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INITIAL PROGRAM INFORMATION DOCUMENT (PID)
Report No.: AB2757
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Date PID Prepared
Estimated Date of
Appraisal Authorization
Estimated Date of Board
Approval
Second Punjab Irrigation Sector Development Policy Loan
South Asia
Irrigation and drainage (100%);
P102333
Government of Pakistan
Government of Punjab
December 7, 2006
March 26, 2007
May 31, 2007
1. Key development issues and rationale for Bank involvement
1.
Pakistan's economy showed strong resilience in the face of devastation caused by the October 2005
earthquake and a sharp increase in international oil prices. Economic growth slowed down somewhat, but at
6.6%, the GDP growth was among the strongest in the region and only marginally slower than the target of 7%
set for the year. While on the production side, the capacity constraints have started to become increasingly
binding, continued strong domestic demand, which remained buoyant despite some tightening of monetary
policy, was the main factor behind the strong growth performance by the economy. As aggregate demand
exceeded domestic supply of goods and services, domestic prices and balance of payments remained under
severe pressure. While the exports increased by 14% in 2005/06, imports grew by almost twice that rate. As a
result, the current account deficit rose to US$ 5.7 billion (4.4% of GDP), compared with US$ 1.8 billion (1.7%
of GDP) in 2004/05. Although the foreign exchange reserves continue to remain at a comfortable level of over
US$ 10 billion, they now support only 3.2 months of country’s imports. The Government has already started
tightening the money supply and is committed to take additional measures to stabilize the price and external
trade situation. The prospects for continued strong economic growth, therefore, remain strong.
2.
Strong economic growth during the last three years has led to higher household incomes and lower
poverty. Incomes have increased steadily over the past few years. Per capita income in 2005/2006 rose to $847,
up from $742 a year earlier. World Bank estimates of poverty based on the 2004/2005 Pakistan Social and
Living Standards Measurement Survey (PSLM) reveal that, between 2001 and 2005 poverty incidence declined
by 5 or 10 percentage points. All segments of the population, in both urban and rural areas, have gained from
income growth. This reduction in poverty could be attributed not only to economic growth, but also to the
Government’s commitment for an accelerated reduction in poverty. The Government is currently in the final
stages of updating its poverty reduction strategy, and it commitment towards poverty reduction is underscored
by the sharp increase in pro-poor expenditures. The PRSP expenditures have increased at an annual rate of over
23% p.a. and are now tentatively estimated at 5.5% of GDP compared to 3.7% of GDP in 2000/01.
3.
The crucial importance of irrigation. With an average annual rainfall of less than 240 mm, Pakistan is
one of the world’s most arid countries. The population and the economy are heavily dependent on the Indus
river system. Starting from the 19th century, weir controlled irrigation was developed and gradually the Indus
irrigation system became the largest contiguous irrigation system in the world. Today, irrigation is a critical
factor for Pakistan’s economy. About 80 percent of the arable land and 90 percent of agricultural output are
entirely dependent on irrigation, making this a critical sector for rural development and poverty alleviation.
However, Pakistan faces major water related issues that have serious social, economic and environmental
implications: growing demand and declining water availability per capita; competition and mistrust among the
riparian; deteriorating infrastructure --as a result of inadequate operation and maintenance and lack of modern
asset management plans; over-exploitation and deteriorating quality of groundwater resources spurred by
drought, and inequitable canal water deliveries; increasing risk of flooding, particularly in the lower Indus
basin, due to rising river beds; sea intrusion and environmental degradation of the Indus delta and coastal areas
resulting from inadequate environmental flows; poor governance and irrigation service delivery, in part due to
lack of user participation; and low water use efficiency and agricultural productivity. As a consequence, the full
potential of irrigation as the major contributor to agriculture growth and employment is not being achieved.
4.
The federal government has taken several important actions during the last two years to address water
sector challenges that fall within the federal domain, including support to the provinces for water conservation;
developing additional water storage capacity; determination of environmental flow requirements of the Indus
delta; and preparation of a draft National Water Policy that supports institutional reform and capacity building
at the federal level, including establishment of an apex body to steer water reform and building the capacity of
the Indus River System Authority (IRSA), which is responsible for the administration of the Inter-Provincial
Water Apportionment Accord of 1991.
5.
Punjab is a microcosm of Pakistan. Surface and groundwater resources constitute the lifeline of
Punjab’s agro-based economy. Agriculture is the major contributor to Punjab’s economy, accounting for 28
percent of its output and employment to over 40 percent of its work force. Over 90 percent of Punjab’s
agricultural output comes from 25 million acres of irrigated land. Irrigation has the same importance and the
sector faces the same institutional and policy issues, as the rest of Pakistan.
6.
To address the issues in irrigation, in the year 2004, Punjab prepared a medium term irrigation sector
reform program (ISRP), after extensive consultations with various stakeholders within and outside the
government, with the full backing of the political leadership. Continuing consultation with water users/farmers
is an integral part of the reform process. The ISRP supports, within the irrigation sector, the broader provincial
strategy articulated in the Punjab Poverty Reduction Strategy Paper (P-PRSP)1, which emphasizes improving
governance by enhancing the accountability of state institutions; improv ing service delivery systems;
accelerating growth and generating employment through enhanced focus on productive sectors; and
enhancing the effectiveness of public expenditures through budgetary and institutional reforms. The ISRP is
built on four pillars:
Pillar I: Institutional and Policy Reforms to improve the management and maintenance of the irrigation
system to ensure its long term physical and financial sustainability.
Pillar II: Water Resources Management Reforms to make intra-province water allocation and
distribution more transparent.
Pillar III: Irrigation Service Delivery Reforms to improve the quality, efficiency and accountability with
which irrigation services are delivered.
Pillar IV: Reforms to improve water use efficiency and on-farm productivity.
Rationale for Bank involvement
7.
Link to Country Assistance Strategy. Based on the past experience, both GOPunjab and the Bank agreed
that new approaches and instruments were needed to meet the diverse set of challenges facing the water sector.
The Development Policy Loan (DPL) instrument was considered a more suitable instrument for supporting the
newly formulated reform agenda, given that a programmatic approach provides the flexibility to support
reforms while managing risk; permits greater attention to capacity building; and focuses on results. In line with
1
The Punjab government has recently initiated the process of updating the P-PRSP. The ISRP would be an integral part
of the updated P-PRSP.
the Country Assistance Strategy, the first irrigation sector development policy loan (DPL1 of US$100 million
equivalent), in a programmatic series of three loans, was approved by the Bank on June 1, 2006, to support the
first year of the ISRP.
8.
Outcomes of DPL1: Spurred by high level ownership by farmers and government, the first year of
ISRP, supported by DPL1, has yielded very positive outcomes under each reform pillar. For example:
a. A good beginning has been made in moving away from the policies that had resulted in gradual
deterioration of the hydraulic infrastructure in the past. The issue of chronic budgetary gap for
routine and preventive maintenance was resolved by rationalizing budgetary “yardsticks” by
linking them with market prices; the maintenance budget was nearly doubled and a substantial
reduction in the backlog of deferred maintenance was achieved; a system of performance
evaluation/audit was developed to ensure transparent and judicious spending of the enhanced
budget resources, and a system of fortnightly meetings of the Departmental Accounts
Committee (DAC) was institutionalized to resolve advance audit observations; and to improve
the efficiency of collection of abiana (water charges), the responsibility of O&M of distributary
canals was handed over to FOs in one canal system (LCC East), with good results.
b. Intra-province water entitlements have been made more Transparent. The Irrigation and Power
Department (IPD) has established a robust Irrigation Management Information System (IMIS)
under which the water diverted in each of the 24 main canals and all distributary canals of the
LCC East Canal system, is metered and the data captured on daily basis. The IPD website
displays the entitlements and the actual flows diverted in all main canals.
c. The quality, efficiency and accountability of irrigation services have improved in the areas
served by canals where reforms have been implemented. In the LCC East Canal system the
responsibility for operation and maintenance (O&M) and abiana collection has been devolved
to democratically elected farmer organizations (FOs) under irrigation management transfer
agreements (IMTAs), which specify the rights and obligations of the bulk water providers and
water users. Benchmarking and monitoring data show that in this canal system the equity of
water distribution has improved; abiana collection is higher than in non-FO canals; the overall
maintenance regime has improved; and water related disputes among users have reduced and
are resolved more expeditiously and in a participatory manner.
d. Investments in water conservation technologies are proceeding on, or ahead of, targets, with
visible improvement in water use efficiency (20%-30% increase) and productivity. A structured
program to promote use of laser guided land leveling equipment is being successfully
implemented with good uptake of this technology by farmers and service providers. A draft
amendment to the Punjab Agricultural Produce Ordinance has been prepared and submitted
for approval. The amendment supports the role of private sector, and public-private
partnerships and the establishment of market information systems at the district level. Finally,
proposals were prepared for restructuring of agricultural research that would promote private
sector participation and set up autonomous corporate bodies to carry out demand driven
research.
e. Demonstration of Reform Success. Punjab is now recognized all over Pakistan as the leader in
Irrigation Reform, and other provinces are aspiring to follow suit.
2. Proposed Objective
9.
The purpose of the proposed loan is to provide continued financing to the Province of Punjab, to move
forward with implementation of the ISRP agenda under each reform pillar, focusing, inter alia, on (i)
sustainability of the hydraulic infrastructure by sustaining adequate funding for M&R and reducing costs and
further improving financial accountability; (ii) expanding the coverage and improving the quality of the IMIS to
further enhance transparency in the administration of water entitlements; (iii) improving service delivery by
scaling up irrigation management transfers to FOs, benchmarking of performance, improving communications
with stakeholders, and mainstreaming environmental and social safeguards in O&M activities; and (iv)
enhancing productivity through policy reform and incentives for adopting new technology, improving markets,
and restructuring research. Specific prior actions have been identified under each reform pillar.
3. Preliminary description
A. Pillar I: Reforms to improve the management and maintenance of the irrigation system to ensure its long
term physical and financial sustainability
10.
During the second year of the ISRP, the IPD is moving ahead with the following reforms actions, inter
alia: (i) preparation of a 5-10 year Asset Management Plan that would set priorities for medium/long term
rehabilitation and maintenance of the existing infrastructure; (ii) revision of maintenance and repair (M&R)
yardsticks to reflect FY07 market prices, and allocation of budget, accordingly; (iii) establishment of a
performance evaluation system for M&R, and a Procurement Unit in IPD; (v) a 20% reduction of advance audit
observations in FY07; (iv) transition/transfer of public tubewells to farmers, and (vi) improvement of abiana
collection performance.
B. Pillar II: Water Resource Management Reform
11.
The objective of this reform is to emphasize the nexus of entitlements, measurements and transparency
and build on Punjab’s existing platform of water entitlements2, to make intra-province water allocations and
distribution more transparent. These reforms would enhance farmer confidence, reduce uncertainty of water
deliveries and help increase productivity.
12.
During the second year of the ISRP, the following actions, inter alia, are being taken to deepen and
broaden the reform under this pillar: (i) water accounts for all main canals continue to be posted on IPD
website; (ii) installation and calibration of gauges is being completed for the LCC East Canal system, and
distributary canal discharge data posted on IPD website; (iii) warabandi schedules (proxy for water entitlements
at the farm level) are being published by FOs on their respective notice boards; and (iv) work has started on the
preparation of a holistic groundwater management strategy covering all sub-sectors (agriculture, urban and
rural drinking water, industry, environment).
C. Pillar III: Irrigation Service Delivery Reforms
13.
The objective under this pillar is to improve the quality, efficiency and accountability with which
irrigation services are delivered. This objective is being achieved through a combination of organizational
2
Pakistan has a long- and well-established tradition of water entitlements. The 1991 Inter-provincial Water Accord
establishes clear entitlements for each province. Implicit in the Water Accord, too, is a set of water entitlements at the
canal command level. There are also well-established rules for further distributing water to the distributary and outlet
levels. Below the outlets, the warabandi is a proxy (appropriate in its era) to a water right, in which a farmer has a
right to time, a surrogate for water. However, the administration of intra-province water entitlements needs to be
made more transparent and implemented in a participatory manner.
changes and introduction of incentives and instruments. This entails, among others, decentralization of
operation and management of the system; the use of contracts which specify the rights and obligations of
service providers and users; and benchmarking for water services.
14.
During the second year of the ISRP, the reforms initiated in the first year are being moved to the next
stage, involving scaling up and further deepening as well as supplementary measures. Key actions being taken
include: (i) establishment of 100 additional FOs and signing of IMTAs with them; (ii) continuation of FO
capacity building program; (iii) staffing and capacity building of IPD’s Social and Environmental Unit (SEMU)
that is responsible for increasing awareness within IPD, AWB, and FOs, for assessing and mitigating social and
environmental risks associated with asset management activities3; (iv) preparation of a communication strategy4
(internal and external communication); (v) arrangements for both internal and external monitoring (including
third party validation); (vi) rehabilitation of FO managed channels under ongoing projects; and (vii) staffing of
IPD Reform Unit.
D. Pillar IV: Reforms to improve water use efficiency and on-farm productivity
15.
The objective of this reform is to improve water use efficiency and productivity through policy reform
and incentives and for adopting new technology, improving markets, and the quality of agricultural research.
16.
During the second year of the ISRP, the following key actions are being taken: (i) continuation of the
water conservation measures on a larger scale; (ii) analytical work that could provide the basis for models of
economic incentives for farmers to move away from crops and practices that waste water; (iii) processing of an
amendment to the Agricultural Produce Marketing Ordinance of 1978, which among others will open up entry
of farmers and private sector in the management of agriculture market places; help to formulate and implement
internal and export market strategies; and facilitate linkages and partnerships between farmers and cooperatives,
and (iv) restructuring the agricultural research sector. The package includes reactivation of the Punjab
Agriculture Research Board (PARB), and creation of corporate bodies for dealing with important crops, with
the ability to attract qualified scientists and with adequate administrative and managerial flexibility.
4. Environmental Aspects
17.
The Strategic Country Environmental Assessment (SCEA), completed in June 2006, determined that
Pakistan has a comprehensive national policy and institutional framework for environmental management in
place. The Pakistan Environmental Protection Act of 1997 confers broad-based enforcement powers to the
Pakistan Environmental Protection Agency (Pak-EPA) and the provincial environmental protection agencies.
The Pak-EPA Review of Initial Environmental Examination and Environmental Impact Assessment
Regulations, 2000 (IEE-EIA Regulations, 2000) provides the necessary details on the preparation, submission,
and review of initial environmental examinations and environmental impact assessments. The National
Environmental Quality Standards (NEQS) define maximum allowable concentrations of pollutants in municipal
and liquid industrial effluents discharged to inland waters. The Pak-EPA has published a set of environmental
guidelines for carrying out environmental assessments and the environmental management of different types of
development projects, including those in the protected and sensitive areas.
18.
The SCEA highlights the ubiquitous shortage of trained manpower and insufficient budgetary
allocations, a lack of clear definition of roles, work plans and targets, and ineffective coordination and
3
4
Preparation of social and environmental guidelines for screening M&R activities is one of the prior action for DPL2.
While a comprehensive communication strategy (covering internal and external communications) is under preparation,
IPD has already adopted some good practices, including consultation with farmers on scheduling of canal closure for
annual maintenance as well for rehabilitation works.
communications between federal, provincial and local administrative entities. The result is that, while an
appropriate and necessary administrative capacity exists on paper, its effectiveness is seriously curtailed in
practice due to these shortcomings. To help address these weaknesses, the Bank has shown its willingness to
provide assistance to the Ministry of Environment and provincial environmental agencies for the
implementation of the National Environment Policy 2005.
19.
The financing provided under the DPL will support a wide range of improvements in irrigated
agriculture in Punjab through strengthening of institutions, and the introduction of systems and practices to
provide adequate, equitable and reliable irrigation supplies. The expected results are improvements in the
management of asset stock, the management of water resources, irrigation service delivery, land productivity
and water use efficiency. These improvements are expected to lead to environmentally positive outcomes,
including some reduction in water-logging and salinization.
20.
The on-going operations of the IPD include maintenance and rehabilitation of existing hydraulic
infrastructure. These activities present localized, small-scale environmental risks. To address these concerns,
the proposed loan supports strengthening of the IPD’s Social and Environmental Management Unit (SEMU), to
build awareness and capacity for environmental and social risk management. The SEMU is currently preparing
guidelines for the management of environmental and social risks in IPD operations. The guidelines will be
disseminated through the IPD website.
5. Tentative financing
Source:
GOPunjab
IBRD
Total
(US$m)
160
100
260
6. Contact point
Manuel Contijoch
Co-task Leader
The World Bank
1818 H Street
Washington DC NW
20433
Tel: 202-473-3919
Fax: 202-522-2420 and
202-522-1770
[email protected]
InfoShop
The World Bank
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Washington DC NW
20433
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Fax: 202-522-1500
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