Sri Lanka - Colombo Environmental Improvement Project

Document of The World Bank Report No. 12878-CE STAFF APPRAISAL REPORT SRI LANKA COLOMBO ENVIRONMENTAL IMPROVEMENT PROJECT JUNE 2, 1995 Infrastructure Operations Division Country Department I South Asia Region  CURRENCY EOUIVALENTS (as of May 1995) Currency Unit = Sri Lankan Rupee (SLRs) US$ 1.0 = SLRs 50.00 SLRs 1.0 = US$ 0.02 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (Iam) = 0.621 mile I square meter (m2) = 10.76 square feet I cubic meter (m3) = 35.31 cubic feet I hectare (ha) = 2.47 acres ABBREVIATIONS AND ACRONYMS AWDR - Average Weighted Deposit Rate BOO/BOT - Build, Operate and Own/Build, Operate and Transfer CEA - Central Environmental Authority CMA - Colombo Metropolitan Area CMC - Colombo Municipal Council EMS - Environmental Management Strategy GDP - Gross Domestic Product GIS - Geographic Information System GOSL - Government of Sri Lanka LA - Local Authority MEIP - Metropolitan Environmental Inprovement Program MHCPU - Ministry of Housing, Construction and Public Utilities NEAP - National Environmental Action Plan NESC - National Environmental Steering Committee NWSDB - National Water Supply and Drainage Board SOE - Statement of Expenditure UDA - Urban Development Authority WPC - Western Provincial Council Borrower's Fiscal Year January 1 to December 31  SRI LANKA COLOMBO ENVIRONMENTAL IMPROVEMENT PROJECT Credit and Project Summary Borrower: Democratic Socialist Republic of Sri Lanka Beneficiaries: Colombo Municipal Council (CMC) National Water Supply and Drainage (NWSDB) Urbar Development Authority (UDA) Amount: SDR 24.8 million (US$39.0 million equivalent) Terms: Standard, with 40 years maturity Onlending Terms: The Government of Sri Lanka (GOSL) would onlend part of the credit proceeds to CMC and NWSDB on a variable rate basis not below the average weighted deposit rate on interest bearing deposits of domestic commercial banks and adjustable every six months, repayable over 20 years, including 6 years of grace. GOSL would bear the foreign exchange risk. Proiect Description: The project would support progress toward a sustainable environment for the long term economic and social development of the Colombo Metropolitan Area (CMA). In particular, the project would focus on improving solid waste services, controlling surface- and groundwater contamination from wastewater discharge, and building up the capabilities of the local governments in municipal waste management. The project would also assist in promoting private sector participation in environment-related operations. The project would finance (a) construction of a sanitary landfill and compost facilities to replace open dumps, and equipment for hospital wastes collection, transport and disposal; (b) wastewater collection systems in two industrial zones; (c) wastewater pollution abatement measures in the Beira Lake catchment area; and (d) technical assistance. Project Benefits: The project addresses the underlying causes of environmental degradation in the CMA and will benefit over 3 million people who reside in or commute to the project area. The replacement of open dumps with controlled sanitary landfill will eliminate contamination of surface and ground water from open dump seepage or leachates, improve urban environmental conditions and landscape aesthetics. Improved management of hospital wastes through specialized collection and safe disposal will lower public health impacts of uncontrolled disposal of infectious and pathological wastes. The two industrial areas at Ratmalana and Ekala/Ja-Ela account for about 60% of water-polluting industries in the CMA; the project-supported sewerage investments would therefore lead to a significant reduction in the overall pollution contribution of the industrial sector and a general improvement in the  population health in the areas concerned. The interventions in the Beira Lake catchment will help reduce associated environmental and health hazards and open the way for environmentally sustainable development of the lake's surrounding area in the longer term. Besides the above direct benefits, the project would serve to catalyze private participation in the delivery of critical urban infrastructure services traditionally undertaken by the public sector. This is expected to contribute to increased service coverage, improved service quality and efficiency. The project would also have a significant demonstration effect to sensitize other urban authorities to adopt better managed and environmentally sound wastes management systems. Prgject Risks: Potential project risks are: (a) shortfalls in cost recovery to sustain the operations of the project supported investments; (b) weak enforcement of industrial wastewater discharge standards, which would reduce pressure on industries to utilize the joint wastewater collection and treatment systems; and (c) lack of adequate response from the private sector for the two wastewater treatment plants. These risks have been recognized and suitable safeguards have been incorporated in the project implementation as detailed below. Cost Recovery. To sustain the operations of project facilities agreement has been reached on the mechanisms for setting up dedicated sources of funds for the above operations and on cost recovery targets satisfactory to IDA. Enforcement. To step up enforcement, GOSL has committed to implementing a time-bound compliance program for the two industrial areas. Under this program, the Central Environmental Authority, NWSDB and each of the targeted industries will enter into an agreement confirming that each industrial entity will comply with established effluent discharge standards through using the proposed joint treatment facilities or its own captive treatment plant. All agreements would be concluded by June 1997. Financing of Wastewater Treatment Plants. To minimize the risk that private sector interest may not materialize in a time frame commensurate with the implementation of the project, GOSL will implement a program of specific actions aimed at concluding contractual agreements with private sponsors by March 1997. International consultants will be mobilized in October 1995 to assist in the preparation of solicitation packages and evaluation of proposals. No withdrawals will be allowed with respect to the wastewater collection works until financing arrangements satisfactory to IDA for the construction of the two wastewater treatment plants have been concluded. In the event that private sector BOO/BOT arrangements fail to develop, GOSL will arrange funds from alternative sources for the construction of the wastewater treatment plants.  - iii - Estimated Costs:' Local Foreign Total (-- US$ million --) Municipal Solid Waste Management 5.8 6.7 12.5 Wastewater Collection Systems 6.7 2.4 9.1 Beira Lake Catchment Pollution Control 7.2 2.8 10.0 Technical Assistance 2.6 4.9 7.5 Base Cost 22.3 16.8 39.1 Physical Contingencies 3.3 2.4 5.7 Price Contingencies 2.5 1.7 4.2 Total Project Cost 21 2Q02 49.0 Financing Plan: Local Foreign Total (-- US$ million --) IDA 18.1 20.9 39.0 GOSL 10.0 - 10.0 Total 8 zQ2 49. Estimated IDA Disbursements: IDA Fiscal Year FY96 FY97 FY98 FY99 FY2000 FY2001 (US$ million) Annual 3.0 7.0 8.5 8.5 8.5 3.5 Cumulative 3.0 10.0 18.5 27.0 35.5 39.0 Economic Rate of Return: Not applicable. Poverty Category: Not applicable. Map: IBRD 26954 IIncluding USS4.6 million in duties and taxes.  - iv - SRI LANKA STAFF APPRAISAL REPORT COLOMBO ENVIRONMENTAL IMPROVEMENT PROJECT Table of Contents Page No. CREDIT AND PROJECT SUMMARY ............................i I. THE COLOMBO URBAN ENVIRONMENT A. Socioeconomic Setting .I B. Regulatory and Institutional Framework for Environmental Management .1 C. Environmental Conditions in Colombo .2 D. Government Strategy .4 E. Rationalu for IDA Involvement .5 II. THE PROJECT A. Project Objectives .6 B. Project Description 6 C. Status of Project Preparation .8 D. Emvironmental Aspects .8 E. Project Costs .9 F. Project Financing .10 G. Procurement and Disbursement .11 H. Project Implementation .13 1. Project Reporting and Auditing .16 J. Project Supervision .16 III. FINANCIAL MANAGEMENT .17 IV. PROJECT BENEFITS AND RISKS A. Project Benefits .19 B. Project Risks .19 V. AGREEMENTS REACHED AND RECOMMENDATION ..20 This report is based on the findings of an appraisal mission in Septernber 1994 led by Ms. L Donaldson and a subsequent follow-up mission in March 1995 led by Ms. N. Zhao and including Messrs. 1. Mobarek (SA IN), P. Illangovan (ASTEN) and S. Pilapitiya (SAI SL). Peer reviewers were Messrs. C. Bartone, 0. Yepes and T. Tsui (EA2CO). The Division Chief (SAI IN) and Director (SAI) are, respectively, Ms. M. Garcia-Zamor and Mr. P. Isenran. Document preparation support was provided by Mes. J. Willianm and S. Lippman.  -v - TABLES 2.1 Project Cost Estimate 2.2 Project Financing Plan 2.3 Procurement Arrangements ANNEXES I . Municipal Solid Waste Management 2. Ratmalana and Ekala/Ja-Ela Wastewater Collection and Treatment Schemes 3. Beira Lake Restoration 4. Termns of Reference for Technical Assistance S. Summary of Environmental Impact Assessment of Landfill Component 6. Detailed Project Cost Estimates 7. Disbursement Schedule 8. Terms of Reference for Public Consultation Panel 9. Project Implementation Plan 10. Project Progress Reporting Requirements 11. Indicative Supervision Plan 12. Selected Documents Available in the Project File  SRI LANKA COLOMBO ENVIRONMENTAL IMPROVEMENT PROJECT STAFF APPRAISAL REPORT I. THE COLOMBO URBAN ENVIRONMENT A. Socioeconomic Setting 1.1 Sri Lanka has a richly varied natural resource base, a moderately expanding population covered by extensive social services and an adult literacy rate of almost 90%. With such an economic infrastructure and human resource base, the Govemment of Sri Lanka (GOSL) is gearing up to propel the economy into the mainstream of growth by fostering private sector-led and environmentally friendly industrial growth, stimulating agriculture to diversify into new crops and export-oriented products, and consolidating Sri Lanka's natural, strategic position by developing the Colombo port into a competitive regional transshipment center. 1.2 The Colombo Metropolitan Area (CMA), which comprises the Colombo Municipal Council (CMC) and 30 othe, local authorities in the Colombo, Kalutara and Gampaha Districts of the Westem Province, is the most developed region in Sri Lanka (see IBRD Map 26954). With over four million inhabitanits, the CMA contains a quarter of Sri Lanka's total population, accounts for above 70% of the country's industrial activities, and generates over 40% of the island's gross domestic product (GDP). This concentration of population, industrial and commercial activities in about 5% of the total land area of Sri Lanka, places a severe strain on the existing municipal infrastructure. Notwithstanding the Govemment's preference for a more balanced regional development, most of the new industrial growth can be expected to be sited in the CMA, which is already bearing the brunt of existing industrial and urban pollution. Recognizing environmental improvement as an essential part of economic development, implementation of adequate environmental management programs to remedy and prevent the adverse effects of urban and industrial growth on the environment in the CMA is on the top of GOSL's environmental agenda. B. Regulatory and Institutional Framework for Environmental Management 1.3 In recent years, GOSL has taken a series of legislative initiatives toward protecting the environment. The National Environmental Act of 1980 establishes a comprehensive national environmental policy. In 1982, GOSL created the Central Environmental Authority (CEA) with policy and regulatory functions. Under the National Environmental (Amendment) Act of 1988, three new instruments were introduced for enhancing environmental protection; these are the requirement of Initial Environmental Examination and Environmental Impact Assessment for approval of projects, the designation of environmental protection areas, and the environmental protection license scheme to enforce industrial effluents discharge standards. The National Environment (Protection and Quality) Regulations of 1990 mainly deals with industrial pollution control.  -2 - 1.4 The institutional framework for environmental management in Sri Lanka is still evolving. CEA, which functions under the new Ministry of Transport, Highways, Environment and Women's Affairs, is the central agency with a policy and regulatory mandate. The National Environmental Steering Committee (NESC, established in 1990) coordinates and oversees the implementation of all environment-related programs, plans and projects. The members of the NESC include the secretaries/heads of all relevant ministries and agencies. Besides CEA and the NESC, a large number of national agencies are entrusted with specific responsibilities with respect to the various environmental segments, these include, among others, the Coast Conservation Department, the Forest Department, the Department of Wildlife Conservation, the Irrigation Department, the National Water Supply and Drainage Board (NWSDB), and the Urban Development Authority (UDA). The municipal, urban and local govemment admninistrations' are the basic units responsible for ensuring compliance with environmental regulations and standards within their respective jurisdictions. C. Environmental Conditions in Colombo 1.5 The environmental degradation in the CMA derives largely from the poor management of solid and hazardous wastes, and uncontrolled discharge of domestic and industrial wastewater into the area's water courses, which are in tum attributable to the lack of adequate urban infrastructure and effective enforcement of environmental regulations. 1.6 Municipal Solid Waste. According to the existing legislation, the overall responsibility for municipal solid waste collection and disposal rests with each local administration. The solid waste management practices in the various jurisdictions comprising the CMA differ greatly. Regular solid waste collection systems exist in the CMC, Dehiwala-Mt. Lavinia Municipal Council (Dehiwala-Mt. Lavinia MC), Moratuwa Urban Council (Moratuwa UC) and the Kotte Urban Council (Kotte UC); however, in some of the smaller jurisdictions, a solid waste collection system is virtually non-existent. Municipal solid waste in the CMA is presently collected at the rate of about 1I,100 tons per day (tpd), of which about 700 tpd is by the CMC. The ratio of waste collected to waste generated ranges from about 90% in the CMC to as little as 5% in some of the smaller local authorities (LAs). 1.7 Presently, CMC is the only jurisdiction in the CMA that has an organized solid waste management system, with about 1,000 container collection points providing storage of waste prior to collection for disposal. Currently, waste collected in the CMC is deposited at a disposal site at Wellampitiya. During the development of the site, little preparatory work was undertaken to contain surface water, control leachate or prevent gas. Consequently, operation of the site has caused contamination of the local aquifer. Furthermore, the site has already reached its capacity. Thus, CMC is in urgent need of a new sanitary landfill site to avoid the altemative of using open dumps. 1.8 Within the other LAs, waste collection points generally are little more than open patches of ground where waste is dumped, requiring hand-loading onto secondary transport. Solid There are three types of local government adrninistrations: Municipal Council for major cities, Urban Council for medium-sized ones, and Local Authority for small jurisdictions.  - 3 - waste from Dehiwala-Mt. Lavinia MC, Moratuwa UC and Kotte UC are disposed of at 15 dumping sites, all operated in an uncontrolled manner. 1.9 Hospital 7aste. Current practice of disposing medical waste is not environmentally acceptable. Colombo's 20-odd hospitals generate about 4 tons per day of waste, of which about 3 tons per Jay are clinical wastes. Presently, infectious clinical wastes are deposited together with non-clinical wastes in regular trash containers without special lids to keep them securely fastened. From that point, the containers are transported in open trolleys to an open container il. the hospital where they are kept awaiting pick-up through the CMC's waste collection service. This indiscriminate mixing poses a serious health hazard at each stage of collection and storage within the hospital, and of transport and disposal in landfills and open dumps. 1.10 Wastewater Disposal and Sanitation. The CMC and part of the neighboring Dehiwala- Mt. Lavir. ia MC and ''Colonnawa Urban Council are the only major areas in Sri Lanka with a central sewerage system. Within the sewered area, only about 60% of the population is connected; 25% utilize septic tanks or pit latrines; the remaining 15% has no sanitation facilities at all. Most industries discharge their wastewater without any treatment into surface waters. The CMC sewerage system comprises a network of 265 km of gravity mains, 20 km of force mains and 13 pumping stations. The collected sewerage is discharged without any treatment into the Indian Ocean through two ocean outfalls. The existing sewerage system is not functioning properly due to lack of maintenance, under-capacity and illegal connections. Most of the gravity sewers were built in the early decades of the century and are reportedly subject to periodic collapse. As a result, the discharge and seepage of sewage, industrial wastewater and polluted stormwater cause serious pollution of the surface waters and groundwater in the CMA and of the coastal marine waters. 1.11 Industrial Wastewater Pollution. Colombo and the adjoining areas represent the largest concentration of industrial facilities in Sri Lanka. For nearly two decades industries have been encouraged to grow, without concomitant attention being paid to management of industrial pollution. The resultant industrial wastewater pollution has been especially severe in the Ratmalana/Moratuwa area which has over 225 industrial facilities intermixed with residential and commercial establishments, with a total population of about 350,000. Most of the industries discharge their effluents without any treatment into nearby drainage systems; domestic wastewater from flush toilets is directed to septic tanks and soakage pits. Pressure from the expanding population has forced residents to construct wells adjacent to existing septic tanks, often in violation of minimum safe distances required by planning agencies. The high water table in much of the area further aggravates this problem, and fecal contamination of wells is becoming more evident. Two water bodies, Lunawa Lagoon and Bolgoda Lake are in the area. Because of the continual discharge of wastewater into its tributaries, Lunawa Lagoon, which supported a significant fisheries industry a decade ago, is totally devoid of aquatic life today. Although Bolgoda Lake has not degraded to the sane extent, there is increasing concern that the long term effects of continued industrial wastewater discharge into it will seriously compromise its economic and ecological value. 1.12 Beira Lake. Beira Lake, a distinctive landmark in the center of Colombo and once an economic and aesthetic asset, is now a polluted water body and a public health hazard. The lake has a surface area of 65 hectares (ha.) and is situated in a catchment area of about 448 ha.  - 4 - Having no natural tributaries of its own, the lake's main source of renewal comes from the runoff waters of its catchment. Its u-shaped configuration gives the lake an exceptionally long shoreline, increasing its susceptibility to runoff from its overall catchment area as well as from inappropriate use of the shoreline. Shoreline uses include industry, warehousing, shipping, marine repair facilities, government offices, hotels, public open space, recreational areas, and religious centers. Nearly 500 low-income housing units with a population of about 2,400 are located along the shore. Large portions of the shoreline have been abused by indiscriminate waste disposal. 1.13 The lake's water quality is very poor, with high concentrations of organic materials and other nutrients, high turbidity and algal growth, wide fluctuations of dissolved oxygen, and high counts of fecal coliform bacteria from domestic sewage. Pollution sources consist principally of stormwater runoff containing illegal discharges of domestic sewage and industrial wastewater, and sewage and solid waste from shanty settlements. Over one thousand stormwater outfalls open into the lake, carrying all forms of urban waste. Raw sewage from overflows in the sewerage network and from unauthorized connections of sewers and septic tanks to storm drains further contaminates the lake. 1.14 To reverse the effects of environmental degradation, restoration of the Beira Lake has been accorded high priority by GOSL. Various studies regarding the water quality of the lake, sources of pollution and options for mitigation have been carried out in recent years. During the preparation of the Colombo Environmental Management Strategy and Action Plan (para. 1.16), a comprehensive study funded by the Canadian Intemational Development Agency (CIDA) was carried out with the objective of formulating a series of practical interventions. The study recommended a 10-year, two-phase restoration strategy. Phase I would focus on reduction of pollutant loadings from the Beira Lake catchment area; Phase I would aim at accelerating the lake's restoration using three in-lake restoration techniques: dredging, filtration of algae, and stocking of algae-eating fish. The proposed project would finance phase I interventions. D. Govemment Strategy 1 .15 National Environmental Action Plan. With the foresight that Sri Lanka has the unique opportunity to pursue economic development in an ecologically sensitive manner, GOSL issued a National Environmental Action Plan (NEAP) in 1991, with the objective to set a framework for the enhancement of sustainable development and to mitigate emerging pollution problems and environmental degradation. The areas of environmental concem addressed under the NEAP include: land and water resources, forestry, biodiversity and wildlife, urban and industrial pollution, energy, and institutional capacity. The NEAP has identified the following priority actions which bear on the environment in the Colombo metropolitan area: * preparation of a wastewater and sanitation master plan and a long-term solid waste management strategy for Greater Colombo, * preparation of a program for the rehabilitation of Colombo's natural drainage system, focusing on restoration of the Beira Lake, and addressing marsh filling and stream and canal reservation settlement;  - 5 - * preparation of a program for continuous monitoring of the level of pollution in selected rivers and education of the public on the adverse effects of pollutant build- up in water bodies; and * preparation of a Water Resources Master Plan addressing the present and future environmental issues relating to water resources utilization. 1.16 Colombo Environmental Management Strategy and Action Plan. Stemming from the NEAP, GOSL, with assistance from the Metropolitan Environmental Improvement Program (MEIP), formulated a comprehensive environmental management strategy (EMS) for Greater Colombo. Drawing extensively upon a wide range of excellent documentation available on Sri Lanka's environment, the Colombo EMS documented major environmental problems and their underlying causes, assessed Sri Lanka's environmental policies and institutional capabilities for addressing them, recommended areas for improvement, and proposed a 10 -year program of specific environmental interventions. The proposed project is based upon the prioritized remedial actions proposed in the EMS. 1 17 Current Constraints. While the existing legislation covers the entire range of environmental concems, there is still a large lack of adequate implementation and enforcement. Apart from the shortage of funds for investment in urban infrastructure, the lack of institutional capabilities at the CEA to enforce the existing regulations and standards, and insufficient attention on the part of local govemments to adopting adequate cost recovery measures are constraints to implementation of environmental management programs. To help address the above constraints, the proposed project would assist CMC and other local authorities to operationalize sound solid waste management systems and seek private sector participation under concession agreements. The project would also provide technical assistance to strengthen UDA's capability in integrated urban planning, with a particular focus on environmental planning and management. Institution building technical assistance to CEA would be provided in the proposed Sri Lanka Environmental Action 1 Project which is under preparation. E. Rationale for IDA Involvement 1.18 The proposed operation is consistent with IDA's Country Assistance Strategy for Sri Lanka. The strategy discussed by the Board on December 10, 1992 seeks and supports reforms by GOSL to (a) improve the climate for private initiatives and for export growth and diversification; (b) improve public sector management of human and physical resources with a view to preserving the country's outstanding social achievements and encouraging private sector participation; and (c) strengthen public finances through containment of current expenditures and a more rapid divestiture of Govemment holdings in public enterprises. The strategy also supports programs that contribute to improved environmental management and long-term sustainable economic development, particularly through lending support in urban infrastructure. The proposed project responds to GOSL's priority for addressing emerging environmental problems related to the concentration of economic activity in and around Colombo. The project complements and reinforces the Bank group operations such as the Colombo Urban Transport Project (Cr. 2495-CE) and the proposed Sri Lanka Environmental Action I Project in their institutional support for key agencies involved in environmental protection activities. The project would also support GOSL's effort to seek private  -6- participation in delivering urban infrastructure services under Build, Operate and Own (BOO) and concession agreements. IDA is well-placed to provide assistance because of its involvement in the formulation of the NEAP and Colombo EMS and its ability to catalyze, through policy dialogue with the Government and project financing, the implementation of interventions needed to improve waste management and safeguard the environment. II. THE PROJECT A. Project Objectives 2.1 The overall objective of the project is to contribute to a sustainable environment for the long term economic and social development of the CMA. Specific objectives of the project are to: (a) improve municipal solid waste management and services in the CMC and participating local authorities; (b) reduce wastewater pollution in the Beira Lake catchment area and selected industrialized zones; (c) develop the capabilities of local governments and institutions to plan and manage municipal services in a sustainable, environmentally beneficial manner; and (d) assist in mobilizing private participation in the development and operation of urban infrastructure services. B. Project Descrdtion 2.2 The project would comprise the following components: (a) Municipal Solid Waste Management (US$15.7 million) for: (i) construction of a sanitary landfill of 3.5 million cubic meters capacity at Welisara to meet the disposal needs of CMC and 14 local authorities located in the CMA; (ii) construction of a 100 tons/day capacity compost plant at the Welisara landfill; (iii) provision of potable water supply and other infrastructure for the community residing adjacent to the landfill site; and (iv) purchase of equipment and vehicles for safe collection, transport and final disposal of hospital wastes at the Welisara landfill.  -7 - (b) Wastewater Collection Systems (US$11.4 million) for construction of a sewer network in each of the two industrialized zones, Ratmalana and Ekala/Ja-Ela, to collect and carry industrial and domestic wastewaters to two separate wastewater treatment plants to be built and operated by the private sector in parallel with the project. (c) Beira Lake Catchment Pollution Control (US$12.9 million) for: (i) interception of unauthorized wastewater outlets now discharging to the storm drainage system and connecting them to the existing sewerage system; and (ii) reduction of sewerage overflows through cleaning sewer lines, rehabilitating pumping stations, and adding a sewer line along the northwest bank of the East Lake. (d) Technical Assistance (US$9.0 million) consisting of: (i) project preparation assistance; (ii) proiect implementation support through consulting services to prepare designs and bid documents, assist in bid evaluation and provide construction supervision for the components (a), (b) and (c) above, including consultancy services for the invitation and evaluation of BOO/BOT proposals for the two wastewater treatment plants for Ratmalana and Ekala/Ja-Ela; (iii) technical assistance to CMC and other LAs to improve solid waste services through involving the private sector under concession agreements and management contracts and implementing appropriate cost recovery measures; and (iv) technical assistance to UDA to (a) strengthen its capabilities in integrated urban planning through provision of consultancy services for updating the Colombo Master Plan (prepared in 1978) and for the preparation of a Trincomalee regional infrastructure development plan; (b) establish a geographic information system (GIS) for Greater Colombo to facilitate urban planning, infrastructure development and construction, environmental management, and urban service administration; (c) develop a long term solid waste disposal strategy for the CMA; (d) implement a program to monitor the water quality of stormwater outfalls open to the lake and the lake itself; (e) formulate further restoration measures for the Beira Lake; and (f) carry out an environmental public awareness program. Full details of the project's physical components are given in Annexes I through 3 and their geographic locations shown on Map IBRD 26954.  -8 - C. Status of Project Preparation 2.3 GOSL, with the assistance of intemational and local consultants, have prepared (a) feasibility study reports for the project's physical components; and (b) prequalification and bid documents for the construction and operation of the sanitary landfill and compost facilities. Prequalification of contractors for the landfill component is now underway; bids will be invited in September 1995 and contracts will be awarded in March 1996. Terms of reference and shortlists for project implementation support consultancies were agreed and proposals invited; consultants are to be appointed in October 1995. Prior to the engagement of project supervisory consultants discussed above, the consultant who prepared the feasibility study report for the project's solid waste management component has been retained to assist with evaluation of prequalification submissions and finalization of bid documents for the landfill contracts. Agreed terms of reference for project implementation support and institution building technical assistance are given in Annex 4. D. Environmental Aspects 2.4 The project will have a significant positive impact on the environmental quality of the Colombo metropolitan area. Project subcomponents are designed to upgrade the deteriorated environmental conditions caused by deficient or non-existent collection and disposal systems for municipal wastes, especially in relation to water pollution, public health and landscape aesthetics. 2.5 Because the project involves construction of a major sanitary landfill, it is a category A project under IDA's Operational Directive for environmental screening. As part of the project preparation, a full environmental impact assessment (EIA) of the proposed sanitary landfill was prepared by intemational consultants on behalf of the Borrower in accordance with IDA's guidelines. Annex 5 provides the summary of the EIA report. 2.6 The landfill site at Welisara was chosen from a shortlist of six sites after detailed evaluation. Located approximately 10 km north of central Colombo, the landfill site covers approximately 50 hectares and is essentially flat with its elevation at sea level. The area is not suitable for cropping because of salinity and does not contain flora and fauna of ecological significance. More than 90% of the required land is owned by GOSL; population displacement by the landfill is minimal, involving only one family who has accepted the compensation package for resettlement. Potential significant negative environmental impacts pertain to: (a) surface/ground water contamination which may be caused by improper handling of waste construction materials during construction of the landfill site or escape of leachate during operation; and (b) changes to the flood storage capacity of the catchment of the Kalu Oya river, which may lead to increased flooding upstream and downstream of the landfill site. The EIA fully addresses these potential impacts and recommends appropriate mitigation measures. The design of the landfill will incorporate a range of environmental protection measures to ensure that development and operation of the landfill site does not result in unacceptable residual impact on the surrounding environment. These include engineering of containment of the site, provision of a leachate collection and treatment system, bunding and provision of piped potable water supplies to the local community. Taking into account the lack of local expertise in modem sanitary landfills, construction and operation of the landfill and compost plant would be  - 9 - procured through two linked contracts to be awarded to the same contractor (para 2.13). Formal plans for site operation, environmental control and monitoring, and restoration will be developed as part of the detailed design process to be carried out by the selected landfill contractor. During negotiations, it was agreed that GOSL/CMC will implement or cause to be implemented mitigation measures and a monitoring system for the landfill satisfactory to I)A. 2.7 To minimize negative impact due to the sitting and operation of the two wastewater treatment plants (para. 2.2[b]) for which GOSL is seeking private sector financing, the consultant .o be appointed under the project for assisting with the invitation and evaluation of BOO/BOT proposals for the wastewater treatment plants will carry out the required environment assessments under terms of references agreed with IDA. E. Project Costs 2.8 Th~ total cost )f the project, including price and physical contingencies, duties and taxes, and the project preparation advance, is estimated at US$49.0 million, with a foreign exchange component of US$20.9 million. Duties and taxes would amount to US$4.6 rnillion. Project base cos.s are at December 1994 price levels. Physical contingencies of 15% are included fbr ail project components. Price contingencies for foreign costs are based on an average annual price ir.crease of 2.5% for 1995-2000. Price contingencies for local costs are based on a projected annual inflation rate of 15% for 1995, declining to 7.5% by 1997 and thereafter. Maintenance of purchasing power parity is assumed for exchange rate changes over the life of the project. Total price contingencies amount to 9% of the base cost plus physical contingencies. Project cost estimates are summarized in Table 2.1. Detailed project cost estimates are provided in Annex 6. Table 2.1: Project Cost Estimate SLRs million USS million Local Foreign Total L1ca Ereign Ih Municipal Solid Waste Management 290.2 335.4 625.6 5.8 6.7 12.5 Wastewater Collection Systems 334.0 120.0 454.0 6.7 2.4 9.1 Beira Lake Catchment Pollution Control 358.7 141.6 500.3 7.2 2.8 10.0 Technical Assistance Project Preparation Advance 7.0 28.0 35.0 0.1 0.6 0.7 Implementation Support 52.7 99.8 152.5 1.1 2.0 3.1 Capacity Building 71.6 116.4 188.0 1.4 2.3 3.7 Total Base Cost 1114.2 841.2 1955.4 22.3 16.8 39.1 Physical Contingencies 165.7 118.3 284.0 3.3 2.4 5.7 Price Contingencies 558.7 389.3 948.0 2.5 1.7 4.2 Total Project Cost 1J9386 13488 318'14 2du 2Qa i  - 10- F. Project Financing 2.9 The proposed IDA credit of US$39.0 million equivalent would finance the project's foreign cost and 64% of the local cost, covering about 88% of the total project cost net of duties and taxes. The remaining local cost of US$10.0 million equivalent would be met by GOSL's budgetary allocations. The project's financing plan is shown in Table 2.2. Table 2.2: Project Financing Plan (US$ million equivalent) Local Foreign Total % IDA 18.1 20.9 39.0 80 GOSL 10.0a 10.0 20 Total 2L 212 49 0 Q0 2.10 Up to now, financing for water supply and sanitation investments in Sri Lanka has come mostly from multilateral and bilateral sources. Onlending interest rates were not set according to the prevailing market rates in the country, partly because of the absence of long term financial instruments in the local capital market. To promote a commercial orientation in the operations of municipal services, the timing is considered appropriate to set onlending rates that take account of market rates. However, intermediation costs in the incipient local market are high (4 to 5 percentage points) due to inefficiencies and large provisions for bad loans. In these circumstances, the average weighted deposit rate (AWDR) on interest bearing deposits of the Greater Colombo branches of domestic commercial banks, which is published on a weekly basis, provides the floor for onlending rates. GOSL would onlend part of the credit proceeds to CMC and NWSDB for their respective components on a variable rate basis linked to the AWDR and adjustable every six months, repayable over 20 years, including 6 years of grace. GOSL would bear the foreign exchange risk. Regarding the Beira Lake catchment pollution control component, UDA would execute this component on GOSL's behalf and would maintain separate project accounts thereof The above terms will be incorporated in separate implementation agreements (IA) to be executed between GOSL and each of the three project implementing agencies. The effectiveness of lAs between GOSL and CMC/NWSDB/ UDA under terms and conditions acceptable to IDA are conditions of credit effectiveness.  . I1 - G. Procurement and Disbursement Procurement 2.11 Procurement arrangements are summarized in Table 2.3 below: Table 2.3: Procurement Arrangements (in US$ millions) - Procurement Methods - Project Elements ICB LCB Other NBF Total Landfill and Compost Plant 14.4 14.4 (11.4) (11.4) Works Wastewater Collection Systems 11.4 11.4 (8.5) (8.5) Beira Lake Catchment Pollution Control 12.9 12.9 (9.6) (9.6) C ommunity Infrastructure 0.9 0.9 (0.6) (0.6) EguipmLnt 2.4 2.4 (1.9) (1.9) Consultancy Services. Mass Media and Training Project Implementation Support 3.7 3.7 (3.7) (3.7) Capacity Building 1.0 1.0 (1.0) (1.0) Studies 1.1 1.1 (1. 1) (I. 1) Public Awareness Program 0.5 0.5 (0.5) (0.5) Project Preparation Advance 0.7 0.7 Total 41.1 7.9 49.0 (31.4) (7.6) (39.0) Note: Figures in parentheses are respective amounts financed by the credit. 2.12 Goods and Works. Procurement of goods and works under the project will be in accordance with the Bank's Guidelines for Procurement under IBRD loans and IDA credits (January 1995), using IDA's standard bid documents for procurement under ICB. 2.13 Construction and operation of the landfill and compost plant will be procured through two separate but linked turnkey contracts. One contract (Contract A) comprises detailed design and phased construction of the landfill site, compost plant and other associated facilities, and procurement of mobile equipment required for the landfill operation; the second contract (Contract B) will commence once initial construction is complete and the site is ready to receive wastes and will include operation of the landfill site and progressive restoration of the finished surface. These two contracts will be tendered under one package and awarded at the same time to the same contractor following intemational competitive bidding (ICB) procedures. The credit would finance Contract A only; CMC and other participating local  - 12 - authorities would jointly meet the operating costs of the landfill under Contract B subject to the contractor's meeting industry standard efficiency norms. 2.14 Construction of the wastewater collection systems would be bid under one single responsibility contract following ICB. The sewerage works in the Beira Lake catchment area would be procured under two single responsibility ICB packages. Contractors bidding for the above works will be prequalified. Under ICB, qualifying domestic contractors will be eligible for a margin of preference in the comparison of bids of 7.5%. 2.15 The proposed community infrastructure to be constructed under IDA financing comprises mainly provision of piped potable water supply to the community residing adjacent to the new landfill site, upgrading of local roads, and construction of a community center complex. To involve the local community in the design and implementation of the infrastructure and to provide income-generating opportunities, the above works, estimated to cost US$0.9 million in aggregate, would be procured using procedures acceptable to IDA. 2.16 Equipment needed for the collection, transport and disposal of clinical waste and for the geographic information system would be procured under ICB procedures. 2.17 Consultancy Services. Consultancy services financed by IDA would be procured in accordance with the Bank's guidelines for Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency (August 1981), including use of the Bank's Standard Form of Contract for Consultants' Services. Selection of consultants for all assignments would be from a shortlist agreed by IDA and under terms of reference satisfactory to IDA. Procurement of services for the environmental public awareness program (mass media) would follow procedures acceptable to IDA. 2.18 IDA's Prior Review. All goods contracts valued US$200,000 or more, works contracts US$300,000 or more, consulting firm contracts US$100,000 or more, and individual consultant contracts US$50,000 or more will be subject to prior review by IDA. This would cover about 90% of procurement financed under the proposed credit. Disbursement 2.19 Disbursement under the proposed credit will be made against: (a) 100% of foreign expenditures and 70% of local expenditures for the landfill tumkey contract and other works procured under ICB; (b) 70% of total expenditure for civil works procured locally; (c) 100% of foreign expenditures and 100% of local expenditures (ex-factory costs) for good procured through ICB and 70% of local expenditures for items procured locally; (d) 100% of total expenditures for consultancy services, mass media and training; and  - 13 - (e) the principal amount of the Project Preparation Advance withdrawn and outstanding as of the effectiveness of the credit and all unpaid charges thereon. To ensure construction of wastewater collection systems in Ratmalana and Ekala/Ja-Ela is synchronized with that of the wastewater treatment plants, agreement was reached with GOSL/ NWSDB during negotiations that no withdrawals shall be made in respect of expenditures for the wastewater collection works unless financing arrangements satisfactory to IDA for the construction of t:le said wastewater treatment plants have been concluded. 2.20 To facilitate disbursement, a Special Account in US$ will be established in a local bank acceptable to IDA with an authorized allocation of US$2.5 million equivalent, estimated on the basis if four months' average expenditures. The authorized allocation would be limited to an amount to US$1,700,000 until the aggregate amount of withdrawals from the credit plus the total amount of all outstanding special commitments equals the equivalent of US$6,000,000 or more. A'l disburserr ents will be made following standard IDA documentation requirements, except for (a) contracts valued at US$300,000 or less for works, (b) contracts valued at UJS$200,000 or less for goods, (c) consultants' contracts of less than US$100,000 equivalent per contiact for firms and US$50,000 equivalent per contract for individuals, for which Statement of Expenditure (SOE) procedures will be used. The project implementing agencies will retain detailed documentation supporting SOEs for inspection by IDA supervision missions. 2.21 The disbursement schedule shown in Annex 7 is based on completion of the proposed project by June 30, 2000. The credit closing date would be June 30, 2001. The total disbursement period for the project is expected to be about six years after credit approval. H. Proiect Implementation 2.22 Implementing Agencies and Responsibilities. The institutional responsibilities for project implementation are shown below: Project Component Agencies Solid Waste Management - landfill contracts administration CMC - clinical waste management CMC - community infrastructure UDA/WPC - coordination among participating LAs UDA/WPC Wastewater Collection Systems NWSDB Beira Lake Catchment Pollution Control - monitoring and enforcement UDA - sewerage works NWSDB  - 14- 2.23 CMC. CMC is the largest and only jurisdiction in Sri Lanka that presently has an organized solid waste management system. The Solid Waste Management Division under the Municipal Engineer's Department is responsible for collection and disposal of domestic, commercial and industrial solid waste generated within the Municipality. Solid waste collection is organized areawise corresponding to the 47 electorates (called wards) which are grouped in to six districts. The Division has about 110 technical and supervisory staff, a workforce of 2,100, and a fleet of 109 collection vehicles. Besides having most of the locally available technical and management capabilities, the CMC is the largest beneficiary of the new landfill and hence the primary stakeholder of the landfill component. The Division, with assistance of management consultants, will be responsible for the following: (a) procurement and supervision of the landfill construction and operation contracts; (b) implementation of clinical waste management including training of hospital staff and procurement of equipment and collection/transport services; (c) implementation of a phased program of contracting out primary solid waste collection; and (d) implementation of adequate cost recovery mechanisms to sustain the delivery of solid waste services. 2.24 For economies of scale, the new landfill is designed to serve the solid waste disposal needs of CMC and about 14 LAs located in the CMA. The Welisara landfill site is within the jurisdiction of the Wattala Urban Council. During negotiations, assurance was obtained that GOSL will take all necessary actions to ensure that CMC has full and complete access at any time to the landfill site during the construction and operation of the landfill. To foster broad beneficiary participation, UDA, with the assistance of the Western Provincial Council (WPC), will serve as the focal point for coordinating among all LAs that intend to use the landfill site. 2.25 NWSDB. Created under the 1974 National Water Supply and Drainage Board Act, NWSDB is the principal institution involved in the development of urban and rural piped water supply schemes and urban sewerage schemes. NWSDB's most important activity is the abstraction of water from the Kelani Ganga for supplying the CMA. It administers 216 systems nationwide, has about 6,800 employees and serves about 4.8 million people. Operational management has been decentralized to five regional offices, which oversee district offices headed by district managers. NWSDB functions under the Ministry of Housing, Construction and Public Utilities (MHCPU). 2.26 Past IDA operations in the water and sanitation sector in Sri Lanka have included assistance to improve NWSDB's technical and financial management capabilities and operating practices. To date, IDA has made four credits for the sector; of these, three were implemented by NWSDB. The first two credits (Crs. 709-CE and 1041 -CE) helped finance the expansion of the Colombo water supply system and were closed in December 1983 and September 1986, respectively. The third credit (Cr. 1700-CE, US$37.0 million) focuses primarily on rehabilitation of water supply systems in and outside Colombo and is to close on June 30, 1995. Project implementation performance has been overall satisfactory. The existing project implementation unit for Cr. 1700-CE will be maintained to implement the wastewater collection systems project component as well as the Beira Lake catchment area sewerage works. 2.27 UDA. UDA was established under the Urban Development Authority Law of 1978, with the responsibility to carry out integrated planning and physical development of urban areas  - 15 - in Sri Lanka. Since its inception, several amendments to the 1978 UDA law have been passed which provide UDA with wide powers to acquire, develop and dispose of lands and properties, and exercise stringent controls over urban development activities. The areas within UDA's purview include 11 municipal councils, 35 urban councils, 46 local authorities, the Trincomalee District, and local authorities located within a one kilometer-wide belt along the coast. The functions of UDA include: (a) carry out integrated planning and physical development within and among the designated development areas; (b) formulate and implement an urban land use policy; (c) devel p environmental standards and prepare schemes for environmental improvemf nts in the development areas; (d) formulate and execute housing schemes; and (e) cause the clearing of slum and shanty areas and undertake the development of such areas. 2.28 UDA reports to MHCPU and is managed by a 13-member Board, comprising the UDA chairman, 4 members nominated by the Minister and 8 members representing other Government Ministries. There are eight divisions in UDA responsible, respectively, for Planning, Lands and