Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: RES22454

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF THE

IRRIGATION AND DRAINAGE PROJECT

CREDIT4333-ET

BOARD APPROVAL DATE: JUNE 21, 2007

CREDIT4976-ET

BOARD APPROVAL DATE: JUNE 23, 2011

TO THE

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

July 28, 2016

Water Global Practice

Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

ABBREVIATIONS AND ACRONYMS

AGP / Agricultural Growth Program/Project
AgroBig / Agro-Business Induced Growth Programme
AHC / Animal Health Clinic
AHP / Animal Health Post
ARARI / Amhara Region Agricultural Research Institute
AMDe / Agribusiness and Market Development
BoA / Bureau of Agriculture
BoTT / Bureau of Trade and Transport
BoWRD / Bureau of Water Resources Development
CPA / Cooperative Promotion Agency
EFA / Economic and Financial Analysis
ESMP / Environmental and Social Management Plan
FTC / Farmers Training Center
IA / Implementing Agencies
IDA / International Development Association
IO / Intermediate Outcome
IP / Implementation Progress
IWUA / Irrigation Water User Association
LMD / Livestock Market Development
LRDPA / Livestock Resources Development Promotion Agency
MGF / Matching Grant Facility
MIS / Management Information System
MSC / Management Services Contractor
MoWR / Ministry of Water Resources
MTR / Mid-Term Review
MWIE / Ministry of Water, Irrigation and Energy
NPCO / National Project Coordination Office
O&M / Operation and Maintenance
PDO / Project Development Objective
POs / Producers Organizations
RAP / Resettlement Action Plan
RPCO / Regional Project Coordination Office
SME / Small and Medium Enterprise
SMI / Small and Medium Industry
Regional Vice President: / Makhtar Diop
Country Director: / Carolyn Turk
Senior Global Practice Director: / Jennifer Sara
Practice Manager: / Alexander Bakalian
Task Team Leader: / Xiaokai Li

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

IRRIGATION AND DRAINAGE PROJECT

Table of Contents

Page

DATA SHEET

A. Summary of Proposed Changes

B. Project Status

C. Proposed Changes

Annex 1: Revised Project Results Framework

Annex 2: Revised Economic Analysis

DATA SHEET
Ethiopia
Irrigation and Drainage Project (P092353)
AFRICA
Water
Report No: / RES22454
.
Basic Information
Project ID: / P092353 / Lending Instrument: / Specific Investment Loan
Regional Vice President: / Makhtar Diop / Original EA Category: / Full Assessment (A)
Country Director: / Carolyn Turk / Current EA Category: / Full Assessment (A)
Senior Global Practice Director: / Jennifer J. Sara / Original Approval Date: / 21-Jun-2007
Practice Manager/Manager: / Alexander E. Bakalian / Current Closing Date: / 31-Oct-2017
Team Leader(s): / Xiaokai Li,Hayalsew Yilma
.
Borrower: / Federal Democratic Republic of Ethiopia
Responsible Agency: / Ministry of Water, Irrigation and Energy
.
Restructuring Type
Form Type: / Full Restructuring Paper / Decision Authority: / Board/AOB Decision
Restructuring Level: / Level 1
.
Financing
Key Dates
Project / Ln/Cr/TF / Status / Approval Date / Signing Date / Effectiveness Date / Original Closing Date / Revised Closing Date
P092353 / IDA-43330 / Effective / 21-Jun-2007 / 13-Jul-2007 / 24-Jan-2008 / 31-Oct-2015 / 31-Oct-2017
P092353 / IDA-49760 / Effective / 23-Jun-2011 / 15-Sep-2011 / 14-Dec-2011 / 31-Oct-2017 / 31-Oct-2017
Disbursements (in Millions)
Project / Ln/Cr/TF / Status / Currency / Original / Revised / Cancelled / Disbursed / Un-disbursed / Disbursed %
P092353 / IDA-43330 / Effective / XDR / 65.60 / 59.23 / 6.37 / 38.60 / 20.63 / 65
P092353 / IDA-49760 / Effective / XDR / 37.10 / 37.10 / 0.00 / 4.93 / 32.17 / 13
.
Policy Waivers
Does the project depart from the CAS/CPF in content or in other significant respects? / Yes [ ] / No [X]
Does the project require any policy waiver(s)? / Yes [ ] / No [X]
.
A. Summary of Proposed Changes
The proposed restructuring involves changes to:
(a) theProject Development Objective (PDO);
(b) the results framework;
(c) project components and costs;
(d) the financing plan;
(e) disbursement estimates and relocation between disbursement categories;and
(f) the economic analysis, technical analysis and risk assessment.
These changes are necessary primarily due to delays in the implementation, escalation of costs, and exchange rate fluctuation, and other reasons as outlined below. There will be no changes in project institutional arrangements, EA category or safeguards policies triggered. The safeguards arrangements are still appropriateand relevant.
Change in Implementing Agency / Yes [ ] / No [X]
Change in Project's Development Objectives / Yes [X] / No [ ]
Change in Results Framework / Yes [X] / No [ ]
Change in Safeguard Policies Triggered / Yes [ ] / No [X]
Change of EA category / Yes [ ] / No [X]
Other Changes to Safeguards / Yes [ ] / No [ X]
Change in Legal Covenants / Yes [ ] / No [X]
Change in Loan Closing Date(s) / Yes [ ] / No [X]
Cancellations Proposed / Yes [ ] / No [X]
Change to Financing Plan / Yes [X] / No [ ]
Change in Disbursement Arrangements / Yes [ ] / No [X]
Reallocation between Disbursement Categories / Yes [X] / No [ ]
Change in Disbursement Estimates / Yes [X] / No [ ]
Change to Components and Cost / Yes [X] / No [ ]
Change in Institutional Arrangements / Yes [ ] / No [X]
Change in Financial Management / Yes [ ] / No [X]
Change in Procurement / Yes [ ] / No [X]
Change in Implementation Schedule / Yes [ ] / No [X]
Other Change(s) / Yes [ ] / No [X]
Appraisal Summary Change in Economic and Financial Analysis / Yes [X] / No [ ]
Appraisal Summary Change in Technical Analysis / Yes [X] / No [ ]
Appraisal Summary Change in Social Analysis / Yes [ ] / No [X]
Appraisal Summary Change in Environmental Analysis / Yes [ ] / No [X]
Appraisal Summary Change in Risk Assessment / Yes [X] / No [ ]
.
B. Project Status
The original Project was approved by the Board in June 2007in the amount of SDR 65.6 million, of which SDR 6.37 million was later cancelled due to food crisis emergency response. The Project became effective in January 2008.The original aim of the Project was to support a large scale irrigation development for small holder farming on 20,000 ha. The Project Area includes two schemes located in Amhara Region: Megech-Seraba (Dembia woreda) and Ribb (Libokemkem and Fogera woredas). The irrigation water supply for the Ribb scheme would be relying on a dam on the Ribb River constructed by the Government with its own resources.
First Project Restructuring and Additional Financing. The project faced delays and cost overruns due tothe redesign of the irrigation systems and increases in fuel, labor and material costs. Accordingly, to enable the Project to be completed and to meet the cost overrun, it was agreed that the project be restructured with additional financing (SDR 37.1 million) that was approved in June 2011. At the same time, the project closing date was extended by two years to October 31, 2017.
Since the project faced a cost overrun, the Government and the Bank decided in October 2012 to split the construction of the Ribb scheme into two phases and to launch Phase 1 first. The split was done in such a way as to ensure that the available budget would fully cover both Megech-Seraba scheme (4,004 ha) and Ribb Phase 1 (3,041 ha). The Ribb Phase 2 (10,000 ha)would be developed based onfund availability under the Project. For this purpose, the Government committed to carrying out river training worksfortheRibb scheme.Letters confirming this commitment was received from the Ministry of Water, Irrigation and Energy in 2011 and subsequently in 2015.
Second Project Restructuring.Further construction cost escalation resulted in an additional funding gapfor the construction of the Ribb scheme. The original cost estimates used for the additional financing were based on a detailed design for the Megech-Seraba scheme and a feasibility design for the Ribb scheme, andhad increased by about 80 percent by 2014. High inflation, increases in the cost of fuel, materials and daily labor further contributed to the cost escalation. Actual bid prices were much higher than the engineering estimates. As a result,there was not enough funding to completeboth schemes in their entirety. Accordingly, the Project was restructured again in July 2014, which involved:(i) reduced scope and revised costs of the three components to focus on Megech-Seraba Scheme (4,004 ha) and Ribb Scheme Phase 1 (3,041 ha), excluding Ribb SchemePhase 2(10,000 ha);(ii) reallocation between categories of expenditures;and (iii) revision of the Result Framework with modified indicator targets.
Current Implementation Status. The project is behind schedule due to issues with procurement of construction contracts. This was caused by major delays in completing the designs and in mobilizing construction contractors. However, there have been clear signs of improvement in implementation performance over the past months. Both design consultants and construction contractors mobilizing additional resources to speed up the delivery of design drawings and project works construction at each of the schemes.The design drawings are no longer the constraint for Megech Scheme, and construction of critical works is progressing significantly faster than before at both sites.
Under Component 1 – Irrigation Development, the construction of the Megech-Seraga scheme (covering 4,004 ha) is 65 percent completed and full completion is scheduled for December 31, 2016. The primary canals for Ribb Scheme Phase 1 (covering 3,041 ha)is 10 percent complete. Concrete measures such as having parallel design and construction crews and sub-contracting secondary works construction, are being put in place toexpedite the implementation and ensure the completion of works for Ribb Scheme Phase 1by the currentclosing date.
Manyof the project activities under Component 2 – Agricultural and Market Development, includingagricultural research and development, training of farming communities on irrigated agriculture, and livestock health services have been undertaken as planned. Nine training and livestock service centers have been established to serve the local communities. However, agricultural value-chain and market development activities including the Matching Grant sub-projects are still in the start-up stage, and may not be completed fully within the remaining period.
Preparatory work for irrigation system operations and maintenance (O&M) has started under Component 3 – Irrigation Management, while establishment of irrigation water user associations (IWUAs) is atan initial stage with three IWUAs established in Megech Scheme.
Under Component 4 – Project Management, a National Project Coordination Office (NPCO) and a Regional Project Coordination Office (RPCO) were established at the national and regional levels to manage project implementation with assistance from consultants. The overall project management capacity is still weak and requires further strengthening.
As of June30, 2016, the cumulative credit disbursement rate of the project was at43.4 percent.
.
C. Proposed Changes
.
Development Objectives/Results
Project Development Objectives
Original PDO
The development objective of the project is to sustainably increase agricultural output and productivity in project areas.
Change in Project's Development Objectives
Explanation
The PDO is proposed to be changed in order to align it with the results that can realistically be achieved by the closing date. While the longer-term objectives and the underlying rationale of the Project remain to increase agricultural production and productivity, it would be difficult to demonstrate progress on these longer-term outcomes within the remaining Project implementation period, as several agricultural seasons would be required to demonstrate achievements in this domain.
Proposed New PDO
The development objective of the project is to improve access to irrigation and drainage services and build farmers’ capacity in irrigated agriculturein the Project Area.
Change in Results Framework
Explanation:
The results framework will be rationalized to align the indicators with the revised PDO and ensure that the indicator targetsare attainable during the remaining project period.
For PDO outcome indicators, changes in agricultural output and value addition are difficult to verify because the majority of the command area wouldhardly have one full irrigation season before the Project closure. Therefore, they will be replaced by the following core indicators: area provided with irrigation and drainage services (ha), water users provided with new/improved irrigation and drainage services, of whom female (number),operational water user associations created and/or strengthened (number), and clients who have adopted an improved agricultural technology promoted by the project (number).The Government team will still continue to collect information on yields, etc. so that this information will become available and be used for management purposes following the closure of the project.
For intermediate outcome indicators, the indicators below are either not achievable or difficult to verify because of the major delays in project implementation and limited remaining period: change in yield, real value of marketed products and adoption of new technologies, and irrigation efficiency of main supply system, and others. Those indicators will be replaced by indicators that could be better measured within the project implementation period, such as length of main canals constructed, number of training and service centers operational, and functional O&M system for irrigation schemes and others (see revised Results Frameworks in Annex 1 for details).
.
.
Financing
Change to Financing Plan
Explanation:
The total budget is estimated at about US$183.70 million, an increase from the current US$181.10 million. The IDA allocation remains the same in SDR terms but decreases in US$ terms to about US$149.70million due to exchange rate fluctuations and cancellation of SDR6.36 millionon September 30, 2008for a food crisis emergency response.The Borrowerhas officially committed to filling the financing gapby providinga total of US$34.00 million through the national government budget.
Source(s) / At Approval / Current (from AUS) / Proposed
BORR / 15,000,000.00 / 23,100,000.00 / 34,000,000.00
IDA / 100,000,000.00 / 158,000,000.00 / 149,700,000.00
Total / 115,000,000.00 / 181,100,000.00 / 183,700,000.00
Reallocations
Explanation:
Reallocation is sought in order to align the expenditures by category to the revised budget.
Ln/Cr/TF / Currency / Current Category of Expenditure / Allocation / Disbursement % (Type Total)
Current / Proposed / Current / Proposed
IDA-43330 / XDR / DISB-GOODS/EQUIPMENT / 2,180,000.00 / 1,772,000.00 / 100% of foreign expenditures and 90% of local expenditures / 100% of foreign expenditures and 90% of local expenditures
DISB - CIVIL WORKS / 29,560,000.00 / 45,218,000.00 / 95.00 / 95.00
DISB - CONSULTING/ AUDITS / 18,680,000.00 / 8,771,685.01 / 90.00 / 90.00
DISB - TRAINING / 2,360,000.00 / 1,500,000.00 / 100.00 / 100.00
DISB - GRANTS / 3,560,000.00 / 500,000.00 / 100% of goods, works, and services under Grants / 100% of goods, works, and services under Grants
DISB - OPERATING COSTS / 1,730,000.00 / 1,080,000.00 / 70% for expenditures incurred before June 30, 2015, 50% for expenditures incurred before June 30, 2016 and 40% thereafter / 40.00
PPF REFINANCING / 392,051.10 / 392,051.10 / Amount payable pursuant to Section 2.07 of the General Conditions / Amount payable pursuant to Section 2.07 of the General Conditions
UNALLOCATED / 771,685.01 / 0.00 / 0.00 / 0.00
UNALLOCATED AMOUNT CANCELLED (AS OF SEPTEMBER 30, 2008) / 6,366,263.89 / 6,366,263.89 / 0.00 / 0.00
Total: / 65,600,000.00 / 65,600,000.00
IDA-49760 / XDR / DISB-GOODS/EQUIPMENT / 0.00 / 0.00 / 0.00 / 0.00
DISB - CIVIL WORKS / 28,832,000.00 / 31,300,000.00 / 95.00 / 95.00
DISB - CONSULTING/ AUDITS / 0.00 / 0.00 / 90.00 / 90.00
DISB - TRAINING/ WORKSHOPS / 0.00 / 0.00 / 100.00 / 100.00
DISB - GRANTS / 0.00 / 0.00 / 100.00 / 100.00
DISB - OPERATING COSTS / 0.00 / 0.00 / 0.00 / 0.00
DISB - OTHER / 0.00 / 0.00 / 100.00 / 100.00
UNALLOCATED / 0.00 / 0.00 / 100.00 / 100.00
Management Services / 8,268,000.00 / 5,800,000.00 / 100% for expenditures incurred before June 30, 2014; 80% for expenditures incurred before June 30, 2015; and 50% thereafter / 100% for expenditures incurred before June 30, 2014; 80% for expenditures incurred before June 30, 2015; and 50% thereafter
Total: / 37,100,000.00 / 37,100,000.00
Disbursement Estimates
Change in Disbursement Estimates
Explanation:
Given the disbursement lag vis-a-vis current disbursement estimates, they are proposed to be revised as outlined below.
Fiscal Year / Current (USD) / Proposed (USD)
2007 / 0.00 / 0.00
2008 / 10,269,071.81 / 10,840,097.91
2009 / 3,826,701.63 / 3,859,261.98
2010 / 3,133,429.9 / 3,109,979.19
2011 / 1,976,853.6 / 1,936,946.90
2012 / 17,544,150.31 / 3,974,367.84
2013 / 26,800,000 / 8,956,854.50
2014 / 27,560,000 / 4,169,501.17
2015 / 23,360,000 / 9,540,270.53
2016 / 19,160,000.00 / 18,712,021.23
2017 / 12,680,000.00 / 72,600,906.00
2018 / 540,000.00 / 12,000,000.00
Total / 149,700,207.25 / 149,700,207.25
.
Components
Change to Components and Cost
Explanation:
There will be a change in project componentsbecause an activity under Schedule 1 Part 1 (c) of the Financing Agreement for Credit 4333 is dropped (see details below). Component costswill also be adjusted taking into account the actual costs of all completed and committed activities, and theirrespective implementation schedules.
Change in Project Description:The proposed adjustments in activities under Component 1 through this restructuring have no impact on the summary project description for the component in the Project Appraisal Document and Financing Agreement. However, in the Financing Agreement for Credit No. 4333-ET,Schedule 1 Part 1 (c) (ii) “implementing environmental and social impact assessments, and resettlement action plans, for the 80,000 ha of new irrigation development referred to in Part 1(b) above, and for other proposed hydraulic infrastructures in the Lake Tana sub-basin” would need to be dropped from the Project description. This is because there is neither funding nor time available to develop any of the 80,000 ha new irrigation referred to in Part 1(b) before the credit closure in October 2017, and there is no other proposed hydraulic infrastructures planned under this project in the Lake Tana sub-basin.
The revisedProject description in the Financing Agreements and their amendments (including the proposed change above)is as follows:
Component 1/Part 1: Irrigation Development
(a)Developing surface water infrastructure and ascertaining future irrigation potential in the Project Area through: (i) conducting technical feasibility and detailed design studies; and (ii) carrying out works and construction supervision for irrigation and appurtenant infrastructure.
(b)Providing for technical assistance through: (i) conducting feasibility and design studies for up to 80,000 hectares of new irrigation development in selected sites in the Project Area as well as in Anger, Upper Beles and Negesso; and (ii) conducting additional studies including studies necessary for: (A) the review of existing irrigation legislation; (B) the preparation of an irrigation strategy and establishment of a national irrigation maintenance fund; (C) improvement of the efficient use of irrigation water; and (D) the preparation of an institutional framework for large and medium scale irrigation development and management.
(c)Providing support for conducting, and implementing the recommendations of, environmental and social impact assessments, and resettlement actions plans, relating to Project investments in hydraulic infrastructure in the Project Area, and for the Ribb Dam.
(d)Providing support for the implementation of the Recipient’s detailed land survey program in the Project Area.
Component 2/Part 2: Agricultural and Market Development
Promoting sustainable intensification and commercialization of agricultural inputs and outputs on the irrigation schemes developed under the Project through:
(a)Provision of improved delivery of irrigated agriculture production services including through, inter alia: (i) strengthening the capacity of ARARI to conduct, validate and deliver irrigated agriculture research products including through FREGs; (ii) strengthening the capacity and delivery of the public extension services (crop and livestock production), including farmer training centers; (iii) strengthening the capacity and delivery of the public and private animal health services, including animal health clinics and animal health posts; (iv) supporting breed improvement, including animal feed and forage production; (v) improving access to quality inputs: seeds (irrigated crops), breeds, fertilizers, and phytosanitary products; and (vi) building capacity offarmers in irrigated agricultural production.