Completion Report

Project Number: 30500-013 Loan Number: 2069-UZB June 2015

Uzbekistan: Amu Zang Irrigation Rehabilitation Project This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – SUM

At Appraisal At Project Completion (15 November 2003) (31 December 2013)

SUM1.00 = $0.00103 $0.000454 $1.00 = SUM976 SUM2,202.15

ABBREVIATIONS

ADB – Asian Development Bank ASBIO – Amu–Surkhan Basin Irrigation Organization ASC – agriculture service center EIRR – economic internal rate of return GAP – Gender Action Plan ICB – international competitive bidding M&E – monitoring and evaluation MAWR – Ministry of Agriculture and Water Resources O&M PFI

– –

operation and maintenance participating financial institution

PMO – project management office PSC – Project Steering Committee SCADA – supervisory control and data acquisition TA – technical assistance WSRSU – Water Sector Reforms Support Unit WUA – water users association WCA – water consumers association

WEIGHTS AND MEASURES

m – meter m3 – cubic meter mcm – million cubic meter t – ton s – second ha – hectare

NOTE

In this report, "$" refers to US dollars

Vice-President W. Zhang, Operations 1 Director General S. O’Sullivan, Central and West Asia Department (CWRD) Director A. Siddiq, Environment, Natural Resources and Agriculture Division,

CWRD Team leader T. Nasirov, Portfolio Management Officer, Uzbekistan Resident Mission,

CWRD Team members F. Djumabaeva, Associate Project Analyst, URM, CWRD

R. Hu, Portfolio Management Specialist, URM, CWRD M. Khudayberdiyeva, Senior Social Development Officer (Gender), URM, CWRD

D. Utami, Principal Safeguards Specialist, South Asia Department

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

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 7 D. Disbursements 8 E. Project Schedule 8 F. Implementation Arrangements 9 G. Conditions and Covenants 9 H. Related Technical Assistance 9 I. Consultant Recruitment and Procurement 10 J. Performance of Consultants, Contractors, and Suppliers 10 K. Performance of the Borrower and the Executing Agency 11 L. Performance of the Asian Development Bank 11

III. EVALUATION OF PERFORMANCE 11 A. Relevance 11 B. Effectiveness in Achieving Outcome 12 C. Efficiency in Achieving Outcome and Outputs 12 D. Preliminary Assessment of Sustainability 12 E. Impact 13

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 14 C. Recommendations 14

APPENDIXES

1. Design and Monitoring Framework 16 2. Estimated Project Costs and Actual Expenditures 21 3. History of Contract Awards and Disbursements 22 4. Project Implementation Schedule 23 5. Status of Compliance with Loan Covenants 24 6. Information on Contracts 33 7. Economic and Financial Viability of Farms Reevaluation 34 8. Gender Action Plan 40 9. Contribution to the ADB Results Framework 45

BASIC DATA

A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Republic of Uzbekistan 2069-UZB Amu Zang Irrigation Rehabilitation Project Republic of Uzbekistan Ministry of Agriculture and Water Resources $73,200,000 UZB-1512

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

22 October 2003 2 November 2003 18 November 2003 19 November 2003 19 December 2003 2 November 2004 2 January 2004 16 November 2004 2 30 September 2009 3 July 2014 2 LIBOR + 0.6% 25 years 5 years LIBOR + 0.75% 10 years 3 years Participating Financial Institutions

9. Disbursements a. Dates Initial Disbursement

27 January 2005 Final Disbursement

3 July 2014 Time Interval 113 months

Effective Date 16 November 2004

Original Closing Date 30 September 2009

Time Interval 70 months

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b. Amount ($ ‘000) Category or Subloan

Original Allocation

Last Revised Allocation

Amount

Disbursed

Undisbursed

Balance Civil works 7,337.00 9,818.98 9,839.84 Equipment 48,018.00 46,879.87 46,859.01 Credit line 3,200.00 2,519.51 2,519.51 Training, surveys and monitoring 516.00 2.80 2.80 Consulting services 4,180.00 6,611.79 6,611.80 Project management 897.00 1,552.14 1,552.12 Front end fee 366.00 366.00 366.00 Interest and commitment charge 5,919.00 5,448.92 5,448.92 Unallocated 2,767.00 0 0

Total 73,200.00 73,200.00 73,200.00

10. Local Costs (Financed)

- Amount ($ million) 2.5 - Percent of Local Costs 7.8 - Percent of Total Cost 2.2

C. Project Data

1. Project Cost ($ ‘000) Cost Appraisal Estimate Actual

Foreign Exchange Cost 64,100 80,926 Local Currency Cost 48,500 32,035 Total 112,600 112,961

2. Financing Plan ($ ‘000)

Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 37,000 35,978 ADB Financed 66,915 67,751 Other External Financing 2,400 3,783

Subtotal 106,315 107,146

IDC Costs Borrower Financed 0 0 ADB Financed 6,285 5,449

Other External Financing 0 0

Total 112,600 112,961

ADB = Asian Development Bank, IDC = interest during construction.

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3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

A. Base costs

1. Rehabilitation of Amu Zang Irrigation System 78.7 87.4 2. Support to Improve Irrigation Management 1.9 0.6 3. Support to Private Farm Development 9.0 9.4 4. Project Management, Monitoring and

Evaluation 5.5 9.7

Subtotal (A) 95.1 107.1 B. Contingencies

1. Physical 4.2 0 2. Price 6.9 0

Subtotal (B) 11.1 0 C. Interest and other charges 6.4 5.8

Total 112.6 113.0

4. Project Schedule

Item Appraisal Estimate Actual

(i) Date of contract with the consultant Date of completion

Oct 2005 July 2010

Oct 2005 Dec 2013

(ii) Rehabilitation of Amu Zang Irrigation System Construction of sediment control facility Rehabilitation of pump stations Improved maintenance facilities Rehabilitation of irrigation and drainage system

Dec 2005-Aug 2008 Dec 2005-Dec 2009 Jan 2006-Apr 2009 May 2006-Sept 2009

Feb 2006–May 2009 Mar 2006-Dec 2013 Mar 2006–Dec 2008 May 2006–May 2011

(iii) Irrigation Management Strengthening ASBIO capacities O&M improvement WUA establishment SCADA system and computerized water management model (iv) Private farm development Rehabilitation of I&D infrastructure Farm demonstration and training programs Establishment of agricultural service centers

Jan 2006–Aug 2009 Feb 2006–Jul 2009 Jan 2006–May 2010 Nov 2006–May 2009 Nov 2006–Nov 2008 Jun 2006–May 2010 Jun 2006–May 2010

Mar 2006–Dec 2008 Mar 2006–Dec 2008 Mar 2006–Dec 2008 Mar 2006–May 2009 Nov 2006–Apr 2011 Mar 2006–Dec 2008 Mar 2006–Dec 2008

ASBIO = Amu–Surkhan Basin Irrigation Organization, I&D = irrigation and drainage, O&M = operation and maintenance, SCADA = supervisory control and data acquisition, WUA = water users association.

5. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives

Implementation Progress

From January 2004 to December 2004 Satisfactory Unsatisfactory From January 2005 to December 2010 Satisfactory Satisfactory From January 2011 to December 2013a On track a In 2011, e-Ops replaced the project performance rating. The indicators used in performance rating are (i) Technical, (ii) Procurement, (iii) Disbursement, (iv) Financial Management, and (v) Safeguards.

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D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Members

Inception mission March 2005 4 10 a, b, c, g Review mission 1 Nov-Dec 2006 3 7 a, d, e Mid-term review November 2007 2 7 a, e Review mission 2 November 2008 2 7 j, k Review mission 3 December 2009 3 7 d, j, k Review mission 4 June 2010 4 1 l, j, k, f Special project administration March 2011 1 4 l, Review mission 5 March 2011 2 1 l, f Review mission 6 October 2011 2 5 h, f Review mission 7 November 2011 3 1 h, f, i Review mission 8 March 2012 3 2 h, f, i Review mission 9 July 2013 4 2 h, m, f, i Project completion review June 2014 5 2 h, m, i, n Note: a = portfolio management officer, b = water resources specialist, c = project economist, d = senior portfolio management specialist, e = assistant project analyst, f = consultant, g = project officer, h = project management officer, i = associate project analyst, j = senior project implementation officer, k = assistant project and country programming analyst, l = principal portfolio management specialist, m = portfolio management specialist, n = senior social development officer (gender).

I. PROJECT DESCRIPTION

1. Irrigated agriculture is a key economic activity in Uzbekistan; it accounts for 90% of agricultural production, employs about 27% of the country’s total labor force, and is the main source of livelihood in rural communities.1 More than 48% of the population live in rural areas and depend largely on irrigated agriculture for their livelihoods.

2. Uzbekistan has about 4.3 million hectares (ha) under irrigation. Irrigation relies primarily on surface water, which is distributed by gravity and pumps. The network includes (i) 30,000 kilometers (km) of main and inter-farm canals, with over 33,000 hydraulic structures; (ii) 1,500 pumping facilities, with almost 5,000 pumps that supply water to 2 million ha; (iii) 175,000 km of on-farm canals and conveyance structures; (iv) 40,000 km of on-farm horizontal drains and 4,300 vertical drains; (v) 120,000 km of drainage ditches; and (vi) 15,000 km of large drainage collectors. Most of the country’s extensive irrigation and drainage infrastructure, which was developed in the 1960s and 1970s, has reached the end of its useful life and is in need of rehabilitation. The Government of Uzbekistan recognizes these problems and has made rehabilitation of key water infrastructure facilities a top national priority.

3. The Amu Zang Irrigation System is located in Surkhandarya province and comprises the cascade of pumping stations and irrigation canals that deliver water from the Amu Darya River to 96,800 ha. It serves about 700,000 people in five districts.2 The project sought to maintain and improve agricultural productivity and farm income on a sustained basis. The project outcomes were to (i) increase the reliability, efficiency, and sustainability of the irrigation water supply of the Amu Zang irrigation system; and (ii) facilitate and accelerate agriculture sector reforms in the project area. The project outputs were: (i) rehabilitated and improved Amu Zang irrigation system; (ii) improved management practices for the Amu Zang irrigation system; (iii) improved incentives in the project area as a result of a reduced government quota on cotton and wheat; (iv) improved access to key agricultural inputs and modern water saving and soil improvement technologies by private farms in the project area; (v) a sustainable national cost recovery and operation and maintenance (O&M) policy developed and implemented, and national capacities strengthened; and (vi) water delivery fees introduced in the project districts and replicated in the province. The loan for the project was approved on 19 December 2003 with Asian Development Bank (ADB) financing of $73.2 million from ordinary capital resources. The executing agency was the Ministry of Agriculture and Water Resources (MAWR).

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The project was in line with the strategic thrust of the government and ADB’s key policy and strategy, both at the time of preparation and at completion. The project design was consistent with the government’s strategy to rehabilitate and improve basic irrigation infrastructure, and institute policy reforms in agriculture.3 The strategy supported the need for public investment to rehabilitate and modernize selected main and inter-farm irrigation systems,

1 Republic of Uzbekistan. 2013. Overview of the Economic and Social Policy During the Implementation Period of

the Welfare Improvement Strategy for 2007-2010. Tashkent. 2 ADB. 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance Grant to the Republic of Uzbekistan for Amu Zang Irrigation Rehabilitation Project. Manila. 3 Ministry of Agriculture and Water Resources and World Bank. 2001. Irrigation and Drainage Sector Strategy Study.

Tashkent; Republic of Uzbekistan. 2003. On the Most Important Directions for Deepening Reforms in Agriculture. Decree of President No. PD-3226, 24 March 2003. Tashkent.

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while the policy reforms promoted the reorganization and improvement of the country’s irrigation management system.

5. The government developed strategies for 2008–2010 and 2013–2015 to improve welfare with the goal of reducing poverty from 22% in 2008 to 13.7% in 2015.4 In the agriculture sector the strategies support (i) crop diversification; (ii) agriculture modernization; (iii) adoption of water saving technologies; (iv) effective land and water management; (v) development of sustainable water supplies for irrigation; (vi) implementation of water users fees to encourage efficient use of water and cash for O&M; (vii) improved performance of water users’ associations (WUAs);5 and (viii) improved financial sustainability of farms.

6. ADB’s water policy promotes, among other things, basin management principles, developing and strengthening the capacity of national water management institutions and WUAs, as well as developing sustainable O&M policies by introducing water delivery fees and greater participation of beneficiaries in maintaining and managing infrastructure.6

7. The project was consistent with ADB’s March 2000 country operational strategy,7 and the country strategy and program update for 2004–2006. 8 Both documents recognized agriculture as the key sector for ADB assistance to (i) support the government’s reform initiatives and demonstrate the efficiency of reforms; and (ii) prevent deterioration in rural living standards through sustainable rehabilitation of agriculture, water infrastructure, and land improvement.

8. During preparation of the Water Resources Management Sector Project in 2008, a Medium-Term Sector Strategy and Investment Plan was prepared for irrigation, drainage, and water resources in collaboration with the government. The strategy was derived primarily from the substantial policy work and focused on maximizing returns and increasing the productivity of water use.9 The project remained consistent with the ADB country partnership strategy 2012–2016, with water being one of the five areas of investment.10

9. The formulation process included project preparatory technical assistance (TA), which guided the project design towards achieving the impact and outcome.

B. Project Outputs

10. The performance targets for the project’s impact, outcome, and outputs and the summary of achievements are in Appendix 1. Achievements related to key project outputs are given below.

1. Rehabilitated and Improved Amu Zang Irrigation System

11. This output was intended to rehabilitate irrigation infrastructure by (i) constructing a new sediment control facility; (ii) rehabilitating the three main pumping stations: (a) Amu Zang I,

4 The Republic of Uzbekistan. 2013. Uzbekistan’s Welfare Improvement Strategies for 2013-2015. Tashkent. 5 Initially, WUAs were registered as commercial entities and required to pay taxes. In 2009 the government allowed

WUAs to reregister as non-commercial entities under the new title of water consumer associations. 6 ADB. 2003. Water for All: The Water Policy of the Asian Development Bank. Manila. (Adopted in 2001). 7 ADB. 2000 Country Operational Strategy, March 2000: Uzbekistan. Manila. 8 ADB.2003. Country Strategy and Program Update for 20014-2006: Uzbekistan. Manila. 9 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the

Republic of Uzbekistan for Water Resources Management Sector Project. Manila. 10 ADB. 2013. Country Partnership Strategy 2012–2016: Uzbekistan. Manila.

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constructed in 1985, with 100 cubic meter (m3)/second (s) discharge against a 33 meter (m) lift; (b) Amu Zang II, constructed in 1986, with 100 m3/s discharge against a 44 m lift; and (c) Babatag, constructed in 1984, with 30 m3/sec discharge against a 70 m lift;11 (iii) improving the maintenance facilities; and (iv) rehabilitating selected sections of the main irrigation and drainage network. This output was substantially achieved.

a. Construction of the Sediment Control Facility

12. The activities—involving 3 million cubic meters (mcm) of earth works to create sediment stilling basin, and supply and installation of two dredgers—were started in December 2006 and successfully completed in May 2009.

b. Rehabilitation of the Three Main Pumping Stations

13. Amu Zang Pump Station I. The scope of works included replacement of two large vertical volute-type pumps, discharge pipes, building repairs, and other miscellaneous items. The contract was awarded with an 18-month delay due to rebidding. 12 Prequalification of contractors was completed in June 2006. The first stage bidding started in November 2006, but failed at the second stage because of a lack of competition caused by the withdrawal of one of the two bidders. Re-bidding with post-qualification started in June 2008 and was completed in March 2009. The lowest evaluated responsive bid of $41.4 million was 80% higher than the engineer’s estimate of $23 million. The MAWR considered that rebidding was unlikely to result in greater competition or lower bid prices. Instead of calling for new bids, after consultation with ADB, the MAWR negotiated the scope of works to reduce the bid price. The reduced scope of works did not negatively impact performance of the pump station. The contract was signed on 20 July 2009 for $23 million. The delayed award of this contract due to rebidding and restricted access to pump facilities during irrigation season caused extension of the loan closing date for 4.25 years. All works were completed satisfactorily in December 2013. Pump replacement was done during the non-irrigation season. The guarantee tests confirmed that the pumps and motors satisfied the contract specifications. The efficiency of two pumps (92%) exceeded the specified minimum (86%) by 6%, resulting in significant power savings.

14. Amu Zang Pump Station II. The scope of works included replacement of 12 auxiliary pump units; mechanical, electrical, and control equipment; building repairs; discharge pipes; and other miscellaneous items. The lowest evaluated responsive bid of $18.7 million was 30% higher than the engineer’s estimate of $14.4 million. Instead of calling for new bids, after consultation with ADB, the MAWR renegotiated the scope of works to reduce the bid price. The reduced scope of works did not negatively impact the performance of the pump station. The contract was signed on 28 April 2008 for $14.7 million.13 The original completion date was extended for 9 months, from 3 December 2011 until 3 September 2012, because of a minor change in works and a force majeure with respect to delivery of equipment.14 While major pump replacement works were done during the non-irrigation season (December 2012–February 2013) other works, testing, and operational acceptance were completed during the irrigation season.

11 The total installed power consumption capacity of these pumping stations is 210 megawatts. 12 ADB’s two-stage procedure was applied, as detailed in ADB. 2006. User’s Guide to Procurement of Plant—Design,

Supply and Install. Manila. 13 The contractor did not reduce its bid price below $14.7 million. Therefore, the executing authority decided to accept

the proposed reduced price rather than rebid the project. 14 In accordance with clause 37.1 (d) of the General Conditions of Contract, the force majeure was port congestion

(the railway station Alashankou at the border between the People’s Republic of China and Kazakhstan was overloaded).

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The guarantee tests confirmed that the pumps and motors satisfied the contract specifications, and the pump facilities were operationally accepted on 20 June 2013.

15. Babatag Pump Station. The scope of works included replacement of eight horizontal pump units; the technical water, oil supply, and drainage system; intake works, heating and ventilation, discharge pipes, and other miscellaneous items. The contract was signed on 20 December 2007 for $23.8 million, with a completion date of 3 September 2011. The first set of four pump units was installed in May 2010 and has been operational since then. The second set of four pump units was installed in April 2011 and has been operational since then. There were disputes relating to the (i) completion date of the facility, resulting from pending issuance of completion and operational acceptance certificates; and (ii) damaged casings, impellers and motors of four pump units. The parties reached agreement on settlement of the dispute, which was formalized though a memorandum of understanding dated 19 October 2013. It was agreed that: (i) the completion date of the facilities is 3 September 2011; and (ii) contractor will supply additional sets of impellers, motor and rings at no cost. The pumps and motors failed to meet the contract specifications at guarantee tests conducted in December 2013. The actual efficiency of pumps ranged from 78.28% to 86.40%, below the 89% efficiency specified in the contract. The motors could not provide 15% additional power capacity. The engineer issued the operational acceptance certificate on 21 December 2013. However, this was conditional acceptance subject to resolving the issues related to functional guarantee test results, uncertified works, and price escalation, which were discussed and settled through a memorandum of understanding dated 26 March 2014. As a compensation for low efficiency of pumps and motors, the contractor supplied free of charge four new impellers, additional sets of rings, one motor, and paid $449,685 as liquidated damages. There are no outstanding issues with this contract.

c. Improvement of the Maintenance Facilities

16. At project appraisal, it was planned to rehabilitate four small workshops, but the project instead rehabilitated the building and supplied the equipment for a large central workshop that serves all 550 public pumps in 113 pumping stations in the province, and about 600 pumps owned by the farmers and WUAs. The rehabilitation of the workshop and supply of the equipment was completed successfully in late 2008. The equipment supplied consists of a horizontal boring machine, universal boring machine, vertical milling machine, vertical slotting machine, horizontal hydraulic press, cutting machines, different types of lathes, and small tools.

d. Rehabilitation of Irrigation and Drainage Network

17. Inter-farm irrigation facilities. Two contracts for $10.4 million equivalent were awarded in 2007 to the national contractor. Despite extension of the contract completion date from 15 November 2009 until 1 May 2011, the contractor failed to accomplish rehabilitation works due to poor performance and organization of works. The contracts were terminated after expiration of the completion date, with less than 30% of the contracts achieved; the unused funds were applied to pump station rehabilitation. The contractor rehabilitated 43.9 km of main canals and 76 hydraulic structures. A high-level government delegation assessed the magnitude of the completed works in 2013 and prepared the scope of work, cost estimates, and method and schedule to complete the remaining inter-farm rehabilitation works, which were to be fully financed from the government budget. The Inter-Ministerial Council, in a meeting chaired by the First Deputy Prime Minister on 30 May 2014, decided that the remaining works would be financed by the government budget and implemented by the United Directorate for Construction Facilities-13 under MAWR, located in Termez City, Surkhandarya Province. The invitation for bids was advertised on 12 March 2015, the works will start in Q2 2015.

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18. Inter-farm drainage facilities. At project appraisal, it was planned to improve 45 km of main drains. In 2008, the Ministry of Finance established the Land Reclamation Fund for the purpose of rehabilitating main drainage facilities, which included the 45 km of main drains in the project. The project target was achieved, and an additional 1,306 km of main drains were rehabilitated in the project area through the Land Reclamation Fund in 2008–2013.

19. On-farm irrigation and drainage system. The on-farm irrigation and drainage system was rehabilitated in seven pilot water consumer associations (WCAs) covering 10,451 ha, and involved clearing of drains, reshaping of canal sections, and concrete lining and repair and construction of new outlets and control structures along the canals. The works were designed by the international consultant and implemented by the national contractors, with active participation by farmers during 2007–2011.

2. Improved Irrigation Management, Policy and Institutional Reforms

20. This output was to improve the management systems of Amu Zang Irrigation System and Amu–Surkhan Basin Irrigation Organization (ASBIO) by (i) strengthening the capacity of water management agencies; (ii) introducing improved O&M procedures; (iii) undertaking project performance monitoring and evaluation (M&E); (iv) supporting the establishment of WUAs; (v) establishing demonstration plots; (vi) installing a supervisory control and data acquisition (SCADA) system; and (vii) developing a computer model for Surkhandarya basin. To advance ongoing reforms in the agriculture and water sectors, the project was to promote several policy and institutional measures to: (i) relax the government’s mandatory procurement quotas for cotton and wheat in the project area; (ii) support the development of a national policy on cost recovery and improved operational procedures for WUA development; (iii) develop, test, and introduce water delivery fees in the project area; and (iv) support the establishment of a water sector reform support unit (WSRSU) in the MAWR. This output was substantially achieved, as outlined below.

21. In total, 113 training sessions were conducted for 72 local administration staff, 175 WUA staff and 875 farmers (14%–30% participants were women) for effective O&M management and WUA development. An M&E system was developed to monitor project performance, procurement, finance, disbursement, and social and environmental aspects.

22. Seven pilot WUAs were established and re-registered in 2009 as tax-exempt non-commercial WCAs.15 The offices of all seven pilot WCAs were rehabilitated and they were provided with: (i) office equipment and furniture, including computers, printers, bicycles for mirabs (irrigators), and mobile phones for communication; (ii) O&M equipment; and (iii) agricultural inputs (seeds, fertilizers, and diesel). Capacity building and advisory support was provided to 53 WCAs operated in the project area. At completion, the project area had 53 re-registered WCAs covering a service area of 102,962.6 hectares, with 296 employees and 1,636 members. Demonstration plots were established in each pilot WCA to test new on-farm technologies such as deep ripping, siphon irrigation, and crop rotation. The management and O&M of rehabilitated on-farm irrigation and drainage systems in pilot areas were transferred to WCAs.

23. The SCADA system was installed at all three pump stations, but the MAWR decided not to pursue the development and installation of a consolidated SCADA system for the entire irrigation infrastructure, because of (i) low staff capacity; (ii) unsustainable operation of a similar

15 These are: Surkhan-Namuna in Termez district, Aziz Ugli Mamatkul in Angor district, Jaykhun and Taskent in

Muzrabat district, Oltin Kurgan and Jarkurgan in Jarkurgan district, and Yusuf Turdi in Kumkurgan district.

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system installed on another project; and (iii) additional resources required for pump station rehabilitation. This has not affected the expected project benefits.

24. River Basin Simulation Model computer modeling software was introduced for the Amu–Surkhan basin. The software was calibrated and verified using historic data on water inflows, reservoir characteristic and operation, pump stations, collectors, and drains. The United Nations Food and Agriculture Organization CROPWAT model was used to calculate water demand. After final testing, development of the reports and manual, and staff training, the model was turned over to MAWR in late 2013.

25. Although the government issued the required resolutions, procurement quotas were not reduced. The government was to ensure, starting with the 2004 cropping season, effective implementation of the agriculture sector reform measures stipulated in Presidential Decree No. PD-3226 of 24 March 2003. Two resolutions of the Cabinet of Ministers and one order of the First Deputy Prime Minister were issued to reduce state procurement quotas for cotton and wheat.16 The need to meet local targets prevented lowering of the cotton and wheat quotas in the project area. There is no private market for above-quota cotton since the government maintains monopoly control on cotton marketing. The farmers receive high returns for marketing above-quota wheat due to presence of an open local market for wheat. To support farmers, the government increased the procurement prices for cotton by 92.3%, from $222.0 per ton (t) in 2005 to $430.1/t in 2013; and for wheat by 126.7%, from $79.4/t in 2005 to $169.4/t in 2013.

26. The project prepared a guide for improved operational procedures for WUA development under related TA. Implementing the national cost recovery policy was partially achieved due to limited access of TA consultants to MAWR policy makers, and low staff interest in policy issues.

27. Collection of water delivery fees remains difficult due to the complicated financial system, in which payments are handled by the banks in a prioritized manner, and partly due to the poor financial status of some farmers. ASBIO also provides practical assistance to WCAs in water fee collection and other aspects of O&M. The water delivery fee for farmers is $5–$7/ha per year. WCAs endorse the water delivery fee and O&M expenses annually at their general meetings.

28. Instead of establishing the WSRSU, the government established the Water Resources Development and Implementation of Market Principles of Water Use Department within the MAWR to improve the water policy and institutional reforms. In 2004, the government established a National Commission on Enhancement of Economic Reforms in the Agriculture Sector, chaired by the Prime Minister. 17 In 2007, the government also established the Information-Analytical Department on Agriculture and Water Sector, Processing of Agriculture Production and Consumer Products under the Cabinet of Minister to coordinate and monitor the policy and institutional reforms.18

16 Resolutions of the Cabinet of Ministers No. 494 of 22 October 2004 and No. 153 of 30 March 2004, and Order of

the First Deputy Prime Minister No. 03-1-00 of 29 November 2004. 17 Resolution of the Cabinet of Ministers No. 87 of 25 February 2004. 18 Resolution of the Cabinet of Ministers No. 56 of 22 March 2007.

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3. Improved Access by Private Farms to Key Agricultural Inputs, and Modern Water Saving and Soil Improvement Technologies

29. This output aimed to support private farms in the project districts by (i) implementing a farm demonstration and training program to introduce new technologies;19 (ii) rehabilitating irrigation and drainage infrastructure of pilot WUAs to improve on-farm water use efficiency and ensure fair distribution of water; and (iii) establishing agricultural service centers (ASCs) to provide access to essential input supplies and output marketing services. This output was substantially achieved.

30. Farm demonstration activities and training programs were introduced on rehabilitated land (10,451 ha) served by seven pilot WCAs, and included crop diversification, crop rotation, tillage practices, fertilizer application, and water management. Average wheat yield recorded in three demonstration farms was 4.35 t/ha, compared with 2.8 t/ha in other areas. The average yield in cotton farms was 3.77 t/ha, compared with 2.7 t/ha in other areas.

31. A total of 60 ASCs were financed in all project districts. Pakhta Bank was selected as a participating financial institution. Applications from 46 farmers and 14 machinery tractor parks for $2,519,511 were approved for the procurement of 8 combine harvesters, 79 tractors, 2 mini-excavators, and 95 set of other machinery and equipment. This subcomponent was completed in early 2009.

C. Project Costs

32. The project was implemented within the provisions set by ADB and the government, while the beneficiary contribution was exceeded by $1.3 million. The project cost was $112.9 million, compared with $112.6 million estimated at appraisal. ADB financing equaled $73.2 million, including interest during construction ($5.8 million). ADB financed 65% of project cost as was estimated at appraisal.

33. The project costs of $87.4 million for the rehabilitation of Amu Zang Irrigation system component exceeded the appraisal estimate of $78.7 million by about 11%. The project costs of $0.6 million for the support to improve irrigation management component were considerably less than the appraisal estimate of $1.9 million. The project costs of $9.4 million for the support to private farms development component slightly exceeded the appraisal estimate of $9 million. The project costs of $9.7 million for project management, monitoring and evaluation exceeded the appraisal estimate of $5.5 million by about 76%. The difference between actual and estimated costs of project components was caused by: (i) the time elapsed (12 months) from project appraisal, which was completed in November 2003, and loan effectiveness in November 2004; (ii) extension of the loan closing date for 4.25 years; (iii) price escalation for labor force and construction materials; and (iv) underestimated contingencies (unallocated).

34. Actual project costs increased (i) by 75% for civil works, with actual costs of $34.6 million, compared with $19.8 million at appraisal; this included on-farm operation and maintenance of $2.1 million, compared with $0.2 million; (ii) by 88% for consulting services, with actual cost of $7.9 million, compared with $4.2 million at appraisal; and (iii) by 89%, for project management support, with actual cost of $1.7 million compared with $0.9 million at appraisal (Appendix 2). The main cost decreases by category were (i) 12% for equipment, with costs of $57.7 million compared with $65.4 million at appraisal; (ii) 22% for the credit line to participating financial

19 These include various tillage operations, crop diversification, crop rotation, fertilizer application, and water

management.

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institution (PFI), with costs of $2.5 million compared with $3.2 million at appraisal; and (iii) 60% for training, survey, and monitoring, with costs of $0.6 million compared with $1.5 million at appraisal.

35. The difference between actual and appraisal costs for civil works and equipment was caused by the price escalation of construction materials and equipment since 2003. The actual contribution by beneficiaries to on-farm O&M was substantially higher than estimated because of the small-scale O&M activities, which were not envisaged at appraisal. The increase in consulting services and project management costs was caused by extension of the project implementation period for 4.25 years. The substantial decline in costs for the credit line, training, surveys, and monitoring reflects the reduced attention by project management to implementation activities related to improved water management capacity, and private farm development outputs. The difference between actual and appraisal costs has had a slight impact on the project’s economic internal rate of return. The foreign currency costs financed by the project increased from 57% at appraisal to 72% at completion because of the increased cost of consulting services and imported equipment, which were financed entirely from foreign currency costs.

D. Disbursements

36. The project disbursed the full loan amount of $73.2 million (including $5.8 million for the front-end fee and interest during construction). The foreign currency amount disbursed was $70.7 million, and the local currency amount disbursed was $2.5 million. Disbursement started in January 2005, a delay of 12 months from loan approval. The history of contract awards and disbursements is in Appendix 3.

37. An imprest account for project activities was established at Asaka Bank, with an initial advance of $100,000 in January 2005. In November 2007, the ceiling was increased to $500,000 to finance on-farm civil works contracts executed by local contractors. The ceiling was gradually decreased during 2010–2013 and the imprest account was closed on 3 July 2014, following a total disbursement of $2.6 million. An imprest account for a credit line to PFI was established at Pakhta Bank in September 2006, with an initial advance of $900,000. It was closed in June 2010 with a total disbursement of $2.5 million. The imprest account was efficiently used for timely financing and reimbursement of PFI expenditures for credit lines provided to ASCs.

38. There were four reallocations of loan proceeds between categories. On 3 February 2010, the allocation for consulting services was increased by $0.5 million from the unallocated category due to price escalation. On 8 June 2011, the allocation for consulting services was further increased by $1.6 million from the unallocated category due to the extension of the loan closing date. On 1 February 2013, proceeds were reallocated in civil works, equipment, consulting services, and project management support categories to adjust them in line with contracted amounts. On 29 April 2014, proceeds were reallocated from interest during construction to civil works to enable final payment to a contractor.

E. Project Schedule

39. The project was approved on 19 December 2003, the loan agreement was signed on 2 November 2004, and the loan became effective on 16 November 2004. The original implementation period was 5 years, with a loan closing date of 30 September 2009.

9

40. The original loan closing date was extended twice, first for 3 years, until 30 September 2012, and later for an additional 1.25 years, until 31 December 2013. The main reasons for the extensions were: (i) the delay in loan effectiveness; (ii) an 18-month delay in the award of the largest turn-key contract (para. 13); (iii) delayed construction caused by restricted access to pump facilities during the irrigation season (about 8–9 months per year); and (iv) poor performance of some contractors. Loan effectiveness was delayed by the time taken to prepare the government’s feasibility study, which formed the basis for issuance of the legal opinion. Also, the original project implementation schedule was ambitious and did not match local climatic conditions, institutional capacity, and the time taken for normal procedures and approvals. The original and the actual schedules of various activities are in Appendix 4. At loan closing, about 93.8% of the project scope was completed.

F. Implementation Arrangements

41. The project executing agency was MAWR. The deputy minister of MAWR in charge of water resources management was appointed as the project director to oversee project implementation. A project Steering Committee (PSC) chaired by the Deputy Prime Minister was established in October 2004. In August 2009, the government abolished the policy of separate PSCs for each project and constituted a high-level Inter-Ministerial Council to guide and facilitate coordination at all levels for all projects financed by international financing institutions. The Inter-Ministerial Council met once every quarter or more often, if required, to provide policy guidance and facilitate inter-ministerial coordination.

42. The project was implemented as designed at appraisal, and the implementation arrangements are considered adequate in terms of the delivery of project outputs and the achievement of the project purpose, except for policy and institutional reforms. Quarterly and annual progress reports on project implementation were submitted on time to ADB and relevant government agencies.

G. Conditions and Covenants

43. The loan covenants were relevant and mostly complied with (Appendix 5). Covenants regarding agriculture and water sector reforms, and gender were partially complied with. Although the borrower issued a resolution reducing the annual procurement quota for cotton and wheat, the local government maintains local production targets at the provincial level and this prevented a lowering of procurement quotas in the project area. A covenant related to development of a national cost-recovery system and delivery fees based on the cost-recovery approach was not complied with because of a lack of support from government policy makers.

H. Related Technical Assistance

44. The TA grant of $500,000 was approved on 19 December 2003, the TA agreement was signed on 6 April 2004, and consultants were fielded on 1 August 2005.20 The TA was closed on 31 July 2007. The expected impact was support for implementation of policy and institutional reforms in the water sector at national, basin, and provincial levels. The TA provided support to MAWR through: (i) assessment of the legal framework of WUA development, (ii) support to ASBIO and Surkhandarya Provincial Agriculture and Water Department in developing basin water management plans, (iii) cost-recovery policy development, and (iv) staff training of the newly-established WUAs in the project area on different aspects of operations. In total, 19 training workshop were conducted: one at the ASBIO level, 5 for the pilot WUAs in the project

20 ADB. 2003. Support to Policy and Institutional Reforms in the Water Sector (TA 4302-UZB). Manila.

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area, 12 for additional WUAs in eight provinces, and a national workshop at the MAWR level. Over 170 WUA staff and 340 farmers attended the workshops and completed farm survey questionnaires. However, because of the limited access by consultants to the policy makers and MAWR’s inability to establish a WUA support unit in a timely manner, the outcome related to reform support was partially accomplished. The TA partly achieved its expected outcome because policy and institutional reform support at the national level was limited, and most activities were focused on supporting reform at the basin and WUA levels.21 The TA was rated partly successful.

I. Consultant Recruitment and Procurement

45. The consulting firm was recruited in accordance with ADB’s Guidelines on the Use of Consultants (2002, as amended from time to time). At appraisal, 923 person-months of consulting services (156 months of international and 767 months of national services) were envisaged to assist the MAWR in (i) institutional capacity building, (ii) design and specifications for civil works, (iii) procurement support, (iv) construction supervision, and (v) project M&E. The 4-year contract with an international firm was signed on 16 June 2005. The contract became effective on 3 October 2005 and the original completion date was 30 September 2009. With the extensions in the loan closing date, the consulting services contract was extended until 31 December 2013, and additional staff inputs approved. The final contract was for 1,153.5 person-months (290.95 months of international and 862.55 months of national services).

46. Civil works, goods, and related services were procured in accordance with ADB’s Procurement Guidelines (1999, as amended from time to time). The contracts awarded under the project include three large turnkey works (plant design, supply, and install) contracts, three international competitive bidding (ICB) small works contracts, seven national competitive bidding civil works contracts, two ICB goods contracts, and four goods shopping contracts. The large turnkey contract for rehabilitation of Amu Zang I pump station was rebidded because of a lack of competition, resulting in extension of the loan closing date (para. 13). A list of the contracts with relevant information is in Appendix 6.

J. Performance of Consultants, Contractors, and Suppliers

47. The performance of the key consultants, contractors, and suppliers was generally satisfactory. Two civil works contracts for inter-farm rehabilitation were terminated with funds utilization of 35% and 28.42% of the contract costs, while one supply package for SCADA installation was prepared but not implemented. The rest of the contracts were completed satisfactorily. The project implementation consultant provided satisfactory support to MAWR, particularly in procurement and construction supervision of large and small ICB turnkey and civil works contracts. The consultants assisted MAWR in preparation of the project completion report.

48. Although contracts for rehabilitation of Amu Zang I and II pumping stations were completed successfully and met all performance guarantees (albeit with delays), the performance of the Babatag pumping station contractor was not satisfactory, because the pumps and motors failed to meet the performance guarantees (para. 15). The performance of two civil works contractors engaged to improve two inter-farm facilities and one on-farm facility was also not satisfactory as they failed to complete the works despite extensions of completion dates. The performance of various supply contractors engaged to supply workshop and office

21 ADB. 2008. Technical Assistance Completion Report: Support to Policy and Institutional Reforms in the Water

Sector in the Republic of Uzbekistan. Manila.

11

equipment and materials was satisfactory. Therefore, the overall performance of the contractors is rated partly satisfactory.

K. Performance of the Borrower and the Executing Agency

49. The borrower’s and MAWR’s performance was satisfactory. The MAWR had effective coordination with the related government agencies; local administration; and beneficiaries; and prevented any major setback in agricultural production by preventing interruption of irrigation supplies during the rehabilitation of the pumping stations. The MAWR arranged custom clearances and access to the construction site at Amu Zang I pump station, which lies under the control of the border police. In January 2014, the MAWR submitted a comprehensive project completion report. Thus, the assessment of the MAWR's capabilities at appraisal was reasonably accurate.

50. The MAWR faced a number of challenges ranging from the need to rebid, implementation delays, and disputes with contractors. These issues required a lot of efforts and were appropriately resolved in close coordination with ADB. The borrower provided adequate counterpart funding throughout the project period.

L. Performance of the Asian Development Bank

51. During project implementation, ADB undertook one inception mission, one midterm review mission, nine loan review missions, one special loan administration mission, and one project completion review mission during 2005–2014. Four project officers were responsible for project administration, the first for 15 months, the second for 13 months, the third for 59 months, and the fourth for 38 months. Four project analysts were assigned to the project. Overall, there was sufficient continuity in staffing and effectiveness in resolving issues and guiding the project management office on key matters. ADB reviewed bidding documents and approved the large number of consulting, goods and civil works contracts within an acceptable period of time. ADB proactively facilitated the resolution of contractual dispute with contractors to reach amicable agreements. During the review missions and various other meetings, ADB continued to remind the government of the need to implement the policy and institutional reforms. The overall performance of ADB was satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

52. The project is rated relevant as it was consistent with government’s development priorities, ADB’s water policy, and ADB’s country and sector strategies for Uzbekistan both at the time of project formulation and completion. The project facilitated the rehabilitation of large irrigation infrastructure, which was seriously deteriorated, owing to the lack of adequate maintenance following independence from the former Soviet Union. The assessment of the problems and opportunities at appraisal was adequate.

53. The project has high relevance for five districts of Surkhandarya province in Uzbekistan. In many instances local economies depend entirely on irrigated agriculture. Without reliable supplies of irrigation water, these areas would face substantial economic hardship and possibly interregional migration. The engineering estimates were accurate at appraisal but had not been updated for inflation during project implementation.

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B. Effectiveness in Achieving Outcome

54. The project is rated less than effective. The project outcome of reliable, efficient, and sustainable water supply for irrigated agriculture was substantially achieved through construction of a new sediment control facility and rehabilitation of three large pumping stations, which incurred more than 75% of the project costs. However, the ambitious policy and institutional reforms regarding reduction of procurement quotas for cotton and wheat, recovery of the O&M costs of Amu Zang irrigation system, and a national cost-recovery policy were not fully implemented.22

55. Eight out of thirteen outcome indicators were successfully achieved. Four outcome indicators—related to reduced water abstraction form Amu Darya River, O&M cost recovery, and development of a national cost-recovery system—were not achieved.

C. Efficiency in Achieving Outcome and Outputs

56. The achievement of outcome and outputs is considered efficient. The economic internal rate of return (EIRR) of 15.3% (Appendix 7) is lower than the appraisal estimate of 19.5% due to 4.25 year project implementation delay, but remains higher than ADB’s minimum acceptable EIRR of 12%. The financial viability analysis shows that both private and dehkan (peasant) farms will generate positive financial returns at rates generally higher than those estimated at appraisal. Annual production targets that were to be achieved within 5 years of completion were achieved by completion for cotton (production of 137,000 t in 2011 against a target of 136,000 t) and wheat (production of 203,131 t against a target of 165,000 t). Similarly, at project completion farmers’ net income had increased by 58%, against a target of a 20% increase within 5 years of project completion. Government support from the National Drainage Fund,23 and complementary non-project support in the water supply sector,24 and road sector,25 greatly improved the crop production and marketing environment, and living conditions, which have had a positive social impact in the project area.

D. Preliminary Assessment of Sustainability

57. The project is rated likely sustainable. Since the project is expensive to operate and maintain, the government will be required to finance pumping costs, which is a major component of its annual O&M costs. The government allocated $29.6 million equivalent in 2013 and $32.2 million equivalent in 2014 required for O&M costs of rehabilitated 3 pump stations and will continue to finance such expenditures based on O&M requirements since the rehabilitated irrigation system is important for social and economic stability, because it (i) provides the sole source of livelihood to rural people, (ii) is a major source of foreign exchange through the export of cotton, and (iii) provide food security. The construction of a new sediment control facility and installation of new and more efficient pumping units would result in significant reduction in O&M costs per m3 of water delivered, and more efficient management, which will enhance sustainability. The non-project complementary support (para. 56) in drainage, water supply, and road sectors will also promote project sustainability. The implementation of policy reforms and water delivery fees, and the low-priority tasks that were not achieved or fully implemented could have further enhanced project sustainability. The government has 22 ADB. 2006. Country Strategy and Program: Uzbekistan (2006-2010). Manila (para 64 (ii)). 23 For SUM33,945 million to improve drainage in 54,042 ha of the project area. 24 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the

Republic of Uzbekistan for Surkhandarya Water Supply and Sanitation Project. Manila. 25 $167.2 million project financed by the Islamic Development Bank and $51.0 million project financed by the Saudi

Fund for Development and Kuwait Fund to improve roads passing through the project area.

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committed to allocating about $70 million for rehabilitation of inter-farm and on-farm irrigation and drainage infrastructure in Surkhandarya province during 2014–2017.

E. Impact

58. The project impact is rated significant since it has over achieved the impact targets for wheat yields and production, and farmers’ incomes while remaining targets for cotton yields and production, and cropping intensity are likely to be achieved within five years of project completion. The project will facilitate provision of reliable irrigation supplies in sufficient quantities at appropriate times. This—together with project-financed improved on-farm and inter-farm infrastructure, and demonstration of advanced farming techniques (cropping patterns, crop rotation, and agricultural inputs)—is likely to further increase crop yields and agricultural production over time. The current government policy of encouraging agriculture modernization, the use of high-efficiency irrigation techniques, and further farm development,26 will facilitate bringing more area under irrigation and achievement of higher cropping intensity with the same amount of water delivered, which will further enhance water productivity and thus agricultural production. The result will be to further raise farmers’ incomes and reduce poverty, resulting in positive social impacts in the project area.

59. Poverty impact. The project was expected to reduce poverty from 31.4% to 25% by improving the reliability of irrigation water supplies to the project area. The lack of disaggregated data by farm type and household prevents reevaluation of the impact in quantitative terms for the project area. Although the impact performance target was not measured by the M&E system, there is a strong likelihood that the benefits from improved irrigation would result in significant impacts on poverty. The government also undertook strong initiatives to reduce poverty through its welfare improvement strategies, which reduced rural poverty to 18.5% in 2011. A further reduction to 13.7% is targeted in 2015.27

60. Social impact. The project has improved the living standard of the project beneficiaries through increased incomes from production of agricultural crops. The average farmer’s net farm income at project completion has increased by 58% against the appraisal estimate of 20%, to be achieved within 5 years of project completion. Additional water allows farmers to grow more fruits and vegetables in their backyards and earn additional income from livestock and silk production. The project has also increased off-farm employment in agricultural processing and farm-input supply and marketing. The assured water supply also provides job security to people in the project area.

61. Gender and development. The gender analysis determined specific concerns and needs to ensure women’s access to the project-related services and participation in capacity-building and training activities. To maximize positive impacts on women a gender action plan was formulated and implemented. Women benefited from the project’s impact on farm productivity and engaged in productive household-based activities (silkworm breeding and greenhouses), which contributed to their economic empowerment. The number of women involved in agriculture increased from 496 (2006) to 43,212 (2014), and in silkworm breeding from 4,703 (2006) to 7,833 (2013), resulting in an increase of 20%–30% in household average income. Actual achievements and gender action plan targets are in Appendix 8. 26 Presidential Resolution No. 1958 of 19 April 2013: On Measures for Further Improvement of Irrigated Land

Reclamation and Rational Use of Water Resources for 2013-2017; Presidential Order No 4478 of 22 October 2012; Cabinet of Ministers Resolution No. 176 dated 21 June 2013; and Government Law No. ZRU-355 of 7 October 2013.

27 The consumption expenditure approach of 2,100 calories per person per day was adopted in defining the poverty line at project preparation, and for the government’s welfare improvement strategies.

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62. Environmental impact, involuntary resettlement and land acquisition. The project was classified category B for the environment. It had no adverse environmental impacts. During the site visit, it was confirmed that no land was acquired for the project. No ethnic minority or indigenous people lived in the project area or were affected by the project.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

63. The project is rated relevant, less than effective, efficient, and likely sustainable (paras. 52–57). Therefore, in accordance with the project performance rating criteria,28 the project is assessed successful, and its impact is rated significant (paras. 58–62). Overall, the project was implemented as designed and within ADB and government provisions, but completed with a 4.25-year delay. The main irrigation infrastructure consisting of a sediment control facility and three large pump stations was completed successfully. However, due to financial constraints, some project elements—e.g., some works on pump stations, main canals, and demonstration farms; and capacity development—that could be undertaken later using government resources were not fully completed under the project. The project has provided a reliable livelihood to project beneficiaries and prevented the problems that would have ensued had the pumping stations not been rehabilitated.

B. Lessons

64. The following key lessons were identified: (i) Preparation and approval of a national feasibility study after loan approval

substantially delays loan effectiveness. (ii) The price of large contracts, particularly those involving heavy equipment

expressed in different foreign currencies, may cause escalation of US dollar (loan currency) equivalent price and result in significant cost overruns.29

(iii) Policy reforms are difficult to implement when (a) packaged with an investment project; (b) overambitious in terms of scope and time frame; and (c) developed without due consideration of general government policies, people’s capacity, and the historic context.

(iv) The provision of consultant input and skill mix, and TA duration should match the scope of work.

(v) Duplication of the loan and the related TA activities creates difficulties during implementation and should be avoided.

C. Recommendations

65. The following recommendations apply to follow-up actions for the project, and the design and implementation of future projects.

1. Project Related

(i) ADB should continue to monitor progress with respect to (i) proper O&M of the dredgers installed in the new sediment control facility; (ii) gradual implementation of policy reforms towards partial cost recovery of O&M costs, and further

28 ADB. 2013. Guidelines for Preparing Performance Evaluation Report for Public Sector Operations. Manila. 29 Price escalation resulted from appreciation of the original contract currencies, expressed in Japanese yen and

Chinese yuan against the US dollar.

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institutional and capacity development of WCAs; and (iii) completion of the remaining inter-farm rehabilitation works committed to by the government.

(ii) Policy reform covenants should not be used as project output performance indicators.

(iii) The major project components are fully operational, while the minor remaining works, which were either deleted from the scope or left incomplete, are likely to be undertaken by the government in 2015. Therefore, the project performance evaluation report could be undertaken in 2015.

2. General

(i) Engineering cost estimates for construction contracts should be updated during project implementation to reflect actual market prices.

(ii) A robust financial sustainability assessment should be carried out to identify risks, issues, and mitigation actions.

(iii) The implementation schedule for irrigation rehabilitation projects should be prepared with due consideration for the seasonality of agricultural activities.

(iv) Sector policy reforms should be developed with the awareness that their implementation is a long-term process requiring government ownership; careful assessment of legal, institutional, technical, financial, economic, and social aspects; and close monitoring during implementation.

(v) Implementation of cost-recovery mechanisms should be ensured, as their failure will negatively affect project sustainability, because continued proper O&M is largely reliant on government financing.

(vi) A quality M&E system must be in place to enable comprehensive project management and evaluation.

(vii) The executing authority staff shall have strong contract management and dispute resolution skills to ensure smooth performance of civil works.

(viii) ADB and the executing authority should ensure that, along with implementation of high-investment infrastructure components, other components—involving improved management capacity, institutional and policy reforms, development of on-farm irrigation and drainage facilities, provision of credit facilities, establishment of demonstration farms and other similar activities—receive adequate attention.

16 A

ppendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Indicators/Targets Achievements at project completion Goal (Impact) Maintain and improve agricultural productivity and farm income on a sustained basis

Crop yields increase: cotton from 2.8 to 3.4 tons (t) per hectare (ha), and wheat from 3.1 to 3.9 t/ha within 5 years after project completion. Cropping intensity increases from 110% to 123% within 5 years after project completion. Production increases from 114,000 t to 136,000 t for cotton and from 128,000 t to 165,000 t for wheat within 5 years after project completion. Farmers’ incomes increase by 20% within 5 years after project completion.

Likely to be achieved. In 2013, the cotton yield was very low at 2.7 t/ha while wheat yield substantially increased to 5 t/ha. It is expected that the rehabilitated irrigation and drainage system will contribute to reaching the target for cotton yield by 2018. Likely to be achieved. 105% at completion but likely achievable as crop production gains momentum over time after full operation of rehabilitated systems. Likely to be achieved. The Project exceeded the cotton production target of 136,000 t by producing 137,000 t in 2011. However, cotton production reduced to 127,308 in 2013. Thus, the Project achieved the target during the implementation period. Reduced production in 2013 can be considered as a part of annual production fluctuation. In 2013, annual wheat production increased to 203,131 t. A further increase is expected by 2018. Achieved. The average farmer’s net income per ha increased by 58% during 2003–2013. A further increase is expected by 2018.

Objective (Outcome) (i) Increase the

reliability, efficiency, and sustainability of water supply of Amu Zang irrigation system

Reliability: The amount of actual water delivered meets the demand (crop water requirements) on a crop-season basis in year 5. Efficiency: (i) Water abstraction from Amu Darya River is reduced

by 5% or 60 million cubic meters (mcm) per annum starting in year 5.

Achieved. The actual amount of water delivered in 2013 was 1,516 million mcm while demand was 1,504 mcm. Not achieved. Water abstraction increased from 1,283 mcm in 2003 to 1,332 mcm in 2013. In 2003 (before the project), pumps were worn, with frequent breakdowns, resulting in reduced pumping. As a result irrigated areas received an inadequate supply of water. With new pumps the pumping capacity has increased and more areas are receiving an adequate supply of water, resulting in increased water abstraction despite improved irrigation

Appendix

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17

Design Summary Performance Indicators/Targets Achievements at project completion (ii) Facilitate and

accelerate the ongoing agriculture sector reforms in the

(ii) Water use efficiencies in pilot areas increased by

20%–30% in year 5.

(iii) Operation and maintenance (O&M) costs of Amu Zang irrigation system are reduced by $172,000 per annum starting year 3 and $345,000 per annum by year 5.

(iv) Energy costs associated with pump irrigation are

reduced by $495,000 per annum by end of year 5. Sustainability: (i) O&M costs of Amu Zang irrigation system are

recovered at 10% in year 3, 15% in year 4, and 20% in year 5.

(ii) Beneficiaries participate in on-farm and inter-farm O&M starting year 3.

(iii) On-farm and inter-farm infrastructure are fully maintained by water users associations (WUAs) in project districts by year 5.

Average farm income in project districts is increased by at least 25% starting end of year 1. Sustainable O&M procedures are developed for Amu Zang irrigation system in year 2.

efficiency. Achieved. Water use efficiency in the pilot areas increased from 51% to 76%. Achieved. The O&M costs were reduced by $320,000—from $450,704 in 2006 to $130,010 in 2013. Further reduction is expected by 2018. Achieved. Compared to the old pumps, the new more efficient pumps will reduce energy consumption in 2014 by 192.675 million kilowatt-hours, and energy costs by $11.6 million to pump 3,577 mcm of water. Reduction in power costs will vary from 17% for Amu Zang I to 29% in Amu Zang II Pump Stations. Not achieved. The cost recovery system was prepared by TA consultant but not implemented by the government. Achieved. Farmers and other beneficiaries actively participate in on-farm and inter-farm O&M. Achieved. On-farm and small inter-farm infrastructure fully maintained by WUAs, while medium and large scale inter-farm infrastructure is maintained by Amu–Surkhan Basin Irrigation Organization ASBIO. Achieved. The average farm net income per ha increased by 58% during the 2003–2013. Achieved. Sustainable O&M inter-farm and on-farm procedures were developed by the project consultant and handed over to Ministry of Agriculture and Water Resources (MAWR).

18 Append

ix 1

Design Summary Performance Indicators/Targets Achievements at project completion project area and beyond

Gradual cost-recovery system is developed in project districts through introduction of water delivery fees and support of WUAs by the end of year 4. Farmers in project province have access to new technologies on crop diversification, water saving, and soil improvements by year 5. National cost-recovery policy is developed in year 1 and implemented thereafter.

Not achieved. The project-related technical assistance (TA) failed to prepare the cost-recovery system. Collection of fees remains difficult because of a complicated financial system in which payments are handled by the banks in a prioritized manner, and partly because of the poor financial status of some farmers. The ASBIO also provides overall practical assistance to WUAs in water fee collection and other aspects of O&M. Achieved. New technologies for crop diversification, water savings, and soil improvements have been introduced and are available to farmers. Partly achieved. Implementing the national cost recovery policy was partially achieved due to limited access of TA consultants to MAWR policy makers, and low staff interest in policy issues.

Outputs (i) Rehabilitated and

improved Amu Zang irrigation system

New sediment handling facility is constructed in year 3. Three main pumping stations are rehabilitated by year 5. 170 kilometers (km) of main canals and 28 key hydraulic structures are modernized by year 5. 45 km of main drains are improved by year 5. Four workshops are equipped and refurbished by year 3. On-farm rehabilitation in pilot areas is completed by year 5.

Achieved. New sediment handling facility is operational. Achieved. All three pumping stations are rehabilitated and operational. Partly achieved. 43.9 km of the main canal and 76 key hydraulic structures were improved. The remaining 126.1 km of the main canal will be rehabilitated by the government. Achieved. 1,351 km of main drains are improved. Achieved. Instead of four workshops, the project rehabilitated the building and supplied the equipment for one large central workshop that serves all 550 public pumps in 113 pumping stations in the province, and about 600 pumps owned by the farmers and WUAs. Achieved. On-farm irrigation and drainage systems were rehabilitated in seven pilot water consumers associations (WCAs) covering 10,451 ha.

Appendix

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19

Design Summary Performance Indicators/Targets Achievements at project completion (ii) Improved

management practices for Amu Zang irrigation system

Supervisory control and data acquisition (SCADA) system and water resources management model become operational by year 4. Around 80 staff of Amu Zang system, province and district agricultural officers are trained in improved O&M procedures. 7 WUAs established by year 3 and 50 WUAs are supported by year 5. Management and O&M of irrigation and drainage systems in pilot areas are transferred to WUAs by year 5. Cabinet of Ministers resolution on reduction of state procurement quota (25% of historic average) on cotton and wheat in five project districts is issued in year 1 and implemented thereafter.

Partly achieved. Each pump station was equipped with the SCADA system while a consolidated SCADA was not installed for the entire irrigation infrastructure. The United Nations Food and Agriculture Organization CROPWAT model was used to calculate water demand. Achieved, 72 staff members were trained through 19 workshops under TA.a Under the loan, 28 training sessions were conducted for 700 participants in improved awareness and communication regarding water management; issues related to WUAs; and project management, monitoring and evaluation. In 2014, the Basin Irrigation System Authority trained 702 farmers and WUA staff on irrigation and drainage system O&M. Achieved. 7 WUAs were established and 53 WUAs were supported. Achieved. Management and O&M of on-farm irrigation and drainage systems in pilot areas were transferred to WUAs by 2012. Partly achieved. Two resolutions of the Cabinet of Ministers, and one order of the First Deputy Prime Minister were issued to reduce state procurement quota for cotton and wheat. However, local targets were required to be met for cotton and wheat. As the government maintains monopoly control on cotton marketing, there are no private markets for above-quota cotton. Hence, the farmers have an easier time meeting the target for wheat than that for cotton, and have high-return options for marketing above-quota wheat.

(iii) Improved incentives in the project area due to reduced Government quota on cotton and wheat

Average farmgate prices in project districts increased by at least 25% starting end of year 1.

Achieved. Increased by (i) 92.3% for cotton, from $222.0 per t in 2005 to $430.1 per t in 2013; and (ii) 126.7% for wheat, from $79.4 per t in 2005 to $169.4 per t in 2013.

20 Append

ix 1

Design Summary Performance Indicators/Targets Achievements at project completion (iv) Improved access to

key agricultural inputs and modern water-saving and soil improvement technologies by private farms in the project area  

Two agricultural service centers (ASCs) are established in year 2, two more in year 3, and one in year 5. New crop diversification, water saving, and soil improvement technologies are introduced on 9,453 ha of land by year 5.

Achieved. A total of 60 ASCs were financed—46 owned by farmers and 14 by machinery tractor parks. Achieved. The new technologies on crop diversification, water saving, and soil improvements have been introduced and available for farmers.

(v) Sustainable national cost recovery and O&M policy developed and implemented and national capacities strengthened

The Water Sector Reform Support Unit (WSRSU) is established within MAWR and became operational in year 1.

Achieved. Instead of establishing the WSRSU, the government established the Water Resources Development and Implementation of Market Principles of Water Use Department within the MAWR to improve the water policy and institutional reforms. In 2004 the government established the National Commission on Enhancement of Economic Reforms in Agriculture Sector chaired by the Prime Minister. In 2007 the government also established the Information-Analytical Department on Agriculture and Water Sector, Processing of Agriculture Production and Consumer Products under the Cabinet of Minister to coordinate and monitor the policy and institutional reforms.

(vi) Water delivery fees introduced in the project districts and replicated in province

MAWR key staff are trained in water policy analysis and implementation. National cost recovery policy and implementation plan and WUA guidelines are prepared by year 2. Water delivery fee system is developed, tested, and introduced in 5 project districts by end of year 4 and replicated to the whole province by end of year 6.

Achieved. Partly achieved. The project has prepared the guide on improved operational procedures for WUA development under related TA. However, it failed to prepare the national cost-recovery policy and implementation plan due to limited access by the TA consultants to MAWR policy makers, and low staff interest in policy issues. Not achieved. The project-related TA failed to develop the water delivery fees based on the cost-recovery approach. Collection of fees remains difficult due to the complicated financial system in which payments are handled by the banks in a prioritized manner, and partly due to the poor financial status of some farmers.

a ADB. 2003. Support to Policy and Institutional Reforms in the Water Sector (TA 4302-UZB). Manila.

Appendix 2 21

ESTIMATED PROJECT COSTS AND ACTUAL EXPENDITURES (SUM’000)

Appraisal Estimate Actual (as of 30 September 2014) Category ADB-

Financed Government-Financed

Beneficiaries & Private Sector

Total ADB Gov’t Financed (including Tax Exemption)

Beneficiaries & Private Sector

Total Tax Exemption

Remarks

1. Civil Works On-Farm Operation and Maintenance

7,337.000 11,005.500 1,452.50 19,795.00 9,839.840 23,633.520 1,062.860 34,536.220 5,348.430 VAT 20%

2. Equipment 48,018.000 17,341.397 65,359.397 46,859.010 10,847.020 57,706.030 10,847.020 Duties 22%

3. Credit Line to PFIs

3,200.00 3,200.000 2,519.510 2,519.510

4. Training, Survey, and Monitoring

516.000 162.947 800.00 1,478.947 2.80 8.44 629.88 641.12

5. Consulting Services

4,180.000 4,180.000 6,611.80 1,322.36 7,934.16 1,322.36 Income tax for non-resident

6. Project Management Support

897.000 57.255 954.255 1,552.12 166.47 1,718.59

7. Front-end Fee 366.000 366.000 366.000 366.000

8. Interest and Commitment Charges

5,919.000 5,919.000 5,448.920 5,448.920

9. Unallocated 2,767.000 8,360.500 11,127.500

10. Imprest Account

Total 73,200.000 36,927.600 2,443.500 112,571.100 73,200.00 35,977.81 3,783.33 112,961.14 17,517.81

Source: Asian Development Bank.

22 A

ppendix 3

HISTORY OF CONTRACT AWARDS AND DISBURSEMENT

Source: Asian Development Bank.

Appe

ndix 4 23

PROJECT IMPLEMENTATION SCHEDULE

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4A. Project Setup and Management

B. Technical Rehabilitation

C. Improved Water Resources Management

D. Support to Farm Restructuring

Milestone DatesProject Approval (14.12.2003)Loan Effectivity (14.11.2004)Loan Closing Date (31.03.09, 30.09.12, 31.12.13)Project Completion Report (30.06.14)

Source: ADB Staff Legend: Original Actual

1

2014

Automation, Control, and Communication

Improvement of Operation and Maintenance

Capacity Strengthening

Development of Water Users' Associations

1

2

3

4

Activity

1

a.

7

8

Canal Rehabilitation

Workshops Improvement

Priority Repairs and Spare Parts

On-Infrastructure in Pilot Areas

Survey, Design, and Contracting

3 Design, Bidding, and Award of Contracts

6

Survey and Investigations

Discharge Pipelines

2

5

2012 20132004 2005 2006 2007 20092008 2010 2011

Recruitment of Consultants

Project Management Office2

Agricultural Service Centers

1

Sediment Handling Facility

2

Agricultural Machinerya.

b.

Farm Demonstrations/Trainingc.

Implementationb.

Refurbishment of Main Pumping Stations3

4

Commissioning and Testing

Support Services

24 A

ppendix 5

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Schedule Para No. Description Remarks/Issues Type 6 3 Established, Staffed, and Operating project management unit

(PMU) or project implementation unit ( PIU) Complied with. The project management office (PMO) was established in Tashkent and the PIU in Termez. Both offices have been adequately staffed.

Others

6 5 Agriculture Sector Reforms: The Borrower shall ensure, starting with the 2004 cropping season, effective implementation of the agriculture sector reform measures stipulated in the Presidential Decree of 24 March 2003, in particular, adopting the production projections based on mutually agreed contracts between farmers and procurement agencies, allowing farmers to make independent decisions on cropping patterns based on types of farms and signed contracts, and entitling farmers to dispose of the agricultural produce at their choice.

Partial compliance. Although Resolution No. 494 dated 22 October 2004, Resolution No. 153 dated 30 March 2004 of Cabinet of Ministers, and Order of the First Deputy Prime Minister No. 03-1-00 dated 29 November 2004 were issued to comply with the covenant, the local government maintained local production targets for cotton and wheat, which prevented lowering of cotton and wheat quotas in the project area

Sector

6 6 The Borrower shall annually review the state procurement prices for raw cotton and wheat, and ensure that future adjustments of such prices will fully reflect (a) the annual inflation rates, (b) changes in international border prices of inputs and outputs, and (c) changes in the exchange rate.

Complied with. The state procurement prices increase:

(i) annually by 8.6% for cotton and 10.9 % for wheat

(ii) by 92.3% from $222.0 per ton in 2005 to $430.1 per ton in 2013 for cotton

(iii) by 126.7% from $79.4 per ton in 2005 to $169.4 per ton in 2013 for wheat

Sector

6 7 Water Sector Reforms. The Borrower, with assistance provided under the Technical Assistance (TA), shall: (a) Develop a comprehensive water management cost recovery policy and an implementation plan by 31 December 2004;

Partial compliance. Implementing the comprehensive water management cost recovery policy was partly achieved due to limited access of TA consultants to MAWR policy makers, and low staff interest in policy issues.

Sector

6 7 (b) Develop, test and introduce water delivery fees in the Project Districts by 31 December 2007, and replicate such fees in other districts of the Surkhandarya oblast by 31 December 2009;

Not complied with. The project-related TA failed to develop the water delivery fees based on the cost-recovery approach. Collection of fees remains difficult due to the complicated financial system, in which payments are handled by the banks in a prioritized manner, and partly due to the poor financial status of some farmers.

Sector

6 7 (c) Establish the Water Sector Reform Support Unit (WSRSU) within the Technology and Dispatch Service of MAWR and make it operational by the commencement of the Technical Assistance;

Complied with. Instead of establishing the WSRSU, the government established the Water Resources Development and Implementation of Market Principles of Water Use Department within the MAWR to improve the water policy and institutional reforms. In 2004 the government established National Commission on Enhancement of Economic Reforms in Agriculture Sector, chaired

Sector

Appen

dix 5 25

Schedule Para No. Description Remarks/Issues Type by the Prime Minister. In 2007 the government also established the Information-Analytical Department on Agriculture and Water Sector, Processing of Agriculture Production and Consumer Products under the Cabinet of Minister to coordinate and monitor the policy and institutional reforms.

6 7 (d) Within one year from the Effective Date, (i) develop and implement the guidelines and procedures for WUA development and operations, and (ii) prepare national cost recovery and operation and maintenance (O&M) policy.

Partial compliance. The guidelines and procedures were developed with the assistance of the project management and TA consultants. The TA consultant failed to prepare the national cost recovery and O&M policy.

Sector

6 8 Without any prejudice to the provisions of Section 4.02 of this Loan Agreement, the Borrower shall (a) ensure timely and adequate provision of additional budgetary funds, if necessary, for maintaining the normal operation of the main pumping stations (Amu Zang I, Amu Zang II, and Babatag stations) of the Amu Zang Irrigation System until the rehabilitation works are completed; and (b) continue provision of capital replacement and O&M for the primary infrastructure of the Amu Zang Irrigation System, such as pumping stations, primary and secondary canals, until such time when the costs can be recovered from the beneficiaries.

Complied with. The government made a commitment and allocated adequate funding for the O&M of the main pumping stations and irrigation facilities during the implementation period.

Sector

6 9 Participating Financial Institutions (PFIs).The PFIs shall be selected, with prior approval of the Borrower and the Bank, from amongst eligible commercial banks or financial institutions operating in the territory of the Borrower, provided that such banks or institutions: (a) maintain (i) a Capital Adequacy Ratio of not less than ten percent (10%), calculated in accordance with the formula adopted by the Basle Committee of Banking Supervision; and (ii) a Loan to Deposit Ratio not exceeding one hundred percent (100%); (b) have their accounts for the last two fiscal years audited by independent external auditors acceptable to Asian Development Bank (ADB) and the related audit reports are satisfactory to ADB; (c) have a network of branches with adequate experience to extend loans to agricultural enterprises and individuals in the Project Districts; (d) comply with the regulatory requirements of the Central Bank of Uzbekistan (CBU); (e) have a return on assets ratio not lower than one percent (1%); and (f) have their accounts audited by an independent external auditor acceptable to ADB, which shall certify that the PFIs are in compliance with prudential norms referred to in subparagraphs (a)

Complied with. The eligibility of PFIs was reviewed by Uzbekistan Resident Mission and Ministry of Finance (MOF). Only Pakhta-Bank met all eligibility criteria and was selected as a PFI for disbursement of the credit line.

Financial

26 A

ppendix 5

Schedule Para No. Description Remarks/Issues Type and (e) above, and that the PFIs comply with sound internal control, internal audit and corporate governance practices and have adopted adequate policies and procedures for their credit operations.

6 10 Subsidiary Loans: The Borrower shall ensure that (a) all Subsidiary Loan Agreements are executed and delivered in a form and substance satisfactory to ADB by not later than eight (8) months after the Effective Date, (b) the proceeds of Subsidiary Loans are used exclusively for provision of the Subloans for Qualified Subprojects, and (c) PFIs apply the Credit Guidelines diligently in providing the Subloans, in accordance with the provisions of paragraph 10(a) of Schedule 3 to this Loan Agreement.

Complied with. The subsidiary loan agreement was executed and delivered in a form and substance satisfactory to ADB in August 2006.

Financial

6 11 Subloans. The Borrower shall ensure that the Credit Guidelines include, inter alia, the following terms and conditions to be applicable to the Subloans: (a) the Subloans shall be denominated in Dollars and repaid in Sum, at the prevailing foreign exchange rates declared by CBU at the time of repayment; (b) an average Subloan amount shall not be for more than eighty percent (80%) of the total estimated cost of a Qualified Subproject; (c) interest on Subloans shall reflect market-based interest rates and take into consideration the PFI’s cost of funds including the administrative and other transaction costs, the credit risk and a reasonable margin of profit for the PFIs; (d) the Subborrowers shall repay the amount outstanding and withdrawn under the Subloans over a period not exceeding ten (10) years, with a grace period not exceeding three (3) years; (e) the Subborrowers shall bear the foreign exchange risk on the Subloans; and (f) the Subloans shall not finance the cost of acquisition of land-use rights, taxes and duties and wages.

Complied with. The Credit Guidelines were approved by the Ministry of Finance in August 2006.

Financial

6 12 Subborrowers. (a) Except as ADB may otherwise agree, the Borrower shall cause PFIs to require each of their Subborrowers to meet and maintain the following financial obligations and covenants: (i) the Subborrower shall undertake to establish a new agriculture service centers (ASC), which operates in one of the Project Districts, or enter into agreement with an existing ASC which operates in one of the Project Districts; (ii) the ASCs shall be required to be incorporated as limited

Complied with. The list of potential sub-borrowers and their business plans were reviewed by Pakhta-Bank's Credit Committee. A total of $2,519,509 was disbursed from the credit line of $3.2 million for procurement of 8 CLAAS combine harvesters, 55 tractors, 2 mini-excavators and 102 sets of other machinery and equipment. The remaining part was reallocated for reimbursement of deficient means to rehabilitation of Amu Zang II Pump

Financial

Appen

dix 5 27

Schedule Para No. Description Remarks/Issues Type liability corporations or open joint stock corporations, or in such other form as may be agreed by ADB; (iii) a Subborrower shall be required to finance no less than twenty percent (20%) of the estimated cost of a Qualified Subproject by way of equity contribution; for this purpose, cash and existing fixed assets that are necessary for the Qualified Subproject (at fair and reasonable valuation), bank deposits and cash shall be deemed part of equity contribution; (iv) the Subborrower shall be required to maintain a projected debt service coverage ratio of not less than 1.3; (v) the Subborrower shall maintain, over the Subloan period, a financial internal rate of return (FIRR) that is not less than the weighted average cost of the Qualified Subproject’s capital in real terms; (vi) the Subborrower shall achieve a return on assets ratio of not less than twelve percent (12%) by no later than the date when the Qualified Subproject reaches full production capacity, and thereafter maintain it; and (vii) the Subborrower shall bear the foreign exchange risk on the Subloan; (b) any company which is owned by the Government or a Government agency, or in which the Government or a Government agency hold equity, shall not be eligible to be a Subborrower.

Station.

6 13 The Borrower shall ensure, and cause PFIs to ensure that (a) the Project is carried out and all Project facilities are designed, constructed, operated, maintained and monitored in conformity with the existing environmental laws and regulations of the Borrower, and the environmental guidelines of the ADB, in particular, ADB’s Environmental Assessment Guidelines, 2003; and (b) all environmental monitoring and mitigation measures identified in the Initial Environmental Examination (IEE), in particular, (i) monitoring of morphology of Amu Darya River; (ii) study of the need for fish exclusion devices at the intake; (iii) proper handling and disposal of hazardous materials by contractors; and (iv) preparation of a plan for a clean-up of existing stockpiles of obsolete agro-chemicals are fully implemented and such monitoring and mitigation measures are incorporated into design, bidding documents and contracts.

Complied with. The project was categorized as category “B” for environment impacts. Accordingly, the IEE and Site Environmental Management Plans were prepared. The bidding and contract documents included the environmental requirements described in the IEE. The environmental monitoring was routinely reported. All scrap and other hazardous materials were properly handled in accordance to the local regulations. The status of other environmental concerns is as follows: (i) Study for Fish Exclusion Devices at the Intake: The three pump stations have trash-screens at the intake, which prevent the entry of debris and large fish. Therefore, the study for exclusion devices to avoid fish entry into the pumping facilities was no longer needed. (ii) Monitoring of Morphology of Amu Darya River. The project consultant (Mott MacDonald &

Safeguards

28 A

ppendix 5

Schedule Para No. Description Remarks/Issues Type Temelsu) acquired a river morphology study in 2006 through specialized local survey and investigation agencies. Their findings were summarized in Working Paper No. 11 dated 24 October 2006. However, according to Resolution of the Cabinet of Ministers No 183 of 14 April 2004, Uzhydromet is the only agency authorized to monitor river morphology. Because the MAWR was not authorized, further monitor of morphology was discontinued. (iii) Proper Handling and Disposal of Hazardous Materials by Contractors: The scrap from old pumps was disposed of in accordance with local government requirements. All construction works were carried out within the permitted areas. The required mitigation measures were implemented and no complaints were received from the people living in and around the project area. (iv) Preparation of Clean-up Plan for Handling Stockpiles of Obsolete Agro-chemicals: The obsolete agro-chemicals were placed in a burial site Navruz, which is situated in a remote desert area 30 kilometers east of the city of Termez. The site was selected and established in compliance with the Sanitary and Hygiene Norm Regulations No. 0028-94 of 25 April 1994 and updated in 2001 and 2004. Furthermore, with the adoption of the Regulation on Disposal of Hazardous and Other Toxic Chemicals 28 January 2013, more systematic monitoring has been established by the government. Therefore, further inputs from the project for managing obsolete agro-chemical are no longer required.

6 14 Land Acquisition and Involuntary Resettlement.The Borrower shall make maximum efforts to avoid re-acquisition of encroached buffer strips or any additional land. Should there be any additional land acquisition, the Borrower shall ensure that MAWR shall (i) screen for involuntary resettlement effects and (ii) prepare the appropriate resettlement plan in accordance with ADB’s policy on involuntary resettlement. Review of the resettlement plan by ADB shall be a condition for award of civil works contract for any component that requires additional land acquisition and resettlement.

Complied with. No land was acquired for the project and, therefore, there was no need to prepare a Land Acquisition and Resettlement Plan.

Safeguards

Appen

dix 5 29

Schedule Para No. Description Remarks/Issues Type 6 15 The Borrower shall ensure that contractors employed under the

Project fully comply with applicable labor laws of the Borrower and provide adequate safety and health protection measures to workers employed to guard against any occupational hazards inherent to the workplace. The Borrower shall also ensure that no minors are employed for works financed with the proceeds of the Loan in accordance with the Borrower’s legislation regarding prohibition of child labor.

Complied with. These requirements were clearly stipulated in the contracts, and their compliance was monitored throughout contract implementation.

Social

6 16 The Borrower shall cause Project Steering Committee, MOF, and MAWR to ensure that the Subsidiary Loan Agreements, Subloan Agreements and bidding documents for any contracts for Project facilities include specific clauses to give effect to the undertakings in paragraph 15, Schedule 6 of the Loan Agreement.

Complied with. All project agreements and bidding documents included provisions requiring the full compliance of contractors with the applicable labor laws of the Borrower, provision of adequate safety and health protection measures for workers, and assurance that no minors are employed for works.

Social

6 17 The Borrower shall ensure active beneficiary participation in the Project activities and cause MAWR to establish appropriate procedures to ensure that corrective and mitigation measures are taken to address concerns of the Project beneficiaries that may arise during Project implementation.

Complied with. Suitable measures were taken to ensure active beneficiary participation at all stages and mitigation measures were taken as deemed necessary.

Social

6 18 The Borrower shall ensure that all the relevant staff recruited under the Project, including the consultants, the contractors and their respective representatives, have full and free access, in accordance with the existing regulations and procedures of the Borrower, to the Amu Zang irrigation facilities located in the border area of Surkhandarya Province in order to be able to carry out the Project activities as planned.

Complied with. The contractor's request for full and free access to the project area near the state borders with the relevant staff list was forwarded to the State Border Committee and updated twice yearly. An official response from the committee served as the basis for such access.

Social

6 19 The Borrower shall (i) take all the necessary measures and mobilize the necessary resources to ensure continued improvement in drinking water supply in the Project Districts, and (ii) report annually to ADB on the progress made in improving such supply.

Complied with. The government received loan 2466-UZB from ADB for financing the Surkhandarya Water Supply and Sanitation Project.

Social

6 20 Gender and Development. The Borrower shall ensure that participation of women in the Project activities is maximized and their welfare is supported. In particular, the Borrower shall: (a) identify local, specific and acceptable ways to disseminate Project information to women; (b) encourage and ensure participation of women in WUAs, particularly those women who are heads of households; (c) provide training and conduct workshops on gender and development to staff of the WUAs, Surkhandarya Basin Irrigation Agencies so as to develop gender sensitive monitoring indicators, ASCs, PMO, PIU, MAWR and other main counterparts;

Partial compliance. The project-related gender issues were incorporated into the Summary Poverty Reduction and Social Strategy. A component-wise Gender Action Plan (GAP) with monitoring indicators was incorporated into the project design. 75% of GAP’ targets and activities were achieved. The gender benefits beyond GAP are outlined in the Project Completion Report. The GAP component-wise status of achievement follows. Component 1: Achieved. Women’s participation in 27 project-related training programs increased from

Social

30 A

ppendix 5

Schedule Para No. Description Remarks/Issues Type (d) ensure participation of women in training for (i) managerial staff on the new procedures for effective operation of the irrigation management system, and (ii) ASCs, and that, training is provided at convenient locations to encourage female attendance; (e) ensure that women have equal access to the services provided by ASCs; (f) identify a focal point for gender and development concerns with respect to Project management, monitoring and evaluation; and (g) ensure that women’s opinion in monitoring and evaluation are represented on a parity basis.

the baseline of 0 to 14%. Component 2: Partial achievement. In 57 project water consumer associations (WCAs), women’s participation was 357 (27%) in 2013. Women’s participation in 27 training sessions was about 14%. Four gender sensitization trainings were conducted. During 2006-2008, 88 women participated in various project training programs. Component 3: Achieved. Women’s participation in agricultural service centers (ASC)-related training program was 25%-30%. About 20 women received services provided by the ASC. Component 4. Achieved. Women’s representation in the PMO increased from 0% to 2%. Gender-related indicators were introduced in the PMO’s monitoring system (2006–2008). The PMO gender focal point was appointed (2006–2007). Sex-disaggregated data was collected (2006–2008). Four gender sensitization trainings were conducted for PMO (2006-2008).

6 21 Rehabilitation of On-farm Irrigation and Drainage System. The Borrower shall ensure that, under Part C of the Project; (a) the detailed design of on-farm rehabilitation works is based on close collaboration with the WUAs and beneficiary farmers; (b) the beneficiary farmers, through the respective WUAs, enter into agreements with the Borrower and indicate their approval of the proposed works and willingness to repay the related costs on terms and conditions acceptable to the Borrower and ADB; and (c) financing such rehabilitation works is provided to farmers through the respective WUAs, by local finance institutions for a terms of maximum twenty (20) years, including no more than a three (3) year grace period, under appropriate agreements between the WUAs and the local finance institutions describing, among others, the scope of rehabilitation works, responsibilities of the parties, funding and cost recovery arrangements.

Complied with. The detailed design of on-farm rehabilitation works was prepared in close collaboration with the WUAs and beneficiary farmers.

Social

6 22 Accounting Standards and Audit: The Borrower shall ensure that within six months from the Effective Date an adequate financing and accounting control system will be established to allow PMO and PIU to apply international accounting standards acceptable to ADB. For the purpose of complying with the requirements of this Loan Agreement with respect to annual submission of audited financial statements including those stated under paragraph 9 of this Schedule, proceeds of the Loan may be used to finance

Complied with. A computer software "Accountant Program 1-C" was installed and used by PMO. The auditors and their selection method were acceptable for ADB.

Others

Appen

dix 5 31

Schedule Para No. Description Remarks/Issues Type expenditure for private sector auditors and translation of auditors’ reports into English, provided that: (i) such auditors have qualifications, expertise and terms of reference acceptable to ADB; and (ii) the recruitment process is acceptable to ADB.

Section IV 4.06 (a) The Borrower shall maintain, or cause to be maintained, records and account adequate to identify the goods and services and other items of expenditure financed out of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, the operations and financial condition of the agencies of the Borrower responsible for the carrying out of the project facilities, or any part thereof. (b) The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of this Loan Agreement as well as on the procedures for imprest account/statement of expenditures), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. (c) The Borrower shall enable ADB, upon ADB’s request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the Borrower's auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless Borrower shall otherwise agree.

Complied with. The records and account were properly maintained and audited project accounts submitted annually.

6 23 Project Performance Monitoring System: The Borrower shall ensure that, within six months of the Effective Date, the PMO shall develop a comprehensive performance monitoring and evaluation system for the Project to be implemented during the Project implementation period and establish a monitoring and evaluation unit (MEU). To monitor the Project’s social impact, MEU shall compile a benchmark database on basic economic and

Complied with. MEU was established in 2006 and adequately staffed. A Project Performance Management System was also developed.

Economic

32 A

ppendix 5

Schedule Para No. Description Remarks/Issues Type social conditions in order to provide socio-economic profile of the beneficiaries during the first year of Project implementation. Key indicators shall be tracked during Project implementation and a comparison made between the benchmark and Project completion situations. The database shall be analyzed to provide an assessment of the Project’s impact on different social groups, including women and lower income households. The MEU shall also monitor the progress and performance of various sector reforms implemented under the Project, including the progress, performance and impacts of the reforms in state procurement of crops, irrigation cost recovery, crop diversification, gender actions and actual savings in the abstraction of the river water.

6 24 Midterm Review: The Borrower and ADB shall undertake a midterm review in the second year of the Project implementation period to assess the achievement of Project objectives and implementation milestones. The assessment shall include (i) progress in policy measures, (ii) implementation status, (iii) design and construction standards, (iv) physical progress made and disbursements in relation to the implementation schedule, (v) performance of the consultants and contractors, (vi) status of compliance with the covenants of this Loan Agreement, (vii) financial and economic viability of the Project, and (viii) the need for any additional works or changes in the Project scope.

Complied with. Midterm review was conducted in November 2007.

Others

5 Fielding of Consultants Complied with. Project Management Consultants were fielded in October 2005.

Others

5 Variation to consultancy contract: If any substantial amendment of the contract is proposed after its execution, the proposed changes shall be submitted to ADB for prior approval.

Complied with. ADB approval was sought prior to all contract variations.

Others

Variations to consultancy and civil works contracts: Any proposed substantial amendment to the consultancy and/or civil works contracts after their execution shall be submitted to ADB for prior approval.

Complied with. ADB approval was sought prior to any contract variation

Others

Appe

ndix 6 33

INFORMATION ON CONTRACTS

Schedule Actual

COMPONENT A - REHABILITATION OF IRRIGATION SYSTEMAZIRP 01 Construction of Sediment Basin ICB 5.636 TupalangsuvGESkurilish 03/02/2007 03/02/2009 01/05/2009 5.243 CompletedAZIRP 02 Supply of Dredger for Amu Zang 1 Pumping

StationICB 5.090 CMC (China) 13/09/2007 13/12/2008 28/06/2009 5.090 Completed

AZIRP 04 Amu Zang 1 Pump Station Rehabilitation including temporary Pump Station and Pipeline Refurbishment

ICB 22.967 CNTIC (China) 02/11/2009 30/09/2012 23/12/20013 20.927 Copmpleted

AZIRP 06 Amu Zang 2 Pump Station Rehabilitation including temporary Pump Station and Pipeline Refurbishment

ICB 14.683 CNTIC (China) 03/12/2008 03/12/2011 20/06/2013 12.778 Completed

AZIRP 08 Babatag Pump Station Rehabilitation including temporary Pump Station and Pipeline Refurbishment

ICB 23.829 Kubota Corporation 03/09/2008 03/09/2011 03/09/2011 16.252 Completed

AZIRP 10 Inter Farm Rehabilitation Package 1: Amu Zang Canal System, and Aktepinck Reservoir

ICB 4.880 TupalangsuvGESkurilish 15/11/2007 15/11/2009 01/05/2011 2.379 Terminated

AZIRP 11 Inter Farm Rehabilitation Package 2: Amu Zang Canal, Babatag Canal, and Drainage Collectors

ICB 5.695 TupalangsuvGESkurilish 27/12/2007 27/12/2009 01/05/2011 2.045 Terminated

AZIRP 14 Workshop (Civil Works) NCB 0.372 SurxonSuvKurilish 29/12/2007 15/07/2008 30/12/2008 0.429 CompletedAZIRP 15 Workshop Equipment ICB 1.514 China Shanghai Corp. (SFECO) 21/06/2007 21/07/2008 21/07/2008 1.514 Completed

COMPONENT B - IMPROVED WATER RESOURCES MANAGEMENTAZIRP 16 O&M equipment, office equipment and

furniture, inputs, office renovation for WUAsS 0.094 Various 0.094 Completed

AZIRP 17 SCADA Installation ICB 1.184 Cancelled

AZIRP 19 Machinery Procurement for Agricultural Service Centers

LCB 3.200 Nov-06 2.520 Completed

AZIRP 20 Rehabilitation of On-Farm Infrastructure 1: Surkhon Namuna

LCB 0.559 Surxon Irrigatsiya 15/11/2007 15/11/2008 31/03/2011 0.414 Completed

AZIRP 21 Rehabilitation of On-Farm Infrastructure 2: Aziz Ugli Mamtkul

LCB 0.659 PMK Sherobod 15/11/2007 15/11/2008 01/10/2009 0.528 Completed

AZIRP 22 Rehabilitation of On-Farm Infrastructure 3: Djarkurgan / Oltin dan Kurgani

LCB 0.768 Turonirsuvkurilish 27/12/2007 27/12/2008 31/03/2011 0.600 Completed

AZIRP 23 Rehabilitation of On-Farm Infrastructure 4: Taskent

LCB 0.596 Angormaxsussuvdrenaj 18/05/2008 18/05/2009 31/03/2011 0.305 Completed

AZIRP 24 Rehabilitation of On-Farm Infrastructure 5: Yusuf Turdi

LCB 0.444 Turonirsuvkurilish 18/05/2008 18/05/2009 31/03/2011 0.261 Completed

AZIRP 25 Rehabilitation of On-Farm Infrastructure 6: Djalkhun

LCB 0.390 SBE Suvkurilishtamirlash 08/07/2008 08/07/2009 31/03/2011 0.176 Terminated

Other contracts related to project management 0.174 Various 1.814 CompletedConsulting Services QCBS 5.944 Mott MacDonald & Temelsu 03/10/2005 30/09/2012 31/12/2013 6.205 Completed

COMPONENT D - PROJECT MANAGEMENT

COMPONENT C - SUPPORT TO PRIVATE FARM DEVELOPMENTNov-2006 -- Jun 2009

Completion DateContract No.

Name of the ContractMode of

Procurement

Value, $ million

Starting Date StatusFinal Cost, $ million

Name of the Contractor

AZIRP = Amu Zang Irrigation Rehabilitation Project; CMC = China National Machinery IMP. & EXP.CORP; CNTIC = China National Technical Import and Export Corporation; ICB = International Competitive Bidding; LCB = local competitive bidding; NCB = National Competitive Bidding; QCBS = quality and cost based selection; SFECO = China Shanghai (Group) Corporation for Foreign Economic & Technological Cooperation. Source: Project Management Office.

Procurement

34 Appendix 7

ECONOMIC AND FINANCIAL VIABILITY OF FARMS REEVALUATION I. Introduction and Methodology

1. The project economic and financial viability of farms analyses were undertaken in accordance with relevant Asian Development Bank (ADB) guidelines, including Guidelines for the Economic Analysis of Projects.1 The analyses calculated the economic internal rate of return (EIRR) and farm net incomes in financial prices for private farms and dehkan (peasant) (backyard plots).

II. Project Scenarios

2. The without-project scenario assumes gradual loss in agricultural productivity. The with-project scenario assumes prevention of such production losses as well as a modest increase in yields resulting from stable water availability. The project also envisaged that institutional reforms would have a positive impact on the economic viability of the project. However, because of difficulties in quantitatively assessing such benefits, these were not included in the economic evaluation at the appraisal stage. Such benefits have also not been taken into account in the current analyses.

III. Farming and Cropping System

3. At appraisal, the total cropped area was 96,800 hectares (ha), with a cropping intensity of 110%. Main crops were cotton (43%) and wheat (36%) followed by fruits, vegetables and forage crops (30%). There has been little change in these parameters since appraisal.

4. At appraisal, there were three types of farms: shirkats (cooperative) farms, private farms, and dehkan. As expected, all shirkat farms were transformed into private farms by project completion. A comparison of the conditions at appraisal and those at completion is in Table A7.1.

5. At appraisal, it was envisaged that the project targets regarding cropped area, yields, and cropping intensity would be achieved within 5 years of project completion. The project achieved its targets for wheat yield, and wheat and cotton production by project completion. Other targets are expected to be achieved within 5 years of completion, as envisaged.

Table A7.1: Comparison of Conditions at Appraisal and Completion

Parameter At Appraisal At Completion Total project area (ha) 96,800 89,340 Cropping intensity (%) 110% 105% (target 123%) Number of people in the project area 400,000 700,000

Area covered by Shirkat farms (ha) 61,470 Transformed to private farms Private farms (ha) 22,370 78,140 Dehkan farms (ha) 12,960 11,200 Average size of Shirkat farms (ha) 1,230 Transformed to private farms Private farms (ha) 24.3 142.2 Dehkan farms (ha) 0.234 0.274

1 ADB. 1997. Guidelines for the Economic analysis of Projects. Manila.

Appendix 7 35

Parameter At Appraisal At Completion Yield (t/ha)

Cotton 2.8 2.7 (target 3.4) Wheat 3.1 5.0 (target 3.9) Alfalfa 24.0 24.0 Vegetable 14.5 22.7 Potatoes 8.5 15.6 Orchard 4.5 7.1 Vineyard 9.0 6.4

State procurement prices Cotton (SUM) 260,000.0 937,000.0 ($) 222.1 430.1 Wheat (SUM) 93,000.0 369,000.0 ($) 79.4 169.4 Import parity price for cotton (SUM) n/a 1,182,512.4 Export parity price for wheat (SUM) n/a 545,206.6

ha = hectare, t = ton Source: Project Management Office. IV. Methodology and Assumptions

6. Currently, the government subsidizes agriculture production but also imposes direct and indirect taxes.

7. The main subsidies are provided for (i) fertilizers, (ii) fuel, (iii) the leasing of tractors and combines, and (iv) credits for state-procured goods. The irrigation system also receives subsidies. Total annual subsidies for the Amu Zang irrigation system are estimated at SUM65.13 billion ($29.9 million in 2013). However, according to the World Bank, 2 the agricultural sector as a whole pays more in taxes than it receives in subsidies.

8. Government taxes on agriculture sectors include direct and indirect taxes. The direct tax on agriculture is estimated at 21% of total income. 3 Indirect taxes are through controlled purchase prices for cotton and wheat, which are about 20% lower than their border parity prices. In addition, the farmers have the burden of an increased exchanged rate, no discount for value added tax for cotton fiber export, and high trade commissions and transportation charges levied by the state monopolies that handle both the internal and export cotton trade.

9. During project implementation period (2005–2013), the state purchase prices increased significantly; by 92.3% for cotton and 126.7% for wheat (Table A7.2). The electricity tariff also increased during this period from SUM36.4/kilowatt-hour to SUM120/kilowatt-hour.

Table A7.2: State Procurement Prices for Cotton and Wheat (2005–2013)

Cropping Season

Price of Cotton Price of Wheat

SUM/ton $/ton % increase SUM/ton $/ton % increase

2005 260,000 222.02 93,000 79.42

2006 306000 247.51 11.5% 114,000 92.21 16.1%

2007 352,000 273.65 10.6% 139,000 108.06 17.2%

2 World Bank. 2003. Country-Economic Memorandum for Uzbekistan. Washington, D.C. 3 It consists of a single land tax of SUM45,000/ha; a single social payment (25% of the wage fund); social insurance

(6.5% of the wage fund); and income tax for workers (6.5%–22%, averaging 14% of the wage fund).

36 Appendix 7

Cropping Season

Price of Cotton Price of Wheat

SUM/ton $/ton % increase SUM/ton $/ton % increase

2008 430,000 318.46 16.4% 169,000 125.16 15.8%

2009 502,550 328.93 3.3% 206,000 134.83 7.7%

2010 587,980 359.52 9.3% 237,000 144.92 7.5%

2011 696,800 390.62 8.6% 293,800 164.70 13.7%

2012 801,204 406.09 4.0% 338,000 171.31 4.0%

2013 937 000 430.10 5.2% 369 000 169.40 5.1%

Increase in cotton price (2005–2013)

92.3% Increase in wheat price (2005–2013)

126.7%

Source: Project Management Office. 10. During the implementation period, operation and maintenance (O&M) expenses, in current prices, increased more than three times. These increases were caused by major increases in the electricity tariff (230%) and wages (520%).

11. To account for inflation, 2006 prices have been discounted to 2013; the results (Table A9.3) indicate that there is no real increase in the electricity tariff. Rather, the cost of energy to the pumps is expected to decrease in real terms because of more efficient pumps and motors installed under the project. In addition, O&M costs will decrease as a result of facility rehabilitation under the project, which would offset the increase in the labor and capital costs. Overall, a reduction of 6% in O&M costs of the Amu Zang Irrigation System is expected in real terms (Table A7.3).

Table A7.3: Operation and Maintenance Costs of Amu Zang Irrigation System

Year Pump

Station

Total O&M cost

(million SUM)

IncludingElectric

Tariff (SUM/ kwh)

Wages (million SUM)

Electricity O&M of irrigation network (million SUM)

Capital repair (million SUM)

SUM (million)

kWh (million)

2013

Amu- Zang I 22,363.0 384.3 21,852.0 182.1 35.7 91.0

120 Amu- Zang II 30,294.5 558.2 29,592.0 246.6 63.3 81.0 Babatag 12,472.7 292.5 12,168.0 101.4 8.5 3.7 Total 65,130.2 1,235.0 63,612.0 530.1 107.5 175.7

2006

Amu- Zang I 6,689.3 45.6 6,475.6 177.9 27.7 140.4

36.4 Amu- Zang II 9,232.4 78.8 9,041.8 248.4 46.3 65.6 Babatag 5,058.6 74.9 4,706.5 129.3 120.7 156.5 Total 20,980.3 199.3 20,223.8 555.6 194.7 362.5

Increase in 2013

Amount 44,149.9 1,035.7 43,388.2 (25,5) (87.2) (186.8) 83.6% 210% 520% 215% (5%) (45%) (52%) 230%

In Constant 2013 Prices

2006

Amu- Zang I 22,052.7 150.5 21,348.0 177.9 91.2 463.0

120 Amu- Zang II 30,436.6 259.7 29,808.0 248.4 152.8 216.1 Babatag 16,676.7 246.9 15,516.0 129.3 397.9 515.9 Total 69,166.0 657.0 66,672.0 555.6 641.9 1,195.0

Increase in 2013

Amount (4,035.7) 578.0 (3,060.0) (25.5) (534.4) (1,019.3) 0% (6%) 88% (5%) (5%) (83%) (15%) 0%

( ) = negative, kWh = kilowatt hour, O&M = operation and maintenance. Source: Project Management Office.

Appendix 7 37

V. Analyses of the Economic and Financial Viability of Farms

12. The analyses were based on the costs and benefits of water supplied to the Amu Zang irrigation system and were applied to the incremental capital and O&M costs and revenues. The major assumptions applied in the analyses are (i) the analyses were conducted over 25 years, from 2005 to 2030;4 (ii) the project-induced incremental revenues and costs were expressed in Uzbek Sums, in constant 2013 prices; 5 and (iii) the costs, including capital, O&M, and replacement costs, were recorded in the year they were incurred. Projected income statements, balance sheets and cash-flow statements were presented in Uzbek Sums and expressed in current prices. A shadow wage rate factor of 0.8 was used for labor. The official 2013 exchange rate of SUM2,178.56 = $1 and a shadow exchange rate factor of 1.3 were used.

13. The analyses used an average rate of 5% for depreciation of project fixed assets, and SUM25,000/ha for WUA’s fee (about 1% for income). An international inflation rate of 3% was used in the analyses.6

VI. Economic Rate of Return, and Sensitivity Analysis

14. The recalculated economic internal rate of return is 15.3%, lower than the appraisal estimate of 19.5%, mainly because of the 4.25-year delay in project completion. However, it is still higher than 12%, the minimum discount rate accepted by ADB and the economic opportunity cost of capital in Uzbekistan. The net present value at the discount rate of 12% is $23.7 million at completion, compared to the appraisal estimate of $51.7 million.

15. The robustness of the EIRR was checked with a sensitivity analysis, using a 10% increase in input prices, a 10% decrease in cotton and wheat prices, and a 10% decrease in crop yields. The EIRR remains above 12% (the minimum discount rate acceptable to ADB) under each of the three parameters when considered separately (Table A7.4). When input prices are increased by 10% and output prices are simultaneously decreased by 10%, the EIRR is reduced to 13.6%.

Table A7.4: Sensitivity Analysis

Parameters Base case Input

Prices +10%

Output Prices –10%

Yields – 10%

Input Prices +10%, Output Prices –10%

At Appraisal EIRR (%) 19.5% 18.8% 16.5% 18.2% 15.7%NPV ($ million) 51.70 46.20 29.30 41.70 23.80

At Completion EIRR (%) 15.3% 14.5% 14.4% 12.4% 13.6%NPV ($ million) 23.69 18.70 16.33 2.68 11.35

EIRR = economic internal rate of return, NPV = net present value. Source: Project Management Office.

4 The major portion of the construction under the project was undertaken during 2007–2010. 5 The following projected and actual annual local inflation rates were used: 6.8% in 2007–2008, 7.8% in 2009, 10%

in 2010, 11.4% in 2011–2014 and 10% in 2015 and onward, based on local statistical reports and the International Monetary Fund World Economic Outlook for October 2010 (https://www.imf.org/external/pubs/ft/weo/2010/02/).

6 Trading Economics. Inflation rate forecast. http://www.tradingeconomics.com/forecast/inflation-rate

38 Appendix 7

VII. Results of Financial Viability of Farms

16. A farm budget analysis was carried out to determine the impact of the project on farm household incomes. For this analysis, farm budgets were prepared for each farm type. The assumptions are as follows:

(i) the present average size for each type of farm was used; (ii) present cropping patterns were based on provincial government data for 2013;

private farms grow mostly cotton and wheat, while dehkan farms grow wheat and other crops. Future cropping patterns may involve more crop diversification;

(iii) the costs of crop production reflect the use of machinery by the private farms and labor-intensive production methods on dehkan farms;

(iv) currently, dehkhan farms yields are generally higher than those of private farms. During 2014-2023, yields are expected to increase by a further 15%–20% depending on crop and farm type;

(v) the pumping cost estimates are based on farm cropping pattern, the energy required to pump one cubic meter of water, and the farm location; the area irrigated by Babatag pump station would use three stages of pumping, and thus require more energy per unit of water pumped; and

(vi) farm budgets include the following O&M costs: (a) O&M of the main canal system, (b) O&M of on-farm systems, and (c) O&M of the pump stations. Two scenarios have been used for the O&M cost of the pump stations. In the “energy costs of pumping excluded” scenario, 20% of the O&M cost for the pump stations was used, while the “energy costs of pumping included” scenario used the full O&M cost and energy cost of the pump stations.

17. The project will generate positive financial returns for farm households, at rates higher than appraisal estimates, except for private farms when the energy costs of pumping are included (Table A7.5).

Table A7.5: Farm Net Incomes in Financial Prices ($ per hectare)

Farm type Energy costs of pumping

Excluded Included At appraisal

Private farms 356 308 Dehkan farms 936 879

At CompletionPrivate farms 497 151 Dehkan farms 1,658 1,336

Increase from appraisal estimatePrivate farms 141 (157) Dehkan farms 722 457

( ) = negative. Note: “Excluded” excludes the energy costs of pumping but includes 20% of the operation and maintenance cost of the pump stations; “Included” incorporates the full energy and operation and maintenance costs of the pump stations.

VIII. Financing of Operation and Maintenance 18. The project envisaged improved management of the project and Amu–Surkhan Basin Irrigation Organization (ASBIO) by (i) strengthening their capacity; (ii) introducing improved O&M procedures; (iii) supporting the establishment of water users’ associations; and (iv) developing and installing a supervisory control and data acquisition system and an optimized

Appendix 7 39

water resources management model. In line with this, the project was to develop, test, and introduce water delivery fees in ASBIO. 19. In line with government’s countrywide policy to gradually improve recovery of O&M costs, and following the project provision, the project developed water delivery fees based on the cost-recovery approach and promoted establishment and training of WCAs. ASBIO also provides overall practical assistance to WCAs in water fee collection and other O&M aspects. However, the project failed to introduce cost recovery at the project area and collection of fees remains difficult because of the complicated financial system, in which payments are handled by the banks in a prioritized manner, and partly due to poor financial status of some farmers.

20. It is envisaged that until institutional arrangements for cost recovery are fully in place and the sector is fully liberalized, the government will continue to finance a major portion of O&M in support of its policy of ensuring foreign exchange earnings through the sale of cotton, and food security through cultivation of wheat. The government annually allocates enough funds for each project area to fund O&M activities.

40 Appendix 8

GENDER ACTION PLAN

1. Despite the prominent role of women in agricultural production, the agricultural sector in Uzbekistan exhibits gender imbalances, particularly in control over productive resources. Women constitute about 49.6% of the population in the Amu Zang project area, and almost half of them are engaged in the agricultural sector. However, their representation—both in farming (women account for 1.2%–3.8% of people employed on farms in the project area) and decision making (only five farms out of 133 in the project area are headed by women) remains low. After restructuring and merging of shirkats (cooperative farms) into private farms,1 the number of farms headed by women has declined. Most women are hired as seasonal workers during spring and at harvest, and have fewer opportunities than men to find non-agricultural work, because there are limited opportunities in rural areas in professions generally considered suitable for women, such as teaching and primary healthcare. Rural women generally have heavier domestic burdens than do women in urban settings, as they are expected to look after livestock, family farms, or small businesses. Women either occupy poorly paid positions in the formal economy, or do poorly paid work in informal labor markets that requires no qualifications.

2. Rural project areas are associated with more conservative gender norms, especially regarding the role of women. Limited access by rural communities to information, education, and training reduces their opportunities for gender-equitable models of behavior. However, most residents of the project area (particularly Pahtabad and Djayhun districts) understand the need to strengthen the role of rural women in agriculture, farming, and irrigation-related activities.

3. To address relevant gender issues, the project design phase included a social and gender analysis that determined specific concerns, and the need to ensure women’s access to project-related services and participation in capacity-building and training activities. It was anticipated that women would benefit from the project in terms of time savings for irrigation, increased employment opportunities, and support for private farm development. A gender action plan (GAP) was included in the report and recommendation of the president (RRP) and the Loan Agreement included covenants to maximize participation by women in project activities in order to improve their living conditions.

4. During 2005–2008, GAP implementation and monitoring was facilitated by a gender focal point in the project implementation unit who had primary responsibility for GAP monitoring. During the initial stage of implementation, gender focal points were appointed at the project implementation unit in different areas to monitor GAP activities, compile sex-disaggregated data, and promote better understanding of gender–related issues among the stakeholders at the district level. The Uzbekistan Resident Mission of the Asian Development Bank (ADB) provided support to the project management office (PMO) and PIUs in addressing gender concerns through consultations; trainings; and assisting in participation in the regional seminar on gender, poverty, and development results held in Phnom Penh on 3–5 May 2006. The PMO’s participation in this workshop stimulated the gender and development related activities that resulted in collection of selected sex-gender-disaggregated data, revision of the GAP, and involvement of more people in gender-related work at the PMO level until 2008. However, frequent changes in gender focal points due to high staff turnover affected the continuity of gender-related activities. Thus, implementation of the GAP was a challenging task at the project completion stage.

1 In 2006, there were 4,878 farms in the project area. In 2013, this number decreased to 1,148 farms.

Appendix 8 41

5. This appendix reviews the GAP and assesses its implementation and benefits attained throughout the project implementation period compared to the original design. The actual achievements against GAP targets are in Table A8.

6. On the basis of the preliminary assessment, GAP implementation could be rated successful, because 75% of GAP gender targets and activities have been achieved. Women benefited from the project impact on farm productivity and household food security, and they were able to participate and contribute to the project activities. During the project completion review mission’s visits, women were frequently observed in productive household-based activities involving silkworm breeding and greenhouses (this was not the case at project appraisal), and they played a lead role in off-farm marketing. For example, in 2006 there were only 80 greenhouses in the project WCA pilot area, with 50 in Termez district; at project completion, the number increased to 6,884, including 2100 in Termez, and 2,670 in Jarkurgan district. This resulted in increased women’s employment in greenhouses. In 2014 there were 43,212 women engaged in agricultural and greenhouse activities (including 12,768 in pilot WCAs) in comparison with 496 in 2006. In the silkworm breeding activities, there were 4,703 women involved in 2006 and 7,833 in 2013, including 1,773 in Kymkurgon district. This led to an increase of 20%–30% in household average income in Muzarabad district. In addition, out of 1,596 people employed in project-related construction works, 202 (13%) were women, mostly in secondary-level positions.

7. While assessing achievement of the GAP targets, it must be noted that some GAP targets were unrealistic. For example, the target that 30% of members in water user associations and/or water consumer associations (WCAs) be women was unrealistic. The restructuring of shirkat farms resulted in a lower number of female farm workers. In addition, women have numerous household responsibilities, including child care, which compete for their limited time. These responsibilities may be perceived as having a higher priority for household welfare, particularly when male family members are also attending the project meetings, training sessions, and other activities.

8. To ensure active beneficiary participation, a series of awareness training sessions were held in 2006, in provinces, districts, and at the WCA level. Project information, in particular on WCA-related issues, implementation status, contracts and construction activities were disseminated to women through rural assemblies, publications in local newspapers, and broadcasts on local TV. Farmers, including 358 women working in these farms in 2013, were encouraged to become involved in the design and construction phase of the project through their WCAs. The project design for rehabilitation of on-farm irrigation and drainage networks (contracts AZIRP 20–25) were discussed during related WCA general assemblies and the opinions of women farmers were considered. During the construction stage, the opinions and requests of local communities were considered. For example, at the request of residents in Shabboda (1000 households) and Yulchi (about 700 households) villages in Muzrabat district, new bridges were constructed under the project, which shortened their route to Muzrabat district center by 1.5 km.

9. Women accounted for 11%–14% of participants in the 27 training sessions conducted under the project. In the training sessions on water resource management, financial management and budget and planning 18 of the 126 participants were women. Women comprised 11% of all participants in the training sessions on the operation of irrigation systems, conflict resolution, and capacity building. While professional skill training focused on skills development, information materials on gender were distributed at almost all training programs.

42 Appendix 8

10. At the household level, women now spend one-third of the time for cleaning their houses and laundering by using the improved irrigation water. The Surkhandariya Water Supply and Sanitation Project2 , an ADB project implemented in the same geographical area, has helped in achieving the project goals. The sanitation and hygiene component of the SWSSP focused on raising awareness and training residents regarding hygiene, with the goal of improving hygiene of Surkhandarya Province residents, particularly in 41 schools and local communities in seven pilot districts (Angor, Jarkurgan, Kizirik, Kumkurgan, Muzrabat, Sarisiyo, Shurchi and Termez), which include all five project districts. The SWSSP interventions have contributed to the reduction of infant mortality rate by 66% in Surkhandarya province; infant mortality reduced from 161 in 2005 to 55 cases in 2012.3 Both projects contributed to better living standards of the communities in the project area by building infrastructure to improve irrigation and drinking water supply, facilitating improved water resources management, raising awareness through training sessions and seminars, and building human capacity regarding time and energy efficiency and disease prevention.

11. Recommendations. The following recommendations are based on the GAP:  (i) To further strengthen participation in WCAs, women should be given more

leadership and advocacy responsibility, and facilitation training. Women who now serve on WCA boards should be groomed as resource persons and trainers to share their experience with less active board members.

(ii) In order to turn WCAs into viable community-level institutions, much more outreach and support would be required than what was offered under the project.

(iii) Targets for women’s representation in WCAs should be more realistic, with women in higher-ranking positions, while keeping in view the baseline levels.

(iv) Future training sessions should be dynamic and based on participatory training strategies, including rapid appraisal, rather the top-down approach used during project implementation. There is a need to generate greater awareness on irrigation water use, sanitation and hygiene at the household level, and encourage men to participate in such training sessions.

(v) A WCA database with sex-disaggregated data needs to be standardized across MAWR, where monitoring and evaluation capacity remains weak. Stronger monitoring and evaluation training and support for qualitative data for changes in behavior, community perception, traditional practices, and gender roles should be emphasized.

(vi) The project GAP should be sufficiently disseminated to and discussed with all stakeholders at the beginning of project implementation, to ensure that the GAP is understood and followed by all those implementing the project, rather than being left to the gender specialist. All relevant implementers must be consulted on GAP revisions.

(vii) All members of the project team, including local implementers, need to improve their gender knowledge and not be limited by the gender capacity of the project leadership.

(viii) The inability to incorporate sex-disaggregated data and gender analysis in the monitoring process for infrastructure projects with major engineering works is more likely caused by lack of knowledge and capacity than lack of willingness. Training on gender issues must be systematically provided, starting with the implementers at the central level and moving down to the community facilitators.

2 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the

Republic of Uzbekistan for the Surkhandarya Water Supply and Sanitation Project. Manila. 3 Surkhandarya State Statistics Department. 2013. Annual Statistics Report. Termez.

Appendix 8 43

In addition, the capacity of the project team should be increased to collect and analyze the sex-disaggregated data of all relevant project activities, integrate the data in the information management system, and use the GAP as a base for gender monitoring.

(ix) Gender equality should be promoted in collaboration with women’s committees and women’s nongovernment organizations as lateral learning events to (a) improve gender awareness and the capacity of national, district, and local government staff; and (b) encourage that gender issues be systematically addressed in all programs and projects. In addition, relevant project management office staff should be trained as gender focal points in their institutions to initiate a gender-working group in MAWR and to continue promotion of the gender agenda.

(x) The community-based rural development projects should consider additional, well-designed support to nonfarm-income-generating activities to ensure that women can broaden their opportunities to improve family incomes. These activities could be designed and undertaken in partnership with suitably qualified public agencies, civil society organizations, and the private sector.

44 Appendix 8

Table A8: Achievements of the Gender Action Plan

Component Activities Indicators Achievement1. Rehabilitation

of Amu Zhang Irrigation System

Identify local specific and acceptable ways to disseminate project information to women.

Percent of women with knowledge of project objectives and activities.

Achieved: Women’s participation in 27 project-related training programs increased from the baseline (0%) to 14%.

2. Support to improve irrigation management

Women participate in water users associations (WUAs). Provide gender and development (GAD) training to WUAs and Surkhandarya Basin Irrigation Agencies to develop gender sensitive monitoring indicators. Women participate in training sessions for managerial staff on the new procedures for effective operation of the system. Training provided at convenient locations to encourage female attendance. Households headed by women are members of WUAs.

Minimum of 30% women representation in WUAs. Sustain the process of monitoring gender desegregated data (number of women farmers who receive project services, number of women private investors, and women’s access to water and land). Percent of women participating in technical design; indicators are: (i) the training groups are well-

represented by both genders, (ii) number of women participating

in training sessions, (iii) number of gender sensitization

training sessions, and (iv) number of households headed

by women who become members of WUAs.

Partially achieved: In 57 project water consumer associations (WCAs), 357 women (27%) participated in 2013. Women accounted for 14% of participants in 27 training sessions. Four gender sensitization training sessions were conducted. During 2006–2008, 88 women participated in various project training programs.

3. Support to Private Farm Development

Women participate in training sessions for agricultural service centers (ASCs). Women have access to the services provided by ASCs. GAD training provided to ASCs.

Training groups are well-represented by both genders. Number of women receiving services provided by ASCs. Number of gender sensitization training sessions for ASCs.

Achieved: Women accounted for 25%–30% of participants in ASC-related training programs. About 20 women received services provided by the ASCs

4. Project Management, Monitoring and Evaluation

Gender balanced team/ capable women are prioritized. Identify a GAD Focal Point. Review all forms or formats from a gender perspective. Conduct workshops on GAD for Project Management Office (PMO), executing agency, and main counterparts. Women’s opinions in monitoring and evaluation are represented on a parity basis

Representation of women in PMO and executing agency. Number of gender sensitive monitoring indicators and women’s participation in the whole project activities (at least 30%). Availability of gender disaggregated data and GAD focal point person. Budget allocated for gender sensitization training sessions. Number of gender sensitization training sessions for PMO staff.

Achieved: Representation of women in the PMO increased from 0% to 2%. Gender-related indicators were introduced in the PMO’s monitoring system (2006–2008). A PMO gender focal point was appointed (2006–2007). Sex-disaggregated data was collected (2006–2008). Four gender sensitization training sessions were conducted for PMO (2006–2008)

Source: Project Management Office.

Appendix 9 45

CONTRIBUTION TO THE ADB RESULTS FRAMEWORK

No. Level 2 Results Framework Indicators (Key Outputs and Beneficiaries) Targets Methods / Comments

1 Land improved through irrigation services, drainage, and/or flood management

96,800 ha The target was achieved through the following: (i) rehabilitated and improved Amu Zang irrigation system; (ii) improved access to key agricultural inputs and modern water saving and soil improvement technologies; and (iii) increased agricultural productivity by land improvement activities implemented through the Government’s land reclamation fund.

Source: Asian Development Bank estimates.