Sri Lanka - Northeast Irrigated Agriculture Project (NEIAP)

Report No. PID7955 Project Name Sri Lanka-North-East Irrigated(@) Agriculture Project Region South Asia Regional Office Sector Irrigation & Drainage Project ID LKPE58070 Borrower(s) Democratic Socialist Republic of Sri Lanka Implementing Agency North-East Provincial Council Environment Category B Date PID Prepared December 13, 1999 Projected Appraisal Date Projected Board Date 1. Country and Sector Background Agriculture has always been a central part of the economy in the North-East region with nearly two thirds of its pre-war population depending on agricultural farming, livestock rearing, and deep sea fishing for their livelihood. Out of its 369,000 ha of agricultural land, about 50t is fed by irrigation tanks/run-off-river (anicut) schemes and 16t by shallow open dugwells. Until the mid 1980s, the region had enjoyed a higher level of agricultural development than most other parts of the country, was a surplus rice producing area, and had a comparative advantage in the production of vegetables, fruits and other cash crops. Since 1983, the Government has faced the military challenge for control of the North-East region. Agriculture production and household incomes in the region have registered a substantial decline due to war related damage/destruction of public and private sector assets (including farm equipment and irrigation works), displacement of people, breakdown of the public and private sector support services, reduced access to farm inputs and credit, deterioration of rural roads, and disruption of distribution and marketing systems. Of 134 major/medium schemes (command area 147,500 ha) and about 2,400 minor irrigation schemes (command area 42,000 ha), most are heavily dilapidated due to lack of maintenance and war damage. These schemes are either operating at much lower capacity or damaged to the extent that no irrigated agricultural production takes place in the command areas at present. Most of the rural roads, which link farming and fishing communities to nearby market centers and townships are heavily deteriorated causing severe hardships to day-to-day life. According to the assessment carried out in 1994, an estimated 40,000 ha of agricultural land has gone out of production; losses of annual production of rice and cash crops are estimated at Rs 1 billion and Rs 2 billion respectively. Given that traditional economic activity in villages in the North-East is centered around irrigation schemes, restoration of productive capacity of these schemes and rural roads would be a priority in the resettlement of returning displaced people. The long ethnic conflict has also caused severe social disruptions resulting  in trauma, unemployment, breakdown of traditional values, loss of self- confidence and community spirit. While rehabilitation of the physical infrastructure and the support services system is essential for reviving the economy, it is also necessary to rebuild trust and self-reliance among the conflict-affected communities. No meaningful and sustained rehabilitation and reconstruction can take place at the village level, now and in the future, without the communities themselves being in the "driver's seat", and participating fully in the reconstruction process. The Government recognizes that peace is essential for nation building and economic development. Since the LTTE broke off peace talks in early 1995, the Government has pursued a two-pronged strategy to end the conflict, combining a military offensive to defeat or marginalize the LTTE with proposed constitutional amendments designed to give greater autonomy to the North-East Province. However, progress on both fronts is difficult. Nevertheless, the Government has recognized the need to rebuild self-reliance among the affected communities. The Government, with assistance from aid agencies and other donors, has been proceeding with relief and small-scale reconstruction activities in the region, with a view to building momentum towards an eventual peace settlement, and plans to continue to involve communities in the restoration of basic infrastructure and social service facilities. The government policy with regard to relief, rehabilitation and reconstruction aims at bringing the population affected by the conflict back to productive life by providing basic amenities to help the people to live with dignity, and to create a physically, economically, and socially sustainable environment for their reintegration. Priority is given to reviving agricultural production in the region as the returning displaced people depend on agriculture as their main source of income. 2. Objectives The project development objective is to help conflict affected communities in the North-East Province and adjoining areas to reestablish at least a subsistence level of production and basic community services, through assistance with jump starting agricultural and small-scale reconstruction activities, and to build their capacity for sustainable social and economic reintegration. 3. Rationale for Bank's Involvement There is shared consensus among the country stakeholders that peace is a prerequisite for sustained economic growth and poverty alleviation. Increased support for peace building, and strengthening ethnic harmony, underpins the Bank's assistance to Sri Lanka. Through its lending operations for post-conflict reconstruction activities in other countries, the Bank has gained experience, and is in a position to help the Government to formulate an overall transitional strategy and development agenda. Through its involvement in the project, the Bank would contribute to bringing about a closer cooperation and effective partnerships among the donor community, the Government, and receiving communities, thus laying a foundation for post- conflict reconstruction. 4. Description -2-  1. Rehabilitation of about 400 irrigation schemes 2. Community capacity building and small-scale reconstruction 3. Feasibility studies for rehabilitation of selected major/medium schemes 4. Project implementation support, including road construction equipment, vehicles, office equipment, contractual staff, and recurrent cost 5. Project technical and financial management audit. 5. Financing Total ( US$m) Government 4 IBRD IDA 27 BENEFICIARIES 1.4 Total Project Cost 32.4 6. Implementation The project would be implemented over a period of five years. In line with the concept of decentralization, the proposed credit would be channeled to the North-East Provincial Council (NEPC) through the Ministry of Provincial Councils and Local Government (MPCLG). Therefore MPCLG would be the project executing agency accountable to GOSL. Detailed arrangements for project implementation, management, and coordination are described in the Project Implementation Plan (PIP). Project implementation and coordination arrangements are described in Annex 2. The salient features of those arrangements are described below in this section. Project Implementing Agencies: The majority of the project area falls within the North-East Provincial Council area, and therefore, the NEPC would be responsible for the overall project implementation. The project would be implemented and managed by the Chief Secretary (CS). To assist the CS in the implementation and management, a PMU is being established directly under the CS. The Project Director (PD) and the key managerial staff of the Project Management Unit (PMU) would report to the CS. However, to ensure that the project is implemented in the overall context of the ongoing resettlement and reconstruction programs in the districts, and because of the pivotal role played by the District Secretaries (DSs) in the coordination and implementation of those programs, and to strengthen project management and control over a wide project area, project implementation in each district of the North-East would be anchored with the respective DS. In each district, the DS would take responsibility for engaging NGOs for social mobilization, developing annual work programs, overseeing the implementation management, and coordinating the project activities with the other ongoing programs. In the adjoining areas this responsibility is entrusted with the respective CS of the province. To assist the DSs and CSs to oversee project implementation, District Project Offices (DPOs) would be established in each district. Project Management Unit: A PMU would be established at Trincomalee to assist the CS for overall project programming, coordination and monitoring/evaluation. The PMU would be headed by a full-time PD who would - 3-  be assisted by a core management team comprising of: a technical director, a financial management specialist, a social development specialist, and a monitoring and evaluation specialist. In addition, the PMU would be assisted by locally hired technical auditors and financial management auditors. As a condition of Board presentation, the core PMU and DPO staff have already been appointed. Assurances were obtained during negotiations that all other staff necessary to implement first year's work program would be appointed no later than April 1, 2000. District Project Offices: A project office headed by a Deputy Project Director (DPD) and with adequate staffing, would be established in each district to manage day-to-day project activities, and liaise with implementation partners as well as the PMU at Trincomalee. To ensure accountability, one of the district level leaders of the existing regional/provincial departments, who has demonstrated competence and capacity for project management, and who is acceptable to the concerned DS/CS, and partnering agencies, would hold the position of the DPD. Regional offices of the central ministries and provincial departments would engage their technical and support staff, supplemented with locally hired, full-time technical consultants and support staff to implement the program. To monitor the activities of NGOs, and coordinate the social mobilization program with the PMU, one of the staff members at DPO will be trained in the processes of group formation and empowerment. Project Implementation Partners: International/national NGOs who are active in the area would assist in project implementation, particularly in areas of social mobilization, community capacity building, impact monitoring and evaluation, and preparation of a comprehensive social profile. Before project start-up, a rapid assessment of the NGOs identified for social mobilization component would be undertaken. This would identify the present capacity, as well as logistical and staffing gaps, so that these NGOs may have to take up the additional work under this project. UNHCR and ICRC would facilitate transport of project and Bank mission staff, and material to areas where security restrictions exist, and provide third-party monitoring and supervision support to the Bank. As a condition of Board presentation, NGOs/partner organizations for social mobilization for the first year's focus villages have been selected, and assurances were obtained during negotiations that the selected NGOs would be appointed no later than April 1, 2000. Further assurances were obtained that formal agreements would be entered into between the Government and UNHCR, and ICRC, with respect to third-party monitoring and supervision support, and those agreements would be signed by May 1, 2000. Project Preparation and Implementation Process: The project activities to be financed would be identified by the communities through a bottom-up, demand- driven process assisted by the NGOs. The process would begin from the village level using agreed eligibility/feasibility criteria. Activities would be prioritized, first at the divisional level, and then at the district level, using a transparent and consultative process. The process and criteria defined in Attachment 1 to Annex 2, were agreed during negotiations. Assurances were also obtained during negotiations that annual project implementation plans would be submitted to IDA by March 31, 2000, for the first year, and September 30 for each year thereafter. Project Steering Committee (PSC): A PSC has already been established to - 4 -  guide and monitor the project preparatory activities. The committee is chaired by the CS of the NEPC and is comprised of: the three CSs of the adjoining provinces, DSs of the North-East; regional field commanding officers of the Sri Lanka army; the PD; and designated representative of the Secretary to the MPCLG. The PSC would meet once a month in the first six months of the project, and at least every two months thereafter. The PSC minutes would be forwarded to IDA within two weeks of each meeting. National Project Coordinating Committee (NPCC): The Secretary of the MPCLG, by virtue of his position, is the chief accounting officer of the Government for the project. To enable the Secretary of the MPCLG to ensure financial accountability and to help the PMU/PSC resolve any issues that may require attention of the center, a NPCC would be set up. Assurances were obtained during negotiations that this committee would be established by May 1, 2000. It would be chaired by the Secretary, MPCLG, and would be comprised of: the CS of the four provinces covered by the project (North-East, North West, North Central, and Uva), and a nominated representative each from the Ministry of Defense, Departments of External Resources, Irrigation, and Agrarian Services, and PD, and the financial management specialist of the PMU. The committee would meet quarterly and minutes of each meeting would be forwarded to IDA within two weeks of each meeting. Technical Audit: To ensure cost effectiveness and transparency, the NEPC would appoint an independent engineering consulting firm acceptable to IDA as technical auditor to the project. The role of the technical auditor would be to review progressively and on sample basis: (a) civil works field surveys, designs, budget estimates, contract packaging, and contract award recommendations, and related processes and procedures, (b) quality assurance of civil works; and (c) contract payments that exceed a limit prescribed by the PMU. The technical auditor is expected to carry out random technical audits in the field, covering at least 10t of the project civil works carried out in each district every year. As a condition of Board presentation, GOSL has already issued Letters of Invitation to shortlisted firms seeking bids for the technical auditor for the project. Assurances were obtained during negotiations that the auditor would be appointed no later than May 1, 2000. Financial Management: The PMU in Trincomalee would be responsible for the overall financial management and disbursement of the project. The PMU would be assisted by the DPOs for recording, accounting and reporting financial transactions at the district level. The PMU has submitted a draft Financial Management Procedural Manual (FMPM) to the Bank. It has been reviewed by the Bank, and is found satisfactory. The financial management specialist would be responsible for: (a) establishment of the financial management procedures; (b) establishment and maintenance of sound financial management systems that would generate timely and reliable financial information to better manage project implementation, with particular focus on budgetary control systems; (c) training of the project accounts staff assigned to the DPOs; and (d) financial monitoring and reporting. Salient aspects of the financial management system are described in Annex 6. Disbursements: The NEPC would commence disbursements under the Bank's present disbursement procedures, but would continue to take further steps, including computerization of the project's accounting system, which are necessary to change over to Project Management Reports (PMR) based disbursements within one year after credit effectiveness. It was agreed during negotiations that - 5 -  the project would switch to PMR-based disbursements by July 31, 2001. However, transitional PMRs would be prepared from the inception of the project. Financial Management Audit: The project would be subject to both external and internal financial management audits. The Auditor General of Sri Lanka would carry out annual external audit of the project and submit annual reports to IDA within six months after the end of each fiscal year. Assurances were obtained during negotiations that an independent financial management auditor (private sector), acceptable to IDA, would be selected and appointed no later than May 1, 2000. The role of the auditor would be to conduct periodic reviews of: (a) the accounting, internal control systems, and control environment of the PMU; (b) the economy, efficiency, and effectiveness of project operations; and (c) the financial and operating information produced by the PMU. Based on these periodic reviews, the internal auditor would report quarterly to the CS and the PMU on material weaknesses and instances of non-compliance with the relevant procedures, and recommend changes or improvements to remedy weaknesses. Social Audit: The PMU, with the assistance of external consultants and under the guidance of social development specialist, would measure the social performance and impact of the project. To that end, a district-wise baseline social profile for all districts of the project area would be developed by March 1, 2000. Satisfactory completion of the profile would be a condition of disbursement in respect of civil works. The audit would focus on critical issues of governance, accountability, and transparency of the project components and processes, and provide inputs to the DPOs, as well as to all the implementing partners, to improve project implementation mechanisms and interventions. Retroactive Financing: Preparatory and start-up activities, as well as training of project staff and other stakeholders in participatory planning and implementation, at least six months before implementation. Expenditures for these activities would be eligible for retroactive financing, provided that the contracts for such activities are awarded following the Bank's procurement guidelines. Retroactive financing of up to SDR 1.9 million ($2.62 million) would be provided to ensure that these activities are carried out, starting on October 1, 1999. Procurement: All works, goods and services financed by IDA would be procured in accordance with IDA Guidelines. Detailed procurement arrangements are given in Annex 6. Since the project's works are community focused, technically simple, labor-intensive, and geographically dispersed in areas with difficult access, most of those works would, whenever practicable, be executed by direct contracting to registered community organizations, following the Bank's community-based procurement procedures. Project Monitoring and Evaluation (M&E): The PMU would systematically monitor and evaluate project inputs, outputs, effects, and impacts in accordance with the M&E framework detailed in Annex 1 and other supplementary indicators acceptable to the Bank. In addition, the PMU would monitor physical and financial progress of all project activities using reporting formats, processes, and supplementary indicators acceptable to the Bank. The M&E process would also include sample surveys, special studies, rapid field assessments, and social and environmental audits to monitor social and - 6 -  environmental impacts. Assurances were obtained during negotiations that the PMU would prepare and furnish to IDA, within one month from the end of each quarter, quarterly project progress reports summarizing implementation progress in physical and financial terms, project benchmarks, outputs, and impacts, analysis of deviations from agreed targets, and highlighting any specific issues which require remedial action. Project Reviews: During the project implementation period, the Government and IDA would conduct joint reviews of project implementation results on a biannual basis, and agree on any adjustments in project content and/or implementation arrangements in line with experience and changes in the project environment. Given the special circumstances of the project, two Comprehensive Project Reviews (CPRs) would be conducted during the project. Assurances were obtained during negotiations that these CPRs would be conducted by June 30, 2001, and June 30, 2003. A project Implementation Completion Report (ICR) would be completed by the Bank by December 31, 2005. The GOSL would prepare its own project completion evaluation report and submit to IDA by September 30, 2005. 7. Sustainability Sustainability of project benefits is contingent on the cessation of hostilities in the region, and implementation of a post-conflict reconstruction program to restore basic economic and social infrastructure. Without a durable peace settlement, this region would remain unstable, and the prospects for conflict-affected population to return to a normal productive life would be denied. In preparation of the next CAS, the Bank would carry out studies to address the underlying causes of the ethnic conflict and explore ways to support effort to promote ethnic harmony and the peace settlement. To ensure institutional and financial sustainability, capacity of the communities would be strengthened to take over ownership and O&M responsibilities of the project's assets. The NGOs would help the communities in identifying realistic means of allocating, and/or mobilizing, local resources to establish a fund for O&M of infrastructure transferred to villages, as well as other priorities established by the CBOs. 8. Lessons learned from past operations in the country/sector (a) Most of the Bank's work in post conflict reconstruction over the past decades has been in rebuilding physical infrastructure, carried out under guidelines for emergency lending as set out in OP/BP 8.50. Such an approach is also valid for reconstruction following natural disasters. Post-conflict reconstruction requires a broader approach that takes into account the multifaceted impacts of long, violent conflicts. Recent experience in Bosnia and Herzegovinia suggests that it is not feasible to define an overall strategy a priori. A pragmatic and "opportunistic" approach is needed, building on what is feasible. Although certain preconditions may be necessary before the Bank undertakes certain kinds of activities, fragile political situations, and often devastated economies, make the development of rigid performance criteria infeasible and inappropriate (Lessons from World Bank Experience in "post-conflict" reconstruction in, "Post-Conflict Reconstruction: Role of the World Bank", May 1998). (b) When the overall security situation is such that assistance is still feasible (as is the case in Sri Lanka), assistance could be provided directly -7 -  to households for survival and rehabilitation requirements, and for small- scale infrastructure, possibly of a temporary design, so as to minimize the cost of damage from continued or renewed conflict (Lessons from Sri Lanka in "The World Bank's Experience with Post-Conflict Reconstruction", OED Report no. 11769, May 1998) . (c) The Second Agriculture Extension Project (Cr-2380-CE) in Sri Lanka was rated unsatisfactory in terms of both implementation performance, and development objectives, because it failed to effect the envisaged agriculture extension reforms, and to set in place a sustainable bottom-up, demand driven, agricultural extension system. One key relevant lesson from the project, was the high potential for NGOs and the private sector to play a useful role in providing extension services to the farming community, and it was recognized that future projects must exploit the opportunity to engage NGOs at the community level (ICR; Report 18758, December, 1998). While the current situation is not appropriate for an extension reform, the proposed project has taken account of this important lesson of engaging NGOs at the community level. (d) Many of the lessons learned under the NIRP, and the main reasons for the unsatisfactory rating, involve institutional reforms concerning land- tenure and water rights needed for long-term sustainability. These reforms are not considered relevant for a rehabilitation project such as this project. The project design has benefited from some key lessons of the NIRP. The project's irrigation investments are different from those supported under NIRP, being smaller in size, and require minimum investments to restore productivity, rather than full-scale comprehensive rehabilitation. These include lessons that relate to: (i) the formation of community based organizations (CBOs) ahead of construction activity; (ii) careful attention to watershed hydrology in tank cascade systems; (iii) development and enforcement of pragmatic civil works specifications, contract packaging, administration, and quality assurance systems suitable for particular situations; (iv) establishment of maintenance funds by the community to cover O&M of rehabilitated water works; (v) engagement of UN agencies and international NGOs, such as ICRC, to improve project supervision in uncleared areas; and (vi) ensure project implementation efficiency and effectiveness through devolution of project management responsibility to the provincial level (CR-2260-CE; ICR; Report 19384, May 1999). (e) Local NGOs, and other civil society organizations, can make valuable contributions to post-conflict assistance operations. To increase their sense of commitment and ownership and hence, their impact, the Bank should elicit their participation to the greatest extent possible in the design and implementation of post-conflict operations at the local level (Lessons from Sri Lanka: "The World Bank's Experience with Post Conflict Reconstruction", OED Report No. 17769, May 1998). (f) Emergency projects should be of low complexity ("Emergency Housing Repair Project, Bosnia and Herzegovina", Cr-2902-BA ICR No. 17406). Emergency projects can work well if they have well defined objectives and a simple design ("Emergency Economic Recovery Project, Haiti"; Cr-2670-HA; ICR No .16166, Dec. 1996). (g) Devolution of implementation responsibilities to field staff of the implementing agencies, expedites project implementation, pace, and progress - 8 -  ("Third Flood Rehabilitation Emergency Project, Bangladesh"; Cr- 2048-BD; ICR, June 1997). (h) Effective participation by the beneficiaries and local authorities is necessary from the project's inception, to ensure sustainable post- maintenance and operation. This often conflicts with pressure to disburse and achieve quick results. Although tradeoffs are unavoidable, high beneficiary participation would insure the likelihood of sustainability ("Employment Generation Project, Haiti", Cr-2765-HA, ICR 17238, Dec. 1997). 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues The project would incorporate a social framework to establish and strengthen community decision making and organizational capacities, and to ensure that project investments are determined through a participatory and transparent process. This would ensure that decisions on village investments reflect local needs and conditions and would result in a more socially and environmentally sound approach to reconstruction. All project investments are small in size, very localized, largely labor intensive, and would utilize local materials. Therefore it is anticipated, that no major environmental impacts would arise from the implementation of the project. The project implementation is based on a program approach which would allow a more detailed and practical assessment of the environmental effects of the different subcomponents of the project. As an integral part of the project implementation, an environmental checklist, developed by the Working Group on Environmental Impacts of the International Commission on Irrigation and Drainage, would be used and adapted to monitor and evaluate the pre-project environmental problems, and environmental changes resulting from the project. Teams visiting scheme sites would use this checklist to identify site-specific environmental problems, and the ways and means of correcting and mitigating them during implementation, and prepare a brief environmental data sheet. The PMU would finalize this checklist and develop eligibility/feasibility criteria to cover specific environmental considerations for all project components, and retrospectively apply this criteria to the high priority village activities included in the first year's program, to the satisfaction of IDA. The project would educate beneficiaries and mobilize them to collectively undertake environmental conservation measures during implementation, as an integral part of the community capacity development component. Cost estimates for irrigation rehabilitation, and other community initiated development pilots, would include provisions for carrying out localized environmental upgrading activities by themselves. Contract specifications would reflect existing regulations and include clauses that would make it compulsory for contractors to implement civil works with minimum damage to the environment. Technical audits would be carried out by the technical auditor to evaluate, inter alia, conformity with environmental safeguards and enhancement measures in construction contracts and community reciprocal actions to protect the environment. NGOs and government counterparts responsible for facilitating the preparation of village development plans, and CBOs would be provided with awareness -9-  training on project related environmental issues, as well as on the application of the eligibility/feasibility criteria for investments. Technical and other staff of the PMU and the DPOs would be trained in the identification, monitoring, and evaluation, and management, of the potential project related environmental impacts. If necessary, hands-on training would be given to small contractors to help build their capacity to ensure that they adhere to the design specifications related to environmental aspects. 11. Contact Points: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Task Manager Nihal Fernando Colombo, Sri Lanka Telephone: (94-1) 44 80 70 Fax: (94-1) 44 03 57 Note: This is information on an envolving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending December 17, 1999. - 10 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID.