|1. Project Data:
ICR Review Date Posted:
|Irrigation Rehabilitation Emergency Project
Project Costs(US $M)
Loan/Credit (US $M)
|Agriculture and Rural Development
Cofinancing (US $M)
Board Approval Date
|Irrigation and drainage (90%), Public administration- Agriculture fishing and forestry (10%)|
|Rural services and infrastructure (100% - P)|
||ICR Review Coordinator:
||George T. K. Pitman
||Christopher David Nelson
|2. Project Objectives and Components:|
a. Objectives:According to the Project Appraisal Document (PAD, p. 7) the Project Development Objectives (PDOs) were to:
"(i) improve efficiency of water use in two selected irrigation schemes; and (ii) foster immediate rural employment."
The Loan agreement (p. 5) stated that the project objectives were to:
"(a) improve efficiency of water use in two selected irrigation schemes; and (b) foster immediate rural employment."
The project was restructured in June 2011 when additional fiance was added to the project and the development objective and key indicators were modified. The Loan Agreement for additional financing (p. 4) stated that the objectives of the revised project were to:
"(a) improve water use efficiency in the selected irrigation schemes; and (b) foster immediate rural employment."
The revised development objectives in the Additional Finance Project Paper (p.1)were to:
"(i) improve water use efficiency in the selected irrigation schemes; and (ii) foster immediate rural employment, to reflect the geographical expansion of project activities."
b. Were the project objectives/key associated outcome targets revised during implementation?
If yes, did the Board approve the revised objectives/key associated outcome targets?
Date of Board Approval: 06/17/2011
1. Rehabilitation of Primary Canals in Talin and Armavir Irrigation Schemes (Appraisal cost: US$48.98 million, actual cost: US$50.09 million). This component would finance rehabilitation of 83.81 kilometers (km) of primary canals (main and branch canals) in these two schemes, namely Talin Irrigation Scheme (59.01 km) mainly in Aragatsotn and Armavir Marzes and Armavir Irrigation Scheme (24.80 km) in Armarvir Marz. The component includes: (i) civil works for the primary canal rehabilitation (US$31.51 million); (ii) consultancy services for supervision of rehabilitation works (US$1.57 million). The costs of rehabilitation of primary canals in both systems mainly include concrete lining of the canal sections. Rehabilitation of all canal related structures are financed by the Millennium Challenge Corporation (MCC) under separate and independent arrangements.
2. Project Management and Institutional Activities (Appraisal cost: US$4.93 million, actual cost: US$3.74 million). The Component would finance two sub-components: (a) Project management, including monitoring activities, and audits (US$1.36 million); and (b) institutional strengthening (US$1.89 million). The first sub-component would make available the resources needed for implementing the Project and to conduct financial audit of the Project, of the Araks-Akhuryan Water Supply Agency and of Water User Associations (WUAs). The second sub-component would finance selected institutional strengthening activities that are deemed to be particularly relevant for the progress of the ongoing reform based on Participatory Irrigation Management principles. These relevant activities are: (i) sustain the Water User Associations Support Group that would continue to train WUAs and would complete drafting of irrigation maps for all WUAs in the country; (ii) conduct an institutional strengthening study of the WUAs; (iii) Pilot a Water Users Federation.
After restructuring another component was added to the project:
3. Rehabilitation of on-farm irrigation network (Appraisal cost: US$4.02 million, actual cost: US$3.93 million). This component aimed to rehabilitate selected tertiary canals. Nineteen communities of Lori, Shirak, Gegharkunik and Armavir marzes would benefit from improved water conveyance over about 2,500 hectares. Beneficiary farmers would co-finance investment costs (contributions collected by the Millennium Challenge Corporation would be made available before tendering). The component would also finance consultancy services for rehabilitation works.
d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
At appraisal the project had an estimated total cost of US$36.3 million (PAD, Annex 3). At project completion the ICR (Annex 1) reported that total project cost was US$57.76 million. The difference in total project cost is due to restructuring the project where an additional US$18.0 million of IBRD financing was approved based on the rapid pace of implementation.
At appraisal the project was expected to receive US$30.0 million IBRD financing. Another US$18.0 million IBRD financing were approved at restructuring. At project completion US$48.00 million had been disbursed and USS$10,730 was cancelled.
At appraisal the borrower was expected to contribute US$6.33 million of counterpart funds. At the time of restructuring the borrower contributed US$6.62 million. According to the Project Paper (p. i) for additional refinancing the borrower was expected to contribute US$3.4 million and beneficiaries were expected to contribute US$0.2 million. At project completion total borrower contribution was US$10.00 million of counterpart funds and beneficiaries contributed US$0.24 million.
The project was restructured on 06/17/2011 (13 days before the original closing date). The amount disbursed at restructuring was US$29.42 million which represents 61% of total disbursed IBRD financing . As a result of this, the project was extended by 24 months to close on 06/30/2013. Such extension was needed to "scale up the reach and impact of project activities and help mitigate the ongoing effects of economic and financial crisis and the resulting unemployment (ICR, p. vi)."
|3. Relevance of Objectives & Design:|
a. Relevance of Objectives: High.
Agriculture in Armenia contributes 20% of GDP and provides employment for about 40% of the country's active population. Excluding livestock, more than 80% of the agricultural Gross Domestic Product (GDP) is produced on irrigated areas. Hence any further deterioration in the irrigation infrastructure would significantly decrease the country's agricultural production and negatively impact rural employment and economic growth (PAD, p. 1).
At project completion both the revised and original objectives remain highly relevant and are in agreement with Armenia's Development Strategy (ADS) 2013-2025 which clearly articulates the need for policies that accelerate sustainable economic growth and reduce poverty, including eliminating extreme poverty. Objectives were highly relevant to the country’s development program which specifically articulates that “irrigation systems will continue to remain a priority for public investments."
Finally, revised objectives are in line with the Bank's current Country Partnership Strategy (CPS) for Armenia for FY2014-FY2017 which aims to boost prosperity and reduce poverty through accelerated economic growth and job creation. Relevance of objectives is also emphasized in the in CPS where it specifically states that ongoing irrigation projects would be instrumental in restoring and enhancing the sustainability of irrigation systems and strengthening the participatory management of the networks through Water Users Associations, including greater representation of women.
b. Relevance of Design:Original design (Substantial).
This included a clear statement of objectives that specified project areas and intended activities. To achieve the project objectives, the design featured a main component that would focus on rehabilitation of primary canals through concrete lining in two regions in the country. Design also would support capacity-building activities to strengthen participatory irrigation management. The original design is simple with well targeted activities and demonstrates a clear and logical connection between the project inputs, outputs and intended outcomes. However, design was ambitious to pilot a water users association federation given the nascent water user association development in the country, and this activity was eventually dropped. Design also unrealistically aimed to reduce water losses by 19.5%, so that after project rehabilitation works, seepages would be at 3% compared to 22.5% before project intervention. This reduction proved to be a "relatively unrealistic" target and had to be adjusted to an attainable target of 15-16% (ICR, p. 7).
Revised design (Substantial).
This included the same statement of objectives, but emphasized the geographic extension of project activities from two to six regions of the country. To achieve such extension, design featured an additional component that would expand the geographic scope of project activities-mainly to rehabilitate selected tertiary canals. The revised design relied on the same results framework, but some targets were revised to reflect the broadened scope of works. For example: the volume of water savings was increased from 97 to 131 million cubic meters (MCM) (35% percent increase); temporary employment was increased from 9,000 to 16,000 person/days (77% increase); potential permanent employment created was increased from 2,400 to 3,250 jobs (35% increase); and value of wages paid was increased from US$4.5 million to US$8.2 million (81% increase). To maximize potential for labor employment creation, design ensured that the six marzes selected for project support represented the top 50 percent of the poorest regions in Armenia and such marzes received about 90% of project investments; the three poorest marzes receiving about 40 percent of total investments.
Both the original and revised design could have benefitted from more attention to the technical designs of the rehabilitation works funded by the project to prevent any costly design revisions. In a further communication, the project team explained that project activities were limited to canal lining and that team experts raised concerns about problems with existing structures.
|4. Achievement of Objectives (Efficacy) :|
Although the project was restructured, the PDO before and after restructuring remains almost the same, except for increasing the geographic coverage of the project and increasing some outcome targets to reflect the broadened scope of the project.
Original objectives: (i) improve efficiency of water use in two selected irrigation schemes; and (ii) foster immediate rural employment
(i) to improve efficiency of water use in two selected irrigation schemes: Substantial
- The rehabilitation works funded by the project reduced water loss due to seepage from 22% at appraisal to 7% by project completion. In addition, the rehabilitation works in primary and secondary canals is expected to restore/improve irrigation water supply to nearly 50,000 ha of land and bring about 6,551 ha of new land under irrigation. By project completion, about 118,000 water users now have access to reliable and secure irrigation water.
- The ICR (p. 13) highlights that field evidence indicate that canal re-lining led to significant reduction in the time take to provide irrigation water to farmers. For example, farmers in the Armavir irrigation scheme indicated that before project rehabilitation on a particular 26 km canal stretch it took 40 hours for the water to travel from the canal head to the tail end; compared to 12 hours after project rehabilitation works.
- Farmers are also able to reduce the overall cost of irrigation as a result of project intervention due to greater reliance on gravity to supply irrigation water rather than pumping. Together the impacts of the project and its predecessor project reduced the electricity used per cubic meter of water delivered to farmers from 0.39 kWh to 0.29 kWh, a reduction of 26%.
- The ICR (p. 14) reports that the project activities are gradually leading to "improvements in overall agricultural production/productivity in the project areas". Also, the ICR states that evidence from the field indicate that some farmers are moving to cultivating high value crops such as vineyards as there is a greater reliability of irrigation water. The ICR (p.34) shows that the area under vines increased from 10.7% to 12.5%, and that of orchards from 19.7% to 23.1%; conversely the area under winter wheat fell (from 18.3 to 10.8%). as did that under vegetables (from 14.3% to 12.9%).
- Also, there concerns on the design of some infrastructure schemes that were only discovered at the final stages of implementation. For example, the ICR (p. 7) reports that:
That said, the ICR (p.7) also notes that the potential for overtopping of canals only relates to 150 m of a 37 km long secondary canal, and the Borrower agreed to undertake essential mitigating works from the state budget.
"there were inadequate energy dissipating structures (such as stilling basins) in canals in the Talin scheme on steep slopes which could lead to high flow velocity, causing difficulties not only with flow regulation, but also result in spillovers. Also, there were limited numbers of cross regulators along main canals in the scheme which limited the capacity for water control."
By project completion the following outputs were achieved:
(ii) To foster immediate rural employment: Substantial
- Total irrigation area as a result of rehabilitation works on main/secondary canals reached 83,210 ha compared to an original target of 35,570 ha and a revised target of 83,210 ha over a baseline of 28,275 ha.
- 56,295 ha were provided with irrigation and drainage service compared to an original target of 53,507 over the baseline of 49,744 ha.
- Rehabilitation of 82.58 km of primary canals (main and branch canals) in two marzes (Armavir and Aragatsotn).
- 6.93 km of earthen canals were rehabilitated in the same marzes.
- 44 WUAs had Geographic Information System software in place and operational (100% of original target) compared to 18 at baseline. The ICR (p. 29) notes that project resources were not used for this activity as it was agreed to transfer this to MCC.
- 44 business plans for water user associations were developed compared to none at baseline (100% of actual target).
- The project succeeded in providing immediate rural employment opportunities to rural communities. The temporary employment enabled farmers to generate income mostly because job creation was in the winter months where farmers are seasonally inactive. The project infused about US$8.6 million of resources within communities. According to the ICR (p. 13) such infusion had a significant local multiplier effect through stimulating demand for local goods and hence positively impacting the local economy.
- The ICR provides no quantitative or qualitative evidence other than employment numbers generated by the project. In the absence of such data, it is challenging to gauge the actual impact of the project on the local economy.
Revised Objectives: (i) improve water use efficiency in the selected irrigation schemes; and (ii) foster immediate rural employment, to reflect the geographical expansion of project activities.
By project completion the following outputs were achieved:
- 18,410 temporary jobs created compared to zero at baseline and original target of of 9,000 and a revised target of 16,000.
- 4,000 permanent agricultural jobs were created compared to zero at baseline and an original target of 2,400 and revised target of 3,250.
(i) To improve water use efficiency in the selected irrigation schemes: Substantial
- Same as discussed under outcome for original objective (i).
- In addition, more efficient irrigation reduced the total annual energy use from 234,700 kWh (average 2004-2006) to 125,100 kWh (average 2019-2012). While some of this reduction was due to changing crops and irrigated area, unit volume energy costs declined from 0.39 kWh to 0.29 kWh over the same period.
In addition to the above mentioned outputs for original objective (i) the following outputs were delivered by project completion:
- 58.0 km of primary canal were rehabilitated in total of six marzes.
- 51.29 km of tertiary canals were rehabilitated in total of 19 communities grouped in eight water user associations.
(ii) To foster immediate rural employment, to reflect the geographical expansion of project activities (substantial).
Same as the above mentioned outputs for original objective (ii).
Same as discussed under outcome for original objective (i).
Economic and Financial Efficiency
Administrative and Institutional Efficiency
- The Project Paper at appraisal included an economic analysis that is only based on the benefits stemming from restored irrigated land as a result of rehabilitation of the primary canal. Social benefits stemming from short-term employment under the Project were not included. The analysis estimates that 7,300 hectares are expected to return to production as a result of increasing irrigation water availability by about 70 million cubic meters a year. Crop budgets are based on a set of five principal crops within each of the system areas.
- The overall economic rate of return (ERR) of the Project was estimated at 19.5%, using a discount rate of 12.0% percent, the Project Net Present Value (NPV) amounts to US$48.50 million.
- The two areas covered under the project show different ERRs, the Armavir investments were expected to yield an ERR of 28.4% while in Talin the estimated ERR was 15.0% since it was expected to have significantly higher investments and lower potential yields,
- The ICR analysis estimated the (i) the incremental production from the lands where irrigation water supply was restored; (ii) the increased yields on those irrigated areas where water provision was improved (mainly on the tail-end sections) and (iii) the increased production value due to changes in cropping patterns on the irrigated lands, as water became more reliable and failure crop risks are being reduced. The economic analysis relied on estimates from the aggregate cropping patterns evolution and the crop’s financial budgets, with few adjustments to the existing market prices. Unskilled labor was adjusted with a 0.7 conversion factor (CF) given the relatively high level of underemployment in rural areas. The cost of irrigation water was adjusted with a CF of 1.7 resulting in an economic price of 18.7 Armenian Dram per cubic meter
- The ICR estimated the overall ERR of the Project at 21.2%, using a discount rate of 12%, the project economic NPV US$82.4 million.
- The ICR (p. 16) notes that the improvements in irrigation infrastructure by this project as well as by the preceding Irrigation Development Project (P055022) led to a decrease in electricity used per cubic meter of water delivered to farmers from 0.39 KWH on average between 2004-2006 to 0.29 KWH on average between 2010-2012. However, such energy savings were not quantified for the specific irrigation schemes in the project. Finally, a sensitivity analysis of the expected results show that the Project would have a positive result even in the most unlikely adverse situations.
Output targets were generally exceeded and most activities were completed within the budget. The contract unit costs on average were smaller than the estimates by about 16% (ICR p.9). This was mainly a consequence of the economic crisis in the construction sector that introduced higher competition for the limited number of potential contracts. These savings were sufficient for all the civil works variation orders; and after signing all variation orders, there were still savings in the range of almost US$4 million. This allowed the project to finance additional civil works, including a 7.0 km long earth section of the Armavir canal and small additional sections in the Talin canal.
a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:
* Refers to percent of total project cost for which ERR/FRR was calculated