Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 48445 - LK

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized

PROPOSED.CREDIT

IN THE AMOUNT OF SDR 66.1 MILLION (US$105 MILLION EQUIVALENT)

TO

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

FOR A

Public Disclosure Authorized PROVINCIAL ROADS PROJECT

November 11,2009

Sustainable Development Unit Sri Lanka Country Management Unit South Asia Region

This document has a restricted distribution and may be used by recipients only in the

Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective October 3 1,2009) Currency Unit = Rupees 114.25Rupees = US$1 1.58989US$ = SDR 1

FISCAL YEAR January 1 - December 31

ADB Asian Development Bank MLGPC Ministry of Local Government and Provincial Councils AGAOA Association of Government MOT Ministry of Transport Accounts Organizations of Asia AG Auditor General MOFP Ministry of Finance and Planning

BP Bank Procedure NCP North Central Province CAS Country Assistance Strategy NEA National Environmental Act

CEA Central Environmental NPRDD Northern Provincial Road Authority Development Department CFAA Country Financial NPV Net Project Value

EPRDD Eastern Provincial Road PMR Project Management Report Development Department EAMF Environmental Assessment PDO Project Development Objective and Management Framework FOR OFFICIAL USE ONLY

Environmental Management PRP I EMPs I Plans Economic Internal rate of RDA Road Development Authority I 1 Return FM Financial Management RFA Reimbursable Forei n Aid FRs Financial Regulations ROW Right Of Way

I ~ 1 GAAP I Governance and RIJ Resettlement Plan Accountability Action Plan GOSL Government of Sri Lanka RSAP HDM4 Highway Design and SEPSA Management Version 4 HIV/AIDS Human Immunodeficiency SBD Virus/ Acquired Immune Deficiency Syndrome . ICB International Competitive SIL Specific Investment Loan Bidding IDA InternationalDevelopment SIMF Social Impact Management Association Framework

IDF Institutional Development SP Southern Provinces Fund IMF International Monetary Fund STIs IUFRs Interim Unaudited Financial TEC ReDorts InternationalRoughness UPRDD Index Development Department

~~ JICA Japan International voc Vehicle Operating Costs Cooperation Agency M&E Monitoring and Evaluation WA MENS Ministry of Environment and WB World Bank NaturalResources

MOHRD , Ministry of Highways and I Rural Development-

Vice President: Isabel M. Guerrero Country Director: Naoko Tshii Sector Director John Henry Stein Sector Manager: Michel AudigC Task Team Leader: Tawia Addo-AshonglAmali Rajapaksa

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

SFU LANKA Provincial Roads Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 6 A . Country and sector issues ...... 6 B. Rationale for Bank involvement ...... 8 C . Higher level objectives to which the project contributes ...... 9 I1. PROJECT DESCRIPTION ...... 10 A . Lending instrument ...... 10 B. Program objective and Phases ...... 10 C . Project development objective and key indicators ...... 10 D. Project components ...... 10 E. Lessons learned and reflected in the project design...... 10 F. Alternatives considered and reasons for rejection ...... 11

I11. IMPLEMENTATION ...... 12 A . Partnership arrangements (if applicable) ...... 12 B. Institutional and implementation arrangements ...... 12 C . Monitoring and evaluation ofoutcomes/results ...... 12 .. D. Sustainabllity ...... 13 E. Critical risks and mitigating measures ...... 13 F. Loadcredit conditions and covenant ...... 14

IV. APPRAISAL SUMMARY ...... 15 A . Economic and financial analyses ...... 15 B. Technical ...... 15 C . Fiduciary ...... i...... 16 D. Social...... 17 E. Environment...... 18 F. Safeguard policies...... 19 G. Policy Exceptions and Readiness ...... 19

Annex 1: Country and Sector or Program Background ...... 20 Annex 2: Major Related Projects Financed by the Bank andlor other Agencies ...... 26 Annex 3: Results Framework and Monitoring ...... 30 Annex 4: Detailed Project Description...... 33 Annex 6: Implementation Arrangements ...... 41 Annex 7: Financial Management and Disbursement Arrangements ...... 51 Annex 8: Procurement Arrangements ...... 72 Annex 9: Governance and Accountability Action Plan...... 80 Annex 10: Conflict and Reconciliation Filter ...... 86 Annex 11: Economic and Financial Analysis ...... 90 Annex 12: Social Development Issues ...... 94 Annex 13: Safeguard Policy Issues...... 95 Annex 14: Project Preparation and Supervision ...... 99 Annex 15: Documents in the Project File ...... 101 Annex 16: Statement of Loans and Credits ...... 102 Annex 17: Country at a Glance ...... 104 Annex 18: Maps IBRD SRI 36976137351137371...... 106 SRI LANKA

PROVINCIAL ROADS PROJECT

PROJECT APPRAISAL DOCUMENT

SOUTH ASIA REGION

SUSTAINABLE DEVELOPMENT DEPARTMENT, TRANSPORT UNIT

Date: November 11, 2009 Team Leader: Tawia Addo-Ashong

Country Director: Naoko Ishii Sectors: Roads and highways (100%)

Sector Manager: Michel AudigC Themes: Infrastructure services for Sector Director: John Henry Stein p,rivate sector development (P); Rural services and infrastructure (S); Public Project ID: P107847 expenditure, financial management and procurement (S) Lending Instrument: Specific Investment Loan Project Financing Data f 1 Loan TXl Credit r 1 Grant r 1 Guarantee r 1 Other:

Source Local Foreign Total BORROWER 0.00 0.00 0.00 International Development Association 35.00 70.00 105.00 (IDA) Total: 35.00 70.00 105.00 Borrower: Democratic Socialist Republic of Sri Lanka

Responsible Agency: Ministry ofLocal Government and Provincial Councils Eastern Provincial Council Uva Provincial Council Northern Provincial Council

Project Implementation Period: 5 years Start: March 31,2010 End: March 3 1, 20 15

3 ;Y I 2010 2011 2012 2013 2014 4nnual 2 23 40 25 15 Zumulative I 21 25 I 65 I 90 I 105 I Project implementation period: March 3 1, 2010 End: March 3 1, 201 5 Expected effectiveness date: March 3 1, 20 10 Expected closing date: March 3 1, 2015 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD I.C.10 Does the project require any exceptions from Bank policies? Ref: PAD IKG.21 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes []No Ref: PAD III.E. 15 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref: PAD IKG.21 Project development objective Ref: PAD II.C.10, Technical Annex 3

The Project Development Objective (PDO): The proposed project is aimed at improving access to socio-economic centers in Eastern, Northern and Uva Provinces through the sustainable management ofimproved road infrastructure.

Outcome Indicators.

(i) reduction in average passenger travel time on project roads; (ii) increase in the share ofroads in good condition; and (iii) increase in the level of satisfaction from communities and road users along the project corridors. Project description Ref: PAD II.D.11, Technical Annex 4 The project has three components: Component 1: Rehabilitation of Provincial Roads [US$90 million]. This component will support: 1a: Works and services for the upgrading, rehabilitation of about 150 km ofprovincial roads and other road infrastructure in selected, prioritized, geographical areas in Uva Provinces (US$50 million); lb: Works and services for the upgrading, rehabilitation of about 100 km ofprovincial roads and other road infrastructure in selected, prioritized, areas in Ampara District of Eastern Province (US$20 million); 1c: Works and services for the upgrading, rehabilitation of about 1OOkm ofprovincial roads and other road infrastmcture in selected, prioritized areas of Jaffna District of Northern Province (US$20 million)).

Component 2: Maintenance program [US$lO million]. Provinces will be assisted to develop and implement an effective maintenance strategy on their paved network.

Component 3: Implementation Support and Capacity Building [US$5 million]. This

4 :omponent will finance the strengthening of the capacity of the ' Provincial Council Road Development Departments (PRDDs) in planning and budget management within a framework of fiscal constraint. The Project will support (i)technical assistance to the road departments in the ueas of financial management, environmental and social management, procurement and contract management to improve systems and procedures for the management of the road network under their responsibility; (ii)office and laboratory equipment and vehicles to assist in project implementation and maintenance of the road network; (iii)coordination and monitoring of project activities; (iv) training; ( v) capacity development for the local construction industry; and (iv) any additional studies required to assist in improvement in implementation ofthe project and increased capacity of the PRDDs to execute their core functions. Strengthening of these hnctions/areas of the Road Departments or Agencies should lead to (a) progress towards a guarantee of adequate maintenance of the provincial road network; (b) an increase in general efficiency of the use of resources; and (c) an increase in the transparency and accountability of outcomes. Which safeguard policies are triggered, if any? Ref: PAD IKF.21, TechnicalAnnex 10 Environmental Assessment (OP/BP/GP 4.01 and 4.12 involuntary resettlement). Significant, non-standard conditions, if any, for: Re$ PAD III.F.16 Significant, non-standard conditions, if any, for:

Board presentation: None

Loan effectiveness: Only standard effectiveness conditions apply Covenants applicable to project implementation: GOSL shall implement the agreed Governance and Accountability Action Plan (GAAP) during project implementation. The PRDDs shall maintain a dedicated team of suitably qualified staff, to carry out the activities required to achieve the project development objectives. MLGPC shall submit to IDA, Quarterly Progress Reports giving status ofproject progress, results and milestones, financial and technical progress. MLGPC shall carry out a mid-term review ofthe project by not later than March 3 1, 2013. Uva and Eastern Provinces shall channel revenue from annual vehicle licensing fees towards routine maintenance. MOFP shall provide funds for periodic maintenance activities on an incremental basis through budgetary allocation.

Conditions of disbursement The Financial Management arrangements, staffing, selection of roads, maintenance requirement shall be agreed upon and be satisfactory to IDA prior to the first disbursement for Eastern province. The financial management arrangements, staffing, selection of roads and maintenance requirement shall be agreed upon and be satisfactory to IDA prior to the first disbursement for the Northern Province MLGPC, Eastern, Northern and Uva Provinces shall set up and monitor the project through National and Provincial Steering Committees. MLGPC shall sign implementation agreements with each Provincial Council.

5 I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Macroeconomic Background. Despite the steady economic growth of Sri Lanka over the past decade, there still remain challenges in development due to the current global economic crisis and the fragile macro-economic environment in the country. Over the past 5 years, the national poverty headcount ratio has halved, but remains relatively high at 15.2 percent’ for a country with US$1,634 per capita GDP as of 2007. Major obstacles to growth and poverty reduction have been a lack of economic growth in areas outside Western province; inadequate infrastructure, particularly in rural areas; the stagnant agricultural sector; the decades-old civil conflict; a large fiscal deficit; a lack of advanced skills in the labor force, and inflexibility in the labor market. The macroeconomic impact of the conflict is estimated at 2-3 percent of GDP growth annually2. The emergence of Sri Lanka from the 30-year old conflict has signaled new opportunities for Sri Lanka’s economic growth and development. To support Sri Lanka’s economic reform program aimed at rebuilding reserves and strengthening the domestic financial system, the International Monetary Fund has approved a 20-month Stand-By Arrangement for Sri Lanka amounting to about US$2.6 billion.

2. Poverty and Connectivity. The rural poor account for 88 percent of the total poor of Sri Lanka. About 60 percent of rural households in Sri Lanka depend on agriculture, and the poverty rate among them is significantly higher than that ofrural non-agricultural households3. Uva is the poorest province in the country with a poverty headcount of 27 percent. Among all the provinces, it has the highest number employed in agriculture (64 percent), contributing over half (53 percent) of provincial GDP. Many socio-economic indicators ofUva are at the same level or even lower than those of N~rthern,~or Eastern Provinces which have been directly affected by the civil conflict. It has the highest unemployment rate among youth of working age of 14-25 years and the lowest monthly total expenditure per capita.

3. Inadequate connectivity to markets and growth centers, and a lack of transport facilities hamper the potential for increasing incomes and reducing poverty in Uva Province. Due to the poor condition of provincial roads, individual farmers are unable to deliver their produce in a timely manner to the markets and lose up to 40 percent of perishable produce. Average distance and time taken to travel to the nearest commercial centre is twice the national average. Agricultural wholesalers capitalize on these challenges to pay farmers substantially less for their produce. In the past few years, bus services from villages to socio-economic centers, towns and schools have significantly declined or stopped completely.

4. Poverty and Conflict. Eastern and Northern Provinces have been most severely affected by the decade-long fighting and subsequent displacements. Many of the displaced people who

’ This excludes Northern Province where due to security situation, it was impossible to conduct surveys. “Poverty Indicators: Household Income and Expenditure Survey, 2006/07.” Department of Census and Statistics, GOSL ’World Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges.” 2007. The Household Income Expenditure Survey (2002) revealed nearly 24 percent ofrural agricultural households are poor, compared with only 16 percent of nonagricultural households. The indicators for Northern Province exclude Killinochchi, Mulliativu, and Mannar District. 6 returned to Eastern Province initially faced a challenging environment with restricted access to fields and fishing waters because of security reasons. The situation has somewhat stabilized, with most displaced people having been resettled and the local economy boosted by an increase in paddy production and an easing of security-related fishing restrictions. Populations in the North have been affected to varying degrees, depending on the districts. Some continued to live in their districts under extremely challenging conditions, whilst others were displaced. Before the conflict, the agriculture and fishing sector contributed a substantial share to national GDP and was a source of livelihood and food security for more than 90 percent ofthe population, but now commercial agriculture in the East and North has transformed into subsistence agriculture. In the North, in particular, displaced persons have lost their agricultural and fishing implements and related infrastructure, including the road network, has been severely damaged. It is estimated that up to 2 percent per annum of GDP growth has been lost to the conflict. Inadequate and restricted transport services, poor quality roads, and access to credit remain the main impediments to growth and poverty reduction.

Sector Background

5. In Sri Lanka, road transport is the dominant mode accounting for over 90 percent of passenger and freight transport. Vehicle ownership and road traffic continue to grow rapidly. Data from 2004 shows a vehicle population of about three million vehicles, with an 11 percent increase over the previous year. Currently, Sri Lanka’s road network consists of about 117,000 km, and is the densest in South Asia. Critical needs include (i)improvement and rehabilitation of a deteriorated road network; (ii)sufficient financing for road maintenance, (iii) the improvement of bus transport services; and (iv) Construction of expressways between major cities to accelerate economic growth.

6. Provincial Road network. The provincial road network, estimated at about 15,700 km5, constitutes about 14 percent of the country’s total road network. It provides the key connection between the rural and the national networks. Due to the long-running conflict and a lack of consistent funding for provincial roads over the past 20 years, little maintenance or rehabilitation of the network has taken place. The roads in the provincial network are mostly in an advanced state of deterioration, with extensive pot holing, breakup of bitumen surfacing, broken and inadequate culverts and pavement failure. Only 9percent of the provincial roads in Eastern Province (total 1,098 km) and 21 percent in Uva Province (total 1,741 km) are in good condition. These roads were recently rehabilitated under the Asian Development Bank (ADB)-financed Road Sector Development Project. The mountainous topography of Uva contributes to the poor quality of the road network through increasing the rate of road deterioration and by increasing road maintenance and construction costs. There are about 2,000 km of provincial roads in Northern Province, 60 percent of which were originally surfaced roads. However, due to lack of maintenance over the past 30 years, they have all deteriorated to gravel road condition. As a result, none ofthe provincial roads in the North can be described in good condition.

7. Road sector strategy. The Government of Sri Lanka’s 10-year development framework, Muhindu Chintuna, sets out a broad agenda for the road sector, including building an integrated road network and connecting poorer regions and production centers to domestic and international markets in order to foster rural development. The 2005 Road Sector Master Plan defined an

5 “Public Expenditure Review of Provincial Roads in Eastern, North Central and Uva Provinces.” Draft Final Report. 25 November 2008. Asian Development Bank. 7 efficient core road network. The needs for road investment were assessed including the new construction, rehabilitation, and maintenance of expressways, national and provincial roads. However, the initial Plan was found to be too broad in scope and was restructured to focus only on the national road network. The Plan has recently been updated in 2008 and shared with Members ofParliament.

8. Provincial road sector management and funding‘. Provincial Councils (PCs) are responsible for provincial roads, through their Provincial Road Departments (or Authorities, as the case maybe). The Ministry of Transport (MOT) is responsible for policies related to land transport services. The National Transport Commission (NTC), a regulatory bod under MOT, is responsible for policy formulation and subsidy disbursement. Following the 13x Amendment to the Constitution, responsibility for the provincial roads was devolved from the Road Development Authority (RDA) to the Provincial Councils (MLGPC). However, Provincial Councils (PCs) were not given guidance on institutional arrangements for carrying out their responsibilities for managing the network. Several different structures were adopted by the provincial road administrations. The primary function of the provincial road agencies is to maintain the current road network. There has been minimal new construction, and a general absence of funds for any significant improvement of the existing network. The primary source of funding for provincial roads is from allocations made to MLGPC and distributed to the provinces through the Finance Commission in the form of: (i)block grants for recurrent expenditure; (ii)Province Specific Development Grants (PSDGs) for designated purposes; and (iii)criteria-based and matching grants. In reality, a larger share of funds is channeled through several Central Government ministries, without going through the budgets of the relevant PCs. The PCs have varying degree of involvement in these projects and such funding is not at their disposal. Spending on provincial roads also comes from: (i)projects funded through foreign loans to GOSL and channeled to the relevant province by the central government ministries and agencies; and (ii)provincial revenue generated and allocated for roads through the provincial budgets.

9. PCs collect road user charges in the form of vehicle license fees. However they are unable to invest an adequate share oftheir own revenues in the road network. Due to inadequate and irregular funding, there has been little incentive for the provincial road departments to plan and budget for either capital or maintenance works. There are no long-term development plans for their networks; only annual maintenance schedules exist. There are also other challenges at provincial level such as difficulties in hiring and retaining competent and qualified technical staff, lack of physical assets, including laboratories, and inadequacy and /or absence of planning units and databases. The quality of contractors at the provincial level is low. Lack of continuity in road works creates little motivation for the contractors to invest in plant and equipment and qualified staff.

B. Rationale for Bank involvement

10. Sri Lanka’s Muhindu Chintuna, outlines GOSL’s development agenda. A critical thrust of its strategy is to accelerate growth through increased investment in infrastructure. It also strives to achieve more equitable development through accelerated rural development.

Provinces and Local Authorities are not required to report any breakdown of how sectoral hnds are spent; thus, they list the amounts of contracts tendered without the specific activity. PCs estimate recurrent expenditures as around 3-5 percent of all capital costs. 8 11. In support of this framework, a joint road sector program has been formulated by the GOSL towards the rehabilitation of the National, Provincial and Rural Roads for the entire country. With regards to the provincial roads sector, the development partners have been invited to work with the GOSL in selected provinces based on the preparatory work undertaken by the ADB Project Preparation Facility. In this context, an opportunity has arisen for the Bank to work in Uva Province, and part of the Eastern Province. With the end of the war in May 2009 there has emerged an opportunity to support reconstruction of roads in Northern Province, in particular those which link the Province with the rest of the country. Discussions have been held together with other development partners during the preparation of the respective projects, towards harmonizing mechanisms.

12. The war has severely damaged economic assets and disrupted livelihoods of the population of the Northern Province. The livelihood and welfare of returning internally displaced persons (IDPs) depend largely on the restoration of the damaged infrastructure. With the end of the conflict, there is an urgent need to restore the deteriorated infrastructure in the Northern Province and assist in rebuilding the lives and the economic fortunes of the displaced peoples. The Government of Sri Lanka has requested the Bank’s assistance in this area, and the Bank is well placed to do to so, being one of the few development partners with continued engagement in the North, even in times of conflict.

13. The Bank is a major development partner in Sri Lanka having financed several key infrastructure projects over the past decades. This has shown that the Bank has the ability to implement projects in a volatile and sensitive environment, deliver relevant development outcomes on the ground, and rapidly adapt to changing circumstances where necessary. The Bank has shown results at the national level and, through this project, it will strengthen its engagement in the roads sector beyond the national highways. The Bank currently plays a key role in the road sector through promoting a harmonized approach to sectoral development. This project will complement other development partners’ activities in transport, other infrastructure sectors, and overall rehabilitation of the North and East. Improvements in the road network will also supplement other Bank activities aimed at strengthening rural development such as the Sustainable Tourism Development Project and the North and East Local Services Project.

C. Higher level objectives to which the project contributes

14. The proposed project will support the World Bank’s Country Assistance Strategy, approved in July 2008 which is fully aligned with the Mahinda Chintana, in emphasizing the importance ofinvestment to improve connectivity and infrastructure access in lagging regions as well as to provide equitable growth and improve service delivery. The three strategic objectives ofthe CAS: (i)expanding economic opportunities to lagging regions; (ii)improving investment climate; and (iii)enhancing services, are all fully supported by the project. Improvements in the condition of the network in two of Sri Lanka’s lagging regions supports objective (i)and the strengthening ofcapacity for publicly-provided services supports objective (ii).

9 11. PROJECT DESCRIPTION

A. Lending instrument

15. A Specific Investment Loan (SIL) of US$l05 million is proposed to finance this project. The Credit will be disbursed over five years (2010-2014). The project will be financed under an International Development Association (IDA) Credit, whose terms and conditions were determined during negotiations.

B. Program objective and Phases Not Applicable

C. Project development objective and key indicators

16. The proposed project is aimed at improving access to socio-economic centers in Eastern, Northern and Uva Provinces.

Outcome Indicators. The Project Development Objective will be monitored and evaluated using the following outcome indicators:

(i)reduction in average passenger travel time on project roads; (ii)increase in the share ofroads in good condition; and (iii)increase in the level of satisfaction from communities and road users along the project corridors.

D. Project components

17. The project consists of three components which will support: (a) improvement of about 350 km of provincial roads and other road infrastructure in the Uva Province Ampara District of the Eastern Province and Jaffna District of the Northern Province; (b) the development of a provincial road maintenance program and support to provinces’ maintenance programs consisting of routine, preventive and emergency maintenance works; and (c) improved performance ofthe Provincial Road Development Departments (PRDD) and the private sector in service delivery, (The project’s detailed description is provided in Annex 4. Strengthening of PRDDs should lead to: (a) progress towards a guarantee of adequate maintenance of the provincial road network; (b) an increase in general efficiency ofthe use of resources; and (c) an increase in the transparency of outcomes and, as a result, in accountability.

18. The project will finance incremental operating costs incurred by MLGPC, Uva, Northern and Eastern PRDDs (UPRDD, EPRDD and NPRDD) during project implementation. Incremental costs include any reasonable costs incurred for the execution and implementation ofthe project but excluding salaries ofthe recipient’s civil service.

E. Lessons learned and reflected in the project design

19. This is the first Bank project in Sri Lanka which focuses on the provincial network and assistance to the provincial road departments. However, its design builds on the following key lessons learned from the implementation of previous road sector projects and other operations by other development partners and Bank experience in Sri Lanka:

10 (i)Maintenance funding for provincial roads is inadequate and may remain so for some time. Rehabilitation projects have sometimes been wrongly seen as a substitute for proper maintenance. The use of more expensive design options to reduce regular maintenance activity is often suggested. This, however, does not solve the underlying challenge of the provision of regular maintenance funding and is eventually less cost-effective. Eastern and Uva provincial councils have agreed to earmark funds from vehicle licensing fees to finance routine maintenance activities. Central government and the project will jointly finance periodic maintenance. The project will provide funds to assist the provinces to develop efficient maintenance planning systems.

(ii)Institutional strengthening of the PRDDs is a gradual process. Assisting the PRDDs with a tool for objective planning should be central to any capacity building program. Systematic, prioritized asset management plans create a strong technical justification for resource allocation and reduces the effect of non-technical decision making. This is often difficult to achieve through a single project and a programmatic approach to institutional building, in partnership with other development partners, needs to be applied. The project will assist the PRDDs with the support they will require for successful implementation of their core function ofmanagement ofthe provincial road network, and will provide for skills transfer in the areas that need strengthening.

(iii)Local construction capacity, although growing, is somewhat limited due to resource constraints (manpower and equipment). In order to sustain participation, further consolidation and development of the construction industry, a more consistent pipeline of road construction works is needed. This has been recognized by both the GOSL and the development partners, and a program of nearly US$1 billion is to be financed within the sector over the next four years. Support of capacity building for the local construction industry is integrated into this project.

(iv) Thorough preparation needs to be done in order to prevent time and cost overruns. Policy changes, inadequate surveys, poor choices in specification, and insufficient time for preparation led to large physical variations, whilst lack of supply of key items such as bitumen and chippings and slow progress in processes such as provision of environmental licenses delayed implementation. Whilst every effort is being made to find means of fast- tracking these processes, sufficient time needs to be factored into the estimation of the construction phase to allow for this. Quantities and costs have been revisited and all designs costs have been updated to 2009 prices.

F. Alternatives considered and reasons for rejection

20. Emergency Bridge Component. The team initially included a component to respond to emergency bridge works in some of the post-conflict areas, and considered whether the project should be prepared under OP 8.00. It was agreed that the emergency works would add an unnecessary complexity and was not a suitable fit for the project design and this was subsequently dropped.

11 111. IMPLEMENTATION

A. Partnership arrangements (if applicable)

21. Although there is no parallel financing or co-financing in this project, it is part of a wider program for the rehabilitation of National, Provincial and Rural roads coordinated by the GOSL. Discussions leading to the preparation ofthe development partner country programs, envisaged a joint investment program for the road sector. The program provides for development partner (WB, ADB, JICA) investment for a total of about US$915 million over the next 3 to 4 years. The provincial roads program, focused on rehabilitation of the network across the nine provinces, is earmarked to receive over US$480 million from these three development partners. Since the cessation of the conflict, some of these funds have already been earmarked to meet the immediate needs ofthe Northern Province.

B. Institutional and implementation arrangements

22. The implementation of the project will be carried out by the PRDDs in each province. The MLGPC through the Project Coordination Unit (PCU) will be the overall focal point for monitoring, evaluation and reporting for the project. It will coordinate the activities of the three provinces and be responsible for the Implementation Support and Capacity Building Component. A national level Steering Committee consisting of members ofthe respective Provincial Councils including the three chief secretaries, central level utilities, the Central Environment Authority, the Ministry of Environment and Natural Resources, the Ministry of Finance and Planning and chaired by the Secretary of MLGPC will oversee the implementation of the project through regular meetings. With the exception of the management of the supervision consultants, Components 1 and 2 will be the responsibility ofthe PRDDs. The Northern Province PRDD has been functioning throughout the conflict, with offices located in Trincomalee. Details of implementation arrangements are outlined in Annex 6.

C. Monitoring and evaluation of outcomesh-esults

23. Monitoring and evaluation will be the responsibility of MLGPC. The Results Framework, as outlined in Annex 3, will be the instrument for monitoring outcome indicators and the achievement ofthe PDO. Each participating province will be responsible for collecting and monitoring primary indicators and additional information for their respective components. Each PRDD will prepare and submit a monthly progress report (PPR) to the PCU reporting on: (i)progress of civil works, consulting services and institutional support, (ii)progress in the achievement of the project development objectives and any intermediate outcomes; (iii)progress on the capacity building, and (iv) activities undertaken under the implementation support component. PCU will consolidate PPRs into quarterly project management reports (PMR) and submit to IDA for review and comments. The PMR will measure progress made under the different components of the project and measure results against the results framework. In particular, PMR will include information regarding (i)progress in implementation of the rehabilitation works, (ii)the preparation and execution of the maintenance program with details on budget, scope and results, (iii)activities undertaken under the implementation support component, and (iv) all other activities performed by the PCU to coordinate project implementation and provide support to the provinces.

12 D. Sustainability

24. Project sustainability will depend on the implementation of strategies that will improve the condition of the provincial road network and provide sufficient funding to allow for annual needs to be met. To achieve this, several elements are being supported under the project: (i)the development of an asset management strategy allowing for the planning of new construction, rehabilitation, and maintenance, (ii)the piloting ofthe use of performance based contracts in the maintenance works, and (iii)capacity development of the local private sector - construction and consulting to better implement projects. Funding mechanisms that have been agreed upon between the GOSL and the development partners are: (i)revenue collected from vehicle licensing fees in Eastern and Uva provinces will be earmarked for the financing of routine maintenance in both provinces, and (ii)GOSL, through the Ministry of Finance, and the Bank will jointly support the provinces with funding for periodic maintenance. The Bank’s contribution will be on a declining basis, whilst the GOSL will incrementally increase its contribution to cover an estimated 60 percent of periodic maintenance needs by the end of the project. Currently the Northern Provincial Council has no power for revenue collection. Appropriate arrangements for contribution towards maintenance funding by the Northern Province will be discussed and agreed upon, prior to first disbursement to the Province.

E. Critical risks and mitigating measures

Key risks associated with the project and corresponding mitigation measures are as follows:

Risk Rating Mitigation Measure Residual Rating Limited capacity in S (a) Dedicated staff for implementation. Additional support to be M provinces to implement provided by individual consultants. Substantial capacity projects building efforts to allow for decentralized project management by the end of project; (b) Independent Technical Audits to be undertaken.

Limited financial H (a) Consultants to provide additional support in procurement S management and and on-the-job-training; procurement capacity in (b) Substantial capacity building efforts in all to strengthen provinces decentralized project management capacity by the end of the project; (c) Agreements to be reached with the Ministry and PCs that trained staff will be kept throughout project duration;

Sustainability of S (a) Project to invest in maintenance of network in good and fair M investments due to lack condition; of maintenance hnding (b) Project to assist provinces to develop and implement an asset management system; (c) GOSL and PC commitment reached on financing commitments for maintenance Risk of non technical S Carrying out of extensive consultations in the project provinces M road selection process to continue to include interests and needs of representatives of to meet the needs of all. Review of selection process in post-conflict areas. Making particular groupings disbursement to Eastern and Northern provinces contingent on IDA satisfaction with the road selection. Possible fraud and S In addition to the existing Governance Framework with M cormDtion. accomoanving Financial Regulations and Procedures which are

13 being utilized in the country, a Governance and Accountability Action Plan (GAAP) has been developed for the project. M Project costs updated and calculated using prevailing market L some construction rates; updated schedule ofrates and independent cost estimation materials. to be conducted periodically. Price escalation clauses to be included in contracts. S (a) Bank-hired local consultant to undertake extended M supervision missions in the project sites in Eastern and Northem Provinces and when the security situation allows the Bank supervision team will check 100 percent ofproject roads; (b) The Bank Supervision Team to check 100 percent of the project roads in Uva Province annually; (c) Establishment of a grievance redressal mechanism for communities to submit complaints regarding quality of civil works, road conditions, and safeguards implementation and carrying out of user satisfaction survey to consider interests, needs and concerns ofthe beneficiaries in the Provinces. I Overall Risk Rating I S M

F. Loadcredit conditions and covenant

Effectiveness: Standard effectiveness conditions will apply.

Implementation: 0 MLGPC shall sign implementation agreements with each Provincial Council. 0 GOSL shall implement the agreed Governance and Accountability Action Plan (GAAP) during project implementation. 0 MLGPC and the PRDDs shall maintain a dedicated team of suitably qualified staff, to carry out the activities required to achieve the project development objectives.. 0 MLGPC shall submit to IDA, Quarterly Progress Reports giving status of project progress, results and milestones, financial and technical progress. 0 MLGPC shall carry out a mid-term review of the project by not later than March 31, 2013. 0 Eastern and Uva Provinces shall channel revenue from annual vehicle licensing fees towards routine maintenance. MOFP will provide funds for periodic maintenance activities on an incremental basis through budgetary allocation.

Conditions ofdisbursement The Financial Management arrangements, staffing, selection of roads, maintenance requirement shall be agreed upon and be satisfactory to IDA prior to the first disbursement for Eastern Province. The Financial Management arrangements, staffing, selection of roads, maintenance requirement shall be agreed upon and be satisfactory to IDA prior to the first disbursement for Northern Province. MLGPC, Eastern, Northern and Uva Provinces shall set up and monitor the project through National and Provincial Steering Committees. MLGPC shall sign implementation agreements with each Provincial Council. Appropriate arrangements for the Northern Province to provide maintenance funding will be agreed upon prior to first disbursement to the province.

14 IV. APPRAISAL SUMMARY

A. Economic and financial analyses

25. In 2008, as part of a wider feasibility study, an initial economic appraisal of upgrading of selected roads in Sri Lanka’s Provincial road network was carried out. The screening and selection of the roads were undertaken by the PRDDs based on criteria including: access, connectivity to national roads, poverty headcount index, traffic volume, maintenance costs, and road condition.

26. Because of the relatively high traffic volumes, and poor state of the existing roads, the results of the economic analysis show that road improvements provide robust economic rates of return, ranging from 16.8 per cent to 32.5 per cent, for the five roads in Uva province, selected for the initial program. Additional analysis of the wider network in both Uva and Eastern Provinces and further sensitivity analysis confirms the viability of the proposed investments and overall program. Detailed analyses are in Annex 1 1.

27. With respect to the Northern Province, an economic analysis of the project roads is not currently available. A feasibility study of the Jaffna district roads is to be carried utilizing similar criteria as that undertaken for the other Provinces, whilst acknowledging the lack of data due to the circumstances of the time. It is expected that repair of damaged infrastructure will yield significant social and economic benefits to the people ofthe Northern Province.

B. Technical

28. The project proposes to rehabilitate and widen the selected existing paved roads with general asphaltic concrete/DBST pavement widths of between 4.50 m and 6.50 mydependent on the traffic and economic internal rate of return (EIRR), plus 2 x 0.50 - 1.00 m paved shoulders over full road base formation (to allow emergency use trafficking), with bus-stop bays incorporated. These pavement and shoulder widths are to be eased in places to avoid land and property acquisition. For the same reason, the existing Right-of-way (ROW) widths are to be retained, which vary between 7.5m and 10.5m. The road widening is to adopt proven techniques developed under the earlier ADB projects. The widening of the roads in the hilly and rocky sections will require cutting back into the hillside / rock face, with substantial construction of concrete lined drains, on the majority of the road sections in Uva Province. This will be done together with other considerable drainage, culvert, bridge and retaining wall works.

29. Road safety audits were undertaken at design stage of and so road safety features such as signage, line markings have been incorporated into the design of all project roads.

30. The design has not specifically targeted employment generation, but it envisages use of labor intensive construction methods such as mortar bound rock walls for culvert headwalls and some retaining walls, with other retaining walls using gabion construction- which uses hand- placed stone infill. In addition, the widening of the roads into the hillside and the narrow road

15 formation widening strips to be excavated, filled and compacted, together with the extension of the existing culverts, all represent extensive labor based operations - with considerable employment generation potential. The retaining wall and the culvert extension and headwall works will also lend themselves to subcontracting and development of the smaller scale domestic contracting industry, in addition to that ofthe main contract.

C. Fiduciary

31. Financial Management (see Annex 7 for details). The proposed overall financial management (FM) procedures and practices are satisfactory to meet GOSL’s and IDA’S fiduciary requirements as per OP/BP 10.02. The project had an initial “High” risk rating and after mitigation measures has a “Substantial” FM risk rating. The primary responsibility for financial management will rest with the MLGPC. Four units will implement the proposed project. These will be Project Implementation Unit at the Uva Provincial Council (PIU Uva), Provincial Road Development Department of the Eastern Provincial Council (PRDD East), Provincial Road Development Department of the Northern Provincial Council (PRDD North) and Project Co-ordination Unit at the MLGPC (PCU). The PIU Uva has already been set up in the Uva Provincial Council (PC) to manage an ADB roads project and hence the same unit, will be used to manage the relevant sections of components 1 and 2 in Uva Province under Provincial Roads Project (PRP). The PCU is the existing unit at the MLGPC which is currently managing the rural roads pilot under Road Sector Assistance Project (RSAP) and it will manage component 3 under the PRP. The PRDD East and PRDD North will manage the relevant sections of components 1 and 2 in Eastern and Northern Province. The modification and development of Computerized Integrated Government Accounting System (CIGAS) and FM manual incorporating project accounting procedures have been completed by the PIU Uva. The system and the practices developed for the project by PIU Uva will later be shared/transferred to the PRDD East and PRDD North when the project progresses to Eastern Province and Northern Province so that there will be consistency in FM arrangements. The PCU at the MLGPC will maintain the manual accounting system supported by excel based spreadsheets currently used for RSAP. The Disbursements for PRDD East and PRDD North will happen only after the necessary FM arrangements satisfactory to IDA are in place. Quarterly Interim Unaudited Financial Reports (IUFRs) would be submitted to IDA within 45 days of end of each quarter by each ofthe four Implementing Units. The project will be subjected to a continuous internal audit by the GoSL internal auditors attached to MLGPC and the respective PCs. Year end external audit will be carried out by the Auditor General’s Department.

32. Four Designated Accounts (DAs) will be set up and maintained in US dollars at the Central Bank of Sri Lanka by the PIU Uva, PRDD East, PRDD North and the PCU. Replenishment of the DAs will be based on the Interim Unaudited Financial Reports (IUFRs) prepared and submitted by the PIU Uva, PRDD East, PRDD North and the PCU.

33. Procurement (see Annex 8 for details). Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits dated May 2004 revised October 2006; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers ‘I dated May 2004 revised October 2006, and the provisions stipulated in the Legal Agreement. An assessment ofthe capacity ofthe PCU and PRDDs to implement procurement actions for the project has been carried out by the Bank’s Country Office procurement staff evaluating the capability of the implementing agencies and the

16 adequacy of systems in place to administer WB-financed procurement and assessing the risks that may negatively affect ability of the agency to carry out the procurement process. The assessment reviewed the organizational structure of the Provincial Road Development Divisions of Uva, Eastern and Northern Provincial Councils and the interaction between the staff of the PCU responsible for procurement. Though the PCU at the Ministry, which is currently handling the procurement of the Bank funded RSAP has experience of implementing medium scale works contracts, none of the three implementing units has actual experience in managing and implementing procurement in WB-financed projects ofthis magnitude.

D. Social

34. Extensive consultations were undertaken prior to the screening and selection ofthe roads to be constructed. Selection was based on criteria including: access, connectivity to national roads, poverty headcount index, traffic volume, maintenance costs, and road condition. Results ofthe feasibility study showed the following: (i)a good geographical spread; (ii)each road plays a significant role in connecting local feeder roads; (iii)nearly 66percent of the provinces’ population would benefit from road improvement; (iv) 40percent of the roads serve areas of comparatively high poverty; and (v) social inclusiveness - the benefits from road improvement are not confined to any specific ethnic or other social group. Potential beneficiaries include different ethnic and religious groups. With regards to the Ampara District of the Eastern Province, the selection criteria has been revisited and consultations undertaken with stakeholders located on the long list of pre-selected roads to account for social concerns such as equity in selection and to ensure that benefits are available to all the communities without any bias. Based on the consultations a list of roads has been selected to be included under this project. The selection of roads in the Northern Province will also follow a similar process of wide consultations with all the communities.

35. However, based on information available through recent analysis and research on the situation in the East7 the project team identified additional local sensitivities that may arise during implementation and have addressed them as follows (see Annex 10):

e Project management and decision making has been decentralized to the Provincial council level;

e The, project will establish a multi-tiered grievance redressal mechanism inclusive of committee members who may or may not be direct stakeholders in the project (e.g. community based organizations or individuals representing the different groups i.e. all communities and NGOs) which will work with the Samatha Mandala (local mediation board); and

0 Roads identified under the project will seek to provide income generating opportunities through construction activities for all groups living along the road in all Provinces.

36. The social development issues to be addressed by the project are inclusion, participatiodconsultation, poverty, gender, conflict, HIV/AIDS,~etc. (See annex 12 for details) The project does not envisage any large scale expansion of the selected roads, but will limit its

’For instance, “Development Assistance and Conflict in Sri Lanka: Lessons from the Eastern Province” by International Crisis Group. 17 activities to rehabilitation and some widening, where required, within the ROW. In addition drainage will be provided. The civil works are expected to cause minimal social impacts. Thus the project is designed such as to cause minimum social, cultural and economic disruption. Project affected persons will be compensated for any loss of asset, infrastructure, livelihood etc. where impacted, to enable them to improve and restore the standard of living and income earning capacity that they enjoyed prior to the project intervention. Land acquisition is not envisaged, but OP 4.12 has been triggered and social mitigation will be provided in compliance with OP 4.12. Where land acquisition becomes unavoidable, in cases where the ROW is insufficient to meet the required road alignments, widening or other improvements, the project will depend on voluntary land donations for minor land requirements. In all such cases a participatory and transparent process will be followed and the conditions laid out in the SIMF for voluntary land donation will be followed. The SIMF ( and the addendum to the SIMF, to account for inclusion of the Northern province) prepared by the project ensures compliance with World Bank social safeguards policies as well as all national policies and laws/Acts of the GOSL. It provides the guidelines and procedures for social mitigation. Among others, it provides for social screening, a legal framework, stakeholders consultation, an entitlement matrix, a multi-tiered grievance redressal mechanism, an implementation mechanism, disclosure of information, monitoring and evaluation and a reporting mechanism. The SIMF also takes into account the conflict filters of the CAS and incorporates it in the guidelines on social mitigation measures. The SIMF has been disclosed in-country and at the Infoshop. Regarding its scope, the SIMF will apply to all civil works financed under the project.

37. The Project has held a number of consultations to finalize the short listed roads for Uva province. The roads selected serve all communities. The Social Impact Assessment has also been launched and a Resettlement Plan prepared for the priority roads of Uva. Similar efforts will be made in the selection ofthe roads in the Eastern Province and Northern Provinces, and the Social Impact Assessment will be launched while being mindful of the impact of conflict in that area. Subsequently a Resettlement PladAbbreviated Resettlement Plan will be prepared, cleared by the Association and implemented by the Project (see Annex 12 for details).

E. Environment

38. Based on the scope of the project, it is identified to be in Environmental Category B and the project was prepared in accordance with the requirements of this category. The anticipated civil works will only involve rehabilitation and paving of existing roads. Potential irreversible and significant on-site environmental impacts are not envisaged and likely environmental impacts will be minimal and temporary. The measures to prevent, mitigate and/or compensate for any potential environmental impacts are readily identifiable and, with effective and timely management and monitoring, will ensure the project becomes environmentally sustainable.

39. The National Environmental Act (NEA) has made Environmental Assessments (EA) a legal requirement for a range of development projects. A list of projects requiring an EA is prescribed in Gazette (Extra Ordinary) No. 772/22 dated June 24, 1993. Road resurfacing is not listed as a prescribed project requiring an EA under the above gazette notification. But an agreement has been reached with the Central Environmental Authority (CEA), and MLGPC that all activities financed under this project are required to undertake an environmental analysis to identify site specific environmental impacts and to prepare detailed Environmental Management Plans (EMPs) to be included as part of the bidding documents and Contractors contract, where

18 contractors will be expected to prepare Environmental Methods Statements (EMSs) for their respective contracts providing details of implementing the EMP.

40. The Environmental Assessment and Management Framework (EAMF) has been developed and disclosed to the public which covers the detailed guidelines to prepare road-specific environmental assessments and EMPs.

F. Safeguard policies

41. The project is for rehabilitation and improvements of existing roads and will not involve major earth works or land acquisition that will be disruptive to the environment. The safeguards policies to be triggered are as shown below.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.0 1) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP/BP 4.1 1) 11 [XI Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [I [XI Forests (OPBP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OPBP 7.60)’ [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI

G. Policy Exceptions and Readiness 42. There are no policy exceptions required and the project meets the region’s readiness criteria.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination ofthe parties’ claims on the disputed areas 19 Annex 1: Country and Sector or Program Background SRI LANKA: Provincial Roads Project

Country Background

1. Macroeconomic Background. Sri Lanka’s growth performance, although steady, has been below potential when compared with East Asian countries, especially given its early achievements in human development. Per capital income is currently less than one-tenth of Korea’s, one-fourth of Malaysia’s, and one-half that of Thailand. The pace of poverty reduction has improved in recent years, but remains relatively modest. Real GDP per capita grew by about 35 percent between 2002 and 2007, whilst the poverty headcount ratio declined only by 7.5 percentage points (equivalent to a decline of 33 percent)8. The national poverty headcount ratio remains high at 15.2 percent’ for a country with US$1,144 per capita GDP as of 2007. The cross country comparison suggest that major obstacles to growth and poverty reduction include lack of economic growth outside Western province; inadequate infrastructure, particularly in rural areas; the slow growth in agricultural sector; the decade-old civil conflict; a large fiscal deficit; lack of advanced skills in the labor force, and inflexibility in the labor market.

2. Annual GDP of Western Province with the country’s largest city, Colombo, grew by an average of 6.2 percent during 1997-2003, whereas that of the other provinces (excluding Northern and Eastern Provinces) grew by 2.3 percent”. All rural areas have witnessed the stagnation of the agriculture sector with its slow growth in productivity and shrinking contribution to national income despite employment in the sector having remained almost unchanged over the past decade. The rural poor account for 88 percent of the total poor of Sri Lanka. About 60 percent ofrural households in Sri Lanka depend on agriculture, and the poverty rate among them is significantly higher than that for rural non-agricultural households’ ’. 3. Poverty and Connectivity. In poor rural areas economic and geographic constraints include inadequate connectivity to markets and growth centers, lack of electricity and transport facilities and poor quality schoolsI2. The investment climate survey conducted in Sri Lanka in 2004 also indicated poor quality and availability of transportation’ as a major ~bstacle’~ hampering the potential for increasing incomes and poverty reduction in rural households through the non-farm sector. On average, enterprises are located within 10 km ofthe nearest city or market, but because of the poor road conditions travel is slow and the average time to the

8 By comparison, during 1991-2002, for every 1 percent annual growth in GDP per capita, the poverty headcount ratio declined only by 0.4 percent in Sri Lanka, compared with 0.9, 1.4 and 2.6 percent in Korea, Vietnam and Thailand, respectively. Source: World Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges.” 2007. This excludes Northern Province where it was impossible to carry out surveys due to the security situation in 2006/07. “Poverty Indicators: Household Income and Expenditure Survey, 2006/07.” Department of Census and Statistics, Government of Sri Lanka. loWorld Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges.” 2007. Washington, D.C.: World Bank. ’I According to Household Income Expenditure Survey conducted in 2002, households dependent on agriculture tend to be poorer: nearly 24 percent of rural agricultural households are poor, compared with only 16 percent of nonagricultural households. l2World Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges.” 2007. Washington, D.C.: World Bank. l3Other obstacles include poor access and high cost of finance, limited access and unreliable supply of electricity, marketing difficulties, and poor coverage of telecommunications. 20 nearest commercial center is more than 30 min. The average distances as well as travel time to the nearest commercial center are much higher for the poorer provinces - namely, Uva, Sabaragamuwa and Southern - compared to the country averages (see Table 1).

Table 1. Poverty and Connectivity in Sri Lanka 2006 2006-07 (1) 2004 (2) I (1) 2003-04 (3) Average House-holds I travel time with Electri-city Average to nearest distance to commercial Unemploy- Poverty nearest center by ment in age Headcount commercial main means Employment groups of

Eastern North Eastern only) 5 23 All island 15.2 8 31 N/A Sources: 1. “Poverty Indicators: Household Income and Expenditure Survey, 2006/07.” Department of Census and Statistics, Government of Sri Lanka. 2. “Sri Lanka Investment Climate Survey 2004.” World Bank. 3. “Key Socio-Economic Indicators By Province: 2003/04.” Department of Census and Statistics, Government of Sri Lanka. The indicators for Northern Province exclude Killinochchi, Mulliativu, and Mannar District.

4. Uva, adjacent to the Eastern Province, is the poorest province in the country with the highest poverty headcount ratio of 27 percent as of 2007 (see Table 1). It is one of the rural provinces with the highest employment rate (64 percent) in agriculture, including tea and rubber plantations and agriculture contributing more than half (53 percent) to provincial GDP. Although Uva was not directly affected by the conflict, its many socio-economic indicators are at the same level with those of N~rthern’~or Eastern Provinces or even worse (see Table 1).

5. Uva Province has the highest unemployment rate among youth15 of the working age of 14-25 years (79 percent against average national of 75 percent) and the lowest monthly total expenditure per capita (Rs. 3,879 against Rs.5,035 in Eastern Province and average national of Rs.5,43616). The poverty rate for agricultural households (34.3 percent) in Uva is double that for non-agricultural households (1 6.9 percent).

l4The indicators for Northern Province exclude Killinochchi, Mulliativu, and Mannar District. 15 The presence of an unemployed youth is normally associated with a higher probability of the household being poor. 16 “Poverty Indicators: Household Income and Expenditure Survey, 2006/07.” Department of Census and Statistics, Government of Sri Lanka.

21 6. Due to inadequate road connectivity, it is estimated that individual farmers lose up to 40 percent oftheir perishable produce in Uva. Transportation costs are 25 per cent higher and travel times are two to three times longer than if the roads were in good condition. Agricultural wholesalers are reluctant to travel to remote villages to collect produce but if they decide to go they will pay famers substantially less because of their own high transport costs. Because of the poor road condition bus services from villages to socio-economic centers, towns and schools have significantly declined or completely stopped over the past few years.

7. Poverty and Decades-long Conflict. The 25-year civil conflict has been a stumbling block to development and poverty alleviation in parts of the country. Over 70,000 people have died, nearly a million citizens have been displaced, public and private properties and economic infrastructure have been destroyed, local economies and community networks have been disrupted. The instability brought about by the conflict reduced investments and job creation. Its macroeconomic impact is estimated at 2-3 percent ofGDP growth ann~ally’~.

8. The Eastern and Northern Provinces which were most significantly affected by the last 25 years of fighting and displacements, lag behind the rest of the country in availability of economic infrastructure, access to financial services, and key development outcomes. Compared to other provinces, health and education indicators for the North and East are the lowest amongst Sri Lanka’s regions. Indicators show a higher prevalence of underweight children at birth, maternal malnutrition, and diarrhea. According to the Census of Schools undertaken in 2003 the repetition and dropout rates in the North and East were among the highest in the country after Sabaragamuwa and Uva provinces. At Grade One level, Sabaragamuwa province had the highest repetition rate (2.6 percent) followed by Eastern (1.9 percent), and Uva and Northern (1.8 percent) provinces. There are also a high proportion of female-headed households in the conflict- affected areas, with around one-fifth of households headed by women. The composition of household expenditures shows that food makes up a far larger share of expenditures of households in the North and East-about 42-43 percent similar to the poorest provinces of Uva and Sabaragamuwa.

9. Most of the people who were displaced as a result of the conflict and the tsunami in the Eastern Province have mostly returned to their original place of residence. People displaced in Northern Province are in the process ofreturning or waiting to return in the near future. However they still face a challenging environment. Constraints to mobility between these two Provinces and the rest of the country, fishing restrictions for security reasons (which have, however, recently been significantly eased), restrictions on use of roads and poor quality of these roads, and a lack of access to credit remain considerable impediments to growth and poverty reduction.

10. Despite the re-opening of the A9 highway, the main connector between the North and the, rest of Sri Lanka, in 2002, movement of vehicular and civilian traffic was restricted to Monday through Saturday each week and 10 hours a day. Goods transported to and from the North and East had to go through four checkpoints and the quality of A9 highway remains poor. Entrepreneurs from Jaffna complain that it took them three days to transport goods to and from Colombo via the A9 highway, which added to the cost of doing business. As the security situation worsened in 2006, the A9 highway was closed in late 2006.

World Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges.” 2007. 22 11. Although the North and East combined made up about 14 percent of the population on the island in 2003, the economies of North’* and East together make up only 8 percent of national GDP. Fishing, which historically has been a major activity in the North and East, accounted for more than half of the total fish catch in the country in 1980., the region’s share in the total fish catch of the country dropped to 33 percent by 1990 and to just 16 percent in 2000.

12. Before the conflict, the agriculture and fishing sector contributed a substantial share to provincial GDP but due to transportation and trade difficulties, commercial agriculture in the

East has largely transformed into subsistence agriculture. Paddy rice isI the major agriculture product of the North and East, but its share shrank from almost one-third of total production in the country in 1980 to less than one-quarter in 2000. Following the cease-fire, production in 2002 more than doubled in the North and more than tripled in Batticoloa district in the East. There is substantial scope for agriculture output to grow in the years ahead, particularly with increased involvement of both the public and private sectors. Today it accounts for around 20 percent of the Northern Province GDP, but it employs over 50 percent of the workforce. Local authorities have been established in Eastern and Northern Provinces, but there is a need in building and strengthening their capacity to effectively manage and implement development programs.

Sector Background

13. Road sector strategy. The Government of Sri Lanka’s 1O-year development framework, Mahinda Chintana, sets out a broad agenda for the road sector, including connecting poorer regions and production centers to domestic and international markets to foster rural development, and build an integrated road network. The 2005 Road Sector Master Plan defined the most efficient core network and assessed the needs for road investment, including new construction, rehabilitation, and maintenance of expressways, national and provincial roads. However, the initial plan was found to be too broad in scope, and was also restructured to focus only on the national road network. The plan has recently been updated and shared with Members of Parliament. Discussions are ongoing to get the political buy-in and the updated plan will be submitted to Cabinet.

14. Road network. Currently, Sri Lanka’s road network consists of about 117,000 km comprising about 11,800 km of national roads (Classes A and B), 15,700 km of provincial roads (Classes CyD and E), and 89,500 km of Pradeshiya Sabhas roads and urban roads. Sri Lanka’s road density of 1.5 km per sq. km is high for a developing country, but a long history of poor road maintenance means access in remote areas is not as good as the density statistics might suggest. Participants in the consultations held for the new Country Assistance Strategy (CAS) for 2009-2012 repeatedly emphasized the need for better roads and access to markets and jobs to spur development in lagging regions in particular.

15. Provincial roads are the key connectors between the rural and national networks. Due to the long-running conflict and a lack of funds for provincial roads over the past 20 years, virtually no maintenance or rehabilitation of the network has taken place. The provincial network roads are all in an advanced state of deterioration with extensive pot holing, broken and inadequate culverts and pavement failure. Only 9 percent of the provincial road network in Eastern Province

laKilinochchi, Mannar and Mullaitivu districts are excluded here, as no data was available.

23 and 21 percent in Uva Province are in good condition’’ and these are the roads which were rehabilitated under the ADB-financed Road Sector Development Project. Uva has the worst accessibility index in the country (see Table 1). Roads in Easter Province were also badly damaged by the tsunami of December 2004. Even where roads are available, a lack of adequate transport facilities make it difficult for people in the interior to take their produce to market. The mountainous topography of Uva contributes to the poor quality of the road network, increasing the rate of road deterioration and by increasing road maintenance and construction costs. There are about 2,000 km of provincial roads in Northern Province, 60 percent of which were originally surfaced. However, the roads did not receive any maintenance in almost 30 years and they have all deteriorated to gravel road condition. As a result, none of provincial roads in the North can be described in good condition.

16. Road sector management. The Ministry of Transport (MOT) is responsible for policies related to land transport services. The National Transport Commission (NTC), a regulatory body under MOT, is responsible for policy formulation and subsidy disbursement. The Ministry of Highways and Road Development (MOHRD) has overall responsibility for policies and programs related to the national road network, while the Road Development Authority (RDA), a statutory institution assigned to MOHRD is in charge of planning and managing the national roads. Provincial Councils (PCs) are responsible for provincial roads, through their provincial road departments (or Authorities as the case maybe), and Local Authorities are responsible for urban and rural roads.

17. Provincial road sector funding2’. In theory, the primary source offunding for provincial roads are allocations made by the Ministry of Provincial Councils and Local Government (MLGPC) and distributed to the provinces through the Finance Commission in the form of: (i) block grants for recurrent expenditure; (ii)the Province Specific Development Grants (PSDGs) for designated purposes; and (iii)the criteria based and matching grants. In reality, a larger share of funds are channeled through several Central Government ministries, without going through the budgets of the relevant PCs. The PCs have varying degree of involvement in these projects and such funding is not at their disposal. Spending on provincial roads also comes from: (i) ’ projects funded through foreign loans channeled directly to the relevant province by the MLGPC without going through the Finance Commission; (ii)projects funded through foreign loans channeled directly to the relevant province by other central government ministries and agencies without going through either the MLGPC or the Finance Commission and (iii)provincial revenue generated and allocated for roads through the provincial budgets.

18. Provincial Councils do not invest an adequate share of their own revenues in the road network. They are entitled to receive motor vehicle revenue license fees and a Pro;incial petroleum tax, collectively termed as traffic fees, which represent a significant share (80 percent) of all revenues earned by PCs. These are used as general revenues to cover shortfalls in general

“Public Expenditure Review ofProvincial Roads in Easter, North Central and Uva Provinces.” Draft Final Report. 25 November 2008. Asian Development Bank. 2o The absence of a systematic functional classification of expenditures across all tiers of government makes it difficult to ascertain how the funds are spent in the road sector. Provinces and Local Authorities are not required to report any breakdown; thus, they list the amounts of contracts tendered without specifying whether the activity concern maintenance, rehabilitation or new construction. PCs estimate recurrent expenditures as around 3-5% of all capital costs. 24 administration costs. These charges, if allocated to road maintenance, would substantially cover the routine maintenance budget for the provinces.

19. A recent Public Expenditure Review2* of provincial roads in the Eastern, North Central and Uva Provinces notes that due to inadequate and irregular funding for the road sector, there is no incentive for the road agencies to plan and budget for either capital or maintenance works. There are also other challenges at provincial level such as the inability to hire and retain competent and qualified technical staff due the relatively lower salaries in comparison to other state institutions, lack of physical assets, including laboratories, absence of planning units and databases. The quality of contractors at provincial level is low. Also, the lack of continuity in road works creates little incentive for contractors to invest in plant and equipment and qualified staff.

21 “Public Expenditure Review of Provincial Roads in Eastern, North Central and Uva Provinces.” Draft Final Report. 25 November 2008. Asian Development Bank. 25 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies Sri Lanka: Provincial Roads Project

Issue Project Latest Supervision Ratings World Bank-financed, completed or on-going Implementation Development Progress Objective Institutionaldevelopment and Third Roads Project (Credit No. Completed S Capacity building; facilitate the 2 183-CE) transport of goods and passengers with improved road system; and rehabilitation of priority road infrastructure. Improve the traffic congestion in Colombo Urban Transport Project Completed S central Colombo; develop long- (Credit No. 2492-CE) term transport plans; strengthen and improve the managerial capabilities and public sector efficiency; promote adequate air quality standards and emission control measures. Assist Sri Lanka to carry out a Private Sector Infrastructure Completed S program of rehabilitation and Development Project (Credit No. reconstruction in Conflict 2880-CE) Affected Areas. Assist Sri Lanka with policy Economic Reform Technical Completed S reform and economic Assistance (Credit No. 3722-CE) restructuring. Assist Sri Lanka to rebuild basic Tsunami Economic Recovery Loan Completed MS road infrastructure. (Credit No. 4039-CE and Grant No. H-147-CE) Assist Sri Lanka with policy Public Sector Capacity building Loan On-going MS reform and economic (Credit No. 44120

26 Other development:agencies, completed, ongoing and planned c Donor

ADB

JICA

Pro-Poor Eastern Infrastructure Development Project On-going I Greater Colombo Urban Transport Development Project - (Southern Section of Outer Circular Highway) On-going Greater Colombo Urban Transport Development Project II- (Kaduwela - Kadawatha Section of Outer Circular Highway) On-going - Project for Construction of Mannar Bridge and Improvement of Causeway On-going

Saudi Fund Batticalo Trinkomalee Road Project ___~~ On-going EDCFKorea Balangoda Bandarawela Road Rehabilitation Project On-going China Construction of a few selected road infrastructure On-going China Colombo Katunayake Expressway Project On-going EDCFKorea Padeniya - Anuradhapura Road

- ~~ On-Poinec7-- " Kuwait Bridges Reconstruction & Rehabilitation Project On-going

27 Donor Projects Status Trincomalee Intergrated Infrastructure Project

Construction of Bridges

28 Status of Sri Lanka Road Projects Financed by the Bank

.ength of NHsor SHs, kml Project Status Loan amount Other videningl USD million improvemen Project Date of ipgrading Projects Status Sri Lanka - 100 Road Sector Project 620 63 5 S S ?On-Going I 12/15/2005 I Sri Lanka - 98.1 Road Sector Project - Additional Financing 620 On-going 1 7/17/2008 1 TOTAL 198.1

29 Annex 3: Results Framework and Monitoring SRI LANKA: Provincial Roads Project

Results Framework PDO Project Outcome Indicators Use of Project Outcome Information The proposed project is aimed at (i)Reduction in average travel time Assess the project’s contribution to improving access to socio-economic by targeted beneficiaries on project improving the quality of the road centers in Eastern, Northern and Uva roads; network and the improvement in the provinces through the sustainable (ii)Increase in the share of roads in community’s access to socio management of improved road good condition; economic activity infrastructure (iii) Increase in the level of satisfaction from road users and communities along the project corridors.

Rehabilitation of Provincial The following length of roads is Roads * rehabilitated and upgraded in: Upgrading and rehabilitation of 350 km of provincial roads and other Uva Province - 150 km road infrastructure in Uva, Eastern NOrthern Province - 100 km and Northern Province Eastern Province - 100 km

Maintenance Proeram

Development of a long-term (i)Maintenance strategy developed Evaluation of improved management maintenance strategy for the and approved of road network maintenance provincial road network in Eastern, Northeni and Uva Provinces (ii)Annual maintenance plans . developed

(iii)km of roads receiving routine maintenance annually Implementation Support and Capacity Building,

The capacity ofthe Provincial Road (i)Capacity of PRDDs in safeguards Implementation oftraining policy Development Departments (PRDD) and fiduciary management built by is strengthened in planning and project end budget management within a fiamework of fiscal constraints (ii)Road Asset Management System developed, rolled in and used by PRDDs

(iii)Milestones in GAAP met

30 000 NNm it+

oovl r4-m+++

000 WmN+++

goo+++

IF I om++

Annex 4: Detailed Project Description SRI LANKA: Provincial Roads Project

1. The project consists of three components which will support: (a) improvement of about 300km of provincial roads and related bridges; (b) delivery of a comprehensive road maintenance program as well as support to the provinces routine, preventive, and emergency maintenance activities, and (c) improved performance ofthe provincial road departments and the private sector in service delivery.

. Component 1: Rehabilitation of Provincial Roads [US$9Om].

2. Two sub-components are envisaged, namely:

(i) Component la. Rehabilitation of roads in Uva Province. ($50 million). Works and services for the upgrading and rehabilitation of about 15Okm of provincial roads and other road infrastructure in selected, prioritized areas in the Uva Province. The final list of selected roads in UVA is provided at the end ofthis Annex.

(ii)Component lb. Rehabilitation of Roads in Ampara District, Eastern Province ($20 million). Works and services for the upgrading, rehabilitation of about 1OOkm of provincial roads and other road infrastructure in selected, prioritized, areas in the Ampara District of the Eastern Province. The selection criteria has been revisited after consultation with stakeholders and the shortlist of selected roads is provided at the end ofthe Annex.

(iii)Component IC.Rehabilitation of Roads in Jaffna District, Northern Province ($20 million). Works and services for the upgrading and rehabilitation of about 1OOkm of provincial roads and other road infrastructure in selected, prioritize areas in the Jaffna District of the Northern Province. Identification and feasibility studies are about to commence, and selection criteria will be similar to that used for selection ofroads in Uva and Eastern Province.

3. The project proposes to rehabilitate and widen the selected existing paved roads to achieve general asphaltic concrete/DBST pavement widths of between 4.50 and 6.50m, dependent on the traffic and EIRR, plus 2 x 0.50 - 1.00 m paved shoulders over fill road base formation (to allow emergency traffic), with bus-stop bays incorporated. These pavement and shoulder widths are to be eased in places to avoid land and property acquisition. For the same reason, the existing Right-of-way (ROW) widths, which vary between 7.5 and 10.5m, are to be retained. The road widening adopts proven techniques developed under the earlier ADB projects. The widening of the roads in the hilly and rocky sections will require cutting back into the hillside / rock face, with substantial construction of concrete lined drains, on the majority ofthe road sections in Uva Province. This will be done together with other considerable drainage, culvert, bridge and retaining wall works.

4. The Final Design Report indicates the availability of naturally occurring good materials, although a number of private sources of aggregates and base-course and sub-base are often used. The quality of the materials can vary, requiring close monitoring and control. Bitumen supplies

33 also require close control, with limited bulk supplies available from the national refinery, who also sell Iranian bitumen in drums.

5. The Final Designs have been substantially adopted from the ADB preparation services. These take the form of outline road widening and rehabilitation design and standard details, plus detailed designs of the bridges and major drainage structures for each of the road packages. The application of the final design detailing and specific locations is largely left for the Construction Supervision Engineer and the Contractor to finalize.

6. The design has not specifically targeted employment generation, but the design envisages use of mortar bound rock walls for culvert headwalls and some retaining walls, with other retaining walls using gabion construction -which uses hand-placed stone infill. In addition, the widening of the roads into the hillside and the narrow road formation widening strips to be excavated, filled and compacted, together with the extension of the existing culverts, all represent extensive labor based operations - with considerable employment generation potential. The retaining wall and the culvert extension and headwall works will also lend themselves to subcontracting and development ofthe smaller scale domestic contracting industry, in addition to that ofthe main contract.

Component 2: Maintenance program, [US$l Om].

7. The Provincial Councils allocate capital and recurrent expenses to the PRDDs for the execution of road works through their provincial find. Road work execution criteria and fund utilization procedures differ between the PRDDs. Allocations for road works came from Provincial Specific Development Grant (PSDG), but this grant was not targeted and allocations varied from year to year, making the PRDDs unable to undertake consistent planning. Agreement has been reached between the development partners and the PCs of Uva and Eastern Provinces to allocate revenue generated from vehicle licensing fees towards routine maintenance finding. The fees generated both in Eastern Province (LKR 40million) and Uva Province (LKR 60 million) are sufficient for the current routine maintenance needs of the maintainable network. Calculations for routine maintenance needs were done on the basis of an assumed LKR100,OOO per km as the cost of routine maintenance. Appropriate arrangements for provision of maintenance funding for the Northern Province will be made prior to first disbursement.

8. Provinces will be assisted to study options and then to develop and perform through pilot schemes an effective maintenance strategy on their network. As such, the project will provide for :

(i) a diagnostic study leading to the development of a maintenance strategy, including the selection, planning, implementation and budgeting of the maintenance activities; identification of pilot schemes to test the appropriateness of long term performance maintenance contracts on the provincial network. (ii) support for the provincial maintenance program consisting of routine, preventive and emergency maintenance works. Routine maintenance activities to be covered are weeding, clearing of drains and culverts, cutting of branches, repainting of signs and markings reinstallation of damaged furniture, pothole patching and minor repairs to culverts, bridges, and drains. Emergency works will involve work repair damages caused

34 by landslides and washouts that result in the road being made impassable. It will also include damage due to floods and winds; Remedial road safety works on recently constructed roads. About 200km of roads funded by ADB were constructed without the requisite road furniture. The project will support the funding of a safety audit and the provision line markings, roads signs and any other road furniture required to improve the motorability ofthe roads; Support for routine and periodic maintenance in Eastern Province. The Province’s routine and periodic maintenance needs are estimated at LKR 1OOmillion annually. The revenues generated from the license fees (about LKR 40million) in Eastern Province are not sufficient to cover the maintenance needs. Agreement was reached that the Province would channel all revenues from license fees for routine maintenance and GOSL would meet the shortfall up to LKR 100 million through budgetary allocation; and Support for periodic maintenance activities in Uva Province. In support of the development of the maintenance strategy, the Bank will provide additional funds to finance periodic maintenance activities on a declining basis, with the Borrower providing funds on an incremental basis. By close of project, an estimated 60 percent of periodic maintenance will be met from GOSL funding estimated at US$7.2million over four year period commencing 20 11 .

2010 (US$M) 201 1 (US$M) 2012 (US$M) 2013 (US$M) 2014(US$M) Bank 2.8 2.4 2.0 1.6

Component 3: Implementation Support and Capacity Building, [USSSm].

This component will finance the strengthening of the capacity of the PRDDs in planning and budget management within a framework of fiscal constraints. The capacity of the roads departments is weak and experience in management of development partner funded projects is limited. The Component will support:

consulting services for the construction supervision of the civil works; technical assistance to the road departments in the areas of financial management, environmental and social management, procurement and contract management to improve systems and procedures for the management of the road network under their responsibility; support to the PRDDs in the implementation ofan asset management system; office and laboratory equipment and vehicles to assist in project implementation and maintenance ofthe road network; coordination and monitoring of project activities, including technical audits; training; capacity development for the national construction industry; and any additional studies required to assist in improvement in implementation of the project and increased capacity of the PRDDs to execute their core functions. These studies will include but not be limited to:

35 The review and improvement of the provincial road departments asset management systems - the existing PRDD asset management systems will be reviewed and the departments will be advised on modalities to create more efficient systems; Road user satisfaction survey - a survey ofrepresentative beneficiaries ofthe project roads will be surveyed before during and after construction to assess the benefits or otherwise ofthe road improvement to their lives; Project monitoring and evaluation reporting preparation of monitoring and evaluation reports for the project; and Review of the national construction industry- a review of the national construction industry’s performance and challenges and recommendations for capacity building activities to improve performance.

2. Strengthening of these functions/areas of the Road Departments should lead to: (a) progress towards a guarantee of adequate maintenance of the provincial road network; (b) an increase in general efficiency ofthe use of resources; and (c) an increase in the transparency and accountability ofoutcomes.

3. The project will finance incremental operating costs incurred by MLGPC, Uva Provincial Road Development Department (UPRDD), Eastern Provincial Road Development Department (EPRDD) and Northern Provincial Road Development Department (NPRDD) in the execution and implementation of the project. Incremental costs include any reasonable costs incurred for the execution and implementation of the project but excluding salaries ofthe recipient’s civil service.

36 4.

THE WORLD BANK FUNDED PROVINCIAL ROADS PROJECT - UVA PROVINCE

TRAVEL TIME FOR PHASE 2 CONTRACTS

Package Road No DE Name of Roads Length KM Travel No Division Time UVA21 UMMC8 3 4 Monaragala Medagama - Alupotha Road - * * 10.63 120 Minutes UVA21 UMMC8 3 3 Moneragala Medagama - Nilgala Road - ** 4.00 30 Minutes UVA6 UMMC821 Moneragala Medagama - Dambagalla - 28.79 150 Minutes Deliwa Road - I UVA7 UBDC20 1 Diyathalawa Heeloya - Kithalella Road 10.58 120 Minutes UVA16 MC Roads Badulla Internal Roads in Badulla Town 14.60 ship (MC)

UVA8 UBBCO 14 Badulla Badulla - Kuttiyagolla - 14.85 140 Minutes Pelabodiya - Palawatta Road UVA9 UMWC1004A Wellawaya Handapanagala Junction to 8.50 180 Minutes UMWCI004B Handapanagala Road, Ulkanda - 12.00 Ethiliwewa Road

UVA14 UBWC40 1 Welimada Bogahakumbura - 13.90 140 Minutes Hewankumbura - Keppetipola Road

37 PROVlNCIAL ROAD DEVELOPMENT DEPARTMENT - UVA PROVlNCE FINAL LIST OF SELECTED ROADS

Phase I Roads UVAl

Adiyarawatta - Maspanna - Yalagamuwa Road uvA2

UVA3

UVA4 UVA5

uvA2I UMMC834 Monaragala Medagama - Alupotha Road* 10.63 1 10.63 12 Months uvA21 UMMC833 Moneragala Medagama - Nilgala Road * 12 Months UVA6 UMMC821 Moneragala Medagama - Dambagalla - Deliwa 24 Months Road UVA7 UBDC2Ol Diyathalawa Heeloya - Kithalella Road 12 Months

UVA8 UBBC014 Badulla Badulla - Kuttiyagolla - Pelabodiya 14.85 14.85 18 Months

- Palawatta Road UVA9 UMWC1004A Wellawaya Handapanagala Junction to 12.00 20.50 UMWC1004B Handapanagala Road i;: 24 Months Ulkanda - Ethiliwewa Road UVAI4 UBWC401 Welimada Boghakumbura Hewankumbura 24 Months Keppettipola Road I UVAl6 MC Rpads Badulla I Internal Roads in Badulla Town 14.6 I 14.6 24 Months

38 PROVINCIAL ROAD DEVELOPMENT DEPARTMENT - EASTERN PROVINCE FINAL LIST OF SELECTED ROADS

Village Road. Thambiluvil Arasadi Field Road. 2 Damana Ambalanoya Pannalgama Road. 3 Central Road Joint with 1st, 3rd and 4th Cross Road, Sammanthurai 4 Uppukaraichchi Kathiriyar Thottom, Beach and South Road, Akkaraipattu 5 Oomodivar R.K.M Road 6 Central Road Ninthavur I 71 Viliniyadi Road 8 Amman Kovil Road 9 Beach Road. Kalmunai 10 Mosque Road Kalmunaikudy 11 Old Vannivar Road Sainthamaruthu 12 Oluvil Road 13 Karunkodothivu Paddiyadipitty Alivaddavithana Road 14 Mudaliyar Road 15

Natpaddimunai Pandiruppu Boundary Road. 17 Kariyappar Road Maruthamunai. 18 Thirupothi Ammankovil Road. 19 Karaipthivu Village Road. 20 Manal (Hijra) Road. 21 Moongi 1ad y Road, S ammanthurai 22 Beach Road. Pottuvil 23 A.G.A's Office to Vinayagapuram Road 24 Lahugala Village Road. 25 Malwatta Suruipodai Road. 26 Rajagalathenna Nugelanda Road 27 Mandoor Main Canal Road from Central Camp 28 Himithurawa Paragahakele Road. 29 1 Damana Padagoda Pallanova Road I 30 I Unuwathura Bubbula Road 31 Akkaraipattu -Neethai Ambalanoya Road 32 The selection ofroads in the Northern Province will also follow a similar process of wide consultations with all the communities.

39 Annex 5: Project Costs SRI LANKA: Provincial Roads Project

Components Project Cost Sum ma ry

YO (US$ Million) Foreign Local Foreign Total Costs

A. Rehabilitation of Provincial Roads Eastern Province Civil works 4.9 9.1 14.0 65 Supervision Costs 0.9 0.9 1.8 50 Uva Province Civil works 12.1 23.2 35.3 65 Supervision Costs 1.8 1.8 3.6 50 Northern Province Civil Works 4.9 9.1 14.0 65 Supervision Costs 0.9 0.9 1.8 50 Subtotal 25.5 45.0 70.5 B. Maintenance Program Maintenance 5.8 3.9 9.7 40 Diagnostic Stu4 0.3 0.3 Subtotal 6.1 3.9 10.0 C. Implementation Support and Capacity Building 3.5 1.5 5

Total Baseline Costs 35.1 50.4 85.5 Physical Contingencies 2.3 4.2 6.5 65 Price Contingencies 4.5 8.5 13.0 65 TOTAL PROJECT COST* 105.0

40 Annex 6: Implementation Arrangements SRI LANKA: Provincial Roads Project

Borrower

1. The Government of Sri Lanka through the Ministry of Finance and Planning (MOFP) will be the recipient ofthe proposed IDA Credit on behalf ofthe Participating Provinces.

Introduction

2. The structure laid out below outlines the implementation arrangements for the project. It has been designed to incorporate further provinces as and when they are supported by the Bank in terms of the program encapsulated in the Country Assistance Strategy (2009-2012). This will allow effective use of capacity built and lessons learnt in the earlier projects to new projects. The facilitation and assistance required by the provinces from the government can be varied over time based on the capacity built at the level of the provinces incorporating lessons learnt and short comings experienced in the earlier projects

Project Coordination and Monitoring at Central Level

3. National Steering Committee (NSC) - The project has set up a National Steering Committee to monitor the progress in Eastern, Northern and Uva Provinces. The NSC will be chaired by the Secretary of the MLGPC and consist of the respective Chief Secretaries of the Provincial Council, PIU/PRDD, Finance Commission, central level utilities companies, Central Environment Authority (CEN), Geographical Surveys and Mining Bureau (GSMB), Ministry of Environment and Natural Resources and MOFP.

4. The Borrower has created a Project Coordinating Unit (PCU) at the Ministry of Local Government and Provincial Councils (MLGPC). This unit is currently responsible for implementing the rural roads component of the Road Sector Assistance Project (Cr 4138-CE), coordinating and assisting the implementation of the rehabilitation of rural Roads in Uva, North Central and Southern Provinces. Experience under the project has shown the capacity ofthe PCU to comply with assigned responsibilities. The PCU is currently staffed with an engineer, procurement consultant, environmental/social specialist and the chief accountant of the MLGPC assigned to the project on a part time basis to carry out the accounting function. Existing staff of the PCU implementing the rural roads project will be retained to implement the provincial roads project as well. The deputy project director of the rural roads project will function as the National Project Director ofthe provincial roads project.

5. The main functions and responsibilities ofthe PCU will be:

0 To provide overall coordination and monitoring ofproj ect implementation; To provide technical guidance to provinces in the selection of supervision consultants; To liaise with other central agencies such as the Treasury, the Finance Commission on resolving issues affecting implementation in the provinces;

41 To liaise with the necessary authorities in processing of the approvals necessary at the Cabinet level; To manage the capacity building program to be carried out under Component 3 and liaising with the provinces and other beneficiaries with regards to training requirements; To transfer knowledge specifically in the areas of environmental safeguards, social safeguards, financial management procedures, procurement procedures and contract management; To receive disbursement requests from the provinces, certify, approve and request transfer offunds to the Provincial Roads Imprest Accounts; To carry out the project’s financial management, monitoring general flow of funds, consolidating financial information from the provinces and preparing project progress financial statements and reports, with inputs from the executing agencies in the provinces; To retain independent auditors, acceptable to the Bank to audit project accounts; To furnish auditors reports to the Bank; To monitor provincial performance against agreed targets; To consolidate reporting information and submit progress reports to the Bank; To carry out the procurement and management of the supervision consultant in collaboration with PRDDS; and To procure goods and services relating to general project implementation. To select, appoint and monitor the consultant for the carrying out of the feasibility study for priority provincial roads in the Jaffna district of the Northern Province in collaboration with the NPC.

6. The PCU will remain at all times, during project implementation, headed by a National Project Director and assisted by other professional staff in numbers and with qualifications and experience acceptable to the Bank.

Project Implementation at Provincial Level

7. The Provincial Roads Development Departments of Eastern, Northern and Uva Provinces will be responsible for implementation ofactivities at provincial level.

8. The Provincial Steering Committee (PSC). Each province will set up a PSC. The PSC in Eastern Province will monitor the progress of the project in all three districts (Ampara, Trincomalee and Batticaloa) covering both Bank and ADB financed activities. Each PSC will be chaired by the respective Chief Secretary and consist of Secretary of the Road Ministry, PIUPRDD, Regional level utilities, Central Environment Authority, GSMB, MENS, MOFP, MLGPC. It will oversee the implementation ofthe project.

9. A professional firm engaged as the “EngineerProject Manager” will be responsible for contract management and supervision. The engineerPM will be fully empowered as the “Engineer” in accordance with FIDIC stipulations. Each province will have a separate professional firm engaged as Engineer.

42 Uva Province

10. Due to the large size of the Uva rehabilitation component, a Project Implementation Unit (PIU) will be located within the PRDD will focus on project implementation. It is headed by a Provincial Project Director who is the Provincial Director of the PRDD. The PIU will be staffed by employees of the Provincial Council. However the unit will be complemented by individual consultants in the area of procurement, social and environmental safeguards, and contract management. The PIU will be responsible for:

e carrying out of all activities relating to project implementation in Uva, such as the finalization ofbid documents, procurement of works, goods and services; e in collaboration with the PCU, liaising with the Tender Evaluation Committees (TEC) and Procurement Committees and obtain the necessary approvals for the award of the contracts; e awarding as well as providing oversight for the implementation of the civil works contracts; e reporting, management and monitoring of all fiduciary issues, including procurement, financial management and environmental and social safeguards at provincial level; establishment and management of a grievance redressal mechanism; co-ordination of maintenance management activities undertaken under Component 2; management of supervision consultant in collaboration with the PCU; and submission of agreed financial and physical progress reports to the PCU.

11. The Project Director will be the “Employers Representative” and the two Chief Engineers who are designated as Deputy Project Directors will represent the Project Director at the District level.

Eastern Province

12. The PRDD of the Eastern Province will be responsible for the implementation of provincial roads projects being financed by all development partners. The Provincial Director of the PRDDs for Eastern Province (EP) will be responsible for the overall implementation as the overall Provincial Project Director. The additional staff supporting the project is shown in the organizational chart attached. The PRDDs staff will be complemented by individual consultants in the areas of procurement, environmental and social safeguards management.

13. Specifically the PRDD will be responsible for:

carrying out of all activities such as the finalization of bid documents, procurement of works, goods and services relating to project implementation in Ampara District; in collaboration with the PCU, liaising with the Tender Evaluation Committees (TEC) and Procurement Committees and obtaining of the necessary approvals for the award ofthe contracts; awarding as well as providing oversight for the implementation of the civil works contracts; reporting, management and monitoring of all fiduciary issues, including procurement, financial management and environmental and social safeguards at provincial level;

43 establishment and management of a grievance redressal,mechanism; and 0 coordination ofmaintenance management activities undertaken under Component 2; 0 management ofthe supervision consultant in collaboration with the PCU; and submission of agreed financial and physical progress reports to the PCU.

14. Since this component will be involved only in the rehabilitation of provincial roads in the Ampara district, a Chief Engineer at the district level will act as the coordinator in the field for the Project. The Provincial Project Director will be designated as the “Employer’s Representative”.

Northern Province

15. The PRDD of the Northern Province will be responsible for the implementation of provincial roads project. The Provincial Director of the PRDD for Northern Province (NP) will be responsible for the overall implementation as the overall Provincial Project Director. The additional staff supporting the project is shown in the organizational chart attached. The PRDDs staff will be complemented by individual consultants in the areas ofprocurement, environmental and social safeguards management.

16. The PRDD will be Specifically responsible for:

providing assistance to the PCU in the selection and appointment of the consultant for the carrying out ofthe feasibility study ofprovincial roads in the Jaffna district. carrying out of all activities such as the finalization of bid documents, procurement of works, goods and services relating to project implementation in Jaffna District; in collaboration with the PCU, liaising with the Tender Evaluation Committees (TEC) and Procurement Committees and obtaining of the necessary approvals for the award ofthe contracts; 0 awarding as well as providing oversight for the implementation of the civil works contracts; reporting, management and monitoring of all fiduciary issues including procurement, financial management and environmental and social safeguards at provincial level; establishment and management ofa grievance redressal mechanism; and coordination ofmaintenance management activities undertaken under Component 2; 0 management ofthe supervision consultant in collaboration with the PCU; and submission of agreed financial and physical progress reports to the PCU.

17. Since the rehabilitation ofprovincial roads under this project will be focused in the Jaffna district of NP, a Chief Engineer at the district level will act as the deputy Project Director in the field for the Project. The Provincial Project Director will be designated as the “Employer’s Representative”.

18. Tender Evaluation Committees (TEC) and Procurement Committees are committees situated both at the provincial and central government level to carry out various aspects of the procurement process, evaluation of all bids and proposals received. The TEC made up technical and financial staff will evaluate all bids and proposals received, prepare evaluation report and recommendation of award for clearance. The Procurement Committee made up of senior

44 government officials will review the recommendations of the TEC and grant the formal approval to proceed with contract award. The value of the contract will determine whether the relevant committees will be set up at provincial or central government level.

Reporting Arrangements

19. For ease of implementation and effective coordination, the Project DirectorProvincial Director will be required to report to the National Project Director at the PCU. All instructions from the Bank will be communicated to the PCU, which will then disseminate these to the provinces.

20. The following conditions of disbursement apply to implementation arrangements:

0 MLGPC, Eastern, Northern and Uva Provinces shall set up and monitor the project through National and Provincial Steering Committees. MLGPC shall sign implementation agreements with each Provincial Council.

45 I

t I ! 1 Organizational Structure Project Co-ordinating Unit - Colombo ’ i-- - ~ ------. -. - .. __ -- National Project

~ Director/Project Co- I

47 Project Director

,.-

Drivers (02) ' Drivers (02) Drivers (03) t

I

- ---_ - Office Assistants Office Assistant (01) (02)

48 Provincial Project Director (SLES)

f Drivers (01) I

I Drivers (02)

I Office Assistants : (01)

Office Assistant (04

49 NORTHERN PROVINCE ( fROWNCiAL RUADS PROJECT 1 I-_-- ”______~__.-----.I ___ I Provincial Project Coordinator Secretary I Ministry efLnfrgs_tr_uctgreDeveloment and Reconstruction f -- Provincial Project Director I Project implementation Unit - NP i h--f-----”

I Deputy Project Director ProjectA;,,untan; Senior Engineer Jaffna j f 1 [ 1 ---T----

50 Annex 7: Financial Management and Disbursement Arrangements SRI LANKA: Provincial Roads Project

Country Issues

1. The Country Financial Accountability Assessment (CFAA) for Sri Lanka published in June 2003, highlighted gaps and weaknesses in the institutional framework for the financial management of public resources. The assessment covered a wide range of processes including financial management and reporting practices at the three levels of government, public audit, and parliamentary control ofpublic funds.

2. Past experience with the counter-part funds in Road Sector projects has affected the implementation of the projects. This is largely attributable to the fact that the counterpart fund (CF) portion is quite significant and it is assumed that this project will not face this issue due to the project being 100 percent financed by IDA, inclusive oftaxes and hence no CF portion exist. Additionally, in an effort to improve the timeliness of the funds even with regard to

, Re-imbursable Foreign Aid (RFA), the number of layers in the fund flow structure has been' reduced. More details on this can be found in the section below on the flow of funds.

3. Weak internal audit is a systemic weakness in Government. Currently there is no institution in Sri Lanka providing comprehensive training in government internal audit. The project will use government internal audit departments attached to MLGPC and PCs. However the project will fund any capacity building that will be required to strengthen the departments and ensure fiduciary obligations are met. A request from Association of Government Accounts Organizations of Asia (AGAOA) to strengthen internal audit was recently approved by the Institutional Development Fund (IDF) review committee. This initiative too will improve the internal audit in the country, in the long term. Overall, fixed asset management within the public sector is inadequate. The project will have a structured fixed asset management program, and the Implementing Units will ensure that this is executed in a proper manner. CFAA has pointed out to weaknesses in public audit. More recently there have been significant delays in receiving audit reports for projects in the WB portfolio. Some delays are attributed to lack of adequate number of staff in certain regional offices and some due to delays by the Clients in providing financial statements and other information to the auditors. Auditor General is in the process of filling up the vacancies. At the country level efforts are being made to modernize the Auditor General's office by strengthening four keys areas: Human Resources, Audit Methodology, IT, and Communications. Legal reforms are also under way with plans to introduce a new Audit Act. IDA team will closely monitor to ensure the timely submission of project annual financial statements by the three implementing units.

Implementation

4. There are four Implementing Agencies for this project. Namely, Provincial Roads Development Departments (PRDD) of the three Provincial Councils and Ministry of Local Government and Provincial Councils (MLGPC). The Executing Agency for the project will be

51 the MLGPC which will oversee and coordinate the work of the provinces included under this project. MLGPC has past experience in project execution, under RSAP - rural roads pilot project.

5. The MLGPC has a Project Coordinating Unit (PCU) headed by a National Project Director, which will oversee the smooth implementation of activities in all of the provinces. For Uva Province, Project Implementation Unit (PIU) consisting of PRDD staff has been established to carry out the implementation of the project. For Eastern Province and Northern Province, the project will be implemented by the PRDD of Eastern PC and PRDD of Northern PC respectively. For Eastern, Northern and Uva Provinces, PRDD staff of the PC headed by a Provincial Project Director, who is the Provincial Director of the PRDD, will carry out all project related activities such as procurement, financial management and safeguards implementation.

Risk Analysis

Risk Residual Remarksmescription Mitigating Measures. Risk of risks INHERENT RISK Country level - Quality of PFM Risk associated with PFM programs are being institutions governance and implemented. However, the oversight results will be long term - Liquidity status of Due to strain on No Counterpart Funds for the Government liquidity, the project. Government has issues in the remittance of Counterpart Funds for Droiects Entity level - Impact of civil S i)Transfer of Staff i)Project staff are all seconded service rules from the PC/MLGPC. Hence the risk of being transferred is at minimum. Agreements to be reached with Government that trained staff will be kept throughout project duration ii) Low remuneration structures resulting in ii)Project staff are paid additional low morale allowances as per Mgt Service Circular no. 33.

52 PIU (Uva)

Risk Residual Description of risks Mitigating Measures Risk CONTROL RISK StaffingIAccounting i)Poor FM capacity, i) The use of existing PIU Indiscriminate transfer of FM with adequate staffing under staff and high turnover of the PC. Existing experienced staff. staff will be kept throughout project duration

ii)CIGAS needs to be ii)With the experience of developed and modified to other foreign funded projects generate required information (e.g. ADB) have successfully and reports. taken this approach, the system (CIGAS) will be modified and closely aligned with project management requirements. Auditing The Internal Audit (LA) The LA function will be function at the Provincial exercised at the MLGPC level. Council (PC) level has certain constraints*

PRDD (EastNorth)

Risk Residual Description of risks Miiigating Measures Risk CONTROL RISK StaffingIAccounting S ii) Poor FM ii) Theuseof capacity, existing PRDD inadequate staff and staff to qualified people be trained by PIU in the Finance Uva, once the Dept and lack of arrangements of exposure in PIU Uva is in Foreign funded place. This staff projects. will be kept throughout project duration. PCU will also provide hand holding support during initial ii) Lack of knowledge in the stages modified version of CIGAS ii).PIU Uva to train the staff on the modified version of the CIGAS module

53 I Auditing 1s I The Internal Audit (IA) I The IA function will be function cannot be done at the exercised strengthened at PC Provincial Council (PC) level. level, due to inadequate capacity at the PC level. Financial Reporting Need to have acceptable Inclusion of a Disbursement & Internal controls financial management conditions to this effect Earrangement for the Bank

Risk Residual Description of risks Mitigating Measures. Risk CONTROL RISK Staffing/Accounting Poor FMcapacity, The use of existing PCU indiscriminate transfer of with adequate staffing FM staff and high turnover under the MLGPC. Existing of staff experienced staff will be kept throughout project I-duration

Auditing S MLGPC internal Audit Capacity building initiative capacity is also weak. also to be considered to overcome certain weaknesses apparent in the IA at MLGPC.

Strengths

6. PIU (I/va). The PIU has already managed an ADB funded roads development project. The finance staff are capable of handling the project under IDA regulations and government regulations relevant to foreign-funded projects, through their experience and knowledge by handling the ADB project mentioned above. The PIU has a fully functional finance unit headed by an Accountant and consist ofan experienced Financial Assistant and some support staff. They have also developed and modified the CIGAS to meet the reporting requirements of the ADB project. This tried and tested system will be used and further modified to fulfill the needs of the PRP.

7. PCU The PCU created for RSAP will handle all aspects of implementation of the Component 3. The existing FM staff of the PCU have the capacity to handle IDA funds and are very familiar with the regulations and requirements governing IDA funded projects.

54 Weaknesses and Action Plan Table 7.1. PCU -FM Assessment Responsible Completion Weakness Mitigating actions I 1 Date ~ I 1. Weaknesses in 1. Continuously monitor the quality and Chief On-going preparation of Interim accuracy of IUFRs. Under RSAP, PCU Accountant Unaudited Financial had prepared satisfactory IUFRs. These Reports (IUFRs) would have gone through further improvements by the time the PRP commences 2. Increasing workload of 2. Plans are under way, to recruit an Chief Completed PCU Accountant, with accounts clerk to help the Accountant, Accountant the addition ofnew manage the increase in work load project, with the already existing one (Le. RSAP)

Implementing UnitsBntities

8. PIU (Uva). The overall financial management and procurement responsibilities for the Uva province under Component 1 and 2, lie with PIU Uva which will ensure that satisfactory financial management arrangements are maintained for the province under its purview, throughout the life of the project. This PIU consists of PRDD staff in Uva Provincial Council (PC) and was established for the Asian Development Bank (ADB) funded project and will be used for the project

9. PRDD (East) and PRDD (North). The overall financial management and procurement responsibilities for the Eastern and Northern province under component 1 and 2, lies with PRDD East and PRDD North respectively which will ensure that satisfactory financial management arrangements are maintained for the province under its purview, throughout the life of the project.

10. PCU. The overall financial management responsibilities for the activities for Component 3 lie with PCU, under the MLGPC. The PCU has already been established for the Road Sector Assistance Project (RSAP) - Rural Roads Pilot and is satisfactorily managing financial management activities related to their component ofRSAP.

Budgeting 11. PIU (Uva).The component managed by the PIU will have a separate budget line in the PC budget. The budget will be developed in mutual agreement and discussion between IDA and PIU staff. Currently, the PIU has knowledgeable individuals who plans and develops budgets based on valid assumptions. PIU has gained experience by handling the ADB project as well.

12. PRDD (East) and PRDD (North). The component managed by the unit will have a

55 separate budget lines in the respective PC budget. The budget will be developed in mutual agreement and discussion between IDA and PRDD staff. Handholding support is to be given by the PCU which has previous experience in road development projects.

13. PCU. The component managed by the PCU will have a separate budget line in the MLGPC budget. The budget will be developed in mutual agreement and discussion between IDA and PCU staff. Currently, the PCU has knowledgeable individuals who plans and develops budgets based on valid assumptions. PCU has gained experience by handling the RSAP project as well.

Accounting

Project Staffing

14. PIU (Uva). The PIU presently has two experienced accounts personnel and adequate support finance staff. They have extensive public sector accounting experience by managing the Government budget assigned to the Provincial Roads Department. Additionally, they have demonstrated experience and confidence oftheir capability to manage foreign funded projects by managing the ADB project in the past.

15. PRDD (East). The PRDD presently has a Chief Accountant who has public sector accounting experience and some support finance staff. Due to lack of experience in foreign funded projects and the absence of adequately qualifiedexperienced staff, their capacity will have to be strengthened.

16. PRDD (North). The PRDD presently has an Accountant who has public sector accounting experience and some support finance staff. Due to lack of experience in foreign funded projects and the absence of adequately qualified/experienced staff, their capacity will have to be strengthened.

17. PCU. The Finance-related activities in the PCU within the MLGPC will be overseen by the Chief Accountant in the ministry. The Chief Accountant overseas and manages all aspects of financial management of the ongoing RSAP. Hence he has adequate knowledge and experience in IDA’SFM, disbursement and reporting requirements. An assistant has been recruited to work with him and this will help manage the additional work load ofthe new project.

Accounting Policies and Procedures

18. PIU (Uvu). PIU will maintain accounts on the cash basis of accounting and will also comply with the Government FRs and relevant circulars. The finance staff has prior experience in working in ADB funded project and this accounting environment will be modified to suit IDA requirements.

19. PRDD (Eust/PRDD (North). PRDD will maintain accounts on the cash basis of accounting and will also comply with the Government FRs and relevant circulars.

56 20. PCU. PCU will maintain accounts on the cash basis of accounting and comply with the Government Financial Regulations and relevant circulars. The finance staff has already gained experience working with IDA funded RSAP project.

21. Project-specific accounting and reporting procedures will be laid down in financial manuals of PIU Uva,, PRDD East and North that will outline clear directions for all the activities. The FM manual was developed by PIU Uva and has been finalized and cleared by IDA, the same will be adopted to PRDD East and PRDD North. The FM manuals will complement the existing FRs and circulars ofthe Government by elaborating administrative and other procedures that should be in place to facilitate compliance with Government regulations and filling any gaps that may be found in the Government regulations. PCU will follow the existing procedures implemented under RSAP.

Information System

22. PIU (Uva). The computerized integrated government management information system, commonly known as CIGAS has been modified and used by the PIU to meet requirements ofan ADB project, which was implemented by the PIU. It has been agreed that this system will be further developed by a Government IT specialist to suit IDA’Sreporting requirements.

23. PRDD (East) and PRDD (North). The staff is familiar with the CIGAS system used for government accounting. The modified version of CIGAS developed by PIU Uva will be transferred and staff will also be trained on this system once it is in place for PIU Uva. Until the computerized version is installed in these two provinces, manual accounting systems will be utilized.

24. PCU. Currently a manual accounting system supported by excel based spreadsheets to maintain data and generate reports is used by the PCU to record transactions of the project. This has produced satisfactory IUFRs under RSAP and this will continue under the new project.

Safeguarding project fixed assets

25. PIU (Uva). Under the ADB project, the PIU had used a system to safeguard the fixed assets of the project. The system used will ensure that records of fixed assets and stocks are kept up to date and reconciled with control accounts and assets have been adequately insured. This procedure will also be incorporated in the FM manual that has been currently developed by the PIU.

26. PRDD (East) and PRDD (North). Currently only a manual system is in place for fixed asset management. The PRDD East will also fall in line with the system of PIU Uva, once it is in place.

27. PCU. Current system used under RSAP will be continued under the new project.

57 Internal Controls and Internal Auditing

28. InternaZ Controls. The PCU, PIU Uva and PRDD East and PRDD North will follow the central government Financial Regulations (FRs) and central government circulars. FRs and other relevant circulars address all aspects of procedures and controls necessary for authorizing, approving, executing, recording, and reporting expenditure. These procedures/controls are considered to be adequate and any additional internal control procedures will be specified in the project financial manuals to bridge any gaps and to promote outcome/output focused accountability.

29. InternaZ Audit. In addition to the regular financial statement audit, the PIU Uva, PRDD East and PCU will be subjected to an ongoing financial audit by GOSL internal auditors attached to the MLGPC and the respective PCs. The internal audit for PIU Uva has to be executed at the MLGPC level as at the provincial level the capacity is not adequate. PRDD East and North internal audits would be done by the Eastern PC and Northern PC internal auditors respectively.

30. Internal audit reports will be shared with IDA on a quarterly basis along with the response from the PIU Uva, PRDD East and PCU.

Funds Flow

31. Four Designated Accounts (DAs) will be set up and maintained in US dollars at the Central Bank of Sri Lanka by the PIU Uva, PRDD East, PRDD North and PCU. The fund flow mechanism for each ofthe four entities is given below separately.

PIU (Uva). 32. IDA funds: Uva Province has requested and obtained “budget lines” to accommodate funds for the project. One DA will be opened at the Central Bank, for the expenditures incurred by the PIU. The PIU will use the report based disbursement method for the replenishment of the DA. Initially the PIU will prepare and submit a six-month cash forecast for IDA funds. IDA will advance/deposit the forecasted funds in the DA. The PIU would utilize funds for project purposes, prepare and submit IUFRs to IDA on a quarterly basis indicating the expenses incurred for the quarter and the forecast for the following two quarters. Based on this IUFR, IDA will then advance again the requested funds to the DA.

33. RFA funds: The PIU will also prepare and submit to Treasury, one month cash forecast for RFA funds. Treasury will advance/deposit these funds in the PIU project account. The PIU will utilize funds for project purposes, prepare and submit Expenditure Statements to Treasury on a monthly basis indicating the expenses incurred for the month and the forecast for the following two months. Based on this statement, Treasury will then reimburse themselves and advance again the requested funds to the PIU. Treasury will advance RFA directly to the PIU project account, without going through the PC Treasury.

34. In the case of large payments, IDA can be requested to make direct payments to suppliers. Central Bank also can make direct payments to suppliers on the instructions and on

58 documentation provided by the PIU (Treasury will be copied in the instructions and documentation).

35. A project rupee account will be opened to easily track the inflow and outflow of funds. All project-specific payments relating to Uva will be made by the PIU. RFA funds will be transferred directly to PIU, without channeling the funds through the Provincial Treasury.

PRDD (East) and PRDD (north). 36. IDA funds: Eastern Province and Northern Province have requested and obtained “budget lines” to accommodate funds for the project. One DA each will be opened at the Central Bank, for the expenditures incurred by the PRDD East and PRDD North. The PRDD will use the report based disbursement method for the replenishment ofthe DA. Initially the PRDD will prepare and submit a six month cash forecast for IDA funds. IDA will advance/deposit the forecasted funds in the DA. The PRDD will utilize funds for project purposes, prepare and submit IUFRs to IDA on a quarterly basis indicating the expenses incurred for the quarter and the forecast for the following two quarters. Based on this IUFR, IDA will then advance again the requested funds to the DA.

37. RFA funds: The PRDD will also prepare and submit to Treasury, a one month cash forecast for RFA funds. Treasury will advance/deposit these funds in the PRDD project account. The PRDD will utilize funds for project purposes, prepare and submit Expenditure Statements to Treasury on a monthly basis indicating the expenses incurred for the month and the forecast for the following two months. Based on this statement, Treasury will then reimburse themselves and advance again the requested funds to the PRDD. GOSL will advance RFA directly to the PRDD project account, without going through the PC Treasury.

38. In the case of large payments, IDA can be requested to make direct payments to suppliers. Central Bank can also make direct payments to suppliers on the instructions and on documentation provided by the PRDD (Treasury to be copied in the instructions and documentation).

39. A project rupee account each will be opened to easily track the inflow and outflow of funds. All project-specific payments relating to the respective Provinces will be made by the PRDD. RFA funds will be transferred directly to PRDD, without channeling the funds through the Provincial Treasury.

PCU 40. IDA funds: MLGPC have requested and obtained “budget lines” to accommodate funds for the project. One DA will be opened at the Central Bank, for the expenditures incurred by the PCU. The PCU will use the report based disbursement method for the replenishment of the DA. Initially the PCU will prepare and submit a six month cash forecast for IDA funds. IDA will advance/deposit the forecasted funds in the DA. The PCU will utilize funds for project purposes, prepare and submit IUFRs to IDA on a quarterly basis indicating the expenses incurred for the quarter and the forecast for the following 2 quarters. Based on this IUFR, IDA will then advance again the requested funds to the DA.

59 41. RFA funds: The PCU will also prepare and submit to Treasury, one month cash forecast for RFA funds. Treasury will advance/deposit these funds in the PCU project account. The PCU will utilize funds for project purposes, prepare and submit Expenditure Statements to Treasury on a monthly basis indicating the expenses incurred for the month and the forecast for the following two months. Based on this statement, Treasury would then reimburse themselves and advance again the requested funds to the PCU. GOSL will advance RFA directly to the PCU project account, without going through the MLGPC Treasury.

42. In the case of large payments, IDA can be requested to make direct payments to suppliers. Central Bank can also make direct payments to suppliers on the instructions and on documentation provided by the PCU (Treasury will be copied in the instructions and documentation).

43. A project rupee account will be opened to easily track the inflow and outflow of funds. All project-specific payments relating to Component 3 will be made by the PCU. RFA funds will be transferred directly to PCU, without channeling the funds through the MLGPC.

Documents Flow

44. IDA funds: For the replenishment of their respective DAs, PIU Uva, PRDD East and PRDD North will submit the IUFRs to PCU on a quarterly basis along with the relevant Withdrawal Applications (WA). PCU in turn will submit the IUFRs and WAS for PIU Uva, PRDD East, PRDD North and PCU to IDA with copies to Treasury. The signatories for the documents need to be decided by the Government. The documents of PIU Uva, PRDD East and PRDD North shall include at least one signature from the PIUUvaPRDD East/PRDD North and one signature from the PCU. Upon receipt of IUFRs from PIU Uva, PRDD East, PRDD North and PCU will do the consolidation of the sources and uses of funds for PIU Uva, PRDD East, PRDD North and PCU and submit to IDA.

45. RFA funds: For the replenishment of their respective Project Rupee Accounts, PIU Uva and PRDD East and PRDD North will submit the Expenditure Statements to PCU on a monthly basis along with the relevant documents. PCU in turn will submit the relevant documents for PIU Uva, PRDD East, PRDD North and PCU to Treasury. The signatories for the documents need to be decided by the, Government. The documents from PIU Uva, RDD East and PRDD North PRDD North shall include at least one signature from the PIU UvaPRDD East and one signature from the PCU. The PIU Uva, PRDD East and PRDD North will also send a copy ofthe credit advice for RFA funds received to their respective PC.

Disbursement Arrangements

46. The PIU Uva, PRDD East, PRDD North and PCU will follow report based disbursement procedures. IUFRs should be submitted within 45 days after the end of each quarter. Four DAs will be opened at the Central Bank and managed by Treasury. The DAs will be operated according to terms and conditions acceptable to IDA.

60 Financial Reporting

47. The PIU Uva, PRDD East, PRDD North and PCU will use IUFRs to report to IDA on a quarterly basis. The formats of IUFRs, designed in accordance with the guidelines issued by IDA will be agreed during negotiations. In addition, the PCU will prepare a one-page consolidation of the “sources and uses” of project funds statement of the PIU Uva, PRDD East, PRDD North and PCU and submit to IDA on a quarterly basis.

48. The Secretary, MLGPC will be held overall accountable to IDA, for the appropriate and diligent use ofproject finances. The PIU Uva, PRDD East and PRDD North under the leadership of the Provincial Project Directors, will be answerable to the Secretary MLGPC through Chief Secretary of the respective provinces for the use of project funds. The PCU under the leadership of the National Project Director will be answerable to the Secretary, MLGPC for the use of project funds.

External Audit

49. The audit of the PIU Uva, PRDD East, PRDD North and PCU will be carried out annually by the Auditor General of Sri Lanka (AG). The AG is the supreme audit institution of Sri Lanka and has been accepted by IDA. Separate audit reports will be submitted to IDA on the Annual Financial Statements of the PIU Uva, PRDD East, PRDD North and PCU. The audit reports will be due within six months from the financial year end, by June 30th of each year. Currently, there are no outstanding audit reports or material audit findings for projects being implemented by MLGPC, Uva PC, Eastern PC and Northern PC.

Audit Reports

50. The following audit reports will be monitored in Audit Reports Compliance System (ARCS).

61 Table 7.3 Audit Reports Implementing Audit Report Auditor Date Agency Project Annual Financial PRDD (East) Statements Auditor General June 30 Project Annual Financial PRDD(North) Auditor General June 30 Statements Project Annual Financial PIU (Uva) Auditor General June 30 Statements Project Annual Financial PCU Auditor General June 30 Statements

Financial Covenants

0 Audited annual financial statements to be submitted to IDA no later than six months of the following fiscal year.

0 IUFRs to be submitted to IDA no later than 45 days following the end of the reporting quarter.

Conditions of disbursement Disbursements for PRDD (East) to be initiated after necessary FM arrangements satisfactory to the IDA is in place. This includes: (i)FM staffing arrangements is agreed, (ii)training of PRDD East staff by PIU Uva is completed, (iii)FM Manual ofPIU Uva is adopted for PRDD

0 Disbursement for PRDD (North) to be initiated after necessary FM arrangements satisfactory to IDA is in place. This includes: (i)FM staffing arrangements is agreed, (ii)training of PRDD North staff by PIU is completed, (iii)FM manual of PIU Uva is adopted for PRDD North Supervision Plan 5 1. This proposed project has a “substantial” financial management risk rating. Consistent with the risk based approach to supervision, a substantial portion of the supervision activities will consist of desk reviews of internal and external audit reports, quarterly financial reports, fixed asset physical verification reports supplemented by dialogue with the project staff as needed, especially in the initial years. As and when required, other financial management supervision tools such as expenditure reviews, site visits and joint missions with procurement will be used in an effort to periodically monitor the adequacy of financial management systems.

62 Table 7.4. Allocation of Credit Proceeds

Expenditure Category Amount of the Percentage of Credit Allocated Expenditures to be US$ Financed

(1) Goods, works and consultants’ services 59,200,000 100% and operating costs for the Project under Part A. 1 and B. 1 of the Project

(2) Goods, works and consultants’ services 2 1,000~000 100% and operating costs for the Project under Part A.2 and B.2 of the Project

(3) Goods, works and consultants’ services 21, 000,000 100% and operating costs for the project under part A.3 and B.3 of the project

(4) Goods, and consultants’ services, 3,800,000 100% training and operating costs for the Project under Part C of the Project

TOTAL AMOUNT 105,000,000

The entire project costs inclusive of taxes will be financed by IDA

52. The fund flow and document flow diagrams are shown below:

63 64 65 66 67 - Document Flow

68 - Document Flow

69 70 71 Annex 8: Procurement Arrangements

SRI LANKA: Provincial Roads Project

A. General

1. Procurement for the proposed project would be carried out in accordance with the World

Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits 'I dated May 2004 revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank

Borrowers 'I dated May 2004 revised October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. All expected major procurement of goods, works and consultants' services, as applicable, will be announced in the General Procurement Notice (GPN), to be published in the dgMarket and United Nations Development Business (UNDB).

3. The total project cost is US$l05 million of which procurement of works, goods and consultant's services will be US$85.5 million. The cost under each category of contract will be as follows:

a. Procurement of Works - US$72.50 million b. Procurement of Goods US$3.0 million c. Selection of Consultants - US$10.2 million

4. Procurement of Works: Works procured under this project will include the rehabilitation of about 300 km of existing provincial roads. Most of the contracts in Uva Province will be procured through ICB. Contracts in Eastern and Northern Provinces will be smaller in value and will mostly be procured under NCB. Bidding documents for the first phase, comprising five contract packages for Uva Province, were ready by negotiations. The procurement will be done using the Bank's Standard Bidding Documents (SBD) for all ICB and National SBD for NCB satisfactory to the Bank.

5. Procurement of Goods: No major goods contracts are envisaged under this project; the procurement being mostly limited to vehicles and office equipment such as computers. Some laboratory equipment will also be procured. Most of the contracts will be procured through shopping and NCB procedures. The procurement will be done using National SBD for NCB satisfactory to the Bank.

6. Selection of Consultants' Services including Capacity Building: There will be two large value consultancy assignments are envisaged under the project, for construction supervision of

72 the civil works. The consultancy assignments under this project will include engagement of individual consultants and firms. Firms will be selected through QCBS procedures. Short lists of consultants for services estimated to cost less than US$200,000 or equivalent per contract may be composed entirely of national consultants, in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Other methods of selection, QBS, LCB, FBS and COS will be used appropriately for contracts costing less than US$ 100,000 equivalent, Single Source Selection will be used where justified.

7. Individual consultants will be procured through comparison of CVs and sole source basis where justified.

8. Operating Costs: The incremental operating costs of the PCU and PIUs and PRDDs will be financed by the project and procured using the implementing agency’s administrative procedures. Incremental costs include any reasonable costs incurred for the implementation of the project but excluding salaries ofthe borrower’s civil service.

9. National SBDs to be used for NCB for works and goods contracts will be agreed with the Borrower.

B. Assessment of the agency’s capacity to implement procurement

10. Procurement activities will be carried out by the PIU already established at the Uva Provincial Road Development Department (UPRDD), the Eastern Provincial Road Development Department (EPRDD) and the Northern Provincial Road Development Department (NPRDD). The PCU of the Ministry of Local Government and Provincial Councils (MLGPC) will coordinate all the procurement activities with the Bank. The PCU will be managed by a National Project Director with the support of technical specialists, including a procurement consultant who is already in position.

11. An assessment of the capacity of the PCU and PRDDs to implement procurement actions for the project has been cmied out by the Bank’s procurement staff, in March and September 2009. to the assessment evaluated the capability of the implementing agencies and of the adequacy of systems in place to administer WB-financed procurement and assess the risks that may negatively affect ability ofthe agency to carry out the procurement process. The assessment evaluated the capability of the implementing agencies and the adequacy of systems in place to administer WB-financed procurement and assessed the risks that may negatively affect ability of the agency to carry out the procurement process. The assessment reviewed the organizational structure the Provincial Road Development Departments Divisions of Eastern, Northern and Uva Provincial Councils and the interaction between the staff of the PCU responsible for procurement. Although the PCU at the Ministry, is currently handling the procurement of the Bank funded Road Sector Assistance Project, it is only implementing medium scale works contracts, none of the three implementing units hasactually experience in managing and implementing procurement in WB-financed projects ofthe magnitude of the PRP.

12. Two additional individual Procurement staff are to be hired under the Project, one to be responsible for providing full in-line procurement support to Uva and one to be shared between

73 Northern and Eastern PRDDs. Until these additional Procurement consultants are in position, the services of the procurement consultant of the PCU will be utilized for providing procurement assistance to the PRDDs.

13. Given the limited capacity of the PCU and PRDDs, at this stage, the overall project risk for procurement is rated as “High”.

14. Procurement capacity will continue to be reassessed during regular procurement support missions during the project implementation phase; and the procurement support and capacity building requirements will be revisited.

15. Mitigating Measures: The following steps will be followed as a part of procurement risk mitigation: a. The full time procurement consultant, currently engaged in preparation ofbidding documents, will continue to be contracted to provide hands-on procurement assistance to the procurement staff of the PCU and the PIUs handling procurement activities under the Project and responsible for all procurement planning, processing, and monitoring of the Project procurement activities. Individual Procurement consultants will also be procured to assist each of the PIUS. b. A dedicated PRDD staff member will be assigned as the procurement officer in each of the, PCU and PRDDs. These Procurement Officers will be assigned upfront to handle the procurement activities. The procurement officers will be designated as the focal person for procurement, and act as counterparts to the Procurement Consultants providing Technical Assistance. There will be a specific provision for training in Bank’s Guidelines upfront. c. The individual consultant procurement consultants will also provide on-the-job training to their counterpart procurement Officers and key procurement staff of the PCU and the PIUs. This will align the project staff with the Bank’s procurement procedures and will introduce methods for identifying and mitigating risks, including corruption mapping and risk mitigation measures. In addition, the project will facilitate formal training of the Procurement Officers through the Bank sponsored courses. The Bank will also facilitate training sessions on Government’s procurement policy and procedures as applicable to Bank financed projects to avoid potential confusion between the government procurement procedures viz-a-viz Bank procurement procedures and the likelihood of delays in evaluation of bids and other procurement processing. Other short-term training will also be provided to selected key staff including members of the evaluation committees in line with the actual procurement needs of the project, as identified during implementation. d. Mitigation measures will also include enhanced Bank supervision missions, with: procurement oversight and support recommended at six month intervals; low prior review thresholds; frequent post-procurement reviews every six months of a 30 percent sample of the contracts not subject to prior review - with structured

74 follow-ups to ensure dissemination of the lessons learnt; plus technical audits as deemed necessary; and e. regular monitoring ofthe procurement related performance indicators as agreed to be presented through quarterly reports, as described below: i. Disclosure of Information: The results of the bidding for all contracts is to be published in national newspapers with a wide circulation and on the website ofthe MLGPC; .. 11. Competitiveness of the Bidding Procedure: Information relating to adequate advertisement of invitations for bids, number of bidding documents sold to bidders, number of responses received, number of responsive bidders, etc; ... 111. Information on Corrupt Practices: Information on corrupt practices undertaken by bidders/ consultants, if any, and actions taken by the Borrower; and

iv. Complaint Handling System: A credible system for handling of complaints will be put in place in the PCU and PIUs. This will include information regarding details of complaints, the disclosures and redressal mechanism, the findings and action taken.

g. In addition to the above, the corrective measures to address key risks have been identified in the governance and accountability action plan (GAAP), agreed with the Borrower. It is expected that with the implementation of the agreed GAAP, together with the above arrangement, the residual procurement risk will be “Substantial”.

C. Frequency of Procurement Supervision

16. In addition to the procurement prior reviews to be carried out from Bank offices, bi-annual supervision missions will visit the field to carry out the post-procurement reviews and to advise and support the PCU and PIU procurement activities. With additional Country Office procurement support missions also planned to enhance assistance as necessary.

D. Procurement Plan

17. At appraisal, the Borrower developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team. The detailed plan for the Northern component would be included after the feasibility study is completed. It will be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs.

75 E. Details of the Major Procurement Arrangements

1. Works Contracts

(a) List of ICB contracts to be procured are listed below. Contracts will be procured as two packages ofmultiple contracts.

1 2 3 14 5 6 17 8 Ref. No. Contract Description Estimate Procur P-Q Expected d Cost ement Bid- (in US$ Method Opening million) Date

Package UVA 1-Kottegoda- 6.68 ICB N/A September A Podumita-Adiy arawatte- 24,2009 Maspanna-Yalagamuwa UVA 3-Muppona- 5.35 ICB N/A Wedikumbura- Thenagallanda T UVA 4-Haggala-Ford- 6.42 ICB NIA McDonald Package UVA 2-Galauda- 9.28 ICB N/A November B Kandaketiya-Karmetiya 26,2009 1 Road UVA 5 -Medithale- N/A Prior Pathnawawatta - Tennapanguwa- Kiriwehera

(a) All works contracts estimated to cost above US$5.0 million equivalent per contract will be procured using ICB. All other works contracts will be procured using NCB.

(b) All works contracts estimated to cost above US$2.0 million equivalent per contract and all direct contracting will be subject to prior review by the Bank.

(c) The road maintenance methods and the related procurement requirements are to be identified through a diagnostic study of the options available. The options under consideration will include Force Account and Community Driven Development, with associated procurement arrangements

2. Goods (including IT Systems and Non Consulting Services)

(a) No major goods contracts are envisaged at this time.

(b) All goods contracts estimated to cost above US$300,000 equivalent per contract will be procured using ICB. Goods contracts cost above US$50,000 equivalent per contract will be procured using NCB. Goods of very small contracts or individual purchases of off-the-shelf

76 items costing less than US$50,000 equivalent per contract may be procured through shopping procedures.

(c) All goods contracts estimated to cost above US$300,000 equivalent per contract and all direct contracting will be subject to prior review by the Bank.

3. Consulting Services

(a> Maior contracts to be urocured: 1 l2 3 4 5 6 Comments Review Expected Ref. Description of cost Selection by Bank Proposals No. Assignment Estimate Method (Prior / Submission US$ Post) Date

Construction QCBS I Prior I November 5, Supervision of the Uva Province rehabilitation works I 12009 Supervision of the 1.0m January 15, Eastern Province rehabilitationworks Supervision of the 1.0m QCBS I Prior I ZJ0”lb”at-y15, Northern Province rehabilitation works

(b) Unless otherwise agreed in the Procurement Plan, all consultancy firms will be selected through QCBS methods. Other methods of selection ofconsultants will be:

(a) Quality Based Selection (b) Selection Under a Fixed Budget (c) Least-cost Selection (d) Selection Based on Consultants’ Qualifications (e) Single Source Selection (f) Individual Consultants

(c) Consultancy services (i)estimated to cost above US$lOO,OOO per contract for firms; (ii) estimated to cost above US$50,000 per contract for individuals and (iii)single source selection of consultants for both firms and individuals will be subject to prior review by the Bank.

(d) Short lists of consultants for services estimated to cost less than US$ 200,000 or equivalent per contract may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 of the Consultant Guidelines.

(e) TORSfor consultancy services will be shared with the Bank.

77 4. Special Considerations for NCB: In order to ensure economy, efficiency, transparency and broad consistency with the provisions of the Procurement Guidelines, goods, works, and non- consulting services procured under the National Competitive Bidding (NCB) method shall be subject to the following requirements:

e Only the Sri Lanka-specific SBD satisfactory to the Bank (and as amended from time to time and agreed with the Bank) will be used.

e Invitations for bids will be advertised in at least one widely circulated national daily newspaper, and bidding documents will be made available at least twenty-one (21) days before, and issued upto, the deadline for submission ofbids.

e Bidding documents will be issued by mail or in person to all who are willing to pay the required fee.

e Foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders (including state-owned enterprises or small-scale enterprises) in the bidding process. No special preferences will be accorded to any enterprises or bodies.

e Qualification criteria will be stated in the bidding documents, and if a registration process is required, a foreign firm declared as the lowest evaluated responsive bidder shall be given a reasonable time for registering, without let or hindrance.

e There will not be any restrictions on the means of delivery of the bids, which shall be either through post or hand-delivered. Electronic submissions will not be permitted.

e Bids will be opened in public in one location, immediately after the deadline for the submission of bids, as stipulated in the bidding document (the bidding document will indicate the date, time and place ofbid opening).

e Evaluation of bids will be made in strict adherence to the criteria disclosed in the bidding document, in a format and within the specified period agreed with the Bank, and within the bid validity period specified in the bidding document.

e Except in cases of force majeure or exceptional situations beyond the control of the implementing agency, the extension of bid validity will not be allowed without the prior concurrence of the Bank: (i) for the first request for extension if it is beyond four weeks, and (ii) for all subsequent requests for extension irrespective ofthe period.

e Contracts will be awarded to the lowest evaluated responsive bidder.

e Bids will not be rejected merely on the basis of a comparison with an official estimate, without the prior concurrence ofthe Bank.

78 Except with the prior concurrence of the Bank, there will be no negotiation of price with bidders, even with the lowest evaluated bidder.

Re-invitation ofbids will not be carried out without the prior concurrence of the Bank.

All bidders and contractors/suppliers shall provide bid and performance securities as required in the bidding and contract documents.

A bidder’s bid security will apply only to the specific bid, and a contractor’s performance security will apply only to the specific contract under which they are furnished.

Bids will not be invited on the basis of percentage premium or discount over the estimated cost, unless agreed with the Bank.

79 Annex 9: Governance and Accountability Action Plan

SRI LANKA: Provincial Roads Project

1. The Governance and Accountability Action Plan (GAAP) developed for the proposed Sri Lanka Provincial Roads Project is designed to reflect the joint responsibility ofthe implementing agencies and the Bank in ensuring good governance and cost effectiveness in project implementation. The GAAP has been developed within the framework ofthe Country Assistance Strategy (CAS) for Sri Lanka for the period of FY2009-2012, incorporates lessons leamt from other Bank-funded projects and includes recommendations of the Transport Sector GAAP Guidance Note developed by the World Bank for transport projects.

2. GAAP is a living document and will be adjusted and modified to reflect emerging governance issues and suggest new appropriate solutions during project implementation. It will be monitored regularly through appropriate indicators which will be reflected in the monthly progress reports and supervision missions.

Strengths of the existing governance framework in Sri Lanka

3. The existing Governance framework of the Country embedded in the Financial and Administrative regulations addresses governance issues that are pre-requisite for cost effectiveness and transparency. The CAS also recognizes that Sri Lanka has made a number of significant reforms in procurement over the past several years whilst both financial management and public procurement need strengthening. These include development of the regulatory and organizational foundation for effective public contracting, drafting regulations, development of standard bidding documents, establishment of procurement units in major spending agencies, training of officials, and initiation of the basic structure for reporting and monitoring on procurement.

Main governance-related issues that need attention

The GAAP is aimed at strengthening such areas as organizational arrangements and procedures, project design, contract management and supervision, procurement, and financial management. The main risks identified in these areas include: (i)possible fraud and corruption related to project design; (ii)limited financial management and financial record keeping; and (iii)not sufficiently comprehensive site visits and detailed physical inspections during supervision. The need to strengthen information disclosure requirement related to procurement decision-making is also recognized.

Objectives of GAAP

4. The main goal ofthis GAAP is to contribute to strengthening of sector-level governance mechanisms and increase in the demand for transparency and accountability at the road sector level by addressing several governance issues identified during the preparation of the new CAS

80 which this project has the appropriate capacity and knowledge to tackle. It has been acknowledged that all concerned parties - implementing agencies, the Bank, and the beneficiaries - will have to be part of the implementation of this GAAP in order to ensure the successful accomplishment of its objective.

5. The GAAP for this project is designed to achieve the following objectives:

0 To broaden stakeholder participation in design, monitoring and evaluation ofthe project; 0 To strengthen feedback mechanisms between users and suppliers; 0 To bring the decision-making process closer to the beneficiaries; and 0 To strengthen the Bank’s attention to and mitigation of fiduciary risks in (i)project design and (ii)project supervision.

6. Overall responsibility for implementation and monitoring of the GAAP will remain with MLGPC/PCU. Each PRDD will be responsible for ensuring implementation of GAAP and reporting on GAAP implementation progress to MLGPC/PCU. A person responsible for safeguards implementation in each PRDD will be designated to monitor and report on the use of the grievance redressal mechanism (GFW).

Key features of GAAP

7. Design Stage. To effectively strengthen governance and accountability at the design stage, the GAAP places a special emphasis on: development of better communication channels with beneficiaries and other stakeholders to enhance transparency and social accountability; enhanced disclosure of accurate, timely, and clear project information across a wide array of public fora and media; information related to bidding and procurement for all works contracts to be published on the website of MLGPC and the PRDDs; enhanced quality of procurement processing and contract management through provision of in-line service and advice from individual consultant procurement specialists in the PCU and PRDDs; adoption oflow thresholds for prior review; carrying out comprehensive post procurement reviews at six-month intervals on the majority of contracts not subject to prior review; carrying out of Independent Procurement Reviews as necessary; providing for routine/frequent independent Technical Audits of the quality ofthe works and contract management, and review ofthe design and cost estimates as necessary; ensuring enhanced quality and levels of Construction Supervision distanced from iocal conflicts of interest; and providing timely comprehensive and unabridged status reporting directly to all stakeholders.

8. Supervision stage. The project team will employ a risk-based approach in supervision as it is considered as most appropriate for projects in post-conflict areas because it would allow the Bank to tailor supervision more closely to the risks associated with this particular project. It will

81 not only focus on ensuring compliance with agreed covenants and procedures but it will also ensure that: 0 all procurement processing individual consultant procurement specialists in the PCU and PRDDs; 0 all major contracts are subject to Bank’s procurement prior review; and a representative sample of the other contracts are subject to Bank’s comprehensive post-review, with Independent Procurement Reviews also envisaged; the quality of the works and the contract management are controlled through use of independent Construction Supervision services, routine Technical and Contract Management Audits and enhanced Bank oversight through frequent technically resourced supervision missions; 0 funds reach the intended beneficiaries in a timely manner; and suppliers are paid on time and against deliverables; and 0 comprehensive unabridged status reports are received promptly and are routinely monitored and evaluated.

9. In addition, a special focus will be given to increased use ofjoint financial management, procurement, technical supervision, and post reviews, including’post-contract asset auditing.

10. The key activities ofthe GAAP are presented in the following matrix:

Action to be taken .I Timeline I Responsibility I Remarks mments and Drocedures Designate and appoint staff within By project MLGPC, Other responsibilities will PCU- and concerned PRDDto be effectiveness UPRDD, include monitoring of and responsible for implementation of EPRDD, NPRDD reporting on implementation GAAP of GRM and information disclosure, and GAAP activities. Set up one National Steering June 2009 MLGPC, National and Provincial Committee for the project and UPRDD, Steering Committees will Provincial Steering Committee for EPRDD, NPRDD consist of representatives of each province to monitor project all stakeholders (see Annex 6 implementation for more details on the roles and composition of the Committees ) Existing Strategic Planning Unit 2010 UPRDD, within each PRDD to use a newly- EPRDD, NPRDD developed asset management system to inform the planning and decision-making process of PRDDs Design UPRDD, EPRDD, NPRDD

82 Carry out extensive community February 2009 UPRDD, EPRDD consultations with participation of in UP all groups in selection of project July 2009 in roads. EP February 2010 in NP C. Sunemision Use the existing website of By project -I--- MLGPC, UPRDD, NPRDD and MLGPC and set up websites at effectiveness UPRDD, EPRDD EPRDD will provide PRDDs to disclose project-related necessary project-related information and inform on the information to be disclosed on progress of project the website implementation. Disclose information regarding the Continuous UPRDD, Project information disclosed project in all three languages at EPRDD, NPRDD should include information on public places and the project implementation of civil website, and use information works, environmental and boards or signs in local languages social safeguards. In addition at project sites for disclosure of to information on safeguards, accurate, timely and clear these should also include information of civil works boards with information on contracts. civil works contracts at project sites, including start and end dates, name of the contractors, cost of the contract, and phone for complaints Establish a multi-lingual Before the UPRDD, Register of complaints transparent, accessible to all, award of the EPRDD, NPRDD submitted through GRM to be inclusive, participatory and first contract maintained at the divisional unbiased GRM; level of each, focal points for Inform the local communities of GRM implementation to be the functional role of GRM, their appointed at each PRDD rights and procedures for making a grievance during further consultations. Arrange for an independent Before the UPRDD, EPRDD Bank team to provide construction supervision services award of the enhanced oversight and Technical Audits. first contract D. Procurement Formally assess the procurement capacity of UPRDD, EPRDD and NPRDD to identify necessary EPRDD; procurement mitigation measures. consultant from

NPRDD

83 Appoint full-time Procurement By Prqject MLGPC, GonsultantsKontract Management Effectiveness UPRDD, Specialists for the entire project EPRDD, NPRDD period to the PCU and PRDDs to assist and advise in all procurement processing and contract management, together with on-the-job training. Provide formal procurement 2009-20 10 MLGPC, training to PRDDs’ staff. UPRDD, EPRDD, NPRDD Use the national standard May 2009 for UPRDD, specifications and bidding UP EPRDD, NPRDD documents acceptable to the World Bank. September 2009 for EP Collaborate with Sri Lanka’s Road Continuous MLGPC, Development Authority (RDA) in UPRDD, development of a database of EPRDD, NPRDD contractors (with details of contractor’s capabilities, financial information and past performance) and performance monitoring system. Set up a credible system of July 2009 MLGPC, handling complaints for bidders UPRDD, and publicize it on the project EPRDD, NPRDD website and in any other suitable places. Analyze trends of contract awards. As required MLGPC, UPRDD, EPRDD, NPRDD Conduct routine Independent As required UPRDD, Technical Audit for quality EPRDD, NPRDD assurance of the works and contract management, reviews of the designs and cost estimates as rewired. Tighten control over variations of As required UPRDD, Project costs are current and contract costs and duration through EPRDD, NPRDD were calculated using regular updating of material prices prevailing market rates. and conducting independent cost reviews; Use price escalation clauses to be included in contracts.

84 Establish monitoring of I March 2010 I UPRDD, I Procurement indicators procurement practices through conducting benchmarking of from the time of bidding to procurement indicators the signing of contracts, extent of responses against ITBs, adequacy of estimates through review of actual costs

E. Financial 1 anagement Conduct assessment of financial February 2009 wI3 management capacity of the implementing agency and develop a FM capacity building plan Conduct external (Auditor Yearly MLGPC, Auditor General) and internal (MLGPC) General independent financial audits g process Establish a GRM for public UPRDD, consultations and reporting of awarding of EPRDD, NPRDD project implementation issues the first contact; Monthly monitoring Provide regular reporting on Monthly UPRDD, handling a GFW to WB and EPRDD, NPRDD respective National Steering Committee Monitor the GAAP After project MLGPC, implementation and report on its effectiveness UPRDD, progress in monthly and quarterly EPRDD, NPRDD reDorts

85 Annex 10: Conflict and Reconciliation Filter

SRI LANKA: Provincial Roads Project

1. The proposed project aims at improving access to socio-economic centers in Uva province, Ampara District of the Eastern as well as Jaffna district ofNorthern Province through sustainable management of improved road infrastructure. The project will support rehabilitation of 150 km provincial roads in Uva Province and 100 km of provincial roads in the Ampara district of Eastern Province and 100 km of roads in Jaffna district. Under this project Ampara and Jaffna district are areas that have been directly affected by conflict.

2. In the selection of the roads in Uva province and Ampara district, extensive consultations were undertaken with a wide range of stakeholders and beneficiaries. The selection criteria included access, connectivity to national roads, poverty headcount index, traffic volume, maintenance costs, and road condition22. Each road plays a significant role in connecting local feeder roads to the main road network and serves areas of comparatively high poverty. Potential beneficiaries include all ethnic and religious groups. With regards to road selection in the Ampara district of Eastern Province, further consultations have been held to review the selection process, selection criteria and whether social concerns have been taken fully into account. Careful attention has been paid to ensure beneficiary approval of the roads selected and to assess balance amongst communities

3. However, the project recognizes the sensitivities that may arise during implementation and has tried to address them in the following ways:

4. Project management is decentralized with the Provincial Road Development Departments (PRDDs) and is at the core ofproject implementation. The teams at the Uva and Eastern PRDDs are multi-ethnic but they have not been formally trained to handle and resolve inter-ethnic issues that arise. The project set up a grievance redressal committee (GRC) made up of project staff, communities affectees, and also members who are not direct stakeholders in the project (e.g. community based organizations and NGOs) which will work in collaboration with Samatha Mandala (Local Mediation Board), instituted by the Ministry of Justice and Law Reforms in all Judicial Districts, the government mechanism for maintaining peace at the local level. [The operation of these mechanisms and how they are perceived by local people will be assessed on a bi-annual basis].

5. A multi-lingual, impartial and inclusive grievance redressal mechanism is built in the project design to provide an opportunity for beneficiaries of all ethnic groups to express their concerns and issues related to project implementation. Once submitted, complaints will be first handled at the divisional level of PRDD; if it is not resolved to the satisfaction ofthe plaintiff or the division of PRDD is not able to resolve it, the complaint will be taken to the level of Provincial Project Director of the respective PRDD. If the complaint cannot be resolved by the PRDD, assistance will be sought from the Samatha Mandala.

22 Please refer to the Economic Analysis section of the PAD, the Feasibility Study, the SIMF and Aide-Memoire of February 2009 mission in the project files.

86 6. More details on how the conflict sensitivity issues are addressed in project design and implementation are provided in the Table below.

Rating of Conflictfilter Situation at present Rating of Mitigation measures residual conflict conflict Were broad With regards to Uva and Moderate In the Ampara District of the Low stakeholder Eastern Provinces, the project EP, the selection criteria were consultations concept was discussed in revisited by the project to conducted consultations with a wide assess the selection process, sufficiently? number of stakeholders and selection criteria and whether beneficiaries, including the social concerns have been taken local governments, fully into account. Further international donors, consultations were held to representatives of the local reaffirm and/or re-adjust the construction industry, local final selection of roads to businesses, different ethnic ensure that interests and needs and religious groups from of particular groups present in potential project areas. this district have not distorted Agreement was achieved technical selection criteria. regarding the final list of Such a participatory assessment provincial roads in UP and and review of roads selection the shortlist of provincials will be conducted in Jaffna roads in EP to receive WB’s district within the first year of funding. Consultations with the project. Disbursement will UPRDD, EPRDD, and commence only after the Jaffna representatives of the local selection has been approved by construction industry allowed IDA. determining areas where both public and private road sectors need to develop and build their skills and expertise. Results and findings of all consultations have been incorporated in the project design. In Jaffna district, a process for consultation with communities and potential contractors has not yet been ’ initiated Is impartial During project preparation the Moderate The affectees will be made fully Low grievance social framework assessment aware of their rights and mechanism has determined key principles procedures for submitting a established? for recourse, which will be grievance during further refined during consultations. All GRMs will implementation depending on be set-up before awarding each the location. The concept of contract and the functional role an impartial and multi-tiered of GRM will be announced in

87 Rating of Conflictfllter Situation at present Rating of Mitigation measures residual conflict conflict grievance redressal each project affected area. The mechanism (GRM) as part of affectees will be able to submit SIMF has been developed. grievances related to land The GRM is designed to be donations, affected structures, transparent, accessible to all, other properties or entitlements, inclusive, participative and and construction activities. The unbiased. The functioning of operation of GRM will be the GRM will be continuously monitored and PIUs will be monitored. responsible for providing reports on grievances submitted and ways they have been resolved. Is project The project management and Moderate The project will continue to use Low management & the decision making process existing institutional administration is being decentralized to the mechanism and staff to sensitive to inter Provincial Council level. minimize external issues. ethnic issues? PRDDs which are project The project is designed to hold implementing units are multi- continuous public consultations ethnic institutions to encourage discussions of However, PRDDs staff are potential issues Information not formally trained to regarding the project will be address and resolve inter- disclosed in local languages to ethnic issues. Any issues ensure information arising will be resolved at the transparency and accessibility Samatha Mandala (Mediation for all ethnic groups. Board). Are conflict The preliminary consultations Substantial Rehabilitated roads are to Moderate generated needs with multiple stakeholders for improve access to economic adequately Uva Province and Ampara opportunities and, thus, would identified? district have indicated that normally lead to increase in rehabilitation of provincial income of the conflict-affected roads is one of the most population living in the post- important needs generated by conflict area. This project will the conflict. Provincial roads ensure that people understand severely deteriorated during that the target roads have been the conflict and have become selected on the basis ofrigorous a serious obstacle in accessing and transparent selection necessary social and criteria, with the explicit aim of economic institutions and benefitting no one community opportunities by the local over any other. For Jaffna communities in Ampara district, the process of selecting district of EP. In Jaffna the roads will begin after the situation is complicated by commencement ofthe project. the presence of landmines and a number of high security zones.

88 Rating of Conflictfilter Situation at present Rating of Mitigation measures residual conflict conflict Are opportunities Roads identified for Substantial The project will support Moderate to strengthen improvement under the rehabilitation of roads in reconciliation project will provide improved Ampara district, which is also and inter ethnic access to socio-economic adjacent to Uva. It holds the trust adequately opportunities and income potential, therefore, to help identified? generating opportunities increase accessibility and through construction activities promote inter-district trade for all ethnic and religious between the two provinces as groups living along these well as the different identity roads in both Provinces. This groups living in them. The equitable access to the project will also provide contract opportunities arising employment opportunities for from the project should be all ethnic groups through ensured by the operation of community-based road the Bank’s procurement maintenance program (under guidelines. These require that Routine Maintenance contractor selection is made Component), which is expected only on the basis of economic to contribute to strengthening of and technical criteria. reconciliation. The Bank will regularly monitor fairness and transparency in the allocation of contract and employment opportunities. Any additional selection criteria that emerge during implementation in any project area will be scrutinized closely for their conformity with the Bank’s technical procurement guidelines. 111. Overall Con: ct - Moderate

89 Annex 11: Economic and Financial Analysis SRI LANKA: Provincial Roads Project

Economic Appraisal of Road Improvements

1. An Economic Feasibility and Engineering Design Study of the Provincial Road network were carried out in 2008 covering the nine provinces. The study prioritized road interventions based on the following steps:

a) initial nomination ofroads by provincial governments b) allocation ofroad length to be considered by each province c) short listing procedure (based on factors such as connectivity, traffic, road condition, etc) for roads in each province d) economic analysis (based principally on transport cost savings) of short listed roads e) application ofa 10 percent Economic Internal Rate of Return (EIRR) cut off f) final ranking based on a combination of economic analysis and social criteria.

2. Although the procedure was tempered with social, environmental and engineering considerations the overall selection procedure was in fact dominated by the economic analysis which in turn was heavily dependent upon traffic volumes. The economic analysis was principally based upon predicted vehicle operating cost savings resulting from a reduction in road roughness, additional benefits included forecast reductions in accident costs and reduced losses of perishable crops. A purpose built spreadsheet model ‘PREM’ was used for the analysis; however the underlying relationships to predict vehicle operating costs savings was based on the road planning model HDM4. A 25 year appraisal period was assumed, assuming three years for project implementation, a two year delay in the onset ofbenefits, and a further 20 years ofbenefits.

3. In UVA Province 31 roads were analyzed, giving a median EIRR of 34.9 percent, with one road found to be below the 10 percent threshold. In Eastern Province 38 roads were analyzed giving a median EIRR of 3 1.1 percent with four roads found to be below the 10 percent threshold. The rates of return were found to be high because of the relatively high motorized traffic volumes, ranging up to 4500 vehicles (including motorcycles).

4. Traffic. Traffic counts were carried out on each road together with origin-destination surveys on roads considered likely to attract diverted traffic. Between 1995 and 2006 annual average vehicle registrations rose at an average rate of 7.7 percent per annum. The initial average traffic growth was estimated to be about 7 percent per year. For the period 2007-201 1 the growth rate was assumed to be 9 percent for cars, 8 percent for 2-wheelersY 7.1 percent 3- wheelers, 6.8percent for goods vehicles, 4.7 percent for land vehicles and 3.8 percent for buses. These growth rates were gradually forecast to decline to 7.5 percent for cars, 7 percent for vans, 4.8 percent for goods vehicles, 4 percent for 2-wheelers and land vehicles, 3.5 percent for buses and 2 percent for 3-wheelers for the period 2021-3 1.

90 5. In fact slightly different growth rates were assumed for different roads according to their geographic or functional peculiarities, adjusting the base case by 0.5 of a percentage point. Capacity constraints on forecasts benefits were taken into account where traffic volumes were forecast to reach the nominated capacity according to road capacity guidelines.

6. For each road generated traffic was assumed to be 10 percent of normal traffic. Diverted traffic, was included in the analysis where, in discussion with provincial officials and an examination of maps indicates that this would arise. For roads with an urban based function the amount ofdiverted traffic was set at 15% ofnormal traffic.

Road Maintenance and Road Roughness

7. Road maintenance is currently, substantially underfunded. As a result there is considerable uncertainty as to the level of funding in the future and what the knock-on effects will be on road roughness and future vehicle operating costs.

8. For the economic analysis it is assumed that in the without project case routine maintenance will be sufficient to restrict deterioration to an increase of 0.7 IRI per year until a plateau of 14 is reached. A uniform average expenditure ofRs 100,000 per km is assumed, this a little more than the average amount available to the Provinces in 2007.

9. For the with-project case the DBST improvement is assumed to reduce road roughness on every road to a uniform 3.0 IRI. Annual deterioration is then assumed to be 0.5 IRI per year. Every 7 years periodic maintenance is predicted to reduce roughness again to 3 IRI. Rs 3 m per km is assumed for the periodic maintenance.

Vehicle Operating Costs and Values of Time

10. An analysis of vehicle operating costs included in earlier studies showed considerable variation however the VOC figures published by the Department of National Planning (2001) were found to lie close to median values. These figures were based on research carried out by Department of Civil Engineering, University of Moratuwa. The figures are based on 1999 data but have been updated by the consumer price index and a separate fuel price analysis.

1 1. The value ofpassenger time was assumed to increase during the appraisal period with the forecast growth in income levels. Project per capita growth is assumed to be 4.2 percent per annum. Over the full appraisal period this will have the effect of doubling the Value of Time share of Road User Costs from 15-20 percent to 30-40 percent.

Loss of Perishable Produce

12. The Institute ofPost Harvest Technology has estimated .that post-harvest losses amounted to Rs 9 billion in 2001. An estimate was made for each road of the reduction in post harvest losses (based on estimates ofperishable produce produced on adjacent land and the proportion of losses saved) due to improved roads through lower road roughness levels and faster journey times. Overall this amounted about 4.6 percent oftotal forecast net benefits.

91 Road Safety Benefits

13. An analysis ofroad accident data indicates that the cost ofroad accidents is equivalent to Rs 1.55 per vehicle kilometer. By improving road alignments and sight distances, providing for wider carriageways and shoulders and by allowing for separation. between fast and slower moving vehicles and pedestrians, it is anticipated that the incidence of road accidents will decrease. Although there is currently insufficient data to confirm this analysis, it assumed that these measures will reduce the costs of road accidents by 25 percent. The overall reduction in road accident costs is equivalent to 6.8 percent oftotal forecast net benefits.

The Economic Appraisal of Five Roads in UVA Province

14. Using 2009 construction cost data a re-appraisal of the initial program of five roads in UVA Province was undertaken. The results, no doubt, understate the economic return for these roads because vehicle operating data have not been adjusted for recent inflation. It is assumed that economic costs are 0.906 offinancial costs.

~~ Code Road Length Motorized 2-wheelers Financial Km Daily Traffic per day, costs (without 2- 2007 RS My wheelers), 2009 2007- UV/A1 Kottegoda-Yalagamuwa 27.5 307 210 757.37 UV/A2 Galenda-Karametiya 19.9 720 46 1 900.03 UV/A3 Muppona-Thenagallanda 17.0 1479 1125 570.34 W/A4 Haggala -Ford McDonald 14.3 848 390 728.91 1N/A 5 Medithale-Keriwehera 27.9 3 92 129 860.27

Code Road EIRR NPV @ +20% -20% Switching Values (Percentage 10% Capital Benefit change to bring about an NPV of % disc costs S zero) Rs. M EIRR % EIRR % Construction Benefits costs UV/A Kottegoda- 26.1 32.9 22.5 21.8 +187% -65 % 1 YalaGmuwa UV/A Galenda- 25.9 54.8 22.4 21.7 +190 % -66% 2 Karametiya UV/A Muppona- 32.5 70.0 28.5 27.6 +328 % -77% 3 Thenagallanda UV/A Haggala -Ford 21.4 42.3 18.5 17.9 +130% -57% 4 McDonald UV/A Medithale- 16.8 13.2 14.1 13.6 +67 % -40 YO 15 Keriwehera

92 15. The results show that road improvements provide robust economic rates ofreturn ranging from 16.8 percent to 32.5 percent. The high rates of return are a reflection ofthe relatively high traffic volumes. Motorized traffic, excluding 2-wheelers, ranges from 307 to 1479 vehicles per day.

16. The sensitivity and switching analysis confirm viability of the road improvements. In the worst case scenario construction costs would have to increase by 67 percent or Benefits fall by 40 percent for the NPV (of UV/A5) to fall to zero.

93 Annex 12: Social Development Issues SRI LANKA: Provincial Roads Project

1. Among others, the social development issues to be addressed by the project include the following:

a. Inclusion: The project has ensured that its activities are inclusive. The selection of the roads has ensured that along with meeting other criteria (connectivity, access to facilities and services, poverty alleviation-through provision of facilities to allow for access to market of agricultural products etc.) is also inclusive of all groups i.e. Singhalese, Tamils, Muslims, and men, women, and youth.

b. Equity: The project through the selection of roads (with community and stakeholders consultation) will ensure that benefits reach all communities without any bias and that they have representation in the GRM and have access to it for resolution of any complaint. Thus the project will make efforts towards integration of all communities in the project area.

c. Poverty: The interventions are prepared to enable communities to improve their standard of living and alleviate poverty through connectivity to markets, services, schools, health facilities, employment generation centers and other facilities. This encompasses all aspects ofpoverty (social, standards of living, economic, etc).

d. Gender: The project made and will continue to make efforts to ensure gender participation in the preparation of the project and will ensure that benefits reach all groups through provision of the roads, employment creation during construction etc. A clause has been included in the contractor’s documents ensuring equal access with equal pay to both men and women.

e. Conflict issues: The social development component also takes account of the conflict filter of the CAS and incorporates it in the guidelines on social mitigation measures. Conflict issues are also addressed in the Social Impact Assessment and screening for the Eastern, and the Northern provinces. The Grievance redressal mechanism provides the procedures for resolving complaints/ greviences and conflicts through a transparent grievance redressal mechanisms (GRM) with participation ofall groups and thus prevent future conflicts in the area.

2. HIV/AIDS: The project will provide for creation of awareness for prevention of-Sexually Transmitted Infections (STIs) and HIV/AIDS. The objective is to increase awareness and reduce risks of transmission of STIs and HIV/AIDS among construction workers and immediate communities along construction corridors in Eastern, Northern and Uva Provinces. The project activities will be undertaken within the framework of the National AIDS/STD program of Sri Lanka. The target groups who are potentially at risk are categorized as: a) primary target: construction workers; (b) secondary target: site contractors; and (c) tertiary target: contiguous communities along project sites. The activities towards this end will be developed and implemented through fund dedicated for this activity.

94 Annex 13: Safeguard Policy Issues SFU LANKA: Provincial Roads Project

World Bank Environmental and Social Guidelines

1. The activities supported under this project only consist of potential safeguards that are related to rehabilitation, resurfacing and applicable drainage of selected provincial roads in Uva and Eastern Provinces. There would be minor interventions such as widening within the right of way and/or alignment correction for safety reasons where there will not be any land acquisition. Based on the scope of the project the anticipated environmental and social issues and impacts would be minimal and will not cause any significant or irreversible environmental impacts as a result of the project. Any potential adverse impact can be easily managed with proper planning, design, supervision, monitoring and maintenance. Therefore, the project has been assigned as Environmental Category B.

i. The project triggers the World Bank Policies, Environmental Assessment O.P. 4.01, and OP 4.12 but the project is only likely to have minor impacts to the natural environment and minimal impact to the social environment. .. 11. The project does not anticipate involuntary resettlement. Land acquisition is not envisaged. However, where land acquisition becomes unavoidable, in cases the ROW is insufficient to meet the required road alignments, widening or other improvements, the project will depend on voluntary land donations for minor land requirements. In cases of use of voluntarily donated land, the conditions for such a situation (as described in the Social Impact Management Framework (SIMF and the addendum to the SIMF) will be met.

Environmental Assessment and Social Impact Assessment and Management Frameworks

iii. Environmental Assessment and Management Framework (EAMF) and SIMF have been developed to be used as a guide and serve as a template to ensure compliance with the World Bank’s safeguard policies, the relevant provisions . under the National Environmental Act (NEA) and associated regulations and social impact management requirements in Sri Lanka. The document provides the necessary background for environmental and social considerations to be built into the design of the project so that environmentally and socially sustainable implementation can take place. To aid this process, the EAMF and SIMF highlight general policies, guidelines, codes of practice and procedures to be taken into consideration when formulating environmental and social strategies to the project design and to be incorporated as part of the bidding documents and contracts. The Social operations Plans (PWARP or Social Management Plans) has been prepared for the priority roads of Uva and are under preparation for the remaining roads that will operationalize the guidelines/procedures laid out in the SIMF.

iv. Social Impact Assessment and Social Impact Management Framework: The Social Impact Assessment of Uva has been prepared and for the Northern and Eastern Provinces are under preparation that will provide for identification of social issues, positive and

95 negative social impacts of the project along with intensity of the impacts (details of affected persons, assets, infrastructure, livelihood etc). The SIMF provides the guidelines and procedures for mitigation of negative social impacts. It covers the following:

(a) Mitigation for Involuntary Resettlement (OP 4.12), Indigenous Peoples (OP 4. lo), Cultural Property (OP 411), and Disclosure. This includes the provision of a framework to meet the requirements of all these policies as well the policies/laws/acts of GOSL. The SIMF thus provides the principles, guidelines and policies along with the methodology to address all issues of losses of assets/infrastructure/livelihood/utilities etc, resulting from project interventions. It also lays the principles and mitigation to be developed in case OP 4.12,4.10, OP 4.1 1 and safeguards on Disclosure are triggered. In addition it provides an entitlement matrix developed through stakeholder consultations (eligibility criteria for different affectees and affected assets etc. and what the project will provide to these categories of affectees, and how the matrix will be implemented with roles and responsibilities ofthe different players).

(b) Stakeholder consultatiodparticipation: The SIMF was prepared through stakeholders consultations and it also provides guidelines and procedures to be followed for stakeholders’ consultatiodparticipation by the project. The consultations will be a two day communication process benefiting from feedback from stakeholders regarding social issues and how they wish the project to address them, while providing information to stakeholders on the project’s goals, objectives, implications of project intervention on beneficiaries/stakeholders and how stakeholders feed back will inform future desigdimplementing mechanism of the project. It also explains the need to provide information on rights and responsibilities of the different stakeholders, public relations, information dissemination and conflict resolution. In addition the SIMF assists in:

0 Identification ofstakeholders: primary and secondary stakeholders, interest groups, institutional stakeholders, informal/informal stakeholder. A mapping of stakeholder along with their interest and ability influence the outcome positively or negatively; 0 Determine stakeholders interest; and Formulate a strategy to keep them engaged over the life ofthe project.

(c) A Grievance Redressal Mechanism (GRM): The principles to be followed in developing a grievance redressal mechanism that should be transparent, accessible and equitable to all persons and groups living in the project and respond to all complaints and grievances. This will include a project specific system to respond to complaints emanating from project interventions and how the project will respond to these complaints and formation of a Committee to respond to complaints/ grievances not resolved by the project specific system. In the interest of transparency all complaints will be documented along with the status of its resolution. These will be available to Bank missions undertaking implementing support;

96 (d) A capacity building program for social issues: training that will be required by the different project implementers responsible to implement the Social Mitigation measures;

(e) An implementing mechanism to implement the Social Operational Plans (RP/ARP or Social Management Plans); and

(0 An M&E mechanism along with identified social indicators to monitor the Social impacts.

v. The social impact assessment has been prepared for the Uva Province that identifies categories of affectees with intensity of impacts along with affected assets/infrastructure/livelihood lost, utilities impacted etc. Based on the e information generated by the SIA, the project has prepared a Resettlement Plan for the priority roads of Uva province by operationalizing the SIMF.

vi. The project has launched a Social Impact Assessment for Eastern Province and will prepare a RP/ARP, get it cleared by the Bank and implement it, prior to initiation of constru'ction activities. While for the Northern Province the Social Impact Assessment and the RP will be launched along with the feasibility studies. vii. All contractors implementing the project will be made aware of the social safeguards mitigation measures of the project to ensure that their actions do not put the project out of compliance with the social safeguards policies of the Bank. ... viii. Environmental Assessment and Management Framework: The EAMF ensures the identification of potential environmental issues concerns early in the implementation of a proposed project to incorporate necessary safeguards in project design to prevent potential adverse impacts by determining appropriate mitigation and compensation measures. This will minimize risks and enhance positive impactshenefits and avoid delays and extra costs which may subsequently arise due to unanticipated environmental problems. In addition, it will guide the project to identify the potential for maximizing environmental resources management and socio-economic benefits to local communities within the scope of the project.

ix. The EAMF provides the details of potential environmental issues that may arise due to proposed project activities and provides the detailed guidelines to manage and monitor such issues. The framework will be used to prepare road-specific environmental assessments and EMPs, which will guide the MPC and PRDDs to ensure compliance with the World Bank environmental safeguards policies and relevant provisions under the NEA and associated regulations of Sri Lanka. The MPC is in the process of undertaking the road-specific environmental assessments and EMPs, which are to be submitted to the World Bank for clearance prior to bidding process. The Contractors should be requested to provide Environmental Methods Statements (EMSs) for their respective contracts with details of the methodologies to be used in order to implement the proposed mitigations measures, as well as details ofthe sites to be used for sourcing raw material and sitting various operations such

97 as crusher and asphalt plants, worker camps, vehicle parking and equipment storing areas, etc.

x. The road works to be undertaken by the project will have minimal on-site environmental impacts. Any significant disturbances to land or soil stability and interferences to the hydrology in the area will not take place. Impacts to the air quality and noise level will be only during the construction period. However, as per the EAMF, the project will need to take necessary actions to ensure these temporary changes do not exceed the national standards. Any negative effects towards water quality will be also required to be managed through provision of adequate drainage facilities and ensuring minimum amount of contamination of soil and other pollutants to the road-side water ways.

xi. There may be some potential adverse environmental impacts under the project in off-sites where road-building materials are sourced or unused materials are dumped. Quarry, burrow and disposal sites can create substantial impacts on the environment if not managed properly. Contractors will be required to acquire relevant GOSL licenses for quarries, burrow sites and disposal sites. Other issues such as waste discharge from construction camps, spills of substances used in equipment operations and maintenance, traffic congestions, road accident and other safety issues, etc. can cause localized impacts, which can be significant in the short-term and will need to be properly addressed in the EMPs and EMSs. Under no circumstances the project should allow any activities to take place within protected areas under the Department of Wildlife Conservation and conservation forests and forest reserves under the Forest Department.

xii. Overall environmental aspects to be taken up by the project were identified in consultation with the public prior to the preparation of EAMF. Road-specific consultations and awareness creation on likely environmental issues and mitigations measures that will be taken up by the project will be conducted by the PRDDs together with the relevant contractor and supervisory consultant. A capacity building program for environmental issues will be prepared and training that will be required by the different project teams responsible to implement and monitor social and environmental mitigation measures will be conducted. ... xiii. Once the project implementation commences, regular monitoring of implementing environmental safeguards in the project sites and compliance will be conducted by the MPC, PRDDs and the World Bank. Monthly progress reports based on the EMPs/EMSs will be prepared by the PCU and shared with the World Bank for review and guidance.

98 Annex 14: Project Preparation and Supervision SRI LANKA: Provincial Roads Project

Planned Actual PCN review 02/05/2009 Initial PID to PIC 04/08/2009 Initial ISDS to PIC 04/09/2009 Appraisal 05/14/2009 0 5 10 5 I20 09 Negotiations 05/25/2009 0512 812009 Board/RVP approval 12/03/2009

Planned date of effectiveness 05/26/2010 Planned date of mid-term review 12110128 12 Planned closing date 12913 1/20 14

Key institutions responsible for preparation ofthe project: Ministry ofLocal Governments and Provincial Councils Government ofSri Lanka, Ministry of Finance

Bank staff and consultants who worked on the project included:

Name Title Unit

Tawia Addo-Ashong- Sr Transport. Spec./ TTL SASDT Amali Rajapaksa Sr Infrastructure SpecialisdCo-TTL SASDT Minneh Kane Lead Counsel LEGES Chau-Ching Shen Sr. Finance Officer LOAFC Sunethra Samarakoon Procurement Specialist SAWS Enoka Wijegunawardene Financial Management Spec. SARFM Hiran Herat Sr Financial Management Spec. SASDI (Consultant) Zia AI Jalaly Sr. Social Development Spec. SASDI Darshani de Silva Environmental Specialist (ETC) SASES John L. Hine Sr Rural Transport Economist. ETWTR David Stephen Rudge Sr. Highways and Procurement SASDT Specialist (Consultant) Natalya Stankevich Governance/Operations Analyst SASDT Comfort Onyeje Olatuaji Program Assistant SASDO Santhanam Krishnan Lead Procurement Specialist SASDT (Consultant) Rajesh Dongol Program Assistant SASDO Farahnaz Azoor Team Assistant SASDO Stephen Brushett Lead Transport Specpeer Reviewer LCRTR Justin Runji Sr. Transport Specialisfleer Reviewer AFTTR Simon Ellis Sr. Transport EconomistPeer Reviewer SASDT Asif Faiz Peer Reviewer SASDE

99 Bank funds expended to date on project preparation: 1. Bank resources: US$317,359.02 2. Trust finds: US$ 0,000.00 3. Total: US$317,359.02

Estimated Approval and Supervision costs: (i)Remaining costs to approval: US$ 50,000.00 (ii)Estimated annual supervision cost: US$ 250,000.00

100 Annex 15: Documents in the Project File SFU LANKA: Provincial Roads Project

1. ---_--__-Sri Lanka Country Assistance Strategy (CAS) 2009 - 2012, July 24,2008 http://www. worldbank.lWWB SITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/SRILAN KAEXTN/O,,contentMDK:21927102-pagePK: 141 137-piPK: 141 127-theSitePK:233047,00. html ‘ 2. ----_--_-BTO: SRI LANKA: Provincial Roads Project I - Scoping mission to identify the requirements for Bank Assistance in the Eastern and Uva Provinces (20 to 23 October 2008) - 11/06/2008 3, ___------Provincial Roads Project I- Scoping mission to identify the requirements for Bank Assistance in the Eastern and Uva Provinces (20th to 23rd October 2008) - Statement of Mission Objectives - 10/16/2008 4. __--___--Detailed Design: Subgroup I1 (N) Final report - Eastern Province, North Central Province and Uva Province, February, 2009 5. _---_----ADB Loan 2080-SRI: Road Project Preparatory Facility: RESETTLEMENT PLAN - Provincial Roads Project Subgroup 2 New (Uva Province) Consultancy Services for Feasibility and Detailed Engineering Design ofProvincial Roads, September 2008 6. __ - - ___ - - Sri Lanka - ADB Road Sector Development Project document, Report and Recommendation ofthe President to the Board ofDirectors (RRP: SRI 3 1280), November 2005. 7. ------ADB Public Expenditure Review of Provincial Roads, Eastern, North Central and UVA Provinces, Draft Final Report. November 28,2008. 8. __-_-_-_-Sri Lanka Poverty Assessment “Engendering Growth with Equity: Opportunities and Challenges,” February 2007. 9. ------Sri Lanka: Uva Provincial Roads Development Department - Eastern Provincial Roads Development Department, Ministry of Local Governments and Provincial Councils - Environmental Assessment and Management Framework - March 2009. 10. -__---_-___-Sri Lanka: Uva Province and Ampara District of Eastern Province Social Impact Management Framework - April 2009 11. -__-_-_-_------World Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges” - 2007 12. -_------__-Sri Lanka Government: Department ofCensus and Statistics “Poverty Indicators: Household Income and Expenditure Survey” - 2006/07 13. ------__-_-__World Bank: Sri Lanka Investment Climate Survey - 2004 14. ______Sri Lanka: Department of Census and Statistics, Government Key Socio- Economic Indicators By Province - 2003/04 15. ------__World Bank, Rocio Castro and Shantayanan Devarajan. Unleashing Sri Lanka’s Potential - 2006 16. ______Sri Lanka Government, Economic Affairs Unit “Public Private Partnerships are Key to Economic Revival in Jaffna” January 2009 17. ______--__World Bank: Rapid Social Impact Assessment For Improvement of Provincial Roads - August 2009

101 Annex 16: Statement of Loans and Credits SRI LANKA: Provincial Roads Project

~~ Difference between expected and actual Original Amount in US$ Millions disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO87145 2010 2nd Comm Devt and Livelihood 0.00 75.00 0.00 0.00 0.00 79.48 0.00 0.00 Improvement PO97329 2008 Public Sector Capacity Building 0.00 22.60 0.00 0.00 0.00 20.35 6.17 0.00 PO93132 2008 Dam Safety and Water Resources Planning 0.00 65.33 0.00 0.00 0.00 64.11 16.37 0.00 P100390 2007 Sri Lanka: Puttalarn Housing Project 0.00 32.00 0.00 0.00 0.00 24.60 8.04 0.00 PO86411 2006 Sri Lanka - Road Sector Assistance 0.00 198.10 0.00 0.00 0.00 81.63 -28.94 29.46 PO84580 2006 Education Sector DevelopmentProject 0.00 70.00 0.00 0.00 0.00 27.98 -3.38 -2.38 PO83932 2005 North East Housing ReconstructionProgra 0.00 118.00 0.00 0.00 0.00 44.34 -0.16 0.00 PO81771 2005 E-Sri Lanka Development 0.00 53.00 0.00 0.00 0.00 21.19 24.03 0.00 PO86747 2004 Community Livelihoods in Conflict Areas 0.00 64.70 0.00 0.00 0.00 44.02 30.35 21.99 PO74872 2004 Community Development & Livelihood 0.00 51.00 0.00 0.00 0.00 2.01 0.85 0.00 “Gemi PO50740 2004 HEALTH SECTOR DEVELOPMENT 0.00 84.00 0.00 0.00 0.00 27.30 0.22 -0.86 PO58067 2003 Second Community Water 0.00 39.80 0.00 0.00 0.00 3.96 0.08 0.00 PO50741 2003 Relevance and Quality of Undergrad. Educ 0.00 40.30 0.00 0.00 0.00 8.86 3.95 0.00 PO76702 2002 Renewable Energy for Rural Economic 0.00 115.00 0.00 0.00 0.00 29.81 -22.81 2.80 Dev. Total: 0.00 1,028.83 0.00 0.00 0.00 485.64 34.77 51.01

SRI LANKA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 Apollo Lanka 3.88 0.00 0.00 0.00 3.88 0.00 0.00 0.00 1996 Asia Power 0.00 2.27 0.00 0.00 0.00 2.27 0.00 0.00 2003 CBC 0.00 9.96 0.00 0.00 0.00 9.96 0.00 0.00 2004 CBC 0.00 2.89 0.00 0.00 0.00 2.89 0.00 0.00 2003 Dialog 48.75 0.00 0.00 0.00 13.75 0.00 0.00 0.00 1999 Fitch Srilanka 0.00 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1997 Packages Lanka 0.00 0.17 0.00 0.00 0.00 0.17 0.00 0.00 1999 SAGT 12.65 3.62 0.00 0.00 12.65 3.62 0.00 0.00 2000 Suntel 1.18 4.20 0.00 0.00 1.18 4.20 0.00 0.00 Total portfolio: 66.46 23.18 0.00 0.00 31.46 23.18 0.00 0.00

102 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

103 Annex 17: Country at a Glance SFU LANKA: Provincial Roads Project Lower- POVERTY and SOCIAL Srl South middle- Lanka Asia income 2007 Population, mid-year (millions) 8.9 1520 3,437 Life eqectancy GNI per capita (Atlas method, US%) 1540 660 1667 GNI (Atlas method, US%billions) 30.8 1339 6,465 Average annual growth, 200!-07

Population (%) 10 16 11 GNI Gross Laborforce (%J 16 21 15 per mar) Most recent estimate (latest year available, 200!-07) capita enrollment P overly (%of population belo wnationalpo vertyllne) 23 Urban population (%of totalpopulation) 15 29 42 Life eqectancyat birth (pars) 75 E4 69 Infant morlality (per 1OOOlive births) n 62 41 Childmalnutrition (%otchildtenunder5) 41 25 Access to improved water source Access to an impmvedwater source (%ofpopulation) 82 87 68 Literacy (%of population age 59 91 56 89 Gross primary enrollment (%of School-agepopuiation) 08 08 m -Sri Lanka Male 06 m m -Lover-middle-income gm up Female 08 04 09

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1987 1997 2006 2007 iconomic ratios' GDP (US$ billions) 67 5.1 28 3 32.4 Gross capitaiformationlGDP 23.3 244 27 4 27.2 Trade Eapofls of goods andservices/GDP 25.2 36.5 30 1 29.2 Gmss domestic savingslGDP P.8 17.3 l70 l7 .6 Gross national savingsiGDP 8.8 217 23 3 25.1 1 Current account balanceiGDP 4.8 -2.6 -47 -4.1 Domestic Capital interest payments/GDP 19 10 07 savings formation Total debt1GDP 711 53.8 40 5 Total debt serviceleqorts 23.2 8.0 86 Present value of debt/GDP 32 7 Present value of debt/eVrts 83 0 Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annual growth) GDP 50 4.7 7.7 6.8 6.5 -SnLanka GDP percapita 3.7 4.0 6.5 6.5 5.6 -Lover-middle-income gmup Eqorts of goods and services 7.9 5.0

STRUCTURE of the ECONOMY

1987 1997 2006 2007 (%of GDP) Agriculture 27.0 219 n3 117 industry 27.4 26.9 30.6 29.9 M anufacturing 6.0 6.4 82 8.5 Services 45.6 512 58.0 56.4 Household final consumption eapenditure 77.2 72.3 66.3 67.8 General gov't final consumption eapenditure 9.9 0.4 15.4 15.3 Imports of goods and services 35.7 43.6 412 39.5 -GCF -GDP

1987-97 1997.07 2006 2007 Growth of exports and Imports (Oh) (average annuaigrowthj Agriculture 21 17 6.3 3.3 Industry 6.7 45 8.1 7.6 ~anufacturing 82 40 5.5 6.4 Services 5.4 56 7.7 7.1 Household final consumption eqenditure 46 48 General gov't final consumption eqenditure 25 0 2 0 Gross capital formation 42 23 -*--E*ooT1s -9-lrTYlOrtS Imports of goods and services 71 61 I I

Note 2007 data are preliminaryestimates This tablewas producedfrom theDeveiopment Economics LDB database *Thediamonds showfourkey indicators inthecountry(in b0ld)comparedmthits incomegoupaverage lfdata aremissing, thediamondmll be incomplete

104 Sri Lanka

PRICES and GOVERNMENT FINANCE 1987 1997 2006 2007 Domestic prices (%change) Consumer prices 7.7 96 07 -7.5 Implicit GDP deflator 7.8 89 113 140 Governmenf finance (%of GDP,incIudes cunenl ganfs) Current revenue 214 e4 73 7.1 Current budget balance 13 -14 -14 -0.2 Overall surplusldeficit 5.7 -7 0 -7 0 4.0

TRADE 1987 1997 2006 2007 (US$ millions) Totalexports (fob) 1397 4,639 6.883 7,740 Tea 362 78 882 1025 Other agricultural goods and unclassified exp 99 394 461 Manufactures 24 1 2,274 3.088 3.342 Total imports (cif) 1866 5,852 U.253 11301 Food 781 757 831 Fuel and energy 539 2.070 2,497 Capital goods 1325 2,246 2,685 Ewort price index (200O=UOj 80 '128 135 1 01 02 03 04 05 06 07 Import pnce index (20OO=UOj 81 04 140 raExpons almpons Tens of trade (2000=#0) 99 96 96 I

BALANCE of PAYMENTS 1987 1997 2006 2007 Current account balance to GDP (%) (USS millions) Exports of goods and services 1725 5.514 8.508 9.451 Imports of goods and services 2,399 6,568 n621 Q.885 Resource balance -674 -1054 -3.m 2,687 Net income -142 -65 -389 Net current transfers 493 83 1 2.69 2.774 Current account balance -323 -388 -1333 -1326 Financing items (net) 245 551 1267 1622 Changes in net reserves 78 -63 66 -296 Memo: Reserves including gold (US$ millions) 289 2.029 2,947 3,644 Conversion rate (DEC,IocaVUSS) 29 4 59 0 a39 TD6

EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 Composition Gf 2006 debt (US$ mill.) (US$ mil/ionsj Total deb! outstanding and disbursed 4 751 8.18 11446 iBRD 89 31 0 0 IDA 68 15 14 2245 2,357 r Total deb! service 497 531 958 IBRD '12 9 0 0 IDA 6 22 60 66 Composition of ne! resource flows Official grants 82 173 391 Official creditors 249 308 286 Pnvate creditors -63 222 -83 Foreign direct investment (net inflows) 60 430 480 Portfolio equity(net inflows) 0 0 -304 MrldBank program Commitments 20 P8 DO 32 A - IBRD E- Biiderai Disbursements 87 78 a0 74 B - IDA 0. Other mltilderai F. Private Pnncipal repayments 5 s 43 49 C-IMF G- Short-ter Net flows 82 62 57 25 Interest payments 13 14 n I7 Net transfers 70 48 40 7

Note This table was produced trom the Development Economics LDB database 9/24/08

105 Annex 18: Maps IBRD SFU 36976/37351/37371 SRI LANKA: Provincial Roads Project

106 IBRD 36976

Bay of Bengal SRI LANKA For details, see IBRD 37351 PROVINCIAL ROADS PROJECT

NORTHERN PROPOSED PROJECT ROADS CLASS A ROADS SELECTED CITIES AND TOWNS CLASS B ROADS PROVINCE CAPITAL NORTH CENTRAL EXISTING MAIN ROADS PROVINCE BOUNDARIES

NORTH UVA PROVINCE PROJECT ROADS: Package Number Road Name WESTERN For details, see Package IBRD 37371 Number Road Name 24 UVA9 Ulkanda–Ethiliwewa Road EASTERN 13 UVA1 Kottagoda–Podumilla, Adiyarawatta–Maspanna, Yalagamuwa Rd. 25 UVA10 Guruthalawa–Alugolla Bogahakumbura Road CENTRAL 14 UVA2 Galauda–Kandaketiya–Karametiya Road 26 UVA11 Daliwa Baduluwela–Buddama Road 15 UVA3 Muppana–Wedikumbura–Tenagalalanda Road 27 UVA12 Welimada Pahala Kotewera–Yahalaarawa, Udperuwa–Kottegoda Road COLOMBO 16 UVA4 Haffala–Ford-McDonald Road UVA 28 UVA13 Maussagolla–Bibilegama–Athpattiya Road 17 UVA5 Meditalc–Pathanawatta, Tennepanguwa_Kiriwehera Road WESTERN SABARAGAMUWA 29 UVA14 Bogahakumbura–Hewankumbura–Keppetipola Road 18 UVA21 Medagama–Alupotha Road 30 UVA15 Hulandawa Left–Kahambana Road 19 UVA21 Medamana–Nigala Road For details, see 31 UVA16 Internal Roads in Badulla Township 20 UVA6 Medagama–Dambagalla Deliwa Road main map 32 UVA17 Bakkinigahawela–Obbegoda Road 21 UVA7 Heeloya Kithalella Road SOUTHERN 33 UVA18 Soranatota–Jayasegedara–Kandegedara Road INDIAN 22 UVA8 Badulla–Kuttiyagolla–Pelabodiya–Palawatta Road 34 UVA19 Yalkumbura–Malhewa Road 23 UVA9 Handapanagala Junction to Handapanagala Road OCEAN 35 UVA20 Meegahakiula–Kalugahakandura–Pitamaruwa Road

0 5 10 15 UVA PROVINCE KILOMETERS

35 34 14

17

19 26 33 20 13 22 BADULLA

18 16 31 27 32

28

25 29 Monaragala

21 15

30

Wellawaya

23 SRI LANKA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any 24 endorsement or acceptance of such boundaries.

NOVEMBER 2009 Bay of Bengal For details, see SRI LANKA main map PROVINCIAL ROADS PROJECT NORTHERN ROAD DEVELOPMENT AUTHORITY ROAD DEVELOPMENT DEPARTMENT: SRI LANKA NORTH CENTRAL SELECTED PROVINCIAL ROADS NON-SELECTED PROVINCIAL ROADS

NORTH SELECTED TOWN WESTERN For details, see IBRD 37371 PROVINCE CAPITAL EASTERN CENTRAL DISTRICT BOUNDARIES

COLOMBO

UVA WESTERN SABARAGAMUWA

For details, see NORTHERN PROVINCE: IBRD 36976 Point Pedro SOUTHERN INDIAN Kankesanturai Jaffna District OCEAN

0 5 10 15 20

KILOMETERS

Bay of Bengal Velanai Jaffna Island Chavakachcheri

Jaffna Punkudutivu Island Lagoon

Delft Island NOVEMBER 2009 This map was produced by the Map Design Unit of The World Bank.

The boundaries, colors, denominations and any other information IBRD 37351 shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Bay of Bengal For details, see SRI LANKA IBRD 37351 PROVINCIAL ROADS PROJECT NORTHERN

PROPOSED PROJECT ROADS SELECTED CITIES AND TOWNS ROAD DEVELOPMENT AUTHORITY (RDA) ROADS DISTRICT BOUNDARIES NORTH CENTRAL EXISTING MAIN ROADS PROVINCE BOUNDARIES

NORTH WESTERN For details, see main map EASTERN EASTERN PROVINCE PROJECT ROADS: 11 Himithurawa Paragahakele Road 22 Karunkodothivu Paddiyadipitty Alivaddavithana Road CENTRAL 1 Sainthamaruthu Kalmunaikudy Bounadry Road 12 Akkaraipattu Neethai Ambalanoya Road 23 Uppukaraichchi Kathiriyar Thottom, Beach and South Road, Akkaraipattu 2 Natpaddimunai Pandiruppu Boundaru Road 13 Damana Ambalanoya Pannalgam Road COLOMBO 24 A.G.A.’s Office to Vinayagapuram Road 3 Kariyappar Road Maruthamunai 14 Lahugala Village Road 25 Oorpodiyar R.K.M. Road UVA 4 Thirupothi Ammankovil Road 15 Amman Kovil Road SABARAGAMUWA 26 Oorpodiyar R.K.M. Road WESTERN 5 Central Road Ninthavur 16 Beach Road, Kalmunai 27 Beach Road, Pottuvil 6 Karaipthivu Village Road 17 Mosque Road, Kalmunaikudy 28 Rajagalathenna Nugelanda Road For details, see 7 Viliniyadi Road 18 Old Vanniyar Road Sainthamaruthu 29 Unuwathura Bubbula Road IBRD 36976 8 Arasadi Field Road 19 Central Road Joint with 1st, 3rd and 4th Cross Road, Sammanthurai 30 Damana Padagoda Pallanoya Road SOUTHERN 9 Malwatta Suruipodai Road INDIAN 20 Moongilady Road, Sammanthurai 31 Mudaliyar Road 10 Manal (Hijra) Road OCEAN 21 Oluvil Road 32 Village Road, Thambiluvil

EASTERN PROVINCE: Ampara District BATTICALOA DISTRICT 28 EASTERN

PROVINCE A4 SRI LANKA 27 3 4 2 Kalmunai 15 14 1 16 18 A27 See Sammanturai A31 6 inset 5 Sammanturai 7 inset 9

Ampara 21 19 A31 20 11

8 See B001 Akkaraipattu inset

7 29 12

31 13 30 A4 24

23 AMPARA 22 A4 Akkaraipattu B001 inset UVA DISTRICT 25 A4 PROVINCE A25

A4 Pottuvil 26

10 Monaragala 14

INDIAN

NOVEMBER 2009 This map was produced by the Map Design Unit of The World Bank. IBRD 37371 0 5 10 The boundaries, colors, denominations and any other information OCEAN shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any KILOMETERS endorsement or acceptance of such boundaries.