Report No. 25665-PK Pakistan Public Expenditure Management Accelerated Development of Water Resources and Irrigated Agriculture (Volume II) January 28, 2004 Environment and Social Development Sector Unit Rural Development Sector Unit South Asia Region Document of the World Bank CURRENCY EQUIVALENTS Currency Unit =PakistanRupee US $1 =PKR 57.8 FISCAL YEAR July 1-June30 ACRONYMSAND ABBREVIATIONS ADB Asian Development Bank MIS Management information system ADP Annual Development Plan MOWP Ministryof Water and Power AWB Area Water Board MTEF Medium Term ExpenditureFramework BCM Billion cubicmeters MTIP Medium Term InvestmentPlan CCA Canal command area NDP NationalDrainage Program DMP Drainage Master Plan NDS NationalDrainage System EFR Environmental Flow Requirement NSDS National SystemDrainage Study EIRR Economicinternalrate of return NWFP North West Frontier Province FATA Federally Administered Tribal Areas NWP NationalWater Policy FGW Fresh groundwater OFWM On-farmwater management FO Farmer organization O&M Operationsand Maintenance GDP Gross developmentproduct PIDA Provincial Irrigation and DrainageAuthority GIS GeographicInformation System POE Panel of Experts GOP Governmentof Pakistan PRHS Pakistan Rural Household Survey HYV High yielding variety PSDP Public SectorDevelopment Program IBIS Indus basin irrigation system PV Present Value IDA International Development Association RAP RevisedAction Plan IPPS IndependentPower Producers RBOD Right Bank Outfall Drain IRSA Indus River System Authority SCARP Salinitycontroland reclamation program ISRP Irrigation SystemRehabilitation Project TYPP Ten Year PerspectivePlan IWRM Integratedwaterresourcemanagement WAPDA Water and Power Development Authority KESC Karachi Electricity SupplyCompany WMO Water Management Ordinance LBOD Left Bank Outfall Drain WSIPS Water SectorInvestmentPlanning Study Mac Million acres wss Water SectorStrategyStudy MAF Million acre-feet WUA Water user association TERMS Abiana Water charge for canal irrigationservice assessed on the basis of "matured crop" acreage,crop, and canal command Kharif Summergrowing season (mid-Apd to mid-October) Rabi Winter growing season (mid-Octoberto mid-April) UNITS 2.54 acres = 1hectare 1MAFJmonth = 16,850 cfs = 477.2 m3/sec 1acre foodday =0.5 cfs = 14.3litershecond 1million acre feet = 1.235billion cubic meters Vice President: Prall Patel, SARVP CountryDirector: John W. Wall, SACPK SectorDirector: Sadiq Ahmed, SASPR SectorManager: Ijaz Nabi, SASPR Task Managers: Paul Wade, SASPR, Hanid Mukhtar, SASPR Parvez Hasan, Consultant TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................... i 1. Introduction......................................................................................................................................... 1 2. Background:Achievements andIssues.................................................................................. 3 Role of Agriculture inthe Pakistan Economy ........................................................................................ 3 The Ultimate Threat to Sustainability-Water Logging and Salinity .................................................... 5 Water Resources and Agriculture ........................................................................................................... 8 The Inter-Provincial Water Apportionment Accord ............................................................................. 11 Environment Flow Requirements inthe Lower Indus River................................................................ 15 Poverty, Water Availability, and Agricultural Productivity ................................................................. 16 3. PublicSector DevelopmentPrograms................................................................................. 21 Trends inPublic Expenditure for Water and Agriculture ..................................................................... 21 InvestmentPrograms from the 1960sto the 1990s............................................................................... 21 The Emergence of a Programof Governance Reforms inthe 1990s.................................................... 22 4. Operations andMaintenanceExpendituresandPerformance............................................. 29 Provincial Operations and MaintenanceBudgets ................................................................................. 29 Cost Recovery....................................................................................................................................... 32 Changes inthe Structure o fWater Pricing and the Flow of Revenues................................................. 35 5. Water Disputesand StrategyDebate: Policy and StrategyFormulation........................ 40 The Challenges at the Close ofthe 1990s............................................................................................. 40 The Government's Responses to Water Shortages............................................................................... 40 Water Resource Development Challenges............................................................................................ 43 A Framework for Formulatinga Strategy............................................................................................. Strategic Questions and Issues.............................................................................................................. 45 60 Changing the Paradigmto Water Management .................................................................................... 62 6. ProposedWater Sector InvestmentPlans.................................................................................. 64 7. Federal& ProvincialInvestmentTrends and Options........................................................... 69 Key Issues inthe Emerging Portfolio ................................................................................................... 70 Comparison o f the FederalFY03 and FY04 PSDP .............................................................................. 72 Extension of the FY04 PSDP Portfolio over the MTEFPeriod ........................................................... 75 InvestmentTrends and Options ............................................................................................................ 77 8. The Way Forward............................................................................................................................ 83 Key Water Policy Responses ................................................................................................................ 83 Addressing Strategic Questions and Issues........................................................................................... 84 What needs to be done .......................................................................................................................... 86 Annex A: A Note on "Canal Basin Water Management Plans" Annex B: Provincial InvestmentPlans. Federal PSDP and Provincial ADPs Annex C: Review o f Projects inthe Core andNon-Core Portfolios TABLES 9 Table 2.2: Water Availability at the FarmHeadinthe Indus Basin System ................................................ Table 2.1: Average Water Balance o f the Indus River System..................................................................... 9 Table 2.3: Inter-Provincial Water Accord Allocations ................................................................................. 11 Table 2.4 Shortfall inMeeting the Accord Allocations ............................................................................... 13 Table 4.1: Irrigation DepartmentBudgets Since 1992 ................................................................................. 29 Table 4.2: Abiana Assessment and Recovery Performance (Rs. million) .................................................... 33 Table 5.1: Summary o f MOWP Water Sector Strategy Proposed Investments............................................ 42 Table 5.2: Sub-sector Investments inthe MOWPWater Sector Strategy.................................................... 43 Table 5.3: Water Resources Available to Meet Future Development Needs................................................ 47 Table 5.4: Summary o f Incrementaland ProjectedWater Requirements..................................................... 49 Table 5.6: Cost and Economic Retums for Proposed Major InvestmentProjects........................................ Table 5.5: Present Power Generating Capacity ............................................................................................ 50 57 Table 5.7: PotentialWater Savings from Improved Efficiencies ................................................................. 59 Table 5.8: Watercourse Improvement Program Needs................................................................................. 60 Table 6.1: TYPP Objectives for Water Resources and Agriculture.............................................................. 65 Table 6.2: TYPP Strategy for Water Resources Development (2001-2011) ................................................ 67 Table 6.3: Common Features of Proposed InvestmentPlans (MTEF Period) .............................................. 68 Table 7.1: Emerging Water Sector Portfolio Duringthe MTEF Period (FY03-07) ..................................... 69 Table 7.2: Summary of Resource Allocation inthe Emerging Portfolio...................................................... 70 Table 7.3: Comparison o f FY03 and FY04 PSDPs ...................................................................................... 72 Table 7.4: Comparison o f FY03 and FY04 PSDP Resource Allocations ..................................................... 73 Table 7.5: PSDP FY 2003-04 Portfolio Projected over the MTEFPeriod................................................... 74 Table 7.6: Projection of Total PSDP Allocation ........................................................................................... 76 Table 7.7: Summary o fMOWP's MediumTerm InvestmentPlan (MTIP) 2003-07................................... 76 Table 7.8: PSDP 2003-07 Portfolio by Major Category o f Investment........................................................ 78 Table 7.9: Altemative Paths for PSDP Growth............................................................................................ 80 FIGURES 3 Figure 2.2: Pakistan ComparativeTrends: Population. Water Use and Productivity ..................................... Figure 2.1:Per-capita GDP. FoodProductionand Total Population.............................................................. 4 Figure 2.3: Annual IndusRiver Flow. Diversion. and "Escapage to the Sea"................................................ 8 Figure 3.1: Public Sector Expenditures........................................................................................................... 21 Figure 4.1: O&M Budgets (incurrent terms) .................................................................................................. 30 Figure 4.2: Comparison o fRevenue and Expenditures inPunjab (incurrent terms) ...................................... 33 Figure 4.3: Abiana Assessment and Recovery inPunjab (incurrent Rs)........................................................ Figure 4.4: Concept ofwater Revenue Flows inthe Future........................................................................... 37 34 Figure 5.1:Variation inAverage Monthly Hydropower Generating Capability ............................................ 51 Figure 5.2: Average Capacity Utilizationo fMain Hydropower Plants .......................................................... 52 Figure 5.3: Variation o f Annual Hydropower Energy .................................................................................... 52 Figure 5.4: Existingand IncrementalDiversion and Flow below Kotri Barrage............................................ 52 Figure 5.5: Probability o f Satisfying Target EFRs.......................................................................................... 53 Figure 5.6: Probability that Incremental Storage Capacity Fills ..................................................................... 54 Figure 5.7: Storage Depletion Due to Sedimentation ..................................................................................... 55 Figure 7.1: Comparison o f FY03 and FY04 PSDPs ....................................................................................... 73 Figure 7.2: Comparisono f Emerging Portfolio with PSDP Trends ................................................................ 74 Figure 7.3: Comparisono f Total MTEF Expenditures ................................................................................... 75 Figure 7.4: Altemate PSDP Growth Paths ...................................................................................................... 80 Figure 8.1: Concept o f Water Revenue Flows inthe Future........................................................................... 84 ACKNOWLEDGEMENTS This review was undertaken by Usman Qamar' (Task Leader) and Walter Garvey2 as a part o f the Pakistan Public Expenditure led by Parvez Hasan. The review i s based primarily on the Ten-Year Perspective Plan (September 2001) o f the Pakistan Planning Commission, the four reports that constitute the Water Resources Strategy Study (WSS), completed in October 2002 by the Ministry o f Water and Power (MOWP) with the assistance o f the Asian Development Bank (ADB), and the draft National Water Policy reports completed in September 2002 (final draft) by MOWP under the ongoing National Drainage Project (NDP) supported by the World Bank. Inaddition, the review was informed by a comprehensive workmg paper, "Pakistan Public Expenditure Review: WorkingPaper on Irrigation, Drainage and Water Resources Development (April 2003) ", prepared by M. Aslam Rasheed and Muhammad Ehsan, World Bank Consultants. The review has also drawn upon extensive discussions with Sakwa Bunyasi, Nagaraja Rao Harshadeep, Aziz Bouzaher, Qazi Azmat Isa, and Vaqar Zakaria, as well as the sage and thoughtful advice o f Parvez Hasan (PER Team Leader). Saeed Rana and Aftab Raza commented on early drafts. Shams U1Mulk, Hans Binswanger, and Tariq Husain provided Peer Review. Written comments were also received from Aslam Saleem Khan, Member - NWFP, Indus River System Authority (IRSA), Mazhar Ali, Advisor, Irrigation and Power Dept., Government o f Punjab, and from Mohammad Ismail Qureshi, Federal MinistryofFinance. The draft Report was discussed with IRSA in M a y 2003, with the Planning Commission, Ministry o f Water and Power, WAPDA, IRSA, and representatives o f the four Provinces on July 2-4, 2003, and with the Secretary, Planning and Development Division and Planning Commission staff on September 11, 2003. Senior IrrigationSpecialist,RuralDevelopmentSector Unit, SouthAsia Region,WorldBank IslamabadOfice. Senior Water ResourcesAdvisor, SouthAsia Region,WorldBank, Washington. PAKISTAN PUBLIC EXPENDITURE MANAGEMENT Accelerated Development of Water Resources and IrrigatedAgriculture VOLUMEI1 EXECUTIVE SUMMARY 1. In Pakistan today, agriculture is a major part of the economy and one o f the key engines o f overall economic growth. Agriculture today i s estimated to contribute about 25% o f GDP, employ nearly 50% o f the rural labor force, and to be responsible directly or indirectly for 60-70% o f exports. Within the agnculture sector, crop production (principally wheat, cotton, sugarcane and rice) accounts for about 59% o f value added and livestock about 38%. Increases in water resources available for irrigation and expansion o f irrigated area have played a central role in agriculture growth since the 1960s. Agriculture now uses an estimated 95% o f available water resources, and irrigated land i s responsible for about 80% o f agncultural production. Total irrigated area in Palustan i s about 46 Mac, about 82% o f the irrigable area. Nearly 97% o f this irrigatedarea i s inthe IndusBasin. 2. As Table 1indicates, average surface water availability to the IndusBasin irrigation system has changed little since the late 1970swhen Tarbela Dam was completed, but the growth in groundwater use has been explosive - growing fromjust 8% o f water available to farmers in 1960 to over 40% inthe late 1980s -- after which time it appears to have changed very little. The recent drought amply demonstrated the importance groundwater has played in expanding and stabilizing irrigation water supplies. However, one critical consequence of this growth is that because drainage and evacuation of saltfrom the basin is inadequate, increasing amounts of salt are circulating vertically in the system, progressively poisoning the soil. Table 1: Water Availability at the Farmheadinthe IndusBasinSystem Water Availability at FarmHeadh4AF IrrigatedArea Year Canal Water Groundwater Total mC Acre-ft/ Acre 1960-61 48.4 4.2 52.5 25.7 2.04 1967-68 56.8 11.7 68.5 30.9 2.22 1977-78 61.6 27.8 89.4 35.1 2.55 1985-87 61.4 40.9 102.3 39.8 2.57 1990-91 65.0 41.0 106.0 41.9 2.53 1999-2000 61.5 41.6 103.1 44.0 2.34 Source: GW, Water Vision 2025 Country Report. The Problemof Sustaining Growth 3. Should Investment in Water Resources and Irrigation be Accelerated? Post Tarbela, the Government tried to recapture the momentum o f the Indus Basin Program o f the 1960s and early 1970s. A major planning program was launched in 1979 (RAP) and again in 1990 (WSPS), but the required actions could not be taken and the investments could not be made. Investments in the mobilization o f additional water supplies for irrigation and expansion o f irrigated area have been neglected for over twenty years. Forecasts o f widespread increases in cropping intensity and productivity have not materialized. Despite efforts to improve operation and maintenance o f irrigation infrastructure since the 1980s, modest ad hoc investments inrehabilitation have failed to stem the deterioration o f infrastructure, service has remained unreliable and inequitable, and no investments inmodernization and remodeling to serve future needs have been undertaken. The recent drought exposed the vulnerability o f the vast Indus Basin irrigation system and the environmental conditions in the lower river and estuary, and focused attention on the need for additional storage to improve and increase supply and provide greater operating flexibility and assurance. There is little doubt that water sector investment must increase substantially, and that the need for investment in modernization and improvement at all levels of the Indus Basin irrigation system including the addition of new storage is great, but this comesjust at the time whenfiscal space is limited and the challenges and needs are great. 4. Water Supply Expansion. Water availability has been a key engine o f agriculture growth, but supply options are increasingly costly and approaching their physical limits, and managing demand (efficiency, productivity, pricing, water entitlements, etc.) has received too little attention. Total storage and diversion o f Indus River flow has remained relatively constant at about 103-104MAF (Figure l), 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01 and there remains a large but highly variable flow that i s unused except in the lower Indus River and estuary. At present the limited storage available (about 12.8 MAF) i s fully utilized, and canal head diversions can increase only during very high flow years (a maximum o f about 10% o f the average) at some risk to the canal system because o f the high sediment loads. Hence, although there appears to be significant scope for additional surface water resources development in Figure 1, this i s limited if additional storage i s not developed. Assuming optimistically that two new storage reservoirs could be built on the Indus River over the next 25 years, these would add at most about 8 to 12% to the total water supply to the Indus basin irrigation system. But, as the aggregate amount o f annual storage and diversion increases, security or reliability o f supply will diminish, management challenges will greatly increase, and there may be increased and possibly irreversible environmental impacts in the lower Indus River and its estuary. Among alternative supply options, groundwater development i s already nearing its practical limit, and water conservation may be able to add only about 5% to total supply. 5. Security and Environmental Flow Requirements. The aim o f expanding storage capacity i s not only to increase supply but also to increase security or reliability o f supply. Figures 2 and 3 show two important ways in which aggregate water supply reliability may decline as total system storage and diversion on the Indus River are increased. These charts are based on a rough and simplified simulation usingthe annual flows o f the IndusBasin (Figure 1) and current total diversionas reportedinthe Ministry o f Water and Power's Water Sector Strategy (WSS). They assume that all the incremental aggregate storage i s operated inthe same manner as i s presently done (all storage i s released and diverted inthe rabi season. If some o f this storage were carried over to the succeeding kharifseason then the performance shown in Figure 2 might be somewhat better. The actual performance o f the enhanced system can only be determined using a detailed hydrologic simulation model o f the Indus Basin and all its irrigation and water use infkastructure. 6. Figure 2 shows the variation o f the probability o f meeting targets for Environmental Flow Requirements (EFR) in Sindh inthe lower IndusRiver below the Kotri Barrage at different levels o f total incremental aggregate storage and diversion from 10 MAF to 25 MAF (the latter i s just above the WSS target o f 22.5 MAF). Up to about 20 MAF the EFR i s available in roughly 3 out of 4 years and more 11 frequently at lower levels o f incremental storage and diversion. But, above 20 Figure 2: Probabilityof SatisfyingTarget ERls MAF-the availability o f the target EFRs f 1 I drops quickly below 3 out o f 4 years. At -90% present this EFR target could only be met inthe kharifseason, since there is no river E 70% - `. flow or reservoir storage that i s not already f 60% - allocated to irrigation in the Accord (if t Y some o f the incremental storage were 50% - carried over to the succeeding kharif 40% 4 season to make up the current Accord 10 15 20 25 Deficit, then the level o f performance IncrementalStorage and Diversion(MAF) shown inFigure 2 may improve). 7. Presumably one objective o f both I the M O W ' S WSS proposals to increase Rgure 3: Probability That Incremental Storage Capacity fills storage capacity by 22.5 MAF i s to (Rood Canal Diversion= 5 MAF) improve water supply reliability (in response the recent drought experience) as well as availability. However, Figure 3 suggests that as the aggregate level o f storage and diversion i s increased to the levels proposed by both the WSS and WAF'DA, supply reliability will decline, al 0.0%i particularly at higher EFR target levels. 10 15 20 25 Even at significantly reduced EFR target Total Incremental Storage Capacity (MAF) levels, say 5 MAF instead o f the 10 MAF that has been discussed, storage efficiency drops below 75% at the 15 MAF level, and to about 65% at 20 MAF. Inthe specific caseo fthe proposedraisingofManglaDam, a similar problemofdiminishedwater supply reliability will occur after the dam is raised. The current reservoir has filled in 28 out o f the 34 years o f record (82% o f the time), but the incremental reservoir storage o f 2.9 MAF that will be created whenthe dam is raised 30 ft.will have areliability o fjust 72%. 8. Balancing Future Water Supply Table 2: Water ResourcesAvailable to Meet Future and Demand. Table 2 summarizes the DevelopmentNeeds averagethe and flow oremaining River to the sea, f the Indus potential for Source(MAF) Kharif Rabi Total groundwater development and savings Average Annual Flow to the Sea 35.6 2.4 38.0 from water conservation measures. Additional Groundwater 1-2 Nearly the entire rabi season (dry season) Savings from Water C ~ m ~ ~ t i o n 5-10 flow o f the IndusRiver i s utilized. Infact, Total 44-50 the rabi season flow plus nearly all the storage o f IndusRiver flow inthe previous kharifseason in existing reservoirs (currently about 12.8 MAF at Tarbela and Mangla), i s fully allocated in the Accord duringthe rabi season. The average flow to the sea inTable 2 represents the potential amount o f surface water remaining to be developed and used. Only a small, uncertain amount of additional groundwater is available (1-2 MAF) and savings from water conservation over the long-term may be between 5 and 9 MAF. ... 111 9. Table 3 summarizes the projected future Table 3: Summary of IncrementalandProjected requirements. The low end o f the range would Water Requirements b&g total development to a level nearly equal to the annual average flow o f the Indus River, Demand Volume (MAF) almost certainly not an economically viable EnvironmentalFlow Requirements 10 proposition in Palastan. All these future Disposalof Salts andPollutants ? demands cannot be met - some important Urbandomesticandindustrialdemand 9 tradeofls are going to be required, expectations AccordDeficit 11 lowered, policies changed especially in regard IncreaseinIrrigationWater Demand 5-30 to water prices and energy prices for SystemLosses 5-10 groundwater usefor agriculture, and changes in EstimatedTotal 40-70 the way water is managed and used implemented. This does not mean that Pakistan must give up on food security and export goals, poverty reduction goals, or the Millennium Development Goals (MDG). It does seem to mean that ifthese goals are to be achieved, water has to be used much more productively and eficiently, and above all, its quantity and quality managed more wisely and well. 10. Water Demand Management. The Government's main focus has been on solving water problems by focusing primarily on the supply side o f the equation. The demand side - water delivery and use efficiency, governance, water pricing, rehabilitation and modemization o f infrastructureand improved O&M, incentives for wise and more productive use o f water - has been recognized as important but receives comparatively less investment attention inthe TYPP, though it features more prominently inthe MOW'SWater Strategy Study. This is inpart due to the division o fresponsibility betweenthe Provinces and the Federal Government interms o f primary responsibilities for investment finance since much o f the responsibility for demand side investment and irrigation water distribution lies with the Provinces. Moreover, given the relatively small Provincial ADPs (Annex B), it i s hard to see how these issues will be adequately addressed without direct Federal financial assistance. Nevertheless, the question arises as to whether, without greater attention to these demand side issues and constraints, Federal expenditures on major system level infrastructure (dams and new canals) can have the desired economic impact. 11. Modernization and Rehabilitation of Water Distribution. Pakistan's irrigation distribution system was designed to distribute water with minimum human interference, and at l o w operation costs with minimuminformation and communications. There are few structures to regulateflow, no escapes to remove excess flows, and for example, outlets runwhenever the distributary or minor i s running. These design and operation principles were suitable for l o w cropping intensity (the original intent) but are now constraints on water management to maximize crop production and productivity. Moreover, while many common principles were used inthe design o f the Indus Basin canal system, there are important physical, social and economic differences between and within canal commands. The growth and extent of private groundwater use and progressive water logging and soil salinization are just two examples. Others have only emerged as constraints or problems over the intervening years o f development and use. These differences strongly influence the approach that should be used for the modemization o f each individual canal to improve and increase its physical and economic performance. The selection o f canal reaches to be lined i s another important example of a highly area specific issue that requires an integrated approach. Inthe past, sporadic efforts have been made to rehabilitate parts of the canal network, or to improve drainage here and there, but inthe absence o f a comprehensive and integrated approach, effective farmer participation, and other changes upstream and downstream including improvements in O&M, these efforts have not led to overall improvements in either physical or economic performance. The current dilapidated state o f the irrigation system bears witness that the expected improvements have not materialized, and there i s ample evidence that it has worsened. Regardless whether additional water i s made available at the canal head inthe future or not, the imperative will remain to make optimal use o f all iv water resources, both surface and groundwater, within the canal command, or more appropriately within the "canal basin" (the combination o f the canal command area and the drainage area). 12. Control and Management of Salinity and Waterlogging. The expansion o f irrigated agriculture inthe Indusplain hasresultedinaprogressiverise ofthe groundwater table andthe buildupo f salts inthe soil and groundwater from surface water inflow for irrigation, overuse o f irrigation water, and mobilization o f salts from groundwater. Continuous addition o f salts to agricultural soils, groundwater aquifers, and some water bodies i s a major productivity and environmental risk that ultimately threatens the viability o f irrigation in the Indus Basin. Research in Punjab, for example, has found that the substantial positive effect on crop sector productivity growth in four different major cropping systems stemming from technological change (change in cropping intensity - directly attributable to increased imgation supply and percent area in modern varieties o f wheat) and public investment (roads and - literacy) were partially offset (by 57 to 74%) or completely offset (inthe case o f the wheat-rice cropping system) over the period 1971-94by the negative impact o f soil and water quality degradation. 13. Curative measures will be needed to control and reverse the effects o f severe water logging and soil salinity on nearly 7 Mac o f land. These may include lining o f canals in some saline ground water areas, improvement o f watercourses and introduction o f on-farm drainage and land-leveling, improvement o f existing and creation o f new drains including a trunk or spinal drain in the upper and middle basin, and conjunctive management o f canal water and groundwater. But these very large investments that would be carried out over a long timeframe may not be able to arrest or even keep up with the pace o f soil and water quality degradation if there is not a balanced commitment to preventive measures including adjustment o f canal allowances, promotion o f changes in irrigation practices to eliminate over-irrigation and increase efficiency, better on-farm water management, changes in water pricing, andbetter groundwater monitoring and management. 14. Groundwater Management. Groundwater use in the Indus basin has more or less reached the upper limit and there i s very little potential for a further increase. While estimates o f total availability vary over a significant range, regardless which estimate one subscribes to the difficulty o f approaching the limit in the presence o f saline water adjacent or below the freshwater zone when nearly all groundwater i s developed privately requires that planning assumptions be very conservative and limited to perhapsjust 1-2 MAF or less given today's limited knowledge and information base and the lack o f a management system. Because o f the presence o f highly saline water in the aquifer over large areas includingbelow the fresh water insome cases, there i s a very grave risk o frapidly increased water quality deterioration and soil degradation as the safe limits o f development are approached, and in some areas there i s a risk o f a reversal and loss o f this valuable source of water because o f salinity. The greatest threat may comeform fast growing cities and industries lookingfor large increases in water supply that can be developed rapidly. Infact, rather than loolung to groundwater for additional development by, for example, increasing power subsidies or tubewell subsidies (since groundwater development i s largely private at present), Palustan must urgently intensify its efforts to monitor and manage this source o f water (its critical regulatory function inwhat has become a public-private partnership). The Government's most important tool in this regard is to properly price water and power in the agriculture sector. It should gradually withdraw all subsidies for fuel and power use, as well as for tubewells, for groundwater abstractionfor irrigation. 15. What is The Role and Scopefor Water Conservation? Water conservation and increases in the productivity or value of water are not an alternative so much as an imperative, since no amount of infrastructure investment is likely to make Pakistan or the Indus Basin system "water abundant". Any sensible strategy for Pakistan would include water conservation just as it would some level o f expanded and more reliable water supply inresponse to the issues and problems outlined earlier. However, various estimates put the potential savings from current supply at about 4.7 MAJ?,just 5% o f the current average V availability o f surface water in the Indus basin, primarily by lining o f watercourses and land leveling under the On-Farm Water Management (OFWM) programs o f the Provinces. 16. Moreover, water conservation i s strongly linkedto efforts to solve the chronic problem o f the l o w productivity o f water - these two initiatives - water conservation andproductivity enhancement -- should be seen as two complimentary components of a single program that closely coordinates and carefully sequences agricultural investment and policy, investments upstream in the canal network for modernization and improvement, with watercourse improvements. Unfortunately while there i s considerable experience already in Pakistan with the core elements o f water conservation - watercourse lining and land leveling - progress and experience on raising the productivity o f water use, improving watercourse maintenance, organizing sustainable W A S , or introducing water saving irrigation technology and crops i s seriously deficient. Water conservation and efflciency gains are achievable provided that farmers, who must share in the cost of these measures, beneJitfrom the savings - not only because equity is improved andpreviously un-servedfarmers now get water, but also because allfarmers in the improved canal command are able to decide how to use the saved water to increase their production and income. This suggests that rationalization o f water rights between the provinces and in the canal networks down to the level o f the farmer organization should be a policy priority. The FutureofWater Managementwill be differentfrom the past inimportantways 17. The response of the Government to the recent drought and political conflicts over water has been to propose a huge investment program inwater resources development (nearly US$8 billion over the next ten years, and over U S 3 0 billion by 2025). More than three-fourths o f this investment would be for new storage dams, hydropower capacity, and for new canals. Inthe 1960s planners were faced with some o f the same challenges the country faces today - including what was the best strategy to restore and sustain a sufficiently high agncultural growth rate, whether to add surface water storage to the system and how much should be added, how would groundwater be used inconjunction with surface water and what parts of the canal network should be remodeled, how to integrate salinity and waterlogging control into the overall program, and what operating policy should be adopted to maximize the benefits from power and irrigation. 18. Today, Palustan i s again facing some of the same challenges and i s approaching the limits o f its water resources development potential. The Govemment's main focus has been on solving water problems by focusing primarily on the supply side o f the equation where there i s clearly the physical potential for development; i.e., there i s water that can be developed and there is land on which it can be used, and there are ample numbers of poor farmers who would benefit from additional water supplies. Butthe outcomes the Government is seeking interms o fbothpoverty alleviation and development o f the rural economy can be achieved ina number o f different ways that have different costs and different risks. 19. The combination o f highpopulation growth, persistent poverty, lagging growth inthe rural sector, and the looming constraints on water resources and irrigation development outlined in this Report suggests that water resources development and management in the next 40 years will be and must be by design substantially different than thepast 40years. The strategy going forward must: .. Better integrate irrigation, hydropower and agncultural development investment and policy Modernize both the water infrastructure and the institutional and governance arrangements for water management Balance near-term and long terms benefits, investments inbothwater infrastructure and water management, and inboth supply management and demand management vi Reflect a more rigorous economic, social and environmental analysis to ensure that project priorities and plans make the best use o f the limitedresource and fiscal space Be supported by a new consensus on water management and development that avoids the costly political conflicts o f the past 20. The counterpart to a balanced approach to supply and demand management i s a balanced approach to investment inwater infrastructureand water management. Modernizing Irrigationand Water Management Institutionsand Governance 21. By the mid-1980s the Government recognizedthat maintainingthe vast irrigation systemthat had been created was a problem, and by the early 1990s it was generally accepted that ad hoc rehabilitation was not the answer. Instead, it was agreed that fundamental institutional reforms, coupled with investment to improve the efficiency and performance o f the physical system, were necessary to address institutional weaknesses that were manifested in the continuing lack o f effective and efficient O&M, l o w cost recovery, low water delivery and application efficiency, inequitable water distribution, and threats to the long term sustainability o f irrigated agnculture. Inresponse, the Government conceived an ambitious and far reaching reform program based on three principles: decentralization, participation and management transfer. The program o f governance reforms was intendedto foster the development o f an institutional, policy and operational framework conducive to efficient and self-sustaining operation and management o f the irrigation system, and provide a governance framework that would enable and promote improved equity and more efficient and productive use o fwater. 22. The Federal Government has sustained a commitment, at least in policy and spirit, to the governance reformprogram, but it i s essentially a Provincial matter since they are entirely responsible for the irrigation systems and irrigation services within the province. Nevertheless, the Federal Government has a vital interest in the outcomes of the reform process since these outcomes are essential to achieving its long term social and economic objectives in the rural sector (assuming this continues to depend to a large extent on an increasingly productive irrigated agriculture sector) for which the Federal Government is proposing a huge increase in public expenditure for inter-provincial water resources infrastructure (new dams and canals, and eventually drainage). On the other hand, the Provinces are and will continue to be increasingly dependent on the Federal Government to underwrite an increasing share o f their essential water sector investment programs (on the order o f 200 to 600 billion Rs through 2025). Hence, neither party can afford to remain at arms lengthfrom the reform process, implying that, in effect, it is something that only concerns the other. 23. Despite the controversy surrounding the reforms, and the slow and uneven progress, the imperative i s to sustain the reform process. In the context of a renewed commitment to the coreprinciples and outcomes of the reform process, the aim should be to recast theprogram by buildingon the lessons learned (especially the need to identify, promote and support champions) and experience gained so far, deepening howledge o f factors and issues that have been exposed through that experience. Gaps and problems in the NDP program (social mobilization, farmer organization, training and capacity building, and monitoring) and the ongoing reform program in each province need to be overcome by making changes and piloting adaptations and innovations, andrestructuringthe program and approach o f the NDP project to ensure that progress towards these outcomes i s steady and can be sustained and accelerated where that i s possible. One way to renew this commitment and to formulate the next phase of the program would be through a Government "?Vhite Paper", or policy andprogram paper, jointly prepared by the Federal and Provincial Governments. vii The Challengesofthe CurrentInvestment Portfolio 24. Table 4 (on the following page) shows the FY 04 Public Sector Development Plan (PSDP) extended or projected over the remaining MTEF period, 2004-5 to 2006-7, beginning with the actual FY 03 & 04 PSDP. The various investment projects inthe PSDP have been rearranged into major investment categories or programs. The funding levels in the period 2005-7 are based on the PER Working Paper and the M O W MTIP. They are at best indicative o f where the FY 03-04 trend leads. Inthe scenario presented inTable 4, all the projects ongoing inFY 03-04 are completed duringthe MTEFperiod except for Greater Thal Canal. Seventy two percent o f the incremental expenditure over the FY 05-07 period i s allocated to projects started in FY 03 & 04, but the throw-forward i s only reduced by 38%, leaving a commitment o f about Rs 214 billion for the next five year period. 25. Figure 4 compares the annual investment required by the M O W ' SMTIP, Figure4: Comparisonof EmergingPorfolii with PSDPTrends the composite Emerging Portfolio, (the 120,000 TYPP and other recently proposedprojects), the annual investment required by the FY04 1w000 PSDP extended or projected over the MTEF 80,000 period, 2003-07 (Table 4), and a projection -- 0 60.000 o f PSDP expenditures if the present growth +Emerging P o r t M ~ trend o f total PSDP allocation to water 40,000 .G-MTIP (2003-07) resources and irrigation i s sustained (Table 20,000 5). The increase in total PSDP allocation 0 between FY03 and FY04 was 36%. 2002-3 20034 2004-5 2005-6 20067 Assuming a sustainedincrease o f about 40% I I per year beyond FY04, the total PSDP allocation for water resources and irrigation would grow to Rs. 109 billion. Even with this substantial increase inwater sector financing (Table 5), the available funds fall far short (about 30%) of what i s required to sustain the FY04 PSDP over the MTEFperiod, andjust 55% o f what i s needed by the MTIP over the same period. The result of the mismatch betweenfunding and proposed investment will be substantial delays in project implementation, low rates of timely project completion, increasedproject cost, and deferred benefits. Vlll ... Table 4: PSDP 2003-07 Portfolio By Major Categoryof Investment Project Total up To Current Projected Total Throw 2002 Past 2002-3 2o03-4 2003-7 Forward 2004-5 I 2005-6 12006-7 Sut=total 98,363 1,551 4,000 5,310 12,453 21,710 23,769 67,242 29,570 TOTALS 426,684 54,913 10,914 14,791 32,781 49,733 49,394 157,613 214,158 2002-3 2003-4 2004-5 2005-6 2006-7 2003-7 Projected PSDP Allocations 10,914 14,791 20,045 27,166 36,816 109,732 ix irrigation? T o have an adequate basis for malung these choices, the overall PSDP has to be tightened and more rigorously appraised. It has already been noted that the current analytical underpinnings o f the sector would make these choices o f which projects should be given priority very difficult. Briefly, some . o f the key options and issues to be considered include: First,M O Dwill be completed, butthere is noprovision inthis portfolio for major improvements inthe drainage system, including a follow-up to NDP. Hence, no funds are provided for on-farm drainage, upgrading the drainage network, or for larger branch and spinal drains should they prove to be an essential part o f the Master Drainage Plan. The canal liningprojects (which aim to . both conserve freshwater and control waterlogging and salinity) should be dropped and integrated with canal modernization, remodeling, andrehabilitation investments. Second, the irrigation rehabilitation projects and the canal lining projects could be integrated together with canal system modemization, groundwater management and govemance improvements, to create a series o f highly divisible investment projects or programs (perhaps "Integrated Irrigation Water Distribution and Management Projects", another name for the integrated canal basin approach suggested in the Report). These programs that could be phased . and expanded, depending on both performance and the availability o f funds. This would be a jointly financed program o f the Federal and Provincial Governments. Third, the Pat Feeder Canal Extension would be completed in the MTEFperiod. A substantial reduction in portfolio cost could be achieved by slowing and limiting canal expansion, concentrating duringthe MTEF on the completion o f one canal to an extentjust sufficient to pilot a new approach to modem highly productive irrigated agriculture and water management (including new institutional and govemance arrangements) tailored to conditions in Pakistan. . This would provide a new and tested model for the phased completion o f these expensive and questionable projects. Fourth, three projects in the Portfolio -- Gomal Zam (17 MW), Kuram Tangi (58 MW) and Raising Mangla Dam (180 MW) -- will add hydropower capacity, but there i s no other provision for hydropower. The MTIP identified nine priority hydropower projects that would add about 1832 MW at a total cost of Rs 109 billion. These are mainly low-head run-of-the-river sites, in some cases developed by adding a powerhouse to an existing dam or barrage. Ingeneral these sites would add little operational storage to the total IndusBasin system, but may provide locally important seasonal regulation benefits. There may be provision elsewhere in the PSDP for these . hydropower investments, but if not, the portfolio in Table 4 would have to be adjusted to accommodate the steady expansion o f hydropower capacity. productivity, management and system modernization, and system expansion - are to varying Fifth, each o f the other three categories o f investment discussed above - sustainability and degrees divisible and can be scaled to fit the availability o f funds (keeping in mindthe principle o f allocating sufficient funds to achieve timely implementation), but the addition o f new storage dams to the system posses more difficult problems because o f the large, lumpy character o f these investments (the same could be said for hydropower, but the next group o f these projects that use existing dams might be looked at differently in terms o f attracting private sector investment and financing). The ongoing Gomal Zam and Mirani Dams can be completed in the MTEF period. Kurram Tangi Dam i s just being started, and Satpara and Sabakzai have been limited to studies and preparation - so in effect, these latter three projects could easily be dropped or deferred. Raising Mangla Dam i s by far the largest project in the entire portfolio, requiring nearly 27% o f the entire MTEF expenditure (Table 4). It should be noted that the schedule o f expenditure shown in Table 4 for Raising Mangla Dam i s lower and more conservative than either the M T I P or the TYPP, even though the cost o f the project has increased about 19% over the estimate given inthe TYPP. Inany case, once this project isbegunitmust be fully fundedto ensure that there is A not a substantial increase in construction cost caused by low levels o f project financing. The Basha D a m feasibility report i s not expected to be completed for another 2-3 years, but the feasibility report for Kalabagh was done in the early 1990s. Kalabagh could be ready for implementation and financing within this timeframe or sooner ifthe project i s reviewed, updated, inter-provincial and local issues resolved, and appraised on an urgent basis. However, WAPDA recently reported in a briefing to the press that this project would cost about Rs. 300 billion (and Basha a similar amount) far above any likely PSDP funding scenario. There seems to be two main choices: Continue to start-up implementation o f Raising Mangla Dam, waiting until increased resources become available to decide whether to start a second dam at Kalabagh or Basha. This would commit the PSDP to finishMangla on time and within cost estimates (in 2008 or 2009), and force the severe scaling back of investments in drainage, canal modernization, and canal expansion, as well as the other three smaller storage projects on which little progress has been made (studies and research would not have to be forgone). The decision on a second dam would not come until completion o f Manglai s assured. A more prudent and attractive option would be to defer the Raising Manglaproject until at least Kalabagh i s appraised and the two investments can be compared (Basha may be sufficiently ready to be placed on the table as well). This decision would not be made until 2006 or 2007 and financing within the Government's framework for fiscal management i s assured. Under this option, Kurram Tangi, and possibly other comparatively small projects could be accelerated and completed between 2003-07, and the other components o f the Portfolio accelerated or scaled up. 27. One problem with these two approaches is that there i s still no provision for scaling up investment in drainage to control water logging and salinity, though canal modernization, if scaled up and carried out as a phased integrated program, would provide substantial water logging and salinity control benefits through better water management, reduction o f over-irrigation and drainable surplus, as well as direct investment inthe drainage network. Depending on what agreements and investmentneeds emerge from a consensus on the Master Drainage Plan and Drainage Accord, this suggests that when Mangla i s compared with Kalabagh in the preferred second option, that a major drainage program should be ready and on the table for consideration as well. As one might expect the choices are not simply between this dam or that one. 28. Financing Major Water Infrastructure Projects Outside the PSDP. Some have argued that since increased investment in water i s such a highpriority, the mega projects should be financed outside (or inaddition to) the PSDP. Volume Io f the PERproposes that PSDP allocations to water resources and irrigation be increased to 0.50% o f GDP, a total o f about Rs. 250 billion over the period 2003-07. The difference between the projected PSDP expenditure (Table 5) and this higher level o f expenditure, about Rs. 140 million, could be used in a number o f ways, but it is by no means assured that either the continued increases inPSDP allocations for water resources and irrigation as inTable 5, or a higher level of funding approaching the target o f 0.5% o f GDP would become available. This additional or incremental level of water sector financing could be allocated to one or more mega projects (or programs, e.g., integrated canal modernization), but it cannot be outside the PSDP, and by no means off-budget. The decision would be made to commit this major block o f fundinginthe context o f the criteria established by the Finance Ministry for stable overall macro-economic and fiscal management, and trends inthe growth performance o f the economy (as well as competing priorities). 29. What i s the difference whether selected major projects (Kalabagh or Mangla, for example) are considered in the PSDP or not? The difference i s that, by holding them separate, one does not squeeze out good, highpriority investments inthe overall IndusBasin system while waiting to see if financing for xi the projects will materialize (including Mangla Dam in the current PSDP i s a good example). So long as they are in the PSDP (and there i s great pressure to show commitment by putting them there) they will inevitablyjust drain resources from other priority projects without reaching the level o f assured financing required for cost-effective and timely implementation. This i s akin to the suggestion that in the near to mid-term the Government concentrate on raising the value of water, bringing in other major investments as fiscal space materializes. The funds, when Government i s in a position to commit them, are probably best allocated to one or a few major, highly visible projects for which special management and monitoring arrangements can be established - for example, new storage or a major drainage program such as an inter-provincial drain. While there i s not uniform agreement that the major increase in funds available for water sector investment as forecast and proposed in Vol. Io f the PER will actually materialize, there i s some optimism, and this suggests that waiting 2-3 years to make a decision on which dams (including Mangla) to build or whether and what to invest in drainage as suggested above, i s a prudent and possibly optimal strategy. The Way Forward 30. The Range of Possible Policy Responses. The Government has two important and inter-related . sets or groups o fpolicy choices to make: First, investment policy in terms o f not only how much new water supply to develop, but also which o f its key strategic problems it will tackle first and what the longer term sequence o f investment and development should be. Should it for example solve the problem o f fully and reliably implementing the Accord, close the early kharif deficit, modernize the existing irrigation system, or expand irrigation into new areas, and in this context what would be the best sequence in which to develop additional storage and how should this storage be allocated and these . reservoirs be operated? At present, only the slow pace o f project preparation and the PSDP's limitedresource envelope are the only thing dictatingthe sequence andpriority o fdevelopment. Second, policies that affect incentives to use water more efficiently and productively, and to achieve sustainable and effective O&M. These policies include the principles and institutional arrangements on which irrigation water distribution between the canal head and the farmer's field channel will be based; water pricing and the flow o f revenues, especially retention o f revenues within the FO's canal network; electricity pricing inthe agnculture sector - this may be the best and most efficient way to begin managing and regulating the use o f groundwater since an informal groundwater market i s already functioning; water rights or entitlements to empower FOs and farmers to use their water more efficiently and productively and reduce inter- and intra- provincial water conflicts. 31. As noted earlier, progress has been slow on fundamental governance reforms, andbecause o fthis both the Federal and Provincial Governments have lost sight of the basic policy framework on which these reforms are based. The Report urges the Federal and Provincial Governments to jointly review that basic policy framework and recast and renew the program ina "White Paper". The Report also points out the problems with water rights, both inter- and intra-provincial, that are fast becoming both a constraint to a broad consensus on water resources development and management and on governance reform. A phased, well thought out revision o f water rights policy, with accompanying legislation, i s urgently needed. 32. Water pricing and water rights policies are bound to be controversial, and the Government has been moving inthe perverse direction o f increasing electricity subsidies in agriculture combined with the accelerated expansion o f electricity distribution to promote greater tubewell use. Among these three policy issues, fundamental changes in water pricing policy seem most likely to move forward in the near term if the governance reform program moves ahead (however slowly). As the governance reform xii program progressed over the past few years, there has been often heated discussion o f abiana (we have used the terms abiana , water charges and water prices interchangeably - all basically aim to recover O&M costs) assessment, collection and where the revenues go, but very little about the fundamental principles and elements o f a policy on the objectives o f water prices, what water prices should comprise, or how they should be established or regulated. One o f the great weaknesses o f the present system i s the politicization o f water prices that has resulted in their being frozen and disconnected from any sensible or logical basis, even the simple one o f O&M costs. Abiana i s largely treated as a rate without any basis except the perception o f what mightbe accepted without too much controversy or political pain. 33. The principle o f collection and retention o f water Figue 5. Concept of Water RevenueFlows charge revenues within the system for its operation, inthe Future maintenance and improvement (with limited and declining Federal Indus Basin Services cost sharing by Government) that has been at least an Bdget implicit part o f the governance reform program i s a huge Expenditure step, but there i s no clarity yet as to what the water pricing policy objectives are, and what water prices encompass overall, i.e., what services (and their associated cost) are to Provincial Bdget be included in determining the rate, the extent to which Expenditure capital costs will be included in the rate base (or which ? capital costs), by whom and how will prices be Ctrrent periodically adjusted, or the extent to which certain costs Amrgemnts will be shared betweenthe farmers and the treasury and in -theinthefifure FO wcuid set itsown what proportion, etc. The emerging conceptual framework assessmalt and pay for water charges and revenue flows and retention as well arate, repllated as cost sharing i s outlined inFigure 5, including provincial bulk water service mteto and federal budget expenditure extended to include all the AWB levels o f Indus Basin water resources management and irrigation services. Each arrow represents the flow o f funds derived either from water charges paid by farmers through their FO (single line) or provincial and federal budget expenditures (double line) - in both cases (with the exception o f federal expenditures) based on bulkwater service. 34. Strategic Questions and Issues The response o f the main water agencies at both Federal and Provincial levels has been to propose a large number o f investment projects collected from their unfinanced portfolios, or that seem most important and immediate from their perspective on the problems - WAPDA on new dams and canals, and the provinces on canal and barrage rehabilitation and modernization (as well as canal lining) and for projects that would enable them to utilize their share o f Indus Basin water as allocated inthe Accord. This creates a special problem for the Government at a time o f fiscal discipline and the high demands for funds to support poverty reduction, the social sectors (education and health), and the devolution reforms. The problem i s to know whether this growing mountain o f projects contains the right projects, and to select projects for implementation with the right priority and in the right sequence. To answer these questions requires that another set o f strategic questions be answered with adequate confidence. Among the questions the Government should be asking . are: Can future incremental water supply and demandbe balanced? What fundamental changes in . sector policy (water rightswater allocation and operations, water pricing and revenue sharing, electricity pricing inthe agriculture sector, etc.) would be needed? Should irrigated area and irrigation water supplies be expanded? H o w much? Should another major shift in cropping pattern be considered in planning? What changes will be needed in xiii . irrigated agriculture and water management (infrastructure, incentives, governance, etc.) to insure higher efficiency and productivity? H o w much should water supplies be expanded? H o w should these new supplies be allocated and distributed? Can the related threat to sustainability from water logging and salinity be . resolved cost effectively? H o w can privately developed groundwater be integrated with water logging and salinity control and increased canal flows? I s additional storage needed? H o w much storage should be built and in what sequence? Should operating policies be changed? Can irrigation and hydropower policies be better integrated? 0 What happens as the limitso f water resources are approached? What should the target level o f water security and reliability? Should different levels o f security be associated with . different water rights? H o w can environmental and social impacts on the lower Indus River and estuary o f increased water resources development be mitigated? What i s the role and scope o f water conservation? What new policy and legislative .. framework i s needed for effective groundwater management? What regulatory and monitoring mechanisms should be put inplace? What are the long-term consequences o f continued storage depletion? Are economic retums commensurate with the cost o fwater? 35. Can TheseStrategic Questions be Answered Today? In general the answer i s no. Not only has investment inwater sector infrastructure beenneglected since the 1980s, but so has the analytical capacity for strategic planning inthe sector. N o institution inthe sector today i s willing to take ownership o f the analytical challenges posed by these questions, and the capacity built inthe 1960s and early 1980s to do this has largely been allowed to dissipate. There is little or no ongoing investigation, planning or study apart from individual project feasibility studies that would help to answer questions about how much additional water supply and irrigation makes economic or social sense inPakistan, inwhat sequence these developments make the most sense, or how and in what ways the rural economy will develop to accommodate the huge increases inpopulation that are foreseen, which would in tum indicate where and how much water i s needed. N o sector institution has been will, or seen the need to build the knowledge base, collect the data, and develop the modem information systems and analytical tools (e.g. models, GIs, etc.) needed to not only resolve these questions but also manage the investment program and the water resources o f the Indus Basin. The capacity and professionalism o f the private sector has grown, in particular to carry out project feasibility studies to a reasonable standard. It may hold the capacity to do sector level analytical work as well, but mobilizing this capacity requires public institutions that see the . problems and are willing to seek solutions. There are two institutional issues to be addressed: First, IRSA plays a key role since the legislation under which it was established essentially legalizes the Accord. The original Accord should be overhauled and replaced by a formal legal system o f secure, tradable water rights based on the total availability o f water in the basin, and including mechanisms for dispute resolution, recourse to the justice system, and mechanisms for adjustments to account for seasonal and annual variability o f supply (sometimes referred to as quotas). Such a shift to sharing the waters o f the basin would not endanger existing aggregate shares, or customary diversions at canal headworks particularly on Indus tributaries, but would give IRSA greater operating flexibility in allocating flows to ensure that all seasonal water quotas are fulfilled on time duringeach season. This would put a premium on good planning and water management in the Provinces and on effective collaboration between the Provinces and IRSA. IRSA's powers, authority and autonomy, and especially its technical capacity, would have to be strengthened significantly for this to work effectively. xiv . Second the Government needs to create a critical mass o f technical talent to take responsibility for strategic resource and policy planning for the water sector, including developing a modern, shared information system, enhancing the knowledge base, and provision o f planning support and assistance to the Provinces. Such an entity has to be structured to attract the "best and the brightest", and to be seen as neutral and fair by all stakeholders. A tall order today in Palustan, but given the scope and magnitude of investment being contemplated by the Government, the country deserves n o less. What Needsto beDone 36. The challenges inthe next 3-5 years are to address the disconnect betweenthe key strategic issues inthe sector, its current strategy and its investment portfolio. This is essentialnot only to ensure that the sector i s on an optimal and sustainable development path but to mobilize the resources required to implement the strategy and investmentplan. The seven imperatives on which actions are needed include: 37. Resolve the debates over plans to develop storage. Proposing to build all the storage sites available i s not a response to the key question o f the sequence in which storage should be added to the system, the levels o f storage capacity to be added to the system over time, and what the new operating policy and water allocation should be. Kalabagh i s the best and most well prepared site, but it i s not a part o f the debate as it should be. Very large sums are at stake, and the earliest projects should be selected to have the greatest impact on system operating performance (for both irrigation and hydropower) and on the implementation o f the Accord (Mangla Raising is too small and illpositioned not to invite even more intense controversy - in fact just about every site and project that i s proposed will have the same result because they are all proposed in isolation), and on the security, reliability, level and value o f water supply. Credible, alternative, comprehensive and long-term plans that focus on both the level and sequence o f storage development, and alternative integrated operating policies, need to be prepared, evaluated and compared for both their short-term and long-term impacts including on the environment o f the lower Indus, and discussed with all stakeholders. This i s an urgent exercise quite separate from the feasibility studies o f individual sites that i s closely linked to the process o f building a new consensus on water. 38. Develop more detailed plans for the new canals. Notwithstanding the political commitments associated with the proposed new canals, including the extent to which they help the Provinces to implement the Accord, their economic, social and poverty impact appear to be marginally unattractive at best. Even though the new areas seem highly questionable as attractive sites for new irrigation development, the problem today i s the lack o f in-depth planning through which the projects might be reformulated and phased to overcome these problems and result inprojects that make both economic and social sense ifthat i s at all possible. Infact, since these are essentially "green field" areas, they present a unique opportunity to develop them with a completely new concept o f participatory water management including new governance arrangements that maximizes efficiency, sustainability and high value agriculture - essentially as models o f how the Indus Basin system should evolve and look inthe future. 39. Develop a strategic plan and investment program for system modernization jointly with the Provinces. Modernization o f the Indus irrigation system should be an essential and priority element o f the Government's strategy. Somewhere between 200 and 600 billion Rs will be needed to modernize and remodel existing canal networks, rehabilitate and redesign structures including the older barrages, line canals in saline groundwater areas, and complete water course improvements. These measures are critically important to the improved efficiency and increased productivity o f existing and new water supplies. Current proposals are ad hoc and engineering oriented because there i s at present no integrated and strategic planning process that would enable the Federal and Provincial Governments to set priorities and sequence the neededinvestments over time. xv 40. The modernization strategy should not be based on simplistic, one-size-fits-all solutions and investment proposals (such as the major canal lining program inthe current PSDP). It should be based on a more holistic (developed for each sub-basin or canal command) and integrated approach consisting o f both curative and preventives measures. A new approach should be undertaken to develop a comprehensive integrated strategy and plan for infrastructure modernization and water management in each "canal basin ". By integrated we mean that surface water distribution, water logging and salinity control, groundwater use and management, social issues, and agricultural productivity are addressed inan integrated manner in each canal command or basin, ie., the plan would include measures that take into account both the inter-linkages between these issues as well as ensure that each i s improved as required. The intended result i s an overall optimal and sustainable plan for modernization that can be readily developed into a phased investment program. The Federal and Provincial Governments should jointly launch this planning program on an accelerated basis, and the resulting long-term, phased investment program shouldbejointly financed. . 41. Tacklethe key management issues. Governance and policy reforms. Reforms o f the system o f governance remain core priority issues as discussed in Chapter 3, and the three principles on which the reform program are based remain valid. Based on the experience gained so far, a new consensus within the Provinces, and between the Provinces and the Federal Govemment, on the way forward i s needed that would essentially re-launch the program. This new consensus should focus on lessons learned so far (paragraph 3.11), deepening knowledge o f conditions and constraints on the ground, and the critical steps to be taken and on piloting and monitoring a variety o f approaches within each pilot . canal command over a definite time period. Efforts should also be made to seek, promote, and support reform champions. Water conservation and productivity enhancement. Develop a broader, integrated approach to water conservation and productivity enhancement built on a greatly accelerated OFWM program and linked wherever possible to the governance reform program. This will require greater . integration o f agriculture and water sector programs, and the fostering o f innovation and experimentation. Planning and system management. Whether one agrees or not with this assessment o f the sector and the Government's investment program, the importance and the consequences o f the lack o f good planning, and data and analytical tools, in the sector are evident. The Govemment should look closely at the Ministry's proposal outlined in the Water Sector Strategy for a new sector planning ffamework - a concept note based on more detailed evaluation o f needs and an analysis of alternatives would be a positive first step. Groundwater management. Groundwater has become a vital and major part o f the overall Indus Basin irrigation system. As the limits to its development are approached, an effective monitoring and regulatory system that encourages the continuedprivate management o f this water source, but ensures that it i s sustainable, i s urgently needed. The Government's most important management instrument for groundwater, apart from a greatly improved knowledge base and information system to support better monitoring, is to properly price water and power in the agriculture sector. It should gradually withdraw all subsidiesfor fuel andpower use, as well asfor tubewells, for groundwater abstractionfor irrigation. 42. Build a new consensus on water management and development. While most o f the debate has been about which major investments should be undertaken, perhaps the greatest challenge - the extent o f political conflict over water and the breakdown o f the last vestiges o f a consensus on water, have received little effective attention. The Water Accord does not appear to work at all in the eyes of most xvi stakeholders, and new accords on drainage, environmental flow requirements in the lower Indus River and estuary, and reservoir operating policy and water allocation including integration o f irrigation and hydropower policies, need to be developed. This i s extremely unfortunate at a time when the Government must commit to a major, costly long-term investment strategy, some elements o f which have already engendered angry debate and protest. Just as sound and transparent technical analysis i s essential for timely political economy decisions, it i s also essential to the process o f developing a new consensus on water resources. 43. O&M regimes require fundamental changes. While the ongoing institutional reforms would ultimately address issues of accountability, staffing and lack o f farmer participation, immediate action i s needed to stem the deterioration o f the irrigation and drainage system. A well designed program i s .. neededto: Establishrealistic funding requirements through an independent evaluation. . Rationalize fund allocation to meet priority needs in accordance with detailed O&M plans and priorities. Initiate benchmarking, and O&M performance audits: o Develop monitoring indicators (e.g. number o f days ineachirrigation seasonsa given canal carries authorized discharge, record o f breaches, equity in water distribution, tail shortages, problematic structures and failure o f irrigation and drainage structures). Improve effectiveness o f expenditures and enforce accountability. . Ensure channels are operated on authorized discharges or remodeled where necessary. Rationalize abiana rates and improve assessment and recovery; empower farmer organizations to not only operate and maintain their canals but also to collect abiana and . retain a sufficient portion o f the recoveredfunds to meet their needs would be a key incentive for increased cost recovery. Reduce management costs (including privatization o f remaining public tubewells in FGW areas andrationalize staffing levels). 44. Remove the barriers to timely and effective project implementation. In sharp contrast to the outstanding track record of the Indus Basin Replacements Works -- a major implementation feat -- today, implementation o f water sector projects in Pakistan i s characterized by inefficiencies, slow progress, completion delays, time and cost overruns, and sometimes unsatisfactory outcomes. Factors that affect implementation include: weak implementation planning and management, weak construction industry, litigation related to land acquisition, non-compliance with agreed resettlement and rehabilitation programs, lack o f attention to environmental issues, delays in procurement, delays in preparation o f accounts and audits, and lack o f preparations for the transition from construction to O&M. While some o f these issues arise from poor project preparation and lack o f commitment to project objectives, others arise due to the lack o f a policy environment conducive to efficient implementation. Policies and procedures need to be modernized and mainstreamed to meet prevailing international standards and requirements - the size and scope o f the Govemment's proposed investment program over the next 25 years deserves adherence to a much higher standard of planning and project preparation than prevails today. 45. A New Model of Technical Cooperation is Needed. The Government i s going to need technical help to take on these imperatives and challenges. This will require a new level o f collaboration between the Provinces and the Federal Government, between government and expertise and centers o f excellence xvii inthe country inall fields anddisciplines, andbetween the Government and donors. The WorldBank for its part i s prepared to fully engage with the Government to address these challenges. But a new model for technical assistance i s clearly needed that i s free from the current bureaucratic straight-jacket that limits the effectiveness o f technical assistance. I t is worth recalling, for example, that the RAP process was based on domestic leadership, supported by world class and multi-disciplinary technical assistance, state of the art models to analyze options, and extensiveJield investigation. The Government must establish more effective and appropriate institutional arrangements that can utilize technical assistance and collaborate more effectively with the Provinces and other experts in Pakistan to address the challenges to be faced. Current institutional arrangements, organizations and skills are better suited to project implementation than to the kinds o fplanning, study, analytical and process tasks that lie ahead. xviii 1. INTRODUCTION 1.1 Palustan i s entering a new phase o f investment in water resources development. Investments in the mobilization o f additional water supplies to intensify irrigation and expand irrigated area as well as other purposes such as hydropower have been neglected for over twenty years. Forecasts o f extensive increases incropping intensity and productivity inmajor water sector planning studies inthe early 1960s, 1980s and 1990s have not materialized. Despite efforts to improve operation and maintenance o f irrigation infrastructure since the 1980s, modest investments in rehabilitation have failed to stem the deterioration o f infrastructure, watercourse improvement programs to increase efficiency and equity have not been sustained, service has remained unreliable and inequitable, and no investments inmodernization and remodelingto serve future needs have been undertaken. The recent drought exposed the vulnerability o f the vast Indus Basin irrigation system and the environmental conditions in the lower river and estuary, and focused attention on the need for additional storage to improve security and increase supply and provide greater operating flexibility and assurance. At the same time, with the anticipated completion o f the National Drainage Master Plan and inter-Provincial Drainage Accord, new demands will emerge for major investment in drainage to counter the continuing threat that water logging and salinity are to the long-term sustainability o f the Indus Basin irrigation system. But the debate over future strategy and investment priorities has been framed ina way that misses important strategic challenges. 1.2 A business-as-usual approach that relies on investing exclusively in more infrastructure, particularly costly storage or irrigation expansion, seems no longer sufficient to address the multiple challenges and threats the Government faces in the water sector. In 2001 Palustan issued a Ten-Year Perspective Plan (TYPP) that included a major increase in investment in water resources and expansion of irrigation. The TYPP was accompanied by a three year rolling plan. In the water sector, this rolling plan has been primarily financing the completion o f the large on-going project portfolio as well as the start o f several major irrigation expansion and storage projects. Beginning in 2003, Palustan faces a number o f key choices on the relative emphasis to be given to different issues and elements o f its strategy over the mid-term, and how it should prioritize and phase proposed investments such that the impact o f these investments on growth, poverty alleviation, and revenues i s maximized and i s sustainable. The short to medium term impact o f these choices i s especially important because o f the competition for limited fiscal and donor resources for investment that i s likely to prevail until a period o f solid growth yields increased revenues. 1.3 This Report3focuses almost exclusively on the IndusRiver basin4. Itis basedinpart on a limited review o f the Palustan Planning Commission's current Public Sector Development Program (PSDP), and the more strategic investment plans that constitute the Planning Commission's Ten-Year Perspective Plan (TYPP) for Water Resources Development, the Ministry o f Water and Power's Water Sector Stratea, This report i s basedinpart on a consolidation and analysis o f the extensive data and information contained inthe M O W WSS and other reports, and as presented in the Working Paper, Pakistan Public Expenditure Review: Working Paper on Irrigation, Drainage and Water Resources Development, by M. Aslam Rasheed and Muhammad Ehsan, World Bank Consultants, April, 2003. This i s quite reasonable for this initial review since the Indus Basin in the focus o f most o f the proposed long-term public expenditure program, and because its vast irrigation system i s the backbone of Pakistan's economically important agriculture sector. Nevertheless, the large rainfed or barani areas (that encompass isolated and small irrigated farming areas) found to varying extents in each of the Provinces (but about 97% o f Balochistan) deserve expanded attention because of their unique water scarcity problems, their high concentration o f poverty, and the consequences o f unsustainable exploitation o f natural resources inthese areas (e.g., groundwater, rangeland, forests), and should be the subject o f a special review. and Medium Term Investment Plan (MTIP)', and the Vision 2025 Investment Program o f WMDA6. The aim o f this Report, which covers the period 2003-2007 (referred to herein as the Medium-Term Expenditure Framework, MTEF), i s to assess the broad elements and direction o f the Government's proposed strategy, to identify key problems and issues Pakistan's policy makers and planners need to address in shaping the future direction of water policy and the PSDP and the design o f the program and projects through which it will implement its strategy, and to suggest ways in which priority investment needs can be accommodated withinthe limited fiscal space available. The MTIP covers the period 2001-2011 and was prepared as a part of the preparation o f a Water Resource Strategy (2001- 2025) by the Ministry of Water and Power. The overall study included reports on the Strategy, the MTIP, and a National Water SectorProfile. A 25-year investment program in new storage (64 MAF), hydropower capacity (27,000 MW), drainage, and expansion of irrigatedarea. 2 2. BACKGROUND: ACHIEVEMENTSANDISSUES RoleofAgricultureinthe PakistanEconomy 2.1 Despite the prevailing arid and semi-arid climate that characterizes most o f the country, Pakistan has been traditionally an agrarian society based on livestock, and food and forage crops dependent on scant and highly variable rainfall. The landscape i s dominated by mountainous and hilly terrain (about 50%) and the vast Indus River plain (25%). Flow in the Indus River and its tributaries, the only major river in the country, i s also highly seasonal with flows associated mainly with glacier and snow melt and summer rains. The earliest canal irrigation developments in the Indus valley were essentially protective, intended to provide a supplemental water supply' to compensate for the uncertain rain, and involved considerable colonization as the margins o f these irrigated areas were extended by new canals. 2.2 After the creation o f Palustan and up to the late 1950s, agricultural growth was sluggish (about 1.4%) and less than half the population growth rate. To avoid a food grain crisis that could seriously harmthe new nation, major investments were plannedto increase the capacity to divert the natural flow o f the Indus River and its principal tributaries into an expanded network o f canals to increase irrigation. The menace o f salinity and water logging and the need to provide drainage in many parts o f the Indus plain was also recognized at this time. Inresponse to these strategic threats, a public program usingtubewells and some surface drains was also launched to lower the water table and reclaim saline soils. 2.3 Today, agriculture i s a major Figure2.1: Per capitaGDP,(1961=100) FoodProduction,and Total Population part o f Palustan's economy, i s one o f , the key engines o f overall economic growth, and there has been no major about 38%. This enormous - GDP pw c.plI. (ee1~1anIlS35 US$) - F e d p d u d o n lndu(14119.91 100) I achievement was based on three major - Pop"l.non, 01.1 initiatives: From the late 1960s through 1975 river diversion capacity was expanded from 67 MAF at independence to an annual average o f nearly 104 MAF today; the Tarbela and Mangla storage reservoirs were constructed; and the Indus Replacement Works, foreseen inthe Indus Treaty signed with India in 1960, were completed. This investment program expanded the Indus basin irrigation system, increased hydropower generation capacity, and increased cropping intensity on the Indusplain. ' The designintensitiesvary but are generallylow andwere intendedto serve a limited part of the commandarea. For example, the designintensityof the NaraCanalin Sindh is about 53% inkharifseason, and about 28% inrabi season. The construction ofTarbela andManglaDamswere inpart intendedto increaserabi season croppingintensity. . Despite under-investment in research and development, pricing and subsidy policies set the stage for the introduction o f improved and highyielding varieties o f seed from the late 1960s . as both fertilizer and irrigation water availability expanded (the "green revolution") - From 1970to 1994/95the value o fwheat production, the staple crop, nearly doubled. In the 1980s new varieties of cottonseed were introduced and insecticide availability expanded. Between 1970 and 1994/5 the value o f cotton production increased over four times. 2.4 The Question Today is Figure2.2: PakistanComparative Trends: Population, Whether Sustained Agriculture Sector Water Use & Productivity Growth At The Rates Required I s 1 Sustainable. Figure 2.2 below shows 4oo the trends in population growth, water 150 use and productivity (using wheat as a . surrogate). Emerging issues include: 250 Yields and the productivity o f 2oo water, as well as they can be l 5 O estimated, are flat and lag well 100 below countries wlth comparable M am-o-climatic conditions'; several Y studies have suggested that resource 1950 1955 1960 19@5 1970 1975 1980 1985 1930 1995 2000 degradation - primarily water and -Population -Wheat Yhld (PAK) -Total Irrigated soil quality - are major factors limiting yieldsg, while others suggest that under-investment in research and development and . extension, underperformance o f rural factor markets, the distribution o f land ownership and other farm assets, and the unreliability o f irrigation water services are also major contributors". Important constraints to increased agncultural productivity have not been solved especially improved apcultural support services, technology development, adaptation and dissemination, rural infrastructure and education provision, incentives to use water more productively and efficiently, and distortions inthe land market". ' As reportedinthe M O W WSS, average wheat yield in Egypt where agriculturalconditions inthe Nile Delta are similar (but not absolutely the same) to those in the Indus valley in Pakistan was 2.4 t/ac compared with 0.9 t/ac in Pakistan Punjab. Average wheat yields inIndian Punjab are more than doublethose inPakistanPunjab even though at independencethey were roughly equal. See also Productivity Growth and Sustainability in Post-Green Revolution Agriculture: The Case of the Indian and Pakistan Punjabs, Rinku Murgai, Mubarik Ali, and Derek Byerlee, World Bank ResearchObserver, Vol. 16, No 2, (Fall 2001). See for example, Productivity Growth and Resource Degradation in Pakistan s Punjab: A Decomposition Analysis. Mubarik Ali and Derek Byerlee, Policy ResearchWorking Paper No. 2480, Rural DevelopmentDepartment, World Bank, November, 2000. loNotwithstandingthe effects o f salinity and waterlogging, some have suggested that the current low averageyields may be the best that can be achieved with the current irrigation system as it is presentlymanagedand maintained. While that may have some validity inthe aggregate, it begs the questionof what distinguishesso calledprogressive or high performing farmers, and whether there is a way to replicate or scale up this better performance. Moreover, in 2002 when water supplies were 40-50% of normal, Punjab wheat production declined only about 10% - clearly this is a demonstration of the importance of groundwater inIndusbasinirrigation today, but it may also indicatethe extent of over-irrigation inbetter years and its possible effect of suppressingyields. "StructuralandPolicyReformsfor Agriculture Growth: TheCaseof Pakistan;RashidFaruqee, WorldBank, Agriculture and NaturalResourcesDivision, SouthAsiaDepartment, 1995. 4 . Diversification into new, higher value crops and the use o f new and more efficient irrigation technology has appeared inisolatedpockets, but programs to promote and foster an expansion or scaling up o f these trends have not emerged; possible areas for intensive work through new public-private partnerships include market infrastructure, market information, supply and . distribution, quality control and value addition, mobilizing farmer organizations to facilitate market access, etc.. These are well known, but have received too little attention'*. Water availability has been a key engine o f agriculture growth, but current supply i s less than estimated present demand13, and supply expansion options are increasingly costly and approaching their physical limits. Managing demand (efficiency, pricing, water entitlements, research and development, etc.) has received too little attention. Among the supply options, groundwater development i s already nearing its practical limit, water conservation may be able to add only about 5% to total supply, and surface water resources development i s approaching the overall limit - increased storage o f flood flows in the Indus River over the next 25 years would add at most about 8-15% to the total water supply to the Indus system depending on how many major reservoirs can be built, but with diminished reliability, increased and possibly irreversible environmental impacts in the lower Indus River and its estuary, and greatly increased management challenges. The Ultimate Threat to Sustainability Water Logging And Salinity - 2.5 The expansion o f irrigated agriculture in the Indus plain has resulted in a progressive rise o f the groundwater table and the buildup o f salts from surface water inflow for irrigation, overuse o f irrigation water, and mobilization o f salts from groundwater. Unlike the IndusBasin irrigation system, the drainage network in Palustan i s not contiguous and integrated. While parts o f Sindh on the left bank o f the lower Indus River are drained by the existing Left Bank Outfall Drain (LBOD) into the Arabian sea, and the ongoing construction o f the Right Bank Outfall Drain (MOD) will similarly connect drainage basins on the right bank o f the lower Indus to the sea, surface and sub-surface drainage systems in the rest o f the country are inadequate, resulting inmuch o f the drainage effluent including salts and untreated domestic and industrial wastewater, being either retained in the basin (in evaporation ponds, the soil, or in the groundwater) or disposed o f inrivers and canals to be diverted and used again downstream. Continuous addition o f salts to agricultural soils, groundwater aquifers, and some water bodies i s a major productivity and environmental risk that ultimately threatens the viability o f irrigation in the Indus Basin. Ali and Byerlee found, for example, that the substantial positive effect on crop sector productivity growth in four different major cropping systems in Punjab stemming from technological change (change in cropping intensity and percent area in modern varieties o f wheat) and public investment (roads and literacy) were partially offset (by 57 to 74%) or completely offset (in the case of the wheat-rice cropping system) over the period 1971-94by the negative impact o f soil and water quality degradati~n'~. '*See for example, Pakistan Provincial Agricultural Development Plans: A Review of Opportunities and Challenges; FAO, Report No. 01/073 CP-PAK, September 2001. See also Pakistan Development Policy Review - A New Dawn?, World Bank Report NO. 23916-PAK, April 2002 for a discussion of promoting private sector investment, and growth enhancing public investment. l3The M O W ' SWSS (Vol. 111) gives an admittedlyrough and uncertainestimate of canal headrequirements in 2000-01, 2010- 11, and2024-25 (a significantpart of this uncertaintystemming from the estimates ofthe net amount of groundwater available for crop consumption in the command areas). In 2000-01, these figures show an average shortfall in water supply to meet current crop demand o f 12.6 MAF. The report points out that it is hard to reconcilethis large shortfall with widely reported over-irrigation, but this may actuallybe afurther demonstration of the extreme inequitiesinwater distribution. l4Productivity Growth and Resource Degradation in Pakistan 's Punjab: A Decomposition Analysis; Mubarik Ali and Derek Byerlee; World Bank Policy Research Working Paper No. 2480; November 2000. The exception was the wheat-cotton 5 2.6 The Extent of Salinity and WaterloggingProblems. Surface water supplies bring an estimated 28.3 million tons o f salt each year into the irrigated areas o f the Indus plain, and a further estimated 28.2 million tons are added fi-om groundwater by tubewells. Since in an average year only about 16 million tons o f salt are carried out o f the basin by the Indus River below K o t i Barrage or through LBOD in Sindh, about 40.5 million tons o f salt are added to the Indus basin every year" either to the upper soil layers, or added to the quantity o f salt circulating vertically in the Indus groundwater system,. About 2.5 Mac o f irrigated land i s reported to be affected by severe salinity. An estimated 40% o f irrigated lands are reportedto be waterlogged16 (with a water table depth less than loft), and about 9% are reported to be badly waterlogged (water table depth less than 5ft). Water logging stems fi-om several causes, including seepage from canals and fields (basin flood irrigation i s the predominant mode o f irrigation), over-use o f water (over-irrigation), possibly excessive canal allowances and indents, and perennial operation o f canals that were never intended to be perennial. Nearly two-fifths o f the canal command areas have been affected by water logging and salinity and this has been estimated to depress the yields of major crops by 25-30% and by as much as 40-60% inSindh'?. 2.7 Curative and Preventive Measures. Curative measures will thus be needed to control and reverse the effects o f severe water logging and soil salinity on nearly 7 Mac o f land. These may include liningo f canals insome saline ground water areas, improvement o f watercourses and introduction o f on- farm drainage and land-leveling, improvement o f existing and creation o f new drains including a trunk or spinal drain inthe upper and middle basin, and conjunctive management o f canal water and groundwater. Butthese very large investments that wouldbe carriedout over a longtimeframe maynot be able to arrest or even keep up with the pace o f soil and water quality degradation ifthere i s not a balanced commitment to preventive measures including adjustment o f canal allowances, promotion o f changes in irrigation practices to eliminate over-irrigation and increase efficiency, better on-farm water management, changes inwater pricing, andbetter groundwater monitoring andmanagement. 2.8 Seepage Losses and Soil and Water Quality Degradation. One frequently sees tabulations o f water "losses" in the Indus irrigation system predominately in the form o f seepage from canals, watercourses and fields, that prompt calls for the reduction o f these losses to be the first priority. Since the efficiency o f Indus irrigation canals from headworks to farmers fields i s variously reported to be 35- 40%, these losses, which total about 62-66 MAF based on the average total diversion, are indeed very large. But one must keep in mind that these "losses" caused by seepage fi-om canals, distributaries, minors, watercourses and fields where they occur in fi-esh groundwater areas are the principle source o f groundwater in the IndusBasin. Since roughly about 40% o f the command areal8 i s now irrigated fi-om groundwater, a strategy to minimize these "losses" must be based on a deeper understanding o f what are and what are not "losses" in both water quantity and quality terms, and in economic terms. Canal lining would tend to reduce seepage and water quality degradation in both saline (real loses) and fi-esh cropping system where the total effect of changes in soil and water quality was positive, contributing insteadto productivity growth. PanelOf Experts (POE) estimatebasedonreview of the draft National SystemDrainage Study (NSDS), October, 2002. l6 Of the 40% o f land effected by waterlogging 22.8% is in Sindh, 15.3% is in Punjab, 0.9% is in NWFP, and about 1% is in Balochistan. l7 '* Notethat StaflAppraisal Report. NationalDrainage Project. Rural DevelopmentSector Unit, SouthAsia Region,World Bank. 1997. the extent of areairrigatedwith groundwater would be muchlower inSindh (where the extent of saline groundwater i s very high) than in Punjab, resultingin different strategiesin eachProvince, indeed, one would expect strategiesto vary even by canalcommand. 6 groundwater areas", and increase canal water supply to downstream farmers including tailenders without access to groundwater, but canal lining i s expensive and the water savings are not large in some canals. Moreover, the cost o fnot lining innon-saline areas interms o f allowing a small decrease in water quality may be well worth it since the value o f groundwater despite its higher cost may be substantially higher than canal water because o fbetter timing, water control andreliability. 2.9 Such a strategy should clearly not just be a determination o f where to and where not to line canals, and it may differ substantially from canal command to canal command. The strategy also cannot be based on simplistic, one-size-fits-all solutions and investment proposals. It should be based on a more holistic (developed for each sub-basin or canal command) and integrated approach consisting o f both curative and preventives measures. A new approach should be undertaken to develop a comprehensive integrated strategy and plan for infrastructure modernization and water management in each "canal basin". By integrated we mean that surface water distribution, water logging and salinity control, groundwater use and management, governance and social issues, and agricultural productivity are addressed in an integrated manner ineach canal command or basin, i.e., the plan would be tailor-made for each canal command or basin, and include measures that take into account both the inter-linkages between these issues as well as ensure that each i s improved as required. The objectives would shift away from narrow engineering objectives, such as rehabilitation and remodeling o f existing infrastructure towards sustainable economic growth and social development. The intended result i s an overall optimal and sustainable plan for modernization that can be readily developed into a phased investment program. A crucial part o f this planning process is the assembly and upgrading o f the information system (e.g., GIs, models) and knowledge base essential to support diagnosis o f the problems and their inter-linkages, and formulation and evaluation o f altemative strategies and plans (the groundwork for this seems to be nearly inplace for parts o f Punjab). 2.10 Efforts to Prepare a Master Drainage Plan. Ultimately it seems likely that a significant proportion o f this salt has to be evacuated to the Arabian sea through a system o f trunk drains often referred to as the "drainage superhighway". The ongoing National System Drainage Study (NSDS) i s investigating a wide range o f alternative measures to dispose o f salt from the basin. But the 2002 international POEreview recommendedinconsultation with the provinces and the Ministrythat efforts be re-channeled towards completion o f the Drainage Master Plan (DMP) forgoing the plan to prepare feasibility studies o f the NSDS proposals at this time. Uncertainty regarding what will emerge for the medium and long term, and what it will cost, i s highat this time - the Master Plan i s not complete (and in fact has not progressed very far, and reviewers have already pointed out numerous data gaps) and hence feasibility studies for a National Drainage System (NDS) cannot be started. An Inter-ProvincialDrainage Accord would have to be negotiated between the upper and lower riparian provinces based on Drainage Master Plan options inorder to launch implementation o f the critical elements o fthe NDS. 2.1 1 The Way Ahead -- Investment and Strategy Development. Given the seriousness o f this problem, can the Government accelerate investment without a coherent, least-cost strategy and plan that i s based on the ground-truth realities that differ significantly between canal commands? A coherent and least-cost interim strategy and investment plan has not emerged to guide investment, and neither the Provinces nor the Federal government has as yet allocated the technical resources or assigned an appropriate urgency to developing such a plan. The basin-wide Master Plan i s essential to deciding on the macro elements o f the system (e.g., spinal drains) but it i s not a substitute for integrated canal basin and sub-basin investment and management plans for each canal command inthe IndusBasin system. Projects are being pushed by all the provinces especially canal lining, but given the tightness o f funding, the l9One cannot assume as a general principle or rule that seepage infresh groundwater areas that is later pumped to the surface for irrigation, does not involve a quantum of water quality degradation, nor that this process will not be some cases be progressive. 7 government should insist upon a clearer picture o f which investments can yield sound, substantial, and sustainable benefits today while the long-term strategy i s being developed including the Drainage Master Plan. 2.12 The scope for substantial investment in on-farm drainage and other tertiary drain appears to be limited without the main branch and trunk drains whose layout i s a part o f the Drainage Master Plan and NSDS. Reducing the drainable surplus based on improvements in the canal system and water management could be accelerated. And a major effort to improve groundwater management and monitoring could suggest further ways to both decrease water logging and improve soil salinity. Investment financing has been quite modest, inpart because o f the lack o f a clear consensus on a Master Drainage Plan, and severe implementation problems with the NDP project (including the lack o f a coherent and consistent strategy based on curative and preventive measures). Only about 9% o f the total allocation in the TYPP was for drainage (of which only 5% was to complete ongoing projects), and over the period 2001-1 1, the allocation was just under 10% of the total. Drainage investments (mainly M O D I1and LBOD I) about 88% of the FY 03 PSDP portfolio cost, but only about 19% o f the fund were allocation. Inthe FY 04 PSDP, both commitments (20% o f the total plan, a substantial increase mainly for canal lining) and fund allocation (20%, a substantial increase innominal terms since the overall sector allocation increased by 36%). Notwithstanding the time it may take to complete the required studies and negotiations, a workable interim strategy and program is urgently needed, perhaps based on greater emphasis on reducing the drainable surplus and the interim suggestions for salt disposal made by the NSDS Panel of Experts. Such a strategy would have to be formulated so that it could be readily dovetailed with environmentalflow requirements in the lower Indus River and whatever Drainage Master Plan eventually emerges from the ongoing planning process and thefuture negotiations on a Drainage Accord, but it may create the opportunity to begin increasing cost-effective investment in this vital area, Water Resourcesand Agriculture 2.13 Irrigation And Agriculture Production. Increases inwater resources available for irrigation, and expansion o f irrigated area have played a central role in agnculture growth since the 1960s. Agriculture now uses an estimated 95% o f available water resources, and irrigated land i s responsible for about 80% o f agricultural production. Total irrigated area in Pakistan i s about 46 MAC,about 70% o f the irrigable area. Over 90% o f this irrigated area i s inthe IndusBasin. 2.14 SurfaceWaterAvaizabiliv For Figure2.3: Annual Indus River Flow, Diversionand "Escapageto Sea" Irrigation. An overall balance o f surface water resources for the Indus Basin i s summarized in Table 2.1. Figure 2.3 shows total annual Indus River flow, and boththe canal diversion from the Indus River and the total flow below the Kotribarrage (the last barrage on the Indus River) over the period 1975-76 to 2000-01. Total flow varies widely between 70 and 120% o f the mean value, but canal diversions vary 1975-76 1980-81 1985-86 1990-91 1995-96 200041 somewhat less, between 78 to 107% o f the long-term average value o f 103.85 MAF. 8 Table 2.1: Average Water Balance of the Indus River System Item AnnualVolume MAF BCM INFLOW WesternRivers 143.18 176.54 EastemRivers 8.4 10.36 Total Inflow 151.58 186.9 OUTFLOW IndusTreaty Allocation to India 8.4 10.36 Average Canal Diversions 103.84 128.03 SystemLosses 9.9 12.21 Surplusflow to lower River andEstuary 29.44 36.3 Total Outflow 151.58 186.9 2.15 As Table 2.2 indicates, surface water availability has changed little since the late 1970s when Tarbela was completed, but the growth in groundwater use has been explosive - growing fromjust 8% o f water available in 1960 to over 40% in the late 1980s, after which time it appears to have changed very little. This large growth in groundwater use (Table 2.2) was stimulated inpart by the use o f tubewells for vertical drainage and water table control under the Salinity Control and Reclamation Projects (SCARPS), which are now being gradually turned over to communities and W A S ,as well as by the large spurt in farm mechanization in the 1980s and the availability o f inexpensive tubewell technology in the market. However, one critical consequence of this growth is that increasing amounts of salt are circulating vertically in the system,progressively poisoning the soil because drainage and evacuation of saltfrom the basin is inadequate. Table 2.2: Water Availability at the FarmHead inthe Indus BasinSystem Water Availability at Farmhead MAF IrrigatedArea Acre-ft per Year Canal Water Groundwater Total Mac Acre 1960-61 48.4 4.2 52.5 25.7 2.04 1967-68 56.8 11.7 68.5 30.9 2.22 1977-78 61.6 27.8 89.4 35.1 2.55 1985-87 61.4 40.9 102.3 39.8 2.57 1990-91 65.0 41.0 106.0 41.9 2.53 1999-2000 61.5 41.6 103.1 44.0 2.34 2.16 Groundwater AvaiZabiZity. The Indus plain i s underlain by an extensive and deep alluvial aquifer. Because rainfall i s extremely limited, recharge under natural conditions is very l o w and stems mainly fiom inflow from the basin margins (the rivers, especially during the flood season, and the upper watershed). Inthe last century the water table inthis aquifer was at considerable depth, but it has steadily risen, nearing the surface over large areas as canal irrigation expanded. Water quality in this aquifer varies widely from fresh to very saline, with many large saline areas contiguous to freshwater zones, 9 especially inthe lower basin in Sindh2'. There are large areas o f fresh groundwater inPunjab (about 79% o f the area), but much less so in Sindh (about 28% o f the area -resulting in severe drinkmgwater supply problems in many areas). Inthe absence of farmer and community participation in a groundwater management system, and good information systems and monitoring, its very likely that groundwater quality i s progressively deteriorating in many areas because o f the intensity o f its development, and hence, these fresh groundwater areas are probably shrinking. 2.17 Outside the Indus plain, groundwater i s very limited except inthe hilly and mountainous valleys where the alluvium i s deep2'. Groundwater inthese valleys i s an important water source for domestic use, livestock and for irrigation, but even in areas where rainfall i s relatively high the typically steep slopes and rapid runoff requires that recharge o f these valley aquifers increasingly must be managed as demand and development have accelerated. 2.18 Estimates o f groundwater recharge in the Indus plain vary widely from levels close to current estimated use, 40-42 MAF, to a high o f 55 MAF. The 1990 Water Sector Investment Planning Study estimated total recharge to be 45.6 MAF, 83% o f which was estimated to result from seepage from canals, water courses and fields. Hence, in fresh groundwater areas, canal and field seepage that i s commonly misconceived as large seepage losses are an increasingly important source o f irrigation water (they are indeed losses in saline groundwater areas). Some would argue that even seepage in fresh groundwater areas should be avoided to reduce the opportunity for additional water quality degradation, or that not reducing this seepage essentially reallocates water from those downstream who only have access to canal water, but the cost o f lining i s prohibitive in fresh groundwater areas, especially where the risks o f further water quality degradation are low. Moreover, since conjunctive use o f canal water and groundwater to control water logging and salinity has been a key principle underlying the overall irrigation development strategy since the 1960s, one cannot look at either canal water or groundwater in isolation in the Indus Basin system. Because o f the large difference inthe availability o f fresh groundwater, the circumstances, and consequently the opportunities, are dramatically different in Sindh and Punjab. 2.19 Regardless which estimate o f groundwater availability one subscribes to, the difficulty o f approaching the limit inthe presence of saline water adjacent or below the freshwater zone when nearly all groundwater i s developed privately requires that planning assumptions about incremental water availability for development be very conservative and limited to perhaps just 1-2 MAF or less given today's limited knowledge and information base and the lack o f a management system. More intensive monitoring, analysis usingmathematical models, and participatory management may eventually increase the total volume that can safely be developed. 2o These areas have been mapped, and the recently completed IDA Punjab Private GroundwaterProject developed an initial designfor a GIS systemto support groundwater management.Work is on-goingto add all availabledata to the GIS to provide amodel for anationalinformation system, but more importantly, a provincial model of an information system on both surface water and groundwater that could support the analyticaltools (surface and groundwater mathematicalmodels) that would, in tum enable a beginning on developing an integrated and comprehensive groundwater monitoring and management system, andsupport the developmentofan integratedstrategy for water logging and salinity control. A unique and traditionalmethodof groundwater abstraction found outside the Indusbasin, especiallyin Balochistanand parts of NWFP, i s the kereze, which consistsof alongtunneldug inthe mountainslope until it reachesthe water table. Water flows down the tunnel and is used for drinking water and for irrigation. A great many o f these traditional systems are reportedto have dried up due to a combinationof drought, excessive groundwater abstraction by tubewells, and the loss of community financial capacity to maintainthem. 10 The Inter-ProvincialWater ApportionmentAccord 2.20 The Long Search for an Agreement on Inter-Provincial Water Allocation. The Indus basin touches every province in Pakistan including the Federally Administered Tribal Areas (FATA) in the Northwest, so each province has some claim on its water resources. After the creation o f Palustan, ad hoc arrangements were made for sharing the waters o f the Indus between the provinces. A number o f committees and commissions were appointed to allocate the water o f the IndusRiver and its tributaries to the provinces. These included the Water Allocation and Rates Committee, also known as Akhtar Hussain Committee (1968-70), the Justice Fazle Akbar Committee (1970-71) and a Commission o f Chief Justices o f the Provinces headed by the Chief Justice o f Palustan (1977). N o formula for water distribution was formally agreed until March 1991, when the present Water Apportionment Accord was signed. The Provincial Allocations agreed inthe 1991Water Apportionment Accord are as shown inTable 2.3. Table 2.3: Inter-Provincial Water Accord Allocations Seasonal Water Allocation in MAF Kharif Rabi Total Punjab 37.07 18.87 55.94 Sindh 33.94 14.82 48.76 NWFP 3.48 2.3 5.78 Balochistan 2.85 1.02 3.87 Sub-total 77.34 37.01 114.35 Civil Canals inNWFPa 1.8 1.2 3.0 Total Allocation 79.14 38.21 117.35 a Ungaugedcanals above the rim stations (built and operatedprivately or by communitieswith long-standingwater rights) 2.21 Other significant provisions o f the Accord include: The balance river supplies including flood supplies and future storages [water not already allocated in the accord] shall be distributed between the provinces according to the following proportions: Punjab Sindh NWFP Balochistan 31% 37% 14% 12% Industrialand urban water supplies for metropolitan cities for which there were sanctioned allocations will be accordedpriority. The need for storage, wherever feasible on the Indus and other rivers was admitted and recognized by the participants for planned future agricultural development. The need for certain minimum "escapages" to the sea below Kotri to check sea intrusion was recognized. Sindh held the view that the optimum level was 10 MAF, which was discussed at length, while other studies indicated lower or higher figures. It was, therefore, decidedthat further studies would be undertaken to establish the minimal "escapage" needs downstream o f Kotri Barrage. There would be no restrictions on the provinces to undertake new projects within their agreed shares. The existingreservoirs would be operated with priority for the irrigation uses o fthe provinces. 11 . No restrictions are placed on several possible developments in the basin: small schemes not exceeding 5,000 acres above elevation 1,200 ft. SPD; irrigation uses in the Kurram, Gomal, and . Kohat basins [tributaries o f the Indus inNWFP] so long as these developments didnot adversely affect existing uses; and Indusright bank tributaries flowing through Balochistan. The requirements of LBOD will be met out o f the flood supplies in accordance with the agreed formula [see above]. 2.22 Apart the overall allocation o f Indus River waters in Article 2 (Table 2.3), two o f the most important Articles are 4 and 14. Article 4 indicates the proportionate provincial shares o f the unallocated balance o f river supplies (including flood supplies and future storages), whereas Article 14 provides a means o f adjusting allocations to accommodate shortages and surpluses and sets priorities for reservoir operation. Article 14 prescribes that a system-wise allocation be worked out based on existing uses for the period 1977-1982, separately on ten-daily basis, and attached to the agreement as "part and parcel o f it". The table so attached provides a province wise ten-daily allocation of Induswaters that total to the figures given in Table 2.3 - effectively establishing a water entitlement or right based solely on existing use2*,but without reference to security or reliability and based implicitly on the physical configuration o f the system and water use at that time since, for example, the requirements for LBOD were not well known at that time. These allocations were not made for each canal head, but for the major sub-systems within a province (e.g., the Jhelum-Chenab inPunjab, and systems below the rim-stations inNWFP) or for the province as a whole (e.g., Sindh and Balochistan). Hence the Accord confers a water entitlement or right to theprovince, but not to the individual canals and hence not to thefarmers on that canal. 2.23 Article 14 further provides that the record o f actual usage for the period 1977-82 (post Tarbela) would form the guideline for developing the future regulationpattern, and that these ten-daily uses would be adjusted pro-rata to correspond to the indicated seasonal allocations and form the basis for sharing shortages and surpluses on all Palustan basis. Article 14 also provides that existing reservoirs would be operated with priority for irrigation uses o f the provinces, the provinces are free within their allocations to modify system-wise and period wise uses (placing a premium on provincial water management planning, and underscoring the importance of canal indents for system level operation planning by IRSA) and that any surpluses may be used by another province but his would not establish any rights to such use. This last provision means that the provincial water rights created under the Accord are not tradable water rights. 2.24 The Indus River System Authoriv. The Accord explicitly recognized the need to establish an Indus River System Authority (Article 13) to ensure implementation of the Accord, and IRSA was established under a Federal Act in 1992. IRSA has five members, one nominated by the Federal government and one each nominatedby the respective Provinces. The Chairman (whose term i s one year) i s nominated in turn by the Federal Government and each Province. Members have a term o f three years. The statutory powers and duties o f IRSA include establishing the basis for regulation and distribution o f surface waters amongst the Provinces according to the allocations spelled out in the Accord; reviewing and specifying reservoir operation patterns; coordinating and regulating the activities o f WAPDA in exchange o f data between Provinces in connection with gauging and recording surface water flows; determining priorities for river and reservoir operation for irrigation and hydropower requirements; compiling and reviewing canal indents as received from the Provinces and issuing consolidated operational directives to WAPDA for making such releases from reservoirs as the Authority considers appropriate or consistent with the Accord; settling any questions that may arise between two or more 22 With the single exception that projects under execution in NWFP and Balochistan were provided their "authorized quota" of water as existing uses (Article 3). 12 Provinces in respect o f distribution o f river and reservoir waters; and considering and making recommendations on the availability o f water against allocated shares within three months o f receipt o f fully substantiated water accounts for all new water projects. The Act provides that IRSA may employ officers and other staff, experts, and consultants as it may consider necessary for the performance o f its functions and prescribe the procedure for appointment, terms and conditions o f service o f staff, experts and consultants. Finally, the Act authorizes IRSA to make regulations to implement the provisions o fthe Act. 2.25 Shortfalls in Actual Allocation. Since 1991, a diversion equal to the total allocation o f 114.35 MAF has never been achieved (Table 2.4). The Accord Allocation of 114.35 MAF (excluding the allocation for Civil Canals in NWFP) i s about 9-10% higher than the average historic use o f the Indus Basin prior to the Accord, about 103-104 MAF. Between 1991-92 and 2000-2001, annual canal diversions have averaged 102.6 MAF but have ranged between 81-07 to 111.11 MAF. One can see in Table 2.4 inthe rabi season the benefit o f present storage capacity, presently an estimated 12.8 MAF at Tarbela and Mangla Dams. The Allocations were fixed at a higher level on the assumption that further storage and canal diversion capacity would be built, but these projects and investments never materialized. Table 2.4: ShortfallinMeetingthe Accord Allocations Flow inMAF Kharif Rabi Total Average AnnualIndus River Flow 117.5 25.7 143.2 Average Diversion 66.8 37.0 103.8 TotalAllocation 77.3 37.0 114.4 Shortage 10.5 0 10.6 2.26 Apart from the recent drought that produced historically low Indus River flows and the present limited availability o f storage capacity, there are several reasons for this shortfall; first, the Indus River highflow season is relatively short with very highpeak flow rates and sediment loads making it difficult to maximize the diversion with fixed canal head capacities and limited storage facilities; second, flow in the Indus h v e r during the early Kharif season (mid-April to midJune when the shortfall generally occurs) i s normally very low since this i s the very end o f the dry season before any substantial summer rains and when the existing storage reservoirs are nearly empty. Sufficient reservoir capacity has not been built to carry over surplus flood flows from the previous late Kharifseason to augment these l o w flows (all the current reservoir storage at Tarbela and Mangla, which i s normally filled during this late Kharifseason, i s released duringthe interveningRabi low flow season). 2.27 Effectiveness of the Accord. The 1991 Accord i s the present basis for distribution o f water among the provinces and attempts are made to enforce its rules quite rigidly. The Accord has worked in the sense that the waters o f the Indus River are divided among the provinces each season, but it has not worked well as a framework for inter-provincial cooperation and planning, particularly for new storages or canals, as a mechanism for sharing either water surpluses or deficits, or as a mechanism for enhance transparency and information sharing. From an admittedly simplified perspective, there appears to be several reasons for this. First, since the Provinces are not receiving their "full allocation" and the system i s characterized by shortages even when there i s not a drought, the operations o f IRSA have been hampered by political interference and controversy among the Provinces. Second, there does not seem to be sufficient transparency or timely and credible information about the location and timing o f flows and volumes o f water in the system to build adequate trust that water allocations and withdrawals are in accordance with the rules o f the Accord; and third, the system o f storage and diversion works is not adequate to manage the river ina way that would ensure that the Accord can be fully implementedifthere 13 is sufficient water inthe basin in a particular year. These latter two issues were well known at the time o f the agreement on the Accord, but the required action could not be taken and investments could not be made. 2.28 Revision of the Accord and the Enabling Legislation. However, buildingmore inter-provincial infrastructure will only deal with part o f the problems o f the Accord. The Accord i s presently an ad hoc quasi-legal framework for dividing a portion o f Indus River flows based on existing water use by the Provinces in the late 1970s. While the Accord nominally allocates a fixed portion o f Indus River flow (including its tributaries), it actually is meant to preserve access and use at it was more than twenty years ago, and the amount divided varies depending on individual Provincial actions in operating their head works (including unilateral actions to increase diversion) and by the natural conditions in the river. Even ifthenominaltotalsharesofannualIndusBasinwateravailability(regardlesswhetheritisinareservoir o f the river, since total storage i s a small fraction o f annual flow) remain equivalent to what they are today (without reference to "surplus flows", and worked out by combining the original flow allocation and the provision inArticle 4), the original Accord shouldbe overhauled and replacedby a formal legal system o f secure, tradeable water rights based on the total availability o f water in the basin, and including mechanisms for dispute resolution, recourse to the justice system, and mechanisms for adjustments to account for seasonal and annual variability o f supply (sometimes referred to as quotas). Such a shift to sharing the waters o f the basin would not endanger customary diversions at canal headworks particularly on Indus tributaries, but would give IRSA greater operating flexibility in allocating flows to ensure that all seasonal water quotas are fulfilled on time during each season. This would put a premium on good planning and water management in the Provinces and on effective collaboration between the Provinces and IRSA - but based on experience inPalustan, IRSA's powers, authority and autonomy would have to be strengthened significantly for this to work effectively. 2.29 These changes could be implemented by amending the IRSA legislation to add provisions that would provide Pakistan with a clear system o f water rights and their regulation, both inter-provincial and intra-pr~vincial.~~The latter are best administered and regulated by the Provinces themselves within the broader policy framework provided by the national legislation. In any case, the amended legislation shouldprovide for the rights o f domestic use o f water every where (not just in "Metropolitan Cities", and for environmental flows inthe lower Indus River below Kotri Barrage (and implicitly the environmental and other productive and domestic uses in this unregulated portion o f the River - uses both within the River and outside the River). In revising the legislation, IRSA should be given the necessary responsibilities, functions and powers to administer this water rights system, regulate inter-provincial water use, and operate the inter-provincial infrastructure. Interms o f regulatory authority and operating authority, the present legislation needs to be clarified and sharpened to minimize ambiguity and conflict. In making these changes particular care should be given to revising IRSA's governance structure to ensure both its autonomy and independence as well as its responsiveness to the political leadership and civil society. 2.30 A Significant Step to Improve Information Flows and Transparency. WAPDA and IRSA have recently begun the installation and calibration o f a Telemetric System for data collection and transmission 23The very great extent of landtenancy in Pakistani s amajor barrier to extendingwater rights beyondthe Provincial canalhead gates. Regardlesswhich legal principles would be proposed, many large land owners would oppose them out of fear that tenants could gain water rights. Grantingbulk water rights or entitlements to FOs offer a possible solution (administered and regulated by a new Provincial Regulatory Authority), though some would argue that this approach would exacerbate the tendency and risk that large land owners and other local elites would capture and control FO to the detriment of the broader membership. Inany case, the legislation and regulationsenablingfarmer organizationsand governingtheir operations, rights and obligationswouldhave to berevisedto accommodatethese newrights. 14 at selected dams and barrages in the Indus Basin system to provide more timely data on the position o f gates and flows. Timely, credible and trustworthy data on storage and flows at all control points in the IndusBasin system could have major impacts not only on the implementation o f the Accord, but on how effectively and efficiently water i s managed and used by the provinces and farmers. Information and knowledge are as vital as infrastructure to optimal development of the Indus Basin. Inthis digital age o f low cost telecommunications and access to computers, whose availability, benefits and capability are rapidly expanding throughout Palustan, there i s no reason why R S A , the major infrastructure operators, provincial authorities, the Area Water Boards (AWBs), and Farmer Organizations at distributary level (there are already examples o f so called "farmer information luosks" elsewhere in South Asia), do not have continuous access to timely and accurate data (in fact, to an integrated and comprehensive information system) that provides, among other things, data on the status o f the system storage and flows, current allocations, delivery schedules, and other data that would help them function better and make efficient, benefit maximizing decisions. IRSA and the provinces ought to be developing an integrated and comprehensive concept for an information management system to meet multiple needs and objectives for managing water and malung good decisions on water use "from the mountain tops to the root zone" that can be implemented urgently, butperhaps ina phasedmanner. EnvironmentalFlowRequirementsinthe Lower IndusRiver 2.31 Changes in Environmental Values and Concerns. At the time o f the development o f the Indus basin in the 1960s and 1970s, little weight was given to possible negative environmental and social impacts of major water resource development works that constitute the IndusBasin Program. Inpart that reflected knowledge and sensitivities o f that time, and inpart it reflected the consensus that the country's growth and perhaps survival depended on these developments, and althoughthere may be real costs, these could be borne in the national interest. Since then values and concems about the environment, and more broadly about sustainable development and the many dimensions this concept has, have changed substantially inPalustan and the rest o f the world based on hard lessons. These changes are reflected in Palustan, not only in the body o f environmental legislation and the related institutions created since that time, but inthe emergence and growth o f a large body o f civil society organizations and NGOs through which these values have found loud and insistent expression. 2.32 The Controversy over the Impacts of Water Development and EFRs. The extent to which the framers o f the Accord were focused solely on apportioning Indus waters among the provinces for the irrigation canals (which it should be remembered, deliver water for municipal and industrial use as well), i s reflected in the fact that no other water use was mentioned (except for "Metropolitan City" for which sanctioned allocations existed) particularly those water uses and needs on the lower Indus where there are no major canals. The only reference to the lower Jndus River below the last barrage at Kotri i s interms o f "escapage to sea". While the need for a "certain minimumescapage" was recognized explicitly,, there i s no mention or indication that rights or entitlements should be established for areas or uses in this part o f the basin without canals on an equal footing to those established in the Accord for the Provinces for irrigation canal water. 2.33 The upper riparians would prefer that no flow, or "escapage" as it i s termed in the Accord, be allocated below Kotri, Le., that all the flow o f the Indus should be captured and used for development (generally without mention of cost or economic benefit)- for both hydropower, irrigation, and domestic and industrial use, but mainly for irrigation. Ifit was necessary to allocate a certain minimal flow below Kotri, they felt that the only important purpose was to control salt water intrusion, a hydraulic problem once the level and location o f the salinity gradient was agreed based on narrowly drawn or limited criteria. Sindh, on the other hand, held the view that the economic, social and environmental damages o f 15 reduced flow and changes inhydrologic regime in the lower Indus River and estuary are extensive and a very great cost to Sindh24, and that sufficient flow must be made available to prevent or mitigate these damages and costs - an estimated 10 MAF, nearly one-third o f the undeveloped flow o f the Indus River (thisestimate dates from the time o f the negotiations). Substantial flow has occurred inthe kharifseason inmostyears (Figure2.3) because ofthe lackofcapacity to store or divert surplus flood flows. ButIndus river flow, which in the winter dry season i s naturally low, i s now practically zero with the growth in importance o f the Rabi crop. Summer flow has also been at or near zero duringthe last 3-4 years because of a major drought. This has served to intensify impacts and concerns as well as emotions in Sindh. Unfortunately the upstream Provinces still have not agreed with Sindh's estimates o f flow required below Kotri or any other specific amount. 2.34 Inthe Accord, itwas agreed that a certainvolume offlow isrequiredinthe lower IndusRiver and estuary, but agreement could not be reached on what level o f flow was required nor what the primary purpose o f such flows were. But it i s fortunate that as a part o f the Accord it was agreed that further studies would be carried out. Roughly ten years later, two studies have recently been initiatedjointly by LRSA and the MOWP under the NDP project - one focusing on the issues from the perspective o f Sindh, and the second from the point o f view of Punjab. The results are expected inearly 2004. Poverty, Water Availability, and Agricultural Productivity 2.35 Investment in Water Resources and Poverty Alleviation. Claims have been made for many of the recently proposed major water resources development investments that they will among other things alleviate poverty. The claim i s based on the assumption that a substantial or at least significant portion of additional water supplies will go to small farmers, tenants and tailenders inboth existing and new canal command areas (who along with the landless that would benefit from increased agricultural and off-farm employment, constitute the great majority o f the poor), and that increased irrigation more broadly promotes growth that positively impacts on the rural poor. These assumptions might have some validity if the availability of water to small farmers, tenants and tailenders actually increases, the level (opportunity) and quality (wages) of agricultural employment increases, and the benefits o f growth are broadly distributed particularly in its impact on off-farm income opportunities. But, since these recent investment proposals (e.g., the Thal and other new canals, and dams without related distribution productivity o f irrigation water -- the proposed new canals seem to look just like the existing ones, not infrastructure improvements) do not suggest any change in how irrigation water i s managed or in the only physically but also interms of how water management i s organized, and it appears the aim o f new storage development proposals are mainly to push more water into the existing canal system -- it i s important to test whether any of these assumptions hold for the existing irrigation system. The most recent analysis that offers some insight into these issues i s the Pakistan Poverty Assessment. 2.36 The Pakistan Poverty Assessment. Work towards a new and updated Assessment o f Poverty in Palustan was undertaken by the Government and the World Bank and completed in September 2002. The 24Sindh believes that reduced flows in the lower Indus River and estuary have already resulted in significant social, economic and environmental damages and costs from sea water intrusion, including saline drinking water supplies, soil salinity, inundationof cultivablelandby sea water (it is claimedto be nearly 1million acres at present), reducedfishery (reduced catch and loss of economically important species), loss of livelihoods because of the reduction in freshwater available to the formerly extensive Indusflood plain forests, and biodiversity lossesincluding increasedthreats to the extensivemangrove belt (reductions in coverage on the order of 40% and over 60% o f the tree species) that not only provides protection from severe monsoonstorms, but also has considerable economic importanceboth to local livelihoods and as a critical habitat and nursery inthe estuary for the fishery. 16 Assessment i s based on the Pakistan Rural Household Survey (PRHS 2001)25 - a nationally representative, multi-topic rural household survey - and a Qualitative Survey o f Poverty o f six villages intended to enrich and inform the analysis o f the PRHS data. The results o f this Assessment, though controversial because of arguments over the interpretation o f the data and its findings, are nonetheless quite important to the water sector because they begin to explain on a sound analytical basis many o f the critical linkages and constraints operating within the canal system and at farm level as they relate to access to water and water availability or irrigation water servicez6. 2.37 Poverty in Rural Pakistan. The Poverty Assessment indicates that about one-third o f the Pakistan population i s poor, and two-thirds are found in rural areas. Poverty inrural Palustan i s deeper and more severe than in urban areas. The study shows that there has been little change in the extent o f Poverty between 1990-91 and 1998-99- though urban poverty fell over this period, rural poverty held at about 36% widening the urban-rural gap. More than half o f the rural population inPalustan are landless. While over 40% o f the landless are poor, and constitute70% o f the rural poor, only 3% o f those owning 10acres or more are poor. 2.38 Most rural livelihoods depend directly or indirectly on agriculture, yet during the 1990s when value-added in agriculture grew at about 4.2%, larger than the population growth rate of 2.5%, rural poverty remained unchanged at 36%. While the Poverty Assessment Report argues that the volatility o f growth during the 1990s was an important factor in this outcome, it also argues that low apculture productivity was also an important factor. The long drought and its effects on livelihoods also may have contributedsubstantially to this. 2.39 Poverty And Agricultural Productivity. While many factors contributing to low agriculture productivity inPalustan have been identified and studiedz7, the major theme o f the findings o f the Poverty Assessment i s the role played by unequal asset ownership in undermining agriculture productivity and water availability -particularly the ownership o f land. The highly skewed distribution o f land ownership inrural Pakistan has a substantial negative impact on agricultural productivity and an indirect effect on . the apculture resource base. The Assessment points out that among the mechanisms at work are: Inefficient land purchase and leasing markets contribute to the translation o f unequal land ownership per household into unequal operated area, and since larger operated areas have lower cropping intensity, land inequality leads directly to low overall productivity (though not necessarily per unit o f land irrigated since as the Assessment argues owners o f large land areas have greater access to assured water supplies, and possibly groundwater in fresh groundwater areas, and may choose to cultivate or operate only a part o f this holding because o f water scarcity or other reasons - more detailed data on the behavior o f large land holders should be analyzed in the planned follow-up assessment2'). 25The PHRS survey covered 2700 households in 16 districts. Since the data were collected at plot level, the sample includes 1500irrigatedplotson about 400 watercourses (inRabi 2000-2001, andKharif 2000). Unfortunatelythe studyteam were not able to collect data on flow in a sample of these watercourses, nor did it have access to Department data on flows in the corresponding distributaries and minors. A follow-up study plannedfor later this year will try to add this key data to the analysis. 26A small ongoingWorld Bank study o fthe impactso f drought on three villageslocatedinthree different agro-ecologicalzones i s also expectedto shed some light on these issues. 27 "Strategic Reforms for Agriculture Growth in Pakistan" Editedby Rashid Faruqee, WE31 Leaming Resources Series, World Bank, 1999. 28Many large landowners are absentee, and engaged in various professions in the cities often giving them greater access to information and investment capital. Regardless, some large land owners may be a part of the solution as well. They are 17 . Land inequality, because o f the prevalence o f tenancy, can also lower incentives to invest in land - one important consequence o f this i s the lack o f investment in short and long-term measures to combat soil degradation, soil salinity and water logging conditions that are so pervasive in Pakistan. A second consequence may be a reluctance to invest innew water management practices and water . saving irrigation technology as well as new cropping systems. Both o f these consequences contribute to the persistence o f low agricultural productivity. Inequities inaccess to canal irrigation water are reinforcedby land inequality since larger land owners are more able to influence officials to enable them to skew water allocations along a distributary or minor canal, or to obtain sanction for an illegal outlet or for illegal direct pumpingfrom canals. The resulting uncertain or low water supplies available to tenants, small farmers, particularly tail-enders, contributes directly to l o w productivity. 2.40 Poverty And Water Availability. Most rural livelihoods depend directly or indirectly on agriculture, and as we have pointed out earlier, agriculture productivity depends importantly on the availability o f water for irrigation - specifically the public provision o f canal water. Despite the growth of groundwater as an additional source o f water for irrigation, and its sale and distribution in local informal water markets, canal water remains the critical and most important source o f water for irrigation .. on the Indusplain. Inthis regardthe Assessment found that: Ownership o f a plot within a watercourse command area confers access to irrigation water, butdoes not guarantee canal water availability Water use appears to vary systematically with the location o f the watercourse along the main channel (distributary or minor) as well as the location o f the farmer's plot on the water course command area - specifically, water availability decreases significantly if the watercourse i s locatednear the tail o f the distributary or minor, and/or if the plot i s located near the tail end o f the watercourse. 2.41 This location effect i s well known, but the Assessment suggests that the interplay o f at least two factors appears to be important inaffecting water availability: . The first is the deteriorated condition o f many distributaries, minors and watercourses, and their related structures such as gates and outlets - seepage losses along these canals are often highand their hydraulic performance low with the resultthat the system does not function as . it was designed or intended, i.e., plots indifferent parts of the command area but especially near the tail o f these canals would receive less water than was intended. Second, the Assessment found that when the data are controlled for plot location, the availability o f canal water increases significantly where farmers reported informal payments for water; where there i s less inequality o f land ownership, and where the land holdings o f the three largest cultivators on the watercourse i s high. The Assessment notes that since larger landowners are likely to be able to lobby more effectively with irrigation officials and politicians, this latter finding suggests that water availability depends to some extent on the ability o f cultivators to influence irrigation officials. among the most advanced and productive farmers in Pakistan, using groundwater in conjunction with canal water, as well as the most modem agronomic and irrigation practices, in some cases operating mainly through tenants. Much could be leamed about more effective and more productive use o f water from these farmers, if the lessons leamed could be disseminated, other barriers removed, and innovation scaled up. 18 2.42 The Assessment found hard evidence for three key findings: .. A significant percentage o f small farmers and tailenders actually get less water than their share Per-acre water delivered to these farmers i s significantly lower than that delivered to large, upstream farmers There i s widespread lack o f transparency inwater allocation. 2.43 The lack o f transparency in water allocation i s important, and stems largely fiom the long- standing lack o f participation o f farmers in water management decisions combined with the tendency o f the departments over time to centralize management decisions such as water allocation. These two factors over time have the effect o f greatly diminishing transparency and information access. Farmers generally understand the natural variability o f their main source o f water supply, the Indus River (an important reason why groundwater has become so important since it provides an opportunity to smooth water availability by reducing the unreliability o f supply and overcome water shortages, as well as improve irrigation timing), but want to know what their share i s and when it will be delivered - with this information they can make good or at least informed and lower risk decisions on how best to use both the water and their land (and possibly respond more appropriately to incentives). Because o f the characteristics o f the hydrology o f the Indus River and the limited storage available, availability o f water for irrigation often varies duringthe season (despite efforts to improve forecasts, there are no guarantees), butthis variability anduncertaintydoes not seem to be the primary issue with farmers -- transparency and timely information, participation in decisions about what to do when there are shortages, and delivery on whatever i s agreed, are the more important issues. 2.44 What should we conclude? The Poverty Assessment provides new insight into the factors that influence canal water availability, and the benefits o f investment to increase water availability as opposed to access to water (which depends only on the location o f the farm plot), from which one can draw some tentative conclusions. First,that substantial poverty benefits, and to an extent the economic benefits since productivity may continue to stagnate, claimed for new water resources development investments will be very difficult to achieve unless there i s substantial investment to improve the performance o f the irrigation system and its governance. Second, the large and pervasive effects o f unequal land ownership may severely limit these benefits and possibly their hopes for broader impact on rural economy. Although the problems created by unequal land ownership are formidable, the challenge i s to develop a new system o f governance for water management that to the maximum extent possible overcomes the negative effects o f unequal land ownership on water availability (for example, the tendency for local elites to capture FOs, and problems with existing land leasing and tenancy arrangements). Third, traditional public sector thinking in Palustan would presume that overcoming these constraints i s an important role o f the departments (i.e., they are there not only to construct these systems but to operate them in the farmer's and the public's interest), but cumulative experience in Pakistan and the evidence from the Poverty Assessment suggests that this role today i s inmany cases less effective than it once was, and in some cases, may act perversely to reinforce the mal-distribution o f water2'. Overcoming these two problems i s one o f the several important aims o f the current institutional and governance reform process. *'Astrikingexample i s the existence o f a large number of uncontrolled direct outlets (DOs) in the Nara Canal in Sindh. These are outlets, which draw water directly from the main canals that often have no outlet control (gates for example, and where these exist they are not easily controlled by the ID). These types of outlets are illegal under the 1873 Irrigation Act, but have been permitted and a majority have been accorded official sanction over the years. The cumulative effect o f the steady increase in these DOs has been to increase the command area o f the Nara Canal by more than 30% making it impossible to distribute water to large areas inthe tail portion o f the canal command area without a major increase in diversion and a change 19 2.45 Research and studies currently available including the Poverty Assessment3' suggests that investments in additional water supply and improvements in irrigation service that increase equity, cropping intensity or cropped area, and improve supply reliability are essential but not enough for there to be a substantial effect o f water investment on poverty in rural Pakistan. Ali and Byerlee's31 decomposition o f crop sector productivity growth in Punjab from 1971-94 showed that on average about half o f the positive contribution o f technological change (cropping intensity and new crop varieties) and public investment (roads and literacy) was offset by soil and water quality degradation. Water resource development would contribute directly to increases incropping intensity, and hence would appear to be a key factor in crop sector productivity in Pakistan. But without governance reforms that improve water availability to poor and marginal farmers, and a coherent and effective strategy to reverse soil and water quality degradation, the poverty and economic benefits could be greatly reduced. 2.46 Research inIndia32has consistently shown that rural poverty alleviation i s strongly dependent on total factor productivity growth, and that this growth i s most strongly influenced by technology research and development (R&D) in addition to rural infrastructure and education (literacy). What i s missing in the research inPakstan so far i s an assessment o f the importance o f R&D, long neglected inPalustan, on both resource quality and productivity. Moreover, to ensure that farmers are able to respond to policy incentives and R&D, the Government should look more deeply into the composition o f the governance reforms, especially the flow of information and secure and tradable water entitlements or rights, two critical aspects that have been overshadowed by the struggle over the process o f farmer organization (FO) formation and training, and the relation o f these FOs to the departments, i.e., the degree to which FOs will be empowered to manage water (the third critical element , that together with timely information and water rights form an important part of the incentive framework). to a rotational method o fwater distribution among the distributaries since outlet discharges become unreliable ifthe flow inthe canal i s outside the range o f about 70-110%o f design discharge. 30 Further follow-up to the Poverty Assessment including more detailed studies of these factors and related issues is needed and i s being initiated (importantly, data on actual canal flows and water availability, and the state and performance of the relevant portions of the canal network would need to be introduced into the study). The study o f the performance o f factors markets (land, labor, and water) recently initiated by the Bank and GOP will also provide insight into the complex web o f relationships and factors that influence the incentives and disincentives farmers face, and the broader economic and poverty impacts of water resources development and irrigated agriculture inthe Indusbasin. 3' Productivity Growth and Resource Degradation in Pakistan's Punjab: A Decomposition Analysis; Mubarik Ali and Derek Byerlee; World Bank Policy Research Working Paper No. 2480; November 2000. 32 Government Spending, Growth and Poverty in Rural India, Shenggen Fan, Peter Hazell, and Sukhadeo Thorat; Amer. J. Agr. Econ. 82(4) November 2000. 20 3. PUBLICSECTOR DEVELOPMENT PROGRAMS Trends inPublicExpenditurefor Water andAgriculture 3.1 Sector Share of Public Investment. Inthe 1960s, total water and power investments exceeded Figure 3.1: Public Sector Expenditures US$1.5 billion accounting for more than 50% o f the Public Sector Exoenditures I total public spending33. Half o f this represented the Indus Basin Replacement works. Investment trends have changed significantly since then (see Figure 3.1). Investments in the irrigated agriculture sector (water and agriculture) have been steadily declining both as a percentage o f the total public spending and as a percentage o f GDP. In 2003 the total allocation for agriculture and water represents only about 0.5% o f GDP. InvestmentProgramsfrom the 1960s to the 1990s 3 0 2 5 3.2 The major investment programs, policies, 2 0 trends and performance in the water sector between f : 1 s the 1960s and 1990s are outlined in the following gE 1.0 paragraphs. 0 5 0 0 3.3 I n the 1960s, the focus o f investment was on meeting the water requirements o f areas that were earlier served by the eastern tributaries o f the Indus River (Beas, Ravi and Sutlej) whose waters were allocated to India as part o f the Indus Waters Treaty. The 1960s saw the construction o f major Replacement Works including the Mangla dam, and a network o f barrages and inter-river link canals. The 1960s also witnessed the beginning o f the Salinity Control and Reclamation (SCARP) program, which addressed localized water logging and salinity problems mainly through the installation of some 12,000 public tubewells and some surface drains. The demonstrative effect o f SCARPS and introduction o f low cost simple technology for tubewells and diesel prime movers also launched a boom in private tubewells. The 1960s might be termed the "hay day" of the water sector when massive investments in the sector coupled with the introduction o f high yielding varieties (HYV) o f wheat heralded the Green revolution. 3.4 The 1970s. The Indus Replacements Works and the SCARP program were continued in the 1970s including the completion o f Tarbela Dam and substantial investments in SCARP. Major remedial works to address problems faced during the commissioning and early operation o f Tarbela dam were also initiated during this period. Unfortunately, during this period there was a stagnation o f abiana rates (water charges) and recoveries. Until the early 1970s abiana proceeds covered the full operation and 33Parvez Hasan:Pakistan's Economy at the Crossroads- Past Policies And Present Imperatives, 1998. maintenance (O&M) cost and a small percentage o f capital cost. However, abiana rates were not increased duringthis period even innominal terms and recoveries fell far below O&M expenditures. L o w abiana recoveries, rising SCARP tubewell O&M costs, inflation and pay commission awards resulted in major neglect o f the surface irrigation system. Deferred maintenance began to accumulate and institutional weaknesses, manifestedby poor quality o f service delivery, also began to become apparent. 3.5 To begin the 1980s, a comprehensive sector study was completed by WAPDA in 1979 - the Revised Action Program (RAP) for Irrigated Agriculture. The RAP was intended to guide policy and investment inthe 1980s, and recommended, inter alia, better coordination between agriculture and water policies, improved water management at the farm and command area levels, discontinuation o f new public investments in fresh ground water areas and privatization o f public tubewells, and system rehabilitation. On the investment front, the RAP emphasized short gestation high payoff investments. The main recommendations o f RAP were adopted inthe National Agriculture Policy issued in 1980. A modest start was made on improving water management (OFWM) at the watercourse and distributary canal levels. Several OFWM (watercourse improvement) and command water management projects were undertaken and the need for giving greater voice to farmers in decision malung at the watercourse level was recognized. Supporting legislation inthe form o f Water User Association Acts was promulgated in all provinces. By this time, accumulated deferred maintenance had reached unsustainable levels. Two successive nationwide projects were undertaken to rehabilitate parts o f the system. At the same time O&M fundingwas substantially increased with the help o f grants from GOP. However, institutional and policy changes required to sustain O&M levels and improve O&M planning and effectiveness remained lackmg. By late 1980s, several SCARP projects (Mardan, Khairpur 11, Panjnad Abassia, etc.) were also completed and construction o f the first trunk drain in Sindh (the Left Bank Outfall Drain, LBOD Stage-I) to carry saline drainage effluent to the sea was started. A program for "SCARP Transition" (disinvesting public tubewells in fresh groundwater areas) was also successfully started on a pilot basis in Punjab to reduce the public sector O&M burden. Inthe 1980s feasibility and detailed design studies for Kalabagh Dam, the storage project plannedto follow construction o f Tarbela Dam, were also started. 3.6 The 1990s. The beginning o f the 1990s was marked by the conclusion of a long overdue Water Accord for sharing the Indus waters amongst the four provinces in 1991. A Water Sector Investment Planning Study (WSIPS) was also completed in 1990 to update the RAP recommendations and prioritize investments. The WSIPS emphasized the need for establishing a comprehensive and reliable Data Bank Network for water resources, agriculture, soils, etc. to guide investment planning; revitalizing institutional capacity in the provinces for investment planning; establishing a sector MIS; improving project approval and review processes; modemizing procurement processes; strengthening the local construction and consulting industries; and a training program for institutionalizing integrated comprehensive management of water resources. On the investment front, several localized drainage projects in Punjab, Sindh and NWFP and the LBOD Stage Iwere completed. Punjab successfully completed two SCARP transition projects (privatizing over 6,000 SCARP and irrigation tubewells), which provided substantial relief to its O&M burden. Two major irrigation extension projects (Chasma RightBank Canal phase I,I1and I11and the Pehur high level canal) were started and substantially completed. Although the preparation o f the Kalabagh Dam was substantially completed, implementation did not start because of environmental and political controversy. The Emergenceof aProgramof GovernanceReformsinthe 1990s 3.7 Three Core Principles. By the mid-1980s the Government recognized that maintaining the vast irrigation system that had been created was a problem, and by the early 1990s it was generally accepted that ad hoc rehabilitation was not the answer. Instead, it was agreed that fundamental institutional reforms, coupledwith investment to improve the efficiency and performance o f the physical system, were necessary to address institutional weaknesses that were manifestedin the continuing lack o f effective and 22 efficient O&M, low cost recovery, low water delivery and application efficiency, inequitable water distribution, and threats to the long term sustainability o f irrigated agnculture. Essentially similar findings and recommendations on an approach emerged from two independent studies34,one sponsored bythe Ministryo fWater and Power andthe second undertaken by the Bank as part o f its sector work. In response, the Government conceived an ambitious and far reaching reform program based on three principles: decentralization, participation and management transfer. 3.8 Basic Elements of the Program of Water Management Governance Reforms. The program o f governance reforms, - packaged and supported under the National Drainage Program (NDP) project35 - was intendedto foster the development o f an institutional, policy and operational framework conducive to efficient and self-sustaining operation and management o f the irrigation system, and provide a governance framework that would enable and promote improved equity and more efficient and productive use o f water. The new governance framework would involve decentralization and transfer o f management o f the irrigation and drainage system from the Irrigation Departments to a multi-tier system o f autonomous institutions (created with the staff o f the departments or from the market place), with clearly defined roles, responsibilities and accountabilities within the system. O&M subsidies would be phased out over a 7 to 10 years pilot period reaching a point where costs o f irrigation service are acceptably shared between the public sector and the private sector (farmer organizations). During this period the details o f specific reforms including cost sharing, and abiana assessment, collection and retention, would be piloted and adapted to conditions on the ground. The key elements o f the reforms, and the hierarchy o f the new institutions, and their respective roles andresponsibilities, were envisaged as follows: m Conversion o f the Irrigation Departments into autonomous Provincial h g a t i o n and Drainage Authorities (PIDA), with responsibility for intra-provincial aspects o f the system, including O&M of barrages and main canal headworks, and management o f intra-province bulk water transfers, . including bulk water deliveries at the head o f main canals and management o f drainage effluent inmaindrains that extend across canal commands; Establishment o f self-governing, commercially oriented, client responsive and financially sustainable area water boards (AWBs) - essentially public utilities with a substantial number o f board seats allocated to farmer organizationrepresentatives -- on a pilot basis in one main canal in each province -- responsible for operating and maintaining the irrigation and drainage system within the main canal command up to the head o f the distributary canals, and for bulk water deliveriesto these distributary canals; and Establishment o f farmer organizations (FOs), owned and managed by farmers, and responsible for O&M o f the irrigation and drainage system within the command area o f distributary and minor canals, and assessment and collection o f water charges (abiana). Once sufficient number of FOs i s established, they would have representation on the Board o f Directors o f the AWBs. 3.9 Under this governance framework, Government (Irrigation Departments) would phase itself out o f the role o f service delivery (operation and maintenance, water distribution and abiana collection), retaining only a policy role and the role o f regulator o f the autonomous entities and utilities created. As PIDAs become operational they would enter into contracts for bulk supply o f irrigation water and receipt o f the drainage effluent generated within the limits o f the AWBs. The AWBs would enter into similar contracts with FOs for bulk supply o f water at the head o f the distributary canals. The FOs would collect 34Institutional Reforms to Accelerate Irrigated Agriculture, John Mellor Associates and Asianics Ago-DeV. International (pvt) Ltd., Ministry o f Water and Power, 1993; and, Pakistan Irrigation and Drainage: Issues and Options Report No. 11884- PAK, Agriculture Operations Division, South Asia Region, World Bank, March 1994. 35Co-financed by the World Bank, Asian Development Bank, and the Japan Bank for Intemational Cooperation. 23 abiana, retain a part o f it to finance their functions and pass on the remaining proceeds to AWBs for operation and maintenance o f the main canals. The AWBs would inturnpass on a portion o f the amounts received to PIDAs for the O&M o f the system under the latter's jurisdiction. It was envisaged that the reforms would lead to PIDAs and AWBs that develop into responsive and technically strong autonomous bodies responsible to their customers (the FOs) and capable o f improved management and O&M o f the upper tiers o f the irrigation system - the benefits would include improved and sustainable operations, higher water delivery efficiency, better scheduling o f canal deliveries reflecting more closely the irrigation requirements in canal commands. Similarly, establishment o f FOs would lead to more equitable distribution o f water among watercourses, improved and cost effective maintenance, and more efficient collection o f abiana. 3.10 Slow and Uneven Progress of the Reform Program. However, due to uneven commitment and political support, especially the lack o f ownership o f the reform programs by the irrigation departments, . progress on the reforms has been mixed so far. Sindh. The governance reformprocess i s well underway onthe Nara Canal where the pilot AWB i s located. The process o f FO formation i s nearly complete, with 163 out o f a total o f 165 FOs having been formed. The Nara canal AWB has formed branch level Water Allocation Committees comprising representatives o f FOs and canal officers to jointly assess problems, and monitor water allocation and flows to enable more equitable distribution o f water. The FOs are collecting the abiana, retaining40%, and transferring the remaining 60% o f the assessment to the AWB. The Government o f Sindh has indicatedthat the management o fthe GudduBarrage (from where the Nara Canal off-takes) would be transferred to the Sindh Irrigation and Drainage Authority (SIDA). Sindh has already notified two additional AWBs on Ghotki and the Left Bank . canals -these are expected to join the reform process shortly. The future challenge in Sindh i s to improve the water service delivery to consolidate and expand the reforms. North West Frontier Province. The pilot AWB has been established in the Swat Canal, the Board i s holding regular meetings, and 13 FO's have been formed. Initial results o f these efforts are visible, and the G o v e m e n t o f NWFP; has indicated that the technical personnel and material resources for the completion o f the program with be deployed. The Swat Canal provides opportunities to substantially improve water distribution because, unlike the canals inPunjab and Sindh, the system i s designed to deliver water "on demand" on a volumetric basis. NWFPneeds to take advantage o f the important opportunity this difference affords to improve the efficiency o f water distribution to better match service to crop water requirements. The challenge ahead in . NWFP is to organize FOs inthe programmed 127 minors and distributary, and to fully organize the corresponding AWBs with full participation o f the farmers. Punjab. After four years o f reflection the Department o f Irrigation has taken initial steps to support the reform process. A higher level o f support for a reform program at the political and policy levels i s apparent, a factor that was critical for the takeoff in Sindh. The present use o f Khal and Nehri Panchayats as proxies for water course associations and FOs respectively could prove successful if Irrigation Management Transfer (IMT) agreements clearly specify responsibilities and functions between PIDA, the AWB and the FOs, and inparticular, ensure the effective empowerment o f FOs removing the present arrangements which make them an extension o f the department. The Government of Punjab has indicated that it will make the necessary changes in the financial regulations to allow FOs to retain their share o f abiana to enable them to finance the operation and maintenance activities at the minor and distributary canal level for which they are responsible. The challenge for Punjab i s to develop a crash program o f FO mobilization, training and capacity building to consolidate progress and deepen the pilot reforms. 24 Balochistan. Balochistan had for a time opted out o f NDP for a number o f reasons, but very recently has indicated that it will be re-activating its participation inthe program. Balochistanwill have to assess the status o f actions it had taken, and develop a plan to move forward on both the reforms and investment. Balochistan i s one o f the key beneficiaries o f the Federal Governments plans to invest in new canals (the Kachi Canal). This new canal would enable Balochistan to fully utilize its current Accord allocation and divert flood season flows that currently cannot be used. It i s therefore very opportune for Balochistan to gain experience with the governance reformprogrambefore the construction o f this canal advances to the stage o f operation . 3.11. ThreeLessons ThatEmerge From TheInstitutionalReform Experience So Far: Reforms require champions who have high-level political support. m Notwithstanding the presence o f an empowered champion, changing the traditional culture of Pakistan's water departments and agencies requires an effective internal process of change management and capacity building to overcome the barriers to change - such a process should be designed to help the leadership and staff of the department see the need for change, to define what changes should be made, and to take ownership and leadership o f the transformation and renewal o fthe organization. Long-term success will depend on how well and how timely training and capacity building programs for farmer organizations and department staff are implemented, and how effective monitoring and evaluationprograms are. From the beginning the Provincial Governments saw the reform program as a pilot that would extend over a 7-10 year period during which the basic model outlined above, alongside various alternatives and variations, would be tested and necessary adaptations and changes made as required so that at the end o f this period a new and more efficient and effective system o f governance was inplace. Butthese pilots got o f f to a slow and shaky start36 engendering increased resistance to change and a general feeling in the departments and more broadly within government that the reforms were unsuitable and would not work, though in fact they hadnot yet been fairly piloted and evaluated. 3.12 The Rapid Emergence of Second Generation Issues and the Associated Risks. The rapid emergence o f important second-generation issues inthe governance reformprogram i s becoming apparent even though progress has been limitedexcept in Sindh. These issues carry important risks. . The provinces have not used NDP resources to systematically rehabilitate and modernize37 distributaries, minors and watercourses in a program coordinated with the mobilization o f FOs and with the full participation o f the FOs and their members. Experience elsewhere has amply demonstrated that management transfer to FOs i s generally unsuccessful if the deferred maintenance i s not eliminated, the canals are not turned over in fully functioning order to the satisfaction o f the FOs, and the benefits of improved service and farmer management are not realized. In fact in some cases, the work has been sub-contracted to the FOs to manage in order to reduce costs and ensure their satisfaction. This issue i s becoming very critical in Sindh where there i s a full compliment o f FOs on the Nara Canal, and they have begun to participate in the 36The capacity for social mobilization of farmer organization on the scale required did not exist within the government, and was seen as expensive to procure from consultants or NGOs; the training and capacity building program has taken an interminably long time to initiate and is seen as not delivering what is needed at present; and neither good baselines and monitoring programs, or change management processes, are inplace. 37Apart from improvements in design that lead to better service, modemization would include measures to enable rotational distribution among distributaries, and installation o fwater measurement devices. 25 activities o f the AWB. In Punjab, the Khal and Nari Panchayats are demanding canal improvements as a first priority. The deficiencies inthe canal network and the structures, and the problems this i s causing for the effective hnctioning o f the FOs i s becoming apparent. The very grave risk i s that if such a program o f rehabilitation and modernization (including, for example the installation o f water measurement devices) i s not developed on a crash basis with the full . participation o f the FOs, the reforms are likely to unravel, or at least, grind to a halt with the substantial loss o f benefits. The present process o f social mobilization and formation o f FOs has included a minimumlevel o f training and capacity building. An accelerated, continuous, long-term and carefully designed program of training and capacity buildingfor elected FO office holders and farmer members that encompasses everything fi-om awareness building, developing basic business skills, to basic shlls needed to carry out different functions related to water management, i s urgently needed. Anecdotal evidence exists in all the provinces o f frustration on the part o f farmers and FO office holders brought about by their lack o f capability and know-how. The risk i s that ifthe provinces do not move urgently to fill this gap with a sense urgency, the FOs already formed may . deteriorate and perhaps disintegrate, leaving farmers with the perceptionthat the reforms will not work and will not benefit them. The core issue in each o f the provinces has been the mobilization and formation o f FOs and management transfer - these processes have consumed everyone's energy and attention, and because o f the shifts in power associated with this restructuring o f roles, have caused a large measure o f the controversies and resistance to reform. However, as the number o f FOs in each canal increases beyond some threshold (say, for example, completion o f farmer mobilization on one or more branches) it becomes more critical for the AWB to transform itself from a "canal circle" accountable to the ID into an AWB accountable to the FOs and the farmers (and to the PIDA). No AWBs have been fully established. Moreover as the FOs increase their participation and try to begin carrying out their functions, they are beginning to demand more leadership and services fi-om the provincial PIDAs. But so far the provinces have seriously understaffed the PIDAs curtailing their effectiveness, and have not move to relinquish direct control o f the AWBs significantly inhibitingthe change process inboth the AWBs and the IDS.The provinces need to move the reforms forward at all three levels in a coordinated manner to avoid creating bottlenecks, unnecessary controversy, and risks that the entire process could be undermined and the reforms unravel. 3.13 I n Whose Interest I s Governance Reform? The Federal Government has sustained a commitment, at least in policy and spirit, to the governance reform program, but it i s essentially a Provincial matter since they are entirely responsible for the irrigation systems and irrigation services within the province. Nevertheless, the Federal Government has a vital interest in the outcomes o f the reform process since these outcomes are essential to achieving its long term social and economic objectives in the rural sector (assuming this continues to depend to a large extent on an increasingly productive irrigated agriculture sector) for which it i s proposing a huge increase inpublic expenditure for inter-provincial water resources development. On the other hand, the Provinces are and will continue to be increasingly dependent on the Federal Government to underwrite an increasing share o f their essential water sector investment programs38. Hence, neither party can afford to remain at arms length fi-om the reformprocess. 38The Provinces will need resources in the neighborhood o f $10 billion (about 615 billion Rs) over the next 25 years (the Ministry's MTIP indicates that the aggregate provincial needs are about 201 billion Rs for ongoing projects and 414 billion Rs for planned projects) for drainage, canal lining in saline groundwater areas, remodeling and modemization o f the canal network, rehabilitation and safety o f the barrages, small dams in the barani areas, and On-FarmWater Management programs. 26 3.14 The Way Forward. Despite the controversy and the slow and unevenprogress, the imperative is to sustain the reform process. This is emphatically not the same as continuing to implement the NDP project, which because it has provided the bulk o f the financial support the process needs, has become synonymous with both the failings and successes o f the process. I n the context of a renewed commitment to the core principles and outcomes of the reform process, the urgent and immediate aim should be to recast the program by building on the lessons and experience gained so far, deepening knowledge o f factors and issues that have been exposed through that experience, overcoming gaps and problems in the NDPprogramand the ongoingreformprogram ineachprovince by incorporating lessons learned, malung changes and piloting adaptations and innovations, and restructuringthe program and approach o f the NDP project to ensure that progress towards these outcomes i s steady, albeit gradual, and can be sustained and accelerated where that i s possible. 3.15 The Needfor a New Policy Paper on Irrigation Institutional and Governance Reform. One way to renew this commitment and to formulate the next phase o f the program would be through a Government "White Paper", or policy and program paper, jointly prepared by the Federal and Provincial Governments. This may take some time because it requires planning, probably some targeted field studies and assessments involving thirdparties, and open and possibly lengthy consultations (participation i sjust as important inthe preparationas inthe implementation, perhaps more so because o f the overriding need for ownership and commitment). But there i s time within the remaining period o f the N D P project to use that facility for the modest resources needed to launch and support such a process. Success would also be enhanced by setting a definite time frame, and establishing a joint high-level working group to coordinate and manage the preparation o f the "White Paper". The Bank and other donors would no doubt be interested insupporting this process. 3.16 Issues that should be addressed. Inpreparing the "White Paper" the joint high level working group would need to carry out a number o f investigations and studies involving a wide range o f expertise mainly from within the country but also including selected intemational expertise. It would also be useful to update what i s known o f experience elsewhere in South Asia and in other developing countries with water sector and irrigation governance reformprograms. One important insight to be gained from such an exercise i s the nature o f the transformation and the evolution o f both the farmer's and the department's roles, responsibilities and accountabilities under different models and approaches. Other areas o f study mightinclude: Benchmarlung and auditing o f irrigation water service, O&M and other irrigation department operations. Pricing and the cost o f water including the performance o f informal water markets for canal water and groundwater, affordability o f water charges; incentives and disincentives to pay water charges, alternative mechanisms for determining and regulating water charges, and for assessment and collection, and experience with the transition to bulk water supply and the installationo f water measurement devices. Modalities for farmer participation in water management, organizational arrangements, roles and responsibilities, capacity buildingneeds, outcomes and measures o f effectiveness. Economic and social incentives for more efficient and productive use o f water, including issues in technology development (R&D) and dissemination, benefits o f farmer participation and empowerment intechnology uptake and better use o f water. These needs are about seven times the total Provincial ADP budgets (87.5 billion Rs) that are likely to be available without substantial changes in financing mechanisms based on their estimate for the next five years (17.5 billion Rs). 27 .Modernization o f canal networks, not only of the physical layout but also operating modalities in view o f the present waribandi system of water distribution under conditions in which there i s a substantial change from the original design in the scope o f water availability, operating requirements and cropping systems. Alternative modalities for modernization o f institutional arrangements for irrigation water .management, particularly ways to increase accountability and accommodate greater farmer participationand decision making. Alternative approaches and key success factors for institutional change management processes. 28 4. OPERATIONSAM) MAINTENANCE EXPENDITURES PERFORMANCE AM) ProvincialOperationsandMaintenanceBudgets 4.1 Followingmajor real increases inO&M budgets inthe mid 1980s that accompanied a nation wide Irrigation System Rehabilitation Project (ISRP 1) it was generally accepted that the levels o f O&M funding attained in 1988 were "adequate". At that time an attempt was also made to institutionalize systematic planning, prioritization and effective supervision o f routine and preventive maintenance. It was also expected that resources released as result o f the SCARP Transition Program (privatization o f public tubewells in fkesh groundwater (FGW) areas) would provide a steady flow o f funds for improved O&M o f the surface irrigation and drainage system and reduce the need for government subsidy. However, the current dilapidated state o f the irrigation system bears witness that the expected improvements have not materialized. Indeed, the situation has worsened. Initially, drains, flood protection facilities, and the distribution channels were the most neglected. Now, however, the larger channels and numerous important structures (including barrages) are also reported to be in distress. Current estimates o f system rehabilitation (essentially accumulated deferred maintenance) andremodeling costs exceed Rs 200 billion3'. 4.2 Unfortunately, O&M continues to receive inadequate budget allocations, major portion o f which goes to establishment costs. This i s evident from Table 4.1 and Figure 4.1, which show the O&M budgets o f the irrigation departments since 1992. Table 4.1: Irrigation Department Budgets Since 1992 1 1 Punjab I Sindh NWFP I Balochistan 1 Total I I&R /Estab ;Total M&R Estab Total M&R Estab Total FY92 `z41 2079' 4,920 I 692 5681 1260 391 1471 538 96 163 3,991 2,8901 6,881 FY93 1,822 22931 4,115 791 712 1503 418 1601 659,~ 7 178 3,090 3,2841 6,374 ~ 578 119 FY94 1,511 22821 3,793 877 713 1590 396 174 566 54: 129 183 2,838j 3,294 6,132 FY95 2,370 22631 4,633 972 882 1854 441 203 644 541 151 2051 3,837 3,499 7,336 FY96 2,412 2322 4,734 2050 1053 3103 458 230 688; 62' 1501 212' 4,982 3,7551 8,737 FY97 2,246 2691 4,937 2051 982 3033 123 238 3611 77 153 230 4,497 4,064 8,561 FY98 2,455 2230, 4,685 1029 1215 2244 51 153 204 3,964 3,860 7,82 FY99 2,653 17211 4,374 9381 1497 2435 58 153 211I 4,180 3,632 7,81: FYOO 2,579 1902; 4,481 1102 1530 2632 425 272 501 153 203 4,156 3,857 8,013 FYOl 2,261 2003' 4,264 1514 1637 3151 651 1531 214 4,193 4,071 I 8,264 FYO2 1,618 22751 3,8931 1 1 2348 1826 4174 4,488 4,5471 9,035 Establishment 1 cost as YOof total 39 50 39PERconsultants estimate. Figure 4.1: O&MBudgets(incurrentterms) 10,o 9.0 8.0 7,O 6.0 --+-Punjab 2.0 3,0 ~ 0 1 ,o x " " " " A X A w 0 X " , - ,Y - 'Y , - ' " - ' x w W W FY9 FY9 FY9 FY9 FY9 FY9 FY9 FY9 NO FY FYO Fiscal 4.3 SomeMajor Issues and Observations Innominal terms, betweenFY92 andFY02, Sindh's O&M budget has increasedmore than two-fold; NWFP's and Balochistan's have remained constant, while Punjab's budget has declined. Inreal terms, O&M budgets have been declining. The increase in Sindh reflects the additional O&M requirement for LBOD, while the decline in Punjab i s due to the privatization o f SCARP tubewells (somehow, money saved from privatization was not diverted to meet shortfalls in O&M funding for canals and drains). It is worth noting that . Sindh's O M budget now exceeds Punjab's O M budget whose irrigations system is more than twice the size of Sindh. Overall establishment cost (staff salaries) represent 50% o f the total O&M budget, ranging from 39% in NWFP to 68% in Balochstan. In Punjab salaries o f staff who assess abiana ("special revenue staff') i s over Rs 400 million which i s equivalent to about a third of total abiana receipts. The decline o f maintenance and repairs budgets in real terms has made establishment cost more prominent. It i s important to note that about 30% o f the establishment costs are on account o f staff deployed for O&M o f the distributary and minor . canals. This amount represents potential cost reductions that can be achieved if the distributaries are turned over tofarmer organizations. A closer look at non-salary costs (not shown separately inthe table) reveals that: NWFP spends over 70% o f the total O&M budget on the electricity cost o f lift- irrigation schemes (to some extent a consequence o f the Province's unfavorable topography) leaving little space for preventive and routine maintenance & repair (M&R). o Punjab spends less than 20% on drains and flood protectionfacilities, explaining why drains4' are the worst maintained. 40InFY02Punjabusedfunds from NDP to enhance allocationfor flood protectionanddrainsspendingnearlythree fold. 30 Sindh spends nearly 75% o f its total O&M budget on tubewells, pumps and drains, highlighting the need for privatization o f public tubewells in fresh groundwater . (FGW) areas (though their extent is muchless inSindhthan inPunjab). O&M budgets are supposed to be prepared on the basis o f approved "Yardsticks" which in theory are to be updated periodically. However, the current situation i s that Punjab is still using yardsticks prepared in 1992without any updating; Sindh prepares budgets on the basis of fund availability indicated by its Finance Department - although yardsticks were updated in 1995 they are still not approved; NWFP does not use yardsticks (the basis for budget allocation i s unclear); Balochistanupdates yardsticks each year on the basis o f revised capital costs o f irrigation schemes. Due to fiscal difficulties, the allocations by the provincial governments are generally made based on allocations made inprevious years without regard . to ground conditions or increased costs due to inflation: The actual budget releases depend uponthe availability o f funds and seldom match the allocation let alone the requirements. Few serious attempts have been made to determine realistic O&M needs. In general, the irrigation departments have failed to convince the finance departments what the realistic needs are for several reasons including: o Absence o f systematic O&M planning, prioritization, supervision, bench marking, accountability, independent evaluation and performance audits. The general perceptioni s that O&M funds are not well spent. o Lack o f farmer participation inidentifying O&M prioritiesand decision malung. o Lacko flinkage betweenabiana collections, quality o fservice delivery and allocation o f funds. Governance issues in identification o f priorities, allocation o f funds, planning, execution and quality & quantity control. 4.4 Recommendations. O&M regimes require fundamental changes. While the ongoing institutional reforms would ultimately address issues o f accountability, staffing and lack o f farmer participation, immediate action i s needed to stem the deterioration o f the irrigation and drainage system. A well designedprogram i s neededto: .. Establishrealistic fundingrequirements through an independent evaluation. Rationalize fund allocationto meet priority needs. Initiate benchmarking, and O&M performance audits: Develop monitoring indicators (e.g. number of days in each irrigation seasons a given canal carries authorized discharge, record o f breaches, equity in water distribution, tail shortages, problematic structures and failure o f irrigation and drainage structures). o Improve effectiveness o fexpenditures and enforce accountability. . Ensure channels are operated on authorized discharges or remodeledwhere necessary. Rationalize abiana rates and improve assessment and recovery; empower farmer organizations to not only operate and maintain their canals but also to collect abiana and . retain a suficient portion of the recoveredfunds to meet their needs would be a key incentive for increased cost recovery; Reduce management costs (including privatization o f remaining public tubewells in FGW areas and rationalize staffing levels); 31 CostRecovery 4.5 Currently, abiana and drainage cess (the latter applies to Sindh only) are the principal means o f sharing and recovering O&M cost41. Abiana is assessed on the basis o f "matured crop" acreage. Unit rates vary by crop and canal commands. In Punjab and NWFP, abiana i s assessed by the Irrigation Departments while actual collection i s made by the Revenue Departments. InSindh and Balochistan both assessment and collection o f water charges are done by the Revenue Department. Abiana proceeds go directly to the Provincial Treasuries and there is no direct linkage between recoveries and budget allocations for O&M and other system improvements. 4.6 The prevailing system o f assessment has been in place since pre-independence time, and apart fkom a few across the board revisions in the rates and the recognition o f non-agncultural uses o f the irrigation water, there have virtually been no improvements in the system. The system o f assessment i s complicated and non-transparent. Even after being inplace for more than a century it i s fully understood only by the assessment staff. Crops have been divided into as many as 49 groups and the abiana rates are applied in accordance with the staffs subjective assessment o f the crop extent and performance. Besides being complicated, the system i s also cumbersome. It requires six visits by a Patwari in a single cropping season followed by extensive paper work before the demand statement or the Khatauni can be finalized. The system i s subjective and i s prone to leakages. 4.7 Table 4.2 shows the overall pattern o f abiana assessment and collection for all provinces. A study carried out by the Ministryo fWater and Power inearly 1990s indicatedthat leakages to the tune o f 30% or more occur at the stage o f assessment and a similar amount occurs during the actual collection. Nevertheless, as can be seen inFigure 4.2 that untilthe early 1970s inPunjab, the recoveries fkom abiana exceeded O&M expenditures indicating that abiana included an element o f capital cost recovery. However, due to stagnation o f abiana rates, recoveries fell and the gap between O&M and recoveries gradually widened (Figure 4.3). 4.8 Revisions in abiana have been sporadic and insufficient. Between 1975-76 and 1999-00, the price level inthe country (GDP deflator) increased by 641 percent while in comparison the increase in abiana was only 439 percent. The assessedamounts and the actual recoveries remainedmore or less the same for the period between 1982-83 and 1991-92. This i s rather surprising, as during this period agricultural production grew at an average annual growth rate of about 4.1 percent inreal terms. Since 1993-94 when a policy o f annual revision o f the water charges was implemented, both assessments and recoveries increased. However, recoveries have not kept pace with assessments and the gap has widened. Between 1993-94 and 2001-02, the gap has increased ten fold. Inreal terms, both assessment and actual recoveries show a sharp decline between 1982-83 and 1992-93. 41Farmerspay a share o fthe capital cost ofwater course lining (up to 50%) and landleveling (80%). 32 Table 4.2: Abiana Assessment & Recovery Performance(RsMillion) FY Punjab __ - - Sindh NWFP -- Total _. -Balochistan - A R RJA Yo A R RJA Yo A R RIA Yo A R RIA Yo A R RIA Yo FY83 711 628 88 FY84 638 548 86 FY85 718 632 88 FY86 695 610 88 FY87 704 611 87 FY88 713 595 83 FY89 731 601 82 FY90 733 498 68 FY91 739 575 78 FY92 771 592 77 43 35 82 N 9 3 615 526 86 45 32 72 13 2 18 N 9 4 812 643 79 188 247 132 57 37 65 16 2 14 1073 930 87 FY95 964 765 79 445 194 44 74 42 56 15 1 6 1498 1002 67 FY96 1,09 1 798 73 480 368 77 93 68 73 13 6 24 1687 1239 73 FY97 1,343 949 71 591 472 80 117 65 56 30 3 12 2081 1490 72 FY98 1,528 1,088 71 597 517 87 148 98 66 34 8 23 2307 1711 74 FY99 1,793 1,252 70 649 558 86 185 139 75 38 !5 66 2665 1974 74 N O 0 1,917 1346 70 746 421 56 228 172 75 $0 1 28 2932 1951 67 FYOl 2,260 1357 60 801 633 79 238 190 80 $5 6 35 3343 2195 66 FY02 2,155 1211 56 508 650 128 254 152 60 53 6 12 2970 2020 68 Legend: A =Amount Assessed, R=Amount Recovered. Blanksindicatedata not available. Figure4.2: Comparisonof RevenueandExpenditures(in current terms) inPunjab 33 Figure4.3: Abiana Assessment and Recovery inPunjab (in current terms) -Shortfall +Actual Recovety *Assessed Amount 2,500 -j- .. 4.9 Issues and Recommendations: Recoveries from abiana fall short o f even the present inadequate level o f O&M expenditures. Increases in abiana have led to a widening gap between assessments and collections, . highlightingthe weaknesses o fthe system and the need for improving the quality o f irrigation service delivery and greater participation by farmers. The current system o f abiana assessment and collection are archaic and do not provide incentives for improving efficiency o f water use. Punjab i s contemplating replacing the present crop based system with a "Flat Rate" o f abiana that would be assessedon the basis o f canal commanded area held by farmers. Intheory this system would be easier to administer and less subjective. However, it raises equity issues as farmers would be charged abiana . regardless of whether or not they receive any water, or timely and adequate irrigation supply. The incentives for misappropriation o f water and illegal pumpingwould increase. A volume based water charge may be the answer, whereby abiana i s based on the water volume actually supplied. However, it would require investments in flow measurement and metering devices and structures and a decentralized institutional set-up involving FOs and AWBs for assessment and collection. Although there is as yet limited experience with the impact o f the ongoing institutional reforms on abiana collection performance, the initial findings from Sindh, where the responsibility for O&M and abiana assessment and collection . has been transferred to some 60 FOs, i s that both assessments and collection performance has substantially improved as compared to the pre-turnover years. Studies carried out in the context o f the Nara Canal AWB estimated the potential for a 30% reduction inO&M costs ifO&M responsibility i s handed over to FOs. 34 Changesinthe Structure of Water Pricingandthe Flow of Revenues 4.10 Traditionally in Pakistan the abiana or water charge was considered a part o f general land revenues and flowed directly to the provincial treasury. The Revenue Departments played a central role in assessment in some provinces (Sindh and Balochistan), and in collection in all provinces. So long as these revenues were not retained by the ID and used to fund O&M and possibly improvements, and instead went to the treasury, they became gradually disconnected fi-om the question o f funding needs and budget allocation for O&M and system improvement, and fi-om the incentive framework that would encourage payment o f the abiana as well as more efficient and productive use o f water. Once under the control o f the Revenue Department and the Treasury, these revenues were generally a part o f the overall revenue target of the district revenue department even though they were nominally an irrigation charge. An argument could be made that the treasury should be able to recover a portion o f its investment and recurrent expenditure from the direct beneficiaries4*, i.e., the farmers who are receiving water, but the consequence o f the treasury receiving all o f the revenue from water charges i s that farmers had little incentive to pay their abiana, especially once they began to see little direct benefit fi-om doing so as O&M and irrigation service in general began to deteriorate. The result was that revenue recovery inevitably became an inequitable process o f bureaucratic coercion. 4.11 Lack of a Clear Policy on Water Pricing. As the governance reform program progressed over the past few years, there has been often heated discussion o f ~ b i a n a ~ ~ assessment, collection and where the revenues go, but very little about the fundamental principles and elements o f a policy on the objectives of water prices, what water prices should comprise, or how they should be established or regulated. One o f the great weaknesses o f the present system i s the politicization o f water prices that has resulted intheir being frozen and disconnected from any sensible or logical basis, even the simple one o f O&M costs. Abiana i s largely treated as a rate without any basis except the perception o f what mightbe accepted without too much controversy or political pain. The principle o f collection and retention o f water charge revenues within the system for its operation, maintenance and improvement that has been at least an implicit part o f the governance reform program i s a huge step, but there i s no clarity yet as to what the water pricing policy objectives are, and what water prices encompass overall, Le., what services (and their associated cost) are to be included indetermining the rate, the extent to which capital costs will be included in the rate base (or which capital costs), by whom and how will prices be periodically adjusted, or the extent to which certain costs will be shared between the farmers and the treasury and in what proportion, etc. 4.12 Recent Proposals to Introduce Flat Rate Per Acre Charges. Recent proposals to shift fi-om the current system o f abiana to a flat charge for each acre a farmer owns in the canal command area would simplify collection and would by some estimates significantly increase revenues, but would miss the whole point o f both water pricing and the key intent o f the governance reform program to increase accountability for irrigation services. Such a charge would be very inequitable in light o f the finding o f the Poverty Assessment that documented the disconnect between water availability (actually receiving water) and access to water (owning land within the command area), and the differential in services associated with highly uneven land ownership. It would remove any incentive water prices and hence water costs have to improve efficiency and conserve water, and it would reinforce the de-linking o f payments by the farmer from maintenance and investment in the system, further reducing the accountability o f the PIDA and AWB to the FOs and the farmers. Higher revenues are not the sole or 42And conversely, that the indirect beneficiaries (consumers) ought to be willing to pay a portion of these costs through their taxes since they receiveasubstantialbenefitbecause of increasedproductionandlower foodprices. 43Intheparagraphsthat follow, we have usedthe termsabiana ,water charges andwater prices interchangeably. 35 even the most important reason for reforming the abiana system, though revenues would increase if the farmers have the right incentives to pay. 4.13 Emerging Changes in the Structure of Assessment and Collection. The ongoing program o f govemance reforms have provided an important opportunity to begin to change the structure o f water pricing (abiana) for irrigation services and the flow o f revenues. Sindh i s already piloting these changes, and the Government o f Punjab has indicated that it will soon implement new financial regulations that would enable this approach to be piloted. The two principle changes that emerge inthe interimwithinthe . govemance reformprogram include: First, inthe interim, the AWBs is responsible for abiana assessment (a major change in Sindh), and since they will be accountable to the FOs and the farmers (when they are hlly established and the FOs have substantial representation on their Boards), as well as the PIDA, one can expect the assessment to be more understandable and transparent inthe long-run. The provinces would have a choice in the future as to whether to sustain this AWB role, or to devolve assessment responsibility to the FOs. However, note that ifthe structure o f water pricing changes as outlined below this issue would be moot since the AWBs would assess each FO for bulk water services . depending on the amounts o f water delivered, and the FOs would in tum assess their members both the bulk water charge and their internally approved budget expenditures. Second, the FO i s responsible for collection, and importantly, i s to retain 40% o f the revenue to fund its own operations and responsibilities, paying the remaining 60% to the AWB for services on the main canals and the headworks. This concept o f proportional division o f a single inclusive water charge will inevitably be replaced once the shift to bulk water service i s possible, and the capacity o f the FOs to plan and manage budgets and funds improves. 4.14 Assessment Issues. A second major problem area in which change has been too slow i s in the assessment o f what i s due. N o t only i s the current system expensive, but traditionally the ID, or revenue department as the case may be, determined an assessment for each farmer. Today where FOs have been mobilized and formed, such an approach i s not appropriate where the farmer's organization (FO) has responsibility for collection o f funds and the allocation and expenditure o f a significant share o f those funds for its operation, maintenance and other activities as defined ina budget that is approved annually bythe FOmembership. 4.15 Even where the AWBs have become more actively involved in assessment as in Sindh, there has been little change in assessment procedure or in the basis for assessment because this process, if made more objective and transparent and tied to actual cropped area and water use (assuming there were adequate water measurement devices present in the canal network), would most likely cause a sudden change inwater charges for many farmers, and uncover advantages gained by many vested interests inthe past causing changes that at present are even more difficult to accept. This i s unfortunate because, for example, very good remote sensing capability exits in the country to utilize the high resolution satellite technology available today to provide a relatively accurate and very objective assessment o f irrigated areas and cropping pattems4. Alternatively and for the time being, Sindh has opted for negotiation with the FOs where substantial changes are needed to gradually adjust assessments to conform more closely to 44Inmany areas the conjunctive use of groundwater and canal water by farmers, or the interminglingof groundwater and canal water use within a command area, would pose a problem in interpreting these data (where they are used together in the same season). However, as the groundwater monitoring program, and the information system that supports it, improves over time, this difficulty would greatly diminish. In any case, whether or not remotely sensed data becomes an official part o f the assessment procedure, the approach would have considerable value as a reality check and as a systematic source o f detailed data for problemdiagnosis, planning and water management. 36 what available data or anecdotal information indicates they should be. This initial approach also has the advantage o f not creating controversy that could prematurely undermine and derail the reform program needlessly. But this alternative approach o f negotiating adjustments to assessments places a premium on improved service (especially rehabilitation and modemization o f the FO canal system) if the negotiations are to have any credibility at all. 4.16 The Emerging Pattern of Revenue Flow. Figure 4.4 depicts a concept o f water charge revenue Figure 4.4: Concept of Water Revenue Flows inthe Future flow, and provincial and federal budget expenditure, as it is gradually emerging under the governance reforms, but extended to include all levels o f Indus Basin water Federal Indus Basin Services resources management and irrigation services. Each Budget arrow represents the flow o f funds derived either from Expenditure water charges paid by farmers through their FO (single line) or provincial and federal budget expenditures (double line) - in both cases (with the exception o f federal expenditures) based on bulk water service. The general concept of cost sharing depicted in Figure 4.4 Expenditure doesn't reflect or suggest the basis for cost sharing, i.e., what costs, whether recurrent or capital costs, are being shared or in what proportion. Instead it i s intended to depict some fundamental principles as outlined below. assessment First is the principle of retention, i.e., revenue from abiana, or more appropriately from the FO's water service collections, are retained within the farmer's own system, which i s defined in Figure 4.4 to include or extend from the distributary and downstream canals and watercourses (the FO's direct domain) to the AWB (main and branch canal operation and maintenance, improvement) and to the PIDA (head works operation and maintenance) - this leaves open the question of even a nominal contribution of FO water charges to the system level cost o f provision o f water at the canal headgate. Second, the revenues flowing to the AWB and the PIDA are based on a bulk water service charge assessed each FO for the quantity o f water delivered. This would provide not only a consistent basis for water charges or prices everywhere inthe system, but also make a clear connectionbetweenwater cost and water use, as well as between water price and water service. Third, irrigation and water management services involve a mixture of public and private goods (or at least quasi-private goods) -- as one advances upstream in the system, services have a greater proportion o f public goods. Hence, as one moves upstream the public share o f the cost (establishment, operation, maintenance, improvement, replacement, modemization, etc.) becomes greater, and conversely, as one moves downstream a portion o f the abiana or water charge (including the bulkwater service charge) collectedby the FO pays for a greater share o f the costs, reflecting also the part o f the system where the farmer has the largest participation in decision malung and where there i s the greatest direct accountability. Fourth, the provinces, from budget resources and through the PIDA, share inthe cost o f provision o f basin level services that insure delivery o f the province's water entitlement, including services provided by IRSA (forecasting and operations planning, water allocation, operations, monitoring, data collection and information dissemination) and WAPDA (operation and maintenance o f intra- provincial infrastructure, improvement and modernization, new infrastructure); as well as a share o f the cost o fPIDA operations and activities and a part o fthe AWB's costs. 37 4.17 Cost Sharing. The concept outlined above, which includes the important principles o f revenue retention, o f cost sharing and bulk water service pricing places considerable emphasis for its effective and equitable implementation on two fundamental requirements: first, the modernization o f the canal network including the installation o f reliable water measurement devices; and second, on rigorous cost allocation, accounting and financial management, as well as transparency, at each level o f the system and within the respective agencies. Neither o f these conditions prevail today, butthere i s no insurmountable impediment to overcoming either one over time. The modernization o f the canal network including the distributaries and minors to enable easily monitorable and reliable bulk water service would be costly, and an in-depth study o f alternative operation and design concepts as well as water pricing mechanisms would be needed before such a commitment is made. 4.18 Cost sharing between farmers and the provincial treasury for irrigation services i s not new to Pakistan. Though the focus o f arguments over the level o f abiana in recent years has been primarily about the extent that it covers "full" O&M cost, capital cost recovery has been an integral part o f several programs including investments under NDP and OFWM projects as well as infrastructure projects supported by the Punjab Rural Support Program and the Pakistan Poverty Alleviation Fund. However, there has not been any consistent policy on which costs are to be shared (for example, skdled and unslulled labor, materials, etc.), in what proportion (percentages vary widely between cost components and between programs), and how these might vary depending on the part o f the infrastructure network in which costs are incurred (watercourse, distributary and minor, main and branch canals, headworks, etc). A second source o f confusion has been about how the policy would apply to routine O&M works, replacement, deferred maintenance works, and capital improvements (remodeling and modernization, for example, to enable more effective and efficient operation or increase capacity to improve service), especially the latter two since the distinction i s often blurred by how rehabilitation programs are formulated and implemented at present. In general, the principle applied i s that the farmers should not cost share for deferred maintenance or O&M works - especially since the latter two (OM&R), should be covered by the bulkwater charge (these costs within the FOnetwork are covered by the FO assessment). This latter distinction betweenrehabilitation and modernization or improvement will become increasingly important since, as the governance reform program progresses, the canal system will have to be rehabilitated to insure that the assets tumed over to FOs are fully functional and the larger system will operate as agreed. The third, and perhaps most complex issue affecting cost sharing policy, such as it i s today, concerns affordability on which little reliable and up-to-date data exists. 4.19 The Future Structure of Water Charges at the F O Level. As these policies evolve, one can easily foresee that the annual operating budget of the FO would have two broad elements: first, the bulk water service charge due to the AWB; and second, the planned activities and expenditures to be undertaken within the FO's canal network, including expenditures for operation and maintenance, overhead costs o f general operations, possible distribution o f funds to watercourse associations, planned capital improvements, and payments to reserves, among other things. Once this type o f business planning and operation becomes the normal mode o f FO functioning, the concept o f retaining a fixed percentage o f a water charge and paying the balance to the AWB is no longer needed or sensible. The water price i s the bulk water price for deliveries from the AWB (adjusted o f course duringthe season or subsequently for variations in the volume actually delivered). The second part o f the assessment i s the amount the FO assesses each member for its services and planned expenditures. The more efficient the FO is, and the more the membership contributes in-kindservices, the lower the FO assessment would be, but the bulk water service charge would depend solely on the amount o f water demanded and delivered. 4.20 Of course, this also means that ultimately the installation o f reliable and sustainable water measurement devices in the canal network now becomes an essential and highpriority investment in the modernization and improvement investment program. Nevertheless, in the interim or during the transition from the present system to a new policy framework, workable and equitable mechanisms can be 38 developed that support gradual evolution towards full implementation o f the policy framework. If each province were to adopt a clear policy framework for water pricing, then an independent regulatoy body could be established within the province to regulate prices, assessment, collection, and retention, and hence guide this evolution through a series o f changes consistent with the adopted policy framework that would begin to put the sector on a sound and equitable financial footing and promote improved service, efficient resource use and higher productivity. 4.21 The Way Forward. More generally, the federal and provincial government need to reach a consensus on the overall policy framework for water pricing and cost sharing (possibly as depicted in Figure 4.4), begin systematically to implement that policy through independent regulatory bodies perhaps initially in the pilot canal commands, build the needed capacity and work out administrative procedures step-by-step. To launchthis process a thorough, in-depth study o f the three pilot canal commands (Nara in Sindh, Swat inNWFP, and LCC (East) in Punjab) could be carried out to understand fully the costs and affordability, and to formulate altemative policy fi-ameworks and mechanisms. 4.22 The crucial first step i s to make the lowest tier o f the system (AWBs and FOs) function properly, equitably and transparently, and to then gradually implement the full water pricing policy framework. However, it would be comparatively simple for the provinces, PIDAs and the federal government to agree on how such a policy would work at the upper-most tiers in the system and implement it quickly. 39 5. WATER DISPUTES STRATEGY DEBATE:POLICY AND AND STRATEGY FORMULATION The Challengesat the Closeofthe 1990s 5.1 With the highrate o fpopulationgrowth that is beingprojected45,the competition for water i s and will become increasingly intense and disruptive among upper and lower riparian provinces and across the varied needs for water for irrigation, hydropower, industrial and domestic use, flood control and the environment. Moreover, allocations in the Water Accord have never been fulfilled, and since 1999 there has been widespread shortages o f water due to drought and inadequate storage and canal capacity. Water shortages o f the order o f 40% to 50% were experienced during the 2002 rabi and early kharifcrop seasons. This created a strong sense o f crisis - it mobilized sector authorities to an extent that other persistent problems such as deteriorating performance o f infrastructure, inequitable irrigation service, low productivity or persistent poverty were unable to do. There was, and there continues to be, intense debate within and outside government about what direction water policy and strategy should go, how to overcome water shortages, and how to meet the future food and fiber requirement o f the growing population and increase exports. The debate was whether the highest priority should be given to investment in new dams and reservoirs or to conserving water and improving efficiency. This difficult debate was exacerbated by inter-provincial disputes over implementation o f the Water Accord and water allocations, environmental flow requirements, and how vital drainage problems should be solved. This was an unfortunate and invalid way toframe the debate, not only with respect to the choices but the time frames and sequencing of investments as well. The Government'sResponsesto Water Shortages 5.2 Inresponse to the political hue and cry over water shortages, the Federal Government's major water sector organizations - WAPDA, the Ministry o f Water and Power (MOWP), and the Planning Commission -- scrambled to formulate solutions to the problem, dusting o f f old feasibility and planning studies, launching new feasibility studies, and undertaking a major new study o f the sector organized and managedby the MOWP with ADB's assistance. 5.3 WAPDA Vision 2025. WAPDA was the first o f the key sector organizations to prepare and present a proposal - a water resources development strategy document called "Vision 2025" (2001) that calls for huge investments inmulti-purpose storage reservoirs (irrigation, hydropower and flood control), several new canals to expand irrigation during the period 2000-2025, as well as canal liningand drainage. The goal o f the proposal is to address the problems o f water scarcity, the flow o f flood water to the sea unutilized, safe disposal of drainage effluent to the sea, tapping o f groundwater, and reducing seepage loses inthe country's existing irrigation system. The proposal would develop about 64 MAF o f storage and 27,000 MW o f additional power generation capacity from hydropower and coal. "Vision 2025" envisages investing US$50 billion over the next 25 years - clearly the most ambitious and biggest development scheme in Palustan's history. The proposal i s basically the summation o f nearly every known project with feasibility studies planned or requiring updating, each one individually evaluated 45 Pakistan's population is projected to grow from an estimated 144.3 million in 2002 to about 221 million in 2025 (this figure, used by the Ministry in its Water Sector Strategy Study, i s considerably below the UNPopulation Division's estimate made before the 1998 census). By 2010, population is projected to grow by nearly 23% to 173.3 million. Rural population is estimated to be about 65% o f total population in 2002, but i s projected to decline to 48% in 2025 despite an increase in absolute terms of 12.9 million. Importantly, urban population i s projected to grow from 50.7 million (35%) in 2002 to about 114.5 million (nearly 52%) in 2025. (some dating from the 1970s and 1980s), ignoring a key lesson from water sector planning done in Pakistan as far back as the 1960s -- that the sector i s dominated by the competition for scarce resources including water, capital and human resources. 5.4 The Planning Commission's TYPP. Partly due to the sense o f urgency created by drought, and the lack o f investment in developing new water resources after Tarbela (in major part due to the political impasse over the Kalabagh Dam), the Government approved Vision 2025 in principle, and its main elements were, by and large, included inthe Planning Commission's Ten-Year Perspective Development Plan (FYO1-11) published in 2001. However, the TYPP does include a more comprehensive assessment o f the issues faced by the sector than Vision 2025, and it establishes objectives and physical targets for the sector. The TYPP physical targets include increased storage o f 6.3 MAF, water savings o f 6 MAF, new irrigated area o f 2.4 Mac and 4.09 Mac benefited by rehabilitation and remodeling o f canals, and 75,000 watercourses improved. Total planned expenditure for the period 2001-11 i s Rs. 425 billion (less than 3% o f which was for completion o f ongoing projects). 5.5 Some o f the major projects included in the TYPP were taken from Vision 2025 and have been added to the Public Sector Development Program (PSDP) in2003 and 2004. While the TYPP presents an interesting framework for the sector, it was not supported or derived from in-depth analysis o f sector issues or based on a widely discussed integrated long-term plan. As a consequence it offers little guidance on priorities and the sequencing o f investments (across sectors and provinces), and largely ignores the financial requirements o f the provinces since their investment plans are an essential compliment to the proposed federal investments ifthe TYPP objectives are to be achieved. The proposed new irrigation expansion projects are primarily driven by the desire o f provinces to utilize their respective shares allocated under the Water Accord. Some o f these new canal projects are politically controversial and their economic feasibility i s questionable, considering that untilmore storage i s built they will receive non-perennial supplies for only 75 to 90 days duringthe kharifseason and two o f them will serve areas with sandy soils. 5.6 National Water Policy. With support from the World Bank assisted NDP project, the Ministry of Water and Power prepared a draft National Water Policy (NWP). The intent was to develop a framework o f policy directions and principles, whose adoption would provide the basis for formulating a new legal code for the water sector. The Vision Statement inthe draft NWP i s as follows: "Pakistan plans to have adequate water available, through proper conservation and development, to 2025 and beyond. Water supplies should be of good quality, equitably distributed and meet the needs of all users through an eficient management, institutional and legal system that would ensure a sustainable utilization of water resources and support economic and social development with due consideration to the environment, quality of life, economic value of resources, ability topay andparticipation of all stakeholders. " 5.7 Given the difficulty o f change in the sector and the problems o f achieving consensus on such a policy document today in Palustan, the draft NWP i s comprehensive but does not try to push the envelope. It does propose a major change in institutional arrangements in the sector, including a new policy level National Water Council (NWC), and the consolidation o f planning capability into a new apex body that would support the NWC and carry out the sector and basin wide planning studies that will be required. But the backgroundreport on which the draft i s based does not explore alternative institutional arrangements in sufficient depth to bringthe needed clarity to how the functions, roles and responsibilities will be reallocatedto result ina more efficient andresponsive system for water management. 41 5.8 The draft NWP points out the problems caused by the lack o f a legal system o f water entitlements, but focuses only on how the existing provincial water rights established in the Accord can be strengthened, and makes the weak declaration that all citizens should be assured equitable right o f access to clean water and sanitation facilities. It does not address the problem o f farmer water entitlements (or more correctly, farmer organization (FO) bulk water entitlements) inthe Indus irrigation system, perhaps because this would assert a policy principal that the political class in the provinces are not prepared for (giving up the assumed or traditional right o f politicians to decide water allocations and water problems). Unfortunately the draft NWP and its background reports do not explore alternative or new relationships and roles for the federal and provincial governments within an overall national policy and legal framework, nor the nature o f decentralized responsibilitiesat provincial and canal levels within this alternative framework. Its unfortunate because, such an analysis could have developed sound proposals on how the provinces could develop and administer a provincial level system o f secure water entitlements without the federal government imposing a system administered from the center, something the provinces would not stand for inthe water sector. 5.9 The Ministry of Water and Power's Water Sector Strategy. The Ministry o f Water and Power opted for a less hurried and more analytical and comprehensive approach. With support from the Asian Development Bank (ADB), the Ministry o f Water and Power prepared a Water Sector Strategy (WSS) in 2002, including a Medium Term Investment Plan (MTIP) with a planning horizon o f 2025 and a prioritized list o f investments up to 2012. The scope o f the planned WSS investments over this period are summarized in Table 5.1. This investment program would increase surface water storage by about 22.5 MAF, and add 2 Mac o f new irrigated area. The planned investments for the water resources development sub-sector, and for irrigation and drainage sub-sector are summarized inTable 5.2. Table 5.1: Summary ofMOWPWater Sector Strategy ProposedInvestments Sub-Sector cost ($US million) Percent Water Resources Development 10,000. 29.7 Urban Water Supply and Sanitation 5,066. 15.1 Rural Water Supply and Sanitation 2,173. 6.5 Industrial Water Supply and Pollution 253. -4.0 Control Irrigation and Drainage 11,099. 33.0 Hydropower 4,500. 13.4 Environment 113. 99. MW)" IrrigationandDrainage Studies 151. 1.4 Drainage 1,145. 10.3 Conservation of Water 1,660. 14.9 New Irrigation 4,596. 41.4 Small Storages including HillTorrents 1,337. 12.0 Rehabilitation, Modemization, Sustainability 2,210. 19.9 5.11 On-Going Preparation of a Drainage Master Plan and Inter-provincial Drainage Accord. WAPDA is also preparing a Drainage Master Plan (DMP) for the country. Inparallel the Ministry o f Water and Power i s preparing a pre-feasibility study for the National Surface Drainage System (NSDS)- "drainage superhighway". These two studies are intended to provide the basis for an inter-provincial "Drainage Accord" on the style o f the Water Accord. The Accord would pave the way for passage of saline drainage effluent from Punjab and Balochistan to the sea through Sindh. The Ministry o f Water and Power recently convened a Panel o f Experts (POE) comprising world class international and national experts in agricultural drainage to review the draft pre-feasibility report o f the NSDS. The POE recommended further analysis and studies, including the impact o f the recent droughts on the estimated saline effluent to be disposed of, mahng projections for future scenarios, identifying sources and levels of pollution (quantity and quality) in the river system, assessing realistic costs o f O&M, checlung several engineering aspects, and identifying gaps in current knowledge base. ThePOE's consultations with GOP and provinces led to a consensus that there is no immediate need to move towards a full fledged feasibility and design of NSDS before developing a DMP, which defines alternative optionsfor thefuture needs of agricultural drainage as an integrated component of water management in the Indus basin. The POE recommended broadening the scope of the DMP, including Salt Balance Studies and the development of a River Salinity Model. Water ResourceDevelopment Challenges 5.12 I s A Major Program Of Water Resources Development And Irrigation Expansion Possible? The response o f the Government to the recent drought and political conflicts over water has been to propose a huge investment program in water resources development (nearly US$8 billion over the next ten years, and over US$30 billion by 2025). More than three-fourths o f this investmentwould be for new storage dams, hydropower capacity, and for new canals. Inthe 1960splanners were faced with some o f the same challenges the country faces today - including what was the best strategy to restore and sustain a sufficiently high agricultural growth rate, whether to add surface water storage to the system and how much, how would groundwater be used in conjunction with surface water and what parts o f the canal network shouldbe remodeled, how to integrate salinity and waterlogging control into the overall program, and what operating policy should be adopted to maximize the benefits from power and irrigation. At that time, the World Bank and the Government mobilized several large international and national technical teams ina closely coordinated effort to analyze alternative development strategies and reach consensus on 43 a definite program o f investment in agnculture, irrigation, storage and hydropower for the period 1965- 1975. The final program proposal was estimated to cost Rs. 22.7 billion in 1965 (about US$4.77 billion at that time) and more importantly, just over 40% o f the total expenditure for the Third and Fourth Plans (an extraordinary commitment at that time). 5.13 Today, Pakistan i s again facing some o f the same challenges and i s approaching the limits o f its water resources development potential. The Government's main focus has been on solving water problems by focusing primarily on the supply side o f the equation where there i s clearly the physical potential for development; i.e., there i s water that can be developed and there i s land on which it can be used, and there are ample numbers o f poor farmers who would benefit from additional water supplies. Butthe outcomes the Government is seeking interms o fbothpoverty alleviation and development o f the rural economy, can be achieved ina number o f different ways that have different costs and different risks. For example, while it i s possible to remodel the canals and increase the flow of canal water (with or without new storage) so that water reaches poorly served farmers, the extent to which these increased flows and their timing increase water logging or soil salinity, particularly if improved drainage i s not in place or groundwater use i s not coordinated with the timing o f these increased flows, creates risks that could overwhelm and offset the benefits and threaten the sustainability o f the system. 5.14 Inthe present rush to solve the drought problem there is too little attention to drainage, water management and to the demand side of the supply-demand equation - water delivery and use efficiency, governance, rehabilitation and modernization o f infrastructure and improved O&M, incentives for wise and more productive use of water. These issues have been recognized as important but have received comparatively less policy and investment attention in the TYPP, though it features more prominently in the M O W ' SWater Strategy Study. Both the WSS and TYPP recognize the importance o f increasing the development o f Pakistan's agriculture, but the proposed strategies and plans are not linked to or phased with a strategy for agriculture growth (in terms o f both crop production, cropping pattern and value added), and the thinhng in the agriculture sector (as expressed in the TYPP) seems oddly divorced from the major investment proposals in the water sector. These issues are in part due to the division o f responsibility between the Provinces and the Federal Government interms o f primary responsibilities for investment finance, since as we have already noted, much o f the responsibility for demand side investment, agriculture development and water management lies with the Provinces (though the federal government plays a key leadership and fiscal role through economic and fiscal policy including subsidies). 5.15 Nevertheless, the question arises as to whether Federal expenditures on a major program o f water resources development including new system level infrastructure can have the desired economic impact without greater attention to the linkages with a comprehensive strategy for agriculture development, the control and management o f salinity and waterlogging, and to these demand side issues and constraints. Good studies and analytical work are lacking in this area, but present evidence suggests that the federal government cannot assume that the economic returns will be commensurate with the rising marginal cost of water inmany cases. Moreover, given the relatively small Provincial ADPs (Annex A) it i s hard to see that these issues will be adequately addressed by the Provinces without direct Federalassistance. 5.16 I s Enough Attention Being Given to the Barani Areas of Pakistan? The problem i s somewhat different inthe extensive barani or rainfed areas o f Palustan. Water scarcity inthese areas is extreme and has led to unsustainable exploitation o f groundwater, rangeland and forests. Small dams on perennial and non-perennial streams to capture seasonal runoff, especially flood flows, has been an important means o f water harvesting and water development inthe barani or rainfed areas o f Pakistan for many years. Water stored inthe reservoir i s usedprincipally intwo ways: first, seepage from the reservoir adds to the natural recharge o f groundwater increasingwater supplies for both irrigation or drinkingwater; and second, water can be drawn directly from the reservoir by a canal or pipe to supply these same purposes. When 44 conditions are favorable the reservoir i s also a potentially valuable fishery and small-scale source o f hydropower 46. 5.17 There i s a long history of constructing these types o f dams and water harvesting structures in Pakistan and the demand for them on the part o f local farmers and villagers inbarani areas i s high. There appears to be few options for water development in these areas other than to capture the annual though highlyvariable flood flows. Groundwater is used for village water supply and for limited irrigation, but overuse in many areas where it i s available has resulted in a precipitous decline in the water table and steadily rising cost o f pumping. These projects are seen as contributing significantly to groundwater and ifthe site i s favorable, introducing a new source o f surface water for farmers and villagers 5.18 An informal Bank study4*done inconnection with the Drought Emergency Recovery Project and shared with the Provinces showed that the cost o f water i s extremely highinthese projects and that very little attention has been given to command areas development that would raise benefits inrelation to these costs resulting in a huge government subsidy. Many in Palustan would argue that because there are so few development options in these areas a Government subsidy i s not only warranted but obligatory. But the point o f the study was not that subsidies should not be given or the project should not be implemented. On the contrary, the conclusion was that the Government should insist on a much higher standard for the planning, design and implementation o f these projects to minimize whatever subsidy i s required and maximize the real benefits people receive. Strategic Questions and Issues 5.19 The response o f the main water agencies at both Federal and Provincial levels has been to propose a large number o f investment projects that seem most important and immediate from their perspective on the problems - WAPDA on new dams and canals, and the provinces on canal rehabilitation and lining. This creates a special problem for the Government at a time o f fiscal discipline and the high demands for funds to support poverty reduction, the social sectors (education and health), and the devolution reforms. The problem i s to know whether this growing mountain o f projects contains the right projects, and to select projects for implementation with the right priority and in the right sequence. To answer these questions requires that another set o f strategic questions be answered with adequate confidence, namely: . Can future incremental water supply and demand be balanced? What fundamental changes in . sector policy (water rights water allocation and operations, water pricing and revenue sharing, electricity pricing inthe agriculture sector, etc.) would be needed? Should irrigated area and irrigation water supplies be expanded? H o w much? Should another major shift in cropping pattern be considered in planning? What changes will be needed in irrigatedagriculture and water management (infrastructure, incentives, governance, etc.) to insure higherefficiency andproductivity? 46 For example, ifrainfall i s higher, streamflow may extend over several months in addition to the relatively short duration flood flows, in which case proportionately more water can be stored for a longer period if the site has sufficient reservoir capacity. However, since the prevailing conditions over most o f the year are arid to semi-arid, there must always be a concem for the higher evapotranspiration losses that stem from storage o f water inan open reservoir. 47 There appears to be little systematic study and analytical results on which to base estimates o f the amount o f recharge possible or the extent o f its influence at a particular site. The Japanese have reportedly made an extensive survey o f the performance o f delay action dams in Balochistan, but these results are not referred to inany o f the proposals received from Balochistan. 48A note on Planning of Small Dam Projects under DERA (draf,); Walter Garvey, Environment and Social Development Sector Unit,World Bank2002. 45 H o w much should water supplies be expanded? H o w should these new supplies be allocated and distributed? Can the related threat to sustainability from water logging and salinity be resolved cost effectively? H o w can privately developed groundwater be integrated with water logging and salinity control and increased canal flows? I s additional storage needed? H o w much storage should be built and in what sequence? Should operating policies be changed? Can irrigation and hydropower policies be better integrated? What happens as the limits o f water resources are approached? What should be the target level o f water security and reliability? Should different levels o f security be associated with different water rights? H o w can environmental and social impacts on the lower IndusRiver and estuary o f increased water resources development be mitigated? a What i s the role and scope o f water conservation? What new policy and legdative framework i s needed for effective groundwater management? What regulatory and monitoring mechanisms should be put inplace? What are the long-term consequences o f continued storage depletion? Are economic returns commensurate with the cost o f water? 5.20 The Governmenthas important choices to make interms o f not only how much new water supply to develop, but also which o f its key strategic problems it will tackle first and what the longer term sequence o f investment and development should be. Should it for example solve the problem o f fully and reliably implementingthe Accord, close the early kharifdeficit, modernize the existing system, or expand irrigation into new areas, and in this context what would be the best sequence in which to develop additional storage and how should this storage be allocated and these reservoirs be operated? 5.21 The logic o f the argument for increased storage capacity i s compelling. Inthe Indus basin, the recent drought demonstrated the vulnerability and the limitations o f a system that i s so dependent on run- of-the-river diversion capacity for irrigation water supply (water shortages o f 40 to 50% were experienced duringthe 2002 rabiand early kharif crop seasons). Additional storage and increased diversion capacity would provide not only additional hydropower capacity, operating flexibility and additional drought security, but also potentially help improve implementation o f the Accord, overcome the water shortage in the critically important early kharifseason when the main summer crops are sown. These investments are extremely large, an order o f magnitude greater than public investment inthe entire sector, and hence, they need to be decided upon after careful analysis and thought that goes beyond individual project feasibility study. 5.22 H o w to answer these questions? Unfortunately, there i s little or no ongoing investigation, planning or study apart from individual project feasibility studies that would help to answer questions about priorities for intervention in the sector, how much additional water supply and irrigation makes economic or social sense in Pakistan, inwhat sequence these developments make the most sense, or how and in what ways the rural economy will develop to accommodate the huge increases inpopulation that are foreseen, which would inturn indicate where and how much water i s needed. The water bureaucracy i s quick to argue that expanding water supply and irrigation i s the answer, but the argument i s practically devoid o f any data or economic rationale that demonstrates how much water or capacity should be developed and in what sequence and time frame -- the Ministry proposes to spend over US$30 billion between now and 2025, and WAPDA USS50 billion for storage, new irrigation and hydropower over the same period. The slow pace o f project preparation and the PSDP's limited resource envelope are today the only thing dictating the sequence and priority of development. 5.23 Balancing the Supply and Demandfor Water over the next 25years. Table 5.3 summarizes the average flow o f the Indus River to the sea, and the remaining potential for groundwater development and 46 savings from water conservation measures. Nearly the entire rabi season (dry season) flow o f the Indus River i s utilized. Infact, as shown earlier inTable 2.4, the rabi season flow plusnearly all the storage o f kharfflow in existing r e s e r v ~ i r si~s~fully allocated in the Accord during the rabi season. The average , flow to the sea in Table 5.3 represents the potential amount o f surface water remaining to be developed and used. We have already noted that only a small, uncertain amount o f additional groundwater i s available (1-2 MAF) and savings from water conservation over the long-term may be between 5 and 9 MAF. Table 5.3: Water ResourcesAvailable to Meet Future DevelopmentNeeds Source (MAF) Kharif Rabi Total Average Annual Flow to the Sea 35.6 2.4 38.0 Additional Groundwater 1-2 Savings from Water Conservation 5-10 Total 44-50 5.24 These resources are not nearly as large as they seem when future "demands" for water are considered. It i s not possible inthis report to estimate demand for water for agriculture because there has been so little recent detailed analysis to support such estimates. Nevertheless, the willingness o f farmers to pay for tubewells, or to buy water inthe informal groundwater market, indicates the value and demand for canal water is high. Water demand i s also likely to be equally high if not higher in urban areas because of the l o w quality o f present service - only 60% coverage of piped water supply, intermittent service, etc. (though estimates o f domestic water demand could be questioned because o f the low tariffs at present). Given the Govemment's intent to raise industrial growth rates one could expect industrial water demand to be high in the future as well5'. The MOW'SWSS reports have given rough projections o f . incremental future water requirements that are summarized below: The environmental flow requirements inthe lower Indus River and estuary - estimated by Sindh to be about 10 MAF, but subject to revision based on the results o f the ongoing studies and further negotiations among the provinces. An unknown additional quantity o f water needed to transport excess salts and pollutants5' out o f the basin. The Accord provides that flows in the LBOD are to be taken from excess Indus flood whereas as a general rule, these flows ` should be an integral part o f the allocation to the 49The live or active storage at Tarbela and Mangla i s estimated to be about 12.8 MAF at present. The Government is trylng to promote higher rates o f industrial growth and private investment. Given the scarcity and value o f water in all sectors, the Government should be vigorously pursuing policies that encourage (indeed, perhaps insist upon) the use of water saving and low water use, water reuse, and low waste generating technology in all new industrial investments. It should in particular insist that foreign investors and their domestic partners introduce and use the best technology available in respect o f water use, water conservation and water quality. In Pakistan, both urban and industrial wastewater including toxic chemicals, as well as urban storm water runoff, are commonly disposed o f untreated in drains, canals and rivers. Excess agro-chemicals and fertilizer also find their way into the drains and canals. 52To the extent that LBOD flows originates as canal water, they should normally be counted as a part o f the flow allocated to the respective canal whose command areas are drained by LBOD (in this case a part o f the Accord allocation to Sindh). LBOD also carries the discharge o f tubewells installed to lower the water table in saline groundwater areas. This i s one o f the important and troublesome ambiguities created in the present formulation o f the Accord, which was based on existing uses in 1977-82. Inany case the leaching requirement for successful irrigation in the very saline areas o f Sindh or any other province should be included as an integral part o f the water entitlement o f the respective canal, and in tum the water entitlement o f the respective province under the Accord. 47 respective canals within the framework o f the Accord. Moreover, it can't be assumed at this point that the EFRallocationto the lower Industo be agreed among the provinces will necessarily . do double duty as transporter o f these salts and pollutants since that flow will have water quality constraints ifit i s to meet its primary functions. The increase in urban domestic dnnking water demand and industrial demand between 2002 and 2025 (the consequences of the projected high urban growth - from 35% to 52% o f the total projected population of 221 million in 2025). The Ministry's Water Sector Strategy Study estimates the incremental urban domestic water demand by 2025 to be 8.9 MAF53; increases in .. industrial water demand are expected to be substantial but there appears to be little basis on which to project future demand. Additional irrigation water supplies, especially inthe early kharif season54,to fully implement the Accord. This additional demand i s 10.5 MAF from Table 2.4. Irrigation water requirements could increase inthree additional ways: First, there is possibly substantial scope to increase rabi season cropping intensity -- assuming salinity and water logging can be controlled and managed, and groundwater and surface water can be used conjunctively -- for which additional storage would be needed since at present there i s little or no flow inthe IndusRiver inthis season. Second, there are areas within the existing canal commands that have always been poorly served55and some areas that the present system cannot serve56without additional water supply andperhaps major rehabilitation andremodelingo fthe existing canal network and related structures including some barrages. Third, three new canals are proposed inthe TYPP to serve an estimated 2.6 Mac. This represents an entirely new irrigation water demand o f about 5 MAFthat i s to be supplied by diverting "surplus" flood flows (i.e., flows not allocated inthe Accord) duringthe 70- . 90 day late kharifperiod when such flows occur. System losses must also be accounted for, including evaporation, seepage and spills duringfloods -ultimatelysomewherebetween5and10MAF. Currentwater balancesasinTable 2.1 givea figure close to the upper end of this range, but given the proportion o f this volume o f water, closer management scrutiny will needto be given inthe future to minimize these "losses"). 5.25 Table 5.4 summarizes these projected requirements. The low end o f the range would bringtotal development to a level nearly equal to the annual average flow o f the IndusRiver, almost certainly not an 53Note that increased use of groundwater by cities and towns will simply decrease groundwater available for irrigation and increase surface water demand for irrigation - worse, since an adequate groundwater monitoring and management system is not inplace such a scenario (in which cities and towns, and industries,begin usinggroundwater to meet rising demand) could lead to excessivewithdrawals and decreased groundwater quality before anyone notices or can do anything about it, and real disaster for farms, villages andcities, and industriesinlocalizedbut possiblyextensiveareas. 54Ifone overlays the croppingpattemwith the hydrologic regime, there are two particularly critical periods- the early kharij planting season frommid-April to mid-June, andthe transitionfrom kharrfto rabi inOctober when kharifcrops are maturing andrabi crops are beingplanted. 55Anecdotal evidence from farmers suggests there are major differences in cropping intensity depending on access to fresh groundwater, and location, particularly differences between the upper and middle main canal reaches, and the lower and tailendareas. 56For example, Punjab has identified four projects to remodel and expand existing canal commands to serve about 1.23 Mac (some in kharif, and some inboth kharif and rabi seasons), and Sindh has proposeda major new barrage and related canal works to improveserviceto the lower NaraandRohri canal commandareas. 48 economically viable proposition in Palustan. All thesefuture demands cannot be met - some important tradeofls are going to be required, expectations lowered, policies changed especially in regard to water prices and energy pricesfor groundwater usefor agriculture, and changes in the way water is managed and used implemented. This does not mean that Pakistan must give up on food security and export goals, poverty reduction goals, or the Millennium Development Goals (MDG). It does seem to mean that if these goals are to be achieved, water has to be used much more productively and efficiently, and above all, its quantity and quality managed more wisely and well. Table 5.4: Summary of Incrementaland Projected Water Requirements Demandor Requirement Volume (MAF) EnvironmentalFlowRequirements 10 Disposalof Salts andPollutants ? Urbandomestic andindustrialdemand 9 Accord Deficit 11 IncreaseinIrrigationWater Demand 5-30 SystemLosses 5-10 EstimatedTotal 40-70 5.26 Should Irrigation Water Supplies be expanded? I s there demand for more water for more irrigation? Real demand for additional water supplies mightbe known or better estimated if farmers paid a reasonable price for water that reflected the full O&M cost and a substantial share o f the capital cost o f works, at least the cost o f works within their distributary or minor. The willingness o f farmers to pay for new tubewells, or to pay for more expensive groundwater inthe local informal water market (as well as to make informal payments for canal water) i s an important indication o f the highvalue o f water and water demand. But present estimates o f future irrigation water requirements, such as those used in the Ministry's Water Sector Strategy Study, are based on production requirements derived from estimated food demands based on assumed nutrition requirements and population projections, and on assumptions about crop yields and cropping pattems. This approach, which i s essentially static since it ignores policy changes (for example, changes inwater and energy prices, changes in output subsidy prices and indirect subsidies, and changes inmarket conditions and signals), often leads to over-investment. 5.27 The persistent low cropping intensity inboth rabi and kharifseasons, the inability to adequately serve many tailend areas, the highproportion o f landless and very small farmers inrural areas who might benefit from irrigation expansion or intensification (either from improved availability o f water5' or increased demand for agricultural labor), and the high rate o f population growth suggest that water supplies, irrigated area and the productivity o f scarce water supplies should grow. 5.28 The TYPP portfolio implies an increase o f roughly 4 to 5 Mac. Volume N o f the Ministry's Water Sector Strategy Study estimated that the irrigated areas inthe Indus basin would need to increase by 4.5 Mac by2025 under its "low demand scenario" to satisfy its estimate o f food security requirements. The Report translates this into an increase in canal head diversion requirement o f nearly 18 MAF assuming overall irrigation efficiency increases to 45%. Current canal head requirements (estimated in the WSS to be 116.4 MAF) are not met by current diversions (103.85 MAF) so the actual incremental canal headrequirement i s estimated to be about 30 MAF. 57 Assuming of course there is diminishedinequality of land ownership, land tenancy terms and arrangementsare improved to favor smallfarmers andlandless,andwater distributionequity is improved. 49 5.29 Little can be said about these figures except that they may represent an estimate o f the least upper bound on the potential or requirement for additional development, but they hardly represent the basis for a multi-billion dollar investment program. Three times in the past there have been major technical efforts to prepare water and agriculture development strategies and investment programs for the Indus Basin - the 1965 Indus Basin Program, the 1979 Revised Action Plan (RAP), and the 1990 Water Sector Investment Planning Study. At each o f these milestones, the Government faced major policy and investment decisions as it does today. These planning programs undertook a detailed study o f the water- land-agriculture system o f the Indus basin at canal sub-command level inthe context o f the resources and infrastructure that existed at that time, and the development options available, and evaluated alternative strategies and projects (including storage) using new and updated data for the canal and sub-canal commands and simulation and economic optimization models. These were truly major technical programs for which the best available intemational and national expertise was mobilized. Some would argue that it i s not necessary to do this for a fourth time. But, perhaps counter-intuitively, it i s actually essential at this time for at least two reasons: first, the water-land-agriculture system inthe Indus Basin i s not static - it i s a very complex, dynamic system that must be monitored and studied in-depth periodically if there is to be any hope of managing its growth sustainably; and second, at each of these major milestones, and again today, the perspective, imperatives and development priorities looking forward 20- 25 years were and are different, and as a consequence, the way in which alternatives and tradeoffs are weighed were and are different. 5.30 Expansion of Hydropower Capacity. While there i s clearly a drum beat in Palustan for more storage for more irrigation, an economically more powerful argument can be made for more storage (or at least more dams) to expand hydropower capacity. Table 5.5 summarizes the current generating capacity o f the Palustan Power system. This total capacity i s projectedto meet power demand through 2004-2005. The present hydro-thermal mix i s just 28:72, in general terms the reverse o f what it should be for the power system to have its most favorable cost structure. The country i s projected (draft PRSP) to need an additional 9,040 MW o f power by 2011to be added with a shift inthe hydro-thermal mix to 39:61. This target implies adding an additional 3,525 MW o fhydropower capacity inthe next eight years, and shifting the overal hydro-thermal mix to about 32:68 by 2011 .'* Table 5.5: PresentPower GeneratingCapacity Entity Capacityin MW Hydro Thermal Total WAF'DA 5012 4750 9762 IPPs (WAPDA System) 30 5680 5710 KESC 1756 1756 IPPs (KESC System) 262 262 Nuclear 462 462 Total 5042 12910 17952 5.31 Eighty nine percent o f existing hydro capacity is installed at Tarbela Dam (3478 MW) and Mangla Dam (1000 MW). Both Tarbela and Mangla have large storage reservoirs, but most other hydropower developments have little or no storage and are essentially run-of-the-river including Chasma 58The draft PRSP i s somewhat ambiguous about these plans, but we have assumed that the target hydro-thermalmix of 39:61 applies to the incrementalpower andnot to the overallpower systems in2011. Since to assume otherwise impliesthe addition of 5,485 M W of hydropower by 2011, an impossibility unless either Kalabagh or Basha Dam projects are completed and commissionedinthe next eight years. 50 (187 MW) and the soon to be completed Ghazi Barotha project (1450 MW)59both o f which are located on the Indus River downstream o f Tarbela. Additional hydro capacity o f 9498 MW would be installed at the ten dams proposed for implementation inthe MOWP Water Sector Strategy - 73% o f this additional capacity would be installed at two sites with large storage reservoirs: Basha Diamer Dam (3360 MW) above Tarbela on the Indus River, and Kalabagh Dam (3600 MW) below Tarbela on the Indus. The remainder would be developed at small storage sites that would operate primarily as run-of-the-river plants. The proposed raising o f Mangla dam by 30 ft. will increase both head and storage capacity (2.9 MAF)and increase generating capacity by 180 MW (about 772 GWH). Although the feasibility study, designs and tender documents for the Kalabaghproject have been completed, intense controversy over the environmental impacts, water allocations, and the allocation of royalties and financial returns from this project has so far prevented its implementation. 5.32 At present Palustan must rely primarily on expensive public and IPP oil-fired thermal power. Major increases in gas reserves have recently been discovered in Pakistan, and large coal reserves are being studied. While a large increase inhydro capacity is important to improve Palustan's generation mix and overall cost o f power, the new gas and coals reserves, and recent developments in gas-combined cycle and coal-fired generation technology increases the number and variety o f attractive options for Pakistan to improve its generation mix and overall power cost picture comparatively quickly, malung it less clear how much incrementalhydro capacity i s needed and when it should be built since the gestation period for hydropower developments i s much longer than for these alternative technologies. Nevertheless, the cost o f the planned hydropower capacity would appear to be attractive - an average o f about $692/kw at the major dams at Kalabagh, Basha and Mangla6'. 5.33 All o f Palustan's dams and barrages are multi-purpose, and first Figure 5.1: Variation inAverage Monthly Hydro Generating priority in the allocation o f reservoir Capability storage and releases i s given to irrigation 6000fl I under the current Accord and water policy. 5000 Both irrigation releases and flood releases 4000 produce power, but there i s n o re- 3000 regulation capacity in the storage system 2000 to accommodate different operating 1000 policies at present. This means that hydro I A S O N D I F M A M I generating capability follows closely the I Months I annual hydrograph and the inter-seasonal and monthly pattern o f irrigation demand. Hence, as shown in Figure 5.1, current actual hydropower capability varies between 5100 MW in September in the late kharif season when flows are high-inthe Indus and reservoirs are nearly full, to a low o f 2550 MW in May at the end o f the Rabi or dry season when Indus flows are extremely low and reservoirs are nearly empty. The variation in annual average capacity utilization at the two main hydropower plants i s shown in Figure 5.2. The average annual capacity utilization o f the entire hydropower system from 1991 to 2000 was just under 59%. Inaddition, the small size o f the Indus reservoirs means that hydro energy production i s significantly effected by major droughts. This effect can be seen inFigure 5.3. Energy production in2001, the second year of the drought, was 20% below that produced in 1996, a significant shortfall that had to be made up by importing oil. Note that the full commissioning and operation o f Ghazi Barotha i s expected by 2006 to 59 These projects benefit from upstream flow regulation at Tarbela. 6o Assuming about 70%of the project's cost is allocated to the hydropower facilities (MOW'SWater Sector Strategy). 51 add about 25% to the 1996 level o f hydro energy production, quite comparable to the energy shortfall caused by the drought in2001. Figure 5.2: Average Capacity Utilizationof Main Figure 5.3: Variationof Annual Hydro Energy Hydropower Plants ~ _I I 25000 20000 15000 5 10000 5000 lo 0 t 0 1996 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001 Years Years (ending June 30) I I I I 5.34 The present water and hydropower policy and operating mode depresses the value o f hydro production because o f the reduction in firm capacity and energy. So far water sector planners have assumed that any and all hydro capacity, whether primary or firm capacity and energy, or lower value secondary capacity and energy, i s needed and worth the investment. Not only does firm power have a much higher value in the power system, but hydropower offers high value spinning and maintenance reserve as well as pealung capacity (though new gas plants mightoffer stiff competition inthis regard). 5.35 In general water sector planners must think much more holistically about how different water demands can be met and what the economic tradeoffs exist among these alternatives, i.e., about better economic integration o f irrigation and power policy. Kalabagh is a critical reservoir in the Pakistan system since it offers the opportunity for re-regulation o f the main stem o f the Indus River o f power releases designed to maximize hydropower value while meeting downstreamirrigation demand schedules. Water sector planners must work much more closely with power sector planners, must look at the economic value o f a wider range o f operating and water and hydropower policy options, and at the economic cost o f different tradeoffs between these policy options. This will clearly have important implications for the sequencing o f dam and reservoir investments, and it will require greater use o f simulation and economic models, as was the case inthe past. 5.36 What Happens as the Figure 5.4: Existing and incremental Diversion and Flow Limits on Water Resources are below Kotri Barrage Approached? One can see more clearly the potential effects o f incremental increases in water supply when resource limits are approached by using the annual average flow data in Figure 2.3 to make a rough and simple simulation. Figure 5.4 i s such a simplified "" simulation o f a scenario in which 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01 only the three new canals (5 MAF) and three storage reservoirs totaling about 15 MAF are built, increasing the total water use and diversion by 20 MAF, assuming that the reservoirs are operated for irrigation and power as at present, and that there i s n o short term flood event that prevents the full diversion from being made if there i s water to divert. The simulation shows that during the 26 year historical flow record (1975-76 to 2000-200 1) the environmental flow requirement (EFR) o f 10 MAF 52 claimed by Sindh for the Indus River and estuary below Kotri Barrage would be available in only 14 o f the 23 years (54% of the time) and the total incremental diversion o f 20 MAF would be available inonly 20 o f the 23 years (77% o fthe time). 5.37 Figure 5.5 shows the variation o f the probability o f Figure 5.5: Probability of Satisfying Target EFRs meeting EFR targets at different p)90% levels o f incremental storage and B diversion from 10 MAF to 25 ;80% MAF (the latter is just above the 4 70% WSS target o f 22.5 MAF). Up to about 20 MAF the EFR is 8 60% *I Y available in roughly 3 out o f 4 1 5 0 % years and more frequently at lower gl 40% I levels o f incremental storage and 10 15 20 25 diversion. But, above 20 MAF the Incremental Storage and Diversion (MAF) availability o f the target EFRs drops quickly below 3 out o f 4 years. At present these EFR targets could only be met in the kharif season, since there i s no river flow or reservoir storage that i s not already allocated to irrigation in the Accord. 5.38 Ingeneral, these crude simulations of different scenarios indicatethat when increased diversion and new storage are combined, significant problems are likely to occur as water resource limits are approached - diminished water security and reliability, environmental damage6* (sea water intrusion, fisheries losses, and threats to the protective mangrove belt, for example) and a much more complex management, information and operating regime. Overall, therefore, the water management problemfaced by Palustan in the future will be much more difficult and substantially different than the past 40 years. And this suggests that a detailed hydrologic simulation model o f the entire IndusRiver system is needed to analyze and evaluate alternative plans on which project selection, design and sequencing would inpart be based. 5.39 The Problem of Low Storage Efficiency and Supply Reliability. Low or diminished water supply reliability has been a problem largely ignored inPahstan (and elsewhere) -irrigation designs are often based on 75% availability (i.e., water available in3 out o f 4 years) and sometimes lower when water i s extremely scarce and equity i s a major political concern. But this lower reliability can have significant development and economic costs (including the disincentive to invest) as well as create tradeoffs with efforts to increase equitable access to water that should be explicitly considered. For example, the MOWP Water Sector Strategy Study points out that, ignoring the unfulfilled Accord allocations, present diversions are not sufficient to meet present calculated crop water requirements - therefore, present supply is ineffect already beingrationed. One of the tasks in the ongoing IRSA/MOWP study of lower Indus River EnvironmentalFlow Requirements (EFRs) will determine the economic value of these losses and impacts. Note that these values should be added as negative benefits or additionalcoststo upstreamprojectproposalsthat would affectthese EFRs. 53 5.40 Presumably one objective o f the WSS proposal to increase storage Figure 5.6: Probability That Incremental Storage Capacity Fills capacity- by 22.5 MAF i s to improve (Flood Canal Diversion 5 MAF) - - water supply security and reliability (in response the recent drought experience) as well as availability. However, Figure 5.6 suggests that as the level o f storage and diversion i s -A- -EFR=lOMAF increased to the levels proposed by both the WSS and WAPDA, aggregate P) supply reliability will decline, 0.0% particularly at higher EFR target 10 15 20 25 levels. Even at significantly reduced Total Incremental Storage Capacity (MAF) EFR target levels, say 5 MAF instead o f the 16MAF that has been discussed, storage efficiency drops below 75% at the 15 MAF level, and to about 65% at 20 MAF. In the specific case o f Raising Mangla Dam, a similar problem o f diminished water supply reliability will occur after the dam i s raised. The current reservoir has filled in28 out o f the 34 years o f record (82% o f the time), but the incremental reservoir storage o f 2.9 MAF that will be created when the dam i s raised 30 ft. will have a reliability o fjust 72%. 5.41 Thesedata suggest that the Government should limit its targetfor increased storage to less than 10 MAF - at most two major storage dams over the next 15-20years, or until such time that model studies demonstrate that system can be operated at an acceptable and favorable level of security. However, this crude simulation i s in no way adequate to analyze either the reliability o f EFR targets, storage efficiency, or irrigation water supply reliability. This requires a very good, well calibrated and verified hydrologic simulation model o f the entire system with which various alternatives could be studied at much smaller time steps (monthly or IO-daily). But this simple analysis has shown that ignoring these issues and neglecting to do the detailed basin studies that are needed may very well have significant economic consequences. Certainly one cannot commit to financing the major projects that have been proposed without having done these studies and determining what the planning assumptions and parameters should be and what operating conditions will be. 5.42 Planning assumptions o f low water supply reliability do not cause serious problems so long as planners assume that irrigated agriculture remains at low-value or even subsistence levels. But this assumption i s likely to become increasingly problematic and non-viable in Palustan if there i s some success in raising productivity, particularly if higher value crops including perennial crops such as hit, nuts, and grapes, etc., are expanded on a significant scale. Building this scenario into the planning and design o f the proposed three new canal command areas i s probably mandatory on a large scale from the beginning (using high value crops and new water saving irrigation technology such as drip and sprinkler irrigation, for example) just to bringthe economic returns on these investments inline with the high cost of water in these projects. In general then, at a time when Palustan's agriculture should be moving towards higher productivity and higher value cropping systems that requires better and more assured water supply and control, Pakistan's water planners are proposing major investments that stretch the system in the direction o f decreased reliability and more difficult management just to meet the varied demands on the system. This is not an argument against expanding water supplies or against equitable access and service as an important objective - it is an argument infavor of better and sounder strategic water sector and project planning based on more rigorous economic analysis of tradeofls, holistic and integrated system planning studies particularly of alternative operating and allocation policies, and the careful sequencing of decisions onpolicy and investment the country must make over the next I Oyears. 54 5.43 Storage Depletion. Sediment loads in the Indus River are extremely high and have led to rapid siltation of the Tarbela Reservoir (as was anticipated). Efforts to reduce this siltation, or to manage the sediment load have so far proven not to be cost-effective. The primary causes o f these high sediment loads appears to be related to the geology o f the upper basin. Glacial action i s still active in the upper most reaches, and earlier glacial action and landslides have left huge quantities o f soil and rock debris in the narrow river valley where it i s scoured and carried away during flood flows. The Jhelum River where Mangla Dam i s located has a much lower sediment load and its watershed i s much more suceptiable to watershed conservation measures and erosion control since a higher proportion o f the sediment i s the result o f human activity. 5.44 The consequences o f these Figure5.7: Swage bpletlon Dueto Sedimentation conditions are displayed in Figure 5.7. The storage- capacity in the 25 existing reservoirs has declined from 15.6 MAF to about 12.8 MAFtoday. 2o If the rates of storage depletion 15 remain roughly the same as they are estimated to be today, the addition He p 10 I o f new storage at Mangla (2.9 MAF) - . 5 around 2010 or later, subsequently the addition o f new ",,, storage at Basha or Kalabagh (say 6 - - _ _ _ _ - , and 1% Years 5.45 The Problem of Water Rights or Entitlements. As noted earlier (Chapter 2) there are several important defects in the present Accord and the IRSA legislation concerning water rights - they are not secure or tradable, their reliability i s not specified. Present water rights (to the extent they are defined in the Accord) to IndusBasin water are held by each Province and not by canal command, hence these rights do not readily or transparently translate into bulk water rights or entitlements at the branch or distributary level to farmer organizations (i.e., to FOs). Within the canal network, if the present system o f waribandi water distribution were disciplined and strictly adhered to, the outlets and canals operated efficiently, and there are no illegal outlets or tampering, then each farmer has a right to a specific quantity o f water while the watercourse i s flowing based on the number o f acres the farmer owns inthe command area. Even in the ideal waribandi case, the farmer or his organization does not have a secure property right or entitlement to water except when it appears at the outlet. Inthis system, Provincial authorities are able to decide to shift water supplies among different canals (to the extent this is physically possible) and between different time periods. Their intention is to improve equity by balancing water availability, but these and other considerations have led to excessive canal allowances, water logging, and counter- intuitively, poor water service to tailend areas. Moreover, there i s a more fundamental principal at issue here -- should the farmer be empowered through his organization (FO) to decide whether and how to use his water right, and to collectively decide to use, or trade all or a portion o f the FO's entitlement to another FO, or should a central bureaucracy make these decisions without accountability or transparency based on limited data. Empowering FOs through a secure system of water entitlements to manage water is a critical part of the incentiveframework needed to improve both water efficiency andproductivity. The addition of Kalabaghmay be somewhat more favorable in this regard since this reservoir may benefit significantly from the trapping of sedimentsupstreaminTarbela, aprocessthat would be improvedfurther by the existence of Bashaupstreamo f Tarbela. This important technical detail deserves a special study and assessment when comparing altemative sequences o f developmentfor the storagesystem. 55 5.46 Secure and tradeable water rights should be an integral part o f the Government's policy framework and strategy to encourage more productive and efficient use o f water. However, these two policy objectives - productivity and efficiency - could be undermined by the Government's own proposed investmentifwater rights issues are not addressed: People in the existing Indus Basin system will not want to give up existing customary water entitlements, or their hard earned water savings from conservation investments (water conservation investments such as watercourse lining or land leveling require cost sharing on the part o f farmers - so it i s a particularly perverse incentive to reallocate these water savings) or the possibility o f increased kharif water supplies to accommodate expansion of irrigation into new areas or to meet other demands without some form o f compensation (substantially better more assured irrigation service and more assured water availability might be seen by some farmer organizations as an acceptable tradeoff or form o f compensation); and People in the newly developed areas are unlikely to be satisfied with low cropping intensity and high supply uncertainty (which is what they will get based on present plans) and will no doubt create political pressure to change water allocations to improve their supply inboth the kharifand Rabiseasons -they will no doubt see this as a right or entitlement since that i s what other farmers are getting. 5.47 Inboth the MOWP's Water Sector Strategy and several Provincial proposals, the assumption is made that water saved through water conservation programs can be reallocated to meet the demand for water innew canal command areas, to improve service in existing areas, or to meet other demands. Its doubtful that anyone has really thought through the legal implications or the practical difficulties indoing this. One o f the Background reports for the National Water Policy Study provides a general survey o f water rights in Pakistan, but does not analyze the gaps and failures o f the present situation, nor suggest alternatives interms o f what new policy and legal framework may be needed for the future. 5.48 Economic Returns and the Rising Marginal Cost of Water. Table 5.6 summarizes available data from several sources on the status, cost, estimated EIRR and other project characteristics for several o f the major projects proposed inthe TYPP and the MOWP's MTIP and by WAPDA. Figures shown for area irrigated in Italics are derived or calculated from values for water available from the project. These data are in a state o f flux as feasibility studies are just being started on some o f these projects, and data i s often only available from updated estimates based on old feaibility studies, PC I s or PC IIs, and the assumptions vary widely among these various sources. Both the MOWP's Water Strategy Study and the PER Working Paper attempted to summarize these data and update figures but with widely varying success. 5.49 Estimates o f economic return vary over a broad range, from about 10-12 % for several projects to between 25 and 30%, but the costs and estimated EIRR for a number of these projects have already undergone substantial change after scrutiny including updating and detailed review o f the feasibility studies. A number, especially the new canals, did not include all important costs such as command area development. Ifwe consider only the projects inTable 5.6 for which the estimate o f the volume o f water i s available (those not shaded in Table 5.6) the average cost per AF i s 16,822 Rs. The PER Working Paper quotes a return per AF based on the recent Mangla Dam feasibility study o f Rs 2038/AF in Rabi , and Rs 1535/AF in kharif. The net present value o f this retum (to 0.6 AF in Rabi and 0.4 AF in kharif) over 20 years at 10% i s Rs 15,638 Rs/AF, about 7% below the average cost o f water inTable 5.6. Note however that the cost per AF varies considerably, and several projects exceed the value o f Rs 16,739 per acre foot -- in 8 of the 13 projects the cost o f water i s more than the PV o f economic returns, and in 4 cases the cost per AF i s more than double the PV or economic returns. 56 I I j Area 1 f Volumeof Cost of Project Location Status TotalEstCost IIrrigated Power Water Water EstEIRR I I billionRs. 1 Ac 1 M W 1 MAF I Rs/AF I % GomalZamDam INWFP /Under Constr.II 121 163,086! 17! 0.892l 13,4531 12 Mirani Dam Balochistan :Under Constr. 5.86: 33,200: 1 0.152 38,553 12 MundaDam IBIS ITYPP 12.51 112.000 I 7401 0.7 17,857 ? BashaDam IBIS 1TYPP 1001 912,000 i 3,4001 5.7 17,544 TBD KalabaghDam IBIS fTYPP 83.31 976.0001 3,6001 6.1 13,656 Satpara Dam IBIS i2003 Start 2.091 20,0001 111 0.045 46,444 27.8 KurramTangi Dam NWFP jcompletion 13.24: 363,0001 58; 0.83 15,952 12.4 RaisingManglaDam IBIS 12004 Start 59.451 464,000 I 1801 2.9 20,500 19.8 Sanjwal& Akhori IBIS ~MTIP 401 576,0001TBD 1 3.6 11,111 TBD GreaterThal Canal Punjab 1TYPP 41.751 1,500,000~ I 2.496 16,727 18.5 Rainee-Thar Canal Sindh ITYPP 13.31 412,4001 1.28 10,391 16.9 Kachi Canal Balochistan I T U P 36.451 713,0001 I 0.96 37,969 TBD ChasmaREX -1st Lift NWFP 1TYPP 19.21 285,0001 II 0.45 42,667 10.3 PunjabIS1Project- LCC (East) Punjab ITYF'P 5.21 1,670,0001 25.6 PunjabIS1Project LBDC - Punjab ITYPP 5.4; 1,246,000; 18.8 ImgationRehabilitationin Sindh Sindh jMTIP 131 343,0001 III TBD Sehwan BanageCompIex Sin& jTypP 37.71 I ? 10.1 PunjabBarrage Modemiation Punjab 1TYPP 521 1 1I TBD 5521 9,788,6861 8,0061 26.1 . 5.50 However, especially for the dam projects, this comparison tells only part o f the story: The majority o f these projects are multi-purpose for which all costs and benefits should be included, and costs should be allocated to each purpose in order to assess the EIRR o f each purpose and to get the full picture o f the economic impact o f the project and the value o f water (for example, if the present value o f estimated incremental power benefits at Mangla Dam, 2,088 million Rs/year or Rs 720/AF, i s added to the present value o f water used in irrigation, the total 23,485 Rs/AFbecomes greater than the cost per AF); As we have pointed out earlier the value o f water for hydropower generation under different system operatingpolicies, especially if storage system expansion i s planned such that there i s sufficient re-regulation capacity as could be providedby the Kalabagh dam and reservoir, for example, may compare very favorably to the value o f water in irrigation. Inthe evaluation of Tarbela inthe 1960s, this was not the case (the value o f an AF left inthe reservoir to increase power output was only about one-fourth o f its value release for irrigation). But much has changed including the prices o fboth different sources o f energy and agncultural outputs. Several o f these projects also provide urban and industrial water supplies, which are also much higher value than for irrigation (even to many villages whose livelihoods depend on irrigated agriculture). 5.51 The present basis for prioritizing investments on the basis o f economic impact is shaky at best. Widely differing assumptions are used on efficiency, productivity, cropping systems, costs and prices. The M O W ' Steam preparing the WSS and MTIP attempted to review the economic evaluations that existed for all the projects in the potential portfolio in an effort to assess both the assumptions and the prices. They were partly successful but the lack o f data made the task difficult. Even though the ultimate choices and priorities may be based on a number o f different and possibly non-commensurate criteria, the Government should insist onfar greater consistency and rigor in evaluating individual projects and the 57 overall investmentplan. Not only would this improve the planning and design o f individual projects (the reassessment o f the new canal proposals i s one example), but it would give the Government a consistent picture o f the economic impact o f alternative investment priorities. Reassessing the economic underpinnings of water resources and irrigation investment proposals should be a high priority of the Government. One way to achieve this i s for the Planning Commission and ECNEC to issue guidelines for project appraisal on which PC-Is are to be based, including specific guidance on methodology, assumptions, criteria, and various parameters to be used. This has probably already been done some years ago, but it has not been enforcednor regularly updated. 5.52 Can Additional Groundwater be tapped? Groundwater use has more or less reached the upper limit and there is very little potential for a further increase in groundwater availability. The exception might be the areas served by new canals not previously irrigated, where seepage from the canals, watercourses and farmer fields may over time create a substantial source o f fresh groundwater for drinkmg, livestock and irrigation - of course, some o f those areas may have saline soil deposits at depth or saline groundwater, in which case an easily developed fresh groundwater source will not generally be created. More generally, because o f the presence o f highly saline water in the aquifer over large areas includingbelow the fresh water in some cases, there i s a very grave risk o frapidly increased water quality deterioration and soil degradation as the safe limits o f development are approached, and in some areas there i s a risk o f a reversal and loss o f this valuable source o f water because o f salinity. In fact, rather than looking to groundwater for additional development by, for example, increasing power subsidies or tubewell subsidies (since groundwater development i s largely private at present), Palustan must urgently intensify its efforts to monitor and manage this source o f water (its critical regulatory function inwhat has become a public-private partnership). The Government's most important tool in this regard is toproperly price water and power in the agriculture sector. It should gradually withdraw all subsidiesfor fuel and power use, as well as folr tubewells, for groundwater abstractionfor irrigation (contrary to what some irrigation officials have been urging). 5.53 What I s The Potential Role and Scope of Water Conservation? Water conservation and increases in the productivity or value o f water are not an alternative so much as an imperative, since no amount o f infrastructure investment i s likely to make Pakistan or the hdus Basin system "water abundant". Any sensible strategy for Palustan would include water conservation just as it would some level o f expanded and more reliable water supply inresponse to the issues and problems outlined earlier. Moreover, water conservation i s strongly linked to efforts to solve the chronic problem o f the low productivity o f water - these two initiatives should be seen as two complimentary components o f a single program. Unfortunately while there i s considerable experience already inPahstan with the core elements o f water conservation - watercourse lining and land leveling - progress and experience on raising the productivity of water use, improving watercourse maintenance, organizing sustainable W A S , or . introducingwater saving irrigation technology and crops i s seriously deficient. Current canal water distribution i s wasteful -- 60% to 65% o f the water available at the canal head i s lost to evaporation, transpiration by plants, theft or seepagebefore it reaches the root zone . in the intended farmer's field. Note, however, that seepage in fresh groundwater areas is not a loss. Rather it i s the main source o f water for critically important tubewell irrigation. Current irrigation methods andpractices (mainly flood irrigation) are wasteful, and there has been little progress in introducing modern technology (low pressure pipe, and drip and sprinkler systems). Only sporadic progress has been made on land leveling --an important approach to improving efficiency -- though it was found to be the most desired measure by farmers surveyed. Farmers have demonstrated an appreciation for the need to conserve water and improve distribution efficiency and equity, not only by their interest to cost-share land leveling but also 58 . their willingness to cost-share the lining and improvement o f water courses (if there i s some assurance o f water supply). The price o f canal water i s extremely o f water - farmers will take water even if it i s not needed, partly because o f its extremely low encouraging wasteful use o f water, and excessive use cost, and partly as "insurance" because o f the uncertainty that water will materialize at scheduled waterings. 5.54 Farmers, or their organizations on a distributary, minor or watercourse do not have a legal water entitlement or right - hence water markets that would help farmers decide on the best use o f their water and land when water i s scarce, and tend to fairly and equitably reallocate water at least seasonally and raise agricultural productivity benefiting all farmers, do not function (with the limited exception o f groundwater markets where an estimated 30% o f tubewell water i s sold to farmers who do not have a tubewell). 5.7), just under 5% o f the current average availability o f surface water inthe Indus Basin -- primarily by 5.55 Various estimates put the potential savings from the current supply at about 4.7 MAF (Table liningo f watercourses and land levelingunder the On-Farm Water Management (OFWM) projects o f the Provinces. The savings estimated in Table 5.7 are based on a shift from 40 to 45% efficiency. Some reports have suggested that the average efficiency o f large area o f the system may be lower and closer to 35%. The saving from going from 35 to 45% would be close to 9 MAF, so it i s likely that the maximum saving lies somewhere betweenthese two figures. Table 5.7: PotentialWater Savings fromImproved Efficiencies Volume of Water inMAF Current Situation ImprovedSituation Availability Losses Availability Losses Canal HeadDiversion 103.8 103.8 Loss in Canal System 10.4 10.4 DistributariesMinors Head 93.5 93.5 Loss in Distributaries/Minors 14.0 14.0 WatercourseHead 79.4 79.4 Loss in Watercourses 17.9 15.9 Field Application 59.6 63.6 Loss in the Fields 19.9 17.2 Crop Use 41.7 46.4 Efficiency % 40.0 45.0 Total Loss 62.1 57.5 Water Saved 4.7 5.56 In any case, the challenges of achieving these savings and efficiency gains are daunting - as shown in Table 5.8 (from the TYF'P) only about 32% o f all watercourses have received some form o f 63The Bank Report on Irrigation and Drainage Options (Report No. 11884-PAK) in 1994 quotes an earlier report by Shams U1 Mulkand KhalidMohtadullah(1991) that water charges are only about 5% ofthe total cost ofagriculture inputs, and about 5% of net farm income. It would be very useful to update these figures though as indicated in Chapter 4 there have been few significant changes inabiana. It would be useful in such a study to document the true cost of water to the farmer by including informal payments. 59 investment inrenovation. Anecdotal evidence suggests that most o f the W A Sformed as a part o f this earlier program are no longer functioning, and hence that many o f these watercourses have since deteriorated because o f the consequent lack o fmaintenance attention -so the program may be much larger than Table 5.8 indicates. Table 5.8: WatercourseImprovementProgramNeeds Punjab Sindh Balochistan NWFP Total Watercourses 54,501 40,364 19,566 20,409 134,840 Watercourses that havebeen 28,415 6,704 2,411 6,248 43,778 renovated Total Remaining 26,086 33,660 17,155 14,161 91,062 5.57 Water conservation and eficiency gains are achievableprovided thatfarmers, who must share in the cost of these measures, benejt from the savings - not only because equity is improved andpreviously un-servedfarmers now get water, but also because allfarmers in the improved canal command are able to decide how to use the saved water to increase theirproduction and income. The later benefit i s not the current practice, indeed, Provincial plans for irrigation expansion depend in part on the reallocation o f these saved waters to new areas creating a perverse incentive. Hence there are important issues o f water rights and entitlements involved in water conservation, that are made more problematic by excessive canal allowances. Many have pointed out the need to rationalize canal allowances, but it would appear that this i s a much more complex decision than it may have been in the past if improved efficiency and productivity o f water use i s an important objective and there i s a substantial investment program to achieve this. 5.58 As noted earlier inChapter 2, additional constraints are present that impact on the effectiveness o f present water conservation programs including problems with incentives associated with highly skewed land ownership, inefficient land purchase and leasing markets, misappropriation o f water by large landowners and politically influential people. A third issue stems from the National Surface Drainage Study and the Drainage Master Plan under preparation whose aim i s environmentally safe disposal o f surplus drainage water out of the Indus Basin. While one o f the two goals o f the National Drainage Program i s to reduce the drainable surplus, an as yet unknown quantity o f water will nevertheless be needed to transport these salts and pollutants out o f the Basin to the Arabian sea in an environmentally safe manner. This will impose practical limits on how much water can be conserved and saved, i.e., an upper limit on efficiency improvement, at least at the basin or canal command level. The challengefor the Government is therefore not only to increase its commitment to water conservation, but to add to that effort programs to raiseproductivity and measures to address the complex web of negative incentives and issues that constrain these efforts (among which governance reforms play a vital role). A Framework for Formulating a Strategy 5.59 One way to describe the problem o f formulating a sector investment strategy, and selecting projects from the broader portfolio o f options, to present it as a simplified optimization problem ("Pakistan' s Conundrum"): 60 MaximizeTotal Benefitsof policy w1 * Supply Expansion (Storage expansion-Mangla, Basha, Kalabaghand other reform and investment = new dams; small dams, improvements in diversion capacity and function, improvementsin overall system (MAcro) operation, water conservation and efficiency improvements) + w2 * System Expansion(External expansion- 3 canals + Internalexpansion by + remodeling and extension of existing CCAs) w3 * Management(OFWM interventions-watercourselining and land levelingfor example, supply management-rehabilitation& modernization, flood protection, improvementsin operations and maintenance versus new investments,improved water allocations and scheduling, improvedequity at system and distribution levels, groundwater management, incentives, introduction of new agriculture and irrigation technology, effective access to markets, knowledgeand information, human resource development and research) + w4 * Sustainability& Environment(Water logging and salinity, reducing + drainable surplus, water quality, safeguarding ecology below the Kotri barrage ) + w5 Productivity(Cropping Patterns, Water Rights and Markets, water pricing) W g ** Governanceand Institutional Reform (improved publicservice and accountability, cost reduction, decentralization, empowermentof users, ) Subjecttobudgec waterand otherresourceconstraints. 5.60 The Importance of Using This Framework to Test Alternative Strategies. The above framework, or something similar to it, i s both an important conceptual tool and problem-solving instrument. The decision or preference weights, wi , and the choice o f interventions within each component o f the model outlined above, are not determined solely on the basis o f economic welfare or efficiency, or a general notion o f equity - they are also strongly influenced by political economy considerations as well as the time frame in which each investment yields benefits (short, medium and long term). Limitations o f total water resource availability and financial resource envelope available for the sector, and the large, lumpy character o f some key investments, make trade-offs difficult but also consideration o f alternative phasing and sequencing o f investments critical for the overall success o f the strategy, Success for the Government means how well a particular choice of interventions and weights achieves its multiple social and economic objectives in an acceptable timeframe. m a t the Government should be seeking is a mixed strategy that provides a balanced response to each way of looking at and evaluatingdifferent choices: Its multiple social and economic objectives as outlined inthe TYPP - in general terms, economic growth, equity and political economy, security, sustainability and poverty alleviation. The "system management" problem outlined below (managing water from the "mountain tops to the root zone"), i.e., does the strategy leave critical constraints un-addressed that undermine other parts o f the strategy --e.g., what good i s increased storage if one cannot allocate and manage the supply without disruptive political conflict and one cannot insure that it reaches the root zone equitably or reliably? The considerations of political economy the Government sees as important in a particular time frame. 5.61 The Effects of Political Conflict and a Weak Knowledge Base. The degree to which political conflict and rivalry among the provinces and other groups has entered upon the dialogue in the sector makes it especially difficult to weigh alternative weights and choices from both a political economy and multi-objective perspective. Nevertheless, sound planning and technical analysis are essential to enable effective and timely political economy decisions. Moreover, quite apart from the political conflicts and the complexity o f the problem, the extremely weak state of economic analysis, and measurement and research ingeneral, inthe water sector inPakistan today will make even a simplified attempt to solve this 61 planning problem from a welfare or efficiency point o f view almost futile. This has not always been true. Good economic studies were a part o f the RAP (1979) and the Water Sector Investment Planning Study (1990), and the IndusBasin Modelwas at one time the state o f the art inanalytical tools for water sector planning. Like the sector's infrastructure this vitally important analytical tool has suffered from . inattention and disuse. Two initiatives are therefore needed: A renewal of serious effort to underpin planning in the sector with sound economic and social understanding, a greatly improved knowledge base, data, and good analytical tools and . information systems -- this is a critical initiative on which much depends - this task and the necessary resources could be given,for example, to the sector Apex Body proposed by MOWP". A new mechanismfor consensus building among all stakeholders that rests on this strengthened knowledge andplanning base. Changingthe Paradigmto Water Management 5.62 Managing Water from the "Mountain Tops to the Root Zone". Another way to look at this "framework for formulating an investment strategy" i s to look at the relationship between infrastructure and management. Infrastructureimprovements and expansion, including new storage reservoirs, plays an important butnot exclusive role inachieving the economic and social impacts the Government i s seeking. H o w new and existing water supplies are managed, allocated, conserved, delivered and used i s equally important. The "water management problem" inthe Indus basin can be described in terms o f four tiers or parts o f an integratedsystem: . Managing water resources in the upper basin, or "mountain tops" - this involves better management o f the supply in terms o f both increased storage, reservoir operations, and . monitoring the upper basin hydrology to improve both the predictability o f supplies and the management o f reservoirs. Managing the allocation and diversion o f water from the river and reservoir systems to each o f . the canal heads and inthe lower river below Kotri to improve the transparency and reliability o f supply, andavoid economic losses and environmentaldamages. Managing the performance o f the canal network and the reliability o f bulk water deliveries to the . distributary and minor canal commands, monitoring and managing groundwater recharge and use, and managing drainage effluents. Managing water in the distributary and minor canal commands, and within the watercourse network and on-farm to improve equity, efficiency and productivity. 5.63 There are major problems, constraints and opportunities at each level or tier o f this system o f management, and the strategy inPalustan should aim to relieve priority constraints at each level in ways that maximize the overall performance and efficiency o f the. Pakistan i s intheory organized to deal with each o f the management issues outlined above (WAPDA, M O W at the federal level, IRSA at the inter- provincial level, and the Provincial Irrigation Departments at the Provincial level), but there are serious problems and constraints to the effective functioning at each o f these levels o f management, and within these key organizations. For example, the MOWP's Water Sector Strategy proposes a new Apex Body 64One should not be anxious to promote the creation o f new institutions especially when a key part o f the problem i s the lack of capacity and when fiscal resources are limited, but the agenda is large and important, and it may be a more effective strategy to assemble the needed skills from existing institutions and the market to make a new start with a "critical mass" o f technical capacity and skills to fill these critical gaps. 62 for the Sector to undertake strategic planning and analysis, knowledge management, and consensus building; IRSA has proposed major improvements in its monitoring network but needs to go further to ensure that clear information on the water availability as the season progresses, water allocations and operations, and the status o f water at all critical points in the system are available innearly real time to not only department officials, but to AWBs, and farmers as well. What i s more important i s the question whether the Government's strategy in the short, medium and long-term in the sector, when overlaid on this framework, addresses the key priority issues (including the institutional and governance issues). When the respective management issues are analyzed it i s apparent that improvements depend not only on new and even better performing infrastructure, but also the policy framework, institutional arrangements for different key functions, knowledge and information, and human resources. 63 6. PROPOSED WATERSECTOR INVESTMENT PLANS 6.1 Neither WAPDA's Vision 2025 nor the Ministry'sWater Sector Strategy and MTP have official status as "the sector investment plan", nor do they enjoy universal acceptance within the federal or provincial governments. There is really no macro institutional planning framework within the country with sufficient professional stax knowledge and information and related analytical tools, and credibility toforge broad strategic consensus on issues, strategies andplans. There seems to be no sector strategic planning going on in the Provinces65,and the federal institutions operate in isolation and mainly in a crisis, project driven mode66. The Planning Commission's TYPP and rolling public sector development plans (PSDPs) are the closest thing to an official sector plan - at least in the sense that it frames the annual PSDP. Nonetheless, there i s considerable commonality among the Planning Commission, MOWP and WAPDA plans interms o f specific investment projects (not too surprisingsince each tends to include everything to satisfy everyone, and the project universe i s not so large). The specific proposals that constitute each o fthese plans are outlinedbelow. 6.2 WAPDA Vision 2025 focuses on development o f storage, hydroelectric projects, new canals and a spinal drain. It envisages a mega program including development o f 64 MAF o f storage capacity and 27,000 MW o f additional power generation capacity with an investment o f about $50 billion over the next 25 years. The program is to be implemented inthree phases. Phase I comprises fast track projects to be completed in the first 5-7 years (2002-2006), including construction o f Gomal Zam Dam, Mirani Dam, Greater Thal Canal, Kacchi Canal, Rainee Canal, Raising o f Mangla Dam, Satpara Dam. These projects would add storage capacity o f about 5 MAF and bring more than 1.9 million acres o f land under cultivation, besides generating 332 MW o f power. Feasibility studies for the Basha Dam, Kurram Tangi Dam, Akhori Dam. Detailed design o f Sehwan Barrage and the Chashma lst . Lift Project would also been started. Phase IIincludes: Basha Dam on the Indus River, with a storage capacity o f 5.70 MAF and generating capacity o f 3,360 MW; Sehwan Barrage on the Indus River in Sindh, with a storage capacity o f 0.65 MAF; Phase I1o f the Thar-Rainee Canals in Sindh; Phase I1o f the Greater Thal Canal in Punjab and a highDhok Pathan and combined storage from Sanjwal and Akhori Dams inPunjab6'. Phase IIIwould include: Kalabagh Dam on the Indus River, with a storage capacity o f 6.10 MAF; Yugo Dam on the Syhok River in the Northern Areas, with a storage capacity of 4.82 MAF; Skardu Dam on the IndusRiver inthe Northern Areas, with a storage capacity of 15.52 MAF);andKalamDamonthe Swat River. 6.3 The Ministry's MTIP -- Water Resources, Irrigation, and Drainage. The Medium Term Investment Plan (MTIP) o f the Ministry of Water and Power, completed inOctober 2002, a year after the TYPP was completed, sets out objectives for both Water Resources Development and Irrigation and Drainage separately, and divides the strategy in each instance between short-term (2003-2004), medium- 65The PunjabIrrigationDepartmenthasprepareda lengthy set o f development matricesthat suggests a vision and strategy of the future, but this process does not seemto haveprogressedbeyondthe initialbrainstorming. Sindh is discussingwith the Bank the TOR for an exerciseto prepareits "Vision 2025" for water management. 66The MOW'SWater Sector Strategy Studymay heralda fundamental changeindirectioninthis regardifit is followedup and the requiredinstitutionalandpolicychanges put inplace. 67Recent studies have indicatedthat Sanjwal Dam has serious environmental impacts. The present proposal is to construct a highAkhori Damanda lowDhokPathanDam; SanjwalDamwill beabandoned. term (2005-201 1) and long-term (2012-2025). The total estimated cost through 2025 o f the plan i s about 2020 Billion Rs, which includes the development o f 22.5 MAF o f storage and hydropower. The MTIP also includes investment needs for water supply and sanitation (lo%), environment (4.5%)) Flood Protection (1%) and supporting activities (0.1%). The Federal share o f the MTIP i s 64%, and new projects constitute 74% o f the MTIP. 6.4 The MTIP i s a broader look at the sector that incorporates Provincial priorities and project plans, as well as overall sector management needs. Its timeframe extends to 2025 mainly to incorporate the full program o f storage development suggested in the WAPDA Vision 2025. The MTIP consist o f the remaining parts o f ongoing projects and new projects estimated to cost Rs 461.4 billion in the first phase up to 2011. The ongoing projects are estimated to need Rs 201.2 billion. The total costs o f the new projects recommended inthe MTIPis Rs456.2 billion, of which Rs 260.2 billion are expected to be spent during the MTIP period (2001-201 1). The remaining part will constitute the ongoing projects duringthe period after 2011. Because the MTIP is divided between water resources development and irrigation and drainage, and initiatives are phased over the short-, medium- and long-term, it i s more detailed than the TYPP strategy in the sense that it includes the series o f steps required to implement more complex programs such as water conservation and institutional reform, including for example pilot projects and studies. However, the major aspects o fthe two strategies and the associated programs are very similar. 6.5 While the Ministry's Water Sector Strategy and MTIP are quite comprehensive and take a relatively more balanced approach to the water sector issues and proposedmeasures, they do not include a critical review o f the major projects included inthe Vision 2025 and the TYPP, and take them as a given. The rankmg o f investments i s based on the current state o f preparation of these projects, with higher scores given to those at a more advanced stage. 6.6 The Planning Commission's Ten-Year Perspective Plan (TYPP). The TYPP, issued in September 2001, was an important milestone for Pakistan in many ways, not the least being that it followed a period o f intensive efforts to achieve economic stabilization through a consistent, credible and transparent set o ftight fiscal and monetary policies. Having essentially achieved that short-term goal, this was the first occasion for the Government to shift its focus to visualizing long-term macro-economic and sectoral growth strategies that would rest on the platform created. Accordingly, the TYPP sets out the objectives summarized inTable 6.1. Table 6.1: TYPP Objectivesfor Water Resourcesand Agriculture TYPP Objectives TYPP Objectivesfor Water Resources Development TYPP Objectivesfor Agriculture Accelerate GDP growth, reduce Overcoming of scarcity o fwater through To achieve self-reliance in agricultural unemployment, and alleviate poverty augmentation and conservation. commodities and provide food security. Finance growth increasingly from Restoringproductivity of agricultural land through To provide export orientation by Pakistan's own resources control ofwater logging, salinity and floods. promoting the production of high value Improve competitiveness by Managingquantity and quality of drainage effluent in crops, fruits and vegetables. promoting productivity, efficiency, an environmentally safe manner. To promote import substitutionby and quality Groundwater managementthrough tube well increasing the productionof tea, milk and Build human ahuman capital base for transition, aquifer monitoring and management,etc. dairy products. long-termself-reliant growth Implementingintegratedflood control and To improve productivity o f crops, Institutionalize social capital managementprogram. livestock, and fisheries conducive to sustainable Promotingbeneficiary participationin development development initiatives. 65 6.7 The TYPP and Water Resources Development. The sector perspective and strategy for Water Resources Development (which encompasses irrigation, drainage and flood control) in the TYPP i s summarized inTable 6.2. Total cost o f the plan, including completion o f on going projects, i s 426 Billion Rs. Since the TYPP was prepared, several major water projects that were inthe original plan have been committed and launched. Hence while 95% o f the original plan consisted o fnew projects, today just 51% o f the TYPP portfolio will be new projects. 6.8 The TYPP does not include projects inthe Provincial ADPs. However, important elements o f the strategy outlined in Table 6.1 and on the following page would be Provincial responsibilities including on-farm water management, modernization o f barrages and remodeling o f canals, water conservation, most o f the drainage system, and institutional and governance reform. The Federal Governmentnormally would be responsible only for projects that provide inter-provincial services such as new dams, inter provincial canals and spinal drains. In addition the Federal Government may assume responsibility or provide substantial fundingfor major projectsthat have national interest. 6.9 The Common Features of All Three Plans. All three strategy/planning documents have several common features in terms o f proposed investment. The major investments envisaged in the Vision 2025, TYPP and MTIPduringthe short and mediumterms are summarized inTable 6.3. 66 - c: 0 o\ t i r? Y L * Table 6.3: CommonFeaturesof ProposedInvestmentPlans (MTEFPeriod) 68 7. FEDERALPROVINCIALINVESTMENTTRENDS & AND OPTIONS 7.1 Table 7.1 summarizes what we have referred to as the "Emerging" investment portfolio in the Water Resources and Irrigation Sectors. It i s based on the FY03 and FY04 Public Sector Development Program (PSDP), and projects in the Planning Commission's TYPP, WAPDA's Vision 2025 and the Ministryo f Water and Power's MTIP. These are projects that the respective federal agencies and the Provinces have indicated are a priority and they strongly wish to start duringthe MTEFperiod. Not all o f these agencies agree on either the priorities or the sequence inwhich investments should be made; hence this is intended as a composite overview, a comparator for the PSDPs and for alternative investment options. But it also reflects quite reasonably the essentially un-feasible result o f everyone pushinghard through every channel for their projects and their point o f view. As we have already noted, there i s little analyticalbasis for deciding what shouldbe in and what should be out, though the MOWP's WSS tries to make the most reasoned argument. - c" a D D D D F F I I M M M 0 si1 si1 si1 I I I I SI1 SI1 SI1 D F D D I I I S si1 SI1 I I I Toral CAD works I 53,0001 01 01 2,000( 16,000] 17,0001 18,0001 53,000[ 0 TOTAL EMERGINGINVESTMENT PORTFOLIO TOTAL1 528,3021 57,6751 12,7141 56,4801 84,0701 102,6001 97,0291 352,8931 114.402 LegendP= Provincial, F= Federal, S=Storagc, I=Irrigation Extension,D= Drainage, F=Flood Protection,M=Managemenr, R=Refoms NDB=Non-Dcvclopmcnt Budget ADP=Annual DevelopmentPlan 7.2 The portfolio totals about Rs. 528 billion. Estimates o f the Provincial Annual Development Plans (ADPs) and the the Provincial Non-Development Budgets (NDBs) have been added at the end o f the table to give a more complete picture o f estimated plannedpublic expenditure on water resources and irrigation during the MTEF period. Total expenditure for the period 2003-7 would be about Rs. 424 billion of which federal investment would be an estimated Rs. 353 billion. The "throw-forward" (expenditure required to complete projects ongoing during the MTEF period) would be about Rs. 114 billion plus the future Provincial ADPs and NDBs. Given that the Provinces are responsible for everything except inter- provincial infrastructure, especially irrigation water distribution and management, the low level o f ADP resources is alarming, just 5% o f the "Emerging" MTEF portfolio cost. Hence, it seem clear that a balanced investment program that addresses the issues and problems in the system "from the mountain tops to the root zone", and yields substantial growth and economic benefits in the mid-term, will require substantialjoint Federal-Provincial financing o f key investments. Key Issuesinthe EmergingPortfolio 7.3 The Apparent Allocation of Resources. The allocation o f resources implied by this portfolio is summarized inTable 7.2. The choice o f weights inthe parlance o fparagraph 5.58 is quite clear - storage and expansion, with little attention to the infrastructure and other investment needs in relation to the management o f water, or ensuring improved irrigation service, governance, productivity or sustainability. This imbalance creates a disconnect between the emerging portfolio and the TYPP objectives both in terms o f the mix o f investments and the expectations from the sector in terms o f short, medium and long term benefits. Table 7.2: SummaryofResourceAllocation inthe EmergingPortfolio Expenditure during Expenditure as YOof Type of Investment Total Cost Cost as YOof Total Rs Million Portfolio Cost MTEF(FY03/07) total expenditure RsMillion during MTEF Supply Expansion New Storage 245,790 45 164,100 37 System Expansion Remodelling& 5000 <1 5000 1 Modemization Newcanals 128,016 23 88,762 20 Required CAD investments for new 53,000 10 53,000 12 canals Management FloodProtection 7175 1 5153 1 Water Conservation 0 0 0 0 Rehabilitation Other measures 10,000 <1 10,000 2 839 <1 839 <1 Sustainability Drainage 77,925 14 25,873 6 Productivi@ 0 0 0 Institutional Reforms 0 0 70 7.4 Summary Review of the Portfolio. The key features o f the emerging portfolio and related issues are summarized below (A more detailed discussion o f specific projects i s given inAnnex C): m The portfolio includes several projects (e.g. Kachhi Canal, Rainee Canal, Akhori Dam) for which feasibility studies are only now being initiated or are on-going and remain to be completed. Inserting such early and pre-mature "place holders '' into the Portfolio only complicates and . confounds efforts by the Government toformulate and implement an efficient and cost-effective investmentprogram. Storage and irrigation expansion investments, which are o f a medium to long term nature, dominate, accounting for 78 % o f total cost o f the portfolio and 70% o f the investments during the MTEF framework (2003-07). Only the Gomal Zam and Mirani Dams would be completed . and yield benefits towards the end o f the MTEF period. Benefits in the short to medium-term would remain elusive. Drainage is only 14% o f the portfolio with a share o fjust 6% during the MTEF. N o investments are envisaged in on-farm drainage or strategic long-term drainage (e.g. NSDS). Despite its high priority, uncertainty regarding this program i s high at this time - the Master Plan i s not complete and hence feasibility studies for a National Drainage System (NDS) cannot be started, and an Inter-Provincial Drainage Accord would have to be negotiated based on the Master Plan options in order to launch implementation of the critical inter-provincial elements of the NDS. Even if the scope of actual investment priorities and projects are not known and won't emerge for perhaps 2-3 years, some provision for a major drainage investment program has to be made during the MTEF and the succeedingjve year period to avoid making commitments that preclude priority drainage investments. m N o funds are allocated for water conservation or institutionalreforms. This may be because they are seen as Provincial responsibilities (particularly OFWM programs, land leveling, etc.). However they are an integral part o f the TYPP strategy and the Federal Government has a major interest inthese programs (as it does indrainage) - the question is to what extent more aggressive . Federal leadership and financial support is needed to ensure that these critical Provincial programs receive an adequate implementation priority. N o complementary investments are included inthe PSDP or the provincial ADPs for supporting activities (for example, CAD works in the new canals) required to reap benejts of large investments in irrigation expansionprojects. 1 N o investments are envisaged for institutional reforms and projects or activities that would increase cost recovery (the exception being privatization o f public tubewells envisaged under the NDP, although PSDP funds remain to be allocated during the current fiscal year) I. An important TYPP goal i s to rely to an increasing extent on own resources and reduce O&M cost burdens. Chapter 8 discusses possible policy options in this regard as does Chapter 4, but the overall investment strategy reflected in theportfolio should also include the essential and complementaly . investments in modernization of irrigation sewices and improved governance to ensure that there are adequate incentivesfor thesepolicies to be effective. Federally implementedprojects dominate the portfolio. Provincial ADPs are likely to be only 5% of total investments during the MTEF. As a consequence, thefiscal space and budgetfor water sector investment would be extremely limited, especially for water conservation, groundwater monitoring and regulation, rehabilitation o f canals and related structures including barrages, remodeling and modernization o f canal systems, irrigation expansion (intra-provincial), provincial components o f Federal programs and projects, and poverty targeted investments (e.g. small dams inbarani areas). 71 . The sheer size o f the program i s overly ambitious and well beyond the most optimistic resource envelope likely to be available to the sector. This would result in projects languishing uncompleted for a long time in the portfolio, increased costs, and benefits pushed far into the future greatly diminishing economic returns. Comparison ofthe FederalFY03 & FY04 PSDP 7.5 The FY 03 and FY 04 Federal PSDPs are comparedbelow in Table 7.3 and inFigure 7.1. While the total allocation o f funds for water resources and irrigation increased between FY 03 and FY 04 by nearly 36%, the total portfolio cost jumped by 105% and the throw-forward to 2005 and beyondby 75%. LcgmdP=Provincial,F= FednaLS=Sulragc, I= lrrigauon Extension,E= Drainage, F=FioodRolcction,M=Managnne~R=Refom 7.6 What Changes Have Been Made Between FY 03 and FY 04? Table 7.4 i s based on a reordering o f the portfolio in Table 7.3 to assess how resources are allocated among the five major categories outlined in paragraph 5.57 (in a manner similar to that shown in Table 7.2). These data indicate that there has been a major shift to a more balanced investment program from the "Emerging 72 Portfolio" (Table 7.2). Beyondthe obvious major increase inthe size and scope of the program, a closer look at Table 7.3 indicates several important changes. Figure 7.1: Comparisonof the FY03 and FY04 PSDPs 450,000 400,000 350,000 I c 300,000 ' E 250,000 0 200,000 0 PSDPFY03 150,000 B D PN O 4 100,000 50,000 0 Portfolio Cost Current Throw Forward Allocation Table7.4: ComparisonofFY03&FYO4PSDPResourceAllocations ~~ Totalccst Penentof PerentofM Percentof percentof Percentof F Y m 2003 2W3Throw- FY04 2004Throw- porffoiio Totalw Allocation F O W ~ Allocation ~0-d SupplyExpansion 97.263 24% 37% 41% 36% 26% IrrigationSystemExpansion 93,864 23% 19% 31% 24% 26% Management 69,822 17% 24% 9% 18% 19% SustainabiliiandProductivity 145,948 36% 20% 20% 22% 30% InstitutionalRefom 0 0% 0% 0% 0% 0% TOTAL 406,897 100% lM)% 100% 100% 100% 7.7 Firstnew starts, includingthose projects nominally started in FY 03 (but given only very small allocations), increased in FY04 to 67% o f total portfolio cost compared with 22% in FY03. This would make good sense ifthe aimwas to complete ongoing projects inFY03 inpreparation for a major shift to a new portfolio, but completion of only two small projects inFY 03 is indicated. Second, while the overall portfolio appears to have expanded, only two new starts (Raising Mangla Dam and the Pat Feeder Canal Extension) out of the total o f twelve new starts inFY 04 account for 27% o f the FY 04 allocation and all of the increase in planned expenditure between FY03 and FY04. There are no other significant changes between FY03 and 04, and the largest allocations are to the same group o f projects - RBOD 11, Greater Thal Canal, and Irrigation Rehabilitation in Sindh. The Exception i s Kachi canal, which was started in FY03 and received a major increase in funding in FY04. The other additions to the portfolio including the remaining projects begun in FY03 received only small allocations. This indicates that projects are 73 entering theportfolio well before they are ready for implementation, and that the Planning Commission continues to expand the project portfolio far beyond what can be financed, stretching out project implementation and completion, increasingproject costs, and deferring benefitsfar into thefuture. II Table 7.5: PSDPFY 2003-04 PORTFOLIOPROJECTEDOVER THE MTEF PERIOD I I I I I Proiected I I II Figure7.2: Comparison of Emerging Porfoliowith PSDP Trends I 120.000 100,000 -5.-c 80,000 0 60,000 2 +Emerging Porttfdio 40,000 - -D MTlP(200307) - 20,000 0 2002-3 20034 2004-5 2005-6 20057 I 74 7.8 InFY04there is amajor change inportfolio cost for IrrigationRehabilitationinSindhandPunjab and for Modernization o f Barrages in Punjab, which may indicate that the Government is going to put greater emphasis on modemization o f the existing irrigation distribution systems and improvement in irrigation service delivery, but the level o f commitment so far in terms o f funding i s very small (perhaps indicating again that these projects are not ready to enter the portfolio). A second major change in portfolio cost i s the addition of four canal lining projects, one in each province, that account for 32% of the increase in portfolio cost, but again the allocation o f funding to these new projects, which were in the TYPP, i s minimal (they appear to be merely "place holders"). opportunity -- if one combines the increased priority being given to salinity and water logging control However, these changes suggest a new (the canal lining projects), modernization and rehabilitation of the irrigation distribution system and improvement of sewice delivey (as well as reduction of the drainable surplus of canal water), with greater attention to groundwater management (not yet a Federal priority), then we have the ingredients for an integrated approach to "canal basin management" as a major pillar of the Federal PSDP (as noted in paragraph 2.9 and outlined in Annex A). Isolated canal lining projects would make n o sense at all as an investment priority since they would ignore the inter-relationship between canal flows, groundwater use, and water logging and salinity, and displace or even preclude opportunities to make more efficient and cost effective investments that take into account these inter-relationships. Even selecting which canal reaches to line i s not a simple problem o f measuring groundwater salinity. Insome saline groundwater areas farmers are slumming fresh groundwater during the rabi season that originates as seepage or recharge inthe kharifseason. Selection o f the canal reach to be lined depends not only on the tradeoff between cost o f lining and the economic gains from reduced canal seepage and water quality degradation, but on how the whole soil-water-infrastructure system o f canal and groundwater irrigation operates, functions and performs in the basin formed by that canal reach command and its associated drainage basin. Hence, formulating and financing a series o f "integrated and comprehensive canal basin modemization projects" may make far greater economic and social sense. Extension of the FY 04 PSDP Portfolio over the METF Period 7.9 Table 7.5 (on the previous page) shows the FY 04 Portfolio extended or projected over the remaining MTEF period, 2004-5 to 2006-7, beginning with the actual FY 03 & 04 PSDP. The funding levels inthe period 2005-7 are based on Table 7.1, the PER Worlung Paper and the M O W MTIP. They are at best indicative o f where the FY 03-04 trend leads. InTable 7.5, all the projects ongoing inFY 03- 04 are completed during the MTEF period except for Greater Thal Canal. Seventy two percent o f the incremental portfolio over the FY 05-07 period is allocated to projects started in FY 03 & 04, but the throw-fonvard i s only reduced by 38%, leaving about Rs 214 billion for the next five year period. 7.10 Figure 7.2 compares the annual investment required by the MOWP's Figure 7.3: Comparisonof Total MTEF Expenditure MTIP (Table 7.6), the Emerging Portfolio (Table 7.3), the annual investment required 500,000- by the FY 04 Portfolio extended or 400,000- projected over the MTEF period, 2003-07 -.-2 S 300,000- PSDP FY 04 Portfolio (Table 7.5), and a projection o f PSDP 200,000- Projected to 2007 expenditures if the present growth trend o f =8 0 PSDP Expenditure total PSDP allocation to water resources 100,000- Projected to 2007 and irrigation i s sustained (Table 7.6). The I 0- MTIP (2003-07) MTEF Throw Forward increase in total PSDP allocation between Expenditure FY 03 and FY 04 was 36%. Assuming a I I sustained increase o f about 40% per year beyond FY 04, the total PSDP allocation for water resources and irrigation would grow to Rs. 109 billion. Even with this substantial increase in water sector financing (Table 7.6), the available funds fall far short (about 30%) o f what i s required to sustain the FY 04 PSDP 75 over the MTEF period, and just 55% o f what i s needed by the MTIP over the same period. Figure 7.3 compares total planned MTEF expenditures and throw-forward. The result o f this mismatch between fundingandproposedinvestment will be substantial delays inproject implementation, lowrates o ftimely project completion, and deferred benefits. 2002-3 20034 2004-5 2005-6 2006-7 2003-7 Projected PSDP Allocations 10,914 14,791 20,045 27,166 36,816 109,732 7.11 Comparison of the Projected PSDP with the MOWP's MTIP. Table 7.7 Summarizes the MOW'Sproposed Medium Term Investment Plan, which encompasses both Federal and Provincial investment priorities and plans ina way that i s much clearer than the PSDP. Four projects inthe original Federal MTIP have been shifted from "On-going'' to "New Starts in Table 7.7 - Raising Mangla Dam, and the three new canal expansion projects, Thal, Rainee and Kacchi - to make Table 7.7 and 7.5 more comparable. Both the MTIP total funding for the period 2003-07 and the throw-forward are larger than the projectedPSDP (Figure 7.3). 7.12 Implications of the MTIP's Provincial Investment Needs and Priorities Table 7.7 shows the scope of proposed new provincial investment and underscores the importance o f adding provincial ADPs and NDBs to the end o f Table 7.1. Proposed provincial investments innew projects i s 58% o f the total value o f new starts proposed in the MTIP, and their throw-forward i s nearly 78% o f the MTIP total. However, most importantly, one can see the effect o f Federal commitments to the four new starts mentioned inthe previous paragraph (Raising Mangla and three new canals) - there arefew resources to fund theproposed provincial investmentportfolio until sometime after 2007, barely more than 10% of the total investment cost is available during the period 2003-07. The projected Provincial ADPs for the period 2003-2007 in Table 7.1 are even less than the expenditures shown Table 7.6, and there i s extraordinary pressure on these resources that would normally cause them to be spread over a large number o f small projects in addition to the major investments summarized in Table 7.6, so one might expect even less to be available from the Provincial ADPs for these new provincial investments. Ifthe Federal Government were to commit to constructing a second dam around 2005 or 2006, andor to a 76 major drainage investment program to implement the Master Drainage Plan and Drainage Accord at that time or a bit later, thenthe same level o f very low fundingfor the provincial portfolio would likely prevail untilwell after 2010 and more likely close to 2015. Unfortunately these Provincial portfolios for new project starts encompass key priorities - OFWM, irrigation system modernization, barrage modemization, and water logging and salinity control investments. While allocations in the Federal PSDP were significantly increased for some o f these investments in FY 04, bringing greater balance to the Federal portfolio, this trend needs to be sustained and talk o f new commitments to inter-provincial mega-projects approached very cautiously. InvestmentTrends and Options 7.13 Volume Io f the PER proposes that PSDP allocations to water resources and irrigation be increased to 0.50% o f GDP, a total o f about Rs. 250 billion over the MTEF period 2003-07. The difference betweenthe projectedPSDP expenditure (Table 7.6) and this higher level o f expenditure, about Rs. 140 million, could be used in a number o f ways, but it is by no means assured that either the continued increases in PSDP allocations for water resources and irrigation as in Table 7.6, or the higher level o f fundingover and above the increases projected inTable 7.6 would become available. Even at the more modest but substantially increased funding in Table 7.6, the Government would have to make some hard choices among the projects in the Projected Portfolio (Table 7.5) in order to speed implementation and ensure timely benefits - essentially it would have to reduce planned expenditures by about Rs. 50 billion by removing and deferringprojects. Overall the PSDP has to be tightened and more rigorously appraised. It has already been noted that the current analytical underpinnings o f the sector would make these choices o fwhich projects shouldbe given priority very difficult. 7.14 Planning Challenges and Options. Table 7.8 displays the FY 04 PSDP (Table 7.5) projected over the MTEFperiod 2003-7, but with the various investment projects rearranged into major investment categories or program components (as in Chapter 5). The question is, how can this portfolio be scaled back to fit the projection o f PSDP resources (Table 7.6) or even lower levels o f funding, or expanded to take advantage o f higher levels o f funding should they materialize for water resources and irrigation? . Briefly, some o f the key options and issues to be considered include: First,RBODwill be completed, butthere is noprovision inthis portfolio for major improvements inthe rest ofthe drainage system, including a follow-up to NDP, andhence, no funds for on-farm drainage, upgrading the drainage network, or for larger branch and spinal drains should they prove to be an essential part o f the Master Drainage Plan. As was suggested earlier, the canal lining projects (which aim to both conserve freshwater and control waterlogging and salinity) . shouldbe dropped as stand-alone projects and integrated with new integratedcanal modernization investments. Second, the irrigation rehabilitation projects and the canal lining projects could be integrated together with canal system modemization, groundwater management and governance improvements, to create a series o f highly divisible investment projects (perhaps "Integrated Imgation Water Distribution and Management Projects", another name for the integrated canal basin approach suggested earlier) that could be phased, and expanded, depending on both . performance and the availability o f funds. This would be a jointly financed program o f the Federal and Provincial Governments. Third, the Pat Feeder Canal Extension would be completed in the MTEF period. A substantial reduction in portfolio cost could be achieved by slowing and limiting canal expansion, concentrating duringthe MTEFon the completion o f one canal to an extent just sufficient to pilot a new approach to modern highly productive irrigated agriculture tailored to conditions in Pakistan. 77 . Fourth, three projects in the Portfolio -- Gomal Zam (17 MW), Kuram Tangi (58 MW) and Raising Mangla Dam (180 MW) -- will add hydropower capacity, but there i s no other provision for additional hydropower. The MTIP identified nine priority hydropower projects that would add about 1832 MW at a total cost o f Rs 109billion. These are mainly low-head run-of-the-river sites (much more attractive to the private sector, if they are financially viable, than the large multi-purpose storage sites), in some cases developed by adding a powerhouse to an existing dam or barrage. In general these sites would add little operational storage to the system. There may be provision elsewhere in the PSDP for these hydropower investments, but ifnot, the portfolio in Table 7.8 would have to be adjusted to accommodate the steady expansion o f hydropower capacity. I Table 7.8: PSDP2003-07 Portfolio By Major Category ofInvestment I Project Total Projected Total 2003. Throw 7 Forward ~~ Past 2002-3 2004-5 1 2005-6 I 2006-7 Sut=total [ 98,3631 1,5511 4,0001 5,3101 12,4531 21,7101 23,7691 67,2421 29,570 TOTALS I 426,6841 54,9131 10,9141 14,7911 32,7811 49,7331 49,3941 157,6131 214,158 78 . Fifth, each of the other three categories o f investment discussed above - sustainability and productivity, management and system modernization, and system expansion - are to varying degrees divisible and can be scaled to fit the availability o f funds (keeping in mindthe principle o f allocating sufficient funds to achieve timely implementation), but the addition o f new storage dams to the system posses more difficult problems because o f the large, lumpy character o f these investments (the same could be said for hydropower, but the next group o f these projects can be looked at differently if they use existing dams). The ongoing Gomal Zam and Mirani Dams can be completed in the MTEF period. Kurram Tangi Dam i s just being started, and Satpara and Sabakzai have been limited to studies and preparation - so in effect, these latter three projects could easily be dropped or deferred. Raising Mangla Dam i s by far the largest project in the entire portfolio, requiring nearly 27% o f the entire MTEF expenditure (Table 7.8). It should be noted that the schedule o f expenditure shown in Table 7.8 for Raising Mangla Dam i s lower and more conservative than either the MTP or the TYPP, even though the cost o f the project has increased about 19% over the estimate given inthe TYPP. Inany case, once this project i s begun it mustbe fully fundedto ensure that there is not a substantial increase inconstructioncost caused by low levels o f project financing. The Basha Dam feasibility report is not expected to be completed for another 2-3 years, but the feasibility report for Kalabagh was done in the early 1990s. Kalabagh could be ready for implementation and financing within this timeframe or sooner if the project i s reviewed, updated, issues resolved, and appraised on an urgent basis. However, WAPDA recently reported in a briefing to the press that this project would cost about Rs. 300 billion (and Basha a similar amount) far above any likely PSDP funding scenario. There seem to be two main choices: o Continue to start-up implementation o f Raising Mangla Dam, waiting until increased resources become available to decide whether to start a second dam at Kalabagh or Basha. This would commit the PSDP to finishMangla on time and within cost estimates (in 2008 or 2009), and force the scaling back o f investments in drainage, canal modernization, and canal expansion, as well as the other three smaller storage projects on which little progress has been made (studies and research would not have to be forgone). The decision on a second dam would not come untilcompletion o f Mangla i s assured. 0 Defer RaisingMangla untilat least Kalabaghis appraised and the two investments canbe compared (Basha may be sufficiently ready to placed on the table as well). Under this option, Kurram Tangi could be accelerated and completed between 2003 and 2007, and the other components o f the Portfolio accelerated or scaled up. Moreover, this short delay would provide the time the Government vitally needs to make a more rational and rigorous comparison of its alternatives - at present Raising Mangla appears to be more o f an opportunistic choice rather than a strategic and economic choice o f its next major investmentinwater storage. 7.15 One problem with these two approaches is that there i s still no provision for scaling up investment in inter-provincial drainage infrastructure to control water logging and salinity, though canal modernization, if carried out as an integrated program, would provide substantial water logging and salinity control benefits through better water management, reduction o f over-irrigation or drainable surplus, as well as direct investment in the drainage network. Depending on what agreements and investment needs emerge from a consensus on the Master Drainage Plan, this suggests that when Mangla i s compared with Kalabagh in the second option, that a major drainage program should be ready and on the table for consideration as well. As one might expect the choices are not simply between this dam or that one. 7.16 Financing Contingencies. Inessence, the Planning Commission needs to create a new concept o f the PSDP for water resources and irrigation and how it i s used. At present the PSDP combines at least 79 two distinct portfolios: a core portfolio o f commitments that must be fully funded to ensure cost-efficient and timely implementation, and whose financing i s relatively assured; and a second, more speculative portfolio that could be financed if funds prove to be more ample (at present small amounts o f funds are allocated to keep these projects alive). Including the second portfolio with the first i s o f course politically attractive, but by combining these two portfolios into a single PSDP, priorities are obscured and funds are spread over a large number o f projects most o f which have no chance o f timely implementation. 7.17 The nature o f the planning Figure 7.4: AitemativePSDP Growth Paths problem can be seen in Figure 7.4. This Figure i s based on the three altemative 90,000 funding scenarios (among many that 80,000 could be formulated) given in Table 7.9. 70,000 The first, called BAU, i s based on PSDP E 60,000 growth o f about 20% per year, considerably less than what occurred ' between FY03 and FY04, and hence ` 50,000 40,000 -u-PSDPGrowthof40% 30,000 probably a more assured level o f 20,000 funding. The second scenario i s the 10,000 0 same as was shown earlier in Table 7.6 2002-3 20034 2004-5 20056 2006-7 (40% growth beyond FY 04). The third 2002-3 2003-4 2004-5 2005-6 2006-7 2003-7 Businessas Usual (BAU) 10,914 14,791 17,749 21,299 25,559 90,312 PSDP Growth O f 40% beyond 2004 10,914 14,791 20,045 27,166 36,816 109,732 PSDP Growth towards 0.5% of GDP 10,914 14,791 23,666 42,598 76,617 168,645 7.18 Separating the PSDP from Decisions on Financing Major Water Projects. There i s an altemative to just worlung with these different funding scenarios to prepare a "contingent plan" that i s sufficiently flexible to not over-commit the PSDP but able respond to more favorable funding circumstances. That is, to consider the proposedincrease in fundingto meet the sector financing target o f 0.5% o f GDP to be outside the PSDP, but not off-budget. The amount i s at least Rs 140 billion if one assumes the base finding for the water sector PSDP i s that shown in Table 7.8 (the middle curve in Figure 7.4) materializes and i s fully allocated to the PSDP (this need not be the case). The decision to commit a major block o f funding to the water sector that i s in addition to the normal PSDP must still be made within the broader budget and fiscal framework established by the Finance Ministry. Given the cost o f the mega-projects this suggests they be considered outside the PSDP until their full funding is committed. What i s the difference whether these projects (Kalabagh or Raising Mangla for example) are considered in the PSDP or not? The difference is that, by holding them separate, one does not squeeze out good, highpriority investments inthe overall system while waiting to see if financing for these major projects will materialize (sitting in the PSDP they will inevitably just drain resources from other priority projects). This i s akin to the suggestion that in the near to mid-term the Govemment concentrate on raising the value o f water, bringing in other major investments as fiscal space materializes. The funds, when Govemment i s in a position to commit them, are probably best allocated to one or a few major, highly visible projects for which special management and monitoring arrangements can be established - 80 for example, new storage, a new canal, or a major drainage program such as an inter-provincial drain. While there i s not uniform agreement that the major increase in funds available for water sector investment as forecast and proposed in Volume Iof the PER will actually materialize, there i s some optimism, and this suggests that waiting 2-3 years to make a decision on which dams (including Raising Mangla) to buildor whether and what to invest in drainage as suggested above, i s a prudent and possibly optimal strategy. 7.19 Additional Principles On Which The Portfolio Assessment Should Be Based. Apart from more rigorous project appraisal criteria, and strengthening the analytical underpinnings o f the sector as discussed inChapter 5, the Planning Commission should take into account the following principles: More resources should be committed to the sector than in the past both for new investments as well as for vastly improved O&M. Volume Io f the PER suggests that the total PSDP share o f the sector (including O&M budgets) should grow to Rs 250-270 billion during the MTEF period (2003-2007). Investment in improved O M of the existingsystem should havefirst call on available resources. There is nopoint in creating new assets if the existing ones arepoorly maintained and don't yield their potential benefits. New assets would inevitably and quickly suffer the samefate. No investment should proceed without preparation of feasibility studies and rigorous scrutiny and appraisal, including assurance that critical complimentary investments in both the water and agriculture sectors, and at Federal and Provincial levels, are programmed and funded with appropriate priority. Appreciation for how much time and resources should be committed to preparation o f major investments (several o f the proposed investments range from 0.5 to over US$1billion) to ensure one has a least cost solution that maximizes benefits and minimizes risk, seems to have been lost because o f the long period inthe water sector without major investment. Preparation and the quality and extent of primary data collected should be commensurate with the scale of investment and the types of risks to be addressed. Dusting off old feasibility studies and PC-Is (by multiplying old figures by indexes and factors) will not suffice to give the Government the most cost-effective projects with a highest likelihood o f highperformance. Theportfolio needs to be balanced in terms of short to medium-term highpay-off investments and long term strategic investments. While investments in storage have been long neglected, Pakistan cannot meet the expectationsfrom the sector by investing in dams alone. While these large, long gestation projects are planned, designed and implemented, the platform for improved water management and sustained growth needs to beput in place, real progress on poverty alleviation achieved, and increased revenues realized. For example, water conservation and improved productivity have highpayoff inthe short to medium-term, and drainage i s critical for long-term sustainability. A great deal can be accomplished in the short-term to improve management from the "mountain top to the root zone" that would diminish political controversy, improve transparency, and create the enabling conditions for optimal use o f the new system o f storage that will be coming online gradually over the next 25 years and longer. Viable ongoing and new Projects should receive adequate funds to ensure timely completion. Both the Federal and Provincial Governments must try to break out o f the politically appealing budget strategy o f starting and supporting many more projects than they can effectively finance and complete in-time. Stretching scarce resources in this way over a large portfolio results in higher costs and lower overall economic andpoverty impact. Agricultural and water policies, institutions and investments need to be complementary and well coordinated to achieve improved productivity. Coordination seems to only work where no real decisions are needed because there i s already coherence except at the margins. The alignment o f 81 both federal and provincial priorities and strategies, and water and agriculture investment priorities and programs i s important. Perhaps it i s time for the Federal and Provincial Governments to establish a joint water and agriculture workmg group empowered to plan and .monitor, restructure sector portfolios as required, and to present proposals for policy change and other actions when these are required. Even ifbroader land reform i s not possible at this time, greater attention needs to be given to the lessons and insights provided by the Poverty Assessment and other similar studies such as the ongoing study of factor market performance on the impact of unequal land ownership to find mechanisms and measures that improve the equitable availability of water to smallfarmers and tenants - by for example improving the laws and regulations under which land leasing and .tenancy assure more equitable sharing o f benefits and promote investment in improved productivity. Improvements in water use eflciency and productivity require a combination of measures, including: o Improving Policies, e.g. (i)water pricing that rewards efficient users and penalizes inefficient ones); (ii)assigning secure water entitlements and legalizing water markets; (iii)rationalizing distorted canal allowances. a Supporting Investments: Canal network rehabilitation and modernization, watercourse improvements, land leveling, other water conservation technologies. o Promoting the Role of Private Sector in improving small farmer access to technology (e.g. precision land leveling, more efficient irrigation methods and practices, etc.), access to agriculture support services (extension), knowledge, particularly on how to access markets. A break through similar to that o f thrasher for wheat, and technology for small . tubewell i s needed. Concerted efforts should be made to de-politicize water sector investments. Water shares under the provincial Water Accord should be strictly adhered to, and the system operated with greater transparency. This will require granting IRSA a greater degree o f independence and autonomy, .possible revising its governance structure, and strengthening its technical capacity, especially the use o f modem information systems and models. The Federal Govemment needs to use its leverage (or create leverage, in terms of the allocation .of additional resources) to reward provinces that pursue reforms, rationalize investment priorities, improve planning, and improve implementation. The Government should support one of the most far reaching and strategic proposals in the MOWP's Water Sector Strategy i.e., the proposal to create an apex water resources planning entity that would consolidate all water resources planning responsibility, provide policy advice to both the Federal and Provincial Governments, expand data gathering and monitoring capability, coordinate and support research and knowledge building, establish modem information management systems to enhance both planning and policy analysis as well as access to and dissemination o f information and data by all stakeholders. Clearly this must be done ina new and innovative way that ensures the inclusion o f stakeholders (especially the Provinces who must see this entityas neutral, fair, supportive o ftheir efforts, andhighlyprofessional). The presence o f so many large, long gestation projects in the portfolio presents an important and large opportunity, because there i s ample time to refine and improve these project and programproposals as they are being developed and implemented. 82 8. THEWAY FORWARD Key Water Policy Responses 8.1 The Government has two important and inter-related sets or groups o fpolicy choices to make: First, investment policy in terms o f not only how much new water supply to develop, but also which o f its key strategic problems it will tackle first and what the longer term sequence o f investment and development should be. Should it for example solve the problem o f fully and reliably implementing the Accord, close the early kharifdeficit, modernize the existing system, or expand irrigation into new areas, and inthis context what would be the best sequence inwhich to develop additional storage and how should this storage be allocated and these reservoirs be operated? At present, only the slow pace o f project preparation and the PSDP's limitedresource envelope projections are the only thing dictating the sequence and priority o f development. Second, policies that affect incentives to use water more efficiently and productively, and to achieve sustainable and effective O&M. These policies include the principles and institutional arrangements on which irrigation water distribution between the canal head and the farmer's field channel will be based; water pricing and the flow o f revenues, especially retention o f revenues within the FO's canal network; electricity pricing in the agriculture sector - this may be the best and most efficient way to begin managing and regulating the use o f groundwater since an informal groundwater market i s already functioning; water rights or entitlements to empower FOs and farmers to use their water more efficiently and productively and reduce inter- and intra- provincial water conflicts. 8.2 As noted earlier, progress has been slow on fundamental governance reforms, and because o fthis both the Federal and Provincial Governments have lost sight o f the basic policy framework on which these reforms are based. The Report urges the Federal and Provincial Governments to jointly review that basic policy framework and recast and renew the program in a "White Paper". The Report also points out the problems with water rights, both inter- and inter-provincial, that are fast becoming both a constraint to a broad consensus on water resources development and management and on governance reform. A phased, well thought out revision o f water rights policy, with accompanying legislation, i s urgently needed. 8.3 Water pricing and water rights policies are bound to be controversial, and the Government has been moving inthe perverse direction of increasing electricity subsidies in agriculture combined with the accelerated expansion o f electricity distribution to promote greater tubewell use. Among these three, fundamental changes in water pricing policy seem most likely to move forward in the near term if the govemance reform program moves ahead (however, slowly). As the govemance reform program progressed over the past few years, there has been often heated discussion o f abiana (we have used the terms abiana ,water charges and water prices interchangeably - all basically aim to recover O&M costs) assessment, collection and where the revenues go, but very little about the fundamental principles and elements o f a policy on the objectives o f water prices, what water prices should comprise, or how they should be established or regulated. One o f the great weaknesses o f the present system i s the politicization of water prices that has resulted intheir being frozen and disconnected from any sensible or logical basis, even the simple one o f O&M costs. Abiana i s largely treated as a rate without any basis except the perception o f what mightbe accepted without too much controversy or political pain. 8.4 The principle o f collection and retention o f water charge revenues within the system for its operation, Figure8.1: Concept of Water RevenueFlows maintenance and improvement (with limited and declining inthe Future cost sharing by Government) that has been at least an implicit part o f the govemance reform program i s a huge step, but there i s n o clarity yet as to what the water pricing Federal Indus Basin Services policy objectives are, and what water prices encompass Budget Expenditure overall, i.e., what services (and their associated cost) are to + be included in determining the rate, the extent to which capital costs will be included in the rate base (or which I capital costs), by whom and how will prices be Provincial Budget periodically adjusted, or the extent to which certain costs Expenditure will be shared betweenthe farmers and the treasury and in ? what proportion, etc. The emerging conceptual framework Current for water charges and revenue flows and retention as well ArrangemenB as cost sharing i s outlined in Figure 8.1, including in the future the FO would provincial and federal budget expenditure extended to set its own assessment I 60% include all levels o f Indus Basin water resources rate, and pay a FO currently collec management and irrigation services. Each arrow represents regulated bulk water service Abiana t the flow o f funds derived either from water charges paid rate to the AWB Retains 40% by farmers through their FO (single line) or provincial and federal budget expenditures (double line) - in both cases (with the exception o f federal expenditures) based on bulk water service. AddressingStrategicQuestions andIssues 8.5 The response o f the main water agencies at both Federal and Provincial levels has been to propose a large number o f investment projects that seem most important and immediate from their perspective on the problems - WAPDA on new dams and canals, and the provinces on canal and barrage rehabilitation and modernization (as well as canal lining) and for projects that would enable them to utilize their Indus Basin water allocated in the Accord. This creates a special problem for the Govemment at a time of fiscal discipline and the highdemands for funds to support poverty reduction, the social sectors (education and health), and the devolution reforms. The problem i s to know whether this growing mountain of projects contains the right projects, and to select projects for implementation with the right priority and in the right sequence. To answer these questions requires that another set of strategic questions be answered with adequate confidence. Among the questions the Govemment should . be aslung are: Can future incremental water supply and demand be balanced? What fundamental changes in sector policy (water rights, water allocation and operations, water pricing and revenue sharing, electricity pricinginthe agriculture sector, etc.) would be needed? 1 Should irrigated area and irrigation water supplies be expanded? H o w much? Should another major shift in cropping pattem be considered in planning? What changes will be needed in . irrigated agnculture and water management (infrastructure, incentives, governance, etc.) to insure higherefficiency andproductivity? H o w much should water supplies be expanded? How should these new supplies be allocated and distributed? Can the related threat to sustainability from water logging and salinity be resolved cost effectively? H o w can privately developed groundwater be integrated with water logging and salinity control and increased canal flows? 84 . I s additional storage needed? H o w much storage should be built and in what sequence? Should operatingpolicies be changed? Can irrigation and hydropower policies be better integrated? What happens as the limits o f water resources are approached? What should be the target level o f water security and reliability? Should different levels o f security be associated with different water . rights? H o w can environmental and social impacts on the lower Indus River and estuary o f increased water resources development be mitigated? What i s the role and scope o f water conservation? What new policy and legislative framework i s needed for effective groundwater management? What regulatory and monitoring mechanisms shouldbe put inplace? What are the long-term consequences o f continued storage depletion? Are economic retums commensurate with the cost o fwater? 8.6 Can TheseStrategic Questions be Answered Today? Ingeneral the answer i s no. Not only has investmentinwater sector infrashcture beenneglected since the 1980s,but so has the analytical capacity for strategic planning in the sector. No institution inthe sector today i s willing to take ownership o f the analytical challenges posed by these questions, and the capacity built inthe 1960s and early 1980s to do this has largely been allowed to dissipate. There is little or no ongoing investigation, planning or study apart from individual project feasibility studies that would help to answer questions about how much additional water supply and irrigation makes economic or social sense inPakistan, inwhat sequence these developments make the most sense, or how and in what ways the rural economy will develop to accommodate the huge increases inpopulation that are foreseen, which would inturn indicate where and how much water i s needed. N o sector institution has been will, or seen the need to build the knowledge base, collect the data, and develop the modem information systems and analytical tools (e.g., GIs, models) neededto not only resolve these questions but also manage the investment program and the water resources o f the Indus Basin. The capacity and professionalism o f the private sector has grown, in particular to cany out project feasibility studies to a reasonable standard. It may hold the capacity to do sector level analytical work as well, but mobilizing this capacity requires public institutions that see the . problems and are willing to seek solutions. There are three major institutional issues to be addressed: First, IRSA plays a key role since the legislation under which it was established essentially legalizes the Accord. The original Accord should be overhauled and replaced by a formal legal system o f secure, tradable water rights based on the total availability o f water in the basin, and including mechanisms for dispute resolution, recourse to the justice system, and mechanisms for adjustments to account for seasonal and annual variability o f supply (sometimes referred to as quotas). Such a shift to sharing the waters o f the basin would not endanger customary diversions at canal headworks particularly on Indus tributaries, but would give IRSA greater operating flexibility in allocating flows to ensure that all seasonal water quotas are fulfilled on time during each season. This would put a premium on good planning and water management in the Provinces and on effective collaboration between the Provinces and IRSA. IRSA's powers, . authority and autonomy, and especially its technical capacity, would have to be strengthened significantly for this to work effectively. Second the Government needs to create a critical mass o f technical talent to take responsibility for strategic and policy planning for the water sector, including developing a modem, shared information system, enhancing the knowledge base, and provision o f planning support and assistance to the Provinces. Such an entity has to be structured to attract the "best and the brightest", and to be seen as neutral and fair by all stakeholders. A tall order today in Pakistan, but given the scope and magnitude of investment being contemplated by the Government, the country deserves no less. 85 Third, reformand restructuringthe roles and functions o fthe irrigation departments is at the heart o f the irrigation governance reform program. Assuming the Government remains committed to the govemance reform policy, it i s essential that the process o f reform and restructuring o f the irrigation departments be accelerated. This has been neglected, and it has become the most important constraint and impediment to sustaining the broader govemance reform program and ensuring its benefits. As the Report outlines in Chapter 3, this must be led from within, but it cannot be achieved without a renewed commitment to the overall policy framework, to implementation and if needbe changes in the existing legislation, and to providing the necessary support to the process. What Needsto be Done 8.7 The challenges inthe next 3-5 years are to address the disconnect between the key strategic issues inthe sector, its current strategy and its investment portfolio. This is essentialnot only to ensure that the sector i s on an optimal and sustainable development path but to mobilize the resources required to implement the strategy and investment plan. The five imperatives on which actions are needed include: (a) Resolve the debates overplans to develop storage. Proposingto buildall the storage sites available i s not a response to the key question o f the sequence in which storage should be added to the system, the levels of storage capacity to be added to the system over time, the target levels o f water security or reliability, and what the new operating policy and water allocation should be. Kalabagh i s the best and most well prepared site, but it i s not a part o f the debate as it should be. Feasibility studies for the other sites have not been completed (Basha and Manglaraising are underway). Very large sums are at stake, and the earliest projects should be selected to have the greatest economic impact and impact on system operating performance (for both irrigation and hydropower) and on the implementation o f the Accord (Mangla Raising i s too small and illpositioned not to invite even more intense controversy - in fact just about every site and project that i s proposed will have the same result because they are all proposed in isolation), and positive impact on the security, reliability, level and value o f water supply. Credible, alternative, comprehensive and long-term plans that focus on both the level and sequence o f storage development, and alternative integrated operating policies, need to be prepared, evaluated and compared for both their short-term and long- term impacts including on the environment of the lower Indus, and discussed with all stakeholders. This is an urgent exercise that is quite separate from the feasibility studies of individual sites, and is closely linked to the process o fbuildinga new consensus on water. (b) Develop more detailed plans for the new canals. Notwithstanding the political commitments associated with the proposed new canals, including the extent to which they help the Provinces to implement the Accord, their economic, social and poverty impact appear to be marginally unattractive at best. Even though the new areas seem highly questionable as attractive sites for new irrigation development, the problem today i s the lack o f in-depth planning through which the projects might be reformulated and phased to overcome these problems and result in projects that make both economic and social sense if that i s at all possible. Infact, since these are essentially "green field" areas, they present a unique opportunity to develop them with a completely new concept o f participatory water management including new governance arrangements that maximizes efficiency, sustainability and high value agriculture - essentially as models o f how the IndusBasin system shouldevolve and look inthe future. (c) Develop a strategic plan and investment program for system modernization jointly with the Provinces. Modernization o f the Indus irrigation system should be an essential and priority element o f the Government's strategy. Somewhere between 200 and 600 billion Rs will be needed to modernize and remodel existing canal networks, rehabilitate and redesign structures including 86 the older barrages, line canals in saline groundwater areas, and complete water course improvements. These measures are critically important to the improved efficiency and increased productivity o f existing and new water supplies. Individual investments need to be phased and sequenced with institutional and governance reforms, and with complimentary agnculture development programs. Current proposals are ad hoc and engineering oriented because there i s at present no integrated and strategic planning process that would enable the Federal and Provincial Governments to set priorities and sequence the needed investments over time. Hence, the Federal and Provincial government should undertake a joint program to develop the required integrated and strategic plans. (d) . Tacklethe key management issues. Governance and policy reforms. Reforms o f the system o f governance remain core priority issues as discussed in Chapter 3, and the three principles on which the reform program are based remain valid. Based on the experience gained so far, a new consensus within the Provinces, and between the Provinces and the Federal Government, on the way forward i s needed that would essentially re-launch the program. This new consensus should focus on lessons learned so far (paragraph 3.1l), deepening knowledge o f conditions and constraints on the ground, and the critical steps to be taken and on piloting and monitoring a variety o f . approaches within each pilot canal command over a definite time period. Efforts should also be made to seek, promote, and support reform champions. Water conservation andproductivity enhancement. Develop a broader, integrated approachto water conservation and productivity enhancement built on a greatly accelerated OFWM program and linked wherever possible to the governance reform program. This will require greater integration o f agriculture and water sector programs, and the fostering o f innovation and experimentation. Planning and system management. Whether one agrees or not with this assessment o f the sector and the Government's investment program, the importance and the consequences of the lack o f good planning, and data and analytical tools, in the sector are evident. The Government should look closely at the Ministry's proposal outlined in the Water Sector . Strategy for a new sector planning fiamework - a concept note based on more detailed evaluation o fneeds and an analysis o f alternatives would be a positive first step. Groundwater management. Groundwater has become a vital and major part of the overall Indus Basin irrigation system. As the limits to its development are approached, an effective monitoring and regulatory system that encourages the continued private management o f this water source, but ensures that it i s sustainable, i s urgently needed. The Government's most important management instrumentfor groundwater, apartfrom a greatly improved knowledge base and information system to support better monitoring, is toproperly price water andpower in the agriculture sector. I t should gradually withdraw all subsidiesfor fuel and power use, as well asfor tubewells,for groundwater abstractionfor irrigation. (e) Build a new consensus on water management and development. While most o f the debate has been about which major investments should be undertaken, perhaps the greatest challenge - the extent o f political conflict over water and the breakdown o f the last vestiges o f a consensus on water, have received little effective attention. The Water Accord does not appear to work at all in the eyes of most stakeholders, and new accords on drainage, environmental flow requirements in the lower Indus River and estuary, and reservoir operating policy and water allocation including integrated irrigation and hydropower policies, need to be developed. This i s extremely unfortunate at a time when the Government must commit to a major, costly long-term investment strategy, some elements o f which have already engendered angry debate and protest. Just as sound and 87 transparent technical analysis i s essential for timely political economy decisions, it i s also essential to the process o f developinga new consensus on water resources. (0 O&M regimes require fundamental changes. While the ongoing institutional reforms would ultimately address issues o f accountability, staffing and lack o f farmer participation, immediate action i s needed to stem the deterioration o f the irrigation and drainage system. A well designed program is needed to: . Establish realisticfunding requirements through an independent evaluation . Rationalizefund allocation to meet priority needs in accordance with detailed O&M plans and priorities Initiate benchmarking, and OMperformance audits: Develop monitoring indicators (e.g. number o f days in each irrigation seasons a given canal carries authorized discharge, record o f breaches, equity in water distribution, tail shortages, problematic structures and failure o f irrigation and drainage structures) Improve effectiveness o f expenditures and enforce accountability . Ensure channels are operated on authorized discharges or remodeled where necessary Rationalize abiana rates and improve assessment and recovery; empower farmer organizations to not only operate and maintain their canals but also to collect abiana and . retain a sufficient portion o f the recovered funds to meet their needs would be a key incentive for increased cost recovery Reduce management costs (including privatization o f remaining public tubewells in FGW areas and rationalize staffing levels) (g) Remove the barriers to timely and effective project implementation. In sharp contrast to the outstanding track record o f the Indus Basin Replacements Works -- a major implementation feat -- today, implementation o f water sector projects in Pakistan i s characterized by inefficiencies, slow progress, completion delays, time and cost overruns, and sometimes unsatisfactory outcomes. Factors that affect implementation include: weak implementation planning and management, weak construction industry, litigation related to land acquisition, non-compliance with agreed resettlement and rehabilitation programs, lack o f attention to environmental issues, delays in procurement, delays in preparation o f accounts and audits, and lack o f preparations for the transition from construction to O&M. While some o f these issues arise from poor project preparation and lack o f commitment to project objectives, others arise due to the lack o f a policy environment conducive to efficient implementation. Policies and procedures need to be modernized and mainstreamed to meet prevailing international standards and requirements - the size and scope o f the Government's proposed investment program over the next 25 years deserves adherence to a much higher standard o f planning and project preparation than prevails today. 8.8 A New Model of Technical Cooperation is Needed. The Government i s going to need technical help to take on these imperatives and challenges. This will require a new level o f collaboration between the Provinces and the Federal Government, between government and expertise and centers o f excellence inthe country inall fields and disciplines, andbetweenthe Government and donors. The World Bankfor its part i s prepared to fully engage with the Government to address these challenges. But a new model for technical assistance is clearly needed that i s free from the current bureaucratic straight-jacket that limits the effectiveness o f technical assistance. It is worth recalling, for example, that the RAP process was 88 based on domestic leadership, supported by world class and multi-disciplinary technical assistance, state of the art models to analyze options, and extensivefield investigation. The Government must establish more effective and appropriate institutional arrangements that can utilize technical assistance and collaborate more effectively with the Provinces and other experts inPakistan to address the challenges to be faced. Current institutional arrangements, organizations and skills are better suited to project implementation than to the kinds o f planning, study, analytical and process tasks that lie ahead. 89 Annex A Page I of 2 A NOTE "CANAL BASINWATER MANAGEMENT ON PLANS" 1. Pakistan's irrigation distribution system was designed to distribute water with minimumhuman interference, and at low operation costs with minimuminformation and communications. There are few structures to regulate flow, no escapes to remove excess flows, and for example, outlets runwhenever the distributary or minor i s running. These design and operation principles were suitable for low cropping intensity (the original intent) but are now constraints on water management for to maximize crop production and productivity. Moreover, while many common principles were used in the design o f the Indus Basin canal system, there are important physical, social and economic differences between and within canal commands many of which have only emerged as constraints or problems over the intervening years o f development and use. These differences strongly influence the approach that should be used for the modernization o f each individual canal to improve and increase its physical and economic performance. The growth and extent of private groundwater use and progressive water logging and soil salinization are just two examples. The selection o f canal reaches to be lined i s another important example o f a highlyarea specific issue that requires an integrated approach. 2. In the past, sporadic efforts have been made to rehabilitate parts of the canal network, or to improve drainage here and there, but in the absence o f a comprehensive and integrated approach, effective farmer participation, and other changes upstream and downstream including improvements in O&M, these efforts have not led to overall improvements in either physical or economic performance. The current dilapidated state o f the irrigation systembears witness that the expected improvements have not materialized, and there is ample evidence that it has worsened. Regardless whether additional water i s made available at the canal head inthe future or not, the imperative will remain to make optimal use o f all water resources, both surface and groundwater, within the canal command, or more appropriately within the "canal basin" (the combination o fthe canal command area and the drainage area). 3. Regardless whether additional water i s made available at the canal head in the future or not, the imperative will remain to make optimal use o f all water resources, both surface and groundwater, within the canal command, or more appropriately within the "canal basin". The latter area i s larger than the command area and includes the drainage area associated with the canal network and the command area. Taking this larger area as the focus o f planning and investment enables one to develop an integrated and comprehensive plan for optimal and sustainable use and management o f the water resources. The fkagmented approach to groundwater, drainage, salinity, watercourse improvement, agriculture productivity, and rehabilitation, for example, needs to be replaced with an integrated approach that addresses all the key issues and factors that affect and constrain the most efficient and productive use o f water in the "canal basin" recognizing the increased role o f the private sector (farmers) particularly in groundwater management. Partial solutions and initiative have led to less than partial and unsustainable outcomes inthe past. The FirstStep 4. The first step inthis new approach i s to develop a comprehensive integrated strategy and plan for "redevelopment", infrastructure modernization and water management in each "canal basin". By integrated we mean that surface water distribution, water logging and salinity control, groundwater use and management, social issues, and apcultural productivity are addressed in an integrated manner, i.e., the plan would include measures that take into account both the inter-linkages between these issues as well as ensure that each i s improved as required. The intendedresult i s an overall optimal and sustainable plan for "redevelopment" and modernization. A crucial part o f this planning process i s the assembly and upgrading o f the information system (e.g., GIs, models) and knowledge base essential to support Annex A Page 2 of 2 diagnosis of the problems and their inter-linkages, and formulation and evaluation o f alternative strategies and plans. The Second Step 5. The second step would be to tum this plan into an investment portfolio by undertaking pre- feasibility studies in sufficient detail in-terms o f measures, costs and economic returns, to evaluate alternative projects and decide on a specific portfolio o f investments projects, phased and sequenced as appropriate. The Third Step 6. The Third step would be to undertake feasibility studies o f the priority projects inorder to provide a basis for bothproject financing and final design and tender documents. InstitutionalArrangements 7. Preparing such a plan, managing the follow-on feasibility studies, implementing the investment projects, and managing the water resources o f the "Canal Basin" ina participatory manner i s not a routine task - it is quite unlike the way in which the department has operated in the past. The intent o f the ongoing reform program outlined inthe PIDA Act was to establish a professionally managed, service and customer oriented organization (the Area Water Board) for each canal (very much along the lines o f a regulated public utility). This model i s highly suited to undertake and implement this new approach to canal modernization. The Way Forward 8. An approach could be to select one or two canals, establish a professionallymanaged AWB with a sound technical staff oriented towards this new approach, arrange for financing to enable it undertake the studies outlined above by outsourcing, and launch the program. The AWB would also be responsible for facilitating farmer awareness, participation, and creation o f FOs including capacity building. Annex B Page I of 3 PROVINCIAL INVESTMENT PLANS 1. The provincial plans prepared as part o f the Water Sector Strategy and MTIP include an elaborate list o f provincial investments prepared in collaboration with provincial workmg groups. However, these priorities and portfolios have not been formally endorsed by the provinces. Besides the provincial . MTIPs, some provinceshavepreparedtheir owninvestment plans as well. While Punjab has not prepared a water sector development program, its ADP for FY03 indicates that it intends to invest in: ( i)Survey, Investigations & Research, including preparation o f feasibility studies for Remodeling o f Barrages and Designl Review o f Kalabagh D a m (Rs. 627.195 million); (ii) Remodeling o f Thal Canal, Jalalpur Canal Project, Dajal Branch Extension Project, and several schemes involving remodelinghehabilitation and improvement o f existing irrigation systems (Rs. 8,324.048 million); (iii) Small Dams (Rs. 83.115 million); (iv) Drainage & Reclamation (Rs. 125.125 million); (v) Flood Works (Rs. 362.542 million); (vi) Foreign Aided Projects (Rs. 11,768.854 million). Excluding the foreign aided projects, the total cost o f the envisaged project i s Rs. 9,522. 025. Considering the size o f past ADPs these envisaged development schemes may require 7-8 years for implementation. Based on the past trend and . assuming some increase in the size of the ADP, the total ADP for Punjab in the MTEF period is expected to be of the order of Rs 6-7 billion. Sindh's Five Year Rolling Plan(2002-2007). Sindh has prepared a Five Year Rolling Plan for FY02-07. It includes completion o f 12 on-going schemes, including a scheme for assuring water supply to Karachi by upgrading the Kinjhar Lake System. Inaddition there are 55 new schemes with an estimated expenditure o f Rs. 7.13 billion. The annual planned expenditures during the period 2002-2007 are shown in Fig. 2.7. The provision for on-going schemes also includes the counterpart funding required for NDP Project. Inaddition to many small-assorted schemes, new schemes include the Mole Dam, Khar Dam, Malir Weir 111, Gaj Dam and Lining o f Canals in . Sindh. Based on thepast trend as well as assuming some increase in the size of the ADP, the total ADPfor Sindh in theMTEFperiod is expected to be of the order of Rs 3-4 billion. NWFP'sTenYears PerspectivePlan(2001-2011). NWFPhasprepared a Ten-Year Perspective Development Plan for 2001-2011. It includes completion o f 15 on-going schemes, with total expenditure o f Rs. 1.6billion. Inaddition there are 41 new schemes on which a total expenditure o f Rs. 29.3 billion i s envisaged. The annual planned expenditures during the period 2001-2011 are shown below. The most significant feature o f the TYPP i s the uneven annual provisions, which range from the lowest o f Rs. 322 million in FYll to a high o f Rs. 5891 million in FY05/06. The annual provisions made in the last three FY08/09, FY09/10 & FY10/11 are about one tenth o f the annual provisions made during the period FY02-08. The high annual provisions duringthe period FY02 to FY08 are due to the proposed construction o f high cost schemes 1'' CRBC Lift Canal (total cost Rs. 19.2 billion) and part o f 2"d CRBC Lift Canal (total cost Rs. 16.7 billion) in D. I.Khan, which will develop new areas o f 285,700 acres and 248,000 acres respectively. The construction o f Znd CRBC Lift Canal will spill over to period beyond FY 2010/11. The remaining investments are for construction o f small dams, development o f small irrigation schemes and lining o f canals in NWFP. The Gomal Zam Dam (on-going) and other major projects like Kurram Tangi Dam, Munda Dam, FPSP 11, Emergent Flood Protection Works and Drainage works in NWFP are not included in the provincial TYPP and are envisaged to be funded through the federal PSDP. Based on thepast trend as well as assuming some increase in . the size of theADP, the total ADPfor NWFP in theMTEFperiod is expected to be of the order of Rs 2 billion. Balochistanhasnot prepared a formal perspective program. However, the Balochistan Provincial Irrigation Department has a list o f several water sector development projects for which either the Annex B Page 2 of 3 feasibilities or pre-feasibilities have beenprepared. The total estimated cost o f these projects i s of the order o f Rs. 65 billion. The Government o f Balochistan intends to seek federal assistance for implementing this program. Of the projects included in the list, two projects: Mirani Dam Project and Kachhi Canal Project are already included in WAPDA's Vision 2025. The list also includes Extension o f Pat Feeder Canal for utilizing the surplus Kharifflows amounting to 0.84 MAF, which cannot be utilized due to capacity constraints. This Project i s in conflict with the Kachhi Canal Project, which i s also based on usingthe same unutilized flows in addition to surplus flood flows from Balochistan's share in flood supplies and from future storage reservoirs. Another project included in the list i s the Hingol Dam. The Government has recently decided to not go ahead with this Project to avoid adverse implications for the Hingol National Park. After talung out the cost o f Pat Feeder Extension Project, Hingol Dam Project and the ongoing Mirani D a m and Kachhi Canal Projects under Vision 2025, the total portfolio o f future water resources development Projects for next 10 years in Balochistan reduces to Rs16.85 billion. Based on the past trend as well as assuming some increase in the size of the ADP, the total ADP for Balochistan in the MTEFperiod is expected to be of the order of Rs 1.5-2 billion. FEDERAL PSDPAND PROVINCIAL ADPs 2. Federal Public Sector Development Program (PSDP) for FY03. The total PSDP for 2003 i s Rs 11 billion, with the following water and irrigation sector component shares: Storage (42%), Water Management (including rehabilitation - 23%), Irrigation expansion (19%) ,Drainage (15%), and Flood Protection (1%). It reflects a substantial shift towards investments in storage. Because o f lack o f consensus on large dams on the Indus, several small to medium storage dams (Gomal Zam Dam, Mirani Dam) have been started in addition to the start o f preliminary work on the raising o f the Mangla Dam. Feasibility studies for the proposed Basha-Diamer Dam, Satpara Dam, and Akhori Damhave been started with funding provided from the Power Sector budget. Currently there is no allocation for the on-going NDP project, which supports reforms and investments indrainage. However, the Planning Commission intends to allocate approximately Rs 1,500 million for this project during the mid-year review o f the PSDP through re-appropriation within the sector. 3. Provincial ADPsfor FY03. Allocations for water inthe FY03 Provincial ADPs are as follows: Irrigation Department Department (OFWM) Agriculture Total Punjab 1,010 329 1,339 Sindh 315 32 407 NWFP 331 358 689 Balochistan 1,312 0.1 1,312 Total: 3,028 719 3,747 4. A substantial portion (20% to 40%) o fthe total investment inthe sector is channeled through the Provincial ADPs. The provincial ADPs are supposed to reflect provincial and local priorities. They include provincially funded projects as well as the irrigation components o f federally funded integrated irrigatioddrainage projects, for which funds are allocated under the h g a t i o n Departments' ADPs. However, on-farm water management investments are funded through the Agriculture Departments' ADPs. The Provincial ADPs are in general characterized by: (i) a large number o f small projects, many of which are o f the nature o f deferred O&M; (ii) under-funding and consequently long implementation periods, making some projects nonviable; and (iii) lack o f attention to financial sustainability and to Annex B Page 3 of 3 reducing O&M cost (e.g. ADPs include schemes for lift-irrigation that are potentially non-sustainable financially). It is unclear whether the Provincial ADPs indeed reflect well considered overall sector priorities. A careful review and cleanup of the provincial portfolios appears warranted to prioritize investments andforeclose someprojects to release resourcesfor priority investments. 5. Worrisome features o fthe FY03 provincial ADPs, which together constitute over 25% o f the total .. allocation for the sector, are: Only NWFP and Punjab have significant allocations for On-Farm Water Management (OFWM) investments; While the " F P ADP includes complementary investments to support ongoing irrigation expansion projects (command area development for CREE), Punjab, Sindh and Balochistan have not yet included any preparations (surveys, social mobilization, C A D preparation) to support the planned irrigation expansion projects (e.g. Greater Thal canal) already appearing in the federal PSDP. This could develop into a major disconnect. Most small dams as well as minor irrigation projects are planned without adequate attention to, or funding for, command area development, farmer participation and other complementary investments that are essential to reap their benefits. These projects are especially important from a social and political perspective inthe Barani areas where water scarcity constraints are severe. The very best o f these projects are economically marginal and most have a negative economic rate of return under the most optimistic assumptions. The Government may consider this to be a acceptable subsidy for these areas where poverty i s high and opportunity l o w - but it should not accept the record o f poor planning and implementation of these projects that has in the past greatly reducedbenefits and poverty impact. Annex C Page I of 10 REVIEW OF PROJECTSINTHE CORE AND NON-CORE PORTFOLIOS 1. Ongoing and Proposed Irrigation Expansion Projects. Long gestation and high cost irrigation expansion investments are questionable inthe best o f circumstances. This i s more so when water supplies are not assured, command areas comprise sandy soils, and highpay-off short-term investments compete for resources. This is true for the three new canals projects (Greater Thal, Kachhi and Rainee canals). Specific issues relating to the projects are: These projects have yet to be subjected to rigorous feasibility preparationand critical analysis. Together these 3 canals would account for over 4.6 MAF o f water for their Kharifrequirements only -- nearly twice the additional capacity that would be created by the raising o f Mangla Dam. There are uncertain prospects o f supplying water to these canals during Rabi until additional storage becomes available. Reallocating water from other canals during Rabi, though theoretically possible, would be hard to actually implement given existing "customary or historical rights" and the lack o f real attention to water conservation. Inthe Greater Thal Canal area, while a fiesh groundwater reservoir may ultimately develop, detailed hydro-geological studies are needed to forecast a time frame, water quality and aquifer capacity. Moreover the cost o f private tubewells and pumpingcost would needto be factored inthe economic analysis. These canals would receive water for a period o f 75-90 days ina year (duringJuly to September). Non-availability o f water during April-June (the Kharif sowing season) would affect cropping patterns and yields. Also, there would be periods during these 75-90 days, when high sediment load inthe river may restrict actual diversions without causing rapid sedimentation. The command areas include depressions and sand dunes and large areas with low population. Thus water losses would be high and agricultural development would take place very slowly as colonization and command area development (CAD) take place. As currently proposedthe projects do not provide funds for command area development without which project benefits would remain elusive. It is unclear whether detailed social and environmental assessments have been carried out to determine canal alignments that would explicitly target the poorest areas and small landholders. Given the sandy nature o f soils, the estimated ERR for the Thal Canal (over 18%) appears overly optimistic6*. If the additional cost o f colonization, CAD (which are o f the same order o f magnitude as the cost o f main canal works) are added, the ERRSwould become unacceptable. As proposed the projects would not be completed during the MTEF period and thus not yield even the low level o f benefits inthe short term. The projects would add substantial burdento the already strained O&M budgets. Canal Estimated Annual O&M Greater Thal Rainee Kachhi 289 68 The ERR of CRBC Stage 1 (not a desert area) at completion was estimated to be 10%. Annex C Page 2 of I O Recommendation. Thefeasibility studies of theseprojects need to critically reviewed with a view to either dropping, deferring or curtaining their scope. If the projects have reached a point of no return (due to political commitment and/or compelling poverty reasons), consideration should be given to implementing them in a phased manner while ensuring that complementary investments are carried out concurrently to ensure that benefits would actually accrue. Detailed social and environmental assessments ought to be an integral part of the analysis and guide canal alignments to ensure equity andpoverty targeting. Without prejudging the completion of feasibility studies and detailed appraisal, these projects provide an exceptional opportunity to establish a decentralized and farmer managed system right from the start. Instead of expanding the existing irrigation departments into the new command areas with their traditional modes of O Mand implementation (we are not referring to construction, but thephase benefit developmentphase of implementation). Concerted efforts should be made to establish FOs through aprogram of social mobilization and capacity building. This should be followed by establishment of area water board. The Ministry of Water and Power is considering a "modular approach" for implementing these projects in a phased manner. This may be a way forward on these projects that will move toward satisJLing both the political commitments and the UPP objectives as well as providing a highly visible demonstration of the newfuture of irrigated agriculture in the Indus Basin. 2. Sehwan Barrage Complex. The project envisages a Barrage Complex on the river Indus, about half way betweenthe Sukkur and Kotri barrages in Sindh Province close to Manchar Lake. A feasibility study for the Project was carried out in 1993 and consultants are being hired for detailed design and preparation o f tender documents. The project seeks to improve water supply to an area o f 2.4 million acres currently commanded by the lower and eastern reaches o f Nara and Rohn canals by providing a direct supply from proposed barrage on the Indus. Manchar Lake will be used to store 0.65 MAF for Indus water, which would also improve its important fishery. The project also envisages drainage and flood protection works. Expectedbenefits include increase incropping intensity form 85% to 125%, and increase in fish production in Manchar Lake with significant positive impact on poverty (the lake would be converted from a saline to a fresh water). The updated costs are Rs 42,000 million. The Water Sector Strategy estimated the ERR at 10.1% usinglower cost figures than are now estimated. The construction period i s estimated at 7 years. Construction i s envisaged to start inFY04. Recommendation. Given its marginal economics, $a lower cost scheme with higher benefits cannot befound after further detailedplanning and analysis, it isproposed that theproject be deferred for reconsideration after the MTEFperiod. 3. Chashma Right Bank Canal lstLift Irrigation Project. The project i s part o f the larger Chashma Right Bank Irrigation Project, which consists o f three gravity phases and this lift Imgation component. The gravity phases have been completed with financial assistance from ADB. The command area to be served i s about 285,000 acres through lift irrigation consists o f the higher elevation IndusFlood Plain along the foothills o f the Suleiman mountain range measuring. Construction i s planned in two phases. Phase Iwill take 4 years and complete Irrigation facilities for 67,000 acres. Phase I1will take 3 years and complete the facilities for the remaining area. Consultants have been fielded inFebruary 2002 to carry out detailed design. The estimated cost i s Rs 19,200 million. The Water Sector Strategy estimated the ERR at 10.3%. Increase in crop cultivation i s slated to create some 24,600 full time jobs. The value o f farm and residential land i s expected to increase sharply due to the project. Big landowners Annex C Page 3 of 10 will benefit most from this increase. Income disparities between large and small landowners and landless labor are likely to increase. Recommendation. Given the low ERR and high O&M cost associated with lift- irrigation schemes, it is recommended that the decision whether or not to go ahead with the project should be deferred till a full and rigorous evaluation of the project feasibility has been made, and mechanisms to increase cost recovery for O M are agreed with beneficiaries (which may involve consideration of higher value cropping patterns, more efficient irrigation technologies than are traditionally considered or assumed in this area, more secure water entitlements and service). 4. Akhori Dam, Dhok Pathan Dam, and Sabak Zai Dam. WAPDA plans to start a number o f dams in Punjab and NWFP, including Akhori Dam, Dhok Pathan Dam and Sabak Zai Dam. Little information i s available on these projects except that Akhori and Dhok Pathan Dams will be major multipurpose dams whereas the Sabak Zai Dam i s a small dam. WAPDA has invited proposals for the feasibility study o f Akhori dam. The study will be o f 24 months duration. For the other two dams the studies have not yet been started. Firm estimates o f costs are not available at this time. Inthe TYPP the combined total cost o f Akhori, Dhok Pathan and Sabak Zai Dam is shown as Rs 40,000 million, which seems low. A provision o f Rs 17,100 millionhas been made inthe TYPP for the three dams from 2004-5 to 2010-11. WAPDA's estimates are much higher. For Akhori Dam WAPDA has indicated a cost o f Rs 99,134 million, for Dhok Pathan Rs18,005 million, and for Sabak Zai Dam Rs 1,000 million. Projected cash flow requirements o f the three dams are shown below. At present no data i s available for an economic evaluation o f these projects. Project cost 2001-3 2003-4 2004-5 2005-6 2006-7 2003-7 Akhori 99,134 0 0 0 10,000 20,000 30,000 DhokPathan 18,005 0 3,000 6,000 6,000 15,000 SabakZai 1,000 150 500 250 100 0 850 TOTAL 118,139 150 500 3250 16,100 26,000 45,850 Recommendation: Since feasibility studies have still to be carried out, a decision about these projects should be deferred till their feasibility has been established. Implementationshould be deferred until after the MTEFperiod. 5. On-going Projects For Which Funds Need to be Allocated Currently there i s no allocation for N D P l and the Second Flood Protection Sector (FPSII) Projects in the FY03 PSDP, although allocations for N D P l exist in the provincial ADPs. The Planning Commission has indicated that it will allocate funds for NDP1 through re-appropriation within the sector allocation during the mid-year review o f the PSDP. Since NDP1 i s the only project in the portfolio that provides resources for institutional reforms and critical sector planning and policy studies, it i s recommended that adequate funds be allocated for it duringand beyond FY03. Besides rehabilitation o f drains, NDPresources should be utilized to complete privatization o f remaining public tubewells in fresh groundwater areas, support pilots for introducing groundwater regulation and institutionalize groundwater monitoring and the nascent water sector environmental monitoring program. As regards flood protection, although the prevailing drought has pushed this subsector to the background, it would be prudent to continue investments that prepare the country for future floods. It i s recommendedthat funds be allocated for .the restructured FPSIIduringand beyond FY03. Annex C Page 4 of I O 6. Projects or Complementary Investments Missing from the Portfolio As indicated above, the proposed irrigation extension projects (Greater Thal, Rainee and Kachhi Canals) do not include the cost o f Command Area Development (CAD) works (the construction o f the watercourses, land leveling and farm roads, etc.), which have been assumed to be undertaken by farmers using MAchinery provided by the Agriculture Department at subsidized rates. Parts o f the command area o f the Greater Thal and Rainee canals comprise sand dunes and depressions. The public sector share o f the estimated cost o f complementary investments inCAD is as follows: I Rs Million Canalsystem 1 Total 1 2003-4 I 2004-5 I 2005-6 12006-7 I 2003-7 I Thal Canal 30,000 2,000 9,000 9,000 10,000 30,000 Rainee Canal 8,000 0 2,000 3,000 3,000 8,000 IKachhi Canal I 15,000 1 0 I 5,000 I 5,000 I 5,000 I 15,000 Should the Government decide to continue with these projects (even in a phased manner), funds for CAD works would need to be provided either in the PSDP or the provincial ADPs and necessaly institutional arrangements made for planning and implementation. It extremely difficult to estimate these costs since available recent experience seems to give greatly diflerent values. Detailed studies of what will be needed should either be included in thefeasibility studies or undertaken separately as soon as possible so that total costs of the projects can be estimated, ADPs adjusted, andprograms planned. Note that thesestudies would have to be well coordinated with the social and environmental assessments suggested earlierfor theseprojects. 7. Priority InvestmentsMissingfrom thePortfolio The portfolio emergingduringthe MTEFperiod does not explicitly include funds for (i) water conservation (OFWM), (ii) on-farm and priority off-farm drainage, including the NSDS, and (iii) institutionalreforms (follow-up to NDP1). Water Conservation. While some funding for OFWM investments may be included in the provincial ADPs for the Agriculture sector, this i s by no means assured, given the likely small size o f the ADPs. As mentioned earlier, water conservation interventions are vital and have the potential to yield 4.7 MAF o f water savings, 50% o f which i s permanently lost each year in SGW areas. I t is, therefore, critical that the Federal Government support thesepriority investments by explicitly allocatingfunds in the PSDP so that these investments couldproceed on a larger scale and at afasterpace compared to thepast. A total investment of Rs 10 billion is recommendedfor OFWMduring theMTEFperiod. Drainage. The Drainage Master Plan and inter-provincial Drainage Accord are expected to be completedby the end o f year 2004 and would pave the way for new drainage investments. Given that NDP1, which, in the meanwhile, i s supporting primarily rehabilitation investments in drainage, would close inDecember 2004, it would be essential to make space in the portfolio for drainage investments, comprising on-farm drainage (surface and sub-surface), as well as off-farm drainage, including funds for an inter-provincial spinal drain and other elements o f the National Surface Drainage System. I t is recommended that an amount of Rs 12.5 billion be allocatedfor these investments during the MTEFperiod. Institutional Reforms. The ongoing institutional reforms, notwithstanding the mixed performance so far, are essential for overall sector efficiency and growth. Being essentially long term in nature, the reforms will require continued support and funding well beyond the life o f Annex C Page 5 of 10 NDP1, which i s currently the principal source o f support. While the federal Government has repeatedly expressed its unequivocal support for the reforms, the emerging portfolio o f investments does not include an explicit provision for the reforms, although an NDPIIi s proposed by the WSS and includedinthe MTIP. Without uninterruptedand continued support the modest achievements in institutional reforms made so far would be lost. It is, therefore, critical that a substantial amount o f resources be explicitly allocated for the reforms as a follow-up to the . NDP1. It is recommended that an amount of Rs 5 billion be speciJcally allocatedfor the reforms for establishment of FOs and strengthening of A m s and PIDAs. Program for Improving Effectiveness of O&M. Chronic shortfalls in O&M funding and institutional neglect have taken their toll on the overall irrigation and drainage system and its performance. This i s reflected in current dilapidated state o f the system, poor service delivery and looming risk o f failure o f major structures. While O&M performance i s expected to improve as institutional reforms and cost reduction measures (e.g. privatization o f remaining public tubewells) are implemented, a special program for enhancing O&M performance through increased budgets and improved planning, prioritization, implementation supervision, bench marlung, and performance audits i s urgently needed. This program could be undertakeneither as part o f recurrent budgets or as an explicit item inthe PSDP or ADPs. An amount o f Rs 10billion i s recommended for this program duringthe MTEFperiod. SPECIFIC COMMENTS AND RECOMMENDATIONS ON SELECTED PROJECTS 8. Punjab Barrage Rehabilitation. The project aims to ensure the continued safe hnctioning o f 14 barrages and the main canal systems in Punjab. Some o f these structures were constructed as far back as 1887, and have suffered from deferred maintenance, rendering them prone to catastrophic damage. Preliminary studies have indicated the need for rehabilitation o f eight barrages. A two-phase program costingRs 32 billion was included inthe TYPP. Detailed studies, however, remain to be carried out. Recommendation. Feasibility Studies and detailed designs of the remedial worksfor each barrage must be prepared before the Project is undertaken. I n the meantime, monitoring and safety programs for the barrages need to be strengthened. Some of the barrages are reported to haveproblems of approach on the upstream side, which result in uneven flow distribution and reduced discharge capacity. There are also retrogression problems on some of the barrages, which affect safety of the structures. Theseproblems need to be solved. Thefollowing are immediately warranted,for which . aprovision of Rs 5.5billion is recommended during the MTEFperiod: .. Condition survey o fmajor structures. Review o f available instrumentation and installation o f new instrumentation where necessary. Identification o f safety problems and evaluation o f technical and economic feasibility . for proposed interventions on each barrage, including a risk analysis of different options. Implementation o f remedial measures that would make the structures safe e.g. the Punjab Irrigation Department plans to undertake the repairs of downstream friction blocks on Jinnah Barrage, which are damaged. Similar interventions may be needed on other barrages to improve their safety. 9. Punjab Irrigation System Improvement Project. The proposed project would rehabilitate and remodel old and dilapidated irrigation infrastructure in various canal commands. The TYPP includes a Annex C Page 6 of 10 block provision o f Rs 32 billion for this purpose. The Punjab Irrigation and Drainage Authority (PIDA) prepared a Concept Paper for the Project inApril 2001, which included three canal commands at a cost o f 23.409 billion to be implemented in three phases. Two canal systems, the LBDC and LCC East Canal Commands, have been studied in some detail but a full feasibility study remains to be completed. An Area Water Board i s proposed to be set up in the LCC East Canal as part o f the institutional refoms supported under the NDP project, but i s not yet operational. The updated costs for the LCC (East) project amount i s Rs 4,422 million. The ERR i s estimated at 18.8% Recommendation: The Project appears to be economically viable but a comprehensivefeasibility must befirst completed. A more detailedfeasibility study of projects will make sense only if they are accompanied by institutional reforms that the LBDC canal command exists, which could be updated quickly. However, these establish empowered FOs and AWBs to carry out effective operation and maintenance of the rehabilitated and remodeled canal systems. Theproject should also be used as a vehicle to rationalize canal water allocations 10. Irrigation System Rehabilitation Project in Sindh. A "special" allocation o f Rs 10 billion has been made for the Project and funds have been included inthe FY03 PSDP. Lining of distributaries and minors i s part o f the plan and expected to yield a total water saving o f 118 cusecs. The WSS estimated the ERR at 3.8% as compared to 27% inthe PCI. One o f the reasons for the low ERR, was the 30 to 33 percent decrease in international prices o f major agricultural commodities since the time the original study was undertaken. Recommendation. While rehabilitation in general has high returns, investments in lining should be confined to only those channels that have high seepage losses in SGW area. I t is recommended that physical measurement of seepage losses be carried out and ERRS estimated for each sub-project for lining. Furthermore, given the good progress on institutional reforms in Sindh, priority should be given to canal commands should be carried out in close consultation with, and collaboration oJI AWBs and FOs. where reforms are proceeding and planning and implementation of project works Finally, theproject should be used as a vehicle to rationalize canal water allocations. 11. Mangla Dam Raising. Given the inter-provincial issues surrounding the Kalabagh Dam, raising o f Mangla appears to be the only option available to the government in the next five to seven years to replace part o f the storage capacity lost to sedimentation (see figure below for the past and projected depletion of storage capacity and the planned augmentation). Given this situation and the reasonable probability (71%) o f filling the increased Mangla storage each year, there seems to a case for moving ahead with this project. However, completion of a social and environmental assessment according toprevailing international norms and bestpractices and diligent implementation of resettlement and environmental management plans would be pre-requisites for smooth project implementation. Further studies and analysis to identifL the optimum use of the increased capacity are warranted. The options of using the 2.9 MAF of extra capacity for meeting water shortages in early Kharifor during Rabi, and/or using this capacity as a buffer stockfor drought need to be studied. Institutional Issues Annex C Page 7 of 10 INSTITUTIONAL ISSUES 12. While the PER has not attempted a detailed assessment o f the water sector institutions, some information on existing staffing pattern o f the provincial Irrigation and Power Departments, included in the Feasibility Study o f National Drainage Program (1995) i s summarized below. StaffingPattern of IrrigationDepartments (1995) Designation I Punjab I Sindh I NWFP I Balochistan I Patwaris 5017 Sub-total I1 5567 - Drawing 751 Details Not Details Not Details Not Admin 3333 Available Available Available Mechanical 12729 Civil 33054 Sub-total I11 49867 28852 6674 3533 57490 30051 7004 3775 TOTAL 13. While some changes would have taken place since 1995, the overall staffing pattern remains essentially the same. It i s evident that a relatively small proportion o f professionally qualified staff oversees the activities o f a large number of lower cadre staff. Degree-holding engineers start fi-om level of Sub-Divisional Officers (SDOs) or Assistant Executive Engmeers (AENs). Experienced diploma- holding engineers (sub-engineers or overseers) are also promotedto the positions o f SDO/XEN. The day- to-day executive responsibilities lie with the XENs and SDOs. Thus it would be a fair statement that the system i s essentially runby a technical cadre representing about 1% o f total staff inthe Punjab, 1.5% in Sindh, 2% in NWFP and 2.4% in Balochistan. The remaining are support staff, such as clerks, drivers, cooks, beldam, tapedars, telephone operators, watchmen, gauge readers, chainmen, etc., as well as more specialized staff such as machine operators, mechanics, survey helpers, tracers, general accounts staff. It Annex C Page 8 of I O i s clear that there i s huge overstaffing, particularly inthe lower cadres. It i s pertinent to mention here that staff rendered redundant as a result o f privatization o f public tubewells in Punjab i s still on the government rolls. A severance package was prepared but not implemented. 14. Another significant feature i s that almost all senior positions are occupied by civil engineers -- only some o f whom have qualifications in water resources management. There are practically n o staff with expertise in agronomy, economic analysis, finance, environment and social sciences. Similarly, there are few staff with expertise in M&E, social and environmental assessment and legal matters. A modest move towards multidisciplinary staffing has been made as part o f the Institutional reforms. PIDAs and AWBs haverecruitedsome professionals from the market on contract basis. 15. Monitoring and Evaluation (M&E) capacity in the Irrigation Departments i s practically non- existent or ineffective. In the system below the main canals, flow gauging devices and structures are either missing (and where they exist they are seldom calibrated), malung water distribution non- transparent. Groundwater monitoring has been particularly weak. While WAPDA's SCARP Monitoring (SMO) carries out groundwater monitoring, its past program has been confined to SCARP areas and subject to availability o f funds channeled through specific projects. A groundwater monitoring program was developed for Punjab as part o f the Punjab Private Sector Groundwater Development Project but appears to be dwindlingdown after the closure o f that project. A draft groundwater regulatory framework was also prepared under this project but has not moved beyond pilot testing. There i s an urgent need for institutionalizing a monitoring program supported by a steady flow o f resources. A Water Sector Environmental Management Program started as part o f the NDP, envisages a comprehensive package comprising compilation o f an environmental baseline; Environmental Assessment and a Management Plan; a Wet land Management Plan; Groundwater Regulatory Framework; Urban and Industrial pollution control; an Environmental Data Management System; and an Awareness Program. Both federal and provincial agencies are involved in its formulation and implementation. This program needs to be supported. 16. WAPDA's Role in the Sector. As part o f the institutional reforms supported under the NDP, it was foreseen that WAPDA would focus on basin-wide planning and monitoring o f the IndusRiver Basin and phase itself out o f the role o f implementing irrigation and drainage projects on behalf o f the Provinces, except those involving new water resources development and projects o f an inter-provincial nature. While good progress was initially made in this regard, recently there has been some reversal o f this policy. For example, WAPDA is implementing the Greater Thal Canal Project, which is an irrigation extension project involving only one province. This development i s perhaps contributing to lack o f coordination (a major disconnect) between the main canal civil works and the CAD works, which would fall under the responsibility o fprovincial departments. 17. Project Review & Approval Process and Institutions. The Planning Commission has instituted clear processes and responsibilities for the planning, preparation and approval of investment projects. Projects are prepared within the framework o f perspective plans, five-year plans, or three year rolling plans. Small projects up to a cost limit (Rs 10million) can be approved by Departmental Development or Ministerial Worlung Parties. Larger provincially initiated projects are subject to review and clearance by the Provincial Development Workmg Parties (PDWPs) who have the final authority to approve projects up to a cost ceiling of Rs 200 million(check?). Federally initiatedprojects and larger provincial projects are subject to clearance by the Central Development Workmg Party (CDWP) which i s composed o f representatives o f concemed federal ministries as well as representatives o f all four provinces. The CDWP i s chaired by the Deputy Chairman Planning and acts as the technical clearing house for all projects costing more than Rs 200 million. Technical issues and detailed appraisal i s supposed to be responsibility o f the PDWPs and CDWP. Project costing more than Rs 200 million require approval o f the Executive Committee o f the National Economic Council (ECNEC), which includes the provincial Annex C Page 9 of 10 chief executives and is chaired by the Federal Finance Minister. Water projects involving additional water diversion also require clearance o f the Indus k v e r System Authority (IRSA), which i s responsible for matters conceming inter-provincial water allocations inaccordance with the Water Accord. 18. Issues and Recommendations. The review and approval system i s well designed and suited to the federal nature o f Constitution o f Pakistan. It provides mechanism for scrutiny o f overall project feasibility, and adherence to country norms and standards. Unfortunately, however, the processes and procedures prescribed in the system are not always followed in letter in spirit. Several projects by-pass procedures (at least initially) and are subjected to the review process only on an ex-post basis, thus undermining the system. The technical wings o f the provincial and federal Planning and Development Departments who are responsible for ensuring quality control, scrutiny o f feasibility studies are generally weak, short staffed and over loaded. Consequently, the quality o f PDWP and CDWP reviews could be compromised. Strong project sponsoring agencies sometimes overwhelm the PDWP and CDWP reviews and questionable projects slip through. Another issue i s that while PDWPs and CDWP can ask for revisions and changes in project concept and substance, they have n o leverage to ensure that complementary investments get prepared and implemented. Clearly there i s a needto firmly adhere to the prescribed processes and procedures without exception, other than in emergency situations. The PDWPs and CDWP need strengthening, including induction o f professionals form the market, training and exposure to modem project appraisal techniques and practices. For large and complex projects inputs should ideally be sought from panels o f experts. While this would require additional resources, it would have high retums. The recommendations made in the Ministry o f Water and Power's Water Sector Strategy to establish: (i) an Inter-Ministerial, Inter-Provincial National Water Council as a the major policy and decision malung body in the water sector, and (ii) a Water Resources Apex Body responsible for planning, development and management o f water resources are worth pursuing. PROJECT IMPLEMENTATION: POLICYENVIRONMENT 19. Insharp contrast to the outstanding track record of IndusBasin Replacements works --a major implementation feat-today, implementation o f water sector projects in Palustan i s characterized by inefficiencies, slow progress, completion delays, time and cost overruns, and sometimes unsatisfactory outcomes. Factors that affect implementation include: weak implementation planning and management, weak construction industry, litigation related to land acquisition, non-compliance with agreed resettlement and rehabilitation programs, lack o f attentionto environmental issues, delays inprocurement, delays inpreparation o f accounts and audits, and lack o f preparations for the transition from construction to O&M. While some o f these issues arise fi-om poor project preparation and lack o f commitment to project objectives, others arise due to the lack o f a policy environment conducive to efficient implementation. Projects involving external financing need to comply with intemational standards, policies and practices (including "safeguards") that advocate a "do no harm" approach in dealing with social and environmental issues. Projects involving land acquisition and resettlement face problems due to conflicts between the existing land acquisition law and the project specific resettlement plans that go beyond the provisions o f the law. Policies and procedures that need to be modemized and mainstreamed to meet prevailing intemational standards and requirements, include policies, procedures and practices .... relating to: Land acquisition, resettlement and rehabilitation Procurement o f works, goods, and services . Financialmanagement Social and environmental assessment as the basis o fproject design and implementation Greater use o f Rural Support Programs and NGOs to enhance implementation capacity, particularly for poverty targeted projects involving community or farmer participation and social mobilization. Annex C Page 10of I O SURVEYS, RESEARCH,ANALYTICALWORK, AND HUMAN RESOURCEDEVELOPMENT 20. Availability of reliable primary data and research and analytical work are key for good strategic sector planning and investment project preparation. Unfortunately, investments on primary data collection have been few and sporadic. Systematic collection of primary data on a sample o f watercourse representing the main agro-climatic zones o f Pakistan was first carried out in late 1970s as part of the preparation o f the Revised Action Program for Irrigated Agriculture. This data provided a wealth o f fundamental information on system performance and irrigated agriculture and was also used in optimization models, including the Indus Basin Model. The next update o f this data was not made until the preparation o f the Water Sector Investment Planning Study in 1990. Since then there have been few and limited updates. Lack o f operational funds for research and development and human resources development has seriously impaired Pakistan's capacity to keep at the cutting edge o fnew technology and adoption o f systems required to modernize the sector. In recent years, the Fordwah Eastern Sadiqia Irrigation and Drainage Project and NDP have been the main source o f resources for capacity building and specific irrigation and drainage research. A steady supply o f resources for research is, however, laclung. Given the fundamental importance of reliable primary data and need for research and analytical sector work to underpin sector planning and detailed project preparation, Pakistan needs to invest in strengthening institutions and programs to continue surveys, research and analytical work pertinent to the sector needs. Adequate attention and funds also need to be provided for water faculties to help Pakistan meet the challenges o f the 21St century.