Document of The World Bank FOR OFFICIAL USE ONLY Report No: 28927-IN IMPLEMENTATION COMPLETION REPORT (TF-26603 IDA-30580 PPFI-Q0070) ON A CREDIT IN THE AMOUNT OF US$57.0 MILLION TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A MAHAWELI RESTRUCTURING AND REHABILITATION PROJECT May 10, 2004 Rural Development Sector Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective At Appraisal (Nov. 1997): US$1.00 = Rs59.1
Completion Year (November 2003): US$1.00 = Rs96Intermediate years as follows:
ABBREVIATIONS AND ACRONYMSADB Asian Development BankAMDP Accelerated Mahaweli Development ProgramCAS Country Assistance StrategyCDD Community-Driven DevelopmentCDLIP Community Development and Livelihood Improvement "Gemi Diriya" ProjectCEB Ceylon Electricity BoardDCFO Distributary Canal Farmers’ OrganizationDSEC Dam Safety Excellence CenterD&F Canal Distributary and Field CanalEU European UnionERR Economic Rate of ReturnFAO/CP Food and Agriculture Organization/World Bank Cooperative ProgramFO Farmers’ OrganizationGOSL Government of Sri Lanka ICB International Competitive BiddingICR Implementation Completion ReportID Irrigation DepartmentIDA International Development AssociationI-NWRA Interim National Water Resources AuthorityIWRM Integrated Water Resources ManagementKOBP Kala Oya Basin PlanMASL Mahaweli Authority of Sri LankaMASL Act Mahaweli Authority of Sri Lanka Act 23 of 1979.MFP Ministry of Finance and PlanningMECA Mahaweli Engineering and Construction CompanyMMD Ministry of Mahaweli DevelopmentME&L Monitoring, Evaluation and LearningMOF Ministry of FinanceMOIWM Ministry of Irrigation and Water ManagementMRRP Mahaweli Restructuring and Rehabilitation ProjectMRWMA Mahaweli Regional Water Management AuthorityMRRP Mahaweli Restructuring and Rehabilitation ProjectMTR Mid-Term ReviewNCB National Competitive BiddingNGOs Non governmental Organizations NPV Net Present ValueNWRA National Water Resources Authority (and also NWR Act)OECD Organization for Economic Corporation and DevelopmentOMS 2.8 Operational Manual Statement 2.8O&M Operation and MaintenanceQAG Quality Assurance Group
Project ID Project Identification numberPAD Project Appraisal DocumentPCD Project Concept DocumentPDO Project Development ObjectivePIU Project Implementation UnitPOP Project Operation PlanPRSC Poverty Reduction Strategy CreditPSR Project Status ReportRBM River-Basin ManagementRBMA River-Basin Management AgencyRBO River-Basin OrganizationRs Sri Lanka RupeesRWRMA Regional Water Resources Management AgencySASRD South Asia Rural Development Sector Unit of the World BankSDR Special Drawing RightsTA Technical AssistanceTL Task LeaderTP Transitional PlanTVA Tennessee Valley AuthorityUSAID United States Agency for International DevelopmentUS$ United States DollarVESP Voluntary Early Separation PackageVSHLI Village Self-Help Learning InitiativeWB World Bank
Vice President: Praful C. PatelCountry Director: Peter C. HarroldSector Manager: Gajanand Pathmanathan
Task Team Leader: Nihal Fernando
SRI LANKAMAHAWELI RESTRUCTURING AND REHABILITATION PROJECT
CONTENTS
Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 106. Sustainability 117. Bank and Borrower Performance 138. Lessons Learned 179. Partner Comments 1910. Additional InformationAnnex 1. Key Performance Indicators/Log Frame Matrix 24Annex 2. Project Costs and Financing 27Annex 3. Economic Costs and Benefits 30Annex 4. Bank Inputs 31Annex 5. Ratings for Achievement of Objectives/Outputs of Components 35Annex 6. Ratings of Bank and Borrower Performance 36Annex 7. List of Supporting Documents 37
PPFI-Q0070Country/Department: SRI LANKA Region: South Asia Regional
Office
Sector/subsector: Irrigation and drainage (60%); Sub-national government administration (36%); Other social services (4%)
Theme: Administrative and civil service reform (P); Environmental policies and institutions (P); Rural services and infrastructure (P); Rural policies and institutions (P); State enterprise/bank restructuring and privatization (P)
KEY DATES Original Revised/ActualPCD: 09/25/1992 Effective: 06/01/1998 06/23/1998
STAFF Current At AppraisalVice President: Praful C. Patel Meiko NishimuzuCountry Director: Peter C. Harrold Roberto BentjeordtSector Manager/Director: Gajanand Pathmanthan Ridwan aliTeam Leader at ICR: Nihal Fernando Douglas W. ListerICR Primary Author: John Weathehogg (FAO); Nihal
3. Assessment of Development Objective and Design, and of Quality at Entry
3.1 Original Objective:
3.1.1 The primary project objective was to shift the focus of the Mahaweli Authority of Sri Lanka (MASL) from project implementation to river basin management. A secondary objective was to improve agricultural productivity through rehabilitation, improvement and better O&M of the irrigation facilities in System H, which is the first irrigation distribution system constructed in the 1970s under the Accelerated Mahaweli Development Program (AMDP), which is the largest river basin development program ever undertaken in the country.
3.2 Revised Objective:
3.2.1 The objectives were further focused and elaborated at the first Mid-Term Review (MTR) of the project in January 2000. The restated primary project development objective (primary PDO) was the “transformation of MASL into a RBMA whose primary mission is to ensure productive and sustainable use and management of the water and land resources of the whole Mahaweli and adjoining connected water basins.” This primary PDO was further elaborated by adding a directly related secondary objective for MASL “to take the lead in planning, developing and managing in a participatory manner, current and remaining economic water resource development opportunities in the Mahaweli and adjoining connected river basins, fully integrating environmental, social, economic, technical and resource sustainability considerations.” T he secondary project development objective, which concerned the rehabilitation of System H, was restated as “increasing farm production and income by transforming System H into a more productive, commercially oriented production system, less dependent on government assistance.” These changes were intended to sharpen the focus and clarity of the primary PDOs, and the rephrased objectives were consistent with the integrated water resources management principles and norms that were being pursued by the government in seeking revisions to the water sector policy and the associated legislative framework. The revised PDOs remained unchanged throughout the implementation.
3.2.2 The first MTR substantially changed the target indicators for the primary PDO. The first pair of new indicators referred to establishing a river basin management secretariat, preparation of its plan of work, and preparation of a Mahaweli river basin plan approved by the government. The second pair of indicators referred to the preparation of an internally agreed TP for MASL and its approval by the government. The TP would, among other things, be a concise statement of government policy on the role and functions of MASL, and its adoption by the government was expected to be a primary project outcome. In addition to the TP, in November 2003, the Bank and the government agreed on two other time-bound milestones, which were considered necessary for achieving the primary PDO successfully. These included the approval of the National Water Policy and National Water Resources Act by the government and approval of the pilot Kala Oya Basin Plan (KOBP) by both MASL and the I-NWRA.
3.3 Original Components:
3.3.1 The two project objectives were to be attained through implementation of two components. The first, Component (A), i.e., the Institutional Component, was directly linked to
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the primary objective and included funds, inter alia, to right-size MASL through reduction in MASL staff numbers through a Voluntary Early Separation Package (VESP). This was originally expected to allow for a target 35% overall staff reduction, as well as for staff retraining/redeployment. In addition, Component A included support for privatization of commercially nonviable MASL business units; handover of nonirrigation infrastructure to appropriate line agencies; strengthening farmers’ organizations (FOs) in all Mahaweli systems and handing over distributary and field (D&F) canals to Distributary Canal Farmers’ Organizations (DCFOs); provision of training and other support to help DCFOs to be more self-reliant and able to participate at system management and undertake O&M of D&F systems and drains; and natural resources management. The second, Component (B), i.e., the Irrigation Rehabilitation and Improvement in System H Component, which was linked with the secondary objective, included rehabilitation and improvement to the irrigation infrastructure and the eventual handover of O&M of the MASL-managed irrigation systems to farmers groups formed prinicipally for this purpose.
3.4 Revised Components:
3.4.1 At the first MTR (January 2000) two new components C and D were added. Component C, i.e., Village Self-Help Learning Initiative (VSHLI) was intended to be a pilot initiative to test community-driven development (CDD) approaches for rural poverty reduction in a small number of villages in the Mahaweli and adjoining areas. The objective of the Dam Safety Component (Component D) was to improve the dam safety assurance capacity of the three national dam caretaker agencies—MASL, Irrigation Department (ID) and Ceylon Electricity Board (CEB)—through: a) reviewing and improving dam safety O&M procedures and practices for selected dams and associated hydraulic structures; b) carrying out a structured training program of dam safety for O&M staff; c) institutionalizing a Dam Safety Inspectorate at national level; and d) producing an action plan addressing dam safety and reservoir conservation management.
3.4.2 Following the second MTR in June 2002, in the context of the project’s problem status and at the request of the Ministry of Finance, the project was restructured by transferring SDR 3.8 million (Approximately US$5.3 million) to a new component of the Credit (Part Z), which was to finance resettlement of conflict-affected persons in the North and East of Sri Lanka under the IDA-financed North-East Emergency Reconstruction Project. The Development Credit Agreement was subsequently amended reflecting this transfer. The Part Z of the Credit will be effective until June 2005 while all other components of the Credit were closed on December 31, 2003 as originally scheduled. Therefore, the Part Z component is not evaluated in this ICR. It will be evaluated later after its closure.
3.5 Quality at Entry:
3.5.1 The project was conceived in 1991 as the Mahaweli Consolidation Project mainly focusing on irrigation rehabilitation with support for rationalization or restructuring of MASL, which had just completed the implementation of the AMDP. In the five years from production of a Technical Preparation Report by the Food and Agriculture Organization/Cooperative Program (FAO/CP) in February 1993 to Credit negotiations and Board presentation in 1998, there was a continued dialogue between WB and the Government of Sri Lanka. The Bank worked closely
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with the government, including MASL, and the donor community on building consensus on the future mission and shape of MASL and how to achieve it. Shortly after the FAO/CP report was issued in 1993, the Bank facilitated discussions with the senior management of MASL on the need to reform MASL in view of the country's growing budget deficit. Despite strong support from the Ministry of Finance and Planning, MASL was initially reluctant to move away from the state-dominated approach to development and its construction orientation. In 1995, however, at the Bank's suggestion, MASL sought the technical assistance (TA) of the Tennessee Valley Authority (TVA) in the design of a restructuring program for MASL. In 1996, the stakeholders, including key MASL staff, were sensitized to the serious fiscal and policy issues involved in the MASL’s institutional setting, through a series of national workshops. Efforts were also made by the Bank to bring key donors on Board such as Organization for Economic Corporation and Development (OECD), the leading donor for Mahaweli programs at that time, as well as the Asian Development Bank (ADB), United States Agency for International Development (USAID) and European Union (EU).
3.5.2 As a result of this process, in 1996, MASL demonstrated its commitment to restructure and prepared an acceptable institutional restructuring program. Further IDA-financed additional TA from TVA in 1996-97 enabled MASL to prepare a detailed restructuring action plan for the 5-year life of the project, including: staff “rightsizing” and retraining/redeployment; privatizing/commercializing MASL’s nonviable business activities; handling over MASL-built infrastructure to line agencies; and strengthening natural resources management capabilities. As a result, much greater emphasis was given in the project design not only to reforming MASL, but in changing it from a construction agency into an agency for managing water resources in an integrated manner adopting river-basin management principles.
3.5.3 The design and objectives of the project were in line with government policies for reform of public-sector entities, water-resources management and participatory irrigation management, and with the Bank’s Country Assistance Strategy (CAS) goals. Although the project design had its innovative aspects, it also had some weaknesses: (a) At the time of the project design, the development and formulation of an enabling policy and legal framework for water-resources management was being supported and promoted as a part of parallel TA being provided by the ADB. But the primary PDO and expected institutional outcomes were not strongly linked to the evolving water sector policy and legal framework. The design also did not include strategic management arrangements to lever the MASL reform process, for example, through partnerships and close coordination with the ADB and the government stakeholders, particularly the National Water Resources Council that was leading the policy and legal reform process. However, this partnership was initiated later at the first MTR in June 2000; (b) the original design of the staff “right-sizing” was inadequate to manage the organizational change strategically and implement the voluntary early separation package (VESP) in a selective way so that the skilled staff required for MASL’s envisaged future role—both as a river-basin management authority and the implementing agency for the project itself as well as other ongoing activities— could be retained; (c) lack of emphasis in the original design to promote agricultural development so as to capitalize on the improved irrigation infrastructure (this was corrected at the first MTR, and became an important outcome of the project); and d) the 5-year project implementation period was unrealistically short for a project involving complex institutional change and culture.
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3.5.4 The Bank’s Quality Assurance Group (QAG) in January 1999 rated quality at entry as satisfactory and commented: "Since the early 1970s the Mahaweli Development Program has been the centerpiece of the government’s overall development program, receiving strong political support from the government at the highest level. It has preempted a major slice of the country's development budget and donors' aid funding and questions have often been raised as to its justification. We (QAG) commend the Bank staff for taking a fresh approach to the Mahaweli Development Program for their willingness to squarely address political and socially sensitive issues and for their perseverance over the years in continuing to process the project despite the many obstacles and frustrations they encountered." Therefore, this was a very important strategic operation for Sri Lanka, which was also recognized from the outset by all stakeholders to be extremely difficult, given the vested interests involved.
3.5.5 Overall, the design of the project addressed the Bank's safeguard policies and from 2000 included a national dam safety component (Component D). Design of the System H Rehabilitation (Component B) was based on the well-advanced preparation at the appraisal. The project design complied with the Bank’s OMS 2.28 that the procurement for the first 2 years’ civil works program was ready to start.
3.5.6 Considering the QAG rating, the strategic and lead role played by the Bank in facilitating and triggering an important institutional transformation in the water sector that was consistent with the government vision, and the satisfactory compliance with the Bank’s policies, norms and standards, the overall quality at entry is rated satisfactory.
4. Achievement of Objective and Outputs
4.1 Outcome/achievement of objective:
4.1.1 Of the milestones/outcome indicators mentioned in paragraph 3.2.2, the TP of the MASL was approved by the Cabinet in July 2003 and the draft final KOBP had been prepared by the Credit Closure. The Draft National Water Resources Act had been under preparation by Interim National Water Resources Authority (I-NWRA) but not tabled in Parliament. Without this Act in place, the MASL transformation, river basin planning process and the formation of river-basin committees and river basin organizations (RBOs) have no legal standing, unless the government decided to amend Mahaweli Authority of Sri Lanka Act (MASL Act no. 23 of 1979). The commitment of the government above MASL and the Ministry of Irrigation and Water Management (MIOWM) to reforming the legal framework and undertaking MASL transformation was strong, but there was a high degree of uncertainty on the time frame for completing the reforms.
4.1.2 As indicated in paragraph 4.2.3, the project achieved satisfactory outcomes under Component B. The outcomes show the potential of System H to become a model of farmer water-user groups and federations, which might be suitable for replication within the rest of the Mahaweli basin and in other irrigated areas of Sri Lanka. The outcomes of Dam Safety Component (D) are also rated satisfactory as indicated in paragraph 4.2.7. It not only initiated dam safety assurance capacity building but an increased awareness on the need to address dam
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safety as a national priority. The VSHLI component (C) has not been rated in this ICR as it is still continuing using retroactive financing of the proposed Community Development and Livelihood Improvement, (Gemi Diriy) project (CDLIP). The concept is new to Sri Lanka and its short-term outcomes encouraged the government and the Bank to scale up its CDD approach for rural poverty reduction in the two most poverty-affected districts (Badulla and Moneragala) through the proposed CDLIP.
4.1.3 While some of the milestones under Component A, which is directly related to the achievement of the primary PDO, have been reached with significant delay, the sustainability of the changes is uncertain given the uncertainty about the completion of the reform process and other project outcomes at the time of the implementation completion reporting (section 6). The overall outcome rating of the project is based on attaching higher weight to the achievement of the project’s PDO (Component A) of transforming MASL into a river-basin management agency and its sustainability outlook at the time of evaluation, and is therefore rated "unsatisfactory".
4.2 Outputs by components:
4.2.1. A. Institutional Restructuring Component. Encouraged by the time-bound covenants, the implementation of VESP component took off quickly. The VESP was implemented rapidly after negotiations with the staff trade unions and it provided equal right to all MASL staff to take the VESP. This rapid implementation approach left insufficient time for senior management and staff of MASL to reach consensus on the mission, functions and activities of the future RBMA and to tailor the VESP to retain skills and staff required to equip the future RBMA to fulfill its mission and functions. Consequently, the VESP resulted in a massive reduction in MASL core skills and experienced staff. Staff numbers halved in the first year of the project, while over the whole project period some 6,300 staff or about 57% of the total preproject staff were separated. This sharp decline in staff and the poor matching of the staff skills retained for future needs had adverse consequences. The implementation guidance expected at appraisal through the creation of an International Panel of Experts and formation of a High-Level Project Steering Committee never materialized, nor was early technical assistance from an international river basin expert well used by MASL. The consequences of VESP affected the quality and progress of subsequent project-related activities, including the establishment of a River-Basin Management Unit (RBMU) within MASL and preparation of pilot basin plans.
4.2.2. The handing over of nonirrigation infrastructure to relevant line agencies has been completed in part. Budgetary allocations have been made to the provincial councils for O&M of the handed-over assets and facilities The Commercialization of seven business units of MASL has stalled due to the lack of commitment and readiness of MASL. The original design envisaged time-bound milestones for handing over of O&M to DCFOs in all Mahaweli systems, but the actual implementation focused only on System H. It was only in the last 2 years that some tangible natural resources management activities were initiated by the MASL. Considering the above situation, the overall outcome of this component is rated “unsatisfactory.”
4.2.3. B. Irrigation Rehabilitation and Improvement in System H. This component has been generally smoothly and efficiently implemented and has achieved its physical and institutional
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targets and outcomes satisfactorily. The project initiated and established the practice of water allocation, delivery and measurements on the basis of bulk water volumes in System H. This has resulted in better discipline in water management and increased irrigation intensities. The more assured irrigation water supply resulting from system rehabilitation has reduced the cultivation risks and induced the farmers to shift to higher-value dry-season crops. As a result of institutional strengthening of FOs, and transfer of water management and O&M responsibilities for D&F systems to DCFOs, farmers are now actively involved in the decision making of all water management, agriculture and related O&M. Significant O&M savings have been achieved by MASL by handing over the management of the secondary and tertiary irrigation infrastructure to DCFOs. Other major achievements include a general acceptance by the DCFOs to pay maintenance fees; federation of DCFOs at branch canal and Block levels; collection of O&M fees by DCFOs and management by the O&M funds by federations, and increased mobility and access to farms and markets, through improved canal-side roads.
4.2.4. The net irrigated area improved and partly modernized is about 28,790 hectares of which 85 % has been successfully turned over to FOs, against 31,500 hectares envisaged at appraisal. The balance area was covered by an ADB-funded irrigation rehabilitation project. The command area is covered by 260 DCFOs (of which 10 are in the ADB rehabilitated area) and of these 204 have been handed over by the project, plus the 10 in the ADB area. Most of the civil works have been successfully completed as planned. These improvement works will result in: a) extension of the useful life of System H; b) reduction of leakages and seepage through canals (i.e., through selective canal lining); and c) increased water use availability and efficiency in the two annual cultivation seasons (maha/yala) to facilitate rotational water supply through improved tertiary works. This component contributed to the more efficient use of surface-water resources and has advanced the concepts of water-basin resources management by increasing awareness of the need for a well-developed bulk water-allocation mechanism and providing systematic training to DCFOs. There has been significant progress on technical aspects. Irrigation water-measuring devices are operational and used to monitor and manage irrigation water supplies jointly by FOs and MASL. The outcome of this component is "satisfactory".
4.2.5. Agricultural development. The agriculture subcomponent commenced half way through the implementation in 2001, but has nevertheless complemented the improved irrigation infrastructure and provided effective support to FOs, both directly through institution building and indirectly by its impact on water productivity and farm incomes. Most of the impact appears to be due to extension of new crop technology to farmers to enable them to effectively utilize additional water supplies made available in the yala season through increased system efficiency. However, the expansion of crop diversity has also been assisted by direct interventions involving the facilitation of linkages between DCFOs and buyers of agricultural commodities, both for domestic and export markets. This type of linkage would have been previously difficult if not impossible between an individual one hectare farmer and a private buyer, but it has been encouraged by the DCFO groupings. As a result, System H is developing a reputation as a reliable source of year-round supply of a range of vegetables, grain and fruit crops. Expansion of market opportunities and an increased cropping index have increased incomes by more than 30% and allowed farmers to contribute willingly to system maintenance. The outcome of this component is “satisfactory.”
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4.2.6. Training and skill development. The project accomplished a satisfactory training program in quantity as well as quality covering primarily irrigation management, farmer institutional development, river-basin management and dam-safety aspects. Training activities relating directly to the irrigation rehabilitation component included workshops on participatory irrigation management, irrigation O&M, hydraulic survey and design, construction quality supervision and project management. The training has raised awareness among MASL staff of the need to move towards participatory management of irrigation schemes in partnership with DCFOs and NGOs. Less specialized training provided for MASL staff through overseas study tours appears to have been not as successful. Selected engineers were provided limited but useful training under the Dam Safety Component. Workshops and awareness building activities associated with the KOBP and involving all the stakeholders have had a beneficial impact on the basin plan preparation. The outcome is “satisfactory.”
4.2.7. D. Dam safety component. The component has achieved the objectives of reviewing and improving O&M practices, carrying out a structured training program of O&M staff and providing TA to assist MASL to produce an action plan addressing dam safety and reservoir conservation management. In addition, the awareness of the need for improved dam safety procedures and practices has been instilled into senior managers of the three dam caretakers—MASL, ID and CEB—and others. Three out of the four objectives of this component were successfully accomplished, and the envisaged Dam Safety Inspectorate at national level has yet to be achieved. Instead, the three dam caretakers have formed a joint Dam Safety Management and Reservoir Conservation Committee as an interim measure, which could become the foundation of a national level Dam Safety Inspectorate in future. The committee has agreed on the need to establish a Dam Safety Excellence Center (DSEC) (instead of Dam Safety Inspectorate) and developed a Code of Practice for Safe Operation and Maintenance of Dams. The outcome is “highly satisfactory.”
4.3 Net Present Value/Economic rate of return:
4.3.1 As summarized in annex 3, recalculation of the economic return of the project investment adopted the same approach as in PAD. The quantifiable economic benefits are confined to those deriving from the increase in agricultural production in System H. Similarly, the investment and operating costs included are only those concerned with the rehabilitation and improvement of System H irrigation—both head-works and downstream works—as well as the subcomponent on Promoting Farmer Sustainability costs and future estimated incremental O&M costs associated with the system. The economic rate of return (ERR) is calculated at 15% with an NPV at a 12% discount rate of Rs524 million (US$5.5 million), or virtually identical to the 14% calculated at appraisal. The sensitivity analysis shows that if the project life is taken as 20 years (rather than the 30 years assumed in the PAD) and the incremental O&M cost is increased to Rs2,400 (US$25)/ha/year the combined effect of these two tests would be to reduce the ERR to about 12%.
4.4 Financial rate of return:
4.4.1. Financial analysis based on limited survey information indicates an increase in farm family incomes of around 34% from Rs73,000 (US$760) pre- and without project to about Rs98,000
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(US$1,020) with the project at full development. This result is about the same as the PAD expectations, which also projected a 34% increase in farm incomes. Return per family labor day with the project is estimated at around Rs750 (US$7.8), slightly lower than the Rs882 (US$ 9.2) per day pre- and without project, but still comfortably higher than the casual agricultural labor market rates of Rs250 (US$2.6) per day for men and Rs175 (US$1.8) per day for women. Although net farm income before charging family labor has increased, there has also been a slightly greater proportional increases in the number of family labor days used and therefore return per family labor day is slightly lower. No information was available from PAD to show what were estimates of family labor use and therefore no comparison was possible.
4.4.2. The project’s fiscal impact was expected at appraisal to arise from savings as a result of MASL staff reduction, privatization and transfer of O&M responsibilities to farmers. Savings as a result of staff reductions are estimated by MASL at around Rs2,500 million or about 35% higher than the expectations at appraisal. Privatization of MASL’s commercial interests is not completed and there is no estimate of the eventual savings as a result of the enterprises being sold off or liquidated. Transfer of O&M responsibilities to farmers has moved slower than expected and total savings are estimated at Rs58 million, or only about 15% of the Rs400 million savings projected at appraisal. Total savings estimated at Rs2,578 million is about 90% of the PAD forecast (annex 3).
4.5 Institutional development impact:
4.5.1. The institutional development impact of the project has been discussed in the preceding paragraphs. The restructuring of the MASL has been continuously delayed. This can probably be attributed to political resistance, bureaucratic resistance and the unrealistic expectation that a highly bureaucratic organization could implement and manage its own downsizing and transformation objectively without strong incentives and oversight. The rehabilitation aspects of the project were undoubtedly set up to provide such incentives, but were not conditioned upon on substantial progress in the restructuring and transformation. As a result, most of the rehabilitation money was disbursed without the desired effect of being an incentive for the restructuring.
4.5.2. However, there have been limited positive institutional development impacts of the project too. In retrospect, the reorganization of MASL under the Project by which the River Basin Management Division was created, and the success of this unit in developing a basin plan, and mobilizing the basin stakeholders and promoting their participation in the process, were of decisive importance in sustaining the transformation process within MASL during this long process of policy debate, providing the first real example in Sri Lanka of river basin planning. The project helped MASL engages in its own reform process and build awareness, consensus and skills within MASL to move toward a potential river basin agency, although the process and outcomes have been slower than the originally envisaged targets. The restructured organizational structure of the current MASL, with a separate river basin management division, would be a nucleus to build and expand river basin management functions in future. Also, the formation of river basin management committee of stakeholders and the establishment of a River Basin Planning and Management Secretariat at Kala Oya basin are important institutional achievements. But further progress in institutional development suffers the same lack of any adequate legal basis
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for its constitution and operations. This continues to provide a disincentive to further restructuring of MASL. It is not possible at this point of time to judge whether the National Water Resources Act will be passed by Parliament, and the implementation of the Transition Plan for MASL will be sustained and completed beyond Credit closure.
4.5.3. The process of transformation of the management and O&M responsibilities to the DCFOs has progressed in an outstanding manner within the System H component. However, while the water user associations have been formed in other Mahaweli systems and the transfer process begun, the users are reticent to accept the responsibility of O&M of systems that have deteriorated over time due to deferred maintenance by the government. They indicate an inability to finance the rehabilitation of the systems, but also a willingness to maintain the systems, once rehabilitated.
5. Major Factors Affecting Implementation and Outcome
5.1 Factors outside the control of government or implementing agency:
5.1.1 The project was implemented during a difficult time for Sri Lanka, with the ethnic conflict in the early years of the project prior to February 2002, difficulties of budget stringency and the political uncertainties associated with the Presidential Election in December 1999 and the two Parliamentary Elections in October 2000 and December 2001. Strong pressure by NGOs and some national media in March 2000 led the government to shelving its draft water policy and associated legislation, a process that was restarted after December 2001
5.2 Factors generally subject to government control:
5.2.1 The rapid reduction of MASL staffing as a result of the implementation of the VESP with inadequate provision for retention of staff skills appropriate for subsequent project implementation adversely affected subsequent project activities. High level GOSL commitment (Ministry of Finance) to the overall aims of the project was not adequately brought to bear in supporting MASL as well as MMD in the early stages and MIOWM later in the transformation process and protecting MASL from political pressures. When the NGOs and media opposed the Draft Water Act, Government should have engaged in a constructive debate and dialogue with them than simply shelving it. The monitoring and guidance of the Ministry of Finance to MMD/MIOWM for the planning and implementation of both VESP and Commercialization of MASL business units was inadequate. For the more straight-forward rehabilitation component GOSL performance was satisfactory in maintaining its commitment to the component and maintaining adequate flow of counterpart funds, despite the budget stringency situation. Despite this, the budgetary allocations for O&M of the main systems has generally fallen below requirements, even allowing for the fact that parts of the systems are newly rehabilitated.
5.3 Factors generally subject to implementing agency control:
5.3.1 The MASL performance in regard to System H rehabilitation was satisfactory. Implementation performance of the authority in regard to its own restructuring was less satisfactory, since MASL was understandably subject to considerable pressures, both internal and external, many of which were opposed to the project development objective. Without strong
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leadership and support from higher levels of government, the MASL was poorly placed to carry out implementation of the envisaged organizational reforms under the Institutional Component (Component A). The overall implementation progress of component A and its subcomponents could have been significantly improved if necessary authority and guidance with sufficient staff were given timely by senior management to managers in charge of the tasks.
5.3.2 There was also a lack of adequate coordination following the reallocation of a part of the credit following the second MTR which resulted in some civil works contracts being awarded despite the fact that project funds were inadequate due to the transfer. As a result, a number of small contractors remain unpaid even though they have completed their work, which is an unsatisfactory situation. This reflected poor budget and financial control. Monitoring and evaluation (M&E) by MASL has been adequate in the tracking of implementation progress, but weak in providing an assessment of the impact on agricultural production and farm incomes, with a baseline survey finally produced in 2000 and little further follow-up or survey work.
5.4 Costs and financing:
5.4.1 At appraisal, total project costs were estimated at US$74.2 million equivalent including an IDA credit of SDR 41.7 million or US$57 million equivalent. Following the second MTR in June 2002, SDR 3.8 million (US$5.37 million equivalent) was expected to be cancelled, but at government request it was allocated for resettlement of conflict-affected families in the north and east Sri Lanka (Component Z). Including the latter component the actual project costs at credit closure (end June 2004) are estimated to be US$68.4 million (92% of the PAD estimates). As at January 5, 2004, IDA disbursements totaled US$50.8 million, and allowing for the allocation for Component Z to be used by June 30, 2004 it appears likely that the credit will be completely disbursed. Beneficiary contribution to investment costs was estimated at appraisal at US$3 million. Actual contribution is estimated at US1.51 million. Detailed project costs and financing are contained in annex 2.
6. Sustainability
6.1 Rationale for sustainability rating:
6.1.1. Risks and issues faced in the implementation of the MASL reform process have already been discussed in this report. Overall, sustainability of both the reform process and the Kala Oya River Basin Planning Secretariat and associated activities is unclear. The relationship between the two entities and of the two entities with the future NWRA needs to be clarified, which can only occur once the necessary legislation has been passed. Adequate political will and readiness are not clearly visible in the MIOWM and MASL to implement the TP, including the handover of D&F canals of all Mahaweli systems to DCFOs and land administration and agriculture extension functions to relevant line agencies.
6.1.2. Sustainability of the development outcomes in System H will depend on the continued government budget support, and skill and staff allocation to continue the program. Sustainability of System H would require good maintenance of the rehabilitated irrigation system by DCFOs and most importantly an improved irrigation water supply by the MASL. The DCFOs are likely to require continued technical and financial assistance from MASL. Current legal provisions are also
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not adequate for fostering strong FOs, federations and companies that could become organizationally and financially self-sustainable entities managing water and irrigation systems. In this situation, further confirmation is required of the government’s ability to continue funding O&M costs of the main systems. Since even in System H farmers are only contributing a part of the maintenance cost for the tertiary system, and since the government support for adequate funding for O&M of the main system is uncertain at this time sustainability is rated as unlikely.
6.1.3. Similarly, sustainability of the development outcomes of the Dam Safety Component and continuation of the program will depend on continued government budget support, skill and staff allocation. At present, continued government support is uncertain. Without this continued government support at adequate levels there is a risk that the emphasis on dam safety will decline after the project. The continued existence of the Joint Dam Safety Management and Reservoir Conservation Unit and its growth to a DSEC are essential for future sustainability.
6.1.4. Based on the above, the project’s sustainability is rated as uncertain.
6.2 Transition arrangement to regular operations:
6.2.1 The TP approved by the Cabinet provides direction and guidance for the transformation of MASL to an RBMA. In addition, the MASL has prepared a Project Operation Plan (POP), which sets out a program of follow-up activities to support DCFOs through training, extension advice and marketing assistance. However, the POP needs to be further discussed and approved by the main stakeholders, including the farmer federations and DCFOs, ID and Ministry of Finance. MASL will also require adequate funding to be able to implement the POP to strengthen the project’s chances of sustainability, particularly to obtain international/local TAs to assist in the transformation process and achieve PDOs.
6.2.2 It is also necessary to develop a realistic strategy and action plan for MASL to hand over land management and agriculture extension functions, and complete the TP, and implement the KOBP. An operational plan for the future O&M of project works has recently been prepared by the MASL without much consultation. This plan must be rationalized with consultation with the Ministry of Finance and line agencies that would be expected to take over those functions, supported with sufficient operating costs. The plan should specify related performance indicators that can be used to monitor operation and development impact and the use of maintenance funds by DCFOs. The plan for O&M should reflect the practical aspects of funding, regulation, administration and incentives to ensure better delivery of services by the line departments. The operational plan must be implemented in a manner consistent with the transition plan approved by the Cabinet in July 2003 and with established polices. Careful review will be needed to ensure that adequate provision is made for O&M of the main system. The MASL also proposes to implement a second VESP but as yet sufficient skill and staff analysis have not been carried out. If a second VESP should be undertaken it must be designed on the basis of a comprehensive skill and gap analysis that would allow an appropriate balance between “downsizing” and “rightsizing.”
6.2.3 Despite the lack of progress in institutional reform, the project achievements in participatory management, village self-help and local-level river basin planning are unique in Sri
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Lanka and need to be continued to provide continuity with further water sector initiatives in the country. If a suitable framework is provided by the new Water Act, the government should consider utilization of funds from its own resources as well as of the Poverty Reduction Strategy Credit (PRSC) to continue technical assistance and capacity building in the Kala Oya Basin Organization (or its successor under the Water Act Law) and institution building among DCFOs in System H, including developing appropriate legislation for fostering FOs in irrigation/water-resources management and income- generating activities.
6.2.4 The government should provide funds for completing all ongoing System H civil works contracts and making payments to the contractors, beyond the amount which the MRRP Credit would finance after the Credit closure on December 31, 2003. These works are needed to ensure sustainability of O&M by participatory management in System H. The amount of funding required (about US$2 million) for follow-up activities in System H should be provided by the Treasury in order to ensure sustainability.
6.2.5. The future of the Dam Safety Excellence Centre (DSEC) depends on the restructuring of MASL and formation of the NWRA, RWRMAs and RBOs. If the DSEC is to become a regulatory authority it might be best attached to NWRA. Alternatively, if it is to be a centre for advice concerning the design, construction and O&M of dams and large hydraulic infrastructure it may be best if it is attached to the future Mahaweli RBMA or ID and be available for assisting other RWRMAs and RBOs with advice for the O&M of dams. If the delay in passing the National Water Resources Act continues, it would be worth considering a separate Dam Safety Act to give the force of law to the Code of Practice for the safe O&M of dams.
6.2.6. Remedial works on the 32 large dams that were reviewed during the project are estimated to cost about Rs600 million (about US$6.4 million). There are about 40 more large dams belonging to the ID that have not received independent inspection and for which maintenance budgets have been restricted for many years. Therefore, these dams may also be expected to require remedial work. The MIOWM highlights the need to implement remedial works on the 32 dams reviewed under the project and more broadly to ensure safety of all major dams through an intensive nationwide dam safety assurance program. In addition, the necessity exists to review and upgrade the national hydro-meteorological network and enhance national capacity for related data and information management to effectively manage the growing scarcity and demand for water, mitigate adverse socioeconomic consequences of floods and droughts particularly on the poor, as seen recently.
7. Bank and Borrower Performance
Bank7.1 Lending:
7.1.1 The Bank performed satisfactorily in instituting a timely process and maintaining a dialogue with the Government of Sri Lanka on the restructuring of MASL and designing Components B, C and D (System H rehabilitation, VSHLI and Dam Safety). The design of the project has complied with the Bank’s policies. However, the design had some weaknesses that affected its implementation as indicated in paragraph 3.5.3. During lending, too much emphasis was given in project design to complete the VESP subcomponent early to reduce MASL’s
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financial burden but without adequate tailoring of the VESP to complement the organizational mission, functions and challenges of the envisaged future RBMA. Most of the risks involved in the project were correctly identified in the PAD but treatment of some key risks and the mitigation measures were, as experience has proved, inadequate. For example, the risk associated with MASL beginning to operate as an RBMA in the absence of an enabling legal framework and potential delays in formulating a water policy and legal framework on the achievement of the PDO were not recognized at the design stage. The lack of an effective TA in critical areas including institutional reform and river-basin planning at the very early stages of project implementation has contributed to the slow progress of Component A. As experience has proved, greater attention could have been given to create an enabling environment for the Bank, ADB, MASL and non-MASL stakeholders engaged in water sector reforms to work together to help accelerate the MASL transformation and complement the project’s primary PDO. Consideration could also have been given to a project design, which included a mixture of participative poverty-alleviation activities and action-oriented pilot activities to apply principles of integrated water resources management (IWRM) in selected river basin(s) to resolve existing water-management problems on the ground. This might have allowed the majority of MASL staff to better feel and realize the usefulness of river-basin management and identify with the changing role of their authority pragmatically, i.e., beyond academic and conceptual understanding. However, Component C and the Kala Oya pilot, later added to the project, filled this gap. IDA performance in lending, due to the deficiencies in the lending phase is therefore rated unsatisfactory.
7.2 Supervision:
7.2.1. Supervision was conscientious and energetic throughout, although four task team leaders changed hands from preparation to completion. The task team successfully promoted the reorganization of MASL in which the River Basin Planning and Management Division was created at the same level in the management hierarchy as the other main Divisions of MASL, and supported the preparation of the first pilot river basin plan in the Kala Oya river basin by that Division (though it was severely hampered by lack of staff).
7.2.2. The fact that the VESP was allowed to go ahead without any well thought out staffing plan effectively compromised MASL’s abilities to implement the other project components. This supervision lapse and the consequent confusion created within MASL by mass exodus of competent staff and skills on the one hand, and inability of MASL to manage the ongoing programs with less staff and skills on the other, provided a poor start for its conversion into an RBMA. This situation prompted the need to manage the change diligently and smoothly with a deeper understanding to deal with difficult internal dynamics and the deep-rooted organizational culture of MASL. The initial supervision teams were strong in technical and engineering competence but did not include specialists on organizational development/change management to deal with the situation upfront, and during and immediately after the VESP implementation.
7.2.3. It has been argued during the supervision phase that the project should have sought the amendment of the Mahaweli Authority of Sri Lanka Act (MASL Act no. 23 of 1979) at the beginning of the project, or otherwise ensured that new water legislation was in place to establish the statutory authority for the transformation of MASL into a river-basin management agency.
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This ignores two important aspects of the Mahaweli Act: first, that it is a powerful Act, which confers full powers on MASL to develop, regulate and manage the water resources of the Mahaweli river basins; and second, that over the period of the AMDP, MASL had become an icon and a pervasive part of the lives of people in the Mahaweli river basins. Many elements of Component A were intended to extricate MASL from this pervasive role by divesting itself of responsibility for infrastructure, social services and commercial interests (the least successful elements of Component A). It was, therefore, considered not practical to simply amend the MASL Act before the Project was launched without a national debate on the direction of future water-resources policy and the specific role and functions of MASL. This process had been started by the Water Resources Secretariat with the support of ADB before the Project was launched. Successive supervision missions provided support for the water policy process through its dialogue with the Ministry and MASL officials (who were key players in the process). However, the first draft of the national water policy was sidetracked after a rancorous national debate led by several NGOs that opposed its provisions. But when a new government was elected in late 2001, the process was resumed and key elements of the water policy were incorporated into a new Draft National Water Resources Act. From early 2002 onwards Bank Management took the position that progress on the passage of the Act was a key indicator of the government’s commitment to the transformation of MASL and the Bank’s continued support for the sector and the Project. By late 2003, the government had not only completed preparation of the draft Water Act, but also approved a clear and unequivocal policy statement approved by the Cabinet on the future role and functions of MASL (the Transition Plan), although the sustainability of the process remained uncertain at the Credit Closure.
7.2.4. However, in the absence of the required legal basis it was not easy to see how the team could have succeeded in convincing MASL for undergoing a process of self-transformation. Supervision could have pressed harder and earlier for an amendment to the MASL Act, which might have proven the easiest way to provide the restructured agency with the legal identity and security that was very clearly a prerequisite for the change. But the emerging water policy and draft Water Act were intended to provide a new vision of water-resources management for Sri Lanka within which the MASL and the MASL Act would be integrated. Hence, when the new government was formed in late 2001, the Bank Team intensified its dialogue with the government stressing the importance of progress on the new policy and legislation to the sector and the project. With the new government, the Team was able to facilitate and promote an institutional reform process within MASL that eventually resulted in a draft Transition Plan approved by the MASL Board in March 2003 and by the Cabinet in July 2003.
7.2.5. Despite all these efforts, the Bank Team’s supervision task was clearly made very difficult by an apparent lack of leadership and ownership of the project by MMD, MIOWM and MASL for the institutional transformation throughout the implementation period. The ever-changing political climate, frequent changes of the secretaries of MMD and MIOWM, interest of some key MASL staff to preserve MASL and continue business as usual, and the slow progress on the adoption of a new water policy and appropriate legislation, made the Bank’s supervision task a difficult one. The uncertain policy and political climate served to support those who opposed MASL reform and discourage those who supported it. In the circumstances the Team decided appropriately to concentrate on practical internal changes within MASL, especially the work on a pilot river basin
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planning program and the piloting of innovations in System H through which the main elements of the new water policy could be demonstrated.
7.2.6. The Bank successfully promoted the beneficial changes in farmers’ water management, the introduction of technical innovations, farmer institutional development and agriculture productivity and income enhancement measures in System H. Bank supervision played a lead role in adding the dam safety component of the project facilitating International TA for the design and implementation support and the support of the Bank’s Dam Advisor to organize additional Japanese funding for dam- safety-related research and follow-up on issues arising from the World Commission on Dams Report. The supervision support provided by the Bank in commissioning and implementing the VSHLI component is highly satisfactory as evident from its short-term positive outcomes, and the government’s commitment to scale up the project based on its outcomes.
7.3 Overall Bank performance:
7.3.1. Considering the above facts, balancing the Bank’s Quality at Entry and performance in lending and supervision, the overall Bank performance is rated satisfactory but marginally so.
Borrower7.4 Preparation: 7.4.1. From its previous experience MASL was better placed to contribute to the design of the rehabilitation component than to the restructuring proposals. Consequently, the proposals for rehabilitation of System H were well conceived and detailed and, in contrast, the institution restructuring was only outlined in general terms and heavily dominated by the VESP. The government and MASL performance during project preparation is therefore rated satisfactory.
7.5 Government implementation performance:
7.5.1. Government performance in guiding, coordinating and monitoring the MASL restructuring, including VESP process, commercialization, infrastructural handover and MASL transformation, has been unsatisfactory. The Board of Management of MASL should have played a lead and proactive role from the commencement and throughout the project implementation in monitoring Component A, as it has the necessary mandate and powers to do so. But Board was totally ineffective in managing the process until it was restructured and refocused later in 2002 on the Bank’s suggestion. Also, despite the Bank’s facilitating role, the Public Enterprise Reform Committee (PERC) of the MOF was ineffective to monitor and help MASL implement a commercialization process. For the irrigation rehabilitation and improvement component government performance was much more committed, as shown by consistent funding of the component, despite budgetary constraints.
7.6 Implementing Agency:
7.6.1 MASL performance in implementation of the institutional restructuring component was very poor. The VESP was hurriedly implemented, little use was made of the technical assistance provided by the project, commercialization subcomponents did not move at all, and human
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resources and facilities were not allocated sufficiently and timely by the management for implementing activities and meeting milestones towards the PDO. Performance in preparing a river-basin management plan for the Kala Oya basin and for the System H Rehabilitation Component is rated satisfactory—or even in some respects highly satisfactory. It is especially so in implementing the major investment in civil works, without foreign technical assistance, and for the VSHLI and Dam Safety Components (C and D). Procurement management for civil works is satisfactory but substantive delays occurred in the procurement of goods and consultancy services. Though overall financial management of the project is reasonably satisfactory, financial control of project expenditure is highly unsatisfactory. Lack of effective budget accountability and controls, and effective management monitoring, has resulted in a reported budget overrun by the Credit Closure. A great deal of attention was given during supervision to evaluate the project impact on agricultural production and farm incomes, including the contracting of external consultants by the project PIU, but the development of a satisfactory project output and impact monitoring, evaluation and learning (ME&L) system, including a baseline, was unsatisfactory. Stable and motivated management teams and reasonable continuity of staff with a mix of different technical backgrounds and disciplines associated with the project was maintained reasonably well over the entire project period, except for Component A. Therefore, implementation performance by MASL has been satisfactory for Components B, C and D but unsatisfactory for Component A. Overall IP is rated unsatisfactory.
7.7 Overall Borrower performance:
7.7.1 The ultimate outcome of the project at the closure is that the primary development objective has not been achieved and the commitment and arrangements for achieving it beyond the Closure, and therefore the sustainability, are uncertain and risky. Based on this, the overall Borrower performance is rated unsatisfactory.
8. Lessons Learned
8.1.1 Water sector institutional reforms. The key lesson learned is the need to carry out upfront and in-depth institutional, organizational and legal analysis and human resources assessments to ascertain if existing irrigation institutions can really be transformed as functioning water resources management institutions. While, international experience would rather provides limited successful examples, obviously the success or failure of institutional transformation will always depend on the local context. In a number of countries, water resources management institutions have been created apart from the existing irrigation institutions and that has worked reasonably well. The Mahaweli transformation is a case that confirms the need for stronger and up-front analysis.
8.1.2 Learning by doing. In an uncertain policy or legislative environment, caused either by a lack of commitment or political turmoil, it is important to focus on implementing practical pilot and demonstration activities that not only support intensified policy dialogue but give opportunity to the concerned agencies and staff to learn and to test on ground what is being debated on academic and conceptual platforms. As this project demonstrated, stakeholders face many questions and issues of a technical, economic, environmental, social and institutional nature, when prior in-country experience does not exist for new policy and institutional reforms; in this case, for
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example, river-basin planning and management. These issues seem theoretical and unrealistic and the push for reforms and a new paradigm shift sound academic and alien to stakeholders, unless they have the chance to analyze and find solutions to these issues on the ground in consultation with a large group of affected stakeholders.
8.1.3 Importance of effective Technical Assistance (TA). Many borrowers strongly resist TA during project design and Credit negotiations either because of consultant fatigue or the mistaken belief that existing staff are fully capable of doing what is required. In this project, MASL was notably ineffective in mobilizing or utilizing technical assistance. But as this project amply demonstrates, when the project requires an agency and its staff to take on new unprecedented roles and functions, selective and effective TA is essential for training, capacity building and step-by-step guidance in early pilot activities blending global best practices into the specific country situation. Training courses abound, but there is no substitute for knowledgeable advisor(s) who are in position to train, guide and encourage.
8.1.4 Internal reform and change processes. When a project aims to change an agency’s mandate, role and functions, it is essential that an internal change management process be initiated as soon as possible, perhaps as early as before project appraisal. Quite apart from the natural inertia to change, there are often strong reasons for different groups within an organization to resist change, including the simple lack of understanding of what is proposed and what its implications are for the organization. Systematically creating awareness and understanding of the changes and their benefits, and involving different people and groups from within the organization in formulating and implementing changes are essential to the change process. Also Bank task teams should include strong institutional development and management expertise experienced in facilitating and guiding organizational change.
8.1.5 Programmatic approach with strategic partnerships among all participating donors and the government. As this project has demonstrated, the time frames required to accomplish difficult policy, legal and institutional reforms are usually more than the normal life period of conventional lending operations. Also, it is necessary for all donors participating in reform processes to collaborate together and with the government to adopt a programmatic approach that includes a jointly agreed strategy, time-bound milestones, outcomes and impact M&E indicators. The best outcomes can be potentially achieved when donors focus on areas of their comparative advantages to provide strategic directions and technical guidance to stakeholders in achieving the desired milestones and outcomes of the reforms.
OBSERVATIONS ON THE IMPLEMENTATION COMPLETION REVIEW MISSION REPORT OF MAHAWELI RESTRUCTURING AND REHABILITATION PROJECT (MRRP)
The observations of the Mahaweli Authority of Sri Lanka on the Report of the Implementation Completion Review Mission of the MRRP are given below:
- Attaching higher weight to the achievement of Project Primary Development Objective
According to Section 4.1.2, the overall outcome rating is based on attaching a higher weight to the achievement of PDO under Component A of transforming MASL into a river basin management agency and has therefore rated as unsatisfactory. This categorization is considered inappropriate and unfair in the categorization of all other components B,C, and D as highly satisfactory and river basin planning sub-component under component A also branded as highly satisfactory. It is also stated that sustainability of the changes is uncertain given the uncertainty about the completion of the reform process at this time.
The transformation of MASL to a river basin management agency could not progress as expected during the project implementation period due to the following reasons:
At the time of introduction of the VESP in 1998/1999 period, there was no guidance provided lby the World Bank Teams for adherence to a Transition Plan coupled to a list of functions and responsibilities, new organizational structure, staffing plan and a skill development plan for the transformation of MASL to a river basin management agency (the MASL could not follow recommendations of the Tennessee Valley Authority in converting itself to a basin management agency as the VESP was carried out too rapidly under the directions of the Ministry).
There was an understanding that Kala-Oya basin Planning process would be a pilot initiative lto practice river basin management concepts and the successful approaches could be replicated in Mahaweli and other adjacent basins for which provision had not been made under the MRRP; there is a proposal to practice Kala-Oya basin management initiatives with the implementation of the Comprehensive River basin plan and replicate basin planning process in Mahaweli and Maduru Oya basins as part of the MRRP Operational Plan over the next three years; These initiatives are pre-requisites for the transformation of the MASL to a River Basin Management Agency with a clear understanding of the benefits of such efforts.
River basin management concepts could not be promoted among those senior staff members lof MASL who opposed the transformation process as they considered it as a threat for their existence, as majority served as non-professionals and held positions relating to service deliveries;
In the middle of the project life, World Bank Review Missions insisted that MASL should lfollow the National Water Resources Policy and legal framework in its transformation to a river basin management agency which were in drafting stages even at the time of project
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completion and which was beyond the control of the MASL or the Ministry of Irrigation and Water Management; this status has lead to confusion among those who supported the transformation process from within the MASL (example: the number of Mahaweli basins to be managed under the transformed MASL has not been made clear upto date while the draft National Water Resources Act is yet to be finalized by the Legal Draftsman).
As majority of the MASL senior management could not get convinced as for linkages that is lrequired to be developed with the National Water Resources Authority (NWRA) which is yet to be formed, there was reluctance to change, particularly in the light of lack of policy for a fall back position in the event of a long delay in the passage of the National Water Resources Act and the establishment of the NWRA.
The proposal to accommodate 2000 strong staff base within NWRA as a measure towards limplementation of Water Resources Projects compared to the original intention to include 57 staff to serve in the NWRA for regulatory and policy development and co-ordination functions, is considered as a waste of resources to replicate MASL current development functions. These proposals were opposed by many professionals in the MASL and the Irrigation Department which is considered as a disincentive for the MASL senior management to follow the transformation process.
There is a proposal for implementing the transformation process, particularly in establishing the river basin management agency under the MASL Act that is being considered by the MASL in the event of the delays envisaged in the passage of the National Water Resources Act in the Parliament. However, the transformation process need to be driven by a committed panel of professionals consisting of members from the relevant line agencies and the Ministry of Finance and Planning whose decisions should be rational and transparent to MASL senior management.
- Sustainability of Component B Achievements
Component B refers to irrigation rehabilitation and productivity improvements to System H:
This component has achieved the status of `satisfactory performance' in terms of participatory approaches in irrigation rehabilitation, productivity enhancement of water and land resources through promotion of commercial agriculture, bulk water allocation, recovery of operation and maintenance costs of tertiary irrigation infrastructure etc. However, Farmer Organizations and Federations have been active and had shown potential for the formation of self-sustaining bodies in three Blocks out of nine Blocks viz. Madatugama, Meegalawa and Galnewa. There is heavy accumulation of funds within these federated farmer organizations mainly arising from the contributions from the farmers as O&M fees as well as from the savings gained from rehabilitation contracts undertaken and through commercial activities. Hence there is a need to improve the sustainability of other six Block level farmer organizations and federations. A proposal to upgrade the above three Federations and other farmer organizations has been made in the Project Operational Plan (POP). The legality of the Farmer Federations is yet to be established through introduction of amendments to the Agrarian Development Act.
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The cost of O&M is estimated as Rs. 500/- per ha. per year and recovery of costs from the farmers are based accordingly. However, the assumption of this cost as reflected in Section 4.3.1 is Rs. 2,400/- per ha. per year and hence the rate of deterioration of tertiary infrastructure in actual practice may become higher.
The overall status of turning over of O&M responsibilities to Farmer Organizations of all Mahaweli Systems stands at 67%. Although institutional development program was intended to be promoted in all Systems under MRRP, it was confined to System H during the project implementation period. Hence if participatory approaches for O&M functions are to be promoted in other systems there should be a commitment by the MASL to this activity through a lead project, possibly using the POP resources.
- Sustainability of Component D - Dam Safety Program
The Dam Safety component has been categorized as `Highly Satisfactory'. Co-ordination of the activities relating to the establishment of the Dam Safety Management Centre with the involvement of ID, CEB and the MASL staff has been initiated at the Head-works Operation and Maintenance Unit of the MASL. However, funds to implement the investment plan developed under the project need to be activated to ensure safety standards are maintained by the dam caretakers.
Primary Objective: To shift the focus of MASL from project implementation to River Basin Management, thereby ensuring that the natural resources in the Mahaweli river basin/watershed are managed more effectively, productively and sustainably
Primary objective not achieved, but progress sufficiently good to prevent any cancellation of the credit, including provision of a Transitional Plan (TP)
Primary objective not achieved, but could be achieved in the future if necessary legislation is passed and adequate support provided for implementation of the TP. The new Government elected on April 2, 2004 has appointed a Minister in-charge of River Basin Development, but the sustainability is uncertain.
Secondary Objective: To improve the agricultural productivity and incomes in System H through rehabilitation, improvement and better O&M of irrigation facilities, and commercially oriented production systems, less dependent on government assistance.
As shown below agricultural productivity and farmer incomes have improved and there is a reduced dependence on GOSL. But this potential will soon disappear if the MASL continue supporting farmers beyond the life of the project until farmers become self reliant.
Primary Objective Project Outcomes:(i) MASL Board approved Transition Plan including changes in function, responsibilities, organization and staffing of MASL by December 30, 2001
(i)MASL Transition Plan (TP) adopted by Cabinet in July 2003 and is acceptable to IDA.
(i) MASL has appointed six Task Managers to implement the provisions of the TP. However the task teams require TA support and is being provided through the IDA Economic Policy Reform TA Credit. Disposal of MASL business enterprises is at a standstill.
(ii) Amendments or adjustments to the Mahaweli Act, if any, to reflect functions and responsibilities under Transition Plan to manage Mahaweli and adjoining connected river basins, is passed by Parliament by June 30, 2002.
(ii)The national water policy with various reforms including establishment of a National Water Resources Authority passed by Cabinet. National Water Resources Act (NWRA) expected to be laid before Parliament in January 2004.
(ii) Passage of the NWRA may be delayed. It is uncertain if the NWRA would be passed by the Government. .
(iii) River Basin Management (RBM) Secretariat Plan of Work to develop RBM Plan and Transition Plan, June 2000
(iii) Kala Oya Basin Plan expected to be finalized by December 2003.
(iii) Draft final KOBP completed by end-December 2003. It is satisfactory but the implementation is uncertain.
(iv) Mahaweli RBM Plan prepared and approved by GOSL National Water Resources Authority (NWRA) by June 2001
Mahaweli RBM Plan not prepared, instead the scope was reduced to the preparation of Kalaoya basin plan. NWRA not yet established.
(iv) Draft final KOBP completed by end-December 2003. NWRA cannot be legally established until the Water Act is passed. The sustainability remains uncertain.
(v) Transition Plan prepared and internally agreed by September 30, 2001
Transition Plan approved by the Cabinet in July 2003
(v) Transition Plan approved but still to be implemented. MASL has hired short-term international TA to guide the process. The Sustainability remains uncertain.
(vi) Transition Plan implemented by the end of the project, including staff redeployment and retraining
(v) Transition plan expected to be implemented over the period up to end of 2005. But the sustainability remains uncertain at the time of ICR.
Compared with the indicators established at the First Mid-Term Review (MTR)Output Indicators:
Indicator/Matrix
Projected in last PSR1
Actual/Latest Estimate
Secondary Objective Project Outcomes:(i)Eight farmer companies function along fully commercial lines at each block, with viable business plans.
(i)As planned eight farmer companies were set up, but of these four have failed due to loss of their management or shortage of capital. Three remaining companies appear to have a more promising future.
(ii)Greater private sector provision of advice (ii)There has been some successful
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and including demonstration and adoption of new technologies and farming practices, through commercial agreements with farmers’ organizations and companies.
handover of research demonstration and extension advice, as for example through handover of the model farm established with the assistance of China to the Chemical Industries Corporation (CIC).
(iii) Cost effective, strengthened and re-orientated System H management providing services that farmers demand and are willing to cost share.
(iii) MASL support to farmers in System H is well accepted and has had a good impact. However as yet there is no cost sharing, beyond the O&M charge of Rs250 per irrigation season and 6 days farmer labor contribution to keep clean their own parts of the system, both of which represent only a portion of O&M for the D canal and below.
(iv)MASL System H total cost for operation, maintenance, management and provision of all services including irrigation, is reduced by 70% (based on 1997 pre-project total System H cost).
(iv) There is increased participation of FOs in O&M planning and implementation and water management. Savings on O&M as a result of handover to farmers are relatively small in relation to total O&M costs including the main system. Cost savings have also been reduced by improvements in staff salaries which have been increased 60% over the project period. Total cost in Rupees thus shows little change.
(v)One system Farmers’ Organization (FO) federation, and eight federations at block level, carrying out water management functions under a new operating paradigm and partnership with MASL System H Management.
(v) Nine Farmer Federations set up, one on each of the nine administrative blocks. These are operating in cooperation with MASL staff and actively participate all decisions at system level. Those are expected to be absorbed into Irrigation Dept with the propose transfer of under the Transition Plan. Further support will be required in order to ensure FO and system sustainability.
(vi) Greater farmer participation in works execution leading to a higher proportion of cost sharing with farmers, and more successful turnover.
(vi) System H experience has been positive in motivating farmers to participate in rehabilitation and improvement of the infrastructure and subsequent take-over.
(vii) Equitable water allocation and efficient water delivery is ensured by measuring water flow at all points within the system.
(vii) Methods adopted in System H for bulk water allocations and involvement of Water Masters well accepted by farmers as a fair system of water allocation, but sustainability doubtful without continued support, including water measurement and recording.
(viii) Adoption of new technology is reflected by an increase in land use intensity in System H of 150% and an increase in productivity of water of 30%.
(viii) Data provided to the ICR mission indicate that cropping intensity has risen from 135% to 163% and productivity of water has increased by over 30%.
(ix) A 20% increase in overall farmer productivity and income.
(ix) Data provided on changes in area cultivated and cropping pattern indicate that farm incomes have increase by around 25%
System H Project Outputs(i) Project management at System H enhanced by addition of a Private Sector Development (PSD) team to promote enterprise and business development, and advise DCFO and emerging farmer companies and initiatives, by June 2000.
(i)The PSD team of 12 specialist staff was established in mid-2000 and has been quite successful in linking DCFOs with buyers - at the end of the project there were reported to be over 25 private buyers in System H
(ii) Plan for System H restructuring and management by June 2000 including water services, operations, business management processes and procedures, maintenance, and administration.
(ii) The project has successfully developed a comprehensive, integrated and unified approach to irrigation system rehabilitation and management transfer.
(iii) Plan for training and redeployment of System staff, further downsizing as
(iii) No investment has been made for crucial communication need in supply of irrigation
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necessary, and investment in modernization (communications, information systems, business management etc.) by June 2000.
water to DCFOs. A contract for communication systems has been put on hold. Contract value is about Rs 3.96 million (US$ 41,258) or about US$1.3 per ha. Other viable GIS system has not yet been introduced.
(iv) Installation of calibrated measuring devices where rehabilitation has been completed by June 2000 and all rehabilitation works thereafter.
(iv)About 450 water measuring devices installed and calibrated with the DCFO water masters through on-the-job training post-implementation. Total cost per ha post-implementation including installing water measuring devices and intensive farmer training estimated at Rs 3,154 (US$33) per ha.
(v) All essential rehabilitation works completed, DCFOs formed, and systems handed over by the end of the project
(v)Net irrigated area improved/partly modernized is about 28,790 ha, of which 85% successfully turned over to Farmer's Organizations, against 31,500 ha envisaged at appraisal. Balance will be handed over in 2004.
(vi) System H management, staffing, business and operation plan implemented and functional by end of the project.
(vi) MASL staff will be absorbed into the Irrigation Department and be responsible for System H O&M. MASL has recently made an operation plan for future O&M of project works, but without much consultation. Adequate allowance must be made for operating costs. Careful review will be needed to ensure that adequate provision is made for O&M of the main system. The plan should specify O&M-related performance indicators that can be used to monitor operation and development impact and the use of maintenance funds by DCFOs.
1 End of project
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Annex 2. Project Costs and Financing
Project Cost by Component (in US$ million equivalent)AppraisalEstimate
Actual/Latest Estimate
Percentage of Appraisal
Component US$ million US$ millionA. Institution RestructuringMASL Rightsizing & Staff Training/Redeployment 24.90 22.10 88.8Promoting Farmer Sustainability 1.20 1.10 91.7Privatizing Business Units/Handover of Infrastructure 0.40 0.00 0Strengthening Natural Resource Management 2.40 1.00 41.6sub total 83.7B. Irrigation Rehabilitation & Improvement in System HHeadworks 10.90Downstream works 28.70C. Village Self-Help Learning Initiative Pilot 0.50D. Dam Safety 0.70Z. Resettlement of Conflict Affected Persons 5.40
Total 1.99 29.18 35.53 1.70 68.40(1.69) (25.32) (29.99) (0.00) (57.00)
1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff
of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.
Project Financing by Component (in US$ million equivalent)
Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal
Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.Institution Restructuring 20.70 8.20 28.90 19.50 4.70 24.20 94.2 57.3 83.7
Irrigation Rehabilitation & Improvement System H
32.40 7.20 39.60 31.50 6.40 37.90 97.2 88.9 95.7
Village Self-Help Learning Initiative Pilot
0.00 0.40 0.40
Dam Safety 0.60 0.00 0.60Resettlement of Conflict 5.40 5.40
Actual Govt total:Including US$1.51 million contribution from beneficiaries.
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Annex 3. Economic Costs and Benefits
1. Economic Analysis. The economic analysis and recalculation of the economic rate of return has been made in a manner comparable to that used at appraisal and with a closely similar result. The calculations are detailed in Working Paper 3 and the result of the analysis summarised in the following table. The base case economic rate of return is calculated at 15% with an NPV at a 12% discount rate of Rs524 million (US$5.5 million).
At Appraisal
At ICR
Base case 14 15Benefits down by 20% 11 12Benefits down by 35% 10 9Benefits lag by 1yr. & costs up 40% 10 9Benefits lag by 2 years & costs up 20% 10 10Benefits lag by 3 years & costs up by 10% 10 9Cost overrun of 30% 11 11Benefits down by 15% & costs up 20% 10 1020 year project life - 13Incremental O&M at Rs2,400 (US$25) per ha. - 1420 yr life and incl. O&M at Rs2,400 per ha. - 12
2. Financial Analysis. The project’s impact on farm family incomes has been based on a typical 1 ha irrigated area farm model, comparable to the analysis conducted at appraisal. The details of the calculations are provided in Working Paper 3 and the full presentation of the estimates and assumptions used for the farm model are provided in Working Paper 2. The results of the financial analysis and comparison with the appraisal expectations are summarised in the following table.
Pre and Without Project With Project Change................Rs............. %
Farm income from 1ha irrigated (ICR estimate) 73,300 98,100 +34Farm income from 1ha irrigated (PAD estimate)(In late 1997 Rs terms)
52,100 69,800 +34
Farm income from 1ha irrigated (PAD estimate)(In 2003 Rs terms)
78,150 104,700 +34
Return per farm family labor day (ICR estimate) 882 750 -15Fiscal Impact. Details of the impact of the project on the cost of MASL, based on information provided by the Authority is given in Working Paper 3.
The apparent fiscal impact and savings reported by MASL compared with those expected at project appraisal are summarized in the following table.
PAD Estimate ICR Estimate ICR as % of PAD.....Rs million.... %
Staff reduction 1,870 2,520 135Privatization 583 (no estimate) -
Transfer of O&M responsibilities 400 58 15Total 2,853 2,578 90
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Annex 4. Bank Inputs
(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty
Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)
RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA
SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA
Capacity building of DCFOsPrivate sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA
Lending HS S U HUSupervision HS S U HUOverall HS S U HU
6.2 Borrower performance Rating
Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU
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Annex 7. List of Supporting Documents
1. Project Completion Report. Major Irrigation Rehabilitation Project (Cr. 1537-CE).2. Mahaweli Restructuring Project. Preparation Mission,3. Mahaweli Restructuring Project. Interim Preparation Mission. (Volume IV of IV). Cost Tables.4. An Analysis of the Recurrent Budget of the Mahaweli Authority of Sri Lanka.5. Mahaweli Restructuring and Rehabilitation Project. Project Launch Mission (11-20 May, 1998).
Agreed Aide-Memoire.6. Mahaweli Restructuring and Rehabilitation Project. Strategy and Action Plan for the Turnover of
Distributary and Field Canal Systems of Mahaweli.7. Dam Safety and Reservoir Conservation. 19 December 2000.8. Campaign to Protect Common Water Rights.9. Mahaweli Experience of River Basin Planning and Management for SASNET-RBO Regional
Planning Meeting. 10-12 January 2002 in Kandy.9. Mahaweli Restructuring and Rehabilitation Project. Progress Report – 2nd Quarter 2002.10. Mahaweli Restructuring and Rehabilitation Project. Progress Report – 3rd Quarter 200211. Mahaweli Restructuring and Rehabilitation Project. Revised Consolidated Action Plan Years
Years 2002 – 2003. Volume 2 – Detailed Activity Plan.13. Background of Financial Crisis in System “H”.14. Baseline Survey of the Mahaweli System “H” 15. Regaining Sri Lanka and PRSP. Compelling the Poor to Subsidize the Rich.16. Mahaweli Restructuring and Rehabilitation Project. Performance Report by end June 2003.17. Mahaweli Restructuring and Rehabilitation Project. An Independent Technical Audit of System
“H” Rehabilitation Works. Final Report18. Overall Project Achievements in System “H” Under Mahaweli Restructuring and Rehabilitation
Project.19. Letter dated 4 September 2003 from D. M. Ariyaratne, Project Coordinator MRRP to Mrs. Rohini
Nanayakkara, Director General, External Resources Department.20. Water Master Handbook.21. Welcome World Bank Review Mission dated 5 November 2003.22. Mahaweli Restructuring and Rehabilitation Project. Project performance and Rehabilitation
Project. Project Performance by end September 2003.23. Field Program of World Bank Review Mission in Kala Oya Basin. 5-7 November 2003.24. Mahaweli Restructuring and Rehabilitation Project. Project Operation Plan (Draft). January –
