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Implementation Completion Report (ICR) Review - West Delta Water Conservation And Irrigation Rehabilitation Project


  
1. Project Data:   
ICR Review Date Posted:
01/24/2013   
Country:
Egypt
PROJ ID:
P087970
Appraisal
Actual
Project Name:
West Delta Water Conservation And Irrigation Rehabilitation Project
Project Costs(US $M)
 213.00  0.00
L/C Number:
L7468
Loan/Credit (US $M)
 145.00  0.00
Sector Board:
Agriculture and Rural Development
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  06/21/2007
 
 
Closing Date
06/30/2011 06/30/2011
Sector(s):
Irrigation and drainage (97%), Central government administration (2%), General agriculture fishing and forestry sector (1%)
Theme(s):
Water resource management (23% - P) Rural services and infrastructure (22% - P) Rural policies and institutions (22% - P) Infrastructure services for private sector development (22% - P) Export development and competitiveness (11% - S)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
George T. K. Pitman
Judyth L. Twigg Soniya Carvalho IEGPS1

2. Project Objectives and Components:

a. Objectives:
This is a Review of the Note on Cancelled Operation for this project. The development objectives of the project according to the Loan Agreement (page 5) were:


    "to improve the livelihood and increase the income of people in the Project Area through: (i) mitigating further environmental degradation caused by excessive drawdown of the groundwater resources; and (ii) establishing a framework for financial sustainability of irrigation infrastructure in the use of water resources."

The development objectives stated in the Project Appraisal Document (page ix) are identical.

b. Were the project objectives/key associated outcome targets revised during implementation?
No

c. Components:
There were three components:
1: Design, Construction, and Operation of Surface Water System and Connection Program (appraisal estimate $205 million; actual is not known. While there was some expenditure by cofinanciers, Bank disbursement was zero).

  • This component was designed to finance a Private Operator to design, construct and operate a surface water irrigation system covering between 25,200 ha to 37,800 ha in the West Nile Delta. The exact size of the scheme was to depend on farmers’ willingness to pay for connections and water tariffs determined by the design of the piped irrigation system. A fixed annual allocation of water pumped from the River Nile was based on an irrigation duty of 12,400 m3 per year per ha. It was expected that percolation for the irrigated area would recharge underlying groundwater and benefit farmers in adjacent areas.

2: Market-Driven Technical Support to Small and Medium Scale Farmers (appraisal estimate US$2 million; actual is not known but there may have been expenditure by cofinanciers. There was no Bank financing for this component).
  • This component was to provide market-driven technical support, initially through donor grants, to small- and medium-scale farmers in the project area and to traders and food processors, to increase West Delta's market share of fresh or processed products on national and international markets. It was expected that technical assistance would cover: a) production, post harvest technology and farm management to small- and medium-size farms; b) market intelligence (for local and export market) and logistics to small farmers, traders and exporters, to look for new market opportunity and/or increase market share; c) food processing, packing and marketing to food processors, to improve competitiveness and/or create new food products; and d) organizational arrangement for farmers, traders and/or food processors to work in a coordinated manner within formal or informal organizations to achieve economy of scale and improve supply chain competitiveness.
  • If evaluation of the first grant-funded activities showed promise, it was expected that subsequently the project would facilitate loans to participating farmers.

3: Support for Institutional Development and Capacity Building of the Project Management Unit, Regulatory Office and Water Users Council (appraisal estimate US$6 million; actual is not known but there may have been expenditure by cofinanciers. There was no Bank financing for this component).
  • This component was to support development of the three institutions needed to ensure sound operation and management of project facilities:
      1. Assist the project management unit to implement the Project, the carrying out of the Environmental and Social Management Plan and the Resettlement Policy Framework, and to undertake overall monitoring and evaluation.
      2. Assist institutional development and capacity-building of the Regulatory Office to ensure effective economic regulatory oversight and equitable treatment of interests between farmers and the Private Operator.
      3. Provided capacity building of the project area’s Water User Council to enhance its capacity to oversee the relationship between farmers regarding usage of surface and ground water resources, and to represent the farmers' interests with the Private Operator, the project management unit and the Regulatory Office.
  • Given the unique nature of the public-private partnership transaction arrangement, the technical assistance was to provide also for oversight supervisory engineers and technical audits of technical milestones achieved. In addition, it was to support activities to disseminate a possible replication of the adopted public-private partnership approach to other areas in Egypt and its riparian neighbors.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost:

  • It was expected that 85% of component 1 would be financed by the Bank and Agence Francaise de Developpement (AFD), and 15% by the Private Operator. The exact cost of component 1 would not be known until the Design-Build-Operate contract was signed because the irrigated area to be served depended on an adequate number of farmers signing up to be connected. Component 2 would be financed by a loan from AFD. Component 3 would be financed by a grant from the Netherlands.
  • Although there were some expenditures by the cofinanciers, these are not recorded in the Note on Cancelled Operation (NCO). There was no expenditure by either a Private Operator or the Bank because a contract was never signed.
Financing:
  • A Bank loan of US$145.00 million was approved. There were no Bank disbursements.
  • The Netherlands and AFD were parallel financiers and each agreed to contribute US$6.00 million and US$32 million respectively. There were no parallel financing disbursements.
  • In addition, the Private Operator was expected to provide parallel financing of up to US$ 30 million. Because a contract was not signed, no private financing was provided.
Borrower Contribution:
  • This was to be a private sector/donor operation with no direct government financial contribution.
Dates:
  • The project was approved by the Board on June 21, 2007, but the loan agreement was not signed by the Government until September 1, 2008. Even then, the project was not declared effective until July 2009, and the AFD loan became effective only in October 2009.
  • The original date scheduled for bid submission was November 30, 2010. Because there was no response from potential bidders, and subsequent difficulties that the bidders' commercial banks had in offering bid security following the January 2011 revolution in Egypt, the bid submission date was extended to April 18, 2011. A single bid was received. However, this was an insufficient basis for the Ministry to evaluate the tender. Subsequently, the Bank and AFD decided to close the project, as originally scheduled, on June 30, 2011.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:
Substantial

  • Some 500,000 people live in former desert lands that provide about 250,000 agricultural jobs west of the Nile Delta. The new lands had been developed by government since the 1960s to compensate for the loss of agricultural land in the Delta to urban development. This area has a flourishing agricultural economy valued at US$300-500 million annually, serving domestic and export markets in the European Union and elsewhere. However, intensification of commercial agriculture in the reclaimed area has significantly depleted groundwater resources, and the quality of the land is deteriorating. Consequently, the project's objectives to increase livelihoods and incomes by providing surface water resources to substitute for dwindling groundwater was, and remains, relevant.
  • Project objectives are relevant to the FY06-FY09 Country Assistance Strategy that remains current. The Strategy's first strategic objective focuses on facilitating private sector development, and its second strategic objective emphasizes enhanced provision of public services and their rationalization, with greater attention to cost recovery and private sector participation.

  • b. Relevance of Design:
    Modest Design had two elements. The first was to increase agricultural productivity through improved water quality and management. The second element was to ensure sustainability of water supply through reformed institutional arrangements that would guarantee that the water supply scheme would be financially sustainable.

    • The results chain linking project activities to expected livelihoods and income outcomes was complete and logical. Replacement of groundwater with imported surface water would greatly eliminate the increasing costs of pumping associated with declining groundwater levels. In addition, it was expected that surface water quality would be better than groundwater whose salinity was expected to increase. Better quality water would increase agricultural productivity, and elimination of groundwater pumping would reduce costs providing surface water did not have to be pumped too far. Together these changes would increase incomes and improve livelihoods.
    • The market-driven technical assistance activities were relevant as they aimed to increase the productivity of small and medium farmers and improve their market access, particularly to high value export markets. The subcomponent to improve marketing and sales of processed foods was relevant as it provided a means to smooth out production peaks, improve quality standards and provide more opportunities for the private sector.
    • The capacity-building activities for the Ministry were relevant, as they would help the Ministry to manage the transition to a public-private partnership and ensure sound regulatory oversight of the Private Operator's contractual commitments, costs and water tariffs. The capacity-building activities for the Water Users' Council were relevant as they would facilitate better cooperation among farmers regarding water entitlements and use of scarce water resources.
    • The Design-Build-Operate contract was relevant as it aimed to reduce costs and make water tariffs more affordable for farmers. Under this arrangement, while the development risks were transferred to the private sector, a relatively lower level of financial commitment was required at the outset. The government assumed the role of raising debt funds as well and assumed the foreign exchange, financing and credit risks. In contrast, the private sponsors would need to provide only 15% of the equity. Typically, the equity contribution would be much greater in traditional private project finance schemes. In addition to equity, the Private Operator had to pay a pre-determined annual fee for the duration of the concession. All this potentially translated into lower costs and more affordable tariffs for the farmers.
    • Design, however, overlooked a number of critical activities that were necessary for the Private Operator to secure its revenue stream that would be used to pay the concession fee, offset the equity investment, and pay for the operation and maintenance of the water supply system:
        • There was no law governing public-private partnerships, and this effectively nullified government guarantees.
        • The long-term contract (up to 30 years) for water between farmers and the Private Operator was in three parts: (1) a initial security deposit valid for 20 years; (2) an annual base tariff to cover growers' relative share of capital costs and to ensure the Operator's return on investment, and (3) a volumetric change based on actual usage and paid in advance. The deposit and tariffs were to be calculated on the basis of irrigated area, and farmers needed title to the land they irrigated to enter into the contract specifically because the contract required a one-year revolving letter of credit to cover the fixed fee. In addition, some farmers had to raise capital in order to make the security deposit and advance fee payment, and the commercial Banks similarly required proof of title. However, despite the fact that not all new lands were officially registered, and not all land holders in the new lands had title, the project had no provision to rectify this problem.
        • The size of the project was not defined in advance. Thus the Operator could not define its financial responsibilities precisely until the water demand from farmers was known, and this heightened risk was a deterrent to would-be bidders. And because the Operator's cost could not be defined, the water tariff in the grower-operator contact could not be defined in advance.
        • Together, these three problems led to an impasse.


    4. Achievement of Objectives (Efficacy) :

    "To improve the livelihood and increase the income of people in the Project Area through: (i) mitigating further environmental degradation caused by excessive drawdown of the groundwater resources; and (ii) establishing a framework for financial sustainability of irrigation infrastructure in the use of water resources."
    The objectives to (a) improve the livelihood and (b) increase the income of people in the Project Area were not achieved.
    • 2,850 farmers registered their interest by March 2010 in being connected to the irrigation system and their willingness to pay a pre-subscription fee of LE 200 (US$37) per feddan. The signed-up farmers represented a total area of about 43,750 ha which exceeded the set limit of 37,500 ha for first phase area.
    • A Contract with a Private Operator could not be finalized before the end of the project and neither the irrigation infrastructure nor irrigation services were provided.

    5. Efficiency:

    Not applicable.

    a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:


    Rate Available?
    Point Value
    Coverage/Scope*
    Appraisal:
    No
    %
    %
    ICR estimate:
    No
    %
    %

    * Refers to percent of total project cost for which ERR/FRR was calculated

    6. Outcome:



    a. Outcome Rating: Not Applicable

    7. Rationale for Risk to Development Outcome Rating:



    a. Risk to Development Outcome Rating: Not Applicable

    8. Assessment of Bank Performance:

    a. Quality at entry:

  • The project was innovative as it attempted to address the issue of sustainable operation of maintenance of irrigation systems through a public-private partnership (PPP). It was categorized as "high risk, high reward," given that the principles of irrigation capital cost recovery and full water pricing had never been successfully applied in Egypt. It was also risky because most of the lessons drawn from the Bank's prior PPP projects had been in municipal water supply and sanitation projects that had far fewer complications than an irrigation project. In the MENA region there was only one example of a similar PPP project in Morrocco (the Guardane Private Irrigation Project), and that involved a less complex PPP design. Even so, relevant lessons from these experiences were included in the design, and from a financial perspective the project was thorough but abstract.
  • The Design-Build-Operate model chosen left all the detailed civil engineering design open, and this proved to be highly risky. The significant risks associated with the political economy of PPP for water management and implementing water pricing in Egypt were not addressed. In addition, while the PAD extols the participatory nature and findings of the the Drainage Integrated Analytical Framework (DRAINFRAME) model applied to scope the environmental and social problems, it only defined the scope of further detailed technical studies that would normally be part of appraisal. Thus, while indicating that the project was subject to 6 Bank safeguard policies that included resettlement and cultural heritage, the final design and environmental and social risk assessment was left to be financed by the Private Operator. Consequently, at entry, there was a high likelihood of either significant delays in getting an Operator or having to revise the risk sharing arrangements significantly. Both these risks materialized.
  • A results framework was prepared but its focus was on outputs and not outcomes. There were no indicators or monitoring and evaluation arrangements to determine achievement of livelihood and income objectives.
  • Finally, there had been inadequate consultation with the Ministry of Finance, which raised concerns about the PPP after it had been approved by the Bank. The Task Team Leader told IEG that there was also an issue that key project documents were not available in Arabic, and that this was a barrier to full public disclosure on safeguard policy issues.

  • Quality-at-Entry Rating: Unsatisfactory

    b. Quality of supervision:

  • The Bank's Loan was made effective until halfway through the four-year project. But more importantly, the AFD loan was not made effective until October 2009 at which time the project had 21 months left for implementation. Given the complexity of tendering and awarding the Design-Build-Operate contract, this period proved to be inadequate.
  • The Bank Task Team had two Leaders and undertook regular six-monthly supervision missions, and this included several joint supervision missions with the AFC in close coordination with the Netherlands representatives in Cairo.The Bank Task Team assisted the Ministry to improve bidding documents after the failure of the first bidding exercise. While the Bank had proposed cancelling the Loan earlier when the first round of bidding failed, this was resisted by the Ministry.
  • The Bank Task Team also worked with the government to ensure the contract documents were in accordance with the new PPP law. Importantly, the Task Team was proactive on the issues of pre-subscription of farmers, land registration and titles, the updating of the concept designs and cost estimates, and meeting with the non-governmental organization (NGO) community on environmental and social issues raised by the project.
  • However, most of these efforts were too late to redress the unsatisfactory appraisal, and they could not address the new socio-economic and political economy issues related to the project raised by the January 2011 revolution. In these circumstances, Loan cancellation was the only sensible solution. As a result, the Bank and AFD resolved to close the project on the original closing date

  • Quality of Supervision Rating: Moderately Satisfactory

    Overall Bank Performance Rating: Unsatisfactory

    9. Assessment of Borrower Performance:

    a. Government Performance:

  • While the government was supportive of the project during its preparation and appraisal phases, it subsequently took two years after Bank approval of its loan, and two-and-a-quarter years for the AFD loan, for the project to be ratified by the parliament. The government also did not utilize the grant available from Dutch financing. Cross-sectoral coordination arrangements were poor, and the Ministry of Finance raised a number of concerns with regard to the design of the project after it had been approved by the Bank. Lack of leadership and decisive action by the government allowed the project to drift to eventual cancellation.

  • Government Performance Rating: Unsatisfactory

    b. Implementing Agency Performance:

  • During the four-year project there were three different Ministers of Irrigation and Water Resources, each with differing views on the PPP. The Project Management Unit consisted of one director and varying part-time staff from the Ministry with very little experience of working with the private sector on assuming water management responsibilities. As a consequence, ownership of the project among the team responsible for implementation was modest, particularly so after the January 2011 revolution.
  • The Project Management Unit prequalified five consortia using Bank procedures to bid even though most of the companies forming the five consortia had limited experience of Design-Build-Operate contracts in the irrigation sector. There was no response to the first bidding exercise conducted in August 2008. The reasons were (NCO, page 6): (i) the payment risks were considered too high; (ii) the proposed guarantees by the Government were not sufficient for the private sector in the absence of a PPP law; and (iii) the management of payment of the irrigation tariff and the demand risk was not sufficiently advanced to be satisfactory to the private sector. The Bank's Task Team leader also stated that previous experience in Egypt indicated that land acquisition was a lengthy and risky process and that potential bidders knew that project approval of the PPP law was still awaited from parliament. In addition, the global financial crisis of August 2008 also contributed to the failure of the first bid.
  • The risk was perceived as political (political decisions might interfere with the companies’ ability to collect water charges from the farmers), as well as a real credit risk (that farmers might default on their promises to pay the irrigation tariff due to unforeseen developments in the sector). In addition there was concern that construction costs in Egypt could be volatile, which could potentially increase project costs and consequently might raise tariffs for beneficiaries, who then might not be willing to pay the private operator or join the project. Consequently, bidders voiced the need for protection or guarantees from the Government in addition to those already agreed, including remedies to mitigate the non-payment, such as forfeit of the farmers’ security deposit, discontinuation of service, potential loss of water entitlement and other measures available to the Operator. Bidders also felt that not only could land owners fail to fulfill their payment obligations, but also that the operator, for political reasons, may not be able to implement the risk mitigation measures. A major cross-cutting issue was that payment for irrigation water was a fraught political issue in Egypt.
  • Two options were proposed to deal with this impasse. The first was to modify the terms of the concession by allowing the Operator to deduct from its concession fee an amount equivalent to its cash shortfall from non-paying farmers until it was able to implement non-payment remedies (e.g. disconnection) overseen by the Regulatory Office. The second option was to revert to a more traditional Design-Build contract for the construction plus a four-year management contract for operation. As this option would require farmers to come up with 15% counterpart financing, and this would cause a restructuring of the project concept, it was deemed to be unworkable and was dropped.
  • Accordingly, the Design-Build-Operate contract was retained but with some modifications:

      • Pre-subscription of farmers to connect to the system should take place prior to submission of bids.
      • Beneficiaries who owned farms of an area equal to or greater than 100 feddans would be required to submit a 1-year revolving letter of guarantee payable to the operator to secure the payment of the fixed tariff.
      • For the Beneficiaries who owned farms of an area less than 100 feddans, the government would allow the operator to delay payment of 50% of the respective share of the concession fee for a period of one year to secure the payment of the fixed tariff.
      • Farmers would be required to pay in advance their monthly volumetric charges for the quantity of water requested using pre-paid cards to guarantee the payment of the volumetric tariff.
      • A collective default of a specified percentage of farmers (to be determined following further financial assessment) would be treated as a special arrangement similar to force majeure provision.
  • Subsequently, the Project Management Unit carried out a pre-subscription campaign that lasted until March 2010. Eventually 2,850 farmers registered their interest in being connected to the system and willingness to pay a pre-subscription fee of LE 200 (US$37) per feddan. The further test helped to provide greater reassurance to bidders of mass support for the project. The signed-up farmers represented a total area of about 43,750 ha which exceeded the set limit of 37,500 ha for first phase area.
  • In parallel to the pre-subscription campaign, the government passed Law 67 of June 2010 that regulated partnership with the private sector in infrastructure projects, services and public utilities, and the donors and government substantially modified the bidding documents to reflect the revised status.
  • In the interim, because of changes in Consortia partnerships, the Project Management Unit undertook a re-prequalification of bidders. As a result, bidding documents were issued to four prequalified bidders on 23 August 2010 with a bid closing date of November 30, 2010. Three of the potential bidders requested an extension of the bid closing date, and the government, in consultation with the Bank and AFD, extended the bid closing date to January 30, 2011.
  • On January 25, the revolution to topple the government started, and the bid closing date was extended to April 18, 2011. This extension was the result of two pre-qualified bidders asking for more time because their commercial banks had difficulties in issuing the required bid security under the changed circumstances. Within the extended time, two bidders withdrew from the process because of the risks occasioned by the revolution, and a third failed to submit a bid. Thus, only one of the four consortia submitted a bid for the work.
  • There was extensive and unresolved discussion in April-May 2011 between the donors and the government about the acceptability of a single bid, notwithstanding its merits. Eventually, it became clear that the Ministry was unwilling to open the bid because of the uncertain political climate and the sensitivity of private sector involvement in Egyptian water operations and management that, until then, had been a public sector activity.

  • Implementing Agency Performance Rating: Unsatisfactory

    Overall Borrower Performance Rating: Unsatisfactory

    10. M&E Design, Implementation, & Utilization:

    a. M&E Design:
    A results framework was prepared but its focus was on outputs and not outcomes. There were no indicators or monitoring and evaluation arrangements to determine achievement of livelihood and income objectives. Some baseline surveys were initiated (PAD, page 21). Institutional responsibilities for M&E were assigned for the physical outputs, but none for assessment of socio-economic outcomes.

    b. M&E Implementation:
    Not applicable.

    a. M&E Utilization:
    Not applicable.

    M&E Quality Rating: Non-evaluable

    11. Other Issues:

    a. Safeguards:
    Environmental.

  • The project was an environmental category 'A' project under OP4.01 Environmental Assessment because of the potential scale of impacts in terms of water quantity, water quality, and water access issues, as well as the potential corporate risk posed to the Bank by the diversion of water from the Nile River. In addition, four other safeguard policies were triggered: Involuntary Resettlement (OP/BP 4.12), Physical Cultural Resources (OP/BP 4.11), International Waterways (OP/BP/GP 7.50) and Pest Management (OP 4.09). Compliance with safeguards posed significant and unknown risks for the potential Private Operator who would have responsibility for compliance. Two safeguards posed were potentially very risky for the Operator:
      1. OP 4.11 Physical Cultural Resources was triggered for precautionary reasons because of the scale of works envisaged under the project would require clearance from the Supreme Council of Antiquities before construction could start. Thus conservation of cultural properties and necessary provisions were to be part of the Design-Build-Operate contract to cover archaeological surveys and procedures for “chance finds."
      2. OP 4.12 Involuntary Resettlement (OP 4.12) was invoked because of the likely need for land acquisition for civil engineering works. A Resettlement Policy Framework was to be prepared after the Private Operator signed the contact. The framework was to cover resettlement principles, organizational arrangements and funding mechanisms for any resettlement or land acquisition that would be necessary during implementation.
  • After the contract was signed, it was planned that the Ministry would identify a suitable national or international firm to prepare an Environmental and Social Management Plan and undertake an Environmental and Social Impact Assessment based on the framework plan completed in 2007. The estimated cost of US$200,000 to US$250,000 was to be met by the Operator. Terms of reference and a draft contract were to be prepared by the Ministry/Operator and submitted to the Bank. The Plan and the Assessment were to focus on: (i) project impact within the West Delta region including impact on conjunctive use and groundwater recharge; and (ii) project impact on the surrounding and downstream areas including impact on the water balance and water quality.
  • While it was expected that the detailed design of the Plan would occur in the 12 months following loan signing, this was also contingent on the signing of the contract. Consequently by project closing, no work had been initiated.
  • In 2008, two NGOs, the Land Center for Human Rights and the Habi Center for Environmental Rights, raised concerns about the project design, its environmental impacts and compliance with the Bank’s disclosure policy. According to the Task Team Leader, these NGOs were also critical of the project because it benefited mostly well-off farmers and seemed to be misaligned with the Bank’s overall poverty alleviation policy. In addition to the issues raised at appraisal, the NGOs expressed concern also on two issues: how would the project impact water availability for downstream users; and did the project investigate the alternative of using treated sewage effluent instead of Nile water? The NGOs also noted that key project documents were not available in Arabic, and that this hindered public acquisition of knowledge about the project. This problem was rectified by the Task Team Leader.

  • b. Fiduciary Compliance:
    Not applicable.

    c. Unintended Impacts (positive or negative):

    d. Other:



    12. Ratings:

    ICR
    IEG Review
    Reason for Disagreement/Comments
    Outcome:
    Not Applicable
     
    Risk to Development Outcome:
    Not Applicable
     
    Bank Performance:
    Unsatisfactory
    Unsatisfactory
     
    Borrower Performance:
    Unsatisfactory
    Unsatisfactory
     
    Quality of ICR:
     
    Satisfactory
     
    NOTES:
    - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
    - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

    13. Lessons:
    The NCO (page 10) provides a number of lessons, and these are summarized below:
    • Public-private partnership projects supported by the Bank should take sufficient time for preparation to ensure that all technical, social, and environmental aspects are taken into consideration, including guarantees, risks and market assessment. The Bank and the Borrower should have been more realistic about the time required to design a PPP structure that is sustainable given that the project was the first high-risk-high-reward venture of its kind in Egypt. Adequate risk identification would have lengthened the project preparation but reduced the bidding time and maximized the probability of success.
    • Demand risk, while difficult to quantify, needs guarantees. This is especially so for the irrigation sector when a new private sector institution requires a firm knowledge of the customer base. Socio-economic surveys could have determined willingness-to-pay and, based on this knowledge, the government could have provided clear and strong guarantees in order to encourage bidders.
    • Government agencies are not generally conversant on the financial guarantee requirements of private participation in irrigation infrastructure projects. Appraisal needs a thorough institutional assessment of the implementing agency to identify needed technical assistance to bolster areas where knowledge and skills are lacking. Typically, the technical assistance is best provided through the services of a qualified and experienced consulting firm experienced in public-private partnerships. In this project, this would have minimized delays and improved preparation of tender documents, management of the procurement process, and eventually implementation.
    • It is important to ensure that arrangements for cross-sectoral coordination are in place. In this project there was too much focus on the water issues to the detriment of broader socio-economic concerns. The Ministry of Finance and the Ministry of International Cooperation were insufficiently involved in the early stages of project design and in project preparation.

    IEG offers an additional lesson:
    • Water delivery contracts for irrigation by a private sector institution need clear and legal definition of property rights and title. Public-private partnerships were initially developed for urban water supply and sanitation projects where the connections are made to registered property owners and billings are to the owner or tenant. In the agriculture sector where new lands are cultivated, property registration and title is sometimes vague or missing. In these circumstances, until land registration and titling is completed, the ability to enter into contacts and provide security may be jeopardized. And this, in turn, may seriously delay registering new customers.

    14. Assessment Recommended?

    No

    15. Comments on Quality of ICR:

    The NCO is concise and well written. It gives a full and candid account of the problems this project faced and their resolution. The quality of the evidence and analysis supports the conclusions and ratings drawn. The information presented is internally consistent and meets the requirements of the OPCS guidelines. The lessons are based on the project's experience.

    a. Quality of ICR Rating: Satisfactory

    (ICRR-Rev6INV-Jun-2011)
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