Sri Lanka - Environmental Action I Project

Report No. PIC1014 Project Name Sri Lanka-Environmental Action 1 Project (@) Region South Asia Sector Environment/Natural Resources Management Project ID LKPA10513 Borrower Democratic Socialist Republic of Sri Lanka Implementing Agency Ministry of Transport, Environment and Women Affairs (MTEWA) Colombo, Sri Lanka Tel.: 94-1-508576 - Fax: 94-1-581017 Ministry of Agriculture, Lands and Forests (MALF) Colombo, Sri Lanka Tel.: 94-1-694889 - Fax: 94-1-694889 Date this PID Prepared January 29, 1997 Project Appraisal Date October 10 - 30, 1995 Project Board Date March 25, 1997 1. Country & Sector Background: Sri Lanka has a richly varied natural resource base, a basic network of economic infrastructure and one of the best set of social indicators in the developing world with adult literacy of aost 90t and the demographic transition virtually complete. With these assets, Sri Lanka has the potential to match the economic performance of the newly industrializing East Asian Countries. In 1989, the government of Sri Lanka (GOSL) reformed its economic policies. These reforms have led to a significant improvement in economic performance, a surge in private sector investment and rapid growth in labor-intensive manufactured exports. As industrialization and tourism have moved forward, it is important that Sri Lanka takes measures to ensure that further growth would not be gained at the expense of the environment. The major environmental challenges that Sri Lanka faces include land degradation, deforestation, water pollution, coastal erosion, and growing urban and industrial pollution. Many factors contribute to the country's environmental challenges, but especially institutional and policy failures as well as inadequate funding. To deal with these environmental challenges, GOSL has taken some initial steps. On the institutional front, it established the Central Environment Authority (CEA). It also established in 1990 the Environment Division (ED) within the Ministry of Transport, Environment & Women Affairs (MTEWA) as the local entity for environmental policy, a role yet to be effectively assumed. Sri Lanka was also one of the first developing countries to prepare, with IDA assistance, a National Environmental Action Plan (NEAP 1992-96). The NEAP was updated in 1994 (NEAP 1995-98). Finally, the GOSL is now drafting a new legislation, more comprehensive in scope, in order to place the environment even higher on the national agenda. 2. Project Objectives: The primary objective of the proposed project is to assist GOSL in strengthening the institutional and policy  framework for environmental management within which the Bank and other donors would provide assistance for improved environmental management. In particular, the project would: (i) support the government's strategy of restructuring MTEWA's ED and strengthening of CEA to better carry out its analytical, monitoring and enforcement responsibilities; (ii) support ongoing efforts to integrate environmental considerations in the overall development planning process; and (iii) help GOSL take immediate remedial measures to reverse the trend of environmental degradation through pilot programs involving participatory approaches to environmental management. 3. Project Description: The project would comprise four major components: (a) Institutional Strengthening providing for (i) restructuring ED within MTEWA to allow it to play a central role in environmental policy, planning, and coordination at the national level; (ii) restructuring and strengthening CEA through establishment of a staff development program, enhancement of the Industrial Licensing and Inspection Program, development of environmental codes of practice for small industries, improvement of capacity for Environmental Impact Assessment, and strengthening of the environmental information system; (iii) provision of office and technical facilities to accommodate both ED and CEA; providing incremental staff, training, consultancy services, civil works, and equipment; and (iv) a policy subcomponent including a policy letter and a policy action plan that would broadly define legal, institutional, and policy changes that are required for sound environmental management. The policy subcomponent would also include studies of the linkages between sector and economy-wide policies and the environment. In addition, this subcomponent would support an annual review of the environmental implications of the Public Investment Program (PIP); (b) A Community Environmental Initiatives Facility (CEIF) would be set up to finance well-planned environmental activities at the grass-roots level within the priority NEAP/PIP sectors and in which other donors could also participate. CEIF aims at involving communities through participatory methods in implementing demonstration activities, providing facilities to train local communities in participatory work in the field of environment and conservation. CEIF would provide a mechanism for pooling resources and is a vehicle for private sector and NGO participation and for decentralizing environmental activities; and (c) Selected pilot activities in land management, which are currently severely underfunded. This component aims at minimizing the extent of land degradation in pilot areas with community participation, thereby increasing agricultural productivity as well as reducing the risk of erosion and its associated on-farm and off- farm impacts. 4. Implementation: MTEWA would be responsible for overall coordination of project implementation and would be IDA's main contact regarding implementation. MTEWA would have principal responsibility for the institutional component including the policy subcomponent (in close collaboration with the Ministry of Finance, Planning, Ethnic Affairs and National Integration. The Ministry of Agriculture, Land and Forests would be responsible for the pilot land management component. NGOs and communities would also play an important part in the planning and implementation of the land management component and CEIF. A Steering Committee headed by the Secretary, MTEWA, would meet once every three - 2 -  months to ensure coordinated implementation of project activities. The inter-sectoral nature of many environmental concerns and the diverse information required for effective management mean, inevitably, that several agencies have to be involved in the steering of overall environmental policy work, including this project. The Committee on Integrating Environment and Development Policy, chaired by the Secretary, MFPE&NI, as well as Secretary, MTEWA, would meet once a year to review environment-related activities in the PIP, NEAP, Policy Action Plan, and this project. 5. Project Financing: The total project cost over the four year period (FY97-FY01) is estimated to be US$19.1 million. IDA, GOSL, and the local communities would jointly finance the project. IDA would provide a credit of US$13.0 million, local communities US$2.9 million, all of which would be in labor, and GOSL the remaining US$3.2 million including the financing of taxes. IDA's credit would finance 68t of project costs, including 100t of foreign exchange costs and 70t of local costs. 6. Project Sustainability: The only project component with a long- term impact on GOSL's budget is the institutional strengthening component. Some expenditures introduced by the project would become part of GOSL's ongoing recurrent cost after project completion. In both ED and CEA, the budgetary impact is significant with current expenditures rising by 39 and 33w, respectively, from 1996 to the end of the four year project. However, the incremental recurrent cost, in 1995 constant prices, by the end of the project is only 0.2w of MTEWA's budgeted expenditures in 1995. The IDA credit would finance incremental cost on a declining basis, and it is expected that the incremental cost would be compensated by the overall gain in economic efficiency (e.g., through pollution abatement) due to the institutional strengthening under the project. GOSL has also indicated a willingness to sustain the ED and CEA expenditures and activities after completion of the project. 7. Poverty Category: Yes. The Project would enhance the asset base of poor communities in degraded areas. 8. Environmental Aspects: The project has been given a 'B' classification. It is expected to have beneficial effects on the environment. It would improve the management of environmental resources by both the Government and the people, providing mechanisms for decision making at the national, district and community levels. 9. Program Objective Categories: The project would support the following IDA objectives: (a) balancing environment protection with the promotion of private sector-led growth; and (b) improving the health and well being of the poor. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 -3 -  Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending February 7, 1997. - 4 -