The World Bank Sri Lanka Strategic Cities Development Project (P130548) REPORT NO.: RES38718 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SRI LANKA STRATEGIC CITIES DEVELOPMENT PROJECT APPROVED ON MAY 5, 2014 TO DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA URBAN, RESILIENCE AND LAND SOUTH ASIA Regional Vice President: Hartwig Schafer Country Director: Idah Z. Pswarayi-Riddihough Regional Director: John A. Roome Practice Manager/Manager: Catalina Marulanda Task Team Leader(s): Thalyta Ernandya Yuwono The World Bank Sri Lanka Strategic Cities Development Project (P130548) ABBREVIATIONS AND ACRONYMS AP Affected Person CBA Cost Benefit Analysis CERC Contingent Emergency Response Component EAC Entitlement Assessment Committee EIRR Economic Internal Rate of Return ERD External Resources Department GoSL Government of Sri Lanka IDA International Development Association KMTT Kandy Multi Modal Transport Terminal KMTTDP Kandy Multimodal Transport Terminal Development Project MMWD Ministry of Megapolis and Western Development MUDWSHF Ministry of Urban Development, Water Supply, and Housing Facilities NPV Net Present Value PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit PMU Project Management Unit RAP Resettlement Action Plan SCDP Strategic Cities Development Project The World Bank Sri Lanka Strategic Cities Development Project (P130548) BASIC DATA Product Information Project ID Financing Instrument P130548 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 05-May-2014 31-Dec-2021 Organizations Borrower Responsible Agency Ministry of Urban Development, Water Supply, and Democratic Socialist Republic of Sri Lanka Housing Facilities Project Development Objective (PDO) Original PDO Improve selected urban services and public urban spaces in the Participating City Regions of Sri Lanka. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-58000 27-May-2016 20-Jul-2016 19-Oct-2016 31-Dec-2021 55.00 9.05 45.73 IDA-54280 05-May-2014 12-Sep-2014 16-Oct-2014 31-Dec-2021 82.00 53.50 13.70 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Sri Lanka Strategic Cities Development Project (P130548) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Project Overview 1. The original IDA credit equivalent to USD 147 million was approved on May 5, 2014 and became effective on October 16, 2014. Additional Financing of USD 55 million was approved on May 31, 2016 and became effective on October 19, 2016. The Project is scheduled to close on December 31, 2021. The Project Development Objective (PDO) is “to improve selected urban services and public open spaces in the participating city regions of Sri Lanka”. The PDO is supported by four Project Components; i) Kandy City Region Urban Interventions; ii) Galle City Region Urban Interventions; iii) Implementation Support; and iv) Jaffna City Region Urban Interventions. The Project was implemented by the Ministry of Megapolis and Western Development until November 2019. As part of this project restructuring, and consistent with the new institutional structure put in place by the recently elected Government of Sri Lanka, the new project implementation agency will be the Ministry of Urban Development, Water Supply, and Housing Facilities. 2. To date, the total disbursement is USD 62.55 million, accounting for 51.28 percent of the total Credit. Component 1, Kandy, includes 63 sub-projects and capacity building activities, of which: (i) 51 have been completed and (ii) 12, equivalent to USD 28.7 million, are under implementation. Component 2 Galle includes 46 subprojects and capacity building activities, of which: (i) 33 have been completed; (ii) 13 (equivalent to USD 23.61 million) are currently under implementation. Component 3 (equivalent to USD 8 million) finances overall Project management and is under implementation. Component 4 Jaffna includes 51 subprojects and capacity building activities, of which: (i) 34 have been completed: (ii) 2 (equivalent to USD 13.20 million) are under implementation; and (iii) 15 are under preparation and/or in procurement process (equivalent to USD 18.98 million). Implementation of the Project has been challenging from the onset, particularly compounded by the difficulties of preparing and executing more than 100 civil works and capacity building contracts simultaneously, in three decentralized locations. Weak project and contract management and works supervision have led to significant delays in procurement and implementation, incomplete works, and cancelled sub-projects. As a result, the ratings for achieving PDO and Implementation Progress have been Moderately Unsatisfactory since September 2017. Rationale for restructuring 3. On March 2, 2020, the government of Sri Lanka through the External Resource Department (ERD) requested for a partial cancelation of USD 65 million (equivalent to SDR 43,137,315). The purpose of the partial cancelation was to spin-off the development of the Kandy Multi Modal Transport Terminal (KMTT) from SCDP to an independent project, to ensure that the construction can be adequately completed. The spin-off of KMTT would allow to: (a) define new institutional arrangements and designate a dedicated project management unit – i.e. a Project Director and Project Implementation Unit in Kandy to oversee the execution of this priority investment; and (b) provide adequate time to complete the design and construction of the terminal. 4. This partial cancelation of USD 65 million was approved by the Bank and countersigned by the Government on March 11, 2020. The canceled amount would be used for the new Kandy Multimodal Transport Terminal Development Project (P172342). Proposed Restructuring 5. The proposed restructuring of SCDP includes: i) revision of the target of PDO indicator # 1, Aggregate number of people benefiting from improved basic services in participating city regions. The target number of beneficiaries will be reduced from 650,000 to 570,000 people, consistent with the cancellation of the KMTT. Other changes to the Results Framework include revisions to end target of intermediate indicators in Kandy (following the reduction in scope of the The World Bank Sri Lanka Strategic Cities Development Project (P130548) activities); ii) change in implementation agency from the Ministry of Megapolis and Western Development to the Ministry of Urban Development, Water Supply, and Housing Facilities; iii) adjustment to the economic analysis to reflect the exclusion of KMTT from the list of sub-projects in Kandy; and iv) responding to the request from the government on April 1, 2020, in the context of the ongoing COVID19 outbreak, the addition of a project component for Contingent Emergency Response Component (CERC). A CERC will not require changes in the PDO, intermediate indicators, fiduciary, and safeguards, unless the component gets activated in the future. 6. All ongoing activities under Component 1 Kandy remain under SCDP, except the construction of KMTT. The budget for Component 1, after the restructuring, will reflect the cancellation of USD 65 million on account of KMTT. Following this proposed restructuring, Component 1 will include (overall) additional 63 sub-projects, of which 13 contribute to the development of KMTT, amounting to approximately USD 5.67 million. To date, seven of these KMTT-related sub- projects have been completed, while six are under implementation (see Annex 1). To ensure continuity of these ongoing sub-projects, they will not be spun-off with the KMTT, and their implementation will continue under SCDP until their completion. Effective the countersignature date of the SCDP restructuring, any other expenditures relating to KMTT such as Operational and Maintenance expenses related to sub-projects in Annex 1 (including, for instance, maintenance costs, technical assistance, capacity building, etc.), will not be financed under SCDP and would be charged only under the new Project. 7. As of November 30, 2019, when a Resettlement Action Plan (RAP) audit was carried out, 769 Affected Peoples (APs) out of 841 (91%) identified in the original RAP approved by the Bank have participated in the Entitlement Assessment Committee (EAC) meetings. Of these, 735 APs (95%) have received the agreed compensation. There are 417 APs out of a total of 492 eligible for livelihood support (85%) who have prepared business plans, and 184 (37%) who have started their businesses, consistent with the provisions of the RAP. The Government has spent roughly USD 2.8 million of co-financing (out of a total USD 7.8 million) budgeted for the implementation of the RAP. 8. In the 2014 Project Appraisal Document, a cost benefit analysis was undertaken for major Year 1 investments. The Project was designed with a framework approach, where there was no specific sub-project related to KMTT identified at the time of Project approval. Following the cancellation of KMTT, the government would be able to prioritize implementation of other activities, primarily related to drainage improvement and urban upgrading. The revised EIRR for Component 1 Kandy, with KMTT, is 12.37 percent and Net Present Value (NPV) of USD 41.43 million. Without KMTT, the EIRR is at 14.46 percent, with NPV of USD 31.37 million. Using 10 percent discount rate, the Project’s EIRR is higher without KMTT. 9. The proposed restructuring includes a new Contingent Emergency Response Component (CERC) with USD 0 allocation. This component will allow rapid reallocation of uncommitted project funds from other components to support immediate response and recovery needs, in the event of a natural or man-made disaster or crisis. No activities under this Component will be undertaken unless: i) the Government of Sri Lanka (GoSL) has determined that an Eligible Crisis or Emergency has occurred, has furnished to IDA a request to include said activities in the Component, and IDA has agreed with the foregoing determination and accepted the request and notified such concurrence to Government of Sri Lanka in writing; ii) GoSL has established adequate implementation arrangements, including a positive list of goods and/or specific works and services required for emergency recovery, satisfactory to the IDA, including staff and resources for the purposes of said activities; iii) GoSL has prepared and adopted, acceptable to IDA, an Emergency Action Plan as well as an Emergency Response Manual detailing Financial Management, procurement, disbursement, safeguards, Operations and Maintenance, closing of the component, and any other necessary coordination and implementation arrangements; and iv) GoSL has prepared and disclosed all safeguards instruments required for activities under Component 5 of the project, if any, and GoSL has implemented any actions which are required to be The World Bank Sri Lanka Strategic Cities Development Project (P130548) taken under said instruments. As part of the restructuring, the Disbursement Letter under both IDA 5428-LK and IDA 5800-LK have been restated to include provisions relating to CERC component. 10. The proposed restructuring would be processed in parallel with the preparation of the new KMTT Development Project. Following the restructuring, implementation of SCDP will continue to focus on urban development and improving public services in the three cities, consistent with the PDO. To date, SCDP has completed sub-projects amounting to USD 16.14 million in Kandy, USD 3.35 million in Galle, and USD 1.87 in Jaffna. Approximately 400,000 people have benefitted from improved basic services delivered in the participating city regions. These range from improving reservoirs, water treatment, distribution, and sludge treatment, to public spaces such as parks and viewing decks, to bus terminals and drainage improvements. 11. The proposed restructuring of SCDP will not be sufficient to address all the institutional and implementation issues of the Project, particularly those in Jaffna. However, there is urgency to complete the proposed restructuring to ensure necessary adjustments to SCDP following spun-off of KMTT. 12. A subsequent, more comprehensive restructuring will be required to address the core challenges in Jaffna. This second restructuring, expected by June 2020, will make necessary adjustments to activities and intermediate indicators in Jaffna, and will make changes in the project management to improve implementation. The scope of a future restructuring is being discussed with the Government but requires further assessment. The Government has agreed that no extension to the closing date of the SCDP will be requested. II. DESCRIPTION OF PROPOSED CHANGES 13. Responding to the request from the Government of Sri Lanka submitted by the External Resource Department (ERD) of Ministry of Finance on February 28 and April 1, 2020, the proposed amendment to SCDP Financing Agreement will include: a. The Results Framework will be revised to better reflect the Project’s scope and to change the target values of some of the indicators based on the cancelation of KMTT, and the current Project implementation status. Revised Results Framework is attached. b. Change in SCDP counterpart agency, from the Ministry of Megapolis and Western Development to the newly created Ministry of Urban Development, Water Supply, and Housing Facilities, following the November 2019 presidential election. The Project Management Unit (PMU) and Project Implementation Unit (PIU) in each participating city remains unchanged. c. Revision to the economic analysis to reflect cancellation of KMTT. d. A new Contingent Emergency Response Component (CERC). 14. There is no pending audit report for the Project. The World Bank Sri Lanka Strategic Cities Development Project (P130548) III. SUMMARY OF CHANGES Changed Not Changed Implementing Agency ✔ Results Framework ✔ Disbursement Estimates ✔ Economic and Financial Analysis ✔ DDO Status ✔ Project's Development Objectives ✔ DLIs ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Technical Analysis ✔ The World Bank Sri Lanka Strategic Cities Development Project (P130548) Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_IA_TABLE IMPLEMENTING AGENCY Implementing Agency Name Type Action Ministry of Megapolis and Western Implementing Marked for Deletion Development Agency Ministry of Urban Development, Water Implementing New Supply, and Housing Facilities Agency OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2014 0.00 0.00 2015 2,000,000.00 2,000,000.00 2016 5,000,000.00 5,000,000.00 2017 20,000,000.00 20,000,000.00 2018 20,000,000.00 20,000,000.00 2019 20,000,000.00 10,000,000.00 2020 28,000,000.00 10,000,000.00 2021 44,000,000.00 20,000,000.00 2022 63,750,000.00 50,000,000.00 . The World Bank Sri Lanka Strategic Cities Development Project (P130548) . Results framework COUNTRY: Sri Lanka Sri Lanka Strategic Cities Development Project Project Development Objectives(s) Improve selected urban services and public urban spaces in the Participating City Regions of Sri Lanka. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 Improved urban services Aggregate number of people benefiting from improved urban services in participating city regions 0.00 134,000.00 570,000.00 (disaggregated by gender) (Number) Action: This indicator has been Revised Percentage of female beneficiaries benefiting from 0.00 51.00 improved basic services across all three cities (Number) Increased urban public spaces New or rehabilitated urban public spaces in participating city regions 0.00 30,000.00 100,000.00 (Square Meter(m2)) Action: This indicator has been Revised The World Bank Sri Lanka Strategic Cities Development Project (P130548) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Kandy City-region Urban Interventions 1.1 Number of silt traps implemented around Kandy 0.00 5.00 5.00 5.00 Lake (Number) 1.2 Length of water transmission and 0.00 15.00 13.00 distribution pipes replaced (Kilometers) 1.3 Length of Underground and surface storm water 0.00 1.00 4.00 drainage rehabilitated (Kilometers) 1.4 Roads rehabilitated, 0.00 10.00 17.00 9.00 Non-rural (Kilometers) Action: This indicator has been Revised 1.5 Number of bus facilities constructed/ rehabilitated 0.00 1.00 3.00 (Number) Action: This indicator has been Revised 1.6 Municipal infrastructure No No No No No Yes and maintenance program The World Bank Sri Lanka Strategic Cities Development Project (P130548) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 developed and adopted in Kandy City Region. (Yes/No) Action: This indicator has been Revised Galle City-region Urban Interventions 2.1 Length of major canals and local drains improved 0.00 5.00 16.00 17.00 under the project (Kilometers) 2.2 Number of bridges 0.00 1.00 9.00 rehabilitated (Number) 2.3 Length of new or rehabilitated streets with 0.00 1.00 1.50 3.00 3.00 sidewalks (Kilometers) 2.4 Length of new or rehabilitated ocean 0.00 1.00 1.50 4.07 3.00 pathway (Kilometers) 2.5 Asset Management system with maintenance program for municipal No No No No No Yes infrastructure developed and adopted in Galle City Region (Yes/No) Jaffna City Region Urban Interventions 3.1 Roads rehabilitated, 0.00 25.00 Non-rural (Kilometers) The World Bank Sri Lanka Strategic Cities Development Project (P130548) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 3.2 Urban walkability enhancements (Square 0.00 10,000.00 Meter(m2)) 3.3 Designated cycle lanes 0.00 16.00 (Kilometers) 3.4 Length of storm water drainage reinstated 0.00 30.00 (Kilometers) 3.5 Number of public conveniences constructed 0.00 6.00 or rehabilitated (Number) 3.6 Completion of strategic plans/ studies in Public Transport and Traffic 0.00 5.00 Management, Drainage and Spatial Development (Number) 3.7 Number of community consultative committees with at least one third of women representative, for 0.00 5.00 pond related activities established as part of the project design and implementation (Number) IO Table SPACE The World Bank Sri Lanka Strategic Cities Development Project (P130548) The World Bank Sri Lanka Strategic Cities Development Project (P130548) Annex 1 KMTT associated sub-projects financed under SCDP Sub-project Cost US $ million Present status Construction of Bus Terminal at Bogambara [1] 1.18 Completed Preparation of Bus TnG Boarding and Alighting 0.17 Completed Bays at Torrington Bus Terminal and four other sites[2] Construction and Improvement to Clock 0.12 Completed Tower Bus Terminal, SWRD Bandaranayake Mw and other sites Construction of Bus Parking Facilities at Kandy 0.68 Parking area completed other works South Depot. ongoing and will be completed by June 2020 Utility diversion for KMTT area including KMC 1.54 Contract awarded and will commence on water main[3] January 31, 2020. The contract period is 12 months. Development of IT Platform for Transitional 1.03 Ongoing Bus Operation Management for Bus Operation during Transition Period and Support for Maintenance and Management of Bus Operation Control Centre up to 31st December 2021 Purchase of Equipment for Control Center for 0.04 Completed Bus Operation for Transition Arrangement and Terminal Operation Purchase of Furniture for Control Center for 0.01 Completed Bus Operation for Transition Arrangement and Terminal Operation Purchase of GPS equipment for 2380 buses for 0.16 Completed the use in transitional bus operation management in Kandy Purchase of Electronic Ticketing Machines for 0.43 Completed 1650 buses for the use in bus operation management in Kandy Implementation of support construction 0.20 Ongoing works for Transitional bus operation Bus passenger counts at Transitional Terminal 0.02 Ongoing and analysis Review of KMTT Design 0.09 Ongoing Total USD 5.67 [1] A transitional bus operation plan was developed and submitted to the SLTB and Central Province Passenger Transport Services Authority (CPPTSA) in January 2018 which identified the locations for the transitional services and other activities required to carry out the transition. [2] WRDB Bandaranaike Mawatha bus halt, Udurawana Mawatha bus halt, Central Market bus halt, Yatinuwara bus halt [3] This contract includes the activities related to demolition of the existing infrastructure at the Goods Shed station. The World Bank Sri Lanka Strategic Cities Development Project (P130548)