Major Change in Scope

Project Number: 34318 Loan Number: 1910 July 2007

Sri Lanka: Aquatic Resource Development and Quality Improvement Project

CURRENCY EQUIVALENTS (as of 30 June 2007)

Currency Unit – rupee/s (SLR/SLRs)

SLR1.00 = ¥1.1059 or $0.0090 $1.00 = SLRs111.385 or ¥123.179 ¥1.00 = SLRs0.9043 or $0.0081

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund EIRR – economic internal rate of return ha – hectares m – meters MFAR – Ministry of Fisheries and Aquatic Resources NAQDA – National Aquaculture Development Authority NDB – National Development Bank NTDF – National Development Trust Fund OCR – ordinary capital resources PCFM – Peliyagoda Central Fish Market PMO – project management office SDR – special drawing rights UDA – Urban Development Authority

NOTE

In this report, "$" refers to US dollars.

CONTENTS

Page

I. INTRODUCTION 1

II. BACKGROUND 1

III. THE PROPOSED CHANGE 3

A. Location and Design of the Peliyagoda Central Fish Market 3 B. Implementation Arrangements 3 C. Operation and Maintenance of the Peliyagoda Central Fish Market 3 D. Revised Objectives and Design and Monitoring Framework 4

IV. ASSESSMENT 4

A. Financial and Economic Analyses 4 B. Environmental and Social Safeguards 5 C. Project Risks 6

IV. RECOMMENDATION 6

APPENDIXES

1. Design and Monitoring Framework – Loan No. 1910 7 2. Detailed Summary of Works of the Projects Noncredit Components 12 3. Project Performance Report 13 4. Flowchart Illustrating Recommended Operational Management of the Peliyagoda Central Fish Market 15 5. Design and Monitoring Framework of the Peliyagoda Central Fish Market 16 6. Financial and Economic Analyses of Peliyagoda Central Fish Market 17 7. Summary Poverty Reduction and Social Strategy 22

I. INTRODUCTION

1. The Aquatic Resource Development and Quality Improvement Project (the Project)1 was approved on 5 September 2002 to help promote market-driven and sustainable management of inland fisheries and aquaculture. The Asian Development Bank (ADB) provided two loans for the Project─one amounting to SDR10.379 million ($13.8 million equivalent at the time of approval) from the Asian Development Fund (ADF) (Loan 1911); and another of ¥726.4 million ($6.2 million equivalent at the time of approval) from ordinary capital resources (OCR) (Loan 1910). The SDR loan became effective on 7 May 2003, and the OCR loan on 3 November 2003. Both loans are scheduled to close on 30 June 2010.

2. During a review of the ADB portfolio in Sri Lanka in August 2006, the Government requested that ADB review a proposal for a fish market development project for possible financing from unutilized funds (see para. 7) under Loan 1910. In September 2006, the Ministry of Fisheries and Aquatic Resources (MFAR) submitted a concept paper for the establishment of a central fish market at a proposed site in Peliyagoda, near the capital of . In response, ADB requested a prefeasibility study to be prepared for the project. MFAR submitted the study to ADB in November 2006. ADB reviewed the prefeasibility study and found that it needed improvement in several areas before ADB could proceed with the approval process. In February 2007, ADB offered to field a mission in order to assist MFAR in finalizing the prefeasibility study. The Mission and MFAR agreed to the basic design, cost, financing plan, and implementation arrangements for the Peliyagoda Central Fish Market (PCFM).

3. This paper seeks approval for the proposed major change in scope relating to the use of the unused loan balance of Loan 1910 amounting to ¥493.8 million ($4.0 million) to finance the PCFM. Prevailing health and hygiene levels in St Johns Fish Market (Colombo’s existing market) are well below the minimum required standard. In addition, a serious lack of space contributes to excessive congestion both within and outside the market, posing significant problems for Colombo residents. The justification for the proposed central fish market in Peliyagoda is strongly based on the constraints in the existing St. Johns Fish Market.

II. BACKGROUND 4. Fish are the principal source of protein for Sri Lanka’s population and are vital in meeting basic nutritional needs and contributing to the livelihoods of the poor. Analysis of consumption trends shows a growing demand for fish in both rural and urban markets. Significant opportunities are also emerging for sale of fish and aquatic products beyond traditional local markets. Both community-based and private sector initiatives and interests exist to avail of these opportunities if there is appropriate support to invest in developing fisheries production and marketing.

5. The long-term objective of the Aquatic Resource Development and Quality Improvement Project is to assist the Government of Sri Lanka to improve food security and reduce poverty, especially in rural areas. The Project is furthering this objective by promoting market-driven and sustainable management of inland fisheries and aquaculture through resource development and quality improvement. To this end the Project is structured in five parts: (i) inland fisheries and aquaculture development, (ii) fish quality improvement and marketing, (iii) facilitation of access to credit, (iv) institutional strengthening, and (v) project management. The successful

1 ADB. 2002. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the Democratic Socialist Republic of Sri Lanka for the Aquatic Resource Development and Quality Improvement Project. Manila (Loan Nos. 1910-SRI and 1911-SRI[SF]).

2 implementation of the Project is expected to result in increased production of freshwater fish and other aquatic products for the rural, urban, and export markets; improved quality and increased consumption of inland fish; improved access to credit for use in inland fisheries and aquaculture; and strengthened capacity of the National Aquaculture Development Authority (NAQDA) and other sector institutions. MFAR is the Project’s Executing Agency. The lead implementing agency is NAQDA, which is responsible for parts (i), (ii), and (iv), and is facilitating implementation of parts (iii) and (v). Part (iii) comprises two subcomponents: microcredit for community investments, which is being implemented by the National Development Trust Fund (NTDF) using its own resources; and the credit line for commercial investments for fisheries and aquaculture enterprises,2 for which the National Development Bank (NDB) serves as the apex bank. The design and monitoring framework for the original project is in Appendix 1.

6. The physical progress of the Project’s ADF-financed noncredit components3 is estimated at 40% against an elapsed loan period of 61%. Disbursements, as well as contracting of major works (Appendix 2), were initially slow due to a loan covenant (related to the submission of the NAQDA Act to Parliament) for loan withdrawals. The condition was met in January 2006, and activities began to pick up soon thereafter. Appendix 2 summarizes the works being carried out or remaining to be completed under each contract. Total contracts awarded and disbursements to date are, respectively, about $6.3 million (40% of the loan amount) and $5.9 million (38% of the loan amount).

7. Progress of the Project’s OCR-financed credit component, on the other hand, has been below expectations. NDTF’s cumbersome lending procedures restrict access to the microcredit subcomponent financed through NDTF since they require potential clients to become partner organizations before they can borrow credits from NDTF. This requires substantial strengthening of small rural community based organizations in book-keeping skills and leadership training which the project has sought to provide to help improve access to microcredit. The demand for the credit line being implemented by NDB continues to be weak, which NDB attributes to the availability of cheaper credit schemes from other participating financial institutions, offered at 9% interest, compared with 12.85% under the Project at present).4 To date, only about $0.6 million (or 10%) of the OCR loan has been disbursed. In view of the very low utilization of the credit line and availability of other credit schemes at lower interest rates, the Government has proposed to utilize a portion of the undisbursed balance of the OCR loan to finance the construction costs of the PCFM.

8. Despite the slow progress of the credit component, the overall progress of the Project may be rated as satisfactory, as is compliance with the loan covenants. The project management office (PMO) has been established, monthly and quarterly progress reports are submitted regularly, and steering committee meetings are held every quarter. Project accounts are being audited annually and audited financial statements are generally submitted on time. All subprojects (Appendix 2) are planned for completion before the loan closing date as there are adequate plans and resources in place. The PMO is undertaking on-site monitoring of project progress, with ADB reviewing monthly and quarterly progress reports and fielding regular review missions. Apart from the low performance of the credit component, there are no major issues or problems affecting project implementation. The Project’s implementation progress is detailed in the summary of the latest project performance report (Appendix 3).

2 OCR Loan 1910-SRI finances 100% of the credit line. 3 ADF Loan 1911-SRI(SF) finances part of the Project’s noncredit components. 4 The interest rate for the end users under the Project is determined by the average weighted deposit rate and the participating financial institutions spread of not exceeding 7%.

3

III. THE PROPOSED CHANGE A. Location and Design of the Peliyagoda Central Fish Market

9. The PCFM will be located in the Peliyagoda municipality, approximately 5 kilometers from the present St. Johns Fish Market. The proposed site covers an area of about 3.2 hectares (ha) of barren land, presently owned by MFAR. The PCFM will comprise two main buildings: (i) a two-storey wholesale building (120 meters [m] x 48 m) intended to accommodate wholesale traders on the ground floor and small traders, on the second floor; and (ii) a two-storey retail building (146 m x 26 m), which will concentrate retail activities on the ground floor while the second level will accommodate facilities for banks, fishing supply shops, administrative offices, etc. Other facilities included in the PCFM design are flake ice plants, cool rooms, blast freezers, silage, septic and wastewater treatment plants, and a vehicle park. A separate access road linking the PCFM to the Colombo expressway and to the Colombo- road will be constructed prior to the establishment of the PCFM.

B. Implementation Arrangements

10. The estimated cost of the PCFM buildings and other facilities amounts to $10 million. It is currently proposed that this sum be jointly funded: by ADB through the equivalent of $4.0 million of unutilized credit funds available under Loan 1910, and the balance equivalent to $6.0 million by the Government. MFAR, the executing agency for the Project, will be responsible for the construction of PCFM. MFAR is the direct line ministry in charge of the development and management of the fisheries sector in Sri Lanka. MFAR will establish a separate project implementation unit (PIU) for the PCFM subproject, headed by a project manager who will be designated as a signatory for withdrawing the loan funds. The PIU will be responsible for administering, implementing, monitoring, reporting and coordinating all project activities.

C. Operation and Maintenance of the Peliyagoda Central Fish Market5

11. The PCFM will play a key role in furthering the Government’s priorities for food security and poverty reduction. Ownership by the Government with competitive management by the private sector will ensure that outputs (effective distribution of fresh marine fish from catcher to consumer) and outcomes (improved quality of fresh marine fish) are maintained and enhanced. The Government, through MFAR, will be the landlord of the site and infrastructure, and charge a lease fee for the operational management of the market by a private company selected through competitive bidding. All fish passing through the market will be owned by the private sector, and market forces and commission charges will determine prices and distribution networks. At a later stage, the Government may consider privatization or joint venture arrangements for the PCFM. Appendix 4 gives the four main components of an operational framework illustrating how the PCFM will be owned and managed.

12. PCFM Operational Guidelines. As the new market will play a central role in the distribution of improved quality fresh marine fish throughout Sri Lanka and being a Government asset, it needs to be effectively and efficiently managed. PCFM operational guidelines will be prepared by MFAR to lay down the operational requirements for a central market, including terms and conditions for private sector involvement and the responsibilities of MFAR. On-site management of the PCFM will be undertaken by a private company assuming full responsibility for day-to-day operations, with a board of directors representing: (i) the private management

5 Subject to Board approval of the proposed major change in scope, a covenant specifying the agreed arrangements described in paras. 11-12 will be included in the amended loan agreement.

4 company, (ii) MFAR, and (iii) private sector stakeholders engaged in fish market operations and the fisheries and seafood marketing sectors. Sustaining the benefits from the new market will be ensured by maintenance requirements specified in the lease, and by an annual review of agreed schedules and other management protocols, as specified under the PCFM operational guidelines, under a monitoring and regulatory framework set up and managed within a dedicated unit of MFAR.

D. Revised Objectives and Design and Monitoring Framework

13. Under the proposed expanded scope, there is no change in the immediate and longer term objectives of the Project. Nonetheless, because the expanded scope is a different program of work and not directly related to the ongoing loan, a revised design and monitoring framework for the PCFM has been formulated (Appendix 5).

IV. ASSESSMENT

14. There are no major issues or problems currently facing project implementation. The benefits under the expanded scope will increase the outputs significantly and expedite the Government efforts in making use of unutilized funds.

A. Financial and Economic Analyses

15. Financial Analysis. The proposed PCFM is financially viable at an estimated financial internal rate of return (FIRR) of 15%, on the assumption that the market can charge rent of market space at about 50% higher than what MFAR proposed in its prefeasibility report. At the rent proposed in the prefeasibility report, the FIRR is only 10%, a marginally viable level. Given that the rent at existing St. Johns Fish Market is about 30% higher than the proposed rent, as well as the prevailing practice of onlending the space to subcontracting traders at a much higher rent, sometimes as much as 10 times higher, the 50% higher rent than proposed would be within what traders would be willing to pay. The essential factor that would affect the financial viability of the investment and operation of the PCFM is the flexibility in determining the rent of market floor. The level of the rent should reflect cost recovery (both investment and operation and maintenance), reasonable profit margin, and traders’ willingness to pay.

16. Economic Analysis. Economic analysis was carried out on the assumption that part of the incremental value of traded fish would be attributed to a shift from the existing old market to a new market. The limited capacity and hygiene condition of the existing St. Johns Fish Market are among the major constraints to increasing overall fishery production and shifting to high- value fish production, particularly one of export quality. To remove these constraints, multiple investments and efforts by various stakeholders are needed, for example, in fishing boats, improvement of food health and safety standards, supply of other fishery inputs, refrigerated and insulated trucks, and a retail shop network. As the contribution of each factor cannot be quantified, the economic analysis assumed that the improved capacity of the fish market would contribute 5% of the incremental value of traded fish. Other benefits considered in the analysis comprise (i) the reduced traffic congestion valued by the travel time savings, and (ii) the rent for leasing the ground floor of the Colombo Central Super Market building that is presently occupied by St. Johns Fish Market, after closure and transfer of the fish market to PCFM.

17. Other assumptions of the economic analysis are as follows: (i) the economic life of the project is 30 years based on the usable life of the major buildings; (ii) all values are expressed in 2007 prices; (iii) the financial value in local currency was converted to the world price level

5 numeraire, using a standard conversion factor of 0.9; (iv) national fish production will increase as projected in the President’s 10-year plan (Mahinda Chintana); (v) 30% of the national fish products will be traded at the Colombo fish market, the same proportion as at present; and (vi) the improved market facility will induce an increased supply of fish for the export market, as well as higher quality fish for the local market. Based on these assumptions, the economic internal rate of return (EIRR) of the PCFM project was calculated at 61.0%. Economic viability highly depends on the assumed contribution ratio of the development of the fish market to the increased value of fish trade. The EIRR remains at 15.4% even if we assume that ratio to be only 1%. Appendix 6 gives the tables for the financial and economic analyses.

B. Environmental and Social Safeguards

1. Environmental Impact

18. The proposed site (3.2 ha) of the PCFM comprises a combination of abandoned paddy land and associated undergrowth. Paddy cultivation ceased in the late 1970s largely because the badly maintained drainage systems of the surrounding canals allowed salt intrusion. At present the site is utilized by the Peliyagoda Urban Development Council as a garbage dumping site. Based on an initial environmental assessment, ADB has classified the PCFM subproject as “Environmental Category B,” which calls for an initial environmental examination (IEE) to be undertaken, including the development of an environment management plan for the proposed PCFM and an associated road subproject. MFAR has already expedited the required environmental clearance process by submitting plans related to the proposed project to the relevant authorities including the Urban Development Authority (UDA), Sri Lanka Land Reclamation and Development Corporation, and the Central Environment Authority. MFAR prepared an IEE and summary IEE in June 2007, which were reviewed and cleared by ADB.

2. Social Assessment

19. The proposed site for the PCFM and the access road are owned by UDA; therefore, land acquisition is not required. With respect to involuntary resettlement and impacts on indigenous people, the expanded scope of works does not involve any involuntary resettlement and there are no indigenous people or groups residing in the project area (Appendix 7). The project classification in relation to involuntary resettlement impacts is “Category C,” which means there is no involuntary resettlement; and therefore, no resettlement report is required. Similarly the project classification for impacts on indigenous people is also “Category C.” Of concern is the existing road from the A03 road (Colombo-Negombo) to the proposed project site as it traverses a village with residents living on the roadsides. To prevent disturbance to the residents, ADB has advised MFAR that this road should not be used as an access road during construction and during the operational stage of the proposed fish market. The proposed new access road from the site to the main road is located some distance from residential areas. It thus avoids unnecessary disturbance to local residents and should be built before land filling and construction start on the site. As a substantial volume of traffic of heavy vehicles is anticipated, there is a need to conduct a traffic impact assessment in consultation with local communities, which should be cleared by the Road Development Authority, and information shared with all stakeholders.

C. Project Risks

20. A significant risk in implementing the expanded change of scope would depend on the acceptance of PCFM by surrounding communities and residents. MFAR will pay suitable attention to the social implications of the proposed fish market and heed ADB’s advice to involve

6 the surrounding communities and residents through an appropriate public disclosure and communications strategy. Given the scale and nature of operations, it is important to inform the surrounding communities of the proposed plans for the area. Associated issues of noise pollution, smell, and traffic congestion need to be addressed and strategies to minimize negative aspects of the market should be put in place. The UDA will take the lead in explaining to the surrounding communities that a major motorway will traverse the area. It is recommended that MFAR initiate this process before any work starts6.

21. Another major risk in the proposed PCFM relates to the sustainable operation and maintenance of the new fish market. This risk would be minimized by entrusting the operation of the market to a private company. It is essential that the contract includes adequate flexibility for the company in managing the market, especially in setting rent levels of market space to traders.

V. RECOMMENDATION

22. The President recommends that the Board approve, on a no-objection basis, the major change in scope and implementation arrangements, as more fully described in part III of this paper, and relating to the use of loan savings within the Aquatic Resource Development and Quality Improvement Project toward the establishment of the Peliyagoda Central Fish Market. If the recommended changes are approved, the Loan Agreement will be amended as appropriate to reflect the changes.

6 ADB is assisting the UDA in this process by preparing TOR for the UDA in undertaking its public information and disclosure campaign.

Appendix 1 7

DESIGN AND MONITORING FRAMEWORK – Loan No. 1910

Data Sources/ Performance Targets/ Design Summary Reporting Assumptions Indicators Mechanisms Impact

Improved food • Consumption of fish in rural • Central Bank • The Government will security and reduced districts increased by an consumption not liberalize the import poverty, especially in average of 2 kilograms (kg) reports of fish products that rural areas per capita by year 7. • Data from may distort • 20,000 households in baseline survey. consumption patterns. project areas move above • Production data • Target beneficiaries poverty level. from management adopt and apply new information system fish production, (MIS) handling, marketing, and processing schemes to improve their income-generating capacity.

Outcome

Sustainable and • Fish production from • MIS production • Government policies optimal utilization of reservoirs increases and is data continue to provide a inland water maintained within maximum • National conducive environment resources for fish sustainable yield levels. Aquaculture for the growth of the production by rural Development sector. communities Authority (NAQDA) • Project receives reports continued support • Project despite change in management political leadership. office (PMO) • Stakeholders maintain reports a strong sense of ownership for the Project. Inland Fisheries and Aquaculture Development

Output 1:

Increased production • Annual production of • MIS production • New fish culture of fish and other freshwater fish (i.e., carp, data. technologies are widely aquatic products tilapia/red tilapia) and • PMO progress accepted by freshwater prawns reports community-based increases from current • NAQDA reports organizations (CBOs) level of 30,000 to about and private investors. 56,000 tons by year 7. • Prevalence of fish • Annual exports of diseases is kept at ornamental aquatic plants minimum level. increase by 6 million • Proper coordination pieces by year 7. among agencies • Annual fish fingerling involved in production increases to management around 20 million of reservoir areas fingerlings by year 7. prevails.

8 Appendix 1

Data Sources/ Performance Targets/ Design Summary Reporting Assumptions Indicators Mechanisms Output 2:

Improved resource • New fisheries data • Department of • Political interference is management and fish collection system is in Fisheries and kept at minimal level in production in medium- place. Aquatic Resources activities in fisher sized and perennial • At least 50 medium-sized (DFAR)/NAQDA CBOs tanks reservoirs are self- records regulated by fishing • PMO reports communities. • Gazette notifications

Output 3:

Greater private sector • Total private sector • License records • Investor confidence and small farmer/fish investments in inland and PMO reports prevails. farmer investments in fisheries and aquaculture • Apex bank reports aquaculture-related increases by about $5 • National enterprises million over the 7-year Development Trust period of project Fund (NDTF) implementation. reports • At least 6 model demonstration enterprises are established.

Output 4:

Improved aquaculture • Number of relevant • NAQDA production techniques research studies research reports and identified culture • Number and type of culture • PMO progress species with organisms identified or reports commercial potential varieties improved • Prototype fish feed processing facility established/operational • Technologies introduced

Output 5:

Organized • Number of fisheries • PMO reports/ communities prepared societies/CBOs organized records and trained for and strengthened. • Nongovernment participation in • Number of CBO-managed organization (NGO) community- aquaculture enterprises progress reports based fisheries established • PMO training management and • Number of training courses reports aquaculture and CBO members trained enterprises

Quality Improvement and Marketing

Output 6:

Improved quality of • Processed inland fish • Records at Fish • Incentives for producing

Appendix 1 9

Data Sources/ Performance Targets/ Design Summary Reporting Assumptions Indicators Mechanisms fish and other aquatic products increased to 1,000 Heath Laboratory better quality products products tons by year 7. • Records at Water are sustained. • Fish Health Laboratory is Quality Monitoring • Legislative operational. Laboratory amendments for • No. of training programs • MIS data on improving quality are conducted/no. of trainees prices by product carried out. • No. of clients provided with and species services • PMO training • Water quality monitoring records laboratory is operational. • No. of clients provided with services • No. of fisher CBO members trained in proper handling of fish

Access to Credit Facilitated

Output 7:

Microcredit accessed • At least 60% of inland fisher • NDTF reports • Government policy on by small-scale CBOs in project areas • PMO records credit is consistent. operators and loans become partner • NDB/PFI • Interest rates are facilitated for medium- organizations of NDTF. records attractive. and large-scale • At least 500 enterprises enterprises receive SME credit.

Institutional Strengthening

Output 8:

Strengthened • No. of training • MIS reports and • Government policy on capacity of NAQDA programs/workshops data files role of NAQDA in and conducted for relevant • Number of inland fisheries and other cooperating officers and no. of trainees interventions aquaculture Government • 6 regional extension offices involving other development is agencies to support (REOs) constructed agencies as well-defined and its the sector • 60 extension officers recorded by REOs mandate strengthened.

provided with foreign and field project • Trained government

training and transport Implementation staff remain in service

facilities officers and are placed in

• No. of technical staff of • PMO reports and positions where their

NAQDA trained. records expertise is used

• No. of nontechnical staff of effectively.

NAQDA trained. • NAQDA Act is revised

• Information system able to and is given the legal

provide timely and power for licensing and

accurate information for management. management of inland fisheries and aquaculture.

10 Appendix 1

Data Sources/ Performance Targets/ Design Summary Reporting Assumptions Indicators Mechanisms • No. of agrarian services, Mahaweli Authority officers and NGOs and CBOs involved in relevant local activities. • A fully operational training center is in place. • Legal officers are provided and draft amendments to acts are produced.

Activities with Milestones Inputs ($ million) 1.1 Develop appropriate aquaculture technologies and systems 1.2 Enhance fish production through community-based management systems (10 (i) Civil works, 6.01 tanks every year from 2004) (ii) Vehicles, 0.53 1.3 Utilize minor perennial reservoirs for fish culture (2,000 ha every year from (iii) Equipment, 2.83 2004/05) (iv) Brood stock, 0.42 1.4 Utilize seasonal tanks for fish culture (600 ha every year from 2004/05) (v) Consulting services, 1.5 Rehabilitate/expand ADCs (complete by Jun 2007) 1.71 1.6 Establish mini-hatcheries (complete 25 mini-hatcheries by Dec 2007) (vi) Service contracts, 0.91 2.1 Design and install fisheries data collection and information system (fully (vii) Credit, 6.25 operational system by Dec 2006, new statistical collection system by Jun 2007) (viii) Training, etc., 1.13 2.2 Support self-regulation of fishing effort by communities (at least fisheries in 50 (ix) Project management reservoirs self-regulated by Dec 2008) operating costs, 0.95 3.1 Establish and operate 6 enterprise development demonstration models for (x) Contingencies, 3.7 CBOs and private sector. (complete selection of private partners and enter into agreements by Jun 2005. All enterprises to be operational by Dec 2007.)

4.1 Conduct applied research and field replication trials (complete by Jun 2009) 4.2 Establish pilot feed mill (complete by Aug 2007) 4.3 Establish multispecies mariculture hatchery and brackish water and mariculture laboratories (complete by Dec 2008)

5.1 Conduct social preparation and mobilization 5.2 Organize communities (at least in 150 tanks complete by Dec 2008) 5.3 Advise on enterprise planning and operation 5.4 Train CBO members (at least 4,000 persons by Dec 2008)

6.1 Establish model fish drying/ smoking units (complete by Dec 2006) 6.2 Establish fish health management laboratory (complete by Jun 2006) 6.3 Establish fish disease monitoring units at ADCs (complete by Jun 2006) 6.4 Establish water quality monitoring laboratory (complete by Mar 2007) 6.5 Establish fish filleting plant for tilapia (complete by Dec 2007) 6.6 Train fisher CBO members in hygienic handling of fish (train at least 1,000 fishers by Dec 2008)

7.1 Conduct social mobilization, awareness creation, and training on microcredit among fisher CBOs (conduct at least 50 awareness/training sessions by Jul 2007) 7.2 Create awareness on SME credit among private sector entrepreneurs (conduct at least 15 programs by Jul 2007) 8.1 Provide strong and skilled extension services 8.2 Improve capability of NAQDA staff

Appendix 1 11

Data Sources/ Performance Targets/ Design Summary Reporting Assumptions Indicators Mechanisms 8.3 Provide comprehensive training and transport facilities to the extension service (for 60 officers) 8.4 Design, equip, staff, train, and operate information technology system (complete by Dec 2006) 8.5 Support Mahaweli Authority, NGOs, CBOs and incorporate agrarian services in relevant local activities 8.6 Establish NAQDA headquarters (completed by Jun 2007) 8.7 Establish inland fisheries and aquaculture training center (completed by Jun 2007) 8.8 Provide legal assistance to strengthen NAQDA (complete amendments by Dec 2004)

12 Appendix 2

DETAILED SUMMARY OF WORKS OF THE PROJECT’S NONCREDIT COMPONENTS

Activity Work Progress Remarks Upgrading/rehabilitation of – 43% complete Civil construction works in aquaculture development Udawalawa – 30% complete progress. centers. Inginiyagala – 30% complete Upgrading/establishment of Construction completed at Tenders under evaluation in RAEO. and respect of RAEO in Polonaruwa. Kurunagala. Establishment of Fish Health Construction of the Scientific equipment Laboratory at Peradeniya. laboratory building supplied. Commenced completed. operations at low key. Establishment of water quality 90% complete. Construction of laboratory monitoring laboratory. building in progress. Establishment of model Construction of small dried/smoked fish units. buildings at two sites with the participation of CBOs. Establishment of NAQDA Site identified by NAQDA headquarters. and land transfer process in progress. CBO = community-based organization, NAQDA = National Aquaculture Development Authority, RAEO = regional aquaculture extension offices. Source: Status Report of the Executing Agency.

Appendix 3 13

PROJECT PERFORMANCE REPORT SERIAL NO : 19 (Combined) DIVISION : SANS DEPARTMENT : SARD As of 31 May 2007 PROJECT NO : 34318-01 STATUS : ACTIVE (ALL AMOUNTS IN $ MILLION) BASIC DATA LAST: CURR: Poverty Classification NAME PROJECT AT RISK : No No Poverty Intervention 1910: AQUATIC RESOURCE DEVELOPMENT & Impact and Outcome : S S Thematic Classification QUALITY IMPROVEMENT Implementation Progress (IP) : HS HS HD; PSD Potential Problem (PP) : No No Related Loan(s): Override : No No 1911-SRI(SF) ELAPSED ------CLOSING ------LAST PHYSICAL TIME: LOAN NO. APPROVAL SIGNING EFFECTIVITY ORIGINAL REVISED ACTUAL CREDITING COMPLETION 1910-SRI-01 05 Sep 02 08 Jul 03 03 Nov 03 30 Jun 10 - ORIG ORIG : Jun 10 ORIG. 61% REV. 1910-SRI-02 05 Sep 02 08 Jul 03 03 Nov 03 30 Jun 10 - REV. REV :

PROJECT PROGRESS: 14% 26 LAST: 05 Feb-2007 ACTUAL DAYS (last 12 months):

REVIEW MISSIONS: NEXT: PLANNED DAYS: EXECUTING Ministry of Fisheries and Ocean Resources AGENCIES: FINANCING PLAN / SUBLOAN - CONTRACT AWARDS ------COMMITMENTS ------FOREX LOCAL TOTAL NO. OF DISB. SUBLOANS AMOUNT DISB. AMOUNT PCOST 8.600 21.400 30.00 CUM. QTR BEG 12 0.483 CUM QTR BEG 0.604 0 0.140 CURRENT VALUE OF ADB - ADF 7.800 6.000 13.80 APPRV. IN QTR 1 0.006 IN QTR 0.002 0 0.022 BANK LOAN ADB - OCR 5.400 13.20 ADJUST IN QTR 0 0 CUM QTR END 0.624 0 0.162 APPRV: 0 CBOS .700 8.50 CUM QTR END 13 0.490 NET: 6.013 Private 1.200 9.00 Sector 1.600 9.40 BAL. AVAIL.FOR NDTF 6.500 14.30 COMM.: 5.361 Govern- ment of Sri COUNTERPART FUND ADEQUATE: Yes Lanka LOAN UTILIZATION ------2007 CONTRACT AWARDS ------CUMULATIVE CONTRACT AWARDS ------TOTAL ADB OTHERS CUM. CONT. TO NET 1Q 2Q 3Q 4Q Dec 06 0.000 PROJECT AMOUNT PROJECTION 0.000 0.000 0.000 0.000 0.000 0.000 May 07 0.000 ACTUAL: 0% ACTUAL 0.000 0.000 0.000 0.000 Proj 07 0.000 PROJECTED: 0% ------2007 DISBURSEMENTS ------CUMULATIVE DISBURSEMENTS ------TOTAL ADB OTHERS CUM. DISB. TO NET 1Q 2Q 3Q 4Q Dec 06 0.140 PROJECT AMOUNT PROJECTION 0.000 0.000 0.000 0.000 0.000 0.022 May 07 0.162 ACTUAL: 12% ACTUAL 0.000 0.022 0.000 0.000 Proj 07 0.140 PROJECTED: 10% ------2007 SUBLOAN COMMITMENTS ------CUMULATIVE SUBLOAN COMMITMENTS ------TOTAL ADB OTHERS CUM. COMM. TO NET 1Q 2Q 3Q 4Q Dec 06 0.587 CREDIT AMOUNT PROJECTION 0.007 0.000 0.000 0.000 0.007 0.043 May 07 0.624 ACTUAL: 10% ACTUAL 0.017 0.020 0.000 0.000 Proj 07 0.587 PROJECTED: 10%

14 Appendix 3

------2007 SUBLOAN DISBURSEMENTS ------CUMULATIVE SUBLOAN DISBURSEMENTS ------TOTAL ADB OTHERS CUM. DISB. TO NET 1Q 2Q 3Q 4Q Dec 06 0.587 CREDIT AMOUNT PROJECTION 0.000 0.000 0.000 0.000 0.000 0.037 May 07 0.624 ACTUAL: 13% ACTUAL 0.017 0.020 0.000 0.000 Proj 07 0.587 PROJECTED: 13%

AUDITED PROJECT AGENCY FINANCIAL SECTOR ENVIRONMENTAL SOCIAL FINANCIAL ECONOMIC COVENANTS ACCOUNTS / DELAY STATEMENTS / DELAY COVENANTS COVENANTS COVENANTS COVENANTS - COMPLIANCE HS / 0 mos. NR / - mos. - - - S WITH COVENANTS

MAJOR ISSUES/PROBLEMS (IP, Impact and Outcome, Covenants)

Elena A. de Castro Vidhisha Samarasekara Designation: Designation: Assistant Project Analyst Natural Resources Management Specialist PAU ASSISTANT PROJECT SPECIALIST

Update Control: Elena A. de Castro; Fe E. de Leon; Victoria Fe G. Mariano; Vidhisha Samarasekara Last updated by: COSO Monthly Uploading

Appendix 4 15

FLOWCHART ILLUSTRATING RECOMMENDED OPERATIONAL MANAGEMENT OF THE PELIYAGODA CENTRAL FISH MARKET

Ownership of the Market Site and Infrastructure

(1) The Government of Sri Lanka owns the Peliyagoda Central Fish Market to ensure (i) food security as marine fresh fish is the major source of animal protein for Sri Lanka, and (ii) that a central market is available for the socioeconomic benefit of the people.

Peliyagoda Central Fish Market Operational Guidelines

(2) Specifies outcomes, objectives, and requirements of a central fish market, the terms and conditions under which the private sector will be selected and manage the day-to-day operations of the Peliyagoda Central Fish Market including lease arrangements, and the related responsibilities of MFAR and its agencies.

Private Company as Lessee (3) Day-to-day management based on PCFM Regulation with a board of directors comprised of representatives from the seafood industry, the Government of Sri Lanka, traders, and the fishery sector.

Peliyagoda Central Fish Market (4) Site, infrastructure, and stakeholders

MFAR = Ministry of Fisheries and Aquatic Resources, PCFM = Peliyagoda Central Fish Market.

16 Appendix 5

DESIGN AND MONITORING FRAMEWORK OF THE PELIYAGODA CENTRAL FISH MARKET

Data Sources/ Performance Targets/ Reporting Design Summary Indicators Assumptions Mechanisms Impact

Improved efficiency in fish • Consumption of fresh • Central Bank • Mahinda Chintana marketing, leading to marine fish increases consumption reports. projects and greater food availability for from13 kg/capita to 21 • Data from baseline projections are poor consumers and higher kg/capita by 2016. surveys successful. incomes in fishing • Production data communities from MIS • Fish traders take • MFAR statistical unit advantage of new fish handling and marketing practices to improve their income- generating capacity. Outcome

Improved quality and lower • Fresh marine fish • MFAR statistics unit • Government policies costs of fresh marine fish supply increases and is data. continue to provide for available to Sri Lanka maintained within the growth of the maximum sustainable marine fisheries yield levels. sector. • Efficient management of PCFM.

Output

Effective distribution of fresh • New central fish • MFAR reports • Funding is available marine fish from boat to market established at from MFAR budget customer Peliyagoda allocations. • Efficient, sustainable management of PCFM. • Construction and operations of PCFM do not cause any conflict with the residents in the surrounding area.

Activities with Milestones Input ($ million)

1. All environmental and social clearances before the project starts. 10.0 2. IEC program developed before the project starts. 3. Completion of site construction within 2 years

IEC = information, education and communication; kg = kilogram; MFAR = Ministry of Fisheries and Aquatic Resources; MIS = management information system.

Appendix 6 17

FINANCIAL AND ECONOMIC ANALYSES OF PELIYAGODA CENTRAL FISH MARKET

Table A6.1: Project Cost Estimates (SLRs million)

Parameters Physical contingency 10% Price escalation pe annum 8%

Cost ItemTotal Annual Cost Accrual Cost Per Year Cost Year 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 4 Total 1. Soil Testing 0.60 100% 0.60 0.00 0.00 0.00 0.60 2. Preliminaries 10.00 100% 0.00 10.00 0.00 0.00 10.00 3. Site Preparation 80.00 100% 0.00 80.00 0.00 0.00 80.00 4. Wholesale Market Building 276.44 30% 70% 0.00 82.93 193.51 0.00 276.44 5. Retail Market Building 250.00 30% 70% 0.00 75.00 175.00 0.00 250.00 6. Flake Ice Building 70.00 50% 50% 0.00 0.00 35.00 35.00 70.00 7. Wastewater Treatment 11.00 50% 50% 0.00 0.00 5.50 5.50 11.00 8. Sileage Plant 8.00 50% 50% 0.00 0.00 4.00 4.00 8.00 9. Internal Roads 18.00 100% 0.00 18.00 0.00 0.00 18.00 10. 3 Phases Electricity 20.00 50% 50% 0.00 0.00 10.00 10.00 20.00 11. Main Water System 7.00 50% 50% 0.00 0.00 3.50 3.50 7.00 12. Internal Water Distribution 14.00 50% 50% 0.00 0.00 7.00 7.00 14.00 13. Access Road 22.00 100% 0.00 22.00 0.00 0.00 22.00 14. Cost of Land 144.30 100% 144.30 0.00 0.00 0.00 144.30 15. Chain Link Fence 2.00 100% 0.00 0.00 0.00 2.00 2.00 16. Equipment 3.00 100% 0.00 0.00 0.00 3.00 3.00 17. Gabion Walls 13.00 100% 0.00 0.00 0.00 13.00 13.00 18. Shutters 10.00 100% 0.00 0.00 0.00 10.00 10.00 Total Base Cost 959.33 144.90 287.93 433.51 93.00 959.33 Physical Contingency (10%) 95.93 14.49 28.79 43.35 9.30 95.93 Price Contingency 0% 8% 17% 26% 0.00 25.34 79.35 26.57 131.26 Total Project Cost 159.39 342.06 556.21 128.87 1,186.52 Source: Asian Development Bank estimates.

18 Appendix 6

Table A6.2: Annual Revenue of the Peliyagoda Fish Market

Variation factors: Unit floor rent as against MFAR proposal 150% Capacity of ice plant 50 t/day FIRR# = 15.25%

Item Quantity Unit Income Revenue Unit Quantity Unit Value SLRs million A. Lease of Floor Area 1. Wholesale Fish Stalls No. (16m2) 148 SLRs/month 26,400 46.89 2. Retail Fish Stalls No. (12m2) 143 SLRs/month 19,800 33.98 3. For Other Business m2 2,640 SLRs/month 1,650 52.27 Subtotal (A) 133.14

B. Vehicle parking fees 1. Trucks 2.83 ton/truck No. 120 SLRs/day 300 12.60 2. Cars No. 1,000 SLRs/day 35 12.25 3. Motor Cycles No. 1,000 SLRs/day 10 3.50 4. Bicycles No. 1,000 SLRs/day 5 1.75 Subtotal (B) 30.10

C. Sales of Flake Ice kg 50,000 SLRs/50kg 80 28.00

D. Other Revenues 1. Lease of Strage lump sum 2.00 2. Others (lease of boxes, trolleys, hoading boads, etc.) 3.00 Subtotal (C) 5.00

Total Revenue 196.24 FIRR = financial internal rate of return, kg = kilogram, m2 = square meter, MFAR = Ministry of Fisheries and Aquatic Resources, No. = number. Source: Asian Development Bank estimates.

Appendix 6 19

Table A6.3: Financial Cash Flow (Return on Investment) (SLRs million)

Sensitivity Analysis For project cost 1.00 FIRR = 15.25% For benefit 1.00 NPV (12%) = 146.74

Cost Revenue Pretax Year Capital Cost O&M Total Lease Parking Ice Sales Others Total Net Income 1 0.53 0.53 (0.53) 2 260.67 260.67 (260.67) 3 397.72 397.72 (397.72) 4 87.97 30.00 117.97 53.25 12.04 11.20 2.00 76.49 (41.47) 5 40.00 40.00 106.51 24.08 22.40 4.00 152.99 112.99 6 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 7 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 8 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 9 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 10 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 11 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 12 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 13 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 14 154.22 154.22 133.14 30.10 28.00 5.00 191.24 37.01 15 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 16 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 17 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 18 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 19 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 20 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 21 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 22 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 23 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 24 154.22 154.22 133.14 30.10 28.00 5.00 191.24 37.01 25 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 26 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 27 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 28 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 29 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 30 50.00 50.00 133.14 30.10 28.00 5.00 191.24 141.24 ( ) = negative, FIRR = financial internal rate of return, NPV = net per value, O&M = operation and maintenance. Note: Income tax is not considered yet. Source: Asian Development Bank estimates.

20 Appendix 6

Table A6.4: Estimate of Economic Benefits

A. Value of Fish Traded in the Market

Quality Price/TonSt. Johns Market Peliyagoda Fish Market Peliyagoda Fish Market Proportion Grade (without project in 2004) (with project in 2012) (with project in 2016) of Fish by Volume Value Volume Value Volume Value Grade SLRs (ton/day) (SLRs million) (ton/day) (SLRs million) (ton/day) (SLRs million) With Project 1 600,000 0.0 0.0 33.9 20.3 37.3 22.4 10% 2 400,000 0.0 0.0 33.9 13.6 37.3 14.9 10% 3 200,000 173.6 34.7 271.1 54.2 298.4 59.7 80% 4 50,000 43.4 2.2 0.0 0.0 0.0 0.0 Total per day 217.0 36.9 338.9 88.1 373.0 97.0 Total per year 75,957.0 12,912.7 118,614.9 30,839.9 130,554.9 33,944.3 % Traded in Colombo 30% 30% 30% National Fish Production 253,190.0 395,383.0 435,183.0

B. Incremental Value of Fish Traded in the Market in Colombo

(% attributable to new fish market = 5%) Year Total Value Due to Market Coverted (SLRs million) (SLRs million) by SCF 1000 2000 3000 4 5,976 299 269 5 11,951 598 538 6 17,927 896 807 7 18,703 935 842 8 19,479 974 877 9 20,255 1,013 911 10 21,032 1,052 946

C. Reduced Traffic Congestion

Item Unit Quantity 1. Number of vehicles No. 1,000 2. Saved time per day minutes 10 3. Opportunity cost of time SLRs/hour 100 4. Number of days per year days 350 Benefit (1 x 2/60 x 3 x 4) SLRs million 5.83 x SCF 0.9 5.25

D. Lease Rent of St. John's Fish Market (Opportunity Cost)

Item Nos. Rent/Mo. SLRs Million/Year Wholesale stalls 73 5,625 4.93 Retail stalls 120 1,875 2.70 Fish store 1 1 10,400 0.12 Fish store 2 1 8,675 0.10 Unloading area 18 375 0.08 Total 7.94 Mo. = month, No. = number, SCF = standard conversion factor. Source: Asian Development Bank estimates.

Appendix 6 21

Table A6.5: Cost Benefit Stream (SLRs million)

Sensitivity analysis: For cost 1.00 EIRR # = 61.53% For benefit 1.00 NPV (12%) # = 3,797.65 For contribution 5%

Cost Benefit Net Year Capital Cost O&M Total Fish Trade Traffic StJFM Total Benefit 10.530.53 (0.53) 2 260.67 260.67 (260.67) 3 397.72 397.72 (397.72) 4 87.97 27.00 114.97 268.91 2.63 3.57 275.10 160.14 5 36.00 36.00 537.82 5.25 7.14 550.21 514.21 6 45.00 45.00 806.72 5.25 7.14 819.12 774.12 7 45.00 45.00 841.65 5.25 7.14 854.04 809.04 8 45.00 45.00 876.57 5.25 7.14 888.97 843.97 9 45.00 45.00 911.50 5.25 7.14 923.89 878.89 10 45.00 45.00 946.42 5.25 7.14 958.81 913.81 11 45.00 45.00 946.42 5.25 7.14 958.81 913.81 12 45.00 45.00 946.42 5.25 7.14 958.81 913.81 13 45.00 45.00 946.42 5.25 7.14 958.81 913.81 14 119.69 119.69 946.42 5.25 7.14 958.81 839.13 15 45.00 45.00 946.42 5.25 7.14 958.81 913.81 16 45.00 45.00 946.42 5.25 7.14 958.81 913.81 17 45.00 45.00 946.42 5.25 7.14 958.81 913.81 18 45.00 45.00 946.42 5.25 7.14 958.81 913.81 19 45.00 45.00 946.42 5.25 7.14 958.81 913.81 20 45.00 45.00 946.42 5.25 7.14 958.81 913.81 21 45.00 45.00 946.42 5.25 7.14 958.81 913.81 22 45.00 45.00 946.42 5.25 7.14 958.81 913.81 23 45.00 45.00 946.42 5.25 7.14 958.81 913.81 24 119.69 119.69 946.42 5.25 7.14 958.81 839.13 25 45.00 45.00 946.42 5.25 7.14 958.81 913.81 26 45.00 45.00 946.42 5.25 7.14 958.81 913.81 27 45.00 45.00 946.42 5.25 7.14 958.81 913.81 28 45.00 45.00 946.42 5.25 7.14 958.81 913.81 29 45.00 45.00 946.42 5.25 7.14 958.81 913.81 30 45.00 45.00 946.42 5.25 7.14 958.81 913.81 Total 1,337.38 1,425.35 24,118.01 139.13 189.31 24,446.44 23,021.10 NPV 362.55 805.34 6,362.99 39.35 53.55 6,455.90 3,797.65 ( ) = negative, EIRR = economic internal rate of return, O&M = operation and maintenance, NPV = net per value, StJFM = St. Johns Fish Market. Source: Asian Development Bank estimates.

22 Appendix 7

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Significant/Non Item Strategy to Address Issues Plan Required significant/None Resettlement None The proposed central fish market at 1. UDA recently considered to hand Peliyagoda will be constructed on land over this land to MFAR as an outright measuring 3.1776 hectares. The land grant payment and await the UDA was previously cultivated paddy land Board approval. The balance amount but since the 1970s has been of SLRs54 million needs to be paid to abandoned. It had in the past been UDA and official transfer of land used by encroachers for vegetable ownership from UDA to MFAR has cultivation and cattle rearing. Then it already been agreed upon after the was taken over by the Land final payment. UDA will issue a letter Reclamation Board in 1977 and handed to MFAR stating that the land is over to the Urban Development incumbent free. Authority (UDA) in the 1980s. At present this land block has not been 2. MFAR will request State used for the surrounding communities Engineering Corporation to sell the or for any common purpose. From the required land for the proposed new 1980s onward the Urban Development access road. The existing access Council has used it as dump site for road from the Colombo-Negombo solid waste. UDA decided in July 2006 Road to the site (Dutugamunu to lease the land for 99 years under its Mawarha and Ghanarathna land alienation policy for common Mawatha) is very narrow (15–25 feet) purposes as part of the integrated urban and road widening will affect a development program. The MFAR as significant number of houses. the developer was asked to pay SLRs125 million, valuation fees, taxes, 3. It is recommended that the existing and other charges totaling SLRs145 road from the A03 road (Colombo- million. UDA informed the Mission that it Negombo) to the site through the has paid SLRs83 million (SLRs72 residential areas should not be used million as premium and SLRs10 as during construction, and the proposed taxes). In order to construct an 80-foot access road from the site to the A03 access road to connect the market road should be built before land filling complex to the existing Colombo- and construction of buildings Negombo road (A3), about 100 meters needs to be acquired from State Engineering Corporation. This land is also vacant government land. Within the proposed land area there are no residents and the land has not been used for community purposes. As such, no land acquisition and resettlement impacts are envisaged. Affordability Labor Labor engaged for the construction work will be given fair wages. No child labor will be used in construction work. Indigenous Peoples Other Risks Residents have complained that the and present land area is subject to flooding; Vulnerabilities therefore, proper storm water drainage facilities should be provided. MFAR = Ministry of Fisheries and Aquatic Resources, UDA = Urban Development Authority.