Sri Lanka - Second Roads Project

Document of The World Bank FOR OFFICIAL USE ONLY /iA ov-,) Czc- Report No. 5345-CE STAFF APPRAISAL REPORT SRI LANKA SECOND ROADS PROJECT March 13, 1985 Power & Transportztion Divisiorn South Asia Projects Department This document has a restricted distribution and mas be used by recipients oniv in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Sri Lanka Rupee (Rs) Rs 26.5 = US$1.00 Rs 1,000 = US$37.7 MEASUREMENT EQUIVALENTS Metric System British/US System 1 meter (m) = 3.281 feet 1 kilometer (kn) = 0.621 mile 1 ton 2,208 pounds 1 ton-km 0.621 ton-mile 1 passenger-km (pass-km) = 0.621 passenger-mile ACRONYMS AND ABBREVIATIONS AC - Asphaltic Concrete ACCSL - Association of Construction Contractors of Sri Lanka ADT - Average Daily Traffic CE(R&D) - Chief Engineer (Research and Development) CGR - Ceylon Government Railways CITP - Construction Industry Training Project CSC - Ceylon Shipping Corporation DBST - Double Bituminous Surface Treatment DME - Department of Machinery and Equipment DOH - Department of Highways dwt - Dead Weight Tons EE - Executive Engineer CDP - Gross Domestic Product COSL - Government of Sri Lanka ICB - International Competitive Bidding Kph - Kilometers per hour MFP - Ministry of Finance and Planning MOH - Ministry of Highways MOT - Ministry of Transport npv - Net Present Value Pass-Km - Passenger Kilometers PMC - Project Management Cell RDA - Road Development Authority RTB - Regional Transport Board SD&CC - State Development & Construction Corporation SLCTB - Sri Lanka CentraL Transport Board SLPA - Sri Lanka Ports Authority TCC - Transport Coordinating Commictee TCEO - Technical Civil Engineering Organization TEU - Twency-Foot Equivalent Unit (container) TFA - Technical and Financial Audit (MOH) Ton-km - Tonne-Kilometers TOR - Terms of Reference VOC - Vehicle Operating Cost vpd - vehicLes per day SRI LANKA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY sRi LAMRA SECOND ROADS PROJECT Loan and Proiect Summary Borrower: Democratic Socialist Republic of Sri Lanka Amount: US$24.0 million Terms: Repayment in 20 years, including 5 years grace, at the standard variable interest rate Proiect Description: The project seeks to improve periodic maintenance of the trunk road network, including bridges, and to strengthen the institutions concerned with transport infrastructure by providing for rehabilitation of about 570 kilometers of roads and for repair, replacement, or widening of about 28 bridges. The project also provides for equipment to workshops and quality-control laboratories, training in bitumen emulsion technology and equipment fleet management, assistance with project execution, and technical assistance to the Transport Coordinating Committee, within the Ministry of Transport. The main project benefit would be the direct savings to highway users arising from reduced vehicle operating costs, fewer bridge closings, improved routine and periodic maintenance, and improved transport planning and management. Principal risks, relating to institutional capability and quality of workmanship, would be minimized by providing adequate levels of technical assistance and training. I This document has a restricted distribution and may be used by recipiceits only in the performance of their offil duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost: /a Item Local Foreign Total ----US$ Million--- Road Repairs 11.0 9.8 20.8 Bridge Repairs 3.1 3.2 6.3 Supervision 0.9 0.3 1.2 Equipment 0.6 0.9 1.5 Technical Assistance and Training 0.2 0.7 0.9 Base Cost 15.8 14.9 30.7 Physical Contingencies 1.5 1.4 2.9 Price Contingencies 6.2 3.8 10.0 Total Cost 23.5 20.1 43.6 rnz inmo a Financing Plan: Local Foreign Total ----US$ Nillion-- Government 19.6 - 19.6 IBRD 3.9 20.1 24.0 Total 23.5 20.1 43.6 Estimated Disbursements: IBRD YY FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 _ __ --_--nS$ Nillion------- Annual 1.7 3.6 4.8 4.8 4.1 2.8 1.7 0.5 Cumulative 1.7 5.3 10.1 14.9 19.0 21.8 23.5 24.0 Economic Rate of Return: 82 percent Map: IBRD 18532 La Includes taxes and duties of US$6.1 million.  -iii- SRI LANKA APPRAISAL OF A SECOND ROADS PROJECT Table of Contents Page No. I. THE TRANSPORT SECTOR ..*....................*....... *..o 1 A. General Background and Economic Setting .... ......... 1 B. The Transport System .... .... ................ .. ..... 1 C. Transport Planning and Coordination ................. 4 II. THE HIGHWAY SECTOR ................... 4 A. The Highway Network ................................. 4 B. The Administration of Highways ...................... 5 C. Highway Planning, Finance and Investment ............ 7 D. Technical Aspects of Highway Construction and Maintenance ................................... 8 E. Previous Projects .............. . . . . ................... ... 10 III. THE PROJECT ............................................. 11 A5. Background ...... o................................................ 11 B. Objectives ...... o..o ................................ 12 C. Project Description ................................ 12 D. Cost Estimates ..... 0................................................. 16 E. Financing .. ........ . . 18 F. Execution of the Project .........o ................. 18 G. Procurement and Contracting o ..........o ........... 19 H. Disbursements ... . .................................... .. 21 I. Environmental Considerations ..... ................... 22 J. Reporting .......................................... 22 IV. ECONOMIC EVALUATION ...... .............. ................. 23 A. Introduction ....................................................... 23 B. Benefits and Beneficiaries ........... .. ............. 23 C. Traffic Volumes and Growth ............ .. ............ 24 D. Cost .........................*.. o.... 24 E. Conclusions ........... .0........................................... 25 F. Risks ...................... .................... 26 V. AGREEMENTS REACHED AND RECOMMENDATIONS .................. ... 26 This report was prepared by C. Jeremy Lane, Highway Engineer and Inai Bradfield, Transpor. Economist. The bulk of the word processing and COSTAB operation was done by Mrs. Margaret Carter, and Ms. Angela Ning assisted with the calculations.  -iv- ANNEXES Page No. Annex 1 - Documents in the Project File ....................... 28 Annex 2 - Terms of Reference for Technical Assistance Specialists ....... ................................ 29 Annex 3 - Terms of Reference for the Technical and Financial Audit . ....... ................................................. 34 Annex 4 - Economic Evaluation - Assumptions and Methodology ... 38 Annex 5 - Terms of Reference for Transport Coordinating Committee ..................... 49 TABLES Table 1.1 - Passenger Traffic ............................. 53 Table 1.2 - Vehicle Registrations ..... .................... 54 Table 1.3 - Ports Throughput .............................. 55 Table 2.1 - Classification of Roads Maintained by DOH and by Local Authorities .... ................. 56 Table 2.2 - Highway Expenditures ........................... 57 Table 2.3 - Department of Highways Proposed Five-Year Expenditures ................................. 58 Table 3.1 - Sections of Road Proposed for Asphalt Overlay .. 59 Table 3.2 - Sections of Road Proposed for Surface Treatment 60 Table 3.3 - Bridge Rehabilitation Program - List A .... ..... 61 Table 3.4 - Bridge Rehabilitation Program - List B ......... 62 Table 3.5 - Equipment for Materials Testing, and for TCC and Highway Planning Section, DOH ......ll..... 63 Table 3.6 - Schedule of Workshop Equipment .... ............. 64 Table 3.7 - Detailed Cost Table .......... .................. 65 Table 3.8 - Estimated Schedule of Disbursements ............ 66 Table 4.1 - Economic Evaluation of DBST .................... 67 Table 4.2 - Economic Evaluation of Asphalt Concrete Overlay 68 Table 4.3 - Economic Evaluation of Colombo-Calle Road (including Kalutara Bridge) .... .............. 69 Table 4.4 - Sensitivity Analysis .......................... 70 CHARTS Figure 1 - Organization of the Department of Highways ....... 71 Figure 2 - Project Implementation Schedule .................. 72 MAP No. IBRD 18532 This report is based on information supplied by GOSL and on the findings of various preparation missions. The project was originally appraised in May 1983 by Mr. H. Sydney Thriscutt, Senior Highway Engineer, and Mr. Safari O'Humay, Financial Analyst.  SRI LANKA SECOND ROADS PROJECT I. THE TRANSPORT SECTOR A. General Background and Economic Setting 1.01 The island of Sri Lanka (65,000 km2) is generally flat in the coastal areas and mountainous towards the centraL hills (Map 18532). The total population in 1984 was about 15.8 million, of which a high proportion live in the southwest quadrant cf the island and in the Jaffna peninsula at the northern tip. Between 1971 and 1981, the population grew at the moderate rate of 1.7% annually. 1.02 With the introduction of an economic liberalization program in 1978, the Government initiated a series of reforms designed to break the economic stagnation of 1970-77. Growth accelerated almost immediately as reflected in 6.8Z real annual growth during 1977-80, which then declined to 5.3% in 1980-83. During 1978-1982, the share of the transport sector in the GDP has increased to 9%. 1.03 The bulk of inland freight transport is made up of agricultural products such as rice and wheat, and tea, rubber and coconut. Manufacturing activity is centered in Colombo, which is also the principal port. As half of all freight traffic moves in'or out of the Colombo area, there is severe congestion which is further intensified by half a million daily co iuters from the surrounding areas. 1.04 Road transport accounts for 90% of total transport, while the importance of the railways in terms of sector output has declined from about 8% during 1976-80 to 4% of the total in 1981. The rapid growth in road traffic and axle loads, combined with the general neglect of highway maintenance over the past decade, has resulted in rapid deterioration of the road network. B. The Transport System 1.05 The transport system of Sri Lanka consists of about 25,000 km of roads (about 9,000 km surfaced) maintained by the Department of Highways (DOH), and some 43,000 km maintained by local authorities, about 1,450 km of railways, mostly broad gauge single track; one main and two minor ports, and seven airports, only one of which handles international traffic. Public inland transport services are provided by Ceylon Government Railways (CGR), the Bus Transport Boards consisting of the Sri Lanka Central Transport Board (SLCTB) and nine Regional Transport Boards (RTBs), which are public corporations operating road passenger services islandwide, and an increasing  -2- number of private road passenger and goods operators. Several government (GOSL) agencies and cooperative societies operate a significant number of trucks on their own account. Air transport and coastal shipping play only a minor role, and a short pipeline carries crude oil from Colombo Port to the nearby refinery. Principal traffic statistics are shown in Table 1.1. (a) Highways and Road Transport 1.06 The highway subsector is discussed in Chapter II. 1.07 Road transport plays the dominant role in the economy of Sri Lanka accounting for about 90% of total ton-km and 82% of total pass-km. Until 1979, passenger transport was the monopoly of SLCTB and the RTBs. Since 1979, however, private passenger transport has been allowed and is taking an increasing share of the market. Their operation is entirely unregulated apart from vehicle inspection. Road freight transport is also unregulated, with no set tariffs, hence prices respond to supply and demand. About 70% of the trucking fleet is privately owned with small operators predominating; the remainder is owned by government departments, public corporations and cooperatives. 1.08 More liberal import policies since 1977 have transformed the road vehicle fleet, which was old and decrepit. New vehicle registrations increased sharply, and even allowing for the number of old vehicles which were scrapped, the number of vehicles in the active fleet had almost doubled by 1982. Vehicle registrations in 1977-82 are shown in Table 1.2. 1.09 In 1982, SLCTB and the nine RTBs owned 18,000 buses 1/ on register but only about 8,000 were in operating condition. Operating problems and ineffective management led to increasing losses requiring a subsidy from GOSL. In 1981, however, the managements of both SLCTB and the RTBs were overhauled and there was a rationalization of services. Financial performance improved to the extent that no government support has been required since 1981. Since 1978, there has been a ninefold increase in the privately operated bus fleet. Although fares were initially higher than those of RTB's, the public was prepared to pay extra for a generally higher standard of comfort and reliability; however, increasing competition has brought fares in line with those of the RTBs. (b) Railways 1.10 Railways are operated by CCR as a government department under the Ministry of Transoort (MOT) over a total track length of 1,450 km. A major extension is under construction to serve the Mahaweli Development Project. The existing track system includes over 1,000 steel bridges, mostly built 1/ Includes the number of scrapped buses. SLCTB does not maintain a record on the number of buses scrapped.  -3- about 50 to 60 years ago. There are about 300 1 :omotives in service, and 4,000 wagons, mostly very old. The growth of freight ton-km has been uneven: the traffic increased by 25 between 1977 and 1979, but declined by 26% between 1979 and 1980. In 1981, the volume of traffic recovered to the 1977 level at 223 million ton-km. Between 1977 and 1981, the volume of rail passengers fluctuated from 2.8 billion pass-km to 4.1 billion pass-km. In 1981, rail pass-km accounted for 3 billion, or 13% of total passenger traffic. The financial situation of CGR is unhealthy with operating expenditure growing much faster than revenue. In 1982, the GOSL subsidies to CGR reached Rs 200 million. 1.11 The Government is fully aware of its inability to continue financing CGR's growing operating losses. For this reason, it has recently established a Transport Coordinating Committee (TCC) and requested the Bank's assistance in analyzing major transport issues, including means to improve the financial position and the performance of the railways. Under the first Road Maintenance Project, Credit 900-CE, funds are being provided for this work which will be continued under the proposed project (para 1.15). (c) Ports and Shipping 1.12 The Sri Lanka Port Authority (SLPA), established in 1979, is responsible for all port management and operations. Since that time, SLPA has been able to streamline port operations and efficiently handle increasing traffic at Colombo. Container traffic through CoLombo has increased from 7,500 TEU 1/ in 1978 to over 100,000 TEU in 1982. The total volume of imports and exports handled by SLPA is shown in Table 1.3. Financial records indicate that SLPA has earned impressive surpluses which after taxes amounted to Rs 40 million in 1979, growing to Rs 232 million in 1981. 1.13 Sri Lanka's own merchant fleet is run by the GOSL-owned Ceylon Shipping Corporation (CSC) and comprises eight general cargo vessels with a total capacity of 86,800 dwt. From time to time, CSC charters cellular container ships to serve the UK/Continent, the Middle East and Hong Kong/ Japan routes. In addition, It owns a 30,000 dwt tanker, which is used to import about a quarter of the country's crude oil requirement. In 1981, CSC carried about 12.7Z of total marine freight ard has been increasingly profitable over the past five years, also saving foreign exchange. (d) Air Transport 1.14 Nearly all passenger traffic to and from Sri Lanka is by air, including significant tourist traffic. The national carrier, Air Lanka, was created in 1979 to replace the unprofitable and now defunct Air Ceylon, and offers internat -nal services in the region and to Europe. Since 1977, 1/ Twenty-foot Equ.-valent Unit, the Length of t--e standard container unit in internat:onal trade.  -4- passenger traffic has grown at 35% a year, now amounting to over a million passenger movements per year. There is also a small but increasing amount of air freight passing through Kattunayake Airport, Colombo. Of the 16,200 aircraft movements at Katunayake in 1981, Air Lanka accounted for 2,800 (or 17%), using five aircrafts. Seat occupancy at 76% is high, largely due to Air Lanka's aggressive policy of fare reductions for residents. C. Transport Planning and Coordination 1.15 At present, highway planning and construction are the responsibility of the Ministry of Highways (MOH), railways and public road transport are in the care of MinisLry of Transport (MOT), and private bus operation is controlled by the Ministry of Private Buses. The Ministry of Trade and Shipping is responsible for shipping and port operations, while air transport is under the control of the Ministry of Defense. There is thus little coordination among modes. The highly fragmented decision-making structure makes coordinated transport sector planning and formulation and implementation of sector policy reforms almost impossible. In order to address this institutional weakness and other sectoral issues identified during the Bank's transport sector review in 1984, the Bank proposed, and the Government agreed, to establish a Transport Coordinating Committee (TCC) to examine and analyze these issues through a study, based on which appropriate recommendations for improvement measures will be made. TCC set up in 1984 is composed of high-level representatives of all transport agencies under the chairmanship of the Secretary of the Ministry of Transport and is supported by a technical secretariat, which was also established in 1984 at the Bank's suggestion. Under the project, technical assistance is being provided to strengthen the work of TCC and its secretariat in analyzing major institutional issues relating to: (a) transport planning and coordination; (b) financial viability and operational improvement of the railways; (c) resource mobilization through user charges to meet future maintenance funding requirements; and (d) the role of public bus operations. Outline terms of reference and the committee's overall work program have been established (Annex 5). Funds required after late 1985 for the continuation of the committee's work will be provided under the project. During negotiations, agreements were reached with the Government on the time schedule for the TCC's detailed work program, and consultation procedures with the Bank for the implementation of TCC's policy recommendations. II. THE HIGHWAY SECTOR A. The Highway Network 2.01 Sri Lanka has a comparatively well-developed and dense highway system evolved during the last century to supply the inland plantations and convey their products to the ports (Table 2.1 and Map). Lack of correct maintenance and the recent growth of traffic have placed a severe burden upon the highway system, so that many lengths of pavement require strengthening or  -5- reconstruction to avoid failure. In addition, a large number of bridges are structurally unsound, as well as too narrow for present day traffic; highway geometrics are below standard and roadside development has encroached on the right of way, making improvement or widening difficult and expensive. Traffic counts undertaken in 1984 showed average annual increases of 3-10Z on the main arteries. B. The Administration of Highways 2.02 Following a long period when GOSL activities in both roads and buildings were carried out by a Public Works Department, the two funcrions were divided in 1969 between DOH and a Buildings Department. During 1970-78, DOH was controlled by the Ministry of Irrigation, Power and Highways. GOSL policy at that time did not favor the private sector, and thus practically all work was by force account through three governmental agencies: namely, the State Development and Construction Corporation (SD&CC), the Territorial Civil Engineering Organization (TCEO) and the Department of Machinery and Equipment (DME). SD&CC undertook bridge construction for DOH and still does on a contract basis; TCEO maintained the road system through a network of regional Directors of Works, who also carried out irrigation works, and DME procured, allocated, operated and maintained all plant, vehicles and equipment for GOSL highways, bridges, irrigation and power projects, hading central and regional workshops for the purpose. 2.03 Following a change of government in 1978, irrigation works were placed under a separate ministry, leaving DOH under the Ministry of Power and Highways. Finally, in May 1980, there was a further separation and DOH is now controlled by the Ministry of Highways. Radical alterations took place in SD&CC, TCEO and DME. SD&CC became an independent contractor, while DME and TCEO were divided between Highways and Irrigation. With the emphasis being given at that time to early completion of the Mahaweli Project, a major irrigation and hydroelectric scheme under construction, irrigation received the lionts share of workshops and plant, and DOH was left with no central workshop, an incomplete network of regional workshops and inadequate stocks of spares. Under the first Road Maintenance Project, 1/ central workshops at Angulana have been successfully upgraded and nine regional workshops have been set up. The organization and key staff are satisfactory, and with the equipment and tools proposed under this project, the workshops would be adequately equipped to undertake road maintenance. 2.04 The present organization of DOH is illustrated in Figure 1. The Director of Highways is che senior technical officer and has three zonal Deputy Directors to control the principal field operations of highway and bridge construction and maintenance, which are carried out thrcugh 22 Chief Engineers, assisted '7 Executive Engineers (EEs) and Technical Officers l/ Credit 900-CE, referred to hereafter as "the first roads project", see para 2.17.  -6- (TOs). Technical support is provided for planning, programming and progress control, engineering seivices, bridges, and mechanical engineering. Staff training is the concern of the Chief Engineer (Research and Development). 2.05 In 1981, COSL enacted the Road Development Authority Act (No. 73) setting up a Road Development Authority (RDA) under the control of the Minister of Highways. It functions under a ten-member committee, as a parastatal agency, and is advised by a Road Development Advisory Council. By designating a Road Development Area, the Minister can empower RDA to carry out, within that area, many of the functions otherwise done by DOH, but with the difference that the RDA can charge fees for its services and can fix the wages, salaries and conditions of service of its staff, permitting such additional advantages as field allowances and free transport. In this way RDA can offer incentives to able engineers not available within civil service regulations. A strict client/contractor relationship is observed when RDA is acting as a contractor to MOH, and full commercial hire rates are charged for any MOH plant used by RDA. RDA operates its own accounts, which are subject to government audit, and is able to borrow commercially with the permission of the Minister. In order to help sec up RDA's administrative and accounting framework, and to establish the procedures and practices that would enable it to adopt a contracting mentality, the Authority has engaged a Singaporean contractor as its management adviser. The contractor is paid a fee for its ongoing advisory duties for MOH, but it is understood that in the future the contractor will act in joint venture with RDA, bidding for work offered by other parties. 2.06 DOH has experienced difficulty in recent years in maintaining its effectiveness. The problems of retaining key staff, the lack of an entrepreneurial approach to executing work and the difficulties of operating within a highly structured bureaucracy, have aLl contributed and led in part to the decision to create the RDA. More recently, a return to the "overseer" system of routine maintenance is being investigated. Under this system, the current DOH technical officers would remain as MCH 1/ employees on a nominal salary, but would become in effect small contractors paid on piece-work rates for routine maintenance, and charged for any DOH resources: equipment, materials, etc., suppLied. A first (and major) step was taken in this new direction on December 30, 1984 with the termination of 23,000 salaried laborers. The good and skilled were immediacely re-employed by the overseers; many are expected to get work with contractors under the project, while cthers will receive a pension. RDA wouid become the executing agency for this work, b-:.t the details oi how the existing structure and personnel of DOH would be transformed into RDA are still being worked out. There are arguabiy too many DOH engineers either doing adminis.racive work or working i/ DOH is a part of MOH, but its functions may soon be taken cver by MOH, or be devolved upon RDA or other agencies. Herea-ter in this report "MOH" is taken to in^lude DOH if a-pi.icable. "DOH" is used where a distinction is required in referring to the recent past or immediate f.iture.  -7- for the local community. If there is a major transfer of staff to RDA, those engineers retained will receive better working conditions and pay, but there wouLd probably be 20Z to 30% not re-empLoyed. It is clear, however, that all "head office" functions, including responsibility for running the project, would be absorbed into MOH if DOH were to be dissolved. An expatriate consulting firm is assisting DOH with establishing the contractual framework and training potential overseers for the trial introduction of this scheme. C. Highway Planning, Finance and Investment 2.07 Although funding for maintenance has been inadequate in the past, GOSL has at last made a strong commitment to rehabilitation of the existing network, before embarking on any new investments. At the present time there are no major capital investments under construction or planned, and what does appear in the so-called "capital works" budget are urgent works on the existing network: bridge replacements, access to new factories, essential widening or emergency bridge repairs. Highway sector expenditures since 1974 are shown in Table 2.2. In the longer term, difficult decisions will be required about the location of major new outlets from Colombo, because widening of the existing routes is difficult due to intense roadside development. The proposed project intends to make a significant contribution to general transport planning, including the identification of needed feasibility studies for high priority roads by providing technical assistance to the Transport Coordinating Committee and its secretariat, and by strengthening DOH's planning capability (para 1.15). 2.08 As a part of the first roads project (para 2.17), planning and appraisal of works have been improved, although progress was slow due to the absence of any road inventory. Road inventory data have now been assembled and a system of regular traffic counting set up, providing a basis for work planning for the proposed project. This work was carried out under the Chief Engineer (Traffic and Planning) and identified sections requiring major rehabilitation or maintenance in the next five years. The inventory data will be collated and presented in a standardized updatable format during the implementation of the project. An axle load survey is also planned, for which the project will provide equipment. 2.09 Since January 1, 1984 the routine road maintenance budget has been administered by the District Ministers, using the DOH organization as an executing agency. Depending on the energy and motivation of the District Ministers in responding to local priorities, this could bring an improvement in routine maintenance; it may make centralized planning of periodic maintenance more difficult. Recently, however, GOSL has announced the funding of the Medium-Term Rehabilitation Program (periodic msaintenance) and concomitant increases in the routine maintenance budget (Table 2.3). Part of the extra funds will be contributed by external donors (including IBRD under the proposed proiect) and the rest from general revenue. As the Mahaweli project winds down, an increased allocation for road maintenance is within the Government's fiscal capability.  -8- 2.10 Due largely to increased vehicle imports since 1978, road user revenues have been comfortably above the annual expenditures on construction and maintenance. In 1981, the last year for which figures are available, Government expenditure on roads amounted ta Rs 344 million, while revenue from road users was Rs 702 million, not counting Business Turnover Tax on motor fuel sales and non-corporate income tax from road transport companies. If routine and periodic road maintenance were adequately funded, the annual required expenditure on roads would be about Rs 857 million in 1986 and extra revenue from road users would be caLled for. At present, heavy vehicles which cause most pavement damage, do not contribute enough and an increase for such vehicles would be appropriate. Road user charges and axle load surveys are among topics being addressed by TCC in the first major study to be commissioned in mid-1985 (para 1.15). The findings of the study should be available in 1986. In the meantime, the Cabinet has published a technical memorandum containing new minimum maintenance fund requirements needed during 1985-89 (Table 2.3). During negotiations, it was agreed that GOSL would release maintenance funds at least up to these levels for the five-year period, 1985-1989, and to ensure that road user revenue remains in step with increased expenditure on roads. D. Technical Aspects of Highway Construction and Maintenance Quality Control 2.11 The concept of routine quality control of road works is fairly new in Sri Lanka. Equipment for regional materials testing laboratories was provided under the first roads project, and these laboratories are now staffed. The Droject will provide additional equipment for these laboratories, and some specialist equipment for the central Ratmalana Laboratory and for field sampling. Training 2.12 Under the first roads project, new methods, materials and equipment are being introduced, including bitumen emulsion. The impact on road maintenance standards has been less than desired for two reasons: (a) much equipment arrived late due to DOH's lengthy procurement procedures; and (b) there was a reluctance to change old ways and act on the advice cf expatriate consultants. A final tranche of maintenance equipment is scheduled to arrive by mid-1985. The mechanical engineer, who assisted DOH with the equipment elements of the first roads project, is being retained for two further years. He will oversee the introduction of the new equipment, improve the management of hire operations, and train mechanics and operators. A 6,000 tons per year bitumen emulsion production plant is being erected, and a training program, using emulsion imDorted directly, is in progress, and the proposed project will provide continuing assistance for running the plant and using its production effectively.  -9- 2.13 Under the first roads project, a small training center was established at Angulana and successful courses were prepared and run, mainly for mechanical trades, and some local instructors gained experience in delivering courses; over 200 people passed through the center. The Chief Engineer (Research and Development) (CE(R&D)) is now operating a comprehensive trainir.;, program for all skilled non-professional staff in a series of courses of between two weeks and three months in length. The ongoing IDA-funded Construction Industry Training Project (CITP) (Credit 1130-CE) (para 2.17) is also providing vocational training for DOH mechanics and other workshop trades, and equipment operators, and junior supervisory staff, partly with funds from Credit 900-CE. A follow-on CITP project has been prepared for appraisal in FY86, which will continue to offer training to employees in the road maintenance field whether DOH, RDA, or private contractors' and overseerst personnel. This training will run parallel with the special training referred to in para 2.06, and is being coordinated by CE(R&D). 2.14 While in the long term, much vocational training will become available outside MOH, there will always be a need for MOH-specific rather than trade-specific matters, and for certain specialist subjects. The proposed project therefore contains no major training component because the road maintenance community may shortly be going through a period of fundamental change, and because adequate training is being provided in the interim through other channels. The project will provide training in emulsion technology, and training overseas for specialists. On-the-job training will also be given to MOH counterpart staff working with the construction management and highway engineering advisers (para 3.10). With a view to addressing the long-term training needs of MOH (and by that stage some overseer's and contractor's personnel as well), the proposed project will include a full training-needs survey and an outline plan for a road maintenance training center, to be carried out by the training planner. During negotiations, it was agreed that GOSL will consult with the Bank on the findings of the survey and plan, and on their implementation. The Construction Industry 2.15 For a number of years up to 1978, the industry was virtually moribund, but rapid expansion took place after 1978 to cater for the increasing tempo of economic activity. There are no large general contracting firms in Sri Lanka at present, but about six firms each have annual capacities of US$5 million or more, and perhaps a further 20 can each undertake work valued at up to about US$2 million annually. Private contractors tend to concentrate on building, water supply and small-scale sewage projects, where the need for equipment is small, but they are now taking on fairly large irrigation contracts using some earthmoving equipment. Some firms are executing bridge repairs and small road works for DOH under the first roads project, but there are at present few local firms with recent experience in, or equipment for bituminous road works. Under the CITP, the Association of Construction Contraccors of Sri Lanka (ACCSL) has recently been formed to strengthen and channel the available capacity and to present a united professional front. Conditions of contract were heavily in the Government's favor and the smaller contractors were virtually labor  -10- suppliers. New specifications and conditions of contract have recently been agreed with assistance from the CITP, consultants financed under the first roads project, and ACCSL. 2.16 The Hahaweli power and irrigation project is using expatriate contractors for the main works, but local firms working as subcontractors are gaining useful experience, and local workers employed by the principal contractors will eventually return to domestic firms as experienced employees. Many CITP graduates are finding employment in this vast scheme. The "brain drain" to the Middle East is sLowing down and the capacity of local contractors is improving steadily. With encouragement, the domestic industry can develop an effective capacity for major road works in the near future. At the present time it is considered that the participation of foreign contracting firms will be necessary to execute the bulk of the project road works and the two Kalutara bridges. International advertising has already invited firms to prequalify, including joint ventures between foreign and Sri Lankan companies. The response to the prequalification invitation has been very favorable. E. Previous Projects 2.17 There have been two previous projects in the sector and one project related to the sector, all still under disbursement, as follows: (a) A First Road Maintenance Project (Credit 900-CE, US$16.5 million, May 1979). This project is still under implementation and scheduled for completion in June 1985. Stemming from the 1966 IDA transport review, a first highway project was approved in 1968, but was later cancelled due to a change in government policies favoring new construction over rehabilitation. The project was re-appraised in October 1978 as a road maintenance project and became effective in December 1979. Its main objectives were: (i) to recoup the backlog of periodic maintenance on about 350 km of roads and 30 bridges respectively, and to introduce enhanced routine and periodic maintenance practices; and (ii) to lay the foundation for improved maintenance planning based on a systematic data collection and analysis of traffic and costs. These objectives were supported by the provision of equipment, spares, workshop equipment and technical assistance. There has been satisfactory progress in all components except for the road rehabilitation, which was originally expected to be executed by contract. No bids were received, however, and much of the works had to be done by force account. Initially, work was slow and its quality less than satisfactory. Administration supervision was poor and there was resistance to the introduction of improved methods. Since early 1984, however, there have been encouraging  -11- developments. Bitumen emulsion has been introduced and some road work is being executed by contract. The current project is scheduled for completion before effectiveness of the proposed project. As a result of the project, road maintenance is now being executed with better equipped, better trained operatives. As a result of a new contracting climate and technical assistance to DOH design branch, DOH is now in a position to administer the proposed project with work being executed by contract. (b) The Road Passenger Transport Project (Credit 994-CE, March 1980, US$53.0 millions). This project also grew out of the 1976 sector review and was designed to: Ci) improve mechanical and operating efficiency of SLCTB's fleet; and (ii) improve the financial status of SLCTB. The project, which is ongoing, has included supply of materials and parts for the local assembly of 1,500 buses, construction of new bus depots, technical assistance in mechanical and traffic engineering, and for planning organization and management. The project is scheduled for completion by September 30, 1985. Implementation of the project had been delayed due to a lack of commitment on the part of SLCTB'S senior staff to undertake agreed institutional reforms. and to lengthy procurement procedures. However, SLCTB's management has shown a determination to achieve the institutional objectives of the project. The creation of the TCC, which will address the problem of rationalizing public/private bus operations, is another positive step. (c) Construction Industry Training Project (Credit 1130-CE, April 1981, US$13.5 million). The project includes training of tradesmen, equipment operators and supervisors for the building and construction industry. Technical assistance is also being provided for improving specifications and contract documentation for the industry generally. The project is scheduled for completion at the end of 1985. The project has been a success and has benefited almost every company and construction-related government agency in the country. III. THE PROJECT A. Background 3.01 As in the first roads project, the overall objective of the proposed project is to reduce the costs and delays associated with internal transport by selective betterment of the highway system. However, targets  -12- are now more limited and specific and will use an alternative means of implementation. GOSL now realizes its problems in the highway subsector and is willing to experiment with possible solutions. Force account will be used only for some minor bridge repairs; the bulk of the work will be by contract. The rationale for the Bank's involvement in this project is that institutional strengthening will go hand in hand with the project's physical provisions, and will support the Government's new initiatives in the transport sector. Not only will the maintenance backlog be reduced, but through the TCC, the training program, and technical assistance for highway planning, road maintenance and improvement will be better planned and funded in future. Through its continuing dialogue with Government, the Bank has assisted in the establishment of the TCC, and through its work program an improved transport policy framework wilL be formulated. The assistance to MOH for project execution and the strengthening of its equipment fleet and its workshops, begun under the first roads project and continued under the proposed project will give Sri Lanka the capacity to execute maintenance more effectively. B. Objectives 3.02 Specifically, the objectives of the project are: (a) to reduce the backlog of periodic maintenance on the priority road network and on bridges; and Cb) to strengthen the institutions concerned with transport infrastructure in the following key areas: i) transport coordination and planning at an inter-ministerial level; and (ii) road maintenance olanning, supervision and execution of the maintenance program. C. Project Description 3.03 In support of these objectives, the components of the proposed project are: (a) a program of periodic maintenance consisting of bituminous overlay on about 300 km of road and surface resealing on about 270 km of road; (b) strengthening or rehabilitation of about 28 bridges; tc) provision of workshop equipment and tools and laboratory equipment to DOH; (d) equipment and training for MOH's highway planning and highway maintenance departments; and  -13- (e) technical assistance to the Transport Coordinating Committee and its technical secretariat. Accordingly, the project would finance: (a) execution of road and bridge works by contract and supervision; (b) procurement of equipment, vehicles and tools for workshops, drawing office, office and laboratory; (c) execution of minor bridge works by force account, including purchase of materials, fuel, and some local wages; (d) technical assistance in training, construction management, supervision, transport planning, road design and project implementation generally; and Ce) training abroad for selected transport planning staff. (a) "he Overlay and Resealing Program 3.04 About 300 km of roads on ten trunk routes require preliminary repairs, a regulating layer and provision of an asphalt concrete strengthening overlay. Sections have been chosen on the basis of their visual condition, traffic volume and pavement roughness. The resulting list of road sections and the traffic and roughness data are shown in Table 3.1; their locations are shown on Map IBRD 18532. The cost of road rehabilitation work is estimated at US$29.8 million equivalent (see Table 3.7 for detailed costs). The sections will be re-inspected before work commences in order to account for any new areas of deterioration. The 270 km of roads which are structurally sound, but where resealing is now needed to renew the wearing course and to prevent breakup of the base, are shown in Table 3.2, and these will form the basis of the resealing program. Before either overlaying or resealing is commenced, potholes and cracked areas will be repaired and pavement and roadside drainage put into good order. Benkelman Beam surveys will be done ahead of overlaying and resealing to confirm the visual inspection and to calculate the thickness required. During negotiations, the road and bridge rehabilitation program has been agreed with GOSL. GOSL further agreed that it would discuss any changes with the Bank prior to their des ign. (b) Bridge Rehabilitation 3.05 About 28 bridges (see Tables 3.3 and 3.4 and Map) are in urgent need of repair, rehabilitation or replacement. The total cost of this program is estimated at US$9.1 million equivalent. Apart from two major bridges on the Colombo-Galle Road at Kalutara (estimated cost US$4.50 million), the work to be done is within the scope of domestic contractors, although they may require to hire equipment from DOH. The two bridges at  -14- Kalutara of the through-truss type, are serious obstacles to traffic and cannot accommodate container trucks on this major route (ADT 4,900). The trusses will be dismantled and a new 56 ft wide deck will be built on the existing piers which will be widened. Design and contract documents were prepared by DOH and bids have been invited from over 50 prequalified contractors. Design of the other bridges is in hand with the DOH Bridge Section. (c) Equipment for Civil Works 3.06 Equipment for one overlaying unit and two resealing units has been or is being procured under Credit 900-CE. This, and other equipment procured under the project, could be made available for hire to local contractors, if contractors do not have their own. Similarly, bridge construction equipment, sheet piling and formwork procured under Credit 900-CE would also be availablz. In the e-ent of hire of departmental equipment to RDA or contractors, DOH has agreed to charge full commercial hire rates. The Bank has found the existing schedule of rates used by DOE Mechanical Branch to be satisfactory. During negotiations, Government has agreed to review these rates annually with the Bank. (d) Procurement of Workshop, Laboratory and Other Equipment 3.07 Laboratory testing and quality control equipment for the regional laboratories is to be procured at a cost of abuut US$300,300, to oe used for works supervision by DOH (Table 3.5). During the first roads project, premises at Angulana were equipped and set up as a central workshop, training center and reception depot for new equipment. However, DOH's regional workshops are still poorly equipped, and the equipment shown in Table 3.6 is needed to bring them up to the required capability (estimated cost US$1.0 million). Ce) Assistance for Highway Planning and Transport Coordination 3.08 MOH has requested assistance in developing its capabilities for highway development and maintenance planning. During the first project, a road inventory -was completed for all DOH roads and a regular traffic census instituted; these data were used to compile the overlay and resealing program for this project. The Traffic and Planning Section of DOH is adequately staffed at senior level and will process and analyze the road inventory and other data as a starting point for a planned preventive periodic maintenance program. Traffic and pavement monitoring, including deflection and roughness measurement, will continue throughout the project, and the section will undertake an axle load survey (para 2.10) and various besic cost studies in close collaboration with the TCC secretariat. The project will provide drawing office and map-making equipment and a microcomputer for the data base and presentation of results. Traffic counting and pavement monitoring equipment and a vehicLe are also to be provided (Table 3.5). Up to four overseas visits of about three months each have been planned for the staff to gain experience in similar work in other countries, and provision has been  -15- made, if required, for a limited amount of technicaJ assistance to the section. In a similar fashion, assistance to the TCC will comprise up to 40 man months of experts time (para 3.11) and office and other equipment for the secretariat. (f) Training 3.09 The ongoing training for workshop trades, given by CITP personnel, will be continued as will the courses for junior management, being run by CE(R&D). A training planner will be financed by the project to prepare a study of the long-term training needs and put forward proposals for a permanent MOH training center. A range of services will be supplied by a suitable company to give training in the operation of MOH's newly acquired bitumen emulsion plant and in the use of emulsions in road maintenance. A further element of the training component will be short overseas courses for highway planning staff. (g) Technical Assistance (TA) 3.10 To assist COSL with project execution and to further the project's .nstitutional objectives, technical assistance will be provided as follows: (a) a construction management adviser (24 man months) will be attached to the project management cell (para 3.15) to help DOH deal with the organizational, contractual and technical problems of a work program, somewhat outside DOH's recent experience; (b) a highway engineering adviser (18 man months) will be responsible for: (i) helping DOH road and bridge design sections, prepare and update all designs and contract documents required for the project's construction component; (ii) assisting DOH's highway pLanning section with the programming and management of the remainder of the five-year Road Rehabilitation Program; and (iii) modernizing and upgrading the DOH sections concerned including training and preparation of standard drawings and manuals; (c) a mechanical engineering adviser (20 man months) will assist DOB in strengthening its mechanical directorate, in the training of its personnel and in the orientation of its operating procedures to manage the growing equipment-hire function effectively. He will also assist with the introduction into normal operations of road maintenance equipment being supplied under the first roads project, and trair. mechanics and equipment operators. He will be responsible for the upgrading of nine regional workshops and the mechanical aspects of the bitumen emulsion plant; (d) a training planner (4 man months) will be responsible for carrying out a training needs survey for the future road maintenance community, and devising a plan and programs fcr permanent  -16- facilities for ruad maintenance training, addressing the needs of Government and the private sector; and (e) an emulsion training team (10 man months) will be responsible for training staff involved in the operation of the emulsion plant and in the storage, distribution and use of the bitumen emulsion. Draft terms of reference for the three advisers and the planner are attached as Annex 2; details of the employment of the emulsion team are being negotiated with a specialist firm. Amounts are included in the TA estimates for office equipment and transport for these advisers. During negotiations, Government has agreed to employ these experts under terms and conditions acceptable to the Bank. 3.11 Technical assistance to TCC, to be financed under the project, will consist of the services of economists, transport specialists and financial analysts for a total of 40 man months, to assist in studies of the four priority areas of its proposed work program (para 1.15). Terms of reference and a draft work program, covering TCC's first two years of operation, have been agreed with GOSL. The technical assistance budget includes office equipment and transport to support the secretariat. During negotiations, Government has agreed to employ these experts under terms and conditions acceptable to the Bank. D. Cost Estimates 3.12 The total cost of the project is estimated at US$43.6 million equivalent, with a foreign exchange (direct and indirect) cost of US$20.1 million equivalent (46Z), and taxes and duties of US$6.1 million equivalent. Cost estimates in September 1984 prices are given in the table below; a more detailed estimate is given in Table 3.7.  -17- Estimated Project Costs (including taxes) Total Rs Million US Million Foreign Base Local Foreign Total Local Foreign Total Exchange Costs A. Road Repairs 292.7 259.6 552.3 11.0 9.8 20.8 47 68 B. Bridge Repairs 81.9 85.1 167.0 3.1 3.2 6.3 51 21 C. Supervision 33.9 8.0 31.8 0.9 0.3 1.2 25 4 D. Equipment Procurement 15.3 25.0 40.3 0.6 0.9 1.5 62 5 E. Training and Advice 3.9 19.0 22.9 0.1 0.7 0.9 83 3 Total BASE COSTS 417.6 396.6 814.2 15.8 14.9 30.7 49 100 (September 1984 prices) Physical Contingencies 40.8 37.5 78.3 1.5 1.4 3.0 48 10 Price Contingencies 163.2 99.6 262.8 6.2 3.8 9.9 38 32 Total PROJECT COSTS 621.6 533.7 1,155.3 23.5 20.1 43.6 46 142 3.13 A quantity contingency of 5X has been allowed on equipment, spares and technical assistance to allow for any omissions, and 10% on the works program. For price increases, the following contingencies have been allowed: Plant, Equipment Local Costs Other Foreign Costs 1985/86 12.0 8.0% 1986/87 11.0 9.0% 1987/88 10.0 9.0% 1988/89 9.0 9.0% 1990-- 7.5% 6.0% Source: IBRD estimates Cost estimates for plant and equipment are updated from bid prices received during 1983. Estimates of cost of works are based on cost experience for similar works during the first roads project and other recent contract works. Because road works of this size involving foreign contractors, had not been bid in Sri Lanka for many years, bids were invited and have been obtained for the first two major contracts before Board presentation. Prices are in line with the project estimates.  -18- E. Financing 3.14 The proposed loan of US$24.0 million would finance about 552 of total project costs, i.e., all foreign -osts (US$20.1 million) and about US$3.9 million of local costs. The financing plan is given in the table below: ------------------- US$ millions ---------------