Report and Recommendation NRCP

8/8/2019 Report and Recommendation NRCP

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Report and Recommendation of the Presidentto the Board of Directors

Project Number: 42254April 2010

Proposed Loans and Technical Assistance Grant

Democratic Socialist Republic of Sri Lanka:Northern Road Connectivity Project


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CURRENCY EQUIVALENTS (as of 31 March 2010)

Currency Unit Sri Lanka rupee/s (SLRe/SLRs)

SLRe1.00 = $0.0087298121$1.00 = SLRs114.550003

ABBREVIATIONS

ADB Asian Development BankCPS country partnership strategyEIRR economic internal rate of returnEMP environmental management planESD Environment and Social DivisionIEE initial environmental examinationMLGPC Ministry of Local Government and Provincial CouncilsMOHRD Ministry of Highways and Road DevelopmentNCP North Central ProvinceNPC Northern Provincial CouncilNPRDD Northern Provincial Road Development DepartmentPAM project administration manualRDA Road Development AuthorityTA technical assistance

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 31 December.(ii) In this report, "$" refers to US dollars.

Vice-President X. Zhao, Operations 1Director General S. H. Rahman, South Asia Department (SARD)Director S. Widowati, Transport and Communications Division, SARD

Team leader D. K. Lee, Transport Specialist, SARDTeam members N. M. Amerasinghe, Project Implementation Officer, Sri Lanka Resident

Mission (SLRM), SARDK. M. Emzita, Senior Counsel, Office of the General CounselC. Epa, Financial Management/Disbursement Officer, SLRM, SARD

A. Gamaathige, Social Sector/Resettlement Officer, SLRM, SARDS. Muthugala, Procurement Officer, SLRM, SARDA. Nanayakara, Project Implementation Officer, SLRM, SARDJ. Perera, Principal Safeguards Specialist, SARD

Peer reviewer Y. Tanaka, Senior Transport Specialist, Southeast Asia Department

In preparing any country program or strategy, financing any project, or by making anydesignation of or reference to a particular territory or geographic area in this document, theAsian Development Bank does not intend to make any judgments as to the legal or other statusof any territory or area.


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CONTENTS

Page

MAP {To be inserted}

I.

THE PROPOSAL 1II. THE PROJECT 1

A. Rationale 1 B. Impact and Outcome 2 C. Outputs 2 D. Investment and Financing Plans 2 E. Implementation Arrangements 4

III. TECHNICAL ASSISTANCE 5IV. DUE DILIGENCE 6

A. Technical 6 B. Economic 6 C. Governance 7 D. Poverty and Social 8 E. Safeguards 9 F. Risks and Mitigating Measures 10

V. ASSURANCES 10VI. RECOMMENDATION 10

APPENDIXES1. Design and Monitoring Framework 112. List of Linked Documents 13


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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on proposed loansto the Democratic Socialist Republic of Sri Lanka for the Northern Road Connectivity Project.The report also describes proposed technical assistance (TA) for Capacity Development of theNorthern Provincial Road Development Department, and if the Board approves the proposedloan, I, acting under the authority delegated to me by the Board, will approve the TA.

2. The project is to rehabilitate about 140 kilometers (km) of provincial roads in NorthernProvince and 170 km of national roads in Northern Province and North Central Province (NCP).The project is timely and targetedto improve road connectivity in the country's conflict-affectedarea in the northern region, helping to restore access to basic social services and markets. It willfacilitate economic growth and contribute to reducing disparities in Sri Lanka, consistent with oneof the Governments key goals, which emphasizes equitable growth 1.

II. THE PROJECT

A. Rationale

3. Northern Province is one of the worst conflict-affected regions in the country, emergingfrom nearly three decades of civil war. The damage to physical infrastructure has been severeand extensive. In particular, the road network lies in a state of total disrepair due to prolongedneglect and underinvestment. People in this region no longer have access to markets or basicsocial services as they once had and the transport of goods has dramatically slowed. Mobilitybetween Northern Province and the country's southern region is also poor due to the substantialtravel time required because of the poor condition of the linking national arterial roads. This hashindered the spread of economic activities and development. Northern Province has the highestpoverty rate in the country.

4. The 140 km of provincial roads to be rehabilitated are in Mannar and Vavuniya districts, 2

and comprise minor feeder roads connecting settlements with markets, and major feeder roadsconnecting towns and villages. Ultimately, these roads connect to the main northsouth nationalarterial road. 3 The 170 km of national roads to be rehabilitated comprise 108 km connectingmajor provincial centers within Northern Province and 62 km in NCP. They will help link NorthernProvince with major city centers in the country's southern region. The roads in Northern Provincewill be rehabilitated to all-weather bituminous surfaces and will facilitate access to basic socialservices, such as schools, hospitals, and local markets. The national link roads in NCP willreceive improved surfacing and marginal widening, which will reduce travel time and cost, helpingto revitalize travel to and from the north. Consequently, the improved road connectivity willstimulate new economic opportunities.

5. To ensure development coordination, consultations were held with other developing

partners to ensure equitable geographic coverage and avoid overlaps. The project's mainoutcomeimproving road connectivitycomplements the recently approved Asian DevelopmentBank (ADB) supplementary loan for the North East Community Restoration and Development

1 Government of Sri Lanka. 10-Year Development Franmework (2007-2016). Sri Lanka.2 The project covers two of five districts in Northern Province. The World Bank is planning to cover Jaffna district.

The two remaining districts (Mullaitivuu and Kilinochchi) will be covered under future projects after unexplodedordnance are cleared.

3 Connects to A9 section (GalkulamaJaffna), which is undergoing rehabilitation financed by China Exim Bank.


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Project II 4 and the proposed Conflict Affected Region Emergency Assistance Project, 5 which focuson reconstructing Northern Province's essential infrastructure such as schools, hospitals, andadministrative services and buildings. These, collectively, help ensure that ADB assistance isprovided in an integrated fashion and will effectively help the government to build capacity forsustainable social and economic integration.

6. The project is consistent with the strategic objective set out in ADB's country strategyand program (20092011): To improve the transport system in Sri Lanka, and promoteregionally balanced and socially inclusive economic growth. The project is included in thecountry operations business plan, Sri Lanka (20102012).

7. In conjunction with the project, an associated TA is proposed to develop the capacity ofthe Northern Provincial Road Development Department (NPRDD) to effectively manage NorthernProvince's provincial road network.

B. Impact and Outcome

8. In support of the country strategy and program outcome, the project impact will be

balanced and inclusive growth in Northern Province. The project's immediate outcome will beimproved road connectivity within Northern Province and with the southern region of thecountry.

C. Outputs

9. The project outputs are (i) approximately 170 km of national roads in Northern Provinceand NCP are rehabilitated; (ii) approximately 140 km of provincial roads in Northern Provinceare rehabilitated, and selected bridge links are rehabilitated or replaced; and (iii) NPRDD officesare rehabilitated.

D. Investment and Financing Plans

10. The project is estimated to cost $173 million, including taxes and duties of about$18.6 million to be financed by the government. The total cost includes physical and pricecontingencies, and interest and other charges during implementation. The detailed costestimates by expenditure category and detailed cost estimates by financier are in the projectadministration manual (PAM). The investment plan is summarized in Table 1.

11. The government has requested a loan of $130 million from ADBs ordinary capitalresources to help finance civil works for national roads and recurrent costs for projectmanagement and consulting services, and a loan of SDR { amount to be determined andinserted } ($24.4 million equivalent) from ADBs Special Funds resources to help finance civilworks for provincial roads, recurrent costs for project management, and capacity development

equipment.

12. The loan from ADBs ordinary capital resources will have a 25-year term, including agrace period of 5 years, an annual interest rate determined in accordance with ADBs Londoninterbank offered rate-based lending facility, a commitment charge of 0.15% per year, and other

4 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Supplementary Loan to the Democratic Socialist Republic of Sri Lanka for the North East Community Restoration and Development Project II. Manila (Loan 2168-SRI, for $52.8 million, approved on 2 March).

5 Under processing for consideration by the ADB Board of Directors in April 2010.


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such terms and conditions set forth in the draft loan agreement. The interest and other chargesduring construction will be capitalized in the loan. The government has provided ADB with (i) thereasons for its decision to borrow under ADBs London interbank offered rate-based lendingfacility based on these terms and conditions, and (ii) an undertaking that these choices were itsown independent decision and not made in reliance on any communication or advice from ADB.

13. The loan from ADBs Special Funds resources will have a term of 32 years, including agrace period of 8 years, with an interest rate of 1.0% per annum during the grace period and1.5% per annum thereafter, and other such terms and conditions set forth in the draft loanagreement.

Table 1: Project Investment Plan($ million)

Item Amount a A. Base Cost b

1. National roads 115.622. Provincial roads 21.373. Equipmentvehicles 0.224. Consulting services 7.205. Project management 0.80

Subtotal (A) 145.21B. Contingencies c 23.03C. Financing Charges during Implementation d 4.76

Total (A+B+C) 173.00a Includes taxes and duties of $18.6 million to be financed from government resources. b In early 2010 prices.c Physical contingencies computed at 10.0% for civil works and equipment; and consulting services

contract values. Price contingencies computed at 2.0% on foreign exchange costs and 7.0% onlocal currency costs; includes provision for potential exchange rate fluctuation under the assumptionof a purchasing power parity exchange rate.

d Includes interest and commitment charges. Interest, which will be capitalized during implementation,

is computed at the 5-year forward London interbank offered rate plus an effective contractual spreadof 0.2% per annum for the ordinary capital resources loan; and at 1.0% per annum for the loan fromADBs Special Funds resources. Commitment charges for the ordinary capital resources loan are0.15% per year to be charged on the undisbursed loan amount.

Source: Asian Development Bank estimates.

14. ADB will finance 89% 6 of the total project investment cost; the government will finance11% (Table 2). The government's financing will cover taxes and duties only. This will ease thegovernment's financial burden to provide counterpart funding and ensure adequate cash flowduring implementation. It is also consistent with the country strategy and program approach,considering a difficult macroeconomic environment and supporting the government's highpriority to develop Northern Province. Detailed cost estimates and a financing plan are providedin the PAM, including the magnitudes of physical contingencies as a percentage of the basecosts and of the inflation factors used in estimating price contingencies.

15. ADB's Road Project Preparatory Facility 7 was utilized to undertake project preparatoryactivities.

6 The current country limit for Sri Lanka is 90%.7 ADB. 2004. Report and Recommendation of the President to the Board of Directors: Proposed Technical

Assistance Loan to the Democratic Socialist Republic of Sri Lanka for the Road Project Preparatory Facility. Manila(Loan 2080-SRI, for $15 million, approved on 13 April).


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Table 2: Financing Plan

SourceAmount

($ million) Share ofTotal (%)

ADB Ordinary Capital Resources Loan 130.00 75.0ADB Special Funds Resources Loan 24.40 14.0

Government 18.60 11.0Total 173.00 100.0ADB = Asian Development Bank.Source: Asian Development Bank estimates.

E. Implementation Arrangements

16. The implementation arrangements are summarized in Table 3 and described in detail inthe PAM.

Table 3: Implementation Arrangements

Aspects ArrangementsImplementation period 5 years

Estimated project completiondate 30 June 2015Project management

Overall oversight body National Steering Committee, cochairs: MOHRD and MLGPC; members:MOFP represented by DST, National Planning Department, FinanceCommission, NPC, provincial MIDR, and NPRDD

National Road Component Executing agency MOHRDImplementing agency RDAProject implementation unit Colombo with district offices in Northern Province and NCP, number of

staff proposed: 18Provincial Road Component Oversight body Provincial Coordinating Committee, chief secretary of Northern Province

(chair), provincial MIDR, and NPRDDExecuting agency MLGPC (utilizing the existing project coordinating unit for ADB Loan 2546) a

Implementing agency NPCNPRDDProject implementation unit Trincomalee (main office), number of staff proposed: 17

Procurement International competitive bidding 8 contracts About $103 millionNational competitive bidding 6 contracts About $19 millionShopping tbd tbd

Consulting services PIC for national road (QCBS) 33 internationaland 745 national

About $2.7 million

PIC for provincial road (QCBS) 35 internationaland 780 national

About $2.7 million

Advance contracting Works and consulting servicesDisbursement The loan proceeds will be disbursed in accordance with ADB's Loan

Disbursement Handbook (2007, as amended from time to time) anddetailed arrangements agreed to by the government and ADB.ADB = Asian Development Bank, DST = Department of Secretary of Treasury, MIDR = Ministry of InfrastructureDevelopment and Reconstruction, MLGPC = Ministry of Local Government and Provincial Councils, MOFP =Ministry of Finance and Planning, MOHRD = Ministry of Highways and Road Development, NPC = NorthernProvincial Council, NPRDD = Northern Provincial Road Development Department, PIC = project implementationconsultant, QCBS = quality- and cost-based selection, RDA = Road Development Authority.a ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan and

Technical Assistance Grant to the Democratic Socialist Republic of Sri Lanka for the Eastern and North Central Provincial Project. Manila (Loan 2546-SRI, for $70 million, approved on 16 September).

Source: Government of Sri Lanka.


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17. Domestic preference. Although Sri Lanka's current annual gross national income percapita (formerly gross national product) is above the eligible threshold 8, the government hasrequested domestic preference to facilitate the country's post conflict recovery, in particular forthe construction industry. Sri Lanka's construction industry has been impacted by a combinationof adverse factors, including many years of an uncertain business climate during the conflictperiod, commodities price shock 2 years ago, and more recently, the global financial crisis.Many contractors have been unable to maintain capital expenditures on plants and machinery,and continue to suffer loss of permanent technical staff due to migration and to other industries.As the country is emerging from a prolonged conflict period and the reconstruction begins in thenorth, the government's priority is to ensure opportunities for the domestic contractors torecover and strengthen. In support of the Government's request, the Project is to use adomestic preference of 7.5% when evaluating civil works under international competitivebidding 9. The proposed relaxation of eligibility for domestic preference has been consideredbased on a recommended approach to engaging with Weakly Performing Countries (WPC) 10.While Sri Lanka is no longer considered a WPC, the country does exhibit weak performancedue to post conflict fragility, and supporting the Government's request is in keeping one ofADB's guiding principles of promoting domestic construction industries in the developingmember countries. This will also contribute to a harmonized approach among donors, as theWorld Bank, which uses the identical eligibility threshold, is currently providing similar domesticpreference for works in Sri Lanka for the road transport projects.

III. TECHNICAL ASSISTANCE

18. The percentage of maintainable roads in Northern Province, although very small atpresent, will rise in time as more roads are rehabilitated to maintainable conditions. Therefore,in conjunction with the project, capacity development TA will be provided with the objective ofstrengthening the capacity of the Northern Provincial CouncilNorthern Provincial RoadDevelopment Department (NPCNPRDD) to effectively manage and maintain the provincialroad network. This is consistent with lessons from ADB's previous projects on the need toensure that provincial road development departments or agencies strengthen their capacity and

utilize a systematic approach for road asset management. To maximize effectiveness,11

the TAwill focus on NPCNPRDD, as ADB's other ongoing project 12 is strengthening the capacity ofthe Road Development Authority (RDA). The TA will carry out the following activities:

(i) Engage a TA consultant by June 2011.(ii) Prepare a capacity development plan by September 2011, which includes

improved organizational arrangements, optimized staffing allocation and

8 Current limit set in the World Bank OM (OP3.10 Annex D) is $975 and Sri Lanka's annual GNI is $1,780.9 Bidding for the national road packages, which will be procured under international competitive bidding, will not

commence until the proposed domestic preference is approved by the ADB Board.10 ADB. 30 May 2007. Management Paper on Achieving Development Effectiveness in Weakly Performing Countries

(The Asian Development Bank's Approach to Engaging with Weakly Performing Countries) recommends flexibilityand relaxation of eligibility rules for procurement when operating in weak performing countries or countries whichexhibit evidence of weak performance such as in post conflict fragility.

11 Lessons from ADB. 2002. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grants to the Democratic Socialist Republic of Sri Lanka for the Road Sector Development Project . Manila (Loan 1986-SRI, TA 4074-SRI, and TA 4075-SRI; approved on 19 December).

12 Institutional strengthening for RDA is ongoing under ADB. 2005. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the Democratic Socialist Republic of Sri Lanka for the National Highways Sector Project . Manila (Loan 2217-SRI and TA 4736-SRI, approved on 15December).


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assignments, needs-based training programs, and requirements for an upgradedoffice management information system.

(iii) Implement the upgraded office management information by December 2011,which includes upgraded basic computers, networking, and updated financial andaccounting software.

(iv) Implement a basic road maintenance management system, including completinga database of a provincial road inventory with updated conditions by June 2012and preparing a prioritized 3-year rolling road investment plan by December2012, which includes an annual maintenance work program and draft annualroad maintenance budget application for FY2013.

(v) Conduct needs-based in-house and out-of-country training programs byDecember 2010, in project management, contract administration, financialmanagement, performance-based maintenance, and road safety.

19. The TA is estimated to cost $560,000, of which ADB will finance $500,000 on a grantbasis from ADB's Technical Assistance Special Fund (TASFIV). The government and NPC NPRDD will provide the remaining $60,000 equivalent in kind. The government will provideoffice space and NPCNPRDD will provide counterpart staff. The TA falls under category B asimplementation is expected to be relatively simple. The TA will provide required consultantinputs and necessary equipment and facilities. Renovation and upgrading of NPCNPRDD'sdistrict offices in Vavuniya and Mannar will be financed under the loan. Individual consultantswill be recruited in accordance with ADB's Guidelines on the Use of Consultants ( 2007, asamended from time to time) . Disbursements will be in accordance with ADB's Technical Assistance Disbursement Handbook .13 International consulting inputs of 12 person-months andnational consulting inputs of 16 person-months will be required. The TA will be implementedfrom January 2011 to December 2012. The details of the TA costs and activities, including theterms of reference, are in the PAM.

IV. DUE DILIGENCE

A. Technical

20. The engineering design has been carried out based on site condition surveys and fieldinvestigations, optimizing the required improvement works for economy and constructionefficiency in accordance with applicable international design standards. The constructionmethod will utilize proven technology with standard materials compatible with local conditions.

B. Economic

21. The economic assessment was carried out in accordance with ADB's Guidelines for the Economic Analysis of Projects . The principal benefits expected are in terms of savings invehicle operating costs and travel time. The highway design and maintenance model was

utilized to calculate vehicle operating costs and time costs with appropriate input parameters forSri Lanka. The estimated economic internal rates of return (EIRRs) range from 20.1% to 24.1%for national road sections. The sensitivity analysis with adverse variation in project costs andproject benefits 14 also indicates that the national road sections have an EIRR above 12% evenwith increased costs and reduced benefits. The EIRRs for provincial roads range from 12.8% to

13 ADB. 2008. Technical Assistance Disbursement Handbook. Manila.14 Sensitivity factors: 15% decrease in project benefits (vehicle operating cost and travel time savings), and 15%

increase in project cost individually and in combination


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49.9%. The overall estimated EIRR for the provincial road component is 21.3%. The sensitivityanalysis of the provincial road component resulted in an EIRR above 12% in all sensitivity tests.A few of the provincial road sections, individually, may have an EIRR below 12% if there is anadverse variation in costs and benefits. However, these provincial road sections provideessential accessibility to the rural and poor population in the interior areas. Based on thefindings of the economic assessment, the proposed improvements under the project areeconomically viable and sustainable, and are justified in social costbenefit terms.

C. Governance

22. Policy and legal . RDA, the implementing agency for the national road component, wasestablished by the Road Development Authority Act in 1981. Under the Ministry of Highwaysand Road Development (MOHRD), RDA is responsible for the development and maintenance ofthe national highway network comprising the class A and class B trunk roads. RDA is headed bya chairperson who reports to the secretary of MOHRD. NPC, the implementing agency for theprovincial road component, in accordance with the 13th Amendment to the Constitution, 15 isresponsible for the development and maintenance of Northern Province's provincial roadnetwork comprising class C and D roads. NPCNPRDD carries out the functions for planning

and executing rehabilitation and improvements. NPRDD is headed by a provincial director whoreports to Northern Province's chief secretary through the secretary of MIDR. Northern Provincewas a conflict-affected region and still does not have an elected council, but elections areexpected to be held very soon. This, however, is not anticipated to affect project implementationas the chief secretary of Northern Province, who is the chief executive officer with wideprovincial administrative authority, will chair the project coordinating committee, which isresponsible for monitoring provincial project implementation. This is similar to the arrangementadopted for ADB's ongoing project in neighboring Eastern Province 16.

23. Institutional capacity . NPRDD's capacity has been supplemented through the projectpreparatory stage with support provided by the ongoing ADB Road Project Preparatory Facility(footnote 7), administered by the Ministry of Local Government and Provincial Councils

(MLGPC), the executing agency for the provincial road component of the project. NPRDD'scapacity for implementation will be supported by the provision of a project implementationconsultant who will assist with the supervision of works. For long-term capacity strengthening,an associated TA will be provided to enhance organizational effectiveness with respect todeveloping and maintaining the provincial roads. RDA has sufficient capacity, past experience,and institutional strength to implement the project. 17

24. Financial management . Financial management assessment was carried out for theimplementing agenciesRDA for the national road component and NPCNPRDD for theprovincial road component. RDA has prior and ongoing experience with implementing ADB-funded projects and has satisfactory capacity in terms of project financial accounting andknowledge of ADB disbursement procedures. Within the project implementation unit for the

15 An important milestone in the long-term solution to the conflict, the 13th Amendment to the Constitution attempts todecentralize administration by devolution. It established nine provincial councils and granted them powers to plan,execute, and manage selected functions.

16 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the Democratic Socialist Republic of Sri Lanka for the Eastern and North Central Provincial Project. Manila (Loan 2546-SRI, for $70 million, approved on 16 September).

17 RDA was established in 1981 and has been undergoing reform and institutional strengthening with assistance fromADB's Road Sector Development Project (Loan 1986-SRI), completed in December 2009, and the ongoing ADBNational Highways Sector Project (Loan 2217-SRI).


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national road component, RDA will establish a dedicated project accounting and finance teamwith suitably qualified accountants: a project accountant, an assistant accountant, and threeaccount clerks. NPCNPRDD does not have recent experience with externally funded projectsand necessary capacity strengthening will be carried out before and during implementation.Within the project implementation unit for the provincial road component, NPCNPRDD willestablish a dedicated project accounting and finance team with suitably qualified accountantscomprising a project accountant and two management accountants. This team will be providedwith training and guidance by MLGPC staff who have practical knowledge of ADB disbursementguidelines and procedure. NPCNPRDD's capacity will be strengthened during implementationunder the capacity development TA, by implementing a financial management informationsystem that includes accounting software, networked computers, and training.

25. Both RDA and NPCNPRDD will establish and maintain separate project records andaccounts to identify the financing resources received and expenditures made for the project,ensuring an adequate audit trail. The government's Office of Auditor General will annually auditthe project accounts and related financial statements in accordance with international auditingstandards. To further minimize any risks, ADB's direct payment procedure will be utilized forsubstantial disbursement of payments for works, goods, and consulting services.

26. Procurement and anticorruption . Procurement of goods and works will be carried outin terms of the relevant ADB guidelines, with strong and real time oversight by ADB at key stepsin the procurement process. A country procurement assessment is needed and is underdiscussion with the government. The emphasis is on improving the procurement environment.The Bribery Act, No. 11 of 1954 (as amended), the Declaration of Asset and Liabilities Act,No. 1 of 1975, and Permanent Commission to Investigate Allegations of Bribery and CorruptionAct, No 19 of 1994, provide a strong legal basis to deal with bribery and corruption. ThePermanent Commission to Investigate Allegations of Bribery and Corruption is conductingdecentralized bribery-related investigations in Northern and Eastern provinces to coincide withlarge amounts of post-conflict development assistance and investment. ADBs AnticorruptionPolicy (1998, as amended to date) was explained to and discussed with the government,

executing agencies (MOHRD and MLGPC), and implementing agencies (RDA and NPC-NPRDD). The specific policy requirements and supplementary measures are described in thePAM.

D. Poverty and Social

27. Improving road access within the project area and connectivity to other provinces in thecountry are expected to develop and expand agriculture, fishing, commercial activities, andother services. The beneficiary group includes subsistence farmers, poor fisherfolk, smalltraders, and other services providers. The project will have positive social and economicbenefits for all ethnic groups in the project area. The project does not have substantive genderissues as impacts and benefits will apply equally to men and women. The project will provide

equally positive benefits for both genders in terms of improved access to schools, health careinstitutions, and other services. The contract for civil works will include measure to ensure safeand healthy working environment for both men and women laborers. The civil works contractorswill be required to implement appropriate measures with respect to compliance of equal pay forequal work for men and women, health and safety at construction sites and labor camps, andawareness program for workers on prevention of HIV.


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E. Safeguards

1. Involuntary Resettlement and Indigenous Peoples

28. The project is categorized as category B in accordance with ADB's new SafeguardPolicy Statement (2009). During the project preparatory studies and assessments, project stripplans, based on cross sections, were prepared and verified the project boundaries and limits ofthe new construction. Based on this, the improvement works are envisaged to be within theexisting right-of-way boundaries. However, if a land acquisition requirement is identified duringimplementation, such as small strips of land adjacent to the road that could affect someproperties, including boundary walls, business establishments, crops and trees, home gardens,or other resettlement impacts, the following steps will be taken; assess whether any type ofpermanent or temporary displacementphysical or economic or bothwill take place becauseof the project, formulate a resettlement plan in consultation with affected peoples and otherstakeholders for approval by ADB and disclosure, and implement the resettlement plan. Theconstruction activities may proceed, after these requirements are met satisfactorily.

2. Environment

29. The project is classified as category B for the environment, and initial environmentalexaminations (IEEs), in accordance with ADB's new Safeguard Policy Statement, wereconducted for each of the identified roads. Based on the findings of the IEEs, the project doesnot give rise to any significant adverse impacts that are irreversible, diverse, or unprecedented.All impacts can be managed through the adoption of suitable mitigation measures, which aredescribed in the respective IEEs and environmental management plans (EMPs), which will beincorporated in the contract documents. Typical impacts associated with road construction work,such as dust generation, temporary disruption to traffic, temporary disruption of access to thoseliving in areas adjoining work areas, and soil erosion from exposed surfaces, can be mitigatedthrough measures described in the IEEs and EMPs. The main environmental concern withrespect to this project is the availability of suitable borrow and quarry sites within the project

area. Most of the suitable sites are located outside Northern Province. This results in longhaulage distances. The implementing agencies will ensure that sites selected as borrow andquarry sites will have sufficient material to cater to the project needs, while not compromisingthe requirements of existing users within the area where the sites are located, and that haulagewill be done along roads approved by respective local authorities to ensure that the roads havesufficient carrying capacity for such haulage. While the project envisages using borrow andquarry sites already in operation, if any new sites are to be opened the implementing agencieswill ensure that measures described in the EMPs are adopted during selection and site closure,and relevant approvals from the respective authorities are obtained. The project roadimprovement proposals have been approved by the Central Environmental Authority, and itsrecommendations were incorporated in the EMPs and bidding documents. The public wereconsulted during project preparation and consultations will continue throughout implementation.

30. RDA is responsible for ensuring that EMPs are implemented in the national roadscomponent. The Environmental and Social Division under RDA will monitor environmentalcompliance by the contractor on behalf of RDA. To ensure adequacy, the projectimplementation consultant team, including an environmental specialist, will supplement theEnvironmental and Social Divisions field monitoring. For the provincial roads, NPC, throughNPRDD, will be responsible for ensuring implementation of the respective EMPs. Since NPRDDdoes not have adequately skilled staff, the project implementation consultant team for the


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provincial component, including an environmental specialist, will help NPRDD monitorenvironmental compliance.

F. Risks and Mitigating Measures

31. The integrated benefits and impacts are expected to outweigh the costs 18.

V. ASSURANCES

32. The government, MLGPC and MOHRD have assured ADB that implementation of theproject shall conform to all applicable ADB policies including those concerning anticorruptionmeasures, safeguards, gender, procurement, consulting services, and disbursement asdescribed in detail in the PAM and loan documents.

33. The government, MOHRD, and MLGPC have agreed with ADB on certain covenants forthe project, which are set forth in the loan agreements and project agreements.

VI. RECOMMENDATION

34. I am satisfied that the proposed loans would comply with the Articles of Agreement ofthe Asian Development Bank (ADB) and recommend that the Board approve

(i) the loan of $130,000,000 to the Democratic Socialist Republic of Sri Lanka forthe Northern Road Connectivity Project from ADBs ordinary capital resources,with interest to be determined in accordance with ADBs London interbankoffered rate (LIBOR)-based lending facility; for a term of 25 years, including agrace period of 5 years; and such other terms and conditions as are substantiallyin accordance with those set forth in the draft loan and project agreementspresented to the Board; and

(ii) the loan in various currencies equivalent to SDR { amount to be determined andinserted } to the Democratic Socialist Republic of Sri Lanka for the Northern Road

Connectivity Project from ADBs Special Funds resources with an interest chargeat the rate of 1.0% per annum during the grace period and 1.5% per annumthereafter; for a term of 32 years, including a grace period of 8 years; and suchother terms and conditions as are substantially in accordance with those set forthin the draft loan and project agreements presented to the Board.

35. {To Insert recommendation for waiver of eligibility requirement for domestic preference }.

Haruhiko KurodaPresident

{Date 19}

18 Major risks and mitigating measures are summarized in the Risk Assessment and Risk Management Plan(Appendix 2)

19 {Use date of the President's approval of the RRP for submission to the Board.}


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Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

DesignSummary

Performance Targets andIndicators with Baselines

Data Sources andReporting Mechanisms

Assumptionsand Risks

Impact

Balanced andinclusive growth inNorthern Province

By 2018:

Per capita annual income inNorthern Province increases from$952 to $1,688 and percentage ofnational average from 50% to 80%

Publications of the

Ministry of Finance andPlanning

Publications of theMinistry of LocalGovernment andProvincial Councils

Assumption

Policy directions ofthe government's10 YearDevelopmentFramework willremain valid.

RiskGovernmentinvestments are notadequate.

Outcome Improved roadconnectivity withinNorthern Provinceand to the southernregion of the country.

By project completion (2015):

Travel time on project roadsreduced by an average of 20% inNorthern Province and NorthCentral Province.

Travel time from Colombo (nationalcapital) to Jaffna (Northernprovincial capital) is reduced by38% (from 13 hours to 8 hours).

Accident rate (fatalities by vehicle-km) is reduced by 20% from 2010

rate.

NPRDD's completionreport

Road DevelopmentAuthority, Ministry ofHighways and RoadDevelopment

Project performancemonitoring system

AssumptionsThe governmentremains committedto restoring andsustaining vitalinfrastructure inNorthern Province.

Outputs

1. National highwaysare rehabilitated.

2. Provincial roadsare rehabilitated andselected bridge linksare rehabilitated andreplaced.

3. NPRDD's officesare rehabilitated.

By project completion (2015):

Approximately 170 km of nationalhighways in North Central Provinceand Northern Province arerehabilitated.

Approximately 140 km of provincialroads in Northern Province arerehabilitated, and selected bridgesrehabilitated or replaced.

NPRDD's district offices in Mannarand Vavuniya are rehabilitated.

Engineer's progressreports

Audit reports

RDA's and NPRDD'sproject progress andcompletion reports

AssumptionQualified contractorsare available.


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12 Appendix 1

Activities Inputs

1. Rehabilitation and Improvement of National Roads1.1 Contract award of civil works by October 20101.2 Completion of all construction and maintenance works

by June 2015

ADB: $154.4 millionGovernment: $18.6 million (taxes and duties)

2. Rehabilitation of Provincial Roads, Bridges, andNPRDD Offices

2.1 Contract award of civil works by July 20102.2 Completion of all construction and maintenance works

by June 2015

3. Project Management3.1 Engagement of project implementation consultant by

July 20103.2 Project management on-the-job training completed by

December 2012

NCP = North Central Province, NPRDD = Northern Provincial Road Development Department, RDA = RoadDevelopment Authority.Source: Asian Development Bank


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Appendix 2 13

LIST OF LINKED DOCUMENTS

1. Loan and Project Agreements2. Sector Analysis3. Project Administration Manual4. Project Classification Summary5. Contribution to the Output Aggregates of the ADB Results Framework6. Development Coordination7. Economic Analysis8. Country Economic Indicators9. Summary Poverty Reduction and Social Strategy10. Resettlement Framework11. Risk Assessment and Risk Management Plan


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SUBSECTOR ANALYSIS(Sri Lanka: Northern Road Connectivity Project)

1. For the road transport subsector in Sri Lanka, the end of nearly three decades of civil warin the country's northern and eastern provinces presents special challenges as well asopportunities. The prolonged neglect and underinvestment in the conflict-affected region havecaused the roads to lie in a state of total disrepair requiring immediate and sustained investment.Particularly in Northern Province, the damage to physical infrastructure was severe and extensivedue to the intensity of conflict toward the end of the war. As the Government of Sri Lanka iscarrying out the resettlement of the displaced population in the region, reestablishment of linkagesto social services and markets through a robust road network is essential for the return of normalsocioeconomic activities and civil life. The Northern Road Connectivity Project will improve roadconnectivity in Northern Provincerestoring mobility of people and goods, providing access tosocial services and markets, and enhancing nationwide connectivity to help integrate the country

A. Performance Indicators and Analysis

2. Northern Provinces share of the national gross domestic product is about 2.9%. Percapita income is about $952 (as of 2008), which is approximately half of the national averagewith the lowest growth rate in the country 1. At present, the majority of people living in NorthernProvince earn their livelihood as farmers, fisherfolk, or professionals in the civil and businesssectors. Small-scale industries such as chemicals, light manufacturing, cement, and textiles,which were in operation prior to the conflict, have yet to resume operation. Table 1 summarizesNorthern Province's key statistics.

Table 1: Geographic and Demographic Details of Northern Province and the CountryFeature Northern Province Sri LankaArea (km 2) 8,884 65,610Road density(km/km 2) 0.48 1.50Population (million) 1.041 18.750

Population density (people/km2

) 117.2 296.0GDP (SLRs billion) in 2008 128 4,411Per capita income (2008, SLRs/year) 109,530 218,161Per capita income (2008, $/year) 952 1,897

Primary industries Agriculture (rice),livestock, fisheries

Manufacturing, plantation(tea, rubber, coconut),

tourism, garmentskm = kilometer, km 2 = square kilometer.Source: Central Bank, Sri Lanka.

1. Road Network and Traffic Volumes

3. The road network in Sri Lanka is classified into national, provincial, and local authority

roads according to functionality and management responsibility. National roads, comprisingclass A (trunk roads) and class B roads (main roads), are managed by the central governmentthrough the Road Development Authority (RDA). The provincial road network, comprising classC and D, is managed by the respective provincial councils.

4. An overview of the road network in Northern Province is provided in Table 2.

1 2007. Central Bank of Sri Lanka, Provincial GDP 2007 . Sri Lanka.


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Table 2: Road Network in Northern Province

Item Northern Province(km) Sri Lanka (km)Northern

Province/Sri Lanka (%)

National roads (class A and B) 1,271 11,671 10.9Provincial roads (class C and D) 1,960 15,532 12.6

Local government roads (class E) 5,600 64,659 8.7Total 8,831 91,862 9.6Source: Road Development Department, Northern Province, 2008.

5. Northern Province is served by several important national roads, which facilitateconnectivity within the province and to southern regions of the country. The most importantarterial road is A009, which runs northsouth from Kandy in Central Province to Jaffna inNorthern Province (northernmost district of Northern Province). It provides connectivity forregional centers within the province such as Jaffna, Kilinochchi, Mankulam, ParanthanVavuniya, and, and to several important regional centers outside Northern Province such asAnuradhapura, Dambulla, and Matale. Other important national roads in Northern Provinceinclude A032 (along the western provincial coast from Mannar to Jaffna), A034 (connectingMullaitivu located on the eastern seaboard to A009 at Mankulam), and A035 (connectingMullaitivu to A009 at Parantan).

6. Northern Province's provincial road network comprises 855.25 kilometers (km) of gravelroads and 1,104.75 km of metalled and tarred roads with approximately 60 bridges and 4,000culverts. Due to neglect and underinvestment during the prolonged conflict in the region, about90% of the national and provincial roads in Northern Province are reported to be in less thansatisfactory condition. Table 3 summarizes the present condition of the road network bysurfacing type and lane width.

Table 3: Condition of Roads in Northern Province% of Length by Road ConditionCategory Type of Surface Total Km Good Fair Poor

National (No updated records on surface types) 1,271.00 10 20 70Provincial Gravel, earth road (single lane 24 m) 855.25 10 15 75

Metalled and tarred (single lane 24 m) 1,104.75 10 15 75Total 3,231.00 10 17 73

km = kilometer, m = meter.Source: Road Development Department, Northern Province, 2008.

7. In 2007, the estimated fleet of motorized vehicles in Northern Province was 70,141(3.2% of the fleet in the country). Overall traffic growth has fluctuated with the level of conflict,but the two-wheeler and three-wheeler fleets have grown steadily over the past 10 years. Thisindicates that the population is gradually becoming motorized by acquiring low-cost privatemodes of transport.

2. Road Asset Management

8. National road. RDA is a statutory body under the Ministry of Highways and RoadDevelopment incorporated under the RDA Act No. 73 of 1981. RDA is the premier highwayauthority in the country and is responsible for the maintenance and development of the nationalhighway network. It is also responsible for the planning, design, and construction of new highways,expressways, and bridges. It is managed by a chairperson and board of members appointed bythe minister of highways and road development. A general manager (the chief executive officer)


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is assisted by six additional general managers and 14 directors to carry out RDAs variousfunctions. RDA has been undergoing reform and institutional strengthening under ADB's RoadSector Development Project 2 and the ongoing National Highway Sector Project 3.

Table 4: Vehicle Fleet in Northern Province, 2007Vehicle Type Northern Province % of Sri LankaOmnibuses 538 3.4Private coaches 398 1.6Dual purpose vehicles 1,255 0.7Private cars 1,418 0.6Land vehicles 4,177 4.5Goods transport vehicles 1,916 1.1Motor cycles 57,258 5.1Three-wheelers 2,864 0.8Others 317 5.5

Total 70,141 3.2Source: Central Bank, Sri Lanka

9. Provincial road. NPC-NPRDD is responsible for the construction, maintenance, andadministration of the provincial road network. It is headed by a provincial director who worksdirectly under the authority of the secretary of the Provincial Ministry of InfrastructureDevelopment and Reconstruction. Three of the five chief engineers in NPRDD are assigned forthe execution of regional works in Jaffna, Killinochchi, and Vavuniya districts. Each chiefengineer is supported by two executive engineers in the execution of road works in theirrespective districts. The chief engineer in Vavuniya supervises two districts through therespective executive engineers located in Vavuniya and Mannar. Due to the prolonged conflict,NPRDD is generally weak and has not been provided with any substantial capacitystrengthening programs.

3. Maintenance Expenditure

10. National roads. Periodic and routine maintenance are funded through the RoadMaintenance Trust Fund (RMTF), established in late 2005 with ADB assistance. Based on aschedule prepared by assessing the network condition, RDA releases a predefined allocationfor each divisional office after assessing the value of the maintenance requirement. Annualallocation and expenditure for road maintenance in Northern Province during 20042009 isprovided in Table 5.

Table 5: Utilization of Road Sector Maintenance Funds by the Road DevelopmentAuthority in Northern Province

SLRs MillionSource 2005 2006 2007 2008 2009Allocation 179.0 259.6 228.6 211.8 265.5

Expenditure 154.1 109.1 102.7 108.8 132.0Road Maintenance TrustFund Utilization (%) 86.1 42.0 44.9 51.4 49.7Source: Planning Division, Road Development Authority.

2 ADB. 2002. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grants to the Democratic Socialist Republic of Sri Lanka for the Road Sector Development Project .Manila (Loan 1986-SRI, TA 4074-SRI, and TA 4075-SRI; approved on 19 December).

3 ADB. 2005. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the Democratic Socialist Republic of Sri Lanka for the National Highways Sector Project .Manila (Loan 2217-SRI and TA 4736-SRI, approved on 15 December).


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11. Provincial roads. NPRDD executes routine maintenance work on the provincial roadnetwork by utilizing the road maintenance component of recurrent expenses provided throughthe block grant received from the Treasury. Utilization of road sector maintenance funds duringlast 5 years is shown in Table 6.

Table 6: Utilization of Road Sector Maintenance Funds, Northern Province SLRs MillionSource 2005 2006 2007 2008 2009

Allocation 34.00 50.00 24.00 35.00 40.0Expenditure 33.90 49.70 23.60 34.92 31.2Block Grant-RoadMaintenance ComponentUtilization (%) 99.7 99.4 98.3 99.7 78.0

Source: Provincial Road Development Department, Northern Province.

12. Annually, NPRDD prepares a work program for routine maintenance and improvementsto the provincial road network, anticipating allocations of funds through the national andprovincial budgets. However, NPRDD often does not receive the total recurrent or capitalallocations made for the year and hence a significant part of the work program has to be

continued over or be deferred to the following year. To keep programs in an active state,NPRDD has adopted a multiyear improvement program that can be completed in stages over aperiod of years depending on the availability of funds.

B. Key Problems and Opportunities

1. Northern Road Connectivity

13. Poor road connectivity is a major constraint to achieving one of the Government's maindevelopment goals: inclusive socioeconomic development. As 80% of the population lives in ruralareas, limited connectivity to economic opportunities and social services widens inequality amonggeographic regions. Particularly in Northern Province, neglect and underinvestment during the

prolonged period of conflict have caused the roads to lie in a state of total disrepair. Also, the mainarterial roads connecting the north and the south are inadequate due to insufficient investment inrehabilitation. This results in low travel speed and poor service, discouraging long distance travelto and from the north, and ultimately hindering the spread of economic activities and development.

14. The project is to rehabilitate about 140 km of provincial roads and 108 km of nationalhighways within Northern Province, and improve about 62 km of link national highways in NorthCentral Province including a section of A009 that serves as the main arterial highway connectingto south. The project is timely and targetedto help restore accessibility to essential socialservices for rural residents of Northern Province and to improve its nationwide connectivity. It willfacilitate economic growth and contribute to reducing disparities in Sri Lanka, consistent with thekey goals of the governments 10-Year Development Framework (20072016), whichemphasizes equitable growth.

2. Provincial Road Management

15. As the entire inventory of provincial roads is freed of security restrictions, NPRDD'scapacity needs to be strengthened for it to effectively carry out its main responsibility ofmanaging and maintaining the provincial road network efficiently and economically. To requestallocation of funds through the national and provincial budgets, NPRDD prepares a workprogram for routine maintenance and improvements, but the budget is estimated based on a


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generalized scope of work for important roads only. In this regard, a road maintenancemanagement system needs to be developed and implemented with a comprehensive roadinventory and condition databasea prerequisite for preparing annual or rolling roadrehabilitation and maintenance programs along with associated budgets. Also, NPRDD's officeinfrastructure, particularly the district offices, is in a state of disrepair without a functioningmanagement information system. It lacks vehicles necessary to conduct supervision of large-scaleworks project.

16. In conjunction with the project, a capacity development technical assistance will beprovided with the objective of strengthening the capacity of NPRDDoptimizing organizationalarrangements; modernizing the financial and management information system; implementing afunctional road maintenance management system; and providing training in projectmanagement, contract administration, financial management, performance-based maintenance,and road safety. For better and focused institutional strengthening, the capacity developmenttechnical assistance will concentrate on NPRDD. This approach is consistent with lessons fromADB's Road Sector Development Project completed in December 2009. Institutionalstrengthening for RDA is ongoing under the ADB's National Highways Sector Project.

3. Road Financing

17. In general, road expenditures are funded from central government funds, foreign orexternal funds, and provincial revenues. While rehabilitation of provincial roads has reliedheavily on foreign-funded projects, existing domestic funding is insufficient for provincial roadagencies to maintain their road networks. In Northern Province, during the last 5 years, theaverage annual maintenance allocation comprised SLRs101 million ($0.9 million) for nationalroads, facilitated through the RMTF, and SLRs35 million ($0.3 million) for the provincial roadsfrom a portion of the government's block grant allocated by the Northern Provincial Council.Although these allocations appear substantially low, the actual requirement during the previous5 years is difficult to assess as Northern Province experienced prolonged conflict and only asmall percentage of roads were in maintainable condition.

18. However, as substantial portions of Northern Province's national and provincial roadsare rehabilitated under the project as well as other projects funded by external sources, roadbudgets need to be increased and a greater amount of the budget assigned to roadmaintenance based on road conditions. Proper planning needs to be developed, and thegovernment's commitment to provide adequate financing for maintenance secured.

19. The RMTF was established in late 2005 to finance routine and periodic roadmaintenance using proceeds from fuel levies. Although in its infancy, the RMTF's currentfunding is not sufficient to meet actual maintenance requirements for national roads and it doesnot cover provincial roads. Currently, with World Bank assistance, the RMTFs effectiveness isbeing reviewed with respect to fund management, fuel levy, and coverage for provincial roads.

ADB and the World Bank have conducted coordinated policy dialogue on this matter.

20. To overcome the inadequacy and inconsistency of road maintenance financing,performance-based maintenance has been practiced in several road projects in other provincesand results are reasonably satisfactory. Under the project, the civil works contracts for nationaland provincial roads will include provision for 3-year performance-based maintenance uponcompletion. This is intended to increase the quality of construction and efficiency ofmaintenance work, and lessen the initial maintenance burden.


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Project Number: 42254-01Loan and/or Grant Number(s): {LXXXX (OCR); LXXXX (ADF) to be determined} March 2010

Sri Lanka: Northern Road Connectivity Project

Project Administration Manual


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ContentsABBREVIATIONS 4

I. PROJECT DESCRIPTION 5 A. Project Rational, Location and Beneficiaries 5

B. Impact and Outcome 5 C. Outputs 5

II. IMPLEMENTATION PLANS 7 A. Project Readiness Activities 7 B. Overall Project Implementation Plan 8

III. PROJECT MANAGEMENT ARRANGEMENTS 9 A. Project Stakeholders Roles and Responsibilities 9 B. Key Persons Involved in Implementation 10 C. Project Organization Structure 12

IV. COSTS AND FINANCING 15

A.

Cost Estimates by Expenditure Category 15

B. Allocation and Withdrawal of Loan Proceeds 17 C. Fund Flow Diagram 18

V. FINANCIAL MANAGEMENT 20 A. Financial Management Assessment 20 B. Disbursement 20 C. Accounting 21 D. Auditing 22

VI. PROCUREMENT AND CONSULTING SERVICES 23 A. Advance Contracting 23 B. Procurement of Goods, Works and Consulting Services 25

C. Procurement Plan 26 D. Consultant's Terms of Reference 26

VII. SAFEGUARDS 27

VIII. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 29 A. Project Design and Monitoring Framework 29 B. Monitoring 31 C. Evaluation 31 D. Reporting 32 E. Stakeholder Communication Strategy 32

IX. ANTICORRUPTION POLICY 32

X. ACCOUNTABILITY MECHANISM 33

XI. RECORD OF PAM CHANGES 33

XII. ATTACHMENTS 34 Attachment A: Procurement Plan 34 Attachment B: Outline Terms of Reference for PIC (National Road) 34 Attachment C: Outline Terms of Reference for PIC (Provincial Road) 34 Attachment D: Outline Terms of Reference for Capacity TA Consultant 34


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Project Administration Manual Purpose and Process

The project administration manual (PAM) describes the essential administrative andmanagement requirements to implement the project on time, within budget, and inaccordance with Government and Asian Development Bank (ADB) policies and procedures.The PAM includes references to all available templates and instructions either throughlinkages to relevant URLs or directly incorporated in the PAM.

The executing and implementing agencies are wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordancewith Government and ADBs policies and procedures. ADB staff is responsible to supportimplementation including compliance by executing and implementing agencies of their obligations and responsibilities for project implementation in accordance with ADBs policiesand procedures.

At Loan Negotiations the borrower and ADB shall agree to the PAM and ensure consistencywith the Loan Agreements. Such agreement shall be reflected in the minutes of the LoanNegotiations. In the event of any discrepancy or contradiction between the PAM and the LoanAgreements, the provisions of the Loan Agreements shall prevail.

After ADB Board approval of the project's report and recommendations of the Presidentchanges in implementation arrangements are subject to agreement and approval pursuant torelevant Government and ADB administrative procedures (including the ProjectAdministration Instructions) and upon such approval they will be subsequently incorporated inthe PAM.


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Abbreviations

ADB = Asian Development BankADF = Asian Development FundEA = executing agencyEMP = environmental management planESD = Environmental and Social DivisionFGIA = first generation imprest accountIA = implementing agencyMLGPC = Ministry of Local Government and Provincial CouncilsMOHRD = Ministry of Highways and Roads DevelopmentNCP = north central provinceNH = national highwayNP = northern provinceNPC = Northern Provincial CouncilNPRDD = Northern Provincial Road Development DepartmentOCR = ordinary resource capitalPAM = project administration manualPIC = project implementation consultantPR = provincial roadRDA = Road Development AuthorityRP = resettlement planSGIA = second generation imprest accountsSOE = statement of expenditureSPS = Safeguard Policy Statement


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I. PROJECT DESCRIPTION

A. Project Rational, Location and Beneficiaries

1. NP is one of the worst conflict affected region, emerging from the nearly three decadesof civil war. The damage to physical infrastructure has been severe and extensive, andparticularly the road network lies in a state of total disrepair due to prolonged neglect andunderinvestment. People in this region no longer have access to markets or basic socialservices as they once had and the transport of goods has dramatically slowed. The mobilitybetween NP and the country's southern region is also poor due to the substantial travel timerequired as the linking national arterial roads are in inadequate condition, which has hindered thespread of economic activities and development. NP has the highest poverty level in the country.

2. The proposed Project is to rehabilitate about 140 km of provincial roads in NorthernProvince (NP) and 170 km of national roads in NP and North Central Province (NCP). Theproposed Project is timely and targeted - to improve road connectivity in the country's conflictaffected area in the northern region, helping to restore access to basic social services andmarkets. It will facilitate economic growth and contribute to reducing disparities in Sri Lanka,consistent with the key goals of the Governments 10-Year Development Framework (2007-2016), which emphasizes equitable growth.

3. The Project supports the strategic objective established in ADB's Country Policy andStrategy (2009-2011): To improve transport system in Sri Lanka, promoting regionally balancedand socially inclusive economic growth. The Project is included in the Country OperationsBusiness Plan, Sri Lanka (2010-2012).

B. Impact and Outcome

4. In support of the CPS outcome, the Project impact will be balanced and inclusive growthin the NP. The Project's immediate outcome will be improved road connectivity within NP and to

the southern region of the country.

C. Outputs

5. The Project outputs are:

(i) approximately 170 km of national highways in NP and NCP rehabilitated;

(ii) approximately 140 km of provincial roads in NP rehabilitated, and selected bridgelinks rehabilitated or replaced; and

(iii) NPRDD offices are rehabilitated.

6. Project roads and their location are described below:


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Province TotalPackage / Road No. Road Section Name Length

District (km)National Roads

NH-CP1 NCP A009 Dambulla-Thonigala 23.35NH-CP2 NCP A009 Thonigala -Galkulama 24.17

NH-CP3 NCP A020 Anuradhapura-Rembewa 14.50Subtotal: 62.02 NH-CP4 NP A032 Navatkuli-Keraitivu 17.40NH-CP5 NP B268 Manipai-Kaithady 14.02NH-CP6 NP B437 Vallai-Telippalai-Araly 27.40

Subtotal: 58.82

NH-CP7 NP A034 Mankulam-Mullaittivu (1/2) 25.00NH-CP8 NP A034 Mankulam-Mullaittivu (2/2) 25.00

Subtotal for National Roads: 170.84Provincial Roads

PR-CP1 NP 15.45Mannar NPMAC001 Thalimannar village Road

NPMAC005 Olaithoduvai Road

NPMAC007 Thoddavelli-Malupadi RoadNPMAC010 Pesalai-Vauadipanai RoadNPMAC020 Karisal Road

PR-CP2 NP 26.50Mannar NPMAC029 Veppankulam-Periyamurippu Road

PR-CP3 NP 17.32Mannar NPMAC002 Espalnde Road

NPMAC003 South Bar RoadNPMAC004 Mannar-Thaivupadu-TharanpuramNPMAC008 Vankalai-Sirrunavatkulam RoadNPMAC012 Pallimunai Beach RoadNPMAC014 Uyilankulam-Manadkulam-NanaddanNPMAC017 Puthukamam RoadNPMAC034 Murungan - NanaddanNPMAC044 Approach Road to Public Building

PR-CP4 NP 26.00Vavuniya NPVAC027 Intperiyakulam- Puthoor Road

NPVAC029 Cheddikulam-ThudarikulamNPVAC034 Pandichurichchan-Andiyapuliyankulam

PR-CP5 NP 28.80Vavuniya NPVAC007 Madhukandai- Iretperiyakulam Road

NPVAC010 Mahiankulan-Pallamadu Road

PR-CP6 NP 27.20Vavuniya NPVAC014 Puthoor- Palamoddai Road

NPVAC032 Mankulam-Maruthamadhu-Mingettigama

Subtotal for Provincial Roads: 141.27

Total: 312.11


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II. IMPLEMENTATION PLANS

A. Project Readiness Activities

7. The project readiness activities, responsibilities, and estimated timeframe as follows:

Advanced Procurement Activities MonYear

Date Project Processing MilestonesProject

ImplementationConsultant (PIC)

Provincial RoadComponents

National RoadsComponents

Responsibleby:

ADB RDA (National)MLGPC-PCU(Provincial)

NPC/NPRDD RDA

Dec2009 18 Concept Paper Review Meeting

approve advance contracting

Jan2010

29 Consultant's preparatory outputs

Advertise EOIs

Feb 03-17

Fact-Finding MissionMOU and Preliminary PAM

Shortlist Report

Mar

23 Management Review Meeting Issue RFP

Invite bids

Apr 01

26-27

Send report & recommendation of thePresident & Loan Agreement to Governmentof Sri Lanka Loan Negotiations

ProposalSubmission Bid submission

May

31 Board Consideration/Approval

Technical Eval.

Financial open Submit techevaluation

Jun 14

30

Loan Signing

Loan Effective

Financial open

Submit financialevaluation

Invite bids

Jul Contract Sign

Commence Contract sign

Bid submission

Aug

Commence works Submit techevaluation

Sep Financial open

Submit financialevaluation

Oct

Contract sign

Nov Commence works

ADB = Asian Development Bank, CSRN = consulting services recruitment notice, EOI = expression of interest,MLGPC = Ministry of Local Government and Provincial Councils, MOU = memorandum of understanding, NPC =Northern Provincial Council, NPRDD = Northern Provincial Road Development Department, PAM = projectadministration manual, PCU = project coordination unit, PIC = project implementation consultant, RDA = RoadDevelopment Authority


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B. Overall Project Implementation Plan

J F M A M J J

S O N D J F M

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III. PROJECT MANAGEMENT ARRANGEMENTS

A. Project Stakeholders Roles and Responsibilities

Project Stakeholders Management Roles and Responsibilities

Executing agency (EA)(National Road Component)

Ministry of Highway and Roads Development (MOHRD)

overall coordination of project implementationinteragency coordination

Implementing agency (IA)(National Road Component)

Road Development Authority (RDA)

day-to-day project managementconsultant recruitment and procurement of workswithdrawal applicationsproject progress reportsmaintaining project accounts and complete loanfinancial records

Executing agency(Provincial Road Component)

Ministry of Local Government and Provincial Councils(MLGPC)

overall coordination of project implementationinteragency coordinationconsultant recruitment

Implementing agency(Provincial Road Component)

Northern Provincial Council (NPC) - NPRDD

day-to-day project management

procurement of workswithdrawal applicationsproject progress reportsmaintaining project accounts and complete loanfinancial records

National Steering Committee(co-chaired by MOHRD andMLGPC with representationfrom Ministry of Finance andPlanning, External ResourceDepartment, NPD, FC, NPC,

NPRDD)

oversee and monitor project implementation as wellas the adequacy of overall project fundinghold meeting as required but at least quarterly todiscuss overall status and project issues, and whenand as necessary invite representatives from theCentral Environmental Agency, Geological Survey

and Mines Bureau, and utilities (electricity,telecommunications, water, and drainage) for coordination purposes

Provincial ProjectCoordination Committee(chaired by the Chief Secretary of the NorthernProvince with representationfrom MIRD, NPRDD, Utilities)

monitoring project implementation at the provinciallevel


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Project Stakeholders Management Roles and Responsibilities

ADB Monitor and review overall implementation of theproject in consultation with the EAs/IAs including: theproject implementation schedule; actions required in

terms of poverty reduction, environmental impacts,and resettlement plans (RPs) if applicable;timeliness of budgetary allocations and counterpartfunding; project expenditures; progress withprocurement and disbursement; statement of expenditure when applicable; compliance withparticular loan covenants; and the likelihood of attaining the projects immediate developmentobjectives.

B. Key Persons Involved in Implementation

Executing AgenciesMOHRD Mr. Wasantha KarannagodaSecretaryMinistry of Highways and Road DevelopmentSethsiripaya Office ComplexP.O. Box 53, BattaramullaSri Lanka.Telephone: 94-11-2871821-30Fax: 94-11-2862705

Mr. R.W.R. PemasiriGeneral Manager, Road Development Authority

No. 756 B/1Parliament Road, PelawattaBattaramulla, Sri Lanka

Mr. S. ChandrapalanProject Director, Road Development AuthorityTelephone: 941 1 278 7915Email address: [email protected] No. 756 B/1Parliament Road, PelawattaBattaramulla, Sri Lanka


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MLGPC Mr. Cashian Herath

SecretaryNo. 330, Union PlaceColombo 02, Sri Lanka

Mr. Eric IllayapparachchiAdditional Secretary (Development)Telephone: 941 0 230 3723Email address: [email protected] No. 330, Union PlaceColombo 02, Sri Lanka

Mr. J.A. JayarathneProject Coordinator No. 330, Union PlaceColombo 2, Sri Lanka

ADBTransport and CommunicationsDivision of South Asia RegionalDepartment (SATC)

Sri WidowatiDirector, SATCTelephone No.: (63) 2 632 6794Email address: [email protected]

Mission Leader Dong-Kyu LeeTransport Specialist, SATCTelephone No.: (63) 2 632 5992Email address: [email protected]

Note: Update as changes occur


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C. Project Organization Structure

8. The flow chart below shows the reporting lines essential internal structures of keyorganizations involved in implementation, including the national steering committee, executingagencies, provincial coordinating committee, implementing agencies, and projectimplementation units.

9. The following flow charts show the reporting lines essential internal structures of theproject implementation units and their staffing assignments.

Ministry of LocalGovernment and Provincial

Councils

Executing Agency

Project Coordinating Unit

Road Development Authority

Implementing Agency

Project Implementation Unit

supported byProject Implementation

Consultant

ProvincialCoordinatingCommittee

Chief SecretaryMIRD/SecretaryPRDDUtility agencies

Northern Provincial Council- Provincial Road DevelopmentDepartment

Implementing Agency

Project Implementation Unit

supported byProject Implementation

Consultant

Ministry of Highways andRoad Development

Executing Agency

National Roads Component Provincial Roads Component

National Steering Committee

MOHRD (Co-Chair) MLGPC (Co-Chair)MOFP, ERD NPCNPD, FC MIDR/NPRDD

Utility agencies

AsianDevelopment

Bank


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Project Implementation Organization National Roads

Staffing Assignment and Recruitment Plan as of 16 February 2010:

SerialNo.

Position Name Existing New Recruit[timeframe]

1 [1] Project Director Mr. S. Chandrapalan appointed2 [2-1] Deputy Project Director tbd by May/20103 [2-2] Deputy Project Director tbd by May/20104 [2A] Assistant Engineer 1 Mr. U. A. Munasinghe appointed5 [2B] Assistant Engineer 2 tbd by May/20106 [2C] Assistant Engineer 3 tbd by May/20107 [3] Social/Environmental Officer Mr. S. Gajesinghe appointed8 [4] Project Accountant Mr. N. A. Wijeratne appointed9 [4A] Assistant Accountant tbd by May/2010

10 [4B] Accounts Clerk 1 Ms. K Chandrakanthi appointed11 [4C] Accounts Clerk 2 Ms. W. Kodagoda appointed

12 [4D] Accounts Clerk 3 tbd by May/201013 [5] Admin Manager tbd by May/201014 [5A] Admin Assistant 1 Ms. W.A.G. Priyanthika appointed15 [5B] Admin Assistant 2 Mr. M.H.G. Jayasinghe appointed16 [5C] Admin Assistant 3 tbd by May/201017 [5D] Office Aid 1 Mr. I Nihal Wasantha appointed18 [5E] Office Aid 2 Ms. Y.S.D.Jayasundara appointed

Accounting/Finance

Project Accountant [4]

Key positions:Assist. Accountant [4A]Accounts Clerk 1 [4B]Accounts Clerk 2 [4C]Accounts Clerk 3 [4D]

Project Implementation Unit(PIU)

Project Director [1]

Administration

Admin Manager [5]

Key positions:Admin Assistant 1 [5A ]Admin Assistant 2 [5B]Admin Assistant 3 [5C]Office Aid [5D]Office Aid [5E]

Project Supervision

Deputy Project Director [2-1]Deputy Project Director [2-2]

Key positions:Assistant Engineer 1 [2A]Assistant Engineer 2 [2B]Assistant Engineer 3 [2C]

Environmental &Social Division (ESD)

Social/EnvironmentalOfficer [3]

Road Development Authority(RDA)

Implementing Agency

General Manager


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Project Implementation Organization Provincial Roads

Staffing Assignments and Recruitment Plan as of 16 February 2010:

Sr.No.

Position Name Existing New Recruit[timeframe]

1 [A] Secretary, MIDR Eng.A.E.S. Rajendra appointed2 [A1] Project Director Eng.T.Sivarajalingam appointed3 [B] Project Accountant Mr. N.Jeyaganesh appointed4 [B1] Management Assistant (accounts) Mr. S.Ravishangar appointed5 [B2] Management Assistant (accounts) tbd by May/20106 [C] Deputy Project Director Eng.V.Jegananthan appointed7 [C1] Project Engineer - Vavuniya Eng.S.Sainthan appointed8 [C2] Project Engineer Mannar Eng.C.Amirthaseelan appointed9 [C3] Technical Officer Vavuniya Eng.C.Amirthaseelan appointed

10 [C4] Technical Officer Mannar Mr.S.Senkaialiyan appointed11 [C5] Management Assist.- Vavuniya Ms.S.Tharjana appointed12 [C6] Management Assist.- Mannar tbd by May/201013 [D] Deputy Project Director - Admin by May/201014 [D1] Project Engineer - PIU Office Eng.N.Apiramy15 [D1] Project Secretary tbd by May/201016 [D2] Management Assistant (admini) Mr.J.Rajkulenson appointed17 [D3] Management Assistant (contracts) Ms.U.Hema appointed18 [D4] Management Assistant (IT) tbd by May/2010

Northern Provincial Council- Northern Provincial Road Development

Department

Implementing Agency

Provincial Project Coordinator [A]Secretary, Provincial Ministry of Infrastructure

Development & Reconstruction (MIDR)

Project Implementation Unit (PIU)

Project Director [A1](Provincial Director)

Accounting/FinanceProject Accountant

[B]

Key positions:Management Assistant(Accounts) [B1]Management Assistant(Accounts) [B2]

AdministrationDeputy ProjectDirector PIU(ADB-PRP) [D]

Key positions:Project Engineer [D1]Project Secretary [D2]Management Assistant(Administration) [D3]Management Assistant(contracts) [D4]Management Assistant

(IT) [D5]

Project SupervisionDeputy Project Director [C]

Key positions:

Vavuniya District Mannar DistrictProject Engineer [C1] Project Engineer [C2]Technical Officer [C3] Technical Officer [C4]Mgmnt. Assistant [C5] Mgmnt. Assistant [C6]

Project Coordinating Committee

NPC Chief Secretary (Chair)


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IV. COSTS AND FINANCING

10. The project is estimated to cost $ 173 million, including taxes and duties of about $18.6million to be financed by the Government. The total cost includes physical and pricecontingencies, and interest and other charges during implementation. The investment plan issummarized in Table 1.

Table 1: Project Investment Plan($ million)

Item Amount a

A. Base Cost b 1a. national roads 115.621b. provincial roads 21.372. equipment - vehicles 0.223. consulting services 7.204. project management 0.80

Subtotal (A) 145.21B. Contingencies c 23.03C. Financing Charges During Implementation d 4.76 Total (A+B+C) 173.00a Includes taxes and duties of $18.6 million to be financed from government resources. b In early 2010 prices.c Physical contingencies computed at 10.0% for civil works and equipment; and consulting services

contract values. Price contingencies computed at 2.0% on foreign exchange costs and 7.0% onlocal currency costs; includes provision for potential exchange rate fluctuation under the assumptionof a purchasing power parity exchange rate.

d Includes interest and commitment charges. Interest which will be capitalized during implementationperiod has been computed at the 5-year forward London interbank offered rate plus an EffectiveContractual Spread of 0.2% per annum for OCR loan; and at 1.0% per annum for ADF loan.Commitment charges for OCR loan are 0.15% to be charged on the undisbursed loan amount.

Source: Staff Estimates

11. The Government has requested a loan of $130 million from ADBs ordinary capital

resources (OCR) to finance civil works for national roads, recurrent costs for projectmanagement, consulting services, and a loan of Special Drawing Right (SDR) { amount to bedetermined and inserted } ($24.4 million equivalent) from the ADB's Special Funds resources tofinance civil works for provincial roads, recurrent costs for project management, and capacitydevelopment equipment. The Government will provide $ 18.6 million for local taxes and duties. The ADB and the Government will finance 89% and 11% of total project investment cost,respectively. The financing plan for the Project is in Table 2.

Table 2: Financing Plan Source Amount ($ million) Share of Total (%)

Asian Development Bank, OCR Loan 130.00 75Asian Development Bank, ADF Loan 24.40 14Government 18.60 11

Total 173.00 100OCR = ordinary capital resource, ADF = Asian Development FundSource: Staff estimate

A. Cost Estimates by Expenditure Category

12. The detailed cost estimates by expenditure category and detailed cost estimates byfinancier are presented below, including the magnitudes of physical contingencies as apercentage of the base costs and of the inflation factors used in estimating price contingencies.


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B. Allocation and Withdrawal of Loan Proceeds

13. Unless specifically stated otherwise, the following are applicable to both the OrdinaryOperation and Special Operation loans.

a. Percentages of ADB Financing: Except as ADB may otherwise agree,each item of expenditure shall be financed out of the proceeds of theLoan on the basis of the percentages set forth in the tables attachedto Schedule 3 to the Ordinary Operation loan agreement andSchedule 2 to the Special Operation loan agreement.

b. Interest and Commitment Charge (Ordinary Operation loan): Theamount allocated to Category [ to be determined ] in the table attachedto Schedule 3 to the Ordinary Operation loan agreement, is for financing interest and commitment charge on the loan during theimplementation period of the Project. ADB is entitled to withdraw fromthe loan account and pay to itself, on behalf of the Government, theamounts required to meet payments, when due, of such interest andcommitment charge.

c. Interest Charge (Special Operation loan): The amount allocated tocategory [x] in the table attached to Schedule 2 to the SpecialOperation loan agreement, is for financing the interest charge on theLoan during the implementation period of the Project.

d. Reallocation: Notwithstanding the allocation of Loan proceeds and thewithdrawal percentages set forth in the tables,

i. if the amount of the Loan allocated to any category appears to beinsufficient to finance all agreed expenditures in that category, ADB

may, in consultation with the Government, (i) reallocate to suchcategory, to the extent required to meet the estimated shortfall,amounts of the loan which have been allocated to another categorybut, in the opinion of ADB, are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet theestimated shortfall, reduce the withdrawal percentage applicable tosuch expenditures in order that further withdrawals under suchcategory may continue until all expenditures thereunder will havebeen made; and

ii. if the amount of the loan allocated to any category appears toexceed all agreed expenditures in that category, ADB may, in

consultation with the Borrower, reallocate such excess amount to anyother Category.

{allocation tables for the OCR and ADF loans will be inserted }


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C. Fund Flow Diagram

14. The following diagrams, one for national road component and one for provincial roadcomponent, show how the funds will flow from ADB and the Borrower to implement projectactivities.

[National Roads Component]

Notes on funds flow:

1. From ADB to the Imprest Accounts. Loan proceeds will be channeled through FGIA opened atthe Central Bank of Sri Lanka to SGIA at a state owned bank. ADB funds will be allocated based on theannual budget estimates prepared by the RDA. RDA will process all other disbursement requests to ADB,

including direct payment to contractors (above $100,000) and consultant fee. The FGIA will bereplenished according to the ADB's Loan Disbursement Handbook .2. SGIA will be established at commercial banks acceptable to the Government and ADB . These willbe short-term deposit accounts, with the RDA as authorized signatory.3. From ADB to contractors as well as consultants. Dollar-denominated payments for contractors (above $100,000), and consultant fees contracted by RDA, will be paid directly by ADB, whichrequires RDA's submission of approved invoices and documentation to ADB in accordance with ADB'sLoan Disbursement Handbook.

Contractors (above$100,000) and Consultants

First Generation ImprestAccount ($)

(OCR)@ Central Bank

Road DevelopmentAuthority

Second GenerationImprest Account (SLRs)

(OCR)@ state owned bankRoad Development

Authority

Project Director

AsianDevelopment

Bank

Note: Cash flowReports for reconciliation and replenishment (with copy to Ministry of Finance)Direct payment procedure withdrawal application/payment


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[Provincial Roads Component]

Notes on funds flow:

1. From ADB to the Imprest Accounts. Loan proceeds will be channeled through FGIA opened atthe Central Bank of Sri Lanka to two SGIAs one SGIA to be managed by the PCU and one SGIA to bemanaged by NPRDD (under NPC Chief Secretary) at commercial banks acceptable to the Governmentand ADB . ADB funds will be allocated based on the annual budget estim