Document of The World Bank Report No: ICR00003615 ... › curated › en › ...Dec 30, 2015 ·...

Document of The World Bank

Report No: ICR00003615

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-46300)

ON A

CREDIT

IN THE AMOUNT OF SDR 66.10 MILLION (US$ 105.00 MILLION EQUIVALENT)

TO THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

FOR A

PROVINCIAL ROADS PROJECT

December 28, 2015 Transport & ICT Global Practice Sri Lanka Country Management Unit South Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 3, 2015)

Currency Unit = Sri Lanka Rupee LKR 1.00 = US$ 0.00709220

US$ 1.00 = LKR 140.9999

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank AMP Annual Maintenance Plan CAS Country Assistance Strategy CPS Country Partnership Strategy

CRIP Climate Resilience Improvement Project BP Business Process

DLC Defect Liability Certificate DO Development Objective

DPS Designated Procurement Specialist EIRR Economic Rate of Return EMP Environmental Management Plan EOP End of Project FM Financial Management FY Fiscal Year

GAAP Governance & Accountability Action Plan GDP Gross Domestic Product GIS Global Information System

GNP Gross National Product GOSL Government of Sri Lanka

GPS Global Positioning System HDM Highway Development & Management Model HWR Hourly Wage Rate

IA Implementing Authority IBRD International Bank for Reconstruction and Development

ICR Implementation Completion and Results Report ICT Information and Communication Technology IDA International Development Agency

IP Implementation Progress IRR Internal Rate of Return ISR Implementation Status Report JV Joint Venture

LKR Sri Lanka Rupee M&E Monitoring and Evaluation MPR Monthly Progress Report MTR Mid Term Review

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NBRO National Building Research Organization NHA National Highway Authority NPV Net Present Value

OP Operational Policy OPRC Output and Performance Based Road Contract

PAD Project Appraisal Document PBMC Performance Based Maintenance Contract

PBP Pay Back Period PCU Project Coordinating Unit PDO Project Development Objective PIU Project Implementation Unit

PMR Project Management Report PRDD Provincial Road Development Departments

PRP Provincial Roads Project QAG Quality Assurance Group

RAMS Road Asset Management System RAP Resettlement Action Plan

RMTF Road Maintenance Trust Fund RPM Regional Procurement Manager SBD Standard Bidding Documents SDR Special Drawing Rights SIA Social Impact Assessment SIL Specific Investment Lending

SOP Standard Operating Procedure TEC Technical Evaluation Committee TOC Taking Over Certificate VOC Vehicle Operating Costs VOT Value of Time

WHD Working Hours Per Day

Senior Global Practice Director: Pierre Guislain Practice Manager: Karla Gonzalez Carvajal

Project Team Leader: Amali Rajapaksa ICR Team Leader: Zafar Iqbal Raja

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SRI LANKA Provincial Roads Project

CONTENTS

Data Sheet A. Basic Information…………………………………………………………………………. i B. Key Dates ………………………………………………………………………………….i C. Ratings Summary ………………….………………………………………………………i D. Sector and Theme Codes ………………………………………………………………… ii E. Bank Staff …………………………………………………………………………………ii F. Results Framework Analysis ……………………………………………………………..iii G. Ratings of Project Performance in ISRs ……………………………………………….....vi H. Restructuring …………………………………………………..………………………...vii I. Disbursement Graph ……………………………………………………………..……....vii

1. Project Context, Development Objectives and Design ........................................................... 12. Key Factors Affecting Implementation and Outcomes ........................................................... 43. Assessment of Outcomes ...................................................................................................... 114. Assessment of Risk to Development Outcome ..................................................................... 155. Assessment of Bank and Borrower Performance .................................................................. 156. Lessons Learned .................................................................................................................... 177. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ....................... 18Annex 1. Project Costs and Financing ...................................................................................... 20Annex 2. Outputs by Component .............................................................................................. 21Annex 3. Economic and Financial Analysis ............................................................................. 23Annex 4. Bank Lending and Implementation Support/Supervision Processes ......................... 27Annex 5. Beneficiary Survey Results ....................................................................................... 29Annex 6. Stakeholder Workshop Report and Results ............................................................... 30Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ................................. 31Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ................................... 44Annex 9. List of Supporting Documents .................................................................................. 45Annex 10. Reduction in Travel Time by Road………………………………………………..46

MAP – IBRD 36976, 37351, 37371………………………………………………………..… 47

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DATA SHEET

A. Basic Information Country: Sri Lanka Project Name: Provincial Roads Project ID: P107847 Cr. Number: IDA-46300 ICR Date: 11/26/2015 ICR Type: Core ICR

Lending Instrument: SIL Borrower: DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

Original Total Commitment: XDR 66.10 M Disbursed Amount: XDR 62.95 M

Revised Amount: XDR 62.95 M Environmental Category: B Implementing Agencies: Ministry of Local Government and Provincial Councils Co-financiers and Other External Partners: Not Applicable B. Key Dates

Process Date Process Original Date Revised / Actual Date(s) Concept Review: 02/05/2009 Effectiveness: 04/02/2010 04/02/2010 Appraisal: 05/05/2009 Restructuring(s): 11/06/2014 11/06/2014 Approval: 12/17/2009 Mid-term Review: 02/01/2013 03/18/2013 Closing: 03/31/2015 03/31/2015 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Moderately Satisfactory

Overall Bank Performance: Moderately Satisfactory

Overall Borrower Performance: Moderately Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

Yes Quality at Entry (QEA): None

Problem Project at any time (Yes/No): No

Quality of Supervision (QSA): None

DO rating before Closing/Inactive status: Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Rural and Inter-Urban Roads and Highways 100 100 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 50 50 Public expenditure, financial management and procurement 25 25

Rural services and infrastructure 25 25 E. Bank Staff

Positions At ICR At Approval Vice President: Annette Dixon Isabel M. Guerrero Country Director: Francois Clottes Naoko Ishii Practice Manager/Manager: Karla Gonzalez Carvajal Michel Audige

Project Team Leader: Amali Rajapaksa Tawia Addo-Ashong ICR Team Leader: Zafar Iqbal Raja ICR Primary Author: Zafar Iqbal Raja Elena Y. Chesheva F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)The project aims to improve access to socio-economic centers in Eastern, Northern and Uva Provinces, through the sustainable management of improved road infrastructure. Revised Project Development Objectives (as approved by original approving authority) Not Applicable

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(a) PDO Indicator(s)

Indicator Baseline Value Original Target

Values (from approval documents)

Formally Revised Target Values

Actual Value Achieved at Completion or

Target Years Indicator 1: Reduction in average travel time by targeted beneficiaries on project roads.

Value (quantitative or qualitative)

Uva Province 801 minutes

Eastern Province

95 minutes

Northern Province 32 minutes

Uva Province 64 minutes (20%)

Eastern Province 76 minutes (20%)

Northern Province 25 minutes (20%)

-

Uva Province 32 minutes (59%)

Eastern Province 18 minutes (82%)

Northern Province

19.6 minutes (38%)

Date achieved 11/11/2009 12/18/2009 03/31/2015

Comments (incl. % achievement)

Significantly exceeded the targets. 59%, 82% and 38% reduction in average travel time for Uva, Eastern and Northern provinces respectively. The achievements are based on data collected from travel time surveys (Annex 12 of Borrower’s ICR March 2015). Details by road are in Annex 10 of the ICR.

Indicator 2: Increase in roads in good and fair condition as a share of total classified roads (Core).


Uva Province 21%

Eastern Province 9%

Northern Province 0%

Uva Province 30%

Eastern Province 18%


Uva Province 27%



Uva Province 50%


Northern Province 26.3%

Date achieved 11/11/2009 12/18/2009 11/06/2014 03/31/2015

Comments (incl. % achievement)

Exceeded the target. 50%, 40% and 26.3% increase in roads in good and fair condition for Uva, Eastern and Northern provinces respectively. The achievements are based on data collected from road condition surveys (Annex 1D of Borrower’s ICR March 2015). This is a cumulative effect of the roads rehabilitation, maintenance programs of this project as well as projects funded by other developmental partners

Indicator 3: Increase in the level of satisfaction from road users and communities along the project road corridors. Value (quantitative or qualitative)

0.00 20.00% - 72.00%

Date achieved 11/11/2009 12/18/2009 - 03/31/2015 Comments (incl. % achievement)

Far exceeded the target (72% vs. 20%). The achievements are based on data collected from beneficiary satisfaction surveys (Annex 5 of Borrower’s ICR March 2015).

1 Average travel time of 5 roads in Uva Province (Annex 12 of Borrower’s ICR March 2015)

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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at Completion or Target

Years

Indicator 1.1: Length of roads rehabilitated (km).


Uva Province

0.00 km

Eastern Province 0.00 km

Northern Province

0.0 km

Uva Province 150 km

Eastern Province

100 km

Northern Province 100 km

Uva Province 117.29 km

Eastern Province

56.18 km

Northern Province 55.74 km

Uva Province 117.29 km

Eastern Province

55.72 km

Northern Province 59.15 km

Date achieved 11/11/2009 12/18/2009 11/06/2014 03/31/2015 Comments (incl. % achievement)

The revised target slightly exceeded. The project completed 236.52 km by the closing date.

Indicator 1.2: Maintenance strategy developed and approved. Value (quantitative or qualitative)

none Developed and approved - Strategy under development in Northern and Eastern provinces


Partial achievement, however, the project was instrumental in getting the Northern province, followed by the Eastern to adopt transparent process for developing maintenance program based on technical basis.

Indicator 1.3: Annual maintenance plan developed. Value (quantitative or qualitative)

No Yes - Plans developed


Annual maintenance plans developed in three provinces. In addition, Eastern province developed 3-year investment plan.

Indicator 1.4: Km of roads receiving routine maintenance annually.


Uva Province 0.00 km Eastern Province 0.00 km Northern Province 0.00 km

Uva Province 515 km Eastern Province 350 km Northern Province 132 km

-

Uva Province 692 km Eastern Province 320 km Northern Province 90 km


Exceeded in Uva province. 91% and 68% target met in Eastern and Northern provinces respectively.

Indicator 1.5: Building of in-house capacity of PRDDs in safeguards and fiduciary management (% local & foreign training completed).

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No capacity in PRDDs

Capacity built in safeguards and fiduciary management

- Capacity built in safeguards and fiduciary management


Capacity built in safeguards and fiduciary management. 145 participants benefitted from training programs (both local and abroad).

Indicator 1.6: Road Asset Management System (RAMS) developed, rolled in and used by PRDDs.


Not available Developed, rolled in and used by PRDDs -

Eastern and Northern Province are using RAMS. Uva Province is identifying requirements for RAMS suitable for the needs of the province


Achieved for two provinces out of three.

Indicator 1.7: Milestones in project-related GAAP met.


Not available Milestones met -

Majority of provisions of GAAP have been implemented, including third party technical audit, grievance redressal mechanism, disclosure of project information, independent construction supervision services, procurement thresholds for prior and post reviews, progress monitoring, national and provincial steering committees, community consultations, independent financial audits


GAAP implemented.

Indicator 1.8: Grievance redressal mechanism established. Value (quantitative or qualitative)

Not available Yes - Yes


Grievance Redress Mechanism established in three provinces.

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G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP Actual Disbursements

(USD millions) 1 05/28/2010 Satisfactory Satisfactory 0.00 2 12/12/2010 Satisfactory Satisfactory 15.25 3 05/29/2011 Satisfactory Moderately Satisfactory 15.25 4 12/15/2011 Satisfactory Moderately Satisfactory 30.50 5 06/26/2012 Satisfactory Moderately Satisfactory 44.79 6 12/30/2012 Satisfactory Moderately Satisfactory 46.22 7 05/27/2013 Satisfactory Satisfactory 55.13 8 12/07/2013 Satisfactory Satisfactory 73.59 9 05/05/2014 Satisfactory Satisfactory 82.98

10 11/12/2014 Satisfactory Satisfactory 90.43 11 09/18/2015 Satisfactory Satisfactory 97.73

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H. Restructuring (if any) Change in Results Framework: The target for the intermediate results indicator relating to the total length of roads rehabilitated was lowered from 350 km to 230 km. I. Disbursement Profile

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1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country Context 1. By the time of project preparation Sri Lanka emerged after a 30-year conflict, which had a negative impact on the economy estimated at 2-3 percent of GDP growth annually2, destroyed economic infrastructure and displaced nearly a million people. The country embarked on rebuilding its economy and livelihoods of its people. Real GDP per capita grew by about 35 percent between 2002 and 2007, however the pace of poverty reduction has been more modest, with the poverty headcount declining by only 7.5 percentage points and remaining relatively high at 15.2 percent3 for a country with US$ 1,634 per capita GDP as of 2007. 2. The rural poor accounted for 88 percent of the total poor in Sri Lanka. In 2007, about 60 percent of rural households in Sri Lanka depended on agriculture, and the poverty rate among them was significantly higher than that of rural non-agricultural households4. Uva was the poorest province in the country with the poverty headcount of 27 percent as of 2007. Among all the provinces, it had the highest number employed in agriculture, contributing over half of the Provincial GDP. Eastern and Northern Provinces were most severely affected by the 30-year long fighting and subsequent displacements. These provinces were heavily dependent on agriculture and fishing sector, however due to the conflict most of the agricultural infrastructure was destroyed, which lead to transformation of commercial agriculture into the subsistence agriculture, particularly in the North. Sector Issues 3. Sri Lanka’s road network consists of about 117,000 km, and is the densest in South Asia. Roads carry 90% of the inland freight and passenger traffic annually. The provincial road network, estimated at about 15,700 km5, constitutes about 14 percent of the country’s total road network. It provides the key connection between the rural and the national networks. Due to the long-running conflict and a lack of consistent funding for provincial roads, little maintenance or rehabilitation of the network took place. At appraisal, the roads in the provincial network were mostly in an advanced state of deterioration, with extensive pot holing, breakup of bitumen surfacing, broken and inadequate culverts and pavement failures. Only 21 percent of the provincial roads in Uva Province (total 1,741 km), 9 percent in Eastern Province (total 1,098 km) and 0 percent (total 2,000 km) in Northern Province were in good condition. According to the estimates for Uva province individual farmers were unable to deliver their produce in a timely manner to the markets due to the poor condition of provincial roads and lost up to 40 percent of perishable produce. Average distance and time taken to travel to the nearest commercial center was twice the national average.

2 World Bank. “Sri Lanka Poverty Assessment: Engendering Growth with Equity: Opportunities and Challenges.” 2007. 3 This excludes Northern Province where due to security situation, it was impossible to conduct surveys. “Poverty Indicators: Household Income and Expenditure Survey, 2006/07.” Department of Census and Statistics, GOSL 4 The Household Income Expenditure Survey (2002) revealed nearly 24 percent of rural agricultural households are poor, compared with only 16 percent of nonagricultural households. 5 “Public Expenditure Review of Provincial Roads in Eastern, North Central and Uva Provinces.” Draft Final Report. 25 November 2008. Asian Development Bank.

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4. Provincial Councils (PCs) were responsible for provincial roads, through their Provincial Road Development Departments (PRDD). The primary function of the provincial road agencies was to maintain the current road network. There had been minimal new construction, and a general absence of funds for any significant improvement of the existing network. The primary source of funding for provincial roads was from allocations made to the Ministry of Local Government and Provincial Council (MLGPC) and distributed to the provinces through the Finance Commission. Spending on provincial roads also came from projects funded through foreign loans to GOSL and channeled to the relevant province by the central government ministries and agencies, and provincial revenue generated and allocated for roads through the provincial budgets. PCs collected road user charges in the form of vehicle license fees. However they were unable to invest an adequate share of their own revenues in the road network.

5. Due to inadequate and irregular funding, there had been little incentive for the provincial road departments to plan and budget for either capital or maintenance works. There were no long-term development plans for their networks; only annual maintenance schedules existed. Very weak capacity of road departments was another challenge at provincial level, including difficulties in hiring and retaining competent and qualified technical staff, lack of physical assets, including laboratories, and inadequacy and/or absence of planning units and databases. The quality of contractors at the provincial level was low. Lack of continuity in road works created little motivation for the contractors to invest in plant and equipment and qualified staff.

Rationale for Bank involvement 6. The Government of Sri Lanka’s (GOSL) 10-year development framework, Mahinda Chintana, set out a broad agenda for the road sector, including building an integrated road network and connecting poor regions and production centers to domestic and international markets in order to foster rural development. In support of this framework, a joint road sector program was formulated by the GOSL for the rehabilitation of the National, Provincial and Rural Roads for the entire country. With regards to the provincial roads sector, the development partners (World Bank, ADB and JICA) were invited to work with the GOSL in selected provinces based on the preparatory work undertaken by the ADB Project Preparation Facility (PPF). In this context, the GOSL requested the Bank’s assistance for Uva Province, part of the Eastern Province, and Northern Province. 7. The Bank is a major development partner in Sri Lanka having financed several key infrastructure projects over the past decades. This has demonstrated that the Bank had the ability to implement projects in a volatile and sensitive environment, deliver relevant development outcomes on the ground, and rapidly adapt to changing circumstances where necessary. The Project supported the World Bank’s Country Assistance Strategy, approved in July 2008 which was fully aligned with the Mahinda Chintana. The three strategic objectives of the CAS: (i) expanding economic opportunities to lagging regions; (ii) improving investment climate; and (iii) enhancing services, were fully supported by the Project. Improvements in the condition of the network in two of Sri Lanka’s lagging regions supported the first objective, and the strengthening of capacity for publicly-provided services supported the third objective. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 8. The project aimed to improve access to socio-economic centers in Eastern, Northern and Uva Provinces, through the sustainable management of improved road infrastructure. The objectives stated in PAD and financing agreement were identical.

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9. The achievement of PDO was to be monitored and evaluated using the following outcome indicators:

(i) reduction in average passenger travel time on project roads; (ii) increase in the share of roads in good condition; and (iii) increase in the level of satisfaction from communities and road users along the project

corridors. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. There was no formal revision of the PDO and the outcome indicators, however the intermediate indicator of number of kilometers to be rehabilitated has been revised during the restructuring of 2014. The target was reduced from 350 km to 230km. 1.4 Main Beneficiaries 11. The direct beneficiaries of the project were the population living in project areas, including road users, villagers, farmers, agricultural producers, agribusiness operators and transport operators living or operating in project areas. Poor farmers/rural communities in the Uva, Eastern and Northern Provinces benefited from the improved condition of the road network, lowered transportation costs and travel times. The project-funded civil works generated employment opportunities on its own. The staff of the Provincial Road Development Departments also benefited from capacity development and training. 1.5 Original Components (as approved) 12. The Project had the following three original components: Component 1: Rehabilitation of Provincial Roads [US$ 90.0 million]. This component supported works and services for the upgrading, rehabilitation of about 150 km of provincial roads and other road infrastructure in selected, prioritized, geographical areas in Uva Province (US$ 50 million), 100km in selected, prioritized areas of Ampara District of Eastern Province (US$ 20 million), and 100 km in selected, prioritized areas of Jaffna District of Northern Province (US$ 20 million). Component 2: Maintenance program [US$ 10.0 million]. The project supported PRDDs to develop and implement a maintenance strategy on their paved network, supported the routine and periodic maintenance in the provinces. Component 3: Implementation Support and Capacity Building [US$ 5.0 million]. This component supported: (i) technical assistance to the road departments in the areas of financial management, environmental and social management, procurement and contract management to improve systems and procedures for the management of the road network under their responsibility; (ii) office and laboratory equipment and vehicles to assist in project implementation and maintenance of the road network; (iii) coordination and monitoring of project activities; (iv) training; (v) capacity development for the local construction industry; and (iv) any additional studies required to assist in improvement in implementation of the project and increased capacity of the PRDDs to execute their core functions. Strengthening of these functions/areas of the Road Departments or Agencies were aimed to lead to (a) progress towards a guarantee of adequate

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maintenance of the provincial road network; (b) an increase in general efficiency of the use of resources; and (c) an increase in the transparency and accountability of outcomes. 1.6 Revised Components 13. The components remained unchanged except for decrease in the targeted length of roads explained below. 1.7 Other significant changes 14. The Project was formally restructured in November 2014 to make a change in results framework. The target for the main outcome relating to the total length of roads rehabilitated was substantially lowered from 350 km to 230 km (34.2% reduction in project scope) due to a significant cost overrun. This reduction was necessitated due to a number of factors that contributed to the cost overrun: (a) incorrect cost estimation because designs were not detailed enough at the time of the bidding (particularly for Uva province mountainous roads) necessitating preparation of detailed designs, additional works and quantities, (b) change in the proposed surfacing option from DBST to asphalt surfacing; (c) significant increase in the cost of construction materials, especially the cost of concrete, bitumen and fuel. 15. By the end of the Project, based on the final cost estimates, a savings of US$ 3.9 million was anticipated mainly on account of price escalation being less than the estimated for civil works contracts as well as savings in Component C. Since the exact amount towards outstanding civil works was yet to be determined by the closing date, the GOSL has by a letter dated March 30, 2015 requested for a partial cancellation of US$ 2.0 million which has been carried out. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 16. The project concept was reviewed on February 5, 2009 and the Project was approved on December 17, 2009 (101/2 months project preparation period). The Project was declared effective on April 2, 2010. 17. The project design incorporated the following key lessons learned from the implementation of previous road sector projects and other operations by other development partners and Bank experience in Sri Lanka: (i) it is important to address inadequate maintenance funding for provincial roads, (ii) institutional strengthening of the PRDDs is a gradual process and takes time, (iii) local construction capacity, although growing, is somewhat limited due to resource constraints (manpower and equipment), and (iv) Thorough preparation needs to be done in order to prevent time and cost overruns. 18. The design of the first component was largely informed by the feasibility study of provincial roads done by ADB. Based on the feasibility study the development partners (World Bank, ADB and JICA) agreed to fund rehabilitation of provincial roads. The World Bank agreed to finance road rehabilitation and maintenance in Uva province and selected districts in Northern and Eastern provinces. ADB and JICA rehabilitated about 277 km of roads in Eastern province, and about 300 km in Northern Province. Northern Province was not accessible at that the time of 2008 feasibility study, and it was done during preparation of the World Bank project.

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19. The designs done as part of ADB Project Preparation Facility were rather standard, not-site specific designs. The terrain and road conditions in the three provinces were drastically different from each other and required different design considerations (Uva was hilly, Eastern was flat with more urban roads and Northern was flat but consisted of small islands). This led to underestimating the costs of civil works and later led to cost and time overruns and reduction in scope of the first component. In hindsight, the project should have commissioned additional surveys and detailed designs, particularly for mountainous roads of Uva, before tendering the works contracts.

20. The project design was ambitious given the weak institutions and financial capacity of Northern and Eastern provinces, as well as the associated political and security risks and untested project implementation capacity. This was the first road project by the Bank to improve provincial roads, and the implementing agencies, Provincial Road Development Departments, had no prior experience with the Bank. The project was dispersed over three provinces with somewhat complex and perhaps too elaborate implementation arrangements: National Steering Committee (NSC), Project Coordination Unit (PCU) of Ministry of Local Government and Provincial Councils (MLGPC), Provincial Project Steering Committees (PPSCs), Project Implementation Units (PIUs) of Provincial Road Development Departments (PRDDs). 21. The GOSL demonstrated a strong level of commitment and ownership toward the project design, preparation and implementation through a number of actions such as full agreement with the policy support and institutional development component. Beneficiary and stakeholder satisfaction surveys were conducted to seek their feedback on the project performance. 22. The project team correctly identified most of the risks and designed the project in such a way as to minimize many of them. Mitigation measures were identified at the project preparation stage. However, the risk of escalation in prices for some construction materials was rated as ‘Moderate’. In the hindsight it should have been rated as High, or Substantial. The project should have identified “implementation readiness” as a risk – improving project preparation to include complete detailed engineering designs and bid documents, and essential pre-construction activities prior to contract awards. Another risk that could have been captured is flooding/landslides (Uva province is prone to such natural disasters). 2.2 Implementation 23. The project was implemented over the course of 5 years and was completed by the original closing date of March 31, 2015. 24. A number of factors affected project implementation, including:

a. The project faced difficulties in finding required labor as many internally displaced

persons were being resettled during the construction period within the locality.

b. There was a significant cost overrun in the first component, which led to 34 percent reduction in scope (reduction of length of rehabilitated roads from 350 km to 230 km). Uva province was particularly affected where the cost increased between 8.4 to 23.7 percent. This was a result of several contributing factors:

The initial designs provided in the tender documents were prepared as part

of the ADB funded feasibility study of 2008 and were sketchy, not detailed designs. This was particularly affecting hilly terrain roads in Uva province,

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which required detailed surveys and detailed designs for correctly estimating bill of quantities and costs. Revised designs provided for additional number of culverts, retaining walls, improved geometry of the roads. This resulted in variations orders due to changes in the designs and in revised bill of quantities based on site conditions.

Change in the construction materials and methodology (from DBST to asphalt concrete for hilly roads in Uva and from DBST to cement concrete for flood-prone roads in Eastern province).

Significant increase in cost of construction materials during contracts implementation. For example, between 2011-2013, the cost of concrete increased 21percent, bitumen - between 10-15 percent, and cost of fuel increased 56 percent6

c. Supervision consultants had limited capacity for design review, which caused

delays with the start of works, and not sufficient professional staff for supervision.

d. The procurement of supervision consultants suffered from delays, and the award of the SC for Uva province was further delayed by 145 days due to the complaint handled by Attorney General Office. This caused delays with award of contracts for civil works.

e. There were also delays with utility shifting also contributed to the delays with contracts execution.

f. Due to extreme climatic conditions in December 2014/January 2015 four locations on hilly project roads in Uva suffered from landslides and several locations had slope failures. After investigation and discussion of required remedial measures it was agreed that due to nearing closing date for the project the interventions will be undertaken under World Bank funded Climate Resilience Improvement Project.

g. The capacity constraints of civil works contractors (manpower and materials availability) due to which they could not keep to their original programs as per the respective contract periods. Due to delays in implementation, two contracts in Northern Province were terminated and re-awarded. Of the 17 contracts, 11 contracts were given extension of time.

h. Limited institutional capacity in provinces impeded the implementation of the project.

i. Partial and/or delayed releases of funding due to the budgetary constraints of GOSL negatively impacted the project implementation progress. Non availability of counterpart funding significantly delayed award of maintenance contracts under the second component. The project stipulated that funding from the loan for maintenance will be provided on the declining basis, so that the Government would increase its funding. However, revenues collected from the vehicle licensing fees

6 Ministry of Housing and Construction of Sri Lanka, Construction Industry Development Authority Bulletin of Construction Statistics, Publication No. ID-05, Volume 25 No 10, October 2015

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were not sufficient to cover the gap and the budgetary provision from the GOSL had been significantly delayed.

25. To account for implementation delays the Implementation Performance (IP) rating was downgraded to Moderately Satisfactory (MS) in May 2011 and remained MS till May 2013. Notwithstanding the above external events that were outside the control of the government and implementing agencies and limited capacity impeding the project implementation, the Project displayed resilience and commitment and ensured that the works were completed by the closing date of March 31, 2015.

26. A Mid-Term Review (MTR) for the project was conducted in March 2013. The MTR discussed the issue of cost overruns and an agreement had been reached that about 230 km of the roads would be rehabilitated against the target of 350 km of roads under the Part A- roads rehabilitation component. The project was subsequently restructured to curtail the project roads length to 230 km, however, the restructuring didn’t happen till November 2014. The reasons for such a long delay in restructuring were as follows: (i) waiting for the decision on the non-performance of the UVA-2 Contractor (this contract was at the verge of cancellation, and if it was cancelled the scope of restructuring (total kilometers) would change; and (ii) proposals from the provincial governments of UVA and the Eastern province to add more civil work contracts citing some available funding in the loan. The Bank was receptive to such proposals as it would increase the total kilometers. Hence, after going through the due diligence process more contracts were added to the project scope. After this has been clarified, the delayed restructuring was processed. 27. By the end of the Project, based on the final cost estimates, a savings of US$ 3.9 million was anticipated mainly on account of price escalation being less than the estimated for civil works contracts as well as savings in Component C. Since the exact amount towards outstanding civil works was yet to be determined by the closing date, the GOSL has by a letter dated March 30, 2015 requested for a partial cancellation of US$ 2.0 million which has been carried out.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 28. Overall, the Results Framework for the project was designed to monitor achievement of the project objectives and cover all key areas of the project, and an appropriate set of outcome and intermediate indicators was identified. The outcome indicators included reduction in travel time, increased in the share of roads in good condition, and increase in the level of satisfaction of roads users and communities along project roads. To better assess the achievement of the first part of PDO the team could have considered a separate indicator on measuring improved access to markets and economic opportunities. 29. The second indicator on the increase in share of roads in good and fair condition is a Core indicator used by the Bank as one of the corporate indicators for measuring results. While it is a good tool for measuring impact of development interventions, attribution is an issue for this indicator in this particular project as it focuses on the entire network in the provinces, where in addition to the Bank project, other road improvement projects take place, funded by the Government and/or development partners (ADB and JICA7). Maintenance program supported by Component B has also contributed to increase of roads in good and fair condition.

7 Borrower’s ICR mentions that about 277 km in the Eastern Province were rehabilitated by ADB and JICA funded projects, and about 300 km in the Northern Province.

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30. Two of the intermediate indicators, “Milestones in project-related GAAP met’, and ‘Building of in-house capacity of PRDDs in safeguards and fiduciary management’ are difficult to measure and too vague. Instead the team could have picked the key interventions under capacity building and GAAP implementation and monitor them. 31. Baseline data on travel time8, and provincial network-level road condition was collected at appraisal and at end of project (EOP). Baseline data on road user satisfaction/beneficiary survey was collected in 2011, and at MTR and EOP. It should be noted that for the outcome indicators the targets were significantly underestimated. 32. The overall M&E function was the responsibility of the Ministry of Local Government and Provincial Councils (MLGPC). Each participating province was responsible for collecting and monitoring primary indicators and additional information for their respective components. Each PRDD prepared and submitted a monthly progress report (MPR) to the Project Coordination Unit (PCU) reporting on: (i) progress of civil works, consulting services and institutional support, (ii) progress in the achievement of the project development objectives and any intermediate outcomes; and (iii) progress on the capacity building. PCU consolidated MPRs into quarterly project management reports (PMR) and submitted to Bank for review and comments. The PMR measured progress made under the different components of the project and compared results against the results framework. The results framework required measurement of Outcome Indicators at Mid-Term Review (MTR). However, not all of the indicators could be measured at MTR because the rehabilitation works were not completed by MTR. The travel time, road condition and beneficiary surveys could only be conducted upon full completion of the civil works. For this reason the results framework should not have included measurement of outcome indicators at MTR.

2.4 Safeguard and Fiduciary Compliance

a. Environmental Aspects: 33. The compliance of implementation of environmental safeguards at project closure is rated as satisfactory. OP/BP 4.01 was triggered. The overall implementation of road package specific Environmental Management Plans (EMPs) at the time of project closure has been completed accordingly. 34. Initial safety measures with regard to flood damaged sites, including demarcation of damaged areas, clearing of landslide debris and other such precautions were undertaken prior to project closure. The safety measures to alert users to risky areas and signage, had not been reinstalled on Uva 1, 2, 3, and 5 contracts at project closure, which represented a high risk to road users. The ICR team has been informed that the safety measures have been properly addressed. 35. The project showed a big improvement since the MTR with active monthly monitoring from the PMU side as well as support and guidance from the Bank team after performance was low at the MTR. There was one contract on which there were issues up until the final year, Uva2, where there was a lag predominantly due to disinterest and negligence on all aspects by the contractor. However, in that contract too, by project closure compliance had reached a satisfactory level as the project safeguards team at the PMU made many proactive efforts. A good practice within the project, in the Uva province is the Tree planting program, which was implemented via a

8 Only for Uva Province. Travel time baseline for the Eastern and Northern provinces was collected during implementation.

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Memorandum of Understanding (MOU) between the Forest Department of Sri Lanka and the Project and the PRDD, which got a commitment from the Provincial Council as well. This program focused on ensuring that all trees that were removed due to the project were replaced as per the Banks safeguard policy requirements in a manner that would also help regenerate and maintain the forest cover in the region. Typically in road projects, tree re-plantation is done by the side of the roads and maintenance and management is an issue, so this program ensured that the compensatory mechanism adopted was a more sustainable one.

b. Social Safeguards:

36. Overall implementation of social safeguards was rated satisfactory throughout the project period. OP/BP 4.10 was not triggered for this project as there were no indigenous communities identified in the areas covered under the project. Although there was no land acquisition envisaged at the inception of the project, the Bank’s policy on involuntary resettlement (OP 4.12) had been triggered to address possible adverse social impacts during project implementation. Social safeguards management of the project had shown gradual progress throughout the project period and the implementing agencies were able to improve their capacities to implement safeguards measures as a result of the Bank’s support. 37. In keeping with the World Bank’s Safeguard Policies, the National Project Implementation Unit (NPIU), under the auspices of the client Ministry had prepared a Resettlement Policy Framework (RPF) for the safeguards management and the instruments and procedures suggested in the RPF were used to undertake social assessments and resettlement planning to ensure compliance with the Bank’s social safeguard policies. The RPF had been prepared to provide guidelines to mitigate all related losses from loss of land (albeit voluntary donation) and loss of private/community assets/infrastructure/livelihood etc., located on the donated land or otherwise impacted in the Right of Way (ROW). An entitlement matrix had been prepared to cover the losses. 38. Majority of the provincial road rehabilitation interventions had involved widening of roads, reconstruction of culverts, drainages and so on. NPIU and provincial social staff had undertaken Social Impact Assessments (SIA) and Resettlement Actions Plans (RAP) had been prepared to identify the potential social impacts and mitigation measures. Most of the adverse impacts observed during the implementation were due to construction related issues such as access to residential properties and shops, damages to houses and boundary walls, basic amenities such as side drains and toilet structures. NPIU, with the support of the Bank, had established Grievance Redress Mechanisms in all participating Provinces and a robust progress review and monitoring of social safeguards compliance was in place to maintain a systematic social safeguards management throughout the project period. In one of the Provinces, however, social safeguards management encountered some issues towards the final quarter of the project as a result of contracted PIU staff vacating posts in favor of a continued source of income. This may have been avoided if the client was able to secure a fully-fledged team for a few months beyond the closure of the project.

c. Procurement:

39. The project experienced significant delays in finalizing few procurement activities at the initial stage due to issues specific to those contracts and limited capacity of implementing agencies. The delay in concluding the contract for supervision consultant resulted in delays in awarding civil contracts. Therefore, procurement is rated moderately satisfactory. 40. Price Adjustment was not allowed for civil work contracts of shorter duration than 18 months. There is an advantage of bearing the risk on price changes by the Employer even for

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contracts with shorter durations in Sri Lankan context where the fluctuations of prices are haphazard. Government guidelines allow the payments for price adjustment for the contracts running more than three months. The Bank guidelines also do not prohibit price adjustment for contracts shorter than 18-months. In hindsight, the contracts needed to have provision for price escalation.

d. Financial Management:

41. Financial Management (FM) performance rating at most implementation review missions was ‘satisfactory” and in a few occasions was rated “moderately satisfactory” primarily due to one or more of the following issues identified at such points in time: delays in financial reporting, and auditing, inadequate budgetary provision and violations in contractual terms and conditions in a works contract while payments were carried out. From a FM perspective, the issues with the project receiving inadequate budgetary provisions can be considered as a main bottleneck due to which payments required to be made to contractors were delayed and, hence, hampered effective implementation at such points in time. 42. The project internal audit failed to perform at the optimum level due to internal audit staffing constraints that were prevailing at the ministerial/provincial level. This is identified as a systemic issue that can impact any project and going forward it is envisaged that this area could be given some special focus to enhance capacity of internal audit through using project capacity building component. 43. The project has been generally submitting accurate and timely Interim Financial Reports (IFRs) and annual audit reports complying with the two main FM covenants in the project Financing Agreement. The external audit reports in most occasions had qualified opinions. However, the audit observations related to the qualifications sited in these audit reports were not reflecting upon any serious observations, shortcomings and accountability issues on FM aspects. . The internal audit reports have also been submitted to Bank even though there were delays in submission mainly due to systemic issues as the project was relying on GOSL internal audit arrangements. 2.5 Post-completion Operation/Next Phase 44. The Project roads have been taken over by PRDDs of the three provinces that are currently focusing on completion of post-construction activities such as issuance of Taking over Certificates (TOCs) and Defect Liability Certificates (DLCs). The PCU has completed the expenditure documentation process.

45. The PRDD’s in Eastern and Northern Province have developed their ‘Road Asset Management System (RAMS)’ and are currently using the system. PRDD in the Uva Province is in the process of identifying their requirements for RAMS suitable for the province. The three PRDDs agreed to earmark funds from vehicle licensing fees to finance routine maintenance activities. Uva Province exceeded its target value of km of roads receiving routine maintenance, Eastern Province achieved 91% of its target and Northern Province achieved 68% of its target. Limited funding has been the main reason for the partial achievement, due to small vehicle fleet contributing funds through the vehicle licensing fees that has started to grow since the cessation of the conflict in 2009. The Northern and Eastern PRDD’s are in the process of preparing their maintenance strategies. Uva Province will proceed to formulate their maintenance strategy upon development of its RAMS. Annual Maintenance Plans (AMPs) are being developed by the three provinces to seek budgetary assistance for periodic maintenance. For the long term sustenance of

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the road network, however, an Output and Performance Based Road Contract (OPRC) system may be introduced incorporating both rehabilitation and maintenance on a reasonably long term basis, such as a 7-10 year period. 46. Uva Province has prepared a report on proposed mitigation measures for the damages through landslides, slope failures, rock falling etc. that occurred towards the end of last year along the rehabilitated roads. The National Building Research Organization (NBRO) along with PRDD have conducted an investigation of the damaged sites. NBRO has indicated a total period of 24-months for the further investigations and rectification works. It has been agreed that the rectification works will be addressed through an Additional Financing operation of the Bank financed ‘Climate Resilience Improvement Project’ (CRIP) that has been specially designed to address resilience for climate related risks. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation

Rating for Relevance of Objectives: High 47. The PAD correctly identified the key constraints and opportunities of the Provincial Road Network in Sri Lanka. The PDO to improve access to socio-economic centers in Eastern, Northern and Uva Provinces, through the sustainable management of improved road infrastructure was relevant and continued to be valid throughout project implementation. 48. The Project was linked to the third central goal of the Government’s Mahinda Chintana: Vision for the Future, namely: improving living standards and social inclusion. The Government’s third goal is ensuring access to basic services and improving the quality of services. The project was fully aligned with this objective. The Project supported Government efforts to connect rural areas to markets, create employment and provide associated services, and through increased connectivity, allow the 80 percent of Sri Lanka’s population that live in rural areas to better capitalize on the emerging economic opportunities. The project also supported Government efforts to invest in the conflict-affected areas of the North and East Provinces and ethnic reconciliation.

49. The Project was also fully aligned with the current FY 2013-2016 CPS which identified three areas for World Bank Group engagement to assist Sri Lanka in addressing its long-term strategic and structural development challenges and middle-income country agenda. The CPS' areas of focus are linked to the three central goals of the Government's Mahinda Chintana vision, namely: (i) facilitating sustained private and public investment; (ii) supporting the structural shifts in the economy; and (iii) improving living standards and social inclusion. The Project was linked with the third pillar of current CPS. The project helped improve livelihoods of select disadvantaged groups in the conflict-affected Northern and Eastern Provinces. 50. This joint strategy by the GOSL to rehabilitate provincial road network was supported through a collaborative effort of the World Bank, Asian Development Bank and JICA, who agreed on funding the most lagging provinces. Sustainability of the road network largely depends on adequate maintenance, thus the focus of the project on supporting the provincial governments in developing capacity in asset management and reducing the backlog in routine and periodic maintenance was critically important. Proper maintenance of road assets remains one of the priorities in the transport sector.

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51. In view of the above, the project remained relevant at the time of project closure, and the relevance of the objectives is High.

Rating for Relevance of Design: Modest

52. The relevance of project design to the objectives is high and interventions were quite appropriate including both rehabilitation and maintenance as well as capacity building. However, there were a number of shortcomings that ended up reducing the intended scope of the project and affecting the quality of the results framework. Project assessment and design of interventions heavily relied on the preliminary designs of the 2008 feasibility study, which were not detailed enough, particularly for mountainous roads of Uva province. This resulted in incorrectly estimation of the scope of the project and related intermediate indicator (original target of 350 kms of roads in three provinces versus 232 kms achieved). The project design also didn’t address upfront the risk of landslides, which impacted some of the sections of Uva roads. These exogenous factors and unintended negative effects were not fully identified. 3.2 Achievement of Project Development Objectives

Rating: Substantial 53. The project achieved and in some cases, exceeded the targets with regard to all the three outcome indicators:

a. Against the target of 20 percent reduction of travel time on project roads to socio-economic centers there was 59 percent reduction in Uva province (from 80 minutes to 32 minutes against target of 64 minutes), 82 percent reduction in Eastern province (from 95 minutes to 18 minutes against an EOP target of 76 minutes), and 38 percent reduction in Northern Province (from 32 minutes to 20 minutes against an EOP target of 25 minutes) 9 . Breakdown of time reduction by road is provided in Annex 10. This is a significant achievement also confirmed by the results of the beneficiary satisfaction survey, where majority of beneficiaries identify time reduction and easier access to the markets and other socio-economic facilities and improved prices for village products as impacts of road development (see annex 5).

b. Share of roads in good and fair condition in total classified road network in the provinces

significantly increased and surpassed the targets. In Uva this share increased from 21 percent to 50 percent (against the target of 30 percent); in Eastern Province the share of roads in good and fair condition increased from 9 percent to 40 percent against the target of 15 percent; and in Northern Province it increased from zero to 26.3 percent against the target of 5 percent. It is important to mention that this increase is a cumulative effect of

9 Travel time is not dependent on the road length. It depends on the riding quality of roads. The travel time was reduced substantially because of increase in vehicles travel speeds due to high quality of the rehabilitated roads. A plausible explanation for significantly exceeding the 20% reduction target could be that the targets were set too low at appraisal.

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both rehabilitation and maintenance programs under the project10, as well as rehabilitation works done under ADB and JICA projects11.

c. Increase in the level of satisfaction from road users and communities along the project road

corridors from Low to High. Overall, the project gained 72 percent increase of road user satisfaction, with 100 percent of beneficiaries noting improved road condition and 98 percent agreeing that the works responded to the critical needs of their community.

54. The project has laid a good foundation for sustaining these outcomes as evidenced from 157% and 333% increase in routine and periodic maintenance funding respectively. This is due to significant increase in motor vehicle license receipts and the GOSL funding. Motor vehicle license receipts have gone up from SLRs 120.0 million in 2010 to SLRs 277.6 million in 2014 in Uva Province (131% increase). 55. The Northern and Eastern provinces have already commenced implementation of RAMS (Road Asset Management Systems) and currently use web based software, with GIS/GPS interphase employing HDM4. Adopting these RAMS tool would help curtail time, cost and efforts in the future. The tasks completed thus far are data collection and road asset inventory completion, training or the PRDD staff and procurement of necessary equipment. This helped strengthen the functions of the Road Departments which lead to adequate maintenance of the provincial road network, increase in general efficiency of the use of resources; and an increase in the transparency and accountability of outcomes. The Northern Province was the first province to set up the RAMS where a transparent and technical basis is being used for selection of roads.

56. While the project successfully achieved its outcome indicators, the impact of the project was somewhat reduced by reduction of scope of the first component, where due to cost overrun and price escalation project was able to rehabilitate 232 km instead of original target of 350 km.

57. The project was also too ambitious in trying in relatively short period to influence total shift in maintenance management through development of maintenance strategy, implementation of asset management systems and its use in prioritization of investments and developing maintenance plans, and significantly increasing funding allocations from the government and from revenue generated from vehicle license fees. Majority of these tasks were accomplished, however, the work on developing maintenance strategies need to continue, as well as development of RAMS for Uva.

58. Based on the above, achievement of project development objective is accessed as Substantial.

10 Over the period 2010 to 2015, the GOSL implemented 99 road maintenance contracts costing LKR 1901.78 million covering about 861 km of provincial roads. This is due to significant increase in motor vehicle license receipts and the GOSL maintenance funding. This length is in addition to the 236 km of provincial roads that were rehabilitated under the Project 11 Borrower’s Completion report informs that ADB and JICA rehabilitated 277 km in Eastern Province and 300 km in Northern Province.

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3.3 Efficiency

Rating: High 59. The efficiency in achieving the PDO is High. Cost benefit analysis indicates that the project achieved a favorable economic internal rate of return (EIRR). The combined EIRR for all three provinces was 22.02% when reduction in post-harvest losses is included and 21.57% when reduction in post-harvest losses is excluded. Table 1 presents the breakdown of the EIRR by province under both scenarios. The lowest EIRR (16.3%), estimated for the UVA Province, is well above the 12% benchmark. In addition, the EIRR for the other two provinces are above 26%. This indicates that the realized benefits of the project were sufficient to make it a successful investment for all three provinces. The reduction in road length constructed does not detract from the economic worth of the project. The ultimate test of project efficiency is the economic return on investment and not kilometers of road constructed. On that score, the project has an ex-post economic return almost more than twice the cut-off EIRR. Details are at Annex-3.

Table 1: Breakdown of EIRR by Province

Province Including Post-Harvest Losses Excluding Post-Harvest Losses UVA 17.24% 16.30% Eastern 26.90% 26.90% Northern 26.66% 26.46% Total 22.02% 21.57%

60. Using a discount rate of 12%, the combined net-present value (NPV) of the project was USD 109 million when reduction in post-harvest losses is included and USD 102 million when reduction in harvest losses is excluded. As expected, the NPV of benefits is positive for all three provinces. 3.4 Justification of Overall Outcome Rating 61. The overall outcome rating is Moderately Satisfactory based on high relevance of objectives, modest relevance of the design, substantial efficacy and high efficiency of the project. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 62. There was no study on poverty impacts or gender aspects undertaken during the Project. (b) Institutional Change/Strengthening 63. The project was instrumental on reinforcing the focus on proper maintenance funding and asset management. Increased allocations for maintenance in the three provinces demonstrate increased government understanding and commitment to sustainable management of provincial network. While Northern and Eastern provinces have already embarked on using RAMs for assessment of their road network and better maintenance planning, Uva is behind in this process despite several attempts to develop the system. 64. Total of 437 people benefitted from training programs under the project. This included 13 training programs abroad on management and implementation of infrastructure projects,

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monitoring and evaluation, financial management, construction supervision and quality control, procurement, environmental and social safeguards and 23 local training programs on contract administration, environmental standards, construction administration, accounting and finance management, road construction in landslide prone areas, management of road network, health and safety measures during construction, construction law and dispute resolution, environmental impact assessment. As a result, adequate in-house capacity has been built in the PRDDs in all three provinces for road construction, fiduciary and safeguards management. (c) Other Unintended Outcomes and Impacts (positive or negative) 65. There were no noticeable/irreversible negative impacts. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 66. Four dimensions received wide recognition by the road users and public at large – namely, improved condition of the roads, priority needs of the community, reduction in travel time, and level of satisfaction of direct beneficiaries. 4. Assessment of Risk to Development Outcome Rating: Significant 67. The risk that the achieved development outcomes may not be sustained is Significant. The vehicle license revenues are not sufficient enough to finance 100 percent of stable network maintenance needs. Another risk to sustainability is flooding/landslides (Uva province is particularly prone to such natural disasters). 68. With regards to sustaining the policy and institutional reforms, the two PRDDs appear to be committed as evidenced by their use of RAMS for preparing AMPs and senior management deep understanding of the issues. However, Uva PRDD needs to continue working on RAMS implementation, and the risk of roll back remains present, in case of significant turnover/political appointments at top management level. However, the risk appears to be ‘low’ given the strong commitment shown by the new government to good governance and strong/professional leadership. 5. Assessment of Bank and Borrower Performance Bank Performance a. Bank Performance in Ensuring Quality at Entry

Rating: Moderately Satisfactory

69. The Bank’s performance during the preparatory period was moderately satisfactory, moderately rating mostly accounting for a number of weaknesses. The bidding documents were prepared on the basis of outline designs, necessitating substantial revision of the designs and bill of quantity, and delays in in the initial phase of the project and in significant cost increases. As a result, the project length was curtailed from 350 km to 230 km (34% reduction in scope of the first component). 70. However, the Bank’s performance was satisfactory with regard to strategic relevance and approach, and paying adequate attention to fiduciary and safeguards, implementation and

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monitoring & evaluation arrangements. The Bank team consisted of experienced professionals who worked with the GOSL and development partners on project preparation. The team’s interaction and inputs at this phase played a significant role in arriving at a project design that was focused on key challenges at that time and choice of components that directly addressed the challenges within the project’s budget and time limitations. 71. In hindsight, even though very relevant and needed, the project was too ambitious in aiming for changing how the road maintenance is planned and executed, implementing asset management system and using for prioritizing investments all within less than 5 years. Given limited capacity of PRDDs and experience in other countries calling for longer period of implementation of such initiatives, more modest goals could have been chosen. b. Quality of Supervision

Rating: Moderately Satisfactory 72. The quality of the supervision is rated Moderately Satisfactory. Adequate numbers of staff with requisite skills and expertise in technical and safeguards functions were engaged in supporting implementation including through regular monthly/bi-monthly meetings (as needed) and formal missions at regular intervals. The Bank fielded 11 supervision missions, 2 missions per calendar year. The supervision team provided quality advice and proposed solutions to remove implementation bottlenecks. The implementation support mission management letters and aide-memoires suggest comprehensive attention to the three components, duly highlighting the achievements as well as areas of concern, along with suggestions for addressing the proximate challenges. The key issues in implementation were also regularly and candidly brought to the attention of the sector and country management through the Implementation Status & Results Reports (ISRs) and the guidance received was promptly acted upon. The ISR ratings assigned to the quality of implementation provide a fairly accurate reflection of the project’s performance in the corresponding periods, e.g., FM rating downgrade in May 2012, April 2013, October 2014 and April 2015; IP, Project Management and Social Safeguards rating downgrade in May 2011; and M&E rating downgrade in December 2011. 73. While overall supervision has been quite satisfactory leading to completion of project by original closing date, the Bank team should have been more proactive in addressing emerging issues and urging the government to take action. For example, very poor performance of Uva-2 contractor has been mentioned in the Aide-Memoire (AM) as early as January 2011, and repeatedly mentioned in every AM with recommendations to consider termination, however, no action has been taken, and the contract was completed only by the end of the project. For the contract which has not been performing for such a long time, the Bank could have been stricter and considered excluding this contract from the loan financing if the government was unwilling to terminate. The team should have much quicker reacted to emerging variations to the contracts, cost overruns and price escalations in the beginning of the project to adjust the project much earlier. The analysis of cost overruns has been done in May 2012, yet the restructuring to reflect reduction in targets has been done in November 2014, five months before project closing date. c. Rating of Overall Bank Performance

Rating: Moderately Satisfactory 74. The Bank team put a lot of efforts in project preparation and implementation support which led to the project achieving its developmental objectives. However, a number of shortcomings

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during both preparation and implementation stages warrant Moderately Satisfactory rating for Bank performance. 5.2 Borrower Performance a. Government Performance

Rating: Moderately Satisfactory 75. The Government performance is rated moderately satisfactory primarily due to delays in release of counterpart funds which impeded the implementation of the maintenance component. 76. However, GOSL demonstrated a fairly strong level of commitment and ownership towards the project design, preparation and implementation. The PRDDs maintained a dedicated team of suitably qualified staff to implement the project. However, since the project was only one part of the technical staff’s overall duties, there were occasions where a fully deputed team may have been more effective. b. Implementing Agency or Agencies Performance

Rating: Moderately Satisfactory 77. The performance of the Implementing Agencies (IAs) in the provinces was moderately satisfactory. Not enough emphasis was put on readiness for implementation causing start-up delays. Outline designs were used to prepare cost estimates, which resulted in gross underestimation of project costs. Moderate shortcomings were observed in the areas of procurement, financial management, and monitoring & evaluation. The Bank had to downgrade the FM rating four times due to delays in financial reporting, and auditing, inadequate budgetary provision and violations in contractual terms and conditions in a works contract while payments were carried out. While two contracts have been proactively terminated in Northern province and rebid, the Uva PRDD did not exercise the same level of proactivity in the case of the very poorly performing Uva-2 contract, where the initial 12-month contract was allowed to drag through 4 years and was completed just before the project closing date, despite numerous recommendations of the Bank to terminate the contract. c. Justification of Rating for Overall Borrower Performance

Rating: Moderately Satisfactory 78. Considering that the performance of both the Government and its implementing agencies is moderately satisfactory, overall performance of the Borrower is rated as Moderately Satisfactory. 6. Lessons Learned 79. The main lessons from the PRP include:

a. Readiness for implementation: it is critical that good quality detailed engineering designs, bidding documents, environmental and social safeguards documents are prepared during project preparation and procurement completed for key contracts and consultancies. The good practice for item-rated contracts is to ensure that Bill of Quantities (BOQ) are based on detailed engineering designs, bids are invited using accurate BOQs and bids are received

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by appraisal and project cost estimates are based on actual bid prices. Completion of pre-construction activities, utility shifting early on would ensure smooth implementation.

b. Enhancing capacity of the internal audit must be given special focus in future projects through institutional strengthening and capacity building component. The project internal audit failed to perform at the optimum level due to internal audit staffing constraints that were prevailing at the ministerial/provincial level.

c. Construction industry constraints. The local contractors’ capacity was heavily overstretched due to increased amount of funding being channeled in to large infrastructure projects. Most of the contractors failed to keep to the work program and reported delays even with respect to mobilization of their own staff. The contractor’s capacity should be vigorously assessed during pre- or post-qualification evaluation including other works in hand. The Government may consider strict actions such as debarring defaulter contractors, and create an enabling environment to attract well reputed international contractors to shake the poorly performing local contracting industry. A good practice is to do a construction industry assessment during project preparation and make recommendations for addressing the weaknesses.

d. Sri Lanka may consider use of Lump-Sum contracts that were a success story in Pakistan.

Ad-measured, item-rate civil works contracts frequently encounter major cost over-runs, due to significant variations in final work quantities and delays in project implementation. To minimize this risk and benefit from contractor innovation and efficiencies during construction, rehabilitation contracts under the Pakistan Highways Rehabilitation Project (P10556) were invited on a “lump-sum” basis using preliminary designs provided by National Highway Authority (NHA), which prescribed a minimum pavement thickness. This approach shifted some of the construction phase risks to the contractor, where they can be better managed. Overall construction completion costs remained much lower – only 5% increase in cost compared to 17% increase in the traditional item-rate contracts – even though bid prices were on average about 11% higher than the Engineer’s Cost Estimate.

e. The environmental assessment at appraisal should address the vulnerability of roads to landslides. This was not done for Uva province and no corrective measures were put in place during implementation. Learning from the experience of landslide stabilization in Pakistan, Nepal, Bhutan, and India, cost-effective soil bioengineering and biotechnical measures for remediating slope instability should have been applied. It is highly recommended that these technologies be introduced in Sri Lanka's road sector as a priority, especially given the extensive experience among Sri Lanka's South Asian neighbors as global leaders in this field.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies: The borrower’s has offered candid and well considered

comments in Annex 7. These relate to: (i) unforeseen factors that have impacted on the project (e.g. landslides in Uva Province); (ii) procedural limitations relating to procurement processes and the QCBS modality used for procuring supervision consultants; and (iii) contractor performance. In light of these considerations, the borrower has requested reconsideration to upgrade the ICRR ratings. The team agrees that many of the factors that affected the project’s results were exogenous. However, there were also mitigations that could have been better planned and executed. As discussed in section 5.2, it may have been possible to mitigate the impact of exogenous factors by greater attention to readiness of works packages, better use of

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pre-qualification criteria, more robust environmental / technical assessments (e.g. to consider landslide risk), greater rigor in the design of contracting strategies, and stronger project management to control for cost and performance issues. In light of these considerations, the team has decided to leave ICRR ratings unchanged.

(b) Co-financiers: Not Applicable (c) Other partners and stakeholders: Not Applicable

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Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

Rehabilitation of Provincial Roads 70.5 90.0 28%

Maintenance Program 10.0 10.0 - Implementation Support & Capacity Building 5.0 5.0 -

Total Baseline Cost 85.5 105.0 23%

Physical Contingencies 6.5

0.00

0.00

Price Contingencies 13.0

0.00

0.00 Total Project Costs 105.0 105.0

Front-end fee PPF 0.00 0.00 0.00 Front-end fee IBRD 0.00 0.00 0.00

Total Financing Required 105.0 105.0

(b) Financing

Source of Funds Type of Co-financing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 0.00 0.00 0.00 International Development Association (IDA) 105.00 101.1 4.0%

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Annex 2. Outputs by Component

Component Output Indicators End of Project Target Achievement Status Rehabilitation of Provincial Roads

350 km of provincial roads upgraded and rehabilitated

232.16 km of provincial roads rehabilitated (meeting the revised target), including: 117.29 km upgraded and rehabilitated in Uva Province 59.15 km upgraded and rehabilitated in Eastern Province 55.72 km upgraded and rehabilitated in Northern Province In addition, 54 bus shelters were built in Uva province

Maintenance program

a. 997 km of roads receiving routine maintenance annually

b. Road Asset Management System developed, rolled in and used by PRDDs

c. Maintenance strategy developed and approved

d. Annual maintenance plan developed

a. 1102 km of roads receiving routine maintenance annually

b. Eastern and Northern Province developed RAMS and are using the system for maintenance planning. Uva Province is developing specifications for the system to suit the needs of the province (previous attempt at procurement was unsuccessful)

c. Eastern and Northern provinces

are developing maintenance strategy. Uva province will develop the strategy after RAMS is completed

d. Uva province develops annual

maintenance plans e. Eastern province developed 3-

year investment plan. f. Northern province develops

annual maintenance plans Implementation Support and Capacity Building

a. Implementation of local and

foreign training program for building fiduciary and safeguards management capacity in PRDDs

a. Total of 437 people benefitted

from training programs under the project. This included both training abroad (13 training on management and implementation of infrastructure projects, monitoring and evaluation, financial management, construction supervision and quality control, procurement, environmental and social safeguards) and local training (23 training programs on contract administration, environmental standards, construction

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administration, accounting and finance management, road construction in landslide prone areas, management of road network, health and safety measures during construction, construction law and dispute resolution, environmental impact assessment).

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Annex 3. Economic and Financial Analysis Introduction 1. Economic analysis is performed to assess whether the economic benefits of the project are

higher than its economic cost and whether these benefits are similar to those estimated at the appraisal stage. We accomplish this by first assessing whether the economic internal rate of return (EIRR12) is greater than 12% and then comparing it to the EIRR estimated at the appraisal stage.

Framework Assumptions: 2. The following general assumptions are made when performing the economic analysis:

a. The analysis is performed for a 26 year period – 1 year for civil works and 25 years of

benefits. b. Project discount rate is assumed to be 12%. c. For the conversion rate it is assumed that USD 1 is equivalent to LKR 114.25.

Data: 3. The following data and information are utilized to perform the cost-benefit analysis of the provincial roads. Most of the secondary data is obtained from Central Bank publications (“Sri Lanka Socio Economic Data 2014”). In addition, some of the figures were calculated by the consultant through primary data (i.e. Vehicle Maintenance Cost).

Total Provincial Road Extent and contract packages Provincial land area (3 provinces) and land area coming under each provincial road Provincial Agricultural pattern and GDP contribution Project area contribution to provincial GDP in each province Provincial growth pattern of agriculture sector Population Density, provincial population & particulate road level population (GNP Data) Direct benefitted population in each province Provincial Per Capita Transport Expenditure Motor Vehicles by Province Average vehicle speed (Project Appraisal Document) Average vehicle maintenance cost (Primary data) Post-Harvest Loses (Appraisal Document and Secondary Data)

Benefits: 4. The economic benefits of improved provincial road infrastructure in the three provinces (EVA Province, Eastern Province, and Northern Province) are assumed to stem from three sources:

12 EIRR is the discount rate that equates the discounted stream of benefits and costs.

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(1) time savings benefits, (2) reduction in vehicle operating costs (VOC), and (3) reduction in post-harvest losses. However, since post-harvest loss recovery could only be measured through a mix of ex-ante and ex-post data, we report results for two scenarios—the first scenario accounts for reductions in post-harvest losses and the second scenario does not. 5. Time saving benefits—value of time (VOT)—are calculated on the basis of the opportunity cost of time by using the hourly wage rate. The hourly wage rate is calculated using monthly per capita income and assuming that people work 24 days a month and 8 hours per day. In this manner, the hourly wage rate is estimated to be USD 0.54 (LKRs 62.25). However, for Northern Province the hourly wage rate is estimated to be USD 0.7 (LKR 80 .00) due to an existing labor shortage. 6. Vehicle Operating Costs (VOC) are calculated using primary data sources in all three provinces. However, number of registered vehicles operating in each province was obtained from Provincial Road Departments. 7. Reduction in post-harvest losses is calculated using the data from the appraisal stage and other secondary data sources. While it might be important to account for these benefits (for example, it has been estimated that individual farmers lose up to 40% of their perishable produce in the UVA Province), their measurement is imprecise. Therefore, we perform our analysis with and without post-harvest benefits. 8. Note that in addition to these three components, the economic analysis performed at appraisal had included road safety benefits in the calculation. We do not include road safety benefits in the current analysis due to lack of data—in this sense our estimates of the net benefits are conservative. Costs: 9. Total project capital investment was USD 105 million and divided in to 3 project components as USD 90 million for Road Rehabilitation Component, USD 10 million for Maintenance Program Component and USD 5 million for Implementation Support and Capacity Building Component for a five years period. Analysis 10. Cost benefit analysis indicates that the project achieved a favorable economic internal rate of return (EIRR). The combined EIRR for all three provinces was 22.02% when reduction in post-harvest losses is included and 21.57% when reduction in post-harvest losses is excluded. Table 1 presents the breakdown of the EIRR by province under both scenarios. As expected, EIRR is lower when benefits from post-harvest loss reduction are excluded but the magnitude of the difference is small (in all instances it is less than 1 percentage point). Thus, the exclusion of these benefits does not alter the results. The lowest EIRR (16.3%), estimated for the UVA Province, is well above the 12% benchmark. In addition, the EIRR for the other two provinces are above 26%. This indicates that the realized benefits of the project were sufficient to make it a successful investment for all three provinces.

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Table 1: Breakdown of EIRR by Province Province Including Post-Harvest Losses Excluding Post-Harvest Losses UVA 17.24% 16.30% Eastern 26.90% 26.90% Northern 26.66% 26.46% Total 22.02% 21.57%

11. Using a discount rate of 12%, the combined net-present value (NPV) of the project was USD 109 million when reduction in post-harvest losses is included and USD 102 million when reduction in harvest losses is excluded. Table 2 presents the breakdown of the NPV by province under both scenarios. As expected, the NPV of benefits is positive for all three provinces.

Table 2: Breakdown of Net Present Value (in millions of USD) by Province Province Including Post-Harvest Losses Excluding Post-Harvest Losses UVA 28 22 Eastern 41 41 Northern 40 39 Total 109 102

12. ICR team’s estimated NPV and EIRR differ from those calculated by the Borrower because of different assumptions and what it seems to be a typo on the Borrower’s report. The Borrower’s ICR provide the streams of benefits and costs during the period of analysis for each Province, which the Bank team used to calculate the NPV and the EIRR. Hence, both analysis depart from the

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