PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name Region Country Sector(s) Theme(s) Lending Instrument Project ID Borrower(s) Implementing Agency Environmental Category Date PID Prepared/ Updated Date PID Approved/ Disclosed Estimated Date of Appraisal Completion Estimated Date of Board Approval Concept Review Decision PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Sri Lanka Strategic Cities Development Project (P130548) SOUTH ASIA Sri Lanka Report No.: PIDC1109 Sub-national government administration (45%), General water, sanitation and flood protection sector (35%), Urban Transport (20%) City-wide Infrastructure and Service Delivery (40%), Municipal governance and institution building (20%), Urban planning and housing policy (15%), Other environment and natural resources management (15%), Other Private Sector Development (10%) Specific Investment Loan P Ministry of Finance and Planning Ministry of Defense and Urban Development A-Full Assessment 17-Oct Oct Jan Apr-2014 Track II - The review did authorize the preparation to continue I. Introduction and Context Country Context 1. Sri Lanka s economic and development objectives. Sri Lanka aspires to emerge as the new economic wonder of Asia. As envisioned in the 2010 Mahinda Chintana (MC) - the vision for future development of the Government of Sri Lanka (GoSL) - it targets to nearly double its per capita GDP from US$2,400 in 2010 to US$4,500 by Following the end of the conflict in the North and the East of the country in May 2009, an exceptionally strong mandate was given to the President and his party in the early 2010 elections and the government of Sri Lanka is reorienting its development programs to achieve this ambitious economic development goal. Doubling the per capita GDP will require maintaining economic growth in excess of 8 percent growth rate per annum, over the next five years, and increasing total investment by 5 percentage points of GDP Page 1 of 6

2 from the current level of 30 percent. 2. Role of urbanization in meeting the country s economic objectives. Sri Lanka has become a middle-income country, with GDP per capita reaching US$2,923 in It is shifting from a predominantly rural-based economy to an urban one oriented around manufacturing and services (with industry and services contributing to 88.9 percent of GDP in 2012). Experience from other countries indicates that urbanization can be a potentially powerful force in support of economic growth and poverty reduction, depending on how well the urban growth is managed. Cities contribute significantly to national economic growth by increasing productivity at the firm and industry levels via agglomeration economies. Likewise, Sri Lankan cities account for the majority of the country s physical, financial, intellectual and technological capital. Average productivity in urban manufacturing and services is 3-5 times that of traditional sectors. The GoSL s target is to consolidate the share of agriculture in GDP at around 12 percent, industry at percent, and services at around 60 percent. By acting now, Sri Lanka has the opportunity to take full advantage of the economic benefits of the urban transition, while mitigating the problems associated with fast urbanization found elsewhere in South Asia. Sectoral and Institutional Context Urbanization in Sri Lanka. According to official UN estimates, a mere 15.7 percent of Sri Lanka s population lives in urban areas, making it the least urbanized country in South Asia. Given the country s conservative definition of urban, however, this represents a dramatic under-estimate of Sri Lanka s true level of urbanization. Thus, when instead measured using the Agglomeration Index methodology, the country s urban share is 35.3 percent. Furthermore, whereas official estimates indicate that the share of Sri Lanka s population living in towns and cities has declined slightly since 2000, analysis of night-time lights data tells a very different story, painting, instead, a picture in which Sri Lanka is one of South Asia s most dynamically urbanizing countries. In this respect, the fall in the urban share reflects the move to a tighter definition of urban areas rather than a true decline in the proportion of people living in cities. (Figure 1 shows the comparison in urban extents between the administrative boundaries, and using agglomeration index and night lights.) The Colombo Metropolitan Region is the engine of growth for Sri Lanka but investing only in Colombo will be insufficient to achieve the economic goals of GoSL. Thus far, Sri Lanka s economic growth has been primarily driven by the Colombo Metropolitan Region (CMR), which currently generates almost 50 percent of the country s GDP and is home to around one third of its population. Consistent with this, CMR is the country s most prosperous region with a per capita income level of $3,808 that is 1.6 times that of national per capita income. Investing in CMR is essential for the nation s economic growth; the World Bank has ongoing engagement to assist with the development of Colombo Metropolitan Region, such as through the Metro Colombo Urban Development Project. Attention would now need to turn to the development of secondary cities. As Sri Lanka enters an intermediate stage of development, secondary cities are expected to experience faster growth, especially in the Central and Southern districts. At the incipient stage of urbanization, economic activities and density concentrate in the primate city (or a few major cities) of the country. As the countries move into the more intermediate stage of urbanization, economic activities will spread towards the secondary cities, especially with increased investments in connective infrastructure. This phenomenon is also true in the Sri Lanka context analysis indicates that the higher growth rates are concentrated in the secondary cities, especially in the Central and Southern districts. Improvement of urban services and infrastructure are urgently needed in order to cope with the development challenges and manage the growth. Page 2 of 6

3 Despite the relatively quicker growth, Central and Southern districts in Sri Lanka have a large absolute number of poor people. Figure 2 maps the population below poverty line by district which shows a large absolute number of poor in the central districts (Kandy, Kurunegala) and southern districts (Galle and Ratnapura). In the 2005 poverty mapping study done by the World Bank and the Sri Lanka Department of Census and Statistics, it was also found that urban areas have high population of the poor with a relatively low head count ratio, while remote rural areas have high headcount ratios that do not necessarily translate into high numbers of poor people. As such, an important policy implication is that interventions targeting urban areas, if appropriately planned, will potentially alleviate poverty for a large absolute number of people. A well-functioning and productive system of urban centers is essential for catalyzing and supporting the transformation of the Sri Lankan economy and efforts to translate economic growth into poverty reduction. Sri Lanka s Urban Vision is to develop as a system of competitive, environmentally sustainable and well-linked cities, and provide every family with affordable and adequate urban shelter by The development of this system of cities is to be based on the fostering of economic growth in major urban centers outside of Colombo, a process which is intended to produce a more spatially balanced distribution of economic opportunities at the same time as it reduces congestion in the capital and bolsters overall national economic growth. The recent Sri Lanka Urban Policy Note Turning Sri Lanka s Urban Vision Into Policy and Action prepared by the World Bank and UN-Habitat in 2012 reinforced the idea of developing a system of competitive and well-linked cities. The note highlighted that Sri Lanka is well poised to achieve this as it has a small territorial size, easy topography and the Government has ready plans to build an expressway network to improve connection between cities. Assessments from the recent Sri Lanka Secondary Cities NLTA provide the analytical foundations for this project and informed the selection of cities for both this and subsequent rounds of operational work. The cities were selected based on a set of criteria which were discussed and agreed with the GoSL. In short, the criteria were those urban areas that: (i) have municipal council status and are large enough to benefit from the stimulus of investment funds; (ii) have demonstrated institutional capacity to support project activities; (iii) can leverage existing resources and locational attributes to generate economic activity; and (iv) possess good accessibility and possess market access. Six strategic cities (which would include a larger sphere of influence and be termed as city region ) emerged, namely, Kandy, Galle/Matara, Kurunegala, Anuradhapura, and Batticaloa. These could be structured as different phases of projects, with the first phase focusing on Kandy and Galle/ Matara to be undertaken in this Strategic Cities Development Project. Relationship to CAS 9. The proposed project is aligned with the main strategic objectives of the Country Partnership Strategy (CPS) FY The areas of focus for FY13-16 CPS are organized around the three main goals of the Mahinda Chintana. The proposed project is designed to achieve two of those three goals: Area 2-supporting structural shifts in the economy, and Area 3- improved living standards and social inclusion. Specifically, under Area 2, the CPS indicates that The Bank will support the Government s efforts to enhance Sri Lanka s metro areas and support internal integration. In particular, the proposed project will focus on city-regions and thus supporting the development of such metro areas as mentioned in the CPS. Under Area 3, one of the objectives is to expand social inclusion and equitable access as well as to provide support for improved living standards through several infrastructure projects. The proposed project would provide a package of Page 3 of 6

4 investments to rapidly growing strategic cities, which would first improve their urban infrastructure and services and thereby enhance their livability and economic potential. II. Proposed Development Objective(s) Proposed Development Objective(s) (From PCN) The project development objective (PDO) is to contribute to the improvement of urban services and livability in selected strategic cities of Sri Lanka. This would be achieved through shaping city transformations based on the cities cultural and economic assets with strategic investments. Key Results (From PCN) Achievement of the PDO will be monitored through the following two main areas and the proposed key results indicators: 1) Improvement in urban services - People in urban areas provided with improved urban services (number). (Urban services here will be further defined during project preparation based on the investment items to be carried out in Kandy and Galle. It could potentially include: all season roads and drains, improved water supply, reduced flooding, and regular solid waste collection etc.) 2) Improvement in livability - Accessible and usable urban public spaces and walkways created under the project (area). III. Preliminary Description Concept Description The project comprises four components. Component 1 encompasses interventions for Greater Kandy Area. Component 2 focuses on the interventions for Greater Galle Area and Component 3 will provide implementation support and technical assistance activities, with the objective of increasing the technical capacity of municipalities to plan and implement their own infrastructure projects. Component 4 on emergency response is to provide for any potential response necessary in the event of a natural disaster. Component 1: Greater Kandy Interventions: Kandy is an internationally acclaimed UNESCO world heritage site where one of the most important Buddhist temples in South Asia is situated. As a heritage city, Kandy is uniquely placed to leverage its cultural and natural assets. Coupled with its hilly terrain and unique location in an environmentally sensitive area, it is facing critical challenges in terms of traffic congestion, environmental protection, water scarcity and solid waste management. Therefore, the key development concept for Component 1 is to relieve traffic congestion and upgrade downtown services and livability to improve and sustain the world heritage city. Regional infrastructure/services would include transport infrastructure for reducing congestion, increasing mobility and access, and a transfer station to the regional landfill site. Municipal infrastructure/services would include canal and urban drainage improvements, rehabilitation of municipal water supply network, public urban transport interventions (bus and rail), urban center upgrading, local road and junction improvement, enhancement of public spaces or urban parks and pedestrian amenities. Planning and engineering services would be included, together with the preparation of a Cultural Heritage and Conservation Master Plan, the latter being an essential requirement for supporting the rating that Kandy has of a World Heritage City. These investments will complement the planned Colombo-Kandy Expressway and other transportation investments to be financed by the GoSL. Component 2: Greater Galle Interventions: The Greater Galle area, including the Galle-Matara Page 4 of 6

5 region is located on the Southern coast of Sri Lanka, about 120 to 180 kilometers from Colombo. Since the opening of the Southern Expressway, the access to Galle from Colombo has improved significantly and this has brought much pressure for development in the city. With the future extension of the Southern Expressway to Matara and Hambontota, Galle is becoming a major city hub in the country s southern coastal development belt, and should be considered in its entirety in the regional context. Therefore, the key development concept for Component 2 is to integrate coastal development and management, stimulate tourism development and integration with urban centers through urban infrastructure/services improvement. The component will comprise investments in infrastructure/services at the Greater Galle coastal belt area to support the implementation of an integrated coastal management plan, especially key elements to manage the tourism development and balance with environment protection. Municipal infrastructure could include solid waste transfer stations, service upgrading in the Dutch Fort area, canal and urban drainage improvements, upgrading of municipal assets in urban centers, local road and junction improvement, enhancement of public spaces and urban parks, and improving coastal access and pedestrian amenities. Component 3: Implementation Support and Capacity Building: This component will aim to strengthen institutional capacity at metropolitan and local level, and support project implementation. It could finance the incremental costs of the Project Management Unit (PMU) and Project Implementation Units (PIU) associated with project management and implementation support. This covers the costs for staff and consultants for supervision, monitoring, evaluation of project impact, training, institutional capacity building, preparation of future projects and any strategic studies needed during project implementation. Support to the municipalities to engage consultant for project planning, preparation and implementation, will also be explored. Component 4: Emergency Response Provision: This component is included to provide for any potential response necessary for a natural disaster event. In the event that it becomes necessary, funds will be appropriated from the project through reallocation or through providing additional financing. IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment OP/BP 4.01 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 V. Financing (in USD Million) Page 5 of 6

6 Total Project Cost: Total Bank Financing: Financing Gap: 0.00 Financing Source Amount BORROWER/RECIPIENT 0.00 International Development Association (IDA) Total VI. Contact point World Bank Contact: Zhiyu Jerry Chen Title: Urban Specialist Tel: Borrower/Client/Recipient Name: Ministry of Finance and Planning Contact: Mr Ajantha Kumarasiri Title: Director General Tel: Implementing Agencies Name: Ministry of Defense and Urban Development Contact: Mr. Janaka Kurukulasuriya Title: Additional Secretary Tel: VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: Page 6 of 6