Sri Lanka - Road Passenger Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY FIL 1 ; Report No. 2716-CE SRI LANKA STAFF APPRAISAL REPORT ROAD PASSENGER TRANSPORT PROJECT February 22, 1980 This docurnent has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1 Rs 15.6 Rs 1 US$0.064 Rs 1 million US$64,103 GLOSSARY OF ABBREVIATIONS AG - Auditor General CGR - Ceylon Government Railways CMC - Colombo Municipal Council CTB - Ceylon Transport Board DOH - Department of Highways GOSL - Government of Sri Lanka GVW - Gross Vehicle Weight IDB - Industrial Development Board MOFP - Ministry of Finance and Planning MOPH - Ministry of Power and Highways MOT - Ministry of Transport PPF - Project Preparation Facility RTB - Regional Transport Board SLCTB - Sri Lanka Central Transport Board TTR - Timetable Requirement UDA - Urban Development Authority WOP - Without the Project WP - With the Project GOVERNMENT OF SRI LANKA FISCAL YEAR January 1 - December 31  FOR OFFICIA]L USE ONLY SRI LANKA ROAD PASSENGER TRANSPORT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE TRANSPORT SECTOR ................................... 1 A. Geographic, Economic and Demographic Setting ....1... B. The Transport System ............................... 2 C. Passenger Traffic .................................. 4 II. THE INSTITUTIONS ....................................... 6 III. OPERATIONS AND MANAGEMENT ............................. . 7 A. Organization and Management: SLCTB .... ............ 7 B. The Industrial Facilities and Central Services of SLCTB ................................ 8 C. Proposed Solutions for SLCTB Problems .... .......... 11 D. The Regional Transport Boards ...................... 12 E. Operations of the RTBs ............................. 13 F. The Size of SLCTB/RTBs Workforce .................... 14 IV. THE PROJECT ............................................ 16 A. Background .......................................... 16 B. Objectives ....................................... 16 C. Description ....................................... 17 D. Cost Estimates ..................................... 21 E. Execution of the Project ......... .................. 22 F. Procurement ....................................... 22 G. Retroactive Financing ........... ................... 24 H. Disbursement ....................................... 24 V. FINANCIlL ASPECTS OF SLCTB/RTBs ........... ............. 25 A. Pasi: Results ....................................... 25 B. Future Forecasts: SLCTB ......... .................. 26 C. Future Forecasts: RTBs . ........................... 27 D. Fares ........................................ 28 E. Financing Plan ..................................... 28 This report was prepared by Eric Pogson (Financial Analyst) and Max Pulgar-Vidal (Economist) (Bank) assisted by I. W. Mitchell and S. Lamb (consultants) who together with D. Rowe (consultant) formed the appraisal mission in August 1979. Y. Abe, S. Thriscutt and E. Pogson (Bank) participated in preparation missions assisted by M. Heraty and D. Rowe (consultants). Mr. Srinivasan Chandramouli (Research Assistant) constructed a financial forecasting model using thie FAST System. This docunent ha s rustrictd distribution and may b used by recipients only in the performance of their oMcial dutiies. Its contents may not otherwie be disclosed without World Ilank authorization.  Table of Contents (Cont'd) Page No. VI. ECONOMIC EVALUATION .................................... 31 A. Sources of Benefits ............. ................... 31 B. Costs and Benefits .................................. 34 C. Conclusions ........................................ 35 VII. AGREEMENTS AND RECOMMENDATIONS ....... .................. 36 TABLES 1 - Population Distribution and Urbanization 2 - Bus and Rai.l Passenger Traffic 3 - Summary of Action Plan 4 - operational Indicators Ceylon Transport Board 1968-79 5 - Forecast of Operational Indicators - Regional Transport Boards: 1980-83 6 - Comparison of Operational Indicators Among Regional Transport Boards: 1978-79 7 - Schedule of Economic Benefits and Costs: 1980-92 8 - Investment Schedule 9 - Estimated Schedule of Disbursements of the Proposed Credit 10 - Documents Available in the Project File ANNEXES I Description and Cost of Project Components 2 Monitoring Indicators 3 Financial Forecasts CHARTS 20937 Project Components and Sub-components, Effects and Benefits 20956 Implementation Schedule 20905 Organization of SLCTB at September 1979 20935 A Suggested Management Structure for SLCTB 20936 Organization of a Regional Transport Board September 1979 MAP IBRD Map No. 14654  I. THE TRANSPORT SECTOR A. The Geographic, Economic and Demographic Setting 1.01 Sri Lanka is an island 270-miles long by 140-miles wide, located off the southeast coast of India, not far from the equator. The topography of the country is dominated by a highland massif situated in the southern central part of the island, which rises to peaks of over 7,000 ft, and is surrounded by an intermediate zone consisting of ridges and valleys. Beyond these lies an outer or lower coastal lowland zone, which broadens to a vast tract in the north. Annual rainfall varies from 40 inches in the driest zones of the north- west and east to over 200 inches at certain places in the mountainous region. 1.02 Economic growth in the period 1970-77 has been about 3.0 percent per annum, far below tbLe needs of the country and the potential offered by avail- able human and natural resources; in per capita terms, the rate of economic growth was a disappointing 1.2 percent per annum. The poor performance of the economy has been caused by a combination of factors resulting in a policy environment unconducive to growth, investment and adequate resource alloca- tion. In the transport sector, the economic malaise was translated into slow growing or stagnating freight and passenger traffic levels, but there is some evidence that the trend has already begun to improve as part of the current revitalization of the Sri Lankan economy. 1.03 About 40 percent of Sri Lanka's GDP is generated in the agricul- tural sector, and about 15 percent in the manufacturing sector. As a result, most inland freight transport in Sri Lanka consists of agricultural commod- ities such as foodgrains (rice and wheat) and tree crops (tea, rubber and coconut) as well as other bulk goods such as cement and oil products. The patterns of commodity movements are dictated by the geographical distribution of the agricultural-surplus areas, which include the coconut and rubber- producing southwest coast and the rubber and tea-producing hilly areas in the central part of the country. Due to the concentration of most manufac- turing industries in Colombo, the location there of the country's major port, and the import-export orientation of Sri Lanka's economy, about 50 percent of total freight is moved into and out of the Colombo area; as a result, freight and passenger traffic in this urban area strongly compete with each cther for the utilization of street space. 1.04 The demographic trends, the spatial distribution of the population and the degree of urbanization in the country determine, to a large extent, the volune and pattern of inland passenger traffic. The following are the relevant facts: (i) The total population is currently estimated at about 14.4 million, having increased at about 1.7 percent per annum over the period 1970-76. (ii) The spatial distribution of the population is far from uniform (Table 1). The southwest part of the island and the northern peninsula, which together amount to only one- third of Sri Lanka's total area, contain about 80 percent  - 2 - of the country's population. Population density is partic- ularly high in the western province, where the capital city of Colombo is located. Attempts are currently being made by the government to encourage internal migration out of densely settled areas and into the sparsely popu- lated dry zones by providing irrigation, the Mahaweli Ganga scheme being a case in point. (iii) Sri Lanka displays a higher degree of urbanization than other countries in the region. It is estimated that over one-fourth of the total population is located in urban settlements, and there is evidence that the degree of urbanization will continue to increase as the growth rate of the urban population is about twice that of the entire population in the country. Nearly half the urban dwellers live in Greater Colombo, which is also the seat of Government, the main financial and commercial center, and the largest urban concentration of the island. The relevance of urbanization to total demand for travel lies in the fact that trip rates in Sri Lanka, i.e., journeys per day per capita, are at least three times higher among urban dwellers than in rural areas. B. The Transport System 1.05 The transport modes and facilities available in Sri Lanka include roads, railways, ports, airports, and pipeline. Only roads and railways are relevant to inland passenger transport, and will be dealt with in this report. The main entities providing passenger transport are the state-owned Sri Lanka Central Transport Board (SLCTB) and nine Regional Transport Boards (RTBs), involved in bus transport, and the Ceylon Government Railways (CGR), which operates freight and passenger services; all are under the control of the Ministry of Transport (MOT). 1.06 Compared to other countries of South Asia, Sri Lanka has a rela- tively extensive and well-developed road network consisting of about 24,900 kms maintained by the Department of Highways (DOH), of which 18,200 are paved; and 16,100 kms of roads built for specific estates and irrigation purposes. Most roads are fairly old; inadequate alignments and insufficient maintenance of pavement and bridges combine to cause low average traffic speeds and high vehicle operating costs. It is estimated that average speeds range from about 20 kph in rural hilly areas and congested urban areas, to about 36 kph in long stretches over flat contryside. Road transport is, the most important mode in Sri Lanka as Table A indicates:  -3- Table A: Modal Split (%I%) ALL ISLAND Type of Traffic Modes Units 1972 1977 Passenger .ural) (passengers 94/6 96/4 Traffic \)us,ral, (passenger-kms 82/18 85/15 Freight (tk/il) (tons 90/10 92/8 Traffic (ton-kms 70/30 79/21 Source: Herbert S. Levinson, Wilbur Smith & Associates "Transportation Plan for Colombo Central Area - Colombo Master Plan Project," September 1978. 1.07 The size of the motor vehicle fleet, as recorded by the Commissioner of Motor V'ehicles, was about 218,000 vehicles in mid-1978, including about 100,000 cars and 40,000 trucks. In mid-1979 there were about 7,500 buses; with the minor exception of buses owned by private tourism comlpanies, most of the buses in Sri Lanka were operated by the RTBs. In the period 1977/78, liberalized import regulations and foreign exchange allocation procedures resulted in a rapidi growth of the total vehicle fleet; such growth, however, has been tempered by measures adopted by the Government of Sri Lanka (GOSL) directed at reducing its oil imports, including: (i) staged increases in fuel prices, in June 1979 and January 1980, with gasoline increased from Rs 20 to Rs 37.50 per gallon, and diesel fuel from Rs 5.40 to Rs 13.50 per gallon; (ii) restrictions on car driving on Sundays; and (iii) closure of gas stations during weekends. These measures have reduced gasoline consumption by 25% since June 1979. 1.08 The railway system, which plays a relatively minor role in the transport: sector, comprises 1,395 kms of broad gauge and 140 kms of narrow gauge lines. The condition of the infrastructure, bridges and track is generally reasonable, although there is substantial backlog of track renewal. The motive power fleet consists of about 230 diesel-powered locomotives. The rolling stock consists of approximately 4,000 freight cars and 1,200 passenger coaches. The availability of motive power and rolling stock is low due to lack of spares and a high average age. The railways are operated by CGR as a governmernt department directly under MOT. External assistance has been available to CGR in recent years, mainly from CIDA. 1.09 The 1979-83 Investment Program prepared by GOSL forecasts a GDP growth rate of 5.5 percent per annum, almost double that of recent years. Forecasts of freight and passenger traffic, involving annual growth rates of 8 and 7.7 percent respectively, contrast with past trends, but may well be  -4- justified by the current revitalization of the economy. Within the context of the 1979 Aid Group Meeting, the World Bank Group advanced some recommendations concerning the allocations made by the Investment Program within the transport sector. It was recommended that GOSL review the distribution of proposed investment between rail and road subsectors, in the light of the predominant role of road transport in the economy; and that adequate funding be provided for maintenance and rehabilitation in both subsectors. 1.10 Several proposals for the financing of transport projects were presented by GOSL during the 1979 Aid Group Meeting. A road passenger trans- port project proposal, the main thrust of which was the renewal and augmen- tation of RTBs' fleet, is the basis for the project appraised in this report. The World Bank Group is also assisting Sri Lanka's transport sector through a recently approved US$16.5 million Road Maintenance Project (Credit 900-CE) which will improve the quality of maintenance and reduce the cost of road transport; the credit was approved on June 22, 1979 and is expected to become effective in December 1979. The Road Maintenance Project will include the rehabilitation, improvement or replacement of about 1,000 kms of road and 30 bridges, improvement of highway maintenance practices, and procurement of road maintenance equipment. C. Passenger Traffic 1.11 Bus passenger traffic grew slowly in the early 1970s, at a rate of about 4 percent per annum in terms of passenger and passenger-km (Table 4). Growth was not continuous, however, and in some years traffic figures stag- nated or even declined; particularly severe in this respect were the civil disturbances in 1971/72, the substantial (80%) fare increase in 1974 and the shortening of the work week that took place in the same year. From 1974 onwards, both the number of passengers and passenger-kms have grown at over 8 percent per annum; this relatively high rate of growth is partly explained by the low traffic levels attained in 1974. In 1978, bus traffic amounted to 1,744 million passengers travelling 17,827 million passenger-kms. Bus is nowadays by far the most important mode of public transport in Sri Lanka, carrying about 96 percent of passengers and about 83 percent of passenger-kms. That these impressive bus traffic levels have been achieved despite a deterio- ration in service (paras 3.16 through 3.19) suggests the existence of a high unsatisfied demand for public passenger transport in the island. This demand is likely to grow even stronger in the future as a result of recent measures instituted by GOSL (para 1.07). 1.12 Passenger transport in urban areas is largely dependent on the bus system, which carries about two-thirds of all passengers; rail accounts for about one-sixth and private cars for about one-tenth. Vehicular flows in streets are relatively smooth except for localized congestion in the downtown area during the peak hours. Non-motorized vehicles such as bullock carts, horsedrawn carriages and rickshaws are increasingly rare in urban areas, and virtually non-existent in Colombo.  -5- 1.13 Rtail passenger traffic (Table 2) has also been affected by the same social and economic events that affected bus traffic levels in the decade. Rail traffic dropped about 20 percent in 1974 following a 50 percent fare increase and the reduction in the length of the work week. Recovery was sub- sequently hindered by labor unrest among rail workers in 1977, and only in 1978 did traffic levels showed some improvement, mainly as a result of addi- tional passenger carrying capacity. In 1978, traffic levels stood at about 80 million passengers and 3,711 million passenger-kms. 1.14 Intermodal competition between bus and rail is important in the urban areas, and particularly in Greater Colombo. Indeed, though the nation- wide rail share of public passenger transport is about 4 percent, this figure increases to about 1L0 percent within the commuting areas, and reaches the level of 20 percent during the peak hours. The larger rail sha,re in urban areas is partly due to the fact that civil servants, who constitute about 40 percent of rail commuters, benefit from a 66 percent rail fare subsidy. The Government has at various times considered proposals for the electrification of the suburban commuter lines in Greater Colombo and has recently announced that this project will be actively pursued. To ensure that any development is coordinated with the road passenger transport industry, GOSI, confirmed during negotiations that it will inform IDA of the progress of the electrifi- cation project and of other significant investments in CGR which would have a bearing on, the road passenger transport industry. 1.15 For about 20 years, the public sector maintained a monopoly on regular bus service in Sri Lanka. In April 1979, GOSL decided to permit the operation of regular bus services by private operators in order to relieve the chronic overcrc,wding of buses operated by the RTBs, and to provide for competition in the passenger transport industry. Private bus operators are licensed by SLCTB on behalf of MOT; the licensing system is excessively restrictive in a number of ways, e.g., the short duration of the license validity period, the absence of objective criteria for the selection of routes on which 'Licensed vehicles may operate, the restrictions placed upon the maximum number of passengers that may be carried, and the limitation of com- petition among private operators. On the other hand, the licensing system does not require from the private operators the provision of year-round serv- ices according to determined timetables; in this respect, the system has encouraged tourist bus operators to increase the utilization cf their vehicles during the off-season, but has not established the basis for strong partici- pation of the private sector in the provision of regular schedLuled bus serv- ices. About 100 private buses and minibuses had been licensed by mid-1979 and this figure is unlikely to have increased significantly. The effect of private bus services on the operations of the RTBs is negligible and not even in the medium-term are they expected to significantly affect them because of the existence of unsatisfied demand. Even at the end of the project period the RTBs are not expected to be able to satisfy demand and there is a case for an introduction of private operators on a larger scale than alt present. A committee was established by MOT in August 1979 to study the role of private operators; in the passenger transport subsector. It was agreed during negotia- tions that the scope of such study would include:  - 6 - (a) a definition of the anticipated size of the private and public sectors; (b) a definition of where the RTBs would compete with the private sector; (c) a statement of sections of traffic which might be reserved for the private sector; (d) the establishment of a Licensing Authority; and (e) any changes in import duties or taxes needed to place the private sector on the same footing as the RTBs. The Government has agreed to furnish to IDA, not later than December 31, 1980 its statement of policy concerning the participation of the private sector in road passenger transport, with a timetable for implementation of necessary measures. II. THE INSTITUTIONS 2.01 On January 1, 1959, all privately-owned bus services in Sri Lanka were nationalized, and the Ceylon Transport Board (CTB) was created to operate road passenger transport in the country as a monopoly. The Transport Law (No. 19) of June 1978 dissolved the CTB and created nine bus operators, the Regional Transport Boards (RTBs), and one central service organization, the Sri Lanka Central Transport Board (SLCTB). Among the responsibilities of SLCTB are the provision of goods and services to the RTBs, and coordination among them. The Transport Law is comprehensive and well drafted. The legal framework of SLCTB and the RTBs is described in this chapter, their organiza- tion and management in Chapter III, and their financial condition in Chapter V. The Sri Lanka Central Transport Board 2.02 SLCTB is a body corporate; its main purpose is to provide the RTBs with central services and advice. For certain functions the act gives it a monopoly; this includes overseas procurement of goods. In addition, it has a duty to coordinate the activities of the RTBs and to exercise a general control over their policies and operations. The Board of Directors has 14 members, the Minister of Transport appoints a full-time Chairman and three other members; one member is appointed by the Minister of Finance and Planning. The nine chairmen of the RTBs serve as members ex-officio. The Transport Act gives SLCTB adequate authority to execute the project, and specific powers to ensure compliance with covenants by the RTBs. The Minister of Transport has reserve powers which permit him to give specific directions to SLCTB or an RTB.  -7- The Regional Transport Boards 2.03 Each RTB operates bus services in a defined area of the country (see IBRD map 14654) as an independent legal entity subject to the coordina- tion and oversight of SLCTB. Ultimate control lies with the Minister of Transport who appoints the chairman of each Board and three other members. The fifth member is appointed by the Minister of Finance and Planning. 2.04 SLCTB is not a parent or holding company of the RTBs as their equity is held by GOSL. Nor is it a subsidiary of the RTBs in the legal sense, but by virtue of their numbers, the nine chairmen of the RTBs could collectively determine the policy of SLCTB. This structure of ownership and control was specifically designed to achieve the objectives of breaking up the central control of bus operations while retaining benefits of scale for selected activities. So far, the main benefit of this arrangement has been an improve- ment in day-to-day management of the bus fleet. Otherwise, the RTBs have been slow to develop as individual viable institutions -- constrained by lack of finance resulting from low fares and by a traditional habit of reliance on the center for funds and all supplies. 2.05 SLCTB will be the executing agency for the project, with the excep- tion of Part D Low Cost Traffic Engineering Measures which wil:L be implemented by the Ministry of Transport. GOSL will sign a Credit Agreement which will provide, inter alia, for the disbursement of funds to MOT for component D. SLCTB will sign a Project Agreement with IDA in respect of components A, B, C, and E and a subsidiary loan agreement with GOSL (see para 5.12). III. OPERATIONS AND MANAGEMENT 3.01 This section outlines some of the deficiencies in the operation and management of SLCTB and the RTBs and details the actions which are proposed to overcome them. The report is critical of the present position but is not intended to denigrate the present managers. On the contrary their achieve- ments are remarkable given the defective management structure, the shortage of managers and an extraordinary high degree of political interference in daily operations and staEf appointments. The RTBs inherited one of the largest bus transport undertakings in the world with a fleet of overage vehicles, and large gaps between the level of public demand, the services promised, and the services delivered. There was no overall corporate plan and capital for replacements of buses and equipment had been provided erratica[lly and at insufficient levels. A. Organization and Management: SLCTB 3.02 The functions of SLCTB include:  -8- Industrial Facilities (i) Operation of workshops for the reconditioning of major units (e.g., engines and gearboxes) and sub-units (e.g., wiper motors and generators). (ii) Procurement and supply of all imported spares, materials, machinery and equipment. (iii) Procurement of bus chassis and assembly of new buses. (iv) Major overhaul of buses. Central Services (v) Provision of common services such as personnel and training. (vi) Coordination of the operations of the RTBs. The organization structure is shown in Chart IBRD No. 20905. B. The Industrial Facilities and Central Services of SLCTB Facilities for Reconditioning Units 3.03 SLCTB operates facilities for the reconditioning of units and sub- units at its Central Workshop located at Werahera near Colombo and at five satellite locations known as Provincial Workshops (see IBRD Map No. 14654). The Central Workshop was established in 1960 to serve the whole fleet; the Provincial Workshops were developed in the 1970s to provide reconditioning facilities closer to the bus depots -- and partly to get around problems of quality and output levels which had developed at Werahera. The system divides the responsibility for bus maintenance between the depots which carry out routine and preventive maintenance -- and the workshops which perform major overhauls on an assembly line basis. The concept is sound for Sri Lankan conditions as it enables specialized and scarce skills to be centralized. The success of the concept depends on the ability of the workshops to provide the depots with an "off-the-shelf" service of units which have been reconditioned to a high quality standard. The present facilities do not provide the quantity or quality required. The range of products and the scale of the problem is illustrated by the attached Table B. The facilities are poorly managed and there is a lack of coordination between departments. Manufacturing procedures, particularly quality control, are almost non-existent. The work force is overmanned and, because of faults in the bonus system, highly paid. Part of the problem is caused by inadequate material supplies stemming from failure in the procurement system (see para 3.07). However, the basic problems are the size of the central workshop, the range of products being reconditioned and a management which has lost heart after years of struggling with the problems.  RECONDITIONED UNITS Comparison of Targets and Actual Output Levels of SLCTB January 1 - June 30, 1979 Target Output Actual Output For % Achieved Compared with 1978 Actual Out- for Six Months the First 6 Months on Target put for the First 6 Months 1979 1979 No. - Engines 1866 1386 74.27 1523 - 8.99 GJear '"loxes 1986 1288 64.85 1465 - 12.08 Rear Axles 984 221 22.46 293 - 24.57 Front Axles 762 196 25.72 309 - 36.57 Radiators 1434 879 61.30 829 - 6.03 Steerings 738 252 34.15 272 - 7.35 Water Pumps 2154 1582 73.44 1616 - 2.10 Cylinder Heads 2010 1508 75.02 1494 + 0.94 Pressure Plate and Fluid Fly Wheels 3742 1463 39.10 1664 - 12.08 Compressors and Exhausters 2244 1113 49.60 956 + 16.42 Fuel Injection Pumps 4680 1939 41.43 2341 - 17.17 ** ** Fuel Injectors 74526 9636 12.93 11127 - 13.40 Starter Motors 9306 2179 34.42 3345 - 34.86 Generators 8454 1880 22.24 N.A. N.A. * The targets for output are based on an estimated life of 24 months for reconditioned units (about 180,000 kms). The actual lives range from an average of 20 months for engines to 13 months for starters. With this level of quality actual targeted output levels should be higher. ** Because of the short life of a reconditioned fuel injector, depots repair their own; consequently the flow into the reconditioning shops is low. Source: SLCTB July 1979  - 10 - Assembly of New Buses 3.04 SLCTB imports bus chassis, both complete and "knocked down," and manufactures and assembles bus bodies. The factory at Ekala, just north of Colombo, is housed in a purpose built vehicle assembly plant which was taken over when a foreign car assembler closed down. The facility is well laid out and equipped and is reasonably well managed. The process is designed on a flow line basis using labor intensive procedures. Body panels are made from aluminum sheets which are cut and shaped on the premises. The process is soundly based and has the appropriate level of technology, fully using the innate mechanical skills of the Sri Lankan work force. The rated capacity of the plant is 100 vehicles a month, but the highest output attained is 95 for one month in 1977; the annual output that year at 925 was also a record. The main restraints on production have been shortages of body construction mate- rials caused by problems in the procurement function and erratic programs of new chassis purchases. Bus Overhaul Facilities 3.05 The facilities for bus overhauls were designed to carry out a major overhaul to each bus every four to five years. At present, virtually no overhauling is done at the central workshop other than accident repairs or rebuilding overage buses. The overhauls are done either at the depots or in makeshift facilities at the Provincial Workshops. The problem lies mainly with the management of the Werahera facility and partly with the RTBs who skip overhauls of roadworthy buses in order to meet traffic requirements and only send to Werahera vehicles which are unroadworthy. Other Plants 3.06 The main facilities are supported by several small specialist plants including a furniture shop which makes bus seats and office furniture, a foun- dry for the manufacture of metal fittings for bus bodies, such as window catches, and replacement spares including brake drums. There are plants which supply a small part of the requirements for bus springs and retreaded tyres. The problems of these smaller units are similar to the major plants but gene- rally of less severity. Procurement 3.07 SLCTB is responsible for overseas procurement which means all new vehicle components, workshop equipment and practically all vehicle spares (tyres and batteries are manufactured locally). There are problems in almost every area -- recurrent shortages of critical spares, often for years, and overstocking of other items. The central faults are in the application of procurement procedures and the fragmentation of management responsibility. The internal stores procedures are sound but are applied bureaucratically without regard to the value or urgency of the need. On the average, it takes 10 months to place an order with a supplier. From that time to receiving the goods, it takes six months for the first delivery and 12 months for the final delivery.  - 11 - Central Services 3.08 The RTBs rely on the SLCTB for personnel and training services though the actual scale of services is a hangover from the former all island bus authority and worlk is being gradually transferred to the RTBs. SLCTB will continue to operate facilities where certain RTBs require it and will manage some central training facilities -- including the Ceylon German Tech- nical Training School, a drivers training center and a staff training center. Training is reasonably well organized and when existing plans are implemented should be adequate for future needs. Personnel services are confined to record keeping and there are no professional services. SLCTB provides a civil engineering service for the construction and heavy maintenance of buildings including bus depots. The service has its own design and construction engi- neers and uses a small permanent construction force supplemented by both temporary workers and contractors. The managerial staff is undermanned and the service is overstretched to meet its island-wide responsibilities. The accounting service suffers from similar problems to the productive activities; this is discussed in Chapter V. C. Proposed Solutions for SLCTB Problems 3.09 The central problem of SLCTB is its deficient management capability, and a major objective of the project is to improve this. GOSL has decided on the following measure!s: (i) the reorganization of the management structure with the creation of new managerial positions; and (ii) tlhe employment of expatriate consultants in the areas of industrial engineering and procurement. In addition, GOSL is reviewing: (iii) the pay scales and grade structure of the management staff of SLCTB and the RTBs. Reorganization and Strengthening of the Management of the Industrial Activities 3.10 The Governnent has agreed to create a new post of General Manager (Industrial) reporting to the Chairman, with three supporting managerial posts, namely Production Manager, Chief Industrial Engineer and Materials Manager. The latter two posts would be filled by expatriates financed under the project for a period of about 2-1/2 years to end 1982. Short-term expatriate consultants would be engaged to assist the above managers for assignments in the areas of industrial engineering (including workshop planning, cquality control and plant layout), procurement (incluciing stock control and supply training) and accounting. Sri Lankan counterparts would be appointed to work with, and take over from, the expatriate employees. As a condition of credit effectiveness SLCTB would have:  - 12 - (i) created the above mentioned managerial posts; (ii) appointed the two full-time expatriate consultants; and (iii) appointed the short-term expatriate consultants. 3.11 In addition to the above assistance, consultants will be engaged in the fields of personnel management, financial forecasting, accounting and bus route reorganization. SLCTB proposes to negotiate a contract with a firm, or consortium, for the major assignments relating to the industrial activities, and to appoint that organization as lead consultant for other short-term assignments of expatriate consultants in order to achieve the best coordina- tion possible. Pay and Organization of Management 3.12 The present organization of SLCTB is defective in that 13 heads of departments report directly to the Chairman, which overloads him and makes coordination difficult. In August 1979, MOT appointed a committee to review the organization structure and the pay scales of managers. The committee is considering a proposal to have three posts of General Manager reporting to the Chairman -- the appointment of a General Manager (Industrial) is a first step (para 3.10). The likely organization structure is shown in Chart No. 20935. The committee will present its report to MOT by March 31, 1980 and the Government's decision and the implementation schedule will be discussed with IDA. A Review of the Range and Scale of Activities 3.13 SLCTB inherited a policy under which it attempted to produce inhouse all the reconditioned parts and spares for the whole bus fleet -- which re- quires a large and diverse range of manufacturing and commercial activities. The absence of any sizeable local parts industry has protected SLCTB establish- ments from competition. Sri Lanka has many competent professional managers; but whatever the pay levels, the public sector will always have to compete against the private industry -- and a world demand. The policy should be to create management units which can be run by the staff available. GOSL's Industrial Development Board (IDB) is active in promoting new industrial activities -- work which is to be expanded under the recently approved Small and Medium Scale Industries Credit (942-CE). IDB will be asked to provide SLCTB with the expertise to evaluate the development of parts suppliers -- particularly, electrical repair in locations outside Colombo. Wherever it is economical and sensible to do so, SLCTB will encourage these suppliers in the start-up phase by awarding suitable contracts. The Government and SLCTB have agreed to institute reviews of the range and scale of SLCTB indus- trial and commercial activities beginning not later than January 1981. D. The Regional Transport Boards 3.14 The nine RTBs are directly responsible for the provision of bus services in the island. The boundaries are shown on IBRD Map No. 14654.  - 13 - Each RTB is organized along functional lines, as shown in IBRD Chart No. 20936. Each RTB consists of Regional Headquarters, usually located in a major city, and a number of depots throughout the region. There are 83 depots in the country. Overall responsibility for the operation of bus services lies with the Regional Headquarters, whose management acts in liaison with SLCTB, other RTBs and the local political authorities. 3.15 The bus depots are the basic management blocks of the 'bus boards being truly decentralized units in charge of providing passenger services in specific areas. The officials at a bus depot are responsible for carrying out preventive maintenance of buses; deciding on priorities in t'he event of temporary shortages cf vehicles or crews; proposing to the Regional Head- quarters the creation or modification of routes; recruiting and supervising staff; and administering disciplinary regulations. Bus operations at the depot level, particularly maintenance, are affected by the irregularities in the provision by SLCTB of spares and reconditioned units. As a result, it is not uncommon to find depots where major repairs are attempted despite the lack of facilities, and not unusually with spares coming from cannibalized buses. E. Operations of the RTBs 3.16 The relatively slow growth of bus ridership during the decade ending 1978 (para 1.11) was, at least in part, the result of the inability of the publicly-owned bus operation to provide a better bus service. T'his, in turn, was due to various factors including insufficient and erratic capital invest- ment; the lack of comnpliance with normal preventive maintenance requirements; and the inadequate performance of management and labor. It is evident that a significant fraction of potential demand for bus travel has failed to mate- rialize as a result of insufficient or inadequate carrying capacity. Esti- mates of future demand suggest that this kind of repressed demand will con- tinue to put pressure on the bus system, particularly since there are limited travel alternatives available to the general public. 3.17 The level of reliability of bus services leaves much to be desired; almost one out of five scheduled journeys does not take place (Table 4). Such failure to meet the timetable requirements (TTR) may be broadly attributed as follows: two-thirds of journeys not operated are due to engineering reasons, i.e., the unavailability of a serviceable bus, while the remaining one-third is due to absenteeiEsm, i.e., the unavailability of the crew to operate a bus. There is a vicious circle whereby unreliability leads to the overloading of available buses, which, in turn, leads to further breakdowns and lower bus availability and, hence, to further unreliability. It is estimated that, as a consequence of the project, reliability will increase from its present 81 percent to 97 percent in 1983 (Table 5). 3.18 The manner in which timetable requirements are determined is partly responsible for the low level of reliability of bus services. Services are planned at a level which cannot be met with the available fleet, in the belief, on the part of management, that the gap between target and actual supply of buses will encourage higher "productivity" of depot staff. In reality,  - 14 - however, the effect of such practice is to spread available buses very thinly over all scheduled services, without fully complying with them. As a result of the demands placed on the available fleet preventive maintenance is de- ferred and, consequently, failure rates increase and the deterioration of the fleet is accelerated. In recognition of this problem the MOT has used its powers to forbid the introduction of any new routes without ministerial consent. To support this policy SLCTB will restrict the increases in bus frequency on existing services so that additions will be made only to the extent that properly maintained buses are available to meet the change. This policy would involve the temporary freezing of the TTR at the present level until December 1980, with subsequent growth reflecting actual bus availability (see Table 5). The above constraints refer to overall TTR so as to allow for changes in specific routes and frequencies in response to changes in demand. It was also agreed during negotiations to increase the engineering reserve from 17.5 percent of TTR to 20 percent. The Bus Fleet 3.19 The RTBs together operate a fleet which totalled 7322 vehicles in mid-June 1979 made up of some 8 makes of vehicles. For the last five year purchases have been limited to 3 makes (2 Indian one Japanese) in order to standardize the stock holding of spares. The purchases of new vehicles has been uneven and the growth in the fleet size at about 2% per annum has fallen behind the growth in passengers of around 8% per annum. The replacement policy followed up to 1977 can be described as "run to death" and would result in a bus replacement at 18 years. Under present conditions optimum life of vehicles is near to 8 years. It is thought that with improved main- tenance this could be 10 to 12. The table shows the present and future age distribution of the fleet. Table C: Age Distribution of Fleet Actual - June 30, 1979 Estimated - December 31, 1983 Age-Years (%) (%) Over 20 years 44 0.6 16 - 20 527 7.2 14 - 15 679 9.3 468 5.0 10 - 13 1,267 17.3 2,326 25.2 5 - 9 2,725 37.2 2,494 27.0 Under 5 2,080 28.4 3,950 42.8 7,322 100.0 9,238 100.0 Average age 7.9 6.4 F. The Size of SLCTB/RTBs Workforce 3.20 SLCTB and the RTBs are the largest employer in Sri Lanka, with a staff of about 61,000 in mid-1979, of which about 10,500 are in SLCTB. Annual recruitment levels are erratic, and seem to bear some relation to electoral periods, a reflection of the interference of the political environment in  - 15 - SLCTB/RTBs. In general, the workforce is overstaffed with respect to actual needs, to the point where operations are held up due to the shee!r weight of numbers of people involved. Absenteeism is high and SLCTB is conducting a study of this issue. There is clear evidence that labor productivity is low; as an indication, staffing levels stand at about 10.4 employees per TTR, which compares with an average 8.7 for a sample of Indian companies. A comparison among the RTBs shows significant variations in the ratio of stairf to TTR (Table 6); it should be noted that if the lowest level of staffing were achieved for all regions, there would be a reduction of about 7,000 employees in the RTBs as a whole. The SLCTB has recognized this problem and in June 1979 imposed a freeze on the total staff members for itself and each RTB. To support these efforts, it was agreed during negotiations that SLCTB will adopt by September 30, 1980, guidelines satisfactory to the Association, designed to achieve appropriate SLCTB and RTBs staffing levels. Such guidelines will include the followin.g: (i) continuation of the freeze currently placed on SLCTB/RTBs staffing levels through 1981; (ii) institution of periodic reviews of staffing levels across RTBs, with productivity indicators (e.g., employees per bus operated) to be used for the establishment of productivity targets; (iii) limitation of growth of the workforce after 1981 according to such productivity targets; (iv) implementation of the recommendations included in SLCTB's final report on absenteeism; and (v) measures to encourage early retirement. Future Planning 3.21 The short term measures proposed to overcome the present problems of SLCTB and the RTBs are collectively described as an Action Plan shown as Table 3. The public transport industry has not had a clear set of objectives on which to base investment and operational decisions so that questions of the extension of services and the growth of demand are considered in isolation from capital expenditure budgets, fare increases and the level of operational subsidies. The manifold problems which exist today and the uncertainties as to how quickly they will be resolved suggest the preparation of a Corporate Plan be delayed for at least two years; though year by year budgets will be prepared (see para 5.05). As agreed during negotiations, the Corporate Plan will define the purpose of the public sector and set out the objectives for the period 1983-85, and the measures to be taken to achieve them including the arrangements for the financing of future capital projects. To this end, SLCTB will appoint a Taskc Force with composition, staff, resources and terms of reference satisfacitory to the Association, who would start work not later than September 30, 1981 and would produce a final report not later than April 30, 1982. The GOSL and SLCTB would first draw up the objectives aLnd parameters, then each RTB would prepare its own Corporate Plan which SLCTB, would coordi- nate. IDA would be given an opportunity to review and comment. on the plan.  - 16 - IV. THE PROJECT A. Background Origins of the Project 4.01 In 1976, GOSL requested IDA to revise and update the Transport Sector Report of 1966. Arising from discussions on the updated report, a mission visited Sri Lanka in December 1977 and identified the need for assistance to the Department of Highways and the then Ceylon Transport Board. 1/ In October 1978, an Appraisal Mission found that further work was needed on the road passenger transport portion, for which funds from the Project Preparation Facility (PPF) were subsequently used. The road maintenance project was processed separately (para 1.10). 4.02 In December 1978, IDA approved a Project Preparation Facility (P060) for up to US$165,000 to assist SLCTB prepare the project. Local consultants were awarded the three major assignments so financed. The value of the con- tracts awarded to be refinanced from this Credit is expected to be about US$76,000. The revised project was appraised in August 1979. B. Objectives 4.03 The main project objectives are the support of Government policies to: (i) restrain the growth of oil imports; (ii) provide a more reliable bus service which will offer the public an acceptable alternative to the use of private cars; and (iii) decentralize the control of bus operations to finan- cially viable Regional Boards. To meet these objectives the project would seek to: (a) improve the fuel efficiency of the bus fleet by the purchase of new vehicles, and by improving maintenance standards; (b) obtain a higher utilization of existing buses and a longer life; and 1/ In June 1978, the Ceylon Transport Board was wound up and replaced by nine Regional Transport Boards and the Sri Lankan Central Transport Board (para 2.01).  - 17 - (c) end subsidies for bus operations and to pave the way for a change in the present system of financing capital development by 100 percent grants, so that from 1983 the RTBs will provide part of the new capital needs from internal cash generation and borrowings. C. Description 4.04 The project would have the following components 1/: (i) the restoration of the capacity of SLCTB to operate an efficient unit overhaul and parts exchange service, and a complete bus overhaul service; (ii) the purchase of chassis and materials, and assembly of 2,120 new buses for use by the RTBs; (iii) the improvement of bus maintenance facilities and praLctices in the RT]3s, and improvements in bus operations; (iv) low cost traffic engineering measures designed to improve bus flows; and (v) technical assistance for the execution of the project: and institution building. In view of the deficiencies encountered in SLCTB and the RTBs, particularly in terms of maintenance and overhaul practices, it is estimated that at least five years will be required for the restoration of adequate bus operations. The project would cover a first phase of 2-1/2 years 1980-82. This period was chosen so that attention would be focused on the immediate measures needed to arrest the decline in maintenance and general efficiency and to obtain basic accounting information needed to prepare longer term plans. Component A: Restoration of the Unit Exchange and Overhaul Facilities: SLCTB 4.05 This component is designed to improve the output and quality of the Central Workshop and the Provincial Workshops (paras 3.03 to 3.05). On completion of the project each Provincial Workshop will be equipped to recon- dition units (e.g.,, engines and gearboxes) and sub-units (e.g., wiper motors) for selected depots of neighboring RTBs; each Provincial Workshop will also be equipped to carry out complete bus overhauls. The items to be financed include the construction of new provincial workshop buildings at two locations, the extension of facilities at Medawachchiya, the re-equipping of newly constructed premises at Bandarawela, and the replacement of old machinery at the Central Workshop and all Provincial Workshops. 1/ A detailed description of project components is found in Annex 1.  - 18 - 4.06 The Provincial Workshops have been developed over the last four years on an ad hoc basis to supplement output from the Central Workshop. The project component would rationalize this development. A basic workshop module has been developed which can serve a group of bus depots with a com- bined fleet of up to 1,000 buses. Where necessary, an increase in capacity can be made by duplication of some machines to cater for 2,000 buses. The dispersion of facilities from the Central Workshop at Werahera will achieve savings in haulage of parts and provide local control of scheduling for bus overhauls while retaining economies of scale and improving management control. The Central Workshop would cater for vehicles in the Colombo area and for small numbers of vehicles of diverse makes which are still in service. It will also provide some specialized facilities for the whole island. 4.07 Consultants will be provided under the technical assistance compo- nent to assist with the layout of facilities, production of engineering manuals and the restoration of quality control. By increasing output and raising the quality of reconditioned units and building stocks, SLCTB could be able to supply reconditioned units "off-the-shelf." This will reduce the need for temporary and emergency repairs at depots, thus releasing staff and equipment for routine maintenance. This will, in turn, result in higher fleet availability. Unit and parts reconditioning is justifiable on cost grounds and on savings in foreign exchange over importing new articles. 4.08 The unit exchange service needs an immediate transfusion of new units to enable it to catch up on arrears of overhauls. This would be achieved by the purchase of complete units (such as engines) and major components (e.g., cylinder blocks), from the manufacturers or original equipment suppliers. SLCTB is proceeding with bidding to obtain early delivery of these items. Retroactive financing would be made available for up to US$1.4 million for components which could be delivered before the date of credit signature, but after February 1, 1980. Component B: Purchase of New Buses 4.09 This component provides for the purchase of bus chassis, body build- ing materials and the assembly of 2,120 new buses. The chassis are to be imported, as are most body materials, and assembled in the Ekala factory of SLCTB. The standard chassis specification is of a simple straight frame de- sign with a forward mounted engine and radiator and manually operated gearbox. While 2,020 of the chassis will be similar to the types already in service (with some small enhancements) the remaining one hundred will be specified with additional features which are to be tried out in service. These test vehicles will have a higher gross vehicle weight and a larger carrying capacity and are similar to ones already used in India under Bank-financed projects. The attached Table D compares the characteristics of the three makes which have been purchased in Sri Lanka in recent years with those proposed for purchase under the project. 4.10 A deliberate decision has been made to purchase vehicles similar to those in use. The decision was made because it is believed that the universal  - 19 - introduction of vehicles with enhanced specifications and modern features such as power steering and automatic (or semi-automatic) gearboxes would put an unnecessary strain on the maintenance and overhaul facilities --- which are unable to cope with the present fleet. In addition, SLCTB does not possess the vehicle operating cost data which is needed to evaluate alternative vehicle specifications on a "life-cycle" costing basis. This information will be collected during the project period with the assistance of consultants. It is expected that by mid-1982 there will be sufficient inforaation to deter- mine the changes in vehicle specifications which may be needed for purchases in 1983. In particular, evidence will be collected on fuel consumption in view of increasing oil prices. The procurement decision is conservative but prudent inL the light of present conditions. 4.11 The bus bodies will be fabricated and assembled onto chassis to standard specifications at the SLCTB factory at Ekala. The factory has satisfactorily produced similar bodies for over 15 years at prices which are competitive with local or Indian manufacturers. The qualil:y of work is satisfactory. The project calls for a maximum annual outpul: of 900 buses per year (average of 75 per month) which is attainable (para 3.04). Component C: Improvement in Bus Maintenance and Operations 4.12 This component is directed at achieving cost savings and fuel eco- nomies at the depot level and includes the construction and equipping of 22 new bus depots, purchase of equipment for existing depots, and purchase of equipment for improving bus operations. 4.13 The new depots will reduce congestion at existing locations and permit a higher standard of preventive maintenance. Dead mileage will be reduced by locating. buses nearer to route starting points. The depots are to be built as modules designed for 100 buses. The construction is simple, and the equipmnent is of a level of technology suitable for use in Sri Lanka. A description of the depot facilities and cost estimates are found in Annex 1. To improve maintenasnce at existing depots replacement machinery has been in- cluded in the project. These are mainly small machines such as chassis lubricators and equipment such as voltmeters and tyre maintenance equipment. The component also includes the purchase of training aids and general equip- ment for operations. In particular, 2,500 new ticket machines will be pro- cured of a type designed to prevent fraud by conductors and to provide audit details which can be used to study passenger traffic patterns. 4.14 The combined effects of the project are expected to increase the number of buses operated daily and a significant part of this improvement would come from the improvements in maintenance: by 1983 the RTBs are ex- pected to operate an additional three hundred buses daily due to improved maintenan,ce.  Comparisoni of Chassis Specifications ( Typ e B) AS PURCHASED IN 1979 PROPOSED PURCHASES UNDER IDA PROJECT Make A Make B Make C Immediate Purchase Trial - Colombo Trial - Mountain Standard ENGI NE Number of cylinders 6 6 e 6 6 6 Method of injection Indirect Direct Direct 125BHP@ Direct Direct Direct Power rating 96,8 Kw @ 2600 RPM 83.4 Kw @ 2800 RPM 125 BHP @ 2400 RPM 89.5 Kw @ 2200 RPM 89.5 Kw @ 2200 RPM 89.5 Kw @ 2200 RPM Maximum torque 41.5 Kg. @ 1400RPM 57 Kgm @ 1900 RPM 41.5 Kgm @1600 RPM 57 Kgm @ 900 RPM 57 Kgm @ 900 RPM 57 Kgm @ 900 RPM Compression ratio 22 to 1 17 to 1 16 to I 17 to I 17 to 1 17 to 1 TRANSMISSION Clutch Single dry plate Single dry plate Single dry plate Single dry plate Fluid flvwheel Single dry plate Gearbox 5 speed synchro 5 speed crash/synchro 5 speed synchro 4/5 speed synchro 5 speed epicyclic 4/5 speed synchro Axle ratio 6.5 to 1 6.85 to 1 5.8 to 1 5.5 to 1 5,5 to 1 6.5 to 1 STEERING Manual or power assisted Manual Manual Manual Manual Manual or power assisted Manual or power assisted Type of axle Rigid beam Rigid beam Rigid beam Rigid beam Rigid beam Rigid beam Turning circle (swept) 63' 0" 64' 4" 64' 3" 65' o" 65' 0" 55" 0" SUSPENSION Type of springs Semi-elliptic Semi-elliptic Semi-elliptic Semi-elliptic Semi-elliptic Semi-elliptic Type of shock absorbers Double acting Double acting Double acting Double acting Double acting Double acting Load Capacities: Front axle 4300 Kg 4060 Kg 4200 Kg 4582 Kg 5090 Kg 4582 Kg Rear axle 9200 Kg 8120 Kg 6580 Kg 8120 Kg 10480 Kg 8120 Kg BRAKES Hydraulic-vacuum Hydraalic-air Air Air Air Air OVERALL LENCTH 9 M 9 M to M 9 M 11 M 10 M *This figure is considered an error in the Manufacturers' Catalogue and is thought to be 8200 Kgs. Note: (i) Permissible loads are in accordance with manufacturers specifications; (ii) Actual loadings are based on: (a) unladen vehicle weight as shown in Pak Poy Report, Assignment C; (b) passengers evenly distributed.  - 21 - Component D: Low-Cost Traffic Engineering Measures 4.15 This component is designed to improve the flow of buses in urban areas through the implementation of low-cost traffic engineering measures such as traffic signals, provision of bus lanes, relocation of bus stops, channel- ization of congested intersections on main bus corridors, minor improvements to pavement and curbs, ban on car parking, and regulations concerning truck loading and unloading. These types of low-cost traffic engineering measures are widely recognized to yield quick and large benefits. A set of measures for Colombo has already been identified by consultants financed under the PPF, and further ones will be identified in other parts of the islaLnd during project implementation. The measures will be mainly, but not entirely, in urban areas. Cmponent E: Technical Assistance 4.16 This component will provide consultancy services and training. The consultants would assist SLCTB in the following major areas: production engineering, procurement, accounting, traffic operations and management reorganization. A detailed list is given in Annex 1. D. Cost Estimates 4.17 The total investment in the project is estimated at about US$86.40 million of which US$51.5 million is foreign exchange. Detailed cost estimates are given in Annex 1. The estimates are based on prices of January 1979 except bus chassis and materials which are at July 1, 1979. The direct foreign exchange component would be about 60 percent of the total cost. The exchange rate is estimated at Rs 15.6 to US$1. Quantity contingencies are calculated at 7-1/2 percent for machinery, equipment, construction and techn- ical assistance. Increases in prices have been calculated separately for local and foreign costs viz: 1979 1980 1981 1982 _________ ( -)