Report and Recommendation of the President to the Board of Directors Sri Lanka Project Number: 41171-02 November 2010 Proposed Grant and Administration of Technical Assistance Grant Solomon Islands: Transport Sector Development Project CURRENCY EQUIVALENTS (as of 1 October 2010) Currency Unit – Solomon Islands dollar (SI$) SI$1.00 = $0.1264 $1.00 = SI$7.9094 ABBREVIATIONS ADB – Asian Development Bank CPIU – central project implementation unit MID – Ministry of Infrastructure Development NTF – National Transport Fund NTP – National Transport Plan PAM – project administration manual TA – technical assistance NOTE In this report, "$" refers to US dollars unless otherwise stated. Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General R. Wihtol, Pacific Department (PARD) Director A. Iffland, Pacific Sector Operations , PARD Team leader D. Mizusawa, Infrastructure Specialist, PARD Team members R. Adhar, Senior Project Implementation Officer, PARD E. Brotoisworo, Principal Safeguards Specialist, PARD J. Ghimire, Counsel, Office of the General Counsel R. Guild, Principal Transport Specialist, PARD S. Lee, Senior Social Development Specialist, PARD D. Ling, Project Implementation Officer, PARD N. Sapkota, Safeguards Specialist, PARD Peer reviewer A. Ahonen, Transport Specialist, Central and West Asia Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page PROJECT AT A GLANCE MAP I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 3 C. Outputs 3 D. Investment and Financing Plans 4 E. Implementation Arrangements 5 III. TECHNICAL ASSISTANCE 6 IV. DUE DILIGENCE 7 A. Technical 7 B. Economic and Financial 7 C. Governance 8 D. Poverty and Social 8 E. Safeguards 8 F. Risks and Mitigating Measures 9 V. ASSURANCES AND CONDITIONS 10 VI. RECOMMENDATION 10 APPENDIXES 1. Design and Monitoring Framework 11 2. List of Linked Documents 14 PROJECT AT A GLANCE Transport Sector Development Project 150o 00'E 170o 00'W 156o 00'E International Dateline N o r t h P a c i f i c O c e a n 20o 00'N 20o 00'N PACIFIC REGION SOLOMON ISLANDS Philippine MARSHALL ISLANDS Sea TRANSPORT SECTOR DEVELOPMENT PROJECT REPUBLIC OF PALAU FEDERATED STATES OF MICRONESIA ONTONG JAVA 0o 0o (Lord Howe Atoll) NAURU Ke Loma K I R I B A T I Luaniua INDONESIA PAPUA NEW GUINEA SOLOMON ISLANDS TUVALU o o 6 00'S 6 00'S SAMOA COOK Roncador Reef C o r a l S e a VANUATU ISLANDS REPUBLIC OF THE TONGA o o Taro 20 00'S FIJI 20 00'S CHOISEUL ISLANDS PROVINCE A U S T R A L I A S o u t h P a c i f i c O c e a n Papara Manning Straits Shortland 150o 00'E 170o 00'W Vaghena Kia ISABEL Vella PROVINCE 166o 00'E Kolombangara Maravar Buala Ranongga Noro Gizo Munda Simbo Susubona Malu'u Sikaiana Blanche Channel Sepi WESTERN Vangunu IndependenceAuki Straits PROVINCE CENTRAL MALAITA Rendova PROVINCE Florida PROVINCE Russell Savo Oteotea Yandina Tulaghi HONIARA Aola Liwe Ulawa Avu Avu GUADALCANAL Duff Hauratarata PROVINCE Kira Kira Reef S o l o m o n S e a Lata N TEMOTU MAKIRA Nendo PROVINCE PROVINCE SANTA CRUZ ISLANDS Utupua 0 20 40 60 80 100 Tinggoa Anuta RENBEL Peou PROVINCE Vanikolo o Kilometers 12 00'S 12o 00'S Fataka Tikopia National Capital S O U T H P A C I F I C O C E A N Provincial Capital Town International Boundary Boundaries are not necessarily authoritative. This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the 10-3516 legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information. A o o V 156 00'E 166 00'E I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed grant to the Solomon Islands for the Transport Sector Development Project. The report also describes proposed administration of technical assistance (TA) to be provided by the Japan Fund for Poverty Reduction for Supporting the Transport Sector Development Project, and if the Board approves the proposed grant, I, acting under the authority delegated to me by the Board, will approve administration of the TA. 2. The project will improve access to socioeconomic opportunities by rehabilitating and maintaining land, sea, and air transport infrastructure. 1 Solomon Islands has been offered significant parallel grant cofinancing from the governments of Australia and New Zealand but has insufficient capacity to plan and implement the necessary civil works. The project will therefore strengthen transport sector institutions by establishing a central project implementation unit (CPIU) to reform the government’s institutional structure, implement civil works, and conduct technical and managerial capacity development. In doing so, the project will prepare an environment for a comprehensive transport sector-based approach based on long- term partnerships, sector coordination, and reliance on government systems. Through close cooperation with other development partners, the project will support the government in efficiently implementing all externally funded assistance to the transport sector.2 II. THE PROJECT A. Rationale 3. Solomon Islands is a large Melanesian island country, with a land area of about 28,000 square kilometers, six large islands, dozens of smaller islands, and hundreds of islets and atolls. About 80% of the population of 540,000 is rural, living in widely dispersed villages of a few hundred people. The country is fragile, weakly performing, and still emerging from several years of conflict from 1999 to 2003. It is one of the least developed of the Asian Development Bank (ADB) Pacific developing member countries. The country is unlikely to meet most of the Millennium Development Goals by 2015. Socioeconomic indicators include high unemployment, fast population growth, and slow economic growth, which combine to exacerbate poverty. 4. The economy is at a disadvantage given the dispersed population, limited resources, and relatively high cost of providing remote communities with the infrastructure and basic services to stimulate productivity gains. The urban–rural divide is increasing between the population living in and around the capital city of Honiara and the majority of the population living in rural communities on outer islands. The weak and poorly maintained transport infrastructure constrains economic growth and limits its inclusiveness. Improved transport infrastructure is expected to strengthen growth, improve access to basic social services in rural areas, build rural economies, and increase geographic equity. 5. Transport infrastructure. The government’s National Transport Plan (NTP) and ADB's interim Solomon Islands country partnership strategy, 2009–2011 sets out a goal to improve transport infrastructure to strengthen equitable private-sector-led economic growth and create 1 The design and monitoring framework is in Appendix 1. 2 The Asian Development Bank (ADB) provided project preparatory technical assistance. ADB. 2010. Technical Assistance to Solomon Islands for Preparing the Transport Sector Development Project. Manila (TA 7335-SOL). 2 an enabling business environment.3 Previously, transport infrastructure had deteriorated due to poor maintenance, low government and contractor capacity for planning and implementation, and natural disasters. Prior to recent projects, about 65% of roads had deteriorated and required rehabilitation, although the figure is now about 50% and improving. The government currently gives high priority to rehabilitating and maintaining existing transport infrastructure to ensure that the infrastructure remains in operation. To this end, the government is undertaking a comprehensive effort to rehabilitate and maintain transport infrastructure, with strong support from development partners.4 6. Institutional aspects. Capacity constraints, inappropriate institutional structures, and sporadic capacity development have hindered the government’s ability to develop and implement transport sector policies and plans effectively. These factors are exacerbated by constrained public sector budgets, lack of human resource and organizational planning, and inadequate training programs. The government’s institutional structure requires strengthening and training to meet needs identified by ADB TA5 and to implement the scale of works required to improve the network, particularly those that are externally funded. 7. Intermodal connectivity. Intermodal connectivity is crucial to improve access. Where travel and transport demand is low, typically in remote areas, reliable access and connectivity need to be prioritized. Improving connections between land, sea, and air transport requires rehabilitating deteriorated infrastructure and constructing new facilities. Lower transport costs and more frequent services will in turn stimulate benefits such as increased agricultural production and trade for rural communities. 8. National Transport Plan. The NTP, originally developed with support from ADB TA,6 articulates the government’s transport policies, strategies, and priorities for developing the transport system. The NTP formally sets out a strategic and policy framework to (i) develop transport services, (ii) maintain and develop