ASIAN DEVELOPMENT BANK RRP: SRI

Transcription

1 ASIAN DEVELOPMENT BANK RRP: SRI REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR THE NORTH EAST COMMUNITY RESTORATION AND DEVELOPMENT EXTENSION PROJECT May 2004

2 CURRENCY EQUIVALENTS (as of 1 May 2004) Currency Unit Sri Lanka rupee/s (SLRe/SLRs) SLRe1.00 = $0.01 $1.00 = SLRs ABBREVIATIONS ADB Asian Development Bank CAARP Conflict Affected Areas Rehabilitation Project DPMU district project management unit GTZ Deutsche Gesellschaft für Technische Zusammenarbeit (German Agency for Technical Cooperation) IA implementing agency IDP internally displaced person IEE initial environmental examination LCB local competitive bidding LTTE Liberation Tigers of Tamil Eelam MPCLG Ministry of Provincial Councils and Local Government NECORD North East Community Restoration and Development Project NEPC North East Provincial Council NGO nongovernment organization NPCC National Project Coordination Committee PMU project management unit PPCC Provincial Project Coordination Committee NOTES (i) (ii) The fiscal year (FY) of the Government ends on 31 December. In this report, "$" refers to US dollars. This report was prepared by a team consisting of R.G. Rinker (team leader), A. Djusupbekova, S. Mills, B. Smith, and M. Thiruchelvam.

3 CONTENTS Page LOAN AND PROJECT SUMMARY iii MAP ix I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 C. Lessons Learned 4 D. The Asian Development Bank s Strategy 4 III. THE PROPOSED PROJECT 5 A. Objective 5 B. Components and Outputs 5 C. Special Features 6 D. Cost Estimates 7 E. Financing Plan 8 F. Implementation Arrangements 9 IV. PROJECT BENEFITS, IMPACTS, AND RISKS 15 A. Project Benefits and Impacts 15 B. Peace and Conflict Risks 16 V. ASSURANCES 17 A. Specific Assurances 17 B. Condition for Loan Effectiveness 18 VI. RECOMMENDATION 19 APPENDIXES 1. NECORD Subproject Summary Project Framework External Assistance Affected District Synopsis Sector-Specific Criteria and Subproject Components Women s Enterprise Initiative Detailed Cost Estimates and Financing Plan Resettlement Framework Subproject Selection Process Project Implementation Schedule Environmental Assessment Framework Outline Terms of Reference for Consulting Services Summary Poverty Reduction and Social Strategy Peace and Conflict Impact Assessment 52

4 ii SUPPLEMENTARY APPENDIXES (available on request) A. September Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Democratic Socialist Republic of Sri Lanka for the North East Community Restoration and Development Project, ADB, Manila. B. May Sri Lanka Assessment of Conflict-related Needs in the Districts of Jaffna, Kilinochchi, Mullaitivu, Mannar, Vavuniya, Trincomalee, Batticaloa, and Ampara, Prepared with the support of Asian Development Bank, United Nations and World Bank, Sri Lanka.

5 iii LOAN AND PROJECT SUMMARY Borrower Classification Environment Assessment Project Description Rationale Sri Lanka Primary: Poverty Intervention Secondary: Human Resource Development Category B. The Project involves small-scale civil and building works at sites previously or currently used for the same or similar purposes and is not likely to generate any significant environmental impact. All subprojects will be required to complete and satisfy an environmental checklist during formulation. The Project contributes to the Government s overall relief and rehabilitation program for the conflict-affected areas of the Northern and Eastern provinces, which make up almost one third of Sri Lanka s area and contain about 10% of its total population. The Project will focus on essential economic and social infrastructure and address basic needs in the conflict-affected areas through health, education, agriculture, community, and income generation subprojects. Restoration activities will focus on medium-scale subprojects designed to bridge community development with broader district-level improvements. For nearly 20 years, the Northern and Eastern provinces of Sri Lanka served as the theater for the conflict between the Government s armed forces and the Liberation Tigers of Tamil Eelam (LTTE), leaving over 65,000 dead, several times as many people disabled, and nearly 800,000 people displaced from their homes. On 22 February 2002, the Government and the LTTE signed a cease-fire agreement, thereby commencing the long process of ending the conflict and beginning a period of reconciliation and restoration. Although only in effect for 2 years, the cease-fire has brought a measure of normalcy to the country, and, in particular, to the North East. However, the vast majority of people directly affected by the conflict still suffer from a lack of basic infrastructure and social services. The operations of the Asian Development Bank (ADB) in the conflictaffected areas began well before the cease-fire agreement through Loan 1846 SRI(SF): North East Community Restoration and Development (NECORD) Project. The NECORD Project is now improving the wellbeing of people affected by the 20-year long conflict in the North East by providing basic services for those affected by the conflict, restoring health and education facilities, reestablishing agricultural and fishing activities as a means of providing incomes, and mobilizing communities to become involved in implementing project-financed activities.

6 iv A needs assessment, which was presented to international aid agencies 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 was required immediately. The Conference, through the Tokyo Declaration, also agreed that assistance by the international aid agencies must be closely linked to substantial and parallel progress in the peace process. About $550 million and $194 million have been committed by the multilateral and bilateral agencies, respectively, through ongoing and planned projects. However, the present commitments account for only 35% of the total immediate needs, with significantly less commitment toward the restoration of essential physical and social infrastructure. Resumption of economic life and reestablishment of livelihoods rely on rehabilitation of key infrastructure facilities and community restoration. Recognizing that the conditions in the North East are the aftermath of 20 years of conflict and have resulted in a situation where needs that require urgent attention greatly exceed available resources, the Project has been processed under ADB s emergency rehabilitation procedures. The Project follows the ongoing NECORD Project, and adopts that project s sector loan approach. The Project will reinforce the perception that the international community remains involved with and is supporting the peace process, and will also confirm ADB s leading role in rehabilitation and peace support operations in the country s most impoverished and vulnerable region. Objectives and Scope The objective of the Project is to rapidly improve the living conditions and well-being of the significant number of people in the areas badly affected by the conflict, particularly in the North East. The purpose is to restore basic social infrastructure and community service needs in these areas. The Project will support and augment the Government s rehabilitation and relief efforts already under way through the existing NECORD Project. The Project will focus on the highest priority sectors and areas for which ADB assistance is most appropriate, based on the needs assessment and reflecting consultations with the Government, development partners, the LTTE, 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 agreed general and sector-specific criteria. The Project will address basic needs in the conflict-affected areas through health, education, agriculture, income-generation capacity building, and social cohesion subprojects. Subprojects in each of these sectors will be selected and formulated in response to requests from conflict-affected persons and the Government.

7 v Representative subprojects proposed for implementation under the Project include the reconstruction of the Chavakacheri Hospital, Jaffna district; rehabilitation and expansion of the Vavuniya General and Mannar Base hospitals; reconstruction of the Kilinochchi Central College, destroyed in the conflict; provision of cluster-housing compounds for teachers in remote areas; construction of a cultural center in Vavuniya, to assist in reconciliation of the area s three ethnic communities; livestock development and agriculture extension services; skills development and training programs; and a prototype program to develop a women s enterprise initiative, for wider-scale use on follow-on projects in the north and east. Cost Estimates Financing Plan The estimated total cost is $14.3 million equivalent, inclusive of taxes, duties, and interest during implementation. Source Foreign Exchange ($ million) Local Currency Total Cost % ADB Government Total ADB = Asian Development Bank. Source: Asian Development Bank estimates. Loan Amount and Terms Period of Utilization Executing Agency The Government has requested a loan of $10 million equivalent from ADB s Special Funds resources to help finance the Project. The term of the loan will be 40 years, including a grace period of 10 years, with repayment of principal at 2% per year for the first 10 years after the grace period and 4% a year thereafter, with an interest charge at the rate of 1% per annum. Until 30 June 2007 The Ministry of Provincial Councils and Local Government will serve as the Executing Agency. The North East Provincial Council, under the direction of the chief secretary, will be the implementing agency responsible for overall project coordination and implementation.

8 vi Implementation Arrangements Procurement The Project will be implemented using the same process approach and will follow the same implementation arrangements that are already in place and that are working extremely well for NECORD, thereby allowing significant additional needs to be met quickly and effectively. The Governor of the Northern and Eastern provinces will coordinate activities between the civil and military authorities. A project management unit (PMU), operating in Trincomalee and headed by a project director, will manage the Project on a day-to-day basis. The PMU will implement subprojects through government and NECORD structures and procedures at the provincial, district, and divisional levels. District PMUs established in each district under NECORD and headed by deputy project directors will be responsible for district-level project operations. A national project coordinator based within the Ministry of Provincial Councils and Local Government in Colombo will assist the PMU with the execution of the Project. The German Government s Deutsche Gesellschaft für Technische Zusammenarbeit has provided a team of international and domestic specialists to assist the PMU in administration of NECORD. This assistance will continue through the North East Provincial Council in areas such as planning, human resource development, and monitoring, and will be available to the Project on a preferential basis. 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. Local procurement will be the preferred mode for all project activities, because of the relatively short implementation period, the small size of contract packages (below $2.5 million), the wide geographic spread of the project sites, and the need for local awareness of security and other frequently changing matters relevant to accessing the project area. Contracts with estimated values less than $100,000 will be procured under local competitive bidding using post-facto approval procedures. Equipment and materials will be procured under international competitive bidding where the estimated cost is more than $500,000 equivalent, by international shopping where the estimated cost is between $300,000 and $500,000 equivalent, and through local procurement procedures acceptable to ADB where the estimated cost is $300,000 equivalent or less. Minor items costing less than $100,000 equivalent may be procured through direct purchase.

9 vii Consulting Services Estimated Project Completion Date Project Benefits and Beneficiaries The existing consultants for NECORD, who are providing procurement and contract management support, and training of domestic agencies, will extend their services through direct selection to cover the additional requirements of the Project. For new services, primarily for the preparation of master plans and bid documents for larger subprojects, consultants will be selected and engaged in accordance with ADB s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Consultants will be provided individually and through firms; quality and cost-based selection procedures will be used in the recruitment of consulting firms. Individual consultants will also be fielded to assist in the preparation of gender-oriented economic activities and business cooperatives. The Project will require approximately 350 person-months of domestic consulting services. 31 December 2006 The conflict-affected areas suffer from poverty levels estimated to range from 60% to 90% that are much higher than in the rest of the country. Little of the social or economic infrastructure remains intact; much of what remains has long passed its useful life. Until the infrastructure is restored, at least marginally, there is little opportunity for the restoration of livelihoods. The Project will benefit a significant proportion of the nearly 800,000 people who were forced to relocate because of the conflict and who are now returning to their homes as well as those people who remained in place but lost access to basic social and economic infrastructure; many are physically disabled people, female-headed households, and children. Through the restoration of sectors that form the backbone of the economy of the North East, the Project serves as a channel that brings about normalcy to the lives of the affected communities and assists in stabilizing the economic basis of those affected by the conflict, reducing their dependency on government support and securing a sustainable livelihood for them. The Project s health and education activities will start the long process of restoring the social indicators in the North East to preconflict levels. A significant portion of the Project will focus on providing employment, training, and a sense of ownership for people, who now lack most of the basic essential requirements for a productive life. Specialized prototype programs will be developed to address the plight of the high percentage of war widows in fishing communities.

10 viii 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. On condition that the beneficial outcomes are shared sufficiently 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 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 monitored and managed, and that there is transparency and complete community ownership of project activities. Beyond just doing no harm, the Project can potentially make a positive contribution to the rebuilding of key infrastructure and help make existing infrastructure more effective in strengthening the socioeconomic fabric of the conflict-affected areas. The challenge will be in implementing these activities in a conflict-sensitive manner. Finally, reflecting the linkage between aid agency assistance and progress in the peace process, there is a risk that, if the peace process falters, the Project s scope and schedule may require review. However, given the recently restated commitment of the Government and the LTTE to resume peace talks, and the robustness of the peace process itself despite recent political and other uncertainties, the peace process remains intact and the cease-fire agreed to in 2002 continues to be observed this risk is assessed to be small.

11 ix

12 I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan to the Democratic Socialist Republic of Sri Lanka for the North East Community Restoration and Development (NECORD) - Extension Project. II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis 2. For nearly 20 years, the Northern and Eastern provinces of Sri Lanka served as the theater for the conflict between the Government s armed forces and the Liberation Tigers of Tamil Eelam (LTTE), leaving over 65,000 dead, several times as many people disabled, and nearly 800,000 people displaced from their homes. While all of Sri Lanka has suffered from the consequences, the North East and the adjacent areas have borne the brunt of the conflict. On 22 February 2002, the Government and the LTTE signed a cease-fire agreement, thereby commencing the long process of ending the conflict and beginning a period of reconciliation and restoration. Although only in effect for 2 years, the cease-fire has brought a measure of normalcy to the country, and, in particular, to the North East. However, the vast majority of people directly affected by the conflict still suffer from the lack of basic infrastructure and social services. 3. Since the cease-fire, nearly 40% 1 of the internally displaced persons (IDPs) and refugees have returned to their places of origin, usually to find their villages devastated, and basic infrastructure, such as access to health, schools, and community facilities, no longer functioning. The Government, with the assistance of multilateral and bilateral agencies, is providing some assistance to the returnees through its Unified Assistance Scheme. This assistance, which is essentially a small cash grant and food rations for a limited period, is sufficient only for the returnees to establish themselves. In addition, several agencies, including the Asian Development Bank (ADB), are helping with the substantial task of rehabilitating and replacing essential infrastructure, to build confidence among the IDPs and the host communities that suffered through the conflict. 4. Although the conflict has yet to formally end, the Government, the LTTE, and the international community clearly recognize the need to continue the rehabilitation and development efforts in the conflict-affected areas to reinforce the confidence in the ongoing peace process, and as a peace dividend for the area s people and for the entire country. The multilateral agencies operating in Sri Lanka 2 gave substance to this by undertaking a comprehensive needs assessment of relief, rehabilitation, and reconstruction needs for the conflict-affected areas, primarily in the eight districts that make up the North East and the areas of the four adjacent districts that have also been impacted by the conflict (see Map). The assessment, which was presented to the international community at the Sri Lanka Reconstruction and Development Conference held in Tokyo in June 2003, 3 concluded that about $3 billion would be required for relief, rehabilitation, and reconstruction $2 billion for immediate and medium-term needs (within 6 years) and $1 billion for longer-term needs. The As per the statistical summary issued by Ministry of Rehabilitation, Resettlement and Refugees with the assistance of the United Nations High Commissioner for Refugees. United Nations organizations, World Bank, and ADB. 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 ).

13 2 Conference, through the Tokyo Declaration issued at its conclusion, also agreed that assistance by international aid agencies must be closely linked to substantial and parallel progress in the peace process toward fulfillment of the objectives agreed upon by the Government and the LTTE at the previous conference held in Oslo in December To date, the international community has committed about $645 million in assistance about 35% of the immediate needs mainly for relief and rehabilitation activities. Of this amount, ADB s contribution to date is $237 million, 4 amounting to 11% of the identified immediate needs. 5. ADB s operations in the conflict-affected areas began well before the cease-fire agreement, when the conflict was most intense, through Loan 1846 SRI(SF): North East Community Restoration and Development (NECORD) Project. This multisector rehabilitation and reconstruction project was approved in October 2001 and began implementation in January It operates in all eight districts, including areas under the control of the LTTE. To date, about 500 subprojects, primarily for rehabilitation of basic infrastructure and restoration of communities, have been approved for implementation, and about 200 have been successfully completed. A summary of the NECORD subprojects by sector and district is provided in Appendix 1. The project funding, originally $40 million but now substantially more through postapproval cofinancing, is fully committed and, as such, no further subprojects can be approved for implementation under NECORD. Although NECORD has been very effective and highly efficient to date, it can only address a fraction of the immediate rehabilitation needs. 6. In recognition that the conditions in the North East are the aftermath of 20 years of conflict and have resulted in a situation where needs that require urgent attention greatly exceed available resources, the Project has been prepared under ADB s disaster rehabilitation procedures as appropriate and in anticipation of ADB s forthcoming policy on disaster and emergency assistance being prepared during processing of the Project. 5 The Project follows the ongoing NECORD Project and other emergency lending projects, and for reasons of continuity and rapid response, adopts the lending terms, and process implementation approach of those projects (see project framework in Appendix 2). This process has worked extremely well for NECORD and other emergency lending projects, thereby allowing significant additional needs to be met quickly and effectively, demonstrating visible and effective support for the peace process. The Project therefore reinforces the perception that the international community remains involved with and is supporting the peace process, and will also confirm ADB s leading role in rehabilitation and peace support operations in the country s most impoverished and vulnerable region. The project framework also identifies broad performance indicators to be used to monitor and evaluate project performance and attainment of benefits; with the sector loan and process implementation approach, detailed performance indicators will be developed during the course of the Project. 7. Because the Project has been processed under ADB s disaster and emergency assistance policy and will use a sector-style approach to approving projects for implementation, economic analysis is not required. As for the original NECORD Project, investments will be 4 5 ADB Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Sri Lanka for the North East Community Restoration and Development Project. Manila; ADB Report and Recommendation of the President for the Third Road Improvement Project (Change of Scope). Manila; ADB Report and Recommendation of the President for the Secondary Education Modernization Project. Manila; ADB Report and Recommendation of the President for the Aquatic Resources Development and Quality Improvement Project. Manila; ADB Report and Recommendation of the President for Secondary Towns and Rural Community-Based Water Supply and Sanitation Project. Manila; ADB Report and Recommendation of the President for the Conflict Affected Areas Rehabilitation Project. Manila. ADB Rehabilitation Assistance after Disasters. Manila; ADB Policy on Disaster and Emergency Assistance (W-Paper). Manila.

14 3 made on the basis of least-cost restoration of previously existing facilities. The social and environmental analyses undertaken for NECORD were revisited during the midterm review in the context of current safeguard policies and remain relevant for the Project. In addition, subproject concept development, selection, and implementation procedures already in place provide for comprehensive social and economic assessments. B. Analysis of Key Problems and Opportunities 8. The North East constitutes almost a third of Sri Lanka s land area, and is administratively divided into eight districts. 6 Although the LTTE controls the districts of Kilinochchi and Mullaittivu completely and exercises partial control in other districts, the Government s civil administration, other than the military, police, and the judiciary, is functioning in all eight districts. The North East s preconflict population of about 2.1 million people is now reduced to significantly less than 2 million. The conflict caused significant movements of population within all districts in the North East and into the bordering districts. Since the cease-fire, it appears that the populations of Jaffna, Mullaittivu, and Kilinochchi districts are increasing as displaced families return to their homes, a process that occurs spontaneously and often results in significant deprivation as families find that support is not available. In other districts, there is either a decrease due to outward IDP movement or stability in the population. 9. The population of the North East has always been largely rural, with over 88% living outside the principal towns. Livelihoods mainly depend on agriculture, fishing, and subsistence farming. During the conflict, much of the agricultural land became inaccessible, through direct conflict or because of land mines. Irrigation systems were either destroyed, or fell into disuse and now require extensive rehabilitation before being returned to service. Fishing was severely limited, which had a serious impact on a region that once provided more than half of the country s fresh and dried fish. Most fishing boats and many fishing facilities (harbors, ice facilities, markets, etc.) were destroyed, and have not yet been replaced. Much of the region s physical infrastructure and the means of production was damaged or destroyed, or has deteriorated over time. Its replacement and rehabilitation are essential if economic life is to resume and normal livelihoods are to be reestablished. 10. Since the cease-fire, rehabilitation of some of basic infrastructure has been undertaken with the assistance of multilateral and bilateral agencies which, respectively, have committed about $550 million and $194 million, as detailed in Appendix 3, and through ongoing and planned projects for 2003 and However, the present commitments account for only 35% of the total immediate needs, most of which provide relief and target the restoration of livelihoods; other than for ADB-supported programs, there has been significantly less commitment toward the rehabilitation and restoration of essential physical and social infrastructure. 11. ADB s contribution by ongoing and committed projects is $237 million. The most significant projects that contribute directly to the rehabilitation and reconstruction efforts are NECORD and Loans 2043/2044-SRI: Conflict Affected Areas Rehabilitation Project (CAARP). The efficiency and development impact of the NECORD Project has encouraged bilateral and multilateral agencies to complement the project by providing additional financial and technical resources for new or expanded activities, which to date amount to about $25 million. This additional funding approved or under processing has come from the Netherlands for 6 Districts of Ampara, Batticaloa, Jaffna, Kilinochchi, Mannar, Mullaittivu, Trincomalee, Vavuniya. A synopsis of these districts is attached as Appendix 4.

15 4 education, agriculture, and IDP resettlement grants; Norway and Finland for the crucial Kilinochchi hospital; and the European Union for provincial and rural roads. In addition, the World Bank has made use of the project s management and financial systems to channel $15 million in resettlement grants to about 57,000 IDP families. C. Lessons Learned 12. The NECORD Project is recognized for (i) its preparedness to respond quickly and flexibly; (ii) its focus on restoring facilities; (iii) ADB s supervision during implementation, as the project places a heavy burden on executing agency and implementing agency (IA) staff; and (iv) support through equally rapid action by the Government. Lessons learned from NECORD affirm that (i) beneficiary participation must be ensured during project preparation and implementation; (ii) environment and social aspects should be considered during project implementation, even though the need for rapid response may not permit a detailed treatment of these issues prior to the approval of the assistance; (iii) arrangements for disbursements should give ready and uncomplicated access to funds; (iv) focusing on physical infrastructure alone reduces the project value, therefore broader issues of assisting communities with regaining a productive life should be included; (v) the adopted approach should permit flexible adjustment of project design during implementation, as security and IDP movements require; (vi) criteria for subproject selection should permit simple prioritization and short implementation periods but must ensure a balance among communities and maximum benefits for the community; (vii) there is a need for close and frequent monitoring to ensure transparency and facilitate implementation; and (viii) there is a need to coordinate the large number of government and externally assisted rehabilitation programs in the affected areas. The Project, which will be implemented through the administrative systems established and operating under NECORD, has been carefully formulated to reflect each of these lessons learned. In addition, reflecting a lesson learned from the close international aid agency coordination in rehabilitation programs, and the need to provide a linkage between aid agency assistance and the peace process, the Project will be implemented within the framework of the Tokyo Declaration (para. 4). D. The Asian Development Bank s Strategy 13. The Project was formulated during the midterm review of NECORD, which undertook a review of all requirements and safeguard policies also applicable to the Project at that time. The Project is in line with the Government s Poverty Reduction Strategy, 7 which recognizes that peace is the key to reducing conflict-related poverty; peace is one of the six pillars of the strategy. 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 create a physically, economically, and socially sustainable environment for their reintegration. Also the Project is in line with the Poverty Partnership Agreement 8 between the Government and ADB, which states that ADB will assist in addressing conflict-related poverty. The Country Strategy and Program for Sri Lanka supports the Government's efforts in rehabilitating and reconstructing the conflict-affected areas. During the Tokyo Conference in June 2003, ADB again declared its commitment to provide peace-enhancing assistance to Sri Lanka. The proposed Project, which is based on the needs assessment and on wide consultation with the Government of Sri Lanka Regaining Sri Lanka - Connecting to Growth: Poverty Reduction Strategy. Colombo. ADB Poverty Reduction Partnership Agreement between Democratic Socialist Republic of Sri Lanka and the Asian Development Bank. Colombo. ADB Country Strategy and Program Manila.

16 5 Government, the LTTE, and others, will complement and augment the ongoing NECORD Project. III. THE PROPOSED PROJECT A. Objective 14. The goal of the Project is to rapidly improve the living conditions and well-being of the significant number of people in the areas badly affected by the conflict, particularly in the eight districts of the North East. The purpose is to restore basic social infrastructure and community service needs in these areas. The Project will support and augment the Government s rehabilitation and relief efforts already under way in the existing NECORD Project. B. Components and Outputs 15. The Project will address basic needs in the conflict-affected areas through health, education, agriculture, community, and income generation subprojects. Subprojects in each of these sectors will be selected and formulated in response to requests from conflict-affected persons and the Government. Restoration activities will focus on medium-scale subprojects designed to bridge community development with broader district-level improvements. For these types and scale of subprojects, land mine and unexploded ordnance contamination is not expected to be substantial; many proposed subproject sites, which were destroyed during the conflict, have already been cleared. However, provisions for obtaining clearance certification of subproject sites will be incorporated into each civil works contract. A list of potential subprojects is presented in Appendix Health 16. The health sector component will include replacement and rehabilitation of health facilities and hospitals destroyed or in serious disrepair. During preparation of NECORD, a detailed analysis of the health system in the North East was undertaken, which identified a list of hospital and health centers requiring reconstruction and refurbishment. In most instances, particularly for larger medical facilities, master plans had to be prepared prior to construction. As a result, and due to needs exceeding available resources under the NECORD project, several of these key health facilities still require rehabilitation. The project scope of health sector activities will include the restoration of critical referral medical facilities through hospital reconstruction and refurbishment, provision and replacement of medical equipment and furniture, construction of doctors quarters at hospital compounds, and rehabilitation of village health clinics. Although hospital staffing is generally satisfactory, an essential subproject selection criterion will stipulate sufficient availability of qualified staff to operate the rehabilitated facilities (as well as other existing facilities). Representative health sector subprojects proposed for implementation under the Project include (i) the reconstruction of the Chavakacheri Hospital, Jaffna district; (ii) rehabilitation and expansion of the Vavuniya General and Mannar Base hospitals; and (iii) rehabilitation of outpatient development wards in Batticaloa and at the Mahaoya Base Hospital, Ampara district. 2. Education 17. Subprojects in the education component will restore education services and facilities through (i) the reconstruction and rehabilitation of teaching facilities and school buildings serving

17 6 a large population area, (ii) construction of cluster-housing units for teachers in areas where existing housing is limited or unavailable, and (iii) provision of English-language training to existing teachers. The cluster-housing concept reflects a lesson learned from the original NECORD project education component. Schools would only be rehabilitated if teachers were available. Typically they were available, in the sense of being assigned to schools. However, the absence of accommodation in the more remote areas, since most housing had been destroyed, meant that their attendance was irregular. Since this problem did not arise wherever housing was available, the Project will address this problem by providing simple cluster housing where no suitable accommodation is available. Addressing these needs, including the housing issue, will help make schooling a continual and rewarding experience for students and enable them to make up for previous education opportunities lost. 3. Income Generation, Capacity Building, and Social Cohesion 18. This combined component of the Project will address several sectors through a variety of subprojects that restore livelihoods, provide opportunities for income generation, and support reconciliation and social cohesion. Livelihood opportunities will be provided in the agricultural and fisheries sectors through subprojects that promote livestock development and market gardening, provide facilities for seed production, and establish inland aquaculture and fishbreeding programs. A master plan for phased construction will be prepared to reestablish the faculty of agriculture of the University of Jaffna in Kilinochchi, subject to further review confirming availability of staff and operation and maintenance funding. Construction of key components, including provision for student and faculty housing, will promote education and training in the agriculture sector. Restoration of district agriculture centers will help assist rural farmers. Skills development and service training will also be provided for microenterprise development in areas such as horticulture, postharvest food processing, and the tourism and hotel industry. 19. Capacity building in the conflict-affected areas will be improved through subprojects that provide staff quarters for government employees in areas where accommodations are difficult to find or unavailable. Adequate housing will attract and retain greater numbers of quality staff into the North East, particularly into the areas hardest hit by the conflict. 20. As an example of the Project s focus on reconciliation, the cultural hall in Vavuniya strategically situated at the crossroads of the north and east will be restored. Although the cost is small, the facility and others like it will assist in reconciliation of the area s three ethnic communities and will provide residents and visitors with the opportunity to celebrate their culture and traditions away from reminders of the conflict. 21. The conflict also left a high percentage of female-headed households, particularly in fishing and agricultural communities. Specific training programs will focus on female-headed households in these areas. In addition, prototype programs will be developed to guide and assist vulnerable women s group s, such as fishers war widows in establishing income generating enterprises, ancillary units, and cooperatives in a secure environment. Lessons learned from these prototype programs will be applied on a larger scale in follow-on projects in the North East. C. Special Features 22. The Project has been formulated to address especially urgent basic needs and social services lost as a result of the 20-year conflict. Over the last two decades, the project area

18 7 served as a battleground of ethnic and communal tensions that led to the destruction of physical assets and erosion of human capacity. For a return to normal life in the area, social services must be restored, destroyed infrastructure must be rebuilt, and access to employment opportunities must be made available; the people must see a rapid and visible peace dividend as a reason not to return to conflict. The Project is therefore being processed and will be implemented expeditiously. Under ADB s procedures for providing rehabilitation assistance after disasters, guidelines can be flexibly interpreted in order to commence activities promptly. The procedures for project loan processing, procurement, consultant engagement, subproject selection, and the type of works to be done reflect this flexibility, without sacrificing quality, transparency, and safeguards. However, extra effort and time will be taken to provide proper targeting and adequate subproject control and monitoring, to ensure community participation and to address area resource capacity constraints. 23. The Project will introduce specific strategies to help change the perceptions and realities of women in the conflict-affected areas as victims and war widows. While seeking to reduce the poverty levels of women, the Project will also design specific measures to uplift the status of women in society. Subprojects will be developed to promote the advancement of women through economic activities that will empower them to control and manage their own resources in a sustainable manner. Case studies for development and implementation of prototype programs will be undertaken in two fishing areas that have a high number of female-headed households to help establish replicable women s industrial centers. Lessons learned from these prototype programs will be applied in follow-on projects in the North East for wider development of these women s industrial centers. Consultant guidance and assistance will be provided, first to assess and develop the programs, then to serve as catalysts for establishing the centers; beneficiary women s groups themselves will undertake the majority of the work involved in the formation and establishment of these prototype centers. By providing a secure environment to conduct such activities, these pilot centers will also create an enabling environment to promote women s confidence and entrepreneurship. Thus, the Project will be instrumental in starting a process of uplifting the status of women in the conflict zones from positions of vulnerability to that of economic independence and stability. The Project will build on existing networks, namely the district women's rural development societies and involve the cooperation of women s NGOs to be identified at the implementation stage. The process of delivering the prototype programs is outlined in Appendix 6. D. Cost Estimates 24. The total project cost is estimated at $14.3 million, comprising $5.5 million (38%) in foreign exchange and $8.8 million equivalent (62%) in local currency costs. A summary cost estimate is shown in Table 1. Detailed project costs and the financing plan are provided in Appendix 7.

19 8 Table 1: Cost Estimates a ($ million) Item Foreign Exchange Local Currency Total Cost Project Works Health Education Agriculture/Fisheries Other/Social Cohesion/Capacity Building Skills/Training/Gender Equipment Consulting Services/Coordination b Subtotal Interest During Implementation Total % ADB = Asian Development Bank. a Including landmine and unexploded ordnance clearance, consulting services, project management, taxes, and duties. b Including project coordination, consulting services, incremental expenditures, and independent audit, as necessary. Source: Asian Development Bank and NECORD project management unit estimates. E. Financing Plan 25. The Government has requested that ADB finance 70% of the cost of the activities to be undertaken under the scope of the Project with a loan not exceeding the equivalent of $10 million from ADB s Special Funds resources. The Borrower will be Sri Lanka. Cofinancing to finance items such as equipment and furniture for medical or educational facilities is being sought and is expected to be provided during the course of the Project. 10 The term of the loan will be 40 years, including a grace period of 10 years, with repayment of principal at 2% per year for the first 10 years after the grace period and 4% a year thereafter, to be paid semiannually, with an interest charge at the rate of 1% per annum. The Government will finance the remaining cost of $4.3 million (30% of total cost) in local currency, including taxes and duties. Source Table 2: Financing Plan ($ million) Foreign Exchange Local Currency Total % Asian Development Bank Government Total Source: Asian Development Bank estimates. 10 Cofinancing will similarly continue to be sought for NECORD, independently of the Project.

20 9 F. Implementation Arrangements 1. Project Management 26. The project management arrangements described here reflect the present government administration structure in the North East, and may change during project implementation. The Project s loan agreement addresses this by referring to successor entities and arrangements satisfactory to ADB. 27. The Project will be implemented using the same process approach and follow the same implementation arrangements already in place and working quite successfully on NECORD as described below: (i) (ii) (iii) (iv) (v) The Governor of the Northern and Eastern provinces will be the overall coordinator for the Project, in particular managing the critical interaction between provincial authorities and the security services. The Ministry of Provincial Councils and Local Government (MPCLG) or its successor entity, acceptable to ADB, will be the Executing Agency. The North East Provincial Council (NEPC) under direction of the chief secretary will be the IA, acting through its provincial departments and agencies. The National Project Coordination Committee (NPCC) will be chaired by the secretary of MPCLG and will include representatives of the ministries responsible for rehabilitation in the project area, as well as the Ministry of Defence and the Ministry of Finance; line ministries including Health, Education, Agriculture; the project director; and others as appropriate. The chief secretary of NEPC will also be a member of NPCC. ADB and the German Government s Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), which have provided a team of international and domestic specialists to assist the project management unit (PMU) in the administration of NECORD, will be represented on NPCC. Among other responsibilities, NPCC will (a) review subprojects approved by the Provincial Project Coordination Committee (PPCC) ensuring that these comply with the subproject selection criteria, and are distributed appropriately among communities and areas; (b) monitor overall project implementation; (c) resolve serious implementation problems, in particular those related to access of personnel, equipment, and materials into the project area; and (d) provide top level coordination with other national government agencies and projects involved in relief and rehabilitation. NPCC will meet as required, but at least quarterly. PPCC will be chaired by the chief secretary of NEPC and will include the government agents for the districts making up the project area, representatives of the provincial departments relevant to the Project, the security forces, the project director, the leader of the GTZ management team, a representative of ADB, and others as appropriate. PPCC will meet on a regular basis, but not less than quarterly. Meetings generally will be held in Trincomalee, but from time to time in other district capitals. Among other responsibilities, PPCC will (a) review and approve subprojects ensuring that these are distributed appropriately among communities and areas; (b) monitor implementation of the approved subprojects; (c) resolve implementation problems, in particular those related to access of personnel, equipment, and materials into the

21 10 project area; and (d) coordinate with other agencies and projects involved in relief and rehabilitation. (vi) (vii) The Government will ensure that the existing PMU under NECORD established in Trincomalee will be appropriately strengthened and maintained for the duration of the Project to allow the PMU to perform its obligations under the Project. The PMU will be headed by the project director, who will have direct responsibility for implementing the Project, through the existing provincial and central government sector agencies, and for ensuring that the essential balances among communities are monitored and maintained. The PMU will manage and coordinate subprojects through existing structures and procedures at the provincial, district, and division levels. PMU will act as the secretariat for NPCC and PPCC. The PMU may engage suitably qualified and acceptable international and domestic NGOs for management of specific activities in the Project in accordance with procedures acceptable to ADB. District project management units (DPMUs) established in each district under NECORD will closely monitor the implementation of district subprojects and report to the PMU. A deputy project director, who will directly implement smaller-scale subprojects at the district and divisional levels, will head each DPMU. District-level project organizations will make use of the existing structures of the Government to the extent possible, including district coordination committees. The government agents will act as secretaries to these committees and provide initial screening of subproject proposals prior to their submission to PMU and PPCC. The project organization in each district will be headed by a deputy project director, and will take direct responsibility for implementing the Project at the district and division levels. 28. The February 2004 midterm review of the NECORD Project confirmed that the PMU and the DPMUs would be able to manage the additional workload at current staffing levels. However, given the likelihood of similar follow-on projects and the potential for additional funding for other external sources of assistance, the need may arise for additional project staff. The Government agreed to provide the PMU and the IA with additional staff if required, as part of the Government s contribution to the Project. 29. The scope of the GTZ-provided technical assistance was modified somewhat during the NECORD project midterm review; the technical assistance, which has been particularly effective for the Community Development component of the NECORD Project, will provide wider support through the NEPC in areas such as planning, human resource development, and monitoring on any projects ongoing in the North East, with a focus on impact monitoring, capacity building, and sustainability. The GTZ assistance will be available to the Project as needed on a preferential basis. 30. Given the complexity and sensitivity of the Project and the need for close coordination with the actors in the North East Government, LTTE, external assistance agencies, NGOs, and others the Project will be administered through ADB s Sri Lanka Resident Mission in Colombo, as is presently the case for the NECORD and CAARP projects. 2. Selection and Approval of Subprojects 31. Subprojects will be selected to ensure equitable distribution of rehabilitation activities across all the affected districts taking into account geographic and sector balances along with