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

Letter

Background

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.

International Funding and Implementing Entities for Tsunami Relief and Reconstruction

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).

USAID and Military Agencies’ Emergency Relief Efforts

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.

U.S. Supplemental Funding Budgeted for Reconstruction in Tsunami-Affected Countries

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.)

USAID Reconstruction Programs in Indonesia and Sri Lanka

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.

USAID Reconstruction Programs in Indonesia and Sri Lanka Have Begun, but Some Project Costs and Schedules May Exceed Initial Projections

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.

USAID Has Begun Reconstruction Efforts in Indonesia, but Several Factors May Increase Costs and Delay Schedules

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.

USAID Has Obligated about One-third and Expended a Small Percentage of Reconstruction Funds in Indonesia

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.

Other USAID Reconstruction Activities in Indonesia May Also Exceed Cost and Schedule Projections

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.

USAID’s Sri Lankan Construction Activities May Face Cost and Time Overruns, but Other Programs Are on Schedule

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.

USAID Has Obligated All and Expended a Small Percentage of Reconstruction Funds in Sri Lanka

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.

Other USAID Tsunami Reconstruction Projects in Sri Lanka Are Under Way and Most Are Currently on Schedule

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.

USAID Established Financial and Technical Oversight Measures but Has Not Filled Some Needed Technical Oversight Positions

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.

USAID Has Established Financial Oversight Mechanisms in Indonesia and Sri Lanka

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.

USAID Plans Internal and External Audits

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.

USAID Intends to Strengthen Indonesian and Sri Lankan Audit Capacities

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.

USAID Has Taken Steps to Establish Technical Oversight but Has Not Filled Some Needed Positions

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.

Several Challenges Confront Indonesian and Sri Lankan Reconstruction Programs

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.

Civil Conflicts Threaten Reconstruction Efforts

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.

Indonesian Factions Have Signed Peace Accord, and Some USAID Projects Are Supporting Reconciliation

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.

Deteriorating Sri Lankan Security May Affect Some Programs, but USAID Is Working to Promote Reconciliation

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.

Coordination with Governments and Nongovernmental Organizations Has Been Difficult, but USAID Is Taking Steps to Improve Coordination

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.

Indonesian Government’s Coordination Difficulties Have Challenged USAID

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.

Sri Lanka’s Organizational Problems and Policy Changes Have Created Challenges for USAID

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.

Poor Coordination with Nongovernmental Organizations Has Caused Problems

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.

USAID’s Tsunami Response Has Created Challenges for Non-Tsunami-Related Programs

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.

Conclusions

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.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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.

Objectives, Scope, and Methodology

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.

Debt Relief to Indonesia and Sri Lanka

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.

Debt Relief Provided by the United States

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.

Debt Relief Provided by International Creditors

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.

USAID’s Three-Phase Signature Road Project in Aceh Province, Indonesia

USAID developed plans to implement its signature project in three phases (see table 7).

Comments from the Department of State

Comments from the U.S. Agency for International Development

The following are GAO’s comments on the U.S. Agency for International Development’s letter dated March 30, 2006.

GAO Comments

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.

GAO Contact and Staff Acknowledgments

GAO Contact

David Gootnick, (202) 512-4128 or gootnickd@gao.gov.

Staff Acknowledgments

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.