Additional Cofinancing Sri Lanka Sri Lanka Project Number: 45148 Loan Number: 3029/3030-SRI May 2014 Proposed Administration of Loan Democratic Socialist Republic of Sri Lanka: Greater Colombo Water and Wastewater Management Improvement Investment Program: Project 2 Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Public Communications Policy 2011.
CURRENCY EQUIVALENTS (as of 1 May 2014) Currency Unit Sri Lanka rupee/s (SLRe/SLRs) SLRe1.00 = $ 0.007655 $1.00 = SLRs 130.64 ABBREVIATIONS ADB Asian Development Bank AFD Agence Française de Développement MFF multitranche financing facility NRW nonrevenue water TEC towns east of Colombo NOTES (i) (ii) The fiscal year (FY) of the Government of Sri Lanka ends on December 31. FY before a calendar year denotes the year in which the fiscal year ends, e.g. FY2008 ends on 31 December 2008. In this report, "$" refers to US dollars.
Vice-President W. Zhang, Operations 1 Director General J. Miranda, South Asia Department (SARD) Director Y. Fei, Urban Development and Water Division, SARD Team leader Team members Peer reviewer M. Fan, Senior Urban Development Specialist, SARD P. Cawrse, Urban Development Specialist, SARD K. Dahanayake, Project Officer, SARD M. de Mesa David, Operations Assistant, SARD K. Emzita, Principal Counsel, Office of the General Counsel N. Gunasekera, Social Development and Gender Specialist, SARD N. Pokhrel, Urban Development Specialist, SARD I. Setyawati, Safeguards Specialist, SARD J. Zheng, Urban Development Specialist, SARD H. Jenny, Principal Urban Development Specialist, Southeast Asia Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS PROJECT AT A GLANCE Page I. THE ONGOING PROJECT 1 II. THE ADDITIONAL FINANCING 1 A. Rationale 1 B. Impact, Outcome, and Outputs 2 C. Cofinancing 2 III. THE PRESIDENT'S RECOMMENDATION 4 APPENDIX 1. Revised Design and Monitoring Framework 5 SUPPLEMENTARY APPENDIXES (available upon request) 1. Contribution to the ADB Results Framework 2. Financial Analysis 3. Economic Analysis
PROJECT AT A GLANCE Project Name Greater Colombo Water and Wastewater Management Tranche No. 2 Improvement Investment Program Project No 45148-007 Country Sri Lanka Department SARD Date of Receipt by ADB of PFR 3 June 2013 Division SAUW Project Data Sheet http://www.adb.org/projects/45148-007/main Tranche Sector Classification Sector: Water and Other Municipal Infrastructure and Services Subsectors: Water supply and sanitation Tranche Thematic Classification Theme: Social development, Environmental sustainability, Governance, Capacity development Subthemes: Human development, Urban environmental improvement, Public administration (national, decentralized, and regional), Institutional development Climate Change Impact Adaptation low Mitigation low Gender Mainstreaming Targeting Classification Gender equity theme Effective gender mainstreaming Some gender benefits No gender elements General Intervention Targeted Intervention (i) Geographic dimensions of inclusive growth (ii) Millennium Development Goals (iii) Income poverty at household level MDG7 Location Impact Rural Low National Medium Urban High Regional Tranche Risk Categorization Low Risk Complex (iii) Indigenous peoples C Not required Weblink: Financing Requested from ADB Modality Source Amount ($ million) MFF-Tranche OCR 70.0 MFF-Tranche ADF 18.0 Total: 88.0 Financier Category Amount ($million) Administration Type Agence Française de Official-Loan 101.0 Partial Développement Counterpart Financing Government 30.0 Safeguard Categorization Category Required Document Disclosure Date (i) Environment B Initial Environmental Examinations 2 Jul 2013 Weblink: http://www.adb.org/projects/documents/greater-colombo-water-and-wastewatermanagement-improvement-tranche-2-iee (ii) Involuntary resettlement B Resettlement Plans 3 Jul 2013 Weblink: http://www.adb.org/projects/documents/greater-colombo-water-wastewatermanagement-improvement-investment-tranche-2-rp Aid Effectiveness Parallel project implementation unit Program-based approach CPS/COBP http://www.adb.org/documents/sri-lanka-country-operations-business-plan-2013-2015
I. THE ONGOING PROJECT 1. The Board of Directors of the Asian Development Bank (ADB) approved the multitranche financing facility (MFF) for the Colombo Water and Wastewater Management Improvement Investment Program on 25 October 2012. 1 The investment program will finance a portion of government initiatives to improve water and wastewater management services in Greater Colombo. 2 It will rehabilitate and expand water supply and wastewater management infrastructure. In order for investments in physical infrastructure to be effective and sustainable, the investment program will assist the government in introducing institutional reforms in the water and wastewater subsectors, particularly in Greater Colombo. 3 2. The Investment program is estimated to cost $400 million. Up to $300 million equivalent, or 75% of the total cost, will be provided through the MFF from ADB s Special Funds resources and ordinary capital resources. The MFF is sequenced as follows: (i) tranche 1: $84 million for project 1 in 2012; (ii) tranche 2: $88 million for project 2 in 2013; (iii) tranche 3: $90 million for project 3 in 2015; and (iv) tranche 4: $38 million for project 4 in 2016. Projects 1 and 2 will focus on reducing nonrevenue water (NRW) and improving water service efficiency in Colombo city. 4 Project 1 was approved by the President on 22 November 2012, and the loan for project 1 became effective on 25 September 2013. Project 2 was approved by the President on 26 September 2013. The implementation of project 1 is on track. The loan agreement for project 2 will be signed soon. II. THE ADDITIONAL FINANCING A. Rationale 3. The government has requested the scope of work under project 2 be expanded from rehabilitation of the water distribution system in Colombo city to include expanding the water supply to TEC and rehabilitating the pumping station in Ambathale. Agence Française de Développement (AFD) cofinancing will be used for this expansion. The MFF modality was selected to allow phased implementation and funding of individual projects when they are ready, subject to eligibility and readiness of subprojects included in the investment program. The MFF will offer the opportunity for cofinancing and private sector participation. The proposed additional cofinancing from AFD is mobilized in accordance with the approved MFF. The AFD cofinancing is proposed to finance two subprojects: (i) expansion of water supply coverage in towns east of Colombo (TEC), using water saved from NRW reductions under projects 1 and 2 in Colombo city; and (ii) reorganization of the current pumping and transmission arrangements of Colombo city to save energy in the 1 ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to the Democratic Socialist Republic of Sri Lanka for the Greater Colombo Water and Wastewater Management Improvement Investment Program. Manila. 2 Greater Colombo comprises 15 local authorities: five municipal councils (Colombo, Dehiwela Mount Lavinia, and Sri Jayawardenepura Kotte, Kaduwela, and Moratuwa), five urban councils, and five pradeshiya sabhas (smallest political units in peri-urban or rural areas). It has a population of more than 838,000 and a floating (transient) population of more than 500,000. 3 ADB. 2011. Technical Assistance to Sri Lanka for Colombo Water Supply Servie Improvement Project. Manila. Supplementary TA was provided in 2012. 4 Nonrevenue water (NRW) is the gap between the amount of water put into the distribution system and the amount of water for which customers are actually billed.
2 water supply system. AFD cofinancing will further strengthen the impact and outcome of proved project 2 under the MFF. 4. The proposed AFD-cofinanced subprojects are part of the government s investment plan that envisions investments of $1,500 million for water and sanitation sector in Greater Colombo in 2010 2020. 5. AFD is a key development partner in the country and in the water sector in 2010 2012. The AFD cofinancing is consistent with the priority assigned by ADB and the government to the water supply and other municipal infrastructure and services sector, as identified in the country partnership strategy. 5 B. Impact, Outcome, and Outputs 6. The impact of the investment program will be an improved urban environment and quality of life for the residents of Greater Colombo. The outcome of the investment program will be improved water supply and wastewater service and management in Greater Colombo. 7. The impact of project 2 will be improved water supply and wastewater service and management in Greater Colombo. 6 The expected outcome of project 2 will be improved system efficiency and financial sustainability of water supply and wastewater services in Greater Colombo. With AFD cofinancing, the impact and outcome of the project 2 remains the same with approved project 2, but two additional indicators will be used to measure the outcome of the intervention and monitor project outcome: (i) the number of households that receive a continuous water supply in TEC, and (ii) energy saving and cost reductions in water production through Ambathale pumping station refurbishments. 8. With AFD cofinancing, there are two additional outputs under physical aspects: (i) expansion of water supply coverage in TEC, and (ii) reorganization of the current pumping and transmission arrangements in Ambathale. Therefore, two indicators are added under output 1. The AFD cofinancing is to be implemented with an additional design and supervision consultant to strengthen the project implementation. The other output indicators remain the same. C. Cofinancing 9. AFD cofinancing in an amount equivalent to $101 million will be provided as a loan and will be partially administered by ADB (ADB will administer procurement and safeguards). Due to the complexity involved in currency swap management at AFD for loans dominated in US dollars, ADB will not administer AFD loan disbursement. All procurement, social, environmental, and gender safeguards will follow ADB requirements. 10. The loan agreement for the AFD loan will be between AFD and the government. The AFD loan in an amount equivalent to $101 million; it will have a 25-year term, including a grace period of 7 years, an annual interest rate equivalent to the London interbank offered rate to Euro interbank offered 6-month rate plus 1.26%, an engagement fee of 0.5% per annum to be paid on the engaged but undisbursed balance, a onetime appraisal fee of 5 ADB. 2011. Country Partnership Strategy: Sri Lanka, 2012 2015. Manila. 6 The project 2 design and monitoring framework is in Appendix 1.
3 0.25% on the full loan amount, and such other terms and conditions set forth in the loan agreement between AFD and the government. The coordination and cofinancing arrangements between ADB and AFD will be detailed in a cofinancing agreement. The revised investment and financing plans for project 2 are in Tables 1 and 2. Table 1: Revised Proposed Project 2 Investment Plan ($ million) Current Amount a, b Additional Financing Item Total A. Base Cost 1. Water supply and NRW rehabilitation 65.69 85.42 151.11 2. Wastewater investments preparation 2.61 0.00 2.61 3. Institutional reform and capacity building 4.39 3.61 8.00 4. Project implementation support 8.67 2.91 11.58 Subtotal (A) 81.36 91.94 173.30 B. Taxes and Duties c 19.76 25.62 45.38 C. Contingencies d 13.39 11.64 25.03 D. Financing Charges During Implementation e 3.50 7.80 11.30 Total (A+B+C+D) 118.00 137.00 255.00 NRW = nonrevenue water a Exchange rate of $1.00 = SLRs130.00 is used. b c d e In March 2013 prices. Taxes and duties computed at 32% for imported goods and at 12% for domestic goods and services. Taxes and duties are the responsibility of the government. Physical contingencies computed at 10% for civil works and equipment; price contingency computed at 6% for domestic goods and 2% for imported goods, assuming US dollar Sri Lanka rupee purchasing power parity for foreign exchange forecasting. The Asian Development Bank (ADB) share includes interest and commitment charges. Interest during construction for ADB loan(s) is computed at 1.6% per year based on the London interbank-offered rate 5- year fixed swap rate plus ADB s contractual spread and a maturity premium for loans from ordinary capital resources, and 2.0% per year for loans from Special Funds resources. Commitment charges for ADB loans from ordinary capital resources are computed at 0.15% per year. Source: Asian Development Bank estimates. Table 2: Revised Financing Plan for Project 2 Current Additional Financing Total Amount Share of Amount Share of Amount Share of Source ($ million) Total (%) ($ million) Total (%) ($ million) Total (%) A. Asian Development Bank 88.00 74.58 88.00 34.51 1. Ordinary Capital 70.00 59.32 Resources (loan) 70.00 27.45 2. Asia Development 18.00 15.26 Fund (loan) 18.00 7.06 B. Agence Française de Développement (loan) 101.00 73.72 101.00 39.61 C. Government of Sri Lanka 30.00 25.42 36.00 26.28 66.00 25.88 Total 118.00 100.00 137.00 100.00 255.00 100.00 Source: Asian Development Bank estimates. 11. During the preparation of project 2, the project preparation technical assistance consultant prepared two feasibility studies for the TEC and Ambathale subprojects to be
4 cofinanced by AFD. Technical, financial and economic aspects are sound. The consultant also conducted safeguard due diligence. The resettlement plans and initial environmental examinations for the TEC and Ambathale subprojects for AFD cofinancing were prepared in accordance with ADB Safeguard Policy Statement (2009) requirements; both the resettlement plans and initial environmental examinations submitted by the government were disclosed in accordance with ADB Safeguard Policy Statement requirements. 12. The proposed AFD cofinancing is classified as effective gender mainstreaming. The gender action plan for project 2 has included the activities for the proposed AFD cofinancing. The consultation and participation plan outlines specific outreach activities to raise awareness and ensure the meaningful participation of communities and stakeholders in the AFD cofinancing (TEC) area. A nongovernment organization will be recruited and will provide the guidance to (i) form water user groups; (ii) assist in implementing the gender action and consultation and participation plans; and (iii) implement a water, sanitation, and hygiene awareness campaign in the AFD cofinancing TEC area. ADB s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the implementing agencies. The specific policy requirements and supplementary measures are described in the revised project administration manual. 13. The implementation arrangements for the proposed AFD cofinancing will follow the implementation arrangements under projects 1 and 2, as set out in the MFF facility administration manual. Investments in water supply under the proposed project 2, including monitoring and evaluation, will be implemented by the National Water Supply and Drainage Board. The existing Project Management Unit and project director will be responsible to implement the AFD cofinancing. Two additional Project Implementation Units will be formed under the Project Management Unit, with two deputy project directors to implement the two AFD cofinancing subprojects. The services of an additional design and supervision consultant, selected under project 2, will be used for the proposed AFD cofinancing. The implementation period runs concurrently with project 2. III. THE PRESIDENT'S RECOMMENDATION 14. The President recommends that the Board approve ADB administering a loan not exceeding the equivalent of $101,000,000 to the Democratic Socialist Republic of Sri Lanka for the additional financing of the Greater Colombo Water and Wastewater Management Improvement Investment Program Project 2, to be provided by the Agence Française de Développement.
Appendix 1 5 REVISED DESIGN AND MONITORING FRAMEWORK Design Summary Impact Current project Improved water supply and wastewater service and management in Greater Colombo Performance Targets and Indicators with Baselines Daily water supply increased in low-pressure area a in Colombo (baseline: 5 hours in 2012; target: 24 hours by 2020) Citywide NRW in Colombo reduced (baseline: 49% citywide and 60% in critical area in 2012; target: 20% in Colombo and 18% in critical area by 2020) Data Sources and Reporting Mechanisms (Overall Project) NWSDB water balance audit Assumptions and Risks (Overall Project) Assumption Ongoing and planned water supply projects, financed by JICA and NWSDB successfully implemented Overall project Coverage of sewer network increased including all BPL households (FHH among them) (baseline: 80% in 2012; target: 100% in Colombo in 2020) CMC annual reports Outcome Current project Improved system efficiency and financial sustainability of water supply and wastewater services in Greater Colombo Overall project By the end of 2018: a. NRW in the southern part of Colombo city reduced to 20% (baseline: 49% in 2013) b. 44,500households (including all BPL households and FHH) benefitted with 24/7 water supply in the southern part of Colombo city (baseline 5 hours in 2013) By end 2018: a. NWSDB water balance audit Risk Tariff increase as agreed by the government is delayed b. c. 33,000 households benefitted with 24/7 water supply in TEC b (baseline water supply 5 6 hours in CBO areas in 2013) d. 25% energy saving and cost reductions in water production through Ambathale pumping station refurbishments b (baseline: annual energy costs $7.05 million in 2013)
6 Appendix 1 Design Summary Outputs Output 1 Current project Rehabilitated and expanded water supply system, and reduced NRW in Greater Colombo Performance Targets and Indicators with Baselines By the end of 2018: a. 242 km of water supply pipelines and 15,000 water meters replaced in the southern part of Colombo city b. Minimum of 15 DMAs established in the southern part Colombo city (baseline zero DMAs in 2013) c. Additional 150 water outlets provided in unserved settlements, metered and WUSGs formed (target: 50% of representatives in executive committees are women) Data Sources and Reporting Mechanisms (Overall Project) PPMS PPMS NWSDB and NGO annual reports Assumptions and Risks (Overall Project) For all outputs: Assumption Key project officials remain in office during the project period Risk Prices of pipes and construction materials increase beyond projections. Overall project By the end of 2018: a. b. c. d. 360 km of distribution network, 8 km of transmission mains and 18,000 m 3 capacity storage reservoir constructed for TEC water supply system improvement b AFD Project progress reports Output 2 Current project Completed designs and improved preparedness for wastewater investments e. Four new pumps installed, 24 existing pumps replaced and/or refurbished, facilities automated and improved at Ambathale b Detailed design and bid documents for investments in wastewater management under projects 3 and 4 approved AFD Project progress reports DSIDC and CMC reports Overall project Output 3 Current project Strengthened institutional structure and capacity of service providers Colombo city water supply operations decentralized to RSC- WC of NWSDB GIS-based asset management system for Colombo city established and operated by RSC- WC PPMS
Appendix 1 7 Design Summary Performance Targets and Indicators with Baselines Two NRW management offices established and functional, and 6 active-leakage-control (ALC) teams fully equipped and operational Data Sources and Reporting Mechanisms (Overall Project) Assumptions and Risks (Overall Project) Training and capability building provided to 1000 NWSDB and CMC staff (target: at least 25% of staff are female professionals) Awareness of water tariff among citizens increased by 20% before and after project 2 emphasizing shared responsibility of men and women in water management (target: 50% of participants in FGDs are women) Survey conducted by the project consultants WASH program implemented in 229 underserved settlements with 16,372 households(target: 50% of participants are women) NGO progress reports Volumetric sewerage tariff approved for CMC CMC annual reports Overall project Output 4 Current project Project 2 successfully managed and implemented Project 2 completed on time and within budget, and rated successful in ADB project success ratings; ADB PPR Overall project Activities with Milestones (Overall Project) 1. Rehabilitated and expanded water supply system, and reduced NRW, in Colombo city 1.1. Obtain all environmental, statutory, and utilities clearances by Q2 2013 1.2. Issue tender documents for priority rehabilitation works by Q4 2013 1.3. Provide advisory services on managing NRW reduction, construction management and supervision under the project by Q3 2014 by MASC (changed) 1.4. Complete procurement of civil works contract by Q3 2015 (changed) 1.5. Provide the NRW teams with vehicles, tools, equipment, and training, and mobilize the teams for active leakage control by Q2 2015 1.6. Establish district metered areas by Q4 2017 1.7. Replace or upgrade all service connections and meters by 2017 1.8. Rehabilitate plumbing systems in condominium housing schemes by Q2 2017 1.9. Provide consultant service for design and supervision consultant by Q1 2015 Inputs ADB $88.00 million (current) Co-financier AFD $101.00 million (additional) Government $30.00 million (current) $36.00 million (additional) $66.00 million (overall)
8 Appendix 1 Activities with Milestones (Overall Project) (added) 1.10. Complete procurement of civil works contract for TEC by Q2 2015 (added) 1.11. Complete procurement of pump station contract for Ambathale by Q4 2015 (added) Inputs 2. Completed designs and improved preparedness for wastewater investments 2.1. Issue tender documents for DSIDC by Q2 2014 (changed) 2.2. Sign contract for DSIDC with consultant by Q2 2015 (changed) 2.3. Conduct condition assessment survey and sewer cleaning of 125 km of the sewer network in Colombo City by Q2 2015 () 3. Strengthened institutional structure and capacity of service providers 3.1. Provide training equipment by Q2 2015 3.2. Renovate and modernize the training facilities by Q3 2017 3.3. Institutionalize reforms in RSC-WC by Q4 2014 3.4. Complete training of NWSDB staff in NRW reduction by Q2 2016 3.5. Complete training of water user groups in meter reading and O&M by 2018 3.6. Establish and calibrate network model for Colombo sewerage by Q2 2015 3.7. Establish separate wastewater cost center in CMC by Q4 2014 3.8. Approve sustainable tariff system for CMC, together with formulation of implementation strategy/mechanism to include legal and institutional provisions, by Q2 2015 3.9. Approve and start the awareness and media campaign, including TV and radio program, focus group discussion designs by Q2 2014 3.10. Update GIS network maps for Colombo city by Q4 2014 4. Project 2 successfully managed and implemented 4.1. Appoint PMU and core counterpart staff for project 2 by Q4, 2013 (25 women) 4.2. Mobilize core counterpart staff required for project 2 by Q1 2014 ADB = Asian Development Bank, AFD = Agence Française de Développement, BPL= below poverty line, CEA = Central Environmental Authority, CMC = Colombo Municipal Council, DMA = district meter area, DSIDC = design, supervision and institutional development consultants, FGD = focus group discussion, GIS = geographic information system, HHW = households headed by women, km = kilometer, JICA= Japan International Cooperation Agency, m 3 = cubic meter, MASC = management advisory and supervision consultant, MOFP = Ministry of Finance and Planning, NGO = nongovernment organization, NRW = nonrevenue water, NWSDB = National Water Supply and Drainage Board, O&M = operation and maintenance, PMU = project management unit, PPMS = project performance management system, PPR = Project Performance Report, Q = quarter, RSC-WC = Western Central Regional Support Center, TEC = towns east of Colombo, WASH = water and sanitation and hygiene, WUSG = water use and sanitation group. a Low-pressure area is about 12 square kilometers and refers to Kotahena, Slave Island, Pamankada, Havelock Town, Mattakuliya, Borella, and Hulfsdorf. b In parallel with Periodic Financing Report PFR 2, the government is seeking contractual cofinancing from Agence Francaise de Developpement in the amount equivalent to $101 million to assist the government in achieving these outcomes. Source: Asian Development Bank.