Sri Lanka - Third Roads Project

Document of The World Bank FOR OFFICIAL USE ONLY - 27J'3 c - Report No. P-5348-CE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 30.6 MILLION TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A THIRD ROADS PROJECT OCTOBER 3, 1990 This document has a restricted distribution and may be used by recipients only in the performnince of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND EOUIVALENT UNITS (As of April 1990) Currency Unit - Sri Lanka Rupee (SL Rs) SL Rs 40.0 US$1.00 SL Rs 1,000 US$25.00 WEIGHTS AND MEASURES 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 0.62 mile (mi) 1 hectare (ha) 2.48 acres (ac) 1 ton c 2,208 pounds 1 ton-km - 0.62 ton-mile 1 passenger-km - 0.62 passenger-mile ABBREVIATIONS EDCF - Economic Development Cooperation Fund (Republic of Korea) RDA - Road Development Authority FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRILAK THIRD ROADS PROJECT Credit and Prolect Summary Borrower: Democratic Socialist Republic of Sri Lanka Beneficiary: Road Development Authority (RDA) Amount: SDR 30.6 million (US$42.5 million equivalent) Terms: Standard, with 40 years maturity Onlending Terms: N/A Financing Plan: Government - US$13.5 million Economic Development Cooperation Pund (EDCF) Republic of Korea - US$14.5 million IDA - US$42.5 million Total USS70.5 million Economic Rate of Return: 33.1% Staff Avpraisal Report: Report No. 8816-CE IBRD No. 22434 This document has a restricted distribu'ion 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A THIRD ROADS PROJECT 1. I submit for your approval the following memor-ndum and recommendation on a proposed development credit to the Democratic Socialist Republic of Sri Lanka for SDR 30.6 million (US$42.5 million equivalent). The proposed credit would be on standard IDA terms with 40 years maturity and help finance priority requirements of repair and restoration of roads and bridges to the national network and strengthening institutional capabilities to monitor, control and execute projects more effectively. The project would be cofinanced by the Economic Development Cooperation Fund (EDCF), Republic of Korea, for US$14.5 million equivalent. 2. Background: Sri Lanka has a relatively extensive and well-developed road network which evolved during the last century to service the island's plantations. It comprises about 10,440 km of national roads under the responsibility of the Government's Road Development Authority (RDA), 15,300 km under the Provincial Councils and 52,200 km under local governments. The transport sector responded to the 1977 liberalization by di'rersifying and expanding rapidly, mainly through private bus and truck operations; road transport now accounts for more than 80% of both freight and passenger services. Growth of traffic and increased unregulated axle loads have placed a severe burden on the aging road network. Due to inadequate funding for maintenance and rehabilitation of the network, the pace of pavement and structure deterioration has increased. These factors combine to eause low average traffic speeds, high operating costs and frequently dangerous conditions. Flooding and landslides in 1989 caused significant damage to roads in some regions and the overall network has suffered considerable damage during the extended period of civil disturbances. At this point, the network requires extensive restoration to arrest further deterioration and reduce maintenance costs. 3. Rationale for IDA Involvement: IDA has long supported the Government's efforts to develop its transport infrastructure. After an early highway project in 1968 was cancelled over policy disagreements, there was a hiatus until the first Road Maintenance Project (Credit 900-CE of 1979; PCR No. 8000, August 1989) which became the turning point in IDA's dialogue with the Government on highways, as agreement was reached on the importance of rehabilitation and maintenance. The ongoing Second Roads Project (Loan 2517-CE, appro-ed in April 1985) is nearing completion and builds on the earlier project. There have been significant cost increases on some contracts due to procurement and contract management problems. Through dlose coordination with RDA, these problems have been resolved, but have resulted in several components being deleted due to unavailability of funding. Physical implementation of major roads and bridges completed under the project has been very good, with sustainability and full benefits realized. The Emergency Reconstruction and Rehabilitation Project (Credit 1833-CE, approved in March 1988) also includes reconstruction of roads mainly in the North and Eastern Provinces. The project has disbursed slowly as civil disturbances have been protracted; when the political situation stabilizes, we expect disbursements relating to those areas to improve gradually. The Road Passenger Transport Project (Credit 994-CE of March 1980; PCR No. 8011, August  -2- 1989) continued the implementation of the Government's and IDA's sectoral development strategy by focussing on policy constraints which prevented private sector participation in bus transport and highlighted the complexities and inefficiencies of public sector bus operation. The Economic Restructuring Credit (Credit 2128-CE, May 1990) moved this process a step forward by including a component to help the Government fully privatize the bus transport sector. Deregulation of bus fares has been agreed and discussions have been held for the establishment of a transport regulatory authority with powers to enforce safety standards and to control operations of new or additional services. 4. The proposed project is a key module in the Government's medium-term investment program for the road sub-sector and also supports key recommendations of the Transport Sector Review (now under preparation) in terms of investment planning and institutional improvement. It builds on the lessons derived from earlier projects and thus emphasizes rehabilitation with appropriate standards, close attention to operations and maintenance and effective cost control. Earlier procurement and contract management problems were due to confusing arrangements between the client, the engineer, and contractors, and have been addressed under the proposed project. 5. Apart from IDA, the Asian Development Bank and a number of bilateral agencies, principally from Japan and the United Kingdom but including the Republic of Korea under this project, have supported the road subsector. While local coordinating meetings between the Government, IDA and other donors are held regularly on transport issues, this project, would enable IDA to assist the Government coordinate the work of other donors in the development of a long-term sectoral strategy. 6. Proiect Objectives: The project's objectives are to: (a) reduce the road transport cost and delays of passengers and goods by restoring major trunk roads to better operational condition; (b) help to restore priority road infrastructure damaged by flooding and landslides in May/June 1989; (c) enhance the institutional capabilities of RDA to increase the quality and extent of road maintenance and rehabilitation; and (d) upgrade RDA's capacity to supervise and execute rehabilitation works and to stimulate the local road contracting industry. 7. Proiect Description: The project, to be implemented over an eight-year period by RDA (coinciding with the standard country project implementation profile), includes: (a) rehabilitation of about 420 km of primary and secondary trunk roads and strengthening, repair, widening, redecking or replacement of 24 bridges; (b) urgent repair, rehabilitation and reconstruction of selected roads and associated structures damaged as a consequence of the 1989 floods and landslides; (c) procurement of vehicles, microcomputers, survey equipment, computer software and office equipment to facilitate road works monitoring and control; and (d) technical assistance and consultancy services to strengthen RDA's capabilities to monitor, control and execute contracts more effectively, and implement key operational and institutional reforms through special studies. 8. The total cost of the project is US$70.5 million, with a foreign cost component of US$40.3 million. The prcject was prepared using US$340,000 of funding from IDA's Project Preparation Facility. Retroactive financing of US$1.5 million is recommended for civil works and consultancy services, to cover  -3- the costs of flood rehabilitation works and for final engineering designs for preselected road sections. The retroactive financing represents 3.5% of the credit amount. The Government has secured US$14.5 million from the EDCF, to finance one major road contract and its associated structures. The proposed EDCF loan would he at 3.5% for 20 years including five years of grace. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key processing events and the status of Bank Group operations in Sri Lanka are given in Schedules C and D, respectively. A map is also attached (IBRD No. 22434). The Staff Appraisal Report No. 8816-CE dated October 3, 1990 is being distributed separately. 9. Agreed Actions: Agreements were reached with the Government during negotiations that: (a) an action plan will be updated and reviewed annually by IDA which includes budgetary allocations for RDA and other agencies to ensure that services and resources from agencies of the Government, including RDA, will be forthcoming during project implementation; (b) consultants for the Road User Charges Study will be appointed by April 15, 1991; (c) consultants for the study on the Domestic Road Contracting Industry will be appointed by May 15, 1991; (d) consultants for the study on Road Materials, Design and Construction Standards will be appointed by September 30, 1991; (e) recommendations resulting from these three studies will be implemented in consultation with IDA; and (f) Government will meet its share of project costs according to the financing plan. Conditions for effectiveness of the credit are the establishment of a Project Management and Monitoring Unit within RDA, the appointment of an expatriate advisor, and two RDA counterpart staff acceptable to IDA. 10. Environmental ImRact: The project will have significant environmental benefits as it will improve road safety, reduce user discomfort, allow a smooth flow of traffic and improve drainage with a consequent lowering of current levels of traffic noise, dust and air pollution and a reduction in the present susceptibility to flooding of the roadside dwellings and urban areas. Project works lie within a road reserve which has served the same purpose for many decades. Since the proposed road and bridge works involve no major earthworks, realignments or changes in natural drainage, there will be no adverse intrusion into the environment and no resettlement issues are envisaged. Provisions will be incorporated in the contract documents for roadworks and bridgeworks to provide environmental safeguards during and after construction is completed. 11. Benefits: The overall economic rate of return is estimated to be 33.1%. The cost of rehabilitating the project roads and bridges is relatively small compared to the large and immediate benefits obtained from improving the conditions of the road platform and the riding surface. Transport savings made possible by the project would be passed on to the users in the form of lower operating costs and increased product availability. The Sri Lankan population is highly mobile and the benefits of the project are expected to be widely distributed among all segments of the population, including poverty groups. The project is expected to result in: (a) better network integration, reduction in road maintenance costs, avoidance of serious deterioration and bridge and road closures and accidents; (b) lower freight transport costs which will ease the movement of industrial and agricultural goods; and (c) lower passenger transport costs and travel time which would increase the general accessibility of project areas. Further, the improvement of RDA's planning and management capabilities  -4- would help to ensure timely implementation and early accrual of benefits of future projects. The project does not target poverty groups directly, but project roads have been selected for their high return, which are expected to include low income users. The flood rehabilitation component is expected to directly assist rural low income families by restoring access for agricultural inputs/outputs. The project supports privatization through assistance to the local contracting industry. Although the project does not address women in development directly, it is expected to generate labor-intensive employment opportunities for all dwellers in the vicinity of project works. 12. Risks: The major risk is the unstable security situation in the country which could affect implementation and costs. Although the political situation has shown some signs of improving, measures are proposed under the project to closely monitor implementation and control costs. To this end, flexibility has been incorporated into the implementation schedule to allow for the initial contracts to be in areas unaffected by political unrest. Works will be initially awarded at annual intervals in order to monitor the situation and enable the timing of the later contracts to be adjusted to prevailing conditions. Similarly, changes in fuel prices resulting from the current volatile situation in the Middle East may materially affect project costs, although it is too early to make a judgment at this point. A second risk is the possible weakening of Government's commitment to maintaining rehabilitated project roads. This would be minimized by continued monitoring of the annual maintenance budgets, the adequacy of which will be reviewed jointly. Another risk is the possible overextension of RDA's engineering and management capacity by ongoing and future commitments. This would be addressed by providing for supervision of project implementation with consultants, and by strengthening PDA and improving its efficiency through technical assistance and training of its staff in contract administration, management and cost control. 13. Recommendation: I am satisfied that the proposed credit complies with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. October 3, 1990  -5- Sehedule A SRI LANRA THIRD ROADS PROJECT Estimated Costs and Financing Plan Estimated Costs a/ Local Foreign Total -------(US$ million)------- Civil Works (Roads and Bridges) 20.9 27.9 48.8 Road Flood Rehabilitation 1.7 0.6 2.3 Equipment 0.1 0.1 0 2 Technical Assistance Project Support 2.3 2.4 4.7 Policy Development 0.2 0.6 0.8 Project Preparation Facility 0.0 0.5 0.5 Total Base Costs .52 32.1 57.3 Physical Contingencies 2.1 2.6 4.7 Price Contingencies 2.9 5.6 8.5 Subtotal Contingencies 5.0 8.2 13.2 TOTAL PROJECT COSTS 30._2 403 70.5 a/ The total cost, net of taxes and duties (US$8.3 million), is US$62.2 million. Figures may not total because of rounding. Financing Plan Local Foreign Total -------(US$ million)------- Government 13.5 0.0 13.5 EDCF (Republic of Korea) 4.3 10.2 14.5 IDA 12.4 30.1 42.5 Total 30.2 4_03 Z37;  -6- Sehedgle8 TID RDDNS ? grecurint Nethad and Disbursements A. Procurement ProPurement Method Total Project Element ICB LCB Other Cost ------------