The World Bank · The World Bank . Report No: ... the internal and external audits of LAs, (c) ......

Document of

The World Bank

Report No: 78082-LK

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

AND

ADDITIONAL FINANCING

IN THE AMOUNT OF US$20.3 MILLION

GRANT FROM THE AUSTRALIAN DEPARTMENT OF FOREIGN AFFAIRS AND TRADE (DFAT)

TO THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

FOR THE

NORTH EAST LOCAL SERVICES IMPROVEMENT PROJECT (NELSIP)

(MAY 10, 2013)

April 11, 2014

Sustainable Development Department Rural Development and Livelihoods Unit South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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ii

CURRENCY EQUIVALENTS

(Exchange Rate Effective February 1, 2014)

Currency Unit = Sri Lankan Rupee (Rs) Rs 132 = US$1

US$ 1.53 = SDR 1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ACLG Assistant Commissioner of Local Government

ADB AF APRC

Asian Development Bank Asia Foundation All Party Representatives Conference

CAS Country Assistance Strategy CBC Community-Based Contracting CBO Community Based Organization CDD Community Driven Development CEA Central Environmental Authority CFAA Country Financial Accountability

Assessment CLG Commissioner of Local Governments CQ CWSSP

Consultants’ Qualifications Community Water Supply & Sanitation

DA Designated Account DC Direct Contracting DFAT DPS DSD

Department of Foreign Affairs & Trade Designated Procurement Specialist Divisional Secretary Division

EIA Environmental Impact Assessment EMP Environment Management Plan ENREP Emergency Northern Recovery Project ESAMF Environmental and Social Assessment

Management Framework ESMF Environmental and Social Management

Framework FAO FBS

Food and Agriculture Organization Fixed Budget Selection

FM Financial Management FMIS Financial Management Information

Systems FMR Financial Management Report FR Financial Reports GA

Government Agent

GNDs Gram Niladhari Divisions GoSL Government of Sri Lanka GPN GTZ

General Procurement Notice German Technical Cooperation

IC Individual Consultants ICB International Competitive Bidding IDA IEC

International Development Association Information Education and Communication

IFAD IMF

International Fund for Agricultural Development International Monetary Fund

IOM IPDP ISDS

International Organization for Migration Indigenous Peoples Development Plan Integrated Safeguards Data Sheet

IUFR Interim Unaudited Financial Reports JICA LA LADP LAPIM LGIIP LKR

Japan International Cooperation Agency Local Authority Local Authority Development Plan Local Authority Project Implementation Manual Local Government Infrastructure Improvement Project Sri Lankan Rupees

MC Municipal Council MDTU M&E

Management Development and Training Unit Monitoring and Evaluation

ML&E Monitoring, Learning and Evaluation

iii

MNB Ministry of Nation Building (Short name for the Ministry of Nation Building and Estate Infrastructure Development)

MoFP Ministry of Finance and Planning MOU Memorandum of Understanding MTR Mid Term Review NCB National Competitive Bidding NEA NELSIP NGO NIRP

National Environment Act North East Local Services Improvement Project Non-Governmental Organization National Involuntary Resettlement Plan

NPA NPC NPSC

National Procurement Agency Northern Provincial Council National Project Steering Committee

OM OP/BP

Operation Manual Operational Policy/Bank Policy

PAD Project Appraisal Document PC Provincial Council PCN Project Concept Note PDO Project Development Objective PIC Project Implementation Cell PM PPCC

Praja Mandalaya Provincial Planning and Coordination Committee

PS Pradeshiya Sabha PTF Presidential Task Force QBS Quality-Based Selection QCBS Quality and Cost Based Selection RAP Reawakening Project (popular name

For Community Livelihoods in Conflict Affected Areas Project)

RFP Request For Proposal SBD Standard Bidding Document SEC SLILG

State Engineering Corporation Sri Lanka Institute of Local Government

SWAP Sector Wide Approach SSS Single-Source Selection

UC UNDB

Urban Council United Nations Development Business

UNDP United Nations Development Program

UNHCR UNICEF UNOPS USAID

United Nations High Commissioner For Refugees United Nations Children’s Fund United Nations Office for Project Services US Agency for International Development

VDP Village Development Plan WA WFP

Withdrawal Application World Food Program

Vice President: Philippe H Le Houerou Country Director: Francoise Clottes

Sector Director: Jack Henry Stein Sector Manager: Shobha Shetty

Task Team Leader: Seenithamby Manoharan

iv

SRI LANKA SRI LANKA: NORTH EAST LOCAL SERVICES IMPROVEMENT PROJECT (NELSIP)

P118870 CONTENTS

Page

Project Paper Data Sheet v

Project Paper

I. Introduction 1

II. Background and Rationale for Additional Financing 1

III. Proposed Changes 2

IV. Appraisal Summary 4

Annexes

1. Revised Results Framework and Monitoring Indicators 8

2. Operational Risk Assessment Framework 14

3. Allocation of Proceeds 18

4. List of New LAs in Adjoining Provinces 20

v

SRI LANKA

NORTH EAST LOCAL SERVICES IMPROVEMENT PROJECT

ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF) Country Director: Francoise Clottes Sector Manager/Director: Shobha Shetty/John H. Stein Team Leader: Seenithamby Manoharan Project ID: P150140 Implementation Effectiveness Date: May 5, 2014 Lending Instrument: Investment Project Financing Additional Financing Type: Scale-up

Sectors: Roads and highways (60%); Subnational government administration (20%); Water supply (10%); Irrigation and drainage (10%) Themes: Rural services and infrastructure (25%); Participation and civic engagement (25%); Conflict prevention and post-conflict reconstruction (25%); Decentralization (25%)Environmental category: B – Partial Assessment Expected Closing Date: December 31, 2015 Joint IFC: No Joint Level:

Basic Information - Original Project Project ID: P113036 Environmental category: B- Partial

Assessment Project Name: North East Local Services Improvement Project

Expected Closing Date: December 31, 2015

Lending Instrument: Sector Investment Lending (SIL)

Joint IFC: No Joint Level:

AF Project Financing Data [ ] Loan [ ] Credit [X ] Grant [ ] Guarantee [ ] Other: Proposed terms:

AF Financing Plan (US$m) Source Total Amount (US $m)

Total Project Cost: Cofinancing (Australian Department of Foreign Affairs and Trade – DFAT) Beneficiary Borrower:

Total Bank Financing: IDA

New Recommitted

20.30 20.30

Client Information

vi

Recipient: Ministry of Finance and Planning, Democratic Socialist Republic of Sri Lanka Responsible Agency: Ministry of Economic Development 464/A, T.B. Jaya Mawatha, Colombo 10 Contact Person: Mr. Monty Balasooriya, Project Coordinator Telephone No.: 077-9371267 Fax No.: 011-238-2066 Email: [email protected]

AF Estimated Disbursements (Bank FY/US$m) FY 2010 2011 2012 2013 2014 2015 Annual 10 10.3 Cumulative 10 20.3

Project Development Objective and Description

vii

Original Project Development Objective (PDO) is to support local authorities in the Northern and Eastern Province to deliver services and local infrastructure in a responsive and accountable manner. Revised Project Development Objective is to support local authorities in the Northern Province, the Eastern Province and Adjoining Provinces to deliver services and local infrastructure in a responsive and accountable manner. The project components and implementation arrangements remain unchanged. Component 1: Infrastructure Service Delivery: The objective of this component is to improve the quantity and quality of public goods delivered and maintained by Local Authorities (LAs). These may include rural roads, drains, culverts and bridges, public buildings, markets and fairs, waste disposal, rural water supply, parks, recreation facilities and libraries, nursery schools, playgrounds and dispensaries. Component 2: Institutionalizing Accountabilities: This component aims at ensuring that LAs undertake public expenditures and deliver local services in a transparent and accountable manner. It will strengthen upward and downward accountability systems at the LAs and will support: (a) transparent and independent annual financial audits of LAs to ensure their financial accountability; (b) social and technical audits of public expenditures undertaken by LAs to ensure effective use of funds in line with citizen expectations; and (c) systems and processes to bring greater transparency in LA affairs and strengthen citizen voice in planning, budgeting and monitoring. This component will also support an Information Education & Communication (IEC) campaign aimed at disseminating project related information to different stakeholders at all levels. Component 3: Building Capacities: This component aims at strengthening the service delivery systems and capacities of the LAs to deliver their mandated services as well as strengthening the monitoring capacities of the provincial and national level institutions. It will support (a) improving the efficiency of current systems and procedures relating to planning, budgeting, financial management, revenue management and procurement at the LA level, (b) improving the efficiency, timeliness and follow up of the internal and external audits of LAs, (c) training elected representatives and staff of LAs on financial management, procurement and project management, (d) providing effective hand holding support to LAs on day to day basis, and (e) developing a long term capacity building strategy for LAs. It will also support the strengthening of the capacities of the national and provincial level institutions that play a critical role in the support and oversight of local government functions. Component 4: Assessments and Evaluation: This component will finance: (i) activities pertaining to establishing a comprehensive monitoring system, including baseline assessment, repeater surveys of social assessments, social accountability assessment, and capacity assessments; (ii) evaluating technical and social audits and preparation of citizens score cards; and (iii) other needed analysis as and when they are needed. Component 5: Project Management: This component will support the key agencies at the central, provincial and local levels that are involved in the day to day management of the project to procure necessary consultant, equipment and operational support for the smooth implementation of the project.

Safeguard and Exception to Policies

viii

Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)

[X]Yes [ ] No [X]Yes [ ] No [ ]Yes [X] No [ ]Yes [X] No [X]Yes [ ] No [ X ]Yes [ ] No

[ X ]Yes [ ] No [ ]Yes [X ] No [ ]Yes [X] No [ ]Yes [X] No

Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management?

[ ]Yes [X] No [ ]Yes [ ] No

Conditions and Legal Covenants: Financing Agreement Reference Description of

Condition/Covenant Date Due

DFAT Grant Agreement Completion of financial management assessment of LAs in adjoining provinces

Disbursement Condition

1

SRI LANKA: NORTH EAST LOCAL SERVICES IMPROVEMENT PROJECT (NELSIP)

PROJECT PAPER

I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide Additional Financing and a Level-1 restructuring of the Sri Lanka North East Local Services Improvement Project (NELSIP) (P113036)(Cr 4728 LK). 2. The proposed changes include: (i) revising the Project Development Objective (PDO) to reflect the expansion in the Project Area; (ii) changes related to the revisions of the results framework; and (iii) revise financial allocations among the project components. The proposed Additional Financing in the amount of US$ 20.3 million would help finance the costs associated with expanding the project area to war affected adjoining districts of Anuradhapura, Polonnaruwa, Puttalam and Moneragala. .

II. Background and Rationale for Additional Financing in the amount of US$ 20.3 million 3. The original objective of the Project is to support local authorities in the Northern and Eastern Provinces to deliver services and local infrastructure in a responsive and accountable manner. NELSIP has been designed to cover a five-year period (2010-2015), and has a total original budget of US$ 86 million, of which the IDA contribution amounted to US$ 50 million and Government of Sri Lanka (GOSL) and beneficiary contributions amounted to US$ 34 million & US$ 2 million respectively. 4. The Credit was approved on May 13, 2010 and it became effective on December 15, 2010. The Credit will close on December 31, 2015. The total cumulative disbursement to-date is 82.7%. Achievements of the project to date are quite substantial in terms of expected outputs under each of the project components. The latest ISR ratings of the project are Moderately Satisfactory (in terms of implementation progress) and Satisfactory (in terms of progress towards achievement of the PDO). 5. While NELSIP has hitherto been focusing on strengthening local infrastructure service delivery in the North and East Provinces to help them address the service delivery deficits caused by the prolonged civil war, it needs to be recognized that there are LAs who are at the fringe of the NELSIP Project area but nevertheless bore a significant brunt of the spillover effects of the conflict. Districts like Moneragala, Polonnaruwa, Anuradhapura and Puttalam in the adjoining provinces were affected during the conflict which resulted in a severe strain on their already thin stretched infrastructure and service delivery systems. Hence the Government of Sri Lanka is desirous of extending the scope of NELSIP to selected LAs in the adjoining provinces that were significantly impacted during the conflict. 6. To support the GoSL in addressing these critical priorities, Australian Department of Foreign Affairs and Trade (DFAT) is partnering with the GoSL and the World Bank to expand the scope of the current NELSIP project by providing additional grant of US$ 20.30 million thereby increasing the total resource outlay of the project to US$ 106.30 million. DFAT contribution will help to strengthen

2

the programmatic approach followed in NELSIP and will supplement the existing contributions made by the GoSL and International Development Association (IDA) and will enable GoSL to increase the resources available for meeting the backlogs of capital investments to a considerable extent as well as to enhance the institutional strengthening initiatives of NELSIP to introduce a performance based framework for local government support.

7. Building upon the existing initiatives for strengthening institutional systems and processes of LAs in the North and East, the Project also intends to introduce an incentive based framework for local governance by piloting a Performance based grant that will reward superior institutional performance by LAs on three broad areas viz (1) LA Management (2) Good Governance and (3) Service Delivery. The additional financing provided by DFAT will be commingled with the existing resources of NELSIP. Also the existing design of the NELSIP work program will continue unchanged and only those additional activities that will complement and enhance the impact of the current NELSIP design and work program are included. No formal project changes are required in respect of the performance grant and this could be accommodated within the project operating manual without changing the legal agreement.

8. The implementation arrangements for the NELSIP Project will continue as it is under the existing project with minor modifications made to incorporate the role of DFAT in Project supervision and management. Fine tuning the subproject approval processes at district level in the Northern Province and any other Province to facilitate participation of elected public representatives from the newly constituted Provincial Council could be effected by conducting district level coordinating committee meetings as and when required and this arrangement will not need any changes in the LAPIM. Strengthening the monitoring mechanism of the Ministry of Economic Development (MED) is assured through introducing MED in redefining the recipient in the FA.

9. Following the MTR, in November 2013, both parties agreed to (i) fine tune the subproject clearing mechanism at district level in the Northern Province or adjoining Provinces to facilitate participation of all district level legislators and administrative authorities as a result of the new Provincial Council; (ii) strengthen the monitoring aspects of the Ministry of Economic Development; (iii) use DFAT grant to co-finance the IDA Credit of the Project; (iv) expand the project area to war affected adjoining districts of Anuradhapura, Polonnaruwa, Puttalam and Moneragala; and (v) revise financial allocations among the project components. III. Proposed Changes Revised Project Development Objective 10. The PDO is revised to include provinces adjoining Northern and Eastern Provinces in the project area. The revised PDO is to support Local Authorities in the Northern Province, the Eastern Province and the Adjoining Provinces to deliver services and local infrastructure in a responsive and accountable manner.

11. The Project components will remain unchanged. The revised amounts of the components with Additional Financing from DFAT are (a) Component A: Infrastructure Service Delivery (original amount is US$ 76.00 million and the revised amount is US$ 89.80 million); (b) Component B: Institutionalizing Accountabilities (original amount is US$ 2.00 million and the revised amount is

3

US$ 1.00 million); (c) Component C: Building Capacities (original amount is US$ 4.00 million and revised amount is US$ 12.00 million); (d) Component D: Assessment & Evaluation (original amount is US$ 1.00 million and the revised amount is US$ 1.00 million); and (e) Component E: Project Management (original amount is US$ 3.00 million and the revised amount is US$ 2.50 million). The savings in Component B and E are due to extensive use of existing government staff at national, provincial, district and local levels. Component C is increased considerably as a result of the subsequent request of the GOSL to reconstruct local authority office buildings that were damaged during the war. This reconstruction is taking place at the original locations and therefore does not trigger any safeguard issue outside the agreed Environmental Safeguard Management Framework (ESMF). All the above building works will be completed before December 31, 2014.

Financing Plan (Component Wise) Project Costs (US$ Million) Component GOSL

Contribution Beneficiary Contribution

Prior to Restructuring

After Restructuring (Proposed)

Total Funding After Restructuring

GOSL Beneficiary IDA IDA DFAT IDA + DFAT+ GOSL+BEN Component A: Infrastructure Service Delivery

33.00

2.00

41.00

36.50

18.30

89.80

Component B: Institutionalizing Accountabilities

0.00

0.00

2.00

0.50

0.50

1.00

Component C: Building Capacities

0.00

0.00

4.00

11.50

0.50

12.00

Component D: Assessments and Evaluations

0.00

0.00

1.00

0.50

0.50

1.00

Component E: Project Management

1.00

0.00

2.00

1.00

0.50

2.50

TOTAL 34.00 2.00 50.00 50.00 20.30 106.30

Financing Plan (Total) Source Local Foreign Total Beneficiary 02.00 00.00 02.00 Borrower/Recipient 34.00 00.00 34.00 IDA 50.00 00.00 50.00 DFAT 20.30 00.00 20.30 TOTAL 106.30 00.00 106.30

Project Financing 12. The total project financing including grants released, implementing the balance work and the expansion of NELSIP activities into proposed new 22 LAs in the adjoining four districts is US$ 106.30. This will be allocated to each of the major project component as follows; (a) Component A: Infrastructure Service Delivery - US$ 89.80 million (b) Component B : Institutionalizing

4

accountabilities- US$ 1.00 million (c) Component C: Building Capacities-US$ 12.00 million (d) Component D: Assessment & Evaluation – US$ 1.00 million and Component E: Project Management – US$ 2.50 million. Other Changes 13. Approval is sought to effect the following amendments to include:

Education and communication campaign will include “Disseminating Project related information to stakeholders and strengthening demand-side approaches to local governance”. Replace “Recipient” with “Recipient, through MED”. Replace the existing paragraph in the Financing Agreement on “Review by the World bank of Procurement Decisions” with “The Procurement Plan shall set forth those contracts which shall be subject to the Association’s Prior Review. All other contracts shall be subject to Post Review by the Association”.

Financing Plan for the Project and the table specifying the categories of Expenditures in Section IV A.2 shall be revised to read as in Annex 3, while “Percentage of Expenditures to be Financed (including taxes)”, remain unchanged. “Project Output Indicators” of Annex 1 to Schedule 2 shall be modified as shown in Annex 1.

IV. Appraisal Summary 14. Economic Analysis: The project has already demonstrated significant economic and social benefits in the form of greater efficiency and effectiveness in delivering basic social services as well as improved local governance by strengthening local planning processes and accountability. Because the LAs have discretion in the selection of public investments to be financed by capital grant funds, it is not possible to determine ex ante the precise composition of investments to be made. The project also provides capacity support on basic revenue mobilization and administration through training that emphasizes alternate sources of local revenues, rules and procedures for better collection and administration of local revenues. 15. Technical: The initial assessment of the LAs in the adjoining provinces has been completed by MED and an action plan has been drawn to commence capacity building activities in LAs that have not qualified to receive project grants. Adequate staff is available in the LAs and Local Government Departments to execute the project activities in the adjoining Provinces. A plan to release the first tranche in full has been prepared by MED and the subprojects are also identified. Revision of Local Authority Project Implementation Manual (LAPIM) will be completed by April 15, 2014. A plan for second tranche will be prepared in April 30, 2014. No formal project changes are required in respect of the performance grant and this could be accommodated within the project operating manual without changing the legal agreement. Fine tuning the subproject approval processes at district level in the Northern Province and any other Province to facilitate participation of elected public representatives from the newly constituted Provincial Council could be effected by conducting district level coordinating committee meetings as and when required and this arrangement will not need any changes in the LAPIM. Strengthening the monitoring mechanism of the Ministry of

5

Economic Development (MED) is assured through introducing MED in redefining the recipient in the FA. 16. Financial Management: The additional financing provided by DFAT will be commingled with the existing resources of NELSIP. Hence, the sources of funds are indistinguishable to the Government of Sri Lanka and it is proposed that a common designated USD account and common local bank accounts be used for all NELSIP funds. It is also proposed that a single set of accounting records are maintained and a set of interim financial reports consolidating all sources of funds including DFAT funds are prepared. A common audit report will be prepared for covering all NELSIP activities. New agencies, such as 22 new LAs and Provincial Finance Departments which have not been assessed under the original project and expected to be supported with the additional financing, will be subjected to a detailed Financial Management assessment. A disbursement condition will be placed on the sub-grants to be disbursed to the 22 new LAs in the adjoining provinces until successful Financial Management assessment is completed. There are no overdue audit reports for the exiting project or any other project that is being implemented by MED. 17. Procurement: Procurement under the Grant would be carried out in accordance with the applicable guideline for NELSIP i.e. World Bank’s "Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 6 2011”; and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers dated January 2011", and the provisions stipulated in the Legal Agreement. The overall procurement risk is rated Substantial, based on an assessment of capacities of the PMU for NELSIP and LAs who will implement this grant. Staff of Project Management Unit (PMU) and LAs has gained knowledge on procurement during the implementation of the NELSIP. Annual procurement progress reports will be provided to the Bank, which will include status updates, procurement audit reports, and an analysis of agreed procurement indicators. The Operational Manual used by NELSIP will be applicable to this grant as well. Procurement plans will be prepared based on the implementation plans, and reviewed by and agreed with the Commissioners Local Government (CLGs). Specific activities in the procurement plans will be earmarked for IDA financing under the Grant. The LAPIM will provide thresholds and guiding principles on methods and timing for each contract to be financed by the Grant, which will be agreed between the Recipient and the Bank. Procurement Plans will be updated at least annually or as required to reflect the actual implementation needs and improvements in institutional capacity. The Bank will carry out post review of procurement actions annually on a sample basis. Applicable Prior Review Thresholds are shown in the Table below: Expenditure Category

Contract Value (Threshold)

Procurement Method

Contracts/Processes Subject to Prior Review

Works >= US$7,500,000 ICB All contracts.

<US$7,500,000

NCB

All contracts over US$10million equivalent.

<=US$50,000 Shopping All contracts subject to post review.

Goods >=US$1,000, 000 ICB All contracts.

<US$1,000,000 NCB All contracts subject to post review

6

Expenditure Category

Contract Value (Threshold)

Procurement Method

Contracts/Processes Subject to Prior Review

<=US$50,000 Shopping All contracts subject to post review

DC All contracts costing more than US$50,000 equivalent.

Consultant Services (firms)

>=US$300,000 All competitive methods; advertise internationally

All contracts over US$ 0.5 million equivalent

<US$300,000 All competitive methods; advertise locally

All contracts subject to post review

<US$300,000 CQS All contracts subject to post review

SSS All contracts costing more than US$50,000 equivalent. All other contracts subject to post review.

Individual Consultants

IC ( (Section V of Consultant Guidelines)

All contracts over US$200,000 equivalent. All other contracts subject to post review.

IC- Sole source All contracts costing more than US$50,000 equivalent. All other contracts subject to post review.

18. Social: The social safeguard compliance will be monitored according to the guidelines and procedures stipulated in the original Environment and Social Management Framework (ESMF). According to the original project design, OP/BP 4.12 will be triggered here also, even though no land acquisitions or involuntary resettlements were observed by any of the sub project infrastructure interventions. The Project Implementation Unit (PIU) is responsible to follow these ESMF guidelines and need to ensure that no private land purchase or land acquisitions take place under the project. Also the experience from sub project implementation for the last two years suggest that the LAs have attempted to implement subprojects within the existing physical boundaries or acquired lands from public agencies with due legal process. This will be the most likely scenario for the expanded project activities but the PIU staff is responsible to take adequate measures to avoid negative social implications arising from the project interventions. 19. Environment: While the scope of the project has been expanded with the additional contribution from the DFAT, the activities supported by the project will be within the area identified in the parent project. The project is therefore continued to be classified as Safeguards Category “B”. The ESMF prepared by MED for the parent project, which provides the directions to: (1) identify subprojects or activities that will be supported by the project; (2) identify the sub-projects or activities that will require GOSL clearances based on the National Environmental Act (NEA); and (3) the process of conducting Environmental Assessment (EA) and preparation of Environmental Management Plans (EMP) for each activity based on the NEA and World Bank OP/BP 4.01 – Environmental Assessment and OP/BP 4.04 – Natural Habitats will continued to be applicable for the DFAT contribution.

7

20. Supervision Strategy: Implementation review and support to the NELSIP will continue to be provided by the Task Team under the overall responsibility of the World Bank Task Team Leader (TTL). The Task Team will comprise of staff from the World Bank who will review the progress in Program implementation and provide advice and suggestions to the Project Coordination Unit (PCU) based at the MED as necessary. The Task Team and members of DFAT will conduct implementation review and support missions at periodic intervals that will review the quality of project implementation at all levels and make recommendations for improvements as necessary.

8

Annex 1: Updated Results Framework and Monitoring

SRI LANKA: North East Local Services Improvement Project (NELSIP)

Revisions to the Results Framework Comments/ Rationale for Change

PDO

Current (PAD) Proposed The objective of the Project is to support local authorities in the Northern and Eastern Provinces to deliver services and local infrastructure in a responsive and accountable manner.

The objective of the Project is to support local authorities in the Northern and Eastern Provinces and Adjoining Provinces to deliver services and local infrastructure in a responsive and accountable manner.

The geographical focus of the Project area is expanding to the four wars affected districts (Anuradhapura, Polonnaruwa, Puttalam and Moneragala) of Provinces adjoining the Northern and Eastern Provinces.

PDO indicators

Current (PAD) Proposed change* Construction/rehabilitation of (i) rural and other village roads (km), (ii) drainage systems (m), (iii) water points (no), (iv) pipe water connections (no of households), (v) playgrounds and nursery facilities (no), (vi) markets and maternity homes, (vii) rural electrification (km), and (vii) Others to be tracked as they occur (see eligible list of potential investments).

No change in indicators, continued. The end of project target values are increased as follows: From 1,000 km to 1,250 km From 250 m to 300 m From 50 no to 100 no From 500 hh to 600 hh From 400 no to 450 no From 5 no to 10 no From 80 km to 100 km

There is increase in the end of project target value, due to expansion of Project area.

Percentage of capital grants released against allocation

No change, continued.

Rising satisfaction of local people with service delivery by LAs.

No change, continued.

Intermediate Results indicators

Current (PAD) Proposed change* Component 1: Capacity Building, Communications and Information Support

9

Revisions to the Results Framework Comments/ Rationale for Change

Number of LAs preparing annual financial statements within 6 months after close of the financial year.

No change in indicators, continued. The end project target value has increased from 60 to 70.


Number of acceptable audit opinions of LA accounts.



Number of LAs with budgets prepared in a participatory manner



10

Annex 1(a) Proposed Revisions to Project Results Framework and Justification

Project Development Objective (PDO): The objective of the Project is to support local government authorities in the Northern and Eastern Provinces of Sri Lanka to deliver services in local infrastructure in a responsive and accountable manner. Revised Project Development Objective (PDO): The objective of the project is to support local authorities in the Northern and Eastern Provinces and Adjoining Provinces to deliver services and local infrastructure in a responsive and accountable manner. .

PDO Level Results Indicators1

• C

ore UOM2

Baseline Original Project start (2009)

Progress To Date (2012)3

• Cumulative Target Values4

Frequency Methodology Responsibility for Data Collection

Comments 2013 2014 2015

Construction/rehabilitation of (i) rural and other village roads (km), (ii) drainage systems (Km), (iii) water points (no), (iv) pipe water connections (no of households), (v) playgrounds, markets and nursery facilities (no), (vi) maternity homes, (vii) rural electrification, (viii) waste collection facilities and (ix) others to be tracked as they occur (see eligible list of potential investments).

X

Km Km No No No No Km No

0

0

0

0

0

0

0

0

303 21 16

700

200

439

300

0

50

1,000

250

50

500

400

5

80

1,250

300

100

600

450

10

100

Annually

Quarterly and Annual Reports; Expenditure Tracking System; Social, Environment and Technical audits; and Surveys.

PCU (MED), CLGs/PMUs, ACLGs and LAs

Original project targets have been increased to accommodate the target from DFAT funds and new areas.

1 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance – please see http://coreindicators).

2 UOM = Unit of Measurement. 3 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 4 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the “Comments” column.

http://coreindicators/

11



• C

ore UOM2





Comments 2013 2014 2015

Percentage of capital grants released against allocation.

Percent

0

70

70 70 70 Annually Annual Budgets

CLGs and DCS (Finance)

Original indicator retained

Rising satisfaction of local people with service delivery by LAs.

X Percent 0 87 80 80 80

Annually, Mid Term Review and Project closure

Service Delivery surveys including citizen Score Cards

PCU (MED), CLGs (PMUs) and LAs

Original indicator retained

Intermediate Results and Indicators

Intermediate Results Indicators

Cor

e

Unit of Measure

ment

Baseline Original Project Start (2009)

Progress To Date (2012)

Target Values

Frequency Data Source/ Methodology

Responsibility for Data

Collection Comments 2013 2014 2015

Component 1: infrastructure Service Delivery Support

Intermediate result indicator 1. Funds released to LAs for subproject implementation, as a % of total cost.

% 80 100 100 100 Quarterly Progress reports

PCU New Indicator

Intermediate result indicator 2. Community contribution in the total project cost.

% 1.0 1.2 1.5 2.0 Quarterly Progress reports

PCU New Indicator

Intermediate result indicator 3 Subprojects for which arrangements for community engagement in post project sustainability

X % 60 80 80 80 Quarterly Progress reports

PCU New Indicator

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• C

ore UOM2





Comments 2013 2014 2015

and O&M are established.

Component 2: Institutionalizing Accountabilities

Intermediate result indicator 1: Number of LAs preparing annual financial statements within 3 months after close of the financial year.

No 0 75 60 70 70 Annually Annual progress Reports

CLGs and Internal Auditors of Provincial Councils


Intermediate result indicator 2: Number of acceptable audit opinions of LA accounts.

No 0 75 60 70 70 Annually Annual progress Reports

Auditor General’s Office


Intermediate result indicator 3: Grievance registered related to delivery of project benefits that are actually addressed.

X % 90 80 80 80 Annually Annual progress Reports

Progress reports of PMUs and PCU

New Indicator

Component 3: Building Capacities

Intermediate result indicator 1: Number of LAs with budgets prepared in a participatory manner

No 0 45 60 70 70

Annually, Mid Term and Project Closure

Annual Progress Reports, Citizen Score Cards & Social Audits

CLGs / DCS (F)


Intermediate result indicator 2: People in the project area aware of the subproject priority targeting criteria.

X % 90 80 80 80

Annually, Mid Term and Project Closure

Annual Progress Reports, Citizen Score Cards & Social Audits

CLGs / DCS (F)

New Indicator

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• C

ore UOM2





Comments 2013 2014 2015

Component 4: Assessments and Evaluations

Intermediate result indicator 1: Number of LAs whose revenues, expenditures and procurement decisions are publicly disclosed.

X No 0 79 40 70 70 Annually

Annual Budgets (publicly disclosed)

CLGs and LAs


Intermediate result indicator 2: Beneficiaries that feel project investments reflected their needs

X % 90 80 80 80 Annually New Indicator

Component 5: Project Management

Intermediate result indicator 1: Number of LAs disseminating project information to citizens

X No 79 79 100 100 Quarterly New Indicator

Intermediate result indicator 2: Quarterly progress reports including status of project processes, submitted by PCU before end of the following month.

No 3 4 4 4 Annually New Indicator

14

ANNEX 2 OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)

Sri Lanka: North East Local Services Improvement Project Stage: Board

Project Stakeholder Risks Rating Low

Description : Project may not meet all expectations of the stakeholders, since the war damage is heavy.

Risk Management: Project Implementing Agencies conduct annual consultations and information sharing meetings to discuss scope, outputs and outcomes of the subprojects and implementation arrangements. This will continue. Resp: Client Stage: Board Due Date : Continuous Status: Ongoing

Description : Reputation that the Bank’s support to the North and East comes at the expense of supporting poverty reduction and development of less developed areas of the country.

Risk Management : The Bank is providing substantial funds to the lagging regions through the ongoing, recently approved and upcoming projects. Also, with this AF, the original project area is now expanded to cover adjoining provinces. Resp: Both Stage: Board Due Date : Continuous Status: Ongoing

Implementing Agency Risks (Including Fiduciary) Capacity Rating Moderate

Description : Insufficient LA capacity to deliver post conflict

Risk Management : Project coordination and management is presently performing satisfactorily under

15

reconstruction and development.

the original project and adding the AF would not be an issue. The project’s support to LAs in building their capacity while performing their services has mitigated this risk to a greater extent. Adequate monitoring and grievance redressal mechanism has been developed under the original project. Regular supervision, quarterly interim audits, annual external audit and periodic reviews by the Task Team ensure sound practices and transparency under the original project.

Resp: Client Stage: Board Due Date : Continuous Status: Ongoing

Description : Delay in receiving counterpart funds from the center.

Risk Management : Agreed counterpart funding was received since inception till October 2013. Due to the inability to provide these funds further, client requested Bank to provide these funds under an additional financing.

Resp: Both Stage: Board Due Date : July 2014 Status: Not Yet Due

Governance Rating: Moderate Description : Interference from various segments with investment priorities thereby undermining the devolved functions of LAs.

Risk Management : Successful implementation of the project has helped to improve trust between citizen and government. Regular implementation review and support missions and assessments have provided opportunities to interact with communities and authorities to reduce this risk from substantial to moderate. Resp: Client Stage: Board Due Date : Continuous Status: Ongoing

Project Risks Design Rating: Moderate

Description: Insufficient project implementation and monitoring capacity.

Risk Management : LAs responsible for design and construction supervision of local infrastructure have established technical norms and specifications. They are presently carrying out these works satisfactorily. Qualified Civil Engineers are provided at district level to support, supervise and check on quality assurance.

16

Resp: Client Stage: Board Due Date : Continuous Status: Ongoing Social and Environmental Rating: Low

Description: Inadequate compliance with safeguard requirements.

Risk Management : The existing environmental and social framework will apply for the AF as well and for each subproject an environmental and social assessment and management plan is prepared during implementation. Resp: Client Stage: Board Due Date : Continuous Status: Ongoing

Program and Donor Rating: Moderate Description : Second tranche not received from DFAT, in the event of delayed signing of the GA and underutilization of the first tranche.

Risk Management : It is planned to complete all subprojects within the first tranche amount. Second tranche is for new set of subprojects. In the event of not receiving the second tranche, an IDA AF would be prepared in July 2014 to mitigate the reputational risk.

Resp: Both Stage: Board Due Date : April 2014 Status: Not Yet Due

Description : Uncoordinated donor assistance and requirements could lead to confusion, under-utilization of funds, and under-achievement of indicators.

Risk Management : The government will maintain an effective donor coordination mechanism, led by MED. The World Bank and the DFAT have been working closely to harmonize M&E and other institutional arrangements of the Project and AF to the extent possible. Analytical and project preparation work conducted by DFAT will also be shared to reach a common understanding.

Resp: Both Stage: Board Due Date : Continuous Status: Not Yet Due

Delivery Monitoring and Sustainability Rating: Moderate Description : Inadequate monitoring of results.

Risk Management : Original project has an acceptable monitoring system in place that provides good and detailed output and outcome data. This will be used for the AF activities also. Resp: Client Stage: Board Due Date : Continuous Status: Ongoing

17

Description : Weak local accountability.

Risk Management : Ongoing social audits and bi-annual social assessments have mitigated this risk from high to moderate. Any potential political distortions also have been mitigated with active involvement of MED. Resp: Client Stage: Board Due Date : Continuous Status: Ongoing

Description : Some of the work required for operation and maintenance may be over looked by some officials due to work load so that sustainability challenges may arise.

Risk Management : The project will continue to support building capacity for M&E and introduce tools for exploring the sustainability of all completed assets. Resp: Client Stage: Board Due Date : Continuous Status: Ongoing

Overall Risk 7.2 Implementation Risk Rating: Low

Comments: The AF will have experienced implementing agencies and a well-performing PMU and will follow established approaches and procedures developed under the original project.

18

ANNEX 3: Allocation of Proceeds

2.1 Reallocation of Proceeds – IDA funds

Category Original

Amount of the Financing Allocated (SDR)

Revised Amount of the Financing Allocated (SDR)

Percentage of the Expenditures to be Financed (inclusive of taxes)

(1) Goods, Works, Consultant’s services, Incremental Operating Costs and Training and Workshops

5,270,000 9,900,000

100%

(2) Grants under Part 1 of the Project

27,000,000 23,097,178 100% of amounts disbursed

(3) Refund of Preparation Advance

730,000 2,822 Amount payable pursuant to Section 2.07 of the General Conditions

TOTAL 33,000,000 33,000,000

2.2 Allocation of Proceeds – DFAT funds Category Amount of

the Financing Allocated (US$)

Percentage of the Expenditures to be Financed (inclusive of taxes)


1,800,000

100%

(2) Sub-Grants under Part 1 of the Project

18,500,000 100% of amounts disbursed

TOTAL 20,300,000 1. Since inception, government contributions of $34 million were used to co-finance

sub-grants under Part 1 of the Project and IDA has been financing at 100% of the amounts attributable to IDA share.

2. However, the Government of Sri Lanka notified the Bank on December 27, 2013 that it was experiencing fiscal difficulties and part of the planned counterpart funding of $34 million would not materialize. However, the Bank has the plan to provide additional financing to cover the shortfalls.

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3. Beneficiary contributions of $2 million are in-kind (i.e. labor) in connection with

the sub-grant activities under component A of the Project. 4. Even though the additional grant amount is US$20.3 million, the grant agreement

will be signed in the amount of US$18.8 million in order to cover the exchange rate risks and possibly amend it upon receipt of the second tranche.

5. The Allocation of DFAT US$18.8 million is given below. A disbursement condition will be placed on disbursement category 2 until successful FM assessment is completed on all new Local Authorities in the “adjoining provinces”.

Category

Amount of the Financing Allocated

(US$)

Percentage of the Expenditures to be

Financed (inclusive of taxes)


1,800,000

100%

(2) Sub-Grants under Part 1of the Project

17,000,000 100% of amounts disbursed

TOTAL 18,800,000

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ANNEX 4: List of New LAs in Adjoining Provinces

No Province District Local Authority 1 North Central Anuradhapura Anuradhapura MC 2 Kahatagasdigiliya PS 3 Kekirawa PS 4 Medawachchiya PS 5 Mihintale PS 6 Nochchiyagama PS 7 Nuwaragampalatha East PS 8 Nuwaragampalatha Central PS 9 Talawa PS 10 Polonnaruwa Elahara PS 11 Hinguragoda PS 12 Thamankaduwa PS 13 Uva Moneragala Bibila PS 14 Buttala PS 15 Moneragala PS 16 North Western Puttalam Puttalam UC 17 Chilaw UC 18 Anamaduwa PS 19 Karuwalagaswewa PS 20 Nattandiya PS 21 Puttalam PS 22 Wennapuwa PS

Ferry

Pidurutalagala(2,524 m)

Victoria FallsReservoir

Madura OyaReservoir

SenanayakeSamudra

Kala Oya

Deduru Oya

Kirindi Oya

Mah

awel

i Gan

ga

Yan

Oya

Aruvi Aru

IranamaduTank

Kaudulla Oya

Maha Oya

Mad

ura

Oya

Gal Oya

Walawe G

anga

N O R T H E R N

C E N T R A L

N O R T H C E N T R A L

N O R T H W E S T E R N

U V A

S O U T H E R N

WESTERN

E A S T E R N

SABARAGAMUWA

Matara

Kegalla

Ampara

Killinochchi

Vavuniya

Manakulam

Rambewa

Galkulama

Maho

Habarane

Kataragama

Monaragala

Wellawaya

Galle

Kandy

Badulla

Ratnapura

Anuradhapura

Kurunegala

Polonnaruwa

N O R T H E R N

C E N T R A L

N O R T H C E N T R A L

N O R T H W E S T E R N

U V A

S O U T H E R N

WESTERN

E A S T E R N

SABARAGAMUWA

Matara

Kegalla

Kalutara

Hambantota

Tangalla

Kumana

Ampara

Killinochchi

Mullaittivu

Pulmoddai

Mutur

Elephant Pass

Mannar

Vavuniya

Point Pedro

ManakulamTalaimannar

Rambewa

Galkulama

Maho

Kalpitiya

Habarane

Polonnaruwa

Chilaw

Negombo

Moratuwa

Kataragama

MonaragalaPottuvil

Kalmunai

Kattankudi

Wellawaya

Trincomalee

Puttalan

Sri Jayewardenepura Kotte

Galle

Kandy

Badulla

Ratnapura

Anuradhapura

Jaffna

Batticaloa

Kurunegala

COLOMBO

INDIA

Victoria FallsReservoir

Madura OyaReservoir

SenanayakeSamudra

Kala Oya

Deduru Oya

Kalu Ganga Kirindi Oya

Mah

awel

i Gan

ga

Yan

Oya

Kelani

Aruvi Aru

IranamaduTank

Kaudulla Oya

Maha Oya

Mad

ura

Oya

Gal Oya

Ganga

Walawe G

anga

G u l f o f

M a n n a r

P a l k B a y

L a c c a d i v e

S e a

B a y o f

B e n g a l

I N D I A NO C E A N

Pa

l k S

t ra i t

Dondra Head

KaraitivuIsland

DelftIsland

MannarIsland

Adam's Bridge

Pidurutalagala(2,524 m)

10°N 10°N

9°N

8°N

7°N

6°N

8°N

7°N

6°N

80°E 81°E

80°E 81°E 82°E

82°E

SRI LANKA

0 20 40

0 10 20 30 40 Miles

60 Kilometers

IBRD 40910

APRIL 2014

SRI LANKANORTH EAST

LOCAL SERVICESIMPROVEMENT PROJECT

ORIGINAL PROJECT AREA

ADDITIONAL FINANCING PROJECT AREAS

CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

GSDPMMap Design Unit

The World Bank · The World Bank . Report No: ... the internal and external audits of LAs, (c) ......

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