Uzbekistan Drainage, Irrigation and Wetlands Improvement Project (3796 UZ, 4707 UZ)Implementation Progress Review Mission

March 16 – April 5, 2011Aide-Memoire

A. INTRODUCTION

1. A mission consisting of IJsbrand H. de Jong (Sr. Water Resources Specialist and TTL), Ahmed Shawky (Sr. Water Resources and Environmental Specialist), Jeren Kabayeva (Project Operations Specialist), Dilshod Khidirov (Sr. Rural Development Officer), Fasliddin Rakhimov (Procurement Specialist), Galina Alagardova (Financial Management Specialist), Oydin Dyusebaeva (Team Assistant) and Robert Rout (Irrigation and Rural Infrastructure Engineer, FAO) convened in Uzbekistan from March 16 - April 5, 2011. A Social Development Specialist will visit the project later during the fiscal year.2. The objective of the mission was to review (i) progress in the implementation of the Drainage, Irrigation and Wetlands Improvement Project (DIWIP), (ii) project compliance with the Bank’s safeguard policies, (iii) procurement and financial management arrangements and (iv) arrangements for monitoring and evaluation (M&E).

3. The mission met with H.E. S. Hamraev, Deputy Minister of Agriculture and Water Resources, and Mr. B. A. Yusupov, Project Management Unit (PIU) Director of DIWIP and his staff. A list of people met is presented in Annex A. The mission also conducted field visits in the project area located in Karakalpakstan. The mission wishes to express its sincere gratitude for the assistance in facilitating the work of the mission and the hospitality extended.

4. The findings and recommendations of the mission were discussed in a wrap-up meeting held on April 5, 2011 that was chaired by H.E. Mr. Hamraev.

B. SUMMARY

Table 1: Key Project DataBoard Date 06/19/2003 Current Project Performance RatingEffectiveness Date 02/20/2004 Development Objectives SatisfactoryProject Duration 10 years Implementation Progress Moderately SatisfactoryLoan Amount US$35mCredit Amount US$25mPercent Disbursed 77% Project Closing Date 06/13/2013

5. The project is making good progress in the implementation of inter-farm and on-farm I&D rehabilitation works, despite delays that were mostly incurred in the past (harsh winter conditions, fuel shortages). On-going contracts include additional works under MS/1, CAR/1 and D1/2, with scheduled completion dates of April 2011, July 2011 and June 2012, respectively. Submission and certification of as-built drawings and O&M manuals for these contracts still need to be completed.

6. Demonstration plots were established on a number of irrigation and agronomic techniques, as well as a Farmer Information Support Desk (FISD) with preliminary encouraging results. Training of Water Users’ Associations (WUAs) and water resources staff was completed in 2009 as per the project design, and all funds have been spent. Regional water management staff and close to 700 farmers have been trained, and training material has been prepared.

7. Despite the fact that WUA training was completed as planned, the mission is concerned about their continued weakness. In addition, the mission learned that local authorities have so far expressed limited interest in taking full advantage of the project’s investments to improve the quality of water management in the project area. This is likely to negatively impact the sustainability of the investments. The mission strongly recommends that receipt of a firm expression of commitment by local authorities and water resources specialists to adhere to rational water management rules is a prerequisite for any future investment operation in water management. More attention will also need to be devoted to strengthening capacities of WUAs to ensure full ownership and ability to take command of on-farm water management. This, in turn, requires direct involvement of local authorities, water resources specialists and WUAs in the design of such project.

8. The mission visited areas in Karakalpakstan that are part of the proposed South Karakalpakstan Water Resources Management Improvement Project (SKWRMIP). A Feasibility Study (FS) is almost completed that forms the basis for the project that is included in the Governments investment plans and in the current Bank’s Country Assistance Strategy.

9. Compliance with Bank safeguard policies is satisfactory, as is procurement and financial management.

10. The following agreements were reached:

The PIU will recruit, at least on a part-time basis, an environmental specialist to monitor implementation of the EMP during the construction of additional works.

The PIU needs to ensure timely completion of all as-built drawings and O&M manuals immediately following the works’ completion date.

Once the FS is completed, preparation of the SKWRMIP will start provided (i) the Bank receives a request from the Ministry of Economy; and (ii) there is confirmation of the IDA/IBRD envelope of the operation.

The mission would like to receive clarification on follow-up activities that have been taken in respect of the safety of Tuyamuyun dam, as outlined in the Environmental Management Plan (EMP). To that effect, the Bank will send an official letter to MoAWR.

The design of SKWRMIP needs to incorporate important lessons learned from DIWIP, including the need to (i) obtain firm expressions of commitment from local authorities to adhere to rational water management rules, (ii) ensure full involvement of local authorities and water resources staff in the design of the project, (iii) allocate adequate resources to WUA and staff training, (iv) ensure compliance with safeguard policies, including Dam Safety (OP4.37).

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A more strategic perspective on water resources development and management in the lower parts of the Amu Darya river needs to be adopted. To that end, it was agreed that preparation of a comprehensive lower Amu Darya Water Master Plan will be included in SKWRMIP.

The Bank has received a request for budget re-allocation in the amount of US$218,000 from the project’s unallocated category, and will respond shortly.

C. AGREEMENTS REACHED

Component A: Construction and Rehabilitation of Main Drainage System

11. Progress in the implementation of construction is summarized in Annexes C, G, H and I. The mission recommends that the PIU ensures timely completion of all as-built drawings and O&M manuals immediately following the works’ completion date.

Component B: Irrigation and Drainage System Improvement in Command Area

B.l. Water User Association development and TA training,

12. Twenty one WUAs (nine in Beruni and twelve in Turtkul) have been established, and have been operating for nearly six years. In addition, Water User Groups (WUG) have been established in WUAs with larger areas and more than 100 members, as well as Associations of WUAs. WUAs in Beruni have generally been established on the basis of hydraulic boundaries, and those in Turtkul are scheduled to be reorganized similarly. WUAs and trainers of WUA have been trained and have benefited from refresher courses on a large number of issues, including O&M, on-farm water management, accounting, administration and legal issues. Farmer Field Schools have been organized, as well as Demonstration Plots, and training material was distributed to WUAs and local authorities. The training program was completed in 2009.

13. Despite intensive training and continuous support from the project, and although there is now a general recognition in the project area of their importance, WUAs continue to face considerable challenges. Some of these are not unique to Uzbekistan and are consistent with global WUA performance. Additional challenges that are related to the specific legal and financial framework in Uzbekistan include the limited autonomy of WUAs in managing their affairs, financial constraints that result from the recovery of O&M charges through seasonal credit and from the difficulty of collecting fees from dekhan farmers, the sometimes limited support from local authorities in face of the need to achieve cotton and wheat quota, and frequent staff changes in many WUAs.

14. Training of 26 O&M staff from government water management organizations in South Karakalpakstan was conducted in September 2008 and February 2009 on planning, O&M of irrigation and drainage infrastructure, and a training manual was prepared. In addition, guidelines for O&M of irrigation and drainage infrastructure were prepared.

15. However, the mission noted with concern that public agencies responsible for water management (including Basin Administration of Irrigation Systems (BAIS), Hydro Melioration

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Expedition (HME) and Raiselvodkhoz) showed limited interest in training staff or WUAs to improve water resources management. The same applies to training of staff in the use of water scheduling software, and the preparation of databases associated with proper I&D. The mission recognizes that many of these challenges are related to the low salaries and few incentives that staff are provided, as a result of which there is a high staff turn-over, but neglect of capacity strengthening will inevitably compromise the sustainability of project investments.

16. All funds allocated to these sub-components have been disbursed, and no additional funds are likely to become available during the remainder of the project. Capitalizing on this important experience for the design of SKWRMIP, the mission strongly recommends that firm expressions of commitment by local authorities and water resources specialists to adhere to rational water management rules is a key prerequisite. More attention will also need to be devoted to strengthening capacities of WUAs to ensure full ownership and ability to take command of on-farm water management. This, in turn, requires direct involvement of local authorities, water resources specialists and WUAs in the design of such project.

B.2. Irrigation and Drainage Improvement

17. An assessment of activities and results under this sub-component is presented in Annex D. Encouraging preliminary results have been obtained by the Farmers Information Support Desk (FISD), responsible for providing advice to farmers, which has so far received 10 requests for support from farmers during 2010.

B.4. Environmental and Social Safeguards

18. The mission noted that the contract of the environmental specialist that had been employed by the project has not been extended to cover the additional works. It was agreed that the PIU will recruit, at least on a part-time basis, an environmental specialist. The M&E consultant will monitor progress in the implementation of the EMP. The Involuntary Resettlement policy was not triggered under the project. A social safeguards specialist will visit the project in the course of this fiscal year to confirm the validity of this.

19. A full assessment of project compliance with safeguards policies is presented in Annex E. The following agreements were reached:

Environmental Assessment (OP4.01) : for contract D1/2, it was agreed that the PIU will, by June 30, 2011, train the contractor in EMP to ensure compliance. An environmental specialist will be recruited to oversee implementation of the EMP during the remainder of the project.

Natural Habitats (OP4.04) : within the coming 1-2 years measures for stabilizing salts in Lake Ayazkala should start. The aim is to prevent the salt from being blown away by wind to avoid negative impact on human health in adjacent towns. SKWRMIP should provide an adequate amount of water to the Bustan canal for supplying water to the Baday Tugai forest, without any competition from irrigators.

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Physical Cultural Property (OP4.11) : to further reduce the impact of high groundwater tables in the project area on key monuments, SKWRMIP needs to (i) empower WUAs through training and technical backstopping by MoAWR staff, (ii) provide irrigation advisory services through FISDs, and (iii) remodel inter-farm canals. SKWRMIP also needs to make sure that a minimum distance of 150 meters between the introduced I&D works and key monuments is maintained.

Dam Safety (OP4.37) : The mission has not been able to ascertain the nature and scope of works that have been undertaken by the Government to improve the safety of Tuyamuyun dam. The mission would like to receive clarification on follow-up activities that have been taken in response to relevant clauses of the Environmental Assessment (EA) and the Environmental Management Plan (EMP). To that effect, the Bank will send an official request to MoAWR.

Component C: M&E of project impact and EMP

20. The consultancy services for M&E and Supervision of EMP were initially provided by Royal Haskoning from December 2005 until December 2009. After the project’s Closing Date was extended to June 30, 2013, the PIU signed a contract for the “Follow-up M&E Consultancy Services” with the consortium of AHT Group AG and Donaev Management Consulting (“Consortium”) on October 25, 2010. The total contract amount is US$599,948.10, and its Closing Date is June 30, 2013. The M&E Consultant has started its services on January 10, 2011. As a result of the transition between the two consultants, the M&E Annual Report for 2010 has not been completed. The detailed status of the project’s indicators is provided in Annex B. The status of indicators is largely based on the M&E annual report for 2009, with the exception of a few construction-related indicators that have been updated as of March 2011.

21. Representatives of Royal Haskoning visited Karakalpakstan on March 2, 2011 to carry out the final workshop to formally hand over the M&E data and reports collected by them over the period of 2006-2009. By the time of the mission, the Consortium had submitted the Inception Report for review of the PIU and mission team. For the upcoming quarterly report, the mission recommends that the Consortium and PIU focus more on the impact that the project makes in respect to (i) contribution to agricultural GDP from irrigated land; (ii) rural poverty indicators and farmers’ income in Karakalpakstan, and (iii) technical assistance provided under the project. To ensure the sustainability of activities under the M&E Component, it is expected that the Consortium will be closely working with Raiselvodkhoz, HME, PAM and the Archeological Institute to gradually hand over responsibility to these organizations for the maintenance of the project’s M&E database.

Component D: Project Management, Technical Assistance and Training

D.l. Project Implementation Unit

Procurement

22. At the current stage of the project implementation little procurement work is envisaged. The PIU is mostly managing amendments to the existing contracts and extensions of contract duration to cover additional works. Contract implementation progress is reflected in Annex G. There are no post review contracts since the last mission. Procurement performance of the project is rated satisfactory.

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Financial Management

23. The contribution from the Financial Management Specialist is presented in Annex K.

D.2. TA for Detailed Design and Construction Supervision

24. Technical assistance services for detailed design and construction supervision is provided under Con/1. These services include design of sample structures (approximately 25%), review of contractor’s working- and “as built”-drawings, construction supervision inspections and certifications, and technical support to the PIU.

D.3. Studies and Training

25. As part of contract Con/1, studies were conducted on Amu Darya basin hydrology and management, and on modern irrigation tools. Training in O&M techniques was also conducted. Reports were prepared. This activity has been completed and funds have been fully spent.

D.4. Preparation of Future Projects in Water and Irrigation and Drainage.

26. An FS for a future investment operation is underway and is expected to be completed soon. The mission visited areas in Karakalpakstan that are identified in the FS to be part of this future operation. Four options have been identified to improve water management that aim to replace pump irrigation by gravity irrigation. In addition, in response to a bilateral agreement between Turkmenistan and Uzbekistan, the project would re-route saline drainage flows away from the Amu Darya to improve water quality. Expected benefits include increased production from rehabilitated, previously abandoned land in downstream areas and from vertical intensification on rehabilitated and existing land, as well as reduced costs of pumping. Production of a second non-cotton/non-wheat crop after the wheat harvest will become possible in parts of the command area.

27. The mission prepared a preliminary water balance of the before- and after-project situation (see Annex K). A more detailed monthly balance will need to be prepared to fully assess impacts of the project on water resources. While adequate water resources appear to be available in Tuyamuyun reservoir, satisfying the increased demand from the anticipated horizontal and vertical intensification as a result of the project (minus the reduced leaching requirement because of improved water quality) will require that due attention is being paid to continue satisfying downstream demands and environmental maintenance flows.

28. The mission noted that the estimated costs of each of the proposed options are between US$120m and US$194m. The project is included in the Government’s priority investment plan, albeit for a smaller IDA amount, as well as in the current Bank’s Country Assistance Strategy. Costs are in particular associated with an extension of 70kms of the Bustan canal that are estimated at US$100m. Since currently abandoned irrigated areas are located at the end of this canal, its development represents a significant up-front requirement before benefits can be captured. A preliminary assessment of safeguard policies that will be triggered by the new project is presented in Annex J. It

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was agreed that, following completion of the FS, preparation of SKWRMIP can start provided that (i) the Bank receives a request for support for the preparation and implementation of the project from the Ministry of Economy; and (ii) the IDA/IBRD envelope for the operation is clarified.

29. While the mission recognizes the important benefits that the proposed project would bring, it also recommends adopting a more strategic perspective on water resources development and management in the lower parts of the Amu Darya river. It was therefore agreed that preparation of a comprehensive lower Amu Darya Water Master Plan would be included in the design of SKWRMIP.

D. NEXT STEPSTable 2: Summary of Agreed Actions

Action Responsible DeadlineComponent A: Construction and Rehabilitation of Main Drainage System

1 Contract MS/1 completion of all outstanding works, approval of as-built drawings and O&M Manual

PIU May 31, 2011

Component B: Irrigation and Drainage System Improvement in Command Area2 Inclusion of recommendations of B.4 in EMP PIU May 31, 20113 Recruitment of an environmental specialist PIU April 30, 20114 Water supply to Baday Tugai forest guaranteed PIU continuous5 Contractor of contract D1/2 trained on EMP PIU June 30, 20116 Assess net effect on fisheries, livestock, flora and fauna M&E Consultant As soon as D1/2 is

completed7 Design and implement measures for stabilizing salts in Lake

Ayazkala PIU As soon as possible

8 Clarifications regarding Tuyamuyun dam safety PIU May 31, 20119 Contract CAR/1/11: rectification of non-compliance and

under excavation works; approval of as-built drawingsConsultant May 31, 2011

10 Contract CAR/1/22: submission of revised works program for concrete works

Consultant April 30, 2011

Component C: M&E of project impact and EMP11 PIU to focus more on M&E of project impacts PIU Q2, 2011 Report

Component D: Project Management, Technical Assistance and Training12 Reflect lessons from DIWIP in the design of SKWRMIP,

including recommendations from section B.1, B.4, and D.4MoAWR During project

preparation13 Clarify IDA/IBRD envelope of SKWRMIP WB/MoE May 31, 201114 Request for Bank support for SKWRMIP MoE 201115 Revise Financial Management Manual to incorporate

sections related to:a) Financial reporting and auditing arrangements; andb) Update sections related to accounting and internal

control policies and procedures (including setting limits for volume of monthly cash operations)

CA and F/DS June 30, 2011

16 Finalize modification of the current accounting software PIU, C A and F/DS June 30, 2011

1 CAR/1/1 = CAR/1 Additional Assignment No. 12 CAR/1/2 = CAR/1 Additional Assignment No. 2

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17 Timely submission of audit report for FY 2010 PIU, CA and F/DS Immediately and continuously

18 implement last mission recommendations in regard to KSDP PIU Director, CA June 30, 2011

30. The next implementation progress review mission is proposed to take place on October 2 -22, 2011.

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Annex A

List of people met

1. Shavkat Hamraev, Deputy Minister of Agriculture and Water Resources2. Asatilla Salimov, Deputy Minister of Economy3. Bakhtiyar Yusupov, Technical Director, PIU on Water Projects, MAWR4. Bakhadir Yusupov, Project Manager, Ferghana Valley Water Resources Management

Project, Phase-15. Satimbay Yuldashev, Head of PIU on Silk project, Nukus6. Kilichbek Sitniyazov, Chief Accountant, Silk PIU7. Gulnara Embergenova, Director, NGO “Zolotoe Naslediye Arala”8. Maryam Kurshaeva, Head of RC in Tortkul district Karakalpakstan9. Khaitjan Yuldashev, Head of RC in Khojeili district, Karakalpakstan10. SalavatJarkinbaev, Chief Accountant, Bustan OTP, Karakalpakstan11. Atakhan Saburov, Farmer, Nursery garden of mulberry trees, Ellikkala district12. Palwan Kulumbetov, Deputy Director of PIU, Beruni district13. Reyimbay Kuranbaev, Agricultural specialist, PIU, Beruni district14. Dinesh Kumar Shrestha, Consultant, Resident Engineer, Mott MacDonald/Temelsu15. Bahadir Boz, Consultant, Mott MacDonald/Temelsu16. Robert Davey, Consultant, WUA, Water Management, Agriculture & Institutional

Development Coordinator, Mott MacDonald/Temelsu17. Stefan Rosenow, M&E Consultant, Agro-Economist Project Management, AHT Group AG18. Bahadir Alimov, Concortsium Manager, OAO “Amubukharakanalkurilish”19. Shahobiddin Bahronov, Concortsium Manager, OAO “Amubukharakanalkurilish”20. Oblakul Akbarov, Concortsium Manager, OOO “TupalangduvGESkurilish”21. Merom Kutlimuratov, Chairman, “Shabbaz” rural community22. Zaripbay Jumatov, Manager, WUA “Shabbaz”23. Erkabay Masharapov, Hydrotechnic specialist, WUA “Shabbaz”24. Bahrom Jabbarov, Specialist, Mott MacDonald/Temelsu25. Murat Kurbanov, Inspector, “Baday Tugai” State Nature Reserve26. M. Narbaev, I&D Engineer, PIU27. M. Utemuradov, Procurement Specialist, PIU28. V. Sablina, Financial Specialist, PIU29. I. Zuberova, Accountant, PIU30. A. Ganiev, Deputy Manager, PIU31. M. Astankulov, Civil works Engineer, PIU32. K. Urinbaev, Monitoring Engineer, PIU33. A. Alimov, Office Manager, PIU34. M. Supiev, Sociologist, PIU35. Shuhrat Ganiev, First Deputy Khokim, Ferghana region36. A. Rahmatullaev, Head of BAIS “Syrdarya-Soh”37. P. Rasulov, First Deputy Head of BAIS “Syrdarya-Soh”38. R. Yakubov, Headof department on PS, Energy and communication

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39. Yu. Ahrarov, Head of administration of irrigation systems (AIS) “Isfayram-Shahimardan”40. N. Masharapov, Head of land cadastre department41. J. Saymatov, Head of division on water use42. M. Zailapov, Head of division, PTO43. Bohodir Yusupov, Khokim of Namangan region44. B. Ohunov, Head of BAIS “Norin-Syrdarya” “Podshoota-Shodak”45. B. Khoshimov, First Deputy head of BAIS “Norin-Syrdarya”46. B. Abzalov, Headof department on PS, Energy and Communication47. A. Boyhanov, Khokim of Chartak district48. I. Imanov, administration of irrigation systems (AIS) “Podshoota-Shodak”49. N. Hudoyberdiev, Head of division on PTO, administration of irrigation systems (AIS)

“Podshoota-Shodak”50. Ulugbek Rakhimov, Deputy of Khokim of Andijan region on agricultural issues51. A. Abdullaev, Head of BAIS “Norin-Koradarya”52. Sh. Ergashev, First Deputy head of BAIS “Norin-Koradarya”53. M. Ismailov, Head of department on PS, Energy and Communication54. A. Bahramov, Head of administration of irrigation systems (AIS) “Savay-Akbursay”55. U. Yokubov, Head of administration of irrigation systems (AIS) “Shahrihonsay”56. B. Boltoboev, Head of administration of irrigation systems (AIS) “Ulugnor-Mazgilsay”57. R. Ermatov, Head of division on water use58. Kh. Uraimov, Head of PTO, administration of irrigation systems59. G. Abdullaev, Lead specialist, administration of irrigation systems60. Begdulla Davletiyarov (M&E Environmental Specialist) 61. Bakhadir Kamalov Office Manager, JV Mott MacDonald – Temelsu62. Plamen Bozakov, Deputy Country Director, ADB63. Ramil Maharramov, Country Manager, IDB64. Davron Madirimov, Field Representative in Uzbekistan, IDB65. Maor Zrahyahu, First Secretary and Consul, Embassy of Israel66. Murat Mirzaev, Deputy Head, SECO

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Annex B

Results Framework and Monitoring Indicators

Hierarchy of Objectives Key Performance Indicators Status as of end of 2009 (updated data for March 2011 provided for selected indicators when available)

Sector Related CAS Goals

Maintain and improve the efficiency of the country’s extensive irrigation and drainage infrastructure.

Remove distortions and create incentives for increasing farm productivity to address and reduce the rural poverty.

Sector Indicators

Contribution to agricultural GDP from irrigated lands.

The extent of irrigated areas and increased farm productivity.Rural poverty indicators particularly in Karakalpakstan.

Data collection in process

Data collection in process

Project Development Objective

1. To increase the productivity of irrigated agriculture, employment and incomes in Karakalpakstan, one of the poorest regions in Central Asia

2. To improve water quality of the Amu Darya river by safe disposal of the drainage effluent, and enhance quality of wetlands in the Amu Darya delta.

Outcome /Impact Indicators

1. Sustained crop production in South Karakalpakstan on about 115,000 ha in Beruni and Turtkul Tumans on about 65,000 ha of irrigated lands yield increases of 10 – 20% by Yr 7 and, in conjunction with the RESP, provision for main system irrigation and drainage improvements in Ellikala Tuman for another 34,000 ha, resulting in similar yield increases.

2.1. Reduction in salinity of Amu Darya water by about 0.05g/l, resulting in yield increases in the order of 1% in the irrigated area downstream of Takhiatash barrage.

2.2. Enhanced quality of wetlands e.g. the Badai Tagai (riverine forest); the managed wetlands in the SKMC and AMD.

1. Increase in cropped area:Baseline 2006: 65,000 haActual 2009: 83,000 ha (+23%)Estimated target: 115,000 ha

Yield increase:Baseline 2006:Cotton – 1.69 t/ha; Wheat – 1.86 t/haActual 2009: Cotton – 1.3 t/ha; Wheat – 1.4 t/haEstimated target: +10-20% of baselineEmployment and Income: in process

2.1. 0.8 g/l (September 2009)Note: this is due to (i) the diversion of drainage water followed by the closing of Beruni pump station in September 2008; and (ii) the increased flow of Amu Darya in 2009.

2.2. As of March 2011: Badai Tagai Reserve: a new distribution canal 100% complete. But the canal hardly received water to date due to designed and supplied water of 5 m3/s being used by the 32 outlets in upstream Saukum Yargan Canal (Budeniy canal) for irrigation purposes.

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3. To develop the institutions for improving water management, operation and maintenance (O&M) of the irrigation and drainage systems, and for promoting sustainable irrigated agriculture through participatory irrigation management.

3.1. Reliability: ratio of actual water supplied to demand planned for delivery on weekly, monthly and annual basis

3.2. Irrigation efficiencies increased: Conveyance up to area ofWUA by 10%Within WUA area by 15%Amount of drainage water reduced to not more than 3,000 m3/ha

3.3. Sustainability: Number of effective WUAs, level of participation in WUAs, functioning of WUAs in water distribution, dispute resolution and in O&M of the system, O&M budget, % of area waterlogged, % of moderate to highly saline soils

3.1. InsignificantNote: no information from the previous M&E consultant on WUA

3.2.

Conveyance up to WUA: (0.95)

Distribution within WUA area (inter-farm): (0.89)Amt of drainage water from irrigated land: Insignificant

3.3. 21 WUAs established (Beruni=9; Turtkul=12)Effectiveness of WUAs varies. WUAs participated effectively in the command area rehabilitation (CAR) and MS-1 design. Land consolidation, which began in December 2008 has improved the functioning of these WUAs in terms of the O&M.

Output from each component

1.1. SKMD including SKMC and AMD constructed

1.2. Selective rehabilitation of collector drains carried out.

2.1.1. WUAs established in the Beruni and Turtkul Tumans;

2.1.2 Training for improving I&D within

Output indicators

1.1. 15% completed by Yr2, 65% by Yr3, 100% by Yr 4

1.2. 20% completed by Yr 2, 70% by Yr 3 and 100 % by Yr 4

2.1.1. WUAs established for first 3,000 ha in the Beruni and Turkul Tumans by Yr 1; WUAs established for 18,000 ha by Yr 2, 30,000 ha by Yr 3, 50,000 ha by Yr 4 and 60,000 ha by Yr 5.

2.1.2 Training schedule in conjunction with construction

1.1. Construction of SKMC and AMD: 100% complete

1.2 As of March 2011: 93% earthworks; 97% concrete works; 97% land leveling; 99% deep ripping completed.

2.1.1. 21 WUAs established in Beruni and Turtkul Tumans. Beruni WUAs have a total of 32,170 ha of command area and the WUAs of Turtkul have a total of 31,388 ha of command area.

2.1.2. Training related to collector and drain remodeling and deep ripping to remove plough pan and improve soil

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the WUAs carried out

2.1.3 Agriculture demonstrations performed; and Farmers’ Information Services Desk established.

2.2 Selective I&D improvements in the WUA areas carried out

2.3 Selective improvements in main and secondary irrigation system carried out

of improvement works (see 2.2)

2.1.3. Demonstrations on 12 agriculture demonstration plots conducted during period Yr 3-6; Farmers Info Desk operational from Yr 3

2.2. Works completed on 5,000 ha by Yr 3, 18,000 ha by Yr 4, 38,000 ha by Yr 5, and 65,000 ha by Yr 6.

2.3 Works completed for 20% by Yr 3, 70% by Yr 4 and 100% by Yr 5

2.4.1 Badai Tugai (riverine forest) works completed by Yr.3;

2.4.2 Lake Ayazkala mitigation works for closure started Yr3 and completed by Yr5

2.4.3. Monitoring of groundwater near castles started Yr1 and is continuing

permeability had positive impacts on yields and farmers have entered into fee-based contracts with FISC to have similar services available on regular basis.

2.1.3. 15 demonstration plots (Beruni=7, Turtkul=8) established with successful demonstration of cotton yield more than 3.5 t/ha and wheat more than 4t/ha. Farmer Field School (FFS) established and currently functioning; no details available on impact of this FFS. Farmers’ Information Support Center/Desk (FISC) established as NGO and functioning in Beruni and Turtkul; 14,000 booklets, 860 bulletins and 100 posters issued and distributed. 691 farmers trained, and 200 farmers participated in various seminars (no details on impact available). Sustainability of FISC is of concern due to limited financial resources to maintain staff, office and transport.

2.2. As of March 2011: 114% earthworks; 125% concrete works completed.Note: exceeding of the target was possible when project resources were added for this activity following the extension of the project and re-allocation of project proceeds in 2010.

2.3. As of March 2011: Preparatory works started in January 2011 with a completion date of May 2012.

2.4.1. As of September 2010: 100% works completed. Impact: by September 2010, 3103 ha were saturated and almost the whole remaining territory of Baday-Tugai reserve was wetted; 2500 ha of natural Tugai vegetation reappeared.

2.4.2. Kyzylkum Pumping Station closed on March 2008; EMP measures (salt-blowing control) not yet implemented; Natural growth of tamarisk (Tamarix hispida) observed.

2.4.3. As of March 2011: Still continuing, groundwater level lowered to satisfactory level north of SKMD, in irrigated area not much lowering observed; Kyzyl Kala monument negatively affected by spoil banks. Otvodyashi collector flows near the monument (about 100m away) and meets with the SKMC (near 200m). In junction point of Otvodyashi and SKMC, a junction structure has been constructed and banks are stabilized to prevent from bank erosion. The bank of collector close to monument site was at vulnerable stage breaching at high discharge coming from Akchakul lake,

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2.4 Works stipulated in EMP carried out

3. M&E carried out effectively with useful feed-back for project design, implementation and O&M provided

4. Improved capacity of MAWR and Karalpakstan to establish WUAs; plan and design projects, undertake procurement, and implement, operate and maintain I&D projects.

2.4.4. AMD mitigation works (protection of range lands and crossings) completed by Yr5

3. PIU staff trained; M&E reports prepared

4. MAWR staff trained in establishing WUAs; assisting WUAs with implementation of I&D rehabilitation; irrigation scheduling techniques; and O&M planning

K-9 and K-6-1 collectors. It was necessary to protect the monument and thus left bank was stabilized with flatter slope and the spoils were accordingly leveled and placed as per the contract specification. At site the leveled spoil is located on the back side of the entrance to the Kyzyl Kala monument. Because of the location of collector, nothing special can be done considering the site condition.

2.4.4. As of March 2011: 100% complete - 11 bridges for herders completed; erosion protection measures along AMD implemented but not satisfactory; breaches are recorded (eg.: N 42° 38’ 27.7”; E061° 33’16.2”). Breaches have happened due to embankment being overtopped due to uncontrolled high discharge exceeding design discharge of 25m3/s (recorded up to 37m3/s). It has happened couple of times and they have been repaired. In current situation, there is no breached section in AMD.

3. M&E annual report available for 2009, but not for 2010 due to arrangements that had to be put in place to recruit a new M&E Consulting Company after the project was extended from June 30, 2010 till June 30, 2013.

4. Training of MAWR staff completed in 2008; total of 26 people trained. A Training Manual was prepared covering all issues related to Irrigation System Administration, Hydro-Meliorative Expedition and raiselvodkhoz water management activities. The following training modules were delivered:- Water management in practice;- Technical aspects of operating I&D systems;- Flow measurement in canals and collectors;- Monitoring of the meliorative condition of irrigated lands The impact of this activity has been weak as there has been strong resistance to training the staff who plan, operate and maintain I&D systems and government water management organizations have not been interested in improving water management. In addition, there have been several incidents of damage to project construction works by excessive and uncontrolled I&D flows.

6

Annex C

Progress in Implementation of Construction Activities

A.I. Construction and rehabilitation of the South Karakalpakstan Main Drainage Canal

1. The subcomponent works contract (SKMD/13) started in September 2005 and with an extension of 95 days and delays of a year in the works program was completed in December 20104. Works completed under the contract included the rehabilitation of the Karakalpakstan Main Drain (SKMD), construction of the Akchadarya Main Drain (AMD) and construction of 125 structures associated with the drains including bridges (11), aqueducts (7), conjugation structures (31) and cross regulators (9). Annex E lists a summary of dates, quantities and cost for all works contracts.2. Subsequent to the completion of the SKMD/1 contract, additional new and remedial works were identified on the AMD to increase capacity in the drain reach upstream of the original works. The contract commenced in January 2011 and is currently on-going with approximately 21% of the earthworks completed as of February 2011.

A.2. Rehabilitation of inter-farm collector drains and irrigation infrastructure.

3. The works contract (MS/1) started in September 2006 and with contract duration of 36 months and later extension of 263 days the scheduled completion date was 12 June 2010. The contractor failed to achieve the scheduled completion date and completion is still pending. The reasons for the delay included shortage of fuel supplies and adverse winter weather conditions5. 4. The works main elements include inter-farm collector drains (250 km), irrigation structures (25 nos.), land leveling (4,250 ha) and deep ripping (1,500 ha). While the works are substantially complete, the remaining works6 include approximately 175,000 m3 in earthworks, 135 m3 in concrete works, and small areas of deep ripping and land leveling7. The outstanding earthworks and concrete works are approximately 7% and 3% of the contract quantities. In addition to outstanding works the contractor is to submit certified as-built drawings and Operation and Maintenance (O&M) manuals for the collector drains and irrigation structures. 5. The Contractor’s revised work program indicated that works and submissions will be completed by the 30th April 2011.Work is currently on-going and it appears that all works and submissions will be completed within the revised program timeframe8. 3 For the purposes of this Aide Memoire the project abbreviation DIWIP is dropped as prefix to contract nos. 4 Quarterly Progress Report, October to December 2010, February 2011. 5 Monthly Construction Progress Report, February 20116 As confirmed by the PIU at the Meeting of March 23, 20117 Less than 3% of contract areas8 Personnel communication with the Consultant March 26, 2011

7

B.3. Rehabilitation of major structures and canals

6. The subcomponent includes two works contracts (CAR/1 and D1/2) for rehabilitation of irrigation and drainage infrastructure within Turtkul and Beruni districts. The D1/2 contract is additional works, funded from cost savings on earlier contracts. 7. The CAR/1 contract start date was 13 June 2007 and with contract duration of 24 months to which there have been two time extensions of 365 days (Additional Agreement No. 1) and 397 days (Additional Agreement No. 2). The scheduled completion date is 14 July 2011. 8. The works under CAR/1 Additional Agreement No. 1 were completed in December 20109, however there remain several outstanding issues including rectification of non-compliances and under-excavation works on structures and collectors, and correction of as-built drawings. 9. In September 2010 the contractor commenced work on CAR/1 Additional Agreement No. 2. Scheduled works include rehabilitation of 429 km of farm collectors, and construction of drainage (40 new and 51 rehabilitated) and irrigation (5 new and 21 rehabilitated) structures. As of February 2011, completion of physical works was approximately 22% and 8% of farm collectors and structures respectively10. For collectors actual works were slightly lower than planned and for concrete actual works was 50% of planned. To achieve the scheduled completion date the contractor needs to increase resources, equipment and manpower and submit a revised work program. 10. The D1/2 contract start date was 6 January 2011. With a duration of 17 months, the completion date is 6 June 2012. The works include rehabilitation of 540 km on farm collectors, repair and construction of drainage structures (70 pipe culverts, 52 pipes under canals and 51 junction structures), repair and construction of irrigation canal structures (3 cross regulators, 4 box culverts, 24 outlets and 3 pipe culverts) and construction of 279 new observation wells. 11. As of March 2011 works had started on farm collectors with approximately 1% of the earthworks completed and with construction works yet to start on structures and observation wells. The works also included remedial earthworks for the AMD (as discussed in Section A1)11.

9 Executive Summary of Progress Report, March 2011, Draft, Mott MacDonald - Temelsu10 Monthly Construction Progress Report, February 2011, Mott MacDonald - Temelsu11 As per communications with Mott MacDonald-Temelsu April 1, 2011

8

Annex D

Sub-component B.2: Irrigation and Drainage Improvement

Demonstration Plots

1. During 2005-2009, a total 15 demonstration plots (DP) were established in Beruni and Turtkul districts. To date a total of 100 farmers have received hands-on training on the DPs, and visits for about 100 farmers to the DPs were organized. The following activities were demonstrated: (i) laser land leveling, (ii) deep ripping to a depth 60 cm, (iii) water measurement, (iv) installation of piezometers for monitoring ground water mineralization and level, (v) application of organic fertilizer, (vi) irrigation application at exact norms on the basis of crop water requirements, and (vii) timely execution of surveys for weeds, pests and control measures by biological methods. As a result of this, wheat, cotton and vegetable yields on DPs increased by 30%, and the plots were thus successful in demonstrating that substantial increases in yields can be obtained in lower potential soil.

Farmers Information Support Desk (FISD)

2. A combination of theoretical (in class) and practical training was provided through Farmers Field Schools (FFS). The training was carried out at least twice a year, once at the beginning of June after the winter wheat harvest and later in autumn after completion of the cotton harvest. FISDs provided advice and assistance to 338 farmers. This activity is ongoing and will continue until project completion. Training modules under this task include study of soil property, agricultural mechanization, crop production, plant protection, water and soil monitoring, operation of on-farm irrigation and drainage infrastructure, and social and legal aspects of farming.

Development of Training Material

3. Training booklets and bulletins were prepared on 39 different subjects. More than 14,000 booklets and 860 bulletins have been distributed through FFS and via local Mayor Offices to farmers of Beruni, Turtkul and Ellikkala districts. More than 100 posters have been distributed for training purposes.

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Annex E

Project compliance with safeguards policies

Environmental Assessment (OP4.01)

1. The mission noted that contractors have not been adequately trained in the implementation of the Environmental Management Plan (EMP). For contract D1/2, it was agreed that the PIU will, by June 30, 2011, train the contractor in EMP to ensure compliance. A key target indicator is to minimize complaints from inhabitants in the project area.

Natural Habitats (OP4.04)

2. Regarding livestock, thirteen new livestock routes are constructed to compensate for the routes that were demolished as they interfered with DIWIP layouts. Livestock can be subject to vector-borne diseases due to irrigation expansion and newly inundated wetlands, as well as desertification caused by drying some of the existing wetlands.

3. Regarding Lake Ayazkala, the western lake is fully salted and the eastern lake is partially salted due to reduced drainage flows. The PIU informed the Bank of the government’s intention to close the lake (as required per the EMP/ISDS). It is not economically feasible to flush the salts in the eastern lake as envisaged by the EMP and ISDS. Within the coming 1-2 years, when salt is mixed with the blown sand, soil below the salt layer will lose its moisture, and the top soil will harden; only then should measures for stabilizing the salts start. The aim is to prevent the salt from being blown away by wind to avoid negative impact on human health in adjacent towns.

4. To compensate for the loss of Lake Ayazkala and the other small wetlands that dried up, constructing the SKMD and AMD enabled creating new small adjacent wetlands (Ozarni wetland and two others), and also increased the drainage outflow to Lake Akchakul (used for boat recreation and fisheries). The M&E task will assess the net effect on fisheries, flora and fauna. Water supply to Baday Tugai forest was intended from Budeniey canal (instead of the drainage pumping station that closed due to DIWIP). However, while digging Budeniey canal farmers requested adding irrigation offtakes for their farms; hence water was inadequate for the forest. Thus the project built Kok-Darya canal, with another canal extension and flow regulators, to supplement water supply to the forest. As the Kok-Darya canal is dependent on the flow in the lower Amu Darya (which is often low), it is recommended under SKWRMIP to provide an adequate amount of water to the Bustan-canal for supplying water to the forest, without any competition from irrigators.

10

Physical Cultural Property (OP4.11)

5. The groundwater table in areas adjacent to SKMD and close to adjacent monuments has improved, but in some irrigated areas, despite introducing the SKMD and AMD, water tables continue to be relatively high because farmers continue to over-irrigate. This issue, under the SKWRMIP, warrants: (i) creating more WUAs and empowering them through training and phase-out technical backstopping by MoAWR staff, (ii) irrigation advisory services, and (iii) remodeling many inter-farm canals.

6. The SKMD bank spoils had negatively blocked the visibility of the Kyzyl-Kala monument, but now these spoils have been removed. In SKWRMIP there needs to be a minimum distance of 150 meters between the introduced I&D works and key monuments.

Dam Safety (OP4.37)

1. For Tuyamuyun reservoir and dam system, the EMP had recommended undertaking: (i) an Emergency Preparedness Plan (EPP); (ii) upgrade of hydro-mechanical equipment and dam-operation instrumentations; (iii) implementation of civil works for safety of Sultansanldjar Dam; and (iv) update of the reservoir-scheme O&M manual. Of these, DIWIP was expected to implement, if needed, only the most priority activities at around US$1m; whereas an estimated $11 million of the other proposed activities would be funded by GOU parallel financing and by the “Water Supply Sanitation and Health Project (Ln 4216-UZ)”. Thus far DIWIP has conducted a flood management study in relation to the EPP. The mission has not been able to ascertain the nature and scope of works that have been undertaken by the Government. The mission would like to receive clarification on follow-up activities that have been taken in response to relevant clauses of the Environmental Assessment (EA) and the Environmental Management Plan (EMP). To that effect, the Bank will send an official request to MoAWR.

2. Implementation of some of these proposed activities has been constrained by the fact that Turkmenistan shares the reservoir/dam with Uzbekistan. During the preparation of SKWRMIP, clear actions that recognize the transboundary nature of the dam will need to be identified to ensure compliance with OP4.37.

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Annex G

Overall Summary of Contracts(1)

Contract

Nr Contract name

Original contract period

(days)

Time extension granted

(days)

% agreed contract period

elapsed

Contract value

(million UZS) Value of works

complete to date

% contract

value complete to date(3)

Amount of cost

escalation paid to

date

Cost escalation as % of value of

complete works

(cumulative)

Financial progress as

per Contractor’s

programAt signature CurrentEstimated

total cost (2)

SKMD/1* South Karakalpakstan Main Drain

1,095 95 100% 35,954.199 34,748.976 34,748.976 28,418.230 79% 6,330.746 23% 100%

MS/1** Inter-farm Irrigation and Drainage Improvements

1,095 263 113% 6,134.812 (1) 6,647.822 6,986.522 3,841.226 63% 2,797.767 73% 83%

CAR/1*** Command Area Rehabilitation

For Additional Agreement No.1

For Additional Agreement No.2

730

304

365

397

116%

54%

6,735.670 (1)

6,532.414

9,376.033

6,532.414

9,674.184

6,532.414

6,258.851

709.86293%

11%

3,273.654

626.279

52%

88%

100%

88%

DIWIP/DI/2 Drainage and Irrigation Rehabilitation

517 25 5% 13,703,655 13,703,654 408.380 3% - - 92%

* The Contract is completed with the issue of final completion certificate. **DIWIP/MS/1 Additional Agreement No.1 with revised Contract Price. Extended Contract period for completion of construction work has finished. ***The statement at completion for Additional Agreement No.1 to original Contract has been issued. The works under Additional Agreement No.1 is now under defect liability period starting from 1 December 2010 to 1 December 2011. Additional Agreement No.2 signed on 24 August is scheduled to complete by July 2011.(1)Original Contract Price at signature, which has been revised to cover the price adjustment as per the clause 47 of Contract with granted time extension.(2) Approximate estimate, reviewed each quarter, it includes the general items for provision of Engineer’s Requıirements and Demobilization in the Defects Liability Period.(3) This percentage gives the relative proportion of certified amount to original Contract Price.

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Annex H

Summary of Contract PeriodsDate / Duration

Contract No.SKMD/1 MS/1 CAR./1 D1/2

Start Date 26-Sep-05 23-Sep-06 13-Jun-07 06-Jan-11Duration (months) 36 36 24 17 Original Completion Date 26-Sep-08 23-Sep-09 13-Jun-09 06-Jun-11Extensions (days) 95 263 365(1) 0 397(2) Extended Completion Date 31-Dec-08 12-Jun-10 14-Jul-11 06-Jun-12Completion Certificate Issued 26-Dec-10 Dec-10(3)

(1) Additional Agreement No.1(2) Additional Agreement No. 2(3) Additional Agreement No. 1

Summary of Contract CostsContract Prices and Values

Contracts (UZS million)

SKMD/1 MS/1 CAR./1 D1/2 Total

Initial contract price (1) 35,954 6,135 6,736 13,704 62,528

Variation Orders issued (2) 159 5,758 221 0 6,138

Other agreed changes in contract value (3) 6,331 2,798 9,806 0 18,935

Current contract price (4) 34,749 6,648 15,908 13,704 71,009

Estimated total cost of the contract (5) 34,749 7,090 16,207 13,704 71,749

Value of work paid to date (6) 34,749 6,639 10,869 408 52,665

% of value of work paid to date 100 94 67 3 73

Value of work done to date at tender price (7) 28,418 3,841 6,969 408 39,637

Value certified to date (8) 34,749 6,618 11,418 2,382 55,167

% of value of work certified to date 100 93 70(9) 17 77(1) Including 10% Provisional Sum for Varied Work and Price Adjustment (2) Approved by PIU (3) Price Adjustment as per Clause 47 of Condition of Contract. (4) Equal to Initial Contract Price unless and until the sum of Variation Orders and other agreed changes exceeds the Provisional Sum for Varied Work and Price Adjustment(5) Whilst the effect of any possible claims or additional works on the total Contract price can not be precisely defined, this amount indicates the approximate value at the end of the Contract as currently predicted. (6) Excludes Advance Payment(7) Excludes Advance Payment, Materials on Site and before deduction for retention and repayment of advance. Also excludes Price Adjustment. (8) Includes Advance Payment, Materials on Site and Price Adjustment(9) For total contract i.e. Additional Agreements Nos. 1 and 2

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Annex I

Summary of Works by Quantity

Contract Main Works Units Original BOQ(1) Revised BOQ(2) Completed BOQ(3)

% Completed % Revised vs Original

SKMD/1 Earthworks

Baday Tugay m3 1,670,000 1,720,742 1,720,742 100 103

Ayazkala m3 190,000 70,406 70,406 100 37

SKMC m3 19,500,000 15,905,058 15,905,058 100 82

AMD m3 5,000,000 6,303,688 6,303,688 100 126

Subtotal 26,360,000 23,999,894 23,999,894 100 91SKMD/1 Concrete works

Baday Tugay m3 1,758 1,990 1,990 100 113

SKMC m3 8,695 5,319 5,319 100 61

AMD m3 3,727 2,506 2,506 100 67

Subtotal 14,180 9,815 9,815 100 69MS/1 Earthworks

Beruni Rayon m3 444,324 239,629 228,343 95 51

Ellikkala Rayon m3 1,429,429 1,307,830 1,235,030 94 86

Turtkul Rayon m3 492,603 1,002,703 918,054 92 186

Subtotal 2,366,356 2,550,162 2,381,427 93 101MS/1 Concrete works

Beruni Rayon m32,814 1,632 1,632 100 58

Ellikkala Rayon m3909 1,550 1,451 94 160

Turtkul Rayon m31,461 1,735 1,698 98 116

Subtotal 5,184 4,917 4,782 97 92MS/1 Land levelling Beruni Rayon ha 2,000 750 565 75 28 Turtkul rayon ha 2,000 750 892 119 45

Subtotal 4,000 1,500 1,458 97 36

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Contract Main Works Units Original BOQ(1) Revised BOQ(2) Completed BOQ(3)

% Completed % Revised vs Original

MS/1 Deep ripping Beruni Rayon ha 2,000 2,263 1,791 79 90 Turtkul rayon ha 2,000 2,263 2,708 120 135 Subtotal 4,000 4,525 4,499 99 112CAR/1 Earthworks   Beruni rayon m3 818,419 517,717 517,717 100 63

Turtkul rayon m3 1,130,412 1,688,933 1,688,933 100 149

Subtotal 1,948,831 2,206,650 2,206,650 100 113CAR/1/1 Concrete works   Beruni rayon m3 5,374 6,649 6,649 100 124

Turtkul rayon m3 3,679 4,676 4,676 100 127

Subtotal 9,053 11,325 11,325 100 125CAR/1/1 Kokdarya   Concrete works m3 520 520 520 100 100

CAR/1/2 Earthworks Beruni rayon m3

1,779,059 1,779,059 397,522 22 22

CAR/1/2 Concrete works Beruni rayon m3

3,365 256 8

D1/2 Earthworks m3 2,534,649 2,534,649 0 0 0

Concrete m3 3,945 3,945 0 0 0

AMDworks

Earthworks m3 400,000 400,000 83,450 21 21(1) As per Contract(2) As per Working Drawing and Final Measurement(3) As per Completion to Date

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Annex J

SKWRMIP: Indicative Safeguards Policies Applicability (subject to the ongoing ESIA).

WB Safeguard Policy Policy Applicability Reasoning/Comments

Environmental Assessment (OP/BP 4.01) Yes

Likely a Category A Project (or a heavy B) Overall positive impacts perceived Minor negative direct impacts perceived Minor external impacts perceived.

Natural Habitats (OP/BP 4.04) Yes Natural Habitats exist in project areaForestry (OP/BP 4.36) NoPest Management (OP/BP 4.09) TBD Incremental vertical and horizontal expansion

expected %53. TBD after EIA. Depending on baseline

concentration of diffuse pollution (Alpha-BHC, Gamma-BHC, BETA-BHC, Delta-BHC, Heptachlor Aldrine, Heptachlorepoxide, etc), the incremental pesticide load may not lead to exceeding the concentration norms.

Baseline case: Biological pesticides replaced chemical ones, albeit with some frequent use of chemical ones if pest is uncommon. Government provides farmers with soft loans on farm inputs including pesticides. MoAWR staff apply the pesticides or train farmers on how to apply them, hence farmers do not have liberty to overuse them.

The IPM should ensure: low toxicity, short persistence in ambient environmental elements, low application dose with high efficacy, rapid bio degradable, no effect on non targets.

Physical Cultural Property (OP/BO 4.11) TBD

TBD after EIA. Chance finds, based on DIWIP

experience/modality. Obstruction of cultural properties as a result

of rehabilitation worksIndigenous Peoples (4.10) NoInvoluntary Resettlement (OP/BP 4.12) TBD

Safety of Dams (OP/BP 4.37) TBD

Tuyamuyun reservoir (likely plus a new regulator/dam on the river in project area, to be considered by the FS).

TBD after EIA (and building on DIWIP outcomes).

Projects in International Water Ways (OP 7.50) Yes

Subject to ESIA, notification requirement will be determined and an exemption sought if the ESIA determines that the project has no or a positive impact on downstream water availability

Projects in Disputed Areas (OP/BP 7.60) No

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17

Annex J

Water Balance before and after proposed Investments

Water-Balance component MCM/year

Before project (cropped area 99,000 hectare)

After project (cropped area 115,000 hectare by 2025) (Moderate)

Comments/assumptions

Reliable annual inflow available at Tuyamuyun

Turkmenistan Abstraction

SK crop evapo-transpiration

SK irrigation demand (supply)

SK river diversions including extras for pumping stations.

Drainage water for natural habitats and for South Aral Sea.

Fresh water for ecological functions in lower Amu Darya, and for M&I uses.

Total (fresh plus saline) environmental flows.

25,000 MCM/year

7,000 MCM/year

475 MCM/year

1,125 MCM/year

4,200 MCM/year

650 MCM/year

16,875 MCM/year

17,525 MCM/yr

25,000 MCM/year

Assume 7,000 MCM/yr

538 MCM/year

1,280 MCM/year

1,280 MCM/year

680 MCM/year

16,783 MCM/year

17,462 MCM/year

At 80% probability of exceedance. Assume neutral effect from climate change.

There was a rising trend over latest decade. Assume further rises offset by water-saving I&D modernization in Turkmenistan by 2025.

Cotton reduced by 20% Wheat increased by 200%, Efficiency increase 42% to 44%

Major water savings due to switching to Bustan gravity irrigation.

Difference between irrigation demand and ETc.

Closing the balance.

Exceeds 30% of basin inflows. Increased by project.

Key observations: Estimates of SK crop evapotranspiration and irrigation demand are based on preliminary estimates being

prepared for the DIWIP feasibility study being prepared by the Consultant. Due to the limited topography, the live storage in Tuyamuyun reservoir is only around 5.5 BCM (including

Turkmenistan). This is adequate for intra-seasonal storage but not for inter-annual storage. Over the last 25 years, the annual inflow available at Tuyamuyun ranged from 27 to 60 BCM/year, with the

mean annual being around 40 BCM/year, and a minimum 27 BCM/year recorded in 2001. Turkmenistan and Uzbekistan irrigation withdrawals were around 7 and 4 BCM/year respectively. The low-year inflows (such as 27 to 30 BCM/year) largely ascribed to the winter releases from the winter hydropower peaks in Tajikistan, hence cannot be fully reliable in meeting the summer peak irrigation demand in SKWRMIP areas (as the summer inflows in those low years were uncommonly much lower than the summer irrigation demands); hence backup releases from the Tuyamuyun storage would be needed during these low years. The reliable annual inflow (at 80% probability of exceedance) should therefore be deemed not higher than around 25 BCM/year.

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The SKWRMIP irrigation demand is similar to current demand, as though cropped area increases demand remains similar due to changes in cropping pattern and modest increase in irrigation efficiency. Therefore, the environmental flows remaining for the downstream ecological functions and for Turkmenistan withdrawals will not be undermined (if a minimum base flow of around 200 m3/sec is maintained in lower Amu Darya).

SKWRMIP would help Uzbekistan to comply with the agreement signed with Turkmenistan in 1996 regarding on the joint and rational use of Amu Darya water. The agreement (Article 9) requires that both countries stop discharging drainage water into Amu Darya. DWIP helped to achieve this goal by re-directing the saline-drainage outflow to Aral Sea (with a better water quality), and SKWRMIP will build on this achievement. More importantly, as mentioned above, the irrigation developments under SKWRMIP would not undermine the current withdrawals from Turkmenistan, because SKWRMIP will not cause a net increase in basin water use.

To restore the Lower Aral Sea (from current 35m to its initial 53m BSL), the terminal flow at lower Amu Darya river should be a sustainable minimum 25 BCM/year, which is becoming very difficult due to the upstream irrigation expansions in the last 3 decades. The acceptable terminal flow in lower Amu Darya that can meet the water needs of the wetlands (adjacent to Aral Sea) can be around 10 BCM/year or 200 m3/sec.

Generally the non-irrigation environmental (saline plus fresh-water) flows are deemed adequate at around 30% of basin’s inflows.

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Annex K

Financial Management

Tashkent PIU

The financial management (FM) arrangements at PIU, including accounting, budgeting and planning, reporting, internal controls, external audits, funds flow, organization and staffing are considered to be satisfactory and acceptable to the Bank. The FM staff is experienced in the Bank’s procedures. The level of counterpart funding was assessed to be satisfactory, however, counterpart funds are disbursed with delays.

The internal control system at the PIU is acceptable to the Bank and was assessed as capable of providing timely information and reporting under the DIWIP Project. The latest update of the Financial Management Manual (FMM) was made in September 2009. However, the revised FMM needs further enhancement in regard to internal control and accounting sections. i.e. authorization of expenditures and approval of the payments, bank reconciliation, verification of expenditures eligibility by the Chief Accountant and/or Disbursement/Financial Specialist; description of financial documents flow/circulation, formal reconciliation procedures of project records with Client Connection and XDR/USD reconciliation, safeguards for assets, maximum allowed daily cash operations, etc.

The accounting at PIU is maintained in accordance with accrual basis of Uzbek National Accounting Standards. For reporting purposes, cash basis IPSAS is used. PIU utilizes 1C accounting software which has multi-user and dual currency (UZS and USD) functionalities and is capable of generating FMRs and SOEs. However, the 1-C version utilized by the PIU is outdated and PIU is still in the process of its modification.

FMRs for all four quarters for FY 2010 of the project have been received on time and found to be acceptable.

The auditor, Tsiar Finance of Uzbekistan, issued an unqualified opinion on DIWIP’s financial statements for FY2009. Audit report and accompanying financial statements for the FY2009 were received on June 30, 2010 and have been accepted by the World Bank on the exceptional basis as the Financial Statements missed a Balance Sheet, despite that it was required under agreed TOR. Moreover, from the audit opinion it was not clear what accounting standards have been applied while preparation of the financial statements. The auditor has raised five issues in the Management Letter, relating to (i) financing of banking charges; (ii) proportion of financing of invoices that include VAT; and (iii) improper calculation of vacation payments to the PIU staff; (iv) inaccurate calculation of income tax from salaries of local individual consultants caused by glitches of accounting software; (v) accuracy of price adjustments calculations under construction contracts. The first two issues are recurring from previous periods and the PIU Management have been making certain steps to address them. The PIU management reported that problems with accounting software has been eliminated and provided very satisfactory and

20

detailed explanation on price adjustment methodology. The mission ensured that the software problems have been eliminated.

The auditor’s selection process for the FY year 2010 is underway. The auditors have been already shortlisted and the contract is to be signed by the end of April. The audit report is expected to be received on time, i.e. June 30, 2011.

Nukus PIU

The financial management (FM) arrangements at Nukus PIU, including accounting, budgeting and planning, reporting, internal controls, external audits, funds flow, organization and staffing are considered to be not fully satisfactory to the Bank.

The internal control system at Nukus PIU needs major improvements in order to become satisfactory to the Bank. There is no FMM in place and it is not clear under what internal control policies and procedures the project operates. There are generally weak controls over fulfillment of financial conditions of contracts, improper control over budget implementation, improper back-up arrangements, etc.

FMRs for FY 2010 for Pilot Silk Development Project have been received on time and found to be acceptable.

The accounting of the project is maintained in 1C Enterprise that is not adapted for special requirements of the WB financed projects, in particular does not have functions allowing automatic generation of FMRs, SOEs, GoU required reports, etc.

The audit report for Karakalpakstan Silk Development Pilot Project (JSDF Grant 057070) covering the period January 1 – December 31, 2009 was received with delays on July 7, 2010. The auditor, TSIAR FINANCE LLC, Uzbekistan, has issued an unqualified on the project financial statements.

The audit report, management letter and the accompanying project financial statements were found satisfactory to the Bank.

The auditor has issued a management letter that highlighted a number of internal control weaknesses, together with recommendations on how to address those weaknesses. It was noted that some of them are recurrent from the previous periods. The issue regarding late posting of accounting entries into the cash book have been mentioned by the auditor in its Management Letter for FY 2008. While the positive fact was that the Management in general agreed with the auditor’s recommendation, it noted that there was no progress made since last year in this regard.

The mission noted that the action plan agreed during the last visit was not implemented and need to be addressed urgently.

21

Compliance with financial covenantsThe PIU is in compliance with the financial covenants under the DIWIP project. Particularly, the FMRs under the project are submitted on time and found to be acceptable. The audit report for the FY 2009 with unqualified (clean) opinion was received on time and found to be acceptable.

Actions Agreed as a result of the current missionAs a result of the current supervision separate action plans have been elaborated for the Project:

New actions agreed Deadline Responsibilities1. Revise the Financial Management

Manual to incorporate sections relating to:

c) Financial reporting and auditing arrangements; and

d) Update sections relating to accounting and internal control policies and procedures (including setting limits for volume of monthly cash operations)

By June 30, 2011

Chief Accountant and Financial/Disbursement Specialist

2. Finalize modification of the current accounting software

By June 30, 2011

PIU Management and Chief Accountant & Financial/Disbursement Specialist

3. Ensure that the audit report for the FY 2010 is submitted on time, i.e. by June 30, 2011

Immediately and continuously

PIU Management, relevant staff members and Chief Accountant & Financial/Disbursement Specialist

4. To implement last mission recommendations in regard to the KSDP

By June 30, 2011

PIU Director and Accountant

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