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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 22.8 MILLION (US$35 MILLION EQUIVALENT) TO THE REPUBLIC OF RWANDA FOR A Report No: RW LAND HUSBANDRY, WATER HARVESTING AND HILLSIDE IRRIGATION PROJECT November 22, 2013 Agriculture, Rural Development and Irrigation (AFTA2) Sustainable Development Department Africa Country Department (AFCE2) Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective - October 31, 2013) Currency Unit = Rwanda Franc (RWF) RWF 661 = US$1 US$ = SDR 1 FISCAL YEAR July 1 30 ABBREVIATIONS AND ACRONYMS AfDB AFR AFTAI ASWG BNR BP CAADP CAS CIDA DA DFID DIF DIME DOL DPs DRC EA EDPRS EDPRSII EFA EIA EMP EOI EOPT ERR ESMF FM FMS FRR GAFSP GDP GEF GIS GoR GPN GPS ha IBRD IDA African Development Bank Access to Finance Rwanda Agriculture, Rural Development and Irrigation Unit, Africa Region Agriculture Sector Working Group Banque Nationale du Rwanda (National Bank of Rwanda) Bank Procedure Comprehensive Africa Agriculture Development Programme Country Assistance Strategy Canadian International Development Agency Designated Account Department for International Development Dynamic Information Framework Development Impact Evaluation Division of Labor Development Partners Democratic Republic of Congo Environmental Assessment Economic Development and Poverty Reduction Strategy Second Economic Development and Poverty Reduction Strategy Economic and Financial Analysis Environmental Impact Assessment Environmental Management Plan Expression of Interest End of Project Target Economic Rate of Return Environmental and Social Management Framework Financial Management Financial Management Specialist Financial Rate of Return Global Agriculture and Food Security Program Gross Domestic Product Global Environment Facility Geographic Information System Government of Rwanda General Procurement Notice Global Positioning System Hectare International Bank for Reconstruction and Development International Development Association ii

3 IFAD IFR IP IPF IPSAS ISC ISM ISR JICA LWH M&E MDG MFI MINAGRI MINECOFIN MoU MTR NEPAD NGO OP ORAF PAD PDO PEFA PFI PFM PID PIM PIU PPF PSTA RALIS RAP RF RPF RSSP SACCOs SHG SOE SPIU SWAp TOR WUA International Fund for Agricultural Development Interim Financial Report Implementation Progress Investment Project Financing International Public Sector Accounting Standards Interministerial Steering Committee Implementation Support Mission Implementation Status and Results Report Japanese International Cooperation Agency Land Husbandry, Water Harvesting and Hillside Irrigation Monitoring and Evaluation Millennium Development Goal Micro Finance Institutions Ministry of Agriculture and Animal Resources Ministry of Finance and Economic Planning Memorandum of Understanding Mid Term Review New Partnership for Africa s Development Non-Governmental Organization Operational Policy Operational Risk Assessment Framework Project Appraisal Document Project Development Objective Public Expenditure and Financial Accountability Participating Financial Institution Public Financial Management Project Information Document Project Implementation Manual Project Implementation Unit Project Preparation Facility Plan Stratégique pour la Transformation Agricole (Strategic Plan for Agricultural Transformation) Rwanda Agriculture and Livestock Inspection and Certification Service Resettlement Action Plan Results Framework Resettlement Policy Framework Rural Sector Support Program Saving and Credit Cooperatives Self Help Group Statement of Expenditure Single Project Implementation Unit Sector Wide Approach Terms Of Reference Water Users Association Vice President: Country Director: Country Manager: Sector Manager: Task Team Leader/ Co-TTL: Makhtar Diop Diarietou Gaye Carolyn Turk Severin Kodderitzsch Mark A. Austin / Valens Mwumvaneza iii

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5 REPUBLIC OF RWANDA LAND HUSBANDRY, WATER HARVESTING AND HILLSIDE IRRIGATION PROJECT CONTENTS A Project Paper Data Sheet v B Project Paper I Introduction 1 II Background and Rationale for Additional Financing 2 III Proposed Changes 9 IV Appraisal Summary 10 C Annexes Annex 1: Revised Results Framework and Monitoring Indicators 14 Annex 2: Operational Risk Assessment Framework 19 Annex 3: Financial Management and Disbursements Annex 4: MAP iv

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7 REPUBLIC OF RWANDA LAND HUSBANDRY, WATER HARVESTING AND HILLSIDE IRRIGATION PROJECT ADDITIONAL FINANCING DATA SHEET Country Director: Diarietou Gaye Sector Manager/Director: Severin Kodderitzsch / Jamal Saghir Team Leader / Co-TTL: Mark A Austin / Valens Mwumvaneza Project ID: P Expected Effectiveness Date: March 19, 2014 Lending Instrument: Investment Project Financing Additional Financing Type: Scale Up Basic Information - Additional Financing (AF) Sectors: General agriculture, fishing and forestry (55%), Irrigation and drainage Themes: Rural service and infrastructure (67%), Other rural development (33%) Environmental category: B, Partial Assessment Expected Closing Date: 30, 2017 Joint IFC:N/A Joint Level: Basic Information - Original Project Project ID: P Environmental Category: B Partial Assessment Project Name: Land Husbandry, Water Harvesting Expected Closing Date: 30, 2017 and Hillside Irrigation (LWH) Project Lending Instrument: SIL Joint IFC: Joint Level: AF Project Financing Data [ ] Loan [ X] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: 40 years maturity, including a grace period of ten (10) years and a service charge equal to three-fourths of one percent (3/4 of 1%) per annum. AF Financing Plan (US$m) Source Total Project Cost: Cofinancing: Borrower: Total Bank Financing: IBRD IDA New Recommitted Total Amount (US$m) Client Information Recipient: Ministry of Finance and Economic Planning, Kigali, Rwanda Responsible Agency: Ministry of Agriculture and Animal Resources. B.P. 621 Kigali, Rwanda Contact Person: Ernest Ruzindaza Telephone No.: (250) Fax No.: (250) lwh@minagri.gov.rw AF Estimated Disbursements (Bank FY/US$m) FY Annual Cumulative Project Development Objective and Description v

8 Original Project Development Objective: The Project Development Objective (PDO) is to increase the productivity and commercialization of hillside agriculture in target areas in Rwanda. Revised Project Development Objective. There is no change to the original PDO under the proposed additional financing. Project description: The Project uses a modified watershed approach to introduce sustainable land husbandry measures for hillside agriculture on selected sites, as well as developing hillside irrigation for sub-sections of each site. The Project will have three components: Component A: Capacity Development and Institutional Strengthening for Hillside Intensification. This component aims to develop the capacity of individuals and institutions for improved hillside land husbandry, stronger agricultural value chains and expanded access to finance. Component B: Infrastructure for Hillside Intensification. This component will provide the essential hardware for hillside intensification to accompany the capacity development and institutional strengthening activities of Component A. Component C: Implementation through the Ministerial SWAp Structure. This component aims to ensure that Project activities are effectively managed within the new SWAp structure for Ministerial implementation of programs and projects at MINAGRI. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) [X]Yes [ ] No [X]Yes [ ] No [X]Yes [ ] No [X]Yes [ ] No [X]Yes [ ] No [ ]Yes [X] No [X]Yes [ ] No [X]Yes [ ] No [X]Yes [ ] No [ ]Yes [X] No Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management? [ ]Yes [X] No [ ]Yes [ ] No Financing Agreement Reference Section I.A.6 of Schedule 2 Conditions and Legal Covenants: Description of Condition/Covenant The Recipient shall for each such additional District identified during Project implementation, establish, prior to Project implementation in such District, and thereafter maintain throughout Project implementation, such District Implementation Support Team, with mandate and staffing acceptable to the Association Date Due Continuous during Implementation vi

9 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional credit in an amount of SDR 22.8 million (US$35 million) to the Republic of Rwanda for the Land Husbandry, Water Harvesting and Hillside Irrigation (LWH) Project (P114931; Credit 4674 RW). This will be the project s first additional financing. 2. The proposed Additional Financing (P147543) would help finance the costs associated with a scale-up of the impact and development effectiveness of the LWH project by (i) expanding land husbandry works beyond the original project scope (i.e., on an additional 7,000 hectare (ha) in the poorest regions of the country); and (ii) developing 500 ha of irrigation works to be carried out in selected priority areas and where feasibility studies have already been completed. The scale-up will thereby target some 15,000 additional beneficiary households in the country. 3. There is no proposed change to the Project Development Objective (PDO) which is to increase the productivity and commercialization of hillside agriculture in target areas in Rwanda. The key outcome indicators for the project remain unchanged and include: (i) increase in productivity of targeted irrigated command areas ($/ha); (ii) increase in productivity of targeted non-irrigated command areas ($/ha); and (iii) increased share in commercialized products from targeted areas. The targets will be revised to reflect the Additional Financing. The original credit amount is US$34 million with a closing date of December 31, With the proposed Additional Financing, the project s closing date will be extended from December 31, 2015 to 30, 2017 in order to effectively carry out the planned scaled-up activities. 4. The proposed Additional Financing is consistent with OP10.00 (Investment Project Financing) under which the International Development Association (IDA) may provide additional financing for Investment Lending for scaling-up the development effectiveness of a well performing project. Overall project performance of LWH has been consistently rated as satisfactory both as to the PDO and Implementation Progress (IP) for the last 24 months. Todate, 65 percent of the project s programmed 5 year activities have been implemented and 60 percent of the budget has been committed. Project management and implementation capacity have been satisfactory for the last twelve months. 5. Partnership arrangements. In addition to the original IDA financing (US$34 million), the LWP project is co-financed by other partners, including: (i) the Global Agriculture and Food Security Program (GAFSP) Grant for US$50 million, approved on April 8, 2011 and closing on December 31, 2015; (ii) United States Agency for International Development Grant of up to US$13.3 million, approved on January 17, 2012 and closing on December 31, 2014; and (iii) Canadian International Development Agency (CIDA) Grant for US$7.8 million, approved on January 17, 2012 and closing on December 31, Total combined project financing, including IDA, currently stands at US$105.1 million. 1

10 II. Background and Rationale for Additional Financing in the amount of US$35 million 6. Country and sector context: Higher agriculture productivity has been the main driver of growth and poverty reduction over the last decade ( ) 1. Although the share of agriculture in GDP decreased significantly over the past decade, agriculture remains the backbone of the Rwandan economy in terms of employment and income generation for the majority of households (73 percent). Driven by increased investments in agricultural inputs, land use consolidation and infrastructure, agricultural production at household level more than doubled during the past decade. Together with increased agriculture commercialization (as reflected in the rising share of harvests sold on local markets), the increase in agriculture production accounted for about 45 percent of the reduction in poverty which has decreased by 14 percentage points over the last decade. 7. Sustaining agriculture growth needs to take place in a sectoral context characterized by a number of challenges and opportunities, including: (i) a binding land constraint that rules out expanding land area for agriculture 2 ; (ii) small average land holdings (0.3 ha); (iii) limited water availability (uneven rainfall and ensuing variability in production) and poor agriculture water management resulting from very low levels of irrigation infrastructure capacity (just 15,000 ha irrigated agriculture nationwide); (iv) the need for greater public and private service capacity from the district to the national levels and the weak extension services for farmers; and (v) limited commercial orientation due to poor access to product and financial markets. 8. The larger government LWH program, of which the IDA project is funding selected watershed catchments, is a key element of the Government of Rwanda (GoR) Second Economic Development and Poverty Reduction Strategy (EDPRSII) which aims to address the strategic priority of raising agricultural productivity. The project is also fully aligned with the key EDPRS indicators of increasing land sustainably managed against soil erosion and raising exports. The LWH also has important poverty objectives, as it develops hillsides where the vast majority of the country s arable lands, and its farmers, are found. In terms of opportunities, the scope for improvement is high, with LWH-type activities in hillside soil protection and integrated fertility management demonstrating markedly improved yields. While land expansion is severely limited, the use of improved inputs and sustainable land husbandry techniques is far from exhausted. The growth potential for agricultural markets is high as increased integration into the East Africa Community is opening up regional markets. 9. The proposed Additional Financing will contribute to raising agricultural productivity which is critical to achieving Rwanda s vision for its structural transformation from subsistence agriculture to a knowledge-based economy as reflected in Rwanda s Vision As human and other resources are currently concentrated in the agricultural sector, their release from subsistence agriculture to support growth in other sectors is a necessary first step. 1 Rwanda Economic Update, May 2013, 4th edition, The World Bank in Rwanda. 2 Total arable land in Rwanda is slightly above 1.5 million hectare (ha) and Rwanda has the highest population density in sub-saharan Africa with 416 persons per square kilometer. In order for the sector to contribute to the Government s national strategy objectives of higher growth, reduced poverty and economic transformation, agriculture intensification is key to achieving these objectives and to containing encroachment on environmentally fragile areas under intense population pressures. 2

11 10. The Government s strategy for environmentally sound intensification of its hillsides and marshlands is articulated by the Ministry of Agriculture and Animal Resources (MINAGRI) in its Third Strategic Plan for the Transformation of Agriculture (known by its French acronym, PSTA III). The PSTA III is fully aligned with the country s long term and medium national growth strategies (Vision 2020 and EDPRSII). A National Agricultural Investment Strategy (NAIS) is being prepared by the GoR and forms the basis for second round of the Comprehensive Africa Agriculture Development Programme (CAADP) review process. Rwanda s agricultural strategy has four pillars: (i) agriculture and animal resource intensification; (ii) research, technology transfer and professionalization of farmers; (iii) value chain development and private sector investment; and (iv) institutional development and agricultural cross-cutting issues. All four of these pillars are supported by LWH. 11. The LWH program is explicitly identified in the current World Bank Country Assistance Strategy (CAS) for Rwanda ( ) which was extended to The proposed Additional Financing is fully aligned with the Strategic Theme 1 of the CAS Promoting Rwanda s Economic Transformation for Sustained Growth of which the first outcome is the improvement in agricultural production, especially food crops. The 2010 and 2013 Division of Labor (DOL) confirmed the World Bank s priority engagement in the agriculture sector. The proposed Additional Financing will capitalize on the achievements of the ongoing LWH and the World Bank supported Rural Sector Support Program (RSSP) series in increasing sustainable agriculture production and commercialization. The Additional Financing hopes to serve also as a bridge for the preparation of a larger operation in the sector within the IDA17 envelope. 12. Project Performance. Overall the project is successfully achieving its development objectives. Progress towards achieving both the PDO and IP has been consistently rated Satisfactory for the last 24 months. The updated and revised Results Framework and ORAF are attached as Annex 1 and 2 respectively. Over 60 percent of the credit and co-financing is committed, and is expected to increase to 85 percent by end of FY14. Cumulative disbursement levels are 57 percent (59 percent for IDA credit and 54 percent GAFSP Grant) and are expected to increase as implementation of irrigation construction works accelerate over the coming months. There are no outstanding financial audits and all audit reports are unqualified. Implementation of the safeguards requirements is also satisfactory. Legal covenants have been complied with. 13. LWH results to date. In LWH sites over the last three years of implementation, the key impact has been raising rural incomes, on average, from US$469/ha to US$2,357/ha for some 21,180 households totaling 92,381 beneficiaries. This was achieved by: (i) increased productivity on 8,960 ha of hillsides (68 percent of End of Project Target or EOPT) treated with comprehensive land husbandry technologies 3 ; (ii) increased crop yields through the use of better agronomic packages (seed, fertilizer, extension) 4 ; and (iii) participatory approaches for LWH works, crop selection, marketing and rural finance with all farmers under LWH grouped in farmer organizations (resulting in farmers on LWH sites having commercialized up to 74 percent 3 This includes 1,500 ha of marginal hillside land reclaimed and made productive; also sediment yield in four sites reduced by an average of 66 percent relative to the time when the land husbandry works were being constructed 4 Yield of maize, beans and Irish potato in treated areas are 30 percent, 167 percent and 219 percent, respectively, above their national average 3

12 of their production through their organizations). Hillside irrigation has been established in three sites covering some 694 ha (of which 37 percent of EOPT) and tenders for additional 732 ha of irrigation works were launched. 2.1 Proposed Development Objective(s) 14. The original Project PDO and key performance indicators under the proposed Additional Financing will not change. The PDO is to increase the productivity and commercialization of hillside agriculture in target areas in Rwanda. 2.2 Key performance Indicators: 15. Key performance indicators are presented in Annex 1 and include the following three PDO level indicators; the targets will be revised to account for the additional activities supported by the proposed Additional Financing: PDO Indicator 1: Increase in productivity of targeted irrigated command area ($/ha) PDO Indicator 2: Increase in productivity of targeted non-irrigated hillsides ($/ha) PDO Indicator 3: Increase in share of commercialized products from target areas (%) PDO Indicator 4: Project Beneficiaries (of which female beneficiaries) (Number) 16. Beneficiaries. The project direct beneficiary groups include: (i) individuals (desegregated by gender) in the following categories: (a) farmers and their household members, owning land within the project sites boundaries 5 and (b) community members (landless in the targeted sites) employed in Project land-husbandry activities or those who received other forms of capacity building 6 with both groups getting increased incomes directly or indirectly because of the Project interventions; (c) scholarship beneficiaries who were sponsored by the project to learn specific courses in Rwanda or abroad; (ii) farmer organizations in the project area such as self-help groups, cooperatives and water users associations, and Unions; and (iii) institutions that received direct support from the project such as AFR, SACCOs, MFIs, etc. and some MINAGRI departments and agencies (GIS, RALIS). 2.3 Component Description and Performance 17. There are no changes in the design of the project s three project components under the proposed Additional Financing. 18. Component A: Capacity Development and Institutional Strengthening for Hillside Intensification (proposed Additional Financing US$2 million). This component aims to develop the capacity of individuals and institutions towards improved hillside land husbandry, stronger agricultural value chains and expanded access to finance. Component A includes four sub-components: A1 Strengthening Farmer Organizations; A2 Extension; A3 Marketing and 5 They receive land husbandry and irrigation benefits, different training in intensification, infrastructure maintenance, rural finance, value chain development, social organization, and leadership, etc., 6 This capacity building includes: training on composting, rural finance, social organization and leadership etc. 4

13 Rural Finance; and A4 Capacity Development and Institutional Strengthening for MINAGRI and its Agencies. The current component performance is rated satisfactory. 19. The project has succeeded in organizing all farmers in LWH sites into over 1,000 selfhelp groups (SHGs) which are also grouped into higher level organizations at the zone level which are also federated into cooperatives. So far, 5 cooperatives have been formed in 9 LWH sites. The project has ensured effective extension services to the beneficiaries in collaboration with Ministry agencies and NGOs by providing training of trainers to all lead farmers in critical areas to boost their productivity. This includes training on crop production, integrated pest management, post-harvest and marketing. As a result, yields in LWH sites have increased by 30 percent, 167 percent and 219 percent above their national average for maize, beans and Irish potato, respectively. The project has also mainstreamed nutrition in the project areas through: (i) nutrition awareness and behavioral change training; (ii) promotion of kitchen gardens; and (iii) introduction of bio fortified crops (i.e. iron fortified beans). The project is also successful in promoting rural finance and marketing through positive collaboration with financial institutions and has achieved increased financial literacy (91 percent male and 84 percent opened their bank accounts, savings increased by 74 percent and deposits increased by 1,370 percent). The project has also piloted different financial products tailored to the agriculture sector including savings products, inventory credit and input finance which are being adopted by LWH beneficiaries across the sites. Farmers have doubled the share of commercialized products due to better organization, trainings and post-harvest infrastructure developed by the project. The GIS based dynamic information framework (DIF) 7 is used as a decision support system by the Project and is being rolled out to other MINAGRI interventions. 20. Strong ownership and engagement of farmers in land husbandry works, crop production and marketing activities is seen as critical to success of the Government s hillside intensification objectives. During the last three years, the Project Implementation Team has successfully operationalized a participatory and bottom-up approach to enhance community confidence and to build and strengthen farmer organizations. The Additional Financing would build on the success and lessons from these institutional platforms, as well as from the experience gained by the project staff and communities. Given this track record there will be no change in the project objective, components and approach, however, some fine-tuning will be implemented in terms of on-site sequence of activities and calibration of costs to ensure that there is adequate funding and technical assistance for strengthening of community institutions. 21. The community institutions, especially SHGs and lead farmers, have gained substantial capacity and knowledge, and are key assets to the project for scaling-up the program in other areas in the country. As part of the proposed Additional Financing and to ensure an efficient implementation of future activities the Project Implementation Team will: (i) develop innovative ways of tapping this community capacity in a structured way and put in place an institutional framework for providing community to community services in new areas; (ii) ensure that higher 7 Per the Project Appraisal Document of parent LWH (P114931): The project has supported the establishment and operationalization of a reliable, robust and responsive GIS based dynamic information framework (LWH-DIF). The LWH-DIF provides quantitative and geospatial baselines for land cover, land use, land quality, and hydrology for the project sites The LWH database including soil types, soil depth, soil morphogenesis, topography, hydrology, land use, land cover and is used to develop site development plans, and follow up of various activity plans. 5

14 level institutions (Zones, Cooperatives and WUAs) perform up-to their expected capacity and in a viable, inclusive and cost effective way 8 ; and (iii) expand marketing and rural financial access by developing new products from the lessons leant so far. 22. Component B: Infrastructure for Hillside Intensification (proposed Additional Financing US$30 million). The objective of this component is to provide the essential hardware for hillside intensification to complement capacity development and institutional strengthening activities under Component A. Its three sub-components are organized around the L (land), the W (water) and the H (husbandry) of LWH. Component B includes three subcomponents: B1 Land husbandry infrastructure investments support the development of participatory and comprehensive land husbandry practices throughout a sub-watershed to improve productivity for rainfed and irrigated areas; B2 Comprises water harvesting infrastructure, including valley dams and reservoirs; and B3 Hillside irrigation infrastructure, includes the development of water conveyance structures for hillside irrigation. The current component performance is rated satisfactory. 23. With a vision to develop participatory and comprehensive land husbandry to protect against soil erosion and enhance productivity and ecosystem conservation, the project has used various soil conservation measures and infrastructure appropriate to differing slope categories such as: contour bunding, green manuring, progressive and radical terracing and provision of liming and compost to correct the acidity and improve soil organic matter. To-date 8,960 ha of hillsides (68 percent of EOPT) have been treated with comprehensive land husbandry technologies including 1,500 ha of marginal hillside land reclaimed and made productive again. A further 2,646 ha land husbandry works in hillside are planned under the parent project for the current fiscal year and will be further expanded under the proposed Additional Financing. Sediment yields in four LWH sites were reduced by an average of 66 percent relative to the prior to the land husbandry works. Hillside irrigation infrastructure is being rolled out in three sites covering 694 ha (37 percent of EOPT) and tenders for additional 732 ha of irrigation works were launched. 24. The proposed Additional Financing will scale-up LWH interventions on an additional 7,000 ha across new sites, in Ngoma District, Nyamagabe District and additional sites in Districts sharing the Gishwati ecosystem. These new sites have been selected using the site selection criteria which have been developed as part of the Common Framework of Engagement developed by the GoR and LWH financiers for the larger LWH program. The criteria includes: (i) social criteria such as social impact and number of beneficiaries; (ii) economic criteria including rate of return and access to markets; and (iii) technical and environmental criteria such as water harvesting potential and findings of environmental assessment. Priority is given to areas experiencing a high incidence of poverty as well as high severity (or risk) of ecosystem degradation, including drought prone areas. 25. In addition to the hillside treatment of additional 7,000 ha, the Additional Financing would also assist the project to scale-up the water harvesting and irrigation infrastructure to additional areas with high potential and significant poverty reduction impact. Approximately Strong higher level institutions would help the project in managing community engagement and ownership on a longer-term basis, and in increasing the productivity and commercialization of agriculture. 6

15 ha command area would be targeted for development. Feasibility and design studies are currently being conducted for 4 new sites with tender documents ready for bid in the first half of While the exact type, shape and size of the water harvesting and irrigation infrastructure is not yet known, gravity systems with pressurized secondary pipes that allow later conversion to drip or sprinkler irrigation if required will be explored. In line with the project current approach, hardware investments would be accompanied by training and capacity building for water user associations as well as by engaging service providers for initial operation and maintenance of primary infrastructure. In order to further strengthen the Single Project Implementation Unit (SPIU) implementation capacity, an additional experienced civil engineer (local) would be hired. 26. A portion of the Additional Financing would also be used to conduct a technical audit of existing and operational dams in Rwanda. The objective would be for each structure to: (i) determine water delivery performance and operation and maintenance arrangements; (ii) detect any structural or non-structural deficit and provide recommendations for remedy; (iii) accurately measure remaining storage volumes and determine actual siltation rates; and (iv) provide additional hydrological information to analyze existing design assumptions and determine adherence to the May 2012 Small Dams Guidelines for Rwanda. This assignment will provide important guidance for further improving and safeguarding existing and future dam infrastructure. 27. Component C: Implementation through the Ministerial SWAp Structure (proposed Additional Financing US$3 million). This component aims to ensure that project activities are effectively managed within the SWAp structure for Ministerial implementation of programs and projects at MINAGRI. This structure comprises four large SPIUs which coordinates all donor funded programs supporting the Ministry s strategy. The SPIU which coordinates all World Bank funded projects in MINAGRI has been effectively in place for the last two years and was a result of a gradual merger of the former Rural Sector Support Project (RSSP) and LWH PIUs. An inter-ministerial steering committee (ISC) oversees project implementation and provides strategic orientation and guidance to the SPIU. The ISC meets on quarterly basis and is chaired by the Permanent Secretary of MINAGRI. For the proposed Additional Financing, as for the parent LWH and RSSP3 projects, implementation happens at the National and District levels. The National level coordinates and has strong technical teams while the District level comprises of technical implementation teams which coordinates both project activities on sites within one or across two adjacent districts. So far 11 teams are in place in the following Districts: Rwamagana, Kayonza, Nyagatare, Gatsibo, Nyanza, Huye, Karongi, Nyamasheke, Rusizi, Rulindo and Gicumbi. Current project management of the SPIU is rated satisfactory. 28. Financial Management (FM). The project s FM performance is currently rated as satisfactory and FM arrangements are assessed as adequate. The overall FM risk is low. The project is in full compliance with the financial reporting and the Interim Financial Reports (IFRs) and annual audit reports are submitted to IDA within the stipulated deadlines and are assessed as being in form and content satisfactory to the Association. All audits are current. The existing team and current arrangements are sufficient to properly handle these Additional Financing resources. All FM arrangements remain the same with the Additional Financing. 7

16 29. Procurement. The Project s procurement performance is rated as satisfactory in terms of execution of the approved procurement plan for FY 2012/2013 (July ) and cumulative procurement activities undertaken since project effectiveness. Procurement arrangements will remain the same under the proposed Additional Financing. The procurement unit is well staffed to handle the existing portfolio and the additional resources. Currently, the unit has 7 procurement experts including the head of procurement unit. 30. Monitoring and Evaluation (M&E). The current M&E arrangement of the SPIU is satisfactory with a core M&E team at the national level and in all Districts where both LWH and RSSP activities are carried out. The team is implementing a unified M&E system for both Projects which integrate farmers at the different levels of their organizations structures, from SHGs to the cooperative level. 31. Safeguards. All safeguard policies will remain the same with the proposed Additional Financing. As with the parent project, the Additional Financing will trigger: OP/BP 4.01 on Environmental Assessment; Natural Habitats (OP/BP 4.04); Pest Management (OP/BP 4.09); Physical Cultural Resources (OP/BP 4.11); Involuntary Resettlement (OP/BP 4.12); Forests (OP/BP 4.36); Safety of Dams (OP/BP 4.37) and Projects on International Waterways (OP/BP 7.50). LWH is rated as environmental assessment Category B. No additional new safeguards will be triggered. 32. When the original project was prepared, an Environmental and Social Management Framework (ESMF), Environmental Impact Assessment (EIA), Environmental Management Plans (EMPs) for three of the sub-projects, dam safety guidelines, and a Resettlement Policy Framework (RPF) and a Pest Management Plan (PMP) were prepared, consulted upon, and disclosed in-country and at the InfoShop in August and September of 2009 respectively. The ESMF, RPF, and PMP have been updated and re-disclosed in country and at the InfoShop on October 16, Since the project has been approved, an EMP, several Process Frameworks, and several Resettlement Action Plans (RAPs) have also been prepared, consulted upon, and disclosed; in addition, the dam safety guidelines have been updated and disclosed (in 2012). Overall safeguard compliance has been satisfactory, based on regular review of progress reports and project site visits. Income restoration and resettlement/compensation activities are ongoing and development and implementation of Process Frameworks and RAPs are on schedule, following the availability of individual site designs. The last Implementation Support Mission confirmed that environmental management of the project works implemented to date is in compliance with the World Bank safeguards policies. The safeguards team is adequately staffed with an environmental specialist and two social specialists. Safeguards staff in the SPIU is engaged with the communities at the project sites to ensure the Project-Affected People (PAPs) are adequately consulted and their views are incorporated into sub project design. The project has also established an effective grievance redress mechanism in each District where the project activities are implemented. Public disclosure of safeguards documents is carried out in a timely manner prior to commencement of works for each site. 33. When the original project was appraised, in accordance with OP 7.50, a Riparian Notification for the LWH program was prepared, cleared and issued on August 10, 2009 by the World Bank on behalf of the Government of Rwanda to all riparian countries and positive 8

17 responses were obtained. As part of the preparation for this Additional Financing given that: (a) this additional financing is indeed limited to the components of which the other riparians had already been notified; (b) the additional activities to be financed out of the Additional Credit: (i) will not adversely change the quality or quantity of water flows to the other riparians; and (ii) will not be adversely affected by the other riparians' possible water use; and (c) the relatively modest increase by 500 ha in the command area for the irrigation activities, confirmation was obtained that there is no need for a new or supplemental riparian notification in accordance with paragraphs 7 and 8 of OP Implementation Arrangements 34. The implementation arrangements under the Additional Financing will remain the same as for the parent LWH and RSSP3 projects in one SPIU. The SPIU which coordinates all World Bank funded projects in MINAGRI has been effectively in place for the last two years and was a result of a gradual merger of the former RSSP and LWH PIUs. Implementation takes place at the National and the District levels. The National level coordinates the administration and is composed of a strong technical team while the District level comprises of technical implementation teams which coordinates project activities at different sites within one or two adjacent districts. The National level is sufficiently staffed and at the District level staff from existing sites will be complemented by recruitment of a few subject matter specialists and a redeployment of staff from sites where the project activities are coming to an end. III. Proposed Changes 35. Extension of project closing date: It is proposed to extend the project current closing date by 18 months from December 31, 2015 to 30, 2017, to allow for completion of the expanded program. This will be the second extension of the project closing date. Implementation of activities funded under the proposed additional financing will hence take place within an extended period of 3 years. 36. Revised Results Framework: Together with the extension of the parent project closing date and the additional resources, the Results Framework for the overall LWH program has been revised to take into account the increased number of beneficiaries envisaged and to establish upward targets given the increased implementation period (see Table A). These new targets have been jointly set by the World Bank team and the SPIU. A revised Results Framework is presented in Annex 1. Table A: Project outcome indicators Indicator 1. Productivity of target irrigated command area ($/ha) 2. Productivity of targeted non-irrigated hillside ($/ha) Original target Changes with Restructuring (2013) Changes with AF Revised target 1,700 2, ,800 1,400 2, ,500 9

18 Table B: Costs by component Component Component A: Capacity Development and Institutional Strengthening for Hillside Intensification Component B: Infrastructure for Hillside Intensification Component C: Implementation through the Ministerial SWAp Structure Original cost (IDA) (US$ million) Changes with Restructuring (US$ million) Changes with AF (US$ million) Revised cost (US$ million) Total IV. Appraisal Summary 37. The proposed Additional Financing would help finance the costs associated with a scaleup of activities to enhance the impact and developmental effectiveness of the LWH Project by:(i) expanding land husbandry works beyond the original LWH Project scope, i.e. on an additional 7,000 ha in the poorest regions of the country and on hillsides which have fragile or degraded ecosystems, as both are key priorities for GoR; and (ii) developing 500 ha of irrigation works to be carried out in selected priority areas. 38. Economic and Financial Analysis (EFA). Activities financed through the LWH are expected to generate four broad categories of benefits: (i) on-site private benefits within the project area coming from direct income increase, avoidance of yield or income loss without project, food security, risk reduction, increased employment, and securing long-term income opportunities; (ii) downstream public benefits in the form of externalities such as sediment load reduction and its associated cost savings from avoiding sediment load removal costs and from reduction of irrigation capital costs; and (iii) global public benefits in the form of carbon sequestration. From the point of view of the economic and financial analysis, the three project components represent one integrated package and cannot be treated separately. Resettlement costs, environmental safeguards and soil erosion control measures are included in the project costs, which are an integral part of the irrigation investment. Both economic and financial analyses used the same financial prices as economic prices for tradable goods, since there are no major policy distortions affecting the prices of inputs and outputs. The overall EFA of LWH shows strong economic and financial profitability. The original credit undertook analysis based on data from six potential sites (four of which were subsequently chosen as preliminary sites), which resulted in an Economic Rate of Return (ERR) of 29 percent (see LWH PAD, Annex 9). Furthermore, LWH interventions show strong economic and financial profitability in all the scenarios estimated despite explicit consideration of pessimistic scenarios. 39. A 2013 sensitivity analysis and update to the original EFA was carried out to test the robustness of the estimates and sensitivity of the findings to changes in assumptions and key variables. A projection of reduction of yield increases by half of what was originally used in the 10

19 estimation above, reduction of farm-gate prices of high-value crops or traditional crops by 20 percent, and reduction of the increased value of livestock production by 25 percent from what was originally used in the estimation above, the Financial Rate of Return (FRR) and ERR from the LWH Project are still very high compared to 12-percent cost of capital. Despite having higher FRR and ERR due to inclusion of more quantifiable benefits and costs, the results of this analysis are consistent with the Government s original EFA for the larger LWH Program, which used a series of sensitivity analyses adopting higher financing/loan requirements, higher maintenance costs, higher and lower yield increases, decrease in output prices, other crops to be planted in the irrigated and non-irrigated lands, and even an assumed shadow exchange rate. Thus, estimates are robust and sufficient evidence shows high financial and economic viability of LWH project and of the larger LWH Program. 40. The program is expected to increase the productivity of the targeted irrigated command area, the targeted non-irrigated hillsides, and increase the share of commercialized products from the targeted areas. The Additional Financing will scale up the coverage by adding some 7,000 ha to the targeted areas under land husbandry and 500 ha under irrigation. This will result in an additional 15,000 households benefitting from the program (see the revised Results Framework in Annex 1). 41. Technical Analysis. The design of the land husbandry, water harvesting and hillside irrigation technical activities of the project was informed by the findings of early studies conducted by international and local expert consultants. They include hydrological, topographical, agro-climatic and agronomic assessments for hillside intensification; conceptual design studies summarized in the Government s LWH Program Proposal; detailed site feasibility studies for a number of existing and potential LWH sites; detailed watershed design studies; detailed dam and irrigation infrastructure design studies; Environmental Impact Assessments (EIAs) on a number of sites; and socio-economic surveys, site specific baseline studies, ongoing Development Impact Evaluation (DIME) impact assessment on specific sub components. These studies enabled the project to make concrete activity proposals and provide important baseline information. 42. The final project design reflects the technical recommendation of the need for a balanced hardware and software approach and the need to focus on marketing considerations. The transformational nature of the land husbandry and irrigation activities being promoted called for a more holistic approach involving extensive participatory processes, strong capacity building, as well as a value chain approach explicitly considering access to finance and marketing issues. The results of the LWH horticultural study, and regional marketing potential studies (DRC, and Juba/ South Soudan) provided very clear guidance on the priority of on-farm and post-harvest investments both software and hardware that would be required for getting goods to markets. 43. Financial Management. The review of the fiduciary aspects of LWH is based on an assessment carried out in January 2013 (MTR) and July 2013 (latest Implementation Support Mission (ISM)), which rates financial management progress as satisfactory and risk as low. GoR has complied with all legal covenants currently due, and all audits were carried out on time and are unqualified. LWH has submitted on a regular basis satisfactory unaudited IFRs. The audit terms of reference will be amended to include in its scope the audit of financial transactions for the proposed Additional Financing and any other sources of funding for the LWH program, which would be included in an integrated financial statement for all sources of finance. 11

20 44. The funds flow arrangements for the Additional Financing will use the existing financial management arrangements for the current IDA credit, as per the original project appraisal document, although there would be a new disbursement letter for this Additional Financing. The additional funds will be deposited into the existing LWH pooled Account. The IFR and audit arrangements build on the foundation of the original project. 45. Procurement: The procurement performance is rated satisfactory. A key procurement risk to the operation is the lack of market competition in the construction sector and weak local construction capacity for the extensive works under LWH. To increase competition, the following action has been taken: advertising not only in Development Gateway Market/United Nations Development Business (dgmarket/undb) but also in the East African press, and informing Kigali based embassies of upcoming tenders. 46. The Financing Agreement contains the most recent procurement guidelines: Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers published by the Bank in January 2011 and Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers published by the Bank in January 2011, which would also apply to this credit. One additional eligible expenditure (Non Consultant Services) is added to the Financing Agreement to cater for any eventuality. A draft procurement plan has been prepared for this Additional Financing, and is being reviewed by the Association. It was also agreed that the procurement plan is subject to disclosure pursuant to the World Bank policy on Access to Information. The Financing Agreement also includes the Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 15, 2006 and revised in January Environment and Social Safeguards. No new safeguards policies are triggered and no changes in environmental category of the project are required. The existing safeguards documents apply to this Additional Financing. Additional EMPs and/or RAPs will be prepared as and when necessary during project implementation. The recent MTR and last ISM found overall safeguard compliance fully satisfactory. The GoR has hired a consultant to create a baseline data bank on water quality, which helps the project monitor water quality in the project sites and take timely corrective water management measures as necessary. A Dam Safety Panel of Experts is in place since late EMPs as well as environmental assessments of future sites prior to detailed dam studies for the dams will be undertaken by a separate entity from the one undertaking detailed design work. 48. Risks. The project received a moderate overall risk rating at appraisal. The team has updated the risk matrix (see Annex 2). Overall risk is rated Moderate, with the following key issues: LWH scale-up involves simultaneous implementation of an increased number of watershed catchment sites; simultaneous management of large contracts may pose a challenge and at the same time contracting capacity for civil works as well as extension capacity for cooperative and farmer empowerment is overstretched. Actions to mitigate these risks such as reaching regional contractors and service providers, and changing the tendering procedures to enhance competition can be found in the ORAF (see Annex 2). The program triggers environmental and social safeguards, which require capacity to manage correctly. The project implementation team has a positive track record in 12