Document of The World Bank FOR OFFICIAL USE ONLY Report No: 72374-KE PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 103.4 MILLION (US$155 MILLION EQUIVALENT) TO THE REPUBLIC OF KENYA FOR A KENYA WATER SECURITY AND CLIMATE RESILIENCE PROJECT MAY 22, 2013 AFTN2 Sustainable Development Department 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. i CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2013) Currency Unit = Kenya Shilling (KSh) 85 KSh = US$1 US$1 = SDR 0.667022 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS AFD French Development Agency (Agence Française de Développement) AfDB African Development Bank AMSL Above Mean Sea Level ASAL Arad or Semi-Arid Lands ASARECA Association for Strengthening Agricultural Research in Eastern and Central Africa AWSB Athi Water Services Board CDA Coast Development Authority CDD Community Driven Development CoK Constitution of Kenya CPS Country Partnership Strategy CSO Civil Society Organizations CWSB Coast Water Services Board DANIDA Danish Development Cooperation DCS Data Collection System DEM Digital Elevation Model DfID Department for International Development, UK DSS Decision Support System EIRR Economic Internal Rate of Return EMCA Environmental Management and Coordination Act EOI Expression of Interest ESIA Environmental and Social Impact Assessment ESMF Environment and Social Management Framework ESMP Environmental and Social Management Plan EU European Union FIRR Financial Internal Rate of Return FM Financial Management FS Feasibility Study GDP Gross Domestic Product GEF Global Environment Fund GIS Geographic Information System GIZ German Agency for International Development (Deutsche Gesellschaft für Internationale Zusammenarbeit) ii GoK Government of Kenya GOS Global Observation System GPN General Procurement Notice Ha Hectares IBRD International Bank for Reconstruction and Development ICRISAT International Crops Research Institute for the Semi-Arid Tropics ICT Information and Communication Technology ICPAC Intergovernmental Authority on Development Climate Prediction and Applications Centre IDA International Development Association IE Impact Evaluation IF Investment Framework IMOC Inter-Ministerial Oversight Committee IPMF Integrated Pest Management Framework IPMP Integrated Pest Management Plan ISC Implementation Support Consultant ISP Implementation Support Plan IUCN International Union for Conservation of Nature IWUA Irrigation Water Users Association JICA Japanese International Cooperation Agency KenGen Kenya General Electric Company KfW German Reconstruction Credit Institute (Kreditanstalt für Wiederaufbau) KMD Kenya Meteorological Department Ksh Kenyan Shilling KWSCRP Kenya Water Security and Climate Resilience Program KWSCRP-1 Kenya Water Security and Climate Resilience Project (1) KWSIP Kenya Water Sector Investment Program M&E Monitoring and Evaluation MCM Million Cubic Meters MoA Memorandum of Agreement MoRDA Ministry of Regional Development Authorities MoU Memorandum of Understanding MW Megawatt MCM Million cubic meters MEWNR Ministry of Environment, Water and Natural Resources NBI Nile Basin Initiative NCF Nordic Climate Facility NDOC National Disaster Operation Center NELSAP Nile Equatorial Lakes Subsidiary Action Program NEMA National Environmental Management Authority NETFund National Environmental Trust Fund NGO Non-Governmental Organization NIB National Irrigation Board NPV Net Present Value NRM Natural Resources Management Project NWCPC National Water Conservation and Pipeline Corporation iii O&M Operations and Maintenance OP/BP Operational Policy/Bank Policy ORAF Operational Risk Assessment Framework PAD Project Appraisal Document PDO Project Development Objective PFS Pre-feasibility Study PIM Project Implementation Manual PIU Project Implementation Unit PMU Project Management Unit PPA Project Preparation Advance PPDA Public Procurement and Disposal Act, 2005 PPOA Public Procurement Oversight Authority PS Principal Secretary QCBS Quality and Cost Based Selection RAP Resettlement Action Plan RBM River Basin Management RCMRD Regional Center for Mapping of Resources for Development RPF Resettlement Policy Framework SDR Special Drawing Rights SMM Sio-Malaba-Malakisi SMST Scheme Management Support Team SOE Statement of Expenses SRI System of Rice Intensification SSIP Strategic Sector Investment Plan TA Technical Assistance TOR Terms of Reference TTL Task Team Leader UNFCCC United Nations Framework Convention on Climate Change US$ United States Dollars VMGF Vulnerable and Marginalized Groups Framework VMGP Vulnerable and Marginalized Groups Plan WaSSIP Water and Sanitation Service Improvement Project WCIS Water Resources and Climate Risk Information System WRMA Water Resources Management Authority WRUA Water Resources Users Association WSB Water Services Board WSP Water Services Provider WSTF Water Services Trust Fund WWF World Wildlife Fund for Nature Regional Vice President: Makhtar Diop Country Director: Diariétou Gaye Sector Director: Jamal Saghir Sector Manager: Jonathan Kamkwalala Task Team Leader: Gustavo Saltiel iv REPUBLIC OF KENYA Kenya Water Security and Climate Resilience Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context................................................................................. 2 C. Higher Level Objectives to which the Program Contributes ........................................ 5 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................7 A. PDO............................................................................................................................... 7 B. Project Beneficiaries ..................................................................................................... 8 C. PDO Level Results Indicators ....................................................................................... 8 III. PROJECT DESCRIPTION ..............................................................................................8 A. Project Components ...................................................................................................... 9 B. Project Financing ........................................................................................................ 17 C. Program Objective and Phases.................................................................................... 18 D. Lessons Learned and Reflected in the Project Design ................................................ 19 IV. IMPLEMENTATION .....................................................................................................21 A. Institutional and Implementation Arrangements ........................................................ 21 B. Results Monitoring and Evaluation ............................................................................ 22 C. Sustainability............................................................................................................... 24 V. KEY RISKS AND MITIGATION MEASURES ..........................................................26 A. Risk Ratings Summary Table ..................................................................................... 26 B. Overall Risk Rating Explanation ................................................................................ 27 VI. APPRAISAL SUMMARY ..............................................................................................28 A. Economic and Financial Analyses .............................................................................. 28 B. Technical ..................................................................................................................... 30 C. Financial Management ................................................................................................ 32 D. Procurement ................................................................................................................ 33 E. Environmental and Social (including Safeguards) ..................................................... 34 v F. Safeguards Policies Triggered .................................................................................... 37 Annex 1: Results Framework and Monitoring .........................................................................39 Annex 2: Detailed Project Description .......................................................................................49 Annex 3: Implementation Arrangements ..................................................................................77 Annex 4: Operational Risk Assessment Framework (ORAF) ...............................................102 Annex 5: Implementation Support Plan ..................................................................................106 Annex 6: Investment Framework .............................................................................................108 Annex 7: Context for Sub-Component 2.2 ..............................................................................116 Annex 8: Map of Lower Nzoia Irrigation Scheme ..................................................................121 vi PAD DATA SHEET Kenya Kenya Water Security and Climate Resilience Project (P117635) PROJECT APPRAISAL DOCUMENT . AFRICA AFTN2 Report No.: PAD392 . Basic Information Project ID Lending Instrument EA Category Team Leader P117635 Investment Project A - Full Assessment Gustavo Saltiel Financing Project Implementation Start Date Project Implementation End Date 18-Jun-2013 30-Jun-2020 Expected Effectiveness Date Expected Closing Date 31-Jul-2013 01-Oct-2020 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Jonathan S. Kamkwalala Jamal Saghir Diariétou Gaye Makhtar Diop . Borrower: The National Treasury Responsible Agency: Ministry of Environment, Water and Natural Resources Contact: Robinson Gaita Title: Director of Irrigation, Drainage, and Water Storage Telephone 254-20-2716103 Email: rkgaita@gmail.com No.: . Project Financing Data(in USD Million) [ ] Loan [ ] Grant [ ] Other [X] Credit [ ] Guarantee Total Project Cost: 182.67 Total Bank Financing: 155.00 Total Cofinancing: 20.01 Financing Gap: 0.00 . Financing Source Amount BORROWER/RECIPIENT 7.66 i International Development Association (IDA) 155.00 GERMANY KREDITANSTALT FUR 20.01 WIEDERAUFBAU (KFW) Total 182.67 . Expected Disbursements (in USD Million) Fiscal Year 2014 2015 2016 2017 2018 2019 2020 2021 Annual 19.26 32.96 29.03 23.57 17.40 15.01 14.22 3.55 Cumulative 19.26 52.22 81.25 104.82 122.22 137.23 151.45 155.00 . Proposed Development Objective(s) The project development objectives of KWSCRP-1 are to: (i) increase availability and productivity of irrigation water for project beneficiaries; and (ii) enhance the institutional framework and strengthen capacity for water security and climate resilience for the country. . Components Component Name Cost (USD Millions) C1: Water Resources Development 104.50 C2: Effective Water Sector Institutions 56.30 C3: Support for Project Implementation 15.20 Project Preparation Advance 3.00 Unallocated 3.67 . Institutional Data Sector Board Water . Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Water, sanitation and flood protection General water, sanitation 30 2 and flood protection sector Agriculture, fishing, and forestry Irrigation and drainage 20 5 2 Agriculture, fishing, and forestry General agriculture, 20 fishing and forestry sector Public Administration, Law, and Public administration- 20 2 Justice Water, sanitation and flood protection ii Energy and mining General energy sector 10 Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Environment and natural resources Water resource management 40 management Environment and natural resources Other environment and natural resources 30 management management Environment and natural resources Land administration and management 30 management Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants iii Name Recurrent Due Date Frequency Co-financing for Lower Nzoia Irrigation 31-Dec-2013 Scheme Phase 1 Description of Covenant The Co-Financing Deadline for the effectiveness of the Co-Financing Agreement for the Lower Nzoia Irrigation Scheme is December 31, 2013. Name Recurrent Due Date Frequency Establishment of NIB PIU 31-Dec-2013 Description of Covenant A Project Implementation Unit (PIU) for the implementation of the Lower Nzoia Irrigation Scheme Phase 1 has been established at the National Irrigation Board (NIB). Name Recurrent Due Date Frequency Establishment of IMOC 31-Dec-2013 Description of Covenant An Inter-Ministerial Oversight Committee (IMOC), to provide strategic guidance and coordination support for the project, has been established. . Conditions Name Type Establishment and staffing of PMU Effectiveness Description of Condition A Project Management Unit (PMU) has been established, and key staff for the PMU recruited. Name Type WRMA permit Disbursement Description of Condition A permit for withdrawing water from the Nzoia river for the Lower Nzoia Irrigation Scheme Phase 1 has been obtained from the Water Resources Management Authority. Team Composition Bank Staff Name Title Specialization Unit Laura E. Tlaiye Adviser Adviser CMD Zarafshan H. Khawaja Lead Social Lead Social AFTCS Development Specialist Development Specialist Nagaraja Rao Senior Environmental Senior Environmental AFTN1 Harshadeep Specialist Specialist Gustavo Saltiel Program Manager Team Lead AFTN2 Helen Z. Shahriari Sr Social Scientist Sr Social Scientist AFTCS John Bryant Collier Operations Officer Operations Officer AFTN3 iv Hocine Chalal Lead Environmental Lead Environmental AFTN1 Specialist Specialist George Annandale Consultant Consultant AFTN2 Nightingale Rukuba- Senior Counsel Senior Counsel LEGAM Ngaiza Halla Maher Qaddumi Consultant Economist AFTN2 Satoru Ueda Lead Water Resources Lead Water Resources AFTN3 Specialist Specialist Jose Eduardo Mestre Consultant Consultant AFTN2 Efrem Fitwi Procurement Specialist Procurement Specialist AFTPE Jane A. N. Kibbassa Senior Environmental Senior Environmental AFTN3 Specialist Specialist Pierrick Fraval Sr Water Resources Sr Water Resources AFTA2 Spec. Spec. Sameer Ahmed Kamal Operations Analyst Operations Analyst AFTN2 Carl Christian Dingel Disaster Risk Disaster Risk AFTN2 Management Specialist Management Specialist Elizabeth Wairimu E T Temporary E T Temporary AFCE2 Karuoya Non Bank Staff Name Title Office Phone City . Locations Country First Location Planned Actual Comments Administrative Division Kenya Western Western Province X The Lower Nzoia Irrigation Scheme is located in Siaya and Busia Counties in Western Kenya v I. STRATEGIC CONTEXT A. Country Context 1. Kenya is emerging from a strong, but uneven, decade of growth. Annual growth rates from 2000 to 2009 averaged 3.9 percent, an increase from the previous decade’s average of 2.3 percent. Post-election violence throughout 2008, combined with a severe drought that started in 2007, the global financial crisis, and high food and fuel prices resulted in a dramatic decline in the country’s economic performance and a negative per capita growth rate in 2008. The economy recovered in 2010 and reached a growth rate of 5.6 percent, underpinned by structural reforms, a new Constitution and a spur in infrastructure investment. In 2011, a series of domestic and external shocks reversed the momentum (growth rate decreased to approximately 4.4%), but a higher growth rate of 5% is projected for 2012 and 2013. 1 While national absolute poverty has declined (from 52.3% in 1997 to 46.1% in 2005/6), it is still high in comparison with neighboring countries such as Tanzania and Uganda. The Kenyan profile also reveals strong regional disparities in the distribution of poverty (with the lowest incidence in the Central province and the highest in the North Eastern province), as well as rising inequalities in the distribution of incomes in urban areas. 2 2. Kenya’s people and economy are highly vulnerable to erratic climatic patterns and limited water availability due to their reliance on key sectors (agriculture, tourism, hydro-energy, etc) that depend on rainfall and water availability. Extreme poverty affects about half of Kenya’s 32 million people, with some 80% of the poor living in rural areas that depend on agricultural activities. Approximately 80% of the overall population is directly involved in and dependent on agriculture for their livelihoods. Agriculture is a key sector directly contributing 24% to GDP, as well as indirectly contributing through its links to other sectors. In addition to its multiplier effects, the sector provides 62% of formal employment, 60% of exports, and 45% of government revenue. Agricultural productivity is reliant on a number of factors, critically including rainfall and/or access to supplemental water supplies. Beyond agriculture, tourism is a major and growing industry, and contributes approximately 13.7% of Kenya’s GDP. The primary source of electricity is hydropower generation; the Seven Forks hydropower station situated in the Lower Tana catchment provides nearly 58% of the total national electric power generation. The strong links between the performance of these sectors for economic growth and building water security and climate resilience are evident. Indeed, the World Bank has estimated that climate variability costs the country an average of 2.4% of GDP per year and water resources degradation that has exacerbated water resource constraints and risks, a further 0.5%. 3 3. In 2007, the Government of Kenya (GoK) released Vision 2030, its framework for making Kenya a middle-income country by 2030, which became the overarching policy following Parliamentary approval in December 2012. Vision 2030 seeks nothing less than a transformational change, achieving annual average GDP growth rates of 10% over the period in order to make the ‘leap from poverty to widely shared prosperity and growth.’ Vision 2030 has 1 World Bank, June 2012, Kenya Economic Update: Walking on a Tightrope. 2 World Bank, Kenya Overview, accessed in August 2012 at http://www.worldbank.org/en/country/kenya/overview. 3 World Bank, 2006, Climate Variability and Water Resources Degradation in Kenya. 1 three pillars: economic, social, and political. Obtaining water security and reducing vulnerability to climatic variability and change are featured prominently as cross-cutting issues affecting all pillars and are highlighted as prerequisites for sustaining economic growth, as well as ensuring equity and social stability. B. Sectoral and Institutional Context 4. Kenya has limited freshwater endowments and is already classified as a chronically ‘water scarce’ country in absolute and relative terms. The mere 526 m3 per capita annual freshwater availability places it in the bottom 8% of countries globally (in comparison, South Africa has a per capita water availability of approximately 1000 m3 and Benin enjoys approximately 3000 m3 per capita water availability). 4 Over 80% of the country is comprised of arid or semi-arid lands (ASALs). A further complicating factor is that approximately 54% of Kenya’s water resources are shared with neighboring countries. There is growing competition (and even conflict) over limited water resources, with rising population, economic growth, and urbanization placing increasing pressures on the water resource base. Severe degradation, primarily caused by deforestation and unsuitable agricultural practices, of the country’s key water catchment areas (known as “water towers�) has exacerbated this situation. At the sub- national level, the spatial mismatch between water availability and rising demands is in many cases even more extreme; a 2012 World Bank study found that areas around the major cities of Nairobi, Mombasa, and some Western centers are the most critically water stressed and this is projected to worsen by 2030. 5 5. Kenya faces the additional challenge of high inter-annual and intra-annual rainfall variability that results in frequent droughts and floods, so severe that years of infrastructure investments for economic growth can be undone in a single extreme event. A recently completed Post-Disaster Needs Assessment estimated that the overall effects of the 2008-11 drought cost the economy US$12.1 billion, which includes US$ 805.6 million for destruction of physical and durable assets and US$11.3 billion for losses in economic flows across all sectors. 6 According to the Pilot Program for Climate Resilience Climate Variability Index, Kenya has a history of greater disaster risk – particularly droughts and floods – than the majority of sub- Saharan African countries, at least when assessed over the past 30 years. 7 6. Climate variability and hydro-climatic shocks (droughts and floods) impact disproportionately on the poor. It is estimated that about 50.6% of the population lacks access to adequate food and, even the little it has is of poor nutritional quality. The incidence and prevalence of food insecurity is more extreme in ASALs. This is largely due to the regular recurrence of droughts and floods that have repeatedly led to massive crop/livestock failure and, in the worst cases, to severe famine. 4 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 5 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 6 Republic of Kenya, 2012, Post-Disaster Needs Assessment for the 2008-2011 Drought. 7 Adger, W. N., N. Brooks, M. Kelly, S. Bentham, and S. Eriksen, 2004, New Indicators of Vulnerability and Adaptive Capacity, Tyndall Centre Technical Report 7. 2 7. Climate change is projected to exacerbate existing climate risks and water resource constraints. Major floods affecting much of the country are already becoming increasingly frequent (e.g., 1961, 1997, 1998, 2003, etc). Warming over continental Africa is projected to be greater than the global mean over the 21st century and there is likely to be an increase in rainfall over East Africa and most of Kenya by the end of the 21st century. While mean annual rainfall is projected to increase, climate conditions in general and rainfall in particular are expected to become more variable, meaning that the frequency of extreme events, including floods and droughts, will likely increase. Even if rainfall remains constant or increases, water availability is highly sensitive to relatively small changes in rainfall and temperature and may decrease because of higher temperatures and if warming is of a significant magnitude. Increased climatic variability may result in greater variation in water availability over time, with extreme water stress during times of drought exacerbated by greater variability in rainfall (and greater rainfall deficits) and/or by higher extreme temperatures. 8 8. Kenya has yet to adequately manage its highly variable hydrology, as evidenced in decades-long underinvestment in water infrastructure that has not kept pace with growing needs or provided the required buffering capacity to rein in water’s most destructive forces. Investment in storage has been stalled since the mid-1990s and existing capacity has not been adequately maintained, reducing effective storage further. Kenya’s total water storage, including hydropower generation, is approximately 4.1 billion m3 or 103 m3 per capita. Per capita storage drops to 3 m3 when hydropower generation is excluded, which is dismally low compared to other countries (as a point of comparison, North America has a per capita storage of just under 6000 m3 and South Africa, just under 700 m3). 9 Further, thus far, water storage investments have been primarily driven by single sector considerations, and growth opportunities from multi-purpose investments have not been fully captured. More generally, investment in water infrastructure has fallen behind rapidly growing demands. Only 60% of the urban population and 40% of the rural population have access to safe drinking water. Currently, only 90,000 hectares out of a potential irrigated area of 539,000 hectares have been developed; close to 26 million hectares of agricultural land is dependent on unpredictable rainfall, leaving farmers highly vulnerable to the vagaries of nature and contributing to food insecurity, as described above. Beyond infrastructure investment, the weak institutional setting and governance issues, ineffective water allocation systems, low water use efficiencies, and high system losses plague Kenya’s water sector. Catchment degradation due to deforestation and encroachment is rampant and has resulted in the siltation of water infrastructure, disruption of the natural functioning of lakes and wetlands, and intensification of flood risk to downstream communities, all of which carry enormous social, environmental and economic costs. 9. GoK has planned a large scale water investment program to address these challenges and to close the massive infrastructure gap that has been estimated at US$ 5 – 7 billion in various existing and ongoing studies. This will be supported by the establishment of a strong institutional and legal structure that aligns the water sector to the Constitution of Kenya 2010 (CoK). The Ministry of Water and Irrigation Water Sector Strategic Plan (2010) and the draft Water Harvesting and Storage Management Policy (2010) focus on reducing the water 8 World Bank, June 2012, Capturing Climate Change Risks and Opportunities for a Pragmatic Approach, draft. 9 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 3 infrastructure gap through single and multipurpose storage. This approach is in line with a recent World Bank report that found substantial opportunities for multi-purpose storage to secure reliable water supply, manage floods, provide irrigation, and generate hydropower. 10 Further, the Climate Change Action Plan identified soil and water conservation, construction of dams, and expanded irrigation as key actions to increase climate resilience. The Action Plan will mainstream climate change in national planning for the first time in Kenya’s history, starting with the second Medium Term Plan (MTP) 2013-2017. The National Policy for Disaster Management and the National Disaster Response Plan (both issued in 2009) highlight the need for mainstreaming disaster risk reduction and establish additional roles and responsibilities for mitigating residual risks in the water sector. 10. Vision 2030’s ‘flagship projects’ in the water sector include large and medium size multipurpose water storage facilities, upgrading the hydro-meteorological network, and rehabilitation and expansion of major irrigation schemes and urban water supply and sanitation in key satellite towns. Water investments in related sectors (e.g., tourism and agriculture) also feature prominently. Vision 2030 water investment options are in various stages of preparation and, although many of these investments are urgently needed, it is recognized that significant work is required to enhance their readiness for implementation on technical, economic, financial, social, environmental and institutional grounds. At the same time, systems, tools and capacity need to be developed to improve investment planning and preparation and to build a sound investment pipeline. 11. With the adoption of the CoK 2010, GoK has required that all institutional and legal frameworks be reviewed and aligned to it. The CoK includes a number of provisions that have important implications for the water sector, including devolution of certain functions from the national level to 47 counties; establishing basic rights to food, water and sanitation; defining water resources as public land; and establishing clear sustainability rules (related to environmental and financial sustainability, public participation and governance). The CoK also includes provisions for establishing systems of environmental monitoring and the equitable sharing of benefits from natural resource management that directly relate to building climate resilience. The MEWNR – the agency responsible for policy and strategy formulation, legislation and water sector coordination – had appointed a taskforce comprised of all sub-sector agencies to examine key provisions of the Constitution and implications on the Water Act 2002, Irrigation Act (Cap 347, 1966) and respective policies and to elaborate proposals for amendment. New bills and policies for water and irrigation have been drafted. In addition, a Water Sector Transition Plan has been elaborated. The Transition Plan covers through 2015 and ‘... indicates the key appropriate activities, deliverables, responsible structures and proposes timelines for the implementation’ (Draft Transition Plan, 2012). The envisioned reforms represent a significant transformation of the sector, entailing a redefinition and realignment of roles and responsibilities, powers and functions, as well as the creation of new organizations. Support is needed to address the numerous legal and institutional issues that will arise before, during, and after the potentially challenging reform period. 10 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 4 12. Through ongoing dialogue and as reflected in the Country Partnership Strategy (refer below), the GoK has requested that the World Bank support its ambitious plans for the water sector through a long-term and transformational program aimed at building water security and climate resilience for economic growth. The urgent need to invest in priority infrastructure while at the same time aiding GoK to establish the requisite enabling institutional and legal foundation to improve the performance and sustainability of the water sector calls for a pragmatic approach of phased support. The Kenya Water Security and Climate Resilience Program (KWSCRP) is designed to respond to this need through a series of investment operations linked together by an overarching objective. The Kenya Water Security and Climate Resilience Project 1 (KWSCRP-1) will be the first investment operation in the series. C. Higher Level Objectives to which the Program Contributes 13. With its focus on achieving water security and resilience to climate variability and change, the programmatic KWSCRP will support the higher level objectives of inclusive green growth as a pathway to sustainable development. In particular, KWSCRP will foster growth that is efficient in its use of natural resources, clean in that it minimizes environmental impacts, and resilient in that it reduces social vulnerabilities and accounts for natural hazards and the role of environmental management and natural capital in preventing physical disasters. 14. The program is included in the current Country Partnership Strategy (CPS) 2010-2013 and has been preceded by World Bank economic and sector work that analyzed and prioritized potential water storage investments and irrigation development for further detailed assessments and studies. 11 As water is a cross-cutting issue, the program is well aligned with all three objectives of the CPS. The first objective, unleashing Kenya’s growth potential, would be supported through establishing a rigorous framework for financing critical water infrastructure and increasing the productive use of water (including in agriculture) in order to support sustained economic growth. The second objective, reducing inequality and social exclusion, would be supported by the expansion of basic services that is allowed through the development of new water sources that secure water availability thereby improving economic livelihoods and reducing migration and social conflict. This includes poor farmers located in semi-arid parts of the country who will benefit from a reliable water supply through the development of irrigation. The third objective, managing resources constraints and environmental challenges, would be supported through improved water investment planning and preparation, the financing of infrastructure investments to increase resilience to climate variability and change, water resources management to increase the sustainability and enhance the performance of infrastructure investments, and the establishment of a strong institutional and legal framework for the sustainable development Kenya’s water sector. 15. The program is also aligned with the World Bank’s Africa Regional Strategy, and particularly Pillar Two – Vulnerability and Resilience. Reducing vulnerability and building resilience in the water sector is the central purpose of the program. To this end, the program will support establishing the minimal water infrastructural platform (including water storage) required to buffer against the most severe hydrologic shocks including floods and droughts and 11 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 5 to lift Kenya out of a history of food insecurity, low productivity and constrained growth. Beyond infrastructure investments, the program will support the enabling institutional and information base to ensure that water investments are sustainably planned, developed and maintained for long term prosperity. 16. The program is directly aligned with Kenya’s commitment to the adaptation to climate change agenda, including by supporting the mainstreaming of Kenya’s National Adaptation Plan by water sector institutions. By financing water investments that not only build resilience to climate variability and change, but also enhance agricultural productivity and food security, the program supports Kenya’s development aspirations as enshrined in Vision 2030 and the continent’s Comprehensive Africa Agriculture Development Program (CAADP). 17. The program will build on other ongoing activities in Kenya’s water program. Its design has been informed by and will complement the World Bank Water and Sanitation Service Improvement Project’s (WaSSIP’s) detailed water supply master plan studies for Nairobi / Satellite Areas and Mombasa / Other Towns within Coast Province. The program will benefit from the pre-investment studies carried out by the Nile Basin Initiative (NBI) in the Mara, Sio- Malaba-Malakisi, Yala, and Gucha-Migori sub-basins. The program will develop synergies with the Nile Cooperation for Results Project that has recently been approved by the World Bank. The World Bank Natural Resources Management (NRM) Project and Western Kenya Community Driven Development and Flood Mitigation Project are providing support for watershed management, irrigation, and flood control, and ongoing experience has informed the water resources and climate risk management aspects of the program. Lower Nzoia Irrigation Scheme Phase 1 that will be financed under the program’s first project (KWSCRP-1) was prepared under the NRM Project. Lessons learned in Western Kenya will be used to support the expansion of early warning systems into other high risk basins. Links will be made to the drought early warning systems in ASALs, supported by the World Bank through the Drought Management Authority. Finally, the program will benefit from and contribute to ongoing work to develop best practice for climate resilient growth, including the World Bank Pilot Program for Climate Resilience, Climate Change Knowledge Portal and ongoing work on the IDA-16 requirements. 18. The KWSCRP will link closely with programs being supported by other development partners. The program will benefit from the scoping level identification of investments in the JICA supported update of the National Water Resources Master Plan 2030 and will build on the Kenya Water Sector Investment Program (KWSIP), supported by Sweden. The program will also build on the existing support to water resources users associations (WRUAs) to increase stakeholder capacity, including training in climate change awareness, and it will coordinate with ongoing support from DFID and Nordic Climate Facility (NCF) to the Climate Change Secretariat to develop climate change action plans that include the development of a climate information database. The Water Resources Management Authority (WRMA) is also being supported through the NCF to improve stakeholder communication of climate change issues. The program will benefit from the support to WRMA through the Rapids Results Initiative to digitize records and strengthen their permitting system. The Kenya Meteorological Department (KMD) produces seasonal forecasts with the support of the Intergovernmental Authority on 6 Development (IGAD) Climate Prediction and Applications Centre (ICPAC), and the meteorological network has been improved with the support of the World Bank and others. 19. Finally, the program has tapped into the possibility for co-financing investments with other development partners in order to leverage World Bank support. Co-financing under KWSCRP-1 has been agreed with KfW for Lower Nzoia Irrigation Scheme Phase 1 (refer below). The Co-financing Agreement for the Lower Nzoia Irrigation Scheme Phase 1 will be effective by December 31, 2013. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 20. As noted above, the KWSCRP adopts a long-term programmatic approach, whereby a series of investment operations linked to the same overarching objective are undertaken. This approach demonstrates the Bank's commitment to Kenya’s water sector, including laying a strong institutional and legal foundation for sector growth and sustainability and supporting the roll-out of Kenya’s vast water sector investment program. At the same time, this approach provides the necessary flexibility for the phasing of investment operations in the series to address opportunities and challenges as they emerge. Investment operations under KWSCRP would be taken up when they are ready and based on performance in the earlier investment operations under the program, with possible overlapping of investment operations as appropriate. It is expected that the KWSCRP will be implemented over a period of ten to twelve years. 21. The overarching objective of the KWSCRP is to improve water security and build climate resilience by strengthening water and climate risk investment planning, preparation, and implementation that is supported by an enhanced enabling institutional framework. Progress in meeting the overarching program objective will be measured by the following outcome indicators: (a) Amount of water (million cubic meters) provided under the program; (b) Direct program beneficiaries (number) of which female (percentage); (c) Establishment of new or reformed water institutions, where establishment includes the allocation of adequate budget to fulfill mandates and functions; (d) Reduction (US$) in current water sector investment gap, including water investments financed under the KWSCRP and investments in the pipeline that are prepared under sub-component 1.2 (refer below). 22. KWSCRP-1 is the first investment operation under KWSCRP. The expected total amount of KWSCRP-1 is US$ 182.67 million, implemented over seven years. A seven-year period would allow adequate time to achieve the reforms associated with aligning the water sector to the Constitution of Kenya 2010. It would also allow achievement of the objectives of Lower Nzoia Irrigation Scheme Phase 1, in particular as related to the second and third activities that would require the full scheme to be operational for at least two agricultural seasons. 23. The project development objectives of KWSCRP-1 are to: (i) increase availability and productivity of irrigation water for project beneficiaries; and (ii) enhance the institutional framework and strengthen capacity for water security and climate resilience for the country. 7 B. Project Beneficiaries 24. For the Lower Nzoia Irrigation Scheme Phase 1 direct target beneficiaries include approximately 20,000 people: 2,100 households (12,600 people) who are currently farming land in the sub-project area and some 8,000 other people who would farm the scheme as hired labor. Most households are smallholder farmers (average holding is approximately two hectares), and half are female. Another estimated 50,000 people in local districts are expected to indirectly benefit through linkages to scheme activities and outputs. In addition, the local economy would be enhanced by irrigated agriculture. 25. Beneficiaries of activities under sub-component 1.2 will depend on the specific investments from the pipeline that are picked up for financing in the future, including under subsequent investment operations of the KWSCP. It is expected that ultimately communities and consumers in investment areas would receive more reliable and assured water availability and improved access to water services, including potentially from irrigation development, flood protection, water supply, and other multipurpose benefits. Beneficiaries of the Investment Framework (IF) that will be developed under sub-component 1.2 to guide investment preparation include GoK and development partners who will benefit from the rigorous and transparent process established by the IF. 26. Project activities under Component 2 focus on supporting the establishment of a solid legal and institutional framework for the sector, including developing a sound knowledge base and water resources planning and management. By supporting implementation of Kenya’s vast water sector investment program, these activities will contribute to the long-term sustainability of the sector as a whole, bringing benefits on a regional and national scale. Concrete benefits to the staff of government agencies involved in capacity building and institutional strengthening initiatives will also be generated under Component 2. C. PDO Level Results Indicators 27. Outcome 1 – increase availability, and productivity of irrigation water for project beneficiaries. This outcome will be measured by the following indicators: (i) area provided with irrigation and drainage services – new and improved; (ii) yields of major irrigated crops in irrigation scheme; and (iii) value of scheme agricultural products per cubic meter of water use. 28. Outcome 2 – enhance the institutional framework and strengthen capacity for water security and climate resilience for the country as a whole. This outcome will be measured by the following indicators: (i) Water Policy adopted and Water Bill submitted to Parliament; and (ii) satisfactory ratings of key water institution performance contracts. III. PROJECT DESCRIPTION 29. Transforming Kenya’s water sector to achieve water security and climate resilience for economic growth and development requires a dedicated, long-term commitment, but at the same time a practical approach that addresses the needs in a realistic manner. Furthermore, the enormous challenges related to reversing the massive water sector investment gap and 8 transitioning through a potentially complex reform process require a comprehensive, multi- pronged approach that addresses key infrastructure, institutional and information limitations in order to put Kenya on a solid development path. The design of KWSCRP-1 reflects these needs by financing a critical investment and supporting the progressive enhancement of the water investment pipeline, while at the same time building an enabling legal and institutional foundation required to sustainably advance Kenya’s investment program. 30. A sound water investment pipeline will be progressively built by addressing issues at several points in the investment planning, identification, preparation, implementation and operations process where critical limitations have been identified. The project is designed to address these limitations in a parallel fashion, taking both a top-down approach (starting with an important investment that is significantly advanced in terms of readiness) and bottom-up approach (starting with basin planning and developing the future pipeline, including through support to identification, pre-feasibility and feasibility level work). The underlying philosophy that is reflected in project design is that investments should be made early in ‘low hanging’, urgent infrastructure needs, while the pipeline for future investments is built, including through the establishment of the requisite information base, tools and capacity. Project design also recognizes that sustainability ultimately rests on a solid institutional and legal framework for the water sector. 31. The specific components – and activities within them – operationalize the philosophy of the KWSCRP-1. Specifically, in order to strengthen the pipeline of investment-ready sub- projects, the project will support the enhanced preparation of investments at pre-feasibility, feasibility and detailed design levels. An ‘Investment Framework’ (IF) will be developed under the project to serve as a guiding framework for improving water sector investment preparation, including by establishing technical, economic, financial, environmental, social and institutional requirements. In order to ensure longer-term sustainability, the project will support participatory and integrated basin water investment planning to identify and help to prioritize future investments, thereby further facilitating the implementation of GoK’s vast and diverse water sector investment program. The project has been designed to mainstream climate risk management measures throughout all stages of the investment process. This includes through the enhancement of a water resources and climate risk information system and the modernization of hydro-meteorological services, in addition to targeted measures to reduce residual climate and disaster risks. 32. The changing institutional and legal landscape associated with aligning the water sector to the Constitution of Kenya 2010 presents challenges but also a major opportunity to support the establishment of a sound institutional framework for improving the performance of the water sector far into the future. The project will support the reform process through various activities that aim to strengthen the enabling environment for enhancing water security and climate resilient growth. The specific project components are detailed below. A. Project Components 33. The project will have three inter-related components supporting the project development objective: (i) water resources development; (ii) effective water sector institutions; and (iii) 9 support for project implementation. The funding envelopes for each component and sub- component are summarized in Table 1. Table 1: Summary of component, sub-components and financing Financing (US$m) Components and Sub-components IDA KfW GoK Ben Total Component 1: Water Resources Development 76.8 20.0 6.5 1.2 104.5 SC 1.1: Water Sector Investments – Lower Nzoia 26.8 20.0 6.5 1.2 54.5 Irrigation Scheme Phase 1 SC 1.2: Water Investment Pipeline 50.0 50.0 Component 2: Effective Water Sector Institutions 56.3 56.3 SC 2.1: Support for Water Sector Transition and 26.1 26.1 Reforms SC 2.2: Strengthening Water Management and 30.2 30.2 Planning Component 3: Support for Project Implementation 15.2 15.2 Project Preparation Advance 3.0 3.0 Unallocated 3.7 3.7 Total 155.0 20.0 6.5 1.2 182.7 Component 1: Water Resources Development (US$ 104.5 million – US$ 76.8 million from IDA, US$ 20.0 million from KfW, and US$ 7.7 million from GoK and beneficiaries) 34. This component will support climate resilience and water security for economic growth by financing water investments and by progressively building a longer-term investment pipeline. Component 1 includes two sub-components: (i) Water Sector Investments and (ii) Water Investment Pipeline. Each sub-component is described below. Sub-Component 1.1: Water Sector Investments (US$ 54.5 million – US$ 26.8 million from IDA, US$ 20.0 million from KfW, and US$ 7.7 million from GoK and beneficiaries) 35. Lower Nzoia Irrigation Scheme Phase 1. The Lower Nzoia Irrigation Scheme Phase 1 will be financed under the first investment operation in the series, KWSCRP-1. It is a flagship project of the Kenya Agricultural Sector Development Strategy (ASDS) and of Kenya Vision 2030 and is expected to contribute to food security, economic growth and enhanced climate resilience for farmers. 36. Located in Western Kenya, not far from the town of Kisumu, the Lower Nzoia Irrigation Scheme is the first new generation large scale public scheme to be developed by the National Irrigation Board (NIB). The scheme would derive its water from the Nzoia River, which flows into Lake Victoria a very short distance downstream, and irrigate 4,043 hectares, of which about 50% would be devoted to high value crops (fruit, vegetables) and the other 50% to rice in rotation with soybeans, cereals and other legumes. The success of the sub-project relies on the effective transition from current rain-fed subsistence agriculture to commercial farming based on 10 horticulture, and on the uptake of efficient irrigation management, operation and maintenance processes that will ensure scheme functionality and sustainability. 37. The sub-project is, therefore, designed with three complementary pillars/activities as follows: (a) construction of irrigation and drainage infrastructure, including rehabilitation of some 705 hectares (existing Bunyala Irrigation Scheme); (b) support to agricultural production and establishment of market linkages through a value chain approach; and (c) support to the efficient operation of the infrastructure and to the progressive transfer of responsibilities and decision-making to Irrigation Water Users Associations in line with Kenya’s irrigation strategy. The sub-project will facilitate linkages and partnerships between the private sector and farmers that would serve the long term interests of the latter, both on marketing and value chain and irrigation service delivery. 38. The sub-project has also been designed to allow sufficient time (seven years) to successfully implement the activities, including under scheme operation. The construction phase will last 3.5 to 4 years and be carried out in stages in order to start irrigation as early as possible. It will be followed by a two-year period during which irrigated agriculture will take place and be monitored on the entire scheme as on-the-job capacity building continues. 39. The estimated cost of the sub-project – inclusive of the above activities – is US$ 54.5 million to be financed as follows (also refer Table 2 below): a contribution from KfW of EUR 15 million; a contribution from the World Bank, estimated at US$ 26.8 million; and a contribution from beneficiaries and GoK, estimated at US$ 7.7 million and to cover primarily operational costs, such as the establishment of a revolving fund for access to agricultural inputs, and costs of resettlement. Table 2: Financing for Lower Nzoia Irrigation Scheme Phase 1 Category Amount (million US$) Notes Total Investment Cost 54.5 Total cost of three activities GoK and beneficiaries 7.7 Preliminary operational costs Total excl. GoK and beneficiaries 46.8 External financing requirement Equivalent of 15 million EUR as KfW 20.0 of March 31, 2013 External financing requirement IDA 26.8 less KfW contribution Sub-Component 1.2: Water Investment Pipeline (US$ 50 million) 40. This sub-component will contribute to closing the large infrastructure gap in Kenya’s water sector, estimated at around US$ 5to US$7 billion. An immediate pipeline of potential investments worth about US$ 293 million has been identified and is currently under review for financing in the next investment operation under the KWSCRP program. This pipeline includes Mwache Dam and Ruiru well fields, which are in advanced stages of preparation, with detailed designs (and relevant safeguards documents) expected to be completed in 2013. 41. In addition to the investments discussed under the immediate pipeline, a number of investments are under preparation as part of various exercises that are currently underway. These 11 include: those being prepared as part of the Water Supply Master Plans for Nairobi/Satellite Towns and Mombasa/Coast Region (supported under WaSSIP); those under the NIB’s project portfolio, with currently five irrigation development schemes at feasibility or design stage representing almost 300,000 ha; and those under the National Water Resources Master Plan 2030 (supported by JICA). A number of water storage investments were also identified in the 2012 World Bank report, ‘Towards a Strategic Analysis of Water Resources Investment in Kenya.’ 42. Notwithstanding various planning exercises and the acknowledged enormous investment needs, the detailed preparation of many identified investments is inadequate. The vast majority of project documents fall far below international standards on technical, economic, financial, environmental, social and institutional grounds. It is acknowledged that the poor preparedness of potential investments is partly responsible for the large water sector investment gap and has affected progress in the sector. 43. This sub-component will support the development of the investment pipeline by financing preparation activities for a range of potential investments – from water supply and irrigation schemes to large-scale water investments – requiring preparation budgets of up to US$ 10 million. It is envisioned that several of these investments could receive project financing in subsequent investment operations. Specifically, this sub-component will finance pre-feasibility studies, feasibility studies and detailed designs. Other support will include: (i) development of safeguards instruments (ii) surveys and tests; (iii) preparation of terms of reference (TORs) for consulting services to support investment implementation; and (iv) preparation of operations manuals. The sub-component is expected to result in 70 sub-project ideas, 35 pre-feasibility studies and 21 feasibility studies, with the expectation that detailed design or implementation of ten of these identified projects would be underway by the time the project closes. 44. This sub-component will also support the development of an Investment Framework (IF) with agreed quality assurance standards and guidelines for planning, preparing, implementing and operating water investments. The IF is envisioned to become an overarching sector-wide instrument for enhancing the quality and speed of investment preparation, and consequently a critical element for strengthening the pipeline of investment-ready projects. 45. An initial IF – that guides investment preparation at the feasibility level – was developed under project preparation and is presented in Annex 6. MEWNR tested it on investment proposals at advanced stages of preparation and rigorously applied it to the Lower Nzoia Irrigation Scheme Phase 1. It was found to be an extremely useful tool and to serve as a sound basis for progressive refinement and enhancement, including based on lessons learned and experience gained from its early application. This sub-component will finance the further development of the initial IF, including preparing detailed guidelines that are specific to water- sector investment types (e.g., irrigation versus multi-purpose dams) and extending the IF to include quality requirements at the pre-feasibility level. Additional areas for refinement are detailed in Annex 6. This sub-component will also support capacity building to ensure effective application of the IF, including the development of skills and tools for undertaking the technical, economic, financial, social, environmental and institutional analyses required for meeting it. The development of the IF will link closely with activities under sub-component 2.2 on basin planning given their complementarities. As investments move through the IF process, they will 12 inform and be informed by the analytical and decision support tools developed under sub- component 2.2. Component 2: Effective Water Sector Institutions (US$ 56.3 million) 46. Component 2 will support the current sector institutions, as well as the preparation, implementation and full functioning of the new and proposed legal and institutional framework resulting from alignments with the Constitution of Kenya 2010. It will also support integrated and participatory basin planning, including developing the requisite knowledge base and building capacity and institutional partnerships for effective water management and planning. The overall objective of this component will be to strengthen the enabling institutional and legal framework to sustainably advance Kenya’s vast water sector investment program in order to achieve water security and climate resilience. To this end, Component 2 includes two sub-components: (i) support for water sector transition and reforms and (ii) strengthening water management and planning. Each sub-component is described below. Sub-Component 2.1: Support for Water Sector Transition and Reforms (US$ 26.1 million) 47. This sub-component will support the current water sector institutions, as well as the preparation, implementation and full functioning of the new and proposed legal and institutional framework resulting from alignments with the Constitution of Kenya 2010. The objective of this support is to enhance the capacity of water sector institutions to effectively perform their mandates and functions, thereby contributing both to meeting project objectives and to improving the broader reform process. 48. Support will be provided during the three stages of reforms in order to ensure an effective response to evolving challenges: (i) the pre reform stage, during which legal enactments will be designed and supporting legal and institutional instruments will be finalized, including administrative tools to guide the water sector transition; (ii) the reform stage, during which legislative changes will take place and transition plans will be implemented; and (iii) the post reform stage, during which the institutional and legal changes introduced by the reforms will be consolidated and strengthened and further institutional capacity built. 49. This sub-component consists of the following activities: (i) supporting institutional and legal reforms throughout design and early stages of implementation; (ii) supporting the legal and institutional transition process, including the implementation of the Water Sector Transition Plan; and (iii) building the capacity of key water sector institutions. The first two activities are designed to provide support during the pre-reform and reform stages, respectively. The third activity will persist throughout all three stages of reforms. Each of these activities is outlined below (refer Annex 2 for detailed description). It is envisioned that reviews will be undertaken periodically to identify issues and put in place corrective measures for strengthening activity effectiveness. 50. Activity 2.1.1 – Supporting institutional and legal reforms throughout design and early stages of implementation. This activity will contribute to the design and finalization of legal and institutional reform instruments and measures, including the identification of legal and/or 13 institutional issues and necessary modifications. This activity will be undertaken during the pre- reform stage, discussed above, and will primarily target those institutional and legal reforms that are critical for meeting project objectives. Specific activities could include: supporting the finalization of legal instruments and related policies (draft Water Bill and Policy, Irrigation Water Bill and Policy, etc.); supporting the finalization of the Water Sector Transition Plan, including developing financing plans for the transition; audit and inventory of assets and liabilities; organizational studies to determine the institutional structure, staffing levels, assets and liabilities for transition; and enhancing forums to facilitate public participation and build consensus around the reforms. 51. Activity 2.1.2 – Supporting the legal and institutional transition process, including the implementation of the Water Sector Transition Plan. This activity will support the constitutionally mandated water sector transition (corresponding to reform or transition stage, mentioned above). The specific activities could include: reviewing and updating water sector strategies to align with the new law and policies; supporting the development of required subsidiary legislation/regulations for new water sector institutions (e.g., National Water Storage Authority and successors to MEWNR, NIB and Basin Water Resources Boards); and mainstreaming relevant components of the National Adaptation Plan in the water sector. In addition, this activity could support the re-organization of the institutional structure to conform to devolution stipulated in the new Constitution of Kenya by piloting the design and establishment of new water organizations at the county level, which could be scaled up in later phases based on lessons learned. 52. Activity 2.1.3 – Building the capacity of key water sector institutions. This activity will build and enhance the capacity of key entities to fulfill their core mandates and functions, as well as support non-core (yet critical) functions. Support will be provided throughout the three reform stages, although it will focus on the reform stage and the final stage (post reform period). The specific activities could include: induction workshops for staff on new water laws and institutions; assessing and mapping capacity needs for new water sector institutions and developing staffing and capacity building plans; supporting the capacity building of key entities for implementing new mandates and functions, including the provision of training; supporting non-core but critical functions, including procurement and financial management and safeguards due diligence; and needs assessment of and technical assistance to county governments. Capacity building undertaken by the PMU to support the transfer of its initial responsibilities to executing agencies (those agencies involved in the project) is included under this activity (refer Component 3). Specialized technical capacity building in water management and planning, including at the community or water user level, is included under Activity 2.2.3. Sub-Component 2.2: Strengthening Water Management and Planning (US$ 30.2 million) 53. The objective of this sub-component is to improve the capacity and knowledge base for basin-level water resources management in Kenya, including integrated basin planning and mainstreaming climate resilience. The sub-component builds on the strengthened sector wide institutional and legal frameworks supported under sub-component 2.1 by focusing on the information, technical capacity, and participatory aspects of water resource planning that will contribute to the sustainability and climate resilience of Kenya’s water resources and associated 14 investments. The sub-component consists of three activities: (i) Water Resources Knowledge Base; (ii) Water Resources Planning and Allocation; and (iii) Institutional Capacity Strengthening and Partnerships. These activities are outlined below (refer to Annex 2 for a detailed description). 54. Activity 2.2.1 – Water Resources Knowledge Base. This activity aims to upgrade the water resources monitoring network, extend forecasting and early warning capacity, and improve the knowledge base in order to provide timely information to support real-time decisions in Kenya’s six main basins. The activity requires collaborative working and data sharing arrangements between various institutions, including KMD, WRMA/WRRA, Basin Boards and other relevant agencies. The specific activities include the following: (a) Hydro-met Modernization: improving the monitoring network, including hydrological, meteorological, water quality, and groundwater monitoring. (b) Real-time Forecasting and Disaster Risk Management Decision Support: strengthening forecasting and early warning systems through improved information to national and county level administrations and equipped operation rooms. In specific pilot areas, support would be provided for last mile connectivity (i.e. the connection of information from early warning systems to the communities affected) and preparedness, working through existing organizations. (c) Water Resources and Climate Risk Information Systems (WCIS): improving the existing system to enhance the water resources knowledge base across the relevant GoK agencies. 55. Activity 2.2.2 – Water Resources Planning and Allocation. This activity aims to develop the analytical and stakeholder consultation framework to support basin planning and water resource allocation in Kenya’s six main basins. The specific activities include the following: (a) Basin Planning, including the development of a Basin Planning Decision Support System (DSS), drawing from the improved knowledge base developed under 2.2.1, and using structured stakeholder consultations (national and transboundary). (b) Specialized Analytical Products to inform the process of assessment and planning with relevant stakeholders at the sub-basin level and including strategic scoping assessments and investment identification, detailed surveys, and basin strategic environmental and social assessments. This activity would also include work to develop existing climate models within Kenya for use in consultations and for raising stakeholder awareness. 56. Activity 2.2.3 – Institutional Capacity Strengthening and Partnerships. This activity aims to develop adequate capacity and institutional relationships with specialized organizations for effective water management and planning (refer to Annex 7 for institutional mapping). The first stage of this activity will include detailed needs assessments, including the institutions, procedures, knowledge, human resources, equipment, infrastructure, etc. The development of 15 systems and capacity will be supported to ensure that systems put in place under Activities 2.2.1 and 2.2.2 are sustainable. The specific activities include the following: (a) Institutional Strengthening, including supporting the infrastructure needed for improved functioning of water resources management institutions, a structured communications program, and stakeholder outreach at the sub basin level for Water Resources Users Associations (WRUAs) to improve local planning. Infrastructure could include civil works for offices where need is clearly demonstrated, and also incorporate vehicles, information technology and communications equipment, and documentation centers. (b) Training at the central, basin and sub-regional level, including technical training in such areas as management of the hydrometric network, catchment/sub-catchment management planning, modeling and other specialist skills, use of the Planning Decision Support System, etc. Training and on the job skills development would also cover developing project management skills, including planning, effective outsourcing, etc. (c) Training for WRUAs, including supporting the WRUAs to become more effective in their current mandate and to expand their role to support the management of the hydrometric system and knowledge base. (d) Developing partnerships, including supporting WRMA/WRRA, Basin Boards and other water institutions to partner with other agencies, universities, regional centers, etc. to work on collaborative projects that address water security, climate resilience and drought/flood disaster risk management. Component 3: Support for Project Implementation (US$ 15.2 million) 57. In the dynamic environment arising from the alignment of the water sector to the Constitution of Kenya 2010, it is essential that project implementation is based on an overall design and approach that ensures continuity, avoids delays and cost increases in advancing project activities, and mitigates potentially negative effects of gaps and issues that may emerge during the transition period and as the new institutional, legal and policy framework of the sector is put in place. For these reasons, a Project Management Unit (PMU) will be established to support MEWNR and its successor. The PMU’s design, including its roles and functions, are summarized in Section IV below and detailed in Annex 3. 58. This component will support the establishment of the PMU to provide for effective project implementation through the completion of the KWSCRP-1 and throughout the reform period. Specifically, this component will finance the required office space, goods (e.g., vehicles), equipment (e.g., computers), staff, consultant services, travel, training and operating costs that will allow the PMU to carry out its responsibilities for project implementation. These responsibilities include project management and coordination, procurement and financial management, project monitoring and evaluation (including impact evaluation), social and 16 environmental safeguards management and oversight, and strategic project communications and outreach. 59. A critical role of the PMU will be to support capacity building of sector agencies to enable them to take over these responsibilities. As a first step, the PMU’s application of the Investment Framework through the Qualifying Assessment (QA) will include an institutional and fiduciary assessment of the relevant agency (i.e., the agency sponsoring the investment in question), as well as a preliminary capacity building plan. Further support for developing core and non-core functions is provided under sub-component 2.1. It is expected that during the course of the project, a number of currently non-qualified agencies as per standard World Bank fiduciary assessments will become qualified implementing agencies. Project Preparation Advance (US$ 3.0 million) 60. A Project Preparation Advance (PPA) in the amount of US$ 2,965,000 was approved and signed in January 2012 to support preparatory activities for the project, including the preparation of core technical documents. Unallocated (US$ 3.67 million) 61. An unallocated amount of US$ 3.67 million has been retained. B. Project Financing 62. Project financing in the amount of US$ 155 million will be provided by IDA. Counterpart funding will be provided to support the mainstreaming of project activities into existing systems and budgets to cover essential inputs (e.g., compensation and some taxes). 63. Approximately 16% of IDA financing will go towards infrastructure, with the large majority of infrastructure financing going towards the Lower Nzoia Irrigation Scheme (Sub- component 1.1). Approximately 74% of the financing will go to design and supervision, which includes activities relating to building the investment pipeline (1.2), support to water sector transition and reforms (2.1) and strengthening water management and planning (2.2). Approximately 4% of the financing will go to operating costs 12) and approximately 6% to goods and equipment. 64. Co-financing from KfW will support specific activities related to the Lower Nzoia Irrigation Scheme Phase 1 under Component 1. Other development partners, have also expressed interest in supporting related activities. In particular, the Ministry of Environment, Water and Natural Resources has requested support from the German International Cooperation (GIZ) related to Value Chain and Marketing in the Kisumu area (where the Lower Nzoia Irrigation 12 Of the total operating cost of US$ 6.2 million, about 60% or US$ 3.7 million is budgeted under WRMA activities, while about 40% or US$ 2.5 million is budgeted under MoWI (including the PMU and the Directorate of Water Sector Coordination and Reforms). 17 Scheme is located), and to Component 2 (including support to the broader reforms at the national level as well as water resources planning and management). 65. At mid-term, about three years after effectiveness, the project will assess the extent to which activities are adequately implemented and make needed adjustments. Lending Instrument 66. The lending instrument is investment project financing (IPF). Project Cost and Financing 67. Total project financing requirements are estimated at US$ 182.67 million. This includes an IDA contribution of US$155 million; KfW co-financing of up to US$ 20.0 million 13; and GoK/beneficiary contribution of US$ 7.7 million for the Lower Nzoia Irrigation Scheme Phase 1. Component amounts (inclusive of 13% price and physical contingencies) are shown in the table below. Table 3: Project Cost and Financing Project Components Project Cost IDA Financing % Financing 1. Water Resources Development 14 104.5 76.8 73% 2. Effective Water Sector Institutions 56.3 56.3 100% 3. Support for Project Implementation 15.2 15.2 100% Project Preparation Advance 3 3 100% Unallocated 3.7 3.7 100% Total Project Costs 182.7 155.0 85% Interest During Implementation 0.0 0.0 Front-End Fees 0.0 0.0 Total Financing Required 182.7 155.0 85% C. Program Objective and Phases 68. The higher level objective of the series of investment operations is to improve water security and build climate resilience by strengthening water and climate risk investment planning, preparation, and implementation that is supported by an enhanced enabling 13 KfW has indicated it will commit this financing envelope, and it is expected that formalities will be concluded before project effectiveness. The total US$ amount is based on exchange rate of 1 EUR = 1.33 US$ as of March 31, 2013. 14 Includes US$ 76.8 million from IDA, US$ 20 million from KfW and US$ 7.7 million GoK/beneficiary contribution. All figures in the table are rounded to one decimal place. 18 institutional framework. The series of investment operation will commence with KWSCRP-1. The PDO for KWSCRP-1 is provided in Section II.A. D. Lessons Learned and Reflected in the Project Design 69. Project design has benefited from best practice and lessons learned from national, regional and global water-related projects that have been examined in detail. Some of the key lessons learned that are reflected in project design are described below. 70. Long-term, yet flexible, commitment – The programmatic approach demonstrates the World Bank’s commitment to Kenya’s water sector. In contrast to the piece-meal approaches that have not been fully satisfactory in the past, such a commitment is required to transform the sector by sustainably and comprehensively advancing implementation of a vast water sector investment program. At the same time, flexibility is required in light of the significant reforms associated with aligning the water sector to the 2010 Constitution of Kenya. The programmatic design provides this flexibility, while also establishing performance targets and incentives to enhance project performance. 71. Pragmatic and progressive approach – The project is designed to take a pragmatic and progressive approach, by supporting a priority investment for water security and climate resilience (sub-component 1.1), while building the investment pipeline (sub-component 1.2) and the broader basin planning process (sub-component 2.2). The advantage of this approach is that it that allows demonstrative, early investment in urgent infrastructure and related activities, while providing the quality assurance guidelines, tools and information base to ensure that future investments are well planned and prepared. A great deal of upstream work focused on developing an initial Investment Framework (IF), building on experience in other regions and, notably, the India National Ganga River Basin Project. The IF will be refined throughout implementation of the project, with the aim of it becoming the overarching framework for the water sector. 72. A gradual approach to building institutions – Experience with projects aimed at developing a rational system of resource allocation in an environment of scarcity indicates that building the necessary institutional and regulatory frameworks is a long-term and arduous process. When capacity is weak, building confidence through gradual improvements – for example, through piloting, developing and applying norms and guidelines to concrete dams or irrigation schemes, and training staff on technical and participatory aspects of water management – is the most effective approach. 73. Project implementation and institutional support – A Project Management Unit (PMU) will be established to ensure continuity and effective project implementation prior to, during, and following the dynamic reform period. The benefits of ‘ring fencing’ project implementation through the establishment of an autonomous entity, such as a PMU, have been demonstrated in numerous cases. At the same time, experience has also shown that there are dangers in setting up entities that could in time morph into parallel government structures. For this reason, the PMU is meant to be a transitional entity, extending until the end of KWSCRP-1. The project will support institutional capacity building and development that will ensure the mainstreaming of PMU responsibilities and functions in involved agencies in the longer run, such that 19 sustainability is achieved beyond the life of the project itself. Support for capacity development of MEWNR as well as potential other sector agencies is a key focus of the project. 74. Complementary infrastructure, institutional, and information support – Project design reflects the need for not only supporting the development of infrastructure and related investments, but also for establishing the foundational institutional structures and knowledge and information systems to ensure that these investments are sustainably planned, implemented, operated and managed for long-term sustainable performance. Thus, the project gives a balanced focus to institutions, information for evidence-based decision-making, and on-the-ground investments. As demonstrated in numerous other projects, critical to this process are capacity building and public awareness raising activities for stakeholders that will ensure ownership to achieve project success. 75. Monitoring and evaluation for results— A comprehensive and robust monitoring and evaluation system will be developed under the project, as well as a rigorous impact evaluation, in order to improve project performance and adaptive management. The Results Framework reflects the need for well defined results at the project level, as well as key performance milestones that gauge progress in reaching overall program objectives. 76. Stakeholder coordination – The importance of adequate coordination between all stakeholders has been repeatedly identified as a critical component for success in complex water sector projects that involve multiple stakeholders across a range of related sectors. Establishing coordination mechanisms is even more important in light of the significant institutional and legal reforms and the shifting institutional structure. Implementation arrangements that include the establishment of an Inter-Ministerial Oversight Committee (IMOC) will establish a strong platform for exchanging information amongst a broad range of stakeholders to ensure continuous stakeholder engagement. 77. Synergies with Development Partners – The design of the project has been informed by and benefited from extensive discussions with development partners working in Kenya’s water sector. Throughout project implementation, synergies with development partners will continue to be built, including through the established Water Sector Technical Working Group. Design of this project has placed special consideration on related activities of development partners, such as the National Water Resources Master Plan supported by JICA, amongst others, and technical and financial coordination with KfW on the Lower Nzoia Irrigation Project Phase 1. 78. Inclusive approach to sustainable large scale irrigation development with smallholder farmers – The design of support for Lower Nzoia Irrigation Scheme Phase 1 has benefited from experience learned through irrigation projects, in addition to analytical work and studies. Based on these, the sub-project is organized around three complementary pillars for successful transition from current rain-fed subsistence agriculture to commercial farming, with arrangements to ensure that the scheme is sustainable and functional through adequate maintenance and efficient operation. For this to occur, the sub-project is designed to establish the necessary incentives for the private sector to play a critical role at early stages, and to facilitate long term win-win linkages between private sector initiatives (agribusiness firms, banking system, NGOs, associations, service providers, etc.) and project beneficiaries. This design builds 20 on the documented experience of value chain projects in Kenya (e.g., supported by GIZ, USAID), as well as a recent World Bank study on PPP options in irrigation in Kenya. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 79. MEWNR will serve as the implementing agency of the project through the Project Management Unit (PMU), established under Component 3. The PMU will report to the Principal Secretary (PS), MEWNR, and will be granted a high degree of autonomy to ensure efficient implementation of the project, including through the application of rules, criteria, and procedures agreed with the World Bank. The PS, as the Accounting Officer of MEWNR, has appointed the PMU as a procuring unit and has delegated financial management responsibilities to the PMU, within the Legal Framework stipulated in the procurement law of Kenya. 15 Notwithstanding these provisions, the PMU will be accountable to the Principal Secretary, MEWNR. 80. The core functions of the PMU will be coordination and facilitation, fiduciary (procurement and financial management), environmental and social safeguards supervision, monitoring and evaluation (M&E) and impact evaluation, annual work programming and budgeting, and reporting. The PMU will undertake procurement, financial management and reporting for all project activities. The PMU will also be responsible for ensuring the application of social and environmental safeguards frameworks (ESMF, RPF, VMGF, and IPMF), and supervising the implementation of safeguards instruments. In addition to responsibility for overall project implementation, the PMU will directly execute sub-component 1.2 (refer below). 81. Executing agencies 16 will work closely with the PMU to execute sub-component 1.1 (Lower Nzoia Irrigation Scheme Phase 1), sub-component 2.1 (Water Sector Reforms), and sub- component 2.2 (Water Management and Planning). These are NIB, the Directorate of Sector Coordination and Reforms, and WRMA, respectively. The executing agencies will be supported by implementation support consultants (ISCs), which could be a consortium of firms with relevant national and international experience. The ISCs will be embedded in the respective executing agencies. The ISCs will be responsible for delivering most of the sub-component activities, including project planning and reporting, civil works supervision, implementation of social and environmental safeguards instruments, etc. The ISCs will also provide capacity building to executing agencies, including in technical areas related to sub-component activities and for general fiduciary and safeguards functions (in coordination with PMU). 15 Kenyan Law provides MEWNR as a Procurement Entity, with the PS as the Accounting Officer. The Ministerial Tender Committee (MTC) and the Ministerial Procurement Committee (MPC) are the final authorities for the award of tenders, depending on the financial threshold reached (MPC in the case of lower financial thresholds). The Accounting Officer is empowered by Kenyan Law to establish procurement units. The PMU has been appointed as a procurement unit within MEWNR and will follow procurement procedures agreed in the Finance Agreement. However, all procurement will be approved and awarded by the Ministerial Tender Committee (MTC) or the Ministerial Procurement Committee (MPC), depending on the amount of the contract. 16 MEWNR is responsible for the overall implementation of the project through the PMU. In order to avoid confusion, those agencies that would typically execute investments or other project-related activities under their mandate are referred to herein as “executing agencies�. 21 82. Sub-component 1.2 will be executed by the PMU. Consultancies will be procured by the PMU to undertake the pre-feasibility, feasibility and detailed design studies that will be financed under the sub-component, in addition to providing support for executing the sub-component, as needed. The work under this sub-component will be carried out in close coordination with the “sponsor agency� – normally the mandated public agency for the investment in question – including for the preparation of technical specifications and terms of reference (TORs), etc. 83. The PMU Project Manager will be appointed by the PS through a competitive process, subject to No Objection from the World Bank on the specific terms of reference, criteria for selection and adequate qualifications for the position. The PMU will additionally have a core staff of professionals with the necessary expertise and experience to undertake the PMU’s responsibilities as implementing agency of the project and executing agency for sub-component 1.2. PMU staff will be recruited competitively, based on criteria agreed with the World Bank and in accordance with World Bank Selection and Employment of Consultants Guidelines. 17 PMU staff could also include those from the civil service, in accordance with current civil service rules. 84. The PMU will be a transitional entity, extending until the end of KWSCRP-1. One of its important roles will be to support executing agencies in developing the required capacities for procurement, financial management, monitoring and evaluation, environmental and social safeguards implementation, and investment and activity execution (refer sub-component1.2 and 2.1). 85. An Inter-Ministerial Oversight Committee (IMOC) will be established, primarily as a consultative group and to provide high level, strategic guidance on project activities. It will be comprised of the principal secretaries (PSs) of ministries with a relevant role in the water sector (including Ministry of Regional Development Authorities, Ministry of Agriculture, Livestock and Fisheries, and Ministry of Environment, Water and Natural Resources and their successors), as well as the The National Treasury. Membership can be extended beyond this core group to other agencies on an as need basis. The IMOC will be chaired by the PS, MEWNR. 86. Implementation Arrangements are discussed in further detail, including by sub- component, in Annex 3. B. Results Monitoring and Evaluation 87. A comprehensive system of monitoring and evaluation methodologies will be supported under the project, including a rigorous impact evaluation (IE). Reporting on progress and any shortcomings will be undertaken on a quarterly and annual basis in order to build a learning platform to inform project management and the improvement of project performance. To the extent possible, M&E data will be made publicly available in order to improve transparency and 17 World Bank Guidelines: Selection and Employment of Consultants under IBRD Loans & IDA Credits & Grants by World Bank Borrowers – January 2011. 22 project governance. The IE will assess changes or impacts that can be attributed to selected project interventions. For the Lower Nzoia Irrigation Scheme Phase 1, data will be collected through three rounds of household surveys, one pre-intervention baseline, one mid-term, and one post- intervention endline. Data collection for M&E and IE are unified under the budget for Component 3, with the exception of M&E for Lower Nzoia Irrigation Scheme Phase 1 under sub-component 1.1, which is budgeted under that sub-component. 88. Results and Process Monitoring and Evaluation. The M&E system will track progress in implementation against timescales and targets, as well as resource use against budgets. Results will be tracked via input-output monitoring, whereby the inputs (investment costs, quantities of inputs, etc.) are compared with outputs actually achieved against annual targets. Process monitoring will focus on processes that are critical for meeting the project’s objectives, such as the progress of training/capacity building initiatives and execution of sub-projects. 89. Implementation Arrangements for Results and Process Monitoring and Evaluation. All agencies involved in the implementation and execution of the project will participate in the process of data collection, compilation, analysis and use. The PMU will be staffed with an M&E specialist and will have overall responsibility for coordination, including collating information from all entities for quarterly and annual progress reporting, using an agreed format. Data will be collected and managed by each executing agency through a designated focal point, who will be responsible for data acquisition, collation and reporting for their respective sub-components. In the case of Lower Nzoia Irrigation Scheme Phase 1, NIB will be in charge of setting up a specific M&E system that will feed into that of the overall project, with the assistance of the implementation support consultant (ISC). NIB’s specific M&E system will have two purposes: (i) to monitor and evaluate the investment per se; and (ii) as a tool to scheme operations and performance at full development, including after the project completion. The project will fund necessary equipment (computers, software), other goods (e.g., vehicles), capacity building (training), and incremental staff to strengthen results and process monitoring at the project level and to equip the PMU and focal points to carry out the these responsibilities. Consultants will be contracted to provide technical support to implementing and executing agencies in the development and operation of the overall M&E system. An M&E workshop will be carried out immediately upon effectiveness, including all relevant actors. 90. Impact Evaluation. An IE will be undertaken in order to determine the net contribution of the project and its interventions. The IE will focus on the Lower Nzoia Irrigation Scheme Phase 1. A rigorous IE design for the scheme is feasible, as a counterfactual can be established; it is likely that the right bank of the river can serve as a counterfactual for the left bank, although the similarity of communities on each side will be confirmed at the time of the baseline survey. Evaluating the impacts of various interventions on Lower Nzoia Irrigation Scheme Phase 1 will provide critical information on which measures are most effective. This generation of knowledge will shed light on issues with past irrigation performance in Kenya, in addition to informing future projects in the country – including potentially Lower Nzoia Irrigation Scheme Phase 2 – the region and beyond. 91. The IE will focus on the overarching question of the impact of the irrigation investment – including infrastructure, services and institutional development – by measuring effects at the 23 household level on such aspects as incomes, assets, employment, vulnerability (e.g., food security), etc. Additional research questions could hone in on the specific impact of farmer services to support the transition from low value subsistence agriculture to higher value agriculture, and the impact of support to institutional development for participatory irrigation management. These questions could include the following: What is the impact of adopting market-driven high value cropping packages, delivered via various mechanisms? What is the impact of different delivery mechanisms for extension services and other support, where delivery mechanisms could include cooperatives or farmers associations, private firms or NGOs, commercial marketing or processing firms contracted to purchase the produce? What is the impact of providing various levels of responsibility to Irrigation Water Users Associations (IWUAs), where various levels could include responsibility for O&M at tertiary canal and below, or responsibility for O&M at secondary canal and below? 92. Importantly, the detailed IE protocols will be designed and implemented in such a manner that they will not adversely interfere with the individual, collective, and institutional capacity building that the project puts in place. In particular, an adequate communication effort will be made when farmers are invited to engage in different and possibly contradictory sets of measures as compared to other farmers. 93. Implementation Arrangements for Impact Evaluation. The M&E specialist in the PMU will lead the IE process. The M&E specialist will be supported by experts who will assist with finalizing the design and contributing to the implementation of the IE. A Principal Investigator will lead the IE analysis and an in-country Field Coordinator will provide day-to-day operational support to the implementation of the IE, including coordinating and supervising field activities for data collection. A third party consultancy will be responsible for conducting the survey work/data collection and for preliminary data processing. The World Bank’s Development Impact Evaluation (DIME) Initiative will continue to provide overall support and technical guidance to the IE. Other technical resources, including from academia or other research institutes, will be contracted to provide targeted support to the IE as and when needed. C. Sustainability 94. The design of the project aims to strengthen institutional, economic/financial, and environmental/social sustainability, as detailed below. 95. Institutional Sustainability: The project seeks to sustain impact by supporting institutional sustainability, including through sub-component 2.1 that will enhance the legal and institutional framework of key institutions that are critical to meeting project objectives. This will be ensured by supporting these key institutions to effectively carry out their core and non- core (yet equally important) mandates and functions, including in technical, environmental, social, economic, financial management, procurement, and monitoring and evaluation areas. As the agencies involved in the project develop the capacity to execute investments and activities, the PMU as a transitional entity will assume these roles on their behalf, bringing on board additional consultancy support, as needed (e.g., engineering expertise, implementation support consultants, etc). Additionally, the project will enhance institutional sustainability by facilitating stakeholder participation and building capacity. These include activities under sub-component 1.1 (i.e., Lower Nzoia Irrigation Scheme Phase 1, refer below) and under sub-component 2.1 24 (e.g., developing institutional capacity at various levels and a stakeholder participation system for basin planning, as well as ensuring that data and information reach key stakeholders through the establishment of a water resources and climate risk information system). 96. Specific measures have been put in place to ensure effective project implementation through a potentially complex institutional and legal reform period. These include the establishment of the PMU itself, which will be granted operational autonomy to apply rules, criteria and procedures agreed with the World Bank. Formal commitments (e.g., implementation agreements) with the executing and partner agencies involved in project activities will be established. An Inter-Ministerial Oversight Committee (IMOC) will be set up as an advisory and consultative group to ensure that all relevant stakeholders are informed of project activities. It is important to highlight that these measures are transitional and are not meant to replace or overtake the evolving institutional structure of Kenya’s water sector. Institutional support under the project has been designed to provide a sound institutional and legal framework that will ensure sustainability in the longer term and beyond the life of the project itself. 97. Institutional sustainability is a key objective of Lower Nzoia Irrigation Scheme Phase 1 to be financed under sub-component 1.1. This will be ensured through the step-by-step approach adopted by the project for implementing participatory irrigation management (PIM) over its seven year duration. The project aims to establish and empower IWUAs as viable, cohesive, organizations with legal status and adequate capacity to acquire land and water rights; collect fees and contribute to scheme O&M; ensure efficient water use and distribution; and resolve conflicts. They will be progressively structured into an apex organization, gradually gaining increasing responsibility over scheme management and decision-making. NIB will initially manage the scheme and water distribution down to the secondary canal level, with IWUAs having responsibility for O&M of the tertiary canals and below. At later stages, IWUAs will ultimately take over the responsibility for secondary canals, with the locally-established NIB becoming a Service Provider, focusing primarily on irrigation water provision through management of the main waterworks. In line with the clear policy direction towards irrigation management transfer Kenya, in an early stage of project implementation, the feasibility of alternative scheme management processes will be examined, including the participation of the private sector. 98. Economic and Financial Sustainability: The project will contribute to economic and financial sustainability in a number of ways. In the case of Lower Nzoia Irrigation Scheme Phase 1, sustainability has been built into the sub-project through beneficiary contributions that will cover a pre-determined increasing portion of O&M costs over time and reach 100% in the fifth year. In other words, beneficiary contributions for O&M will rise with farm incomes. These contributions are expected to be affordable as water charges would represent less than 5% of expected household incremental net income at full recovery. 99. The project aims to build a sound water investment pipeline that addresses sustainability issues at several points in the investment planning, identification, preparation, implementation and operations process where critical limitations have been identified. In order to strengthen the pipeline of investment-ready sub-projects, the project will support the enhanced preparation of investments at both the pre-feasibility and feasibility levels, in addition to the development of an 25 Investment Framework (IF) that will ensure that potential investments have undergone a thorough economic and financial analysis and have demonstrated viability on both grounds. Capacity building in the application of economic and financial techniques is a central feature of the project. The project will also support integrated basin planning to help to identify, prioritize and sequence future investments. The associated knowledge base and tools that will be built under the project will provide the requisite data and information for undertaking rigorous analysis. Capacity building will ensure that the relevant agencies and staff have the ability to maintain the knowledge base, apply developed tools for economic and financial analysis, and incorporate these in the overall investment planning process. 100. Environmental and Social Sustainability: Environmental and social sustainability are core features of the overall program, including its first investment operation (the current project, KWSCRP-1). As such, the following safeguards instruments have been prepared to guide the implementation of the project and to ensure compliance with World Bank environmental and social policies, as well as with the environmental management policies and legislation of GoK: the Environmental and Social Management Framework (ESMF); the Resettlement Policy Framework (RPF); the Vulnerable and Marginalized Groups Framework (VMGF); and the Integrated Pest Management Framework (IPMF). These instruments will apply to the project and are integral parts of the Investment Framework (refer sub-component 1.2). Consistent with the safeguard instruments for the overall program, the following safeguards instruments have been prepared and disclosed for the Lower Nzoia Irrigation Scheme Phase 1 included under KWSCRP-1 (refer sub-component 1.1): the Environmental and Social Impact Assessment (ESIA); the Resettlement Action Plan (RAP); and the Integrated Pest Management Plan (IPMP). Since this scheme is not located in an area where vulnerable and marginalized groups are present, a Vulnerable and Marginalized Groups Plan (VMGP) was not prepared. 101. Under Component 2, strategic environmental and social assessments (SESAs) may be prepared, including the possibility that an “SESA� methodology or approach would be incorporated to the TOR for the basin plans. V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table 102. The following table summarizes the risk ratings in the Operational Risk Assessment Framework (ORAF). Details of the risk analysis and description of risk categories are provided in the ORAF, which is attached in Annex 4. 103. Table 4: Summary of ORAF Risk Ratings. Risk Rating Stakeholder Risk Moderate Implementing Agency Risk High - Capacity High - Governance Substantial 26 Project Risk High - Design Substantial - Social and Environmental High - Program and Donor Substantial - Delivery Monitoring and Sustainability Substantial - Implementation Delay Substantial - Other (Optional) -- Specific Risks Associated with Lower Nzoia Irrigation Scheme Phase 1 Substantial Overall Implementation Risk High B. Overall Risk Rating Explanation 104. The project has an overall risk rating of High before mitigation. This risk rating reflects a combination of the standard risks associated with implementing a complex water sector project in Kenya, and uncertainties during a period of constitutional and political transition and changes in the overall governmental, institutional, and legal structure. Weak institutional capacity and lack of experience in developing and managing large scale investments could have an impact on project activities. The risks identified will be mitigated through project activities, including targeted support for institutional strengthening, skills building and capacity development (including in such key areas as fiduciary management). A Project Preparation Team (PPT) has been established under MEWNR. Lessons learned from this experience will be applied to the PMU, which will recruit technical and operational experts to enhance project-related functions of MEWNR. The involvement of the PPT and PMU, and its close working relationship with project executing agencies will also help mitigate the risk of implementation delays. 105. The KWSCRP-1 is a high-risk, high-reward project, where the main risks are directly attributable to the potential complexity of investments needed in the sector, which is made more challenging in the context of significant institutional and legal changes. This translates into issues in technical, environment, social, financial, governance, and policy areas that are each critical to the project’s overall success. Mitigation for this risk is included through the proposed project activities, including the Investment Framework that would develop a transparent selection criteria and quality assurance guidelines to prepare investments, including on technical aspects related to feasibility studies in order to ensure high quality standards. 106. Specific risks related to Lower Nzoia Irrigation Scheme Phase 1 include delays in issuing necessary permits, delays in procurement processes due to insufficient capacities (particularly at the beginning of implementation), occurrence of extreme hydrological events, lack of marketing opportunities for high value crops, which would impact on farmer incomes and financial resources to cover O&M costs for scheme sustainability. Measures have been carefully incorporated into the design of the investment itself in order to mitigate these risks. These include: support to agricultural production and establishment of market linkages through a value chain approach; support to the efficient and sustainable operation of the infrastructure through the progressive transfer of responsibilities and decision-making to Irrigation Water Users 27 Associations; increased level of protection against major flood events (from 25 to 50 years return period); and the use of an implementation support consultant that will support the execution of activities. The risks of institutional discontinuity or instability associated with NIB are considered minimal. VI. APPRAISAL SUMMARY A. Economic and Financial Analyses Sub-Component 1.1 107. Benefits. Lower Nzoia Irrigation Scheme Phase 1 will have both direct and indirect benefits. Improved livelihoods for the smallholder farmers will be the main direct benefit. The 2,100 households with access to reliable irrigated land (on average 1.92 ha/farm) should increase the average annual per farm net income from US$ 3,647 to US$ 10,470 by the sixth year, representing an increase of 180 percent. Additionally, agricultural production and its value will increase in absolute terms as a result of the extension of area under cultivation, from the current 2,464 – half of which is grazing land and 32 percent irrigated rice in Bunyala – to 4,043 hectares. The sub-project will, thus, contribute to increased food security, improved nutrition, higher incomes, and generally enhanced standards of living. An estimated 50,000 additional people are considered as indirect beneficiaries since they would be employed in various activities associated with the value chain for perishable crops; most of them would live in the two local counties where the sub-project is located. Food security at household levels, as well as a reduction of vulnerability to external shocks such as drought or erratic rains will also be attained. 108. Costs. The total sub-project cost of US$ 54.5 million for the 4,043 net ha developed includes US$ 9,392/ha for irrigation infrastructure, US$ 1,417/ha for supporting measures and infrastructure for agricultural production and value chain development, and US$ 1,036/ha for participatory irrigation management measures, notably training and technical assistance. The remaining costs (US$ 1,651/ha) are for project management, including implementation of safeguard measures, monitoring and evaluation, and O&M of the irrigation and drainage system until project year seven. These costs are based on relatively conservative assumptions and include 15 percent physical and price contingencies, including to accommodate any cost modifications in the detailed design. The relatively high cost of the irrigation management and agricultural and marketing components (30% of total cost) is explained by the need to develop, test, and put in place over the seven year period necessary measures for the generation of long term, sustainable irrigated agriculture benefits in this large publicly developed irrigation scheme. Some negative externalities could result from pollution of soil and water resources as the use of agrochemicals increases, and some alteration of natural flora and fauna due to increased farming activities. However, a sound social and environmental management plan has been developed and mitigation measures against these negative externalities will be implemented (integrated pest management, etc.). 109. Economic Analysis. The economic (and financial) analysis is based on: (i) projected production increases (yield and market value); (ii) the timetable for developing irrigation infrastructure (4 years) and implementing support measures (an additional three years); and (iii) a realistic evolving cropping pattern (cropping intensity and increasing share of high value 28 crops). The economic analysis demonstrates that, over a period of twenty years, the economic internal rate of return (EIRR) of the investment is 14.6 percent. The net present value (NPV) is US$ 7.3 million with a 12 percent discount rate. Further, sensitivity analysis demonstrates that if there are cost over-runs or the main outcomes are underachieved, the sub-project will still be viable: a 20 percent increase in the sub-project infrastructure cost would reduce the EIRR to 12.3 percent, and if only 50 percent of farmers adopted new farming practices geared towards high value crops, the EIRR would be 8.5 percent. A decrease of crop prices by 20 percent would reduce the EIRR (to 9 percent). This highlights the importance of adequate production, marketing and management strategies in order to maximize farmer incomes while minimizing avoidable sub-project costs. 110. Financial Analysis. Beneficiaries’ net farm revenues are expected to increase by about two to four times as irrigation, training, and technical support are developed and made available. Farm models representing areas that are currently irrigating rice show that income would still be tripled as a result of the SRI - system of rice intensification - technologies that will allow increasing water and rice productivity while reducing costs of production, together with the expected diversification of production. Models also show that labor use in the farms would be increased by 2.4 times as production is intensified. Returns to the family labor required would be almost tripled from Ksh 900 to Ksh 2,600 per day worked. In the existing Bunyala irrigated area, water productivity would also be doubled. The financial analysis also focused on the activities (e.g., infrastructure investment) that are expected to develop market linkages. The simulation analyzed the option of a passion fruit packing and processing unit (estimated investment of US$ 1.17 million, that is less than 4% of the total cost of the infrastructure) where a third of the 400 ha of passion fruit to be produced would be processed. The current, without sub-project financial gross margin of the cultivated crops in the irrigation command area is US$ 3.3 million per year on 2,464 hectares. With the sub-project, by year 6, the financial gross margin would increase and stabilize at US$ 20.5 million per year on 4,043 hectares. The Financial Internal Rate of Return (FIRR) is 17 percent, and the Net Present Value (NPV) is US$ 15.5 million with a 12 percent discount rate. Sub-component 1.2 111. In addition to financing investments under sub-component 1.1, the project will support the progressive development of an investment pipeline, including by financing feasibility and pre-feasibility level work and the development of an Investment Framework (IF). Building a sound investment pipeline and financing water investments will allow GoK to advance its vast water investment program and assist in closing the large investment gap that is estimated at about US$ 5 – 7 billion in various existing and ongoing studies. 112. The economic and financial significance of investments to enhance water security and build climate resilience cannot be underestimated, nor to the contrary, can the costs of inaction. These costs in economic and financial terms – to say nothing of the equally important social and environmental – can be significant, as past studies have shown. Given their regularity, over the long term, floods and droughts were estimated in a 2006 World Bank report to cost the Kenyan economy about 2.4% of GDP per year. 29 113. The IF will be a critical tool in building a sound pipeline of investment-ready projects to reverse the investment gap. It will include quality assurance guidelines for preparing investments, including with respect to technical, economic and financial, social and environmental, and institutional aspects. An initial IF has been prepared during project preparation and is presented in Annex 6. It includes specific guidelines for undertaking financial and economic analysis of investments and represents international best practice, including by specifying the types of analyses that must be included (e.g., sensitivity and risk analysis, distributional analysis), methodological requirements (e.g., benefits and costs that must be included in the analyses and methodologies used for their valuation, justification of the timeframe and discount rate used, justification of all assumptions used, documentation on data sources, etc.), and the presentation of results (e.g., net present values and economic and financial internal rates of return, including results of sensitivity analyses). The IF will continue to be refined during project implementation, including by developing guidelines that are specific to water investment types (e.g., irrigation scheme versus multi-purpose dam) and extending the IF to cover pre-feasibility level work. That said, even in its current state, the economic and financial guidelines contained in the IF meet the standards of World Bank for economic and financial assessment of water investments. Ultimately, the IF will ensure that economic and financial viability of potential investments is rigorously demonstrated. Component 2 114. As noted above, support under Component 2 of the project is equally critical for ensuring that future investments are selected with a strong economic and financial basis. Basin planning will take place through a participatory process and will be based on economic and financial considerations/criteria, as well as others (i.e., technical, social and environmental, and institutional). The development of the knowledge base and modeling/analytical tools, in addition to the enhancement of the water information system (including upgrading the hydro- meteorological network) will provide the basis on which economic and financial aspects can be analyzed in the investment planning process. Capacity building activities under Component 2 will equip relevant agencies to apply developed tools for economic and financial analysis for incorporation in the overall investment planning process. These activities are critical to understand the economic and financial implications of potential future investments and to identify opportunities that are sound on economic and financial grounds, as well as technical, environmental and social, and institutional. B. Technical 115. The project approach and design are technically sound and sustainable, and align with best practice in Kenya, elsewhere in Africa and globally. Sub-Component 1.1 116. The technical viability of Lower Nzoia Irrigation Scheme Phase 1 is sound, including that it will use a gravity intake in the River Nzoia that will minimize operational recurrent costs vis-à- vis those of pumping schemes. The irrigation scheme has been designed, and a cropping pattern planned, in such a manner that the environmental flow will be maintained, while minimizing the need for potential water rationing. Design and water scheduling will optimally consider farmers’ 30 willingness to irrigate at night, water distribution automation, and the cost of the infrastructure. In particular, the detailed design will optimize the buffering capacity in the main canal and study the possibility of extra capacity at the head of secondary canals for night irrigation. The technical design (conveyance capacity at tertiary level) will allow sufficient flexibility to allow for a change in the choice of non-perennial crops (with different water requirements) in response to evolving market conditions. The buffering capacity mentioned above could be used in the future, should there be an interest by farmers in the parts of the scheme where high value crops are grown to shift from furrow to drip irrigation for water saving, thereby increasing the climate resilience of the scheme in the long run. A detailed design consultancy covering these elements is scheduled to be completed by June 30, 2013. 117. The scheme will adopt a participatory irrigation management (PIM) approach, including formation and training of IWUAs. A consulting firm is to be recruited to provide comprehensive implementation support including institutional set up, marketing activities, and O&M plan preparation, as well as to supervise construction and provide overall quality control. 118. Because flooding and sediment are major issues in the Nzoia river, project activities are coordinating closely with the ongoing Western Kenya CDD and Flood Mitigation Project, which is providing technical and financial support for flood mitigation works, flood management plan preparation, flood warning systems, and catchment conservation works (such as localized erosion control, improved soil conservation works, etc.). In addition, sediment sluice / basin are to be incorporated in the intake weir under the ongoing detailed design consultancy. Sub-component 1.2 119. The Water Investment Pipeline (sub-component 1.2) will finance preparation activities for a range of potential investments – from water supply and irrigation schemes to large-scale water storage – to improve the quality of investment design in line with the IF. These activities will help to close the large water infrastructure gap by correcting a problem that has plagued Kenya’s water sector related to the poor preparedness and non-sustainability of potential investments. The Water Investment Pipeline sub-component will also support the development of an Investment Framework (IF) that will improve the quality of investment preparation. An initial version of the IF was developed during project preparation and includes guidelines on technical analysis that are consistent with World Bank and international standards. The IF will be further refined during implementation, including by developing technical guidelines that are specific to investment type and extending the IF to cover pre-feasibility level work. Component 2 120. The objective of the activities under Component 2 will be to strengthen the enabling institutional, legal and informational framework to sustainably advance Kenya’s vast water sector investment program in order to achieve water security and climate resilience. This component will build the requisite knowledge base, tools and capacity for comprehensive and participatory basin planning that will help to identify, prioritize and sequence future investments. The development of a widely accessible water information system would be critical to this process. Not only will it facilitate sound decision-making for investment planning, but it will 31 also increase access to improved data and related analytical tools that will help the country to become more resilient to increased climate variability and change. These knowledge-intensive approaches are necessary to ultimately improve the quality of investment design and implementation and, therefore, are directly complementary to activities under Component 1. The project will build on existing and ongoing related initiatives, notably the update to the National Water Resources Master Plan (JICA), as well as the sound basis provided by support from other World Bank projects (e.g., NRM and WK CDD/FM Projects, which supported upgrading WRMA’s hydro-meteorological network and capacity building). C. Financial Management 121. The recent financial management (FM) assessment revealed that the implementing agency, MEWNR, and the executing agency for sub-component 1.1, NIB, have adequate accounting capacity to manage the project. NIB is a state corporation under MEWNR and the MEWNR PS will remain the budget holder for the overall project in line with existing GoK regulations. MEWNR is currently the implementing agency for the KWSCRP-1 Project Preparation Advance (PPA), and hence it has adequate experience in the management of World Bank-financed projects. MEWNR has also been successfully implementing two other World Bank projects, WaSSIP and NRM. NIB is a sub-implementer under the NRM project as well. The FM system is centralized as the project design consists mainly of relatively large payment and consultancies which generally tend to have low FM risk. The overall project FM risk is assessed as moderate. 122. The PMU will coordinate the project activities for both MEWNR and all executing agencies, including NIB. MEWNR has already assigned a qualified project accountant to the PPA, which will form the basis of the planned PMU. FM supervision was carried out on the PPA in December 2012 which revealed that the internal control systems continue to be effective. The project will be subject to internal audit review by IAD Treasury. The implementing agency has been submitting IFRs within the stipulated deadlines in form and content satisfactory to the World Bank. In line with the FM implementation arrangements, the project will be implemented by a PMU established in MEWNR. The budgeting arrangements are in line with existing GoK arrangements, and are deemed to be satisfactory. The implementing agency has developed an FM manual which has been reviewed and cleared by the World Bank. The funds flow arrangements are deemed adequate. GoK will open a designated account (denominated in US$) in the Central Bank of Kenya or a financial institution acceptable to the World Bank. It will also open a project account in Kenya shillings in the Central Bank of Kenya or a financial institution acceptable to the World Bank to be managed by the PMU from which project payments will be made. The project has adopted the SOE method of disbursement. There are no outstanding financial management issues on the project. 123. KfW will provide co-financing for the Lower Nzoia Irrigation Scheme Phase 1 (sub- component 1.1). The co-financing arrangements will be done in line with the Agreement between Germany Federal Republic and the World Bank (Stand: 09/2000). The Co-financing Agreement for the Lower Nzoia Irrigation Scheme Phase 1 will be effective by December 31, 2013. MEWNR will enter into two contracts (one for civil works and one for the implementation support consultant) which IDA and KfW will finance on a 50/50 basis, up to the KfW share of 15 million Euros. The payments will be made using “split tranches.� Each certificate of work 32 completed will be accompanied by two invoices of each installment, one for IDA and the other for KfW. The invoices will be forwarded to each respective financier via a withdrawal application and paid for using the direct method of payment. 124. The key risks to the project are: (i) delays in the activation of project management module of IFMIS at ministry level. This is a portfolio-wide problem that the Bank is supporting GoK to address through the TCIP project. Nevertheless, in view of the fact that the project has relatively large size and low volume transactions, these can be managed using the current manual system at the implementing ministry. Financial reports can be extracted using Excel Spreadsheets; (ii) in-country disbursement delays affected the opening of the DA and PA by Treasury. This was a transitional one-off issue resulting from the provisions of the new PFM law which provided for opening of bank accounts in the Central Bank of Kenya. The transition arrangements are that DA and PA will continue to be opened in commercial bank acceptable to IDA until GoK publishes regulations in accordance with Section 28 (1) of PFM 2012 Act that will provide guidelines for moving these accounts to the Central Bank of Kenya. Projects that are approved by the World Bank Board before this GoK policy is issued will not be affected by the policy. Apart from the delays in opening bank accounts by Treasury, the Kenya portfolio has material in-country disbursement delays in moving funds from the DA to the PA which sometimes take over two months. This will be mitigated by using direct payments for the large payments and having adequate advance in the project account. The project will also be encouraged to make regular SOE returns (even on a monthly basis). The World Bank conducts quarterly FM capacity building workshops which will assist in enhancing the capacity of the project; (iii) Ministerial audit committees have been formed in the line ministries including MEWNR, but have been found not to be effective in the providing management oversight. D. Procurement 125. The procurement risks associated with the project and proposed mitigating measures are detailed in Annex 3. An assessment of the capacity of MEWNR to implement procurement actions for the project was carried out by the Word Bank team. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement duties and the management of the ministry. Based on the procurement capacity assessment, the overall project procurement risk is substantial. 126. The key issues and risks concerning procurement for implementation of the project that have been identified include systemic weaknesses in the areas of: (i) accountability of procurement decisions; (ii) procurement record keeping; (iii) capacity of procurement staff; (iv) procurement planning; (v) procurement process administration, up to and including the award of contracts; (vi) contract management; and (vii) procurement oversight. To mitigate these weaknesses, corrective measures have been agreed, as listed in Annex 3. 127. The MEWNR procurement unit has sixteen staff, including Head of Procurement, a Deputy Head, eight Supply Chain Management Officers, and four assistant Supply Chain Management Officers. However, their experience involves mainly local procurement under Kenya procurement laws and procedures using the Public Procurement and Disposal Act 2005 (PPDA) and the national Standard Bidding Document, with little experience in international procurement. A very experienced procurement consultant has been hired under the PPA, and 33 this is expected to boost the capacity of the procurement staff to handle the project as the PPA transitions into the PMU. However, it would be essential to dedicate at least two procurement specialists (in addition to the PPA consultant) well versed in World Bank Guidelines, exclusively to handle procurement activities of the project. With close guidance on the application of World Bank procurement Guidelines on Goods, Works and Selection of Consultants during the first year of operation, the two dedicated procurement specialists, appropriately supported by the current experienced MEWNR staff, can adequately handle procurement under the project. E. Environmental and Social (including Safeguards) 128. KWSCRP-1 has been assigned an Environmental Assessment Category A and triggers Safeguard Policies on Environmental Assessment (OP/BP 4.01), Natural Habitats (OP/BP 4.04), Pest Management (OP 4.09), Physical Cultural Resources (OP/BP 4.11), Involuntary Resettlement (OP/BP 4.12), Indigenous Peoples (OP/BP 4.10) and Projects on International Waterways (OP/BP 7.50). Accordingly, an Environmental and Social Management Framework (ESMF), a Resettlement Policy Framework (RPF), a Vulnerable and Marginalized Groups Framework (VMGF), and an Integrated Pest management Framework (IPMF) were prepared. Based on these frameworks, relevant plans, under Sub-Component 1.1, were prepared. Sub-Component 1.1 129. Lower Nzoia Irrigation Scheme Phase 1 will potentially have adverse and significant environmental impact, including on the social and biophysical environment. An Environmental and Social Impact Assessment (ESIA) was carried out for Lower Nzoia Irrigation Scheme Phase 1 to examine social considerations and risks including those related to gender, access to and control over resources, including resource rights related to water. In addition strong consultative, project information dissemination, outreach and grievance redress processes have been developed. The ESIA took into account issues related to intergenerational equity, ensuring that future generations will be able to satisfy their needs and aspirations. This means that project performance requires that infrastructure is developed and managed in a sustainable manner. 130. Overall, Lower Nzoia Irrigation Scheme Phase 1 is expected to have positive social benefits by improving the livelihoods of farmers through enhanced agricultural production. The investment is expected to directly benefit over 20,000 people, including smallholder farmers who are currently engaged in rain-fed subsistence agriculture (primarily maize and beans) and livestock rearing. Nonetheless, Lower Nzoia Irrigation Scheme Phase 1 will also have some adverse impacts. Based on the ESIA and the Resettlement Action Plan (RAP) that was also prepared, the investment will adversely affect a total of 80-82 structures, including 27 residential houses and 28 commercial units. About 1871 households residing on 995 farms will be affected by the acquisition of the 135.3 hectares of land needed for the sub-project. The RAP includes provisions to mitigate these impacts. Social analysis carried out and detailed in the ESIA indicates that there are no indigenous groups/vulnerable and marginalized groups living in the Lower Nzoia Irrigation Scheme area. 131. Lower Nzoia Irrigation Scheme Phase 1 will increase the irrigated agriculture substantially, thereby improving agricultural production and incomes. At the same time, it will 34 increase the use of chemical that, if not mitigated, could have a negative impact. To mitigate these impacts an Integrated Pest Management Plan (IPMP) was prepared. 132. The ESIA, RAP and IPMP for Lower Nzoia Irrigation Scheme Phase 1 were prepared, consistent with the environmental and social safeguards framework documents for the project. Sub-Component 1.2 133. Sub-component 1.2 supports building an investment pipeline including through the application of an Investment Framework (IF) that will guide investment preparation. The investments in the pipeline are expected to have positive environmental and social benefits by increasing water availability for productive use, as well as building resilience to floods and droughts. However, water resources development investments in the pipeline such as irrigation infrastructure, multi-purpose dams, and infrastructure for bulk water supply could have adverse environmental and social impacts. Potential adverse environmental and social impacts could include higher chemical use due to increased irrigation; changes in the hydrological flow and morphology of the river bed and banks; surface water pollution and siltation of water bodies; ecosystem degradation and loss of flora and fauna; loss of land or structures; displacement of people; loss of access to areas for livelihood support, particularly for women and vulnerable groups; impacts on the cultural practices and the livelihoods of vulnerable and marginalized groups who could reside in some of investment areas in the pipeline, amongst others. As a result of these potentially adverse environmental and social impacts and as a part of the development of the initial IF under sub-component 1.2, the following safeguards documents were prepared and disclosed: an Environmental and Social Management framework (ESMF); a Resettlement Policy Framework (RPF); an Integrated Pest Management Framework (IPMF); and a Vulnerable and Marginalized Groups Framework (VMGF). 134. The Environmental and Social Management Framework (ESMF) was prepared to ensure that a process for identifying, assessing and mitigating environmental and social impacts is integrated into the development of the investment pipeline under sub-component 1.2. The ESMF builds on Kenya’s legal framework for environmental management that is already in place and will underpin project implementation. Key objectives of the ESMF are: (i) to ensure the environmental and social sustainability of investments; (ii) and to ensure compliance with GoK’s regulations and legislation as well as the requirements of the Bank’s environmental and social safeguard polices. The ESMF was prepared on the basis of extensive consultations, including with national institutions, local government/authorities, and selected communities in target areas of potential investments to be supported by the project. The ESMF serves as a guideline document that describes potential environmental and social impact that may arise during project implementation, including potential cumulative impacts. It provides a step-by-step description of the identification of environmental impacts, the planning of mitigation or preventive measures, and the implementation and monitoring of such measures. 135. A Resettlement Policy Framework (RPF), consistent with the World Bank’s policy on Involuntary Resettlement, OP 4.12 was prepared to clarify the principles, organizational arrangements, and design criteria to be applied to investments. The key objective of the RPF is to ensure that all affected people will be compensated for their losses at replacement cost and 35 provided with rehabilitation measures to assist them to improve or at least maintain their pre- project standards of living. The RPF gives special attention to women and vulnerable groups to ensure that they benefit from the investments and that their special needs are addressed. 136. A Vulnerable and Marginalized Groups Framework (VMGF), consistent with the World Bank’s policy on Indigenous Peoples, OP 4.10 has been prepared. The VGMF details the principles and processes to ensure that vulnerable and marginalized groups receive social and economic benefits that are culturally appropriate. 137. Integrated Pest management Framework (IPMF), consistent with the World Bank’s policy on Pest Management, OP 4.09, and GoK’s legal framework for safe importation, storage, distribution, use and disposal of pesticides was prepared. The IPMF is the principal tool and instrument to ensure initial project safeguards as regards pesticide use, principally because the exact locations, scope, designs and nature of the investment pipeline under Component 1.2 remain unknown. The IPMF outlines clear procedures and methodologies for IPM planning, design and implementation of investments. 138. The disclosure dates of all environmental and social safeguards documents that have been prepared are provided in the table below. Table 5: Disclosure Dates of Environmental and Social Safeguards Documents Disclosure Dates Document WB Infoshop In-Country Safeguards documents for project The Environmental Social Management Framework (ESMF) 01 Feb 2013 13 Feb 2013 Resettlement Policy Framework (RPF) 13 Feb 2013 18 Feb 2013 Integrated Pest Management Framework (IPMF) 06 Feb 2013 13 Feb 2013 Vulnerable and Marginalized Groups Framework (VMGF) 13 Feb 2013 13 Feb 2013 Safeguards documents for Lower Nzoia Irrigation Scheme Phase 1 Nzoia Resettlement Plan (RAP) 13 Feb 2013 13 Feb 2013 Environmental and Social Impact Assessment (ESIA) 01 Feb 2013 13 Feb 2013 Integrated Pest Management Plan (IPMP) 13 Feb 2013 19 Feb 2013 Sub-Component 2.2 139. As part of developing the basin planning system under sub-component 2.2, strategic social and environmental assessments (SESAs) may be prepared, including the possibility that an “SESA� methodology or approach would be incorporated to the TOR for the basin plans. This would ensure that environmental and social dimensions at the strategic/sectoral level, including cumulative impacts, are incorporated in the process. 140. Strengthening of water management and planning includes supporting investments to improve hydro-meteorological services. Often these investments include works, which may give rise to minor environmental impacts. In order to address potential environmental risks associated 36 with these civil works, a checklist will be included in works contract(s) to guide the contractor and to ensure compliance on mitigation of possible environmental impacts during construction. F. Safeguards Policies Triggered 141. The table below details the safeguards policies that are triggered by the project. Table 6: Safeguards Policies Triggered by Project Safeguards Policies Yes Reasons for Triggers &Proposed Mitigation Measures No Environmental X An Environmental and Social Management Framework (ESMF) has been prepared to Assessment (OP/BP provide guidance on environmental and social management to all project investments, 4.01) including pipeline investments that will be prepared under sub-component 1.2. Based on the ESMF, an Environmental and Social Impact Assessment (ESIA) and Environmental and Social Management Plan (ESMP) have been prepared for the Lower Nzoia Irrigation Scheme Phase 1. Natural Habitats X The pipeline investments under sub-component 1.2 may be located in wetland areas with (OP/BP 4.04) unique species of flora and fauna that could be affected by infrastructure and related activities. During investment preparation under sub-component 1.2, utmost attention will be paid to retaining the ecological functions of the wetlands, which include water purification, flood protection, and habitats for aquatic animal and plant species. Mitigation measures will be included in line with the ESMF for the overall project. Pest Management X The Lower Nzoia Irrigation Scheme Phase 1 triggers OP 4.09 and as a result an IPMP was (OP 4.09) prepared and disclosed. In addition, the investment pipeline which will be developed under the project (sub-component 1.2) could include investments in irrigation for agriculture purposes, which could employ the use of pesticides or may indirectly result in increased pesticide usage. The project will promote the use of integrated pest management approaches and promote measures to reduce reliance on synthetic chemical pesticides. An Integrated Pest Management Framework (IPMF) has been prepared to provide guidance on project investments, including pest and pesticide management for relating to pipeline investments. An Integrated Pest Management Plan (IPMP) has been prepared for Lower Nzoia Irrigation Scheme Phase 1 on the basis of the IPMF. The IPMP provides guidance on the assessment of environmental and health risks associated with current or envisaged pesticide use and the integration of specific measures to address these risks in project design. Physical Cultural X For both Lower Nzoia Irrigation Scheme Phase 1 and pipeline investments to be prepared Resources (OP/BP under sub-component 1.2, excavation work may be located in areas where there are physical 4.11) and cultural resources. The site-specific ESIA will address impacts on such resources (where they are present) and require preparation of a physical cultural resources management plan, including “Chance Finds�. Chance finds procedures and all steps related to PCR are outlined in the project ESMF. Involuntary X This policy was triggered because Lower Nzoia Irrigation Scheme Phase 1 involves land Resettlement acquisition and resettlement. In addition, the investment pipeline which will be developed (OP/BP 4.12) under sub-component 1.2 will include various water-related infrastructures, including multi- purpose dams and irrigation schemes, among others, all of which will involve land acquisition and impact at some level on livelihoods. Potential adverse social impacts could include loss of land or structures, displacement of people, loss of access to areas for livelihood support and public safety issues. A Resettlement Policy Framework (RPF) has been prepared to guide project investments, including in the investment pipeline under sub- component 1.2, and to ensure that all affected people will be compensated for their losses at replacement cost and provided with rehabilitation measures to assist them to improve or at least maintain their pre-project standards of living. A Resettlement Action Plan (RAP) has been prepared for Lower Nzoia Irrigation Scheme Phase 1, consistent with the provisions of the RPF to mitigate impacts. Indigenous Peoples X In the Nzoia area there are no known Indigenous Peoples (IPs) and, therefore, no Vulnerable (OP/BP 4.10) and Marginalized Group Plan (VMGP) was prepared. Because the investment pipeline that will be developed under subcomponent 1.2 has not been identified, OP 4.10 was triggered. The investment developed under subcomponent 1.2 could be located in areas with vulnerable and marginalized groups/people. As a result, a Vulnerable and Marginalized Group Framework (VMGF) has been prepared to ensure that vulnerable and marginalized 37 groups receive social and economic benefits that are culturally appropriate. As the investment pipeline is developed, investment-specific VMGPs will be prepared in line with the provisions of the VMGF. Forests (OP/BP While the policy does not apply to the Lower Nzoia Irrigation Scheme Phase 1, as the X 4.36) investments being prepared under Component 1.2 could be located in forested areas, the forestry policy will be looked at during the preparation of the relevant safeguard documents for those investments. The forestry policy has also been considered in the preparation of the ESMF, which applies to all project investments. Safety of Dams The Safety of Dams policy is not triggered by the Lower Nzoia Irrigation Scheme Phase 1. X (OP/BP 4.37) Projects in Disputed X Areas (OP/BP 7.60) * Projects on X Abstraction, diversion of water from targeted water bodies may trigger transboundary issues International especially for water bodies that are transboundary in nature. In compliance with OP 7.50, Waterways (OP/BP notification letters to riparians were submitted for the Lower Nzoia Irrigation Scheme Phase 7.50) 1. No objections from riparians were received. * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 38 Annex 1: Results Framework and Monitoring Kenya Water Security and Climate Resilience Project Results Framework Project Development Objective (PDO): (i) to increase the availability and productivity of irrigation water for project beneficiaries; and (ii) to enhance the institutional framework and strengthen capacity for water security and climate resilience for country. PDO Level Cumulative Target Values** Respons. Description Core Unit of Data Source/ Results Baseline Frequency Methodology for Data (indicator Measure YR 1 YR 2 YR3 YR 4 YR5 YR 6 YR 7 Collection Indicators* definition etc.) Indicator One: Hectares 0 0 0 777 3409 4043 4043 4043 Annual M&E PMU/ For Lower Nzoia Area provided with system, NBI Irrigation Scheme irrigation and periodic Phase 1, based on drainage services – progress progression of the new and improved reports works. Does not include existing Bunyala scheme. Indicator Two: Tons/hect Annual M&E PMU/ For Lower Nzoia Yields of major are system, NBI Irrigation Scheme irrigated crops in periodic Phase 1. irrigation scheme. - Paddy 5 5 5.4 6.5 7.6 8 8 8 progress - Banana 0 0 15 45 45 45 30 45 reports; - Passion 0 0 5 25 35 35 35 35 Sample - Maize 1.3 1.3 1.8 3.2 4.5 5 5 5 physical - Tomato 10 10 12.5 20 27.5 30 30 30 records Fruit (volume) & users register (area) Indicator Three: Number 0 (0) 0 (0) 0 (0) 404 1770 2100 2100 2100 Annual M&E PMU/ Core indicator. Direct project (percentag (48%) (48%) (48%) (48%) (48%) system, NBI Number of female beneficiaries e) periodic beneficiaries is (number), of which progress expected to be female reports 48%. (percentage) Indicator Four: Ksh per 16 16 16 16 16 16 20 30 Annual M&E PMU/ For Lower Nzoia Value of scheme m3 system, NBI Irrigation Scheme agricultural periodic Phase 1. products per cubic progress meter of water reports; 39 used Sample physical records (volume) & users register (area) Indicator Five: Qualitati Water Water Water Water Annual M&E PMU Water Policy ve Policy and Policy Policy Policy system, adopted and Water Bill in and and adopte periodic Bill Submitted to draft form Bill in Bill in d and progress Parliament draft near Water reports form final Bill with form submit Minist with ted to ry Cabin Parlia et ment Indicator Six: Qualitativ A score in Scores Scores Scores Scores Scores Scores Scores Annual M&E PMU Annual Satisfactory ratings e the “fair� of of of of of “ of of system, performance of key water range “fair� “fair� “good “good good� “very “very periodic contracts are institution across the or or � or � or or good� good� progress entered into on an performance majority higher higher higher higher higher or or reports annual basis contracts of key across across across across across higher higher between GoK water the the the the the across across through MEWNR sector majori majori majori majori majori the the and water sector institution ty of ty of ty of ty of ty of majori majori institutions. s key key key key key ty of ty of Performance water water water water water key key contracts include sector sector sector sector sector water water annual targets in institut institut institut institut institut sector sector the following ions ions ions ions ions institut institut areas: “finance ions ions and stewardship, service delivery, non-financial (e.g., compliance with strategic plans), operations (e.g., Vision 2030 projects/outcomes, outputs/outcomes aligned to sub- sector performance standards, project implementation), 40 dynamic/qualitativ e (e.g., work environment, employee satisfaction), and corruption eradication.� The total score assigned is a weighted average of the points given in each area (out of a maximum of 100 points). The total score assigned is categorized into: “excellent,� “very good,� “good,� “fair,� and “poor.� This indicator would track movement in the total score assigned and the categorization based on the total score. “Satisfactory� refers to scores in the “excellent�, “very good�, and “good� ranges, whereas “unsatisfactory� refers to those in the “fair� or “poor� ranges. Key water institutions are: MEWNR, NIB, WRMA and National Water 41 Storage Authority (and their successors as relevant). INTERMEDIATE RESULTS Intermediate Result (Component One): Water Resources Development Sub-Component 1.1 Intermediate % 77 77 77 77 100 140 163 170 Annual M&E PMU/ For Lower Nzoia Result indicator hectares system, NBI Irrigation Scheme One: Cropping cropped periodic Phase 1. Intensity per progress hectare reports The targets from irrigable years 1 to 3 (the land, for period when the all crops scheme will be constructed) are not zero, as the initial cropping intensity relates to an area already developed in the small Bunyala scheme that will be rehabilitated (but will continue operating for paddy and new crops under the form of pilot and demonstration farms by all IWUAs). Intermediate Million 534 534 534 534 612 878 1392 2683 Annual M&E PMU For Lower Nzoia Result indicator Ksh system, /NBI Irrigation Scheme Two: Value of periodic Phase 1. scheme progress agricultural reports; The term “value� products marketed Sample refers to that of survey agricultural (price) & products sold in the sample market. physical records 42 (volume) Intermediate Number 0 0 0 194 850 1008 1008 1008 Annual M&E PMU 48% of farmers in Result indicator system, /NBI scheme area are Three: Water periodic women. users provided progress with irrigation and reports drainage services – female Intermediate Number 0 0 0 210 920 1092 1092 1092 Annual M&E PMU/ 52% of farmers in Result indicator system, NBI scheme area are Four: Water users periodic men. provided with progress irrigation and reports drainage services – male Intermediate Number 0 0 0 4 8 11 11 11 Annual M&E PMU For Lower Nzoia Result indicator system, /NBI Irrigation Scheme Five: Operational periodic Phase 1. water users progress associations reports At secondary canal created or level. Assumes that strengthened IWUA is operational when portion of scheme is completed (same year). Sub-Component 1.2 Intermediate Qualitativ Initial IF Initial IF IF IF IF IF IF Annual M&E PMU The “national Result indicator e / phases has been IF Finaliz approv applie applie applie applie system, consultation Six: Development developed revise ed, ed by d for d for d for d for periodic process� referred to and Use of d, includi nation all all all all progress in Year 3 could be Investment includi ng al water water water water reports in the form of the Framework (IF) ng stakeh consul sector sector sector sector Annual Water based older tation invest invest invest invest Sector Conference on consul proces ments ments ments ments (2016). lesson tations s learne d from early applic ation and stakeh 43 older consul tations Intermediate Number 0 FS 3 FS 6 FS 9 FS 12 FS 15 FS 18 FS 21 FS Annual M&E system, PMU This intends to Result indicator 0 PFS 5 PFS 10 PFS 15 PFS 20 PFS 25 PFS 30 PFS 35 PFS periodic measure the Seven: Feasibility progress progressive reports studies (FS) and development and pre-feasibility expansion of the studies (PFS) investment pipeline. completed and meeting requirements of IF Intermediate Result (Component Two): Effective Water Sector Institutions Sub-Component 2.1 Intermediate % (of NA 100 100 100 100 100 100 100 Annual M&E system, PMU This will be Result indicator annual (Water periodic measured One: Compliance targets Sector progress progressively, on reports with Water Sector met) Transition the basis of the Transition Plan Plan being annual targets finalized) included in the Transition Plan. Intermediate Number 0 1 4 7 10 12 14 16 Annual M&E system, PMU Result indicator periodic Two: Audits of progress reports assets and liabilities Sub-Component 2.2 Intermediate Qualitativ 0 Syste Knowl Initial Model Draft Final Annual M&E PMU Baseline 2013 – Result indicator e / phases m for edge structu ing basin consul system, zero. Three: Basin plans knowl base red tools plans tation periodic Expected target developed in six edge popula stakeh compl compl compl progress by year 7 is six basins with support base ted older ete ete ete reports basin plans. of enhanced create consul analytical tools and d tations Analytical tools structured compl are based on the stakeholder ete water and climate consultations risk information system knowledge base and supporting 44 modeling tools (e.g. simulation, optimization, multi-criteria analysis) to analyze implications of proposed water investments and climate scenarios. Structured stakeholder consultations are held to help envision the future of the basin and agree on criteria and indicators for a ‘well-managed’ basin. Rolling basin plans are developed based on the analytical and stakeholder inputs to support development and management decisions. Intermediate Qualitativ Inadequat GIS Atlase State Spatial Annual M&E PMU This intends to Result indicator e / Phases e special knowl s of the knowl system, measure the Four: Basin knowledg edge create Basin edge periodic development of spatial knowledge e base in base d reports bases progress the WCIS. bases developed six basins create create update reports for six basins and d d with Baseline 2013 – popula all zero. Expected ted inform target by year 7 is ation six basin spatial genera knowledge bases. ted Following creation spatial databases will be updated to incorporate 45 survey and monitoring data as it is produced. Spatial databases will be made public following completion of the state of the basin reports. Intermediate Number 1 1 76 226 451 591 701 733 Annual M&E PMU Baseline 2013: 1 Result indicator system, upgraded Five: New or periodic (Western Kenya upgraded progress CDD flood Relief monitoring stations reports project). 154 (hydrologic, surface water, 92 hydro- groundwater and meteorological, 216 and groundwater) meteorological with real time monitoring telemetry in place stations existing but not upgraded. Expected target by year 7 is: Surface water 219, groundwater 202, meteorological 312. Based on WRMA current planning. Water quality stations are incorporated into each surface and groundwater monitoring station. Intermediate Number 0 20 60 130 200 400 600 Annual M&E PMU Baseline: Result indicator (HQ) (Basin) (Sub (WRU (WRU (WRU system, raining/financing Six: Staff and Basin) A) A) A) periodic has been provided WRUAs trained in progress for 100 WRUAs areas related to reports (GTZ). water management 46 and planning. Target by year 7: 600 WRUA members across 300 WRUAs 210 WRMA staff trained 400 WRUAs in place to date. Assuming 30 WRUA members – based on existing examples. 2 members of each WRUA trained and then cascade training. WRMA staff: To support WRUAs, DSS and implementation: 20 staff at HQ, 10 staff in each of the 6 basins, plus 5 staff in each of the 26 sub basins. Training cascaded. This assumes that existing level of support to WRUAs from GIZ and others is continued. Intermediate Result (Component Three): Support for Project Implementation Intermediate Qualitativ NA Establi Fully Fully Fully Fully Fully Fully Annual Project PMU Result indicator e shed operati operati operati operati operati operati records One: Project onal onal onal onal onal onal M&E established and operational 47 Intermediate % NA 100 100 100 100 100 100 100 Annual Project PMU Results Result indicator records completion rate is Two: Results the percentage of completion rate satisfactorily completed project activities and outputs that are identified in annual work plans. Intermediate Yes/no NA Yes Yes Yes Yes Yes Yes Yes Annual Project PMU Result indicator records Three: Procurement undertaken as per procurement plan Intermediate Yes/no NA Yes Yes Yes Yes Yes Yes Yes Annual Project PMU Result indicator records Four: Reports produced on time and with adequate quality (project physical and financial progress); annual (audit, training, monitoring), mid- term and final evaluation 48 Annex 2: Detailed Project Description Kenya Water Security and Climate Resilience Project PROJECT CONTEXT 1. Kenya has limited freshwater endowments and is already classified as a chronically ‘water scarce’ country in absolute and relative terms. The mere 526 m3 per capita annual freshwater availability places it in the bottom 8% of countries globally (in comparison, South Africa has at a per capita water availability of approximately 1000 m3 and Benin enjoys approximately 3000 m3 per capita water availability). 18 Over 80% of the country is comprised of arid or semi-arid lands (ASALs). A further complicating factor is that approximately 54% of Kenya’s water resources are shared with neighboring countries. There is growing competition (and even conflict) over limited water resources, with rising population, economic growth, and urbanization placing increasing pressures on the water resource base. Severe degradation, primarily caused by deforestation and unsuitable agricultural practices, of the country’s key water catchment areas (known as “water towers�) has exacerbated this situation. At the sub-national level, the spatial mismatch between water availability and rising demands is in many cases even more extreme; a 2012 World Bank study found that areas around the major cities of Nairobi, Mombasa, and some Western centers are the most critically water stressed and this is projected to worsen by 2030. 19 2. Kenya faces the additional challenge of high inter-annual and intra-annual rainfall variability that results in frequent droughts and floods, so severe that years of infrastructure investments for economic growth can be undone in a single extreme event. A 2006 World Bank study found that the floods of 1997-98 caused transport infrastructure damage and destruction with a replacement cost of US$777 million. The impacts of droughts on the economy have been equally severe. For example, the same World Bank report showed that the 1998-2000 La Nina drought led to: (i) 41% drop in hydropower production, (ii) lost industrial production due to inadequate power of US$1.4 billion, (iii) agricultural losses of US$240 million, and (iv) livestock losses of US$137 million (these losses amounted to about 16% of annual GDP at the time). 20 A recently completed Post-Disaster Needs Assessment estimated that the overall effects of the 2008-11 drought cost the economy US$12.1 billion, which includes US$ 805.6 million for destruction of physical and durable assets and US$11.3 billion for losses in economic flows across all sectors. 21 According to the Pilot Program for Climate Resilience Climate Variability Index, Kenya has a history of greater disaster risk – particularly droughts and floods – than the majority of sub-Saharan African countries, at least when assessed over the past 30 years. 22 3. Climate variability and hydro-climatic shocks (droughts and floods) impact disproportionately on the poor. It is estimated that about 50.6% of the population lacks access to 18 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 19 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 20 World Bank, 2006, Climate Variability and Water Resources Degradation in Kenya. 21 Republic of Kenya, 2012, Post-Disaster Needs Assessment for the 2008-2011 Drought. 22 Adger, W. N., N. Brooks, M. Kelly, S. Bentham, and S. Eriksen, 2004, New Indicators of Vulnerability and Adaptive Capacity, Tyndall Centre Technical Report 7. 49 adequate food and, even the little it has is of poor nutritional quality. The incidence and prevalence of food insecurity is more extreme in ASALs. This is largely due to the regular recurrence of droughts and floods that have repeatedly led to massive crop/livestock failure and, in the worst cases, to severe famine. As a consequence, the food-poor have been forced to rely on food relief provided by the government, bilateral and multi-lateral agencies, and non- governmental organizations (NGOs), at an enormous cost to the country. For example, for the entire 2005/2006 financial year, GoK budgeted US$194 million, through reallocation and additional allocation, to cover the anticipated fiscal requirements of the drought. By February 2006, GoK had already spent US$124 million of the total allocation. 23 4. Climate change is projected to exacerbate existing climate risks and water resource constraints. Major floods affecting much of the country are already becoming increasingly frequent (e.g., 1961, 1997, 1998, 2003, etc). Warming over continental Africa is projected to be greater than the global mean over the 21st century and there is likely to be an increase in rainfall over East Africa and most of Kenya by the end of the 21st century. While mean annual rainfall is projected to increase, climate conditions in general and rainfall in particular are expected to become more variable, meaning that the frequency of extreme events, including floods and droughts, will likely increase. Even if rainfall remains constant or increases, water availability is highly sensitive to relatively small changes in rainfall and temperature and may decrease because of higher temperatures and if warming is of a significant magnitude. Increased climatic variability may result in greater variation in water availability over time, with extreme water stress during times of drought exacerbated by greater variability in rainfall (and greater rainfall deficits) and/or by higher extreme temperatures. 24 5. Kenya has yet to adequately manage its highly variable hydrology, as evidenced in decades- long underinvestment in water infrastructure that has not kept pace with growing needs or provided the required buffering capacity to reign in water’s most destructive forces. Investment in storage has been stalled since the mid-1990s and existing capacity has not been adequately maintained, reducing effective storage further. Kenya’s total water storage, including hydropower generation, is approximately 4.1 billion m3 or 103 m3 per capita. Per capita storage drops to 3 m3 when hydropower generation is excluded, which is dismally low compared to other countries (as a point of comparison, North America has a per capita storage of just under 6000 m3 and South Africa, just under 700 m3). 25 Further, thus far, water storage investments have been primarily driven by single sector considerations, and growth opportunities from multi-purpose investments have not been fully captured. More generally, investment in water infrastructure has fallen behind rapidly growing demands. Only 60% of the urban population and 40% of the rural population have access to safe drinking water. Currently, only 90,000 hectares out of a potential irrigated area of 539,000 hectares have been developed; close to 26 million hectares of agricultural land is dependent on unpredictable rainfall, leaving farmers highly vulnerable to the vagaries of nature and contributing to food insecurity, as described above. Beyond infrastructure investment, the weak institutional setting and governance issues, ineffective water allocation systems, low water use efficiencies, and high system losses plague Kenya’s water sector. 23 World Bank, June 2012, Capturing Climate Change Risks and Opportunities for a Pragmatic Approach, draft. 24 World Bank, June 2012, Capturing Climate Change Risks and Opportunities for a Pragmatic Approach, draft. 25 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 50 Catchment degradation due to deforestation and encroachment is rampant and has resulted in the siltation of water infrastructure, disruption of the natural functioning of lakes and wetlands, and intensification of flood risk to downstream communities, all of which carry enormous social, environmental and economic costs. 6. GoK has planned a large scale water investment program to address these challenges and to close the massive infrastructure gap that has been estimated at US$ 5 – 7 billion in various existing and ongoing studies. This will be supported by the establishment of a strong institutional and legal structure that aligns the water sector to the Constitution of Kenya 2010 (CoK). The Ministry of Environment, Water and Natural Resources (MEWNR) Water Sector Strategic Plan (2010) and the draft Water Harvesting and Storage Management Policy (2010) focus on reducing the water infrastructure gap through single and multipurpose storage. This approach is in line with a recent World Bank report that found substantial opportunities for multi-purpose storage to secure reliable water supply, manage floods, provide irrigation, and generate hydropower. 26 Further, the Climate Change Action Plan, currently being finalized, identified soil and water conservation, construction of dams, and expanded irrigation as key actions to increase climate resilience. The Action Plan will mainstream climate change in national planning for the first time in Kenya’s history, starting with the Medium Term Plan (MTP) 2013-2017. The National Policy for Disaster Management and the National Disaster Response Plan (both issued in 2009) highlight the need for mainstreaming disaster risk reduction and establish additional roles and responsibilities for mitigating residual risks in the water sector. 7. Vision 2030’s ‘flagship projects’ in the water sector include large and medium size multipurpose water storage facilities, upgrading the hydro-meteorological network, and rehabilitation and expansion of major irrigation schemes and urban water supply and sanitation in key satellite towns. Water investments in related sectors (e.g., tourism and agriculture) also feature prominently. Vision 2030 water investment options are in various stages of preparation and, although many of these investments are urgently needed, it is recognized that significant work is required to enhance their readiness for implementation on technical, economic, financial, social, environmental and institutional grounds. At the same time, systems, tools and capacity need to be developed to improve investment planning and preparation and to build a sound investment pipeline. 8. With the adoption of the CoK 2010, GoK has required that all institutional and legal frameworks be reviewed and aligned to it. The CoK includes a number of provisions that have important implications for the water sector, including devolution of certain functions from the national level to 47 counties; establishing basic rights to food, water and sanitation; defining water resources as public land; and establishing clear sustainability rules (related to environmental and financial sustainability, public participation and governance). The CoK also includes provisions for establishing systems of environmental monitoring and the equitable sharing of benefits from natural resource management that directly relate to building climate resilience. The MEWNR – the agency responsible for policy and strategy formulation, legislation and water sector coordination – has appointed a taskforce comprised of all sub-sector agencies to examine key provisions of the Constitution and implications on the Water Act 2002, 26 World Bank, 2012, Towards a Strategic Analysis of Water Resources Investments in Kenya. 51 Irrigation Act (Cap 347, 1966) and respective policies and to elaborate proposals for amendment. New bills and policies for water and irrigation have been drafted and a Water Sector Transition Plan has been elaborated. The Transition Plan covers through 2015 and ‘... indicates the key appropriate activities, deliverables, responsible structures and proposes timelines for the implementation’ (Draft Transition Plan, 2012). The envisioned reforms represent a significant transformation of the sector, entailing a redefinition and realignment of roles and responsibilities, powers and functions, as well as the creation of new organizations. Support is needed to address the numerous legal and institutional issues that will arise before, during, and after the potentially challenging reform period. 9. Through ongoing dialogue and as reflected in the Country Partnership Strategy (refer below), the GoK has requested that the World Bank support its ambitious plans for the water sector through a long-term and transformational program aimed at building water security and climate resilience for economic growth. The urgent need to invest in priority infrastructure while at the same time aiding GoK to establish the requisite enabling institutional and legal foundation to improve the performance and sustainability of the water sector calls for a pragmatic approach of phased support. The Kenya Water Security and Climate Resilience Project (KWSCRP) is designed to respond to this need through a series of investment operations linked together by an overarching objective. The Kenya Water Security and Climate Resilience Project 1 (KWSCRP- 1) will be the first investment operation in the series. PROJECT DEVELOPMENT OBJECTIVES 10. The project development objectives (PDO) of KWSCRP-1 are to: (i) increase availability and productivity of irrigation water for project beneficiaries; and (ii) enhance the institutional framework and strengthen capacity for water security and climate resilience for the country. PROJECT COMPONENTS 11. The project has three components, each of which is discussed below: a. Component 1: Water Resources Development b. Component 2: Effective Water Sector Institutions c. Component 3: Support to Project Implementation 12. The funding envelopes for each component and sub-component are summarized in Table 1. 52 Table 1: Summary of component, sub-components and financing Financing Components and Sub-components IDA KfW GoK Ben Total Component 1: Water Resources Development 76.8 6.5 1.2 104.5 20.0 SC 1.1: Water Sector Investments – Lower Nzoia Irrigation 26.8 6.5 1.2 54.5 Scheme Phase 1 20.0 SC 1.2: Water Investment Pipeline 50.0 50.0 Component 2: Effective Water Sector Institutions 56.3 56.3 SC 2.1: Support for Water Sector Transition and Reforms 26.1 26.1 SC 2.2: Strengthening Water Management and Planning 30.2 30.2 Component 3: Support for Project Implementation 15.2 15.2 Project Preparation Advance 3.0 3.0 Unallocated 3.3 3.7 Total 155.0 20.0 6.5 1.2 182.7 Component 1: Water Resources Development (US$ 104.5 million – US$ 76.8 million from IDA, US$ 20.0 million from KfW, and US$ 7.7 million from GoK and beneficiaries) 13. This component will support climate resilience and water security for economic growth by financing water investments by progressively building a longer-term investment pipeline. Component 1 includes two sub-components: (i) Water Sector Investments and (ii) Water Investment Pipeline. Each sub-component is described below. 14. Sub-Component 1.1: Water Sector Investments (US$ 54.5 million – US$ 26.8 million from IDA, US$ 20.0 million from KfW, and US$ 7.7 million from GoK and beneficiaries) 15. Lower Nzoia Irrigation Scheme Phase 1 – Background. The Lower Nzoia Irrigation Scheme Phase 1 will be financed under the first investment operation in the series, KWSCRP-1. It is a flagship project of the Kenya Agricultural Sector Development Strategy (ASDS) and of Vision 2030. Located in Siaya and Busia Counties in Western Kenya near the town of Kisumu (refer map in Annex 8), this public irrigation scheme would derive its water from the Nzoia River, which flows into Lake Victoria a very short distance downstream. It would irrigate 4043 hectares, half devoted to high value cash crops (perennial and seasonal fruit, as well as vegetables). 16. The overall objective of the sub-project is to revitalize agricultural development in the sub- project area (notably, high value crops) and to increase food production and security, thereby enhancing nutrition and standards of living of the local community. 17. The Lower Nzoia Irrigation Scheme Phase 1, which is located on the left bank of the river, is considered by GoK as the first step in the development of irrigation in the lower basin. GoK also plans to develop the right bank of the river (referred to as Phase 2) using the same intake infrastructure. The revised detailed design for both phases is being undertaken concurrently and is expected to be completed by June 2013. As indicated below, the water withdrawal calculated 53 for both phases satisfies irrigation needs while respecting down-stream flow requirements. WRMA is reviewing the withdrawal permit application and will issue the license accordingly. 18. The scheme was to be funded by the Natural Resources Management Project (NRM) of the World Bank (P095050), but delays in project preparation, quality issues and insufficient financial resources prevented construction under the NRM project, which ends in June 2013. 19. Basin Context. The Lower Nzoia Irrigation Scheme Phase 1 is located in the Busia and Siaya Counties in the western part of Kenya, which covers nearly 30% of Kenya’s portion of the Lake Victoria Basin's land surface (refer map in Annex 8). Nzoia is the largest and longest river in Western Kenya, at about 300 km in length and with a drainage area of 12,950 km2. The Basin lies between latitudes 00° 02' N; 01' 14'N and longitudes 33° 54'E; 35° 35'E. The river flows through the Rift Valley, Western and Nyanza provinces. With 2,593km2, the Lower Nzoia sub- catchment represents the lower 25 percent of the Nzoia Basin. The total irrigable area for the Lower Nzoia Basin has been assessed at 25,000 ha. The feasibility study for Lower Nzoia Irrigation Scheme Phase 1 has established that in order to irrigate that potential and to develop irrigation in the upper Nzoia basin (potential estimated at 6,500 net ha), a multipurpose storage dam would be needed; several dam options are listed. Such a dam could also address the flood issues in the lower basin, including for the Lower Nzoia Irrigation Scheme. Within these 25,000 ha, the cumulative water demand from the Lower Nzoia Irrigation Scheme Phase 1 (4,043 ha) and Phase 2 (an additional approximately 4,000 ha) could be met without building water storage upstream, as demonstrated by the calculated irrigation needs of the chosen cropping pattern calculated by NIB, which excludes double cropping of rice. Future irrigation development in Nzoia River would be subject to a comprehensive basin-wide water resources development plan and water balance assessment, including possibly required storage, and a strategic social and environmental assessment at the basin level. 20. Beneficiaries. The Lower Nzoia Irrigation Scheme Phase 1 is expected to directly benefit over 20,000 people: 2,100 households representing 12,600 beneficiaries who are primarily engaged in rain-fed subsistence agriculture (mainly maize and beans) and extensive livestock rearing in the command area, and an additional 8,000 people who would be needed as workers. Another estimated 50,000 people are expected to benefit through linkages to the scheme activities and outputs. In addition, the economy of local districts would be enhanced by irrigated agriculture. 21. Overall Sub-Project Design. The success of the project will rely on the transition from current rain-fed subsistence agriculture to commercial farming based on horticulture, while maintaining functionality of the new irrigation scheme through adequate maintenance and cost effective and efficient operation. The sub-project is, therefore, designed with three complementary pillars or activities: a. Construction of the irrigation and drainage infrastructure; b. Support to agricultural production and establishment of market linkages through a value chain approach; c. Support to the efficient operation of the scheme as well as to progressive transfer of responsibilities and decision making from NIB to farmers organized in Irrigation Water Users Associations (IWUAs). 54 22. The sub-project is also designed to identify and capture opportunities, and establish the necessary incentives for the private sector to play a critical role in any early stage as: (i) a service / inputs provider, (ii) a regular purchaser of agricultural products, and/or (iii) an investor in the scheme, notably in facilities that may be needed for the agricultural products to be marketable. Private sector involvement could concern the agricultural production and marketing aspects and/or irrigation management aspects. The sub-project will, therefore, seek to facilitate private sector initiatives (agribusiness firms, banking system, NGOs, associations, service providers, etc.) that would ensure sub-project success and sustainability and serve the interest of beneficiaries. To this end, the sub-project will provide support services and capacity building to farmers, such that they are better equipped to engage in business with the private sector. The sub- project will also examine a concrete and adapted approach to Irrigation Management Transfer (IMT) for gradually handing over from development agencies to farmers the rights and responsibilities to operate, maintain, and manage the irrigation system. The participation of service providers could be sought for operation, maintenance and technical advice. 23. Given the complex and multi-dimensional nature of the sub-project as well as its challenges, NIB and farmers will receive comprehensive and integrated support from an implementation support consultant (ISC), envisioned to be a consortium of firms with relevant international experience that would play an essential role in overall project management and coordination, and deliver critical activities under the project: construction supervision, provision of advisory and training services on agricultural and irrigation aspects, and multidisciplinary assistance in putting in place business models, etc. One of the essential roles of the ISC will also be to provide on-the- job capacity building to the project stakeholders, such that high value irrigated agriculture in Lower Nzoia Irrigation Scheme Phase 1 is a sustainable enterprise. 24. Sub-Project Description. The sub-project comprises four activities: (i) construction of irrigation and drainage infrastructure; (ii) support to agricultural production and establishment of market linkages through a value chain approach; (iii) support to the efficient operation of the infrastructure and to the progressive transfer of responsibilities and decision-making to Irrigation Water Users Associations (IWUAs) in line with Kenya’s irrigation strategy; and (iv) project management. Each is described below: A. Construction of Irrigation and Drainage Infrastructure 25. The scheme has a net irrigable area of 4043 ha. The technology is gravity canal irrigation with furrow or basin irrigation at farmers’ plot levels depending on the crops. The key features of the infrastructure are: • Diversion weir and intake facilities to command 4043 ha on the left bank (Phase 1) and possibly serving an additional 3795 ha on the right bank (Phase 2); • Spillway, and sedimentation basin for both phases and one aqueduct across the river to serve the right bank (to be confirmed depending on final location of weir – current option being the most remote and costly one); • Network of canals (main, primary, secondary and tertiary) and drains down to farmers’ fields and flow control structures (altogether, 85 km of main and secondary canals); • Water control structures (division box, hydraulic structures); 55 • Farm road network and passages (down to tertiary canal level); • Technical buildings; • Farm development, including land leveling, tertiary canal/water courses, feeder canals and on-farm drains that will be partly financed by farmers in the form of a reimbursement, together with the irrigation fee; • Flood control facilities, including dyke construction, enhancement and other associated structures (most of which are being carried out as part of the ongoing World Bank- financed Western Kenya Community Driven Development and Flood Mitigation Project); • Supervision of the works (part of a larger contract for an ISC, discussed above and detailed in Annex 3). 26. The length of the main canal is approximately 36.7 kilometers. It would be primarily earthen, with only approximately one-third of its length (about 12 kilometers) lined, as necessitated by soil conditions. Eleven secondary canals are proposed for a total length 47.7 kilometers. The respective canal lengths are provided in the below table. The command area of the secondary canals is 3,899 ha, with the balance of 144 ha being served by tertiary canals/water courses directly from the main canal, for a total net command area of 4,043 ha. 27. Irrigation water demand. The cumulative irrigation water demand of Phase 1 (4,043 net ha) and Phase 2 (3,795 net ha), respects environmental flows (1/3 of incoming Q95 as per WRMA guidelines), and this is all the more so for Phase 1 alone (representing 53% of water demands). This estimate is based on a total irrigation efficiency of 50%, conservative assumptions on irrigation scheduling and an optimized cropping pattern (refer below). An Irrigation Operational Manual will be developed that establishes a tailored rationing methodology in order to ensure that the environmental flow is respected at all points in time, including in event that upstream river flow is lower than Q80 (e.g., in dry months). NIB has applied for a water permit on behalf of the farmers for Phase 1, and works will begin only when it is issued by WRMA. Buffer storage in primary and/or secondary canals or night storage in secondary canals are currently being studied in terms of their cost, ease for water distribution, socio-economic aspects, and adaptability (notably, for shifting to drip irrigation for high value crops), etc. Shifting to drip irrigation would be needed only in the very long term, given that it is possible to build a storage regulation dam in the upper basin. A dam could allow both the development of irrigation in the upstream part of the basin, as well as improved (around 90%) water reliability for Lower Nzoia (as against the usual Q80 – 4 years out of 5 years – that is retained to determine the area to be irrigated). 28. Flood protection works are planned for and budgeted under the World Bank-funded Western Kenya Community Driven Development and Flood Mitigation Project (Western Kenya CDD/Flood Mitigation Project). This includes the consolidation of the river banks along the Nzoia scheme, which will increase the level of protection both of the scheme itself and of the crops grown. Flood protection works are planned to be executed at the same time, if not before, the construction of the irrigation scheme. The existing dyke at Bunyala protects against a 1/25 year flood event. Improvements will increase the level of protection to a 1/50 year event. The dyke system will be improved over a length of 20 km on both sides of the river (i.e. 40 km in total). NIB will regularly and closely coordinate with the firms involved in the design and 56 construction of flood protection works under the Western Kenya CDD / Flood Mitigation Project in order to ensure adequate timing of and complementarity between these and the construction of the irrigation scheme. B. Agricultural Production and Establishment of Market Linkages 29. This activity aims to support sustainable and inclusive agricultural production and marketing, including the establishment of necessary value chain arrangements. Specific activities include supporting extension services to farmers (including assisting farmers to contract with buyers), as well as improving timely access to agricultural inputs, credit, cropping and post-harvest infrastructure and equipment. 30. The cropping pattern was designed to optimize the following factors: • Consideration for agronomic constraints and suitability; • Need to respect the environmental flow during dry months, which implies reducing the share of consumptive crops (only one cropping season for paddy); • Ability of farmers to gradually shift from their current cropping systems (mix of pulses and cereals, few cash crops) to a significant proportion of marketable high value crops and paddy; • Need to achieve a good overall financial and economic return (a gradual increase to 90% of cash crops, including 48% paddy by year 6 of the project); • And, regarding the pace at which new high value crops would be produced in the scheme, the need for a progressive (not sudden) shift from farmers’ current cropping systems to the required proportion of marketable high value crops and paddy that will ensure high scheme profitability. The cruising speed pattern for the 4043 ha proposed by NIB after year 6 is shown in the table below. Table 2: Cruising Speed Cropping Pattern at Year 6 Crop Max Area Cultivated Cropping Intensity depends on season (ha) Pulses and staple cereals (5%) 400 150% Paddy (48%) 1,942 100% Vegetables (mostly tomato and onion) 700 163% (17%) Root crops (5%) 450 163% Fruit (mango, passion fruit, banana, 1,200 Permanent pawpaw) (30%) 31. Markets and marketing. The development of long-term and reliable market outlets, key to sub-project success, is a specific activity that will be supported. The needed effort will vary from one crop to the other depending on a number of factors, including: volume produced, seasonality, and the existence of local / regional / national / international (including sub-regional) unmet demand. Surplus volumes of traditional cereals, pulses and tubers grown will be partly marketed locally or stored following a multi-annual household food security strategy. There is a significant 57 deficit in rice availability at the national level, 27 and a high demand for national production. Under this activity, the marketing arrangements currently in place at Bunyala will be assessed and improved, together with the implementation of System of Rice Intensification (SRI) technologies to increase the profitability of this crop. The demand for fruit (fresh markets or agro-processing) is on the rise in Kenya, both as export substitute (for processed juices) and as export product (markets in Europe, in particular). However, the amount to be ultimately produced in Nzoia is significant and requires continuously reliable markets outlets, possibly through contract farming. This activity will confirm these market outlets – through the preparation of a sound value chain feasibility study – and will examine vegetable marketing and the establishment of contacts with existing players of the value chain, as achieved in other innovative projects in Kenya and elsewhere (e.g. experience of USAID and GIZ supported projects with involvement of private sector). 32. It is planned that this activity will specifically support the following: • Institutional analysis of actual and potential actors of the agricultural supply and demand chains to be established, including a market analysis. This analysis will also include public actors such as the Ministry of Agriculture, Livestock and Fisheries and its representatives, district level services, KARI, and private professional unions and associations such as Horticultural Crop Development Authority of Kenya, Fresh Produce Exporters Association of Kenya, and Kenya Horticultural Council; • Setting up and financial support to sustainable and inclusive value chain arrangements, including facilitating contractual arrangements with private sector on the supply and demand side of agricultural production; • Setting-up a multi-year agricultural development plan; • Setting-up, in collaboration with the local authorities, a strategy to ease job creation, notably during peak labor demand periods; • Extension services to farmers and introducing improved agricultural techniques, such as SRI for rice; • Establishment of a nursery for improved seedlings for new crops; • Demonstration farms; • Construction of a resource center that will serve for on-site training sessions; • Establishment of a revolving fund allowing farmers to access inputs and services from the first season onwards; • Training sessions; • Post-harvest infrastructure (tentatively cold rooms, extension of Bunyala drying floor, and processing plant for a third of the passion fruit harvest). 33. Some of the listed items are tentative and could ultimately prove not to be necessary, e.g., should private operators bear some of them or use alternative means. This is particularly the case for post-harvest facilities. The study on marketing and value chain arrangements mentioned above will assist in refining the needed support. 27 About 400,000 tons of rice are consumed in Kenya annually, of which about 12.5 per cent is met from local production, the rest being imported mainly from Egypt and Asian countries (KIPPRA, 2011). 58 C. Efficient Scheme Operation and Progressive Transfer of Responsibilities to IWUAs 34. The objective of this activity is to enhance the management efficiency and financial sustainability of the irrigation scheme, in line with Kenya’s policy and legal provisions on irrigated agriculture that emphasize irrigation management transfer (IMT) from government to organized farmers. This involves the following tasks: (i) forming, developing and strengthening the capacity of irrigation water user associations (IWUAs) to carry out necessary operations and maintenance (O&M) and cost recovery functions that would be transferred to them from NIB; (ii) developing, testing in the scheme (notably during the full two years of operation), monitoring, and evaluating adapted tools and processes; (iii) if found feasible, testing and adapting to the case of Lower Nzoia Irrigation Scheme Phase 1 business models that are alternative to the progressive transfer from NIB to IWUAs. 35. The specific activities include the following: • Stakeholder analysis, in the scheme but also more widely in Kenya, vis-a-vis alternative business models; • Establishment of a detailed inclusive road map for IMT including during construction phase (this step will benefit from the work already done under the NRM project on IMT); • Study and establishment of an overall efficient and transparent governance structure for the scheme, including on issues such as approach to setting water fees, achieving mutual accountability between IWUAs and NIB, equity, and considerations of longer term issues; • Establishment of tailored operational, maintenance, monitoring and evaluation (including performance indicators) and administrative manuals that will serve during the first two years of operation (years 6 and 7) and beyond. The operational manual will address: o irrigation scheduling process according to actual demand / crop water requirements; o The water delivery process, including the detailed description of the relationship between block level IWUAs, Apex, and NIB; o The monitoring of water supply (irrigation) and extraction (drainage) and handling of complaints; o Detailed roles and responsibilities of various entities and staffs, reporting forms etc.; o Specific scheme rules, such as access rights, encroachment on scheme infrastructure and use of water for non-irrigation purposes. • Assistance on plot reconfiguration processes as needed, as a result of the construction of tertiary level and feeder canals, with regards in particular to issues related to effective use of irrigation water; • Continuous and progressive capacity building of farmers to allow them carry out all technical and administrative functions necessary for adequate operation and maintenance of their sphere of responsibility in the scheme, from field to secondary canal level irrigation (scheduling and water application methods, crop management and watering regime, O&M planning, scheduling and costing, maintenance of structures and 59 equipment, record keeping and accounting, fee charging and collection, participatory M&E), including on-farm training on efficient and water saving irrigation techniques; • Continuous and progressive capacity building of NIB staff as needed, including for them to assist farmers; • Monitoring of performance indicators (initially by an implementation support consultant with progressive transfer to other actors with the consultant’s assistance: NIB staff, IWUAs); • Study of alternative business model for Lower Nzoia Irrigation Scheme Phase 1, in connection with agribusiness firms potentially interested in providing technical advice on some aspects of irrigated agriculture; assistance in setting up such models if found feasible; • Procurement of selected maintenance equipment (excavators, wheel loader, roller, grader, truck, concrete mixer, etc.). 36. Most of the activities and procurement planned under this activity will be part of a large contract with the ISC (refer below). 37. As mentioned above, a progressive transfer of irrigation management to farmers will be supported under the sub-project, as follows: The Lower Nzoia Irrigation Scheme Phase 1 will be functionally divided into 12 irrigation blocks that are defined by the 12 secondary canals as hydraulic units. These blocks will be managed by one IWUA each. The 12 IWUAs will be combined in an Apex IWUA. The blocks will further be subdivided into lines/feeders at the tertiary level, managed by water user groups (WUGs). Once irrigation starts, it is envisaged that NIB will initially manage the scheme and water distribution down to the secondary canal level. From the start, farmers organized in IWUAs will take responsibility for O&M of the tertiary canals and below, including irrigation fee collection and allocation. At the beginning, NIB will provide: (i) management, operation and maintenance services; (ii) formation and capacity building of IWUAs and cooperatives, and (iii) targeted support to irrigated agriculture and marketing 28. 38. The share of the O&M cost supported by farmers will increase over time until it reaches 100% by maximum the fifth year after the start of farming. Farmers will pay these charges (as water service charges to NIB) through their IWUAs to the Apex IWUA, which will progressively manage more and more of the O&M budget itself. By the end of the fifth year after the start of farming, NIB’s contribution to the O&M budget will be zero. By this time, the Apex IWUA will be responsible for water distribution on the entire scheme, receiving the infrastructure on a renewable leasehold basis, and will be directly operating the secondary canals and below. A Scheme Management Support Team (SMST, a scaled-down NIB team whose role would be restricted to support in O&M) would operate the headworks and the main canal. Following the transition, the SMST will be staffed and equipped in order to provide the necessary O&M services and their operational budget will be covered by the irrigation fee paid by farmers. According to the financial analysis, even with a full recovery of scheme O&M costs (farmers would be charged on average Ksh 13,250 per hectare per year, i.e. Ksh 26,500 per 28 The extent to which NIB would be involved in agricultural production and support to marketing will depend on whether alternative and preferred options involving private sector entities are facilitated and actually implemented. 60 farm), the water charge would represent less than 5 percent of the expected households’ incremental net income by the sixth year. This justifies the ambition of the project to achieve progressive coverage of full O&M cost by farmers as proposed by NIB. 39. In addition to the progressive IMT described above, alternative business models for Lower Nzoia Irrigation Scheme Phase 1 will be explored. Such alternative business models involving private operators should by their nature protect and enhance farmers’ interests. Lessons can be learned and applied from the experiences of the vibrant private sector involved in agribusiness in Kenya, as well as arrangements that have contributed to the increasing share of services in the Kenyan economy (including related to engineering matters). These include: (i) devolution of a management contract 29 to a firm for works supervision, and scheme O&M operation for a minimum of 8 to 10 years, while implementing a progressive IMT process; and (ii) the models that were examined under the study on Public-Private Partnerships (PPPs) 30 for irrigation development and management in Kenya, funded by the World Bank between 2010 and 2012. 31 D. Project Management 40. This component includes the following: • Sub-project management, supervision, and coordination during the entire duration, including project steering with key stakeholders and hiring of limited key staff; • Implementation of the ESMP measures; • Cost of resettlement (covered by GoK counterpart funding); • Establishment and implementation of an adapted monitoring and evaluation (M&E) system that includes performance indicators, feeds into the overall project M&E system (including Impact Evaluation), and is an essential tool to help manage irrigated agriculture and related functions on the scheme, including beyond the life of the project; • Capacity building of key stakeholders. 41. Part of the contract with the implementation support consultant will cover coordination and project management as well as most capacity building activities of this component (refer Annex 3). 42. Implementation Period. The implementation period for the sub-project is seven years: up to one year for the tendering process, four for the construction of irrigation infrastructure and two during which irrigation and agricultural production will take place. The works will be constructed in stages, starting at the head works (weir, settling basin, canal intake and sluice gates) and the irrigation and drainage system in the project Zone 1 (upstream part of scheme), which would be constructed over 18 months to allow irrigation in Zone 1 as early as possible. 29 Example of the Irrigation and Drainage Project implemented by the World Bank in Ethiopia since 2007. 30 PPIAF – Public Private Partnership Options for Irrigation Development and Management in Kenya - February 2012 - Draft Final Report, Cambridge Economic Policy Associates Ltd, Market Economies Development (Kenya Ltd), and Anjarwalla & Khanna, Advocates 31 Model C (Development of larger, consolidated smallholder irrigation project with centrally managed Farm Services provider to oversee agricultural management; downstream processing, distribution and marketing; and irrigation management services for high-value cash crops) would appear adapted to Nzoia’s features at a first glance. 61 The second stage would be completed after 30 months, the third stage after 40 months and the fourth and final Stage after 48 months. The bidding documents will clearly stipulate that this staged implementation must be followed. 43. Cost Estimates. The estimated cost of the sub-project is US$ 54.5 million, including US$ 5.6 million for physical contingencies and US$ 2.4 million for price contingencies. The overall cost is as follows (with contingencies distributed across components): • Component 1 – Irrigation and Drainage Infrastructure: US$ 38.0 million • Component 2 – Agricultural Production and Market Linkages: US$ 5.7 million • Component 3 – Efficient Scheme Operation: US$ 4.2 million • Component 4 – Sub-Project Management: US$ 6.6 million 44. The estimated cost-breakdown by activity is shown below: Table 3: Estimated Costs 45. Financing. The sub-project will be financed by the World Bank, KfW, the beneficiaries, and GoK. The two external financiers (World Bank and KfW) will co-finance the external financing requirements for all activities on a pari passu basis. The total cost of the project – inclusive of the above activities – is US$ 54.5 million to be financed as follows: a contribution from KfW of EUR 15 million; a contribution from the World Bank, estimated at US$ 26.8 million; and a 62 contribution from beneficiaries and GoK, estimated at US$ 7.7 million and to cover primarily operational costs, such as the establishment of a revolving fund for access to agricultural inputs, and costs of resettlement. The financing arrangement is summarized in the table below. Table 4: Summary of financing for Lower Nzoia Irrigation Scheme Phase 1 Category Amount (million US$) Notes Total Investment Cost 54.5 Total cost of three activities GoK and beneficiaries 7.7 Preliminary operational costs Total excl. GoK and beneficiaries 46.9 External financing requirement Equivalent of 15 million EUR as KfW 20.0 of March 31, 2013 External financing requirement IDA 26.8 less KfW contribution 46. Sub-Component 1.2: Water Investment Pipeline (US$ 50 million) 47. This sub-component will contribute to closing the large infrastructure gap in Kenya’s water sector, estimated at around US$ 5-7 billion in various existing and ongoing exercises. An immediate pipeline of potential investments worth about US$ 293 million has been identified and is currently under review for financing in the next investment operation under KWSCRP. This pipeline includes Mwache Dam and Ruiru well fields, which are in advanced stages of preparation, with detailed designs (and relevant safeguards documents) expected to be completed by December 2013. 48. In addition to the investments discussed under the immediate pipeline, a number of investments are under preparation as part of various exercises that are currently underway. These include: those under the National Water Resources Master Plan 2030 (supported by JICA); those being prepared as part of the Water Supply Master Plans for Nairobi/Satellite Towns and Mombasa/Coast Region (supported under WaSSIP); and those under the NIB’s project portfolio, with currently five irrigation development schemes at feasibility or design stage representing almost 300,000 ha. A number of water storage investments were also identified in the 2012 World Bank report, ‘Towards a Strategic Analysis of Water Resources Investment in Kenya.’ These investments represent a long-term pipeline, with potential opportunities for preparation (under Component 1.2) and possibly construction / implementation (under Component 1.1). 49. The National Water Resources Master Plan 2030 (supported by JICA) is a major planning effort that is identifying water investments that are consistent with Kenya’s social and economic development aspirations and could contribute to building the water investment pipeline. The Master Plan is assessing and evaluating the availability, reliability, quality, and vulnerability of country’s water resources up to around 2050, taking climate change into consideration; and formulating an action plan up to the year 2022 for WRMA regional offices to strengthen their water resources management capacities, and strengthen capacity of water resources management through transfer of technology. The Master Plan will include the preparation of nine sub-sector plans and is introducing key elements of modern river basin planning (including the use of hydrologic and water system models). On the basis of a revised water balance analysis, initial findings of the Master Plan suggest that surface water estimates are lower (by about 30%) 63 compared to previous (1992 Master Plan) estimates, while sustainable groundwater yields are several times higher. In addition, preliminary estimates of the financing needed for the sector are considerably higher than previous estimates, at US$ 19 billion. The final report for the Master Plan, that will finalize these figures and also propose integrated water management and flood control / disaster management plans for each basin, is expected by July 2013. 50. Under the Feasibility Study and Master Plan for Developing New Water Sources for Nairobi and Satellite Towns, a number of priority investments for Nairobi and its satellite towns (areas within 70 km) have been identified based on a multi-criteria least cost analysis to meet the demand horizon of 2035. Based on findings from the draft master plan report, AWSB has presented a project proposal highlighting priority sources for Nairobi’s satellite areas, which include the Karimune 2, Kamiti 1, Ruiru 2 and Stony Athi Dams (discussed above), as well as Kiunyu well fields. Each of these options is proposed for implementation by 2016 under the Master Plan at a combined cost of about US$ 600 million. Detailed design documents are expected between 2013 and late 2014. As such, the project will continue to explore these options as part of the immediate or long-term investment pipeline. 51. Under the Water Supply Master Plan for Mombasa and Other Towns Within Coast Province, four investment scenarios (with different sub-project combinations) have been selected for further study, based on capital investment costs and cost of water supplied. All four investment scenarios have two investments (namely the Msambweni well fields, and Mwache Dam) in common, although they are phased differently depending on the scenario selected. Three of the scenarios include Baricho well fields expansion. Two of the scenarios feature desalination, while one includes the construction of two additional small dams. The preliminary estimates of each scenario range between US$ 260 million and US$ 390 million, of which Mwache Dam is a substantial portion. The Water Supply Master Plan for Mombasa and Other Towns within Coast Province is expected to be completed in February 2012. 52. A number of projects are under preparation or construction by the NIB. This level of activity indicates a revival in the irrigation sector, which is considered a national priority (most notably under the implementation of Vision 2030). After many years of limited irrigation development and expansion, about twenty large-scale schemes are currently under study, while ten are under construction, for a possible area of 144,000 ha. About US$ 1.5 billion worth of investments are currently being – or have already been – studied to at least feasibility, indicating that a substantial long-term pipeline for irrigation may exist. A budget of US$ 64 million has been allocated by the NIB for studies relating to 117,000 ha in 2012-2013. Financing has not been confirmed for the majority of these investments, which indicates that there may be an opportunity to scale up the approach adopted for Lower Nzoia Irrigation Scheme Phase 1 to future irrigation schemes under the program, including Lower Nzoia Irrigation Scheme Phase 2. 53. Notwithstanding these various planning exercises and the acknowledged enormous investment needs, the preparation of identified investments is inadequate. The vast majority of project documents fall far below international standards on technical, economic, financial, environmental, social and institutional grounds. It is acknowledged that the poor preparedness of potential investments is partly responsible for the large water sector investment gap and has affected progress in the sector. 64 54. Sub-component 1.2 support the development of the investment pipeline by financing preparation activities for a range of potential investments – from water supply and irrigation schemes to large-scale water investments – requiring preparation budgets of up to US$ 10 million. It is envisioned that several of these investments could receive project financing in the first or later stages of the project. Specifically, this sub-component will finance pre-feasibility studies, feasibility studies and detailed designs. Other support will include: (i) development of safeguards instruments; (ii) surveys and tests; (iii) preparation of terms of reference (TORs) for consulting services to support investment implementation; and (iv) preparation of operations manuals. 55. This sub-component will also support the development of an Investment Framework (IF) with agreed quality assurance standards and guidelines for planning, preparing, implementing and operating water investments. The IF is envisioned to become an overarching sector-wide instrument for enhancing the quality and speed of investment preparation, and consequently a critical element for strengthening the pipeline of investment-ready projects. 56. An initial IF – that guides investment preparation at the feasibility level – was developed under project preparation and is presented in Annex 6. MEWNR tested it on investment proposals at advanced stages of preparation and rigorously applied it to the Lower Nzoia Irrigation Scheme Phase 1. It was found to be an extremely useful tool in guiding investment preparation and to serve as a sound basis for refinement. This sub-component will finance the further development of the initial IF, including preparing detailed guidelines that are specific to water-sector investment types (e.g., irrigation versus multi-purpose dams) and extending the IF to include quality requirements at the pre-feasibility level. Areas for refinement are further detailed in Annex 6. The sub-component will also support capacity building to ensure effective application of the IF, including the development of skills and tools for undertaking the technical, economic, financial, social, environmental and institutional analyses required for meeting it. The development of the IF will link closely with activities under sub-component 2.2 on basin planning given their complementarities. As investments move through the IF process, they will inform and be informed by the analytical and decision support tools developed under sub- component 2.2. 57. Component 2: Effective Water Sector Institutions (US$ 56.3 million) 58. Component 2 will support the current sector institutions, as well as the preparation, implementation and full functioning of the new and proposed legal and institutional framework resulting from alignments with the new Constitution of Kenya. It will also support integrated and participatory basin planning, including developing the requisite knowledge base and building capacity and institutional partnerships for effective water management and planning. The overall objective of this component will be to strengthen the enabling institutional and legal framework to sustainably advance Kenya’s vast water sector investment program in order to achieve water security and climate resilience. To this end, Component 2 includes two sub-components: (i) support for water sector transition and reforms and (ii) strengthening water management and planning. Each sub-component is described below. 65 59. Sub-Component 2.1: Support for Water Sector Transition and Reforms (US$ 26.1 million) 60. The Constitution of Kenya 2010 (CoK 2010) has introduced extensive changes to the overall governance structure, management of natural resources, and role and rights of Kenya’s citizens, which will have profound implications for the water sector. In order to conform to the provisions of the CoK, the water sector – as all others across Kenya – is in the process of developing several key legal and policy instruments that will replace those of the past when adopted. These include the draft Water Bill and Water Policy, as well as the draft Irrigation Bill and Policy and the National Land Reclamation Policy. This constitutional change and subsequent legislative reforms involve several challenging areas, including: a. The re-organization of the institutional structure to conform to devolution, including the establishment of a clear division of functions and responsibilities at the national and county levels, as well as capacity needs to support the transfer of designated functions to the counties. b. The prominence given to public participation and sustainable development. c. The establishment of enhanced basic rights to a clean and healthy environment, and socio-economic rights to water, sanitation and food security. d. New rules of tenure, including linking water resources to public land tenure, and the potential roles of private and community property rights holders in water resources development and management. e. New rules for the management of public finance, including the redefinition of public service as a trust that is to be exercised with accountability. f. Requirements under sister legislation to mainstream and integrate disaster risk management planning in all sectors, including risk mitigation through increased climate resilience and managing residual drought and flood risks. 61. Support is needed to address these legal and institutional issues for the long-term sustainability of the water sector, as well as to help effectively and expeditiously transition through a potentially challenging period of reforms arising from the significant changes to the legal structure and the institutions operating in the water sector. The implementation of legal and institutional reforms will involve the interpretation and application of specific legal precepts concerning the establishment, structure, organization and reinforcement of entities, as well as the re-allocation and regrouping of institutional mandates, functions and responsibilities. This will require, on a practical level, the need to transfer staff, assets, equipment, installations and other facilities; to develop new modes of operation; and to develop new strategies and plans, to name but a few. 62. In light of the above needs, this sub-component will support the current water sector institutions, as well as the preparation, implementation and full functioning of the new legal and institutional framework resulting from alignments with the new Constitution of Kenya. The objective of this support is to enhance the capacity of water sector institutions to effectively perform their mandates and functions, thereby contributing both to meeting project objectives and to advancing the broader reform process. 66 63. Support will be provided during the three stages of reforms in order to ensure an effective response to evolving challenges: (i) the pre reform stage, during which legal enactments will be designed and supporting legal and institutional instruments will be finalized, including administrative tools to guide the water sector transition; (ii) the reform stage, during which legislative changes will take place and transition plans will be implemented; and (iii) the post reform stage, during which the institutional and legal changes introduced by the reforms will be consolidated and strengthened and further institutional capacity built. 64. This sub-component consists of the following activities: (i) supporting institutional and legal reforms throughout design and early stages of implementation; (ii) supporting the legal and institutional transition process, including the implementation of the Water Sector Transition Plan; and (iii) building the capacity of key water sector institutions. The first two activities are designed to provide support during the pre-reform and reform stages, respectively. The third activity will take place throughout all three stages of reforms. 65. Activity 2.1.1 – Supporting institutional and legal reforms throughout design and early stages of implementation. This activity will contribute to the design and finalization of legal and institutional reform instruments and measures, including the identification of legal and/or institutional issues and necessary modifications. This activity will be undertaken during the pre- reform stage, discussed above. Specific activities could include: a. Supporting the finalization of legal instruments and related policies, including the Water Bill and Policy, Irrigation Bill and Policy, and Land Reclamation Bill and Policy; b. Supporting the finalization of the Water Sector Transition Plan, including the development of Annual Action and Financing Plans; c. Supporting the development of regulations to implement the Water Sector Transition Plan, including as related to asset transfer, enforcement and compliance, and performance contracting; d. Undertaking an audit and inventory of assets and liabilities; e. Undertaking organizational studies to determine institutional structures, staffing levels, financing, and assets and liabilities for transition; f. Developing strategies and guidelines for organizational structure, staffing competencies for core and non-core functions, and financing (including self- financing and revenue ring-fencing strategies); g. Developing an Action Plan and time-bound schedule to rationalize and fully transfer staff to new water sector institutions; and h. Supporting consensus building forums on the reforms and transition of functions, including through workshops, web-based information sharing portals, and other forms of communications. 66. Activity 2.1.2 – Supporting the legal and institutional transition process, including the implementation of the Water Sector Transition Plan. This activity will support the constitutionally mandated water sector transition (corresponding to reform or transition stage, mentioned above). The specific activities could include the following: a. Supporting the development of guidelines and subsidiary legislation/regulations to facilitate progressive realization of the right to water; 67 b. Reviewing and updating water sector strategies for alignment with new law and policy, including Water Resources Strategy, Water Storage and Flood Control Strategy, Water Services Strategy, and Basin Area Water Resources Strategy; c. Supporting the development of required subsidiary legislation/regulations for new water sector institutions, including Basin Water Resources Boards, National Water Storage Authority, National Land Reclamation Authority, Water Works Development Boards, County Water Service Providers, and the Water Sector Transfer Fund; d. Supporting the development of subsidiary legislation/regulations for enforcement and compliance with water rights, allocation, services and other standards; e. Supporting the mainstreaming of water sector components of the National Adaptation Plan developed under the Kenya Climate Change Action Plan; f. Supporting the development of subsidiary legislation/regulations for governance, administration and operation of local level citizen-managed water institutions under the new legal structure, including Water Resource Users Associations (WRUAs) and Irrigation Water Users Associations (IWUAs); g. Supporting the development of subsidiary legislation/regulations for water harvesting and storage rules; h. Supporting the development of subsidiary legislation/regulations governing inter- basin transfers and water quality classification; i. Supporting subsidiary legislation/regulations and template agreements for appointing agents to manage national water storage infrastructure; and j. Supporting devolution processes, including piloting the design and establishment of new water organizations at the county level, which could be scaled up in later phases based on lessons learned. 67. Activity 2.1.3 – Building the capacity of key water sector institutions. This activity will build and enhance the capacity of key entities to fulfill their core mandates and functions, as well as support non-core (yet critical) functions. Support will be provided throughout the three reform stages, although it will focus on the reform stage and the final stage (post reform period). The specific activities could include: a. Supporting the migration of competent staff to new institutions, including by assessing staff competencies and mapping capacity needs for new water sector institutions; b. Developing staffing and capacity building plans, including the identification of training needs for water sector institutions to implement new laws, mandates and functions; c. Supporting the capacity building of water sector institution staff based on capacity building plans, including by providing induction workshops for staff on new water laws; developing modules for training on corporate governance and providing training to Boards of Directors and senior staff; and undertaking curriculum reviews to mount in-school training on new mandates and functions and providing associated training (in coordination with the Kenya Water Institute); d. Conducting a needs assessment of and developing a technical assistance program for county governments to support the water sector devolution process; 68 e. Targeted support for improving the capacity of key institutions to effectively implement mandates and core functions, such as those in the irrigation sub-sector (MEWNR, NIB, county governments, regional development authorities). For example, such support to NIB and its successor could be in the following areas: quality of sub-project preparation; handing over irrigation schemes through effective implementation of irrigation management transfer; cost sharing and recovery; and development of commercially-oriented models; f. Targeted support for capacity building at the local level, including developing a capacity building strategy for local level citizen-managed water institutions (WRUAs and IWUAs), and subsequently piloting the implementation of subsidiary legislation/regulations and the capacity building strategy at the local level; and g. Assessments of capacity needs for non-core functions, including procurement and financial management and environmental and social safeguards due diligence; development of capacity building plans in these areas; and supporting capacity building. 68. Capacity building undertaken by the PMU to support the transfer of its initial responsibilities to executing agencies (those agencies involved in the project) is included under this activity (refer Component 3). Specialized technical capacity building in water management and planning, including at the community or water user level, is included under Activity 2.2.3. 69. Sub-Component 2.2: Strengthening Water Management and Planning (US$ 30.2 million) 70. The objective of sub-component 2.2 is to improve the capacity and knowledge base for basin-level water resources management in Kenya, including integrated planning and mainstreaming climate resilience. The sub-component builds on the strengthened sector wide institutional and legal frameworks supported under sub-component 2.1 by focusing on the information, technical capacity, and participatory aspects of water resource planning and management that will contribute to the sustainability and climate resilience of Kenya’s water resources and associated investments. The sub-component also builds on the Integrated Water Resource Management approach adopted in Kenya’s Water Act 2002 and in the National Water Strategy 2007, as well as on the implementation of IWRM approach by Water Resources Management Authority (WRMA) since 2005. The sub-component consists of three activities: (i) Water Resources Knowledge Base; (ii) Water Resources Planning and Allocation; and (iii) Institutional Capacity Strengthening and Partnerships. The three key activities (and specific activities or sub-activities) proposed under this sub-component are illustrated in the schematic below and are described in the rest of this annex. 69 Activity 2.2.1: Water Resources Knowledge Base Strengthening Water Management • Hydromet Modernization Sub-Component 2.2 • Water Resources and Climate Risk Information System and Planning Activity 2.2.2: Water Resources Planning and Allocation • Basin Planning • Specialized Analytical Products Activity 2.2.3: Institutional Capacity Strengthening and Stakeholder Participation • Institutional Strengthening • Training • Partnerships Figure 1 – Main Activities under Sub-Component 2.2 71. This sub-component has strong links and complementarities with other project activities, both benefiting from them and supporting them. For example, the identification of investment opportunities through scoping studies that are supported under activity 2.2.2 will feed into sub- component 1.2. In the reverse direction, inputs from sub-component 1.2 will be required in order to ensure that the basin planning supported under this sub-component considers all potential investment options. The sub-component will also generate outputs from modeling tools and analysis, which will be useful in the evaluation of investment impacts and benefits at the basin level and will also support those developing infrastructure to improve designs. Similarly, the establishment of a supporting institutional framework (sub-component 2.1) will increase the effectiveness and sustainability of the specific capacity building activities outlined in activity 2.2.3. For example, sub-component 2.1 will be critical to ensuring that Basin Boards are provided with sufficient support centrally and that WRUA forums are given the mandate needed to effectively undertake the activities outlined here. 72. This sub-component involves a number of agencies that are responsible for managing water resources and climate information, principally WRMA/WRRA, Basin Boards, KMD and the Climate Change Secretariat, and aligns with ongoing development programs. The sub- component will build on existing initiatives in integrated water resources planning and development at the catchment level and on the National Water Resources Master Plan 2030 to further develop planning and management of water resources at the catchment and national levels in line with the WRMA Strategic Plan 2012-2017. The sector context for this sub- component is described in Annex 7. The specific activities are detailed below. 73. Activity 2.2.1 – Water Resources Knowledge Base. This activity aims to upgrade the water resources monitoring network in order to provide timely information to support real time 70 decisions in all six of Kenya’s Basins. The activity requires collaborative working and data sharing arrangements between various institutions (refer to the summary of existing actors above). The specific activities – building on existing initiatives described above – include the following: 74. Hydro-met Modernization: improving the monitoring network, including hydrological, meteorological and ground water monitoring. The aim is to develop a minimum network with new or rehabilitated stations and real-time telemetry. As an intermediate measure cellphone systems would be used to make the existing manual network real-time (this would require distributions of cellphones and developing an SMS server). This activity will also include improving water quality monitoring, particularly for sediment loads, including upgrading equipment and laboratories. 75. Real-time Forecasting and DRM Decision Support System: improving forecasting and early warning systems. This activity will focus upon improving the hydrologic information and advice disseminated to the existing DRM network – the NDOC, Red Cross and community networks. This activity will include the development with an Online Visualization Portal (including a public domain version) which integrates meteorological and hydrological data. Project activities will primarily be limited to the information gathering, forecasting and modeling aspects, which would provide both raw data and analysis to inform early warning systems in national and county level administrations. For example, the analysis would indicate impacts of different rainfall and flow events to support users to turn forecasting information, including seasonal climatic predictions, into actionable early warning systems and contingency plans. Operational Control Rooms would also be supported at the basin level to improve communication. In targeted pilot areas where there is high flood risk, support would be provided for last mile connectivity and preparedness working through existing organizations (for example, the Red Cross or Water Resource User Associations). This provision could include strengthening warning and response capacity and procuring appropriate equipment, communication infrastructure, and other items to facilitate relief and response, as needed. GFDRR is currently supporting the Drought Management Authority to manage drought risks; additional needs in this area will be explored under the project and supported as needed. 76. Water Resources and Climate Risk Information Systems (WCIS): improving the existing system to enhance the water resources knowledge base across the relevant GoK agencies. This includes a GIS facility and integrating information being gathered across various organizations, including both global datasets and community surveillance. The information will be used to develop knowledge products, such as atlases and interactive products on a (public domain) web portal, to inform investment planning and to engage all stakeholders. This activity will support upgrading and filling of data gaps in the existing knowledge base, acquisition of data sets, including satellite imagery, etc. 71 77. The figure below shows the links between the various activities outlined here. Other Inputs • Global/Regional Centers • Depts/Basin Boards “Top-Down� Monitoring • Crowdsourcing/ Community Surveillance Available Satellite Earth • Basin Knowledge Base/ Special Surveys Observation Products Integrated Forecasts Real-Time Forecasting and • Weather Decision Support System • Hydrologic (all 6 Kenya Basins/ Catchments) • Flood Inundation • Droughts/ Seasonal “Bottom-up� Monitoring Integrated Hydromet (from all available existing and enhanced networks – automated and manual via Visualization Portal Other Products cellphones) To visualize real-time (and archived) • Web/Email/SMS alerts • Meteorology datasets from “top-down� and • Bulletins • Surface Water “bottom-up� sources • Mobile Apps • Groundwater (both official use and public-domain versions • Water Quality of portal) Operational Control Community Early Centers Warning Systems Figure 2 – Activity 2.2.1 78. Activity 2.2.2 – Water Resources Planning and Allocation. This activity aims to develop the analytical and stakeholder consultation framework to support basin planning and water resource allocation in Kenya’s six basins. The specific activities include the following: 79. Basin Planning, including the development of a Basin Planning Decision Support System, based upon the improved knowledge base developed under 2.2.1, and using structured Stakeholder Consultations that identify agreed parameters for basin management. Basin planning would use the specialized analytical products described below and stakeholder inputs on determining criteria/indicators and how to evaluate trade-offs amongst them. The key output would be a first rolling Basin Plan developed for all six basins and including the following elements: a. Brief History and Current Status 72 i. Review of Historical Evolution, Institutional Setting, Key Issues, Current Status, and Trends of the Basin b. Envisioning the Future ii. Stakeholder Perceptions and Inputs iii. Outlining development and management options iv. Scenario Framework (Scenarios, Key Basin Performance Indicators, Analytical Tools) v. Scenario Analysis c. Planning implications (incl. phasing, costing, institutional arrangements) for: vi. Identification of Investments in water-related sectors (incl. storage, agriculture, hydropower, water quality, catchment management, flood/drought management, etc.) vii. Optimal Operations of water-related infrastructure (existing and proposed) viii. Implications for resource management (incl. sustainable land and water management, zoning, etc.) and water allocation – overall and in each major sub-basin ix. Key knowledge and capacity needs and strategy to address them 80. To support basin planning, this activity will develop a system, processes and procedures for stakeholder identification and mapping, stakeholder organization and mobilization, stakeholder training, and communications. Structured stakeholder consultations during the development of Basin plans will (i) promote greater understanding and appreciation of the catchment water resource system; (ii) to facilitate greater “buy-in� to catchment management plans; (iii) reduce stakeholder vulnerability by improving access to information; and (iv) to create continuing mechanisms and processes that are accepted by key stakeholders and for conflict resolution, water regulation and enforcement, and other water management measures. 81. At the regional level, stakeholder consultations will benefit from existing regional fora, including in the Nile Basin (e.g., Nile Equatorial Lakes Subsidiary Action Program under the Nile Basin Initiative) and the Lake Victoria Basin (Lake Victoria Basin Commission). However given the number of transboundary river basins and aquifers which are within Kenya, this activity may also include additional transboundary stakeholder consultations to work on specific basin plans. 82. The links between basin planning and the development of the investment pipeline, including the Investment Framework, under sub-component 2.1 are strong. Inputs for basin planning will generate from the investment pipeline developed under sub-component 1.2. Basin planning and supporting analytical products will inform and be informed by the complementary development of the Investment Framework in Component 1.2. Much of the basin plan development would be done in parallel in all six basins, for example knowledge base and initial consultations for all basins plans. More critical or complex elements, for example structured input to basin planning tools, would be piloted in one or two basins before being rolled out to the others. 83. Specialized Analytical Products to inform the process of assessment and planning with relevant stakeholders at the sub-basin level. These are expected to include the following: strategic scoping assessments and investment identification, detailed surveys, scenario development, and basin strategic environmental and social assessments. The strategic scoping 73 assessments will focus on erosion/watershed management, water quality groundwater (including properties of critical aquifers), and flood protection. The investments identified could include large scale proposals or small scale options implemented through WRUAs, which would be developed under sub-component 1.2 as part of building the investment pipeline. Surveys would include topographic, land use, water use, abstraction, etc. and would be phased across critical areas. Regional satellite data sets are available through the Regional Center for Mapping of Resources for Development (RCMRD) and would be critical to providing country wide information for initial development of this activity. Scenario development will focus on key catchments using estimated populations, demands, infrastructure options and key basin performance indicators (environmental, economic, social) developed through stakeholder consultations described above. Scenario development will use these inputs to compare options and indicate consequences on key indicators. 84. This activity would also include work to develop existing climate models within Kenya for use in consultations and for raising stakeholder awareness. Completing and providing training on the locally developed and owned model, as well as supporting its use as part of stakeholder consultations for basin planning would aim at building local capacity for sustainability. 85. The figure below shows the links between the various activities outlined here. Knowledge Base Special Studies Water Resources and Climate Risk Strategic Scoping Studies Information System Targeted Surveys Structured Stakeholder Participation Planning Decision Support Basin Plans With representation of key Systems (for the 6 Basins/ spatial and multi-sectoral Analytical tools (incl. simulation, Catchments in Kenya) stakeholders (incl. government optimization, multi-criteria models) officials, academia, WRUAs, NGOs, private sector, etc.) Scenarios Criteria/ Population, Indicators Development, Environmental, Climate, Social, Economic/ Investments, Financial, Management Institutional Figure 3 – Activity 2.2.2 74 86. Activity 2.2.3 – Institutional Capacity Strengthening and Partnerships. This activity aims to develop adequate technical capacity and institutional relationships with specialist organizations for effective water management and planning. A mapping of organizations and institutions is included Annex 7. The first stage of this activity will include detailed needs assessments, including the institutions, procedures, knowledge, human resources, equipment, infrastructure, etc. This information will be used to support specific studies, build capacity specifically in water management and planning, and develop partnerships in order to ensure that the tools, systems and processes developed in the above activities are sustainable. The sub activities include the following: 87. Institutional Strengthening. This would cover a range of activities including: support for improved office infrastructure, a documentation center, developing a structured communications program, and support at the sub-basin level for WRUAs to improve local planning and to strengthen stakeholder forums. Infrastructure could include civil works for offices where need is clearly demonstrated, e.g., to ensure safe and weather-proof offices prior to installing other equipment. Upgraded office infrastructure would also include the necessary hardware, including communications improvements, information technology, vehicles, etc. The documentation center would provide access to the knowledge products and studies outlined above, in addition to other services including a library and digitizing services. The communications strategy would produce guidelines and indicators for stakeholder participation in the basin planning process. Support for WRUAs would cover two main areas: (i) cascading training and support for completing SCMPs from the sub-basin level to each WRUA and (ii) support for strengthening sub-basin stakeholder forums. 88. Detailed assessments would be prepared building upon and complementing the sector wide needs assessments under Activity 2.1. These assessments would include institutions working in the sector within and outside the Government structures. Strategic social and environmental assessments (SESAs) may be prepared, including the possibility that an “SESA� methodology or approach would be incorporated to the TOR for the basin plans. 89. Training at the central, basin and sub-regional level. Technical training would cover all relevant government agencies working in the water sector and could include management of the hydrometric network, catchment/sub-catchment management planning, modeling and other specialist skills, use of the Planning Decision Support system, etc. Training and on the job skills development would also cover developing project management skills, including planning, effective outsourcing, etc. Additional needs will be developed through the needs assessment described above. 90. Training for WRUAs. Training would focus on supporting WRUAs to become more effective in their current mandate and to expand their role in the management of the hydrometric system and knowledge base. Workshops, local exchanges and ‘on the job’ training, could include: investment design for catchment management, data collection and transmission, developing work plans, etc. 91. Developing partnerships. In addition to the institutions mentioned above, there are a number of local and regional actors working to improve climate resilience and drought/flood disaster risk management (refer above tables). This activity would support WRMA and other institutions to 75 partner with other agencies, universities, regional centers, etc. to work on collaborative projects that address water security, climate resilience and drought/flood disaster risk management. It is intended that partnerships will be enhanced both to increase the impact and effectiveness of the project and to build capacity within Kenya on these issues. The project will also try to facilitate linkages with other projects/programs (in addition to institutions) to promote the use of the hydro-met systems and forecasting modernization supported under the project. Partnerships could take the form of Memorandum of Understanding (MoUs) for specific projects, internships, and research projects and studies. Such partnerships would also be used to support targeted studies, such as to identify effective catchment management methods (e.g., Payment for Environmental Services) and to engage a wider range of catchment stakeholders. Technical studies would also be completed to ensure that WRRA and Basin Boards meet their core mandates, including studies on inter-basin transfers, guidelines for resource quality objectives, and properties of critical aquifers. Support would also be given to innovative or effective proposals for small-scale catchment management processes through competitive approaches in allocating financing through a Trust Fund (or similar) mechanisms. Component 3: Support for Project Implementation (US$ 15.2 million) 92. In the dynamic environment arising from the alignment of the water sector to the new Constitution of Kenya, it is essential that project implementation is based on an overall design and approach that ensures continuity, avoids delays and cost increases in advancing project activities, and mitigates potentially negative effects of gaps and issues that may emerge during the transition period and as the new institutional, legal and policy framework of the sector is put in place. For these reasons, a Project Management Unit (PMU) will be established to support MEWNR, including the irrigation portion that might migrate to the Ministry of Agriculture, Livestock and Fisheries. The PMU’s design, including its roles and functions detailed in Annex 3. 93. This component will support the establishment of the PMU to provide for effective project implementation through the completion of KWSCRP-1 and throughout the reform period (that is, prior to the launch of the reforms, during the transition, and during the post reform period). Specifically, this component will finance the required office space, goods (e.g., vehicles), equipment (e.g., computers), staff, consultant services, travel, training and operating costs that will allow the PMU to carry out its responsibilities for project implementation. These responsibilities include project management and coordination, procurement and financial management, project monitoring and evaluation (including impact evaluation), social and environmental safeguards management and oversight, and strategic project communications and outreach. 94. A critical role of the PMU will be to support capacity building of sector agencies to enable them to take over these responsibilities in later phases of the project. As a first step, the PMU’s application of the Investment Framework through the Qualifying Assessment (QA) will include an institutional and fiduciary assessment of the relevant agency (i.e., the agency sponsoring the investment in question), as well as a preliminary capacity building plan. Further support for developing non-core (and core) functions is provided under sub-component 2.1. It is expected that during the course of the project, a number of currently non-qualified agencies as per standard World Bank fiduciary assessments will become qualified implementing agencies. 76 Annex 3: Implementation Arrangements Kenya Water Security and Climate Resilience Project Institutional Context 1. The efforts of the Government of Kenya (GoK) to conform and realign its water resource management and development institutions, policies and strategies to the new Constitution of Kenya 2010 are underway. New water and irrigation policies and bills have been drafted and are undergoing intense discussion and review. These will be scrutinized by the Law Commission and the Constitutional Transition Commission before being presented to the Cabinet and the Parliament. This transformation involves the redefinition and realignment of roles and responsibilities, powers and functions, and the creation of new organizations, in many cases by transforming existing organizations. An important aspect is the adaptation of water sector policies and strategies to the new roles and functions assigned by the Constitution to the new county governments. 2. The context for the project is thus marked by the transition of the entire sector and key development institutions to a new institutional and legal framework. The project is designed to support this transformation prior to, during and after the transition, while supporting the implementation of a priority investment and the expansion of the water investment pipeline. Essentially, the Project will begin implementation with one set of counterpart institutions and associated policies, laws and strategies; and a revised set of institutional and legal arrangements will be progressively established over the project implementation period. 3. In this environment, it is essential that implementation of the project is based on an overall design and approach that ensures continuity, avoids delays and cost increases, and mitigates potentially negative effects of gaps and problems that will may emerge as the new institutional, legal, and policy framework of the water sector is put in place. For these reasons a Project Implementation Unit (PMU) will be established as a transitional entity to implement the project. The role and functions of the PMU are explained below. Overall Project Institutional and Implementation Arrangements 4. Project Implementation and Role of PMU. MEWNR will serve as the implementing agency of the project through the Project Management Unit (PMU), established under Component 3. As shown in Figure 1, the PMU will report to the Principal Secretary (PS), MEWNR, and will be granted a high degree of autonomy to ensure efficient and timely implementation of the project, including through the Figure 1 – Project Implementation Structure 77 application of rules, criteria, procedures agreed with the World Bank. The PS, as the Accounting Officer of the Ministry, will delegate procurement and financial management responsibilities to the PMU, within the Legal Framework stipulated in the procurement law of Kenya. 32 Notwithstanding these provisions, the PMU will be accountable to MEWNR. 5. The PMU will be a transitional entity, extending until the end of KWSCRP-1. One of its important roles will be to support executing agencies 33 – which would typically implement most project activities – in developing the required capacities for procurement, financial management, monitoring and evaluation, environmental and social safeguards implementation, and investment and activity implementation. It is expected that during the course of the project, a number of executing agencies will become qualified implementing agencies. In the interim, the PMU will undertake these roles on behalf of those agencies, typically through the services of consulting firms or by procuring implementation support consultants that are embedded within each executing agency involved in the project. 6. Core Functions of PMU. The core functions of the PMU will be coordination and facilitation, fiduciary (procurement and financial management), environmental and social safeguards supervision, monitoring and evaluation (M&E) and impact evaluation (IE), annual work programming and budgeting, and reporting as described below: a. The PMU will be responsible for coordinating and facilitating execution of Components 1 and 2 by the respective executing agencies, for reporting on progress, and for resolving issues and constraints to timely and efficient project implementation. The PMU will also be responsible for executing sub-component 2.1 (refer below). b. The PMU will undertake all procurement and financial management for the project. Executing agencies will provide the PMU terms of reference (TORs) and goods specifications required to prepare bidding documents and all invoices, payment certificates and other data that may be needed for financial management and reporting. The PMU will manage the project account, as well as clear and process all requests for payments. 34 Invariably, the PMU will be responsible for 32 Kenyan Law provides MEWNR as a Procurement Entity, with the PS as the Accounting Officer. The Ministerial Tender Committee (MTC) and the Ministerial Procurement Committee (MPC) are the final authorities for the award of tenders, depending on the financial threshold reached (MPC in the case of lower financial thresholds). The Accounting Officer is empowered by Kenyan Law to establish procurement units. The PMU will be established as a procurement unit within MEWNR and will follow procurement procedures agreed in the Finance Agreement. However, all procurement will be approved and awarded by the Ministerial Tender Committee (MTC) or the Ministerial Procurement Committee (MPC), depending on the amount of the contract. 33 MEWNR is responsible for overall implementation of the project through the PMU. In order to avoid confusion, those agencies that would typically execute investments or other project-related activities under their mandate are referred to herein as “executing agencies�. 34 The PMU may allow executing agencies to apply for imprest funds in Kenyan Shillings under procedures that are acceptable to the World Bank for small “petty cash� type expenses that may be incurred during activity execution. The procedure for imprest payments is as follows: the executing agency (e.g., NIB for the Lower Nzoia Irrigation Scheme Phase 1 in the case of sub-component 1.1) submits an application for imprest funds from the PMU in line with existing GoK procedures. The executing agency needs to have an A-I-E (authority to incur expenditure) issued by the PS of the implementing agency, MEWNR. The A-I-E, which is a standard GoK document, will specify the 78 all audits. The executing agencies will approve payment requests from consultants and forward them to the PMU. c. The PMU will be responsible for supervising the timely and appropriate preparation and implementation of environmental and social safeguards instruments, as well as for reporting to the World Bank on implementation progress. All project activities must respect the environmental and social safeguards frameworks (ESMF, RPF, VMGF and IPMF). The executing agency will be responsible for preparing and implementing safeguards instruments (ESIAs, RAPs, ESMPs, etc.). The implementation of safeguards instruments requires competent staff. In the event that an executing agency requests assistance for and/or does not have sufficient capacity to take full responsibility for safeguards preparation and implementation, the PMU will agree with the executing agency on the recruitment of consultants or consulting firms to support the necessary tasks. If consultants are used to supplement appropriate sponsor staff, they must be on NEMA’s approved list of qualified consultants. d. The PMU will help to develop implementation capacity in executing agencies, as mentioned above. To facilitate and promote the gradation of each executing agency, the PMU will provide support, including through the services of implementation support consultants (ISCs), and in consultation with the agency. The support will be defined in capacity assessments and will set be set out in capacity building action plans based on them. Additionally, “just in time� technical assistance may be provided through the services of consulting firms, or by procuring additional embedded support consultancies to aid in the development of required capacities. e. The PMU will be responsible for overall project M&E and Impact Evaluation, working closely with executing agencies. Under sub-component 1.1, the Lower Nzoia Irrigation Scheme Phase 1, an M&E framework and function will be established that will furnish reports to the PMU according to an agreed schedule and standard. The PMU will also coordinate and conduct an Impact Evaluation for Lower Nzoia Irrigation Scheme Phase 1. The PMU will be responsible for supporting the establishment of M&E functions in the executing agencies for Component 2, and for consolidating all M&E into regular reports against Results Frameworks, Annual Work Programs, and other benchmarks and targets. f. The PMU will be responsible for gathering all data necessary for annual work programming and budgeting. The PMU will coordinate and work closely with executing agencies to prepare, consolidate and submit annual work programs, budgets, procurement plans and disbursement forecasts. The PMU will also work with executing agencies to gather and consolidate information into quarterly and annual reports on project implementation and progress. Reports will assess project implementation and the activities of all agencies involved in the project nature of expenditure to be made and the expenditure code. After the expenditures are made, the A-I-E holders will submit the supporting documents back to the PMU and for the payment voucher to be raised. Applications for additional imprest payments can be made using the same procedure. 79 and their consultants, evaluate performance and results against targets and indicators, and provide analysis and commentary on progress, variances from plans and other issues, as well as propose remedies in order to ensure quality and timely implementation and to avoid delays. 7. Project Execution and Role of Executing Agencies. Executing agencies 35 will work closely with the PMU to execute sub-component 1.1 (Lower Nzoia Irrigation Scheme Phase 1), sub- component 2.1 (Water Sector Reforms), and sub-component 2.2 (Water Management and Planning 36). These are NIB, the Directorate of Sector Coordination and Reforms (or formal unit responsible for water sector reforms), and WRMA, respectively. The executing agencies will be supported by implementation support consultants (ISCs), which could be a consortium of firms with relevant national and international experience. The ISCs will be embedded in the respective executing agencies. The ISCs will be responsible for delivering most of the sub-component activities, including project planning and reporting, civil works supervision, implementation of social and environmental safeguards instruments, etc. The ISCs will also provide capacity building to executing agencies, including in technical areas related to sub-component activities and for general fiduciary and safeguards functions (in coordination with PMU, as discussed below). The responsibilities of the executing agencies and the ISCs vis-à-vis the PMU are further described below under each sub-component. 8. Sub-component 1.2 will be executed by the PMU. Consultancies will be procured by the PMU to undertake the pre-feasibility, feasibility and detailed design studies that will be financed under the sub-component, in addition to providing support for executing the sub-component, as needed. The work under this sub-component will be carried out in close coordination with the “sponsor agency� – normally the mandated public agency for the investment in question – including for the preparation of technical specifications and terms of reference (TORs), etc. 9. PMU Staffing. The PMU Project Manager will be appointed by the PS through a competitive process, subject to No Objection from the World Bank on the specific terms of reference, criteria for selection and adequate qualifications for the position. The PMU will additionally have a key staff of professionals with the necessary expertise and experience to undertake the PMU’s responsibilities as implementing agency of the project and executing agency for sub-component 1.2. PMU staff will be recruited competitively, based on criteria agreed with the World Bank and in accordance with World Bank Selection and Employment of Consultants Guidelines. 37 PMU staff could also include those from the civil service, in accordance with current civil service rules. 35 MEWNR is responsible for the overall implementation of the project through the PMU. In order to avoid confusion, those agencies that would typically execute investments or other project-related activities under their mandate are referred to herein as “executing agencies�. 36 The PMU may temporarily serve as executing agency for sub-component 2.1, unless and until such a formal unit is established within MEWNR. 37 World Bank Guidelines: Selection and Employment of Consultants under IBRD Loans & IDA Credits & Grants by World Bank Borrowers – January 2011. 80 Key PMU staff include the Project Manager, Technical Manager, Project Accountant, Sr. Procurement Officer, Institutional Development Manager, Sr. Project Officer (Engineering), Sr. Project Officer (Economist / Financial Analyst), Sr. Project Officer (Water Resources and Climate Resilience) and Project Officer (M&E / Information). Of these, four of these will be recruited as a condition of effectiveness, namely the Project Manager, Technical Manager, Project Accountant and Sr. Procurement Officer. 10. Governance. An Inter-Ministerial Oversight Committee (IMOC) will be established, primarily as an advisory and consultative group and to provide high level, strategic guidance on project activities. It will be comprised of the principal secretaries (PSs) of the primary water- related ministries (including Ministry of Regional Development Authorities, Ministry of Agriculture, Livestock and Fisheries and Ministry of Environment, Water and Natural Resources or their successors), as well as the The National Treasury. Membership can be extended beyond this core group to other agencies on an as need basis. The IMOC will be chaired by the PS, MEWNR. Implementation Arrangements – Sub-Component 1.1 11. Sub-component 1.1 will support the implementation of the Lower Nzoia Irrigation Scheme Phase 1. As noted above, NIB will be the executing agency. The PMU will maintain overall fiduciary responsibility and supervise execution, including the delivery of contracts. NIB as executing agency will be responsible for preparing tender and design documents, technical supervision of works, and contract management. NIB will be in charge of planning, coordination, and reporting for all Lower Nzoia Irrigation Scheme Phase 1 related activities, in line with the overall project implementation process and according to the provisions of an implementation agreement (in the form of a Memorandum of Agreement) to be established between NIB and the PMU. NIB will also be responsible for implementation of environmental and social safeguards instruments, while the PMU will be responsible for supervising timely and appropriate implementation of safeguards instruments, as discussed above. 12. To carry out its functions, NIB will receive comprehensive and integrated support through an implementation support consultant (ISC), which is expected to be a consortium of firms with relevant international experience. The consultant will have a permanent presence near the Lower Nzoia Irrigation Scheme Phase 1. It will be supervised and guided by a small Project Implementation Unit (PIU) headed by a senior NIB staff. NIB will also co-locate with the consultant NIB staff and/or individual consultants in selected areas of expertise, including: (i) irrigation engineering; (ii) agricultural development and marketing; and (iii) farmer / IWUA organizational development. These experts will provide targetted support to the consultant in their relative areas of expertise, and will work with the consultant to build partnerships with beneficiaries, local and national authorities, and the private sector. 13. The PIU’s key functions are: a. General management and coordination of sub-project activities and oversight of their implementation; b. Establishment of and lead participation in the Project a Coordination Committee (refer below); 81 c. Stakeholder-inclusive mobilization and organization, including beyond farmers and their organizations; d. Overall supervision of contractor and consultants; e. Monitoring and evaluation of sub-project activities and preparation of the various sub-project reports; 14. Under the control of the PIU (and PMU), the ISC will be responsible for the day-to-day management of the sub-project, including, in particular, the management of procurement processes, construction supervision, M&E and reporting, and facilitation of and advice to agricultural producers and water user groups and associations. In addition and notably, the ISC is expected to define at a very early stage of the project and help put in place throughout its seven years a strategy towards establishing the network of actors, public or private, who would play a role in the various functions needed for sustainable agricultural production and marketing of high value crops, and working out the relationships between them. NIB, which is expected to evolve into a core team of qualified staff to professionally manage the scheme, is a key actor within this network. 15. A local level Project Coordinating Committee will be established. Its membership will comprise the NIB PIU, in addition to groups that are key to sub-project implementation and/or whose activities are likely to be influenced by the sub-project. Membership will be extended to such groups on an as need basis and could include the following: a. Regional and/or county and/or district level administrations in the following domains: economic development, agriculture, gender and social development, health, environment, land use; b. Farmers in the command area through their IWUAs and Cooperatives; c. Representatives of other uses of water and natural resources within or nearby the command area; d. NGOs, CBOs, and professional associations locally and nationally active in relevant fields; e. Private sector representatives, including those who express interest in playing an active role in the sub-project (service/good provider, purchaser). 16. The formation and functions of the Committee will be an output of the stakeholders analysis. Implementation Arrangements – Sub-Component 1.2 17. Sub-component 1.2 will support the development of an investment pipeline and will be executed by the PMU. There are several stages to developing the investment pipeline: (i) building the preliminary investment pipeline; (ii) pre-feasibility study level; and (iii) feasibility study and Qualifying Assessment level. Taken together, the stages represent the implementation 82 cycle of the Investment Framework, which will be further developed by the PMU under sub- component 1.2. Each stage is summarized below. 18. Stage One: building the preliminary investment pipeline. The PMU will compile a list of investment ideas from various sources and screen those ideas, using the prioritization criteria included in the IF (refer Annex 6). 38 The PMU will prepare a project summary (Project Brief) for each investment idea, and a prioritization score will be attributed. The screening results and recommendations of the PMU will be reviewed by the IMOC. With the IMOC’s advice and suggestions, the PMU will make appropriate revisions to the screening results. The PMU working closely with the sponsor agencies 39 will prepare any additional documentation required for presenting well-reasoned recommendations to the PS. The PS will review these proposals and, if in agreement, will authorize the PMU to include the investment in the Preliminary Pipeline for Stage Two: Pre-feasibility study level. 19. In some cases, investments may already be prepared to pre-feasibility or feasibility stage, so that the prospective investments may progress immediately to a more advance stage. 20. Stage Two: pre-feasibility study (PFS) level. For each selected investment proposal, the PMU will work with the sponsor agency to support the preparation of a pre-feasibility (PFS) study. On the basis of a simple ‘Initial Letter of Understanding’ signed by the PMU and the sponsor, the PMU will assist the sponsor to prepare the PFS using a generic or standard pre- feasibility study TOR approved by the World Bank and will procure the services of a consulting firm to undertake the study. The PMU may bundle several pre-feasibility TORs into a single procurement, particularly when the investments are clustered in a single or adjacent sub-basins. 21. The PMU will screen the PFS, using the Investment Framework (refer Annex 6) and updating the Project Brief and other supporting documentation. The screening results and recommendations of the PMU will be reviewed by the IMOC. With the IMOC’s advice and suggestions, the PMU will make appropriate revisions and present its recommendations to the PS. The PS will assess the PMU’s proposals and, where justified, authorize the PMU to include the investment in the Pipeline for Stage Three – Feasibility Study level. 22. The PFS level investment proposals will also be referred back to the WRMA Regional Branches/Basin Boards to be taken account of in the basin planning system being supported under sub-component 2.2. 23. Stage Three: feasibility study (FS) and Qualifying Assessment (QA) level. For each investment proposal selected for the Pipeline, the PMU will work with the sponsor to support the preparation of the final feasibility (FS) study and an investment Preparation Report that contains 38 Sources could include catchment and sub-catchment plans for water allocation, management and investment; national, county and private sector investment proposals within basin or inter-basin planning frameworks; and the National Water Resources Master Plan (supported by JICA). This stage will also link closely with the Kenya Water Sector Investment Program (KWSIP). 39 The term “sponsor agency� or simply “sponsor� refers to the agency with the mandate to prepare and implement the investment in question. 83 all information typically required for investment appraisal. The agreements and obligations of the parties will be set out in a ‘Second Letter of Understanding’. 24. The FS study will be based on a TOR that is approved by the World Bank. FS level studies will not be bundled unless they could or should be (for example, a storage dam and the irrigated area served by the associated reservoir). The PMU will procure the services of a consulting firm to undertake the FS. The PMU will procure separate consultancies to prepare the relevant environmental and social safeguards instruments, in compliance with the environmental and social safeguards frameworks (ESMF, RPF, VMGF, and IPMF). 25. Once the FS level studies and environmental and social safeguards documents are available, they will be formally assessed against the Investment Framework through a Qualifying Assessment (QA). The QA uses standard terms of reference adapted for each investment. The QA will include an institutional and fiduciary assessment of the sponsor agency, as well as a preliminary capacity building plan. On the basis of the results of the QA, the PMU will make a recommendation to the PS to include the investment in the pipeline for financing, with possible support from the World Bank, other development partners, the private sector, etc. The PS may also consult with the IMOC. 16. Implementation Arrangements – Sub-Component 2.1 17. Sub-component 2.1 will support the strengthening of the legal and institutional reforms associated with aligning the water sector to the new Constitution of Kenya 2010 in order to support the implementation of the water sector investment program and to ensure the sector’s long-term contribution to economic growth. This sub-component will be executed by the Directorate of Sector Coordination and Reforms (or formal unit established in MEWNR for water sector reforms 40). 18. An Implementation Agreement (in the form of a Memorandum of Agreement) will be established between the PMU and the Directorate of Sector Coordination and Reforms (or formal unit established in MEWNR for water sector reforms). It will detail the commitments of the various parties by outlining the cooperative terms of the agreement (e.g., objectives, time period, etc.), the respective roles and responsibilities, etc. The Implementation Agreement will specify the following responsibilities for the executing agency: a. Preparing an overall implementation plan for the sub-component; b. Collecting the necessary information for the preparation of Annual Work Plans; c. Preparing draft Annual Work Plans and budgets, and obtaining approval of them from partner agencies and from the PMU (based on which the PMU will seek No Objection from the World Bank); d. Ensuring that each year the Annual Work Plan and budget are incorporated into agency budgets and programs; e. Mobilizing the human and material resources necessary for the execution of the Annual Work Plan; 40 The PMU may temporarily serve as executing agency for sub-component 2.1, unless and until such a formal unit is established within MEWNR. 84 f. Management the execution of the Annual Work Plan, including preparation of all documents needed for procurement of consultants, works and goods; management of contracts; and approval of invoices for payment and preparation of disbursement requests (as noted above, actual procurement and financial management processes will be handled by the PMU); g. Coordinating M&E of inputs, outputs, outcomes according to the project’s Results Framework and the M&E system established under the project; h. Reporting twice a year on activities and results against the Annual Work Plan, and preparing a comprehensive report of sub-component progress at the end of each year; and i. Coordinating with the PMU on the preparation of annual financial reports and audits. 19. Because current capacity is limited, the PMU will procure implementation support consultants (ISCs) that will be embedded in the executing agency to deliver many of the above activities and to facilitate on-job-training and capacity building. The following types of tasks will be undertaken by the ISCs: providing all consulting services and technical assistance under the sub-component; defining TORs for additional work needed under the sub-component; providing capacity building support. The PMU will prepare the TOR for the ISC, in close consultation with the Directorate of Sector Coordination and Reforms (or formal unit established in MEWNR for water sector reforms), based on the scope of activities under the sub-component and a detailed needs assessment. These assessments will be carried out by the Directorate of Sector Coordination and Reforms (or formal unit established in MEWNR for water sector reforms) with the PMU through supporting consultants, as needed. 20. The PMU will be responsible for providing strategic and technical input and oversight to the execution of the sub-component. To this end, the PMU will be staffed with Legal and Institutional Advisors, supplemented by specialized consultancy support as needed. The PMU would, thus, be equipped to work pro-actively with the executing agency to identify needs and recommend areas of targeted support to mitigate issues arising from the reform process. To this end, the PMU will also interact regularly with the Inter-Ministerial Oversight Committee. 21. Implementation Arrangements – Sub-Component 2.2 22. Sub-component 2.2 will support the development of an integrated approach to water resources management and development at the basin scale and strengthened data and information services, as well as the facilitation of stakeholder participation in these activities. The sub- component will be executed by WRMA. 23. An Implementation Agreement (in the form of a Memorandum of Agreement) will be established between the PMU and WRMA. It will detail the commitments of the various parties by outlining the cooperative terms of the agreement (e.g., objectives, time period, etc.), the respective roles and responsibilities, etc. The Implementation Agreement will specify the following responsibilities for WRMA as executing agency of the sub-component: a. Preparing an overall implementation plan for the sub-component; 85 b. Collecting the necessary information for the preparation of Annual Work Plans from within WRMA and partner agencies (e.g., KMD and others); c. Preparing draft Annual Work Plans and budgets, and obtaining approval of them from partner agencies and from the PMU (based on which the PMU will seek No Objection from the World Bank); d. Ensuring that each year the Annual Work Plan and budget are incorporated into agency budgets and programs; e. Mobilizing the human and material resources necessary for the execution of the Annual Work Plan; f. Management the execution of the Annual Work Plan, including preparation of all documents needed for procurement of consultants, works and goods; management of contracts; and approval of invoices for payment and preparation of disbursement requests (as noted above, actual procurement and financial management processes will be handled by the PMU); g. Coordinating M&E of inputs, outputs, outcomes according to the project’s Results Framework and the M&E system established under the project; h. Reporting twice a year on activities and results against the Annual Work Plan, and preparing a comprehensive report of sub-component progress at the end of each year; and i. Coordinating with the PMU on the preparation of annual financial reports and audits. 24. To coordinate and carry out the execution of the sub-component, WRMA will establish and implementation team comprising of the following: (i) team manager; (ii) water resources specialist (responsible for Activity 2.2.1); basin planner/economist (responsible for Activity 2.2.2); institutional/social development specialist (responsible for Activity 2.2.3). For execution, WRMA would assign staff at headquarters and in each regional branch. 25. Because current technical capacity is limited and the project will introduce new approaches, methods and technologies, the PMU will procure implementation support consultants (ISCs) who will be embedded in relevant agencies to deliver many of the activities and to facilitate on-job- training and capacity building. The following types of tasks will be undertaken by the ISC: providing all consulting services and technical assistance under the sub-component; defining TORs for additional work needed under the sub-component; providing capacity building support at central and regional level. The PMU will prepare the TOR for the ISC, in close consultation with WRMA (and partner agencies), based on the scope of activities under the sub-component and a detailed needs assessment. These assessments will be carried out by WRMA with the PMU through supporting consultants, as needed. Financial Management, Disbursements and Procurement Financial Management A. Strengths and Weaknesses of the Financial Management System 86 26. Project financial management (FM) is strengthened by the fact that MEWNR and the executing agency for sub-component 1.1, NIB, have adequate experience implementing World Bank financed investments, including the on-going project preparation advance (PPA), NRM and WASSIP projects, all of which have demonstrated effective FM arrangements. NIB is a state corporation under MEWNR and is also a sub-implementer under the NRM project. The necessary FM arrangements at MEWNR and NIB are in place to manage this project. The project payments are mainly large contracts which have low FM risk and are easy to monitor. The payments will be centralized and paid mainly through direct payment method. The project does not have decentralized community-driven development (CDD)-type transactions which tend to have high FM risk and potential for fraud and corruption. 27. The key risks in the project are the following: (i) delays in roll-out of IFMIS at ministry level. This is a portfolio-wide problem that the World Bank is supporting GoK to address through the TCIP project. Nevertheless, in view of the fact that the project has relatively large size and low volume transactions, these can be managed using the current manual system at the implementing ministry. Financial reports can be extracted using Excel Spreadsheets; (ii) in- country disbursement delays affected the opening of the Designated Account (DA) and Project Account (PA) by Treasury. This was a transitional one-off issue resulting from the provisions of the new PFM law which provided for opening of bank accounts in Central Bank of Kenya (CBK). The transition arrangements is that projects approved by the World Bank Board before GoK issues the Treasury Circular to provide guidelines for moving to CBK will continue to have their DA and PA in commercial banks acceptable to IDA. Apart from the delays in opening bank accounts by Treasury, the Kenya portfolio has material in-country disbursement delays in moving funds from the DA to the PA which sometimes take over two months. This will be mitigated by using direct payments for the large payments and having an adequate advance in the project account. The project will also be encouraged to make regular SOE returns (even on a monthly basis). The World Bank conducts quarterly FM capacity building workshops which would assist in enhancing the capacity of the project; (iii) Ministerial audit committees have been formed in the line ministries including MEWNR, but have been found not to be effective in the providing management oversight. 28. Budgeting arrangements: Budgeting at MEWNR is done by the Finance Department which is separate from the Accounts Department. The Finance Department uses the “Government Financial Regulations and Procedures� Manual, which is considered to be adequate. The Finance Department comprises three staff, headed by the chief finance officer who reports to the Principal Secretary. The staff have adequate qualifications and experience. The finance officers are seconded to the Ministry by the Treasury. The budget is approved by the Ministry Finance Committee before being forwarded to Treasury for inclusion in the Government Printed Estimates (PE). MEWNR should ensure that direct payments (contracts and consultancies) are budgeted under Appropriation-in-Aid (A-in-A) while cash-based payments (mainly project management costs) are budgeted under revenue. 29. Accounting arrangements: MEWNR has adequate accounting capacity. The accounting department at MEWNR is headed by the Principal Accounts Controller (PAC) who reports to the Principal Secretary. The PAC is deputized by a Chief Accountant and three other accounts staff. The PAC is fully qualified, while the Chief Accountant holds a Bachelor of Commerce degree 87 and is in the process of completing the professional CPA course. MEWNR has assigned two accountants dedicated to external resources projects who will be handling the project. The procedures are contained in the “Government Financial Regulations and Procedures Manual�. They are adequate for the accountability of project funds. The implementing agency has developed an FM manual, which has been reviewed and cleared by the World Bank. The government has recently re-engineered its efforts in the implementation of the IFMIS but this is yet to be fully rolled out. As an interim measure, a manual accounting system using Microsoft Excel will have to be used to prepare the books of accounts. This will be adequate as the project payments will consist mainly of large but relatively few contracts. 30. Internal control and internal auditing arrangements: MEWNR has internal auditors seconded from Treasury. The internal auditors have adopted the Risk Based Approach in their activities. The staff have adequate qualifications and experience. The department has the “Government of Kenya Internal Audit Manual.� The ministry has an audit committee that meets quarterly or as need arises. However, the GoK is working on ways of making audit committees more effective, especially for implementation of recommendations of audit reports. The GoK’s internal audit department will be conducting fiduciary/in depth reviews of World Bank-financed projects. This is expected to strengthen the fiduciary controls of the project. The ministry prepares monthly reconciliations that are reviewed by the Principal Accounts Controller or the Chief Accountant. B. Funds Flow and Disbursement Arrangements 31. Designated Account (DA): The The National Treasury will be required to open a Designated Account denominated in US$ at the Kenya Central Bank or in a commercial bank acceptable to the World Bank. Evidence to this effect should be submitted to the World Bank ahead of project disbursement, together with the signatories to the accounts in accordance with the Financing Agreement. 32. MEWNR Project Account (PA): MEWNR will open a Project Account denominated in Kenyan shillings in a the Kenya Central Bank or in a commercial bank acceptable to the World Bank, from which project funds will be received from the DA managed by the The National Treasury. The account will be managed by the PMU on behalf of the PS MEWNR. The PS will designate signatories to the bank account in line with existing GoK regulations. 33. Payments by sub-implementers/executing agencies: Most of the payments are relatively large contracts and consultancies which will be made by the PMU. Nevertheless, there will be need for the sub-implementers/executing agencies, including NIB, to made payments for operating costs and other day-to-day running costs. These will done by way of advances through the AIE (authority to incur expenditure) imprest system of government. The officers in charge of the sub-components will be assigned delegated powers by the PS MEWNR to incur specified cash expenditure with their respective agencies and subsequently account for the same to MEWNR. In view of the fiduciary risks associated with operating costs in general and cash payments in particular, such payments should be kept at a minimum. These payments will be budgeted for as “revenue� in the printed estimated. 88 34. Statement of Expenditure (SOE) Method of Disbursement: The project will adopt the Statement of Expenditure (SOE) method of disbursement. An advance equivalent to the six months cash projection will be deposited in the DA and thereafter the DA will be replenished against SOE’s submitted to the World Bank at least once every month. The PMU will be expected to submit nil SOE to the World Bank every month for documentation of expenditures for those months during which no funds would be required. Only low value cash payments (primarily project management expenses) are expected to be done out of the funds deposited on the DA/PA. All other payments are expected to be made using direct payments method. 35. Direct Payment Method: All material payments (over US$ 200,000 or other lesser amount as would be agreed with the World Bank) for local and foreign payees will be made using direct payments method. These should be budgeted for as A-in-A (appropriation in aid). Proposed funds flow arrangements for Lower Nzoia Irrigation Scheme Phase 1 co-financing by KfW 36. Background: As part of the project design, irrigation and drainage works will be carried out on River Nzoia under sub-component 1.1. This sub-component will be co-financed by IDA, KfW and GoK. Two contracts (construction and implementation support consultant) will be co- financed by KfW. The KfW funds will not finance any recurrent costs which are expected to be paid from the GoK counterpart funds. The co-financing arrangements will be subject to the World Bank FM and disbursement procedures. GoK will sign legal agreement with KfW for the portion of funds to be committed by KfW. The co-financing arrangements will be coordinated by the World Bank. 37. Disbursement arrangements for IDA and KfW finances: The IDA and KfW funds under this sub-component will be budgeted under appropriation-in-aid (A-I-A) mode as these will be paid as direct payments (i.e. financiers will deposit the funds directly to the bank accounts of the contractors/consultants on receipt of the payment vouchers and other supporting documents approved by GoK for payment). In view of the above, the finances for the above sub-component will not flow in-country. Hence, there will be no need for KfW to open a Designated Account (DA) in Kenya. Under the direct payment method, the IDA funds to make payment under this sub-component will also not be deposited on the DA. The payments will be made directly from the Credit account in Washington DC to the bank account of the contractor/consultant. This will avoid the in-country funds flow delays that could otherwise be experienced if payment were to be made through the DA. 38. The works contract and the implementation support consultant contract that will be procured by the PMU will be co-financed by IDA and KfW (using World Bank procurement procedures). Under the terms of the contract, payment will be made in installments/tranches as per the defined degree of completion/output. Each tranche would be split between IDA and KfW on a 50/50 basis until the KfW funds are exhausted. Thereafter, IDA would finance 100% of disbursements. 39. Certification of completion will be issued at each stage of completion which will form the basis for raising invoices to trigger payment. For each installment/tranche, the contractor will 89 raise two (2) separate invoices to be paid by the respective financiers in the agreed percentages. For instance, if it is agreed that IDA pays 50% and KfW 50% of each tranche/installment, for certificate of completion of say US$10 million, invoice one would be raised for US$5 million for IDA payment and invoice two for US$5 million for KfW. 40. The bid documents at the procurement stage will clearly define the payments procedures as part of the terms of the contract. This will include disclosure of the fact that payment will be made by two different financiers via direct payment and the need for the contractor/consultant to raise two separate invoices for each certificate issue for a tranche/installment on the basis of percentages, as agreed between the two financiers. 41. On receipt of the certificate of completion and the two invoices, the PMU will confirm that the two invoices add up to the amount in the certificate, as well as conduct due diligence on the supporting documents, compliance and output. Thereafter, the PMU will process two payment vouchers (one for each invoice) in accordance with existing GoK procedures. 42. The PMU will also prepare withdrawal application (WA) through the line ministry for each of the financiers separately, in line with the payment voucher and relevant invoice. 43. The WA will be forwarded by Treasury to the respective financiers under the normal World Bank procedures for direct payment to the contractor/consultant. 44. Each financier will make payment against its WA and advise GoK accordingly (for IDA this is done through the client connection system, to which both Treasury and the PMU will have access). 45. Financial reporting arrangements: The MEWNR will prepare quarterly un-audited IFRs in form and content satisfactory to the World Bank, which will be submitted to the World Bank within 45 days after the end of the quarter to which they relate. 46. The MEWNR will also prepare the project’s annual accounts in accordance with International Public Sector Accounting Standards as per the Treasury Circular issued by The National Treasury in September 2008. The format of the IFR and financial statements has been agreed with the project team. 47. Auditing arrangements: KENAO will audit project accounts under MEWNR. The terms of reference for the audit have been agreed between the World Bank and MEWNR. The audit report and management letter are required to be submitted to the World Bank within six months after the end of the financial year. The audit will be done in accordance with the International Standards on Auditing. The audited financial statements by KENAO for fiscal year 2009/2010 indicate that MEWNR has internal control issues involving outstanding items in the bank reconciliations, statement of assets and liabilities and management of imprests. These issues have since been resolved. However, MEWNR has no outstanding audit issues with the audit reports for the two World Bank projects (for NRM and WaSSIP) ,which have been submitted to the World Bank within the stipulated period, up to and including December 31 2012. 90 C. Implementation Support Plan 48. Based on the outcome of the FM risk assessment, the following implementation support plan is proposed: Table 1: Implementation Support Plan Financial Management Activity Frequency FM Output Desk Reviews IFRs review Quarterly Interim Financial statements review report Audit report review of the WRMDP Annually Audit review report Review of other relevant information such as Continuous as they FM review report internal control systems reports become available Onsite Visits Review of overall operation of the financial Once every 12 FM review report management system including internal controls. months Monitoring of actions taken on issues highlighted As needed FM review report in audit reports, auditors’ management letters, internal audit and other reports Transaction reviews (if needed) Annually or as FM review report needed Fiduciary review by internal audit department Annually Fiduciary Review treasury report Capacity Building Support Financial management training sessions By effectiveness and Training sessions thereafter as needed held D. Conclusion of the FM Assessment 49. The conclusion of the assessment is that the FM arrangements have an overall residual risk rating of Moderate, which satisfies the World Bank’s minimum requirements under OP/BP10.02, and therefore is adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by the World Bank. 91 Procurement A. General 50. Procurement for the proposed project would be carried out in accordance with the World Bank’s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 2011; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 2011, and the provisions stipulated in the Financing Agreement. The various items under different expenditure categories are described below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time-frame are agreed between the Borrower and the World Bank in the procurement plan. The procurement plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 51. Use of National Procurement Procedures: All contracts other than those to be procured on the basis of ICB and consulting services shall follow the procedures set out in the Public Procurement and Disposal Act of 2005 (PPDA). The PPDA governs purchase of works, goods and services using public resources by the central government entities, local authorities, state corporations, education institutions, and other GoK institutions. Under the PPDA, the Public Procurement Oversight Authority (PPOA) has been established, in addition to the Public Procurement Directorate in the The National Treasury. The PPDA sets out the rules and procedures of public procurement and provides a mechanism for enforcement of the law. Some provisions of PPDA are not fully consistent with the World Bank procurement guidelines and consultant guidelines, and therefore these may not be applied for the implementation of this project without modification. These provisions and their respective modifications are: (a) PPDA 55(2): instead, the tender submission date shall be set so as to allow a period of at least 30 days from the later of: (i) the date of advertisement, and (ii) the date of availability of the tender documents. (b) PPDA 4(2)(c): instead, Recipient’s government-owned enterprises shall be allowed to participate in the tendering only if they can establish that they are legally and financially autonomous, operate under commercial law and are an independent agency of the recipient’s government. (c) The Borrower shall use, or cause to be used, bidding documents and tender documents (containing, inter alia, draft contracts and conditions of contracts, including provisions on fraud and corruption, audit and publication of award) in form and substance satisfactory to the Association. (d) PPDA 61(4): instead, extension of tender validity shall be allowed once only, and for not more than thirty (30) days, unless otherwise previously agreed in writing by the Association. (e) PPDA 66(3)(b): instead, evaluation of tenders shall be based on quantifiable criteria expressed in monetary terms as defined in the tender documents. It shall not be based on a merit points system. 92 (f) PPDA 39: instead, no domestic preference shall be used in the evaluation of tenders. Therefore, as a result of the non application of PPDA 66(3)(b) and 39, contracts shall be awarded to qualified tenders having submitted the lowest evaluated substantially responsive tender. (g) PPDA 67: instead, notification of contract award shall constitute formation of the contract. No negotiation shall be carried out prior to contract award. (h) PPDA 91: instead, shopping procedure will apply for each low value contracts, in lieu of Direct Procurement, except as otherwise previously agreed in writing by the Association. (i) Regulations 47: instead, the two envelope bid opening procedure shall not apply under NCB. The Bank’s standard bidding documents for goods and works shall be used with appropriate modifications. 52. Procurement of Works: Works procured under this project will include: construction of Lower Nzoia Irrigation and Drainage Scheme Phase 1; office upgrading and minor construction of sheds, offices and nursery. Procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all International Competitive Bidding (ICB) and NCB contracts. 53. Procurement of Goods: Goods procured under this project will include: farm machinery, office furniture and equipment, motor vehicles, monitoring equipment, and information technology (IT) equipment. Framework agreements may be used to implement some actions such as: (a) goods that can be procured off-the-shelf or are common use with standard specifications; (b) non-consulting services that are of a simple and non-complex nature and may be required from time to time by the same agency(ies) of the Borrower; or (c) small value contracts for works under emergency operations. Such arrangements should not restrict foreign competition and should be restricted to a maximum duration of three years. The nature and budget for such goods, including the circumstances and justification for its use; the particular approach and model to be adopted; the procedures for selection and award; and the terms and conditions of contracts will be defined and agreed between the Borrower and IDA prior to their inclusion in the updated annual procurement plan. 54. Procurement of Non-Consulting Services: Contracts under non-consulting services have yet to be identified. In the event that activities such as workshop venues, transport or IT services are identified, the type and budget for such services will be defined and agreed between the Borrower and IDA prior to their inclusion in the updated annual procurement plan. 55. Selection of Consultants: Consulting services to be procured under the project include selection of firms and individuals for the provision of integrated fiduciary services, feasibility studies, designs and supervision of construction and rehabilitation contracts and technical assistance (TA) services, etc. 56. The GoK-owned universities and research institutions in the Borrower’s country that are uniquely qualified on specialized tasks may participate with prior agreement between the Borrower and the Bank at project preparation and disclosed in the project documents or participate as sub-consultants in competitive selections in association with private consultants. Contracts to be procured under these arrangements include monitoring and evaluation (M&E), 93 public private partnerships, etc. The budget for such services will be defined and agreed between the Borrower and IDA prior to their inclusion in the updated annual procurement plan. 57. Operating Costs: These items will be procured using the Borrower national procurement and administrative procedures acceptable to the Bank. The Borrower will also pay for costs associated with any resettlement, land acquisition, compensation and relocation of services. 58. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the Project Implementation Manual (PIM). B. Assessment of the Agency’s Capacity to Implement Procurement 59. Procurement activities will be carried out by a Project Management Unit (PMU) to be established within MEWNR and comprising of a Project Manager, Technical Manager, Social Specialist, Environmental Specialist, Procurement Specialist, Financial Management Specialist, Water Resources Specialist, etc. 60. An assessment of the capacity of the implementing agency to implement procurement actions for the project was carried out by the Procurement Specialist of the World Bank team in August 2012. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement duties and management of the ministry. 61. The key issues and risks concerning procurement for implementation of the project have been identified and include systemic weaknesses in the areas of: (i) accountability of procurement decisions; (ii) procurement record keeping; (iii) capacity of procurement staff; (iv) procurement planning; (v) procurement process administration, up to and including award of contracts; (vi) contract management; and (vii) procurement oversight. 62. The corrective measures that have been agreed are: (a) By effectiveness, prepare a Procurement Guide consistent with the Project Implementation Manual that: (i) defines the roles and responsibilities of all involved in any aspect of procurement implementation of the project; (ii) set out the sequence and timeframe for the completion of procurement decisions of all categories of contracts, as well as for coordination of the contribution of all those involved in procurement implementation; and (iii) establish service standards for processing of payments to contractors and suppliers. (b) Align the preparation processes of procurement plans, work plans and budget estimates. (c) Establish separate effective tracking systems of: (i) procurement plan implementation and (ii) processing of payments to contractors and suppliers. (d) Confirm, immediately after effectiveness, that two procurement officers from the current Ministry staff are dedicated to the project. Currently, the procurement officer 94 is responsible for all procurement activities of MEWNR and he cannot handle both concurrently. (e) In consultation with the Public Procurement and Oversight Authority (PPOA) and the Kenya National Audit Office (KENAO), ensure that procurement audits by PPOA and financial audits by KENAO are conducted jointly. (f) Based on the procurement capacity assessment carried out in August 2012, and taking into consideration the training and experiences of the procurement staff responsible for procurement activities of this project, the overall project risk for procurement is Substantial. C. The Procurement Plan 63. MEWNR will maintain a procurement plan for project implementation that provides the basis for the procurement methods. The plan will be discussed and agreed between the Recipient and the Bank and will thereafter be posted on the Bank’s external website. The procurement plan will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The World Bank’s review of procurement decisions will be provided in the procurement plan. D. Frequency of Procurement Supervision 64. In addition to the prior review supervision to be carried out from World Bank offices, there will be annual supervision missions to visit the field and to carry out post review of procurement actions. E. Details of the Procurement Arrangements Involving International Competition 65. Goods, Works and Non-Consulting Services: (a) List of goods and works contract packages to be procured following ICB in the first 18 months: Works Contracts Ref No. Contract Procurement Review Expected Comments (Description) Method by Bid-Opening Bank Date (Prior / Post) W101 Construction of Lower Nzoia ICB Prior 27 Nov 2013 Irrigation Scheme Phase 1 Irrigation and Drainage W102 Construction of sheds, stores NCB Post 25 Jul 2014 and staff offices, preparation of nursery, W103 Construction of self-contained NCB Post 25 Aug 2014 rooms, offices, kitchen, drying floor, packing centers and cold rooms in the project site. 95 W201 NCB Prior 2 Feb 2014 The number Construction of operational and location centres in sub basins - min. yet to be infrastructure. determined W202 Office Upgradation (incl. NCB Post 28 Mar 2014 operational control rooms, documentation center) Goods Contracts Ref. No Contract Procuremen Review Expected Bid- Comments (Description) t Method by Opening Date Bank (Prior / Post) G101 Farm machinery and pumps NCB Post 24 Jan 2014 G102 Materials for the nursery NCB Post 28 Feb2014 (seeds, fertilizers, insecticides, etc.) G103 Furniture Shopping Post 24 Aug 2014 G104 Office equipment and NCB Post 23 Sept 2014 information technology G105 Vehicles and Motorbikes NCB Post 7 Jan 2014 (Nzoia) G201 Hydro-met IT equipment ICB Prior 7 Mar 2014 G202 Surface Water Monitoring ICB Prior 9 Apr 2014 G203 Meteorological Monitoring ICB Prior 25 Apr 2014 G204 Groundwater monitoring 7 May 2014 NCB Post equipment G205 Water Quality Monitoring 28 May 2014 NCB Post (stations. field kits) G206 Water Quality Laboratory 17 Apr 2014 NCB Post Equipment G207 Water Quality Laboratory 16 May 2014 NCB Post Enhancement G208 IT equipment ICB Prior 9 Jun 2014 G209 Vehicles (WRMA) NCB Post 23 May 2014 G301 M +E Software Systems Shopping Post 14 Feb 2014 G302 Desk-topping systems NCB Post 14 Mar 2014 G303 Office Stationery and General Shopping Post 14 Nov 2013 Supplies 96 66. Consulting Services: (a) List of consulting assignments: Ref. Description of Assignment Selection Review Expected Comments No Method by Proposals Bank Submission Date (Prior/P ost) C101 Hiring of Implementation QCBS Prior 27 Sept 2013 Support Consultant to support NIB in implementation of Lower Nzoia Irrigation Scheme Phase 1 C102 Hiring of Conveyance ICS Post 16 Apr 2014 Consultant for Lower Nzoia Irrigation Scheme Phase 1 C103 Hiring of Property Valuer for ICS Post 16 Apr 2014 Lower Nzoia Irrigation Scheme Phase 1 C201 Implementation Support QCBS Prior 30 Jul 2013 Consultant (support to transition and legislative reforms in the water sector) including finalizing the Water Sector Transition Plan; audit and inventory of assets and liabilities; and organizational studies to determine institutional structure, staffing levels, assets and liabilities for transition. C202 Implementation Support QCBS Prior 14 Aug 2013 TOR to be Consultant (capacity building expanded by support to water Sector the institutions ) Consultant C203 Legislative reforms in water QCBS Prior 28 Aug 2013 TOR to be sector, including finalizing the expanded by draft Water Policy, Water Bill the and others Consultant C204 Capacity building of water sector QCBS Prior 14 Sep 2013 TOR to be institutions, including induction expanded by workshops for staff on new the water laws and institutions; staff Consultant capacity reviews, identification of training needs for implementing new mandates and functions, and provision of training programs; and needs assessment of and technical assistance to county governments. C301* Project Manager ICS Prior 28 June 2013 97 C302 Manager Infrastructure ICS Prior 28 June 2013 Development C303 Senior Project ICS Prior 5 July 2013 Officer(Engineering) C304 Senior Project ICS Prior 5 July 2013 Officer(Economist/Finance) C305 Project Officer (Engineering) ICS Post 19 July 2013 C306 Senior Economist/Financial ICS Post 28 June 2013 Half time Specialist PYI/2 C307 Senior Social Development ICS Post 5 July 2013 Half time Specialist PY1/2 C308 Senior Environmental Safeguard ICS Post 5 July 2013 Half time Specialist PY1/2 C309 Infrastructure Adviser ICS Post 5 July 2013 Quarter time PY1 /2 C310 Manager Institutional ICS Prior 28 June 2013 Development C311 Water Resources /Climate ICS Post 28 June 2013 Half time Resilience Advisor PY1/2 C312 Project Officer( Water ICS Post 5 July 2013 Resources/Climate Resilience ) C313 Institutional Advisor ICS Post 28 June 2013 Quarter time PY1/2 C314 ICS Post 28 June 2013 Half time Legal Specialist PY1/2 C315 Senior Procurement Officer ICS Prior 5 July 2013 C316 Procurement Officer ICS Prior 1 October 2014 C317 Procurement Adviser ICS Prior 28 June 2013 Full time PY1 then on half time C318 Project Accountant ICS Prior 28 June 2013 C319 Accountant ICS Post 1 October 2013 C320 Financial Management Specialist ICS Post 28 June 2013 Half time C321 Project Officer(M+E ICS Prior 5 July 2013 Information) *The budget of Individual Consultants 301 to 321 is for a contract period of 24 months. (b) Consultancy services estimated to cost above USD 200,000 equivalent per contract and single source selection of consultants (firms) will be subject to prior review by the Bank. (c) Shortlists composed entirely of national consultants: shortlists of consultants for services estimated to cost less than USD 200,000 equivalent per contract may be composed entirely of national consultants, in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 98 67. Prior Review Thresholds. Prior review and procurement method thresholds for the project are indicated in the table below. Expenditure Contract value threshold Procurement / selection Contracts subject to prior category (US$) method review Works Above 5,000,000 ICB All Below 5,000,000 NCB To be specified in the procurement plan Below 100,000 Shopping None All Values Direct contracting All Goods Above 500,000 ICB All Below 500,000 NCB To be specified in the procurement plan Below 80,000 Shopping None All Values Direct contracting All Consulting Above 200,000 QCBS/LCS/QBS/FBS All services (firms) Below 200,000 QCBS/CQS/LCS/FBS None All Values SSS All Consulting Above 100,000 Individual consultant’s All services qualification (individuals) Below 100,000 Individual consultant’s None qualification All Values SSS All Environmental and Social (including safeguards) 68. The GoK has enacted the Environmental Management and Coordination Act (EMCA) of 1999, which empowers the National Environmental Management Authority (NEMA) with an oversight role on environmental compliance. In accordance with the EMCA, NEMA is responsible for conducting annual environmental audits and carrying out due diligence on the projects that have already undertaken ESIAs, as well as those in the process of undertaking ESIAs. MEWNR has been implementing World Bank-funded projects and has the necessary structures in place for overseeing safeguard issues. However, overall capacity for implementation of environmental and social safeguards policies is still low. In order to ensure adequate capacity to oversee the required social and environmental risk mitigation measures under the project, environmental and social specialists will be key members of the Project Management Unit (PMU). The PMU will supervise the application of all environmental and social safeguards framework and compliance with NEMA’s requirement for ESIAs. The PMU will assess institutional arrangements and the environmental and social safeguards management capacity of each executing agency and oversee capacity enhancement accordingly. This entails awareness building on the application of applicable environmental and social safeguards 99 frameworks, including through training seminars/workshops and short courses for relevant agency staff on implementing environmental and social aspects of the project. The project will support the appointment of qualified environmental and social specialists in the PMU to monitor the compliance with (or application of) the ESMF as well as other social and environmental activities. Under sub-component 1.2 (building the investment pipeline), the PMU will ensure that the ESMPs, RAPs, VMGPs, IPMPs are also suitably prepared, with support from qualified firms, when necessary. 69. Lower Nzoia Irrigation Scheme (Phase 1): Guided by the principles of the ESMF and RPF, an ESIA and ESMP, IPMP, and RAP have been prepared for the Lower Nzoia Irrigation Scheme Phase 1. NIB, working with its implementation support consultants (ISCs), will be responsible for safeguards implementation. The PMU, through its environment and social safeguards’ team, will monitor implementation of the ESMP and RAP. The environmental and social safeguards staff of PMU will be trained under the project to oversee the safeguards issues related to the implementation of Lower Nzoia Irrigation Scheme Phase 1 and will provide regular implementation reports to the World Bank. In addition, irrigation water user associations (IWUAs) will be established in order to ensure farmer participation in implementation. NIB will ensure that IWUA members are representatives of the entire community, including women. 70. According to the ESIA and RAP there are no indigenous groups living in the area of Lower Nzoia Irrigation Scheme Phase 1. As a result, a VMGP was not prepared and no implementing agency has been assigned for this purpose. Monitoring & Evaluation 71. Implementation Arrangements for Results and Process Monitoring and Evaluation. All agencies involved in the implementation and execution of the project will participate in the process of data collection, compilation, analysis and use (the M&E system is described in Section IV.B of the main report). The PMU will be staffed with an M&E specialist and will have overall responsibility for coordination, including collating information from all entities for quarterly and annual progress reporting, using an agreed format. Data will be collected and managed by each executing agency through a designated focal point, who will be responsible for data acquisition, collation and reporting for their respective sub-components. In the case of Lower Nzoia Irrigation Scheme Phase 1, NIB will be in charge of setting up a specific M&E system that will feed into that of the overall project, with the assistance of the implementation support consultant (ISC). The project will fund necessary equipment (computers, software), other goods (e.g., vehicles), capacity building (training), and incremental staff to strengthen results and process monitoring at the project level and to equip the PMU and focal points to carry out the these responsibilities. Consultants will be contracted to provide technical support to implementing and executing agencies in the development and operation of the overall M&E system. An M&E workshop will be carried out immediately upon effectiveness, including all relevant actors. 72. Implementation Arrangements for Impact Evaluation. The M&E specialist in the PMU has been selected to lead the IE process (the IE is described in Section IV.B of the main report). The M&E specialist will be supported by experts who will assist with finalizing the design and 100 contributing to the implementation of the IE. A Principal Investigator will lead the IE analysis and an in-country Field Coordinator will provide day-to-day operational support to the implementation of the IE, including coordinating and supervising field activities for data collection. A third party consultancy will be responsible for conducting the survey work/data collection and for preliminary data processing. The World Bank’s Development Impact Evaluation (DIME) Initiative provides overall support and technical guidance to the IE. Other technical resources, including from academia or other research institutes, will be contracted to provide targeted support to the IE as and when needed. Role of Partners 73. The Investment Framework, the Investment Pipeline Preparation, and basin planning processes introduced by the project are intended to leverage support to reduce the water infrastructure gap in Kenya. As the project will support the development of an investment pipeline from scoping level through to project design and construction, it will generate investment opportunities for development partners, depending on their thematic, programmatic or geographic interests and their available budgets. Indeed, the development partner community, through the Water Sector Technical Group, has endorsed the plan to develop an Investment Framework as a vehicle for investments in the water sector. 74. The project has tapped into the possibility for co-financing investments with development partners in order to leverage World Bank support. Co-financing of the Lower Nzoia Irrigation Scheme (Phase 1) has been agreed with KfW. Under the financing partnership, KfW will employ the Bank’s procurement policies, which will facilitate the co-financing arrangements and management of contracts by the GoK. There could be similar arrangements with other development partners in future investment operations under KWSCRP, such as AFD, for investments to secure water supply for Nairobi and Mombasa, amongst others. 75. The project will also link closely with programs being supported by development partners. The project will benefit from the scoping level identification of investments in the JICA- supported update of the National Water Resources Master Plan 2030 and will build on the Kenya Water Sector Investment Program (KWSIP), supported by Sweden. The project will build synergies with ongoing partner activities supporting basin planning, institutional strengthening, and reforms in Kenya’s water sector, including those of GIZ and Sweden. Finally, the project will benefit from and contribute to ongoing regional work on climate resilience, including the Climate Change Adaptation in Africa program funded by DFID, ICPAC, and the Climate Network and African Centre for Technology Studies. Nationally, the project will link closely with the University of Nairobi and the new centers research climate change and adaptation. 101 Annex 4: Operational Risk Assessment Framework (ORAF) Kenya Water Security and Climate Resilience Project (P117635) . Board . Project Stakeholder Risks Stakeholder Risk Rating Moderate Description: Risk Management: Interventions in the water sector have been primarily During project implementation, the team will ensure that consultations would be supply-driven, with limited stakeholder participation. The sufficiently undertaken with stakeholders including potential project beneficiaries, GOK prepared a priority list of storage infrastructure project affected persons, communities, etc. for priority schemes identification and lacking vigorous examination of their economic viability. preparation process. For that purpose, the team will involve the Water Sector Technical Effective stakeholder participation at all levels (central, Working Group comprising the main development partners present in Kenya. A strong regional, local, end user, etc.) is important for the capacity-building and stakeholders communication program is to be included in the prioritization of project funded storage schemes and project and will establish a mechanism for stakeholder engagement. The team will also successful project execution and sustainable operation and discuss and agree with GoK on a clear set of selection criteria for priority investment maintenance works with the participation of beneficiary schemes for transparent decision making during preparation. groups. Without comprehensive stakeholder participation Resp: Status: Stage: Recurrent: Due Date: Frequency: and a transparent set of selection criteria, there is a risk that investments would continue to be supply-driven. Both In Progress Both Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating High Description: Risk Management: Implementation capacity is weak when it comes to rolling The National Treasury out catchment based water resources development Ministry of Environment, Water and Natural Resources planning and project implementation. Weak institutional capacity and lack of experience to manage large scale The project funds significant capacity building activities, including staff recruitment and storage schemes could impact on project activities, as well training to enhance the capacity of MEWNR, WRMA, for water resources development. as delay progress in developing new storages. However, the MEWNR and WRMA have overall developed capacity for executing IDA projects thorough ongoing WSSIP and NRMP. Resp: Status: Stage: Recurrent: Due Date: Frequency: 102 Client Not Yet Due Both Governance Rating Substantial Description: Risk Management: Ongoing sectoral restructuring due to the 2010 Additional technical and operational experts for the project coordination unit within Constitution and weak inter-agency coordination between MEWNR will be recruited to enhance the coordination and project oversight function. different agencies for selecting priority investment As required, an external professional team would be recruited to support MEWNR and schemes and coordination for detailed plan, design, and WRMA. operation and maintenance plan could pose a risk for the Resp: Status: Stage: Recurrent: Due Date: Frequency: multi-sectoral aspects of multipurpose water storage development. Client In Progress Both Risk Management: The project will support capacity building in critical areas such as procurement, financial management and monitoring and evaluation. The ongoing WSSIP and NRMP have been working to enhance the MEWNR / WRMA management capacity. The Bank team will continually check-in with the PMU on these issues throughout implementation and make recommendations where necessary. Additionally, to mitigate this risk, all contracts over US$200,000 will be directly disbursed from the Bank. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both Not Yet Due Both Project Risks Design Rating Substantial Description: Risk Management: Inadequate planning and design of priority investment The investment framework to be prepared during project preparation is expected to be schemes due to poor interagency and stakeholder used to identify well-prepared priority investment schemes for future projects under the coordination could negatively affect preparation of future KWSCR Program and ensure adequate stakeholder consultations. KWSCR investments under component 1.2 of project. Preparation of detailed plan and design for major Priority investments will be reviewed as part of project preparation and implementation, multipurpose storages could be complicated. based on a set of clear selection criteria, as will technical aspects related to feasibility studies in order to ensure high quality standards. The Bank team will provide intensive technical support for assisting GoK to prioritize and review investment schemes sites 103 and design. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both Social and Environmental Rating High Description: Risk Management: Inadequate capacity to execute the required social and MEWNR has been implementing WB projects, including WaSSIP and the NRM project. environmental risk mitigation measures for major storage Lessons learned from the implementation of these projects, especially NRM, will help schemes could lead to high negative social and MEWNR with the implementation of KWSCR investments. An Environmental and environmental impacts and undermine project results. Social Management Framework (ESMF), a Resettlement Policy Framework (RPF), an Integrated Pest Management Framework (IPMF), and a Vulnerable and Marginalized Groups Framework (VMGF) are completed as part of project preparation. These frameworks will guide project implementation and preparation of site specific environmental and social safeguards documents for specific project investments. Training programs will target capacity issues related to implementation of the environmental and social safeguards, particularly in new and decentralized institutions. In addition, the staff of the PMU under MEWNR for the implementation of KWSCRP will include environmental and social safeguards specialists. The Bank team will carry out close, field based implementation support and supervision. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both Program and Donor Rating Substantial Description: Risk Management: There are several water and water-related projects and The Bank is a member of the Water Sector Working Group (WG) which plays a key role programs underway or planned at the regional and in bringing together DPs to agree on common strategies, proposed investments, etc. The national levels, supported by the Bank and other Bank team has presented preliminary results of ESW at a meeting and will continue to development partners. Lack of coordination and consult with other DPs during project preparation and implementation. alignment across numerous activities could lead to Resp: Status: Stage: Recurrent: Due Date: Frequency: duplication of effort and/or reduce effectiveness of interventions. Both In Progress Both Delivery Monitoring and Sustainability Rating Substantial 104 Description: Risk Management: Inadequate capacity of planning, design, construction and An improved asset management and O&M framework will be supported as part of the O&M arrangements may jeopardize system sustainability project. The project will also support targeted training and capacity building to improve including the period after project closing. investment quality and performance as well as sustainable operation and maintenance of invested schemes. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client Not Yet Due Implementation Other (Optional) Rating Substantial Description: Risk Management: Delay in preparation and execution of investment The initial project design has been modified to include Lower Nzoia Irrigation Scheme, schemes. Preparatory works are ongoing under existing Phase 1, as the only civil works investment under KWSCRP-1. Potential investments in Kenya projects, and NELSAP TA and GoK, but the pipeline will be prepared under component 1.2 and financed in subsequent phases of completion of all technical studies and ESIA and the KWSCR Program. Consultants financed by the PPA will continue to work on the tendering process of construction works of large water preparation of the investment pipeline and propose the required additional measures for storage structures may take additional time. completing required preparatory works and tendering in a timely manner. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both Other (Optional) Rating Description: Risk Management: Resp: Status: Stage: Recurrent: Due Date: Frequency: Overall Risk Overall Implementation Risk: Rating High Risk Description: High risk was selected considering (i) weak institutional and coordination capacity for water resources development and (ii) required rigorous preparatory works including the ESIA for possibly high risk high reward investment schemes. 105 Annex 5: Implementation Support Plan Kenya Water Security and Climate Resilience Project 1. For high-risk projects such as the Kenya Water Security and Climate Resilience Project, experience recommends that Bank preparation and supervision teams need to be adequately resourced and staffed and be present in the field. Successful implementation and realization of the project's development objective will require intensive supervision. The implementation support plan below responds to the complexity of the project, the significant technical and policy issues that are critical to its success, the uncertainties inherent with a framework approach, and the challenging institutional and governance environment in which the project will be implemented. Adequate World Bank resources and staffing to assure this level of supervision will be made available throughout the project implementation cycle. Project supervision will be undertaken by an inter-disciplinary team of field- and headquarter-based World Bank experts, with continued strong support from senior management in the Africa Sustainable Development department as well as from country management. 2. Joint supervision with other project donors. The IDA supervision team will continue to work intensively with the KFW supervision team, as well as other development partners who may co-finance sub-investments identified through the Framework. Missions will be joint whenever possible and will issue joint Aide Memoires. However, field supervision missions might be staggered to ensure frequent presence on the ground. IDA is the lead partner of the project and as such will continue to help MEWNR in coordination with other development partners. MEWNR, through the PMU, will report through joint quarterly reports to all co- financing agencies. Partners will provide joint non-objections for critical contracts in co-financed sub-investments. . 3. Implementation Support Phasing. The project implementation support strategy is based on the framework approach of the project: Years 1 will entail intensive effort to identify and assess sub-investments through the framework as well as moving forward on the construction and mitigation activities associated the Lower Nzoia Irrigation Scheme Phase 1. Years 2-4 will entail implementing selected sub-projects and identifying further sub-projects for the Phase II APL. Throughout implementation, the Bank and development partners will also work to ensure the project is ready to facilitate the “just in time� technical support needed by the GOK for the on-going reforms in the water sector, including technical, fiduciary, and policy support. 4. Team Composition. The core implementation support team will consist of a Task Team Leader (TTL) and a co-Task Team Leader (co-TTL); an economist; technical specialists and engineers for each identified sub-investment; environmental safeguard specialists; social safeguards specialists; institutional specialists; operations specialists; M&E specialists; a procurement specialist; and a financial management specialist. The team will be complemented by headquarters, country office, and consultant support on issues associated with construction works and policy dialogue. The team will liaise and coordinate with other water related projects in Kenya to create consistency and increase efficiency. 106 5. It should be noted that the project has been selected as a flagship project by the World Bank’s Development Impact Evaluation (DIME) Initiative , which will also provide overall support and technical guidance on impact evaluation throughout project implementation. 6. Frequency of Implementation Support. There will be at least two full joint supervision missions with all development partners each year. Country-based staff will monitor implementation progress on a continuous basis and the Bank team will conduct monthly meetings/video conferences with the PMU to review annual work program progress and address emerging issues. Safeguard and technical field visits to sub-investments will be included in all missions so that each sub-investment will have at least two annual safeguards visits. IDA supervision teams will include environmental and social safeguard specialists or appropriately qualified consultants, in major missions, to review progress in the implementation of the ESMF, RAP, IPMF and VMGF. The performance of the PMU, its contractors, as well as cooperating agencies, in the implementation of these activities, will be a standard element of IDA project supervision reports. Implementation Support Plan Table 1: Skills Mix Required Focus Skills Needed Implementation of Investment Task Team Leader Framework Co-Task Team Leader Economist Operations Officer Operations Analyst Environmental Safeguard Specialists Social Safeguard Specialists Supervision of construction for Task Team Leader sub-investments Co-Task Team Leader Economist Technical Specialists Operations Officer Operations Analyst Environmental Safeguard Specialists Social Safeguard Specialists Policy Support for Institutional Task Team Leader Reforms Economist Institutional Specialists Operations Officer Operations Analyst Procurement monitoring of Procurement Specialist major contracts Financial management post Financial Management Specialist reviews Stakeholder consultation Operations Officer Social Safeguard Specialists Monitoring and Evaluation M&E Specialist Total Staff Weeks Estimate: 80 – 100 staff weeks 107 Annex 6: Investment Framework Kenya Water Security and Climate Resilience Project Overview of Investment Framework (IF) 1. Sub-component 1.2 will support the development of an Investment Framework (IF) with agreed quality assurance standards and guidelines for planning, preparing, implementing and operating water investments. The IF is envisioned to become an overarching sector-wide instrument for enhancing the quality and speed of investment preparation, and consequently a critical element for strengthening the pipeline of investment-ready projects. 2. An initial IF – that guides investment preparation at the feasibility level – was developed under project preparation. MEWNR tested it on investment proposals at advanced stages of preparation and rigorously applied it to the Lower Nzoia Irrigation Project Phase 1. It was found to be an extremely useful tool for investment preparation and to serve as a sound basis for the progressive refinement and enhancement that will be supported under sub-component 1.2. The initial IF is presented below, followed by a list of indicative areas for its further development. Initial IF 3. The initial IF consists of two parts: (i) investment selection/eligibility criteria and (ii) technical, economic, financial, social, environmental, and institutional guidelines for planning and preparing investments. Each is discussed in turn. Part 1 of Initial IF – Investment Proposal Eligibility Criteria 4. Investments will be assessed against the main criteria described below. 5. Fit with national development objectives: Investment proposals must demonstrate that they support national development objectives (e.g., Vision 2030). 6. Fit with law, policy, strategies and plans: Investments must be planned and designed consistent with: (i) Kenya’s Water Policy, Water Act, Irrigation Policy and Irrigation Act, other relevant legislation, and related sub-sector policies and strategic plans (including the National Climate Change Response Strategy and Disaster Risk Management Policy); (ii) relevant master plans, and catchment management strategies and plans, including an integrated, feasible and equitable water allocation plan; and (iii) local development plans and initiatives. 7. Secure stakeholder support: Investment proposals must demonstrate support by basin stakeholders. 8. Demonstrate sponsor agency qualification: Investments must be proposed by an appropriate sponsor, normally the mandated public agency for the investment or activity in question. 108 9. Be executed, owned and operated by qualified agencies: Investment proposals must define: (i) the qualified executing agency for the investment (normally the sponsor agency); (ii) the intended owner of the investment assets; and (iii) the proposed operator of the assets. 10. Demonstrate institutional capacity: Investment proposals must provide evidence that demonstrates the institutional and executing capability and commitment of the executing agency, as well as capability and commitment of the subsequent owner (as relevant) and operator of the assets. In cases where capacity is not commensurate with the institutional and implementation requirements of the investment, the proposals should include a capacity building plan. 11. Respect social and environmental safeguards: Proposals must identify any expected adverse social and environmental impacts, including expected impacts on vulnerable and marginalized populations, and specify how they would be mitigated in an acceptable manner. Safeguards frameworks that are consistent with World Bank environmental and social safeguards policies have been prepared to provide guidance on identifying and mitigating social and environmental impacts and must be followed. Planning and design of proposed investments must be consistent with these environmental and social safeguards instruments (refer below). 12. Have a preliminary financing plan and demonstrate financial sustainability: Proposals must include a preliminary financing plan that shows: (i) how the investment will be financed and (ii) lifetime projection of O&M costs and how these will be financed. 13. Demonstrate economic and social benefits: Investment proposals must demonstrate the economic benefits of the investment, as well as the social value in terms of improved livelihoods, with particular reference to equity, impacts on gender and youth, poverty reduction, and improving resilience to climate shocks and variability. 14. Demonstrate mainstreamed climate resilience: Investment proposals must demonstrate viability and reliability under various hydrological and climate scenarios and positive impacts on building climate resilience at the national, regional and local levels. 15. Part 2 of Initial IF – Guidelines for Planning and Preparing Investments 16. General Guidelines: (a) Investments must be technically solid and based on a rigorous feasibility analysis using good quality baseline data. Proposals must include technical, economic and financial analysis, as well as assessments of social and environmental impacts, institutional capacity and implementation arrangements. Proposals must adhere to the guidelines/quality assurance standards below. (b) All investment proposals must demonstrate: (i) adequate demand for the proposed investment; (ii) long-term financial, economic, technical and environmental/social sustainability; (iii) mainstreamed climate resilience in hard and soft components; and 109 (iv) fit with Kenya’s development priorities and with strategies for the sub-sector concerned. (c) Investments must be prepared in consultation with relevant stakeholders, including local stakeholders directly or indirectly affected, either positively or negatively. Documentation of stakeholder consultations must be included in proposals. 17. Technical Analysis: (a) All investment planning, feasibility and design must be in accordance with industry best practice, and be based on detailed field investigations appropriate for the type and scope of investment. This includes best practices on climate resilience in developing countries (available, among others, from International Research Institute for Climate Society, United Nations Framework Convention on Climate Change and ongoing World Bank projects, specifically the Pilot Program for Climate Resilience, Climate Change Knowledge Portal and IDA-16 requirements). (b) Investments must include a catchment assessment. This includes accounting for all existing infrastructure and water and land activities that could possibly impact on the investment, as well as all impacts that the investment could have on the catchment, including existing infrastructure and activities. (c) Investments should be designed for flexible implementation and possibility for modification during implementation, incorporating further adaptive measures to overcome potential effects of climate change and hydrological variability. Investments should be designed, as far as possible, so as to enable future adaptations to changing climatic conditions, and include site-specific disaster preparedness plans for managing extreme events. (d) The technical analysis must include a scoping of investment options to satisfy unmet demand for water, in terms of technology, process, scale and location, and based on sound hydrological analysis and forecasts of water availability, demands, and water balances, including under climate variability and change (including modeling of extreme events using updated information provided in the Water Information System). A ranking of options should be included, together with a statement of reasons for selecting the proposed option. Sensitivity analysis must be conducted on key variables in order to determine investment risks. (e) Technology selected for the investment must consider: (i) lifecycle cost (capital and O&M); (ii) capacity for and ease of operation; (iii) flexibility for future expansion or upgrading; (iv) resilience to climate variability and change (e.g., developments on a modular basis). Pros and cons of the various options analyzed must be well reasoned, and factually supported justification provided. 110 (f) Proposals must provide details on critical factors affecting infrastructure performance (for example, sediment, catchment degradation, competing water uses) and provide measures to mitigate adverse effects (for example, catchment protection plan, sediment management strategy). (g) The analysis must provide detailed documentation on all data sources and justify and elaborate on all methodologies and assumptions. All supporting documentation for technical analysis (not included/presented in final reports) must be provided, including data, maps, models, etc. 18. Financial and Economic Analysis: (a) Internationally recognized procedures for undertaking economic and financial analysis must be adopted (e.g., World Bank Institute: Economic Analysis of Investment Options, European Union: Guide to Cost Benefit Analysis of Investment Projects, 2008). (b) The analysis must be made comparing the ‘’without’’ investment situation with the ‘’with’’ investment situation and include the following: (i) Financial analysis of all cash flows associated with the investment (including capital costs, O&M costs, and revenues) and financial sustainability (including evaluating the investment’s fiscal impact). Financial analysis should include a lifetime projection of O&M costs, together with a demonstration of how these will be financed. (ii) Economic analysis made from a national welfare perspective (excluding subsidies, taxes and transfers and including externalities, non-market impacts). (iii)Sensitivity and risk analysis on parameters that are uncertain and to identify those to which results are sensitive in order to evaluate investment risks. (iv) Distributional analysis in order to determine how various stakeholders are affected by and/or benefit from the investment. (c) The economic and financial analysis must: clearly specify all potential investment impacts, both positive and negative, and quantify them in physical terms; monetize impacts and explain methodologies used for valuation that are internationally acceptable; specify and justify the timeframe for the analysis and provide the time stream/profile of costs and benefits; justify discount rate adopted and present results (including of sensitivity analysis) in terms of Net Present Values and Economic and Financial Internal Rates of Return. (d) The analysis must provide detailed documentation on all data sources and justify and elaborate on all assumptions used. Costs and benefits must be included for the full geographical reach of the project and include any (downstream) externalities, both positive and negative. Costs must include both capital and O&M. The former must include standard costs (e.g., civil works, costs associated with land acquisition, 111 etc.), in addition to the costs of implementing any required resettlement action plan, measures to ensure investment sustainability (e.g., catchment protection, sedimentation management), costs for implementing any environmental management plan, and costs associated with sub-project performance (e.g., establishing institutional arrangements and building capacity). Benefits must include both market and non-market, as appropriate. Any multiplier effects on local or national economy should be estimated to the extent possible, and thoroughly discussed otherwise. Estimated benefits must be based on justified demand, which may require field surveys depending on data availability (e.g., willingness to pay studies for water supply provision, market studies for irrigated agricultural output, etc.). (e) All supporting documentation for economic and financial analysis must be provided, including data and models, excel spreadsheets, etc. 19. Social and Environmental Assessments: (a) Environmental and social assessments must be undertaken by consultants, independent of those responsible for overall investment preparation. However, the two teams should collaborate closely, and the investment must demonstrate how design has been optimized to take account of findings from the environmental and social assessments, in addition to how those findings have been integrated with planning, technical, economic and financial, and institutional assessments. (b) All proposals must comply with the Environmental and Social Management Framework (ESMF) that has been prepared in accordance with the World Bank’s Policy on Environmental Assessment (OP 4.01). The ESMF is a technical guidance document that describes the policies, procedures and institutional responsibilities for effectively assessing and managing potential environmental and social risks and impacts that may arise during implementation and throughout the project cycle. Where applicable according to the environmental category assigned, an Environmental and Social Impact Evaluation (ESIA) – including an Environmental and Social Management Plan – that is consistent with the ESMF must be prepared for the potential investments. (c) Investments where the permanent and/or temporary (e.g., due to construction) acquisition of land will be necessary – resulting in involuntary resettlement, loss of assets and livelihoods – must comply with the project’s Resettlement Policy Framework (RPF) that has been prepared in accordance to the World Bank’s Policy on Involuntary Resettlement (OP 4.12). The purpose of the RPF is to establish the principles, procedures, entitlements, eligibility criteria organizational arrangements, and mechanisms for grievance redress to be applied to the sub-projects funded under the project. Where applicable, a Resettlement Action Plan (RAP), consistent with the RPF, must be prepared for the potential investments. (d) Investments located in areas where vulnerable and marginalized groups are present must comply with the project’s Vulnerable and Marginalized Groups 112 Framework (VMGF) that has been prepared in accordance to the World Bank’s Policy on Indigenous Peoples (OP 4.10). The main purpose of the VMGF is to define the principles and procedures for carrying out a social assessment to determine the adverse or positive impacts on these groups, define the mechanisms for ensuring free, prior and informed consultation, and institutional arrangements for screening, evaluating impacts on vulnerable and marginalized groups. Where applicable, a Vulnerable and Marginalized Group Plan (VGMP), consistent with the VGMF, must be prepared for potential investments. (e) Investment proposals must comply with the Integrated Pest Management Framework (IPMF) that has been prepared consistent with the World Bank’s policy on Pest Management, OP 4.09, and GoK’s legal framework for safe importation, storage, distribution, use and disposal of pesticides. The IPMF outlines clear procedures and methodologies for integrated pest management planning, design and implementation of investments. Where applicable, an Integrated Pest Management Plan (IPMP), consistent with the IPMF, must be prepared for potential investments. (f) The requirements for preparing ESIAs, RAPs, VMPGs, and IPMPs are provided in Environmental and Social Framework documents (including generic TORs). (g) Investment proposals must comply with all other relevant World Bank environmental and social safeguards policies. These include: (i) Safety of Dams (OP 4.37), which requires the establishment of an independent panel of experts for large new dams and (ii) Projects on International Waterways (OP 7.50), which requires riparian notification for projects on international waterways. 20. Institutional and Implementation Arrangements: (a) For each investment, roles and responsibilities related to overall coordination, execution, ownership and O&M must be detailed, and a Memorandum of Agreement (MoA) between the relevant agencies responsible for each of these areas must be included. This will include details (timing, arrangements, etc.) on any eventual transfer of assets and/or O&M responsibilities, as relevant. The MoA should follow the template provided. (b) For each investment, an Executing Agency and an Operating Agency will be specified (which may be the same or different, with arrangements for handover and, where need be, asset transfer). For each investment agency, an institutional assessment should be included in the proposal demonstrating: (i) mandate; (ii) governance; (iii) managerial, technical, procurement and financial management capability; and (iv) track record with the type of investment (a sample TOR for the institutional assessment is available). The proposals should specify cost requests for technical support and capacity building of the Executing Agency and/or the Operating Agency. 113 (c) Institutional measures/arrangements required for the effective execution and subsequent operation of each proposed investment must fully reflect the existing and proposed legal and institutional frameworks. In view of expected restructuring and reorganization of the water sector, investment proposals must consider a number of possible transition scenarios with clearly specified mitigating measures. 21. Results Framework, Monitoring and Evaluation, and Risk Assessments: (a) For each investment, a Results Framework and monitoring and evaluation (M&E) plan must be prepared, detailing the roles and responsibilities for data collection, compilation, analysis and use. (b) For each investment, a Risk Assessment must be prepared, together with the associated mitigation plan. Future development of initial IF, to be supported under sub-component 1.2 22. Sub-component 1.2 will finance the progressive refinement and enhancement of the initial IF, including based on lessons learned and experience gained from its early application. Further development could include the following areas: 23. Improving eligibility criteria and quality assurance guidelines, such as: (a) Developing ones that are specific to each water investment type (e.g., irrigation scheme, water supply and sanitation system, multi-purpose dam, flood management or drought mitigation, watershed management, etc.). (b) Refining criteria for climate resilience (e.g., incorporating vulnerability and risk assessments, climate change scenarios in the structural design of infrastructure, early warning systems and disaster risk management plans, M&E systems for adaptive management to evolving climate risks, etc.). 24. Extending the IF to cover the full investment cycle from ‘idea ‘ to implementation, such that ultimately a three stage screening process would be followed: Investment Idea → First screening with (adapted) IF → Pre-feasibility level work → second screening with (adapted) IF → Feasibility level work → Final screening with IF → Detailed investment design and implementation. 25. Developing prioritization criteria to enable ranking of proposals within sub-sectors. Such prioritization criteria could include: (a) Has the project been identified by Kenya as a priority investment (e.g., Vision 2030 flagship project, relevant Catchment Management Strategy of National Water Resources Master Plan 2030, sub-sector investment plan, etc.). (b) Does the investment demonstrate priority need (e.g., filling a chronic water supply shortage, flood or drought vulnerability, land and water degradation impairing availability or quality of surface and groundwater). 114 (c) Does the investment bring important economic benefits to target populations, areas or activities (benefits flow to important target populations, such as poor, women and youth, or areas, such as ASALs). (d) Is the investment likely to deliver benefits efficiently (likely ratio of benefits to costs high, a proven business model, implementation likely to be efficient, track record of sustainability in similar project, scope for private finance or other PPP). (e) Can severe negative impacts be avoided (is scale of expected negative impacts limited, can negative impacts be mitigated, has climate resilience been factored in). 26. Developing additional guidance (e.g., outline terms of reference, table of contents, etc.) for various stages of the investment preparation and assessment process, such as: (a) TORs for undertaking Technical, Economic and Financial, and Institutional Assessments at the required level of the IF (TORs for Environmental and Social Assessments are contained in existing safeguards framework documents). Separate TORs could be developed for each water investment type (refer above). (b) Guidance on results frameworks and monitoring specific to each water investment type (e.g., sample development objectives, indicators, etc.). (c) Table of Contents/Template for the Investment Preparation Report, the investment proposal report that the sponsor agency would prepare and submit to the assessing agency to qualify for next round (refer next bullet). (d) TOR for Qualifying Assessment, the instrument that would be used by the assessing agency to determine whether the investment proposals meet the requirements of the IF. Refinements will build on the draft TOR that was prepared by GoK during project preparation. 27. Refining arrangements for implementing the IF, including requirements at each step of the process and timing of each step, roles and responsibilities of evaluating agency versus investment sponsor agency, etc. 28. Developing a Communications Strategy that would seek to inform and engage potential sponsor agencies, development partners, etc. in the development and application of the IF. 115 Annex 7: Context for Sub-Component 2.2 Kenya Water Security and Climate Resilience Project 1. The Water Resources Management Authority (WRMA), the lead agency for water resources management, is responsible for managing hydrologic information, planning at the catchment level, and controlling all water abstractions. 2. WRMA currently has six regional offices, managing each of the six basins, and 26 sub- regional offices. Below the sub regional officers are the voluntary Water Resource User Associations (WRUAs), which manage micro catchments. Because county boundaries do not typically coincide with basin or sub-basin boundaries, cross county mechanisms are required to ensure full participation in the planning process. 3. WRUAs provide the main means of stakeholder engagement at the catchment level and support WRMA in a range of services, ranging from conflict management to soil water conservation and data collection. WRUAs started to be formed in 2008 and have proved to be one of the most successful elements of the WRMA program. Many have become forums for wider discussions and political engagements. WRUA members include varied representatives that range from small communities or self-help groups to large scale farmers, dam operators and industry leaders. Within this structure it is required that one third of the representatives are women, and vulnerable groups are encouraged to apply for key positions. Individual successes where the views of women and vulnerable groups have been voiced through this forum have been highlighted by WRMA. However, a comprehensive study has not been undertaken. WRUAs are trained in some aspects of climate change adaptation and this aspect is being strengthened in the revised manuals. Following an initial focus on rural zones, WRUAs are now also being piloted in urban areas. Although the development of WRUAs has been a successful, they are limited to local actions and capacity is variable. At present there is no structured mechanism for stakeholder involvement above the micro level of the WRUA; the Community Area Advisory Committees exist on paper, but they are far from fully functional. Although WRUAs are important mechanisms for local implementation, it is essential to phase support to them so that incentives are not distorted or fledgling institutions are not drowned in money or responsibilities. 4. Catchment Management Strategies have been developed for each basin and used to produce Sub-Catchment Management Plans (SCMPs). Within each catchment, WRMA has identified ‘hot-spots’ where support is needed to resolve priority problems, including conflict over water allocation, pollution, etc. Although these provide useful information, CMSs have had very limited influence on infrastructure development and WRMA is often uninformed of investment decisions and developments. The key national level strategies are the National Water Master Plan and Kenya Water Sector Investment Plan, described earlier. 5. A World Bank Study in 2011 found that decision making in groundwater management was generally sector based, groundwater was perceived as a private resources controlled by the landowners. The study found that, although a policy structure was in place there was no practical mechanism for coordination or wider stakeholder involvement. Analyses of yield etc have been completed for a number of aquifers, for example ongoing studies of the Neogene formation along the coast; however aquifer properties are unknown at many critical locations. 116 6. Overall 50% of Kenya’s water sources are transboundary; Kenya has five transboundary river basins and six transboundary aquifers, summarized in the table below (source UNEP and ISARM). The Transboundary Waters Division within MEWNR is responsible for the coordination of the management of the shared water resources and works with a number of transboundary stakeholders/organizations, (NELSAP, LVBC, WWF, etc) on issues of joint management of the shared waters with other riparian partners. The Transboundary Waters Division is in the process of preparing cooperative frameworks for various transboundary catchments. There are currently local problems of transboundary cooperation at some of these points, for example abstraction at the Kilimanjaro aquifer and Lake Turkana, underscoring the need for support for dialogue and stakeholder forums around the management of transboundary water resources. Table 1: Transboundary Aquifers in Kenya Basin / Aquifer Regional Riparian countries Surface area of basin / Aquifer Organization extent (,000km2) Lake Victoria Basin NBI / LVBC Kenya, Uganda, Tanzania, 251 Rwanda, Burundi Mara river basin NBI / LVBC Tanzania, Kenya 14 Juba-Shebelle Basin None Ethiopia, Kenya, Somalia 810 Natron Basin None Tanzania, Kenya 55 Lake Turkana Basin None Kenya, Uganda, Ethiopia 209 Merti Aquifer None Somalia, Kenya - Kilimanjaro Aquifer None Tanzania, Kenya - Rift Aquifers None Kenya, Tanzania, Uganda - Ogaden-Juba Aquifer None Ethiopia, Kenya, Somalia 1000 Mount Elgon Aquifer None Kenya, Uganda - Coastal Sedimentary Basin None Kenya, Tanzania - Aquifer 7. WRMA has an existing hydro-met system which covers approximately 60% of the planned minimum network; however the condition of many gauges is unknown and data collection is sporadic. The groundwater monitoring network is sparse and unrepresentative. WRMA has a Water Resources Information Management System (WRIMS) which includes permitting information, but abstraction control is limited. Officers have been trained in WRIMS, including some at regional level. However, the database at national level remains very limited, and analysis is in its early stages. WRMA has a Mike Basin modeling system and adopted the Decision Support System developed under Nile Basin Initiative (NBI). However, implementation has stalled due to lack of funding. 8. Currently, WRMA recurrent budget is mainly from MEWNR while other operational costs are funded by ‘income’ from water use and permit fees. There has been substantial donor funding for WRMA. 9. Currently the main needs of WRMA – identified in the WRMA Strategic Plan 2012-2017 and confirmed through project preparation – are to improve the knowledge base, forecasting ability, planning system for water allocation, management and investment at the catchment or basin level and to build the required capacity to utilize this system and operationalize catchment management plans. The main aims of the strategic plan are to strengthen monitoring networks to 117 enhance data collection and improve information management systems; improve the use of tools for effective water resources planning and allocation; strengthen stakeholder collaboration; and strengthen tools for effective catchment management. 10. The expected changes within WRMA through the reform process are summarized in the table below: Table 2: Expected WRMA Reforms From To Responsibilities MEWNR CS Policy, strategy, guidance, Investment programming at national level WRMA WRRA Setting guidelines for water resources management and development HQ Consolidating catchment information on water resources, NWMP, Allocating trans-boundary water resources, Monitoring Basin Board compliance WRMA Basin Basin Boards will have the statute of parastatals, under a CEO. Roles are: Regional Boards Water balance, water information, catchment planning, Water allocation and Offices water use management, Catchment protection and conservation & stakeholder involvement, Water infrastructure investment planning, DRM – floods/droughts CAACs Dissolved Stakeholder representation at the catchment level will be through the Basin Boards WRUAs WRUAs Unchanged, except that ‘forums’ may be set up to bring groups of WRUAs together at a higher level (e.g. major tributary) 11. The Kenya Meteorological Department (KMD) has an existing forecasting system, including a public access portal and early warning capacity. It has meteorological specialists in each of the district offices, who organize stakeholder forums. Counties take the lead in disseminating early warning information and the KMD seasonal forecast (which is initially developed and disseminated regionally through ICPAC). KMD is currently meeting 70% of the target for the meteorological system. KMD has been an active partner in the World Bank Funded Western Kenya flood project and aims to extend the same approach in other flood prone catchments. The main needs of KMD are to enhance preparedness for extreme climate events, including contingency measures to allow GoK to respond to extreme droughts and floods. 12. The Climate Change Secretariat is responsible for the development of the Climate Change Action Plan, which highlights the importance of water storage and strong water resources management. The plan includes community level initiatives in water harvesting and improved agricultural practices. Plans may also include the development of a climate information database and scenario development for future changes. 13. Other relevant Government partners include: the Drought Management Authority, responsible for managing the drought early warning system; Forestry Department, working with WRUAs on reforestation projects; Department of Remote Sensing within MEMR; and the National Disaster Operation Centre with the responsibility for emergency response. There are two existing Trust Funds: (i) the Water Services Trust Fund (WSTF), under the auspices of WRMA, which is well established in support to WRUAs; and (ii) the National Environmental Trust Fund (NETFund) within MEMR, which is focused on research and competitive funding of successful ‘green’ pilot studies. 118 14. Mapping of the key development partners involved in activities related to sub-component 2.2 is provided in the table below: Table 3: Mapping of Key Development Partners DP Support provided for relevant areas NCF Supporting WRMA together with WSTF, KMD supported by ORGUT Consulting, DHI, the UK Met Office and Rural Focus Ltd to develop its capacity to adapt to climate change, including: • Scientific regional climate modeling of water allocation models • Development of practical guidelines on adaptation to climate change • Implementation of a series of model projects in critical catchment areas, under the management of the WRUAs DfID Catalyzing Kenyan private sector innovation and investment in promoting innovation and delivering climate resilient and low carbon growth Climate change governance: stronger policy, institutional and regulatory framework to plan and deliver climate resilient development by the state and the private sector Enhanced capacity of civil society and media to hold government to account on climate change delivery and impact, and demand delivery from government and stimulate the private sector on climate change products and services. JICA National Water Master Plan 2030 (NWMP 2030) Macro level planning incorporating climate change impacts Rapid Results Initiative; increasing the number of new permits issued; small scale catchment management; and collating and digitizing hydrological data. GIZ Developing WRUAs in the Tana basin and elsewhere, Improving data management International Union for Conservation of Nature (IUCN) program SIDA Kenya Water Sector Investment Plan Strengthening civil society engagement in climate change advocacy, Support to WRUAs DANIDA Fund mapping under the Department of Remote Sensing within MEMR EU Potential funding for MEMR flagship project on Water Tower restoration WWF Abstraction surveys and water allocation plans 119 15. Mapping of potential knowledge partners related to sub-component 2.2 is provided in the table below: Table 4: Mapping of Knowledge Partners Name Relevant projects/activities Regional center for mapping of Partner in existing early warning systems with KMD/ICPAC. resources for development Remote Sensing (Geo-information) and Environmental (RCRMD) Management, Human Resources and Surveys, Mapping & Land Information Institution of the Inter- Regional forecasting and knowledge base governmental Authority on Hosts Africa Adapt – knowledge sharing forum on climate Development (IGAD) Climate adaptation Prediction and Applications Centre (ICPAC) University of Nairobi Faculty of Agriculture consortium with Association for Strengthening Agricultural Research in Eastern and Central Africa (ASARECA) and International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) Institute for Climate Change and Adaptation Red Cross Mandated to support the Government of Kenya in responding to disasters. Currently starting work in climate resilience. Work with KenGen and others in local flood early warning systems TerrAfrica Ongoing capacity building program funded by the World Bank On climate-smart agriculture (CSA) – soil and water management, watershed rehabilitation, etc. 120 IBRD 39720 KENYA LOWER NZOIA IRRIGATION SCHEME PROJECT UMALA KOMENYA LOWER NZOIA IRRIGATION SCHEME KOWALA PROJECT AREA BOUNDARY IRRIGATION SCHEME LOCATION BOUNDARIES EXISTING ROADS KALKADA URADI PROPOSED ROADS KABURA UHUYI KOMENYA KALAKA NYADORERA ''A" NYADORERA ''B" MAGOMBE KAUKAGI 34°E 35°E WEST NZOIA RIVER CATCHMENT BOUNDARY POKOT MAIN TOWNS Kapenguria PROVINCE CAPITALS TRANS NZOIA Mt. Elgon NATIONAL CAPITAL UGANDA (4,321 m) MARAKWET 1° N 1°N DISTRICT BOUNDARIES Kitale Kapsowar PROVINCE BOUNDARIES MT ELGON INTERNATIONAL BOUNDARIES Kapsokwony BARINGO 35° 40° BUNGOMA LUGARI SUDAN Malaba Amagoro Lugari Iten ETHIOPIA Bungoma UASIN GISHU SUMBA 5° TESO zo ia Lake N Eldoret Kabarnet Turkana KEIYO UGANDA Busia KAKAMEGA SOMALIA BUSIA BUTERE/ Area of MUMIAS Kakamega KENYA main map. Butere Kapsabet Kakamega SIAYA KOIBATEK Area of locator Siaya VIHIGA 0° 0° NANDI at right. Vihiga 0° Eldama 0° Ravine NAIROBI Usenge Kisumu NYANDO Bondo KISUMU Lake Londiani BONDO Victoria This map was produced by the Map Design Unit of The World Bank. 0 1 2 Kilometers Lake INDIAN The boundaries, colors, denominations and any other information Victoria KERICHO 0 20 40 Kilometers shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any TANZANIA OCEAN Kericho 5° 5° endorsement or acceptance of such boundaries. Doho 35° 40° 34° E Kosele 35°E 0 10 20 Miles SUBA RACHUONYO BURET DECEMBER 2012