Document of

The World Bank

Report No: 22152 LA

PROJECT APPRAISAL DOCUMENT

ONNA

PROPOSED CREDIT

IN THE AMOUNT OF SDR 13.20 Million (US$16.70 M Equivalent)

TO THE

LAO PEOPLE'S DEMOCRATIC REPUBLIC

FOR AN

AGRICULTURAL DEVELOPMENT PROJECT

May 3, 2001

Rural Development and Natural Resources Sector UnitEast Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 1, 2001)

Currency Unit = KIP1 Kip = US$.000125US$1 = Kip 8,200

FISCAL YEARJuly 1- June 30

ABBREVIATIONS AND ACRONYMS

ADB Asian Development BankAPB Agricultural Promotion BankCMI Community Managed IrrigationCPCU Central Project Coordination UnitDAFO District Agricultural and Forestry OfficeDIDMP Decentralized Irrigation Development & Mgmnt ProjectDIS District Irrigation ServiceDOA Departnent of Agriculture, MAFDOI Department of Irrigation, MAFDOLF/DLF Department of Livestock and Fisheries, MAFFAO Food and Agricultural Organization of the United NationsEIA Environmental Impact AssessmentEIRRIERR Economic Intemal Rate of Return/Economic Rate of ReturnETU Extension Training UnitFIAT Farmer Irrigated Agricultural TrainingGOL Govenmment of Lao PDRHa HectareHYV High Yielding VarietyIDA International Development AssociationIRRI Intemational Rice Research InstituteIFAD International Fund for Agricultural DevelopmentIMT Irrigation Management TransferISF Irrigation Service FeeKwh Kilowatt HourLWU Lao Women's UnionMAF Ministry of Agriculture and ForestryMCTPC Ministry of Construction, Transport, Post and CommnunicationM&E Monitoring and EvaluationMOH Ministry of HealthMOF Ministry of FinanceNAFRI National Agriculture and Forestry Research InstituteNBCA National Biodiversity Conservation AreaNGO Non-Governmental OrganizationNPC National Project CoordinatorO&M Operation and MaintenancePAFSO Provincial Agricultural and Forestry Service OfficePIMP Pumped Irrigation Management ProjectPIS Provincial Irrigation ServicePMO Prime Minister's OfficeSTRAP Sustainable Irrigated Agricultural ProjectTA Technical AssistanceUXO Unexploded OrdnanceVDF Village Development FundVEW Village Extension WorkerWUA/WUG Water User's Association/Water User's Group

Vice President: Jemal-ud-din KassumCountry Manager/Director: Ian Porter

Sector Manager/Director. Mark D. WilsonTask Team Leader/Task Manager: Rahul Raturi

LAO PEOPLE'S DEMOCRATIC REPUBLICAGRICULTURAL DEVELOPMENT PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key perfonnance indicators 3

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 32. Main sector issues and Government strategy 33. Sector issues to be addressed by the project and strategic choices 5

C. Project Description Summary

1. Project components 52. Key policy and institutional reforms supported by the project 93. Benefits and target population 94. Institutional and implementation arrangements 9

D. Project Rationale

1. Project alternatives considered and reasons for rejection 102. Major related projects financed by the Bank and other development agencies 113. Lessons learned and reflected in proposed project design 114. Indications of borrower commitment and ownership 125. Value added of Bank support in this project 12

E. Summary Project Analysis

1. Economic 132. Financial 133. Technical 144. Institutional 155. Environmental 166. Social 177. Safeguard Policies 19

F. Sustainability and Risks

1. Sustainability 202. Critical risks 213. Possible controversial aspects 21

G. Main Conditions

1. Effectiveness Condition 222. Other 22

H. Readiness for Implementation 23

I. Compliance with Bank Policies 23

Annexes

Annex 1: Project Design Summary 24Annex 2: Detailed Project Description 33Annex 3: Estimated Project Costs 47Annex 4: Cost Benefit Analysis Summary 49Annex 5: Financial Summary 53Annex 6: Procurement and Disbursement Arrangements 56Annex 7: Project Processing Schedule 69Annex 8: Documents in the Project File 70Annex 9: Statement of Loans and Credits 71Annex 10: Country at a Glance 73

MAP(S)IBRD 31444

LAO PEOPLE'S DEMOCRATIC REPUBLIC

Agricultural Development Project

Project Appraisal Document

East Asia and Pacific RegionEASRD

Date: May 3, 2001 Team Leader: Rahul RaturiCountry Manager/Director: Ian Porter Sector Manager/Director: Mark D. WilsonProject ID: P065973 Sector(s): Al - Irrigation & Drainage, AY - Other

AgricultureLending Instrument: Specific Investment Loan (SIL) Theme(s):

Poverty Targeted Intervention: Y

Project Financing Data[ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others:Amount (US$m): SDRI3.20 million

Proposed Terms (IDA): Standard CreditGrace period (years): 10 Years to maturity: 40Commitment fee: 0.50 Service charge: 0.75%Financing Plan: Source Local Foreign TotalBORROWER 0.86 0.00 0.86IDA 7.98 8.71 16.69OTHER SOURCES OF BORROWING COUNTRY 0.66 0.00 0.66

Total: 9.50 8.71 18.21Borrower: LAO PDRResponsible agency: MAF

Ministry of Agriculture and ForestryAddress: Department of Planning, Ministry of Agriculture and Forestry, Vientiane. Lao PDRContact Person: Mr. Anonth Khamhung, Director GeneralTel: (856-21) 415 359 Fax: (856-21) 415 363 Email: Maf@laogov.net

Estimated disbursements ( Bank FY/US$M):FY 2002 2003 2004 2005 2006 2007

Annual 0.60 1.70 4. 1 5 4.15 4.15 1.94Cumulative 0.60 2.30 6.45 10.60 14.75 16.69

Project implementation period: 5 YearsExpected effectiveness date: 10/01/2001 Expected closing date: 12/31/2006

.CSePAC tes Rd Me1020

A. Project Development Objective

1. Project development objective: (see Annex 1)

The Lao People's Democratic Republic is one of the poorest and least developed countries in East Asia; ithas among the worst social indicators in the region. Per capita income is low (around US$250 per ann ism in1998), and at 39 percent, poverty incidence is very high (using 1997/98 data) in a predominantlyagricultural, rural economy. Poverty incidence in the rural areas is much higher (the rural poor accournt formore than 90 percent of all poor); and overall, the central parts of the country are generally better off incomparison with the South and the North.

The agriculture sector is a major sector of the economy, contributing well over 50 percent of GDP andproviding employment to over 80 percent of the country's labor force. Realizing sustainable growth of theeconomy, and bringing about a reduction in overall poverty in the country, will consequently require theefficient use of resources allocated for the agriculture sector, and achieving sustained agriculture grow, th.However, the prevailing serious macro-economic imbalances, and more importantly, the severe constraintsin institutional and human resources ability, limit the Government's capacity to effectively design andimplement development policies and programs. It would be fair to say, that from its present level ofdevelopment, Lao PDR will require decades to build up an adequate cadre of qualified staff, which careffectively respond to the varied challenges faced in the agriculture sector. Consequently, a sustained longterm comnnitment is needed for addressing these issues, and the proposed project should be viewed as tIiefirst phase of a long term program, responding to the Government's Agriculture and Forestry SectorDevelopment Strategy.

* Within the above context, the primary objectives of the project are to reduce rural poverty byimproving and increasing agricultural production. This it will do by taking a community basedapproach, in designing and implementing components which directly impact the lives of the poor iin theparticipating provinces and districts. By addressing the underlying constraints faced by the agriculiuresector, the project will also have a long term positive impact on sector growth. This too will contributeto reducing rural poverty.

To realize the above objectives, the proposed project would: (i) reinforce the Government's program ofdecentralization, under which responsibilities for program implementation are vested with the Provincialand related District administrations, and promote community level involvement in implementation; (ii)strengthen institutional capacity, taking into account that the national level government agencies focus onbroad policy guidance, while the provincial governments are responsible for direct implementation; and (iii)emphasize 'bottom-up' planning in designing and implementing components, by adopting a strongparticipatory approach, involving the potential beneficiaries in the rural community, as well as theconcemed departments of the Government at the central and local levels.

Project Approach and Geographic Coverage: Given the Government's emphasis on decentralization, itwas agreed that the provinces would be used as the geographic basis for designing the project. This wculdalso allow the necessary focus on strengthening institutional capacity to better plan and implementdevelopment programs, and on delivering the essential support services to the farmers. The project wouildbe implemented in the provinces of Kharnmouane, Champassak, Saravanne and Attapeu, which wereselected by the Government for inclusion in this first phase project. The selection was based on thefollowing key criteria: provinces with untapped agricultural potential; high poverty incidence; should be

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part of the Government's public investment program/priority; and as far as possible, provide contiguity ingeographic coverage. The selection of provinces also aims to ensure complementarity with an AsianDevelopment Bank project, which has recently been approved to support Irrigation Development andManagement.

2. Key performance indicators: (see Annex 1)

Progress in achieving program objectives will be measured through a monitoring and evaluation systemwhich will be supported under the project; it will include community based monitoring mechanisms. Aspart of project preparation, a detailed baseline survey was completed in the participating provinces. Detailsof the various output and impact indicators to be monitored under the project are given in Annex 1. It isimportant to emphasize, however, that issues of institutional and human resource capacity in Lao PDR aresignificant; addressing these concerns will require a long term engagement. There are no easy solutions, andconsequently, expectations from this first phase project should be modest.

B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: 19098-LA Date of latest CAS discussion: 04/20/99

The proposed project is consistent with the Bank's Country Assistance Strategy, which has povertyreduction as its overarching priority. The CAS objectives for the rural economy focus on investing in ruraldevelopment and natural resources management, improving agricultural productivity, and ensuringappropriate forestry management techniques for enviromnental sustainability; and supporting rural andnational infrastructure development. The proposed project will focus particularly on supporting ruraldevelopment, and improving agricultural productivity.

2. Main sector issues and Government strategy:

Sector Performance and Issues.

Wide ranging sector work has been completed in the recent past' . It provides a good overview of sectorperformance, and more importantly, of the key issues which the sector faces. The Government too hasdeveloped socio-economic profiles for some provinces, and has outlined a strategic vision for theagriculture sector. Overall, while the share of agriculture in GDP has been declining steadily over the pastdecade, it continues to be of significant importance to the Lao economy, both in terms of its share in theeconomy and for providing employment, as noted above. The declining share reflects both rapid increasesin the manufacturing and services sectors, particularly up to 1997 (prior to the onset of significantmacro-economic issues emerging), but also reflects the slow growth in most areas of the sector. During the1980s the sector grew at an average annual rate of about 3.8 percent; in the 1990s growth has slowed downto around 3 percent p.a. (sector growth in 1997 was only recorded at 1.2 percent). Total cultivated areaaverages about 700,000 ha, of which rice accounts for more than 80 percent. Only a small percentage ofthe area under cultivation is irrigated. Characterized as an extensive but low productivity system, theagriculture sector has been unable to meet the needs of a growing population and to provide a reliablesurplus for export and the food and feed processing industries. Generally, the low output character of Laoagriculture, and the low rural incomes that are its result, stem from supply and demand side factors:

These include the following: sector reports by the Bank which include Social Development and Strategy (1995), AgriculturalSector Memorandum - An Agricultural Sector Strategy (1995), Public Expenditure Review (1997), Priorities for RuralInfrastructure Development (1997); the FAO prepared a report on Promoting Sustainable Rural Development (1999); and theADB sponsored a Consultant led Agriculture Strategy Study (1998).

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ineffective agriculture services to help the Lao farmers to upgrade production techniques, and weaklydeveloped marketing opportunities for poor rural farmers.

Overall, the key issues faced by the sector reflect the stage of development of the overall Lao economy andin particular of its human resources and institutions which are critical for supporting growth. While theGovernment has embarked on a path of economic reforms over the past decade, which also included theagriculture sector (the past couple of years, however, have been marked by high budget deficits, very highinflation, and a rapidly depreciating exchange rate), there are some important issues which need to beaddressed in the sector. Important among these include the following. First, there are serious issues arisingfrom the weak institutional and hunan resources capacity, which limnits Govenrnent's capacity toeffectively design and implement development policies and programs. Second, inadequacies in ruralinfrastructure and essential support services, particularly road access and dry season irrigation, availabilityof relevant agricultural technologies, good quality seed, planting materials and other key inputs, as we] I asextension and research, are also constraining sector growth. In addition, the poor public expendituremanagement has resulted in biases against some sub-sectors with potential comparative advantage, andthere is a lack of a sound framework for sustainable natural resources management. On the policy side.insufficient attention has been given to creating an enabling environment for rural sector development; ihismay also be due to weaknesses in existing institutional capacity to effectively grapple with some of theseconcerns (for example, some of the distortions result from the pursuit of self sufficiency goals whileallocating public resources; government involvement in supply of inputs, due to limited success inimplementing privatization policies; weaknesses in public expenditure management, including investmentsin inigation pumps without adequate feasibility studies; limited access to credit, poor institutionalframework, and a highly distorted interest rate structure).

Government Strate2v to address sectoral issues

Overall, the rural sector is the main focus of the Government's development programs. A discussion paperwhich has recently been drafted, summarizes the key thrusts of the Government's strategy for supportir ggrowth in the agriculture sector, and eliminate rural poverty. It recognizes the low intensity subsistencenature of the sector, and the fact that agricultural transformation is in its early stages in Laos, and thatirnportant challenges lie ahead. In supporting initiatives for growth, the Government has outlined sixcomponent elements, which form the core of the Agriculture and Forestry Sector Development Plan: foodproduction (with particular focus on rice), with a view to securing food security; commercial production ofagricultural commodities, with a view to moving the sector from subsistence to material production;stabilization of slash and bum agriculture; irrigation development; agriculture and forestry research; andhuman resources development. These programs are an integral part of the Government's integrated ruraldevelopment approach for providing rural infrastructure and improving the economic situation of the riralpeople.

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3. Sector issues to be addressed by the project and strategic choices:

The project is designed to support the Government in implementing key parts of its strategy. Its designtakes into account the fact that the agricultural sector of Lao PDR is at an early stage in its developmentprocess. Accordingly, the project is being structured in a manner such that it can address some of the keyissues critical for supporting agricultural development. Being developed as the first phase of a long termprogram, it would initiate a program of supporting human resources development at both national andprovincial levels, together with a complementary program to improve the availability of ruralinfrastructure, mainly irrigation. The project would directly address key sector issues as they relate to theirrigation subsector. In addition to strengthening institutional capacity, the project would establish keytechnical, financial and economic criteria for guiding investments in irrigation; and support theGovernment's policy of transferring responsibility for irrigation management and system O&M to wateruser associations. By establishing and strengthening water user groups, it would also reinforce communityresponsibility towards operating and maintaining irrigation infrastructure, and improve water useefficiency. The project would also support the Government's thrust on decentralization, by empoweringcommunities and Government structures at the provincial, district and village levels, through their role inidentifying and implementing small sub-projects seen to be important by the potential rural beneficiaries.By linking these initiatives closely to the implementation of irrigation and other infrastructure development,as well as the village based investments program, the project aims to reinforce the 'learning by doing'approach to institutional capacity building. At the same time, the project would also address the priorityshort term issues of increasing food production and incomes among the rural poor.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

As indicated earlier, the project would be implemented in four provinces. While recognizing the diverseneeds for tackling poverty in the rural areas, the strategy underpinning the design of the project is to use theirrigation component (and related infrastructure development) as a focal point in this first phase, aroundwhich the proposed interventions to build capacity of local government staff and communities would bedeveloped. Based on actual implementation performance, it is proposed to scale up and introduce morecomponents, in the later phases of the program. Taking this into account, the outline of the proposedproject components is briefly summarized below.

Irrigation: The proposed project will provide for rehabilitating 17 small and medium schemes, and 3electric pump schemes; it also provides for converting 2 diesel pump schemes to electricity based schemes.The service area of these 22 schemes is 7,070 ha. In the absence of technical studies, the development ofnew schemes is not included. Key criteria for selecting schemes include: they should not have beenrehabilitated in the past 5 years; schemes should have potential irrigation intensities of 120 percent; farmersshould be willing to establish themselves into water user groups (if not already in existence, in which case,they should be willing to participate in program to strengthen their activities); beneficiary farmers shouldbe willing to contribute towards meeting O&M costs, and involve themselves in the design andimplementation phase of the works (rehabilitation works on a scheme will not commence without theestablishment of the WUAs, and confinmation that farmers are willing to contribute towards meeting theO&M costs of the scheme). The thrust of the component is on restoring the ability of the selected schemesto deliver water more efficiently to the farmers within the original design area, by rehabilitating main andsecondary canals, repairing or installing new distribution structures, improving the diversion weirs in a fewinstances, getting the benefiting farmer community to rehabilitate the tertiary canals, and tapping into thepotential which a few schemes offer to complete the scheme (where construction had not been completed as

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originally envisaged, or where the available water resources provide the possibility of increasing the sccpeof benefits from the scheme) and thereby increase the size of the command area.

Village Access Tracks and Trails: Access tracks linking irrigation schemes to villages and to the roadnetwork have fallen into disrepair, and make the areas inaccessible particularly during the rainy season.Low cost rehabilitation will be provided for, to enable improved access and better systems for marketing ofagricultural produce and acquiring inputs, and the delivery of rural and technical services to the farmers,.Only tracks connecting villages to schemes, as well as to the nearest gravel surfaced roads will beconsidered for rehabilitation. Based on discussions with the respective provinces, there is provision forrehabilitating about 165 kms of access tracks, and the construction of around 85 Irish crossings.Community involvement in the maintenance of these tracks will be emphasized under the project.Accordingly, prior to the commencement of the works, the village community will enter into acommitment/agreement with the Provincial Roads department, under which they will provide laborresources to maintain the tracks; the roads department will provide the equipment and overall supervisionfor these activities.

Village Water Supply and Sanitation: The provision of safe potable water is a high priority, given tha.many of the village communities presently do not have access to it. The problem is more acute in the lessaccessible upland areas, leading to serious health problems for these communities. Drawing upon theNational RWSS Sector Strategy and Guideline National Framework which was formally launched in la:e1997, the project will provide for improved water supply and sanitation in the project districts, using ademand-driven approach to identifying benefiting communities, and the means (hand pumps, open wells,gravity based schemes) for meeting their needs. The component also provides an opportunity for taking onboard the lessons from the implementation of the RWSS strategy elsewhere in the country (in sevenspearhead provinces), and accordingly making improvements. In line with the strategy, the project willprovide for the installation of systems based on community preferences, affordability and technicalfeasibility. Provision is also made to install about 5,000 sanitary pits and conduct a health and hygieneawareness educational campaign. The materials for the hand pumps and open wells, as well as the cost ofdrilling, would be supplied by the project; the communities would contribute labor for the implementationof this component. Prior to initiating work on these village water schemes and sanitary pits, communitieswill be consulted and their participation sought on the design, preference and implementation plans.Community-based agreements would be entered into with the Provincial Health Offices, whereby thecommunities would confirm their commitment to provide labor for installation, and for taking on full O&Mand replacement responsibility for these schemes.

Village Investments for the Poor (VIP): The Village Investment for the Poor (VIP) component will be ablock grant, allocated annually to each of the participating districts, for implementing small scale projects(broadly ranging in size between $500 to $1,500) identified by the villagers themselves. The objectives ofthe component are to: support rural communities where poverty is high (targeting the women, ethnicminorities, and poorer households); strengthen capacity for designing and implementing small projects atthe village level; and facilitate a closer link between District Agricultural & Forestry Office (DAFO) staffand communities. The Program will begin implementation in a phased manner so as to build up capacity ofthe Provincial Agricultural & Forestry Service Office (PAFSO) and DAFO staff who will be responsiblefor the program. It is proposed that each district receives an annual allocation of US$20,000. Thiscomponent will be closely linked and integrated with the agricultural extension component of the Projec-.Given the limited implementation capacity in the districts and villages, the component will initially beimplemented in the irrigation villages (though it will target households which do not own irnigated plots;,and then expand to villages identified as being among the poorest in the district. Training and technicalassistance will be provided to the DAFO staff and the village volunteers, who will be responsible for

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implementing the component. The eligibility and selection criteria shall ensure that sub-projects aredemand-driven and meet essential technical, economic, financial, environmental and social parameters;beneficiaries will be expected to contribute at least 10 percent of the total sub-project costs.

Agricultural Services: The project will strengthen the capacity of the Provincial Agriculture and ForestryService Office (PAFSO) in the 4 project provinces, and the related 15 participating district offices, forproviding essential technical services to farmers; and selectively of the central Ministry, so as to enablethem to effectively support agricultural development. The component is designed in a manner such that it'simplementation will be closely coordinated with the implementation of the rural infrastructure and VIPcomponents. It will focus on the strengthening of the essential technical support services to farmers, the keyones being research and extension, strengthened IPM and water management, aimed at supportingincreased crop and livestock production (through in-service and farmer training, adaptive research trialsand on-farm demonstrations, basic extension and other equipment, improved mobility, and other means tosupport extension work). The component will build on the participatory community-based, extensionmethodology successfully tested under the Pilot Extension Project. The project will provide for a programof adaptive research trials and demonstrations to develop technical recommendations on cropdiversification, and also respond to problems and constraints identified by farmers. The project will alsosupport the establishment and strengthening of Water Users Associations; as noted earlier, work onrehabilitating irrigation schemes will only be initiated after a WUA is established (or is already inexistence), and confirms its willingness to take on the responsibility for system operation and maintenance.

Environmental Management: Based on the findings of an environmental assessment (EA), the projectgenerally has a positive impact on the environment. However, there are some issues which need to beconsidered; moreover, the project provides an opportunity to increase environmental awareness among bothGovernment staff and beneficiaries. Drawing upon the findings of the EA, the project will finance TA,training, materials and other support costs for raising awareness among fanners and extension staff, ofcatchment-based Natural Resources Management, Impact of rrigation Development on Fisheries, linkageto supplement the National Malaria Program, Pest Management and encouraging the use of IPM, and forputting in place a system for monitoring of Environmental Impact of the project.

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Project Implementation Support: Support will be provided for the project's implementation andcoordination arrangements, under which direct implementation responsibility would lie with the provinces.In addition, support will also be provided for strengthening the monitoring and evaluation function at thedistrict, provincial and central levels, as well as the financial management capacity, in the context ofproject operations.

tIn ve Banhk %ofComponent Setowr COst o fianin Banik-

A. Improved Rural Infrastructure 0.0 0.01. Improve Irrigation Irrigation & 8.55 47.0 7.81 46.8

Drainage2. Improve Rural Accessibility Rural Roads 1.87 10.3 1.74 10.43. Improve Rural Water Supply Rural Water 0.55 3.0 0.39 2.3

Supply &Sanitation

B. Environmental Management Natural 0.29 1.6 0.28 1.7ResourcesManagement

C. Improved Agricultural Services 0.0 0.01. Agricultural Extension Agricultural 2.03 11.1 1.90 11.4

Extension2. Adaptive Research & Research 0.35 1.9 0.34 2.0

Demonstration3. Water Users' Associations Irrigation & 0.44 2.4 0.42 2.5

DrainageD. Village Investments for the Poor Decentralization 2.02 11.1 1.90 11.4E. Project Coordination 0.0 0.0

1. National Level Institutional 1.02 5.6 0.96 5.8Development

2. Provincial Level Decentralization 1.09 6.0 0.95 5.7Total Project Costs 18.21 100.0 16.69 ]00.0

Total Financing Required 18.21 100.0 16.69 100.0

Component cost in this table includes contingencies.

Implementation Schedule: The project will be implemented over five years. It is tentatively expected thatafter approval by IDA's Board of Directors in May 2001, the project would become effective aroundSeptember 2001. On the ground implementation is expected to commence with start of the dry season in2001 (around October), and continue to the end of the year 2006.

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2. Key policy and institutional reforms supported by the project:

The thrust of the project will be to link the implementation of the infrastructure and village basedcomponents to a program for upgrading institutional capacity to provide technical services to smallfarmers; as well as to sensitize Government towards adopting clear technical and economic criteria forselecting projects and programs to be supported from their own budget resources. In this context, thefollowing changes will be pursued under the project: adoption of clear technical and economic criteria forselecting irrigation sub-project to be supported by the provinces, while promoting further irrigationdevelopment; establishment and clear definition of roles for water user groups in small and mediumirrigation schemes, under which water user associations would take over the responsibility and costs of theO&M of irrigation schemes.

3. Benefits and target population:

The project will support poor rural families (involving more than 50,000 individuals), and in doing so,generate both economic as well as institutional/social benefits. The former would come from increasedagricultural production, which should increase overall value-added within the rural economy. The projectwould also contribute to improving the capacity of local institutions and rural communities, and throughthat, contribute to securing the longer term sustainability of these economic benefits. Social benefits wouldcome from the participation of project beneficiaries in the decision making processes. The latter two couldarguably be the most significant contributions from the project. Improved rural infrastructure, includingirrigation, rural access, and rural water supply and sanitation would also raise the quality of rural life.

The main beneficiaries will be the rural poor, primarily the small scale subsistence farmers and landlesslaborers within the four participating provinces. While a large part of the investment will target ruralpopulations concemed with irrigation, much of it along the Mekong plain, the component for village basedinvestments will also support communities in the upland areas, which is home to some of the poorest peoplein the country.

4. Institutional and implementation arrangements:

National Level Arrangements. The project's institutional arrangements are guided by the Government'spolicy of decentralization. At the national level, a Central Project Steering Committee (CPSC) has beenestablished to periodically review implementation performance, and provide guidance for addressing issuesand problems which may arise during implementation. The Committee is headed by the Vice Minister,MAF, and includes representatives from the various agencies of government concemed in guiding andsupporting project implementation. To coordinate activities at the national level, a Central ProjectCoordination Office (PCO) has been established within the Department of Planning of MAF (DOP-MAF).It will undertake some of the procurement, be responsible for overall Project M&E, and preparing periodicprogress/monitoring reports. It will be responsible for ensuring that Bank guidelines and procedures arefollowed on procurement, disbursements, auditing and overall financial management, and thatenvironmental and social guidelines are followed in both developing and implementing components. ThePCO includes a Finance Unit, which is staffed by qualified people drawn from the Department of FinancialServices (DFS-MAF) of DOP-MAF in the financial management of the project. The Unit will ensure thatseparate records are maintained at the provincial level to account for disbursements by the provinces. Itwould consolidate overall project accounts, and have them audited.

Provincial Level Arrangements. Project implementation would be a direct responsibility of the province;for this purpose, a Provincial Project Implementation Office (PPIO) has been established, within theoffice of the Director, PAFSO in each of the participating provinces. The PPIO will be responsible for

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coordinating implementation of the different components; actual responsibility for the direct day-to-dayimplementation of the components would be with the concerned sections of the PAFSO (Inigation,Agriculture, Livestock, Fisheries, the newly established Provincial Extension and Training Unit, or PETU),in close coordination with the DAFOs (and the FSEWs to be trained under the project). The PPIOs wotidbe responsible for facilitating procurement, making certain that O&M commitments are being followed upby communities, maintaining the financial records of the provincial level activities of the project, andregular monitoring of implementation progress and maintaining records for the M&E system. A ProvincialProject Steering Committee, chaired by the Vice Governor, has been established in each of theparticipating provinces, to periodically review implementation perfor-mance, and for facilitating solutions toproblems which may arise during implementation.

The institutional arrangements proposed for the project rely on the existing provincial departments forirrigation, agriculture, etc., rather than create new structures for the project. This would ensure that theactivities and approach under the project would get mainstreamed within the overall program for theprovince, and not be treated artificially as an enclave activity. Each of the participating provinces hasalready identified a core team which supported the project preparation work, and which will form the coreof the implementation units in each of these provinces. Establishment of the CPSC, PCO, and the PPIOsfor the four (4) participating provinces were satisfied as conditions of negotiations.

Monitoring and Evaluation: Monitoring of project implementation, as well as assessing the developmentimpact of the project, would be the responsibility of the PCO, in close association with the PPIOs. TheM&E Unit in the PCO includes one Monitoring Officer to oversee the survey and analysis work, and twotechnical staff to provide assistance. The PPIOs include at least 2 staff who would support the PCO'sM&E Unit in carrying out this responsibility. The project includes funds to build M&E capacity (TA toupgrade skills and design a system; computers and photcopiers; training; and funds for specific studies tobe done during implementation, to assess progress and identify any issues which need to be addressed). T hethrust of the component will be on setting up a simple but effective management information system, aswell as systems for program reporting, monitoring and evaluation. A mid term review would be carried outtowards the beginning of the third year of the project; and if necessary, revisions made to the design of theproject. An initial baseline study (for the purposes of project M&E), has been completed prior to appraii,al,with the involvement of MAF and provincial staff.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Various alternatives were considered while designing the proposed project. Given the underlying objectiveof using the proposed project to target rural poverty, and at the same time also address importantinstitutional capacity issues, the following options were considered. (i) sub-sectoral interventions at anational level, around themes such as irrigation; support services, i.e. research and extension; (ii) socialfund or community-based initiatives; and (iii) regional agricultural development projects targeted at thepoor. While the first two approaches could support the overarching objective of poverty alleviation, threeimportant considerations have guided the decision towards the last mentioned approach.First, it would provide a more effective instrument for tackling the institutional issues more broadly(including weaknesses in the total public expenditure program in the sector), which is considered to beimportant in these early stages of support to the sector. Second, it would ensure greater local ownership,particularly at the provincial level, as it would essentially be financing existing programs, which arealready seen to be local priorities; however, it would build in the need for greater scrutiny, and moreimportant, the need for investments to meet clearly defined technical and economic criteria, before they aie

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supported. Finally, the approach also provides greater flexibility, and by largely supporting alreadyongoing programs, it would create no new institutions, thus minimizing any additional fiscal burden to thegovernment.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

Latest SupervisionSector Issue Project (PSR) Ratings

(Bank-financed projects onty)Implementation Development

Bank-financed Progress (IP) Objective (DO)- Upland agriculture, irrigation, tree Upland Agriculture Scrops Development Project (closed)- Implement new forest resource Forest Management and S Umanagement systems Conservation Project (closed)- Capacity building, conservation and District Upland Development S Sagriculture and Conservation Project- Land titling Land Titling Project S S

Other development agenciesSmall Scale Irrigation ADB: Community Managed

Irrigation Sector ProjectIrrigated Agriculture Dutch: Sustainable Irrigated

Agriculture ProjectAgriculture Services EU: Strengthening of Livestock

Services and ExtensionActivities

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

There are lessons from a variety of sources which have been considered in designing the proposed project,and incorporated in the project preparation terms of reference. A review of the Bank's experience with ruraldevelopment projects in the past has highlighted the following lessons: (i) commitment and ownership to theprogram is vital, not just by Government, but by implementing agencies and the rural people directlyaffected; (ii) project design should draw upon proven technologies; and the goals must be realistic andprecise; (iii) project design must be flexible; (iv) beneficiary participation, at both the planning stage andduring implementation, is necessary; (v) arrangement for infrastructure maintenance have to be in placefrom the start; (vi) social preparatory activities such as community organization and build up shouldprecede infrastructure development. A review (by QAG) of selected poverty reduction projects in East Asiahas also highlighted some important conclusions: the need for greater focus on addressing the long terminstitutional implications of a project to ensure sustainability; need for simplifying and increasing flexibilityin the Bank's procurement procedures; need for greater analytical focus in monitoring the project's longterm impact, which needs to be built into the project design.

The Bank has not supported many projects in support of agricultural development, irrigation and ruralinfrastructure, in the Lao People's Democratic Republic. However, there is one agricultural sector projectin Lao PDR, the Upland Agricultural Development Project, which was recently completed, and which

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provides important lessons. Implementation experience was mixed, with project targets having to besubstantially revised downwards, due to a very slow start-up of implementation. Important lessons froirthis experience include the following: project design should be simple and realistic, in line with institutionalcapacity; staff capacity should be assessed, and training which is essential for achieving results, provided;weak procurement capacity, and delays in fund and budget disbursement caused major implementationdelays; decentralization of implementation to provinces can be successful, providing parties are flexible inadjusting targets in line with capacity; sufficient time should be provided during preparation forparticipatory process; agricultural projects should be designed in a holistic manner; maintenance of gravelroads should be an integral part of roads components; design specifications should be prepared byadequately qualified professionals.

4. Indications of borrower commitment and ownership:

The project has the support of the Government, including key officials such as the Vice Minister ofInternational Cooperation, and the Minister for Agriculture and Forests. It was strongly supported byGovernment during the CAS discussions, and was endorsed at the national level, for seeking IDA support.Important indications of the Government's commitment and ownership of the project are the following:

* At the national level, the project concept has been endorsed by the high level committee responsible forreviewing/approving investment proposals for which external support is being sought.

* The MAF established a Multi-agency Core Team, with representation from MAF, the Prime Minister'sOffice (Office of International Cooperation, and the Leading Committee for Rural Development),Ministry of Finance, State Planning Committee, Ministry of Foreign Affairs, and the Ministry ofCommunications, Transport, Post and Construction, which provided guidance during projectpreparation.

* Each of the four provinces has expressed strong interest in participating in the project; and all havenominated staff who participated in the project preparation process, and who form the core of theprovincial project implementation units. Workshops involving key staff from all participating provirceswere held in Pakse (which included participants from the provinces of Champasak, Saravane andAttapeu) and Thakek (Khammouane Province), at the initiation of the project preparation process (andalso at the time of pre-appraisal), where the overall concept and design of the proposed project wasdiscussed.

* A baseline survey was completed (prior to appraisal), with the active involvement of staff from MAFand PAFSO, covering the districts in the four participating provinces; the report has been translatedinto Lao, and has been made available to the PPIOs and participating districts.

* The PCO & the four PPIOs were established prior to negotiations.

5. Value added of Bank support in this project:

In the past year, IDA has been engaged in a dialogue around the key issues faced by the agriculture sectorin Lao PDR, and on reviewing options for its development. The proposed project provides a goodopportunity to move this dialogue further. Lao PDR is at an early stage in its development process.Importantly, in this context, IDA has the ability to take a long term view while designing sectordevelopment programs, and can bring to bear lessons of experience in implementing sector-wide projectsfrom other parts of the world.

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E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):* Cost benefit NPV=US$2.3 million; ERR = 16.3 % (see Annex 4)O Cost effectivenessO Other (specify)The project's direct benefits would mainly come from improved water resources management in theproject-supported irrigation schemes, covering an area of about 7,070 ha, which would result in increasedagricultural production, household incomes and food security in the project areas. Improved waterconveyance and distribution will be achieved through the rehabilitation, improvement and protection ofirrigation infrastructure, and institutional changes, including participatory irrigation management throughWater Users' Associations/Groups, which should lead to better O&M of the irrigation systems. Thesebenefits provide the basis for the cost-benefit analysis carried out. Benefits would also accrue from theimplementation of the Village Investments for the Poor component However, as these would be demanddriven and their nature difficult to predict in advance, the related costs and benefits are difficult to estimateex ante; hence, they are not included in the analysis. In addition, as indicated earlier, significantnon-quantifiable benefits would accrue from strengthening capacities at both the central level, as well as atthe level of the PAFSO and the related district offices, so as to enable them to effectively supportagricultural development; and from closely involving the local/rural communities in the design andimplementation of the project, which will foster the creation of social capital and create a better linkbetween the government staff involved in delivering services and the farming community.

For the purposes of the analysis, benefits arising from the project are expected from: (i) an increase incropping intensity of around 50 percent on average, across the schemes; (ii) elimination of crop losses andreduced yields, as a result of improved water control; overall, better crop yields and lower unit costs ofproduction, as a result of improved farning practices and the adoption of yield-enhancing practices; (iii)reduced irrigation costs, from better on-farm water management; this would also encourage farmers todiversify, albeit slowly, into higher value crops. Crop budgets and farm models were prepared to deternmineincremental farm income; and also for the purposes of the economic analysis (using border prices), foraggregating total project benefits and costs. Based on estimated project costs and returns, the proposedproject is expected to yield an ERR of 16.0 percent, a net present value of $2.3 million (using a discountrate of 12 percent), and a benefit-cost ratio of 1.5, over a 20 year period of analysis.

Sensitivity Analysis: Sensitivity analysis has been done to assess the impact on estimated project returns,arising from changes in base case assumptions. As outlined in section F below, the key risks to projectimplementation are of the following nature: (i) institutional risks, due to insufficient local capacity; (ii)delays in making counterpart funding available; and (iii) insufficient beneficiary involvement in projectimplementation. If these risks were to materialize, it would result in delayed implementation, higher costs ofcompletion, or lower yields and hence benefits. Sensitivity analysis carried out shows that the ERR wouldfall to 15.1 percent, if project implementation were to be delayed by 2 years; and if incremental benefitswere to be reduced by 10 percent the ERR would decrease to 12.4 percent. Other switching valuescalculated indicate that costs would need to go up by 20 percent and benefits would have to come down by12 percent for EIRR to drop below 12 percent.

2. Financial (see Annex 4 and Annex 5):NPV=US$ mnillion; FRR = % (see Annex 4)Farm Income Analysis: Using crop budgets, farm income analysis was carried out to assess the financial

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impact of the project on the incomes of the expected beneficiaries. Net farm income is estimated bydeducting all cash costs of production from the gross value of the paddy and other crops produced by thefarmers; hence it represents the return to the farm operator's labor and management. The analysis showsthat farm incomes would double with the project. Average returns per labor day are projected to increasefrom $1.08 without project, to over $2.65 with project.

Cost Recovery: Traditionally, investment costs on both gravity and pump schemes were fully met by thegovernment. In addition, O&M costs of gravity-fed schemes have seldom been recovered from thebeneficiaries while farmers using pumps pay for operating costs of electricity/diesel. Overall, budgetayallocations for operations and maintenance were severely limited in the past, thereby threatening thesustainability of these schemes. The project's design takes these weaknesses into consideration, and willprovide for the establishment of WaterUsers Associations (WUAs), which will be responsible for collectingan irrigation service fee on a scale which would be sufficient to meet system O&M costs. The level ofIrrigation Service fee to meet this objective is estimated under the project to be an average US$ 20/ha/yearfor gravity schemes and US$ 40/ha/year for pump schemes.

Fiscal Impact:

The fiscal impact from the project would come from various sources. On the expenditure side, the fiscalimpact of the project would result in an increase in allocation of national and provincial resources allocatedto support agricultural development in the initial group of provinces and districts. Over the five year life ofthe project the provincial governments and the communities are expected to contribute about US$ 0.6million each, and the national government about US$ 0.8 million as counterpart funds. The impact onannual recurrent costs will be low. Based on an analysis of present levels of expenditures, it is expectedthat this level of financial commitment towards the project can be met from the resource envelope availableto the provinces (particularly for Champasak and Khammouane provinces, where tax collections exceedexpenditures overall; Saravanne and Attapeu may need support from the center) and at the national level.On the other side, a positive fiscal impact can be expected, arising from the transfer of operation andmaintenance responsibility for irrigation schemes to water user associations; and increased communityparticipation in program design and execution (particularly with the implementation of the VIPcomponent), which should result in more efficient use of the resources presently allocated for supportingagricultural development in the four provinces.

3. Technical:Insufficient technical capacity is an important constraint, impacting on planning and implementation at alllevels. Irrigation schemes are operating below capacity, with very low irrigation efficiencies, due to des:.gnand construction deficiencies, and poor O&M. Rehabilitation of existing canals with required hydraulicsections and selective lining, will improve irrigation efficiency. The future sustainability of these schemeswill be strengthened, by organizing water user groups, providing appropriate training in O&M practices,and shifting O&M responsibility to the beneficiaries. Overall, the implementation of the rural infrastructurecomponent (irrigation, access tracks and village water supply schemes) would be taken up only aftercommunity based agreements are established/endorsed, under which the communities would be fullyresponsible for 0 & M of the infrastructure schemes after their rehabilitation/construction.

More broadly in the irrigation subsector, considerable investments have been financed by the Governmentin the past two to three years. As briefly discussed earlier, an important concern around these investmerLtshas been on their technical and econornic viability (in addition to the fiscal impact of the sudden increase inexpenditures in support of irrigation). This lack of attention to technical issues may partly be a function ofinstitutional and human resource capacity for appraising investment proposals; however, it is also the result

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of insufficient attention so far to adopting simple criteria for checking the viability of infrastructure relatedsubprojects. A training component has been included for all implementing departments to emphasize"learning by doing" while implementing the rural infrastructure components, complementing other moretraditional training programs supported by other donors.

4. Institutional:The issue of severe institutional and human resource capacity constraints is a central feature in Lao PDR,and has been referred to earlier. As already noted, the project is being designed to address this concern; indesigning interventions, the project will build on experiences from other donor financed programs, whichtoo have been addressing institutional issues. However, human and institutional development takes timeand, and impact will come slowly. The project will address this issue by introducing simple, but importanttechnical and economic criteria for selecting sub-projects to be supported. In addition, the project providesfor training, linked closely to implementation.

Inevitably, as a result, the share of technical assistance and training in total project costs is relatively large;care has been taken to ensure that it is not disproportionate to the overall scale of the project. Anotherimportant issue arises from the fact that govemment officials receive very low salaries, which have beenfurther eroded as a result of currency depreciation and inflation. A satisfactory solution to this issue of apoor incentive system is going to be difficult; however, it will no doubt impact on the efficiency ofimplementation, since rewards are clearly very low.

4. l Executing agencies:

Ministry of Agriculture and Forestry, and participating provincial governments and their line departments.As noted earlier, direct implementation/execution responsibility would lie with the provincial governments,which will work through their district offices.

4.2 Project management:

The detailed implementation arrangements outlined earlier, are guided by the objective of using ADP tosupport the process of decentralization of program/project implementation to provinces. This is achallenging task in Lao PDR, given institutional constraints, and the ability to realize these objectivesdepends on the commitment of local institutions. In this context, an important feature of ADP is to provideresources for capacity building at provincial, district and local levels through training, and technicalassistance. The other feature is to have a project unit in each province for supporting and monitoringactual implementation of the project, with the national coordinating unit to provide support forprocurement, financial management, monitoring and evaluation and other overall project responsibilities.

4.3 Procurement issues:

In the past, the absence of efficient and timely procurement has adversely impacted project implementationin Lao PDR. A Procurement Capacity Assessment of the executing agencies which was undertaken,concluded that MOAF does not have the adequate capacity and experienced staff to handle projectprocurement satisfactorily. The design of the project includes measures aimed to address this issue: (i)internal and external training; (ii) provision of specialized consultants with excellent procurementknowledge; and (iii) easy access to IDA procurement specialists based in Bangkok and Vientiane. Inaddition, for supporting initial start up actions, the recruitment of a procurementlirrigation engineer is acondition of effectiveness; provision is also made to recruit a consultant to support the start up ofimplementation of the VIP component. In addition, the capacity for surveys, design and preparation ofconstruction drawings is limited at the provincial level. To overcome this, tender design and drawings, andthe bills of quantities (with an accuracy of upto 10- 1 5 percent) will be prepared by each province with theassistance and direction of the Department of Irrigation of the Ministry which has adequate capacity for

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this limited activity. The contracts will have an item for completing the surveys, designs and preparation cfdetailed drawings. Successful contractors may use the services of privatized survey and design enterprisesin each province, to complete the designs and detailed drawings. These contractors would be paid after theapproval of such work by the provincial irrigation and/or roads departments.

4.4 Financial management issues:

Satisfactory financial management has been an issue in Lao PDR, due to limited capacity. Overall, theproject financial management will be centralized in the Finance Unit of the PCO, which will draw onqualified staff from the Department of Planning, Division of Financial Services. In addition to beingresponsible for consolidated financial statements and initiating payments from the MOF managed SpecialAccount and Project Bank Account (GOL funds), this unit will oversee the accounts units of the provincesand assist in capacity building at the provincial level. It is proposed that PPIO accounts units maintainaccounts for financial transactions taking place at this level. The PPIO account offices will be primarilyresponsible for disbursing Village Investment component of the project. As this would involve a largevolume of transactions of small payments, this will have to be closely monitored by Finance Unit in thePCO.

5. Environmental: Enviromnental Category: B (Partial Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

An enviromnental analysis was carried out of the proposed project components; special attention was paidto project sites which may be close to forested areas or other habitats of special importance (e.g., wetlands,protected areas). Based on this analysis, it is concluded that the project's impacts on the environment aregenerally positive. Potential negative impacts, for example in the project areas and on the natural resourcesand health of people, can be addressed through proper management and low cost mitigation measures.Important issues considered during the completion of the EA work, included: issues concerning naturalresources management, including catchment management, the implication of irrigation development onfisheries, and wetlands conservation; impacts of project construction; impacts from pest management;impacts on fisheries; and impacts on health. As outlined below, an environmental management plan hasbeen outlined, which would be financed under the project. In this context, it is important to emphasize thatthe regulatory and institutional framework for environmental issues is new and evolving in Lao PDR. Moreso than other areas, there is a dearth of existing capacity.

5.2 What are the main features of the EMP and are they adequate?

Given that the project primarily focuses on rehabilitating existing infrastructure, and is relatively small insize (and also not geographically concentrated in one area), the scale of the impacts are generally small.Thus the project provides a low risk opportunity to build environmental expertise and experience within theLao institutions, by supporting training and raising awareness of environmental issues at central,provincial, district and community levels. This will include not only government staff, but also projectbeneficiaries and executing agencies. Specific mitigation measures proposed for the project, which take along term view in addressing these issues, given the weak skills base and the need for institutional/capacitybuilding, include the following: raise awareness among farners and staff, of catchment-based naturalresources management (given the need for the the irrigation communities to be sensitive to issues of naturalresources management, particularly where the schemes were close to existing NBCAs), through training ofextension staff and build it into the extension program; through TA and training, improve understanding offisheries issues as they relate to irrigation development, among staff involved in designing and operatingirrigation systems; develop, specify and monitor contractor responsibilities for worker safety, siterestoration, waste disposal, local employment and environmental standards in the technical specification oi-weirs and link up with the National Malaria Control Program and provide support in the case of identified

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schemes. Finally, the project will build capacity, and implement a monitoring program to assess theresponsiveness of implementation to the environmental aspects of the project.

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: Draft received on 12-18-2000;

and sent to the Infoshop on 01-12-2001.

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

During detailed project preparation work, and also as part of the community consultation process toidentify sub-projects and to undertake the social and economic assessment, environmental concerns werediscussed with local stakeholders, including participating farmers, village folk and local officials. At thestart of the detailed work on environmental analysis, a workshop was held, at which the terns of referenceand likely environmental and social issues emerging from the project were discussed with provincial anddistrict level officials of all the four participating provinces. Visits were made to most of the project sites,concerning irrigation development, and meetings were held with a cross section of stakeholders, includingnational and local govemnment agencies, as well as representatives of various international organizationsworking on environmental issues of interest to the project. The EA/EMP report was translated, and madeavailable at both the national and local levels in each of the four participating provinces and theGovemrnment response to these concerns was considered during appraisal for finalization the scope of theenvironmental management plan.

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

As indicated above, the project will aim to strengthen capacity at an appropriate level to review thepotential environmental effects of the development proposals. Importantly, through its community basedapproach, the project will promote awareness of environment and natural resource management issues inparticipating communities. At the same time, monitoring of the environmental aspects of the project hasbeen built into the overall monitoring system developed for the project, for which capacity buildingmeasures will also be supported; special monitoring surveys will be undertaken at the time of the mid-termreview.

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

A social and economic assessment (SEA) was conducted at the start of project preparation. The objectivesof the SEA were: to investigate and understand the social, economic political and cultural factorsconceming the intended project beneficiaries; determine the main constraints faced by the ruralcommunities; guide the design of the project; and to incorporate the participatory planning and consultationprocess with beneficiaries into the overall project planning and implementation process. Findings from theSEA indicated that the key social issues were related to the following: the high incidence of rural poverty islinked to low agricultural productivity and food insecurity; poor health due to poor nutrition and lack ofbasic services; and high illiteracy from lack of educational opportunities, especially among women andethnic minority groups. A related social issue is the weak andlor non functioning water user groups forrecently constructed irrigation systems, primarily due to lack of clarity of roles and guidance fromirrigation staff. Women have also discussed the lack of domestic water supply, vegetable gardens andcredit for livelihood activities (see Annex IA for more details).

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The percentage of ethnic minorities in the four project provinces of Champasak, Saravane, Khammouaneand Attapeu is as follows: 15%, 40%, 47% and 63% respectively. Attapeu, which has the highestpercentage of ethnic minority groups is also the poorest of the four provinces. Many of the ethnic minoritycommunities live in the remoter parts of the provinces, which are very poorly serviced by agriculturalextension services, schools, health facilities, etc. The Irrigation Component, which forms the major parl ofthe Project, will have little or no impact on ethnic minorities as they live in the higher elevations which arenot suitable for irrigation. A Development Strategy for Ethnic Minority and Vulnerable Groups has beenprepared for the project (included in the Implementation Manual for the project). The program will providedevelopment opportunities for the ethnic minority and other vulnerable groups primarily through variouscomponents such as improvements in irrigation, agricultural know-how and extension services,improvements in domestic water supply and other demand-driven sub-projects from the communities. Theprogram will promote participation and development in a culturally appropriate manner and fully involvingethnic minority communities in their own development. The Project will ensure that, in areas with ethnicminority communities, the local and district staff working on these components will have ethnic minoritystaff and/or representation from ethnic minority representatives to help in the implementation.

The magnitude of adverse impact from the Project is anticipated to be marginal as the physicalinfrastructure will focus on rehabilitation of irrigation systems and access tracks and the construction ofhand pumps and open wells. However, it is possible that during the course of implementation some landmay need to be acquired and some compensation may need to be paid to project affected persons. Toadequately address the rehabilitation and compensation of the people who could possibly be adverselyaffected by the acquisition of land under the Project, the project has prepared a Policy Framework for LandAcquisition, Involuntary Resettlement and Rehabilitation of Project Affected Persons, which has beenendorsed by Govermment. The full document is included in the Implementation Manual.

6.2 Participatory Approach: How are key stakeholders participating in the project?

As mentioned earlier, the project is intended to benefit the poor within the rural areas in Laos. The primarybeneficiaries of the project will be the rural communities within the targeted areas, focusing particularly onthe rural poor, including those from ethnic minorities. The project would also benefit the provincial anddistrict level institutions by upgrading their capacity to deliver technical support services to the smallfarmers. During the social and economic assessment local government officials and potential beneficiarieswere consulted. Workshops were conducted to provide feedback from beneficiary and local officials toprovincial and national stakeholders. Under the Village Investment for the Poor component, projectbeneficiaries are expected to participate in their own development through undertaking assessments of theirown communities and planning and implementing their own development action plans.

As part of the irrigation component, full participation from farmers will be encouraged. It will define asystematic process of farmer participation in irrigation activities through the development of the water u ,ergroups. The Project will delegate operation and maintenance responsibilities to water users and willimprove efforts at extension and training, particularly in O&M and water management.

Beneficiaries will participate in monitoring their own sub-projects. The Project will continue regularconsultation meetings and workshops during implementation with all the major stakeholders in order tokeep improving the project and to ensure that opportunities for optimum participation are in place.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

Intemational and regional NGOs working in the country have been consulted on sectors in which they are

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working and the project team has sought their advice during project preparation. Officially, there are nolocal NGOs in Lao PDR. However, consultations with local stakeholders and members of civil society havetaken place during the Social and Economic Assessment. The Lao Women's Union, a quasi governmentorganization, is regarded as a non-government organization in the country. They have been consultedduring project preparation and will be participate in implementing the VIP component and be represented invillage and district development committee which will be appraising and approving proposals submitted byvillage groups. The Project also plans to recruit conununity development staff from members of NGOswho have relevant experience in the country.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

The Project is making every effort to ensure that the institutional arrangements which will be put in placewill not be radically different from the existing structure but in fact make use of such a structure.Provincial and District Agricultural and Forestry staff will be the key staff for the project team. Forexample, the VIP will be under the coordination of the PAFSO Extension and Training Unit and will beimplemented by the DAFO extension unit. One staff will be assigned from DAFO to be responsible for thecomponent. At the village level, a village volunteer will be recruited to be the facilitator at that level.Participation at the village and district levels will be enhanced through the inclusion of the existing villageand district development committee for their role in reviewing and appraising the sub-projects. DAFO staffwill provide the technical assistance in reviewing sub-projects for technical feasibility, if required, and forproviding extension services, when needed. Detailed institutional arrangements can be found in Annex 2and in the Implementation Manual.

6.5 How will the project monitor performance in terms of social development outcomes?

A monitoring system will be developed which will tie in with the overall monitoring program of LADP; abaseline survey has been completed prior to negotiations, which provides the basis for evaluating theoutcome from this intervention. The VIP monitoring will be at two levels: a) one at the program levelwhich will be implemented by the district; and b) the other at the village level which will be a participatoryself monitoring by beneficiary groups. The latter will be developed with the help of an expert who isknowledgeable with M&E in societies with low literacy, where altematives to the text and nationallanguage will be included. The information from the participatory monitoring and the project monitoringwill provide an indication if the project is achieving its social development outcomes and correctivemeasures can be put in place as needed.

7. Safeguard Policies:71 Do any of the following safeguard policies apply to the project?

Policy AppleablityEnvironmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 NoNatural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes 0 NoForestry (OP 4.36, GP 4.36) 0 Yes 0 NoPest Management (OP 4.09) 0 Yes 0 NoCultural Property (OPN 11.03) 0 Yes 0 NoIndigenous Peoples (OD 4.20) 0 Yes 0 NoInvoluntary Resettlement (OD 4.30) 0 Yes 0 NoSafety of Dams (OP 4.37, BP 4.37) 0 Yes 0 NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No

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7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

Social Aspect:

A major part of the funds under the proposed project will go towards the rehabilitation of physicalinfrastructure, such as existing irrigation schemes and village roads/tracks. Since no major newinfrastructure will be constructed, it is expected that land acquisition will be minimal, if at all. However, inorder to provide for such an event, a simple land acquisition and resettlement policy framework has beendeveloped and officially endorsed by the Government. Recognizing that the implementation of Government's focal sites program includes resettlement (done in a manner which is not compliant with the Bank's policyon involuntary resettlement), such villages will not be included under the proposed project.

Environment: The staff of the line agencies would be responsible for monitoring the environmental issueswithin their purview, with support and guidance from the Science, Technology and Environmental Agency(STEA) at the different levels. As noted earlier, the project includes provision for building capacity onenvironmental management and monitoring issues; a program of 'training of trainers' involving PAFSO andSTEA staff would be implemented, and orientation and training will be provided to provincial, district andvillage officials tasked with the responsibility of the safeguards.Overall, the project includes a strong M&Ecomponent; regular monitoring will be conducted to ensure that the project is in compliance with the abovesafeguards.

F. Sustainability and Risks

1. Sustainabitity:

Sustainability of the proposed operation is being pursued from various fronts. Firstly, institutionalsustainability is important, and is being pursued by building consensus on the project design among a widerange of stakeholders and adopting a participatory process. During project preparation, an analysis of theinstitutions and the other stakeholders was undertaken, the findings of which have guided the design of theproject. In addition, capacity building, and involvement of rural communities, are integral parts of theproject which will be emphasized during project implementation. Particular attention is being paid toputting in place practical arrangements for O&M, and in this context, supporting the beneficiaries inbuilding capacity to take on this responsibility. A baseline survey has been completed prior to negotiations,which will facilitate project monitoring.

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2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Migation MeasureFrom Outputs to ObjectiveCounterpart funding would be made S Strong government commitment to programavailable in a timely manner, and not be a being built, through close consultation andcause for implementation delay. involvement of officials at all levels.Local capacity of provincial staff, S Close involvement of engineering staff duringparticularly to manage procurement project preparation; support for building localprocessing will improve, and not cause capacity prior to project start-up, together withimplementaion delays. TA support during implementation.Participatory approaches will be more M Strong participatory approach adopted ineffective in enouraging community preparing the project, with the support of theinvolvement in developing and Government.implementing sub-projects.

From Components to OutputsContinuity and appropriate skills mix S Core team of local staff, which will be involvedamong counterpart staff, who are tasked with implementation, already participating into support project implementaion. preparation phase; will be supported by a

targeted TA package.Local Counterpart funding available in a M Project being designed to minimize demands ontimely manner. additional budget resources. Obtain commitment

from provincial government to provide sufficientcounterpart resources.

Timely recruitment of key consultants, M Discussions underway with other bilateralwho are needed to support project donors to support to support TA needs ofimplementation. project; recruitment of key consultants to be

initiated soon after negotiations - generalprocurement notice in Dev. Business afterappraisal.

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

none

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G. Main Credit Conditions

1. Effectiveness Condition

The following are the conditions of effectiveness: (i) the Implementation Manual has been issued byGovernment; (ii) a procurement specialist has been recruited; (iii) a chart of accounts for the Project hasbeen designed, and an accounting software has been installed; and (iv) the Project accountant and theaccountant clerks in the Central Project Coordination Office have been trained in the use of the Projectaccounting software and in the Project accounting and computer procedures set out in the ImplementationManual.

2. Other [classify according to covenant types used in the Legal Agreements.]

Assurances obtained at negotiations:

Program Implementation: (i) Project Implementation to be carried out in accordance with the provisiorsoutlined in the Manual for Project Implementation; (ii) Policy Framework for Land Acquisition,Resettlement and Rehabilitation for Project Affected Persons will guide implementation of actions under theproject where acquisition of land or the displacement of villagers is unavoidable; (iii) the DevelopmentStrategy for Ethnic Minorities would be applied during implementation; (iv) Physical works on anirrigation sub-project will not be initiated unless there is an existing water users group/association, whiclahas entered into a commitment with the Government to it will collect sufficient inigation service fees tomeet the costs of O&M of the schemes; (v) prior to commencing work on an access track, an agreementwill be entered into between the village and the Provincial Roads Department, for the provision of villagelabor for routine track maintenance; and in connection with the water supply and sanitation component, anagreement will be entered into between the village and Provincial Health Office for the provision of villagelabor for the installation and O&M of the water supply schemes and sanitary pits, and for the payment cf ayearly fee for their maintenance; (vi) prior to approval of a sub-project under VIP, the beneficiarycommunity will need to have entered into a sub-project agreement in accordance with the provisions of theimplementation manual.

Project Management: (i) A Central Project Steering Committee, chaired by the Vice Minister, MAF, and aCentral Project Coordination Office within the Department of Planning of MAF, will be maintainedthroughout the implementation period of the project; (ii) Each of the four project provinces to maintain aProvincial Project Steering Committee and a Provincial Project Implementation Office through theimplementation period of the project; (iii) for the purposes of the VIP component, a District Committee villbe maintained during the implementation of the project; and villagers will be required to contribute, eitherin cash or kind, the equivalent of at least 10 percent of sub-project costs; (iv) a Central Extension andTraining Unit in MAF, and Provincial Extension Training Units in each of the participating provinces, saallbe maintained through the implementation of the project.

Monitoring and Evaluation: (i) Maintain policies and procedures to enable monitoring and evaluation onan ongoing basis; (ii) complete a mid-term review by March 1, 2004.

Financial Reporting: A financial management system shall be maintained, including records, accounts andfinancial statements; consolidated project accounts for the project as a whole, together with the SpecialAccounts and Second Generation Special Accounts in the four provinces, to be audited annually; certifiedcopies of financial statements to be forwarded to the Bank not later than six months after the end of eachfiscal year; a time bound action plan for the strengthening of the financial management system would beimplemented

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H. Readiness for Implementation

0I 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

1 1. b) Not applicable.

1 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

0 4. The following items are lacking and are discussed under loan conditions (Section G):

1. Compliance with Bank Policies

Z 1. This project complies with all applicable Bank policies.O 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Rahul Raturi Mark D. Wilson Ian PorterTeam Leader Sector Manager Country Manager

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Annex 1: Project Design SummaryLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)To pursue the goal of poverty Improved food security - Periodic Surveys and Poverty Enabling macro-economicalleviation, invest in rural measures of consumption. Assessments. environment.development and naturalresources management, and Political commitment andthereby increase rural incomes financial support tc pursue

programs and policiestargeted at poverty reduction.

Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:Key constraints are removed Improved food security and Baseline and periodic surveys Project benefits are sustainedto intensifying agriculture, delivery of basic services in (including beneficiary through support for O&M atincreasing agricultural project areas surveys) during the provincial level, strongproductivity, and providing implementation, on community ownership andbasic services for low-income Increased agricultural agricultural performance, role in project design,subsistence fanners through productivity (e.g., increase in household incomes, and on implementation andresponding to community cropping intensities in project local participation and monitoring; and continuedpriority needs in targeted schemes by at least 20%, institutional strengthening community commi ment toproject areas. higher paddy yields per O&M.

hectare, greater incidence of Detailed mid-term andcrop diversification, etc.) terminal evaluations No major natural calamities,

or drastic changes Ln weatherIncreased household incomes (such as excessive :iooding,of beneficiary households prolonged droughts:, etc.)

Established linkage betweencommunity priority needs andagricultural extension servicedelivery

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Key ProddMa.eHiai0rchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions

Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:1. Rehabilited irrigation 1 . Rehabilitation of 7,070 ha, Regular Implementation Counterpart funding would besystems for small farmers in leading to at least a 20 percent Progress/Monitoring Reports made available in a timelythe project areas, making increase in cropping manner, and not be a causethem more efficient and intensities. Supervision Reports for implementation delay.reliable.

Increase in paddy yields perhectare. Baseline survey; periodic Local capacity of provincial

Evaluation Reports; staff, particularly to manageIncrease in proportion of evaluation at mid-term (end of procurement processing willfarmers satisfied with year 2) and at completion. improve, and not causeirrigation water delivery, implementation delays.

Functioning Water User Minutes of Central andGroups with responsibility for No. of Water user Groups Provincial Project Steering Participatory approaches willmanaging irrigation systems. taking over responsibility for Committee Meetings be more effective in

O&M in project irrigation . . encouraging communityschemes. Minutes ofeDinst and involvement in developing,

villgage Mveetings, and implementing, monitoringperiodic evaluation reports, on and levating, sonetsVIP (and other) component. and evaluatmg subprojects

2. Increase in accessibility to 2. Rehabilitation of aroundservice areas for dispersed 165 kms of tracks connectingvillages in the project areas. schemes to roads and villages.

Improved access to marketsfor farm inputs and output,leading to increased trafficand reduced transport costsand travel time to markets.

3. Improved water supply and 3. No. of households insanitation provided for project area with access toparticipating rural improved/safe potable watercommunities supply (according to defined

criteria); incidence of waterbome diseases.

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4. Improved delivery of 4. Establishment of a CETU,agricultural services, which and four Provincial Extensionare more responsive to small Training Units (PETUs);farmer needs. upgrading of DAFO technical

staff into generalist FarmingSystems Extension Workers(FSEW)

Number of farminghouseholds who are aware ofand adopt improvedagricultural practices;trying/using new seedvarieties, applying fertilizer;and introducing new crops tocropping pattern.

On-farm demonstrations oftechnology which respond tosmall farmer issues.

5. Availability of village based Annual disbursements offunds to invest in subprojects around US$20,000 perwhich respond to community district, for implementation ofpriorities, and improve prioritized small-scale villageincomes of the poor. investments.

Number of household groupsinvolved in proposing andimplementing subprojects.

Number of women and ethnicminorities groups submittingand having proposalsapproved for implementation

Number of sub-projectsdeemed satisfactory by villagecommunities.

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6. Increasing the awareness of 6. Regular monitoring of theproject staff and beneficiaries project fo environmentalon environmental issues impacts.related to the project.

Improved understanding ofimpacts on irrigationdevelopment on fisheries andother environmental concerns.

Conduct of village leveldissemination onenvironmental issues

7. Effective Implementation of 7. Timely actions onthe project, with provinces government follow up andtaking a lead role - supported coordination ofby a good system of implementation.monitoring and evaluation.

Key operations manualsdeveloped, applied, andrefined according to specificproject needs.

No. of project staff withimproved competencies onproject implementation,M&E, procurementprocessing and financialmanagement.

M&E system and MISdeveloped, community linkedM&E system put in place, andtimely monitoring reports andevaluation studies completed.

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Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)1. Improvements in RuralInfrastructure: Project MIS

Continuity and appropriatee Rehabilitation of US$ 8.55 million Financial Monitoring Reports skills mix among counterpart

Smallscale irrigation; staff, who are taskei toProgress Reports; coordinate and support project

* Improve rural access - US$ 1.87 million disbursement records implementation.rehabilitation of accesstracks and trails;

* Improve Rural Water US$ 0.55 millionSupply and Sanitation

Environmental Management US$0.29 Bank Supervision mission Timely recruitment of keyreports consultants, who are needed

to support projectimplementation.

2. Improved Agricultural Minutes of Central and Local Counterpart lundingServices Provincial Project Steering available in a timely manner.

Committee Meetings.* Agricultural Extension US$ 2.03 million* Adaptive Research US$ 0.35 million* Support for Water User's US$ 0.44 million

Associations

3. Village/Community US$ 2.02 millionInvestments for supportingthe Poor

4. Implementation Support US$ 2.12 millionand Project Management

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Annex la: Summary of Social And Economic Assessment

1. The Project is designed to support the Government of Lao PDR's major concerns for economicgrowth and reduction of the overall poverty situation in the country. It seeks to enhance agriculturalproductivity, improve small holder food security and increase rural income. The proposed projectcomponents are: 1) improvement in irrigation (gravity) and small scale infrastructure (access tracks andwater supply); 2) agricultural services (primarily extension services); 3) village investment for the ruralpoor (community-based activities); and 4) institutional strengthening and capacity building.

2. A social and economic assessment was conducted at the start of project preparation. Theobjectives of the SEA were: to investigate and understand the social, economic political and cultural factorsconcerning the intended project beneficiaries; determine the main constraints faced by the ruralcommunities; guide the design of the project; and to incorporate the participatory planning and consultationprocess with beneficiaries into the overall project planning and implementation process.

Approach and Methodology

3. The SEA was conducted from January to February 2000 and covered the four project provinces ofAttapeu, Champasak, Khammouane and Saravanne. The following reports prepared under the SEA areavailable in project files: (i) Social and Economic Assessment Report for Lao PDR: AgricultureDevelopment Project; (ii) Individual reports on each of the four project provinces: Attapeu, Champasak,Khammouane and Saravanne; (iii) Local Government Structure and Organization; and (iv) Reports onwater user groups. The quantitative and qualitative assessment covered 20 villages with about 5 villagesfor each province. The village selection was done through consultation with officials at the district levelusing the following criteria: land topography, i.e., the lowland/upland; communities with incidence ofpoverty; and communities with effinic minority groups.

4. The quantitative data collection was mainly based on the review of secondary data from sourcessuch as national and local statistics and reports. Qualitative data collection was carried out by using theparticipatory approach through the use of focus group discussion and interview techniques. In order topromote the people's involvement and spontaneous discussions in each village studied, the focus groupswere classified into 3 groups namely the community leader or key informant group, the general farmers(both men and women) and the women's group. At the district and provincial levels, discussions were alsoconducted with the concerned governnent officials in order to obtain their views and feedback on needs andconstraints especially in the area of extension delivery and capacity building or strengthening. In all, theassessment covered 60 focus groups involving about 900 people.

Key Findings

5. The key findings are summarized below:

Community

* Farmers are in favour of having access to irrigation water with motivation of being self sufficient inrice.

* People in upland areas would like to improve non-rice food production and nutritional intake.* Community strength and integration are strong, a foundation of community unity and commitment to

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the project.

Irrigation Infrastructure

* Irrigation system with unlined canals cause constraints such as:- high water loss- increase cost of production (e.g. diesel pump scheme)- delay in planting (for far away farm plots)- high cost of time and labour in maintenance.

* Water shortage during planting season in dry months.* Conflicts over water use in large scheme during the peak period

Capital A Credits

* Production of dry season rice requires relatively high inputs (80% of total cost of production).* Cost of production ranges between 900,000-1,100,000 Kip per hectare.* Lack of capital for livelihood activities by women.

Labor

* High demand of labour during the peak period pushed up the cost of labor.* Traditional labour exchange tradition can no longer be applied in larger irrigation schemes.

Production Technology and Extension

. Farmers lack experience and technical know how in crop management.- Access to extension services is limited due to shortage of technical manpower and budget constrainis.* Pests posed one the serious problems unable to tackle by farmers due to lack of knowledge and the high

cost.* Low yield from dry season rice fairly common among farmers in relatively poor areas.

Social and Health

Social and Health constraints although not directly related to the irrigated agriculture can impede thefarmers health and labor contribution to the agricultural activities.

* Health related problems are for example the lack of access to modem health care, good sanitation andclean potable water.

* Frequent pregnancies and child care of women from poor households and among ethnic groups put thewomen and their babies in poor health.

* Malaria and diarrhoea are major causes of death of the children and adults in remote villages.* Women with burdens of frequent pregnancies and constant child care are not able to fully contribute

their labour in farm works and have to depend on their husband.* Sickness not only impedes the available of family labour but worsened the household finance situation

(due to expenditure on medical treatments and transport).

Food Security

* Food security problem in still common (some households can cover only 3-4 months of food)* Major factors for low productivity are also floods, drought and pests* The " khao khiew" or advance selling of green paddy to pay for contingencies (e.g. medical treatments)

is one of the maj or causes of food insecurity in poor households.

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Vulnerable Ethnic Groups

* Food insecurity is widespread among the upland and poor ethnic minority groups due to decrease in thefallow period, limited knowledge of agricultural technology and lack of extension services andagricultural inputs.

* Low education level for these groups and high illiteracy among women.* Limited or lack of access to public utilities and services, such as all season roads, potable water, health

services and schools.

Main Recommendations

6. The main recommendations are listed below.

(a) Improve irrigation, particularly for dry season cultivation and strengthen water user groups (seebelow).

(b) Provide alternative models for information dissemination and technology transfer though: (i)demonstration at farm plot; (ii) investment on volunteer model farmers.

(c) Strengthen support systems in service deliveries and extension in the area of cost reduction,marketing and feasible options in irrigated agriculture (MAF and APB should co-ordinate theiroperations closely).

(d) Development of upland crop diversification in areas where potential for development of irrigatedland are limited through the following ways: (i) assistance in land clearing of allocated plots; (ii)undertake beneficiary land-use planning in response to farmers' needs and priorities; (iii) givepriority to poor ethnic groups to develop their non-rice food production capacity.

(e) In less developed provinces such as Attapeu where many areas are under the diesel pump scheme;there are very few gravity schemes which can be targeted by the project for rehabilitation. Moreassistance in terms of livelihood production such as livestock and animal husbandry should beconsidered (especially for women and ethnic minority groups). Extension programs on uplandagriculture should be promoted and increased.

(f) Health and sanitation facilities and birth-spacing program are top priority needs of women in mostvillages especially among the ethnic minority groups.

(g) Literacy program for women and ethnic minority groups should be provided in order that they canparticipate fully in the agricultural extension program and other project activities to be provided bythe project.

Water Users Group

7. The assessment of the water users groups (WUG) in the four project provinces produced thefollowing findings. More information on WUG can be found in the Annex on Water User Association.

Keyfindings

* Many irrigation schemes were constructed recently (completed in late 1990's) and WUGs were notwell established and functioning.

* There is lack of clarity regarding roles and responsibilities of WUG and govemment.* The responsibilities of WUG is often undertaken by the existing village authority.* WUG operation in ethnic minority communities is difficult due to low literacy rate and cultural

factor or traditional practices which do not always comply with official rules and regulations.* The collection of water user fees is not always possible due to the inefficiency of the irrigation

system and irregularity of water supply.

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* Farmers' contribution especially women in providing labor for the construction and maintenance isimpressive but often not recognized by the outside.

* There is limitation to the human labor input and technical know-how when proper maintenance andrehabilitation have to be met.

Recommendation Concerning WUG

(h) WUG should be well prepared before taking on the transfer of systems.(i) They should be well prepared to take up responsibilities through training on the following

topics:(i) Organization management(ii) Financial management(iii) Basic technical skills(iv) Conflict resolution

( The scheme should be reconstructed or rehabilitated properly before the transfer of ownership becarried out.

(k) Mechanisms should be set up at the district level to solve inter-village conflicts over water uses.(1) Irrigation schemes should be categorized according to size and their potential. Guidelines to be

developed accordingly to suit the level of development for each WUG.(m) A small repair or maintenance unit with necessary equipment should be set up at the District or

Agricultural Development Centres to provide technical assistance to farmers both in training andsupplying equipment and machines.

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Annex 2: Detailed Project DescriptionLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

By Component:

Project Component 1 -US$9.11 million

RURAL INFRASTRUCTURE

The project would be implemented within Attapeu, Champasak, Khammouane, and Saravane provinces,mostly in the Mekong Corridor. Table-i below summarizes the project's Rural Infrastructure Component.

Table 1: Summary of Proposed Infrastructure ComponentVillages Irrigation Infrastructure Schemes Access Tracks Water Supply &

I aitationProvinces Gravity Pump Total Irish Base Hand Dug Base

Dis- Cross- cost Pumps Wells cost*tricts No. Popu- Area Cost Lengt ings

lation Area Area (000 hUS$) (000 (000

No. ha No. ha No. Ha No. US$) No. No. US$)

Attapeu 2 6 1644 2 300 2 260 4 560 10 - 57 37 - 42

Champasak 5 29 10639 7 1420 1 180 8 1600 1.570 32 31 432 48 33 71

Khamnmouane 2 20 4485 3 630 2 180 5 810 1.099 21 8 176 20 44 65

Saravane 3 41 20450 5 4100 5 4100 2.927 98 45 877 94 62 133

Total 12 96 37218 18 6580 5 620 23 7200 165 84 1542 199 139 311

The figures in parenthesis gives number of villages for water supply schemes* Includes cost of 5070 nos. of sanitarv pour latrines (one latrine per household)

The Water Supply and Sanitation sub-component has an indicative amount of $311,000. The numbers for handpumps and dug wells have beenincluded for costing purposes; actual implementation of types of systems will be based on community preferences, affordability and technicalfeasibility.

Irrigation Infrastructure Rehabilitation (Base cost - US$7.1 million)

The project would rehabilitate a total of 22 existing irrigation schemes, which have fallen into disrepairover the years, mainly due to the near absence of a system of maintenance, either by Government or by thebeneficiaries. The main canals on many schemes are in particularly poor shape, and it is proposed torehabilitate them and line the critical reaches. In addition, on account of resource constraints, work onsome schemes has been going on for a number of years (10-15 years in some cases), but these are yet to becompleted (for example Dongmon Weir scheme, with service area of 1200ha, in Saravane province, wherework was initiated in 1987, but many secondary canals are yet to be built). The project would provide forthe completion of works needed on the secondary canals, and the structures which are needed for efficientoperation. Of the total schemes, there are 16 gravity schemes, five pump schemes and one gravity cumpump scheme (Sangom in Khammouane province with service area of 280 ha). In order to improve theoperations of the pump schemes, the project will provide for their conversion from diesel to electric pumps.

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Table 2

IMPL EMENTA TION SCHEDULE OFIRRIGATION INFRASTRUCTUREProvince Districts Scheme Service Base lmlem entation Seh edule

Designation Area Cost* Year Year Year Year Year(ha) (000 2002 2003 2004 2005 2006

Attapeu Xamkhixay Nakeangkham 200 256

Xamaxay Samong II 150 194

Xamkhixay Naxaithong 60 84

Xamaxay Samong I 150 202

Total 560 736

Champasak Pathamphone Houaynamsai 130 181

Bachiang Houaypalai 100 78

Pathamphone Nongkan 250 185 _

Pathamphone Pathamnphone 180 196

Saysomboon Kongthou ipn 300656

Saysomboon Kongthou ii p 300

Pathamphone Thonghpha 180 254

Pakse Km 8 Weir 130 199 -

Paksong Thongwai 30 11

_ _ammouane Thakhek Total 1600 1760Khlammouane Thbakhek Nakosin 70 92

(Nakaikhia)Gnomallath Phandeng 100 133 _ -

Gnomallath Naphoxay 80 120

Gnomallath Thathot 280 317 _

Thakhek Sangom 280 431 _

Total 810 1093Saravane Saravane Soutabali 100 31

Saravane Nondengi p 600

Saravane Nondeng i p- 800 1153 -

Saravane Nondeng , p- 600 _ -

Wapy Dongmani p . 6001443

Wapy Dongman i pn 600 -

Saravane Houaylat 300 148 _

Laongnamn Kep Pheung 500 154(Ked Pheung)

Total 4100 2929

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Criteria for selection of schemes: The following criteria were used for selecting the schemes (from muchlarge sample which had originally been identified).

(i) Schemes should not have been rehabilitated in the last 3-5 years; (ii) in this first phase, gravity schemeswere given priority; in exceptional cases, pump schemes where diesel pumps have already been convertedto electricity, or the pump schemes which require conversion from diesel to electricity (and where electriclines have been brought to the pump station site), have been considered; (iii) schemes should have potentialto increase irrigation intensity to over 120 percent after their rehabilitation, and will generate a rnirimumeconomic rate of return of 12 percent; (iv) farmers are willing to establish themselves into WUGs, wherethey are presently not in existence, or to sign on to a program to strengthen the WUG activities, where thesealready exist; they should be willing to contribute fully to meeting the O&M costs and involve themselvesin the design and implementation of these works.

Implementation Arrangements and Schedule: Implementation would be the direct responsibility of theProvincial Irrigation Office (PIO) and PAFSO, under the overall guidance of the Provincial ProjectImplementation Office (PPIO). Contracting for the implementation of irrigation infrastructure shall becarried out mostly through National Competitive Bidding procedures of the World Bank, except for twoschemes where the costs exceed $500,000; the latter would be tendered using ICB procedure. The list of theselected schemes is summnarized in Table 2.

It is planned that work on five schemes (two in Champasak, one in Khammouane and two in Saravaneprovinces) would be initiated soon after effectiveness, during the first year of the project. For these fiveschemes, it is proposed that the tender documents would be based on preliminary designs which have beenprepared by the Irigation Survey and Design Division of the Irrigation Department prior to appraisal. Forthe detailed designs, a provision would be made in the contract for these schemes, under which theContractor shall arrange their detailed surveys and designs through a Design Enterprise acceptable to thePIO, and which shall be approved prior to award of contract. The payments to the Design Enterprise shallbe made by the contractor after the detailed designs and drawings are approved by the PIO. The detailedsurveys, designs and drawings and bill of quantities (BOQ) shall be prepared by the above enterpriseduring the first three months of the award of the contract and during the course of the fourth month theseshall be reviewed and approved by the PIO before construction could be initiated. For the remainingschemes there should be sufficient time, for the detailed surveys and designs to be done duringimplementation, in advance of the award for construction work.

Rural Access Tracks (Base Cost US$ 1.5 million)

Description: Access tracks linking irrigation schemes to villages and to the road network have fallen intodisrepair, and make the areas inaccessible particularly during the rainy season. Low cost rehabilitation willbe provided for these tracks, to enable improved access and the development of better systems formarketing of agricultural produce and acquiring of inputs, and the delivery of rural and technical servicesto the farmers. Only tracks connecting villages to schemes, as well as to the nearest gravel surfaced roadswill be considered for rehabilitation. The project provides for the rehabilitation of these village accesstracks, using laterite surfacing. Based on discussions with the respective provinces, there is provision forrehabilitating about 165 kms of access tracks, and the construction of around 85 Irish crossings. Theproject will not deal with the larger road network, since this is being addressed under a separate IDA

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project (the Road Maintenance Project).

Criteria for selection: The following criteria were used for selecting the village access tracks proposecunder the project: (i) These are existing access tracks which need rehabilitation and no acquisition of land isenvisaged; (ii) they are for villages related to the irrigation schemes proposed for rehabilitation under theproject, and for providing access between these villages and the schemes and connection to the nearest goodroad; (iii) the communities are willing to sign an agreement with the Provincial Roads Department, pric r totaking up rehabilitation of these tracks, under which they would provide labor for the maintenance of thesetracks after their rehabilitation; (iv) no bridges would be constructed -- mostly Irish Crossings would beprovided.

Implementation Arrangements and Schedule: The Provincial Communication and Transport Office(PCTOs) shall check the lengths of these access tracks and number of Irish Crossings, prepare a profilealong with typical sections of these tracks, and typical drawings of the Irish Crossings. Based on these,BOQ (with length of the access tracks in kms and items of excavation, mass concrete, riprap etc for theIrish Crossings) for each of the packages shall be prepared and tenders invited together with the irrigat .onschemes rehabilitation. Implementation of this component is expected to be completed with therehabilitation of irrigation schemes.

Routine Maintenance and Beneficiary Agreements: As indicated under the Criteria of Selection ofAccess Tracks, labor for the routine maintenance of these tracks shall be the responsibility of thecommunities for which an agreement would be signed with them prior to taking up the work ofrehabilitation (the roads department will provide the equipment and overall supervision). The routinemaintenance would comprise repairs to the earthen shoulders, laterite patch work and minor repairs to theIrish Crossings. It is felt that repairs of major cuts in these access tracks as a result of heavy floods ordamages to Irish Crossings would be beyond the capacity of the communities and such heavy repairs shallhave to carried out by the PCTO under their maintenance programs.

Village Water Supply and Sanitation (Cost US$ 0.5 million)

Description: The provision of safe potable water is a high priority, given that many of the villagecommunities presently do not have access to it. The problem is more acute in the less accessible uplandareas, leading to serious health problems for these commnunities. The design of the component is guided bythe National RWSS Sector Strategy and Guideline National Framework which was formally launched inlate 1997. The strategy aims to bring about a transition from the past top-down to a more demandresponsive approach. Accordingly, in line with the strategy, the project will provide for the installation ofsystems based on community preferences, affordability and technical feasibility. Provision is also made toinstall about 5,000 sanitary pits and conduct a health and hygiene awareness educational campaign. Thematerials for the hand pumps and open wells, as well as the cost of drilling, would be supplied by theproject; the conununities would contribute labor for the implementation of this component. Prior toinitiating work on these village water schemes and sanitary pits, communities will be consulted and theirparticipation sought on the design, preference and implementation plans. Community-based agreementswould be entered into with the Provincial Health Offices, whereby the communities would confirm theircommitment to provide labor for installation, and for taking on full O&M and replacement responsibilityfor these schemes. Overall, the component provides an opportunity for taking on board the lessons from theimplementation of the RWSS strategy elsewhere in the country (in seven spearhead provinces), andaccordingly making improvements.

Criteria used, and coverage: (i) These rural village water supply schemes shall comprise hand pumps,

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dug wells, as well as gravity based schemes where water supply is assured; (ii) there is an expressed needfor a water system; (iii) the communities are willing to contribute about 15-20 percent of the base cost ofvillage water supply schemes, mostly in the form of labor, and are also willing to sign an agreement, priorto taking up of these schemes, giving an undertaking that they would be fully responsible for their 0 & Mafter their installation/construction; (iv) water quality shall be tested and potable water shall be madeavailable to these villages; (v) while deciding whether hand pump would be installed or a dug well would beconstructed the view of the communities would be ascertained; (vi) one hand pump 4 inch diameter, onedug well, is estimated to cater for a population of about 100-150 persons or 25-30 households.

Beneficiary Agreement to contribute labor and yearly replacement fee: As indicated in the criteria forselection, the communities would have to sign an agreement with the Provincial Health Office, prior totaling up of these schemes, that they would contribute labor and yearly replacement fee for the 0 & M ofthese schemes. It has been estimated that around Kip 1000 per year per household would be needed for thispurpose, which includes for consumable items like washers etc.

Implementation Arrangements: The implementation of village water supply schemes and sanitary latrinetoilets shall be the responsibility of PPHOs, which shall work under a contractual agreeement betweenMAF and NCEHWS who will provide the overall guidance in each province. Since these are simple worksand support would be available from the NCEHWS, no technical assistance has been proposed under theproject; it is expected that with the existing staff and technical assistance provided to the provincialimplementation office (engineering and procurement matters) they should be able to supervise these works.The project would, however, provide motor cycles, meet O&M costs, per-diem and travel costs etc..

Project Component 2 - US$1.97 millionVILLAGE INVESTMENT FOR THE POOR

Description:

The Village Investment for the Poor (VIP) component will be a block grant allocated to a district forimplementing small scale projects identified by the villagers themselves. The eligibility and selectioncriteria shall ensure that sub-projects financed from the grant are demand-driven, meet communitypreferences, and are responsive to essential technical, economic, financial and social parameters which areset out in an Implementation Manual. Simple criteria will be developed to establish cost, benefits andtechnical feasibility. The majority of the sub-projects are expected to be small and well within the technicaland management capacity of the community. This component will be closely linked and integrated with theagricultural extension component of the Project.

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Phasing and Location: The VIP component will be implemented in 15 districts which make up the pro ectarea. These are:

Province Project District Total Villages Village withIrrigation

Component

Attapeu 1. Xamakhixai 32 4

2. Xamaxai 52 2

3. Xaysetha x

Champasak 1. Bachiang 93 3

2. Pakse 64 3

3. Paksong 105 1

4. Pathampone 93 17

5. Sanasomboun 86 5

6. Phontong x

Khammouane 1. Mahaxai 89

1. Nhonunalath 71 17

2. Thakek 137 3

Saravanne 1. LaoNgam 112 6

2. Saravanne 160 24

3. Wapi 80 11

Total

T'he Program will begin implementation in a phased manner so as to build capacity of the PAFSO andDAFO staff who will be directly responsible for the program. It will start in one district per province,except for Champasak which will have two districts in year one, bringing a total of five districts for yearone; the program will build up to include the 15 districts by year three, and the same number will continaefor years four and five.

Selection Criteria of Beneficiary Groups

1. Beneficiaries will come from villages which are part of the project districts.2. These villages have to be identified as the poorest by the district.

(Poverty in Lao PDR is defined by several methods at the moment. For the VIP Program purposes, itwill follow the definition that is used locally from district to district. E.g., consultation with PAFSC'and DAFO staff in the 4 project provinces have yielded various indicators of poverty such as: little orno agricultural land; no irrigation; low income of less than Kip 50,000 per year; remote and/or noaccess roads; low education.)

3. Households receiving assistance from ADP's irrigation component will not be eligible for VIP.4. Households have to prepare and submit proposals as a group and not individually.5. The VIP funds will be distributed for sub-projects as follows: one third to poor rural groups; one third

to ethnic minority groups and one-third to women groups.6. The groups will receive the funds in the form of grants for the approved sub-project activities.

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Selection Criteria Requirements for Sub-Projects

1. They should be proposed by members of a village group or nouai (village sub-group).2. They benefit large numbers of people, especially the poor, and not only a single household.3. The potential beneficiaries have participated in planning the proposal.4. The proposals should fall within the priorities of MAF's national agricultural development program in

general and the provincial agricultural program in particular.5. Proposals which fall within the positive list will be considered (see the implementation manual; the list

will be updated annually). The Program will not support proposals which are environmentally andsocially negative, government's normally budgeted activities, land clearing, and activities alreadysupported by other donors.

6. They meet essential technical, economic, financial and social parameters.7. They are expected to be small and well within the technical and management capacity of the

community.8. They meet other project requirements on cost ceiling, environment and social safeguards, gender, ethnic

minority group preference and other aspects.9. The beneficiary households are willing to contribute a minimum of 10% of sub-project costs; the

contribution can be in the form of labor and local material.10. There must be adequate operation and maintenance plans for each sub-project.11. Each sub-project must be completed within 4 months from date of receiving the VIP funds.

Fund Allocation: The allocation will be by district. It is proposed that each district receives an annualallocation of $20,000. VIP can finance sub-projects from communities costing between: KIP 4,000,000($500) minimum and KIP 12,000,000 ($1,500) maximum. Exceptions can be made to accommodatesub-projects that are justified for lower or higher amounts, such as trails, small bridges, etc. (toaccommodate this, each sub-project shall include a grant of not more than $1,500 equivalent and shallinclude a contribution of at least 10 percent of the sub-project cost). Each district has to fundagriculture-related activities up to at least 80 to 90% of the grant; the remainder can be used for othercommunity priorities. Beneficiaries will be required to contribute a minimum of 10 percent of the cost ofthe sub-project; the remaining 90 percent would be provided as a grant from the project.

Institutional Arrangements

Implementation of the VIP will be under the coordination of the PAFSO Extension and Training Unit(ETU); actual implementation will be by the DAFO extension unit, i.e. by the group of staff at the DAFOlevel who are trained as Farning System Extension Workers (FSEW) under the project. One staff will beassigned from DAFO to be responsible for the component. At the village level, a village volunteer will berecruited to be the facilitator at that level. The village volunteer will be responsible for the following tasks:information dissemination about the program; assist the DAFO staff in conducting simple villageassessments and prioritization of need (this activity will be part of the FSEW training, and closely linked tothe extension component, since the latter would require a full consultation and PRA process with thevillage, to get a sense of the constraints and issues); assisting the nouai to prepare proposals and plans;facilitating the linkages with DAFO; collecting pre and post baseline data; supervising sub-projectimplementation; and undertake follow-up on operation and maintenance by the beneficiary groups.Initially, the FSEW will undertake these activities until such time that they can transfer them gradually tothe village volunteer.

Participation at the village and district levels will be enhanced through the inclusion of the existing villageand district development committee (not necessarily the same as the RDC) for their role in reviewing and

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appraising the sub-projects. DAFO staff will provide the technical assistance in reviewing sub-projects fortechnical feasibility, if required, and for providing extension services, when needed.

It is proposed that the operational expenses for village volunteers for the VIP program and the technicalassistance of the DAFO staff will be recovered through a smnall percentage (say 5 percent for the villageand 3 percent for DAFO) levied on the sub-project cost. DAFO staffs operational expenses will come fiomthe project.

VIP Approval Process: The proposed approval process for VIP will be an adaptation of existingprocedures practised in the villages and districts. The proposed procedures for approval of sub-projects aresummarized below.

1. The eligible groups in the village prepare proposals and budget under the guidance of the VDV andDAFO. They submit a signed copy of the proposal and other required documents to the VillageCommittee for review and endorsement. The proposals would indicate the share of beneficiarycontribution (minimum of 10%) which will likely be labor and some local material.

2. The Village Committee (which could be an existing one, but should include the following persons: theVillage Head or Deputy; a Women Union's representative; a Senior representative; a Youthrepresentative) reviews the proposals based on the criteria mentioned above and endorses those whichmeet the criteria.

3. The Village Committee endorses proposals which respond to local priorities and meet set criteria to -heDistrict Committee via DAFO. (The District Committee could also be an existing one; it shouldinclude the District Head or Deputy; the DAFO VIP Coordinator; District Treasurer; a RuralDevelopment Committee member; a Women Union's representative; and relevant DAFO-FSEW staffas technical resource person.)

4. The District Committee appraises the proposals according to the criteria described in the VIPImplementation Manual.

5. If changes are needed which would ensure the eligibility of a particular proposal, the DAFO staff willinform and help the groups in the villages to modify the proposals.

6. The District Committee approves or rejects the proposal.7. The DAFO then notifies the PPIO VIP Coordinator of the approval with a brief summary of the

proposal, schedule of implementation, cost and schedule of payment(s).8. The PPIO VIP Coordinator will submit the list of approved proposals to the PPIO Head.9. The PPIO VIP Coordinator prepares a check for the total amount of the sub-project to be approved by

The PPIO Head and Finance Section Chief.10. If expenditures on a particular sub-project are expected to take place in installments covering a pericd

beyond two months, then funds will be made available according to the expected schedule; such casesare likely to be few. The request for the next installment will be through the submission of aSub-Project Expenditure Form by the Sub-Project Group to DAFO who sends it with a request to thePPIO VIP Coordinator for the next payment.

11. DAFO provides the first training course in using the Sub-Project Expenditure Form to the Sub-ProjectGroup.

12. After the training is conducted, DAFO cashes the check from the Provincial Second Generation SpecialAccount and hands the cash to the Groups for sub-project implementation. Funds will be released a Aerthe training and not earlier than one week before project implementation.

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VIP Procurement Arrangements: A broad spectrum of activities will be undertaken under the VIPProgram with the direct participation and contribution in kind of the beneficiaries. Procurement of works,goods and services for individual contracts under this component are expected to be small, given that theannual fund allocation for each district is US$20,000 and for each village less than US$ 3,000; mostproposals are likely to be less than US$ 1,000 each; each village may have 3 or 5 proposals per year.Community Participation in procurement is justified in this case.

VIP Implementation Manual: A draft VIP Implementation Manual has been developed which describesthe procedures, including financial and procurement arrangements in detail. The draft manual will betested in the first year of implementation and revised, based on discussions on the experience and keylessons, at a workshop at the end of the first year.

Project Component 3 - USS 2.21 millionIMPROVED AGRICULTURAL SERVICES

The Agricultural Services component of the project would provide for (i) institutional strengthening ofagricultural services at district, provincial and central levels for the delivery of extension services; and (ii)adaptive research and demonstrations, which respond to farmer concerns, and promote crop diversification.

Institutional Strengthening for Agricultural Extension (US$1.9 million)

The Pilot Extension Project (PEP) was launched in 1996 with funding from the Swiss. Supported bytechnical assistance from an international NGO (Novartis Foundation), PEP entailed structural adjustmentswithin the DAFOs to enable them to become more effective extension agents. Extension Training Unitswere established at the Provincial levels and linked to the national Agricultural Extension Agency, withexpectations that these will continue to operate even after the Project is completed. Part of the PEPmethodology, which has guided the design of this component, was the conversion of the district technicalspecialist into a generalist, with a specific geographical area of responsibility. Drawing upon theexperiences of the PEP, the project would provide for the following.

A Central Extension Training Unit (CETU) would be established, initially, within the PCO; it would beheaded by an Agricultural Extension Adviser (AEA). The head of the CETU would coordinate theimplementation of the component in all provinces, drawing upon experts available in the variousdepartments of the Ministry (agriculture, irrigation, forestry, livestock and fisheries). The adviser wouldensure proper linkages of activities under this component with those of Water User Groups and Villagebased investment to support the poor (VIP). The CETU would be responsible for preparing annual trainingand extension plans in collaboration with the PAFSO and DAFO in the project areas. It would alsoorganize and implement the training of PAFSO staff, utilizing the local technical assistance provided toguarantee the services of appropriate resource persons. The CETU would participate in and monitor thetraining of DAFO staff by PAFS-ETU.

At provincial level, a Provincial Extension Training Unit (PETU) would be established within the PAFSO.It would comprise a Coordinator of the Unit and 5-6 staff assigned from the various existing sectors(agriculture, livestock, fisheries, forestry, and irrigation). The role of PAFS-ETU wouldbe to coordinatethe extension programs of the districts within the province and to organize the training of district staff. Thestaff would receive training on extension from the CETU and, in tum, would be responsible for trainingstaff of the DAFO. The PETU would also have responsibility for i) planning and monitoring extensionprograms; ii) coordination with input suppliers, credit institutions and markets; and iii) diffusion ofmessages through the mass media.

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At District level, the project would implement a training program which aims to upgrade the technicalknowledge and extension skills of DAFO technical staff (the project would initially target 5 to 6 staff perdistrict) to enable them to become effective polyvalent, generalist Farning Systems Extension Workers(FSEW). The FSEW would be trained in the mix of technical skills needed to support the farming systemsin each area. They would be assigned responsibility for specific villages each year and would develop workprograms in a participatory manner with farmers, including extension messages to be demonstrated throughfield plots and regular visits to the villages according to the cropping calendar prepared for the season. ] naddition to their strictly extension role, FSEW would also be expected to act as facilitators helping villagersto identify needs and fomnulate proposals for financing under the Village based investment to support thepoor (VIP).

Delivery of Extension Services: The project would adopt a participatory demand driven approach todelivery of extension services. FSEWs would be responsible for gathering information regarding thecharacteristics of the cropping systems in the villages assigned to them. This information would becollected through participatory methods (i.e. PRA) and analyzed together by the FSEW and the farmers.Based on a comprehensive analysis of the information collected, the FSEW and the farmers would developrelevant crop production plans to be disseminated to all farmers in the village and to be used as reference-for establishment of demonstration plots. These plans would be updated every year with correspondingupdate of demonstration plots and crop production technologies recommended for dissemination.Demonstration plots, to be installed every season, would be the focal point for in-service training of farntersand DAFO technical staff.

Adaptive Research and Demonstrations (US$0.3 million base cost)

Presently, most farmers are focused on rice production only. From the point of view of increasing incomesof farmers and securing the long-term viability of the investment in irrigation rehabilitation, it is importantto have a program to support farmers to diversify into higher value crops. Relevant recommendations fromresearch on the best varieties, inputs and cultural practices to use for potential crops are not available in thecountry. A program of on-farm adaptive research and demonstrations, of technologies available inneighboring countries for similar agro-ecological conditions, is therefore proposed.

The Director of NAFRI would assign a Research Coordinator from its regular staff to manage thiscomponent. The Coordinator would have the responsibility to interact with the CETU staff, Heads ofPAFSO and DAFO to plan the implementation of research activities in the various Provinces/districts.Trials and demonstrations would be based on priority needs identified by farmers and implemented byNAFRI specialists in collaboration with staff of PAFSO and DAFO. Participation of NAFRI scientists inthe process of constraint identification at farm level would be encouraged. The results of these trials andimpact of the demonstrations would be presented by NAFRI researchers and discussed in workshops withextension staff from the concerned PAFSO and DAFO, and farmers at the end of every season.

With the expected increase in use of chemical fertilizers, there is a potential for some increase in nutrientleaching. However, the extension services would be emphasizing the recommendation of split nitrogenapplication to maximize absorption by crop plants and minimize losses through leaching. The projectwould also promote greater use of crop residues and manure, which would tend to increase nutrientretention by soils.

Insects constitute the main pest group in Lao PDR, but presently there is very little insecticide use in theproject area. However, intensification of production with irrigation and increased fertilizer use would,eventually, lead to increased pest build-up and increase in use of pesticides. As a result to the National IPMprogram, a significant number of farmners are aware of leaf-eating insects and their natural enemies. Theproject would include training in IPM for rice and vegetables as part of the extension training of FSEW.

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Project Component 4 - US$0.41 million

WATER USERS ASSOCIATION

The improvement of maintenance arrangements for existing irrigation systems and the strengthening of theO&M capacity, are key development issues in the irrigation sub-sector. The project would support thepolicy of transferring responsibility for irrigation management and system O&M to water user associations(WUAs). Many donor agencies have been supporting the Government in the establishment of WUAs; andthe ADB has recently approved a project ('Decentralized Irrigation Development and Management SectorProject'), which would finance irrigation rehabilitation, and provide institutional and management supportin establishing WUAs. This recently approved ADB project is being implemented in six provinces(different from the 4 provinces being supported under ADP) and will cover 56 pump irrigation schemeswith a total area of 10,000 ha.

Taking the above into account, the ADP will not propose any new strategy but instead will work closelyand synchronize activities with the ADB project in order to achieve similar ends. The project would buildon these initiatives, and help promote and institutionalize the development of Water Users Associations asenvisioned by the Government. Water user groups (WUG) and related associations at the system level,would need to be established (where they do not already exist) prior to irrigation systems beingrehabilitated; and commitments entered into by the irrigators to take on responsibilities for building thetertiary canals and for O&M (and meet these costs through Irrigation Service Fees).

Project Component 5 - US$0.27 millionENVIRONMENTAL MANAGEMENT:

Based on the findings of the environmental assessment which was carried out during detailed projectpreparation (which has been translated into Lao and made available to all project provinces), and furtherfield work and discussions during the course of appraisal, a targeted component on environmentalmanagement has been included in the project. It responds to the key environmnental issues identified,establish a system for environmental monitoring, and provide training to STEA and PAFSO staff (trainingof trainers) to build capacity in the provinces for dealing with environmental concerns, compliance onsocial safeguards, and monitor the environmental/social aspects of the project during implementation. Keyareas which the component will address include: raising awareness among farmers and staff, ofcatchment-based natural resources management in 9 selected schemes (given the need for the irrigationcommunities to be sensitive to issues of natural resources management, particularly where the schemeswere close to existing NBCAs); improve understanding of fisheries issues as they relate to irrigationdevelopment, among staff involved in designing and operating irrigation systems; outline contractorresponsibilities for worker safety, site restoration, waste disposal, local employment and environmentalstandards; link up with the National Malaria Control Program and provide support in the case of identifiedschemes. The project will also support periodic monitoring of environmental impacts and compliance onsocial safeguards in connection with the components.

Project Component 6 - US$1.98 millionSUPPORT FOR PROJECT IMPLEMENTATION/COORDINATION

The project would provide support for the implementation and coordination units, and in particular strengthen capacityMonitoring and Evaluation (M&E) as well as in Financial Management. Overall, the institutional arrangementsfor implementing the project are guided by the objective of reinforcing the Government's policy of

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Accordingly, they provide for overall coordination responsibility being vested in the central government,execution responsibility lying with the Provinces and districts.

National Level Institutional Arrangements

Central Project Steering Committee (CPSC) has been established to periodically review implementationperformance, and provide guidance for addressing issues and problems which may arise duringimplementation. The Committee is headed by the Vice Minister, MAF, and include representatives from thefollowing Ministries: Finance; Foreign Affairs; International Cooperation in the Prime Minister's Office;State Planning Committee; Health; Communications, Transport, Post and Construction; LeadingCommittee for Rural Development; Lao Women's Union; STEA; Representatives of key departments cfMAF: Agriculture, Irrigation, Livestock and Fisheries, Forestry, NAFRI, LaRREC; Representatives of the4 participating provinces from the PPIO/PAFSO; and the National Project Coordinator (Head of PCO') asmember/secretary to the Steering Committee, and the National Project Director of ADB Irrigation Projectas observer. The CPSC would meet quarterly in the initial two years of the project (when project start upissues may require more intensive support), and half yearly thereafter; the Project Coordination Unit wouldact as the secretariat to the CPSC.

Central Project Coordination Office (PCO) has been established within the Department of Planning ofMAF. In addition to the National Project Coordinator, the PCO includes the following key staff. IrigationSection, to include (i) Coordinator for Irrigation Rehabilitation; (ii) Coordinator for Water UsersAssociations development; (iii) Coordinator for Procurement; Extension Training Unit/AgriculturalServices Section, to include a Coordinator, and specialists nominated from each of the Departments inCrops, livestock, fisheries, forestry; and a representative of NAFRI for agricultural research; VIP Section,to include one person as coordinator; Monitoring and Evaluation Section, to include one MonitoringOfficer, and 2 technical staff; and a Finance Section, to include a Project Accountant, and one accountingclerk/cashier.

T'he PCO would be established within the Department of Planning of MAF (given the broad based natureof the project; however, technical staff would work through their respective technical departments, forexample, Irrigation, Agriculture, Livestock and Fisheries, Forestry etc.), to support the provinces in projectimplementation, and be responsible for its coordination at the national level. It would be responsible forconsolidating the annual work program for the project (and ensuring that sufficient budget resources havebeen allocated to meet counterpart fund requirements at all levels); ensuring that Bank guidelines andprocedures are followed on procurement, disbursements, auditing and overall financial management, andthat environmental and social guidelines are followed in both developing and implementing components. Itwould monitor the Project Special Account, and ensure that the provincial Second Generation SpecialAccounts are regularly accounted for and fully reconciled. It would consolidate overall project accounts,and have them audited. It would also be responsible for overall Project M&E, preparing periodicmonitoring reports, and for undertaking a mid-term evaluation, in close partnership with the participatingprovinces; it would prepare quarterly progress reports which would be used for CPSC meetings, and wouldalso be submitted to the Bank. National level consultants, who are expected to work across the fourprovinces, will be located in the PCO. Using the TA personnel, as well as through appropriate trainingcourses to be provided, the project will aim to improve the skills of the PCO staff, particularly in the areaof financial management, procurement, and M&E.

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Provincial and District Level Arrangements

A Provincial Project Steering Committee, chaired by the Vice Governor, has been established in each ofthe participating provinces, to periodically review implementation performance, and for facilitatingsolutions to problems which may arise during implementation. It would meet at least once a quarter (itcould meet more often if necessary); its membership would include: Representatives of ProvincialDepartments for Treasury/Finance, Rural Development, Health, DTCPC, Provincial Administration, LaoWomen Union, and STEA; Director of PAFSO; heads of the PAFSO all sections; heads of participatingDAFOs; PPIO Head.

A Provincial Project Implementation Office (PPIO) has been established within each participatingprovinces, within the office of the Director, PAFSO. It includes the following key staff: Provincial ProjectCoordinator, Head of PPIO; Irrigation Section, to include (i) Coordinator for Irrigation Rehabilitation; (ii)Coordinator for Water Users Association development; (iii) Procurement Officer plus one assistantCoordinator for the Access Tracks (from MCTPC), Water Supply/Sanitation (from NAMSAAT/Health),and Environmental Management (STEA); Extension Training Unit (ETU), to include 5 to 6 staff:specialists in crops; livestock; fisheries; forestry; water management; IPM (in some provinces (for exampleSaravanne and Champasak, where the PEP Project was under implementation), the Extension TrainingUnits already exist; the project will work through these units) At the District level, in each of the 15districts, 5 to 6 Farming Systems Extension Workers (FSEW) to be nominated in the DAFO; VIP Section,to include one person as coordinator; Monitoring and Evaluation Section, to include one MonitoringOfficer, and 2 technical staff; and Finance Section, to include a Project Accounts Clerk and one cashier.The component for rural water supply would be implemented by the Provincial Department of PublicHealth, and the access tracks component by the Provincial Department of Construction and Transport(DCTPC). Both of these departments will nominate one person, who will be responsible for representingthem at the PPIO, and making available to the PPIO all information (status of physical progress,financiallcost details, M&E data, etc.) conceming the implementation of their respective component.

The PPIO would be responsible for coordinating implementation of the different components; actualresponsibility for the direct day-to-day implementation of the components would be with the concernedsections of the PAFSO (Irrigation, Agriculture, Livestock and Fisheries, etc.), in close coordination withthe DAFOs. Core staff from each of the PAFSO sections, who would be directly responsible for theproject's implementation have already been identified. The PPIOs would be responsible for facilitatingprocurement, making certain that O&M commitments are being followed up by communities, maintainingthe financial records of the project, and regular monitoring of implementation progress and maintainingrecords for the M&E system. For managing procurement (from bid preparation to contract award), thePPIO would include one procurement officer, and an assistant.

Monitoring and Evaluation. The project will strengthen institutional capacity in M&E at both nationaland provincial levels; small M&E units have been established as part of the PCO and the PPIOs. Abaseline survey has been completed prior to appraisal, with the involvement of MAF and PAFSO staff,covering the districts in the four participating provinces; the report has been translated into Lao, and hasbeen made available to the PPIOs and participating districts. This will provide the basis for the monitoringand evaluation program to be supported under the project. Monitoring of project implementation, as well asassessing the development impact of the project, would be the responsibility of the PCO, in closeassociation with the PPIOs. The project would support the establishment of a simple but effectivemanagement informnation system, as well as systems for program reporting, monitoring and evaluation; adraft manual has been prepared and agreed list of project performance indicators has been agreed (see

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Annex 1 - Project Design Summary). A mid term review would be carried out towards the beginning of thethird year of the project; and if necessary, revisions made to the design of the project.

Financial Management Efficient financial management (FM) is essential for timely projectimplementation. A Finance Unit has been established within the PCO staffed by qualified personsexperienced in project accounting of donor funded projects ( those who have been managing the accounts ofADB funded Irrigation Projects, Lao-Swedish Forestry Project, PHRD grant for ADP Project Preparation).At the provincial levels, it was agreed that qualified person (those who have been managing the accounts ofthe FOMACOP project in each of the provinces, who have gained considerable experience in the process),will become part of the PPIO, responsible for maintaining provincial second generation special accounts.Establishment of thesefinancial management units at both the central and provincial units were satisfiedas conditions of negotiations. A draft manual for project financial management had been prepared earlier,and has been translated into Lao. The project includes provisions for providing training in financialmanagement. This will include training in basic accounting, English language skills, computer skills inaccounting software package and the course in World Bank disbursements/financial management (in Turin)as appropriate for identified staff. For the purpose of upgrading the existing accounting/financial facilitiesat MAF with a proven and reliable system the ministry requested that the ADP project also utilize the FMSimplemented by SIDA for donor projects of the Road Sector, which has been approved by IDA assatisfactory for meeting minimum requirements in FMS. SIDA has agreed to provide technical assistancefree of charge to setup FMS for the project.

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Annex 3: Estimated Project Costs

LAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

Components Project Cost Summary(US$ Million)

% % TotalForeign Base

Local Foreian Total Exchanae Costs

A. Improved Rural Infrastructure1. Improve Irrigation 2.76 4.35 7.10 61 452. Improve Rural Accessibility 0.65 0.89 1.54 58 103. Improve Rural Water Supply 0.17 0.30 QA7 64 3

Subtotal Improved Rural Infrastructure 3.58 5.53 9.11 61 57B. Environmental Management 0.16 0.12 0.27 42 2C. Improved Agricultural Services

1. Agricultural Extension 1.31 0.57 1.88 30 122. Adaptive Research & Demonstrations 0.21 0.12 0.33 37 23. Water Users Associabon 0.38 0.03 0.41 6 3

Subtotal Improved Agricultural Services 1.90 0.72 2.62 27 16D. Village/Community Investments for the Poor 1.50 0.47 1.97 24 12E. Project CoordinatIon

1. National Level 0.54 0.41 0.95 43 62. Provincial Level 0.78 0.25 1.03 24 6

Subtotal Project Coordination 1.32 0.66 1.98 33 12Total BASELINE COSTS 8.46 7.49 15.96 47 100

Physical Contingencies 0.43 0.68 1.10 61 7Price Contingencies 0.61 0.54 1.15 47 7

TotalPROJECTCOSTS 9.50 8.71 18.21 48 114

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Expenditure Accounts Project Cost Summary(US$Million)

% % TotalForeign Base

Local Forelan Totba Exchane Costs

I. Investment CostsA. Civil Works

Building 0.21 - 0.21 - 1Irrigation 2.12 3.50 5.62 62 35Access Tracks 0.52 0.78 1.30 60 8Village Water Supply 0.07 0.29 0.37 80 2

Subtotal Clvil Works 2.93 4.57 7.50 61 47B. Equipment & Furniture

Fumiture 0.00 0.00 0.01 60 -

Equipment 0.02 0.30 0.32 95 2Subtotal Equipment & Fumlture 0.02 0.30 0.32 94 2C. Vehicles 0.04 0.81 0.86 95 5D. VillagelCommunity Investments 1.02 0.30 1.32 23 8E. Technical Assistance

Intemational TA - 0.52 0.52 100 3Regional TA - 0.98 0.98 100 6National 1.23 1.23 - 8

Subtotal Technical Assistance 1.23 1.50 2.73 55 17F. Training 116 - 116 - 7

Total Investment Costs 6.40 7.49 13.89 54 87II. Recurrent Costs

A. Staff 0.01 - 0.01 - -B. O&M 1.36 - 1.36 - 9C. Overhead 0.69 - 0.69 - 4

Total Recurrent Costs 2.06 2.06 - 13Total BASEUNE COSTS 8.46 7.49 15.96 47 100

Physical Contingencies 0.43 0.68 1.10 61 7Price Contingencies 0.61 0.54 1 15 47 7

Total PROJECT COSTS 9.50 8.71 18.21 48 114

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Annex 4: Cost Benefit Analysis SummaryLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

Introduction: This annex presents a brief description of the approach, the assumptions and theresults from the financial and economic analysis of the Project. Financial analysis is based on thecrop budgets, and the estimated effects of the Project on productivity and income of thebeneficiary farmers, as well as their affordability of cost recovery measures proposed by thegovernment. Crop budgets and farm models were prepared to determine incremental farmincomes. Data for budgetary analysis are based on the information obtained during preparation.

As designed, the project components, such as village access tracks and agricultural extension, aretargeted at villages and districts wherein the Project supported the rehabilitation of irrigationschemes. In view of the linkages between the activities, supportive investment in village accesstracks and agricultural services are treated as necessary for realizing the expected total benefitsfrom the Project. The social infrastructure component of village water supply is strictly not anessential element for realizing the main objective of increased agricultural production. While itproduces important intangible gains - reduction in water bome diseases and time savings to fetchwater - such benefits have not been included in the analysis, given data problems and difficultiesin valuation.

Summary of Benefits and Costs:

Project Benefits: The project's direct benefit would come from improved water resourcemanagement in the irrigation schemes, supported by improved services to farmer; this wouldresult in increased agricultural production, household incomes and food security in the projectareas, covering an area of about 7,070 hectares. Sustainable and efficient water conveyance,distribution and use in the schemes will be achieved through the rehabilitation, improvement andprotection of irrigation infrastructure. Benefits would also accrue, although it would be moredifficult to precisely estimate, to the rural poor from the implementation of small demand-drivensub-projects, supported under the Village Investments for the Poor (VIP) component. Thesesub-projects are expected to be numerous and would be demand-driven, depending on thedifferent priorities of the rural communities. Only the direct benefits, using a simple livestockenterprise model as a basis for reflecting such benefits, have been included in the overall analysis.Indirect benefits are also expected in the form of institutional strengthening through moreparticipatory processes for deternining village priorities and implementing community-basedprojects, which is arguably the most significant contribution to the project.

Beneficiaries are farmers, farm workers and their families whose livelihood depends on the 7,070hectares of irrigated lands. Incremental production from the irrigation and agricultural serviceswill directly benefit some 7,300 farm families or a farm population of about 47,300. In addition, itis estimated that at least 26,000 farm households will directly benefit from the VIP component(this estimate is tentative as it is difficult to judge the nature of sub-projects which will be financedunder this component, in view of its community demand-driven approach). Many of thesebeneficiaries are poor. Most of the poor are landless, and are farm workers or small-scalesubsistence farmers. They suffer from limited access to food and water. The Project will bring

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about additional improvements in welfare arising out of the proposed interventions.

Approach: Analysis of the economic viability of the project was carried out by comparing theproposed investments and incremental O&M costs with the expected incremental benefits derivedfrom the projected performance of the irrigation schemes. The 'with project' costs consist of theinvestmnent incurred over five years and the recurrent O&M costs for the next 20-year life of theProject, including minor rehabilitation of the systems. All costs, except costs related to the walersupply and sanitation component and taxes, were included in the analysis. All benefits and costswere adjusted for economic prices (details are provided in the project files). The key assumptionsunderlying the analysis are reflected in Table 4.1 below.

Table 4.1: Crop Area, Yields, Production & Crop hitensities

Present Future Without Future WithCrop Yield Prodn. Crop Yield Prodn. Crop Yield Prodn.area (tons/ (tons) area tons/ (tons) area tons/ (tons)

-(ha) ha) (ha) ha (ha) haRice Rain-fed] 3.770 2.0 7.540 3.770 2.0 7.540 0 2.5 0Rice-Supplemental' 1,373 2.6 3,570 951 2.3 2,187 7,070 3.1 21,917IrrigationRice - Irrigated' 253 3.8 961 132 3.3 436 2,186 4.4 9.618Maize 0 273 2.6 709Groundnut 0 1.0 0 0 1.0 0 267 1.4 374Veeetable 7 I.Q= I Q 7.0 _0 91 10.0 910

__________=-___==__ Proiect Area (hectares)Wet season | 5,223 [ 5,223 7,070Dry Season [ 2,816 [ 2,816 4.455

Crop Intensities (%)Wet Season 100 92 100Dry Season 9 6 62Annual 109 98 162' This includes a shift from glutinous rice to non-glutinous rice.

For the Village Investment for the Poor (VIP) Component wherein demand-driven sub-projectswhich are consistent with the priorities for supporting agricultural and fisheries development willbe financed, direct participation and financial contribution of beneficiaries will be necessary. Thedemand-driven nature of the component implies that communities will determine the nature andscope of each sub-project funded. Accordingly, neither the benefits nor costs can be accuratelyidentified ex ante. However, potential incomes to be derived from livestock enterprise modelswere generated to demonstrate potential benefits and are included in the overall analysis.

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Main Assumptions:Assumptions: The benefits expected from the Project are: (i) increased cropping intensity infarms which were not previously irrigated in the dry season, and in the existing farms where dryseason cropping is expected to increase. The cultivation intensity in the irrigated area is estimatedto increase on average from the present 109% to a post-project average of 162%. In contrast,without the Project, it is expected that the cropping intensity will decrease by 10% over theperiod of analysis due to the continued deterioration of the systems and declining availability ofwater at the tail end of the tertiary canals particularly during the dry season; (ii) increased yieldsare expected to be achieved due to both improved and more predictable scheduling of irrigationwater to fields and from better farmning practices. The Pilot Extension Project (PEP) has shownthat the intensive, community-based extension system that the Project will be adopting is likely toresult in wide adoption of improved technologies (including the use of improved seeds, higheryielding varieties, using optimal levels of fertilizer, better water and cultural practices) by farmers.In contrast, in a without-Project scenario, it is expected that a decrease in yields of up to 15%during the life of the analysis will happen, due to poor cultivation practices and deterioratingirrigation systems; (iii) modest crop diversification is aassumed to take place to include highervalue crops such as maize, legume and short season vegetable crops during the dry season as longas steady markets are identified; and (iv) about 10% increase in revenues are expected from betterprices for inputs and outputs and lower transport costs, due to better access tracks which areexpected to provide better and more efficient access to markets.

Results: With the above assumptions, and a Project evaluation period of 20 years, the economicinternal rate of return (EIRR) for the overall project is estimated at 16 percent with a NPV ofUS$ 2.35 million, and a benefit-cost ratio of 1.5 (using a discount rate of 12 percent). Individualirrigation schemes were also analyzed and the IRRs for each proposed scheme range from 16percent to 174 percent. Details of computations are available in the project files.

Sensitivity analysis / Switching values of critical items:Sensitivity Analysis: Sensitivity tests were carried out to test the impact on base case estimatesof Project returns, from the risks associated with higher project costs, lower project benefits, anddelays in project implementation. As summarized in Table 4.2 below, the sensitivity analysisindicate that economic returns accruing from the Project is fairly robust. If costs increase byaround 15% and projected benefits decrease by around 10% during the project life, we can expectan EIRR of around 12%. Among all the risks identified, the risk associated with delays in projectimplementation of no more than 2 years, will likely result to almost the same base EIRR. Thisanalysis therefore points to the need of ensuring that critical factors (such as institutional readinessto implement, counterpart funding, human resource complement, and other Project inputs) are inplace and readily available upon project effectiveness. These factors have been taken into accountin designing the project, and will help mitigate the risks associated with higher project costs andof having lower project benefits. The analysis also points to the importance of having a soundmacroeconomic framework during the life of the Project which will contribute to stable prices ofinputs and goods in order to minimize price fluctuations.

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Table 4.2 Sensitivity Analysis

Risks Base EIRREIRR (%' (%)

# 1. A 15% increase in cost due to delays in counterpart funds and other factors 15.8 12.6

# 2. A 10% decrease in benefits 'with project' yield and crop intensity 15.8 12.4

# 3. Project implementation is delayed by two years 15.8 15.1

The switching values suggest that if costs increase by more than 20% and benefits decrease by12%, the EIRR will drop below 12 %. This reaffrms the findings and recommendations madeabove on the need to ensure that critical factors for timely implementation are in place to avoidincreases in costs and decreases in project benefits.

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Annex 5: Financial SummaryLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

Financial Analysis:

A financial analysis has been done to estimate the effects of Project interventions on the income ofbeneficiary farmers, and the affordability of cost recovery measures proposed by the government. Cropbudgets and farm models were prepared to determine incremental farm income as a result of investmentsmade under the Project.

The overall result of project interventions would be a shift to improved management and expandedcultivation in the dry season. This in turn, will help bring about not only increases in cropping intensityand crop yields compared to the present situation but would also arrest any further deterioration. Somefarmers would also be encouraged to diversify their cropping by adding higher value crops. However, it isnoted that progress will inevitably be slow as small subsistence farmers consider it risky to provide cashinputs unless they see a reliable marketing and input delivery system.

Essentially, the financial analysis is concerned with the estimates of the magnitude and possible reducedvariability of rice production under fully irrigated conditions including supplemental irrigation during wetseasons, compared to the without-project situation. Project sites in the four provinces do not exhibit muchvariations in terms of topography, climate, technology or farming systems. Rice production dominates bothwet and dry seasons. Livestock production, aside from vegetable and fruit cultivation, is the second mostimportant cash activity. While other crops may be more profitable, farmers have traditionally grown rice,and have been practicing low technology subsistence farning. In addition, they are reluctant to plant othercrops in the current environment of erratic water management and marketing problems.

In line with the prevailing size of irrigated land per household, crop budgets have been prepared, based onone hectare, for both the with- and without-project scenario. Two farm models have been prepared: one forAttapeu and Khammouane; and one for Champasak and Saravane to reflect differences in their croppingpatterns. Build-up of yields take place over the first four years, with full development yields reached byyear 5.

Financial and economic prices are provided in the working papers in the project files. Irrigation ServiceFee (ISF) is estimated at $20/ha (gravity-fed schemes) and $40/ha (electricity-operated pump schemes).Average wage rate of $1. 1/day has been estimated for farm labor based on data collected in the field. Sincefamily labor is currently underemployed during the dry seasons, cash income is calculated with cost offamily labor set to zero.

Based on the farm models used, per ha income is calculated for every crop, with- and without the project,until year 5 when full development is reached. Since the net farm income is defined as gross receipts, it istherefore an estimate of the return to the farm operator's labor and management. Details are given in Table5.1 below.

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Table 5.1 Net Farm income and Return per Family Labour Day(Units in $)

Attapeu & Khamnouane Champasak & SaravanePresent Situation:_

Net farm income 178 234Return per labor day 1.09 1.08

With projectNet farm income 658 L 884Return per labor day 2.65 2.68

Average farm size model used for Attapeu and Khanimouane is 1.5 hectare; while average farm size model used for Champasak andSaravane is 2 hectares

Hence, in the with-project situation, in Attapeau and Khammouane, net farm income is expected to increaseby 270% and returns per labor day by 143%. On the other hand, in Champasak and Saravane, in thewith-project situation, net farm income is expected to increase by 280% and returns per labor day by148%.

Cost Recovery: Traditionally, investment costs on both gravity and pump schemes are being fully met :ythe government. It has been observed that O&M costs of gravity-fed schemes have seldom been recoveredfrom the beneficiaries, while farmers using pumps pay for operating costs of electricity/diesel. Budgetaryallocations for operations and maintenance have been severely limited, thereby threatening thesustainability of these schemes. The project's design have taken these issues into consideration and will beproviding resources for setting up, operationalizing and strengthening water users associations (WUAs) andcommunity/village groups in order to address O&M concems, in a more sustainable manner. Mechanismswill be designed to enable communities to undertake regular O&M and cost recovery of investments inirrigation schemes, access roads and water supply and sanitation systems.

Recently, the government has proposed new cost recovery measures. These include the following:WUAs will collect irrigation service fees (ISF) and would retain these fees for funding O&Mcosts for irrigation. The level of irrigation service fee to meet this objective is estimated under theProject to be an average of US$ 20/ha/year for gravity schemes and US$ 40/ha/year for pumrschemes. As shown in Table 5.1 above, average farm incomes from 1.5 to 2-hectare farms areexpected to generate about US$ 658 to US$ 884 annually. It must be noted that this estimated netincome still does not include supplemental incomes to be derived from fisheries and livestockactivities.A Village Development Fund (VDF) will be established from payments received from farmers tocover the capital investment costs for irrigation schemes. The proposed payments are 1 00kg ofpaddy per ha of irrigated land for diesel pumps and 150kg of paddy per ha of area cultivated forgravity schemes. According to govemment guidelines, payments must be made for a period of 20years or until such time that capital costs of the irrigation schemes have been fully recovered. Forgravity-fed schemes, 20% of the fund/paddy collected is reverted to the government and theremaining 80% remains under the Fund for financing village development activities.

The impact of the above mentioned measures on an average farmer beneficiary of the Project has beentaken into consideration in the computation of the net farm income in Table 5. 1. The farm income analysisshows that with the substantial increases in yields and incomes due to the additional cropping to be done bythe Project, farmer beneficiaries would be in a position to afford these proposed levies. In the long run,

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farmers will be more willing to pay these levies if they continue to reap improvements in their productivityand incomes brought about by the project interventions.

Since these measures are new, the institutionalization of these proposed capital recovery schemes will posea substantial challenge to Project implementation, in view of the previous practice that costs of publicinvestments are not recovered and no system for levies for O&M have been in place. The challenge lies inbeing able to provide appropriate and timely support to enhance the organizational, technical and financialcapability needs of WUAs and other community groups to enable them to properly manage their O&Mresponsibilities and the VDF resources they will generate.

Fiscal Analysis

The fiscal analysis found that a large majority of expenditures for rural infrastructure are presently beingfinanced through budgetary allocations by the national government. For instance, O&M costs account forroughly 25% of annual irrigation development expenditures. The project expects to devolve the necessaryresource mobilization and budgetary allocations to the local governments. The following would beachieved under the Project:

(i) the provincial government will be responsible for investment and O&M costs of primary irrigationcanals while the WlUAs would be responsible to maintain most of the secondary and tertiarycanals;

(ii) the provincial govemment would be responsible for the investment costs for the access roads andwater supply and sanitation facilities while the communities would operate and maintain the saidfacilities.

(iii) the community will contribute 10% of investments costs for the VIP component.

The fiscal impact from the Project would come from various sources. On the expenditure side, the fiscalimpact of the Project would result in an increase in allocation of national and provincial resources allocatedto support agricultural development at the local levels in the in the initial group of provinces and districts.Over the five-year life of the project, the provincial governments and the communities are expected tocontribute about US$ 0.67 million (4% of total project costs) and the national government about US$ 0.86million (5% of total costs) as counter part funds. Based on an analysis of present levels of expenditures, itis expected that this level of financial commitment towards the project can be met from the resourceenvelope available to the provinces (particularly for Champasak and Khammouane provinces, where taxcollections exceed total expenditures overall; Saravane and Attapeu, however, may need support from thecenter) and at the national level. A positive fiscal impact can be expected from the transfer of O&Mresponsibility for irrigation schemes to water user associations; and increased community participation inprogram design and execution (particularly with the implementation of the VIP component), which shouldresult in more efficient use of resources for village/local-level agricultural development projects in the fourprovinces.

Lastly, as mentioned earlier, the Project will provide resources for institutional strengthening of WUAs andcommunities. It is envisioned that the Project resources which have been allocated for the purpose ofbuilding capacities of WUAs and community groups will, in the long run, contribute to overallimprovements in local and national fiscal resource management.

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Annex 6: Procurement and Disbursement ArrangementsLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

Procurement

General: Under the project, procurement will involve civil works contracts for the improvement ofirrigation schemes, construction of access tracks from villages to the schemes and to the existing districtand/or provincial roads, works associated with village water supply facilities, and some building facilities(mainly rehabilitation and extension) for agriculture extension services. The procurement of goods willinvolve vehicles, furniture, materials for hand pumps including pipes and screens for the village watersupply component, the on-farm adaptive research trials and miscellaneous items such as survey equipment,hydrologic gauging equipment, computers, copiers and fax equipment. The village investment program willbe implemented through small community contracts (involving works, goods & services). ). Under the V IP,block grants would be allocated to districts from which grants would be made available to rural folk(preferably to groups, but also to individuals, in a village) for implementing small scale projects identifiedby the villagers themselves. For technical assistance either specialized individual consultants will berecruited, or a consulting firm engaged. The Bank's Standard Bidding Documents will be used for all ICBtenders, and Bank guidelines followed in preparing the NCB tenders, and all invited consultant firms willfollow the Bank's Standard Request for Proposals.

Guidelines: Procurement under the IDA Credit will follow the World Bank guidelines "Guidelines forprocurement under IBRD Loans and IDA Credits" published by the Bank in January 1995, and revisedJanuary and August 1996, September 1997 and January 1999 and the Bank's " Guidelines for theSelection and Employment of Consultants by World Banks Borrower" published by the Bank in January1997 and revised September 1997 and January 1999.

Capacitv Assessment: During the last seven years, various bilateral and multi-lateral donors havefinanced projects in the Forestry and Irrigation Sectors; currently there are on-going projects financed byADB and by IDA which are implemented by centrally controlled Project Management Units (PMUs) nVientiane. Procurement processing from preparation of documents to evaluation and award, as well aspayments, are handled by these PMUs with the assistance of consultants. Over the years, training onprocurement has been provided by donors to technical staff of MAF, as a result of which many engineers inthe Department of Irrigation (DOI) are familiar with ADB and IDA procedures, but the capacity to workindependently without technical assistance input is extremely weak. A Procurement Capacity Assessmentof the executing agencies was undertaken. This assessment concluded that MOAF does not have theadequate capacity and experienced staff to handle project procurement satisfactorily. Therefore,implementation risks associated to procurement are considered high. Mitigation measures to address therisks include: (i) internal and external training; (ii) provision of specialized consultants with excellentprocurement knowledge; and (iii) easy access to IDA procurement specialists based in Bangkok andVientiane; In addition, as there are some inconsistencies between the national and Bank procurementguidelines (the GoL regulations state that bids may be rejected if there is no suitable bids when there is noeffective competition; and re-bidding is allowed or negotiations are undertaken when the bid exceeds thebudget allocated.). To address these issues, provision are made in the DCA which will ensure that theproject's procurement procedures are consistent with Bank guidelines.

Procurement Methods (Table A)

1. Works: The following civil works for a total aggregate value of US$9.28 million will be

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implemented under the project: (a) rehabilitation of irrigation schemes; (b) construction of rural accesstracks; (c) rehabilitation and/or construction of building facilities for agriculture extension and othertraining activities; and (d) drilling and installation of hand pumps, as well as open wells and gravity basedschemes for Village Water Supply, and sanitary latrine toilets for households and schools.

A detailed tender processing and implementation schedule has been prepared, which is sunmiarizedbelow:

Province Irrigation Rehabilitation

No. of Schemes No. of Tenders Contract minimum Value US$maximum

Attapeu 4 4 96,000 266,000Champasak 9 9 106,000 360,000Kharnmouane 5 5 120,000 445,000Saravane 5 8 69,000 770,000

2. Procurement of civil works for the rehabilitation of irrigation schemes, construction of rural accesstracks and building facilities rehabilitation and/or construction will be undertaken by the respectiveProvincial Project Implementation Offices (PPIO) under the direction of Provincial Agriculture andForestry Service Office ( PAFSO); staff from the Provincial Communication and Transportation Office(PCTO) will be nominated to the PPIO, who will be responsible for the access roads component. TheProject Coordination Office and PPIO come under the MAF. Most of these works are small, geographicallyscattered over four provinces and 22 schemes, and include 30 contracts to be tendered during four years ofinplementation. The works are not technically complex and the cost of each contract will vary between aminimum of US$ 25,000 to a maximum of US$ 770,000. There would be two contracts that may exceed$500,000. Since local contractors may not have the financial nor technical capacity for larger contracts,ICB is proposed for contracts of US$ 500,000 or more (in value, total aggregate value of these two ICBcontracts will be US$1.3 million). In case of eight larger contracts exceeding $300,000 in contract value,the proposed implementation period is three years; hence it is unlikely to be attractive to internationalbidders, no International Competitive bidding ( ICB) is therefore proposed for these works (except those ofUS$ 500,000 or more in value). Total aggregate value of NCB contracts will be about $7.29 million. Theinternational bidders will not be excluded from participation in the bidding process for all contracts underNCB procedures. There are sufficient number of contractors throughout Lao PDR with adequateequipment, experience for such works and financial capacity to participate in the bidding process. Alleligible contractors in Lao PDR will be allowed to participate and tenders will be advertised in all nationaland provincial papers, and the embassies with potential bidders will also be informed.

3. Works related to village water supply for drilling and installation of hand pumps and open wells aswell as pour and flush sanitary latrine toilets, (having a total aggregate value of US$0.44 million), will beimplemented by force account to be carried out by the Provincial Office for Environmental Health andRural Water Supply ( PEHRWS), under an agreement which will be entered into with the national center inVientiane. The force account arrangement, whereby PEHRWS will be provided with the materials andequipment, and also reimbursed for its costs of implementation, is proposed for the following reasons:

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(a) Beneficiaries who will be closely involved in implementation, are expected to provide about 20percent of total investment cost in the form of in-kind labor for digging wells, concrete and otherworks which require unskilled labor. PEHRWS has procedures and rules for communityparticipation, as well as future 0 & M and replacement of such facilities; so it will be one of theobligation of PEHRWS to obtain such agreement from the beneficiaries;

(b) To ensure safe water supply, water quality must be tested and certified before the completedworks are handed over to the beneficiaries. PEHRWS will provide this service under the terms oftheir force account agreement;

(c) PEHRWS has the drilling equipment and trained staff for this activity from previous projects ofvarious donors; moreover, the total value of works under this component is small and the works willbe spread over four provinces, 13 district and about 1 10 villages. Private small contractors will lotbe interested and it will be difficult for the provincial staff of PEHRWS to supervise and managesuch small contracts; and

(d) Finally, as noted in para 6 below, this will facilitate direct contracting of equipment andmaterials, to enable the standardization which is being pursued, based on community preferences andseven years of implementation experience.

4. Goods: The following goods are expected to be procured under the project:

(a) Vehicles and Motor Cycles, for consultants, Central Coordination Offices and field operations.

(b) Furniture, survey instruments, hydrologic gauging equipment, agricultural extension training kits,material for the on-farm demonstrations and the adaptive research component, computers includingprinters and software, copiers and fax machines.

(c ) Hand pumps, pipes, screens, filter material and fittings for hand pumps, miscellaneous locallymanufactured pulleys etc for open wells, and pour and flush type sanitary fittings.

5. Vehicles and Motorcycles for a total aggregate value of US$870,000 will be procured in twobatches, first batch during first year of implementation, and the second batch during third or fourth year,using International Competitive Bidding procedures (ICB). Estimated cost for the first batch will be aboutUS$426,000, and for the second batch US$360,000. For initial start-up activities, three double cabin 4x4pick up and two motorcycles for a total aggregate value of US$84,000 will be procured using InternatibnalShopping (IS) three Quotation procedure or LAPSO. Goods available off-the-shelf and of standard nature,including survey instruments, hydrologic gauging equipment, computers and office equipment such ascopiers and fax machines will be procured using International Shopping (IS) procedures, for an aggregatevalue of about US$180,000. Locally manufactured equipment such as furniture, agricultural kits and wellpulleys, etc. for a total aggregate value of US$146,000 will be procured using national shopping (NS)procedures (three Quotations). Estimated Cost for IS and NS items will be about US$264,000 andUS$46,000 respectively and these will be procured following articles 3.5 and 3.6 of the Guidelines.Requests for quotations under both IS and NS procedures should indicate the description, technicalspecification, quantity of each item and the desired delivery time and place, and maximum value of eachcontract will not exceed US$50,000 for intemational and US$20,000 for national shopping.

6. The Environmental Health and Rural Water Supply Center (EHRWC) has used various types ofhand pumps and galvanized as well as PVC pipes and fittings from several sources. Taking into

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consideration the experience of seven years, EHRWC recommends that standardization should be a factorto consider in the procurement of these items. EHRWC has the experience and drilling equipment availablein four provinces and can execute the work through its provincial offices (PEHRWC). A force accountagreement for a total value of about US$320,000 with the EHRWC, who will direct the work and take intoaccount the beneficiary preference for the selection of equipment which would be procured through directcontracting, is recommended.

7. Village Investment program: A broad spectrum of activities will be undertaken by ruralbeneficiaries under this component. Grants would be provided to groups of individuals (or communities) invillages within the participating districts, to implement smnall sub-projects selected based on agreed criteria.The communities will be responsible for implementing the individual subprojects to be financed, which willbe small in size, generally being less than $1000 each. The main purchases to be made would consist ofconstruction material for small works, small ruminants for fattening and poultry, agricultural materialsplants and seeds, and local technical support; this would be the responsibility of the communities.Accordingly, community based direct contracting would be followed, as the grouping of these purchaseswill not be feasible, because they involve different beneficiaries scattered over more than 250 villages; andgiven that the total fund allocation for each district and village is foreseen to be about US$ 20,000 andUS$ 3,000 respectively. Given that communities have limited experience in contracting, support forimplementation would be provided by the district offices of MAF, through the extension agents and villagedevelopment coordinators (DAFO), as well as through the PPIOs. The total cost of this component isestimated at US$ 2.0 million, including grants to the communities (of $1.32 million), and Technicalassistance and Training to support the implementation of the component.

8. Community Participation in procurement is justified in the interest of bringing rural communitiesand government support service staff together, and thereby contributing to project sustainability, and toachieving the social objectives of the project. Procurement will be done by communities, primarily throughdirect contracting, according to procedures defined in the implementation manual. IDA would not beinvolved in the approval process for every contract and disbursement at the district or village level;however, arrangements will be made for supervision by independent outsiders (as part of the overallconsultant services under the project) agreed with the Government.

9. While procurement of smaller works and National Shopping procedures for goods and serviceswould be applicable, works, goods and services less than $ 5,000 equivalent per contract may be procuredby direct contracting to communities and NGO's up to a cummulative maximum of US$ 1.5 millionequivalent . As a safeguard, the total value of contracts that can be awarded through direct contracting toany one community or NGO would be limited to US$ 20,000 equivalent.

10. Consultants Services (Table Al) and Training - About US$ 2.92 million and US$1.25 millionwould be allocated to consultants services and training, respectively. Consultant services shall be procuredin accordance with IDAs "Guidelines for the Selection and Employment of Consultants by World BankBorrowers" published by the Bank in July 1997 and revised April 1998 and July 1999, and using the Bank's Standard Request for Proposal - Selection of consultants dated July 1997 and revised April 1998 and July1999. Any contract above $ 200,000 would be advertised in the Development Business requestingexpression of interest prior to developing a short list. Detailed requirements of Technical Services, withterms of reference for each specialist and training requirements, are available in the Operations Manual.Consultants would be required to provide services for the review and approval of designs and tenderdrawings prepared for each province, and assist the provincial and central project offices in procurement,disbursement and financial matters.

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11. Quality- and Cost-Based Selection (QCBS) - The selection of firms would be based on qualito-and cost based selection procedures; it is expected that one firm will be selected to provide these services.This includes technical assistance for infrastructure implementation support, as well as consultant servicesfor supporting the implementation of the Agricultural Services components, and for building capacity inmonitoring and evaluation, amounting to about US$2.72 million covering input both at the central andprovincial levels, the procurement of which will be carried out through the PCO.

12. Individual Consultants -The selection of individual consultants would be on their qualificatior sfor the assignment (Section V of the Guidelines). They may be selected on the basis of references orthrough comparison of qualifications among those expressing interest in the assignment or approacheddirectly by the Borrower. Total cost for individual consultants is not expected to exceed US$200,000, andwill include a procurement/irnigation engineer, whose recruitment will be a condition of effectiveness., aswell as a consultant to support the start up of implementation of the VIP component.

13. Training. Training, workshop and study tours ($1.25 million million) will be financed by IDA at100 percent and procured according to normal business principles. Each activity including cost estimatewill be submitted to IDA for prior review.

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14. Operating Costs. About US$2.24 million would be allocated to cover the incremental operatingcost related to staff travel and per diems at both central and provincial levels, office rental, utilities, officerunning cost, and operating cost of vehicles. The disbursement for the operating costs will be on a decliningbasis: 95 percent during the first two years, 80 percent, 70 percent, 60 percent during third, fourth andfifth year respectively of project implementation.

Procurnment methods (Table A)

LAO PEOPLES DEMOCRATIC REPUBLICAgriculture Development Project

Procurement Anrangements - Non ICB/LCB Aggregated as Other(US$ Million)

Procurement MethodInternational National N.B.F. TotalCompetitive Competitive Other

Bidding BiddingA. Civil Works

Building - 0.25 - 0.25(0.23) (0.23)

Irrigation 1.37 5.43 . 0.18 6.98(1.26) (5.23) - (6.49)

Access Tracks 1.61 - 1.61(1.53) (1.53)

Village Water Supply - - 0.32 0.12 0.44________________________________________ (0.30) - (0.30)Sub-total Warks 1.37 7.29 0.32 0.30 9.28

(1.26) (6.99) (0.30) (8.55)B. Equipment & Furniture -

Fumniture 0.01 0.01(0.01) (0.01)

Equipment 0.33 0.33= ===- = _ _ _ (0.33) (0.33)

Sub-otal Goods - - 0.34 9.28________________________________________ ____________ ____________ (0.34) _____3 )

C. Vehtcles 0.79 - 0.08 0.87(0.79) (0.08) (0.87)

D. Village/Community Investments for Poor - - 1.20 0.12 1.32l_ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ __ _ _ _ _ (1.20) (1.20)E. Technical Assitance - 2.92 - -

(2.92 ) _ _ _

F. Tranlng 1.25 1.25(1.25) (1.25)

G. Recurrent Expenses - - 1.99 0.25 2.24(1.56) (1.56)

Total 2.16 7.29 8.09 0.67 18.21(2.05) (6.99) .6S ( (16.69)

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Table Al: Consultant Selection Arrangements (optional)(US$ million equivalent)

Consultant Services

A. Firms 2.72 0.00 0.00 0.00 0.00 0.00 0.00 2.72

(2.72) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (2.72)B. Individuals 0.00 0.00 0.00 0.00 0.20 0.00 0.00 0.20

(0.00) (0.00) (0.00) (0.00) (0.20) (0.00) (0.00) (0.20)Total 2.72 0.00 0.00 0.00 0.20 0.00 0.00 2.92

(2.72) (0.00) (0.00) (0.00) (0.20) (0.00) (0.00) (2.92)

1\ Including contingencies

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines),Commercial Practices, etc.

N.B.F. = Not Bank-financedFigures in parenthesis are the amounts to be financed by the Bank Credit.

Prior review thresholds (Table B)

Prior Review Thresholds (Table B)

14. All contracts subject to ICB procedures and direct contracts (except those related to VIP) wou:idrequire prior review. Each contract for works equal to or more than US$ 150,000 per contract and forgoods equal to or more than US$ 50,000 and procured according to National Competitive bidding (NC B);first direct contracts with each province for the water supply and sanitation component; the first workscontract for each year for each province and the first two goods contracts would be subject to the Bank'sprior review. Prior review of works and goods include bidding documents, evaluation reports and draftcontracts. No prior review will be required for village investment program contracts or training. Priorreview for works and goods would cover about 90 percent of the combined total value of civil works andgoods.

15. Individual consultants contracts equal to or more than US$ 50,000 equivalent, and contracts offimns equal to or more than $ 100,000 equivalent will be subject to the World Bank's prior review. Allterms of reference would be subject to prior review.

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Prior Review Thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Category Contract Value Procurement Contracts Subject to PriorThreshold Methods Review (US$ Million)

(US$ Thousands)

1. Works US$500,000 and above International All contracts ($1.3 m)CompetitiveBidding

Less than US$ 500,000 All contracts of $150,000National and more; and first contractCompetitive from each province per yearBidding ($ 4.0 m)

Not applicable First contract with eachprovince

Force Account2. Goods US$50,000 and above International All contracts ($0.8)

CompetitiveBidding

Less than US$ 50,000 All contracts of $50,000International and more; and first contractShopping, and from each province per yearLocal Shopping forFurniture ($ 0.1 m)

3. Village Investment Less than $5000 Direct Contracts No prior reviewProgram with Village

Communities

4. Consultant Services andTraining(a) Technical Assistance

Individual Less than $50,000 Single Source NoneMore than $50,000 Consultant Quality All ($0.1)

Firm Less than $100,000 QCBS NoneMore than $100,000 QCBS All ($2.6)

(b) Training

5. Recurrent Cost No Contracts

Total Value of Contracts Subject to Prior Review - US$8.90 million

Overall Procurement Risk Assessment - High, which will be mitigated with consultants input in the tendering,evaluation and implementation process, and training to the provincial staff on procurement matters.

Frequency of Procurement Supervision Missions Proposed - One every 3 months during the first two years ofimplementation, which will also provide training workshops, and one every six months afterwards until projectcompletion (includes special procurement supervision for post-review/audits). In addition, IDA's Vientiane fieldoffice will carry out monthly meetings with the procurement unit of the executing agency.

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Disbursement

Allocation of credit proceeds (Table C)Disbursement of the proceeds of the Credit would be made against expenditure categories as shown inTable C.

Table C: Allocation of Credit Proceeds

Exenir 0C00 tegr A0moun in US$illonW Finani Pe ntg1. Civil Works 8.00 90%2. Goods 1.10 100% of foreign expenditures; 100% of

local expenditures (ex-factory cost); and90% local expenditures fo othe:r items

procured locally3. VIP Grants 1.10 100% of Grant amount disbursed a/4. Incremental Operating Costs 1.50 FY2001/2002, 2002/2003, 200:3/2004:

95%FY 2004/2005: 80%FY 2005/2006: 70%

FY 2006/2007 and thereafter: 60%5. Consultants' Services 2.10 100%6. Training 1.20 100%

Unallocated 1.69

Total Project Costs 16.69

Total 16.69a/For VIP Grants, IDA Credit will finance 100 percent of the grant amount; beneficiaries will beexpected to cover a minimum of 10 percent of the cost of subprojects supported by the grants.

Use of statements of expenditures (SOEs):

Withdrawal applications will be supported by Statement of Expenditures (SOEs) for civil works contractsbelow US 150,000 equivalent; goods contracts below $50,000 equivalent; consulting firm contracts belowUS$100,000 equivalent; VIP grants; individual consultants contracts below US$50,000 equivalent;training; and incremental operating costs and audits.

Special account:To facilitate credit disbursement, MOF shall maintain a separate dollar special deposit account in theCentral Bank of Lao PDR, on tenns and conditions satisfactory to IDA including appropriate protectionagainst set off, seizure and attachments. The Special Account (SA), which would cover the IDA share ofeligible expenditures in all disbursement categories, would have an authorized allocation of US$600,000with an initial withdrawal of US$300,000 equivalent to be withdrawn from the Credit Account anddeposited in the SA. When the arnounts withdrawn from the Credit total SDR 1.25 million, the initialwithdrawal will be increased to the authorized allocation. Applications to replenish the Special Accountshould be submitted regularly, preferably monthly (but not less than quarterly) or when the arnountswithdrawn equal 20 percent of the initial deposit, whichever comes first.

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Financial Management and Reporting Arrangements:

IDA funds will be channeled through a Special Account to be held and managed by MOF and through aSecond Generation Special Account (SGSA) facility in each of the four PPIUs and at the PCO as theproject is geographically scattered over four provinces and 15 districts. Each SGSA will have an advanceequivalent to two months of projected expenditures. MOF will be the manager of these SGSAs. In order tofacilitate speedy project implementation the following arrangements are proposed for payments through theSpecial Account and SGSAs:

Central Level Special Account with MOF:

Civil works, goods and services financed under the project consist of contracts ranging from $10,000 toover $500,000. The SA at MOF will be used for payment of all ICB and NCB contracts for all categoriesof expenditure initiated by the PCO. Civil works contracts for rehabilitation of irrigation schemes andrural access roads shall also be paid through the central SA irrespective of whether the contracts areinitiated by the central PCO or provincial PPIO. As the civil works relating to village water supplyschemes are carried out under the direction of the Office of Environmental Health and Rural Water Supplyin Vientiane, payments for this component will also be made through the central SA.

Provincial Second Generation Special Accounts of the SA:

The expenditure to be paid through the SGSA will be those relating to grants for village investment for thepoor, provincial and district level agricultural extension services, training and operating costs. The initialdeposit and the periodic advances will be determined taldng an average of two months expenditure based onannual budgets but under no circumstances shall exceed $10,000. The SGSAs will be maintained in US$and shall be opened at a commercial bank in the four provinces on terms and conditions satisfactory toIDA. Applications to replenish the SGSAs supported by appropriate documentation shall be submitted atleast 30 days from the date of the last cash advance or whenever expenditures reach 1/3 of the advance,whichever comes first. The SGSAs shall be audited by auditors acceptable to IDA as part of the annualfinancial audit.

Central Level Second Generation Special Accounts of the SA at PCO:

Expenditure to be paid through the SGSA at PCO will be those relating to goods, services, projectcoordination, training and operating costs. The procedure explained above for provincial SGSAs inestablishing, advancing and replenishing will apply to this account.

GOL Counterpart Funds:

The Project Bank account ( holding government counterpart funds) will be held at MOF in line withgovernment policy. These funds will be channeled through the MOF for expenditures initiated from thePCO (works, goods, services and operating costs) and through the finance departments of the participatingprovinces for expenditures disbursed from the provinces. A detailed description of procedures to befollowed in channeling donor and GOL funds is given in the Financial Management Arrangements in theProject Implementation Manual.

Organization and Staffing

The project will be managed by the PCO which would be established within the Departnent of Planning of

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MAF. This unit would be responsible for ensuring that Bank guidelines and procedures are followed ondisbursements, auditing and overall financial management. It would record transactions of the SpecialAccount and the SGSAs and consolidate overall project accounts, have them audited, prepare the annualproject budget based on input received from the PPIUs and the PCO, prepare withdrawal applications andsubmit to IDA, and prepare quarterly project management reports (PMR).

PCO would include a Finance Section, which would be staffed by persons currently employed at theDivision of Financial Services at MAF (DFS-MAF) which is responsible for all financial managementactivities of the ministry. The finance section would include a Project Accountant, and at a minimum onleAccounts Clerk/Cashier to ensure adequate segregation of duties in (i) invoice processing of PCO initiatedactivities; (ii) supervising and controlling provincial SGSAs; and (iii) coordination with MOF onmanagement of the SA. As a condition of negotiation MAF has assigned for ADP a Project Accountantand an Accounts Clerk with experience and qualifications acceptable to IDA among persons experiencedin project accounting of donor funded projects (those who have been managing the accounts of ADBfunded Irrigation Projects, Lao-Swedish Forestry Project and the PHRD grant for ADP ProjectPreparation).

At the provincial level the PPIOs would be responsible for maintaining the financial records of theprovincial activities of the project, and the operation of provincial SGSAs. Each PPIO will include aFinance Section, which would be staffed at a minimum by a Project Accounts Clerk and one Cashier. Eachprovince has nominated accounting staff acceptable to IDA to manage the SGSAs from staff who havebeen managing the SGSAs of the FOMACOP project in each of the provinces and who has gainedconsiderable experience in the process.

Accounting and Reporting

AtPCO:

The Project Accountant it the PCO will be responsible for maintaining the project books of accounts,initiating payments from the Special Account and Project Bank Account (GOL funds) through paymentrequests to MOF, consolidating annual work plans and budgets, monitoring overall project disbursements,operation of the PCO SGSA, review of provincial SGSA expenditure, incorporating accountinginformation received from the provinces in the central accounting system, supervising and training thefinance staff at the PPIOs, coordinating with MOF on annual counterpart fund requirements and forproducing quarterly Project Management Reports (PMR's). . Expenditure relating to payments from theSA must be authorized for payment by a nominated senior official of MAF and the head of PCO prior toapproval of a senior official of MOF. On satisfaction of necessary approvals payment will be effectedthrough a check payment or a fund transfer initiated by MOF. Expenditure for payments from counterpartfunds will be subjected to the samne process.

At PPIO:

The PPIOs will be responsible for all aspects of cash disbursements at the provincial level includingcontract monitoring of village investment expenditures, operation of SGSAs requesting payments from theprovincial department of finance for counterpart funded expenses and for producing costed annual workplans. These work plans will be forwarded to PCO for approval and for incorporation into the project'soverall annual budget. In addition, every month each PPIO will prepare an expenditure forecast for activityfunded by IDA for the next sixty days. This will be submitted to MOF routed through PCO for requestingan advance to the SGSA. Each PPIO will be responsible for keeping the records relating to these advances

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and forwarding information on expenditures to PCO for inclusion in the overall project financial statementsand for initiating replenishment. . Expenditure relating to payments from the SGSA must be authorized forpayment by a nominated senior official of PAFO, and the head of PPIO prior to payment being made. Thereplenishment request must be approved by a nominated senior official of MAF and the head of PCO priorto approval of a senior official of MOF. Once the advances have been fully documented to the satisfactionof MOF , a reimbursement to the SGSA can be made from the Special Account.

Financial Management System

A project financial management assessment was carried at the MAF which will implement the project. Theoverall assessment is that the financial units at MAF and in the Provinces will need technical assistance toinstall acceptable accounting systems per OP/BP 10.02 and to train staff. To upgrade the existingaccounting/financial facilities at MAF with a proven and reliable system, the ministry requested that theADP project also utilize the FMS implemented by SIDA for donor funded projects in the road sector in LaoPDR. This system meets IDA requirements and is successfully being implemented for several IDA financedprojects in Lao PDR. SIDA agreed to provide free technical assistance to install the system and carry outintroductory staff training within PCO.

A computerized accounting system, with a chart of accounts which will identify PCO and provincialdisbursements, will facilitate financial management and consolidation of financial statements. Detailedguidelines on procurement, payment authorization, cash management, month and year-end closing andfinancial reporting are given in the Project Accounting Procedures Manual.. A detailed financialmanagement assessment including a description of the proposed financial management system is presentedin the FM Assessment Report which is available in project files. As a condition of effectiveness the designof the Financial Management System for the project shall be completed and the staff at PCO and PPIOstrained on the Financial Management System.

Pending installation of the accounting system, training of staff and a period of successful financialmanagement operations the project is not considered eligible for PMRbased disbursements. Disbursements will be based on Statements ofExpenditures together with Withdrawal Applications and Direct Payment Applications. Signatorieson the IDA Replenishment Applications shall be the Minister of Finance or the Director of the TreasuryDepartmnent at MOF and the Vice Minister of the Ministry of Agriculture& Forestry.

Project Management Reports (PMR)

The simplified PMRs to be submitted to IDA shall include at a minimum, the following documents:Report 1-A Project Uses and Sources of FundsReport 1-B Uses of Funds by Project ActivityReport 3-A Procurement Process monitoring (Goods and Works)Report 3-B Procurement Process Monitoring (Consultant Services)Report 3-C Contract Expenditure Report (Goods and Works)Report 3-D Contract Expenditure Report (Consultant Services)

PCO shall submit these reports to IDA on a quarterly basis within 45 days of the quarter end starting thefirst quarter following project first disbursement. Additional output monitoring reports will be developed, ifappropriate, during implementation.

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Audit

Annual project financial statements will be produced by PCO and audited by an independent auditorappointed under terms of reference satisfactory to IDA. The auditor will also be required to expressopinions on: (i) whether the Special Account funds have been correctly accounted for and used inaccordance with the Credit agreement; and (ii) the adequacy of documents and controls surrounding theuse of the Statements of Expenditures as a basis for disbursements The audited financial statements will besubmitted to IDA within six months of the year-end.

Capacity Building and Strengthening of Financial Management

Since adequate human resource capacity in finance, computer skills and working knowledge of English is amajor constraint in project financial management IDA has identified training activities and hasrecommended a training action plan for ADP financial management staff. This training will be implementedduring the first two years of project implementation. In addition it has been agreed that the MAF shallcarry out a time-bound action plan for strengthening of the financial management system. The relevantaction plans are as follows:

Agricultural Development ProjectFinancial Management Improvement Action Plan

Training Type Training Course Trainees/ Responsibility Action dateWB Financial WBI/ILO course Project Accountant at PCO Jul. 1, 2002Mgt./Disbursement Turin, Italy _

Advanced accounting and Vientiane College or Project Accountant and/or Dec. 31, 2002finance other private institution. Accounts Clerk(s) at PCOIntermediate accounting Private Institution-3 Accounts Clerks (s) at PCO Jul. 1, 2002

month intensive courseBasic accounting and Private Institution-3 Accounts Clerks at PPIO Jul. 1, 2002finance month intensive course _

Accpac Software Further on the job Project Accountant and Dec. 31, 2001training on accounting Accounts Clerk(s) at PCOpackage provided bySIDA

Prepare first set of N/A PCO 3 months after firstsimplified PMRs Credit disbursement

(Dec. 31, 2001)Advanced English Vientiane College Project Accountant at PCO Dec. 31,2002Basic English reading Vientiane College - Accounts Clerk(s) at PCO Dec. 31, 2002and writing/ Integrated English for and Accounts Clerks athitermediate English Personal & Professional PPIO

Development- 3 monthintensive course

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Annex 7: Project Processing ScheduleLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

proect ,,Keo Plann*d A, tu,alTime taken to prepare the project (months) 10 10First Bank mission (identification) 11/08/99 11/08/99Appraisal mission departure 01/09/2001 01/22/2001Negotiations 04/09/2001 04/19/2001Planned Date of Effectiveness 09/30/2001 09/30/2001

Prepared by:

Staff of Ministry of Agriculture & Forestry, which included departments of irrigation, agriculture,livestock, fisheries, forestry, NAFRI, NSC & PAFSO representatives of the four provinces, with thesupport of Central Project Steering Committee which included representatives of Ministry of Finance,Ministry of Foreign Affairs, International Cooperation, Prime Minister's office, State Planning Committee,Ministry of Health, Ministry of Communication, Transport, Lao Women's Union, with assistance from ateam of international and national consultants.

Preparation assistance:

Japanese PHRD Grant

Bank staff who worked on the project included:

NaMi SpecialityRahul Raturi Team Leader/EconomistMary Judd AnthropologistAizad Khan Irrigation Engineer/ProcurementLinda Schneider InstitutionsEnrique Crousillat ProcurementWijaya Wickrema Financial ManagementPreethi Wijeratne Financial ManagementCarolina V. Figueroa-Geron EconomistAlvaro Bueno AgriculturistKarin Nordlander Legal Counsel0. Ladipo Financial Management and DisbursementUma Lele Peer ReviewerNejdet Al-Salihi Peer ReviewerGuzman Garcia-Rivero Peer ReviewerSrish Kumar EconomistEvelyn Cowan Program AssistantKathryn Cherrie Program Assistant

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Annex 8: Documents in the Project File*LAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

A. Project Implementation Plan

1. Lao People's Democratic Republic: Agricultural Development Project. Project Preparation Report (infive volumes); April 2000.

2. Social and Economic Assessment Report for Lao PDR: Agriculture Development Project. Supportedby:

* Individual reports on each of the four project provinces: Attapeu, Champasak, Kharnmouane andSaravanne;

* Local Government Structure and Organization; and

* Reports on water user groups.

B. Bank Staff Assessments

Bank Mission Aide Memoires and related Back-to-Office Reportse Identification Mission - November 1999o Preparation Assistance Mission - February 2000a Pre-appraisal Mission - August 2000o Appraisal Mission - January 2001

Power point/slide presentations, for consultation workshops on project design.Procurement Capacity AssessmentFinancial Management Capacity AssessmentDetailed Project Costs

C. Other

*Including electronic files

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Annex 9: Statement of Loans and CreditsLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

Dec-2000Difference between expected

and actualOriginal Amount in USS Miliions disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig Fnn Rev'dP042237 1999 PROVIN. INFRAST. 0.00 27.80 o.00 0.00 o.o0 23.29 2.47 -3.3tP059305 1999 LA DISTUPLANO OEV 0.00 2.00 0.00 0.0 0 co 1 99 1.33 -0 38P044973 1998 SOUTHERN PROVINCE RE 0.00 34.70 0.00 0.70 0.00 2988 8.71 -418P004210 1997 H:GHWAY IMPROV. II 0 co 48.00 0.00 0.00 0.00 23.31 20.41 -22.01P004208 1996 LANDTITLING 0.00 20.73 0.00 0.00 0.00 13.98 5.57 1.41

P004209 1996 SAC 10 0.00 40.00 0.00 0.00 18.89 0.0° 20.42 0.49P004200 1995 LA-HEALTH SYS. REf. & M 0.00 19.20 9.00 0.00 0.00 10.29 10.43 -. 80P004207 1994 LUANG NAMTHA PROVDE 0.0o 9.70 8.00 0.00 0.00 1 29 0.17 -449P004201 1994 HWY IMPROVE I 0o o 3000 0.00 9.00 0.00 2.23 1.92 .28,03P004196 1994 FOREST MGT & CONSERV 0.00 870 0.00 0.00 0.00 0.47 5.77 -2.93P004176 1994 WILDUFE & PROTECTED 0 00 0.00 9.00 5.00 0.00 0.63 0.86 4.45P004203 1993 LA-EDUCATION DEVELOPMENT 0.00 19.00 0.00 0.00 0.00 327 3.58 .15.38P004197 1993 PROVL GRID INTEGRAT 0.00 36.00 0.00 0.00 1.03 0.00 0.a2 -35.08P004202 1992 SAC ti 0.0o 40.00 0.00 0.00 0.00 0.03 1.91 -41.91P004195 1990 UPLANDAGRiC. DEV. 0.00 20.20 0.00 0.00 6.86 000 4.79 1.18

Total: 0.00 356.03 0.00 o.M0 37.49 115.19 83.15 -189.81

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LAO PEOPLE'S DEMOCRATIC REPUBLICSTATEMENT OF IFC's

Held and Disbursed PortfolioDec-2000

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1998 SEF BAFCO 0.77 0.00 0.00 0.00 0.77 0.00 0.00 0.001998 SEF Endeavor 0.15 0.00 0.00 0.00 0.15 0.00 0.00 (.001998 SEF Scttha 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00

Total Portfolio: 1.92 0.00 0.00 0.00 1.92 0.00 0.00 0.00

Approvals Pending Comnmiitment

FY Approval Company Loan Equity Quasi Partic2000 SEF Settha Restr 180.00 0.00 0.00 0.00

To-al Pending Commitment: 180.00 0.00 0.00 0.00

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Annex 10: Country at a GlanceLAO PEOPLE'S DEMOCRATIC REPUBLIC: Agricultural Development Project

EastPOVERTY end SOCIAL La. Asia & Low-

PDR Pacific income Delopm.ntdiamond1999!Pn,llat1ina mId-yar (ndflns) t 1 t17 7 417 Life expecian,yGNP oar canita (Atlas method. US$S 280 1.000 410CrNP fAtlas mnathd USEbfil"isnv! * 5 1 83t aRA

Average annual orowth. 1993-99

Pnftlrmlal,v /141 2 6 1 ' 1c ) P'-W'~~a /-/,) r, i 7 I NP Labor foace ) 13 2 3 GNp Gross

per primaryMost recent estimate flatest veer available. 1993.99k1 capita -sumar

Povort. 1% of oooulohion below national oovC,1o lion 4fI Irhabr nnm,/a6tirn t Of tolst oooulahonl 71 14 .1

I if. r.nacAtncv at hirth imr,rst i4 Si fit0Infant mo nlitv Joor 1.OGO fivc births) 96 35 77tCh;ld m*lr-rtritinn /1 of childron under 5) 40 492 Si Arcess to safe wateAccoss to emoroved water scurce 1% of DoDulalon) 39 R4 64tllit.rr." '% of oooulation soe foS SA I5 3$iimoxYner,marv snrrnllrnsnt 114 of vchaol.soe sonatallonl 117 lit 4f' LaoPDR

Mete 123 121 102 LovnrornegroopPrrmaln 101 171 AR

KEY ECONOMIC RATIOS end LONG-TERM TRENDS

1979 1989 1998 1999Economoic ratioss

GOP 6USS billions) 0.71 1 3 1 4

Crns- d-mIstes inv-enmen'lGno 24 5F nnfrte of norts rand rvrrllG1t 1 37 Traderrns. erentic 5an,Ot.t3P 23 7Crnos nat.nnrl save,nOGfP?. 26 sT

Current account balance(GOP -19.9 -R.7 . omesbXW-r0rt m,etr nrnJCilPn InvestmIent

TOal debtjGOP 206. 193.2 SavingsTntl dantr servinelrAunnrs 70 A 66 ProserrI value of debt/GDP 89Presnnt v.le. of deb1lo-nOrt 236 A

Indebtedness1979-89 19SS-99 1993 1999 1999-03

lrwraoon annual orowthrlGOP 29 6.3 40 4.0 LaoPORGNP . 1 4 1 .Lowineoma; oro1Fxoorts of ocods and servics W

STRUCTURE of the ECONOMY

1979 1989 1998 1999 Growth rates of output and invostmsnt (%)(It of GDP)Aariculture 60.6 52.6lndritrv 13.4 22.0

Manufactu,rno 9 3 16.75nn4ner^ 7 6 n 75 J4

Private consumbtion - ' 71.5 t 'as 96 97 s8 99Genrral onve-ement -nonurmntinn r 1Imonrts of ooods and services 32 0 4.9

1979-.9 1989-99 199f 1999taosraoe annual an7wthlAoriculture 2.7 4.6 3.7ndrl-trv 3.5 17 2 b 6

Menrrfa.otrinn 6.5 13 7 0 7Services 3.1 6.9 1.0

Private r.nns,,mninGeneral oovernment consumotio'rGrnos dn-retI r in"rtementImports of ooods and servicesG-n ns-t, -. tat nrnr,rcn 63 4 0 4 0

Note: 1999 data are preliminary e3timates.Thi.s raIn was enrnollrd - ror- the Oovelonment Frosemirs central fdt-th.s.

The d hamsrds srwt four k6v indinatnrs in the rm,ntrv (in hnlrll nmnarend with itk anrnm,P-nr,,n mversee If data arn rnissina the diamond will

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Lao PDR

PRICES and GOVERNMENT FINANCE1979 1989 1998 1999 Inflabon

Domestic prices(% change) SD TConsumer prices 91.0 . t

Implicit GDP deflator 55.1 84.0 125.4

Government finance(%/i of GOP, includes current grants)Currentrevenue 8.5 15.0 94 95 96 97 se 99

Current budget balance 7.8 - GQP deataor CPIOverall surplus/deficit

TRADE1979 1989 1998 1999 IExport and import levels (US$ millGons)

(USS 7million) 1Total exports (fob) 337 - iso -

Wood products 115Agriculture 8 ro + Manufactures 80

Tolal imports (cf) 553_Food i250 J _ JFuel and energy 124Capital goods -- 165

Exoort ,rice index H1995=100) .. ..immoor or ce incdex (199gS=1001 a Epel a Inn,pornsTerms of trade (1995=100.

BALANCE of PAYMENTS

(IJS$ nmillionsi 1979 1989 1998 1999 Current account balance to GDP ratio ()

Exports of goocs and services 86 467 - oImports of goods and services 227 612Resource balance -141 -145 -

Net income -2 -36Net current transfers 72 t_0Current acrount balance -135 -110

Financing items (not) 112 92 -Changes in net reserves 1 23 18 -- 0 -

Memo:Reserves includina oold fUSS mijlionsl 1 117Conversion rste (DEC. tacayUSS) 5.7 583.0 3.298.3 7.102.0

EXTERNAL DEBT and RESOURCE FLOWS1979 1989 1998 1999

rUSS Ritiionsl Composition of total debt, 1998 (USS millions)Total debt outstanding and disbursed 308 1.473 2,437

IBRD 0 0 0 8.31IDA 0 92 395 _ B 3ss

Total debtservce 13 18 31IBRO 0 0 0 C.62IDA 0 1 4

Composibon of net resource flows 0Official grants 29 40 118 E 1.420Official creditors 43 172 78 _ _ o 5s9Pnvate crreditors D 0 0Foreign direct investment D 4 46Portfolio equity 0 0 0

World Bank programCommitments 10 43 63 A -tIBRO E- BilateraDisbursements 0 35 25 B - IDA 0 - Other multiteral F - PitePrinrpal repayments D 0 1 r - r c Net flows 0 35 24Interest payments 0 1 3Net transfems 0 35 21

Note: This table was produced from the Development Economnics central database, 8117100- 74 -

IBRD 31444

1000 102' 104° * - 100: 105° 110°

,* ~~~~~~~~~~ ~~CHINACHINA -. , *s $ N.

v -\J ~ ~ ~~XLAO,--\L.PEOPLE'S) i GUlf -7DEM. REP. / of

Vien N \

~~~~~~~19 /~~~~~~~~ THAILAND \Ph saly ' VIETNAM IsV Ir

PH OVGSALY If & ' -..MYANMAR *-' E I . CAMBODIA .

It BOKEO T Man Sam o

Ko,ng -t16-200 /g _ , P

SAa XING

THAILAND ( Vn TnONKIN t . t rVINTIAN 2XObU W .

AGRICULTURE DEVELOPMENT PROJECT , -, ,

PROJECrPRv7NCESHKng Naoo _ *\.

- PRINCIPAL HIGHWAYS SVnAh >

-16° 2T BORDER CROSSINGS b Wapy Districts\ gr_1-

t ~~~AnROT alengno iii 2~v

O SELECTED TOWNS O 47a

O PROVINCE HEADQUARTERS PROJECT PROVINCE/DISTICTS

*a NATIONAL CAPTALS a.CahampsakPoine <

- - PROVINCEBOUNDARIES b. B achian 6PRINTERNATIONAL BOUNDARIES c. So somboon

01 50 100 1510 Klorneters f hnogii^.

I HIGHWAYS PROJECT PROVINCE/DISTRICTS jms:J *. 0 O25 50E 7 100Mile Scrven Pro puPrvnc .- < Lnre .

16- ab Wapy) Distri 6. 16maxai

~14 j c. Xaysetha Lo Distric100 / 104a CAMBODIAe

PROMNCE BOUNDARIES b. Bachion~~~~~~~~~~~~~~~~~MY 00