ASIAN DEVELOPMENT BANK RRP:PAK 34331

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO THE

ISLAMIC REPUBLIC OF PAKISTAN

FOR THE

SUSTAINABLE LIVELIHOODS IN BARANI AREAS PROJECT

November 2004

CURRENCY EQUIVALENTS (as of 15 November 2004)

Currency Unit – Pakistan rupee/s (PRe/PRs)

PRe1.00 = $0.0166

$1.00 = PRs60.34

ABBREVIATIONS ABAD – Agency for Barani Area Development ADB – Asian Development Bank CBO – community-based organization CCB – citizen community board DMC – developing member country DPIC – district project implementation committee DPM – district project manager EARP – environmental assessment and review procedure EIRR – economic internal rate of return FFS – farmer field schools ha – hectare IEE – initial environmental examination kV – kilovolt MCO – men’s community organization NGO – nongovernment organization NIPMP – National Integrated Pest Management Program NRSP – National Rural Support Program O&M – operation and maintenance PMU – project management unit PPMS – project performance management system PRSP – Punjab Rural Support Program RSP – rural support program SDR – special drawing rights TA – technical assistance VUDC – village and union development component WCO – women’s community organization

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June. (ii) In this report, "$" refers to US dollars.

This report was prepared by a team consisting of A. Tayyab (team leader), G. Curtis, S. Parvez, S. Ranawana, M. Sultana, and S. Zaidansyah.

CONTENTS Page

LOAN AND PROJECT SUMMARY iii

MAP ix

I. THE PROPOSAL 1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2

III. THE PROPOSED PROJECT 5 A. Objectives 5 B. Components and Outputs 5 C. Special Features 8 D. Cost Estimates 9 E. Financing Plan 9 F. Implementation Arrangements 10

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 16

V. ASSURANCES 19 A. Specific Assurances 19 B. Conditions for Loan Effectiveness 20

VI. RECOMMENDATION 20

APPENDIXES 1. The Agriculture Sector and the Barani Subsector 21 2. External Assistance to the Sector 27 3. Project Framework 28 4. Cost Estimates and Financing Plan 32 5. Project Organization Chart and Functions of Committees and Offices 34 6. Implementation Schedule 36 7. Indicative Procurement Packages 37 8. Summary Poverty Reduction and Social Strategy 38 9. Summary Initial Environmental Examination 43 10. Economic and Financial Analysis 49 11. Eligibility Criteria to District Government and Union Administration 54

SUPPLEMENTARY APPENDIXES (available on request) A. Non-Farm Small and Micro Enterprise and Employment Generation and Credit Status in

Barani Areas B. Detailed Terms of Reference of Consultants and Duties of Union Council Organizers and

District Supervisors for the Village and Union Development Component C. Environmental Assessment Review Procedures in Pakistan D. The Role and History of Rural Support Programs in Pakistan E. Economic and Financial Analysis and Detailed Tables F. NGOs, Civil Society and the Sustainable Livelihoods in Barani Areas Project G. Integrated Natural Resources Management, Rural Infrastructure and Water Resources

Management H. Matrix of Risks and Counter Measures I. Detailed Implementation Arrangements J. Project Performance Monitoring System K. Project Management Unit Requirements L. Approval Procedures and Criteria for Activities Under the Village and Union

Development Component M. Funds Flow N. Cost Estimates O. Lessons Learned from Past Projects P. Chronology of Project Development and Processing

LOAN AND PROJECT SUMMARY

Borrower Islamic Republic of Pakistan Classification Targeting classification: Targeted intervention

Sector: Agriculture and natural resources Subsector: Agriculture sector development Themes: Sustained economic growth and governance Subthemes: Fostering physical infrastructure, developing rural areas, and civil society participation

Environment Assessment

Category B: An initial environmental examination of a typical subproject was undertaken.

Project Description The Project, formulated within the context of the recent devolution

of powers to local governments, will focus on improving the economic livelihood and quality of life of the population of barani areas (i.e., dryland areas not served by canal irrigation) in rural Punjab province. Without canal irrigation, agricultural production is precarious and poverty is pervasive. The Project will improve access to inputs and markets; enhance water storage, conservation, and conveyance; and diversify the sources of income, while at the same time overcoming fundamental barriers to economic development such as illiteracy. The project components include (i) provision of beneficiary-identified medium-scale infrastructure to unions based in barani areas (village and union development component, or VUDC); (ii) targeted poverty alleviation through community groups; (iii) enhanced literacy through skills training; and (iv) institutional and implementation support. The Project is designed to be demand driven by the intended beneficiaries in both design and implementation.

Rationale Barani areas are, almost by definition, areas with high levels of

poverty. The primary problem facing barani areas is a lack of access to water for crop and livestock production and thus lower and uncertain crop yields and livestock productivity. However, many other factors also add to the high levels of poverty. These include impeded access to markets, inputs, and services due to inadequate or nonexistent transportation infrastructure; a lack of access to electricity, with negative consequences for the productive potential of both agriculture and off-farm sectors; health and productivity constraints arising from limited access to domestic drinking water; a limited range of alternative, high-value crops or crop varieties specially adapted to barani areas; inadequate and poorly managed rangelands for livestock; serious loss of productive land due to water and wind erosion; poor access to agriculture and livestock advisory and support services; and low levels of literacy, which impede access to new technologies or the adoption of alternative income-earning activities. Development activities in barani areas have been shown to be successful in tackling these problems when there have been

iv

high levels of beneficiary involvement in the design and implementation of project activities. As a result of the Punjab Local Government Ordinance of 2001, official institutional structures now exist at grassroots level in rural areas to allow elected representation and local management of development activities. In these conditions it is now possible to combine past experience and lessons learned in barani areas with the new, representative institutional structures in rural areas (union councils and zila councils) to implement a poverty-focused project that will reinforce the ongoing decentralization process and have a strong development impact on the ground. This will be achieved through the support of activities, selected and managed by the beneficiaries themselves, that enhance productivity of resources, improve the quality of life for the areas’ population, and improve access to markets through better rural infrastructure.

Objectives The Project’s objectives are to enhance access to land, water,

markets, services, agricultural inputs, technologies, and employment among the population living in barani areas in order to increase incomes, improve the quality of life and, ultimately, reduce poverty among vulnerable groups within the project area. At the same time, the Project will strengthen governance structures, aid the process of devolution, and build capacity within local governments to plan and implement development activities. The Project will cover those districts and parts of districts in Punjab province that have much barani land but that have yet to be covered by a barani or area development project.

Cost Estimates The total project cost is estimated at $58.6 million equivalent

comprising a foreign exchange cost of $12.0 million, and local currency cost of $46.6 million equivalent.

Financing Plan The proposed financing plan is shown in the following table. It is

proposed that the Asian Development Bank (ADB) finance the foreign exchange cost of $12.0 million as well as a portion of the local currency cost ($29.0 million) to reach a total financing amount of $41.0 million. The balance of the local cost will be covered partly by beneficiary contributions to the VUDC and targeted poverty alleviation activities, and partly by the Government through the payment of duties and taxes and the incremental operational costs of district-level line agencies.

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Financing Plan ($ million)

Source Foreign

Exchange

Local Currency

Total Cost

%

Asian Development Bank 12.0 29.0 41.0 70 Government 0.0 8.8 8.8 15 Beneficiaries 0.0 8.8 8.8 15

Total 12.0 46.6 58.6 100 Loan Amount and Terms The proposed ADB financing from ADB’s Special Funds

resources is equivalent in various currencies to SDR 27,207,000. The loan will have a maturity of 32 years, including a grace period of 8 years with an interest charge of 1% during the grace period and 1.5% thereafter.

Period of Utilization 1 January 2005 to 30 June 2011 Estimated Project Completion Date

31 December 2010

Executing Agency Agency for Barani Area Development (ABAD) Implementation Arrangements

ABAD will be responsible for overall project management and monitoring. This will be carried out by a small project management unit to be set up in ABAD’s head office in Rawalpindi. The implementing agencies for the VUDC will be the district governments of the 10 project districts. ABAD itself will be responsible for the implementation of the targeted poverty alleviation component, the literacy eradication through the skills training component, and the institutional and implementation support component. A project steering committee will undertake broad oversight of the Project and its implementation. A district project implementation committee will be established in each district to oversee and monitor project progress.

Procurement Procurement will be undertaken following ADB’s Guidelines for

Procurement. Civil works will be small to medium scale and scattered, and will thus not be suitable for or of interest to international contractors. Civil works will thus be undertaken through local competitive bidding for local companies or by direct selection for beneficiary user groups.

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Consulting Services Consulting services will be recruited following ADB’s Guidelines on the Use of Consultants. The Project will require support from 399 person-months of consulting services, comprising 42 person-months of international consulting services and 357 months of domestic consulting services. In addition, ABAD will recruit the services of rural support programs, nongovernment organizations, or local consulting companies for the village and union organizers who will work directly in the field with the union administrations, villages, and district agencies to provide on-the-ground support to the VUDC. About 1,080 person-months of village and union organizers input will be required.

Project Benefits and Beneficiaries

The Project will enhance the livelihood and quality of life of about 350,000 households living in the rural areas of 200 of the poorest unions in Punjab that are dependent primarily on precarious rain-fed agriculture as their main source of income. In addition, poorer groups in the project area (about 70,000 households) will be specially targeted for programs that foster group income-enhancing activities.

Risks and Assumptions Successful implementation rests upon several key assumptions and the mitigation of several risks. The design assumes that the community mobilization can be carried out effectively to ensure poverty targeting and a participatory approach. It also assumes that environmental, social, and gender concerns can be safeguarded in implementation. In terms of sustainability, it also assumes that, with project support, the operation and maintenance (O&M) of established facilities will be ensured. The major risks for the Project include: (i) lack of capacity in district line agencies, and (ii) lack of accountability and political patronage at the district-level institutions. For community mobilization, the Project has included established rural support programs operating in the project districts. These institutions already have location-specific, gender- and environment-sensitive programs, staff, procedures, and monitoring systems—all of which can be tapped in support of the Project. For social and environmental safeguards, international consultants for each of these disciplines will be engaged early to establish a framework for screening subprojects. Concerns over O&M will be partly addressed by the requirement for upfront beneficiary contributions, which invests them in project sustainability. For the larger medium-scale infrastructure, such as roads or rural electrification, there will be established line agency procedures and responsibilities. Also, under the Medium Term Budgetary Framework (2004/05–2007/08), O&M benchmarks are being upgraded, and an increasing, dedicated budget is being allocated to district O&M expenditure.

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To offset the risk of limited capacity in line agencies, the Project provides for a specific budget for line agency support in implementation, and for consultants for technical training, guidance, and support. In pursuit of accountability, the design involves a number of independent participants and institutions in implementation; the flow of funds for VUDC is through the government system and within the purview of the Department of Finance; monitoring committees have been established under local devolution; and community organizations have been mobilized to act as concerned interest groups.

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I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan to the Islamic Republic of Pakistan for the Sustainable Livelihoods in Barani Areas Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis 2. Pakistan is one of the Asian Development Bank (ADB) developing member countries that has seen an increase in poverty levels over the past decade. While 26.1% of the country’s population was classified as poor in 1990/91, the proportion had grown to 32.1% by 2000/01. In absolute terms, the number of poor more than doubled to 47 million during the 1990s. Moreover, Pakistan ranks poorly in several major social indicators: infant mortality is 90 per 1,000 live births, malnutrition of children under 5 is 39%, adult literacy is 45% overall (and 31% among women),1 and 45% of the population have no access to health services. Pakistan ranks among the lower quarter of the human development index, with a ranking of 142 among 177 countries, which is lower than other countries in South Asia. 3. Poverty in Pakistan is very much a rural phenomenon linked closely to the economic health of the agriculture sector. About 35 million or 75% of the estimated 47 million poor live in rural areas. This is especially true in Punjab province where 36.3 % of the rural population live below the poverty line. The proposed project districts include the four poorest districts in the province. About 47% of the rural population in these districts are estimated to be poor.2 These high levels of poverty in rural areas tie in closely with particularly low growth rates in the agriculture sector over the past decade. Growth in agricultural gross domestic product has been below 5% for most of the 1990s and, due to a prolonged and serious drought, contracted in 2001 and 2002. As might be expected, unirrigated, or barani3 areas suffered much more severely as a result of the drought than the canal-irrigated areas. Poor yields or complete crop failures forced many farmers into debt and to abandon their lands during this period. Details on recent developments in the agriculture sector and the barani subsector are given in Appendix 1. 4. In addition to its direct relationship with the viability of the agriculture sector, rural poverty is also linked to other factors. Indeed, poor governance has been identified as one of the primary causes of continued poverty in the country and especially in rural areas.4 In response to the need for improved governance in rural areas, the Government has recently taken major steps to restructure its lower institutional levels. These have comprised a devolution of powers and responsibilities to the district, tehsil (subdistrict), and union (sub-subdistrict) levels, most notably the passage of the Punjab Local Government Ordinance of 2001 setting up elected local councils. Elections of representatives to district, tehsil, and union have since taken place. This has been a dramatic development, since with seats reserved for women, small farmers, and the poor, a disadvantaged portion of the population has been given grassroots representation for

1 Equivalent figures for rural areas in Punjab province are 35% and 21%, respectively. 2 Project preparatory technical assistance estimates. 3 The term barani as used in this report refers to areas outside of the command of the extensive irrigation systems

upon which most of Pakistan’s agricultural productivity is based. 4 ADB. 2002. Poverty in Pakistan: Issues, Causes and Institutional Response. Manila.

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the first time. This move toward the decentralization and devolution of powers has been strongly supported by ADB through the Decentralization Support Program, approved in October 2002.5 B. Analysis of Key Problems and Opportunities 5. Around 70% of the cultivated area in Punjab province is within a major irrigated command, allowing farmers reasonably assured access to water and, as a result, both guaranteed and relatively high crop yields. On the remaining 30% of the cultivated area, rain-fed or barani crop production is undertaken without irrigation or with only sparse irrigation from local, often makeshift, sources. In a predominantly arid country like Pakistan this means that farming in these areas is especially prone to drought and consequent crop losses and failures. Despite drought mitigation measures and coping strategies, barani farming is thus both a low productivity and high risk venture. Yields on barani lands are typically, on average, only 30–50% of those on irrigated lands. As a consequence, farm incomes are uncertain and insecure, and poverty levels are high. Within rural areas of the country, then, the barani areas are even more susceptible to high incidences of poverty than other rural areas. 6. Focusing development activities on the barani areas is thus one way of capturing a particularly poor and disadvantaged segment of the population. It was with this in view that the 2002 ADB country programming mission confirmed the Government of Pakistan’s request for technical assistance to prepare a barani area development project in Punjab province. A project of this nature was considered fully consistent with the Government’s vision and development goals articulated in the Ten-Year Perspective Development Plan (2001/02–2010/11) and its poverty alleviation strategy. It was also consistent with the emphasis of the ADB 2002 country strategy, which emphasized poverty alleviation through rural economic growth. 7. The primary problem facing barani areas is a lack of access to water for crop and livestock production and thus lower and uncertain crop yields and livestock productivity. However, many other factors also add to the high levels of poverty in these areas. These include impeded access to markets, inputs, and services due to inadequate or nonexistent transportation infrastructure; a lack of access to electricity, with negative consequences for the productive potential of both agriculture and off-farm sectors; health and productivity constraints arising from limited access to domestic drinking water; a limited range of alternative, high value crops or crop varieties specially adapted to barani areas; inadequate and poorly managed rangelands for livestock; serious loss of productive land due to water and wind erosion; poor access to agriculture and livestock advisory and support services; and low levels of literacy, which impede access to new technologies or the adoption of alternative income-earning activities. 8. In the past, several projects aimed wholly or partly at improvement of barani areas have been undertaken with financing from ADB and other multilateral and bilateral financing institutions (Appendix 2). These include the First and Second Punjab Barani Area Development projects,6 the First7 and Second8 Northwest Frontier Province Barani Area Development

5 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Islamic Republic of Pakistan for the Decentralization Support Program. Manila. 6 ADB. 1990. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Islamic Republic of Pakistan for the Second Barani Area Development Project. Manila. 7 ADB. 1992. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Islamic Republic of Pakistan for the North-West Frontier Province Barani Area Development Project. Manila. 8 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Islamic Republic of Pakistan for the North-West Frontier Province Barani Area Development Project Phase II. Manila.

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projects, the Bahawalpur Rural Development Project,9 and the Dera Ghazi Khan Rural Development Project.10 In the course of these projects, techniques have been developed to enhance crop production on barani lands, improve associated and ancillary income-earning activities such as livestock production, enhance the quality of life in barani areas, and facilitate social organization and mobilization to efficiently and effectively implement development projects. 9. However, large parts of the barani areas in Punjab province have yet to be covered by any type of agricultural or rural development project. Consequently, millions of people in barani areas living both below and just above the poverty line have little access to measures to help improve their livelihoods. Expanding known technologies and development techniques to these areas and supplementing them with innovative measures will help reduce poverty, in a focused and targeted manner, among one of the most disadvantaged groups in the country. Consistent with its rural and agricultural priorities, the government of Punjab places a high priority on the development of the barani areas. Recently a ministerial committee has been constituted by the Chief Minister of Punjab to supervise the development of a comprehensive package for the development of high impact interventions suited to the widely variable agro-ecology of the barani areas. Government’s articulation of the future vision and strategy is reflected in the Punjab Economic Report.11 10. Measures that can be used to enhance livelihoods in rural areas include those (i) that are aimed directly at lifting productivity, (ii) that are aimed at improving the quality of life and thus indirectly enhancing livelihoods, and (iii) that directly impact on both productivity and the quality of life. Productivity in barani areas can be lifted by (i) improving crop yields through improved varieties, farming techniques, and water management; (ii) enhancing productivity in noncrop agriculture, principally livestock production, through improved animal nutrition and health and improved range management; and (iii) enhancing nonfarm incomes through training in skills development and access to financial services, small-scale industries, handicrafts, and provision of services. The quality of life can be improved through provision of safe and accessible drinking water, provision of access to health facilities, and provision or improvement of access to education.12 These measures can, in turn, ultimately lead to enhanced productivity through the reduction of time spent in fetching water (which can account for more than 4 hours a day), reduction in time and work-power lost to illness and disease, and an improvement in the ability to adopt new earnings techniques and skills through literacy and numeracy. Finally, one of the primary measures to be taken to both enhance productivity and improve the quality of life is provision of rural infrastructure, especially rural roads. These can open up new access to markets for produce of the barani areas, reduce transportation costs for outputs and inputs, provide better access to services, and reduce travel time and expenditures for the areas’ population. A further critical measure that can enhance both the quality of life and productivity is rural electrification. This provides both a source of power for productive activities, such as water pumping and small-scale industries, as well as improved access to the outside world through better education and communications.

9 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Islamic Republic of Pakistan for the Bahawalpur Rural Development Project. Manila. 10 ADB. 1997. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Islamic Republic of Pakistan for the Dera Ghazi Khan Rural Development Project. Manila. 11 Pakistan: Punjab Economic Report-Towards a Medium Term Development Strategy (Government of Punjab,

October 2004). 12 Approximately 50% of the population over 5 years of age in the barani areas of the proposed project districts have

never been to a school of any kind.

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11. However, simply replicating past efforts at rural development in barani areas is insufficient. Most of these measures, with the exception of rural electrification, have been used during past barani and rural development projects with mixed results. In terms of project completion reports, the Second Punjab Barani Area Development Project, for example, was assessed as only being partly successful, whereas the North-West Frontier Province Barani Area Development Project was assessed as being successful overall, although some components were not entirely implemented as planned. Moreover, measures that proved successful under one project seemed to have been unsuccessful under the other. For example, village water supply under the Second Punjab Barani Area Development Project was considered successful and sustainable while under the North-West Frontier Province Barani Area Development Project, this component was considered unsuccessful. One of the lessons learned from all such projects and emphasized in project completion reports and project performance audit reports is that for a project in rural areas to be successfully implemented and subsequently successfully sustained, beneficiaries should be fully involved in the identification, design, and implementation of project activities. Another key lesson learned in past and ongoing projects in barani areas is that, while there are many technical interventions that can be used to reduce poverty and enhance the quality of life in barani areas, the key to success is to align these to the local needs of the resource-poor beneficiaries. To a large extent, this means that the beneficiaries should have a major role in both selecting and implementing project-financed interventions that they themselves see as affordable and important in improving their livelihood. Therefore, effective links between the line agencies and community social mobilizers are critical for translating the needs of the resource-poor communities into viable and affordable interventions. 12. In this context, the decentralization reforms currently being undertaken by the Government present a unique opportunity. As a result of the Punjab Local Government Ordinance of 2001, official institutional structures now exist at grassroots level in rural areas to allow elected representation and local management of development activities. In these conditions, it is now possible to combine past experience and lessons learned in barani areas with the new, representative, institutional structures in rural areas (district, tehsil, union, and village councils) to implement a poverty-focused project that will reinforce the ongoing decentralization process and have a strong development impact on the ground. Moreover, barani areas are, almost by definition, areas of high levels of poverty. It will thus now be possible to target areas with high levels of poverty through a beneficiary-driven process. The proposed project has thus been designed to work through the new local government institutions and use the lessons and techniques learned from past barani and rural development projects to make a strong positive impact on the livelihood of barani areas not yet covered by existing barani or rural development projects. This will be achieved through the support of activities, selected and managed by the beneficiaries themselves, that enhance productivity of resources, improve the quality of life for the areas’ population, improve access of the global population to markets through better rural infrastructure, and enhance access to opportunities in skills improvement and enterprise development. 13. Public investment in barani areas is justified because there are large public externalities associated with improved access, with community-level land and water development, with health and education, as well as with organizing intended beneficiaries and groups of the vulnerable poor for participation in livelihood-enhancing activities. Reliance on private sector funding alone would result in underinvestment. Further, the ability to mobilize funds for initial investments is an issue as a large portion of the barani population lives in abject poverty. They have insufficient means or credit standing to secure economically viable investments and barely enough for their day-to-day subsistence needs. ADB lending is justified due to (i) insufficiency of national government funds to effectively cover the capital needs for all areas and sectors of the

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economy, (ii) ADB's ability to leverage poverty-oriented investment through improved governance and enhanced participation by the rural poor, and (iii) the opportunity to strengthen and reinforce the recently promulgated government devolution.

III. THE PROPOSED PROJECT A. Objectives 14. The Project’s objectives, as reflected in the Project Framework in Appendix 3, are to enhance access to land, water, markets, services, agricultural inputs, technologies, and employment for the population of barani areas in order to increase incomes, improve the quality of life and, ultimately, reduce poverty among vulnerable groups within the project area. At the same, the Project will strengthen governance structures, aid the process of devolution, and build the capacity within local governments to plan and implement development activities. The Project will cover those districts and parts of districts in Punjab province that have a substantial area of barani land, but that have yet to be covered by a barani or area development project. B. Components and Outputs 15. Based on past experience, two general types of intervention are envisaged: (i) medium-scale interventions such as the provision of rural access roads, electricity, water storage or conveyance structures, range improvement, social forestry, and the provision of social infrastructure; and (ii) fairly small-scale but intensive activities that can be undertaken by small community groups, such as livestock health improvement, the promotion of improved agricultural practices, the provision of dugwells, on-farm water management and conservation activities, and training programs in literacy or nonfarm livelihood activities. 16. In the current circumstances in Punjab province, it is most appropriate for the former type of investment to be identified at the village and union levels and implemented by the district governments, and for the latter type to be identified and implemented within communities with the assistance of a qualified and experienced rural support program (RSP).13 The proposed Project will thus consist of two main components: the village and union development component (VUDC) designed to identify and implement demand driven medium-scale interventions, and the targeted poverty alleviation component designed to scale up ongoing poverty-targeted activities currently being undertaken by the RSPs to a greater or lesser degree within barani communities of the project area. These two components will be supplemented by the following: Literacy through Skills Training; and Institutional and Implementation Support. 17. The project area will be the barani areas of the 10 districts of Bhakkar, Chakwal, Gujrat, Jhelum, Khushab, Layyah, Mianwali, Narowal, Rawalpindi, and Sialkot, and that have yet to be taken up by a barani or area development project. The barani areas of these districts include a

13 The success of the Aga Khan Rural Support Program as the first large-scale (regional) experiment of social

organization in the rural communities of northern Pakistan gave impetus to the growth of larger (regional and national) rural support programs, primarily supported through endowments received from the Government. RSPs are currently operating in all four provinces, the Northern Areas and Azad Jammu and Kashmir, and aim to reduce poverty and improve the quality of life of the rural poor by harnessing their potential to help themselves. Common areas of support given by RSPs to communities include: technical and financial support for building village physical infrastructure, provision of microcredit, support in the natural resource sectors, small enterprise development, and support to poor communities in the social sectors.

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population of about 3.2 million living in about 2,500 villages organized into 200 unions. The project components will be as follows.

1. Village and Union Development Component

18. The VUDC is designed to provide financing for medium-scale infrastructure and other interventions that will help to stimulate livelihood improvement in the barani areas. These will normally consist of medium-scale rural infrastructure investments, such as upgraded feeder roads, markets and market improvements, power line connections, water conveyance or storage schemes, community groundwater development, erosion control or social forestry measures, shelterbelts, domestic water supply schemes, or any other feasible civil works or natural resources management intervention considered to be of high priority by local populations at the village and union level. By the end of the Project, it is estimated that in each union, two to four medium-scale interventions will be undertaken and over the project period the coverage is likely to extend to 1,800 community/village groups representing 370,000 households. 19. Assistance in assessing development potential within the union, identifying priority poverty targets, and preparing requests and submissions will be provided by a national or provincial RSP, national nongovernment organization (NGO), or a local consulting company recruited by the Project. Staff of the RSP, NGO, or local company will act in an advisory capacity at both the district and union levels to assist in implementation of the component. Implementation will be undertaken under the supervision of district technical line agency staff. These staff and their offices will be provided with technical and logistics support under the Project as appropriate for the interventions being undertaken. Agencies to be supported will include the district offices of Agriculture, Livestock, Communications and Works, Forestry, Community Development, and Soil Conservation. Some interventions, such as rural electrification and range management improvement, will entail nondevolved functions. For these, the relevant provincial or national agency will be retained by the district to undertake implementation. 20. To assist the district line agencies to implement the VUDC and the work with the RSPs under the targeted poverty alleviation component, provision has been made for support, as required for the district-level line agencies.

2. Targeted Poverty Alleviation 21. Through a dedicated Targeted Poverty Alleviation component, the Project also makes provision for small-scale poverty alleviation interventions targeted directly at small beneficiary groups of not less than 10 participants. These will include both men’s community organizations (MCOs) and women’s community organizations (WCOs). Activities will be demand-based and will include such small-scale livelihood activities as the provision of dug-wells, water course lining, farmer field schools for integrated crop management, the provision of livestock for multiplication, the provision of a basic schoolhouse along with literacy and skills training classes, and minor water resource conservation and irrigation infrastructure on a localized basis. Over the project period, about 4,500 MCOs and WCOs are expected to be formed with a total representation of 500,000 households to undertake 10–12 small-scale community infrastructure schemes in each of the 200 unions. Beneficiary participants will need to provide contributions in cash or in kind to varying degrees, based on the policies of the implementing agencies involved. Schemes and investments will be selected to ensure that the benefits are experienced by as wide a cross section of the groups as possible and to avoid appropriation of benefits by

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privileged groups or individuals. The most efficient and effective means of implementing this fund at the community level will be for Agency for Barani Area Development (ABAD) to enter into contracts with RSPs and provide them with the resources needed to scale up their activities.14 In most of the project districts, RSPs,15 either the National Rural Support Program (NRSP) or the Punjab Rural Support Program (PRSP), are already operating, undertaking livelihood activities that directly target the poorer sections of the population. Not only do these RSPs already know the conditions and potential of the project districts but they also have established programs and contacts in many of the barani areas. 22. An integrated approach to natural resorces management will contribute in increasing livestock and farming productivity and hence enhance improve livelihood opportunities for the resource-poor farming community. This component will thus also include a provision for directed, demand-driven research and extension initiatives to be undertaken by the national, provincial, and other research institutions present in the barani areas of Punjab, based on problems identified by community groups. 23. Due to lack of income from farm-related activity in barani areas, improvements to off-farm income in employment and small and microbusiness can result in major benefits to the population. The Project will provide funding and consultancy to the two RSPs working in the project area to change the current focus on vocational training to a demand-based, employer-linked effort in partnership with the private sector and vocational training suppliers with whom the RSPs are already in partnership. The Project will assist RSPs to develop entrepreneur attitudes and small business management training through linking the RSPs to the programs of the Small and Medium Enterprise Development Authority and other enterprise development and training programs. In trades where self-employment and small business are possible, vocational training will be linked to entrepreneurship and small business training as well as follow-up business development services. The Project will strengthen access to microfinance by financing social mobilization costs of RSPs and required skills training for beneficiaries. RSPs and banks (such as Khushali, Zarai Taraqiati Bank of Pakistan, and others) will then be able to provide credit to these mobilized groups from their own funds. (For details see Supplementary Appendix A.)

3. Literacy Through Skills Training

24. One of the primary constraints to development in the project area is the very low literacy rate, especially among women. With low, indeed practically nonexistent literacy and numeracy skills, it is very difficult for the women to learn new livelihood skills. On the other hand, in a very traditional society it is difficult to promote literacy programs without some kind of incentive over and above literacy itself. Combining programs in skills training and literacy is one means of both overcoming illiteracy and promoting livelihood improvements. This is especially the case if skills training can be itself linked to rural finance programs so that the skills can be turned into investments. 25. This component will thus aim at direct poverty alleviation by targeting a particularly deprived section of the population, namely poor women and girls. It will be based on the results of the ADB-financed Technical Assistance (TA) for Non-Formal Primary Education and Functional Literacy for Rural Women in Selected Barani Areas of Punjab (Non-Formal Primary 14 Through these partnerships, linkages with other financial institutions, business development services, and related

development initiatives in the respective union councils and villages will be facilitated. 15 The rationale for partnering with RSPs and a brief note on their history and program are presented in

Supplementary Appendix D.

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Education).16 This TA is designed to support a program of curriculum development for women’s literacy training through the promotion of livelihood skills, as well as nonformal education. 26. The activities under this component will be aimed directly at small groups of 10–15 women participants. Over 12,000 women and girls are expected to benefit from exposure to literacy and basic skills under the component. Under the supervision of the RSP staff working at each union, domestic NGOs will be recruited to identify particularly vulnerable and poverty-affected groups and to organize WCOs among them. As groups are formed, the methodologies worked out under the Non-Formal Primary Education TA will be applied to a combined program of location and needs-specific curriculum development, teacher training in the use of the curriculum materials, skills development, and literacy eradication. Skills to be emphasized will include activities such as small-scale domestic livelihood enterprises like livestock raising, market and kitchen gardening, small-scale handicrafts, food preparation, and tailoring, as well as basic skills such as household health and sanitation, child care, dietary improvement, food preservation, and basic household finances. The particular skills to be learned will be decided upon by the groups themselves. Support for group formation and supervision will be financed by the Project. 27. One of the roles of the RSP will be to provide linkages to the Department of Literacy and Non-Formal Education and other government agencies that provide advice and undertake programs in the areas of skills development selected by the group members. Another will be to establish links to rural finance agencies, which may be able to provide funding for enterprise development. If suitable, the WCOs will be turned into borrowers’ groups for financing provision by rural finance agencies. This possibility may prove an incentive for group formation and encourage participation in literacy program.

4. Institutional and Implementation Support 28. Institutional and implementation support will include (i) the services of an RSP, domestic NGO, or local consulting company to be recruited on contract to provide technical inputs at the union level and to assist with the implementation of the VUDC; (ii) international and domestic consulting services to help initiate and manage the Project, provide guidance to the community organizers, train the staff of district line agencies, and support the staff of ABAD; (iii) support including transport, office space, and equipment as well as incremental staff for a small management unit within the offices of ABAD; and (iv) support to ABAD for the project performance management system. C. Special Features 29. The main special feature of the project design is the effort being made by the Government to ensure that the project management and implementation arrangements conform to the current local government institutional structure. The present implementation and management structure has been designed to strengthen and reinforce the newly revamped local government structure, giving support to ADB’s ongoing efforts to assist the Government with its decentralization efforts. By providing funding and a defined task for unions and districts to perform, the Project is designed to build sound capacity within these institutions and provide a model for future development projects in the rural and agriculture sectors.

16 The advisory technical assistance is financed through the Poverty Alleviation Cooperation Fund and was approved

on 13 October 2004.

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30. Thus far, only 2% of the population in the project area have access to collateral-free credit. Furthermore, several of the unions in the barani areas do not have access to financial services. In partnering with NRSP and PRSP, the Project will facilitate the scaling of the operations of these RSPs to tehsils presently not served by the microfinance institutions. This will result in a significant growth of their client base and in turn access to credit for the people in the project area. In addition, the Project makes provision for specific assistance to communities, RSPs, and other institutions in business development, market-oriented skills development, and on- and off-farm enterprise development opportunities. 31. A further special feature is the strengthening of line agencies that will take place at the district level. Through the Project, improvements will be made to ensure that these agencies, which under the devolution policy now have the mandate for managing rural development activities, have the physical and skills capacity to undertake their responsibilities under a clearly set out performance-based and demand-driven contract modality. 32. Lastly, the Project will take aim at one of the major constraints to sustained livelihood improvement in rural areas of Punjab, i.e., the low educational and skills level of rural women. One component of the Project is expressly designed to help overcome this major deficiency. D. Cost Estimates 33. Summary cost estimates for the Project are provided in Table 1. The total project cost is estimated at $58.6 million, of which the foreign exchange component is $12.0 million and the local currency cost equivalent is $46.6 million. Detailed cost estimates are provided in Appendix 4.

Table 1: Summary Cost Estimates

($ million)

Component Foreign Exchange

Local Currency

Total

A. Base Cost 1. Village and Union Development Component 6.9 28.9 35.8 2. Targeted Poverty alleviation

(including directed agriculture research and off-farm income generation)

2.7 11.5 14.2

3. Literacy Through Skills Training 0.1 0.9 1.0 4 Institutional and Implementation Support 1.1 3.8 4.9 Subtotal (A) 10.8 45.1 55.9 B. Contingenciesa 1. Physical Contingencies 0.1 0.3 0.4 2. Price Escalation 0.1 1.2 1.3 Subtotal (B) 0.2 1.5 1.7 C. Interest During Implementation 1.0 0.0 1.0 Total 12.0 46.6b 58.6 a Price escalation and physical contingencies are not applied to the village and union development and the targeted

poverty alleviation components, which are lump sum provisions. For items with price contingencies, the foreign and domestic escalation rates are 2% and 5% per annum, respectively, throughout the project life.

b Inclusive of duties and taxes estimated at $5.39 million. Source: ADB estimates. E. Financing Plan 34. The proposed financing plan is shown in Table 2. It is proposed that ADB finance the $12.0 million foreign exchange cost as well as a portion of the local currency cost ($29.0 million)

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to reach a total financing amount of $41.0 million. The balance of the local cost will be covered partly by beneficiary contributions to the VUDC and targeted poverty alleviation activities and partly by the Government. The total financing percentage of ADB will be 70%, and that of the Government and the beneficiaries 15% each.

Table 2: Financing Plan ($ million)

Source Foreign

Exchange Local

Currency Total

%

Asian Development Bank 12.0 29.0 41.0 70 Government 0.0 8.8 8.8 15 Beneficiaries 0.0 8.8 8.8 15 Total 12.0 46.6 58.6 100 Source: ADB estimates.

F. Implementation Arrangements

1. Project Management 35. The proposed project management structure is shown in Appendix 5. The Executing Agency for the Project will be ABAD, which will be responsible for overall project management and monitoring. These tasks will be carried out through a project management unit (PMU) to be set up in ABAD’s head office in Rawalpindi. The PMU will be staffed by a full-time project director, a deputy project director, two full-time accountants, three environmental compliance officers, three social and gender compliance officers, a project benefit monitoring officer, and appropriate administrative staff. A district project manager (DPM) and a district project accountant will be appointed within one month of loan effectiveness by ABAD for each Project district. The staffing for the PMU is shown in Supplementary Appendix K. A team of international and domestic consultants will assist ABAD and the respective district governments in the initial years of the Project’s operation. Their initial role will be to help with project start-up and to assist with the identification of a menu of interventions for the VUDC. Later they will advise on the technical aspects of proposed project interventions. 36. The district governments of the 10 project districts will be the implementing agencies for the VUDC. They will be responsible for day-to-day management of the component. The district government will be supported and guided by the DPMs and the district project accountants provided by ABAD as well as by the international and local consultants. ABAD itself will be the implementing agency for the other components of the Project. 37. Broad oversight of the Project and its implementation will be undertaken by a project steering committee. This committee will be chaired by the chairperson, planning and development, of the government of Punjab and will be made up of the secretaries of the key line agencies17, director general of ABAD, and representatives of the RSPs participating in the Project. The district coordination officer of each district covered by the Project may participate in the meeting as required. The committee will meet at least once every 6 months to review the progress of the Project and to act on any issues in need of resolution at the provincial level. 17 Department of Agriculture, Department of Livestock, Department of Literacy and Non Formal, Department of

Communication and Works, Department of Housing, Urban Development and Public Health Engineering, Department of Local Government and Rural Development, Department of Education, Department of Forestry, and Department of Finance.

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38. Implementation of the VUDC may involve a number of different line agencies at the district level. For the coordination and oversight of its implementation, each district government will appoint within one month of loan effectives an executive district officer as the district project coordinator to coordinate and implement the VUDC. 39. A district project implementation committee (DPIC) will supervise and monitor the activities of the project at the district level. The committee will be chaired by the respective district coordination officers18and consist of, among other people, the district project coordinator as the secretary, the DPM (from ABAD), and a representative of the rural support program responsible for social mobilization. The chair of the DPIC will will determine and nominate any other member it deems necessary to be included in the DPIC. 40. A project consultative forum made up of elected representatives of the 10 project districts, representatives of civil society, and other key stakeholders to be selected by the government of Punjab will be established within the first year of the Project. The forum will consult with ABAD semiannually.

2. Implementation of the Village and Union Development Component 41. A flow chart showing the procedures for the selection and approval of interventions under the VUDC is provided in Supplementary Appendix L. Proposals for funding under the VUDC will be generated in the villages in each union by the resident population of the area. ABAD will hire a known and proven RSP, domestic NGO, or local consulting company to provide personnel skilled in community mobilization (village and union coordinators) to help with these activities in each district. The proposals, prepared with the assistance of the village and union coordinators, will be assessed and prioritized by the union council. The endorsed, high priority, interventions will be submitted for technical assessment by the district line agencies and approval by the district development committee. 42. To assist the district line agencies to implement the VUDC, provision has been made for support, as required, on an identified needs basis. This support will be determined during the evaluation of the union council proposals by the district development committee. As the line agencies assess the feasibility of the union council proposals, they will also assess their own needs in order to implement the works involved. This support may include incremental staff on contract, equipment, or training. These requirements will be costed and submitted as part of the overall proposal to the district development committee (Supplementary Appendix I). 43. Upon technical approval, the proposals will be resubmitted as PC1s19 (where appropriate) to the district development committee for final approval of funding. Implementation will be undertaken by the district line agencies following standard government of Punjab procedures and practices. During implementation, the union council will be tasked with monitoring the progress of implementation and ensuring full beneficiary participation in the funded works. The Project will also provide support to build the capacity of the union council to ensure effective monitoring of the activities under this component. This will be done in

18 The district coordination officer is the senior civil servant in the district as provided under Punjab Local Government

Ordinance 2001. 19 Planning Commission Proforma 1 (PC1) – A document prepared by the Government to appraise all investments

exceeding $25,000 (equivalent).

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coordination with other ADB efforts to build the capacity of union administration (such as ADB’s Decentralization Support Program and the proposed Punjab Devolved Social Service Project). The Government has assured ADB that the necessary accountability and transparency mechanism under Punjab Local Government Ordinance 2001 will be adopted to ensure effective implementation and monitoring of the Project. 44. ABAD, along with the project management consultants provided to it, will be responsible for reviewing proposals approved by the district development committee to ensure that the union councils are making effective judgments on the proposals that they accept and that valid proposals are being approved at the district level. Any issues or anomalies will be reported initially to the district project implementation committee and then to the project steering committee.

3. Implementation of the Targeted Poverty Alleviation Component 45. The targeted poverty alleviation component will be undertaken by an RSP currently working in the district concerned. At present NRSP is working, to a greater or lesser degree, in six of the 10 districts and PRSP is working in the other four. ABAD will enter into an agreement with NRSP and PRSP to formalize arrangements for the upscaling of their activities under the Project. This agreement will be based on a work plan submitted to ABAD and the district government by the RSP concerned. The funds provided will amount to around $50,000 equivalent for each union and will be used to support community-based livelihood activities targeted at the poor through the formation of MCOs and WCOs. Activities will include the formation of citizen community boards in order to increase access to the local development funding made available to these groups under Punjab Local Government Ordinance 2001. The RSPs will develop the necessary selection criteria for the activities to be funded under this component. A committee, to include representations from the participating RSPs and the participating district governments and union administration, will be established to select the proposals. Where possible, RSPs will provide training and necessary support for business promotion and enterprise development through collaboration with the Small and Medium Enterprise Development Authority and others as appropriate to help maximize access of beneficiaries to the credit lines available from other sources in the Project. Activities of the RSPs will be undertaken in general coordination with the district project manager. The RSPs will also be required to submit semi-annual reports to the zila council and union council on the implementation of its activities. 4. Implementation of the Literacy Through Skills Training Component 46. Literacy and skills-based training will be undertaken by domestic NGOs recruited by ABAD on the recommendation of the RSP, the concerned executive district officer, literacy and the Department of Literacy and Non-Formal Education. The NGO will operate under the coordination of the district project manager in consultation with the district RSP and the executive district officer, literacy. The selection of skills-based activities to be promoted along with literacy training will be based on proposals made by community organizations to the NGO and or the RSP. Training materials prepared under the Non-Formal Primary Education TA will be used to support location- and needs-specific curriculum validation, teacher training in the use of this curriculum, as well as institutional linkages, skills development, and illiteracy eradication.

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5. Project Implementation and Start-Up 47. In view of the need for a careful start-up period during which the unions are informed of the project and proposals from villages are assembled, as well as the need for community group formation, a rather long project implementation period is necessary, namely 6 years, including 1 year for start-up and 5 years for project implementation. A proposed implementation schedule is shown in Appendix 6. The Executing Agency, ABAD, has experience in implementing internationally financed projects. The RSPs all have extensive experience of community organization and mobilization in rural Pakistan. There is, however, concern by ADB and the Government that the initiation of the Project will be constrained by the weaknesses that are endemic to governance in the context of rural development projects generally in Pakistan, which include delays in appointing staff and consultants responsible for implementation and by problems that may arise as a result of the recent devolution of powers to the district level, in view of staff vacancies and lack of a full systems and procedures. Systems and procedures will need to be set up that conform to both the requirements of the government of Punjab and to those of ADB. Within the first 6 months, it will be necessary to have, recruited and operational, a full complement of staff within the PMU, the full team of consultants, and the village and union organizers and their supervisors. During the following 6 months, pilot activities will be undertaken in one union in each district to test community mobilization and opportunities for off-farm employment generation. 48. Further critical activities to be undertaken during the first year will include the preparation of environmental impact assessment and a gender action plan. These will be prepared as a basis to check all proposed interventions under the VUDC for potential impacts and to suggest possible mitigation measures if required. 6. Procurement 49. Procurement will be undertaken following ADB’s Guidelines for Procurement. In terms of the procurement of vehicles and equipment, no large purchases are required. The procurement of these items will thus be undertaken using either direct purchase or international shopping upon identification of the needs of the implementing agencies. Civil works will be small to medium scale and scattered, and will thus not be suitable for or of interest to international contractors. Moreover, there is adequate capacity to undertake the works required in a suitable manner and at reasonable cost. Civil works will thus be undertaken through local competitive bidding for local companies or by direct selection for beneficiary user groups by utilizing community participation procedures in procurement. In the latter case, disbursement will be on the basis of a statement of expenditures with a portion of the funding being provided by ABAD as an initial start-up payment. The procurement packages are in Appendix 7. 7. Consulting Services 50. The Project will require support from 399 person-months of consulting services comprising 42 person months of international consulting services and 357 months of domestic consulting services. International consulting services will include expertise in the management of rural development projects, environmental impact screening and mitigation, social and gender impact screening and mitigation, groundwater use and monitoring, and project financial management. Domestic consulting services will consist of specialists in project administration, community organization, agriculture, livestock, rural engineering, water conservation, natural resource management, off-farm enterprise development and training, and facilitating mobilization at union level. Consulting services will be recruited following ADB’s Guidelines on

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the Use of Consulting Services and other arrangements for recruitment of domestic consultants acceptable to ADB. With the exception of the international project management specialist who will be recruited early on as an individual consultant, international and local consultants and union and district supervisors will be recruited through a firm or an NGO/RSP using the quality and cost-based system. In addition, using the quality and cost-based system, ABAD will recruit the services of rural support programs, NGOs, or local consulting companies for the village and union organizers who will work directly in the field with the union administrations, villages, and district agencies to provide on the ground support for the VUDC. About 1,080 person-months of village and union organizer input will be required. Detailed terms of reference for consultants and the union organizers are shown in Supplementary Appendix B. 8. Disbursement Arrangements 51. The funds for the ABAD-executed components (targeted poverty alleviation, literacy through skills training, and institutional and implementation support) will be channeled through government budgetary allocations directly from the Department of Finance to the PMU. Funds for these components will then be apportioned to the implementing agency through ABAD. Project initiation and implementation will be facilitated through the establishment of an imprest account so that funds will be available and at the disposal of ABAD at the initiation of the Project. For this purpose, an imprest account will be established at the National Bank of Pakistan in Rawalpindi. The initial advance to the imprest account will be based on estimated expenditures for the first 6 months of the project or 10% of the loan amount, whichever is lower. Detailed arrangements for the establishment and operation of the imprest accounts will be made in accordance with ADB’s Loan Disbursement Handbook. 52. The VUDC funds will be transferred directly by the government of Punjab into separate dedicated project accounts at the district level. These funds will be disbursed upon the final clearance by ABAD of the village and union proposals, after they have been approved by the district development committee. The funds will be used to finance the activities of district line agencies, contractors, suppliers, or beneficiary groups under the VUDC. For this component, imprest accounts will not be required. The government of Punjab has assured that upon loan effectiveness and promptly every 6 months thereafter, adequate funds will be transferred for the planned project activities. These expenditures will be reimbursed using standard withdrawal procedures. The statement of expenditures procedure will be used for reimbursing eligible expenditures and liquidating the imprest account for any individual payment transaction up to $50,000 equivalent. The proceeds of the loan will be made available by the Borrower to the government of Punjab on the same terms and conditions as those between ADB and the Borrower. The funds flow chart is shown in Supplementary Appendix M.

9. Accounts Audits and Reports 53. The government of Punjab will maintain separate accounts and financial statements for funds provided to the Project. These accounts and related financial statements will be audited annually by auditors acceptable to ADB, and will include an audit with a separate opinion on the use of the imprest account and statement of expenditures procedures. The government of Punjab will furnish ADB with the audited accounts and statements not later than 6 months after the end of the related fiscal year. ABAD will submit to ADB, diagnostic quarterly reports detailing the project progress to date, problems encountered, measures taken to overcome them, and expected progress over the next 6 months, as well as any major or serious issues that need to be expeditiously addressed. Six months prior to the completion of the Project, ABAD will submit a project completion report to ADB, detailing the utilization of the loan proceeds, project

15

implementation analysis, and the socioeconomic impact of the Project on the intended beneficiaries.

10. Operation and Maintenance 54. The government of Punjab has provided assurance that all facilities provided under the Project will be operated and maintained following best practices within the country. The government of Punjab has thus agreed that all proposals from union must include (i) an indication of the operation and maintenance (O&M) arrangements to be followed upon completion of project facilities and (ii) a commitment that these arrangements will be put into place. Where the responsibility lies with the district, provincial, or national government, the respective agency will give a written commitment to accept the responsibility for O&M under its regular recurrent budget. Certain investments, for example rural roads and rural electrification, have established O&M procedures. In recent years, under the Medium Term Budgetary Framework (2004/5–2007/8), an increasing and dedicated recurrent budget has been provided for infrastructure and O&M benchmarks have also been upgraded. Furthermore any rural electrification scheme linked to the national grid becomes part of the operational responsibility of the regional power board and will be maintained according to national standards. Other facilities will be operated and maintained according to best practices within their particular sector. Where possible this will entail operation by the beneficiaries using their own funding. 11. Project Performance Monitoring and Evaluation 55. An ongoing project performance management system (PPMS) will be established within 1 year of loan effectiveness. A specific position on the PMU has been designated for a monitoring specialist and this person, with support from consultants, will ensure the operation of the PPMS throughout the project period. At the beginning of the Project and not later than 6 months of loan effectiveness, specific indicators will be identified and further firmed up as a basis for implementation and monitoring. A database of information will be established at ABAD and consist of information collected at all stages, including baseline, surveys, subproject profiles (at initiation), annual monitoring surveys, impact studies, etc. Day to day monitoring of the VUDC will be the responsibility of the concerned union council through its monitoring committees. Implementation monitoring for the targeted poverty alleviation component will be done by the RSPs themselves following their standard procedures. A framework for monitoring literacy through skills training component will be developed in consultation with RSPs, locally recruited NGOs, and participants of the literacy program who in turn will also provide recommendations for indicators to be developed for tracking the usefulness of training in further developing market-oriented skills and institutional linkages. For further details see Supplementary Appendix J.

12. Project Review

56. ABAD and ADB will carry out a project review semiannually. After 3 years of implementation, a full midterm review will be undertaken, which will include a comprehensive evaluation of the project implementation arrangements and project progress to date. It will include consultations with the district development committee, line agencies, union administrations, council members, and targeted beneficiaries. If necessary, recommendations will be made for adjustments to the project scope, implementation arrangements, and cost estimates.

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IV. PROJECT BENEFITS, IMPACTS AND RISKS

A. Benefits and Impacts 57. General. The Project will enhance the livelihood and quality of life of about 350,000 households living in the rural areas of 200 disadvantaged and poor unions in Punjab, which have marginal natural resource endowments and weak social and institutional capacities. Direct income enhancement will be achieved by increased access to markets and inputs for crop agriculture and livestock production; improved access to water for crop irrigation (including the production of fodder crops), livestock watering, and domestic supplies; the improvement of rangelands and pastures; the provision of access to electricity to allow for a variety of productive activities, including off-farm enterprises and access to improved agriculture techniques and technologies especially adapted to arid conditions. In addition, poorer groups in the project area (about 70,000 households) will be specially targeted for programs that foster income enhancing activities through training in new skills, access to credit, small-scale communal infrastructure, and the provision of social support through schools and health posts. 58. Governance and Institutional Aspects. The Project, in its mobilization efforts, will aim to support and strengthen the current move to devolution as promulgated under the Local Government Ordinance of 2001. It will orient communities to deal with the various service delivery departments and make them aware that they do not need to seek patronage and favors of the strong or influential when operating as a collectivity. It will further strengthen the new institutions at the union and district level in the project area to make them responsive to identified community needs. These interventions can positively impact on service delivery structures and mechanisms for rural infrastructure, water management and conservation, rural electrification, agriculture extension, livestock production, primary education and health, and improve quality of life and access to markets and opportunities for the population of the barani areas. 59. Poverty, Gender, and Participation. A summary poverty reduction and social strategy is provided in Appendix 8. It is the overall intent of the Project that it should have a positive social impact on the population of the project area through poverty alleviation, an improvement in the status of women, increases in rural employment possibilities and household incomes, increases in rates of literacy, increases in the general health of the population, and a general improvement in the quality of life. The Project is not only designed to provide improved infrastructure to the populations of some of the poorest and most deprived villages in the country, but also to specifically target poor segments of the population and deprived and underprivileged groups. The Project will have widespread positive impact on the lives of poor and vulnerable inhabitants of the barani areas—small farmers or herders, the landless, and women and children. The overall implementation and delivery modalities being proposed for the Project will contribute to and social development, and minimize asset inequalities generated by the ability of the local elite to influence public expenditure. The involvement of local NGOs, and provincial and national RSPs staffed with an adequate gender balance, will enable the Project to work with organized community groups and utilize the necessary range of targeting methods to reach specific population groups and individual households, reduce social barriers, and maximize the positive impact on women. 60. Project activities identified, designed, and implemented by communities, including women, according to their needs and circumstances will improve food security and nutrition, access to productive resources and goods and services, skills and knowledge, and the awareness of rights and the ability to exercise those rights, among the poor and excluded. Women will be drawn into the mainstream by their involvement in support activities for livestock

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development and in the layout and management of domestic water supply schemes. Adult literacy and skills development for women will positively impact on their self-esteem and status. Indirectly, the advocacy of literate women will help ensure the enrollment of girls in schools. Consistent with ADB’s policy on indigenous peoples, no plan for indigenous peoples needs to be prepared, as all groups will equally benefit from project interventions. 61. Resettlement. The subprojects to be financed under the Project include small- to medium-scale investments that are selected by the beneficiaries in a demand-driven process. Examples include rural access roads built upon existing dirt tracks, village electrification, small water conveyance structures, and range improvements. The scale and nature of the activities are such that those that might potentially be affected by access ways will almost always be those directly benefiting from the investment. No involuntary resettlement effects are foreseen because the beneficiaries themselves will be involved in identifying, designing, and implementing the subproject activities. The Government has provided an assurance that any subprojects that may involve involuntary resettlement would not be included within the scope of the Project. 62. Environmental Impact. As most of the proposed project interventions will be small to medium scale and spread over a large area, significant environmental impacts are not expected as a result of the Project. No significant impacts are expected from the rural infrastructure interventions since existing rights-of-way will be used for any road improvements or the upgrading of walking trails to jeepable tracks. Similarly, rural electrification is not expected to have any significant impacts on the environment through which low kilovolt power lines are constructed. Most agricultural or livestock interventions will be environmentally positive, resulting in enhanced ground cover or improved pasture. Water storage or conservation interventions may have positive effects by reducing erosion (which is a very serious problem in the barani areas). Large amounts of fertilizer or pesticide are not used on barani crops due to the risk of crop losses or crop failure, thus the overuse of agro-chemicals as a result of project interventions is also considered unlikely. Several possible and suggested interventions depend on the use of groundwater either for irrigation, livestock, or domestic water supply. In using the groundwater resource, there is a risk of both overexploitation resulting in the nonsustainable depletion of the resource and overuse in inappropriate soils, resulting in salinization or sodicization. An important part of the terms of reference of the water conservation consultant will thus be to check the status of the groundwater resource in the project area and to provide guidelines on groundwater use to the districts, unions, and RSPs prior to the identification of possible project interventions at the village level. As an additional check on environmental concerns, a consultant will be recruited at the initiation of the Project to prepare guidelines and provide training on environmental screening for proposed interventions for the VUDC. Full-time environmental specialists will be recruited as part of the project management unit to ensure that the screening takes place for each proposed project activity. A summary initial environmental examination of a typical subproject is attached in Appendix 9. Environmental assessment review procedures are provided in Supplementary Appendix C.

63. Economic and Financial Analysis. Investments to be supported by the Project follow a demand-driven, process approach. The main beneficiaries will be the farmers, landless laborers, the unemployed and/or underemployed, livestock holders, women, and children. The project interventions pursue both efficiency and equity objectives. The economic analysis is based on indicative model budgets of potential interventions, which include agriculture and natural resource management, small-scale community infrastructure, and literacy and skills training. The indicative models assess quantifiable and nonquantifiable costs and benefits,

18

impact on income and poverty, economic viability, and distribution. A more detailed discussion of the economic and financial analysis is presented in Appendix 10.20 64. There are ranges of economic internal rates of return (EIRR) for the subprojects, with most clustering near 20% or higher. Sensitivity analysis shows that most EIRRs remain robust when subprojects are subjected to price fluctuations, decreases in benefits, or cost overruns. Based on representative farm models, most increases in income are between PRs2,000 and PRs9,000 per hectare annually. Though each subproject varies in term of its distribution of benefits, it is anticipated that most benefits will accrue to the poor, especially small farmers. It is estimated that 70% of the benefits from irrigation and natural resource management will go to small farmers. Most of the project interventions are labor intensive, and hence will require both skilled and unskilled labor during implementation. The Project will also generate demand for seasonal labor commensurate with the increases in crop and livestock productivity and other related economic activities (transport and rural electrification). Project support for skills enhancement will encourage the labor force to train for gainful employment, facilitate reduction of unemployment and contribute to household income. 65. Sustainability. Two particular factors provide confidence that the project interventions will be sustainable. First, the subprojects will be beneficiary-selected and involve contributions by beneficiaries of time and investment. A formalized, well-defined plan and commitment to O&M is a prerequisite for pursuing most subprojects. Beneficiaries, who are involved from design onward, will be motivated to ensure that project facilities are well maintained and functional. Second, some of the larger investments, for example rural roads and rural electrification, have established O&M procedures. Rural roads are maintained by the district governments and, in recent years under the devolution process, increasing funds have been allocated specifically for O&M. Furthermore, rural electrification schemes linked to the national grid become part of the operational responsibility of the Water and Power Development Authority and will be maintained according to national standards.21 B. Risks 66. The major risks for the Project include: (i) lack of capacity of district line agencies; (ii) lack of accountability at the district-level institutions; (iii) lack of capacity in community mobilization; (iv) insufficient monitoring capacity for tracking the widespread subprojects; (v) lack of social, gender, and environmental safeguards; (vi) political influence and appropriation of project activities; and (vii) deficient O&M. For item (i), the Project provides for a specific budget for line agency support in implementation. In pursuit of accountability (item ii), the design has involved a number of independent participants and institutions in implementation; the flow of funds for VUDC is through the government system and within the purview of the Department of Finance; under local devolution, monitoring committees have been established; and, finally, mobilized community organizations are to act as concerned interest

20 Supplementary Appendix E provides further details on the analyses of subproject investments and possible impact

on beneficiaries. 21 The project performance audit report for the Second Punjab Barani Area Development Project confirmed that the

rural roads improved under that project continue to be well maintained and in good condition. The PPAR also confirms that irrigation facilities provided under that project were well maintained by the owners and that buildings and equipment, which were transferred to the Government’s regular budget after project completion, continue to be well maintained.

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groups. For enhancing capacity in community organization (item iii), the Project has cultivated the participation of RSPs. These institutions already have well-established programs, staff, procedures, and monitoring systems. Also, because of their size and reputation, these institutions can (i) resist local political pressures to sway activities, and (ii) advocate on behalf of the communities if difficulties arise. For monitoring (item iv), the Project provides adequate consultancy services, staff resources, and a realistic framework. For social, gender, and environmental safeguards (item v), consultants are engaged early to establish a framework for screening subprojects. To counter political interference (item vi), there are defined subproject selection criteria and a range of participants involved in the project process. Concerns over O&M (item vii) are addressed by requiring upfront beneficiary contribution supplemented by clearly defined agreements between communities and responsible agencies.

V. ASSURANCES A. Specific Assurances 67. In addition to the standard assurances, the Government has given the following assurances, which are incorporated in the legal documents:

(i) The Government will ensure that within one year of the loan effectiveness all relevant vacant posts in key district line agencies within project area will be filled with full-time staff.

(ii) The Government will ensure that Punjab will transfer funds for the planned activities under the VUDC subject to the fulfillment by project districts and their respective unions of the eligibility criteria under Appendix 11. The Government will also ensure that Punjab will transfer in a timely manner adequate counterpart funds to ABAD in its annual budget to implement effectively the components under the Project other than VUDC.

(iii) The Government will establish within one year of loan effectiveness a PPMS. The Government will ensure that within 6 months of loan effectiveness the PMU will develop criteria for monitoring project implementation and project impact.

(iv) The Government will ensure that the PMU will be fully staffed within one month of loan effectiveness.

(v) The Government will ensure that the activities proposed for the VUDC will only be approved if the beneficiaries and union concerned clearly indicate the degree of beneficiary contribution. The beneficiaries and the union must indicate the arrangements of the operation and maintenance of the scheme proposed and provide written commitments on their willingness to comply with these arrangements.

(vi) The Government will ensure that within six months of loan effectiveness Punjab will develop appropriate framework for the operation and maintenance of all investments made under VUDC.

(vii) The Government will ensure that Punjab will develop the selection criteria for the interventions to be financed under the targeted poverty alleviation component within one month of the loan effectiveness.

(viii) The Government will ensure that land to be utilized for this Project, where possible, will not involve land acquisition or land conversion that might generate involuntary resettlement impacts, including loss of income, resources, or assets for the nontitled. Accordingly, any subproject that may involve involuntary resettlement would not be included within the scope of the Project.

20

(ix) The Government will ensure that all environmental mitigation measures identified in the initial environmental examination are incorporated into the Project design and implemented in accordance with the Borrower’s environmental laws and regulations and ADB’s Environment Policy.

(x) The Government will ensure the timely development and effective implementation of the Gender Action Plan to ensure the equitable and full participation of women in Project activities.

B. Conditions for Loan Effectiveness 68. The following were agreed upon as conditions for effectiveness of the loan after Board approval:

(i) The project steering committee will have been formally established. (ii) Approved arrangements for the flow of project funding are in place between the

provincial government and the district governments. (iii) The approval by government of Punjab of the procedures and criteria for

activities under the VUDC has been obtained.

VI. RECOMMENDATION

69. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADB and recommend that the Board approve the loan in various currencies equivalent to Special Drawing Rights 27,207,000 to the Islamic Republic of Pakistan for the Sustainable Livelihoods in Barani Areas Project from ADB’s Special Funds resources with an interest charge at the rate of 1% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Tadao Chino President

23 November 2004

Appendix 1 21

THE AGRICULTURE SECTOR AND THE BARANI SUBSECTOR

A. The Agriculture Sector 1. Agriculture remains the backbone of Pakistan’s economy. Agricultural production accounts for 23.3% of gross domestic product, 42% of employment, and 70% of exports. It is also the largest source of foreign exchange earnings. Moreover, agriculture supplies 60% of the raw materials for the industry sector, primarily cotton, sugar, wool, and leather, and comprises a substantial market for industrial products in the form of machinery and agricultural inputs and materials. 2. Due to the country’s generally arid climate, over 90% of the total crop output comes from irrigated land. One of the country’s main attributes is its large and extensive canal irrigation network, comprising one of the largest irrigated systems in the world. This network, along with a tropical/subtropical climate and relatively fertile soils, represents a productive asset and the country’s main economic base. Major crops produced include wheat, cotton, rice, sugarcane, and fodder crops; however, the country has recently begun moving to higher value crops such as citrus and other fruits for export. Through a combination of development efforts and improved technology (primarily the use of high yielding varieties and fertilizers), Pakistan attained food self-sufficiency in the 1980s but has since struggled to maintain this situation due to a lack of price incentives and a continually increasing population. 3. A major component of the agriculture sector is the livestock subsector, which accounts for about 49% of value added in the sector and 11.4% of gross domestic product. Almost all rural households raise livestock and this accounts for some 30–40% of household income on average. The livestock population consists of cattle, buffalo, sheep, goats, camels, horses, donkeys and mules. Livestock production is important in both irrigated and nonirrigated areas but tends to play a more critical role in nonirrigated areas. However, the production of fodder crops and poultry feed constitutes an increasingly important aspect of irrigated agriculture. 4. Overall, agricultural growth has been unimpressive over the past decade or so. While neighboring countries have been growing more rapidly, Pakistan’s agricultural growth during the 1990s averaged about only 3%, staying just ahead of average population growth of 2.5%. Moreover, a particularly serious drought lasting from late 2001 to 2003 had a significantly negative impact on the sector in 2001 and 2002, despite the fact that most of the country’s agriculture is irrigated. The agriculture sector suffered declines of 2.7% in 2001 and 0.1% in 2002.1 There was, however, a recovery in 2003, with growth up by 4.1%, albeit from the reduced drought production levels. 5. Constraints on growth in the sector include imperfections in land markets and land distribution (including a high degree of fragmentation); inefficiencies in irrigation management including excessive losses and inequitable distribution; deterioration in land quality due to poor irrigation practices; an inadequate rural transport network resulting in limited access to inputs and to markets; inefficiencies as a result of public sector involvement in input and output markets; and restricted access to credit by small farmers.

1 Government of Pakistan. 2004. Pakistan Economic Survey 2003–04. Islamabad.

22 Appendix 1

B. The Barani Subsector 6. Barani areas are outside the major canal commands. These constitute about one quarter of the cultivated land area of the country, but account for only 10% of crop production. These lands are very diverse and range from upland mountain areas to lowland, semidesert areas at the fringes of, or out of reach of, the canal-irrigated command areas. In some cases, especially in the north, sufficient water is available for annual cropping. While in others, drought resistant crops predominate, and yet in others, crops are planted on a speculative basis and abandoned or used as fodder for livestock if rains are insufficient to bring the crop to maturity. 7. The crops grown and the cropping patterns in barani areas also differ from irrigated areas. Minor, drought-resistant crops such as chickpea, peanut, and oilseeds are common. In two of the proposed project districts, the barani areas account for 80% of the chickpea production of the whole province. Drought-resistant wheat is also tried where sufficient moisture is available, especially in the more northerly areas. Livestock accounts for a much larger portion of household income than in irrigated areas, estimated at about 70% by the project preparatory technical assistance consultants. 8. While some barani areas now have some access to water through tube wells and small water conservation structures (such as small dams), the dependency on rainfall and thus the susceptibility to drought is much greater than in irrigated areas. Farming on barani lands is thus a much more precarious occupation than farming within the irrigated command areas. The most recent 2001–2003 drought had a devastating effect on many barani areas, especially those in the more arid regions. In some districts of Punjab, the barani crop has failed for 3 years in a row, resulting in forced migration to urban areas, serious indebtedness, and the impoverishment of many families that had previously enjoyed incomes above the poverty line. Fortunately a significant amount of family incomes in the barani areas has traditionally come from remittances and this source of income has served to prevent abject famine or dire poverty. 9. More optimistically, agricultural production in barani areas over the past two decades has shown some advances. Through public sector development efforts and private sector initiatives, access to water has shown some improvement through small-scale irrigation, small to medium water-storage structures, groundwater use, and water-conservation practices. In addition, access and egress from barani areas to markets and services has been improved. As a result, in some parts of the barani areas there has also been an increase in the production of high value crops such fruit trees and short-season vegetables, which are now more easily marketed in nearby urban areas. The future for barani agriculture is thus not entirely bleak. However, production will always be precarious as long as water is in short supply and rainfall uncertain. Since there is no way that all barani lands can be covered by small-scale or groundwater irrigation, the risks of barani farming will always be higher than for farming within the irrigated command areas. C. Government Plans and Policies 10. The Economic Advisory Board of the Ministry of Finance prepared an Economic Revival Program in 2001 in which it was recognized that increasing growth in agriculture will assure significant poverty alleviation in rural areas. In addition, the Ministry of Food, Agriculture and Livestock (MINFAL) has prepared a paper entitled ”Agriculture Strategies for the First Decade of the New Millennium,” which recognizes that agricultural production has stagnated and is no longer keeping pace with population growth. In response, the strategy paper sets goals of achieving an annual production rate of 5% and achieving food security and self-reliance by

Appendix 1 23

2010. The most recent (initiated in December 2003) articulation of the strategy was reflected in the Punjab Economic Report prepared by the government of Punjab with assistance from the Asian Development Bank (ADB), World Bank, and Department for International Development. The objective of the report is to provide an analytical and policy underpinning for Punjab’s development strategy. The overriding concern is to provide a better life for the province’s citizens. In the short to medium term, the provision of this better life depends essentially on two considerations. First, incomes must be increased; second, the delivery of public services must be improved. It is recognized that agriculture is a major contributor to Punjab’s economy, accounting for roughly 28% of its output and providing direct employment to over 40% of the workforce. While total employment in agriculture has stagnated during the past decade, more efficient utilization of Punjab’s public resources and abundant natural endowments, in combination with measures to promote agricultural diversification away from cereal crops to other more labor-intensive activities, can help unlock this sector’s tremendous employment-generation potential. Allocation of public resources to and within the sector is one of the major ways that the government of Punjab can influence growth and employment generation in agriculture. In order to reverse the decline in total public expenditures in agriculture as well as improve the composition of public spending in this sector, the report, among other things, recommends that the provincial government should increase public investment, particularly on water management and research; rationalize public spending on agriculture support services; focus on pedigree registration systems, capacity building, and strengthening of private breeder associations, as well as control of livestock disease epidemics; and improve cost recovery, in conjunction with devolution to user associations. The report recommends a sustained focus on integrated pest management in view of the environmental and health problems associated with the high levels of pesticides used. 11. Other aspects covered relate to rationalizing the wheat procurement and storage policy, modernizing wholesale markets, and improving functioning of land and water markets. Finally, the report reinforces the view that a strong agricultural innovation system is critical to modernizing agriculture, as a large part of future productivity gains and of quality enhancement. Diversification must be provided through generation, adaptation, and dissemination of new technologies and information. The report recommends establishment by the Government of a competitive fund to support high priority research, providing operating costs to research by allocation on a competitive basis. The report recognizes that in translating these into reality, an important challenge in view of recent devolution and past performance will be to tackle the capacity and institutional constraints. 12. To specifically address issues in the barani areas of Punjab, a ministerial committee was constituted by Punjab’s chief minister in March 2004, and measures are being identified to enhance agricultural productivity and improve livelihoods in the barani areas to address the specific needs of the diverse agro-ecological zones in the barani areas of Punjab. In support of these needs-based initiatives, a series of interventions are being made to introduce participatory approaches in crop production, with a focus on quality seed and improved varieties, access to better quality animal-breeding stock, improved management of rangelands, water resource development, and infrastructure. D. Asian Development Bank Strategy 13. The focus of the current country strategy and program is on supporting poverty alleviation through provision of assistance in the key economic areas of good governance, sustainable pro-poor economic growth, and inclusive social development. Under good governance the country strategy and program emphasizes successful implementation of recent

24 Appendix 1

governance reforms, especially devolution of powers to local governments. ADB is actively involved in this effort through its support for the Decentralization Support Program.2 14. With specific respect to agriculture and rural development, ADB strategy aims at increased agricultural growth rates and enhanced exports of agricultural commodities, leading to a reduction in the proportion of the rural population living in absolute poverty being reduced by one half through rapid income growth and a reduction in food and human poverty. This is to be achieved through the support of a series of rural development, livelihood enhancement, water sector projects and agriculture and agribusiness development investments targeted at the poorer areas of the country. Through the ADB Agriculture Sector Program Loan II,3 the Government, including the government of Punjab, is moving toward market-based agricultural output and has decided to phase out price supports and subsidies while at the same time promoting increased exports, private competition, and joint farmer storage and marketing activities. Through this process ADB has maintained a sustained dialogue with all the four provinces and Punjab in order to facilitate the development of consistent policy by laying out a framework for intervention that defines a tolerable level of price variability, minimizes fiscal outlays, minimizes distortions to long-run market equilibrium prices, maximizes private sector participation and competitive markets, and ensures that the poorest are the major beneficiaries of fiscal expenditures. E. Lessons Learned 15. Over the past two decades, ADB has been involved in a number of rural development projects in Pakistan, some of which focused on barani areas and others which covered both barani and irrigated areas. Most rural development projects in the country have been considered generally successful in achieving an improved standard of living in the rural areas being targeted. On the other hand, most have also had some type of implementation or sustainability issues. 16. Experience from past projects has repeatedly shown that a participatory, demand-driven approach is important for targeting the poor, providing appropriate interventions, imparting cost-effective solutions, and ensuring sustainability. It has also been demonstrated that (i) implementing a project in a poor region does not have an automatic impact on poverty alleviation unless specific measures are taken to target the poor; (ii) weak targeting criteria and nonadherence to the targeting resulted in failure to reach the poor (small farmers, landless, and poor women); (iii) lack of a gender sensitive approach leading to limited outreach to women; (iv) inadequate extension training focused on women engaged in livestock rearing; (v) landless poor women remained excluded from rural credit; (vi) development projects were identified by outsiders without involvement of the intended beneficiaries; (vii) selection of infrastructure projects was reportedly influenced by political interests; (viii) there was inadequate attention on building sustainable institutions and community organizations, as well as a lack of community ownership of the project. Experience of other international financing agencies such as the International Fund for Agricultural Development and Department for International Development also indicates that lack of poverty focus of the line agencies and the poor delivery of appropriate services to the resource-poor has also been a major issue in achieving project objectives. 2 ADB. 2002. Report and Recommendation of the President to the Board of Directors on the Proposed Program and

Technical Assistance Loans to the Islamic Republic of Pakistan for the Decentralization Support Program. Manila. 3 ADB 2001. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the

Islamic Republic of Pakistan for the Agriculture Sector Program II. Manila.

Appendix 1 25

These are in addition to the concerns relating to lack of gender awareness in service delivery, and inadequate focus on environmental safeguards and sustainability of investments. Insufficient focus and overly complicated monitoring and evaluation systems have also been identified in the projects financed by ADB and other development partners. If rural development projects are to be responsive they must be flexible enough to meet a range of beneficiary concerns and the management system should be decentralized so that project staff, line agencies, and nongovernment organizations (NGOs)/rural support programs (RSPs) can work in concert in the field to respond to actual needs. Communities are generally diverse and their needs vary. No standard package can be designed to fit all. If the directions are set from the grassroots and the service providers respond with a range of simple, low-cost technologies and interventions, then the planning and coordination effort is minimized, especially if the project management has a good degree of autonomy and is situated relatively close to the communities it serves. Close collaboration between line agencies and social mobilizers from RSPs and NGOs is critical if appropriate and relevant intervention packages have to be designed for the resource-poor communities implemented and sustained. Simplified and participatory monitoring and evaluation processes are critical to support effective and institutionalized monitoring and evaluation processes. F. Project Interventions in Agriculture 17. The Project will work to strengthen livelihood in agriculture and livestock. Pilots will be undertaken for a range of measures to be replicated, as communities deem worthy. In agriculture, the following will be prospects for farmers: improved seed supply, applied research, strengthened extension, and better on-farm water management. In livestock, breed improvement, and better veterinary services and husbandry practices will be options. In natural resource management, rangeland and pastures development, community afforestation, and soil and water conservation will be possibilities for villagers. 18. A series of interventions designed under other ongoing projects in the barani areas are appropriate for the Project. These include participatory approaches in crop production, with a focus on quality seed and improved varieties, access to better quality breeding stock, improved management of rangelands, and a range of interventions in water resource conservation and development. Provision has also been made to facilitate, on a competitive basis through well-articulated proposals, collaboration between district technical staff and provincial institutions, such as research services that are charged with development and validation of new interventions. Within extension, the Project will attempt to build on and replicate successes in recent years in the National Integrated Pest Management Programme (NIPMP).4 This program has inculcated integrated crop management via through farmer field schools (FFS). This is an eco-system approach to agriculture that takes into account a broad range environmental factors rather than just pests, including beneficial organisms, other-plant hosts, weather, weeds, water, nutrients, and soil. Integrated crop management does not mean "no pesticides", but entails considering a range of other cultural factors before turning to expensive and potentially harmful agrochemicals. The FFS approach to technology transfer is learner-centered and differs from traditional, top-down extension methods. Facilitated farmer learning, rather than instruction, is the focus. The goal of FFS is to empower farmers with knowledge, management skills, and confidence so that they can ultimately make informed, rational decisions concerning crop management and pest control. In pilot areas in Punjab and Sindh, the NIPMP has been popularly accepted and appreciated in rural communities. The national and provincial 4 ADB. 1999. Technical Assistance to the Islamic Republic of Pakistan for Integrated Pest Management. Manila.

26 Appendix 1

governments have also taken notice and committed resources to expanding the pilot program. See Supplementary Appendix G for further details. 19. In conclusion, agriculture in barani areas poses a number of unique opportunities and constraints. Through a menu of options to be made available under the Project, village-farming communities will be active in establishing demand-driven, participatory approaches to improving agricultural livelihoods. The Project will contribute to lasting community and government capacities to realize resource potential.

Appendix 2 27

EXTERNAL ASSISTANCE TO THE SECTOR Project

Funding Agencies Amount ($ million)

Approval Year

Small and Medium Enterprise Sector Development Program

ADB 152.0 2003

Small and Medium Enterprise Sector Development Program (Project Loan)

ADB 18.0 2003

Decentralization Support Program

ADB 205 2002

Rural Finance Sector Development Program (Program Loan)

ADB 225.0 2002

Rural Finance Sector Development Program (Project Loan)

ADB 25.0 2002

Sindh Rural Development Project ADB 50.0 2002 Agriculture Sector Program Loan IIa

ADB 350.0 2001

North-West Frontier Province Barani Area Development Project—Phase II

ADB, IFAD

52.0 2000

South FATA Development Project IFAD 17.0 2000

Bajaur Area Development Project NAS 4.0 2000 Mohmand Area Development Project NAS

2000

Khyber Area Development Project NAS

2000

Malakand Rural Development Project ADB 41.0 1999

Barani Village Development Project (Punjab) IFAD 15.3 1999

Dir Area Support Project IFAD 13.0 1997

Dera Ghazi Khan Rural Development Project ADB 36.0 1997

Bahawalpur Rural Development Project ADB, Islamic Development Bank

45.0 1996

North-West Frontier Province Barani Area Development Project

ADB 32.8 1992

Mansehra Village Support Project IFAD 14.5 1992

Kalam Integrated Rural Development Project, NWFP (Phase IV)

Swiss Agency for Development Cooperation

3.5 1992

Support to Neelum and Jhelum Valleys Community Development Project

IFAD 5.8 1991

Second Barani Area Development (Punjab) ADB 25.0 1990

Support For the Rural Population in Chitral District

European Community 10.1 1990

ADB = Asian Development Bank, FATA = Federally Administered Tribal Areas, IFAD = International Fund for Agricultural Development, NAS = Narcotics Affairs Section of the United States Embassy, NWFP = North-West Frontier Province. a Loan 1877—$123.0 million; Loan 1878—$225.00 million; Loan 1879—$2.0 million. Source: Asian Development Bank.

28 Appendix 3

PROJECT FRAMEWORK Design Summary Performance

Indicators/Targets Monitoring Mechanisms Assumptions and Risks

A. Goals 1. Improved quality of life 2. Reduced poverty 3. Better natural resources

management

• Increased farm productivity • Increase in employment

and enterprises • Increase in per capita

income and improved social welfare

Government statistics on agriculture productivity, employment, household income, expenditure surveys

B. Purpose/Objective Enhanced access to land, water, markets, services, agriculture inputs, technologies and employment for the population of the barani areas.

• Increased crop and

livestock production by 15–20% in target areas

• Increased traffic on targeted union roads

• Increased electricity coverage in barani villages (% of households) in targeted unions

• Increased agriculture input sales in union markets

• Lower costs for consumables and higher production prices at targeted union markets

• Increased use of health and education services in targeted unions (number of health provider contacts; enrollment rate for girls and boys)

• Increased levels of literacy

Annual production statistics of the government of Punjab Specific project benefit monitoring surveys

Assumptions • Effective and timely

implementation of project components.

• No interference from competing demands on the availability of district line agency staff

• Social constraints on women are surmounted to allow full participation in the project.

Risks • Lack of capacity in line

agencies • Effective and timely

implementation of project components

• Deficiency in O&M

C. Components/Outputs 1. Village and Union

Development Fund

1.1 Community-based medium-scale initiatives

• By the end of the Project, two to four significant development interventions (rural link roads, jeepable tracks, market improvement, rural electrification, water storage, water conveyance, water conservation, range management, agriculture improvement) are undertaken by 1,800 community/village groups representing 370,000 households in each of the 200 unions

• At least 20% of the

population of each union belongs to a community organization

• Project Implementation monitoring through progress reports, semiannual and annual reports of district project managers

• Review missions • Project benefit monitoring

surveys

Assumptions • Scope exists within

rain-fed union for economically feasible development interventions

• Rural support programs in project area continue to operate efficiently and effectively with adequate resources

• Interested and competent local NGOs can be identified to implement the component

Continued on next page

Appendix 3 29

Design Summary Performance Indicators/Targets Monitoring Mechanisms Assumptions and

Risks

1.2 District line agencies support

• By the end of the Project, line agencies are strengthened and provide adequate support to UCs and CBOs to identify and implement development interventions

• District line agencies are able to provide competent staff and effective delivery of services

• Research institutions are able to respond rapidly to the needs of the farming community

1.3 RSP support to union

council

• The RSPs in the project area are strengthened to upscale their outreach and facilitate target groups to initiate poverty focus interventions

Risks • Political influence and

steering at project activities

• Lack of accountability in line agencies

2. Targeted Poverty alleviation Fund

2.1 Group-based small-scale initiatives

• By the end of Project, 4,500 COs (men and women) are formed with a total membership of 68,000 to undertake 10-12 small-scale community infrastructure schemes in each of the 200 unions, combined with community training, enterprise development and access to credit to about 500,000 households over the project period.

• Regular rural support program monitoring and reporting and project benefit monitoring surveys

Assumption Activities of service providers are relevant to needs and desires of rural populace, and activities can be scaled up. Risk Lack of capacity in community mobilization

2.2 Off-farm employment opportunities

• About 20,000–30,000 men and women receive market oriented training and enterprise development support through linkages established with institutions.

• Project benefit monitoring surveys

2.3 Directed agriculture research

• Farmers have been able to identify the specific problem areas

• Research funding was

accessed by researchers and solutions provided

• Project benefit monitoring surveys

Assumption Linkages between farmers, extension, and researchers are functional to facilitate two-way flow of information. Risk Lack of applied approaches that can easily be disseminated in the field

3. Literacy Through Skills-based Training

• 12,000 women and girls provided with training in literacy and basic skills

• Project benefit monitoring surveys

AssumptionThere is cultural acceptance of women’s

Continued on next page

30 Appendix 3

Design Summary Performance Indicators/Targets Monitoring Mechanisms Assumptions and

Risks • Poor and marginal,

especially women, groups have been formed and are active

gathering outside the home for self-advancement. Risk Training materials are not relevant and of interest to women

4. Institutional Support • Project staff is in place and operational

• International and national consultants have been identified, hired and are in place.

• Project benefit monitoring surveys

Assumption Qualified staff and consultants can be procured in a timely manner. Risk Insufficient monitoring capacity to track widespread subprojects

D. Inputs 1. Village and Union

Development Component and Union Development Fund

• Approximately $150,000

disbursed per union council • Support provided through

900 person months of input by union council organizers and180 person months input by district supervisors

• Project Implementation

monitoring through progress reports, semiannual and annual reports of district project managers

Assumption District and union administration staff capable of identifying and implementing demand-based interventions (with assistance from union organizers) Risk Community trust and are willing to work with line agencies

2. Targeted Poverty alleviation Allocation

• About $75,000 disbursed in each union council through scaled-up rural support program

• $3.0 million allocated to strengthen district line agencies to support implementation.

• Regular rural support program monitoring and reporting, semiannual and annual reports by district project managers

• Semiannual and annual reports by district project managers

Assumptions • Rural support

programs can be scaled up fast enough

• Interested and competent domestic NGOs can be identified to implement the component

Risk Inability of RSPs/NGOs to work amicably with communities and government entities

• Employment opportunities

created and enterprises supported

• Semiannual and annual

reports by ABAD

Assumptions Competent managerial staff are appointed by ABAD and remain with the project

Continued on next page

Appendix 3 31

Design Summary Performance Indicators/Targets Monitoring Mechanisms Assumptions and

Risks 3. Literacy Through Skills

Training

• 60 literacy trainers • Materials disseminated

• Individual consultant reports

Competent training and relevant curricula are established

4. Project Management Support

• 2,232 person months of project management input by ABAD

• 399 person-months of technical and project management consultancy provided (42 international and 357 domestic person-months)

ABAD = Agency for Barani Area Development, CBO = community-based organization, CO = community organizer, NGO = nongovernment organization, O&M = operation and maintenance, RSP = rural support program, UC = Union Council.

32 Appendix 5

COST ESTIMATES AND FINANCING PLAN

Table A4.1: Components Project Cost Summary % % Total (Local Million) ($ '000) Foreign BaseItem Local Foreign Total Local Foreign Total Exchange CostsA. Village and Union Development Component

1. Community-based medium-scale initiatives 1,471 368 1,839 24,850 6,213 31,063 20 562. District line agencies support 120 29 150 2,035 494 2,530 20 53. Support to Union 123 3 125 2,075 45 2,119 2 4

Subtotal Union Council Development Fund 1,714 400 2,114 28,960 6,752 35,712 19 64B. Targeted Poverty Alleviation Component

1. Group-based small-scale poverty alleviation initiatives 610 152 762 10,300 2,575 12,875 20 232. Directed agriculture research 23 6 29 389 97 486 20 13. Off-farm income generation support 52 0 52 874 0 874 0 2

Subtotal Targeted Poverty Alleviation Fund 685 158 843 11,563 2,672 14,235 19 25C. Literacy through Skills Training Component 57 1 58 968 17 985 2 2D. Institutional and implementation support 230 61 292 3,892 1,038 4,930 21 9 Total Baseline Costs 2,687 620 3,307 45,382 10,479 55,861 19 100

Physical Contingencies 19 2 20 317 28 345 8 1Price Contingencies 77 5 81 1,295 81 1,376 6 2

Total Project Costs 2,782 627 3,409 46,994 10,588 57,582 18 103Interest During Implementation 0 58 58 0 985 985 100 2

Total Costs to be Financed 2,782 685 3,467 46,994 11,574 58,568 20 105

Source: Asian Development Bank estimates.

Appendix 4 33

Table A4.2: Expenditure Accounts by Financiersa ($ ‘000)

ADB Beneficiaries GoP Total

Item Amount % Amount % Amount % Amount %I. Investment Costs

A. Vehicles and Motorcycles 1. Car/Pickup 367 50 0 0 366 50 734 1.32. Motorcycle 45 50 0 0 45 50 90 0.2

Subtotal Vehicles and motorcycles 413 50 0 0 411 50 824 1.5B. Equipment, Furniture, Supplies 103 95 0 0 5 5 108 0.2C. Development fund

1. Community-based Medium-scale initiatives 19,880 64 6,213 20 4,970 16 31,063 53.02. Group-based Targeted Small-scale Poverty Alleviation Initiatives 9,270 72 2,575 20 1,030 8 12,875 22.0

Subtotal Development fund 29,150 66 8,788 20 6,000 14 43,938 75.0D. District Line Agency Support 3,071 95 0 0 162 5 3,233 5.5E. Directed Agriculture Research 461 95 0 0 24 5 486 0.8F. Skills Training 291 95 0 0 15 5 306 0.5G. Service Providers

1. Support to Union Councils 2,162 95 0 0 114 5 2,276 3.92. Support for Off-farm Income Generation 872 95 0 0 46 5 918 1.63. NGO/CBO Services for Literacy and Skills Training 706 95 0 0 37 5 743 1.3

Subtotal Service Providers 3,740 95 0 0 197 5 3,937 6.8H. Consulting Services

1. International Consultants 955 100 0 0 0 0 955 1.62. National Consultants 1,284 95 0 0 68 5 1,351 2.33. Consultant Supportb 399 95 0 0 21 5 420 0.7

Subtotal Consulting Services 2,637 97 0 0 89 3 2,726 4.6I. Implementation and supervision

1. Salaries 0 0 0 0 918 100 918 1.62. Overheads a. Logistics Support a 0 0 0 0 961 87 1,107 1.9 b. Vehicle Operations Cost 146 13 0 0 0 0 0 0 Subtotal Overheads 146 13 0 0 961 87 1,107 1.9

Subtotal Implementation and supervision 146 7 0 0 1,879 93 2,026 3.5 Total Investment Costs 40,012 70 8,788 15 8,783 15 57,582 98.3II. Recurrent Costs Total Project Costs 40,012 70 8,788 15 8,783 15 57,582 98.3

Interest During Implementation 985 100 0 0 0 0 985 1.7 Total Disbursement 40,997 70 8,788 15 8,783 15 58,567 100.0

ADB = Asian Development Bank, CBO = community based organization, GoP = Government of Punjab, NGO = nongovernment organization. a Figures may not add up due to rounding. b Includes office space, utilities, maintenance, reports and supplies. Source: Asian Development Bank estimates.

34 Appendix 5

PROJECT ORGANIZATION CHART AND FUNCTIONS OF COMMITTEES AND OFFICES

PROJECT STEERING COMMITTEE

Headed by Chairman (Planning and Development), Secretaries of the key line agencies (Local Government and Rural

Development, Agriculture, Livestock, Forestry, Communications and Works, Education, Literacy

and Nonformal Education, and others as relevant), the Director General of ABAD,

representatives of the participating RSPs and District Coordination Officers, as requested

PROJECT MANAGEMENT UNIT(Located in ABAD)

Project Manager, Deputy Project Manager, Accountants, Environmental Compliance Officers,

Social Gender Compliance Officers, Project Benefit Monitoring Officer, Support Staff

DISTRICT GOVERNMENTS

Ten Barani Districts

DISTRICT PROJECT MANAGEMENT UNIT

District Project Manager, Project Accountant

DISTRICT DEVELOPMENT COMMITTEE

District Coordination Officer

DISTRICT LINE AGENCIESLocal Government and Rural

Development, Agriculture, Livestock, Social Forestry, Communications and

Works, Education, Literacy, and Community Organization and others as

relevant(UNION COUNCILS

RURAL SUPPORT PROGRAMS/PARTICIPATORY

INSTITUTIONSDistrict Supervisor, Union

Council Coordinator, Others

COMMUNITY ORGANIZATIONS

Male and FemaleVILLAGES AND VILLAGE

GROUPS

RSPs/SERVICE PROVIDERS

(Employment Training, Research, Literacy, etc.)

DISTRICT IMPLEMENTATION COMMITTEE

Chair - District Project Coordination Officer, Secretary -

District Coordinator, RSP Representative, District Project

Manager, Others

PROJECT CONSULTATIVE FORUM

Selection of elected representatives of the ten project districts, representatives of civil society and other key stakeholders to be

selected by Government of Punjab

DISTRICT PROJECT COORDINATOR

ABAD = Agency for Barani Area Development, RSP = rural support program.

Appendix 5 35

FUNCTIONS OF COMMITTEES AND OFFICES 1. Project Steering Committee

• Reviews overall progress of the Project and acts on issues in need of resolution at province level

• Focal body for receiving recommendations and acting on independent reviews of Project, if any

• Final authority for approving changes in implementation arrangements or scope of Project, in consultation with ADB

2. Project Consultative Forum

• Body formed to include and inform selected elected representatives, representatives of civil society and other key stakeholders of project scope, implementation, and progress

3. Project Management Unit

• Provides overall interagency, RSP/NGO, and interdistrict coordination of project activities • Prepares overall project implementation plan and consolidated annual work plan • Manages accounting system for the overall Project and coordinates flow of funds • Establishes and execute PPMS and provide required reporting under the Project • Ensures environmental and social compliance of all project activities • Support and brief district governments and union administrations on the intent, scope and

implementation arrangements of the Project. • Prepare all the relevant reports under the Project.

4. District Development Committee

• Responsible for ensuring technical evaluation VUDC subprojects • Approves viable subprojects for implementation as per agreed project criteria • Ensures the establishment of viable O&M plans for project-financed interventions • Facilitates the formulation of PC1s, as required

5. District Project Coordinator

• Acts as the lead/focal official for project implementation at district level • Coordinates district government participation in project implementation at district level • Acts as secretary in coordinating the district project implementation committee

6. District Project Implementation Committee

• Monitors and reviews project implementation at district level • Identifies and addresses issues in project implementation • Ensures cooperation and collaboration of district and tehsil line agencies • Ensures establishment of oversight committees, and assesses progress in preparation of

bylaws required under the Project to ensure the presence of proper monitoring and accountability mechanisms as provided under Punjab Local Government Ordinance 2001

• Ensure that interventions selected under the Targeted Poverty Alleviation Component are in accordance with the agreed criteria.

7. District Project Manager

• Manages implementation of the VUDC at district level • Coordinates and monitors implementation of Targeted Poverty Alleviation Component and

Literacy through Skills Training Component at district level • Consolidates accounts and prepares SOEs

IMPLEMENTATION SCHEDULE Activity 1 2 3 4 5 6

1. Village and Union Development Recruitment of UC Organizers

Training and Orientation of Organizers

Publicize Project in Districts UCs and Villages

Organize Villages to Prepare Proposals for Funding

Assist UCs to evaluate and Vet Proposals

Assist Districts To Evaluate and Vet Proposals

Provide Support to UCs to monitor Implementation

Ensure Efficient and Effective Implementation at Field Level

Ensure Active O&M

2. Targeted Poverty Alleviation Recruitment of RSPs

Training of Additional Staff

Identification of Focus Villages

Organize MCOs and WCOs

Identify and Implement Field Activities

Identify Agricultural Research and Seed Multiplication Needs

Sponsor Research and Seed Multiplication

Identify Off-Farm Income Opportunities

Sponsor and Guide Off-Farm Training

3. Literacy Through Skills Training Local NGOs Identified

Skills Development Training

4. Line Agency Support Recruitment of Consultants

Procurement of PCU/ District Vehicles and Equipment

Identification of Line Agency Needs Based on VUDC Components

Line Agency Equipment, Vehicles, Staff, etc Effectively Procured

Use of Procured Items Monitored

MCO =men’s community organization, NGO = nongovernment organization, O&M = operation and maintenance, PCU = project coordination unit, RSP = rural support program, UC = Union Council, VUDC = Village and Union Development Component, WCO = women’s community organization.

36 Appendix 6

Appendix 7 37

INDICATIVE PROCUREMENT PACKAGES

Item

No. of Contract Packages

Estimated Contract ($'000)

Procurement

Method

Value ($'000)

A. Civil Works 1. Union Infrastructure

600

25–75

LCB/FA

24,850 2. Small-Scale Poverty Initiatives

1,000

5–50

LCB/CP/FA

10,300

B. Vehicles and Equipment 1. Vehicles for PCU, Union

Organizers, and Consultants (total of 30 vehicles)

3

245

IS

730

2. Motorcycles (total of 45)

2

45

DP

90 3. Office Equipment for PCU and

Consultants

4

20–30

DP

110

4. Equipment, Materials and

Miscellaneous Items for Line Agencies

15

15–300

IS/DP

3,000

CP = community participation, DP = direct purchase (goods below $100,000), FA = force account, IS = international shopping (goods from $100,000 up to $500,000), LCB = local competitive bidding (civil works below $5,000,000), PCU = project coordination unit. Source: Asian Development Bank .

38 Appendix 8

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY A. Linkages to the Country Poverty Analysis Is the sector identified as a national priority in country poverty analysis?

Yes

No

Is the sector identified as a national priority in country poverty partnership agreement?

Yes

No

Contribution of the sector or subsector to reduce poverty in Pakistan: The rural sector of Pakistan plays a critical role in the economic development of the country. Agriculture contributes about 23.3% of gross domestic product and provides direct employment to 42% of the workforce. Poverty in Pakistan has a significant rural dimension linked closely to the economic health of the agriculture sector. The number of poor1 in Pakistan more than doubled in the 1990s as poverty levels increased with the number of poor rising to 45 million in 1999, of whom 33 million or 73% (4.7 million households) are estimated to live in rural areas. Moreover, Pakistan ranks poorly in major social indicators: infant mortality in rural areas is 83 per 1,000 live births; malnutrition of children under 5 is 38%. An important feature of poverty in Pakistan is the clustering of incomes around the poverty line, as 40.5% of the nation’s population was in a narrow income range around this line. Approximately 12.2% of the total population may be classed as chronically or extremely poor. According to a Social Policy Development Centre assessment, in the 1990s, over a 10-year period the disposable income of the top income quintile grow in real terms by 23%, while that of the lowest quintile grew by 3%, increasing the gap between the rich and the poor.2 Factors that affect the livelihood of the poor include (i) low literacy; (ii) lack of access to appropriate technologies, government extension services, off-farm employment opportunities, and formal credit; (iii) social exclusion; (iv) gender discrimination; (v) exclusion from the benefits of development projects; and (vi) poor service delivery.

The Government of Pakistan and the Asian Development Bank (ADB) have signed a poverty partnership agreement (PPA) that captures the key priorities for poverty alleviation. The need to target the poor to reduce inequalities as well as improvement in agriculture and rural development are important components of the PPA. The long-term poverty alleviation strategy interventions are focused on governance reforms to promote efficient, equitable, and accountable use of resources; and agriculture and rural development programs to increase productivity, diversification, and sustainable use of natural resources, particularly water and cultivable land. Past development project experiences3 have shown that lack of resources, lack of participation of poor households and local communities in designing development projects, inappropriate targeting of beneficiaries, inadequate human development effort, and mismanagement and other governance issues resulted in poor service delivery. Participation of various stakeholders including local communities, poor, government agencies, civil society, and good governance at the grassroots level is critical for any poverty alleviation program.

In Punjab 36.3% of the rural population lives below the poverty line. These high levels of poverty in rural areas tie in closely with particularly low growth rates in the agriculture sector over the past decade. Growth in agricultural gross domestic product has been below 5% for most of the 1990s and due to a prolonged and serious drought dropped into negative figures in 2001 and 2002. The unirrigated barani areas suffered much more severely as a result of the drought than the canal-irrigated areas. Poor yields or complete crop failures forced many farmers into debt and to abandon their lands during this period.

1 The official poverty line is estimated at 2,350 calories/day/adult, equivalent to PRs750 per month in 2002. Source:

Punjab Rural Support Program. 2 Social Policy Development Centre Annual Report 2001. 3 Source: ADB and Government Poverty Partnership Agreement.

Appendix 8 39

B. Poverty Analysis Targeting Classification: Targeted intervention Poverty in the barani areas is exacerbated by small landholdings,4erratic rainfall patterns, and limited opportunities for off-farm income; the main sources of income are agriculture, livestock, and daily wages. Agriculture is the most widespread source of income (61%) in the project districts.5 The Pakistan Integrated Household Survey [ 2001–02] data indicates that the poorer districts are more dependent on agricultural income than the relatively well-off districts. Cash income is supplemented through daily wages and livestock (over 70% households owned livestock). The project districts are ranked according to their poverty levels based on a number of economic and social indicators including agriculture, services, education, health, roads and transport, housing, and sewerage. Data on level of poverty in the project area indicate that 8% of the respondents were very poor, 32% poor, and 25% lower-middle-income group. Farm sizes are small across the project area. Farm size less than 1 hectare (ha) is considered below subsistence level in the barani area and 39.8% households own less than 1 ha of land. The average income of a livestock rearer is PRs2, 100 per month, which is half of the monthly average income of a household in the project area. The educational status of the households is very low. The 1998 population census data indicate that 48.9% of the rural population of 5 years and above had never attended school.

The monthly income levels in the project area varies substantially between districts, but even for the most developed group— Gujrat, Jhelum, Rawalpindi, and Sialkot—it is only PRs6,510 whereas for the least developed districts—Bhakkar, Chakwal, Khushab, Layyah, and Mianwali—it is PRs4,795.6 The average monthly income of the household was PRs5,954 in 2001/02. According to the Pakistan Integrated Household Survey data, the poorest rural households across the project area had only between 40% and 55% of average incomes.

In sum, some of the main reasons for poverty in the barani area include small landholdings, significant landlessness, inadequate rainfall, low crop yields and natural resource degradation. Periods of drought are a major risk to pastoral and agricultural livelihood and a source of vulnerability for the poor, particularly in the southern districts. The poor and excluded of barani Punjab, like many elsewhere, are characterized by conditions of low food security and nutrition, poor access to goods, services, skills, knowledge, and productive resources—particularly water—and a low awareness of their rights and the ability to exercise those rights.

Previous public development investment in the barani areas, through several projects in the past decades, have not been able to have a meaningful impact on the poor small farmers/herders, the landless and women. These investments may have even contributed to asset inequalities generated by the ability of the local elite to influence public expenditure. The project goal is to improve social and economic well-being of the population in the barani areas. Specifically, the Project is aimed at improving the livelihood system of the poor households in the project area with emphasis on women and the vulnerable segments of the rural population. The main sectors that need support are agriculture, livestock, natural resource management, and physical infrastructure development at the village level. The project approach will include linkages and partnerships among the main stakeholders, the village communities, including women, the poor and the vulnerable, professionals from the district government service delivery departments, and local government representatives to develop good governance at the grassroots level. It is expected that the Project will help improve farming systems, support services for agriculture and livestock, rural infrastructure, and increased nonfarm income generation for the poor. Promotion of good governance through the mobilization and capacity building of the community-based organizations would create local ownership of the project activities, transparency in service delivery, and accountability of government agencies. The Project will contribute to poverty alleviation in the barani areas of Punjab through promotion of good governance, building of social capital of women and the poor, increased productivity in agriculture and livestock, improved rural infrastructure, improved natural resource management, and increased income generation opportunities for small farmers, women, and the landless.

4 Approximately 60% of all farms in the area are below subsidence (2 ha) in size. 5 Source: Project preparatory technical assistance survey, April 2004. 6 Computed from Pakistan Integrated Household Survey, 2001–02. Reported in Thematic Paper on Employment

Structure and Income Levels and Distribution; Table 2-1.

40 Appendix 8

C. Participation Process

The participation process designed for the Project is focused to proactively further social development, facilitate the ownership of all stakeholders, ensure sustainability of operation and maintenance of investments, realize the inclusive policies of devolution, and minimize asset inequalities. Local nongovernment organizations (NGOs) as well as provincial and national rural support programs (RSPs) will conduct a participatory rural appraisal (PRA) with the local communities and poor households for each of the project components to assess the situation, and identify the target population and planning of activities. More specifically, the PRA will identify the need for special approaches required for active participation of women and marginalized groups, including the poorest of the poor. Need assessment will be done in the area of faming, livestock, natural resources management, rural access roads, and nonfarm activities. The constraints faced by rural poor in their livelihood system will be one of the major focuses of the need assessment. The PRA will include men and women stakeholders from the communities. Specific effort will be taken to ensure participation of poor men and women in the process. Base line survey will be conducted for the targeted households to measure the impact of the Project at the end of the project cycle. Participatory and transparent planning processes will be introduced in the Project and the stakeholders will be provided with training in participatory development. The selected NGOs and the RSPs be involved in facilitating the processes.

Local NGOs and RSPs will be involved in: (i) identifying the target villages according to the proposed targeting criteria; (ii) coordinating between the project and the community based organizations/citizen community boards (CBOs/CCBs) (iii) identifying and strengthening existing CBOs/CCBs through targeted capacity building measures; (iv) mobilizing and supporting the existing and new partner CBOs/CCBs and sensitizing them to social issues, regarding women, children, labor and human rights, as well as providing organizational and management support and providing information and exposure on project initiatives and opportunities; and (v) assisting CBOs to pursue registration as CCBs for securing annual development funding. D. Gender Development Strategy to maximize impacts on women: In the rural economy, women are working alongside men as equal partners and contributors in productive sectors (agriculture and livestock) but their contribution is not fully reflected in Government statistics. Women not only manage the household chores (cooking and washing, sewing, cleaning the house, bearing and rearing children, etc.) but also collect water and fuel wood, cut fodder, and actively participate in other agricultural and livestock activities. According to the population census 1998 and the labor force surveys, there seems to be an underestimation of the female labor force participation rate. For instance, in the project districts, almost 95% of the females of 10 years and above were classified as household workers by the population census 1998, hence they were not considered a part of the labor force. The census data show that 53% of males and only 2.1% of females of the working age cohort (10+) are economically active. However, the agriculture census 2000 reaffirms that women add to economic productivity especially in the agriculture and livestock sectors, e.g., in the Bhakkar district, 27% of the full-time and 51% of the part-time workers involved in agriculture are women. Similarly, 44.5% of the full-time and 52% of the part-time workers involved in livestock activities are women. These data are further substantiated by focus group discussions and in-depth interviews conducted during the poverty assessment and livelihood analysis in the project area. The livelihood study data also reveal that in poorer families, women are more active in economic activities. There are variations in female labor activities according to districts and distinct sociocultural conditions in various areas. In the northern belt, women are constrained to activities (livestock or related) within their family compounds. Under the new local government system, participation of women has been ensured by allocating 33% of the seats in the elected local governments (zila council, tehsil council, and union council) to women. To improve their active participation in governance, training (as members of the council, and monitoring committees has been identified and recommended by the Project. The design features of the Project include the following measures to ensure women’s participation in the various activities of the Project especially under the targeted poverty alleviation and literacy through skills training development components. During implementation, through the gender action plan, mechanisms will be developed and refined for active involvement of women in project activities and for providing specific benefits of the Project to poor women. Social Mobilization/Group Formation: The RSPs will be involved in strengthening the existing CBOs/CCBs and in mobilization and outreach activities to facilitate women’s group formation and/or establishing women’s CCBs at the village level or neighborhood level as relevant. The group/CCBs will be the entry point of project interventions for

Appendix 8 41

various project activities. Group formation/CCB formation will be carried out for male groups also. Mobilization activities will be designed to form 40–50% of female groups/CCBs. Agriculture: Women members of the groups/CCBs will be involved in the training/extension program of crop and vegetable demonstration plots, activities related to village seed bank and seed grader, improving the lining of watercourses, farmer field schools, and field research activities. Livestock: Women members of the groups/CCBs will be provided with the livestock extension services. Targeting poor women for village veterinary workers will create employment and income earning opportunities for women from the poor households. Women from the livestock rearing and farm households will be included in the training/extension of fodder and feed supplement demonstration and conservation plots. Women are the primary target beneficiaries for activities related to household energy needs, and preparation of organic fertilizer and biogas plants. Management of Natural Resources: Activities related to development of agriculture, pastoral land, soil conservation, water resource management, and women’s groups/CCBs should be actively involved in training/extension/ demonstration and relevant activities. The RSPs will facilitate the involvement of women’s groups/CCBs. Rural Access Roads: Women’s groups/CCBs will be part of the consultation for planning of rural access roads. The location of rural roads has an impact on women’s daily household activities, farm activities and access to markets, health services, and education facilities. Off-Farm Activities: Half of the targeted beneficiaries of the off-farm income earning activities and skills training will be women. Off farm-activities could be developed in traditional crafts. Women artisans from the villages should be targeted for linkages with microfinance institutions for small-scale microenterprise development. Literacy Through Skills Training: One component of the project is specifically designed for women. Provision has been made for the literacy training of about 20,000 rural women from poor households through special courses focused on imparting livelihood and household skills. In order to provide an incentive for women to participate in the training program the skills courses will be linked to potential credit provision through the project RSPs for women who successfully complete the training modules. Linkages Between Women’s Groups/CCBs and Government Agencies: The RSPs will facilitate the women’s groups/CCBs in order for the women’s group/CCBs for participating in planning and implementing project activities. Capacity Building and Institutional Development: Capacity building of the relevant government agencies will include support to the gender reform action plan under Decentralization Support Program. In addition, the capacity building program will target men and women elected representatives of the relevant local government. The capacity building training modules prepared under RETA: Gender and Governance Issues in Local Government7 for elected representatives of the local government should be used (strengthened as relevant) for the training of the elected representatives. The institutional capacity and capacity building of the staff of the district administration will include gender sensitization training and planning exercise with rural women and the poor. Women staff of the relevant government offices will be included in the capacity building, awareness, and training program. Monitoring Indicators: A gender-disaggregated database will be included in the project benefit monitoring system to monitor the number of men and women beneficiaries targeted and achievement of the target in each of the above project activities. The database will be disaggregated by socioeconomic characteristics of the households to measure the involvement of men and women from the poor households and vulnerable groups. Community monitoring and evaluation will ensure that the targeting criteria are being followed and the project benefits reach the poor. Gender and Development Support: The consulting service package includes a provision for (i) a foreign consultant social impact specialist to address all social issues, including gender; (ii) a domestic consultant consulting organization/gender specialist to work over the first 4 years of the Project to ensure that gender concerns are addressed; and (iii) three full-time social impact/gender specialists assigned to the Project Management Units throughout the full duration of the project to ensure that social and gender concerns are adequately addressed and incorporated in a gender action plan. Has an output been prepared? Yes No 7 ADB. 2001. Regional Technical Assistance to Pakistan for Gender and Governance Issues in Local Government.

Manila. (RETA 6008 amounting to $735,000).

42 Appendix 8

E. Social Safeguards and other Social Risks Item

Significant/

Not Significant/ None

Strategy to Address Issues

Plan Required

Resettlement

Significant

Not significant

None

The type and size of investments anticipated under the Project do not require any land acquisition or resettlement relocation. This will also be a condition for any financing by the Project..

Full

Short

None Affordability

Significant

Not significant

None

Ensured by financial analysis. Yes

No

Labor

Significant

Not significant

None

The Project will pay fair wages for laborers in construction works and labor standard will be maintained.

Yes

No

Indigenous Peoples

Significant

Not significant

None

The project area does not have any indigenous people as defined for the purposes of ADB operations.

Yes

No

Other Risks and/or Vulnerabilities

Significant

Not significant

None

The hierarchical social structure, factional politics, and political conditions of rural Punjab villages might be a constraint, as in the past, for targeting the poor. The complementary two-pronged delivery modality—the Village and Union Development Component and the targeted poverty alleviation component—are sufficiently participatory and transparent to ensure involvement of poor, marginalized, and vulnerable groups.

Yes

No

Appendix 9 43

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION

A. Introduction

1. The Project is demand-driven by design; implying that specific subproject interventions will be determined by beneficiaries during the implementation phase. As such the environmental impacts of each subproject or the overall environmental impact of the Project cannot be assessed during the design stage. Instead, the Project design includes a detailed document outlining the environmental assessment and review procedures (EARP) to be followed during implementation (Supplementary Appendix to the Report and Recommendation of the President). The EARP report describes a set of subproject selection criteria, which at the outset eliminate any subprojects that may warrant an environmental impact assessment level of analysis. Procedures are outlined for subprojects that require an initial environmental examination (IEE) level of analysis, and for those that do not require any environmental assessment, a general set of environmental guidelines is proposed.

2. A typical subproject that requires an IEE1 was selected and subjected to the IEE process described in the EARP report. This will serve as a model IEE, and form the basis for future IEEs to be undertaken for subprojects to be implemented under the Project. The full IEE report is an attachment to the EARP report and the summary IEE is presented below.

B. Project Description

3. This IEE report investigates the environmental impacts of a rural access road in Haiderababad union council in Mankera tehsil, in Bhakkar district. The route originates in the village of Shah Sayed Ali up to the village of Bhidwalwala, through the villages of Toperi, Darbula, and Sarwarwala. The total length of the surveyed access route is 20.5 kilometers. The selected route already exists as a jeepable dirt track connecting the five villages.

4. Construction methodologies and specifications2 already in practice by the district road department under the funding of Asian Development Bank will be followed by the Project. Approved stone quarries will be used to source material for subbase and base formation. Bitumen material will be used as surface sealant.

5. The works and services department will hire local residents of the five villages that lie along the access route in the construction of the road wherever unskilled labor is to be employed. A basic construction camp will be set up in an existing land clearing to accommodate any heavy equipment and laborers not belonging to the villages along the route.

1 As per the Pakistan Environmental Protection Act 1997 and the Pakistan Initial Environmental Examination and

Environmental Impact Assessment Review Regulations 2000. 2 The specifications and procedures to be employed are standard of the American Association of State Highway

and Transportation Official or the American Society for Testing and Material as indicated in their latest editions.

44 Appendix 9

C. Description of the Environment

1. Physical Environment

6. The project area is located in the desert zone, which spreads over a vast expanse in the districts of Bhakkar and Layyah. The project area is located at the eastern edge of the desert zone, close to the district boundary between Bhakkar and Jhang. As such the area constitutes a typical sand dune desert with very little vegetation. The climate of the area is hot and arid. The average rainfall is less than 240 millimeters (mm) per annum, with the lowest at 180 mm per annum. The temperatures could rise to around 50°C during the summer months but could drop below freezing point in the winter and at night. The area is characterized by high winds throughout the year, subjecting the area to dust storms.

7. The only water available to the project area is groundwater that is accessible either through dug wells or deeper tube wells. Local residents reported that sweet groundwater was being accessed at less than 30 meters and 90% of the households have hand pumps or electric motors. When watered, sandy soil of the dunes can support a variety of crops since the soil is rich in nutrients. Farmers have channelized groundwater from tube wells for irrigation purposes wherever possible.

2. Biological Environment

8. The project area lies close to the edge of the Thal Game Reserve, a nationally designated protected area. The area is visited by many migratory bird species the great Indian Bustard (Ardeotis Nigriceps), the Houbara Bustard (Chlamydotis Undulata), and Sand Grouse (Pteroclididae). The Thal Game Reserve is most well known for the Houbara Bustard, which is subject to sport hunting. Mammals include the Chinkara Gazelle (Gazella Gazella) and Desert Fox (Vulpes Bengarlenisis). The Chinkara is close to extinction due to habitat depletion. Lizards (Valetes Varisceler) are also found in this desert ecosystem. The vegetation found in the Thal desert consists of grasses, shrubs and trees (Prosopis, Juliflora, Prosopis, Ceneria, Acacia Sps. are common species) that require little water and can survive in the harsh temperatures of the area.

3. Socioeconomic Environment

9. The population of the villages are as follows: Shah Syed Ali—6,000, Darbula—1,800, Toperi—2,500, and Bhidwalwala—2,400. The total landholdings of the villages varies between 31,280 acres in Darbula, approximately 375 acres in Sarwarwala, 3,750 acres in Toperi, and 1,250 acres in Bhidwalwala. The project area lies across three rakhs (i.e., community range lands): rakh Dhingana, rakh Haiderabad, and rakh Mankera. Most lands in these rakhs have been allotted to local residents for cultivation purposes.

10. Agriculture is the main source of income in the project area, supplemented by livestock. Gram is the only crop grown in the area. Small local businesses and daily wageworkers form the other two brackets of occupations.

11. The villages of Darbula, Shah Sayed Ali, and Sarwarwala are connected to the national grid. The project area is not linked to the nationwide telephone line, though many residents own cellular phones, and there are some public call offices in the area. The village of Toperi has a primary school, Bhidwalwala has a middle school, and Darbula, has a boys’ high school. Qadir Education Foundation, a local nongovernment organization, has set up girls’ primary schools at Darbula and Toperi and a girls' vocational school.

Appendix 9 45

4. Cultural and Archaeological Sites

12. No archaeological sites were reported or sighted in the area of the three villages or along or in proximity to selected road. However, there are many shrines or ziarats (graves of religious scholars and saints) in the area. Local pilgrims revere these sites and visit them regularly. Additionally there are graveyards and mosques associated with the villages. There are three ziarats in the area that are regularly visited by pilgrims. Two of these ziarats are located in Shah Saiyed Ali village (Pir Saiyed Ali Shah and Pir Fateh Din) and one is near Darbula (Mian Allah Jawaya).

5. Civil Society Organizations

13. The presence of NGOs in the project area is very limited. Only one NGO, Qadir Education Foundation, is doing some work in the villages of Darbula and Toperi.

C. Impact Assessment and Mitigation Measures

14. Although construction of road links is likely to have an overall positive impact on the condition and livelihood of the residents of the local communities, some adverse impacts may arise during the three phases of the road construction project: planning, construction, and implementation. These impacts and proposed mitigation measures are described in the following table.

Table A9.1: Impacts and Proposed Mitigation Measures

Potential Impact Mitigation and Monitoring Measures

Improper and inadequate surveying of trace resulting road trace conflicting with existing land uses and existing protected areas

Proper survey of the land of the area with the assistance of the local land revenue officer and village residents to avoid residential properties, private agricultural properties, cultural and religious sites, and protected areas

Incorrect road and pavement design resulting in inadequate drainage and premature degradation from exposure to extreme weather conditions

Conducting sound technical feasibility study based on assessment of soils and hydrology of the area.

Nuisance to nearby communities through noise and dust emission and loss of privacy

Control noise by limiting operating hours of heavy machinery; control dust by sprinkling construction sites with water; locating construction camp at least 500 meters from a community; and obtaining water for construction and other laborers' requirements from a deep tube well

Overexploitation of existing water resources Using abandoned brackish water wells whenever possible

Ascertain full community participation in the operation; community to be consulted

Increased soil erosion at construction sites Proper construction practices, adequate monitoring, health and safety trainings to all construction workers; and planting of drought-resistant plant species along the new access track to curb any soil erosion that may arise due to construction of this new road.

Source: Asian Development Bank.

15. A mitigation management matrix has been prepared that lists all activities likely to have adverse environmental impacts during the various phases of the Project (i.e., design, construction, and operation) and recommends mitigation measures for these impacts along with the person/institution responsible for the mitigation measures and for monitoring, the

46 Appendix 9

parameters to be monitored, and the timing for carrying out the mitigation or monitoring. This matrix will be used as a management and monitoring tool for implementation of the mitigation measures required by the IEE.

D. Environmental Monitoring Plan

16. The environmental monitoring plan includes the following components.

1. Activity Monitoring

17. Activity monitoring will be carried out to ensure compliance with the requirements of the IEE, the environmental monitoring plan will be used as a management and monitoring tool. The district environment officers and Agency for Barani Area Development (ABAD) project environmental staff will regularly visit the sites for activity monitoring during construction.

2. Effects Monitoring

18. Effects monitoring will be the responsibility of the district environment officer and ABAD project environmental staff. A detailed monitoring program will be prepared, which will cover the physical, biological, and socioeconomic environment. The monitoring program will describe in detail the resources and methodology that will be adopted for the purpose of effects monitoring.

3. Postproject Monitoring

19. After completion of the road construction operation postproject monitoring will be carried out in order to determine the level of residual impacts of the Project on the environment of the area. The postproject survey report will be submitted to the Project management unit and project steering committee within 14 days after completion of the survey.

E. Budget and Staffing Requirements

20. The following section relates to budget and staffing requirements of the entire Project and not just the Bhakkar road subproject. Responsibility for monitoring and compliance with national environmental legislation and policy at the provincial level lies with the Environmental Protection Department, Punjab. Further, at the district level, following devolution of government to the local level through Punjab Local Government Ordinance 2001, a district officer, environment is responsible for all matters relating to the environment.

21. It has been agreed with the Government that to ensure compliance with the environmental safeguards proposed under the Project, three dedicated staff positions will be established in ABAD to cover all environmental issues connected to the Project interventions.

22. The budget for environmental inputs including environmental assessments, appointments, and other operation and maintenance costs is presented in the following table.

Appendix 9 47

Table A9.2: Budget for Environmental Inputs

(Local ($ Total Item Unit Total '000) '000) ($'000) Costs

A. International Consultant Environment Specialist month 3 1,066 18.0 54

B. Implementation and Supervision Staff—ABAD

1. Three Environment Specialists month 216 29 0.5 105

PMU Env./Soc. Budgeta lump

sum/yr 6 yrs 296 5.0 30 Subtotal, environmental budget

2. Other Consultant Support Costs that can be Drawn Upon

Physical Surveys and Investigationb lump sum 117 Workshops and Reportsc lump sum 60ABAD = Agency for Barani Area Development, PMU = project management unit. Note: This itemization does not include the provisions for groundwater assessment and monitoring that is provided through consultants and support. a Environmental and social impact studies/assessments, $5,000/year. b $30,000 for 4 years. c $10,000 per year for studies and workshops. Source: ADB appraisal estimates

F. Public Consultation and Information Disclosure

23. Community consultations were carried out in August 2004 in five villages lying along the access route, including Bhidwalwala. More than 60 people attended the consultation meeting at Darbula village after an agreement deed as signed between by the villagers confirming their consent to constructing a road through the area. All the people present unanimously agreed to the proposed track without conditionalities and pledged to provide their wholehearted support to the Project. Similarly, discussions and verbal pledges were also taken from the local councilors Illahi Baksh and Muhammad Amin. Muhammad Naseem, the village nambardar,3 also took part in this discussion. Like Darbula, people showed up in great numbers to attend the public consultation meeting—approximately 50 people attended. The people entertained the idea of a road to their village. However, some did not immediately understand the importance of a bypass around the community. However, after detailed discussion they understood, and agreed to having the road connect their village to the main road, and to a bypass. A community consultation meeting was arranged at Sarwarwala a large number of people (10–15) were present in the primary school building of the village. This is the most backward village in the area and people took great interest in the discussion. Along with the inhabitants of Sarwarwala, elders of the nearby small hamlets also attended. All local residents shared the opinion that the proposed route should not pass through the middle of their village, an agreement deed was signed after mutual agreement. A public meeting was conducted in Bhidalwala, all local residents (5–10 people) appreciated the idea of a metaled road from Bhidwalwala to Shah

3 An honorary position held by a village notable, selected by the government. The nambardar oversees all land

related transactions, collects the actual land revenue (maaliya), and has the authority to attest property and other documents. He also has the main responsibility of identifying the actual landowner when a transaction is to take place. This position is to some extent hereditary. It was institutionalized during the British era, following from the Mogul period.

48 Appendix 9

Sayyed Ali, as it would provide unhindered access for them to the local produce market at Hyderabad and the dal (gram pulse) factory at Shah Sayyed Ali. The village of Shah Sayyed Ali lies at the beginning of the access track, and is already connected to the Bhakkar-Jhang road. However, since land along the access track is owned by the residents of the village their consent was sought through a consultation meeting. These landowners (five in number) pledged full support to the proposed track.

G. Findings and Recommendations

24. The IEE finds that no adverse environmental impacts of building a farm-to-market access road between Shah Sayed Ali and Bhidwalwala, union council Haiderabad, tehsil Mankera, district Bhakkar are likely. The communities that lie in the area along the selected access route will benefit from such a development activity and it will serve to improve the quality of life of the people of the areas. Some minor impacts relating to construction may be likely; however, the incorporation of appropriate mitigation measures recommended through the IEE will mitigate or altogether remove these impacts.

H. Conclusions

25. The IEE concludes that no detailed environmental impact assessment for the subproject above is required.

Appendix 10 49

ECONOMIC AND FINANCIAL ANALYSIS A. Project Justification 1. The project interventions pursue both efficiency and equity objectives. The need for the Project arises from the prevalent high poverty incidence, unemployment, poor organization and suboptimal use of factors of production, and poor delivery of social and economic services. Moreover, lack of adequate investment in physical, productive, and social infrastructure and inefficient delivery mechanisms has inhibited the economic growth of rural areas in general, and in barani areas in particular. B. Approach and Methodology 2. As the Project will follow a process approach, it allows for support of a variety of interventions as identified by the beneficiaries. The present analysis is based on assessment of indicative model budgets of potential interventions. The representative models have been analyzed for quantifiable and nonquantifiable costs and benefits, impact on household income and poverty, economic viability, and distribution of the project benefits. C. Economic Analysis 3. For purposes of presentation, the analysis has been broken down by the major project components. For component 1 (village and union development), medium-scale infrastructure is envisioned, at a minimum cost of $25,000 (and maximum of $150,000). For component 2 (targeted poverty alleviation), smaller-scale activities at the village and community levels are expected, with most in the range of $2,000–10,000. In fact, the divisions are not totally exclusive. Some types of subprojects will extend into both ranges depending on the scale of activity or whether several subprojects of a similar nature are bundled to meet the higher threshold. 1. Economic Summary 4. Table A10.1 summarizes project economic internal rates of return (EIRRs), sensitivity, and switching values for the sample subprojects. The presentation demonstrates that there are viable technologies that the Project can facilitate and that these will contribute to the betterment of the population residing in barani areas. The subproject EIRRs range from 13% to 36%, with most clustering near 20%, or higher. 5. Sensitivity analysis was undertaken by subjecting the subprojects to (i) cost increases of 10%, (ii) benefit decreases of 10%, and (iii) both. (The results are summarized in the table.) Only one subproject, the dug well (salt range) appears vulnerable to such variation in the cost and benefit parameters. Its EIRR drops to as low as 10.1% if both costs increase and benefits decrease by 10%. However, since water is so highly valued in these dry areas, that may still be acceptable for those inhabitants. All 13 other interventions remain economic under those restrictive sensitivity conditions. Lastly, switching values for cost increases and benefit decreases are provided in the table, and, again, the figures demonstrate the economic stability of the models.

50 Appendix 10

D. Financial Analysis 6. Financial analysis, based on the subproject models, suggests that the interventions will significantly contribute to household incomes. For this analysis, most of the financial gains have been assessed on a per hectare basis. The values generally range from PRs2,000 ($35) to PRs9,000 ($150), with outliers at PRs717 ($12) and PRs14,200 ($240). Notwithstanding the size of subprojects, the financial gains from most of the subprojects are modest, in terms of per capita increase in income; nonetheless they are a significant addition from the low base. 7. Table A10.2 presents a summary of investment costs and financial internal rates of return (FIRRs) for various indicative model subprojects. The FIRRs also demonstrate private party viability and incentives to participate in the Project.

E. Off-Farm Employment 8. One of the immediate objectives of the Project is employment generation. This is to be achieved through execution of subprojects, increased demand for farm labor arising from the increased productivity, and through literacy through training in skills development. It is expected that the subprojects will require a significant labor force. Moreover, the Project will assist communities in acquiring skills and trades that will be demand-based. That should enable inhabitants to be gainfully employed within the project area, or should enhance their skills for better employment outside the project area. The stakeholders in field meetings clearly expressed the need for training in various skills and trades. However, at this stage, it is difficult to ascertain the demand and absorption rate of trained persons. Per project preparatory technical assistance estimates, it is expected that 12,000 individuals will benefit from a range of vocational skills and enterprise development support to be offered under the Project. On average, a trained person is estimated to generate net annual incremental income of PRs6,098 in the case of improved profitability of existing enterprise, and PRs21,705 in the case of paid employment. F. Distribution Analysis and the Poor 9. Though each subcomponent varies in terms of distribution of benefits between stakeholders (poor farm households with less than 1 hectare (ha) landholding, landless livestock menders, unskilled landless labor), gains of most of the subprojects will mainly accrue to poor segments of the population, especially small farmers. It is estimated that about 70% of the benefits from the irrigation, soil conservation, and natural resource management subprojects will go to the poor farm households and landless laborers. 10. Distribution and poverty impact analyses are carried out for four sample subprojects: village drinking water supply, jeepable track, pasture and rangeland development, and village electrification. Many of the villages with no water supply or access to electrification are more remote and poorer than those that have already been covered. For jeepable track, the poor are estimated to make up 90% of the labor supply and for road user benefits, the poor are estimated at two thirds of their representation in the barani population. This adjustment is made to allow for disproportionate road use benefits going to vehicle owners and those who can more easily afford travel. For rangeland and pasture development, the poor are viewed as disproportionately high among the common land users, and are estimated as 75% of the main beneficiary group. In sum, all of these sample models suggest that project activities are well structured and likely to have an impact on the poor and reduce poverty. Poverty encompasses considerably more than

Appendix 10 51

just low income. In addition to improving livelihoods, the Project provides advancement in terms of access to social services, social infrastructure, and literacy and skills training.

G. Operation and Maintenance 11. Under the targeted poverty alleviation component, prior to undertaking any intervention, the beneficiaries are required, as a step in the systematic approval process, to (i) give their formal acknowledgement of the requirements for operation and maintenance (O&M) of subprojects, (ii) formalize an O&M plan with delimited responsibilities, and (iii) commit resources to ensure that the plan is carried out. For the union development component, the implementation of medium-scale infrastructure (such as roads or rural electrification) will likely be carried out by the line agencies. For this, official procedures are in place for O&M of public infrastructure. In addition, revised commitments are being made for local governments (districts) under devolution specifically for the O&M budget—i.e., funds that are not to be reallocated. Village mobilization, provided under this component, should also build awareness, support, and commitment for O&M in community groups. Lastly, as a prerequisite to subproject approval, beneficiaries are required to provide up-front cash—funds that can be dedicated to future O&M requirements. In addition, an O&M framework between beneficiaries and public agencies will also be developed to institutionalize funding and execution responsibilities for all O&M-related requirements. (For further details see Supplementary Appendix E.)

Table A10.1: Summary of Economic Returns(PRs‘000)

Sample Subproject

Water Course lining

Shallow Tubewell

Portable Sprinkler

Earthen Pond

Dug Well

Sand Dune

Stabili-zation

Shelterbelts SALT

Effective Drainage Outlets

Rangeland Pasture Improve-

ment

Asphalt Roads

Jeepable Track

Rural Electri-fication

Drinking Water Supply

Years Sample Location Siwalik Siwalik Thai Salt

Range Salt

Range Thai Salt Range/Cool Pin Thai Siwalik Thai Any Any

1 (85.3) (258.9) (82.5) (343.2) (166.9) (41.7) (53.2) (14.6) (4.1) (641.0) (6,315.9) (4,437.6) (2,119.7) (837.4) 2 0.6 54.2 0.1 (8.6) (4.2) 1.1 (3.6) 2.7 1.3 38.4 196.8 1,017.3 168.6 248.0 3 7.4 65.0 10.8 33.8 4.8 11.4 12.2 3.4 1.3 76.2 551.5 1,051.2 358.0 248.0 4 17.6 81.3 26.9 76.4 13.8 12.9 14.9 7.3 1.3 76.2 906.2 1,086.0 473.5 248.0 5 25.2 93.6 39.0 118.8 22.8 12.9 17.5 7.3 1.3 76.2 1,260.9 1,121.9 473.5 248.0 6 27.7 97.7 43.0 160.9 31.8 7.6 20.8 7.3 1.2 106.4 1,615.6 1,158.9 473.5 248.0 7 27.7 97.7 43.0 164.3 32.8 1.7 20.8 7.3 1.3 123.5 1,668.8 1,197.0 473.5 248.0 8 27.7 97.7 43.0 167.8 34.0 1.8 20.8 7.3 1.3 127.5 1,723.6 1,236.3 473.5 248.0 9 27.7 97.7 43.0 171.3 35.1 1.8 20.8 7.3 1.3 131.5 1,780.1 1,276.7 473.5 248.0

10 27.7 97.7 43.0 174.9 36.3 1.9 20.8 7.3 1.3 135.7 1,838.2 1,318.3 473.5 248.0 11 27.7 97.7 43.0 178.6 37.5 1.9 7.3 1.2 140.0 1,898.1 1,361.2 473.5 248.0 12 27.7 97.7 43.0 182.3 38.7 2.0 7.3 1.3 144.4 1,959.8 1,405.3 473.5 248.0 13 27.7 97.7 43.0 186.1 38.7 2.0 7.3 1.3 149.0 2,023.3 1,450.8 473.5 248.0 14 27.7 97.7 43.0 190.0 38.7 2.1 7.3 1.3 153.7 2,088.8 1,497.7 473.5 248.0 15 27.7 97.7 43.0 194.0 38.7 266.9 7.3 1.3 2,656.4 2,156.2 1,545.9 473.5 248.0 16 27.7 97.7 43.0 198.1 38.7 7.3 1.2 2,225.6 1,595.7 473.5 248.0 17 27.7 97.7 43.0 202.2 38.7 7.3 1.3 2,297.1 1,646.8 473.5 248.0 18 27.7 97.7 43.0 206.4 38.7 7.3 1.3 2,370.7 1,699.6 473.5 248.0 19 27.7 97.7 43.0 210.7 38.7 7.3 1.3 2,446.6 1,753.9 473.5 248.0 20 27.7 97.7 43.0 215.1 38.7 7.3 1.3 2,524.7 1,809.8 473.5 248.0

EIRR (%) 21.0 30.3 29.7 26.6 12.9 22.6 19.7 36.3 31.5 19.6 18.8 25.7 19.0 29.4 Sensitivity Analysis (%) 10% cost increase (a) 19.2 27.0 27.6 24.8 11.6 20.9 17.3 33.2 28.5 18.7 17.2 23.2 16.5 25.0 10% benefit decrease (b) 19.0 26.6 27.4 24.6 11.4 20.7 17.1 32.8 28.2 18.5 17.0 23.0 16.3 24.6 Both (a) and (b) 17.3 23.5 25.4 22.9 10.1 19.2 14.8 29.9 25.5 16.9 15.5 20.7 14.0 20.9 Switching Values (%) Cost Increase (a) 69 85 160 143 7 106 38 160 129 67 54 90 34 62 Benefit Decrease (b) 41 46 62 59 6 51 27 62 56 40 35 47 10 38

SALT = Sloping Agriculture Land Technology. Source: Project Performance Technical Assistance and ADB mission compilation 2004.

52 Appendix 10

Appendix 10 53

Table A10.2: Financial Internal Rate of Return and Indicative Cost of Subprojects

Name of Subproject and Brief Description

Zone

Investment Cost PRs

('000)

FIRR (%)

On-Farm Watercourse Lining Siwalik 98.5 15.3Shallow Tube Well Siwalik 281.3 23.3Portable Sprinkler Thal 87.6 25.7Earthen Pond Potwar 448.7 21.2Dug Well Potwar 218.1 8.8Sand Dunes Stabilization Thal 44.1 21.2Sand Stabilization Shelter-Belts (5-kilometer length) Thal 56.2 17.7

Soil Erosion Control/Sloping Agriculture Land Technology Potwar-Cool Pine 19.4 28.3

Soil Erosion Control through Effective Outlets All Zones 3.2 18.0Rangeland and Pasture Development Thal 608.2 17.1Jeepable Tracks Potwar 5,577.0 29.5Asphalt Road Siwalik 7,174.0 14.4Village Electrification All Zones 2,025.0 20.5Village Water Supply All Zones 1,800.0 37.6

FIRR = Financial Internal Rate of Return. Source: ADB appraisal estimates.

54 Appendix 11

ELIGIBILITY CRITERIA TO DISTRICT GOVERNMENT AND UNION ADMINISTRATION The Government will only allocate funds under the Project for the purpose of the implementation of Village and Union Development Component to the districts that have met the following eligibility criterion:

(i) the adoption by the union councils within the district of the bye laws on the house rules and procedures,

(ii) the establishment by the union councils within the districts of the committees for monitoring and accountability of the use of public funds,

(iii) the establishment by the zila council of the committees for monitoring and accountability of the use of public funds,

(iv) the adoption by the zila council of the necessary bye laws which outline the necessary mechanisms, to ensure transparency and public access to information and public accountability on the use of public funds,

(v) the adoption by the union councils within the districts of the necessary bye laws which outline the necessary mechanisms, to ensure transparency and public access to information and public accountability on the use of public funds,

(vi) the establishment by the district administration of effective complaint cell to allow public grievances to be addressed properly, and

(vii) the establishment by the union administrations within the districts of effective complaint cell to allow public grievances to be addressed properly.