Sri Lanka - First Environmental Action Project

Document of the International Development Association acting as Administrator of the Interim Trust Fund Report No. 15261-CE STAFF APPRAISAL REPORT SRI LANKA ENVIRONMENTAL ACTION 1 PROJECT February 24, 1997 South Asia Countrv Department 1 Agriculture and Natural Resources Division  CURRENCY EQUIVALENTS (January 3 1, 1997) Currency Unit-Sri Lankan Rupee (SLR) US$ 1.0() = SLR 57.19 SLR 1 million = US$ 17.486 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric Unit System Metric Unit British/US Equivalent I centimeter (cm) = 0,39 inch I meter (m) = 39.37 inches i kilometer (km) = 0.62 mile I hectare (ha) = 2.47 acres I square kilometer (kr2) = 0.386 square mile I cubic meter (m3) = 35.31 cubic feet I liter (1) = 0.264 gallon (USA) I kilogram (kg) = 2.205 pounds I metric ton (m ton) = 2.205 pounds Vice President: Mieko Nishimizu Acting Director Fakhruddin Ahmed Division Chief Ridwan Ali Staff: Ivar Serejski  PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ADB - Asian Development Bank Al - Agricultural Instructors CEA - Central Environmental Authority CEIF - Community Environmental Initiatives Facility CEIP - Colombo Environmental Improvement Project CIEDP - Committee on Integrating Environment and Development Policy CIP - Core Investment Program DDG - Deputy Director General DOA - Department of Agriculture EA1P - Environmental Action 1 Project ED - Environment Division EPL - Environmental Licensing Scheme EIA - Environmental Impact Assessment ERR - Economic Rate of Return FC-PCPS - Farmer Center - Problem Census, Problem Solving GIS - Geographical Information System GOSL - Government of Sri Lanka ICB - International Competitive Bidding IDA - International Development Association -IMI - International Irrigation Management Institute LSC - Land Steering Committee LUPPD - Land Use Policy Planning Division MAL&F - Ministry of Agriculture, Lands and Forestry MCs - Microcatchments MEIP - Metropolitan Environmental Improvement Program MEPA - Ministry of Environment and Parliamentary Affairs MFP - Ministry of Finance and Planning MTEWA - Ministry of Transport, Environment and Women's Affairs NCB - National Competitive Bidding NEAP - National Environmental Action Plan NESC - National Environmental Steering Committee NGOs - Non-Governmental Organizations NICs - Newly Industrialized Countries NORAD - Norwegian Agency for Development Cooperation NRMC - Natural Resources Management Center NRM - Natural Resources Management PAAs - Project Approving Agencies PCs - Provincial Councils PEA - Provincial Environmental Authority PIP - Public Investment Program PMIS - Project Management Information System PPF - Project Preparation Facility PSC - Provincial Steering Committee SALT - Slopping Agricultural Land Technology SC - Steering Committee SCF - Standard Conversion Factor SCOR - Shared Control and Natural Resources SOE - Statement of Expenditures TOR - Terms of Reference UNCED - United Nations Conference for Environment & Development UNDP/FAO - United Nations Development Program/Food and Agricultural Organization USAID - United States Agency for International Development   SRI LANKA STAFF APPRAISAL REPORT ENVIRONMENTAL ACTION 1 PROJECT Table of Contents CREDIT AND PROJECT SUMMARY ....................................................... iii Chapter I INTRODUCTION ........................................................,.,,.,,,,.,,,.1 Chapter 2 ENVIRONMENTAL CONTEXT ............2...........................................2 A. Environmental Resources and Issues...................................................2 Land Resources .............................................2 Water Resources ............................................ 2 Wildlife and Biodiversity .............................................3 Coastal and Marine Resources .......3.....................................3 Urban and Industrial Pollution .............................................4 Energy Sources .............................................4 Mineral Resources ............................................4 B. Market and Policy Failures ...................................................... 4 C. Institutional Failures ......................................................5 D. Inadequate Public Awareness, Monitoring, and Commitment ........................... ................6 E. Environmental Institutions ......................................................6 F. IDA and Donor Strategy in Sri Lanka's Environmental Management .......................................................9 Chapter 3 THE PROJECT ...................................................... 12 A. Project Rationale ................................................ 12 B Project Objectives ................................................ 12 C. Summary Description ................................................ 12 D. Detailed Features ................................................ 13 Institutional Strengthening ................................................ 13 Community Environment Initiatives Facility ................................................ 15 Pilot Land Management Component ................................................ 16 This report is based on the findings of an appraisal mission that visited Sri Lanka in October 1995. Mission members included Messrs./iMmes. Ivar Serejski and Nadim Khouri (Task Managers); Guy Motha, Meena Munshi (SAIAN); Christina Hartler, Pedro Alba (SAICO); Summith Pilapitava (SAISL); and Peter Browne-Cooper (Consultant). Messrs. Mohan Munasinghe (ENVPE): Tom Tsui (CMUB); Townsend Swayze (AF4AN); and John Redwood (ENVLW) were the peer reviewers. Ms. Mieko Nishimizu is the Regional Vice President; Mr. Fakhruddin Ahmed is the Acting Country Director; and Mr. Ridwan Ali is the Agriculture and Natural Operations Division Chief of Country Department 1, South Asia.  ii E. Project Costs and Financing .................................,....,.,.,,,,.,.,,.,.,.,.,.,,,,.,.,.,,.17 F. Procurement .18 G. Disbursements ....,. 21 H. Auditing and Reporting ..... 22 I. Environment .. 22 Chapter 4 ORGANIZATION AND MANAGEMENT .. 24 A. Coordination .. 24 B. Implementation .. 24 C. Implementation Schedule .. 27 D. Monitoring .. 27 Chapter 5 BENEFITS, JUSTIFICATION, AND RISKS .. 29 Chapter 6 AGREEMENTS AND RECOMMENDATION .. 33 ANNEXES 1. The Project's Link to Bank's Strategies 2. Policy Reform Agenda 3. Financial Data 4. Project Implementation Plan 5. Technical Assistance 6. Project Performance Indicators 7. Economic Analysis 8. Organization Charts Charts 1-5 CEA & ED Chart 6 Department of Agriculture 9. Related Documents Available in Project File MAPS: IBRD 27672 - Location of the Pilot Land Management Component IBRD 27673 - Agroecological Regions of Sri Lanka  iii SRI LANKA ENVIRONMENTAL ACTION 1 PROJECT Credit and Project Summary Borrower: Democratic Socialist Republic of Sri Lanka (GOSL) Implementing Agencies: Ministry of Transport, Environment and Women's Affairs (MTEWA), Ministry of Agriculture, Lands and Forestry (MAL&F), and Provincial Council Central Province Beneficiaries: Ministry of Transport, Environment, and Women's Affairs Ministry of Agriculture, Lands, and Forestry Provincial Council Central Province Non-Govemmental Organizations Poverty: Not Applicable Amount: SDR$10.7 million (US$14.8 million equivalent) Terms: Credit: Standard with 40 years maturity Commitment Fee: Standard (0.50% on undisbursed credit balance, beginning 60 days after signing, less any waiver On Lending Terms: Not Applicable Financing Plan: See Para. 3.26 Economic Rate Not Applicable for the project as a whole. For the pilot activities in the of Return: Land Management Component 24%. Staff Appraisal Report 15261-CE Maps IBRD 27672 - Location of the Pilot Land Management Component IBRD 27673 - Agroecological Regions of Sri Lanka Project Identification LKPA 10513 Number   SRI LANKA STAFF APPRAISAL REPORT ENVIRONMENTAL ACTION 1 PROJECT 1. INTRODUCTION 1.1 Sri Lanka has a rich and varied natural resource base, a basic network of economic infrastructure and one of the best sets of social indicators in the developing world with an adult literacy rate of almost 90%. With these assets, Sri Lanka has the potential to match the economic performance of the newly industrialized countries (NICs) of East Asia. 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 move forward, it is important that Sri Lanka takes measures to ensure that further growth would not be gained at the expense of the environment or that environmental problems do not hinder the achievement of growth targets. There is a particular need for policy and institutional changes to promote efficient and more sustainable economic growth that explicitly takes environmental factors into consideration. The proposed project is designed to help GOSL meet this need. 1.2 GOSL has taken initial steps to address environmental issues. On the institutional front, it established the Central Environment Authority (CEA) under the National Environmental Act (the Act) in 1980. The Act gives a policy mandate to CEA, and in 1990 it also established the Environment Division (ED) within the then Ministry of Environment and Parliamentary Affairs (MEPA) as the focal entity for environmental policy, a role yet to be effectively assumed. Sri Lanka was also one of the first developing countries to prepare a National Environmental Action Plan (NEAP 1992-96). This was updated in 1994 (NEAP 1995-98) (paras. 2.32-2.35). Finally, GOSL is now drafting new legislation, more comprehensive in scope, in order to place the environment even higher on the national agenda. Despite these initial steps, Sri Lanka remains confronted by serious environmental problems. Chief among these are land degradation and the continuous threat to forest and other vulnerable ecosystems from shifting cultivation, as well as air, water, and soil pollution caused by industrialization and tourism. Several donor agencies, including the Bank, have been assisting GOSL in tackling some of these problems. 1.3 GOSL, in collaboration with the Bank and with financial support from the Royal Norwegian Government, identified and prepared the Environmental Action 1 Project (EA1P). The Bank, while acting as executing agency of a Project Preparation Trust Fund, engaged a consultant team that produced the project preparation report (Sri Lanka Environmental Action 1 Project Preparation Report, July 1, 1994). This staff appraisal report is based on the preparation report and on the updated NEAP. The proposed project is the first phase of a long-term effort to assist GOSL in environmental management. Thc emphasis in this first phase is on strengthening the institutional and policy framework for environmental management within which the Bank and other donors would provide assistance in the environmental sector.  2 2. ENVIRONMENTAL CONTEXT A. ENVIRONMENTAL RESOURCES AND ISSUES 2.1 The following paragraphs give an overview of Sri Lanka's natural resource base and the nature of environmental problems in each area: 2.2 Land Resources. Of Sri Lanka's 6.5 million ha, 2.2 million ha are under permanent cultivation and 1.1 million ha are under shifting (chena) cultivation. About 73% of cultivated land is under smallholdings. The major agricultural systems include irrigated croplands of rice and other food crops for domestic consumption, mainly centered on 12,000 small anicuts or village tanks in the dry zone; comparatively recent large-scale irrigation development projects, the largest of which are on the Mahaweli River; about 800,000 ha of large, but declining, privately-owned, export-oriented tree crop plantations on the 30-60