ASIAN DEVELOPMENT BANK

PPA: SRI 16051

PROJECT PERFORMANCE AUDIT REPORT

ON THE

WALAWE IRRIGATION IMPROVEMENT PROJECT (Loan 695-SRI[SF])

IN

SRI LANKA

December 1999

CURRENCY EQUIVALENTS Currency Unit Sri Lankan Rupee/s (SLRe/SLRs) At Appraisal (August 1984) $0.0396 SLRs25.28 At Project Completion (December 1996) $0.192 SLRs52.21 At Operations Evaluation (September 1999) $0.0148 SLRs67.50

SLRe1.00 $1.00

= =

ABBREVIATIONS ADB DC EIRR FC FO ha IWMI km LB m3 MASL O&M OEM PCR PPAR RB TA Asian Development Bank distributary canal economic internal rate of return field canal farmer organization hectare International Irrigation Management Institute kilometer left bank cubic meter Mahaweli Authority of Sri Lanka operation and maintenance Operations Evaluation Mission project completion report project performance audit report right bank technical assistance

NOTES (i) (ii) The fiscal year (FY) of the Government ends on 31 December. In this report, "$" refers to US dollars.

Operations Evaluation Office, PE-533

CONTENTS BASIC DATA EXECUTIVE SUMMARY MAP I. BACKGROUND A. B. C. D. E. F. II. Rationale Formulation Objectives and Scope at Appraisal Financing Arrangements Completion Operations Evaluation Page ii iii v 1 1 1 1 2 2 2 1 1 1 2 2 3 3 3 3 3 7 8 8 9 10 10 10 1 1 2 2 2 2 1 1 1 2 5

IMPLEMENTATION PERFORMANCE A. B. C. D. E. F. G. Design Contracting, Construction, and Commissioning Organization and Management Actual Cost and Financing Implementation Schedule Technical Assistance Compliance with Loan Covenants

III.

PROJECT RESULTS A. B. C. D. E. F. G. H. Operational Performance Institutional Development Financial Performance Economic Reevaluation Socioeconomic and Sociocultural Results Gender and Development Environmental Impact and Control Gestation and Sustainability

IV.

KEY ISSUES FOR THE FUTURE A. B. C. D. E. Water Supply and Demand Farmer Organization Development Risk of Crop Price Change Land Ownership and Farming Domestic Water Quality

V.

CONCLUSIONS A. B. C. Overall Assessment Lessons Learned Follow-Up Actions

APPENDIXES

BASIC DATA Walawe Irrigation Improvement Project (Loan 695-SRI[SF])

PROJECT PREPARATION/INSTITUTION BUILDING TA No. TA Project Name Type PersonMonths 512-SRI Walawe Irrigation Rehabilitation PPTA and Improvement As per ADB Loan Documents 13.70 6.00 11.00 Expected

Amount $248,000

Approval Date 9 May 1983

KEY PROJECT DATA ($ million) Total Project Cost Foreign Exchange Cost ADB Loan Amount/Utilization KEY DATES Fact-Finding Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (Effectiveness to Completion) KEY PERFORMANCE INDICATOR (%) Economic Internal Rate of Return BORROWER EXECUTING AGENCY

Actual 36.019 8.868 14.932 Actual 22 Jan-10 Feb 1984 25 Apr-11 May 1984 13-14 Aug 1984 27 Sep 1984 17 Oct 1984 10 Jan 1985 10 Apr 1996 31 Dec 1985 15 Nov 1994 131.72 PCR 15.2 PPAR about 11

31 Jan 1990 30 Jun 1990 60.55 Appraisal 35

Democratic Socialist Republic of Sri Lanka Mahaweli Authority of Sri Lanka

MISSION DATA Type of Mission Appraisal Inception Project Administration - Review - Country Disbursements - Tripartite Meeting - Special Project Administration - Project Completion Operations Evaluation

Missions (no.) 1 1 9 2 1 4 1 1

Person-Days (no.) 102 10 122 4 1 13 48 48

= not available, ADB = Asian Development Bank, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, TA = technical assistance.

EXECUTIVE SUMMARY Soon after the original Asian Development Bank (ADB)-supported Walawe Irrigation Project located on the right bank (RB) of the Walawe River was completed in 1977, it became evident that the irrigation infrastructure was fast deteriorating. The Walawe Irrigation Improvement Project was intended to rehabilitate and extend the irrigation area of the original project, benefiting about 11,000 farm families by increasing cropping intensity, crop yields, and farm incomes. It was also intended to ensure that sufficient water would be available from the Walawe dam to supply an expanded irrigation area on the left bank (LB). The Project was implemented as planned, although costs totaling more than $36 million were about 165 percent above budget, due mainly to long delays and underestimation of the need for irrigation works, including drop structures in canals and consulting services. An additional $5 million was provided under the ADB-supported Agricultural Program loan. A total of about $21 million was financed by the Government compared with less than $3 million budgeted at appraisal. Consultants were retained during project implementation for a total of 174 personmonths, almost three times the appraisal expectation, due to project delays and design underestimation of the construction supervision requirements. The overall cost of consulting services of about $6 million was high, as much as about 20 percent of construction costs. The irrigation system has operated effectively but with improvements in irrigation efficiency much below design. Water demand at the system headworks is similar to preproject levels despite a rapid increase in nonrice crops with low irrigation requirements. An encouraging exception is the continued decline of water use on the Moraketiya branch canal where water user associations were established under two ADB-supported advisory and operational technical assistance grants implemented during 1989-1993. The success achieved has not yet been replicated on other branch canals. The irrigable area was expanded from an estimated 8,500 hectares (ha) to 12,300 ha under the Project. Other areas irrigated below Walawe dam extend to about 12,000 ha at present. A further 6,380 ha will be added when the LB expansion area is developed. The total irrigable area will then exceed 30,000 ha. If this area is to be fully irrigated, a substantial overall increase in irrigation efficiency on both the RB and LB will be required. Agricultural production in the project area has significantly increased. The area of nonrice crops (bananas in particular) has expanded, and now amounts to some 35 percent of the irrigable area, up from 6 percent before the Project. Annual production of bananas is estimated at around 55,000 tons, valued at about $9 million, making the Project the leading production area in the country. This dominance carries some risks for a perishable commodity such as bananas, requiring ongoing efforts to ensure reasonable market stability. The Project is also reported to be the highest yielding rice production scheme in the country, with average yields of almost 5 tons/ha, or about 10 percent above the average of other irrigation schemes under the Mahaweli Authority. Under the Project, farm incomes have increased by about half (mostly because of banana cropping), and more labor opportunities have been created for the landless and female farm workers, mostly in banana harvesting. The major issue facing the Project relates to sustainability. Wasteful practices of irrigation water use practiced before the Project are currently spreading. Water shortages are

iv increasingly in evidence. Partly in response, many farmers have enlarged or destroyed outlet structures on branch and distributary canals, exacerbating water distribution and management problems. Unless corrected, these modifications have the potential to damage seriously system capacity. Increasing water waste on the RB will result in significant and growing water shortages for the LB schemes, jeopardizing the outcomes of the $140 million irrigation improvement and expansion project currently under construction. The Project was intended to provide potable water to project area residents from 200 tubewells equipped with pumps, compared with a target of 250. Of the equipped wells, 113 provided water classed as suitable for drinking. The remainder mainly had high fluoride levels, despite the safe fluoride level being set at 3.5 milligrams per liter compared with the World Health Organization and Sri Lankan standard of 1 milligram per liter. Apart from this issue, the water provided has been valued by users. Local communities appear to be able to operate and maintain the pumps and wells effectively. The economic internal rate of return is estimated at about 11 percent, assuming that the capital cost of the original project is treated as a sunk cost. The significant return results from the high and sustained level of profitability attributed to nonrice crops, as well as from the substantial increase in irrigable area under the Project. The return also assumes that the Executing Agency will take urgent steps to arrest the decline in the operation and maintenance (O&M) status of the irrigation scheme. While the Project is classed as generally successful, this rating will only be justified if the apparent problems of the scheme can be quickly corrected. Sustainability, and farmer participation and funding of O&M are the two key issues facing the scheme. Both will require early attention if a second major rehabilitation program similar to the Project is to be avoided. Key among the required actions are (i) strengthening farmer organizations to help them take over O&M responsibility, even beyond distributary canals; (ii) repairing and preventing further deliberate damage to structures, combined with a major effort to respond fairly and rapidly to farmers complaints in relation to water availability; (iii) improving systemwide and in-field water management; and (iv) updating the Walawe River basin water balance analysis to assess (on the basis of evidence and realistic water use expectations) the likely future water supply and demand situation. Rescheduling of ongoing sizable investments in the LB area may need to be considered early. Furthermore, a national water policy is currently being prepared with assistance from ADB. The development of an irrigation sector policy would be a useful adjunct to the policy. It could examine a range of issues, including possible ways to introduce tradable water rights, which are considered to be highly desirable for efficient water use.

I. A. Rationale

BACKGROUND

1. The original Asian Development Bank (ADB)-supported Walawe Development Project was implemented from 1969 to 1977.1 However, soon after completion, it became evident that the irrigation system had some design flaws and was deteriorating quickly, limiting the level and sustainability of project benefits. The Walawe Irrigation Improvement Project was intended to capitalize on the investment for the first project and to increase agricultural production, farm income, and employment opportunities in the project area by improving and rehabilitating existing facilities. B. Formulation

2. Both the project completion report (PCR) and the project performance audit report (PPAR) for the first project concluded that it would not achieve its long-term objectives unless a carefully designed rehabilitation and improvement program was undertaken to improve its performance and economic viability. The need for such a program was subsequently agreed to by the Government and ADB. A feasibility study for the Project was prepared in early 1984 by the Government with the help of a consulting firm under a European Union-funded and ADB-administered technical assistance (TA) grant.2 The Project was appraised in April 1984 and approved in September of the same year. C. Objectives and Scope at Appraisal

3. The Project aimed to provide adequate, timely, and equitable irrigation supplies on a sustained basis for year-round cropping, thereby increasing cropping intensity, crop yields, and farm incomes, benefiting some 11,000 farm families settled in the project area. Improvement in irrigation efficiency was expected to ensure adequate irrigation supplies for the existing and planned irrigation projects on the left bank (LB) of the Walawe River, which were otherwise likely to face water shortages due to excessive use of water in the project area. In addition, the Project was to improve rural water supply in the area by providing potable water to scattered settlements and village centers. The project scope included (i) irrigation system rehabilitation involving main, branch, and distributary canals; on-farm irrigation distribution systems; and related structures to irrigate about 12,000 hectares (ha); (ii) rehabilitation of about 550 kilometers (km) of service roads; (iii) provision of domestic water supply to scattered settlements and village centers; (iv) research on crop diversification; (v) provision of equipment and vehicles for sustained operation and maintenance (O&M) of the irrigation system; and (vi) consulting services and training involving provision of 60 person-months of consulting input to support project implementation, about 12 person-months of international training for irrigation management, and establishment of a training unit to impart training to project staff and farmers.

1 2

Financed under Loan 16-SRI(SF): Walawe Development Project, for $7.705 million, approved on 23 October 1969. TA 512-SRI: Walawe Irrigation Rehabilitation and Improvement, for $248,000, approved on 9 May 1983.

2 D. Financing Arrangements

4. Total project cost at appraisal was estimated at $13.7 million, including foreign exchange costs of $6 million and $7.7 million equivalent in local currency costs. ADB approved a loan of SDR10.856 million (about $11 million equivalent) from its Special Fund resources to cover all the foreign exchange costs and 65 percent of the estimated local currency costs. E. Completion

5. The loan closed in November 1994 compared with the completion date of 30 June 1990 envisaged at appraisal. A PCR was prepared by the Executing Agency, the Mahaweli Authority of Sri Lanka (MASL), in June 1994. ADB's PCR Mission visited Sri Lanka in March 1996 and estimated an economic internal rate of return (EIRR) of 15.2 percent compared with (a high) 35 percent at appraisal. The PCR economic benefits were based on an increase in cropping intensity from 136 to 180 percent, resulting in an expansion of the cropped area of around 6,300 ha per year. The EIRR was attained despite a cost overrun of around 150 percent. The PCRs of both MASL and ADB contain much useful analysis, and present a number of sound recommendations in relation to the Walawe Scheme and irrigation system development on both the right bank (RB) and LB of the Walawe River. F. Operations Evaluation

6. This PPAR presents the findings of the Operations Evaluation Mission (OEM), which visited the project area in August 1999. The PPAR presents an assessment of the Project's effectiveness in achieving its objectives and generating sustainable benefits. The PPAR is based on a review of the PCR, appraisal, material in ADB files, discussions with MASL, other agencies of the Government, the World Bank, and the International Water Management Institute (IWMI). A visit was made to the Walawe Scheme and interviews held with farmers, farmer organizations (FOs), and MASL officers. Copies of the draft PPAR were provided to the Borrower, MASL, and ADB staff for review. Their comments were taken into consideration in finalizing the report.

II. A. Design

IMPLEMENTATION PERFORMANCE

7. The project preparatory TA was undertaken from September 1983 to March 1984. The feasibility study provided a reasonable overall approach to project design. Its water balance models suggested that water availability for the overall Walawe River basin development would be short and would require on-farm water management of a very high standard. Because of this, it examined the potential for augmentation by increasing the heights of the Walawe reservoir and bypassing the Chandrika reservoir. However, the suggested augmentation was deferred and not included in the project design. The study did not fully identify the need to (i) take account of farmers' capacity and adapt the design accordingly; (ii) involve farmers in the design process; (iii) develop their close involvement in the management and O&M of the system; and (iv) assess and recommend institutional capacity improvement of MASL to manage the Project and support (i)-(iii). More focus on these aspects could have promoted local ownership and sustained operation. 8. The study underestimated by around 75 percent the need for new minor structures in the scheme, due to inadequate analysis of the area topography. The number of new field turnouts was also greatly underestimated (by 63 percent), as were unit costs. The estimates were largely accepted at appraisal and resulted in substantial cost overruns. Limited detail was provided in the study of the rehabilitation of 15 tanks, in part leading to the inability of MASL to implement this component to improve operational flexibility and overall irrigation efficiency. In practice, only 2 of the 15 planned tanks were upgraded and linked into the irrigation system. This was mainly due to lack of identification of spillway and drainage channels on the land blocking-out plans, and the refusal of settlers to release the land needed for these facilities. B. Contracting, Construction, and Commissioning

9. Project implementation consultants were retained for a total of 174 person-months compared with the 60 person-months envisaged at appraisal. Most of the detailed design work, contract management, and construction supervision for the Project was undertaken by a local consulting engineering company. However, partly to contain cost, the in-house Mahaweli Engineering and Construction Agency took over responsibility for completing the design and construction supervision for most contracts. Overall, the design and construction program faced a number of difficulties, including (i) the need to repeat several surveys; (ii) insurgency from 1987 to 1990, including the destruction of office facilities, requiring survey and design work to be repeated; violence and intimidation of contractors by the insurgents caused the suspension of most contracts; (iii) shortage of experienced staff in the domestic consulting firms; (iv) cumbersome tender procedures for large contracts (valued at approximately $100,000 at the time of implementation); (v) less than optimal performance by construction supervisors; and (vi) problems experienced by the foreign contractor permitted to tender. This company found it difficult to meet its obligations in the early contract period. These problems were compounded by the insurgency, and the contractor consequently sought a revision of its contract rates. However, this was rejected by the then Ministry of Land Irrigation and Mahaweli Development, and its remaining contracts were terminated in March 1990, resulting in substantial additional delays and costs. Termination of the contracts was untimely because the company had finally

2 overcome most of its earlier problems, and the insurgency had effectively ended. The Project was finally completed with construction works of a generally satisfactory quality. C. Organization and Management

10. Organization and management followed normal MASL procedures. An office was established within MASL headquarters with the project director and a small number of supporting staff. Field management was undertaken by the project office under the Mahaweli Economic Agency through a resident project manager and seven sectoral deputy resident project managers. The irrigation area was divided into five subareas or blocks each with its own block manager. Due to budgetary pressures, and reflecting the fully developed status of the irrigation area, the five blocks were recently combined into three and the number of project field staff reduced. Overall, MASL allocated sufficient staff resources to implement the Project efficiently. However, the reduction of engineering and institutional development staff over the past two years is likely to pose problems for O&M in the future. The limited involvement of farmers in the rehabilitation design is considered to have resulted in later problems, due to a lack of farmer ownership of facilities. However, it is recognized that a full participatory process would likely have resulted in even greater demands on the Implementing Agencies and possibly in a more protracted design and implementation process. 11. The project baseline survey was undertaken in 1984, and the report presented in December 1987. The survey collected detailed socioeconomic information from a sample of 624 settlers and 176 encroachers, about 6 percent of the estimated 14,300 farm households. The report provided a wealth of information on the status and income of beneficiaries in the project area. However, it was not analytical and provided little guidance to project management to improve implementation processes. The reasons for segregating the sample into settlers and encroachers are not defined, and few conclusions are drawn, particularly on any differential need for services or support. A more focused survey, collecting information on key indicators and developing recommendations for project management, would probably have been more timely and relevant. No follow-up surveys were undertaken, limiting the potential to assess project impact. A proposal for an impact survey of 1,000 households was submitted to MASL management by the Planning and Monitoring Unit in July 1996. The total cost was estimated at SLRs0.8 million ($15,000), but MASL was experiencing budgetary problems at the time and the proposal was not accepted. However, MASL has collected detailed information on crop areas and yields that provide a useful basis for the assessment of production impact. D. Actual Cost and Financing

12. Total project cost amounted to about $36 million, including $8.9 million in foreign exchange costs and $27.1 million equivalent in local currency costs. The loan contribution increased from a planned $11 million to $14.9 million due to devaluation of the dollar against the special drawing rights. In addition, $5 million was provided by ADB from the Agriculture Program loan to meet part of the local cost overrun.1 Costs met by MASL exceeded $16 million compared with a planned $2.7 million. Local funding constraints were exacerbated by Sri Lanka's budgetary problems. They would have been more severe if the program loan had not included a condition requiring the Government to allocate an additional SLRs500 million to the Project from the counterpart funds under the program loan. While this helped the Project meet
1

Loan 994-SRI(SF): Agriculture Program, for $80 million, approved on 28 November 1989.

3 its increased financial demands, Government agencies consider that it placed a strain on the Government budget in an already difficult fiscal situation. A summary of project costs by component and year is presented in Appendix 1. E. Implementation Schedule

13. The planned implementation period was 5.5 years. In practice, the loan closing date was extended twice. The loan closed in November 1994, 4.5 years late. Locally-funded project activities continue at present at a low level. Major delays resulted from insurgency (para. 9), late appointment of domestic and international consultants, and other factors. F. Technical Assistance

14. The total cost of consulting services was $6 million compared with $1.1 million budgeted at appraisal. International consulting and training costs amounted to about $1.7 million compared with $1 million budgeted. The caliber of international consultants was considered to be high by MASL staff. Domestic consulting engineering services cost about $4.4 million or as much as 80 percent of the total budgeted cost of irrigation system improvement, highlighting the marked underestimation of the complexity and cost of rehabilitation. The costs represent about 20 percent of construction cost. This is higher than normal design and construction supervision fees amounting to 8-10 percent of investment cost. 15. ADB provided two advisory and operational TA grants2 undertaken by IWMI, formerly the International Irrigation Management Institute. The first TA (Phase 1) study, Review and Assessment of MASL's Operating Procedures, was implemented from 1988 to 1990, and the follow-up TA study, Joint Implementation of Phase 1 Recommendations, from 1991 to 1994. The studies were useful in (i) helping MEA improve its irrigation management systems, (ii) identifying the need for farmer participation in rehabilitation design and operation, and (iii) developing and implementing a methodology for strengthening FOs in the Moraketiya branch canal command area of the Project. However, little progress was made in institutionalizing participatory approaches and in extending them throughout the Project. While the TAs supported crop diversification, they had little impact because MASL was already well-resourced in this area. G. Compliance with Loan Covenants

16. In general, loan covenants were complied with. Notable exceptions include late or partial handing over of bitumen roads built under previous ADB projects to the Road Development Authority and of secondary roads to provincial councils. The collection of irrigation service fees was replaced by agreement under the Agriculture Program loan to establish and help develop FOs. III. A. Operational Performance PROJECT RESULTS

TAs 846-SRI and 1480-SRI: Study of Irrigation Management and Crop Diversification, Phases 1 and 2, for $350,000 and $750,000, approved on 16 January 1987 and 19 February 1991.

4 1. Irrigation System Operation

17. The Walawe Scheme covers both the RB and LB of the Walawe River, and draws water mostly from the Walawe reservoir. The project irrigation system covering the RB was expected by the feasibility study to provide about 500 cubic meters (m3) annually (4.4 meters [m] average annual water application) in the short term and 300 m3 (2.7 m) in the long term. The reduction was expected to result from an improvement in irrigation efficiency of 30 percent (from 2.3 to 1.6 m per rice crop) and a shift to crops consuming less water than rice. The savings in water were needed to irrigate the LB and provide some urban and industrial water supply (Appendix 2). In practice, overall water use on the RB has not declined despite the large increase in nonrice field crop areas to 36 percent of the irrigated area compared with 28 percent expected at appraisal. While there is great interyear variation, water usage on the RB reached 524 m3 in 1998 and has generally been increasing since 1994 (when the irrigation area was fully developed) by an annual average of about 4 percent (Figure 1).3 18. Irrigation improvement works progressed from 1988 onward along with irrigated cropping and water management assisted by IWMI and the project domestic and international consultants. Deliveries to most branch canals continued to decrease until 1996 indicating higher efficiencies, particularly in distributary canals (DC) along the Moraketiya branch canal, which had received intensive IWMI assistance. In subsequent years, deliveries further declined in the Moraketiya DCs, but increased in other DCs by as much as 80 percent during the 1996-1999 dry seasons. In part, this was due to relatively low rainfall that led to increased irrigation requirements, but also appears to represent a return to earlier long-established practices of excessive water use by farmers. Other causes included the physical deterioration of the system, reduction in FO effectiveness, and a decline in the number and capacity of MASL's operational staff and in the maintenance budget.

Figure 1: Water Use on Walawe RB 19. The irrigable area serviced by the RB 3 (Mm released/season and year) main canal has increased from around 8,500 ha 600 Dry Season to 12,310 ha (Table 1). Areas currently irrigated Wet Season on the LB total 5,750 ha while Irrigation 500 Department areas supplied from the Walawe 400 River downstream of the dam total about 300 6,400 ha. A rehabilitation and expansion program 200 is currently being implemented for the LB under a 100 loan from the Overseas Economic Cooperation 0 Fund of Japan. When this area is included, the current irrigable area below Walawe dam is 3 approximately 24,500 ha. It will increase to Mm = million cubic meter, RB = right bank. 30,800 ha when the LB expansion area Note: 1992 dry season release reduced to construction of upstream dam. commences irrigation in about four years. Under 1999 dry season release estimated. the current water management regime, it is doubtful whether the system has the capacity to meet the demands of these users as well as a small but expanding industrial and urban water demand.
Table 1: Irrigation Areas Below Walawe Dam (ha)
3

In addition to the releases from the Walawe dam, river flows into Chandrika dam on the RB have been used for irrigation, together with local runoff into the single-bank RB main canal. In aggregate, these flows generate annual usable flows estimated at about 20 million m3.

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

5 Item RB Main Canal Areas Base area Extension areas Estimated drainage/seepage areas Total project area Nonproject RB Areas RB pumped areas Agrarian services areas Total RB irrigable area LB Main Canal Areas Sevanagala area LB existing areas LB extension area Irrigation Department Areas Total 1989 8,500 1999 9,000 2,260 140 11,400 70 840 12,310 2,750 3,000 6,400 24,460 Future 9,000 2,259 140 11,400 70 840 12,310 2,750 3,000 6,380 6,400 30,840

8,500

8,500 2,750 3,000 6,400 20,650

ha = hectare, LB = left bank, RB = right bank. Source: Mahaweli Authority of Sri Lanka and Operations Evaluation Mission estimates.

20. Irrigation system maintenance budgets declined by about 60 percent between 1997 and 1999, and currently meet only an estimated 10-15 percent of requirements. MASL's annual budget for repairs and maintenance during 1999 is SLRs2.2 million, compared with about SLRs10 million in the immediate postproject period. However, it is reported that SLRs40 million is budgeted for 2000. Thus far, much of the maintenance budget has been applied to the dam and other headworks. This is not surprising, given the safety implications of neglecting dam maintenance. However, this has led to reduced budget availability for routine irrigation and road maintenance. 21. The decline in physical, institutional, and managerial capacity over the last few years has encouraged farmers to enlarge control structures on numerous DCs and field canals (FCs), further reducing capacity for water management. This has been prevalent over the past 12 months, where farmers have experienced restricted water supplies and have often taken drastic steps to enlarge (or even destroy) intake structures to increase water flow in an attempt to save their crops.4 To date, there has been little impact on crop production because water supply from the Walawe reservoir is abundant and has increased by more than a quarter since 1996. As a result, drainage outflow is also large at an estimated 50 percent of canal supply. Part of this outflow is used to irrigate two areas developed by the Agrarian Services Department on about 840 ha adjacent to the Project. The remainder of the drainage water resource flows to ecologically rich brackish lagoons and the sea. 2. Agricultural Production

22. The objectives of increasing agricultural production, farm income, and employment opportunities were generally met. The development of the agricultural economy in the project area was rapid, and the level of farm management is high, reflected in the highest and most consistent irrigated rice yields in Sri Lanka (4.9 tons per ha [t/ha]). Annual production is estimated at about 70,000 t of rice, about 50,000 t of banana, and about 5,000 t of vegetables.
4

The problem was already evident in 1995 as indicated by the December 1995 project progress report that stated that "still action has not been taken to replace the damaged weirs in distributary canals in Embilipitiya block. DCs 9, 10, 13, 19, and 21 are some of the canals to name a few."

6 Although the appraisal target of about 80,000 t of rice has not been achieved, the shortfall has been more than compensated for by the production of higher value nonrice field crops.
Figure 2: Walawe Irrigated Crop Areas (000 ha)
30
Dry Season NRCs

25

Wet Season NRCs Dry Season Rice Wet Season Rice

23. The need for crop 20 diversification away from double-cropped rice was recognized 15 early. This is a major success story. Out of a total (official) dry season irrigated area of 10,300 ha, bananas 10 comprise 2,730 ha and other nonrice field crops 1,020 ha. 5 Nonrice field crops occupy 35 percent of irrigated area compared 0 with 6 percent before the Project and 7 percent anticipated at ha = hectare, NRC = nonrice crop. appraisal. The Walawe Scheme is Note: 1992 dry season volume reduced due to now the country's leading banana 1999 dry season release estimated. production area with about 200 buyers supplying markets in Colombo and elsewhere.
1986 1987 1988 1989 1990 1991 1992

24. Crop areas recorded by MASL since 1985 are summarized in Figure 2. The high level of crop production and diversification is considered to have resulted from (i) favorable soil and climatic conditions for a wide range of irrigated crops; (ii) the skill and efforts of the farmers; and (iii) research and extension efforts of MASL. Under MASL's restructuring program the number of extension officers has declined from 46 to 24 over the past two years. When combined with limited funding for travel, this has reduced MASL's capacity to support the farmers with technical and management advice, and weakened the link between research and extension. In some areas, one field assistant has to service up to 2,000 farms. This will limit the potential for further crop development and diversification, and require farmers to become more self-reliant. 3. Roads

25. Project road upgrading changed substantially from appraisal estimates. The length of gravel roads rebuilt increased from 25 to 154 km along branch canals and DCs. A total of 127 km of roads along minor canals was upgraded rather than the 450 km planned. MASL reported that the transfer of responsibility for the 16 km Watiya-AKP-Ranna road has not been accepted by the Roads Development Authority because of its limited budget and capacity to maintain the road. However the 7.5 km Moraketiya to Kiri Ibban section was transferred. 4. Water Supplies

26. At project commencement, around 40 percent of the population obtained drinking water from their own shallow wells and a similar percentage from their neighbors' wells. The Project was intended to provide 250 tubewells. A total of 261 tubewells were drilled, and 200 were equipped with handpumps, including 113 classed as suitable for human consumption; the remainder are to be used only for washing and bathing due to high fluoride, iron, or salt content. The safe fluoride level was set at 3.5 milligrams per liter (mg/l), compared with a World Health

1993

construction of upstream dam.

1994

1995

1996

1997

1998

1999

7 Organization and Sri Lankan standard of 1 mg/l. Of the equipped wells, only 40 percent would have passed the stricter limit. MASL reported that 159 wells are currently operational, and 48 have been handed over to their local communities. Because the wells were completed during 1989-1995, the high proportion of operational wells is notable. OEM interviews of a small sample of water users indicate that community groups value the water, particularly where it was of potable quality, with wells often used by 20 to 50 families. The families are capable of organizing and paying for well maintenance; the wells are currently operated mostly to users' satisfaction. 5. Land Settlement

27. Land settlement started in 1957. By 1979, under the first ADB project, about 6,900 farmers were provided with land occupancy permits. By 1984 an additional 4,100 encroachers or illegal farm families were estimated to reside in the project area. No specific estimates were made of the cost of settling the encroachers. All remaining encroachers were expected to be regularized by June 1995. By 1997, about 3,200 additional families were given land permits, although an unknown but large number of encroachers continue to farm in the project area. MASL plans to accommodate second and third generation settlers and encroachers, using a package that settles 2 persons from each household with more than 10 people. The high proportion of landless and illegal settlers is considered to be a factor in the attitude taken for water use and damage to irrigation facilities in the project area. Many encroachers have settled on permeable soil areas and reserves, where cultivation of rice is contributing to much excess water use (Appendix 3). 28. An estimated 20 percent of the land is leased illegally to other farmers either for cash or a share of crop production. There is also evidence of illicit selling and mortgaging of land. Owner farmers often complain that lessees use excess water and also blame those further up the main system for water shortage. Conflict is also reported within a number of DCs and FCs. Land allotment and boundary disputes are reported to be common, exacerbated by increasing population pressure. B. Institutional Development

29. MASL built up a strong administration and management structure for project implementation with a total staff complement on the Walawe Scheme of about 750. Under an ongoing World Bank project, MASL is undergoing a restructuring exercise, resulting in a decline in overall staff numbers from 11,000 to 4,700. In parallel with this decline, the number of staff on the Walawe Scheme has fallen to 426. This should be sufficient for scheme administration and basic routine upkeep of irrigation facilities, provided sufficient operational budget is available. The future need to build up the capacity of the FOs and to maintain aging irrigation facilities will require the provision of additional resources to the Institutional Development and Engineering sections. 30. As anticipated at appraisal, FOs were established at the DC and branch canals, and overall system levels. The project design had intended that FOs would become involved in maintaining FCs, planning cropping patterns, adjudicating conflicts, and enforcing sanctions. By early 1988, about 173 FOs were established. However, despite an intensive training program carried out by MASL, many of the groups became inactive leading to the first ADB advisory and operational TA undertaken by IWMI (para. 15). The TA was intended to analyze the status of irrigation system management and the participation of FOs in system design and O&M. The follow-up TA had four main components, including a pilot project to strengthen irrigation

8 management institutions including FOs so they could effectively participate in system management." Following the Government's decision to abandon irrigation service fees in 1990 and pass responsibility for DC and FC maintenance to the farmers, the development of FOs assumed even greater importance, fully justifying the decision to undertake the follow-up TA. 31. Activities initially focused on Moraketiya distributary canal D7, but were later expanded to cover all nine DCs served by the branch canals, an area of around 750 ha. The inputs under the pilot project were intensive, and involved both IWMI and MASL staff working closely with farmers and FOs. The component was initially planned for 27 months, but IWMI provided a no-cost 5-month extension to monitor and help institutionalize the approach to FO development and operation. The pilot project was successful and the Moraketiya branch canal area is now by far the best managed of all project tracts. All Moraketiya FOs are operating effectively. Farmers are allocated sections of FCs and DCs that they are required to maintain. Sanctions are enforced for inadequate maintenance. Water use per ha from the Moraketiya branch canal is less than half the project average and is improving, while other branch canals are deteriorating. Some FOs are working actively to improve their systems, for example by manufacturing and installing concrete canal liners, and by introducing lockable farm turnouts. The success achieved has not been widely replicated in other areas, in part due to lack of explicit support, although some FOs are maintaining their canals and managing their water and land resources effectively. C. Financial Performance

32. Financial performance can be considered at two levelsthat of MASL and the farm. MASL and the Government were able to meet their financial obligations during the project period reasonably efficiently, although some delays resulted from a shortage of local budget. However, the continuing tight fiscal situation facing the Government has translated into reduced recurrent budget allocation to MASL. MASL has not identified any revenue sources that would help it meet its management and maintenance obligations. It is facing increasing difficulties in maintaining the Project. It is highly desirable that MASL (i) assesses methods for increasing its revenue base; and (ii) in discussion with the federation of FOs, determines the division of responsibility for O&M between FOs and MASL. 33. Average farm financial performance has improved, particularly for farms with fully irrigable land and good access to water. A 1 ha farm budget is developed in Appendix 1 indicating that a typical farm with a diversified holding could earn approximately $1,500 to cover family labor and return on management and investment. This is almost double the estimated earnings of $990 in the absence of the Project, primarily due to the average earnings from bananas and nonrice crops (Appendix 1, Table A1.10). In real terms, these levels are below those predicted at appraisal because of declines in farming's terms of trade, particularly in relation to the price of rice. Earnings from the typical farm would be approximately SLRs500 per person-day or more than twice the daily casual labor rate of SLRs200 ($3.00), including food. D. Economic Reevaluation

34. The economic assessments carried out at appraisal and project completion were sound. The PCR calculated an EIRR of around 18 percent, substantially below the appraisal estimate of 35 percent. This is due primarily to the escalation of project costs, implementation delays, and declines in the real prices of rice and other agricultural products. In both cases, the costs of the dam and previous irrigation development were treated as sunk and were excluded from the

9 analysis. OEM analysis adopts the same approach and considers only the incremental costs and benefits. 35. Benefits largely derive from an increase in irrigable area, a change in cropping intensity, and a move to higher value crops than rice. By the time of the OEM, project investment had resulted in an increase in irrigable command area to 11,400 ha with a further 900 ha irrigated beyond the Project. Overall, the Project is considered to have resulted in an increase in irrigable command area of around 2,900 ha (Table 1). Irrigated cropping is budgeted to peak in 1999/2000 at a level of around 21,200 ha compared with a peak of 16,700 ha without the Project. Based on a 30-year life with no residual value as assumed by the PCR, the project EIRR is estimated at 10.5 percent. Continuation of benefits for a further 10 years would increase this to 11.4 percent (Appendix 1). 36. The recalculated EIRR is not highly sensitive to any future parameters, as they would occur late in the Projects life. Thus valuation of water deficits due to the Project at around SLRs0.50/m3, or one third of the value of SLRs1.50/m3 adopted in the base case EIRR calculation, would only slightly increase the EIRR to 11.3 percent.5 The main risk to long-term viability is a potential further decline in banana price. From the budgeted long-term level of SLRs11.5/kilogram (kg) ($164/t), a decline of 20 percent commencing in 2000 would reduce the EIRR to 9.2 percent. If the Project is assumed to be able to maintain its design irrigation area and efficiency, thus not causing any reduction in water availability to the LB, the EIRR would be 12.4 percent. 37. Despite the high EIRR, there is little justification for a repetitive cycle of rehabilitation. Particularly in the country's irrigation sector, where there are few cost recovery systems in operation, further rehabilitation of schemes such as Walawe within a few years of completion does not represent a sound use of limited Government finance. It follows that sustainability is considered a key factor in determining project rating, and the Project will score badly on this count unless urgent remedies are taken by MASL to resolve the impending problems of the scheme. E. Socioeconomic and Sociocultural Results

38. The Project is considered to have made a significant contribution to socioeconomic development, and probably, reduction of poverty in the Walawe area. Increased reliability of water supply, and extension and research programs have promoted crop diversification resulting in significant income generation. However, because rice remains the staple crop, virtually all farmers seek to grow sufficient rice to meet their domestic needs regardless of the suitability of their soils. The diversification program has (i) resulted in increasing farm incomes (a 50 percent increase to about $1,550 per year on a typical 1 ha farm) and investment in houses, water supplies, farm machinery, and electricity connection; (ii) greatly reduced water demand in both seasons compared with double-cropped rice; and (iii) made a major contribution to employment and service sector development in the area, reflected by the large representation of banks in the main township of the area. The settlement program adopted by MASL has made the farming system highly equitable. Farms vary little from the normal size of 1 ha of irrigated land. The landless are able to find work readily, particularly at cultivation and harvesting time. Casual wage rates are about half the earnings from farm family labor.

Water deficits were valued on the basis of agricultural benefits lost by not providing irrigation water.

10 F. Gender and Development

39. Women are active members of project area institutions. They comprised about 30 percent of course participants in the crop diversification program supported by the Project. A similar proportion of women from one irrigation block was reported by a 1997 survey to take an active role in FO activities. Women are involved in marketing, particularly for crops other than rice, with about 70 percent of women responsible for vegetable selling on one block. Such sales can represent a significant proportion of household income, allowing many women to finance household needs. The expansion of banana production has substantially increased the demand for female wage labor, with about 40 percent of paid labor opportunities for women coming from harvesting bananas for other households. An increasing number of women have access to formal credit facilities, enabling some to afford alternative health and education services and household assets. Nonetheless, female nutrition remains poor compared with male nutrition according to local medical authorities, perhaps due to lack of knowledge of nutritional requirements. Women and men share the collection of drinking water, and project tubewells have reduced the time needed for water collection. However, the move to rotational cropping has resulted in canals being dry for a proportion of the time; this limits access to canals for bathing and washing by all residents. G. Environmental Impact and Control

40. Overall, the environmental impact of the Project is considered to have been positive, particularly in relation to the human environment. The project area has become aesthetically pleasing and is an attractive environment in which to live and work. Within the project area, major impacts relate to the change in the overall water regime, for example, for groundwater and surface water drainage. The numerous drainage areas resulting from excess water use have resulted in the loss of land, but offer compensation by supporting a diverse bird population. The increased levels of water use in downstream areas have resulted in about 300 ha of salinized lands being converted into productive irrigated rice production. However, it appears that salinization has now moved to 200 to 300 ha of nonirrigated land downstream and is also causing damage to houses. 41. The major direct and mainly negative external impact of the Project has been the reduction in salt levels in the Kalamatiya lagoon downstream of the project area. This has resulted in a major loss of prawn population and production, and excessive growth of waterweeds. It carries a risk of algal blooms in the future, depending on nitrogen and phosphorus levels in the drainage water. However, residents adjacent to the lagoon have welcomed the reduction in salinity as the lagoon can now be used for washing and in some cases for drinking. The Sri Lanka-wide integrated pest management program is encouraging responsible use of pesticides, and the use of biodegradable and less toxic products. This program is reported to be operating effectively in the Walawe Scheme and is helping to limit adverse environmental impact. H. Gestation and Sustainability

42. The Project is currently operating effectively. As would be expected with a rehabilitation project, the gestation period was short, and farms were able to operate at full capacity as soon as irrigation water supplies were restored after rehabilitation. However, sustainability is a significant issue as discussed in Section A. Regardless of past performance, the ongoing fast deterioration of irrigation canals and deliberate destruction of irrigation control structures mean

11 that, unless these are quickly corrected, water use and crop production efficiency will significantly drop and many of the gains under the Project will be lost within about 10 years.

IV.

KEY ISSUES FOR THE FUTURE

43. The project experience to date highlights a number of issues. Key among these are the need for improved water management if water demand in the Walawe basin is to be met, and the need for a progressive and participatory approach to be taken to irrigation rehabilitation. A. Water Supply and Demand

44. Unless overuse of water can be reduced, it appears that the water resources of the Walawe basin may be significantly overcommitted. The deterioration of the RB system is likely to result in significant deficits, particularly for the expansion areas on the LB. In addition to highlighting the need for remedial action, this points to the need for adequate analysis of water balances to be undertaken during project design, in this case of the LB expansion project. Existing analyses are largely based on data from about 30 years ago, and updating is now required to account for changes to the hydrology of the catchment area.1 Detailed analysis of current and likely future water balances for the Walawe River basin should be undertaken urgently, to ensure that sufficient water is available to supply the LB expansion area of 6,400 ha. If supplies prove to be inadequate, decisions will be required by MASL on necessary changes to the design or phasing of expansion area development. Until such a study is undertaken, it is suggested that MASL considers suspension of development of the LB expansion areas. 45. Provision of irrigation facilities and water at no cost to farmers, combined with limited farmer participation in design have resulted in low levels of system ownership. In turn, this has contributed to widespread damage to structures and water wastage. It is essential for project sustainability that the destruction be reversed and water use limited in the near future, if the irrigation system is to continue to operate effectively. Unless strong action is taken, the problem is likely to spread rapidly as the scheme managers become less able to maintain design water flows in branch canals and DCs. At the same time, some farmers have legitimate concerns, and efforts are necessary to address these on a timely basis. This will require MASL to allocate substantial resources for the next few years. MASL could also usefully review the project experience on the RB and as far as possible ensure that the lessons are taken into full account in further development of the RB and LB areas, particularly for the adoption of participatory approaches. 46. Irrigation water is widely considered to be a free good in Sri Lanka, contributing to wastage. According to Sri Lanka's draft National Water Resources Policy currently under review by ministries "transferability of water on a voluntary and compensated basis will be a major tool to promote more efficient allocation and use of water resources.... Even though metering at the level of individual farmers is not likely to be feasible, water use at distributary and field level canals could be measured so as to allow improved water management." While full economic water pricing will not be feasible for the foreseeable future, the same objective could largely be achieved through the allocation of transferable water rights, with areas with surplus encouraged to sell their excess rights to deficit areas. It is suggested that MASL considers ways in which this policy could be put into effect. The development of FO institutional capacity on a national basis
1

A review was undertaken in about 1994 by the project consultants but did not review catchment characteristics in detail and used design parameters for irrigation efficiency rather than field experience. In the early 1990s, ADB review missions rightly identified the likelihood of large water shortages should the LB areas be developed, as is now the case. They held discussions on the matter with MASL and potential aid financiers.

2 and construction of the facilities required to introduce transferable rights could form the basis for a future irrigation sector project. B. Farmer Organization Development

47. The Project promoted farmer participation in irrigation scheme O&M, particularly through the second IWMI advisory TA. This was successful at a pilot scale, but was not widely replicated. Some FOs are operating effectively and maintaining their canals and structures at a high level, particularly in the pilot project area. There is now an urgent need to increase farmer participation and the capacity of FOs if significant further deterioration of the scheme is to be avoided. This is likely to require that (i) MASL increases the budgetary and human resources available for institutional development in the project area; and (ii) further outside assistance is sought to extend the experience gained under the pilot project. This could involve IWMI and local nongovernment organizations with expertise in community development and training. In addition to maintaining DCs and FCs, it is likely that in the future FOs will also need to maintain branch canals and roads, and contribute to main canal and headworks maintenance. This will require a significant change by farmers and FOs from an attitude of dependency to one of self-reliance. C. Risk of Crop Price Change

48. Agricultural product marketing, particularly of bananas, has evolved rapidly. However, both vegetables and bananas are subject to seasonal oversupply and reduced prices. A price collapse for such commodities is not uncommon. It would have serious implications for farmers and farming communities, particularly if it were to last for several months or longer. It will thus be desirable to define possible mechanisms to regulate supply in the future, particularly to prevent low quality bananas from flooding the market and depressing prices. The potential for organized marketing merits early investigation, together with controlled atmosphere storage, and the processing of excess and low quality bananas. At the same time, further diversification together with the development of niche export markets (e.g., in the Middle East) may help reduce risks. D. Land Ownership and Farming

49. Settlers in irrigation areas have secure tenure of their land and are permitted to pass it on to their children. However, they do not own the land and cannot sell it or use it as collateral for credit. This has significant implications for agricultural efficiency and farmers' capacity to overcome production setbacks. For example, if a farmer loses a crop, he may be forced to borrow from moneylenders at interest rates of 10-15 percent per month, thus perhaps entering a downward cycle of escalating debt. MASL could consider providing freehold title to project settlers, undertaking the necessary surveying and titling, and encouraging the development of a free market in land. It is also desirable that the leasing of land be legalized, as in many cases it is the only option open to impoverished farmers, particularly when they have experienced crop failure and/or excessive debt. E. Domestic Water Quality

50. Water quality from the aquifers tapped by project tubewells is often quite poor, with fluoride levels in some wells being well above the Sri Lankan standard of 1 mg/l. The possible health risks from long-term use of this water for drinking and cooking suggest that a further

3 testing program is necessary for both project tubewells and a sample of nearby shallow wells so that residents can be advised of the optimal water sources in their areas.

V. A. Overall Assessment

CONCLUSIONS

51. The Project was implemented more or less as planned, but at greatly increased cost and with substantial delays. Implementation was complicated by a serious insurgency problem that caused major problems for contractors and project staff, and damaged project facilities and equipment. In the short term, project objectives were attained, and the rehabilitated areas have demonstrated high productivity. Crop diversification away from rice has exceeded expectations, and the area is now a major source of bananas and vegetables for urban markets. Farm incomes have increased by about half. The Project has also made a significant contribution to employment and service sector development in the area, while the MASL settlement program has made the farming system more equitable. More labor opportunities have been created for both the landless and female farm workers, particularly in banana and vegetable production. 52. While the development of the banana industry is positive, it also carries some risks, particularly in relation to marketing. Ongoing effort will be required to promote reasonable market stability. Another issue is that project facilities are deteriorating due to a combination of deliberate damage by farmers and lack of maintenance. While FOs have been established and many are operating effectively, most have not yet taken full responsibility for O&M. Unless the situation is corrected rapidly, there is a high probability that the scheme will revert to the low preproject levels of irrigation efficiency and that irrigated area will decline to previous levels. Under this scenario, a further rehabilitation project would be required within 10 years. At the same time, water availability to the expanding LB areas will be severely limited, reducing the performance of both new and rehabilitated areas. The current and expected future deterioration of project infrastructure does not have a marked effect on the overall Project EIRR. Taking account of the expected decline in irrigated area and the opportunity cost of water deficits on the LB, the internal rate of return to the Project is estimated at around 11 percent. Overall, the Project is judged to be generally successful, notwithstanding the need for the urgent remedies mentioned here. B. Lessons Learned

53. Experience with irrigation system rehabilitation under the Project indicates that a different approach to irrigation project formulation, design, implementation, and operation is necessary to avoid (i) costly cycles of repeat rehabilitation soon after completion, (ii) resulting benefit shortfalls, and (iii) lack of overall sustainability. The optimal approach is a gradual and progressive process that focuses on institutional upgrading and participation by all stakeholders. 54. The problems being experienced with irrigation management and passing responsibility for O&M to FOs highlight a number of factors that have wide relevance to the irrigation sector in Sri Lanka and elsewhere. (i) Mechanisms for beneficiary participation in the design of irrigation projects should be carefully planned; tackling participatory approaches on to a project during or after implementation is less effective. The involvement of farmers from the outset of irrigation system rehabilitation is needed to promote understanding of water management issues and general ownership of the irrigation system.

2 (ii) Resistance to change is often demonstrated by smallholders. In the project case, it has proved difficult to change long-established and wasteful irrigation practices. Participatory approaches are essential if system deterioration is to be prevented or minimized. Under the current fiscal climate it is seldom possible for irrigation authorities to assume full responsibility for system maintenance. Pilot projects can help define the best approaches to develop beneficiary participation. Such approaches must be utilized rapidly or much of the skill and knowledge developed can be dissipated. The establishment of sustainable participatory management approaches is timeconsuming and not well-suited to short-term TA inputs. Institutional support for participation at the highest levels in the implementing agency is essential if participation is to be institutionalized at the farm level. In some cases, participatory approaches may be seen as a challenge to traditional implementation methods and a threat to an institution's power base. Effort is, therefore, often needed to build support for participation.

(iii)

(iv)

(v) (vi)

C.

Follow-Up Actions 1. Irrigation System Improvement

55. Because of rapid decay of the project works soon after completion, a number of actions are urgently required. Foremost among these is the immediate need to address key O&M issues. A decisive halt needs to be brought to the deliberate destruction of project facilities. MASL must develop the capacity to respond effectively and fairly to farmers' complaints. It should prosecute culprits to prevent the problem spreading and also warn farmers that their area will not receive water if further destruction takes place or damaged structures are not repaired.1 MASL may consider providing the necessary technical support and materials for farmers to undertake the repairs. Budget and personnel in adequate numbers and capacity will have to be provided to operate and maintain the system. This is particularly true in the technical and engineering fields but also for providing support to FOs to implement the national policy on participatory O&M. Special funds need to be provided for the repair of main system facilities. 56. If the participatory approach is to work, MASL will have to provide strong support and long-term commitment. This will need attitudinal and behavioral changes throughout the institution, redefinition of functions and positions, and allocation of necessary management and staff. Moreover, further strengthening of FOs at the project level will also be essential. Both initiatives need to start on an intensive mode for a number of years followed by continuing less intensive support. At the same time, repairs and improvements to irrigation facilities should be undertaken. If started immediately, it is expected that such an approach should lead to improving the availability of water from 2010 to 2015, and hopefully preempt the need for a second major rehabilitation program. 57. Irrigation water use greatly exceeds design levels, particularly for rice production. This is leading to reduced water flows in many areas, particularly to downstream areas and farms near the end of the irrigation canals. The problem is particularly severe during the dry season (April1

This approach was adopted with reported success in the ADB-supported Kirindi Oya Irrigation and Settlement Project and could be replicated in the Project.

3 September), but can also arise in the wet season. There is no easy solution to this problem, which is a major contributor to the breakdown of discipline at the distributary and farm canal levels. Possible solutions include (i) continuing crop diversification, (ii) encouraging farmers and FOs to manage their water resources more efficiently, (iii) reducing the extent of rice production on permeable soils, (iv) consulting with and advising farmers about impending seasonal water shortages so that they can adapt their planting and management practices, (v) assessing the potential of drip/trickle irrigation for tree crops, and possibly (vi) introducing transplanting rather than broadcasting of seed to establish the rice crop. Another solution that may be more effective is the transfer of water rights (para. 58). 2. Water Resources Planning and Policy

58. There is increasing evidence that under current usage patterns, the Walawe River water resources are not sufficient to support the full proposed development of irrigation. Analysis of the Walawe River basin and updating of the Walawe Scheme water balance based on contemporary information needs to be undertaken without delay and before further water development schemes are undertaken or continued. To promote water conservation, mechanisms to allocate and monitor transferable water rights should be evaluated, even if a full market pricing system for water is not possible in the short to medium term. 59. In view of the issues facing Walawe and other schemes, a reassessment should be made of the irrigation sector and its policies, strategies, institutions, and processes. The various agencies involved in irrigation development and management could contribute to the development of a national irrigation policy. This would be a useful adjunct to the national water resources policy, and provide guidance on many of the issues facing irrigation development, management, and O&M on Walawe and elsewhere. Key issues that the policy could address include the development of effective O&M systems, water right transferability, and pricing. 3. Farmer Organizations

60. While six years have elapsed since the end of the Moraketiya pilot project, it is not too late to redeem the situation. Indeed, urgent priority must be given by MASL to strengthening FOs if further decline of Walawe's irrigation system is to be prevented. It is recommended that MASL (i) allocate more resources to institutional development in the project area; and (ii) commission a project, possibly using bilateral or multilateral development assistance, to strengthen FO development in the Walawe system and develop support for participatory approaches in the head office. 61. MASL could examine ways to involve FOs in the provision of extension and marketing services to continue technological development and help stabilize the volatile banana market. New technologies worthy of research could include controlled-atmosphere storage of bananas and vegetable crops, and the development of systems to promote improved water efficiency including trickle irrigation for tree crops and possibly transplanting of rice. 4. Roads and Water Supplies

62. Further negotiation is worthwhile to attempt to hand over maintenance responsibility for key project gravel roads to the local governments in the area, as well as to encourage the Road Development Authority to take over the remaining project bitumen roads. The institutional strengthening required by FOs will need to prepare them to take over responsibility for the maintenance of project roads as well as for irrigation infrastructure. It is recommended that

4 MASL promote the hiring of its graders and trucks to FOs to enable them to maintain their roads. Initially it might be desirable to subsidize these rentals, but ultimately it will probably be necessary to seek full cost recovery. 63. The PCR's recommendation that a tubewell water quality testing program be undertaken is endorsed. This should include a sample of shallow wells to enable recommendations to be made on optimal drinking water sources in different areas. The program could be undertaken as part of the ongoing IWMI study into groundwater in relation to irrigation practice. Early assessment is required of the level of fluoride that can safely be tolerated on a long-term basis. The potential to use the brick filters being developed by the National Water Board should be evaluated for consumers of high fluoride water. The required research and testing programs should be undertaken as a matter of priority. A continuing program to advise residents of the need to use safe water sources is merited. 64. A large majority of project area residents use canals for washing and bathing. Canal water is polluted by these activities, as well as by cattle and buffalo and by the washing out of spray tanks by farmers. In addition to polluting canals, cattle are one of the main causes of damage to canal banks and high siltation rates. To reduce the incidence of water-borne and water-washed diseases and minimize canal damage, it is suggested that (i) a public awareness campaign is conducted by MASL to help residents reduce canal pollution levels; and (ii) ways be sought to limit pollution and damage to canals by livestock. These could include restricting the access of cattle to main, branch, and distributary canals, and assessing the potential for cut-and-carry livestock feeding systems for clearing canal banks.

APPENDIXES

Number

Title

Page

Cited on (page, para.) 3, 12. 4, 17. 7, 27.

1 2 3

Economic Evaluation Irrigation Demand and Supply Land Settlement and Dependency

20 35 38

Appendix 1, page 1 ECONOMIC EVALUATION 1. Analysis of the Projects economic performance generally follows the methodology used at appraisal and project completion. This allows ready comparison. Thus the cost of the domestic water supply component ($566,000) is excluded. Similarly, past investments in the original Walawe Irrigation Project including the Walawe dam are considered sunk costs. In common with the appraisal and project completion calculations, the economic analysis is undertaken in dollars, to permit ready comparison of assumptions and performance. 2. An outline of the major changes in the analysis compared with that in the project completion report (PCR) and new key assumptions follows. Table A1.1 shows the project financial investment costs. 3. The Mahaweli Authority of Sri Lankas (MASLs) investment costs from 1997 to 1999 are added to local investment costs. Half of the cost of the International Water Management Institute advisory technical assistance (TA) projects1 are added to the foreign exchange costs, as approximately 50 percent of the TA activities related to the Project. 4. An estimate was made of MASLs recurrent, administrative, and operation and maintenance (O&M) costs that can be allocated to the Project. On the basis that the area expanded by around 25 percent during the project period11,400 hectares (ha) increasing to 14,400 from both left bank (LB) and right bank (RB) canalsthe same proportion of MASLs overall recurrent budget for the Walawe Scheme is allowed. This assumption has a significant impact on the economic internal rate of return (EIRR). If, for example, the recurrent cost is reduced to the level of administration and O&M costs in the PCR, the EIRR would increase by about 1 percent (Table A1.2). 5. Foreign exchange costs are converted to 1999 dollars using the international manufacturers unit value index. Local currency costs are converted using Sri Lankas gross domestic product agricultural index. A standard conversion factor of 0.9 is applied to local costs. 6. Irrigable area within the RB scheme is estimated to have reached 11,400 ha in 1995 with an irrigated area of about 21,190 ha giving a cropping intensity of about 186 percent (Table A1.3). Insofar as virtually all irrigable areas are double-cropped, this level is probably closer to the actual cropping intensity than the lower levels estimated in earlier reports and is not far above the 176 percent estimated in the first year of the Project. 7. In addition to the project areas, about 900 ha located on the RB are estimated to be irrigated outside the project boundaries, including 840 ha developed by the Agrarian Services Department downstream of the Project and an estimated 60 ha irrigated on the right bank of the main canal by pumped irrigation. Because the Project did not incur any direct costs in the establishment of these areas, they are included in project benefits at the estimated value of the water supplied. This is estimated at SLRs1.5 per cubic meter (m3) as outlined in the footnote to Table A1.3, based on the profitability of rice production. 8. No allowance is made in the analysis for the opportunity cost of the expansion in irrigated area because the land brought under irrigation (approximately 2,400 ha) was little used prior to the Project. While slash-and-burn agriculture was undertaken on part of these areas, the
1

TAs 846-SRI and 1480-SRI: Study of Irrigation Management and Crop Diversification, Phases 1 and 2, for $350,000 and $750,000, approved on 16 January 1987 and 19 February 1991.

Appendix 1, page 2 remainder comprised saline land or unused scrub. No information on the proportion of land in these categories is available, and no estimate of production foregone is included in appraisal estimates. The net economic benefit from such an area would in any event have been low. 9. The PCR and the appraisal document both assumed constant benefits after about year 14. However, by the time of the Operations Evaluation Mission, it was evident that the irrigation system was deteriorating rapidly. This is reflected in Table A1.3. It is assumed that the RB irrigable area will decline from around 21,200 ha in 1999 and 2000 to about 17,500 ha by 2008. Thereafter, it is anticipated that the farmers organizations will be operating effectively, and that the irrigated area will recover progressively to reach its present level again by 2014. 10. As discussed in the main report, it is expected that the LB areas of the Walawe Scheme being rehabilitated or developed at present will begin experiencing water shortage after about 2003, when the expansion area on the LB will come on stream. This deficit may amount to around 240 million m3 initially, declining to about 130 million m3 by 2014 as more efficient irrigation practices should become established over the Walawe Scheme. This deficit is also valued at SLRs1.5 per m3. The EIRR is not very sensitive to this factor. Even if water deficits are not costed to the Project, the EIRR would only change by less than 1 percent. 11. The Walawe dam repairs and improvements estimated to cost SLRs600 million (about $8.7 million equivalent, of which half is allocated to the Project), have a similar impact on the EIRR. 12. With the Project, cropping areas are recorded reasonably accurately by the MASL field assistants every cropping season (Tables A1.4, A1.5, and A1.6). Without the Project, the cropping area is considered likely to have declined over time from its maximum level of around 16,700 ha in 1993/1994 to about 14,000 ha by 1998 due to continuing system deterioration. By 1999, the incremental area cropped under the Project would thus have reached about 7,200 ha. Deterioration of project facilities thereafter are budgeted to reduce incremental area to about 3,500 ha. 13. The economic price of rice is lower than that derived by the PCR, which employed the appraisal methodology. The main difference is that the cost of freight of milled rice from the project area to Colombo (the main rice deficit area in the country) is considered to reduce the project area economic value of rice, and not increase it. Actual freight costs for bagged product from the Walawe area to Colombo were estimated by MASL and Agriculture Department staff at around $10 per ton or less. This rate is assumed. Actual processing cost, net of bran retained by the miller, was quoted locally at SLRs300 to SLRs500 per ton depending on the size of the mill. Transport to the mill by two-wheeled tractor is included in the allowance for tractor use in the crop budgets. Local transport and milling cost is, therefore, estimated at $7.00 per ton (Tables A1.7 and A1.8). 14. Additional costs added in Table A1.10 include the cost of the institutional strengthening TA that the Operations Evaluation Mission considers necessary to improve farmer O&M of the irrigation scheme in the future. The cost is approximately $800,000 over the period 2000 to 2009. This TA is intended to help reverse system deterioration and permit it to reach its budgeted 30-year life.

Appendix 2, page 1 IRRIGATION DEMAND AND SUPPLY 1. The ability of the Mahaweli Authority of Sri Lanka and the farmer organizations to meet maintenance needs is declining in the project area. As a result, irrigation performance has deteriorated (Table A2.1); this is expected to continue. More water is likely to be used, while degradation of project facilities will lead to decreases of both crop yields and irrigated areas. From about 2000 to 2008, releases from the reservoir for the right bank (RB) area (the Project) may increase to about 500 million cubic meters (m3) per year compared with an average of 440 million m3 per year during 1995-1999. At the same time, the project irrigated area during the dry season is expected to decline by about 2,000 hectares (ha) to 9,300 ha. 2. The average regulated water supply from the Walawe dam (to serve both the RB and the left bank [LB] of the Walawe Scheme) is expected to be about 780 million m3 per year. This is higher than the average of actual long-term releases because of the construction of an upstream hydropower dam, which will allow some increase in regulated supplies from Walawe dam. Under this scenario, the average water availability for the LB (net of industrial and urban demand) is likely to be about 160 million m3, net of usage by the Sevanagala sugarcane area.1 For the command area of the LB main canal, this would be equivalent to around 1.7 m/ha per year application compared with the expected demand of 3-4 meters. 3. In practice, the cropping area is expected to be restricted. By about 2004, when rehabilitation and construction of systems totaling 9,400 ha will be completed on the LB, some 5,000 ha will be short of water. By about 2008, it is expected that about half of the LB irrigable area of 12,100 ha will not be irrigated in the dry season. Wet season irrigation is also likely to be restricted. Together, these outcomes would reduce project benefits. They will also require renewed sizable costs and effort to remedy project decay, and thereby save water on the RB, also enabling full irrigation coverage of the LB systems currently under improvement and expansion.2 4. To remedy the situation, farmers will need to take responsibility for managing the irrigation system effectively. The generation of significant benefits from such a program is likely to take 7-10 years, and to materialize fully over a further 5-6 years. Even if water use on the RB could be limited to about 400 million m3 per year, shortfalls of about 20 million m3 per year for the LB schemes would result in partial irrigation with an 800 ha shortfall by about 2015. These estimates (optimistically) assume that water resource availability from degrading watersheds3 and Walawe reservoir live storage have not changed since they were last assessed decades ago. They also assume that the 2,750 ha Sevanagala sugarcane scheme of the LB will reduce its annual water consumption from the current 130 million m3 to 80 million m3, which will still be above its allotted design of 61 million m3. 5. Reassessment of water demand and supply is therefore a high, first-step priority before adequate remedies can be adequately determined. Thus far, projects and related operation of the Walawe Scheme have been based on obsolete data of river flows and siltation rates for the Walawe reservoir. This should be a major avoidable risk imposed on the overall scheme. Moreover, the scheme water balance established for deciding on new water projects should
1

This is the area of the Asian Development Bank-supported Sevanagala Sugar Development Project located in the LB area that was completed in December 1992 and evaluated in August 1995. The Overseas Economic Cooperation Fund of Japan is currently supporting such irrigation area improvement and expansion under a $140 million project. The watersheds are being rehabilitated and improved under the Asian Development Bank-supported Upper Watershed Improvement Project (Loan 1545-SRI[SF], for $16.6 million, approved on 24 September 1997).

Appendix 2, page 2 take account of actual and realistic future water uses rather than using theoretical unit values. Discrepancies of a major magnitude reflecting systematic overoptimism are apparent between estimates used for designing projects and reality.

Appendix 2, page 3 Table A2.1: Water Use on Project Branch Canals (million m3)a
Average Average Seasonal Annual 1996/1997 1997/1998 1998/1999 Change Change c b (%) (%)

Item

A. Wet Season Moraketiya BC Chandrikawewa BC Mamadala (Kgala) BC Mamadala (Kgama) BC Gurugodella BC Manamperigama BC Bata ata BC Gajamangama BC Beddewewa BC Subtotal (A) B. Dry season Moraketiya BC Chandrikawewa BC Mamadala (Kgala) BC Mamadala (Kgama) BC Gurugodella BC Manamperigama BC Bata Ata BC Gajamangama BC Beddewewa BC Subtotal (B) C. Year Moraketiya BC Chandrikawewa BC Mamadala (Kgala) BC Mamadala (Kgama) BC Gurugodella BC Manamperigama BC Bata Ata BC Gajamangama BC Beddewewa BC Total (Average)
BC = branch canal, m3 = cubic meters. a The Project is located on the right bank of the Walawe River. b Seasonal compound rate per year over the last three years (1996/1999). c Annual compound rate over the last three years (1996/1999) corresponding to average of corresponding wet and dry season rates.

10.0 27.9 35.8 25.7 10.9 8.4 15.0 12.1 14.9 160.7

13.9 42.8 56.2 42.3 18.4 13.1 23.1 20.4 16.4 246.6

9.6 36.0 44.9 28.2 13.2 8.4 19.0 12.9 23.4 195.6

(2.3) 13.5 12.1 4.8 10.3 (0.2) 12.6 3.2 25.3 10.3

9.7 21.8 39.6 24.8 11.4 8.9 15.0 10.6 15.1 156.9

9.9 27.0 31.6 24.9 11.3 7.6 13.1 12.4 17.0 154.8

11.9 44.7 56.7 34.3 17.8 12.1 23.6 19.9 13.7 234.5

10.7 43.3 19.6 17.5 24.8 16.2 25.4 37.0 (4.8) 22.2

4.2 28.4 15.8 11.2 17.5 8.0 19.0 20.1 10.3 16.3

Appendix 3, page 1 LAND SETTLEMENT AND DEPENDENCY 1. Land settlement in the project area started in 1957, and although it was basically completed in 1979, many settlement-related issues remained unresolved when the Project commenced in 1984. They remain so today.1 Crucial among them are (i) land allotment and boundary disputes, (ii) encroachment, and (iii) continued dependence on government input. These have had direct influence on the development of the irrigation system, cropping pattern choices, water usage, and the operation and maintenance (O&M) of the socioeconomic services and infrastructure provided by the Project. 2. The insecurity associated with the land allotment/ownership and boundary disputes has affected the performance of the Project to some significant degree. A number of settler landowner farmers were allotted land at too long a distance from distributary canals or farm ditches. Receiving marginal or no irrigation water supply, these farmer settlers have been forced to abandon or lease their land to other farmers. A. Land Allotment and Boundary Disputes

3. About 80 percent of the total allotted land is at least partly cultivated by settlers or their children, and an estimated 20 percent are leased out for cash or a fixed share of the yield to other farmers or local moneylenders called mundalalis. There is also evidence of illicit selling and mortgaging of land. These have affected the Project in two ways. Lessees have tended to use irrigation water indiscriminately so as to secure maximum crop profits during the short lease period they usually get. Such overuse of water has created shortages and exacerbated conflict within the command areas of branch and distributary canals. 4. Settler households of five to six persons on average were initially allotted less than 1 hectare of land. Subsequent further fragmentation of land holdings has taken place reducing farming viability, and resulting in more frequent land boundary disputes and reduction of irrigation land occupied by new farm houses. B. Encroachment and Boundary Disputes

5. Many settler families have encroached on reserved land or highland, which often is highly permeable. Cultivation of rice, the primary staple food for these poor families, has resulted in considerable overuse of irrigation water on lands that are mainly located in the upstream reaches of the irrigation system. This has deprived downstream farmers of their due share of water and created water management problems. 6. Encroachers were allowed to apply for land permits, which nonetheless do not give them effective ownership of the land they farm. For example, such land cannot be used as collateral to obtain credit. Permits issued since 1984 mostly concerned highlands with difficult access to irrigation water supply. One exception is the Suriyawewa irrigation block where encroachers obtained permits for a sizable portion of the irrigable land of the block. Regularization of encroachers ceased in 1995. A plan is currently being proposed to provide second and third generation settlers and encroachers with a package that provides settlement land to two members of households comprising at least 10 persons, with preference given to married couples of such households.
1

Early farmer settlement design in the Walawe area used clustered homesteads in village centers rather than ribbon development.

Appendix 3, page 2

C.

Dependency

7. The irrigation infrastructure, its O&M, as well as other support services such as agricultural research and extension have been provided without charge to project farmers. In addition to these, settlers have been provided with land at no cost. This mode of assistance has created a dependency on free Government facilities and services. In particular, it is now a common perception of farmers and farmer organizations that O&M of the project main and branch canals is the responsibility of the Government. The Operations Evaluation Mission interviews with settlers revealed that this perception is encouraged and reinforced by political rhetoric and election campaign promises.