Document of The World Bank

FOR OFFICIAL USE ONLY Report No: 53824-TZ

PROJECT PAPER

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 23.1 MILLION (US$35 MILLION EQUIVALENT)

IN PILOT CRISIS RESPONSE WINDOW RESOURCES

TO THE

UNITED REPUBLIC OF TANZANIA

FOR THE

SECOND ADDITIONAL FINANCING FOR THE AGRICULTURAL SECTOR DEVELOPMENT PROJECT (ASDP)

May 10,2010

Agricultural and Rural Development Sustainable Development Department Country Department 1 Africa Region

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

AF-I AF-I1 AFSP ASDP ASDS ASLMs AWP&B BP CAS CIA CQS CRW DADGs DADPs DEDs DFTs DIDF DP ERL ERRS ESAMI ESAs ESMF FY GDP GOT GP

(Exchange Rate Effective as of March 3 1,2010) Currency Unit = Tanzania Shilling (Tsh)

Tsh1357.50 = US$1 US$ = SDR0.66

TANZANIA GOVERNMENT FISCAL YEAR July 1 - June30

ABBREVIATIONS AND ACRONYMS

Additional Financing I Additional Financing I1 Accelerated Food Security Program Agricultural Sector Development Project Agricultural Sector Development Strategy Agricultural Sector Lead Ministries Annual Work Plans and Budgets Bank Policy Country Assistance Strategy Cumulative Impact Assessment Consultant Qualification Selection Crisis Response Window District Agricultural Development Grants District Agricultural Development Plans District Executive Directors District Facilitation Teams District Irrigation Development Fund Development Partners Emergency Recovery Loan Economic Rates of Return Eastern and Southern African Management Institute Environmental and Social Assessments Environmental and Social Management Framework Financial Year Gross Domestic Product Government of Tanzania General Policy

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

1

FOR OFFICIAL USE ONLY

ha IBRD ICB IDA IFMS IFR IO IPMP IWRM JAST JIR LGAs m m2 M&E MAFC MITM MKUKUTA MLDF MoFEA MOW1 MTEF MTR NA NAIVS NAO NCB NEMC NIDF NPV O&M OP PADEP PDO PHS PMO-RALG PMU PPP PPRA PRSC QCBS RBMSIIP

RPF SBDs SBEFs

Hectare International Bank for Reconstruction and Development International Competitive Bidding International Development Association Integrated Financial Management System Interim Financial Report Irrigators Organization Integrated Pest Management Plan Integrated Water Resources Management Joint Assistance Strategy for Tanzania Joint Implementation Review Local Government Authorities Metre Square metre Monitoring and Evaluation Ministry of Agriculture, Food Security and Cooperatives Ministry of Industries, Trade, and Marketing Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania Ministry of Livestock Development and Fisheries Ministry of Finance and Economic Affairs Ministry of Water and Irrigation Medium and Term Expenditure Framework Mid-Term Review Not Applicable National Agricultural Input Voucher Scheme National Audit Office National Competitive Bidding National Environmental Management Council National Irrigation Development Fund Net Present Value Operation and Maintenance Operational Policy Participatory Agricultural Development and Empowerment Project Project Development Objective Plant Health Services Prime Minister’s Office, Regional Administration and Local Government Procurement Management Unit Public-Private-Partnerships Public Procurement Regulatory Authority Poverty Reduction Support Credit Quality and Cost Based Selection River Basin Management and Smallholder Irrigation Improvement Project Resettlement Policy Framework Standard Bidding Documents Standard Bid Evaluation Forms

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

SDR SESA TPRI Tsh US$ ZARDEF ZITSUs

Special Drawing Rights Strategic Environmental and Social Assessment Tropical Pesticides Research Institute Tanzanian Shillings United States Dollars Zonal Agricultural Research and Development Fund Zonal Irrigation Technical Service Units

Vice President Obiageli Katryn Ezekwesili

Sector Director Inger Andersen Sector Manager Karen McConnell-Brooks

Country Director John Murray McIntire

Tasks Team Leader Zainab Z. Semgalawe

... 111

UNITED REPUBLIC OF TANZANIA

SECOND ADDITIONAL FINANCING FOR AGRICULTURE SECTOR DEVELOPMENT PROJECT

TABLE OF CONTENTS I . Introduction ............................................................................................................................ 1 I1 . Background and Rationale for Second Additional Financing ................................................ 1 I11 . IV . V . Appraisal of Scaled-up Activities ........................................................................................... 8 VI . Expected Outcomes .............................................................................................................. 11 VI1 . Benefits and Risks ................................................................................................................ 11 VI11 . Financial Terms and Conditions for the Additional Financing ........................................... -12 Annex 1 : Updated Results Framework .......................................................................................... 13 Annex 2: Small-scale Irrigation Development ............................................................................. 15 Annex 3 : Environmental and Social Safeguards .......................................................................... -24

Proposed Changes ................................................................................................................... 5 Consistency with the Country Assistance Strategy ................................................................ 7

Annex 4: Financial Management Assessment ............................................................................... 29 Annex 5: Procurement Capacity Assessment ............................................................................... 34 Annex 6: Procurement Plan ........................................................................................................... 36 Annex 7: Risk Assessment .......................................................................................................... -43 Annex 8: Country at a Glance ....................................................................................................... 44 Annex: 9 Map IBRD 33494RI ....................................................................................................... 46 Tables and Figures Table 1 : ASDP: Key data and performance, April 20 10 ................................................................. 3 Table 2: Number of requests received from districts, approved and awarded DIDF funds ............ 5 Table 3 : DIDF allocations and Financing Gap from FY06-FY 10 ................................................... 5 Table 4: Allocation of Additional Financing to the original project ............................................... 7 Table A.2.1: Area developed under small-scale irrigation (FY05 - FY08) .................................. 15 Table A.2.2: Number of proposals received, approved and awarded for DIDF funds ................. 17 Table A.2.3: DIDF Requests and Allocations, FY07- FY 10 ........................................................ -17 Table A.2.4: Chinangali grape vine irrigation project in Chamwino District-Dodoma Region ... 19 Table A.2.5: Summary of economic analysis for proposed small-scale irrigation

rehabilitation investments ......................................................................................... 21 Table A.2.6: Development Partners’ Disbursement Status for ASDP as of June 2009 ................ 31 Table A.2.7: Status of Agreed Action Plan at MTR ..................................................................... 31 Figure 1 : DIDF Requests and Allocation, FY06-FY 10 ................................................................. 17

iv

UNITED REPUBLIC OF TANZANIA SECOND ADDITIONAL FINANCING FOR AGRICULTURE SECTOR DEVELOPMENT

PROJECT PROJECT PAPER DATA SHEET

Basic Information (Additional Financing) Date: May 10,201 0 Country Director: John M. McIntire Sector Manager: Karen M. Brooks Project ID: P120930 Lending Instrument: Specific Investment Loan Additional Financing Type: Financing gap/Scale

Team Leader: Zainab 2. Semgalawe Sectors: Irrigation and drainage (1 00%) Themes: Rural services and infrastructure (1 00%) Environmental category: B - Partial Assessment

u p Project Financing Data

[ 3 Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: US$ 3 5 .OO million Total Bank financing (US$m): 35.00 ProDosed terms: Standard terms of 40 Years maturitv including a 10 Years grace Deriod w w

Financing Plan (US%m) Source Local ~I Foreign Total -

BORROWERRECIPIENT 0.00 0.00 0.00 International Development Association (IDA) 34.00 1 .oo 35.00 Total: 34.00 1 .oo 35.00

Borrower: Ministry of Finance and Economic Affairs P .0 Box 91 1 1 Dar es Salaam, Tanzania

Responsible Agency: Ministry of Agriculture Food Security and Co-operatives (Lead Agency) P. 0. Box 9192 Dares Salaam, Tanzania (Tel: 255 (22)-2862064 Fax: 255 (22) 28620675/7)

Ministry of Water and Irrigation P.O. Box 9153 Dar es Salaam, Tanzania (Tel: 255 (22) 2452175 Fax: 255 (22) 2450533)

Prime Minister?s Office-Regional Administration and Local Government P.O. Box 1923 Dodoma, Tanzania Tel: 255 (26) 2321908/2322848 Fax: 255 (26) 2324966

V

Project implementation period: Start: July 1,20 10 End: June 30,2013 Expected effectiveness date: July 1,201 0

Does the project require any exceptions from Bank policies? Have these been approved by Bank management?

Does the project include any critical risks rated “substantial” or “high”?

[ ]Yes [X ] N o [ ]Yes [ ]No

[ ]Yes [ X I N O

Revised project development objective:

The Project has two complementary objectives that contribute to the higher order of agricultural growth and poverty reduction: (i) to enable farmers to have better access to and use of agricultural knowledge, technologies, marketing systems and infrastructure; and (ii) to promote agricultural private investment based on an improved regulatory and policy environment.

Project description:

The project will support the small-scale irrigation development subcomponent of ASDP by providing additional resources to Local Level Support and National Level Support components as follows:

Local Level Support Component: The Additional Financing will be provided to District Irrigation Development Fund (DIDF) to finance scale-up of demand driven small-scale irrigation investments and to demonstrate groundwater irrigation technologies in drought-prone areas, where surface water is limited.

National Support Level Support Component: The Additional financing will be used to accelerate preparatory activities for national level irrigation investments through Public-Private Partnership, including pre-feasibility studies and designs; promotion of cost-effective irrigation technologies and capacity building.

Safeguard policies triggered are: 0

0 Pest Management (OP 4.09) Involuntary Resettlement (OP/BP 4.12)

0

0 Safety of Dams (OP4.37)

Environmental Assessment (OP/BP/GP 4.0 1)

Projects on International Waterways (OP/BP/GP 7.50)

vi

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors for a proposed Credit in the amount of SDR 23.1 million (US$ 35.0 million equivalent) from the Pilot Crisis Response Window (CRW), to the United Republic of Tanzania for the Agricultural Sector Development Project (ASDP, Credit 41 920). This proposed second Additional Financing (AF-11) will provide supplemental resources to help the Government mitigate the impact of Global Economic Crisis on budget allocation to irrigation development sub-component of ASDP. AF-I1 will contribute to the Government’s strategy to deal with the impact of the crisis by protecting core spending in priority sectors especially infrastructure and agriculture, protecting public investments, supporting employment and food security.

2. AF-I1 will close the current financing gap in the District Irrigation Development Fund (DIDF) resulting from increased community demand for irrigation and budget shortfall due to cost overrun attributed to high fuel prices. AF-I1 will be used for rehabilitating and developing sustainable small-scale irrigation schemes, and support other local and national activities to hasten irrigation development in ASDP.

11. Background and Rationale for Second Additional Financing

3, Background. The core elements of Tanzania’s Agricultural Sector Development .Strategy (ASDS) are to strengthen public-private partnerships across all levels of the sector and to implement District Agricultural Development Plans (DADPs) as a comprehensive tool for agricultural development at the district level. The strategy’s priorities are to create an environment favoring commercial activity, improve the delivery of support services with clearly delineated roles for the public and private sectors, improve the functioning of output and input markets, and strengthen the institutional framework governing the sector.

4. To implement ASDS, the Government prepared the ASDP which was approved by the Board on June 15,2006 for a total amount of SDR 61.6 million (US$90 million equivalent). At the request of the Government of Tanzania, on June 9, 2009 the Board approved Additional Financing (AF-I) of US$30 million to ASDP. AF-I is one of the three operations under the Accelerated Food Security Program (AFSP), which assisted the country to respond to the global food crisis that erupted in 2008. It complements the short-term interventions by the National Agricultural Input Voucher Scheme (NAIVS) by rehabilitating small-scale irrigation schemes at the district level. The AF-I Credit became effective on August 20, 2009. As a result, the availability of DIDF has improved, but the demand for these funds still far exceeds their availability.

5. Project Objectives and Components. The ASDP has two main objectives. The first objective is to enable farmers to have better access to, and use of, agricultural knowledge, technologies, marketing systems, and infrastructure, all of which contribute to higher productivity, profitability, and farm incomes. The second is to promote agricultural private investment based on an improved regulatory and policy environment. To achieve these objectives, ASDP has two main components (local and national support), which are aligned with national and local budget, planning, and prioritization processes:

1

0 Component 1 (Local Level Support) primarily fosters the first project objective by improving capacity of Local Government Authorities (LGAs) to plan, support, and coordinate agricultural services and investments in a more efficient, participatory, and sustainable manner. Support is provided to develop and implement community-driven DADPs, increase fanners' influence on decisions to allocate resources for services and investments, reform agricultural services, and improve the quality of public expenditure. This component also finances advisory services, training, and infrastructure development, including small-scale irrigation at the district level through the demand-driven, performance-based District Agricultural Development Grants (DADGs). A competitive fimding mechanism, the District Irrigation Development Fund (DIDF), provides supplemental resources for small-scale irrigation investments. Component 2 (National Level Support) fosters the achievement of both project objectives. The first objective is supported by improvements in the relevance and responsiveness of the agricultural research system, including better linkages with extension. The second objective is supported by improvements in the national policy environment and by the development of mechanisms for greater public-private partnerships. Support is provided to reform agricultural services, primarily research and extension, to improve the overall sector policy fiamework, to carry out preparatory work and investment in national irrigation facilities through the National Irrigation Development Fund (NIDF), mainly under public-private partnerships, to stimulate market development, and to improve food security and sector coordination.

0

6 . Partnership Arrangement. A major share of ASDP is financed through the Basket Fund supported by the Government of the United Republic of Tanzania and five Development Partners (DPs): the World Bank, the Government of Japan, the International Fund for Agricultural Development, African Development Bank, and Irish Aid.

7. Project Performance. The overall rating of ASDP's progress against its Project Development Objective (PDO) is moderately satisfactory (Table 1). A Mid-Term Review (MTR) of ASDP by the Government of Tanzania and DPs in October 2008 and a more recent Joint Implementation Review (JIR) in October 2009 established that project implementation is on track and the Project has registered positive outputs and outcomes. The moderate rating is due to slow progress in implementing agreed actions to accelerate the implementation of Marketing and Private Sector Development subcomponent and to identify actiondactivities at local level to improve marketing systems and enhancing private sector participation. Moreover, the capacity to plan and implement DADPs remains inadequate in some districts'. Actions proposed in the MTR and the JIR of October 2009 to improve progress against PDO to satisfactory include: (i) to re-define the scope and specific activities that would effectively support achievement of the second part of the PDO of promoting private sector investment in

' indicators.

See section v of the Project Paper for explanation of moderately satisfactory ratings of other performance

2

agriculture; (ii) increase resource allocation for irrigation development to close the existing financial gap at local level in DIDF and; (iii) capacity building for local level planning to improve quality and outcomes of agricultural development investments. Satisfactory progress has been made in the implementation of these actions.

Current closing date: June 30,2012 Current disbursements (US%84m): Original credit: US$72 m (8O%), AF-I: US$12 m (40%) Remaining balance (US% 36m): Original credit US$ 18 million; AF-I US$ 18 m

Table 1: ASDP: Key data and performance, April 2010

Implementation Progress: Moderately Satisfactory Financial management: Moderately Satisfactory

Procurement: Moderately Satisfactory Environmental and Social Safeguards: Moderately Satisfactory

US$90m + AF-I: US$30m) I Effectiveness date: October 18,2006 I Development Objective: Moderately Satisfactory I

9. Rationale for a Second Additional Financing (AF- 11). Agriculture is the large share of the overall economy, contributes about 26 percent of GDP, and employs about 80 percent of the country’s labor force. The sector is critical to food security, growth in rural household incomes and poverty reduction. A recent assessment of income-poverty levels in Tanzania found a modest reduction of poverty in Mainland Tanzania fiom 35.6 percent of the population in 2000/01 to 33.4 percent in 2007 (Household Budget Survey, 2008). This performance is attributed to weak performance of agriculture sector. Nevertheless, this gain could be offset due to the impact of the Global Food and Economic crises of the last two years. In addition, droughts and flash floods in different parts of the country have further worsened the situation for a large number of households (over 1.6 million people) are estimated to be food insecure in 201 0 because of poor rains, particularly in semi-arid areas.

3

10. The performance of many sectors has been affected by the economic crisis. Real GDP growth has dropped from 7.4 percent in 2008 to 6 percent’ in 20092. The agriculture, tourism and manufacturing sectors are bearing the brunt of the crisis, putting social and economic pressure on poor people and the economy. This and failure of the 2009/10 short rains have put upward pressure on already high input and food prices, leading to increasing vulnerability of many people to food insecurity, loss of jobs and livelihoods and many people falling below poverty lines.3 Smallholder farmers, who are predominantly producers of staple foods and are dependent almost entirely on rainfall, have been directly affected by drought through low crop yields resulting in low incomes and significant welfare losses.

11. The proposed AF-I1 will provide supplemental funds to ASDP to help protect core spending in the agriculture sector on which the government places high priority. AF-I1 will contribute to key elements of Government’s strategy to deal with impact of global economic crisis and scale up irrigation investments to mitigate the impacts of future drought spells in the country. It will specifically: (i) protect public investment in the agriculture sector by supplementing government budget resources; (ii) strengthen food security by mitigating impacts of economic and climate shocks through increased investment in irrigation; and (iii) protect employment in agriculture by stabilizing agricultural production. Small-scale irrigation investments will provide smallholder farmers reliable access to water to absorb periodic shocks caused by climatic variability and climate change, thus ensure higher and more stable agricultural outputs, lower food prices, and ultimately, increased food security, income growth and spur additional rural employment.

12. The proposed AF-I1 is designed to fill a growing financing gap in Government’s irrigation development subcomponent of ASDP. The financing gap is a result of two trends: one is the increase in community demand for irrigation investments. The second is the rise in the cost of materials attributed to high fuel prices. The former added to the existing financing gap, and the latter has led to cost overrun, adding to the budget shortfalls. Demand for small-scale irrigation investments in ASDP has increased significantly over the past three years, exceeding available financing capacity in DIDF. Not only have the requests received from districts increased but also the requests that meet DIDF’s eligibility criteria have increased significantly, from 55 percent in FY08 to 93 percent in FY 10 (Table 2). In FY09, the available DIDF budget (Tsh 4.63 billion) was able to cover only 10 percent of the amount needed for approved requests (Tables 3). The Government responded to this situation by increasing budget allocations to irrigation development and by requesting the Bank in FY09, for supplemental Financing through Accelerated Food Security Project (AFSP), and supplemental Financing for the Seventh Poverty Reduction Support Credit (PRSC-7) in FY10. The AFSP included US$ 30 million additional financing Credit to ASDP to support rehabilitation of small scale irrigation development through DIDF and to promote soil fertility management. Even with increased budget allocation to DIDF, only a fraction of the district demands has been covered so far by the available resources. In FY 10, available DIDF budget (Tsh 23 billion) is only 44 percent of funds required

The Economic Survey, Ministry of Finance and Economic Affairs, 2009 Although global prices for inputs and food have come down from the peaks of 2008, they remain above the historical pre-food

price crises levels.

4

to finance approved district requests (Table 3). As a result, out of 163 requests approved only 94 received funds (Table 2).

~

2007108

2008109

13. The NIDF has also experienced budget shortfalls over the past three years. The total budget allocation to the NIDF in FYlO is Tsh 17.8 billion, equivalent to 53 percent of the total budget request (Tsh 33.5 billion). Additional resources are needed to speed up preparatory studies and designs for future irrigation development through public-private partnership, and to support other national irrigation development activities.

~

22,853,510 13,701,664 7,385,930 6,3 15,734 76.663.413 46.435.904 4.634.795 4 1 .80 1.106

14. With ASDP disbursements ahead of schedule and the remaining resources already committed to other priorities within ASDP, there is a need for new funding, given the evidence of the positive outcomes of the project's irrigation development subcomponent. The AF-I1 will close the current financing gap of about US$ 23 million in DIDF for scaling-up rehabilitation and development of small-scale irrigation, finance part of projected additional requests from the districts in FY10, and support other local and national activities to hasten irrigation development in ASDP (see annex 2).

Table 2: Number of requests received from districts, approved and awarded DIDF funds

Table 3: DIDF allocations and Financing Gap from FY06 - FYlO (Tsh '000)

I 2009110 1 71,356,734 1 52,012,039 I 23,000,000 I 29,012,039 I

111. Proposed Changes

15. There is no change to the original project design as a result of the proposed Additional Financing. The original project components and implementation arrangements for procurement and financial management will remain unchanged. However, the wording of the first part of the PDO will be modified slightly to better reflect the originally intended outcomes by removing the link to higher order sector objective outcomes. The PDO will read as: "(i) to enable farmers to have better access to and use of agricultural knowledge, technologies, marketing systems and infiastructure; and (ii) to promote agricultural private investment based on an improved

5

regulatory and policy environment”. The end-of-project target for PDO indicator, “area under irrigated agriculture”, has been adjusted downwards. For details see section VI (Expected Outcomes) and Annex 1 (Revised Results Framework).

16. The proposed additional financing will support irrigation development through the two main components of the original project as follows (see also Table 4).

i) Local Level Support (US%32.5 million). AF-I1 will be provided to DIDF to finance district requests for the demand driven irrigation investments. Small-scale irrigation facilities will be rehabilitated and developed through competitive DIDF framework. Groundwater irrigation will be promotedscaled up in drought-prone areas, where surface water is limited.

Rehabilitation and development of new small-scale irrigation schemes (US31.0 million). On the basis of previous experience, additional funding will be provided through the DIDF to cover the unmet demand for rehabilitating and developing new small-scale irrigation schemes at the district level. Funds will be provided on a competitive basis, in accordance with access criteria and an approval process that have already been developed and used. An estimated 8,900 hectares of new irrigation facilities will be developed, and 3,500 hectares will be rehabilitated, at an estimated average cost of about US$2,500 per hectare.

Groundwater irrigation pilot (US$1.5 million). Two pilot schemes will be supported in Dodoma and Singida Regions to demonstrate cost-effective technologies for groundwater irrigation. The pilot schemes will be in areas accessible to urban markets, use groundwater no deeper than 50 meters, and involving farmers with experience in growing higher-value crops. Other access criteria used in the original project remain valid, particularly the criteria for economic and financial viability, as well as the approval process used. Additional support will be provided to communities in pilot schemes to ensure adequate capacities to operate, maintain, and replace pumps. Alternative management options, including the use of private irrigation services provider, will be included in the pilot in line with ASDP framework for enhancing private sector participation in service delivery, including performance monitoring.

i) National Level Support (US%2.5 million). AF-I1 would provide funding for the National Irrigation Development Fund (NIDF) for:

e Feasibility Studies and Designs (US$l. 7 million). The project will finance feasibility studies and preparation of technical designs for both smallholders’ schemes (e.g. those under irrigators associations) and medium-large scale schemes for possible future investments through public-private-partnerships (PPP).

e Promotionhaling-up of cost-effective irrigation technologies (USO.3 million). National level campaigns will be designed and implemented to promote cost- effective/affordable irrigation technologies, including rain water harvesting and shallow groundwater for irrigation.

6

e Capacity building (US$0.5 million). Strengthen the capacity of staff at the zonal district and community levels on issues associated with irrigation development and management, including PPP, safeguard policies, integrated water resources management (IWRM), Operations and Maintenance (O&M), Irrigators Organization (IO), and the participatory design of irrigation schemes. This will also include purchase of survey equipment and associated software for Zonal Irrigation Technical Service Units (ZITSUs).

Table 4: Allocation of Additional Financing to the original project (US% million)

17. Implementation Arrangements. Implementation arrangements remain the same as under the original project. Primary responsibility for implementation of the local component rests with the Prime Minister’s Office, Regional Administration (PMO-RALG) and LGAs, while implementation of the national component is the responsibility of other Agricultural Sector Lead Ministries (ASLMs). The DIDF Committee co-chaired by the Ministry of Water and Irrigation (MOWI) and PMORALG is responsible for appraising and selecting district proposals for small-scale irrigation schemes (see Annex 2).

18. Credit Closing Date. The Credit closing date of AF-I1 would be June 30, 2013, which would become the new Closing Date for the Original Credit. With the original Closing Date of December 3 1, 201 1, the cumulative period extended is within the three-year limit stipulated in OP 13.20: Additional Financing for Investment Lending.

IV. Consistency with the Country Assistance Strategy

19. The proposed AF-I1 is fully consistent with the IDA’S current Country Assistance Strategy (CAS). The CAS was prepared jointly with 22 other DPs as the Joint Assistance Strategy for Tanzania (JAST), which is aligned to the Government’s National Strategy for Growth and Reduction of Poverty (2005-lo), known by its acronym in Swahili, MKUKUTA. The three broad outcome clusters envisaged in the MKUKUTA are: (i) economic growth and the reduction of income poverty, (ii) improved quality of life and social well-being, and (iii) governance and accountability. ASDP is aligned to the first cluster focusing on enhancing economic growth and reducing poverty by empowering people and creating opportunities for them to increase agricultural production and household income. Similar to the original project, AF-I1 supports the Government’s efforts to strengthen the links between MKUKUTA outcomes and the national budget by improving sector- and cluster-based strategic planning and budgeting so that each cluster translates into activities that can be financed and implemented,

7

V. Appraisal of Scaled-up Activities

A. Economic and Financial Analyses

20. ASDP implementation experience thus far shows that for newly developed and rehabilitatedimproved irrigation schemes average yields of paddy rose from 1.9 tons per hectare under traditional irrigation to 4.5 tons per hectare. Given the paddy price of Tsh 800 per kilogram, average gross income per hectare rose from Tsh 1.5 million to Tsh 3.6 million per year for paddy growers. Rain fed maize yields an average of 1.1 tons per hectare, but under irrigation farmers achieved an average of 4.1 tons per hectare. The production of high value crops in irrigated areas has significantly added to household incomes. Based on observed farm- level experiences, economic rates of return (ERRS) to investments in irrigation are higher than the required minimum of 12 percent. Economic analysis also shows that investment in irrigation for AF-I1 can be justified for both paddy and maize (Annex 2).

B. Technical Analysis

21. The design of ASDP reflects lessons learned from projects in Tanzania and elsewhere in the region. Tanzania’s experience in the design and implementation of small-scale irrigation schemes is extensive, and the significant increase in the number of viable proposals for DIDF fhding is a good indicator of the skills and capabilities that are developing at various levels. Progress has been made in enhancing the quality and sustainability of irrigation schemes. The Government has prepared comprehensive guidelines for developing irrigation schemes which include procedures for formulating and implementing irrigation schemes as well as for operating and maintaining them. They also include procedures for determining realistic budgets for beneficiaries to operate and maintain the schemes. Although much remains to be done to ensure that irrigation schemes are cost-effective, operated and maintained sustainably, the new National Irrigation Policy of February 18, 2010 and Strategic Environmental and Social Assessment (SESA), to be completed in February 201 1 are expected to contribute to the sustainable development of irrigation in Tanzania.

C. Fiduciary Analysis

22. Financial Management and Disbursement. In preparing AF-I1 a financial management assessment was done in accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on November 3 , 2005. The assessment identified areas for further improvement, which were discussed with the implementing entities and will be pursued through an action plan. The assessment sought to confirm that MAFC’s financial management arrangements are adequate to ensure that (i) ASDP funds are used efficiently, economically and for the intended purposes; (ii) ASDP financial reports will continue to be prepared in an accurate, reliable, and timely manner; and (iii) the assets of all entities will be safeguarded.

23. The assessment was based on the Joint Implementation Review (JIR) done in October 2009. The review concluded that positive actions have been taken to address some of the financial management matters arising from the MTR and audit reports. All unaudited Interim

8

Financial Reports were received (despite some deviation from the agreed timetable), reviewed by the Bank, and found satisfactory.

24. In the original.project, IDA and other DPs were required to deposit funds on a quarterly basis in a US dollar designated ASDP Basket Fund Holding Bank Account operated by the Accountant General and maintained at the Bank of Tanzania. Based on the assessment of the flow of funds carried out by IDA in June 2008, and considering the forecast of LGAs absorption capacity, the Government and Basket Fund donors agreed to adopt annual disbursements to the Basket Fund Holding Bank Account in 2009, which was approved by IDA, and subsequently reflected in the revised Disbursement Letter for AF-I. The Government has also approved biannual disbursements to LGAs to improve the flow of funds to communities.

25. Overall, the Project’s financial management arrangement satisfies the Bank’s minimum requirement under OP/BP 10.02, and the existing system is adequate to provide, with reasonable assurance, accurate and timely information on the status of the Project as required by IDA. Based on the review of October 2009 the financial management performance is assessed to be moderately satisfactory due to gaps in IFR reporting format, delays in implementing internal auditor recommendations in some districts and delays in release of counterpart funds. An action plan for addressing these issues has been agreed with the Borrower, and its implementation is underway.

26. Procurement. Procurement for AF-I1 will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” (May 2004, revised October 2006); “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” (May 2004, revised October 2006); and the provisions stipulated in the Financing Agreement. Procurement for all International Competitive Bidding (ICB) will be carried out using the Bank’s current Standard Bidding Documents (SBDs) and Standard Bid Evaluation Forms (SBEFs). The Government SBDs for National Competitive Bidding (NCB) procedures have been found acceptable to the Bank, except for the provision that preference be given to domestic suppliers/contractors, which is not as per the Bank’s guidelines. In accordance with para. 1,14(e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Financing shall provide that: (i) the bidders, suppliers, contractors, and subcontractors shall permit the Association, at its request, to inspect their accounts and records relating to bid submission and performance of the contract and to have said accounts and records audited by auditors appointed by. the association and (ii) the deliberate and material violation by the bidder, supplier, contractor, or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.14 (a)(v) of the Procurement Guidelines. For each contract to be financed under the Financing Agreement, the various procurement or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and timeframe have been agreed between the Borrower and the Bank in the Procurement Plan (Annex 6). The Procurement Plan will be updated at least annually or as required to reflect actual project implementation needs and improvements in institutional capacity. .

27. The overall performance of the procurement function was rated moderately satisfactory during the last JIR of October 2009, mainly due to delays in the implementation of the

9

Procurement Plan at the national level and inadequate coordination at the local level. The Government has been implementing the recommendations provided during the MTR and the October 2009 review, to address the weaknesses identified.

28. The ASDP’s procurement capacity was assessed for AF-11. The overall Project risk for procurement was rated as substantial. Some of the weaknesses and risks identified are: (i) staff in the Procurement Management Units (PMUs) of MAFC and MOW1 are overwhelmed with multiple procurement responsibilities for various projects as well as ASDP (ii) at the local level record-keeping is inadequate (iii) inadequate expertisekapacity in user departments in preparing documentation, such as technical specifications and terms of reference and (iv) inadequate knowledge on World Bank procurement procedures and processes. Based on the mitigation measures that have been proposed, the residual procurement risk is expected to be moderate (see Annex 5).

D. Environment and Social Safeguards

29. Environmental impacts. Potential environmental and social impacts are associated with investments of subprojects at the district level through the agricultural development plans (DADPs) and the irrigation development fund (DIDF). It is envisaged that negative environmental impacts from both the DADPs and DIDF will be of low intensity, minor, site- specific, and will be adequately managed and monitored by farmers and LGAs. To address the risks of adverse environmental and social impacts under the original project, the Government prepared and disclosed an Environmental and Social Management Framework (ESMF), including a Resettlement Policy Framework (RPF). The ESMF and RPF were reviewed and during preparation of this AF-11. Both were found to be adequate in scope and content to capture the issues associated with the proposed activities. The ESMF includes guidelines for the preparation of Environmental and Social Management Plans for each sub-project. The ESMFRPF was re-disclosed for the purpose of AF-I1 in April, 201 0.

30. The Environmental and Social Safeguards is rated moderately satisfactory due to slow implementation of ESMF. To strengthen and improve implementation of the ESMF and other safeguard requirements, several actions have been implemented by the Government since the MTR in 2008. ESMF processes have been incorporated into the training modules and DADP guidelines issued by PMO-MLG, ESMF and RPF documents have been distributed to all districts and training has started. The Strategic Environmental and Social Assessment is in progress, and will be completed in February 201 1. The original Integrated Pest Management Plan (IPMP) was reviewed in 2009 to ensure that it captures all activities funded in ASDP, complies with OP4.09 and Tanzania’s national requirements. The Government’s performance in implementing the IPMP in the original project was also reviewed and a capacity building plan prepared.

31. The proposed irrigation investments under AF-I1 are likely to be developed in the basins of International Waterways that requires notification to all riparian states for the purpose of World Bank’s Operational Policy for Projects on International Waterways, OP 7.50. The Government requested IDA to send notification letters to the riparian countries on its behalf, which was done on March 1 1 , 20 10. The riparian response period expired on April 22,20 10 and no comments were received.

10

32. For compliance with Safety of Dams, OP4.37, the government has integrated the dam safety requirements into the ESMF for situations where it may apply. For details on other policies see Annex 4.

33. Social impacts. Social impacts of the proposed activities are expected to be positive. The successful achievement of the PDO will lead to positive social development outcomes for both the agricultural and nonagricultural sector, for several reasons. The Project focuses on empowering farmer and community groups by expanding their participation in local planning and enabling them to have more control over decisions to allocate resources for services and investments. To ensure greater participation and thus more benefits for the rural community, the original project was prepared with broad stakeholder consultation and involvement, which will continue throughout the life of the ASDP. Greater participation by poorer farmers and women’s groups is especially emphasized. Additionally, as part of its efforts to build capacity within institutions and at the local level and to foster better delivery of services, the Project promotes better governance based on principles of social accountability and demand.

VI. Expected Outcomes

34. The expected outcomes of the original project are: (i) increased farmers’ use of improved technologies, infrastructure and marketing systems (ii) enhanced private investment in agriculture. AF-I1 will continue to track the PDO and intermediate outcomes specified in the revised Results Framework of the Original Project4, and the Key Performance Indicators will not change.

35. The end-of-project target for the PDO outcome indicator, “Area under irrigated agric~lture”~ will be adjusted downwards from 500,000 hectares to 380,000 hectares. The former target is considered ambitious based on the implementation experience during the last three years and limited funds available for irrigation development. The revised target, which is 22 percent higher than the area reported in October, 2009 is based on assumption that the annual growth rate of 7.4 percent for irrigated area will be maintained. While the end-of-project target for irrigation area developed is reduced, the rehabilitated irrigation infrastructure (intermediate outcome) is scaled-up significantly.

VII. Benefits and Risks

36. Expected Benefits. It is estimated that about 11,377 households will benefit directly fiom AF-I1 investments. With the inventory of nation-wide irrigation schemes currently under preparation in ASDP, evidence of irrigation outcomes and impacts is largely anecdotal and site specific, but some important conclusions can be drawn: (a) where irrigators organizations are in place and functioning, the irrigation schemes have been improved, and farmers are using

The Results Framework of original project was revised in AF-I

’ “The indicator has been reformulated to read as “irrigated area developed” according to standard New IDA 15 CORE indicator.

11

improved seeds and fertilizers, productivity increases in rice production of 200 percent to 300 percent over traditional irrigation schemes are achieved along with water usage efficiencies; (b) for irrigated maize, yield and farm income increased by 100 percent to 200 percent over rain-fed cultivation, and up to 700 percent increases were observed in some locations due to the ongoing drought; and (c) beneficiaries in irrigation schemes reported numerous benefits and impacts on their lives as a direct result of improved incomes from irrigation, including increased employment, improved housing and household food security.

37. The rehabilitation and development of new irrigation schemes will also indirectly reduce income poverty through increasing rural employment and fostering growth in the rural nonfarm economy. Experience shows even moderately performing investments in agricultural water development provide additional wage employment of approximately 45 person-days per hectare. Also, for every dollar of income generated by agricultural water investments, indirect downstream income benefits of US$O.40-0.50 are realized.

38. Potential Risks. The ASDP is implemented countrywide in 132 LGAs. A major risk for DIDF is the limited capacity of most of the districts caused by their limited number of irrigation engineers. This lack of expertise threatens the quality of irrigation structures and hence potential low performance and efficiency. To mitigate this risk in the short term, the Department of Irrigation is recruiting irrigation engineers for districts and is outsourcing supervision services. To mitigate this risk in the medium term, the Department of Irrigation is introducing an irrigation engineering program into the curricula of technical colleges. A second significant risk is that the potential benefits from expanded irrigation development and rehabilitation may not be realized fully. Farmers may not adopt sufficient fertilizer, improved seeds, or improved crop husbandry practices, or they may be unable to reach output markets. This risk will be mitigated by the Government’s current efforts to strengthen extension services and input and output markets through its voucher scheme for agricultural inputs (NAIVS). The third risk is O&M related. If adherence to O&M guidelines is poor, inadequate maintenance will threaten the sustainability of irrigation schemes. To mitigate this, the Government has strengthened the guidelines for O&M to include key elements such as O&M budgeting and maintenance plan. The selection criteria for funding under the DIDF also include adequate incorporation of O&M as part of the economic and financial analysis.

39. project (Annex 7).

The overall Risk Assessment rating of the proposed AF I1 remains Modest as the original

VIII. Financial Terms and Conditions for the Additional Financing

40. AF-I1 will take the form of an IDA Credit on standard terms of 40 years maturity including a 10 years grace period.

12

Annex 1: Updated Results Framework

46,357 214

70,000 115,000 640 640

Key performance indicators

18 23 I 35 I 35 06/30/2004 I (ii) Fertilizer 12 06/30/2004 12 I 25

(iii) Improved livestock I breeds 2 06/30/2004

NA I 5 5

1 (iv) soil fertility management practices

10 06/30/2003 NA I 15 15

(2) Proportion of smallholders using mechanization:

I (i) Oxen 06/30/2003 24 I 30 I 30 24 I (ii) Tractor 3 06/30/2003 8 I 5 I 5

(3) Irrigation area developed (hectares)

249,992 11/30/2005 3 10,745 I 500,000 380,000

(4) Flow of private funds into agriculture (Tsh million)

167,000 0313 112002 5 16,000 I 463,649 I 463,649

18 11/29/2002 21 I 23 I 23 (5) Ratio of processed exported agricultural products to total exported auicultural Droducts Intermediate Outcome Indicators (1) Number of agricultural infrastructure constructed or rehabilitated

(i) Irrigation (ii) Dip tanks

05/19/2006 0511 912006

0 0

I (iii) Markets 0 05/19/2006 40 1 I 1,185 I 1,185

6The Number of Direct Beneficiaries (New IDA15 Core Indicator) will be added after it is discussed and agreed upon with Government and other DPs during the next joint implementation review in August, 2010, and subsequently included in the harmonized program M&E Framework.

13

Continued.. . Updated results framework (cont 'd)

(3) Number of private agricultural service providers in LGAs contracted for service deliverv

0

(4) Proportion of LGAs that qualify to receive performance bonus

research budget flowing through ZARDEFs (6) Number of smallholder households participating in contract farming and marketing out grower schemes

marketing regulations and legislations in place

(5) Percentage of operational

(7) Number of agricultural

Date

05/19/2006

0

0

140,695

7

05/19/2006

72

229,433

05/19/2006

75 75

468,660 468,660

05/19/2006

06/30/2006

06/30/2003

I 50 l6 I

97 100 I loo

14

Annex 2: Small-Scale Irrigation Development

2004105 2005106 2006107 2007108

I. Background

1. Under ASDP, the subcomponent for irrigation development aims at contributing to agricultural productivity, profitability, and farm incomes by supporting small (I 500 hectares), medium (500-2,000 hectares), and large (2 2,000 hectares) irrigation infrastructure through public and private investments. Small-scale irrigation investments are supported at the district level through demand-driven, performance-based grants (DADGs), which support implementation of agricultural development plans (DADPs), and through competitive grants from the irrigation development fund for the districts (DIDF). The National Irrigation Development Fund (NIDF) supports irrigation schemes of national interest, such as medium- and large-scale schemes, schemes with complex designs and implementation, and schemes that extend beyond district boundaries and have comparatively high investment costs.

249,992 9,557 (3.6%) 264,388

273,945 15,300 (5.5%) 289,245 I1 21,500 (7.4%)

1

11. Achievements

2. Since FY06, when ASDP began, irrigated area developed rose from 264,388 hectares to 310,745 hectares. This increase of 46,357 hectares is equivalent to an annual growth of 5.5 percent over the last three years. During FY09, about 21,500 hectares of irrigated area were developed, representing a 7.4 percent increase over the area developed by FY08 (Table A.2.1). Construction works for four dams commanding 625 hectares were also completed. The wider availability of irrigation enabled about 43,000 additional households to improve crop production in FY09, and benefiting about 200,000 households in total. Feasibility studies have been completed for 116 irrigation schemes of 85,179 hectares. Yields of paddy and maize increased by more than 100 percent under improved irrigation.

Table A.2.1: Area developed under small-scale irrigation (FY05 - FY08)

I 2008l09 I 3 10,745 1 1 I I I Total increment I 46,357 (5.5%) I

111. Justification for Additional Financing

3. Since ASDP began, the requests/proposals submitted by districts for top-up funding through DIDF have increased substantially (Table A.2.2). Proposals received and met DIDF eligibility criteria increased from 55 percent in FY08 to 93 percent in FYlO, indicating that the planning and funding processes for small-scale irrigation development are increasingly understood by community, as well as appreciation of benefits and impacts from irrigation investments. The amount requested for irrigation development and rehabilitation significantly

15

exceed the capacity of DIDF financing, and consequently only a fraction of requests have been funded over the last four years (Table A.2.3). This mismatch between demand and supply of funds allocated to DIDF has resulted to spreading of resources thinly which has lead to a number of incomplete schemes. The 2008 MTR of ASDP concluded that inadequate financial resources for irrigation pose a challenge and risk to achieving the PDO. As a mitigating measure, the review strongly recommended an increase in the resource allocation for DIDF for the remainder of the ASDP, which is currently scheduled to close on June 30, 2012. The Government responded by increasing budget allocation to DIDF through a request to the Bank for additional financing (AF-I) of US$30 million which was provided through the Accelerated Food Security Program (AFSP) in FY09. The AF-I has improved availability of DIDF resources but demand for these funds still far exceeds their availability. The NIDF has also been experiencing budget shortfalls over the past three years of ASDP implementation, lessening the implementation pace of national level irrigation development activities.

4. The AF-I credit is committed to support 94 requests (they include 21 new and 73 on- going requests) out of 163 proposals approved in FY10. The local level budget allocation for DIDF in FY 10 is Tsh 23 billion which is 44 percent of the total cost of approved district requests for DIDF (Table A.2.3). Currently there is a financing gap of Tsh 29 billion (about US$ 23 million) for 69 approved but un-funded requests in FY10. The total national level budget allocation to the irrigation subcomponent through the NIDF in FYlO is Tsh 17.8 billion, equivalent to 53 percent of the total budget request of Tsh 33.5 billion.

5 . With ASDP disbursements ahead of schedule and the remaining resources already committed to other priorities within ASDP, the program requires new funding to close the financing gap in DIDF and meet part of budget shortfall in NIDF Specifically, AF-I1 will be used: (i) to close financing gap in the DIDF of about US$ 23 million for 69 approved but unfunded requests and projected additional requests in FY 10’ (ii) for promotiodscaling up and development of shallow groundwater irrigation in semi-arid areas, where surface irrigation water is limited and highly vulnerable to food insecurity, and (iii) to accelerate implementation of activities under NIDF, including preparation of national level irrigation investments through Public-Private Partnership (PPP), promotion of cost-effective irrigation technologies at national level and capacity building. The Additional Financing will support the aforementioned activities through the two components of ASDP, namely Local level support and National Level support.

’ Expected fiom second call for DIDF proposals expected before end of FY 10

16

Table A.2.2: Number of proposals received, approved and awarded for DIDF funds

FY

Table A.2.3: DIDF Requests and Allocations, FY07- FYlO (Tsh '000) Costs of Cost of Available DIDF Financial Gap Rcques t s Approved Fund Received Hequests

2008/09 2009/10

I 2005/06 I 5,038,961 I 164,000 I 164,000 I I

76,663,413 46,435,904 4,634,795 41,801,106 71,356,734 52,012,039 23,000,000 29,012,039

I 2007/08 I 22,853,510 I 13,701,664 I 7,385,930 I 6,315,734 I

Figure 1: DIDF Requests and Allocation, FY06 - FYlO (Tsh '000)

I Tsh'DnO

DIDF - Requests Vs Allocation -Requested Tsh '000 = + -Approved Tsh'000 --4 -Available [allocated) Tsh'000

2005/06 2 0 07/0 8 2008/09 2009/10 Financial Year

6. Local Level Support Component. AF-I1 will support district requests for rehabilitation and development of new small-scale irrigation schemes through DIDF and two pilot schemes in Dodoma and Singida regions. For Dodoma support will be provided to existing Chinangali grape vine yard irrigation scheme to demonstrate drip irrigation technology. The scheme was established by the community in 2007 at Chinangali village in Chamwino district, using a bank loan of Tsh 1.5 billion through the district council guarantee. The community received technical support from private firm for installation of the drip irrigation system. The system is incomplete, need additional resources to make it fully functional. Table A.2.4 shows the investment cost of the scheme. The Singida pilot will be identified and designed by ZTSU, and will focus on shallow groundwater irrigation (no more than 50 metres deep) using cost-effective technologies such as treadle pumps. The pilots will be in areas accessible to urban markets.

17

7. Additional support will be provided to communities in pilot schemes to ensure adequate capacities to operate, maintain, and replace pumps. Alternative management options, including the use of third-party irrigation services, will be included in the pilot in line with ASDP framework for enhancing private sector participation in service delivery. The districts will use Extension block grants and Capacity building grants for this purpose. The pilot schemes will develop and implement a performance monitoring system to track key performance indicators, such as capital investment costs, operation and maintenance (O&M) per year and per hectare, and economic and financial performance, as well as environmental indicators, such as groundwater abstraction, irrigation efficiency, and groundwater levels and quality. Water abstraction rights will be obtained and Basin Water Offices (BWOs) will be involved in monitoring groundwater levels.

8. National Level Support Component. The AF-I1 through NIDF will also be used to support feasibility studies and preparation of technical designs for smallholder’s schemes, e.g. through Irrigators Organizations, and medium-large scale schemes for investment through public-private partnerships. The support will also include national level campaigns for promotion of cost-effective irrigation technologies, including the use of rainwater harvesting and shallow- groundwater for irrigation. Moreover, support will be provided for strengthening capacity of zonal, district and communities in areas associated with irrigation management, including PPP, safeguard policies, integrated water resources management (IWRM), O&M, Irrigators Organization (IO), and the participatory design of irrigation schemes. This will include purchase of survey equipment and associated software for ZITSUs to enhance their capacity to provide technical support to districts and communities.

IV. Technical Analysis and Institutions Involved

9. The original project reflects lessons learned from other projects in Tanzania and the region. Much experience is available in Tanzania with respect to designing and implementing small-scale irrigation schemes. The increasing numbers of robust proposals for funding indicates that these skills are developing at various levels. Significant progress has been made in establishing Irrigators Organizations (10s) and training participants to manage and maintain irrigation schemes, although much remains to be done to ensure more sustainable operation and maintenance.

10. In this context, the new National Irrigation Policy shall contribute to fully sustainable rehabilitation and operation and maintenance of irrigation schemes. The recently formulated guidelines for operating and maintaining small-scale irrigation schemes now include provisions for determining a realistic operation and maintenance budget, based on the principle of full-cost

18

Table A.2.4: Chinangali grape vine irrigation project in Chamwino District-Dodoma Region

recovery from beneficiaries, to avoid the deferred maintenance and continuous need for rehabilitation that often render irrigation schemes inoperable in subsequent years. This technical and social knowledge is provided mostly by ZITSUs, but as noted, current human resource constraints require district staff to be sufficiently trained to work together with ZITSUs and in future to fulfill this function themselves.

1 1. Groundwater is increasingly recognized as a key resource for developing irrigation if it is economically feasible and viable. Detailed information on the characteristics of aquifers that could be used for groundwater irrigation is currently unavailable on a national scale. Similar information is lacking on the quantity and quality of Tanzania’s groundwater resources. Through previous Project interventions, however, MOW1 acquired localized hydrogeological knowledge,

19

particularly in the Internal Drainage Basin. This information should guide future groundwater development studies. The availability of groundwater for irrigation will be assessed comprehensively for all nine Water Basins in Tanzania using ASDP Basket Fund resources. Under the close coordination of the Directorates of Water Resources and Irrigation, this crucial and comprehensive assessment will be mainstreamed into the ongoing revision of the National Irrigation Master Plan scheduled to start in 2010 and the on-going Strategic Environmental and Social Assessment (SESA) to be completed in February 201 1.

V. Implementation Arrangement and Financial Management

12. There is no change to the original project as a result of the proposed Additional Financing. Implementation arrangement, Financial management and arrangements for procurement will remain unchanged. Proposals for a DIDF for small-scale irrigation are selected by the DIDF Committee on a competitive basis in accordance with the Government’s “Guidelines for Operationalizing District Irrigation Development Fund and National Irrigation Development Fund.” The proposals must fulfill specific criteria for the environmental, social, technical, and economic soundness of the investment. The DIDF Committee is co-chaired by PMO-RALG and MOW1 (Division of Irrigation and Technical Services), and comprises, among others, representatives of Basin Water Authorities and ASLMs. As under the original project, implementation of the DIDF investments for additional financing will be identified, prepared, procured, and supervised at the local level (that is, district and village). Given current capacity constraints, substantive technical backstopping from the ZITSUs will be required. Under ASDP , provision of these services has worked well for districts that have actively sought this expertise.

VI. Expected Outcomes

13. The expected outcomes of the ASDP (original project), are: (i) Farmers better access to and use of improved technologies, infrastructure, and marketing systems and (ii) enhanced private investment in agriculture. AF-I1 which will fund small-scale irrigation rehabilitation and new development at the district level, will continue to track the PDO and intermediate outcomes specified in the revised Results Framework of the Original Project’, and the Key Performance Indicators will not change.

14. The end-of project target for the PDO outcome indicator, “Irrigation area developed” will be adjusted downwards from 500,000 hectares to 380,000 hectares. The former target is considered ambitious based on the implementation experience during the last three years and limited funds available for irrigation development. The revised target, which is 22 percent higher than the area reported in October, 2009 is based on assumption that the annual growth rate of 7.4 percent for irrigated area will be maintained. While the end-of-project target for irrigation area developed is reduced, the rehabilitated irrigation infrastructure (intermediate outcome) is scaled- up significantly.

The Results Framework of original project was revised in AF-I

20

15. The total investment of US$ 31 million would, at an average cost of US$ 2,500 per hectare, improve, modernize, and develop a total area of 12,400 hectares of irrigation schemes, of which 8,900 hectares will be new development and 3,500 hectares will be rehabilitated. In addition, US$ 1.5 million will be used to develop pilot groundwater irrigation schemes in Dodoma and Singida, covering about 100 hectares in total.

Maize

16. The benefits of irrigation investments under ASDP so far are as follows: (i) irrigated area increased annually from 3.6 percent to 7.4 percent; (ii) average paddy productivity increased from 1.9 tons per hectare under traditional irrigation to 4.5 tons per hectare under developed irrigation; (iii) average gross income per hectare increased fiom Tsh 1.5 million to Tsh 3.6 million per year; and (iv) average maize yield increased from 1.1 ton per hectare in rain-fed to 4.1 tons per hectare under irrigation.

5.9 18

VII. Economic and Financial Analysis

17. The design of the original project will be maintained under the AF-I1 to ensure that the activities to be scaled up and the corresponding investments are cost-effective and mainstreamed into ASDP processes. Observed farm-level returns to community investments in the rehabilitation and adoption of irrigation technology exceed the minimum increases required for a 12 percent ERR (Table A.2.5). Under the base scenario, about 60 percent increase in paddy yields and 200 percent increase in maize yields is needed for a 12 percent rate of return, which is achievable with the interventions supported under the AF-11. Based on the cost of US$2,000 per hectare for rehabilitation and US$3,500 per hectare for new investments, the proposed investment in expanding and rehabilitating traditional irrigation schemes using the AF-I1 is economically feasible for both maize and rice.

Table A.2.5: Summary of economic analysis for proposed small-scale irrigation rehabilitation investments

r New Development I 8,120 I 3,500 I I I

18. The returns of investments in groundwater irrigation are also expected to be solid. The unit costs of the proposed pilot in Dodoma and Singida are estimated at US$5,000 per hectare, with the annual maintenance costs at 1 percent of capital investments. While the unit costs of drip systems exceed the unit costs of traditional irrigation’s investments, the drip systems are designed for efficient production of high-value crops such as grapes, tomatoes, onions, and other h i t s and vegetables, thus bringing more profits for farmers than food staple. The production of

21

most of these crops without irrigation is not feasible in the pilot areas, making it difficult to estimate “without project scenario” of investments. It is expected that the close monitoring of costs and benefits of the proposed pilot will allow carrying out the proper economic analysis of such schemes in future projects.

19. The limited economic analysis described here indicates that the AF-I1 can be expected to yield positive returns and contribute to agricultural growth. Care will be necessary, however, to ensure that the DIDF Committee selects only economically viable irrigation investments, particularly when new schemes are being developed. Care will also be needed to assess the viability of proposed schemes in relation to the crop mix that is anticipated and the market outlets for new or additional produce.

VIII. Benefits and Risks

20. Benefits. An estimated 11,377 households will benefit directly from the AF-I1 &gation investments. Most of the AF-I1 resources are expected to finance rehabilitation and modernization of irrigation schemes already in use and develop new schemes, in addition to strengthening 10s within those schemes.

21, The River Basin Management and Smallholder Irrigation Improvement Project (RBMSIIP), which supported rehabilitation of 15 smallholder irrigation schemes in the Pangani and Rufiji Basins, was a beneficial investment. The rehabilitated schemes doubled their irrigation efficiency, improved overall water availability in the Basins, increased average paddy and maize yields, and nearly tripled average family incomes. At the same time, conflicts among water users diminished when irrigation efficiency and crop production improved.

22. By stimulating growth in the rural nonfarm economy, the rehabilitation and development of irrigation schemes can indirectly reduce poverty. A 2007 study estimated that in Sub-Saharan Africa, even moderately performing investments in agricultural water development provide additional wage employment of approximately 45 person-days per h e ~ t a r e . ~ The study further noted that for every dollar generated in agricultural water investments, indirect downstream income benefits of US$0.40-0.50 were realized.

23. Risks. The following risks have been identified for the AF-11:

i) Realization of potential Benefits. There is a risk that the combined potential benefits of irrigation development and rehabilitation may not be realized fully. The full production potential of irrigation investments can be harnessed only if they are accompanied by greater use of fertilizer, improved seed and improved crop husbandry practices. Nor will fertilizer contribute fully to crop productivity in the absence of optimal water levels.

“Investment in Agricultural Water for Poverty Reduction and Economic Growth in Sub-Saharan Africa” (2007), draft synthesis report of a collaborative program of the African Development Bank, Food and Agriculture Organization, International Fund for Agricultural Development, International Water Management Institute, and World Bank. Available at http://siteresources.worldbank.org/RPDLPROGRAM/Resources/459596- 1 170984095733/synthesisreport.pdf.

22

Access to reliable market outlets will hamper realization of potential benefits from irrigation investments. This risk will be mitigated by Government’s on-going efforts to strengthen extension services and access to agricultural inputs through the National Agricultural Inputs Voucher Scheme (NAIVS) and access to markets through strengthening of ASDP’s marketing and private sector development sub-component.

ii) Quality ofInvestments. Some districts and communities might not seek or be able to access technical advice from the ZITSUs. In addition, certain challenging design situations might exceed the current capacity of the ZITSUs. The resulting substandard system designs and implementation arrangements would ultimately lead to poor irrigation systems and infrastructure. This risk can be mitigated by providing tailor-made, short- term training to current staff, recruiting more professional and technical staff, and/or engaging an independent third party during the four critical steps in the project cycle-feasibility studies, design, implementation, and completion-which would improve the quality and thus the long-term sustainability of new and rehabilitated irrigation schemes. All schemes will be subject to a detailed technical audit after certification.

iii) Capacity at the District and Zonal Levels. Most districts are still understaffed (especially with respect to technician-level and graduate engineering and land surveying personnel) and underequipped (especially with respect to computing, surveying, and transport equipment) to fulfill their role in irrigation development to a high standard. ZITSUs have better human, financial, and physical resources than the districts, but these resources are spread too thinly for them to fulfill their core mandate effectively. These risks are being addressed by hiring and training the required staff at both levels.

IX. Sustainability

24. To ensure the sustainability of irrigation investments, project proposals must be screened effectively against economic, technical, environmental, and social criteria. It is essential to clarify who owns the investment and who is responsible for operating and maintaining the infrastructure. Screening mechanisms have been developed during the first two years of ASDP and are now in use. As mentioned, guiding figures and procedures for drawing up realistic operations and maintenance budgets and determining farmers’ contributions to operations and maintenance were recently included in the guidelines for operation and maintenance of small- holder irrigation schemes. The need for full-cost recovery for operation and maintenance has also been included in the new National Irrigation Policy. Currently additional agricultural extension officers are being recruited by MAFC (2,500 by December 2010). Those who received specialized training in agricultural water management are expected to play an important role in applying O&M guidelines for irrigation schemes and thus to contribute substantially to the economic and technical viability of these irrigation investments.

25. As part of the irrigation development investments, the capacity of 10s will be increased by creating greater awareness of how water-use fees and payments for operating and maintaining irrigation schemes will ensure the sustainability of those schemes. Furthermore, 10s will be trained on determining general operation and maintenance requirements over the short and long term, bookkeeping skills, establishing long-term maintenance funds, and enforcing by-laws.

23

Annex 3: Environmental and Social Safeguards

I. Potential Environmental and Social Safeguards

1. The original project is being implemented in 132 districts throughout Mainland Tanzania. A significant share of funding under the original project and the AF-I1 will support activities planned through the DADPs, which include subprojects to rehabilitate small-scale irrigation, funded through grants (DADGs) and the district fund (DIDF) (a competitive funding window under ASDP). The proposed Additional Financing will fill part of the DIDF financing gap for small-scale irrigation, promote groundwater irrigation, and hasten implementation through existing arrangements. The AF-I1 will also support National level activities under the National Irrigation Development Fund (NIDF).

2. In view of the above, the Environmental Assessment classification of Category B and the World Bank Safeguards policies triggered under the Original ASDP will continue to be triggered under the AF-11:

0 Environmental Assessment (OP4.01) Pest Management (OP4.09) Involuntary Resettlement (OP4.12)

0 Safety of Dams (OP4.37) 0 Projects on International Waterways (OP7.50)

3. The environmental and social impacts of the Project are associated with the implementation of subprojects contained in the DADPs, DIDF and from national level irrigation schemes funded by the National Irrigation Development Fund (NIDF).

4. As investments in irrigation increase in many districts, the potential impacts may become more significant, intense, and widespread. Even so, most adverse impacts associated with the DADPs and DIDF investments can be managed by the beneficiaries, with some training and monitoring by district and zonal institutions.

5 . These impacts may be associated with the unsustainable abstraction of water (affecting water quantity and quality), point and non-point pollution of water sources, soil erosion, and increased loss of soil fertility, all of which would increase the pressure to extend agriculture into marginal lands. A further consideration is that irrigation schemes can. serve as breeding grounds for disease vectors such as mosquitoes. It is critical to public health for these schemes to be managed properly.

11. Review of Implementation of Agreed Safeguards in the original ASDP

6. The Task Team reviewed the ESMF prepared and disclosed by the Government of Tanzania under the Original ASDP and it is adequate to capture issues associated with this additional financing. For the purpose of the AF-I1 the ESMF was re-disclosed on 8 April 2010. The ESMF includes guidelines for the preparation of Environmental and Social Management Plans for each sub-project.

24

7. Based on the reviews, supervisions, and lessons learned from the Original ASDP, several recommendations/activities were proposed during appraisal of the first AF-I to strengthen the performance of environmental and social safeguards. Though the Government confirmed implementation of most of the recommendations, the ASDP annual JIR (October 2009) indicated that more effort is needed to help LGAs and communities integrate environmental and social safeguard issues into planning and implementing ASDP.

8. The JIR took note of several actions related to safeguards. Zonal irrigation staff and the ASLMs were trained to apply ESMF and RPF tools in screening irrigation schemes. ASLM staff also received training on the judicious use of agro-chemicals. In districts such as Singida, where the Participatory Agricultural Development and Empowerment Project (PADEP) operates, its environmental guidelines are used in DADP investments. Irrigation investments have been screened by ZITSU using guidelines developed by National Environmental Management Council (NEMC). Most local investments implemented so far are small and have minimum localized negative social and environmental and social impacts. Investments that enhance environmental conservation are also implemented, such as tree planting and zero grazing for livestock. Through Regional Administrative Secretaries, ESMF documents have been distributed to LGAs.

III. Environment Assessment (OP4.01)

9. The Second Additional Credit for ASDP will maintain the Original Project’s Environmental Assessment classification of Category By and the original ESMF will continue to apply, as discussed earlier.

10. Environmental management for increased water use associated with irrigation. About 96 percent of the Additional Financing will be earmarked for small-scale irrigation schemes through DIDF. Two main issues pertain to the management of additional investments in irrigation:

i) The riparian issue (discussed in Section VI1 below).

ii) The environmental and social management of irrigation. Two levels of management have been agreed, similar to what was agreed in the Original ASDP:

The subproject level. At the subproject level, environmental and social management will be undertaken through use of the ESMF in all districts.

e National strategic environmental and social management of irrigation. The SESA being prepared under the Original ASDP adequately covers the irrigation issues in this Project and the agricultural sector in Tanzania, since the SESA covers National Irrigation Policy and the National Irrigation Master Plan will provide specific guidance for the preparation of Environmental and Social Assessments (ESAs) for individual national irrigation projects. The Government of Tanzania awarded a contract to conduct the SESA in July 2009. The assessment is expected to be completed by February 201 1. The SESA will contain an action plan with specific recommendations for ministerial action to strengthen irrigation management through an integrated national and regional water management

25

approach. IDA will closely review the findings and recommendations as part of its overall decision-making process to determine if it will finance larger-scale irrigation in Tanzania in subsequent programs.

11. Cumulative impacts. During the final year of implementation and no later than three months before Project closes, the Government of Tanzania has agreed to complete a Cumulative Impact Assessment (CIA) report. The assessment will ensure that the Government determines the cumulative environmental and social impacts of ASDP and the concomitant additional management measures that may be required. The CIA will be done jointly with the AFSP (Emergency Recovery Loan (ERL)) operation.

IV. Pest Management (OP4.09)

12. With respect to pest management, in 2009 the government proposed to IDA that it wants to adopt and mainstream the IPMP prepared under the Original ASDP project in August 2004, for general use in Tanzania. Consequently, IDA agreed to this approach and has:

0 Reviewed the overall comprehensiveness of the original IPMP. The Government has also updated the IPMP to ensure that it captures all of the activities funded in this Project, thereby ensuring compliance with OP4.09 and the Government’s own requirements.

0 Reviewed the Government’s performance in implementing the original IPMP in the ASDP, which has been effective since 2006, to draw lessons from that experience.

0 Identified capacity gaps in the institutional and regulatory framework. In response, the Government has prepared a standalone Integrated Pest Management Capacity Building Plan to ensure that effective implementation of the IPMP is sustainable beyond the life of the Project.

13. The IPMP provides clear, detailed guidelines in a matrix based on agro-ecological zones, pre- and postharvest periods, pests, diseases, and suggested treatment methodologies associated with maize, rice, and many other major crops.

14. An intrinsic part of any successful integrated pest management approach is strong and effective knowledge management across the rural, farmer, extension, and research communities, other supporting institutions, and policy makers. For this reason, the IPMP Capacity Development Plan provides details on measures related to training, support services, and information dissemination that will be funded and implemented in the short and medium term under the Project. These measures were developed based on an assessment of the capacity building requirements that must be met for various institutions and stakeholders to fulfill local requirements and the World Bank’s own OP4.09.

15. In addition to the farmer and extension communities, key institutions targeted include MAFC’s Plant Health Services (PHS) and the Tropical Pesticides Research Institute (TPRI), which are the two main regulatory bodies for pest management.

26

16. The Capacity Building Plan funds the development of tangible standard operating procedures and a manual for different crops; training in those procedures; the provision of inspectors and inspection kits at key entry points; and the upgrading of quarantine facilities.

17. and at the World Bank’s Public Information Center (INFO SHOP) on September 9,2009.

The final versions of the IPMP and Capacity Building Plan were disclosed in Tanzania

V. Involuntary Resettlement (OP4.12)

18. The Original ASDP prepared an RPF, and to date OP 4.12 has not been triggered by the specific investments financed by ASDP. During the implementation of this AF-I1 in the districts, the Project requires that subprojects conduct ESIAs. These studies will be conducted to obtain more detailed, site-specific information about Project activities and impacts and determine whether they would trigger OP 4.12, especially in districts, where the development and rehabilitation of irrigation schemes may be intensified. In the event of any significant impacts resulting from Project activities, a resettlement action plan will be prepared and executed in line with World Bank and Government policies. In addition, the results of the SESA, capacity assessment, and district and zonal training will ensure that safeguard issues are addressed in a timely fashion and with due diligence.

VI. Safety of Dams (OP4.37)

19. Irrigation infrastructure will include small to medium scale dams and dikes. To comply with Safety of Dams OP4.37, the Government of Tanzania has integrated the dam safety requirements into the ESMF for situations where it may apply.

VII. Projects on International Waterways (OP7.50)

20. The original ASDP triggered OP7.50. Consequently, on April 3,2006 and April 21,2009 the World Bank, at the request of the Government of Tanzania, sent Riparian Notification Letters to concerned countries for abstraction levels from irrigation development envisaged in original and AF-I, respectively. The Government’s estimated level of additional abstraction from the proposed AF-I1 required an additional Riparian Notification. The Government of Tanzania has again requested the World Bank to send additional Riparian Notification Letters on its behalf. The World Bank confinned that the “notified areas and water abstraction amounts” from riparian sources covered by the two previous notifications will be exceeded by the additional irrigation to be financed by AF-11, and sent notification letters to this effect on March 11, 2010. The riparian response period ended on April 22,201 0, and no comments were received.

VIII. Social, Gender, and Poverty Impacts

21. The Project has strong social accountability and demand-governance design elements. As noted, successful achievement of the PDO will foster positive social development outcomes within and outside agriculture. The Project focuses strongly on empowering farmer and community groups (especially groups of poorer farmers and women) through greater participation in local planning and greater control over resource allocation decisions for services and investments. The Project is designed to promote social accountability and demand governance by building capacity within institutions and at the local level to enhance the

27

efficiency of service delivery. More specifically, the Project will offer training in participatory monitoring and impact evaluation through community score cards that measure service delivery. To ensure greater participation and thus more benefits for the rural community, the Project was prepared with, and informed by, broad stakeholder consultations and involvement, discussed previously.

28

Annex 4: Financial Management Assessment

I. Introduction

1. A financial management review of ASDP was conducted by the ASDP fiduciary team, made up of GOT and DPs representatives, in October 2009. The main objective was to ensure that sound financial management practices are being maintained at all levels of program implementing agencies in compliance with the legal covenants related to financial management. In this regard, a review of the program’s budgeting, financial accounting, financial reporting, funds flow and disbursements, and internal and external audit arrangements was conducted. Implementation of all recommendations made by the project’s both external and internal auditor as well as the recommendations from previous supervision missions was also reviewed. Field visits were made to some PMO-R4LG and Districts including, Kondoa, Manyoni, Singida, Kongwa, Siha and Moshi Rural. Based on the reviews and field visits the overall project’s Financial Management Rating is moderately satisfactory.

11. Key Findings of the Assessment

2. StafJing. There is adequate and qualified staff handling program financial matters. In addition, the staff turnover is low as most of them have been working on this project since Credit effectiveness. However, it was noted that some staff need further skills development and exposure about DADPs’ procedures and guidelines. Training on fiduciary procedures has not been conducted for some districts. Therefore, it was agreed to distribute all relevant ASDP documents to all implementing entities at all levels and, implement training modules geared towards fiduciary issues.

3. Planning and Budgeting. The program planning and budgeting is based on Medium and Term Expenditure Framework (MTEF) at all levels. The annual budget and work plans are drawn from the disbursement schedule included in the Project Appraisal Documents (PAD) of DPs with adjustment as deemed necessary. At times release of funds does not follow the approved budget in terms of timing and volume/value of resources requested. Communication between Implementing Agencies is not at satisfactory level, particularly during the planning and budgeting process. These issues were discussed and action to mitigate them has been agreed (see Section 111). Subsequent implementation review missions will monitor progress in all these areas.

4. Accounting. At the central level and in some districts, the program uses the Government’s accounting package called Epicor. However, some districts still use manual system as opposed to this software and the IFRs are prepared in excel spreadsheets. While there are encouraging steps taken to improve the accounting system at the central level, it will be necessary to identify and address existing accounting weaknesses at the decentralized level. Training given at the central level, therefore, have to be replicated in the districts, particularly, staff should be trained for better use of the Epicor and preparation of IFRs.

29

5. Internal control. The ASDP management, in coordination with DPs developed a comprehensive Program Operation Manual which covers fiduciary aspects. The document has been disseminated to all implementing agents including the decentralized level. In addition, the internal audit units at all project level are well staffed with experienced persons. The internal audit reports performed by some LGAs are found to be generally satisfactory. Some reports did not cover the transaction review aspects while the project management is relying on LGAs’ report to ensure that fund are being used for the intended purposes. In addition, the reports from LGAs are not standardized and not forwarded to the central level for comments and further circulation. To mitigate these problems, it is agreed that (i) the report from internal auditors at all levels be standardized and cover the transaction reviews, (ii) internal auditors be trained on the use of risk-based approach and, (iii) an action plan be prepared and implemented for all audit reports; also management would explore the possibility of having a separate audit report for ASDPs funds.

6. Financial Reporting. The IFRs continue to be submitted later than the agreed 45 days after a quarter ends. Delays in the preparation and submission of the IFRs is related to weak communications between the Ministry and the Regional SecretariesPMO- RALG. Some financial reports do not yet meet the required standards with regard to consistency and accuracy. Therefore, improving communication between the Ministry and the Regional Secretaries, capacity building in financial reporting in each of the implementing agencies and, timely submission of quarterly IFRs and improvement of consistency and accuracy of IFRs are critical and deserving management attention.

7. External Audit. The FY08 as well as FY09 financial audit report were unqualified. The majority of the key recommendations raised have been satisfactorily implemented. Annual financial statements of the whole MAFC for the year ended June 30, 2009 had already been submitted to the National Audit Office within the prescribed deadline of September 30,2009.

8. Disbursement. The ASDP is financed through joint Basket Funding from various donors. Disbursements from DPs to the Basket Holding account have recently improved. The table below provides a summary of DP’s total disbursement versus commitment as of June 2009.

9. Flow of Funds. Flow of funds from Basket Fund holding account to implementing agencies has been major challenge in the last three years. There are still delays in disbursements from Treasury (funds are received mostly toward the end of the quarter). In addition, disbursements from the MoFEA are not linked to Annual Work Program. Recommendations were made on several occasions to change this and instead release funds according to ASDP’s expenditure forecast. Similarly, disbursement from districts to the community needs to be improved.

30

Development Cumulative Cumulative Year to date Year to date partners

WE?

disbursement commitment commitment disbursement 2006109 2006109 2008109 2008109 52,848,997 52,849,000 18,105,000 18,105,000

EU 9,397,132 8,500,000 I

10. Following previous recommendations about linking disbursement to annual work program, IDA and other DPs are now making annual disbursements. GOT has also agreed to biannual disbursements to LGAs to improve availability of funds. This is expected to create a major improvement in the implementation progress of the program. For this fiscal year, IDA has disbursed total of US$ 31 million form Original and AF-1 credits. The total IDA credit disbursed as at 20 December 2009 was US$ 84.01 million equivalent to 70% of the total credit (including AF-I).

IFAD

111. Financial Management Action Plan

21,138,940 21,139,000 I 7,242,000 I 7,242,000

11. The implementation status of Financial Management action plans drawn in previous reviews was assessed and follow-up actions were agreed upon with Government. The following matrix (Table A.4.3) shows progress of implementation.

IRISHAID I 17,585,639

Table A.2.7: Status of Agreed Action Plan at MTR

20,006,000 I 13,664,000 I 12,093,440

I Agreed Actions

ADB

1. The recommendations of the study on Review Financial Management, flow of funds and Reporting should be implemented to improve flow of funds to both local and national levels.

2. Financial reporting and disbursements training for Accountant and Internal Auditors should be undertaken urgently.

32,871,852 32,871,852 I 20,866,368 [ 20,866,368

3. Ministry of Agriculture, Food Security and Cooperatives (MAFC) and Prime Minister’s Office-Regional Administration and Local Government (PMO-RALG) finance units need to agree on coordination of and supervision mechanism for financial aspects, including quarterly financial reports by Local Government Authorities (LGAs).

Imdementation Status A Financial Management and Procurement Thematic group has been formed. This is one of tasks assigned to the group to be discussed during their next meeting.

IDA has run a one-day seminar on financial reporting, and ASDP (MAFC) staff members were in attendance. In addition, a joint fiduciary training was organized from January 27 to 29, 2010 on disbursement, procurement, and financial management. ASDP staff members were in attendance as well. A Financial Management and Procurement Thematic group has been formed for coordination of fiduciary issues.

31

LGAs trained to undertake risk based audits and report writing skills

5 . Options for biannual disbursements to LGAs should be discussed with MOFEC to ensure timely availability of adequate resources at local levels.

MOFEA has approved biannual disbursements to LGAs and all f h d s will be released in the first three quarters. Disbursements are publicized through the press, LGA and MoFEA websites and letters to Regional Administrative Secretaries (RAS) to bring awareness to leaders and

32

IV. Updated Risk Management

Level Program Level

12. progresses and new developments observed in the course of implementation.

The risks in financial management have been revised taking into account

M M

Brief Explanation of Changes and any New Mitigation Measures Rating

Previous I Current Type of Risk

Overall I

Inherent Risk

Inherent Risk

M M

country Level

Flow to LGAs Financial Reporting Auditing Overall Control Risk

Entity T - - . - I

S S

M

M M

M S Slippages in the budget preparation process. There are also serious concerns arising from the operation of the IFMS. Connection between sector planning and budgeting is generally weak. The NAO capacity is overstretched and there is no formal follow up on audit recommendations. Reconciliations between the MoFEA and Bank of Tanzania are undertaken less frequently than

I monthly and differences not always accounted for.

M I M I

Control Risk

Accountin Internal controls Funds Disbursement delays to local level are experienced

in a number of districts, affecting implementation of Dlanned activities.

S (Substantial), M (Modest)

33

Annex 5: Procurement Capacity Assessment

1. Implementation of the Agricultural Sector Development Project (ASDP) is under the Agricultural Sector Lead Ministries (ASLMs). The ASLMs include The Ministry of Agriculture, Food Security and Cooperatives (MAFC), Ministry of Water and Irrigation (MOWI), Ministry of Livestock Development and Fisheries (MLDF), Ministry of Industry, Trade and Marketing (MITM), and the Prime Minister’s Office - Regional Administration and Local Government (PMO - RALG).

2. The overall coordination of the program and in particular of the procurement activities is through the MAFC under the Procurement Management Unit (PMU). MAFC’s PMU works closely with PMUs of the other ASLMs. The PMUs are involved in preparation of the annual procurement plans (APPs) which are based on the annual work plans and budget (AWP&B) as well as on the medium term expenditure framework (MTEF). Consolidation of ASDP’s annual procurement plan is carried by MAFC’s. MOWI is taking the lead in activities related to irrigation subcomponent. With regard to staffing, it noted that the PMUs of MAFC and MOWI are already overwhelmed with multiple procurement responsibilities for various projects as well as ASDP. There are five senior staff in both PMUs, currently involved in handling procurement of complex/ high value contracts. It was also observed that preparation and consolidation of annual procurement plans is inadequate as the plans are not finalized on time which leads to late commencement of procurement processes. Another challenge includes undue delays in preparations of terms of reference (TOR) and technical specifications by the responsible user departments for incorporation in request for proposals or tender documents.

3. PMO-RALG is responsible for the implementation project at the local level. It was noted that in some of the LGAs the Heads of the Procurement Management Units still report to the District Treasurers instead of reporting to the Accounting Officers of the Councils. The local level record-keeping is inadequate and furthermore, working environment in terms of space for keeping procurement records and working space for procurement staff is insufficient. Also procurement staff have inadequate knowledge on World Bank procedures and processes.

4. The overall project risk for procurement is rated substantial. Some of the weaknesses and risks identified are: (i) staff in the Procurement Management Units (PMUs) of MAFC and MOWI are overwhelmed with multiple procurement responsibilities for various projects as well as ASDP (ii) at the local level record-keeping is inadequate (iii) inadequate expertisekapacity in user departments in preparing documentation, such as technical specifications and terms of reference and (iv) inadequate knowledge on World Bank procedures and processes. Measures to mitigate the procurement risk include to assign specific staff for handling ASDP procurements; procurement staff at all levels to attend trainings conducted by the Public Procurement Regulatory Authority (PPRA), the Eastern and Southern African Management Institute (ESAMI), and World Bank in order to improve their skills in management of procurement processes; training of staff in data management and improve procurement filing and record keeping; trainings conducted by District Facilitation Teams (DFTs) to cover procurement procedures and record keeping;

34

provide adequate working space for procurement staff; Heads of the PMU in the LGAs to report directly to the Accounting Officers. Based on these mitigation measures the residual procurement risk is expected to be moderate.

35

0

8 i m 8 1 m

t 2 9 & 0

m

i a

2 9 Y d

0

+ 4- 0 z

m u z

0 0

8 v1

h) Y

3

3

c1

c! 3

.3

c? 3

3

3 3 0 Pi g m (u

3 3

0 (u

i; 2 m (u

3 3 0 (u g m (u

- I 0 (u g m (u

3 3 0 (u

3 .- & 2

3 3 0 (u - .e 4

3 2

3 3 0 (u

r c 2 E - 3 3 0 (u

4 2 - U

8 a

2 c;' %. 0

rA

3 3 0 (u

l- 2

3 3 0 (u

$ 2 -

4-

8 a

2 0 3 c

U

8 a

0 z 0 z 0 z 0 z 0 z -

a 2

0 z -

m u z a 2

0 0

m (u

8 ".

a 2

8 8 0

(u 0,

0 0

0 8 z-

8 8 z 0

0 0

0 2 z

0 0

0 0

0-

00, 3

% 3 8 a

-

B 3 8 a

r-: 3

3

09 3 - 9

3

3

0 3 3

3

3 3

3

3

3 3 0 N 8 IA N

3 3

0 N 8 m N

3 3

0 N g IA c'1

3 3 0 N g m N

3 3 0 N 3-

2 5

3 -.I 0 N g U 2

3 3 0 N - ._ 5 2

3 3 0 c'1 3- 4 2

3 3 0 N

3- 2 -

c)

8 e,

3 3 0 N

k i E: 2 -

c)

8 a

3 3 0 N

3- 2 -

c)

8 e,

3 3 0 N

$! -

c)

8 e,

0 z

2 -

0 0

0 8 z-

a V z - 0 0

0 z 2

a s - 0 0

0 3 2

00 m

2 3

c1

2 3

3

;rJ; 3

3

t

a U z

0 0

0 8 0 3

3

4 3

0 z

a

I v)

r? r? 3

i e,

2

I 0 hl

a c, P 0

:

0 d

0 c1 cr

m i c1

c 3

d 0 0

2 d

B 3 8 a

3

B P

‘? m u! m 04 m

I

- 1 ’ a

2 0 (u

& VI I

3 Y

0 0

0 (u

8

1 - a

-

3 Y

E 0

2 0 (u J 8

Annex 7: Risk Assessment

Risk Rating

M

M

M

Risk Risk Mitigation Measures

Implementation capacity and availability of finance are assessed against targets each year jointly with government, and necessary adjustments made both to annual targets and end-program targets. The long-term financing needs for ASDP will be assessed for follow on financing support by Government and DPs in 201 1 * In addition to strengthening National and local institutions, the program provides for strengthening private sector capacity national level for the delivery of technical and managerial services to small-scale irrigators. The Department of Irrigation has initiated short-term

Irrigation expansion targets not aligned to capacity and available financing Inadequate financial support for the outer years of the project Unresponsive and undeveloped private service providers

LGA capacity is inadequate to adequately respond to community demands

M

M

Potential benefits of scale-up irrigation not realized filly due to inadequate agricultural input use O&M guidelines not adhered to risking sustainability of irrigation schemes

Screening criteria for scheme selection through DIDF and DADG mechanisms will be rigorously implemented; screening criteria include economic, financial, social, and environmental and social aspects. Staff training program undertaken at national and local level to enhance quality of support to districts and community in identification and preparation of schemes.

Schemes not adequately screened for quality, economic feasibility and sustainability

Overall Risk Rating Risk Ratings: H (Hi;

M

Residual Risk Rating

M

M

M

M

M

N

N

M

43

Annex 8: Country at a Glance TANZANIA: Second Additional Financing for the Agricultural Sector Development Project

Tanzania at a glance 9/24/08

POVERTY and SOCIAL Ta nza nla

9 0 0 7 Population, mid-year (millions) 40.4

400 GNi per capita (Atlas method, US$) GNI (Atlasmethod, US$ billions) 8.3

Avorago annual growth, 2001-07

Population (%) 2.5 Labor force 2.4

M o r t r r c o n t r a t l m a t r (Iatoat year avallablo, 2001-07)

Poverty (%of population below national po vertyline) 36 Urban population (%of totalpopulafion) 25 Life expectancyat birth (@am) 52 Infant mortality (per l0Wlive births) 74 Chlld malnutrition (%of childmnunder5) 7 ~ c c e s s to an lmpmvadwater source (%ofpopulation) 55 Literacy (%ofpopulaf/on age 59 69 Gm 8s primary enm llment (% of SchooI-Bge populafion) lQ

Male m Female 111

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

' 1987 1997

GDP (US$ billions) .. 7.7 Gross capital formatiotVGDP .. 14.9 Exports of goods andserviceslGDP .. 8 . 2 Gmss domestic savings/GDP .. 5.4 Gmss national savings/GDP .. 3.8

Current account balance/GDP .. -0.4 interest payments/GDP .. 0.5 Total debt/GDP ,. 89.9 Totaidebt ~erviceIe)ports 35.4 12.8 Present vaiueof debUGDP Present valueof debt lewrts

1987-97 1967-07 2006 ' (average annual gm wth) GDP 2.7 6.1 6.7 GDP percapita -0.4 3.5 4.1 Exports of goods and services 14.3 0.1 -0.2

Sub- Saharan L o w

Afr ica Incomo

800 1296 952 578 762 749

2.5 2.2 2.6 2.7

36 32 51 57 94 85 27 29 58 68 59 81 94 94 99 0 0 88 89

2 0 0 6 ' 2007

14.2 8 . 2 8.7 219 0 . 8 0 . 7

-no 0.3

29.9 3.5

14.0 614

2007 2007-11

7.1 4.5

Life expectancy

T primary

capita enmilment

Access to improved water source

- Tanzania - Low-income gmrp

I Economlc r a t b e

Trade

T

Indebtedness

- Tanzania - Low-income gmrp

STRUCTURE o f tho ECONOMY

(%of GDP)

Industry

services

Household final consumption expenditure General gov't final consumption expenditure imports of goods and services

Agriculture

Manufacturing

1887 1997 2006 2007

.. 46.8 45.3

.. 14.3 7 . 4

.. 8.9 6.9

.. 38.9 37.3

.. 88.3 72.8

.. 8.3 8.3

.. 25.7 27.8

1987.97 1997-07 2006 2007 (average annualgm wth)

Industry 0 7 8 7 8 6 M anufactunng 10 6 9 7 1

selvices 18 5 9 7 2

Household final consumption expenditure 3 7 2 5 6 2

Agnculture 3 2 4 5 3 8

Generalgov't finalconsumption expenditure -97 7 4 119 Gmss capital formation -43 7 0 7 4 Imports of goods and services 14 4 5 3 6

Note 2007 data are preliminaryestimates This tablewas pmducedfmm IheDeveiopment Economics LDB database 'Thediamonds showfourkayindicators in thecountry(in bcld)comparedHnth its income-gmupaverage ndataaremissing,thediamondmll

be incomplete

44

Tanzania

PRICES and GOVERNM ENT FINANCE

Domest ic p r ices (%change) Consumer prices 29.9 hplicit GDP deflator

IS87

Government finance (%of GDP. includes currenf grenfs) Current revenue Current budget balance Overall surplus/daficit

TRADE

(US$ millions) Total exports (fob)

Coffee Cotton Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (2000=?Xl) hnport price inder(ZMM=?Xl) Terms of trade (2000=WO)

B A L A N C E o f PAYM ENTS

(US$ millions) Exports of goods and services hports of goods and services Resource balance

Net income Net current transfers

1987

348 10 44 63

1099 86 157 552

81 10 72

IS87

442 1277 -634

-149 446

Current account balance -538

Financing items (net) Changes in net reserves

533 5

Memo: Reserves including gold (US$ millions) 32 Conversion rate (DEC, loceWS$) €43

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1987

5,508 IBRD 325 IDA 801

Total debt service iBRD IDA

56 47 i)

Compo sit ion of net resource flows Official grants 481 Official creditors l40 Private creditors 38 Foreigndirect investment (net inflows) 0 Portfolio equity(net inflows) 0

M r l d Bank program Corn m itments Disbursements Principal repayments Net flows Interest payments Net transfers

23 95 28 67 29 38

IS97

15.4 20.6

122 0 9 -14

ISS7

744 ll7 U O

1270 97 173 514

00 19 e4

in

ISS7

1276 1948 -672

-P2 -3

-797

926 -P9

622 6P.1

IS97

6,90 34

2,306

6 9 24 32

431 8 3 -22 158 0

150 6 3 36 147 20 a 7

~

2006

5.4 4.2

116 -8.0

-0.6

200s

1759 68 115 143

3,661 2 P

1065 1155

19 66 72

200s

3,03 4,565 -1431

-82 58

-1556

1601 -46

2,259 12519

2006

4,240 0

1056

10 0

51

4,QV 524

1 474

3

599 4 6 31

385 20

365

2007

5.4 6.0

P.4 -6.8 -142

2007

1981 73 P6 155

4,321 2 7

1224 1232

P6 6 7 75

2007

2,886 1245.0

2007

0 1585

0 11

536 475

1 474 0

464

Note:This tablewas producedfmm the Development Economics LDB database. 9/24/08

KilimanjaroKilimanjaro(5895 m)(5895 m)

Iwem

bere

Ste

ppe

Nguru M

ts.

Mbeya Range

A R U S H AA R U S H A

M A R AM A R A

R U V U M AR U V U M A MTWARAMTWARA

I R I N G AI R I N G A

L I N D IL I N D I

D O D O M AD O D O M A

K I G O M AK I G O M A

M WA N Z AM WA N Z A

S H I N YA N G AS H I N YA N G A

R U K W AR U K W A

M B E Y AM B E Y AP WA N IP WA N I

TA B O R ATA B O R A

KAGERAKAGERA

SINGIDASINGIDATA N G ATA N G A

MOROGOROMOROGORO

Mbemkur

u

Matandu

Rufiji

Great Ruaha

Rungwa

Wam

iW

ami

Simiyu

Ruvuma

Mara

Kagera

Moyow

osi

Ugalla

Pangani

Kilo

mbe

ro

YalovaYalova

KaliuaKaliua

KasuluKasuluKondoaKondoa

ManyoniManyoni

KibondoKibondoKahamaKahama

NzegaNzega

BuoenBuoen

NjombeNjombe

MpuiMpui

MpandaMpanda

TundumaTunduma

SameSame

TunduruTunduru

MasasiMasasi

UteteUtete

MbeyaMbeya

MoshiMoshi

SongeaSongea

IringaIringa

KibahaKibaha

DODOMADODOMA

TaboraTaboraKigomaKigoma

ArushaArusha

MwanzaMwanza

SingidaSingida

MorogoroMorogoro

ZanzibarZanzibar

ShinyangaShinyanga

Kipengere Range

BabatiBabati

MANYARAMANYARA

MasaiMasaiSteppeSteppe

K E N Y AK E N Y A

UGANDAUGANDA

ZAMBIAZAMBIA

MOZAMBIQUEMOZAMBIQUE

RWANDARWANDA

BURUNDIBURUNDI

DEM

. R

EP.

OF

CO

NG

OD

EM.

REP

. O

F C

ON

GO

To To NakuruNakuru

To To MalindiMalindi

To To KasamaKasama

To To KasamaKasama

To To KasunguKasungu

To To LichingaLichinga

To To MarrupaMarrupa

To To ChiúreChiúre

To To NakuruNakuru

To To TororoTororo

To To KampalaKampala

To To KampalaKampala

To Kama

To Kama

Yalova

Kaliua

KasuluKondoa

Manyoni

KibondoKahama

Nzega

Buoen

Njombe

Mpui

Mpanda

Tunduma

Same

Tunduru

Masasi

Utete

KilwaKivinje

Wete

Lindi

Mbeya

Koani

Tanga

Moshi

Songea

Mtwara

Iringa

Kibaha

DODOMA

Mkoani

TaboraKigoma

Arusha

Mwanza

MusomaBukoba

Singida

Morogoro

Zanzibar

Mkokotoni

Shinyanga

Sumbawanga

Babati

Dar es Salaam

K E N Y A

UGANDA

ZAMBIA

MOZAMBIQUE

RWANDA

BURUNDI

DEM

. R

EP.

OF

CO

NG

O

A R U S H A

MANYARA

M A R A

R U V U M A MTWARA

KILIMANJARO

I R I N G A

L I N D I

D O D O M A

K I G O M A

M WA N Z A

S H I N YA N G A

R U K W A

M B E Y AP WA N I

TA B O R A ZANZIBARNORTH

PEMBANORTH

PEMBASOUTH

ZANZIBARSOUTH &CENTRALZANZIBARWEST

DAR ES SALAAM

KAGERA

SINGIDATA N G A

MOROGORO

Mbemkur

u

Matandu

Rufiji

Great Ruaha

Rungwa

Wam

i

Simiyu

Ruvuma

Mara

Kagera

Moyow

osi

Ugalla

Pangani

Kilo

mbe

ro INDIAN

OCEAN

Lake

Victor ia

LakeTanganyika

LakeMalawi

LakeRukwa

LakeNatron

LakeEyasi Lake

Manyara

To Nakuru

To Malindi

To Kasama

To Kasama

To Kasungu

To Lichinga

To Marrupa

To Chiúre

To Nakuru

To Tororo

To Kampala

To Kampala

To Kama

Iwem

bere

Ste

ppe

MasaiSteppe

Nguru M

ts.

Mbeya Range

Kipengere Range

Kilimanjaro(5895 m)

30°E

0°

2°S

8°S

10°S

0°

2°S

4°S

8°S

10°S

12°S

32°E 34°E 36°E

32°E 34°E 36°E 40°E

TANZANIA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100 150

0 50 100 150 Miles

200 Kilometers

IBRD 33494R1

NOVEMBER 2007

TANZANIAMAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES

SELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS