is not solely due to the Project. Other projects and programs, such as OFWMP and CCADP assisted by the Bank, are essential to achievement of target benefits. Their costs and benefits are reflected in the calculation of the ex-post EIRR. 2. No baseline or impact survey of the Project were carried out. Surveys for the PIS area were undertaken under the OFWMP which excludes the newly irrigated area of the Project. These surveys are defective on several counts shown in Appendix 2. The PEM commissioned a survey of 14 watercourses in the PIS. area and carried out field interviews throughout the Project area in early 1990. The PEM has assumed that the trend of crop production experienced over 1979-1981 would have continued "without the Project" and that it would have progressively levelled off. Production estimates for both the "with" and "without Project" situations are shown in Appendix 1. 3. EAs have carried out monitoring of the various aspects of irrigation cropping (yields and area cropped for each season and crop, input prices, crop sale value, water charges, other taxes). Figures for operating costs, net income, price structure and the like were collected. In order to confirm their validity, the PEM carried out a limited survey of beneficiaries in the field as described in paragraph 1. Data on operating costs, and on production and sale value of crops were collected through interviews. A random sampling method of beneficiaries could not be applied since beneficiaries were dispersed over a wide area. Nonetheless, the beneficiaries represented a relatively varied cross-section of the Project population. Interviews were held without notice. Traders and other interested parties were also interviewed to determine prices which prevailed over 1980-1990. 4. Costs have been valued at 1990 constant prices. The World bank MUV index has been used for correction of foreign currency costs. Local costs have been converted to a constant price level by applying the GDP deflator and have been corrected for distortion through the application of a Standard Conversion Factor of 0.9 for Pakistan. 5. Prices for inputs and outputs have been adjusted to economic levels using border prices for tradable commodities such as most crops, fertilizers and fuel. Non-tradable items such as fodder crops and labor have been adjusted using the Standard Conversion Factor of 0.9 for Pakistan. Border prices have been derived from World Bank forecasts for 1995 commodity prices rather than 1989 or 1990 prices as recent prices represent a peak, and the 1995 forecast is thought to be more representative of average prices over the Project life. 6. Local financial prices were collected by the PEM. Costs of transport and distribution to convert border prices to farm-gate levels are mainly derived from the Chashma Stage II feasibility study, adjusted to 1990 economic levels. An exchange rate of Rs 21.91 $1.00 has been used. Financial and economic prices are shown in Table 1 for inputs and Table 2 for outputs.

(Reference in text: page 10, para. 57)

22 Appendix 3 Page 2

7. The crop year 1981/82 has been taken as the pre-Project year. Capital expenditure started in 1978/79 and will continue (notably for the CCADP) up to 1991/92. Investments have had little impact on production until some years after they were done. Agriculture was considerably disrupted in the existing PIS area because of construction works and waterlogging after commissioning of the main canal. 8. The costs of the main canal have been apportioned on the basis of the proportion (25 per cent) of the total command area in the Stage I area (the Project). Incremental benefits have been calculated commencing in 1982/83 and building up over a ten-year period, including a five-year forward projection as shown in Appendix 1. 9. Crop budgets were constructed for eight major irrigated crops grown in the Project area using data from the Chashma Stage II feasibility report and information collected by the PEM. As the overall water demand by the crops in the forecast cropping pattern may exceed the capacity of the irrigation system to supply water, the cost of supplying a 500mm layer of supplementary tubewell water has been included in the budget for sugarcane. Where there is insufficient water, farmers already use tubewells to supplement canal supplies. 10. Using crop budgets, levels of net income for 13 different crops whether irrigated or rainfed have been calculated in Appendix 4 for "with" and "without" Project situations. These have then been used to derive the Project total net income of Table 3. 11. The ex-post EIRR is estimated at 10.4 per cent as shown in Table 4. This compares with an appraisal EIRR of 19 per cent and an EIRR of 12 per cent for the reformulated Project. The lower ex-post estimate mainly arises from: (i) the sizeable increase in capital cost per unit area; (ii) the lower incremental production from a much reduced crop area where 80 per cent of the land was already partly irrigated before the Project; and (iii) about 140 per cent delay in Project completion. A mitigating factor is the increased proportion of higher value crops. 12. Incremental crop production at full development will be about 0.67 million tons per annum compared with the appraisal expectation of more than 3 million tons for an area four times larger than completed. Lower incremental production is partly compensated by higher value crops. 13. A sensitivity analysis has been carried out on those elements of the evaluation that involve future estimates. Results are shown in Table 5. Returns are sensitive to changes in forecast prices and particularly yield levels. It is noted, however, that the border price projections used in calculating economic prices in the base case are taken from a relatively low point in the commodity price cycle. A reduction by 10 per cent reduces the EIRR to a borderline level. The EIRR is more sensitive to yield than price changes as the former only apply in the "with project" situation and so have a larger impact on incremental benefits. The assumption that, with forthcoming improvements in drainage, the cropping intensity would increase from the present level of about 90 per cent to 150 per cent over a five-year period was possibly the most optimistic of the assumptions. However, if it does take ten years in place of five to reach the target intensity, the EIRR remains at an acceptable level.

23 Appendix 3 Page 3

Table 1: In put Prices

Seeds: wheat berseem sugarcane rice cotton maize sorghum gram unit kg kg kg kg kg kg kg kg kg kg It. kg ha. Financial. Economic Rs. Rs. 3.00 5.23 20.00 18.00 0.57 0.45 2.28 1.98 4.50 5.00 3.24 3.88 2.64 2.64 4.43 4.92 3.08 4.38 198.00 26 350 3.04 4.34 198.00 26 350 78.77 75.65 56.19 56.19 9 36

Fertiliser: urea DAP Herbicide: Buctril M Insecticide: Padan cotton Tractor hire: cultivate drilling

per ha. per hr. 150 60 200 80 per ton 189 thresh wheat (9% share) 207 maize (9% share) 10 Bullock pair & man per hour Labour: casual per day 40 days per harvest ton crop 4.73 wheat (10% share) 4.85 rice (15% share) 2.81 maize (5% share) 12.20 cotton (8% share) cane (Rs.2/md) 1.25 13.85 gram (5% share) 0.94 fodder (Rsl.5/md) 0.50 thresh: wheat maize 1.00 8.00 gram rice - included in harvesting Irrigation charges wheat paddy maize sugarcane cotton gram kharif fodder barseem (fodder) orchards per ac. per ha. 22.4 56 74 29.6 44 17.6 168 67.2 56 22.4 22.4 56 44 17.6 44 17,6 134 53.6

0 0 0 0 0 0 0 0 0

24.02 25.04 Tubewell: per 25 ImI Watercourse maintenance 34.857 38.73 materials (per crop) 0 rate 5% Usher (tax) 0 levied on 75% of gross output less harvesting and threshing coats

24 Appendix 3 Page 4 Table 2: Crop Prices

Financial Economic Market price (Rs./ton) wheat paddy maize sugarcane cotton gram kharif fodder berseem (fodder) Marketing costs (Rs/ton) sugarcane fodder crops other crops Farm-gate price (Rs./ton) wheat paddy maize sugarc ane cotton gram kharif fodder berseem (fodder) Value of Crop Residue Tons per ton of crop wheat 1.5 rice 1 maize 1.1 gram 1 2100 1500 2300 350 6100 3700 212.5 212.5 3999 1292 2876 449 7839 3330 191 191

2500 1900 2700 375 6500 4100 250 250 25 37.5 400

4359 1652 3236 472 8199 3690 225 225

22.5 33.75 360

Price Rs / t onne 250 150 100 100

225 135 90 90

Sugarcane tops are given to cutters as part-payment.

25 Appendix 3 Page 5 Table 3: Total Net Income From Crops (in Rs million)
Sugarcane Rice Cotton Fodder Maize Other 12.28 12.11 12.25 11.13 4.77 4.03 5.59 5.69 2.39 2.44 3.12 2.94 2.07 1.95 3.29 2.89 4.11 2.98 3.31 3.32 3.41 3.90 1.63 1.73 8.93 6.39 2.65 4.24 4.64 1.82 9.84 12.78 18.63 23.43 6.97 7.09 8.05 5.56 2.29 1.77 1.74 1.04 4.42 4.65 5.79 6.61 4.19 4.22 4.46 4.16 1.86 1.99 2.64 2.98 26.94 31.17 38.89 47.10 8.82 9.60 10.39 10.50 3.17 1.54 1.56 3.21 7.57 9.07 10.64 12.28 5.10 6.01 6.95 7.91 4.28 7.78 5.15 9.09 57.79 10.71 3.29 12.90 8.98 14.41

Rabi Season Wheat: 18.54 19.24 19.17 20.13 21.49 21.04 23.95 25.09 26.78 canal 28.77 30.82 32.93 35.08 t-well 2.19 2.19 2.19 2.19 2.19 2.19 0.05 1.86 0.00 0.00 0.00 0.00 0.00 2.26 2.26 2.26 barani 2.26 2.26 2.26 0.60 0.26 0.00 0.00 0.00 0.00 0.00 13.38 15.24 16.82 19.83 21.94 19.82 21.07 22.43 25.15 Fodder 27.83 30.64 33.57 36.64 1.71 3.17 2.89 2.86 3.45 4.25 3.30 4.83 5.45 7.11 Gram 6.26 8.62 10.23 2.05 1.70 Other 7.46 2.18 1.52 1.96 1.85 1.88 2.39 3.41 4.64 5.80 9.17 67.42 72.62 74.03 77.45 81.95 80.97 83.63 95.09 107.37 121.75 136.94 160.40 181.20 Total

37.08 0.00 0.00 39.24 12.34 11.08 207.83

Table 4: Calculation of Economic Internal Rate of Return Net Farm Year Capital 0&M Income _______ Cost Cost Incremental Net Benefits 1981 32.30 0.00 -32.30 1982 42.40 0.00 -42.40 31.24 1983 0.00 -31.24 1984 25.77 0.00 0.00 -25.77 0.00 1985 8.32 -63.51 71.83 0.00 -147.94 1986 157.06 9.12 1987 124.36 I 0.00 16.70 -107.67 1988 145.17 I 0.00 25.19 -119.99 1989 71.70 I 0.00 I 24.27 -47.43 1990 80.41 13.14 I 36.40 -57.14 1991 151.51 8.04 50.52 -109.03 1992 64.18 11.70 74.95 -0.92 1993 339.28 11.70 I 104.49 -246.49 1994 127.09 11.70 I 135.44 -3.35 1995 0.00 21.61 180.71 159.09 0.00 1996 21.61 222.60 200.99 1997 0.00 21.61 278.13 256.52 1998 0.00 21.61 278.13 256.52 1999 0.00 21.61 278.13 256.52 2000 0.00 21.61 278.13 256.52 I 2001 0.00 21.61 278.13 256.52 I 2002 0.00 21.61 278.13 256.52 2003 0.00 21.61 278.13 256.52 2004 0.00 21.61 278.13 256.52 21.61 278.13 256.52 2005 0.00 21.61 256.52 2006 0.00 278.13 0.00 21.61 278.13 256.52 2007 21.61 278.13 256.52 2008 0.00 21.61 278.13 256.52 2009 0.00 21.61 278.13 256.52 2010 0.00 256.52 0.00 21.61 278.13 2011 0.00 21.61 278.13 256.52 2012 I _____ ________ _______ ___________ EIRR 10.4%

26 Appendix 3 Page 6 Table 5: Sensitivit y Analysis

I tern

Change (per cent)

EIRR (per cent)

1.

output prices

(10) (20) 10 (10) (20) 10 100 50 (20) (30) -

8.01 5.09 12.45 7.37 3.47 12.94 9.57 9.99 10.56 10.64 9.34

2.

crop yields "with" Proj ect

3.

O&M costs starting 1990/91 a/

4.

cropping intensity increasing to 150% over the next 10 years as against 5 years

a/ EIRRs do not take account of sizeable production changes resulting from changes in 0&M expenditures.

27 Appendix 4

FARM BENEFITS - Table 1: Net Income Per Unit Area of Crop Grown (in Rs/ha) WITHOUT PROJECT 1196.18 851.59 1418.82 3882.42 1482.33 1128.44 1404.24 2521.91 1845.90 4312.46 WITH PROJECT 1475.33 no change no change 6466.31 2455.30 1278.94 1607.60 2942.55 2567.09 7024.15 INCREASE

CROPS Wheat: canal t-well rainfed Sugarcane Gram Rice Maize Cotton Kharif fodder Berseem (fodder)

23.3% 66.6% 65.6% 13.3% 14.5% 16.7% 39.1% 62.9%

Table 2: Net Benefits to Rural Families (in Rs/ha)

1981/2 Net farm income Returns to labour Total Increase on baseline 3394 1284 4678

1988/9 3572 1339 4911 5.0%

1994/5 7597 2832 10428 122.9%

(Reference in text: page 11, para. 63)