Completion Report

Project Number: 37231-033 Loan Number: 2841 August 2018

Pakistan: Punjab Irrigated Agriculture Investment Program–Project 2

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency unit – Pakistan rupee (PRe/PRs)

At Appraisal At Project Completion October 2011 30 September 2017

PRs1.00 = $0.0117 $0.0094 $1.00 = PRs85.0 PRs105.41

ABBREVIATIONS ADB – Asian Development Bank DMF – design and monitoring framework EIRR – economic internal rate of return EMP – environmental management plan ICB – international competitive bidding IEE – initial environmental examination JICA – Japan International Cooperation Agency LARP – land acquisition and resettlement plan LCC – Lower Chenab Canal MFF – multitranche financing facility NCB – national competitive bidding O&M – operation and maintenance PID – Punjab Irrigation Department PMO – project management office PSC – project steering committee SCADA – supervisory control and data acquisition SDR – special drawing rights

WEIGHTS AND MEASURES ha – hectare km – kilometer m3 – cubic meter m3/s – cubic meter per second

NOTES

(i) The fiscal year (FY) of the Government of Pakistan ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 30 June 2018.

(ii) In this report, “$” refers to United States dollars.

Vice-President Wencai Zhang, Operations 1 Director General Werner Liepach, Central and West Asia Department (CWRD) Director Donneth Walton, Environment, Natural Resources and Agriculture

Division, CWRD Team leader Noriko Sato, Natural Resources Specialist, CWRD Team members Elena Alano, Senior Project Officer, CWRD Kristine Joy Villagracia, Operations Assistant, CWRD Asad Ali Zafar, Senior Project Officer (Water Resources), CWRD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 2

A. Project Design and Formulation 2 B. Project Outputs 3 C. Project Costs and Financing 5 D. Disbursements 5 E. Project Schedule 6 F. Implementation Arrangements 6 G. Consultant Recruitment and Procurement 7 H. Gender Equity 8 I. Safeguards 8 J. Monitoring and Reporting 9

II. EVALUATION OF PERFORMANCE 10

A. Relevance 10 B. Effectiveness 10 C. Efficiency 11 D. Sustainability 11 E. Development Impact 12 F. Performance of the Borrower and the Executing Agency 13 G. Performance of the Asian Development Bank 13 H. Overall Assessment 13

III. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14 B. Recommendations 14

APPENDIXES 1. Design and Monitoring Framework 16 2. Project Cost at Appraisal and Actual 18 3. Disbursement of ADB Loan Proceeds 19 4. Contract Awards of ADB Loan Proceeds 20 5. Implementation Schedule 21 6. Procurement of Goods 22 7. Status of Compliance with Loan Covenants 23 8. Reassessment of Economic and Financial Analysis 33

BASIC DATA A. Loan Identification 1. Country Islamic Republic of Pakistan 2. Loan number and financing source 2841-PAK (COL) 3. Project title Punjab Irrigated Agriculture Investment

Program–Project 2 4. Borrower Government of Pakistan 5. Executing agency Punjab Irrigation Department 6. Amount of loan SDR172.417 million 7. Project completion report number 1705 8. Financing modality Multitranche financing facility

B. Loan Data 1. Fact-Finding – Date started

– Date completed

18 July 2011 27 July 2011

2. Loan negotiations – Date started – Date completed

18 November 2011 9 December 2011

3. Date of Board approval 22 December 2011 4. Date of loan agreement 18 January 2012 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

17 February 2012 17 February 2012 0

6. Project completion date – Appraisal – Actual

30 June 2016 25 August 2017

7. Loan closing date – In loan agreement – Actual – Number of extensions

31 December 2016 30 September 2017 2

8. Financial closing date – Actual

8 May 2018

9. Terms of loan – Interest rate – Maturity (number of years) – Grace period (number of years)

1% per annum for the 8 years during the grace period and 1.5% per annum thereafter 32 8

10. Disbursements

a. Dates Initial Disbursement

3 May 2013 Final Disbursement

8 May 2018 Time Interval 60.0 months

Effective Date 17 February 2012

Actual Closing Date 30 September 2017

Time Interval 67.5 months

ii

b. Amount (SDR ‘000)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

1 Works 132,342 0 0 132,342 128,121 4,221 2 Vehicles,

Equipment & Supplies

61 0 0 61 47 14

3 Resettlement 137 0 0 137 101 35 4 Consulting

Services 5,553 273 0 5,826 4,913 913

5 Project Management

928 0 0 928 349 579

6 Interest Charge 4,435 0 0 4,435 2,383 2,052 7 Unallocated 28,961 (273) 28,688 0 0 0 Total SDR 172,417 0 28,688 143,729 135,915 7,814

( ) = negative number, SDR = special drawing rights.

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual

Foreign exchange cost 309.2 227.6 Local currency cost 0.0 0.0 Total 309.2 227.6

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 39.1 31.7 ADB financed 270.1 195.9 Other external financing Total implementation cost 309.2 227.6

Interest during construction costs Borrower financed 0.0 0.0 ADB financed 6.9 3.3 Other external financing 0.0 0.0 Total interest during construction cost 6.9 3.3

3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual

New Khanki Barrage 238.2 214.4 Project Management 11.7 9.9 Contingencies 52.4 0.0 Financing Charges During Implementation 6.9 3.3 Total 309.2 227.6

iii

4. Project schedule

Item Appraisal Estimate Actual

Consulting servicesa Date of contract with consultant 1 Jul 2011 21 Feb 2013

Civil works contract Date of award 31 Mar 2012 2 May 2013 Completion of work 30 Jun 2016 25 Aug 2017 Equipment and supplies First procurement 15 Jan 2012 10 Jul 2013 Last procurement 20 May 2012 28 Sep 2015 Beginning of barrage operations 30 Jun 2016 20 Oct 2016

a Detailed design was completed by 2011, prior to the project, and financed by Japan International Cooperation Agency.

5. Project performance report ratings

Implementation Period Single Project Rating

From 12 Feb 2012 to 31 Dec 2012 Potential Problem From 1 Jan 2013 to 31 Dec 2013 On Track From 1 Jan 2014 to 31 Dec 2014 On Track From 1 Jan 2015 to 31 Dec 2015 On Track From 1 Jan 2016 to 31 Dec 2016 On Track From 1 Jan 2017 to 31 Dec 2017 On Track

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Members

Fact Finding 18–27 Jul 2011 3 26 a, b, f Inception 7–12 May 2012 3 17 a, b, k Special Loan Administration 27–29 Aug 2012 4 12 a, b, i, k Review 1 25–27 Feb 2013 1 3 a Review 2 11–19 Feb 2014 3 18 a, g, j Review 3 27–30 Apr 2015 2 8 a, k Midterm Review 28 Sep–3 Oct 2015 4 14 a, g, h, i Review 4 23–28 Apr 2016 2 12 a, b, o Review 5 16–21 Oct 2016 3 17 a, b, f Review 6 24–27 Apr 2017 2 8 f, b Project Completion Review 30 Apr–5 May 2018 4 24 f, b, m, n

a = water resources specialist; b = senior project officer; c = principal social safeguards specialist; d = environment specialist; e = director, Environment, Natural Resources and Agriculture Division; f = natural resources specialist; g = project officer; h = safeguards specialist (resettlement); i = consultant (environment specialist); j = safeguards specialist (social development); k = associate project officer; l = consultant (senior water resources specialist); m = consultant (water resources specialist); n = consultant (agricultural economist); o = financial management specialist.

I. PROJECT DESCRIPTION 1. Irrigated agriculture has been an important driver for the economic growth of Punjab Province and the food security of Pakistan. Punjab’s contribution to the country’s agriculture sector is estimated at 57%. The agriculture sector accounts for more than 26% of Punjab’s gross domestic product and generates over 40% of the provincial labor force. Punjab’s agriculture production relies on the Indus Basin Irrigation System (IBIS), which supplies irrigation water to 8.4 million hectares (ha) of agricultural land in Punjab.1 The Punjab Irrigation Department (PID) has been responsible for the operation and maintenance (O&M) of infrastructure, such as barrages and canals, in the IBIS.2 The IBIS’s infrastructure severely deteriorated due to (i) aging (mostly over 100 years old), (ii) poor asset management planning, and (iii) underfunding and ineffective implementation of O&M. The Government of Punjab Province sought increased investment for its underperforming irrigated agriculture infrastructure and institutions. The PID presented its asset management plan, prioritizing rehabilitation of seven barrages and five canals and sought the support of the Asian Development Bank (ADB), the World Bank, and the Japan International Cooperation Agency (JICA).3 2. In line with the government’s long-term investment plan, in December 2006, ADB approved the Punjab Irrigated Agriculture Investment Program, a multitranche financing facility (MFF) for $900 million.4 The investment program envisaged financing investments to improve the century-old irrigation infrastructure and prompt institutional reform towards the effective and efficient delivery of irrigation services through farmer management of the irrigation systems. The investment program had four tranches. Project 1 was designed to support institutional reforms and sector capacity development, combined with rehabilitation and upgrading of priority infrastructures (footnote 4). The subsequent tranches under the investment program financed rehabilitation or upgrading of other selected priority infrastructure in the IBIS. 3. The second tranche, project 2, of the investment program was approved in December 2011 for SDR 172,417,000 ($270 million equivalent at appraisal) for constructing a new Khanki Barrage on the Chenab River as a replacement of the deteriorated 120-year old Khanki Barrage, which diverted river water to the Lower Chenab Canal (LCC) for irrigation water supply covering 1.2 million ha. Due to the age of the structure and its limited flood discharge capacity, rehabilitation and upgrade of the old barrage was not possible and a new barrage was needed. The new barrage ensured the structural stability of the barrage itself and a reliable irrigation water supply. It also ensured that water from the Chenab River passes safely through the barrage to prevent flood damages on productive agriculture and residential areas around and

1 Government of Punjab, Punjab Irrigation Department. 2017. Annual Performance Report 2016–2017. Lahore; and

Government of Punjab. 2017. Annual Development Program. Lahore. 2 The Punjab Irrigation Department (PID) was established when the Punjab Irrigation and Power Department was

restructured in July 2013 and divided into two new departments: the PID and the Punjab Energy Department. 3 Government of Punjab, Punjab Irrigation Department. 2007. Asset Management Plan. Lahore. The asset

management plan included rehabilitation and upgrading of (i) Jinnah Barrage, (ii) Balloki Barrage, (iii) Islam Barrage, (iv) Khanki Headworks, (v) Suleimanki Barrage, (vi) Trimmu Barrage, and (vii) Panjnad Barrage. Rehabilitation and upgrading of canal systems included (i) Pakpattan Canal; (ii) Thal Canal System; (iii) Lower Chenab Canal; (iv) Lower Bari Doab Canal; and (v) canals of Bahawalpur, Dera Ghazi Khan, and Faisalabad zone. Taunsa Barrage, was already under rehabilitation at that time. The World Bank financed the projects to rehabilitate and upgrade Taunsa Barrage and Jinnah Barrage; JICA financed the Lower Chenab Canal; and ADB financed the Balloki and Suleimanki barrages, Lower Bari Doab Canal, and Pakpattan Canal. As of August 2018, ADB is financing the project to rehabilitate and upgrade Trimmu and Panjnad barrages. The project to rehabilitate and upgrade Islam Barrage is expected to be financed by ADB.

4 ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to the Islamic Republic of Pakistan for the Punjab Irrigated Agriculture Investment Program. Manila. The MFF amount was revised from $900 million to $700 million in December 2011.

2

upstream of the barrage. The PID was the executing agency for the MFF including project 2. 4. The impact of the project was improved agricultural production and farm income in the LCC command area located in Chiniot, Faisalabad, Gujranwala, Hafizabad, Jhang, Nankana Sahib, Sheikhupura, and Toba Tek Singh districts.5 The project outcome was sustainably improved delivery of services for irrigated agriculture and better water management in LCC command areas. The two expected outputs were: (i) the on-time completion of New Khanki Barrage within the budget and (ii) the executing agency’s improved project management capacity.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 5. The project was highly relevant at both appraisal and completion. The project was designed to benefit 568,000 farming families through reliable irrigation supply to the LCC, and prevent the area along the Chenab River from flood inundation. At appraisal, the project was consistent with ADB’s operational strategies and Pakistan’s development priorities. The Pakistan country partnership strategy for 2009–2013 prioritized the improvement of the infrastructure for irrigated agriculture.6 ADB’s Water Operational Plan, 2011–2020 included efficient and sustainable water resources management.7 ADB’s agriculture, natural resources, and rural development sector evaluation for Pakistan identified increased agricultural productivity and farm income as an important development priority.8 The Medium-Term Development Framework (2005–2011) of the Government of Pakistan pursued irrigation sector development in Punjab.9 The Khanki Barrage was included in the PID’s Asset Management Plan, which identified and prioritized seven barrages and five canals for urgent rehabilitation (footnote 3). At completion, the Pakistan country partnership strategy, 2015–2019 continues to prioritize the improvement of irrigation infrastructure and agriculture productivity.10 The Government of Pakistan’s Vision 2025 and the provincial government’s Punjab Growth 2018 aim to achieve the growth targets through improved irrigated agriculture and increased agriculture productivity.11 Two significant floods in 2010 and 2014, which caused serious damages to agricultural lands in Punjab, also motivated the government’s investment priority for water resources management infrastructure. 6. The construction of the New Khanki Barrage was originally not included in the indicative list of investments under the MFF because it had been included in JICA’s portfolio during the MFF processing. A feasibility study, detailed design, and tender preparation had been conducted by the PID. The government’s project approval document—Planning Commission Proforma No. I, for $300 million of external financing—was prepared with the help of JICA. However, JICA’s resources were decided to be used for other projects as per updated agreements with the Government of Pakistan. With the urgent need for the New Khanki Barrage construction, in 2009–2010, the provincial government sought and discussed potential financial support with ADB. Given the high necessity, economic feasibility, and higher readiness than other potential investments for the MFF, the New Khanki Barrage construction was prioritized to be included in the potential

5 Chiniot was declared as a new district later. It was previously part of Jhang District. 6 ADB. 2009. Country Partnership Strategy: Pakistan 2009–2013. Manila. 7 ADB. 2011. Water Operational Plan 2011–2020. Manila. 8 ADB. 2006. Agriculture and Natural Resources Sector Evaluation for Pakistan. Manila. 9 Government of Pakistan. 2005. The Medium-Term Development Framework (2005–2011). Islamabad. 10 ADB. 2015. Country Partnership Strategy: Pakistan 2015–2019. Manila. 11 Government of Pakistan. 2014. Pakistan 2025. One Nation, One Vision. Islamabad; and Government of Punjab.

2015. Punjab Growth Strategy 2018. Lahore.

3

investment list.12 The government officially requested ADB’s support for the New Khanki Barrage construction through the second periodic financing request of the MFF in October 2011. The project was highly relevant in terms of the overall objectives and design of the investment program. The MFF’s framework financing agreement Schedule 4, para. 3 allowed to revise the list of potential investments. 7. In 2010–2011, ADB’s small-scale project preparatory technical assistance (TA) supported due diligence and further enhancement of project readiness in compliance with ADB guidelines and requirements.13 The TA reviewed existing detailed design, project cost estimate, economic and financial analyses, land acquisition and resettlement plan (LARP), and bidding documents. The TA also ensured consistency between the periodic financing request submitted to ADB and the approved Planning Commission Proforma No. I. The detailed design was also adjusted to incorporate the provincial government’s new barrage design criteria that were developed in response to the 2010 flood. 8. The project envisaged introducing modern technologies in gate operation, which would increase the efficiency and reliability of the supply of irrigation water in the project area. The project applied new technology by using fully-automated barrage gates instead of manually-operated ones. The operation of the automated barrage gates is supported by a supervisory control and data acquisition (SCADA) system, which enables automated regulation of the gates, monitoring of irrigation canal water flow at key distribution points, data collection and transmission, and television camera-based surveillance.14 The system has contributed to efficient barrage operations. The newly installed mechanical gate operation also contributed to improving the safety of the PID’s gate operators.15 The overall project design was sound and innovative, and the formulation process was adequate. The PID showed strong ownership of the project during the project formulation period. B. Project Outputs 9. The project has two outputs: (i) New Khanki Barrage completed on time and within the budget and (ii) executing agency’s improved project management capacity. The design and monitoring framework (DMF) in Appendix 1 summarizes the achievements against targets at project completion. 10. Output 1: New Khanki Barrage completed on time and within budget. Activities under output 1 were completed as designed. The output comprised the construction of (i) main weir and undersluices, (ii) automated gates and hoisting arrangement, (iii) operating deck, (iv) canal head regulator and lead channel from the new barrage to connect with the existing lead channel to the LCC, and (v) a centralized operation room with the SCADA system. The old Khanki Barrage was dismantled, and its function was successfully replaced by the New Khaki Barrage with enhanced function as planned.

12 The potential investment list included the barrages of Suleimanki, Trimmu, Panjnad, and Islam, and the distribution

systems of Pakpattan and Thal Canal. 13 ADB. Pakistan: Technical Assistance to Ensure Due Diligence and Prepare Periodic Financing Requests for Islam,

Khanki, Sulemanki, and Trimmu Barrages of Multitranche Financing 2299/2300-PAK: Punjab Irrigated Agriculture Investment Program. The TA completion date of 31 December 2010 was extended to 31 December 2012 to enable ADB to finalize requisite due diligence for the project.

14 Prior to the project, the PID installed a similar system in two major barrages: Taunsa Barrage and Jinnah Barrage. 15 Manual operation of the steel gates of the old Khanki Barrage was highly risky for the PID gate operators. Some of

them experienced heavy injuries or even death due to accidents caused by out-of-date design and deteriorated or damaged equipment.

4

11. The output targets were all achieved, except one (para. 13). The new barrage provides 330 cubic meters per second (m3/s) of irrigation water to about 1.2 million ha agricultural land through the LCC as planned. The flood discharge capacity was increased from 22,654 m3/s against 50-year probable floods to 31,150 m3/s of 100-year probable floods as planned. Annual diversion to the LCC was increased from the maximum of 7,991 million cubic meters (m3) to the maximum of 8,286 million m3. Annual water leakage of 370 million m3 through deteriorated shutters of the old barrage was reduced with the installation of the new barrage. Overall, the project benefited 568,000 farming families through reliable irrigation water supplies.16 12. There were some important achievements outside of the DMF targets. The project constructed a road bridge along with the barrage’s operating deck across the Chenab River, as well as constructed and rehabilitated 3 kilometers (km) of approach roads to the new barrage. Thus, the construction of the new barrage significantly improved connectivity between towns and cities on both sides of the river. It shortened travel distance from one side to the other side of the river by about 30 km, which could contribute to fostering local business activities. It also substantially improved the efficiency of the PID’s barrage O&M activities. The construction of a girls’ school, basic health unit, and recreational center and park under the project benefited communities around the new barrage, including women and children.17 The project completion review mission confirmed that these facilities have been providing the services envisaged. Local communities also benefited from the project’s training in livelihood support, such as flood disaster management and small business establishment.18 13. One of the performance indicators for output 1, “three contracts awarded according to schedule”, did not meet the target due to delays in the procurement of two of the civil works packages.19 Although the procurement delay triggered two extensions of the loan closing date, the project purposes were not substantially affected, and anticipated works were completed. All contracts were awarded within the estimated cost at appraisal (paras. 27–30). 14. Output 2: Executing agency’s improved project management capacity. The project management office for barrages (PMO Barrages) under the PID was responsible for the day-to-day implementation of the project activities.20 Under the project, the PID’s project management capacity was improved by enhancing the capacity of the PMO Barrages through training and project activities including procurement, contract management, construction supervision, safeguards implementation and monitoring, and financial management. The anticipated target of 11 senior PMO staff trained was achieved.21 The successful completion of output 1 activities demonstrated the improved capacity of the PMO, therefore achieving output 2.

16 Out of 568,000 families, 310,000 families own less than 2 ha of land (considered very small); 190,000 families own

between 2 to 6 ha (considered small); and 68,000 families own above 6 ha (considered medium, large, and very large as per the farm size categories in the agriculture census of the Government of Pakistan).

17 These activities were included in the special provision of the contractor’s contract. Amendment to the loan agreement to include the activities was issued on 18 August 2017. The reassessment of the economic and financial analysis (Appendix 8) discusses these activities and benefits.

18 These training activities were implemented in collaboration with the state government’s Technical, Entrepreneurial, and Vocational Education and Training Authority.

19 One contract for consulting services and two contracts for civil works (international competitive bidding [ICB] and national competitive bidding [NCB]).

20 The PID has two project management offices: PMO Barrages and PMO Canals. 21 The PMO comprised a project director (Head, PMO Barrages), director and deputy director technical, director

procurement and contract management, director finance, director social and environment, director resettlement, chief monitoring, and other senior officers including accounts officers.

5

C. Project Costs and Financing 15. The ADB loan amount was SDR172,417,000 or $270 million equivalent, and the government’s share was $39 million at appraisal. The total actual project cost was $227.6 million, or 74% of the cost estimate of $309 million at appraisal. ADB financed $195.9 million and the government $31.7 million at completion. The actual cost was lower than the cost estimated at appraisal for the following components: (i) civil works, (ii) consulting services, and (iii) project management. This was due to bid prices that were lower than estimated for civil works and consulting services packages, and depreciation of both the local currency and special drawing rights against United States dollars. Besides, $45 million of contingencies were kept as unallocated loan category at appraisal, but the contingencies did not need to be utilized.22 Details of the cost estimate at appraisal and the actual costs are shown in Appendix 2. 16. The loan proceeds were reallocated in August 2013 to increase the allocation of the consulting services category by $500,000 to recruit two individual consultants.23 In December 2017, loan proceeds of $40 million were canceled following the request of the provincial government. Prior to that, the PID planned to prepare a proposal to use $40 million from savings of the loan proceeds, but no proposal was developed. 17. At the initial stage of the project, there was a 2 to 3-month delay in the release of the provincial government’s counterpart funds due to constraints in its internal approval procedures, risking a potential delay in project implementation. The PID was able to address this in coordination with the Finance Department and Treasury Department of the provincial government, establishing improved internal procedures in transferring the counterpart funds to its project account. For the subsequent years, counterpart funds were released to the project account in the first quarter of each fiscal year (July–September) without delay. D. Disbursements 18. Total ADB loan disbursements amounted to $195.91 million, or 73% of the approved loan amount. The first disbursement was on 3 May 2013 and the last was on 8 May 2018, which was the actual financing closing. The first disbursement happened 13 months after the loan effectiveness due to the delayed recruitment of the consultant and award of civil works’ contract (paras. 28–30). Disbursements improved from the second year of the implementation. A winding-up period to financially close the loan account was extended by 3 months (from 31 January to 30 April 2018) enabling the disbursement of all eligible expenses. At financial closure, an undisbursed loan balance of about $11.2 million was canceled. 19. The loan proceeds were disbursed using reimbursement and direct payment procedures in accordance with ADB’s Loan Disbursement Handbook. Disbursement projections were revised twice.24 Annual and cumulative disbursement and contract awards of the loan proceeds are in Appendixes 3 and 4. 20. An imprest account for the project was established in accordance with the loan agreement (para. 6 of Schedule 3). 25 The initial advance of $262,000 was provided on 3 May 2013, while the

22 This relatively large amount of contingency was given at appraisal to cover potential expenses for unexpected or

emergency flood events of works in the river. The 2014 flood in Punjab hit the project site, but damages were nominal due to timely flood warning to the project site advised by the PMO.

23 Planning and implementation specialist and monitoring and evaluation specialist. 24 Disbursement projections were revised as a result of eOps clean-up exercise in April 2014 and April 2016. 25 The imprest account is called an advance account in the Loan Disbursement Handbook (2017).

6

account was opened in July 2012. The total disbursed amount was about $7 million. The imprest account was closed on the loan closing date of 30 September 2017. It was used adequately and efficiently to finance expenses for project management activities to complete the project on time. E. Project Schedule 21. The project was approved on 22 December 2011 and became effective on 17 February 2012 as per the loan agreement (Article V, Section 5.01). At appraisal, the physical completion was expected on 30 June 2016, with an original loan closing date of 31 December 2016. The loan closing date was extended twice for a total of 9 months. The first extension was from 31 December 2016 to 31 July 2017, and the second, from 31 July 2017 to 30 September 2017. The extensions were needed to accommodate the delay of about 1 year in the procurement of the major civil works package (paras. 29–30). Once the major works package was awarded, subsequent civil works and other project implementation works were implemented without delay. The anticipated project activities were completed on 25 August 2017 before the extended loan closing date of 30 September 2017. The initial delay in the project activities triggered by the procurement delay did not adversely affect the overall implementation of the project. Appendix 5 summarizes planned and actual implementation schedule. 22. The project was financially closed on 8 May 2018, about 7 months after the loan closure. The financial closure was delayed because the executing agency needed to wait for the completion of the commercial electric lines installation to the new barrage’s gate system, followed by the gate operation testing, which was a condition to the final payment to the contractor. F. Implementation Arrangements 23. The project’s implementation arrangement designed at appraisal remained unchanged throughout the project period and continued to function effectively. The implementation arrangement was appropriately designed to accomplish project activities and achieve the anticipated outputs. 24. The PID served as the executing agency responsible for the overall supervision, implementation, coordination, and monitoring of project activities. The existing PMO Barrages under the PID was designated to be responsible for the day-to-day implementation of the project activities. It had previous experiences in two similar projects financed by the World Bank: the rehabilitation of the Taunsa Barrage and the Jinnah Barrage. The PMO Barrages had well-established in-house units for engineering, social and environment safeguards, and procurement and financial management. Through the previous two projects with the World Bank, the PMO Barrages had demonstrated adequate skills and staff resources. At appraisal, the PMO Barrages was still implementing the Jinnah Barrage rehabilitation project. The head of the PMO Barrages served as the project director for both the World Bank and ADB-financed projects, and a full-time deputy project director under the project director and directors for the units of engineering, social and environment, and procurement and finance, were assigned exclusively to the ADB-financed project. Incremental staff were also engaged for the engineering, safeguards, contract management, and financial management units for the project. During the implementation period, the PID added 11 new staff positions at the PMO Barrages, including senior management staff and SCADA operators for the project.26 A supervision consultant team supported the PMO for the daily activities.

26 Additional staff positions included one director, three assistant executive engineers, four sub-engineers for power

and three sub-engineers for SCADA.

7

25. The PMO’s staff turn-over was low throughout the project period, especially for senior positions. This contributed to the smooth implementation of the project and the development of firm institutional capacity for similar externally-funded projects. The PID had good knowledge and experience in modern barrage design, construction and operation, and project implementation management. 26. The project steering committee (PSC) was established during the MFF preparation to oversee the projects under the MFF. It anticipated contributions to the project implementation, such as clear decision-making at the provincial level. The PSC was chaired by the Chairman of the Punjab Planning and Development Board. Members comprised secretaries of finance, irrigation, agriculture, and environment departments of the provincial government, and the project director. The PSC met at least every 6 months to provide policy guidance and review project performance, and at other times when its decision was required for project administration and implementation. The PSC provided prompt government decisions for high-level project administrative matters, which helped the timely implementation and completion of the project. G. Consultant Recruitment and Procurement 27. At appraisal, the project’s procurement plan consisted of three major contracts: (i) one consulting services contract for the construction supervision, (ii) one international competitive bidding (ICB) contract for the main civil works for the construction of the new barrage, and (iii) one national competitive bidding (NCB) contract for preparatory works at the new barrage site. 27 28. The supervision consultant was selected through the quality- and cost-based selection method in accordance with ADB’s Guidelines on the Use of Consultants (2006). Consultants’ proposals were received in May 2012, but the executing agency took time in the evaluation. Hence, the contract was awarded in February 2013.28 The consulting services contract included a total of 2,222 person-months comprising 84 international person-months, 222 person-months national key staff, and 1,916 person-months national non-key staff. At completion, 75 international person-months and 208 person-months of national key staff were utilized. Person-months of national non-key staff were increased to 2,020 person-months by two contract variations during project implementation and were fully utilized. In total, 2,303 person-months of inputs were required. The actual consumption record of person-months indicates low estimates of consulting services inputs, especially of international key-experts’ requirements, at appraisal. Despite the delay in the award of the contract, the consultant provided adequate services to complete the construction of the new barrage and other associated activities as planned. The contract period was 54 months. This included the defect notification period ending on 24 August 2018 and the subsequent taking-over certificate event for the civil works. The PID has financed the costs for the consultancy services beyond the loan closing date of 30 September 2017. 29. Two civil works packages were planned at appraisal (para. 27). The two packages needed to be merged after bidding failures for both packages. At appraisal, the preliminary preparatory works were separated from the new barrage construction works as an NCB package, aiming at quicker preparatory works so that the main works under the ICB package could commence in October 2012. The NCB package was advertised in December 2011, as part of advance actions, applying a single-stage one-envelope procedure in accordance with

27 The NCB contract was estimated at $4 million, while the ICB contract was estimated at $234 million at appraisal. 28 The executing agency prioritized the processing of the bids for the ICB works package, which was substantially

delayed.

8

ADB’s Procurement Guidelines (2006). Five bids were received, but the bidding failed as none of the five bidders met the required qualifications. 30. The procurement of the ICB works package also commenced in 2011 as part of advance actions, targeting the contract award in March 2012. The single-stage two-envelope procedure in accordance with ADB’s Procurement Guidelines (2006) was applied to this package. Five bids were submitted by 19 December 2011, but the bid failed as all bidders were disqualified. ADB fielded a special project administration mission in August 2012 to assess the issue and agreed with the executing agency to merge the two packages into one ICB package to expedite the delayed procurement. After going through the rebidding, the civil works package was finally awarded on 2 May 2013. The contract amount for the civil works was $191 million against the estimated $223 million. The contractor’s performance was satisfactory. The contractor completed the new barrage construction with adequate quality within the construction period defined in the works contract. The consolidation of the two civil works packages was efficient and appropriate. During the project implementation, no major contract variation was required, while three change orders were issued on the works contract with a minor increase to the original contract price. 31. Prior to project approval, the PID with the support of ADB, conducted three international roadshow events to disseminate the upcoming project opportunity to broader potential international contractors for better competition. The roadshow events were held in Beijing, Istanbul, and Manila in October 2011 with the participation of 10 companies. However, the roadshow did not result in higher international competition. The original ICB bidding did not have any responsive bidders, and a Pakistan-based contractor won the merged ICB bidding over seven international bidders. 32. Other than the civil works package, there were two planned minor shopping packages for vehicles. Procurement of all packages was completed without problem. H. Gender Equity 33. The project was categorized “some gender benefits”29 at appraisal; therefore, there were no planned gender mainstreaming activities. However, the project included the construction of a girls’ school, basic health unit, recreational center and park, and access and link roads to these facilities for the benefit of local communities (para. 12). These activities were initiated by the PID. The new barrage also includes a new road bridge that improved the connectivity between both riverbanks. All project activities directly and indirectly contributed to the livelihood improvement of women in the project area, including access to better health and education facilities, and better employment opportunities in neighboring towns. I. Safeguards 34. Involuntary resettlement. The project was categorized B for involuntary resettlement, with an estimated 21 households affected, consisting of 127 people. The project involved minor land acquisition and resettlement impacts, which resulted out of a new but short lead channel connecting the existing LCC with an intake gate at the new barrage. The other parts of the construction site did not cause any land acquisition and/or involuntary resettlement impact. The PID prepared a draft land acquisition and resettlement plan (LARP) at appraisal and updated it based on the final project design, land acquisition and resettlement impacts survey, and census

29 This is equivalent to “some gender elements” in the Guidelines for Gender Mainstreaming Categories of ADB Projects

(2012).

9

of affected households. The updated LARP was approved by ADB in December 2013, well ahead of the commencement of civil works at the new lead channel. The updated LARP included (i) the acquisition of about 32 ha of private land owned by a single absentee landowner and (ii) the relocation of 15 existing PID staff houses with five households living in the guesthouses. The private absentee landowner had five agricultural laborer families who resided and worked on his land. The landowner and five agricultural laborer families were fully compensated in line with compensation entitlements provided in the approved LARP. The compensation package included compensation to the absentee landowner for the land, and a maximum compensation package to the laborer families including any immovable and productive assets owned, and relocation and vulnerability allowance as applicable in accordance with ADB’s Safeguard Policy Statement 2009 (SPS 2009). 35. The LARP was well-aligned with the involuntary resettlement requirements of SPS 2009, and implemented in compliance with SPS 2009. Internal monitoring of the LARP implementation process was reported to ADB through the executing agency’s quarterly progress reports. As planned at appraisal, an external monitoring expert was recruited for monitoring the LARP implementation progress. The PID complied with all involuntary resettlement-related loan covenants in the loan agreement. 36. Indigenous peoples. The project was categorized C for indigenous peoples at appraisal. No indigenous peoples were identified as per ADB’s SPS 2009 during the project implementation. 37. Environment. The project was categorized B for the environment and an initial environmental examination (IEE), including an environmental management plan (EMP), was prepared and approved by ADB at appraisal. The IEE was prepared in line with the government’s requirements for an environmental and social impact assessment that involved extensive stakeholder consultations. The IEE was also in line with ADB’s SPS 2009. The executing agency complied with all environment safeguard-related loan covenants. The implementation status of the EMP and the health, safety, and environment plan were regularly monitored through the executing agency’s monthly environmental progress review meeting. The IEE did not identify any major adverse environmental impacts from the project, and no new adverse impacts were identified during the implementation. The main environmental issues identified in the IEE reports were construction-related and temporary in nature. These were addressed through the implementation of the mitigation measures specified in the EMP. The environmental safeguard-related conditions were included in the civil works contract, which the contractor complied with. The contractor prepared site-specific EMPs; health, safety, and environment plan; traffic management plan; emergency response plan; and waste management plan. The environment and safeguards unit of the PMO Barrages provided efficient and appropriate guidance to the contractor for the preparation and implementation of the plans, and regularly monitored the implementation of the EMP and all other environmental plans. The executing agency’s bi-annual environmental monitoring reports were of sound quality and were submitted to and disclosed by ADB. J. Monitoring and Reporting 38. All covenants were relevant and remained applicable during the project implementation. Appendix 7 shows the status of compliance with loan covenants at project completion. All loan covenants were adequately complied with, although there were some delays in (i) Schedule 3,

10

para. 6, point (a): imprest account and statement of expenditures in the loan agreement;30 (ii) Article II, Section 2.08, point (b): the executing agency’s quarterly progress report submission to ADB;31 (iii) Schedule, Section 8, point (c): recruitment of safeguard external monitoring expert;32 and (iv) Article II, Section 2.09, point (a): requirement for a financial audit of the project in the project agreement.33 The delayed compliance in these covenants, however, did not negatively impact the project performance. 39. The executing agency, through the PMO Barrages, regularly monitored the project progress, prepared quarterly progress reports, and submitted them to ADB throughout the implementation. The project performance and monitoring system was established within the PMO Barrages for monitoring and reporting toward achievements to the project’s output targets. An agriculture monitoring specialist and a junior monitoring support staff were engaged for monitoring the output targets in the DMF. The PMO Barrages prepared the project performance and monitoring system report for 2016, and will continue to monitor the outcome targets until 2020. 40. The Auditor General of Pakistan audits all ADB-funded projects in Pakistan. The submission of the audited project financial statements for FY2012 was waived as no expenditure occurred during that year. Four audited project financial statements were submitted for FY2013 to FY2017, all with unqualified auditor’s opinion.

II. EVALUATION OF PERFORMANCE A. Relevance 41. The project was highly relevant at appraisal and remains so at completion. The intended outcome of the project was strategically well-aligned with the development priorities of both the federal and provincial governments that emphasized sustainable growth with increased water and agriculture productivity. The project was well coordinated and did not duplicate the work of other development partners. The intended outcome was also aligned with ADB’s country and sector strategies, which prioritized increased food security and enhanced livelihood (paras. 5–7). The project design and formulation process were adequate and implemented as designed, with no changes in the scope. 42. The project constructed a modern barrage with an advanced operating system, which significantly contributed to increasing the efficiency and safety of the operations and management of the barrage (para. 8). It also contributed to a reliable supply of irrigation water to the LCC command areas. The successful experience of these advanced technologies can be replicated in other barrage projects of the PID, resulting in spillover benefits to other areas of the province. B. Effectiveness 43. The project is rated effective in achieving its intended outcome and outputs (Appendix 1).

30 The imprest account was opened in July 2012 with a 4-month delay due to delayed approval by the provincial

government. 31 The first quarterly report was issued in May 2014 after awarding a civil works contract in May 2013 followed by the

contractor’s mobilization in July 2013, after which the project made physical progress. 32 The project involved limited land acquisition and resettlement at limited locations. Recruitment of a safeguard external

monitoring expert was undertaken in 2015 when the implementation time of land acquisition and resettlement became close, instead of immediately after the project effectiveness in 2012.

33 The audited financial statement for the project for FY2014 was submitted with about a 40-day delay due to delayed preparation.

11

For the outcome “sustainably improved delivery of services for irrigated agriculture and better management in LCC command areas”, the project successfully achieved the expected two targets: (i) increased designed water supplies up to 326 m3/s diverted to the LCC for at least 90% of the year and (ii) improved climate-resilient infrastructure through strengthened flood design capacity from 1 in 50 return period to 1 in 100 return period. 44. Of the two outputs, the major and physical output: “New Khanki Barrage completed on time and within budget” was substantially achieved through (i) reduced annual gate leakage losses by 370 million m3, which helped maintain the cropping intensity of 146% by 2017; (ii) increased flood discharge capacity of the barrage from 22,654 m3/s to 31,150 m3/s, reducing risks of flood damages to the barrage and adjoining areas in 2017; and (iii) increased potential annual irrigation water supplies to the LCC from 7,991 m3 to a maximum of 8,286 m3 in 2017. These physical targets were achieved in full compliance with safeguard requirements (paras. 34–37). Two other targets for output 1—“three contracts awarded according to schedule” and “all contracts are within contingencies limits”—were not achieved due to the procurement delays in civil works packages (paras. 29–30). However, these did not result in a substantial or negative impact on the achievement of the intended output. The other output—“executing agency’s improved project management capacity”—was fully achieved (para. 14). 45. Some important achievements were not specifically stated in the project DMF (para. 12). These additional achievements have contributed to the increased well-being of the communities by providing more economic and social opportunities. 46. The project was categorized B for involuntary resettlement and C for indigenous people. Land acquisition and resettlement were implemented in accordance with the involuntary resettlement requirement of SPS 2009. The project was categorized B for the environment. An EMP was prepared and approved by ADB. The project had no major significant environmental impact. All safeguard-related conditions of the project were implemented well and complied with. C. Efficiency 47. The project is rated efficient. The project’s economic internal rate of return (EIRR) was re-evaluated based on the final project cost and updated estimated benefits. The recalculated EIRR is 19.5% against 21% at appraisal. The project benefits are increased agriculture productions, increased farmers’ incomes, eliminated the risk of barrage failure, and reduced flood inundation damages on residential assets and agricultural crops. A slightly lower EIRR at completion is due to the 1-year delay in the completion of civil works and the increased costs of agricultural inputs (Appendix 8). The project was completed within the budget. D. Sustainability 48. The project is rated likely sustainable because of (i) the sound technical design and construction quality of the new barrage; (ii) the existence of appropriate policies and procedures to ensure continued funding for the O&M of barrages including the New Khanki Barrage; (iii) the PID’s seven decades of experience in irrigation system O&M management including barrages, irrigation canals, and distribution systems; and (iv) the availability of appropriate technologies, equipment, and trained human resources to operate the barrage with the newly installed SCADA system in the PID. 49. Every year, the provincial government allocates funds from the government’s budget through the PID for all O&M of the barrages and main canals, as well as for flood and other

12

emergency situations when needed.34 The allocation of funds is based on estimates provided by the PID. The PID established standard criteria for estimating the funding required for the O&M of barrages and main irrigation canals.35 The criteria were updated in 1992, 2004, and 2007. Another revision of the criteria has been carried out by the PID since 2017 and is expected to be finalized within 2018. In the case of the old Khanki Barrage, during FY2014 to FY2017, the O&M expenditures utilized 98% of the funds provided by the government.36 Following the PID’s criteria for estimating O&M funding needs, the O&M cost for the New Khanki Barrage is and will be adequately covered through the annual budget allocation, which is likely to be sufficient to cover the increased cost by adopting various new technologies, such as the fully automated barrage system controlled by a computerized SCADA system.37 Meanwhile, the new barrage has reduced maintenance and future rehabilitation costs by replacing the old barrage. 50. For barrages, the PID’s barrage operations manual provides comprehensive guidance on O&M including periodic inspection and maintenance records. The barrage team within the PID submits annual operation, maintenance, and monitoring reports of each barrage to the PID headquarters, where experts analyze the data and arrange for special inspections if required. Independent auditors audit the annual budget. The existing Khanki Barrage Division of the PID will be responsible for the operational management of the New Khanki Barrage, for which administrative procedures are in process. The existing Khanki Barrage Division has been strengthened with additional staff, mainly to operate the electro-mechanical and SCADA systems. E. Development Impact 51. The development impact of the project is rated satisfactory. The project achieved the target of “increased irrigation supplies to 1.2 million ha in the LCC command areas benefiting 568,000 farming families, and reducing flood risks from a probability of 1 in 50 to 1 in 100 across another 20,000 ha”. These achievements provide a significant positive impact on the well-being of project beneficiaries, and the government’s envisaged socioeconomic growth and poverty reduction. In addition, the project also contributed to the increased well-being of the communities by providing more economic and social opportunities (para. 12). 52. The project has two impact targets in the DMF: (i) 10% increase in cropping intensity over 50,000 ha over the 2011 baseline by 2020 and (ii) 10% increase in the average farm incomes of 25,000 farming families over the 2011 baseline by 2020. The first target is likely to be achieved as a comparison of the cropping data between 2011 and 2017 indicates that the irrigated area under crops growing in the beneficial districts of the project has increased from 3.32 million ha in 2011 to 3.56 million ha in 2017. This increase implies that the cropping intensities in the project area have already increased by more than 7%, indicating that the target is likely to be achieved by 2020. For the second target, considering that the average farm size is 2.26 ha, the analysis reveals that the income of an average holding has increased by about 15% from 2012 to 2016; thus, the target is likely to be achieved by 2020.38 By achieving these targets, project benefits will substantially be extended to the farmers and other beneficiaries of the project.

34 Financial contributions from affiliated area-wide water board agencies and farmers associations partially cover O&M

costs for on-farm canals. 35 The criteria were first introduced to Punjab in 1930 and have been used until present through several updates. 36 Government of Punjab, PID. 2017. Lower Chenab Canal East Circle. Faisalabad. 37 There are some shortages of O&M in the IBIS’s distribution networks, particularly in on-farm irrigation, which is

outside of the PID’s criteria for barrages and main canals. 38 Government of Punjab. 2017. Punjab Development Statistics. Lahore.

13

F. Performance of the Borrower and the Executing Agency 53. The performance of the Government of Pakistan as the borrower is rated satisfactory. The loan became effective without delay after the loan signing. The provincial government provided the government’s share of the project with only a brief delay, despite initial difficulties (para. 17). The provincial government established a PSC comprising relevant departments of the provincial government (para. 26), which met regularly and provided high-level decision and guidance as appropriate. The borrower, the provincial government, and the executing agency demonstrated their strong ownership of the project. 54. The executing agency’s performance is rated satisfactory. The PID efficiently managed the project and contractor’s performance, and achieved the successful completion of the new barrage construction within the budget. All covenants were substantially complied with, although with some delay. The PMO under the PID was fully responsible for the project’s day-to-day implementation, led by a dedicated project director along with all functional directors for technical (engineering and mechanical), procurement, finance, and safeguards. It also coordinated effectively with ADB, consultants, contractors, and relevant government offices for all activities of project implementation for the timely completion of the project. The PMO is recognized as competent both for its technical and project management expertise. G. Performance of the Asian Development Bank 55. ADB’s performance is rated satisfactory. ADB provided timely support conducting adequate due diligence to prepare project documents for ADB financing. ADB also supported the PID in disseminating the project to the international community of consulting firms and contractors for better competition through organizing project road shows in Beijing, Istanbul, and Manila. ADB fielded 11 review missions, had continuous close communication with both the PID and the PMO Barrages, and provided requisite administrative actions to ensure sound project implementation. For instance, when the procurement of the ICB and NCB civil works packages failed, ADB fielded a special project administration mission and assisted the PID to prepare action plans, including re-packaging, to address the issues and prevent further implementation delays. ADB also adequately supported the PMO Barrages in project implementation through smooth disbursements, timely approvals, and winding-up for the loan account closing. 56. ADB strongly supported the PMO’s capacity building by providing various opportunities to learn good project implementation, which contributed to the improvement of the PMO’s project management capacity and the project’s successful completion.39 H. Overall Assessment 57. The project is rated successful. It was highly relevant to the critical needs of improving deteriorated key irrigation infrastructure in Punjab prioritized in the government’s development strategy and investment program, and in ADB’s country strategy and program both at appraisal and at completion. The project is rated effective in completing outputs and achieving the targeted outcome. The project is rated efficient as the reevaluated EIRR confirmed the project’s economic viability. The project is likely to be sustainable as adequate budget has been continuously

39 For instance, ADB training on project implementation & administration (PAI); international best practices in land

acquisition and resettlement; ADB loan disbursement; good practices of environmental safeguard management; ADB financial management; and other relevant training and workshops were provided to the PID/PMO during project implementation.

14

provided for the O&M of barrages in Punjab, while an entire O&M cost of the barrage still needs to rely on the government’ budget availability and its allocation.

Overall Ratings Criteria Rating

Relevance Highly relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Satisfactory Borrower and executing agency Satisfactory Performance of ADB Satisfactory

ADB = Asian Development Bank. Source: Asian Development Bank.

III. ISSUES, LESSONS, AND RECOMMENDATIONS A. Issues and Lessons 58. Despite some critical issues, such as delays in the procurement of civil works followed by a delay in the start-up of project implementation, the project was successfully completed as designed and its outcome and outputs were achieved and are likely to be achieved. The following issues and lessons were, nevertheless, identified:

a. More thorough market analysis of major civil works should have been conducted during the project preparation for efficient packaging to avoid the procurement delays that triggered the start-up delay of the project activities and in benefit generation. The original ICB and NCB works procurement failed despite the international roadshow. Then, a Pakistan-based contractor won a restructured ICB works package through a rebidding after merging the original ICB and NCB packages. The national contractor demonstrated its competence with adequate financial and human resources, and successfully completed the works with sound quality.

b. The PID played an important role to develop the province’s efficient counterpart

fund transfer procedures through the project. At the beginning of the project implementation, there was a 2 to 3-month delay in the release of the provincial government’s counterpart funds due to the complexity in the government’s internal approval procedures. The PID proactively coordinated with the Finance Department and Treasury Department, resulting in improved internal fund transfer procedures. In subsequent years, counterpart funds were transferred to the government’s project account in the first quarter of each FY (July–September) without delay. This fund transfer system has been applied to subsequent externally-funded projects for the PID.

B. Recommendations 59. Project-specific recommendations include the following:

a. Future monitoring. The PID is responsible for the O&M implementation of the New Khanki Barrage. The PID should monitor the function and safety, and ensure adequate and reliable irrigation supplies by the New Khanki Barrage to the LCC

15

command areas. Intended targets to the project impact should continue to be monitored and data should be collected by the PID by 2020 to confirm the achieved impact;

b. Covenants. Most loan covenants were related to the implementation of the project and are no longer relevant, except the covenant related to the audit requirement of FY2018. This should be monitored, and the audited project financial account of the fiscal year needs to be submitted to ADB on or before 31 December 2018;

c. Further action or follow-up. The provincial government will continue to provide an adequate O&M budget to the PID for the New Khanki Barrage. The PID will continuously train its staff to meet the O&M requirements of the New Khanki Barrage; and

d. Timing of the project performance evaluation report. It is recommended that a project performance evaluation report be prepared around the end of 2020. By that time, the project will have been operating for about 3 years and its use, maintenance, physical condition, benefits provided, and impact on the environment and poverty reduction can be properly assessed. Achievement of the two targets (para. 52) of the project impact can also be assessed by around the end of 2020.

60. The following recommendations based on the findings of the project may apply to other projects:

a. Adequate market analysis to identify potential contractors including a project recipient country should be conducted in advance to make project procurement economical in terms of cost and time; and

b. The government should ensure its internal fund-flow system can be established much earlier than the commencement of project activities to avoid any negative impact on project implementation, and to provide its counterpart funds to the project in a timely manner.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets

and Indicators Project Achievements

• Impact 1. Improved agricultural

production and farm income in LCC command area (Gujranwala, Hafizabad, Sheikhupura, Nankana Sahib, Faisalabad, Jhang and Toba Tek Singh districts)

• 10% increase in cropping intensity over 50,000 ha over baseline (2011) by 2020

2.

• The comparison between the 2011 dataa and the 2016–2017 cropping datab indicates that the irrigated area under crops growing in the beneficial districtsc of the project has increased from 3.32 million ha in 2011 to 3.56 million ha in 2016. It implies that the cropping intensities in the project benefitted area has already been increased by more than 7%, which is likely to achieve the target by year 2020.

• 10% increase in average farm income of 25,000 farming families over baseline (2011) by 2020

• Considering the average farm sized as 2.26 ha, analysis reveals that the income of an average holding has been increased by 15.4% from 2012 to 2016. This achievement will be validated by 2020.

Outcome

• The sustainably improved delivery of services for irrigated agriculture and better water management in LCC command areas

• Designed water supplies up to 326 m3/s diverted to the canal for at least 90% of the year by 2017 with no risk of failure compared to the current high risk of failure

• The new barrage and LCC Head Regulator can divert 326 m3/s discharge to the LCC subject to IRSA indent and water availability in the river.e

• More climate-resilient infrastructure through strengthened flood design capacity from current 1:50 return period to 1:100 years by 2017

• The new barrage has a flood design capacity for 31,148.53 m3/s corresponding to 1:100 return period; while the old barrage has 22,654m3/s of capacity corresponding to 1:50 return period. The new barrage is a more climate-resilient infrastructure which is safe, stable and better regulates the flows.f

Outputs

• New Khanki Barrage completed on time and within the budget.

• New barrage eliminated the annual water leakage of 370 million m3 by 2017

• With the installation of gates, the annual leakage losses have been reduced by about 370 million m3 which are available for irrigation use. Reduction in the losses and assured supplies with no risk of failure will encourage farmers to increase cropped area and invest more in high value crops.g

• The flood capacity increased from 22,654 m3/s in 2011 to 31,150 m3/s in 2017

• Flood capacity of the Barrage has increased from 22,654 m3/s in 2011 to 31,150 m3/s in 2017. f

Appendix 1 17

Design Summary Performance Targets

and Indicators Project Achievements

• Annual diversion to LCC increased from max of 7991 million m3 in 2011 to max of 8286 million m3 in 2017

• The capacity of the Head Regulator of LCC has been increased to 424.5 m3/s (15,000 f3/s). Subject to availability of water in the river, a maximum volume of 8286 million m3 can be diverted in 2017.f

• Three contracts awarded according to schedule

• All three contracts: contract for supervision consulting services, ICB and NCB contracts for civil works were not awarded as per the initial schedule.h

• All contracts are within contingencies limits

• Two separate ICB and NCB packages for civil works were merged and became one ICB contract. The consultancy contract and merged ICB were both within the cost estimated at appraisal.i

• Executing agency’s improved project management capacity

• PMO’s 11 senior staff trained

• PMO’s 11 senior staff were trained through day-to-day project implementation including engineering, safeguards, financial management, procurement, contract management and other related activities.j

ADB = Asian Development Bank, ha = hectares, ICB = international competitive bidding, IRSA = Indus River System Authority, m3 = cubic meter, m3/s = cubic meter per second, NCB = national competitive bidding, NKB = New Khanki Barrage, LCC = Lower Chenab Canal, PIPD = Punjab Irrigation and Power Department, PMO = project management office, PPMS = Project Performance Monitoring System. a Government of Punjab, Bureau of Statistics. 2012. Punjab Development Statistics. Lahore. b (i) Government of Punjab, Directorate of Agriculture, Crop Reporting Service. 2017. Rabi Crop Data Book 2015–

2016. Lahore; and (ii) Government of Punjab, Directorate of Agriculture, Crop Reporting Service. 2016. Kharif Crop Data Book. Lahore.

c Gujranwala, Hafizabad, Sheikhupura, Nankana Sahib, Faisalabad, Jhang and Toba Tek Singh d Government of Punjab, Bureau of Statistics. 2016. Punjab Development Statistics. Lahore. e Government of Punjab, Punjab Irrigation Department. 2017. Director Regulation’s barrage operation data (internal

document). f Executing agency’s project’s quarterly progress reports. g Government of Punjab, Punjab Irrigation Department. 2017. Director Regulation’s barrage operation data (internal

document). h Executing agency’s project’s quarterly progress reports. i ADB Loan and Grant Financial Information Services. j Executing agency’s project’s quarterly progress reports. Source: Asian Development Bank.

18 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL ($ million)

Appraisal Estimate Actual

Item Total ADB GOP Total ADB GOP

A. Investment Cost 1. Works 238.21 207.24 30.97 214.39 184.84 29.55 2. PMO – Vehicle, Equipment and Supplies 0.11 0.10 0.01 0.09 0.07 0.02 3. Consulting Services 9.50 8.70 0.80 8.98 7.01 1.97 4. PMO – Staff and Operating Cost 1.54 1.45 0.09 0.59 0.49 0.10 5. Land Acquisition and Resettlement 0.49 0.21 0.28 0.20 0.15 0.05 Subtotal (A) 249.85 217.70 32.15 224.25 192.56 31.69 Taxes and Duties 30.00 0.00 30.00 15.58 15.58 0.00 B. Contingencies 1. Physical Price Contingencies 52.36 45.45 6.91 0.00 0.00 0.00 Subtotal (B) 52.36 45.45 6.91 0.00 0.00 0.00 C. Financing Charges During Implementation 1. Interest During Implementation 6.95 6.95 0.00 3.34 3.34 0.00 Subtotal (C) 6.95 6.95 0.00 3.34 3.34 0.00 Total (A+B+C) 309.16 270.10 39.06 227.59 195.91 31.69

PMO = project management office. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates.

Appendix 3 19

DISBURSEMENT OF ADB LOAN PROCEEDS

Table 3.1: Actual Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Actual Annual Disbursement Actual Cumulative Disbursement

Year Amount ($ million) % of Total

Amount ($ million) % of Total

2012 0.00 0.0 0.00 0.0

2013 36.69 18.7 36.69 18.7 2014 40.49 20.7 77.18 39.4 2015 40.40 20.6 117.58 60.0 2016 35.09 17.9 152.67 77.9 2017 39.24 20.0 191.91 97.9 2018 4.00 2.1 195.91 100.0

Total 195.91 100.0% 195.91 100.0% Source: Loan Financial Information System. Asian Development Bank.

Figure 3.1: Projections and Cumulative Disbursements of ADB Loan Proceeds ($ million)

Notes: 1. Value of SDR loan at approval was equivalent to $270 million. 2. Loan proceeds of $40 million was cancelled in December 2017. 3. Significant difference between the projected and actual disbursements amounts at completion was mainly due to

SDR depreciation against US$, and the $40 million cancellation of loan proceeds. 4. Projections were changed as a result of eOps clean-up exercise in April 2014 and April 2016. Source: Asian Development Bank.

0.0023.70

65.59

105.20

68.57

0.00 0.000.00

36.69

40.49 40.40 35.09 39.24

4.00

0.00

23.70

89.29

194.49

263.06 263.06 263.06

0.00

36.69

77.18

117.58

152.67

191.91 195.91

0.00

50.00

100.00

150.00

200.00

250.00

300.00

2012 2013 2014 2015 2016 2017 2018

$ m

illio

n

YearProjected Annual Disbursements Actual Annual DisbursementsProjected Cumulative Disbursements Actual Cumulative Disbursements

20 Appendix 4

CONTRACT AWARDS OF ADB LOAN PROCEEDS

Table 4.1: Actual Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Actual Annual Contract Awards Actual Cumulative Contract Awards

Year Amount ($ million) % of Total

Amount ($ million) % of Total

2012 0.00 0.0 0.00 0.0

2013 191.87 99.6 191.87 99.5 2014 0.23 0.1 192.10 99.7 2015 0.13 0.1 192.23 99.8 2016 0.13 0.1 192.36 99.9 2017 0.21 0.1 192.57 100.0

Total 192.57 100.0% 192.57 100.0% Source: Loan Financial Information System. Asian Development Bank.

Figure 4.1: Projections and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Notes: 1. Value of SDR loan at approval was equivalent to $270 million. 2. Loan proceeds of $40 million was cancelled in December 2017. 3. Projections were changed as a result of eOps clean-up exercise in April 2014 and April 2016. Source: Asian Development Bank.

0.00

227.70

0.00 0.00 0.00 0.00 0.000.00

191.87

0.23 0.13 0.13 0.210.00

227.70 227.70 227.70 227.70 227.70 227.70

0.00

191.87 192.10 192.23 192.36 192.57 192.57

0.00

50.00

100.00

150.00

200.00

250.00

2012 2013 2014 2015 2016 2017 2018

$ m

illio

n

Year

Projected Annual Contract Awards Actual Annual Contract Awards

Projected Cumulative Contract Awards Actual Cumulative Contract Awards

Appendix 5 21

IMPLEMENTATION SCHEDULE

Activities 2011 2012 2013 2014 2015 2016 2017 2018 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

A Detailed Design

1 Detailed Designa

B Procurement of Construction Supervision

1 Procurement of Construction Supervision Consultants

C Civil Works Contract

1 Bidding of NCB Contractb

2 Bidding Document of ICBc

3 Bidding and Bid Evaluation of ICB and award

4 Signing of contract

D Construction

1 Construction of works

2 Defect notification

E Safeguards

1 Environmental Management Plan

2 Resettlement Plan

F Project Management

1 Establishment of PMOd

2 Staff Appointments

G Project Monitoring

1 Project Performance Management System

ICB = international competitive bidding, NCB = national competitive bidding, PMO = project management office. a Detailed design was conducted by 2011 prior to the project, and financed by Japan International Cooperation Agency. b NCB was merged with ICB after its bid failed. c The original ICB was merged with NCB after its bid failed. Revised ICB was tendered. d The New Khanki Barrage Project Office was established within the PMO Barrage, Punjab Irrigation Department. Legend: = Planned, = Actual Sources: Asian Development Bank and Government of Pakistan.

22 Appendix 6

PROCUREMENT OF GOODS

Unit at Units Mode of

Description Appraisal Purchased Procurement Remarks Location

Vehicle sedans 1300 cc

1 1 Shopping good condition PMO Barrages

Vehicle sedans 1000 cc

4 4 Shopping good condition PMO

Barrages Double cab pickups 4x4

1 1 Shopping good condition PMO

Barrages PMO = project management office. Source: Project Management Office Inventory Record.

Appendix 7 23

STATUS OF COMPLIANCE WITH LOAN COVENANTS 1. Loan Agreement

Covenant Reference in Loan

Agreement Status of

Compliance

Particular Covenants In carrying out the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement and the Project Agreement.

Article IV, Section 4.01

Complied with.

The Borrower shall enable ADB’s representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

Article IV, Section 4.2

Complied with.

The Borrower shall take all actions which shall be necessary on its part to enable the Project Executing Agency to perform its obligations under the Project Agreement, and shall not take or permit any action which would interfere with the performance of such obligations.

Article IV, Section 4.03

Complied with.

Imprest Account and Statement of Expenditures Except as ADB may otherwise agree, the Borrower shall cause Punjab to establish, within one month of the Effective Date, an imprest account at the National Bank of Pakistan. The imprest account shall be established, managed, replenished and liquidated in accordance with the Loan Disbursement Handbook and detailed arrangements agreed upon between the Borrower and ADB. The imprest account shall only be used for the purposes of the Project. The currency of the imprest account shall be Dollar. The ceiling for the imprest account shall not exceed the lower of (i) the estimated expenditure to be financed from the imprest account for the first 6 months of Project implementation, or (ii) the equivalent of $1.5 million.

Schedule 3, Section 6(a)

Complied with delay. Imprest account was opened in July 2012 due to delayed approval by the GOPb to open it. The initial advance to the imprest account was value dated 3 May 2013.

The statement of expenditures procedure may be used for reimbursement of eligible expenditures and to liquidate advances provided into the imprest account, in accordance with Loan Disbursement Handbook and detailed arrangements agreed upon between the Borrower and ADB. Any individual payment to be reimbursed shall not exceed the equivalent of $100,000.

Schedule 3, Section 6(b)

Complied with.

Conditions for Award of Contract The Project Executing Agency shall not award any Works contract which involves environmental impact until:

(i) the IEE has been approved by ADB; and

(ii) the Project Executing Agency has incorporated relevant provisions from the EMP into the Works contract.

Schedule 4, Section 7(i), (ii)

Complied with.

24 Appendix 7

Covenant Reference in Loan

Agreement Status of

Compliance

ADB Review of Procurement Decisions Contracts procured under International Competitive Bidding procedures and contracts for Consulting Services shall be subject to prior review by ADB, unless otherwise agreed between the Project Executing Agency and ADB and set forth in the Procurement Plan.

Schedule 4, Section 12

Complied with.

The Project Executing Agency shall seek ADB’s approval before it:

(a) grants any extension of the stipulated time for completion of a contract for Works;

Schedule 4, Section 13(a)

Complied with. Loan extended twice to accommodate completion of Civil works.

(b) agrees to any modification or waiver of the conditions of a contract for Works, including any change order that falls under (c) or (d) of this paragraph;

Schedule 4, Section 13(b)

Complied with.

(c) issues any change order under a contract for Works that will in aggregate increase the original contract price (for the avoidance of doubt, such aggregate shall take into account any previous or simultaneous change order or orders under such contract); or

Schedule 4, Section 13(c)

Complied with. Three change orders were issued. The executing agency sought ADB’s prior approval.

(d) issues any change order under a contract for Works that will affect more than 15% of the original contract price (either through increases or decreases), even if the net effect of such change order will not in aggregate increase the original contract price. For the avoidance of doubt, such aggregate shall take into account any previous or simultaneous change order or orders under such contract.

Schedule 4, Section 13(d)

Complied with. No change order was issued.

ADB undertakes to respond to each request for approval under paragraph 13 above within 10 business days (in Manila and Islamabad) of ADB’s receipt of such request. Such response will indicate that the request is (a) approved, (b) declined, (c) pending receipt of additional information or documentation or (d) pending consideration by ADB’s Procurement Committee, in each case as determined by ADB. If ADB fails to respond within 10 business days (in Manila and Islamabad) of ADB’s receipt of such request, the request (except if it relates to consideration by the Procurement Committee) shall be deemed to have been approved by ADB. In the case of (c), the Project Executing Agency shall promptly provide the requested information or documentation to ADB and ADB undertakes to respond to the relevant requests within 10 business days (in Manila and Islamabad) upon receipt of such requested information or documentation satisfactory to ADB. In the case of (d), ADB shall notify the Project Executing Agency of such decision by the Procurement Committee within 10 business days (in

Schedule 4, Section 14

Complied with. The 10 business days to respond to executing agency’s request was followed.

Appendix 7 25

Covenant Reference in Loan

Agreement Status of

Compliance

Manila and Islamabad) of such decision by the Procurement Committee.

The Borrower shall, or shall ensure that the Project Executing Agency will:

(a) provide a copy of all time extensions, modifications, or waivers to the contracts (including change orders) requiring ADB’s approval in accordance with paragraph 13 above to ADB for its record promptly after signing; and

Schedule 4, Section 15(a)

Complied with.

(b) maintain an accurate record of all change orders under all contracts for Works which do not require ADB’s prior approval under paragraph 13 above and submit such record for ADB’s review every six months.

Schedule 4, Section 15(b)

Complied with.

Execution of Project Implementation Arrangements The Borrower shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM and Schedule 3 of the FFA. Any subsequent change to the PAM shall become effective only after approval of such change by the Project Executing Agency and ADB. In the event of any discrepancy between the PAM and/or Schedule 3 of the FFA and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

Schedule 5, 1

Complied with.

The Borrower shall (a) comply with ADB’s Anticorruption Policy (1998, as amended to date) and acknowledges that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Project: and (b) cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.

Schedule 5, 2

Complied with.

2. Project Agreement

Covenant Reference in Project

Agreement Status of

Compliance

Particular Covenants The Project Executing Agency shall carry out the financial, engineering, environmental, social, maintenance and operational, and irrigated agriculture development practices.

Article II, Section 2.01 (a)

Complied with.

In the carrying out of the Project and operation of the Project facilities, the Project Executing Agency shall perform all obligations set forth in the Loan Agreement to the extent that they are applicable to Punjab and/or PID, and all obligations set forth in the Schedule to this Project Agreement.

Article II, Section 2.01 (b)

Complied with.

Punjab shall make available, promptly as needed, the Article II, Complied with.

26 Appendix 7

Covenant Reference in Project

Agreement Status of

Compliance

funds, facilities, services, equipment, land and other resources as required, in addition to the proceeds of the Loan, for the carrying out of the Project.

Section 2.02

In the carrying out of the project, the Project Executing Agency shall employ competent and qualified consultants and contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB.

Article II, Section 2.03, (a)

Complied with.

Except as ADB may otherwise agree, the Project Executing Agency shall procure all items of expenditures to be financed out of the proceeds of the Loan in accordance with the provisions of Schedule 4 to the Loan Agreement. ADB may refuse to finance a contract where any such item has not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

Article II, Section 2.03, (b)

Complied with.

The Project Executing Agency shall carry out the Project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. The Project Executing Agency shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such details as ADB shall reasonably request.

Article II, Section 2.04

Complied with.

The Project Executing Agency shall take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for, insurance of Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice.

Article II, Section 2.05, (a)

Complied with.

Without limiting the generality of the foregoing, the project Executing Agency undertakes to insure, or cause to be insured, the Goods to be imported for the Project against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such Goods.

Article II, Section 2.05, (b)

Complied with.

The Project Executing Agency shall maintain, or cause to be maintained, records and accounts adequate to identify the items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.

Article II, Section 2.06

Complied with.

The Project Executing Agency shall cooperate fully to ensure that the purposes of the Loan will be accomplished.

Article II, Section 2.07, (a)

Complied with.

The Project Executing Agency shall promptly inform Article II, Complied with.

Appendix 7 27

Covenant Reference in Project

Agreement Status of

Compliance

ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement, or the accomplishment of the purposes of the Loan.

Section 2.07, (b)

ADB and Punjab shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the Project, PID and the Loan.

Article II, Section 2.07, (c)

Complied with.

The Project Executing Agency shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of PID; and (v) any other matters relating to the purposes of the Loan.

Article II, Section 2.08, (a)

Complied with.

Without limiting the generality of the foregoing, the Project Executing Agency shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

Article II, Section 2.08(b)

Complied with in some delay. The first progress report was submitted in May 2014.

Promptly after physical completion of the Project, but in any event not later than 3 months thereafter or such later date as ADB may agree for this purpose, the Project Executing agency shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by Punjab of its obligations under this Project Agreement and the accomplishment of the purposes of the Loan.

Article II, Section 2.08(c)

Complied with. Executing agency drafted project completion report in April 2018 and submitted to ADB.

(a) Punjab shall cause PID to (i) maintain separate accounts for the Project; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than 6 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors

Article II, Section 2.09(a)

Complied with, but with some delay in submission of the audited project financial statements for the fiscal year 2013–2014 to ADB.

28 Appendix 7

Covenant Reference in Project

Agreement Status of

Compliance

relating thereto (including the auditor’s opinion on the use of the Loan proceeds and compliance with the financial covenants of the Loan Agreement as well as on the use of the procedures for imprest account and statement of expenditures), all in the English language. Punjab shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Punjab shall enable ADB, upon ADB’s request, to discuss PID’s financial statements and its financial affairs with respect to the Project from time to time with the auditors appointed by Punjab pursuant to subsection (a) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer for Punjab unless Punjab shall otherwise agree.

Article II, Section 2.09(b)

Complied with.

Implementation Arrangements The Project Executing Agency shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM and Schedule 3 of the FFA. Any subsequent change to the PAM shall become effective only after approval of such change by the Project Executing Agency and ADB. In the event of any discrepancy between the PAM and/or Schedule 3 of the FFA and this Project Agreement, the provisions of this Project Agreement shall prevail.

Schedule, Section 1 Complied with.

Environment The Project Executing Agency shall ensure that the preparation, design, construction, implementation , operation and decommissioning of the Project and all Project facilities comply with (a) all applicable laws and regulations of the Borrower relating to environment, health and safety; (b) the Environmental Safeguards; (c) the EARF; and (d) all measures and requirements set forth in the respective IEE and EMP, and any corrective or preventive actions set forth in a Safeguards Monitoring Report.

Schedule, Section 2 Complied with.

Land Acquisition and Involuntary Resettlement The Project Executing Agency shall ensure that all land and all rights-of-way required for the Project and all Project facilities are made available to the Works contractor in accordance with the schedule agree under the related Works contract and all land acquisition and resettlement activities are implemented in compliance with (a) all applicable laws and regulations of the Borrower relating to land acquisition

Schedule, Section 3 Complied with.

Appendix 7 29

Covenant Reference in Project

Agreement Status of

Compliance

and involuntary resettlement; (b) the Involuntary Resettlement Safeguards; (c) the LARF; and (d) and all measures and requirements set forth in the LARP, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.

Without limiting the application of the Involuntary Resettlement Safeguards, the LARF or the LARP, the Project Executing Agency shall ensure that (a) no land shall be acquired for the purposes of the Project under the emergency acquisition provisions of the Borrower’s Land Acquisition Act (1984), as amended, and (b) no physical or economic displacement takes place in connection with the Project until:

(i) compensation and other entitlements have been provided to affected people in accordance with the LARP; and

Schedule, Section 4(i) Complied with. All affected people (PID employees and land owners and tenants) were completely moved to better housing.

(ii) a comprehensive income and livelihood restoration program has been established in accordance with the LARP.

Schedule, Section 4(ii) Complied with.

Indigenous Peoples The Project Executing Agency shall ensure that the Project does not have any indigenous peoples impacts within the meaning of the Safeguard Policy Statement. In the event that the Project does have any such impact, The Project Executing Agency shall take all steps required to ensure that the Project complies with the applicable laws and regulations of the Borrower and the Safeguards Policy Statement.

Schedule, Section 5 Complied with.

Human and Financial Resources to Implement Safeguards Requirements Punjab shall make available necessary budgetary and human resources to fully implement the EMP and the LARP.

Schedule, Section 6 Complied with.

Safeguards – Related Provisions in Bidding Documents and Works Contracts The Project Executing Agency shall ensure that all bidding documents and contracts for Works contain provisions that require contractors to:

(a) comply with the measures and requirements relevant to the contractor set forth in the IEE, the EMP and LARP (to the extent they concern impacts on affected people during construction) and any corrective or preventative actions set out in a Safeguards Monitoring Report;

Schedule, Section 7 (a)

Complied with.

(b) make available a budget for all such environmental and social measures;

Schedule, Section 7(b) Complied with.

(c) provide the Project Executing Agency with a written notice of any unanticipated

Schedule, Section 7(c) Complied with.

30 Appendix 7

Covenant Reference in Project

Agreement Status of

Compliance

environmental, resettlement or indigenous peoples risks or impacts that arise during construction, implementation or operation of the Project that were not considered in the IEE, the EMP or the LARP;

(d) adequately record the condition of roads, agricultural land and other infrastructure prior to starting to transport materials and construction; and

Schedule, Section 7(d) Complied with.

(e) fully reinstate pathways, other local infrastructure, and agricultural land to at least their pre-project condition upon the completion of construction.

Schedule, Section 7(e) Complied with.

Safeguards Monitoring and Reporting The Project Executing Agency shall do the following:

(a) submit quarterly Safeguards Monitoring Reports to ADB and disclose relevant information from such reports to affected persons promptly upon submission;

Schedule, Section 8(a) Complied with.

(b) if any unanticipated environmental and/or social risks and impacts arise during construction, implementation or operation of the Project that were not considered in the IEE, the EMP or the LARP, promptly inform ADB of the occurrence of such risks or impacts, with detailed description of the event and proposed corrective action plan;

Schedule, Section 8(b) Complied with.

(c) no later than 6 months after the date of effectiveness of the Loan Agreement, engage a qualified and experienced external expert or qualified NGO under a selection process and terms of reference acceptable to ADB, to verify information produced through the Project monitoring process and facilitate the carrying of out of any verification activities by such external experts; and

Schedule, Section 8(c) Complied with. Actual recruitment of a monitoring expert was processed in 2015 because LARP implementation was required in and after 2015.

(d) report and actual or potential breach of compliance with the measures and requirements set forth in the EMP or the LARP promptly after becoming aware of the breach.

Schedule, Section 8(d) Complied with.

Prohibited List of Investments Punjab shall ensure that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

Schedule, Section 9 Complied with.

Health and Labor Standards The Project Executing Agency shall ensure that all contractors: (a) comply with all laws and mandated provisions on labor, health, safety sanitation and

Schedule, Section 10 Complied with. It was included in the bidding

Appendix 7 31

Covenant Reference in Project

Agreement Status of

Compliance

working conditions; (b) use their best efforts to employ women and local people negatively affected by, or living in the vicinity of, the Project; (c) disseminate information at worksites and campsites for those employed during construction on (i) risks of sexually transmitted diseases and HIV/AIDS and (ii) the prevention of trafficking of women and children; (d) are required not to differentiate between men and women’s wages or benefits for work of equal value; (e) provide accommodation to construction workers at campsites during the construction period and ensure that all work sites and campsites are safe for all employees, service providers, the public and road users; (f) eliminate all forms of forced all compulsory labor; (g) allow freedom of association and the right of assembly; and (h) abstain from engaging persons below the legally employment age in Pakistan.

documents as well as in the EMP.

Governance and Corruption Punjab shall, and shall cause PID to, (a) comply with ADB’s Anticorruption Policy (1998, as amended to date) and acknowledge that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Project; and (b) cooperate with any such investigation and extend all the necessary assistance for satisfactory completion of such investigation.

Schedule, Section 11 Complied with.

The Project Executing Agency shall ensure that (a) relevant provisions of ADB’s Anticorruption Policy are included in the bidding documents for the Project; (b) all contracts financed by ADB in connection with the Project include provisions specifying the right of ADB to audit and examine the records and accounts of PID and PMO Barrages, and all contractors, suppliers, consultants and other service providers as they relate to the Project; (c) and external audit of procurement activities is carried out at least twice during the Project implementation.

Schedule, Section 12 Complied with.

The Project Executing Agency shall use PID’s existing website to present financial statements and track procurement contract awards, and include information on, among other things, the list of participating bidders, name of winning bidders, basic details on bidding procedures adopted, amounts of the contracts awarded, the list of goods and/or services purchased, and their intended and actual utilization.

Schedule, Section 13 Complied with. The executing agency uploaded the updated data on PMO/PID/GOPb web.

Auditing and Monitoring The proceeds of the Loan may be used to finance the expenditures for (a) the annual audits of Project accounts and financial statements in accordance with Section 2.09 of this Project Agreement, and (b) the external audit in accordance with paragraph 12(c) above, provided that the auditors have qualifications,

Schedule, Section 14 Complied with. All ADB funded projects in Pakistan are being audited by the Auditor General of Pakistan as an independent auditor.

32 Appendix 7

Covenant Reference in Project

Agreement Status of

Compliance

expertise, and terms of reference acceptable to ADB, and are selected in accordance with the procedures acceptable to ADB.

ADB = Asian Development Bank, EARF = environmental assessment review framework, EMP = environmental management plan, FFA = framework financing agreement, GOPb = Government of Punjab, IEE = initial environmental examination, LARF = land acquisition and resettlement framework, LARP = land acquisition and resettlement plan, PAM = project administration memorandum, PID = Punjab Irrigation Department, PMO = project management office, SPS = Safeguard Policy Statement. Source: Asian Development Bank.

Appendix 8 33

REASSESSMENT OF ECONOMIC AND FINANCIAL ANALYSIS A. Introduction

1. This appendix contains the economic reevaluation of the second tranche of the multitranche financing facility (MFF) approved by the Asian Development Bank (ADB) in December 2011. The methodology and assumptions adopted for reassessing the evaluation of the project generally follow those carried out at appraisal. A new barrage, replacing the old one, has been constructed under the project at about 300 meters downstream of the old Khanki Barrage on the River Chenab in Punjab. The new barrage has increased flood capacity from 22,653.48 cubic meters per second (m3/s) to 31,148.53 m3/s, and able to divert up to 329.98 m3/s of irrigation water to the Lower Chenab Canal (LCC) serving about 1.2 million hectare (ha). The new barrage reduces flooding risks from 1/50 probable flood to 1/100 probable flood. Implementation of these intervention of the project started in 2013 and was completed in 2018. The analysis quantifies the benefits and costs of the investment in economic terms, and measures the net worth of the project to the country. The economic analysis of the project has been conducted in accordance with ADB’s guidelines on the economic analysis of projects.1 B. Economic Analysis at Appraisal

2. At appraisal, two scenarios were compared to determine the economic net benefits of the project: (i) without project, and (ii) with-project. The without-project scenario assumes the barrage will fail at some point in time in future, thereby incurring agricultural losses in following years, costs for emergency repair works to restore water supplies, and additional capital cost for full recovery of the damages. The with-project scenario assumes a continuation of current crop areas and level of yields. The project will not result in increased agricultural production or productivity, and the primary benefit is the elimination of the income foregone associated with a barrage failure. 3. The value of the benefits is dependent upon the year of failure (due to discounting), which is unknown. Accordingly, a risk modeling framework was developed and used to account for variability in the time of barrage failure without the project. In the model developed for the analysis, the project capital costs and the benefits from reducing leakage losses were also treated as a random variable. A cumulative probability distribution was identified for the probable year of barrage failure being – year {5, 10, 15, 20, 25, 30} and cumulative probability {5%, 15%, 50%, 90%, 100%}. A capital cost scalar was included using a triangular probability distribution based around a minimum, median, and maximum {0.9, 1.0, 1.2}. 4. The analysis was simulated for 10,000 iterations and the results were presented in terms of probabilities. Sensitivity analysis was not computed as variations to benefits and costs, implicitly included in the base analysis. At appraisal, the analysis computed mean economic internal rate of return (EIRR) as 21% ranging from 11.80 (10th percentile) to 31.3% (90th percentile). The probability of the project exceeding the 12% EIRR threshold was estimated at 85%. C. Economic Evaluation at Completion of the Project

5. In line with previous analysis, two scenarios are considered: without and with-project; and an economic reevaluation of the second tranche at completion was undertaken to ascertain

1 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila; and ADB. 2017. Guidelines for the Economic

Analysis of Projects. Manila.

34 Appendix 8

whether the project remained economically viable at the cost of its completion. The updated economic analysis of the New Khanki Barrage assumes similar assumptions as of the appraisal with updated data on crop yields and cropping intensities at year 2018. The life of the Barrage with normal maintenance has been estimated at 30 years including the project completion period of 6 years. Construction of the New Khanki Barrage at the upstream end ensured reliable irrigation delivery to 1.2 million ha in the LCC command benefitting 568,000 farming families in seven districts2 and reducing flooding risk across another 20,000 ha. The reevaluation of the project used the same risk framework of accumulated probability distribution and compared the with-project and without project scenarios by following the same methodologies and major assumptions considered at appraisal. 6. For the without project scenario, in the year following barrage failure, it is assumed that no water can be supplied to Rabi crops. However due to emergency measures, some water will be available to the following Kharif season crops. In subsequent years, more water will become available until full production is restored within 7 years (Table A-1).

Table A1: Crop Area Scalar and Emergency Costs Associated with Barrage Failure Year after Barrage

failure Rabi crop scalar Kharif crop scalar Barrage emergency

repair costs (PRs million)

1 1.00 0.50 500

2 0.35 0.35 100

3 0.20 0.20 100

4 0.20 0.20 100

5 0.20 0.20 100

6 0.10 0.10 100

7 0.05 0.05 100

Source: Asian Development Bank estimates.

7. However, barrage failure does not mean all crops will be affected as about 50% of the irrigable area uses groundwater. Future crop areas were assumed to be the same as current areas for Rabi season (840,377 hectares [ha]), Kharif season (681,284 ha), and perennial and semi-perennial crops such as sugarcane and orchards (314,589 ha). Crop yields were assumed to remain at current levels. Financial and economic gross margins were derived for each crop type. It was further assumed that the barrage failure can occur naturally due to the high degree of erosion under the then existing structure, or from a flood. If the failure associated with a flood event, then flooding losses of the Kharif crop area (20%) can be expected as well as some damage to downstream hydraulic structures. The probability of failure of the barrage due to a flood event was assumed to be 70%. D. Other Non-Quantified Benefits

8. Construction of the Barrage has reduced flooding risk. The new road constructed under the project has established transport links to the nearest towns, and reduced the traveling distance of 26 kilometers between Gujranwala and Gujrat cities. The new road link across the river also provided the women access to the nearest towns for better labor opportunities if they so wish, save their labor-time, and access to better health and education facilities. The Government of Punjab is in the process of approving a toll tax to be collected from the users of the road.

2 Gujranwala, Hafizabad, Sheikhupura, Nankana Sahib, Faisalabad, Jhang and Toba Tek Singh districts.

Appendix 8 35

9. The project rehabilitated the building of an elementary level children school and upgraded it to a secondary school for the girls. This provided additional employment to 14 females as teachers and other support staff in the school. The facility of computer laboratory and science laboratory is also established in this school. At present, 289 girl students are enrolled, whereas 35 girls already graduated last year from the school. For its operational liability and sustainability, the school has been handed over to the Education Department of the provincial government. 10. A Basic Health Unit (BHU) is also established near the project site which serves a monthly average of 1,200 patients. The mission reviewed the out-patient register of the BHU and found that the BHU has provided medical assistance to 24,051 patients from March 2017–April 2018. During this period, the BHU treated the patients who were suffering from diseases mainly acute respiratory infection (6,815), diarrhea (2,997), scabies (2,956), asthma (1,804) and other common diseases (9,479) such as fever and colds. The project also provided an X-ray machine/room, established a full fledge labor room and a nursery for the newly born children at the BHU. The BHU employed 10 persons including support staff. The position of X-ray technician is vacant and likely to be filled soon. For its operational liability and sustainability, the BHU has been handed over to the Health Department of the provincial government. 11. A recreational park for the families and children, nearby the New Khanki Barrage has been developed under the project. The park has jogging track and a mosque wherein a separate prayer area is allocated for the females. The mission was told by the staff present that the park is not yet officially opened for the general public, yet more than 100 families and children used to come to visit this park from the surrounding towns on a daily basis. For its operational liability and sustainability, the Punjab Irrigation Department (PID) will keep it and provide employment to about 20 local persons for its maintenance and operation. This recreation facility will be available to general public without any entrance fee. 12. The project has provided trainings on various livelihood activities like flood disaster management, establishing small business shops, etc. to the local people residing in the surrounding towns. Details about such trainings have been requested by the mission to the concerned Project Consultants for inclusion in the final report. These trainings were arranged in collaboration with Technical, Entrepreneurial and Vocational Education and Training (TEVET) Authority, a separate department under the provincial government. 13. All these benefits, as explained above, were not quantified for the analysis, but are quoted to indicate the project’s importance both socially and economically. E. Main Assumptions and Updated Data

14. The life of the project is 30 years; a discount rate of 12% was used for the economic analysis. The analysis uses shadow pricing and standard conversion factors to convert the financial costs and benefits into economic terms. Border prices of tradable commodities for wheat, rice, cotton, and sugarcane were computed based on latest available World Bank commodity forecasts.3 15. All the agricultural data in the command of the Barrage have been updated in particular crops’ yield per acre collected from the Punjab Crop Reporting Center for the crop seasons of Rabi 2015–2016 and Kharif 2016.

3 World Bank. 2018. World Bank Commodities Price Data.

36 Appendix 8

16. For economic analysis, actual costs incurred on the project has been undertaken and converted to economic values by using appropriate conversion factors. The analysis was undertaken at border price level in domestic currency. The analysis uses a world price numeraire. The standard conversion factor (SCF) of 0.90 has been calculated using the appropriate data for the fiscal year (FY) 2013 to FY2016 for Pakistan.4 17. The border prices of tradable commodities like wheat, rice, seed cotton, and sugarcane have been computed based on latest available prices. Local commodities for which Pakistan does not enter into international trade, wholesale prices prevailing in districts Multan, Jhang, Hafizabad, and Gujranwala markets of Punjab during respective harvesting periods were collected and adjusted to the farm gate by deducting marketing costs between the farm and the market. 18. All costs and benefits are expressed at May 2018 constant prices.5 The exchange rate used was $1 equivalent to Pakistan Rupee (PRs) 115.585.6 19. Investment Costs. The financial capital cost incurred for completing the construction of the New Khanki Barrage is $227.589 million against the original estimates of $309.156 million. The completion costs in economic terms is $206.2 million. 20. Using the similar approach as adopted at appraisal, the analysis was solved by Monte Carlo simulation, and the results were reported in terms of the mean, standard deviation, and percentiles. Sensitivity analysis was not undertaken as the variability in key parameters was implicitly included in the risk analysis framework. 21. Operation and Maintenance costs. The incremental annual recurring, O&M cost is estimated as PRs57.9 million7 and considered in the economic analysis after converting to its true economic value of PRs52.1 million. 22. Price Datum: Border prices of tradable commodities (e.g. wheat, rice, cotton) were computed from the latest available World Bank commodity forecasts (June 2018). Border prices of major inputs (e.g. fertilizers, pesticides) were also derived from the same basis. All border prices were adjusted to account for transport and handling between port and market, and from market to farm-gate. The resulting values were expressed in terms of the domestic currency. The financial and economic values used in the analyses are given in Table A2.

4 An average SCF for the 2012–2013 to 2015–2016 was calculated using the formula SCF = (M+X) / [(M+Trn)+(X-T)I

where M is CIF value of imports, X is FOB value of exports, Trn is net value of taxes on imports, T is net value of taxes on exports.

5 The project was approved in 2011 and part of the cost was already incurred. For the purpose of analysis these costs were converted to 2018 prices using Consumers Price Indices (CPIs) for respective years. Source: Economic Survey of Pakistan 2018.

6 10 May 2018 foreign exchange rate. 7 Estimates provided by the Punjab Irrigation Department.

Appendix 8 37

Table A2: Financial and Economic Values

Item Unit Financial value Economic

value

Cotton* PRs/kg 78.69 80.86

Rice* PRs/ kg 54.73 65.31

Maize (Kharif) PRs/ kg 20.18 18.16

Kharif Vegetables PRs/ kg 42.14 37.93

Kharif Oilseeds PRs/ kg 86.94 78.24

Kharif Others PRs/ kg 96.65 86.98

Kharif Fodder PRs/ kg 4.67 4.20

Wheat (Rabi)* PRs/ kg 32.23 31.94

Rabi Vegetables PRs/ kg 51.10 45.99

Rabi Oilseeds PRs/ kg 65.57 59.02

Rabi Fodder PRs/ kg 4.59 4.13

Rabi Others PRs/ kg 96.65 86.98

Sugarcane* PRs/ kg 4.07 4.20

Orchard PRs/ kg 38.10 38.10

Fertilizers

N--(UREA) * PRs/Nkg 63.04 67.40

P--(DAP) * PRs/Nkg 132.00 114.96

Potash* PRs/Nkg 78.00 87.04

Border prices used. Source: Asian Development Bank estimates.

F. Results of Economic Analysis 23. The economic analysis derived a means of EIRR, economic net present value, and mean economic benefit cost ratio along with standard deviations of each indicator. The results are summarized in the Table below.

Table A3: Summary Statistics of Project Viability Indicators

Indicators

At Appraisal At Completion (PCR)

EIRR % ENPV

(PRs M) EBCR EIRR %

ENPV (PRs M)

EBCR

Mean 21.0 22,432 3.8:1 19.6 17,472 3.2:1

Standard Deviation 16.4 26,397 2.7 15.4 23,876 2.2 EBCR = economic benefit cost ratio, EIRR = economic internal rate of return, ENPV = economic net present value. Source: Asian Development Bank estimates.

24. The economic analysis reveals robust mean values of EIRR, a little lower value of mean EIRR and economic benefit cost ratio in comparison to envisaged at appraisal, is due to the adjustment of the price level of agricultural commodities and due to the 1-year delay in completion of construction of the project. 25. The mean results suggest that the project is economically viable. The percentiles resulting from the model simulation presented at Table A4 indicate the probability of achieving certain values for the economic performance criteria. The EIRR ranges from 11 (10th percentile) to 29.6 (90th percentile). The minimum estimated EIRR exceeded the 12% threshold, indicating the project has a high probability of being economically viable.

38 Appendix 8

Table A4: Results of Economic Risk Analysis

Percentile

At Appraisal At Completion (PCR)

EIRR ENPV

EBCR

EIRR ENPV

EBCR (%)

(PRs million)

(%) (PRs million)

0% 8.66 -9,815 0.7 8.08 -11,251 0.7

10% 11.90 -278 1.5 11.01 -2,917 1.3

20% 13.28 4,135 2.0 12.32 974 1.7

30% 14.21 7,218 2.3 14.13 6,792 2.2

40% 15.22 10,483 2.6 15.30 10,403 2.5

50% 16.45 14,673 3.0 16.75 15,034 2.9

60% 18.04 19,759 3.6 18.48 19,996 3.4

70% 20.10 25,383 4.2 21.13 28,289 4.2

80% 22.88 34,817 5.1 29.61 45,463 5.7

90% 32.23 54,744 7.2 120.11 122,597 13.9 EBCR = economic benefit cost ratio, EIRR = economic internal rate of return, ENPV = economic net present value, PCR = Project Completion Report. Source: Asian Development Bank estimates.

G. Financial Sustainability and Operation & Maintenance – Punjab Irrigation

Department Infrastructure 26. During 2005–2006, the PID pursued a major rehabilitation and upgrade of the irrigation infrastructure program. The backlog of accumulated cost was bridged through holistic donor support; and funds were arranged to rehabilitate the vital irrigation infrastructure, i.e. barrages. Sizeable investments (about US $1.2 billion) were made over the last 10 years to rehabilitate and upgrade the deteriorated irrigation infrastructure. 27. The periodic maintenance and repairs of the infrastructure are carried out through maintenance funds allocated for each component based on approved yardsticks, which are mainly based on a general parameter for yearly maintenance and operational features. To ensure integrity and sustainability of the PID’s irrigation system, one of the several actions is to prepare realistic figures for monitoring and repair (M&R) established using zone specific quantities. 28. M&R needs are determined based on the condition of the infrastructure. A realistic budget and proper annual work plan for M&R are prepared as per yardsticks. In the past, there were generally wider gaps between O&M allocation and actual requirement. However, a significant increase can be observed during 2005–2006, over a period of 10 years on account of M&R funds allocation to the PID by the provincial government. 29. During 2007–2008 and 2008–2009, the budget allocation for M&R were only PRs 2,344 million and PRs 3,085 million respectively. If compared, it increases to PRs 9,207 million during 2015–2016 and to PRs 7,667 million during 2017–2018. Table A5 indicates the quantum increase in O&M budget as per yardsticks for the past few years.

Appendix 8 39

Table A5: Summary of Operation & Maintenance Budget Sr. No.

Cost Centre (PRs million)

Salary Non-Salary Total

1 Budget 2013–2014 8,615.057 8,328.533 16,943.590

2 Budget 2014–2015 7,562.843 5,260.467 12,823.310

3 Budget 2015–2016 8,951.217 9,207.447 18,158.664

4 Budget 2016–2017 9,511.657 9,070.782 18,582.439

5 Budget 2017–2018 10,529.560 8,778.842 19,308.402 Source: Budget and Accounts Office, Punjab Irrigation Department, Government of Punjab.