Report and Recommendation of the President to the Board of Directors
Project Number: 26522 February 2008
Proposed Supplementary Loan and Technical Assistance Grant Democratic Socialist Republic of Sri Lanka: Southern Transport Development Project
CURRENCY EQUIVALENTS (as of 13 February 2008)
Currency Unit – Sri Lanka rupee/s (SLRe/SLRs) SLRe1.00 = $0.0093 $1.00 = SLRs108.05
ABBREVIATIONS
ADB – Asian Development Bank CEA – Central Environment Authority CRP – Compliance Review Panel CSC – construction supervision consultant EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environment management plan ESD – Environment and Social Division GDP – gross domestic product ICB – international competitive bidding IRP – income restoration program JBIC – Japan Bank for International Cooperation km – kilometer LAR – land acquisition and resettlement LARC – land acquisition and resettlement committee LIBOR – London interbank offered rate MOHRD – Ministry of Highways and Road Development NDF – Nordic Development Fund OCR – ordinary capital resources PMU – project management unit RDA – Road Development Authority RIP – resettlement implementation plan ROW – right of way SDR – special drawing rights SL – supplementary loan Sida – Swedish International Development Cooperation TA – technical assistance UDA – Urban Development Authority VOC – vehicle operating cost
NOTES
(i) The fiscal year of the Government and its agencies ends on 31 December.
(ii) In this report, “$” refers to US dollars
Vice President L. Jin, Operations Group 1 Director General K. Senga, South Asia Department (SARD) Director K. Higuchi, Transport and Communications Division, SARD
Team leader D. N. Utami, Senior Environment Specialist, SARD Team members M. Alam, Senior Infrastructure Specialist, SARD N. M. Amerasinghe, Project Implementation Officer (Agriculture and Environment), SARD A. Gamaathige, Social Sector/Resettlement Officer, SARD R. Nagpal, Counsel, Office of the General Counsel J. Perera, Senior Safeguards Specialist, SARD K. M. Tilakaratne, Implementation/Program Officer, SARD C. Valbuena, Senior Procurement Specialist, Central Operations Services Office S. Widowati, Head, Project Administration Unit, SARD H. Yamaguchi, Senior Transport Specialist, SARD
CONTENTS Page LOAN AND PROJECT SUMMARY i MAP I. THE PROPOSAL 1 II. THE APPROVED PROJECT 1 A. Rationale 1 B. Objectives and Scope 2 C. Cost Estimates and Financing Plan 3 D. Status and Progress of Project Implementation 4 III. THE PROPOSED SUPPLEMENTARY LOAN 9 A. Cost Overrun and Proposed Change of Scope 9 B. Impact and Outcome 10 C. Rationale 11 D. Policy Safeguard Due Diligence 12 E. Revised Cost Estimates 14 F. Investment Plan 15 G. Financing Plan 15 H. Remedial Actions 16 I. Implementation Arrangements 16 IV. TECHNICAL ASSISTANCE 20 V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 20 A. Economic Aspects 20 B. Financial Sustainability 21 C. Environmental and Social Aspects 21 D. Risks 22 VI. ASSURANCES 22 VII. RECOMMENDATION 24 APPENDIXES 1. Revised Design and Monitoring Framework 25 2. Recommendations of the Compliance Review Panel: Implementation Status 28 3. Cost Overrun 33 4. Detailed Cost Estimates and Financing Plan 35 5. Indicative Project Implementation Schedule 37 6. Procurement Plan 38 7. Technical Assistance: Land Use Planning of the Southern Highway Corridor 41 8. Economic Analysis 44 9. Summary Poverty Reduction and Social Strategy 52 SUPPLEMENTARY APPENDIXES (available upon request) A. Status of Project Readiness B. Loan Covenants: Status of Compliance C. Social and Environmental Safeguards: Due Diligence D. Terms of Reference for the Management Consultant E. Terms of Reference for the Construction Supervision Consultant
LOAN AND PROJECT SUMMARY
Borrower Democratic Socialist Republic of Sri Lanka
Classification Targeting classification: General intervention Sector: Transport and communications Subsector: Roads and highways Theme: Sustainable economic growth Subtheme: Fostering physical infrastructure development
Environment Category A Assessment The summary environmental impact assessment was disclosed through the Asian Development Bank (ADB) website and submitted to the ADB Board of Directors on 19 April 2007.
Project Description The supplementary loan for the Southern Transport Development Project supports the objective of the original loan to facilitate and act as a catalyst for the development of the southern region of the country by completing the construction of Colombo (Kottawa)– Matara (Godagama) highway and Galle access road. The supplementary loan finances (i) cost overruns for the construction of a two-lane highway from Kurundugahahetekma to Pinnaduwa interchange and the Galle access road; (ii) expansion of the highway between Kurundugahahetekma and Pinnaduwa interchange from two lanes to four lanes; (iii) provision of consulting services for construction supervision and project management; and (iv) provision of road safety equipment.
Rationale The Project is one of the Government’s priority projects. Traffic volume between the southern areas of the country and Colombo has increased significantly; travel time between Matara and Colombo is about 4–5 hours. The completion of Southern Highway will significantly reduce travel time and lead to effective movement to and from the southern areas to Colombo. This improved connectivity will contribute to increased economic activities.
The Project has experienced cost overruns, especially due to increases in civil work costs. Contributing factors include (i) price escalation due to delay in completing land acquisition and associated litigations, (ii) undetermined geotechnical and soil conditions, and (iii) increase in value-added tax. Implementation delays due to safeguard compliance issues resulted in delayed handover of the site to the contractor and increased the cost of consulting services, mainly because of the additional time required to supervise construction works. ii
The original Project covers construction of the first two-lanes of an ultimate four-lane highway. However, a six-lane right-of-way was prepared and acquired. The design study indicates that to maintain the service of an intercity highway, the Project will need to be upgraded to four lanes after 2010. This means that upgrading needs to start now.
The expansion to a four-lane highway is justifiable based on the following grounds: (i) traffic demand; (ii) resource savings when the four-lane construction is undertaken simultaneously with finalizing the two-lane construction; (iii) continuity of the four-lane highway from Kottawa to Matara; and (iv) improved road safety.
The proposed activities and components under the supplementary loan are consistent with Government and ADB priorities. Physical changes have been assessed along with their impacts in the context of current ADB policies. A review of safeguards compliance and all steps in the matrix of due diligence have been observed. The Project is technically feasible, economically viable, and financially sustainable.
Impact and Outcome The impact and outcomes of the supplementary loan are in line with those of the Project approved in 1999. It aims to integrate the southern region into the country’s economic mainstream by improving access. The Project will promote economic growth of the southern region by improving access to the more developed Western Province, especially with Colombo and other important facilities such as the international port and airport. By 2010, travel time between Kottawa and Matara will be reduced from 4 to 2 hours. By expanding the Southern Highway to four-lane standard, significant accidents will be avoided.
Project Investment Plan The investment cost of the supplementary loan is estimated at $179.10 million, including taxes and duties.
Financing Plan Total Source ($ million) Percent Asian Development Bank 90.00 50.30 Government 89.10 49.70 Total 179.10 100.00
A loan of $90 million from the ordinary capital resources of ADB will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, and such other terms and conditions set forth in the draft loan and project agreements.
iii
Period of Utilization 30 December 2010
Estimated Project 31 December 2009 Completion Date
Executing Agency Ministry of Highways and Road Development
Implementation The Road Development Authority will continue to implement the Arrangements Project, and the existing project management unit will continue its functions for day-to-day project management.
Procurement The existing civil works contract was restructured to include four- lane construction with reduced road length of 29.2 km, which is the Kurundugahahetekma–Pinnaduwa interchange section, and approximately 5.6 km of Galle access road. The balance of works for the Pinnaduwa interchange–Matara section, including four- lane construction, will be procured by following the Government procurement laws and procedures.
Consulting Services Services of the construction supervision consultant funded by the original 1999 loan will continue until February 2008. Thereafter, additional inputs of about 140 person-months of international consulting and 1,040 of national consulting will be required under the supplementary loan to supervise civil works in Kurundugahahetekma–Pinnaduwa interchange section and Galle access road.
The current management consultant, financed by the Nordic Development Fund, will provide services until the end of 2008. Thereafter, an additional 34 person-months of international consulting and 218 person-months of national consulting will be required under the supplementary loan.
The consultants will be selected using quality- and cost-based selection, and single-source selection, in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time) and the Project’s procurement plan.
Project Benefits and The Project will trigger economic development and job creation in Beneficiaries the hinterlands and on the south coast.
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Risks and Assumptions Timely completion of civil works is at risk if contractor performance is not satisfactory; therefore work programs need to be monitored systematically. Completing all sections of the Southern Highway on schedule is important so that benefits can be directly recognized. The risk is mitigated by using two contract packages and employing two construction supervision consultants and one management consultant.
Another risk involves improper implementation safeguard measures. Although no more land needs to be acquired for the right-of-way, continued implementation of the resettlement implementation plan and strict implementation of the environmental management plan to minimize all potential environmental impacts during construction will be very important to ensure the Project is completed as planned.
Technical Assistance In conjunction with the supplementary loan, technical assistance (TA) is proposed for Land Use Planning of the Southern Highway Corridor. The estimated cost is $375,000, of which ADB will finance $300,000 on a grant basis from the ADB TA funding program. About 6 person-months of international consulting and 20 of national consulting will be required. The consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants.
o o o 80 00'E 80 00'E 81 30'E Kankasanturai i t a r t S Kodikamam
k l a Jaffna P Bay o f Bengal
National Capital Kilinochchi P a l k B a y Provincial Capital Mullaittivu City/Town Tanniyuttu Talaimannar Interchange Mankulam o o Southern Highway Project 7 00'N NORTHERN 7 00'N Road Connected to Interchange Mannar Puliyankulam National Road Vavuniya Gulf of Other Road Mannar Railway Horowupotana Trincomalee River Anuradhapura Provincial Boundary Boundaries are not necessarily authoritative. NORTH CENTRAL Tambuttegama Puttalam Hingurakgoda Kekirawa Welikanda Polonnaruwa Valaichchenai Dambulla EASTERN Batticaloa
NORTH Chilaw WESTERN CENTRAL Negombo Kurunegala Matale Madampe Polgahawela Kandy
Negombo Warakapola Ampara Kegalle Gampaha Gampola Minuwangoda o o Gampaha 9 00'N 9 00'N o Badulla o 9 00'N Nuwara Eliya 9 00'N Colombo Avissawella WESTERN Hatton Talawakele U V A SRI JAYAWARDENEPURA KOTTE Monaragala Avissawella Moratuwa Bandarawela Ratnapura Colombo Wellawaya SRI JAYAWARDENEPURA KOTTE WESTERN Pelmadulla Matuce Kalutara Halangoda Maharagama SABARAGAMUWA Dehiwala Alutgama Makumbura Kottawa Elpitiya Kahatuduwa Ambalangoda Moratuwa Hikkaduwa Akuressa SOUTHERN Hambantota Panadura Gelanigama Galle Tangalle I N D I A N O C E A N Ratnapura PROJECT LOCATION Matara o o JAPAN BANK FOR INTERNATIONAL 80 00'E 81 30'E COOPERATION (Package 1) Kalutara Dodanggoda Agatawatta Matugama
Alutgama Lewanduwa JAPAN BANK FOR INTERNATIONAL SRI LANKA COOPERATION (Package 2) SOUTHERN TRANSPORT DEVELOPMENT PROJECT Elpitiya Kurunduguhahetekma ASIAN DEVELOPMENT BANK (North) (Package 1) Ambalangoda Nagoda Nayapamula SOUTHERN N Hikkaduwa Yakkalamulla Akuressa Pinnaduwa 0 5 10 20 30
Galle Kokmaduwa Kilometers Godagama GOVERNMENT OF SRI LANKA (South) (Package 2) Matara I N D I A N O C E A N
80 o 00'E
08-0425 HR
I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on a proposed supplementary loan to the Democratic Socialist Republic of Sri Lanka for the Southern Transport Development Project. The report also describes proposed technical assistance (TA) for Land Use Planning of the Southern Highway Corridor, and if the Board approves the proposed loan, I, acting under the authority delegated to me by the Board, will approve the TA. The revised design and monitoring framework is in Appendix 1, and the status of project readiness is in Supplementary Appendix A.
II. THE APPROVED PROJECT
2. On 25 November 1999, the Asian Development Bank (ADB) approved the loan for the Southern Transport Development Project (STDP) 1 from its Special Funds resources for SDR64,856,000 (or $90 million at the time of loan signing, and currently $96.4 million). The Loan and Project agreements were signed on 16 December 1999 and became effective on 30 October 2002.
A. Rationale
3. In 1995, the Government, with assistance from the Japan International Cooperation Agency, carried out a master plan study in the southern region to strengthen linkages with the national economy.2 The study found that unemployment rate of the southern region was well above the national average, and its per capita gross regional domestic product was only 69% of the national average. It also found that the region’s development was severely constrained by poor transport links with other parts of the country, in particular with Colombo and the economically dominant Western Province. In 1996, the Government established the Southern Development Authority to oversee implementation of the master plan. At the same time, the Government discussed its options for overcoming the region’s transport constraints with the Asian Development Bank (ADB).
4. ADB provided TA 3 to study options for improving road transport linkages between Colombo and the southern region. The TA concluded that construction of a new highway on an inland alignment is preferable to improving the existing coastal National Highway A2. The A2 improvement was rejected for a number of reasons: (i) insufficient space for widening, as both sides were occupied by extensive commercial and residential development; (ii) improvement of the coastal highway would not provide access to the less-developed and far more poverty-prone hinterland; and (iii) the existing A2 was vulnerable to sea erosion, already requiring substantial and costly correction works.
1 ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Democratic Socialist Republic of Sri Lanka for the Southern Transport Development Project. Manila (Loan 1711- SRI). 2 Japan International Cooperation Agency. 1996. Master Plan Study for Southern Area Development. Colombo, Sri Lanka. 3 ADB. 1997. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for the Southern Transport Corridor Project. Manila (TA 2892-SRI, for $1 million, approved on 9 October). 2
5. ADB’s country operation strategy for Sri Lanka 4 notes the importance of the road network in linking the domestic economy and promoting the decentralization of economic opportunities. It recommends that the road subsector continue to be a priority for ADB involvement, with particular emphasis on improving (i) key transport corridors emanating from Colombo, of which the project highway is of primary importance; and (ii) links between secondary urban centers and rural areas surrounding them. In November 1999, ADB approved a loan for the Project (footnote 1).
B. Objectives and Scope
6. The primary objectives of the Project are to (i) facilitate and act as a catalyst for development in the economically deprived southern region by constructing a new southern highway linking Colombo with Galle, the capital of Southern Province, and Matara; and (ii) produce a sustainable and quantifiable reduction in the country's very high road accident rate. The secondary objective is poverty reduction within the immediate project area, where more than 30% of the population is classified as poor, and within the south of the country generally. The Project has two components.
1. Southern Highway Component
7. Civil Works. The Project includes the construction of the main alignment for the highway, comprising the first two-lane carriageway of an ultimately four-lane, high-capacity, limited-access highway from Kottawa to Matara; and construction of access highways to connect the main express highway to the existing A2 highway and Galle. ADB is financing the southern section (Kurundugahahetekma–Matara) of the main alignment and the access highway to Galle (ADB-financed section). The Japan Bank for International Cooperation (JBIC) is funding the remaining northern part of the highway (Kottawa–Kurundugahahetekma).
8. Consulting Services. ADB is financing the construction supervision consultant (CSC) for the civil works in the ADB-financed section, including design review and monitoring of environmental and social impacts. JBIC is financing similar consulting services for the JBIC- financed section. The Nordic Development Fund (NDF) is financing a management consultant for overall project implementation. The management consultant assists the Road Development Authority (RDA) to coordinate the civil works components of the JBIC- and ADB-financed sections, implement the road safety component, and monitor implementation of land acquisition and social impacts of the Project. The management consultant is also responsible for developing an approach to manage, operate, and maintain the highway.
2. Road Safety Component
9. Civil Works. ADB financed civil works for reducing safety hazards at specific locations as a pilot model on how to prioritize black spot location and to manage black spots from technical and other aspects. The locations were selected and civil works designed by the component’s consulting services.
10. Consulting Services. The component includes (i) preparation and implementation of an action plan to reduce road accidents; (ii) preparation of actions to operate high-speed, access-
4 ADB. 1999. Country Operational Strategy for Sri Lanka. Manila. 3 controlled highways like the Project; and (iii) the purchase of road safety equipment. NDF financed the component’s consulting services. The Swedish International Development Cooperation Agency is financing implementation of the road safety action plan, capacity building, and a road safety audit.
11. Equipment. NDF financed the provision of equipment required for component activities.
C. Cost Estimates and Financing Plan
12. The total cost of the original project was $295.9 million. The cost of the ADB-financed component was estimated at $132.4 million equivalent.5 ADB provided, from its Special Funds resources, a loan of SDR64,856,000 ($90.0 million at the time of loan signing) to finance about 30.4% of the total cost. The loan maturity is 32 years, including a grace period of 8 years, and an annual interest rate of 1% during the grace period and 1.5% thereafter. The Swedish International Development Cooperation Agency provided a grant of $1.0 million equivalent for the road safety component; NDF provided a loan of $6.7 million equivalent for financing management consultant services, the road safety component, and road safety equipment. The Government financed the remaining 26.2% of the project cost or about $37.4 million equivalent. The original cost estimates and financing plan of the ADB-financed component is in Table 1.
5 The estimated cost of the JBIC-financed component was $163.6 million, for which JBIC has provided a loan of $120 million equivalent.
4
Table 1: Original Cost Estimates and Financing Plana ($ million)
Item Total ADB NDF Sida Govt A. Base Cost 1. Land/Resettlement 7.6 7.6 2. Civil Works Southern Highway 70.4 57.0 13.4 Road Safety 2.6 2.1 0.5 3. Consulting Services Construction Supervision 5.3 5.3 Management Consultant 2.2 2.2 Road Safety 3.4 2.4 1.0 4. Equipment—Road Safety 2.1 2.1 5. Incremental Expenditure 0.5 0.5
Subtotal (A) 94.1 64.9 6.7 1.0 21.5 B. Contingencies 1. Physicalb 8.4 6.7 1.7 2. Pricec 27.0 15.5 11.5
Subtotal (B) 35.4 22.2 13.2 C. Interest during Construction 2.9 2.9 Totald 132.4 90 6.7 1.0 34.7 Percentage 100.0 68.0 5.0 0.8 26.2 ADB = Asian Development Bank, Govt = Government of Sri Lanka, NDF = Nordic Development Fund , Sida = Swedish International Development Cooperation Agency. a In December 1998 prices (exchange rate used: $1 = SLRs71.3). b At 10% of base price, excluding land, resettlement, and incremental expenditure. c At 2.4% annually for foreign exchange and 10.0% annually for local currency costs. d Including customs duties and taxes of about 14% of total project cost. Source: Loan 1711-SRI: Southern Transport Development Project RRP.
D. Status and Progress of Project Implementation
13. The approved loan was signed on 16 December 1999 and became effective only on 30 October 2002, after five extensions to enable the Government to fulfill the conditions for loan effectiveness, mainly related to land acquisition and resettlement. The loan closing date was extended from 31 December 2006 to 30 June 2008.
1. Southern Highway Component
14. The contract for the ADB-financed section of the highway was awarded as a single package on 3 January 2003. The original contract price of $87 million was adjusted as of July 2007 to $156.5 million. The original completion period of 40 months until 25 April 2006, was extended to 22 February 2008. The civil works cover (i) the main alignment 59.6 kilometers (km) of the highway and 5.6 km of the Galle access road, (ii) 642 pipe culverts and 63 box culverts, and (iii) 22 bridges including four major bridges. The civil works contract was restructured to include expansion of the carriageway to four lanes and reduction of the length to include only construction of the highway from Kurundugahahetekma to Pinnaduwa interchange including the 5
Galle access road (around 34.8 km). The contract value is now $241 million. The southern section from Pinnaduwa interchange to Godagama in Matara will be expanded to four lanes and be funded by the Government. The contract value of the southern section is around $99 million.
15. The significant delay in project implementation was due to (i) delays in handing over of sites to the contractor because of issues in land acquisition and resettlement of people affected; (ii) complaints and court cases by those affected on environmental and social safeguard issues, which stopped physical works on several occasions; (iii) investigations by ADB's Compliance Review Panel (CRP); (iv) delays in obtaining some government clearances such as environmental clearances for rock blasting; (v) inadequate resources provided by the contractor; and (vi) occurrence of underestimated deposits of soft and unsuitable soil material in the original contract (due to incomplete survey and design at the time of bidding), requiring removal and/or ground treatment. As of the end of October 2007, the overall progress of the ADB-financed section was 71%, equivalent to value of work around $95.5 million.
16. The JBIC-financed section comprises two packages. Package 1, from Colombo (Kottawa) to Dodangoda (34.9 km) was awarded in August 2005 at a contract price of $96 million; in July 2007, the contract price was increased due to price escalation to $120 million for four lanes, with a completion period of 48 months until 18 September 2009. Package 2, Dodangoda–Kurundugahahetekma (31.7 km), awarded on 24 March 2006, was valued at $.83 million for two lanes, and in July 2007, the contract was restructured to cover expansion to four lanes. The contract value after restructuring the civil work contract is now $151.5 million, and the completion period of 48 months ends 23 March 2010.6 As of December 2007, package 1 was 21% complete and package 2 was 9% complete.
2. Road Safety Component
17. The road safety consultants commenced work in February 2002, and completed their assignment at the end of December 2005. They provided assistance to RDA for activities, such as strengthening road safety institutions, conducting road safety audits on existing roads and on the final project design, revising traffic laws and regulations, establishing emergency rescue services, and identifying and designing rectification measures for accident black spots.
18. The Road Safety Unit within RDA and National Road Safety Secretariat were established. The latter coordinates the works of the National Council for Road Safety, which has 17 stakeholders appointed to coordinate implementation of the National Road Safety Strategic Plan. The regulations for a road safety fund are being finalized. It has been gazetted that 1% of the insurance premium for third party motoring risks will be transmitted to the fund.
19. Black spot improvements in 20 areas under six packages in several ADB-financed roads were completed by April 2007.
20. Computer equipment and software for the accident data system as well as equipment for traffic police and equipment were installed by June 2007.
6 The Government has requested JBIC to provide another loan to finance four lanes for this section.
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3. Loan Covenants
21. The compliance status of project loan covenants is given in Supplementary Appendix B. The Project is in substantial compliance with covenants in the Loan Agreement. Almost all of the loan covenants have been either complied with or are being complied with. Two loan covenants have not been complied with: the National Highways Act and the Motor Traffic Act were to be enacted by 31 December 2001. The delay was mostly due to executive and legislative institutional changes. Elections in 2002, 2004, and 2005 further delayed processing of the legislation.
22. Following Cabinet approval, the first draft of the National Highways Act was submitted to Parliament in July 2001. Due to the change of government, the matter was not processed further. Subsequently, the National Highways Act was renamed the Thoroughfares Act. The revised version, cleared by the legal draftsman, has been concurred by the attorney general. The final version will be submitted to Cabinet for approval, and the Government will ensure that the proposed statute is submitted to Parliament by September 2008.
23. The final draft of the Motor Traffic Act was submitted to the Law Commission for final review. The Law Commission has given its concurrence, and the Ministry of Railway and Transport had asked the commissioner of motor traffic to review the draft to ensure that all salient features are included. The draft statute has been submitted to the attorney general for concurrence prior to submission to Cabinet for approval. The Government will ensure that this proposed statute is submitted to Parliament by September 2008.
4. Social and Environmental Safeguards
24. Implementation of the southern highway component has experienced difficulties related to ADB’s social and environmental safeguards policies. In December 2004, the CRP registered a request for a compliance review of the Project. The CRP determined that the request was eligible, and the Board authorized the CRP to conduct a compliance review on the Project. A summary of significant features of the progress on the implementation of social and environmental safeguards of the original loan and CRP’s recommendations follow.
a. Social Safeguards
25. Following completion of the detailed project design, a resettlement implementation plan (RIP) was formulated to address involuntary resettlement impacts of the entire highway from Kottawa to Godagama in Matara, including the Galle access road. In October 2002, ADB approved the RIP prior to loan effectiveness. The acquisition of land and other property for the right-of-way (ROW) for six lanes resulted in the physical displacement of 1,370 households with 6,223 people. About 38% were relocated at 32 resettlement sites, and other physically displaced households (62%) opted for self-relocation. In addition, the Project affected (but not physically displaced) about 5,900 households who live by the ROW of the highway. Some lost part of their cultivated land or homesteads, or both. Others lost employment sources such as sharecropping in rice fields, wage work in small tea and rubber plantations, and small businesses.
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26. All those affected, except some who disputed the amounts payable or where the properties are under joint ownership, received statutory compensation under the Land Acquisition Act and resettlement assistance under the Land Acquisition and Resettlement Committee (LARC) review of the replacement value of acquired property.
27. Although squatters were not compensated under the Land Acquisition Act, they were given LARC assistance. Each squatter household received a piece of land at a resettlement site (the size of which ranges from 10 to 20 perches) 7 , and compensation for their structures acquired at replacement value in addition to other general entitlements listed in RIP; 294 squatter households received land plots and financial assistance to build houses at resettlement sites.
28. To minimize the displacement trauma and ensure that they integrate smoothly and rapidly into their host communities, most resettlement sites were established close to the Project’s affected villages. The housing committee at each resettlement site organizes community work among resettlers, enabling them to evolve as communities that are well integrated into host communities. The housing committee reviews the adequacy of basic site facilities, suggests improvements, and assists vulnerable households in constructing houses and in finding employment in the vicinity. The resettlement sites established a few years ago show a remarkable improvement in common infrastructure, homestead development, water supply, and housing conditions. With the assistance of housing committees and support from RDA and regional development agencies, 31 resettlement sites have been handed over to the local authority and the last resettlement site is expected to reach similar standards and be handed over to the local authority in the second quarter of 2008.
29. The RIP was developed with a broader objective to address socioeconomic impacts of the Project, and to ensure at least the restoration of pre-project household incomes, improvement of living standards and income earning capacity, and production of affected households. In this context, an income restoration program (IRP) is being implemented for affected households. This program began in 2005. Some households that received large sums of money as compensation and LARC assistance and used the money in an unsustainable manner to build spacious houses beyond their means; they now have half-built houses. Others used compensation in various businesses without proper planning and lost their capital. The program initially assists 1,050 affected households, including 266 vulnerable households, headed by women, who moved into RDA’s resettlement sites. However, this program needs to be strengthened to achieve its objectives.
30. The management consultant monitors land acquisition, compensation payments, and relocation. In 2006, comprehensive land acquisition and resettlement audits were carried out to assess the progress of the resettlement program. An independent external monitoring agency was appointed in April 2006 to verify the quality and timeliness of compensation payment, delivery of LARC assistance, and the resettlement process; and to assess whether the Project achieved its goals and the objectives of the RIP. The external monitoring agency used a comprehensive monitoring framework to evaluate the impact of the Project on 400 sample households and in June 2007, reports the following:
7 One perch is equal to approximately 36 square meters.
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(i) RDA has made a good effort to implement the RIP, and has modified some of the recommended practices listed in the RIP to take into account realities that were not known at the time of RIP preparation. (ii) The RIP is too schematic. This has generated some implementation difficulties. It has several biases, namely, cash compensation, housing for the displaced, and rehabilitation of the landless. As a result, although the Project provides compensation-in-kind, as specified in the RIP, to displaced people, in case of acquired agricultural land, the Project has paid cash compensation to those affected. (iii) Success in building new housing to preacquisition or most often better quality in resettlement sites and self-relocated sites is significant. (iv) The detailed processes followed by the LARC to arrive at the replacement value of all acquired property and thereby to ensure that those affected are at least restored to their preacquisition livelihood and income are found to be satisfactory. (v) Nontitled holders and the landless (including squatters) have been recognized for compensation and other resettlement assistance. They have benefited from the resettlement process. (vi) The documentation of the resettlement process needs to be developed in a systematic manner8.
b. Environmental Safeguards
31. The Central Environment Authority (CEA) approved the environmental impact assessment (EIA) on 23 July 1999. CEA’s approval was subject to the highway alignment being partly changed to avoid the Koggala and Madu Gangga wetlands. During preparation of detailed design, this key condition was duly addressed and the new alignment came to be known as the “final trace” of the highway. The engineering consultant prepared the Environmental Findings Report, which basically reported the environmental conditions of the final alignment and potential environmental impacts related to the final alignment. This report, submitted to RDA and ADB in 2000, was not presented as an EIA report for the final trace, mainly because CEA did not require the submission of a supplementary EIA report for the final alignment. This is a major factor that led the CRP to evaluate the Project as noncompliant. The other noncompliance (assessed by the CRP) was based on the absence of the assessment of impact for the Galle access road.9
32. Nonetheless, to comply with the requirements of ADB’s Environment Policy (2002), a supplementary environmental assessment for the final alignment including the Galle access road was prepared to cover sections of the final trace not studied in detail in the 1999 EIA. The summary of the supplementary environmental assessment report, together with the summary EIA for four lanes, was disclosed on 19 April 2007.
33. The first environment management plan (EMP) was submitted to CEA in January 2005 and approved in August 2005. Subsequently, RDA instructed the contractor and construction supervision consultant (CSC) to implement the EMP. The contractor is responsible for
8 The management information system on the implementation of the RIP has been completed and the system has been functional. 9 The Government’s EIA requirement excludes any construction of new roads less than 10 km, and therefore, no environmental assessment was completed for the proposed Galle access road as it is less than 6 km. 9 implementing mitigation measures of environmental impacts associated with the construction works. In 2006, the EMP was updated by incorporating the recommendation from the supplementary environmental assessment for the final alignment and the environmental assessment study for expansion of the road to four lanes. The CEA endorsed the revised EMP on 3 September 2007.
34. Although the procedural requirement in terms of preparation of the environmental assessment studies, and monitoring EMP implementation are in place, the outputs of EMP implementation need to be strengthened. The environmental impacts related to public health due to dust, noise and vibration, stagnant water, disruption of access, and uncontrolled disposal of unwanted materials need to be systematically mitigated. In this context, the CSC is now equipped with environmental experts to supervise and control the contractor’s activities that generate environmental impacts.
c. Compliance Review Panel’s Recommendations
35. In June 2005, the CRP approved a course of actions to bring the Project back to policy compliance. The first annual monitoring of implementation of the CRP recommendations was carried out in June 2006, and its report was disclosed on 11 July 2006. The second monitoring was carried out in November 2007, and its report was disclosed on 27 December 2007. The CRP’s first three recommendations deal with ADB-wide safeguard policy requirements. The remaining recommendations are specific to the Project. ADB’s Board Compliance Review Committee noted considerable progress in the implementation of the CRP’s recommendations. The current implementation status of the course of actions is given in Appendix 2.
III. THE PROPOSED SUPPLEMENTARY LOAN
A. Cost Overrun and Proposed Change of Scope
1. Cost Overrun
36. In project appraisal for the original loan, civil works were estimated to cost $70.4 million based on the feasibility study (footnote 4). The civil works contract was awarded at $87 million. The original loan provides contingencies of $35.4 million, considered sufficient to cover the additional cost of the contract. During implementation, however, additional costs amounting to $69.5 million were observed mainly due to (i) price escalation, (ii) increase in value-added tax, (iii) increase in costs caused by undetermined geotechnical and soil conditions at the site, and (iv) delays in handover of the site to the contractor due to land acquisition and resettlement (LAR) problems. The implementation delay also increased the cost of consulting services. Appendix 3 provides a detailed calculation of the cost overrun.
37. LAR costs increased from $7.6 million to $44 million. The original cost was based on a survey of 20% of the project area completed for the feasibility study. Subsequently, detailed design was prepared taking into account CEA’s recommendation to avoid ecologically sensitive areas. Based on the detailed design, a 100% survey of the affected area resulted in the much higher LAR cost of $44 million. The Government financed the cost, and therefore no financing of LAR is proposed under the supplementary loan. This supplementary loan (SL) will finance cost overruns for construction of the two-lane highway from Kurundugahatekma to Pinnaduwa interchange and the Galle access road.
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2. Proposed Expansion from a Two-Lane to a Four-Lane Highway
38. Under the approved loan, the Project involves construction of the first two-lane carriageway of an ultimate four-lane, high-capacity, limited access highway. In this context, a six-lane ROW for the highway was prepared and the associated land was completely acquired. The civil works were awarded for construction of two lanes and, at present, all bridges have been constructed to cater to a four-lane highway, except for one bridge (bridge no. 20). The expansion to four lanes was anticipated from the initial stage of the preparation of highway construction. The incremental cost for construction of four lanes is estimated at $200.30 million.
39. The civil works for the original ADB section (from Kurundugahahetekma to Godagama in Matara) to complete the two lanes and expand to four lanes will be divided into two contract packages. Package 1 covers the civil works from Kurundugahahetekma to Pinnaduwa interchange and Galle access road, and package 2 covers the civil works from Pinnaduwa interchange to Godagama in Matara. SL will finance 50% of package 1 or approximately $69.25 million; the Government or another cofinancier will finance the rest of package 1, and package 2.
3. Consulting Services and Project Management
40. The construction work will require continuity of the construction supervision and management consultants in helping RDA’s Project Management Unit (PMU) supervise construction and ensure coordination of consultants and contractors. The estimated cost for consultancy services financed under SL is $9.3 million, comprising part of the costs for the management consultant for the whole Southern Highway, and the cost for CSC for package 1. In addition, SL will continue financing the PMU’s incremental expenditures.
4. Road Safety Equipment
41. As the Southern Highway will be the first highway in Sri Lanka, provision of road safety equipment is critical to minimize road accidents. Therefore, SL will cover 50% of the procurement of the highway's equipment comprising (i) an advanced traffic management system to centrally monitor roads; (ii) weigh-in-motion/static weighing platforms to control overloading; (iii) speed-monitoring equipment; and (iv) ambulances, police vehicles and other rescue equipment, and other supporting services to operate the highway. The total estimated cost of the road safety equipment is $4.9 million.
B. Impact and Outcome
42. The impact and outcomes of the supplementary loan are in line with those of the Project as approved in 1999. It aims to integrate the southern region into the country’s economic mainstream by improving access to economic and social opportunities for residents of the region. The expected impact is improved socioeconomic conditions in the southern region. The expected outcomes are increased economic opportunities and social services for southern region residents through efficient road linkages with the capital city and other regions.
43. With the completion of construction of a four-lane highway, the supplementary loan is expected to significantly contribute to improving access from the southern region to Western 11
Province, especially with Colombo and other important facilities such as the international port and airport. It will strengthen efforts to reduce road accidents and significantly reduce travel time.
C. Rationale
44. The Project remains an important backbone of connectivity from the south of the country. Currently, only the A2 highway serves the southern coastal area. It has reached its traffic capacity in many sections and has limited potential for capacity expansion due to development along the road. The Southern Highway is expected to serve the transport needs especially with expansion of Galle Port and also the plan to develop Hambantota port. The Southern Highway will contribute significantly to development of the southern region. ADB’s country strategy and program also focuses on helping the Government improve the transport sector; completing the Project is critical from ADB’s point of view.
45. The Government requested a supplementary loan to complete the Project from ADB’s Special Funds resources. However, due to unavailability, the Government agreed to borrow from ADB’s ordinary capital resources (OCR). Sri Lanka’s economy has recovered quickly from the tsunami. Growth was 6.7% in 2007. The preliminary debt sustainability assessments show that Sri Lanka has the ability to borrow on fully commercial terms. On this basis, a supplementary loan from OCR is appropriate to assist the Government in meeting its required capital for financing a large infrastructure investment.
46. The supplementary loan will cover the cost overrun for continuing construction of the two-lane highway in the Kurundugahahetekma-Pinnaduwa interchange section and Galle access road, its additional expansion to a four-lane highway, provision of construction supervision and management consultancy, and provision of road safety equipment. The loan is justifiable on the following grounds.
1. Traffic Demand
47. The current traffic counts show that overall annual growth rates vary from 5% to 10.7% with an average of 6.8%. The results are higher than the 1998 study used as the basis for the 2000 design study. The 2000 design study indicated that the northern part of the ADB-financed section would need to be upgraded to four lanes between 2010 and 2015 to maintain services in line with an intercity highway.
2. Resource Savings from Construction-Related Works
48. The existing two-lane construction is to be completed by the end of February 2008. If the Government follows the original plan, it would need to embark on large-scale construction work for four lanes and significant time for initiating civil construction works, especially for obtaining all licenses and permits for construction-related works. Therefore, additional time and financing will be needed. The proposed expansion of the highway to four lanes undertaken simultaneously with the two-lane construction will amount to substantial savings in time and cost, and reduce disruption associated with construction activities.
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3. Continuity of Highway
49. The first 35 km of the Southern Highway from Kottawa to Dodangoda is being constructed with four lanes. The remaining JBIC-financed section from Dodangoda to Kurundugahahetekma (31 km) is also currently being constructed as four-lane highway. The first package will be completed by September 2009, and the second by April 2010. Expansion of the ADB-financed section to a four-lane highway will provide a continuous four-lane highway from Kottawa to Godagama in Matara.
4. Improvement in Road Safety
50. Without increasing the ADB-financed section to four lanes and the associated road safety equipment, road accidents are expected to increase as traffic volume increases. A road safety study carried out under the NDF-funded road safety component indicates that increasing this section to four lanes with a divided carriageway will avoid head-on collisions caused by overtaking traffic. About 27 fatal accidents and 55 serious injury accidents are estimated to be avoided each year.
5. Compliance with ADB’s Policy on Supplementary Financing10
51. The proposed activities and components under the supplementary loan (i) are consistent with the priorities of the Government and ADB; (ii) complied with the requirements for assessment of impact due to physical changes in the context of current ADB policies; (iii) technically feasible, economically viable, and financially sustainable; and (iv) complied with the requirements for ADB safeguards policies. All steps in the matrix of due diligence have been observed (including technical, capacity, and institutional assessments, and economic and financial analyses of the revised Project).
D. Policy Safeguard Due Diligence
52. Since the supplementary loan involves a physical change, policy safeguard due diligence, especially for resettlement and environment, was undertaken in accordance with ADB’s safeguards policies.
1. Land Acquisition and Resettlement
53. Resettlement due diligence conducted from May to July 2006 included a detailed consultation program with people who live by the ROW of the ADB-financed highway section. The proposed widening of the highway from two lanes to four lanes may not require any land acquisition or relocation of residents because the proposed additional two lanes fall within the already acquired ROW for the six-lane highway. In the event that any unanticipated land acquisition is required, it will be done as per the approved RIP principles and procedures, and procedure stated in the circular (8 September 2006) issued by the secretary, Ministry of Highways.
10 ADB. 2005. Operations Manual. OM H5 BP and OP: Supplementary Financing. Manila. 13
54. The Project will continue with several resettlement activities such as (i) implementation of the income restoration program (IRP), (ii) provision of special assistance to vulnerable affected people, (iii) issuance of entitlement certificates and resettlement title deeds, and (iv) payment of interest for delayed statutory compensation. The due diligence report (Supplementary Appendix C) outlines the resettlement implementation issues common to both ongoing two-lane construction and proposed additional two lanes. The establishment of the Environment and Social Division (ESD) at RDA with resettlement officers and resettlement assistants will improve monitoring of the resettlement program.
55. The management consultant will continue implementation and monitoring of the RIP and IRP for the Project. The independent external monitoring agency developed (i) a monitoring and evaluation framework, (ii) a reporting framework, and (iii) data collection methodologies. RDA through ESD will ensure the continuation of the internal monitoring of implementation and impact of the RIP and IRP. ESD, therefore, will need to improve its monitoring and evaluation capacity.
56. The proposed widening of the highway from two to four lanes will not trigger ADB’s Policy on Indigenous Peoples (1998).
57. In July 2006, a detailed consultation program (as part of the due diligence) was conducted with 250 affected people living along the ROW in eight divisional secretariats through which the highway is being constructed. The interviewees indicate that they are more concerned with temporary environmental problems arising from construction works such as dust, noise, steep embankments that cause damage to houses, blocked access roads, water logging, and floods than with social issues such as compensation payment, amount of compensation, LARC assistance, and livelihood restoration programs.
2. Environment-Related Aspects
58. The Government, based on its National Environment Act, ensured that the 1999 EIA covered the construction of a six-lane highway, and therefore no EIA is required for expansion to four lanes. However, road expansion from two to four lanes is classified as an “A” project in accordance with ADB’s Environment Policy. Accordingly, an EIA study was undertaken. The summary EIA was disclosed through ADB’s website and circulated to the Board on 19 April 2007. The resulting EMP was submitted to CEA for endorsement and necessary incorporation into the current EMP. CEA endorsed the EMP on 3 September 2007.
59. The environmental due diligence was a two-pronged approach11. Stage 1 is related to the EIA for constructing a two-lane highway on the final alignment and Galle access road. Stage 2 focused on assessing impacts associated with expansion from two lanes to four lanes within the six-lane ROW. The stage 2 study concluded that the construction impacts will be broadly similar to those of stage 1. Construction of four lanes will require another 2 years, and therefore, the environmental impacts associated with construction such as dust, noise, water logging, disruption of access, etc. will continue until the end of 2009. The amount of unsuitable soil that needs to be disposed of will increase by around 400,000 cubic meters.
11 The approach takes into account the 1999 EIA report, environmental findings report, and supplementary environmental assessment for the final trace.
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60. Two consultations on environment-related matters were conducted with people affected. The first consultation during 21–25 May 2006 gathered public concerns on the plan to expand to a four-lane highway. Concerns are mainly related to construction activities such as dust, noise, stagnant water, etc. The second consultation during 13–16 July 2006 discussed the proposed EMP. The public supports the proposed EMP, with the expectation that environmental impacts associated with construction works will be properly mitigated.
61. The EMP will be strictly implemented by all parties: contractor, CSC and PMU. RDA will strengthen its efforts to improve EMP implementation. ESD will be involved in monitoring EMP implementation, taking a role as a monitoring party outside the Project but within RDA. The Environmental Monitoring Committee, chaired by CEA with members from other relevant government agencies and local government, will continue with its role as an independent monitoring party within the Government.
E. Revised Cost Estimates
62. Revised costs for the Project, including those financed by the supplementary loan, are estimated at $448.60 million including taxes and duties (Table 2).
Table 2: Revised Cost Estimatesa ($ million) Original Cost after Additional Cost for Original Reallocation Cost Four Revised Item Cost of Cost Overrun Lanes Total Cost A. Based Cost 1. Southern Highway Component a. Land Acquisition 7.60 7.60 36.60b 0.00 44.20 b. Civil Works 70.40 90.00 64.10 160.00 314.10 c. Supervision Consultant 5.30 9.80 11.20 21.00 d. Management Consultant 2.20 2.20 1.30c 2.80 6.30 e. Project Management 0.50 0.50 0.50 0.50 1.50 f. Environmental Management 0.00 0.00 1.60 0.40 2.00 2. Road Safety Component a. Black Spot Improvement 2.60 2.60 0.00 0.00 2.60 b. Equipment 2.10 2.10 0.00 4.90 7.00 c. Consulting Services 3.40 3.40 0.00 3.40 B. Contingencies 1. Physical 8.40 4.50 2.90 8.50 15.90 2. Price 27.00 6.70 2.50 12.00 21.20
C. Charges 1. Interest during Construction 2.90 3.00 6.00 9.00 2. Commitment Charge 0.00 0.00 0.40 0.40
Total 132.40 132.40 109.50 206.70 448.60 a The revised cost covers the original loan, supplementary loan and government’s contributions. b Paid by the Government. c Financed by the Nordic Development Fund. Sources: Loan 1711-SRI: Southern Transport Development Project RRP, and ADB and RDA estimates 15
F. Investment Plan
63. The total cost to complete the civil works for two-lane highway and expansion to four- lane highway from Kurundugahahetekma to Pinnaduwa Interchange and to complete Galle access road, consulting services, project management, environmental management, road safety equipment, contingencies and other administrative costs is $179.10 million (Table 3). The detailed cost estimates and financing plan are in Appendix 4.
G. Financing Plan
64. The Government has requested a loan of $90,000,000.00 from ADB’s ordinary capital resources to finance the Project’s cost overrun and widening of the Southern Highway. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the draft loan and project agreements. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB.
Table 3: Investment Plan for the Supplementary Loan ($ million) Item Amounta A. Base Cost 1. Civil Works 138.50 2. Consulting Services 10.80 3. Project Management 1.00 4. Environmental Management 2.00 5. Road Safety Equipment 4.90 B. Contingencies b 15.50 C. Financing Charges during Implementation c 6.40 Total (A+B+C) 179.10 a Includes taxes and duties of about $15.7 million, in 2007 prices. b Physical contingencies computed at 5% for civil works and consulting service; price contingencies at 2.4% per annum for foreign exchange cost; and 8% per annum for local currency cost. c Interest during construction was computed at the 3-year forward London interbank offered rate plus a spread of 0.2% and 0.15% commitment charge per annum. Sources: ADB and RDA estimates.
65. The ADB loan will be utilized to finance (i) part of the expenditure for package 1 civil works (cost overrun for the two-lane section and expansion to four lanes from Kurundugahahetekma to Pinnaduwa interchange and Galle access road), (ii) the CSC expenditure for package 1, (iii) part of management consultant expenditure from January 2009, (iv) part of expenditure for road safety equipment, and (v) incremental expenditure for project management. The Government will finance the interest and other costs during construction (Table 4).
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Table 4: Financing Plan for the Supplementary Loan ($ million) Source Total Percentage Asian Development Bank 90.00 50.3 Government 89.10 49.7 Total 179.10 100.0 Sources: ADB and RDA estimates.
66. The Government is now working with potential cofinancier to finance part of the expenditures for package 2 of civil works (cost overrun for the two-lane section and expansion to four lanes from Pinnaduwa interchange to Godagama in Matara) to reduce Government contributions.
H. Remedial Actions
67. The remedial actions to avoid further cost overrun have been implemented based on the comprehensive review mission in August 2006. The agreed action plan between ADB and the Government is being monitored on a monthly basis, especially to increase the productivity of the contractor and the efficiency of the supervision works of the CSC, management consultant, and PMU. Land acquisition, the major cause of delay, is now complete. The geotechnical and soil conditions are better known now. The revised cost estimates are based on detailed design taking into account the terrain conditions and current market price, so no further cost overrun is expected.
68. To improve the Project’s performance, the civil works have been divided into two contract packages. Package 1 involves construction of a four-lane highway from Kurundugahatekma to Pinnaduwa interchange and Galle access road. Package 2 involves construction of highway from Pinnaduwa interchange to Godagama. There will be two separate CSCs to supervise implementation of each civil works contract package. The contractors are expected to concentrate resources to achieve the target completion date.
I. Implementation Arrangements
1. Project Management
69. A project coordinating committee was to be established and chaired by the RDA chairperson. Due to the complexity of the Project, the committee has been chaired by the secretary, Ministry of Highways, which recently was renamed the Ministry of Highways and Road Development (MOHRD). Accordingly, for the supplementary loan, while MOHRD will be the Executing Agency, RDA will continue to be responsible for project implementation. The current PMU will continue its responsibility for day-to-day project management. PMU is headed by the additional general manager of RDA as the project director, assisted by an additional project director, two deputy project directors, five senior and chief engineers, an accountant, and supporting staff. The project coordinating committee, comprising representatives from the External Resources Department, RDA, National Planning Department, JBIC, ADB, management consultant, and CSC will continue to coordinate implementation of both the ADB- and JBIC- financed sections. 17
70. ADB’s Sri Lanka Resident Mission (SLRM) will continue administering the Project. The SLRM will closely monitor the Project's management; participate in monthly project coordinating committee meetings; and ensure quality control, speedy implementation, and rapid assistance to the executing and implementing agencies on procurement, disbursement, and other project implementation matters.
2. Implementation Period
71. The civil works will be substantially completed by 31 December 2009, and the loan will be closed on 30 December 2010. The revised implementation schedule is in Appendix 5.
3. Procurement
72. For the ADB-funded section, procurement of works required under the Project has been undertaken in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time) and the Government’s procurement procedures acceptable to ADB. The procurement plan is in Appendix 6. The expansion of works to add two lanes adjacent to the ongoing works to make four lanes has resulted in technical and operating difficulties for two different contractors to work side-by-side. Therefore, the following arrangements have been adopted:
(i) The existing contract was restructured to include construction of four lanes over a reduced length, covering the first section of the highway, which is from Kurundugahahetekma to the Pinnaduwa interchange, and the Galle access road (package 1); and releasing the construction works for the section from Pinnaduwa interchange to Godagama in Matara (package 2). The negotiation for restructuring the civil works contract was conducted by the Sub-committee on Investment Facilitation chaired by the President of Sri Lanka on 16 July 2007 and approved by Cabinet on 27 December 2007. The existing contract is being amended to reflect the result of the negotiations.
(ii) The balance of works in the second section (package 2), from the Pinnaduwa interchange to Godagama in Matara, including construction of four lanes, will be procured by the Government in accordance with the national law and procedures, or cofinancier’s procurement procedure, if any.
73. For the ADB-financed portion, supply contracts for road safety equipment over $500,000 will be procured using international competitive bidding. Contracts below this threshold will be procured using limited international bidding and/or national competitive bidding for contracts of $100,000–$500,000, and under the shopping method for contracts up to $100,000. Direct purchase/contracting will be used for procurement of road management system software application and training.
4. Consulting Services
74. Management Consultant. The existing management consultant, financed by NDF, will continue its service until the end of 2008. Thereafter, an additional 34 person-months of international consultants’ and 218 of national consultants’ inputs will be required under the supplementary loan. The consulting team will be engaged following QCBS procedures in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to
18 time). The terms of reference for the management consultant are outlined in Supplementary Appendix D.
75. Construction Supervision Consultant. The existing CSC, financed under the approved Project, will continue its service until February 2008. Under the supplementary loan, additional inputs of about 140 person-months of international consultants and 1,040 of national consultants will be required. The consultant will be recruited using single-source selection procedures in accordance with ADB’s Guidelines on the Use of Consultants. The current CSC is responsible for (i) preparing the detailed design of the four-lane highway, (ii) assisting RDA in negotiating contract restructuring, (iii) assessing the remaining works of the second section, and (iv) preparing bidding and contract documents for both the first and second sections. The terms of reference for the work to be financed by the supplementary loan are a natural continuation of previous and ongoing work by the existing CSC. Therefore, extending the services of the existing CSC consultant, for supervising the completion of the construction works under the supplementary loan is in the Project’s best interest. This approach will ensure technical consistency and oversight continuity, minimize required consulting inputs, and minimize liability risks. Also, given the historical issues of soil conditions, rock cuts, and complexity of the construction contract’s terms and conditions, continuity of the CSC is critical and presents a clear advantage over a new competitive selection. The modified terms of reference are in Supplementary Appendix E.
5. Retroactive Financing
76. To ensure continuity of the works and minimize disturbance, the Government may need to fund expenditures before the supplementary loan is approved. It has requested retroactive financing to finance the civil works prior to provision of the proposed supplementary loan. The Government has agreed that (i) the procurement procedures are to be in accordance with ADB’s Procurement Guidelines and Guidelines on the Use of Consultants; (ii) the expenditures to be retroactively financed will not exceed 20% of the proposed supplementary loan and will not be incurred more than 12 months prior to the execution of the loan agreement; and (iii) any concurrence by ADB with the procedures, documentation, or proposal for award does not commit ADB to finance the project until the Board approves the proposed supplementary loan.
6. Anticorruption Policy
77. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government, MOHRD, and RDA. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project.
78. ADB’s midterm review of the original loan found no indication of any potential fraud or corruption. The Government will continue to ensure that the project funds are utilized effectively and efficiently to implement the Project and to achieve its objectives. The Government will ensure that RDA (i) discloses contract awards on its website, (ii) undertakes necessary 19 measures to create and sustain a corruption-free environment, (iii) ensures that the Government’s Anticorruption Law and ADB’s Anticorruption Policy are strictly enforced and are complied with during project implementation, and (iv) conducts periodic inspections on the project contractor’s activities related to fund withdrawals and settlements. The Government will cooperate with any audit and investigation, as discussed and agreed upon, and extend necessary assistance, including access to all relevant books and records as well as engagement of independent auditors and experts that may be needed for satisfactory completion of such audits and investigations.
7. Disbursement Arrangements
79. The supplementary loan will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). The civil work contracts, consulting services, and road safety equipment will be disbursed using ADB’s direct payment procedures.
80. The original loan was funded from ADB’s Special Funds resources, and therefore, both Special Funds and OCR resources will be available for the Project. The original loan will be disbursed first until fully committed; the PMU will facilitate this. The original loan will at all times and in all respects be held, used, committed, invested, or otherwise disposed of entirely separate from the OCR loan from ADB.
81. The current imprest account for the 1999 loan, which was originally used for disbursements for black spot improvement and incremental expenditure of the PMU, will be continued to cover only disbursement of incremental expenditure of the PMU since the road safety component of the original loan has been completed. Once the 1999 loan is fully committed, a new imprest account for the OCR loan will be established for disbursement of incremental expenditure of the PMU. The initial advance to the new imprest account will be 6 months of the estimated expenditure to be paid through the new imprest account or 10% of the OCR loan amount, whichever is lower. ADB’s statement of expenditure may be used to either reimburse or liquidate the imprest advance up to a ceiling of $50,000.
8. Accounting, Auditing, and Reporting
82. RDA and its PMU will continue to maintain separate project accounts. These statements will be audited annually in accordance with sound auditing standards by an independent auditor acceptable to ADB. The audited reports and financial statements are to be submitted to ADB not later than 6 months after the end of each fiscal year. To reach the target, RDA will submit the unaudited reports and financial statements to the auditor general within 3 months after the end of each fiscal year. The imprest accounts and statement of expenditures will be audited as part of the regular annual audit. The auditor’s opinion of the examination of the imprest account and statement of expenditures will be separate in the auditor’s report. RDA has been made aware of ADB's policy on delayed submission and of the importance of satisfactory and acceptable quality of audited reports.
83. The current reporting arrangements will be continued. The management consultant will provide MOHRD, RDA, JBIC, and ADB with brief monthly progress reports based on detailed reports prepared by the CSCs of both the ADB- and JBIC-financed sections. When the Project is complete, the PMU, assisted by the management consultant and CSCs, will prepare a project completion report in a format acceptable to MOHRD, JBIC, and ADB.
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9. Project Performance Monitoring and Evaluation
84. Within 3 months of the effectiveness of the supplementary loan, the current benefit monitoring and evaluation system will be improved to a project performance monitoring and evaluation system based on the design and monitoring framework (Appendix 1) in consultation with ADB. Within 6 months of effectiveness of the supplementary loan, the first survey will be carried out in accordance with the new system. RDA will propose key indicators, and data will be compiled in a format developed in consultation with ADB.
10. Project Review
85. Project reviews will be conducted twice a year to ensure effective project implementation. RDA will monitor project implementation and keep ADB informed of any significant problems that may result in the schedule not being met. ADB will field a project completion review mission 1 year after project completion.
IV. TECHNICAL ASSISTANCE
86. A TA for $300,000 will be financed on a grant basis by ADB’s TA funding program for Land Use Planning of the Southern Highway Corridor. The TA will plan land use and a spatial pattern of development along 1.5 km on each side of the project highway. The Urban Development Authority will implement the TA in close consultation with MOHRD. The overall objectives of TA are to (i) prepare a long-term corridor development plan to guide and regulate future growth of the Southern Highway Corridor, (ii) set out appropriate strategies to implement the long-term objectives of the Corridor Development Plan and facilitate implementation of priority projects, (iii) identify priority projects and prepare prototype project proposals for intersection area development, and (iv) facilitate implementation of priority projects. Details on the TA and its costs are in Appendix 7.
87. A team of consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants. The TA will be implemented in 12 months starting in June 2008, with input from an international urban/regional planner consultant for 6 person-months, and 20 person-months of national consultants comprising an urban/regional planner, to act as deputy team leader; infrastructure engineer; sociologist or socio development specialist; environmental planner; and economist.
88. The Government will provide office space, and counterpart staff will be assigned to work closely with the consultant team.
V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS
A. Economic Aspects
89. The economic analysis was carried out for construction of the four-lane highway. The approach follows standard practice of comparing life-cycle road agency and user costs with and without the Project. The Highway Development and Management Model HDM-4 was used as the basis for the analysis, which focuses on transport cost savings. Value added from better transport links resulting in new industries and employment is not quantified in this analysis but is 21 captured through benefits to generated traffic. The summary of the economic analysis is in Appendix 8.
90. The analysis follows the same approach as was followed when appraising the original Project, with updating of the following aspects: (i) traffic growth rate revised upward based on the economic growth outlook, eastward development of Colombo, and past traffic growth trends; (ii) vehicle operating costs updated considering the substantial increase in fuel costs compared with other components of vehicle operating costs; and (iii) vehicle operating cost savings to local traffic on A2 considered similar to those for long distance traffic on A2. In addition, incremental benefits of four lanes were taken into account, comparing it with two lanes based on better service, which includes (i) higher traffic diversion, (ii) greater time saving, and (iii) more generated traffic for four lanes. The cost estimate is based on the most recent restructuring negotiations for the current contract, including the cost overrun element of the contract.
91. The economic internal rate of return was calculated as 15.3%. The sensitivity of economic internal rate of return for the project roads was analyzed with respect to changes in the benefit and cost streams. The following sensitivity test cases were examined: (i) cost increases by 15%, (ii) no benefits to local traffic, (iii) traffic growth rates reduced by 25%, (iv) generated traffic reduced by 50%, (v) accident reduction benefits reduced by 50%, and (vi) overall benefits reduced by 15%. The results show that the quantified economic benefits are robust to various sensitivity tests.
B. Financial Sustainability
92. RDA will incur maintenance costs comprising operating cost, routine maintenance, and periodic maintenance. The annual maintenance cost without periodic maintenance will amount to $2 million, or about 5% of the MOHRD budget for road maintenance for 2007. The maintenance costs will be required after project completion in 2010, and the first periodic maintenance will be required in 2017. Considering the trend in recent years, maintenance funds are expected to be available to meet these new costs.
C. Environmental and Social Aspects
93. The review of environmental impacts related to the expansion of the two-lane highway to four lanes indicates that the environmental impacts of the construction will be broadly similar to construction of a two-lane road. However, an additional construction time of around 2 years will be required, and therefore, the environmental impacts associated with construction such as dust, noise, water logging, disruption of access, etc. will continue until 2009. The amount of unsuitable soil that needs to be disposed of will increase by around 400,000 cubic meters. The environmental impacts related with the operation will include increasing noise and air pollution.
94. The mitigation measures recommended by the EIA that have been incorporated in the revised EMP need to be properly enforced and monitored. Requirements to implement mitigation measures during construction have been incorporated in the civil works contract addendum. RDA will continue to be responsible in implementing the overall EMP and monitoring the implementation of mitigation measures during construction and operation of the highway.
95. Although the EIA did not cover the potential environmental impacts associated with induced development along the highway, some environmental impacts could be result from
22 changing land use. The attached TA will develop a land use plan for the Southern Highway Corridor to provide rule and order to, among other things, avoid or minimize environmental impacts associated with changing land use.
96. The recommendations from the social due diligence and EIA will facilitate project implementation, especially to address environmental and social impacts related to construction works.
97. Since the supplementary loan does not change the original project objectives, the Project is still expected to contribute to poverty reduction in Southern Province, especially in Galle, Hambantota, Kalutara, and Ratnapura districts. The Project will continue to provide equal opportunities for women and men. In addition, it will provide measures for preventing the spread of sexually transmitted disease and HIV/AIDs. Since this highway will be the first high-speed highway in Sri Lanka, a comprehensive public information campaign on highway use needs to be systematically conducted. In addition, the recommendations from the changes in land use study need to be adequately disclosed to the public, enabling them to practice appropriate land use control mechanisms along the highway, particularly at interchanges. The summary poverty reduction and social strategy is in Appendix 9.
D. Risks
98. Civil society has been extremely interested in the development and construction of the Southern Highway. RIP implementation needs to be systematically implemented and any unexpected impacts mitigated as quickly as possible. In addition, strict enforcement of EMP implementation is necessary to avoid complaints from affected people, which could delay completion of construction. The contractors will need to strengthen and show their seriousness in implementing the EMP and addressing environmental problems associated with its activities. Paying compensation for disturbances due to their activities will not be adequate; the contractors need to mitigate environmental impacts from their activities.
99. Timely completion of civil works is also at risk if the contractors’ performance is not improved. The work programs need to be monitored systematically and contract obligations strictly enforced.
100. All sections of the highway should be completed as it was scheduled, allowing the benefits to be directly recognized. The benefits and positive impacts of the Project will materialize, assuming that complementary external assistance and the Government’s commitment to developing the national road network and economic infrastructure will continue.
VI. ASSURANCES
101. In addition to the specific covenants set forth in the Loan Agreement (Special Operations) and the Project Agreement, both dated 16 December 1999, the Government, MOHRD, and RDA, have given the following assurances, which are incorporated in the legal documents.
102. Environment. The Government will cause MOHRD and RDA to ensure that
(i) the Project is designed, constructed, implemented, and maintained in 23
accordance with the Government’s National Environmental Act. No. 47 of 1980, as amended, and ADB’s Environment Policy (2002); (ii) the revised EMP is implemented in accordance with its terms so that all adverse environmental impacts during construction and operation of the project highway are mitigated; and in the event of any unanticipated adverse environmental impacts, such impacts are reported to CEA and ADB, and remedial actions taken to mitigate the impacts in consultation with the affected persons, CEA, and ADB; (iii) necessary staff and resources are provided to the environmental monitoring committee and ESD to enable it to review, audit, and monitor implementation of the EMP; (iv) contractors and supervision contractors are provided with the approved EMP, EIA, and summary EIA; and the contractors implement the required mitigation measures as described in the EMP in a satisfactory manner, and report on the implementation of the EMP on a regular basis, along with any deviation from the EIA; and (v) the management consultant submits a monitoring report every 6 months to ADB and to the environmental monitoring committee through CEA.
103. Resettlement and Social Development. The Government will cause MOHRD and RDA to
(i) implement the findings and recommendations of ADB's due diligence report dated August 2006 on the involuntary resettlement process; (ii) fully implement the IRP and strengthen the management information system by taking into account recommendations from the gender study and the independent external monitoring agency, expeditiously complete the infrastructure facilities at the last one resettlement site, and hand this over to the local authorities by June 2008; (iii) promptly provide new title deeds for the allotments at the resettlement sites and entitlement certificates to all affected persons whose properties were acquired under the Project; (iv) in the event of any additional land acquisition during construction works, submit an addendum to the RIP for ADB approval, disclose it to the affected persons, and fully compensate the affected persons according to the RIP, prior to continuing with follow-up construction works in the relevant section; (v) in an exceptional or unforeseen situation, such as a landslide during construction that may endanger life, residences and other structures, relocate the affected persons immediately and inform ADB, and ensure that they are fully compensated and resettled, if required, soon thereafter according to the RIP; (vi) deposit promptly with the local court, any statutory compensation and resettlement assistance, which is yet to be paid to affected persons due to reasons such as joint ownerships or disputed claims; (vii) in the event of any mishap or accident at the project site, ensure that the party responsible for the accident will compensate the affected person in a prompt, equitable, and transparent manner; and (viii) provide necessary staff to ESD to enable it to review, audit, and monitor the implementation of the RIP and IRP.
24
104. Thoroughfares Act and the Motor Traffic Act. The Government will ensure that the Thoroughfares Act (earlier known as the National Highway Act), and the Motor Traffic Act, are approved by Cabinet, and submitted to Parliament by September 2008, and will thereafter secure early enactment of the two laws.
105. Midterm Review. The Government will ensure that the recommendations of the midterm review of the original loan undertaken by ADB are implemented, and that the action plan is reviewed and monitored by the Project Coordination Committee.
106. Project Performance Monitoring and Evaluation System. Within 3 months of the effectiveness of the supplementary loan, the Government will adopt the project performance monitoring and evaluation system based on the revised design and monitoring framework in consultation with ADB.
107. Cofinancing. In the event the Government receives cofinancing for civil works in the Government-financed section of the highway, the Government will cause the cofinancier’s acceptance of the EMP, RIP, and IRP, and unified approach to implementing and monitoring the all sections of the Project, and cause such cofinancier to reach a suitable understanding with ADB.
108. Counterpart Funds. The Government will make available the funds, facilities, services, and other resources as shall be necessary or required, for timely completion of the Project, and shall furnish to ADB, promptly at its request, evidence satisfactory to ADB that such funds, facilities, services, other resources are available for purposes related to the Project.
VII. RECOMMENDATION
109. I am satisfied that the proposed supplementary loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve
(i) the major change in scope, as described in paragraphs 36-41; and (ii) the supplementary loan of $90,000,000 to the Democratic Socialist Republic of Sri Lanka for the Southern Transport Development Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years, and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.
Haruhiko Kuroda President
13 February 2008 Appendix 1 25
REVISED DESIGN AND MONITORING FRAMEWORK
Data Sources/ Performance Reporting Design Summary Targets/Indicators Mechanisms Assumptions and Risks Impact Expansion of 1. Contribution of the southern 1. Department of Assumption: economic region to the national Census and Economy remains stable opportunities and economy will increase. The Statistics and environment is improvement of GDP of the Southern conducive to economic socioeconomic Province was growing at 3% growth. conditions of the and the growth rate at people in the national level was 4.5% in 2. Department of southern region 1999-2000. It is expected Census and that the growth rate of Statistics: Southern Province will be Quarterly labor equal to the growth rate at market surveys the national level in 2013.
2. Rate of unemployment in the southern region will reduce from around 19% in 1999, and 9% in 2006 to be at least equal to the national unemployment rate in 2013.
3. Proportion of people in poverty in the Project area was 33% in 1996, and is expected to decline to 20% in 2013 Outcome 1. Operation of the Travel time between Colombo RDA (Planning Assumption: highway and Matara reduced from 4-5 Division) annual The Motor Traffic Act and hours to 1.5 -2.0 hours by report Thoroughfares Act will be 2010 enacted prior to operation of the highway. Fatal accident rate on A2 which is 360 per 1 million vehicles will be reduced at least by 10% in the first year operation of highway, and expected to continue to reduce in the following years to reach 50% by 2013.
2. Increased Membership of Board of Board of Assumption: economic Investments of industries and Investments reports MOHRD and UDA opportunities for commercial enterprises coordinate with each other residents in the continually increases to implement special zone southern region development areas along through efficient Number of commercial UDA/local authority the highway. road connectivity establishments within 1.5 km records with the capital city of side of the highway and other regions continually increases
26 Appendix 1
Data Sources/ Performance Reporting Design Summary Targets/Indicators Mechanisms Assumptions and Risks Socioeconomic conditions of Direct field survey Assumption: the four villages (Godagama, during construction Other resource inputs Kabaragala, Paraduwa, and operation of affecting the improvement Yaddehimulla) used as the highway in close of socioeconomic sampling baseline in 1999 will consultation with conditions of these four improve especially on access Department villages could be identified. to health, education and social Census and services, transportation, and Statistics employment.
Outputs 1. A four-lane Construction completed by 2010 RDA’s project Assumptions: limited access performance The contractors perform highway from management satisfactorily without Kottawa to Matara Basic road safety equipment in system delaying the works to meet and the Galle place by 2010. Around 100 staff the agreed completion access road are for maintenance posts, rescue date. operating. and emergency posts are assigned. MOHRD and RDA are effective in leading the contractors to complete civil work construction as scheduled.
Continue commitment on the counterpart budget
2. Interchange By the first quarter of 2009: TA report Assumption: development area • zoning and guidelines for UDA report Effective coordination as a growth center zoning formulated, and between MOHRD and • at least three interchange RDA’s project UDA and supervision of development plans as performance the TA consultants centers of growth management ensures timely TA completed. system implementation.
By 2010: Emergency response booths/posts are available at each interchange. The rescue and emergency staff are assigned
3. Incomes, By 2009: The income Memorandum of Assumption: employment, and restoration program is understanding Effective RDA supervision living conditions of completed and all resettlement between RDA and of implementation of the affected sites are handed over to local local authorities income restoration households are authorities by the first quarter of program and completion of restored or 2008. construction. RDA improved provides all required basic infrastructure at remaining resettlement site.
Appendix 1 27
Data Sources/ Performance Reporting Design Summary Targets/Indicators Mechanisms Assumptions and Risks 4. Public At least 1 month prior to Brochure/leaflet Assumption: awareness opening the highway: (i) a about operation of Coordination between campaign on leaflet on what to do and not to highway available RDA and MOT for operation and use do on the highway is distributed for the public administrative regulation of of the highway to the public, and (ii) wide transport sector is media information campaign is effective. conducted.
Activities with Milestones Inputs ($'000)
1. Civil works
1.1. Package 1: 1.1. The Government: Contract variation completed and approved by ADB January 2008 $89.1 million, and ADB Construction completed by September 2009 loan: $90 million
1.2. Package 2: 1.2. The Government will Construction completed by third quarter 2010 provide $ 99.20 million
2. Consultants 2.1 Construction supervision consultant: package 1 in place by March 2008 2.1. ADB loan: $8 million
2.2. Management consultant: phase 2 in place by January 2009 2.2. the Government will provide $1.5 million and ADB loan: $1.3 million
3. Technical assistance 3. ADB TA grant: $300,000 TA commenced by June 2008 and completed by May 2009 and Government
contribution: $75,000 in
kind
4. Supporting facilities and others 4.1 Interchange development plan approved by UDA, third quarter 2009 4.2 Income restoration program completed by 2009 4.3 Hand over 32 resettlement sites to local authorities by second quarter 2008 4.4. Construction of emergency response booth completed by the end of 2010 4.5 Leaflet for operating the highway distributed or submitted to the public starting fourth quarter 2009
ADB = Asian Development Bank, GDP = gross domestic product, MOHRD = Ministry of Highways and Road Authority, MOT = Ministry of Transport, RDA = Road Development Authority, TA = technical assistance, UDA = Urban Development Authority.
28
RECOMMENDATIONS OF THE COMPLIANCE REVIEW PANEL: IMPLEMENTATION STATUS 2 Appendix Loan 1711-SRI (SF): Southern Transport Development Project December 2007
Compliance Status Compliance Status Determined by the Determined by the CRP CRP Future Actions Recommended by CRP Item CRP Recommendations (11 July 2006) (27 December 2007) on 27 December 2007 Para Review selected road projects as to Not complied with Complied with The final version of the report is to be 267 how changes of scope may make posted in the ADB website. (i) the application of environment and resettlement policies difficult
Para Review co-financing arrangements Not complied with Complied with The final version of the report is to be 267 in selected projects to determine if posted in the ADB website. (ii) such arrangements have a damaging effect on policy compliance for the whole project, and make recommendations to strengthen policy compliance for these projects Para Develop additional guidance for Not complied with Not complied with CRP noted that Management has been 267 ADB’s Handbook for Resettlement: working to update the Handbook, and CRP (iii) A Guide to Good Practice dated report stated that compliance will be 1998 for staff to develop major reached when the Handbook is revised to infrastructure projects with include the guidance in the CRP borrowers have little or no recommendations. comparable project experience, especially in category “A” projects. The revision of this Handbook is ongoing The guidance should particularly and is expected to be completed in 2008, address the issues of implementing after the completion of the Safeguard Policy agencies having adequate Update. institutional capacity and resources in carrying out monitoring resettlement and ensuring that appropriate legislation is in place to carry out such arrangement
Compliance Status Compliance Status Determined by the Determined by the CRP CRP Future Actions Recommended by CRP Item CRP Recommendations (11 July 2006) (27 December 2007) on 27 December 2007 Para Provide the CRP, with a copy to the Complied with Complied with Continue monitoring and sharing the 267 Board, by 31 August 2005, a course progress reports with CRP regularly. (iv) of action with timelines on implementation of these measures for the CRP’s monitoring and reporting to the Board. Para Assess the environmental impacts Partially complied with Complied with 268 of the Galle access road (GAR) and (i) any stretch of the ADB section on the Final Trace (FT) different from the combined trace (CT) including consulting project-affected people (AP). Para Ensure the incorporation of the Not complied with Complied with 268 environmental impact assessments (ii) and the recommended mitigation measures of any stretch of ADB section on the FT different from the CT and of the Galle access road in the Environmental Management Plan (EMP) for the Project.
Para Review the cofinancing Not complied with (based Complied with 268 arrangements in the Project with a on conclusion para 41) (iii) view to strengthening policy compliance for the whole Project. Para Conduct an analysis of gender partially complied with Complied with A continued monitoring of the 268 issues on the Project and ensure implementation of recommendations from (iv) that the programs under the Project Gender Analysis Report has been part of 2 Appendix adequately address these gender the routine monitoring subject. issues. 29
30
Compliance Status 2 Appendix Compliance Status Determined by the Determined by the CRP CRP Future Actions Recommended by CRP Item CRP Recommendations (11 July 2006) (27 December 2007) on 27 December 2007 Para Require that all AP be fully Not complied with Not complied with There is no specific action required by CRP 268 compensated by actual payment to change the status from “Not Complied (v) before they are moved. With” to “Complied With”. However, the following actions will be undertaken: (i) To continue monitoring the implementation of the payment of compensation to AP and handle outstanding case on payment of ex- gratia in ADB, and Japan Bank for International Cooperation site (ii) To ensure that APs in resettlement sites receive their new title deeds (iii) To ensure that any additional property acquisition should be properly done
Para Determine whether or not there has Not complied with Partially complied with ADB Management approved determination 268 been a change of scope in the of change in scope in December 2006. The (vi) Project, as provided in Project Summary SEA was disclosed on 19 April Administration Instruction 5.04. 2007. The addendum to Resettlement Plan was disclosed in the ADB website on 17 July 2007, and to affected people through the RDA website on 11 October 2007. The paper on change in scope due to change in alignment is submitted to the Board for approval at the same time of the submission of Board Paper on Supplementary Loan.
Para Assist in the IRP and the Not complied with Partially complied with The CRP report stated that full compliance 268 establishment of household will be achieved when the MIS is functional (vii) benchmarks through the and when the implementation of IRP is Management Information System assessed by CRP to be effective in meeting (MIS) for the AP as called for in the its objective. Resettlement Implementation Plan (RIP). The MIS has been improved continually by ensuring that data in the MIS is reflecting the data from project regional office and
Compliance Status Compliance Status Determined by the Determined by the CRP CRP Future Actions Recommended by CRP Item CRP Recommendations (11 July 2006) (27 December 2007) on 27 December 2007 consistent with data from External Resettlement Monitoring (ERM). Para Ensure that full project information, Partially complied with Complied with Under the SSTA on Strengthening the 268 especially the essential elements of Environmental Management of Project, (viii) the RIP, be provided in an ADB will assist RDA in improving its appropriate language to each disclosure system. This is in line with the affected household, rather than CRP's recommendations that urges simply making it available at district Management to assist RDA in updating the offices. website. Para Help establish well-staffed Partially complied with Partially complied with The consultant that undertakes the role of 268 monitoring of resettlement activities independent monitoring will continue its (ix) by an independent institution, works until the completion of the Project. forwarding concerns to RDA for urgent actions from AP.
Para Require immediate provision of Partially complied with Complied with One resettlement site is due to be handed 268 utilities and infrastructure to over to local authority by the second quarter (x) resettlement sites. of 2008. Para Require a special emphasis in the Partially complied with Complied with 268 RIP and the income restoration (xi) program for women, if necessary by allocation of additional staff to track their recovery as AP. Para Assist in the preparation of a Not complied with Not complied with The CRP is of the view that the BME should 268 detailed project framework for not focus only on macroeconomic but that it (xii) benefit monitoring and evaluation should include the assessment of the socio- (BME) activities to include outputs, economic impacts on the target indicators of achievements, and beneficiaries and economic development of
means of verification of social the project area as a whole. In addition, 2 Appendix issues. CRP has concerns regarding funding to collect data for BME. To ensure compliance with the CRP’s recommendation, the Design Monitoring Framework (Appendix 1) has been designed not only to include the macro indicators but also using data 31 compiled from the field survey to compare
32
Compliance Status 2 Appendix Compliance Status Determined by the Determined by the CRP CRP Future Actions Recommended by CRP Item CRP Recommendations (11 July 2006) (27 December 2007) on 27 December 2007 with the original socio-economic data used in 1999 study. Para Assist in the preparation of an Not complied with Partially complied with CRP was informed that data in the inventory 268 additional assessment of project of losses is available as baseline for BME (xiii) beneficiaries along the FT to along the FT for both ADB and JBIC section establish baseline information for of the Highway. BME activities. The BME will be updated with the Design Monitoring Framework (DMF) for the supplementary loan. Para Update the Project Profile (PP), or Complied with Complied with 268 its equivalent by the Project (xiv) Information Document on the ADB website, where the latest posting is 15 March 2000, at least on a monthly basis with full information for all categories, until the Project is brought into compliance. Para Provide the CRP, with a copy to the Complied with Complied with 268 Board, by 31 August 2005, a course (xv) of action with timelines on implementation of these measures for the CRP’s monitoring and reporting to the Board.
ADB = Asian Development Bank, AP = affected person, BME = benefit monitoring and evaluation, CEA = Central Environment Authority, CEPA = Center for Poverty Analysis, CRP = Compliance Review Panel, CT = combined trace, EIA = environmental impact assessment, EMP = environmental management plan, FT = final trace, GAR = Galle access road, IRP = income restoration program, JBIC = Japan Bank for International Cooperation, MIS = management information system, RETA = regional technical assistance, RIP = resettlement implementation plan, SEA = supplementary environmental assessment, SSTA = small-scale technical assistance. Source: ADB. 2007. Compliance Review Panel Annual Monitoring Report 2006-2007. Manila. Appendix 3 33
COST OVERRUN
1. The increased cost to complete the original scope of the Project, which is to construct a two-lane highway, is mainly due to increases in construction works. Additional costs for managing the Project contribute only 3% of the cost overrun. The increase in supervision consultant costs were covered by reallocating the contingencies from the original project costs.
2. The approved civil works contract was $87 million. The forecasted project cost for the original contract is estimated to be $156.6 million, including provisional allowance of $15 million for claims. The summary of the calculation on cost overrun is in Table A3.
Table A3: Summary Calculation of Cost Overrun ($ million)
Cost Original Contract Price Revised Costs Overrun Cost of works (without contingencies 85.40 Cost of works (without 130.40 45.00 but including price escalation of contingencies but $2.50 million, including value-added including price escalation tax of about $7.40 million) of $2.5 million)
Claims 0.00 Claims 15.00 15.00 Value-added tax 14.00 6.60 Contingencies 3% 1.60 Contingencies 4.50 2.90 87.00 156.50 69.50 Source: Roughton International, Monthly Progress Report No. 54, July 2007.
A. Increased Cost of Works
3. The increased cost of works is mainly due to undetermined geological and soil conditions; and price escalation due to increased prices of bitumen, cement, steel, fuel, and human resources.
4. The geological and soil conditions significantly increased the required earth works and resulted in unexpected costs for replacing soft soil. The total cost of earth works increased from $35.85 million to $49.50 million. This mainly reflects the increased amount of soil to be excavated and preparation of the embankment, including pile embankment; and increased cost for construction of major bridges and concrete underpasses, and for general items such as operating vehicles.
5. The price factors contributing to cost escalation are increased cost of construction materials in the international market resulting in increased prices in the local market, and the post-tsunami construction boom. The data from the Institute of Construction Training Development shows that the price of steel increased by 120% during 2001–2006, while fuel increased by approximately 100%. Increases in the price of cement have been more moderate, at approximately 45%. Labor costs significantly increased over the past 5 years ranging varying between 50% (skilled labor) and 63% (unskilled labor).
34 Appendix 3
B. Claims
6. The contractor has submitted 618 claims to date for both time and additional costs; 96 have been converted to variation orders. The total value of claims including additional sums claimed under variations now stands at $11.4 million. Aside from the variation orders, the engineer has certified an eligible claim for $1.8 million. The outstanding claims are now being processed by the Dispute Advisory Board.
C. Value-Added Tax
7. The original contract was awarded when the value-added tax was 10%. To obtain the contract price, the tax was applied to all pay items in the bills of quantity, except the provisional sums. On 1 January 2004, the value-added tax was increased to 15%. The contract permits any retrospective increase in taxes to be refunded to the contractor on proof of payment. The increase in the value of the contract is therefore zero, but the payment and reimbursement of the taxes will increase to $6.60 million.
DETAILED COST ESTIMATES AND FINANCING PLAN FOR SUPPLEMENTARY LOANa
($ million)
Cost overrun Four-laning Total ADB Government for 2-lane Incremental $ million % $ million % A. Base costsb 1. Civil worksc 40.10 98.40 138.50 69.25 50.0% 69.25 50.0% 2. Supervision Consultant 8.00 8.00 8.00 100.0% 3. Management Consultant 2.80 2.80 1.30 46.4% 1.50 53.6% 4. Project Managementd 0.50 0.50 1.00 1.00 100.0% 5. Environmental Management 1.60 0.40 2.00 2.00 100.0% 6. Road Safety Equipment 4.90 4.90 2.45 50.0% 2.45 50.0%
B. Contingenciese 1. Physical 2.00 4.75 6.75 3.50 51.9% 3.25 48.1% 2. Price 1.50 7.25 8.75 4.50 51.4% 4.25 48.6%
C. Chargesf 1. Interest during construction 6.00 6.00 6.00 100.0% 2. Commitment charges 0.40 0.40 0.40 100.0%
Total Project Cost 45.70 133.40 179.10 90.00 50.3% 89.10 49.7% ADB = Asian Development Bank Notes: a Based on prices in early 2007. b Base costs include taxes and duties. c Civil works: Package 1+contingencies ≈ $154 million d Includes engagement of the chairman of the Dispute Adjudication Board. e Physical contingencies computed at 5% for civil works and consulting services; price contingencies at 2.4% per annum (p.a.) for foreign exchange costs; Appendix 4 4 Appendix and 8% p.a. for local currency. f Interest during construction is computed at London interbank offered rate (LIBOR) plus a 0.2% spread, and 0.15% commitment charge p.a. Source: ADB and Road Development Authority cost estimates.
35
36 Appendix 4
DETAILED COST ESTIMATESa Kurundugahahetekma - Godagama Section ($ million)
Cost Overrun Four-laning ADB Government Item for 2-lane Incremental Total Package 1 Package 2 A. Base costsb 1. Civil works 64.10 160.00 224.10 69.25 69.25 85.60 Package 1 138.50 69.25 69.25 Package 2 85.60 85.60 2. Supervision Consultant 11.20 11.20 8.00 3.20 Package 1 8.00 8.00 Package 2 3.20 3.20 3. Management Consultantc 2.80 2.80 1.30 1.50 4. Project Managementd 0.50 0.50 1.00 1.00 5. Environmental Managemente 1.60 0.40 2.00 2.00 6. Road Safety Equipmente 4.90 4.90 2.45 2.45
f B. Contingencies 5.40 20.50 25.90 8.00 7.50 10.40 1. Physical 2.90 8.50 11.40 Package 1 3.50 3.25 Package 2 4.65 2. Price 2.50 12.00 14.50 Package 1 4.50 4.25 Package 2 5.75
C. Chargesg 6.40 6.40 1. Interest during construction 6.00 6.00 2. Commitment charges 0.40 0.40
Total Project Cost 71.60 200.30 278.30 90.00 89.10 99.20 ADB = Asian Development Bank Notes: a Based on prices in early 2007. b Base costs include taxes and duties. c For the overall project (Kottawa - Godagama) d Includes engagement of the chairman of the Dispute Adjudication Board. e For the overall project (Kottawa - Godagama) f Physical contingencies computed at 5% for civil works and consulting services; price contingencies at 2.4% per annum (p.a.) for foreign exchange costs; and 8% p.a. for local currency. g Interest during construction is computed at London interbank offered rate (LIBOR) plus a 0.4% spread, and 0.15% commitment charge p.a. Source: ADB and Road Development Authority estimates.
INDICATIVE PROJECT IMPLEMENTATION SCHEDULE 2008 2009 2010 J FMAMJJ ASONDJ FMAMJJ ASONDJ FMAMJJ ASOND
SUPPLEMENTARY LOAN
Civil Works (Package 1) Approval of Contract Variations Construction
Consulting Services Construction Supervision Consultant Selection Consulting Services Management Consultant Consultant Selection Consulting Services
TECHNICAL ASSISTANCE Consultant Selection Implementation
ongoing under the initial Loan (Loan 1711-SRI) intermittent during liability period
Source: Asian Development Bank estimates. Appendix 5 5 Appendix 37
38 Appendix 6
PROCUREMENT PLAN
A. Project Information
Country Sri Lanka Name of Borrower Democratic Socialist Republic of Sri Lanka Project Name Southern Transport Development Project Loan or TA Reference Loan 1711-SRI: Southern Transport Development Project Date of Effectiveness Targeted for April 2008 Amount ($) Government: $89.10 million ADB loan: $90.00 million Executing Agency Ministry of Highways and Road Development Implementing Agency Road Development Authority Approval Date of Contract Variation of January 2008 Package 1 (after restructuring the civil works contract) Approval of Most Recent Procurement Plan Period Covered by this Plan 2008–2010
B. Procurement Thresholds for Goods and Related Services, and Works Procurement Method Threshold ICB Works Above $3,000,000 ICB Goods Above $500,000
C. Procurement Thresholds for Consultant Services Procurement Methods Threshold Quality- and Cost-Based Selection (QCBS) Above $200,000 Alternative Method: Single-Source Selection (SSS) For the CSC contract that is a natural continuation of previous and ongoing work, and presents a clear advantage over new competitive selection
Appendix 6 39
D. Contract Packages
Contract Description Estimated Procurement Expected Date of Prior Comments Cost Methods Advertisement Review
Civil Works
Package W1 Construction of four-lane $154 million Restructuring of Not applicable Yes Partly highway from in addition existing financed by Kurundugahahetekma to to original contract; ADB ADB Pinnaduwa interchange value of approved the (from km 0 to km completed contract 30+800) and Galle works under variation in access road the original January 2008 contract
Goods
Package G1 4 ambulances, 9 cars $2.45 ICB for goods September 2009 Yes Financed by (double cabs 4-wd), and million ADB 4 motorcycles
Package G2 3 rescue vehicles $1.05 Government No Financed by million procedures the Government
Package G3 Joint alarm center at 4 $0.4 million Government No Financed by substations procedures the Government
Packages G4 Public awareness $0.3 million Government No Financed by campaign: print, media procedures the conference, news items, Government
Packages G5 Traffic management $0.7 million Government No Financed by systems: weighing, procedures the variable speed limit, Government HDM-4, BMS, road conditions measuring equipment
40 Appendix 6
Contract Description Estimated Procurement Expected Date of Prior Comments Cost Methods Advertisement Review
Consulting Services
Package CS1 Consulting services for $8,000,000 SSS based on Not applicable or, if Yes Financed by construction supervision performance of QCBS, 1st quarter ADB current 2008 consultant, or QCBS
Package CS2 Consulting services for $2,800,000 QCBS June 2008 Yes Partly management consultant financed by ADB
Package CS3 Consulting services for $300,000 QCBS April 2008 Yes Financed by attached TA ADB ADB = Asian Development Bank, CSC = construction supervision consultant, HDM-4 = Highway Development and Management Model, ICB = international competitive bidding, km = kilometer, QCBS = quality- and cost-based selection, SSS = single-source selection, TA = technical assistance, 4wd = four-wheel drive. Appendix 7 41
TECHNICAL ASSISTANCE: LAND USE PLANNING OF THE SOUTHERN HIGHWAY CORRIDOR
A. Background
1. The Urban Development Authority (UDA) has declared a 3 kilometer (km)-wide corridor along the highway as a special area to be managed under the Urban Development Act. The Government has decided to prepare a detailed planning study for the interchange of the Southern Highway, to ensure that area development can be properly and transparently managed. The goal of the technical assistance (TA) is to assist UDA in developing guidelines under a development plan for this area, as well as for the 11 interchanges within this corridor to support the development objectives of the Southern Highway and national development programs.
2. The overall objectives of the proposed study are to (i) prepare a long-term corridor development plan to guide and regulate future growth of the Southern Highway Corridor, (ii) set out appropriate strategies to implement the long-term objectives of the corridor development plan and to facilitate implementation of priority projects, (iii) identify priority projects and prepare prototype project proposals for intersection area development, and (iv) facilitate the implementation of priority projects.
B. Scope
1. Scope of the Study
3. The study is to help UDA determine the scale and direction of growth of the Southern Highway Corridor over the next 20 years. The study will include the following tasks: (i) Assess the existing situation along the highway and the surrounding towns within the corridor, including demographic trends, socioeconomics, land use, topographical features, resources, and environmental conditions. (ii) Identify the present transport network within the planning area and its potential for future area development. Identify and locate potential areas for development of townships and industrial areas along access roads to the highway. (iii) Develop scenarios of medium- and long-term growth of the corridor taking into consideration the findings of items (i) and (ii). (iv) Assess a range of realistic standards and standard physical features for future corridor development, including density standards and estimates of the area of land required to accommodate future development. (v) Identify the suitability of the area along the corridor for various land uses, including commercial, industrial, residential, agricultural, tourism, small-scale industrial villages, and ecological zones with the objective of developing the corridor for efficient land use and functioning of the transport corridor. (vi) Identify locations for the highway information center, emergency areas, public transport terminals, filling stations, rest areas, and tourist information center along the corridor. (vii) Identify the impact area of the highway corridor for efficient management of land- use to facilitate operation and management of the highway.
42 Appendix 7
(viii) Review the adequacy of the corridor at the interchange. (ix) Conduct an initial assessment of the environment and social aspects to provide recommendations for effective land use planning by including the possibility of local communities to benefit from development of the interchanges. (x) Develop criteria and guidelines for private sector participation.
2. Implementation Strategy 4. The consultants have to prepare the implementation strategy by at least covering the following tasks: (i) Identify development plan areas that are likely to be a high priority for development purposes, and enumerate key opportunities for land development or more profitable land uses, including interchange development plans along the highway. Give special consideration to the proposed Greater Galle Development Plan and Greater Matara Development Plan in preparing the future settlement plan. (ii) Develop prioritization and sequencing for land development opportunities identified in (i), and provide a brief profile of each identified area. (iii) Assess resources likely to be available to meet the objectives of the Southern Highway Corridor development plan, including public and private investment or financing resources. (iv) Develop investment promotion plans for industrial estates, tourist destinations, commercial areas, small-scale industrial villages, etc. 3. Priority Projects 5. The consultants have to recommend the development plan for priority interchanges in close consultation with the UDA and RDA, and follow the following steps: (i) Select at least the three most promising interchanges, and prepare detailed development plans for investment decision purposes. The plans should include all necessary design aspects including building standards, and ensure smooth traffic movement to and from the highway. (ii) Prepare a feasibility study for each of the interchange development areas, including (a) selection of suitable sites to permit phased development; (b) a profile of the interchange development area, including proposed activities; (c) an assessment of infrastructure needs for the proposed development; (d) concept plans for the proposed development taking into account a feasible range of options for business and community purposes; (e) preliminary design, cost estimates, and benefit-cost analysis; and (f) recommendations for institutional and financial arrangements for implementation of the proposals. (iii) Develop an implementation process and schedule.
C. Implementation Arrangements and Cost Estimates
6. The study will be led by an international urban planner (team leader, 6 person-months), assisted by a team of national consultants comprising (i) an urban planner and deputy team leader, 6 person-months; (ii) an infrastructure planner/engineer, 6 person-months; (iii) a sociologist, 3 person-months; (iv) an environmental planner, 3 person-months; and (v) an Appendix 7 43 economist, 2 person-months. The TA consultants will be recruited in accordance with the Asian Development Bank (ADB) Guidelines on the Use of Consultants (2007, as amended from time to time) and other arrangements satisfactory to ADB for engaging national consultants.
7. UDA will be the Implementing Agency for the TA. A steering committee, chaired by secretary of the Ministry of Highways and Road Development, with representatives from MOHRD, RDA, UDA, External Resource Department and National Planning Department will be established to oversee TA implementation.
8. The estimated cost of the TA is $375,000, of which ADB will finance $300,000 on a grant basis from the ADB TA Funding Program. The Government will contribute $75,000 in-kind (Table A7).
Table A7: Cost Estimates and Financing Plan
Item Costs ($) A. Asian Development Bank 1. Consultants a. Remuneration and Per Diem International Consultants 90,000 National Consultants 100,000 b. International Travel 15,000 c. Reports and Communications 5,000 2. Study, Survey, and Production of Map 55,000 3. Miscellaneous and Support Costs (including local transport) 10,000 4. Contingency 25,000 Subtotal (A) 300,000 B. Government Financing 1. Counterpart Staff 50,000 2. Office Space 25,000 Subtotal (B) 75,000 Total 375,000 Sources: Asian Development Bank, Road Development Authority, Urban Development Authority estimates.
44 Appendix 8
ECONOMIC ANALYSIS
1. The economic analysis was carried out for construction of the four-lane highway. The analysis follows the same approach used for appraisal of the original loan1 for the Southern Transport Development Project, and updated the following aspects:
(i) traffic growth rate revised upward based on the economic growth outlook, eastward development of Colombo, and traffic growth trends; (ii) vehicle operating cost (VOC) updated considering the substantial increase in fuel cost compared with other components of VOC; and (iii) VOC savings to local traffic on the existing coastal National Highway A2 considered similar to those for long distance traffic on A2.
2. In addition to these, incremental benefits of four lanes compared with two lanes were considered based on improved service, such as (i) greater traffic diversion, (ii) increased time saving, and (iii) higher generated traffic for four lanes.
A. Traffic Volume
1. Existing Traffic on A2 and Traffic Growth Rate
3. The Data Collection Unit of the Planning Division of Road Development Authority (RDA) carried out comprehensive traffic surveys and data verifications during 20 June–10 July 2006. The actual growth rates for 1998–2006 averaged 6.8% (Table A8.1), while the actual gross domestic product growth per annum was 4.7%. The overall transport demand elasticity is higher at 1.45 for the period.
Table A8.1: Average Daily Traffic on A2 Annual Growth Rate 1998 Survey 2006 Survey Link 1998–2006 All Motorized All Motorized (%) 13 40,787 67,305 6.5 36 13,673 20,144 5.0 56 5,757 9,332 6.2 73 7,546 11,175 5.0 94 4,298 9,712 10.7 97 3,611 6,496 7.6 Average 6.8 Sources: Consultant and Road Development Authority.
4. Economic growth for 2006 was 7.4% and is projected to be 7.2% in 2007. The growth outlook for the country’s economy in the coming years is expected to be over 7% with major Government initiatives resulting in an economic growth rate in the range of 7%–8%. The development policy now followed by the Government as outlined in the document Mahinda Chintana focuses on reducing poverty, steering investment to disadvantaged areas, and promoting agriculture. The Hamnkotta port development has already commenced and a number of major associated developments are anticipated in the region.
1 ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Democratic Socialist Republic of Sri Lanka for the Southern Transport Development Project. Manila. Appendix 8 45
5. The traffic growth rate of 6.8% observed during 1998–2006 includes local and long distance traffic. The average annual traffic growth rates reported for 1991–2006 for all national highways is 8.3% (Road Sector Master Plan Report 2007). With significantly higher economic growth anticipated for the next 10 years (6%–8 %) compared with the last 8 years (4.7%), traffic in the southern transport corridor is assumed to grow at least 10%. Therefore, for the present analysis, overall growth of long distance traffic is assumed at 8% for the next 5 years (2008– 2013), then 6.5% for the next 5 years (2013–2018), and 5.5% for the remaining period of analysis. Considering the capacity constraint on A2 as well as likely shifting of development away from A2 with the completion of the Project and the observed traffic growth in the last 8 years, the local traffic is assumed to grow at 4% during 2008–2013, 3% during 2013–2018, and 2% for the remaining period. These are conservative estimates considering traffic growth trends, improved economic growth outlook, and traffic growth rates considered in the Road Sector Master Plan Report.
2. Traffic Diversion
6. The average travel speeds on A2 and the project highway estimated from the HDM-4 model for different traffic volumes indicate higher speed for four lanes in terms of daily average speed. This means that the average speed during peak hours is even lower (by about 20%). The analysis using highway capacity software indicates that A2 is operating at a level of service ranging from E to F, and the Project with a two-lane standard will fall below service level C when the traffic volume exceeds 15,000 vehicles per day. The average speed on the two-lane- standard project road starts declining beyond 10,000 average daily traffic (ADT) and therefore increased diversion with increased congestion on A2 may not be significant without expanding to a four-lane standard. Additional traffic diversion is considered only with a four-lane standard project highway.
7. The increased diversion over the analysis period assumes significance when the Project is expanded to the four-lane standard, which will maintain a higher speed over the entire range of anticipated traffic volumes and the overall perception of the higher speed and safer travel on a four-lane highway is likely to significantly increase traffic diversion on to the four-lane highway. Assuming at least 20% higher diversion with a four-lane-standard road is reasonable; the transport cost savings to the additional diverted traffic was then calculated.
3. Generated Traffic
8. The Project is expected to decrease travel times by 24%–43% as per the estimates of the 1999 study for long distance traffic. Due to the eastward development of Colombo and the development of outer circular highway (OCH) in continuing the Project, more traffic will have greater travel time savings and no significant change in travel distance. Also the traffic generated away from A2 (i.e., interior areas away from the coastal belt) will have little additional distance to travel for using the project highway. The overall VOC saving for long distance traffic using the project highway will be slightly more than 21%–30% for the analysis period as calculated based on the weighted average VOC without considering the additional distance. Considering all these factors, assuming about 25% overall transport cost saving (VOC plus time saving) for long distance traffic is reasonable to assess generated traffic. For the present analysis, a price elasticity of 1.0 is assumed for the four-lane-standard project highway and the generated traffic resulting from the reduced transport cost thus will be 25% for the project highway.
46 Appendix 8
9. The Hambantota port being developed is likely to induce development in the southern region. Construction has recently started. The traffic estimates in the Hambantota port study in 2006 indicate significant cargo handling of cement, wheat/flour, fertilizer, vehicles, liquid bulk, and containers; and potential for coal transshipment, vehicle handling, petroleum refineries, and other port-related activities. The estimates indicate cargo handling at 7 million–11 million tons by 2015 increasing to 23 million–26 million tons by 2030. This is likely to generate significant traffic on all links including the project highway. Since this traffic is related to production and consumption in the project influence area as well as reassignment (from Colombo port to Hambantota) in addition to development-related traffic, it is considered to be part of the traffic growth, and therefore was not considered for conservative estimates.
B. Vehicle Operating Cost
10. The increase in fuel cost, which is a major component of VOC, has been substantially higher than the cost increase of other items and therefore updating the VOC based on the consumer price index alone will result in lower VOC estimates. The economic cost of fuel used in the 1999 study is SLRs8.82 for petrol and SLRs8.0 for diesel. The economic cost of fuel as per recent estimates used in the 2007 master plan study is SLRs50.56 for diesel and SLRs54.98 for petrol, an increase of over 5 times; whereas the consumer price index adjusted price increase is only about 1.6 times over the same period. The VOC was updated taking into account the weighting of the fuel component in the VOC and the higher increase in fuel prices. A factor of 1.35 for cars and 1.59 for bus and trucks to account for the price increase and additional fuel cost increase were used to update the VOC values from 2007 prices. The resultant VOC values for three vehicle types are given in Tables A8.2 and A8.3.
Table A8.2: Economic Vehicle Operating Costs—Rural Roads (2007) (6.7 meters, no shoulders, 0.65 side friction) Volume of Traffic (vehicles per day) From 0 11,000 17,000 23,000 29,000 35,000 41,000 47,000 To 11,000 17,000 23,000 29,000 35,000 41,000 47,000 60,000 Vehicle Type Vehicle Operating Cost (SLRs/km) Car 15.02 15.27 15.51 16.03 16.87 17.29 20.60 21.13 Bus 27.77 28.77 29.43 30.59 32.92 33.92 41.74 42.40 Truck 33.51 33.78 33.87 34.40 35.58 35.93 40.68 41.48 SLRs/km: Sri Lanka rupees per kilometer Source: Road Development Authority. 2007. Road Master Plan 2007. Colombo.
Table A8.3: Economic Vehicle Operating Costs—Project (2007) (highway, four lanes, 1.0 side friction) Volume of Traffic (vehicles per day) From 0 11,000 17,000 23,000 29,000 To 11,000 17,000 23,000 29,000 35,000 Vehicle Type Vehicle Operating Cost (SLRs/km) Car 13.20 13.28 13.45 13.53 13.70 Bus 22.78 23.11 23.44 23.78 24.44 Truck 33.14 33.18 33.17 33.18 33.20 SLRs/km: Sri Lanka rupees per kilometer Source: Road Development Authority. 2007. Road Master Plan 2007. Colombo.
Appendix 8 47
C. Value of Time for Passengers
11. The most significant benefit to road users transferring to the project highway will be the value of their time savings. A study conducted in 2005 by Beca International Consultants Ltd for RDA2 calculated the value of time for different vehicle types (Table A8.4).
Table A8.4: Passenger Time Values (SLRs/hour) Value of Travel Time BECA ADB Vehicle 2005 2007 Car 309.1 380 Van 210.8 259 Small Bus 292.6 360 Large Bus 468.2 576 Weighted Average Car 327 Weighted Average Bus 521 ADB = Asian Development Bank, SLR = Sri Lanka rupee. Source: Beca International Consultants International.
D. Accident Rates and Costs
12. Current values for accident rates and costs were obtained from the Planning Division of RDA, based on 2005 national statistics. They were compared with the values used in the 1999 study for the A2 and adjusted accordingly. The assumption used by the 1999 study for the improvement in accident rates for the Project of 40% for two lanes and 50% for four lanes is reasonable and is used in this analysis. The improvement is based on the fact that pedestrians and cyclists will not be allowed on the project highway (Table A8.5).
13. During the initial period when the two-lane section funded by the Asian Development Bank (ADB) will be complete that, the assumption was that if it were open, no accident savings would be realized. Although the mix of traffic should make the road safer, other factors might increase the risk, particularly as the road would be being widened.
Table A8.5: Accident Rates for A2 and Project (per million vehicle-km) Accident Rates Accident 1999 Study Rates RDA RDA ADB Type on A2 National Rates Estimated A2 Estimated Project Fatal 0.360 1.000 0.360 0.180 Serious 2.320 2.320 0.835 0.418 Minor 6.715 2.417 1.209 Damage only 10.129 3.646 1.823 ADB = Asian Development Bank, km = kilometer, RDA = Road Development Authority. Sources: Road Development Authority, 1999 study, and consultant.
2 Beca International Consultants Ltd. in association with Fraser Thomas Partners and Resources Development Consultants Ltd. ADB TA 4074-SRI: National Highways Development Project Final Report. Colombo.
48 Appendix 8
14. Based on RDA data, the average costs by type of accident were obtained. The 2005 data were inflated to 2006 prices. A comparison was made with the results of the RDA 2002 Road Safety Report and with the values used in 1999 study, bringing all economic costs to 2006 prices (Table A8.6). The cost of accidents has increased considerably from the 1999 study, particularly for serious, minor, and damage only. However, a fair degree of consistency exists between the RDA 2002 Road Safety Report and the latest data provided for 2005. This economic assessment will use RDA data, taking into account road accident reporting and data processing in the past few years, which gives the recent accident trends. The accident costs savings are inflated to 2007 prices using per capita income growth for the present analysis.
Table A8.6: Comparison of Accident Costs in 2006 Prices (Sri Lanka rupees) RDA 2002 Road Safety Report RDA Accident Type 1999 Study 2000 2001 2002 2005 Fatal 1,449,577 1,794,637 1,944,926 1,908,492 1,988,709 Serious 128,547 967,445 1,048,462 1,028,821 1,072,064 Minor 77,949 140,519 152,287 149,434 155,715 Damage only 77,949 122,738 133,016 130,525 136,011 RDA = Road Development Authority. Sources: RDA, 1999 and 2006 studies, and consultant.
E. Construction and Maintenance Costs
15. The economic costs are considered to be 90% of the financial costs based on the BECA study. Table A8.7 shows forecast economic costs of the overall project costs based on the latest estimates after restructuring negotiations of the current contract. The additional cost of widening the second package of the Japan Bank for International Cooperation-financed section to four lanes is estimated based on the estimated cost of widening the ADB section.
Table A8.7: Estimate of the Economic Costs of Construction (Sri Lanka rupees) Year ADB Section JBIC Section Total 2007 11,145 10,075 21,220 2008 6,495 6,224 12,719 2009 6,598 6,635 13,234 2010 1,416 1,615 3,031 Total 25,654 24,550 50,204 ADB = Asian Development Bank, JBIC = Japan Bank for International Cooperation. Sources: Consultants, JBIC, and management consultant.
16. Maintenance costs are given in Table A8.8 based on the economic costs of routine and periodic maintenance supplied by RDA for 2006 for a two-lane road. The costs are assumed to be double for a four-lane road. An overlay, spread over 3 years, is assumed to be needed after about 12 years of operation.
Appendix 8 49
Table A8.8: Economic Cost of Routine and Periodic Maintenance (SLRs per km) Maintenance Type Cost Routine Maintenance 260,000 Periodic Maintenance 34,200,000 SLR = Sri Lanka rupee Sources: RDA and consultant.
F. Economic Internal Rate of Return
17. Based on the estimation of economic benefits and incorporating the modifications, the benefit and cost streams for with and without the Project were estimated for the analysis period. The highway is assumed to be fully operational in 2010 and partial year benefits are assumed for 2010. The additional traffic diversion resulting from the use of four lanes and traffic generation are assumed to materialize to the full extent over time (33% in the first 2 years, 50% in the next 3 years, and 100 % beyond that). The benefit and cost streams (net of without and with project cases) are given in Table A8.9.
50 Appendix 8
Table A8.9: Benefit and Cost Streams (SLRs million) Benefits to Traffic on A2 Non- diverted Long- Benefits to Distance Local Traffic Construct- Mainte- Traffic on Traffic on Diverted to Accident Generated Net Year ion nance A2 A2 Project Savings Traffic Benefits
2007 21,220 (21,220) 2008 12,719 (12,719) 2009 13,234 (13,234) 2010 3,031 28 1,284 171 1,198 205 95 (106) 2011 37 2,402 546 2,599 582 200 6,293 2012 37 2,588 464 2,827 617 212 6,670 2013 37 2,856 400 3,271 654 346 7,490 2014 37 3,120 396 3,517 693 373 8,062 2015 37 3,408 392 3,784 733 402 8,682 2016 37 3,731 394 4,768 776 868 10,501 2017 37 4,071 388 5,134 821 937 11,314 2018 37 4,313 358 5,502 867 993 11,996 2019 37 4,545 339 5,844 916 1,048 12,654 2020 37 4,784 328 6,209 967 1,106 13,357 2021 1,632 5,056 327 6,605 1,021 1,171 12,548 2022 1,632 5,341 341 7,030 1,082 1,241 13,404 2023 1,632 5,631 410 7,492 1,147 1,322 14,370 2024 37 5,886 484 7,977 1,215 1,401 16,925 2025 37 6,234 538 8,504 1,287 1,492 18,018 2026 37 6,814 615 9,111 1,363 1,615 19,481 2027 37 7,467 725 9,772 1,443 1,754 21,123 2028 37 8,179 840 10,481 1,527 1,904 22,894 2029 37 8,923 971 11,239 1,616 2,064 24,777 2030a (12,551) 37 9,526 1,084 12,010 1,709 2,209 39,052 EIRR 15.3% NPV at 12% 14,631 EIRR = economic internal rate of return, NPV = net present value, SLR = Sri Lanka rupee. a The residual value of 25% of the construction cost is assumed in year 2030. Source: Consultant report. Appendix 8 51
Table A8.10 Results of Sensitivity Analysis
NPV at 12% Item EIRR (%) (SLRs million) Base case 15.3 14,631 Construction costs increased by 15% 13.7 8,544 No benefits to local traffic 14.8 12,268 Traffic growth rates reduced by 25% 13.3 5,197 Generated traffic reduced by 50% 14.3 9,753 Accident benefits reduced by 50% 14.8 12,531 Overall benefits reduced by 15% 13.5 6,349 Construction delayed by 1 year 14.0 8,906 Construction delayed by 2 years 13.1 4,810 EIRR = economic internal rate of return, NPV = net present value, SLR = Sri Lanka rupee. . Source: Consultant report.
52 Appendix 9
SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY
A. Linkages to the Country Poverty Analysis
Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? No
Contribution of the sector or subsector to reduce poverty in Sri Lanka: In Sri Lanka, the recent study shows that poverty reduction has been modest with only about a 3 percentage point decrease from 26 in 1990 to 23 in 2002. Poverty reduction has also been uneven, urban poverty halved between 1990 and 2002, while rural poverty declined by less than 5 percentage points. A number of interrelated factors have constrained the poor from assessing opportunities in more dynamic sectors of the economy. Lack of infrastructure, especially transport facilities, has caused constraints for people living in rural areas to reach market and growth centers. International experience suggests that increasing transport infrastructure is effective to develop regional growth. Therefore, highway development is expected to facilitate improvement, capacity, and efficiency of the road network, especially through segregation of traffic. This will avoid the possibility of the road network becoming a serious impediment to national development. The Southern Highway connecting Matara to Colombo is expected to improve the capacity and efficiency of road utilization and lead to improved movement of good and services to support the country’s regional development through industry, commerce, and tourism.
B. Poverty Analysis Targeting Classification: General intervention The Southern Highway is mainly located in the Southern Province (Galle, Matara districts) and connecting to Western Province through Kalutara and touching Colombo District in Kottawa. Two other districts are directly affected by the Project: (i) Ratnapura District of Sabaragamuwa Province, and (ii) Hambantota District of Southern Province.
The recent poverty study¹ shows that Southern Province has the highest percentage of the poor compared with other provinces. Except for Kalutara and Colombo, the other districts affected directly and indirectly by the Project rank in the top group of districts with the highest poverty head count. However, the study also shows that for Colombo, a large population of the poor live around the border of the city where the Project is located. The study also indicates that poor areas are characterized by low connectivity and lack of urban centers other than Colombo. Several factors are associated with a higher probability of being poor; the most important are unemployment including among youth, and underemployment in the informal sector.
The impacts of the Project will be spread differently over the southern region. The area directly affected by the Project may experience the greatest impacts in terms of creation of direct and indirect employment opportunities. The Project is expected to contribute to poverty reduction. The community-based assessment carried out during preparation of the original loan shows that the Project will be able to contribute to improvements in economic conditions through (i) improvement of transportation to allow farmers to diversify into higher value crops, such as fruits and green vegetable; (ii) reduction of travel time to increase tourist visits, and therefore, seasonal reductions in tourism will be moderate; (iii) improvement of access to markets and sources of inputs will lead to expansion of manufacturing; and (iv) development of facilities in the interchange will lead to establishment of economic growth centers and formal sector employment. Such improvements are expected to lead to improvements in living standards and quality of life. The following impacts were identified: (i) More remunerative employment and livelihoods will lead to a reduction in poverty and unemployment. (ii) The Project will bring long-term solutions to unemployment among the youth and females by providing access to education and increasing access to employment in nearby centers. (iii) Faster travel will improve quality of life for many families with adult members especially household heads working in Colombo. (iv) Buses and transport services will be more frequent and better quality. (v) The Project will establish a political momentum leading to improvement in transport and communication. (vi) Educational institutions will be able to attract better quality staff. (vii) People will be able to reach hospitals more quickly. In addition, the private sector expects the highway will significantly
Appendix 9 53 improve attractiveness of the southern region for business and private investment, and contribute to more rapid economic growth.
C. Participation Process
Is there a stakeholder analysis? Yes No Is there a participation strategy? Yes No The consultations to disseminate information on the plan for expansion of the Southern Highway from two to four lanes and to gather the concerns of people living along the highway were carried out at 20 locations in 8 divisional secretariats and attended by around 250 people. Concerns focus more on environmental problems arising from construction works than on social concerns. Among the environmental problems arising from construction activities are dust, noise, improper cutting of earth that caused damage to houses, blocked access, and water logging. This finding is consistent with the findings of the environmental impact assessment study. If these environmental impacts are not mitigated, they could lead to serious health problems and high social costs. Therefore, the Government will ensure that the environmental management plan prepared to address these concerns will be implemented and monitored.
D. Gender Development
Strategy to maximize impacts on women:
The Country Gender Assessment Study, 20042 shows that women in Sri Lanka have relatively better status than women in many other developing countries, but have yet to achieve gender equality. A major area of inequality, disadvantage, and gender discrimination is employment. The unemployment rate of women has been double than that of men for more than three decades, and the quality of employment available to women has been deteriorating as demand for female labor is mainly for casual and low-paid, low-skill jobs in the formal and informal sectors. This problem needs to be addressed from a gender perspective and incorporated into national development strategies. However, for direct employment opportunities related to the construction and operation of the highway, the Project will provide employment opportunities for both women and men. The Project will ensure that employment opportunities and rates of remuneration are determined without gender-biased discrimination and equal remuneration for work of equal value.
Has an output been prepared? Yes No
54 Appendix 9
E. Social Safeguards and Other Social Risks
Item Significant/ Plan Required Not Significant/ Strategy to Address Issues None Significant Under the original loan for the Project, significant Full land acquisition was required and affected a Resettlement Not significant significant number of people for preparing the right- Short of-way to accommodate a six-lane highway. The None None resettlement and compensation for land acquisition
is complete. No more land will need to be acquired (2002 RIP and However, a number of small land lots outside the approved right-of-way may be acquired for various reasons addendum associated with construction works, as well as that 2006 will be the remaining land is no longer economically applied.) benefiting the owner. The process of acquiring land has been carried out by adopting the approach required in the resettlement plan and its entitlement matrix, 2002. No new resettlement plan is required.
Considering the number of affected people, the Road Development Authority (RDA) has developed 32 resettlement sites; 31 were handed over to the local authorities. In addition, an income restoration program (IRP) has been implemented since October 2006. Some people used the compensation funds to move to better locations, build better houses, educate their children, and invest in economic activities. Many women among those affected by the highway project work as casual laborers in the plantations and on construction sites, in home- based economic activities, and small trade to supplement the family income.2 Land acquisition and resettlement has created and exacerbated existing economic and social deprivation and vulnerability of both men and women. To address this matter, women and vulnerable groups are given priority in the IRP.
Progress with the IRP has yet to be monitored and the independent external monitoring team is targeting IRP recipients with its monitoring program. The findings of the external monitoring team will be used as inputs to improve this year’s IRP. The Project will ensure that this IRP will be implemented in a manner that assists those who are most in need for income generating activities.
Appendix 9 55
Item Significant/ Strategy to Address Issues Plan Required Not Significant/ None The highway was designed for limited access, and Significant therefore is prepared to serve long distance and Yes Affordability fast-moving vehicles. An in-depth study to Not significant implement the express highway as a toll road will be No
carried out to identify which segment of the highway None should be tolled on a commercial basis and which could be tolled to help improve traffic distribution. The update study on tolling will be carried out as part of the Project. During project implementation, civil works Significant contractors will increase the employment of local Yes Labor people who meet the job requirements. RDA will Not significant ensure that civil works contractors comply with all No
applicable labor regulations, including prohibiting None child labor for construction and maintenance, and ensuring equal pay for men and women for work of equal value. The proposed widening of the highway will not Significant trigger ADB’s Indigenous Peoples Policy Yes Indigenous safeguards. Peoples Not significant No
None The Project may directly and indirectly cause spread Other Risks Significant of diseases and human trafficking due to opening Yes and/or areas for construction and operating a new highway. Vulnerabilities Not significant The most serious are HIV/AIDS and other sexually No
transmitted diseases. To avoid their spread, the None Project will ensure that adequate information is disseminated to construction workers as part of the health and safety program.
Road safety is the most significant risk related to operation of the first express highway. With an adequate awareness campaign on how to use the highway, some vehicle accidents are expected to be avoided. The awareness campaign will include activities to develop safer intersections, and safer use of express highway services, such as plaza and rest stops, bus stops, and other provisions of road safety, such as widening of carriageway that will improve road safety. The Project will include the development and implementation of awareness campaign programs. ADB = Asian Development Bank, HIV = human immunodeficiency virus, IRP = income restoration program, RDA = Road Development Authority.
¹ World Bank. 2006. Poverty Assessment for Sri Lanka. Washington, DC (June). 2 Asian Development Bank. 2004. Country Gender Assessment Sri Lanka, Manila.