Document of The World Bank

Report No: ICR0000617

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-33900; IDA-33901)

ON A

CREDIT

IN THE AMOUNT OF SDR 35.2 MILLION (US$47 MILLION EQUIVALENT)

TO THE

REPUBLIC OF AZERBAIJAN

FOR A

REHABILITATION AND COMPLETION OF IRRIGATION AND DRAINAGE INFRASTRUCTURE PROJECT

December 27, 2007

Sustainable Development Department South Caucasus Country Unit Europe and Central Asia Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective September 5, 2007)

Currency Unit = New Azerbaijan Manat (AZN)

AZN 1.00 = US$1.1733 US$1.00 = AZN 0.8523

FISCAL YEAR

January 1 to December 31

ABBREVIATIONS AND ACRONYMS

AIOJSC Amelioration and Irrigation Open Joint Stock Company Azersu Water Supply Company DCA Development Credit Agreement EMP Environmental Management Plan ERR Economic Rate of Return FSU Former Soviet Union GDP Gross Domestic Product GIS Geographical Information System GOA Government of Azerbaijan ha hectare IDA International Development Association I&D Irrigation and Drainage IsDB Islamic Development Bank IDSMIP Irrigation Distribution System and Management Improvement Project ISF Irrigation Service Fee M&E Monitoring and Evaluation MCM million cubic meter MMMC Main Mill-Mugan Collector MMKC Main Mil-Karabakh Collector NPV Net Present Value O&M Operation and Maintenance PDO Project Development Objective PIU Project Implementation Unit ppm part per million raion district RIDIP Rehabilitation and Completion of Irrigation and Drainage Infrastructure Project SAC Samur-Apsheron Canal SAIC State Amelioration and Irrigation Committee TA Technical Assistance WUA Water Users Association

Vice President: Shigeo Katsu Country Director: Donna M. Dowsett-Coirolo

Sector Manager: Juergen Voegele Project Team Leader: Joop Stoutjesdijk

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AZERBAIJAN Rehabilitation and Completion of Irrigation and Drainage Infrastructure Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 53. Assessment of Outcomes .......................................................................................... 134. Assessment of Risk to Development Outcome......................................................... 185. Assessment of Bank and Borrower Performance ..................................................... 196. Lessons Learned ....................................................................................................... 207. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 21Annex 1. Project Costs and Financing.......................................................................... 22Annex 2. Outputs by Component ................................................................................. 23Annex 3. Environmental Monitoring............................................................................ 38Annex 4. Economic and Financial Analysis................................................................. 44Annex 5. Bank Lending and Implementation Support/Supervision Processes ............ 54Annex 6. Beneficiary Survey Results ........................................................................... 56Annex 7. Stakeholder Workshop Report and Results................................................... 58Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR..................... 59Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders....................... 69Annex 10. List of Supporting Documents .................................................................... 70

MAP

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A. Basic Information

Country: Azerbaijan Project Name:

Rehabilitation & Completion of Irrigation & Drainage Infrastructure Project

Project ID: P008284 L/C/TF Number(s): IDA-33900,IDA-33901ICR Date: 12/27/2007 ICR Type: Core ICR

Lending Instrument: SIL Borrower: REPUBLIC OF AZERBAIJAN

Original Total Commitment:

XDR 31.7M Disbursed Amount: XDR 33.5M

Environmental Category: B Implementing Agencies: State Amelioration and Irrigation Agency Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 05/17/1999 Effectiveness: 01/11/2001 01/11/2001 Appraisal: 02/28/2000 Restructuring(s): 02/28/2006 Approval: 06/22/2000 Mid-term Review: 07/31/2003 Closing: 05/31/2006 06/30/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Central government administration 12 12 Irrigation and drainage 88 88

Theme Code (Primary/Secondary) Other urban development Primary Primary Rural services and infrastructure Primary Primary Water resource management Primary Primary E. Bank Staff

Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F. Linn Country Director: D-M Dowsett-Coirolo Judy M. O'Connor Sector Manager: Juergen Voegele Joseph R. Goldberg Project Team Leader: Joop Stoutjesdijk Joop Stoutjesdijk ICR Team Leader: Joop Stoutjesdijk ICR Primary Author: Juan Morelli Ian McAllister Anderson F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objectives are to: (a) prevent the decline in supplying water to Baku City; (b) eliminate further deterioration of the supply of irrigation water to approximately 86,000 hectares (ha) along the Samur-Apsheron Canal (SAC); and

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(c) improve drainage and reduce water logging and salinity directly on approximately 36,500 ha along Main Mill-Mugan Collector (MMMC). Revised Project Development Objectives (as approved by original approving authority) The project received additional financing (approved February 28, 2006) to finance a cost overrun due to higher costs for the rehabilitation and completion of the irrigation and drainage infrastructure works under the original project. The cost overrun mainly occurred due to: (i) rapid increase during project implementation in the price of construction materials, in particular steel and cement, and fuel; and (ii) greater than anticipated volume of rehabilitation work for one component of the project. The additional financing was required to fund all the originally planned activities in full, specifically the rehabilitation and enlargement of the Samur-Apsheron Canal (SAC) main supply system from km 27 to 50.The Additional Financing was mainly for works, but there was a small allocation for consulting services. The original project development objectives and outcomes remained unchanged. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Maintain annual amount of water supplied to Baku Water Supply Company in line with average demand.

Value quantitative or Qualitative)

About 290 million m3 per year supplied.

Annual amount of water supplied to Baku Water Supply Company in line with average demand of 290 million m3 per year.

Supply of an average 257 million m3 per year maintained between 2001 and 2006, with a range from 243 to 314 million m3. The canal system therefore is able to deliver required volumes of water.

Date achieved 12/31/2000 06/30/2007 06/01/2007 Comments (incl. % achievement)

The canal system was able to deliver to AZERSU all required volumes of water as requested, which is less than originally envisaged due to decrease in losses within the city's distribution system.

Indicator 2 : Adequate supply of irrigation water to farms within the project area of the Samur-Apsheron Canal system, in line with the crop water requirements, resulting in yield increases.

Value quantitative or Qualitative)

Very few farmers receive adequate water supply and yields are depressed. Water supply delivered in Khachmaz Raion is 254

Reliability of water supply from SAC in 86,000 ha will improve. At least

Water supply delivered for irrigation in 2006 - 336 million m3 (+33%). 50% of

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million m3 and irrigation area is 30,300 ha. Yields: fodder 3.8 t/ha; apple 3.5 t/ha; vegetables 12 t/ha.

47,600 ha irrigated in Khachmaz Raion in 2010. Crop production and yields will increase by 25%.

farmers receiving more than 75% of required water. A total of 50,200 ha irrigated in Khachmaz Raion in 2006 (+ 65%). Yields 29 to 66% higher.

Date achieved 12/31/2000 06/30/2007 06/01/2007

Comments (incl. % achievement)

Reliability of flow to areas receiving irrigation water increased. IDSMIP addresses on-farm works to improve water use efficiency. Average yields of crops increased: fodder 4.9 t/ha (29%); apples 6.3 t/ha (66%), vegetables 16.3 t/ha (36%).

Indicator 3 : Groundwater table at sufficient depth to allow good crop cultivation in Mill-Mugan project area (36,500 ha).

Value quantitative or Qualitative)

Groundwater table within one meter of the surface area in most of the project area during part of the cropping season. Yields suppressed at 2.1 t/ha for cereals, 1.5 t/ha for cotton, and 4.2 t/ha for fodder.

Groundwater table below two meter in most of the project area. Area irrigated maintained at 36,500 ha. Expected yields four years after completion of works 3 t/ha for cereal, 2.5 t/ha for cotton, and 15 t/ha for vegetables.

Groundwater table is generally below 2 meters within 5 km from the drainage system, which permits unrestricted growth in most of the irrigation and grazing areas. Yields increased # cereals 2.3 t/ha (+10%), cotton 1.7 t/ha (+13%), fodder 5.3 t/ha (+26%).

Date achieved 12/31/2000 06/30/2007 06/01/2007 Comments (incl. % achievement)

The new drainage system was completed in 2006; water table is expected to continue to lower. Area benefited is around 40,000 ha (+10%). Yield levels are expected to increase during the next years.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Farmers changing cropping pattern to higher value commercial crops in areas that have benefited from irrigation rehabilitation and/or improved structures (SAC area) and from new drainage facilities (MMMC).

Value (quantitative or Qualitative)

Cereals and fruits were major crops growing on 80% and 7% of irrigated land in the Samur-Apsheron area.

Farmers would switch to higher-value crops as water becomes more reliable.

Area under cereals (SAC) reduced to 49%; irrigated fodder/apple crops increased coverage

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to 19% and 17% of irrigated area (2006 survey final). Area under fodder, cotton, and vegetables in MMMC increased to 67%; fallow area reduced from 26% to 7%.

Date achieved 12/31/2000 06/30/2007 06/01/2007 Comments (incl. % achievement)

There is a clear increase in area under higher-value crops in both project areas.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 06/30/2000 Satisfactory Satisfactory 0.00 2 10/02/2000 Satisfactory Satisfactory 0.00 3 01/30/2001 Satisfactory Satisfactory 1.27 4 04/26/2001 Satisfactory Satisfactory 2.44 5 08/21/2001 Satisfactory Satisfactory 2.96 6 01/17/2002 Satisfactory Satisfactory 5.54 7 05/30/2002 Satisfactory Satisfactory 7.51 8 10/31/2002 Satisfactory Satisfactory 8.68 9 01/21/2003 Satisfactory Satisfactory 9.08

10 06/27/2003 Satisfactory Satisfactory 11.14 11 09/15/2003 Satisfactory Satisfactory 11.40 12 02/03/2004 Satisfactory Satisfactory 13.42 13 08/18/2004 Satisfactory Satisfactory 17.64 14 11/09/2004 Satisfactory Satisfactory 19.25 15 04/15/2005 Satisfactory Satisfactory 23.38 16 09/18/2005 Satisfactory Satisfactory 27.13 17 11/22/2005 Satisfactory Satisfactory 29.72 18 03/27/2006 Satisfactory Satisfactory 33.52 19 10/03/2006 Satisfactory Satisfactory 38.49 20 01/09/2007 Satisfactory Moderately Satisfactory 40.82 21 06/27/2007 Satisfactory Satisfactory 45.77

H. Restructuring (if any)

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ISR Ratings at RestructuringRestructuring

Date(s)

Board Approved

PDO Change DO IP

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

02/28/2006 S S 32.41

I. Disbursement Profile

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1.1.1 Agriculture has consistently been one of the major contributors to Azerbaijan's Gross Domestic Product (GDP) with a 20 to 25 percent contribution during the past decade, while the sector provides around 35 percent of employment. Before Independence in 1991, Azerbaijan was a main producer of cotton, wheat, grapes, and vegetables for the Former Soviet Union (FSU) markets. Real output declined rapidly between 1991 and 1995. From 1996, fundamental changes were introduced, including the abolition of the state order system for agricultural products, the removal of most control on external trade in agricultural products, the discontinuation of official pricing of inputs and outputs, and the replacement of state input supply and farm output marketing agencies with privately owned and managed companies. The liquidation of state and collective farms and the distribution of farm land to individuals created a private farm structure with a large number of small family holdings and private group farms. 1.1.2 There were many problems that made the transition to an efficient agricultural sector difficult, including: (i) the need to improve the legal and institutional framework to support a land market, promote the development of rural credit systems, and to use land as collateral; (ii) the need for agro-industry restructuring; (iii) lack of market information; (iv) lack of diversification, with extensive cultivation of low-valued grains; (v) lack of access to credit for private farms and agro-industries; (vi) lack of advisory services and new productivity enhancing technologies; and (vii) deteriorating irrigation infrastructure. The Government of Azerbaijan (GOA) was committed to address these problems and complete the transition to a privatized, market-based sector with the help of donors and external financiers. IDA has been a major partner to assist the government, starting with the Farm Privatization Project (FY97) and the Agricultural Development and Credit Project (FY99) that had activities in the areas of farm information and advisory services, land registration, and rural credit. Government also requested IDA assistance to improve the situation in the irrigation sector. 1.1.3 The country has favorable growing conditions for a wide variety of crops, largely dependent on irrigation considering the average annual rainfall of 200 to 350 mm, most of which falls outside the main growing season from April to September. The only agriculture possible without irrigation is low intensity livestock production on natural pasture, which would not meet the country's food needs, much less the employment and income requirement of its rural population. Consequently irrigation is a key input for reliable crop production. 1.1.4 At Independence, the total area equipped for irrigation was 1.45 million ha, about 80 percent of all arable land in the country. Irrigation systems were developed during the FSU period with little or no attention to economic costs and viability. The State Amelioration and Irrigation Committee (SAIC)1 was responsible for the operation and maintenance (O&M) of the 1 SAIC had several name changes and reorganizations during the period of project implementation. Since early

2006, SAIC was renamed Amelioration and Irrigation Open Joint Stock Company (AIOJSC), which did, however, not impact the agency’s mandate and activities.

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irrigation and drainage (I&D) infrastructure outside the boundaries of the former state and collective farms. During the first years after Independence, SAIC’s budget was only about 30 percent of what was needed. The main and distribution irrigation systems and drainage channels could not be maintained well and infrastructure facilities were deteriorating. This resulted in irregular and inadequate availability of irrigation water at farm level, which in turn resulted in yields that were much below the irrigated yield potential. Similarly, lack of adequate drainage was suppressing yields and arable area was shrinking year by year due to growing salinity and water logging conditions.

1.1.5 The principal contribution of IDA assistance would be in the introduction of international best practices in design and implementation of irrigation projects, as well as appropriate institutional arrangements for project implementation and future management and O&M of rehabilitated and completed infrastructure. IDA’s experience with: (i) the development of irrigation strategies; (ii) incorporation into project planning and design of appropriate economic, financial, social and environmental criteria; (iii) stakeholder participation; (iv) introduction of high technical standards and procedures in design and construction; and (v) introduction of appropriate procurement and financial management procedures would also be beneficial for the implementing agency. 1.1.6 The Rehabilitation and Completion of Irrigation and Drainage Infrastructure Project (RIDIP) envisaged support to the GOA to re-establish the sustainability of the I&D sub-sector. In particular, it would contribute to the rehabilitation of the Samur-Apsheron Canal system (SAC) and completion of the Main Mill-Mugan Collector (MMMC), both of which had been identified as the highest priority works in the government’s irrigation development plan that was prepared in 1995. RIDIP would also assist SAIC in carrying out the following activities: (i) preparing a sub-sector review; (ii) improving operational efficiencies in SAC; and (iii) conducting a feasibility study for the long-term development plan for the SAC. The outcome of these activities would help the GOA in developing its long-term vision for the sub-sector.

1.2 Original Project Development Objectives (PDO) and Key Indicators 1.2.1 The PDOs were to: (a) prevent the decline in supplying water to Baku City; (b) eliminate further deterioration of the supply of irrigation water to approximately 86,000 ha along the SAC; and (c) improve drainage and reduce water logging and salinity on approximately 36,500 ha along the MMMC. Key performance indicators included: (i) maintain the annual amount of water supplied to Baku Water Supply Company in line with demand; (ii) adequate supply of irrigation water to farms within the SAC sub-project area; and (iii) ground water table at sufficient depth to allow good crop cultivation in the MMMC sub-project area. 1.3 Revised PDO 1.3.1 There was no change to the original PDO throughout project implementation.

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1.4 Main Beneficiaries 1.4.1 RIDIP was expected to directly benefit around 40,000 farm families in the 86,000 ha that were supplied by the SAC system and around 15,000 farm families in the 36,500 ha of the MMMC system. Also, an estimated 70,000 farm families would benefit indirectly within the command area of the MMMC system, as the improvements obtained would affect agriculture over much of the right bank area of the lower Kura River. The benefits would be in terms of increased crop production due to improved water supply to the farms in the SAC sub-project area and improved drainage conditions in the MMMC sub-project area. 1.4.2 RIDIP would carry out the rehabilitation of the most important part (first 50 km) of the SAC system. The water supply in the SAC system would become more reliable in terms of quantity and timeliness, resulting in increased water availability at the farm level. Improvements would reduce the water losses and facilitate water management. Benefits would also extend to the 2.5 million people in Baku City and the Apsheron Peninsula whose water supply reliability would be guaranteed and thus the risk of interruption reduced. 1.4.3 The completion of the last, critical link in the MMMC would relieve acute drainage congestion in 36,500 ha and a less severe congestion in up to 200,000 ha on both sides of the Kura River. It would also reduce contamination of the Kura River with saline water and have a beneficial effect on irrigation schemes in the river's lower stretches, as well as on the quality of Baku water supplies drawn from this source. 1.4.4 Institutional improvements would increase capacity within SAIC to prepare and implement projects financed by international donors and financiers, as well as more efficient use of funds and resources for O&M within the project's command areas.

1.5 Original Components 1.5.1 The project had three components: Component 1: Rehabilitation and Completion of Irrigation and Drainage Infrastructure. This component included rehabilitation and modernization of key main infrastructure of the SAC and completion of the last link of the MMMC. The SAC works were expected to include: (i) rehabilitation of the 50-year old Samur Headworks; (ii) repair of the concrete lining of the first 50 km of the main canal; (iii) rehabilitation of sedimentation extraction works at the head of and along the SAC; (iv) rehabilitation of inter-farm canals leading from the first 50 km of the main canal; and (v) design and construction supervision services. These activities would prevent the decline of water supply to Baku City and stop further deterioration of irrigation supply. The MMMC works were planned to comprise: (i) completion of the remaining 31 km of the MMMC; (ii) provision of necessary road and rail bridges and aqueducts across the MMMC, and an adjacent service road; (iii) completion of the siphon underpass for the MMMC beneath the Araz River; (iv) reconstruction and rehabilitation of inter-farm collectors in 36,500 ha; and (v) design and construction supervision services. As a result of these, drainage conditions in the MMMC sub-project area would be significantly improved.

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Component 2: Institutional Strengthening. To improve the quality and sustainability of irrigation management, this component included: (i) institutional support for SAC management in order to start the development towards an organization that is cost effective, efficient, and delivers quality water services; (ii) an irrigation sub-sector review; (iii) training and study tours; and (iv) a comprehensive feasibility study to review the technical, environmental, social, and economic viability of the expansion in capacity of the SAC. With these interventions, a start would be made with the improvement of SAIC’s capacity to properly develop, operate, and maintain irrigation and drainage infrastructure. Component 3: Project Implementation Support. This component included: (i) support to the project implementation unit (PIU); (ii) technical assistance to the PIU; (iii) environmental and project monitoring; and (iv) annual audits of the project accounts.

1.6 Revised Components 1.6.1 There were no revised components.

1.7 Other significant changes 1.7.1 There were three significant changes during project implementation as follows: Sedimentation Extraction Work. During the implementation of the rehabilitation of the headworks and appurtenant structures on the Samur River, it was concluded that the most effective means of excluding sediment from the system would be to provide a new sediment basin near the headworks and exclude the rehabilitation of the two old sediment basins along the main canal. The new sediment basin was designed for hydraulic cleaning, which is far advanced over the mechanical cleaning adopted for the old basins which were not functioning properly any longer due to high maintenance costs and problems with depositing accumulated sediment. Extension of the Closing Date. At the request of the GOA, IDA agreed on November 14, 2005 with a 13-month extension of the credit closing date from May 31, 2006 to June 30, 2007. It was especially needed to complete works on the rehabilitation and enlargement of the SAC that could only start after the completion of the parallel Khanarkh Canal being constructed with funds from the GOA and the Islamic Development Bank (IsDB). Additional Financing. RIDIP received an additional credit in early 2006 to finance a cost overrun due to higher costs for the rehabilitation and completion of the I&D infrastructure works under the original project. The cost overrun was attributable to: (i) price increase of construction materials during 2004 and 2005, in particular steel, cement, and fuel; and (ii) a greater than anticipated volume of rehabilitation work for the SAC sub-component. The additional credit was needed to fund all the originally planned activities, specifically the rehabilitation and enlargement of the SAC main system from km 27 to 50. It was mainly used to carry out the last civil works contracts, with a small amount allocated for the financing of the supervision consultants. The original PDO, key indicators, and expected impact remained the same. The additional credit in the amount of SDR 3.5 million (US$5 million equivalent) was agreed in February 2006 and became effective on June 27, 2006.

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2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry 2.1.1 At the time of project appraisal, an agricultural sector update identified several major issues slowing the transition to an efficient agricultural sector (see Section 1.1). RIDIP was aimed at reversing the deterioration of irrigation infrastructure and increasing the reliability of irrigation water flow to the farmers. As such it complimented several other IDA-funded projects that provided support to development of the agricultural sector. 2.1.2 RIDIP was the first large irrigation project of its kind in Azerbaijan after Independence. Project design was kept relatively simple with the main thrust of providing more secure water supply in the SAC command area on the one hand and greatly improved drainage in the MMMC command area on the other. It was correctly recognized that the acceptance of the concept of rehabilitation and modernization of irrigation systems would be difficult for many of the engineers and authorities who had been used to the traditional Soviet design approach for many years. In addition to this, there were few national contractors who had the required experience to undertake relatively large-scale construction under conditions of contracts specified by the World Bank and similar international agencies. Also, there was limited experience within the country of designing such improvements and supervising contractors who had previously been allowed to supervise themselves. RIDIP had only three components, the largest of which was related to the I&D infrastructure and the other two smaller components providing essential institutional support and training. This appears to have been the correct approach and has laid the foundation for not only the follow-up IDA-funded Irrigation Distribution System and Management Improvement Project (IDSMIP; FY03), but also for projects undertaken by other financers. Such projects focus on complimentary investment in the main and on-farm distribution networks as well as the development of water users associations (WUA), needed activities that were identified clearly at RIDIP preparation stage. 2.1.3 The two sub-projects of the SAC and the MMMC came out as the highest priority in the country as a result of the project identification study carried out by the GOA. RIDIP was designed to address the problems of the main off-farm systems with a follow-on project (IDSMIP) paying attention to the on-farm systems and the strengthening of the WUAs. Without RIDIP, the security of water supply that was demanded by the farmers would not have been achieved and this would have impacted negatively on IDSMIP. In addition to this, the rehabilitation of the off-farm physical infrastructure has enabled SAIC and its successor AIOJSC to undertake a plan of proper O&M. 2.1.4 The studies undertaken in the preparation of RIDIP2 were useful during implementation. However, the process of privatization and reallocation of land as part of the land distribution process resulted in a much more complicated rehabilitation process of the secondary off-farm canals in the SAC area than expected at the preparation stage. The additional surveys required in the preparation of the design and tender documents for these canals showed that the earlier assumptions on the alignment and requirements of the canals needed considerable modification. This could not have been adequately foreseen and RIDIP showed considerable flexibility in 2 Financed by a PPF for US$870,000 and a PHRD Japanese Grant for US$306,600.

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addressing the complex issues involved. The site supervision staff succeeded well in obtaining agreement from the numerous new private farmers. 2.1.5 Environmental factors were not underestimated and the potential problems that could arise were identified and followed up during project implementation. The environmental safeguards that were identified were correct and bank procedures and policies were accurately followed. 2.1.6 Two substantial risks3 were identified at preparation, but as explained later in this report these did not prove a hindrance to project development. Cost overruns during project implementation was regarded as a modest risk because of the detailed preparation work, but this in fact underestimated the problems that were facing Azerbaijan at a time when construction projects were at an infant stage. During project implementation, many new projects were also taking place and the economy of Azerbaijan was expanding. This led to a sharp increase in the cost of some of the key input materials leading to a cost increase that required additional financing. Other risks did not prove a constraint on the project achievement of its objectives.

2.2 Implementation 2.2.1 Government’s commitment to RIDIP was significant and the continuous dialogue between the IDA supervision mission members and the Government staff enabled the timely resolution of potential significant problems. Some delays were experienced during project implementation but these were resolved through stakeholder discussions and the commitment of the Government staff. Counterpart funds were provided in a timely and adequate manner. 2.2.2 The assistance that was provided to the PIU by consultants in the development of simplified and appropriate standard contract documents as well as contract management procedures greatly facilitated the letting of multiple contracts and the supervision of the same. Although in the beginning the distinction between the roles and responsibilities of the contractor and supervisor was still not fully appreciated by all parties, through discussion with the parties involved and with the assistance of the IDA supervision team, clear roles and responsibilities were defined and these ensured a good quality of completed works. At the start of the first contracts, it was clear that the national contractors did not fully appreciate the details of the specifications or the requirements of the contracts. However, by the end of RIDIP, it was clear that both the national supervisors and the contractors had gained sufficient experience and confidence to enable them to undertake more diverse and complicated works such as the rehabilitation of the Bahramtepe Headworks, financed under IDSMIP. 2.2.3 Much of the rehabilitation work of the SAC main canal necessitated the diversion of flows into the Khanarkh Canal to ensure that supplies were maintained to the Jeiranbatan Reservoir near Baku to meet the water supply demands of the city. The rehabilitation works of the Khanarkh Canal were funded under another project and unanticipated delays in its completion caused delays for the SAC works. It was possible in the period before 3 Substantial risks included: (i) insufficient budget for O&M; and (ii) lack of farmers’ commitment to pay higher

irrigation service fees.

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implementation of the works to stop flows for long enough to identify the rehabilitation requirements in detail. These were more than anticipated in the preparation documents and this necessitated a longer period for SAC closure in order to implement the works. During the period of canal closure from December 2006 until April 2007, water supplies to the Jeiranbatan Reservoir were maintained and, together with the additional flows that had been provided prior to this period of closure, all demands for Baku water supply were met. 2.2.4 The existing sediment trap on the SAC had not been used for many years and this resulted in sedimentation of lower-order canals and in a decrease in the available storage within the Jeiranbatan Reservoir. Learning from the past failures, it was decided that an efficient sediment basin that was easy to clean and operate was essential to the successful O&M of the SAC system. Although the possibility of rehabilitating the defunct mechanical sediment basin at the head of the system was examined, it was concluded that the optimum solution would be to build a new sediment basin that could be hydraulically flushed. To achieve a solution required physical and mathematical modeling of the basin and this delayed implementation until December 2004. It was completed some two years later and already has proven successful in both trapping approximately 30 percent of the material entering the SAC, as intended, and the easy removal of those deposited sediments by hydraulic flushing back to the Samur River. The remainder of the material that stays in suspension is the finer fractions and it is anticipated that much of this will find its way onto the field rather than being deposited in the SAC system. 2.2.5 The installation of modern flow measuring structures is a stage in the overall program of the GOA to improve the efficiency of water use and to introduce irrigation service fees (ISF) to WUAs. In the past the raion (district) irrigation offices made assumptions on how much water was delivered to the farms based on norms for each crop. In the future, together with the work on WUA formation and the rehabilitation of on-farm irrigation infrastructure being carried out under IDSMIP, it will be possible to measure water actually delivered to each WUA. As the charges for delivery of this water are gradually passed on to the farmers, this should encourage them to both improve their efficiency of water use and also to select those crops with relatively high returns, in line with the GOA policy.

2.2.6 In the SAC system, 42 off-farm secondary canals were rehabilitated and upgraded. Considerable discussions and additional survey works were required to clearly define the scope of works that had changed considerably since preparation as a result of land distribution. The PIU and engineers were able to identify exactly the scope of works for each canal and to ensure that as soon as the design was finished, implementation could begin. The agreement of many farmers within the command area for each off-farm canal was needed and this took more time than was anticipated. Benefiting from the ongoing work on strengthening the WUA organizations, RIDIP formed consultative groups with farmers and agreed on the details of the works to be completed as well as the period during which water supplies would be available. 2.2.7 The work undertaken for the completion of the MMMC and the rehabilitation of inter-farm collectors required both the completion of works undertaken under an earlier IsDB-funded project and the construction of a new section of the main collector. High ground water tables that occurred close to the Araz River created many problems for the contractors during the early stages of the contracts. Through close supervision of the activities and the adjustment of some of

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the works, the contractors were able to successfully complete all the works with only minor delays. 2.2.8 During the preparation of RIDIP it had been assumed that the initial alignment that was selected for the new section of the MMMC would be located only on state land that had been identified for the drain alignment before the land distribution program started and thus did not require any land acquisition and compensation. However, closer analysis by the design consultants showed that considerable savings could be achieved by realigning the canal and reducing the length by 3 km. Although this required land acquisition and compensation, only a small area of private land was involved. Even with this, considerable delays were experienced in obtaining this land and agreeing satisfactory compensation for those affected, including some State organizations. Work could not start on the final contract until the end of 2004 and the collector became fully operational by mid-2006. O&M of these completed facilities was, however, delayed by the lengthy procedures and formalities required by the GOA to hand over all of the completed new works together to the already established O&M organization. This was finally completed in mid-2007 and there is a commitment from AIOJSC to provide adequate O&M budgets. 2.2.9 The institutional development component was intended to make a start with the improvement of the quality and sustainability of irrigation management. This included assistance with the improved management of the SAC system so that it could start developing into a self-sustained organization; a detailed evaluation and assessment of future water use in the SAC command area to answer a number of outstanding issues relating to the extension and expansion of the SAC system; and a sector study to develop an irrigation and drainage sub-sector strategy. Although some of the outputs were not intended for immediate utilization, they achieved the objective of focusing the GOA on the direction it should be heading and the issues on which it should concentrate. The achievement of the objectives for the SAC management was somewhat adversely affected by indecision within the government as to where the responsibilities for irrigation, drainage, and water management should lie and the several reorganizations of SAIC. The senior management of the AIOJSC understands the objectives and the need for change and recently a draft strategy for irrigation developments during the next ten years was prepared that will be the guiding document for government’s efforts to improve the performance of the irrigation and drainage sector. 2.2.10 Training and study tours covering a wide range of topics took place, including project administration, modern design and O&M practices of irrigation and drainage systems, contract management, procurement, and monitoring and evaluation (M&E). These proved to be very successful and have facilitated the introduction of WUAs and improved water measurement and irrigation design. The timeliness of the study tours removed some doubts that may have existed in the minds of senior designers and managers and has benefited not only RIDIP, but also IDSMIP. 2.2.11 Project implementation by Azeri specialists benefited from the support of a technical assistance (TA) team of international specialists. This was initially intended to last for two years, but following delays in various parts of RIDIP, it was considered prudent to extend the support for a further year. By the time the input of the international TA to RIDIP was completed, the

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basis had been laid for proper project management, standard designs and specifications and tender documents were prepared, and construction supervision procedures were established. These are now being adopted not only under IDA-financed projects, but also by other projects. Despite its comparatively small cost, this TA support component was invaluable in laying the basis for future projects. 2.2.12 In many of the FSU countries, there was been an initial resistance to the use of international consultants. The designs and approaches adopted under the Soviet Union were suitable in that environment. Nowadays under the prevailing free market economies, more cost effective designs are needed, focused on individual rather than state management. After many years of using standard designs and approaches, some of the more experienced engineers found the proposed modifications difficult to accept during the early project phase. It is a credit to their knowledge and adaptation that they are now producing such designs. The success of technology transfer relied on suitable and experienced international consultants. Initially these were lacking, not in the team supporting the PIU, but in the team assisting with project design and supervision. These were overcome through close corporation between the government, IDA supervision teams, and the consultants.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization (a) M&E Design 2.3.1 The designed system comprised regular data collection related to key performance indicators (irrigated areas, irrigated crop yields, amount of water used for irrigated crops, etc.), M&E of financial, procurement and construction activities, and socio-agro-economical assessment via field surveys. The implementing agency carried out a baseline survey in 2002 and two follow-up impact studies in 2004 and 2006. In general, both the baseline survey and the subsequent impact studies addressed the project’s needs and provided information relevant to key project impact indicators. As explained below, RIDIP has started yielding benefits in the areas that benefited from the rehabilitation and construction works that were completed during early project years. Nevertheless, it will take several more years before some of the indicators (such as system conveyance and distribution efficiencies, optimum water deliveries, and yields) will achieve the expected levels. Monitoring of key indicators will continue under IDSMIP. 2.3.2 The progress with the implementation of civil works contracts has been monitored on the basis of spreadsheet programs that allowed tracking of cash flows and physical quantities. A special Excel program was written by the PIU M&E specialist to monitor the construction works. The program was regarded as very useful both for PIU construction supervision staff as well as for consultants and contractors as it gave the possibility to automatically estimate the progress and the remaining works per each item of Bill of Quantities on a monthly basis.

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(b) M&E Implementation 2.3.3 The baseline survey was conducted in those areas expected to benefit from project interventions, as well as some selected non-project control areas 4. The study included two phases, with the first one focused on collection of general data on population, farming types, cropping patterns, agricultural services availability, WUAs, agricultural machinery availability, and input supply units. The second phase of the survey focused on collection of more detailed information at farm level on land ownership, livestock and crop production, cropping pattern, crop production cost, and irrigation practices. While the survey identified a set of quantitative indicators in detail, qualitative ones were further developed later to allow social impact monitoring of the project interventions, project outcomes, increased access to irrigation water and reliability in delivery in the SAC area and improved drainage in the MMMC area. 2.3.4 For the two additional follow-up surveys information was collected from the same households involved in the baseline survey. The first one in 2004 upon completion of the first secondary canal package in the SAC area enabled comparison with earlier baseline survey and monitored changes resulting from project interventions. Besides reviewing again the impact indicators, additional information on social and environmental aspects, including household expenditure, water resource availability, condition of irrigation schemes, soil salinity and drainage condition, ground water mineralization and ground water table levels, was collected. The second follow-up survey conducted in 2006 aimed to collect the information on the same impact indicators measured during both the baseline survey and first impact study. (c) M&E Utilization 2.3.5 The implementation progress of the project’s activities was monitored monthly and results shown in quarterly project status reports and project management reports as financial and physical quantities tables, diagrams of actual, original and revised planned works, monitoring tables on the financial inputs of the implementation program, and procurement plan. After completion of training of PIU staff in MS-Project it became possible to track the project’s activities using this software.

2.4 Safeguard and Fiduciary Compliance

(a) Safeguard Compliance

2.4.1 Four safeguard issues were identified at appraisal and their statuses of compliance were as follows:

• OP 4.01, Environmental Assessment. Lake Sarisu is located relatively close to the proposed alignment of the MMMC. As the lake is a protected area that could be

4 Surveys have been based on experimental (randomized trials) and longitudinal (in follow-up surveys the same

households have been studied) design. The sampling was done in two steps: first the settlements (villages) were randomly selected from the project/control area and then households in them by the same simple random procedure. In total 94 settlements were covered during the baseline survey and 432 project and 53 non-project households. The survey reports also provided a detailed description of the existing sociological and economic situation in the project areas.

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potentially affected by the proposed works, an environmental management plan incorporating a comprehensive monitoring plan was prepared at project preparation. The possibility of reduced inflows to the lake as well as rapid lowering of ground water tables was considered a possible risk for damage to this area. In addition, a second sensitive site located upstream from Lake Sarisu - Lake Ag-Gol - had been designated a RAMSAR site in 1997 for the protection of resident and migrant birds. However, as this lake receives drainage water from a nearby irrigation system and is located 30 km away from the MMMC alignment, it was considered at preparation that this lake would not be affected by the project works, but in order to confirm this, Lake Ag-Gol was included in the monitoring program. The main focus was on Lake Sarisu to measure changes in ground water levels in the vicinity of the lake and the main collector, as well as inflows and outflows and the utilization of the lake area by migratory birds. The program showed that local ground water tables were lowered and were facilitating agriculture, but that this lowering had no impact on Lake Sarisu and its ecology, with inflows and lake levels being maintained with no perceived changes in flora and fauna (the details are in Annex 3).

In the SAC command area, a possible area for environmental concern was identified at Divichi Lagoon. Although this lagoon is some distance down slope from the SAC, it was considered prudent to monitor water levels in the lagoon. This lagoon receives both excess drainage water from part of the SAC command area as well as saltwater intrusion from the Caspian Sea. The detailed monitoring program showed no impact on the lagoon as a result of RIDIP interventions.

• OP 4.37, Safety of Dams. During project preparation, the safety of two large dams located on the Kura River about 200 km upstream from the MMMC project area was assessed. This assessment indicated that the dams were in a satisfactory condition and it was considered sufficient for compliance with the dam safety policy.

• OP 7.50, Projects on International Waterways. The Samur River forms the boundary between Azerbaijan and Dagestan, which is an autonomous republic of the Russian Federation. During project preparation, the GOA notified the Russian government of its proposals for SAC system rehabilitation and agreement was obtained, provided that no changes in elevation and ability to divert more flows to Azerbaijan were made. The rehabilitation works carried out at the Samur Headworks ensured this and the 1967 agreement on river flows for the Samur River was retained, which included that about 20 percent of the annual flow volume in the river with 75 percent probability will be diverted to Dagestan, about 61 percent to Azerbaijan, with the remaining 19 percent of the annual flow volume being retained in the river to meet environmental and other needs.

• OP 4.12, Involuntary Resettlement. Some land acquisition and relocation was required for the MMMC, but this involved only 19 ha of private land in an area with limited cultivation and population. This was not foreseen during project appraisal as the alignment adopted for the MMMC at that time was located entirely on state land. In the Development Credit Agreement (DCA) it was stated that should it be necessary to acquire land, then the owners of the land should be adequately compensated at market prices and no-objection obtained from IDA. The GOA followed all the procedures laid

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down by IDA with all land owners, including some State Departments, receiving satisfactory compensation and their agreement on the sale. As a result of this, supported by detailed documentation from government, IDA provided its no objection to proceed with the excavation of the MMMC following the new alignment.

(b) Fiduciary Compliance

2.4.2 Works, services and equipment procurement was carried out in accordance with Bank procedures and guidelines. PIU staff was adequately trained in the use of standard Bank documents. All actions relating to contract, services or equipment procurement typically complied with Bank Guidelines with the appropriate no-objections being obtained before award. Regular post-reviews were carried out by IDA staff and major issues were never identified.

2.5 Post-completion Operation/Next Phase 2.5.1 RIDIP was conceived as an initial part of a longer-term program with this first investment dealing with off-farm irrigation infrastructure and the second phase (IDSMIP) following on and overlapping with RIDIP and dealing with on-farm, WUAs, and water management aspects. Initially, it was thought that it would be possible to start under RIDIP the reorganization of the SAC management into a separate company aiming at self-financing. With several reorganizations of the Irrigation Committee this was not possible, although the study outlining the recommended transition arrangements was completed and accepted by AIOJSC. O&M arrangements for the SAC and its off-farm systems continue being taken care of by the SAC management supported by the district offices, all belonging to AIOJSC. In addition, budgets for SAC O&M have been increasing annually during the past few years. 2.5.2 O&M for the MMMC will be handled by the MMMC maintenance organization. This unit already operates and maintains the lower part of the system and will now take over the remaining parts of the completed upper system, including the Araz siphon. Some delays occurred in this hand-over as it was not possible under current government arrangements to hand over parts of a new system. Thus all three contracts for the MMMC component of RIDIP had to be completed before any of it could be handed over to the MMMC maintenance organization. As with the SAC management, the MMMC maintenance organization has experience in undertaking the required O&M and appears to have sufficient resources to take on additional work. 2.5.3 The GOA commitment to O&M is evidenced by the annual increase in allocations since 2003, with a very large increase in 2007. AIOJSC’s overall budget increased from US$31 million in 2000 to US$80 million in 2006 and US$134.5 million in 2007. The O&M budget for the SAC system increased from US$0.5 million in 2000 to US$2.6 million in 2007 and for the MMMC system the increase was from US$0.2 million to US$0.5 million over the same period. The users’ commitment to the improved irrigation infrastructure in the SAC system is reflected in the ISF contributions that have grown significantly from less than 20 percent of the total budget in 2000 (US$0.1 million) to over 40 percent in 2007 (US$1.1 million). 2.5.4 Achievement of the full benefits for both sub-components of RIDIP will only be attained after a few more years. Although there have been some immediate benefits in the MMMC area, it will take a further 3-4 years to achieve full benefits from drainage and leaching of the soils.

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The monitoring of ground water levels and water quality in the vicinity of the MMMC will continue under IDSMIP, including the associated monitoring of Lake Sarisu. Similarly, the full impact of water supply from the improved SAC system will only be fully realized once the on-farm works have been completed. In the SAC command area M&E surveys will be repeated in 2010 under IDSMIP, using the same criteria and the same farms.5

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation 3.1.1 The PDOs were highly relevant and still remain so as the successful operation of the key main infrastructure included in RIDIP is essential to the functioning of good water supply to Baku City, enabling improved agricultural production in approximately 86,000 ha in the SAC area, and the reduction of water logging and salinity in about 40,000 ha in the MMMC area. Agriculture remains an important contributor to Azerbaijan's GDP and is the main source of income for the majority of people living outside Baku. Irrigation and drainage are key inputs for profitable agricultural production. Thus, the change in cultivation from low-value grains to high-value crops and the increase in cropping intensity within the existing command areas through improvement of I&D still remains very relevant. 3.1.2 The GOA has not diverted from its overall development objectives. It sees the I&D sub-sector as a key one for rural development and is increasingly making funds available under the national budget for interventions in the I&D sub-sector. This situation is unlikely to change, as cultivation of crops in Azerbaijan without irrigation is not possible in the main growing areas due to high evapotranspiration and low effective rainfall during the growing season. With increasing energy costs and a near doubling in the price of electricity and fuel over the last year, the importance of gravity I&D systems is growing. The rehabilitation and enlargement of the SAC up to 50 km has enabled the GOA to embark upon its own program of realignment of the remaining sections of the SAC with a view to eliminating two large pump stations en route. 3.1.3 The program for the establishment and support of WUAs throughout the country has proceeded well with the support of IDSMIP. Although ISF does not yet cover full O&M costs, the process has been established for the step-by-step increase leading to full O&M cost recovery a few years after the completion of on-farm rehabilitation works. IDSMIP has also initiated the introduction of water measuring structures within the main systems at locations where water enters WUA-managed systems. 3.1.4 The Bank Group’s new Country Partnership Strategy reflects the objectives of the new State Program for Poverty Reduction and Sustainable Development for 2006-2015, which includes “Supporting sustainable and balanced growth of the non-oil economy”. This will be achieved inter alia through developing essential infrastructure and services with special attention to the rural economy. In addition, there will be emphasis on improving environmental

5 Construction works are already undertaken in several WUAs in the SAC area, with more to follow. This involves

improvement of on-farm distribution systems and hydraulic structures. Once completed, these WUAs will serve as pilot areas for monitoring actual water used, in preparation for the introduction of ISF based on volumetric measurements.

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management and supporting more sustainable natural resource management. Within the non-oil sector, agriculture and agro-processing, manufacturing, transit trade, and transport are expected to be the main drivers of growth. Since RIDIP has developed critical I&D infrastructure that will aid agriculture, its outcomes are still very relevant to the GOA’s as well as Bank’s strategies.

3.2 Achievement of Project Development Objectives 3.2.1 It is considered that RIDIP satisfactorily achieved its objectives. The combination of project interventions in the SAC command area has resulted in a cleaner, more reliable, timely and sustainable supply of water for both drinking and irrigation. Within the MMMC area, project interventions have allowed lowering of ground water tables and already enabled improvements in productivity in existing irrigated areas (more details are presented in Annex 2.) 3.2.2 The design for the rehabilitation of the 50 km portion of the SAC was based on the projected total water consumption and allocation considering a total irrigated area of 131,600 ha (including both inside and outside project areas) along the SAC and domestic and industrial requirements. The domestic and industrial water demand was adopted from the draft water master plan for greater Baku (1998), with the annual average demand estimated at 290 million cubic meter (MCM). The planned improvements to the SAC system and its capacity have ensured the security of water supply to the Baku water supply company (Azersu), with all demands for water being met, even during the final SAC closure period. The SAC supplied an average of 257 MCM/year between 2001 and 2006 (ranging from 243 to 314 MCM). Although this is less than the 290 MCM considered at appraisal, supplies were as requested by Azersu. Such aspects as metering and reduction in distribution losses within the city have reduced the demand for water. 3.2.3 The canal improvements and the related increase in efficiency are expected to be of particular benefit to irrigation. The demands of drinking water supply are typically given the highest priority and thus any improvements to the SAC main canal will not really be reflected so much in the water supply to Baku, of which the SAC supplies half the needs, but more in the security of supply to irrigated areas. Water supply delivered for irrigation in 2006 was such that 50 percent of farmers received more than 75 percent of required water. This is positively manifested through changes in cropping pattern to high-value crops that need more secure or regular water supplies. There has been a substantial change from cereals to fodder crops and apples and to a lesser extent vegetables. Relatively to the base values in 2002, the area under cereals in the SAC project area dropped from 80.5 percent to 49 percent in 2006. The area under fodder crops, apples, and vegetables increased by about 19 percent, 9 percent, and 3 percent respectively. The fallow area remained more or less constant in the SAC area. There must be several reasons for the changes, but it is certain that the better access to irrigation water is giving confidence to move away from the low-risk, low water requiring cereals. There are already some increases in yield, especially for fodder crops and vegetables, but as expected they are typically still below the yields that are expected four years after the completion of the project works (see table below; a larger period is needed after completion of rehabilitation to see trends as for instance apple yields in 2006 were reduced due to severe weather conditions).

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Changes in Yields and Cropping Patterns

SAC MMMC Item Unit 2002 2004 2006 2002 2004 2006 Cropping Pattern Cereals % 80.5 51.3 48.8 26.4 21.6 25.5 Cotton % - - - 4.5 4.6 5.5 Vegetables % 0.5 1.8 3.3 1.2 2.6 5.0 Fodder crops % 0.5 17.8 19.1 42.0 61.0 56.7 Apple % 7.3 15.5 16.5 - - - Fallow % 11.2 13.7 12.6 25.9 9.69 7.3 Crop Yields Cereals ton/ha 2.2 1.7 2.3 2.1 2.1 2.3 Cotton ton/ha - - - 1.5 1.7 1.7 Vegetables ton/ha 12 14.7 16.3 10 11 11.2 Fodder crops ton/ha 3.8 4.8 4.9 4.2 3.9 5.3 Apple ton/ha 3.5 9.2 6.3 - - -

3.2.4 With the completion of the MMMC improvement works, drainage water that previously was released in the overstretched Kura left bank collector system now passes down the MMMC and beneath the Araz river into the Caspian Sea. To complement the main collector works, the other main and secondary drains within the total command area of about 40,000 ha (10 percent over target) were rehabilitated and cleaned and this included seven collectors with a total length of 71.8 km. The combination of MMMC and other drainage works has meant that the command area lying in the flat low-lying Kura-Araz and Mugan-Salyan plains can be more easily drained to the desired level with the ground water table now being generally below 2 meters within 5 km from the main drainage system. This permits unrestricted growth in most of the irrigation and grazing areas. 3.2.5 The cropping area changes in the MMMC area were less pronounced. The area under cereals remained basically constant. The fallow area reduced by about 19 percent as the area under fodder and vegetables increased by 15 percent and 4 percent respectively. It seems that the better conditions in the field gave the farmers the opportunity and confidence to cultivate additional area. The study results show some increases in yield, especially for fodder crops and vegetables, but as expected they are typically still below the yields that are expected four years after the completion of the project works. Leaching of salts will still take some years to allow for a further increase in yields. Although it has not been regularly measured, the construction of MMMC has also reduced the drainage flow into Main Shirvan Collector on the left bank of the Kura River. This system used to suffer from overload with some of the saline Main Mil-Karabakh Collector (MMKC) drainage water being released in the Kura River during peak drainage periods. This added to the reduced water quality in the downstream section of the Kura River that is used both to supplement the Baku water supply as well as meeting irrigation needs in the lower plains.

3.3 Efficiency 3.3.1 At appraisal the Economic Rate of Return (ERR) for RIDIP was estimated at 19.9 percent (NPV = US$27.7 million) accruing from the following factors: (i) increase in yields;

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(ii) cropping pattern conversion to higher value crops; and (iii) prevention of the future collapse of the irrigation facilities and subsequent decline in irrigable areas. The SAC sub-project would also contribute with substantial benefits from securing the current level of drinking water to Baku City. The anticipated increase in yields and conversion to higher value crops was assumed to take place in full only after 11 to 13 years from completion. Separate ERR estimates for the SAC and MMMC sub-projects were 23.3 and 16.4 percent, respectively (NPV = US$16.3 million for the SAC and US$11.4 million for the MMMC). 3.3.2 Based on the actual results obtained by farmers in the project area according to the M&E Surveys, new evaluation scenarios were built for the ICR Economic and Financial Analysis6. Results show that the overall ERR for RIDIP would reach 23.7 percent (NPV = US$66.6 million). The higher than expected results stem mainly from the following factors: (i) increase in yields; and (ii) cropping pattern conversion to higher value crops. ERR estimates for the SAC and MMMC sub-project areas were 20.3 and 30.5 percent, respectively (NPV = US$33 million for the SAC and US$33.6 million for the MMMC). SAC investments showed a lower than expected result because: (i) the actual investment cost was more than 40 percent higher than the PAD estimate; (ii) no future collapse of the irrigation facilities and subsequent decline in irrigable areas was considered in the without-project scenario; and (iii) no value was attributed to the benefits from securing the current level of drinking water to Baku City considering that this demand would prevail over the demand for irrigation, as water for human consumption and the related benefits would as much as possible have been secured even without RIDIP. 3.3.3 The norms established for unit costs in the PAD were initially higher than those included in the signed contracts. This reflected the initial lack of activity in the construction sector in Azerbaijan and the lack of competition. With the presence of more contractors in the market place, unit prices were relatively stable until the end of 2005 when the price of basic input materials such as fuel, electricity, cement, and steel increased substantially. This had an impact on the remaining RIDIP contracts and was one of the reasons why additional funds were requested to finance the resultant cost overruns. 3.3.4 Farm family benefits7 in the SAC irrigated command area are expected to increase by 57 percent from the annual equivalent of US$2,827 to US$4,446 once the new orchards and other more intensive crops are in full production. Considering the average family size of 5.9 persons in the SAC area, the daily per capita income from agriculture would be increased from US$1.31 to US$2.06 which is contributing to pull out of poverty the average rural family in the SAC area. Farm family benefits in the MMMC irrigated command area are expected to be increased by 40.6 percent from the annual equivalent of US$4,559 to US$6,410 as the new drainage system allows for soils to be leached from excessive salts. Being the average family size of 5.7 persons per family in the MMMC area, the per capita daily income would be increased from US$2.19 to $3.08.

6 The scenarios were built using FARMOD software. The 2002 survey data helped to define the before-project

situation and the 2006 surveys data the with-project situation. 7 Typical farms were modeled for SAC and MMMC areas with the average size derived from the M&E surveys:

2.65 ha for SAC command area and 3.7 ha for the MMMC command area.

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3.4 Justification of Overall Outcome Rating 3.4.1 The overall outcome rating is rated as satisfactory. RIDIP was conceived to address those priority issues identified by the GOA which were very relevant to the country's needs and priorities and the project constituted the first step in the overall plan to bring agricultural production back to the levels and returns that used to exist in Azerbaijan prior to the break-up of the FSU. As described above, the project has made an important first step towards the achievement of this overarching government objective. However, minor shortcomings relate to: (i) RIDIP’s institutional-related activities were not fully implemented as a result of several reorganizations of SAIC; and (ii) the delays in handing over MMMC O&M responsibility to the MMMC maintenance organization, which resulted from the lengthy procedures and formalities required by the GOA to hand over all of the completed new works together, did not allow proper O&M to start during the project.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 3.5.1 Since 2002, the number of people living in poverty in Azerbaijan has more than halved. Most of this has been attributed to improvements in welfare in Baku City, with the poverty in rural areas also declining, but not so rapidly. A lack of employment, assets and commercial opportunities as well as unreliable infrastructure, have been key driving factors behind rural migration. Agriculture and in particular irrigated agriculture is the main source of livelihood in most rural areas. RIDIP has provided an input into poverty alleviation in the country by increasing the return that farmers in the two project areas receive though provision of the opportunity for them to grow high-value crops from greater security of irrigation supplies. Typical farm models presented in Annex 4 based on actual facts (yield improvements, increased irrigated areas and shifting cropping patterns to higher value crops) confirm that family benefits are increasing for about 33,420 families in the project areas. (b) Institutional Change/Strengthening 3.5.2 Capacity building and institutional change were one of the supporting components of RIDIP. The assistance provided was mainly directed at the designers and implementers of the project. However, as almost all construction works have been completed by local contractors, they also have been able to improve their skills and capacity to work in the changing and demanding environment in the country. 3.5.3 Regarding the SAC management improvement study that was carried out in 2004 and was accepted by PIU and AIOJSC, few recommendations have been implemented as the irrigation agency went through several reorganizations during the past years. It was first brought under the umbrella of the Ministry of Agriculture, but then after a short period again taken out from that Ministry and transformed into the government-owned AIOJSC. Each of these reorganizations took time, especially to get new organizational charters approved, which resulted in uncertainty among staff, minimizing the opportunity for major reform. However, most of the recommendations are for the long-term, as is the case of the proposal that SAC management becomes financially independent from AIOJSC. With the SAC system rehabilitated it is

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expected that the next Bank-funded irrigation project planned for FY09 will pursue on the subject of self-financing. Regarding the proposal for the District Irrigation Exploitation Units to work closer with WUAs it is believed that it will be performed once the WUAs become stronger organizations under IDSMIP. (c) Other Unintended Outcomes and Impacts 3.5.4 Before RIDIP started, there were few contractors who would be capable of undertaking such complicated works as the rehabilitation of the Bahramtepe Headworks under IDSMIP. Now, with several large projects implemented under RIDIP, a number of the larger local contractors have both the resources and experience to undertake these more complex construction contracts. This increase in contractors’ capacity will have a positive impact on subsequent projects both in the I&D sub-sector as well as in other sectors.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 3.6.1 In general, both the baseline survey and the impact studies addressed the project’s needs and provided information relevant to key project impact indicators. RIDIP target was to irrigate annually 64,000 ha in the SAC project area and 36,500 ha in the MMMC project area. The beneficiaries’ surveys show an increase in the irrigated agricultural area due to improved water supply (SAC) and through solving drainage problems (MMMC). The increase in irrigated area in the SAC command area is resulting from better water abstraction and supply conditions which allowed for expanding the areas under irrigation within the farms. The better access to irrigation water is giving farmers confidence to move away from the low-risk, low water requiring cereals to high value crops. The percentage of dissatisfied farmers dropped from 22.4 percent to 10.2 percent, while the percentage of fully satisfied farmers increased by over 29 percent (see Section 3.2 and Annex 6).

4. Assessment of Risk to Development Outcome 4.1.1 The risk to development outcome is rated as moderate. At the time of project preparation, risks from outputs to development outcomes were clearly discussed and defined. These have been reviewed and assessed on project completion and although true at the time of project preparation, the risks have been clearly reduced during implementation. The commitment of the GOA to support both I&D development and investments in rehabilitated and upgraded infrastructure has been clearly shown. O&M budgets have been significantly increased, as indicated in paragraph 2.5.3. There is every indication that this commitment will continue and that adequate funds will be committed in future to support the O&M of all RIDIP facilities in the longer term. User contributions through the ISF and other fees have also grown in the SAC area from less than 20 percent in 2002 to over 40 percent of annual O&M in 2007. As part of IDSMIP that focuses on moving towards farmer-managed systems, the issue of increased service fees and collection rates will be addressed further. 4.1.2 The attention paid during project implementation to quality control and modern manageable designs (e.g. modern hydraulic control structures and a hydraulic sediment basin) will almost certainly increase farmer satisfaction and reduce annual O&M costs. GOA’s

19

investments in the rehabilitation and upgrading of on-farm I&D infrastructure is also an important contributing factor. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry 5.1.1 Bank performance is rated as satisfactory in ensuring quality at entry. The Bank spent sufficient resources on project preparation, with most of the preparation done in 1999 and 2000. The first identification mission took place much earlier, but it took much time to reach agreement and move from a first identification mission to full preparation. During preparation, the Bank team clearly identified the sectoral issues and ensured that the works proposed in the approach adopted were closely aligned with GOA objectives, with one of the main points being the need to improve main infrastructure works before benefits could be achieved on-farm. The preparation also recognized the need for an immediate follow-up project to complement the off-farm interventions through on-farm investments, training and institutional reform (IDSMIP). The comparatively simple design of RIDIP enabled the implementing team to concentrate on a few number of well identified objectives. (b) Quality of Supervision 5.1.2 Quality of Bank supervision is rated as satisfactory. A total of 14 full supervision missions were provided by the Bank during project implementation. These missions were timely and did not shy away from addressing issues that arose during the realization of a project of the type that was relatively new to the country at that time. The missions reacted proactively to identify issues and problems that could have jeopardized the achievement of the PDOs or could have resulted in both cost overruns and substandard end products. The aide memoires prepared at the end of each mission were informative and clear, as well as identified the issues that needed to be addressed before the next mission. The supervision missions were sympathetic to both the problems faced by the PIU and the obstacles facing the international TA teams. Where deficiencies or substandard performance occurred Bank staff was not afraid to deal with them in a realistic and fair manner, resulting in the replacement of some international consultants as a consequence. (c) Justification of Rating for Overall Bank Performance 5.1.3 Overall Bank performance is rated as satisfactory. Bank performance was satisfactory at all stages from project preparation through supervision. 5.2 Borrower Performance (a) Government Performance 5.2.1 Government performance is rated as satisfactory. The Deputy Prime Minister in charge of the I&D sector and management of SAIC and its successor (AIOJSC) have been very

20

supportive of RIDIP. The Deputy Prime Minister was always accessible to Bank missions and was involved in decision-making, as needed. Management and staff of AIOJSC have always been available to discuss important issues during supervision missions and have provided sufficient resources for these missions. They have also assisted the teams of international consultants in their work in Azerbaijan and tried to remove any obstacles that prevented them from carrying out their work successfully. The Ministry of Finance has provided counterpart funds and support as and when required and in the amounts determined during project preparation and annual budget requests. The works done in the SAC area have allowed government to move to the next stage of development in the SAC command area. The feasibility study on the long-term development plan in the area that was prepared under the project is serving as the blueprint for the ongoing developments, which include the planning for a dam in the SAC area and a new gravity canal to Jeiranbatan Reservoir. (b) Implementing Agency Performance 5.2.2 Implementing agency performance is rated as satisfactory. The AIOJSC and PIU staff were committed to the project implementation and this is evident by the very strong teamwork that now exists and is being carried forward into IDSMIP. Their commitment to the work and the production of high standards, in spite of their initial inexperience with the implementation of a project of this kind, contributed to the success of RIDIP. Initially there was considerable reluctance to delegate powers to the consultants who were supervising the construction works and also to adopt some aspects of an improved and modern design approach. These barriers were removed through discussions, working with the international and national consulting teams, to the extent that all involved appear proud of what they had been involved with and have managed to keep the costs within reasonable limits. (c) Justification of Rating for Overall Borrower Performance 5.2.3 Overall Borrower performance is rated as satisfactory. Both Government and AIOJSC/PIU were fully committed to RIDIP and had a satisfactory contribution to it.

6. Lessons Learned • Agricultural development plays a pivotal role in poverty reduction in Azerbaijan. Properly

operating I&D infrastructure is essential for good agricultural production in the country. Adequate public investments for rehabilitation and modernization of I&D systems are needed to reverse the ongoing deterioration of systems and make them more efficient;

• Azerbaijan has limited water resources and competing demands for water resources are increasing. Future I&D investments also have to address as one of its main objectives the improvement and sustainable use of water through integrated water resources management from the river basin perspective;

• The rehabilitation of I&D infrastructure, institutional reforms in water management, the development of WUAs for ensuring their professional and financial independence, and the transfer to WUAs of the public I&D infrastructure are all necessary instruments for

21

improving in a holistic manner the efficiency and sustainability of irrigated agriculture in Azerbaijan;

• Considering the current state of much of the I&D infrastructure in the country, for rehabilitation purposes a system approach has to be adopted, allowing an in-depth analysis of major shortcomings of an entire irrigation or drainage system in order to propose the necessary improvements in light of an overall objective of restoring capacity, increasing efficiency, and improving O&M;

• Investments in modernizing I&D infrastructure have to focus on reducing the future operation and maintenance costs of systems, as for example in the case of the sediment basin at the SAC Headworks; and

• The establishment of “participatory protocols” with the beneficiaries and WUAs greatly

assists in the handing over of completed rehabilitated and upgraded irrigation infrastructure. Not only does this avoid misunderstandings later on but it precludes possible future claims by farmers against the irrigation agency for perceived deficiencies. Transfer protocols have a wider application in similar projects to encourage a more participatory approach to the planning of rehabilitation works, to ensure that the views of the respective WUAs have been clearly represented, and that on completion of works each WUA agrees that the work has been completed to an acceptable standard and that they will be prepared to maintain it thereafter;

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 7.1 The Borrower’s completion report does not raise any issues that need to be addressed in this section. (b) Cofinanciers 7.2 Not applicable. There were no cofinanciers. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 7.3 Not applicable.

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Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

IRRIGATION AND DRAINAGE INFRASTRUCTURE REHABILITATION AND COMPLETION

33.83 47.24 140

INSTITUTIONAL STRENGTHENING 1.74 2.31 133

PROJECT IMPLEMENTATION SUPPORT 2.43 2.59 107

Total Baseline Cost 38.00 52.14 137

Physical Contingencies 3.50

0.00

0

Price Contingencies 4.57

0.00

0

Total Project Costs 46.07 52.14 113 Project Preparation Fund 0.80 0.87 109 Front-end fee IBRD 0.00 0.00 0

Total Financing Required 46.87 53.01 113

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

International Development Association (IDA) N/A 42.00 48.00 114

Government of Azerbaijan 4.87 5.01 103 Total 46.87 53.01 113

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Annex 2. Outputs by Component 2.1 This annex contains more details to support Section 3.2, Achievement of Project Development Objectives. It does not repeat the data contained in that section, but provides more data to support the conclusions reached as well as some background data.

Component 1: Rehabilitation and Completion of I&D Infrastructure (a) Samur-Apsheron Canal (SAC) System 2.2 Samur Headworks. The headworks on the Samur River were built in 1957 to improve the water supply to the existing irrigation system, bring more lands under irrigation, and improve the domestic and industrial water supply to Baku and the Apsheron Peninsula. The agreement for the water sharing between Azerbaijan and Dagestan was signed in 1967 and is still valid today. This is based on river flow for a probability of exceedance of 75 percent which is 1,472 MCM per annum. The flow is divided, with 889 MCM to Azerbaijan, 300 MCM to Dagestan, and 283 MCM for fish farming and environmental flows. The intake for both Azerbaijan and Dagestan is on the right bank of the Samur River and is managed by Azerbaijan. The works carried out at the headworks were based on ensuring that the system can be operated more efficiently and did not change the diversion volumes. 2.3 The actual works completed were the improvement of the headworks structure, including the Samur – Derbend Canal Intake Siphon (supplying Dagestan), the replacement/refurbishment of hydro-mechanical and electrical equipment, the reconstruction of the downstream sill, strengthening of the apron on the Samur River, and the reconstruction of left and right bank downstream protection works. The construction of new head regulators for the SAC and Khanarkh Canals was carried out as well. Improvements carried out have meant that the gate operators have been able to control more easily the flash flood flows in the river and also to exclude base sediment flows from entering at the main intake. It has allowed the needed volumes of water to enter the offtakes and meet the water allocations of the SAC and the Derbend Canal. 2.4 Sediment Basins. The original mechanical desilting plant was built at the headworks in 1957 and had a capacity of 28.8 m3/sec. It consisted of two settling compartments, divided each into two basins 27.5 m wide by 275 m long and with a depth of 5 m. The settling basin was only utilized for two years before it went out of operation. This appears to have resulted from an incorrect determination of the settling time of the sediments, failure of the dredging pumps, lack of funds to repair or replace the dredger, and selection of complicated and energy dependent technology of cleaning the settling basins. Two other settling basins are located at km 8 and km 12 on the SAC. These have a capacity of three and six MCM, but silted up many years ago. There is also a hydraulic settling basin at km 100 on the SAC at Siyazan. These settling basins were not effective and silt has been entering the Jeiranbatan Reservoir for many years, causing a reduction in storage. The current useful storage is about 100 MCM, which is sufficient to meet the demand for the Baku water supply for four months (based on the average monthly withdrawal of 24 MCM), assuming no inflows.

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2.5 Discharges in the Samur River vary markedly throughout the year, reaching a maximum in the period June/July and a minimum around February. There is also a corresponding large variation in sediment concentration. Sediment concentrations in the flood season are high with average concentrations in excess of 20,000 part per million (ppm) and peak values exceeding 50,000 ppm. The sediment sizes are predominantly fine with 75 percent of the sediment load being finer than 0.05 mm. Annually approximately 4 MCM of sediment enter the SAC system through the SAC Headworks. At present approximately one third of this is deposited in Jeiranbatan Reservoir while the remaining sediment enters the irrigation system. Concerns were raised about the high canal maintenance costs and any further loss of storage in the reservoir due to sedimentation and the operational problems caused when pumping sediment laden water from the SAC into the Jeiranbatan Reservoir. To counteract this, it was agreed that sediment reduction measures needed reinstatement at the SAC Headworks. 2.6 As indicated, the sediment that enters the SAC system from the Samur River is predominantly fine and so removing this sediment from the water is extremely difficult. A range of sediment control options was identified and studied by the consulting engineering team, with the selected option being construction of a new structure perpendicular to the river adjacent to the site of the old basin to avoid demolition costs and possible foundation problems. This option was cost effective and had the highest removal percentage at about 27 percent of the total sediment entering the headworks. With the adopted design, monthly flows were simulated together with amounts of material deposited. This showed that more than one MCM of sediment would be trapped annually in the sediment basin (see Table A2.1). 2.7 The materials trapped are the coarser sediment fractions, while the sediment that remains in suspension is carried through to agricultural land or into the Jeiranbatan Reservoir. With the new arrangement (that includes also rehabilitated scouring gates in the actual headworks) it is estimated that the amount of material deposited in the SAC system will be reduced by about 0.5 MCM, saving about AZN 1 million per annum in maintenance costs (as the sediment basin relies on hydraulic flushing there are minimum costs associated with the removal of material deposited in the basin). The amount of sediment entering the Jeiranbatan Reservoir will be reduced by about the same amount, or 50 percent of what had previously entered in a year. This will slow down the current decline in available storage that is already encroaching on the live storage. 2.8 Samur-Apsheron Canal. The current SAC configuration was completed in the late 1960s. It carries water in a south-easterly direction to Baku and also provides irrigation water to areas of land between the canal and the Caspian Sea. Near Baku the water is pumped into the Jeiranbatan Reservoir and is then used for water supply to Baku. In addition to the water abstracted from the Samur River, water is also abstracted from two rivers that the main conveyance canal crosses; the Qudyalchay and the Velvelichay Rivers. 2.9 Since the break-up of the former Soviet Union, only limited routine maintenance had been carried out on the canal system. The works to be undertaken under the project included the rehabilitation and improvement of the first 50 km of the 182 km long main supply canal, the modernization of the outlets from both the SAC and the Khanarkh Canal, and the improvement and upgrading of the associated secondary canals.

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Table A2.1 - Estimate of Monthly Sediment Deposited in Sediment Basin

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2.10 For the redesign of the SAC system, the report on the long-term strategy and feasibility study for the SAC system conducted during the project concluded that the canal capacity should be enlarged in certain sections from km 27 to km 50 in order to capture water from other rivers that cross the conveyance canal. 2.11 Works commenced with provision of temporary water supplies to 14 communities that draw water from the SAC. The main works could not start until the SAC was closed and drained which was delayed by cold winter conditions. The first closure window was restricted to 3.7 months in 2005/06, instead of the intended six months.8 The main canal was again closed 1.8 months late for the second window, on November 25, 2006 rather than October 1, shortening the second closure period to 4.7 months, thereby limiting the period to complete all works within the canal.9 The main reason for the delay was the late completion of the Khanarkh Canal in December 2006, much later than expected. This canal had to serve as a by-pass for sufficient water delivery to the Jeiranbatan Reservoir for Baku during the SAC closure. Water supplies to the reservoir were investigated during the March 2005 IDA review mission. It was found that closure for six months was not possible without the Khanarkh Canal, hence the need to limit the SAC closure period (2005/06 season) and delay the closure (autumn 2006). In spite of these limited periods for construction, the contractors succeeded in completing all the works by the time water was required again in the SAC. The contractors were able to mobilize sufficient teams throughout the length of the SAC in order to meet the very tight deadline. 2.12 Secondary Canals. The total length of secondary canals rehabilitated and upgraded amounted to 185.7 km compared with 260 km in the PAD. This reduction resulted from the change in original scope of works due to farm privatization in the command area. Some canal alignments had to be changed or adjusted and canals previously considered to be off-farm became on-farm. Detailed surveys of the resulting systems undertaken revealed greater rehabilitation needs than had been expected. Almost all canals required lining whereas previously it had been assumed that selective lining would be sufficient. In addition, no suitable structures remained and thus new control, measurement and regulating structures were needed on all secondary canals. The canals command an area of 57,500 ha. 2.13 The works were undertaken in two separate contracts. The first one (Package 1) included the rehabilitation of 24 secondary canals (97.2 km) and associated structures served by the initial 25 km section of SAC and supplying a command area of 18,100 ha. A total of 189 conventional gated structures were installed on the secondary canals (to regulate flow into the tertiary network), as well as 262 flow measurement devices (hydro-post), 107 pipe crossing and slab bridges, and 11 special structures. Flumes were introduced for measurement as they are less prone to silt accumulation than the sharp-crested weir proposed in the original consultants’ design. The second contract (Package 2) covered 19 secondary canals (88.5 km) supplied by both the remaining length of the SAC up to km 50 and the Khanarkh Canal with a total command area of 8 The main canal was closed from December 21, 2005 until April 12, 2006. 9 The main canal was reopened on April 15, 2007, at the start of the irrigation season.

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39,400 ha. Structures included 142 small bridges (some with culverts), 147 long-crested weirs, 190 offtakes with flow measurement, 17 Replogle flumes, and 33 cross-drainage under-passes. Under this contract additional modern structures were introduced, including long-crested weirs that permit almost constant abstraction flow into tertiary canals with varying flows in secondary canals, and Replogle flumes to measure flows in both main and secondary canals with relatively high sediment loads. 2.14 Considerable effort was required to ensure that full farmer’s cooperation was obtained about the time of irrigation canal closure and to ensure that they respected and did not damage the completed works. This enabled maintenance of irrigation supplies in most areas with secondary canals being brought back into use gradually before completion of the total contract. To avoid misunderstandings later and to preclude possible future claims by farmers against AIOJSC for perceived deficiencies, a ‘transfer protocol’ was agreed with respective WUAs after the completion of each secondary canal. This protocol accepted the condition of the rehabilitated works and structures. The work that was being done with WUAs under IDSMIP greatly facilitated this handing over and acceptance process as by this stage the WUAs understood that they will be taking responsibility in the future for all or most of the rehabilitated systems. 2.15 Details of the secondary canals that were rehabilitated in the two SAC contracts are given in Table A2.2 below. The first package concentrated on the command area located between the SAC and the Khanarkh Canal with the offtakes that derive their water directly from the SAC. Some of these canals extended across the Khanarkh Canal and therefore supplied both the SAC and Khanarkh Canal command areas. In the second package most offtakes are related to those that derive their water from the Khanarkh Canal. New lining was provided for all Package 1 canals and all but three of Package 2 canals. Where possible, new long-crested weirs were introduced as these require less operator intervention for effective water management. 2.16 Inflows into Jeiranbatan Reservoir and Baku Water Supply. Complete flow data for 2007 are available up until the end of August. This shows increased delivery for the same months of 2006, even though the SAC was closed for the first 50 km for four months. During this period, flows were limited to the capacity of the Khanarkh Canal. Once the canal was open, full advantage could be taken of the flows in the rivers and in June the average continuous flow for the month at the headworks was about 55 m3/sec. In order to assess the overall impact of the flows for irrigation and Baku water supply, an estimate was made for the remaining months of 2007, considering past flows into the headworks and within the system. This would indicate that the volume of water entering Jeiranbatan Reservoir for 2007 will be about 370 MCM (see Table A2.3 below), or nearly 30 percent above the target set in the PAD.

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Table A2.2 - Details of Secondary Canals Completed in SAC Area Canal

No. Ref. No. Length Main Canal

Water Source No. of

Structures Remarks

Package 1 1 TAK-3 3,200 SAC 19 2 TAK-5 2,400 SAC 8 3 TAK-6 2,600 SAC 26 4 TAK-7 570 SAC 8 5 TAK-8 4,100 SAC 15 6 TAK-9 4,150 SAC 20 7 TAK-10 5,235 SAC 6 8 TAK-11 1,100 SAC 10 9 TAK-12 4,163 SAC 25

Supplies SAC Command area only

10 TAK-13 12,055 SAC 49 Also Supplies Khanarkh command area 11 TAK-14 2,600 SAC 21 12 TAK-15 6,244 SAC 31 Supplies SAC Command area only

13 TAK-15Kh 3,382 SAC 37 Also Supplies Khanarkh command area 14 TAK-16 4,267 SAC 26 15 TAK-17 4,200 SAC 20 16 TAK-18 2,330 SAC 17 17 TAK-19 6,430 SAC 51

Supplies SAC Command area only

18 TAK-19Kh 6,800 SAC 42 Also Supplies Khanarkh command area 19 TAK-20 2,000 SAC 14 Supplies SAC Command area only 20 TAK-21 6,750 SAC 36 Also Supplies Khanarkh command area 21 TAK-22 5,060 SAC 38 22 TAK-23 2,900 SAC 21 23 TAK-24 4,630 SAC 29

Supplies SAC Command area only

97,166 569 Package 2

1 Kh-R-1 3,560 Khanarkh 29 New Lining 2 Kh-8 4,809 Khanarkh 41 New Lining 3 Kh-9 5,660 Khanarkh 33 New Lining 4 Kh-10 3,600 Khanarkh 29 New Lining 5 Kh-18 1,541 Khanarkh 19 New Lining 6 Kh-26 4,209 Khanarkh 29 New Lining 7 Kh-27 4,656 Khanarkh 34 New Lining 8 TAK-28 8,270 SAC 30 Rehabilitation 9 Kh-28 7,165 Khanarkh 39 Part Rehabilitation 10 TAK-29 3,920 SAC 36 New Lining 11 TAK-31 3,450 SAC 19 New Lining 12 TAK-32 2,200 SAC 16 New Lining 13 Kh-32 4,152 Khanarkh 36 New Lining 14 TAK-33 3,020 SAC 22 New Lining 15 Kh-33 4,500 Khanarkh 12 New Lining 16 TAK-34 7,800 SAC 32 Rehabilitation 17 Kh-34 7,200 Khanarkh 43 New Lining 18 Kh-35 6,400 Khanarkh 38 New Lining 19 Kh-26A 2,425 Khanarkh 23 New Lining

88,537 560

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Table A2.3 - Annual Flow Volumes in the SAC (in ‘000 m3)

Abstraction Delivery Year

Samur Valvelichay Total Khanarkh SAC Total

Intake to Jeiranbatan

reservoir

2001 769,097 17,668 786,765 67,135 562,700 629,835 293,025

2002 773,909 15,774 789,683 65,532 555,555 621,087 319,918

2003 793,642 13,660 807,302 66,397 618,469 684,866 364,173

2004 720,471 35,239 755,710 80,603 561,631 642,234 313,467

2005 837,065 28,164 865,229 79,615 637,940 717,555 340,459

2006 659,868 117,426 777,298 75,429 608,649 684,082 306,889

2007 778,319 84,230 862,549 237,656 495,481 733,138 370,268 Notes: Data for 2007 is projected based on information provided by the PIU for the first 8 months of the year. Data excludes discharges for miscellaneous water use, e.g. environmental flows, estimated at around 100 MCM per year.

2.17 Water flows into the Jeiranbatan Reservoir are dictated by drinking water demands in Baku City and requests made by Azersu to the SAC management according to their agreement. Priority is always given to the drinking water supply and thus it can be expected that annual supplies of water into the reservoir should be more or less constant. Figure A2.1 below shows that the proportion of water entering the reservoir is more or less constant. The remaining water is available for irrigation in the SAC command area and it can be seen from the figure below that the total supply into the system for all needs is at its highest level since 2001.

Figure A2.1 - Water Supplied by SAC and Khanarkh Canals for Irrigation and to Reservoir (‘000 m3)

2.18 Flows for Irrigated Areas. The data for the total amount of water delivered to the irrigated areas in the SAC has been based on estimates of irrigation water needed by crops grown and according to standard crop norms. Measurements of flow are made at the headworks, but there has not been sufficient time to use the new hydroposts to measure water volumes within the system, thus data on total water supplied within the project raions must be treated as general figures. Similarly, data on irrigated areas includes all the raions in the SAC area and thus covers areas above the SAC, areas irrigated by spring/ground water sources, or directly from the rivers passing through the command area as well as those supplied by the Samur Headworks. Table A2.4 below

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shows that the total area supplied by gravity before delivery of the water into Jeiranbatan Reservoir is 92,644 ha.

Table A2.4 - Irrigated Areas Supplied by the SAC

Part of System Command Area

Irrigated land (ha)

Irrigable lands (ha)

SAC 16,281 20,350 Khanarkh 34,840 43,550 In Project Area

TOTAL 51,121 63,900 SAC 25,859 32,325 Khanarkh 15,664 19,580 Outside Project Area

TOTAL 41,523 51,905 SAC 42,140 52,675 Above SAC 35,155 40,442 Khanarkh 50,504 63,130 AMC 16,207 20,259 Ground water 5,614 7,018

TOTAL

TOTAL 149,620 183,524 2.19 The gross amount of water delivered into the system after the first improvements were completed in 2005, when the first impacts of the work on the SAC and the headworks structures began to be realized, average out at about 372 MCM per year, or about 4,000 m3/ha.10 Until more detailed data are collected under IDSMIP on flows throughout the improved system, utilizing the new measuring structures, it will be difficult to determine whether the irrigated areas are receiving the water they need. However, crop data from the M&E surveys has shown a marked change in cropping pattern to higher value and higher water consuming crops, while the satisfaction rates among farmers increased. This would indicate that farmers are receiving greater quantities of water on a more reliable basis than before. (b) Main Mil-Mugan Collector (MMMC) System 2.20 Drainage is essential for many irrigation systems in Azerbaijan, but most critical in the area totaling about 760,000 ha where soil salinity has developed for lack of natural drainage, especially in the center of the country in the Kura-Araz Basin. The development plan for the construction of collector systems to drain these areas was prepared in the early 1960s. The Kura River left bank collector system was completed during the Soviet times. 2.21 Developments on the right bank started in the 1980s with 60 km of the Main Mil-Mugan Collector completed before Independence and a further 52 km built during the second part of the nineties with IsDB financing. This left a 31 km missing link and until this would be completed, drainage waters from the Main Mil-Karabakh Collector (MMKC) discharged into the Main Shirvan Collector on the left bank of the Kura River by means of a siphon under the river. This often resulted in overload in the left-bank drainage system, while some of the saline MMKC drainage water was released in the Kura River during peak drainage periods. RIDIP provided the completion of this last,

10 Compared to 6,500 m3/ha at the farm boundary estimated in the PAD.

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critical link in the MMMC and completed the remaining section of the main collector drain, provided the necessary road and rail bridges and aqueducts across it, as well as an adjacent service road, and completed the siphon underpass for this drain beneath the Araz River. Also included was the reconstruction and rehabilitation of inter-farm collectors serving an area estimated at appraisal at 36,500 ha and design and supervision support services. RIDIP did not finance irrigation infrastructure in the MMMC sub-project area, except for a few short canal sections. 2.22 Following the detailed design assessment of the works to be undertaken, it was found that by shortening the length of the MMMC by 3 km, considerable savings could be achieved even though some land would have to be acquired. The land acquisition arrangements for the revised alignment of the main collector was a time-consuming process.11 Land values were set by GOA based on a number of factors (such as soil quality and productivity, location, access to water) with compensation for private land including the value of crops and fruits trees and other assets to be expropriated or demolished. Municipalities were compensated at fixed land value rates and the final land acquisition plan was approved by the Prime Minister on May 13, 2003. To facilitate implementation of the MMMC and to ensure that delays or alterations on one contract did not affect the other, some transfer of works was made from the second to the first contract involving bridge construction and road surfacing.. 2.23 To complement the main collector works, additional collectors with a length of almost 72 km were rehabilitated and cleaned (see Table A2.5 below). Assessment of the area benefiting from the drains during the M&E surveys carried out under RIDIP showed that the original assessment of benefiting area did not include the former area of Vatan Sovkhoz that covers about 3,000 ha. With the realignment and lowering of the drains in this area, considerable benefits have already been achieved. The total benefiting area for the drainage now stands at about 40,000 ha (about 10 percent over target). The combination of MMMC and other drainage works has meant that the command area lying in the flat low-lying Kura-Araz and Mugan-Salyan plains can be more easily drained to the desired level with the ground water table now being generally below 2 meters within 5 km from main drainage system. This is discussed further in the Annex on environmental monitoring.

11 Detailed field surveys identified a total of 509.5 ha of State, municipal and private land required for

construction needs (19.2 ha of private land; 25.6 ha of municipal land; 464.7 ha of State land). The land and properties were expropriated in accordance with appropriate legislation and paid for by government in line with Bank guidelines and GOA procedures.

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Table A2.5 - Details of MMMC Inter-farm Collectors

Design Details Drainage area (ha)* Collector No.

Length (km) side slope Bottom

width (m) Discharge

capacity (m3/sec) Existing Future

K* 16.93 2:1 3.0 0.30-3.00 8,400 10,000 K-1 15.6 2:1 2.5-6.0 3.40-7.00 14,600 25,000

K-1-2 3.9 1.5:1 1.50 0.20-0.64 1,300 2,100 K-2 9.0 2:1 2.0-4.0 1.50-2.39 5,100 8,000

K 2-1 5.71 1.5:1 1.50 0.20 400 700 K-3 13.2 2:1 1.50-2.50 0.79-3.40 7,100 11,300 K-4 7.45 1.5:1 1.50 1.50 3,100 5,000

Total 71.79 40,000 62,100 Note: * includes 2,000 ha of former Vatan Sovkhoz area in Sabirabad District.

(c) Consultancy Support and Contract Supervision 2.24 Extensive studies were carried out by a team of national and international Consultants during project preparation with all of the main works for both parts of the rehabilitation and completion of the I&D infrastructure identified and developed to feasibility study level. To enable an immediate start to be made on the Samur Headworks in the SAC area and the completion of the siphon under the Araz River in the MMMC area after project effectiveness, bidding documents amounting to about US$10 million were completed during preparation. The remaining works were designed and prepared for tendering during implementation. The PIU engaged two groups of international and local consultants to assist in this process. The first group provided direct support to the PIU as part of a capacity building exercise to increase the PIU’s ability to implement projects and to check and oversee the design and construction supervision work. The second group was involved in the preparation of detailed designs as well as the preparation of technical specifications, engineering estimates, bill of quantities, tender drawings, and the supervision of construction. In the beginning this did not proceed well as the local design engineers were sometimes slow to accept changes and the quality of some of the international consultants was below the expected standard, which led to their replacement. Once these issues had been resolved the work preceded much more smoothly with designs being completed to the required standard, as well as incorporating new concepts into many hydraulic structures. 2.25 Contract management and construction standards were prepared for construction supervision and PIU staff and local consultants were trained in their use. Again, initial problems appeared but these were overcome through adjustments and discussions that took place during supervision missions, with issues such as the level of responsibility delegated to the supervision consultants being clearly defined. In the past, contractors were not closely supervised and thus services provided in this respect by the consulting team were invaluable. Quality control was enhanced and this is evidenced by the final completed works, which are generally of good quality. 2.26 During implementation, two key areas required detailed examination and evaluation. These related to the requirements for sediment removal at the Samur Headworks and the justification for the enlargement of the SAC. These were carried out

33

under separate consultants’ inputs and provided very useful advice that was utilized in the final design of these components. In the design of the sediment removal facilities, it was concluded that model studies would be needed in order to be certain on the most economic size and performance of the proposed sediment basin. This delayed some of the work, but produced a final product to international standards that functions as designed. 2.27 Engineering Contracts. The details of the engineering contracts in both the SAC area and MMMC given in Tables A2.6 and A2.7 below. The rehabilitation and completion of SAC and MMMC were carried out through eight contracts (five and three respectively), which was less than the 11 estimated at preparation, achieved by combining certain works. All procurement was made under ICB with no prequalification.

Table A2.6 Details of SAC Contracts

Package Contract Number

Actually spent

(US$'000)Description Description of Works Variations Contract

AwardContract

Completion

Samur-Apsheron Canal System (SAC)Reconstruction of the Sill and the Apron downstream of Samur HeadworksReconstruction of the Left Bank Protection downstream of Samur Headworks,Rehabilitation of the concrete surfaces of the Samur Headworks including the Samur – Derbend Canal Intake Siphon,Reconstruction of the Right Bank Protection downstream of the Samur Reconstruction of the Apron of the Samur Headworks, L = 65m,Construction of new Regulator for SAC and Khanarkh Canal,Replacement/refurbishment of hydro-mechanical and electrical equipment of

Package 1 CW-SAC -02/0 2,771.3 The Interfarm Canals fed by SAC along its initial length till Gudyalchay River and 3 Interfarm Canals fed by Khanarkh Canal in the same region

The completed works under this contract included rehabilitation of 24 deteriorated secondary canals (97.1 km) and associated structures served by the initial 25 km section of the SAC main canal. The command area was 18,100 ha. Some 189 gated cross flow regulators were installed on the secondary canals to regulate flow into the tertiary network, 262 flow measurement devices (hydro-posts), 107 pipe crossing/bridges over interfarm canals and 11 special structures. Saniiri flumes were introduced as measurement device as it is less prone to silt accumulation than the proposed sharp crested weirs.

Three Variation Orders were issued and this resulted in a contract extension of 4 months.

25-Mar-03 20.11.20042a

Sedimentation Basin and associated worksFlushing Galleries and Right Bank EmbankmentRehabilitation of Existing Khanarkh Canal Sluice Structure and Gates Electrical Sub Station

Canal lining rehabilitationStructures RehabilitationPedestrian Bridges (15 Nos.); Drainage Culverts (8 Nos.); Pipe Conduits (19 Nos.): Old Khanarkh Canal Flume Aqueduct, crossing SAC at Pk 1+53; Chutes (4 Nos.): HE Power Station Regulating Structure; Inverted Siphon at Pk 25+40; Aqueduct at Pk 25+40; Offtake Structures; Electrical installation; Service Road; Protection Zone.

Canal lining rehabilitation and raising of Canal Banks; Rehabilitation of St t Offtake Structures (21 Nos.) only partial rehabilitation of these structures was carried out: the cabins were painted; the offtakes downstream of Chagachugchay were raised in line with canal banks; some new transformers and electrical motors were supplied and installed, some power lines were

l d i h Inverted Siphons - new & rehabilitated Barrels (7 Nos.) and Inlets/Outlet Wing/Retaining Walls and canal-transition Sections. Only minor joint sealing rehabilitation works and mortaring with special material instead of shotcreting was carried out at some of these Barrels.Escape Structures; Pedestrian Bridges; Drainage Culverts; Pipe Conduits; Flume Conduits; Aqueduct at Pk 25+40 ; Power Supply to Offtakes, Inverted Siphon and Escape Gates; Service Road and Protection Zone.

24-Dec-04 30-Sep-06

01-Feb-01 28.06.20041a

28-Mar-06 20-Jun-07

07-Oct-05 15-Jun-07

Rehabilitation of the SAC Headworks and Regulator

Sedimentation Basin & 19 Interfarm Canals fed by SAC between Gudyalchay River & Velvelichay River & Interfarm Canals fed by Rehabilitation of SAC Lining and Associated Structures located along the First 27 km of its length

Partial Increase of SAC Capacity and Rehabilitation of its Lining and Associated Structures located along the reach from km 27 to km 50

Additional works were agreed as a a result of damage caused by 2002 spring flooding for the reconstruction of the right bank dyke protection lining near the old sedimentation basin, the supply and installation of new modern, hydraulically operated trashrack cleaning machine.

4 Variation Orders were issued and the intended completion date was changed.

2,193.3CW-SAC-2/00Headworks

Package 2 CW-SAC -02/04 10,641.5

Package 3 CW-SAC -01/0 6,111.4

Package 4 CW-SAC -01/0 4,506.1

Additional structures were added following requests by water users/local population: automatic water level regulating structure at Pk 37+34 of SAC for Gullar village, Gusar region, water offtake at Pk 225+70 of SAC for Gochagly village, Khachmaz region. The long-crested regulating structure for the first was designed by PIU specialists utilising new ideas from USA.

Three Variation orders were issued, the first in January 2007 corrected the original Bill of Quantities. Variation Order No. 2 extended the intended Completion Date up to 20 June 2007. Variation Order No. 3 was issued in June 2007 and cancelled the Rehabilitation Works for the existing Chagachugchay Inverted Siphon Barrels except for the movement joints and reduced some of the rehabilitation works for part of the Offtakes Structures.

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Table A2.7 - Details of MMMC Contracts

Package Contract Number

Actually spent

(US$'000)Description Description of Works Variations Contract

AwardContract

Completion

Main Mil-Mughan Collector SystemCompletion of the excavation of the new channel bed,Completion of reinforced concrete lining and the flexible mattresses protection of Dykes,Shifting of the excavated material from new river channel to old river bed,Construction of the remaining part of old left dyke of channel,Completion of new channel protection above MMMC SiphonCompletion of service bridge worksRelocation/reconstruction of the existing pump station.New 8.5 km long Main Mill Mugan Collector Reach; Associated hydraulic structures and asphalt Service Road;Structures, which cross the Main Collector Reach;Railway bridge and associated track re-alignment,Two road bridges and associated roadwork,Two aqueducts at the existing Irrigation Canals,Diversion of 330 KV and 110 KV electrical lines & low voltage electrical lines.~7 km lined irrigation canals, 9 km unlined catchment drains & associated structures. Unlined Main Drainage Canal, ~23 m bottom width & 5m to 10m deep;Associated structures and asphalt service road;Construction/Rehabilitation of Interfarm Drains & associated structures;Construction of the following major structures; One double carriageway road bridge and associated roadwork, Two single carriageway road bridges, Two aqueducts with pedestrian bridges; Relocation of 110 kV transmission line, which crosses the MMMC alignment at PK 1281+00.

25-Apr-03 30.11.20044a

19-Feb-01 05.10.20023a

21-Dec-04 31-May-06

Completion of Main Mill Mugan Collector Sihpon on Araz River

Completion of Main Mil-Mugan Collector for the Second (Last) Section, 19.5 km long, located upstream of previously completed Section and reaching to Mil-Karabakh Collector.

5,786.0

Completion of Main Mil-Mugan Collector in first Reach. Approximately 8.5 km located upstream of previously completed Araz Siphon.

Package 1 CW-MMMC-02/02

5,198.9

Package 2 CW-MMMC-01/04

7,438.7

Additional works included 2.7 km Service Road along previously constructed Collector d/s of Araz Siphon, Interfarm Irrigation Canals, Road Bridge across Collector at Pk 1204+00 (transferred from Package 2). In last VO, Service Road works (4,768 m) beyond the railway were deleted from Package 1 and transferred to Package 2

Completion of Main Mill Mugan Collector Sihpon

CW-MMMC-1/00

2.28 Operation and Maintenance Budgets. Government commitment to operation and maintenance is evidenced by the 15 percent annual increase in allocations since 2004. The budget used by the SAC Management comprises allocations from government budget and from sales of water. Although SAC is not yet adequately compensated for the water that it supplies, there is a positive trend.

Table A2.8 - Operation and Maintenance Allocations (2000-2007) (US$ million)

2000 2001 2002 2003 2004 2005 2006 2007National BudgetTotal O&M 30.8 30.7 38.7 43.7 47.7 58.1 80.3 134.5

Budget 29.8 29.5 36.9 41.9 45.3 55.9 77.4 131.3 Fees 1.0 1.2 1.7 1.9 2.3 2.2 2.8 3.2

Irrigation 22.9 22.9 32.4 36.1 39.7 47.8 67.2 110.8 Budget 21.9 21.7 30.7 34.2 37.4 45.6 64.3 107.6 Fees 1.0 1.2 1.7 1.9 2.3 2.2 2.8 3.2

Drainage 3.8 3.8 4.4 5.0 5.2 6.6 8.3 15.0

Project Systems

SAC System 0.5 0.6 0.6 1.5 1.7 2.0 2.4 2.6 Budget 0.4 0.4 0.5 1.2 1.2 1.3 1.4 1.6 Fees 0.1 0.1 0.2 0.2 0.6 0.7 1.0 1.1

MMMC Drain 0.2 0.3 0.5 0.3 0.3 0.4 0.5 0.5

Source: AIOSC, Finance Department, Baku, May 2007

Component 2: Institutional Strengthening 2.29 Institutional Support for SAC Management. TA was provided to review the work practices, processes, and skills of the SAC Management and District Exploitation

35

Units, as well as the coordination between these different offices and water users. Proposals to improve the management of the SAC system were prepared which were accepted by AIOJSC. The findings have been useful in the formulation of a longer-term policy for SAC management, but substantial changes in the management have not yet taken place. It is observed, however, that SAC management is effectively carrying out O&M to the best of its ability with plans in hand for the future O&M of the rehabilitated and upgraded irrigation infrastructure. Changes will likely be introduced gradually and a proposed Bank-funded irrigation project (FY09) is expected to assist GOA with this. 2.30 Irrigation Sub-sector Review. A team of national consultants supported by international specialists carried out an irrigation sub-sector review. The study provided the necessary basis to assist the GOA in the development of a longer-term strategy for the I&D sub-sector in the country. This strategy is now available in draft form and is being reviewed by relevant ministries and agencies. The study has already contributed to greater investments being made by the GOA from its own resources and an increased spending on the rehabilitation of on-farm I&D infrastructure. 2.31 SAC Expansion Feasibility Study. A comprehensive feasibility study to review the technical, environmental, social, and economic viability of the expansion in capacity of the SAC was successfully completed. The study recommended the expansion in its capacity, which has a major bearing on long-term water resource development and expenditure in the SAC area. As a result the capacity of the first 50 km of SAC was reviewed and designs adjusted to increase the canal capacity up to 75 m3/s. 2.32 Training and Study Tour. Training and study tours were carried out covering a wide range of topics. Some of this was directed at PIU staff to enable them to fulfill their administrative and procurement functions according to World Bank guidelines and standards, other training was aimed at illustrating the way other countries have approached similar problems facing Azerbaijan. The study tours to UK, Turkey, France, USA, and Mexico proved very beneficial in this respect. The study tours went beyond the immediate project needs and also included study of successful Water Users Associations (WUA). AIOJSC and PIU staff have been quick to understand the benefits of well organized WUAs and this has assisted greatly in the implementation of the ongoing IDSMIP. 2.33 The consultancy on flow measurement was successful in showing the technical staff simpler and more cost-effective flow measurement structures that can be easily operated and maintained by non-specialized staff such as WUAs. The adoption of these structures throughout the SAC command area shows well the impact of this training support. The more informal on-the-job training where national and international experts work alongside each other has been successful in exposing all of the technical staff involved on the GOA side as well as in the private sector (local consultants) to modern and cost-effective engineering technologies. The training carried out under RIDIP complemented well the various project activities and enabled staff in both the PIU and the local consultancy firms to be more effective. All training and study tours are summarized in Table A2.9 below.

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Table A2.9 - Training and Study Tours

Duration of Services Contract Description Services Actually

Provided Target Group Comments on Training/Services

Start date End date

Design and Supervision Technical Assistance Technical support for

implementation of all of the project components

PIU Effective support in the preparation of RIDIP and implementation arrangements including technical, contract and general management and supporting services. These are now benefiting the subsequent IDSMIP.

13-Aug-01 31-Dec-04

Interim Consultant on Construction Supervision

Interim Consultant on Construction Supervision

Supervision oversight and guidance for PIU supervisors

Good performance and managed to get RIDIP off to a good start.

23-May-01 31-Oct-01

Design and Supervision

Detailed design of RIDIP. To prepare the detailed designs for the two project areas

18-Jan-02 31-Oct-05

Design and Supervision

Implementation design revisions and addenda, contract management and site supervision. To assist and guide the PIU supervision staff in the site supervision activities.

Design assistance to local consultants to review and modernize designs and to incorporate new design technologies and approaches in the final designs. This was followed by supervision oversight and guidance for PIU supervisors.

In general the overall performance was good, but it took time for the local design engineers to understand the new approaches and also for the Consultants to provide suitable staff. There has been a very positive change in attitude of the local engineers and site supervisors. The transfer of technology from the international to the local staff seems to have been good and is benefiting IDSMIP.

21-Jan-02 30-Jun-07

SAC Flow Measurement

Introduction of new and more appropriate measuring devices

PIU, local design staff and O&M staff.

Well appreciated and the ideas, structures and approaches to measurement are now part of the PIU methodology.

13-Dec-04 28-Feb-05

Training Training - Computer Courses

Computer Courses PIU and SAIA Staff Assisted in the use of different software for project management and upgrade skills for a range of other software. Beneficial.

21-Feb-05 31-Dec-05

Overseas Study Tour Water Safety Meeting held in Zamora, Spain

PIU Design Engineer Useful insight into other approaches and considerations

09-Feb-02 14-Feb-02

Model Simulation studies

Work on simulation of the Sediment Basin on Samur River in offices of Specialized Consultants

PIU and Design Engineers

Very useful to be made fully aware of the processes and findings.

23-Oct-02 30-Oct-02

M & E Training Overseas Training course on M&E in Canada

M&E Specialist Most useful in upgrading skills and understanding of requirements for M&E of RIDIP.

16-Jun-03 11-Jul-03

04-Jul-03 31-Dec-03 1-Nov-02 1-Jan-03

Local English Language Training

English language training

PIU and SAIA Staff Improved skills of all staff

13-May-02 23-May-02 Training - procurement and

Procurement and Financial management

PIU procurement and financial

Training courses were useful in understanding

17-Nov-03 28-Nov-03

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Duration of Services Contract Description Services Actually

Provided Target Group Comments on Training/Services

Start date End date

financial management according to WB procedures in ITC of ILO

management staff World Bank procedures etc 10-May-04 28-May-04

M & E Training World Bank’s Training & Workshop “Good Practice in Monitoring, Evaluation and Management Information Systems for Competitive Grant Programs in ESA countries

M&E Specialist Most useful in upgrading skills and understanding of requirements for M&E on RIDIP

08-Sep-02 18-Sep-02

WUA Study Tour for PIU and SAIC staff

Study tours to see WUA and system operation in countries where experiences would be of benefit to Azerbaijan

PIU and SAIC staff Staff of PIU and SAIC traveled to California, USA and Mexico to get familiar with the establishment and operation of WUAs

2-Nov-03 20-Nov-03

Study Tour for PIU and SAIC staff

Study tours to get familiar with high technology approaches to water management and construction

PIU and SAIC staff Staff of PIU and SAIC staff traveled to UK and Turkey to get familiar with high technology approaches to water management and construction in UK and Turkey

6-Jul-03 21-Jul-03

Component 3: Project Implementation Support 2.35 The project support provided to the PIU enabled the staff to effectively support the implementation of RIDIP. This was critical in the first years of RIDIP when the national economy was still weak and staff insufficiently motivated. The TA team of international specialists worked well with PIU staff and this TA support in project preparation and implementation arrangements including technical, contract, and general management and supporting services, was effective. 2.36 The training that was carried out in relation to the implementation of the environment management plan (EMP) and the establishment of suitable measuring and monitoring sites was successful in collecting adequate data that has enabled a valid assessment to be made of the impact of RIDIP on Lake Sarisu and Devechi Lagoon (see Annex 3). The provision of geographical information system (GIS) and the training of PIU staff is benefiting not only RIDIP but also IDSMIP. The same is true for M&E. The systems established and developed under RIDIP together with the training provided to the M&E specialist in the PIU has meant that the basis has been laid for the collection of reliable data on which project success can be evaluated.

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Annex 3. Environmental Monitoring 3.1 Under the Environmental Monitoring Plan (EMP), monitoring was carried out at Sarisu Lake in the MMMC command area and Devechi Lagoon in the SAC command area. The planning and collection of data were subcontracted to local companies and closely monitored by PIU. The monitoring sites were suitably sited within the existing irrigated and cultivated areas of MMMC. 3.2 Both project sites contain protected zones that could have been influenced negatively by the activities of RIDIP. In the SAC area the protected zone is Devechi Lagoon and in MMMC there are Sarisu Lake and Ag-gol Lake that are hydraulically connected. The latter was designated as a RAMSAR site in 1976. All lakes are shallow reed reservoirs, utilized by migrating and non-migrating birds for dwelling and forage. The potential negative impacts that were identified related to water quality and quantity of the lakes, which in turn could lead to environmental changes that could negatively affect the flora and fauna. Devechi Lagoon is located some 50 km east of the project area (see Figure A3.1) and Lake Ag-gol some 30 km upstream from Lake Sarisu (see Figure A3.2). It was therefore considered unlikely that negative effects would arise in these two areas, but to confirm this, a monitoring program was implemented, not just for Sarisu Lake that is located near the new MMMC, but for these two water bodies as well. This also was extended to monitor the impact in the MMMC sub-project area on the overall drainage in the agricultural areas.

3.3 Devechi Lagoon. According to the EMP, weekly monitoring of physical parameters of water quality in Devechi Lagoon, such as water level, electric conductivity, the amount of dissolved oxygen, pH, and temperature of water, was carried out. The monitoring of water chemistry in the lake for 19 parameters, including the amount of suspended sediments, chemical and biological dissolved oxygen, active ions, organic compounds, presence of oil products, pesticides, phenols, microbiological pollution of water was carried out twice a year (March, September). This monitoring continued for two years and was completed in October 2004. The results showed that variations resulting in Devechi Lagoon were typical for similar lakes that are fed by seasonal intermittent rivers and that the implementation of RIDIP in the SAC command area had no impact on the environmental situation in the Devechi Lagoon. This was also confirmed by the Panel of National Experts in their final protocol.12

3.4 Sarisu Lake. Water quality and water levels were monitored in three locations upstream and downstream of and in Lake Sarisu, and downstream of Lake Ag-Gol. In addition to this, monitoring for fauna in general was carried out at both lakes once a year in May and twice a year in April and October for the main species of migrating and non migrating birds. Monitoring of ground water levels and water quality as well as soil salinity were carried out twice a year in order to determine the impact of the construction of the new drain on ground water levels. 12 The Panel comprised specialists from the National Academy of Science, the Ministry of Ecology and

Natural Resources, an Environmental Research Institute, and an Environmental NGO.

39

Figure A3.1 - Location of Devechi Lagoon in SAC Sub-project Area and

Monitoring Sites

Figure A3.2 - Location of Monitoring Sites in MMMC Sub-project Area

40

3.5 Analysis of the data showed that although ground water levels have been lowered in the existing and potential agricultural areas affected by the rehabilitated drains and the construction of the new drain, there were no negative impacts on the environmental situation in the two lakes. One of the reasons for this is that the drainage water deriving from the south-west of Ag-gol Lake and draining into it is not affected by the construction of the final section of MMMC. Ag-gol Lake therefore continued to supply sufficient volumes of water to balance out any losses that have occurred as a result of the construction of the MMMC that cut off part of the catchment area of Sarisu Lake. These conclusions were confirmed by a Panel of National Experts that was set up to review the data that was collected and the analysis that was made by the PIU and consultants. 3.6 In accordance with the EMP, monitoring of physical surface water indicators was carried out starting from 2004 until project completion. The monitoring was carried out using the same indicators as for Devechi Lagoon and in three locations:

• downstream of Ag-gol Lake where the outflows go to Sarisu Lake; • upstream of Sarisu Lake, where flows from Ag-gol Lake discharge into Sarisu

Lake; and • downstream of Sarisu Lake, where excess water is discharged into the Kura River.

3.7 Chemical monitoring of lake water was carried out twice a year (March, September) and once a year (October) in the coastal zone where the MMMC discharges in the Caspian Sea as well as in a 0.5 km strip of the sea at the confluence of MMMC. Monitoring of ground water level (twice a year) and quality (quarterly), as well as soil salinity (twice a year) was carried out in order to determine the impact of construction of the new collector on ground water levels in the project area. Observation wells were installed during 2004 (see Figure A3.2) and these were situated along the main collector and secondary drains, and in the agricultural area to the south, largely within 10 km of the main drain. In addition, drainage water quality and soil salinization were monitored. 3.8 The results of the monitoring showed that the construction of MMMC and rehabilitation of network of inter-farm collectors connecting to it had positive impact on ground water level (Table A3.1), their mineralization, and the salinity of surrounding soils (Table A3.2). Ground water levels within one km distance from the main collector decreased on average by 90 cm, and at a distance between one and five km the levels already went down by 37 cm on average. 3.9 The environmental monitoring program ended with project closure on June 30, 2007, but several aspects of the program will continue as the final impact of the large-scale drainage works necessitate several complete seasons to be fully realized. AIOJSC will take responsibility for this.

41

Table A3.1 – Ground Water Table (cm) Baseline (Sept. 2004) Current (Mar. 2007)

min max mean min max mean Mean difference

up to 1 km 30 340 165 72 568 255 90 1-5 km 60 265 165 64 309 202 37

5-10 km 48 272 153 48 318 155 2 above 10 km 45 160 106 46 183 116 10

Table A3.2 – Water Mineralization and Soil Salinity (mg)

Baseline (Sept. 2004) Current (Mar. 2007) Min max mean min max mean

Mean difference

Water Mineralization 6447 42447 14045 4112 27385 7580 6464 Soil Salinity 4160 40620 16347 2270 13635 6343 10004

3.10 The trend in data since monitoring began shows improvement in all three main indicators. The current depth to the water table is now 2.6 m and 2.0 m in the two distance bands up to one km and between one and five km from the main collector drain, respectively (Figure A3.3). Figures A3.4 and A3.5 show the overall impact in the before-project and after-project situation, respectively. Similarly, water quality has improved with a measurable reduction in the concentration of minerals. On average across all of the wells, ground water mineralization has reduced by 6.4 gr/l from 14.0 gr/l to 7.6 gr/l, and soil salinity reduced by 10 gr/l from 16.3 gr/l to 6.3 gr/l (see Table A3.2).

Figure A3.3 - Ground Water Tables in Irrigated and Non-Irrigated Areas

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Figure A3.4 - Depth of Ground water: Before-Project Situation (The larger the circle, the deeper the water table)

Figure A3.5 - Depth of Ground water: After-Project Situation (The larger the circle, the deeper the water table)

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3.11 Environmental monitoring in Sarisu and Ag-gol Lakes showed that the annual seasonal variations in water levels in both lakes remained unaffected by construction of the new drain, both during the construction period and since it became fully operational at the start of the 2006 irrigation season. Based mainly on historical inflow and outflow data and lake levels an initial water balance model was prepared. The information was reviewed by the independent Panel of Experts that was set up with the purpose to provide recommendations on mitigation measures, if required. After reviewing all available data and intensive discussion with the PIU, the Panel came to the conclusion that any concrete plan for mitigation measures would be premature. It seems that there is no obvious impact of MMMC on Sarisu Lake as inflow continues to exceed the outflow and evaporation, and the available facilities to regulate the outflow allow so far for a stable water level in the lake. Close monitoring of the situation will continue until 2010 under IDSMIP in order to ensure with full certainty that the main collector drain has no negative impact on Sarisu Lake.

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Annex 4. Economic and Financial Analysis

4.1 The PAD Economic and Financial Analysis 4.1.1 At appraisal the Economic Rate of Return (ERR) for RIDIP was estimated at 19.9 percent (NPV = US$27.7 million) accruing from the following factors: (i) increase in yields; (ii) cropping pattern conversion to higher-value crops; and (iii) prevention of the future collapse of the irrigation facilities and subsequent decline in irrigable areas. The SAC sub-project would also contribute with substantial benefits from securing the current level of drinking water to Baku (40 percent of the current demand). The anticipated increase in yields and conversion to higher-value crops would take place in full only after 11 to 13 years from completion. Separate ERR estimates at appraisal for SAC and MMMC sub-projects were 23.3 and 16.4 percent, respectively (NPV = US$16.3 million for SAC and US$11.4 million for MMMC). 4.2 The ICR Economic and Financial Analysis – Data 4.2.1 Based on the actual results being obtained by farmers in the project areas according to the M&E Surveys (2002 Baseline, 2004 Survey, and the December 2006 Benchmark Survey Final Report13), new evaluation scenarios were built for the ICR’s Economic and Financial Analysis14. Results show that the overall ERR for RIDIP is expected to reach 23.7 percent (NPV = US$66.6 million). The higher than expected results stem mainly from earlier than expected increases in yields and cropping pattern conversion to higher-value crops. ERR estimates for the SAC and MMMC sub-project areas are 20.3 and 30.5 percent, respectively (NPV = US$33 million for SAC and US$33.6 million for MMMC). SAC investments showed a lower than expected result because: (i) the actual investment cost was around 40 percent higher than the PAD estimate; (ii) no future collapse of the irrigation facilities and subsequent decline in irrigable areas was considered in the without-project scenario; and (iii) no value was attributed to the benefits from securing the current level of drinking water to Baku, considering that this demand would prevail over the demand for irrigation, which means that water for human consumption and the related benefits would be secured even without RIDIP.15

13 Surveys have been based on experimental (randomized trials) and longitudinal design. For the three

surveys the same households have been studied. The sampling has been done in two steps: at first the settlements (villages) were randomly selected from the project/control areas and then households within them by the same simple random procedure. As a result, 60 settlements and 249 households have been chosen for SAC sub-project area while for MMMC sub-project area 34 settlements and 236 households were sampled.

14 The scenarios were built using FARMOD software. The 2002 surveys’ data helped to define the before- project situation and the 2006 surveys data for the with-project situation.

15 As a conservative criterium in measuring benefits it was considered that irrigated areas would continue at the low level shown before the project. Even without the project, Baku and the Apsheron Peninsula would have their needs of water from the SAC secured as the demand for human and industrial consumption is prioritized over the demand for irrigated agriculture.

45

4.2.2 The ICR evaluation scenarios included: (i) the actual IDA-financed RIDIP; (ii) the IsDB-financed Khanarkh Canal project investments; (iii) the O&M incremental costs involved (in 2006 constant US dollars); (iv) the farmers’ on-farm investments for the expansion of fruit orchards; and (v) the expected benefits from the agricultural production in the project area. The financial analysis (at market prices) allowed for estimating the benefits obtained by farmers as water for irrigation is secured and increased and/or their lands adequately drained. The economic analysis (using conversion factors) measures the impact to be obtained by Azerbaijan’s economy after all costs and benefits are valued at their opportunity cost. 4.2.3 Rehabilitation of the SAC system (including 185.7 km from 42 SAC and Khanarkh secondary canals) and improving the drainage conditions in the MMMC sub-project area16, clearly led to the increased and improved performance of the irrigated agriculture in the project command areas. These improved conditions in the irrigated areas are confirmed both: (i) by AIOJSC statistics about irrigated areas in the project raions (Khachmaz, Gusar, and Guba in the SAC sub-project area; and Saatli, Imishli and Beylagan in the MMMC sub-project area); and (ii) by the data of the M&E Surveys. Table A4.1 below shows the irrigated area according to the AIOJSC statistics.

Table A4.1 - Area Irrigated in the SAC and MMMC Sub-project Raions (in ha) Year Description 1998 1999 2000 2001 2002 2003 2004 2005 2006

SAC Area Khachmaz 30,060 30,385 30,242 38,411 41,055 44,843 50,286 50,283 50,186 Gusar 16,059 17,478 17,800 17,628 18,050 29,396 29,398 29,398 29,398 Guba 26,148 15,553 17,500 17,560 18,000 27,057 27,047 27,047 27,048 Total SAC 72,267 63,416 65,542 73,599 77,105 101,296 106,731 106,728 106,632 MMMC Area Saatli 51,746 43,484 46,581 46,578 42,204 48,371 48,020 47,529 47,572 Imishli 45,798 31,369 41,658 38,030 31,702 44,125 44,126 43,946 44,187 Beylagan 35,526 31,528 37,237 45,003 44,463 49,715 48,292 48,301 48,600 Total MMMC 133,070 106,381 125,476 129,611 118,369 142,211 140,438 139,776 140,359

4.2.4 The irrigated area in the raions where the SAC sub-project area is located has stabilized during the past three years (2004-2006) at an average level of about 107,000 ha, while the mean for the previous years (1998-2002) was only about 70,000 ha. In the raions where the MMMC sub-project is located the average irrigated area was about 140,000 ha during the 2003-2006 period, 17 percent over the mean for 1999-2002 of 120,000 ha. Not all irrigated lands are within the immediate sub-project areas and for the ICR impact assessment, 63,900 ha and 40,000 ha in SAC and MMMC were considered respectively as benefiting from the project’s investments. 4.2.5 The key production indicators concerning irrigated cropped areas, and changing cropping patterns and crop yields for both sub-project areas are summarized in the 16 Completion of 28 km in the MMMC led to the improved performance of the irrigation and drainage

systems at about 40,000 ha, about 10 percent over the PAD target of 36,500 ha.

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following Table A4.2. Even though full impact is expected to show only after several more years, it is clear that certain changes in the three indicators are already taking place as a consequence of the project works. In SAC, new orchards that are being planted will contribute substantially to the expected project impact. In MMMC, the leaching of salts from the soils will continue during the next years, as a result of which an increase in diversification of crops and land productivity is expected.

Table A4.2 - Key Indicators for Sub-Project Areas in 2002, 2004 and 2006

SAC MMMC 2002 2004 2006 2002 2004 2006 Average Operational farm size Ha 2.05 2.65 2.71 3.7 3.7 3.5 Operational area without fallow Ha 1.82 2.28 2.37 2.74 3.34 3.24 Cropping Pattern Cereals % 80.5 51.3 48.9 26.4 21.6 25.5 Cotton % - - - 4.5 4.6 5.5 Vegetables % 0.5 1.8 3.3 1.2 2.6 5.0 Fodder crops % 0.5 17.8 19.1 42.0 61.0 56.7 Apple % 7.3 15.5 16.5 - - Fallow % 11.2 13.7 12.6 25.9 9.7 7.3 Crop yields Cereals ton/ha 2.2 1.7 2..35 2.07 2.1 2.3 Cotton ton/ha - - 1.5 1.7 1.7 Vegetables ton/ha 12.0 14.7 16.3 10.0 11.0 11.2 Fodder crops ton/ha 3.8 4.8 4.9 4.2 3.9 5.3 Apple ton/ha 3.5 9.2 6.3 - - 4.2.5 According to the M&E survey data, the increased security from irrigation or drainage has allowed for increasing the average cropped area by farm unit by about 30 and 19.3 percent in the SAC and MMMC sub-project areas, respectively, between 2002 and 2006. Also, as shown in the above table, the cropping pattern is changing to higher value crops, such as fruits and vegetables (in SAC) and fodder crops (in MMMC) more sharply than envisaged in the PAD. In the SAC area the share of cereals in the cropping pattern decreased from 80 to 49 percent between 2002 and 2006, being replaced by fruits, vegetables and fodder crops. In the MMMC sub-project area the share of cereals is being maintained, but other crops are increasing at the expense of fallow areas: cotton from 4.5 to 5.5 percent; vegetables from 1.2 to 5 percent, and fodder crops from 42 to 56.7 percent. Even though the trend is expected to continue, for the sake of this assessment, the existing new cropping pattern was frozen at the 2006 crops share. 4.2.6 The yields of cereals in the SAC area have increased so far only by 5 percent, from 2.15 ton/ha in 2002 to 2.25 ton/ha between 2002 and 2006. Survey data show a considerable increase of fruits, vegetables, and fodder crops yields in the SAC sub-project area: average apple yields taken as representative of fruit crops, grew from 3.5 to 6.3 ton/ha; vegetables from 12 to 16.3 ton/ha; and fodder crops from 3.8 to 4.9 ton/ha. Yields of these crops increased only slightly in SAC control areas due to some improvements in agricultural management, but not a more secure water supply and

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distribution. Crop yields in the MMMC sub-project area are showing similar trends. The yields of cereals increased from 2.1 to 2.3 t/ha; cotton yields from 1.5 to 1.7 ton/ha; fodder crops from 10 to 11.2 ton/ha; and vegetables from 4.2 to 5.3 ton/ha. Yields in the MMMC control areas were significantly lower than in the project area in 2006: 1.9 ton/ha, 1.5 ton/ha, 5.5 ton/ha, and 3.8 ton/ha for cereals, cotton, fodder crops and vegetables, respectively. The surveys also showed that farmers in both areas are using little fertilizers, but do use on-farm produced manure. Fertilizers were either not available from local supplies or were expensive for farmers that have poor access to formal credit. 4.2.7 The above-mentioned results are confirmed by the 2004 and 2006 surveys’ qualitative assessment of customer satisfaction. Between 2004 and 2006 the fully satisfied farmer respondents grew from 16.3 to 54.3 percent while those partially satisfied reduced from 61.3 to 44.1 percent. The percentage of dissatisfied farmers has reduced from 22.4 to 10.2 percent. 4.3 The ICR Financial Analysis 4.3.1 Crop and farm models were budgeted based on the surveys’ data summarized above for both regions, considering 2002 and 2006 average parameters. The expected yields in the future for the with-project scenario were allowed for small further increments (about 10 percent additional increment to the increases already observed between 2002 and 2006). For the production costs, inputs actually used for each crop were also considered. Output values and production costs were estimated using actual 2006 market values for the major crops. It was confirmed that the 2006 market values received by farmers are in line with the actual international prices in that year, and with the border prices derived from them. 4.3.2 The following Table A4.3 summarizes the parameters for the main crop models used for the assessment, including yields, gross value of production and costs of producing each crop or activity, and the expected corresponding average net revenue per ha (in the case of crops) or per farm (in the case of livestock production). For the SAC area, cereals (being represented by wheat), fruits (represented by apples), fodder (alfalfa), vegetables (tomato), and livestock activities (cow and sheep/goat meat and milk; hides; poultry meat and eggs) were modeled. In the case of the MMMC sub-project area, cereals, cotton, fodder, and vegetable crops, and livestock activities were the basic production activities modeled.

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Table A4.3 - Crop Model: Relevant Production and Input Parameters and Financial Results

SAC MMMC

Unit Value

(US$) Without- project

With- project

Without-project

With-project

YIELDS Wheat ton 2.15 2.8 2.1 3 Fruits (existing Apple) ton 3.5 6.4 - - Fruits (new Apple) ton - 6.4 - - Cotton ton - - 1.4 2 Fodder ton 3.8 5 4.2 6 Vegetables ton 12 18 10 14 Livestock (milk) lts 868 1000 2500 3000 VALUE OF PRODUCTS Wheat US$/ton 207 462.6 603.1 452.2 646.2 Fruits (existing Apple) US$/ton 345 1207.5 2208 - - Fruits (new Apple) US$/ton 345 - 2208 - - Cotton US$/ton 310 - - 434 620 Fodder US$/ton 81 307.8 405 340.2 486 Vegetables US$/ton 163 2003.6 2997 1667.8 2334.5 Livestock (all) US$/ton 0.32 2079.1 2253.8 4751.3 6000.8 COST OF PRODUCTION Wheat US$/ha 322.6 322.6 319.8 324.4 Fruits (existing Apple) US$/ha 277.2 420.7 - - Fruits (new Apple) US$/ha - 420.7 - - Cotton US$/ha - - 460.7 488.1 Fodder US$/ha 305.6 321.7 294.7 314.1 Vegetables US$/ha 864.6 1034.1 788.6 952.6 Livestock (all) US$/farm 253.9 309.6 923.7 1179.5 NET REVENUES Wheat US$/ha 140 280.5 132.4 321.8 Fruits (existing Apple) US$/ha 930.3 1787.3 - - Fruits (new Apple) US$/ha - 1787.3 - - Cotton US$/ha - - -26.7 131.9 Fodder US$/ha 2.2 83.1 45.5 172.9 Vegetables US$/ha 1139 1962.9 879.2 1381.9 Livestock (all) US$/farm 1825.2 1944.3 3827.6 4821.3 4.3.3 Tables A4.4 and A4.5 show the results of modeling the typical farms in the SAC and MMMC irrigated areas, considering the average evolution of the cropping patterns in both areas. On-farm use of intermediate products (mainly fodder and manure), off-farm employment (according to the survey responses), on-farm production investments (installation of new orchards), and family benefits are estimated before family labor use and its cost.

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Table A4.4 – Financial Budget for the typical SAC Farm Model (in US$)

Without- CONCEPT (AGGREGATED DATA) Project With-Project Year after works are finished): 1 to 15 1 2 3 4 5 6 10 Main Production Cereals 935 935 997 1,043 956 869 782 696 Fruits 242 242 345 483 566 690 856 1,559 Fodder 40 40 84 143 189 235 281 278 Vegetables 20 20 73 147 205 264 293 293 Livestock Products 2,079 2,079 2,166 2,254 2,254 2,254 2,254 2,254 Sub-total Main Production 3,315 3,315 3,666 4,069 4,170 4,313 4,466 5,080 On-Farm Use Fodder 19 19 30 37 37 37 37 37 Livestock Products 10 10 10 11 11 11 11 11 Sub-Total On-Farm Use 29 29 40 48 48 48 48 48 Net Value Of Production 3,286 3,286 3,626 4,022 4,122 4,265 4,418 5,032 Off Farm Employment Labor Costs 185 185 185 185 185 185 185 185 INFLOWS 3,471 3,471 3,811 4,206 4,307 4,449 4,603 5,216 Production Cost Investment Seeds - 158 166 166 166 166 8 - Chemicals - 12 27 45 45 45 33 - Machinery (including fuel) - 6 7 8 8 8 3 - Transport Costs - 1 2 4 4 4 2 - Irrigation Costs - 0 1 1 1 1 1 - Sub-total Investment Costs - 177 203 224 224 224 47 - Operating Seeds 170 170 168 167 166 164 162 150 Fodder 3 3 - - - - - - Fertilizers 39 39 37 35 34 32 29 27 Chemicals 54 54 52 51 70 89 107 145 Machinery (including fuel) 253 253 256 260 268 275 282 270 Livestock Products 41 43 43 43 44 45 44 40 Transport Costs 29 29 29 29 31 33 35 40 Irrigation Costs 7 7 8 8 9 9 10 10 Livestock Inputs 48 48 68 88 88 88 88 88 Sub-total Operating Costs 644 645 661 682 708 735 757 770 Sub-Total Production Cost 644 823 864 906 932 959 803 770 OUTFLOWS 644 823 864 906 932 959 803 770 Cash Flow Before Self Financing 2,827 2,648 2,947 3,300 3,375 3,490 3,800 4,446 Net Financing - -41 -42 -26 -27 156 41 - Cash Flow After Self Financing 2,827 2,606 2,904 3,274 3,348 3,646 3,840 4,446 Sub-Total Change in Net Worth - -179 - - - - - - Farm Family Benefits 2,827 2,427 2,904 3,274 3,348 3,646 3,840 4,446

4.3.4 Farm family benefits in the SAC irrigated command area are expected to increase by 57 percent from the annual equivalent of US$2,827 to US$4,446 once the new orchards and other more intensive crops are in full production. Considering the average family size of 5.9 persons in the SAC area, the daily per capita income would be increased from US$1.31 to US$2.06, which is definitively contributing to poverty alleviation of the average rural family in the SAC area.

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Table A4.5 – Financial Budget for the typical MMMC Farm (in US$)

Without- Project With-Project 1 to 15 1 2 3 4 5 to 15 Main Production Cereals 445 445 511 580 580 580 Industrial Crops 74 74 84 107 119 124 Fodder 496 496 627 772 831 887 Vegetables 78 78 196 352 469 587 Livestock Products 4,751 4,751 5,029 5,723 6,001 6,001 Sub-total Main Production 5,845 5,845 6,447 7,534 8,001 8,178 On-Farm Use Fodder 343 343 371 430 455 457 Livestock Products 22 22 23 26 28 28 Sub-Total On-Farm Use 365 365 394 457 482 485 Net Value Of Production 5,479 5,479 6,053 7,078 7,518 7,693 Off Farm Employment Labor Costs 185 185 185 185 185 185 INFLOWS 5,664 5,664 6,238 7,262 7,703 7,878 Production Cost Seeds 197 197 212 226 241 256 Fodder 247 247 260 300 316 314 Fertilizers 24 24 26 29 32 34 Chemicals 35 35 39 43 47 51 Machinery (including fuel) 410 410 438 465 493 519 Livestock Products 22 22 24 24 26 29 Transport Costs 29 29 34 41 43 46 Irrigation Costs 13 13 14 15 17 18 Livestock Inputs 129 129 145 187 203 203 Sub-Total Production Cost 1,105 1,105 1,192 1,330 1,418 1,468 OUTFLOWS 1,105 1,105 1,192 1,330 1,418 1,468 Cash Flow Before Financing 4,559 4,559 5,046 5,932 6,285 6,410 Net Financing - -87 -138 -87 -50 - Cash Flow After Financing 4,559 4,472 4,908 5,844 6,235 6,410

4.3.5 Farm family benefits in the MMMC irrigated command area are expected to be increased by 40.6 percent from the annual equivalent of US$4,559 to US$6,410 as the new drainage system allows for soils to be leached from excessive salts. Considering the average family size of 5.7 persons per family in the MMMC sub-project area, the per capita daily income would increase from US$2.19 to $3.08. 4.4 The ICR Economic Analysis 4.4.1 For the economic analysis, all project costs including construction, rehabilitation, and O&M were included in the corresponding year in which they were or are to be incurred, inflated in the case of 2001 – 2005, with the Manufactures Unit Value Index (MUV) to express all costs in 2006 values. The O&M costs were introduced based on historical O&M costs and reasonable estimations for the O&M costs for the new structures. No adjustment was considered for these costs to converting them to economic values since all project costs were exempt from taxes, including those incurred by the project-financed private contractors. Azerbaijan’s economy is considered to be widely open and market prices are well aligned with international prices of most tradable goods

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and services. The only exception was for livestock products for which a conversion factor of 0.8 was applied since these products pay a Value Added Tax of 18 percent in addition to small custom taxes applied over imports. 4.4.2 Benefits have been estimated in Tables A4.6, A4.7 and A4.8. It can be seen that the overall output production of vegetables, fruits, cotton, and fodder crops is increasing while wheat and other extensive crops decrease. Labor use is also increasing by 49 percent as the new crops reach full production.

Table A4.6 – Project Summary – Production and Inputs (in units) Without- Project With-Project Unit 2001/15 2001/04 2007 2012 2015 Main Production Wheat MT 126,012 126,012 140,143 106,400 106,400 Apple MT 16,030 16,030 27,938 78,089 106,531 Cotton MT 2,504 2,504 3,093 4,208 4,208 Alfalfa MT 62,833 62,833 104,215 179,160 179,160 Tomato MT 7,798 7,798 31,640 79,092 79,092 Milk kg 46,177,200 46,177,200 50,568,850 54,460,000 54,460,000 Meat (cow) kg 12,173,300 12,173,300 12,522,170 13,067,500 13,067,500 Hides unit 214,120 214,120 251,010 308,800 308,800 Meat (sheep/goat) kg 2,075,000 2,075,000 2,747,890 3,440,800 3,440,800 Wool (sheep/goat) kg 354,600 354,600 425,680 514,260 514,260 Poultry kg 1,238,980 1,238,980 1,345,555 1,444,440 1,444,440 Eggs ten units 33,503,200 33,503,200 36,421,040 39,360,000 39,360,000 On-Farm Use Alfalfa MT 42,950 42,950 49,326 57,223 57,223 Sales Wheat MT 126,012 126,012 140,143 106,400 106,400 Apple MT 16,030 16,030 27,938 78,089 106,531 Cotton MT 2,504 2,504 3,093 4,208 4,208 Alfalfa MT 19,883 19,883 54,890 121,937 121,937 Tomato MT 7,798 7,798 31,640 79,092 79,092 Milk kg 46,177,200 46,177,200 50,568,850 54,460,000 54,460,000 Meat (cow) kg 12,173,300 12,173,300 12,522,170 13,067,500 13,067,500 Hides unit 214,120 214,120 251,010 308,800 308,800 Meat (sheep/goat) kg 2,075,000 2,075,000 2,747,890 3,440,800 3,440,800 Wool (sheep/goat) kg 354,600 354,600 425,680 514,260 514,260 Poultry kg 1,238,980 1,238,980 1,345,555 1,444,440 1,444,440 Eggs ten units 33,503,200 33,503,200 36,421,040 39,360,000 39,360,000 Operating Purchased Inputs Straw MT 370,599 370,599 408,831 471,717 471,717 Nitrate kg 1,948,468 1,948,468 1,932,844 1,758,240 1,758,240 TSP kg 3,049,132 3,049,132 2,922,916 2,434,080 2,434,080 Chemicals lump sum 1,595,418 1,595,418 1,593,373 3,637,209 3,850,522 Transport Costs lump sum 969,403 969,403 1,047,934 1,324,808 1,390,760 Irrigation lump sum 305,751 305,751 333,562 410,125 412,722 Feed kg 6,113,240 6,113,240 7,434,805 8,645,600 8,645,600 Barley kg 8,749,280 8,749,280 11,725,175 14,345,000 14,345,000 Hay kg 10,289,000 10,289,000 15,648,125 18,381,000 18,381,000 Labor Family Labor person/day 2,750,289 2,750,289 3,129,734 4,008,142 4,109,474

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Table A4.7 – SAC Sub-project Model – Economic Budget (in US$’000) Without- Project With-Project 1 to 15 1 2 3 4 5 6 7 8 12 Main Production Cereals 21,402 21,402 21,402 21,402 21,402 21,402 22,189 23,414 22,796 15,927 Fruits 5,530 5,530 5,530 5,530 5,530 5,530 6,834 9,639 12,104 26,941 Fodder 923 923 923 923 923 923 1,479 2,667 3,851 6,355 Vegetables 448 448 448 448 448 448 1,125 2,604 4,099 6,719 Livestock Products 38,090 38,090 38,090 38,090 38,090 38,090 38,970 40,570 41,290 41,290 Sub-total Main Production 66,393 66,393 66,393 66,393 66,393 66,393 70,596 78,893 84,139 97,232 On-Farm Use Fodder 439 439 439 439 439 439 572 771 845 845 Livestock Products 181 181 181 181 181 181 187 197 202 202 Sub-Total On-Farm Use 621 621 621 621 621 621 758 968 1,047 1,047 Net Value Of Production 65,773 65,773 65,773 65,773 65,773 65,773 69,838 77,925 83,092 96,185 Production Cost Investment Seeds - - - - - 1,995 3,727 3,809 3,809 - Chemicals - - - - - 151 464 845 1,031 185

Machinery (including fuel) - - - - - 70 144 175 190 14

Transport Costs - - - - - 15 43 70 82 12 Irrigation Costs - - - - - 3 9 15 17 3

Sub-Total Purchased Inputs - - - - - 2,234 4,386 4,914 5,129 215

Labor Costs - - - - - 155 344 456 507 51 Sub-total Investment Costs - - - - - 2,389 4,730 5,370 5,636 265 Operating Seeds 3,892 3,892 3,892 3,892 3,892 3,892 3,868 3,833 3,805 3,433 Fodder 59 59 59 59 59 59 27 - - - Fertilizers 895 895 895 895 895 895 872 830 788 611 Chemicals 1,232 1,232 1,232 1,232 1,232 1,232 1,212 1,175 1,399 3,105

Machinery (including fuel) 5,794 5,794 5,794 5,794 5,794 5,794 5,830 5,917 6,058 6,160

Livestock Products 752 752 752 752 752 772 789 794 805 740 Transport Costs 667 667 667 667 667 667 664 667 687 841 Irrigation Costs 166 166 166 166 166 166 170 179 191 224 Livestock Inputs 1,090 1,090 1,090 1,090 1,090 1,090 1,346 1,811 2,020 2,020

Sub-Total Purchased Inputs 14,548 14,548 14,548 14,548 14,548 14,568 14,779 15,205 15,752 17,133

Labor 7,463 7,463 7,463 7,463 7,463 7,463 7,772 8,386 8,985 10,861 Sub-total Operating Costs 22,012 22,012 22,012 22,012 22,012 22,032 22,550 23,592 24,736 27,994 Sub-Total Production Cost 22,012 22,012 22,012 22,012 22,012 24,420 27,280 28,962 30,372 28,260 Other Costs

SAC Rehabilitation/Construction Works - 1,398 811 1,523 2,948 6,732 7,604 7,721 - -

Khanarkh Canal (IsDB-financed) - 2,594 5,347 5,065 5,149 4,761 1,737 - - -

Institutional Strengthening - 1,010 1,202 738 771 345 3,045 207 - -

Desilting (Cleaning & Disposal) 1,660 500 500 500 500 500 500 500 500 500

O&M Electricity Costs 500 500 500 500 500 500 1,000 1,300 1,300 1,300 Other O&M Costs 300 300 300 300 300 300 600 800 800 800 Sub-Total Other Costs 2,460 6,302 8,660 8,626 10,168 13,138 14,486 10,528 2,600 2,600 OUTFLOWS 24,472 28,314 30,672 30,638 32,180 37,558 41,766 39,490 32,972 30,860 Cash Flow 41,301 37,459 35,101 35,135 33,593 28,214 28,072 38,435 50,120 65,326 IRR = 20.3%, NPV = 33,037.94

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Table A4.8 – MMMC Sub-project Model – Economic Budget (in US$’000)

Without- Project With-Project 1 to 15 1 2 3 4 5 6 7 8 12 Main Production Cereals 4,682 4,682 4,682 4,682 4,682 4,682 4,892 5,595 6,097 6,097 Industrial Crops 776 776 776 776 776 776 809 959 1,167 1,304 Fodder 5,223 5,223 5,223 5,223 5,223 5,223 5,638 7,058 8,312 9,327 Vegetables 823 823 823 823 823 823 1,195 2,554 4,076 6,173 Livestock Products 39,987 39,987 39,987 39,987 39,987 39,987 40,691 44,085 48,870 50,503 Sub-total Main Production 51,491 51,491 51,491 51,491 51,491 51,491 53,225 60,251 68,521 73,405 On-Farm Use Fodder 3,613 3,613 3,613 3,613 3,613 3,613 3,699 4,090 4,605 4,811 Livestock Products 185 185 185 185 185 185 188 203 224 231 Sub-Total On-Farm Use 3,798 3,798 3,798 3,798 3,798 3,798 3,888 4,293 4,830 5,042 Net Value Of Production 47,694 47,694 47,694 47,694 47,694 47,694 49,338 55,958 63,692 68,363 Production Cost Purchased Inputs Seeds 2,069 2,069 2,069 2,069 2,069 2,069 2,117 2,273 2,429 2,688 Fodder 2,594 2,594 2,594 2,594 2,594 2,594 2,637 2,862 3,208 3,302 Fertilizers 254 254 254 254 254 254 261 287 314 353 Chemicals 363 363 363 363 363 363 376 418 460 532

Machinery (including fuel) 4,314 4,314 4,314 4,314 4,314 4,314 4,402 4,692 4,982 5,456

Livestock Products 187 187 187 187 187 187 192 203 208 243 Transport Costs 303 303 303 303 303 303 320 381 435 484 Irrigation Costs 139 139 139 139 139 139 143 155 166 186 Livestock Inputs 1,354 1,354 1,354 1,354 1,354 1,354 1,407 1,660 2,017 2,139

Sub-Total Purchased Inputs 11,578 11,578 11,578 11,578 11,578 11,578 11,854 12,930 14,220 15,383

Labor Labor Costs 3,813 3,813 3,813 3,813 3,813 3,813 3,952 4,446 4,952 5,573 Sub-Total Production Cost 15,391 15,391 15,391 15,391 15,391 15,391 15,806 17,375 19,173 20,955 Other Costs MMMC Works - 3,837 2,237 2,185 3,140 5,589 2,835 - - - Institutional Strengthening 545 669 795 489 511 228 202 137 - - O&M Costs 600 600 600 600 600 600 600 600 900 900 Sub-Total Other Costs 1,145 5,106 3,632 3,274 4,251 6,417 3,637 737 900 900 OUTFLOWS 16,536 20,497 19,023 18,665 19,642 21,808 19,442 18,112 20,073 21,855 Cash Flow 31,158 27,197 28,671 29,029 28,052 25,886 29,895 37,845 43,619 46,507 IRR = 30.5%, NPV = 33,580.08

The overall ERR including SAC and MMMC sub-projects is expected to reach 23.7 percent and the NPV = US$66.6 million.

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Annex 5. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending

Joop Stoutjesdijk Lead Irrigation Engineer (TTL from October 1999) ECSSD TTL and

Engineering

Thirumangalam Sampath Task Team Leader (until October 1999) ECSSD TTL and

Agriculture Toru Konishi Senior Economist ECSSD Economy Janakiram Subramaniam Financial Specialist ECSPS Financial Mngmt. Naushad Khan Procurement Specialist ECSPS Procurement Ranjan Ganguli Financial Management Specialist ECSPS Financial Mngmt.. Rufiz Chirag-Zade Operations Officer ECSSD Processing Dilek Barlas Legal Counsel LEGEC Legal Hannah Koilpillai Disbursement Officer LOA Disbursement Neal Mountstephens Irrigation Specialist FAO Engineering Nirmala Saraswat Environment Specialist ECSSD Environment Stanley Peabody Social Scientist ECSSD Social issues

Supervision/ICR

Joop Stoutjesdijk Lead Irrigation Engineer (TTL) ECSSD TTL and Engineering

Lynette Alemar Senior Program Assistant ECSSD Processing and support

Elmas Arisoy Senior Procurement Spec. EAPCO Procurement Rufiz Vakhid Chirag-Zade Senior Operations Officer ECSSD Operations Timothy Robert Jackson Consultant ECSSD Engineering Zeynep Lalik Mete Extended Term Consultant ECSPS Financial Mngmt. Ida N. Muhoho Sr Financial Management Specialist ECSPS Financial Mngmt. Norval Stanley Peabody Consultant ECSSD Social issues

Hiwote Tadesse Senior Program Assistant ECSSD Processing and support

Yingwei Wu Senior Procurement Specialist ECSPS Procurement

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(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY93 6.96 FY94 11.68 FY95 31.47 FY96 8.44 FY97 12.32 FY98 17.77 FY99 67.27 FY00 191.66

Total: 58 347.57 Supervision/ICR

FY01 28 87.36 FY02 20 82.41 FY03 12 51.16 FY04 13 79.77 FY05 13 65.96 FY06 10 63.49 FY07 6 46.21 FY08 4 23.85

Total: 106 500.21

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Annex 6. Beneficiary Survey Results 6.1 The implementing agency has been measuring the initial impact of the project through a baseline survey in 2002 and two follow-up impact studies in 2004 and 2006. In general, both the baseline survey and the impact studies addressed the project needs and provided information relevant to key project impact indicators. As explained below and also in Annex 4, RIDIP already started yielding benefits in the areas that benefited from the rehabilitation and construction works that were completed during early project years. Nevertheless, it will take several more years before some of the indicators – such as system conveyance and distribution efficiencies, optimum water deliveries, and yields – can be fully measured. Some of this work will continue under IDSMIP. 6.2 Irrigated Areas. The project target was to irrigate annually 69,000 ha in the immediate SAC sub-project area and 36,500 ha in the MMMC sub-project area. The impact study results given in Table A6.1 show an increase in the agricultural production area, partially through improved water supply and partially through solving of drainage problems. The data shows an increase in irrigated area in the SAC area, as expected with better water abstraction and supply, while the data in MMMC remains more or less constant. Unfortunately the final impact survey presented the total irrigated area at the raion level, which makes it difficult to see the changes in the immediate project areas. Based on information obtained from AIOJSC, similar trends in increased irrigated areas were observed in the immediate sub-project areas.

Table A6.1 - Annually area irrigated in the project raions (ha)

Without Project With Project

Sub-project Settlements 2001 2002 2003 2004 2005 2006SAC Khachmaz 38,411 41,055 44,843 50,286 50,283 50,186 SAC Gusar 17,628 18,050 29,396 29,398 29,398 29,398 SAC Guba 17,560 18,000 27,057 27,047 27,047 27,048 Sub-total 73,599 77,105 101,296 106,731 106,728 106,632 MMMC Saatli 46,578 42,204 48,371 48,020 47,529 47,572 MMMC Imishli 38,030 31,702 44,125 44,126 43,946 44,187 MMMC Beylagan 45,003 44,463 49,715 48,292 48,301 48,600 Sub-total 129,611 118,369 142,211 140,438 139,776 140,359 Total: 203,210 195,474 243,507 247,169 246,504 246,991

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Figure A6.1 - Irrigated area by year (ha)

020,00040,00060,00080,000

100,000120,000140,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

1998

1999

2000

2001

2002

2003

2004

2005

2006

MMMC SAC

with project without project

Settlements (All)

Sum of Irrigated area, ha

Sub-project Year

Scenario

6.3 Cropping Patterns and Yields. RIDIP is already showing some benefits related to: (i) increased water supply; and (ii) area returned to agricultural production. It is still too early to expect the full benefits in terms of increased yields and cropping patterns. However, some changes can already be noticed (Table A4.2 in Annex 4). In the SAC area, there has been a substantial change in cropping pattern from cereals to higher value crops, especially fodder crops and apples and to a lesser extent vegetables. It is certain that the better access to irrigation water is giving confidence to move away from the low-risk, low-water requiring cereals. The cropping area changes in the MMMC sub-project area are less pronounced. The area under cereals remained basically constant but the fallow area was reduced by about 19 percent as areas under fodder and vegetables increased by 15 percent and 4 percent respectively. The improved conditions in the field motivate farmers to cultivate additional area. 6.4 Farmers Satisfaction. The study measured farmer satisfaction with the adequacy of irrigation services in settlements where the secondary canals were rehabilitated. As shown in Table A6.2 - the percentage of dissatisfied farmers dropped from 22.4 percent to 10.2 percent, while the percentage of fully satisfied farmers increased by over 29 percent.

Table A6.2 - Farmer satisfaction rate (%) Dimension of Service 2004 2006

Fully Satisfied 16.3 45.7 Partially Satisfied 61.3 44.1

Dissatisfied 22.4 10.2

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Annex 7. Stakeholder Workshop Report and Results No stakeholder workshop was conducted.

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Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR (This Annex was prepared by staff of AIOJSC and its PIU) 1. Project Objectives 8.1.1 Agriculture in Azerbaijan, being one of the major inputs to the country’s Gross Domestic Product, is largely dependent on irrigation. After the break-up of the Soviet Union, rapid lack of budgetary allocations for maintenance of irrigation and drainage infrastructure caused serious deterioration of many canals, headworks and drainage systems affecting their stability, designed capacity, and operational safety. 8.1.2 Views on long-term and sustainable development of the irrigation sector have made Government to develop a program up to 2015. The program identified priority irrigation and drainage schemes which require rehabilitation and completion. One of the first counterparts of that program was Rehabilitation and Completion of Irrigation and Drainage Infrastructure Project (RIDIP, IDA-33900). The development objectives of the Rehabilitation and Completion of Irrigation and Drainage Infrastructure Project (RIDIP) were to:

(a) prevent the decline in supplying water to Baku City; (b) eliminate further deterioration of the supply of irrigation water to approximately

86,000; and (c) improve drainage and reduce water logging and salinity on approximately 36,500

ha along Main Mill-Mugan Collector (MMMC). 8.1.3 To achieve these objectives the project had primarily to carry out: (a) rehabilitation of the first 50 km of SAC, including the headworks; and (b) completion of the remaining 31 km of MMMC. The project would also assist the State Amelioration and Irrigation Committee and District Irrigation Exploitation Units in the command areas of the SAC and MMMC in taking first steps towards increased operational efficiency through an institutional development component. 8.1.4 During the project implementation the project objectives remained the same with small changes from the original PAD design. 2. Project Components

8.2.1 The Project constituted three components: 2.1 Component 1: Rehabilitation and Completion of Irrigation and Drainage Infrastructure This component included rehabilitation and modernization of key main infrastructure of the SAC and completion of the last link of the MMMC. The SAC works included: (i) repair of the concrete lining of the first 50 km of the main canal; (ii) rehabilitation of the 50-year old Samur Headworks; (iii) construction of sedimentation extraction works at

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the head of the main canal; (iv) rehabilitation of inter-farm canals leading from the first 50 km of the main canal that supplies water to about 65,000 ha; and (v) design and construction supervision services. The MMMC works included: (i) completion of the remaining 28 km of the main collector drain; (ii) provision of necessary road and rail bridges and aqueducts across the main collector drain, and an adjacent service road; (iii) completion of the siphon underpass for the main collector drain beneath the Araz River; (iv) reconstruction and rehabilitation of inter-farm collectors in 36,500 ha; and (v) design and construction supervision services. 8.2.1 The achievements of the rehabilitation and construction works are summarized in Table A8.1.

Table A8.1 - Project Rehabilitation Works

start end months

h-works 2.2 Mar-01 Jun-02 16 3 8 completePackage 1 2.8 Apr-03 Nov-04 19 4 3 complete

- 2nd Contract Package 2 10.6 Jan-05 Sep-06 20 4 2 completePackage 3 6.1 Oct-05 Jun-07 21 4 3 completePackage 4 4.5 Mar-06 Jun-07 15 2 5 complete

SAC works sub-total 26.2 59%

siphon 5.8 Apr-01 Oct-02 18 1 8 completePackage 1 5.2 Jun-03 Nov-04 18 3 3 completePackage 2 7.4 Jan-05 May-06 16 - 3 complete

MMMC works sub-total 18.4 41%

Total works: 44.6 100%

2.3 Jan-02 Jun-07 65 6 complete

TOTAL 46.9

statusConstruction delay

monthsUS$ mn %No of bids

8.2.3 Samur-Apsheron Canal System. RIDIP comprised rehabilitation works for several sections of the SAC system, including:

• The Samur Headworks, • The Inter-farm Canals fed by SAC along its initial length until Gudyalchay River

and 3 Inter-farm Canals fed by Khanarkh Canal in the same region (SAC Package 1);

• The Sedimentation Basin and 19 Inter-farm Canals fed by SAC between Gudyalchay River and Velvelichay River and Inter-farm Canals fed by Khanarkh Canal (SAC Package 2);

• Rehabilitation of SAC Lining and Associated Structures located along the First 27 km of its length (SAC Package 3); and

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• Partial Increase of SAC Capacity and Rehabilitation of its Lining and Associated Structures located along the reach from km 27 to km 50 (SAC Package 4).

8.2.4 Completed works on the SAC system comprise rehabilitation of the headworks, first 50 km of the main canal, a new sediment basin, and some 185 km of secondary canals serving about 65,000 ha. The headworks now allow reliable abstraction of water from the Samur River, thereby providing the opportunity for ensuring consistent and adequate annual delivery of water for irrigation and to Baku City, as well as safe discharge of floods. AIOJSC reports much improved operation of these important headworks, being able to divert the required volumes of water, with the structure also being strong and stable enough to withstand the high river floods that typically occur every year during the spring. The completed sediment basin is expected to reduce levels of silt entering the canal system by an estimated 30 percent, thereby reducing maintenance costs for canals and slowing sedimentation of the Jeiranbatan Reservoir. 8.2.5 Main Mill Mugan Collector System. The works on the MMMC system comprised completion of a new siphon under the Araz River, and completion of the last 28 km gap in the main collector drain and reconstruction of related secondary collector drains. Project works have bridged the gap in the right bank collector system of the Kura River from the Mengechevir Reservoir to the Caspian Sea. This brings important benefits to irrigation areas on both banks of the Kura, as each bank now has a separate drain. Formerly drainage waters from the upper areas of the right bank were diverted into the left bank collector drain, which reduced the effectiveness of that drain. 8.2.6 Three contracts were completed on the MMMC system by May 2006. The works on the first contract comprised completion of the siphon and construction of the diversion of the Araz River over the completed siphon. AIOJSC reports satisfactory operation of the structure since its completion in late 2002. The last two contracts were to construct the new 28 km main collector drain to connect the above siphon with the existing main Karabakh drain. The other works under these two contracts included 78.7 km of new inter-farm collector drains, 6.7 km of new irrigation canals and structures, one railway bridge, five road bridges, and four aqueducts. 8.2.7 The originally proposed route of the main collector drain was through state land which was specifically exempted from privatization in anticipation of the construction of the drain. After final survey and design it was found that the final alignment of the drain required acquisition of some land that belonged to the Ministry of Environment and Natural Resources, the Railway Department, and private owners and municipalities. The Development Credit Agreement (DCA) stipulated that no private land could be affected unless procedures for compensation were reviewed and approved by the Bank. Land values were set by the Government based on a number of factors, such as soil quality and productivity, location, and access to water. Compensation for private land included also the value of crops and fruits trees and other assets to be expropriated or demolished. Municipalities were compensated at fixed land value rates. The final land acquisition plan was approved by the Prime Minister on May 13, 2003. In total, 73 families and four municipalities were affected in Saatli and Imishli Raions. The total

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amount of compensation was calculated at about US$260,000 equivalent that was paid from government counterpart funds. Payments to private owners were made through bank transfers to individual bank accounts opened by each landowner. They also received new land titles, which were issued by the State Land Committee. It can be concluded that the land acquisition process was completed in compliance with the DCA’s requirement. 8.2.8 Construction Supervision. During the whole period the construction was supervised by JacobsGIBB/Sulaco staff. This team of international and national consultants was contracted in January 2002 to provide management, supervision, and control of the design services provided by the ‘Azgiprovodhoz’ Design Institute (ADI), as well as construction supervision services. The consulting firms were responsible for the adequacy and suitability of the designs prepared by ADI, which was the nominated sub-consultant for survey, investigation and design work. The major design services were completed in October 2005. 8.2.9 Construction supervision continued until the end of the project and has been at a satisfactory level and quality during the entire construction period. Under the guidance of the PIU construction engineers (in Baku), a team of supervisors headed by resident engineers remained assigned to both SAC and MMMC contracts. Senior staff from the international consulting firm oversaw these site supervision teams. 8.2.10 Assessment of Rehabilitation Works. The rehabilitation/construction program started in each of the project areas soon after project effectiveness. The first two contracts were implemented more or less on schedule, and finished before new contracts started to be implemented. The main reasons for that included the long time needed to compensate for land acquisition in the MMMC area and the long time needed to get full agreement on the scope of works along the secondary canals in the SAC area. The delay was partly caused by the need to replace the consulting firm’s team leader/design engineer due to unsatisfactory performance and by the initial lack of regular coordination and integration of the various parties involved in design activities. The working relations improved a lot after this was identified as an issue early 2003. Additional packages in MMMC and SAC followed in sequence. All works in the MMMC area were completed at the beginning of the 2006 irrigation season. The works in the SAC main canal had to be delayed until a secured water supply could be guaranteed for Baku City. This was the main reason for the extension of the closing date of the project. 8.2.11 All contracts were procured through ICB, but have been implemented by consortiums of large Azeri contractors. They were well equipped for the tasks and have generally done satisfactory jobs. Almost every contract was completed with some delay, but this was rarely the fault of the contractors. Instead, delays were caused by variations for additional works and delays in starting up the works due to late closing of the SAC main canal. Also, during rehabilitation works, taking into account requests of water users and local population, municipality and executive bodies, construction of prioritized structures unforeseen in the design have been carried out. The most important structures were automatic water level regulating structure constructed at Pk 37+34 of SAC for

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suppling irrigation water to the Gullar Village in Gusar Region and water offtake structure constructed at Pk 225+70 of SAC for improving water supply of cultivated areas of the Gochagly village of Khachmaz region. The long-crested level regulating structure constructed in order to provide stable water supply of the Gullar village within SAC-3 package has been calculated and designed by PIU specialists on the basis of the idea proposed by the experts of the California Polytechnic. 8.2.12 The quality of the works was generally satisfactory and the AIOJSC has been provided with infrastructure that is expected to improve water supply and distribution in the SAC area and drainage in the MMMC area. 2.2 Component 2: Institutional Strengthening 8.2.13 The project supported some institutional developments to make a start with the improvement of the quality and sustainability of irrigation development and management. There were four sub-components:

(i) review of the SAC management operations; (ii) preparation of an irrigation sub-sector review, which would be an important input

for the development of a long-term sub-sector strategy by Government; (iii) preparation of a comprehensive feasibility study to review the technical,

environmental, social and economic viability of the expansion in capacity of the SAC, a major issue bearing on long-term water resource development and expenditure in Azerbaijan; and

(iv) training and study tours, covering a wide range of topics such as project administration and modern design and O&M practices of irrigation and drainage systems.

8.2.14 SAC Management. The project financed consultants (ASPI Consulting Engineers) to review the work practices, processes, and skills of the SAC management and the District Irrigation Exploitation Units (DIEU) in the SAC area, as well as the coordination between these different offices and the water users. In particular, the consultants reviewed: (i) the current organizational structure and activities of the SAC management and DIEUs; (ii) the current level of cooperation between all the offices involved with operation and maintenance (O&M) of the SAC system; and (iii) the O&M costs and financial situation. The consultants then designed a modern management information system and made recommendations for an institutional development action plan for SAC management and DIEUs. The report was accepted by the AIOJSC at the end of 2004 and the recommendations are expected to be used in future as AIOJSC is reforming its operational activities. 8.2.15 Irrigation Sub-sector Review. Consultants (ASPI) prepared an irrigation sub-sector review that focused on such aspects as: (i) economics of irrigation; (ii) cost recovery systems; (iii) social impacts of possible closure of unsustainable irrigation systems; (iv) the public investment program for irrigation; and (v) the institutional arrangements for the sub-sector. Recommendations included: (i) a better development of Water Users

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Associations which is covered under IDSMIP; (ii) gradual increase in water users contributions to eventually cover the O&M costs in full; and (iii) options for transparent billing and cost monitoring. Government, through the AIOJSC, is currently developing a comprehensive strategy for the irrigation sector until 2015 that is expected to become the guiding document for irrigation development and O&M. It covers such aspects as further development and modernization, including automation, of irrigation and drainage systems, dam development to secure the future water needs; and further WUA development. The irrigation sub-sector review has been an important background document for the preparation of the strategy. 8.2.16 Long-term Strategy and Feasibility Study for SAC. The long-term strategy and feasibility study for SAC was a comprehensive study (Nippon Koei/Sulaco) to review the technical, environmental, social, and economic viability of the proposed expansion in capacity of the SAC in order to guarantee the long-term supply of water to the agricultural lands of the SAC region and to Baku and neighboring cities. Options to achieve this include a more efficient management of available water resources and existing infrastructure, as well as development of new infrastructure. 8.2.17 The conclusions of the study were that government’s proposed water development program is economically, technically, and environmentally feasible, and that the proposals constitute the best development option to guarantee the long-term water supply to Baku. Government is committed to further the SAC development and has already started preparatory works for the construction of Takhtakorpu Reservoir that will be fed from the SAC main canal after 50 km. 8.2.18 Training and Study Tours. During the implementation of RIDIP various study tours and trainings have been held. The PIU Accountant has participated in the training course on Financial Management and Disbursement in World Bank Projects in November 2003 at the International Center of the International Labor Organization in Turin, Italy. The specialist also attended two workshops: one on World Bank Client Connection website subject, Tbilisi, Georgia, December 2004 and Financial Management and Disbursement Workshop, Istanbul, Turkey, June 2006. A PIU Procurement staff member attended Works Procurement Management Course in May 2004 and Equipment Procurement Management Course in October 2006 at the International Training Center of the International Labor Organization in Turin, Italy and several local seminars, including on the introduction of Client Connection. The PIU M&E Specialist attended the World Bank’s Training & Workshop “Good Practice in Monitoring, Evaluation and Management Information Systems for Competitive Grant Programs in ESA countries”, 2002, Rovinj, Croatia. The specialist also attended International Development Evaluation Training (IPDET) in Ottawa, Canada, in 2003 and in 2005. 8.2.19 In-country training program included computer and English language courses for PIU staff. These courses can also be evaluated positively as almost all PIU staff has been able to obtain certain computer skills and has basic English language skills.

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8.2.20 Several study tours were conducted. A two-week study tour to the UK and France was organized for officials of the AIOJSC and PIU staff in order to get familiar with modern methods of operation and maintenance of irrigation systems and water resource management. A study tour to Western USA and Mexico too place to learn about management of irrigation systems and WUA development. 8.2.21 Overall, the training program had a positive impact on staff performance. For example, a good M&E program was implemented and satisfactory quarterly reports were produced. Similarly, procurement and financial management related training have contributed to the strengthening of PIU capacity, which has led to satisfactory performance of procurement and financial management staff. 2.3 Component 3: Project Implementation Support 8.2.22 This component comprised the following four sub-components: (i) support for the PIU, covering part of the incremental staff salaries and operational expenses, as well as equipment and vehicles; (ii) provision of a technical assistance team of international specialists during the first years of project implementation to advise and train the PIU staff and assist the PIU to successfully implement the project; (iii) M&E and environmental monitoring; and (iv) the annual audit of the project accounts. 8.2.23 Project Implementation Unit. The Project Implementation Unit for RIDIP was established on July 2, 1998 with the Order No 51-e of the former State Amelioration and Irrigation Committee (SAIC). With the decree of the Cabinet of Ministers in October 2004, SAIC was transferred to the Ministry of Agriculture under the name of Amelioration and Water Farm Agency (AWFA). In February 2006, the AWFA was given independence under the name of Azerbaijan Amelioration and Irrigation Open Joint Stock Company (AIOJSC). During all these changes the PIU answered to the same management.

8.2.24 Technical Assistance to the PIU. Technical assistance (TA) consultants (Mott MacDonald/Temelsu Joint Venture) were recruited during the early project years to provide management and implementation advice to the PIU. The TA included a long-term Technical Advisor and short-term specialists in Construction Supervision, Procurement, Monitoring and Evaluation, and Environment. One of the important consulting services originally not considered under the project, but later recommended by the World Bank was a need for an international Design Consultant for modernizing the measuring structures along the SAC Main Canal. For such purpose PIU applied to the director of the Irrigation Training and Research Center of California Polytechnic State University, USA. All TA has been effective and allowed the PIU staff to gain sufficient experience to implement the project in a satisfactory manner during the project years.

8.2.25 Monitoring & Evaluation. The M&E system of RIDIP was established in 2002. The M&E system comprised data collection related to key performance indicators (amount of irrigated areas, productivity of irrigated crops, amount of water used for irrigated crops and etc.), monitoring and evaluation of financial, procurement and construction activities, and socio-agro-economical assessment via field surveys. The PIU

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hired a local NGO to measure the impact of the project through a baseline survey in 2002 and two follow-up impact studies in 2004 and 2006. Through surveys the benefits have been assessed in the areas that benefited from the rehabilitation and construction works that were completed during project years. 8.2.26 Regular environmental monitoring (chemical, biological, physical analysis of water and ground water, flora, and fauna) in both project areas has been carried out by the PIU, assisted by consultants. Environmental monitoring in Sarisu and Ag-gol Lakes proceeded in accordance with the agreed Environmental Monitoring Plan. Lake Sarisu is located close to the new MMMC, which cut off part of the lake’s catchment area. The objective of monitoring activities in this area is to determine mitigation measures that may be needed to guarantee the water level of the lake. The monitoring showed that there is no obvious impact of MMMC on the lake as inflow continues to exceed the outflow and evaporation, and the available facilities to regulate the outflow allow so far for a stable water level in the lake. Close monitoring of the situation will continue under IDSMIP in order to ensure with full certainty that the main collector drain has no negative impact on Lake Sarisu. 8.2.27 Project Audits. Project auditing was carried out by an independent audit firm each year, starting from 2001. No significant issues were identified during auditing. Project accounting and financial reporting were always considered as satisfactory. 3. Procurement 8.3.1 The Procurement mainly consisted of procurement of Civil Works Contract. These amounted to eight, covered both the SAC and MMMC systems. 8.3.2 Consultants were selected through QCBS, LCS, CQ, SSS and Individual Consultants methods. Only one national firm has been successful in ICB for consulting services for the services on institutional support to the former State Amelioration and Irrigation Committee. All other ICBs for consulting services have been carried out by foreign consulting firms. 8.3.3 The procurement has been generally considered adequate during the implementation of the project. 4. Disbursement and Budget 8.4.1 The total disbursement from IDA funds at the end of the Project was of the amount of US$47,994,800. Owing to substantial changes in foreign exchange rates the US Dollar equivalent of the remaining credit funds comprised US$2,668,257. 5. Bank and Borrower Performance 8.5.1 Bank. The Project identification and overall design were based on a thorough assessment of preliminary needs, available choices, and component sector and social analysis. During Project implementation there were no changes in Project objectives and

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general planned Project activities. Small changes occurred in the design of civil works. The Bank lending performance is rated satisfactory. 8.5.2 The Bank’s supervision performance is rated by the Borrower as highly satisfactory. The Bank supervision team had continuity and managed to engage a sufficient number of qualified specialists in each of the project’s fields. After the effectiveness of IDSMIP, supervision of both projects always took place at the same time. Overall for RIDIP 14 Supervision Missions took place up to May 15, 2007, with four experts in a team on average. Bank’s management was engaged at all steps of project implementation, joined the Supervision Missions on several occasions. 8.5.3 Routine back-up support from the project’s Task Team Leader, Joop Stoutjesdijk, as well as from the Bank Country Office on the various aspects of project implementation is highly appreciated by the PIU. 8.5.4 Borrower. The project had strong ownership from the very beginning of its implementation up to the completion. The organizational reforms of irrigation agency from the Ministry to government-owned joint stock company (AIOJSC) did not affect the project. The project continued to be supported and supervised on the regular basis by all branches of the agency. 8.5.5 The PIU was fully integrated in the AIOJSC. The team has implemented the project in a satisfactory manner. The procurement, financial management, and M&E arrangements have been generally considered adequate for the implementation of the project. The PIU had also in place adequate financial accounting and reporting systems that provided timely and accurate financial information for project implementation. 8.5.6 AIOJSC assisted the PIU in establishment of the work environment with other government bodies such as Cabinet of Ministers, Ministry of Finance, Ministry of Economic Development, State Land Committee, and Ministry of Environment and Natural Resources. PIU reports were integral part of the AIOJSC reports to Government. including reports to State Statistical Committee. 8.5.7 The project implementation was in the framework of different government programs such as State Program on Poverty Reduction and Economic Development, State Program on Social Economic Development of Regions. The PIU worked in collaboration with secretariats of these programs, exchanging data, reports, and findings. 6. Lesson learned 8.6. The Project provides the following relevant lessons that should be taken into account in the future:

• It is important to develop capacity of the PIU and expose the PIU to the international best practices of the subject matter from the very beginning of the Project, especially for interventions that are piloting in the irrigation sector of the

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country for the first time. The training program should be managed effectively and efficiently to allow PIU staff and government civil servants to better utilize the international experience sharing opportunities through study tours and conferences.

• The expectation of the Project implementations periods should be based on

realistic assumptions at the appraisal step.

• It is highly valuable that it was possible to apply advanced technologies in construction of new modern irrigation structures within the project. In future, projects should definitely find the place for innovations.

• The M&E system of the project should be integrated with those of government

ministries and agencies. The participatory approach involving all stakeholders should be dominant at all steps of project implementation.

• Good supervision work is essential for satisfactory outcome. Besides the quality

and commitment of PIU staff, the high quality and the continuity of supervision WB missions was industrial to the satisfactory implementation of the project. The proper skill-mix is important to enable participation of experts on a need basis.

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Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders 9.1 Not Applicable.

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Annex 10. List of Supporting Documents

• Final report - Mott Mac Donald/Temelsu JV - October 2004. • Technical Assistance on preparation of institutional support for SAC and

irrigation Sub sector review Final SAC management report - ASPI consulting engineers Inc -May 2004.

• Long term strategy and feasibility study for the SAC system Overall summary – NIPPON KOEI – August 2004.

• Long term strategy and feasibility study for the SAC system Draft final report – NIPPON KOEI – January 2005.

• Report on numerical modeling SAC – Wallingford – March 2003. • SAC Final Completion report #1 Rehabilitation of SAC headwork – Jacobs GIBB. • SAC Final Completion report #2 Rehabilitation of SAC P1 inter-farm canals –

Jacobs GIBB. • SAC Final Completion report #3 Reconstruction of SAC P2 inter-farm canals and

sedimentation basin – Jacobs GIBB. • SAC Final Completion report #4 Rehabilitation of SAC first 27 km section P3 –

Jacobs GIBB. • SAC Final Completion report #5 Rehabilitation of reach from 27km-50 of SAC

P4 – Jacobs GIBB. • MMMC Final Completion report #1 Completion of MMMC siphon of Araz River

– Jacobs GIBB. • MMMC Final Completion report #2 Completion of MMMC Package 1 – Jacobs

GIBB. • MMMC Final Completion report #3 Completion of MMMC Package 2 – Jacobs

GIBB. • Feasibility study on SAC and MMMC – CES consulting Engineers Saizgitter,

Germany – December 1999. • Environmental assessment and monitoring in the project areas of the SAC and

MMMC - CES consulting Engineers Saizgitter, Germany - March 2000. • Final report on the scientific-research works carried out for “Implementation

laboratory studies for hydraulic regime of Samur Headworks Intake Structure” and “Implementation of the experimental studies for the preparation of the structural scheme of Samur Headworks Settling basin and provision of its normal regime” on the Contract related with the physical modeling of the headworks and the settling basin – 2004.

• Various Aide Memoires, Management Letters, and technical reports prepared during IDA implementation review missions.