Report No. 8962CE Sri Lanka - - Transport Sector Memorandum June 28, 1991 Infrastructure Operations Division Country Department I Asia Regional Office FOR OFFICIAL USE ONLY Documern of the WM Bank 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 iisclosed without World Bank authorization. CURRENCY AND EQUIVALENT UNITS (As of June 1991) Currency Unit = Sri Lanka Rupee (SL Rs) Rs 40.0 US$1.00 Rs 1,000 = US$25.00 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mil (mi) 1 hectare (ha) 2 2.48 acres (ac) 1 ton = 2,208 pounds 1 ton-km 0.62 ton-mile 1 passenger-km = 0.62 passenger-mile ACRONYMS ADB - Asian Development Bank CMC - Colombo Municipal Council CPC - Ceylon Petroleum Corporation CSC - Ceylon Shipping Corporation DPOT - Department of Private Omnibus Transport dwt - dead weight ton EDCF - Economic Development Cooperation Fund (Republic of Korea) ERC - Economic Restructuring Credit (2128-CE, May 1990) IMC-CPT - Inter-Ministerial Committee for Coordination and Planning of Transport kgs - kilograms JICA - Japan International Cooperation Administration MTH - Ministry of Transport and Highways OECF - Overseas Economic Cooperation Fund PC - Provincial Councils PIP - Public Investment Program RDA - Road Development Authority RTB - Regional Transport Boards SLCTB - Sri Lanka Central Transport Board SLPA - Sri Lanka Ports Authority SLR - Sri Lanka Railways TEU - Twenty-foot equivalent unit TSPC - Transport Studies and Planning Center TSPS - Transport Sector Planning Study (January 1988) VOC - vehicle operating costs FISCAL YEAR January 1 - December 31 FOR OMCIAL USE ONLY SRI LAM TRANSPORT S1CTOR MIWRAJNWI Table of Contents Page No. PR OB ................................................... ........ i EXECUTIVE SUMNKYY ......... .. ii 1. ROLE OF TRANSPORT IN THE SRI LANKAN ECONOMY . ..1 A. Country Background ......................................1 B. Transport and the Economy ....... C. Transport Modes ..................... ......... ... 3 - Modal Split .......3 - Road Transport .4...... ............... 4 - Railways. ..................... 9 - Colombo Urban Transport .......... 10 - Ports and Shipping . . ... ............ . 11 - Air Transport ... ......12 - Intermodal Linkages .1.......... . .. ............ 13 D. Transport Regulation in Sri Lanka ....... 14 E. Environmental Considerations............. 15 II. DEVELMRQENT STRATEGY BY MODE Issues and Recomiutded Strateies . .16 A. Highway Development .......... .. .. .17 B. Road Passenger Transport ......20 C. Railway Transport Development ..22 D. Urban Transport Development Strategies. 26 E. Ports and Shipping Development Strategies . . 28 F. Airport and Air Transport Development Strategy. 29 G. Intermodal Development Strategies . . 29 H. Benefits of Key Refomes. ............... .. ..... .31 III. RBVIEW OF THE TRANSPORT SECTOR PUBLIC INVESTMENT PROGRAM ...... 37 A. Overall Public Investment Program Allocations to Transport 37 B. Policy Statements in the Public Investment Programs ....... 37 General Observations .................................... 40 Modal Allocation ........................................ 41 C. Transport Investment Plan, 1990-94 ........................ 41 D. Approach to Developing a Core Investment Program .......... 47 E. Summary ...... ............................................. 50 This report is based on the findings of the transport sector mission whlich visited Sri Lanka in February and June 1990. Mission members included Mrs. Inai Bradfield (Sr. Economist, Task Manager, AS1IN) Messrs. Sigfus Sigfusson (Pr. Highway Engineer, ASTIN); Richard Scurfield (Sr. Urban Transport Specialist, INUTD); and Jan Johnson (Urban Transport Specialist, Consultant). The report has been revised based on discussions with Government officials during a mission in March 1991. This document has a restricted distribution and may be used by recipients only In the performance of their offlcial duties. Its contents may not otherwise be disclosed without World bank authorization. Page No. nV. DONOR INIOLVMD6 IN TEU TIANSPORT SECTOR 0................... .S A. Past IDA/Bank Operations 50 B. Donor Involvement .52 C. Need for Donor Coordination .52 TEXT TABLES 1.1 Modal Split ............................................ 3 1.2 Inter-Zonal Freight Transport Demand by Comodity. 5 1.3 Summary Estimates of Revenue and Expenses from Private Buses 8 2.1 Estimated Annual Financial Benefits of Refoms .31 3.1 Allocations for Public Investment Programs - 1981-1994 .38 3.2 Public Expenditures in the Transport Sector .39 3.3 Public Investment Program .42 3.4 Road Development Authority - Proposed Five Year Expenditures 44 3.5 Recommended Sri Lanka Railway Investment Program .49 TABLES Table 1 Road Network by Province, Class, Jurisdiction and Surface Type, 198911990 ................................ 53 Table 2 Summary of Provisions/Expenditures on Roads ............. 54 Table 3 Vehicle Registrations by Class of Vehicle ............... 55 Table 4 Road Accidents Reported by Police Division .............. 56 Table 5 Private Bus Costs and Revenue Estimates ................. 57 Table 6 Costs of Road Transport ................................. 59 Table 7 Rail Traffic, 1975 - 1988 ............................... 60 Table 8 Costs of Rail Transport ................................ 61 Table 9 Revenue and Expenditure Account of Sri Lanka Railways ... 62 Table 10 Port and Airport Utilization (1988) ..................... 63 Table 11 Performance of Ceylon Shipping Corporation .............. 64 Table 12 Financial Performance of Air Lanka ...................... 65 Table 13 Comparative Land Transport Performance .................. 66 FIGURES Figure 1 Passenger Demand and Household Income .................. 67 Figure 2 Freight Demand and GDP .................................. 68 AMXES Annex 1 Summary of Recommended Actions .. 69 Annex 2 Basic Data on Road User Charges .. 77 Annex 3 Strategies to Increase Effectiveness of Road Maintenance ..90 Annex 4 Bus Costs and Tariffs ................................ 101 Annex 5 Quanitfiable Benefits of Reforms . ............. 105 Annex 6 Private Bus Fleet Estimates ................. 113 Annex 7 Major Donor Funding Activities in the Transport Sector .................. 119 REFE,RENCES ...................... 124 MAP IBRD No. 17938 SRI LAZIA TRANSPORT SECTOR MEMORANDUM Preface An Inter-Ministerial Committee for Coordination and Planning of Transport (IMC-CPT) was established in June 1984 with a view towards recommending organizational, administrative, fiscal and legal measures required for improvement of planning, implementing, monitoring and evaluating transport investment programs and operations. The IMC-CPT is supported by a transport Technical Secretariat, with the primary objective of providing transport data and technical analysis. The Technical Secretariat was intended to become the central analytical agency where plans and programs of the various transport modal agencies would be evaluated and brought together to form coherent national transport plans and programs for consideration by the decision-makers. It is now known as the Transport Studies and Planning Center (TSPC). The initial work undertaken by the IMC-CPT was preparation of a Transport Sector Planning Study (TSPS)--designed to be the first step in the establishment of a continuing transport planning system. (Funding was provided under the Second Roads Project, Loan 2517-CE, May 1985, with the assistance of local and expatriate consultants.) The TSPS was published in January 1988 using 1984-1986 data, and has become an important document for understanding of the transport sector. The study documented that the sector was not able to respond to increasing and diversified transport demand effectively and that service was provided at high cost to the economy. Vehicle and rail operating costs in real terms were rising faster than output and were higher than they should be because of the deteriorating road and rail infrastructure. Regulated fares and tariffs kept revenues below costs, and the Government subsidized inefficient public sector operations rather than make funds available for needed network maintenance. Expansion of bus service was also inhibited by the high cost of purchasing and financing buses and spare parts. This Transport Sector Memorandum analyzes institutional, operational, investment and policy issues by updating the data developed for the TSPS, and translates that analysis into a policy framework. The focus is on surface modes (road and rail), including urban transport problems; cursory treatment is given to the ports and air transport subsectors which have been functioning relatively well. Coastal shipping, which has only a minor role to play in the provision of transport services, is not addressed in this report. Coinciding with the preparation of this report, two IDA projects were being prepared, designed to rectify some of the weaknesses identified in the analysis of the transport sector. Both projects have now been approved, i.e., the Economic Restructuring Credit (2128-CE, May 1990); and the Third Roads Project (2183-CE, November 1990). -ii- SRI LANMA TRANSPORT SECTOR KEKORANDUM Executive Summary Background 1. The transport sector plays an important part in the Sri Lankan economy, not only as a catalyst for production and efficiency in other sectors, but also as an employer of 1OZ of the six million work force and generator of 122 of the national income. In addition, it provides people with access to social services and employment opportunities. In spite of its importance to the economy, transport accounted for only 22 of Government expenditures prior to 1979--a low share by international standards. In recent years. however, there has been a shift of emphasis to rehabilitate deteriorating transport infrastructure and replace worn equipment with an increased share of the Public Investment Program. For example, the Public Investment Program allocation for transport increased to an average 62 in the 1981/85 perioJ, 92 for 1986/90, 182 for 1989-93, and 132 for 1990-94. 2. In its policy dialogue with the Government, IDA is emphasizing stabilization aimed at overcoming major obstacles to economic growth, including: (a) a large and inefficient public sector; (b) over-ambitious and unproductive public investments; (c) an overvalued Sri Lankan Rupee; and (d) heavy Government deficits which have been amplified by the campaign to quell civil conflicts. Ptogress is being made in these areas and, with the exception of the exchange rate, the transport dialogue mirrors the macroeconomic issues. The principal problems in the transport sector affecting the economy have been the high cost of public bus and rail transport stemming from poorly maintained road and rail infrastructure and inefficient public bus and rail operations. Paradoxically, the Government has not provided sufficient funds to bring transport networks to appropriate maintainable standards (which would help reduce operating costs), but has provided large subsidies to public transport enterprises which should normally recover their costs from operations. These distortions result from weak institutions, lack of a rational policy framework, poor investment planning and the burealtcratic nature of much of the decision making. 3. The Government is aware of these weaknesses and is taking steps to address them. In transport, it is attempting to rationalize investment and recurrent expenditures--with emphasis on eliminating unproductive projects and subsidies, while providing funds for priority activities such as road maintenance. It has adopted a policy of privatizing inefficient public agencies. Where privatization is not feasible, the Government intends to restructure agencies to operate along commercial lines. An important aspect of the Government's policy reformulation is progressive deregulation of selected prices and tariffs, gradually leaving them to market forces. These policies are supported by IDA in its transport strategy recommendations. 4. Kodal Split. Surface transport in Sri Lanka is dominated by highways that account for about 852 of passenger traffic (mostly by bus) and 802 of freight. The railway carries the balance. Both modes, however, are important -iii- in different markets and are active in both urban and intercity transportation. Ports, shipping and air transport are also important, especially in promoting trade and tourism and as earners of foreign exchange. The Sri Lanka Ports Authority and Air Lanka provide examples of efficiently run public transport organizations in stark contrast to the rail and bus operations. A detailed discussion of major issues affecting each transport mode is contained in Chapter II of this report and strategies to resolve them are proposed. The strategies generally fall under five categories: (a) overall policy reform; (b) institutional reform; (c) improved management of operations and maintenance; (d) selection criteria to determine investment priorities within resource constraints; and (e) resource mobilization potential. 5. Highways. Sri Lanka has a network of some 10,400 km of national (paved) roads and 15,300 km of provincial and local roads. While the network covers the country adequately, it was built many years ago and is not designed to carry today's high level of traffic and heavy axle loads. Many roads and bridges are narrow and of inadequate structural strength. Poor maintenance has compounded ths problem. The main causes of poor maintenance are outdated practices, the absence of a pavement management system and of rigorous analysis to establish priorities. Road surfaces have deteriorated significantly in the past five years, which in turn have contributed to increasing vehicle operating costs. Revenues from road user charges appear to be adequate globally, but may require recalibration to discourage heavy axle loads. A road user charge study has commenced to determine the extent of distortions and the reforms needed to correct them (para 7.) Funding for highway maintenance, especially for routine maintenance, has not been at the levels necessary to ensure appropriate standards. 6. Responsibility for highway administration currently rests with the Ministry of Transport and Highways, however, ten reorganizations have taken place in the last twenty years.l/ In 1981, the Road Development Authority (RDA) was set up under the control of the then Ministry of Highways (MOH) to act primarily as its contractor; the Department of Highways (also under MOH) was retained with responsibilities for planning, investment programming and engineering designs. However, continued problems of retaining key staff, and the difficulties of operating within a highly structured bureaucracy led the Government to dissolve the Department of Highways in 1986, consolidating all its functions under RDA. Since this major change, the national roads have been under the RDA which had stabilized after some years of turbulence. However, RDA recently underwent another reorganization: responsibility for care and maintenance of about 15,300 km of roads and over 2,000 bridges was transferred to the Provincial Councils. At the same time, selected staff were transferred to the provinces to aid in maintaining the provincial roads. The role of the provinces has not yet been clearly defined within the Government's policy of decentralization. The frequent reorganizations and transfers of staff have been demoralizing and have impeded the efficient management of the road network. 7. Donors are helping to strengthen highway administration; for example, technical assistance for maintenance management financed by the Asian Vevelopment Bank; and a spare parts and equipment loan from Japan's Overseas Economic Cooperation Fund (OECF). IDA's Third Road Project (Credit 2183-CE, November 11 In 1989, the Ministry of Highways and the Ministry of Transport became the Ministry of Transport and Highways. - iv- 1990) emphasizes road rehabilitation and institutional strengthening, and will assis1; the Government to: (a) strengthen the capacity of RDA and provincial offices to plan investments and maintenance through better data collection and analysis (e.g., traffic counts, road condition data, and vehicle operating costs): (b) reorganize the ways in which RDA employs consultants and contractors to provide greater transparency; (c) establish priorities among road sections in need of rehabilitation or upgrading using economic, financial, and technical considerations; (d) modernize maintenance operations to use more cost-effective means and materials; and (e) technical assistance for three studies including the one on road user charges which may result in the restructuring of road user charges to discourage use of two-axle trucks that are more damaging to the pavement. 8. Motorization in Sri Lanka is low by international standards. In 1988, there were about 226,000 motorcycles, close to 80,000 trucks, 37,000 buses and some 150,000 automobiles registered, of which half were owned by individuals and half by Government, its agencies, and private firms. At 8.8 cars per 1,000 people, the rate is low (although it compares to 2.3 in India). The accident rate is very high at about 33 per 10,000 vehicles (about 10 times higher than in industrialized countries). 9. Buses. About 80Z of motorized passenger trips in Sri Lanka are by bus but the level of service is inadequate. About half of bus service is provided by the publicly-owned and operated Sri Lanka Central Transport Board (SLCTB) and its nine Regional Transport Boards (RTB) and half by private operators. There are some 6,400 large buses in the public sector, and about 9,500 buses, mostly minibuses, in the private sector. There are also buses owned by Government agencies, public corporations, schools and tour operators amounting to about 20,000. (Buses have been the target of much terrorist bombing in the past few years.) Overall, the public bus boards are inefficient in terms of productivity per employee in comparison to those in India and other South Asian countries. Within Sri Lanka, privately-owned buses achieve higher availability (80% vs. 66%) and higher load factors (89? vs. 81X) than publicly-owned buses. Private sector buses are more efficiently managed, costs of operation per passenger-km for public buses in urban service being about 252 higher than for private buses. Public buses have required revenue support ranging from US$5 million to US$30 million in the past few years. 10. The Government is aware of the problems in bus transport and is working to resolve them. It has taken steps to privatize all bus service provided by SLCTB and the RTBs (hpeoplization'), following a set of principles supported by the Economic Restructuring Credit (Credit 2128-CE, May 1990), as follows: (a) SLCTB and RTBs will become new, private bus companies kept small to permit popular ownership; (b) a small agency should be created to oversee that bus service is satisfactory and safe (i.e., for training and testing of drivers, inspection of buses, and contracting for service on unprofitable routes); (c) management of bus stations and terminals should be transferred to local authorities; (d) workshops, driving schools, and other activities should be privatized; and (e) the transition to privatization should be made as smooth as possible by making a special effort to have direct communications with all parties involved and implementing an effective public relations campaign. In parallel, control of bus tariffs and regulations on importation of equipment and spare parts 's to be relaxed. To facilitate purchase of new buses and spare parts. the Government has offere4 financial incentives, such as exemption from import duties and tax holidays for a period of two years beginning in early 1990, -1v- and a line of credit on favorable terms, supported by IDA's Fourth Small and Medium Scale Industries Project (Credit 2250-CE, May 1991.) 11. Road Frvi&ht. Road transport is dominant in Sri Lanka, hauling about 802 of all goods, with the trucking business largely in private hands. There is some evidence that truckers' associations act, to a limited degree, as cartels for the purpose of agreein& on somie tariffs, but by and large the industry is competitive. There is no apparent need for change in policies for this industry except for a possible restructuring of road user charges (para 5). 12. Railays. Sri Lanka Railways is a Government department under the Ministry of Transport and Highways. With some 20.000 employees, it has 1,450 km of track and over 1,000 steel bridges, mostly built 50 to 100 years age. The track ts broad gauge and single line, except for 102 km of double track in the Ce'lombo area. The fleet comprises about 200 diesel electric and diesel. hydraulic locomotives in service, 4,000 wagons, 1,300 coaches, and 46 power sets used exclusively for commuter traffic within the Greater Colombo area. The principal commodities hauled are building materials (including cement), petroleum products, fertilizer, limestone, rice, and flour. Since 1985, the volume of freight has stabilized at about 200 million ton-km, down from about 270 million ton-km in the late 1970s. Rail passenger traffic reached a peak of 4.1 billion passenger-km in 1979 but had steadily fallen to 1.9 billion passenger-km by 1988. The railway's deterioration is due to competition from road transport and consequent decreases in revenue, increasing costs, and disruption of service by civil disturbances. These factors resulted in increasing operating deficits, but Government subsidies have not kept pace with the escalating operating costs of the railways. Management has deferred track and building maintenance, and amassed an extensive fleet of out-of-service locomotives and rolling stock while awaiting imported spare parts. Despite the seriousness of the railway's problems, it could be restructured to serve an economic purpose in selected markets. With the 4ssistance of the OECF, amounting to US$80 million equivalent, the railway is remanufacturing ten diesel hydraulic locomotives on a trial basis, and undertaking related workshop improvements and track rehabilitation. 13. This report recommends the following: (a) more autonomy for the railway to insulate it from political intervention, and make it a more business- like organization (like, for example, the Sri Lanka Ports Authority); (b) adoption of a clear strategy with operating goals and policies for achieving them: (c) downsizing through closure of uneconomic lines, reductions in staff and strict cost control of operations; (d) an aggressive marketing approach, promoting services for which the railway has a comparative advantage (such as bulk and long-haul traffic), and those for which there are complementary relations with other modes or entities (commuter traffic in Colombo); (e) improvement in the level of service, prioritization of investment needs; and (f) introduction of economic fares and rates. 14. Urban Transport. The Greater Colombo area has four million inhabitants and is growing rapidly. The municipalities making up Greater Colombo and the Urban Development Authority do not always act in concert and are inadequately staffed to handle urban transport problems. Commuters from outside the city are served by both Duses and the railway, but neither offers adequate service or capacity. The number of automobiles and motorcycles is growing fast. Traffic congestion in Colom,o has become noticeable and by the year 2000, is likely to be a severe problem. In the Fort and Pettha sections of Colombo, congestion--which slows tra"tel speeds--is exacerbated by undisciplined driving -vi- misuse of road space, poor traffic control and a few streets blocked as a result of civil disturbances. Traffic lanes are blocked by double-parked cars, curbside shops and pushcarts. Colombo has a high accident rate blamed on a combination of poor driving habits, pedestrians walking on the carriageway, and road conditions including poor shoulders, irregular pavement, lack of sidewalks, and the absence of median strips. Yet traffic police are neither adequately equipped with patrol cars nor trained to control traffic and enforce laws effectively. 15. Recommen0ations for urban transport include: (a) strengthening the Urban Development Authority, olombo Municipal Council and Transport Studies Planning Center for effective planning and policy analysis, and ultimately to develop a multimodal urban transportation plan coordinated with overall investment planning for Colombo; (b) improvement and coordination of bus and rail services for commuters as alternatives to private car travel; (c) establishing economic road user charges, including the possibility of charging fees for operating in congested areas and during peak hours; (d) application of traffic management measures, such as signalization, parking restrictions and meters, auto-free zones; (e) rehabilitation of streets and improved maintenatnce; and (f) enforcement of safety-related regulations and establishment of safety education programs. 16. Ports. The port of Colombo handles 902 of Sri Lanka's marine tonnage, 702 of which is container transshipment. There are dry-docks for ships up to 30,000 tons. Two lesser ports can take ocean-going ships, and other ports handle some coastal shipping and fishing vessels. The Sri Lanka Ports Authority manages and operates Colombo Port efficiently. Space for container storage is severely constrained within the port and facilities are needed for moving containers away from the port srea without adding to the already congested road traffic through unit train operations to Inland Container Depots. The feasibility of developing one of the minor ports at Galle for container handling is under investigation, with Japanese financing, but it is difficult to envisage an economic justification for this in the near term. During the 1980s, OECF financed the construction of the two container terminals and the third one (US$90 million) is under construction. 17. Shipping. The Government-owned Ceylon Shipping Corporation operates an assortment of ships which it owns or charters. Its revenues cover operating costs, but are not enough to service foreign debts incurred for the purchase of ships at an unfavorable time. Its problems are largely financial and particularly due to the purchase of unsuitable vessels which have been sold recently. Other possible remedial measures include curtailing services on routes where operating revenues cannot cover operating costs and restructuring of its bureaucratic decision making process to be more responsive to market demands. In January 1990, the shipping routes under the control of the Central Freight Bureau were deregulated except for the Colombo-Northern Europe routes. 18. Airports and Air Transport. Colombo's international airport and Air Lanka, the international airline, are modern, well-equipped, and well-managed. Besides international passenger traffic, they handle a variety of export goods. With a loan from OECF in 1986, funding was provided for an additional runway, a terminal building, and other improvements. -vii- 19. Public Investment Program. As a development strategy the Government has adopted the concept of rolling five year investment programs. The ensuing Public Investment Programs (PIPs) therefore permit a redefinition of priorities annually. The allocation for transport peaked in the 1989-93 PIP at nearly 182, compared to 6? in the 1981-85 PIP, and a 1990-94 allocation of 13?. In real terms, however, the transport share in the 1990-94 PIP represented about a 73? increase over the 1981-85 program. As a percentage distribution in current prices, the share for highways has increased from almost 202 in 1981-85 to 512 in 1990-94. Railways increased from 31? to 37.5% over the same period, peaking at 42.52 in 1986-90. The shares in SLCTBlpublic bus, ports and shipping, and air transport all declined over this period. The major emphasis of the 1989-93 and 1990-94 PIPs is on the completion of ongoing projects and the maintenance and rehabilitation of existing assets. The bulk of expenditures for highways is for the rehabilitation and maintenance of the national and provincial road networks, and the repair of bridges. About 762 of the total railway investment is also for maintenance and rehabilitation, including track renewal, rehabilitation of 101 locomotives and workshop improvements. There is a proposal to modernize and expand Galle Port, but more analysis is needed before this investment should be undertaken. In the face of its budgetary stringency, the Government needs to prepare a core investment program that includes only those projects which can be expected to give high returns, coupled with a rationalization of its PIPs. for instance, current allocations for the railway subsector appear high in relation to its economic role, while the large increase for highways have not been matched by improvements in management and implementation capability. Specific capital investment proposals must, therefore, be subjected to detailed feasibility studies to determine its economic viability and priorities before investment decisions and implementation. 20. Donor Financing. Several donor agencies are supporting the sector. Commencing in 1979, the World Bank Group has supported four projects--three ro&d projects and one road passenger transport project--totalling US$133.0 million. The Asian Development Bank has been assisting RDA in the road subsector--lending a total of US$73.6 million to date for two road improvement projects. OECP has financed road maintenance (US$99.4 million), railway rehabilitation and maintenance (US$69.0 million), Colombo Port Development (US$199.8 million) and Co2ombo Airport development (US$73.6 million). The Overseas Development Administration (United Kingdom) has funded US$22.0 million for repair and rebuilding of two major trunk roads in Colombo. IDA, ADB, OECF, ODA, Canada and Germany are also participating in the financing of an Emergency Reconstruction and Rehabilitation Program which includes, inter alia, repair and rehabilitation of roads and railways, and also purchase of buses. Other donors in the transport sector include France, India, Republic of Korea and Romania. 21. IDA has taken the lead in arranging donor coordination. The resultant meetings have contributed to substantial success in reaching consensus on approaches and overall sector priorities. SRI LANKA TRANSPORT SECTOR MEMORANDUM I. ROLE OF TRANSPORT IN THE SRI LANRAN ECONOMY A. Country Background 1.1 Sri Lanka is an island with an area of 66,000 km2 measuring about 400 km from north to south and 240 km from east to west. The country is generally flat in the coastal area and mountainous toward the center rising to peaks of 2,300-2,600 m. Rivers flow in a radial pattern from the mountains but have no navigational significance. Economic activity is influenced by the monsoon rains; the Southwest monsoon brings rain mainly from May through July and the Northeast monsoon during December and January. With an estimated per capita income of about US$410 (1990), total population is about 17 million (1990), which registered a moderate growth of 1.2Z per annum between 1980 and 1990. About half of the country's population lives within the south-west quadrant of the island, with densities of over 400 per km2. The size and topography of the country and the location of the population generate large and frequent short-distance movements of goods and passengers. B. Transport and the Econoy 1.2 Almost 302 of Sri Lanka's gross domestic product (GDP) is generated in the agricultural sector and close to 202 in the manufacturing sector. As a result, much of inland freight transport consists of agricultural commodities such as food grains (rice and wheat) and tree crops (tea, rubber, and coconut), as well as other bulk goods such as cement, building materials and oil products. Due to the import-export orientation of the Sri Lankan economy, and the concentration of most manufacturing industries in and around Colombo where the country's principal port is locsted, 502 of total freight is moved into and out of the Colombo area. Consequently, freight and passenger traffic in this urban area compete strongly with each other for the utilization of street space. 1.3 The importance of the transport sector in the Sri Lankan economy can be measured in part by its share of GDP (122 in 1989), the share of Government funds allocated to the sector in recent years, amounting to 142-18% of the total Public Investment Programs of 1988-1992 and 1989-1993, which have been increasing faster than GDP in the recent past. The close relationship between economic activity and transport can be seen by the upsurge in transport following the liberalization of the economy since 1977. Between 1981 and 1985, transport autput increased at an average annual rate of 7.72, compared to GDP growth of 5.5% or per capita of 4.32. The large increase in passenger-kms in that period coincided with the beginning of private bus operations as a result of import liberalization; bus passenger-km increased in parallel with the growth in household income (Figure 1). The increase in the number of licensed trucks was also pronounced between 1977 and 1985, at an average of 262 while GDP registered 62 annual growth (Figure 2). Interruptions in transport can also affect the economy negatively. A one month strike by public bus operators in June 1989 and the curtailment of service by private bus and railway operators brought the economy to a standstill. Many workers were unable to get to work, and lost production translated into lower growth during the subsequent few months. Sound transport policies and practices are a catalyst for growth for farmers, workers, -2- and investors throughout the economy. Moreover, lower transport costs and be ter reliability of services can improve the competitiveness of the country's important export sectors. 1.4 With a rich natural resource base, a long tradition of relatively well-distributed incomes and extensive social services, as well as one of the best educated populations in the developing world, Sri Lanka has the potential for achieving excellent economic performance. However, since independence in 1948, it has been plagued by ethnic conflict as well as by inconsistent economic policies which have impeded its performance to the point where per capita GDP is only US$410, and its past social achievements are being eroded. The period of rapid expansion following the adoption of the economic liberalization program in 1977 was not sustained, and this program brought about structural imbalances. With the sharp increase in both investment and consumption spending, coupled with low national savings and a deterioration in the terms of trade, severe balance of payments and budgetary difficulties ensued. The main obstacles to sustained growth have been domination of the economy by a large and inefficient public sectorl/, ambitious and unproductive public expenditure programs2/, and the overvalued Sri Lankan Rupee (Rs). By 1989, escalating public expenditures associated with the civil conflict had raised the budget deficit to 12.52 of GDP. GDP itself grew only 2.32 in 1989. Inflation rose from 8? in 1987 to 12? in 1989, unemployment grew to 18?, the external deficit was over 1O0 of GDP, debt service was nearly 232 of goods and service exports, and foreign reserves were at their lowest level in over a decade.3/ 1.5 In response to this critical situation, the Government has undertaken to stabilize the economy and promote its growth by reducing and restructuring public expenditures, eliminating unproductive and low-return investment projects, reforming the civil service and public enterprises, increasing the role of the private sector, and restructuring or removing inefficient subsidies and transfers. In this context, the Government has adopted a time-bound action plan, including prioritizing investment projects with high economic returns, allocating sufficient funds for maintenance, decreasing the Public Investment Program from 16-172 of GDP in the early 19809 to 9-102 during the 1989-92 period, and reducing the fiscal deficit from 12.52 of GDP in 1989 to 10.42 of GDP in 1992. For the public bus operations, the Government is in the process of (a) deregulating private bus fares and privatizing their operations to enable private bus operators to achieve financial viability and to eliminate large Government subsidies; and (b) establishing a responsive regulatory and incentive framework to facilitate private sector development (para 2.21). 1.6 The macroeconomic policies and reforms outlined above open the door to further policy reforms in the transport sector. Budgetary (subsidy) support to Government operations in the transport sector has ranged from 2 to 3? of GDP, and the challenge now is to reduce such Government subsidies by: (a) increasing efficiency and productivity; (b) adopting appropriate policies (e.g., pricing and 1/ Which employs about 21? of the 6 million member labor force and spends about 33Z of GDP. 2/ Supported by foreign aid programs and heavy overseas commercial bank borrowing. 3/ Sri Lanka Country Strategy Paper (February 1990). -3. regulation); (c) rationalization of instltutions (privatization or restructuring of public undertakings); and (d) prioritization of capital and recurrent expenditure. The disruption due to civil strife has been somewhat reduced giving the Government's stabilization and structural reform initiatives a chance to take effect. Thus, the need for fundamental changes in the transport sector occurs simultaneously with the political opportunity to effect such changes. C. Transport Modes 1.7 Catering to the needs of an export-import orient4d economy, Sri Lanka's transport system includes road and rail networks (built in the last 50 to 100 years) that penetrate almost every part of the island. There are also one main port and two minor ones, and seven airports, of which only one handles international traffic. Other modes of transport, such as domestic air and coastal shipping, are of minor importance. A short pipeline carries crude oil from Colombo Port to the refinery of Ceylon Petroleum Corporation in Colombo. Bus service is provided both by public and private concerns. Road freight is hauled by private operators; the railways are operated by a Government department. Modal Split 1.8 Intercity freight transport is currently handled by rail, truck and coastal shipping, and domestic passenger services are provided by rail, bus, and automobile. The relative modal shares are summarized in Table 1.1 below, while the trend by mode is shown in Figure 1. Table 1.1: MODAL SPLIT (In percent-1986) Bus System Small Large Rail Public Private Autos Trucks Trucks TOTAL Passenger Transport Shares Intercity Passengers 23 41 29 7 - - 100 Intercity Pass-km 10 44 38 8 - - 100 Commuter Passengers 10 39 43 8 - - 100 Commuter Pass-km 8 42 44 6 - - 100 Freight Transport Shares Intercity Freight 18 - - - 31 51 100 Intercity ton-km 23 - - - 28 49 100 Sources Table 13. -4- 1.9 In 1986 intercity passengers made 702 of their trips by bus (public and private) and only 232 by rail, the proportions of passenger-km were 822 by bus and 102 by rail. This indicates that they tended to make longer trips by bus and shorter ones by rail. Commuters made 82X of trips and traveled 79Z of passenger-km by bus--not indicating a significant difference in trip length. Surprisingly small percentages (72 to 92) were accounted for by automobile trips. Road transport was also dominant for freight, hauling 822 of intercity tonnage and accounting for 772 of ton-km. The remaining freight is handled by rail. 1.10 Coastal shipping currently hauls some commodities previously transported by rail: cement and fertilizer f rtm Jaffna to Colombo, and flour from Trincomalee to Colombo. The amounts are too small to register in Table 1.1, and these flows may shift back to rail once island security is back to normal. 1.11 Future freight transport demand, derived from estimated growth rates between 1986 and 1996 in the ptoducing and consuming areas, is projected at annual growth rates ranging from 22 (pessimistic) to 82 (optimistic), with a base case of 4.72. Inter-zonal freight flows are expected to grow from about 10 million tons to 15 million tons under the base case, with a possible + 252 variation for the other scenarios (Table 1.2 below). Major increases were expected in non-traditional agricultural products, building materials, petroleum products, forest products, processed foods and industrial inputs. Traditional agricultural products (rice, rubber, etc.) and mining output are not expected to grow as fast. Passenger transport forecasts based on population distribution, income growth and passenger trips by origin and destination projected that total intercity passenger trips would grow from 121 million in 1986 to 272 million by 1996 under the base case scenario, and a low of 194 million or a high of 340 million under the pessimistic and optimistic scenarios. The annual rate of traffic growth over the 1986-1996 period is estimated in the range of 4-62 for passenger travel and about 42 for goods. Road Transport 1.12 Highway Network and Traffic. Sri Lanka's extensive and dense highway system evolved primarily to serve the inland plantations and convey their products to the ports. The network (Table 1) includes al,out 10,440 kilometers of national, 15,300 km of provincial, and over 52,000 km of local roads. All national roads are paved, as are about 712 of provincial roads and 13? of local roads, with about 28,000 km of paved roads. The total length has not increased over the last few years apart from the statistical addition of unclassified roads to the local roads category. With 65,525 km2 of land area, the network density is 1,200 km per 1,000 kWm or 4.6 km per 1,000 people, among the highest densities in Asia. The number of four-wheeled vehicles per kilometer of road, 3.4, is very low. 1.13 Some 902 of national roads had traffic of less than 4,000 vehicles per day (vpd) in 1987, while a similar proportion of provincial roads had less than 400 vpd. About 430 km of national roads in the vicinity of Colombo had traffic volumes over 4,000 vpd and about 60 km of these, mostly in and near Colombo, had volumes over 10,000 vpd. Traffic volumes on other roads were as low or lower than on provincial roads. -5- Table 1.2: INTER-ZONAL MREIGHT TRANSPORT DEMAD BY COMMODITY (1986 and 1996) (1 000 Tons) 1986 1996 Base Optimistic Pessimistic Agricultural Products 382.5 703.4 1,200.4 578.0 Building Material 1,037.2 1,775.6 2,415.7 1,394.9 Cement 1,450.9 1,649.6 2,124.1 1,288.8 Coconut 648.8 957.8 1,161.6 646.8 Durable Consumer Goods 51.9 169.6 305.0 97.1 Fish 139.2 216.1 251.8 187.1 Flour 427.3 465.3 441.0 489.3 Food Products 74'1.4 1,126.5 1,166.4 962.9 Forestry Products 6i j.6 1,156.6 1,213.3 817.4 Fertilizer 729.4 1,160.5 1,368., 1,098.0 Industrial Products 599.4 1,185.8 1,723.5 806.2 Minerals 30.6 50.7 101.2 30.6 Non-durable Goods 261.5 541.9 737.1 400.8 Petroleum Products 1,153.3 2,090.9 2,746.9 1,644.3 Rice 1,048.8 1,163.4 1,191.2 967.9 Rubber 139.9 169.2 169.2 139.9 Tea 270.9 310.7 330.9 272.1 Total 9,788.5 14,893.6 18,648.0 11,822.1 Average annual growth 1986-1996 - 4.72 82 22 Sourcez TSPS, Vol. 1, 1988, Appendix A7.1. 1.14 Economic growth since 1977 has resulted in heavy traffic on some sections and in the use of vehicles with heavier chassis and axle loads than the pavements were designed to carry. At the same time, shortages of funds have prevented improvement of roads and bridges, and inefficient maintenance management and practices have led to inadequate drainage and pavement failure. The resulting high vehicle operating costs are up to 502 higher than under reasonable conditions of maintenance. The Government's stated policy is to give priority to maintaining and upgrading the existing road networks rather than new construction, but the authorities have been able to deal with only a fraction of the required work load to date. 1.15 Institutions. Responsibility for highway administration currently rests with the Ministry of Transport and Highways. However, ten reorganizations have taken place in the last twenty years. In 1981, the Road Development Authority (RDA) was established, and its functions expanded in 1986. As of January 1990, RDA's responsibilities were reduced to include only the national road network. All other public roads are under the jurisdiction of the Provincial Councils and municipal governments. Whereas RDA has a separate budget (Table 2), other roads must compete for funding with other provincial/local governments. Other donors are helping to strengthen highway administration. For -6- example, RDA recently received technical assistance from the Asian Development Bank (ADB) to develop and Implement a computer-aided design and maintenance management system for pavements and bridges. Japan's Overseas Economic Cooperation Fund (OECP) is also funding a project to provide construction equipment, spare parts, and maintenance tools and equipment. Under an IDA- financed Third Roads Project 'Ci.edit 2183-CE, approved November 1990), additional technical assistance will be provided to train RDA staff in the areas of planning, design and contract management. 1.16 Domestic Road Contracting Industry. The local private contracting industry for roads has been improving steadily in recent years and many medium and small contractors can now comppete for road maintenanceirehabilitation works. RDA is supporting local contractors by leasing equipment to them. Nonetheless, not all of the companies have the required competence, capacity and financial resources to properly compete with foreign contractors who usually win the larger and more lucrative contracts. There is a need to improve the capability of the local contracting industry to strengthen the execution of road construction and maintenance works. A study to investigate current practices, analyze constraints the industry is facing and recommend an action plan will also be funded under IDA Credit 2183-CE. 1.17 Motor Vehicles and Motorization. The "registered" motor vehicle fleet has almost doubled from 1980 to 1988, representing a growth rate of 8.42 per year; data on the number of vehicles is unreliable because deregistration is incomplete. It is estimated that there were 492,400 motor vehicles registered in Sri Lanka in 1988 and about 462 (226,100) of these were motorcycles (Table 3). Commercial vehicles--buses and trucks--accounted for about 442 of four-wheel motor vehicles, with automobiles making up the remainder. The fastest growing categories have been motorcycles and privately owned buses, although all categories except public buses and tractor-trailers have increased substantially since the early 1980s. More recent data show that the number of publicly owned buses has declined from 7,500 in 1986 to about 6,400 in 1990 as they were not replaced at a sufficient rate to maintain the fleet. Out of the 6,400-bus fleet, only about 3,800 buses were operational in early 1990 because of damage done during the civil unrest and the lack of parts and tires necessary to keep the buses on the road. The remaining 20,000 buses are owned by Government agencies, public corporations and tour operators. 1.18 Although the vehicle population grew rapidly in the 1977-81 period immediately following import liberalization, motorization is still relatively low, especially in terms of automobiles (8.8 cars per 1,000 population). About one half of these automobiles are owned either by the Government (including state undertakings) or by private business enterprises. A rapid increase in vehicle ownership by individuals and private businesses can be expected in Sri Lanka if the civil situation returns to normal and incomes increase. Traffic congestion then will be an increasing problem, especially in Colombo and on national highways which have narrow carriageways. 1.19 Road Accident Rates. Road safety is an increasing problem in Sri Lanka in spite of a number of accident prevention programs. The numbers of accidents by geographical area (Police Division) from 1974 to 1988 are shown in Table 4. In 1988, there were again more than 33,000 accidents, with 1,365 fatalities (512 were pedestrians), and an accident rate of about 33 per 10,000 -7- vehiclesl about 10 times higher than in the industrialized countries.4/ The lack of driver discipline is clearly a major factor in the high accident rate. compounded by the mix of traffic and road users (motorized vehicles, pedestrians, animal and human-drawn carts, bicycles, three-wheelers, loose livestock); narrow and uneven road and street surfaces; poorly-maintained vehicles; and a lack of pedestrian facilities. Contributing to the lack of discipline are poor driver education, lack of strict licensing procedures, and a very low level of enforcement of even basic traffic regulations. The undisciplined use of the roads greatly reduces effective road capacity and contributes to unnecessarily high road transport costs. 1.20 Road User Charges. Road user charges include taxes, license and registration fees and duties. Total revenues from road user charges in 1988 were estimated to be Rs 4.2 billion, more than enough to cover the Rs 1.3 billion expenditures in road rehabilitation and maintenance in the same year or to cover the required, higher budget. As is typical in many economies, road user charges are used partly to fund sector expenditure and partly for general expenditures. A comprehensive study on road user charges is being undertaken to determine the appropriate structure and level of road user taxation that would minimize pavement damage, encourage proper axle configurations and reduce relative price distortions (para 2.16).S/ 1.21 Road Passenger Transport. For the majority of people in Sri Lanka, bus transport is the main form of motorized transport. It is estimated that presently over 801 of passenger travel is on buses. Until 1979, passenger transport was the monopoly of Sri Lanka Central Transport Board and nine Regional Transport Boards. Since 1979, however, private operations have been allowed to compete with public services. Private bus operations have grown rapidly, now representing about 601 of total buses, about 402 of total bus capacity, and approximately 501 of total passenger-km. As discussed in paras 2.19-'.21, the Government is in the process of privatizing all bus services. 1.22 The bus transport network within Sri Lanka is extensive, and most agglomerations from the smallest to the largest towns, including Greater Colombo, are served. Frequencies are generally tailored to demand, except during peak periods in the Colombo Metropolitan area, and range from very short headways for most urban and some inter-urban services, to two buses per day in the thinly populated areas. Private buses are concentrated in highly trafficked urban and intercity services and operated under the same range of fares as public buses until January 1990 when a fare increase was granted to private operators by the Government, the first since 1983. 1.23 However, the present bus transport service in Sri Lanka is inadequate to meet the travel needs of the public, as is clearly demonstrated by the high vehicle loads and long waiting lines observed in many parts of the country, particularly during commuting hours. This inadequacy results from a shortage of buses and unavailability of many of those in the fleet. Replacement of aging buses by both private and public operators has been seriously impeded by 4/ Japan has a rate of three per 10,000 vehicles. Sl Funding provided under IDA Credit 2183-CE, November 1990. -8. Government controls on passenger fares combined with the high cost of financing new buses. This situation is expected to improve if the Government implements the planned bus fare deregulation. 1.24 Detailed estimates of revenue and expenses of private buses are given in Table 5 and summarized in Table 1.3 below. Table 1.3s SUMNARY ESTIMATES OF REVENUE AND EXPENSES FROM PRIVATE BUSES, JANUARY 1990 Large Bus Medium Bus Small Bus (In Rupees) Revenue 0.194 0.256 0.333 Costs 0.185 0.253 0.379 Profit 0.009 0.003 -0.047 These data must be qualified in two ways: (a) revenues based on seat-km are probably underestimates as recent higher load factors have not been included; and (b) interest is not included in costs. From the data, it appears that bus service is barely profitable. The 1990 fare increase of 242 is considerably lower than the increased operating costs ranging from Rs 0.19 to Rs 0.38 per seat-km which are 562 to 642 higher than those in 1986. 1.25 Road Freight Transport. The composition of the fleet (vans: two-axle traditional; multi-axle) is not known but it is estimated that less than 10? of the fleet is multi-axle. About two-thirds of the trucking fleet is privately owned, predominantly by small operators. The remainder is owned by Government agencies, public corporations and cooperatives. A shippers' choice survey conducted in 1986 indicated that importers/exporters, manufacturers, and traders found trucking services to be satisfactory in terms of reliability, even if their freight rates were generally considered to be high. The origin-destination survey conducted in the same year showed that about 202 of the total traffic on the main highway network was trucks, of which 902 were two-axle trucks; less than 5? were three-axle trucks or tractor trailers. Apart from annual vehicle inspections and gross vehicle weight limitations, road freight transport is unregulated with no officially set tariffs,6/ and entry to the industry is free. 1.26 The financial cost of freight transport per ton-km varies from Rs 1.37 to Rs 2.6 plus loading and unloading. These freight transport costs appear to be adequately covered by the average tariff level in January 1989, as shown in Table 6 (Rs 3.63 - Rs 3.98), and the tariffs have since been increased by 30t (in August 1989), apparently providing a comfortable margin to the truckers to cover overhead and profit. There are indications that some truckers' associations are able to negotiate tariffs somewhat higher than those charaed by non-members when carrying Government freight (e.g., tea estates). Nevertheless, truckers appear 6/ Although there is no formal regulation of tariffs, it is customary for truckers' associations to seek Government agreement on tariff increases. -9- to be supplying the freight services that are needed gnd competing effectively with the railway. Railways 1.27 Sri Lanka Railways (SLR) is a Government department under the Ministry of Transport and Highways (MTH) and employs about 20,000 people. Most of the 1,450 km of track and over 1,000 steel bridges were built up to 100 years ago. The track is broad gauge with the exception of the 59 km on the Kelani Valley Line, which is narrow gauge. Most of it is single line, except for 102 km of double track in the Colombo area. It has about 200 71 diesel electric and diesel hydraulic locomotives in service, 4,000 wagons, 1,300 coaches, and 46 power sets used exclusively for commuter traffic within the Greater Colombo area. The principal commodities hauled are building materials (including cement), petroleum products, fertilizer, limestone, rice, and flour. 1.28 The railway system has deteriorated because of competition by road transport and consequent decrease in revenue, increased costs, and disruption of service by civil disturbances. These factors require increasing subsidies which have not kept up with costs. Management has therefore deferred track and building maintenance, and amassed an extensive fleet of out-of-service locomotives and rolling stock while awaiting imported spare parts. Consequent decreases in productivity for workshop staff and maintenance personnel have created a morale problem that has discouraged the more qualified and capable staff. 1.29 The civil unrest in the north and east of the island starting in 1983, resulted in suspension of the profitable long-distance operations to Jaffna, Kankesanthurai and Trincomalee until March 1990. Curtailment of these services and competition from buses and trucks has contributed to the reduction of total train kilometers to 70? of their 1980 level in 1988 (Table 7). Total ton-km averaged 268 million between 1975 and 1979, but declined by 19X in the 1980s to an average of 217 million, despite a brief rise in 1984 back to the 1970s level. Since 1985, the volume has been fairly steady at around 200 million ton-km, despite the loss of north-south, long-distance traffic. Rail passenger traffic reached a peak of 4.1 billion-passenger kilometers in 1979. Since then, it has steadily declined to 1.9 billion in 1988. 1.30 The SLR has experienced high unit operating costs stemming from up- country operations in hilly terrain, redundant staff, and an uneconomic mix of short-haul bulk cargo and local or mixed passenger trains requiring frequent stops. The estimated operating costs per train-km, converted to cost per ton-km and passenger-km, show that average unit costs have increased from 1985 to 1988 by 63Z, 202 of which was due to a drop in the train-km run by the SLR in 1988, 202 to increased interest charges, and most of the rest due to labor cost increases. This increase is above the inflation rate and represents an increase of 14X in real operating costs. 1.31 The increased costs have not been offset by increased revenues: on the contrary, fares are highly subsidized. For example, there are subsidies up to 90g for season ticket holders, civil servants and school children. To a lesser 7/ Of which about 110 are for mainline freight service, with the remainder providing intercity passenger and shunting services. -10- extent, freight tariffs are also subsidized and averaged 782 of full costs or 6S5 of operating costs in 1988 (Table 8). In 1988 the SLR's operating losses amounted to Rs 1,500 million. About one-half of this deficit is accounted for by installment payments for assets procured abroad. The financial situation of SLR is becoming even more unhealthy with operating expenditures growing faster than revenue, as shown in Table 9. Although the Government continues to make budget appropriations for operating subsidies, the SLR remains a financial quagmire. Colombo Urban Transport 1.32 The Greater Colombo area comprises the municipality of Colombo and eight other contiguous municipalities. Greater Colombo corresponds roughly to the Western Province. There is little coordlnation between the communities and the Urban Development Authority, created to promote such coordination, has in practice carried little clout. 1.33 Greater Colombo has a population of over four million inhabitants, approximately 262 of total population and 602 of urban population. Between 1980 and 1985, population grew at about 82 per annum. Although data are lacking, there is little reason to believe that growth rates have declined in the past five years. Colombo is the primary industrial, commercial and transport link of the country, as well as its seat of Government; over 40? of the gross national product (GNP) results from activities in the region, and transportation is one of the key elements needed to make it more efficient. 1.34 Greater Colombo has a network of 2,453 km of paved roads and 2,586 km of unpaved roads, managed by Colombo Municipal Council and RDA (50 km of truck roads). Traffic volume of major roads has been growing at 4X per annum for the past several years, but is likely to result in major congestion in the absence of mitigating measures. The region is served by 2,800 public buses and about 6,400 private buses which provide service every six to ten minutes on major routes. The rail network service for Colombo includes four lines with a total of 164.4 km of track. Service to the 80 stations and other stopping places is reliable but less frequent and direct than buses. In addition to road and rail links, the St. Sebastian Canal and the Kelani River present opportunities for bypassing the congested roads leading to the port and central city, although the waterways are used much less than in the past. 1.35 The recent growth in motorization and railway services has not kept pace with rising urban travel demand. Public transport passenger trips comprise approximately 902 of all urban travel, and there exists a chronic shortage of bus and train services. The inadequacy of the present bus fleet and rail system is evidenced by severe overloading on most vehicles during peak travel periods throughout the region, and the worsening quality of public transport service offered in many travel corridors. Nearly all goods movement is serviced by vans, pick-ups and heavy trucks over a highly congested urban road network. Light hauls over shorter distances are still handled by slow-moving push-carts and other small vehicles, worsening already difficult traffic flow conditions. 1.36 Travel delays, increases in vehicle operating costs, a greater number of traffic accidents, and other factors have begun to pose a threat to the long- term health of Colombo's urban economy. According to the TSPS forecast, traffic growth in Colombo will lead to a significant increase in travel delay on six key urban travel corridors. Traffic volumes are expected to exceed the design -11- capacit:' of these roads by 1996. The present average increase in vehicle operating costs p.a. due to congestion in the Galle Road corridor, for instance, is estimated at 5-102. This is forecast to accelerate to 35-SO by 1996, representing a major economic cost. To head off this traffic crisis, a comprehensive urban transport strategy and an investment program with appropriate funding are needed for the Greater Colombo area. Ports and Shippin 1.37 Ports. There are three ports for deep sea vessels. Colombo Port, the largest, is located on the southwest coast; Trincomalee, the second largest, is located on the northeast coast; and Gnlle is located about 120 kilometers south of Colombo. Until 1979, all the ports were under the Ministry of Trade and Shipping as a department and were operated through a tripartite administrative structure of agencies involving the Colombo Port Commission, the Port (Cargo) Corporation and the Port Tally and Protective Services Corporation, sharing among them the funding of port management, port planning, engineering and operations. Inevitably, there was duplication of work, lack of coordination, policy disagreements and long delays in day-to-day operations and project implementation. To integrate the port management, engineering, planning and operational functions, the ports were removed from control by a Government department, and the Sri Lanka Ports Authority (SLPA) was established in August 1979 as a statutory body to take over the functions previously performed by the three organizations. 1.38 Since the major restructuring, the SLPA has been able to streamline port operations, speed up development activity, put in place a planning mechanism and remit substantial income tax revenues to the Government. Colombo Port is the most active of Sri Lankan ports as shown in Table 10, and it has become a major transshipment point in South Asia. Container traffic through Colombo has increased from 7,500 twenty-foot equivalent unit (TEU) (the standard container unit length) in 1978, to 621,000 TEUs in 1988, of which about 70, were transshipments. More recently (1990), the share of transshipment is estimated to have increased to 772 of total TEUs handled by Colombo Port. Financial records indicate that Port Authority has earned after-tax surpluses of Rs 40 million in 1979, growing to Rs 313 million in 1988. The performance and growth of the port have been impressive, but since the utilization of the port depends largely on the transshipment traffic, it could be vulnerable to competing ports and other developments in the region. The possibility of such developments has to be carefully assessed in planning additions to the capacity of the port. The two container terminals at Colombo Port were financed by OECF; the third one is also being constructed with financing from OECF for about US$80 million. 1.39 Shipping. The Government-owned Ceylon Shipping Corporation (CSC) was established in 1971 by a Parliamentary Act to operate services for the transport of goods, mail and paseengers by sea and to carry on business as ship owners, charterers of ships, ship brokers, and shipping agents, as well as to undertake construction, maintenance and repair of ships. With an initial capital contribution of Rs 100 million by the Government, CSC has developed a number of subsidiary companies: Ceylon Shipping Lines (1002 owned), Ceylon Port Services (100?), Colombo Dockyards (75?), Amalgamated Lines (51?), and Lanka Tankers (50Z). Throughout the seventies, CSC provided conventional liner services on the South Asia-Europe, South Asia-Far East, Sri Lanka-Red Sea/Mediterranean and Sri Lanka-Arabian Gulf routes as well as tramp shipping services along the west coast of India. -12- 1.40 The CSC operates eight container vessels, with a total capacity of 86,800 dwt. From time to time, the CSC also charters cellular container ships to serve the UK/Europe, the! Middle East and Hong Kong/Japan routes. In addition, it owns a 30,000 dwt tankcer which is used to import about a quarter of the country's crude oil requirements. 1.41 In 1986, the CS- carried out about 132 of total marine freight but increasingly, it has had to rely on budgetary support to service its debt payments. Table 11 shows CSC's financial and operational performance in 1986. The main causes of CSC's problems can be summarized ast (a) its overly optimistic expectations to capture a large share of the container traffic market at a time when the world economy was heading for a recession; (b) its decision to double its fleet capacity all at once rather than in stages; and (c) its purchase of small cellular ships, ran&ing from 175 TEUs to 537 TEUs, when other shipping lines were purchasing large container ships (1,500 TEUs - 2,000 TEUs) for long hauls to take advantage of economies of scale. (CSC's long-haul South AsialEurope container services were similarly showing excellent profits with chartered 1,074 TEU vessels.) The vessels purchased by CSC were suitable for feeder services, but they accounted for only one-third of the total CSC net freight earnings in the early eighties. Air Transport 1.42 Airports. The only significant airport operating at the present time is Colombo International, located in Katunayake, 32 km north of Colombo, and operated by the Airport and Aviation Services Company, Ltd., 9s an agency of the Government. Other airports at Jaffna, Trincomalee and Batticaloa formerly served scheduled domestic air routes, but these are no longer in operation (except for air taxis and general aviation). The former international airport at Ratmalana is now used for military and general aviation. The Colombo airport presently handles 2.5 m'llion passengers per year, and is expected to handle five million by the year 2000. Air freight volumes are currently about 30,000 tons/year and expected to increase to 70,000 tons/year by 2000. 1.43 The airport is well equipped to handle all types of aircraft. There are now two runways opened to traffic in 1989, two taxiways, (one with a high speed turnoff), an ample terminal apron, and modern radio navigational aids. More recently (1989-90), a new passenger terminal was completed, and a 42,000 ton capacity cargo building became operational, with a 5,000 m2 maintenance complex. 1.44 The airport is served by a spur access road from the Colombo-Negombo road. A rail spur from the Colombo-Puttalam line also serves the airport. It is located close to the heart of the Free Trade Zone, which contains a large concentration of industries producing garments and other light manufactured goods suitable for airfreighting. Although high airfreight tariffs cause nearly 90? of garment exports to be moved by ship in containers, those exported by air (mainly to the U.S. and Europe) make up 30? of outbound air cargo. 1.45 Nearly 15 tons of fruits and vegetables move daily as air cargo to the M4aldives, West Asia, and the Gulf region, and about 7.5 tons per day of crabs, lobsters, and live fish are flown to Japan, Germany, and the U.S. Other air exports include cut flowers, foliage plants, and betel leaves. 1.46 Air Lanka. Air Lanka was established in 1979 as a state-owned airline. Enthusiasm following liberalization in 1977, easy access to -13- international capital markets, and the rapid growth in tourism, led the Government to support its creation in spite of the previous unsuccessful experience with Air Ceylon. Air Lanka began operations with one aircraft (B- 707); an early association with Singapore International Airlines provided key personnel and technical assistance in all aspects of the new company's operations. Air Lanka expanded rapidly in the early 1980s and built up a good reputation for in-flight service. 1.47 However, throughout most of the 1980s, Air Lanka suffered from a long period of losing performance. It had required about US$250 million from the Treasury to cover its losses in servicing its debts. The poor financial performance was the result of; (a) expanding rapidly without an equity base, with annual interest charges exceeding 20? of re;enues; (b) flying too many routes with low traffic volumes; and (c) purchasing a fleet of aircraft incompatible with the routes and the demand mix for passengers and cargo. The airline continued large losses and its constant need for budgetary support led the President to appoint a Committee of Inquiry which highlighted the airline's poor management practices and costly errors. 1.48 A major restructuring took place in 1988 under a new board of directors. A number of measures were undertaken: (a) high level management was strengthened; (b) two B-747s were sold to reduce excess capacity; (c) unprofitable routes were eliminated; and (d) operating costs were lowered through staff reduction, improved scheduling and aircraft utilization, and budgetary stringencies. By FY89, an operating profit of Rs 430 million was projected (Table 12). with a further increase in revenue for the first three quarters of FY90. With prospects of increased tourist traffic in the future, further improvement is expected. Intermodal Linkages 1.49 The TSPS analyzed in detail the intermodal aspects of the transport system from the viewpoint of the most economic allocations of traffic, transport capac ty, and capital investments among the various modes, with particular attention to road and rail transport comparisons. There are significant distortions in actual allocations resulting in unnecessarily high transportation costs, primarily attributable to: (a) costs of some modes which are excessive because of inefficient operation; and (b) tariffs which are not based on, or reasonably related to, the costs of providing services. These problems, both modal and intermodal, are in part attributable to the lack of vigor in applying a consistent transportation policy. In the development and implementation of such a policy, the Government requires considerable technical and analytical support through the IMC-CPT. Below are some observations on intermodal linkages. These are also discussed in Chapter II--Development Strategy by Model Issues and Recommended Strategies. 1.50 Intercity Passengers. Rail and road traasport compete for urban as well as intercity traffic. The estimated shares of each for passengers and freight in 1986 (shown in Table 13, and discussed in paras 1.8 and 1.9) seem to have changed by 1988. Available data indicate that the railway share estimated at 1.9 billion passenger-km, had further declined to 5.6? of total passenger transport, down significantly from 10-152 in the decade of 1975-86. Bus travel, estimated at 33 billion passenger-km in 1988, was about 12? greater than in 1984. If the security situation were normal, rail traffic would increase, but the overall balance of passenger traffic would be biased in favor of rail due to the -14- very low subsdized fares. Although surveys show that users favor rail for comfort, the advantage of train service over bus service in terms of reliability and speed is less under present conditions than in the past. 1.51 Freight. The overall balance of freight between rail and road for medium to long distance (intercity) shipments appears to be more closely related to the economic costa of the services than is the case for the other rail services. If SLR concentrates its efforts on improving the services most appropriate for the railway, it is possible that this balance could be achieved with a rational cost-related tariff structure and commercialized railway operations. 1.52 Ports and Land Transport. Container transfer between the pert and land transport modes is biased in favor of road transport, leading to unnecessary traffic congestion. Road haulage of containers is cost-effective for many short hauls, but rail transport is better able to accommodate high density movements of containers and longer hauls. The present lack of an effective port-rail link in Colombo is a major factor contributing to this problem which reduces the transport sector performance. D. Transport Regulation in Sri Lanka 1.53 Legislation described below regulates the operations of motor vehicles, buses, railways, and shipping. In general, motor vehicles must be registered, and vehicles carrying passengers for hire must have permits to do so. Driving licenses are required, and there is provision for licensing driving instructors and schools. Third party insurance is required, and certain restrictions on the use of highways are spelled out. The Government is authorized to regulate the types and construction of vehicles permitted to operate on public roads, and the Commissioner of Motor Vehicles (Ministry of Transport and Highways), is authorized to inspect all motor vehicles and to establish other regulations. Limits are specified on gross vehicle weights (GVW) for certain types of vehicles--but not specifically on axle loads--and the limits are somewhat inconsistent. For instance, the maximum GVW for a standard two axle truck is 15,275 kgs which, in terms of axle loads, would indicate a rear axle of 10-11 tons and a front axle of some 4-5 tons. A single axle load of 10-11 tons would normally indicate a tandem axle of 16-18 tons. However, the maximum GVW for a semi-trailer with two tandem axles is only 30,500 kgs which would indicate a maximum load on each tandem axle of 13-14 tons, while at least 16 tons would be consistent with the 10 ton single axle. The semi-trailer would thus be underutilized by about 6-8 tons. The regulations therefore favor the use of two- axle trucks rather than the multi-axle truck that may be more economical and less damaging to the roads. This aspect of the regulations needs to be reviewed to provide a consistent approach to vehicle weights and axle loads and axle configurations. 1.54 In addition, there are laws regulating the operation of buses, either publicly or privately owned. The Sri Lanka Central Transport Board and its subsidiaries, the Regional Transport Boards, were established in 1959 (after nationalizing all privately owned buses) and were authorized to operate bus services as well as set fares subject to the approval of the Minister of Transport and Highways. Private bus services are also authorized, subject to permission by the Director of Private Omnibus Transportation (DPOT) to operate on designated routes at fares specified by the Minister. The Minister is also -1S5 required to constitute District Private Omnibus Operators' Associations to which operators must belong and which have power to set and enforce schecl'd -es, ensure adequate service with comfort and safety of passengers, and to collec-. fiembership and user fees. While these associations, to which most private operators belong, may have a useful role, there is the danger that they could act as cartels and prevent competition from performing its role of economic pricing. 1.55 The Railways Ordinance No. 9 of 1902 is the only legislation governing operation of the railways. It gives the State Hinister of Transport (Ministry of Transport and Highways) authority to make rules, set fares and charges, and gives the General Manager the right to reduce rates, but not increase them. Otherw.se, it is concerned mainly with passenger behavior and ensuring that rights-of-way are not obstructed. It is generally not concerned with how the railway itself is operated. 1.56 There are laws that would permit very restrictive regulation of shipping by the Director of Merchant Shipping, Ministry of Trade and Shipping, but these have not been used. The Central Freight Bureau used to allocate cargo to shipping lines (favoring Ceylon Shipping Corporation) and controlled rates, but in January 1990, these functions were deregulated. Traders are now allowed to choose any shipping company to carry their cargo except for a limited number of routes, primarily to Northern Europe. Other laws established the Sri Lanka Ports Authority and the Ceylon Shipping Corporation as autonomous Government enterprises. S. Environmental Considerations 1.57 The National Environmental Act, as amended in 1988, requires all executing agencies, including those of transport to thoroughly assess environmental impacts of projects they execute. The Central Environmental Agency was established to oversee and monitor their compliance. To strengthen its oversight capability, a USAID-financed consultant has prepared a financial, training and technical assistance program which addresses a number of areas, including those related to transport. 1.58 Since most of transport works involve rehabilitation and maintenance of existing facilities which have served the same purpose for many decades, no adverse long-term impacts on the environment are expected. For instance, road and bridge works under the Third Roads Protct -equire no major earthworks or cut and fill work, realignments or changes in r.atral drainage, and therefore, there will be no adverse intrusion into the enviroswment. The need for resettlement sometimes arises if the road bed is widened as houses and other structures often encroach on right-of-ways. Similarly, the railway rehabilitation works involve reconstruction of existing workshops, replacement of sleepers and track renewal, and rehabilitation of old rolling stock. Traffic management measures in urban areas should result in greater comfort and reduced travel times. Some noise and dust created during implementation temporarily affect adjoining areas and there may be high levels of pollution from vehicle exhaust fumes. In the long run, rehabilitation works will be beneficial as they will reduce user discomfort, allow a smoother flow of traffic and improve drainage with a consequent lowering of current levels of traffic noise, dust and air pollution and a reduction in the present susceptibility to flooding of the roadside dwellers. -16- 1.59 The Government should continue its policy of incorporating provisions in contract documents to safeguard the environment in respect of: (a) regrading and landscaping borrow areas, quarries and spoil tips; (b) storage areas, especially those for diesel fuel and bitumen; (c) sanitary arrangements in offices, yards and onsite; (d) avoiding pollution of water courses and groundwater; and (e) disposal of discarded materials in an environmentally acceptable manner. 1I. DEVELOPMENT STRATEGY BY MODE: Issues and Recozuwnded Strategies 2.1 In this Chapter, the major issues affecting each mode are presented, along with proposed strategies to resolve them. The strategies generally fall under five categories: (a) policy reform; (b) institutional reform; (c) improved operations and maintenance; (d) rational selection criteria to determine investment priorities within resource constraints; and (e) resource mobilization potential. The main emphasis is on institutional reforms needed to improve sector performance and achieve progressive reduction and rationalization of public expenditures. All strategy actions are summarized in Annex 1--a matrix which prioritizes activities over the coming years. Estimates of net benefits of many of the recommendations are summarized in Table 2.1 below (see para 2.57). 2.2 The performance of all transport modes has deteriorated since 1983 except the Sri Lanka Port Authority and Air Lanka after restructuring in 1988. To reverse this trend, a coherent transport strategy is needed to increase operational efficiency, overcome financial problems, and prioritize investment decisions to improve the sector's overall performance. While the challenges facing the sector are great, the success achieved by the reorganized Sri Lanka Port Authority and Air Lanka have demonstrated the effectiveness of major reforms carried out in the areas of management, operation, pricing and marketing. The lessons to be learned are cleart (a) privatization is appropriate for many transport modes, but when not practicable, efficiency in publicly-owned enterprises can be achieved with management structures patterned on private enterprise; and (b) political will and commitment are needed at the highest level. Dedicated and qualified people must be recruited who will provide leadership, carry out key reforms, establish incentives for good performance, and provide needed staff training, with the goal of improving economic efficiency. The potential also exists for other transport modes to undertake reforms to improve their efficiency. 2.3 Both users and operators make many thousands of decisions each day in the marketplace based on the cost and convenience of transport services, and the perceived profitability of operations and investments. In this environment, it is important for the Government to recognize its role and increase its effectiveness by providing and maintaining, (a) appropriate transportation infrastructure; (b) a competitive atmosphere where transport operators and users can make their own decisions within a policy framework and guidelines established and monitored by the Government; and (c) adequate and efficient transport services on a commercial basis except for the public service obligations to be clearly defined by the Government. -17- A. Highway Developient Issues 2.4 In addition to the Government's sound objective of providing increased funds for roati maintenance and rehabilitation, the key question is how to accomplish such tasks at least possible cost. This requires overcoming major weaknesses in the subsector; a summary of those weaknesses are discussed below. 2.5 Institutional. With another highway administration reorganization currently underway--decentralization of responsibility for provincial roads, some 1,100 staff members (including 60 professionals) out of a total of 2,700 (320 professionals) are being transferred to the Provincial Councils (PCs) to handle the administration of Class C and D roads. Although well-intended, these frequent changes and reorganizations--without a clear policy framework, operational targets and strategies--have brought confusion, low staff morale and a loss of qualified staff to the private sector. 2.6 Outdated Maintenance Practices. RDA's routine and periodic maintenance operations involve sand seals, semi-grouted macadam and patching as tney rely heavily on the use of handbroken stone and naturally available materials such as sand. These maintenance and repair processes are inefficient, costly and are of poor durability. Consequently, road surfaces deteriorate rapidly with attendant high vehicle operating costs. The continued use of these maintenance practices on highly trafficked roads means that scarce funds are being wasted as they lead to short-lived improvements in the condition of the roads. 2.7 Lack of Rigorous Analysis to Determine Priorities. Although well intended and planned, RDA has not been systematically collecting the necessary information nor developing the required tools for planning and evaluating different investment options and determining priorities. Traffic counts, road condition surveys, axle-load surveys and cost-benefit analysis are undertaken only in connection with foreign assisted financing of particular road stretches. Domestically-financed road rehabilitation/improvement works amount to about half of the funds expended in the road sector, but receive only cursory evaluation. The absence of rigorous analysis to determine priority investments among locally financed projects results in suboptimal use of scarce funds. Thus far, only about 1,500 km of roads have been subjected to feasibility studies. This makes up only about 6? of the road network formerly under the RDA jurisdiction. On the vast majority of national and prcvincial (trunk) roads, little information is available on road surface roughness, strength, traffic and axle loadings. Without these fundamental data, it is difficult to estimate accurately the needs of the road network for periodic maintenance, rehabilitation, or upgrading, let alone prioritize them to fit the works within the limited budget. 2.8 Inadequate Funds for Road Maintenance. Due to the country's general resource constraints, the level of funding for roads has been inadequate to meet the backlog of maintenance and rehabilitation. Estimates of "ideal' requirements to bring the entire road network to fully maintainable stardard are as high as Rs 7 billion per year, compared to the estimated expenditures of Rs 1.0 billion in 1987 and Rs 1.3 billion in 1989 (Table 2). Clearly, rigorous prioritization is in order. Routine maintenance and pavement repair works have been especially neglected, while rehabilitation works have fared a little better due to the willingness of donors to finance such works. The accelerating rate of road -18- deterioration has resulted in high vehicle operating costs which add substantial costs to the economy. Economic returns for periodic maintenance works on selected roads range upwards from 302, indicating that required maintenance has been long overdue.81 Delay in implementation of road maintenance means substantial economic benefits foregone for each year of postponement; therefore, increased budgets are needed urgently for maintenance and rehabilitation. A brief review of road user charges (Annex 2) seems to indicate that most vehicles are paying their share for using highways through high import duties on fuel. 2.9 Local Construction Industry. The road construction industry is heavily taxed and generally, credits to contractors must be covered by mortgages of real estate property. Having limited access to credit, private contractors are forced to hire the required equipment from the Government equipment pool on a daily or weekly basis. Other barriers to sound development of the construction industry includet (a) lack of managerial capabilities to organize and execute physical works; (b) inability to accurately estimate the cost of road works; and (c) little assurance for sustained road maintenance/rehabilitation works. 2.10 Vehicle Overloading. The problems of vehicle overloading do not appear to be as severe as in some other countries in the region according to the two-axle load surveys conducted by RDA in 1989 on limited stretches of major trunk roads. Although the surveys indicated that about 102 of 16-ton two-axle trucks (the vehicles causing most damage to pavement) were about 20? above legal limits, the percentage seems too low. These surveys are not comprehensive; axle load surveys planned as part of the study on road user charges may reveal a more widespread practice of overloading in view of the trucks frequently observed in the traffic stream with modified body structures and suspension systems designed to carry heavier loads. Load limits are not enforced and facilities for enforcement are not available in the country. Strategies 2.11 Several measures should be introduced immediately to increase the effectiveness of the highway subsector within the context of ongoing activities inc'luding donor-funded projects of IDA, ADB and OECF. 2.12 Strngthen Institutional Capability. RDA is taking steps to enhance Its policy analysis within which its corporate objectives are defined, operational targets set, and performance evaluation criteria spelled out to provide direction to the activities of the organization and accountability with regard to the performance of its staff. The establishment of an incentive scheme of rewarding good performance is part of this strategy. To achieve these objectives, the frequent reorganizations experienced in the past as well as staff transfers should be minimized (para 1.15). 2.13 Modernize Road Maintenance Operations. RDA's routine and periodic maintenance operations involving sand seals and semi-grouted macadam should be discontinued, especially on heavily travelled roads, to avoid wasting scarce funds, and be replaced by proper surface treatment, i.e., chip seals, slurry seals, double bituminous surface treatment, or the macadam method, together with metalling asphaltic concrete overlays of appropriate thickness. Initial costs may be higher than current practice, but over the long run, economic returns from 8I Based on the economic analysis for the Third Roads Project, Credit 2128-CE. -19- this strategy will be substantial. It is common to see potholes appearing quickly in areas where insufficient bitumen is applied, and more effective surface treatments can be adopted. The most obvious is a proper surface dressing using stone chippings instead of sand. A double surface dressing is a particularly effective way of arresting surface disintegration and sealing the surface to prevent water from entering and weakening the pavement. This strategy should help to reduce the immense amount of pothole repair that RDA struggles to accomplish every year with the semi-grout method. 2.14 Strengthen Local Construction Industry. Because the bulk of the demand in the construction industry is created in the public sector by development projects, the Government can play a critical role in strengthening this industry. In order to enhance the competence of local contractors and to create a competitive environment, a study on the local contracting industry is planned under the Third Roads Project. The purpose of the study is to investigate current practices, identify constraints in detail and recommend measures and actions required to encourage wider involvement of local contractors in the execution of road maintenance/rehabilitation works. 2.15 Increase Pla=nn Caability and Optimize Available Resources. Adoption of a pavement management system as a planning tool is essential. Comprehensive data on road conditions, traffic, and pavement distress can provide the basis for evaluating different options for surface treatment to determine the most appropriate category of maintenance work. A conceptual framework expressed in a diagram in Annex 3 demonstrates various options for the surface treatment which would be appropriate for different levels of pavement stress, surface roughness and traffic volume. The surface treatment option selected can be adopted to different levels of funding; for example, in times of budget constraint, more of the least expensive treatments could be undertaken rather than the more expensive options available (betterment). These options could be further refined to determine alternatives within each treatment class to prevent as much deterioration as possible while keeping vehicle operating costs to a minimum level (for instance, undertake less costly patching works and surface treatments for periodic maintenance, instead of costly overlays). When funds become available, more substantive treatment could be accomplished. To determine different types of maintenance and road improvement required, a road network sstrix could be developed based on traffic and road condition data. Feasibility studies and economic analysis, currently done only for donor-financed projects with expatriate assistance, are also needed to prioritize locally-funded projects within budget constraints. To achieve this objective, the planning section in the Division of Engineering Services should be upgraded and given a higher status. 2.16 Ratioalize Regulations on Vehicle Loads. Medium payload (12.5 to 16 tons) and larger trucks (30.5 tons) may be causing more damage to roads than their overall contributions to taxes would cover, particularly the 16-ton two- axle truck. To determine the extent of distortions and the refoxrms needed to correct them, a study on road user charges has commenced, and is scheduled for completion in October 1991 (para 1.20) . If the study confirms, inter alia, that taxes paid by large trucks do not fully cover the cost of road damage that they cause, an appropriate tax structure would be recommended so that they would at least pay for the damage to the road network, and to discourage their import in favor of other vehicle types, which cause less damage due to their lower axle loads and proper axle configuration. Legislation on vehicle loads should define axle limits in addition to gross vehicle weight. The maximum laden weight of the -20- vehicle must not be more than the sum of the maximum axle weights. Amendments to the Motor Vehicle Act may be necessary to control excessive loads. At the time of vehicle registration and issuance of certificate of road worthiness, the authorities could refuse to register or issue certificates for vehicles which have been modified to carry excessive loads. 2.17 Improve Contract Administration. To improve its contract administration, RDA should adopt a clear framework between itself as client, and its consultants and contractors. This would streamline and reduce the workload of contract administration. RDA's reluctance to clarify this situation was largely responsible for the inordinate delays and cost overruns experienced on the Second Roads Haintenance Project (Loan 2715-CE), and other donor-financed projects. Technical assistance included ander the Third Roads Project would assist RDA in improving contract administration. 2.18 Build Up Planning and Naintenance Capabillty at the Provincial Level. Road planning and maintenance responsibility of Class C and D and local roads now rest with the Provincial Councils and their respective local governments. Urban Local Authorities will continue to exercise responsibility for their roads under the Provincial Councils. Provincial Council staffing has been provided through the transfer of some 1.100 RDA staff (district engineer level and below), but expertise in the Provinces is weak, and therefore, technical assistance and training are needed to improve overall staff operational efficiency. The required technical assistance may be included in a future IDA project. B. Road Passenger Transport Issues 2.19 Public bus operations of the Sri Lanka Central Transport Board (SLCTB) were decentralized under an Act in 1979 to let each Regional Transport Board (RTB) compete with private operators who had just been allowed to enter the bus passenger transport market under attractive fiscal incentives.91 Since then, private buses have made significant inroads into the SLCTBIRTB passenger traffic market, as shown in Figure 1. The noticeable decline in SLCTB/RTB passenger service from 1981 was a clear signal that the private buses were rapidly expanding their services; they captured about half the market by the mid-1980s. Public buses suffered from service difficulties, political interference, frequent changes in management (almost every year), and poor financial performance. Annual revenue support ranging from US$5 million to US$30 million was needed for SLCTB/RTB to maintain 50Z of the market. Staff levels of SLCTB/RTB increased with each election, managers tended to be political appointees, fares were kept low, and foreign exchange needed to purchase spare parts and renew old buses was scarce. In the face of increasing operational losses, IDA and the Government discussed various proposals to improve management and operation of SLCTB/RTBs. Strategies 2.20 To overcome the problems, the Government resorted to drastic measures. Beginning in December 1990, the SLCTB and RTBs began privatizing through a 9/ The incentives were the reduction of import duty on private coaches from 25Z to 7.5Z c.i.f., and lump-sum depreciation. -21- process of "peoplization,I a major transformation involving a comprehensive set of reforms. This process is scheduled for completion by December 1992. It is expected to improve operational efficiency, provide better service, increase cost recovery, and eliminate the drain on the Government budget. An analysis of bus tariffs and costs is given in Annex 4. Consequences of the Cabinet decision to restructure SLCTB/RTBs includet (a) retrenchment of about 20,000 surplus staff; (b) SLCTB's assets will be owned by a number of newly created companies, the shares of which will be divided between the workers--former SLCTB/RTB employees-- and a Trust; (c) fares will be deregulated; and (d) funds at reasonable lending terms will be made available for purchase of new buses. 2.21 The following seven principles for restructuring the public bus industry have been adopted for implementation:l0/ (a) the new companies are to be organized around single depots and be relatively small so that they are not difficult to manage and will be able to provide efficient services. It is expected that each new company will have less than 100 buses and cases will be reviewed where the companies would have more than 150; (b) the new units should be set up with as simple organization structures as possible; (c) the Trust Fund will not have managerial responsibilities but be an Asset Disposition Trust (or Asset Peoplization Trust). The Fund would have only one function: liquidate the assets that will not be transferred to the new companies. This Trust should thus be seen as a transitory body to be dissolved in a few years when all the loans are repaid and all remaining SLCTB assets are liquidated; (d) any technical assistance to be extended to the newly created companies should be extended from a unit within the Ministry of Transport and Highways; Ce) a new regulatory agency should be created to oversee the satisfactory and safe provision of bus services in Sri Lanka. The authority should have only limited powers, such as to control the number of buses operating in busy corridors and at busy bus stops in case serious traffic management problems arise. These powers should be used very sparingly and operators should presume they have the right to operate until informed otherwise by the authority. Where services must be operated which are socially desirable but which are expected to be unprofitable, procedures should be developed for the regulatory authority to award contracts by competitive tender. The current arrangements for concessionary fares should be discontinued, and be made for the current beneficiaries to be reimbursed directly. The new body should also monitor the safety of public bus services. It should be responsible for the design and implementation of improved vehicle testing, driver training and testing procedures. New legislation will be prepared as necessary; 10, Financed under ;he Economic Restructuring Credit, 2128-CE. -22- (f) the assets to be transferred to the new companies will probably exclude surplus land and property and may exclude certain facilities, such as the specialized workshops, driving schools and city center bus terminals. The management of bus terminals or bus stations will be transferred to the local authorities. The ownership and operation of the specialist workshops and other self-contained operations, such as the driving schools, will be privatized. Opportunities should be pursued to maximize returns from the sale of assets such as land and scrap buses; and (g) every effort should be made to ensure that such a major exercise is accomplished as smoothly as possible. There are many parties who will be affected by the restiucturing, including the travelling public, management, the staff and their unions, and Government agencies such as the Department of Private Omnibus Transport. Each group will need to be fully informed of the program, and a major public relations campaign will be required if the confidence of all groups is to be maintained. C. Railway Transport Developuent Issues 2.22 The major issues in the railway subsector are as discussed below. 2.23 Organizatioasl Structure. As a Government department staffed by civil servants, the Sri Lanka Railways (SLR) is excessively bureaucratic, highly centralized and too cumbersome for effective decision making. Management cannot concentrate on managing the railway in a competitive, commercial way due to political interference, overstaffing, low tariffs, and an inability to discontinue services on uneconomic lines (where the alternative of bus transport exists). In addition, it is extremely difficult to obtain budgetary support for spare parts to repair immobilized locomotives. Loss of capable staff further complicates an already diffictult situation. 2.24 Lack of a Coherent Policy Framework. The railway does not have an appropriate policy framework to encourage efficiency and its operations are regarded as social services. At the same time, SLR is expected to operate as a comercial undertaking and recover its costs. These inconsistencies produce confusion and inhibit initiatives and innovation which are required to respond to market changes and competition from private bus and truck operators. 2.25 Financial Problems. The Government's tight control over railway pricing prevents SLR from increasing its fares to generate the revenues needed to cover its costs. Operating losses lead to reduced services and deferring maintenance of locomotives, wagons, track, signalization and other items. Essential scheduled maintenance and unscheduled repairs are sacrificed to first cover salaries and wages which alone amounted to 1382 of SLR's total revenue in 1989. Since financial targets are not set and fiscal discipline and accountability are lacking, there are no incentives to effect cost reduction measures and rationalize expenditures as long as the Government continues to subsidize SLR deficits, which in 1989 amounted to over Rs 800 million (US$20 million). A critical need is an accounting and management information system geared to assist in the management of finances and operations. 423- 2.26 OVerational Ineffic&pcZ. Unreliable and inefficient services are the combined effect of the current organizational structure, and ineffective management and information systems referred to above. Since operational performance targets are not set, and the manual information system is cumbersome and produces reports with delays of several months, timely evaluation of performance cannot be undertaken. At present, neither objective evaluation criteria nor procedures are in place with which to evaluate performance and take appropriate action. 2.27 Wasteful Use of Iovestment Funds. Investment decisions for various railway components are not carefully scrutinized to select least-cost options in economic and technical terms, aimed at serving the market for which SLR has a comparative advantage. The tendency is to make investment decisions based on credit availability and other non-economic and technical considerations rather than on suitability, minimum requirements for recurrent expenditures, and priority needs. 2.28 The problems of SLR are similar in many respects to those of railways in other countries, and arise largely from a tradition of Government regulation and control of what were originally monopolistic organizations. With growth in the population and expanded economy, transport demands have also increased. In a relatively competitive environment, privately operated trucks and buses are able to respond to market demands effectively to capture additional freight and passenger business, while the cumbersome, bureaucratic SLR management structure is unable to do likewise. Strategies 2.29 For a basic strategy to address SLR's problems, several options were considereds (a) close down the entire operation; (b) close down some parts of the operation; (c) put operations under a private management contract; (d) privatize some aspects of the operation (e.g., locomotive mair.tenance workshops); and (e) restructure SLR. Option (a) was ruled out as politically infeasible. Moreover, the TSPS indicates that there is an economic role for the railway to play (see paras 3.16-3.17 for the five alternatives evaluated.) Option (c) was judged undesirable under present conditions, because any management firm would have little chance of succeeding without fundamental changes in SLR's organizational structure and constraints. Options (b) and (d) were judged to have merit, but to be best included under option (e), restructuring of SLR, which is the recommendation most suitable and acceptable to the Government. There are significant risks in any scheme to restructure SLR; the task is enormous and implementation may be delayed or only partially undertaken because of institutional inertia, weakening political will and the difficulties of effecting fundamental changes in operating philosophy. Recommended reforms and their potential benefits can take effect only over a period of years. 2.30 Reorganization of SLR. Recognizing the impediments to change, the need is to transform SLR from a Government bureaucracy into a competitive business enterprise, insulated from political interference. A first step would -24- include discussion among the Government and SLR to reach agreement on corporate objectives and a policy framework. Legal and administrative measures would have to be adopted to remove Government controls over pricing, service levels, staffing, and so on, and to establish the new corporation with its own board and management. A clear functional, organizational, and management structure would have to be established, as well as a business plan setting goals, strategy, and policies regarding operating, financial, marketing, and other activities. Management should be allowed to set tariffs, hire and fire staff and set their salaries, determine the priorities for maintenance operations, make its own procurement decisions, and all the other decisions required of a market-oriented business corporation. A good model to consider in designing the organization may well be the Sri Lanka Ports Authority, adapted, of course, to the particular characteristics of a railway. Under an IDA Project Preparation Facility (PPF No. P-471-CE)ll/, consultants are assisting the Government in preparing an implementation plan for SLR restructuring. 2.31 Improved Efficiency. One of the purposes of restructuring SLR is to improve its efficiency so that operational deficits and the need for Government subsidy can be eliminated. Measures include: (a) A phased retrenchment of redundant staff, estimated at 5,000 of a total 20,000 staff. This would be accomplished gradually with due regard for the social well-being of the staff. Phasing would include attrition, retirement incentive, retraining, and ultimately a negotiated separation package. One possibility is transferring excess security staffl21 to fill vacancies in the police departments of cities where they are assigned. (b) Curtail short-distance, intercity rail passenger service, shifting passengers (other than commuters) to buses for short trips except in congested urban areas; discontinue service on unprofitable lines, except in selected cases where the Government is willing to contract for a cost-covering public service subsidy; and operate longer passenger trains to Badulla, the north, and the northeast, and for express service between Colombo and Kandy to improve the throughput time for the trip. (c) Consolidate freight stations from 84 to about 40, rehabilitate the selected stations to handle freight efficiently, and contract for trucks to handle local delivery from stations. Similarly, consolidate passenger stations from 128 to about 80, equipped with automatic ticket vending machines, data processing terminals and efficient connecting bus and/or taxi service. (d) Establish a rolling stock maintenance program in conjunction with the rehabilitation of workshops to increase f1wet utilization. Ill/ PPF No. P-471-CE approved in February 1988; amended in June 1989 and April 1991. 12/ About 2,000. -25- 2.32 Increased Reveue. Fares and tariffs should be set so that each railway service covers its economic costs. The tariff for a service should cover the long-run marginal costs (See Table 8).131 Large fare increases should be phased in over a three-to five-year period. Freight tariffs can be increased more quickly, especially if operational improvements are introduced at the same time. The freight tariff structure should be designed to secure those types of traffic where rail has a clear cost advantage over road (e.g., haulage of clinker from the port of Colombo to the factories at Palavi and Galle and limestone movement through unit train operations for the Cement Corporation). SLR should also promote multimodal contract haulage services (e.g., flour from Trincomalee to Colombo) by subcontracting road transport operators for pick-up at the origins and delivery at the destinations. Season ticket rates (90? of subsidy) should be increased faster than those for single trips; short-distance fares should probably be raised more than long-distance ones. Third-class intercity fares should be increased, initially by 25?, which would still leave them lower than bus fares, and the 502 discount on second-class intercity service should be discontinued. 2.33 Pricing and Subsidy Policy. Pricing below cost, a common practice for rail service in Sri Lanka, is particularly uneconomic where there is competition between rail and road transport. Although public bus fares are somewhat underpriced, average rail passenger fares are 70-91? below average total economic cost, drawing passengers away from buses in cases where the latter is economically superior. The same situation exists with regard to freight.14/ The distortions could be reduced by eithert (a) Eliminating rail subsidies. With this strategy, transport operators must be free to set fares and tariffs to cover costs; in this way, the most economical and efficient mode would get the traffic. There would be a strong incentive for railway management to control costs and operate with enough margin to be able to improve maintenance of locomotives, rolling stock, and track. Or (b) Targeting subsidies. If Government policy dictates subsidization of passenger fares, a way should be found to direct the subsidies to specific target groups (school children, elderly, and/or poor) or to specific geographical areas (e.g., isolated rural communities). In the former case, subsidies might be granted to users, giving them a choice of mode and operator or even the option of moving to a better location. As compared with subsidies to the transport operators, this approach would encourage the operators to focus attention on economic efficiency and would avoid giving the benefits of the subsidy to all users regardless of need. 13/ Long run marginal costs include variable train operating costs plus rolling stock depreciation, calculated at replacement costs. These amount to 77- 80? of the average long run economic costs shown in Table 8, which include the fixed costs of the railway operations (20-23X). 14/ Average freight tariffs were about 22Z of long rur marginal costs in 1989. Table 8 shows average rail tariffs and long run marginal costs for up country and low country. -26- 2.34 Iproved Service. Service improvements, aggressively marketed, can expand the volume of the railway's business in operations where it has the potential to make profits. The profitable market opportunities must be distinguished from those where buses or trucks have a competitive advantage. Passenger, freight, and real estate business should have separate cost centers so that their costs can be closely monitored and opportunities recognized for increasing revenues and reducing costs in each category. By way of illustration, the following operations would seem to be worth marketing: (a) Long-distance intercity travel, with good feeder bus service vhere needed; special tourist express trains operating between Colombo and Kandy, Anuradhapura, and GallelMatara with a minimum of intermediate stops; commuter service in urban areas, where bus service is impeded by traffic congestion. The new power coaches, due to arrive in 1991, provide an opportunity to expand this market, introducing first class service with high reliability at premium fares. (b) Improved long-distance freight service. Since the railway's comparative advantage lies in intercity bulk freight transport, SLR should focus on ways to improve its services for the four main commodity groups (building materials and cement, fertilizer, limestone, rice and flour.) For some commodities, unit train service may be found particularly suitable; for others, conventional trains with fast turnaround times might be organized. Scheduled freight services (instead of waiting for full wagon loads before dispatching) may appeal to some customers. An important element of the strategy is to extend the recent (1990-91) SLR practices of contract pricing at tariffs equal to or greater than long-run marginal costs to about 70Z-802 of SLR freight traffic. Cc) Better maintenance procedures can improve service. A major reballasting program, implemented on a progressive and orderly basis, could eliminate temporary speed restrictions, allowing the railway to realize its potential advantage of higher speeds than road transport. Other service improvements include reducing waiting times for information or other customer services, and improving punctuality through coordinated train scheduling. 2.35 Rail Investment Strategy. SLR needs to prepare a development budget and prioritized investment program, formulated on strategies for the future role of the railway, a range of credible traffic forecasts, and evaluation of options, given resource constraints. Under PPF-471-CE, consultants are assisting SLR in these areas. Investments for the railway are discussed in Chapter III as part of the review of the transport sector Public Investment Program. D. Urban Transport Development Strategies Issues 2.36 The following issues apply primarily to Colombo, although there may be some aspects that should be considered to a lesser extent in other urban areas as wells -27. (a) Organization. Responsibility for policy making, comprehensive planning, and management of urban transportation, including traffic management and public transportation, is divided and unclear, so that investments are piecemeal and management of different components is uncoordinated. (b) Access to the City for Commuters. Colombo's commuters are experiencing increasing difficulty in getting to work. This can only get worse as the city continues its growth unless measures are taken to facilitate their travel. Other urban areas may soon be subject to similar problem. (c) Traffic Congestion. Congestion not only affect commuters, but hampers delivery of goods and personal travel for non-work purposes. (d) Safety. The accident rate in Sri Lanka is alarmingly high. The majority of accidents occur in urban areas, especially In Colombo, and half the victims are pedestrians. There is no concerted plan to correct this situation. (e) Road Network and Pavement Conditions. There are bottlenecks in the road network of Colombo; some arteries and intersections need improvement. Maintenance of existing streets has been inadequate, leaving many of them in bad condition. Strategies 2.37 Urban transport problems must be addressed in the framework of a five to ten year plan. Some of the elements below can be accomplished rapidly, but others will require time. 2.38 Policy Planning Organizational Framework. Responsibility for policy making, comprehensive planning, and management of urban transportation, including traffic management and public transportation, is divided among the Urban Development Authority, Colombo Municipal Council and the Ministry of Transport and Highways. There is need for an agency with the capability to make technical studies of the effects of different proposed policies, and to help managers and policy-makers make rational decisions. Such an agency should be able to analyze the effects of pricing policies, traffic control measures, and public transport service, and to develop overall multimodal transportation plans. The strengthening of the Urban Development Authority, the Transport Studies Planning Center and the Colombo Municipal Council should be considered and the respective roles defined. The immediate objective should be to develop plans for regulation and control of traffic in Colombo, together with plans for improved commuter transportation. A further goal should be to develop a long-run investment program for improving the street network and public transport loading facilities. Both activities should be coordinated with investment planning for all sectors in Colombo. Preparation of a coordinated, multimodal investment program for urban transport is a major effort. Such a program should be prepared to serve as a catalyst for the strengthening of indigenous transport planning skills in Colombo and elsewhere in Sri Lanka. 2.39 Pricing Commuter Services. Rail passenger service and fares should be coordinated with those of bus service, especially in the approaches to and from the cities to facilitate travel by commuters. Commuter rail service should -28- be emphasized in the urban areas as it can reduce road congestion. Fares for both services should be based on economic costs, with congestion costs included for buses. Both rail and bus service should be expanded, made more reliable, and should be promoted as alternatives to automobile travel downtown. 2.40 Traffic System Management (TSM) Measures. TSM measures, coordinated with other transport modes, should be designed to facilitate traffic flow and reduce congestion. They include traffic signals, turning lanes, fringe parking, parking restrictions and meters in the central business district, auto-free zones, reserved lanes for buses and other high-occupancy vehicles and pedestrian overpasses. One cumponent that could be considered is the charging of sF*ecial fees for operating autos in congested areas at critical times. This approach not only reduces congestion, but also generates revenue to help pay for costs of other aspects of the system. This scheme would require diligence to implement, but it has been successfully used in Singapore for some 15 years. 2.41 Road Network and Pavement Conditions. Rehabilitating roads and improving maintenance in the future will require allocating adequate funds for the purpose. It also should imply establishing responsibility for setting maintenance standards and schedules and for seeing that the work gets properly done. 2.42 Traffic Regulations and Safety Education Program. Enforcement of traffic regulations comes under the aegis of the Traffic Police, under the Ministry of the Interior. The Police would need additional staff and resources, such as patrol vehicles. to increase its ability to enforce traffic rules. The education of drivers and pedestrians (as well as some of the police) might appropriately be handled by the Colombo Municipal Council which is responsible for traffic management in the Colombo Municipality and by the regulatory agency to be established within the Ministry of Transport and Highways, with the responsibility of promoting safety regulations of all transport modes. E. Ports and Shipping Development Strategies Issues 2.43 Colombo. The management of the Port of Colombo has been excellent. The only issues concerning this Port have to do with the handling and storage of containers. The quantity of containers exceeds the storage capacity of the Port, and moving them by truck is adding to the congestion on the narrow roads in the vicinity of the Port and in the city. 2.44 Other Ports. The question of developing the Ports in Trincomalee and/or Galle to relieve some of the pressure on Colombo has been raised. Such proposals need to be carefully reviewed. Continued use of Kankesanthurai for coastal shipping of cement deserves attention. 2.45 Shipping. The Government-owned Ceylon Shipping Corporation has serious financial problems, evidently as a result of strategic errors in expansion of its fleet, compounded by the devaluation of the Sri Lankan Rupee. Possible solutions to these problems need study. -29- strategies 2.46 Develog Rail Link for Containers. The feasibility of establishing train service to carry containers from the port should be explored (see para 2.55). 2.47 Develog Secondary Ports. If container transshipment traffic continues to grow at Colombo Port, it may make sense to develop Trincomalee and/or Gaile as a modern container port sometime in the future (10-20 years). However, before making a decision, the proposal to expand the Galle Port needs a careful analysis (Chapter III) and the storage area at Galle Port and its linkages to land transport need to be investigated. Consideration should be given to the question of whether it is prudent to Invest in expanding port facilities for such operations as transshipment which could easily shift to another country. 2.48 Shipping. Possible solutions to rectify the problems of the Ceylon Shipping Corporation include: (a) concentrating its operations on the South Asia/Europe Container Service and the Sri Lanka/Far East routes, with the objective of tapping an increasing share of cross trade cargo between ports in Japan and Singapore; (b) curtailing its services on the routes where operating revenues cannot cover operating costs; (c) disposing of additional smaller container vessels which are inappropriate in meeting the demand to realize some liquid cash and achieve economy by reducing staff; and (d) obtaining technical assistance from external sources to help in marketing container deployment and control and in the review of administrative systems and procedures to improve its overall efficiency through restructuring. F. Airport and Air Transport Development Strategy 2.49 There are no major issues relating to air transport as the Colombo (Katnayake) International Airport is modern and well-equipned. Also, there are no issues to be addressed regarding its facilities or oper'.cions. The same may be said of the international airline, Air La-*a. However, better methods of packaging fruits and vegetables where they are harvested is suggested to eliminate damage from excessive handling, which now affects 20 to 252 of the crop. There is a good export market for these products, shipped by air because of perishability. G. Intermodal DevelovmeEt Strategies Issues 2.50 Uneconomic Pricing of Services. The major distortions stemming from tariff structures that do not reflect the economics of the mode are: (a) over- reliance on rail transport for short-distance intercity travel and small consignments for which it has no comparative advantage; and (b) road transport carrying long-distance bulk traffic for which rail has potential advantages.15/ These distortions occur primarily due to pricing policies which are unrelated to the cost of providing particular services. 15/ Present rail traffic is limited by wagon shortages. A greater availability of wagons would allow SLR to obtain higher contract rates for long-dtstance bulk commodities which are still lower than truck rates. -so- 2.51 Lack of Intermodal Coordination. The present syatem lacks coordination for passengers between bus and rail service and for freight between port and rail service. The complementarity of each mode is not exploited, and modal interfaces are not well-developed. Little cargo moves intermodally under one arrangement from origin to final destination. Consequently, transport costs are higher than necessary in two wayst (a) cargo and passengers are moved by uneconomic modes at higher costs to the economy under the distorted modal split; and (b) costs are higher because of additional handling and storage at each link in the chain of cargo flow and the need for additional middlemen and brokers to deal with paperwork and documentation. Strategies 2.52 Deregulation of Fares and Tariffs/Increased Competition Among Mcdes. To provide an economically efficient transport system free of price distortions, fares and tariffs should be deregulatedl6/ along with free market entry. This will ensure competition among transport operators which is the most effective means of reducing costs and enhancing services. 2.53 Multimodal Planning and Policy. To promote total transport system efficiency and coordination, multimodal planning capabilities need to be strengthened, and sector-wide policies on pricing, subsidies, cost recovery and modal competition should be clearly articulated, particularly with respect to rail transport. Such work cannot be effectively undertaken without the strong institutional framework and financial assistance. To this end, the TSPC must be expanded and put on a firm footing in order to have the ability to undertake multimodal planning and policy analysis and to guide the decision makers in the transport sector. Both the analytic capability and the database aspects must be built up to further define Government actions in the transport sector, and refine the strategies outlined in this report in collaboration with the modal agencies. 2.54 Coordination of Bus and Rail Services. The coordination of bus with rail services will lead to a better mix of services for the passengers and a lower cost to the economy. TSPC should identify possibilities of providing coordinated services, based on passenger msrket surveys, and disseminate such information. 2.55 Container Services and Port Decongestion. Congestion due to empty containers occupying space in the container terminals and container truck traffic on the limited street system can be partly solved with the completion of the new port access road. A possibility of unit train services to an inland container depot should be explored to reduce congestion at the port area and to realise potential economic benefits. 2.56 Link Bus and/or Rail Passenger Service to Airport. Air freight is handled by both highway and rail transport. Ground service for passengers should be studied to see whether there is a need for improving present arrangements by providing convenient service to Colombo and to tourist destinations either by rail cars or buses. 161 Except for targeted subsidies which should be made explicit and subject to periodic assessment. -51- H. Benefits of Key Refoms 2.57 The transport development strategies proposed include key reforms in five major categories: policy, management, staffing, pricing and investment. These reforms should be considered as a package in the case of each transport mode as the objectives of the reforms are to encourage: (a) a situation vNI,re each transport mode and operation is as efficient as possible in terms of providing service with the least use of economic resources; (b) the most economic allocation of traffic to each mode and route; (c) the most economic level of capacity and investment in each mode and facility; and (d) investment and operational decisions that reflect the choices of the users of the services as far as possible. Quantification of benefits resulting from Institutional and policy refonms is problematic as many of their effects are not readily amenable to measurement. However, Table 2.1 below provides an attempt to quantify potential benefits of the proposed key reformss the paragraphs following Table 2.1 discusses how the benefits were quantified in those cases where a reasonable approach to measurement was available. Table 2.1: ESTIMATED ANUSAL FIHANCIAL BBUEFITS OF REFORMS (In current 1990 prices) Estimated Annual Benefits Total ----Rs Million---- gi8hnay8 To Users To Agencies (a) Improved maintenance techniques + 2,100 a/) Cb) Increased maintenance and rehab. + 2,820 bl} - 1,000 cl *c) Improved management + 200 d/ (d) Benefits of using trucks with proper axle configuration + 400 Road Passenger Transport (a) Reduced operating costs from peoplizationlprivatization + 300 Cb) Reduced costs from staff reduction + 600 (c) Rationalization of bus size + 60 Railway Transport (a) Improved marketing + 40 (b) Staff reduction _ + 120 et TOTAL: + 4,980 + 360 +5,340 o/ Estimated benefit In 10th year of program. j/ Assumlng an incremental expenditure of Rs 6 billion during the 1959-1983 planning period and a benefit/cost ratio of close to 4:1, the present value of the benefits resulting from redued vehicle opersting costs over 20 years would be Re 20 billion. The verageo annual boneflto to givo a present value of Re 20 billion (at 109) is ± re 2.81 billion. In finanoial terms, this number Is tronslated to Re 2.32 billIon. C/ The actual annual expenditure hue bean about Rs 1 billion in the past two years, compard wlth the annual allocation of Re 2 billIon In the 1989-1998 PubiIc Investoont Program which i the recowmnded lovel of expenditure. Estimate booed on soaving of 10% of the proposed road investment pro ram g/ Assumes staff reduction of 6,000 employees at an averge wago cost of Re 20,000 per year. -32- 2.58 Improved Maintenance Techniaues. Except for donor-funded rehabilitation projects, the most commonly used method of surface treatment is semi-grout and the surface treatment most used for periodic maintenance is sand seall7/. Better techniques, such as double bituminous surface treatment (DBST),181 would contribute significantly to the economic net present value of the road rehabilitation and maintenance program. To establish the scale of savings in road maintenance expenditures and in vehicle operating costs (VOC) that could be obtained from good maintenance and rehabilitation methods, the present semi-grout and sand seal method was compared with the alternative strategy of using DBST on an asphaltic concrete (AC) pavement. To estimate the road maintenance expenditures and VOCs incurred on a kilometer of road under either alternative, the following assumptions were made: (a) Strategy A (representing the present approach) starts with construction of a new semi-grout surface, including widening of the present roadway. In the fourth year and again in the sixth year, periodic maintenance is done using sand seal. Roughness of the road starts at 3,800 mm/km and deteriorates at an increasing rate until it reaches 6,500 in year seven. In year eight, a new semi-grout surface is constructed, restoring roughness to its original level. The cycle repeats every eight years. (b) The alternative, Strategy B, (representing improved maintenance procedures) starts with construction of a more expensive AC pavement, including widening in limited areas. Periodic maintenance is not required until year seven, when DBST is applied. Roughness is initially lower than Strategy A--2,500 mm/km--and deteriorates more slowly, continuing until it reaches 5,500 in year 14. In year 15, an overlay of AC or other bituminous premix is applied, restoring the road to its original roughness level, and the cycle starts over. 2.59 The routine and periodic maintenance expenditures and VOCs for each year over a span of 19 years was calculated for each Strategy. The average daily traffic volume is assumed to start at 1,000 vehicles per day (vpd) and to increase at a rate of 6S per year. The difference in total costs (maintenance plus VOC) is Rs 1,976,891 with the net present value (discounted at 102 p.a.) and an internal rate of return of 55?, both of which indicate large benefits to be gained by changing from current practices (Strategy A) to improved maintenance procedures (Strategy B). The benefits consist of savings in vehicle operating costs. 2.60 Complete evaluation of the change from Strategy A to Strategy B would require working out a time schedule of maintenance for different road segments in the network and assigning traffic volumes to each, then performing cost- benefit analysis for each segment. As a briefer approach to indicating the network-wide effects, assumptions were made about the length of roads and traffic 17/ A thin layer of hot bitumen spread over the road and then covered with a layer of sand to absorb excess bitumen. 1l/ A layer of bitumen sprayed on the prepared road surface and drippings of 20 mu are spread and rolled, and the process is repeated. -33- volumes affected in a particular year, and the corresponding VOCs were calculated for each strategy in that year (ten years in the future). It is assumed that the improved method is applied only to roads that have been rehabilitated with a new AC surface, after which they follow a life cycle of roughness as that for Strategy 8. Priority for rehabilitation is given to the more heavily travelled roads, and the number of kilometers given AC surfacing is limited by the supply of well-graded crushed stone.19/ This limits the rate of conversion to AC under Strategy A, but for Strategy B it is assumed that the supply is expanded2Ol sufficiently not to impose a limit. Savings in VOCs in the tenth year would, for the entire 8,822 km network, be on the order of Rs 1,772 million in economic costs or Rs 2,100 million in financial costs as a result of adopting Strategy B (See Annex 5, Table A5.1). 2.61 Increased Maintenance and Rehabilitation. The state of the roads is probably the greatest contributing factor to the unnecessarily high costs of transport in Sri Lanka. and there is little question that maintenance is one of the most productive aspects of transportation to which Government could allocate resources. It is all the more important considering that the savings in VOC consist primarily of fuel, lubricants, parts, tires and the cost of the vehicles- -all requiring large amounts of scarce foreign exchange. Analysis undertaken for the Third Roads Project showed that the improvement of road surface from periodic maintenance would yield an average benefit cost ratio of over 4:1 (variations will depend on traffic volumes and road surface roughness levels). This would suggest that, on average, the additional return on road maintenance funds is more than Rs 4 for each Rupee invested over a 20 year period at 102 discount. 2.62 The Third Roads Project consists primarily of rehabilitation of road surfaces totaling 417 kilometers for which benefit-cost ratios ranged from 1.9:1 to 17.8:1. The road links in the project have above-average rates of return as they have been selected from a greater number of road links through a screening process using economic criteria. The rehabilitation costs estimated in the project are considerably higher than the future routine and periodic maintenance costs will be. The benefits of future routine and periodic maintenance costs may be close to the beaefits of the rehabilitation under the Third Roads Project. 2.63 Improved Management. The Road Development Authority (RDA) has recently encountered large cost overruns in their donor-aided road rehabilitation projects. RDA could have avoided some of these cost overruns had it managed project implementation better through: formai and effective financial controls; delegation of on-site responsibilities to supervising consultants; streamlined decision making in day-to-day operations; and professional contract administration. In one project, the cost overrun amounted to Rs 623 million. At least a third of this overrun could probably have been avoided through better management at no additional costs, thus saving Rs 200 million for the Government. Countrywide, such savings could be enormous in view of RDA's expanding responsibilities to manage an increasing number of donor-assisted road rehabilitation and improvement projects. Assuming that improved management could 19/ At present, RDA relies on aggregate which is laboriously and ineffectively broken by hand, and therefore the availability of good quality crushed stones is limited. 201 This strategy includes a prograr if opening quarries and acquiring crushers to supply good quality aggregates. -34- save a minimum of 102 of the proposed investment budget of Rs 2 billion per year, an annual saving of Rs 200 million is possible. 2.64 Benefits of Using Trucks with Proper Axle Configuration. The brief analysis shown in Annex 2--Road User Charges--indicated that certain heavy trucks may be causing more damage to roads than their contribution to taxes would cover. Most vehicles appear to be paying their way at present, due primarily to the high taxes on fuel. However, one vehicle type, the 16-ton two-axle truck, may be costing more in terms of road damage than is covered by taxes and duties. If this were the case, raising taxes on this vehicle, particularly import duties, would discourage the import of this vehicle in favor of other vehicles which cause much less damage due to their better axle configurations. The benefits of this strategy are in the form of avoided road damage because alternative vehicles are used, and the resulting reduced VOCs for all traffic. 2.65 The economic benefits of this policy may be estimated by either of two approaches. One way evaluates the difference in the cost for maintaining the roads in equally good condition either with these trucks or with a less damaging type (e.g., 21-ton three-axle trucks). The other approach evaluates the difference in operating costs for all vehicles in the traffic stream, assuming the same amount of road maintenance and therefore different degrees of deterioration with the two types of trucks (16-ton two-axle vs 21-ton three axle). By the former method, savings due to eliminating the large two-axle trucks were estimated at Rs 400 million per year.2ll 2.66 The effect of the larger two-axle trucks (e.g., 16 ton) on road deterioration and roughness and the resulting VOCs of all vehicles in the traffic stream were calculated and compared with VOCs that would result from replacing the 16-ton two-axle trucks with more suitable three-axle trucks (using the data developed from the Third Roads Project feasibility study). From this study, the weighted average traffic, road roughness, road strength and widths of the 26 road links, totalling about 500 km, were derived (See Annex 5, Tables A5.2 - A5.5). By this method (and pending more rigorous analysis) the savings would amount to Rs 350 million per year in terms of economic costs and Rs 420 million in financial costs. Road Passenger Transport 2.67 Reduced Operating Costs from Peoplization/Privatization. The benefits of peoplization of the public bus system will be in the form of increased operating efficiency associated with increased availability and utilization of the bus fleets, and with reduction in the total number of staff involved. For larger buses in urban service, the economic cost per bus-kilometer of publicly- owned buses was estimated to be 212 higher than that of privately-owned buses (Annex 5, Table A5.7). The TSPS found that the privately owned buses were considerably more productive, achieving higher availability (80? vs 668) and higher load factors (892 vs 812), than publicly-owned buses. The operating cost of privately-owned large buses in 1990, using a simple average of all types of routes, is estimated at Rs 0.185 per seat-km, or about Rs 0.21 per passenger-kin, with a load factor of 892, compared with Rs 0.211 per seat-km and Rs 0.26 per 21/ Using data developed in the TSPS, which shows savings of Rs 2.944 per vehicle-km. This was multiplied by 45,000 km per year average use and 3,000 vehicles. -35- passenger-km for the public bus. Total annual road traffic level is estimated at 35 billion passenger-km assuming the security situation is restored to normalcy. Further, assuming that traffic of 17.5 billion passenger-km (half of the projected total), is carried at the hi8her unit cost without privatization, but is carried at the lower cost as a result of privatization, the annual saving would be on the order of Rs 900 million.22/ 2.68 Reduced Costs from Staff Reduction. Of the total possible cost savings under privatization, estimated at Rs 900 million per year, about Rs 600 million could be considered as the benefits resulting from staff reduction. The staff of about 51,000 people in 1989 and operational fleet of about 3,800 buses represent an average of about 13 employees per operational bus. This is unusually high, partly because a large proportion of the fleet is out of service due to lack of parts and tires, but mostly because of simple overstaffing. The ratio was close to 10 persons per bus in 1986 when parts problems were less severe. The publicly-owned system averaged about 255,000 passenger-kilometers per employee in 1989, compared with an estimate of over twice that for the privately-owned buses. With peoplization, it should be possible to reduce staffing to six or seven persons per operational bus. With wage costs of about Rs 1.32 billion in 1989, this could result in a saving of over Rs 600 million. 2.69 Rational Choice of Bus Size. Many of the present 'uneconomic" routes operated by the nine RTBs are served by large buses even though the level of passenger traffic is lower than average, resulting in unduly high operating costs per passenger-km. With the restructuring of the industry, it is anticipated that a shift to smaller buses would occur on low volume routes, resulting in a significant cost saving. The cost per km of a large bus in 1985 was estimated at Rs 7.5, and it is estimated that at least 20t of this cost could be saved by using the small size bus. Assuming that about 102 of the 1985 oublic bus-km is operated on uneconomic routes (i.e., 390,000 km), a total annual saving of Rs 58.5 million could be realized at the same level of service. Railway Transport 2.70 Improved Marketing. Expanded services to market transport of goods which need warehouse space at key locations, or high-volume shipments of imported materials should bring about more profits because they draw on the SLR comparative advantages. The potential net gain in tonnage from the marketing effort was roughly estimated in the TSPS at about 200,000 tons, assuming no major investment in the rehabilitation of SLR. In terms of the economic allocation of traffic between different modes, the net benefit to the economy of improved marketing was estimated at Rs 21 million per year, including reduced congestion costs on the roads. The financial gain in revenue for the SLR would be approximately Rs 40 million for this additional traffic and the net financial gain after variable costs for SLR is estimated at 302 of revenues assuming the application of cost-based tariffs, or about Rs 12 million per year. This potential gain would be considerably larger (i.e., Rs 40 million) for a more competitive SLR, made possible with a low-cost investment program. 22/ Rs 0.260 - Rs 0.208 - Rs 0.052 x 17.5 billion passenger-km - Rs 910 million. The total cost on private buses would be Rs 7.3 billion and on publicly-owned buses, about Re 9.1 billion. -36- 2.71 Staff Reduction. The SLR currently has an average of about 19 employees per route kilometer of line. The railway carried about 7,300 ton- kilometers of freight per year per employee. This compares with 28 employees per route-kilometer in India, and 97,000 ton-kilometers per year per employee. These simple comparisons indicate that there is scope for considerable improvement in employee productivity on the SLR. Concentration on economically-viable services should permit a reduction of about 1,500 to 2,000 staff. 2.72 The release of already redundant employees would further reduce the staff by about 4,500. The average staff cost (salaries plus benefits) was approximately Rs 22,000 per year in 1988, but the redundant staff would tend to be in the lower-paid categories. If it is assumed that the average cost of the redundant staff is Rs 20,000 per year and that about 6,000 staff members could be released, the saving to the SLR in staff costs would be approximately Rs 120 million per year.231 It is also probable that staff rationalization, in a commercially oriented environment, would increase the effectiveness and morale of the remaining staff for a further increase in productivity. 23/ The obligation to pay severance pay and other benefits to staff who are laid off would reduce the short-term amount of the benefit. -37- II. REVIE OF TEE TRANSPORT SECTOR PUBLIC INVESTMENT PROGRAM A. Overall Public Investment Program Allocations to Transport 3.1 As the cornerstone of its development strategy, the Government has adopted the concept of rolling five-year investment programs. This encourages flexibility in the Public Investment Program (PIP) by permitting redefinition of priorities annually. The PIP contains a review of the economic performance in the preceding five year period, macroeconomic and sector objectives for the current plan period, and a list of ongoing and new projects to be implemented. 3.2 The growth of public allocations for transport infrastructure is shown in Table 3.1 below. The transport share steadily increased from 62 in the 1981- 85 PIP to nearly 182 in the 1989-93 PIP, but declined to 13? in the 1990-94 PIP. In real terms, the PIP allocations for transport increased by about 73? between the program for 1981-85 and that for 1990-94, while the total PIP allocations declined by 20? in real terms during the same period. The increased level of planned expenditure for transport is an expression of the Government's intention to acc rd priority to transport infrastructure development in determining inters ctoral resource allocation. 3.3 In order to obtain a more meaningful basis for comparison and analysis of the past and planned PIPs, a major effort was made to obtain the actual expenditures incurred by the transport sector, estimates of which are shown in Table 3.2 below. Despite much time taken to assemble these data, the numbers obtained from the executing agencies and the concerned transport ministries do not match with those obtained from the Central Bank. There is yet another set of numbers given by the Ministry of Planning, Policy and Implementation. It is clear that a more concerted effort must be made in systematically compiling the actual expenditures incurred every year by the concerned transport agencies and ministries. This undertaking will be a part of the Government's action plan, outlined in the policy matrix (Annex 1'. B. Policy Statements in the Public Investment Programs 3.4 The latest PIPs emphasize the need for financial discipline and for adhering strictly to the parameters of the Policy Framework Papers for 1988-1989 and 1989-1990. The budgetary targets of both PFPs are set at reducing overall deficits from 12? of GDP in 1989 to 8Z by 1993, domestic borrowing to decline from 2.8? of GDP to 2.6? while maintaining the revenue level of 20? during the same period. The documents state that "...the Government has initiated major reforms to reduce public expenditures and increase their efficiency ... through strict expenditure controls.' The structural adjustment program thus includes: (a) public enterprise reforms to improve their efficiency through privatization, joint ventures with foreign participation and management improvements; (b) restructuring of public expenditures on transfers to households and subsidies which cannot be justified on economic grounds, and improving the efficiency of those that remain in the budget; (c) industrial and trade reforms, with a view to generating growth, exports and employment by stimulating private investment both local and fcreign; and (d) streamlining of bureaucratic procedures which affect private sector economic activity, particularly with regard to the availability of credit, monopolies on the allocation of shipping space, -38- Tablo 8.11 ALLOCATION P PELC VNeSTUENT PRAWS, RNCU o TRANPT, 181-104,4 (e) tt Curent as Mlilioan U Chomp v.\ awr te-o lostsi o 1984-09 196-9 1ou*-90 9e- 190-08 106494 1030/08 - Trsn.~~~~~~~~ 1000~~~~I/04 M.d. \ (1() (2) (8) (4) (a) (8) (7) (6) (9) Nlgwoye 1,060 8,8198 2,741 4,066 4,204 0,208 10,140 18,870 81.0 ROa'lwaye 1,6 1,201 2,702 5,101 6,820 9,676 6,07 0.627 0.6 SLCIS/Publi c Mm 1,402 1,180 0 S 4 7 o0n 1,00 10 -09.6 Porte a Shipping 006 so? 1,170 1,070 712 7 8,044 2,260 -80.8 Ale Trenearft 620 1,276 8,750 4,004 2,207 2,680 1,25 760 -89.1 TOTAL 5,69 7,036 t0,428 15,200 12,149 22,912 25,911 26,280 /b 1.2 t.l PrP 60,579 116,206 100,80? 135,204 184,416 160,024 146,010 200,0/c 87.6 Tranoport 0So Total PrP 6.0 6.? 0.0 0.0 0.8 18.9 17.7 18.1 -26.4 (b) Perentag Oistrlobtift \ t"e 1901-0 19- t9140 196-1 ISWO IO-e2 190- 1OW 11ighways 19.0 44.1 26.8 52.5 84.2 40.2 80.1 S1.0 [ta lboys 81.8 18.8 2.6 88.0 42.6 42.2 84.0 87.5 SLCIB/Public Bus 26.1 14.0 0.0 0.4 0.1 2.0 7.8 0.0 Porets Shippain 12.9 8.0 11.2 7.0 5.7 8.8 14.1 0.6 AIr Transport 0.? 16.0 80.0 26.2 17.0 11.7 4.0 2.0 TOTAL £00.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 /j Al loceti ons do not correpond to actual oxpedlture. /1 Re 0,801 mIllon in 100 prles by applying the invet_mt peIce delator of 2.82. n,o 71,287.0 million In 100 priae. Souem: Public Invstuent (1001-086 102-8; 1004-06; 1965-00; 9110-9-0 18-021 less,411; 1000-404), Notlonal Planning DivIsion, ilanistry of Flnaeeo and Planning, Colembo, Sri Loks. -39- Table 3.2: Public 8zpenditures in the Transport Sector (1980e91)I (In 1980 million Rupees) SEMTBRoZa Ports and Airport ERd Year Highwayeb Railways Transport Shlpping Air Tranep. TOTAL a Can nni---- ninf --- W --- ------- -------- e~ ftee --- 1980 530.8 1,007.9 27.0 602.2 213.6 2,381.5 1981 299.6 908.3 142.7 680.7 523.8 2,555.1 1982 317.0 861.0 316.4 1,670.4 101.0 3,265.8 1983 182.3 803.4 182.7 1,532.2 3,372.8 6,073.4 1984 450.6 745.6 170.7 746.8 1,073.5 3,187.2 1985 458.1 901.5 88.8 1,670.5 1,562.3 4,681.2 1986 690.7 1,149.7 237.8 1,284.1 3,802.3 7,164.6 1987 574.9 1,042.2 8.6 1,141.3 1,112.6 3,879.6 1988 412.6 788.9 8.0 1,160.1 939.3 3,308.9 1989 549.5 997.5 1,191.6 1,090.8 515.9 4,345.3 1990 (est.) 1,432.7 1,172.3 7.7 1,057.1 208.9 3,878.7 1991 (est.) 1,293.3 1,164.4 - 1,759.0 223.2 4,439.9 Percent Distribution SLCTS/Road Ports and Airport and Year Highways/b Railways Transport Shipping Air Transpor TOTAL 1980 22.3% 42.3% 1.1% 25.3% 9.0% 100.0% 1981 11.7% 35.5% s.6% 26.6% 20.5% 100.0% 1982 9.7% 26.4% 9.7% 51.1% 3.1% 100.0O 1983 3.0% 13.2% 3.0% 25.2% 55.5% 100.0% 1984 14.1% 23.4% 5.4% 23.4% 33.7% 100.0% 1985 9.8% 19.3% 1.9% 35.7% 33.4% 100.0% 1986 9.6% 16.0% 3.3% 17.9% 53.1% 100.0% 1987 14.8% 26.9% 0.2% 29.4% 28.7% 100.0% 1988 12.5% 23.6% 0.2% 35.1% 28.4% 100.0% 1989 12.6% 23.0% 27.4% 25.1% 11.9% 100.0% 1990 (est.) 36.90 30.2% 0.2% 27.3% 5.4% 100.0% 1991 (get.) 29.1% 26.2% 0.0% 39.6% 5.0% 100.0% /a 1990 and 1991 fLgures are estimates. 1980-89 numbers are based on Table 2, converted to 1980 prices. 1990-91 data were obtained from the Road Development Authority and the Ministry of Transport and Highways, converted to 1980 prices. Sources Sri Lanka Railways, Ministry of Transport and Highways, Sri Lanka Central Translport Board, Department of Private Omnibuses, Sri Lanka Port Authority, Ministry of Shipping and Trade, Ceylon ShJlpping Cozporation, Road Development Authority, inistry of Planning, Pollcy and Implementatlon, Sri Lanka Central Bank, Air Lanka and Airport and Aviation Services (Sri Lanka), Limited. -40- etc.241 Within this stabilization framework, the main thrust of public investment in the medium term is the provision of economic infrastructure facilities such as transport, energy and telecommunications since "... these are essential facilities for the development of productive activities and services.' General Observations 3.5 The PIP eloquently articulates the macroeconomic objectives, defines public capital expenditure requirements and allocates budgetary funds to enable implementation of the proposed projects. However, there are several anomalies in the PIPe: (a) the expenditures classified as "capital" include many recurrent expenditurest administrative overhead25l; outright operating subsidies to publicly-owned operations (e.g., SLCTB, SLR); routine and periodic maintenance expenditures of RDA; and maintenance of Mahaweli irrigation schemes; (b) interest payments to creditors on Government guaranteed foreign loans, which a public corporation is unable to service (e.g., Air Lanka until 1988), are also included in the PIP as capital expenditures; and (c) while recurrent expenditures are included in the rolling five-year PIPs, it does not include investment projects undertaken through non-budgetary funds (e.g., earmarked taxes for tea and rubber) or the portion of investment financed out of self-generated revenues (e.g., upgrading of Queen Elizabeth Quay financed by Sri Lanka Port Authority). The expenditures fully financed by revenue earning entities (e.g., SLCTB purchase of bus chassis) do not even appear in the PIP, while on-lent loans from state-owned financial institutions to the private sector are sometimes included (e.g., loans to the industrial sector, including financing of buses).26/ 3.6 Similarly, the road expenditure program appears confusing and inconsistent. Under the category classified as recurrent expenditures, there is a subcategory for "repair and maintenance," but routine maintenance and repairs to flood damages are treated as capital expenditures. By contrast, the costs of undertaking double bituminous surface treatment (DBST), sand sealing, metalling and bitumen surfacing (periodic maintenance) which are normally classified as recurrent expenditures are listed under capital expenditures, and lumped together under the subcategory of rehabilitation and improvements. There is also a category referring to an IDA loan and another called simply the World Bank II Program. On the other hand, the ADB and OECF loans are not listed. There is clearly a need to rationalize the classification of public sector expenditures as well as RDA's program to make them consistent and correctly assess the needs and actual expenditures incurred. 241 The Public Investment Program, 1989-1993 and 1990-1994. 25/ For the 1989-1993 period, expenditures of Rs 24,638 million were allocated to the Ministries of Defense, Foreign Affairs, Home Affairs, Finance, Justice and Public Administration, Department of Pensions, etc. There are other expenditures incurred by the Ministry of Transport and Highways under a separate heading. 26/ "Sri Lanka, A break with the Pastt The 1987-90 Program of Economic Reforms and Adjustment," May 1988. -41- lodal Allocation 3.7 The PIP allocation to highways over the last decade has been receiving a greater share as shown in Table 3.1 above, although this is not apparent in Table 3.2 showing estimated actual expenditures in the transport sector. The share of highways was only 19.92 in the 1981-85 PIP but increased to 51.0? by 1990-94 while the railway's share fluctuated from 15.62 to 42.52 depending on the availability of foreign financing in a given PIP period. The percentage share of ports and shipping also fluctuated widely from 3.3Z to 14.12, excluding the Sri Lanka Port Authority's self-financed investment items. The increased allocation for ports and shipping in 1989-94 is largely for construction of the OECF-financed Third Container Terminal at Colombo Port. The allocations to air transport peaked during the 1984-88 and 1985-89 planning periods while the Katanayake International Airport (Colombo) was being expanded and modernized. 3.8 Comparison of the most recent PIPs (Table 3.1) by transport mode for the 1989-93 and 1990-94 plan periods shows wide variations: in the current PIP, there was a 32? increase in the allocation to the highway subsector and nearly a 10? increase to the railways, while the allocations to ports and shipping, air transport and SLCTB (public buses) were reduced substantially by 382, 39? and 992 respectively from the levels of the previous plan period. The drastic reduction in the amount allocated to public buses is due to the privatization (peoplization) of the SLCTB assets. The reduced amount for ports and shipping is accounted for by the large expenditures incurred for the completion of the Second Container Terminal at Colombo Port in 1989, which is not included in the 1990-94 PIP. The establishment of a private corporate structure for Air Lanka with improved management also contributed to the reduction in Government subsidies which were included in the previous PIPs. On the other hand, the increased allocations to the highways subsector and the railway reflect the availability of foreign financing. 3.9 Both PIPs rightly emphasize completion of ongoing projects and maintenance and rehabilitation of existing assets, with new projects limited to a small number and subject to critical review. The funds were thus allocated primarily for: (a) replacement, rehabilitation and maintenance of the assets of the railways and of the existing road network; (b) completion of the ongoing port access road and the terminal building complex; and (c) runway and utilities at the Colombo International Airport. The major new works in the transport sector include the construction of a Third Container Terminal at Colombo Port, mentioned in para 3.7, and the construction of the railway workshop, both financed by the Japanese Government. C. Transport Investment Plan, 1990-94 3.10 A detailed breakdown of the 1990-94 PIP by transport mode is shown in Table 3.3 below. Major planned or ongoing investments include the following. Ei8hrs 3.11 The bulk of the highway expenditures is for rehabilitation and maintenance of the national and provincial road networks (Class A-D roads) and repair of bridges. Of Rs 13,376 million allocated to roads, about 332 is accounted for by IDA and ADB-financed -road maintenance and rehabilitation projects, 29t for equipment financed by OECF, 192 for preventive maintenance and rehabilitation, 5? for the replacement of the old Victoria and Kelani bridges in -42- teblo 11.s PUi.C i T81QU P99081 (1000.08 eci 1000-4) 1900 . 1008 -A-- _-------100 - 111 TtoXl T tttel 13 oloOlib. a Coat Olotelb. Coot by OK" l ib. Ongoino Peojoco Tconep.t- (a) Railacy 1. R obot. a dolvbo. 8944.0 18.7 4280.0 48.2 10.8 2. AquI. 91qu*1. It.0 0.1 29.0 0.2 0.1 8. bo. Polo. 890.0 1.6 978.0 L.0 1.0 4. Tcoh, Tlninlftg 00.8 0.8 60.4 0.7 0.8 8. RNbob. Vow. 80.0 0.1 48.0 0.0 0.9 S. RhoAb. Troebe 1048.0 7. 1471.0 (8aCtP) 15.0 5.0 7. Otd Line I-orR/ 60.0 0.9 04.0 (podo) 0.0 0.8 8. Caan. Syotoo 16.0 0.1 78.0 0.7 0.8 9. Con. s8iorepo 11.6 0.0 66.8 0.0 0.2 to. 9ev. Orldp Yaurd 68.0 0.2 62.0 (0oftmy) 0.0 0.2 II. Coot. Fla" 16.0 0.1 20.0 0.2 0.1 U2. Sub. Pouor So" 160.0 0.0 409.0 0y oaely) 4.8 1.0 18. Roleb. 101 loc. pro 950.0 8.7 0W0.C 0.0 8.7 14. Reno. Rail I ldom 100.0 0.0 104.0 1.1 0.6 I6. Roafnion Cooej,o 006.0 8.6 1ou.0 10.8 8.0 10. Pooob.StbW (Ut.of Roil.) 20.0 0.1 42.0 0.4 0.2 a 17. CII 54,ahop 681.0 2.6 701.0 7.7 2.0 aS TOTAL 0o07.8 44.0 92.4 100.0 87.6 (b) W.T 1. Tra" Ortbo.rd - 0 - 0.0 0.0 2. Coalwebutions t. ICL 19.1 0.1 - 0.0 0.0 S. RPIaeont of Snoco 104.0 7.1 10.0 100.0 0.0 M1 TOTAL 1060.1 7.2 10.0 100.0 0.0 (a) N l.u~ 1. i4)gho.ye 1.6 0.0 4.0 0.0 0.0 2. Pak. a tapeo. (us 2 a 8) S1t.8 8.7 1708.0 20.2 10.8 1. Rebehb. W Pihe a) Iqelpmt 804.0 1.2 8878.6 20.0 14.8 b) Ploea Cee. 1tO.0 0.7 880.0 2.0 1.4 a) Prov. maia. 1060.0 4.2 140U.0 10.8 6.4 d) tw. Ovift. 760.0 8.0 090.0 7.0 8.5 a) aood i7hebbilltalion 1060.0 4.1 1160.0 6.7 4.4 f) AU Proj. £ a 2 1714.7 6.6 1780.0 12.0 0.0 Vi. Vie. Bridge 8t0.0 1.2 460.0 8.6 1.0 111. Kelenl Urifdg i2.0 0.2 12.* 0.0 0.6 8. 6.1Idias 0.0 0.0 10.2 0.1 0.0 4. AeON Road. to odern Vlliega o aRa - - l070. 4*.8 2.2 Wl TOTAL 10140.4 80.1 18670.2 NO-.0 61.0 Alo n*? SW 1 a. AirnorO 083.0 8.8 7660.0 8.4 a.O 2. POr AO. ROWd 18.0 1.0 970.0 0.0 1.0 8. mina" of Trade a Shlio. 140.3 0.0 * 0.0 0.0 4. C t. toIS 18.0 0.1 * 0.0 0.0 . Air Lado 406.0 1.6 0.0 0.0 o 0Third OOmIer Temisal 6U.0 12.0 1S00.0 68.6 7.6 so tTAL 4001.3 10.0 8031.0 100.0 11.5 TA 3091.7 100.0 3692i.0 100.0 mm. pPO)OJ. boormlls Pot lailo IVwom 1,e-IS * 10S, Nleonal Plhm Sleislee, nalatry of PIlam end Planiong, Coelao, Bri LWAno, 8e$tew IOW. -43- Colombo, and the remainder distributed among different subcategories of "Flood Damage, Improvement of Bridges, Access Roads to Modern Villages, research and development and buildings." The PIP includes only a part of the IDA's Third Roads Project. Its total estimated cost of Re 2,820 million is planned to be expended over the 1991-97 period. 3.12 These PIP numbers vary considerably from the five-year expenditures proposed by RDA for the 1990-1994 period (Table 3.4 below). The total amount proposed by RDA for the forthcoming plan period is higher at Ro 16,467, as compared with the PIP total of Re 13,376 million, mostly accounted for by a larger allocation of Re 6,664 million (compared with Re 5.594 million in the PIP, including the IDA and ADB projects) to the "Road Rehabilitation and Improvement, subcategory and about Re 1,670 million proposed by RDA for the conetruction of the Katunayake Expressway which has not been approved by the Cabinet, and therefore not included in the PIP (nor is the proposed Trincomalee-Colombo freeway in the PIP). The ecunomic feasibility of this project should be re- examined by updating the 1983 study carried out by Japan International Cooperation Administration (JICA) and its results compared with other priority projects. Both the PIP and the RDA program allocate insufficient funds (Re 1,408 million in the PIP and Re 1,438 million in the RDA program) to "preventive maintenance" which is intended for routine maintenance of Class A-D roads, including pavement repair works; they amount to Re 56,320 per km (PIP)27/, or Re 11,264 p.a. and Re 57,500 per km (RDA)28/, or Re 11,500 p.a. respectively which at the current exchange rate of US$1.0 o Re 40, amount to US$282 p.a. (PIP) and US$288 p.a. (RDA). 3.13 About 702 of required funds are to be contributed by external donors. Based on the estimated unit costs for maintenance developed as part of the Third Roads Project Feasibility Study, order of magnitude funding requirements were estimated for the Class A - D road system in Annex 2. By adopting an assumption that 602 of the A network and 302 of the B network will have been rehabilitated by 1996 and another 42 and 2% in the process of rehabilitation, the total maintenance and rehabilitation requirements per year would amount to Re 4.5 billion for the A and B Class network, and Re 7 billion if the C and D Class network is included. Thus the PIP allocation of about Rs 2.6 billion per year (Rs 13,375 for 1990-94) to maintain and rehabilitate the entire road network is a great deal less than the ideal level. Howevez, considering the limited implementation capabilidies of RDA and Provincial Councils, this amount may be the upper limit. A better balance must be sought, however, between "preventive maintenance" and "toad rehabilitation and improvement" by allocating at least 202 of the total maintenance and rehabilitation to the "preventive maintenance" category.29/ 271 Rs 1,408 million o. 25,000 km of Class A-D road network - Rs 56,320 per km 4 5 - Rs 11,264. 281 Rs 1,438 million + 25,000 km of Class A-D road network = Re 57,500 per km +- 5 - Rs 11, 500. 29/ See Annex 2 which shows estimated funding requirements to arrest road deterioration in Sri Lanka. The routine maintenance category is about 192 of the total maintenance and rehabilitation requirements. -44- Table a.4: ROAD OEVMEUPUEIT AUTHORITY - PROPOSED FIYU-YEAR W ENDITURU (Re Millon) TOTAL - 1090-1194 Activity Typ 19S0 1991 182t 1s8" 1964 Foreign Total a0mL Aid Preventative Maintenance 146.0 210.0 450.0 800.0 880.0 1,480.0 1,486.0 0.0 Repair of Flood Dme"e 50.0 75.0 63.0 95.0 100.0 406.0 405.0 0.0 Surveys, Investigations and 12.0 27.4 11.0 15.0 15.0 64.4 61.4 28.0 Research and Development .! Rehobti tation/Ioprovem_t Roads/Pavements 1,127.0 1,117.0 1,60.5 1,481.5 1,861.5 0,604.1 2,484.1 4,170.0 Beidge 29.0 187.5 220.0 245.0 210.0 081.5 651.5 0.0 NoW Capital Works s/ 525.0 218.0 152.0 600.0 860.0 2,126.0 647.5 1,477.5 Equipment M 78. 80,448.0 168.0 279.0 0.0 4,960.6 1,466.5 8,410.0 TOTAL 2,470.1 5,802.0 8,121.5 8,165.5 2,406.5 10,401.5 T7,86.0 9,060.6 !!/ ncludoo survoy, y nvestigation., feaibl ilty studtie and setting up of dtbase pavement/britdge mintensnee aengement system. Includes IDA and ADO-flonaeed road sections and assoclated structures. 4/j Includes proposed Kstunayake Expresswa 9enad te. Victoria and Kelanl Brldeo. 41 Include equipment to be procured under OECF proer. Sourcs Road Developmet Authority, Apel I 1980. -45- Ralilwae 3.14 The major portion (Rs 7,458 million, or 762) of the total railway investments is for "maintenance and rehabilitation," track renewal, rehabilitation of 101 locomotives, and workshop improvements for which OECF financing of about Rs 3 billion is being provided. Other expenditures include the purchase of Romanian coaches (102), installment payments on equipment procured abroad (3Z), acquisition of commuter power cars (42), and reconstruction of railway bridges (22). The remainder is distributed among suburban railway improvement, rehabilitation of wagons, procurement of concrete sleepers and container flat cars. The cost of the feasibility study of the railway extension from Hambantota to Pottuvil in the south (undertaken in 1989-90 under Japanese financing) is also included in the PIP, but the cost of the ongoing commuter railway electrification feasibility study financed by the French Government is not. 3.15 The proposed railway extension was found to be economically feasible by the study team but many assumptions adopted in the study are not realistic (e.g., all road traffic would be diverted to rail and rail traffic will grow at 17-18S p.a.). This proposal should be held in abeyance for the time being until other railway priority items are financed. The railway commuter electrification study merits careful consideration in the context of a transport system analysis of the Colombo urban area. A preliminary analysis of the Galle Road corridor indicated that the improvements, with a capital cost estimated at about Rs 3,226 million, would have a benefit/cost ratio of 1.97 using 102 opportunity cost of capital. 3.16 To assess the economic role of the railway, the TSPS evaluated five railway investment options (TSPS, Volume 2, page 8-1). The economic feasibility of each option was analyzed after defining a set of performance characteristics for each option, calculated using traffic modal split model:30/ Option 1 - Base Case. Maintenance of road service and general performance characteristics regarding average speed and train productivity would remain at the existing level. Option 2 - Deletion of Rail Service. Closure of the railways over a ten-year period and the discontinuation of service would be carefully phased to permit the necessary adaptation of transport services to the highway system and to allow sufficient time for necessary highway improvements to be made. Option 3 - Low Cost Improvements designed to improve operating and maintenance efficiency by the optimum use of SLR resources (e.g., restructuring of SLR management, increased productivity). It was assumed that operational improvements would be made only gradually (i.e., slow in the initial period but picking up momentum after the fifth year). 30/ An investment associated with each option, i.e., improvements to track and rolling stock would produce varying degrees of improvements in operating speeds, train productivity, etc. -46- Option 4 - Intermediate Cost Improvements. Track would be robuilt through reballasting and use of concrete sleepers and sharp curves would be realigned to increase speeds and loads. Corrugated rail would be reprofiled and managerial/operational/organiuational improvements would be achieved. Option S - Major Rehabilitation of the railway involving the procurement of high performance rolling stock, signalization facilities, and track maintenance equipment, in addition to the investments and assumptions made under Option 4. 3.17 These options were evaluated based on traffic projections derived from a multimodal analysis83/ of the comparative marginal cost of transporting each commodity type between each pair of origin and destination zones in the country, and a parallel analysis for passenger trips. The results of the economic analysis carried out for Options 2 - 4, compared with Option 1, indicated internal rates of return ranging from 52 for Option 5 to 162 for Option 3. 3.18 An indicative ten-year investment program based on this alternative included track work, rolling stock maintenance facilities (workshops), procurement of rolling stock, track maintenance equipment, freight handling equipment and computers at a total cost of Rl 10,435 million in 1990 prices. This would be equivalent to an average annual investment of Re 1,044 million and Rs 5,220 million over a five year period. The 1990-94 PIP allocation of Rs 9,827 million is 88% greater than the recommendation of the TSPS (see also para 3.28), and should be scaled down. Ports and Shipping 3.19 The port investment is dominated by the construction of the Third Container Terminal at Colombo Port (882 of total port expenditures) under Japanese financing. The remaining allocations are for the construction of the port access road (122), also Japanese financing. The Colombo Port was already fully equipped with two modernized container terminals to handle nearly 700,000 TEUs in 1988, about 702 of which was transshipment traffic. The projections made by the Port Authority include further growth in the demand for transshipment operations by 1995, and the Third Container Terminal is in response to this expectation. The work which has already started must be completed. After completion of the Third Container Terminal, however, there should be no further capacity expansion at Colombo Port in view of the space limitation in the port and the effect the port traffic has on congestion in the city. 3.20 To supplement the capacity in Colombo and stimulate the development of the southern part of the country, the Government plans to modernize and expand Galle Port. The Galle Port Development Feasibility Study was completed in 1989 for the planning horizon of 1995 and 2001 (its cost was not included in the PIP). This feasibility study does not make detailed traffic forecasts which suggests that a more exhaustive economic analysis is necessary. More careful analysis 311 This analysis examined the competitive position of intercity rail versus highway service and identified those commodities and passenger services which would be attracted to rail, if both road and rail services were priced in terms of their economic costs. -47. needs to be undertaken to determine investment timing and the least cost technical solution before any investment is made in this port. Air Transport 3.21 No major investment is planned for the Katanayake (Colombo) International Airport during the 1990-94 period. Of a total Re 766 million in the PIP, more than 50S was expended in 1989190 to complete the expansion of the Colombo airport complex (under Japanese financing). The investments included construction of a second runway, expansion of the airport and the construction of fully equipped passenger and cargo terminals which have the capacity to handle over one million passengers per year. The remaining funds are for servicing debts obtained to finance the airport investment program. Bus Transport (SLCTBIRTB) 3.22 The current PIP allocates only Rs 10 million to support SLCTB operations during the transitional period of peoplisation. The PIP, which includes many recurrent expenditure items, does not include the cost of peoplising SLCTI/RTB, estimated in the order of US$70-80 million. Although private sector investment is not usually included in the PIP32/, the estimated annual capital requirements for bus replacement and need for capacity increases were made (Annex 6). to assess the effect they would have on foreign exchange requirements. The three scenarios of low, medium, high demand indicate annual funding requirements of US$34 million to US$50 million for the acquisition of bus fleets. 3.23 In July 1990, the Government made a proposal to purchase 2,500 buses for the Bank of Ceylon to lease to private bus operators to meet the shortage in the supply of bus services. This proposal has now been abandoned for the following reasons. (a) the state-owned Bank of Ceylon has had no experience in leasing bus operations, and the risks of sustaining substantial losses are very high; (b) a publicly-owned agency reentering the bus market after deciding on privatization at high cost is inconsistent with the Government's stated objective of increasing private sector involvement; (c) there are other more cost efficient alternatives for meeting bus transport needs through: (i) provision of reasonable financing terms for private sector buyers (i.e., 17-18S interest with a five year repayment period vs. the currently high costs of 40-45Z interest with two-three year repayment period); and (ii) removal of controls on fares. Both of these factors--high financing cost and low fares--have constrained private sector investment in buses; and (d) purchase of 2,000 buses would require a minimum of US$70 million in foreign exchange which would have a serious negative fiscal impact, and increase the budget deficit which the Government is trying to reduce. In sum, private bus purchases accompanied by some financing assistance and fare deregulation will attract private investment, obviating the need for Government involvement. D. Approach to Developing a Core Investment Program 3.24 In the face of the budgetary stringency in the near to medium terms, the Government should prepare a core investment program that includes only the 32/ Except for the case of state-owned bank loans to the private sector. -48- projects which can be expected to give high economic returns. It should avoid large investments which have a high degree of uncertainty due to the security situation in the country, doubtful economic criteria or uncertain prospects for donor financing. The following principles may guide the formulation of the core program: (a) support the Government's objective of rationalizing and reducing public expenditures; (b) maximize private investment by providing incentives to the private sector; (c) consider economic roles of each transport mode in achieving balanced investment among modes; (d) calculate economic returns obtainable from each investment alternative to determine priorities; and (e) modify investment amounts in the light of implementation capacity of executing agencies. 3.25 The following observations and recommendations may assist the Government in formulating a core investment program. Hismys 3.26 There have been quantum jumps in the estimated actual expenditures, accounted for by the road subsector, increasing from Rs 0.5 billion in 1980 to about Rs 1.4 billion in 1990 in 1980 prices (Table 3.2), without corresponding increases and improvements in management and implementation capabilities. In view of this, the current allocation of Rs 13,210 million to be spent in the next five years appears to be very ambitious. Data on actual expenditures in the last few years (Table 2) show that RDA's average annual spending amounted to a little over Rs 1 billion. The allocation of Rs 2.6 billion p.a. would, therefore, represent a doubling over recent experience. RDA needs to establish expenditure priorities based on economic criteria and carry out its physical works in accordance with its implementation capabilities. However, about 202 of these funds should be spent on preventive maintenance (para 3.13). 3.27 The PIPs do not include funds transferred to local authorities for the maintenance of local roads. Prior to the establishment of Provincial Councils, funds were transferred to District Development Councils (now abolished) and local urban councils for maintenance of local roads. The annual transfers, administered by the Ministry of Local Government, amounted to Rs 32 million in the recent past which meant only about Rs 2,133 per km (US$53 equivalent) was provided for maintenance and rehabilitation of local roads. This amount appears low, but insufficient information is available to make a proper assessment of the shortfall in funding needs. Nevertheless, it is safe to assume that traffic volumes are considerably lower on local roads than on major trunk roads, with correspondingly lower potential economic returns.33/ The priority is for the rehabilitation of national and provincial roads except in the cases where 33/ Reference the Third Roads Project Feasibility Study. -49- improvement of local roads are an integral part of an area development scheme, a program to achieve increased production of particular commodities or the like. Railways 3.28 The PIP allocation of Rs 9,807 million for railways appears to be high, compared with its economic role and the economically justifiable investment program (about Rs 5,500 million) prepared by aggregating the individual railway components after evaluating different alternatives. This railway investment program is being analyzed further for a proposed project (funded by an IDA Project Preparation Facility). It makes sense to invest in railways only if SLR and the Government undertake a comprehensive restructuring program to make the railway efficient (Chapter II). The difference of Rs 4,302 million between the PIP allocation and the feasibility study recommendation is accounted for by a large sum of Rs 4,250 million allocated under the rehabilitation and maintenance category without specifying what these expenditures are for. All other items (e.g., track, rolling stock, workshops, commuters signalization, etc.) are listed separately in Table 3.3 above. It would seem that the total railway PIP should be decreased, and the difference reallocated in line with the proposed investment program, shown in Table 3.5 below. Table 3.5s RUCOMEKDED SRI LAMRA RAILWAY INVESTMENT PROGRAM (1990-1994) Cost Items (million Rs) 1. Locomotive Rehabilitation 2,593.2 2. (a) Freight Wagons 319.5 (b) Handling Equipment 45.0 3. Track 1,576.0 4. (a) Signalling 450.0 (b) Internal Communications 50.0 5. Management Information Systems 126.0 6. Ratmalana Locomotive Workshops 145.6 7. Shipping Costs 200.0 TOTAL 5,505.3 Ports, Shipping, Air Transport and Public Buses 3.29 There is little room to adjust the PIP allocations for these subsectors, as explained above. The allocation for public buses would no longer be necessary after peoplization. In line with the Government's stated objectives, fiscal incentives and financing of buses may be offered to attract private sector investments, accompanied by fare deregulation. OBO. 3.30 The core investment program prepared following the principles suggested in para 3.24, is the first step towards rationalizing PIPs. But such a program should be considered as indicative only, showing the general direction of development of the transport system in the next five years. Specific capital investment proposals must be subjected to detailed feasibility studies to determine economic viability and priorities before investment decisions and implementation. It should also be noted that the success of capital investments would depend heavily on improved and effective management, strengthened implementation capabilities, and tariff structures designed to cover appropriate costs. Increasing the efficiency of public expenditures requires far-reaching institutional changes and policy reforms. Therefore, the transport strategies and reforms recommended in Chapter It must be carried out in tandem with implementation of physical works and replacement of aged equipment in order to obtain tangible results in terms of improved productivity and financial health. IV. DONOR INVOLVEMENT IN THE TRANSPORT SECTOR A. Past IDA/Bank Operations 4.1 The Bank's involvement in the Sri Lankan transport sector has been rather limited--four projects since 1979 with total lending of US$133.0 million, mainly due to the low priority given to the transport sector by the Government until recently and the weak institutional structure for managing the sector. The four transport projects weres the First Road Maintenance Project in 1979 (Credit 900-CE, US$14.9 million, PCR No. 8000 dated August 1989); the Road Passenger Transport Project in 1980 (Credit 994-CE, US$51.6, PCR No. 8011, dated August 1989); the virtually completed Second Road Maintenance Project (Loan 2517-CE) of 1985 amounting to US$24.0 million; and the Third Roads Project (Credit 2183-CE, approved in November 1990, effective as of February 21, 1991), amounting to US$42.5 million. Components have included upgrading and rehabilitation of roads and road passenger transport facilities, provision of critical spare parts and institutional strengthening. The projects have also supported training in management and engineering. The Emergency Reconstruction and Rehabilitation Project (Credit 1883-CE, approved in March 1988) also includes funding for reconstruction in the north and northeast of roads which had been damaged during the country's civil unrest, but little progress has been made in implementation due to security problems (Annex 7). 4.2 The results of the three completed projects were mixed. The positive elements in the roads projects were: the shift in emphasis in the first project to rehabilitation of roads instead of new construction, which permitted IDA (and other donors, notably ADB) to begin a policy dialogue on highway issues; the successful rehabilitation of major roads (e.g., the Colombo/Kandy road) and bridges (those on the Colombo/Galle Road, especially the Kalutera Bridge); attitudinal changes in RDA and improved technical capacity; and improved performance of some local consultants and contractors who have gained experience under these projects. Under Loan 2517-CE, IDA also assisted the Government to establish an Inter-Ministerial Committee for the Coordination and Planning of Transport (IMC-CPT) and its Technical Secretariat (Transport Studies and Planning Center) as a focal point for discussion of multimodal issues. -51- 4.3 On the other hand, there have been cost overruns on a number of components reflecting weak project management. Nonetheless, successive Goverrments have reiterated the policy of rehabilitation and it is now an integral part of RDA's thinking. The Road Passenger Transport Project (Credit 994-CE) underscored the complexity and inefficiency of the public sector's operation of buses despite its attempts to improve the situation. Nevertheless, it contributed to policy reforms which helped to remove some restrictions that had constrained private sector operation of buses by allowing higher tariffs, and direct importation of buses with incentives and free entry. The Economic Restructuring Credit (Credit 2128-CE, June 1990), which built on this early experience of reopening bus transport to the private sector, is supporting a full retuzn to private operation. Transport projects in Sri Lanka, although a few in number and relatively modest in size, are sustainable, and their impact has been positive. 4.4 IMC-CPT/TSPC, established under Loan 2517-CE, provides a forum for the first time for discussion of intermodal issues relating to the railway and bus transport, Colombo urban transport and mobilization of resources (e.g., through user charges) to finance increasing road maintenance requirements. Its transport data bank is available for use by other organizations, and is designed to meet the needs of planners, researchers, operators and managers in the areas of: (a) transport demand; (b) transport supply; (c) operating costs; (d) investment costs; and (e) regulation. This new focus on coordinated planning is much needed and has already served a useful purpose by supervising execution of the Transport Sector Planning Study which it produced in January 1988. 4.5 IDA's future strategy must build on its past experience and emphasize only priority areas for which it has a comparative advantage over other donors. It should be based on the following criteria: (a) rationalization of investment programming and agreement on capital and recurrent expenditure priorities; (b) appropriate pricing policies and resource mobilization; (c) support for strengthening of institutional capacity to manage financial resources and maintain and operate facilities and services; and (d) assist in the introduction of cost effective services (including privatization and suspension of non-economic services for which subsidies are not justified). The strategy must be reflected not only in lending work but also in economic and sector work, supervision and in relations with other donors. Highways and road transport (including buses) are likely to remain the key areas of involvement but there is also a case for rail if the Government actually undertakes the proposed restructuring. For now, financing needs of ports and shipping, and airports and aviation have been met through OECF and suppliers' credits, and there is no need for IDA involvement in financing physical works in the near to medium term. -52- B. Donor Involvement 4.6 In addition to the Bank's assistance, the Government of Sri Lanka has enjoyed the financial support of various donor agencies in all subsectorst roads, railways, ports. airports and urban transport. Annex 7 provides a summary of the major donor-funded projects in the sector. In particular, ADB, OECF and ODA are active in assisting RDA in the road subsector. ADB's two road improvement projects involve rehabilitation of 705 km of roads at a total cost of US$73.6 million. An OECF loan of US$99.4 million, implementation of which has just started, is primarily for the purchase of road maintenance equipment, tools and consultancy services. The Japanese Government is considering financing the Katunayake expressway and a new road between Trincomalee and Colombo; however, its economic viability is yet to be established. ODA financing of US$22.0 million was provided for repair and rebuilding of 12 km on two major trunk roads in Colombo--Galle Road and Prince of Whales Avenue. Also assisting in the roads sector is the Economic Development Cooperation Fund (EDCF), Republic of Korea, with the rehabilitation of about 101 km of roads between oolombo and Galle (US$14.5 million.) 4.7 Port development has been undertaken principally with Japanese aid. The railways have benefitted from a number of donor projects, including financing from the Overseas Development Administration (U.K.) of a project for track rehabilitation, French aid in the modernization of maintenance facilities, Romanian power cars, Indian aid in the rehabilitation of the railway communication system, and Germany (GTZ) for improved maintenance and operations management. An OECF loan of US$69.0 million equivalent is intended for assisting SLR in rehabilitating locomotives and maintenance workshops. Under a French Government grant, feasibility of suburban railway electrification is being investigated. UNDP is also financing a US$1.2 million grant to strengthen the bus sector and especially to help make a smooth transition of the public industry to private ownership and operation. Donor financing from IDA (para 4.1), ADB, Japan, U.K., Canada and Germany for an Emergency Reconstruction and Rehabilitation Program includes funding for repair and rehabilitation to roads, bridges and railways, and purchase of buses to restore transport capacity. C. Need for Donor Coordination 4.8 IDA has taken the lead in arranging donor coordination for transport; meetings in Colombo have been productive, with wide participation of transport agencies, the Ministry of Transport and Highways, the Ministry of Planning and Policy Implementation, the Ministry of Finance and IDA. Through such meetings, the Government keeps donors abreast of each other's activities and discusses significant sectoral issues. To date, there has been substantial success in reaching consensus on approaches and overall sector priorities. These efforts must continue, since donors may differ significantly as to objectives, sectoral and subsectoral priorities, institutional improvements, and the nature of support they are willing to provide. Such meetings are providing a good forum for the Government to discuss and reconsider its policies and to become aware of the need to formulate its own strategy to deal with specific donor agencies. It must adopt a strategy of capitalizing on the comparative advantages each donor agency offers. LLL ALL& TUANSPAtU SECTDR aHNDRAMOUM obt3e.l Read Pr,ncial R Lal Reed R.V.A. Provincial Cei a Loal oeraeato Special ita Agowi. at Grand TOtl Total Pbvd _mber o P ;revicm Paved Utved Total Paved tWavd TOal PaWvd Upaved Totl Paved Ureved Total ha D km s or.dea Veetra 1464.45 - 1484.45 162.04 695.15 186. 19 2626.98 5862.64 1.82 76.54 16.29 14.77 10.67 l.2 a A A 51.01 1e 1026 control 1412.08 - 1412.18 1921.59 57.74 2601.83 66.34 26.81 86.95 007.67 4054.71 494.66 278.74 12.5 49w8.6 1u S:y sm_ter 114.6 - 1148.6 1163.87 60.06 1786.4S 7961.66i 4s67.60 864.If 5.47 419.0S 424.60 6748.74 9.0 3234.13 *0 U5T Hor*th/Eteu. 27.80 - 8287.60 1626.58 784.67 2611.20 7.64 941.60 10o69.4 63.86 218.25 2196.60 1769S.04 16.2 5735.52 19 W5 tbrthAijg."r 1266.38 - i6.8 1864.64 6l.70 2056.24 267.85 115.9s 11448.25 54.90 804.05 86.95 15124.00 15.5 2973.67 1o 445 brthr-C.etal 872.40 - 872.40 M0.29 665.67 174S.9 71.06 6a6.79 s707.62 117.91 4S2.01 549.92 11876.10 12.2 2278 G3 7 SS7 WA 927.91 - 927.91 3102.77 49.66 1502.48 2s7.78 194.60 182.86 925.19 2186.80 813.99 7876.66 7.6 3153.60 1o 841 Sabaragmisa 1041.97 - 1041.97 s64.64 277.06 1141.70 748.81 22S4.20 299.01 8s5.01 2760.82 8114.48 8296.11 6.5 3004 33 10 MO Provincial Sp#it lk"a" N.A. N.A. 6S02.67 8S2.67 8.1 totala 10442.42 - 10442.42 19.n77 4506.7s 161.05 7010.24 46M.92 O4M.76 2606.14 13,66.60 21986.61 97375.29 100.0 80752.57 10 GM6 Wiatribqgtian of hrrisdictien 6 10.7 15.7 5s.7 19.9 200.0 IA I 3/ Spotai.ad heiece - J1eetha Eta Devolepeatt 8eard -Sri Lan t Plantatiee Corporation - Irr;Ostion Departeat - Forst Deprtant _ Ib1o; Autbority - Ld Colisoi0r Dooart.at Seor": FM, traffi;e _d Plming Division. February 190. I S. SRI LAWA ANWPRT SECTO Table 2: S WRY OF PR0IWSIONS/EXPI01TURES ON ROADS - (t Mil I on) Year 1 9 I 1980 1981 1982 1083 1985 1988 1987 198 1 N1rf 24,767 25,150 25,150 25,160 25,150 25,48 25,457 2,476 25,5 25,68 25,679 25,679 Km. _s1sal BgdI_ 8.1 5.4 6.9 0.6 0.9 1.6 1.8 2.8 8.0 18.8 6.7 8.8 Actual 8.6 6.1 0.7 0.8 1.1 1.7 1.2 2.8 2.9 9.7 s.9 N/A Uaibeoeae Of Budgeted 6B.0 81.6 95.2 140.0 154.1 172.6 1I.5 418.0 850.5 260.0 280.0 260.0 redl, bridgs NW culverts Actual 70.0 97.8 122.0 184.8 158.8 178.2 870.4 116.1 219.1 246.7 224.8 26.0 lhbObiiitstio. .o Budgeted 58.0 142.5 867.2 259.0 255.S 225.0 221.0 611.0 O68.1 940.0 695.0 2,S92.9 _iaprevust of capital eas Actual 102.0 265.8 407.4 21S.4 285.0 202.4 $02.6 678.6 678.2 704.1 65.2 1,014.8 TUTAL Budgeted 112.1 226.6 469.2 899.8 410.6 299.4 401.6 1,069.8 1,016.6 1,200.0 1,161.7 2,861.7 Actua1 175.6 85.2 580.6 850.5 888.9 260.7 674.1 797.0 1,098.2 1,040.6 878.9 1,274.6 of of v- eitem is due to delay is precf oqmn1t financed by OECP. NMTES: - weel Adeistration: include provision for RDA and Ministry and xoWmdlturs. - lmietemamas: includ recurrent provisions and enpenituros for roade, bridoe, culverto, causeways, etc. - RSubabi litttof Capital Assets: Includes foreoip-fundd projects, I.e., construction, additions to nd i of o , brid, structures, buildins and acquisition of plant and oqu;ient. Source: Road B .omIt Authority, Apr) i 1900. Ig fRl LAW TaMs, S. Vskitc ftb§;tr tcie_ by Clu of VAWec l¢Im llB teBt 1ell 2914 lsas t1# 1 ftbCt o. S tD b . "t.5 lb MD. MD *. * . . S RMNI 1D,#IS UDn858 SW=|1i 84.01 MAP s 82.0 UB,t# SAS1.4S . 20.9t UM., 59.65 )WS,524 27.0S lat,GP7 25.S J49,Ol * Sb.410 _9mcge ".eG3 89.95 9,Ot Z$.U 107S4|5 fi5.1 M21, 27.W1 1811, :#9.2i IB1,87 81.01i IW.77 33.2 210.441 MlS$ 22.,Do- I!S.5I _go 8t,W2 8.2s 28,002 S.8s 56,172 .0.6 8b,6 tonnes 67.04.80 Commercial vehicles 4U12 904.8 8877 777.9 87 .04.82.08 87.04.82.01 Tankers with stainless steel tanks 1 0.8 a 8.8 87.05.00 Special purpose motor vehicles 778 222 1647 489.9 crane lorries, fire trucks, mobile workshops concrete mix trucks, etc. ----------------------------------------------------------------___-----------__-------------------- Sub-total lorries 6716 1271.1 6038 1400.9 87.06.00 Chassis for 8702 87.07.00 Bodies incl cabs for 6708 8407 207.4 8286 208.1 67.07.40.01 Bus body kits for SLTB 87.08.99.01 Chassis not fitted with engines for vehicloo GVW>1760 kgs. ---------------------------------------------------------------__------------__---------------------- Sub-totsl chessiw/bodies 6407 207.4 8286 208.1 87.08.00 Parts A accessories for 8701-8706 2497876 282.6 2.9E.09 808.1 ---------------------------------------------------------------__------------__---------------------- 87.11.20 Motorcycles 80846 262.6 80997 268.1 67.01.04 87.00.08 87.00.08 -----------------------------------------------------------__----------------__---------------------- Sub-total motor vehicles 52528 8196.9 57286 8972 40.11 A&M Tyres for motor cars, buses, lorries 496047 170.8 662222 179.6 40.11.01 Tyres for motorcycles, scooters, etc. 71605 12.2 95492 16.6 ------------------------------------------------------------------__---------__---------------------- Sub-total tyres 567652 188 677714 196.1 TOTAL 8662.7 4471.2 Source: Extroordinary Gazette of OSR of Sri Lanka, No. 6C4/7, June 80, 1989, and Sri Lnnks Customs Import Tariff Ouide, 1906; Presidential Tariff Commission, 190. -81- 13ex 2 F&Pe 5 of 13 SaI IAKA Attachment 2 TRANSPORT SECTOR I0RANDU DMTY, CESS TRNVER UK RATES ON VEHICLIS, HACM 1990 Outy on 'rue" ever 058 Code it.. CSP Voluv tax 87.01.20 Read Tractor fer seal tai ler 3 .06 12.5r 07.02.00 Pibtl Service tbP D _eeenor vebicle *"titt capacity 10-1 mIal driver 35.06 1.85i 1-24 tacl driver iS.016 12.8 )44 10.05 12.35 Noteo As of January. 10, now pibile orvice bus. with sating capaeity e. eedwia 25 paa.eonera can be iqa@rted duty fret (with p1 Abi oer-lce certifleaSe created by the Ministry of Tramaort) 07.0ti21 IPa ear care: up to 1D00ee (disal/Peptrol) CIP Vlve up to Re i 0.000 80.81 20.06 10.0l Next R. 100.00 (150,000-280.000) 78.06 20.01 10.0I Neot Re 100,000 (28000-0040000) 100.06 20.0X 10.06 Sacee. over Re 380,000O0,000 200.06 0.06 10.06 00 10.06 20.06 t7.03.22 Piaeener Care: 1000-I800cc CIP VIVO up to Re 180,000 80.86 2D.0O 10.0O Mest Re 100.00 (180,000-2M0.000) 78.06 20.06i 10.06 Next Re 100,000 (2,000-880.00O0) 100.06 20.06 10.0O Ebce. over Re 50,000)810,.000 200.06t 20.06 10.06 Om 10.0 20.06 07.06.28 Pseoenger Care: 1800-3000 at CIP vivoe up to Re 00,000 100.06 20.061 10.06 Nlext Re 40.00 (00.000-120.000) 180.06 20.061 10.06 bnces. over Rs 12.000)120.000 200.061 20.06 10.061 OD 8.006 0.06 10.06 87.06.24 Peoseener Cars: over 3t O cc CIF vita up to Re e0,000 100.06 20.06 10.06 Neat Re 40.00 (0,.000-120,000) 18O.061 20.06 10.06 Esceap over Re 120.000)120,000 200.06 20.061 10.06 00 80.06 20.06 to.O6 87.04.21 C4 mecial vehicle. (lorries a VeD") (diecl) oW 170-2800 kgu e W80 IO.112. OW U280 boo. 12.06 12.86it 0704.22/25 OW 15 tne.r 15.05 12.5i 87.04.J0 Ceercial vehicles (petrol) 2800 ika 35.06 12.86 )am00 ikg. 18.06 12.56 07.04.62.0 0W> S te. 1.06 1.551 07.04.62.01 Tankrer with etelale.* eatel teak. 8.O6 12.81 07.05.00 specil Pureeas mtor vehiclee (erene torrne., fire trucks, emblie werkdce. concrete six tracks, ete) 28.0 12.55i 07.06.00 Clhasis for M702 1.06 11.311 (7.5 for Owagkck Are_eset countries) 07.07.00 BOdile. mrct cob, for 703 8.6Oi 12U.65 10.06 07.07.40.01 Ban body kite for ST9 8.06 M.2S. 07.00.00 Parta * eceeorltee 07014705 45.06 12.85t 67.00.09.01 Cheie not fited wit*h eaoinee for vaehicle 0 5.06i 12.65 07.09.00 Weak1 truak,. forklift o4 pert. 8.06 12.tti 07.11.20 Nietorcyclo 07.01/.0 )>200 cc fre. fre 87.00.06 )>200)2S0 cc Ca00 0.o0 t2.55 07.00.00 )200,280 cc 20.06 12.55 e7.U.20 Other 00 10.06 12.65t Other 20.06 12.65 07.14.00 ttetorcyclo Perte 5.0t S.Oi 07.u.00 Tr & ceal-traller, for tr"aneort f goeecd OW(10.000 kgo 80.06 8.0os Other 8.0 5.061 40.11 AS Tyre, for aewr care. bvre. lorries SO.0i 10.0 10.06 40.11.01 Tyr" for atorcyele, cotere. etc. e0.0o 10.06 10.06 Petroieua £ peeroleum product. 27.10.00.02 refined erodeta, eMtr apineta 45.06 20.06 Swr..: litreordtlary Got%et of OR of Sri Leanka, No.804/7. ao e 1909, A Sri Lak. Cuat.. lPert Taiff Guide. 1907; end Pre.ldentlal Tariff Caisale"o. 1o0. -82- Annex 2 SRI LANA Page 6 of 13 Attachbent 3 TRANSPORT SECTOR MEMORANDUM ANNUAL LICENSE FEU POF MWOT ENCL, 1"? V *hlel Type Unloudr/@rose vehicle welght Fee (Re) by type of fuel .......... ..........sa a on a....c Petrol Diesel Car, ambulance heareo, or jeep, ether private pese veh <0 kg t230 800 )?OIkg(1016 kg. 1000 >soa hs(W kg 1000 2000 >1270 kg. 100 8000 Lorry, Incl. troller (2000 kg 800 S00 )20kg <3000 kgo S00 120 80000 0 OCO@ 1 kg 1000 000 318000 kg (20000 kg 2000 4000 210000 kg (2s00 hge a3m0 g300 320000 <80000 kg 8000 G000 380000 kg. 8500 7000 Duel purpose veh. (1000 kg ag0 0 (goods and passengers, >1000 kgo (130 kg. g0 730 not oxcoeding 0 passengers) >130 kg (2000 khg 1000 1800 32000 kgo (2500 kg 1500 2250 >2600 kg. (8000 kgo 2000 8000 >8000 kg. (8500 kg a20 8750 >3500 kgp (4000 kg 8000 4500 )4000 kg 8500 5250 Public Poo.nger Vahicle Foe/"ssn r ost SLCTS/RTB re Buses other then SLCTS/RT9 60 (mInimum feo of Re 1200) Motor cycles, motor trlcycle", 200 Sources: overnment Notice Department of Motor Traffic; Annual Licence Fes for Motor Vehicles (Section 81) (1067) -83- Annex 2 a g7 jTof 13 Attachment 4 SRI LANK TRASPORT- SECTORIEOAU AINUAL LICENSE FEE COST/1000 VEH-KM .h.bk/yt ""U*lf F-0/.00 veh.kg 6v11.1,1 Ammata F,,/000 v.h-hl Vd.cle tpg. Ihalsden/Ormvehicle Do;pt (@0adj) 1/ (mdi. *o syr bo ie) (°) 2/ 'LI 2/ Potfol Diese_ Pltrol D Cor. amulance.. Imree. or Jo". other privet0 P0 web (62 kg 9.25 27.0 8d.1 t2 20.8 41 7 742 he <06 kg 9.25 54.1 106l. 12 41.7 8 3 >IO016 k1*m kg. 9.25 106.1 216.2 12 83.3 166.7 317 kg.s 0.25 162.2 624.8 12 12.0 250 Loery. inol. ;lior (2000 15 is 20.0 40.0 25 12.0 24 0 1AXID loffu& Ikg. 15 40.0 80.0 25 24.0 480 )SO OkS(lwOOO hg 21.1 47 4 94.0 40 25.0 500 3,10000 koa8cm has 21.1 71.1 142.2 40 87.6 75.0 ).I:N 119000M hks 26.8 76.0 112.1 so 40.0 80 0 80000 h 00kfaim k. 26.80 9 5.1 190.1 s0 80.0 100.0 >25000 lk4O800 1kg 81.4 94.9 18.9 so 50.0 1000 :806 kg. 81.6 110.8 221.5 s0 50.3 116 7 &*I purge" web. (100 k. 15 16.7 98.8 25 10.0 20 0 (goad NDW 904agore. _ ,1000 k908<110 kgs 1s 83.3 80.0 26 20.0 30 0 got e.d;re 9 Pbeo.r.M ) 1001 ki0001U 68.7 66.7 25 40.0 52 0 )2000 kg.4*W kog 19 t7.9 118.4 25 60.0 90.0 qU00 lo(d00 kig 19 106.8 1n.9 25 60.0 120.0 m000 kh<(S00 kg. 19 l8.6 197.4 25 100.0 1S0 0 MM kg"4000 kg 19 157.9 28360 30 100.0 150.0 eg. 19 184.2 276.s 40 07.5 131.3 Public Puamenr Vehici@ ILThIWT age" other wtan 61717 42 71.4 80 87.5 IbOeryel... "*or, tuicycles we"n I o 6 9 22.2 0.0 Source: Government Notice, Department of Mcotr Traffic 1/ Annual veh-km's adjusted downwards from TSPC detimate to correspond with fuel consumption estimate. 2/ Estimates made under the Third Roads. Project, Feasibillty Study -84- Am"x Pose 8 of 13 Attachment 5 SRI IANKA TRANSPORT SECTOR MEMORANDUM DEPARTMENT OF MOTOR TRAFFIC REVENUES, 1984-88 (Rs Millions) Annual Turnover Other Total Total Year Licence Fees Tax Revenue Revenue Revenue (Current Rs) a199O is) 1984.0 140.2 8.6 83.3 232.1 390.8 1985.0 149.3 9.8 95.7 254.8 356.4 1986.0 231.1 11.5 98.0 340.6 473.5 1987.0 279.2 11.6 90.9 381.7 500.6 1988.0 217.9 14.3 96.8 329.0 399.5 Percent chglyrt 1984-87 18.0x 8.6? Percent chglyr: 1984-88 9.1? 0.61 Source: Department of Motor Traffic, Colombo, 1990 -85- Annex 2 Page 9 of 13 SRI Attachment 6 TRANSPORT SECTOR MEMORANPW CPC Annual Sales, 1984 -1980 Petrol Auto Diesel Olesel-Rd Use (2) YEAR (OOOn.Tons) (Mill Litre.) (OOOU.Tons) (MlII Litres) (MlI Litres) 1984 119.0 168.4 481.0 568.5 516.7 1o8s 122.0 160.8 488.0 676.8 523.2 1986 180.0 170.8 487.0 676.6 622.1 1987 140.0 184.0 498.0 586.8 581.7 1988 158.0 207.6 499.0 689.8 586.0 1989 172.0 228.0 479.0 66.2 513.5 Source: Cey lwon Petroleum Corporation 1) Actual & projected sales, CPC Corporeot Plan, 1990; 1990-94 pre,. :routh applied 1995,98. 2) Roa use portion based on CPC and SLCTB Planning Department estimates (90.71 of total consumption). SRI TRANSPORT SECTOR NODUII EZEMNTED 1988 VEHICLE FLEET ESTATE 1/ vab am A4. Nasa. %am ho A& Roko 60 sd 6Wm lea cm.Iuia aw ma MC am musm 30 Ral AinWmsV §~ I-momol - IWtO_ tt-s m 1_ letmANmmie Slam fi,l lb i@ goo0iotal R1e1"o6m- logS R1006kwt loSeS SlsIoOOlau lega arOOk lFotal AaIOOb lowe m "hho lowis Umaw Cy 60 13.* Me*0 50164 196. St6 466 46.6 n 122 6 660 222 346 16655 Onae 051 Cu 9.5 1428 suit 05A MCI1. 1405 154 5640 463.0 14606 a 049 401 SI 2966 * 56120 361FM Isu-id so-& 6.2 6s1. 5290 as'.s 2 15.0 6600 391 #9N60 6304 6500 90 '555 216 30o piclp-po 60.5 t4y 20.5 6420 161.0 flat Got 161.0 s561 U5S0 a S1I 240 60 1621 568 5ta # P.Sapdos 132 #se 2224 3066 60o 2126 472 56s0 122t5 550 a 230 400 lOt 1612t 5120 35% lobso.-po s2.0 9 2.1 655 "we 151 4 $621 135 US* 432 4640n 30 0o0 42 2646 2510 *a W Ilalmbo 21.1 5. 10 16e 61.1 662.1 12.1 S6e.0 40.4 4640 56.2 2000 t1o 262 ti660s 0 d0t. $1.6 u.5 465 4635 352"2 4300 229.5 456.0 2M6 a 0 530 460 251 1641 M00 6 am Lgbo 42 t 15.1 Ss6 654S 460.5 4540 2560 4410 2432 go6 1120 24 4 13 10311 son 95% - 1u44.41 2at1 69 55O0 450 154.1 326.0 1661 4140 1413 3300 120S 300 toI 1450 59o so0% f hUg11 IO ti 15. 5 264.32 So *so5a 4200 119.4 4460 1213 3510 0s5 9 00o 14a low 5123 463 %o 125 263 10.6 2169 6660 246.a 4032 162.5 4215 6lot1 a100 0 600 681 20291 56o2 511% ]M* 6I SI 54 t0y4 9s51 1629 611.6 66" 16.O s6t 5452 56 a 150 of 250 21s a * 2G luw* DI 216 5.4 1014 l0660 116.1 94t0 OtO l0600 110.0 1412 802 500 S4 3992 4M06 S I Sam -$.6 1.1 #4.1 1291.2 451 106 3 20s9 122.4 424 a06a 311 120 25 4*49 s a ato *4ft lOSe 495.4 560.46 4140.2 1409.9 2041.5 Ss2".? 221.5 19648.4 100.63% love: ooad wor tax ratoes bood o difoteraco b _t... 19900 fi;c;il sod cco_ic vob .cle operoting coot doerved froe tsb Third Road Project. AmamI vehicle Sue edjusted downward from 1br4 Road Project estimate to corrooped with (PC tvol conaaoptioo. 1/ Estimated based on the tax rates in effect as of March 1990. :0 01.' et CD. Annex 2 Page 12 of 13 Attachment 9 SRI LANKA TRANSPORT SECTOR MEMORANDUM ESTIMATED REVENUES FROM MOTOR VEHICLE SECTOR, 1988 Revenues X (Re mill) share Vehicles & components (tariff code #87) 1017.2 of which motor veh. est. (1) 901.1 21.42 Tyres (Code 140.11) (2) 89.9 2.12 Subtotal s Import duty rev. 991.0 23.52 Turnover tax, veh & comp. (BTT) 688.2 16.32 Licence Taxes, vehicles (3) 217.9 5.22 Tax on saleltransfer of veh. (3) 14.3 0.32 Fees - Motor Traffic Act (3) 96.8 2.32 o.O0 Fuel Tax Remittance to Gen'l Rev. (4) 2205.2 52.32 Total Revenues 4213.4 100.OZ Notes: (1) Customs value and quantity of imports, 1988, Tariff code 87; (approx 872 of category) (2) Tariff code 40.11 (3) Actual receipts for 198e, "Estimates, 1990, Receipts of DSR of SL, Abstract All (4) CPC contributions to Exchequer, 1988; alloc. by refinery cost share and yield; CPC total tax, duty + BTT + Rs 4947 million with Rs 2205 million attributable to road sector for diesel, 598 million litres consumed in transport of which 90.72 in hwy portion as estimated by CPC, also comparison with estimate by Planning Department, SLCTB. -89- Annex 2 Page 13 of 13 Attachment 10 SRI LANA TRANSPORT SiCHTOR HDO ESTIMATION O WORt REVEIIES, 1918 I 96s0 Import Douty A Sy CalO. (RS e llion) HO.Of UnIto Cif Value Duty Rate Duty Rev OTT Rate BTT Rev Road tractors log 67.7 0.1 2.9 0.1 7.6 Motor cars, (1500< c 0,60 1,080.0 (RsS160000 0,587 900.0 0.1 96.1 0.2 21S.7 Next Rn 100,000, Rs15250,000 150 48.0 0.0 26.1 0.2 13.0 Motor care >1600cc R1lO0,000. 848 164.4 1.6 246.6 0.2 82.2 Publ ic Svc veh (25 sete 200 51.2 0.2 7.7 0.1 7.4 )24 ote s1i 22.0 0.1 20.2 0.1 36.0 Other motor v.h. lorries, van* (250 kg 1,106 170.0 0.4 82.9 0.1 30.S >2500 kg 8,877 7T.0 0.2 116.7 0.1 111.8 Special purpose lorrlee, vane, othero 102 8O1.8 0.8 90.3 0.1 56.6 Chas with engine 201.6 0.2 30.2 0.1 29.0 Partes components 808.1 0.5 138.4 0.1 U4.9 moter cycles <250cc 102 4.8 0.1 0.4 0.1 0.6 >250cc 80,400 28M.0 0.2 56.6 0.1 42.6 Totel J ,0.0 901.1 686.2 -90- AJSe 3 Page 1 of 11 SRI LAIKA TRANSPORT SECTOR MDRADM Strategies to Increase Effectiveness of Road Maintenance 1. Management of road maintenance planning and execution of works has not been effective for three main reasons. First, no planning criteri.i (such as up- to-date information on road inventory, condition, traffic volumes and axle loadings) are applied to define types of periodic and routine maintenance works needed on particular sections of road and to determine annual priorities. RDA's maintenance program is a list of types of maintenance work proposed to be undertaken and their estimated costs without any supporting data. Second, maintenance practices are outdated and ineffective. Third, funds for maintenance work are inadequate. Optimization of Available Resources 2. The first order of priority is the adoption of a pavement management system as a planning tool. To accomplish this, the planning sector must annually assemble data on road conditions, traffic, and pavement distress and evaluate different options for surface treatment to determine the most appropriate category of maintenance work. A conceptual framework expressed in the following diagrams - - =tIRI, SDI 7 M - minimum routine maintenance (no / R / / surface patching) R - full routine maintenance P - periodic maintenance B - betterment / / B SDI - surface distress index IRI - international roughness index ADT - average daily traffic, ADT vehicles per day The above diagram indicates different levels of surface treatment that would be appropriate for different combinations of pavement distress, surface roughness, and traffic volume. In times of budget constraints, the dividing lines would be shifted to the right, i.e., undertake less of the most expensive treatments (betterment) and more of the least expensive. These options could be further refined to determine alternatives within each treatment class to prevent as much -91- Amex 3 Page 2 of 11 deterioration as possible while keeping vehicle operating costs to a minimum level (for instance, undertake less costly patching works and surface treatments for periodic maintenance, instead of costly overlays). When funds become available, more substantive treatment could be accomplished. To determine different types of maintenance and road improvement required, a road network matrix could be developed based on traffic and road condition data. Attachment 1 shows the matrix development in Indonesia which could be adapted to Sri Lanka conditions. Modernization of Maintenance TechniQues 3. Patching work is performed in the following ways: (a) The pothole is roughly cleaned and its surface covered with a liberal application of bitumen. Hand broken stones of approximately 100-75 mm are then packed into the hole and the surface voids are filled with sand. A second coat of bitumen is then applied. Such repairs seldom last more than one year, and yet about 60? or more of funds allocated to routine maintenance are spent on patching using this method. A more effective method would be to properly clean and trim the pothole before priming, apply patching material from asphalt mixing plants and compact the surface with a ro'ller. Repairs made using this method would last at least until the next overall surface treatment is carried out. (b) The most commonly used form of surface treatment in periodic maintenance is the application of sand seals. Tnis method produces variable results; on some roads sand seals produce a sea of bitumen on the surface which is extremely slippery when wet, and on others the old surface is exposed as a result of an irregular application of bitumen through labor-intensive methods. It is common to see potholes appearing quickly in areas where insufficient bitumen is applied. There are more effective surface treatments which can be adopted in Sri Lanka. The most obvious is a proper surface dressing using stone chippings instead of sand. A double surface dressing is a particularly effective way of arresting surface disintegration and sealing the surface to prevent water from entering and weakening the pavement. (c) A thin surface treatment is applied to a pavement which is evidently too weak to carry the current volume of traffic. In such doubtful cases, it is best to arrange for a deflection survey to find out how weak the pavement is and what thickness of overlay is required. In the event that funds for such an overlay are not innwliately available, a single surface dressing may be applied to prevent pavement disintegration until funds can be found for the required overlay. Restructure MDA's Road Program 4. There is a need to rationalize the classification of RDA's program which is rather confusing. For instance, under recurrent expenditurea there is -92- Annex 3 Page 3 of 11 a category called *repair and maintenance," while routine maintenance and repair to flood damages are listed under capital expenditures. Also, capital expenditures include items such as DBST (double bitumen surface treatment), sand sealing, and metalling and bitumen surfacing, all of which would be classified as periodic maintenance rather than under rehabilitation and improvements. A new classification should be developed along the lines outlined in Attacbment 2 to bring clarity and consistency into the terminology, particularly into the various categories of maintenance and rehabilitation activities which are frequently combined in current projects. The definitions for various road activities have been developed to be compatible with various distinctions between capital and non-capital expenditures, and to encourage a more flexible interpretation of financing criteria. 5. In the Bank's terminology, routine maintenance is financed through annual expenditures and resurfacing categories through a planned program. Resurfacing and rehabilitation works are an integral part of maintaining the physical serviceability of a road network to meet current needs, and of preserving the infrastructural investment. Betterment, and reconstruction, like new construction, enhance the functional and physical standards of the existing network and thus clearly add to the capital stock; these works are typically part of long-range development programs. 6. Attachment 3-7 show the estimated hypothetical, idealized maintenance and rehabilitation expenditure requirements. Attachments: 1. Network Matrix Used in Indonesia 2. Classification of Road Haintenance and Improvement Works for Paved Roads 3. Highway Maintenance Expenditures-RDA Centralized Budget 4. 1989 Road Maintenance Budget Estimates, Ministry of Transport & Highways 5. Hyphotetical/Idealized Unit Costs and Quantities for Road Maintenance 6. Network Maintenance Budget, 1996 (Hypothetical/Idealized Program) 7. (a) Allocation of 1996 Hypothetical A & B Network Maintenance Costs by Category (b) Allocation of 1996 Hypothetical A, B, C & D Network Maintenance Costs by Category. Wi- "AWW* Ob,.ix ine t. lidn~I (For posible adaptation to Sri Lankaa', Road) tRAFFIC RAHOE tAALD/a Esicmated SO0000 1,000 £ 0D 200 R _wghnm DRI r >i0,000 - 10,000 - 3.000 - 1.000 - 500 <200 2,00Dm <4 Routine Mu ntenance Routine Maintenance Routine Maintenance Routine Maintenwnc Routine Mu intenance Routin- Maintenance 8,6o0 _ 4-6 mm waw _mm Is R lrnME -A IL 4-OM) (Aa L * MM) (AIIL * MRS) Routine Shintnance Routine nMIntenance Routine Ma ntenantce MA1NTDWEACE 5.000 . 6-8 U EM dm ao mI (ATUL ATO + NS) (AtL ATO HR6) MO (ATOL WS) (ATM. + MO (ATE. ) Routine HRSntennce 10,000 - 6-12 (ATBL ATS + HRS) (ATiL + AT. + MS) (ATRL + AH1 * S3 ) (ATEL + AMS * B) (AXTL * NSM) Routine Maintenance 10.000 - over otruct n (Recenruction (t_cotrnct;on (RecCeIon (Reconstruction Reconstruction IEr17i4 122 tote=a) with MotatWm) wibth oil,) *itb Mitx) VIth Dom) with DEST) Averae annuaI daily tWfic. A1 Inteunetionl r_oughne ;index. AT9 leelling layer end HRS urace (80 u ATB levelling * 40 a ATB. in Sur faci ng. Pavemnt reconetructien using cruhd rockbae and other eurfrce dreeing or MO surfacing/paving of gravel raeds. I X -94- Annex 3 Pap 5 of 11 Attachment 2 Page 1 of 2 SRI LAKA TRANSPORT SECTOR MDORANDUJ Classification of Road Maintenance and ImProvement Works for Paved Road8 1. Routine Maintenance. Localized repairs (typically less than 150 m in continuous length) of pavement and shoulder defects, and regular maintenance of road drainage, side slopes, verges and furniture. (Examplest pothole patching, reshaping side drains, repairing and cleaning culverts and drains, vegetation control, dust control, erosion control, snow and sand removal from travelled way, repainting pavement stripes and markings, repairing or replacing traffic signs, guardrails, signals, lighting standards, etc., roadside cleaning, and taaintenance of rest areas). 2. ResurfaciD4. Full-width resurfacing or treatment of the existing pavement or roadway (including of minor shape correction, surface patching or restoration of skid resistance) to maintain surface characteristics and structural integrity for continued serviceability. (Examplest slurry seals, fog seals, or enrichment treatments; surface treatments (chip seal); friction courses; thin asphalt surfacings typically 25 mm or less in thickness. The terms "preventive maintenance" and "periodic maintenance" had approximately synonymous meaning in previous usage. 3. Rehabilitation. Full-width, full-length surfacing with selective strengthening and shape correction of existing pavement or roadway (including repair of ainor drainage structures) to restore the structural strength and integrity required for continued serviceability. (Examples: asphalt concrete overlays, selective deep patching and overlays, granular overlay and surfacing, surface treatment with major shape corrections, recycling of one or more pavement layers. The term "strengthening" is sometimes used for a particular category of rehabilitation works. 4. Bettenient (or Improvement). Geometric improvements related to width, curvature or gradient of roadway, pavement, shoulders, or structures, to enhance traffic capacity, speed, or safety; and including associated 'rehabilitation' or 'resurfacing' of the pavement. 5. Reconstruction. Full-width, full-length reconstruction of roadway pavement and shoulders, mostly on existing alignment, including rehabilitation of all drainage structures generally to higher roadway, pavement, and geometric standards. 6. New Construction. Full-width, full-length construction of a road on a new alignment, upgrading of a gravel or earth road to paved standard, and addition of new lanes or carriageways to an existing road. Sources Infrastructure Department, World Bank -95- hML Page 6 of I1 Attachment 2 Maintenance Cateaories and Activities for Unpaved Roads Page 2 of 2 Mode Activity Effect Routine Spot regravelling Fill potholes and sall depressions; Maintenance reduce roughness, exclude surface water. Drainage and verge Control runoff of surface water, reduce maintenance erosion and material loss, improve surfacing and subgrade strengths by lowering moisture contents. Dragging Redistribute surface gravel, fill minor depressions, improve safety. Shallow blading Redistribute surface material, fill minor depressions, reduce roughness. Dust control Controls depth of loose fine material and dust loss. Resurfacing Full regravelling Restore required thickness of surfacing. Deep blading with Reshape road profile, reduce roughness, reprofiling and/or and rate of deterioration, improve crown recompaction and drainage. Rehabilitation Major regravelling Improve strength shape, drainage and after ripping, recom- performance. paction and drainage rehabilitation Betterment Rehabilitation and Improve the geometric and structural geometric improvement, standards. drainage rehabilitation Upgrading earth road Improve structural standards, to gravel road performance and all-weather passibility. Sources Infrastructure Department, World Bank SRI LAMK TRANSPORT SECTOR -0-M-1A6D0" IIGUVAY MAINTENANCE EXPENDITURES-RDA CENTRALIZED BUDGET (Rs. Mill,) (Average of 1988 Actual and 1989 Provisional RDA Allocations) Total 1988 Allocated Expenditure by Cost Category Expenditure Routine Periodic Capacity (AVg. 1988&§89) (veh-km) (ESAL) (Pcu-km) Routine Maint 276.3 276.3 Surfacing 184.6 184.6 Surney & invest. 0.2 0.2 Re. flood dam. 12.0 12.0 Br. Imp. 0.0 0.0 Rebab. A&B Rds 125.9 125.9 Imprints, rds & brs. 127.7 63.9 63.9 IBID II Prog. 274.1 137.1 137.1 Subtotal 1000.8 288.3 511.5 201.2 Emergency/rehab 104.7 104.7 Subtotal with emer. rebab 1105.5 393.0 511.5 201.2 ---------------------------------------------_-------------------__----------__--------------_____ Recurrent Exp. 102.9 102.9 Total with recurrent expenditure 1208.4 495.9 511.5 201.2 Source: Road Development Authority, Highway Maintenance Expenditures, Centralized Budget. ItP d I.'; SRI LANKA TRANSPORT SECTOR MEMORANDUM 1989 ROAD MAINTENANCE BUDGET ESTIMATES, MINISTRY OF TRANSPORT & HIGHWAYS Total Expenditure Estimated Expenditure Allocated by Cost Category 1989 Estimate -------------------------- Routine Periodic Capacity (Veh-Km) (ESAL) (Pcu-km) Recurrent Exp: Maintenance (1) 260.0 130.0 130.0 Capital: rehab & Improv'mt-Proj.101 (2) 1,193.6 895.2 298.4 Constr. & improv'mt -Proj. 102(3) 176.8 88.4 88.4 Mach. & Equip. -Proj. 104(4) 1,220.3 305.1 915.2 Total 1989 Budget Estimates 2,850.7 130.0 1,418.7 1,302.0 Source: Sri Lanka, Estimates 1990, Read 500-Minister of Transport & Highways (1) Includes repair and maintenance for roads (Rs258.6 mill with some miscellaneous works for canals and airfields) also grants to local authorities (Rs 1.4 mill) (2) Rehabilitation and improvement of capital assets including foreign aid, loans and grants; Rs .25 mill for buildings excluded. (3) Includes rehab and replacement of major bridges, road construction at Complex Sri Jayawardenapura, works in Colombo and other districts, surveys, signage. (4) Acquisition of vehicles, machinery and equipment; 1989 estimate may represent a higher or lumpier expenditure than normalized years. co '9 -98- Annex 3 Page 9 of 11 Attachment 5 SRI LAM TRANSPO SECTOR MEMORANM WPOThTICAVI/DEJAUZE UNIT COSTS MO qAWITIES FOR RMO MAI ACE, PROJECTED 19 (1990 RS MILL1O04) Total Network l IRDA Estimte) A B C 0 E (Km.) 4110.4 6826.1 9161.2 0140.8 25744 Program Assumptieons By 1996, Km rehab. complete (0) 0.6 0.8 0.1 0.1 Length (kms) 2409.0 1097.6 910.1 014.0 6097.8 Amount under rehab. (3) 0.0 0.0 Longh (km.) 164.7 126.5 0.0 0.0 0.0 Amount remaining for rehab (kom) 1401.9 4801.7 6245.1 6526.8 19646.2 Assumed Maintenance Unit Co.st by Category (000'R,/km) (1) After Rohab: Routine (2) 70.0 70.0 85.0 85.0 Recurrent (8) 40.0 80.0 20.0 10.0 Periodic (8) 162.9 114.8 71.4 42.9 Unit Coots Without Rehabilltation: Routine - let yr booster 210.0 160.0 160.0 100.0 Routine - yr. 2 onwards 70.0 70.0 85.0 86.0 Roecurrent-let yr. booster 210.0 180.0 150.0 100.0 Recurrent-yr. 2 onwards 165.0 100.0 80.0 60.0 Rehabilltation costa (So width) 6000.0 5200.0 4000.0 8M00.0 Notes: (1) Unit cost. us d for the Third Road Project for 'AO class networt portion of hlghway system; 'B-os network unlt cost, scaled down relative to setimated traffic load. t2) Routine maint. *xcludes pavemet costs 8) Recurrent and periodic costs sasume regulating + AC wearing course. - 99 - Axnex 3 Page 10 of 11 I.nLLh Attachment 6 NEITWR MAINTENANCE BJOGET, 1986 (NYPOIIETICAL/IOEALIZED PROORAM (1090 RS MILLON) -Nework (Unit costs and quantities from Tabl- 10--------------------- - -------- A B C D totol (Kee. 19S9 RDA Etitato) 4116.4 6326.1 9101.2 0O1.8 25744 Maintenance Expen_ (R MlII) Routine Moint.nanc. -Afte r eblb 172.9 182.6 82.1 21.6 859.f -without rehab 07.6 277.7 274.1 188.7 828.1 -let 3w. booster (6K of remainder) 16.6 88.7 61.6 27.6 148.7 Subtotal 270.0 449.2 869.1 282.9 1820.2 Rwurrent Maentennc -After rehab 98.8 568.9 16.8 0.1 160.2 -without rehab 206.6 808.6 620.6 815.0 1544.7 -let yr booster 18.8 87.6 61.0 27.6 140.9 Subtotal 819.1 491.2 706.8 846.8 1866.8 Periodic Maintenance -After rohabiIltation 461.6 216.9 66.4 26.8 7t0.8 -without rehabiltatlon 220.6 458.8 659.6 225.0 1466.8 Subtotal 080.5 670.2 624.9 251.8 2226.9 Rehabilitation ongoing 987.9 657.9 0.0 0.0 1645.9 Total : Roead Maint. A Rehabilitation 2268.6 2268.5 1699.8 688.0 7064.7 -100- Annex 3 Page 11 of 11 Attachmnt 7 SRI LANA TRANSPORT SECTOR . RAM (.) ALLOCATION OF 10W HYPOTNETICAL A A B NETWORK MAINTENANCE COSTS BY CATEOR (1000 RS MILLION) Routlno Periodic Capacity Typ of Maintenance Totel (Re mlII) (weh-ku) (ESAL) (Pcu-km) Routine 76. 725.8 Recrnt (75 ESAL/US POJ) 010.8 007.7 202.6 Periodic 1,850.7 1,8I0.7 Robabilltatlon on-oing (901 1,045.0 10,1.8 104.0 Toftl s Maintenanc & RebabiIlt. 4,682.0 726. 8,489.0 387.2 (b) ALLOCATION OF 106 HYPOTHETICAL 4 S C & 0 NETWORK MAINTENANCE COSTS Sy CAERt Routino Perlodic CaPacity Typ of Mbintseance Total (Re ell) (veh-be) (ESAL) (Peg-km) Routino 1,810.2 1,8.2 Rbecurent (753 ESAL/K26 POD) 1,365.6 1,M00.4 408.6 Periodic 2,226 9 2,222.9 Rehabilitation on-goig (901 1,646.9 1,401.8 104.0 Toltal Mbintenance & Robahlt. 7,064.7 1,820.2 5,107.5 081.0 -101- Annex 4 Page 1 of 4 SRI LANKA TRANSPORT SECTOR EMORANWDW Bus Costs and Tariffs Bus Costs 1. A brief review of bus operating costs was undertaken to determine by how much the existing tariff levels fall short of estimated costs. It was assumed that following privatization of the public bus operating industry, all buses would have cost characteristics similar to those of the existing privately- operated buses. Estimates of these costs were derived from the TSPS1/ which shows the bus characteristics and estimated costs in 1986 !or small, medium and large privately-owned buses operating on urban, rural and intercity routes. These costs were updated to January 1990 levels on -he basis of vehicle operating cost estimates prepared for the economic evaluation of the Third Roads Project. Table 5 shows factors used to update the 1986 costs and the resulting 1990 costs for urban, rural, and intercity routes. Average costs for all routes are also shown--see suimnary in Table A4.1 below: A4.1s INCREASES IN BUS OPERATING COSTS (1986 - 1990) Type of Small Medium Large Route Bus Bus Bus Urban 74.0? 60.12 62.3Z Rural 69.92 57.52 68.4t Intercity 60.1? 53.1? 62.52 Average 67.2? 56.5? 64.2? Source: Table 5. 2. As there are no reliable data on the percentages of total bus or passenger-kilometers accounted for by each route type, it was assumed that each route type accounted for one-third of the total. Cost increases from 1986 to 1990, taken from Table 5, are summarized in Attachment 1--Bus Fare Increase, 1990. Since 1986, bus operating costs have increased considerably, with an average increase of 672 for small buses, 56? for medium buses and 642 for large buses. Interest expenses are not included in these costs. The purpose is to calculate the profitability of bus operations independently of the bus financing arrangements, and then to show the effects of the high finance rates on the cash flow positions of the operators. Bus Tariffs 3. Bus tariffs were increased in January 1990 in recognition ot increased bus operating costs, but increases were applied to privately-owned buses only. The increases ranged from Rs 0.5 to Rs 4.0, and the percentage of increase from 20 to 502, depending primarily on the length of trip. The simple average increase, based on an analysis of over 160 routes or route segments is about 24?. 1/ TSPS, Volume 3, Section 4.3. -102- Anext 4 Page Z of 4 The greatest percentage increases are for the short route segments--primarily the urban routes, and consist in effect of an increase of Re 0.5 in the initial loading charge. It has been estimated that because of multiple boarding and alighting and therefore multiple payments of the initi charge, the actual revenue on urban routes is about 412 higher than a sbimple calculation of passenger-kilometers and fares per passenger-kilometer would suggest. The corresponding estimates are 142 on rural routes and 62 on intercity. For this reason, the average increase of 242 is assumed to translate into an increase of 352 on urban routes, 30X on rural and 252 on intercity routes. These increases have been applied to the revenue estimates for 1986 to derive the estimated 1990 revenue (Table 5). 4. The estimated revenue is in part a function of load factors prevailing during the surveys on which the 1986 estimates were based. This would clearly be an understatement of current revenues of individual private buses, since current load factors are very high because of the significantly-reduced publicly- owned operating fleet and the somewhat-reduced privately-owned fleet. For the future, it was assumed that load factors would return to "normal" (which is still high) over the next few years. Bus Profitability 5. The profitability of bus ownership and operation has greatly diminished since 1986. Even with the fare increase of January 1990, estimates indicate that the small buses are unprofitable on all routes. The profitability of the medium and large buses is marginal at best, even without considering interest expense. It is possible that the high load factors associated with the reduced fleets are at least partly compensating for the increased costs in the short run. There are also indications that at least some of the private operators are "short-running' their routes, forcing passengers to pay the initial boarding cost more than once, and further supplementing their revenue in this way. Neither provides a satisfactory basis for operation in the longer run. glasticity of Demand 6. A concern has been expressed that bus ridership will be reduced significantly if tariffs are increased further. In general, there is no practicable substitute for bus transport for the majority of the people of Sri Lanka, so that the price elasticity of demand can be expected to be relatively low. The price elasticity of demand for road transport has been estimated using two approachest an estimate of the price elasticity of demand for bus transport, and an estimate of the price elasticity of demand for petroleum fuels for road use. The elasticity of demand for bus transport was estimated in 1988 as part of the economic reevaluation in the Project Completion Report for the Road Passenger Transport Project (Cr. 994-CE). The estimated price elasticity of demand in 1984 (the year after the latest bus fare increase) was 0.35: a relatively low elasticity but not unreasonable considering the lack of substitute transport for about 802 of the population who rely on bus transport. 7. The price elasticity of demand for road transport fuels was estimated on the basis of price and consumption data for gasoline and automotive diesel -103- Annex 4 Pagp I of 4 fuel shown In a local publication.2/ The prices and quantities consumed each year in which there was a significant price change were compared with the preceding years. In each case, a demand trend was calculated on the basis of recent past growth rates in consumption to indicate what the consumption might have been without the price change in order to approximate the effect of the price changes on consumption. The results of this approach indicated a fairly wide range of elasticities for the individual price changes, primarily because other factors could not be held constant in the analysis. However, the average elasticities of .58 for gasoline and .45 for automotive diesel are within a reasonable range, and are fairly consistent with the bus transport example. An elasticity of 0.5 was thus adopted as an approximization for road transport. 8. The recent tariff increase for private operators averaged about 25 to 302. Assuming a price elasticity of demand of 0.5, this would normally result in a reduction of about 152 in ridership, with other factors held equal. However, if significant improvement in the quality of service is provided in the future as intended, the reduction in ridership would probably not be this large. in addition, incomes have been depressed over the past four or five years because of the civil disturbances and are likely to increase in the near future if the disturbances diminish considerably, especially in the more populous southwestern part of the country. Increased incomes should help offset any reduction in ridership. coclusions 9. The TSPS concluded that private bus operators were covering their costs in 1986, although with narrow profit margins. Since that time, the costs have increased by an average of about 652. Tariffs remained relatively unchanged until January 1990, when an effective increase of about 302 was allowed. Some cost reductions are possible through reduced interest rates on bus financing, use of larger buses where appropriate, and increased bus productivity. The planned improvements to the road system will also result in some increases in productivity and reductions in operating costs. However, it is unlikely that costs can be reduced to the level of present tariffs, and a further tariff increase in the next year or two seems inevitable. It would be best if such an increase could be coupled with an increaoe in the quality of service. Attachments Bus Fare Increase, January 1990 21 Ceylon Petroleum Corporation, "Oil and Sri Lanka, a Statistical Review," 1986. -104- Annex 4 Page 4 of 4 Attachmenc 1. SU LANK TRANSPRT SECTOR N MD BUS FARE INCREASE, JANUARY 1990 PREVIOUS INCREASE FARE ------- (Rs) (Rs) 2 1.0 0.5 50.O0 1.5 0.5 33.32 2.0 0.5 25.aZ 2.5 0.5 20.02 3.0 0.5 16.72 3.5 i.0 28.62 4.0 1.0 25.0O 4.5 1.0 22.22 5.0 1.0 20.02 5.5 2.0 36.4Z 6.0 2.0 33.32 6.5 2.0 30.82 7.0 2.0 28.62 7.5 2.0 26.72 8.0 2.0 25.02 8.5 2.0 23.52 9.0 2.0 22.22 9.5 2.0 21.12 10.0 2.0 20.02 10.5 3.0 28.62 11.0 3.0 27.32 11.5 3.0 26.12 12.0 3.0 25.02 12.5 3.0 24.02 13.0 3.0 23.12 13.5 3.0 22.22 14.0 3.0 21.42 14.5 3.0 20.72 15.0 4.0 26.72 15.5 4.0 25.8Z 16.0 4.0 25.02 16.5 4.0 24.22 17.0 4.0 23.52 17.5 4.0 22.92 18.0 4.0 22.22 18.5 4.0 21.62 19.0 4.0 21.12 19.5 4.0 20.52 -105- Annex 5 Page 1 of 8 SRI LAMR TRANSPORT SECTR I~RNU Qantifl able BeDefits of Reforms A5.1 - COMPABISON OF VEHICLE OPERATING COSTS UNER ALTERMA?J.VB ROAD MAINTENANCE STRATEGIES, 1996 Strategy A Strategy B Km Vehicles /a Total VOCs Km Vehicles /a Total VOCs PFr Day Re millionlyr Per Day Rs million/yr AC roads 1,352 6,000 12,607 lb 2,107 6,000 19,648 lb 1,875 2,500 7,285 Subtotal 1,352 12,607 3,982 26,933 Semi- 755 6,000 7,917 /c - 6,000 - grouted 4,340 2,500 18,962 2,465 2,500 10,779 roads 2,045 650 2,323 2,045 650 2,325 330 150 87 330 150 87 Subtotal 7,470 29,289 4,840 /d 13,191 Total - A & B Class Rds 8,822 41.896 8,822 40,124 Strategy A - Strategy B (Re million) 1.772 la Projected traffic in year 10. /b The roughness spectra, and associated VOC on these roads are similar, i.e., the average over a 15-year cycle where roughness deteriorates from 2,500 to 5,500 mm/km. /c VOCs are calculated as the average values ranging from an initial 3,800 mmikm to 6,500 mm/km at the end of the cycle. Id Preventive maintenance on these roads consists of surface dressing. hence roughness varies from 3,800 to 6,200 mm/km over the eight yeai pavement cycle. -106- nnes 5 Page 2 of 8 SRI LA=K TURNSPOR7 SECTOR 1IDR 'AS.2: OSIC VEICLE OPEATXNG CcaTS, JANMARY 1990 /a (Econmic Co lC in Ra per 1000 kmn) Sll Medium Large - Trucks Cst -.t Ca * 4I Pieiwp Bev use eve Al A2 B C 0 Fpol &a o 509.9 704.4 69.6 97.2 2,070.2 1,987.0 2,004.0 2,265.4 2,60.0 1,002.4 1,273.6 Ties 198.8 8.7 208.9 224.3 50.0 600.5 56.8 926.0 1,20.2 452.4 560.0 Spore Putt 810.0 1,865.0 1,225.0 1,156.0 975.0 980.0 937.5 1,666.8 2,400.0 920.0 960.0 Worhksop Lbore 216.0 270.0 216.0 270.0 N24;0 540.0 432.0 482.0 482.0 270.0 270.0 yp.scl.tion 1,850.o 2,489.0 2,206.0 1,062.8 1,218.0 918.8 1,125.0 1,70.5 2,400.0 1,298.8 1,876.1 6CC 847.0 1,580.0 1,101.4 540.9 604.5 698.9 706.8 1,108.0 1,600.6 848.8 688.4 Crw WeeS 0.0 1,217.0 078.6 1 2.8 87.3 1,179.0 1,108.8 1,o06.4, 994.0 1,254.0 1,264.0 leeunsece 200.0 180.0 120.0 76.0 100.0 82.5 120.0 110.0 100.0 120.0 120.0 Overhead 0.0 240.4 192.8 120.2 98.2 120.2 192.3 176.5 160.5 120.2 120.2 TOTAL 4,215.2 6,851.5 7,028.8 5,159.2 5,841.0 7,056.9 7,182.2 9,456.2 11,7n7.5 6,079.1 6,664.8 abtlsted 5 58.05 15.65 81.3a 26.13 74.91 100.061 100.06 100.05 100.05 $0.05 60.05 Utd.Avg.,Ra/lO km 6740 6610 7057 7188 946 1172 an /a HNvs trwke as delnW In the previous stdsy have bsoo divided into thbe catoorles Truck Al, A, Oad S. Al represento 2-Oslo trucks with grs wevights fre 0,000 to 18,000 kg. At represet. 2-ale trucks with gross weighte froe 14,000 to 18,000 kg. E represents 3-sale trocks wlth gross weights trwu 19,000 to 23,000 kg. ¢ 4.4 Is Uusl 0 Tae U_se SRI LAMA TRANSOT SECTOR MEM ERMU A5.3: VDt RELATED TO RI ROIWOS Road Rogba.en/Vebicio Operating Cost dices- --- ---------"10 VOC, 2000-7000 /- - - Car sIl Car small Ro_phe-- 419 & Mmdis Large Liht rk Truck Track Rough_es 410 A Medium Large Light Iruck True& Truck (rn/ha) Pickup us Su Truck Al A2 B (ca/0) Pickup Bus BSa Trck Al A2 B 2000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2000 6112 6178 eas8 S866 O72 s11 10632 240 1.024 1.016 1.020 1.010 1.018 1.020 1.022 2400 3 56 03 S5 0m 973 108 a30 0 1.0110 1.W 1.040 1.045 1.060 1.055 30 5418 5O 6700 61 SO6 9042 1I21 8299 1.070 1.054 1.064 1.062 .057 1.062 1.067 a29 50 54 6879 0181 60 9145 118 38o0 1.124 1.066 1.106 1.08 1.096 1.098 1.103 3800 5746 6S0o 7057 072 7183 9455 11727 a- 4000 1.140 1.110 1.120 1.100 1.105 1.110 1.115 4000 5827 5742 7140 0442 7202 58 115 490D 1.220 1.174 1.200 1.156 1.105 1.174 1.188 4800 62m6 007a 7 6770 7660 10110 1256 1 SO50 1.240 1.190 1.220 1.170 1.180 1.180 1.200 5000 03 05 4 682 775 1024? 12759 6400 1.288 1.226 1.264 1.202 1.212 1.222 1.282 400 04 0842 8014 7089 7966 10623 13069 000 1.360 1.280 1.810 1.250 1.260 1.270 1.280 600 6o2 622 g83 7320 828 10986 19S6M 7000 1.50 1.3560 1.8990 1.0 1.340 1.350 1.30 7000 7872 8984 39 7789 886 11625 1446 Source: R /VOC indices *pplied to the wvbicle operating Source: Third Roads Project, Feaibility Study BWA, 1990 HO. 0 0t SRI LA TRANSPORT SECTO I0EORANUXD Ai4. ESTIMATES OF A2X LOADS AND ESAS, VARIOUS VEHICLES Estimated Averep Load Distrlibuton /a ESA Axle 1 Axle 2 AxIl 8 Average CVI Axle 1 Axle 2 AxleS a --- Total Vehicle (kg) () (1) () (Ikg) ESA (kg) ESA (kg) ESA EA /b Aukobile, Pickup, 4WD 1400 5so 461 770 0.000 630 0.000 0 0.000 0.000 0.00 Loaded linibus 1600 621 48S o8 0.000 664 0.000 0 0.000 0.000 Loed Medium Bus 4160 401 60X 1664 0.001 2496 0.006 0 0.000 0.006 0.02 Load Larp But 11000 401 6o 4400 0.080 6O6 0.861 0 0.000 0.441 0.40 Leaded Truck A 12600 32X 681 4000 0.039 6500 1.204 0 0.000 1.248 Loaded Truck B 21400 231 871 405 4f22 0.100 7s16 0.872 656o 1.243 2.216 2.60 Loaded Truck C 4400 47X S8u 2088 0.002 282 0.003 0 0.000 0.00o Loeded Truck D 7000 s2o as1 2240 0.003 4780 0.060 0 0.000 0.089 0.40 E6pty Truck A 4500 63x 471 2365 0.004 2115 0.002 0 0.000 0.008 Trock, 13-ton load 16000 801 701 5400 0.168 12600 7.219 0 0.000 7.872 Truck, 10-ton load 14600 no0 7ox 4350 0.067 10150 2.699 0 0.000 2.76M Truck, 6.S-ton load 10000 s5 6s1 3S00 0.021 6500 o.5ss 0 0.000 0.878 EBA a[( axle load to kg/8160)4.GQ5 /a Based on limited RA axlo load surveys. I| /b iverage ESA value use for the S vobicle types In tbo feasibility study for the Third Roads Project. Source: Feasibility Study, Third Roads Project SRI LANKA TRtASPORT SECTOR MEMORANDUW AS5.5: ESTIMATES OF AXLE LOADS AND ESAs, HEAVY TRUCKS Eatimated Average Load Distribution -- ------------------------- -- Axle 1 Axle 2 Axle 8 Weighted lof OVW Axle I Axl 2 Axle8 -- ------------------ Total Average Trucks /a (kg) (1) (5) (1) (kg) ESA (kg) ESA (kg) ISA ESA ESA Truck Al, Empty 201 4600 68S 471 2588 0.004 211S 0.008 0 0.000 0.00o Track Al, Loaded 851 12500 821 68% 4000 0.0oa 8S00 1.204 0 0.000 1.248 1.132 Truck Al, 20X avorloaded 1S1 14100 821 68s 4612 0.067 9588 2.083 0 0.000 2.1S0 Truck A2, Empty 201 5500 681 47% 2915 0.009 2585 0.005 0 0.000 0.014 Truck A2, Loaded 6So 16000 856 6S% s6o0 0.180 10400 5.015 0 0.000 3.196 3.064 Truck A2, 201 Overloaded 151 18100 821 68z 5846 0.219 12218 8.276 0 0.000 6.494 Truk B, Empty 201 7400 401 a6x 255 2960 0.010 2590 0.006 1865 0.001 0.016 Truck B, Loaded 665 21400 23% 57% 401 4922 0.100 7918 0.972 860 1.243 2.215 2.048 Truck B, 20% Overloaded 165 24200 22X 891 8O 6324 0.145 9488 1.939 9488 1.939 4.021 /a TSPS, Vol. 4, pp. 9-24. Source: Feasibility Study, Third Roads Project See Note I See Note 1 OnI LANKA ;A.: VUICLE OPZRTm: COST SANS Trdit el eV rote. yes 1-7 Cs Per scr) 5.8 CAW Bsea baffic .rath rat*. yarw 8-14 (5 p.t rar) 4.40S e & *hd. Let4 Lid" Trw& Ireclt Irl 7vim Traffic aruth rate, years 1152, ( pow pa1) 3.w 01; Piku be 8.. Tr-MA As 12 0 opm;e Tear 19 - - ----------:- ---- bethese in am. ; & 1ithes p_ojeot 484 _.smsa ;la 1f, Gol., with proj"t, d4a < b. 399S Tratfic WO 1,217 767 SW7 650 172 63 aS D.620 L-AW6 (ha) SO.0 Width Om) 7.1 WCVat, 1995 ut poject b/O0 ) .6.09 B,"* 7.468 6,47 7,69 990 12.3 Icssc rehaiIatc tet (6.alIle) Ve I erh Yaw 2 D/a WC, 1395 wIh prnoj ob(l/m h) s/a 0/D 0a/ aim o/C a/. a/* YearS a/DI Tear 4 Dh% VeMcle Operatiag Ct. aithies VAiclo lis Veicl- Oertia Cast. .wiacd Vehiclo His 0 ; S-ion) 03 DIllik) car smal .. beaS D0 a me. Large uist Tnni Tnme Trut 4 a md. Larg l;eht Truth Trac Trt h Your Pithg be gas Trm* Al a2 8 TOVDL Tear Pi;e be be Trc At A I 2 a TRS 1;. 1 1 2 * a 8 4 4 S 1,379.43 847.21 50.41 1,047.01 0.6 1.8a 144.30 4.6.55 5 a.,W.43 .2sz i.42 1,047.01 69.65 0.00 251.60 4,.17.22 6 1,462.42 07.a7 80910. 1.319.25 28.36 12.06 154.47 4.637.76 3,462.42 9A7.?7 60.66 1,119.25 256.86 0.00 0.71 4.,28.94 7 1,SD0.99 95.44 60.84 1,176.67 259.92 0.46 16.6 4.481.1 7 1660.9 91.46 12.36 1.17.5' 269.92 0.D 284.01 4,674.20 a 1,0.49 1,D02.14 SI.MO 1,202.24 69.96 189.07 174.28 5,264.58 1,66.49 1.0.14 670.42 1,60.20 269.04 0.00 a88.ft 8.10247 9 1,614.59 1,099.852 718.94 1,851.46 80.44 149.72 166.65 5.00.05 9 1,614.59 1,099.62 716.94 1,861.46 89.44 0.00 2.540 5,649.37 10 1.954.86 1,178.91 77051 1.446.42 81. S6 2.22 19.41 6.41.71 10 1,910.76 1,117.60 71.05 1.42a.10 M.84 0.00 342.65 5,97t.20 11 2,104.90 1,265.62 M.62 1,546.05 354.85 2.41 228.80 6,481.16 U 2,06.47 1,26.29 al1.84 1,A.29 346.76 0.00 386.62 6.849.96 12 2,2.46 1,160.80 86.2? 1,0.10 8178.14 10.49 Z.6 6,024.? 12 2,215.46 2aO.61 89.21 1.03.10 878.14 0.0O 362.16 68.75 13 2,360.65 1,406.1 9021.39 1.729.051 895.78 M9.40 26.16 7.,74.42 1S 2,390.15 ,410.0 921.39 1,729.06 s86.78 0.0 425.84 7.60.69 24 2,5s.67 1,46.90 916.41 1,02I.s7 419.89 62.92 262.46 7,180.62 14 2,17s.17 1,489.90 976.41 1.03.57 419.s9 0.00 490.61 7.185.9 15 2,660.96 1.50.40 1.019X, 1,914.25 41.05 2, 1.06 26.57 6,091.54 16 2.s0.9 105.f4 1,4029.67 1.914.25 4s0.05 0.00 460.21 0,078.16 1S 2,637.81 1.605 11,054.20 1.916.41 417.03 2n.? 275.17 8,447.59 162,290.8 1.6SA 1,064.6.21 1,98.46 47.86 0.00 460.46 8.432.71 17 2,980.01 1,696.35 1,111.65 2,C08.41 477.45 220.90 2P.25 0,192.27 17 2,980.63 1,85.55 1,111.05 2,015.41 477.45 0.00 80.60 8.892,69 8 16 3a,c0.79 I.M69. 1.20.94 2,170.21 498.46 242.05 299.92 0.207.s3 18 S,059.79 1,769.95 1,2V9.94 2,178.21 49.46 0.00 52a.67 9,190.02 1U 3,199*42 2".04e2 1,21A).47 SAY4.01 50.80 2 .S a 31.11 9,el2.4s 19 s,194.42 1.84t.s2 1.210.97 2,2n4.es 141QD S.0 o0.oo1 9."s,D4X 20 ,306.22 1,912.80 1,258.36 2.35,6.4 5.60 260.48 aZ4.07 9,946.0 28 5,80s.62 1,92.0 2,258.60 2,35b.64 588.60 0.00 565.64 9,980.10 22 8,421.94 2,97.44 1,297.28 2.43.02 357.46 289.80 36.42 20,297.11 21 8,421.94 1,979.44 3,297.65 2,486.02 57.48 0.00 085.65 10,27.14 t 22 8,541.71 2,09.72 1,842.60 2,621.211 76.97 279.02 847.16 10,.67.60 22 8.04171 2.046.72 2.842.89 2.521.26 076.97 0.00 606.14 10.687.45 2 3,46S.67 2,10.42 1,a0.62 2.,09.35 ffr.1s 288.80 8.51 11,0110.51 20 3,665.67 2,122.42 1,6891.62 2,69.SS 597.16 0.0 627.3 11,00.76 24 8,9.97 2. 19464 1.40.20 2.7*0,6 61.0 295.91 1l.ft 1,42.15 214 3.7.91 2,194.64 1,430.2 2,.7100.66 613.0 0.00o 64.88 115.8u11 PW of dAbcle 6.ertiae Cosat lal0 66,963.21) P0 of VeMcle berati Co et u4s 3.700.,9 SoC Note 2 -111-. AnneX S Page 7 of 0 SRI LANKA TRANSPORT SECTOR NEMORANDUM AS.7s COST ADVANTAGES OF PRIVATELY-OVNED LARGE BUSES Publicly Privately -Ow.ed -Owned 1. Bus availability, 1985 (2) 66 80 2. Average Load Factor 1985 (C) 6l 89 3. Cost per Bus Kn. 1i85 (Rs.) 7.53 6.25 4. Average Seating tapacity 1983 55 52 5. Cost per Seat KL. 90S (is.) 0.137 0.120 Cost Index per Seat Seat Km. (Pvt. - 1) 0.139 1 6. Cost per Passenger Km., 1965 0.169 0.135 Cost Index per Pass. Km. (Pvt. - 1) 1.250 1 7. Cost per Seat Km., 1990 0.211 0.185 6. Cost per Passenger Km. 1990 0.260 0.208 9. Est. Traffic, 1990 (Mil. Pass. Km.) 17500 17500 Total Cost (Rs. million) 4550.0 3640 Cost Differences (Rs. million) 910.0 Sources Publicly-owned Privately-owned 1. TSPS, Vol.3, pp. 5-10 TSPS, Vol.3, pp. 5-11 2. TSPS, Vol.3, p. 4-26 TSPS, Vol.3, p. 4-26 3. TSPS, Vol.3 Table 4-2 TSPS, Vol.3, Table 4-2 4. Der. from T8PS Vol.3, Table 2-1 TSPS, Vol.3, Table 4-5 S. Line 3/ I.ine 4 Line 31 Line 4 6. Line 5/ Line 2 Line 5/ Line 2 7. Pvt. cost x cost index per Ch. 2, Table 2-5, average seat km. all ruts 8. Line 7/ Line 2 Line 7 Line 2 9. Total traffic, 1985 with 52 per year growth to 1990, rounded to 35 billion passenger km. Assume publicly and privately- owned buses each carry half of the traffic. See TSPS, Vol.3, p. 5-4 -112- Annex 5 Page 8 of 8 Explanations Note 1 The heavier two-axle trucks make up about 212 of the "heavy truck* category. Table A5.5 shows that these trucks have an average ESA of 3.05, allowing for an estimated 202 of empty trucks and 15? of the trucks being overloaded by 20X. The balance of the "heavy truck" category is represented by the 12.5-ton two-axle truck with an estimated value of 1.13 ESA and the three-axle Truck B with an average ESA of 2.05, using the same assumptions regarding empty and overloaded vehicles. Among the heavy trucks, the Truck Al is forecast at an annual average daily traffic (AADT) of 172 vehicles per day; A2 at 63, and Truck B at 63. These traffic volumes, and the corresponding axle-loads and VOCs, were used in the first run of the analysis assuming no change in the vehicle mix. Note 2 In the second run of the analysis, it was assumed that there would be no A2 Trucks, and the cargo previously carried in A2 Trucks would be carried in B Trucks. The capacity of Truck B is 1.33 times that of Truck A; therefore, the 63 A2 Truck vehicles could be replaced by 47 B Trucks, and the heavy trucks would then consist of 172 Al, and 110 B Trucks. The second run was carried out using axle loads and VOCs corresponding to this vehicle mix. Both runs covered a forecast period of 20 years. The results are shown in Table A5.6. -113- Annex 6 Pa8 1 of 6 SRI LAMA TRANSPORT SECTOR REPORT Private Bus Fleet Estimtes 1. The Government plans to implement a scheme to convert public bus transport operations to private ownership and management. This is taking place in the midst of a period of improved civil stability in Sri Lanka which has given rise to an increase in passenger travel demand. Approximately 902 of passenger- km of travel is presently accommodated by a mixed public and private bus transport system, but a significant portion of the present travel demand is unmet due to a shortage of buses resulting from the destruction of public buses during the civil strife and the inability to maintain and expand either the public or private bus fleet because of financial constraints. To address this problem, the Government plans to offer fiscal incentives and reasonable terms of financing to the 'peoplized" companies and private operators to assist them with a bus acquisition program. In order to support the Government's effort to mobilize financing for the program, updated forecasts of bus fleet requirements were undertaken based on alternative forecasts of future public transport demand. Background 2. The high vehicle loads observed in many areas of the country, particularly during peak commuting hours, clearly demonstrate the shortage of public transport capacity. The 1988 Sri Lanka Transport Sector Planning Study (TSPS) identified an average annual bus acquisition requirement between 1987 and 1996 of 2,112 buses, assuming scheduled replacement of the existing fleet and maintenance of bus transport's existing share of the passenger travel market. This estimate was based on the assumption that the present mixed public and private operation of the bus system would continue. Estimates prepared by the Sri Lanka Transport Studies and Planning Center in December 1989, also assuming mixed public and private operations, identified an average annual bus requirement between 1990 and 1996 of 2,429 buses. Forecasting Parameters 3. The annual number of buses required to meet the forecast demand for passenger services, given a fully privatized bus transport sector, will vary by area of the country, growth in travel demand and several other factors. A range of future bus requirements was projected on the basis of three scenarios: low, moderate and high growth in bus transport demand. The three scenarios represent a probable range of growth in demand and the effects of supplying this demand within a more competitive public transport sector. In each of the projections, it is assumed that the present shortage of bus fleet capacity will be gradually eliminated as more vehicles are acquired, and that no significant shite to the railway or any other mode will occur. The three scenarios tested are as follows: (a) Scenario 1: Low (Present Trend). Demand continues to grow at its present rate, which is low compared to previous years due to civil disturbances and slower growth in the economy. Buses are retired at the present rate and bus capacity and productivity remain the same. Load factors on the large buses are assumed to rise somewhat after -114- Page of 6 being taken over by private operators seeking to improve profitability. (b) Scenario 2: Moderate (Moderate Growth). The rate of growth in bus transport demand increases in line with a modest improvement in economic conditions. Buses are retired at the present rate; however, private operators begin buying larger and more profitable buses in the small bus category, and due to increased competition, bus utilization rates increase and average load factors decrease slightly. (c) Scenario 3: High (Significant Growth). Bus transport demand increases at a higher rate as economic conditions improve significantly. Due to greater competition, a higher proportion of private operators buy larger buses (small bus category only), higher than expected bus utilization rates occur and average load factors fall to a slightly lower level. 4. The variables considered in the above scenarios weret growth in bus transport demand; vehicle passenger capacity; vehicle life; vehicle utilization rate; and passenger load factor. Modifications made to these variables in the three scenarios are described below. Bus Transport Demand 5. The TSPS established a general relationship between passenger transport demand and the growth rate of GNP. Bus transport demand growth was estimated at a factor of 1.1 of annual GNP growth. Using this factor, previous studies have estimated average annual rates of growth in bus transport demand at between 3.7S and 7.12. The past civil unrest in Sri Lanka has had a negative effect on economic growth, and in 1°89 GNP growth was only 2.72. The recent trend toward civil stability has given cause to expect an increase in this relativeXy low rate of growth. The present forecasts assume GNP growth rates of 2.71; 4.51 and 6.42 for the twelve -'esr period between 1990-2001. These assumptions resulted in bus transport citzqnd growth rates of 3.01, 5.02 and 7.0t. Vehicle Capacity 6. The present fleet consists of a number of different vehicle types and sizes. The public bus system generally utilizes standard city buses with a nominal capacity of 54 passengers. After the public fleet has been privatized, these buses will continue to operate under private management. Thus, a "large bus" category representing primarily the existing public bus fleet was established for analysis purposes. In the same manner, the typical existing private bus vehicle with a passenger capacity of 24 passengers was selected as representative of the "small bus" category. 7. Since the large bus category represents a standard-sized bus and it is unlikely that a larger bus will be introduced as a standard vehicle in the near future, the passenger capacity rating of 54 was held constant under each of the three tests. The small bus capacity, however, was increased in Scenarios 2 and 3 to reflect the private operator's preference for larger buses. Government's decision to offer a financing scheme through local banks and to provide temporary tax exemptions for the purchase of larger buses by the private -115- Annex 6 Page 3 of 6 sector has lowered the cost of vehicle acquisition. It is expected that the combination of lower capital costs and the privatization of the public bus fleet will encourage the trend toward larger buses. In Scenario 2, the small bus capacity was Increased to 26 and in Scenario 3 to 30 passengers, accordingly. 8. Existing fleet information was obtained from the Sri Lanka Transport Board (SLCTB) for the public bus system and from the Department of Private Omnibus Transport (DPOT) for the private system. In the case of the SLCTB, a total fleet of 7,086 vehicles was reported for 1989. This total was adjusted to 6,330 to account for the loss of 219 buses which were beyond repair or retired during the year. A 1990 estimate of 6,425 buses for the public fleet and 10,627 for the private fleet was used in the analysis. A relative distribution of large and small buses by region was obtained from field survey data (collected by TSPC). After privatization, it is assumed that an average of 80 of the entire fleet would be available and assigned to revenue service. Vehicle Life 9. The present revenue service life of a bus in Sri Lanka is 12 years for the large vehicle category and eight years for small buses, after which they are normally retired. In order to assess the bus fleet replacement requirements associated with these life spans, a separate age analysis of the present vehicle fleet was conducted for each of the nine regions of the country. The 12- and eight-year values were used in Scenarios 1 and 2. Life spans of 11 years and seven years in Scenario 3, to reflect the higher annual utilization rate assumed. Vehicle Utilization 10. The present utilization rate for the public bus fleet is estimated at an average of 68,000 revenue bus-km per annum. The private bus fleet, using smaller vehicles over the more economic routes, averages 65,000 bus-km per annum. These values were held constant in Scenario 1, but increased in Scenario 2 to 71,000 and 68,000 and in Scenario 3, to 75,000 and 70,000 to reflect two probable effects of shifting from mixed public and private operations to solely a private system. First, it is anticipated that the resulting increase in competition will encourage private operators to make additional trips to retain and improve their revenue base. Concurrently, it is expected that a suitable contractual arrangement will be made with private operators to provide an adequate level of service on uneconomic routes. The second factor is the likely improvement in private management. Presently, under public management, an average of only 66? of the fleet is available for revenue service, whereas for the private fleet it is 80X. Load Factor 11. The present passenger load for large buses is 831, while for small buses it is considerably higher at 901. Load factors are calculated against a passenger capacity factor of 120S of the number of seats. For large buses, the load factor was increased to 87? to reflect a likely immediate reduction in the number of unproductive bus-kilometers operated under private management. Since the present 90S load factor for small buses is recognized as near the practical capacity limit, it was not changed. In Scenario 2 the load factors were decreased to 85S and 87?, and in Scenario 3 further to 82S and 83?, respectively. These reductions are likely to occur, despite favorable passenger demand, as a -116- Anne: 6 Page 4 of 6 result of increased competition on the more productive routes. Under highly congested conditions, competition often results in uneven and less effective service delivery, which lowers average load factors. Vehicle Requirements 12. The above parameters were tested within the framework of the three bus passenger growth scenarios of 3.02, 5.02 and 7.02 (para 5). The present shortage of buses would be gradually overcome as more buses are acquired. Thus, servicing of the existing unmet or latent demand for bus transport services will not occur immediately, but gradually as the capacity of the fleet increases. The result of this analysis is shown in the Attachment. Cost Estimates 13. A recent survey of vehicle costs prepared by the TSPC was used to establish the capital costs of the public (large) and private (small) buses. As shown in Table A6.1 below, these estimated costs are compared with the actual prices paid by the SLCTB for large (54-seat) and small (30-seat) TATA buses imported from India and assembled in Sri Lanka. Given the different bus makes available to the private sector, the TSPC estimate was taken as the most representative on a fleet basis and was used in the present analysis. A6.1s 1990 BUS CAPITAL COSTS (Rupees, Financial) Vehicle TSPC Estimate* SLCTB Actual Large 1,018,000 1,034,300 Small 670,000 669,400 * Estimates exclude import duties since all private operators are exempt; 1989 estimates adjusted to 1990 using a price escalation factor of 1.152. Sourcet Sri Lanka Transport Studies and Planning Center and SLCTB, May 1990. 14. Over the past several years, two cost factors have affected the growth of the private bus fleet. The first factor is the capital cost of the vehicles. Private bus operators have been very sensitive to the initially high capital outlay required to enter the public transport service market. This has led to a proliferation of smaller and less expensive buses island-wide. The second factor relates to the first; it is the high financing charges for bus vehicle loans. Due to unfavorable conditions in the local financial market, private operators have had to pay very high interest rates on their new vehiile loans, normally amounting to 402 p.a. repayable within two to three years. It is anticipated that the combination of lower vehicle costs, better financing terms (made possible by the Government's financial and tax incentive programs), and the move toward privatization will encourage growth in bus service. -117- Amex 6 Page S of 6 15. The capital costs provided in Table A6.1 above were applied to the vehicle requirement forecasts in the Attacbment to arrive at a rfnge of year-by- year cost estimates for future fleet acquisition. The resulting annual cost estimates are summarized in the Table A6.2 belows A6.2 e ANIIAL PLEET ACQUISITION COSTS (1990 Rupees, Millions - Financial) Scenario 1 Scenario 2 Scenario 3 Low Moderate High Year Demand Demand Demand 1990 908 1,072 2,148 1991 1,864 2,042 2,337 1992 2,023 2,215 2,300 1993 1,954 2,159 2,322 Average 1,687 1,872 2,277 1994 1,941 2,163 1,319 1995 901 1,139 1,147 1996 687 943 1,420 1997 917 1,191 1,480 Average 1,112 1,359 1,342 1998 929 1,224 2,289 1999 880 1,195 2,270 2000 1,614 1,951 2,344 2001 1,629 1,990 2,313 Average 1,263 1,590 2,304 Average Annual 1,354 1,607 1,974 Notes The analysis period is 12-years which corresponds with the life of a large bus. 16. In 1989, a total of 212 buses were purchased by the Government for SLCTB operations at a cost of approzimately Rs 232 million. Reliable information on the number of buses purchased by the private sector during the same period was not available. At the end of July, applications were on file for about 500 buses. Attachments Bus Vehicle Acquisition Requirements Paie8l of 6 Attachment BUS VEHICLE ACQUISITIOX REQUIRBMENTS Transport Demand Growth Scenario Test It Test 2s Test 3s Year LOW Moderate Aig-* 1990 1,122 1,328 2,833 1991 2,475 2,698 3,029 1992 2,633 2,874 3,003 1993 2,566 2,825 3,037 Average 2,199 2,431 2,976 1994 2,556 2,835 1,585 1995 1,057 1,357 1,430 1996 850 1,172 1,713 1997 1,078 1,423 1,788 Average 1,385 1,697 1,629 1998 1,093 1,463 3,079 1999 1,114 1,511 3,078 2000 2,250 2,674 3,169 2001 2,268 2,722 3,160 Average 1,681 2,093 3,122 Average Annual 1,755 2,059 2,575 Notes Estimates include requirements for both replacement of existing fleet, based on the existing age of the fleet, and now buses to meet forecast growth in demand. * Test 3 assumed a shorter vehicle life (11 years for the large bus and 7 for the small bus category). -119- Annex 7 SRI Page 1 of 5 TlAU SPCTI MUN Jajor Goner Fggd_ne ActivItiles It the Treansert Sector Road Finencing Plon Funding Project Length (US$ equivalent) Ageny Na" and Oescription KM Locol Forein Total Commnts A. ROADS 1. IOA Road Possenger Transport Project -- 1.5 60.1 51.6 Project closed 11/85 Credit 994-CE First Read Maintenence Project 422 2.8 12.1 14.9 Project closed 9/85 Crecdt 900-CE Socond Roads Project 570 3.9 20.1 24.0 1986-1992 Loan 2517-CE Third Roads Project 819 12.4 80.1 42.6 1991-1996 Credit 2188-CEE SUSTOTAL 1,811 20.6 112.4 188.0 Emergency Reconstruction A Rehabilitation Project 825 11.0 12.0 28.0 Ongoing 1996-1991 Credit 1688-CE --- - - ---- TOTAL 2,180 81.8 124.4 168.0 2. ADO Trunk Road Improvement Project 805 9.9 17.6 27.5 Ongoing 765-SRI (SF) Second Road Improva_nt Project 400 15.6 80.6 46.1 Ongoing 864-SRI (SF) ---- SUBTOTAL 705 25.5 46.1 78.6 Ongoing Emorgency Reconstruction 1,040 6.0 16.0 20.0 Ongoing and Rehabilitation Project 865-SRI (SF) ----- ---- ---- _- TOTAL 1,745 80.5 88.1 98.6 -- - - - -- --- - -- - -------------… -- -…-- -- ------------------- a. OECF Road Maintenance Project -- 14.4 66.0 99.4 1909-1996 (SLP 16) Road Maintenance Program -- 0.0 29.5 29.6 Ongolng (meorgency reconstruction) TOTAL -- 14.4 114.5 128.9 4. ODA Rehabilitation of Gal.l Road 12 0.0 22.0 22.0 1987-1990 and Prince of Wales Avenue Road Reconstruction -- 0.0 18.8 18.8 Ongolng (emergency reconstruction) TOTAL 12 0.0 85.8 S6.8 -120- ~~~~~Annex 7 -120- Page 2 of 5 Road Financing Plan Funding Project Length (US8 equivalent) Agency Nam and Oe.crtption Km Local Forelgn Total Comments 6. OECF Rehabilitation of Colombo-Galle 101 4.8 10.2 14.5 Part of Credit 2188-CE above. Rood (Republic of Korea) B. RAILWAYS 6. OECF Railway Rehabilltetion and 0.0 60.8 60.08 Ongoing, 1990-1093 maintenance (tracks, workshops, locomotives) Procuroment of power sets 0.0 8.4 6.4 SUBTOTAL 0.0 69.0 69.0 7. ODA Railway treck and fittings 0.0 2.0 2.0 Ongoing (emergency reconstruction) S. Romania Coache. 0.0 22.6 22.6 Ongoing, 1969-1998 9. Canada Railwoy spere. and acce..orieu 0.0 8.4 8.4 Ongoing (emergency reconstruction) Railway rehabilitation 0.0 1.7 1.7 Ongoing (emergency reconstruction) 10. Oermany Railway program assictonce 0.0 6.8 6.8 Ongoing (emergency reconstruction) C. PORTS 11. OECF Colombo Port Oevelopment 0.0 61.0 51.0 1981-19865 Stage I 0.0 48.0 48.0 1985-1967 Stage II 0.0 24.0 24.0 1967-1990 Stag, III 0.0 80.4 0.4 l990-1991 Port Access Road 0.0 51.4 51.4 1969-1981 TOTAL 0.0 199.8 199.8 D. AIRPORTS 12. OECF Airport Development at Colomo: 1986-1980 Runway 4.7 4.0 8.7 Terminal buIlding 0.0 80.9 80.9 Utilities 0.4 20.7 21.1 Other civil works 12.9 0.0 12.9 TOTAL 19.0 55.6 78.8 E. URBAN TRANSPORT 18. ODA 40 Double-decker buses 0.0 0.8 0.8 Ongoing (emergency reconatruction) Oermany Bus chases 0.0 5.8 5.6 Ongoing (emergency reconstruetion) OECF Procurement of buses 0.0 8.0 8.0 Ongoing (emrgency reconstruction) -121- Annex 7 Page 3 of 5 F. TECHNICAL ASSISTANCE TO RDA 14. ADB is providing the following: (a) a contract management specialist assigned to the Contract Management and Construction Division (CM&C), with inline duties. The emphasis is not on the transfer of knowledge but on handling and solving day-to-day problems; (b) a road maintenance specialist was assigned to the Maintenance Division; the incumbent recently left Sri Lanka, without leaving any report; (c) a plant maintenance specialist. This expert also leaving minimal accomplishments; (d) a training specialist is assisting the Training Department to provide classroom and on-the-job training. His performance is appreciated by RDA. 15. ADD Under TA 1110-SRI (SF): A teaw of experts (32 man-months of foreign and 18 man-months of local consultancy services) to design, install and train RDA staff to operate: (a) a pavement management system; (b) a bridge management system; (c) traffic statistics databank (for traffic volume and composition, axle load data and traffic accident data); and (d) equipment (computers, instruments for road inventory and condition surveys, office and training equipment). This work was expected to start in July 1990 and to last for only ten months. Longer term assistance is required to achieve sustainable improvements. The TOR for these experts are on file. 16. OSCF is providing the following (under SLP 16): A team of experts (138 man-months of Japanese and 148 man-months of local experts from Resources Development Consultants Limited, whose objectives are to: (a) study the existing road maintenance and rehabilitation system and program, and recommend changes in light of the proposed introduction of mechanized maintenance practices; (b) recommend improvements to the existing equipment management and control system; (c) assist in procurement of equipment, vehicles, spares and workshop facilities, mostly from Japan under OECF financing (which will assist implementation of a five-year program of annual routine maintenance of all national and provincial roads--25,000 and annual periodic maintenance/ rehabilitation of 1,700 km); (d) assist in implementation of other components of the project; and (e) carry out a 'feasibility study on future upgraded and integrated road maintenance and rehabilitation works. b The services began in 1988 and will last through September 1992. The Inception Report was issued in November 1989 but no substantial progress has been reported. The proposed five-year program is expected to be issued in 1990. G. OTE0 R ACTIVITIES IN THE TRANSPORT SECTOR 17. Under the 120 million commitment for relief and reconstruction arising out of the 1987 Sri Lanka Aid Group meeting in December 1987, some 14 million was agreed in grant form from ODA to supplement the IDA reconstruction program. This has included so far supply of railway track and fittings, provision of 40 doubledecker buses, as well as trucks and other vehicles. Also under consideration is the supply of spare parts for the 40 buses. Under export promotion, concessionary financing programs (352 grant/with the remainder on commercial terms), consideration is being given to supply of 600 bus bodies and chassis kits. Discussions are also being carried out with SLCTB on the rehabilitation of 875 units. Outside Colombo, a feasibility study financed under an ODA grant is being undertaken on the Monaragalla road by consultants. -122- Annex 7 Page 4 of 5 B. IDA Operations 18. Road Passenier TransPort Project, Credit 994-CE. This project, which closed November 1985, consisted of: (a) restoration of the capacity of the Sri Lanka Central Transport Board to operate an efficient unit exchange and overhaul service; (b) purchase of chassis and materials, and assembly of about 2,100 new buses for use by the Regional Transport Boards; (c) improvement of bus maintenance facilities, practices and bus operations; (d) low-cost traffic engineering measures designed to improve bus flows; and (v) technical assistance for the execution of the project and institution building. 19. Road Maintenance Project, Credit 900-CE. The first roads project, which closed September 1985, consisted of (a) rehabilitation, resealing or resurfacing of selected roads; (b) improvement of routine and periodic road maintenance methods; (c) stengthening, repair or replacement of 30 bridges; (d) procurement of road maintenance and workshop equipment and spares; and (e) technical assitance. 20. The Second Roads Project (Loan 2517-CE, May 1985) is almost complete arnd is scheduled to close December 1992. It included the following components: (a) a program of periodic maintenance consisting of bituminous overlay on about 300 km of road and surface resealing on about 270 km of road; Cb) strengthening or rehabilitation of about 28 bridges; tC) provision of workshop equipment and tools and laboratory equipment to Department of Highways; (d) equipment and training for the Ministry of Highway's highway planning and highway maintenance departments; and (e) technical assistance to the Transport Coordinating Committee and its technical secretariat. 21. The Third Roads Project (Credit 2183-CE, November 1990) includes: (a) rehabilitation of about 420 km of Class A and B roads; (b) strengthening, repairing, widening and redecking of thirteen bridges and replacement/reconstruction of an additional eleven bridges; (c) urgent repairs, rehabilitation and limited new construction of roadways, pavements, drains, retaining walls and cross drainage structures damaged by floods and landslides during May and June 1989; (d) procurement of vehicles, microcomputers, survey equipment, computer software and office equipment to enable the Director, CM&C, his senior staff and consultants to monitor and control contracts more effectively; and -123- Annex 7 Page g of 5 (e) consultancy services for design and supervision and technical assistance including three studies on the road contracting industry, on construction materials and design standards, and road user charges. 22. The Emergency Reconstruction and Rehabilitation Project (Credit 1883- CE, March 1988) provided US$23.0 million for the rehabilitation of roads in the north and northeast of the country which had been damaged during ethnic conflicts. 23. Bus Privatization is being undertaken under the Economic Restructuring Project, (Credit 2128-CE, May 1990). Implementation of peoplization is expected to be completed by January 1993. UNDP is also financing a US$1.2 million grant to strengthen the bus sector and especially to help make a smooth transition of the public industry to private ownership and c?eration. -124- RZFERUNCES 1. Sri Lanka TransDort Sector Planning Studr (6 Volumes and Appendices), January 1988, IMC-CPT,. 2. Public Investment Programs, 1981 - 1993, 1988 - 1992, and 1989 -1993, National Planning Division, Ministry of Finance and Planning. 3. Budget Speech, Ron. Minister of Finance and Planning, 1987 4. Sri Lanka Transport Sector Memorandum (A Brief Review), 1984, World Bank 5. Sri Lanka: A Break with the Pasts The 1987-90 Program of Economic Reforms and Adjustment, Vols. I and II, 1988 6. Traffic Flows and Intermodal Distribution in the Countries of the South Asian Association for Regional Cooperation (SAARC), Sri Lanka Country Study, 1985 7. Central Bank of Sri Lankas Annual Report - 1987 8. Report of the International Advisory Team on the Supervision, Control and Evaluation of Public Enterprises, 1982 9. Private Bus Transport in Sri Lanka - Dr. P.C.H. Ranasinghe, Friedrich-Ebert-Stiftung, 1988 10. Corporate Plans 1989-1992, Ceylon Shipping Corporation, 1988 11. Sri Lanka Policy Framework Paper, 1988-1991, World Bank 12. Sri Lanka Transport Sectors Issues and Strategies (Discussion Paper at the Donor Coordination Meeting in June 1989), AS1II MAP SECTION IBRD 17938 4-r - FEBRUA4Y 1984 Point Pedro SRI LANKA TRANSPORT Q 2p 4 KILOMITIRS MAIN ROADS /RAIlROAD$ aMulbaittvu NATIONAL CAPITAL O SELEClTID TOWNS PROVINCtAL BOUNDARIES GvI/ of Alana,- /7 / Anraho | -zOaday Kolpifiyo a.~~~~~~~~~~~~~~~~~~~rw \ &^ 9 ti.:\f tf -sKcalltudo~~~~~~~~~kudh Botticloa {SsE3'~~~~~ tV T f-i A I 71 8ancjadaniya~~ ~ ~ ~ 1 N I f A 10 l~~~~~ ii} I r'f\Ef/Ts,S_ *we*~~~~~~0 r-Jgte g \ tla } } / ) nff < \ L ( gS { \~~s