ASIAN DEVELOPMENT BANK PCR:SRI 24120

PROJECT COMPLETION REPORT

ON THE

NORTH WESTERN PROVINCE WATER RESOURCES DEVELOPMENT PROJECT

(Loan 1166-SRI[SF])

IN

SRI LANKA

October 2002

CURRENCY EQUIVALENTS

Currency Unit – Sri Lanka Rupee/s (SLRe/SLRs)

At Appraisal At Project Completion (30 April 1992) (23 March 2001)

SLRe1.00 = $0.0236 $0.0116 $1.00 = SLRs42.33 SLRs86.35

ABBREVIATIONS ADA – Agriculture Development Authority ADB – Asian Development Bank BME – benefit monitoring and evaluation CBSL – Central Bank of Sri Lanka DAS – Department of Agrarian Services EA – Executing Agency EIRR – economic internal rate of return FIRR – Financial internal rate of return FO – farmer organization IA – Implementing Agency ICB – international competitive bidding ID – Irrigation Department IS – international shopping MLIMD – Ministry of Lands, Irrigation, and Mahaweli Development MTR – midterm review NGO – nongovernment organization NWPC – North Western Provincial Council OFCs – other food crops O&M – operation and maintenance PCI – participating credit institution PCR – project completion report PDOA – Provincial Department of Agriculture PED – Provincial Engineering Department PPD – Provincial Planning Division PMO – project management office PS – Pradeshiya Sabha SDR – special drawing rights TA – technical assistance WRB – Water Resources Board

GLOSSARY

Division

Administrative unit comprising from about 5,000 to 18,000 households. There are about 45 divisions in Northwestern Province.

Dugwell Well used for irrigation, typically 5 meters in diameter, 6 m deep, and with a daily yield of 13 cubic meters.

Maha Season November to February wet season, dominated by Northeast monsoon.

Other Rural Road Graveled with a carriageway, often of 3.5 meters. There are no definite technical standards for this category of road.

Project Outcome Project objectives involve a hierarchy of objectives. These include output, outcome, purpose, and goals. Project outputs lead to project outcomes. Project outcomes contribute to the achievement of project purposes, which in turn contribute to project goals.

Class D road

A carriageway of 3.5 meters (usually tarred).

Class E road

A carriageway of 3.5 meters, graveled.

Type of Irrigation Works Financed under the Project

Rehabilitation comprised works costing up to SLRs44,000 per hectare. Improvement comprised works costing up to SLRs6,000 per hectare. Restoration referred to abandoned tanks, with a ceiling of SLRs66,000 investment per hectare. Extension referred to expansion of existing schemes.

Pradeshiya Sabha Elected local government administration unit covering a few villages.

Yala Season May to September dry season, dominated by Southwest monsoon.

NOTES

(i) In this report, "$" refers to US dollars. (ii) The fiscal year (FY) of the Government ends on 31 December.

CONTENTS

Page

BASIC DATA iv MAP viii

I. PROJECT DESCRIPTION 1 A. Rationale 1 B. Objectives and Scope 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 4 C. Project Costs 5 D. Disbursements 5 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 9 H. Technical Assistance 9 I. Consultant Recruitment and Procurement 9 J. Performance of Consultants, Contractors, and Suppliers 10 K. Performance of the Borrower and the Executing Agency 10 L. Performance of the Asian Development Bank 10 III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Efficacy in Achievement of Purpose 11 C. Efficiency in Achievement of Outputs and Purpose 12 D. Preliminary Assessment of Sustainability 12 E. Institutional and Other Impacts 13 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons Learned 13 C. Recommendations 14

APPENDIXES 1. Overview of Project Objectives and Accomplishments 16 2. Contributions to Poverty Reduction 17 3. Agricultural Production and Extension Services 18 4. Accomplishments under the Rural Infrastructure Component 24 5. Credit Component 25 6. List of Vehicles and Equipment 29 7. Institutional Development Component 32 8. Asian Development Bank Annual Disbursements of Loan Proceeds 35 9. Project Implementation Schedule 36 10. Actual Project Organization 38 11. Incremental Staff to be Engaged under the Project 39 12. Maintenance of Irrigation Systems 41 13. Maintenance of Rural Roads 43 14. Major Loan Covenants 46 15 Technical Assistance Completion Report 52 16. Consulting Services 53 17. Economic Analysis 54 SUPPLEMENTARY APPENDIX (available on request) Detailed Economic Analysis

BASIC DATA A. Loan Identification 1. Country 2. Loan Number

3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Democratic Socialist Republic of Sri Lanka 1166 North Western Province Water Resources Development Democratic Socialist Republic of Sri Lanka Ministry of Lands, Irrigation, and Mahaweli Development SDR 21.526 million PCR:SRI 710

B. Loan Data

1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Service Charge – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

29 January 1992 14 February 1992 18 May 1992 21 May 1992 25 June 1992 24 July 1992 24 October 1992 10 September 1992 No extension 31 December 1999 23 March 2001 1 1% 40 10 8% 10 6 Central Bank of Sri Lanka (CBSL)

9. Disbursements

a. Dates

Initial Disbursement 27 November 1992

Final Disbursement 23 March 2001

Time Interval 8 years, 3 months

Effective Date 10 September 1992

Original Closing Date 31 December 1999

Time Interval 7 years, 3 months

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b. Amount (SDR‘000)

Category

Original Allocation

Last Revised Allocation

Net Amount

Disbursed

Undisbursed Balance Cancelled

at Closing Date 01 Civil Works 13,027 7,787 7,460 327 02 Equipment/Materials 773 1,041 1,013 28 03 Vehicles 753 504 504 0 04 Consulting Services 1,137 758 633 125 05 Training 567 379 370 9 06 Credit 1,682 1,493 1,199 294 07 Vehicle Operating Costs 253 93 92 1 08A Survey and Investigation 605 676 663 13 08F BME 192 41 51 (10) 09 Service Charge 631 358 358 - 10 Prior TA Cost 108 99 99 - 11 Unallocated 1,798 0 0 - Total 21,526 13,229 12,442 787

BME = benefit monitoring and evaluation, TA = technical assistance. 10. Local Costs (ADB-Financed) - Amount ($ million) 10.5 - Percent of Local Costs 67.0 - Percent of Total Cost 46.4

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 11.9 6.8 Local Currency Cost

28.1 15.6

Total 40.0 22.4 2. Financing Plan ($ million)

Appraisal Estimate Actual Cost Foreign Local Total Foreign Local Total

Implementation Costs: Borrower-Financed 0.0 8.2 8.2 0.0 4.2 4.2 ADB-Financed 11.9 18.1 30.0 6.8 10.5 17.3 Farmers/Subborrower 0.0 1.8 1.8 0.0 0.9 0.9

Total 11.9 28.1 40.0 6.8 15.6 22.4

ADB = Asian Development Bank.

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3. Cost Breakdown by Project Component ($ million)

Appraisal Estimate Actual Component Foreign Local Total Foreign Local Total

Rural Infrastructure Irrigation and Drainage 3.5 8.6 12.1 2.6 8.4 11.0 Rural Roads 1.2 2.8 4.0 0.9 1.6 2.5 Subtotal 4.7 11.4 16.1 3.5 10.0 13.5

Credit Dugwell 0.5 1.9 2.4 0.0 0.5 0.5 Lift Irrigation 0.1 0.1 0.2 0.0 0.0 0.0 Women Microenterprises 0.0 0.2 0.2 0.0 1.3 1.3 Subtotal 0.6 2.2 2.8 0.0 1.8 1.8

Institutional Development 3.0 5.6 8.6 2.7 3.8 6.5

Total Base Cost 8.3 19.2 27.5 6.2 15.6 21.8 Physical Contingencies 0.8 1.7 2.5 0.0 0.0 0.0 Price Contingencies 1.7 7.2 8.9 0.0 0.0 0.0 Service Charge 0.9 0.0 0.9 0.5 0.0 0.5 Technical Assistance Recovery

0.2 0.0 0.2 0.1 0.0 0.1

Total Project Cost 11.9 28.1 40.0 6.8 15.6 22.4

4. Project Schedule

Item Appraisal Estimate Actual

Date of Contract with Consultants Senior Irrigation Engineer (International) July 1993 August 1993 Environmental Specialist (International) July 1993 October 1993 Senior Irrigation Engineer (Domestic) October 1992 March 1993 Agronomist (Domestic) October 1992 April 1993 Accounting Specialist (Domestic) October 1992 May 1993 Engineering Consultants Ltd. October 1992 January 1994 Civil Works Contract Date of Award January 1993 January 1993 Equipment and Supplies Dates First Procurement July 1992 October 1992 Last Procurement December 1995 November 1998 Other Milestones First Extension of Loan Closing Date 30 January 2000 First Partial Cancellation 5 August 1998 Second Partial Cancellation 2 December 1999 Final Cancellation of Undisbursed Loan Balance 23 March 2001

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5. Project Performance Report Ratings

Ratings

Implementation Period

Development Objectives

Implementation Progress

1 January–31 December 1993 Satisfactory Satisfactory 1 January–31 December 1994 Satisfactory Satisfactory 1 January–31 December 1995 Satisfactory Satisfactory 1 January–31 December 1996 Satisfactory Satisfactory 1 January–31 December 1997 Satisfactory Satisfactory 1 January–31 December 1998 Satisfactory Satisfactory 1 January–31 December 1999 Satisfactory Satisfactory 1 January–31 December 2000 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions

Name of Mission

Dates

No. of Persons

No. of Person-Days

Specialization of Membersa

Loan Fact Finding 6–22 Nov 1991 5 30 a, f, k, l, m Appraisal Mission 29 Jan–14 Feb 1992 7 112 a, f, l, n, o, p, q Inception Mission 19–27 Jan 1993 2 8 a, b Review Mission 1 13–26 Jul 1993 2 13 a, c Review Mission 2 21 Jul–10 Aug 1994 3 20 a, c, d Special Project Administration 23 Jun–5 Jul 1995 2 12 e, c Special Project Administration 20–29 Sep 1995 1 9 e Midterm Review 13 Nov–8 Dec 1995 5 25 e, g, h, l, j Special Project Administration 24–25 Jun 1996 2 2 e, c Review Mission 3 14–16 Nov 1996 1 3 e Review Mission 4 22 Jun–1 Jul 1997 2 14 f, c Review Mission 5 13–20 May 1998 2 14 d Review Mission 6 17–26 Nov 1999 1 8 d Review Mission 7 8–11 Apr 2000 1 3 e Project Completion Reviewb 27 May–10 Jun 2002 4 50 c, e, h, i

a a = Project Engineer, b = Senior Control Officer, c = Assistant Project Analyst, d = Project Specialist, e = Rural Development Specialist, f = Project Economist, g = Senior Agronomist, h = Economist (Consultant), i = Rural Sociologist (Consultant), j = Civil Engineer (Consultant), k = Senior Programs Specialist, l = Agriculturist (Consultant), m = Engineer (Consultant), n = Agriculture Credit Specialist, o = Counsel, p = Programs Officer, q = Mission Secretary.

b The Project Completion Report was prepared by Michael Dembinski, Rural Development Specialist.

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I. PROJECT DESCRIPTION

A. Rationale

1. At the time of project formulation (1992), Sri Lanka had achieved a literacy rate of 86%, indicating a high level of social development. In addition, in 1990 and 1991 gross domestic product growth rates had increased from earlier low levels of below 2.5% to 6.2% and to 5.0%, respectively. These developments reflected earlier economic liberalization policy reforms and the Government’s overall goals of poverty alleviation, improving the quality of life in rural areas, and enhancing balanced regional development. However, in spite of these reforms and goals, about 55% of the rural population lived below the poverty line and 43% of the active labor force depended on agriculture for their livelihood. In North Western Province, underutilized ancient irrigation systems provided a major opportunity for further economic growth.1 Because of inadequate maintenance, many schemes operated considerably below their potential. Similarly, roads to these irrigation systems were also deteriorating. There were substantial imports of other food crops (OFCs), including chili, onion, and green gram, which could be grown within the deteriorating irrigation schemes. However, there was little support for this. Jobs were lacking, particularly for women. Moreover, limited access of small entrepreneurs to credit curtailed the potential for microenterprise development. In line with the above goals, the Government’s strategy for North Western Province aimed at making better use of existing assets in the water resources sector, supporting better market opportunities through an improved rural road network, developing the opportunity of diversified cropping, and creating jobs through microenterprises. B. Objectives and Scope

2. In line with the above strategy for North Western Province, the Project’s purpose was to improve the economic, social, and nutritional well-being of the people living in the rural areas of North Western Province. This purpose was to be achieved through (i) increased agricultural production of about 13,000 metric tons (mt) of paddy and 19,600 mt of OFCs, and an average annual income increase of about $123 per household for about 70,000 benefiting farm households; (ii) diversified cropping covering about 4,000 hectares (ha) during the yala (dry) season; (iii) generation of about 3,100 sustained jobs and about 12,000 person-years of employment during construction for unemployed and underemployed people including women; and (iv) institutional support for (a) project management, (b) strengthening of agricultural extension services, (c) formation of effective farmer organizations (FOs) in the irrigation schemes, and (d) sustained maintenance of the Project.

3. The Project comprised three components to achieve the above outcomes:

(i) rural infrastructure development to improve, rehabilitate, or extend irrigation systems involving a total area of 26,940 ha and rehabilitate about 740 kilometers (km) of roads;

(ii) credit lines to finance about 1,500 dugwells, 250 sets of lift irrigation, and about 1,000 businesses of rural women entrepreneurs; and

(iii) institutional development in the form of facilities, equipment, training, consultants, and monitoring of project implementation, benefits, and environmental impacts.

1 There were 66 major and medium irrigation schemes commanding 19,000 ha, and about 6,300 minor schemes

commanding about 50,000 ha. Most of these were supplied by tanks, and a few relied on river diversion weirs.

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II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. Overview. This section discusses the relevance of the project design (Appendix 1),2 which is followed by a discussion of the soundness of the design, relevance of changes during implementation, and adequacy of the project formulation process. This discussion, together with further details provided in the following sections, aim to analyze shortcomings and provide the basis for the lessons learned and recommendations presented in part IV. The overall assessment in part IV will balance the Project’s shortcomings with its substantial benefits. As will be seen in para. 41, the Project is rated successful overall; four major lessons learned are presented in paras. 42 to 45. 5. Relevance of Project Design. Infrastructure investments in irrigation and roads provided the basis for agricultural production and income increases. Poor farmers proportionately benefited from these investments, which were highly relevant to contributing to the Government’s strategy of poverty reduction (Appendix 2) at the time of project formulation and even more so at the time of project completion, when the objective of poverty reduction had become, in addition, the overarching goal of the Asian Development Bank (ADB). The credit subcomponent for dugwells and lift irrigation systems substantially contributed to the objectives of crop diversification and increasing income. The credit component generated substantial employment, which exceeded targets. 6. The efforts to strengthen agricultural extension services and to develop sustained maintenance were less successful, because of lack of (i) diagnostic studies to establish performance gaps of institutions, and (ii) strategic institutional development plans (paras. 10 and 13).3 The Project’s training activities were likewise not based on a comprehensive strategic needs analysis nor a strategic training design process, and training was therefore less effective than it would have been with them. Investments had little focus, dispersing support among many government agencies. The provision of facilities, vehicles, equipment, and training improved the capacity of government agencies in a general way. This was relevant to the purpose of balanced regional development, as it contributed toward generally improving government services of the implementing agencies (IAs) concerned. 7. Soundness of Project Design and Relevance of Changes during Implementation. The Project’s design was complex and required changes of the implementation arrangements of the institutional development, infrastructure, and credit components to overcome delays and enhance achievement of intended benefits. These changes were introduced at the Midterm Review (MTR) in November 1995.4 Institutional development aimed at a quick effort to ensure efficiency of project management, benefit monitoring and evaluation (BME), and overall performance. However, the hiring of staff, training, and improvement of facilities took longer than expected or could not be accomplished at all as planned.5 The absorptive capacities of IAs,

2 Appendix 1 provides a concise project design summary and overview of achievements. It also illustrates the

logical hierarchy of objectives and relevance of each level in contributing to the next higher-level objective. 3 For example, at project completion, the Executing Agency (EA) had no immediate use for the project-financed

project management office (PMO) building and rented it to the local police. A strategic development plan would have specified the building’s long-term use in line with the Project’s objective.

4 By June 1995, slow progress of the Project was noted and an intensive review process was initiated. This involved two special administration missions (SPA), followed by the MTR, and one SPA to follow-up on agreed actions.

5 In addition, this effort went somewhat against staff retrenchment policies and early retirement schemes existing for most IAs at the time.

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specifically of the Provincial Engineering Department (PED) and Irrigation Department (ID), were overestimated. This caused start-up difficulties of the infrastructure component for which these IAs were responsible. At the MTR, capacity shortcomings of PED and ID were overcome through outsourcing of survey, design, and construction supervision works (the main activities of PED and ID). This was effective as accomplishments of the infrastructure component at project completion exceeded appraisal targets. However, early delays caused rushed implementation in the later part, which affected construction quality in some instances. Before the MTR, the design of the implementation arrangements of the credit component had a few gaps and shortcomings, which caused delay. Initially, outreach was too limited (para. 21), subloan processing procedures were not client oriented, and coordination mechanisms of the involved agencies were not properly worked out. However, these issues were also overcome at the MTR (paras. 22 and 23). 8. The design for sustained maintenance of rural infrastructure was inadequate. While the rationale for the Project resulted from rehabilitation needs, which were caused by earlier lack of maintenance, there was little analysis of these causes. The project design assigned maintenance to IAs and farmers without changes or improvements as compared to past practices. Lessons learned were not developed. Institutional arrangements ensuring adequate commitment, stakeholder participation, and sustained budget allocation for maintenance were lacking in the project design (paras. 25 and 26). 9. The infrastructure component, together with training and better extension services, was intended to enable and motivate farmers to adopt better rice production methods in the wet cropping season and, where appropriate, adopt diversified cropping systems under tank irrigated conditions in the dry season. The design was sound in achieving increased rice production and employment generation, but not in achieving diversified cropping at the assumed scale (Appendix 3). The Project’s economic analysis at appraisal estimated that about 80% of the Project’s economic benefits would result from the sale of high-value OFCs. This expectation proved too high. As a result, average farm income increases were less than 50% of that expected. The main reason for the shortfall was the inadequate analysis of issues and risks associated with crop diversification by farmers.6 The project design assumed that farmers would pursue the opportunity of crop diversification because of the Project’s investments in improved irrigation water availability, better roads, somewhat better extension services and farm demonstrations, and some marketing advice. However, the degree to which the Project addressed these factors proved insufficient to achieve crop diversification on the intended scale. The investments of the Project, although necessary to develop the opportunity for crop diversification, placed too little attention to (i) technical and social complexities of water management under tank irrigation conditions, (ii) perceptions and traditions of subsistence farmers, (iii) higher risks of OFC production, and (iv) marketing and price implications of increasing production of a few OFCs on the intended large scale. 10. Project Formulation. The quality of the Project’s feasibility study7 was generally satisfactory. It provided a detailed analysis of the infrastructure development component, which constituted the core of the Project. It also provided detailed information on the other aspects of the project design. However, the study provided too little diagnostic analysis of the causes of institutional performance gaps. The analysis of aspects of crop diversification and maintenance

6 Other reasons were the inadequate design and implementation of the strengthening of agricultural extension

subcomponent (already mentioned, para.6) and the inadequacy of the related farmer training. 7 ADB. 1990. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for North Western Province

Water Resources Development Project. Manila.

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were insufficiently systematic and analytical. The project framework design process, which ADB later adopted, or other strategic analytical tools were not used. Better analysis of the issues of crop diversification, credit arrangements, institutional capacity and institutional performance gaps, strategic institutional development planning, and maintenance and sustainability could likely have provided for a better startup, earlier progress, and better performance of crop diversification and maintenance of the Project’s irrigation systems and roads. The ID and PED fully participated in the formulation process of the Project. The project director also participated in the project design and administered the Project through its completion. However, other IAs, such as the Ministry for Women's Affairs, and participating banks participated less, which contributed to start-up difficulties. Beneficiary participation in project formulation was limited due to the feasibility study’s inadequate budget for this purpose. B. Project Outputs

11. Rural Infrastructure. The Project involved the rehabilitation, improvement, or extension of minor, medium, or major irrigation schemes. Overall targets of irrigation development were exceeded, increasing the total number of irrigation schemes from 666 to 697 and the total irrigated area by 2,716 ha to a total of 28,686 ha, mainly by expanding the number of minor irrigation schemes (Appendix 4). Changes resulted from detailed feasibility assessments during implementation, including (i) deletion of two extension schemes reducing the extension target area from 270 ha to 72 ha, (ii) upgrading of about 200 schemes from the improvement category to rehabilitation, and (iii) addition of 23 minor irrigation schemes for rehabilitation. These subprojects were added in line with the aim of balanced development support among divisions in North Western Province. The targets of the roads component were exceeded, with 415 km (against a target of 240 km) of class D and E roads and 573 km (500 km) of other rural roads rehabilitated (see Glossary). About 100 km of D and E roads were bitumen surfaced while the other roads were gravel surfaced. The increase of physical targets followed the high demand of farmers and communities. It became possible because of loan savings and capacity increase following the Project’s outsourcing arrangements after the MTR. 12. Credit. The credit component (Appendix 5) comprised three subcomponents: (i) dugwells, (ii) lift irrigation, and (iii) women’s credit. At the end of the Project, 1,200 (1,500)8 dugwells were constructed and 148 (250) pumps for lift irrigation were financed. Initial design difficulties of the implementation arrangement (paras. 21 to 23) caused delays and reduction in the number of dugwells and pumps. Microcredit was made available to 3,201 (1,000) rural women’s microenterprises ranging from SLRs5,000 to SLRs15,000. Microcredit included animal husbandry, agricultural processing, agriculture, fisheries, small industries, home garden cultivation, and packaging, grading, and marketing of agricultural products. The increased number of subprojects resulted from improved implementation arrangements introduced at the MTR and from high demand. Most microenterprises were successful and the subloan recovery rate of generally above 89% is high for microcredit projects. 13. Institutional Development. Most planned facilities were constructed as appraised with the exception of 71 extensions of agrarian service centers, which were not constructed. Procurement of vehicles and equipment was adjusted to the absorptive capacity and needs of IAs during project implementation (Appendixes 6 and 7). Staff training, including two international study tours, contributed to a general increase in staff knowledge. However, direct application of this knowledge was not evident (paras. 3 to 7 of Appendix 7). Strengthening of the agricultural extension, training, and support for the Provincial Department of Agriculture (PDOA)

8 Figures in parentheses reflect appraisal estimates.

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was reduced due to PDOA’s limited absorptive capacity and responsiveness to the needs and pace of the Project. PDOA implemented less than 40% of the targeted farmer training. Farm demonstrations were limited to plot-sized demonstrations without adequate demonstrations of the water management techniques that would have been relevant to tank irrigation systems. Training for women entrepreneurs was implemented as planned and effective as evidenced by the overall good performance of the subcomponent. There were no institutional programs or activities sustained by the Executing Agency (EA) or any of the IAs. Beyond the benefits of the physical investments, equipment, and vehicles, there was limited lasting impact of the component on the EA’s or IA’s capacities. C. Project Costs

14. The estimated cost of the Project was $40.0 million. The loan was for $30.0 million. The Government was to provide $8.2 million and beneficiaries $1.8 million. The actual project cost was $22.4 million.9 Cost savings of $17.6 million consisted mainly of unused physical and price contingencies of $11.9 million,10 and savings under the components of $1.1 million for irrigation, $1.5 million for roads, $1.0 million for credit, and $2.1 million for institutional development. The cost of irrigation investments was lower because of the cancellation of two major extension schemes and lower than expected construction costs. The cost of road construction had been overestimated. Savings under the credit component were caused by reduced scope for dugwells and lift irrigation. About 282 farmers participating in the dugwell program did not need loan financing. Savings under the institutional development component are discussed in Appendix 7. Loan savings were cancelled in stages: $7.2 million in August 1998, $4.0 million in December 1999, and about $1.0 million at loan closing. D. Disbursements

15. Because of the Project’s start-up difficulties (paras. 7 and 12), disbursements were delayed, with more than 80% occurring after the MTR (Appendix 8).11 Fund allocations of the Government were timely and adequate. The Project used an imprest account, which expedited the quick release of funds by the EA. The turnover ratios of the imprest funds over the period were 0.6 in 1994, 1.9 in 1995, 0.7 in 1996, 2.0 in 1997, 1.6 in 1998, 3.1 in 1999, and 3.4 in 2000.12 These figures indicate efficient use of the imprest funds, overall comparable to the average of ADB-financed projects in Sri Lanka. This latter comparable to average was 2.1 as of 30 December 2001, or higher than ADB’s general target of at least 2.0. Liquidation and reconciliation of the advanced funds were delayed as accounts were settled by the EA only 9 months after the revised loan closing date. The cumulative amount of final disbursement was $17.298 million (SDR12.441 million). E. Project Schedule

16. The appraised schedule was from July 1992 to December 1998 (Appendix 9). In 1998, this was extended by 1 year to 30 June 2000 at the request of the Government to allow more

9 Cost reductions of 44% were crucial to maintain the Project’s acceptable economic internal rate of return (EIRR)

as they almost matched the Project’s reduced benefits. 10 Price contingencies of 32.5% of base cost appear to be high. However, at that time, standard price escalation

rates had been used. These were noted in the Appraisal Report as 3.9% for the foreign exchange cost for 1992–1998, and 8% for the local currency cost for 1992 and 6% for 1993–1998.

11 The MTR was conducted in November 1995 after an elapsed overall implementation period of about 42%. 12 The annualized imprest account turnover ratio is computed as the ratio of total liquidation to the time-weighted

average fund balance for 12 months.

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time for the completion of infrastructure works. The loan was closed on 23 March 2001. The implementation pace was slow until the MTR in November 1995; this was caused mainly by the Project’s complexity of implementations arrangements and a few shortcomings of the project design (para. 7). Most irrigation schemes were completed during the later part of project implementation. Because of late completion, there was too little time to develop and test maintenance arrangements. This was noted during a review mission in April 2000 and therefore a second extension of the Project was considered at that time. However, instead, it was decided to initiate a follow-on activity to ensure maintenance.13 F. Implementation Arrangements

1. Project Coordination and Management

17. Project coordination involved four steering committees at national, provincial, divisional, and subproject levels and 11 IAs (Appendix 10). This was too complex to be efficient and contributed to start-up difficulties. As appraised, NWPC was to act as the EA at the provincial level. The project director was to report to the provincial chief secretary. However, the 1993 national elections led to the transfer of responsibilities from NWPC to the central Government as in the province the opposition party of the ruling party leading the national Government, won the elections. Thereafter, NWPC assisted in coordinating activities at the provincial level; while the Ministry of Lands, Irrigation and Mahaweli Development (MLIMD)14 took over as the main EA, also at the provincial level. 18. Project implementation arrangements followed a management matrix structure, under which the PMO was generally to plan and coordinate activities. However, the PMO had no direct supervision authority of staff, who remained under the supervision authority of their respective IAs. The PMO could not get things done if IA capacity or cooperation was lacking. In 1995, it had become obvious that the ID and PED would be unable to complete their individual targets of feasibility study preparation and construction supervision.15 Therefore, the Mahaweli Engineering and Construction Agency was taken on to support the design and construction supervision of 28 minor irrigation schemes and 33.5 km of roads. In addition, private service providers were recruited through local competitive bidding and under output-based payment arrangements. They helped in the design and construction supervision of 160 minor irrigation schemes (40% of the total) and 190 km of roads (25% of the total). Through these outsourcing arrangements and by allocating work to the different agencies and the private sector in line with individual capacities and progress, the PMO introduced competition. This proved highly effective.16 During the last 4 years of project implementation, the PMO had to supervise simultaneously more than 100 construction sites spread widely throughout North Western Province. This stretched the PMO’s supervision capacity, and affected construction quality in some instances.

13 Following a request from the Government, ADB approved a project entitled Supporting Infrastructure Maintenance

to Reduce Rural Poverty on 15 October 2002, to be financed under the Japan Fund for Poverty Reduction. 14 In 1994, the Ministry was reformed as Ministry of Irrigation and Power, and in 2001 as Ministry of Irrigation and

Water Management. 15 PED: 400 minor schemes, 7 medium schemes, and 740 km of roads; ID: 5 major, 15 medium, and 200 minor

schemes. 16 The arrangements helped accomplish the work. They did not impact on the roles or capacities of ID or PED.

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2. Project Components

19. Irrigation. The irrigation subcomponent involved five IAs. These were for (i) design and construction supervision: ID and PED; (ii) agricultural extension and training: PDOA; (iii) formation of FOs in minor schemes: Department of Agrarian Services (DAS); and (iv) formation and support of FOs in medium and major schemes: Irrigation Management Division (IMD). As appraised, construction contracts were either contracted with FOs or local contractors. The PMO promoted the use of FOs rather than private contractors to enhance the capacity of FOs for their maintenance responsibilities. More than 85% of earthwork-construction works were contracted to FOs. The Project had to assist FOs to learn to handle these works. As appraised, about 90 institution organizers17 were fielded to mobilize farmers and ensure the required contribution of 10% of construction costs. 20. Roads. Roads were to be selected for optimal impact on improving marketing that was related to irrigations systems, which was largely complied with. According to the Loan Agreement, PED was to take responsibility for the rehabilitation of the roads targeted under the Project. However, PED proved to have inadequate capacity to supervise construction on the targeted scale. The ID and Pradeshiya Sabha (PS) (see Glossary) assisted in supervising construction. In addition, private service providers were contracted for design and construction supervision after the MTR. 21. Credit. The Rural Credit Department of the Central Bank of Sri Lanka (CBSL) was the IA for the credit component. The Rural Credit Department was supported by the Agricultural Development Authority (ADA) for coordinating irrigation activities and by the Ministry of Women’s Affairs for the facilitation of the women’s credit subcomponent. Initially, outreach was too limited because only two banks with limited branch networks were accepted to join the Project. Others were excluded because of an initially restrictive interpretation of loan covenants requiring acceptable financial and organizational capabilities of participating banks. After the MTR, two banks were added, which increased outreach adequately. The Project’s interest rate was reduced from the initial 16% to 14% in 1996 to increase its attractiveness. It was lower than the prevailing market rates of 18–24%. Otherwise, the project design prescribed that banks should follow their normal credit procedures, which did not consider the specific requirements of the Project’s poorer clients, small farmers, and small women-entrepreneurs. 22. The progress of the dugwell and lift irrigation credit lines was slow mainly as arrangements and procedures were difficult to comply with and not sufficiently specific and focused on the intended clients. The appraisal prescribed an above-average land size requirement of 1 ha for lift irrigation, which limited demand. In addition, coordination mechanisms of the facilitating agencies with the participating banks were not properly worked out. These gaps and shortcomings in the design were overcome through improvements that were introduced at the MTR. These included (i) increased outreach, (ii) better coordination mechanisms and simplified processing procedures, and (iii) reduction of the minimum farm size requirement for lift irrigation to 0.3 ha. 23. Progress of the women’s credit subcomponent was likewise initially slow, largely for the same reasons. Introduction of mobile loan processing units and field days following MTR recommendations proved highly efficient. During these field days, relevant government agencies and banks processed loans on the spot using simplified subloan processing procedures. Other improvements included the increase of the financing ceiling for women’s

17 Institution organizers were contract staff, usually young graduates who underwent short training courses.

8

microcredit for first loans from SLRs15,000 to SLRs30,000 and a new provision for second loans from SLRs30,000 to SLRs70,000. 24. Institutional Development. The Project relied on 11 agencies to implement the different components and subcomponents. However, they had inadequate capacity to undertake the tasks expected from them by the Project—particularly the four agencies of ID, PED, DAS, and PDOA. Therefore, the Project included a substantial institutional-strengthening component. However, the expectation that the Project’s implementation capacity requirements could be covered through new contractual staff and a quick effort at institutional development proved wrong. The appraised large number of contractual staff could not be found (Appendix 11).18

3. Maintenance

25. Irrigation Systems. Maintenance was generally neglected before the Project (Appendix 12), mainly due to lack of clear ownership and farmers’ expectations of government assistance, for which there were no budget allocations. To strengthen maintenance, the Project provided for formal ownership of irrigation systems by FOs and agreements and manuals specifying the responsibilities for maintenance. Appropriate legislation, at the time, empowered FOs to collect irrigation fees. The Project’s training activities, participatory design processes, and the direct involvement of FOs in construction substantially improved the capacity of FOs. However, toward the end of the Project, the project staff realized that an institutional maintenance system would also be required. Due to initial implementation delays, most irrigation subprojects were turned over during the later part of project implementation. PMO efforts to strengthen the Project’s maintenance arrangements at that time came too late to test the innovative arrangements and ensure their effectiveness. Therefore, at project completion a sustainable organizational set-up for maintenance, including maintenance fee collections, was generally not in place. The Project’s operation and maintenance (O&M) manuals remained largely unused. At project completion, maintenance of most minor and medium irrigation systems was irregular and ineffective, just as it had been before the Project.19 26. Roads. Ownership of the roads and maintenance responsibilities were allocated according to the responsibility taken during construction, with PED made responsible for 130 km, PS for 720 km, and ID for 138 km. However, there were no firm maintenance budget allocations or solid maintenance programs (Appendix 13). A survey by the Project Completion Review Mission indicated that only about 30% of the roads are fully serviceable, as they received routine maintenance. The remaining roads will require periodic maintenance works as soon as possible including partial reshaping, resurfacing, and even, for some, renewed rehabilitation works. Continual routine and periodic maintenance works (every 3–5 years for gravel-surfaced roads and 5–7 years for bitumen-surfaced roads) are normal requirements. However, the need for periodic maintenance occurs earlier if routine maintenance is not carried out; if this periodic maintenance is not carried out, full rehabilitation will become necessary. G. Conditions and Covenants

27. All covenants of the loan agreement were complied with, with the exception of a covenant requiring provision of adequate funds for the maintenance of roads (schedule 6, para. 39), which was partly complied with (Appendix 14). A covenant (schedule 6, para. 29) required

18 There also were two additional large aid agency-financed projects in North Western Province, which started at

about the same time as the Project. This reduced the government agencies’ capacity to work with the Project. 19 Maintenance of the Project’s two major irrigation systems under IMD was generally adequate.

9

that banks would have acceptable financial and organizational capabilities as a condition to participate in the Project. However, the covenant did not specify what criteria were to be used to gauge acceptability. This lack of specificity caused delay in selecting banks. More specific conditions could possibly have prevented this initial delay. The Project included a covenant that was to enable fee collection by FOs for O&M of irrigation systems, which required legal changes. This covenant was complied with in substance (schedule 6, para. 40). However, empowering FOs did not suffice to actually ensure that fees were collected or that routine maintenance works were carried out in a timely manner. In these terms, while providing the foundation for appropriate maintenance, this covenant was ineffective at ensuring that the infrastructure built under the Project was actually maintained. H. Technical Assistance

28. The project design included a TA20 with the objective of enhancing the planning and monitoring capabilities of NWPC (Technical Assistance Completion Report, Appendix 15). The TA’s objective was relevant to the Project’s goal of balanced regional development. The consultants set up a system for data collection and prepared guidelines and formats for divisional master plan development. The Provincial Planning Division (PPD) benefited in terms of collected planning data, which was made available to the Government and private clients, and in terms of improved competencies of a few staff, who worked with the consultants and received training. However, the PPD did not sustain the approach and use of the planning formats, in spite of their overall acceptable quality. This was caused mainly by the lack of a planning policy framework and limited government commitment and absorptive capacity, which could not be overcome in spite of follow-up by ADB missions. Mainly due to this, the TA did not fully achieve its objectives and application of the TA’s results was not sustained. However, the consultants’ efforts contributed to renewed efforts in developing planning and monitoring capabilities of the Government at a later stage. While the TA was attached to the loan, it was implemented separate from the loan and lacked a specific supervision mechanism or steering committee of the Government. Therefore, the TA received too little guidance and attention, which reduced its impact. The TA was rated as partly successful. I. Consultant Recruitment and Procurement

29. Consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements acceptable to ADB (Appendix 16). The international consultants (9 person-months: senior irrigation engineer; 4 person-months environment/ watershed management specialist) were recruited as planned. Local consultant input was adjusted as needed and decreased by 5 person-months to 323 person-months. Procurement of goods and services and civil works was carried out in accordance with ADB’s Guidelines for Procurement and the Government’s arrangements acceptable to ADB. There were minor changes of the planned procurements of vehicles and equipment as these were adjusted to actual needs during implementation. Maintenance equipment was increased as needed. Retroactive financing was used for the purchase of basic vehicles and office equipment and enabled timely establishment of the PMO. Advance procurement action helped in the early recruitment of key consultants and procurement of vehicles and equipment.

20 ADB. 1992. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for the Institutional

Strengthening of the North Western Provincial Council. Manila.

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J. Performance of Consultants, Contractors, and Suppliers

30. The international consultants completed their assignment successfully and within the agreed period. All local consultants provided their input satisfactorily. All private contractors and service providers discharged their obligations satisfactorily. The majority of FOs underwent a learning process from initially low levels of management capacities. They, therefore, needed longer than private contractors for the implementation of their subprojects. However, overall, the performance of more than 1,000 FOs was satisfactory. The suppliers of goods for the Project discharged their obligations under the procurement contract agreements to the satisfaction of the EA. All of them supplied the necessary spare parts and adequate after-sales service. K. Performance of the Borrower and the Executing Agency

31. The performances of the Borrower and MLIMD as EA of the Project were satisfactory. Beginning in 1996, after the MTR, the Minister of the EA and high-level government officials regularly visited the project area before the semiannual steering committee meeting. This high level of attention contributed substantially to the progress made during the last 4 years of implementation. The Borrower’s compliance with accounting, financial reporting, procurement, and progress reporting was satisfactory. The PMO’s careful assessment of vehicle and equipment needs during implementation was instrumental in maintaining the cost-effectiveness of the Project. PED, ID, and PDOA lacked implementation capacity, which was aggravated by commitments to other projects that were implemented in North Western Province at the same time. The Rural Credit Department and the Ministry of Women’s Affairs implemented the women’s microenterprise credit program satisfactorily. L. Performance of the Asian Development Bank

32. Overall, performance of ADB was satisfactory. While the Project Completion Review Mission noted deficiencies in the project design (paras. 7 to 10), such deficiencies were difficult to anticipate using project preparation methodologies accepted at the time (para. 42). Timing, composition, and actions of review missions were satisfactory. ADB’s intensive support at the MTR and three special project administration missions were crucial to enhancing project progress at the time. However, earlier and more intensive attention to the maintenance concern could have contributed to improved performance. Also, review missions could have followed up more intensively on the MTR’s initiative to develop and use private agricultural extension services. More support and follow-up in this regard could possibly have helped enhance the Project’s impact on crop diversification as during this time the PMO was preoccupied with ensuring physical progress. ADB acted promptly and showed flexibility in the review and approvals for the several types of proposals and requests submitted by the EA. In 1998, the Sri Lanka Resident Mission was established. Since then, it has conducted monthly project director’s meetings and provided other support that has proven valuable in analyzing and resolving countrywide and specific project implementation issues.

III. EVALUATION OF PERFORMANCE

A. Relevance

33. Overall, the Project is rated as relevant. The project design was relevant to Government’s and ADB’s objectives of increasing agricultural production and employment generation. The design was also relevant to the objective of promoting diversified cropping, but it was not comprehensive enough to achieve the outcomes at the assumed level. The average

11

income increase was substantially less than estimated. In part, this was caused by overoptimistic expectations and inadequate implementation of the agricultural extension and training subcomponents; in part, it was caused by a lack of comprehensiveness of the analysis of the relevant key success factors and risks. The Project’s institutional development component improved government services through its investments in facilities, vehicles, and equipment in a general way. Overall, the Project was relevant to the purpose of improving economic, social, and nutritional well-being of the people living in the rural areas of North Western Province and to contributing to the Government’s wider goals of poverty alleviation, improving the quality of life in rural areas, and enhancing balanced regional development. Changes introduced at the MTR were relevant and important to enable achievement of physical targets. However, the extent of changes of the Project’s implementation arrangements and required attention of the PMO to the fast pace of project implementation after the MTR were of such a scale that the issues of maintenance and the intended scale of crop diversification could not be fully resolved. B. Efficacy in Achievement of Purpose

34. Overall, the Project is rated as efficacious. Changes in the implementation arrangements introduced at the MTR were instrumental in achieving this outcome (Table 1).

Table 1: Evaluation of Efficacy in Achievement of Purpose

Component Initial Performance

Rural Infrastructure Irrigation Schemes

The Project produced more rice but less than 49% of the higher-valued OFCs than had been predicted. Full level of performance is expected only with a delay of 3 years in 2005 due to drought from 1999 to 2001.

Rural Roads

Passenger time and cargo transport cost savings have been achieved. However, these could fall if roads are not maintained.

Credit The contribution of dugwells and lift irrigation systems to crop diversification is high, as is the component’s employment impact. Most financed businesses performed well. The subloan recovery rate is high for rural credit projects.

Institutional Development

The Project’s investment in facilities, equipment, vehicles, and training helped in a general way. However, it was not based on plans that were aligned with the Project’s objectives and was too dispersed to have any quantifiable impact in line with the Project’s objectives.

35. Physical targets were exceeded and construction was generally of adequate quality. The irrigation and road development of the Project was efficacious in increasing rice production and crop diversification—the latter, however, to a lesser extent than assumed at appraisal. Dugwells and lift irrigation were efficacious in crop diversification. Employment creation during construction exceeded appraisal estimates. Targets of the women’s credit subcomponent were exceeded. While the Project did not include specific features to focus investments on poverty reduction, it involved farm households with an average landholding of 0.4 ha. Project beneficiaries numbered about 77,500 households.21 Of these, about 42,600 (55%) were poor with incomes below the poverty line. About 17% of these or 7,090 households are estimated (Appendix 2), to have risen above the poverty line (to above SLRs1,000 per month, per capita) in a sustainable manner because of the Project’s job creation, which exceeded targets, and the incremental farm income.

21 These included 73,000 households benefiting from irrigation improvements, 1,200 from dugwells, 148 from lift

irrigation, and 3,200 from women’s microenterprises.

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C. Efficiency in Achievement of Outputs and Purpose

36. Overall, the Project is assessed as efficient. The organization and management of the Project before the MTR were inefficient, but improved considerably afterward. The financial efficiencies of subprojects and the Project overall were adequate, with the exception of the institutional development component (Appendix 17). Quantifiable benefits are derived from incremental agricultural output and from passenger time and cargo transport savings. The Project’s overall economic internal rate of return (EIRR) has been calculated at 13.7%, as compared with 16.7% expected at appraisal (Table 2).

Table 2: EIRR Estimates of the Project and its Components

Item Appraisal Estimate (%) PCR Estimate (%) Project 16.7 13.7 Gravity Irrigation 23.0 21.5 Dugwell and Lift Irrigation 40.0 42.5 Roads 13.3 12.0

EIRR = economic internal rate of return, PCR = Project Completion Report. 37. The lower than anticipated project EIRR is mainly explained by the fact that the Project, as implemented, produced more rice but less of the higher-valued diversified crops than predicted. If the initial crop diversification goals had been reached, the project returns would have been much higher. At the individual farm level (assuming a 0.4 ha farm growing the average small amount of nonrice crops), a doubling of the area devoted to diversified crops would increase the average gravity irrigation scheme farmer’s incremental income from the Project by 40%. A decline in the rice price of 7% would cause the EIRR to drop below the viable level (12%). This would put additional emphasis on the importance of improving the performance of the crop diversification part of the Project. If the Project relied less heavily on one commodity, its economic returns would be more assured. 38. Sensitivity tests show that a reduction in the lifetime of the irrigation subprojects from the expected 25 years to less than 17 years will cause the economic returns to decline below an acceptable level (12%). For the roads component, though, any curtailment at all in project life will cause the EIRR to be less than 12%. Maintenance of project infrastructure is currently poor. To regain the chance of a full 25-year project lifespan, future O&M inputs are likely to have to increase from their present levels. Sensitivity tests indicate that benefits are sufficiently robust to withstand an increase in maintenance costs to 2.15 times their present level. D. Preliminary Assessment of Sustainability

39. Overall, the Project’s sustainability is rated as less likely. Sustainability of all components needs attention and follow-up action. Without these, the economic life of the roads and irrigation investments will likely substantially fall from its target of 25 years and the related EIRR would then fall below an acceptable level of 12%. FOs will have to shoulder a sustained annual maintenance budget of about $150,000 for maintaining the 28,686 ha of irrigation systems that were rehabilitated under the Project. The Government will have to carry a similar annual budget of about $150,000 for the maintenance of the 988 km of project roads. Detailed fund allocations and institutional arrangements for maintenance have been worked out under a follow-on project (footnote 13). Without follow-on initiatives on maintenance, the sustainability of the Project’s

13

benefits to improved road access and tank irrigation systems will be more doubtful. Similarly, the opportunity provided by the Project for sustained benefits of crop diversification will likely remain at the current low level of less than 49% of the intended full development. On the other hand, a higher proportion of the targeted benefits of the Project’s crop diversification target can potentially still be achieved at full development of the Project after 5 years of completion, if an appropriate follow-on activity can be developed.22 E. Institutional and Other Impacts

40. Overall, institutional and other impacts are rated as moderate. The Project had no significant adverse environmental impacts. The Central Environmental Authority monitored the quality of surface water in the project area for 3 years and reported that the quality of water was not affected by the activities of the Project in spite of reported higher use of fertilizers and pesticides.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

41. The Project’s physical output targets of irrigation development were exceeded by 10% and of rural roads rehabilitation by 33.5%. Financing for women’s microcredit loans was $1.3 million, which substantially exceeded the appraised $0.2 million and increased the benefits. Dugwells achieved targeted area coverage while lift irrigation achieved about 60%. The Project’s institutional development objectives were partly achieved. The number of beneficiaries (about 74,348) of the irrigation development exceeded the appraisal estimates by about 7.0%. The Project’s economic return of 13.7% is acceptable. Intervention by ADB through the preparation of a follow-up project (para. 13) has begun to address the issue of maintenance of rural infrastructure built under the Project. The overall project rating has to take into account (i) the need for safeguarding the sustainability of the Project’s infrastructure investments; (ii) the potential of enhancing the benefits of crop diversification; and (iii) the need for continued initiatives to strengthen institutional capacities to overcome identified shortcomings, specifically concerning agricultural extension and maintenance. Considering the Project’s overall achievements, the Project’s overall performance is rated successful. 23 B. Lessons Learned

42. Need for Comprehensive Analysis of Success Factors and Risks. The objective of crop diversification was not achieved on the intended scale (para. 9 and Appendix 3). Provision of water, extension services, and roads was insufficient to achieve crop diversification under the conditions of gravity irrigation systems found in the project area. Other factors of technical and social complexities of water management under tank irrigation systems, traditions, and risks must also be addressed. As FOs or farmer groups must jointly decide on crop changes involving water management, group-based approaches to training and extension using FOs as facilitators 22 On 26 August 2002, the provincial Ministry of Land, Agriculture, and Irrigation of North Western Province

submitted a draft proposal for a follow-on activity. Follow-on activities could also possibly be considered under a related TA on Commercialization of Agriculture, which is included in the current country program for 2004. In its comments of 2 October 2002, the EA pointed to a proposal of diverting large water quantities from the Mahaweli River to augment water availability in parts of North Western Province (the Mee Oya basin), which could decrease dependence on rainfall in these parts, reduce drought risks, and further augment the Project’s impact.

23 This project completion report (PCR) is part of a sample of PCRs independently reviewed by the Operations Evaluation Department. The review has validated the methodology used and the rating given. This rating is at the low end of the successful range.

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would likely have been more effective. A methodology was lacking to properly identify and prioritize problems and constraints associated with the intended crop diversification. The analytical process of project framework preparation, in use at ADB at the time of project completion and including situation, problem, objectives, and stakeholder analysis, would have been useful. The experience of this Project indicates that, in addition, the comprehensiveness of the analysis including the analysis of the importance and sensitivity of success factors can be of particular import,24 i.e., the relevance of key success factors and the likely importance and efficacy of each to achieve targets must be viewed together. During implementation, performance of these factors should be monitored. If required progress is not achieved, timely design changes should be made. 43. Efficiency Achievable through Client-Focused Credit Arrangements. A high level of efficiency, efficacy, and acceptance of credit lines can be achieved through client focus and specificity of the credit arrangements. However, this requires credit arrangements both to be worked out in sufficient detail with stakeholders and to be tested (paras. 21 to 23). 44. Need for Focus of Institutional Development Efforts. The design of the institutional development component should have been based on a more thorough diagnostic study of performance gaps, which should have included an analysis of the potential role that private service providers could have played. Investments should have been based on strategic institutional development plans and limited to sustained needs. Similarly, the Project’s substantial training efforts could have been more effective if they had been based on a more thorough needs assessment and strategic training planning process. Earlier provision of the Project’s required temporary services from the private sector could have been more efficient (paras. 7 and 18). The TA could have been more relevant and effective if its objectives and scope had been aligned with those of the Project. The TA’s supervision could have been more effective (para. 28). 45. Need for Proven Maintenance Arrangements. Maintenance issues should have been more carefully analyzed during project formulation, as these were the reason for the rehabilitation. More attention should have been given to maintenance issues during the early stages of project implementation so that innovative arrangements could have been tested and proven to ensure their acceptability and sustainability (paras. 25 and 26). C. Recommendations

1. Project Related

46. Additional Assistance and Monitoring to Ensure Maintenance. Timely implementation of the additional assistance (footnote 13) will be required to ensure continued performance of the infrastructure and sustained benefits. The Government’s strong ownership and commitment to maintenance will be required. ADB should monitor actual budget allocations for maintenance of the Project’s infrastructure for 5 years. 47. Additional Assistance to Enhance Crop Diversification. The findings of the Project Completion Review Mission indicate that an additional study (possibly under a small-scale TA project) and other support through TA and loans would be helpful to develop and test efforts at crop diversification (footnote 22). Such action could substantially increase the Project’s impact

24 Other tools of strategy formulation such as strength-weaknesses -opportunities -threats (SWOT) analysis and

weighted success factor analysis (force field analysis) could also be helpful in this regard.

15

and sustainability. Lessons learned from such a study and a subsequent pilot project could have substantial countrywide benefits. 48. Timing of Project Performance Audit Report Preparation. A project performance audit report may be prepared in 2005 to assess the Project’s expected full agricultural and crop diversification development and the sustainability of its irrigation and roads subprojects.

2. General

49. The following general recommendations are derived from the lessons learned discussed in paras. 42 to 45.

(i) Analysis of key success factors, assumptions, and risks must be comprehensive. Sensitivity analysis should clarify the importance of each factor and ensure that relevant factors are addressed and not left out of the project design.

(ii) Credit arrangements should be worked out in sufficient detail at the project

design stage and tested with participation of clients to ensure that client needs are met and credit programs effectively reach them.

(iii) Investments in capacity building and training should be based on a thorough

diagnosis of performance gaps and on strategic institutional development and training plans. These plans should consider the option of private service provision and avoid expansion of government offices beyond a sustainable level.

(iv) Specifically, the design of rehabilitation projects should ensure that proven

maintenance arrangements exist from the start or an early stage of implementation. Project designs should include effective monitoring and adjustment mechanisms under which maintenance arrangements will be tested and improved as needed.

3. Follow-Up Action

50. ADB approved the follow-on project on Supporting Infrastructure Maintenance to Reduce Rural Poverty on 15 October 2002, to be financed under the Japan Fund for Poverty Reduction. This project will help ensure maintenance of the project-created infrastructure. Precondition of this support will be the farmers’ and the Government’s ownership and commitment to sustained maintenance, including the required sustained user fee collections for irrigation and the Government’s road maintenance budget allocations. Under the proposed additional assistance, these will be monitored for 5 years. Staff will prepare a concept paper to clarify the possibility of a follow-up activity regarding the opportunity of strengthening the Project’s impact on crop diversification (footnote 22).

16 Appendix 1

OVERVIEW OF PROJECT OBJECTIVES AND ACCOMPLISHMENTS

The Project’s impact is measured against objectives and targeted outputs as presented in Table A1.

Table A1: Project Design Summary and Overview of Achievements

Design Summary Achievements

Goal Contribution to poverty alleviation; improving quality of life; and balanced regional development.

Number of benefiting poor: about 42,600 households. Number of poor estimated as lifted above poverty line: 7,090 households. Substantial average farm income increase of beneficiaries; 62% below appraisal estimates.

Purpose To improve the economic, social, and nutritional well-being of the people living in the rural areas of North Western Province.

More efficient use of land and water resources and better market opportunities through improved rural road network were to be achieved. Appraisal estimates of both purposes exceeded. To ensure sustainability, a follow-on project was required and has been prepared. Appraisal estimates of microenterprises of rural women were exceeded.

Outcomes Increase agricultural production and the income level of farmers. Diversify cropping to meet market demands for higher-value crops. Increase employment opportunities for the unemployed, underemployed, and women.

Incremental agricultural production: Paddy: 33,560 mt/year (13,000 mt/year) Other food crops: 9,550 mt/year (19,600mt/year) Incremental average farm income: $47 ($123) per year of 77,548 (about 70,000) beneficiaries. Diversified cropping: 20% to 49% of target. Incremental employment: In agriculture: 5,180 (1,100) jobs In women’s microenterprises: 4,800 (2,000) jobs During construction: 14,700 (12,000) person-years.

Outputs 1. Rural Infrastructure: Improvement of irrigation and drainage Improvement of rural roads 2. Credit: (i) Pump irrigation schemes: Dugwells Lift irrigation (ii) Rural women’s microenterprise loans 3. Institutional Development

28,686 ha (25,970 ha) 988 km (740 km) 1,200 (1,500); 1,200 ha (450 ha) 148 (250); 148 ha (250 ha) subprojects 3,201 (1,000) subprojects Disbursements were 26% less than estimated.

Note: Appraisal estimates are presented in parentheses.

ha = hectare; km = kilometer; mt = metric tons.

Appendix 2 17

CONTRIBUTIONS TO POVERTY REDUCTION1

1. Income Increases of the Poor. The Project’s impact survey2 showed that about 55% of project participants were Samurdhi (welfare) recipients falling under the poverty line. The Project therefore benefited about 42,600 poor households. The survey also showed that average farm income of project participants was SLRs2,200 per month for a family of 5–6 in 1999 and average nonfarm income was SLRs3,809, giving a combined average per capita income of about SLRs1,000 per month in the project area. This is just above the inflation-adjusted low poverty line of SLRs950. The Project generated an average incremental farm income of annually SLRs4,047 or monthly SLRs337 per household (SLRs61 monthly per capita). This incremental farm income was crucial in lifting a number of about 5% of beneficiaries or 2,100 permanently above the poverty line.3 Employment of 14,750 person-years during construction generated income of about SLRs270 million. Sustained employment of about 9,980 persons will likely lift 50% of these households above the poverty line for a total of about 7,090 households. 2. Samurdhi Recipients. In May 2002, there were about 314,200 poor households 4 in North Western Province, which received government poverty alleviation benefits under the Samurdhi program.5 About 53% of households of about 0.6 million in North Western Province were poor. The number of households receiving the larger support of SLRs1,000, SLRs500, and SLRs250 decreased by about 6,500 from 1997 to 2001 as households shifted to lower support categories (Table A2). This indicates decreasing poverty levels in the province, which in part are attributable to the Project.

Table A2: Number of Recipients of Samurdhi Program Support

Year SLRs1000 SLRs500 SLRs250 SLRs200 SLRs100 1997 1,729 121,077 36,332 42,057 24,445 1998 1,729 121,077 36,332 42,057 24,445 1999 1,425 121,562 35,661 41,700 25,369 2000 1,121 118,047 33,543 45,916 26,008 2001 1,032 118,047 33,543 45,916 26,008

Source: Samurdhi Secretariat, North Western Province, May 2002.

3. Contribution to Improving Quality of Life. Improvement of the irrigation systems and roads together with the direct benefits of increased income improved the general quality of life of at least 77,500 direct project beneficiaries. Roads that were improved under the Project provide quicker and cheaper transport of people and goods, including the incremental crop output of the Project. In addition, households living in the vicinity of these roads now have better access to nonfarm employment opportunities and to educational, cultural, and health facilities. The institutional development component of the Project provided training to a large number of agency staff members plus farmers and women beneficiaries, who benefited in a general way.

1 The appraisal did not specify a target for poverty reduction. However, the Project was to contribute to the

Government’s goal of poverty alleviation in a general manner. 2 Final Impact Evaluation Study of the North Western Province Water Resource Development Project, TEAMS,

Consultants in Development, August 2000. 3 Consultant’s estimate. 4 Data from Samurdhi Secretariat, June 2002. 5 According to the national statistics of 1995/96, about 34–53% of all households were considered poor with a

monthly income below the lower and higher poverty line criteria of SLRs1,000 and SLRs2,200 per month and household, respectively.

18 Appendix 3

AGRICULTURAL PRODUCTION AND EXTENSION SERVICES A. Output and Performance

1. Diversified cropping was to be introduced in the command areas of the rehabilitated tank irrigation systems and under the dugwell and lift irrigation subcomponents. Table A3.1 presents achievements of production of other food crops under the Project in comparison to appraisal estimates and national imports in 1990.

Table A3.1: Production of Other Food Crops and Paddy

National North Western Province Imports Total Production Incremental Production Under the Project Crop Average Appraisal

Estimates Appraisal Estimates

Achieved Projected

1990 1981–1990 2003 2003 2000 2005 mt mt mt mt mt % mt %

Chili 12,000 2,603 6,903 4,300 800 19 2,500 58 Green Gram 50,000 9,100 10,000 1,100 300 27 1,400 13 Big Onion 50,000 12,200 26,400 14,200 2,500 18 5,700 40 Total OFCs 112,000 23,903 43,303 19,600 3,600 18 9,600 49 Paddy 13,000 33,560

mt = metric tons, OFCs = other food crops. Source: Appraisal Report, May 1992; Final Impact Evaluation of the North Western Province Water Resources Project, TEAMS Consultants in Development, August 2000; ADB staff estimates. 2. The appraisal estimated the incremental production at project completion at about 4,300 metric tons (mt) of chili, 1,100 mt of green gram, and 14,200 mt of big onion.1 These crops were to represent other field crops (OFCs). The Project’s estimates represented increases in production in North Western Province of 165% for chili, 12% for green gram, and 116% for big onion. The targeted increases amounted to 36% of national annual imports of chili in 1990, 2% of imports of pulses (represented by green gram), and 28% of big onions. 3. Table A3.2 provides estimates of the economic benefits in 2001 dollar values of the Project’s estimated incremental production. The table shows that 85% of the Project’s economic benefits were to result from the sale of diversified crops. However, surveys showed that incremental production of diversified crops in 2000 was less than 20% of the Project’s estimate for 2003, when full development was to be achieved. Because of a drought lasting from 1999 to 2001, adoption of OFCs was slowed and it is estimated that the Project will reach full development of benefits with a delay of 2 years, i.e., by about 2005. However, it is expected that not more than 49% of the original incremental production estimates of the appraisal will be achievable unless a follow-on program is implemented, to supplement the training and crop demonstration activities of the Project.

1 Of these figures, the Project’s gravity irrigation systems were expected to contribute about 3,600 mt of chili,

1,000 mt of green gram, and 11,800 mt of onion during the yala season—with the balance being produced through the Project’s dugwell and lift irrigation programs.

Appendix 3 19

Table A3.2: Annual Economic Benefits of Incremental Agricultural Production ($ million)

Appraisal Targets

2003 Actual 2000 Projected 2005

Crop $ million % $ million % $ million % Chili 5.6 39 0.9 17 2.8 33 Green Gram 0.4 3 0.1 2 0.7 8 Big Onion 6.2 43 0.4 7 0.8 10 Total Other Food Crops 12.2 85 1.4 26 4.3 51 Paddy 2.1 15 4.0 74 4.2 49 Overall Total 14.3 100 5.4 100 8.5 100

Source: Appraisal Report, May 1992; Final Impact Evaluation of the North Western Province Water Resources Project, TEAMS Consultants in Development, August 2000; ADB staff estimates. 4. As crop diversification was not fully achieved, the Project’s annual economic benefits fell to about 59% of the expected value at the expected full development in 2005.2 Diversified crops are expected to contribute to this achievement at a level of 51% only while paddy is expected to contribute 49%. The reduced shift toward higher-value crops meant that the incremental gross income fell from the estimated $205 per year to an average of $108.4 for an average farm of 0.4 ha. 5. The Provincial Department of Agriculture (PDOA) was responsible for the activity. Specifically, PDOA was to (i) strengthen agricultural extension services by establishing demonstration plots and through on-site training activities; (ii) assist beneficiaries in improving onfarm facilities for the cultivation of OFCs; and (iii) promote production of OFCs, specifically during the dry season. 6. PDOA established about 890 seasonal demonstration plots (ranging from 17 to 315 plots per season) for gravity irrigation and 208 for dugwell demonstrations (ranging from 18 to 72 per season). There were about 1,300 farmer training programs (group events) ranging from 14 to 486 training events per year. The overall achievement of demonstration and training was less than 40% of the appraisal target. Plot demonstration focused on crops without taking note of required water management technologies. Most demonstrations were located on the upland, close to the paddy fields, but not within the paddy lands, which could have effectively demonstrated irrigation techniques. Irrigation was by hand sprinkling, which is not replicable on larger scales. Dugwells located near paddy fields were also used as source of water. The sprinkler equipment included in the project design was not purchased, while associated demonstration and training activities included in the project design were not conducted. The number of demonstrations within paddy fields did not exceed 10% of the overall demonstrations. PDOA cites the main reason for the shortfall as the unwillingness of farmers to allow crop demonstrations within paddy fields. However, the actual social reasons were not understood. Because of joint management of the tank gravity irrigations systems, demonstrations within paddy fields required consensus among farmers. Formation and support of the farmer organizations (FOs) were the responsibility of the Department of Agrarian Services (DAS) while agricultural extension was the responsibility of PDOA. Joint efforts of DAS and PDOA staff

2 As the overall Project cost was reduced to 56% of the original estimate, the overall economic return of the Project

remained favorable.

20 Appendix 3

would have been required to mobilize farmer groups for crop diversification and enable demonstrations within paddy fields. OFCs have been adopted under the Project’s dugwells and lift irrigation systems, while development of OFC production under gravity irrigation systems was not achieved on the intended scale.

B. Analysis of Relevant Success Factors of Crop Diversification

7. Despite achieving its physical targets, incremental production of OFCs was underachieved because of the project design’s limited comprehensiveness of the analysis of the relevant factors affecting adoption of crop diversification by farmers. Also, risks associated with OFC production were not properly analyzed. A short discussion of key factors of (i) appropriate water management technology and (ii) food security concerns and traditions of subsistence farmers is provided below. This is followed by an analysis of the risks associated with OFC production. 8. There are both infrastructure and social/institutional constraints to water management for OFCs. These include:

(i) Infrastructure. In order to meet the water demands of many OFCs, the water delivery system must be able to provide flexibility in the timing and amount of water delivered. The traditional paddy areas of the Project’s gravity irrigation schemes, however, are geared toward paddy production in contiguous fields, not to OFCs with their radically different water needs. The Project did not (or was unable to) design water conveyance systems that would be easy to use for OFCs, particularly when neighboring farmers chose to grow paddy. The Appraisal Report cites OFC research in North Western Province3 to support its promotion of diversified crops. However, all of this research was done using dedicated water supplies such as wells. None of the research cited was conducted under field conditions of gravity irrigation command areas that would be used for paddy production in the wet season. The Project included purchase and demonstrations concerning sprinkler irrigation systems, but this was not implemented. Overall the project design placed much too little emphasis on the particular water management issues of OFC cultivation under the specific project conditions of gravity irrigation systems. The project design did not include any features to research, develop, and demonstrate these effectively to farmers.

(ii) Social/institutional constraints. Tank-based gravity irrigation systems are managed by FOs. Water management is jointly agreed upon and physically managed by a caretaker appointed for this purpose by the FO. An individual farmer cannot make a decision to change the water management arrangements by himself but must agree with the FO. Involving the FO in the promotion and decision concerning cultivation changes could hinder adoption of diversified cropping by individual farmers. However, if agreements were made jointly with the FO this could also partially offset shortcomings of water delivery infrastructure for OFCs. FOs could jointly identify a designated part of their schemes for OFC cultivation during the yala season rather than paddy. As OFCs require much less water, the production area could expand. This could also allow use of the existing canals to irrigate crops with varying water requirements. The social/institutional problems have successfully been addressed in some parts of

3 Appraisal Report, Appendix 2, p. 2.

Appendix 3 21

the Mahaweli project such as H-area in Kalawewa and C-area in Mahiyanganaya, both of which have specific water management strategies focused on crop diversification. These experiences could be replicated. The appraisal assumed that substantial volumes of OFCs would be produced for home consumption. However, this is unlikely under tank irrigation systems as a minimum scale of production is required to justify the effort of preparing paddy fields for OFC production and seeking agreement with the FO.

9. Other success factors for the adoption of crop diversification include:

(i) Transactions costs/food security concerns. Subsistence farmers generally prefer paddy production for their own consumption thus avoiding transaction costs and risks associated with trade. Most OFCs would have to be sold before the proceeds can be used for purchasing food for consumption. Such trade would involve transaction costs, labor, and risks that subsistence farmers prefer to avoid.

(ii) Traditions. Local home-grown rice is the traditional staple crop and preferred food. Overall, full replacement of this traditional approach is not feasible, only a small portion of paddy production could be replaced. The feasible size of this portion of land should be carefully analyzed before attempts at change of the cropping system are made. This had not been done during the design of the Project.

(iii) Government restrictions. The Project targeted replacement of a portion of the yala crop. However, seasonal supply of OFCs during the maha (wet) season may also be profitable. It could be profitable and preferable to dedicate portions of land under tank gravity irrigation to OFCs throughout the year. In this case, water management systems could be optimized for OFCs rather than paddy. However, this is constrained by government food security rules disallowing nonpaddy cultivation in what are normally paddy command areas during the maha season. This government rule requires review.

10. The above factors could be addressed under a somewhat better designed project. In addition, risk-mitigating measures may be required as discussed in the following risk analysis. C. Analysis of Risks

11. Production and Postharvest Risks. Production and postharvest risks of OFCs have two dimensions (i) higher input costs and (ii) higher risk of loss due to (a) pests, (b) short shelf life (perishable nature of OFCs), and (c) handling, storage, and transportation losses. Table A3.3 compares input costs and potential income. This shows that the input cost for onion production is almost five times that of paddy.

22 Appendix 3

Table A3.3: Comparison of Year 2000 Cost of Production of Paddy and Other Food Crops

Crop Chili Big Onion Paddy Labor (pd/ha) 553 470 107 Labor Cost (SLRs/ha) 95,879 81,561 20,321 Machinery and Equipment Cost (SLRs/ha) 5,293 21,262 7,437 Input Cost (SLRs/ha) 55,984 49,461 10,468 Total Cost (SLRs/ha) 157,156 152,284 38,223 Gross Income (SLRs/ha) 187,073 212,524 42,820

pd = person-days, ha = hectare. Source: Cost of Cultivation of Agricultural Crops: 2000 Yala, Socio-economics and Planning Center, Department of Agriculture, Peradeniya, Sri Lanka.

12. Postharvest losses (due to pests, the perishable nature of OFCs, etc.) can be reduced through better storage, processing, and transportation facilities, all but the last of which were not addressed by the project design. Table A3.4 provides an estimation of risk factors. Table A3.4: Probable Range of Production and Postharvest Risk of Other Food Crops (%) Risk Factor Chili Green Gram Big Onion Pest 2–50 2–20 2–50 Handling 3–10 3–10 3–10 Storage 2–20 2–10 2–30 Transportation 2–5 3–6 6–12 Combined 3–50 3–20 6–20

Source: Estimates of the PCR Mission. 13. Marketing Risks. Farmgate prices for chilies, pulses, and onion varied in North Western Province in the ranges of 100%, 50%, and 300%, respectively, throughout the year.4 Low prices are usual at the time of seasonal harvests. Profit estimates often assume average prices, which can be misleading. Causes of price variations are (i) market imperfections and limitations, (ii) demand fluctuations, and (iii) seasonal supply changes. The Project improved marketing through better road access. However, better price information systems are also required. To overcome limitations in the local North Western Province market, effective linkages to Colombo need to be developed. To compete with imports, quality certification and controls will be required. Also, better storage systems would be helpful, as would linkages to processing. Seasonality of production is a major factor, which could possibly be improved through greenhouse production and other off-season production technologies as well as better storage facilities. These measures to mitigate risks were not sufficiently addressed in the project design. However, an opportunity for the Project’s large-scale crop diversification effort was created and could still be developed. Table A3.5 shows that the demand for such development has remained. Imports of OFCs have substantially increased since the Project was designed in 1992. The Project’s crop diversification objective has remained an urgent need and opportunity.

4 Based on price information reported by the Agricultural Development Authority (ADA), Northwestern Province.

Appendix 3 23

Table A3.5: Annual National Production and Importation of Other Food Crops (‘000 metric tons)

Green Gram Big Onion Chilies

Year Production Importation Production Importation Production Importation 1992 23.1 27.8 32.9 18.5 6.84 1993 21.1 22.3 34.2 23.7 0.93 1994 18.3 1.4 34.7 47.4 23.3 8.35 1995 16.0 1.8 29.7 77.5 21.3 10.82 1996 16.6 2.0 19.4 89.2 18.4 9.79 1997 15.0 2.0 29.1 119.3 18.1 13.27 1998 15.7 5.1 17.4 100.4 15.6 19.21 1999 13.8 7.5 62.7 84.0 15.0 20.36 2000 11.7 6.8 36.6 117.5 14.0 23.36 2001 9.7 8.7 32.0 110.2 12.3 25.83

Source: Census and Statistics Department of Sri Lanka Customs, 2001.

24 Appendix 4

ACCOMPLISHMENTS UNDER THE RURAL INFRASTRUCTURE COMPONENT

Appraisal Target Achieved

A. Irrigation Number Area (ha) Number Area (ha) 1. Rehabilitationa 309 6,300 539 13,537 Medium Schemesb 9 16 3,079 Minor schemes 300 523 10,458 2. Improvement 322 18,600 115 14,132 Major Schemes 5 5 7,830 Medium Schemes 17 10 3,170 Minor Schemes 300 100 3,132 3. Restoration 31 800 41 945 Medium Schemes 1 1 120 Minor Schemes 30 40 825 4. Extension Medium Schemes 4 270 2 72

Total Irrigation 666 25,970 697 28,686 B. Roads km km Class D and E - 240 - 415 Rural Roads - 500 - 573 Total Roads 740 988 a Rehabilitation comprised works costing up to a ceiling of SLRs44,000 per ha; improvement of SLRs6,000 per

ha. Restoration refers to abandoned tanks, with a ceiling of SLRs66,000 investment per ha. Extension refers to expansion of existing schemes.

b Minor irrigation systems: <80 ha; medium: >80<600 ha; major: > 600 ha. Sources: Appraisal Report, May 1992; Project Completion Report of the Government, 2001.

Appendix 5 25

CREDIT COMPONENT

A. Output

1. Dugwells were to irrigate about 450 hectares (ha) and the lift irrigation systems about 250 ha. At completion, these targets were exceeded or achieved in spite of a lower number of subprojects, because of higher than expected average command areas. Both types of irrigation systems were being used predominantly for diversified crops. Women borrowers used loans to establish and/or expand their business activities. These loans had a direct impact on family income. About 20% of the women depended entirely on the activities initiated through the help of their loans. About 50% of the activities established with the loans were not directly related to agriculture or fisheries, as can be seen in the pie chart (Figure A5).

Figure A5: Distribution of Women’s Microenterprises

Source: Project Report, Central Bank of Sri Lanka, May 2002. 2. The actual overall disbursement under the credit component was $0.98 million lower than the appraisal estimate. This was caused by the reduced number of dugwell and lift irrigation subprojects; the fact that 282 farmers included in the dugwell subcomponent did not borrow but took advantage of the subsidies and technical support of the project; and lower than expected individual loan amounts in each category in dollar terms, mainly because of the devaluation of the Sri Lanka rupee. The number of women’s microenterprise loans more than doubled compared to the initial appraisal target but this did not outweigh the savings under the other components as overall cost reduced. The increased number of women’s microenterprises resulted in similarly higher annual income of SLRs25,000 as compared to the expectation at appraisal of SLRs10,200. Employment generation in women’s microenterprises was likewise higher at about 4,800 jobs as compared to 2,000 estimated at appraisal.

Agriculture17%

Agriculture processing

8%

Animal husbandry

22%Industries

29%

Fisheries3%

Others21%

26 Appendix 5

3. Table A5.1 shows the change of fund allocation in each subcomponent. While investments in women’s microenterprises increased substantially irrigation investments reduced. The distribution of subloans among the four participating banks and loan recovery rates is provided in Table A5.2. Among the four banks, Wayamba Development Bank disbursed the largest number of loans while Hatton National Bank was barely involved in the program.

Table A5.1: Change of Fund Allocation in Each Subcomponent

Subcomponent At Appraisal At Project

Completion Change (%) No. $ million No. $ million No. $ Dugwells 1,500 2.36 918 0.47 -39 -80 Lift Irrigation 250 0.18 148 0.08 -41 -56 Women’s Microenterprises 1,000 0.25 3,201 1.26 +220 +404 Total 2.79 1.81 -35

Source: Project Completion Report, Project Director, L1166-SRI, 2001. Table A5.2: Distribution of Subloans Among Participating Bank and Loan Recovery Rates

Bank Dug-wells Ratea

Lift Irrigation Ratea

Women’s Credit Ratea Total

No. % No. % No. % No. Wayamba Development Bank

710 92 104 90 2,201 92 3,015

People’s Bank 132 ? 11 ? 623 ? 766 Bank of Ceylon 83 99 11 80 266 89 360 Hatton National Bank 3 ? 0 ? 111 ? 114 Total 928 126 3,201 4,255 ? = not available. a Loan recovery rate. Source: Project Report, Central Bank of Sri Lanka, May 2002. 4. The use of loans for consumption (rather than productive investment) and investment in failing enterprises were the main causes of the few loan defaults. Overall, the reported loan recovery rates of generally above 89% are good for rural credit projects. B. Implementation Arrangements and Performance

5. Coordination, Management, and Procedures. The Executing Agency (EA) for the credit component was the Central Bank of Sri Lanka (CBSL), through its Rural Credit Department. The Provincial Agricultural Development Authority (ADA) was the implementing agency for the dugwell and lift irrigation subcomponents. The Ministry of Women’s Affairs was responsible for the women’s loan program. Participating credit institutions (PCIs) in the program included initially Hatton National Bank, and two regional rural development banks in Kurunegala and Puttalam districts. 6. The Asian Development Bank (ADB) provided funds to CBSL under standard Asian Development Fund conditions at an interest rate of 1% and a repayment period of 30 years. CBSL onlent these loan proceeds to the PCIs at an initial interest rate of 8% (this was reduced to 6% in 1998) and a repayment period of 10 years. CBSL refinanced the subloans of PCIs under a subsidiary loan agreement. Participating banks provided loans to borrowers initially at

Appendix 5 27

16% interest (which was reduced to 14% in 1998). The repayment period for borrowers was 2–6 years, depending on the activity. 7. The credit line incurred substantial delays and effectively got under way only after the Midterm Review (MTR). The reasons for the delays in the credit line overall and the irrigation and women’s microenterprise subcomponents were rooted in the complexity of the arrangements, as well as lack of analysis of the specific needs and characteristics of the intended clients:

(i) There were many agencies involved in the process and these had various conditions for the borrowers to fulfill. This caused a delay of more than 18 months in starting the program.

(ii) Participating banks had not been fully involved in the design process. There were no clear and accepted agreements with the participating banks on the procedures and selection methods. The traditional loan processing procedures of the participating banks were geared toward more affluent clients and not fully applicable for the Project’s credit line.

(iii) Until the MTR, banks were little involved in the early screening process of potential borrowers. Therefore, they often rejected the candidates selected by the Project.

(iv) The PCIs were not assisted in building their capacities to provide the kinds of loans required by the Project. Field mobility for loan supervision was also identified as crucial PCI problem. In addition, the credit lines were initially not effectively marketed and were little known among potential clients.

(v) Staff capacity was inadequate. Agencies and PCIs were often understaffed or undertrained. For example, delays were caused by retrenchment of ADA staff during the first 3 years of the Project.

8. At appraisal, only two banks were accepted as participating banks due to restrictive selection criteria. These were Hatton National Bank and Bank of Ceylon. In view of the wide spread of subprojects extending throughout North Western Province, these banks lacked adequate outreach capacity. These banks also lacked interest, as their established clientele were not those targeted under the Project. At project completion, these banks covered less than 10% of loans. 9. Credit for Irrigation Development. ADA undertook (i) mobilization and awareness creation, (ii) training, (iii) facilitation of credit access, and (iv) coordination. Dugwells were financed by the borrower’s own funds (15%), government subsidy (25%) provided through ADA, and the loan (60%). Disbursement occurred in three stages. At each stage, a portion of the loan proceeds and subsidy was paid out after inspection. Borrowers had to fulfill basic selection criteria, which included proof of bona fide status, minimum landholdings, two guarantors, and sufficient capital to start production. Selection of borrowers was undertaken by a committee of representatives of five different agencies including: (i) the divisional secretary, (ii) a development officer of the Department of Agrarian Services (DAS), (iii) an agricultural instructor, (iv) the bank manager, and (v) ADA. Each proposed site was to be inspected by the Water Resources Board (WRB) and a representative of ADA. WRB undertook the technical assessments to ensure availability of water at selected sites. 10. The number of 1,200 wells (through 918 loans) and 148 lift irrigation systems financed under the subcomponent was somewhat lower than the targets of 1,500 wells and 250 lift systems. The main reasons for these shortfalls stemmed from the overly complex

28 Appendix 5

implementation arrangements involving WRB, ADA, DAS, bank managers, and project staff in numerous prescribed inspections. In addition to the general issues of the credit arrangements mentioned above, initial delays of the irrigation credit lines were caused by (i) scheduling difficulties causing delays associated with the joint technical supervision of the irrigation sites by the ADA, WRB, and DAS; (ii) delays caused by WRB’s shortage of geologists in completing dugwell site inspections; (iii) late adjustment of loan ceilings and subsidies to increasing construction costs of dugwells and frequent delays in subsidy payments to borrowers due to cumbersome procedures; (iv) inadequate training; and (v) the minimum landholding size requirement of 1 ha for lift irrigation. All of these issues were taken up and largely rectified at the MTR. Additional training was introduced after the MTR, including training in well construction and in water management and agricultural production methods, which proved highly effective. 11. Credit for Women Microenterprises. The Ministry of Women’s Affairs undertook (i) promotion and awareness campaigns, (ii) selection of participants for training, (iii) conduct of entrepreneurial development programs, and (iv) facilitation of credit with the participating banks. After a slow start in the women’s credit program, several measures were taken to improve progress and facilitate disbursement. The interest was lowered from 16% to 14%, the loan limit was increased from SLRs15,000 to SLRs30,000, a mobile bank service unit was established, and provision was made for the disbursement of a second loan to borrowers (on completion of repaying the first one). A training package was provided to improve loan utilization. This was given as a three-day program, which was conducted before subloan releases. The training was reported as effective in providing the required know-how for organizing and managing activities. However, more intensive and follow-up training would likely have been more beneficial. There also were frequent changes of staff assignments in the Provincial Ministry of Women Affairs, which affected the efficiency of women’s microenterprise loan disbursements. Nevertheless, the concept and general implementation arrangements proved effective to generate the intended benefits.

Appendix 6 29

LIST OF VEHICLES AND EQUIPMENT

Agency Item

As per Appraisal

(No.) Actual (No.)

Mode of Procurement

Total Cost (SLRs)

ID 4WD pickup 4 3 IS 3,052,290 Pickup 14 10 IS 7,781,290

Motorcycles 54 41 IS 2,302,986

Bicycles 20 12 IS 33,241

Farm tractor 4 2 IS 155,452

Computer with printer 2 2 IS 484,000

Photocopier 5 6 IS 545,000

Typewriter 1 9 IS 164,060

Fax machine 1 1 IS 57,500

Offset printer 1 0

Drawing equipment 1 1 set IS 498,043

Office equipment 1 132 DP 118,193

Blueprinting machine 1 1 IS 94,903

Survey equipment (tilting levels with tripod, 0 50 IS 1,073,355

leveling staves, ranging polls, theodolite, etc.)

Plate compactors (vibrating) 0 12 IS 1,645,500

Hand tampers (steel) 0 11 IS 2,970

Various training equipment 0 55 IS 1,772,994

PED 4WD pickup 3 3 IS 3,052,290

Pickup 10 9 IS 7,003,161

Motorcycles 35 28 IS 1,473,654

Bicycles 0 1 DP 2,665

Farm tractor 3 0 - -

Computer with printer 1 2 IS 244,000

Photocopier 4 5 IS 425,500

Typewriter 1 8 IS 147,900

Fax 2 2 IS 115,000

Offset printer 1 0 - -

Drawing equipment and materials 1 341 IS 350,629

Office equipment 1 76 DP 266,831

Blueprinting machine 1 1 IS 94,903

Survey equipment 0 52 IS 1,068,235

Plate compactors (vibrating) 0 7 IS 945,000

Steel plate 8' x 4' 0 6 IS 15,840

Hand tampers (steel) 0 10 IS 3,000

Soil and concrete testing equipment 0 1 set IS 1,021,146

Vernier caliper 0 1 DP 3,000

30 Appendix 6

Agency Item

As per Appraisal

(No.) Actual (No.)

Mode of Procurement

Total Cost (SLRs)

ADA Pickup 2 2 IS 1,556,258

Typewriter 3 2 DP 27,100

Office equipment 1 1 DP 4,000

Computer 1 1 IS 90,000

Computer printers 0 2 IS 78,000

Measuring tape (15 meters) 0 14 DP 3,010

Photocopier 1 1 IS 77,000

DAS Pickup 4 3 IS 2,334,387

Motorcycles 30 52 IS 2,802,980

Bicycles 115 83 IS 223,440

Office equipment and furniture 0 261 DP 1,500,805

CEA 4WD vehicle 2 1 IS 1,017,430

Computer with printer and accessories 2 2 IS 484,800

Laboratory equipment 1 7 IS 1,999,298

NWPC Computer/printer/accessories 0 1 set IS 238,800

Pickup 0 1 IS 778,129

Computer printer and accessories 0 2 DP 52,453

4WD pickup 0 1 IS 1,017,430

Motor grader (Komatsu) 2 2 ICB 14,159,803

Front end loader 1 0 - -

Excavator 1 2 ICB 13,606,005

Water bowser 1 1 ICB 3,697,875

Air compressor 2 0 - -

Tractor with trailer 12 0 - -

Dump trucks 3 10 ICB 28,507,370

Concrete mixers 2 10 ICB 2,759,651

Workshop equipment 1 1 set ICB 16,431,929

Crawler tractor 0 1 ICB 10,615,021

PPD Computer with printer 0 1 IS 184,325

Thibus software package 0 1 IS 20,453

Keyboard 0 1 IS 1,013

Appendix 6 31

Agency Item

As per Appraisal

(No.) Actual (No.)

Mode of Procurement

Total Cost (SLRs)

MIP Car (1400 cc) 1 1 IS 800,000

4WD pickup 4 6 IS 5,874,418

Pickup 5 6 IS 4,657,583

Computer 5 4 IS 710,500

Photocopier 2 2 IS 206,500

Fax machine 1 1 IS 57,500

Typewriter 4 5 IS 80,870

Offset printer 1 0 - -

Office furniture 0 1 set DP 899,743

Office equipment 2 1 set DP 2,044,648

Drawing equipment 0 1 set DP 71,812

Various training equipment 0 13 IS 777,904

ADA = Agricultural Development Authority, CEA = Central Environmental Authority, DAS = Department of Agrarian Services, DP = Direct Purchase, ICB = International Competitive Bidding, ID = Irrigation Department, IS = International Shopping, MIP = Ministry of Irrigation and Power, NWPC = North Western Provincial Council, PED = Provincial Engineering Department, PPD = Provincial Planning Division, WD = four-wheel drive.

32 Appendix 7

INSTITUTIONAL DEVELOPMENT COMPONENT A. Investment Changes

1. Table A7 shows cost savings under the component of 25% overall and savings in almost all categories in the component. These are largely caused by limited absorptive capacity and lower needs for the facilities and equipment of the Provincial Engineering Department and the Irrigation Department because of outsourcing of the survey design and construction supervision and the ineffective implementation of the agricultural extension subcomponent.

Table A7: Investment Changes in the Institutional Development Component

Category Description

Appraisal Amount

($)

Actual Amount

($) Change

% Facilities New buildings, office improvements 378 305 -19 Equipment and Vehicles Office equipment, computers,

photocopiers, surveying equipment, pickups, bicycles, motorcycles

1,838 1,237 -33

Training Agriculture, administration, formation of FOs, accounting 602 520 -14

Consulting Services Foreign and local inputs 1,376 875 -36 Incremental Staff Salaries 1,796 1,478 -18 O&M Budget for Vehicles

Spare parts, tires, fuel, etc. 1,217 421 -65

BME and Environmental Monitoring

BME equipment, survey and monitoring programs 241 110 -54

Maintenance Equipment Heavy construction equipment 1,190 1,555 31 Total 8,638 6,501 -25

BME = benefit monitoring and evaluation, FO = farmer organization, O&M = operation and maintenance. 2. The actual cost of facilities was 19% less than estimated mainly because extensions to 71 agrarian service centers were not constructed. This could not be done, as the legal owner of the agrarian service centers was the Department of Agrarian Services, not the Department of Agriculture, which received the support. There were minor changes in the procurement of vehicles and equipment as these procurements were adjusted to actual needs. For example, 5 farm tractors were not procured. Farm tractors were meant to support force account work, which, in the event, was not required as farmer organizations and private contractors provided their own equipment. Operation and maintenance costs were less as fewer vehicles were procured. The list of maintenance equipment was adjusted after a reassessment of needs and overall types and numbers changed, which explains the cost increase. B. Training Subcomponent

3. The training subcomponent was part of the Project’s institutional development component. This component was to contribute to the Project’s overall outcomes of (i) increased agricultural production and incomes, (ii) diversified cropping, and (iii) job creation. It was assumed that the implementing agencies (IAs) would make proper use of the training, based on a plan that was to be developed during the first six months of project implementation. The

Appendix 7 33

feasibility study1 provided substantial detail on ongoing training activities in North Western Province and researched the available training institutions. It listed available training materials and undertook a general assessment of desirable skill improvements. The Project’s scope for the training as presented in the Appraisal Report can be summarized as in terms of training the following groups:

(i) staff of IAs in irrigation design and operation, water management, agricultural extension, crop diversification, and formation of farmer organizations (FOs);

(ii) farmers and farmer leaders in O&M of irrigation schemes, water management, and improved agricultural practices; and

(iii) rural women to run small enterprises and to build their awareness and confidence to undertake entrepreneurial activities.

4. The appraisal provided for implementation arrangements of the training subcomponent as follows: “About 765 person-months of training (20 international and 745 local) will be provided to the staff under the Project. In addition, some 40,000 farmers and 1,500 women will be provided with some 4,100 person-months of training. Within six months of loan effectiveness, the Government will submit to the Bank for approval an appropriate training program, including selection criteria, duration, and proposed location of the training courses to be undertaken. This program will be reviewed annually, and the individual candidates will be determined by agreement between the Project Director and the ADB. The Government will cause the executing agency to ensure that the recipients of the overseas training will serve in positions related to the Project for a period of not less than two years. Training will be carried out by each of the Implementing Agencies at the appropriate training institutes but will be programmed, coordinated and guided by the Project Director.” 5. As required, a training plan was submitted in March 1993. However, this plan did not include an agricultural program and little in terms of maintenance. Farmer training, while looking impressive in its total volume, came down to some two days per farmer due to the large number of beneficiaries. There was some discussion on this plan between ADB and the EA without leading to clearer plans and budget allocations. In the event, detailed planning was deferred to the annual planning process. The Project Completion Review Mission noted that not much of the original training plan was actually implemented. In practice, staff training appears to have been implemented finally in an ad hoc manner, which was not guided or fully controlled by the project management office (PMO). Usually the PMO informed IAs of the availability of funds for training. IAs identified officers for training based on seniority, agency internal politics, or as a reward for good performance, rather than based on project area needs. Training activities that could easily be organized were selected. The PMO exerted little or no influence in the selection of officers. There was no proper training needs assessment based on implementation requirements or gaps in technical expertise. Application of training at work was not evident to the Project Completion Review Mission. 6. Training of FOs was somewhat different, as this training was required to prepare FOs to take on responsibilities in construction and O&M. As there was a direct application, these training programs were better prepared and more effective. Similarly, training of women entrepreneurs was better aligned with needs and expected outcome. The training conducted in the context of the agricultural extension service (Appendix 3) was less effective.

1 ADB. 1990. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for North Western Province

Water Resources Development Project. Manila.

34 Appendix 7

7. In general, training under the Project was given too little attention from design to implementation and evaluation. The strategic character of training and the need to align training activities related to the crop diversification objective with the goals and objectives of the Project in a specific and clear manner were not fully recognized. Implementation of training was to be done under the Project’s matrix management approach under the leadership of the project director. In the event, most training was implemented independently by the different agencies in an ad hoc fashion. Training methods were not adequately reviewed and adjusted to specific needs. Training design was generally too unsystematic to allow for thorough and meaningful evaluation with the exception of the international study tour. The training design and evaluation process of (i) conducting a needs analysis, (ii) developing measurable learning outcomes, (iii) developing outcome measures, (iv) choosing an evaluation strategy, and (v) planning and executing the evaluation was not followed. 8. In regard to crop diversification, the main reasons for the above deficiencies were (i) lack of clarity of desired outputs and objectives of training and (ii) orientation toward training inputs rather than measurable outcomes. With hindsight, the training objectives of the project could have been analyzed better and defined more clearly in line with the Project’s objectives. They should have focused on sustained outputs and outcomes instead of inputs, as presented below:

(i) provide temporary implementation capacity to design and supervise development of about 630 minor irrigation schemes and 740 kilometer (km) of roads;

(ii) support change of cropping systems used by 70,000 farmers toward diversified crops on 4,000 hectare (ha) during the yala season;

(iii) create sustained capacity for rural infrastructure maintenance; and (iv) create sustained capacity to maintain and further expand the change of cropping

systems toward diversified crops.

9. Comprehensive analysis could possibly have led to a more realistic assessment of the first of the above objectives i.e. its early replacement by outsourcing arrangements.

Appendix 8 35

ASIAN DEVELOPMENT BANK ANNUAL DISBURSEMENTS OF LOAN PROCEEDS ($'000)

Category Item of Expenditures 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Total

01 Civil Works 125 285 166 613 2,238 1,966 2,101 2,178 431 251 10,354

02 Equipment and Materials 14 68 25 61 66 25 1,107 11 3 1 1,381

03 Vehicles 18 472 46 3 176 0 0 0 0 0 715

04 Consulting Services 0 6 235 318 181 132 32 7 0 0 911

05 Training 1 15 8 49 142 180 98 23 2 1 519

06 Credit 0 185 0 108 175 0 446 587 157 0 1,658

07 Vehicle Operating Costs 0 2 10 21 30 22 27 13 3 2 130

08A Survey and Investigation 0 19 39 42 208 244 205 142 10 12 921

08F Benefit Monitoring and Evaluation 0 0 1 23 6 5 12 1 12 11 71

09 Service Charge During Construction 0 3 13 21 33 57 77 134 153 0 491

10 Prior Technical Assistance Cost 147 0 0 0 0 0 0 0 0 0 147

Total 305 1,055 543 1,259 3,255 2,631 4,105 3,096 7713 278 17,298

36 A

ppendix 9 PROJECT IMPLEMENTATION SCHEDULE

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

I. Rural InfrastructureA. Irrigation and Drainage

1. Survey and Investigationsa. Hydrological Surveys

b. Groundwater Investigation

c. Topographical Surveys of all Schemes

d. Feasibility Study of Minor Schemes

2. Detailed Design

3. Civil Worksa. Extension Schemes

b. Improvement Schemes

c. Restoration Schemes

d. Rehabilitation of Schemes

B. Improvement of Roadsa. Survey design and supervisionb. Civil works

II. CreditA. Dugwells

B. Lift Irrigation

C. Income Generating Activities of Women

III. Institutional SupportA. Construction of Buildings for

PMO and Agricultural Extension

B. Procurement of Equipment and Vehicles for Implementation

PMO = project management office.Legend: = Appraisal; = Actual; Q1 = first quarter.

20001994 1995 1996 1997 1998 1999Component/ Subcomponent 1992 1993

A

ppendix 9 37

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

C. Procurement of Operation and Maintenance Equipment

D. Formation of Farmers' Organizations

E. Traininga. ID, PED, DAS, and DOA staff

b. Farmers

c. Women

d. Agricultural Training

e. Overseas Training

f. Improvements to Training Institutes

F. Consultantsa. International Consultants

1. Recruitment

2. Consultant Servicesb. Local Consultants

1. Recruitment

2. Consultant Services

G. Benefit Monitoring and Evaluationand Environmental Monitoringa. Benefit Monitoring and Evaluation

b. Environmental Monitoring Water Quality Survey

DAS = Department of Agriarian Servise, DOA = Department of Agriculture, ID = Irrigation Department, PED = Provincial Engineering Department. Legend: = Appraisal; = Actual; Q1 = first quarter.

1998 1999 2000Component/ Subcomponent 1992 1993 1994 1995 1996 1997

38 A

ppendix 10

ACTUAL PROJECT ORGANIZATION

Component

Subcomponent IAs

ID PED

IMD

DAS

DIMC

MECA

FOs

PED

ID

DIMC

MECA

SOs

CBSL

ADA

WRB

PCIs

CBSL

NWPC

PCIs

PMO

PMO

PMO

DAS

NWPC

PDOA

ID

PED

PMO

PMO

PPD

PMO

MLIMD

National Steering Committee

Provincial Steering Committee

Chief Secretary

Chief Secretary/NWP

Provincial Secretary

Rural Infrastructure Credit Institutional Development

Irrigation &

Drainage

Rural Roads

Dugwell and Lift Irrigation

Income Gen. for Women

Facilities and

Equipt.

Training Consulting Services

Monitoring and Coordination

Database

PMO Project Coordinating Committee

ADA = Agricultural Development Authority, CBSL = Central Bank of Sri Lanka, DAS = Department of Agrarian Services, DIMC =Design and Implementation Cell,FO = farmer organization, IA = implementing agency, ID = Irrigation Department, IMD = Irrigation Management Division, MECA = Mahaweli Engineering and Construction Agency, MLIMD = Ministry of Lands, Irrigation, and Mahaweli Development, NWP = North Western Province, NWPC = North Western Provincial Council, PCI = Participating Credit Institution, PED = Provincial Engineering Department, PCI = Participating Credit Institution, PMO = Project Management Office, PPD = Provincial Planning Division, SO = Samurdhi Organization, WRB = Water Resources Board.

Appendix 11

39

INCREMENTAL STAFF TO BE ENGAGED UNDER THE PROJECT

Implementing Agency Position As per

Appraisal Actual

Deployment Share as Against

Appraisal (%)

1. Ministry of Land, Irrigation, Technical Assistant 5 0 0

and Mahaweli Development/ Accounting Clerk 6 3 50

Provincial Department of Bookkeeper 6 8 133

Agriculture Asst. Accountant 5 8 160

Other Staff 6 0 0

Subtotal 28 19 68

2. Irrigation Department (ID) Technical Assistant 102 35 34

Institutional Organizer 60 53 88

Agro-Economist 6 1 17

Engineer 24 11 46

Asst. Accountant 13 7 54

Work Supervisor 120 39 33

Draftsman 30 23 77

Drivers 36 0 0

Clerks 3 14 467

Subtotal 394 183 46

3. Provincial Engineering Technical Officer 90 39 43

Department Agro-Economist 6 0 0

Engineer 12 5 42

Asst. Accountant 7 7 100

Draftsman 42 28 67

Drivers 39 6 15

Clerk 0 3 0

Other Staff 0 8 0

Subtotal 196 96 49

4. Provincial Department of Technical Assistant 30 10 33

Agrarian Services Institutional Organizer 440 280 64

Institutional Development Officer 0 6 0

Drivers 24 10 42

Clerks 24 15 63

Typist 18 12 67

Engineer 6 0 0

Computer Operator 6 2 33

Subtotal 518 325 63

5. Provincial Agricultural Clerks 6 5 83

Development Authority Driver 6 2 33

Subtotal 12 7 58

Appendix 11

40

Implementing Agency Position As per

Appraisal Actual

Deployment Share as Against

Appraisal (%)

6. Project Management Office Project Director 7 9 129

Senior Civil Engineer 20 23 115

Irrigation Engineer 0 3 0

Agro-Economist 6 11 183

Technical Assistant 0 6 0

Senior Accountant 6 6 100

Asst. Accountant 13 17 131

Agronomist 6 6 100

Institutional Specialist 6 6 100

Clerks 65 90 138

Draftsman 13 18 138

Steno-typist 13 21 162

Drivers 78 48 62

Other Staff 65 84 129

Land Use Planner 0 8 0

Subtotal 298 356 119

7. Irrigation Systems Management and

Senior Technical assistant 0 4 0

Improvement Cell— project management office

Senior Agriculture Instructor 0 5 0

Community Development Officer 0 3 0

Planning Officer 0 2 0

Subtotal 0 14 0

Total 1,446 1,000 69

Appendix 12 41

MAINTENANCE OF IRRIGATION SYSTEMS

1. Before the Project, farmers owned the lands within the command areas of irrigation systems and with them the systems themselves, in many cases since ancient times. However, there were no formal or legal arrangements. Also, there were no systematic government interventions or maintenance budget allocations. Clearing of canals and other maintenance works were done as needed in cases where farmers managed to organize themselves for these works under traditional arrangements. In other cases, no maintenance was done and irrigation systems fell into disrepair and rehabilitation became necessary.

2. According to the Loan Agreement, farmer organizations (FOs) will be responsible for operation and maintenance of all field canals on about 30,000 hectares (ha) of irrigation systems included under the Project. FOs will also maintain all tanks, head works, and major canals of 663 minor irrigation schemes. The Irrigation Management Division of the Ministry of Lands, Irrigation and Mahaweli Development (MLIMD)1 will be responsible for the management of major irrigation systems in line with general government policies. The Provincial Engineering Department (PED) will assist with the maintenance of head works and major canals of seven medium schemes. The Irrigation Department (ID) will assist with 22 medium schemes and five major schemes. However, the cost will all be shouldered by FOs2 as PED and ID will charge service fees. The Project also provided for purchase of maintenance equipment, which is made available to FOs for a fee.

3. Maintenance costs are estimated at $5.00 per ha on average or a sustained annual cost of $150,000. A detailed cost estimate for a typical tank with a command area of 25 ha is presented in Table A12. Observations of the Project Completion Review Mission confirmed earlier findings that currently the expected maintenance of irrigations systems is not taking place. While observed damage and reduced serviceability were all minor, they were widespread and will accumulate with time. Damage caused by ants, wildlife, and vegetation can lead to breaches of bunds and significant damage as well as reducing water availability and the command area. Lack of maintenance was the major cause of the need for rehabilitation and the Project itself. Better maintenance systems will be necessary to ensure that rehabilitation will not be needed again.3

1 In 2001the Ministry was reformed as Ministry of Irrigation and Water Management. 2 PED and ID were to finance maintenance of head works and major canals during the first 2 years. 3 Following a request from the Government, ADB is processing a project entitled Supporting Infrastructure

Maintenance to Reduce Rural Poverty, for approval in 2002, to be financed under the Japan Fund for Poverty Reduction.

Appendix 12

42

Table A12: Annual Maintenance Estimate of a Minor Irrigation Scheme with a Command Area of 25 Hectares

Allocation of Cost

Description of Work

Quantity

Unit

Rate (SLRs)

Total (SLRs) Labor

(SLRs) Materials (SLRs)

Tank and Bunds Weeding Tank Bund 10,000 m2 0.50 5,000 4,900 100 Earthwork in Tank Bund 1.0 m3 250.00 250 240 10 Removal of Ant Hills 2.0 No. 50.00 100 95 5 Graveling Tank Bund Road 1.0 m3 300.00 300 200 100 Repairs to Bathing Steps 0.02 m3 3,500.00 70 15 55 Painting and Marking Sign Boards 1.0 m2 60.00 60 20 40 Sluice Structures Repairs to Sluice with Concrete 0.02 m3 3,500.00 70 15 55 Lubricating of Sluice Gate 2.0 kg 150.00 300 75 225 Painting Gate with Anticorrosives 0.50 liter 600.00 300 75 225 Painting Staff Gauge in Sluice 0.50 liter 600.00 300 75 225 Spills and Tail Canals Repairs to Spill with Concrete 0.02 m3 3,500.00 70 15 55 Clearing Spill Tail Canal 2,500 m2 0.50 1,250 1,225 25 Canal System Weeding Canal Bund 3,000 m2 0.50 1,500 1,470 30 Earthwork in Canal Bund 1.0 m3 250.00 250 240 10 Desilting Canal Bed 250 m 1.50 375 360 15 Removal of Water Plants 125 m 0.50 62 62 0 Graveling Bund Road 0.50 m3 300.00 150 100 50 Removal of Ant Hills 1.0 No. 50.00 50 48 2 Repairs to Structures 0.10 m3 3,500.00 350 75 275 Clearing of Drainage Canals 1500 m2 1.00 1,500 1,450 50 Total for 25 hectare system

12,307 10,755 1,552

Cost per hectare = SLRs12,307 / 25 = SLRs492, say SLRs500/hectare = 40 kg of paddy = about 2 bushels.

ha = hectare; kg = kilogram; m = meter; m 2 = square meter; m3 = cubic meter. Source: Project staff estimates.

Appendix 13 43

MAINTENANCE OF RURAL ROADS

1. Roads. According to the Loan Agreement, the Provincial Engineering Department (PED) was to rehabilitate and maintain all roads targeted under the Project. However, during project implementation, PED proved to have inadequate capacity to supervise construction at the targeted scale of road rehabilitation works. The Irrigation Department (ID) and Pradeshiya Sabha assisted (the latter through contracts with private service providers). Ownership of the roads and maintenance responsibilities were allocated accordingly (Table A13.1). The table also provides an estimation of the required routine maintenance costs. The project roads will require routine and periodic maintenance at more that 250 locations throughout North Western Province.

Table A13.1: Maintenance Responsibilities for Roads and Estimate of Routine Maintenance Costs

Agency D and E Roads Rural Roads Km million SLRs/year km million SLRs/year PED 130 1.7 PS 285 3.7 435 5.7 ID 138 1.8 Total 415 5.4 573 7.5

ID = Irrigation Department, km = kilometer, PED = Provincial Engineering Department, PS = Pradeshiya Sabha. Sources: Project Completion Report, Ministry of Irrigation and Power, 2000 (the Ministry had changed its name in 1994 from the earlier name of Ministry of Lands, Irrigation, and Mahaweli Development); and ADB staff estimates.

2. Under the proposed follow-on project,1 caretakers will be contracted to do these works. Table A13.2 lists the routine maintenance works and estimated costs. Periodic maintenance works will involve reshaping of the road surface, regraveling, and repair or reconstruction of damaged drainage structures. These activities will require supply of substantial quantity of materials and mobilization of heavy equipment with adequate human resources. Also, periodic maintenance works must be completed within reasonably short periods to minimize inconvenience to road users. Therefore, these works will be contracted out to small contractors under the proposed follow-on project. A survey conducted during the Project Completion Review showed that only about 30% of the roads have received regular maintenance attention while the remainder will require attention and periodic maintenance as soon as possible (Tables A13.3 and A13.4).

1 Following a request from the Government, ADB is processing a project entitled Supporting Infrastructure

Maintenance to Reduce Rural Poverty, for approval in 2002, to be financed under the Japan Fund for Poverty Reduction.

Appendix 13

44

Table A13.2: Cost Estimates For Routine Maintenance Works

Description of Activity Quantity and

Number Estimated Cost

(SLRs) General inspection and removing obstructions such as fallen trees, rocks bushes that are blocking carriageway/drainage system

2 days/km 500

Clean culverts, inlets, and outfalls 3–4 m long, single row culverts of 600 mm diameter pipes with average silt depth of 150–300mm

3 culverts /km 500

Clear debris from bridges. Removal of loose debris and disposing same outside the stream in safe area; twice a year

3.0 m3/km 500

Clear side drains. Bedwidth is 0.50 m and depth of silt is 100 mm. Excavation is done in average soil condition. Allow for 50% of the length; twice a year

50 m3/km 3,000

Side slope and shoulder repair. Benching to proper slope and backfilling completed with turfing; once a year

2 m3/km 500

Patch potholes in carriageway. Cleaning, excavation of potholes and filling with gravelly materials complete with good compaction; once a year

10 m3/km 3,000

Grass cutting and bush clearing. Cutting of all grasses and bush on both sides and for entire width between edge of side drain and carriageway including overhanging branches of trees; twice a year

5,000 m 2/km 2,500

Minor repairs to culverts and retaining walls 0.20 m3/km 700 Color washing parapet walls of culverts and bridges and kilometer post and other painting works; once a year

lumpsum 800

Contingency lumpsum 800 Total estimated cost/km 12,800

km = kilometer, m = meter, mm = millimeter. Source: Project staff estimates.

Table A13.3: Description of Maintenance Classification System Maintenance Classification Description

4 25%, serviceability rapidly deteriorating travel speed below 10 km per hour, no bus services, marketing severely hindered, even bicycle traffic difficult, not passable during rains, transport cost 20–30% higher than usual.

3 50%, serviceability deteriorating, travel speed 10–20 km per hour, no bus service, little trucking, marketing hindered, transport cost 10–20% above average.

2 75%, serviceability affected and deteriorating, travel speed varying from 40 km to below 10 km at certain stretches, marketing hindered, transport cost up to 10% above average.

1 Recently rehabilitated or properly maintained.

Source: Staff field observations.

Appendix 13 45

Table: A13.4: Survey of Maintenance Status of Roads

Name Type Length

(km) Cost

(SLRs) Completion

Date Maintenance

Status (Class)

Maintenance Works Being

Done Balalla-Waduressa-Ambagaswewa Road Rural 6.10 1,230,000 Mar 1999 4 None Bulugahamula Alu-pothagama Galagedara Aluthwewa

Rural 5.00 1,130, 00 Dec 1996 3 None

Danvila Thorawatawana Road Gravel 2.50 230,866 Nov 1999 3 None Wewa Rauma-Kudagalgamuwa Road Tarred 8.40 2,103,484 Dec 1997 2 Part of the

road Kithuwehera-Ihala Malagane Road Gravel 4.20 717,703 Jan 1999 3 Buluwala-Tigola Road Gravel 4.20 513,906 Oct 1998 4 None Ranawatta-Panawatta Kanagala Road Gravel 2.42 934,252 Oct 1998 2 None Ahugoda Junction to Panagamuwa Pinnagodagam Road

Gravel 3.41 832,507 Feb 1999 2 Yes

Wegolla Gammeda Road Gravel 3.10 468,569 Aug 1998 1 Yes Kobeigane-Pannawa Lolan Wewa Road Tarred 1.0 6.00 1,257,867 Aug 1999 1 Yes Giritalana-Akurana-Madaina-Polkumbura Road Tarred 9.0 14.10 2,821,225 Jun 1997 2 None Kottukachchiya Scheme LB Canal Road Gravel 6.60 335,000 Dec 1997 2 Yes Dharmapalaya-Attikulama Road Gravel 3.00 296,882 Nov 1999 1 None Attikulama-Rambawa Road Gravel 2.45 514,838 Dec 1999 1 None Paramakanda-Uriyawa Road Gravel 4.00 1,001,417 Apr 1999 1 None Thorawatawana Circular Road Gravel 1.20 191,971 Dec 1999 3 None Dangas Wewa-Sohonkelegama Velasiya Road Gravel 5.60 1,279,793 Oct 1998 4 None

Source: Survey of the Project Completion Review Mission.

46 Appendix 14

MAJOR LOAN COVENANTS Covenant Reference Status of Compliance

Advance Procurement Withdrawals from the loan account, not to exceed $250,000 equivalent, may be on account of payments made prior to the effective date, but not earlier than 15 February 1992, for civil works under Part III.A of the Project, the purchase of vehicles under Parts III.A, B and D of the Project, consultants under Part III.F of the Project, and surveys and investigations for the purposes of Parts I.A, I.B and II.A of the Project.

Section 3.06 Complied with.

Recording System The Borrower shall maintain or cause to be maintained, records and accounts adequate to identify the goods and services and other items of expenditure financed out of the proceeds of the loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, the operations and financial condition of the Central Bank of Sri Lanka (CBSL) and the participating credit institution (PCIs) and any agencies of the Borrower responsible for the carrying out of the Project and operation of the project facilities, or any part thereof.

Section 4.06(a)

Complied with.

Audited Financial Statement The Borrower shall furnish to Asian Development Bank (ADB), as soon as available but in any event not later than six (6) months after the end of each related fiscal year, unaudited copies of such accounts and financial statements, and not later than nine (9) months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto, all in the English language.

Section 4.06(b)(iv)

Complied with.

Quarterly Progress Report Without limiting the generality of the foregoing, the Borrower shall furnish, or cause to be furnished, to ADB quarterly reports on the carrying out of the Project and on the operation and management of the project facilities.

Section 4.07(b)

Complied with. Quarterly progress reports from December 1992 to September 2000 submitted.

Appendix 14 47

Covenant Reference Status of Compliance Project Completion Report Promptly after physical completion of the Project, but in any event not later than six (6) months thereafter or such later date as may be agreed for this purpose between the Borrower and ADB, the Borrower shall prepare and furnish to ADB a report, in such form, and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by the Borrower of its obligations under the Loan Agreement and the accomplishment of the purposes of the loan.

Section 4.07(c)

Complied with. Project Completion Report submitted to ADB on 30 October 2000.

Imprest Fund The Borrower shall establish, immediately after the effective date, an Imprest Fund Account with CBSL in order to make adequate amounts of the proceeds of the loan available on a timely basis for the purposes of the Project.

Schedule 3, para. 13

Complied with.

Establishment of PMO Within one (1) month of the effective date, the North Western Provincial Council (NWPC), in collaboration with Ministry of Lands, Irrigation, and Mahaweli Development (MLIMD) shall establish a project management office (PMO) in Kurunegala.

Schedule 6, para. 4

Complied with. PMO established on 25 July 1992.

Appointment of Project Director The PMO shall be headed by a full-time project director (PD), to be appointed within one (1) month of the effective date, and adequately staffed with suitably qualified and experienced personnel throughout the project Implementation.

Schedule 6, para. 5

Complied with.

Design Cells To support planning, design and implementation of the Project and subsequent operation of project facilities, the Borrower shall establish

(i) design cells; (ii) irrigation systems management and

improvement cells; and (iii) scheme level planning and implementation

teams.

Schedule 6, paras. 6-9

(i) Complied with. (ii) Partly complied with. Irrigation systems management and improvement cells formed for 24 months. (iii) Complied with. Scheme level planning and implementation teams formed.

Steering Committee The Borrower shall establish or cause to be established (a) a project steering committee (PSC), (b) a provincial project steering committee (PPSC), and (c) divisional level coordination committee (DLCC).

Schedule 6, paras. 10-15

Complied with.

48 Appendix 14

Covenant Reference Status of Compliance Scheme Selection Committee The Borrower shall cause a Scheme Selection committee (SSC) to be established within one (1) month of the effective date to select the minor irrigation schemes for implementation under the Project. The members of the SSC shall include the PD as Chairman, the Director of the Provincial Engineering Department (PED), the Deputy Director of the Irrigation Department (ID), the Deputy Commissioner of Provincial Department of Agrarian Services (DAS), and the Assistant Secretary of the Provincial Department of Agriculture (PDOA).

Schedule 6, para. 16

Complied with. Established in October 1992.

Submission of Feasibility Studies Prior to the start of the implementation of the schemes, the PD shall submit the following feasibility studies to ADB for review and approval (a) two representative minor schemes each having a command area of about 20 (hectare) ha selected for restoration; (b) four representative minor schemes each having a command area of about 20 ha selected for rehabilitation (two each from the dry and the intermediate zones); and (c) four representative schemes each having a command area of about 20 ha selected for improvement (two each from the dry and the intermediate zones).

Schedule 6, para. 20

Complied with. Submitted in October/November 1993 and until completion of project activities.

Formation of Farmer Organizations Following the approval by the SSC of the minor irrigation schemes, the PD shall advise the Provincial DAS to initiate the formation and/or registration of FOs at the schemes. The farmer organizations (FOs) shall be registered under and pursuant to the provisions of the Agrarian Services Act before implementation of the scheme.

Schedule 6, para. 21

Complied with.

Participation of Farmer Organizations Prior to the commencement of the works, the Borrower shall ensure that the written consent of the concerned FOs has been obtained.

Schedule 6, para. 22

Complied with.

Selection of Roads The roads or portions to be improved under the Project shall be as determined by agreement between ADB and MLIMD.

Schedule 6, para. 23

Complied with.

Training Submission of training program including selection criteria, duration and proposed location of the training courses for ADB’s approval.

Schedule 6, para. 24

Complied with.

Appendix 14 49

Covenant Reference Status of Compliance Relending Terms CBSL shall, under prudent banking terms and conditions, relend portions of the proceeds of the loan to eligible PCIs on a first-come, first-served basis at an interest of 8% per annum, a repayment period of 10 years including a grace period of 6 years, and the utilization of subloan repayments for the provision of credit to the agriculture sector.

Schedule 6, para. 25

Complied with.

Onlending Terms CBSL shall cause the PCIs to onlend to subborrowers the proceeds of the loan made available to them under the Project on the basis of prudent banking terms and conditions which shall include: an interest at a rate of at least 16%, for subloans of SLRs30,000 or more, a repayment period of not more than 10 years, including a grace period of not more than 1 year, and a contribution by the subborrower, which may be in kind, or a minimum of 15% of the subproject cost under Part II.A (dugwell), and 10% of a subproject under Part II.A (lift irrigation) and Part II.B (income generation for rural women)

Schedule 6, para. 26

Complied with.

Eligibility Criteria for PCIs Except as ADB may otherwise agree, the PCIs shall be selected by CBSL for participation under Part II of the Project on the basis of, and their continued participation after selection shall depend on their compliance with, the following conditions: (i) they have acceptable financial and adequate organizational capabilities; (ii) they have adequate experience in providing and monitoring term loans; (iii) they have adequate branch networks or will develop the same in the project area; (iv) they are willing to participate in the Project; (v) they agree to provide staff to ensure the required level of subloan appraisal and supervision, including an adequate number of loan officers trained in term lending, supported by an adequate number of field staff; and (vi) they are prepared to continue to promote and develop their capabilities in term lending through staff training.

Schedule 6, para. 29

Complied with.

Eligibility Criteria for Subborrowers Except as ADB may otherwise agree, subborrowers shall be eligible for subloans under the Project provided they meet the following criteria: (i) they must be bona fide owner/tenant farmers or women domiciled and operating within the jurisdiction of a PCI in the project area; (ii) they must provide the required equity contribution; (iii) they must have satisfactory repayment capacity reflected by cash flow indicating the net revenue to be generated by the proposed subproject, as well as overall family income.

Schedule 6, para. 30

Complied with.

50 Appendix 14

Covenant Reference Status of Compliance Eligibility Criteria for Subprojects Except as ADB may otherwise agree, subprojects shall be eligible for financing under the Project provided they meet the following criteria: (i) they have to be consistent with the objectives and scope of the Project as set out in Schedule 1 of this Loan Agreement; (ii) they have to be assessed as commercially sustainable taking into account the prevailing and anticipated market and policy environment; (iii) they have to be assessed as financially viable with reference to criteria that will include an after tax internal rate of return of not less than 18% on the subborrower’s investment and a debt service coverage ratio of not less than 1.5 times when fully operational; (iv) they have been recommended by the provincial Agricultural Development Authority and the PD as to their technical feasibility; and (v) they should be environmentally satisfactory.

Schedule 6, para. 31

Complied with.

Training The Borrower shall carry out suitable training programs in income generating activities for rural women expected to participate in the credit program under Part II.B of the Project.

Schedule 6, para. 34

Complied with.

Environmental Consideration The Borrower shall implement suitable environmental practices on catchments of the streams supplying water to the irrigation schemes on the basis of the recommendations of the consultants to be engaged under the Project for the purpose of carrying out watershed management studies in the project area. To minimize the adverse effect of the use of fertilizer and agro-chemicals, MLIMD shall cause the agricultural extension services of the Borrower to advise the farmers on the correct application rates of fertilizer and judicious use of pesticides and to promote integrated pest management and control in accordance with ADB’s Handbook on the Use of Pesticides in the Asia Pacific Region (1987). MLIMD and NWPC shall ensure that all subprojects comply with existing environmental laws and regulations of the Borrower. MLIMD, in consultation with the Central Environmental Authority, shall ensure that the subprojects have no or negligible adverse environmental impact. Subprojects with potentially significant adverse environmental impact shall be cleared by the Central Environmental Authority prior to approval of the subloans for such subprojects.

Schedule 6, paras. 36-38

Complied with.

Operation and Maintenance The Borrower shall provide the necessary funds, human resources, and facilities for the O&M of all equipment and facilities to be provided under the Project.

Schedule 6, para. 39

Partially complied with.

Appendix 14 51

Covenant Reference Status of Compliance To enable the FOs to raise the necessary funds for carrying out their O&M responsibilities, the Borrower shall ensure that the Irrigation Ordinance of 1968 is amended within six (6) months of the effective date or such other period as ADB may agree on to empower FOs to collect O&M charges from the beneficiaries and to define the legal powers of the Project Management Committee respect of medium and major irrigation schemes.

Schedule 6, para. 41

Complied with.

Submission of appropriate monitoring and evaluation program to ADB.

Schedule 6, para. 42

Complied with, with delay.

Final Evaluation Report Submission to ADB of the final evaluation report along with measures proposed to be taken by PCIs to operationalize the conclusion of the evaluations.

Schedule 6, para. 45

Complied with.

Midterm Review ADB shall carry out in 1995 a midterm review of project implementation and its benefits.

Schedule 6, para. 46

Complied with.

Annual Program Submission of annual works program to ADB for review and comments.

Schedule 6, para. 47

Complied with

52 Appendix 15

TECHNICAL ASSISTANCE COMPLETION REPORT South Asia Department, Agriculture, Environment and Natural Resources Division

Amount Approved: $400,000 TA No. and Name

1719-SRI: Institutional Strengthening of the North Western Provincial Council

Revised Amount:

Executing Agency: Planning Division of NWPC

Source of Funding: TASF

TA Amount Undisbursed -

TA Amount Utilized $400,000

Date Closing Date Approval 25 June 1992

Signing 24 July 1992

Fielding of Consultants 30 June 1994

Original Dec 1995

Actual July 1996

Description. The rationale for the technical assistance (TA) was based on the limited planning capacity of the provincial councils throughout the country at the time, as these had only been created in 1988. The TA aimed at developing the provincial development planning system including (i) methodology, (ii) policies, and (iii) computer facilities. The TA was piggy-backed to Loan No 1166-SRI, North Western Province Water Resources Development Project. This loan project’s purpose was to improve the economic, social, and nutritional well-being of the people living in the rural areas of North Western Province. The loan project was to assist in achieving this purpose through (i) increased agricultural production of about 13,000 (metric tons) mt of paddy and 19,600 mt of OFCs and an average annual income increase of about $123 for about 70,000 beneficiaries; (ii) diversified cropping during the dry season at a level of about 15% of the irrigated area to be rehabilitated under the Project; and (iii) generation of about 3,100 sustained jobs and about 12,000 person-years during construction, of unemployed and underemployed people including women.

Objectives and Scope. The objective of the TA was to enhance the planning and monitoring capabilities of the North Western Provincial Council (NWPC), particularly its Provincial Planning Division (PPD) at the Office of the Chief Secretary and at the Offices of the Divisional Secretaries to enable these agencies to carry out their roles in development of the province in an effective manner.

Evaluation of Inputs. The objective of the TA of improving planning capacity of NWPC was relevant to the Government’s goal of balanced regional development including a general institutional strengthening of the provincial agencies. It was less relevant to the purpose and direct objectives of the associated loan. There were implementation difficulties as (i) the TA was not aligned with implemented Government policies and plans at the time; and (ii) there was limited absorptive capacity within the PPD, the implementing agency for the TA, to make effective use of the support. Also, the PPD largely operated independently from the Project and its planning capacity was not used for project implementation. The provision of the TA thus made little difference to the effectiveness and efficiency of the associated Project. It included 12 and 24 person-months of international and local consultancy inputs, respectively.

Evaluation of Outputs. The consultants set up a system for data collection and prepared guidelines and formats for divisional master plan development. Eight computer systems were procured and distributed. A few staff were trained on using these computers and using divisional level planning concepts, which the consultant developed. The PPD benefited in terms of the planning data, which was collected under the TA, and which was made available to Government and private clients. The PPD also benefited in terms of improved competencies of a few staff, who worked with the consultants and received training. However, the PPD did not sustain the approach developed by the consultant and use of the planning formats, in spite of their overall acceptable quality. This was caused mainly by the lack of a planning policy framework and limited Government commitment and absorptive capacity. Mainly due to this lack, the TA did not fully achieve its objectives and the TA’s results were not sustained.

Overall Assessment and Rating. The TA is rated as partly successful.

Major Lessons Learned. The TA could have been more relevant and effective if its objectives and scope would have been aligned with those of the loan project.

Recommendations and Follow-Up Actions. There are no follow-up actions recommended.

Prepared by Michael Dembinski, Rural Development Specialist.

Appendix 16 53

CONSULTING SERVICES Inputs

Expertise Appraisa l

(Person-Months) Actual

(Person-Months) A. International 1. Senior Irrigation Engineer 9 9 2. Environmental/Watershed 4 4 Management Specialist Subtotal (A) 13 13 B. Local 1. Senior Irrigation Engineer 60 68 2. Irrigation Engineer (Kurunegala) 40 45 3. Irrigation Engineer (Puttalam) 40 39 4. Environmental Specialist 20 20 5. Agronomist/Agriculturist 24 22.5 6. Institutional Development Specialist 45 39 7. Agricultural Economist 16 26

8. Socioeconomista 16 0 9. Marketing Specialist 7 15 10. Procurement Specialist 12 0 11. Accounting Specialist 9 6.5 12. Marketing Specialist (Credit to Women) 5 15

13. Entrepreneurial specialist (Credit to Women)b 5 0 14. Benefit Monitoring and Evaluation Specialist 16 14 Subtotal (B) 315 310 Total 328 323 a Combined with Agricultural Economist. b Combined with Marketing Specialist.

54 Appendix 17

ECONOMIC ANALYSIS A. Introduction

1. The North Western Province Water Resources Development Project was designed to have a direct impact on the rural economy through increased agricultural production and farm income. Its irrigation-oriented components improved, rehabilitated, restored or extended 28,686 hectare (ha) of gravity irrigation systems and helped establish 1,200 dugwells and 148 lift pumps. At full development, there is an expected average annual increment of SLRs4,047 ($46.86, in 2001)1 in net farm income for households associated with these irrigation components. This additional farm income is accompanied by increased farm employment totaling 5,180 person-years. The Project also improved 988 kilometers of rural roads, providing improved travel time and cargo transportation cost savings. Women’s microenterprise credit helped 3,200 women establish or expand their businesses and increase family income. In total, an estimated 77,500 households in the project area have shared in the increased income associated with project activities.2 2. At project completion, there are two main areas of concern. The first is that the sustainability of the Project’s irrigation and road infrastructure is open to question unless proper maintenance is applied. If maintenance is adequate, project life will be restricted and returns will be lower than expected. The second is that the Project’s crop diversification goal has so far been substantially underachieved. There is potential, however, for greatly enhancing farm income if more farmers were to choose to cultivate higher-valued crops (than rice) during the yala (dry) season. If programs to enable and encourage crop diversification are not applied, a real opportunity for enhancing project impact will be lost. B. Approach and Methodology

3. The economic viability of the Project was evaluated as of the time of project completion in March 2001. To the extent possible, the methodology used was comparable to that applied for project appraisal in 1992. 4. A comparison of “with” and “without” project scenarios is used in the evaluation of the Project’s quantifiable direct production and road benefits. The without-project scenario involves the crop pattern, cropping intensity, crop revenue, costs of production, and road usage that would be expected to exist under the assumption that the Project had not been implemented. The with-project scenario includes the crop pattern, cropping intensity, crop revenue, costs of production and road usage that occur given the existence of the Project. Prices and time periods are the same in both scenarios. 5. There are, in addition to quantifiable direct production and road benefits, a variety of benefits not quantified or included in the analyses at appraisal or in this report. These include benefits associated with the strengthening of farmer organizations (FOs), government agency institutional strengthening, flood protection provided by some of the irrigation schemes, and improved access to health and educational facilities provided by better roads. Information about both quantified and nonquantified benefits is based, in part, on data obtained during the Project Completion Review Mission. Further information was derived from an impact study conducted

1 This compares to $123 (adjusted to 2001) estimated at appraisal. 2 Average farm size in the gravity irrigation schemes is 0.4 ha per household and for the wells and lift irrigation

beneficiaries it is 1.0 ha.

Appendix 17 55

under the Project, with crop information provided by the Department of Agriculture and other sources.3

1. Prices

6. Prices used in the analysis were derived from visits to project sites and project-associated agencies and checked against other sources. Basic pricing assumptions used in the economic analysis include:

(i) the use of a world price numeraire; (ii) values are expressed in constant year 2001 currency units as 2001 was the year

of project completion; (iii) the Sri Lanka rupee (SLRe) is the local monetary unit. Values expressed in

dollars have been converted at an exchange rate of SLRs86.35 per dollar, the rate existing at the time of project completion;

(iv) in the case of major tradable commodities (rice and urea), border pricing is used to derive economic values (Tables A17.1 and A17.2);

(v) for most other goods and services a standard conversion factor (SCF) of 0.9 is used in the calculation of economic prices;

(vi) a shadow wage rate factor of 0.8 is used in order to adjust for labor underemployment in Sri Lanka; and

(vii) transfer payments such as taxes are excluded from economic valuations.

2. Economic Life of the Project

7. The assumed economic life of the Project is 25 years (as in the appraisal). Construction was completed on some of the irrigation schemes and roads as early as 1993 and those schemes are, therefore, expected to have an economic life until 2018. The last schemes were constructed in 2000 so are considered to last until 2025. As there can be much skepticism about realistic economic life duration for structures such as those built by the Project, sensitivity analyses regarding the risk of a shorter economic life expectancy have been conducted. C. Project Costs

8. Project costs included in the analysis were for (i) civil works for irrigation schemes and roads; (ii) dugwell and lift irrigation investments; and (iii) institutional support costs for vehicles, equipment, buildings, training, administrative expenses, etc. In 2001 dollars, the Project’s total cost as used in this analysis was $22,931,542.4 The cost for gravity irrigation infrastructure was $11,065,067; for wells and lift pumps $793,712; for roads $3,723,318; and for institutional development $7,349,445. Maintenance costs for gravity irrigation schemes are assumed to be $5 per ha per year. For roads, maintenance is $135 per km per year plus periodic maintenance expenses (equal to 20% of construction costs) every sixth year for tarred roads and every fourth year for gravel roads. The dugwells and lift pumps are assumed to have maintenance costs (excluding fuel which is a crop production cost) equal to 3% of the investment. 3 Sources include: (i) Final Impact Evaluation of the Northwestern Province Water Resources Development Project,

TEAMS, Consultants in Development, Colombo, July 2000; (ii) Cost of Cultivation of Agricultural Crops (for 2000 Yala and 2000/2001 Maha), Socio-economics and Planning Centre, Department of Agriculture, Peradeniya, 2001; (iii) the Project’s final Quarterly Progress Report (July–September 2000), Project Management Office, Kurunegala.

4 The credit line for women’s microenterprise loans was not included in the calculation of the economic returns of the Project. From the point of view of the national economy, such loans are a form of transfer or redistribution and therefore do not enter EIRR calculations —although they do facilitate income opportunities to a number of beneficiaries within the project area.

56 Appendix 17

D. Project Benefits

9. Incremental crop revenue plus improved road transport savings comprise the main economic benefits. In the calculation of incremental crop production, figures for cropping patterns, crop intensity, yield, and farm inputs differ between the with- and without-project situations. A farm model of crop inputs can be found in Table A17.3. Crop revenue per hectare is calculated in Table A17.4. Cropping patterns and incremental farm revenue on a 1 ha farm for the gravity irrigation schemes is in Table A17.5 and for the dugwells and lift irrigation program in Table A17.6. Calculations of incremental physical output of various crops and of incremental labor inputs to crop production are derived from the information in Tables A17.3, A17.4, and A17.5. A model of road benefits5 develops incremental figures for the value of travel (time) savings and cargo costs due to the road improvements. 10. There were a number of differences between the Project as implemented and what was expected at appraisal. First, the actual physical achievements of the Project were greater than what was expected in that 28,686 ha (compared to 25,970 ha) of gravity irrigation schemes were benefited and 988 km of roads were improved (compared to 740 km). While the dugwell and lift irrigation programs reached fewer people (providing 1,200 dugwells and 148 lift pumps) than was expected (1,500 and 250, respectively), the actual irrigated coverage of these programs was greater than predicted (1,348 ha versus 700 ha).6 Second, the cropping intensity increment with the Project compared to without is close to that predicted (0.17 versus 0.20) but the absolute level of cropping intensity (both with and without) are higher than those expected.7 Third, actual yield increases for paddy were found to be about 0.5 t/ha, which is higher than the 0.2 t/ha expected. On the other hand, with- versus without-project diversified crop yields were expected at appraisal to be considerably higher than appears to be the reality.8

E. Impact on Farm Output and Household Income

11. A model was developed of a typical 1 ha farm and its production both with and without project. This farm has a cropping pattern and intensity representing the average of the command area of the Project. Incremental annual net financial farm revenue is SLRs8,159 per ha for gravity irrigation scheme farms (Table A17.5) and SLRs46,974 for dugwell and lift irrigation farms (Table A17.6).9 The full project area, at full development, has total incremental farm revenue of SLRs304.5 million per year. For the estimated 73,000 farm families10 covered by the Project this represents an average increase of SLRs4,047 ($46.87) per year. At appraisal, estimated incremental income per household was estimated to be $123. The

5 Available in the Economic supplementary appendix. 6 A sample of 100 dugwells and their coverage was provided by the Agricultural Development Authority. The sample

average was 1.15 ha per well. This is considerably higher than the 0.3 ha per well estimated at appraisal. Calculations here assume 1.0 ha per well.

7 This is due, in part, to a change from the appraisal assumption that half the area would be in the dry zone and half in the intermediate zone—while the Project ended up with only 10,209 ha in the dry zone but 19,347 in the intermediate and wet zones. Cropping intensity is naturally higher in the wet and intermediate zones than in the dry zone due to better water availability.

8 At appraisal, the yield increment was predicted to be 0.65 t/ha for chili, 5.9 t/ha for onion, and 0.48 t/ha for green gram. The present analysis uses increments of 0.3 t/ha for chili, 1 t/ha for onion, and 0.1 t/ha for green gram in the gravity irrigation systems which form the bulk of the Project area—though yield increments are more in the range of that at appraisal for the dugwell and lift irrigation schemes where “with” the Project implies a movement from rainfed to irrigated conditions.

9 Excluding family labor as all labor inputs have been counted as a cost of production. 10 Beneficiaries overall included 73,000 households from irrigation improvements, 1,200 from dugwells, 148 from lift

irrigation, and 3,200 from women’s mocroenterprises.

Appendix 17 57

underachievement of the Project in this regard is due to shortfalls in reaching the diversified cropping goals for higher valued crops. 12. Poverty information for the Project area relies on figures for Samurdhi (welfare) recipients in rural areas of the province. According to these figures, 55% of the population are poor. If this proportion is applied to the Project’s households and farmers below the poverty line have roughly 1 acre (0.4 ha) of land and receive the average increase per unit of land, then such farmers can be expected to have an incremental annual crop income of SLRs1,817 per year. 13. In physical terms, estimated incremental output includes 33,560 mt of rice paddy and a total of 9,550 mt of other crops (other crops being represented by chili, 2,524 mt; green gram, 1,364 mt; and big onion, 5,664 mt). This is an increase of roughly 0.6 mt of food per household per year. The rice paddy figure compares favorably with the appraisal estimate of 13,000 mt. This achievement relies heavily on the increase (over appraisal estimates) of project infrastructure accomplishments and to farmers getting a slightly better than expected incremental yield. 14. Using crop budget figures in the with- and without-project scenarios it is possible to calculate estimated increases in farm labor necessary to produce the incremental output. Roughly 5,180 person-years of incremental labor are needed in the with-project situation. Some of this labor comes from the farm households themselves while the rest is drawn from the more general labor market including local landless laborers.11

F. Economic Internal Rates of Return

15. Investment and maintenance costs (valued in economic terms) are combined with project benefits to form an economic cash flow of net benefits (Table A17.7). Crop production benefits are phased into the cash flow in proportion to the number of ha of irrigation schemes that were completed each year of project implementation. Likewise, road benefits are phased into the cash flow in proportion to the km of improved roads completed. For agricultural benefits it is assumed that it takes 5 years to reach full development of a particular scheme. The economic internal rate of return (EIRR) for the Project is 13.7% (the financial internal rate of return is 12.1%) and the economic net present value (ENPV) is $1,584,602. The EIRRs for the Project and for the individual components are as follows.12

Table A17.8: EIRR Estimates of the Project and its Components

Item Appraisal Estimate (%) PCR Estimate (%) Project 16.7 13.7 Gravity Irrigation 23.0 21.5 Dugwell and Lift Irrigation 40.0 42.5 Roads 13.3 12.0

EIRR = economic internal rate of return, PCR = Project Completion Report.

11 This 5,180 person-years per year figure represents wages of SLRs 310 million. For that part of the incremental

labor that is drawn from project farm households, these “wages” form part of hous ehold income (in addition to net crop revenue)—although the additional time commitment to on-farm work may partly have an opportunity cost of work and income off the farm.

12 The cash flows for the individual components include only the direct costs associated with those components. For the full Project, however, institutional development costs are also included.

58 Appendix 17

16. The full Project EIRR is somewhat smaller than the EIRR of 16.7% estimated at appraisal. For the Project as implemented, the rate of return is largely due to the level of incremental rice production. In the appraisal estimates, on the other hand, high-value diversified crop production dominated the returns. This highlights a missed opportunity in the Project as implemented. If the Project had been able to attain its crop diversification goals the Project returns would have been much higher.13 The nonrice crops in question would only partly come at the expense of (lower-valued) rice production as the water requirements of the usual diversified crops are much less than that of rice and much land is left fallow during the yala (dry) season in most of the Project’s schemes, particularly in the dry zone. At the individual farm level (assuming a 0.4 ha farm growing the average small amount of nonrice crops), a doubling of the area devoted to higher valued nonrice crops would increase the average gravity irrigation scheme farmer’s incremental income from the Project by 40%. G. Sensitivity Analysis

17. A number of sensitivity tests are presented in Table A17.9. They fall into two broad categories: one dealing with project sustainability and the other with the attainment of project benefits. 18. Project sustainability is a major concern. Many rural infrastructure projects suffer from poor quality construction and inadequate maintenance. Even though the Project’s implementation is only barely completed, the Project Completion Review Mission noticed the deteriorating condition of the roads that had been improved. Even the irrigation facilities are often inadequately maintained. A shortened project lifespan and/or an increase in future maintenance costs could result. A test was made of project lifespan by calculating the EIRR under assumptions of project life of 15, 10, and 5 years (rather than the base case of 25 years). A 15-year project life is associated with a barely adequate project EIRR of 12.0%. At 10 years the return drops to 9.4% and at 5 years to 3.6%. The switching value (beyond which the Project has an EIRR below 12%) is 17 years. In general, if the Project is to maintain adequate returns, sufficient maintenance must be applied to keep the infrastructure operating for most, if not all, of the planned duration. For roads as an individual component, any decrease at all from a 25-year life results in an EIRR of less than 12%. The gravity irrigation schemes can, on average, maintain at least a 12% EIRR for a project lifespan of 8 years or more. 19. Another possible result of poor maintenance in the early part of project life is that maintenance costs may have to be increased in the future in order to keep the infrastructure operating. Sensitivity tests indicate that the Project could absorb significantly higher maintenance costs than have been included in the analysis and still maintain at least a 12% economic return. 20. Regarding the attainment of project benefits, sensitivity tests were made regarding the price of rice, cropping intensity, a decrease in cropping diversity and a general decrease in benefits. Of these, the price of rice appears to be of most concern—an unsurprising result considering that rice is, at present, the primary incremental output of the Project. Its switching value is only a 7% price decrease, meaning that the Project would not be economically viable if there is only a small decline in the economic price of rice. This makes another argument for the importance of improving the performance of the crop diversification part of the Project. If the Project relied less heavily on one commodity, its economic returns would be more assured.

13 At full development only 9% of the yala season command area is estimated to be put into diversified crops. If this

were to be doubled, the ENPV of the full Project would more than triple to $5.0 million.

Appendix 17 59

Table A17.1: Derivation of Economic Prices for Rice Paddy

(constant 2001 currencies) Actual Projected

Item Unit 1995 2000 2001 2002 2005 2010

World Market Price FOBa Constant 1990 dollarsb $/mt 269.2 207.8 182.9 191.4 221.0 226.4 Constant 2001 dollarsb $/mt 250.2 193.2 170.0 177.9 205.4 210.4 Less Quality Adjustmentc 20% 50.0 38.6 34.0 35.6 41.1 42.1 Quality Adjusted FOB $/mt 200.2 154.5 136.0 142.3 164.3 168.4 International Freight $/mt 42.0 42.0 42.0 42.0 42.0 42.0 Colombo CIF Price $/mt 242.2 196.5 178.0 184.3 206.3 210.4 CIF price in SLRsd SLRs/t 20,912.0 16,969.5 15,370.7 15,916.5 17,817.1 18,163.8 Freight and handling from Colombo

SLRs/mt

(700.0)

(700.0)

(700.0) (700.0) (700.0) (700.0)

Processing Ratec SLRs/mt 0.68 0.68 0.68 0.68 0.68 0.68 Processing Cost SLRs/mt (360.0) (360.0) (360.0) (360.0) (360.0) (360.0) Freight to Farmgate SLRs/mt 700.0 700.0 700.0 700.0 700.0 700.0 Farmgate Price SLRs/mt 14,084.2 11,403.3 10,316.1 10,687.2 11,979.6 12,215.4

CIF = cost, insurance, freight; FOB = free on board. a Thai white, milled, 5% broken, FOB, Bangkok. b Constant 1990 prices are derived from World Bank Commodity Price Projections, 12 October 2001. c Assumptions regarding quality adjustment are similar to those at appraisal. d The March 2001 SLRe/$ exchange rate prevailing at project completion was 86.35 SLRs per dollar.

Table A17.2: Derivation of Economic Prices of Urea (constant 2001 currencies)

Actual Projected

Item Unit 1995 2000 2001 2002 2005 2010

World Market Price FOBa Constant 1990 dollarsb $/mt 177.4 115.1 113.3 113.8 131.6 126.3 Constant 2001 dollarsb $/mt 164.9 107.0 105.3 105.8 122.3 117.4 International Freight $/mt 60.0 60.0 60.0 60.0 60.0 60.0 Colombo CIF Price $/mt 224.9 167.0 165.3 165.8 182.3 177.4 CIF Price in SLRsc SLRs/mt 19,419.5 14,419.2 14,274.7 14,314.9 15,743.5 15,318.1 Transport and Handling to Local Market SLRs/mt 700.0 700.0 700.0 700.0 700.0 700.0 Transport and Handling to Farmgate SLRs/mt 600.0 600.0 600.0 600.0 600.0 600.0 Farmgate Price SLRs/mt 20,719.5 15,719.2 15,574.7 15,614.9 17,043.5 16,618.1

CIF = cost, insurance, freight; FOB = free on board. a Bagged, spot, FOB, western Europe. b Derived from World Bank Commodity Price Projections. c The March 2001 SLRe/$ exchange rate prevailing at project completion was 86.35 SLRs per dollar.

60 A

ppendix 17

Irrigated Areas (without Project)Quantity Price Total Quantity Price Total Quantity Price Total Quantity Price Total

Seeds (kg) 120.0 17.0 2,040.0 2.3 1,120.0 2,520.0 7.4 582.0 4,306.8 20.0 62.0 1,240.0 Urea (kg) 125.0 9.0 1,125.0 620.0 9.0 5,580.0 320.0 9.0 2,880.0 50.0 9.0 450.0 Other fertilizer (kg) 160.0 15.0 2,400.0 520.0 15.0 7,800.0 1,000.0 15.0 15,000.0 - 15.0 - Pest/Weed (SLRs) 1.0 3,000.0 3,000.0 1.0 26,000.0 26,000.0 1.0 20,500.0 20,500.0 1.0 2,000.0 2,000.0 Labor (person-day) 105.0 200.0 21,000.0 500.0 200.0 100,000.0 400.0 200.0 80,000.0 70.0 200.0 14,000.0 Tractor (SLRs) 1.0 5,440.0 5,440.0 1.0 5,300.0 5,300.0 1.0 6,900.0 6,900.0 1.0 5,400.0 5,400.0 Other costs (SLRs) 1.0 4,250.0 4,250.0 1.0 500.0 500.0 1.0 1,525.0 1,525.0 1.0 - - Total Cost 39,255.0 147,700.0 131,111.8 23,090.0

Rainfed Areas (without Project)Seeds (kg) 104.0 17.0 1,768.0 3.6 1,120.0 4,032.0 8.0 582.0 4,656.0 24.0 62.0 1,488.0 Urea (kg) 67.0 9.0 603.0 390.0 9.0 3,510.0 160.0 9.0 1,440.0 - 9.0 - Other fertilizer (kg) 100.0 15.0 1,500.0 265.0 15.0 3,975.0 500.0 15.0 7,500.0 - 15.0 - Pesticide (NRs) 1.0 1,800.0 1,800.0 1.0 6,900.0 6,900.0 1.0 - - 1.0 1,300.0 1,300.0 Labor (person-day) 95.0 200.0 19,000.0 270.0 200.0 54,000.0 300.0 200.0 60,000.0 62.0 200.0 12,400.0 Tractor 1.0 4,000.0 4,000.0 - - - - - - 1.0 5,400.0 Other costs 1.0 2,400.0 2,400.0 1.0 175.0 175.0 1.0 1,000.0 1,000.0 1.0 - Total Cost 31,071.0 72,592.0 74,596.0 15,188.0

Irrigated Areas (With Project)Quantity Price Total Quantity Price Total Quantity Price Total Quantity Price Total

Seeds (kg) 120.0 17.0 2,040.0 2.3 1,120.0 2,520.0 7.4 582.0 4,306.8 20.0 62.0 1,240.0 Urea (kg) 150.0 9.0 1,350.0 650.0 9.0 5,850.0 320.0 9.0 2,880.0 60.0 9.0 540.0 Other fertilizer (kg) 180.0 15.0 2,700.0 530.0 15.0 7,950.0 1,100.0 15.0 16,500.0 15.0 - Pest/Weed (SLRs) 1.0 3,200.0 3,200.0 1.0 28,000.0 28,000.0 1.0 24,000.0 24,000.0 1.0 2,000.0 2,000.0 Labor (person-day) 110.0 200.0 22,000.0 520.0 200.0 104,000.0 420.0 200.0 84,000.0 72.0 200.0 14,400.0 Tractor (SLRs) 1.0 5,440.0 5,440.0 1.0 5,300.0 5,300.0 1.0 6,900.0 6,900.0 1.0 5,400.0 5,400.0 Other costs (SLRs) 1.0 4,750.0 4,750.0 1.0 500.0 500.0 1.0 1,525.0 1,525.0 1.0 - - Total Cost 41,480.0 154,120.0 140,111.8 23,580.0 Pump cost (lift & dugwell) 1.0 18,000.0 18,000.0 1.0 18,000.0 18,000.0 1.0 8,000.0 8,000.0 Total for lift & dugwell 172,120.0 158,111.8 31,580.0 Sources: Project Completion Review Mission; Final Impact Evaluation, TEAMS Consultants in Development, August 2000; Cost of Cultivation of Agricultural Crops, Department of Agriculture Sri Lanka, 2001.

With ProjectRice Paddy Chilli Big Onion Green Gram

(physical inputs and production costs, constant 2001 SLRs)

Without ProjectRice Paddy Chilli Big Onion Green Gram

Appendix 17

61

Crop Gross Prod. Net Gross Prod. Net Gross Prod. NetYield Price Revenue Cost Revenue Yield Price Revenue Cost Revenue Yield Price Revenue Cost Revenue

Rice 3.4 11.3 38,250.0 39,255.0 (1,005.0) 2.4 11.3 27,000.0 31,071.0 (4,071.0) 3.9 11.3 43,875.0 41,480.0 2,395.0 Rice byproducts 2.7 1.0 2,720.0 2,720.0 1.9 1.0 1,920.0 1,920.0 3.1 1.0 3,120.0 3,120.0 Chili (gravity) 1.4 120.0 168,000.0 147,700.0 20,300.0 0.7 120.0 84,000.0 72,592.0 11,408.0 1.5 120.0 180,000.0 154,120.0 25,880.0 (lift & well) 1.7 120.0 204,000.0 172,120.0 31,880.0 Green Gram (grav.) 0.8 51.0 40,800.0 23,090.0 17,710.0 0.4 51.0 20,400.0 15,188.0 5,212.0 0.9 51.0 45,900.0 23,580.0 22,320.0 (lift & well) 1.2 51.0 61,200.0 31,580.0 29,620.0 Big Onion (gravity) 10.0 15.0 150,000.0 131,111.8 18,888.2 5.0 15.0 75,000.0 74,596.0 404.0 11.0 15.0 165,000.0 140,111.8 24,888.2 (lift & well) 12.5 15.0 187,500.0 158,111.8 29,388.2

Crop Gross Prod. Net Gross Prod. Net Gross Prod. NetYield Price Revenue Cost Revenue Yield Price Revenue Cost Revenue Yield Price Revenue Cost Revenue

Rice 3.4 12.0 40,730.7 35,874.4 4,856.3 2.4 12.0 28,751.1 27,617.5 1,133.6 3.9 12.0 46,720.5 38,191.4 8,529.1 Rice byproducts 2.7 0.9 2,448.0 2,448.0 1.9 0.9 1,728.0 1,728.0 3.1 0.9 2,808.0 2,808.0 Chili (gravity) 1.4 108.0 151,200.0 133,437.6 17,762.4 0.7 108.0 75,600.0 65,949.8 9,650.2 1.5 108.0 162,000.0 139,179.4 22,820.6 (lift & well) - - 1.7 108.0 183,600.0 155,379.4 28,220.6 Green Gram (grav.) 0.8 45.9 36,720.0 19,828.2 16,891.8 0.4 45.9 18,360.0 17,289.2 1,070.8 0.9 45.9 41,310.0 20,318.6 20,991.4 (lift & well) - - 1.2 45.9 55,080.0 27,518.6 27,561.4 Big Onion (gravity) 10.0 13.5 135,000.0 122,406.1 12,593.9 6.0 13.5 81,000.0 67,339.1 13,660.9 11.0 13.5 148,500.0 131,060.4 17,439.6 (lift & well) - - 12.5 13.5 168,750.0 147,260.4 21,489.6

Sources: Project Completion Review Mission; Final Impact Evaluation, TEAMS Consultants in Development, August 2000; Cost of Cultivation of Agricultural Crops, Department of Agriculture Sri Lanka, 2001.

Table A17.4: Crop Revenue per Hectare(constant 2001 SLRs)

Financial Crop Revenue

Rainfed Without Project

Irrigated Without Project Irrigated With Project

Economic Crop Revenue

Rainfed Without Project

Irrigated Without Project Irrigated With Project

62 Appendix 17

Table A17.5: Financial Revenue on a 1 Hectare Gravity Scheme Farm (constant 2001 SLRs)

Amount per 1 ha Farm

Without Project With Project Increment

ha Net Rev. Net ha Net Rev. Net ha Net

per ha Revenue per ha Revenue Revenue Intermediate and Wet Zones

A. Area 0.92 1.00 0.08

Rice (maha irrigated) 0.92 1,715.0 1,573.4 1.00 5,515.0 5,515.0 0.08 3,941.6

Rice (maha rainfed) 0.03 (2,151.0) (64.5) - - - (0.03) 64.5

Rice (yala irrigated) 0.53 1,715.0 902.6 0.60 5,515.0 3,309.0 0.07 2,406.4

Chili (irrigated) 0.02 20,300.0 406.0 0.05 25,880.0 1,294.0 0.03 888.0

Green Gram (irrigated) 0.02 17,710.0 354.2 0.05 22,320.0 1,116.0 0.03 761.8

Big Onion (irrigated) 0.02 18,888.2 377.8 0.03 24,888.2 746.6 0.01 368.9

Chili (rainfed) 0.01 11,408.0 114.1 - - - (0.01) (114.1)

Green Gram (rainfed) 0.01 5,212.0 52.1 - 0.00 - (0.01) (52.1)

Big Onion (rainfed) 0.01 404.0 4.0 - 0.00 - (0.01) (4.0)

Total 1.56 3,719.7 1.73 11,980.6 0.17 8,260.9

Dry Zones

B. Area 0.74 0.80 0.06

Rice (maha irrigated) 0.74 1,715.0 1,270.4 0.80 5,515.0 4,412.0 0.06 3,141.6

Rice (maha rainfed) - (2,151.0) - - - - - -

Rice (yala irrigated) 0.49 1,715.0 832.5 0.50 5,515.0 2,757.5 0.01 1,925.0

Chili (irrigated) 0.01 20,300.0 203.0 0.06 25,880.0 1,552.8 0.05 1,349.8

Green Gram (irrigated) 0.01 17,710.0 177.1 0.06 22,320.0 1,339.2 0.05 1,162.1

Big Onion (irrigated) 0.01 18,888.2 188.9 0.03 24,888.2 746.6 0.02 557.8

Chili (rainfed) 0.01 11,408.0 114.1 - - - (0.01) (114.1)

Green Gram (rainfed) 0.01 5,212.0 52.1 - 0.00 - (0.01) (52.1)

Big Onion (rainfed) 0.01 404.0 4.0 - 0.00 - (0.01) (4.0)

Total 1.29 2,842.1 1.45 10,808.1 7,966.0

Total Project

B. Area 0.86 0.93 0.07

Rice (maha irrigated) 0.86 1,715.0 1,468.7 0.93 5,515.0 5,134.0 0.07 3,665.3

Rice (maha rainfed) 0.02 (2,151.0) (42.2) - - - (0.02) 42.2

Rice (yala irrigated) 0.51 1,715.0 878.4 0.57 5,515.0 3,118.5 0.05 2,240.1

Chili (irrigated) 0.02 20,300.0 335.9 0.05 25,880.0 1,383.4 0.04 1,047.5

Green Gram (irrigated) 0.02 17,710.0 293.0 0.05 22,320.0 1,193.1 0.04 900.1

Big Onion (irrigated) 0.02 18,888.2 312.5 0.03 24,888.2 746.6 0.01 434.1

Chili (rainfed) 0.01 11,408.0 114.1 - - - (0.01) (114.1)

Green Gram (rainfed) 0.01 5,212.0 52.1 - 0.00 - (0.01) (52.1)

Big Onion (rainfed) 0.01 404.0 4.0 - 0.00 - (0.01) (4.0)

Total 1.47 3,416.6 1.63 11,575.7 0.17 8,159.1

Appendix 17 63

Table A17.6: Revenue and Cropping Patterns with and without Dugwells and Lift Irrigation

Without With Increment Without With IncrementProject Project Project Project

Cropping PatternA. Area 868 868 - 1.00 1.00 - Rice (Maha irrigated) - - - - - - Rice (Maha rainfed) 347 - (347.2) 0.40 - (0.40) Rice (Yala irrigated) - - - - - - Chili (irrigated) - 651 651.0 - 0.75 0.75 Green Gram (irrigated) - 434 434.0 - 0.50 0.50 Big Onion (irrigated) - 286 286.4 - 0.33 0.33 Chili (rainfed) 87 - (86.8) 0.10 - (0.10) Green Gram (rainfed) 174 - (173.6) 0.20 - (0.20) Big Onion (rainfed) 260 - (260.4) 0.30 - (0.30) Total 868 1,371 503 1.00 1.58 0.58

net revenue Net net revenue Net Netha per ha Revenue ha per ha Revenue ha Revenue

B. Area 1.0 1.00 Rice (Maha irrigated) - - - - - - Rice (Maha rainfed) 0.4 (2,151.0) (860.4) - - (0.40) 860 Rice (Yala irrigated) - - - - - - Chili (irrigated) - - 0.75 31,880.00 23,910 0.75 23,910 Green Gram (irrigated) - - 0.50 29,620.00 14,810 0.50 14,810 Big Onion (irrigated) - - 0.33 29,388.20 9,698 0.33 9,698 Chili (rainfed) 0.1 11,408.0 1,140.8 - - (0.10) (1,141) Green Gram (rainfed) 0.2 5,212.0 1,042.4 - - (0.20) (1,042) Big Onion (rainfed) 0.3 404.0 121.2 - - (0.30) (121) Total 1.0 1,444.0 1.58 48,418.1 0.58 46,974

net revenue Net net revenue Net Netha per ha Revenue ha per ha Revenue ha Revenue

B. Area 1.00 1.00 Rice (Maha irrigated) - - - - - - Rice (Maha rainfed) 0.40 2,862 1,144.6 - - - (0.40) (1,145) Rice (Yala irrigated) - - - - - - - Chili (irrigated) - - 0.75 28,221 21,165 0.75 21,165 Green Gram (irrigated) - - 0.50 27,561 13,781 0.50 13,781 Big Onion (irrigated) - - 0.33 21,490 7,092 0.33 7,092 Chili (rainfed) 0.10 9,650 965.0 - - - (0.10) (965) Green Gram (rainfed) 0.20 1,071 214.2 - - - (0.20) (214) Big Onion (rainfed) 0.30 13,661 4,098.3 - - - (0.30) (4,098) Total 1.00 6,422 1.58 42,038 0.58 35,616

Cropping Intensity 100% 158%

Cropping PatternTotal Project Area Amount per 1 ha Farm

Financial Revenue One ha FarmIncrement

IncrementEconomic Revenue One ha Farm

Without Project With Project

Without Project With Project

64 A

ppendix 17

YearInst. Total

Construc- O&M Incre- Economic Construc- O&M Incre- Economic Construc- O&MBenefitsIncre- Financial Devt. Economiction mental Cash tion mental Cash tion mental Cash and other CashCost Benefits Flow Cost Benefits Flow Cost Benefits Flow Costsa Flow

1992 1,998 - (1,998) - - - 677 - (677) 85,670 (88,345) 1993 41,500 - (41,500) - - - 8,573 - (8,573) 1,369,475 (1,419,548) 1994 422,100 581 2,862 (419,819) 40,537 - (40,537) 97,964 331 424 (97,871) 629,523 (1,187,750) 1995 937,980 6,218 33,497 (910,701) 126,556 1,288 6,681 (121,162) 327,907 3,841 5,694 (326,054) 815,576 (2,173,493) 1996 1,638,699 18,746 125,849 (1,531,596) 126,277 5,308 34,222 (97,363) 469,821 15,587 27,182 (458,227) 1,036,454 (3,123,639) 1997 2,032,919 40,631 326,023 (1,747,528) 83,754 9,319 82,576 (10,497) 460,906 33,251 71,909 (422,249) 675,663 (2,855,936) 1998 2,098,195 67,782 659,958 (1,506,019) 112,296 11,979 144,734 20,459 833,319 58,451 139,432 (752,337) 1,754,953 (3,992,849) 1999 1,584,916 95,805 1,129,086 (551,634) 75,598 15,546 225,402 134,257 732,420 111,534 247,750 (596,204) 143,858 (1,157,439) 2000 647,000 116,972 1,674,725 910,754 109,638 17,948 311,848 184,262 233,233 160,748 387,448 (6,533) 103,329 985,154 2001 125,613 2,201,218 2,075,605 17,948 395,506 377,558 192,689 522,464 329,774 2,782,938 2002 125,613 2,619,889 2,494,276 17,948 458,350 440,402 252,154 634,241 382,087 3,316,766 2003 125,613 2,904,799 2,779,186 17,948 507,390 489,442 263,782 723,222 459,440 3,728,069 2004 125,613 3,051,654 2,926,041 17,948 537,921 519,973 267,310 770,985 503,675 3,949,689 2005 125,613 3,094,224 2,968,611 17,948 555,992 538,044 235,122 782,521 547,398 4,054,054 2006 125,613 3,094,224 2,968,611 17,948 555,992 538,044 237,915 782,521 544,606 4,051,262 2007 125,613 3,094,224 2,968,611 17,948 555,992 538,044 250,120 782,521 532,401 4,039,057 2008 125,613 3,094,224 2,968,611 17,948 555,992 538,044 229,971 782,521 552,550 4,059,206 2009 125,613 3,094,224 2,968,611 17,948 555,992 538,044 206,351 782,521 576,169 4,082,825 2010 125,613 3,094,224 2,968,611 16,660 522,585 505,925 289,493 782,521 493,027 3,967,564 2011 125,613 3,094,224 2,968,611 12,640 418,289 405,649 292,553 782,521 489,968 3,864,229 2012 125,613 3,094,224 2,968,611 8,629 314,222 305,594 215,731 782,521 566,790 3,840,995 2013 125,613 3,094,224 2,968,611 5,968 245,200 239,232 192,689 782,521 589,831 3,797,674 2014 125,613 3,094,224 2,968,611 2,401 152,655 150,254 252,154 782,521 530,366 3,649,232 2015 125,613 3,094,224 2,968,611 - 90,354 90,354 263,782 782,521 518,739 3,577,704 2016 125,613 3,094,224 2,968,611 267,310 782,521 515,211 3,483,823 2017 125,613 3,094,224 2,968,611 235,122 782,521 547,398 3,516,010 2018 125,613 3,094,224 2,968,611 237,915 782,521 544,606 3,513,217 2019 125,032 3,079,914 2,954,882 249,788 780,400 530,612 3,485,494 2020 119,395 2,941,048 2,821,654 226,130 756,173 530,043 3,351,697 2021 106,867 2,632,465 2,525,598 190,764 675,079 484,315 3,009,913 2022 84,982 2,093,354 2,008,373 256,242 558,888 302,645 2,311,018 2023 57,831 1,424,550 1,366,719 234,102 444,902 210,800 1,577,519 2024 29,808 734,271 704,463 104,197 238,814 134,617 839,080 2025 8,641 212,854 204,213 31,942 57,681 25,739 229,952

Economic Internal Rate of Return 21.5% 42.5% 12.0% 13.7%Economic Net Present Value $4,466,890 $1,066,848 $5,125 $1,584,602

Total ProjectGravity Irrigation Dugwell and Lift Irrigation Roads

Table A17.7: Economic Cash Flow (2001 dollars)

Appendix 17

65

EIRR Switching Sensi- EIRR Switching Sensi- EIRR Switching Sensi- EIRR Switching Sensi-% Value

btivity

c% Value

btivity

c% Value

btivity

c% Value

btivity

c

PCR Base Case 21.5 42.5 12.0 13.7Estimates at Appraisal a

25 30.0 13.3 16.7Risk Factors:

Gravity Benefits decrease 20% 17.7 0.54 0.88 - - 11.6 0.85 70.60Dugwell & Lift Benefits decrease 20% - 35.6 0.28 0.81 - 13.4 0 68.80Roads Benefits decrease 20% - - 8.1 1 1.63 13.2 0.33 69.00All Benefits decrease 20% - - 10.7 0.88 1.09

0Rice Price decreases 20% - 0.79 2.07 45.5 - - 9.0 0.93 1.72

Crop Intensity of Gravity Systems 20.8 - 61.40 - - 13.3 0.30 68.90 decreases 20%Crop Intensity of Dugwell and Lift - 39.6 - 0.34 - 13.5 - 68.70 decreases 20%All Crop Intensity decreases 20% - - - 13.1 0.4 69.10

Diversified Crop Benefit of Gravity 20.7 - 0.19 - - 13.2 0.30 69.00 Schemes decreases 20%Diversified Crop Benefit of Well and Lift - 39.5 - 0.35 - 13.5 - 68.70 Schemes decreases 20%All Diversified Crop Benefits decrease 20% - - - 13.1 0.45 69.10

Gravity Scheme O&M Cost increases 20% 21.3 10 0.05 - - 13.6 4 68.60Dugwell & Lift O&M increases 20% - 42.0 - 0.06 - 13.6 25 68.60Roads O&M Cost increases 20% - - 10.8 1 0.50 13.5 3 68.70All O&M Cost increases 20% - - - 13.4 2.15 0.11

Life of Project Gravity Improvements last only 15 years 20.2 - - 12.0 Gravity Improvements last only 10 years 16.5 8 - - 9.4 Gravity Improvements last only 5 years 0.0 - - 3.6

- Well&Lift Systems last only 10 years - 40.9 - 13.4 Well&Lift Systems last only 5 years - 26.3 - - 12.7

Road Improvements last only 15 years - - 8.7 25 13.4 Road Improvements last only 10 years - - 1.5 13.0 Road Improvements last only 5 years - - negative 12.4

All Project Elements last only 15 years 20.2 42.5 8.7 11.6 17 All Project Elements last only 10 years 16.5 40.9 1.5 6.9 All Project Elements last only 5 years 3.4 26.3 negative negative- = not available, EIRR = economic internal rate of return, O&M = operation and maintenance, PCR = project completion peport.a At appraisal the estimates for gravity schemes, wells and lift irrigation were separated into 24 categories. What appears here have been averaged into gravity system and well/lift irrigation estimates of

the appraisal figures.

c Sensitivity is the % change in the EIRR relative to the % change in the risk factor. Sensitivity is a measure of the volatility of the risk factor's effect.

b Switching values are the risk levels (as a multiple of the Base Case) at which the EIRR is just 12%. For life of project this figure is the minimum number of years of Project life for a 12% EIRR.

Values displayed are for the full Project only plus.

FullProject

RoadProgram

Well and LiftIrrigation

GravityIrrigation

Table A17.9: Economic Sensitivity Analysis