Selection of Local Authorities and Grant Eligibility Mechanism

Local Government Enhancement Sector Project (RRP SRI 42459)

SELECTION OF LOCAL AUTHORITIES AND GRANT ELIGIBILITY MECHANISM

A. Selection of Local Authorities

1. As a preparatory activity for the project, the Ministry of Local Government and Provincial Councils (MLGPC) decided to identify less-developed local authorities in seven provinces in the country. Since the Northern and Eastern provinces had undergone severe damages and destruction due to the armed conflict and as a consequence have received a number of support for reconstruction and development, including those from development partners, the analysis did not include local authorities in these two provinces. Moreover, the evaluation focused on pradeshiya sabhas only, as these are the areas with poor accessibility and infrastructure availability. The MLGPC first appointed a committee to study and finalize the indicators for defining less developed local authorities. In total, 19 indicators were selected in the areas of (i) geographic location and demography; (ii) social infrastructure and quality of life; (iii) physical infrastructure and services; (iv) financial strength and resources; and (v) local authority management capacity.

2. Then the evaluation was undertaken for a total of 204 pradeshiya sabhas in seven provinces, based on the provincial information and data as well as validations through various clarifications from national and provincial authorities and institutions. Out of the total score of 200 points, scores actually given ranged from 155 (least developed) to 50.25 (most developed). A total of 98 local authorities, with scores higher than 117, have been selected to be eligible for infrastructure investment support under the project.1 Details of the evaluation are found in the report issued by the MLGPC.2 The list of selected local authorities is shown in Table 1.

B. Grant Eligibility

3. Local authorities selected to be eligible for infrastructure investment support will be qualified for the provision of a capital grant under the project only if they submit a reform plan and the plan is reviewed and confirmed by the MLGPC in consultation with the subproject coordination unit (SPCU) in the respective provincial council. Staff of the project management unit (PMU) and/or SPCU will visit the local authority to see the local conditions and confirm the appropriateness of the plan before completing the review. Any local authority requesting capital grant under the project is required to have its reform plan approved through a council resolution before it submits the plan to the SPCU. The PMU will submit to ADB for review the reform plans of first five local authorities together with the checklist to demonstrate that minimum requirements are satisfied.

C. Scope of Reform Plan

4. Each reform plan will present the clear commitment of the local authority to (i) improve service delivery with particular emphasis on the local environmental improvements; (ii) streamline taxation, licensing, and approval systems and processes; (iii) ensure the effective management of the assets, including those to be created under the project; and (iv) improve systems and management. The areas to be covered in a reform plan, sample activities and indicators, and minimum requirements are shown in Table 2. The template showing a sample of

1 Local authorities that received the financial support under the Local Government Infrastructure Improvement Project (Loan 2201-SRI) have been excluded. A few local authorities with scores lower than 117 have been added due to their backwardness that could not be quantitatively measured in the evaluation. 2 MLGPC. 2011. The Report on Identification of Lagging Local Authorities. Colombo. 2 the reform plan, which includes baseline figures, specific timelines, and targets, is provided in Table 3. The PMU will, through quarterly progress reports, inform ADB of the status of submission and review of reform plans, and the progress of implementation.

Table 1: List of Selected Local Authorities Province Local Authorities District Total Number of Local (Pradeshiya Sabhas) Authorities Western Province Walallavita Kalutara 8 Palindanuwara Kalutara Madurawala Kalutara

Agalawatta Kalutara

Diulapitiya Gampaha Dodangoda Kalutara Meerigama Gampaha Mathugama Kalutara North Central Province Padaviya Anuradhapura 13 Kebethigollawa Anuradhapura Horowapathana Anuradhapura

Thirappane Anuradhapura

Welikanda Polonnaruwa Galenbindunuwewa Anuradhapura Dimbulagala Polonnaruwa Ipalogama Anuradhapura Galnewa Anuradhapura

Lankapura Polonnaruwa

Palagola Anuradhapura Rambewa Anuradhapura Rajanganaya Anuradhapura Uva Province Ridimaliyadda Badulla 13 Meegahakiula Badulla Madulla Monaragala

Kandeketiya Badulla

Haldummulla Badulla Badalkumbura Monaragala Uva-Paranagama Badulla Thanamalwila Monaragala Wallawaya Monaragala

Kataragama Monaragala

Medagama Monaragala Siyamabalanduwa Monaragala Bandarawela Badulla North Western Province Alawwa Kurunegala 13 Arachchikattuwa Puttalam Kalpitiya Puttalam

Polpithigama Kurunegala

Ridigama Kurunegala Wanathawilluwa Puttalam Nawagattegama Puttalam Giribawa Kurunegala Kuliyapitiya Kurunegala

Udubaddawa Kurunegala

Bingiriya Kurunegala 4

Province Local Authorities District Total Number of Local (Pradeshiya Sabhas) Authorities Chillaw Puttalam Mawathagama Kurunegala Sabaragamuwa Province Ayagama Ratnapura 15 Niwithigala Ratnapura Deraniyagala Kegalla

Bulathkohupitiya Kegalla

Dehiowita Kegalla Imbulpe Ratnapura Kolonna Ratnapura Embilipitiya Ratnapura Aranayaka Kegalla

Pelmadulla Ratnapura

Yatiyantota Kegalla Balangoda Ratnapura Galigamuwa Kegalla Ruwanwella Kegalla Kahawatta Ratnapura Southern Province Athuraliya Matara 18 Neluwa Galle Kamburupitiya Matara

Thihagoda Matara

Pitabeddara Matara Mulatiyana Matara Suriyawewa Hambantota Hakmana Matara Karandeniya Galle

Welivitiya Divitura Galle

Imaduwa Galle Katuwana Hambantota Lunugamvehara Hambantota Pasgoda Matara Akuressa Matara

Nagoda Galle Hambantota Hambantota Tissamaharama Hambantota Central Province Walapane Nuwara-Eliya 18 Laggala-Pallegama Matale Minipe Kandy

Ududumbara Kandy

Yatawaththa Matale Panwila Kandy Ambanganga Korale Matale Thumpane Kandy Naula Matale

Wilgamuwa Matale

Pathahewahata Kandy Uda Palatha Kandy 5

Province Local Authorities District Total Number of Local (Pradeshiya Sabhas) Authorities Ambagamuwa Nuwara-Eliya Medadumbara Kandy Harispattuwa Kandy

Dambulla Matale

Rattota Matale Gangawata Korale Kancy

Table 2: Scope of Reform Actions, Activities and Indicators, and Minimum Requirements (i) Improving Service Delivery: Sample Activities (Indicators) Minimum Requirements solid waste management Information Education and Communication program implementation for source Commitment of funding for segregation and promotion of recycling commencement of activities Orders to ban the use of plastic bags in the town Install a waste recycling and recovery facility (identification of a suitable site for Initiation of solid waste management composting and/or final disposal) improvement Promotion of household or community level composting (tons/day of waste composted) Door-to-door collection in township areas (Percentage population covered) water supply and sanitation Introduction/revision of water tariff to at least cover full cost of O&M Clear demonstration of sustainability of tariff (if water supply is operated by local authority) Periodic testing of water quality (times/day, month) Improvement of collection efficiency (Percentage of bills collected) Introduction of water metering system (Percentage meters used out of all connections) Expansion/development of the water supply system network (households served) Development of public sanitation facilities that take account of the needs of women, children, and disabled Health and hygiene education programs in communities and/or schools Roads and bridges Improvement of roads system Local authority facilities Improvement of public market facilities Social services Improvement of health, library, computer services, etc.

(ii) Streamlining taxation, licensing, and approval systems and processes: Revenue management Development of fiscal database of assessment, licenses and trade establishments, and introduction of computerized billing system Revenue enhancement in the medium- A series of measures to increase the revenue from assessment tax (e.g. expand or Putting in place measures for medium- term declare built-up areas, increase assessment rate, and/or valuation of property by the term revenue enhancement Valuation Department) (collected assessment tax) Measures to increase revenue from other sources (rentals, licenses, court fines, etc.)

Preparation of financial projections for both revenue and expenditure for the next 5 Demonstration that the total revenues years will cover the total expenditures in the medium-term Process reengineering Review of the tax, licensing and approval procedures and simplifying the procedures Clear commitment to simplify the procedures (iii) Ensuring the effective management

of infrastructure/facilities: O&M Plan O&M plan to effectively manage the assets of local authority (Percentage allocated for O&M plan that demonstrates a O&M out of total expenditure) mechanism to ensure adequate budget allocation for O&M of infrastructure and facilities, including those proposed by the local authority. Establishment of a separate unit to operate the system (e.g. water supply) Outline of an institutional arrangement for O&M. Staff capacity Development of staff recruitment and human resources development plan (iv) Improving systems and management Accounting Establishment of automated accounts Separate presentation of water accounts as part of the budget Completion of audit of accounts by June of subsequent year Preparation of final account for 2010 Organizational structure Proposal for establishing functional organizational structure Inclusive and participatory planning Preparation of development plan and medium term development plan through Demonstration of participatory planning participatory process processes through minutes of meetings, committee representation etc. Administration Enhancement of citizens’ (including women) participation in local authority committees (e.g. planning, finance, environment) (Percentage of members) Development of a grievance redress mechanism Office Computerization Commitment to computerizing office functions, including separating consumer services and basic office function. Possibility of a zonal office in high dense settlement. O&M = operation and maintenance. Source: MLGPC and Asian Development Bank estimates.

Table 3: Template and Sample Reform Plan Sample Activities (Indicators) Minimum Actions Base Line Target Year Remarks Requirements 2011 (i) Improving Service Delivery: Solid waste management 1 IEC program implementation for source Commitment of funding Organize consultation No programs All July 2011 Already started in segregation and promotion of recycling for commencement of meetings at community communities some communities activities levels. in township areas covered 2 Orders to ban the use of plastic bags in Request from NWSMSC No such Orders issued January the town for advisory support orders by June 2012 2012 Issue council resolution for banning plastics. June 2013 3 Install a waste recycling and recovery Initiation of solid waste Proposed compost plant at Site for Compost December Current target is to facility (identification of suitable site) management/ landfill site compost plant plant fully 2013 focus on composting improvement identified operational by market waste. 2013 Will address waste segregation as part of IEC and proposed door-to-door collection arrangement. (See Item 6) 4 Promotion of household or community Decision will be made after Will report progress level composting (tons/day of waste the IEC activities. based on annual composted) reform plan monitoring. 5 Door-to-door collection in township Commence door-to-door No door-to- Launch 2013 Annual report on areas (Percentage population covered) collection in high density door Program in activity/facility areas. collection. high density performance areas 500 Families (Core settlement) 6 Project proposal Environment License No compost Compost Subproject is from CEA (already facility plant fully proposed for support obtained) operational by under the project. Design and construction 2013 (3 tons June 2012 of compost facility per week) Operation of the facility December 2013

Sample Activities (Indicators) Minimum Actions Base Line Target Year Remarks Requirements 2011

Water Supply and Sanitation 1 Introduction/ revision of water tariff to at Clear demonstration of Study the level of tariff and SLR Appropriate Dec. 2012 A part of the proposed least cover full cost of operation and sustainability of tariff (if connection costs in detailed 100/month level of tariff subproject (see item 5) maintenance water supply is design (no meters) established. Effective operated by local 2014 authority) 2 Periodic testing of water quality Initiate process of testing and No periodic Daily at the Dec 2014 (times/day, month) reporting with Health testing for treatment department and independent existing plant and entity system monthly at taps 3 Improvement of collection efficiency Complete computerization of No 90% of bills 2015 Annual tariff collection (Percentage of bills collected) data base computerized issued and balance statement database presented as part of budget. 4 Introduction of water metering system No meters 90% of A part of the proposed (Percentage meters used out of all connections subproject (see item 5) connections) 2014 5 Expansion/development of the water Design and construction Provision to Dec 2012 Subproject is supply system network (households of the new system 1,000 proposed for support served) Operation of the system households 2014 under the project. (500 households newly served) 6 Issue By-Law to include No such by- Notify by law 2013 A part of the proposed mandatory installation of laws subproject (see item 5) septic tank/ soak pits to avail of water connections. 7 Development of public sanitation Construction of toilets in pola Toilets out of Functional 2014 Subproject is facilities that take account of the needs markets. use toilets proposed for support of women, children, and disabled constructed under the project. 8 Health and hygiene education To coordinate IEC with Implemented Implemented programs in communities and/or District Hospital on ad-hoc continuously schools basis Roads and bridges 1 Improvement of roads system The development plan has Households 2014 Efforts will be made to included a list of roads to be benefitted. receive funding from developed /improved. other sources. Initiate design of works and

Sample Activities (Indicators) Minimum Actions Base Line Target Year Remarks Requirements 2011 complete implementation Local authority facilities 1 Improvement of public market facilities Design and construction Polas in poor Improved 2014 Subproject is of the market and polas in three proposed for support improvement congested places. under the project. (see Operation of the markets conditions. item 7 in water supply) Develop revenue and O&M plan Social services 1 Improvement of health, library, Presently served by computer services etc district health facilities, additional needs will be based on demand. This will be defined as part of the Development Plan likely to be initiated after legal amendments to the Act. (ii) Streamlining taxation, licensing, and approval systems and processes: Revenue management 1 Development of fiscal database of Request to PMU for No databases Sep 2011 Define schedule in assessment, licenses and trade support consultation with PMU. establishments, and introduction of Nominate a nodal officer Completion of Dec 2013 computerized billing system for this activity. databases Revenue enhancement in the medium-term 1 A series of measures to increase the Putting in place i. Carry on a land survey No Increase the June 2012 Presentation of revenue from assessment tax (e.g. measures for medium- under S.139 (1) to identify assessment own source Demand Collection expand or declare built areas, increase term revenue all lands that should be tax collected revenue by Balance Statement as assessment rate, and/or valuation of enhancement under assessment tax 25% in next Dec 2012 part of Annual Budget property by the Valuation Department) ii. Notify built up areas as per five years. Valuation Department (collected assessment tax) S.134(1) and obtain Mar 2013 needs to be informed valuation in advance. iii. Determine the assessment Target 90% June 2013 See commitment to rate Collection improve database. iv. Mobilize revenue collectors. v. Ensure 90% collection in next 3 years

Sample Activities (Indicators) Minimum Actions Base Line Target Year Remarks Requirements 2011 2 Measures to increase revenue from Introduce Business Tax and Business tax Business tax 2015 Initiate actions once other sources (rentals, licenses, court bring all unregistered not used revenue of amendments are in fines, etc) business premises under the SLR 100,000 place. tax net in the area in next 5 See commitment years. above on improving database. 3 Annually revise the rent and Annual rent of Achieve 30% 2016 See commitment achieve 50% over 5 years SLR 50,000 in increase above on improving (particular focus on pola 2010 database. markets to be improved) 4 Preparation of financial projections for Demonstration that the Ensure assets are maintained Total revenue Revenue will By 2016 See measures to both revenue and expenditure for the total revenues will and generate sufficient less than exceed improve basic taxes next 5 years cover the total revenues. expenditures expenditures. and rents. expenditures in the in 2009 and medium-term 2010. Process reengineering 1 Review of the tax, licensing and Clear commitment to Commitment to implement March Council Resolution approval procedures and simplifying simplify the procedures the process reengineering 2012 passed. the procedures measures- council resolution Await guidance from and nomination of nodal PMU on schedule of officer program implementation (iii) Ensuring the effective management of infrastructure/facilities: O&M Plan 1 O&M plan to effectively manage the O&M plan that List facility operation actions No O&M 3% of total 2014 Synchronized with the assets of local authority (Percentage demonstrates a and O&M plan including Plan expenditure infrastructure allocated for O&M out of total mechanism to ensure cost estimate Ad-hoc allocated for improvements to be expenditure) adequate budget budget O&M made under the allocation for O&M of Annual budget allocation for allocation project. infrastructure and O&M facilities, including those proposed by the local authority 2 Establishment of a separate unit to Outline of an Establish separate units for No separate Units By the Technical support operate the system (e.g. water supply) institutional (i) water supply and (ii) units established commence sought under the arrangement for O&M composting and ment of project. operational operation (2014)

Sample Activities (Indicators) Minimum Actions Base Line Target Year Remarks Requirements 2011 Staff capacity 1 Development of staff recruitment and human resources development plan Request to CLG for new March positions 2012 Subject to approval of finance for the project Initiate recruitment process Establishment 2014

(iv) Improving systems and management Accounting 1 Establishment of automated accounts Nominate Staff for Not Completion June 2013 Support from Project coordination automated 2 Separate presentation of water Prepare separate statements No separate Completion 2014 Annual report on water accounts as part of the budget for water supply activity. statements supply operations 3 Completion of audit of accounts by Preparation of final Commitment to complete Final Submission of Annual Subject to availability June of subsequent year account for 2010 finalization of accounts and accounts not final account of staff for Audit from audit prepared by by March of Auditor General’s June of subsequent Department subsequent year year Organizational structure 1 Proposal for establishing functional Change of organizational Old structure Structure December organizational structure structure to enhance service since 1995 change and 2012 efficiency (new positions for appointment procurement and human of qualified resources management) staff Inclusive and participatory planning 1 Preparation of development plan and Demonstration of Council resolution No Development Dec 2012 Subject to Amendment medium term development plan participatory planning development plan to the Pradeshiya through participatory process processes through plan prepared Sabhas Act. minutes of meetings, committee representation etc. Administration 1 Enhancement of citizens’ (including Appoint a women’s No women’s A September Annual reporting on women) participation in local authority representative in all the representatives representative 2011 participation, committees (finance, environment) committees of the in all especially of women in (Percentage of members) pradeshiya sabhas committees planning meetings.

Sample Activities (Indicators) Minimum Actions Base Line Target Year Remarks Requirements 2011 2 Development of a grievance redress Establish a public No Mechanism September mechanism complaint box mechanism in functional 2011 Appoint a responsible place December officer 2011 Office computerization 1 Commitment to computerizing office Send a request to MLGPC No Sept 2011 Define schedule in functions, including separating for support computerization consultation with PMU. consumer services and basic office nominate nodal officer Dec 2014 function. Complete activity 2 Establishment of a zonal office in high Examine possibility based on Communicate decision dense settlement. growth. as part of annual reform plan monitoring. CEA = Central Environmental Authority, CLG = Commissioner of Local Government, IEC = information, education, and communication, MLGPC = Ministry of Local Government and Provincial Councils, NSWMSC = National Solid Waste Management Support Center, O&M = operation and maintenance, PMU =project management unit, SLR = Sri Lanka Rupee. Source: MLGPC and Asian Development Bank estimates.