Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) Report Number : ICRR0020326 1. Project Data Project ID Project Name P086411 LK - Road Sector Assistance Country Practice Area(Lead) Additional Financing Sri Lanka Transport & ICT P110324,P116742 L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-41380,IDA-44290,IDA-49060 30-Sep-2011 352,220,000.00 Bank Approval Date Closing Date (Actual) 15-Dec-2005 30-Jun-2015 IBRD/IDA (USD) Grants (USD) Original Commitment 298,100,000.00 0.00 Revised Commitment 281,105,084.03 0.00 Actual 277,501,347.04 0.00 Sector(s) Rural and Inter-Urban Roads and Highways(90%):Central government administration(6%):Sub-national government administration(4%) Theme(s) Infrastructure services for private sector development(33%):Rural services and infrastructure(17%):Administrative and civil service reform(17%):Other social development(17%):Environmental policies and institutions(16%) Prepared by Reviewed by ICR Review Coordinator Group Ranga Rajan Krishnamani Peter Nigel Freeman Christopher David Nelson IEGSD (Unit 4) 2. Project Objectives and Components a. Objectives The Project Development Objective (PDO) as stated in the Financing Agreement (Schedule 1, page 4) and in the Project Appraisal Document (PAD, page 4) was: “To lower transportation costs through sustainable delivery of an efficient national road system”. In the PAD, this statement is followed by the phrase "that serves the needs of road users and the Sri Lankan public at large". This assessment is based on the PDO as stated in the Financing Agreement. Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) b. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? No c. Components There were three original components. Component A. Maintenance and Rehabilitation of National Roads. Appraisal estimate US$112.51 million. Revised estimate following the first Additional Financing US$179.15 million. Actual cost US$239.00 million. This component aimed at rehabilitating selected priority national roads. Activities included: (i) civil works along national roads, including resurfacing of about 620 Kilometers (Km) of class A and B roads. (ii) Technical assistance for selection, design and construction supervision. (iii) Training and Institutional strengthening, and, (iv) Financing incremental operating costs. Component B. Maintenance and Rehabilitation of Rural Roads Pilot Component. Appraisal estimate US$10.04 million. Actual cost US$13.07 million. This pilot component aimed at helping the Government’s future rural road improvement program. Activities included: (i) rehabilitation and maintenance of about 635 km of rural roads and strengthening rural road management and maintenance systems in three project Provincial Councils and nine project Pradeshiya Sabhas (local governments). (ii) Feasibility, design and construction supervision. (iii) Training and institutional strengthening, and, (iv) Financing incremental operating costs. Component C. Institutional strengthening and Policy Support Component. Appraisal estimate US$0.60 million. Actual cost US$0.66 million. This component financed technical assistance activities aimed at providing adequate resources for financing road maintenance activities. The following components were added following the approval of second Additional Financing. Component A. Rehabilitation of Priority National Roads in the East-West Corridor providing connectivity to the Eastern and Northern Provinces. Cost estimate US$81.00 million. Actual cost US$63.06 million. This component aimed at resurfacing about 134 km of class A national roads in Northern and Eastern Provinces. This activity was to be implemented in two phases. Component B. Institutional Strengthening and Improvements in Asset Management Practices. Cost estimate US$19.00 million. Actual cost US$12.07 million This component provided funding for periodic maintenance and technical assistance to the Road Management Trust Fund (RMTF) and the Road Development Authority (RDA). d. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost. Appraisal estimate (including baseline cost and costs associated with physical and price contingencies) US$144.12 million. Costs were higher than estimated due to a combination of factors including, underestimation of construction costs, escalation in prices of oil-based materials (such as bitumen) due to increase in the world price of oil and use of higher standards for national highways as stipulated in the National Road Master Plan (NRMP) in December 2007. Revised estimate US$363.97 million. Actual cost US$327.86 million. Project Financing. The project was financed by an IDA credit. Appraisal estimate US$100.00 million. Additional Financing of US$98.10 million was approved on 06/23/2008 to cover the cost overruns discussed above. Additional Financing of US$100.00 million was further approved on 04/12/2011 to finance the newly created components (discussed in section 2c). The cumulative credit for the project was US$298.00 million. Amount disbursed at closure US$255.00 million. At closure, US$12.00 of credit was cancelled due to a combination of factors including, underuse of price and physical contingencies, cost savings resulting from fall in world price of oil during the latter years of the project and depreciation of Sri Lanka Rupee (SLR) relative to the US$ during implementation. There was parallel financing for complementary sector reform activities from the Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC). Borrower Contribution. Appraisal estimate US$44.12 million. Actual counterpart funding was more than planned at US$54.63 million. Dates. In addition to the two Additional Financings on 06/23/2007 and 04/12/2011, the project was restructured three times. The following changes were made to the project scope with the first restructuring on 04/08/2013. (i) The activity associated with rehabilitating the national road network in the Norther Province was replaced with rehabilitation of two urban road sections. Given the higher than expected traffic flows in the Norther Province, the Government requested that the road in the Northern Province be widened from two to four lanes. Since widening would have entailed land acquisition which would have exceeded the timeline envisaged for the project, this activity was replaced with the urban road activity (ICR, page 3). (ii).The length of rural roads to be rehabilitated was reduced from 635 km to 157 km. Following the recommendations of the Rural Roads Strategy Study financed under the project, a full upgrade of rural roads was deemed to be necessary as compared to the temporary maintenance regimen envisaged under the project (such as Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) for example, pothole filling, patching, etc.). It was hence decided to provide a more comprehensive upgrade on reduced km of rural roads (ICR, pages 7 and 8). In addition, the project closing date was extended by three years from 09/30/2011 to 09/30/2014. The second restructuring on 09/23/2014 reallocated funding between project components and extended the project closing date by an additional six months from 09/30/2014 to 03/31/2015 for completing ongoing road rehabilitation activities . The third restructuring on in 2015 cancelled part of the loan (for reasons discussed above) and extended the project closing date by three months from 03/31/2015 to 06/30/2015 for completing the unfinished civil works activities. The original project closed about three years and nine months beyond schedule. 3. Relevance of Objectives & Design a. Relevance of Objectives The Bank had remained disengaged from the transport sector in Sri Lanka for almost a decade. At the time of appraisal, Sri Lanka was just emerging from many years of conflict after the cease-fire of 2002 and with the end of hostilities the World Bank, Japan Bank for International Cooperation (JICA) and the Asian Development Bank (ADB) agreed to coordinate their activities in the road sector to support a medium-term reform program that was based on three pillars: (a) strengthening the Road Development Authority (RDA), a statutory institution assigned for implementing the sector development strategy and strengthening the provincial road agencies. (b) establishing a mechanism for providing sustainable basis of financing for funding road maintenance activities. and, (c) developing the domestic private sector in the road industry. The road sector is the backbone of the transport sector in Sri Lanka and in the years before appraisal, uncontrolled road side development and years of neglect had resulted in low travel speeds and poor delivery of road services. This discouraged long distance traffic and hindered the spread of economic activities away from the Colombo Metropolitan area. Further, since public sector budget allocation for the road sector had been substantially below requirements in the years before appraisal, little road maintenance activities had been carried in the last decade and this in turn resulted in over half (52%) of the national roads being classified as being in poor condition. At appraisal, the PDO was highly relevant to the Government Strategy articulated in “The New Development Strategy. A Framework for Economic Growth and Poverty Reduction, issued in May 2005. This strategy recognized the contribution of infrastructure for economic growth and identified the development of road infrastructure as a priority. In 2004, the Government had also decided to implement a Road Maintenance Trust Fund (RMTF) as an interim arrangement for making budgetary allocations to national and provincial roads, before other permanent sustainable arrangements could be made (such as funding such activities through dedicated fuel tax on users). The PDO continues to be relevant to the current Government Strategy articulated in the “Mahinda Chintana: Vision for a New Sri Lanka” for the 2006- 2016 period. The third goal of the strategy highlighted the need for ensuring access to basic related services and providing improved service delivery. The PDO was and remains relevant to the Bank strategy for Sri Lanka. The Bank’s Country Assistance Strategy (CAS) for Sri Lanka for the 2003-2006 period highlighted the goal of improving social and economic inclusion of the poor and facilitating broad-based economic growth. The three areas of focus of the Bank’s current Country Partnership Strategy (CPS) for the 2013-2016 period were: (a) facilitating sustained private and public investment. (b) Supporting structural shifts in the economy, and (c) improving living standards and social inclusion. Rating Revised Rating High High b. Relevance of Design The design incorporated both civil work activities (rehabilitation of national roads) and institutional strengthening component (technical assistance for sector reforms). The causal links between project activities and outputs was clear. Rehabilitation of Government's priority national roads can be expected to contribute to improving the condition of the targeted national road network, and this in turn can be expected to aid in lowering transportation costs on national roads. The activities aimed at institutional strengthening can be expected to contribute to providing for a more financially viable basis for funding road maintenance activities and this in turn can be expected to contribute to sustainable road service delivery. However there were shortcomings. The articulation of the PDO was broad and over ambitious. The targeted activities purported to reduce transportation costs over Sri Lanka’s entire national road network, and yet the 755 km of roads rehabilitated under the project represented only about 6% of Sri Lanka’s entire national road network of 12,000 km. The M&E framework did not have an adequate mechanism to attribute the impact of activities directly to the project. Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) Rating Revised Rating Modest Modest 4. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective To improve the targeted roads under the project. Rationale Although the PDOs were unchanged, the scope of the project and key associated project outcome targets were revised with the approval of the Second Additional Financing on 04/12/2011. Given the nature of the revisions, a split rating was conducted through assessing the efficacy of outcomes before restructuring when 57% was disbursed and after restructuring when the balance 43% was disbursed. Before restructuring. Outputs. • 617 km of national roads were rehabilitated as compared to the target of 620 km. • The average road network roughness in the International Roughness Index Network (IRI- a scale for road roughness) in the national roads rehabilitated under the project, declined from 7.8 at the baseline to 2.8 at project closure. This exceeded the target of 2.9. • 167 km of rural roads were improved at project closure. This exceeded the revised target of 157 km. • Travel time on the project national roads reduced from 66 minutes at the baseline to 40 minutes at project closure. This exceeded the target of 42 minutes. • A rural roads pilot was completed as targeted. The pilot included preparation of a rural roads strategy manual, development of a rural roads improvement program and creation of a rural roads database. • 62% of the roads users expressed satisfaction with the level of service. The ICR however provides no details on the methodology followed in administering the survey. Outcomes. • The average network Vehicle operating Cost (VoC) for vehicles reduced from Sri Lanka Rupee (SLR) 23.9/km at the baseline to LKR 13.88/km at project closure. This exceeded the original target of LKR 22.9/km. The ICR (page iii) notes that an exact determination of the extent of overachievement for this indicator could not be precisely quantified, in view of the uncertainties with the accuracy of the baseline figure. • The average network roughness in the IRI declined from 9.5% at the baseline to 6.45% between 2005 and 2010. This exceeded the target of 8.39%. • The percentage of the road network that were reported to be in poor and bad condition declined from 52% at the baseline to 40% at project closure. This was less than the target of 35%. Rating Substantial Revised Objective To improve the targeted roads under the project. Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) Revised Rationale After restructuring - the achievements above apply equally to the post restructured period Outputs. • 78 km of national roads were rehabilitated at project closure. This was below the target of 134 km. • The average road network roughness in IRI in the project roads declined from six at the baseline to 2.33 at project closure as compared to the target of 2.40. • Periodic maintenance was carried out on 64.50 km of national roads. This was below the target of 60 km. Outcomes. • The average VoC for average vehicles reduced from SLR 14.6/km at the baseline to LKR 13.88/km at project closure. This was short of the target of LKR 10.5/km. • The average network roughness in the IRI declined from 6.2 at the baseline to 5.9% as targeted. • The percentage of the road network that were reported to be in poor and bad condition declined from 38% to 35% as targeted. Revised Rating Substantial PHEFFICACYTBL Objective 2 Objective To support the efficiency of the national road network. Rationale Before restructuring. Outputs. • The Road Maintenance Trust Fund (RMTF) was set up as targeted at the beginning of the project under the Ministry of Finance (MoF). A separate budget line allocated funds to the RMTF and these funds were transferred to the Road Development Authority (RDA) after its annual maintenance plan had been approved. • Road asset Management System (RAMS) for collecting data on road maintenance was established as targeted. • 67% of the relevant staff in the Planning and Maintenance Division of the Roads Development Authority (RDA) were trained in asset management as compared to the target of 50%. • Rural road maintenance strategy was prepared and a rural road database was established as targeted. Outcomes. • Annual Maintenance expenditure (both periodic and routine road maintenance) increased from US$13.00 at the baseline to US$44.00 million at project closure. This was short of the target of US$46.3 million. Rating Modest Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) Revised Objective To support the efficiency of the national road network. Revised Rationale After restructuring - the achievements above apply equally to the post restructured period. Output. • The annual road maintenance program was approved by the Road Management Trust Fund as targeted. Outcomes. • Annual road maintenance expenditure increased from LKR 4.2 billion a year at the baseline to LKR 5 billion. This was short of the target of LKR 6.6 billion a year. Revised Rating Modest 5. Efficiency Economic Analysis. Before restructuring. Modest. An economic cost-benefit analysis was conducted using the same methodology for the maintenance and rehabilitation of National roads component of the original project using the Highway Development and Management Model (HDM-4). This component accounted for approximately 78% of the project cost at appraisal and 73% of the actual cost at closure. The economic benefits of improved road infrastructure were assumed to come from time savings in Vehicle operating Costs (VoC) for normal traffic and time savings for passenger and cargo transport. Project costs included costs associated with rehabilitation of national roads (road widening) and costs associated with road maintenance activities (both routine and periodic maintenance). The Net Present Value (NPV) at 12% discount rate at project closure was US$US$225 million as compared to the NPV of US$103 million at appraisal. The ex post Economic Internal Rate of Return (EIRR) was 17% as compared to the ex-ante EIRR of 31%. The reduction in EIRR and NPV at closure was due to the increase in construction costs. Operational and administrative inefficiencies. There were significant cost and time overruns with rehabilitation of national roads under the original project, with costs overruns on works of national roads ranging from 51% and 132% and time overruns ranging from 7.6% to 180.7%. The cost overruns were due to a combination of including internal factors such as shortage of bitumen which in turn increased road construction prices and exogenous factors such as the unprecedented increase in the world price of oil which in turn increased the price of bitumen. The shortage of bitumen was due to the inability of the state monopoly supplier to match supply with demand. Eventually the Government relaxed this local source requirement and allowed bitumen to be imported. The time overruns were due to a combination of factors, such as lack of involvement of the Road Development Authority (RDA) staff, delays in the issuing of environmental protection licenses, unrealistic estimation of contract periods for works and design and these were primarily due to lack of staff capacity within RDA. Maintenance works were ongoing at the time the ICR was written on cracks that were detected in pavements of three road sections and surface irregularities in pavements of the original project (ICR, page 16). After restructuring. Substantial. An economic analysis was conducted for the project component that was added with project restructuring following the second additional financing for the project using HDM-4. This component accounted for approximately 23% of the total project cost at closure. The economic benefits as in the previous case included benefits associated with time saving benefits and reduction in vehicle operating costs and the costs included rehabilitation costs and costs associated with periodic and routine road maintenance activities. The NPV at 12% discount rate at closure was US$32 million as compared to the NPV of US$24 million and EIRR at closure was 24% as compared to the ex-ante EIRR of 21%. Operational and administrative issues. Cost and time overruns were contained after restructuring through better distribution of responsibilities between RDA and consultants. Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) Efficiency Rating Modest a. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 78.00 Appraisal  24.00 Not Applicable 95.00 ICR Estimate  23.00 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome Relevance of the objective for the Government and for the Bank strategy for Sri Lanka was rated as High and applies to both the pre- and post- restructured ratings. Relevance of design was rated as Modest, both before and after restructuring. Efficacy of the objective - to improve the targeted roads under the project - was rated as Substantial both before and after restructuring. Efficacy of the objective - to support the efficiency of the national road network- was rated as Modest both before and after restructuring. Efficiency was rated as Modest. Taking into account the ratings discussed above and given the shares of project resources used over the two respective periods (.57*5)+(.43*3) = 4.14, the overall outcome is Moderately Satisfactory, indicating moderate shortcomings in the project's achievement of development outcomes. a. Outcome Rating Moderately Satisfactory 7. Rationale for Risk to Development Outcome Rating Financial Risk. The risk to development outcome is rated as High, given that there is still no independent or self-funding mechanisms for financing actual needs of the road network with regard to rehabilitation and maintenance. The government is still dependent on budget allocation, for financing such activities. Although increases in road maintenance budget allocations in recent years by the government, in conjunction with other donor funded projects on road rehabilitation, have made it possible to partially catch up with the road maintenance backlog, the current budget is still insufficient to prevent road deteriorating in the coming years. The ICR (page 27) notes that while the total funding requirement for periodic and routine maintenance of roads from 2007 to 2013 was approximately estimated at LKR 81 billion, less than half (LKR)38 billion was made during the period for financing road maintenance activities. It is also not clear whether funding for road maintenance activities alone, without a concerted effort to build capacity, will solve the road maintenance problem. a. Risk to Development Outcome Rating High 8. Assessment of Bank Performance a. Quality-at-Entry Given the Bank had been disengaged from Sri Lanka for almost a decade, there were no immediate precedents that the preparation team could draw from. However, lessons learnt from the Colombo Urban Transport Project and Colombo Roads Project were incorporated in Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) the project design. The design was prepared in collaboration with other agencies – primarily the Asian Development Bank (ADB) and the Japan International Cooperation Agency (JICA) - who were implementing other complementary institutional strengthening activities in the road sector in Sri Lanka. Environmental aspects of this Category B project were integrated into project design (discussed in Section 11). However, there were a number of shortcomings. First, as indicated in Section 3b, the PDO and associated indicators were overly ambitious and disproportionate to the project scope. In addition, the design underestimated the risks associated with a rapid surge of construction activity in the country, which contributed to the shortage of human and material resources and resulted in increasing construction costs (ICR, page 9). Culverts and drains were not properly identified at appraisal lending credence to the notion that the pressure to quickly start the project contributed to less than optimal design. There were also shortcomings in M&E with some indicators lacking baseline or targets (discussed in section 10a). Quality-at-Entry Rating Moderately Unsatisfactory b. Quality of supervision Supervision missions were twice a year. The location of the Task Team Leader and other team members in the field and continuity in the team aided in providing timely responses. The task team possessed an appropriate skills mix with the technical, institutional, fiduciary and safeguards knowledge. The supervision team was responsive in addressing the rapid escalation of costs (mainly due to the shortage of bitumen) and the Government’s proposed solution for dealing with the cost overruns (discussed in section 9a) and adding a new project component through the timely processing of two Additional Financing operations and incorporating more focus on road traffic safety issues. Given that procurements for the road package had a strict timeline, the Bank collaborated with the RSAP to ensure that contracts were awarded in a timely manner and the local office responded to urgent project requirements quickly without having to always wait for advice or the go ahead from Washington (Borrowers ICR, page 59). Unfortunately, the M&E results framework was not revised in a timely fashion, baseline data were not available for some indicators and the results framework was only revised five years after the project began. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9. Assessment of Borrower Performance a. Government Performance The Government was strongly committed to the project and demonstrated this by the requests to include rural pilot studies and for additional financing when it was necessary in the wake of cost overruns. In the face of rising prices of bitumen, the Government allowed the contractors to import bitumen as an exception to the Government’s policy of having it provided only by a state monopolist (ICR, page 66). Maintenance allocations by the government during the life of the project were in line with the agreed amounts. Although the government provided the counterpart funds as planned, there were delays in release of counterpart funds during implementation. Likewise, the Road Maintenance Trust Fund (RMTF) had been set up at the beginning of the project as targeted, lack of strong commitment of the main stakeholders, frequent changes in the Board of Trustees and Technical Advisory Committee (TAC) and lack of adequate staff for the Fund contributed to delays (ICR, page 12). Government Performance Rating Moderately Satisfactory b. Implementing Agency Performance A dedicated Project Management Unit (PMU) in the Roads Development Authority (RDA) was in charge of implementing the project. Although there were initial problems with staffing and high rotation of staff on account of the ongoing construction boom and high demand for skilled professions, the ICR (page 30) notes that the PMU implementation of the project-related activities was deemed to be satisfactory. However, there were some shortcomings: the implementing agency failed to provide annual key performance data as per Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) the covenant; there were contract management issues; and frequent turnover of the PMU staff with four different project directors heading the PMU during the course of the project was a major challenge to project implementation. Implementing Agency Performance Rating Moderately Satisfactory Overall Borrower Performance Rating Moderately Satisfactory 10. M&E Design, Implementation, & Utilization a. M&E Design The four key outcome indicators were: reduction in Vehicle operating Costs (VoC) for standard commercial vehicles, reduction in average network roughness, reduction in network classified as either in poor or bad condition and increase in annual maintenance expenditure. Of these four, three indicators for monitoring transportation costs – reduction in VoC, rediuction in average network roughness and reduction in network classified in poor or bad condition were overly broad as they referred to the national road system rather than the project targeted roads. Target values for the network International Roughness Index were not clear for want of reliable baseline data. b. M&E Implementation Following the availability of more reliable data generated by the annual national road surveys, the results framework, the baseline data and target values were revised during implementation. The Roads Development Authority (RDA) and the Ministry of Provincial Councils and Local Governments (MPCLG) were responsible for collecting, analyzing and reporting project performance indicators and a Management Information System (MIS) was used by the RDA for provide monthly progress reports to stakeholders. HDM-4 was used to monitor selected project indicators and training was provided to the RDA staff for monitoring road data. An independent M&E report in 2009 indicated that monitoring alone was not sufficient and that more focus was needed to be placed in analysis for improving strategic decision makings. The ICR is vague about any follow up to this and provides no specific evidence of improvement. c. M&E Utilization The ICR (page 15) does not provide details but reports that annual data was being collected by the survey team. M&E Quality Rating Modest 11. Other Issues a. Safeguards The project was classified as a Category B project. One safeguard policy was triggered at appraisal: Environmental Assessment (OP/BP/GP 4.01). A social impact assessment was conducted and based on this assessment, a Social Impact Management Framework (SIMF) and Environment Management Plan (EMP) was prepared for addressing potential environmental impacts and publicly disclosed. A road-specific EMP was also developed for each segment of road rehabilitation. At appraisal, although Involuntary resettlement was not anticipated and safeguard policies pertaining to Involuntary Resettlement (OP 4.12) was not triggered, a Social Impact Management Framework was prepared stipulating the preparation of a Resettlement Action Plan (RAP) or other appropriate measures consistent with Bank guidelines (PAD, page 66). Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) During implementation, in addition to the safeguard policy mentioned above, two other safeguard policies were triggered: Natural Habitats (OP/BP 4.04) and Involuntary Resettlement (OP 4.12). No issues pertaining to Natural Habitats and Involuntary Resettlement were encountered. A grievance redress mechanism was implemented according to the policy framework and for the first time for a road project in Sri Lanka, an independent third-party monitoring system was introduced to engage project-affected persons to provide feedback and systematic monitoring of project implementation. The ICR (page 15) notes that there were no major environmental impacts or safeguard compliance issues during implementation. The ICR (page 15) also notes that no physical or economic of persons or resettlement impacts were experienced by the project and most of the lands used for expansion of the roads were within the domain of the Roads Development Authority (RDA) or obtained through voluntary land donations from project beneficiaries. The ICR (page 15) reports unlike the Bank guidelines which mandate environmental assessments and actions for both new road construction and rehabilitation of existing roads, Sri Lankan law required environmental assessments and actions only for new road constructions. The project helped in introducing and including environmental clauses for road rehabilitation works and that by the end of the project, many of the local contractors were adopting the same preventive and remedial environmental protection measures on other projects with no such requirements. b. Fiduciary Compliance Financial Management. The ICR (page 16) notes the performance of the implementing agencies was on the whole deemed to be satisfactory during the execution period. However, on two occasions during implementation there were procurement issues due to delays in submission of interim unaudited financial reports, internal and external audits and delays with release of counterpart funding in a timely fashion. The audit staffing shortage identified as a systemic issue affecting all projects further illuminated the need for capacity building (ICR, page 16). The ICR provides no details on the quality of audits. Procurement. An assessment of the Road Development Authority’s capacity to address procurement issues was conducted and a procurement plan was prepared at appraisal. RDA had implemented several roads projects in the past under IDA/BRA financing and several staff of the RDA were familiar with IDA procurement procedures (PAD, page 53). During implementation, procurement and contract management were at times affected by a lack of proper monitoring and supervision, which in turn, affected fiduciary compliance (ICR, page 16). The project experienced substantial time and cost overruns and poor performance in works was demonstrated by premature pavement failures on three packages under the national roads component of the parent project. At the end of completion of the original project in December 2010, about US$10 million was financed by government’s own funds due to additional works that were carried out without the Bank’s agreement and which were found to be ineligible. c. Unintended impacts (Positive or Negative) --- d. Other --- 12. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Moderately Satisfactory Moderately Satisfactory --- Risk to Development Outcome High High --- Bank Performance Moderately Satisfactory Moderately Satisfactory --- Borrower Performance Moderately Satisfactory Moderately Satisfactory --- Quality of ICR Substantial --- Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review LK - Road Sector Assistance(P086411) Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons The ICR (page 30) draws the following main lessons from implementing this project. 1 The implementation of a project can be aided by continuity of leadership and project team. In the case of this project, although there was continuity of the Bank team and project team, the high turnover of implementing agency team (with four project directors during the lifetime of the project) resulted in many problems relating to cost and schedule overruns and quality of works. 2 Adequate sustaining funding sources for the Road Maintenance Trust Fund is required for its optimum functioning. The experience with this project that though setting up institutional arrangement for the creation of a road fund seem simple, implementation of associated Policy and Legislative Frameworks throughout the sector can become difficult in practice. 3 A Road Asset Management System (RAMS) can be a very useful tool for maintaining the road assets of a country. The experience with this project showed that such a system can be very useful in increasing public perception about the importance of road maintenance. 4 The experience with this project highlighted the urgent need for building institutional capacity, particularly after a gap in support from development partners. Further, when such a gap occurs, one needs to be realistic about what can be achieved with the existing institutional capacity. It should also be anticipated that a boom in construction following the reintroduction of development funding as happened in the case of this project, would force up prices and increase implementing agency staff turnover. 14. Assessment Recommended? No 15. Comments on Quality of ICR The ICR provides a detailed overview of the project. It is candid and generally aligned to the project development objective and provides a good description of the safeguard issues. The report covers a wide range of issues, follows most of the guidelines and is focused on results. The discussion in the ICR about efficacy and problems encountered while implementing this project is not clear. In this regard, the borrower's ICR is more useful in providing the details. There are however some shortcomings in the completeness of information in the ICR. For instance, while the ICR (page 14) notes that improvements were made albeit gradually, following an independent M&E report in 2009 which identified that monitoring alone was not sufficient and more focus was needed on analysis was needed to improve strategic decision making. The ICR is however not clear on what kind of improvements were made. The ICR (page 16) notes that although during the last few years of implementation, the Project's internal audit failed to perform at its optimum level due to internal staffing requirements. It is not clear what were the internal audit problems and how they were resolved. a. Quality of ICR Rating Substantial