Following is the text of an Operations Evaluation
Department Memorandum To World Bank Executive Directors on Sardar
Sarovar Dam and Power Project.
MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT
THE WORLD BANK
Washington, D.C. 20433
Office of Director-General
March 29, 1995
Subject: Project Completion Report on India - Narmada River Development
(Gujarat) Sardar Sarovar Dam and Power Project (Credit 1552-IN/Loan
1. Attached are Parts I and II of the Project Completion Report
on the Sardar Sarovar Dam and Power Project (SSDPP Credit 1552-In/Loan
2497-IN). Part I was prepared by the South Asia Regional Office.
Part II was contributed by the Borrower who, supporting most of
the analysis in Part I, disagreed with some of its interpretations
and conclusions. Supporting annexes and Part III (228 additional
pages) are not included but are available on request. The PCR
should be read in conjunction with the PCR on the parallel Water
Delivery and Drainage Project (Credit 1553-IN).
2. The SSDPP and the Water Delivery and Drainage Project were
part (the first phase) of the Narmada River Development Plan,
which aimed to harness the Narmada River through a series of dams
and associated investments for irrigation, energy and domestic
/municipality/industry (DMI) benefits in three states - Gujarat,
Maharashtra and Madhya Pradesh. SSDPP was approved in March 1985
and was due to close in June 1995. From 1989, many national and
international non-governmental organizations expressed serious
concern regarding unsatisfactory arrangements for the resettlement
and rehabilitation (R&R) of the project affected families
(PAFs) displaced by the project as well as for the project's broad
environmental implications. The President of the Bank commissioned
an independent review (IR) of the project in September 1991. The
ensuing report in June 1992 was critical of the Bank's and the
Borrower's performance, especially with respect to R&R and
environmental planning. The IR pointed out that the Bank had not
followed its own guidelines, and recommended that the Bank "step
back" from the project rather than continue with financing
of its planned implementation. Following a review mission by the
Bank in July 1992, Management endorsed most of the IR findings,
but considered that the most promising course of action would
be to take advantage of Government of India (GOI) agreement to
link progress of dam construction to associated R&R requirements.
In October 1993, Management presented for the Board's approval
a GOI action plan which would address the issues raised in the
IR. The Board endorsed the plan which included a commitment by
Management to suspend disbursements if the GOI failed to meet
specific performance benchmarks by March 31, 1993. However, progress
was uneven and on March 29, 1993, GOI requested the Bank to cancel
the remaining Loan amount (US $181.5 million of US $200 million).
The IDA Credit (US $133.3 million) has been fully utilized by
September 1992. At the same time, the Executive Director representing
India reaffirmed GOI's continued commitment to complete the project
and to meet agreed R&R and environmental standards. Performance
under the action plan, as reported by GOI in August 1993 and in
subsequent communications, indicates that significant progress
has been made in meeting benchmarks but that important R&R
requirements have not yet been met (mostly due to difficulties
in Maharashtra and Madhya Pradesh). The project implementation
schedule, revised in 1989, is unlikely to be met.
3. The basic rationale for the project is sound. The arrangements
for basic development of the largest unexploited water resource
in India, involving three riparian states, had evolved over a
10-year period through submissions to the Narmada Water Disputes
Tribunal (NWDT) of GOI. The comprehensive basin development and
management plan that resulted, with its binding inter-state agreements
for water allocation and institutional and financial arrangements
for program execution, was a substantial achievement. The scheme
promises to make an important hydroelectric energy contribution
to India's western grid and to provide water for irrigation and
DMI consumption to about 30 million people in the severely drought-
prone state of Gujarat, where a wide array of endemic diseases
is traceable to malnutrition and unsafe domestic water supply.
4. Although delayed and incomplete, the project has made substantial
progress in terms of civil works, not only in quantity of construction
but also in the quality of work; achievements are described in
detail in the PCR. A slow start-up associated with delayed GOI
environmental and forestry clearances and the need to import and
mobilize major construction equipment led to a revised construction
schedule in 1989 with a completion date of 1998.
5. Positive aspects of physical implementation have been overshadowed
by major deficiencies in planning and management of R&R and
environmental impact analysis. In brief, the Bank did not follow
its own R&R guidelines (OMS 2.33 of 1980 and OMS 2.34 of 1982)
designed to ensure appropriate treatment of landed and landless
PAFs. The NWDT agreement had obliged Gujarat to pay to Madhya
Pradesh and Maharashtra all costs of R&R for oustees (persons
cultivating, residing or working in the submerged area), with
replacement agricultural land being provided for "landed"
oustee families. An R&R plan was prepared and approved at
negotiations but it did not meet the requirements of existing
Bank guidelines. Insufficient attention was afforded to R&R
in 1989, and progress picked up arrangements. A Bank mission provided
increased attention to R&R in 1989, and progress picked up
after 1990, with further advances after the IR was issued in 1992.
Approximately 41,000 oustee families were identified against 10,700
in the SAR which did not have the benefit of adjusted surveys
and had excluded certain categories of oustees (adult sons, landless
and encroachers). However, substantial obstacles still remain.
While Maharashtra has recently adopted satisfactory policies,
implementation problems persist in that about half of the oustee
villages refuse to cooperate to allow final definition of numbers
and R&R arrangements. In Madhya Pradesh, the rehabilitation
grant to landless families and adult sons is less attractive than
in the other states and implementation capacity is weak. An earlier
assumption that most PAF's from this state would move to Gujarat
is now in question, possibly obliging considerable additional
land procurement, a process which has been cumbersome in the past.
NGOs have been usefully involved in the Gujarat R&R program,
but in the other states confrontation continues between authorities
and some local NGOs. The persistence of difficulties is likely
to affect the pace at which the infrastructure program (and subsequent
reservoir filling) can proceed).
6. The Bank did not follow its own environmental guidelines which
cam into existence before the final appraisal mission in August
1984 (OMS 2.36 of May 1984). This OMS required environmental impact
studies to have been done and an evaluation made at appraisal
of measures to be taken to avoid or mitigate serious environmental
risks. The SAR included a brief description of the anticipated
environmental consequences, and indicated that a work program
for assessing and managing fisheries, forestry, wildlife, and
public health effects would be undertaken and submitted to the
Bank for its approval. Project costs did not appear to specifically
include any environmental program except as a training component
and as a watershed management study, and environmental measures
were not financed under the loan/credit. The Board approved the
project in March 1985 with legal documents requiring the Environmental
Work Plan to be submitted for Bank approval by December 1985.
The formal GOI forestry clearance had not been obtained at that
time. The forestry clearance was obtained only in September 1987
and an environmental clearance (which became necessary by a GOI
1986 Conservation Act) was obtained in June 1987; both clearances
were given subject to a number of important conditions in view
of the unavailability of appropriate plans. Deadlines in 1985
and 1989 for completion of the Environmental Work Plan were allowed
to lapse and ultimately the Plan was submitted in August 1993
following severe criticism in the IR of 1992 and subsequent studies
by ODA-funded consultants.
7. Following the IR, the Borrower made significant efforts on
a number of environmental fronts. The compensatory forestry program
has progressed, catchment area treatment is underway, and plans
for preserving cultural sites and protecting wildlife are in various
stages of implementation. After a long delay, each of the states
has carried out in-depth baseline health surveys in the project
area and set up health care facilities for resettled and permanent
populations; state programs for malaria control have been strengthened,
although staffing and funding of these operations is not yet satisfactory.
Prompted by the IR, consultants reexamined the projected sedimentation
rate in the Sardar Sarovar Reservoir. This study confirmed that
sedimentation would be greater than originally calculated, but
that it would not be a major problem for the combined Sardar Sarovar
and Narmada Sagar complex. Concerns about the impact on the estuary
downstream of the dam were investigated by the ODA-funded consultants
in 1993. This indicated that changed flow patterns are likely
to affect the spawning of hilsa, but further work is needed to
determine the significance of hilsa in marine catches by fishermen;
a local institute continues to work on this matter. Continued
implementation of the Environmental Work Plan, vigilance in monitoring
and responding to fisheries and socioeconomic developments in
estuarine areas, and increased support for the health program
could yet help avoid significant detrimental effects.
8. The PCR reestimates the economic rate of return (ERR) on the
projects' irrigation, power and DMI water investments to be 12
percent, compared with 13 percent in the SAR. The analysis includes
the costs and benefits of Gujarat Water Delivery and Drainage
Project as an integral part of the first phase in the basin development
as in the SAR. It also includes environmental costs and benefits
and R&R costs which were not adequately covered in the SAR,
adjustments for actual construction costs and updated future costs,
a share of the costs of upstream Narmada Sagar Dam which is required
to enable regulation of water for irrigation and power generation
up to the quantities projected (but with an assumed 5-year delay
in construction and consequent reduced power generation), a higher
(more realistic) value for DMI water delivery, and an assumption
that some irrigation and (very minor) energy benefits would commence
in 1995. However, despite the approximate adherence to the 1989
construction schedule so far, further delays of at least two years
in both the irrigation and energy generation schedules are likely.
The pace of construction must be adjusted to progress in the R&R
program which has encountered persistent difficulties (para. 5).
Floods in 1994 damaged the stilling basin which will need major
reconstruction. There are uncertainties in financing arrangements
for the overall development and for the foreign exchange purchase
of turbine generators for the riverbed powerhouse (after the cancellation
of an OECF loan by the Government of Japan). Gujarat and Madhya
Pradesh have not yet agreed on the invert level for the irrigation
bypass tunnel (lowering it would benefit Gujarat's diversions,
particularly in drought years, but at the expense of Madhya Pradesh's
rights), which has delayed initiation of tunnel construction.
This has meant that the base case ERR scenario prepared for the
PCR is already out of date. Sensitivity analysis shows that a
delay of four years in the commissioning of the riverbed powerhouse
would reduce the ERR by a further one percent, and some other
delay scenarios continue to provide a return in excess of 10 percent
(see attached sheet). The stability of the ERR projections in
the PCR scenarios is due to the multi-purpose nature of the investment
and to benefit delays being associated with investment cost delays.
Nevertheless, the robustness of the ERR calculations is clouded
by many uncertainties.
9. The PCR is based on a hydrological model which a team of experts
recently appointed by the GOI has not endorsed in full (see Memorandum
on the Water Delivery and Drainage Project). PCR scenarios do
not examine the economic implications of a failure to construct
the complementary Narmada Sagar Dam. This dam is an integral part
of the basic development package agreed by the three states, and
the construction contract has already been let (May 1992), but
the fiscal implications of its development are substantial and
its resettlement dimensions even larger than those of Sardar Sarovar.
Delays in the completion of Narmada Sagar due to financing and/or
R&R difficulties cannot be ruled out. To examine the implications
of the omission of Narmada Sagar Dam, a new water modelling exercise
would have to be undertaken in which the alternative of a series
of upstream smaller dams to complement the Sardar Sarovar investment
would have to be considered; major changes could be expected in
the amount of water available for energy and for the command area
in Gujarat which would, of course, influence the scale of the
water distribution investment which could be made in that area.
In the absence of such a model, the PCR uses a proxy to reflect
the implications of extended delays in the completion of Narmada
Sagar - 25 percent reduction in power and 20 percent reduction
in irrigation benefits throughout the project life. Consequently,
while the alternative scenarios appear to confirm the economic
viability of the overall investment, uncertainty remains concerning
the hydrological assumptions and the scale and sequencing of project
10. Institutional improvements were substantial in some areas
of the project but weak in others. Overall, the institutional
development impact is rated as modest. Certainly, advances in
engineering design and construction quality control were significant,
and an effective management information system to monitor the
civil work component was established and is being expanded to
financial and administrative aspects. Good progress has been made
in operation and maintenance (O&M) plans, although these will
need to be updated when the remote control and monitoring system
for the operation of the main canal is available (the consultancy
contract had not been signed at Loan cancellation, and bilateral
technical assistance is being sought) and there is no evidence
of institutional development in terms of formation of local irrigation
groups or of providing such groups with financial autonomy. While
the planning and implementation capacity of R&R has been improved,
implementation still needs fundamental improvement in Maharashtra
and Madhya Pradesh, and health services continue to be affected
by inadequate funding and staffing.
11. Bank appraisal and supervision performance has been unsatisfactory.
Adherence to the Bank's guidelines could have avoided many of
the negative consequences of the project - social unrest, diversion
of resources (by GOI and the Bank) to address the consequences
of inadequate early attention to environmental and R&R requirements
(especially in PAF consultation), delayed benefits, and funding
difficulties including the cancellation of the Bank and OECF loans.
As a development investment, however, the project outcome is rated
as marginally satisfactory based on PCR assumptions. This rating
is affected by more than the usual uncertainties. It assumes that
the hydrological parameters of the project will be fully funded
and the complementary Narmada Sagar dam constructed. On this basis,
the ERR is likely to be in excess of 10 percent. The substantial
benefits to be obtained from this major investment of over US$1.5
billion through energy generation and DMI distribution, as well
likely irrigation benefits in the command area (see Memorandum
on the Water Delivery and Drainage project), should be sufficient
to outweigh the significant negative aspects of the projects and
to compensate for all resettlement costs based on Bank guidelines.
It is emphasized, however, that the likely outcome is less favorable
than anticipated at appraisal, and has been affected by many avoidable
social costs and deficiencies, especially in the areas of resettlement
and of environmental planning, on both of which decisive action
is still pending.
12. The sustainability of the project achievements is rated as
uncertain. The project has adhered to high construction standards
and the institutional capability in this regard is now well established.
But much will depend on effective O&M for which India does
not have a good track record. Action is needed to staff, equip
and train an appropriate O&M unit in advance of the dam and
power complex operation. The hydrometerological monitoring network
which is needed for dam safety, flood control and efficient reservoir
operation had not been tendered at the time of the PCR. Realization
of the Environmental Management Plan will be crucial for sustainability,
especially with respect to monitoring, and responding to, the
effects of the scheme on downstream fisheries and communities.
These effects, inter alia, will need to be addressed in the revision
of the NWDT award in 2024. The Borrower is adamant that it will
continue with the Narmada River Basin Development Plan, but, as
previously noted, the rate of progress will depend on the Borrower's
ability to deal with the social dimensions of the Plan and to
allocate to it the necessary managerial, financial and technical
13. The PCR provides a detailed assessment of project implementation
and shortcomings. With few exceptions (noted below), it is comprehensive,
and it acknowledges major performance shortfalls. Concerns of
the EDs at the 1985 Board presentation are noted, as is the commitment
by Management to keep the Board informed on the social and environmental
aspects of the project through written reports and briefings.
The PCR deals with the major issues raised by the IR. The extent
of compliance by GOI with the action plan agreed in late 1992
(as a basis for continued Bank support) is elaborated. As indicated
earlier, significant uncertainty about the rate at which investments
will be completed, and possible variations in hydrological parameters
and water use scenarios, limit the robustness of PCR estimates
of the ERR> The PCR fails to assess the scope or usefulness
of M&E data and socioeconomic surveys as baseline information
for impact analysis. In the discussion on "Bank Performance,"
the PCR does not address the missed opportunities in potential
use of selected, reputable NGO's to assist it in meeting the Bank's
guidelines in this aspect of the project. While the PCR indicates
that the Bank should have taken "stronger action" to
correct the R&R and environmental deficiencies during implementation,
it does not make a forthright judgement that the Bank's enforcement
of covenants was delinquent.
14. In its part of the PCR the Borrower is more confident that
the Bank in predicting some aspects of future performance and
scheduling, and highlights the high socioeconomic benefits which
will be obtained by the intended provision of both irrigation
and DMI water in the drought prone areas of Gujarat.
15. Considering the extraordinary amount of investigation and
lesson learning which has taken place with respect to environmental
and resettlement dimensions of the project, there would be little
value in carrying out further evaluation of these aspects at this
stage. A performance audit is planned, however, in order to assess
the realism and the sensitivity to risks of the reestimation of
project costs and benefits. In due course, OED will undertake
impact evaluations of socioeconomic effects (including health
aspects) on PAF's and the impact of basin development on command
area populations. Note on the Calculation of Economic Rate of
Returns for Investments Under the First Phase of the Narmada Development
1. PCR base case scenario. A: Yielding 12 percent ERR
Actual costs for completed investments are used, and projected
costs and benefits are revised. Seventeen percent of the costs
of the upstream Narmada Sagar Dam are included, as at appraisal.
A 1989 revision of the construction schedule was further adjusted
to allow for the consequences of delays which were apparent in
1993 at the time of the recalculation of the ERR. The projection
assumes some irrigation and DMI will commence in 1995 in a small
area, with full development of the 1.79 million hectares of irrigation
in the command area program by 2006. Significant power benefits
would commence in 1997. I view of existing and likely delays in
the construction of the Narmada Sagar dam, a 25 percent reduction
in power supply for the first five years is introduce to compensate
for reduced flows available to the riverbed power house (REPH).
Comment: At least one more year (after 1995) will be needed before
irrigation commences, so that part of the sensitivity calculation
for irrigation delay (see below) must be consumed in the actual
base case. The 25 percent reduction in power for five years is
likely to be on the low side considering the progress in construction
of the Sardar Sarovar and anticipated future constraints. On the
positive side, however, energy and CMI values could be conservative
(see below), and the Bank commodity price projections for the
1995-2000 period are higher than that assumed in the PCR analysis.
2. Scenario B
This examines the impact on Scenario A of delaying the RBPH for
up to four years. Assuming that investment costs in the RBPH and
transmission systems are delayed accordingly, this reduces the
ERR by less than one percentage point.
Comment: Delays may occur in the RBPH as financing of the necessary
turbines is still in question.
3. Scenario C
This assumes that the Narmada Sagar Dam is substantially delayed
(or not completed) so that it does not contribute to the scheme.
In this event, some suboptimal alternative investments in upstream
storage would probably occur, requiring a new hydrological modelling
exercise to determine water availabilities. In the absence of
this, a proxy was used: the 25 percent reduction in power generation
which is assumed for the first five years in the base case scenario
is extended through the project life; similarly, the command area
irrigation/DMI benefits are reduced by 30 percent, with the main
canal being fully costed but with branch canals and other development
investments being reduced by 15 percent and 25 percent respectively.
The 17 percent of the Narmada Sagar costs previously allocated
to the project is removed. This reduces the ERR by a little over
Comment: Although construction of the Narmada Sagar Dam has commenced,
there are many uncertainties (in funding and resettlement requirements)
concerning its progress, despite the government's stated commitment
to its completion. construction costs are likely to be progressively
incurred but any benefits may be seriously delayed. The rationale
for the proxy assumption is not explained in the PCR: the same
proxy at the time of appraisal was apparently based on simulation
studies. While planning for resettlement related to Narmada Sagar
has been elaborate, implementation problems may well arise given
the sheer scale of the effort needed.
4. Scenario D
This examines delays in the command area development compared
to scenario A, with simultaneous reduction in benefits and costs,
but with the main canal being completed as planned. A two year
delay reduces the ERR by 0.7 percentage points, a four-year delay
by 1.4 percentage points, and a six-year delay by 2 percentage
Comment: Significant delays in the command area development appear
likely, and at least a one-year delay in the commencement of irrigation
development is certain. The total plan, however, envisages development
of some areas with a poor benefit/cost ratio (for social/equity
reasons) and a relatively traditional cropping pattern. In practice,
restricted water availability (see below) and farmer practices
may force more profitable investment and water use than envisaged
in the model.
5. Scenario E
This assumes that the command area would be reduced by up to 40
percent. On the assumption that this makes the equivalent amount
of water available for power, this increases the rate of return
slightly, again allowing for reduced command area development
costs excepting the main canal.
Comment: A reduced availability of water for irrigation/DMI need
not make the equivalent water available for energy. First, there
is still some doubt about the total water availability in the
system, and second the actual water consumed by irrigators is
likely to be more than anticipated in the plan.
Concerning total water availability, the most recent hydrological
model (in 1993 by the Central Water Commission - CWC) estimates
a 75 percent dependable flow of 27 MAF. This is based on "observed"
flows in the basin from 1948 to 1990 (43 years) and "generated"
flows from 1891 to 1947 (56 years). Although CWC insists on the
validity of these calculations, there is some question concerning
the reliability of "hindcasting" to generate flow data
from available rainfall records in the period to 1947. Use of
only the period with "observed" flows lowers the 75
percent dependable volume by about 18 percent.
Within Madhya Pradesh, there is political pressure not to fill
the reservoir to its "full reservoir level" - FRL of
138.7m by some groups who will lose good cropping land when this
level is reached; this, despite the NWDT agreement to the 138.7
FRL. This issue was heavily debated and eventually resolved during
the NWDT proceedings. Recently, however, renewed pressure for
review of the FRL has been very strong in Madhya Pradesh, in part
encouraged by a Supreme Court Bench of Justices, which accused
the GOI of not responding adequately to a review at the project
by the expert Patil Committee.
For the volume of water actually diverted at Sardar Sarovar for
irrigation and DMI, the planned water use per hectare may not
eventuate, and more water is likely to be used on less hectares
than intended in the plan. The PCR calculation assumes reasonable
crop yields (e.g. 4 tons paddy HYV and 3.5 tons wheat HYV on irrigated
higher potential soils), an average cropping intensity of 1.37,
an irrigation intensity of 1.06, an irrigation efficiency of 48
percent at headworks, and a five-year adoption curve for enhanced
inputs and outputs on each block to receive irrigation; all of
these coefficients are acceptable considering experience in India.
However, the PCR (and the SAR) assumes that the crop water requirement
will be reduced by 10 percent "because of water scarcity;"
in practice, this is unlikely, as farmers in the earlier serviced
areas are likely to assume higher irrigation intensity and use
much more water than envisaged in the plan. This implies that
less of the command area will be irrigated, but it also suggests
that investment in the least productive areas may be avoided.
The latter is made even more likely in the Rann of Dutch where
a recent study by the Wildlife Institute of India has indicated
that the proposed irrigation canals would endanger the habitat
of wild ass (an endangered mammal), particularly in waterlogged
and saline areas. A more rational irrigation plan and the adoption
of a higher-value cropping pattern would be conducive to increasing
the rate of return.
Consequently, while reduced total water availability would have
a negative effect on the scheme benefits through reduced energy
generation (scenario C), the likely pattern of development and
water use in the command area under circumstances of reduced supply
may not reduce the returns to irrigation investment.
6. Unit Value of Benefits
DMI water values can decrease by 19 percent or power energy values
by 6.6 percent without taking scenario A to below 10 percent ERR.
Comment: The economic price of power (sat about 4.6 US cents/kWh)
is conservative and is based on a "willingness to pay"
concept using a methodology which adds the economic value of the
average tariff for each consumer category to half the additional
cost of the alternative of private supply to account for a consumer
surplus. This methodology appears somewhat arbitrary, but is said
to be conservative and has been used in the appraisal of other
recent projects in India. Account is not taken of the higher peaking
power value which would increase the ERR if it were included.
The DMI valued at about 15 US cents/m 3 is 60 percent higher than
that assumed at appraisal. With one exception, the SAR methodology
was adopted, in which demand from different categories of consumers
was calculated and the DMI water was valued as the savings in
cost realized by supplying estimated demand from the project rather
than other sources; the latter were individual water facility
investments, except for some more difficult areas in the later
stages of development where the cost of trucked water was used.
The PCR assumed one third of the alternative water would have
to come from desalinization (which causes the increased DMI value)
on the grounds that the value previously ascribed was extremely
conservative considering the impact of recent droughts in the
command areas. Although appearing reasonable, this valuation warrants
further investigation, as the contribution of DMI to the benefit
stream in the first 15 years after DMI commences increases from
4 percent at appraisal to 11 percent in the PCR ERR analysis.
7. Component Analysis
The PCR states that the ERR (using scenario A assumptions) for
investment in power alone is 14.2 percent, in irrigation alone
is 10.8 percent and in irrigation and DMI is 12.4 percent.
Comments: The methodology used to separate out benefits and costs
to attain these estimates is not presented, but it is assumed
that the PCR uses the same dissections as those made at the time
Contents copyright ©1995-7
International Rivers Network. Reproduction by permission only