By Rajan Philips –

Rajan Philips

For full disclosure, I had not heard or known anything about the Millennium Challenge Compact (MCC) until I saw the fallopian claim that the compact is carrying in its womb a scheme to bifurcate the country along a Colombo-Trinco transportation corridor. It didn’t take long to explode the corridor nonsense, but I found the description of the two MCC projects professionally interesting. Especially, the grant of $160M for establishing a Traffic Management Centre (TMC), undertaking geometric and operational improvements to 132 junctions, and building 50 new pedestrian crossings – all in Colombo. Wow, I thought, that’s a lot of dough to tackle traffic congestion in any city anywhere in the world, and why would anyone knowledgeable and in their right mind would make any fuss about it in Sri Lanka?

Going by statements attributed to the new government’s frontline spokesmen, 70% of the MCC Compact involving the Transport Project is deemed good for Sri Lanka and the new government can live with it. It is only the Land Project amounting to 30% is problematic and may have to be excluded from the agreement. If that is the new government’s new thinking, does it mean that the new leaders were at least 70% wrong about the MCC during the elections? 

But there are others who still seem to be insisting on the pound of flesh, 100%, and one of them took to speculative fancy last week calling upon all Sri Lankans to beware, lock, stock and barrel, of the MCC, the SOFA (Status of Forces Agreement, and the ASCA (Acquisition and Cross Servicing Agreement). Even Switzerland and the beleaguered Swiss Embassy in Colombo were undiplomatically thrown into the cauldron of confusion in an article that every bit looked like a job application for a diplomatic posting in Geneva. If this is indeed a job application, it can only be considered as rejected based on the merits of the article.                

To resume from where I left last week, the Mahaweli development scheme was the culmination of a phase of development based on irrigation and agriculture. It was also the hallmark of a development approach that began under DS Senanayake even before independence and continued under different UNP governments after independence. In addition to irrigation and agriculture, the Mahaweli development integrated the expansion of hydropower and included several hydropower projects as part of the scheme. What might be called the Senanayake development approach has by and large come to an end. 

However, there is much to be said about the costs and benefits of this development phase, involving not only the economic costs and benefits, but also social and natural environmental costs and benefits. The evaluation of these costs and benefits are tasks that should properly be undertaken by government agencies, not so much for postmortem reasons as for developing active programs for maintaining and (environmentally) upgrading significant  infrastructure components that have been built. One can provide only sketchy outlines of these tasks in newspaper articles. 

In contrast to the Mahaweli development scheme, the Millennium Challenge Compact (MCC) is part of the new emphasis on infrastructure involving ports, airports, highways, and urban transportation, as well as assembling land for industrial development. One of the main differences between the Mahaweli approach and the current infrastructure approach is in their agencies and institutions. 

The Mahaweli scheme was the beneficiary of long-established institutions and agencies that internally nurtured technical and professional competence, undertook long term planning, ensured a lot more than minimum gestation period on the drawing board for individual projects, and prepared fairly well-cooked and well-costed projects ready for political picking, and as candidates for foreign aid and grants. In major projects, foreign funding might be secured in the early stages to assist in project planning and feasibility studies. No matter how whimsically the political decision was made in selecting a project for implementation, each project was assured of technical feasibility, reliable cost estimates and where possible, of foreign funding. 

The twin assault

As I alluded to last week, the acceleration of the Mahaweli scheme completely broke up the long established institutional and professional system and processes that mediated between political decision making, on the one hand, and the identification and implementation of projects on the other. A contributing parallel development was the village housing (gamudawa) scheme that then Prime Minister R. Premadasa was undertaking with great gusto throughout the island. Faced with this twin assault, the good old administrative and financial regulations (AR & FR), professional practices and procurement systems for public projects were disregarded and discarded. 

It is worth noting that these changes were taking place in the overall global context of the Reagan-Thatcher years, a decade of deregulation and the diminishing of the role of the public sector in infrastructure development. In what became a worldwide phenomenon, cost-benefit and multi-objective analyses for public sector investments gave way to making a ‘business case’ for every infrastructure project. The best business case was of course the public-private partnership. To be clear, the private sector has always played a part in infrastructure development, but as construction contractors or design consultants on project by project contracts. The new partnerships are different business. 

The design and construction phases were combined into turn-key projects and private sector consortiums got themselves invited to build, operate and transfer to governments what is left over when they are done with making profits. Costs were deliberately underestimated to win government approvals for technically undercooked projects, and were then allowed to escalate often under cost-plus payment contracts. Heavy construction became one of the more fertile grounds for international and national corruption. China with its state sponsored engineering organizations carved for itself a huge infrastructure market in areas and countries which the global aid agencies and transnational corporations had no interest in penetrating. China has added a new extension to the old ‘debt trap’ that Cheryl Payer (1974) accused multinational corporations and western governments were setting up for Third World countries.        

Ironically, the Reagan-Thatcher years were also the time, when governments under pressure by environmental activists and public awareness were beginning to put in place environmental regulations and requirements of environmental assessments for public infrastructure undertakings and private developments. These became standard requirements for international aid and project implementation. Not surprisingly, between 1977 and 1994 in Sri Lanka, the UNP government achieved both – the dismantling of public infrastructure institutions and processes, on the one hand, and the setting up of environmental regulations and processes on the other. The enforcement of environmental regulations and processes were hampered from the outset by the absence of robust institutional structures. The results are not difficult to see.              

There have been technical, financial and environmental issues with every one of the emblematic projects that have been undertaken during the last ten years. The Uma Oya project is a good, or bad, example of an undercooked project that was undertaken solely due to political impetus. The highway projects, involving bilateral loans and grants,  have become notorious for contract cronyism and cost overruns. The coastal projects, in Hambantota and in Colombo, were not given the degree of environmental assessment that is warranted by their sensitive location and multidimensional impacts over significantly long terms. 

The Colombo Port City landfill may now sit shining in festive December lights, but neither Mahinda Rajapaksa nor Ranil Wickremesinghe would ever be able to answer Anura Kumara Dissanayake’s very pertinent question – if they want Colombo to become a financial hub between Dubai and Hong Kong, why not build it in the grand old heritage area of the Colombo Fort, without messing up the Galle Face coastline?         

The MCC Projects 

As far as I can recall none of the current objectors to the MCC Compact and its two projects raised even so much as a hoot over any of the emblematic development and infrastructure projects undertaken over the last years. I say this and I argue that the two MCC projects are far less impactful than any of the other recent and ongoing projects from the standpoints of financial, environmental and sustainable development considerations.

Sovereignty, on the other hand, is an irrelevant concern and an unnecessary red herring not only to the MCC projects but also to any infrastructure project, regardless of the source funding. We can legitimately and must necessarily talk about the implications of a project to national interests without dragging the country’s constitution to its congested junctions and construction sites. NM and Dudley did just that in 1969, without invoking sovereignty or questioning one another’s patriotism.  

Embedded in the MCC agreement are the requirements for evaluating Environmental and Social Performance, and for ensuring Gender & Social Inclusion. These are now standard requirements in many countries and international agencies, and they have to be complied with in the undertaking of the Transport Project and the Land Project and their multiple activities. Anyone familiar with environmental assessments will know that, with the exception of the Central Ring Road Network (CRRN) project that none of the other activities in the two projects will have significant implications for the natural environment. 

Even the CRRN is not intended to create new ‘greenfield roadways,’ but improve selected five ‘existing roadways’ connecting Central, Sabragamuwa, Uva and the NCP/NWP provinces to the Western Province, a total of 131 km for a grant allocation of $140M. As should be obvious, improving an existing piece of infrastructure, such as widening an existing road, generally causes much less environmental impact than a new piece of infrastructure, such as building an entirely new road. 

By the same token the transport project activity for improving 132 existing junctions in built up areas will have minimal environmental impacts. In fact, their completion will improve traffic flows and reduce the environmental footprint of traffic congestion. There should also be no environmental concerns over activity for Bus Transport Service Modernization (BTSM), that has a grant allocation of $50M for improving public transport in the Colombo Metropolitan Region (CMR). 

The MCC project description notes that the bus modernization project is proposed to be leveraged with a World Bank urban transport program that will also include a bus modernization component. There is some poetic justice in the current World Bank’s initiative for bus modernization, considering that, in 1977, the Bank was a frontline cheerleader of the dismantling of the CTB in the name of privatizing bus transport. The CTB had achieved much organizational purpose and efficiency under two different leaderships, ARP Wijeysekera (UNP, 1965-1970) and Anil Moonesinghe (LSSP/UF, 1970-1975). Rather than building on what had been achieved, the JR Jayewardene government embarked on a reckless privatization adventure that rewarded UNP MPs and their catchers by turning them into retail bus mudalalis who shredded the CTB beyond recognition without providing anything substantial by way of replacement. 

At the start of the bus privatization program after 1977, World Bank officials held up Sri Lanka as a beacon for bus transport privatization in other countries. Before long, they came to know better and acknowledged that the bus privatization program in Sri Lanka did not turn out to be as successful as it was predicted to be. The modernization objectives listed in the current MCC project description primarily involve improvements in technology. A social policy objective is to develop a code of conduct for bus operators to ensure public safety and the safety of women. 

Fundamentally, bus transport’s challenge is to define the terms of operations and the division of service responsibilities for the public and private bus service providers. Grant providers cannot be expected to address this challenge. It is up to the government to address it. And it cannot be addressed by throwing out the MCC agreement, but by using its resources intelligently and institutionally to achieve transport improvement objectives. Another rather silently developed transport project, under the auspices of the Japan International Co-operation Agency, is the Colombo Light Rail Transit System that at full development will include seven lines crisscrossing Colombo over 75 km. 

The first line from Fort to Malabe spanning 15.8 km with 16 stations is currently under construction. Strangely, the UNP government made no mention of it for political kudos or electoral benefit. Only Ranil Wickremesinghe can explain that shyness. The new Rajapaksa government is not going to be shy about extracting political mileage from the light rail for the next five years. The MCC agreement dutifully says that the MCC’s transport project will be coordinated with the light rail project. But what agencies are going to be involved, and how, in coordinating the bus transport, the new light rail system, and the old heavy rail service remains an open question. But that is no reason to walk away from the MCC agreement.            

What about the 30% Land Project? There are five land related activities included the Land Project for a grant of $67M, which is just under 15% of the total grant of $480M. The balance $63M is allocated for administrative costs common to both the transport and the land projects. There is nothing sinister about the five activities identified under the Land Project, viz., the Parcel Fabric Map and State Land Inventory, Deeds Registry Improvement, Land Valuation System Improvement, Land Grants Registration and Deed Conversion, and Land Policy and Legal Government Improvement. 

It would seem that these are essentially for setting up digital data base systems and would appear to have been identified as priority activities by Sri Lankan professional in land related agencies. There is nothing about them that will create any natural environmental impact or national security concerns. From the standpoint of gender equality, the MCC agreement obligates the Sri Lankan government to develop a Social and Gender Integration Plan that for “ensuring equal land tenure security for women and men.” People who have worked in the aftermaths of the tsunami and the war know the legal hurdles that women face in securing their legal land ownership even when they are the main providers for their families.  What is unpatriotic about redressing this? And how does this infringe Sri Lanka’s sovereignty insofar as it is not equated with traditional patriarchy? 

There has been rather pedantic fault finding with the Constraints Analysis approach that was used to evaluate and select the two projects that are included in the Compact. The Constraints Analysis Report indicates that nine constraints were evaluated to select two projects for MCC grant allocation. They include Land, Policy/Taxation Uncertainty, Transportation, Water, Electricity, Education, Labour Regulations, Finance and Health. Land and Transport were so prioritized as selected candidates for MCC grant. Quite possibly, two other projects could have been identified as priority with a different set of selection criteria and weightage. The truth of the matter is that every one of the nine constraints, including others that are not on the list of nine, might qualify for funding for meaningful initiatives. In a pool of nine serious priorities, there is not much space for hairsplitting over which two should go first. The real folly would be to decide against going with any for available funding.     

Part I – From Mahaweli To Millennium Compact: The New Degeneration Of An Old Debate