FOR OFFICIAL USE ONLY

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Sustainable Development South Asia Region Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 21.7 MILLION US$32 MILLION EQUIVALENT) TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A PUTTALAM HOUSING PROJECT JANUARY 24,2007 Report No: LK This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS Exchange Rate Effective December 13,2006) Currency Unit = Sri Lankan Rupee 108 Rupees Rs.) = US$1 US$ = SDR 1 FISCAL YEAR January 1 - December 31 ADB AG CAS CEB CFAA CQS CSIA CSP CWSSP DMC DO EA EIA EMP EQ ERTA ESMF FA GDP GN GOSL GSMB IAD ICB IDA IDP IEE IFR INGO IP LCS Asian Development Bank Auditor General Country Assistance Strategy Ceylon Electricity Board Country Financial Accountability Assessment Selection Cased on Consultants Qualifications Continuous Social Impact Assessment Camp Social Profile Community Water Supply and Sanitation Project District Monitoring Committees Development Objectives Environmental Assessment Environmental Impact Assessment Environmental Management Plan Environmental Questionnaire Economic Reforms Technical Assistance Environment and Social Assessment and Management Framework Financing Agreement Gross Domestic Product Grama Niladhari Government of Sri Lanka Geological Surveys and Mines Bureau Internal Audit Department International Competitive Bidding International Development Association Internally Displaced Person Initial Environmental Examination Interim Financial Reports International non-governmental organization Implementation Performance Least Cost Selection ABBREVIATIONS AND ACRONYMS LTF LTTE NCB NGO NEIAP NEHRP NPA NPV NWPEA NWPRD NWSDB OM PG PHP PPU PSC QBS QCBS RAP RWSSP SA SDA SIA SIL SOE sss TERC TOR UNDB UNHCR UNICEF Land Task Force Liberation Tigers of Tamil Eelam National Competitive Bidding Non Governmental Organization North East Irrigated Agriculture Project North East Housing Reconstruction Program National Procurement Agency Not Present Value North Western Provincial Environmental Act North West Provincial Roads Department National Water Supply and Drainage Board Operational Manual Procurement Guideline Puttalam Housing Project Puttalam Project Unit Puttalam Steering Committee Quality Based Selection Quality and Cost Bases Selection Resettlement Action P1 an Rural Water Supply and Sanitation Policy Social Assessment Special Dollar Account Social Impact Assessment Sector Investment Loan Statement o f Expenses Single Source Selection Tsunami Emergency Recovery Credit Terms of Reference United Nations Development Business United Nations High Commissioner for Refugees United Nations Children s Education Fund Vice President: Country Director: Sector Manager: Task Team Leader: Praful C. Pate1 Naoko Ishii Sonia Hammam Naresha Duraiswamy

3 SRI LANKA PUTTALAM HOUSING PROJECT FOR OFFICIAL USE ONLY CONTENTS A B C D STRATEGIC CONTEXT AND RATIONALE Country and Sector Issues Rationale for Bank Involvement Higher Level Objectives to Which the Project Contributes PROJECT DESCRIPTION Lending Instrument Project Development and Objectives and Phases Key Performance Indicators Project Components Lessons Learned and Reflected in Project Design Alternatives Considered and Reasons for Rejection IMPLEMENTATION Partnership Arrangements Institutional and Implementation Arrangements Monitoring and Evaluation of Outcomes/Results Sustainability Critical Risks and Possible Controversial Aspects Credit Conditions and Covenants APPRAISAL SUMMARY Economic and Financial Analysis Technical Fiduciary Social Environment Safeguard Policies Policy Exceptions and Readiness Page Annex 1: Background and Project Design Framework Annex 2: Major Related Projects Financed by IDA Annex 3: Results Framework and Monitoring Annex 4: Detailed Project Description Annex 5: Project Costs by Components This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

4 Annex 6: Implementation Arrangements Annex 7: Financial Management Assessment Report Annex 8: Procurement Arrangements Annex 9: Economic and Financial Analysis Annex 10: Safeguard Policy Issues Annex 11: Project Preparation and Supervision Annex 12: Documents in the Project File Annex 13: Statement of Loans and Credits Annex 14: Country at a Glance MAW) Country Map - IBRD UNHCR Maps

5 SRI LANKA PUTTALAM HOUSING PROJECT PROJECT APPRAISAL DOCUMENT SOUTH ASIA - SUSTAINABLE DEVELOPMENT UNIT Date: January 24,2007 Country Director: Naoko Ishii Sector MangedDirector: Sonia Hammam Project ID: P Lending Instrument: Sector Investment Loan Team Leader: Naresha Duraiswamy Sectors: Housing construction 47%); Water supply 47%), General public administration 6%) Themes: Access to urban services, Conflict prevention, Pollution management Environmental screening category B Safeguard screening category: S2 1 Total: I I 0.00 I Borrower: Democratic Socialist Republic of Sri Lanka Responsible Agency: Ministry of Resettlement FY Annual Cumulative o o Does the project depart from the CAS in content or other significant respects? Does the project require any exceptions from Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? [ ]Yes [XINO [ ]Yes [XINO [ ]Yes [ IN0 [ ]Yes [XINO [XIYes [ ]No

6 1 Does the project meet the Regional criteria for readiness for implementation? [XIY~S [ ]NO I Project development objective. The Puttalam Housing Project PHP) would help integrate the Puttalam Internally Displaced Persons IDPs) in their preferred location of choice through housing, water, sanitation and environment mitigation. It would support the construction of 5,653 new houses to replace the temporary thatched huts and the completion of 2,232 partly-completed houses in Puttalam. It would provide drinking water to 13,584 IDP families and 3,291 non IDP families. These interventions would help upgrade habitat and contribute to the socio-economic integration of IDPs and non-idps. Project description. A. Housing Assistance: The component will finance the reconstruction of 7,885 houses through the transfer of cash grants to selected eligible beneficiaries. B. Water, Sanitation and Environment Mitigation: The component would provide water to 136 refugee camps, construct 9,885 latines and mitigate the threat of flooding through improved drainage. C. Capacity Building and Monitoring: The component will support a comprehensive technical assistance program to ensure smooth implementation. D. Project Management: The component will provide project management and implementation support for the project. Which safeguard policies are triggered, if any? Environmental Assessment OP/BP/GP 4.0 1) Involuntary Resettlement OPBP 4.12) Significant, non standard conditions, if any, for: Board presentation see section C.6). i) Detailed Engineering Reports for two water supply schemes covering 2 1 refugee camps in Phase 1. ii) Regularization of Land Title for Phase 1 refugee camps. Covenants applicable to proiect implementation see section C.6). Effectiveness: None

7 A. STRATEGIC CONTEXT AND RATIONALE 1 Country and Sector Issues 1. The twenty-five year civil conflict in Sri Lanka led to a loss of life, the displacement of persons belonging to all ethnic groups and destruction of infrastructure. Approximately 2.5 million persons lived in areas of direct military activity. Up to 700,000 left the country while 613,220 individuals 160,754 families) remained internally displaced as at June, ,000 Internally Displaced Persons IDPs) lived in refugee camps2 that year. A cease-fire agreement was signed in February, 2002 but has not held in reality due to numerous violations. 2. While many IDPs had returned to their places of origin since 2002, 68,000 individuals 18,000 families) remained in refugee camps in Sri Lanka in December, The sharp escalation of violence since January, 2006 led to renewed displacement with 235,000 new IDPs in Sri Lanka. The majority of the earlier IDPs were housed in the district of Puttalam in the north west of Sri Lanka where 63,145 persons or 15,480 families) lived in 141 refugee camps in Of these, 41% were children under the age of 18 who have known no other home than Puttalam. Due to security considerations, 96% of the IDPs 14,928 families) in Puttalam indicated that they intended to settle down there and not return to the North % had in fact bought land in Puttalam demonstrating a resolve to remain there. 3. Of the IDPs in Puttalam displaced in 1990, 5,653 families live in temporary thatched houses, 2,232 families live in partly-completed houses and 1,093 families live in permanent house^.^ Another 6,501 families, who are largely the married children of the original IDPs have no house of their own and live with their extended families. Therefore, a total of 12,154 new houses and 2,232 completions of partially constructed units are required to address the housing needs o f the Puttalam IDPs. The refugee camps lack access to safe drinking water, sanitation, drainage, health care and education. These too are needed to ensure a durable solution and improvement in living conditions 16 years after displacement. Of the 11 1 refugee camps initially surveyed under the Social Assessment SA), 86 camps listed housing as their highest priority while 13 listed it as the second highest priority. 2 Rationale for Bank Involvement 4. The proposed US$ 34.2 million Puttalam Housing Project PHP) fits in with the Government s strategy to meet the development needs of IDPs in Sri Lanka, to encourage their return to their original homes where possible and to otherwise integrate them in their preferred new location of choice. The World Bank Group s Country Assistance Strategy CAS) and the CAS Progress Report6 link development of the conflict-affected areas to the tenuous peace in Sri Lanka. The IDPs in Puttalam are stakeholders in this already frayed peace process. Their development needs have not been met. The Government requested IDA in June, 2005 to help meet the housing, drinking water, sanitation and environment needs of the Puttalam IDPs given the scale of financing required. IDA has a comparative Figure excludes those who had been displaced in the 1980s and 1990s and had since returned to their homes. 2 The word used in Sri Lanka is welfare center but for purposes of this document, the more recognizable term refugee camp would be used. These figures were obtained from a United Nations High Commissioner for Refugees UNHCR) supervised census of refugee camps in Puttalam in April, Most of the Puttalam IDPs are Muslim and were expelled by the Liberation Tigers of Tamil Elam LTTE) from the North in October Depending on their place of origin, they were compelled to leave their homes within 2 hours, 48 hours or one week. 4 Permanent houses are defined as those with completed structure and finishing. Partly-completed houses are defined as needing significant home improvement. Temporary houses are defined as thatched huts with flimsy superstructure. 5 Report No CE discussed at the Board on April 1, Report No LK discussed at the Board on December 15,

8 advantage given its experience in conflict-related and post-tsunami housing reconstruction and community water supply. The PHP complements other IDA programs targeting non-idps in the region including health, rural roads, irrigation and water. 3 Higher Level Objectives to which the Project Contributes 5, The PHP was designed in the context of an IDA commitment to help meet the development needs of the conflict-affected population, including those in Puttalam. The proposed PHP would rebuild the lives of those IDPs who had not been covered by earlier projects, enhance their life stability through housing and regularized land title, provide safe drinking water and improve sanitation. IDA S pioneering efforts would help integrate the IDPs in Puttalam with the host non IDP population and induce other financiers to support the initiative. B. PROJECT DESCRIPTION 1 Lending Instrument 6. The lending instrument is a Sector Investment Loan SIL). This would be the most appropriate lending instrument given the anticipated construction and investment in housing, water, sanitation and environment. The SIL would entail an IDA Credit of US$ 32 million with applicable term of 20 years maturity and 10 years grace. The Government would provide US$2.2 million in counterpart funds. The duration of the Credit would be four years. 2 Project Development Objectives and Phases 7. The objective of the PHP is to support the integration of IDPs in Puttalam by upgrading and improving the habitat, water and sanitation facilities of both IDPs and select non-idps, and providing eligible IDPs in refugee camps with housing. It would entail a housing support cash grant released in installments8 The PHP would be implemented over four years in four phases. The Government would require US$ 32.6 million to meet the total housing needs of IDPs in Puttalam inclusive of dependent families i.e., the children of the original IDPs who have since married. The PHP would provide US$ 16.1 million to support the construction of 5,653 new houses to replace the temporary thatched huts and the completion of 2,232 partly-completed houses in Puttalam. This would meet 50% of the total housing needs of the Puttalam IDPs. Given funding constraints, the PHP, like the IDA-financed North East Housing Reconstruction Program NEHRP), would provide housing to original IDP families and not to their dependents. 8. The PHP would provide US$ 15.9 million for drinking water, sanitation, environmental mitigation, and internal roads. It would construct 9,885 latrines for both IDPs and non-idps and provide drinking water to 13,584 IDP families and 3,291 non IDP families. This component would also help mitigate environmental problems, including those created by poor conditions of roads and drainage 7 Sri Lanka per capita GNI has reportedly been above the IDA Operational cut-off for more than two consecutive years. Therefore, according to the OP3.10 Annex D, dated July 5, 2006, Sri Lanka is subject to IDA credits with 20 year rather than regular 40 years) maturity and 10 year grace period. As such, the principal repayments would be at 10% per year in two installments, 5% each) starting year 11. * Please see Annex 4 for details. This figure will be revisited at the mid-term review at the end of the third year of the PHP to take into account any cost savings or increases that may have been incurred due to currency fluctuations or other factors. The expected savings would be used for construction of additional housing for the homeless apportioned across the camps based on agreed social criteria. lo 7,885 of the latrines would be constructed as part of the housing units. 2,000 latrines are provided under the sanitation grant to IDPs and non-idps upon their demand. 2

9 systems. The PHP would provide US$ 785,000 for technical support and US$ 1.34 million for project management. The total cost of the PHP is US$ 34.2 million, of which IDA would extend US$ 32 million. The Government would provide US$ 2.2 million. The Government is likely to approach bilateral donors to secure additional funds to provide housing for the remaining Puttalam IDPs once the PHP demonstrates success. 3 Key Performance Indicators 9. Expected key performance indicators include:. Number of housing units constructed and occupied within specified time and allocated budget; Number of families provided safe drinlung water; and Number of settlement plans designed and implemented. 4 Project Components Component One: Housing Assistance U$ 16.1 million) 10. IDA funds would be apportioned across the 141 refugee camps in Puttalam in proportion to the housing caseload. The Puttalam Project Unit PPU) ranked refugee camps using three social criteria, i.e., i) percentage of temporary thatched houses in each camp; ii) percentage of IDP households who possessed land in each camp; and iii) percentage of households that opted to settle in Puttalam as recorded in the United Nations High Commissioner for Refugees UNHCR) supervised census of IDPs living in refugee camps in Puttalam in April, 2006." The socially ranked camps were then screened in terms of three environmental indicators, i.e., proclivity to flooding, land surface and quality of environment. The ranking of refugee camps was done with the intent to phase the PHP over four years. All 141 refugee camps would be covered. 11. A household within a refugee camp would have to meet certain criteria to be entitled to housing assistance. i) It must have title to land." ii) The head of the household and the majority of household members must live in the camp according to UNHCR Survey 2006 and Social Assessment 2006). iii) It should not have a permanent house in PuttalamI3 and should not have received similar housing assistance in its place of origin. iv) It should have had a temporary or partly-completed house within a camp as of April 2006 according to UNHCR Survey). If it had no clear title to the land on which the non-permanent house is situated, it should have at least possessed land as at such date where the title could be subsequently regularized prior to con~truction.'~ Prescriptive title deeds would not be acceptable. The deed of prescriptive title under Sri Lankan law stipulates that a persodfamily encroaching on private land without interruption for 10 years can claim ownership and can automatically have absolute ownership after 20 years. This would trigger IDA'S operational policy on land acquisition and would therefore not be included under the Credit. 12. IDP communities living in environmentally unsustainable camps might need to be relocated on a voluntary basis. Should the situation arise, the Government would provide alternate land with legal title The refbgee camps demonstrate a remarkable degree of community organization where the IDPs had jointly purchased their individual pieces o f land in most instances. Several camps were established based on kinship ties that existed in the original IDP villages. l2 It is important to distinguish between possession o f land due to commercial purchase or gift and actual title to the land which indicates explicit legal documentation and proves ownership. This clause is to avoid the threat of eviction. '3 This category accounts for approximately 28% o f the IDP population in Puttalam. l4 Government policy is to regularize title for those IDPs with land in refugee camps who may not have clear documentation. The objective is to ensure that all households with land in a camp have legal title to it.

10 to those IDPs who had possessed land title in such camps. In this instance, an Environment Impact Assessment would be carried out in the proposed new sites and such communities would be accommodated in the third and fourth year of the PHP. An Environment and Social Safeguards Framework includes guidelines to prepare a Resettlement Action Plan should the eventuality arise at a future date. However, this is an unlikely scenario. The Government envisages on-site construction. 13. The Government would offer a housing support cash grant of Rs. 250,000 to construct a new house and Rs. 100,000 to complete construction of a partly-completed house. It would release the cash grant in tranches to the bank account of the identified households. The release of the installments would be contingent upon meeting specified construction milestones as verified by technical officers. The beneficiary would have six months to complete construction. This is in line with the homeowner-driven construction strategy. 14. The District Secretary, Puttalam would review the list of beneficiary households to ensure compliance with the selection criteria at each phase of the PHP. The District Monitoring Committees DMC) in Puttalam and the Puttalam Steering Committee PSC) in Colombo would clear the beneficiary list with UNHCR present as an observer.16 Excluded IDP households in refugee camps would have the opportunity to submit their complaints to the Grievance Redressal Mechanism in Puttalam headed by the Additional District Secretary for consideration. Should the household remain dissatisfied at the ruling, it would have the right to appeal to a Grievance Redressal Committee in Colombo headed by the Secretary, Ministry of Resettlement. The latter committee would have the final word. 15. The PPU completed a Housing Assessment Survey in each refugee camp to revalidate the enumeration of permanent, partly-completed and temporary houses in the UNHCR supervised survey, assess the extent of construction needed for partly-completed houses and review the extent of new title to land since the UNHCR supervised census. This would enable it to plan the roll out of the cash grants. The housing component would be phased over four years with 1,463 houses targeted for constructiodcompletion in 2007; 2,201 houses in 2008; 2,031 in 2009; and 2,190 houses in The PPU would facilitate where requested the procurement of construction material in bulk to mitigate the risk of price escalation, supply constraints and unsustainable resource extraction. Beneficiaries would retain the prerogative to independently procure their own materials if they choose to. The District Secretariat would ensure that Government environmental guidelines are adhered to in the extraction of resources. Component Two: Water, Sanitation, Environment Mitigation, and Settlement Plans US$ 15.9 million) 17. Background: The Puttalam district is situated on the North West coast and dry zone of Sri Lanka. The annual rainfall of 15 to 30 centimeters i s largely limited to the months of November and December. The main source of drinking water is situated in a series of deep and shallow aquifers. The quality of water in these aquifers ranges widely depending on location. Studies indicate that ground water is often contaminated with nitrates in areas where intensive agriculture takes place. The excessive use of groundwater for agriculture and prawn farms has led to a saline intrusion in other areas. The inappropriate design of latrines leads to the bacteriological contamination of ground water in several refugee camps. The average depth of most shallow wells ranges from 5 to 10 meters though in certain places ground water can be accessed only at very deep levels. The availability of safe drinking water is a serious concern in light of these factors. Several sites are located on sand dunes, marshy and flood prone areas. Paragraph 42 lists the composition of the DMC and PSC. 16 UNHCR would have advisory status on protection concerns at the Puttalam Steering Committee. 4

11 18. The refugee camps in Puttalam were initially anticipated to be of temporary duration. There was no investment in basic infrastructure. IDA support for drinhng water, sanitation and environment management is intended to upgrade the refugee camps into sustainable habitat and integrate them with the surrounding communities. The PHP would include water and sanitation in certain adjoining and vulnerable non IDP villages to mitigate non IDP resentment at the transfer of resources to IDPs. 19. Water: The National Water Supply and Drainage Board NWSDB) undertook a concept feasibility study to map groundwater sources, report on water availability, water quality, source yield, suitability of various methods of excreta disposal and the cost estimates for water supply and sanitation. It listed refugee camps that can be covered by a stand alone water supply and sanitation systems, and camps that need to be clustered for technical and cost reasons. Based on this study, pumping sites would be strategically located within a demarcated zone and safe water distributed to refugee camps and non IDP villages through a system of storage tanks and pipes, or pumped through tube wells. The type of scheme would depend on location and ground water condition. 20. The PHP would provide drinking water to 13,584 IDP families in 136 refugee camps and 3,291 non IDP ho~seholds.'~ This adds to a total of 16,875 households. Non IDP recipients would include those living in source areas, en-route of the piped water schemes and in villages without drinhng water adjacent to identified refugee camps. This is estimated to cost US$ million. It includes provision for technical assistance, project management, supervision, taxes and physical/price contingencies. The NWSDB would prepare engineering drawings and bid documents. The PPU would invite bids for contractors to undertake civil works. Communities would be responsible for operations and maintenance of stand alone water supply schemes. The local authority would operate and maintain those schemes that serve a cluster of refugee camps and adjoining villages, Stand posts would be considered the basic service level; however households opting for a higher service level such as yard taps andor house connections would be able to do so provided they pay the additional cost for the higher service level and the source yield is adequate. See Annex 4 for more details Sanitation: The shallow sand aquifer is vulnerable to easy contamination due to permeable soils and the shallow depth of the ground water table, The aquifer would have to be protected from contamination of sewage to ensure the sustained availability of scarce potable quality ground water. All IDP households that receive housing support cash grants would construct appropriate latrines. The PHP would also provide a Rs. 25,000 cash grant to non recipients of housing assistance to construct latrines in certain areas. This would conserve extant sources of ground water and avoid bacteriological contamination due to inappropriate sewage disposal. The Sanitation sub-component would cost US$ 500, Environment Mitigation: The Environmental Assessment EA) of the 11 1 refugee camps highlighted environmental risks that were a result of flooding and lack of proper drainage. The poor condition of roads and the drainage system led to flooding. The PHP would therefore allocate funds to mitigate priority environmental issues and ensure that main roads within refugee camps do not contribute to environmental hazards such as water logging by rainfall ponding and runoff. Road works would be limited to ensure that there would be a minimal collection of water on road surfaces and drainage to collect runoff in camps where flooding is reported to be of concern. Environmental Management Plans would be prepared for each refugee camp to recommend the camp-specific risk mitigation measures. The North West Provincial Roads Department NWPRD) would identify the needed civil works, prepare the engineering drawings and the bid documents. The PPU would invite bids for contractors to undertake civil works while the four local authorities would be responsible for maintenance. l7 United Nations International Children's Education Fund UNICEF) would provide drinking water to the remaining five rehgee camps and adjacent host communities. 5

12 23. Comprehensive Settlement Planning and Survey Plan: This is a major study that would include the Environmental Management Plan mentioned above. It would be carried out by a consulting firm. 42% of Puttalam IDP families lived with other families. They were largely dependent families who tend to purchase land in the vicinity of existing camps. Most camps would therefore experience rapid physical expansion in the coming years. The Settlement Plans would guide the planned development and implementation of basic building regulations in each camp. The technical assistance provided under this component would include: preparation of surveybase plans for all camps, improvements of internal road and drainage segments to mitigate environmental problems, preparation of physical development plans neighborhood plans) for all camps to structure the future growth and development of essential community services, preparation of environmental management plans for each camp, and recommend appropriate mitigation measures to reduce environmental hazard, amongst other activities. Component Three: Technical Support for Implementation US$785,000) 24. The PHP would include technical assistance to strengthen project implementation. It would support the regularization of land title, a communications campaign, a continuous social impact assessment, mid-term and prior-to-closing environmental audits, a third party technical audit, a Housing Assessment Survey, and Skills Training. 25. Regularization of Land Title: A Land Task Force would review documentation and regularize titles of those who possess land but lack adequate documentation in all 141 refugee camps and adjoining non IDP villages. This exercise commenced in November, 2006 and would be completed over a six month period. Where possible, it would help resolve land related disputes. The activity would be modeled on the successful precedent of the mobile land task forces under NEHRP. 26. Communication Campaim: An information dissemination campaign outsourced to a firm would explain the PHP, the beneficiary selection process, the cash grants, disbursement procedures, the legal rights of IDPs, on-going programs for non-idps and issues pertaining to water conservation. This is intended to ensure transparency, accountability and reduce non IDP resentment at the transfer of resources to IDPs. Please see Annex 4 for more details. 27. Continuous Social Impact Assessment CSIA): This would independently monitor community perceptions, grievances and feedback on project implementation on an ongoing basis. Its findings would be used to evaluate the social dimensions of PHP, flag emerging reputational risks and introduce corrective action. 28. Mid-Term and Prior-to-Closing. Environmental Audits: The Audits would be outsourced to a firm that examines the project s compliance with environmental guidelines and safeguards during implementation. 29. Technical Audit: This would independently monitor whether construction complies with agreed technical standards. It would audit a 5% sample of beneficiaries in all refugee camps and its recommendations would feed into ongoing construction and subsequent rounds of project supervision. It would review civil works in the water and environment mitigation components as well. 30. Housing. Assessment Survey: The IDP land profile has changed significantly in recent months due to the rapid regularization of property title. A Housing Assessment Survey would revalidate the household profile, the classification of house and land ownership in each refugee camp and the precise construction needs in the case of a partly-completed house. It would build upon the results of the UNHCR supervised census, the EA and the Social Assessment SA). The survey would help technical officers to certify payment to eligible households, supervise construction and facilitate implementation roll out. 6

13 3 1. Skills Training for Construction Labor: PHP would support the training of about 1,000 masons and carpenters to bridge the shortage of slulled construction labor in Puttalam. The proposed training courses would run for four months in each training site, and would consist of classroom training and supervised on-the-job training. The contractor and PPU would enter into a memorandum of understanding that these laborers be made available to the refugee camps for part of their apprenticeship. Component Four: Project Management US$ 1.34 million). 32. The Ministry of Resettlement would manage and monitor the PHP at the center. The district administration would support implementation at the district and divisions. The PPU would implement the PHP on a day to day basis. An Operational Manual that sets forth guidelines, procedures and responsibilities was submitted to IDA during Appraisal. The PHP would allocate funds to cover staff expenses, incremental operating costs that include travel, transport, fuel, food, lodging but not salaries, capacity building training) of project related staff, and the procurement of goods that includes office equipment, two vehicles, bicycles, and motor cycles. This component would also meet the cost of the grievance redressal mechanism. 5 Lessons Learned and Reflected in the Project Design 33. The Government commissioned five studies as part of project preparation, i.e., a UNHCR supervised census of 141 refugee camps in Puttalam, a SA, an EA, a Water Concept Feasibility Study and Preliminary Engineering Reports for water schemes in Phase 1 camps. The SA and the EA were carried out in 11 1 of the 141 refugee camps accounting for 80% of the IDP population. The 30 remaining camps were covered in January, IDA supports the US$ 75 million NEHRP and the US$ 150 million Tsunami Emergency Recovery Credit TERC). NEHRP influenced the design o f the TERC housing component. While the PHP is a unique project that includes housing, infrastructure and activities to improve the environmental condition of refugee camps, there are lessons to be learned from the above mentioned projects. 35. BeneJiciary Selection: NEHRP lacked funds to meet the housing needs of all conflict-affected families in the North and East. The scale of devastation was huge. It became necessary to prioritize beneficiaries. Under NEHRP, villages were selected based on the extent of housing damage, caseload of returnees, economic vulnerability and ethnic sensitivity. Individual households were then identified through a quantifiable vulnerability weighting system. Not all villages participated in NEHRP. Not all households with a destroyed house in the village received assistance. Only the most vulnerable did. This led to some friction between beneficiaries and non beneficiaries in a village. The PHP revised the criteria to factor in this lesson. All refugee camps have been identified to participate in the PHP. All households with non permanent house as at April, 2006 and title to land would receive assistance. The shift in beneficiary selection criteria is explained by the fact that the refugee camps demonstrate a remarkable degree of community initiative where the IDPs had collectively purchased land in most instances. Further, many camps were established based on the original IDP villages in the North. The NEHRP selection criteria can not be applied in Puttalam because it would fracture communities whose cohesion and remarkable levels of social mobilization are in part attributed to the shared trauma of exile." 36. Land Ownership: The Mobile Land Task Forces demonstrated spectacular success under NEHRP. This was to ensure that potential beneficiaries were not excluded on account of inadequate or '' The housing assistance under NEHRP included both conflict-affected host communities and returning IDPs. The proposed PHP conversely is targeted at IDP households alone. This is a more cohesive group. This partly explains the difference in selection criteria. 7

14 contested land titlelg. A Land Task Force has similarly been established in Puttalam to regularize title to land, help resolve routine land ownership issues, address encroachment on unalienated state lands and reduce uncertainty with regards to property boundary over a six month period. The social impact of the benefits of this service would be enormous. 37. Grievance Redressal: The design of NEHRP and TERC provided for a grievance redressal system to allow villages and individuals excluded from the project to seek redress. This ensured a degree of accountability and transparency in the beneficiary identification process. The PHP retains this successful mechanism that disaffected households could avail of with due modification to account for the lack of a provincial and divisional level of implementation in Puttalam. The complaints mechanism duly recorded would act as a check against bureaucratic discretion in the face of established beneficiary selection criteria. It would release pent up resentment at perceived exclusion. 38. Resource Requirement Plan: The NEHRP experience revealed that construction materials were not always available. Price escalation was a constraint. Individual procurement led to temporary debt and at times had negative environmental effects. There were positive cost and environmental results when beneficiaries resorted to procurement in bulk through co-operative societies and village rehabilitation committees. PHP retains this optional mechanism for bulk procurement. Similarly, human resources slulled and semi-skilled labors) proved to be in high demand and in short supply during construction. The skills training program under the NEHRP helped meet the demand for the construction labor and similar programs would be carried out in Puttalam. 6 Alternatives Considered and Reasons for Rejection 39. Turn Key Approach for Housing Construction: This centralized approach entails the hiring of a contractor to build houses on behalf of the IDP family and to hand over the completed house to the beneficiary. It does not involve beneficiaries in planning, implementation and monitoring. It has not been cost effective in Sri Lanka given the significant intermediation costs involved. There are contractor fees and a standardized uniform design to suit a mass housing scheme. This explains the differential success between the international non-governmental organization INGO) driven and homeowner driven housing reconstruction programs in the tsunami-affected areas. The homeowner driven housing reconstruction program has reached close to 100% rates of completion in several areas while INGO driven program led to inflated costs, incomplete construction and inappropriate household design. PHP would therefore adopt a decentralized, individual homeowner driven approach to ensure beneficiary ownership in keeping with the successes in NEHRP and TERC. C. IMPLEMENTATION 1 Partnership Arrangements 40. UNHCR supervised the IDA-financed census of Refugee Camps in Puttalam both in 2004 and in It worked with Government in the 2002 national census of IDPs in Sri Lanka. UNHCR would monitor implementation of the PHP as part of its protection mandate. The United Nations International Children s Education Fund UNICEF) undertook its own survey of water resources in the Puttalam district and would finance the provision of drinlung water for five refugee camps and two non IDP adjoining villages with a total caseload of 2,000 families. UNICEF intends to invest in schools and health 19 The land task forces had registered 96,385 instances of conflict-related disputes pertaining to state land in the North East as at April 30, They had resolved 72,738 land dispute cases loss of documentation, death of deed holder, demarcation of property, inheritance disputes, etc.). They had issued deeds under the Land Development Ordinance to 47,415 families in the North East. 8

15 clinics as well. UNHCR, UNICEF and IDA would work together in Puttalam to integrate the IDP population in their preferred location of choice. 2 Institutional and Implementation Arrangements 41. The Ministry of Resettlement 2o is the line agency responsible for the PHP. The Ministry would rely upon the NWSDB and the NWPRD to design and supervise the waterhanitation and environment mitigationhnternal road sub-components, respectively. The PPU, mapped into the Ministry of Resettlement, would implement the project on a day to day basis. 42. In order to oversee activities under the PHP at the district level, a District Monitoring Committee DMC) was established under the District Secretary. Other members include the four Divisional Secretaries and representatives of relevant district line agencies. The DMC would monitor project implementation to ensure the timely resolution of issues. At the National level, the Puttalam Steering Committee PSC), convenes key Government actors including those from North Western Provincial Council, sets policy and liaises closely with the DMC on project implementation. The PSC consists of the Secretary, Director-General and Senior Project Adviser, Ministry of Resettlement; the Puttalam District Secretary; and officials of the NWSDB, the NWPRD, the Provincial Land Commission, central line agencies including the Ministry of Finance and Planning, Chief Secretary of the North Western Provincial Council, and Director, Provincial Environmental Authority. The Secretary, Ministry of Resettlement chairs the PSC. It meets every two months. 43. The PPU is located in Puttalam. It includes a Director, a Financial Management Specialist/ Accountant, a Social Development Specialist, an Environment Specialist, an EngineerlProcurement Officer, a Communications Officer, an Information Technology Officer and a Land Settlement Officer. Technical Officers would certify construction milestones before authorizing payment and provide technical guidance to IDPs as they construct their houses. The PPU has hired four Technical Officers and would recruit more, if required. The Social Development Specialist would address social issues that may arise on account of beneficiary identification and the complaints of households that were not selected. The Environmental Specialist would ensure compliance with environmental safeguards. An Accounts Clerk and support staff would assist the Financial Management Specialist. A Senior Project Adviser would be stationed in Colombo to liaise with central line agencies. The PPU would disburse the housing support cash grants. It would be responsible for financial management and procurement of goodslserviceslworks. 44. The relevant Local Authority would review the Settlement Plan for each camp and approve all building plans therein under the Local Authority Ordinance. The Settlement Plans would structure the future growth and planned development of refugee camps. The Local Authority would be responsible for the operations and maintenance of more complex water schemes. The Local Authority would ensure the streamlined provision of basic municipal services including solid waste disposal. The Provincial Environmental Authority would supervise the mitigation of environmental risks. 45. Grievance Redressal Mechanism: All households living in temporary thatched huts or in partlycompleted houses on land that they possessed as at April, 2006 in a Puttalam refugee camp would be entitled to the cash grant. In the event that a household disagrees with its non inclusion in the beneficiary list, it can complain in writing to the Grievance Redressal Committee in Puttalam headed by the Additional District Secretary. The grievance redressal process would have two steps o f appeal. 2o This ministry was mandated based on the Government Gazette o f December 8, 2005) with the implementation of plans and programs for the resettlement o f civilians affected by the war and resettlement o f refugees. 9

16 46. Upon publication of the beneficiary list in the refugee camp, the Divisional Secretary, the PPU Director, the Social Development Officer and Communications Officer would convene a meeting in relevant refugee camps. Individual households could use that forum to raise their complaints at being excluded. These would be recorded in writing. The Grievance Redressal Committee in Puttalam consisting of the Additional District Secretary, the four Divisional Secretaries and two NGO representatives, would review the complaints raised and revise the beneficiary list if it sees fit. There would be a five week time-line between the public posting of identified recipients and this ruling. 47. Should a household remain dissatisfied at this ruling, it could appeal to a three person Grievance Redressal Mechanism in Colombo headed by the Secretary, Ministry of Resettlement. The Committee would include designee from Ministry of Finance and the District Secretary of Puttalam. An UNHCR representative would be present as an observer. The decision of this committee would be final and the appeals process would end there. The CSIA would provide an opportunity for those households with unresolved grievances to record their views to a neutral outside firm bypassing the district and central administrations for review at the next phase. 48. Funds Flow: IDA funds would be deposited in the Special Dollar Account SDA). The Government would advance its own funds to the PPU against the budgetary provisions available under reimbursable foreign aid. Upon disbursement of funds, PPU would submit a withdrawal application to the Central Bank via the Department of Treasury Operations each month to reimburse the Treasury with the IDA portion of the expenditure using the proceeds in the SDA. The PPU would submit monthly applications to IDA to replenish the SDA. For large payments, PPU has the option of requesting a direct payment to the supplier by: i) Central Bank using the proceeds in the SDA, or ii) IDA against the Credit. The allocations under direct foreign aid would be utilized for this mode of payment. 3 Monitoring and Evaluation of Outcomes/Results 49. The PPU would monitor impact, outputs, outcomes and finances. Output monitoring would cover the number of houses constructed, the phased disbursement of the cash grant, the number of water schemes completed and the number of latrines built.* The DMC and PSC would review implementation progress. PPU would have several means to monitor results The PPU would prepare and submit to IDA quarterly reports detailing the technical, operational, financial, and administrative progress. A CSIA would monitor project impact and social outcomes using participatory rural appraisal methods. The CSIA would offer an opportunity to cross verify the PPU reports. Mid-term and prior-to-closing environmental audits would verify the PHP s compliance with agreed environmental guidelines and safeguards. An independent technical audit would verify compliance with engineering standards for housing, water and environment mitigation. 4 Sustainability 50. The demand driven nature of the PHP would ensure its long term sustainability. It would help transform refugee camps into sustainable habitats and better integrate IDPs and non-idps. Regularized land title, strengthened social capital, better management of water resources and improved IDP-non IDP relations would reinforce the PHP s long term sustainability. The homeowner-driven approach, the transformation of refugee camps to improved habitat, community development and better environment 21 Details of the monitoring indicators are provided in Annex 3. 10

17 management would strengthen the long-term sustainability of the PHP. Needless to add, this would also be linked to the success of the peace process and access to follow-up financing. 5 Critical Risks and Possible Controversial Aspects Risk to Development Objectives Disputes with non-idps: Poverty in the Puttalam district is not confined to IDPs. 31% of the population in the Puttalam district lived below the poverty line in 2002 in contrast to the national average in Sri Lanka of 22.7% that year. Support for IDP housing while non-idps live in inadequate housing could trigger resentment. The issue is compounded with an overall scarcity of water with the extraction of ground water by IDPs. Competition over limited resources sharpens the resentment. Ethnic differences between the two groups in certain instances complicate matters further. Reputational Risk: The civil conflict led to a massive dislocation of people belonging to all ethnic groups. Most Muslims in the North were evicted in October 1990 and fled to Puttalam where they have been living in refugee camps since. IDA support for permanent housing might pose a reputational risk in that it could be seen as acquiescing to the forced relocation of IDPs through the provision of houses. Risk Ratings H S Risk Mitigation Measure Non-IDPs would need to have a stake in the success of the project. While non-idps may not benefit from the cash grants it self, they would gain from other components of the PHP. To this effect, the PHP would finance drlnlung water and sanitation for needy adjoining non-idps. IDA prepared a Macro-Action Plan that defined guiding principles to reduce inter-community tensions in Puttalam. The Land Task Force would address both IDPs and non-idps in a given village cluster. The PHP would improve the market for local masons and carpenters. The Ministry of Housing would scale up its home improvement grants to non-idps living in adjacent villages in close consultation with the PPU. UNICEF would invest in drinking water, schools and health facilities for both IDP and non-idps. The Government would improve service delivery to both IDPs and non-idps in Puttalam to complement the PHP. It would undertake a baseline survey to determine: i) the cost of service delivery in the four relevant divisions of Puttalam; and ii) based on the findings expand service delivery in those divisions including in areas of health, education and local government. This would avoid the continued reliance of both IDPs and non- IDPs on a limited budgetary provision that was only intended for the non IDP community, thus exacerbating tensions. The District Secretary would coordinate IDA-financed projects in Puttalam to ensure that IDP and non IDP needs are reconciled in a seamless manner. A communication campaign would explain the range of projects targeting non-idps in Puttalam and explain the rationale for assisting IDPs. The 2002, 2004 and 2006 surveys o f IDPs demonstrated that most in Puttalam were not keen to return to their original villages any time soon. 96% of IDPs in Puttalam are keen to transform their sixteen years of temporary stay in squalid refugee camps to permanent and upgraded habitat. 74.2% of IDPs had in fact bought land in Puttalam reinforcing this preference to reside there permanently. The escalation of hostilities in the North and East in 2006 meant that an estimated 1,000 out of the 2,500 IDP families who had returned to their original villages moved back to Puttalam. The PHP is predicated on this ground reality. Those IDPs who do return North would still be considered for NEHRP assistance. PHP beneficiaries however would not be entitled to housing grants in the North. The PHP in itself would not impact on the legal: i) right to return at a future date; ii) right to property that IDPs might have left behind in the North; iii) right to compensation that might be provided to victims of the conflict at a future date; 11

18 and iv) right to participate in any referendum that addresses the long term political resolution of the ethnic conflict. IDA legal opinion was obtained to ensure that the PHP would not impact on IDP rights. The Government is committed to protect the right to return of all IDPs including those in Puttalam, if they so choose to at a later date. UNHCR would monitor and report any violation of these rights. Residency Rights: The IDPs in refugee camps lack access to services that residents in Puttalam are entitled to since they are not registered as permanent residents and remain on the roster of the conflict-displaced. This denied them access to the Government s Samurdhi welfare program, public recruitment, investment in education infrastructure and municipal services. Many IDPs are reluctant to forego their residency rights and right to vote in the North. This contrasts with their reluctance to return there any time soon and can be explained in part by the sense of injustice meted out to them in As a result, they lack a representative within the Puttalam district who would ensure adequate levels of service delivery. The provision of permanent housing to IDPs would not have the intended effect of transfonning IDPs to ordinary citizens unless they have the right to vote and access to services like other permanent residents. However, where IDPs choose to register themselves is a political decision. The Government agreed to improve service delivery to IDPs following a baseline survey to complement the PHP. Escalating Conflict: The conflict reerupted with intensity in January, ,600 people have reportedly died while 235,000 have been displaced since. The PHP does not address the needs of the newly displaced. This might pose a risk as IDA supports one set of IDPs and not new IDPs elsewhere. Overall Risk H = High, S = Substantial The upsurge in the number of new IDPs due to the escalating conflict is confined to the North and East. Puttalam is not impacted. While the situation in the North and East remains fluid, IDA is exploring various options that would address the social protection and livelihood needs of the ever increasing number of new IDPs. Further, ongoing IDA operations support earlier IDPs in the North and East who had returned to their original villages. Puttalam is not directly affected by the current conflict. While the conflict might impact areas outside the North and East, the effect on Puttalam would be no more than in the rest of the island. It is unlikely to be in the form of terrorist attacks, abductions and assassinations. While an island-wide risk outside the North and East for the escalation of the conflict cannot be ruled out, it is not Puttalam specific. Implementation of this project is unlikely to be affected. In the instance that it is, the project would be phased back to safe areas and scaled back in line with mechanisms already in place for other projects operating in the North and East 6 Credit Conditions and Covenants 5 1. The two Board conditions have been met. i) Detailed Engineering Reports for two water supply schemes covering 21 refugee camps in Phase 1 of the PHP were submitted to IDA on January 17, ii) Regularization of Land Title for Phase 1 refugee camps was completed in all refugee camps except one camp that did not meet the all conditions and would now be covered in Phase 2 instead. All confirmed IDA-financed housing which would form part of Phase 1 of the PHP would be on land registered in the name of the head of household. 52. Land: The Government would ensure that there would be no involuntary land acquisition for each phase of the PHP in relation to project activities. The community would collectively allocate land or 12

19 purchase it to accommodate the water schemes. If this be on state land, the Government would alienate it for the purpose in compliance with IDA safeguards. 53. General Implementation: The Government of Sri Lanka would implement PHP in accordance with the Financing Agreement FA), the Operational Manual OM), the Financial Management Manual, and the Environment and Social Assessment and Management Framework ESMF). The Government shall not amend or waive any provision of these manuals without IDA S prior approval. The Government would maintain the PPU with adequate staff, powers, functions and resources to implement, coordinate and monitor the PHP in a manner satisfactory to IDA. 54. Use of Credit Proceeds: The Government would ensure that all goods, works and services financed out of the Credit proceeds are used exclusively for the PHP and if any funds are used in a manner inconsistent with the provision of FA, the Government shall take all necessary measures to refund to IDA the said amount. 55. Monitoring and Evaluation: Mid-Term Review: The Government would carry out a mid-term review and furnish the reports of such a review to IDA by December 31, Financial Covenant: The Government would make necessary budgetary allocation for the PHP and ensure that a satisfactory financial management system i s maintained throughout the duration of IDA support. It would submit to IDA audited annual financial statements of the project no later than June 30 of the following fiscal year and would produce Interim Financial Reports IFRs) and submit to IDA no later than 45 days following the end of the reporting quarter. D. APPRAISAL SUMMARY 1 Economic and Financial Analysis. 57. The PHP is expected to have economic payback and positive net benefits to the direct beneficiaries and adjacent communities. Construction of each house is a net gain to the local economy. The multiplier effect of new housing reveals that, on average, for each dollar spent on construction, the local economy would witness US$ 0.34 in wage income plugged back into the Puttalam economy. The housing component alone would create a minimum of 543 jobs exclusively in the housing sector and generate approximately US$ 5.5 million in wage income. The shlls training program would ensure an increase in income of an individual trainee incremental income level) by an average of about US$ 1,115 per annum or a Net Present Value NPV) difference of US$ 7,483 over the course of their productive life 15 years). See Annex 9 for more details. 58. The short tern fiscal impact of the PHP is neutral. Of the US$ 34.2 million total project cost, US$ 2.2 million is the Government s contribution mainly in the form of payment for taxes and duties. The long term fiscal impact of the borrowing is negligible. The US$ 32 million IDA credit is a concessional loan with a 10-year grace period, a maturity of 20 years, zero interest, and a 0.75% service charge on the outstanding amount, which translates to a grant element of 76 percentz3 The NPV of the credit disbursed in four years is US$ 26.5 million, and that of the total debt service payments over 20 years is only US$ 6.3 million. This would result in a total of a US$ 20.2 million grant out of the US$ 32 million concessional credit. The debt service payment about US$ 3.5 million per year on average) as a percentage o f GDP is insignificant given the size and anticipated nominal growth of the economy. 22 It is assumed that wages would increase by 10% per annum on average during the project life and the Sri Lanka Rupee would depreciate by 8% per annum over the next four years. 23 Sri Lanka is now an IDA Gap Country. See footnote 7. 13

20 2 Technical 59. The PHP is premised upon the home-owner driven construction. The provision of cash grants would ensure beneficiary participation in the construction of hisher house, facilitate increased choice in design and use of construction materials, not to mention reduce in contrast to the provision of a ready-made turn-key unit. The minimum requirement of a house is a permanent foundation of at least 500 square feet, one room and a toilet. Technical officers would supervise construction while a technical audit would independently monitor compliance with engineering standards. The PPU would help those community-based organizations that choose to procure cement, timber and tiles in bulk in response to supply constraints and price escalation. An Operational Manual outlines procedures on implementation, supervision, technical certification and the disbursement of funds. The PHP would support 34 drinking water schemes to cover 136 refugee camps and adjoining non IDP villages. 3 Fiduciary 60. Financial Management: The proposed financial management procedures are in keeping with IDA fiduciary requirements as per OP/BP A manual accounting and reporting system has been set up for the PHP. The PHP would follow the transaction-based disbursement method. The Financial Management Manual has been completed. IFRs for activities supported under the Project would be submitted to IDA within 45 days of the end of each quarter. The Auditor General of Sri Lanka would audit the accounts of the PHP each year. The Internal Audit Department of the Ministry of Resettlement would be strengthened to carry out quarterly audits o f the PHP at the district and community levels. 61. Procurement: The procurement for goods and works would be carried out in accordance with the World Bank Guidelines: Procurement under IBRD Loans and IDA Credits dated May The works consist of the home-owner driven program, piped water schemes and minor environment mitigation. Consultant Services would be procured in accordance with the World Bank Guidelines on Selection and Employment of Consultants by World Bank borrowers dated May The Ministry of Resettlement prepared a procurement plan and sample draft bidding/proposal documents for the first 18 months. 4 Social 62. The PHP is expected to have a limited negative social impact. It may not trigger any social safeguard policies. The plan is to support as far as possible on-site construction for those households with legitimate ownership of land in environmentally safe areas. Some instances may result in voluntary relocation later in the project timeline. A consultative SA examined longer term social concerns, conflict potential, prospects for integration with the surrounding non IDP community and gender dynamics to mitigate risks and identify opportunities for social cohesion. The UNHCR Supervised Survey updated the demographic information on IDPs including the type of shelter currently occupied and land title. The Government relied on these studies to design the PHP. 63. The IDP would need to demonstrate clear title to land to receive a cash grant. This is intended to safeguard against the threat of eviction and reduce the potential for political and economic exploitation. A Land Task Force would regularize the land deeds in environmentally cleared refugee camps. The PHP makes provision to voluntary relocate those IDPs living in environmentally unsuitable areas, should the situation arise. The latter group of IDPs would not be covered in the first two years of the PHP. An Environmental and Social Safeguards Framework includes guidelines to prepare a Resettlement Action Plan if needed at a future date. 24 The provision of turn-key housing inevitably leads to cost escalation due to the contractor charging for internal expenses as witnessed in the NGO-financed housing program in Sri Lanka s tsunami-affected areas. 14

21 64. The PHP does not involve any land acquisition in the housing component. The provision of water supply may involve the community purchase of land or the state alienating land in compliance with IDA safeguards. The extent and nature of this would not be clear until the detailed planning of the water supply is available following which an assessment of the required community procurement or land alienation would take place. 5 Environment 65. The safeguard policy that pertains to an Environmental Assessment OP 4.0 1) would be triggered under the PHP. 111 of the 141 sites were subject to an EA based on information collected through a questionnaire. This would guide the preparation of an Environmental Management Plan to identify the potential environmental impact and mitigation measures needed in each refugee camp. A detailed Environmental Impact Assessment would only be required if the questionnaire had identified a serious environmental issue at a given site which would need to be investigated in further detail. 66. Existing local government structures would oversee the collection of solid waste, composting and recycling in the proposed housing sites. The PHP would ensure sustainable sourcing of raw material such as sand and timber to minimize environmental impact. It would ensure compliance with local government regulations on sanitary facilities to avoid contamination of drinhng water sources. 6 Safeguard Policies 67. Social safeguards. If OP 4.12 and OD 4.11 are triggered, mitigation mechanisms would be addressed as outlined in the ESMF. 68, Environmental safeguards. One environmental safeguard policy is triggered i.e. Environmental Assessment OP 4.01). The mitigation measures are described in the ESMF. Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP/GP 4.01) [XI [I Natural Habitats OP/BP 4.04) [I [XI Pest Management OP 4.09) [I [XI Cultural Property OPN , being revised as OP 4.11) [XI [I Involuntary Resettlement OPIBP 4.12) [XI [I Indigenous Peoples OD 4.20, being revised as OP 4.10) [I [XI Forests OP/BP 4.36) [I [XI Safety of Dams OP/BP 4.37) [I [XI Projects in Disputed Areas OPIBPIGP 7.60) [I [XI Projects on International Waterways OPIBPIGP 7.50) [I [XI 7 Policy Exceptions and Readiness. 69. PHP complies with all IDA policies so that there are no policy exceptions requiring management approval. Actions to initiate implementation commenced in October, 2006 and PHP would be ready to move towards full implementation in March, The key staff are in place and the Operational Manual finalized. Technical design manuals, procurement and financial management arrangements used for PHP have been prepared; a Procurement Plan for the first 18 months of the program was completed. These activities were funded by a Project Preparation Fa~ility. ~ The operational staff is conversant with the PHP concept and implementation strategies. 25 Project Preparation Facility Q 5390 dated July 12,

22 SRI LANKA: PUTTALAM HOUSING PROJECT Annex 1: Background and Project Design Framework Background The District of Puttalam in North West Sri Lanka is now home to many refugees displaced from the North in According to the UNHCR supervised census of IDPs in Puttalam conducted in April 2006, 63,145 persons or 15,480 families lived in 141 refugee camps. 41% of the Puttalam IDPs were children under the age of % of the IDPs originate from Mannar; 14% come from Jafha and 10% from Mullaitivu. The rest come from other districts in the North. The SA carried out as part of project preparation indicated that 62% of the adult population worked as seasonal day labor in the informal sector. About 18% of those surveyed in the UNHCR exercise reported that they had no schooling while 23% had a primary school education alone. Just 8% had completed their high school education. The IDPs are located in four divisions in the Puttalam district: Kalpitiya 55%), Puttalam 33%), Mundel 8%) and Vanathavillu 3%). 96% of Puttalam IDPs 14,928 families) indicated that they wished to remain and integrate in Puttalam, citing security concerns as the major obstacle to return to their original homes.26 74% of the IDP households had in fact bought land in Puttalam demonstrating a resolve to remain there. Most refugee camps lack basic services including access to safe drinking water, toilet facilities, proper drainage and garbage disposal. The UNHCR survey indicated that only 40% of the IDP population had private permanent toilets. Since the provision of basic services and ancillary infrastructure is key to the sustainability of permanent housing, the PHP is designed within a comprehensive settlement planning framework. Housing Conditions of IDPs: The UNHCR survey indicated that 12% of houses in the refugee camps were permanent, 25% were partly-completed and 63% were temporary houses2. Of the 12,154 families who require adequate housing, 6,501 live with near-relatives as dependent families, 5653 families live in temporary thatched huts and 2,232 families live in partly-completed houses. Water and Sanitation: Puttalam has a dry climate with an annual rainfall of about 15 to 30 cms. Even though, the ground water located in coastal aquifers and underlying Miocene limestone located in parts of Kalpitiya could meet the needs of the Kalpitiya peninsula residents, the contamination of the ground water from agricultural run-off compromise water quality. This is because of inappropriate design of excreta disposal in areas with a high water table, improper siting of toilets, and inadequate maintenance. The excessive extraction of ground-water and the consequent intrusion of sea water further contaminate the water. The demand for water from the growing population and physical distance between water sources and the camps add to the scarcity of drinking water. The UNHCR survey revealed that 28% of the population had access to a private well or piped supply, while 19% had no direct access to water. The local authority provides water to refugee camps close to Puttalam town by browsers. The situation in the Mundel and Vanathavillu divisions are no better. The main sources of water in all divisions are dug wells and hand pumps. Drainage and Road Access: At present, most refugee camps are connected by access and internal roads. The quality of internal roads is satisfactory in the majority of camps. While some road segments require improvement such as shouldering and gravel topping, the main problem experienced in most camps is poor drainage due to the absence of adequate road level drainage structures and culverts. This results in flooding and the reverse flow of rainwater into plots and houses. The absence of natural drains in some camps heightens the incidence of flooding. 26 UNHCR supervised survey. Permanent houses with completed structure and finishing), semi-permanent houses partly constructed but need home improvements), and temporary houses thatched houses with poor living condition), 16

23 Environmental Issues: Key environmental issues include: i) inadequate access to safe drinlung water; ii) poor sanitary conditions; iii) water stagnation and flooding in refugee camps; iv) haphazard disposal of garbage; v) the destruction of mangroves due to land clearance in the Kalpitiya area; vi) sand mining within and near refugee camps; and vii) exposure to pollution from the waste channels of prawn farms and other commercial agricultural activities. Land: Of the 15,480 IDP families in Puttalam, 74% 11,485 families) owned land in the district as at April, Of this, 75% 8,587 families) possessed land documents largely in the form of deeds 53% of total IDPs). Most IDPs who owned land in the district reported that they purchased the land 53%) rather than having obtained it through gift or inheritance. Complexities might arise in verifying the claims of the approximately 2,898 families who own land but do not possess valid legal documentation to this effect. Tensions with non-idps: Many of the non IDP residents in Puttalam initially viewed the migrant Muslims from the North as temporarily displaced and extended support to them. Over time, it became clear that the IDPs were in Puttalam for the long haul given their inability to return North on security considerations. The positive attitudes of non-idps changed with time. In several instances, the non-idps are at the same level of poverty as the IDPs; consequently struggles for access to limited services water, health, education) have multiplied. Many non-idps viewed IDPs as having encroached on the narrow resource base and receiving dry rations, which were higher in value compared to the welfare payments received by those non-idps below the poverty line. Relationship between IDPs and non-idps deteriorated in certain instances. However, tensions have largely ebbed except in the instance o f 13 camps out of the 11 1 surveyed by the SA. Competition over access to limited resources remains an issue as the district does not receive funds adequate for public services and infrastructure on account of the added IDP population. The fact that 94% of IDPs are still registered in their places of origin in the North has had a negative impact on the allocation of development funds to the Puttalam district. As a result, many refugee camps are underserved in terms o f basic community services and infrastructure. Institutional Capacity: The institutional capacity to manage a large-scale complex project is a concern. Project implementation requires partnerships between the Ministry of Resettlement, the Puttalam District Secretariat, the NWSDB, the NWPRD, the concerned local authority and community-based organizations such as the mosque committee, the women s society and the camp society. The PPU was recently established as the institutional mechanism to interface between these different agencies. Building and Development Regulations: Local government regulations require a minimum of 10 perches of land to be set aside for the construction of a house in a rural council and 6 perches of land for the construction of a house in a municipal council. Even though, most of the plots in the refugee camps are 10 perches, implementation of the building regulation requiring a minimum distance of 30 feet between a dug well and a non septic toilet will pose some difficulty in certain camps which depend on independent dug wells. Lack of publichommunity land for the provision of essential services will pose an implementation challenge. The Settlement Plans would guide the development and implementation of basic building regulations in each camp in accordance with environmental guidelines. Project Design Framework Objective and Strategic Framework: PHP s objective is to integrate the IDP population of Puttalam by providing improved housing, water, sanitation and environment management within a comprehensive settlement planning framework. This is intended to achieve sustainable habitat and integrate IDP communities with non IDP communities. 17

24 Homeowner Driven Construction: PHP s strategy is to provide cash grants to build houses. Its operational scope is to target those IDP families living in poor housing conditions as determined by the UNHCR survey. The cash grants would be used to replace all temporary and complete all partlycompleted houses through the homeowner driven strategy. Those IDPs with permanent houses would not receive the cash grants except to build sanitation units if required. Basic community services such as drinking water, sanitation and environment management would cover all IDPs and select adjacent non IDP communities. Inclusiveness: The sequencing of refugee camps for housing assistance was done on the basis of a two stage screening process. All 141 IDP camps were ranked using social indicators that measured housing vulnerability. They were then screened in terms of environmental feasibility for the purpose of phasing the investment. Based on this ranking, 20 camps were identified for Phase 1 of the PHP. Building on Past Projects: The design o f the housing component is based upon the successful IDAfinanced NEHRP. It is premised on the homeowner driven approach that entails the phased release of cash grants upon meeting construction milestones as verified by the technical officers. The water component is based on the IDA-financed Community Water Supply and Sanitation Project CWSSP) while the environmental improvement activity is based on the IDA-financed North East Irrigated Agriculture Project NEIAP). IDA funds are only available to meet the construction needs of households currently living in temporary and partly-completed houses in refugee camps. This meets 50% of the housing needs of the Puttalam IDPs. The funds are not sufficient to meet the needs of married children living with their parents in refugee camps. Flexible Implementation Framework: The phased implementation timeline was designed based on the implementation capacity of the PPU. The quarterly IDA supervision and mid-term review would revisit the Government timeline and targets if necessary. Comprehensive Settlement Planning: Provision of basic services to each IDP community would be provided within a comprehensive settlement-planning framework. This would synchronize the neighborhood grid, water supply, sanitation and environment management. The preparation of physical development plans and the formulation of implementable development regulations require community consultation. Infrastructure planning and technical support would take place through community participation. Community mobilization would be required to acquire land for the provision of common services in the short run. Public sector budgetary allocations and cost recovery would be essential to ensure service sustainability in the long run. Local communities would be mobilized to procure building materials in bulk if required and skilled labor. Land Rights as a Cornerstone of Housing Development: Since investment in housing is spatially fixed, the legal title to land is a precondition for the receipt of the cash grant. The PHP would validate a range of documentation including deeds, leases, grants, permits, notarized land allotment letters, land grant certificates by the provincial land commissioner, etc. Survey plans are not required under local law. Opportunity to challenge a potential beneficiary s claim to a particular parcel of land is inbuilt into project design through the Land Task Force and the gnevance redressal mechanism. The Land Task Force would help regularize title to land. Prescriptive rights on encroached private land are not acceptable since it would compromise the proprietary rights of the original landowners. Ancillary Infrastructure; Provision of drinking water, sanitation and environmental management is intended to ensure the sustainability of the housing project. The non IDP villages were included to better integrate IDPs and non-idps through shared development activity. 18

25 Financial Assistance: The PHP would meet the housing needs of all original IDP households without permanent housing. It would provide water, sanitation and road infi-astructure to all IDPs and adjacent non IDP villages where required. In other words, the PHP would finance the construction of 5,653 houses, complete 2,232 partly- completed houses, provide drinking water to 16,875 IDP and non IDP families, and construct 9,885 latrines. IDA would provide US$ 32 million to finance the project. The Government of Sri Lanka would provide US$ 2.2 million as counterpart funding in the form of taxes and levies. 19

26 North East Housing Reconstruction Program SRI LANKA: PUTTALAM HOUSING PROJECT Annex 2: Major Related Projects Financed by IDA The joint donor-sponsored Comprehensive Needs Assessment for the North East in May, 2003 estimated that the two decade old civil conflict had destroyed or damaged 326,000 houses. 90% of the 144,890 houses owned by IDPs were damaged. The investment required to reconstruct houses in the North East was estimated at US$ 562 million. IDA provided US$ 75 million to support the North East Housing Reconstruction Program NEHRP) in response to this need. The European Commission co-financed this initiative. NEHRP was intended to reconstruct the destroyed houses of the poorest conflict-affected families in the North East. It entailed a cash grant to poor families to reconstruct their homes. The technical assistance provided under NEHRP was designed to better meet the long term housing needs in the North East through improved construction standards, strengthened housing finance options, regularized land title, trained construction workers and improved capacity. IDA funds under NEHRP would reconstruct 3 1,200 conflict-destroyed houses. NEHRP had three components i.e. i) Housing Assistance; ii) Capacity Building; and iii) Program Management. The Housing Assistance component consists of a cash grant of Rs. 250,000 or Rs. 100,000 to each identified family to help rebuild or repair their damaged houses. The Capacity Building component includes technical assistance to ensure construction standards, support to village rehabilitation committees, social and environmental safeguards, the development of housing finance and augmenting the construction workforce. The support for Program Management finances technical expertise in the North East Housing Reconstruction Unit, the incremental operating costs and the costs incurred in supervising project implementation. The reconstruction of 4,670 houses under Phase 1 of NEHRP is complete. The reconstruction of 8,800 houses under Phase 2 would be completed by February 28, 2007 despite the deteriorating security environment. This was ensured by targeting divisions where the security situation permitted construction while deferring other divisions where the security environment was not conducive to civil works. Of the total amount of US$ 75 million, US$ 31.4 million was disbursed as at December 18,2006. The achievement of Development Objectives DO) and Implementation Performance IP) is rated satisfactory. Tsunami Emergency Recovery Credit The tsunami struck Sri Lanka in December ,322 people died, 516,150 were initially displaced and 98,000 homes destroyed or damaged. The total cost of relief and reconstruction was estimated at US$ 2.2 billion. IDA restructured its portfolio and approved a new credit/grant to make available a total of US$ 150 million of which US$ 65 million was for housing, US$ 34 million for livelihood, US$ 34 million for roads, US$ 5 million for capacity building, US$ 8 million for health and US$ 4 million for contingency. Of the total amount, about US$ 116 million had been disbursed as at December 18,2006. The housing component was designed on the lines of NEHRP. The homeowner strategy is progressing well in the South West. Of the 12,65 1 fully and partly-damaged houses covered in the divisions receiving IDA assistance in the South West, the reconstruction o f the entire caseload was complete as at December % of the reconstruction of the total caseload of 23,924 fully and partly-damaged houses in the divisions receiving IDA assistance in the East were completed as at September, The pace of implementation in the North caseload of 7,8 19 fully and partly-damaged units) has been hindered by the security environment. The flow of construction materials has been impeded by the closure of the road to the North. The achievement of DO and IP is rated satisfactory. An IDA administered trust fund channels resources of the International Federation of the Red Cross to finance Phase 2 of post-tsunami housing 20

27 reconstruction. This pertains to land released for construction by the re-demarcation of the coastal buffer zone. Second North East Irrigated Agriculture Project IDA was a pioneer in assisting the North East with the US$ 27 million North East Irrigated Agriculture Project NEIAP) in NEIAP supported community driven efforts to jump start economic activity by helping conflict-affected communities to re-establish at least a subsistence level of production and basic services. This was attempted through the rehabilitation of small irrigation schemes and other investments in the community. NEIAP covered all eight districts of the North East and the border villages of Puttalam, Anuradhapura, Polonnaruwa and Moneragala districts. The project closed in June It lead to an increased paddy farming area of 25,764 hectares benefiting 33,250 farm families; the refurbishment of 1,294 kilometers of rural roads; and the provision of safe drinking water facilities to 19,400 families amongst other achievements. The achievement o f DO and the P was rated satisfactory. Building on the success of the first project, a follow-up US$ 64.7 million NEIAP-I1 was launched in January 2005 to assist another 50,000 conflict affected families in 600 villages. The project components include i) village rehabilitation and development; ii) rehabilitation of major irrigation schemes; iii) strengthening farmer organizations and agricultural support services; and iv) capacity building and project implementation support. The first component includes the repair and improvement of rural access roads to farms and schools, and link roads to markets and townships. It also entails the construction of drinking water facilities. US$ 7.3 million was disbursed as at December 18, The achievement of DO and IP is currently rated as moderately unsatisfactory given weak project management. The project is being restructured. Second Community Water Supply and Sanitation Project The IDA-financed US$ 42 million Second Community Water Supply and Sanitation Project CWSSP - 11) supports Sri Lanka's Rural Water Supply and Sanitation Program. The project focuses on the North West, the Central and North East. It is intended to increase service coverage and achieve a sustained use of water and sanitation services in rural communities through community participation. Community groups contribute their labor covering part of the capital costs) to implement the schemes thereby reducing the fiscal burden of service expansion on government. The project attempts to decentralize water and sanitation service provision to local and provincial governments. CWSSP-I1 finances a share of the capital costs for service improvement in water supply, wastewater drainage and on-site sanitation facilities. Beneficiaries are required to select an affordable service level from a range of technical options and to manage and implement construction works. In addition to contributing to capital costs, they are responsible for the operation and maintenance o f water supply and sanitation systems. CWSSP-I1 aims to provide water supply and sanitation facilities to 900 villages benefiting around 1 million beneficiaries. The first batch covering 30 villages has been completed and the second batch covering 147 villages is nearing completion benefiting a total of 35,000 households. US$ 17.9 million was disbursed as at December 18,

28 SRI LANKA: PUTTALAM HOUSING PROJECT Annex 3: Results Framework and Monitoring Results Framework PDO The objective of the PHP is to support the integration of IDPs in Puttalam by upgrading and improving the habitat, water and sanitation facilities of both IDPs and select non-idps, and providing eligible IDPs in refugee camps with permanent housing. Intermediate Results One per Component Component One: Identified IDP households buildcomplete houses in the allocated amount of time and to specified technical standards. Component Two: 34 water supply systems and sanitation schemes installed in a cost effective manner in 136 IDP camps and identified non IDP settlements. Internal roads surfaced for better drainage and flood control as part of environment management in refugee camps. Adequate capacity available for settlement planning. Outcome Indicators 7,885 IDP households have a habitable home. Percent population in project area with access to safe and functioning water supply and sanitation system at close proximity to household. Results Indicators for Each Component Component One: Number of houses in identified areas constructed within a six month time period and within allocated budget Rs. 250,000 or Rs. 100,000). Percentage of cash grants disbursed within the six month period and during each disbursement phase i.e. purchase of material; completion of foundation, superstructure and overall core-house). Component Two: Number of water supply schemes commissioned. Percent of beneficiary population with access to safe water within 200m of the family home. Kilometers of roads surfaced. Kilometers of roads in good condition in 4* year of PHP Number of settlement plans completed. Use of Outcome Information Measure long term socioeconomic impact of the PHP to assess integration of IDPs in their preferred location of choice. Use of Results Monitoring Component One: Year 1-4: Low levels point to capacity constraints. It would highlight the need to address shortfalls in materials supply, shortage of slulled and semiskilled labor, or capacity constraints to achieve the desired target and outcome. Component Two: Year 1-4: Low percentage flags insufficient availability of potable water, poor planning or institutional capacity constraints. This will need to be investigated and remedied. Year 1-3: Low percentage flags institutional capacity constraints. Information would be used for forward planning and operations and maintenance. Year 1-4: Low levels could flag poor community consultation or inadequate forward planning. This indicator would be used to 22

29 Component Three: Adequate capacity available for settlement planning, technical assistance and housing construction. Component Four: All actors aware o f roles and responsibilities in project implementation and comply accordingly. Monitoring Component Three: Number of land titles regularized by the Land Task Force LTFs) and permanent land cadre. Number of IDPs with legal ownership of land. Percentage of homeowner compliance with techcal standards. Component Four: Timeliness of reporting including Interim Financial Reports and database to record financial and physical progress data. Grievance redressal completed within the specified time period. monitor and improve interaction with targeted communities. Component Three: Year 1-4: Low levels indicate lack of spatial harmony between work schedules o f LTFs and project interventions and will be used to improve coordination and targeting. Year 1-4. Low levels could flag inappropriate standards, poor communication with homeowner or inadequate follow-up by technical officers. Component Four: Year 1-4: Use program management system to flag implementation bottlenecks early on, pinpoint causes and take necessary corrective action to streamline implementation. Year 1-4: Delays reveal ineffective system or unrealistic time-period to resolve grievances. Data to be used to revise system for the next round. The PPU would monitor project output, impact, outcome and finances. The monitoring of outputs would not only cover the number of houses constructed and water schemes completed, but would include the stages of construction. This would be linked to the phased disbursement of the housing support cash grant. A Monitoring and Evaluation M&E) system would be established by the PPU to record, measure, and evaluate the project outputs and outcomes. The design of the PHP includes several mechanisms to monitor implementation progress: 0 A continuous social impact assessment CSIA) would monitor the social impact and outcomes of the PHP using qualitative methodologies. It would interview IDPs, adjoining non IDP communities and NGOs to elicit feedback on project implementation. An experienced firm hired for the task would undertake the exercise and report directly to the Secretary, Ministry of Resettlement in his capacity as chair of the PSC. The CSIA findings would be cross-verified using status reports o f the PPU and the Third Party Technical Audit. An Environmental Audit, outsourced to a firm, would assess whether implementation had complied with the Environmental Management Plan and IDA safeguards, during the mid-term review and prior-to-closing of the PHP. 23

30 The PPU would submit quarterly progress reports on the number of cash grants disbursed, the number of houses at each level of construction, number of grievances per IDP camp or non IDP village, number of grievances resolved per camp or village, compliance with technical and engineering standards, the number of piped water connections, wells and hand pumps provided, and lulometers of internal roads surfaced. These reports would cover fund utilization and financial management commitment, disbursement) of each component, procurement and issues pertaining to the continuous social impact assessment. A Third Party Technical Audit outsourced to a firm would independently monitor housing construction on a sample basis to ensure that civil works comply with the PHP s technical guidelines and standards. It would review construction under the water, sanitation and environment subcomponents. Interim Financial Reports would record information by expenditure category, project component and expenditure type. It would include both financial and physical progress data. IDA would undertake intensive hands-on supervision to address implementation difficulties. A full supervision mission would take place twice a year with some staff available for more frequent supervision if called for. The quarterly progress reports would contain the information listed below: Beneficiaries and Refugee Camps 0 Name of the Refugee Camp 0 Number of households 0 Number of temporary and partly-completed houses 0 Percentage of women-headed households Grievances 0 Number of grievances disaggregated by refugee camp 0 Name of IDP household that submits the grievance 0 Time taken for grievance procedure 0 Ruling Construction Status of Refugee Camps 0 Name of the refugee camp 0 Number of households with resources on site at a particular date 0 Number of houses at window level at an identified date 0 Number of houses at lintel level on an identified date 0 Number of houses with completed superstructure on an identified date 0 Number of completed houses at an identified date 0 Delays if any) and causes for delay 0 Number of water supply schemes categorized by type 0 Kilometres of internal roads upgraded Reporting Requirements The PPU has developed a simple database to facilitate project recording and reporting. It would prepare Quarterly Progress Reports for the PSC and IDA. For purposes of data collection and reporting, the PPU would work closely with the NWSDB and the NWPRD. The PPU would monitor the Grievance 24

31 Redressal Mechanism and the Land Task Force. Each of the concerned agencies would prepare reports on their activities based on the format agreed with the PPU. The PPU would revalidate and analyze the data for accuracy, consistency and completeness. It would submit the quarterly reports to IDA 20 days after the end of each quarter. 25

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33 SRI LANKA: PUTTALAM HOUSING PROJECT Annex 4: Detailed Project Description The objective of the PHP is to support the integration of IDPs in Puttalam by upgrading and improving the habitat, water and sanitation facilities of both IDPs and select non-idps, and providing eligible IDPs in refugee camps with permanent housing. The PHP would have four components: i) housing; ii) water, sanitation and environment improvement; iii) technical assistance and capacity building; and iv) project management. It would target all 141 refugee camps and certain adjoining non IDP villages in the Puttalam district. The housing component entails cash grants to IDP families without a permanent house to construct a house on land that they own in the 141 refugee camps. It would entail the completion of 2,232 partlycompleted houses and the construction of 5,653 houses to replace the current temporary thatched houses over a four-year period. The water, sanitation and environment improvement component would provide such services to refugee camps and adjacent non IDP villages that may require such assistance. The technical assistance and capacity building component would support the Government in the implementation of the PHP. It includes support for continuous social monitoring, regularization of land title, technical audit of housing construction, environmental audit and overall communication. The project management component would finance the PPU, operational expenditure and the grievance redressal mechanism. Please see Annex 1 for background information on the PHP. Project components A. Housing Assistance US$ 16.1 million) An IDP household would have to meet certain criteria to be entitled for housing assistance. i) It must possess title to the land on which it proposes to build the house. ii) The head of the household and majority of the household members must live in the refugee camp in Puttalam according to UNHCR Survey 2006 and SA 2006). iii) It should not have a permanent house in Puttalam and should not have received similar housing assistance in the place of origin. iv) It should possess land in the refugee camp or have had a temporary or partly-completed house within a camp as at April 2006 according to UNHCR Survey). Prescriptive title deeds would not be acceptable and households within a selected camp without land title would not be eligible for assistance. All IDP households however would receive water. Those IDPs and certain non-idps in adjoining villages without access to toilets would receive support for sanitation. Eligible households would be entitled to one of two cash grants i.e. a grant of Rs. 250,000 to help construct a permanent house or a grant of Rs. 100,000 to complete a partly-built house. The UNHCR census would be considered the baseline to determine eligible families for housing assistance. A Housing Assessment Survey is currently underway to verify which eligible households in an identified refugee camp would be entitled to the full or partial cash grant. It would be used to roll out implementation. The PPU would transfer the cash grant to the joint28 bank account of the beneficiary household in four installments to construct a permanent house or two installments to complete a partly-completed house. Disbursement would be contingent upon meeting pre-specified construction milestones. The Interim Financial Reports would measure disbursement progress. During the appraisal of refugee camps selected for Phase 1 of the PHP, it was noted that the number of temporary houses had grown by 16% when compared to the estimate provided in the UNHCR survey e. in the name of both husband and wife, except for single-headed households. 27

34 The IDPs had been encouraged to put up new thatched huts on the eve of the housing project in order to be entitled to the cash grant. However, the UNHCR Survey conducted in April 2006 would be the baseline and cut off point to determine eligibility for housing assistance. Sequencing of RefuPee Camps for Implementation The phasing of refugee camps for housing support was done on the basis of a two stage screening process. Relying upon UNHCR data, all 141 IDP camps were socially ranked using three indicators i.e. i) percentage of temporary houses in a camp; ii) percentage of families possessing land in a camp; and iii) percentage of families in a camp who opted to settle in Puttalam. These indicators were assigned scores of 75, 15 and 10 respectively in keeping with community perceptions as to their relative weight. The socially ranked camps were then screened in terms of three environmental indicators i.e. i) flooding, ii) land surface and iii) quality of environment. 25 camps were thus identified for Phase 1 of the PHP. Based on the availability of social and environmental profiles, 20 camps were appraised and would constitute the first set of refugee camps for implementation. Five of the twenty camps would be taken up for funding in the latter part of the Phase after the EAs and SA S have been completed. The beneficiary households have been identified for receipt of the cash grants. The beneficiary list would now be reviewed by the District Secretary and the PSC. The PHP aims to cover all refugee camps for housing assistance and the provision of water, sanitation and environment improvement. The ranlung of camps was done with the intent to phase the PHP over the four year implementation period. The criteria were defined after consultation with the communities. IDP households living in environmentally unsustainable camps might opt to relocate on a voluntary basis. The Government agreed to provide alternate land to such IDPs who had land as at April, An Environmental Impact Assessment would be carried out in the proposed new sites and such communities would be accommodated in the third and fourth year of the PHP should the situation arise. An Environmental and Social Safeguards Framework includes guidelines to prepare a Resettlement Action Plan if needed at a future date. The PPU relied on the following studies to rank refugee camps. i. The UNHCR supervised a census of refugee camps in Puttalam in April, The survey provided detailed information on IDPs living in refugee camps. This included the number of refugee camps, number of families in each camp, their level of education, vulnerability, employment status, obstacles to return, extent of land ownership and title to such land, type of houses and other relevant socio-economic information. ii. The PHP sponsored a Social Assessment SA) of IDPs in Puttalam which mapped the type of housing, land ownership, possession of title, livelihood opportunity, socio-economic profile, social capital, and the relationship between IDPs and non-idps. It did this through focus group discussions and beneficiary interviews using participatory rural appraisal methods in 11 1 refugee camps. iii. The Environmental Assessment EA) reviewed the suitability of 111 refugee camps for housing construction. The PPU used a questionnaire - Environmental Checklist - to obtain basic data. This was followed by an in-depth examination of environmental suitability in each camp. The report provided important information such as drainage conditions, solid waste disposal, sanitation facilities and the threat o f flooding. This was a deciding factor for the sequencing o f refugee camps for housing assistance. 28

35 Since the PHP aims to provide a minimum quantity of potable water supply 40 lpcd) to all families in the 136 refugee camps, adjacent non IDP villages and en-route non JDP villages, access to water and quality of existing water sources were not factored in while ranking camps for the roll out of the cash grants. Since the beneficiaries of the housing support cash grants and of water, sanitation and environment improvement are not identical, the spatial coverage of the two components may not coincide in the implementation roll out. However, the PHP would make a conscious effort to ensure that camps supported under the housing component would receive water, sanitation and environment mitigation early on. The PHP strategy is premised on the refugee camp and not on the individual household. However, individual IDP households would still need to demonstrate ownership of land with clear legal title to be eligible. To resolve land related issues, the PHP provides for a Land Task Force under the Chairmanship of the Puttalam District Secretary. The Task Force would endeavor to regularize public land grants, validate property documents and settle pending private land deals and title. The PPU would identify refugee camps for subsequent phases in consultation with the Puttalam District Secretariat. The PSC in Colombo would review and approve each phase. The PPU would publicize the criteria for the selection of refugee camps in each phase, the identification of beneficiaries, details on the cash grant scheme and disbursement procedure. The communication campaign, to be monitored by UNHCR, would ensure transparency, accountability and allow IDPs to avail of the grievance redressal mechanism. Housing Assessment Survey Since 25% of the housing caseload falls under the partly-completed category, it was necessary to verify the precise physical improvement required. This was done through a Housing Assessment Survey conducted by the PPU. While a permanent housing unit was defined in keeping with the core housing concept used by the Government for the conflict and tsunami housing programs, any unit not falling within the minimum physical specification of a permanent house and definition of a temporary thatched house was considered a partly-completed unit. The Housing Assessment Survey determined the extent of physical improvement required for the partly-completed houses be it a permanent roof, additional room s), toilet, permanent flooring/plastering, etc. Houses with poor foundation that require reconstruction were categorized as a temporary unit. The Housing Assessment Survey provided a template for project implementation with basic information such as name and identification number of the beneficiary, bank account, type of land ownership, type of house and type of physical construction required in the case of partly-completed houses. It would be the baseline document in each beneficiary file. Project Implementation Physical Construction Requirement. A permanent housing unit is defined as one with: A minimum plinth area of 500 square ft, One safe closed) room, Kitchen internal or external), Veranda, Permanent roof, Permanent floor/internal plastering, and. Independent toilet. 29

36 Due to the high cost of construction, the cash grant may not be adequate to complete the house. Under the homeowner driven housing framework, beneficiaries are likely to complete the house using their own labor and savings over time once the foundation, roof and basic structure are complete. For those vulnerable households that may find it difficult to construct their homes without support, the PPU and the camp/mosque committee would provide assistance to organize labor, construction material and technical support. Rs. 100,000) Installment 1 Installment 2 Home improvements identified by the housing assessment survey) 50,000 Mobilization advance, materials on site, Certification by Technical Officer work begins 50,000 Completion of civil work Certification by Technical Officer Technical Issues in Project Implementation Structured Physical Development: The need for the planned development of camps is critical in the context of rapid population growth. Most camps would experience a rapid physical expansion in the years ahead given that most dependent families comprising 42% of the total caseload prefer to purchase lands in the vicinity of existing camps. Further, 41% of the IDP population are children under the age of 18. Most of the camps lack basic community services such as schools, health centers, play grounds and land for locating utilities. The planned development of the camps with land set aside for ancillary infrastructure warrants additional land allocation either through land assembly, plot adjustment, purchase of new land by the communities or land acquisition by the government. The settlement plans would provide the guidelines for the planned development of refugee camps. Environment and Housing Construction: Environmental conditions such as sandy soil and lack of drainage impact on the technical aspects of construction. These include flood prone areas, flattenedsettled sandy areas, unsettled sand dune areas and saline/marshy lands affected by the intrusion of seawater. The technical requirement for construction would be different in each topographical and soil condition. It is important that the PHP specify the technical guidelines for implementation purposes. The plot level land filling, and firm and ringed foundation with adequate plinth height would mitigate some of these risks. Land leveling and development of wind barriers in the form of fences and vegetation would reduce the risk of moving sandsoil erosion that threaten the foundation along the coastal belt. 30

37 The high cost of environmentally appropriate construction might impede the timely completion of new houses. The PPU would define the structural guidelines and technical specifications of construction for technical officers. It would train local masons on improved construction practices under the technical assistance component. Resource Management: Puttalam district has easy access to a variety of building materials such as coconut timber, gravel, sand, cement, tiles and skilled labor. The local community is confident as to the availability of masons/carpenters, and their ability to contribute in cash and kind. Camp leaders and mosque committees would help mobilize communities to build all houses in a refugee camp concurrently. Technical Supervision: The PPU has mobilized core technical officers for supervision. Additional technical staff would be mobilized either through the National Housing Development Authority or direct recruitment. Implementation of operational procedures, physical progress audits and certification, third party technical audit and interim financial reports that track disbursement linked to physical progress etc would support transparency and efficiency in technical supervision and project management. Phased Implementation Process The PPU would implement the PHP in a phased manner over four years. The PHP would start slowly for the first year and increase the annual target in succeeding years. Houses would be phased with an initial target of 1,463 units in the first year 1,3 10 new houses and 153 partly-completed houses), 2,201 units in the second year i.e. 1,790 new houses and 411 partly-completed houses), 2,031 units in the third year 1,444 new houses and 587 partly-completed units), and 2,190 units 1,109 new houses and 1,08 1 partlycompleted units) in fourth year. Implementation would be based on a rolling plan to ensure continuity in the pace of housing construction. When the PHP completes 50% of the target in any particular phase, the PPU may initiate the next phase to ensure momentum.29 Budgetary provision would be made in a flexible manner to allow the roll over of annual targets. B. Water, Sanitation, Environment Mitigation, and Settlement Plans US$ 15.9) This includes two sub-components, i.e. water supply/sanitation, and environment mitigation and settlement plans. The lay out plan for the two sub-components would be determined through community consultations. Water and Sanitation US$ 12.3 million) Background: Puttalam is a coastal district situated in the north-westem dry zone of Sri Lanka. It has a flat topography and comprises two regions, namely the Kalpitiya peninsula and the Puttalam mainland. The major use of land in both regions is for agriculture with fishing and prawn farming constituting prominent economic activities in the lagoon and coastal strip. The area has a dry climate with an annual rainfall of about 15 to 30 cms. This is largely received between November and January. There are no perennial rivers in the district. Water resources in the area pose a challenge in terms o f its extraction for household, agricultural and commercial use. People depend entirely on groundwater reserves as the source of freshwater in Kalpitiya. These exist in both shallow coastal aquifers and underlying deep Miocene limestone. Kalpitiya has a well developed shallow aquifer which is easier to access, amply available and cheaper to exploit and hence represents the most important source of water. However, the rapid changes in land use pattern in the peninsula with intensive cultivation and prawn farming has undermined the future potential of such groundwater 29 Note that this will have implications for disbursement and funds flow for the special account. 31

38 resources. High use of fertilizer along with the continuous application of water on largely sandy soils in the agricultural fields overlying the freshwater aquifers poses a risk of nitrate build-up in the groundwater. Studies indicate that nitrate concentration in many of the irrigation dug wells has exceeded the WHO recommended limit. The people, especially those living in refugee camps close to cultivated areas, face a health risk of consuming nitrate contaminated water. There is no other water source available. In addition, the lowering of the water table in certain areas due to over-extraction for irrigation and aquaculture purposes leads to salinity intrusion within the miocene limestone aquifer. This limits the availability of water for future development. Except in the town which receives water from the Mee Oya basin, water i s obtained from dug wells and hand pumps in the Puttalam mainland. In addition to the scarcity of water, salinity limits the use of available water sources in the mainland in areas close to the lagoon. While Puttalam has a high water table, freshwater is available in certain areas only at very deep levels mahng it hard to extract. IDPs face severe hardship to obtain potable water for which they have to either travel far or await bowser supplies of treated water from the NWSDB. These supplies are often inadequate. A source of groundwater contamination is the improper disposal of human excreta. High population density in the refugee camps and the shallow water table in most parts of the area give rise to contamination. This leads to bacterial pollution of the groundwater. The inappropriate design of excreta disposal arrangements, improper siting of toilets and inadequate maintenance in refugee camps are contributory factors. Moreover, many toilets and dug-wells in the vicinity become unusable during the wet season. It is important that an adequate water source with acceptable water quality and proper sanitary facilities is provided to all refugee camps considering the potential health risk. The objective is to identify cost effective and environmentally sustainable alternative sources and options of groundwater development despite limitations in the area. NWSDB undertook a concept feasibility study to map groundwater sources, water quality, availability, safe yield and suitability of various methods of excreta disposal using existing information. The field investigation report3' to identify areas with potable groundwater resources for the supply of water to refugee camps in Kalpitiya pinpointed potential areas with good quality and quantity groundwater. This was used to identify the sub-projects especially in Kalpitiya. The experience of the NWSDB in Puttalam fiom its implementation of the Asian Development Bank ADB) financed Third Water Supply and Sanitation Project was factored in the study. As mentioned, indiscriminate extraction of groundwater would irreparably damage the aquifer by saline intrusion. Utmost caution is therefore needed to develop an extraction plan. On one hand, the resources are to be conserved for sustained availability while on the other they are to be protected from contamination and saline intrusion. Shallow tube wells, protected dug wells, wells with horizontal laterals and infiltration gallery are the most appropriate intake source. The draw down during pumping will have to be maintained at a very small value to avoid up-coning of saline water from below. The per capita per day supply of 40 liters would be used for all refugee camps in rural areas. The maximum haul of water to the dwelling of any user would not exceed 200 meters. For refugee camps located within the urban limits, standards followed for the concerned urban areas shall be followed. 30 Identification of areas with potable groundwater resources for water supply to the proposed resettlements for displaced communities in the Kalpitiya area of Puttalam district; Field Investigation Report; Ground Water Investigation Section, National Water Supply and Drainage Board, and Department of Geology, University of Peradeniya, July

39 There may be a couple of refugee camps where the point source may be appropriate. But this can not be confirmed without a detailed study of the impact of excreta disposal. A water-borne sewerage system is required to reduce the risk of pollution of groundwater to a minimum. Examples include shallow sewerage, small bore sewer with appropriate treatment and dispersal system like stabilization pond, constructed wetland, land application). Due to the scattered nature of development and the lack of shlls for operation and maintenance of such systems, these will be used where no onsite solution is feasible. As regards the onsite solution a built-up pit could provide partial answer to a high seasonal water table, where the soil depth of at least 2 meters could be provided between the pit floor and the water table.31 Description of Subcomponents and Cost Estimates Water Supply. The PHP categorized i) refugee camps that can be covered by stand alone water supply and sanitation systems and ii) camps that need to be clustered for technical and cost reasons. The PHP would provide water and sanitation to 136 refugee camps and select non IDP villages. It would provide drinking water to 13,584 IDP families and 3,291 non IDP families. UNICEF would cover 5 refugee camps. Where services would be provided through connecting pipelines, existing permanent houses which would not be entitled for housing assistance would be brought under the local water and sanitation sub-projects. The population living in the vicinity of the water source off-camp source) and villages en route to the transmission pipe would be included under the PHP where necessary to ensure wider community participation in sustainable water supply. Of the total of 36 sub-projects for water supply, 12 would be confined to one refugee camp each. Each of the remaining 24 sub-projects would cover more than one refugee camp depending upon proximity, water availability, cost economy/efficiency and operational feasibility. UNICEF would install piped water supply to five refugee camps in the Puttalam and Mundal divisions, and rain water harvesting in two camps in the Kalpitiya division. NWSDB has commenced work in these camps. These are expected to be commissioned by July The thrust of the IDA-financed program would therefore be 34 drinking water sub-projects that would cover 136 refugee camps and adjoining non IDP villages on a cluster basis. Stand posts would be considered the basic level; however households opting for a higher service level such as yard taps and or house connections would be able to do so provided they pay the additional cost for the higher service level and the source yield is adequate. On the basis of preliminary estimate of cost August 2006 prices) for each type of sub-project and the average investment cost per family, the aggregate base cost of water supply schemes worked out to be Rs. 822 million: 31 The other option is the dry compost latrine. Obviously latrine of thls type cannot be introduced without an enormous supporting effort in communication, education and evaluation to ensure that they are being properly used. 33

40 SRI LANKA: PUTTALAM HOUSING PROJECT Water Supply Subcomponent: Cost Estimate August 2006 Prices) ITotal 549 I 47 I 26 Assumptions #1: Non-IDP families that are to be catered to in the host GND, source GND where the source is located in another GND) and families residing enroute the transmission pipeline is taken under column "Additional Families". The implementation of sub-projects for water supply would be taken-up in 2 phases. Phase-1 will consist of 10 sub-projects, targeting primarily the 20 refugee camps where housing construction will be taken-up in the first year. Because of clustering several camps together into one subproject, these 10 sub-projects will actually benefit 77 refugee camps. Implementation of the Phase-1 water supply program would be taken-up soon after the Board Approval and be completed in a period of about 18 months. Phase-2 will constitute the remaining 24 sub-projects to cover 59 refugee camps and implementation of these would be taken-up in year 2 and be completed in a period of about 18 months i.e. 30 months from Approval). Sanitation. All 7,885 IDP households that receive housing support cash grants would construct appropriate latrines. The grant includes provision for the toilet. The aquifer will have to be protected from sewage contamination to ensure the sustained availability of potable quality groundwater in the Kalpitiya peninsula. The PHP would finance the construction of an additional 2,000 sanitation units for non recipients of housing assistance be they IDPs or non-idps to protect groundwater in certain areas. In the design of the sanitation subcomponent, consideration was given to sanitary protection of the shallow sand aquifer especially in Kalpitiya by discouraging the construction of pit latrines. Beneficiaries would be encouraged to use a system out of the recommended ones i.e. built-up pit, dry compost latrine. All beneficiaries would construct an environmentally appropriate latrine. Rs. 50 million has been set aside for this purpose. In total, the PHP would construct 9,885 latrines. The implementation of sanitation schemes would depend upon the response from the non housing beneficiaries IDP or non IDP) and may take time to build-up demand. However, it is expected that a program of constructing an additional 2,000 sanitation units would be completed in a period of 3 years. Operation and Maintenance. Consistent with the National Policy for Rural Water Supulv and Sanitation, the provision of water and sanitation would be community-based. It would be operated and maintained by the community. The local authority would be responsible for operations and maintenance on technical and operational sustainability considerations if: 34

41 0 0 0 The water source is located away from the village/division; One source serves multiple communities; and Complex watedsewage treatment process which the community may not be able to operate and maintain efficiently. Environment, Drainage, Internal Roads, and Settlement Plans US$ 3.6 million) The participatory needs assessment carried out under the SA of 11 1 refugee camps revealed that drainage and internal roads were not a high stated priority in several camps. The refugee camp residents did not view roads, drainage and associated environmental problems as pressing social needs. The SA concluded that 62 percent of the access or internal roads were in good condition while 32 percent were in fair condition. The need for better roads and drainage was ranked only gth and loth respectively among the top 16 issues raised by IDP communities. However, the environmental assessment of the 11 1 camps presented a different picture. It highlighted environmental issues that were a result of flooding and lack of proper drainage. The poor condition of roads and the drainage system was linked to flooding. The proposed PHP would therefore allocate funds for the mitigation of priority environmental issues, including those associated with poor drainagehlooding caused by poor road condition. Road works would be limited to ensure that there would be a minimal collection of water on road surfaces and drainage to collect runoff in camps where flooding is reported to be of concern. Site-specific Environmental Management Plans EMPs), Survey Plans and the Physical Layout Plans/Neighborhood Plans of each camp would reveal the existing condition of internal roads. They would be used to determine needed mitigation measures of road and drainage-related environmental hazards and other critical environmental issues. Upon completion of the plans for each phase of the PHP, the NWPRD would review the site survey to prioritize the roads identified for improvement. NWPRD would be contracted to prepare the design and implementation plans for the roads and drainage improvement. The North Western Provincial Environmental Authority would supervise the mitigation of environmental hazards. The PPU would contract out the actual work which may include community contracting depending on the nature of work. Given the high unemployment in refugee camps and surrounding non IDP communities, community contracting is recommended to channel funds to the rural poor and create a sense of ownership. Comprehensive Settlement Plans and Survey Plan. As described earlier, the PPU would prepare settlement plans for all environmentally sustainable refugee camps. This would include: a) preparation of surveyhase plans for all refugee camps, b) improvement of internal road and drainage segments to mitigate environmental problems, c) preparation of physical lay out plans neighborhood plans) for all camps to structure their future growth and development, d) preparation of environmental management plans for camps to mitigate critical environmental risks, e) preparation of technical specifications for building houses such as plinth level, type of foundation and other critical technical specifications to ensure stability of the building, and f) preparation of management action plans for service integration with the refugee camps and non IDP communities within the GN Divisions. C. Technical Support for Implementation US$785,000) This will include: 0 Housing Assessment Survey 35

42 0 Land Task Force 0 Continuous Social Impact Assessment 0 Technical Audit 0 Communications Campaign Skills Training 0 Environmental Audit Housing Assessment Survey. This has already been discussed earlier in the Annex. Land Task Force. Land ownership is not a serious issue in most instances. IDP land ownership has shown a significant increase over the past few months. While the UNHCR supervised survey in April, 2006 recorded that 55.5% of the IDP families i.e. 8,587 families) had legal title to their land, the proportion with title to land has increased since then. In addition to common land documentation such as Deeds, Permits, Grants, and Lease, documents such as Promissory Notes from the Land Commissioner in the case of government lands and Notarized Allotment Letters from the Lawyers supporting the registration of private lands were found. The Land Task Force LTF) established by the District Administration will examine the legality of these documents and where possible regularize them. Non contestable title to land is a pre-condition for housing assistance. The families in the camps selected for Phase 1 either reside on private land or on Land Reform Commission LRC) land. In camps on privately-owned land, families bought such land on a collective basis and distributed it amongst themselves. They consequently have title. Government would need to ensure that these are non contestable deeds. The Government would need to legally transfer title to land in those instances of IDPs living on LRC land. The Ministry of Resettlement had taken action to address land issues through the creation of a LTF consisting of the District Secretary, the Commissioner of the Secretariat for Northern Displaced Muslims, a Surveyor District Secretariat, Puttalam), a Land Officer, a Land Utility and Planning Officer and the relevant Divisional Secretariat. Furthermore, the NEHRP LTF was to provide training to the Puttalam LTF. The LTF would review land issues in the refugee camps and adjoining non IDP villages. Continuous Social Impact Assessment. Please see Annex 3 for a description of this activity. Communication Campaim A vigorous communication and social marketing strategy is necessary to manage reputational risks, facilitate streamlined implementation and ensure that project objectives are met. It would help manage possible non IDP resentment of the PHP. While IDPs had a broad understanding about the PHP, they were less clear about the beneficiary selection criteria and project components. The government proposed a communications campaign to explain beneficiary eligibility, the homeowner dnven strategy, the housing support cash grant, the disbursement method, the grievance redressal mechanism and best practice with regards to water and sanitation. The government would undertake three additional campaigns, each planned separately and led by a third-party to enable IDPs to better understand the PHP and make an informed decision. The first thrust of the campaign would explain the implications of accepting housing assistance in Puttalam in the context of the IDP right to return, right to future compensation, if any, for forced displacement and local residencyhoting rights. The second activity would inform non IDP communities of the rationale for assisting IDPs seen in the context of emergency and conflict housing) and explain the range of projects targeting non-idps. It would highlight the benefits of the PHP to the non IDP communities in terms of an integrated approach to water and sanitation, not to mention the increased 36

43 budgetary allocation for Puttalam. communities and civil servants. The communication campaigns would cover IDP and non IDP The third activity pertains to water and sanitation. A well designed communication campaign would educate people in health, hygiene, water conservation and preservation, rain water collectionharvesting and appropriate sanitation technology. Technical Audit. The PHP would finance an independent third party audit to ensure that construction complies with minimum technical standards. The consultants would audit a 5% sample of beneficiaries. The exercise would be carried out during construction and would audit construction materials used, adherence to technical guidelines, the pace of construction and the quality of supervision. The technical audit would act as a mechanism to implement midcourse corrective measures to improve the quality and operational effectiveness o f the PHP. It would also cover the water, sanitation and environment mitigation sub-components. Its reports would be submitted to the PSC and the PPU. Protection of Water Sources. A study of environmental protection of water sources in Puttalam district would be commissioned to identify policy and institutional arrangements for protection of water sources. Environment Audit. This was described in Annex 3 Skills Training. PHP would support the training of 1,000 masons and carpenters to bridge the shortage of skilled construction labor in Puttalam. The proposed training courses would run for four months in each training site, and would consist of classroom training and supervised on-the-job training. The contractor and PPU would enter into a memorandum of understanding that these laborers be made available to the refugee camps for part of their apprenticeship. D. Project Management US$ 1.34 million) The PPU would coordinate, administer, and implement the PHP. It consists of a Director, a Financial Management Specialist, a Social Development Specialist, an Engineer, an Environmental Specialist, a Water Specialist, a CommunicatiodEC Specialist, Information Technology Officer, and Technical Officers. The IDA Credit would include financing for the PPU s incremental operating costs as described below, goods, consultancies, and capacity building training) of the project staff. IDA funds would only be used to cover the PPU staffs that are not civil servants. The component would meet the cost of the grievance redressal mechanism. Incremental operating costs defined as expenditures under the Project incurred by MOR in respect of the Project including: a) Project management costs, b) PPU staff salaries including travel costs, per diem for PPU staff, vehicle maintenance, fuel and insurance costs, costs o f supervision field visits travel costs and per diem), office supplies and communications expenses and such other administrative expenses arising through Project implementation, but excluding salaries of the Recipient s civil servants, and c) the gnevance redressal mechanism that is travel costs and per diem for grievance redressal mechanism members). 37

44 3 a000 I-u Q m ui W s I 0 5 h Y a 0 V W I m

45 I 1 m m h m W

46 SIU LANKA: PUTTALAM HOUSING PROJECT Annex 6: Implementation Arrangements The District Secretary is the chief administrative officer of a district in Sri Lanka. A district is divided into a number of administrative divisions each headed by a Divisional Secretary. A Division in turn is divided into village clusters, each of which is headed by a village headmadwoman Grama Niladhari- GN). A GN is responsible for delivery of several public services to the communities living in his area of jurisdiction called the GN division. The PHP is mapped to the Ministry of Resettlement. This ministry was mandated by the Government Gazette of December 8, 2005 to resettle civilians affected by the war and provide essential services for displaced people. This is the line agency responsible for project implementation. In order to oversee project activities at the district level, a District Monitoring Committee DMC) has been established. Other members include the four Divisional Secretaries and representatives of relevant district line agencies. The DMC would oversee project activities and monitor project implementation with the objective of timely resolution of issues when they arise. At the National level, the Puttalam Steering Committee PSC), would convene key Government actors including those from North Westem Provincial Council. It would set policy and liaise closely with the DMC to monitor project implementation. The PSC would review the beneficiary identification process and clear the list of beneficiaries. It would consist of the Secretary, Director-General and Senior Project Adviser, Ministry of Resettlement; the Puttalam District Secretary; and officials of the NWSDB, the NWPRD, the Provincial Land Commission, central line agencies including the Ministry of Finance and Planning, Chief Secretary of the North Western Provincial Council, and Director Provincial Environmental Authority of the North Western Provincial Council. The Secretary, Ministry of Resettlement would chair the PSC. It would meet every two months. The Puttalam Project Unit PPU) in the Ministry of Resettlement would implement the PHP on a day to day basis. The PPU is located in Puttalam while a Senior Project Adviser, stationed in Colombo, would coordinate operations at the center. The Ministry of Finance and Planning approved 2 1 posts for the PPU. A Director, a Financial Management Specialist/Accountant, a Social Development Specialist and an Environmental Specialist have been appointed. The PPU has identified an Engineerh'rocurement Officer, an Information Technology Specialist, a Land Settlement Officer and support staff. It has recruited four Technical Officers to work with the engineer. The PPU would work with the NWSDB and the NWPRD on the design and supervision of the waterhanitation and environmental mitigatiodinternal road subcomponents respectively. It would contract out civil works in the water subcomponent to private bidders. It would outsource the Communication Campaign, the CSIA, the Technical Audit, preparation of Settlement Plans and Environmental Management Plans to local consultants. The PPU prepared an Operational Manual with a detailed implementation plan. The PPU would liaise with NEHRP to ensure that IDPs who receive housing grant in Puttalam do not receive a second housing grant in Mannar and Jaffna in case they opt to return at a later stage. The PPU would be responsible for procurement of goods and consultants. It would organize training activity. The Technical Officers would certify technical quality as construction proceeds to authorize the release of the next installment. The Social Development Specialist would address social concerns that may emerge in the identification of beneficiaries, the possible need to relocate camps on environmental grounds and any complaints. He would work closely with camp leaders, mosque elders and the District Secretariat. The Environmental Specialist would be responsible for overall environmental supervision and compliance with IDA environmental safeguards. Participation of District Environment Officers in environment monitoring would be encouraged to build long term regional capacity. 40

47 Responsibilities and Functions of the PPU: The PPU would: i) identify beneficiaries; ii) supervise civil works and technical certification; iii) be responsible for fund flow and financial management; and iv) record and report project activities on a regular basis. Management and Monitoring the Selection Process Rank refugee camps using social and environment criteria; Undertake the Housing Assessment Survey in refugee camps to revalidate the number of permanent, partly-completed and temporary thatched houses for purposes of the cash grant allocation. This exercise would detail the extent of additions needed for a party-completed house; Outsource the communications campaign for each phase of the PHP. Ensure that the Puttalam IDPs are aware of the project procedure and their rights; Publicize the eligibility criteria and beneficiary list; Explain beneficiary selection in public fora; Ensure compliance with national environmental regulations; Technical monitoring; and Support the grievance redressal process. Physical Construction Prepare a material resource plan for each construction cycle to identify material requirement for a refugee camp; Facilitate the procurement of materials in bulk for beneficiaries when requested; Monitor civil works using technical officers; and Provide technical guidance and quality control to the homeowner. Fund Flow and Financial Management Disburse cash grants to beneficiary bank accounts; Maintain project accounts and ensure utilization of funds for project purposes; Manage the flow of funds; Ensure internal and external audits of PHP accounts; Prepare Interim Financial Reports to comply with IDA reporting requirement; and Develop computer-based forms and reports to measure and monitor physical progress and financial performance. The District Secretariat would review the identification of beneficiaries and non IDP villages to ensure equity and conformity with PHP guidelines. It would be the initial point of contact to process complaints relating to non inclusion in the PHP. It would release technical officers, where necessary, to supervise and certify construction milestones. It would play a significant role in convening the Land Task Force. A Land Task Force would regularize the legal documentation to land of those who possessed land as at April, 2006 but lacked clear title to such land. It would review and if appropriate regularize encroachment on unalienated state land and property boundary uncertainty. 41

48 Water and Sanitation The PPU would invite bids and award contracts. The NWSDB would help implement the water supply and sanitation component of the PHP. The scope of the NWSDB services would entail the following: Preliminary engineering design of water supply and sewerage schemes; Detailed engineering design of water supply and sewerage schemes including related scheme specific social and environmental management plans, bills of quantity, technical specifications and construction drawings; Proposals for direct contracting for drilling and development of tube wells, external electrification and road reinstatement; Bidding documents for water supply and sewerage schemes; Project management support for water supply and seweragehanitation schemes. This would entail, among other things, selection of P.artner Organization, capacity building support to Partner Organization and CBOs, preparation of design and construction guidelines for the sanitation subcomponent, preparation of proj ect management reports and progress reports; Supervision of contracts for construction, and commissioning of water supply and sewerage schemes; Preparation of standard designs with all necessary documentation for latrines suitable for implementation in the project area; and Assistance to PPU in implementation and supervision of sanitation units. The beneficiaries would construct the sanitation units themselves. However, the PPU would clear the specific design and provide construction drawings, technical specification, material consumption statement and bills of quantity. The PPU would supervise construction and ensure compliance with specifications. Grievance Redressal Mechanism All IDP households without a permanent house living on land that they own as at April, 2006 in a refugee camp in Puttalam would be entitled to the cash grant. In the instance that an individual household disagrees with its non inclusion in the list of beneficiaries, it can complain in writing to the Grievances Redressal Committee headed by the Additional District Secretary, Puttalam. The grievance redressal process would have two steps of appeal: Once the list of beneficiary households is published, the Divisional Secretary, the PPU Director, the Social Development Officer and the Communications Officer would convene a meeting at the refugee camp. All complaints would be submitted in writing and recorded within a two week period. These records would be computerized and included in PPU quarterly reporting. This communications officer would make this arrangement known to all refugee camps at the initial communication with the IDPs. The Grievance Redressal Committee would consist of the Additional District Secretariat, four Divisional Secretaries and two representatives of NGOs with a presence in Puttalam. The Social Development Officer would sit in as an observer. The committee would review the complaints raised in light of the established eligibility criteria. Changes to the beneficiary list would be introduced if the committee sees fit. There would be a six week time-line between the public posting of identified recipients and the ruling of the Grievance Redressal Committee. Should an individual household concerned remain dissatisfied at being excluded, it could appeal to a three person Grievance Redressal Mechanism in Colombo headed by the Secretary, Ministry of Resettlement. 42

49 The Committee would include designee of the Ministry of Finance and the District Secretary of Puttalam. A UNHCR representative would be present as an observer. This committee would review the complaint and have the final word. The CSIA would provide an opportunity for those households with unresolved grievances to record their views to a neutral outside consultancy firm bypassing the district and central administration for possible consideration at the next phase of construction. 43

50 SRI LANKA: PUTTALAM HOUSING PROJECT Annex 7: Financial Management Assessment Report Executive Summary The Ministry of Resettlement would have primary responsibility for financial management. The PPU an autonomous unit under the Ministry would carry out all project-related financial management activities and would ensure that the financial management arrangements are implemented to the satisfaction of the Ministry and IDA through the duration of the project. The overall Financial Management arrangements of the PHP are satisfactory. The manual systems established by the PPU would provide, with reasonable assurance, accurate and timely information on the financial operations of the project. The PHP accounting procedures would be governed by the government regulations and the project Financial Management Manual. The PHP would be subject to a continuous internal audit by independent government internal auditors. The Auditor General s Department or an audit firm nominated by the Auditor General and acceptable to IDA would carry out the year-end external audit. A Special Dollar Account SDA) would be set up and maintained at the Central Bank of Sri Lanka which would make payments requested by the PPU. The replenishment of the SDA would be done according to the transaction-based disbursement procedure. Country Issues The Country Financial Accountability Assessment CFAA) for Sri Lanka published in June 2003, highlighted gaps and weaknesses in the institutional framework for the financial management of public resources. The assessment covered a range of processes including financial management and reporting practices at the three levels of government, the public audit and the parliamentary control of public funds. One weakness identified in the CFAA was that the Project Financial Management framework was not designed to encourage a performance-oriented culture. The framework lacked mechanisms to monitor outputs and outcomes of government expenditure. The budget process was input-focused and relied upon rigid economic classifications of expenditure. The Financial Regulations did not focus on controls that promote accountability for performance. The present government accounting system CIGAS relied on the economic classification of expenditure used for budgeting but did not go down to lower levels of classification. To instill a performance-based culture in the project, project management is encouraged to monitor financial progress against physical progress, always ensuring that the funds are spent on intended purpose, economically and efficiently. Due to the weakness identified in the government accounting system CIGAS, the PHP would use a manual system with a chart of accounts designed to capture all types of information supplemented by a simple database to maintain detailed information required for project management. 44

51 INHERENT RISK Country Level Quality of FM Profession Standard o f Financial reporting Standard o f Auditing Project Level CONTROL RISK Budget Accounting Internal controls Funds Flow Financial reporting Internal and External auditing Overall FM Risk I of the Project 1 = High; S = Substantia Strengths S X X - X X - X - [oderate; L = Low Risk Mitigating Measures Whilst the public sector does have an accounting institute it does not offer a public sector accountancy qualification by conducting structured professional examinations and continuous professional development. The project accountant selected by the PPU has extensive public sector related relevant work experience in accounting and a Masters in Business Administration. The PHP would fund any technical assistance required by the internal auditors. The staff at the Auditor General s office have been provided with training under the IDA-financed Economic Reforms Techcal Assistance ERTA) project and further funds under a proposed new project would be allocated to modernize the Auditor General s Department. Certification measures are in place to verify that adequate physical progress is made before releasing payment. The Internal Audit Department of the Ministry is newly set up. The PHP would fund technical assistance e.g. expertise from the market) that may be required to carry out a continuous internal audit o f the project, if the need arises. The CFAA had highlighted the capacity constraints o f the Auditor General s Department. The staff of the Auditor General s Department was provided with training under the ERTA and further training would be provided under a new Droiect which is under DreDaration. - The PPU accountant has the advantage of learning from NEHRP which has similar Financial Management arrangements in place and benefiting from their experience. - The PHP is less complex and has a straight forward fund flow structure. The PPU has direct control over all payments, minimizing the possibility of a leakage of funds. - The PHP would finance an information dissemination campaign to increase transparency and improve understanding of the project. 45

52 Significant Weaknesses 1. Newly formed Internal Audit Department does not have a qualified accountant heading the unit. Action Responsible Completion Date Conditions in Person Legal Agreement Recruit an Secretary, Ministry Within 3 months Dated covenant in experienced and of Resettlement. from the the Legal qualified person to commencement of Agreement to have head the Internal implementation. the internal audit Audit Department. arrangements in place for the PHP. Please see Annex 6 for implementation arrangements. Budgeting Budgetary allocations for the PHP would come under the overall budget of the Ministry of Resettlement. The PHP would receive its budget allocations from counterpart funds, reimbursable foreign aid and direct foreign aid. Whilst the budgetary provisions are under the Ministry, all project related funds would be directly released by the Treasury to the PPU. The PPU would submit monthly expenditure reports to the Ministry. Funds Flow IDA funds would be deposited in the SDA. The Government would advance its own funds to the PPU against the budgetary provisions available under reimbursable foreign aid. Upon disbursement of the funds, PPU would submit a withdrawal application to the Central Bank via the Department of Treasury Operations on a monthly basis to reimburse the Treasury with the IDA portion of the expenditure using the proceeds in the Special Account. The PPU would submit monthly applications to IDA to replenish the Special Account. For large payments, PPU has the option of requesting a direct payment to the supplier by: a) Central Bank using the proceeds in the SDA; or b) IDA against the Credit. The allocations under direct foreign aid would be utilized for this mode of payment. Housing; construction component: Funds will flow directly from the PPU to the beneficiary bank accounts. Payments will be made on the physical certification reports prepared by the technical officers and endorsement by the Project Engineers. Adequate technical officers have been recruited to avoid delays in the payment certification process. The PPU is carrying out a Housing Assessment Survey in refugee camps to revalidate permanent, partly-completed and temporary houses and plan the roll out of the cash grants accordingly. The housing component would be phased over four years with an identified number of houses targeted each year. Water Supplv, Sanitation, and Environment Mitigation: The PPU will directly pay the contractors. National Water Supply and Drainage Board NWSDB) and the North West Provincial Road Department will be given an imprest to cover the costs of supervision of the waterhanitation and internal road components respectively. Payment will be made on the physical certification reports prepared by the technical officers and endorsed by the engineers. Disbursement Arrangements PPU would follow the traditional transaction based disbursement method with an option to shift to report based disbursements. However PPU would start preparing Interim Financial Reports from the inception 46

53 of the project. The authorized allocation of the special dollar account would be US$ 3,000,000. IDA would require withdrawals from the credit account to be made on the statements of expenditure for: a) goods costing less than US$ 250,000 equivalent per contact; b) civil works costing less than US$ 500,000 equivalent per contract; c) services of individual consultants costing less than US$ 50,000 equivalent per contract; d) services of consulting firms under contracts costing less than US$ 100,000 per contract; e) all training; and 0 all incremental operating costs. The Designated Account would be held at the Central Bank of Sri Lanka. The Housing Support Cash Grants and the Sanitation Grants would be disbursed on the basis of SOEs. Staffing PPU has recruited a project accountant, an officer from the Sri Lanka Accountancy Service with related work experience in the public sector. The PPU has also recruited a dedicated Assistant Accountant to support the Project Accountant. There is an additional cadre position in the organization structure approved by IDA for an Accounts Assistant. This position would be filled as work commences. Accounting Policies and Procedures The PPU will follow the cash basis of accounting. The PPU will adopt the accounting policies laid out in the Financial and Administrative Regulations of the Government of Sri Lanka and project specific procedures laid out in the Financial Management Manual. In addition the PPU will be guided by the Circulars issued by the Ministry of Finance and the Ministry of Resettlement. The weakness in the Government systems identified in the CFAA and the mitigation measures that will be adopted by the PHP were described above. Information System The PPU will initially maintain a manual accounting system. Its chart of accounts will facilitate information generation by expenditure category, project component and expenditure type. In addition, for detailed financial information required for project management and to fulfill IDA S quarterly reporting requirements, both financial and physical progress data will be maintained in a simple database with query facilities. The basic design of the database as finalized by project negotiations and an existing database that was developed to generate project management information has already been identified. This would be customized to suit the reporting requirement o f the PHP. Internal Control and Internal Audit The Financial Management Manual would provide a comprehensive internal control framework to guide project activities, transactions and decisions. The Manual sets out processes, approvals, signoffs and thresholds to guide overall project administration. In the event of an unfamiliar procedure, the Project Accountant would seek clarification from the Ministry andor the Treasury. The PPU will be subjected to continuous internal audit by the newly formed Internal Audit Department IAD) of the Ministry of Resettlement. The IAD will report to the Secretary Ministry of Resettlement. The IAD currently consists of experienced audit examiners. The Ministry plans to recruit a qualified accountant with relevant experience in Government regulations to head the unit. The PHP will fund the technical assistance required to build sufficient capacity in the IAD if the need arises during implementation. The internal audit will not be confined to the PPUs records in the case of housing assistance but would also track technical certification, reimbursement amounts, timing and the flow of funds up to beneficiary bank accounts. A Terms of Reference TOR) would be agreed with the IAD of the Ministry before the commencement o f audit activities. 47

54 The Ministry of Resettlement will play an active role in closely monitoring the implementation of the audit recommendations to ensure that the internal audit function is effective. External Audit The Auditor General of Sri Lanka AG) will audit the PHP accounts each year following relevant Government guidelines for foreign-funded projects. Hence no special TORS would be required for the PHP. The AG is the supreme audit institution of Sri Lanka and has been accepted by IDA for auditing projects financed by it. The following audit reports will be monitored in ARCS Implementing Agency I Audit Report/Opinion I Auditor PPU 1 Project Annual Financial I Auditor General Reporting and Monitoring PPU will use Interim Financial Reports IFRs) to report to IDA on a quarterly basis. The IFR formats have been discussed and agreed with the Government of Sri Lanka at appraisal. PPU, under the leadership o f the Project Accountant, will be held accountable to ensure an appropriate internal control framework and diligent use of project finances. Conditionality The legal agreement would stipulate that the Internal Audit arrangements be in place. This would be a dated covenant three months from the commencement of project activities. Supervision plan The PHP has a modest Financial Management risk rating. Consistent with the risk based approach to supervision; substantial portion of the supervision will consist of desk reviews of internal and external audit reports and the quarterly reports supplemented by a continuous dialogue with the project staff, especially in the initial years. As and when required, other Financial Management supervision tools and resources such as SOE reviews, site visits and joint missions with procurement will be used in an effort to continuously monitor the adequacy of Financial Management systems. 48

55 Withdrawal of the Proceeds of the Financing l Category Amount of the Credit Allocated expressed in SDR) Percentage of Expenditures to be Financed 1) Housing Grants 10,900, % 2) Sanitation Grants 340, % I 3) Goods 1 4) Consultant services 250,000 1,430,000 88% 88% 5) Works 6) Training 7) Incremental Operating Costs 8) Refund of Project Preparation Advance TOTAL 8,5 10,000 88% 100, % 100,000 33% 70,000 21,700,000 49

56 SRI LANKA: PUTTALAM HOUSING PROJECT Annex 8: Procurement Arrangements Procurement Responsibility, Capacity and Risk Mitigation IDA undertook an assessment of the PPU s capacity to implement procurement actions for PHP, the summary of which is provided below. Exposure to IDA Procurement Procedures: The PPU has little experience in implementing IDA-financed projects. However, the Project Director and some other staff have been involved in public procurement. The PPU has identified a procurement officedengineer for immediate recruitment. To mitigate the risk of handling procurement under the PHP, the procurement officedengineer and selected project staff would be provided training on IDA S procurement guidelines and best practice in-country and in regional training centers. As an interim measure, the PPU has obtained the services of an Engineer who is the procurement specialist of NEHRP. This officer has sufficient experience in IDA-financed procurement and had prepared sample bidding documents and the procurement plan for the PHP. Existing System of Decision on Procurement Matters: The decision-making process regarding the PHP would be Guided by the Authority Levels indicated in Procurement Guidelines 2006 PG) published by the National Procurement Agency NPA) and any other subsequent circular. The delegation of authority to decide on procurement would be: 0 0 Contracts up to Rs. 100 m US$ 1.O m equivalent) by the Project Procurement Committee PPC). At present, all the proposed contracts under the PHP are within this limit. Contracts between Rs. 100 m US$ 1.O m equivalent) and Rs. 250 m US$2.5 m) by the Ministry Procurement Committee. Actions to Improve the PPUs Procurement Capacity: PHP would nominate relevant staff to participate in training programs conducted by the NPA and where required in a Regional Training Program in IDA-financed Procurement conducted by Administrative Staff College of India, Hyderabad. The Government and IDA have agreed that the National Competitive Bidding NCB) procedures should be improved by the application of the NCB conditions listed in the Financing Agreement. Procurement Procedures and Methods Procurement for the proposed PHP would be carried out in accordance with the Guidelines: Procurement Under IBRD Loans and IDA Credits dated May 2004; Guidelines: Selection and Employment of Consultants bv World Bank Borrowers dated May 2004, and the provisions stipulated in the Development Financing Agreement. The description of items under different expenditure categories are described below. The Government and IDA have agreed upon the procurement method, the consultant selection method, the need for prequalification, estimated cost, the requirements for prior review and the time 50

57 frame for each contract to be financed under the PHP. This is described in the Procurement Plan prepared by the PPU and approved by the Bank. All consulting services estimated to cost US$200,000 or more would be advertised in the United Nations Development Business UNDB) on line and Market of Development Gateway. Due to the small value of procurement involved, no civil works or goods contracts would be awarded under ICB procedure. For all civil works, goods and services undertaken under the National Competitive Bidding procedure NCB), the Standard Bidding Documents for Goods and works of the National Procurement Agency NPA) as reviewed and approved by IDA shall be used. For the selection of consultancy firms, NGOs and individual consultants, IDA S Standard Request for Proposals would be used and if required for consultants contract involving competition amongst National Consultants only, a modified version with the prior agreement of IDA, will be used. Thresholds for Procurement Methods and Prior Review Expenditurecategory 1. Works 2. Goods 3. Grants for Housing Assistance and Sanitation 4. Services Contract Value Threshold US$) 30,000 and above but below 500,000 pel contract Below 30,000 per contract 250,000 and above per contract Below 250,000 Below 50,000 1,000 and below for proprietary items, software, seeds, plants, books, periodicals, etc. All 200,000 and above per contract All Single Source Selection Contracts WS) Procurement Method NCB Shopping ICB Enabling Provision) NCB Shopping Direct Contracting Direct by the beneficiary QCBS [in specific cases, method of procurement can be other than QCBS, which will be mentioned in the procurement plan approved by IDA] Single source selection o f consulting firms and individuals Procurement of Works: The PHP would entail civil works that include the: i) construction of 5,653 houses to replace the current temporary thatched huts and complete 2,232 partly-completed houses in the 141 refugee camps; ii) water supplyhanitation; and iii) environment mitigatiodinternal roads. The identified families would qualify for one of two types of cash grants i.e. a grant of Rs. 250,000 to help construct a permanent house or a grant of Rs. 100,000 to complete a partly-built house. The Government would pay the cash grants in installments based on physical progress in civil works. The end beneficiary would be fully responsible for all procurement action of the housing cash grant. The civil works for water supply estimated at US$ 10.7 million would include construction of 34 water supply schemes for 136 refugee camps. The PPU would contract out most construction works to private bidders on a competitive basis. 51

58 The water supply schemes would involve the development o f source, the construction of water treatment plants, storage of disinfectants, disinfection arrangements, storage reservoirs, pumping stations, office space, transmission and distribution pipelines, power transmission, allied works and road reinstatement. The Ceylon Electricity Board CEB) would carry out electrical cabling for water pumps and do the external electrification including laying down the cable, installation of transformers /substations and other allied works. The contract package for electrical works will fall under the category of goods and works.. Consequently, for the contract with CEB, there are two options: 1) Direct contract if CEB is financially autonomous or 2) Force Account. As CEB is not financially independent from the Government, the electrical works to be undertaken by CEB will be under the method of Force Account. This is justified as the undertaking of electrical works by CEB is the only practical method for meeting the project needs and complies with the provisions of Para 3.8 of the Bank s procurement Guidelines. The civil works under sanitation would include construction of latrines which would be constructed by the beneficiaries themselves and the PHP would finance a cash grant of Rs. 25,000 per unit upon certification of completion of satisfactory construction. This is estimated to cost US$ 500,000 for those who are not recipients of housing assistance. The housing support cash grant includes provision for latrines. The end beneficiary would be fully responsible for procurement of goods, works, and services. Minor construction like the drilling of tube wells and resurfacing of roads after the laying of pipes would be ether part of the contract for the water supply schemes or would be tendered separately. The civil works under environmental mitigation includes construction of minor road network and associated drainage canals estimated at US$ 3.4 million. These works would be contracted on competitive bidding under small contracts and to extent possible by direct contracting to communities. Procurement of Goods: Goods procured under PHP would include office equipment and supplies such as, photocopiers, computers, printers, UPS, communication equipment and software for the PPU; office furniture; vehicles, bicycles and motorcycles. Selection of Consultants: Consultancies for the program include: Housing Assessment Survey Settlement Plans Technical Assistance for Water and Sanitation Technical Assistance for design and supervision of internal road network and drainage Continuous Social Impact Assessment Third Party Technical Audit Communications Campaign Skills Training The design o f the water supply scheme includes provision of drinkmg water for all houses without such access within the Grama Niladhari Division where IDP camps are located. The NWSDB, which carried out the feasibility studies will prepare engineering designs and drawings, bidding documents and provide construction supervision and related consulting services. No other agency in Sri Lanka has the expertise and experience to undertake this task in a cost-effective and tested manner as the NWSDB. Hense, this 52

59 contract will be awarded to NWSDB using the Single Source Selection SSS) method which is justified in terms of Para 3.10 of the Consultants Guidelines. NWPRD would be contracted to prepare the design, implementation plans, bidding documents for the roads surface reinstatement and drainage improvement and provide construction supervision, using the SSS method which is also justified in terms of Para 3.10 of the Consultants Guidelines. All services undertaken by NWSDB and NWPRD and financed by the credit will be under the disbursement category Consultant Services The shortlist of consultants for services estimated to cost less than US$ 200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of Paragraph 2.7 of the Consultant Guidelines as specified in the procurement plan approved by IDA. Method of Procurement for Works and Goods: The proposed method for procurement contracts would be one of the following i.e.: National Competitive Bidding [NCB] Shopping 0 Direct Contracting 0 Community participation in procurement Methods for Selection of Consultants: The selection of consultants would be made on the basis of following methods depending on appropriateness in each case: 0 Quality and Cost Based Selection [QCBS] 0 Quality Based Selection [QBS] 0 Selection under a Fixed Budget [FBS] Least Cost Selection [LCS] 0 Selection Based on Consultants Qualifications [CQS] Single Source Selection [SSS] 0 Selection of Individual Consultant as per Section V of the Guidelines Assessment of the Borrower s Readiness to Implement the PHP A detailed procurement plan for the first eighteen months of the PHP for all components except the housing assistance component has been prepared. The procurement plan would be updated each year or as required to reflect the actual implementation needs and improvement in institutional capacity. There would be no procurement plan for the housing assistance component given the nature of the assistance therein. An implementation plan was prepared instead. Disbursement Profile Disbursement is expected to be low for the first year. It is anticipated to be 3% since the initial year would consist largely of capacity building, orientation, feasibility studies, design works etc. Disbursement would pick up at year 2 at about 20% increasing to 30% in year 3, 30% in year 4 and tapering off to 17% in year 5. 53

60 IDA Review of Procurement The proposed procurement plan for the first 18 months has been reviewed by IDA. IDA would review annual implementation plans for works and procurement plans. All contracts financed under the IDA Credit should comply with the procurement plan. The contracts that are identified for prior review would be subject to review as per provisions set forth in paragraph 2 and 3 o f Appendix 1 of the IDA Guidelines and IDA Consultancy Guidelines. Despite the low limits stipulated for prior review of contracts, very few contracts are expected to come under the provisions of prior review. This appears reasonable considering the nature of the procurement involved. The contracts below the prior review threshold for Works, Goods and Consultancy contracts would be subject to post-review as per the procedures set forth in Paragraph 5 of Appendix 1 of the IDA Guidelines and IDA Consultancy Guidelines. IDA staff would conduct post review during the supervision missions and outside mission timelines as well. Procurement Information Procurement information would be collected and recorded as follows: 0 Updated Procurement Plan and comprehensive semiannual reports by indicating i) revised cost estimates of individual contracts and the total project; and ii) revised timing of the procurement actions including advertising, bidding, contract award; and 0 Completion time for individual prior review contracts and completion reports by the Borrower within 3 months of the Credit closing date. Overall Procurement Risk Assessment The overall programmatic risk for procurement i s Hie;h. Frequency of procurement supervision missions proposed: Once every six months includes special procurement supervision for post-review/audits) 54

61 SRI LANKA: PUTTALAM HOUSING PROJECT Annex 9: Economic and Financial Analysis The PHP would yield a range of benefits for the recipient communities. While some of the outputs and outcomes of the PHP directly impact upon the lives of the refugees in the short term, others have a broader and longer term impact. The IDPs in Puttalam live in refugee camps that lack basic infrastructure be it safe water, toilets, drainage and garbage disposal. The UNHCR census of April 2006 revealed that only 8,978 IDP families out of the 15,480 families have some kind of shelter. 5,653 live in temporary thatched huts while 2,232 live in partly-built houses. A Social Assessment of 111 camps early this year categorized 42 percent of IDP families as destitute poor and 41 percent as poor, all of whom lived in temporary thatched Only 17 percent of the IDP families had managed to construct partly-built or permanent houses. The PHP would help improve living conditions in Puttalam by providing permanent houses to 7,885 families. The psychological and social impact of providing a home is immeasurable. Homeownership significantly contributes to IDP social well being such as household stability, social involvement, pride and life satisfaction, happiness, environmental awareness, local political participation, community involvement, good health, and other beneficial characteristics. Children of homeowners are likely to perform higher on academic achievement. IDPs would be provided with safe drinking water and improved sanitation. Access to safe water is one of the Millennium Development Goals. It would strengthen public health, reduce pollution of the aquifers, and save resources on cleaning contaminated water sources. The PHP would help mitigate environmental issues such as inadequate drainage and flooding. To the extent that flooding is caused by poor internal roads, the PHP would support their rehabilitation in the affected camps. Skills training in carpentry and masonry would generate spin-off effects on employment and wage income in an area where over 17 percent of the population is unemployed and 62 percent confined to seasonal day labor of 10 to 15 days per month.33 It is difficult to fully assess the impact of the Puttalam project using an ex-ante financial cost-benefit analysis since most benefits do not lend themselves to quantifiable financial returns. Nevertheless, an effort has been made to capture to the extent possible the economic and social benefits of the project using meaningful proxies. A Monitoring and Evaluation system, with measurable indicators, would be in place from the start of the PHP to measure and evaluate the benefits and impacts of the project components ex-post. Economic and Equity Considerations The rehabilitation of the conflict-affected population is at the core of the Government s strategy to restore peace. The IDPs consider housing as a key priority. The demand for housing is inelastic. While beneficiaries cannot afford to pay in nominal terms, they would make every effort to maintain and improve it in the long run. This would ensure the sustainability of PHP. The government would provide a private good where the private sector is reluctant to enter. The public sector can spread the cost o f this investment and is therefore better positioned to invest in the welfare of its marginalized citizens. 32 Destitute poor ranked as those that head of household is unemployed, has no other source of income, and depends on government dry rations. They either have no house or live in temporary thatched houses. Poor are those who have seasonal income from day labor and live in temporary houses. 33 Social Assessment SA) report of July 2006 prepared by a consultant as part of the preparation activities. 55

62 Economic Benefits of Housing Cash Grant Program The housing project in Puttalam would have many positive spillover social and economic benefits and outcomes at the individual, community and national levels. The PHP would stimulate the local economy and provide significant short and long-term benefits. The full range of economic impacts produced by housing construction includes: 0 Direct Benefits which consist of most visible and recognizable economic activities related exclusively to new housing construction; that is, expenditure made by direct beneficiaries, output/asset housing stock) of US$ 16.1 million, and about employment opportunities for over 542 people. Indirect Benefits that are additional economic activities resulting from linked businesses, suppliers of goods and services, additional employment opportunities in services sector transport, sales, monitoring, etc.), skills training, and provision of operating inputs. Induced Benefits which measure the consumption expenditure of those who are involved in the construction activities directly and indirectly which further stimulate the local economy. These benefits illustrate the multiplier effect that quantifies the incremental indirect and induced impact of each additional direct job or dollar of output related to housing construction and related support activities) within the community. Given the current socio-economic conditions of IDPs, these housing units would be their primary store of assets. Housing is a unique asset that can leverage resources as the homeowners can borrow against home equity at more favorable rates. With economic activities in the Puttalam district as a result of this housing project and other infrastructure service provision water and sanitation services), the value of land and real estate would appreciate in the coming years.34 Therefore, the housing cash grant of Rs. 250,000 would be an asset which would increase in value over time by about 66 percent in Scaling up these benefits for the entire 7,885 housing units constructed in 4 years, the community would own assets housing units) valued at over US$ 26.8 million inclusive of initial in~estment.~~ Over 15 year period, the accumulated incremental appreciation of each house would be valued around Rs. 1.2 million about US$ 5,700) or a NPV of Rs. 403,000. Construction of each house is a net gain to the local economy. The NEHRP experience indicates that on average the cost of labor is about 35 percent of the total construction cost of a housing unit.36 Therefore, for each new housing unit costing Rs. 250,000 about 87.5 man-days would be generated this is 4 months of employment opportunity for one labor working 22 days per month)37 and Rs. 87,500 of wage income would be plugged back in to the community and local economy of Puttalam. The comparable figures for 34 The recent General Macroeconomic Analysis carried out by the World Bank Colombo office, concluded that value of real estate in several areas within Colombo and in Greater Colombo areas with one-two hours proximity to Colombo) has increased by an average of 23.3% between 2000 and This trend may well continue, as the Greater Colombo areas are increasingly used for residency by people work within Colombo. Puttalam is about 3 hours drive from Colombo; therefore, with increased economic activities and its relative closeness to Colombo, the average real estate price is likely to increase by around percent in the coming years. The Puttalam has already witnessed recent increase in land transactions as a result of this housing project. 35 Excluding value of their land. 36 Rs.250,000 for temporary houses 5,653) and Rs. 100,000 for partly completed houses 2,232). 31 Based on the NEHRP experience, the cost of skilled labor is close to Rs. 1,200 per day and that for unskilled is about Rs For this exercise, it is assumed that beneficiaries use a combination of skilled and unskilled labors on 50:50 bases which cost them Rs. 1,000 per day on average. 56

63 completing a partly-built house, for which the beneficiaries are entitled to Rs. 100,000, are 35 man-days and Rs. 35,000 wage income. Construction of 5,653 new housing units and 2,232 partly-built units would create a minimum of 543 jobs exclusively in the housing industry and generate Rs. 665 million that is approximately US$ 5.5 million) of wage income.38 This is about 34 percent of the US$ 16.1 million investment in housing and 16 percent of the total project cost. The multiplier effects of new housing construction shows that, on average, for each dollar spent on construction, the local economy would see US$ 0.34 in wage income plugged back into Puttalam economy and will be re-circulated through increased expenditure. The indirect and induced impact of the project would yet provide additional employment opportunities in the affected areas and further stimulate the local economy. Skills Trainin? and Its Economic Stimulus Imuacts: One of the important activities of the PHP is to create required construction skills among the Puttaam IDPs so that they can build their houses and provide labor for others. This program would have significant impacts on earning capacity of the people in Puttalam. The NEHRP evidence illustrated that skilled construction workers are in high demand and can earn as high as Rs. 1,200 per day. This rate is about 40% higher than that of an unskilled laborer who earns about Rs. 800 per day. Training and capacity building would bring significant economic benefits for the individual trainees. Skills training would ensure an increase in income of an individual trainee incremental income level) by an average of about US$ 1,115 per annum or a NPV difference of US$ 7,483 over the course of their productive life 15 years). This calculation is based on a conservative assumption that wage increase would approximate 10 percent over the next 15 years and a discount rate of 14 percent. It was calculated by deriving the difference in a worker s productive life earnings with and without training - that is the difference between the earnings of a skilled versus unskilled lab~rer.~ The sum would far exceed the training cost of about US$ 150 per individual funded from the PHP. The total economic benefit of training 1,000 workers is calculated at US$ 1,115,000 per annum which is significantly higher than the total training costs of US$ 140,000 over the life of the PHP. This would increase the laborer s disposable income and savings and would boost overall economic activity. This i s a significant gain in an area where unemployment is high. The PHP would generate a wage income of approximately US$ 10.1 million over 4 years.40 This is 30 percent o f the total investment of the PHP that would be plugged back to the local economy as wage income and would have a positive and multiplier impact. One lesson learned from NEHRP is that the home-owner driven approach motivates families, mobilizes the community, boosts the morale of the affected people and brings out hidden abilities and skills. 38 It is assumed that wages increase by 10 percent per annum, on average, during the project life and Sri Lanka Rupees depreciate by 8 percent per annum over the next 4 years. 39 Conservative assumption is that each labor works 22 days per month on average. 40 It is assumed that 1,000 workers are trained and work 22 days per month for 4 years. 57

64 Estimated average annual wage for unskilled workers over productive life of 15 years US$) 2,23 1 Cost Benefit Analysis for Training of Skilled Workers Estimated average annual Discount rate NFV of the wage for skilled workers %) difference in over productive life of 15 Pay US$> years US$) 14% 7,483 3,346 17% 6,608 Cost o f 3 months training per worker US$) I The induced benefits of the PHP such as increased spending resulting from employment opportunities and higher income, would in turn increase demand for other goods and services and therefore provide additional opportunities for people engage in productive or service activities. Several NEHRP beneficiaries invested in income generating activities, expanded their business, engaged in agriculture and livestock or worked longer hours once their habitat had been taken care of. Informal discussions during field visits revealed that these had increased household income by an added Rs. 2,500 per month Rs. 30,000 per annum; approximately US$300).41 It is expected that the beneficiaries of the PHP follow the same path to further improve their lives and livelihoods. Water, Sanitation, and Environmental Mitigation: The IDPs have suffered from a lack of basic infrastructure, poor environment and inadequate sanitation for close to two decades. Less than half the camps have access to safe drinkmg water. The table 4 below summarizing the SA encapsulates the level of access to basic infrastructure services. Accessibility of Basic Infrastructure Services Survey of 111 Refugee Camps Economic Benefits of Environmental Mitigation and Internal Roads: It is evident from the environmental condition of these refugee camps that housing alone will not ensure sustainable livelihood. Support for the environment is in keeping with the Millennium Development Goals. There is a strong link between environment and poverty. Safe environment would improve health, productivity and income level. 41 Based on field visits and discussions with homeowners during the supervision of NEHRP, the beneficiaries with income level of Rs. 2,500 per month were likely to start other income generating activities home gardening, poultry farming, cattle raising, using one room in their house for small shops, etc.) or attending skills training programs. With these activities, they expect to increase their monthly income level by Rs. 2,500 or more. 58

65 While 7,885 IDPs will benefit from the housing support cash grant, the entire IDP population close to 64,000 in 15,480 families) will benefit from improved environment, sanitation, and access to safe water.42 The poor condition of internal roads and inadequate drainage lead to water stagnation, mosquitoes and water borne diseases. The PHP would help ensure that the internal roads no longer contribute to environmental hazards. Economic Benefits of Access to Safe Water: The PHP would benefit 13,600 families in 136 refugee camps and over 3,300 adjoining non IDP families. The average cost of providing safe water would be Rs. 49,000 per person, approximately US$ 486 equivalent. The economic benefits of the PHP far exceed the costs. Quantifying these benefits is not easy. The short and long term benefits of providing safe water and sanitation. to the community as a whole can be summarized as follows. Conservation of water sources. With piped distribution and rain water harvesting, the PHP would eliminate water contamination due to proximity of water sources to waste and latrine; and improves water resources and supply through the conservation of safe and quality water.. Treatment of contaminated water. With treatment of hard and contaminated water, the project would increase safe drinlung water sources.. Improved access to safe water. Increased safe water source and better distribution techniques would provide wider access to safe water not only to IDPs but to nearby non IDP communities.. Less environmental pollution. Elimination of contamination in the aquifers would result in positive environmental externalities. Health benejits are enormous. There would be positive externalities to public health. Financial Analysis Fiscal Impact of the Puttalam Housiny Proiect: The Government would contribute US$ 2.2 million of the approximately US$34.2 million project. This would mainly be in the form of taxes and duties. The short term fiscal impact of the PHP is therefore neutral. US$16.1 million 47%) would consist of housing support cash grants. This is a private good, the maintenance of which will not lead to a future fiscal burden on the Government. About US$15.9 million is allocated to improve the environment and provide safe water and sanitation. These are the only components that may need future investment by the Government. However, it is expected that with collection of water fees, the investment and maintenance costs would be partly covered. This investment and its associated costs may well be compensated by reduced government expenditure on health, cleaning contaminated water and wells, and providing water daily through bowsers. The Capacity Building and Program Support components of US$ 2.2 million 6% of the total credit) would strengthen government capacity to implement the PHP. These two components have no future fiscal impact. In total, over 53% o f the credit would directly benefit the local economy without any future budgetary impact. Long-term Fiscal Impact of Borrowing from IDA: The US$ 32 million IDA credit is a concessional loan with a 10-year grace period, a maturity of 20 years, zero interest, and a 0.75% service charge on the outstanding amount. With four years of disbursement of the credit 20%, 30%, 30%, and 20%) for the IDA term, discounting at conservative 14 percent, the grant element of IDA credit is 76%. The Net Present Value of the credit disbursed in four years is US$26.5 million, and that of the total debt service payment over 20 years is only US$6.3 million. This results in a total of US$20.2 million grant out of the US$32 million concessional credit. Again with a very conservative assumption that GDP will grow by 42 The UNICEF would provide safe water and improved sanitation to 5 refugee camps covering about 1,080 families. IDA Puttalam Housing Project will cover the rest of 136 camps. 59

66 10% in nominal terms per annum, the debt service payment about US$3.5 million per year on average) as a percentage o f GDP is insignificant. With cost of funds discount rate of 17%), the comparable figures for NPV o f the credit and debt service payment would even be at more favorable terms with the grant element higher. IDA Credit, with special terms of 10 years grace120 years maturity US$ million) Service charge Disbursement Discount rate Grant Element of the period IDA Credit US$ milliord Percent) 0.75 on credit 4 years 14% %) outstanding 0.75 on credit 4 years 17% %) outstanding 60

67 SRI LANKA: PUTTALAM HOUSING PROJECT Annex 10: Safeguard Policy Issues Environment The PHP is not expected to have a critical or irreversible environmental impact. However, the physical environment of the refugee camps does pose a challenge. This needs to be addressed during project implementation. The refugee camps were established on sites based upon the immediate availability of vacant land and access to livelihood; the suitability of the land for long-term habitation was not factored in. Some refugee camps were located on ill suited land. The PHP will identify existing and anticipated environmental risks in each refugee camp selected and address them through appropriate mitigatory measures during housing construction. Water stagnation and flooding have been noted in a number of refugee camps largely in the Puttalam mainland. These sites are located in low-lying areas and drainage paths with poor infiltration capacity. These may not be the most desirable locations for human habitation. Land filling and proper drainage systems are needed to tranform such flood prone sites into more habitable places. The seepage of salt water to the surface is a serious issue in areas close to Puttalam lagoon, Karambai and north of the town. Improvement to land drainage in these sites may require substantive effort and investment and will have to be determined based upon an economic and environmental feasibility. Relocation may be a more viable option in certain cases where mitigation is not economically and/or environmentally feasible. Solid waste disposal poses an environmental challenge. This is a problem in all refugee camps as there is no proper system for the collection and disposal of garbage. Other risks include the destruction of mangroves by IDPs for land reclamation, sand mining within settlements and exposure to pollution from waste outlets of prawn farms. These issues will be addressed under the project to ensure sustainable habitat. The PHP aims to construct or complete 7,885 houses for the IDPs in Puttalam. It would provide water to 136 of the 141 refugee camps and select adjoining non IDP villages. The project would require significant quantities of building material such as sand, bricks, tiles, timber, metal etc which would add to the current demand for the same by the on-going conflict-related and post-tsunami reconstruction in the country. It is anticipated that pressure on natural resources such as sand, timber clay and rocks would escalate. The PHP would ensure that all building materials are extracted from authorized sources operating with the necessary approvals to ensure that raw material harvesting would not reach unsustainable levels. Policy and Regulatory Framework Sri Lanka has a comprehensive environmental regulatory framework that provides an adequate basis for the identification & mitigation of environmental risks that arise out of development activities. Since the PHP is situated in the North Western Province, provisions of the North Western Provincial Environmental - Act NWPEA) are applicable for the mitigation of environmental risks of the project. According to the NWPEA, activities that fall into a prescribed category will need a comprehensive environmental screening and planning process EL4 or IEE). Housing construction is not a prescribed category defined under the act and hence will not require IENIEE. However, if the development of new sites is triggered due to relocation, an IEE/EIA will be required depending on the type and extent of land, proximity to sensitive areas etc. The North Western Provincial Environmental Authority, which administers the NWPEA, is responsible for controlling pollution from shrimp farms through the issuance of environmental licenses. 61

68 The felling of trees in forest reserves is prohibited under the Forest Ordinance. Tree felling for timber is allowed only in designated areas under licensed approval from the Forest Department and the Divisional Secretary of the area. The Geological Surveys and Mines Bureau GSMB) regulates the mining of sand and clay. Sand mining can only take place in designated areas. Here again a license has to be obtained from the GSMB. Offshore coral mining is banned under the Coast Conservation Act. All building plans need to be submitted to the local authority for approval provided they conform to a specified building code under the Local Authoritv Ordinance. This code has detailed specifications for housing and septic tank design as well as precautionary measures for the prevention of ground water pollution from septic tanks. Provisions under these ordinances legally bind the local authorities to manage all refuse generated in their area of jurisdiction. However, the use of septic tanks would be discouraged in Kalpitiya given the aquifer. Mangroves are a gazetted forest type under the provisions of the Forest Ordinance. Responsibility for managing mangrove areas comes under the Forest Department which has declared mangrove management areas in the country. This includes sites in the Puttalam lagoon. In addition, the Coastal Zone Management Plan implemented by the Coast Conservation Department recognizes mangroves as an important coastal eco-system to be conserved and managed and collaborates with the Forest Department on mangrove management efforts. The Rural Water Supply and Sanitation Policy RWSSP) is an important policy instrument with significant implications on the development of the water and sanitation component of the proposed project. The RWSSP governs the institutional and operational framework within which rural water supply and sanitation should be addressed. The policy emphasizes water supply and sanitation to be demanddriven and people centered with effective facilitation from provincial and local authorities. The RWSSP builds upon community water supply and sanitation interventions and is implemented effectively. A few details on the application of the RWSSP are given in Annex 4 on Water Supply and Sanitation. In terms of IDA directives, Operational Directive on Environmental Assessments OP 4.01) will be applicable. Accordingly all sites that will be identified under the PHP will be subjected to environmental screening and risk mitigation through a site specific Environmental Management Plan EMP). Mitigation measures recommend in the EMP will be implemented as part of PHP. Environmental Risk Mitigation The application of environmental safeguards will be considered under three different housing construction and resettlement scenarios; i) housing construction on the present site of the refugee camp the vast majority of cases) ii) housing construction on the land adjacent to the existing site iii) relocation to a completely new site. In order to assess the environmental impact of resettlement and the suitability of each site for human habitation, all sites proposed for development will be subjected to an independent environmental analysis, the level of which will depend on the scenario applicable for each IDP settlement considered under the project. The GOSL prepared a detailed environmental questionnaire EQ) to identify on-site environmental issues. A basic environmental profile of the sites have been established based on this and an assessment of the suitability of local conditions for long-term residence would be made as part of the EMP process. A sitespecific determination would be made with regard to the necessity for a more detailed environmental analysis based on the recommendations of the EQ. For scenarios i) and ii) administering the EQ with the subsequent preparation of a site-specific EMP would suffice in most cases unless there is justification for further investigation through an EIA or a feasibility study. For scenario iii) in-depth analysis and a comprehensive EMP would be likely if relocation is going to be in or adjacent to an environmentally 62

69 sensitive area. Detailed guidelines covering the above will be included in the Environment and Social Management Framework ESMF). The GOSL has finalized the site selection for the construction of permanent houses for the Puttalam IDPs for the first year of the project. The list was reviewed by IDA. Social and Environmental assessments have been completed in 111 out of the 141 refugee camps by consultants hired by the GOSL. This accounts for 80% of the IDP population. Based on this, the environmental issues described in the preceding sections were identified. Based on the two studies, a) GOSL would complete the identification of the remaining sites for permanent residency based on social, environmental and land issues and b) environmental and social issues in a given IDP cluster would be understood in totality in a given geographic context to better plan mitigatory measures. However, the EQ will also be administered to relocation sites identified subsequently and if needed supplemented with an EIA. Government would assess the remaining 30 IDP camps in Puttalam by January 3 1,2007. Social Development The PHP is expected to have a positive social impact through the provision of housing, water, sanitation and environment improvement for IDPs who have made Puttalam their permanent residence of choice. Improved living conditions would permit IDPs to enhance their socioeconomic status and integrate in Puttalam. This would strengthen social capital as communities plan and undertake construction. There is the risk however of increased social tensions between the IDPs and the earlier residents of Puttalam who may be as poor and under-serviced. The SA covered conflict issues between IDP and non- IDPs, identified the causes and recommended actions. In order to mitigate these risks, the PHP includes support to non IDP communities within GN divisions, where refugee camps are located, in terms of water and sanitation. Further, a Continuous Social Impact Assessment CSIA) would be commissioned for the duration of the PHP to ensure that social and conflict issues are promptly addressed. Social Concerns: Several concerns were identified through i) the SA carried out in 111 IDP camps; ii) the UNHCR supervised Survey of Puttalam IDPs that enumerated land ownership, types of housing, and attitudes towards permanent settlement vis-a-vis return; iii) IDA field visits to the area over the past year; and iv) consultations with various government institutions over the past months, notably with the Ministry of Resettlement, Ministry of Nation Building and Development, Ministry of Housing, the District Secretariat of Puttalam, and the Muslim Peace Secretariat. The following issues stand out: The Right to Return: The UNHCR supervised Survey indicates that 96% of IDPs in refugee camps revealed a preference to permanently reside in Puttalam given the uncertain security situation in the North. However, the receipt of the cash grant in no way detracts from the IDPs right to return to his or her place of origin at a later date. The Right to Compensation: The potential beneficiaries would not forego the right to claim compensation for losses and the rights to property in their place o f origin by mere receipt of the cash grants. Residency and Political Rights: According to the UNHCR survey, almost 95% of registered voters among IDPs are still registered in their place of origin and not in Puttalam. They access IDP dry rations and not the regular Government welfare package for the poor in a given locality. The Samurdhi relief package for poor non-idps is reportedly lower than the dry rations received by IDPs. It is the prerogative of the IDP beneficiaries alone to decide whether i) they be deregistered as IDPs and become regular residents of Puttalam with equal access to social services and welfare benefits without any restrictions due to their displaced status; and ii) they be added 63

70 to the voter registration list in Puttalam and no longer be registered as voters in their place of origin. The PHP is not linked to this domestic political issue. It is only intended to ensure improved service delivery and habitat. Government agreed to consider increasing its budget allocation for the Puttalam district to factor in the IDP needs there. The surveys and consultations of the IDP camps and the surrounding non IDP community revealed considerable anxiety and confusion with regards to government policy on such issues. There are significant concerns among non-idps that the government may assist the IDPs far above the level of assistance received by the poor permanent residents of Puttalam. These concerns may exacerbate tensions between IDPs and local residents in certain areas due to competition over scarce resources. The consultations with the government reveal diverse views across ministries on such issues. The present situation is thus one of some anxiety in Puttalam which adds to tensions in an already politically volatile situation. A communications campaign would be needed for Government to explain what the PHP would and would not do, whle outlining the legal rights of the IDPs. Selection Criteria for IDP Households: All 141 refugee camps would be included in the PHP. There i s a high level of social cohesion displayed in refugee camps as reflected in the effort to collectively buy land for permanent housing in most camps. The PHP endeavors to maintain the cohesion of communities through a camp wide approach. This issue has been factored in the eligibility criteria. A household within a refugee camp would have to meet certain criteria to be entitled for housing assistance. It must have land title. The head of the household and the majority of household members must live in the camp in Puttalam. It should not have a permanent house in Puttalam and should not have received similar housing assistance in its place of origin. It should have possessed land in the camp or have had a temporary or partly-completed house within a camp as at April, All households would receive water and sanitation. Camps were ranked on the basis of i) percentage of temporary houses; ii) percentage of families possessing land in the camps; and, iii) percentage of IDP families who opted for permanent settlement in Puttalam all according to UNHCR Survey April, 2006). After the social ranking, the sites were subject to environment screening to determine sequencing and implementation roll out with the easier camps identified for implementation up-front. IDP-non IDP Relations: Non-IDPs are defined as those residing within one kilometer of the refugee camp and/or those with whom the IDPs have repeated interactions. Non IDP communities in the vicinity of the camps are not a homogenous social group. Some are well off while others are not. Some had permanent houses. Others did not. Some shared ethnic and marriage links with the IDPs. Others belonged to different ethnic groups. The local residents in Puttalam initially viewed the IDPs as temporary inhabitants and provided them considerable support. It then became clear that the IDPs were no longer in Puttalam on a temporary basis since it was not possible to return to the North given the security environment. IDPs over time purchased land in and outside the camps. Subsequently, the positive attitudes of the non-idps underwent changes. There were incidents where refugee camps were set on fire in The entry of IDPs into the local labor market tended to depress wages. The schools were over crowded with IDP children. The IDPs tended to be better organized politically than non-idps. However, relations have since improved through shared economic activity except in a few instances as outlined in the SA. The SA however raised concerns that assistance for IDPs may increase resentment and lead to conflict. One way of addressing these latent tensions is to ensure that the employment opportunities generated by the PHP be shared with local residents. Laborers, contractors, and sourcing material required by the project should, to the extent possible, be drawn from the local economy. Thus the construction of houses 64

71 will have a multiplier effect in the form of increased employment and economic activity throughout the district. In addition to income generation activities, the PHP can reinforce a sense of community by different groups working together. The PHP has allocated considerable resources for water and sanitation for non-idps within GN divisions where the refugee camps are located. This would more directly contribute towards preventing resentment between IDPs and non-idps. It does not take too much by way of investment to augment the scope of the water scheme targeted at a cluster of refugee camps to include adjoining non IDP villages. The Land Task Force would service both IDPs and adjacent non-idps. Meanwhile, the Ministry of Housing agreed to provide modest home improvement grants to select non-idps living adjacent to refugee camps while UNICEF intends to invest in health and education for both IDPs and non-idps. The Communication Campaign would highlight the range of IDA-financed interventions currently targeted at non-idps in Puttalam. IDA prepared a Macro-Action Plan to define guiding principles to reduce and prevent IDP-non IDP tensions in Puttalam through development aid. The Action Plan highlighted the need to focus both on IDPs and non-idps on issues relating to poverty, access to social services, land title, shared economic interests, civil society links and mobilization of women s groups. The emphasis was prioritize employment generation and provision of ancillary infrastructure for both IDPs and non-idps. The PHP endeavors to do so. The objective is to go beyond notions of inequality based on ethnicity and focus on the common ground to strengthen integration in Puttalam. Communication Campaign: The PHP would be the first voluntary resettlement project for Sri Lanka s conflict displaced. It would thus set a precedent for the future resettlement o f displaced persons in the country. The general public in Puttalam needs to be informed about key issues of concern listed above, the beneficiary identification criteria, the homeowner strategy, size of the housing support cash grant, the grievance redressal mechanism and benefits to non-idps. This is to ensure transparency and accountability. The communication campaign would be outsourced to a third party and have wide coverage among IDPs and non-idps. This will contribute to minimizing anxieties that may otherwise cause increased inter-community tensions. Please see Annex 4 for more details. Social Safeguards Framework: The SA identified potential risks, long term social concerns and local integration. These included issues of inter-community tensions, gender equity, complexities in land ownership and tenure, community absorptive capacity and social capital. In order to mitigate these risks, the PPU prepared an ESMF and incorporated the relevant IDA Operational Directives and Operational Policies. The Framework will provide guidance on the approach to be taken during project implementation in case of minor land acquisition and the mitigation measures to be put in place. It will serve as a template to undertake specific social audits, monitoring and evaluation, and a continuous social impact assessment. Camu Social Profile CSP): The SA collated CSPs for 111 camps which accounts for 80% of the IDP population in Puttalam. The CSP served the following purposes: i) establish baseline conditions to follow-up on social and project impact assessments; ii) identify social development and conflict issues related to the non IDP community; iii) provide adequate data and information to mobilize development agencies to assist other social infrastructure needs such as solid waste disposal, micro-credit etc. in the locality; and iv) identify additional support required at the camp level to guarantee effective implementation. Community level information on basic infrastructure, services, resources including land use and water sources, livelihoodeconomic activities, poverty and vulnerability, institutions, gender and ethnic distribution, and key development needs are included in the CSP. The data gathered through the Housing 65

72 Assessment Survey will be annexed to the CSP. Data from the UNHCR supervised survey in turn includes demographic characteristics of beneficiary families, income and livelihood activities, housing condition, land ownership and other vulnerability conditions etc updated in April This complements the CSP providing extensive baseline data for future development and monitoring purposes. Continuous Social Impact Assessment: The CSIA will record community perceptions and grievances on the identification of IDP households for participation in the housing program, the resentment between IDP and non IDP communities and social issues that impact upon project implementation. This would offer a useful tool for the PPU to introduce mid-course corrections to address grass roots concerns. Please see Annex 3 for more information. Social Safeguard Issues: Overall, the PHP is expected to have limited negative social impact. None of the PHP components include activities that trigger a drastic change with adverse social consequences. The housing assistance will provide support for the construction or upgrading of already existing temporary or partly-completed houses of those IDP families with uncontestable land title. This is a socially feasible program targeted at poor IDP families who were forcibly displaced and have since lived in temporary shelters in their preferred location of choice for 16 years. While the PHP does not involve any land acquisition in the housing component per se, it is expected that the provision of water supply and the environmental mitigation plans might involve community purchase or perhaps small scale land acquisition. The extent and nature of community purchase or land acquisition would not be clear until the detailed planning of the water supply and environmental mitigation plans are available following which an assessment o f the required land acquisition would take place. This would detail the acquisition process for government land and private lands, if required, and the consultations and compensation measures/processes to be followed in case of private lands. IDA Operational Directives: There will be no involuntary settlement under the PHP. The project provides for voluntaly resettlement of IDPs in instances where the refugee camps may be environmentally unsuitable. The IDPs would need to document uncontested landownership and would be informed through a communication campaign about the implications of opting for a cash grant for permanent housing in Puttalam. An Environmental and Social Safeguards Framework has been prepared. This includes guidelines to prepare a Resettlement Action Plan RAP) if needed at a future date, tools to screen activities for their social impact and the methodology to address the Operational Policy on Involuntary Resettlement - OP 4.12 if the need arises. Social Imuact and Mitigation: The IDP household will need to demonstrate clear title to land to receive the housing support cash grant. This is intended to safeguard against the threat of eviction and reduce the potential for political and economic exploitation. The Ministry of Resettlement has established a Land Task Force to help regularize issues relating to land title in relation to the PHP. This was set up on the lines of that currently in operation in the North and East to expedite the issuance of land deeds. According to the UNHCR supervised Survey 2006), 74% of IDPs in the refugee camps own land in Puttalam and 55% possess legal documentation to support that. According to the Survey, 72% of those with landownership informed that they had purchased the land - in some cases, they bought the land on which the refugee camp is located where all IDP families of the camp possess title deeds; others collectively bought land outside the refugee camp. 3% of those with land ownership revealed that they had received the land through donation. Among those who possess documentary evidence of landownership, an overwhelming 97% had outright deeds, whereas only 1.5% held permits and 1% grants or 0.5% leases. 66