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Greater Colombo Water and Wastewater Management Improvement Investment Program: Project 2

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Greater Colombo Water and Wastewater Management Improvement Investment Program: Project 2 Additional Cofinancing Sri Lanka Sri Lanka Project Number: 45148 Loan Number: 3029/3030-SRI May 2014 Proposed Administration of Loan Democratic Socialist Republic of Sri Lanka: Greater Colombo Water and Wastewater Management Improvement Investment Program: Project 2 Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Public Communications Policy 2011. CURRENCY EQUIVALENTS (as of 1 May 2014) Currency Unit – Sri Lanka rupee/s (SLRe/SLRs) SLRe1.00 = $ 0.007655 $1.00 = SLRs 130.64 ABBREVIATIONS ADB – Asian Development Bank AFD – Agence Française de Développement MFF – multitranche financing facility NRW – nonrevenue water TEC – towns east of Colombo NOTES (i) The fiscal year (FY) of the Government of Sri Lanka ends on December 31. FY before a calendar year denotes the year in which the fiscal year ends, e.g. FY2008 ends on 31 December 2008. (ii) In this report, "$" refers to US dollars. Vice-President W. Zhang, Operations 1 Director General J. Miranda, South Asia Department (SARD) Director Y. Fei, Urban Development and Water Division, SARD Team leader M. Fan, Senior Urban Development Specialist, SARD Team members P. Cawrse, Urban Development Specialist, SARD K. Dahanayake, Project Officer, SARD M. de Mesa David, Operations Assistant, SARD K. Emzita, Principal Counsel, Office of the General Counsel N. Gunasekera, Social Development and Gender Specialist, SARD N. Pokhrel, Urban Development Specialist, SARD I. Setyawati, Safeguards Specialist , SARD J. Zheng, Urban Development Specialist, SARD Peer reviewer H. Jenny, Principal Urban Development Specialist, Southeast Asia Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page PROJECT AT A GLANCE I. THE ONGOING PROJECT 1 II. THE ADDITIONAL FINANCING 1 A. Rationale 1 B. Impact, Outcome, and Outputs 2 C. Cofinancing 2 III. THE PRESIDENT'S RECOMMENDATION 4 APPENDIX 1. Revised Design and Monitoring Framework 5 SUPPLEMENTARY APPENDIXES (available upon request) 1. Contribution to the ADB Results Framework 2. Financial Analysis 3. Economic Analysis PROJECT AT A GLANCE Project Name Greater Colombo Water and Wastewater Management Tranche No. 2 Improvement Investment Program Project No 45148-007 Country Sri Lanka Department SARD Date of Receipt by ADB of PFR 3 June 2013 Division SAUW Project Data Sheet http://www.adb.org/projects/45148-007/main Tranche Sector Classification Sector: Water and Other Municipal Infrastructure and Services Subsectors: Water supply and sanitation Tranche Thematic Classification Theme: Social development, Environmental sustainability, Governance, Capacity development Subthemes: Human development, Urban environmental improvement, Public administration (national, decentralized, and regional), Institutional development Climate Change Impact Adaptation low Mitigation low Gender Mainstreaming Gender equity theme Effective gender mainstreaming Some gender benefits No gender elements Targeting Classification General Intervention Targeted Intervention (i) Geographic dimensions of inclusive growth (ii) Millennium Development Goals MDG7 (iii) Income poverty at household level Location Impact Rural Low National Medium Urban High Regional Tranche Risk Categorization Low Risk Complex Safeguard Categorization Category Required Document Disclosure Date (i) Environment B Initial Environmental Examinations 2 Jul 2013 Weblink: http://www.adb.org/projects/documents/greater-colombo-water-and-wastewater- management-improvement-tranche-2-iee (ii) Involuntary resettlement B Resettlement Plans 3 Jul 2013 Weblink: http://www.adb.org/projects/documents/greater-colombo-water-wastewater- management-improvement-investment-tranche-2-rp (iii) Indigenous peoples C Not required Weblink: Financing Requested Modality Source Amount ($ million) from ADB MFF-Tranche OCR 70.0 MFF-Tranche ADF 18.0 Total: 88.0 Financier Category Amount ($million) Administration Type Agence Française de Official-Loan 101.0 Partial Développement Counterpart Financing Government 30.0 Aid Effectiveness Parallel project implementation unit Program-based approach CPS/COBP http://www.adb.org/documents/sri-lanka-country-operations-business-plan-2013- 2015 I. THE ONGOING PROJECT 1. The Board of Directors of the Asian Development Bank (ADB) approved the multitranche financing facility (MFF) for the Colombo Water and Wastewater Management Improvement Investment Program on 25 October 2012. 1 The investment program will finance a portion of government initiatives to improve water and wastewater management services in Greater Colombo.2 It will rehabilitate and expand water supply and wastewater management infrastructure. In order for investments in physical infrastructure to be effective and sustainable, the investment program will assist the government in introducing institutional reforms in the water and wastewater subsectors, particularly in Greater Colombo.3 2. The Investment program is estimated to cost $400 million. Up to $300 million equivalent, or 75% of the total cost, will be provided through the MFF from ADB’s Special Funds resources and ordinary capital resources. The MFF is sequenced as follows: (i) tranche 1: $84 million for project 1 in 2012; (ii) tranche 2: $88 million for project 2 in 2013; (iii) tranche 3: $90 million for project 3 in 2015; and (iv) tranche 4: $38 million for project 4 in 2016. Projects 1 and 2 will focus on reducing nonrevenue water (NRW) and improving water service efficiency in Colombo city. 4 Project 1 was approved by the President on 22 November 2012, and the loan for project 1 became effective on 25 September 2013. Project 2 was approved by the President on 26 September 2013. The implementation of project 1 is on track. The loan agreement for project 2 will be signed soon. II. THE ADDITIONAL FINANCING A. Rationale 3. The government has requested the scope of work under project 2 be expanded from rehabilitation of the water distribution system in Colombo city to include expanding the water supply to TEC and rehabilitating the pumping station in Ambathale. Agence Française de Développement (AFD) cofinancing will be used for this expansion. The MFF modality was selected to allow phased implementation and funding of individual projects when they are ready, subject to eligibility and readiness of subprojects included in the investment program. The MFF will offer the opportunity for cofinancing and private sector participation. The proposed additional cofinancing from AFD is mobilized in accordance with the approved MFF. The AFD cofinancing is proposed to finance two subprojects: (i) expansion of water supply coverage in towns east of Colombo (TEC), using water saved from NRW reductions under projects 1 and 2 in Colombo city; and (ii) reorganization of the current pumping and transmission arrangements of Colombo city to save energy in the 1 ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to the Democratic Socialist Republic of Sri Lanka for the Greater Colombo Water and Wastewater Management Improvement Investment Program. Manila. 2 Greater Colombo comprises 15 local authorities: five municipal councils (Colombo, Dehiwela–Mount Lavinia, and Sri Jayawardenepura–Kotte, Kaduwela, and Moratuwa), five urban councils, and five pradeshiya sabhas (smallest political units in peri-urban or rural areas). It has a population of more than 838,000 and a “floating” (transient) population of more than 500,000. 3 ADB. 2011. Technical Assistance to Sri Lanka for Colombo Water Supply Servie Improvement Project. Manila. Supplementary TA was provided in 2012. 4 Nonrevenue water (NRW) is the gap between the amount of water put into the distribution system and the amount of water for which customers are actually billed. 2 water supply system. AFD cofinancing will further strengthen the impact and outcome of proved project 2 under the MFF. 4. The proposed AFD-cofinanced subprojects are part of the government’s investment plan that envisions investments of $1,500 million for water and sanitation sector in Greater Colombo in 2010–2020. 5. AFD is a key development partner in the country and in the water sector in 2010– 2012. The AFD cofinancing is consistent with the priority assigned by ADB and the government to the water supply and other municipal infrastructure and services sector, as identified in the country partnership strategy.5 B. Impact, Outcome, and Outputs 6. The impact of the investment program will be an improved urban environment and quality of life for the residents of Greater Colombo. The outcome of the investment program will be improved water supply and wastewater service and management in Greater Colombo. 7. The impact of project 2 will be improved water supply and wastewater service and management in Greater Colombo.6 The expected outcome of project 2 will be improved system efficiency and financial sustainability of water supply and wastewater services in Greater Colombo. With AFD cofinancing, the impact and outcome of the project 2 remains the same with approved project 2, but two additional indicators will be used to measure the outcome of the intervention and monitor project outcome: (i) the number of households that
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