Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA3935, IDA4671, IDA49560) ON THREE CREDITS

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1 Public Disclosure Authorized Document of The World Bank Report No: ICR Public Disclosure Authorized Public Disclosure Authorized IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA3935, IDA4671, IDA49560) ON THREE CREDITS IN THE AMOUNT OF SDR 82.5 MILLION (US$ MILLION EQUIVALENT) TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR THE COMMUNITY LIVELIHOODS IN CONFLICTED-AFFECTED AREAS PROJECT Public Disclosure Authorized Agriculture Global Practice South Asia Region June 30, 2015

2 CURRENCY EQUIVALENTS (Exchange Rate Effective January 01, 2014) Currency Unit = Sri Lankan Rupee 1.54 US$= SDR Rupees (SLR) = US$ 1 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ADB CBO CDD CDLIP CRP DA DAD DAPH DS DSRP EIRR ESMF FDR FEEP FF FIRR FO GOSL IAC IDP IDA ISR KPI LSA Asian Development Bank Community Based Organization Community Driven Development Community Development and Livelihood Improvement Project Community Resource Person Department of Agriculture Department of Agrarian Development Department of Animal Production and Health Divisional Secretariat Dam Safety Review Panel Economic Internal Rate of Return Environmental and Social Management Framework Flood Damage Rehabilitation Family Economic Enhancement Packages Farmer Federation Financial Internal Rate of Return Farmer Organization Government of Sri Lanka Interim Administrator Council Internally Displaced Person International Development Association Implementation Supervision Report Key Performance Indictor Livelihood Support Activity ii

3 LTTE M&E MED MLRCD MPH MTR NE NEEM NEIAP NEPC NERF NGO NPV PAD PDO PMU PPMU RaP REER SLR USD VDO VSHLI XDR Liberation Tigers of Tamil Eelam Monitoring and Evaluation Ministry of Economic Development Ministry of Livestock and Rural Community Development Multi-Purpose Hall/Building Mid-Term Review North East North East Emergency Reconstruction Program North East Irrigated Agriculture Project North-East Provincial Council North East Reconstruction Fund Non-Governmental Organization Net Present Value Project Appraisal Document Project Development Objective Project Management Unit Provincial Project Management Unit Re-awakening Project Real Effective Exchange Rate Ari Lankan Rupee United States Dollar Village Development Organization Village Self-Help Learning Initiative Special Drawing Right Vice President: Annette Dixon Country Director: Françoise Clottes Practice Manager/Director: Shobha Shetty / Ethel Sennhauser Project Team Leader: Seenithamby Manoharan ICR Primary Author: Aidan Gulliver iii

4 SRI LANKA Community Livelihoods in Conflict Affected Areas Project CONTENTS Abbreviation and Acronyms Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Profile 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues raised by Borrower /Implementing Agencies / Partners.35 Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Independent Impact Assessment and Focus Group Discussion Report 87 Annex 7. Summary of Borrower s ICRR and/or Comments on Draft ICRR 97 Annex 8. Comments on Co-financers and other Partners / Stakeholders 113 Annex 9. List of Supporting Documents.114 MAP.115 iv

5 A. Basic Information Country: Sri Lanka Project Name: Project ID: P L/C/TF Number(s): LK Community Livelihoods - Yali Pibedemu ViyapruthiyaMaru Eluchchithittum IDA-39350,IDA ,IDA ICR Date: 06/28/2015 ICR Type: Core ICR Lending Instrument: SIL Borrower: DEMOCRATIC SOCIALIST REP. OF SRI LANKA Original Total Commitment: XDR 44.60M Disbursed Amount: XDR 81.33M Revised Amount: XDR 82.50M Environmental Category: B Implementing Agencies: North East Provincial Council (NEPC); Ministry of Nation Building (MNB); and Ministry of Economic Development (MED) Co-financiers and Other External Partners: None B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/23/2003 Effectiveness: 10/12/ /12/ /27/2007 Appraisal: 05/03/2004 Restructuring(s): 01/15/2012 Approval: 06/22/2004 Mid-term Review: 06/05/ /15/ /15/2011 Closing: 03/31/ /31/2014 v

6 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Satisfactory Substantial Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): No Yes DO rating before Closing/Inactive status: Satisfactory Quality at Entry (QEA): None Quality of Supervision (QSA): None vi

7 D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 5 5 Irrigation and drainage Other social services Rural and Inter-Urban Roads and Highways 5 5 Sub-national government administration 5 5 Theme Code (as % of total Bank financing) Conflict prevention and post-conflict reconstruction Participation and civic engagement Pollution management and environmental health Rural policies and institutions Rural services and infrastructure E. Bank Staff Positions At ICR At Approval Vice President: Annette Dixon Isabel Gurrero Country Director: Francoise Clottes Peter C. Harrold Practice Manager/Sector Manager: Shobha Shetty Gajanand Pathmanathan Project Team Leader: Seenithamby Manoharan Nihal Fernando ICR Team Leader: ICR Primary Author: Seenithamby Manoharan Aidan Gulliver vii

8 F. Results Framework Analysis Original Project Development Objectives The original development objective (2004) was to help conflict-affected communities in the NE Province and adjoining areas to restore livelihoods, enhance agricultural and other production and incomes, and build capacity for sustainable social and economic reintegration. Revised Project Development Objectives (as approved by original approving authority) The PDO was revised at the time of the Second/Third Additional Financing in June 2011 to recognize the separation of the NE Province into two provinces (North and East) and to include reference to the purpose of the additional financing to assist flood-affected communities. It was revised to read: Help conflict- and/or flood-affected communities and villages in the North, East and adjoining areas by restoring their livelihoods, enhancing agricultural production and income, and building their capacity for sustainable social and economic reintegration. (a) PDO Indicator(s) Indicator Baseline Value /1 Original Target Values (from approval documents) Formally Revised Target Values (final) Actual Value Achieved at Completion or Target Years Indicator 1: Number of households benefitting from livelihood opportunities Value (no.) , , ,555 Date achieved 27-Sep Jan Dec-2014 Comments Exceeded Indicator 2: Number of employment opportunities generated Value (no.) 0.0 1,000 1,000 3,945 Date achieved 25-May Jun Dec-2014 Comments Exceeded Indicator 3: Number of hectares of irrigation area rehabilitated Value (no.) , ,000 94,719 Date achieved 25-May Jun Dec % Achieved. Rehabilitation of one large scheme (Iranamadhu in Comments Kilinochchi District) was taken up by the Asian Development Bank and funds budgeted for this scheme were then used for expanding the works at Giant s Tank. Additionally, the number of villages were expanded due to high demand and irrigation allocation was reduced. viii

9 Indicator 4: Proportion of vulnerable people who are VDO members Value (%) Date achieved 25-May Jun Dec % Achieved. It proved difficult to attract most vulnerable people to Comments participate in VDO activities, as income generation was essential for this group. It is also argued that since all project beneficiaries were affected and lost their entire livelihoods, all beneficiaries could be categorized as vulnerable. If so, the achievement is 100%. Indicator 5: Proportion of vulnerable people who obtain livelihood financing Value (%) Date achieved 25-May Jun Dec-2014 Comments Exceeded Indicator 6: Proportion of village youth and ex-combatants assisted Value (%) Date 25-May Jun Dec-2014 Comments Exceeded Indicator 7: Rural roads rehabilitated Value (km) 0.0 N.A. 1,542 2,683 Date achieved 25-May Jun Dec-2014 Comments Exceeded Indicator 8: Improved community water points constructed or rehabilitated Value (no.) 0.0 N.A 1,394 1,248. Date achieved 25-May Jun Dec-2014 Comments 90% Achieved. The number of water points developed was reduced due to other agencies working in this area. Indicator 9: Piped household water connections provided by the project Value (HH) 0.0 N.A 10,000 19,366 Date achieved 25-May Jun Dec-2014 Comments Exceeded N.A. Not applicable (introduced in 3 rd additional financing) (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) ix Formally Revised Target Values Actual Value Achieved at Completion or Target Years Component 1: Village Rehabilitation and Development Indicator 1: Number of direct project beneficiaries and % female Value (No./%) ,000/50 719,663/50 796,950/53 Date achieved 25-May Jun Dec-2014 Comments Exceeded Indicator 2: Number of farmers trained in new farming practices through Value 0 30,000 50,000 80,538 Date achieved 25-May Jun Dec-2014 Comments Exceeded

10 Indicator 3: Proportion of CBOs rated satisfactory Value (% or 0 70% Date achieved 25-May Jun Dec-2014 Comments Exceeded Indicator 4: Number of greenhouse (poly net) interventions Value (No.) 0 4,000 1,230 1,229 Date achieved 25-May Jun Dec-2014 Comments 100% Achieved. This indicator target was modified at the second restructuring, since it had design and implementation issues at district Indicator 5: Number of hectares of small scale irrigation rehabilitated Value (ha) 0 N.A. 98,000 94,719 Date achieved 25-May Jun Dec-2014 Comments 97% Achieved. The target was reduced due to other agencies working in this area to develop minor irrigation schemes. Some minor irrigation schemes were also rehabilitated under Emergency Northern Recovery Project. N.A. Not applicable (introduced in 3 rd additional financing) Component 2: Rehabilitation of Irrigation Schemes and Rural Infrastructure Indicator 1: Proportion of dams and other infrastructure which receive satisfactory Value (%) Date achieved 25-May Jun Dec-2014 Comments 100% Achieved. Reported by Dam Safety Panel. No specific target level was recorded in project documents. Discussions with Dam Safety Panel and Irrigation Department revealed a target value of 60%. Indicator 2: Increased cropping intensity of farm holdings Value (%) Date achieved 25-May Jun Dec-2014 Comments Exceeded. No specific target level was recorded in original project documents. Discussions with Irrigation Department revealed a target value of 60%. Indicator 3: Households with assured access to irrigation by season Value (%) Date achieved 25-May Jun Dec-2014 Comments Exceeded. No specific target level was recorded in original project documents. Discussions with Irrigation Department revealed a target value of 60%. Indicator 4: Increased agricultural productivity (yield) Value (%) Date achieved 25-May Jun Dec-2014 Comments Achieved. No specific target level was recorded in original project documents. Discussions with Agriculture and Agrarian Development Departments revealed a target value of 60%. Component 3: Cluster Level Livelihood Activities x

11 Comment Originally titled Farmer Organization Capacity Building & Strengthening of Support Services. Modified at the 2 nd Additional Financing (4 May 2011) Indicator 1: Business linkages created with Cluster commercial enterprises Value (%) Date achieved 25-May Jun Dec-2014 Comments Exceeded. Original target refers to farmer organizations, not clusters. Indicator 2: Volume of annual turnover of Clusters Value (LKR) 0 N.A ,649 Date achieved 25-May Jun Dec-2014 Comments Exceeded. This indicator was deemed continued (with no target given) in the 2 nd /3 rd AF, but does not appear in the original PAD. Indicator 3: Increased quantity and sales of village products Value (%) 0 N.A Date achieved 25-May Jun Dec-2014 Comments Exceeded. This indicator was deemed continued (with no target given) in the 2 nd /3 rd AF, but does not appear in the original PAD. Indicator 4: Villages report stable or higher prices for major village products Value (%) 0 N.A Date achieved 25-May Jun Dec-2014 Comments Achieved. This indicator was deemed continued (with no target given) in the 2 nd /3 rd AF, but does not appear in the original PAD. Component 4: Project Implementation Support and Oversight Indicator 1: Approval and fund disbursement to villages within 2 weeks Value (%) 0 N.A Date achieved 25-May Jun Dec-2014 Comments Achieved. This indicator was deemed continued (with no target given) in the 2 nd /3 rd AF, but does not appear in the original PAD. Indicator 2: Project financial management and other reports delivered within 2 Value (%) 0 N.A Date achieved 25-May Jun Dec-2014 Comments Achieved. This indicator was deemed continued in the 2 nd /3 rd AF. PAD refers to Increased level of compliance with accounting standards and norms but no target figure is given. Indicator 3: Districts collaborate between the project and government Value (%) 0 N.A Date achieved 25-May Jun Dec-2014 Comments Achieved. This indicator was deemed continued in the 2 nd /3 rd AF. PAD refers to Increased level of compliance with accounting standards and norms but no target figure is given. 1/ Although a detailed baseline was undertaken and published in draft form in May 2008, most of the indicators for the project are not given as increases over baseline. For those xi

12 indicators that are expressed as increases (e.g. Component 2, Indicator 2 Increased Cropping Intensity) no comparable data is given in the baseline study G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements 1 11/30/2004 Satisfactory Satisfactory /27/2005 Satisfactory Satisfactory /05/2005 Moderately Satisfactory /31/2006 Satisfactory 5 11/20/2006 Satisfactory Moderately Unsatisfactory Moderately Unsatisfactory /10/2 007 Moderately Satisfactory Moderately Satisfactory /19/2007 Moderately Satisfactory Unsatisfactory /27/2008 Satisfactory Moderately Satisfactory /28/ /28/ /30/ /28/2010 Moderately Satisfactory Moderately Satisfactory Moderately Satisfactory Moderately Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory /11/2010 Satisfactory 14 06/13/2011 Satisfactory Moderately Satisfactory Moderately Satisfactory /24/2011 Satisfactory Satisfactory /05/2012 Satisfactory Satisfactory /17/2012 Satisfactory Satisfactory xii

13 18 06/08/2013 Satisfactory Satisfactory /10/2013 Satisfactory Satisfactory /19/2014 Satisfactory Satisfactory /13/2014 Satisfactory Satisfactory /08/2014 Satisfactory Satisfactory H. Restructuring (if any) Restructuring Date(s) ISR Ratings at Amount Board Restructuring Disbursed at Approved Restructuring PDO Change DO IP in USD millions Reason for Restructuring & Key Changes Made 08/27/2007 MS U /11/2010 MS S /10/2011 Yes S MS /15/2012 S S xiii Escalation in conflict rendered large scale infrastructure infeasible; greater demand for immediate livelihood assistance by beneficiaries; revised institutional arrangement with CDD approach at village level; and reallocation of proceeds for Tsunami Recovery Program. Additional funds for Northern Province following end of war and accelerated return of IDPs. Expand project support to flood affected areas, including changes to the costs of components and new activities. Reallocation of proceeds from less performing categories to better performing categories in order to accommodate the ground realities and future challenges as a result of change in project environment

14 Restructuring Date(s) ISR Ratings at Amount Board Restructuring Disbursed at Approved Restructuring PDO Change DO IP in USD millions Reason for Restructuring & Key Changes Made from conflict scenario to post conflict situation. 06/05/2014 S S Reallocation of proceeds from less performing categories to better performing categories in order to accommodate ground realities. I. Disbursement Profile xiv

15 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country and Sector Background: Sri Lanka faced the immense challenge of establishing political, social and economic stability following almost two decades of armed conflict from 1983 to 2002 between the Government of Sri Lanka (GOSL) and Liberation Tigers of Tamil Eelam (LTTE). A ceasefire had been in effect since February 2002 that appeared to offer the possibility a transition towards a permanent solution to the conflict. At the time of appraisal, the GOSL and the LTTE had maintained the ceasefire for the longest period since the conflict began. It significantly eased tensions, improved the security situation, galvanized socioeconomic activities, and increased the movement of people, goods and commodities between the NE and the South. Although the situation remained fragile, there were hopes of a durable peace. In the interim, the GOSL was successfully engaged with international donors to mobilize financial support for immediate humanitarian assistance and the rehabilitation, reconstruction and development needs of the war-torn areas. The protracted war worsened the poverty situation in the entire country. The livelihoods of the population of the eight administrative districts of the North-East (NE) province and, to a lesser extent of the four adjoining districts, were severely affected. In the NE and the adjoining areas, the conflict resulted in, inter alia, disruption of local economies, damage to essential village-level infrastructure, breakdown of input and output markets and technical support services, the weakening or dissolution of community organizations and institutional networks, the elimination of employment opportunities, and widespread vulnerability and social and economic insecurity. The major challenge for the affected and returning population, therefore, was to recover from social and economic shocks and reintegrate into the socioeconomic mainstream. However, the conflict had also weakened the ability and capacity of government institutions and administrative mechanisms in the NE province to plan, implement and coordinate reconstruction and development initiatives. In this situation, the GOSL and the LTTE agreed that the resettlement of displaced persons, restoration of social and economic infrastructure, and capacity building in the NE, were priority tasks in the recovery and reconciliation process. The project was initially appraised in 2004 as Phase 2 of the North East Irrigated Agriculture Project (NEIAP) and became effective in October of that year 1. At the time of appraisal the primary goals of GOSL s poverty reduction strategy was to achieve peace 1 The official name of the project was changed to the Community Livelihoods in Conflict Affected Areas Project through an addendum to the development credit agreement dated 4 October

16 and a significant transformation in the quality of life of the people, especially in rural areas through increased incomes, economic modernization and re-invigoration of the rural economy. Rationale for Bank Involvement: At the time of project preparation, the GOSL and the LTTE recognized the Bank as a key development partner in the implementation of Sri Lanka s Poverty Reduction Strategy and the rehabilitation, reconstruction and development of the conflict-affected areas. Since 1999, the Bank played a pioneering role in assisting resettlement, rehabilitation and reconstruction, by catalyzing international donor assistance to help restore livelihoods of conflict-affected people. Both the GOSL and the LTTE recognized that the Bank, through the NEIAP and North East Emergency Reconstruction Program (NEERP), were able to help socioeconomic recovery of the region and reach vulnerable groups in remote villages. In addition, the GOSL and the LTTE requested the Bank to be the administrator of a North East Reconstruction Fund (NERF), a pool of financial resources from bilateral and international Non-Governmental Organizations (NGOs) for the rehabilitation and reconstruction of the North and East of Sri Lanka. Major stakeholders, including LTTE, requested the Bank s support for this repeater project because of the Bank s ability to design and provide guidance to implement communitybased programs that target vulnerable people and reach rural remote villages in conflictaffected areas. Given the implementation experience and successful outcomes of NEIAP (which received an ICR rating of satisfactory), the Bank was in a favorable position to scale up the NEIAP by augmenting, consolidating and sustaining its outputs and impacts, while extending its scope and geographical spread, to reach more conflict-affected communities. At the time of preparation, the Bank was engaged in the implementation of an innovative Community-Driven Development (CDD) pilot under Village Self-Help Learning Initiative (VSHLI) and the Community Development and Livelihood Improvement Gemidiriya project (CDLIP) in the south of Sri Lanka (outside the conflict-affected area). The latter was the first phase of an adaptable lending program that supported rural development and community empowerment. While other major donors were supplementing and complementing efforts for conflict related poverty reduction as well as rehabilitation and reconstruction of the war affected region, the Bank s involvement in the proposed project was focused more towards facilitating closer interaction between these programs, mutually sharing knowledge and experience and building synergies. 2

17 1.2 Original Project Development Objectives (PDO) and Key Indicators The original PDO was to help conflict-affected communities in the NE Province and adjoining areas to restore livelihoods, enhance agricultural and other production and incomes, and build capacity for sustainable social and economic reintegration. The four outcome indicators included in PAD s Annex 3: Results Framework and Monitoring at appraisal were: (a) Percent of targeted households (85,000) benefiting from increased income and village level social and economic infrastructure; (b) Number of employment opportunities generating from increased agricultural production potential and other sub projects; (c) Number of sustainable village level community organizations capable of village level planning, implementation and monitoring development activities; and (d) Number of self-reliant farmer organizations, federations or companies engaged in productive, sustainable and competitive agriculture production and marketing. 1.3 Revised PDOs and Key Indicators, and Reasons/Justification The revised PDO was to help conflict and/or flood affected communities in the Northern and Eastern Provinces and adjoining areas to restore livelihoods, and enhance agricultural and other production and incomes, and build their capacity for sustainable social and economic reintegration. The Key Performance Indicators (KPIs) underwent change thrice in 2007 with First Restructuring, in 2010 with First Additional Financing, and in 2011 with Second/Third Additional Financing. However, itthe change in KPIs was a minor revision involving only the addition of additional flood damaged communities to the project target areas. The change was made in the third additional Financing Agreement dated on November 29, The table below presents the KPI changes and reasons for the original and revised KPIs. Table 1: Original KPIs and Reasons for Changes No Original KPI Reasons of Changes 1 Percent of targeted households (85,000) benefiting from increased income and village level social and economic infrastructure. The number of target households increased. As a result, percentage became irrelevant. It was also decided to separate livelihood support indicators from village social and economic infrastructure. This KPI was kept as KPI 1 of the revised 2 Number of employment opportunities generating from increased agricultural production KPIs. Employment opportunities are not only provided in the agriculture sector. 3

18 potential and other sub projects (1,000). 3 Number of sustainable village level community organizations capable of village level planning, implementation and monitoring development activities. 4 Number of self-reliant farmer organizations, federations or companies engaged in productive, sustainable and competitive agriculture production and marketing. There was shift in the project focus from strengthening pre-existing CBOs to instead forming new VDOs. With the change, it was difficult to set a new target numbers. In addition, to measure the level of CBOs and VDOs in terms of defining sustainable organizations with a single method became difficult. The project carried out grading of VDOs, but it was not possible to apply the same grading system to Batch-I CBOs. Because of the shift of focus on VDOs and revolving funds, outcomes of project activities broaden. In addition, new economic activities as a result of revolving funds and cluster development grew rapidly and it became difficult to measure the impacts of individual loans. Table 2: Revised KPIs and Reasons for their Introduction. No Revised KPIs Reasons for introduction 1 Number of households benefitting from livelihood opportunities (213,000). It was decided to measure the number of people who received support from the project in re-establishing their 2 Number of employment opportunities generated (1,000) 3 Number of hectares of irrigation area rehabilitated (114,000) 4 Proportion of vulnerable people who are VDO members (80%) 5 Proportion of vulnerable people who obtain livelihood financing (50%). 6 Proportion of village youth and excombatants assisted (30%). livelihoods. The focus also shifted to youth and excombatants who often seek employment outside of agriculture sector. This KPI was kept as KPI 2 of the revised KPIs. Despite the fact that the rehabilitation of irrigation systems was the major project activity, it was not included as a part of KPIs. There was a need to measure the proportion of vulnerable people who received project support. There were no indicators to capture the outcomes of the use of revolving funds. After the termination of the conflict, assistance to youths and ex-combatants became very important and the project 4

19 carried out many activities to support them. However, no KPI existed to measure the outcome of associated project activities. 7 Rural roads rehabilitated (1,542 km). In order to support IDPs return to their homes, road rehabilitation and collaboration with local government s demining efforts, became critical. The original KPIs did not capture project s infrastructure development efforts. 8 Improved community water points constructed or rehabilitated (1,394) 9 Piped household water connections provided by the project (10,000) Safe water supply was the most immediate requirement to support IDP resettlement. There were many other projects, especially at the four adjacent districts, active in connecting water supply pipes to households. 1.4 Main Beneficiaries The project s original main beneficiaries were populations in conflict-affected communities in eight districts of the Northern and Eastern Provinces: (1) Ampara; (2) Batticaloa; (3) Jaffna; (4) Kilinochchi; (5) Mannar; (6) Mullaitivu; (7) Trincomalee; and (8) Vavuniya; as well as four districts adjoining these provinces (province in parentheses) which were judged to have been significantly affected by the conflict; (9) Moneragala (Uva); (10) Puttalam (North West); (11) Anuradhapura (North Central); and (12) Polonnaruwa (North Central). In November 2010, the heaviest rain in 18 years flooded Sri Lanka, causing serious damage to tanks (reservoirs), irrigation systems, roads and other infrastructure. The GOSL and the Bank agreed on additional financing to restore damaged infrastructure in four further districts beyond the original 12 mentioned above: (13) Badulla (Uva); (14) Kandy (Central); (15) Matale (Central); and (16) Nuwar Eliya (Central) and increasing the number of beneficiary households. It should be noted, however, that activities in the additional districts were not undertaken at community level and did not involve the creation of any further VDOs. The expanded beneficiary numbers therefore refer to the district populations estimated to have benefitted from the repaired or rehabilitated civil works. Table 3 below presents the number of investments made by the project and the estimated number of project beneficiary households. Over ten years of project implementation project supported more than one million of beneficiaries. It is important to note that the original design aimed to reach around 85,000 families totaling around 400,000 people. 5

20 Table 3: No of Investments and Beneficiary Households Activity Category No. of Beneficiary Investments HH Livelihood opportunities 132, ,555 Rural Roads & Bridges 1, ,237 Community/Training Centres ,049 FDR Buildings & Roads /1 488,704 Capacity building 101,049 Youths and Ex-combatants 52,224 Total 134,883 1,163, Original Components Component 1: Village rehabilitation and development (US$53.14 million). This component comprised: (a) reviving, forming and strengthening CBOs; (b) communitylevel subprojects for rehabilitation and improvements to essential village-level social and economic infrastructure and facilities; (c) livelihood support activities for vulnerable groups and people, and (d) special development activities targeting women, widows, land mine victims, etc. The main targeted beneficiaries were Internally Displaced People (IDPs) and other conflict-affected households in 600 selected focal villages in the project area. Component 2: Essential rehabilitation and improvements to selected major irrigation schemes (US$16.74 million). This component included essential dam safety repairs and improvements, and urgent rehabilitation/improvements to major irrigation, drainage, and conveyance/feeder canals of selected five major irrigation/drainage schemes (Allai Scheme in Trincomalee District, Ginats Tank in Mannar District, Iranamadu Scheme in Kilinochchi District, Karavahu Scheme in Ampara District and Rugam Scheme in Batticaloa District). This component aimed to benefit approximately 15,000 farming families who were dependent on these schemes for their livelihoods. Component 3: Farmer Organization (FO) capacity building and empowerment and strengthening of agricultural support services (US$4.92 million). The objective of this component was to develop the ability and capacity of FOs and farmer federations (FFs) of the NE to improve the productivity, sustainability and competitiveness of agriculture. This component included: (a) forming, supporting and strengthening viable and commercially oriented FOs and FFs; and (b) strengthening the capacity of government agricultural research, extension and inputs supply services. 6

21 Component 4: Capacity building, project implementation support and project oversight (US$6.34 million). This component provided resources for two principal activities: (a) Capacity building of provincial, district/divisional, and local government agencies other than agriculture-related agencies responsible for project implementation; and (b) Project implementation support and oversight. 1.6 Revised Components The changes occurred during first restructuring in 2007 with the change in approach to implementation of Component 1, and during the approval of Second/Third Additional Financing with the inclusion of the four districts affected by floods to rehabilitate village infrastructure facilities. Component 1: Village Institutions, Infrastructure and Livelihoods Development ($63.98 million). The revised component aimed to develop and strengthen local institutional capacity, and provide support to village level infrastructure and productive livelihood development. The major change in focus was to enhance the CDD approach by creating VDOs, instead of working with existing CBOs; the original approach of the project. Under this component, the project allocated approximately US$50 per community member for activities in the form of a village fund that each VDO disbursed through participatory planning processes. As a result of the Mid Term Review, after 2007 this component comprised: Capacity Building Fund (10% of village allocation) to build capacity of the VDOs to plan and facilitate their community members, including the capacity to manage livelihood funds (revolving funds); Infrastructure Fund (40% of village allocation) to develop priority village infrastructure; and Livelihood Fund (50% of the village allocation) to enhance livelihoods of vulnerable and poor households by providing skills training for the youth and grants/loans to target households for developing productive livelihoods. Two major increases in resource allocation occurred for this component during the implementation period, albeit with no further changes in the nature of component activities. In December 2009, following the end of the civil war and the accelerated return of IDPs to their communities, an additional US$12 million was provided under a 1 st Additional Financing to permit the expansion of the number of communities participating in the project. An additional US$16 million was further allocated to this component under the 2 nd /3 rd Additional Financing in June 2011, primarily targeted at community level infrastructure, including irrigation systems, roads and potable water supply systems damaged by the floods of late

22 Component 2: Essential rehabilitation and improvement to selected major irrigation schemes ($57.62 million). The Second/Third Additional Financing in June 2011 increased the resources available for this component by the amount of US$32 million in response to the serious flooding that had affected many areas of Sri Lanka during late This additional funding permitted the expansion of major irrigation rehabilitation and access road repair in four additional districts, although no additional village level activities were proposed. Component 3: Community Livelihoods and Cluster Development Component ($4.88 million). This component was revised in 2007 to move away from establishing FOs and improving agricultural support services to instead promoting and supporting the increased output of high quality village products (farm and non-farm) by supporting the formation of cluster commercial enterprises linked to private and/or public organizations. Another key activity within this component was support for 607 Family Economic Enhancement Packages (FEEPs), supporting small enterprises operated by female-headed households. Clusters were to be formed by members of one or more VDOs in order to establish and operate some form of small business or agricultural operation and were provided with grant funds. FEEPs were similar in nature, being offered grant funds to enable economic activities, but were restricted to female headed households. Component 4: Project Implementation Support and Oversight (US$14.63 million). As a result of the additional financings, the expansion of the target districts, and the change of implementation modality from district government based implementation to the direct project execution modality through the Project Management Unit (PMU), the extent of this component was changed significantly. These changes included adding two Provincial PMUs Other significant changes Table 5 below summarizes major changes in project structure or functioning during the implementation period. 2 The North East Province was divided into two separate provinces in 2007, requiring one additional PPMU in Vavuniya. A second additional PPMU was also created in Batticaloa. Following the agreement for the additional financing for FDR, a further PMU was established for the four new Districts in

23 Table 5: Summary of Significant Changes to the Project Action Date Document No Key Changes First Project 27 Sep LK Project name restructuring 2007 amended. Implementing Agency and geographical scope made more First Additional Financing Second/third Additional financing Second Restructuring Third Restructuring 11 Jan Jun Jan Jun 2014 Source: World Bank Documents flexible LK Increase financing for Northern Province postwar and accelerated return of IDPs LK Expand project support to flood affected areas LK Reallocation of funds primarily for civil works from one component to another LK Greater allocation of 2 nd /3 rd AF amounts to civil works Comments Credit increased by SDR 7.6 M (US$ 12 M). Closing date extended to 31 March Credit increased by SRD 30.3 M (US$ 48 M). Closing date extended till 31 December 2014.After the issuance of the second AF package, more funds became available and a third AF was processed and both AF were approved. No modification to total Credit amount No modification to total Credit amount 9

24 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Soundness of background analysis: The background analysis was sound as, at the time when the Bank proposed to fund a second phase of the NEIAP, it had received a detailed Needs Assessment completed in 2003 for all 12 districts prior to appraisal. The Bank s global experience in developing such projects supporting rehabilitation, reconstruction and development in post conflict environments was also utilized in formulating the second phase of the project (and in the subsequent re-structuring). It was noted that the project was prepared on the basis of the 2002 ceasefire agreement, which anticipated the LTTE allowing civilian traffic through their territory, thus paving the way for economic development. Assessment of project design: At the time of project preparation, the original design was assessed appropriate based on the lessons learned from NEIAP and incorporating political reality of both then-government and LTTE. The original project design was heavy on irrigation and village infrastructure due to deterioration of the basic social services and lack of maintenance for several years. These issues underpinned the basis for a strong social and economic recovery. The restructuring in 2007, incorporated the lessons learnt through implementation of the CDLIP in the south of Sri Lanka and changes of KPIs. Several alternatives were considered in arriving at the chosen re-design, which included simple and clear principles, empowerment of local communities, and capacity building. The restructurings that followed responded to challenges and emergency situations that emerged during project implementation and the willingness of both the government and the Bank to adapt the project to be an effective vehicle to address to the needs of war-torn communities and the most vulnerable. Adequacy of Government Commitment: The Government s response to developing the war affected area was based on its Development Framework. GOSL placed particular emphasis on the achievement of equitable growth and the reduction of regional disparities in North, East and adjoining areas. Demonstrating its commitment to accelerating livelihood development and rural poverty reduction, the Government launched the Re-awakening Project. Through this project, the Government proposed to bring about a comprehensive and integrated development of villages in the war affected areas. This was the flagship project that was supported by the Government from inception till completion. Assessment of risks: The project preparation team correctly identified a varied set of risks and laid out pertinent mitigation measures as well as credit conditions and covenants. The team also recognized that the emergency situation in the provinces posed several likely social and operational risks and had established a Risk Identification Worksheet early in the appraisal process. It rated the overall residual risk as high. The risk associated with a return to full conflict materialized in 2007, but the worsening situation was beyond the capacity of the planned mitigation measures. As a result, the project could not proceed with 10

25 any substantial work within the conflict areas for a period of two years. The Sri Lankan Supreme Court s decision to create the Northern and Eastern provinces from the prior North-Eastern Province was an unforeseen risk and thus there were no mitigation measure in place. The VDOs were registered initially with the project and finally with the Divisional Secretariat for supervision and monitoring. At the time of the ICRR, all VDOs under the project have a legal basis of existence. But, the continuity of the VDOs is questionable due to the bureaucratic nature of the Divisional Secretariat. 2.2 Implementation Over the ten years of project implementation, which started in 2004 and ended in 2014, the project faced many challenges, including the escalation of the civil war and the surge of IDPs, the institutional separation of a key target province into two, the massive return of IDPs following the end of the conflict, and several natural disasters (droughts and floods). Despite the uncertainties, recurrent challenges and emergency situations, the project maintained implementation integrity and continued to support the most vulnerable and those affected by the civil war and natural calamity throughout the implementation period. Implementation can be divided into three major periods: (i) from effectiveness in 2004 to the mid-term review in 2007; (ii) from then to the end of 2010; and (iii) the final four years when the flood damage rehabilitation funding was provided until the end of December The first period (of NEIAP 2) featured problems of effectiveness. The peace process got stalled and armed conflict between GOSL forces and LTTE escalated with several project districts impacted due to temporary displacement of communities from project villages. Activities in about twenty percent of project villages were temporarily suspended due to lack of households to implement collective activities in these villages. Much of the community and irrigation infrastructure to be financed by the project was delayed due to problems in mobilizing consultants, preparing village development plans, and procuring construction materials. Another important factor contributing to the limited implementation was high turnover of project staff including three Project Directors. Also, communication and coordination between PMU and district staff was less than effective due to the escalation of the war and regular closure of the PMU in Trincomalee. Second period started with the Mid Term Review (MTR). At MTR, the achievement of PDOs was rated as moderately satisfactory but implementation progress was rated as poor. By the end of 2007, only nine percent of funds had been disbursed and weaknesses in procurement, environmental safeguards and project management were flagged. It was therefore necessary to re-structure the project, and a greater emphasis was placed on rural livelihoods and ensuring interventions targeted the poorest and most vulnerable. The newly created VDOs were tasked to manage a substantial part of the funds for Component 1 (and to a lesser extent Component 2) with oversight from project district financial assistants reporting to provincial PMUs. The third period essentially focused on flood repair works while the VDO and CDD interventions continued in the previous areas. A third PMU was 11

26 established to manage the four flood affected districts. A number of factors influenced the various stages of implementation, notably: End of Ceasefire and Resumption of the Conflict: The 2002 ceasefire agreement was broken in 2005 after just one year of project implementation and intensified by Many people were once again displaced and the project could not function in a number of districts. With the end of the conflict in 2009 and the rapid demining of many areas, the project s implementation was accelerated, with irrigation rehabilitation works and infrastructure activities in particular intensified. Change of Implementation Arrangements: The 1987 Indo-Sri Lanka Accord had recognized the Northeast as the historical habitat of the Tamil speaking people of Sri Lanka and created the Northeast Province as one administrative unit with one elected council. NEIAP was formulated on this basis and implemented under the oversight of this Council. NEIAP 2 (currently recognized as the Re-awakening Project) was similarly formulated, but in October 2006 the Northeast Province was once again sub divided into Northern and Eastern Provinces. This necessitated the project establishing additional Provincial PMUs (and recruiting additional staff) and developing an implementation modality that gave more responsibility to the project management unit rather than the previous district government implementation approach. Change of Ministries: Sri Lankan Supreme Court s decision to divide the North-East province into two undermined the plan to move implementation responsibility from North-East Provincial Council (NEPC) to Interim Administrator Council (IAC). At the end of the conflict in 2009, the Ministry of Economic Development (MED) was created and took over the project from the Ministry of Nation Building and Estate Development. It took some time for the new Ministry to become familiar with Bank project operations and procedures, which lead to slow implementation for a period. Erratic Rainfall: The northeast monsoon is characterized by flood drought cycles that appear to have become more severe in recent years. Many of the project beneficiaries depend upon subsistence farming for food and income and such events can cause significant hardship to people already vulnerable in the post conflict situation. Rains in 2010, which were much heavier than normal, led to floods that continued through to 2011 and affected most parts of Sri Lanka. In 2013, the monsoon was delayed and brought very low precipitation (less than 40 percent of the mean); leading to a prolonged drought and crop losses in many districts, with tanks and hand dug wells running dry. In June 2014, Sri Lanka once again experienced heavy prolonged rains leading to floods, landslides and further crop losses. One consequence of these two years of erratic rainfall was the lower loan recovery rates and reduced funds available in VDO revolving funds noted by the ICRR mission. Adoption of the VDO Approach: Based on the successful experience of the CDLIP in the south of Sri Lanka, the GOSL and the Bank agreed that the project approach 12

27 should change to VDO-based development in This streamlined the operations and implementation as villages now had only a single window (rather than multiple CBOs) in each village, improved project management at the village level and required democratically elected leaders and paid community resource persons (CRPs). Decision making for revolving funds and grants, and the prioritization of projects for critical community infrastructure both became more rapid, while the community committees and greater beneficiary involvement has contributed to the many successful community based projects under Component 1. Increase in Project Staff: As shown in Table 1, the number of project staff increased over time and especially after the end of the conflict when a need for community mobilizers became apparent, with each mobilizer working with 4-5 VDOs and CRPs. The additional financings also led to an increase in project technical staff who worked on the infrastructure design and supervision of works, thus providing an improved speed of design work as well as much-needed oversight of the infrastructure developed. Bank Responses: The termination of the civil war in 2009 and the floods of 2010 led to the Bank providing additional financing to the project. The first additional financing (2007) supported additional IDPs as they returned home at the end of the conflict and improved roads and other infrastructure. The Second/Third Additional Financing (2011) responded to the floods of 2010/2011 and expanded project activities to an additional four central Province districts. Roads were now given priority and the project was re-structured to reflect this. The budget was modified to reduce funding to irrigation works in favor of more roads and more drinking water supply projects. The Bank s responses to these events were quick and commendable, demonstrating the Bank s ability to respond to emergencies. However, it should be noted that the documentation of the changes made to the project was not always complete, leading to a reporting gap concerning the changes made. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The M&E system of the project followed the M&E framework as articulated in the Results Framework of the PAD, and as amended from time to time. As a result of restructuring, the nine KPIs replaced the original four KPIs to reflect actual project outcomes. The database archive at the PMU level was maintained with consolidated numbers, but was sometimes lacking in the detail necessary for analysis. During the course of implementation, the project effectively moved from traditional reporting on the basis of secondary data, to developing and implementing an M&E Plan and integrating validated reported figures in the system, thus providing necessary credibility to the reported progress of the project. This system for data validation and development of M&E Plan was introduced as a result of the Bank s Mission recommendations. In addition, during the course of the project, the M&E system also managed to establish a clear separation of 13