Foreign Assistance: USAID Has Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but Key Projects May Exceed Initial Cost and Schedule Estimates
Published: 2006-04-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In December 2004, an earthquake off the coast of Indonesia caused a tsunami that left more than 230,000 people killed or missing and presumed dead and an estimated $10 billion in damage in 12 countries. In May 2005, Congress appropriated $908 million for relief and reconstruction. U.S. emergency relief efforts budgeted at $327 million were nearly completed in December 2005. The U.S. Agency for International Development (USAID) plans to spend $496 million on longer-term reconstruction, focusing on Indonesia and Sri Lanka, with the remaining $85 million allocated to other U.S. agencies. GAO has been mandated to monitor USAID's reconstruction efforts. In this report, GAO describes USAID's (1) progress in Indonesia and Sri Lanka, (2) financial and technical oversight measures, and (3) implementation challenges.
section_title: What GAO Found
paragraphs: USAID has begun a number of reconstruction activities in Indonesia and Sri Lanka. As of January 31, 2006, approximately 8 months after Congress appropriated funding, USAID had obligated $111 million (32 percent) and expended $9 million (3 percent) of the $349 million budgeted for reconstruction in Indonesia, and it had obligated all and expended $2 million (2 percent) of the $85 million budgeted for reconstruction in Sri Lanka. However, rising prices of materials and labor in both countries may increase costs for many construction efforts, including USAID's "signature" projects, which are intended to generate greater visibility for U.S. assistance. In addition, revisions to initial assessments of site conditions may challenge USAID's ability to finish its signature project in Indonesia--a 150-mile road in Aceh Province--by September 2009, the estimated completion date. In Sri Lanka, the time needed to complete designs and plans may make it difficult to finish one part of USAID's signature project--a bridge at Arugam Bay--by March 2008, although this project is currently slightly ahead of schedule. USAID plans to complete most of its other reconstruction projects, such as building schools and restoring livelihoods, by September 2007. USAID has established financial and technical oversight for its tsunami recovery programs in Indonesia and Sri Lanka. For financial oversight, USAID plans to arrange a concurrent audit of the signature road project in Indonesia and strengthen Indonesian and Sri Lankan audit capacities. For technical oversight, USAID has begun to add staff to oversee its signature construction projects and has acquired additional construction engineering expertise from another U.S. agency. An additional engineer will start work in Indonesia in May 2006. In Sri Lanka, USAID has added two engineers to its staff and plans to hire an additional construction oversight engineer in April 2006, prior to beginning construction. In implementing its Indonesian and Sri Lankan reconstruction programs, USAID faces several broad challenges. These include working in regions with long-standing conflicts, coordinating with host governments and nongovernmental organizations, and ensuring that non-tsunami-related development assistance activities are not neglected. To address these challenges, USAID has taken actions such as engaging in peace-building initiatives, participating in regularly scheduled coordination meetings, and hiring and reassigning staff to assist with increased workloads.

section_title: Letter
paragraphs: On December 26, 2004, a severe earthquake in the Indian Ocean off the  coast of Indonesia created a major tsunami that struck 12 countries in Asia  and East Africa. As a result of the tsunami, more than 230,000 people were  either killed or are missing and presumed dead, more than 1.7 million  people were displaced, and an estimated $10 billion in damage was caused  to infrastructure, houses, and other property. Following initial emergency  response efforts by the United States and other donors, individuals,  national governments, and others around the world pledged more than $13  billion to assist in rebuilding tsunami-affected areas throughout the region.  In May 2005, Congress appropriated approximately $908 million in  assistance for tsunami relief, reconstruction, and related programs. Beyond  $327 million that was budgeted for survivors’ immediate needs for  medicine, food, and shelter, approximately $496 million is budgeted for  longer-term reconstruction and related programs to be administered by the  U.S. Agency for International Development (USAID). This amount includes  $349 million for Indonesia and $85 million for Sri Lanka, the two countries  with the greatest estimated needs, and $62 million for other countries and  regional programs. The remaining $85 million was budgeted to other U.S.  agencies. USAID began most of its activities by September 2005, including  “signature” projects intended to generate greater visibility for overall U.S.  assistance. Initial USAID plans call for completing its nonsignature  activities in both countries by September 2007 and its signature projects in  Indonesia and Sri Lanka by September 2009 and March 2008, respectively.
We were directed to monitor the delivery of U.S. assistance to the  tsunami-affected countries. For this report, we examined (1) USAID’s  progress in providing longer-term reconstruction assistance in Indonesia  and Sri Lanka; (2) the extent to which USAID has established financial and  technical oversight; and (3) any challenges USAID faces and any steps the  agency has taken to address these challenges.
To address these matters, we reviewed USAID’s expenditures through  January 2006, and analyzed USAID’s program objectives and oversight. We  also traveled twice to Indonesia and once to Sri Lanka between July and  December 2005. On our trips, we visited numerous project sites in the  tsunami-affected areas, meeting with survivors and monitoring the  progress of USAID’s portfolio of projects. We determined that USAID’s  funding and expenditure data were sufficiently reliable for our analysis. In  addition, we considered previous GAO work on U.S. disaster assistance  efforts. We conducted our work from May 2005 through March 2006 in  accordance with generally accepted government auditing standards. (For  details of our scope and methodology, see app. I.)
subsections: section_title: Background
paragraphs: Although the tsunami’s effects were concentrated in the countries closest  to the earthquake’s epicenter in the Indian Ocean, about 100 miles off the  coast of Sumatra, it also destroyed communities along some coastlines  thousands of miles away. A year later, in December 2005, more than 40,000  persons were still listed as missing and tens of thousands remained in  temporary housing. Figure 1 shows the most-affected countries, the  numbers of people dead, missing, and displaced, and the estimated damage  as a result of the tsunami.
subsections: section_title: International Funding and Implementing Entities for Tsunami Relief and Reconstruction
paragraphs: Responding to the magnitude of the disaster, the international donor  community, including the United States, pledged approximately $13.6  billion to assist with tsunami relief and reconstruction efforts in all of the  affected countries. National governments and the European Union pledged  $6.2 billion of this amount (45 percent), private individuals and companies  pledged $5.1 billion (38 percent), and international financial institutions  pledged $2.3 billion (17 percent). These funds are being provided to a wide  range of entities involved in implementing relief and reconstruction efforts  (see fig. 2).
section_title: USAID and Military Agencies’ Emergency Relief Efforts
paragraphs: USAID and the U.S. Department of Defense (DOD) and its component  services provided immediate assistance to tsunami survivors and to the  governments of many of the affected countries, largely completing these efforts by the end of 2005. USAID’s Office of U.S. Foreign Disaster  Assistance (OFDA), Office of Transition Initiatives (OTI), and other USAID  offices assisted survivors by providing food, water, temporary shelter, and  other critical needs. Soon afterward, USAID initiated economic  reactivation projects, such as paying people to remove debris in many  affected areas. USAID’s emergency relief budget totaled approximately  $101 million, including $32 million in Indonesia and $47 million in Sri  Lanka.
In addition, several DOD component services, including the U.S. Air Force  and Navy, provided important emergency relief. For example, the Air Force  rescued survivors and airlifted supplies, and a Navy hospital ship provided  medical support. The supplemental tsunami appropriations law provided  up to $226 million to reimburse DOD for its emergency relief activities. As  of January 2006, DOD expended approximately $125 million (55 percent),  including nearly $79 million for airlift and other flying costs and slightly  more than $7 million for health- and medical-related services. Of the  remaining $101 million, DOD had not completed a final reconciliation of  $47 million, $40 million had been reprogrammed to help cover DOD’s costs  in other disaster assistance efforts, and $14 million had lapsed. Table 1  shows U.S. tsunami emergency relief funds budgeted and expended.
section_title: U.S. Supplemental Funding Budgeted for Reconstruction in Tsunami-Affected Countries
paragraphs: Of the $908 million appropriated for tsunami relief and reconstruction  assistance, $581 million, or 64 percent, was budgeted for reconstruction  and other postemergency relief activities. Of this amount, USAID was  budgeted $496 million for reconstruction, and other U.S. agencies were  budgeted $85 million for various other activities. (See table 2.)
section_title: USAID Reconstruction Programs in Indonesia and Sri Lanka
paragraphs: USAID’s planned reconstruction efforts in Indonesia and Sri Lanka include  its signature projects, such as road and bridge construction; small-scale  infrastructure projects, such as rebuilding schools and clinics; technical  assistance for good governance; and transition assistance to improve  survivors’ livelihoods and, in Indonesia, to build houses. In addition,  USAID, through a transfer of funds to the Department of the Treasury, is  funding debt relief to the governments of Indonesia and Sri Lanka; in  exchange for deferral of a portion of their debt, both governments agreed  to use the resources freed by debt deferral for relief and  reconstruction-related programs (see app. II for a more detailed  description of this aspect of the program). Table 3 shows the funds  budgeted for ongoing and planned U.S. reconstruction assistance in  Indonesia and Sri Lanka.
Initial USAID plans call for completing its nonsignature activities in both  countries by September 2007 and its signature projects in Indonesia and Sri  Lanka by September 2009 and March 2008, respectively. Section 4102 of the  supplemental appropriations act requires that, beginning in December  2005, the Secretary of State report to Congress every 6 months on  tsunami-related progress, expenditures, and schedules. The report due in  December 2005 was provided to Congress on March 22, 2006. Figure 3  shows USAID’s projected timeline for completing its tsunami  reconstruction programs in Indonesia and Sri Lanka.
section_title: USAID Reconstruction Programs in Indonesia and Sri Lanka Have Begun, but Some Project Costs and Schedules May Exceed Initial Projections
paragraphs: USAID has obligated some, and expended small percentages, of its  reconstruction funding in both countries and has initiated some of its  planned activities. However, USAID may have difficulty completing its  reconstruction projects—particularly its large-scale signature  projects—within initial cost estimates and schedules because of, among  other factors, increased demand and higher costs for construction  materials and labor in both Indonesia and Sri Lanka.
subsections: section_title: USAID Has Begun Reconstruction Efforts in Indonesia, but Several Factors May Increase Costs and Delay Schedules
paragraphs: In Indonesia, USAID has begun many of the reconstruction projects that it  plans to complete by September 2007. USAID has obligated about  one-third, and expended a small percentage, of the funding budgeted for  reconstruction in that country. In addition, USAID has begun to design, and  performed preliminary site work on, a 3-mile segment of its large-scale  signature infrastructure project, a 150-mile paved road; however, because  of a variety of factors, the overall road construction project may overrun  cost and time estimates. Similarly, USAID is currently planning and  designing its small-scale infrastructure projects and has begun its transition  assistance projects, both of which may also exceed cost and schedule  projections.
subsections: section_title: USAID Has Obligated about One-third and Expended a Small Percentage of Reconstruction Funds in Indonesia
paragraphs: As of January 31, 2006, USAID had obligated $111 million (32 percent) and  expended $9 million (3 percent) of the $349 million budgeted for its  reconstruction projects in Indonesia (see table 4). These activities include  the signature road construction, small-scale infrastructure construction,  technical assistance for good governance, and transition assistance.
USAID awarded an initial contract and began work on a segment of its  signature road construction project in Indonesia in August 2005, but, owing  to various factors, the project may overrun initial cost estimates and  schedules. The proposed project, budgeted at $245 million, consists of  building a 150-mile paved two-lane road and more than 100 bridges and  culverts along the western coast of Aceh Province on the island of Sumatra,  from the provincial capital of Banda Aceh to the city of Meulaboh. The  tsunami’s impact destroyed or badly damaged much of the original road, a  vital transportation route for the region. USAID agreed to reconstruct the  road to support the Indonesian government’s overall reconstruction  strategy, with the goal of helping to restore the economic strength of the  area and promoting the redevelopment of the affected communities.  According to an Indonesian government report, the road is key to  revitalizing the economy of Aceh Province and to successfully initiating  other reconstruction efforts. Figure 4 shows the approximate route of the  planned road and photos of damage caused by the tsunami.
USAID plans to design and construct the signature road in three distinct  phases, with separate contracts for each phase. USAID also entered into  interagency agreements with USACE for technical support. In early 2005,  USACE and USAID conducted a preliminary assessment of site conditions  and prepared the cost estimate that USAID submitted to Congress. The  three phases for the signature road project are as follows (see app. III for  more details): 1. Maintain a rehabilitated 50-mile temporary segment and  construct a short segment. In August 2005, an Indonesian firm began  maintaining a temporary 50-mile road segment, from Banda Aceh to  Lamno, and designing and constructing a new 3-mile segment. This  maintenance work is intended to ensure that the temporary segment,  recently rehabilitated by the Indonesian army, remains passable until  permanent construction is completed. 2. Design the signature road and supervise its construction. The  second contract, for designing most of the 150-mile road and  supervising construction work, was awarded to a U.S. firm in  November 2005. The firm will supervise construction of the 3-mile  segment, develop plans and specifications for the remaining 147 miles,  and assist USAID in awarding and supervising construction of the  signature road. 3. Construct the signature road. USAID plans to award a third contract  by September 2006 to construct the 147-mile segment of the signature  road.
However, several factors—limited site information, rising materials and  labor costs, and land acquisition issues—may increase the signature road  project’s total costs and the difficulties of completing it within the intended  time frame.
Limited site information. A joint USAID-USACE team initially  assessed conditions and developed a cost estimate for building the  road. The estimate was based on using undamaged sections of the  existing road and large segments of the temporary road placed by the  Indonesian Army. A 20 percent contingency was included in the cost  estimate because much of the road’s planned route was inaccessible,  resulting in the team approximating site conditions and developing  plans based on their assumptions. However, actual costs may still  exceed the estimate because plans for routing the road have changed.  According to USACE, current plans show that large segments of the  road are now planned to be placed along new undeveloped routes—not  along existing routes as initially planned. This change is expected to  result in the need for more earthwork and related construction activities  than originally anticipated.
Rising costs. Increasing costs for materials and labor will also likely  affect the road construction project’s overall cost. Demand for  construction labor and materials has risen dramatically in Aceh  Province and, according to USAID officials, will likely continue to rise.  For example, a USAID official reported that the price of fuel oil used for  construction equipment had risen more than 250 percent, from $0.17 per  liter in February 2005 to $0.60 per liter in December 2005. According to  the United Nations Development Program, posttsunami construction  spending in and around Aceh is expected to increase fortyfold from  pretsunami levels, from $50 million to $2 billion per year, and 200,000  additional workers will be needed to meet construction demands.  Because the demand for skilled workers is greater than the number  available, labor costs for reconstruction projects requiring skilled  workers may rise.
Land acquisition. Awarding the signature road construction contract  by September 2006 may be difficult because of uncertainties regarding  the road alignment and acquiring the needed right-of-way. The alignment  of the new road will differ from the former road because, in some  locations, the former roadbed is either submerged or was rendered  otherwise inaccessible by the tsunami’s impact. According to a USAID  official, the design contractor intends to propose a final road alignment  to Indonesian authorities by mid-May 2006. Once the alignment is  approved, the Indonesian government must coordinate with multiple  jurisdictions to obtain land. USAID helped establish a technical steering  committee with Indonesian government entities to facilitate land  acquisition issues. However, progress depends on the Indonesian  government’s timeliness in acquiring the land and establishing  right-of-way.
USAID expects to have more comprehensive cost estimates and schedule  projections for the signature road project in June 2006.
section_title: Other USAID Reconstruction Activities in Indonesia May Also Exceed Cost and Schedule Projections
paragraphs: USAID has initiated other projects in Indonesia, some of which may exceed  initial cost and time estimates. These projects encompass small-scale  infrastructure, technical assistance for good governance, and transitional  assistance aimed at restoring livelihoods.
Small-scale infrastructure. USAID has begun reconstructing schools,  clinics, water distribution systems, and small port facilities. Other  projects will assist communities in preparing solid waste management  plans, helping rebuild business districts, and constructing markets. Two  planned projects include helping to build a teacher-training facility in  Banda Aceh and rehabilitate the fishing industry by constructing port  facilities, fishing vessels, and ice-making facilities. According to the  USAID official responsible for overseeing the project, the  teacher-training facility project is unlikely to begin as initially scheduled  because of the time it has taken to plan and assess site conditions. He  added that, even if the project does begin on time, the schedule is  unlikely to be achieved, and because of rapidly escalating costs for  materials and labor, the project is at risk of exceeding its budget.
Technical assistance for good governance. USAID technical  assistance and good governance projects in Indonesia are aimed at  enhancing reconstruction efforts by facilitating the peace process. The  projects include paying consultants to work with the Indonesian  government’s Rehabilitation and Reconstruction Agency (BRR), the  Audit Board of the Republic of Indonesia (BPK), the supreme audit  institution, and local communities.
Transition assistance. USAID has begun its transition assistance,  including rebuilding shelters and helping restore livelihoods through  microenterprise support. However, USAID may face difficulties meeting  its shelter construction cost and schedule estimates. For example, 2  months after agreeing to build 1,000 houses for $4,500 each, the NGO  implementing the project informed USAID that, because of escalating  prices for fuel, building materials, and labor, the unit cost had risen  more than 60 percent, to $7,000. The NGO has tentatively agreed to  reduce its budget for other USAID-funded activities, such as upgrading  an ice-making facility to assist the fishing industry, and will attempt to  solicit private donations to meet its housing commitment.
section_title: USAID’s Sri Lankan Construction Activities May Face Cost and Time Overruns, but Other Programs Are on Schedule
paragraphs: USAID has begun many of its longer term reconstruction efforts in Sri  Lanka. By the end of 2005, the agency had obligated 100 percent of its funds  and expended approximately 2 percent of reconstruction funding. USAID  has started its signature project, which includes building a bridge and other  infrastructure, addressing coastal management issues, and constructing  vocational education facilities. However, primarily because of shortages of  labor and materials, the project faces potential cost and schedule overruns  even though it is currently slightly ahead of schedule. USAID has also  begun its small-scale infrastructure, governance, and transition assistance  projects.
section_title: USAID Has Obligated All and Expended a Small Percentage of Reconstruction Funds in Sri Lanka
paragraphs: As of January 31, 2006, USAID had obligated all $85 million (100 percent)  and expended about $2 million (2 percent) of the funds budgeted for  longer-term reconstruction efforts in Sri Lanka (see table 5).
USAID’s signature project in Sri Lanka began in September 2005, when the  agency signed a contract with a major U.S. design and construction  management firm. All components of the project—particularly the  construction of a bridge at Arugam Bay in eastern Sri Lanka, where tourism  is a vital component of the local economy—are consistent with the  government of Sri Lanka’s strategic reconstruction plan. The signature  project has three components (see fig. 5 for the planned locations).  1. Construction of a bridge and other infrastructure. These  activities, largely focused on the Arugam Bay area of eastern Sri Lanka,  include rebuilding a bridge spanning the bay and constructing a water  treatment facility for nearby towns. Three ports in southern Sri Lanka  will also be rehabilitated. 2. Provision of coastal management training. A management  organization will provide training in construction and tourism-related  skills that USAID considers essential to rebuilding and reactivating the  economy in the Arugam Bay area. As of December 31, 2005, the  contractor had completed some assessments and plans, but  construction work had not yet begun. 3. Construction of vocational education facilities. This component  of the project includes constructing two schools and reconstructing  approximately eight others.
As in Indonesia, several factors may hamper the completion of USAID’s  signature project in Sri Lanka.
Limited availability and rising costs of materials and skilled  labor. During our visit to Sri Lanka in July 2005, we learned that, as in  Indonesia, the increase in construction had led to limited availability of  materials and labor and resulted in higher costs. For example, one  USAID report noted that the cost of a brick had doubled and similar  increases had occurred for cement and lumber. USAID included $2.2  million in the project budget to cover possible materials and labor  increases, but USAID officials acknowledged this extra funding may be  insufficient to cover costs.
Lengthy planning and design of Arugam Bay bridge and other  infrastructure. Although USAID signed the contract for the planning  and design of the bridge in September 2005, construction of the bridge is  not expected to begin until August 2006. Although USAID is slightly  ahead of schedule, the length of time required to correctly plan and  design the signature bridge project at Arugam Bay may challenge the  agency’s efforts to complete the bridge by March 2008, the projected  deadline. Also, construction of a water treatment facility experienced  delays due to technical issues that arose during the preliminary  assessment.
section_title: Other USAID Tsunami Reconstruction Projects in Sri Lanka Are Under Way and Most Are Currently on Schedule
paragraphs: USAID has made some progress in its other projects in Sri Lanka and  expects to complete them by September 2007. These projects include  small-scale infrastructure, technical assistance and good governance, and  transition assistance aimed at encouraging economic activity.
Small-scale infrastructure. USAID has leveraged other donors’ funds  to increase the scope of some small-scale infrastructure projects, which  include the following:  USAID entered into a public-private alliance to build playgrounds,  some of which include accessibility for the disabled. USAID  contributed $0.5 million and attracted $1.5 million from two private  organizations, increasing the number of playgrounds planned from 20  to 85.
Another project involves rehabilitating community markets and  restoring access to potable water. These activities are projected to be  completed by mid-2006.
Technical assistance and good governance. USAID will provide  technical assistance and promote good governance in Sri Lanka. USAID  has also budgeted funds to strengthen the Sri Lankan government’s  audit capacity. In addition, USAID is providing funds to promote  accountable local governance in tsunami-affected regions.
Transition assistance. USAID is providing assistance to help tsunami  survivors transition from camps to permanent communities. Activities  under way include providing businesses with credit and vocational  training. We visited a vocational school that USAID was rehabilitating  and equipping with computers and found many students who were  learning new skills; the principal reported that enrollment had also  increased dramatically.
section_title: USAID Established Financial and Technical Oversight Measures but Has Not Filled Some Needed Technical Oversight Positions
paragraphs: To establish financial oversight of its reconstruction programs in Indonesia  and Sri Lanka, USAID has augmented its standard financial controls with  external and internal audits and efforts to strengthen local accountability.  To establish technical oversight, USAID has reassigned and hired  experienced staff, such as engineers, and acquired additional technical  expertise through interagency agreements. However, USAID has not filled  some positions that it considers critical to technical oversight.
subsections: section_title: USAID Has Established Financial Oversight Mechanisms in Indonesia and Sri Lanka
paragraphs: For its reconstruction programs in Indonesia and Sri Lanka, USAID plans  to augment its standard financial controls for development assistance  programs through additional internal and external audits. USAID also plans  to strengthen Indonesia’s and Sri Lanka’s auditing capacities.
subsections: section_title: USAID Plans Internal and External Audits
paragraphs: In addition to its required financial controls, which include preaward  surveys of prospective award recipients and financial audits, USAID plans  to arrange for additional audits. According to agency officials, USAID  intends to sign an agreement with the Defense Contract Audit Agency to  concurrently audit funding for USAID’s signature road construction project  in Aceh, Indonesia. USAID officials told us the agency is undertaking this  work because of the additional risk inherent in large construction projects.
USAID’s IG is also providing oversight of reconstruction programs. The IG  is currently auditing the signature road construction project in Indonesia  and plans to conduct three additional audits, two in Indonesia and one in  Sri Lanka. The IG is undertaking this work with funding included in the  May 2005 emergency supplemental legislation.
section_title: USAID Intends to Strengthen Indonesian and Sri Lankan Audit Capacities
paragraphs: USAID plans to strengthen the capacities of the BPK, the Indonesian  government’s supreme audit institution. USAID will provide funding for  technical assistance and training to the BPK to enhance its ability to audit  donor funds administered by Indonesian government ministries.
In Sri Lanka, USAID plans to strengthen the capacities of Sri Lankan  government organizations. USAID has hired a consulting firm to work with  the Sri Lankan Office of the Auditor General. USAID will also support Sri  Lanka’s Commission to Investigate Allegations of Bribery and Corruption.  This work will focus on training and capacity development and is intended  to reduce corruption and ensure the proper use of reconstruction funds.
Also, in April 2005, USAID participated in an international conference in  Jakarta on the importance of managing tsunami assistance funds. The  conference, funded by the Asian Development Bank and hosted by the  BPK, was intended to highlight the importance of accounting for the large  amounts of tsunami reconstruction funds. The conference was attended by  representatives of donor countries’ supreme audit institutions, including  GAO, and representatives of recipient countries, including Indonesia and  Sri Lanka.
section_title: USAID Has Taken Steps to Establish Technical Oversight but Has Not Filled Some Needed Positions
paragraphs: To establish technical oversight for its reconstruction programs in  Indonesia and Sri Lanka, USAID has relocated experienced staff, plans to  hire other staff locally, and has acquired additional expertise through  agreements with other U.S. agencies. However, it has not filled all needed  technical oversight positions.
In Indonesia, USAID reassigned two experienced engineers to share  responsibilities as the cognizant technical officers and an experienced  project manager to assist with the signature road project. A USAID  engineer was reassigned and another hired to work in Sri Lanka to oversee  the signature infrastructure projects. USAID also plans to hire an additional  engineer locally when construction in Sri Lanka commences.
In addition, USAID has acquired expertise through three interagency  agreements with USACE, totaling $2.9 million, to provide technical  assistance for its signature projects, develop scopes of work and cost  estimates, and conduct environmental reviews in Indonesia and Sri Lanka.  USACE efforts to date include assembling a team that assessed the existing  conditions, developed cost estimates, prepared acquisition plans, and  performed short-term on-site project management in planning the signature  projects. Under the most recent interagency agreement, USACE is to  provide technical assistance to USAID in Indonesia through the award of  the road construction contract, expected in September 2006.
As of March 2006, USAID had not filled several positions critical to  implementing its construction activities in Indonesia and Sri Lanka.  Although USAID hired an engineer to oversee the signature road  construction project in Indonesia, the engineer was not expected to begin  work until May 2006. In addition, USAID had added two of the three  engineers needed to oversee infrastructure construction activities in Sri  Lanka.
section_title: Several Challenges Confront Indonesian and Sri Lankan Reconstruction Programs
paragraphs: In implementing its tsunami reconstruction programs in Indonesia and Sri  Lanka, USAID faces several key challenges, some of which it has taken  steps to address. These include working in regions with long-standing civil  conflicts, coordinating with host governments and NGOs, and ensuring  adequate management of regular programs.
subsections: section_title: Civil Conflicts Threaten Reconstruction Efforts
paragraphs: Long-standing civil conflicts could affect USAID’s ability to complete  reconstruction projects within projected time frames in Indonesia, despite  recent advances in a peace process, and have limited USAID’s ability to  provide assistance in some tsunami-affected regions in Sri Lanka.
subsections: section_title: Indonesian Factions Have Signed Peace Accord, and Some USAID Projects Are Supporting Reconciliation
paragraphs: Owing to a 30-year conflict between a separatist group and the Indonesian  government, the entire province of Aceh, Indonesia, was under a state of  emergency prior to the tsunami and access by outsiders was limited.  However, within days of the disaster, the Indonesian government lifted the  state of emergency to allow access by donors and relief organizations. In  August 2005, the separatists signed a peace accord, which both sides  appear committed to honoring. However, an NGO monitoring the accord  has cautioned that the difficulties of ending the 30-year-old conflict should  not be underestimated.
To address this challenge, USAID is implementing peace-building initiatives  in Aceh Province. For example, according to USAID officials, former  combatants are working on construction crews rebuilding community  water systems. USAID’s aim is to provide income-generating  opportunities to former rebel soldiers, thereby strengthening the peace  accord.
section_title: Deteriorating Sri Lankan Security May Affect Some Programs, but USAID Is Working to Promote Reconciliation
paragraphs: A conflict between the Sri Lankan government and a separatist group,  which began in 1983, has increased since the tsunami and could impact  implementation of some USAID reconstruction programs. Since the  tsunami, the number of violent incidents has risen dramatically, primarily  in northern and northeastern Sri Lanka, which are largely under separatist  control. USAID was not directly implementing development activities in  these areas prior to the tsunami, and it is not planning any tsunami-related  projects in these areas at present. USAID officials stated that they expect  little disruption to most of its reconstruction efforts in other parts of the  country. However, in the eastern Sri Lankan region near the  separatist-controlled area, several USAID activities involving construction  of small-scale infrastructure have been delayed because of increased  violence. USAID officials stated that the signature construction project  could also experience delays due to the conflict.
As in Indonesia, USAID has incorporated peace-building initiatives into  some of its Sri Lankan tsunami reconstruction efforts. One such project,  implemented by USAID’s Office of Transition Initiatives (OTI), promotes  participation by people of different ethnicities and religions by requiring  that they work together toward a shared goal, such as rehabilitating a  school. USAID has also dedicated $2.5 million for a reconciliation program  in which community members will be trained in mediation skills.
section_title: Coordination with Governments and Nongovernmental Organizations Has Been Difficult, but USAID Is Taking Steps to Improve Coordination
paragraphs: USAID has encountered challenges in coordinating its reconstruction  efforts with the governments of both countries. In addition, USAID has  faced coordination problems with NGOs. To address these challenges,  USAID has taken steps to improve coordination, avoid duplication of  efforts, and minimize gaps in providing assistance to survivors.
subsections: section_title: Indonesian Government’s Coordination Difficulties Have Challenged USAID
paragraphs: USAID has faced challenges coordinating its reconstruction activities with  the Indonesian government. In April 2005, the Indonesian government  established the BRR to coordinate the international response to the  tsunami. Since its creation, BRR has used the Indonesian government’s  master plan for reconstruction to attempt to control and track  organizations involved in reconstruction and has created a publicly  accessible database that, according to USAID, is expected to be fully  operational by mid-2006. However, according to USAID officials, BRR lacks  the capacity for effectively registering donors and coordinating projects.
The lack of coordination has resulted in the overlapping of USAID projects  with other donors’ projects and in gaps in aid to survivors. A USAID official  told us that, in one instance, BRR approved similar water and sanitation  project proposals submitted by USAID and an international NGO. USAID  negotiated directly with the NGO over which agency would carry out the  project and eventually resolved the differences without BRR involvement.  In addition, a United Nations official told us that many donor organizations  are providing assistance to communities along the coastal road near the  capital city of Banda Aceh but that survivors in numerous harder-to-reach  areas down the coast and on nearby islands have received little or no aid.
To strengthen BRR’s capacity to coordinate and oversee reconstruction  efforts, USAID is providing technical assistance and training. However,  according to USAID officials, until BRR is able to fully develop its  capacities, USAID and other donor organizations will face difficulty in  coordinating projects and outreach.
section_title: Sri Lanka’s Organizational Problems and Policy Changes Have Created Challenges for USAID
paragraphs: Organizational inefficiency and policy shifts in Sri Lanka have led to  coordination problems for USAID. In January 2005, the Sri Lankan  government created a Task Force for Rebuilding the Nation (TAFREN),  charging it with assessing needs and donor coordination. The organization  was expected to operate for 3 to 5 years. In its first months of operation,  TAFREN developed a needs assessment that drew on World Bank, Asian  Development Bank, and other organizations’ information and analyses.  TAFREN used the assessment to attempt to avoid duplication but lacked  the capacity to ensure that donors registered and coordinated with  TAFREN. In addition, with donor support, TAFREN began work on a  publicly accessible database to track reconstruction projects that is  expected to be functional by mid-2006. In November 2005, the newly  elected Sri Lankan president disbanded TAFREN and announced the  creation of a new coordination mechanism, further increasing potential  coordination challenges; however, development of the database is  continuing.
When we visited Sri Lanka in July 2005, USAID officials told us that  TAFREN had taken little action to coordinate donor efforts. They added  that TAFREN had been slow to react and lacked decision-making authority.  Nonetheless, USAID moved forward with some projects and kept TAFREN  aware of its activities. In addition, the Sri Lankan government’s  inconsistent policies on rebuilding in coastal areas have affected the  progress of some USAID reconstruction programs. Soon after the tsunami,  the President of Sri Lanka announced that the Sri Lankan government  would begin to enforce a valid, but previously unenforced, law that banned  construction within a 100- to 200-meter coastal “buffer zone.” This policy  has affected the progress of some USAID projects, such as rehabilitating  community markets and building schools. In late 2005, the Sri Lankan  government began allowing construction in certain coastal areas, but as of  late 2005, many survivors were still awaiting approval to rebuild their  homes.
section_title: Poor Coordination with Nongovernmental Organizations Has Caused Problems
paragraphs: In both Indonesia and Sri Lanka, USAID has encountered challenges in  coordinating with some of the scores of NGOs operating in the countries  since the tsunami. After the disaster, many NGOs received large amounts of  private donations, enabling them to conduct their work without funding  from bilateral and multilateral organizations. As a result, some NGOs began  implementing reconstruction projects with minimal coordination with such  organizations or with the host governments.
In Indonesia, coordination with NGOs was particularly difficult during the  emergency relief phase but has generally improved since the establishment  of BRR, which currently permits only approved NGOs to participate in  reconstruction projects. However, with limited resources, BRR cannot be  sure it is aware of all NGOs activities. For example, according to UN  officials, an international NGO constructed new houses and water and  sanitation systems near the Indonesian coastline without coordinating with  the Indonesian government or other donors to ensure that the housing  could be connected to local water and sanitation infrastructure. Because of  tsunami-altered water tables and topography in some areas, those  communities’ sanitation systems overflowed during certain tidal  conditions, inundating the area with untreated sewage.
Coordination with NGOs in Sri Lanka has also been problematic, despite  TAFREN’s efforts. For example, several NGOs and private donor  organizations provided new fishing boats to fishermen. However, according  to a bilateral donor official, several communities received too many fishing  boats, and as a result, some coastal areas were depleted of large numbers  of fish. On the other hand, coordination in southern Sri Lanka has been  more effective than in other parts of the country.  There, USAID, NGOs, and  other donors agreed that certain organizations would have responsibility  for different districts or for different types of assistance, such as housing.
Coordination meetings are normally held weekly and TAFREN officials  periodically attended.
section_title: USAID’s Tsunami Response Has Created Challenges for Non-Tsunami-Related Programs
paragraphs: The urgency to quickly plan and implement USAID’s tsunami-related  program activities in Indonesia and Sri Lanka may affect the management  of some of non-tsunami-related projects. In Indonesia, USAID officials are  concerned that the focus on tsunami reconstruction activities in Aceh  could limit oversight of regular programs, leading them to rely more heavily  on information provided by implementing partners. To mitigate this  potential challenge, USAID added two direct-hire U.S. staff to fill two key  positions in Aceh.
In Sri Lanka, USAID is experiencing similar challenges. For example, a  USAID activity to reconstruct small-scale infrastructure was suspended so  that staff could focus on the tsunami relief. Later, the program was  reactivated, although USAID did not add staff. As a result, USAID’s  monitoring of some of regular program activities diminished. USAID  reported that it reduced its efforts to involve the community in the  program, resulting in repeated additional visits to ensure the program’s  successful completion. To address this issue, USAID hired additional staff  to ensure that ongoing programs are not neglected.
section_title: Conclusions
paragraphs: The U.S. government has played an important role in helping Indonesia and  Sri Lanka recover from the devastating 2004 tsunami. USAID and other  agencies provided immediate assistance to survivors and work has begun  on several high-profile infrastructure projects.  However, since USAID  made its initial projections in the spring of 2005, materials, labor, and fuel  costs have increased substantially in both countries. In addition, changes to  project scope and ongoing design work for key construction efforts may  reveal actual conditions that differ from initial assessments, potentially  leading to higher than planned costs. This information suggests that the  cost contingencies included in the initial estimates may be insufficient.  Congress needs current information on projected costs and schedules to  provide appropriate oversight.
section_title: Recommendation for Executive Action
paragraphs: On the basis of our initial review of USAID’s design and implementation of  its tsunami reconstruction programs in Indonesia and Sri Lanka, especially  regarding its signature road project in Indonesia and bridge project in Sri  Lanka, we recommend that the Secretary of State, in the department’s  required semiannual report to Congress due in June 2006, provide updated  cost estimates and schedules obtained from USAID. If the updated  information differs substantially from initial projections, the report should  also include alternative cost estimates, schedules, and project scopes and  the need for additional sources of funding, if necessary.
section_title: Agency Comments and Our Evaluation
paragraphs: At our request, USAID and the Department of State provided written  comments and technical suggestions and clarifications on a draft of this  report. (See app. IV for State’s written comments and app. V for USAID’s  written comments.)  USAID stated that the report findings accurately  describe the tsunami program situation and the potential broad challenges  for achieving its reconstruction goals. USAID also provided information on  additional steps the agency intends to take to mitigate the potential for  increased costs and schedule delays, as well as an explanation of how it  obligates funds, which we incorporated into the report. The Department of  State agreed to fully implement our recommendation. We have also  incorporated technical suggestions and clarifications from USAID and  State, as appropriate.
We also requested comments from the U.S. Army Corps of Engineers and  the Department of the Treasury. Although neither provided written  comments, both provided technical suggestions and clarifications that we  have incorporated, as appropriate.
We are sending copies of this report to interested congressional  committees as well as the Administrator, USAID; Commander, U.S. Army  Corps of Engineers; and the Secretaries of State and the Treasury. We will  also make copies available to others upon request. In addition, this report  will be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-4128 or gootnickd@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix VI.
section_title: Objectives, Scope, and Methodology
paragraphs: We were directed to monitor the delivery of U.S. reconstruction assistance  to the tsunami-affected countries through periodic visits. In this report, we  review (1) USAID’s progress in providing longer-term reconstruction  assistance in Indonesia and Sri Lanka, (2) the extent to which the U.S.  Agency for International Development (USAID) has established financial  and technical oversight for its tsunami reconstruction programs in those  countries, and (3) any challenges that USAID faces in implementing the  Indonesian and Sri Lankan programs and any steps the agency has taken to  address these challenges.
To determine the progress of USAID’s reconstruction programs in  Indonesia and Sri Lanka, we met with officials of USAID’s Bureau for Asia  and the Near East and Office of Foreign Disaster Assistance and with the  U.S. Army Corps of Engineers (USACE). In addition, to examine issues  involving the U.S. debt relief component of the assistance to Indonesia and  Sri Lanka, we conducted work at the headquarters offices of U.S.  Departments of State and the Treasury. We traveled to Indonesia in August  and December 2005 and Sri Lanka in July 2005. In Jakarta and Banda Aceh,  Indonesia, and in Colombo, Sri Lanka, we reviewed USAID’s strategies,  work plans, and applicable contracts, grants, and cooperative agreements  and discussed with USAID and other U.S. officials how their respective  programs addressed reconstruction needs. During our visits to Indonesia,  we reviewed USAID’s activities in tsunami-affected areas, including the  $245 million, 150-mile signature road construction project in Banda Aceh.  In many instances, we visited and photographed sites before the projects  began, at locations where USAID-funded maintenance work was ongoing,  or where USAID-funded construction had begun. During these trips, we  interviewed representatives of contractors, nongovernmental  organizations (NGO), government ministries, and other entities responsible  for day-to-day project implementation. We also interviewed many of the  intended recipients of U.S. assistance, asking about the tsunami’s impact  on their homes, livelihoods, and communities and about the effectiveness  of U.S.-funded projects in helping them rebuild infrastructure, restore their  livelihoods, and obtain basic services. Finally, we reviewed prior GAO  reports on USAID disaster assistance efforts.
To assess USAID’s financial and technical oversight, we reviewed USAID’s  financial procedures and discussed the procedures with cognizant USAID  officials. In Indonesia, a licensed GAO professional engineer met with  USAID and USACE engineers and other technical staff to discuss the level  of technical oversight and planning. We also coordinated with USAID’s  Office of the Inspector General in Washington, D.C., and the Philippines to  minimize duplication of efforts and to share information.
To determine the challenges that USAID faces in implementing its program,  we discussed oversight procedures and financial systems with officials of  host governments, multilateral and bilateral donors, and NGOs involved in  reconstruction efforts. We also met with host government officials,  including national and local officials, to discuss their procedures for  ensuring that donor activities did not conflict or overlap and their views on  donor coordination.
We assessed the reliability of funding and expenditure data compiled and  generated by USAID’s Office of the Controller in Washington, D.C., and by  the USAID missions in Indonesia and Sri Lanka. We met with USAID  officials to review the internal controls for the collection and review of  data, comparing the consolidated reports with mission-specific reports,  and discussed relevant data reliability issues with cognizant agency  officials. In addition, we interviewed knowledgeable USAID officials about  the systems and methodology they use to verify the completeness and  accuracy of the data. Finally, we reviewed relevant reports from the USAID  Office of the Inspector General and several GAO reports of USAID disaster  reconstruction program funding since 1999. None of these sources noted  any significant discrepancies or concerns about the reliability of USAID’s  data. Based on our comparison of data generated from different USAID  sources at USAID headquarters and mission, we found that the sources  generally corroborated each other, increasing our confidence that the data  were reliable. We determined that USAID’s funding and expenditure data  were sufficiently reliable for our analysis.
section_title: Debt Relief to Indonesia and Sri Lanka
paragraphs: To make resources available for the Indonesian and Sri Lanka governments  to address humanitarian and reconstruction needs after the tsunami, and at  the request of these governments, the United States and other international  donors agreed to defer the payment of some eligible debt the Indonesian  and Sri Lankan governments were due to pay in 2005. Both countries  agreed to use the debt relief to help recover from the tsunami’s extensive  damage, estimated at $4.5 billion in Indonesia and $1.5 billion in Sri Lanka.
subsections: section_title: Debt Relief Provided by the United States
paragraphs: With funding appropriated in the emergency supplemental legislation  enacted in May 2005, the United States provided $20.1 million and $3.2  million to cover the U.S. budget costs of debt deferral for Indonesia and Sri  Lanka, respectively. Using these funds, the United States rescheduled about  $190 million in 2005 debt payments from Indonesia and about $40 million in  2005 debt payments from Sri Lanka.
The U.S. debt relief agreements with Indonesia and Sri Lanka require  independent outside evaluations to ensure that the countries comply with  the terms of the agreements that the resources freed by the Paris Club debt  consolidation and deferral will benefit directly the people affected by the  tsunami. According to the Department of the Treasury, the benefit from the  international debt rescheduling is $236 million for Indonesia and $34  million for Sri Lanka. According to our analysis, the net benefit of the debt  rescheduling for Indonesia and Sri Lanka is about 9 percent and 11 percent,  respectively, of the amount of the debts rescheduled. The United States will  rely on periodic reports from each country’s regular consultations with the  International Monetary Fund, the World Bank, and the Asian Development  Bank to measure compliance with the agreements, according to  Department of State officials. The officials stated that both countries are  likely to meet their commitments to use the resources freed by the Paris  Club debt consolidation and deferral to benefit directly the people affected  by the tsunami.
section_title: Debt Relief Provided by International Creditors
paragraphs: The total amounts of bilateral international debt rescheduled in 2005 for  Indonesia and Sri Lanka were approximately $2.703 billion and $323  million, respectively. Indonesia did not seek or receive any debt deferral  from multilateral creditors. Sri Lanka sought a debt deferral from the  International Monetary Fund, which granted a 1-year extension for debt  repayments of about $106 million for its repayment expectations due in  2005. Multilateral debt service in 2005 was $4.3 billion and $294 million,  accounting for 55 percent and 48 percent of total debt service, before the  debt reschedulings for Indonesia and Sri Lanka, respectively.
Rescheduling international debt provided immediate budgetary savings for  both countries in 2005, but both countries’ debt burden will increase when  payments restart in 2006. Both countries agreed to repay the rescheduled  debt in seven equal semiannual installments, starting December 1, 2006,  and ending December 1, 2009. Table 6 shows the impacts of rescheduling  all bilateral debt on the budgets of the governments of Indonesia and Sri  Lanka for fiscal years 2005 through 2009.
section_title: USAID’s Three-Phase Signature Road Project in Aceh Province, Indonesia
paragraphs: USAID developed plans to implement its signature project in three phases  (see table 7).
section_title: Comments from the Department of State
section_title: Comments from the U.S. Agency for International Development
paragraphs: The following are GAO’s comments on the U.S. Agency for International  Development’s letter dated March 30, 2006.
subsections: section_title: GAO Comments
paragraphs: 1. USAID states that it intends to use fixed-price contracts because the  contracts provide the maximum incentive for the contractor to control  costs and perform effectively in order to complete the work on time.  We agree that fixed-price contracts can be effective in controlling costs  by shifting performance risk to the contractor. However, as USAID also  notes and we point out in the report, costs may increase due to other  circumstances, such as site conditions being different than expected  and the potentially lengthy process of acquiring land. As our  recommendation indicates, it is important that Congress be kept  informed of cost and expenditure information in order to effectively  oversee expenditures of U.S. funds.  2. We modified the text of footnote 5 and added explanatory notes to  tables 4 and 5 to reflect USAID’s comments regarding obligations and  expenditures of funds.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: David Gootnick, (202) 512-4128 or gootnickd@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In additional to the contact named above, Phillip Herr, George Taylor,  Michael Armes, Ming Chen, Reid Lowe, Michael Maslowski, and Thomas  Zingale made key contributions to this report.