asian development bank rrp: sri 37245 · 3. component a: road infrastructure 24 4. component b:...

ASIAN DEVELOPMENT BANK RRP: SRI 37245

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON

PROPOSED LOANS

TO THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

FOR THE

CONFLICT AFFECTED AREAS REHABILITATION PROJECT

November 2003

CURRENCY EQUIVALENTS (as of 1 November 2003)

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

SLRe1.00 = $0.01 $1.00 = SLRs94.80

ABBREVIATIONS

ADB – Asian Development Bank

ADF – Asian Development Fund CEB – Ceylon Electricity Board

CBO – community-based organization EA – executing agency IA – implementing agency ICB – international competitive bidding IDP – internally displaced person IEE – initial environmental examination kV – kilovolt LCB – local competitive bidding

LTTE – Liberation Tamils of Tiger Eelam MHAPCLG – Ministry of Home Affairs, Provincial Councils, and

Local Government MHPI – Ministry of Housing and Plantation Infrastructure MOH – Ministry of Highways

MOPE – Ministry of Power and Energy MW – megawatt NGO – nongovernment organization NECORD – North East Community Restoration and Development Project

NEPC – North East Provincial Council NWSDB – National Water Supply and Drainage Board OCR – ordinary capital resources PCC – project coordination committee PMU – project management unit

RDA – Road Development Authority SGIA – second generation imprest account TGIA – third generation imprest account

NOTES

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

This report was prepared by a team consisting of M. Buendia, M. Good, S. Ho, K. Oswald, M. Paniagua, R.G. Rinker, L. Shen, B. Smith, R. Stroem, M. Thiruchelvam,

K.M. Tilakaratne, D. Utami, and S. Widowati (team leader).

CONTENTS

Page

LOANS AND PROJECT SUMMARY iii

MAP ix

I. THE PROPOSAL 1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Existing Situation 2

B. The Government's Strategy 4 C. External Assistance 5 D. Lessons Learned 5 E. The Asian Development Bank's Strategy 6

III. THE PROPOSED PROJECT 6 A. Objective 6 B. Components and Outputs 7

C. Special Features 9 D. Cost Estimates 10 E. Financing Plan 10 F. Implementation Arrangements 11

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 18 A. Project Benefits and Impacts 18 B. Peace and Conflict Risks 19

V. ASSURANCES AND CONDITION 20 A. Specific Assurances 20

B. Condition for Loan Effectiveness 21

VI. RECOMMENDATION 21

APPENDIXES 1. Project Framework 22 2. External Assistance 23 3. Component A: Road Infrastructure 24 4. Component B: Power and Electrification 27 5. Component C: Community Restoration and Development 29 6. Component D: Jaffna Peninsula Water Supply and Sanitation Feasibility Study 36 7. Detailed Cost Estimates and Financing Plan 39 8. Project Implementation Schedule 40 9. Resettlement Framework 41 10. Summary Initial Environmental Examination 45 11. Environmental Assessment Framework 48 12. Component C: Subproject Selection Process 50 13. Terms of Reference for Project Coordination Consultants 51 14. Summary Poverty Reduction and Social Strategy 52 15. Peace and Conflict Impact Assessment 54

SUPPLEMENTARY APPENDIXES (available upon request) A. The Needs Assessment B. Initial Environmental Examination of Sample Subprojects C. Simplified Format of Initial Environmental Examinations

LOANS AND PROJECT SUMMARY Borrower Sri Lanka Classification Poverty intervention

Economic growth and human development Environment Assessment

Category B. An initial environmental examination (IEE) was prepared for representative subprojects and a summary is attached as Appendix 10. For each subsequent subproject proposed under the Project, an IEE will be prepared as one of the subproject approval requirements.

Project Description The Project is the first response of the Asian Development Bank (ADB)

to the needs assessment of conflict-affected areas carried out by ADB and others in early 2003. The areas, in the North and East of the country, make up about 24% of Sri Lanka's land area and contain about 10% of its population. The assessment, which was presented to the international aid community at the Sri Lanka Reconstruction and Development Conference held in Tokyo in June 2003, identified immediate and medium-term rehabilitation needs across all sectors, costing about $1.9 billion, of which about $700 million is required immediately. The Project will address the most critical of these immediate needs by rehabilitating essential economic and social infrastructure, thereby contributing to the restoration of community livelihoods in the conflict-affected areas. It will enable people to rebuild and resume their normal lives by reconstructing roads; power and electrification infrastructure; and community facilities including small-scale water supplies, sanitation, education, health, access roads, renewable energy, and other community development activities.

Rationale Since 1983, the Northern and Eastern provinces of Sri Lanka have been

a battleground, in which about 65,000 people have been killed, many more have been disabled, and at least 800,000 people have been displaced. The whole population of Sri Lanka has suffered from the consequences of the war, but the North and East and the adjacent areas have borne the brunt of the conflict. Livelihoods, particularly for the poor in the conflict-affected areas, have been destroyed. Much of the physical infrastructure and the means of production have been damaged, destroyed, or have deteriorated over time. The conflict has been a constraint to growth and poverty reduction. It has not only caused extensive suffering and dislocation but has also sharply reduced the economic contribution of the region to national development, required defense expenditures that became unsustainable, restrained growth in social expenditures, discouraged investment, and stifled tourism. Resumption of economic life and re-establishment of normal livelihood depend critically on rehabilitation of key infrastructure facilities and restoration of communities. The ceasefire that commenced in February 2002 and continues to be in effect has provided the opportunity for supporting these essential activities.

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Objectives and Scope

The objective of the Project is to support rehabilitation of essential infrastructure and restoration of community livelihoods in the most severely conflict-affected areas of the North and East, predominantly in the districts of Jaffna, Mannar, Kilinochchi, Mullaittivu, Vavuniya, Trincomalee, Batticaloa, and Ampara.

The Project will focus on the highest priority sectors and areas for which ADB’s assistance is most appropriate, based on the needs assessment and reflecting consultations with the Government, development partners, the Liberation Tamils of Tiger Eelam (LTTE), local communities, nongovernment organizations, and others. The Project is being prepared and will be implemented using a sector approach, through which subprojects will be selected on the basis of pre-agreed criteria. It will include the following components: (i) rehabilitation of about 500 kilometers (km) of national roads; (ii) rehabilitation of power transmission, distribution, and rural electrification; and (iii) smaller-scale community infrastructure rehabilitation and activities, such as schools, water supplies, health centers, minor roads, renewable energy, income generation opportunities, and others, for conflict-affected communities throughout the project area. It will also finance a feasibility study for water supply and sanitation systems for the Jaffna Peninsula, where the lack of such systems largely because of the conflict has resulted in a serious public health crisis.

Cost Estimates The estimated total cost is $107.9 million equivalent inclusive of taxes,

duties, and fee and charges during implementation. Financing Plan ($ million)

Components ADB Gov’t Ben. Total

A: Road Rehabilitation B: Power and Electrification C: Community Restoration & Development D: Jaffna Water Supply Feasibility Study Project Coordination Front-end fee, commitment and interest

charges during Implementation Total Financing Percentage (%)

34.3 24.8 16.9 1.0 0.4 2.6

80.0 74.1

11.9 8.2 6.1 0.4 0.4 0.0

27.0 25.0

0.0 0.0 0.9 0.0 0.0 0.0

0.9 0.9

46.2 33.0 23.9 1.4 0.8 2.6

107.9 100.0

ADB = Asian Development Bank, Ben. = beneficiaries, Gov’t = Government of Sri Lanka. Source: Staff estimates.

Loans Amounts and Terms

The Government has requested a loan of $80 million equivalent to help finance the Project. The proposed ADB loans are SDR35,024,000 ($50 million equivalent) from ADB’s Special Funds resources (Asian Development Fund [ADF]) and $30 million equivalent from ADB's ordinary capital resources (OCR).

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The ADF loan will have a 40-year term including a grace period of 10 years, with an annual interest rate of 1.0%, with repayment of principal at 2% a year for the first 10 years after the grace period and 4% a year thereafter. For the OCR loan, the interest will be determined in accordance with ADB's London interbank offered rate-based lending facility, with a term of 32 years including a grace period of 8 years, with a front-end fee of 0.5% and a commitment charge of 0.75% per annum.

Period of Utilization

Until June 2008

Estimated Project Completion Date

December 2007 (about a 4-year period of implementation). As the area was a battleground of ethnic and communal tensions for the last two decades, which destroyed not only physical assets but also the human capacity in the area, extra efforts and time are necessary for clearing mines and unexploded ordnance, for ensuring community participation, proper targeting, and adequate control and monitoring, and for addressing capacity constraints. To be able to perform these activities properly, the Project needs a longer period of implementation compared with that of a rehabilitation project after natural disasters.

Executing Agency For Component A, the executing agency (EA) will be the Ministry of

Highways (MOH) and the implementing agency (IA) will be the Road Development Authority (RDA). For Component B, the EA will be the Ministry of Power and Energy (MOPE) and the IA will be the Ceylon Electricity Board (CEB). For Component C, the EA will be the Ministry of Home Affairs, Provincial Councils, and Local Government (MHAPCLG) and the IA will be the North East Provincial Council (NEPC). For Component D, the EA will be the Ministry of Housing and Plantation Infrastructure (MHPI) and the IA will be the National Water Supply and Drainage Board (NWSDB). MHAPCLG will be the coordinating EA.

Implementation Arrangements

A national project committee will be established to oversee overall project implementation at the national level. It will be co-chaired by the secretaries of the MHAPCLG and the MOH, and will include representatives of the MOPE, MHPI, Ministry of Policy Development and Implementation, Commissioner-General for Relief Rehabilitation and Reconciliation, Ministry of Relief, Rehabilitation and Refugees; Ministry of Eastern Development and Muslim Religious Affairs; Ministry Assisting Vanni Rehabilitation; the IAs; and ADB. The committee will meet at least twice each year. A project coordination committee (PCC) will be established to coordinate project activities, to maintain effective high-level contact with the LTTE, to ensure proper implementation of the Project, and to resolve project-wide implementation issues. Supported by a small secretariat, the PCC will be chaired by the chief secretary of the NEPC, and will comprise representatives from all IAs as well as the MHAPCLG other relevant agencies, and ADB. The PCC will meet periodically to, among other things, review, prioritize,and approve subproject proposals.

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The IAs will be responsible for all activities within their respective components. Existing project management units for related ADB-financed projects, appropriately strengthened, will assume responsibility for the project activities within their sector components.

Procurement

Procurement under the Project will be carried out in accordance with ADB’s Guidelines for Procurement and with the Government’s procedures acceptable to ADB.

Components A and C, due to the wide geographical spread of the project sites, the need for local knowledge of security and other frequently-changing matters relevant to accessing the project area, and the small scale of most packages, are not likely to attract international contractors and suppliers. In addition, detailed designs for the works will not be prepared before bidding; rather, works will be bid upon based on simple standard designs and quantities to be refined during construction. Therefore, for these components, local procurement procedures acceptable to ADB will be the preferred mode. For Component B, specifically for the larger transmission line subcomponent, international procurement procedures will be adopted.

Consulting Services

Consulting services will be required for components A, C, and D, and will be procured in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Reflecting the need to commence project activities quickly, the following arrangements will be implemented. For Component A, RDA will select the consultant from among the four consortia of international and domestic consultants already engaged in ongoing national road sector projects in Sri Lanka. Selection will be based on simplified technical proposals under the quality-cost-based selection method. For Component C and for overall project coordination, consulting services will be engaged under a negotiated contract with the existing consultant for the ADB-funded North East Community Restoration and Development Project. For Component D, full proposals will be invited from the short-listed consultants that passed technical qualification as approved by ADB for the Secondary Towns Water Supply and Sanitation Project, and will be evaluated based on full technical proposals using the quality-cost-based selection method. Overall, about 100 and 1570 person-months of international and domestic consultant inputs, respectively, will be required for the Project.

Project Benefits and Beneficiaries

The conflict-affected areas experience poverty levels estimated to range from 60% to 90%, which are much higher than the rest of the country. As the needs assessment so clearly revealed, little economic or social infrastructure remains intact, and what is present has long passed its useful life. Until this infrastructure is restored, it will not be possible for communities in the areas to restore their livelihoods, even to a very basic level, and begin the long process of catching up with the development that has been available to the rest of the country for the past two decades.

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The Project will address urgent needs of the almost 2 million conflict-affected people in the project area. Many are physically disabled people, women-headed households, and children. These people are now beginning to rebuild their lives in an area that has been either devastated by conflict or suffered through many years of neglect. In particular, the beneficiaries will be communities served by the Project's roads, the electricity, and the small-scale activities undertaken under the Project's community restoration and development component.

They will benefit from improved infrastructure, giving them improved access to economic opportunities and social services, and reducing their isolation from other parts of the country. Where appropriate, primarily for components A and C, the works will be designed to be within the capabilities and resources of domestic contractors and community-based organizations. This will provide domestic contractors and local communities with the opportunities to develop their capacity to undertake works of this nature, and begin the process of developing a functioning economy in the area that has been largely reduced to relying on subsistence support from the Government.

Risks and Assumptions

The major risk is that the Project, through poor targeting and inadequate control and monitoring, will exacerbate the tensions that ultimately led to conflict. Assuming that project benefits are shared equitably among the major ethnic groups and across the project area, the Project will not contribute to an intensification of social tensions. Rather, the Project will contribute positively to the rebuilding of communities in the conflict-affected areas and to beginning the long process of economic development. The Project has been designed, and will be implemented in a manner, to ensure that balances among ethnic groups and regions within the Project areas are carefully managed, and that there is transparency and complete community ownership of its activities.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on proposed loans to the Democratic Socialist Republic of Sri Lanka for the Conflict Affected Areas Rehabilitation Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

2. Since 1983, Sri Lanka's Northern and Eastern provinces have been a battleground between the Government army and the Liberation Tamils of Tiger Eelam (LTTE). Some 65,000 people have been killed, several times as many have been disabled, and at least 800,000 have been displaced. While the whole population of Sri Lanka has suffered from the consequences of the war, the North and East and its adjacent areas have borne the brunt of the conflict. 3. In February 2002 the Government and the LTTE signed a ceasefire agreement and began the long process of negotiating a permanent end to the conflict. While this will require much more time, patience, and goodwill to achieve, there are already clear signs that normalcy is returning to the country and to the most intensely conflict-affected areas in particular. Hundreds of thousands of internally displaced persons (IDPs) and refugees are returning to their homes in large numbers, usually to find that their villages have been devastated; schools and community facilities no longer function; and basic infrastructure for access, agriculture, shelter, income generation, and most other needs requires complete rehabilitation. In a true post-conflict situation, such needs would require urgent attention to bring relief to people who have lost almost everything, but also to remove the potential for the absence of such relief to rekindle conflict. Sri Lanka is not yet in such a post-conflict situation; an effective ceasefire is in place, but the conflict has yet to formally end. Relief and rehabilitation thus become critical factors in moving the peace process forward. Peace dividends, for the people and areas directly affected by the conflict and for the country as a whole, are essential for providing a foundation for peace and, where ethnic differences have played so large a role in initiating and prolonging the conflict, for community reconciliation. 4. The Government, the LTTE, and the international community clearly recognize the linkage between peace and development; that the achievement of the former will to a large extent depend on effective implementation of the latter. The multilateral agencies operating in Sri Lanka—the United Nations family, the World Bank, and the Asian Development Bank (ADB) in particular—gave substance to this recognition by undertaking a comprehensive assessment of relief and reconstruction needs for the country’s most seriously conflict-affected areas, primarily the eight districts that make up the Northern and Eastern provinces and the areas of the four districts adjacent to them that have also been impacted by the conflict (Map). The outcome of the assessment1, available as Supplementary Appendix A, was presented to the international community at the Sri Lanka Reconstruction and Development Conference, held in Tokyo in June 2003. The assessment took into account the thoughts and wishes of a very wide range of stakeholders, including government ministries responsible for relief and rehabilitation activities, government agencies based in the North and East, the LTTE and its agencies, nongovernment organizations (NGOs), community groups, IDPs, and many others. The proposed Project, for which a project framework is presented in Appendix 1, is the ADB’s first response to the needs assessment. It represents the outcome of wide consultation with stakeholders, including the LTTE, who contributed to the design of the Project. Reflecting the urgency of the immediate rehabilitation program, the Project has been prepared under ADB’s

1 Sri Lanka Assessment of Needs in the Conflict Affected Areas (May 2003) prepared by the Government of Sri

Lanka with support from ADB, United Nations, and World Bank (the needs assessment).

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disaster rehabilitation procedures as appropriate and in anticipation of ADB’s forthcoming policy on disaster and emergency assistance being prepared during the processing of the Project. 2 A. Existing Situation 5. Of the eight districts making up the Northern and Eastern provinces, effectively the proposed project area, the LTTE controls Kilinochchi and Mullaittivu districts completely, and controls substantial portions of the remaining ones. Prior to the conflict, these districts had a population of about 2.1 million, with Jaffna having the largest and Mullaittivu the lowest. Due to the conflict, there have been significant population movements in all districts and into the bordering districts. Present populations are uncertain, since figures vary considerably between different sources. However, it does appear that populations in Ampara, Batticaloa, Trincomalee, Vavuniya, and Mannar have increased, while there have been substantial decreases in the populations of Jaffna, Mullaittivu, and Kilinochchi. In adjacent districts, particularly Puttalam and Anuradhapura, large numbers of IDPs live. 6. In early 2002, prior to the ceasefire, there were some 800,000 IDPs from the North and East and contiguous areas, many of whom were women and children. About 91,000 IDPs lived in 264 welfare centers around the country; the rest lived with family and friends. Up to a million people left the country, with about 100,000 of them having fled to India. Since the ceasefire agreement was signed, over 270,000 IDPs have spontaneously returned to their areas of origin despite the adverse conditions of security uncertainty, mine contamination, land and property rights issues, and lack of infrastructure and basic services. Many of these returnees now exist in conditions little better than those they experienced in the welfare centers. 7. Livelihoods, particularly for the poor in the conflict-affected areas, have been destroyed, and devastation and land mines await many of the returnees. Not only did the war cause losses of income and property, it also caused death, injury, psychological stress, and war-related trauma. Much of the physical infrastructure and the means of production have been damaged or destroyed, or have deteriorated over time. Their replacement and rehabilitation is essential if economic life is to resume and normal livelihoods are to be re-established. 8. The conflict has been a constraint to growth and poverty reduction. It has not only caused extensive suffering and dislocation in the region but has also sharply reduced the economic contribution of the region to national development, led to mounting defense expenditures, restrained growth in social expenditures, discouraged investment, and stifled tourism. It has been estimated that the conflict reduced annual growth rates by 2% for the country over the past two decades. The impact in the conflict area has been even worse. Paragraphs 9-17 provide a brief overview of the present situation in the areas and for the sectors that would be addressed by the proposed Project. Amounts where mentioned have been extracted from the needs assessment report. 9. The road system, although largely inadequate prior to the conflict, was reasonably well maintained, but currently all pavement surfaces have deteriorated, and some have entirely disappeared. Bridges and culverts have been destroyed. Less than 15% of the road surface in the region is still intact. Where access is possible, riding conditions are poor, vehicle speeds are low, and vehicle-operating costs are high. The conflict has also caused stagnation in infrastructure development. The poor condition of the road system is one of the constraints preventing people and returning IDPs and refugees from gaining access to economic

2 ADB's Guidelines on Operational Procedures 25 and Operations Manual – Policies and Procedures: Rehabilitation

Assistance after Disaster (1995); and ADB’s Policy on Disaster and Emergency Assistance (W-Paper, 2003).

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opportunities and good quality services. Although some of the damaged or destroyed structures have been temporarily repaired or replaced, and all significant roads are now open to traffic, they have a limited capacity and need to be replaced with permanent and adequate structures. It is estimated that about $90 million is required for immediate road rehabilitation and further $180 million is required over the next 6 years. 10. For power, due to the conflict the percentage of households currently electrified in the Northern Province is 22% and in the Eastern Province 40%, as against a national average of 60%. The power supply to the north was through the transmission line from Anuradhapura to Jaffna and the grid substations at Kilinochchi and Jaffna. To provide supply to the Jaffna district, diesel-powered generators were installed by an independent power producer. In power transmission, about 145 kilometers (km) of transmission line between Vavuniya and Jaffna has been destroyed. In the east, a 132 kilovolt (kV) line and a grid substation were under construction but were not completed because of the conflict. 11. There has been considerable damage to the power distribution system though the damage in the Eastern Province is slightly less than the Northern. In the latter, 90% of the distribution system suffered damage, but nearly 50% of the lines in Jaffna district have now been repaired. In Mannar district there was about 50% damage, but most repairs have been done. Vavuniya suffered about 70% damage, and 20% still need to be repaired. Systems in Mullaittivu and Kilinochchi, both areas controlled by the LTTE, were destroyed and no repairs have been carried out. Overall, about $41 million and $105 million, respectively, are required for immediate and medium-term power system rehabilitation. 12. For water supply, limited piped water is available in all major towns except Kilinochchi and Mullaittivu, where the systems are completely destroyed. In most towns these services are limited to 1-2 hours per day in a very limited service area. In many urban schemes the overhead water reservoirs and the distribution networks have been damaged or destroyed. Most rural water facilities are also in a depleted state. Water supply and sanitation facilities in most hospitals and schools have been destroyed or neglected. Ground water contamination in urban areas due to the use of soakage pits has been identified as a major health hazard. The proportion of households that have access to safe water supply in the North and East is only 20% as compared to 45% nationally, and access to sanitation is 25% compared to the national average of 72%. All districts confirm the presence of preventable intestinal disease, with many reporting the emergence of typhoid and cholera epidemics, indicating faecal pollution of the water resource. Immediate action is required to improve water supply and sanitation systems, which require about $45 million and $64 million in the next 2 and 6 years, respectively. 13. The Jaffna Peninsula is particularly badly affected by the war. Since Jaffna has no surface watercourse, most water is extracted from shallow groundwater and surface storage behind desalination barrages, most of which have been destroyed. The situation is compounded by Jaffna’s unusual geology: a relatively thin soil cover over impermeable limestone bedrock. The result is that water is being drawn from the same thin aquifer that is absorbing the city’s waste, leading to a serious increase in waterborne diseases, including cholera. Under this peculiar situation, there are immediate needs to carefully investigate, study, and design the water resources management comprehensively, as a basis for the more reliable solution to provide the Jaffna peninsula with a safe water supply and sanitation systems. 14. Irrigation schemes serve the role of providing water for all farming needs. Of the total of 323,700 hectares (ha) under irrigation in the North and East, large to medium schemes amount to 266,700 ha while 57,000 ha are under minor schemes. Due to the conflict and consequent abandonment, irrigation schemes are in a very poor condition. The immediate needs are to

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repair the breach and damage to the main head works and to clear the overgrowth in the schemes, so that farmers can commence cultivation of at least part of their paddy lands and provide some form of food security as well as income. Requirements estimated to improve irrigation systems are about $52 million immediately and $81 million in the next 6 years. 15. The education system, from pre-school to tertiary and technical-vocational, is severely damaged. Problems such as nonenrollment, dropouts, absenteeism, and poor learning quality are aggravated as a consequence of displacement, poverty, single-headed households, damaged infrastructure, and lack of human resources. There are about 1,970 schools in the region, with a total enrollment of about 648,000. The rate of student drop out is 15%, almost four times the national average. About 50,000 children are out of school. 16. Following the ceasefire, student numbers are expected to return overall by about 6%-9% annually as IDPs return, dropout rates fall, and retention and transition rates rise. These improvements will require an increase in school capital stock, such as buildings, basic facilities, furniture, equipment, literature and material, as well as an increase in qualified teachers. As education is of paramount importance in restoring normalcy and security, rehabilitation of the system will be very important in the overall processes of peace building and reconciliation. It is estimated that rehabilitation of education system will require about $55.5 million immediately and $61 million in the next 6 years. 17. Health care services, in terms of availability, accessibility, and quality, have all been affected leading to increased mortality and morbidity. Malaria and other preventable diseases, once well controlled, are now widely spread. Health infrastructure has suffered heavy damage or destruction, particularly in the North. Many health institutions are totally destroyed or not functioning. Many others are in disarray due to lack of maintenance. Damage extends to the health system's water supply, sanitation, and electricity systems. Estimated immediate and medium-term needs for health facilities are $37.7 million and $46.7 million, respectively. B. The Government's Strategy 18. The Government recognizes that peace is the key to reducing conflict-related poverty; it is the critical pillar upon which the Government’s Poverty Reduction Strategy3 is based. The Government's policy on relief and rehabilitation aims to bring the population affected by the conflict back to productive life by providing basic amenities to help the people to create a physically, economically, and socially sustainable environment for their reintegration. In 1999, the Government, supported by its development partners, initiated a Relief, Reconstruction, and Rehabilitation Framework process to address challenges in the delivery assistance to the conflict-affected areas. The framework, prepared based on extensive and wide consultations, provides overall guidance on relief modalities, institution building, rehabilitation, and reconstruction. The policy prescriptions address vital issues including the observance of human rights and basic rights of displaced persons; the intimate linkages between relief, rehabilitation and development; decentralization of program management and coordination; the issues of language parity and nation-building; the need to look at security concerns in a wider perspective; and the need to make urgent preparations for the transition to peace.

3 Government of Sri Lanka 2002. Regaining Sri Lanka - Connecting to Growth: Poverty Reduction Strategy.

Colombo.

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C. External Assistance 19. International and domestic agencies have been working in the area, supporting a wide range of activities including resettlement, relocation, and rehabilitation activities. A summary of the major activities is provided in Appendix 2. The United Nations High Commissioner for Refugees and the International Committee of the Red Cross play a vital humanitarian and security role. Other agencies include the Food and Agriculture Organization, United Nations Children Fund, United Nations Development Programme, World Food Programme, bilateral agencies, and large number of international and domestic NGOs. The World Bank is supporting rehabilitation of irrigation schemes and community-based social and economic infrastructure. Bilateral sources, including Australia, Netherlands, Norway, and United Kingdom are also supporting small rehabilitation and income generation activities. 20. At present, ADB and the World Bank are providing the largest volume of support to the North and East. ADB, through the North East Community Restoration and Development Project (NECORD), approved in 2001 for $25 million, with cofinancing from the Organization of Petroleum Exporting Countries Fund, and the governments of Germany and the Netherlands, is providing significant support for the rehabilitation program, with interventions covering health and education facilities, water supply and sanitation, agriculture, shelter, roads, income generation and many others.4 ADB is also providing support, through other programs, for road and power sector rehabilitation. The World Bank has approved two conflict-related projects, one focusing on village recovery through the reconstruction of small-scale irrigation facilities, and the other covering a wide range of other activities including payment of resettlement grants to IDPs. 21. Ongoing development projects that have significant components for the North and East include: the World Bank-financed Basic Education Project; ADB-financed Third Road Improvement Project,5 Secondary Education Modernization Project,6 Aquatic Resource Development and Quality Improvement,7 and Secondary Towns and Rural Community-Based Water Supply and Sanitation;8 and the German Government-financed Primary Education Project, Teachers In-Service Training Project, and Integrated Food Security Project. United Nations agencies and bilateral programs support a very large number of smaller projects, primarily focusing on relief and immediate rehabilitation activities. D. Lessons Learned 22. A review of ADB-wide experience with rehabilitation assistance indicates that projects should (i) be prepared as quickly as possible, (ii) focus on restoring facilities, (iii) feature a flexible implementation process, (iv) provide strong consulting support and ADB supervision during implementation, (v) be supported by equally quick action by the Government, and (vi) be completed entirely.9 23. Other lessons learned from earlier assistance in the North and East include: (i) beneficiary participation must be ensured during project preparation and implementation; (ii) environment and social aspects should be considered during implementation, since the need for rapid response may not permit a detailed treatment prior to the approval of the project; (iii)

4 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Sri

Lanka (RRP) for the North East Community Restoration and Development Project. Manila. 5 ADB. 1994. RRP for the Third Road Improvement Project (Change of Scope). Manila. 6 ADB. 2000. RRP for the Secondary Education Modernization Project. Manila. 7 ADB. 2002. RRP for the Aquatic Resources Development and Quality Improvement Project. Manila. 8 ADB. 2000. RRP for Secondary Towns and Rural Community-Based Water Supply and Sanitation Project. Manila. 9 ADB. 2003. Policy on Disaster and Emergency Assistance (W-Paper). Manila.

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arrangements for disbursements should give quick and simple access to funds; (iv) broader issues of assisting communities with regaining a productive life need to be included since focus on infrastructure alone will not optimize the project value; (v) the adopted approach should permit flexible adjustment of project design during implementation; (vi) criteria for subproject selection should permit simple prioritization and short implementation periods but ensure a balance among the communities and maximum benefits to the community; (vii) the need for close and frequent monitoring to ensure transparency and facilitate implementation; and (viii) the need to coordinate the large number of government and externally-assisted rehabilitation programs in the project areas, as well as the various sectors covered under the proposed project. The proposed Project has been carefully designed to reflect each of these lessons. E. The Asian Development Bank's Strategy 24. The Poverty Partnership Agreement10 between the Government and ADB states that ADB will assist in addressing conflict-related poverty by (i) supporting the relief, rehabilitation, and reconciliation process and post-conflict planning together with other external agencies; (ii) providing selective rehabilitation and reconstruction assistance to the conflict-affected areas; (iii) including specific components in development projects aimed at addressing the needs of the conflict-affected poor and providing support for conflict prevention; and (iv) building local capacities to support the Government's decentralization policy. 25. The Country Strategy and Program for Sri Lanka 2004-200811 supports the Government's efforts in (i) implementing the economic reform program, (ii) promoting regionally balanced development, (iii) rehabilitating and reconstructing the conflict-affected areas, and (iv) reducing poverty. ADB operational priorities will aim to maximize development impacts and peace dividends while contributing to the strategic objectives. The civil conflict in the North and East was identified as one of the basic causes of poverty, not only in the North and East but also throughout the entire country. Strategic support and meaningful interventions will help to support the ongoing peace process and address the conflict-related poverty through rehabilitation and reconstruction. Regionally balanced development is crucial to supporting the peace process, promoting social stability, and enhancing efforts in poverty reduction through higher and sustained economic growth for the whole country. The economic reform program will install the necessary policy and institutional framework to improve efficiency in all sectors. 26. During the Sri Lanka Reconstruction Conference held in Tokyo in June 2003, ADB declared its commitment to providing peace-supporting assistance to Sri Lanka. The proposed Project, which is based on the needs assessment and wide consultation with the Government, the LTTE, and others, will address a small portion of the identified immediate and medium-term needs throughout the conflict-affected areas.

III. THE PROPOSED PROJECT

A. Objective

27. The objective of the Project is to rehabilitate and reconstruct essential infrastructure and to improve living conditions in the areas severely affected by the conflict, particularly in the eight districts of the Northern and Eastern provinces12 and conflict-affected divisions of the four

10 ADB. 2002. Poverty Reduction Partnership Agreement between Democratic Socialist Republic of Sri Lanka and the

Asian Development Bank. Colombo. 11 ADB. 2003. Country Strategy and Program 2004-2008. Manila. 12 Ampara, Batticaloa, Jaffna, Kilinochchi, Mannar, Mullaitivu, Trincomalee, and Vavuniya.

7

adjacent districts.13 The Project will provide a rapid improvement in the well-being of a significant number of people in the conflict-affected areas, support the ongoing peace process by provision of high priority and highly visible infrastructure, and restore community livelihoods. B. Components and Outputs

1. Component A: Road Rehabilitation 28. The objective of Component A is to provide a reliable transport network in the conflict-affected areas, where most of the network is presently in very poor condition. The rehabilitation of strategic road links throughout the region will help provide an enabling environment to promote economic growth and community development. Rehabilitation will consist of low-cost intermediate interventions to bring the deteriorated roads up to an all-weather maintainable condition. The scope of the component will comprise urgently needed rehabilitation of about 500 km of the major road links (Class A and B) that are in extremely poor condition and require immediate maintenance as they have high priority for restoring reliable access throughout the North and East. Capacity building of the nascent construction industry in the conflict-affected areas will also be provided. Appendix 3 provides selection criteria and the list of candidate roads that are not only the highest priority but also the lower priority that could be rehabilitated in the event that additional funding becomes available. The roads included in the list have been selected after extensive consultation with all stakeholders, including the LTTE, on the basis of economic value, geographical distribution, and ethnic or community balance. 29. Basic rehabilitation will be executed to provide a low-cost all weather access that will suffice until a more substantial reconstruction program can commence. It will also provide replacement of small, damaged roadway bridges and some ferries. The road network will have the capacity to serve present and future traffic demands for up to 10 years, allowing for more substantial improvement projects to be implemented progressively over this period. The road works will include location and removal of mines and unexploded ordnance, reconstruction of previously surfaced roads, drainage improvements and clearing, and repair or replacement of bridges as necessary. As the works will be carried out within the existing right-of-way, neither land acquisition nor resettlement will be required. 2. Component B: Power and Electrification 30. The objective of Component B is to restore what had previously been a functioning electricity supply in the North and East, particularly in the Jaffna, Kilinochchi, and Mullaitivu areas. The transmission backbone, previously in place between Anuradhapura and Jaffna, needs to be restored. In parallel, the distribution network threading from the transmission backbone must be rebuilt. The details of Component B are in Appendix 4.

31. Power Generation. As the connectivity with the national grid can only come after the transmission backbone is completed, a short-term generation facility of about 2 megawatts (MW) will be installed by the Ceylon Electricity Board (CEB) as quickly as possible in Kilinochchi. The Project will reconstruct the distribution system that will evacuate the power from the plant to consumers in Kilinochchi town and the surrounding area.

32. Power Transmission. The transmission backbone comprises three major 132 kV segments: Jaffna - Kilinochchi, Vavuniya - Kilinochchi, and Anuradhapura - Vavuniya. It is envisaged by the Government that the transmission line between Anuradhapura and Vavuniya

13 Anuradhapura, Moneragala, Polonnaruwa, and Puttalam.

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will be augmented to a 220 kV line. Since the line from Jaffna to Kilinochchi may be funded by a bilateral agency, the Project will focus on the transmission of power between Vavuniya – Kilinochchi, including location and removal of mines and unexploded ordnance, and a grid substation in Kilinochchi.

33. Power Distribution and Rural Electrification. Due to the conflict, the districts of the Northern Province have the lowest electrification ratio compared to other areas in the country, and the electrification ratio is particularly low in Mullaittivu, Mannar, and Kilinochchi. The Project will rehabilitate distribution networks and rural electrification in the North and East, including location and removal of mines and unexploded ordnance. As power systems in districts like Kilinochchi have been practically destroyed, the project funds will reconnect clusters of habitants in these areas through distribution and rural networks between Vavuniya and Elephant Pass. However, these facilities are dependent on the short-term availability of power generation in Kilinochchi (para. 31) as well as reconstruction of transmission lines to the area (para. 32).

3. Component C: Community Restoration and Development 34. Component C (Appendix 5) will include rehabilitation of (i) small-scale water supply, (ii) sanitation, (iii) irrigation, (iv) education and health facilities, (v) village and rural access roads, (vi) renewable energy, and (vii) other community livelihood restoration activities. The community-focused restoration and reconstruction will include small-scale community-based infrastructure, as prioritized by the communities. Methodologies conducive to community participation, local capacity building, and the provision of employment will be introduced, comprising (i) introduction and training to local-level planners in appropriate planning methodologies such as integrated rural accessibility planning; (ii) applying a labor-based, equipment-supported technology approach; and (iii) promoting small-scale contracting. If the need arises, de-mining of project sites and pathways leading to the infrastructure sites will be done. Beneficiaries' contributions will be included in this component. 35. Especially in areas where IDPs are returning, the small-scale water supply subcomponent will include (i) rehabilitation of water supply schemes in total disrepair, (ii) provision of bowsers and plastic holding tanks, (iii) replacement of destroyed truck and tractor trailer mounted bowsers to be used for provision of drinking water, (iv) repair or replacement of generator sets to provide uninterrupted electricity supplies to run existing water supply facilities, and (v) repair of hand pump tube wells and dug wells to serve families. 36. The sanitation subcomponent will include rehabilitation of sanitary facilities for households, schools, and medical facilities. The approach and procedures of implementation of the water supply and sanitation subcomponents will be in accordance with the National Policy for Rural Water Supply and Sanitation Sector, particularly in a community participation process approach including cost-sharing arrangements, selection of technology, procurement of small works by beneficiaries, and participation of local government in the implementation. 37. The irrigation subcomponent will include rehabilitation of existing medium and small irrigation schemes. The works will include rehabilitation of tank bunds, channel system, access roads, and other structures, without changes to, or diversions of, natural watercourses. The subcomponent will also include the rehabilitation of barrages in the Jaffna Peninsula. 38. The education subcomponent will rehabilitate facilities and other support required immediately to restore the education services, including (i) rehabilitation and reconstruction of school buildings, (ii) restoration of school furniture, (iii) restoration of library and laboratory facilities, (iv) rehabilitation of limited accommodation facilities for teachers in rural areas, (v)

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rehabilitation of water supply and sanitation services, and (vi) provision of teacher training on selected subjects as necessary. 39. The road subcomponent will consist primarily of the labor-intensive restoration of gravel-surfaced rural roads connecting villages to the road network, irrigation schemes, or community facilities, and a small number of higher-level provincial roads with all-weather surfaces. All road construction will be on existing alignments and will not require land acquisition or resettlement. 40. The health subcomponent will include rehabilitation of community health centers, including building, water supply, sewage system, paramedic quarters, offices, and provision of equipment and a mobile clinic. 41. The small-scale renewable energy subcomponent will be implemented in isolated rural communities where interconnection does not prove to be cost effective, initially on a pilot basis. 42. The community livelihood restoration subcomponent will include rehabilitation of community infrastructure, regeneration of community economic activities, and reinforcement of community conflict resolution mechanisms and support for conflict-affected children. The activities will help in the economic and social rehabilitation of severely affected groups like physically disabled persons and widowed women.

4. Component D: Jaffna Peninsula Water Supply Feasibility Study 43. Component D is a comprehensive study of the water resources in the Jaffna peninsula and the adjacent area.14 This immediate activity was required as identified in the needs assessment, because of its critical linkage to health, education, shelter, and economic development outcomes. The Jaffna Peninsula, more than any other part of the conflict-affected area, is afflicted by avoidable waterborne diseases, as a consequence of its high IDP density, unusual topography and morphology, and the intense conflict that took place there. The outcome of the study will be sufficient to quickly prepare an investment project that will begin the process of providing the peninsula with safe and reliable water supply and sanitation systems. The outline terms of reference is in Appendix 6. C. Special Features

44. The Project has been formulated on the basis of a package of especially urgent needs. For normal life to resume, infrastructure destroyed must be rebuilt, social services must be restored, people must have access to employment opportunities and, in the very special circumstances of there as yet being no formal end to the conflict and the intense ethnic tensions that initiated the conflict, the peace process must be supported by parallel rehabilitation and development. The people must see a rapid peace dividend, a reason not to return to conflict. 45. Specifically for the power sector, a functional electricity network would not be possible without all components, including reconstruction of the Vavuniya-Kilinochchi backbone transmission line. This will provide a revenue-generating facility to the area, and at the same time will provide urgently needed electricity for hospitals, schools, water supply, and irrigation facilities. It is also considered essential that road improvements be spread throughout the North and East and the adjacent districts that contain sections of the same road links, to enable IDPs to return and settle, commerce to develop, and links within the area and with the rest of the

14 As no cofinancing commitment has been made, the Government requested that the study be included under the

loan.

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country to be quickly restored. The inclusion of the comprehensive study on water supply and sanitation systems in the Jaffna Peninsula is crucial, since direct intervention without a proper study in the very peculiar situation will worsen the already serious public health crisis. 46. The community-level infrastructure restoration activities reflect the direct interventions to the communities, particularly IDPs, in resuming their normal life, where subprojects will be selected, implemented, and operated by communities, assisted by NGOs, to be used by the communities. Community ownership of the Project will be built to ensure the sustainability of the Project. The user groups will be formed—some of them have already exist—and an agreement will be made for them to contribute in kind or in labor, about 10% of the total rehabilitation costs, and to be responsible in operating and maintaining the facilities after completion. Training to operate and maintain the facilities will be provided as necessary. A close and multilevel monitoring mechanism has been established to prevent any abuse of the resources allocated. The Project will engage an appropriate agency, possibly through bilateral assistance, to monitor the impact of the Project on the communities. 47. The proposed Project is being processed and will be implemented expeditiously. The procedures for processing, procurement, consultant engagement, subproject selection, and the type of works to be done, reflect the flexibility necessary to expedite the assistance without sacrificing quality, transparency, and safeguards. However, as the area was a battleground of ethnic and communal tensions for the last two decades, which destroyed not only physical assets but also the human capacity in the area, extra efforts and time are necessary for clearing mines, for ensuring community participation, proper targeting and adequate control and monitoring, and for addressing capacity constraints. Therefore, the Project needs a longer implementation period compared with a more typical rehabilitation after natural disasters project. D. Cost Estimates

48. The estimated total cost is $107.9 million equivalent inclusive of taxes, duties, and interest during implementation (Table 1). Foreign exchange costs are estimated at $41.9 million (38.8%). Local currency costs are estimated at $66.0 million equivalent (61.2%).

Table 1: Cost Estimatesa

($ million)

Item Foreign

Exchange Local

Currency

Total

1. Component A: Road Rehabilitation 15.7 30.5 46.2 2. Component B: Power and Electrification 20.5 12.5 33.0 4. Component C: Community Restoration and Development 2.5 21.4 23.9 3. Component D: Jaffna Water Supply Feasibility Study 0.6 0.8 1.4 5. Project Coordinationb 0.0 0.8 0.8 6. Fees and charges during implementation 2.6 0.0 2.6

Total 41.9 66.0 107.9 a Including mines clearance, consulting services, project management, taxes, and duties. b Including project coordination consulting services, incremental expenditures for the national project committee and project

coordinating committee secretariat, and independent financial and procurement audits as necessary. Source: Staff estimates. E. Financing Plan

49. The Government has requested a loan of SDR35,024,000 ($50 million equivalent) from ADB's Special Funds resources (Asian Development Fund [ADF]) and a loan of $30 million from

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ADB's ordinary capital resources (OCR).15 The ADF loan will be used to finance parts of road rehabilitation, distribution and rural electrification, community restoration and development, full costs of consulting services, and interest during implementation. The OCR loan will be used to finance part of road rehabilitation, power transmission and equipment, and the front-end fee and commitment charge. The Government will meet 25% of the total project cost in local currency, including taxes, duties, administration expenses, land-related costs, and relocation allowances. The balance, about $0.9 million, represents the beneficiaries' contribution to the Project's direct costs, particularly under Component C. Detailed project costs and financing plan are shown in Appendix 7. 50. The ADF loan will have a 40-year term including a grace period of 10 years, with an annual interest rate of 1.0%, with repayment of principal at 2% a year for the first 10 years after the grace period and 4% a year thereafter. For the OCR loan, the interest will be determined in accordance with ADB's London interbank offered (LIBOR)-based lending facility, with a term of 32 years including a grace period of 8 years, with a front-end fee of 0.5% (the fee will be capitalized in the loan) and a commitment charge of 0.75% per annum. The Government has provided ADB with (i) the reasons for its decisions to borrow under ADB's LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB.

Table 2: Financing Plan ($ million)

Source Foreign Exchange Local Currency Total % ADB (ADF + OCR) 41.9 38.1 80.0 74.1 Government * 0.0 27.0 27.0 25.0 Beneficiaries (in kind) 0.0 0.9 0.9 0.9 Total 41.9 66.0 107.9 100.0 ADB = Asian Development Bank, ADF = Asian Development Fund, OCR = ordinary capital resources. *Including $13 million for taxes, duties, and land-related costs and relocation allowances. Source: Staff estimates.

F. Implementation Arrangements

1. Project Management

51. The Project management arrangements described here reflect the present Government’s administrative structure in the North and East, and will be likely to change during the project implementation period. The Project’s loan agreement will address this probability by referring to successor entities and arrangements satisfactory to ADB. 52. The Ministry of Home Affairs, Provincial Councils, and Local Government (MHAPCLG), under the oversight of the Prime Minister’s Office, will be the coordinating executing agency (EA) for the entire Project. For Component A, the EA will be the Ministry of Highways (MOH) and the implementing agency (IA) will be the Road Development Authority (RDA). For Component B, the EA will be the Ministry of Power and Energy (MOPE) and the IA will be the CEB. For Component C, the EA will be MHAPCLG and the IA will be the North East Provincial Council (NEPC). For Component D, the EA will be the Ministry of Housing and Plantation Infrastructure (MHPI) and the IA will be the National Water Supply and Drainage Board

15 The Government requested a $80 million loan from ADF, however, since the available ADF is only $50 million the

Government asked ADB to provide $30 million from OCR to implement the Project. Possible cofinancing is sought for the additional $30 million. Once the cofinancing is committed, the terms of this loan will be adjusted accordingly.

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(NWSDB). The Government agreed to provide adequate staff for the coordinating agency and each IA, acceptable to ADB, and the associated costs as part of its contribution to the Project. 53. IAs will be responsible for all activities within their respective components, including staff recruitment, consultant selection and appointment as necessary, subproject identification and submission as applicable, civil works and other procurement as applicable, component implementation, funds management, and progress reporting. Existing project management units (PMUs) for related ADB-financed projects, appropriately strengthened, will assume responsibility for the project activities as follows: (i) Component A: PMU of the Road Network Improvement Project (Loan 1649); (ii) Component B: PMU of the Power Sector Development Project (Loan 1930); (iii) Component C: PMU of the NECORD Project (Loan 1846); and (iv) Component D: PMU of the Third Water Supply and Sanitation Project (Loan 1575). 54. As a condition for the Project loan negotiations, a national project committee has been established to oversee overall project implementation at the national level. The committee, supported by a small secretariat, will be co-chaired by the secretaries of MHAPCLG and MOH, and will include representatives of MOPE, MHPI, Ministry of Policy Development and Implementation, Commissioner-General of Relief Rehabilitation and Reconciliation, Ministry of Relief, Rehabilitation, and Refugees; Ministry of Eastern Development and Muslim Religious Affairs; Ministry Assisting Vanni Rehabilitation; Ministry of Defense (as required); representatives from IAs; and ADB. It will meet as required but at least semiannually. 55. As a condition for the Project loan negotiations, a project coordination committee (PCC) has been established to coordinate project activities, to manage top-level interaction with the LTTE, to ensure proper implementation, and to resolve project-wide implementation issues. The PCC, supported by a small secretariat, will be chaired by the chief secretary of NEPC, comprising of representatives from all IAs (PMUs) as well as MHAPCLG, other relevant agencies, and ADB. As the peace process develops it is anticipated that the LTTE will be represented, either directly or through one of its agencies, on the PCC. The PCC will meet periodically in Trincomalee, initially not less than once a month and thereafter not less than quarterly, to, among other things, review, prioritize, and approve subproject proposals. The PCC secretariat will also be responsible for establishing a management information system acceptable to ADB to track subprojects through their preparation, submission, approval, implementation, and evaluation stages. The system will also be used to monitor the critical geographical and community balances to ensure the Project maximizes benefits for the Project area and, equally important, does not contribute to the intercommunal tensions that led to the conflict in the first place. 56. Because of the scale and complexity of the Project, the likelihood that other similar projects will follow, and the essential need for close coordination with the many involved agencies—Government, LTTE, external sources of assistance, international and domestic NGOs, and others—the responsibility for project administration will be delegated to ADB's Sri Lanka Resident Mission in Colombo immediately after approval of the Project. The resident mission will closely monitor the Project's management of the geographical and community balances, establish effective linkages with all project stakeholders, including the LTTE, and ensure quality control, speedy implementation, and rapid assistance to the EAs and IAs on procurement and other project implementation matters.

2. Implementation Period

57. The Project will be implemented over a 4-year period, reflecting the time required for clearance of mines and unexploded ordnance, specification and packaging of civil works

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contracts, community consultation and mobilization, and the approach to implementation by the limited but evolving institutions and capabilities. The disaster that caused the damage lasted for more than 20 years and resulted in the destruction of almost all physical assets in the project area. The area is contaminated by mines and unexploded ordnance, which will require time to remove. Equally important, the conflict destroyed much of the human capacity in the area, of the Government, of nonstate actors—not least the LTTE—and the private sector. The Project will begin the essential but time- and resource-consuming task of rebuilding this capacity; for this process to be effective it should not be rushed. The scheduled completion date is December 2007, as detailed in Appendix 8.

3. Social and Environmental Measures

58. The Project is not expected to require land acquisition or resettlement. Reconstruction and rehabilitation will take place on existing infrastructure locations. No new roads or transmission lines will be developed. The works will be designed to ensure that improvements will be within the existing rights-of-way. However, to comply with the ADB's safeguard policy requirement for a sector loan, a resettlement framework,16 as presented in Appendix 9, has been agreed upon by the Government and ADB to address any possible land acquisition or involuntary resettlement-related adverse impacts on the Project-affected persons. The fact-finding mission confirmed that there are no encroachers on the land used to rebuild the facilities. No indigenous people will be negatively affected by the Project. The Project will not undertake any activities involving the use of land that is the subject of an ownership-related dispute. 59. The Project is classified as a category “B” project in accordance with ADB’s Environmental Assessment Guidelines (2003) because the proposed Project involves only rehabilitation of the existing infrastructure. An initial environmental examination (IEE) for sample subprojects is provided in Supplementary Appendix B, which is summarized in Appendix 10. No significant environmental impacts are anticipated. For subsequent subprojects related to national roads, power transmission lines, and irrigation schemes, IEEs will be required. The format of the IEE is provided in Supplementary Appendix C. For subprojects located within areas subject to the Coast Conservation Act No 64 of 1988, the Flora and Fauna Act, and the Forest Act, ADB will require that applicable environmental clearance is obtained from the relevant project approving agency prior to award of any contracts for that subproject. All environmental concerns associated with rehabilitation activities as well as anticipated mitigation measures will be incorporated into contractors’ work assignments. To ensure compliance with ADB’s environmental safeguard policy and with the Government’s environmental requirements, an environmental assessment framework is provided in Appendix 11 to guide the implementation of the Project.

4. Selection and Approval of Subprojects

60. Subprojects of components A, B, and C will be identified and proposed by the respective IAs in accordance with sector-specific criteria agreed upon by the Government and ADB from time to time. In addition, regardless of the sector, each subproject will be proposed on the basis of the following general criteria:

(i) The subproject will rehabilitate or reconstruct the conflict-damaged infrastructure, and/or directly address the requirements of the conflict-affected people.

(ii) The subproject will be identified and prioritized based on the needs assessment and will be further selected and designed incorporating beneficiary consultations.

16 The resettlement framework has been posted in the ADB web site.

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(iii) The subproject reflects the requirement for a reasonable balance of activities among communities.

(iv) The subproject will not be financed by another aid agency, unless the other agency and ADB are cofinancing it.

(v) The subproject must be technically feasible and the least-cost solution alternative, taking into account the need to provide for a reasonable increase in demand in the future.

(vi) The equipment, materials, and other resources required can be acquired in, or transported to, the subproject location without unreasonable obstruction or delay.

(vii) The subproject can be completed within the project implementation period.

(viii) The subproject will not involve any land acquisition or involuntary resettlement, or if land acquisition or involuntary resettlement is required, it will be conducted in conformity with ADB's Policy on Involuntary Resettlement and Handbook on Resettlement and in accordance with the resettlement framework (Appendix 9).

(ix) The subproject is in compliance with the Government's environmental requirements, ADB's Environmental Policy, Environmental Guidelines for Selected Infrastructure Projects and Environmental Assessment Guidelines (2003) and the agreed environmental assessment framework (Appendix 11).

61. IAs will prepare subproject proposals in formats agreed upon between the Government and ADB during the project inception period. The proposals will be reviewed, prioritized, and approved by the PCC during its regular meetings, in which ADB will participate. The subproject proposal and approval procedures, reflecting the close and multilevel monitoring mechanism, are provided in Appendix 12.

5. Procurement of Civil Works and Equipment

62. Procurement under the Project will be carried out in accordance with ADB’s Guidelines for Procurement, and the Government’s tender procedures acceptable to ADB. As the Project is being implemented under the provisions of ADB’s disaster rehabilitation procedures, ADB's procurement guidelines will be flexibly interpreted. For components A and C, which have a wide geographic spread, and because of the security and other frequently-changing matters relevant to accessing the project area, and also the small scale of most packages, the works are not likely to attract international contractors and suppliers. In addition, detailed designs for the works will not be prepared before bidding, rather works will be bid based on simple standard designs and quantities, to be refined during construction. Therefore, local procurement using procedures acceptable to ADB will be the preferred mode. For Component A, state-owned entities will not be eligible to participate in the Project, either as sole contractors, joint venture partners, or subcontractors. For Component B, specifically the transmission line construction contract, procurement will be undertaken under international competitive bidding (ICB) procedures. 63. Civil works for components A and C will be packaged in a range of values, to suit the varying capacities of domestic contractors. Most civil works contracts will be below $2 million equivalent, except for a very few that may be in the range of $2 million-$4 million. Contracts with estimated values equivalent of more than $4 million will be procured in accordance with international competitive bidding procedures. Contracts with estimated values of more than $1 million but not more than $4 million will be procured in accordance with local competitive bidding (LCB) procedures. Contracts with estimated values of less than $1 million may be procured

15

either through LCB or by using special procedures that may include negotiated contracts, managed labor contracts, community-based contracts,17 or similar arrangements, in accordance with procedures acceptable to ADB. A managed small-scale contractors scheme under a supervision consultant or a management contractor may also be used. Under the ongoing NECORD and other projects in the conflict-affected areas (footnotes 4-8), the use of similar arrangements has proved to be a very effective way to undertake these simple and small-scale works and to build capacity of domestic contractors where little presently exists. LCB civil works procurement will typically utilize single-stage-two-envelope procedures and bidding periods of not less than 21 days.18 For the ICB contracts, a single-stage-two-envelopes bidding procedure will be applied with a bid submission period of 45 days. 64. Equipment and materials valued at more than $0.5 million equivalent will be procured under ICB, valued from $0.3 million to $0.5 million equivalent by international shopping, and valued less than $0.3 million equivalent by local procedures acceptable to ADB. Specific approval from the Government will be required for vehicle procurement. For Component B, CEB's standard LCB procedures acceptable to ADB may be used for manufacture of aluminum conductors and procurement of concrete poles, line hardware, and accessories. 65. The standard bidding documents approved by ADB under the Road Network Improvement Project (Loan 1649), the Power Sector Development Project (Loan 1930), and NECORD Project (Loan 1846) will be adopted for subprojects, subject to a one-time review by ADB to ensure that they remain current with ADB requirements. ADB's approval will be required for all civil works and supply contracts valued at more than $100,000 and $50,000, respectively, prior to award of the respective contracts. For contracts valued at less than these amounts, the first three contract packages of each component will also be subject to ADB review and approval; and for subsequent contracts, ADB post-facto approvals will be applied. However, if ADB does not approve the award or terms of any such contract, the Government will not use loan proceeds to finance such contract, and in the event that loan proceeds are used to finance such contract, the Government will refund to ADB any such payment. Independent procurement audit, if required, is provided for in the Project costs. 66. The Government has requested ADB’s approval of advance action for procurement of civil works, including inviting and receiving bids for contracts up to the stage of ADB's approval of the EA's recommendation for award of contract before the date of loan effectiveness. The Government has been advised that ADB’s approval of advance action would not commit ADB to financing the Project or the procurement costs.

6. Consulting Services

67. Consulting services will be procured in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Reflecting the need to commence project activities quickly under ADB’s procedures for disaster rehabilitation loans (footnote 2), the following arrangements will be implemented. 68. For Component A, RDA will select the consultant from among the existing consultants already engaged in ongoing ADB-financed road sector projects in Sri Lanka,19 subject to

17 ADB's Project Administration Instruction 3.05 will be used for reference during implementation. 18 The LTTE has requested that people within the area be able to participate in projects to improve their living

conditions and capacity. Under NECORD, training is provided to about 400 local people in basic construction skil ls. 19 ADB. 1994. Report and Recommendation of the President to the Board of Directors (RRP) for the Third Road

Improvement Project; ADB. 1998. RRP for the Road Network Improvement Project. Manila; and ADB. 1999. RRP for the Southern Transport Development Project. Manila.

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satisfactory performance, based on simplified technical proposals using the quality and cost based method of selection. The period for the proposals will be 45 days, and the evaluation will be done under quality-and-cost-based selection method. No consultant will be required for Component B. For Component C and overall project coordination, direct negotiation will be carried out with the existing consultant for the NECORD project, subject to satisfactory performance. For Component D, full technical proposals will be invited from the short-list of consultants that passed the technical qualifications approved by ADB for the Secondary Towns Water Supply and Sanitation Project (footnote 8), using the quality-and-cost-based-selection method. 69. Consultant inputs are estimated to be as follows: (i) for Component A, 72 and 1078 person-months international and domestic consultant inputs, respectively, and the associated costs will be about $4.1 million; (ii) for Component B, no consultant inputs; (iii) for Component C, 250 person-months of domestic consultant inputs, with the estimated costs of about $0.7 million; (iv) for Component D, 30 and 100 person-months international and domestic consultant inputs, respectively, with the estimated cost of about $1.2 million; and (v) for overall project coordination and monitoring, 140 person-months of domestic consultant inputs with estimated costs of about $0.5 million (Appendix 13). 70. The Government has requested ADB’s approval of advance action for recruitment of consultants, including preparing and negotiating variations to existing consulting services contracts. The Government has been advised that ADB’s approval of advance recruitment action would not commit ADB to financing the Project or the recruitment costs.

7. Disbursement Arrangements

71. Loan disbursements will be in accordance with ADB’s Loan Disbursement Handbook, as amended from time to time, and detailed arrangements between the Government and ADB. For component D, disbursement will be through direct payment procedures. 72. For Component A, two imprest accounts, one for ADF loan and one for OCR loan, will be established at the Central Bank for RDA for use in procurement of civil works and equipment. The initial amount to be deposited into the imprest account will not exceed the equivalent of 6 months’ estimated expenditure, or $2 million for ADF loan and $1 million for OCR loan, whichever is less. Consulting services will be procured utilizing direct payment procedures. 73. For component B, an imprest account for ADF loan be established at the Central Bank for CEB for use in procurement of civil works and equipment. The initial amount to be deposited into the imprest account will not exceed the equivalent of 6 months’ estimated expenditure, or $500,000, whichever is less. For the OCR-financed of the component B, disbursement will be through direct payment or commitment letter procedures. 74. For Component C, an imprest account will be established at the Central Bank with MHAPCLG, which in turn will fund a second generation imprest account (SGIA) at the project level with NEPC. The initial amount to be deposited into these imprest accounts will not exceed the equivalent of 6 months’ estimated expenditure, or $800,000, whichever is less. Third generation imprest accounts (TGIAs) will be established by NEPC at banks to be agreed by the Government and ADB for each district. The initial amount to be deposited into each TGIA will not exceed the equivalent of 6 months’ estimated expenditure, or $100,000, whichever is less. The SGIA and TGIAs are necessary as the implementation of Component C will be in provincial and district levels. Both MHAPCLG and NEPC have experience with operation of the imprest accounts under the previous ADB-funded NECORD project, and have adequate accounting and

17

internal controls over the SGIA and TGIAs. Each TGIA will be established only after ADB is satisfied with the accounting capabilities for that account. 75. The imprest accounts, SGIA, and TGIAs will be established, managed, and liquidated in accordance with the ADB's Loan Disbursement Handbook, and detailed arrangements agreed to by the Government and ADB. Statement of expenditure procedures may be used to reimburse eligible expenditures and to liquidate advances made into the imprest accounts, SGIA, and TGIAs. Any individual payment to be reimbursed or liquidated under statement of expenditure procedures will not exceed the equivalent of $50,000.

8. Project Performance Management System

a. Accounts and Audit

76. The IAs will maintain separate records and accounts adequate to identify the financing resources received and expenditures made on the Project, including the goods, works, and services financed out of the loan proceeds and out of local funds. These project accounts and related financial statements will be audited annually in accordance with sound auditing standards by auditors acceptable to ADB. The Government will submit annual audited reports and related financial statements to ADB within 12 months after the end of each fiscal year. The audit of imprest accounts, SGIA, TGIAs, and statements of expenditure will be carried out as part of the annual audit, with the auditor’s opinion of that part to be separately set out in the auditor’s report. Independent audit, if required, is provided for in the project costs. b. Reports 77. Each IA, through PCC, will submit to ADB monthly reports on the implementation of the respective component. The reports indicate, among other things, progress made and problems encountered during the review period, remedial steps taken or to be taken, and proposed program activities of the following 3 months. Based on these reports, the secretariat of the PCC will develop a web-based management information and reporting system, through which the Government, ADB, and other interested parties can routinely monitor and review project status, including procurement and disbursement activities, community participation and balances, and major issues and problems, etc, will be decided between the Government and ADB during the project inception period and will include at least end-of-month financial and physical progress reports within 1 week of the end of the month to which they relate. 78. Within 3 months of physical completion of the Project, the Government will furnish to ADB a project completion report providing a detailed evaluation of the project design, costs, contractors’ and consultants’ performance, social and economic impact, and other details as may be requested by ADB. c. Project Performance Management System 79. A performance monitoring system will be established in accordance with ADB's Project Performance Management System Handbook, based on the key indicators and targets outlined in the project framework. For Component A the baseline will be the existing roughness (based on visual assessment) and traffic levels. For Component B, the baseline will be the connectivity to the rural electric system. For Component C, the baseline will be the socioeconomic condition of the project beneficiaries. Benchmark surveys will be conducted before project implementation

18

for monitoring purposes as well as for checking against selection criteria.20 An NGO will be engaged, under the PCC consultant, to monitor the impact of the Project to the communities.

d. Project Review

80. In addition to regular reviews by Sri Lanka Resident Mission staff and participation by such staff in the PCC meetings, a detailed midterm review of the Project will be carried out around December 2005. The Government will submit to ADB a detailed progress report on the implementation and achievements of the Project.

IV. PROJECT BENEFITS, IMPACTS, AND RISKS

A. Project Benefits and Impacts 81. The conflict-affected areas experience poverty levels, estimated to range from 60% to 90%, which are much higher than the rest of the country. The needs assessment demonstrated that little economic or social infrastructure remains intact, and what is present has long passed its useful life. Until this infrastructure is restored, it will not be possible for communities in the areas to restore their livelihoods, even at a very basic level, and begin the long process of catching up with the development that has been available to the rest of the country for the past two decades. A summary poverty reduction and social strategy is provided in Appendix 14. 82. The Project will address urgent needs of the almost 2 million conflict-affected people in the project area. Many are physically disabled people, women-headed households, and children. These people are now beginning to rebuild their lives in an area that has been either devastated by conflict or suffered through many years of neglect. In particular, the beneficiaries will be communities served by the Project's roads, the electricity, and the small-scale activities undertaken under the community restoration and development component. They will benefit from improved infrastructure, giving them improved access to economic opportunities and social services, and reducing their isolation from other parts of the country. Where appropriate, primarily for components A and C, the works will be designed to be within the capabilities and resources of domestic contractors and community-based organizations. This will provide domestic contractors and local communities with the opportunities to develop their capacity to undertake works of this nature, and begin the process of developing a functioning economy in the area that has been largely reduced to relying on subsistence support from the Government. 83. Road rehabilitation will greatly contribute to and underpin improvements in the living conditions of people, including resettling populations and other vulnerable groups. It will provide access to vital services and support renewed economic and development-oriented activities that will in turn enhance people's livelihoods in the longer term. 84. The Project focuses on restoring pre-existing facilities with appropriate provision for technical improvement and future demand, based on a least-cost approach. The existing traffic, as in any other war-torn areas, has been low or nonexistent for long periods. While undertaking a detailed economic analysis would not produce a reliable result, subproject proposals will include a traffic study and a basic economic analysis, as baseline information for subsequent benefit monitoring and evaluation. Observations on roads that have been opened since the ceasefire agreement, in particular the A9 highway from Vavuniya to Jaffna, indicate that traffic rapidly builds up to a reasonable level. Progressive extension of opening hours and reduction of

20 ADB is also preparing technical assistance, financed by the Government of the Netherlands, to conduct poverty

assessment and information management in Sri Lanka including the conflict-affected areas.

19

formalities will result in further increases in traffic volumes. Therefore, the impacts of the road rehabilitation and maintenance component are expected to be improved accessibility and reduced isolation of the project areas. The travel time and vehicle operating costs will be reduced, which will in turn result in greater availability of transport services, lower agricultural input costs, and higher agricultural output prices. 85. Electricity growth has a direct bearing on the gross domestic product growth of Sri Lanka. The Project will restore the supply of power to the conflict-affected area, with its attendant economic and social benefits, thereby beginning to narrow the gap in access to power between the areas and the remainder of the country. The beneficiaries of power rehabilitation are industry, fishery, agriculture, livestock production, housing, education, health, water supply, and irrigation. It will benefit the whole population and improve living standards. 86. The Project will assist with stabilizing the economic basis of those affected by the conflict, reducing dependencies on Government support, and supporting the affected communities in restoring a sustainable livelihood. Under the Project, communities—both returned IDPs and people who remained behind—select activities that will benefit the entire community and implement the activities with the assistance of NGOs funded through the Project. Through peace-building activities like strengthening of village-based mechanisms for conflict resolution, people will learn to better define and implement nonviolent responses to conflict, thus contributing to a more harmonious social climate. The Project will use methodologies conducive to community participation, local capacity building, provision of employment, and the provision of venues for those wishing to share their experiences. This will support the local communities' sense of ownership, instill trust and self-confidence, and assist in the mental healing process. B. Peace and Conflict Risks

87. The peace and conflict impact assessment is provided in Appendix 15. On condition that the beneficial outcomes are shared equitably among the major ethnic groups and across the target area, the Project is not expected to contribute to an intensification of social tensions. The small scale, local nature of Component C activities appears to make them unlikely to be captured by elite or sectarian interests. Through this component, the Project can potentially make a positive contribution to the rebuilding of the infrastructure and socioeconomic fabric of the conflict-affected areas. The challenge will be in implementing Component C in a sensitive manner, i.e., ensuring that:

(i) districts and communities are selected in ways that ensure an ethnic balance that reasonably reflects the general ethnic composition of the area;

(ii) rigorous measures are applied to limit the potential of corruption diverting resources to local, subnational, and national elites;

(iii) all activities are characterized by transparency, so that the relevant stakeholders understand the project criteria and how the Project is progressing;

(iv) peace-building activities are designed and implemented in ways that make the communities more resilient to pressures that might otherwise lead to violence;

(v) implementation is done using local resources to the extent possible, encouraging a sense of ownership of the dividends flowing from the ceasefire.

20

V. ASSURANCES AND CONDITION

A. Specific Assurances

88. In addition to the standard assurances, the Government has given the following assurances, which are incorporated in the legal documents:

(i) The Project management arrangements reflect the present Government administrative structure in the North and East that may change during implementation. The Government will immediately notify ADB of any proposed change in the administrative structure in the project areas, and take all steps necessary to ensure that the project management arrangements are revised in consultation with ADB to reflect the new administrative structure and protect the viability of the Project. The Government will take all steps necessary and within its power to ensure than any successor project management entities enter into such project or other agreements with ADB as ADB may request.

(ii) The Government will ensure that all project interventions contribute to peace building and community reconciliation. In the event that any intervention is having or is thought to have negative impact on peace building and reconciliation efforts, the Government agrees that ADB will have the discretion to determine whether the intervention should be continued, redesigned, suspended, or cancelled.

(iii) The Government will ensure that staff, consultants, materials, vehicles, equipment and other items required for project implementation will be given reasonable access to the project area.

(iv) The Government will ensure that adequate counterpart funds are made available to the Project when and in the amount required to enable the IAs to discharge their responsibilities under the Project.

(v) The Government will ensure that the facilities provided under the Project are operated and maintained appropriately, and that adequate budgetary and other resources will be provided for this purpose. The Government will also ensure that community-based organizations charged with operating and maintaining facilities provided under the Project are provided with the support and training required to undertake these activities.

(vi) The Government will ensure that adequate environmental mitigation measures, in accordance with (i) the Government’s environmental regulations and (ii) ADB's Environment Policy (2002), Environmental Guidelines for Selected Infrastructure Projects and Environmental Assessment Guidelines (2003), are incorporated into all subproject designs and implementation. The Government will ensure that the agreed environmental assessment framework is implemented; that all subprojects for which an IEE is required include such IEE in the subproject proposal; and that all subprojects for which the Government’s environmental clearance is required obtain such clearance prior to the award of any contracts for that subproject.

(vii) The Government will ensure that, to the extent possible, subprojects will not require land acquisition or involuntary resettlement. In the event that land acquisition and/or involuntary resettlement are required for any subproject, then

21

the Government will prepare a resettlement plan in accordance with the its own applicable laws and regulations, ADB’s Policy on Involuntary Resettlement (1995), ADB’s Handbook on Resettlement: A Guide to Good Practice (1998), and the resettlement framework, and submit it to ADB for review and approval before any land acquisition is initiated.

(viii) The Government and each IA will ensure that all subprojects meet, to the satisfaction of ADB, the agreed selection criteria and implementation arrangements.

(ix) The Government will ensure that in the event that CEB is reorganized, before any successor entity or entities becomes an IA under the Project, the new companies shall enter into agreements with ADB with respect to their rights and obligations under the Project. It has been agreed between the Government and ADB that such agreements shall take into account, and may if appropriate be combined with, successor entity agreements under Loan 1930: Power Sector Development Program.

B. Condition for Loan Effectiveness 89. Based on consultation with the Government, development partners, and others, ADB will have determined that the peace process is proceeding in a manner likely to maintain the ongoing ceasefire and, over time, to lead to an end to the conflict.

VI. RECOMMENDATION

90. I am satisfied that the proposed loans would comply with the Articles of Agreement of ADB and recommend that the Board approve:

(i) the loan in various currencies equivalent to Special Drawing Rights 35,024,000 to the Democratic Socialist Republic of Sri Lanka for the Conflict Affected Areas Rehabilitation Project from ADB’s Special Funds resources with an interest charge at the rate of 1% per annum; a term of 40 years, including a grace period of 10 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board; and

(ii) the loan of $30,000,000 to the Democratic Socialist Republic of Sri Lanka for the

Conflict Affected Areas Rehabilitation Project from ADB’s ordinary capital resources with interest to be determined in accordance with ADB’s LIBOR-based lending facility; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Tadao Chino President

14 November 2003

Appendix 1 22

PROJECT FRAMEWORK

Design Summary

Performance Indicators/Targets Monitoring Mechanisms

Assumptions and Risks

Goal Economic growth and poverty reduction in project areas

• Increased per capita income in

target provinces and districts • Reduced number of poor people in

the project areas

• National and local statistics

• Socioeconomic and household surveys

Purpose

• Rehabilitate and reconstruct essential infrastructure

• Restore community

livelihood • Support the ongoing peace

process

• Improved access to economic and

social services • Reduced travel time • Improved transport services • Increased access to electricity • Increased access to water supply

and sanitation • Improved education system • Generated household income • Improved household and community

infrastructure • Reduced number of violent

incidents involving 4 or more people • Reduced number of disputes

involving more than 5 households • Improved security climate in the

area

• Review missions • Progress reports • Project completion

report • Project performance

management system (PPMS) surveys

• Stable

political and security situation

• Stable peace

and order situation in the project areas

Outputs/Activities • Roads rehabilitation • Power system rehabilitation • Rural electrification • Schools and health centers

rehabilitation and reconstruction

• Irrigation, water supply, and sanitation facilities provision

• Village livelihood restoration

By the end of the Project: • About 500 kilometers (km) of the

primary road network rehabilitated • Vavuniya-Kilinochchi transmission

system rehabilitated • About 8 districts reconnected to

electricity • About 16 renewable energy

installed to serve 16 villages • About 100 villages reconnected to

water supply and sanitation system • A comprehensive water supply

study for Jaffna completed • About 200 schools rehabilitated • About 2,500 households provided

with income generation intervention and infrastructure

• About 100 villages provided with restored rural infrastructure

• Subproject

proposals • Procurement

evaluation reports • Progress reports • Web-based

management information system

• Asian Development Bank (ADB) project review missions

• Project completion report

• Strengthened

project management units

• Qualified consultants

• Domestic contractors have sufficient capacity to carry out works and keep to schedule

• Project implemented as scheduled

Inputs • Road infrastructure • Power and electricity • Community development • Water supply study • Project coordination • ADB loans • Government financing • Beneficiaries

• $45.6 million • $33.0 million • $23.8 million • $1.2 million • $0.7 million • $80.0 million • $26.0 million • $0.9 million

• Progress reports • Signed loan

agreement • Annual financial

statement • ADB loan ledgers

• ADB loan

effective timely

• Timely and adequate of counterpart funds

Appendix 2 23

EXTERNAL ASSISTANCE

Source Amount ($ million)

Multilateral World Bank-North East Irrigated Agriculture Projecta

World Bank-North East Emergency Reconstruction Programb

United Nations-Rehabilitation and Reconstruction in North East Province United Nations High Commissioner for Refugees (several programs) Asian Development Bank-North East Community Restoration and Developmentc

Asian Development Bank-A9 Rehabilitation under Third Road Improvementd

Asian Development Bank-Secondary Towns and Rural Community-based Water Supply and Sanitation Project (some components) Asian Development Bank-Distance Education Modernization Project (some components)

Bilateral European Commission

(several programs in rehabilitation, protection, capacity building, information etc.) Government of Australia

Integrated Water Supply Scheme for Ampara Government of Canada

(several programs in child welfare, gender, capacity building, health and etc.) Government of Germany

(several programs in rehabilitation, shelter, urban and rural water supply, integrated food security and training programs etc.)

Government of the Netherlands (several programs in livelihood assistance, education, agriculture, capacity building, and etc.)

Government of Norway (several programs in security, peace building, capacity building and health etc.)

Government of Sweden (several programs in child welfare, gender, capacity building, health and etc.)

Government of the United Kingdom (several programs in security, peace building, capacity building, health and etc.)

Japan Bank for International Development Pro-poor Economic Advancement and Community Enhancement Project (some components) Small-scale Infrastructure Rehabilitation and Upgrading Project

27.0 37.0 3.0

15.1 40.0 5.0

60.3

45.0

24.7

4.7

7.6

8.5

5.3

9.8

8.7

21.8

16.0

Note: Only major programs currently being implemented are listed. There are also many small-scale internationally and domestically financed programs, typically implemented by nongovernment organizations. a Approved in 1999 and scheduled to be completed in 2004. b Approved in 2002 and scheduled to be completed in 2006. c Approved in 2001 and scheduled to be completed in 2007. d The Third Road Improvement Project was approved in 1994, the change of scope to include A9 was approved in

2002 and scheduled to be completed in January 2004. Source: Asian Development Bank Sri Lanka Resident Mission – donor coordination meeting

Appendix 3 24

COMPONENT A: ROAD INFRASTRUCTURE A. Objectives and Scope 1. The primary objective of Component A is to provide a reliable transport network in the conflict-affected areas. The rehabilitation of strategic road links throughout the region will help provide an enabling environment to promote economic growth and community development. Rehabilitation will consist of low-cost intermediate interventions to bring the deteriorated roads up to an all-weather standard of maintainable condition. The Project will also provide for capacity building of the nascent construction industry in the conflict-affected areas. 2. The scope of Component A includes (i) reconstruction of about 500 kilometers (km) of national roads; (ii) replacement of small, damaged roadway bridges; and (iii) mine and unexploded ordnance clearance along project roadways. The candidate roads are listed in Table A3.1.

Table A3.1: Indicative Roads Requiring Immediate Rehabilitation

Road Length (km)

Estimated Cost ($ million)

Priority 1 Road Links A-9: Kandy – Jaffna (Medawachchiya - Vavuniya, 167- 176 and km 290 – km 320) A-35: Paranthan – Mullaitivu B-357: Paranthan – Poonakary B-424: Trincomalee – Kuchchaveli - Pulmoddai A-12: Trincomalee – Harowpathana A-34: Mankulam– Mullaitivu B-269: Velankulam – Mankulam A-32: Poonakary – Mannar A-29: Harowpathana – Vavuniya B-296: Puliyankulam – Mullaitivu A-4: Siyambalanduwa – Pottuvil B-374: Pottuvil – Panama Subtotal Priority 1 Roads Priority 2 Road Links (Subject to Funding) B-297: Mullaitvu – Pulmoddai A-5: Maha Oya – Chenkaladi A-14: Thalaimannar – Paraiyanankulam A-30: Paraiyanankulam – Vavuniya Subtotal Priority 2 Roads Total National Roads

55

52 26 55 30 49 38 85 46 32 30 20 518

45 45 80 36 206 724

4.2

4.0 2.1 4.2 2.4 3.8 3.0 6.5 3.6 2.5 2.4 1.6 40.3

3.4 3.4 6.0 2.7 15.5 55.8

km = kilometer. Source: The Needs Assessment Report and Saff estimates.

3. The length of roads requiring rehabilitation and the estimated costs associated exceed the available funding; therefore the project roads will be selected during implementation based on the general criteria of the subprojects and the following sector-specific criteria:

(i) the overall network must provide connectivity throughout the region;

Appendix 3 25

(ii) all district headquarters must be connected to the network;

(iii) the selected roads are important links for transporting fisheries, agricultural, and livestock products;

(iv) the roads will facilitate resettlement of internally displaced persons, improve communication links, and reduce travel times and costs; and

(v) consultations with stakeholders will be taken into account in selecting and prioritizing the project roads.

B. Implementation Arrangements 4. The Road Development Authority (RDA) under the Ministry of Highways will be the Implementing Agency. The existing project management unit (PMU) within the RDA now administering the ongoing Asian Development Bank-funded Road Network Improvement Project1 will be strengthened to also implement the road infrastructure component of the Project. A team of international and domestic consultants will be engaged to assist the PMU and RDA in (i) road selection, (ii) road design, (iii) cost estimates and bidding documents, (iv) procurement processing, (v) construction supervision, (vi) the contractor mentoring program, and (vii) survey and clearance of unexploded ordnance. C. Outline Terms of Reference 5. The component will, through low-cost intermediate interventions, restore project road sections to an all-weather standard of maintainable condition. Rehabilitation of small bridges within the length of subproject roads may also be required. The works will be grouped into various contract sizes and will be procured using local competitive bidding procedures. 6. A team of international and domestic consultants will be required to (i) evaluate and recommend road subprojects, (ii) develop contract packages and prepare corresponding cost estimates and bid documents similar to the simple format documents prepared for the ongoing A9 highway improvement, (iii) provide procurement assistance, (iv) conduct surveys for and clearance of mines and unexploded ordnance within subproject rights-of-way, (v) monitor and supervise construction activities, (vi) provide technical guidance to the PMU as necessary during implementation, (vii) assess availability of materials within project areas and locate or identify materials sources, (viii) develop low-cost soil stabilization construction measures for road improvements in poor soil areas, (ix) assist in maintaining project data records, monitor progress and submit progress reports, and (x) conduct benefit monitoring surveys. 7. The consultant will also assist small, domestic contractors during the Project through a contractor-mentoring program. Utilizing a managed-contract construction scheme, a representative from a large domestic contractor will serve as consultant to the Project by breaking one or more subprojects into smaller packages more suitable to the capacity of the existing domestic contractors. The contractor-consultant will prepare the contract packages and assist the contractors throughout construction with planning and implementing the works.

1 ADB. 1998. Report and Recommendation of the President to the Board of Directors for the Road Network

Improvement Project. Manila.

Appendix 3 26

8. The composition of the team of consultants is presented in Table A3.2.

Table A3.2: Composition of Team Consultants

Type of Consultant Specialization Number of Person-Months

International 72 Team Leader Road Design and Construction Specialist 39 Construction Supervisor 24 Materials Specialist 4 Mine Clearance Specialist 5 Domestic 1,078 Deputy Team Leader Road Construction Specialist 37 Contracting Specialist (Mentoring Program) 36 Bridge Engineer 3 Resident Engineers (5) 130 Materials Engineers (2) 50 Senior Quality Surveyors (2) 72 Site Engineers (10) 240 Technical Officers (10) 240 Laboratory Technicians (10) 240 Surveyors (5) 30 Source: Staff estimates.

Appendix 4 27

COMPONENT B: POWER AND ELECTRIFICATION

A. Rationale 1. Electricity growth has a direct bearing on the growth of gross domestic product in Sri Lanka. The beneficiaries of power sector rehabilitation and improvements will include industry, fishing, agriculture, livestock production, housing, education, water, and irrigation. The reconstruction of the north-south transmission line and the grids will benefit the population of the Project area and lead to the improvement of living standards. Further, electricity will be the basis on which resettlement can become an attractive option and thus migration of internally displaced persons to urban areas will be lessened.

B. Objective and Scope

2. The objectives of this component of the proposed Project are to (i) restore services to a useable and maintainable condition to meet the demands of the returning populations; and (ii) ensure that the services, once restored, are affordable, financially and technically sustainable, and maintained.

C. Components and Outputs

1. Conceptual Framework

3. In electricity grids, generation, transmission, and distribution go hand in hand with each other. Restoration in just one of these components would not address the effectiveness of the overall system. To this end, the objective is to restore a complete and functional electricity grid in the northeast. Due to the conflict, the transmission system is scattered at best, with total damage in Jaffna, Kilinochchi, and Mullaitivu districts. The transmission backbone needs to be rehabilitated from Anuradhapura to Jaffna. In parallel, the distribution network, threading from the main transmission line, also needs to be repaired. Most importantly, generation capacity—whether it is from connection to the national grid or regionally generated—will need to be re-installed to be able to utilize the transmission and distribution networks.

2. Generation

4. The supply of power comes from interconnection with the national grid and is supported by generation within the region. Connectivity with the national grid can only come after the transmission backbone is restored; therefore, as an immediate action the Ceylon Electricity Board (CEB) will re-installed power generation of 2 megawatts in Kilinochchi. The effectiveness of the Kilinochchi distribution component of the emergency facility is dependent on the Kilinochchi power generation station.

3. Transmission

5. The transmission backbone comprises of three major segments: Jaffna to Kilinochchi (132 kilovolts [kV]), Vavuniya to Kilinochchi (132 kV), and Anuradhapura to Vavuniya (132 kV). The replacement of the damaged transmission line in the first two segments—from Jaffna to Kilinochchi and from Vavuniya to Kilinochchi—has to be given priority. It is envisaged that the transmission line between Anuradhapura and Vavuniya should be augmented to a 220 kV line.

28 Appendix 4

6. It is indicated that a bilateral funding agency is considering funding the transmission line and grid substations between Jaffna and Kilinochchi, which leaves the restoration of the power transmission system between Vavuniya and Kilinochchi as the main target for Asian Development Bank (ADB) intervention.

4. Distribution and Rural Electrification

7. As a result of the prolonged conflict, the districts of the north have the lowest electrification ratio compared to other areas in the country. Mullaitivu and Kilinochchi districts have totally nonfunctional electricity. After surveying the districts in both the Northern and the Eastern provinces, it is deemed necessary to re-establish the distribution network covering all districts in them. Since the electricity system in districts like Mullaitivu and Kilinochchi are practically destroyed, a significant portion of the funds will go into the restoration of distribution and rural networks between Elephant Pass and the North Central Province.

D. Implementing Arrangements

1. Project Management 8. CEB, or its successor entities as per prior agreement with ADB, will implement the power component. CEB's general manager and additional general manager (distribution and operations), or the management of the successor companies, will supervise the project managers and teams who will implement CEB's rural electrification and 33 kV distribution subcomponents. CEB's general manager and additional general manager (transmission), or the management of the successor companies, will supervise the project managers and teams who will implement CEB's transmission subproject. Before implementation, these groups from CEB will prepare proposals for all subprojects for ADB’s review and approval. As per prior agreement with ADB, the same implementation arrangements will be established to ensure successful project implementation by CEB's successor entities.

2. Period of Implementation

9. Implementation of the Project will begin in January 2004 and be completed in December 2007. CEB will be responsible for directly supervising implementation and monitoring of the operational performance of the component B, and will submit progress reports regularly as agreed for ADB review. ADB will also monitor the overall financial and technical performance of the power sector in relation to the Government's fiscal position.

3. Procurement

10. Goods and services financed by ADB will be procured following ADB’s Guidelines for Procurement. For such procurement, bid specifications will be prepared in a manner as to ensure maximum competition under international competitive bidding procedures. Each supply contract estimated to cost the equivalent of $500,000 or more will be awarded on the basis of international competitive bidding. Each contract estimated to cost less than the equivalent of $500,000 will be awarded on the basis of international shopping. CEB’s standard local competitive bidding procedure may be used for the manufacture of aluminum conductors and procurement of concrete poles, line hardware, and accessories. The CEB successor companies will also follow ADB's Guidelines for Procurement in procuring goods and services financed by the Project.

Appendix 5 29

COMPONENT C: COMMUNITY RESTORATION AND DEVELOPMENT A. Water Supply, Sanitation, and Irrigation 1. The scope of the water supply subcomponent is (i) rehabilitation of water supply schemes in total disrepair, (ii) provision of bowsers and plastic holding tanks, (iii) replacement of destroyed truck and tractor trailer mounted bowsers to be used for provision of drinking water especially in areas where internally displaced persons (IDPs) are returning, (iv) repair/replacement of generator sets to provide uninterrupted electricity supplies to run existing water supply facilities, and (v) repair of hand pump tube wells and dug wells to serve families. The scope of the sanitation subcomponent will include rehabilitation of sanitation facilities to households, schools, and medical facilities. The scope of the irrigation subcomponent will include rehabilitation of existing medium and small irrigation schemes. The works will include rehabilitation of tank bunds, channel system, access roads, and other structures. This subcomponent will also include the rehabilitation of the barrages in the Jaffna Peninsula that is not being financed by other sources. 2. Selection criteria for water supply and sanitation subprojects will be as follows:

(i) The number of connections should not exceed 500 and agreement for management of the scheme by the respective local authority and/or a community-based organization (CBO).

(ii) For water supply systems, the numbers of families to be served for each installation should be consistent with national policies. For wells, at least 20-25 families should benefit from one well, consistent with national policy standards.

(iii) For sanitation facilities also, the number of families to be served should be consistent with national policy standards.

(iv) Potable water source is not available within a radius of 500 meters. (v) Water Resources Board and/or the National Water Supply and Drainage Board

have carried out preliminary investigations, and have certified that potable water of sufficient quantity and quality is available, and the abstraction of water would not create adverse impacts to existing water users or the groundwater table, in both the short and long term.

(vi) For tubewells, beneficiary communities have agreed to contribute labor and other materials in kind for the installation of hand pumps and construction of basements, together estimated to be about 5-10% of the total cost of civil and mechanical works for a typical tubewell.

(vii) For open dugwells, beneficiary communities have agreed to voluntarily contribute in kind or labor about 10% of the total cost of civil works.

(viii) For sanitation facilities, beneficiaries have also agreed to voluntarily contribute the labor required for construction of the civil works.

(ix) Beneficiaries have agreed to maintain the wells, and have formed a water management organization for this purpose.

(x) The community, especially women, have agreed to the location of the wells. (xi) No land acquisition to construct the wells is required.

30 Appendix 5

(xii) Where the location of a well on privately owned land is unavoidable, a written and legally valid assurance from the landholder must be available allowing permanent access of other beneficiaries to the well.

(xiii) Total cost is below SLRs120,000 for a single tubewell and SLRs150,000 for an open dugwell, and the number of wells provided in any village is limited to three.

3. Selection criteria for irrigation subcomponents will be as follows:

(i) There must be a clear benefit, in economic terms, arising from the rehabilitation work, which will typically be limited to activities on canals and distribution systems, and will not include major work on tanks and headworks.

(ii) The expenditure for rehabilitation works will not exceed $700 equivalent per hectare of the command area affected by the works.

(iii) The schemes should be those where a significant proportion IDPs are now returning to their land, and require the rehabilitation work to proceed to restore their previous livelihoods.

(iv) Land ownership is clearly defined. (v) The rehabilitation required is not simply the result of maintenance not done,

except where the scheme has been inaccessible due to security reasons.

(vi) Large-scale capital works will not be included; preference will be given to schemes where relatively low-cost labor-intensive works on downstream canals and farm access works are required.

(vii) Rehabilitation of the main barrages in Jaffna Peninsula should be in coordination with the proposed study and should only include the ones that will not be financed by other sources.

4. Implementation Arrangements. The water supply and sanitation subcomponent is to be implemented to the extent possible through the existing government structure and agencies, with the project management unit (PMU) providing assistance and coordination where appropriate and required. For water supply schemes, procurement of major equipment items will be implemented by relevant line agencies. Health and sanitary education will be provided by the Ministry of Health. Water supply and sanitation activities for schools will be undertaken by the Provincial Education Ministry, as part of the education subcomponent of the Project. School development societies could also contribute to this activity. Improvements to water supply and sanitation systems in communities will be carried out through the respective government agents. At the local level, water supply and sanitation activities will be undertaken, and the resulting systems maintained, by user groups or CBOs. These organizations will be assisted by government agencies and nongovernment organizations (NGOs) as appropriate. Procurement relating to civil works, equipment, services, and the use of CBOs will be carried out in accordance with the procedures as agreed in the loan agreement. 5. The irrigation subcomponent is to be implemented by the Provincial Department of Irrigation for the medium to minor schemes and by National Irrigation Department for major tanks, with the PMU providing assistance and coordination where appropriate and required. Coordination with the user groups and CBOs should be ensured in the implementation of any rehabilitation works of the channel networks. Procurement relating to civil works will be carried out in accordance with the procedures as agreed in the loan agreement.

Appendix 5 31

B. Education 6. The scope of the subcomponent is (i) rehabilitation of school buildings, (ii) provision of school furniture, (iii) restoration of school library and laboratory facilities, (iv) rehabilitation of limited accommodation facilities to teachers in rural areas, (v) rehabilitation of drinking water supply and sanitation facilities, and (vi) provision of necessary teacher training. 7. The following criteria, in addition to the broad policies and selection criteria developed for the World Bank-financed Basic Education Project, will be applied under the Project:

(i) The schools selected should not be included in another funded project’s scope such as the World Bank-financed Basic Education Project or the Asian Development Bank (ADB)-funded Secondary Education Modernization Project except for the latter, where the proposed Project will fund classroom accommodation that can allow the school to be included in the scope of the modernization project.

(ii) Compliance with student/teacher ratios will be as defined in the World Bank- financed Basic Education Project.

(iii) Preference will be given to schools in rural areas in respect of rehabilitation or reconstruction of school buildings. However, urban schools damaged and destroyed due to the conflict could also be included.

(iv) Schools with large numbers of students and with intermediate and final secondary classes should be given priority.

(v) Provision of school furniture will be prioritized to rural schools and for schools that are not covered under any other programs or projects.

(vi) Library facilities and laboratory equipment will be given to schools that are being rehabilitated under the Project and for others that are not included in other funded programs and projects.

(vii) Water supply and sanitation facilities improvement to schools included in the project scope are to be equitably distributed among these schools.

(viii) Preference will be given to schools with low teacher vacancies, and to schools that could reduce teacher vacancies if teacher accommodation were available.

(ix) Preference for teacher accommodation will be in the rural areas where private facilities are not available. These accommodations will be on a cluster basis to serve more than one school.

(x) Training for teachers will cover subjects such as Primary Education, English, Science and Mathematics and etc. Selection of teachers for training will be for those teachers that have proven service period of 3 years in the area.

8. Implementation Arrangements. Building and other civil works contracts will be prepared by the Provincial Department of Education based on standard layouts and documents. Similarly, specifications for school furniture, laboratory equipment and chemicals, and list of library books will be in line with the standards prepared by the Provincial Department of Education and the Ministry of Education. The PMU, assisted by consultants, will review the designs and specifications documents. Procurement of civil works, services and equipment will be carried out in accordance with the procedures as agreed in the loan agreement.

32 Appendix 5

C. Health Facilities 9. The health subcomponent will include rehabilitation of community health centers, including building, water supply, sewage system, paramedic quarters, offices, and provision of equipment and mobile clinic. The selection criteria include:

(i) for health centers, confirmation that the population to be served justifies provision in accordance with the Government's criteria for providing health services;

(ii) for medic and paramedic quarters, confirmation that the absence of such quarters is the principal reason for staff not visiting or residing in the area served by a medical facility;

(iii) for ambulance and other mobile equipment, confirmation that the vehicles will remain in the service for which they are intended;

(iv) for equipment, confirmation that it is compatible with existing equipment, uses appropriate technology, and can be supported with existing operation and maintenance resources; and

(v) for waste disposal and sanitation systems, evidence that design has taken into account the need to mitigate the impacts of disposing of the waste produced by the systems.

D. Access Roads 10. This subcomponent is intended to provide road rehabilitation and construction to:

(i) internal and access roads for relocation and resettlement areas; selected rural roads; or selected Class C and D provincial roads;

(ii) gravel surfacing only, meaning no asphaltic work, except where for short lengths through settled areas, this is essential for reducing dust; and

(iii) minor structures such as culverts and very small bridges.

11. Wherever possible, the works will be executed through contracts with domestic contractors. Where this is not possible, the works could be carried out through government agencies, community-based organizations, etc. using a labor-based equipment supported technology approach.

12. Detailed selection criteria will be developed during the project inception period, based largely on the following:

(i) Only road classes C, D, and rural, are to be included, subject to there being sufficient traffic to justify rehabilitation.

(ii) Priority is to be given to roads serving agricultural or fisheries activities that link villages and relocation schemes included in the project scope to nearby market centers and townships, as identified by the communities and included in village development plans.

(iii) Roads that provide access to protected areas, such as wildlife reserves, controlled forests, etc, are not to be included.

(iv) Roads to be improved should benefit a substantial proportion of population.

Appendix 5 33

(v) The scope of the activity of road repairs is limited to existing road alignments, where no land acquisition is required, except for internal and access roads for relocation villages.

(vi) More than 90% of beneficiary families have agreed to participate in the construction and to carry out maintenance after rehabilitation.

(vii) Beneficiaries are willing to contribute in kind, or in labor, about 10% of the total value of the civil works cost. The beneficiaries will ensure that the burden of this contribution does not fall on the poorest members of the community.

(viii) The security forces have agreed that the road can be improved. (ix) The estimated base cost, at 2003 prices, should be less than SLRs500,000 per

kilometer.

(x) Confirmation is to be available that the beneficiaries are the original landowners, or occupiers, and not new settlers.

(xi) Availability of a disaggregated civil works cost estimate showing the works items that would be completed by the beneficiaries, in lieu of their voluntary share.

(xii) A written agreement from the community accepting the responsibility for maintenance of the road is available.

E. Small-Scale Renewable Energy 13. The renewable energy subcomponent will be implemented in isolated rural communities where improvement of the existing interconnection does not prove to be cost effective. Small-scale renewable energy schemes will be provided in 16 villages on a pilot basis. The subcomponent will be implemented with the participation of the community and also maintained by the community or the user groups. The subproject selection criteria will be as follows:

(i) Priority will be given to remote villages or where IDPs are returning.

(ii) The appropriate technology will be selected based on an initial assessment of potential sources and that will meet supply demand.

(iii) The user groups will be formed by the community and agreeable to pay portion of the initial cost.

(iv) Where user groups are willing to pay a tariff on the metered consumption on a monthly basis or as agreed during the implemented. The tariff should at least recover the operation and maintenance cost of the system.

(v) CBOs or appropriate user groups are willing to sign for operation and maintenance of the system with the supplier or an appropriate organization that provide technical assistance.

(vi) The user group is willing to store any parts that are hazardous to the environment and return them back to the supplier or the appropriate organization that revives or safely disposes of such items.

14. Implementation Arrangements. This component will implemented by the PMU in coordination with the government agent, CBOs, and NGOs. Procurement of goods and services will follow the procedures set out in the project loan agreement.

34 Appendix 5

F. Community Livelihood Restoration 15. The objective of this livelihood restoration subcomponent is to improve the well-being and stabilize the income of the conflict-affected village populations by (i) satisfying immediate basic needs of the most vulnerable households, complementing the Government’s efforts under the Unified Assistance Scheme; and (ii) restoring community-level small infrastructures. The target beneficiaries will be from communities containing significant proportions of IDPs, female-headed households, youth and children in the divisions worst affected by the conflict. The proposed assistance will not exclude original occupants. 16. This subcomponent comprises (i) household level interventions and re-creation of assets, and (ii) community-focused reconstruction and restoration. The household level interventions will be specifically aimed at the most disadvantaged groups within the communities and include, depending on the needs identified during implementation, the provision of small livestock, energy-saving stoves, biogas or other alternative energy sources for the household level, as well as skills development needed in conjunction with the restoration, operation and maintenance of the household level infrastructure. In addition, other micro-enterprises will be facilitated through skills training (e.g. for para-veterinarians, agroprocessing, or small business management). The preparation and dissemination of available training material, brochures, and documents will be in all three languages of the country. 17. The community-focused reconstruction and restoration will include storage facilities, reconstruction of community multipurpose halls, libraries, markets, etc., depending on the priorities identified by the communities. Peace-building activities to strengthen village-based mechanisms for conflict resolution will enable the communities to negotiate access to resources with competing communities and assure equitable and sustainable distribution of benefits. These activities will be inherent to the identification, prioritization, and planning process. 18. The beneficiary communities for activities outlined in this section will be selected according to the following criteria:

(i) percentage of female-headed households; (ii) percentage of households having access to safe drinking water; (iii) number of displacements experienced by majority of community members within

last 10 years; (iv) average level of indebtedness per household; (v) number of violent incidents involving more than two people in the community in

the past 6 months; (vi) percentage of children below 10 years who show signs of malnutrition (stunting

or wasting); and (vii) care to be taken to ensure that the ethnic composition of the district is

approximately reflected in the choice of beneficiary communities in that district.

19. The beneficiary households for activities outlined in this section will be selected according to the following criteria:

(i) female-headed household without adult male wage earner; (ii) inadequate housing or access to clean water and sanitation; (iii) number of meals per family member during dry/low season;

Appendix 5 35

(iv) ratio of children aged 0-16 years to adults aged 17-60 years in family; and (v) viable proposals for increasing family income.

20. Benchmark surveys will be conducted prior to implementation. 21. Goods and services to be financed by ADB will be procured in accordance with ADB’s Guidelines for Procurement and the Government’s standard procedures. Equipment and materials will be procured by local procurement procedures acceptable to ADB. Procurement for small scale and community-based subprojects, including procurement of NGO services, will follow procedures provided in Appendix 12. These procedures include ADB’s approval before the subproject commences.

36 Appendix 6

COMPONENT D: JAFFNA PENINSULA WATER SUPPLY AND SANITATION FEASIBILITY STUDY

1. Jaffna’s water supply and sanitation situation is precarious. All water for domestic and other uses is obtained directly from groundwater, recharged by collecting rainwater in the extensive pond system in the peninsula. The system is supported by barrages built long ago across inlets from the sea, to provide storage and to prevent salt water contamination. All urban, commercial, and agricultural waste is discharged into the same groundwater system. Barely adequate before the conflict, the system is now largely in ruins, due to direct war damage and neglected maintenance, and has effectively ceased to function. Water is provided for limited hours (1-2 hours maximum) through this system, from a well system in Thirunelvely and Kondavil within the peninsula. The waste disposal system, such as it is, has caused the contamination of the groundwater system. Now, all areas in the peninsula confirm the presence of preventable intestinal disease, with typhoid and cholera now emerging as major public health challenges. A. Objective and Scope 2. Since direct rehabilitation intervention may worsen the situation, the Project will finance a comprehensive feasibility study as a precondition of physical intervention. The study will recommend a safe and reliable water supply and sanitation systems rehabilitation project to be implemented separately. The study will also assess the institutional capacity in managing the system, and recommend an institutional development strategy. The study will do the following:

(i) Assess the characteristics of the existing water supplies and sanitation facilities, health and decease incidences throughout the district, including the levels of service, access to safe drinking water, quality of water, and cost of water.

(ii) Assess the effect of the existing water supply and sanitation service levels on the population and their current socioeconomic situation.

(iii) Identify all pollutant sources, and the degree of pollution caused by each of these sources and rank them in the order of seriousness using a suitable criteria.

(iv) Develop a zoning plan for land use in consultation with relevant stakeholders for 50years’ worth of projection of domestic/institutional/commercial and industrial water demand.

(v) Work out the possible options for integration of water scheme, based on resources availability and needs assessment to gain operational efficiency and economies of scale.

(vi) Assess water needs for the population and identifying satisfactory levels of services and expected population and industrial growth.

(vii) Categorize all available water resources covering ground water, surface water at Iranamadu Tank, rain water harvesting, and desalination. Develop a phased plan for implementation to ensure uninterrupted perennial water supply.

(viii) Carry out detailed cost benefit analysis of all the above possible water resources options and develop criteria for prioritization of all of these options.

(ix) Develop an implementation plan to address at what stage in different water resources options shall be harnessed and implemented.

(x) Provide recommendation on the appropriate technology for the extraction of ground water giving attention to salinity intrusion and control of pollution levels.

Appendix 6 37

(xi) Prepare a preliminary design of the new water supply system. Include density criteria to select areas to be served by urban schemes, and recommend options for a rural community-based water supply system.

(xii) Develop policies and guidelines for water extraction rights for surface water and ground water to encompass all the stakeholders; make recommendations for an institutional framework to administer and enact these guidelines and policies.

(xiii) Address the issue of the pollution of ground and surface water by haphazard solid waste disposal. Provide recommendations on handling the solid waste giving recommendation on appropriate technologies that could be used along with a tentative investment plan.

(xiv) Identify the extent of mine and unexploded ordnance contamination in the selected sites for the system, and estimate the costs of their survey and removal.

(xv) Prepare a financial and economic analysis for the proposed investment scenarios in accordance with Asian Development Bank (ADB) guidelines.

(xvi) Provide a socioeconomic profile of the intended beneficiaries and indicate how the poor sector of the population will benefit from the investment following ADB guidelines. Prepare a strategy to increase access to service by poorer sectors of the population and participation by women and minority groups and water user groups.

(xvii) Prepare an environmental impact assessment and an appropriate resettlement plan as required for the proposed investment in accordance with ADB guidelines.

(xviii) Develop an implementation plan, including indicative procurement packaging and implementation schedule, taking into account the capacity of the domestic and foreign contractors working in the post-conflict situation.

(xix) Assess the need for complementary sanitation improvements to minimize impacts on the fragile water resources in the peninsula.

(xx) Develop guidelines for an on-site sanitation disposal system and recommend appropriate technologies to minimize ground water pollution.

(xxi) Assess the existing institutional set up and its capacity to manage the water supply network in the peninsula and propose intuitional arrangements for its operation and maintenance, incorporating the act approved by the Parliament for the water supply sector and the water supply and sanitation guidelines to be developed.

(xxii) Prepare a strategy to enhance institutional efficiency in billing policy, collection procedures, operation and maintenance, including computerization and a staff development program.

(xxiii) Introduce appropriate information and communication technology and networking with local authorities, including the National Water Supply and Drainage Board, the Water Resources Secretariat, and other institutional support required to local bodies and conduct public awareness campaigns on issues related to water conservation and sanitation.

(xxiv) Prepare designs and tender documents for the initial phase of the investment plan.

38 Appendix 6

B. Cost Estimates and Consulting inputs 3. The estimated cost is $1,000,000 equivalent and will be financed through the project loan. The loan will finance 100% of the study costs, net of all taxes and duties. The study will be implemented over 9 months commencing 1 April 2004. The study will require about 30 and 100 person-months of international and domestic specialists, res pectively. The consulting team will include domestic experts with ground knowledge. International consulting expertise will include a urban water supply specialists, rural water supply specialists, irrigation engineer, sanitary engineer, water resource engineer, financial and economist, private sector specialist, environment specialist, and sociologist development specialists. Domestic expertise will be similar, plus appropriate physical, social, and environmental expertise for surveys, community interaction, and other purposes, sourced from domestic firms and institutions.

FX LC Total FX LC FX LC ADF OCR

A. Road Rehabilation Civil Works 12.90 27.40 40.30 8.90 10.75 4.00 5.80 7.23 3.62Equipment 0.60 0.40 1.00 0.60 0.15 0.25Consulting Services 2.20 1.90 4.10 2.20 1.30 0.60Project Management/Incremental Exp. 0.00 0.80 0.80 0.00 0.60 0.20

Subtotal A 15.70 30.50 46.20 11.70 12.80 4.00 5.80 8.28 3.62

B. Power and ElectrificationPower Transmission 17.50 7.50 25.00 17.50 1.30 6.20Distribution & Rural Electrification 3.00 5.00 8.00 3.00 3.00 2.00

Subtotal B 20.50 12.50 33.00 3.00 3.00 17.50 1.30 2.00 6.20

C. Community Restoration & DevelopmentCivil Works 2.00 18.00 20.00 2.00 12.00 6.00Equipment 0.50 1.50 2.00 0.50 0.90 0.60Consulting Services 0.00 0.70 0.70 0.00 0.60 0.10Project Management/Incremental Exp. 0.00 0.70 0.70 0.00 0.50 0.20Training 0.00 0.50 0.50 0.00 0.40 0.10

Subtotal C 2.50 21.40 23.90 2.50 14.40 7.00

D. Jaffna Water Supply Feasibility StudyConsulting Services 0.60 0.60 1.20 0.60 0.40 0.20Projet Management/Incremental Exp. 0.00 0.20 0.20 0.00 0.00 0.20

Subtotal D 0.60 0.80 1.40 0.60 0.40 0.40

E. Project Coordination Project Coordination Consultant 0.00 0.50 0.50 0.00 0.40 0.10NPC - Incremental Expenditures 0.00 0.10 0.10 0.00 0.00 0.10PCC - Incremental Expenditures 0.00 0.20 0.20 0.00 0.00 0.20

Subtotal E 0.00 0.80 0.80 0.00 0.40 0.00 0.00 0.40

Total Baseline Costs 39.30 66.00 105.30 17.80 31.00 21.50 7.10 18.08 9.82

Front-end Fee 0.15 0.15 0.15Commitment Charge 1.25 1.25 1.25Interest during Implementation 1.20 0.00 1.20 1.20 0.00 0.00

Total Project Costs 41.90 66.00 107.90 19.00 31.00 22.90 7.10 18.08 9.82Financing PlanFinancing Percentage

Note: Item C Civil Works, the shaded $6.00 million consists of $5.1 million of Government financing and $0.9 million

of beneficiaries contribution.

ADB = Asian Development Bank; ADF = Asian Development Funds; Ben. = beneficiaries; FX = foreign exchange;

Gov't = government; LC = local currency; NPC = national project committee; OCR = ordinary capital resources;

PCC = project coordination committee.Sources: Staff estimates.

46.3%

Detailed Cost Estimates and Financing Plan($ million)

(ADF)ADB

(OCR)

30.0027.8%

GOSL &

25.9%

Appendix 7 39

ADB

27.9050.00

Ben. (LC)

40

Appendix 8

PROJECT IMPLEMENTATION SCHEDULE

Project Activities 2004 2005 2006 2007 A. Road Rehabilitation Road Selection === Consultant Selection === Bidding Documents === === Procurement I === === Civil Works I === === === === === === === === === === === === Procurement II === === Civil Works II === === === === === === === === === === === B. Power & Electrification 1. Transmission Procurement === === === Manufacture & Delivery === === Construction === === === === === === === === === === === === === 2. Distribution and Rural Electrification

Procurement === === === === Manufacture & Delivery === === === Construction === === === === === === === === === === === === Service Connections === === === === === === === === === === === C. Community Restoration and Development

1. Subproject Selection === === === === 2. Procurement === === === === 3. Implementation Implementation 1 === === === === === === === Implementation 2 === === === === === === === === Implementation 3 === === === === === === === === Implementation 4 === === === === === === === === D. Jaffna Peninsula Water Supply Feasibility Study

Consultant Selection === === Feasibility Study === === === ===

Appendix 9 41

RESETTLEMENT FRAMEWORK

A. Project Background 1. The Project consists of (i) rehabilitation of about 500 kilometers (km) of national roads; (ii) rehabilitation of the 75 km power transmission line and rural electrification; and (iii) community restoration and development including reconstruction of school buildings, water supply, sanitation, irrigation schemes, community access roads, and livelihood restoration. 2. All proposed project subprojects fall either under Category B1 or C (no impacts). No indigenous peoples will be affected, as the Project is designed to ensure that all communities, on an equitable basis, will benefit from the Project. The Project will address the special needs of minority communities in the context of their social and cultural systems. As part of the selection criteria, subprojects that may entail significant impacts will not be included. The Project will be implemented under a sector approach, therefore, the following resettlement framework was agreed upon between the Government and the Asian Development Bank (ADB) to guide the Government in preparing a resettlement plan (RP) should it be found to be necessary during implementation. B. Policy Framework and Entitlements 3. The resettlement framework aims to ensure that screening, planning, and management procedures for involuntary resettlement on all subprojects will be in compliance with ADB’s Policy on Involuntary Resettlement and other ADB social safeguard policies. 4. This policy framework has been built upon the existing laws of the land, Electricity Act No. 17 1969 and amendment, National Involuntary Resettlement Policy (2001)2, and ADB’s resettlement policy. The policy principles adopted are as follows:

(i) Avoid, minimize, and mitigate negative land acquisition and resettlement impacts by reviewing alternatives to the Project.

(ii) If involuntary resettlement is unavoidable, the displaced persons should be helped to re-establish themselves and improve their quality of life.

(iii) Gender quality and equity should be ensured and adhered to throughout the policy.

(iv) Affected persons should be fully involved in the selection of relocation sites, livelihood compensation, and development options at the earliest opportunity; cash compensation will be used since the Project will only require a small amount of land.

(v) Compensation for loss of land, structures, and assets should be based on full replacement cost3 (including transaction costs) and should be paid promptly.

1 Insignificant impacts; it means fewer than 200 people are displaced from housing, fewer than 200 people will lose

less than 10% of their productive assets, or 200 people or more will experience only minor impacts. A short resettlement plan will be required for each Category B subproject.

2 To assist the relevant agencies in planning, implementing, monitoring, and evaluating all involuntary resettlement impacts, the following guidelines are provided: i) General Guidelines on Planning and Implementation of Involuntary Resettlement; (ii) Guidelines for the Preparation of a Resettlement Action Plan; iii) Process Manual for the Implementation of the National Involuntary Resettlement Policyof the Ministry of Land; and iv) Guidelines for a Participatory Resettlement Process.

3 Replacement cost means the cost of replacem ent of lost assets and income. If land, it means the cost of buying a replacement land near the lost land with equal productive potential plus the cost of preparing the land to levels similar to those of the affected land and cost of any registration and transfer taxes. If structures, it means current

42 Appendix 9

(vi) Resettlement should be planned and implemented with full participation of the provincial and local authorities.

(vii) Help those affected to be economically and socially integrated into the host communities; participatory measures should be designed and implemented.

(viii) Common property resources and community and public services should be provided.

(ix) Resettlement should be planned as a development activity. (x) Affected persons who do not have documented title to land should receive fair

and just treatment. (xi) Vulnerable groups should be identified and given appropriate assistance to

substantially improve their living standards. (xii) The Government should bear the full costs of compensation and resettlement.

5. Persons affected by the Project will be entitled to various types of compensation and resettlement assistance that will help in the restoration of their livelihoods, at least, to the pre-project standards as shown in the following matrix.

Table A9: Entitlement Matrix

Type of Losses Entitlement Implementation Issues

Temporarily affected land (during construction)

• Rental payment during the temporary use of affected person’s land.

The land will be restored to its previous or better quality.

Permanent loss of land (with land title/ownership records)

• Cash compensation will be used since the Project will only require small amount of land.

Payment of land will be made available to the divisional secretaries as soon as the Ministry of Finance approves the proposal for payment of compensation.

Loss of crops and trees by cultivators regardless of the land ownership

• Cash compensation for loss of crops at replacement cost. If sown or standing crops are damaged or uprooted, the owner of the affected crops will be compensated in cash for the loss of unharvested crops, at the mature crop value to be assessed on the basis of current market rates.

• Compensation for loss of fruit trees at replacement cost will be based on the present income and crop-bearing capacity.

The trees/crops are identified and listed by the village heads. The trees are valued by specialized agencies such as the Coconut Development Board, Rubber Research Institute, and divisional secretaries.

Loss of structures and immovable assets by owners (regardless of the land title)

• Compensation for structures/assets will be at full replacement costs without deduction for depreciation/ salvageable materials. The cost will include transportation and labor costs.

Owners of affected structures will be allowed to take/reuse all the salvageable materials for rebuilding/rehabilitation of the structure.

Restoration of cultural/community structures

• Complete restoration work or cash compensation will be offered for rehabilitation/rebuilding of affected common property resources and cultural/structures/ installations.

To be paid to the formal or locally recognized patrons/users' group leaders.

market value of building materials, required labor without deduction for depreciation and/or salvageable materials. For crops and trees, it will be based on economic production, age, and type.

Appendix 9 43

C. Procedures 6. For the Category B subprojects, the following checklist needs to be answered and attached to subprojects proposals:

(i) Will the subproject require land? What is the quantity of land required? (ii) Will the impact be permanent or temporary (during construction)? (iii) Who owns the land? How is land currently used? (iv) If private land, how many landowners/tenants/sharecroppers will be affected? (v) If state land, is it subject to customary claim? (vi) If state land, are there any squatters or encroachers? (vii) Are there any houses, structures, trees and crops that will be affected? (viii) How many households will be physically displaced? Can they move back to the

residual land? (ix) Are there any public or community infrastructures? (x) Will indigenous peoples be adversely affected?

7. In preparing the resettlement plan, the following procedures must be followed:

(i) Carry out consultations with various stakeholders to obtain their views on how to avoid or minimize adverse impace impacts, prepare the resettlement plan, and identify the needs and preferences of affected persons.

(ii) Undertake census (100% coverage), asset inventory, and detailed measurement surveys. A socioeconomic survey of sample population will also be undertaken.

(iii) Analyze data to identify different categories of affected persons based on the degree and scale of impacts of the subproject.

(iv) Formulate time bound schedule for resettlement plan implementation, procedures for grievance redress, monitoring and evaluation procedures, and budget.

(v) Prepare a draft plan following the entitlements matrix (para. 5). If there are new categories of affected persons and types of losses are identified, the entitlements will be included in accordance with ADB’s policy on involuntary resettlement.

(vi) Translate into local languages and present the draft subproject resettlement plan during consultation and public meetings for comments. The final plan will incorporate the comments and suggestions of the affected communities.

(vii) Submit the resettlement plan to ADB for review and concurrence. The approved subproject plan will be implemented before the award of construction contracts.

D. Implementation Arrangements, Consultation, and Grievance Mechanisms 8. The implementing agency for the road component will be the Road Development Authority, for the power component will be the Ceylon Electricity Board, and for community restoration component will be the North East Provincial Council, which will also be responsible for overall coordination of the Project. Screening of subprojects, preparation, implementation, and monitoring of subproject resettlement plans will be the responsibility of the concerned implementing agencies through their respective project management units (PMUs), under the overall coordination of the project coordinating committee, which will be established within the North East Provincial Council.

44 Appendix 9

9. The subproject resettlement plans, if required, will be based on consultation with affected persons and local government representatives, an appropriate census, and an inventory of losses. Grievances will be handled by the respective divisional secretary with the assistance of the village heads and PMUs. Resettlement plans will be disclosed through the PMU field offices and local village offices. Each implementing agency will carry out its own internal monitoring activities and will submit quarterly reports to the project coordinating committee and to ADB; they will include progress on planning and implementation of resettlement plans. E. Cost Estimates and Financing 10. The associated costs of land acquisition and resettlement, if any, will be included in the overall project costs. The estimate will include measures for (i) planning and budgeting for land acquisition and resettlement costs, annual budget, and sources of funding; (ii) arrangements for approval of resettlement plan cost estimates; and (iii) the flow of funds to reach people affected.

Appendix 10 45

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION A. Project Description 1. The Project involves rehabilitation and reconstruction of national roads, power transmission lines, and irrigation in the Northern and Eastern provinces of Sri Lanka. The Project was classified as a “B” project and therefore an initial environmental examination (IEE) for sample subproject was prepared based on the Project’s fact-finding mission. The sample road subproject is the rehabilitation of the Trincomalee-Kuchchiveli (50 kilometers) including rehabilitation of the existing platform for ferry ram, and reaping, gravelling, compacting, and sealing of the pavement. The sample power component is the rehabilitation of the Vavuniya-Killinochchi transmission system (75 kilometers), including reinstallation of substations and transformers, and laying down the missing transmission line. The sample irrigation subproject is the rehabilitation of the existing scheme in Batticaloa, including rehabilitation of channel and irrigation system, and protection of water tank. B. General Environmental Profile of the Project Area 2. Climate. The average temperature in the project area is 29°C – 37ºC. There are four seasons influenced by the monsoon winds of the Indian Ocean and Bay of Bengal. During the first season, mid-May to October, the leeward slopes in the project area (east and northeast) receive little rain. In the second season, October through November, periodic squalls occur and sometimes tropical cyclones bring rain to the area. From December to March, monsoon winds come from the northeast, bringing moisture from the Bay of Bengal. The northern slope and some project area may be inundated by up to 125 centimeters of rain during these months. During March to mid-May, the project area may experience light showers and variable winds. 3. Topography, Geology, and Soil. The Project is located in dry land, on a flat plain dissected by long, narrow ridges of granite running from the central highlands. A coastal belt about 30 meters (m) above sea level surrounds the island. In the Jaffna Peninsula, limestone beds are exposed to waves as there are low-lying cliffs in almost all places. Offshore islands can be found in the area, where the coast cuts across the stratification of the crystalline rocks, rocky cliffs, and bays. These conditions have created one of the world’s best natural harbors at Trincomalee. The Jaffna Peninsula and Mullaittivu have miocene limestone. The mineral resources found in the area are cement and clay. The soil in the project area is dominated by reddish brown earth. This type of soil has very high potential for agriculture, but it erodes easily.

4. Surface Water and Groundwater. Sri Lanka’s rivers rise in the central highlands and flow in a radial pattern toward the sea. Most of the rivers are short. The longest river is Mahaweli Ganga, which passes through the project area. In the project area, the rivers feed numerous artificial lakes or reservoirs (tanks) that store water during the dry season.

5. Ecological Resources. The dry land’s typical ground cover is scrub forest, interspersed with tough bushes and cacti. Various adaptations to dry conditions have occurred to conserve water, e.g., trees have thick bark, most have tiny leaves. When water is absent, the plains of the dry zone are dominated by brown and gray vegetation, and when the water is available, or in the area near the lake or rivers, green vegetation is abundant with a high variety of flowers. Varieties of flowering acacia are well adapted to the arid conditions and flourish on the Jaffna Peninsula. Among the trees of the dry land forest are some valuable species, such as satinwood, ebony, ironwood, and mahogany. Three sanctuaries are located in the Northern and Eastern provinces, but none of them and no national parks are located in the project area itself.

46 Appendix 10

C. Environmental Profile of Areas Affected by the Project

1. Road Rehabilitation 6. The Trincomalee - Kuchchiveli road (50 kilometers [km]) lies at an altitude 1-5 m above sea level. The topography is mostly plain. The land use along the road consists of agriculture, small patches of settlement areas, and barren land. The settlement area mostly belongs to ex-refugees. There are two fishing villages along the project road. There are no environmentally sensitive areas along this road; however, between km 10–14 and km 37 to the ferry platform, the project road is located within 300 m of the coastal line.

2. Power Distribution and Transmission

7. The Project’s transmission line is located in the middle of the island, and the land use along the transmission line is dominated by grassland, forest scrub, tanks, agriculture (paddy field and other homestead), and settlement areas. There are no national parks or sanctuaries along the transmission line. 3. Irrigation

8. The total area served by the Navakiri irrigation scheme is 17.505 acres, located in Uhana and Porativupattu divisions in Batticaloa district. The land of the area includes agriculture, abandoned agriculture land, and scrub and spotty areas with good tree cover, particularly near the water tank. The sources of water for this irrigation scheme are from Navakiri Aru and Senayahe Samudra. The deterioration of the scheme, particularly the part for conveying the water, is now quite severe. D. Potential Impact and Mitigation Measures 9. Road Rehabilitation. There will be no significant environmental impact from road rehabilitation due to the location of the project road; the rehabilitation will be executed only on the existing alignment that is not located in any environmentally sensitive area. The environmental impacts associated with the construction stage will be temporary, including increased dust and other volatile chemical substances from the asphalt plant, noise, and vibration. Measures to minimize these impacts will be adopted and included in the contract documents, and at least will include (i) maintaining the optimum moisture content during handling of soil, (ii) spraying water to minimize dust, (iii) maintaining safe distance between the asphalt plant and public facilities including education facilities, (iv) strictly controlling the construction works that create noise and vibration by prohibiting night works in the residential areas, (v) pumping stagnant water, and (vi) providing an adequate drainage system. The environmental impact associated with the operation of the Project is mainly on traffic safety, but it will not be significant due to very low traffic volume on the road. Nonetheless, adequate traffic signs and, if necessary, physical barriers to reduce vehicle speed will be installed.

10. Power Transmission and Distribution. There will be no significant environmental impact from the power component due to sitting of these transmission and distribution lines and substations; project activities will be executed at the existing location. The environmental impacts associated with the construction stage will mostly involve traffic disturbance as the transmission line is located along a national road. To minimize this impact, a clear traffic sign will be placed in the construction area. The good practice during the installation of cable or distribution lines will be adopted and will be included in the bidding document to minimize

Appendix 10 47

electric shock problems. There will be no environmental impacts associated with the rehabilitation of the substation because the Project will not involve replacement of transformers and conductors, but it will provide new transformers to replace the missing parts. To avoid future problems, the Project will use only free poly chlorinated biphenyl transformers. Due to low population density and the type of substation that will be installed, it is unlikely that there will be disturbance due to the noise generated from transformers. However, to the extent possible, it is recommended that the transformers be located at a reasonable distance so that the resulting noise level will not exceed 55 decibels at daytime and 45 decibels at nighttime.

11. Irrigation. There will be no significant impact from irrigation works due to the location of the Project; it will not require any land for expansion and will not affect any protected area. The works will include cleaning up the sedimentation of tanks and laying down the irrigation base; no environmental impact is expected from these works. There is no evidence of salinization and water logging in the project area, therefore, it is unlikely that the operation of the irrigation will promote salinization and water logging problems. Nonetheless, the prefabricated irrigation line that will be used by the Project will further prevent salinization and water logging problems. E. Institutional Arrangements and Public Consultation 12. The overall implementation of the environmental monitoring and management plan as described in the IEE report will be the responsibility of the implementing agencies, which will ensure that the monitoring will be undertaken in accordance with the Government's environmental monitoring requirements. These observations will be reported as part of the overall project implementation reports. 13. Implementation of mitigation measures during the construction stage will be carried out by the contractors. An environmental engineer, as part of the implementation consultant team, will assist each implementing agency in preparing contractual documentation so that the bidding documents, bills of quantity, and other contractual obligations of contractor clearly identify environmental responsibilities and describe penalties for noncompliance. The consultant will also be required to assist the implementing agencies in monitoring the implementation of the environmental management plan that was described in the IEE report. 14. The Project has been prepared based on the Needs Assessment, which was carried out based on extensive consultations with the Government, Liberation Tamils of Tiger Eelam (LTTE), nongovernment organizations working in the area, civil society, and others. Consultations with the representative of the LTTE and the local government agencies were also undertaken during the preparation of the IEE. Their concerns focus on their need to have a better access and electricity. None of them indicated any long-term potential adverse impacts due to the proposed Project.

F. Conclusion and Recommendations 15. The initial finding of the IEE study shows that the negative environmental impacts associated with the rehabilitation of road, transmission lines, and irrigation are deemed to be minor and the mitigation measures will be incorporated into the contract documents for the contractors. The Project will generate environmental benefits particularly in improving access to the basic services and markets due to improvement of roads, reducing the use of kerosene due to availability of the electricity, and improving the agriculture production due to improvement of irrigation. All the proposed mitigation measures for all project components are manageable and a full environmental impact assessment to assess further impacts of the Project is not required.

48 Appendix 11

ENVIRONMENTAL ASSESSMENT FRAMEWORK

A. Introduction

1. The proposed subprojects will involve activities to rehabilitate and improve national roads; power transmission and distribution lines; and community restoration and development including rehabilitation of irrigation schemes,1 school buildings, water supply and sanitation systems, rural roads, and small-scale renewable energy generation. 2. In accordance with the Government's Guidance for Implementing the Environmental Impact Assessment 1998, all subprojects are exempted from the environmental clearance requirement, except for subprojects located within the area declared as a coastal zone or subject to the Forest Act and the Flora and Fauna Act (para. 5), which require environmental clearance from their respective project approving agencies.

3. As the Project will only restore the pre-existing facilities damaged during the war, in accordance with Environmental Assessment Guidelines 2003 of the Asian Development Bank (ADB), all subprojects related to the rehabilitation of roads, power transmission, and irrigation scheme (without river diversion) are categorized as “B” projects, while the remaining subprojects are categorized as "C" projects. For each "B" subproject, an initial environmental examination (IEE) needs to be prepared. However, for any "B" subproject through the area as described in para.5, the summary IEE report and other government clearance document will need to be disclosed through the ADB website as early as possible.

4. To comply with both the Government’s and the ADB’s environmental impact assessment requirements, the following environmental assessment framework will be adopted. B. Subproject Selection and Environmental Assessment

5. To the extent possible, proposed subprojects should not be located within the following areas subject to the Forest Act, the Flora and Fauna Act, and the Coast Conservation Act:

(i) within/or less than 100 meters (m) from sanctuaries or any national wilderness heritage areas including protected forests and national parks; or,

(ii) within coastal zones as described in the Coast Conservation Act No. 57/1988, namely land area within 300 m of the coastal line, or water bodies such as lagoon, estuary, and river within 2 kilometers of the coastal line.

6. For each "B" subproject, regardless of where the subproject is located, a simplified IEE report must be prepared and submitted to ADB as part of the subproject proposal. The simplified IEE report, in a checklist format, will be attached in the project administration memorandum to be prepared during the inception mission of the Project . 7. For each "B" subproject located in the specified areas (para. 5), the simplified IEE report must also be submitted to the relevant project approving agency for clearance. Such clearance must be obtained prior to award of civil works contracts for that subproject. The approving agencies are (i) the Ministry of Highways for road subprojects, (ii) the Ministry of Power and Energy for power transmission and renewable energy subprojects, and (iii) the Ministry of Irrigation for irrigation subprojects. 1 The irrigation works will not involve any diversion of rivers.

Appendix 11 49

C. Responsibilities of Implementing Agencies and ADB 8. The following review procedure will be adopted to facilitate identification and mitigation of potential environmental problems/risks related to each subproject:

(i) Implementing Agencies’ Responsibilities

(a) Prepare the simplified IEE report for each "B" subproject as required and

submit to ADB as part of the subproject proposal. (b) Obtain environmental clearance from relevant project approving agency

for each "B" subproject located in areas described in para. 5 as required and submit to ADB before awarding any civil works contracts for that subproject.

(c) Ensure the implementation of environmental mitigation measures as described in the IEE report and the approving agency clearance (if required).

(ii) ADB’s Responsibilities

(a) Review IEE reports and approve qualifying subprojects.

(b) Publish the IEEs of the "B" located in the areas described in para. 5

subprojects in the ADB website. (c) Monitor the implementation of mitigation measures through project review

missions, and conduct environmental performance monitoring as necessary.

D. Environmental Performance Monitoring and Public Disclosure

9. The implementing agencies must ensure that ADB is given access to all subprojects to undertake environmental monitoring, if needed. However, they have the full responsibility for monitoring and reporting to ADB on the implementation of environmental mitigation measures for all subprojects described in the IEE report and approving agency clearance (if required). The environmental monitoring report must be documented by each implementing agency as part of the subproject-specific record. 10. Each implementing agency is responsible for ensuring that all environmental assessment documents, including the environmental monitoring reports, are properly and systematically kept as part of the subproject-specific record.

11. All environmental documents are subject to public disclosure; therefore, these documents should be made available to public, if requested.

Appendix 12 50

COMPONENT C: SUBPROJECT SELECTION PROCESS

1. The process described in this appendix will be used to prepare subprojects under the Community Restoration and Development component of the proposed Conflict Affected Area Rehabilitation Project. 2. Subprojects will be initially conceived by beneficiaries, nongovernment organizations, government departments, or newly-formed village rehabilitation committees that arose from the need to restore community livelihoods and area infrastructure damaged or lost as a result of the decades-long conflict. These subproject proposals will be presented first to the divisional rehabilitation committee present in each of the eight project districts. This committee then reviews and evaluates each proposal against the set subproject criteria. If approved, the proposal will be forwarded to the district rehabilitation coordinating committee (DRCC), which further scrutinizes the subproject. The district project management unit (PMU) assists these agencies in preparation of the subproject proposals in the standard formats used for the Project. 3. After approval by the DRCC, district PMU through the government agent or district secretary presents the subproject to the PMU located in Trincomalee. The PMU makes a detailed review of each subproject, considering if the subproject (i) addresses the overall scope of Project, (ii) is eligible under the general and subcomponent-related criteria, (iii) will create any problems in the area, (iv) has been sufficiently justified, and (v) will attain the desired outputs and benefits. The PMU also (i) performs a detailed review of the subproject cost estimate and implementation schedule; (ii) verifies beneficiary contribution; (iii) assesses if contractors are available and capable of performing the work; (iv) confirms that land will be available as necessary; and (v) investigates any gender-related, social, or environmental concerns. 4. If the PMU finds that the subproject satisfies all the evaluation criteria, the proposal will be then forwarded to the project coordinating committee (PCC) and, 15 days prior to a PCC meeting, circulated to the Asian Development Bank (ADB) and the relevant secretaries, ministries, provincial and district heads of departments, government agents, government security coordinators (Police, Army), nongovernment oganizations, the United Nations system, and any other development institution implementing projects in the area (World Bank, World University Services of Canada, etc.). 5. The PCC, chaired by the chief secretary of the North East Provincial Council, meets, typically at 2-month intervals, to present each subproject for conditional approval. Attendees at the PCC include ADB, relevant PMU staff, government agents, district deputy project directors, and representatives from concerned national ministries. Subprojects not approved by the PCC will be returned to the PMU/district PMU for further clarification or justification. If approved by the PCC, the PMU informs the proponent to further develop the subproject to include the designs, bill of quantities, specifications, and the bid documents. The final proposal will then be forwarded to ADB for approval. Subprojects not approved by ADB will be returned to the PMU for further clarification or modifications to better comply with project criteria or ADB guidelines. 6. Once ADB gives final approval, competitive tenders will be called, bids will be evaluated, and awards will be made to the substantially responsive lowest bidder. To ensure correctness in contract award process initially, three of the first subprojects processed in each district will be sent to ADB for approval prior to award of contract. For subsequent contracts, ADB provides a post-award (post-facto) approval. Subprojects will then be administered through the PMU until completion of the contract. The approval process is illustrated in the following diagram.

Appendix 13 51

TERMS OF REFERENCE FOR PROJECT COORDINATION CONSULTANTS 1. To supply the additional resources required for overall coordination of the Project, a small team of consultants will be engaged to assist the project coordinating committee (PCC)and the North East Provincial Council (NEPC) in coordinating and monitoring implementation, consisting of (i) a national specialist in management and organizational development, with relevant experience in coordinating larger-scale infrastructure projects; (ii) a national specialist in computer technology and database management; (iii) a national engineer proficient in construction management, cost estimating, procurement, specifications, and design review. 2. The terms of reference for this team include the following tasks:

(i) interact with the sectoral project management units to coordinate overall development;

(ii) review subproject proposals against general and sector-specific criteria; (iii) perform a cursory design review of each subproject confirming technical

feasibility, least-cost options, and construction duration; (iv) ensure a reasonable balance of activities among communities; (v) participate in national project committee and PCC coordination meetings; (vi) assist in development and operation of management information system

monitoring project progress and maintaining project records; (vii) establish online project monitoring system; (viii) survey of potential subproject areas to assess social and economic conditions; (ix) inspect construction quality and assess contractor capacity at selected

subproject sites; (x) participate in the contractor mentoring program; and (xi) provide input to NEPC for submission of progress reports.

52 Appendix 14

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Sectors identified as national priorities in country poverty analysis? Yes

Sector identified as a national priority in country poverty partnership agreement? Yes

Contribution of the sector/subsector to reduce poverty in Sri Lanka:

The 2 decades of conflict damaged physical infrastructure, deprived communities of basic services, and destroyed productive assets and social capital. It has caused people to lose income and property; it also caused death, physical injury, psychological stress and war-related trauma. War also prevented new investments from taking place. It created deep fractures and accentuated ethnic tensions within and among communities.

Reestablishing and restoring essential infrastructure, particularly the road network, power and electricity

supply, water supply, sanitation, and irrigation facilities is critical for the revival and resumption of economic activities that could contribute to employment creation, income generation, rehabilitation of displaced populations, improvement of security and stability, interethnic reconciliation, and political unification of the country. Moreover, the Project will contribute to restoring people's livelihood, increasing social stability and harmony, and enhancing economic recovery through improving education facilities, applying 'do-no-harm' procedures, and introducing postconflict impact assessments as filters for prioritization of interventions assuring ethnically equitable distribution of benefits.

B. Poverty Analysis Proposed Classification: Poverty Intervention The Northern and Eastern provinces constitute about 30% of Sri Lanka's land area, and a population estimated to be about 2 million or 10% of the national population. There were some 800,000 internally displaced persons, most of whom were women and children. Up to a million people left the country. In 2002, over 270,000 displaced people spontaneously returned to their areas of origin. A number of people who had been living abroad have also returned. It is expected that the movement of persons to and within the conflict-affected areas will continue. Many of these returnees and refugees are especially vulnerable due to gender, age, disability, belonging to ethnic or religious minorities, or their underprivileged social status. Less than 15% of the road surface in the region is still intact. As little or no maintenance was carried out during the conflict, all pavement surfaces have deteriorated and some have entirely disappeared. There has been considerable damage to the power distribution system. Households currently electrified in the Northern Province is 20% and in the Eastern Province 40% as against a national average of 56%. The conflict has prevented any progress that might otherwise have occurred, and on the contrary has made the situation worse. In most towns, water supply service is limited to 1-2 hours per day in limited service areas. The overhead water reservoirs and the distribution networks have been damaged or destroyed. The proportion of households who have access to safe water supply is only 20% as compared to 45% nationally, and the percentage of households who have access to sanitation is 25% compared to the national average of 72%. All districts confirm the presence of preventable intestinal disease. Many districts report the emergence of typhoid and cholera epidemic proportions, indicating faecal pollution of the shallow groundwater resources. All aspects of the education system, from pre-school to tertiary and technical-vocational, are severely damaged. Problems such as nonenrollment, dropouts, absenteeism, and poor learning quality are aggravated as a consequence of displacement, poverty, single-headed households, damaged infrastructure, and lack of human resources. The rate of student dropout is 15%, almost four times the

Appendix 14 53

national average. About 50,000 children are out of school. In the northeast, the agricultural sector's contribution to the gross domestic product had amounted to around 40%, whereas for the entire country agriculture accounts for about 20%. However, due to the conflict, minor irrigation schemes are in poor condition, out of the 2,398 minor irrigation tanks recorded in the area, over 30% require rehabilitation due to the impact of the war. Destruction and loss of livestock caused a significant decline in the livestock population. Most of the formerly surplus-producing agricultural areas have changed into food-deficit areas. Substantial destruction of standing crops and those around homesteads took place, and farming equipment and infrastructure were lost. Mines and unexploded ordnance still prevent access to livelihoods, to agricultural and common land, economic and social infrastructure. The conflict in Sri Lanka has been a constraint to growth and poverty reduction. It has not only caused extensive suffering and dislocation in the region but has also sharply reduced the economic contribution of the region to national development, led to mounting defense expenditures, restrained growth in social expenditures, discouraged investment, and stifled tourism. It was estimated that the conflict has potentially reduced 2 percentage points of annual growth for the country in the past 2 decades. The growth in the conflict area in particular has been even worse. C. Participation Process The Project will be implemented through stakeholder consultation. Community consultation will be carried out to determine subproject selection priority. Methodologies conducive to community participation, local capacity building, and the provision of employment will be introduced. Depending on the technical requirements, opportunities for local communities to work in the project implementation will be incorporated. D. Potential Issues Subject

Significance

Strategy to Address Issues

Plan Required

Resettlement

Non-

significant

The Project will not involve any land acquisition. The reconstruction and rehabilitation of infrastructure facilities will occur on existing rights-of-way.

Resettlement

Framework

Gender

None

Women and men will equally benefit from the Project through employment opportunities during construction and better infrastructure and facilities.

None

Affordability

Non-significant

The Project will have positive impact in reducing services costs. The impact of improved infrastructure facilities on the affordability of consumers will be monitored.

None

Labor

None

Employment opportunities within the Project will be available on an equal basis to all, on the basis of professional competence and skill, irrespective of gender, ethnic, or religious groups.

None

Indigenous People

None No indigenous people and communities will be negatively affected by the Project.

None

Other Risks/ Vulnerabilities

None

The Project was designed with particular attention to ensuring equitable and inclusive social development, including the most vulnerable groups, with specific focus on communities.

No

54 Appendix 15

PEACE AND CONFLICT IMPACT ASSESSMENT A. Background 1. Sri Lanka is currently emerging from two decades of armed conflict, a conflict which itself stemmed from previous decades of accumulating social tensions. Consequences of the conflict include more than 60,000 people killed, more than 800,000 persons displaced internally, tens of thousands of families who have fled the country, physical infrastructures— especially in the north and the east—devastated, an economy starved of investment and hobbled by insecurity, enormous social trauma, and a significant deterioration in the quantity of qualified human resources available in both the social and economic spheres. A memorandum of understanding signed by the Government and the Liberation Tamils of Tiger Eelam (LTTE) in early 2002 has generated fresh hope that a lasting peace can now be negotiated and serve as a basis for the future development of the country. 2. Political structures in government-controlled areas are democratic, but decision-making authority remains hierarchical and highly centralized in Colombo. The technical quality of public services is quite good compared to most developing countries, although their efficiency is often questioned. For several decades, government structures have tended to be dominated by the majority ethnic community. In LTTE-controlled areas, decision-making authority is highly concentrated in the hands of a small group of senior leaders, who until now have exercised this authority with very little direct accountability to the local populations. Technical capacity with regards to governance in these areas tends to be low, due to the flight of many skilled Tamils. Intimidation and killing are not unknown tactics for silencing critics or competitors for local power, although the identity of the perpetrators is not always clear. Abuses of human rights were widespread during the years of conflict. 3. Most of the conflict-affected areas, whether on the government or LTTE side, have been essentially devoid of new investment during the 20 years of armed conflict, although initial signs of new investment, both public and private, have begun to emerge since the cease-fire agreement was signed in early 2002. On balance, the private sector plays a greater role in economic life than it did 20 years ago. Taxes have become a controversial issue in LTTE-controlled areas, with the LTTE imposing various types of levies on individuals and companies in order to finance a portion of their activities. While reliable social statistics are not available for the areas targeted by this Project, anecdotal evidence from numerous aid agencies indicates that social problems such as alcoholism, domestic violence, sexual abuse, drug abuse, and suicide have significantly increased over the years of conflict. Such increases suggest widespread psychological trauma, alienation, and stress resulting from the breakdown of traditional social support networks. 4. Key actors who have an influence on the evolving conditions in the conflict-affected areas include the LTTE, who wish to ensure that peace will bring not only rehabilitation to the north and east, but also significant autonomy in the governance of the region. The Government, which controls about half of the conflict-affected areas, including Jaffna, sees peace and the ensuing stability as an essential ingredient in re-launching Sri Lanka’s economy. However, there are elements in the south that continue to actively promote the dominance of the largest ethnic community, thus limiting the Government’s scope to take peace initiatives and to make what are perceived by some as unacceptable concessions.

Appendix 15 55

B. Project Context 5. The Project will be implemented partly in government-controlled areas and partly in LTTE-controlled territory. Although boundary lines between these areas will be the subject of future peace negotiations, for the moment they are not actively contested by either party. The political and security situation in the project area will depend greatly on the progress of the peace talks, but for the moment it is generally stable, although punctuated by frequent reports of relatively minor breaches of the ceasefire agreement and of intimidation of local citizens and groups. Economically, there has been some improvement since the ceasefire agreement in early 2002, with some small-scale private investment, notably in the services sector, some increase in rehabilitation activities by aid organizations, and increased trade due to the opening of road links between LTTE and government-controlled areas. Poverty remains nevertheless endemic, with tens of thousands of internally displaced families looking to resettle in their places of origin. These returns are significantly augmenting the population of a number of districts such as Jaffna, Kilinochchi, and Mullaitivu that had seen large outflows during the war. 6. In areas of mixed ethnic composition, notably in the east, relations between the three main groups (Tamil, Singhalese, and Muslim) have degenerated in recent months, despite the efforts of community leaders to establish conflict resolution mechanisms. Competition over limited resources and disputed land rights in some areas have acted as triggers for intercommunal violence on recent occasions. Currently many Muslim communities feel marginalized in debates over the country’s future, believing their specific needs are not adequately taken into account and feeling under threat by the LTTE. Singhalese community members, especially those along the east coast, generally feel vulnerable to LTTE pressure and complain of not being adequately protected by the government. Tamils are cautiously hopeful that the LTTE and the government will continue to advance in establishing a lasting peace, but also appear unsettled by recent intercommunal violence. 7. The ethnic composition varies across the project area, with Tamils strongly dominating in the north. In the districts in the east, the three main groups are relatively equally balanced. Nevertheless, individual communities tend to be essentially mono-ethnic, thus producing a school system that is fragmented as well as communities that do not communicate easily with each other. 8. Infrastructure in much of the project area, but especially the north, was destroyed or severely damaged during the armed conflict, while the rest was not maintained and therefore deteriorated due to lack of funds or access. Since the ceasefire, most people appear to feel that their personal security has improved, but also fear the gains are fragile. Some studies, such as one commissioned by Canadian International Development Agency in 2002,1 suggest that psychological trauma is widespread among all ages, with feelings of fear, depression, and helplessness being common. Children have been particular victims, not only due to the psychological trauma suffered at an impressionable age, but also due to malnutrition that has hampered their development, loss of years of schooling, and exposure to physical dangers such as landmines. Many women have suffered the trauma of losing the main breadwinner in the family, obliging them to provide for their children and elder parents, often after being forced from their land. In addition, the conflict environment has rendered women particularly vulnerable to sexual harassment.

1 Simms, Dr. Chris. 2002. Study on Psychosocial Distress in Sri Lanka. Sri Lanka.

56 Appendix 15

C. Prognosis 9. The general trend over the past 18 months has been a gradual decrease in the overall level of tension in the country, although there is a clear sense that this decrease could easily be reversed. In addition, the general trend does not exclude outbreaks of violence in specific locations as a result of local “triggers” being set off by local issues. These issues tend to be related to competition for local resources, for example fish or access to arable land. Because of the lack of trust and effective dispute resolution mechanisms at higher levels, the danger is that these local triggers can cause wider eruptions of violence through contagion. In the current context, this danger appears more of a concern than national or subnational leaders inciting their followers to violence at the local level. 10. Because specific ethnic groups tend to dominate in specific economic sectors, the project implementers will need aware that certain project interventions might be perceived as favoring one group at the expense of another. Thus they will need to consider not only whether aid to one sector will achieve the desired outputs but also the potential impact on other groups in the area. In addition, they will need to ensure that the way aid is apportioned between different sectors allows for a reasonably equitable sharing of benefits among all ethnic groups. 11. Groups that may consider they could benefit from a re-escalation of tensions or even conflict include security forces on both sides whose influence and resources have expanded greatly over the life of the conflict and could be expected to shrink if and as long-term peace takes root. Thus demilitarization will soon become an issue if the peace process is to be consolidated. 12. With regards to groups that can play a mitigating or transforming role in the event that socio-political tensions worsen, there are numerous religious authorities of all faiths who appear willing to contribute at both the local and provincial levels. There are also a number of experienced NGOs with extensive roots in the area, who have developed both credibility and expertise in conflict mediation and transformation at the local level. Finally, a number of community-based organizations, such as village rehabilitation committees, have generated credible leaders over the past several years who could also be a useful resource in constructively addressing local tensions. 13. The most likely scenario over the next few years is that the overall peace will hold, despite periodic confrontations and outbreaks of violence. However, achieving transparent, effective, democratic governance according to generally accepted international norms is likely to continue to be a problem in the near future, acting as a brake on the long-term development of the country, particularly in the northeast but also to some extent in the south. As a result, the Project will need to pay particular attention to the quality of its management and how the outputs connect with the governance structures that will be put into place as the peace process advances. D. Project Parameters 14. A key to the project being perceived as providing a “peace dividend” will be the extent to which target populations consider that benefits to them are being maximized. This means that not only should the outputs (roads, schools, community services) be efficiently delivered but also that implementation methods favor the maximization of benefits locally. For example, local

Appendix 15 57

labor should be used as much as possible while contracts and subcontracts should be designed to facilitate the participation and reinforcement of domestic contractors. Also, where work is to be implemented by civil society organizations such as nongovernment organizations, attention should be accorded to strengthening their technical and management capacity as needed, in order to ensure not only the effectiveness of the work they carry out for the Project but also their capacity to contribute to the future development of their area. 15. The Project as it is formulated has the capacity to apportion benefits in an equitable manner among the different ethnic groups, subject to the provisos mentioned earlier and subject to ethnicity being one of the criteria (but not the only one) used in targeting specific communities. There is a risk that certain parts of the Project may be temporarily destabilized by the eruption of local tensions, but as long as tensions remain local, this is likely to be of short duration. However, past experience indicates that the protection will be more cost effective if the Project, when it enters a district or a new locality, takes the time to explain its objectives to local leaders and to gain their endorsement. In addition, the specific peace-building measures referred to in the section on livelihoods can equip the beneficiary communities to deal more constructively and more effectively with the inevitable intra- and intercommunity tensions that will arise and that risk destroying or reversing the gains made as a result of this emergency Project. It will also be useful for the periodic project reviews to include assessments of changes in the political and security environment and how/if they impact on the Project, as well as how the project appears to be impacting on peace and conflict factors in the target areas. E. Correspondence between Project and Context 16. As the project responds to generally recognized needs, the support for such interventions is by and large strong among government and LTTE representatives, as well as with community leaders. However, in the light of negotiations with regards to a proposed interim administration for the north and east and eventually on how the concept of federalism is to be defined by the negotiating parties, it will likely be necessary that ADB discuss carefully with the Government and the LTTE how decisions agreed at the negotiating table affect implementation arrangements for the Project, within the parameters of the original loan agreement. Most of the executing agencies indicated in the project proposal should not present significant problems with regards to exacerbating tensions, given the Asian Development Bank’s previous experience with similar activities in the area and the relations of mutual trust that have developed. F. Projected Impacts 17. As long as the beneficial outcomes are shared reasonably equitably among the major ethnic groups and across the target area, the Project is not expected to contribute to an intensification of social tensions. In addition, the modest-sized nature of the projected project activities appears to make them unlikely to be captured by elite or sectarian interests. Possible inadvertent negative outcomes for this type of project that will need to be monitored include opportunities for illegitimate profit taking on construction contracts and opportunities for levying various types of nontransparent taxes or fees by nonstate actors. 18. Regarding the potential for disillusionment among the beneficiary populations once they see the actual outcomes delivered by the Project, the danger appears to be fairly modest, given the small scale, local nature of the outputs and the opportunity for the communities in the target

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areas to define a portion of the inputs they will receive. The key will be in maintaining complete transparency with both the local authorities and the ultimate beneficiaries on what the Project can and cannot deliver and consulting with local representatives on the most appropriate methodology to adopt as the Project advances. This includes being sensitive to any changes in approach that appear to be advisable in the light of changing circumstances over the implementation period. A further significant asset of the Project, which will help ensure that the outcomes are sustainable over time and are realized in a stable environment, is the support being planned for specific peace-building activities at the community level. These activities will help ensure that the target communities develop or reinforce conflict-resolution mechanisms to peacefully and equitably solve disputes that arise during and after the implementation period. G. Conclusion 19. The components of the Project as presented can potentially make a positive contribution to the rebuilding of the infrastructure and socioeconomic fabric of the conflict-affected areas of Sri Lanka. The challenge will be in implementing the Project in a sensitive manner, i.e., ensuring that:

(i) Districts and communities are selected in ways that ensure an ethnic balance that reasonably reflects the general ethnic composition of that area.

(ii) Rigorous measures are applied to limit the potential of corruption diverting resources to local, subnational, and national elites.

(iii) All phases of the Project are characterized by transparency, so that the relevant authorities, community leaders, and beneficiaries understand the project parameters and how the Project is progressing.

(iv) Community-level peace-building activities are designed and implemented in ways that make the target communities more resilient to pressures that might otherwise lead to violence.

(v) Implementation is done using local human and material resources as much as possible, encouraging a sense of ownership of the dividends flowing from the ceasefire.

20. Indicators that might be considered in order to track changes in the degree and nature of communal tensions and that could serve as warning (or reassuring) signs, include:

(i) the number of violent incidents involving four or more people—averaged on a per community basis—within the previous 6 months;

(ii) the number of disputes involving more than five households—averaged on a per community basis—that have been resolved in a nonviolent manner in the past 6months;

(iii) the average total number of times each family in the village—averaged on a per community basis—has traveled to another village or town in the previous month; and

(iv) the judgment in community meetings as to whether the present security climate in their area is very poor, poor, fair, good, or very good.