Sri Lanka - Municipal Management Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16503 IMPLEMNENTATION COMPLETION REPORT SRI LANKA MUNICIPAL MANAGEMENT PROJECT (Cr. 1697-CE) April 17, 1997 Infrastructure Operations Division Country Department I South Asia Region This document 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 (June. 1996) Currency unit = Sri Lanka Rupee (SL Rs) SL Rs 1.00 = US$ 0.0182 US$ 1.00 SL Rs 54.969 FISCAL YEAR OF BORROWER January I - December 31 ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank CMC - Colombo Municipal Council GOSL - Government of Sri Lanka LGDP - Local Government Development Program LLDF - Local ltoans Development Fund MDTU - Management Development Training Unit MIS - Management Information System MLGHC - Ministry of Local Government, Housing and Construction MMP - Municipal Management Project NHDA - National Housing Development Authority NWSDB - National Water Supply and Drainage Board OP - Operational Plan PC - Provincial Council PS - Pradeshiya Sabhas ULA - Urban Local Authority UNDP - United Nations Development Program UPU - Urban Program UTnit USAID - US Agency lor International Development Vice President: Mieko Nishimizu Director: Fakhruddin Ahmed (Acting) Division Chief: Marie Robinson Staff Member: Graeme Lee (Sr. Municipal Finance Specialist)  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT SRI LANKA MUNICIPAL MANAGEMENT PROJECT (Cr. 1697-CE) Page No. Table of Contents PREFACE ..................................1 EVALUATION SUMMARY .................................. 2 PART I - PROJECT IMPLEMENTATION ASSESSMENT A. Statement/Evaluation of Objectives .................................5 B. Achievement of Objectives ..................................7 C. Major Factors Affecting the Project ...................................9 D. Project Sustainability ................................. 10 E. Bank Perfonnance .................................. 11 F. Performance of Borrower .................................. 11 G. Assessment of Outcome ................................. 12 H. Future Operation ................................. 13 I. Key Lessons Learned .................................. 14 J. Evaluation of Program Objective Categories ................................. 15 PART 11- STATISTICAL TABLES Table 1 Summary of Assessments Table 2 Related Bank Loans/Credits Table 3 Project Timetable Table 4 Loan/Credit Disbursements: Cumulative, Estimated and Actual Table 5 Key Indicators for Project Implementation Table 6 Key Indicators for Project Operation Table 7 Studies Included in Project Table 8A Project Costs Table 8B Project Financing Table 9 Economic Costs and Benefits Table 10 Status of Legal Covenants Table 11 Compliance with Operational Manual Statements Table 12 Bank Resources: Staff Inputs Table 13 Bank Resources: Missions APPENDICES A. Mission's Aide-Memoire (with Operation Plan) B. Borrower's Evaluation This document 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.   IMPLEMENTATION COMPLETION REPORT SRI LANKA MUNICIPAL MANAGEMENT PROJECT (Cr. 1697-CE) Preface This is the Implementation Completion Report (ICR) for the MUNICIPAL MANAGEMENT PROJECT in SRI LANKA, for which Cr. 1697-CE in the amount of SDR 11.3 million equivalent was approved on May 13, 1986 and made effective on September 18, 1986. The credit was closed on June 30, 1995, one year behind the originally scheduled closing date. About 78% of the credit was disbursed, and the last disbursement took place on November 10, 1995. The balance of unutilized SDR 2,506,994.98 was canceled effective January 22, 1996, the date on which the final transaction, a refund of unused funds in the special account, took place under this project. The ICR was prepared by Alistair Blunt (Consultant) and Toshiaki Keicho (SAIIN), under supervision of Graeme Lee (SAlIN), and reviewed by Marie Robinson, Division Chief, and Fakhruddin Ahmed, Project Advisor. The borrower provided its own evaluation, and this is included as appendices to the ICR. Preparation of this ICR was begun during the Bank's final supervision/completion mission, June 1995. It is based on material in the project file, discussions with implementing agency officials, and comments received from a former Bank task team for the project. The borrower contributed to the preparation of the ICR by preparing its own evaluation of the project's execution and initial preparation, by providing comments on the draft ICR, and by cooperating with the Bank ICR team.   2 IMPLEMENTATION COMPLETION REPORT SRI LANKA MUNICIPAL MANAGEMENT PROJECT (Cr. 1697-CE) Evaluation Summary Introduction 1. During the early 1980s, the Urban Local Authorities (ULAs) in Sri Lanka were facing increasing difficulty to mobilize funds for urban services. ULAs were becoming progressively dependent on the national treasury, and the share of the expenditures covered by locally generated revenues was decreasing. Given these situations, the Government of Sri Lanka (GOSL) began to prepare a national strategy for improving the managerial, financial and technical capacities of ULAs. 2. The project was identified during the preparation of the Urban Sector Study, which included a broad review of Sri Lanka's urban policies and prograrns. After the project's objectives, scope and preparation schedule were agreed with Government, the Ministry of Local Government, Housing and Construction (MLGHC) decided to establish the Urban Program Unit (UPU) as the focus of sector policy development and for preparing a municipal management project. The project was approved on May 13, 1986 and made effective on September 18, 1986. Project Objectives 3. The objectives of the project were to support the GOSL's sector policy and to strengthen the capacity of MLGHC for improving the managerial, financial and service delivery performance of ULAs. 4. Although these objectives supported the emerging sector strategy of the country, the project design failed to anticipate the extent to which Sri Lanka's complex political and institutional circumstances, the ethnic conflict, and fiscal devolution issues would affect the project. Imnplementation Experience and Results 5. The project contributed to improving management practices, book keeping, accounting, and local resource mobilization. It was less successful in its aim to strengthen MLGHC in sector development and to improve the service delivery performance of the ULAs. 6. The project achieved only limited success in the areas of urban management and policy. The required studies were completed, a performance improvement program is being utilized for all ULAs, a management information system was developed, and proposals have been made for a follow-on project. However, the failure to retain experienced UPU staff jeopardizes the full impact and long-term sustainability of the project. There is little evidence that the project strengthened the policy-making capabilities of MLGHC and other ministries. 7. The project contributed to improving financial performance of ULAs. Based on the available data, it is seen that the total revenue of ULAs increased significantly during the course of the project, mainly due to the growth in locally-generated revenues. This meant that the ULAs became less dependent on the transfers from the central government and more autonomous after the project. The percentage of recurrent expenditure covered by local revenues has been almost constant, with ULAs' expenditures keeping pace with the growth of the local revenues. The ULAs are now devoting more, in per capita terms, to repairs and  3 maintenance. In addition, all ULAs introduced new accounting systems and now prepare final accounts more quickly at the financial year-end. Property assessments were carried out in all ULAs, and tax revisions were introduced in more than half of the local authorities. Furthermore, while the Government ended the performance-related grant system, UPU continued awarding prizes for improved performance. Some Provinces have now adopted this system themselves. 8. A limited number of pilot projects were carried out under the project. However, the delay in starting the pilot projects contributed to the under-spending in this component of the project. Therefore, it cannot be considered to have been completed. In addition, the mapping component was not undertaken as planned. 9. With the inclusion of the eight Provincial Councils and the 236 Pradeshiya Sabhas after the change in the local government structure in 1987, more training courses were conducted than originally conceived. However, considering the high staff turnover, the objective of institutional development was only partially achieved. 10. Many factors that affected the project were political ones, reflecting the political nature of local government. These included the changes in the local government structures, the widespread civil unrest during the implementation period, elections, and the change in central Govenunent. Other factors included the delay in appointing a Project Director, and the lack of a performance-oriented and incentive-based government employment policy to attract and retain better-skilled staff. 11. The sustainability of the project is unlikely. Although the performance of the local governments has improved during the course of the project, particularly in the area of financial management, financial performance tends to be subject to extemal factors such as elections. Another factor that makes the project sustainability unlikely is inadequate institutional capacity. Although the project prepared training courses, manuals and handbooks for public officials, some courses were soon terminated and the manuals not utilized. The training capacity in Sri Lanka's public sector continues to depend on funds being made available on a regular basis. Also, the failure to retain skilled personnel trained under the project adversely affected the project sustainability. 12. Bank's performance was generally satisfactory except appraisal. In retrospect, it would have been better had the project design taken on more of a program approach and allowed for greater flexibility in its design. This would have enabled it to respond faster to the unforeseen political changes. 13. The overall performnance of the Borrower was satisfactory during both preparation and implementation. The Borrower also complied with the covenants, but for a few exceptions. Most of the studies were completed, and the tasks identified including the human resource development, the improvement in resource mobilization, and financial management were undertaken with the exception of the Base Mapping component. However, very few pilot projects to improve the service delivery of the ULAs were carried out. 14. The overall outcome of the project is unsatisfactory since the project failed to achieve several of its major objectives. Of the project objectives, the only one that was achieved was improvement of the financial management of the ULAs. Local resource generation also increased, although it is not clear to what extent this was due to the project. The service delivery objective was not met. In addition, the objective of strengthening the central ministry was not achieved since UPU was apparently disbanded, and most of the original staff have left.  4 Summary of Findings. Future Operations, and Key Lessons Learned 15. The plan for future operations identifies a number of key indicators which relate mainly to the establishment of the agreed institutional arrangements and the following up of actions on reports and recommendations, etc. However, quantitative and qualitative performance indicators should further be developed and monitored. 16. The key lessons learned from the project include the following: a) Projects which aim to strengthen political institutions and affect the system of governance tend to be more vulnerable to changes in Government. To overcome this, the Bank needs to be prepared to re- establish ownership of the project by the new administration. b) Projects with long-term objectives are more susceptible to changing macro-economic and political situations. Such projects need to have as clear objectives as possible, but allow greater flexibility in the tasks to be undertaken. c) Borrowers must be fully aware of the need for institutional development and the long-term finrancial benefits it will produce. Also, in order to achieve sustainable institutional development, an incentive system that will attract and retain the right caliber of staff to public service is needed. d) Those projects experiencing problems require an intensive program of missions. e) Performance indicators should be identified in terms of the long-term objectives of the project. They should also measure the qualitative improvements that projects can bring.   5 IMPLEMENTATION COMPLETION REPORT MUNICIPAL MANAGEMENT PROJECT (Credit No. 1697-CE) A. EVALUATION OF OBJECTIVES The Context 1.1 While the urban population of Sri Lanka is relatively small and not growing as fast as other countries within the region, it was expected to be almost a quarter of the population by the end of the project. Nevertheless, in the early 1980s Urban Local Authorities (ULAs) were facing difficulty to mobilize funds to open up and service new urban areas. They were becoming increasingly dependent on the national treasury to meet operating budgets. The share of the expenditures covered by ULAs' locally-generated revenues had decreased from 44% in 1977 to 22% in 1982, and was projected to fall further, below 20% by the end of the decade. While the basic powers and structures of the 39 urban and 12 municipal councils were suitable, in principle, to provide strong city government, the expenditures that councils could make were limited by law, and many of the powers to raise revenues were under-utilized. The 1984 Urban Sector Study highlighted the importance of strengthening the financial capacities of both the ULAs and national agencies, like the National Water Supply and Drainage Board (NWSDB), through sustained technical assistance. 1.2 In recognition of these facts, the Government of Sri Lanka (GOSL) began to develop new strategies for the allocation of grants based on performance, and established the Urban Program Unit (UPU) to prepare a national strategy for improving the managerial, financial and technical capacities of ULAs and to prepare a program for its implementation. The first two phases of technical support for ULAs were funded by UNDP (SRL/84/042) and executed by the Bank. The objectives of these first phases were: i) to support the Ministry of Local Government, Housing and Construction (MLGHC) develop a national urban policy and also, a program to enhance the performance of the ULAs; ii) to help establish the UPU, and iii) to prepare the feasibility study for the Municipal Management Project (MMP). Therefore, MMP covered what was seen as Phases III and IV of the series of technical support for ULAs. MMP was approved on May 13, 1986 and made effective on September 18, 1986. 1.3 A proposed solution to the civil conflict in the Northem and Eastern Provinces resulted in changes to the local government structure and the creation of the Provincial Governments under the Provincial Council Act No. 42 of 1987, as well as the replacement of District Development Councils by Pradeshiya Sabhas (PS) under the Pradeshiya Sabhas Act No. 15 of the same year. Hence, MMP was restructured under Phase IV, to include the new Provincial and PS authorities, as well as for the completion of the tasks still outstanding under the original Terms of Reference. The Objectives 1.4 The objectives of MMP were to strengthen MLGHC organization in sector development and to improve the managerial, financial and service delivery performance of ULAs.  6 1.5 These objectives were to be achieved through improving central government administration and sectoral policy making, building up the financial capability of local authorities, and improving local government service delivery. The project consisted of the following five components: (a) review of MLGHC structure to assist the implementation of reforms including assistance to UPU, Colombo Municipal Council (CMC) and ULAs, in particular their administration, information systems and procedures, and staff capabilities; (b) improvement of the financial performance of local authorities and the rationalization of the system for allocating grants and providing loans for development; (c) improvement of service delivery by undertaking pilot demonstration projects that would provide the basis for guidelines, standards and procedural manuals for the ULAs, including guidelines for undertaking the preparation of local plans for shelter, drainage, and traffic management; (d) provision of technical assistance, training and equipment to prepare improved urban base maps; and (e) establishment of a training unit within UPU to conduct training programs in managerial, financial and technical areas, and the development of a long-term human resources strategy for the ULAs. Evaluation of Objectives 1.6 The main emphases of the project were institutional strengthening at the center and financial management and service delivery at the local level. While these emphases were justified since they supported the emerging sector strategy, they did not include strengthening the capacity of ULAs in the broader physical planning process. Although the priority was rightly placed on improving the financial and budgetary operations of ULAs, the link between budget preparation, setting of income generation targets and future infrastructure requirements, establishing priorities for investrnents, and their downstream operational and maintenance costs was not made explicit'. 1.7 It is clear that the project design and objectives failed to anticipate the extent to which Sri Lanka's complex political and institutional circumstances, the ethnic conflict, and fiscal devolution issues would affect the project. A further problem for all projects that aim at strengthening political institutions is the risk of being perceived as supporting a particular political party's interests. While lack of political support was seen as a risk, this was interpreted in terms of the sensitivity to the specific reforms proposed and not because changes of government may lead to reduced ownership of the project by the new administration. This was proposed by the GOSL in September 1992 but rejected by the Bank as too great a task. Instead a Provincial development plan was proposed with the PS and ULAs submitting investment proposals to be evaluated at Provincial level. No suggestions were made how priorities would be identified at the local level for submission to the Provincial.  7 B. ACHIEVEMENT OF OBJECTIVES 2.1 The project document did not contain specific performance indicators whereby the success of the project could have been measured, except in terms of the tasks to be fulfilled. However, progress in all the main components implemented can be evaluated. These include: local resource mobilization; financial management; government transfers to ULAs; urban service delivery; and human resource development. Data on each of these issues is available, though they are unreliable and incomplete (see Tables 5.1 to 5.5). Based on the data, it is seen that the project has contributed substantially to improving management practices, book-keeping, accounting, and mobilizing local resources, as well as some aspects of financial performance and service delivery. But it has been less successful in its aim to strengthen the Ministry's organization in sector development. Urban Management and Policy 2.2 The required studies were completed, a performance improvement program is being utilized by the Provinces for all ULAs, a management information system (MIS) was developed and proposals have been made for a follow-on project. The recommendations made under various studies included the grant formula for the Provincial Councils, the revised accounting procedures, and the institutionalization of MIS. However, there has been a high turnover of staff in UPU, and the failure to retain experienced UPU staff to follow up on the implementation of these recommendations would seem to jeopardize the full impact and long-term sustainability of the project. 2.3 The project did usher in a change in the traditional understanding of the central Government-local authorities relationship, facilitating the replacement of the concept of control with one of support and encouragement. There is little evidence, however, that it strengthened the sector policy-making capabilities of government Ministries. Had the project been undertaken in a more stable political environment, it may have been able to concentrate more on such policy issues as the devolution of power, the roles of the various levels of government and the manner in which they should relate to each other. 2.4 The support to the organization of CMC included a review of the work of the solid waste department and site identification for a final solid waste disposal site, a twinning arrangement between the financial and accounts departments and their counterparts m the local authority for Stafford, UK, and training in management on courses prepared and funded by the project. Financial Management and Resource Mobilization 2.5 No internal rate of return can be estimated for this project. Based on the available data, however, it is seen that the total revenue of ULAs significantly increased during the course of the project. This was mainly due to the growth of locally-generated revenues. Though the improvements were not always consistent, the proportion of the local revenues in the total revenues of ULAs rose from 52% in 1985 to 71% in 1992, making them less dependent on the transfers from the central government and more autonomous after the project. The percentage of recurrent expenditure covered by local revenues had been almost constant around 70% to 80%, with ULAs' expenditures keeping pace with the growth of the local revenues. They are now devoting more, in per capita terms, to repairs and maintenance (see Tables 5.1 and 5.4). 2.6 During Phase III, all ULAs had introduced new accounting systems. A new system for the PSs has been developed, and has been implemented in some PSs, although the Provincial Councils have yet to formally accept it.  8 2.7 While the Government ended the performance related grant system in 1989, UPU continued awarding prizes for improved performance using the government's consolidated fund. Some Provinces have now adopted the scheme themselves. A study was undertaken on developing a policy for rationalizing the grants system. This policy was proposed to the Provincial Councils, but, to date, no action has been taken. Service Delivery 2.8 It is too early to determine the impact of the limited number of pilot projects on the level of service in local authorities. To maximize the impact of the limited opportunities to demonstrate techniques, the variety and location of the pilot projects were carefully selected. However, the delay in starting the pilot projects contributed to the fact that there was much under-spending in this element of the project. Consequently, it canmot be considered to have been completed. 2.9 Of the specific sub-sectoral studies identified, only the study on municipal drainage was undertaken. But a manual prepared under this study is yet to be utilized more broadly due to lack of training programs. Studies on the local authority's role in shelter programs, traffic management for CMC and public transport systems in larger ULAs were not undertaken, the first being the responsibility of the National Housing Development Authority (NHDA) and the subject of assistance from USAID. 2.10 For CMC, a study of potential final disposal sites for city's solid waste and an environmental impact study were undertaken. A site identified in the study, Welisara, has been selected to be developed into a sanitary landfill. Four special courses for those involved in the solid waste project were prepared and run, and some equipment purchased. Mapping 2.11 This task was not undertaken as planned for a number of reasons. First, the insurrection in various parts of the country led to security regulations which prohibited aerial photography in much of the country. Second, MLGHC was reluctant to use project money to fund the training of members of other ministries. Third, initially it was thought that an ADB-funded Urban Sector project would provide the maps, but it was later found that these were of a smaller scale. Lastly, Bank's procurement procedures did not permit the direct appointment of a firm of consultants, already operating in Sri Lanka with an aircraft, which was prepared to undertake the work. However, updated inventories of services and infrastructure were completed for many areas by enlarging existing maps. Human Resource Development 2.12 The project objectives included the development of the human resources available at all levels of Government. With the inclusion of the eight Provincial Councils and the 236 Pradeshiya Sabhas in Phase IV, more councils were benefited and more training courses were conducted than originally programmed. While the Provinces have Management Development Training Units (MDTU), the development of the institutional infrastructure for supplying training and technical assistance to the local authorities is in its infancy. Though all Provinces have received training equipment, it is too early to say whether the efforts initiated by the project will mature. As the Government has been unwilling to retain the services of the personnel from UPU and has yet to set up a fully functional unit to which the experience can be passed, the public sector in general, and the sub-national governments at which this project was aimed are unlikely to receive the full benefits of the training and the experience gained.  9 C. MAJOR FACTORS AFFECTING THE PROJECT Political Factors 3.1 When the project began it was not possible to foresee the impact of the civil unrest in the Southem Province, but more significantly in the Northem and North Central Provinces. The widespread unrest in 1988/89 led to the virtual suspension of operations outside Colombo. The Peace Accord, which resulted in the 13th Amendment of the Constitution, redefined the balance of power between the central and local govermments, introducing a strengthened intermediate layer of govemment at provincial level, and necessitating that UPU work through the provinces. Further changes in policy saw the replacement of District Councils with Pradeshiya Sabhas (PS), which led to requests by GOSL to extend the coverage of the project beyond the ULAs to both the Provincial Councils (PCs) and PSs. 3.2 Secondly, during the lifetime of the project there were six elections: presidential, national, and local. During the campaign periods before elections and immediately after, work with the ULAs was limited. Over the nine years of the project this represents approximately 12 to 18 months. Finally, the changes in Government led to reduced ownership of the project in its closing stages, which has had consequences both in terms of the completion of the work and the sustainability of the local govemment strengthening processes established by the project. Lack of Project Director 3.3 The lack of a project director for much of the life of the project is an important factor in implementation delays. Although support from the Secretary of MLGHC (and later the Ministry of Finance, Policy Planning and Programming) in the early days was unwavering, and important decisions were made at that level in the absence of a Director, the failure to appoint a Director had an impact on the work of UPU. Without a Director, critical decisions were delayed, and there was a lack of follow-up on actions required by the Bank. Institutional Structures 3.4 The establishment of a third layer of local government -the PCs- took away the direct access of local authorities to central government. The introduction of this layer had the short term effect of making it necessary for UPU to adjust its manner of operation (see above) and created demands from the Ministry that it should extend the training to these councils also. Furthermore, the political origins of the structure caused considerable doubts to be expressed in parts of the Ministry as to its long term viability, adding to the uncertainty generated by the change. Govenmment Employment Policy 3.5 The current employment policy of the government provides little incentive to higher productivity. If the Government is to attract and retain staff of the right caliber, it should be able to offer them performance based incentives. Otherwise, the institutional strengthening measures attempted under the project can yield only very limited results, and sustainable institutional development is unlikely.  10 D. PROJECT SUSTAINABILITY 4.1 The sustainability of the project is unlikely, considering the following three factors: (a) the impact of the project on the operational performance of the local governments; (b) the institutional capacity to continue providing the necessary support to the efforts to improve the practices of the local authorities; and (c) the continued availability and involvement of skilled and motivated staff in government and private sector agencies concerned with the delivery of local services. 4.2 The performance of the local governments has changed markedly during the course of the project, particularly in the area of financial management. New methods of accounting have been introduced in all the urban local authorities and 86% of all local authorities. Property assessments have been carried out in all urban local authorities and all the PSs with "town" areas. Tax revisions have also been introduced by 57% of the local authorities. One impact of these changes is seen in the figures of annual final accounts completed. Between 1993 and 1995, the number of outstanding final accounts dropped over 70% in the seven provinces covered by the project. Likewise, figures on the proportion of operating budget of the local governments covered by Central Government transfers showed a significant decline between the years 1983 and 1984, and 1991 and 1992 (the latest year for which figures are available). However, such performance tends to be subject of external factors such as the proximity of national or local elections. 4.3 Further, the failure to develop adequate institutional capacity to monitor and develop strategies or to carry out key tasks, will affect the sustainability of these improvements. At the central level, while the Ministry agreed to retain the services of some key members of UPU to wind up the work of the project and hand it over to a small new unit, key members of the original UPU show a reluctance to continue working in the unit. At the local level, the failure to institutionalize the Provincial Valuation Units proposed makes further asset valuation on a regular basis unlikely. 4.4 On the sustainability of the human resource development capacity, the project prepared training courses, manuals and handbooks. Some of the training courses were lodged in existing training institutions. Of the eight such courses developed during Phase III (1986-89), only four were still running in Phase IV (1993-95). Of these, one is the basis for two new courses, while the remaining three are continuing with German funding. Twelve courses were developed in Phase III to be provided by UPU, of which five continued in Phase IV. Four will continue being provided by the provincial training units, while one has covered all the local authorities concerned and will in future only be provided through on-the-job training. Of the seven discontinued, two courses were for electrical services, which are no longer the responsibility of the local authorities, four were stopped for lack of demand, and one, on solid waste management, because of dearth of trainers. 4.5 Four courses were developed under Phase IV of the project and lodged with an outside training institute. Of these, one was for the UPU staff, two others ceased for lack of funding, and the fourth will cease if funds are not made available. Three other courses were designed for delivery by UPU or other qualified trainers at the province level. The first uses trainers available in the provinces. The second, the training of trainers for project formulation, was undertaken once and needs appropriate budget provision to continue. Finally, the third, on resource-mapping, was undertaken only once in one location. 4.6 While the institutional training capacity is being developed at the provincial level, it is clear from the data presented that sustainability depends on funds being made available on a regular basis. This will occur only when the national, provincial and local authorities appreciate that the training brings real benefits that can be measured in terms of a more efficient use of resources and potential savings. There appears to be no plan for putting this message across to the responsible authorities, and thus it is likely that such programs will be the first to be neglected when resources are low.  11 4.7 On the retention of skilled personnel, it is debatable whether people who participate in such a project and receive formal (national and overseas) training through the project are ever a totally lost resource unless they work outside the country. Those that have been members of UPU or have been hired as individual consultants to UPU are likely to provide a resource which will continue to benefit the country, even after they have left the project, either as consultants or when transferred to other assignments within government. However, the loss of such people is undoubtedly a blow to the chances of continuing the specific work of the project. The loss is not only of the professional staff, but also the technical and clerical staff who often hold the key to the institutional memory, knowing where the files are kept and on which file information can be located. In summary, without a performance-based incentive system to retain better skilled staff, sustainable institutional development cannot be achieved. E. BANK PERFORMANCE 5.1 The project identification was satisfactory; it responded to the needs which had been identified in the urban sector report and the UNDP-funded Project Feasibility Study. In retrospect, however, it would have been better had the project design taken on more of a program approach and allowed for greater flexibility in its design. This would have enabled it to respond faster to the unforeseen constitutional changes that followed the Peace Accord (see 3.1 above), and to extend assistance for the management of urban development in a more comprehensive manner (see 1.6 above). 5.2 The Bank has followed the standard procedures during the supervision of the project, and its performance was satisfactory. Supervision missions were regular, except for the period from September 1990 to February 1992 when the two missions were spaced eight and nine months apart respectively (see Table 13). This period coincided with the "loss" of correspondence from the client which contributed to the delays in 1991/92 over the finalization of the arrangements for Phase IV. F. BORROWER PERFORMANCE 6.1 The overall performance of the borrower was satisfactory for both preparation and implementation. Firstly, GOSL has complied with all the covenants, except for the performance grants. The system of providing grants to ULAs based on performance criteria was suspended after the Provincial Council system was put in place (see Table 10). While the project was located in four different Ministries during the nine years, the counterpart funding was satisfactory and the project received the support as agreed in the loan covenants, with only minor delays. The under-utilization of funds was because of the changes in the pilot projects, base mapping and assistance to CMC elements of the project. The project management completed all its undertakings, including reporting and accounting responsibilities, and also followed the procurement procedures as specified. 6.2 Secondly, most of the project components were implemented. These included the completion of all the studies identified in the project with the exception of three. These three were: i) a study of MLGHC which was subsequently abolished; ii) the shelter study, as responsibility came under NHDA which had its own program; and iii) the traffic management for CMC and other municipalities, due to the reluctance of CMC to participate in the project. All the other tasks identified, including human resource development, enhanced resource mobilization, improved financial management and service delivery, were undertaken, with one exception of the Base Mapping for reasons already given (see 2.11 above).  12 6.3 The major performance failures were: the delay in appointing a full-time Project Director until 1993 despite repeated requests from the supervising missions starting in 19902; delays in implementing the pilot projects; and, the inadequate provision made following the closure of the project for both the implementation of the study recommendations under the project and the continuing data base development required for sound policy making at central government level. 6.4 In defense of the borrower, the delays in the start of Phase IV were in part due to the decision by the Bank to split Phase IV into two parts. While this appeared necessary because the proposed closing date of the project was too close to allow a two year contract to be signed at that time, there was a clear reluctance within the Bank to push through the further extension of the project until such time that the performance of the borrower was properly demonstrated. The extension was received four months prior to the earlier closing date, but this was too late to avoid the need for a more costly second contract. 6.5 Generally the performance of the consultants, both national and international, has been satisfactory. However, the lead consultants in the early phases tended to concentrate too much time on institutional strengthening of UPU and on adhering too strictly to the letter of the contract. While both are understandable, with the slow mobilization of staff and the nature of the contracts, this resulted in UPU becoming at one time very bureaucratic and less able to respond to changing needs. The performance of the sub-consultants was highly satisfactory. This was particularly true of the local consultants in Phase IV. All the tasks given to them were completed. 6.6 The use of local consultants facilitated the development and dissemination of improved approaches. Other consultants contracted on a direct-hire basis to provide line functions within UPU performed satisfactorily. However, such a system indicates a weakness in the Government's employment policy, since these personnel cannot be retained once the special counterpart funds provided under the project are exhausted. The project also made use of regional consultants, but some doubts have been expressed about the benefit of this, as it is argued that the local government system and culture are not similar and language difficulties remain. G. ASSESSMENT OF OUTCOME 7.1 The overall outcome of the project is unsatisfactory since the project failed to achieve several of its major objectives. Of the project objectives, the only one that was achieved was improvement of the financial management of the ULAs. However, the other objectives were not fully achieved. The service delivery objective was not met since very few pilot projects were carried out and no follow-on project is now contemplated. In addition, the objective of strengthening the central ministry was not achieved since UPU was apparently disbanded, and most of the staff have left. Therefore, the arrangements for future sustainability of the work are not adequate. 7.2 The positive aspects of the project include: (a) increased capability at national and sub-national government levels and in the private sector; (b) training course, materials and manuals; (c) trained trainers, particularly at PC level; (d) improved practices (even if these still require re-enforcing); 2 While the Secretary of State at the MLGHC acted as a stand-in for the Director and made quick and decisive decisions, once he was no longer in that position, the lack of a full-time Director contributed to the delay in the start of Phase IV.  13 (e) improved performance in most sectors of ULA activity; (f) improved infornation systems to monitor local authority performance; and (g) advancement of understanding of issues and problems in setting up strong and capable local government structures. H. FUTURE OPERATION 8.1 The plan for future operations provides for a greatly reduced size core team within the Ministry, which would follow up the implementation of the outstanding parts of the project, continue monitoring the performance of the PCs and the local authorities, and undertake further studies and assistance depending on the means available. The main training function will be undertaken by the PCs, through MDTU. The PCs will also continue the Priority Investmnent Programs for the local authorities. The local authorities will keep in place a training coordinator and will continue efforts to meet the standards established in MMP. To monitor this, they will prepare data on their performance as required by the PCs. 8.2 The plan identifies a number of key performance indicators which relate mainly to the establishment of the agreed institutional arrangements; the following up of action on reports and recommendations; and the publication of complete data on perfornance at the local, provincial and national levels. 8.3 A limitation of the indicators identified in "Operational Plan for Continuing the Work Started" (OP, see Appendix A) is that they concentrate more on 'Inputs" and "outputs" and not sufficiently on 'impacts." There is no guarantee nor effective measure, therefore, that the actions proposed will result in further improvements to the capability and performance of local authorities. However, if the plan is implemented fully as stated, the probability of some further improvement in the performance of local authorities is high. 8.4 If the OP is effected, the basic lessons of MMP should be adequately institutionalized. However, the OP is vulnerable for a number of reasons. Firstly, there is no staff continuity at the center, except for the hand-over period. The reluctance of the old UPU staff to remain in place pro tempore and the relative inexperience of the replacement team limits the effectiveness of this hand-over period. 8.5 It is recommended to follow the progress of implementing the OP in the period immediately following the project, as well as establishing a location at the central government level for the continuous annual monitoring of the perfornance of the local authorities. The performance indicators which should be developed at central level should initially include: (a) the collection performance for local taxes, covering: total collected both in magnitude and as a proportion of total collectable, and change in performance between years; (b) the proportion of operational expenditures covered by local revenues, including measures of change over time; (c) the proportion of capital development expenditure covered by: i) loans from the Local Loans Development Fund (LLDF), ii) other loans; iii) non-government grants; and iv) as part ofjoint venture scheme, including measures of absolute and proportional change each year; (d) the proportion of ULAs and PSs that have loans with LLDF and other sources, by source and annual change; (e) the repayment performance on loans, by source of loan, amount of loan and a size and revenue base classification of local authority; and  14 (f) the proportion of operational expenditure utilizedfor maintenance and repairs, by size/type of local authority, over time. 8.6 Further qualitative performance indicators should be developed over time and, initially, could include: (g) proportion ofpopulation with access to all-season roads orfootpaths, by size/type classification of local authority; (h) proportion of population served by garbage collection, by system of collection and size/type classification of local authority; (i) ratio of population of primary school age to each school, by size/type classification of local authority; (j) ratio ofpopulation to each health center by size/type classification of local authority; and (k) land area brought into urban usage, annual amount and change. I. KEY LESSONS LEARNED 9.1 Context: Political Nature of Project. Projects which aim to strengthen political institutions and affect the system of governance tend to be more vulnerable to changes in the political leadership. To overcome this, the Bank needs to be prepared to re-establish ownership of a new administration. This will require more frequent missions at such times. The Bank could also, at the project design stage, develop mechanisms for guaranteeing the continuation of the work regardless of political changes. 9.2 Project Design: Program Approach to Long-term Technical Assistance Projects. Projects with long-term objectives, like MMP, are more susceptible to changing macro-economic and political situations. Such projects require to have as clear objectives as possible, but need greater flexibility im the tasks to be undertaken. This will require a program approach as opposed to a project approach. It will have the advantage of reducing the delays due to the need to redefine inputs and the coverage of the project. 9.3 Project Design: Subsidized Funding Dangers. Institutional development projects are too frequently seen as only worth doing if subsidized funds are available. This is either, because of the lack of understanding of the real financial and economic benefits that such projects can bring, or because the type of work done is of low priority to the government. Borrower Governments must be fully aware of the need for such projects and the financial benefits (and cost savings) that they provide. While it is not desirable for governments to see these projects solely in terms of the short-term financial benefits, efforts must be made to clarify the economic and social benefits that can be achieved by turning these savings into investments. Thus, while the priority at the beginning of the project may be to improve financial and general management efficiency, the longer-term need will be to enable the local governments to prioritize investment requirements and plan such investments. It will also need to develop skills for project preparation and for carrying out feasibility studies. 9.4 Project Supervision: Increased Supervision Missions for Problem Projects. Those projects which appear to be experiencing problems, as was the case in this project, require an intensive program of missions. 9.5 Project Staffing: Problems of Sustainability. While salary levels in government are not competitive with the private sector, the most common way to attract the right caliber of staff is to provide bonuses from special budget allocations for the project. However, once the project is completed, the special counterpart  15 budget allocations are cut. In such a situation, many staff leave the government service or look elsewhere for improved employment opportunities (with some even being drawn off to work for the international funding agency). While this issue concerns the government's policy on employment, the recruitment of key staff on special contracts covered by the Bank's loan should be discouraged. What is needed is an incentive system that can attract and retain the right caliber of staff to public service. 9.6 Monitoring: Clearer Indicators of "Desired Improvement". Performance indicators should be identified in terms of the long term objectives rather than the "inputs" and "outputs" of the project. They should also, where possible, measure the qualitative improvements that such projects can bring, especially if the savings made, or the additional revenues raised, are re-invested in improved service standards. J. EVALUATION OF PROGRAM OBJECTIVE CATEGORIES Social Objectives 10.1 While the whole project has the potential to improve the availability of services for all citizens in the local authority, no specific social objectives were identified in the project. Hence there is no measure or indication of the impact of the project, in terms of poverty reduction or improved employmnent opportunities for women, and so forth. These could be added to the longer-term performance indicators as proposed in 8.6 above. Environmental Objectives 10.2 The project provided the first study of sanitary landfill in Sri Lanka (for CMC). This landfill is now being constructed. 10.3 Local authorities are responsible for a number of environmental issues. Many were included as part of the Priority Investment Programs, and used for assessing the performance of the local authorities. These included food sanitation in markets, solid waste management, safe water and mosquito control. 10.4 Storm water drainage improvements were undertaken in the ULAs in 1987, as part of the project, and a handbook prepared in Phase IV for the design and maintenance of simple storm water disposal systems. This had been introduced to the Technical Officers, but has yet to be implemented by any authority. Private Sector Development 10.5 Only in Phase IV did the project begin to consider ways of involving the private sector in development, and the necessary training that the local authorities would need to facilitate this participation. Some discussions were held about making LLDF available to the private sector to help provide loan finance for privately developed and operated facilities which had previously been the responsibility of the local authority, and the project did start two initiatives which would begin the process of involving the formal commercial private sector or non-government organizations. 10.6 In 1991 and 1992, the Mayors training included sessions on the concept of joint venture development. Case studies prepared by UPU, based on experience in Sri Lanka, were included in this training. Following this, USAID invited UPU to be involved in the development of a project by the  16 Secretariat of Infrastructure Development Indicators, to develop pnrvatization schemes for local government service delivery. 10.7 The study of "Formulation and Identification of Projects for Funding by Non-Government Agencies" was prepared and training undertaken in two PSs for two pilot projects. The first one is now being implemented based on an investment of Rs. 7 million.  Part II - Statistcal Tables Table 1: Summary Assessments A. Achievement of Obiectives Substantial Partial Negligible Not Applicable Macroeconomic Policies E 0 0I Sector Policies E E I] Financial Objectives aEl La Institutional Development 0 E El Physical Objectives M E E0 Poverty Reduction O El El Gender Concerns E E El Other Social Objectives Ol E El Environmental Objectives E El El Public Sector Management 0 El El Private Sector Development 0 0 El Other (specify) E El El B. Project Sustainability Likely Unlikely Uncertain El E Highly C. Bank Performance Satisfactory Satisfactory Deficient Identification 0 El Preparation Assistance 0 E0 Appraisal M 0l Supervision 0l FEl Highly D. Borrower Performance Satisfactory Satisfactory Deficient Preparation 0 El Implementation 0 El Covenant Compliance El El Operation (if applicable) El al Highly Highly E. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory Unsatisfactory El l E l  Table 2 Related Bank Loans/Credits Loan/Credit Title 1 Purpose 1 Year of Status l l Approval l Preceding Operations 1. First Water Supply water supply improvement in Colombo and 1977 Completed in 1984 Project (Cr. 709-CE) other towns 2. Second Water Supply a) to improve water supply and sewerage and Sewerage Project services in Colombo and other towns; (Cr. 1041-CE) b) to strengthen NWSDB's financial and 1980 Completed in 1987 operational performance; and c) to improve the institutional organization of NWSDB 3. Urban Sector Report to identify measures that would help: (4640-CE) a) increase domestic resource mobilization; b) improve the efficiency and effectiveness of resource utilization for land, infrastructure, 1984 Completed in 1984 and service delivery; and c) improve and strengthen institutions for urban management and training 4. Water Supply and a) to conduct an overall review of the sector; Sanitation Sector Study and 1984 Completedin 1984 (4190-CE) b) to assist GOSL and NWSDB in the development of future sector policy 5. Technical Support for a) to develop national policy to support Urban Local Authorities ULAs; - UNDP funded as b) to establish UPU; and 1984 Completed in 1986 Phase I & II of MMP - c) to prepare feasibility study of Bank funded (SRL/84/0421A/01/42) MMP 6. Water Supply and a) to increase utilization of existing water Sanitation Rehabilitation supply and sanitation systems through Project (Cr. 1700-CE) rehabilitation and extension; b) to improve NWSDB's technical, 1986 Completed in 1996 managerial and operational practices; and c) to improve public health through increased service levels of safe water supply, sanitation Followin ___________ and drainage_ _ _ _ _ _ Following Operations _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ ___ __ _ L__  Table-3 Project Timetable Steps in Project Cycle Date Planned Date Actual/Latest Estimate Preparation April, 1985 April, 1985 Appraisal October/November, 1985 November/December, 1985 Negotiations March, 1986 March 24 - 25, 1986 Board Presentation May, 1986 May 13, 1986 Signing July 24, 1986 Effectiveness September, 1986 September 18, 1986 Project Completion December 30, 1993 June 30, 1995 Credit Closing June 30, 1994 June 30, 1995  Table 4 Credit Disbursements: Cumulative, Estimated and Actual (US$ thousands) IDA Financial Year Appraisal Actual Actual as % of ___________________ Estimate Estimate 1987 1,040 1,200 115.38 1988 4,450 2,100 47.19 1989 7,950 5,900 74.21 1990 10,090 8,100 80.28 1991 11,510 8,700 75.59 1992 12,490 8,700 69.66 1993 12,800 9,300 72.66 1994 13,000 9,800 75.38 1995 13,000 11,709 90.07 Date of Final Disbursement Nov. 10, 1995  Table 5.1 Local Resource Mobilization Performance Indicators Indicator: Electricity: Change in proportion of outstanding amount due on annual collection Water: Change in proportion of outstanding amount due on annual collection 1985 1986 1987 1991 1992 1993 (Rps million) Electricity a. Outstanding 120.820 115.811 109.282 62.231 31.845 - b. Amount due 265.895 256.613 282.675 284.435 224.891 - % a/b 45.4 45.1 38.7 21.9 14.2 - (17 ULAs) ( 11 ULAs) Water a. Outstanding 21.096 22.274 13.107 32.932 54.047 22.716 b. Amount due 34.276 38.705 41.817 76.396 106.840 93.361 % a/b 61.5 57.5 31.3 43.1 50.6 24.3 (20 ULAs) (19 ULAs) (18 ULAs) Indicator: 1. Proportion of local revenues in total revenues of ULAs (%) 1985 1986 1987 1988 1989 1991 1992 52.4 48.5 34.5 38.2 34.4 75.1 71.5 2. Proportion of total expenditures of ULAs covered by local revenues (%) 1985 1986 1987 1991 1992 72.4 76.9 69.3 61.3 71.6 3. Proportion of recurrent expenditures of ULAs covered by local revenues (%) 1985 1986 1987 1991 1992 79.2 84.2 78.3 66.6 84.2  Table 5.2 Financial Management Performance Indicators Indicator: 1. Proportion of LAs that have carried out property assessment in last five years. Number % Total ULAs 51 100 PSs 84 100* * = all Pradeshiya Sabhas that have 'town' areas. 2. Proportion of all LAs that have introduced new accounting systems. 89% by end May 1995 (100% of ULAs) 3. Proportion that have introduced tax revisions in the past 2 years (1993-95) 57% by end of May 1995 4. Proportion of LAs that have introduced revised accounting system 100% by end of May 1995 5. Proportion of LAs that have completed final accounts for July 1993 1988 1989 1990 1991 1992 1993 1994 Total a. Number of Accounts Outstanding 07.93 11 26 46 95 137 - - 315 b. Number of Accounts Outstanding 05.95 0 0 0 1 5 15 69 90 c. Change in Number of Accounts Outstanding 225 d. Improvement {c/a) 71.40% e. Performance for Previous Year's Accounts 1993 and 1994 58.10% 29.20% Data based on 236 LAs in 7 Provinces (NEP excluded)  Table 5.3 Govemment Transfers to ULAs Performance Indicators 1983 1984 1991 1992 Indicator 1. Proportion of Operating Budget covered by Central Government Transfers a. Government Transfers 173.196 237.02 b. Operating Budget 567.965 771.86 c. Proportion alb 44 80 30 31 (19 ULAs) 2. Proportion of total capital development budget borrowed from LLDF a. LLDF loans to Urban Local Authorities 1.4 4.3 b. Total Capital Expenditure of Urban Local Authorities 63.326 83.292 c. Proportion a/b 2.21% 5.16% 'Adjusted based on sample  Urban Service Delivery Performance Indicators Indicator 1. Expenditures per capita on repairs and maintenance 1986 1987 1991 1992 i19 a. Amount Spent ('000) 9431.11 14970.62 42163.61 49650.34 15.49 b. Population ('000) 606.86 622.81 1194.09 1.208.42 316.26 c. a/b 15.54 24.04 35.31 41.09 48.98 d. Rs /US$ exchange rate 29.40 29.90 41.40 44.30 47.98 e. US$/capita 0.53 0.80 0.85 0.93 1.02 Number of ULAs in sample 11 11 19 19 10 1981 1992 2. Proportion of urban population without access to a sanitary latrine 18 33 Note: These services are not the responsibility of the ULAs 3. Proportion of urban population without access to piped water >50 23  Table 5.5 Key Indicators: Human Resource Develooment IUPU Designed Coures) Institute Course Purpose Participants Status (UPU organised unless otherwise stated) 1986-89 Since '89 1. PiM Dip in Loc.Govnt Admin and Finance Strengthen Management of UPU and ULAs 55 1 Not continued but MPA established, ecture from UPUL now paid by PiM. Dip. In DecentrakatIon of Local Govenment now established at University of Colombo and funded by ODA. 10 participants. 2. NIBM 5-day course in Senior Management Dev. Strengthen Management of LAs 287 0 Not continued, but stil needed. NISM Cleansing Superviors For CMC Environmental Management 4 couses 0 For CMC. special course to meet identified need. Completed 3. ICA Diploma in Local Govnt Finance Introduce new accounting systems 84 0 Stopped. Insufficient demand. For ULAs only. 4. AAT Certifticate in Local Govnmnt Accounting Improve Local Govt. Finance Capacity - 142 Stopped due to lack of finance. AAT Book-keeper and Accounts Clrks - 80 Lack of funds led to closure In 1995 5. ICTRL Counciior and Mayors training Improving management capacity of LAs 2394- Needs funds or elso wil cease ICTRL Road Maintenance Induction Course Improve service delivery In LAs less than 80 40- Continued with German funding ICTRL Senior Ubrarian's Training Improve service delivery In LAc 20 25- Funded up to 1991 by UPU and continued with German funding ICTRL Nursery School Teachers Improve service delivery in As Llss than 10 200+ Continued with German funding Schroffas Coure Improve practices In financial recording 60 0 Specialist course for cashiers, ceaed 1989 Budget Preparation and Monitoring Introduce improved budgetting and 200- 540 Wil be run and funded In future by Prov.Training UnitaIPTU) accounting systems Rates Ledger Card System Improving records of rate payments 22 ULAs all ULAs No mom training. In future only on-the-job. Revenue Inspectors/Overseer Improved intemal auditng 40- 225- Wiil continue to be provided by P.T.Us Equipment Maintenance Improved Service delivery 40- 0 Ceased Electrical Linesmen. Foremen etc Improved service delivery 42 - Elecriity no longer responsibility of LAs 6. NWSDB Operation & Maintenance of Water Supplies Improved service delivery less than 30 - Water no longer responsibility of LAs Training Meter Technology Improved service delivery and coHlections 55- - As for Eletrical Unesmen Section Public Heaith refmesher Coure Improved service delivery 120 0 Special course on new polices/techniques Solid Waste Management Improved servie delivery 100- 0 Stlll required MOHs and CPHIs Seminar Improved service delivery 15 0 Ceased 1989 Investigating Officers Seminars Improved Intemal audiing 40 256' To be continued at Provincial level 7. SLIDA Training Techniques and Materials Human resource development - 30 UPU staff Development Training Training Coordination and Management Human resource development 129' 11586 Provinces to take on responsibility for runrmng and funding Physical Development Training Improved basis for capital expenditure - 2735* Trained trainers in place In Provinces Resource Mapping Improved management of resources 60 Undertaken In one location only Project Formulation Improved resource mobilsation - 40 Training of Trainers for Particptaory Community Based Planning  Table 6 Key Indicators for Proiect Operation I. Key operating indicators in SAR Estimated Actual 1. _ _ _ _ _ _ _ _ _ _ 2.__ _ _ _ _ _ _ _ II. Modified indicators 1. X _ 2. _ Im. Indicators for fiiture operation 1. Establishment and staffing of a Unit at the Ministry, with budget appropriation 2. Taking action on reports and recommendations emanating from MMP 3. Completion of the institutionalization of the training responsibilities for local authorities of the Provinces 4. Approval of a budget and trainng plan for annual local authority training plan for each province 5. Supply of data required for monitoring by all LAs and PCs to the Ministry 6. Publication of comprehensive and complete local authority performance data at local, provincial and national level  Table 7 Studies Included in Project Purpose as defined Study at a praisal/redefined Status Impact of study . Study for Lending To assess the extent of sustainable Study complted Ascertaining demand for Arrangements for Local demand and to recommend appropriate and final report lending and cnsuring that Government Development institutional arrangements for lending handed over to the assistance is tageted and Restucturing of the to and through Local Authorities for Local Loans & properly. Local Loan and econonic and social infrastructure Development Fund Development Fund development projects. (LLDF). 2. Study for Streamlining, To recommend a long-tenn audit Study completed Improvement in the covrage Improving and Updating strategy to serve as an independent and final report and timeineus of audits in Auditing Systems and appraisal activity within a ULA for the handed over to the Local Authorities. Review of the Long Term review of accounting, financial and Urban Program Auditing Requirements of other operations as a basis for service Unit (UPU). Urban Local Authorities to management. 3. Study to Establish Rating and To establish a Provincial Unit to Study completed Increased income from Valuation Units in Provincial provide property valuation services to and final report assessment rates and ksser Councils Local Authorities and to attend to all handed over to the dependence on central valuation work by Provincial Council. Southern Provincial government funds. Council (SPC). Action delayed due to financial constraints. 4. Design of Simple Storm To develop a sirnple handbook with Manual prepared Enhanced capacity to Water Drainage System for basic guidelines for the use by but few training encounter storm-oriented Technical Officers in Local technical officers in Local Authorities programs hazards and greater ability to Authorities for the design and maintenance of conducted. mitigate these effects. urban drainage schemes. 5. Study to Formulate Projects To study the functions of Local Study completed. Creation of better for Donor Funding Authorities, to identify activities that Proposals understanding between might qualify for funding by donor implemented in two donors and Local Authorities agencies and to prepare detailed Pradeshiya Sabhas. as aid-recipient. guidelines for the identification, formulation and evaluation of projects. 6. Feasibility Study of Pipeline To study the feasibility of the Study completed This would assist Local Projects proposals by the lending organization. and projects Authorities to realize priority identified. order of online projects.  Table 8A Proiect Costs (in Millions US Dollars) COMPONENT PLANNED ACTUAL Local Foreign Total Local Foreign Total URBAN MANAGEMENT AND POLICY 0.71 2.21 2.92 N/A N/A 4.43 FINANCIAL MANAGEMENT & RESOURCE 0.81 2.16 2.97 N/A N/A 2.08 MOBILIZATION SERVICE DELIVERY 2.84 2.92 5.76 N/A N/A 3.08 BASE MAPPING 0.85 2.65 3.5 0.00 0.00 0.00 HUMAN RESOURCE DEVELOPMENT 0.43 2.00 2.43 N/A N/A 2.16 ADMINISTRATIVE COSTS 0.08 0.00 0.08 N/A N/A 3.63 TOTAL 5.72 11.94 17.66 N/A N/A 15.38 PHYSICAL CONTINGENCY 0.02 0.25 0.27 0.00 0.00 0.00 PRICE CONTINGENCY 0.84 1.62 2.46 0.00 0.00 0.00 GRAND TOTAL 6.58 13.81 20.39 N/A N/A 15.38  Table 8B Proiect Financina (in Millions US Dollars) A praisal Estimate | Actual/Latest Estimate Source Local Costs Foreign Costs Total Local Costs Foreign Costs Total IDA 0 13 13 N/A N/A 11.709 GOSL 6.58 0.81 7.39 N/A N/A 4.4 TOTAL 6.58 13.81 20.39 16.109  Table 9 Economnic Costs and Benefits Assumptions Costs Benefits N.A. N.A. N.A. I=  Table 10 Status of Legal Covenants Original Revised Covenant Present Fulfillment Fulfillment Agreement Section tvp Status Date Date Description of Covenant Comments Developemt 3.04 9 C UPU shall prepare semiannual progress reports of Final report for six monts ended July 1995 Credit the ptoject and furmish them to IDA within 30 days available. Agreement following the end of each reporting semester. 3.06 (a) 10 NC Maintain and monitor the system of grants to ULAs Program suspended by GOSL after basod~ ~ onpromneciei. Provincial Council system was put in place in based on performance criteria. 1987. UPU has proposed an amended performnc based grant systern, which is _ _ ~~~~~~~~~~~~~~~~~~under conskideration. 3.06 (b) 10 CP Carry out, in consultation with IDA, annual review Despite suspension of the performance-based of perfonnance based system of grants to ULAs, grant system, UPU has undertaken, jointly and introduce such changes as shall be agreed with with Provincial Councils, a performance IDA. rating exercise for each ULA. 4.01 (b) I CD 09/30/88 and Records and Accounts, including Special Account, Reports delayed. annually shall be audited each year and the auditor's report thereafter provided to IDA. 4.01 (c) 1 CD 09/30/88 and Records and Accounts for the Statement of Reports delayed annually Expenses shall be audted each year and the - ---------l6- therealler auditor's report provided to IDA. Covenant types: Present atus: 1 = Accou0a/audit 8 = Indigenow people C = covenant conmiped with 2 = Fnancial perfmiae/revexe 9 = Monitoing, review, and reporting CD = complied with after delay generation fiom beneficiaries 3 = Flow and utiizationt of proect 10 = Prieoct intplemenation not covered CP = compLied with partially faind by categoriea 1-9 4 = C-aerpai fiwnling 11= Sectoal or cro-wectoral budgetary or NC = not compLied with dhr ree alocation 5 = Management aspecs of the project 12 = Sectois or cro-wectonl policy/ or execung agency egutorymiutioa action 6 = Envizonnet covenan 13 = Odier 7 = nolurtaiy rettlemei  Table 11 Compliance with Operational Manual Statements Statement number and title Describe and comment on lack of compliance 1. N.A. N.A. 2. 3.  Table 12 Bank Resources: Staff Inputs Stage of Project Financial Planned Revised Actual Cycle Year Weeks Weeks Weeks Through appraisal FY85 36.8 Appraisal-Board FY86 23.4 Board-Effectiveness FY86 2.90 Supervision FY86 - 95 64.70 88.40 Completion FY96 - 97 4.00 6.00 6.00 TOTAL 68.70 157.50  Table 13 Bank Resources: Missions Performance Rating Stage of Number Days Specialized Implement- Develop- Project Monthl of in Staff Skills ation ment Types of Cycle Year Persons Field Represented a/ Status b/ Impact Problems c/ Through Appraisal Appraisal 11-12V85 5 through Board approval Board approval through Effectiveness Supervision 8/86 4 a, c, e - 11-12V86 4 a, c, h, 9 1 3/87 4 a,c,h,g 1 9/87 3 a, d, i 1 1-2188 2 a, i 1 5-6/88 1 a 1 5/88 2 a, d I 10188 3 a, d, i 2 6-7/89 3 a, d, i 2 10189 2 a, i 2 4/90 3 a, d, i 2 9/90 3 a, d, i 2 5191 3 a, d, i 3 2/92 2 d, i 3 6/92 3 a, d, f 3 11/92 2 a. b 3 3-4/93 1 b 3 7/93 2 a, b 2 2/94 1 b 2 11194 2 a, f 2 6-7/95 2 a, g Completion at Key to Specialization bl Koy to Status cl Key to Problems a = Financial analyst 1 = Improving 1 = Technical b = Economist 2 = Static 2 = Financial c = Sanitary engineer 3 = Deteriorating 3 = Institutional/Management d = Solid waste expert * = Municipal finance spec. f = Engineer/Planner g Urban development exp. h Training expert i= Municipal engineer  Appendix A IMPLEMENTATION COMPLETON REPORT SRI LANKA MUNICIPAL MANAGEMENT PROlECT (Cr. 1697-CE) Mission's Aide-Memnoire  The World Bank 1818 H Street, N.W. (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS August 4, 1995 Mr. Austin Fernando Secretary Ministry of Co-operatives, Provincial Councils, Local Government and Indigenous Medicine Colombo, Sri Lanka SRI LANKA Dear Mr. Fernando: SRI LANKA - Municipal Management Proiect (Cr. 1697-CE) I have pleasure in enclosing the Final Aide-Memoire prepared by our Municipal Management Project supervision and ICR preparation mission which visited Sri Lanka during the period June 24 to July 7, 1995. The objectives of the mission were to undertake the final supervision of the project, and to review progress with preparation of the project's Implementation Completion Report (ICR) and Operational Plan. The mission reports that the major part of project activities have been satisfactorily completed. Benefits from the project include an increased capability at Provincial and local councils levels, the creation of a database about local council performance, and the establishment of improved practices and training systems. The mission also reported that Government has agreed a satisfactory timetable for completion of the project's ICR, whereby Government's contribution in final form would be provided by September 30, 1995. We are very concerned, however, about the apparent lack of clear arrangements to sustain the benefits of the project in a satisfactory manner. The operational plan you discussed with the mission indicates the need for a continuing capacity at the centre to follow-up on implementation of important project recommendations, such as the proposed new grant structure, for maintenance of the information base started by UPU, for monitoring of Provincial council activities with regard to local authorities, and for training coordination. Although we understand that Government's revised intention is to continue UPU with a small nucleus of staff, we do not yet feel confident that this arrangement will be capable of implementing the agreed actions as envisaged in the operational plan. Accordingly, we would request to be kept advised, either directly or via the Resident Mission, of how these arrangements develop, and to be provided with a full statement of status when you provide Government's final comments for the ICR on September 30, 1995. RCA 248423 * WUI 64145 * FAX (202) 477-6391  Mr. Austin Fernando - 2 - August 4, 1995 On behalf of the m-ission I would like to thank your Minister, yourself and your colleagues for their hospitality, assistance and the courtesies extended during the mission. Regards, Sincerel, Marie Garcia-Zamor Division Chief Infrastructure Operations Division Country Department 1 South Asia Region cc: Secretary Finance Ms. Mallika Karunaratne, Director, Human Settlements Division, National Planning Department.  SRI LANTKA MUNI1CIPAL M.ANAGEMENT PROJECT CR. 1697-CE IDA SUPERVISION AND ICR PREPARATION MISSION FINAL AIDE MEMOIRE JULY 26, 1995 INTRODUCTION 1. An IDA mission comprising Messrs. Graeme Lee (mission leader) and Alistair Blunt (urban development specialist) visited Sri Lanka during the period June 24 to July 7, 1995 for the final supervision of the Municipal Management Project (Cr. 1697-CE), and to review progress with preparation of the project's Implementation Completion Report (ICR) and Operational Plan. The mission met with the Minister, Secretary and Additional Secretary of Cooperatives, Provincial Councils, Local Government and Indigenous Medicine (the Ministry), and the Director and officials of the Urban Programme Unit (UPU). 2. The mission appreciates the courtesies and cooperation extended to it during its visit. The findings and recommendations of the mission, as incorporated in this Aide Memoire, are confirmed by IDA management. BACKGROUND AND STATUS 3. The Credit closed, after a twelve month extension, on June 30, 1995. In anticipation of the credit closing, IDA had initiated, in February 1995, discussions with UPU about the preparation of the project's Implementation Completion Report. Also, at the request of Government, the final date for receipt of withdrawal applications for expenditures incurred prior to credit closure had been set as October 31, 1995. 4. The main item of work during the final stage of the project, the Phase IV consultancy, is complete, and the consultants final reports have been submitted for the overall work undertaken, work in each province, and for specific topics such as management information systems. Reports and studies completed during this phase of the project are listed in Annex 1. 5. As part of its Phase IV activities, UPU has undertaken pilot works in local authority areas in order to demonstrate good practices and standards. In addition to technical advice, UPU has provided project financial support for physical works up to a ceiling of Rs.300,000 per pilot scheme. This approach has proved successful and 22 demonstration pilot works have been completed. The prop.osed procurement of communication equipment for Colombo Municipal Council has lapsed due to delays in obtaining Cabinet consideration of the bid evaluation for the equipment.  - 2- 6. The project's estimated final financial position is as indicated below, including the anticipated remaining payments and disbursements. Table 1 US$ Million Planned Estimated Final Category of Expenditure Urban Management & Policy 2.9 4.4 Financial Management 3.0 2.1 Service Delivery 5.8 3.2 Base Mapping 3.3 Human Resource Development 2.4 2.2 Administration Costs 0 1 ' Sub-Total 17.5 15.1 Contingencies 2.7 TOTAL 20.2 15.1 Financed by GOSL 7.2 4.4 IDA 13i0 10.7 TOTAL 20.2 15.1 1/ Includes Governnent Staff costs. 7. There are two major variations between original expenditure plans and estimated final expenditure. The expenditure category Service Delivery included more extensive civil works than were eventually undertaken. The pilot demonstration civil works schemes were mainly deferred and only implemented in Phase IV, following Government's decision to concentrate during Phase III on operation and maintenance. Base mapping was not completed as originally intended due to operational difficulties, and because base mapping for 24 towns was also included as a component of a project supported by Asian Development Bank. Existing maps for urban areas were, however, adapted and utilized for recording basic details such as location of utilities. As of May 31, 1995, the remaining undisbursed balance of the Credit is US$4.4 million. This amounit includes disbursements yet to be made, and also reflects US$:SDR exchange rate movements.  -3- 8. The Government is not proposing to retain the UPU in its present form, but instead intends to create a small cell within the Ministry. In order to complete project administration, to assist prepare the ICR and Operational Plan, and to hand over project outputs and activities, a core staff from UPU will be retained for a transition period. The core staff include a consultant Project Coordinator, the accountant, computer personnel and support staff. It was agreed with the Ministry that the cell would follow up actions required to consider and act upon key studies prepared during Phase IV of the project, and in particular the following: (a) Provincial Councils (PC) establishment of a revised grant structure for local authorities; (b) creation of rating and valuation units at PCs; (c) strengthening internal audit in local authorities; (d) preparation of local authority projects for donor consideration; (e) determining the future of the Local Loans and Development Fund; and (f) promotion of the stormwater drainage manual, including a pilot project. IMPLEMENTATION COMPLETION REPORT 9. The mission discussed with Government the preparation of an ICR for the project, including providing advice and support to the Government for preparing its contribution to the ICR, and agreed the timing for respective inputs. Work is underway to prepare the remaining statistical data and to draft Government's section of the report. 10. In the mission's view, the major part of project activities have been satisfactorily completed. Benefits from the project include an increased capability at Provincial and local councils levels, the creation of a database about local council performance, and the establishment of improved practices and training systems. Nevertheless, the achievement of project objectives has been hindered during the period 1989-1992 by civil disturbances in Sri Lanka and the disruption caused by structural changes (especially the reorganization of sub-national government and creation of PCs). The effects of the structural changes were compounded by ensuing uncertainties about the extent of political commitment to devolving power to local authorities. 11. The Government considers that the project as a whole has been able to achieve the objectives for which it was established. Results -would have been more far-reaching if the project was implemented without any break or interruption. OPERATIONAL PLAN 12. An Operational Plan was discussed and agreed with Government officials and is attached as Annex 2. The plan identifies the responsibilities of Government, of PCs and of local authorities. It also includes indicative performance indicators. The unit within the Ministry would be responsible for follow-up of the Phase IV studies' recommendations; for information gathering and dissemination; for monitoring PCs' performance with regard to local authorities' development; for specialist training and training coordination; and, to the extent possible, for policy analysis, policy coordination, technical assistance and studies. PCs would remain responsible for planning and delivery of training; for information collection; and for continuing  - 4 - the local authority performance improvement programme. Local authorities would provide information, and, in larger local authorities, keep a designated post with responsibility for training coordination. PROJECT FINANCIAL STATEMENTS AND AUDIT REPORTS 13. The mission received a full copy of the financial statements and audit reports for 1992 and 1993, and agreed the following schedule for receipt of the outstanding 1994 reports: (a) financial statements to be submitted for audit by August 15, 1995; and (b) 1994 audit report to be submitted to IDA by November 15, 1995. AGREED ACTIONS 14. The following actions were agreed with Government: (a) submission of remaining tables for draft ICR, by July 31, 1995; (b) IDA's confirmation of Aide Memoire, by July 31, 1995; (c) 1994 accounts submitted for audit, by August 15, 1995; (d) draft ICR sent to GOSL by IDA, by August 31, 1995; (e) GOSL final evaluation report sent to IDA by September 30, 1995; (f) final disbursement applications submitted to IDA by October 31, 1995; and (g) 1994 audit report to be submitted by November 15, 1995; (h) final revision of ICR prepared by IDA, by November 30, 1995.  ANNEX I PHASE IV REPORTS Phase IV Consultancy Institutional Development of Provincial Councils and Local Authorities System: - Final Report; - Central Province; - North Central Province; - North-East Province; - North Western Province; - Sabaragamuwa Province; - Southern Province; - Uva Province; and - Western Province. Training Programs conducted for Local Authorities under Phase IV Management Information System for LAs, PCLGs, and UPU Studies Lending Arrangements for Local Government Development and Restructuring of the Local Loan and Development Fund Streamlining, Improving and Updating Auditing Systems and Review of the Long Term Auditing Requirements of Urban Local Authorities Establishment of Rating and Valuation Units in Provincial Councils Design of Simple Storm Water Drainage System for Technical Officers in Local Authorities Formulation of Projects for Donor Funding Feasibility Study of Pipeline Projects  ANNEX 2 OPERATIONAL PLAN FOR CONTLNTTING WORK STARTED UNDER MUNICIPAL MIANNAGEMENT PROJECT Purpose of the Plan 1. The purpose of the plan is to identify how the following objectives, as stated in the Credit agreements and the amendments to the project incorporated into Phase IV can be sustained and developed: - to strengthen the Ministry responsible for local government organization in sector development; - to improve the managerial, financial and service delivery performance of the urban local authorities (ULAs); - to strengthen the Provincial Councils (PCs) capacity to guide and assist local authorities to carry out their function; and to improve the capabilities of all local authorities (including the Metropolitan and Urban Local Authorities and the Pradeshiya Sabhas) to plan, organize and manage the delivery of services within their jurisdiction. 2. The plan identifies the organizational arrangements for the transfer of the role previously undertaken by the Urban Programme Unit (UPU), specifically policy advice, special studies, technical advice, training development and implementation and monitoring to the planned unit within the Ministry of Cooperatives, Provincial Councils, Local Government and Indigenous Medicine (the Ministry) and PCs and through other arrangements as the opportunities permit. Functions of the Different Levels of Government 3. To continue the work started under Credit Number 1697-CE, each level of government has specific interests and responsibilities. These are: For the Ministry Core Unit: local govemment policy analysis and' coordination (as far as is possible within available resources); follow-up on implementation of recommendations of the project; information gathering and dissemination, including the maintenance and up-dating on a regular basis of the information base started by the UPU; monitoring of PC activities and performance with regard to local authorities; monitoring at a provincial level, the performance of local authorities as specified in MMP "Management Information and Reporting System" report, June 1995; and special training, training coordination, technical assistance and studies within the means available.  For the Provincial Councils and PCLG: - establishment, coordinated by MDTU, of a Training Committee in PC; - designation of a training coordinator for local authority training; - preparation and implementation of a training plan for local authorities; - collection of data on LAs' performance as specified in MMP "Management Information and Reporting System"; - transmission of compiled data from LAs to the Ministry; and - continuation of the performance improvement programme for local authorities. For the Local Authorities: - keep designated post for training coordinator filled in specified local authorities; - continue to implement improved practices as introduced by MMP; - continue efforts to meet standards as established in MMP, through development of PIPs; - provide promptly performance data as required by PC; and - cooperate in implementation of training programs. Performance Indicators 4. The performance indicators that need to be developed will be used to assess the effectiveness of the action taken to continue to achieve and sustain the objectives of the project. The proposed performance indicators, which are selected to be easily measurable, are: - the establishment and staffing of a Unit at the Ministry, with budget appropriation; - taking action on reports and recommendations emanating from MMP; - the completion of the institutionalization of the training responsibilities for local authorities of the Provinces; - the approval of a budget and training plan for annual local authority training plan for each province; - the supply of data required for monitoring by all LAs and PCs to the Ministry; and - the publication of comprehensive and complete local authority performance data at local, provincial and national level. M:\gI\'zinp\bto\jn95amLx. am  Appendix B IMPLEMENTATION COMPLMTION REPORT SRILAK MUNICIPAL MANAGEMENT PROJECT (Cr. 1697-CE) Borrower's Evaluation  PROJECT EVALUATION REPORT MUNICIPAL MANAGEMENT PROJECT (IDA CREDIT 1697CE) INTRODUCTION The Government of Sri Lanka (GOSL) in furthering its programme of decentralisation through Local Authorities as units of devolution sought to strengthen them in order to enable them to perform the functions entrusted to them effectively. Several steps were taken to strengthen them in terms of: (a) Powers and functions (b) Fund availability (c) Personnel to man responsible positions, and (d) Providing machinery, equipment etc. Government passed new legislation and amended the existing legislation with a view to empower Local Authorities, Heads of Local Authorities and senior staff to make their status strong enabling them to decide on and to carry out programmes of development and service delivery without any hindrance, i.e. the Local Authorities Elections Ordinance (Amendment) Act No.24 of 1977 and amendments to the MC and UC Ordinances. Local Authorities (Special Provisions) Act No.42 of 1979 provided for increased fund raising by Urban Local Authorities. Ceilings fixed by the MC and UC Ordinances on taxes and duties and other revenues were subject to review and were raised appreciably. In addition the Government grants scheme in force was re-structured to provide rewards for good performance. With a view to provide efficient and qualified staff for Local Authority positions the Local Government Service Commission was re-established under the provisions of the Local Government Service (Amendment) Act No.10 passed in 1985. The Local Government Administrative Service was expanded and strengthened to provide for qualified personnel-to man all ULA Chief Offices so that they were served with necessary guidance. This was followed by the expansion of the Local Govermnent Accountants Service and TOO Service (MLTO) The Government also launched a programme of assisting Local Authorities with the supply of necessary machinery and equipment for Local Authority construction and maintenance work through making use of votes of the Department of Local Government (DLG), i.e. for road improvement and maintenance programme steam rollers were imported and distributed among the ULAA. Loan facilities were provided for Local Authority commercial projects. Aid programmes through twinning of cities in other countries were encouraged for mutual assistance and support under which some Local Authorities have received donations of fire 1  machines, ambulances etc. With all the assistance and support provided by the Government to Local Authorities the impact on the delivery of services and the development work was less. In fact the ULAA were lethargic and sluggish in implementing their programmes. Complaints on the neglect of service and infrastructure development increased. Amount of criticism levelled against the Local Authorities regarding neglect of services was such that the attention of the government was focussed on improving the status of Local Authorities. This made the GOSL to invite the World Bank to make a study of the Urban Sector as to the causes for this state of affairs and recommend remedial measures to overcome them. The World Bank in response to the GOSL's request arrived in 1985 and carried out an Urban study with the assistance of a counterpart team. This urban study with reference to ULAA revealed that: (a) The delivery of Urban services was at sub-standard level (b) The collection efficiency of revenue was very low and the amount in arrears was increasing (c) Most ULAA passed deficit budgets, and (d) Generally the management was poor. This joint team recommended an urban strategy designed to concentrate the responsibility of improving the urban services on Urban Local Authorities. The accomplishment of improved urban services delivery was to be achieved in conjunction with improved ULA management which focussed on planning, budgeting, resources mobilization, expenditure and control, operations and maintenance. 2. PROJECT OBJECTIVES The objectives of the Phases II and III were to: (1) Strengthen the organisation of the Ministry of Local Government, housing and Construction in sector development, and (2) Improvement of the Managerial, Financial and Service deliver performance of ULAA, but latter has to be accomplished through: (a) design of improved systems of budgeting and resources mobilisation and the integration of improved systems into operation, and (b) improvement in resource mobilisation through increased efficiency and effectiveness of delivering urban services including their operation and maintenance. In terms of the stated objectives of the initial phases the Urban Programme Unit had two clients to serve, i.e.. the Mlinistry of Local Government, Housing and Construction and the Urban Local Authorities (ULAA).Project operation experienced during initial phases reveals that there was no support from the Department of Local Government (DLG). Although DLG 2  was responsible for promoting local government statutorily it was seen more appropriately to strengthen the LGD Which is the executive agency rather than the Ministry which decides the policy matters. Considering the objectives of the project it had been pointed out that much prominence should have been given to improvement of service delivery systems in the field rather than routine matters confined to indoors. Rationalising of the Grant Scheme has not received the attention of the Project although grants comprise and important source of revenue for Local Government Phase IV. Objectives are fundamentally similar to those of the preceding l;two phases, but devolution to the provinces of the subject of Local Government resulted in drawing up additional objectives. The objectives of Phase IV are as follows:- (1) Review the structure, systems and procedures for the Provincial Councils (PCs) to exercise devolved powers in relation to Local Government and recommend improvements. (2) Assess and improve the existing capacities of PCs in regard,to development of managerial, financial, engineering, planning and human resource development functions of Local Authorities and develop the necessary strategies to guide and assist them, and (3) Assess the existing capacities of the ULAA and Pradeshiya Sabhas (PSS) to implement devolved functions and to provide AA and training required to devolve responsibility. Specific objectives translated into tasks and sub-tasks formed the basis for the TO programme and development of work plan. Achievement of the objectives in respect of some tasks such as amending the legislative Acts and Ordinances, application of Management Information System (MIS), planning exercises etc., were delayed due to inadequate project appreciation. Other programmes in terms of the objectives under Phase IV have been successfully completed. 3. PROJECT DESIGN The UNDP and the world Bank with IDA credit agreed to fund the Municipal Management Project (MMP) for the improvement of performance. The Urban Programme Unit was established under the Ministry of Local Government, Housing and Construction in 1985 and was put in charge of the implementation of the Project. The Municipal Management Project consisted of four phases. They are: Phase I - the preparation of a Feasibility Report based on the study carried out by the Joint Team. Phase II- -establishment of a technical assistance and training programme. PhaseIl- Implementation of the technical assistance and training programme. Phase IV- expansion of the technical assistance programme and extension of same to include newly established Pradeshiya Sabhas. 3  Project execution as stated earlier was made the responsibility of the Urban Programme Unit with the support of the consultants provided. The Urban Programme Unit was headed by a Director appointed by the Ministry of Local Government, Housing and Construction and was supported by two Senior Assistant Secretaries in charge of Administration and training and technical assistance. During the Phases I and II UPU Technical Assistance Programme was supported by a team of expert Advisors from Grant Thornton of US based Management Consultancy and Financial Services Company comprising of a Chief Advisor and senior Advisors on management Management Financial Resources mobilisation and engineering. The other consultancy services were provided by T.P.P. Sullivan and Partners (US), Tata Consultancy Services (India), Resources Development Consultants (Sri Lanka), University of Birmingham (UK) A project cell consisting of the Director,UPU, Project Co-ordinator, Team Leaders of Technical Assistance and Training, representatives of related agencies such as Local Govermnent Department, Local Government Services Department, National housing Development AuThority (NHDA), Urban Development Authority (UDA) and National Water Supply and Drainage Board (NWSDB). The project cell functioned as a Co-ordinating body and helped to resolve issues generated between UPU and the Agencies. Later this was developed as a Progress Review and Co-ordinating meeting of the UPU. The UPU Management Cell is convened bi-weekly to promote overall Project co-ordination At this meeting Senior Advisers and the local counterparts were given the opportunity of assisting the UPU Management in matters of Project execution. This Management Cell carried out the monitoring and the implementation and reviewing the progress against programmes. A Steering Committee headed by the Secretary of the Ministry was set up to bring about inter-ministerial coordination and to deal with policy matters. Phase IV of the Project was executed to implement a programme under a new Terms of Reference. On calling for bids and after evaluation the technical proposal submitted by M/s. Teams (Pvt) Ltd., was accepted as the best proposal. Project commenced its operations in July 1993. In addition to technical assistance and training on General Management, Financial Management and Engineering, physical Planning was introduced as a vital area. However, several new relationships had to be developed and established since Local Government as a subject was fully devolved to the Provincial Councils created in 1988 with the 13th amendment to the Constitution and passing of the Provincial Councils Act No.42 of 1987. In addition to the Urban Local Authorities serviced by the UPU newly created rural Local Authorities - Pradeshiya Sabhas - numbering 257 had to be covered by the Project. UPU in the execution of project activities during Phase IV extended its consultancy programme to a large number of Local Authorities. It had to decentralise its operations to the Provinces leaving a nucleas in Colombo. A sub-unit of the UPU with a Provincial Consultancy Team was established in each of the provinces and the Provincial Commissioner of Local Government (PCLG) was designated the Provincial Director of UPU and was charged with the responsibility of supervising and monitoring the project implementation. 4  The nucleas in Colombo comprised the Director, Project Coordinator and the Project Team comprising Chief Technical Adviser and Specialists on General Management, Financial Management, Engineering, Training, Physical Planning and Health. 4. IMPLEMENTATION The TA Programrnme developed for improving Local Authority performance was implemented through: (a) Rendering guidance and advice to Local Authorities on one to one basis. Every ULA was visited by a consultancy team. Frequency of visits depended on the Local Authority status and performance standard. On this basis weak ULA were visited frequently, (b) Developing systems for use by Local Authorities such as Manuals, Hand Books and "How To" papers of all functional areas, (c) Training of Local Authority staff and elected personnel in the use of systems was introduced, (d) Providing incentives for good performance by means of a Local Authority Performance Improvement competition and award of cash prizes, and (e) Establishing minimum standards of performance for Local Authorities. Rendering of technical assistance was based on a Performance Improvement Plan (PIP) formulated by the ULAA themselves on the assistance and guidance provided by the UPU. Performance improvement strategy in Phase IV had to be changed to suit the structural changes that ensued. These changes are: (a) Decentralisation of the TA delivery and training system to the provinces through Provincial UPU Teams mentioned earlier. It was necessitated to work through the Provincial Councils and to integrate with their programmes. The PCLG was made responsible for the integration of the programmes and coordination of the efforts towards improvement of performance in Local Authorities. (b) The Provincial Councils became a UPU client, in that, the Project has a mandate to strengthen the PCLG office and improve the relationships with other provincial level institutions. (c) The Ministry, on the other hand, became another client of the UPU with the provision of policy, advice and training etc., as there was no outfit at the centre to undertake them. 5  The PIP or the Action Plan in respect of Local Authorities and PCLG offices were prepared after conducting a problem-tree exercise. The implementation of Action Plans and their progress was reviewed by the Local Authorities themselves. A large number of newly created Pradeshiya Sabhas were exposed for the first time to such an exercise designed to identify their problems and they did it with much interest on it. 5. OPERATION EXPERIENCE MMP implemented through UPU formed the first ever project undertaken by the GOSL to enhance the capacities of Local Authorities. During the initial stages of the project launching the heads of ULAA and staff did not show much interest since it did not confer any direct benefit in the form of grant or equipment. Many LAA considered that UPU programme was a necessary burden on them. In fact they identified UPU as another authority issuing instructions as there was lack of coordination between the UPU and the DLG. In Phase IV the situation was different as: (a) the Ministries of Local Government and Departments of Local Government in the PCC were partners in the project implementation. (b) integration of the programmes of the UPU and those of the provinces with regard to performance improvement in local authorities. (c) the acceptance of the competence of the consultants both from the UPU and the firm. They had prior experience in the field of Local Govern-ment, especially, working with Local Authorities. During the early phases when expatriate consultants were deployed the transfer of skills and knowledge caused to be a problem as some of the Local Authority personnel are not conversant with the language. This difficulty did not exist in Phase IV as the project deployed the services of a Sri Lankan firm with limited expatriate Consultant inputs. The support of the provincial DLG staff was forthcoming land it turned out to be a team effort of the UPU consultancy team land the LG staff. Realisation of objectives of the project depended much on the interest and the enthusiasm of the Local Authorities. The heads of Local Authorities provided the leadership for the council and the staff and steered the Local Authority in the right direction. Some good Local Authorities provided inspiration for other Local Authorities which were lagging behind. The Local Authorities Performance Improvement competition served to create the team spirit and to compete with each other to reach higher levels of performance. However, in the case of certain PCs the UPU had to take steps to mark the concept and to educate the provinces of their responsibility, especially, with the policy makers and top officials. Matters such as PCLG office structure. PCLG cadre, cadres of Local Authorities. Filling of vacancies had to taken up with Provincial Authorities and remedial action was taken. 6  The Project also faced with difficulties due to frequent adjustments and changes in the Ministry to which the UPU belonged resulting in the UPU being thrown to different ministries from time to time, from Ministry of Local Government, Housing and Construction to finally the Ministry of Co-operatives, Provincial Councils, Local Goverrnent and Indigenous Medicine D(5th Ministry). During the Project period several elections were conducted from the Local Authority elections to Provincial elections. Project implementation suffered during elections ;including the period of campaign and their aftermath. As a result the Councillor training and all other training programmes as well as technical assistance visits had to be postponed. However, in the implementation of the Project activities the Ministry and the Provincial Councils as well as central agencies were helpful to a great extent. 6. COST AND BENEFITS The feasibility study in Phase II of the preparation of the report was funded by the UNDP. The loan provided by the IDA Credit 1697 CE Agreement in 1986 was SDR 11.3 million (equivalent to US $ 14.2 million in 1994) Out of this total the US $ 2.7 (approximately) are considered as unallocated. Total disbursement is approximately US $ 11 million. This includes payments made to Colombo Municipal Council for the purchase of solid waste equipment and other payments made to the National Water Supply and Drainage Board(NWSDB) and the Ministry of Rehabilitation. These disbursement in the three phases are as follows:- COST ANALYSIS US $ ('000) Phase I UNDP Funded Phase II & III 7.618 Phase IV 2.534 Total US S 10.152 7. ASSESSMENT OF PERFORMANCE A Ministry Evaluation Committee has reported that Local Authorities have immensely benefitted out of the project but that the UPU system is costly. However, it was noted that costs are inevitable as expatriate consultants or experts had to be deployed as per World Bank Project Implementation Design. 7  Evaluation of the Project performance has been carried out at regular intervals centrally at the UPU as well as in the provinces. Levels of performance have been measured quantitatively and also expressed qualitatively against levels prevailing at the time of the baseline survey in 1993. Measurement was carried out in relation to the large number of performance indicators developed by the UPU under each item falling within various functions such as General Management, FM, Engineering, Health etc. Finally in May,1995 evaluation meetings were conducted and Heads of Local Authorities have expressed their utmost satisfaction with regard to the consultancy and the achievements they have made through consultancy inputs. 8. BENEFITS Benefits to the UPU Benefits accrued to the UPU as a consultancy unit by the Management and the consultants have been assessed in relation to:- (a) Project implementation experience as regards the project cycle including identification, preparation, execution, reporting, evaluation etc, (b) Financial transaction with the World Bank and the Treasury, (c) Procurement procedures of the World Bank, (d) Skills acquired in report writing, presentation and training, (e) Use of computers, (f) Development of a data base for Local Authorities, and (g) Acquisition of new knowledge of management and training techniques. The project also offered opportunities for the management and consultants to get a first-hand knowledge in the operation of Local Authorities in UK and countries in the region. Degree courses for four UPU consultants in UK have helped the UPU to improve its team out-put. Benefits to the Provincial Councils Provincial Councils during Phase IV received the UPU Consultancy support in organising the PCLG office through reviewing and recommending structures, processes and systems in the discharge of their duties. The PCLG office structure based on a developed model has been streamlined with adequate cadres for the approval of which the UPU had to contribute in a big way. Monitoring units were set up in PCLG offices to monitor the performance of local authorities in regard to revenue, service delivery. disbursements, grants and other activities. The MIS developed by the UPU would be useful in improving the monitoring function further. 8  The PCLGs, ACLGs, Investigating Officers, CDOs and Technical Officers attached to the Provincial Local Authority offices have been trained to enable them to perfonn better. They have also been given the opportunity of witnessing local authorities in operation in India through study visits and short courses offered by the UPU. All the staff level officers in the PCLG office have been given the skill required to conduct training courses for local authority staff. A model grant structure has been recommended by the UPU to be adopted by the Provincial office in the allocation of grants to local authorities. Benefits to Local Authorities ULAA have been benefitted immensely during Phases II and III consultancy services which were continued to be provided to them during Phase IV. The systems which had been introduced were put into effect under UPU guidance and training. During Phase IV the most benefitted were PSS numbering 232 (25 PSS are inaccessible) PSS in the NEP are inaccessible. Proper office organisation with office systems have been introduced and improved. New management practices have been installed. Revenue collection has been improved. Keeping of accounts on a regular basis and preparation of final accounts have been brought up to date. In all the local authorities service delivery levels have been raised in spite of funding constraints and inadequacy of staff. Technical officers have been trained by the UPU ON surveying, levelling, contract administration, concrete practice, timber selection etc to enable them to carry out delivery of services efficiently. A successful programme to train TOs on the basis of demonstration projects is popular among the local authorities. Such projects are jointly funded by the UPU, Provincial Councils, and the Local Authorities. Through the execution of the project, the technical officers in the nearby LAA, i.e. about 20 for each project have been trained on various stages of construction and road development or any other work. Peoples' contribution is by way of participation in the form of free labour which is abundantly available. 22 such projects have been implemented successfully. 9. BANK'S PERFORMANCE The UPU since its inception maintained cordial relations with the Bank which offered advice and guidance on various matters of project implementation. Supervisory/Review Missions visited during the project period took a keen interest on the disbursement position and the progress made and through aide memoire given. The Bank assisted in all the possible ways to realise the objectives of the tasks on to target. Any delays on the part of the UPU in regard to reporting were pointed out and action recommended by the Bank to eliminate delays. There also have been delays on the part of the Bank. These delays seriously affected the continuity of the project and the progress made. At the commencement of Phase IV there was a delay of about 2 1/2 to 3 years in approving the Terms of Reference. As a result the project period had to be extended up to 10 years from 1985 to 1995, but World Bank funding for the Project was available for little more than 5 years. At the Country fortfolio meeting 9  held in Colombo in 1993 this was pointed out. MMP was graded as No. 1 problem project. The Task Manager of the project, after the initiation of Phase IV was instrumental in the transformation of the project with his close guidance and assistance into an upgraded one within a short period of time. Adherence to the guidelines and dedicated efforts by the UPU to clients such as PCs and LAA worked well to make the performance excellent leading to an extension of the project by a further year. The Bank's advise to follow various procedures laid down such as procurement procedures had helped the purchase of vehicles and other office equipment at a favourable price. The success of the project much depended on the Bank's performance as per conditions in the agreement. 10 LESSONS LEARNT With the passage of the total project period UPU management was able to make a few notable lessons out of the experience and relationships with the World Bank and other International organisations. The UPU has found that if the Bank's guidelines are followed carefully the delays in passing through the project cycle could be reduced to a minimum. Project appreciation has been satisfactory. The consultancy Firms had not devoted adequate time to study and understand the objectives. As a result the technical proposals submitted have displayed shortcomings. The preparation of the Terms of Reference for a project of this nature needs to be done by those having a wide knowledge in the relevant subject and allied fields. The Terms of Reference formed otherwise have found to be inadequate and the objectives of the project could not be achieved in full. The project implementation should lay down the right strategy for successful implementation. This will lead to realisation of the objectives at lesser costs and reduced time. 11 PLAN FOR OPERATIONAL PHASES OF THE PROJECT As the IDA credit ends on 30th June, 1995 the UPU has prepared and submitted a Project Proposal for a Local Government Development Project (LGDP) which is essentially designed to assist the local authorities to raise funds. The preparation of a TOR for this purpose had been built in to Phase IV tasks. This project proposal has 3 components:- (a) Development Fund - The existing Local Loans and Development Fund would be restructured and strengthened with additional seed capital so that local authorities would be able to obtain loans for infrastructure, commercial and income generating projects. (b) Planning and development - This involves community based planning to be undertaken by local authorities. The planning function has to be introduced to local 10  authorities as a means of optimum utilisation of all their available funds with the support of the community participation. (c) Consultancy, training and research - This involves necessary research into local government development, planning processes, consultancy through Local Authorities and Provincial Councils and provision of training. However, Provincial Councils have already instituted action to run a small unit in each province on the model of the UPU from July onwards as a measure to continue to provide guidance to Local Authorities. 11       IMAGING Report No.: 16503 Type: ICR