PROJECT INFORMATION DOCUMENT (PID)



PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB4710

|Project Name |Provincial Roads Project |

|Region |SOUTH ASIA |

|Sector |Roads and highways (100%) |

|Project ID |P107847 |

|Borrower(s) |DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA |

| |Ministry of Local Government & Provincial Councils |

| |330 Union Place |

| |Colombo 2 |

| |Sri Lanka |

| |Tel: +94-11-2303281 |

| |rsapdpdrural@sltnet.lk |

|Implementing Agencies |Ministry of Local Government and Provincial Councils |

| |Uva Provincial Road Development Department |

| |Eastern Provincial Road Development Department |

|Environment Category |[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |May 10, 2009 |

|Date of Appraisal Authorization |May 18, 2009 |

|Date of Board Approval |June 25, 2009 |

1. Country and Sector Background

a) Macroeconomic Background. Despite the steady economic growth of Sri Lanka over the past decade, the pace of poverty reduction has been modest. The national poverty headcount ratio remains high at 15.2 percent[1] for a country with US$1,144 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 inefficiencies in the labor market. The macroeconomic impact of the conflict is estimated at 2-3 percent of GDP growth annually[2]. The accumulation of public debt – partly as a result of increased military expenditures in response to the conflict – has crowded out a range of pro-poor public services.

b) As a result of the current global economic crisis, Sri Lanka has applied to the International Monetary Fund (IMF) for assistance totaling about US$1.9 billion.

c) 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 for rural non-agricultural households[3]. 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 than half (53 percent) of provincial GDP. The poverty rate for agricultural households (34.3 percent) is double that for non-agricultural households (16.9 percent). Many socio-economic indicators of Uva are at the same level or even lower than those of Northern[4] or Eastern Provinces which have been directly affected by civil conflict. It has the highest unemployment rate among youth of the working age of 14-25 years and the lowest monthly total expenditure, per capita.

d) Inadequate connectivity to markets and growth centers, and a lack of transport facilities hamper the potential for increasing incomes and reducing poverty in Uva. 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 an estimated 40 percent of perishable produce. Average distance and time taken to travel to nearest commercial centres is twice the national average. Agricultural wholesalers capitalise 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.

e) Poverty and Conflict. The Eastern and Northern Provinces have been most severely affected by the decade-long fighting and subsequent displacements. Many of the displaced people who returned to Eastern Province face a challenging environment with restricted access to fields and fishing waters because of security reasons, and difficulty in the restoration of civilian life due to the presence of paramilitary groups. Inadequate and restricted transport services, poor quality roads, and access to credit remain the main impediments to growth and poverty reduction. Before the conflict, the agriculture and fishing sector contributed a substantial share to national GDP, but now, due to transportation difficulties and the trade embargo, commercial agriculture in the East has transformed into subsistence agriculture.

Sector Background

f) In Sri Lanka, road transport is the dominant mode accounting for over 90% of passenger and freight transport. Vehicle ownership and road traffic continue to grow rapidly. Data from 2004 shows a vehicle population of about 3,000,000 vehicles, with an 11% increase over the previous year. Currently, Sri Lanka’s road network consists of about 108,000 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. Adequate road infrastructure is critical for sustainable and inclusive growth in the provinces as it provides access and connectivity to basic economic and social services.

g) Provincial Road network. The provincial road network estimated at about 15700 km[5], constitutes about 14 percent of the country’s total road network and are the key connectors 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 9 percent of the provincial roads (total 1098 km) in Eastern Province and 21 percent in Uva Province (total 1741 km) are in good condition. These are roads which were recently rehabilitated under the 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 increasing road maintenance and construction costs.

h) Road sector strategy. The Government of Sri Lanka’s 10-year strategy, Mahinda Chintana, 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 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 did not meet the expectations of the road sector agencies and was also restructured to focus only on the national road network. The Plan has recently been updated in 2008 and shared with Members of Parliament. Provincial road sector management and funding.[6] 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 body under MOT, is responsible for policy formulation and subsidy disbursement. Following the 13th Amendment to the Constitution, responsibility for the provincial roads was devolved from the Road Development Authority (RDA) to the Ministry of Local Government and Provincial Councils. However, 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. Any network expansion that has occurred has been at the request of the local level authorities through the inclusion of some of their roads into the provincial road inventory. The primary source of funding for provincial roads is from allocations made to the Ministry of Local Government and Provincial Councils (MLGPC) and distributed to the provinces through the Finance Commission in the form of: (a) block grants for recurrent expenditure; (b) the Province Specific Development Grants (PSDGs) for designated purposes; and (c) the 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: (a) projects funded through foreign loans channeled directly to the relevant province by the MLGPC (a) projects funded through foreign loans channeled directly to the relevant province by other central government ministries and agencies and (c) provincial revenue generated and allocated for roads through the provincial budgets.

PCs, which collect road user charges in the form of vehicle license fees, are unable to invest an adequate share of their 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 the inability to hire and retain competent and qualified technical staff due the relatively lower salaries in comparison to other state institutions, the lack of physical assets, including laboratories, and the absence of planning units and databases. The quality of contractors at 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.

2. Objectives

The proposed project is aimed at improving access to socio-economic centers in Eastern and Uva provinces through the sustainable management of improved road infrastructure.

3. Rationale for Bank Involvement

a) Sri Lanka’s, Mahinda Chintana, outlines GOSL’s development agenda. A critical thrust of its strategy is to accelerate growth through increased investment in infrastructure – power, roads, water supply and sanitation. It also strives to achieve more equitable development through accelerated rural development.

b) 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 on selected provinces based on the outputs available for each province from the preparatory work undertaken by the Asian Development Bank (ADB) Project Preparation Facility. To enhance outputs and reduce complexity of implementation, each province, (with the exception of the Eastern province), is expected to receive support funding from one development partner.

c) For the current year, ADB is preparing a provincial roads project covering part of Eastern and North Central provinces whilst JICA is preparing a provincial roads project covering Central and Sabaragamuwa provinces. In this context, an opportunity has arisen for the Bank to work in Uva Province, and part of Eastern Province. Several discussions have been held together with ADB and JICA during the preparation of the respective projects, in establishing common implementation and reporting mechanisms.

d) The Bank is a major development partner in Sri Lanka, having financed several key infrastructure projects over the past decades. This involvement in infrastructure has shown that the Bank has the ability to implement projects under highly adverse conditions, 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 would strengthen its engagement in the roads sector beyond the national highways. It is currently playing a key role in the road sector improving and promoting a harmonized approach to sectoral development. This project would complement other development partners’ activities in the transport and other infrastructure sectors. Improvements in the road network would also supplement other Bank activities aimed at strengthening rural development such as the North and East Local Services Project which seeks to improve rural infrastructure at the Pradeshiya Sabha level and the Sustainable Tourism Development Project.

4. Description

Component 1: Rehabilitation of Provincial Roads (US$90m).

Component 1a. Rehabilitation of roads in Uva Province, ($70 million): Works and services for the upgrading and rehabilitation of about 200km of provincial roads and other road infrastructure in selected, prioritized areas in the Uva Provinces.

Component 1b. Rehabilitation of Roads in Ampara District, Eastern Province, ($20 million): Works and services for the upgrading, rehabilitation of about 80km of provincial roads and other road infrastructure in selected, prioritized, areas in the Ampara District of the Eastern Province.

Component 2: Maintenance program, (US$10 million). This component will finance goods and services to assist the provincial roads departments to develop and perform an effective maintenance strategy on their network. The component will also support the existing provincial road maintenance program consisting of routine, preventative and emergency maintenance works and also implement a number of pilot long term maintenance contracts.

Component 3: Implementation Support and Capacity Building, (US$5m). This component will finance the strengthening of the capacity of the Provincial Council Road Departments in planning, budgeting and management within a framework of fiscal constraints. The Component will support:

i) 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;

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

vi) Any additional service that may be required to facilitate project implementation.

5. Financing

|Source: |($m.) |

|BORROWER/RECIPIENT |8 |

|International Development Association (IDA) |105 |

| Total |113 |

6. Implementation

Given that the project activities will cover two provinces and the Ministry of Local Government and Provincial Councils (MLGPC), a National Steering Committee, chaired by the Secretary MLGPC, will provide overall guidance for project implementation at national level. Each Provincial Road Development Department (PRDD) will act as the executing agency for the rehabilitation and maintenance works to be carried out in their respective provinces. In Uva Province, a project implementation unit (PIU), headed by the Director of the PRDD, will be responsible for project implementation. In the Eastern Province, the project will be implemented by the PRDD. MLGPC will coordinate the activities of the two provinces, and be responsible for the Implementation Support and Capacity Building Component and for overall project monitoring.

7. Sustainability

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. Ongoing dialogue between the GOSL and development partners have established the following (i) Vehicle licensing fees collected by Uva and Eastern Province will be earmarked for routine maintenance activities (ii) Funding for periodic maintenance activities will be provided by the Ministry of Finance, with support from the Bank provided on a declining basis. Support to the provinces for a diagnostic study of maintenance activities, piloting of the 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 are other strategies that will be supported under the project.

8. Lessons Learned from Past Operations in the Country/Sector

i) Maintenance funding for provincial roads is inadequate and may remain so for some time. Rehabilitation projects have sometimes been seen as a substitute for proper maintenance. The desire for more expensive design options such derives from an erroneous belief that the need for routine and periodic maintenance would be reduced or even eliminated by using these materials. The provincial councils will 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 province to develop efficient maintenance planning systems.

ii) Institutional strengthening of the provincial road authorities (PRAs) is a gradual process. The planning functions in the authorities are weak and elected representatives have a strong influence on the allocation of resources. Assisting the PRAs 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 political influence. This is often difficult to achieve through a single project and so a programmatic approach to institutional building, in partnership with other development partners, needs to be applied. The project will assist the provincial road departments with the support they would require for successful implementation of their core function of management of the provincial road network.

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

9. Safeguard Policies (including public consultation)

|Safeguard Policies Triggered by the Project |Yes |No |

|Environmental Assessment (OP/BP 4.01) |[X] |[ ] |

|Natural Habitats (OP/BP 4.04) |[ ] |[X ] |

|Pest Management (OP 4.09) |[ ] |[X ] |

|Physical Cultural Resources (OP/BP 4.11) |[ ] |[ X] |

|Involuntary Resettlement (OP/BP 4.12) |[ X] |[ ] |

|Indigenous Peoples (OP/BP 4.10) |[ ] |[ X] |

|Forests (OP/BP 4.36) |[ ] |[X ] |

|Safety of Dams (OP/BP 4.37) |[ ] |[ X] |

|Projects in Disputed Areas (OP/BP 7.60)* |[ ] |[ X] |

|Projects on International Waterways (OP/BP 7.50) |[ ] |[ X] |

10. Contact point

Contact: Tawia Addo-Ashong

Title: Sr Transport. Spec.

Tel: (202) 473-3157

Fax: (202) 522 3713

Email: taddoashong@

11. For more information contact:

The InfoShop

The World Bank

1818 H Street, NW

Washington, D.C. 20433

Telephone: (202) 458-4500

Fax: (202) 522-1500

Email: pic@

Web:

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[1] This excludes Northern Province where surveys were impossible to be carried out due to security situation in 2006/07. “Poverty Indicators: Household Income and Expenditure Survey, 2006/07.” Department of Census and Statistics, Government of Sri Lanka.

[2] World Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges.” 2007.

[3] According to Household Income Expenditure Survey conducted in 2002, nearly 24 percent of rural agricultural households are poor, compared with only 16 percent of nonagricultural households.

[4] The indicators for Northern Province exclude Killinochchi, Mulliativu, and Mannar District.

[5] Public Expenditure Review Report

[6] The absence of 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 concerns maintenance, rehabilitation or new construction. PCs estimate recurrent expenditures as around 3-5% of all capital costs.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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