Ceylon - Lift Irrigation Project

Document of I - The World Bank ft - - FOR OFFICIAL USE ONLY ON E1[:K Report No. 2801 FILE 7 PROJECT PERFORMANCE AUDIT REPORT SRI LANKA LIFT IRRIGATION PROJECT (Credit 121-CE) December 28, 1979 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS GOSL = Government of Sri Lanka ID = Irrigation Department AD = Agricultural Department 0 & M = Operation & Monitoring DCA - Development Credit Agreement WBCP - World Bank Cooperative Program MEASURES mm = millimeter (1 mm = 0.039 inch) m = meter (1 m = 3.28 feet) Km = kilometer (Km = 0.62 miles) ha = hectare (ha = 10,000m2 = 2.47 acres) Km2 = square kilometer (1 km2 = 247.1 AC = 100 ha) m3= cubic meter (1 m3 = 1.31 cubic yard = 264.2 US gallons) Mm3 Million m3 (1 Mm3 = 811 Ac. ft) Kg = Kilogram (1 Kg = 2.2 lb) m ton or ton = 100 Kg = 2,205 lbs Kva Kilovolt - ampere Cwt = Hundred wt. = 112 lbs = 50.9 Kg FOR OFFICIAL USE ONLY Project Performance Audit Report SRI LANKA LIFT IRRIGATION PROJECT (Credit 121-CE) TABLE OF CONTENTS Page Preface i Basic Data Sheet ii Disbursement Table iii Highlights iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. Summary 1 II. Main Issues 2 A. Deficiencies in Project Design 2 B. Delays in Project Implementation 4 C. Economic Rate of Return 6 PROJECT COMPLETION REPORT I. Background 9 II. The Project 10 III. Project Implementation 12 IV. Financial and Economic Impact 23 V. Conclusions and Recommendations 26 Tables 1-24 Appendix 1 Map Ti document has a iestrictd distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Project Performance Audit Report SRI LANKA LIFT IRRIGATION PROJECT (Credit 121-CE) PREFACE This is a performance audit of the Lift Irrigation Project in Sri Lanka for which Credit 121-CE was approved in June 1968 in the sum of US$2.0 million. The final disbursement in respect of this credit was made on December 16, 1977. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department and a Project Completion Report (PCR) dated October 12, 1979. The PCR was prepared by the South Asia Regional Office on the basis of a country visit in June 1978. The audit memorandum is based on a review of the Appraisal Report (No. TO-635a) dated May 9, 1968, the President's Report (P-598) of May 15, 1968, the Credit Agreement dated June 19, 1968 and the PCR; correspondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files have also been consulted and Bank staff associated with the project have been interviewed. An OED mission visited Sri Lanka in August 1979. The mission held discussions with officials of the Agriculture and Irrigation Depart- ments. A field trip to visit some participating farmers was undertaken. The information obtained during that mission was used to test the validity of the conclusions of the PCR and permitted discussion of some design problems and assumptions for the rate of return calculation. A copy of the draft report was sent to the Borrower on October 31, 1979 for comments, but none were received. The audit finds the PCR comprehensive and accurate with respect to the project's principal achievements and shortcomings but has reserva- tions on the rate of return calculation. The points discussed by the audit have been selected because of their importance to this as well as other projects. The valuable assistance provided by the Government of Sri Lanka and their staff met during the preparation of this report is gratefully acknowledged.  - ii~ - PROJECT PERFORMANCE AUDIT REPORT BASIC DATA SHEET SRI LANKA LIFT IRRIGATION PROJECT (CREDIT 121-CE) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 3.3 5.1 Overrun (%) - 54 Credit Amount (US$ million) 2.0 2.0 Disbursed )- 1.936 ance11ed September 30, 1979 - 6 Repaid to ) 0.036 Outstanding to )- 1.900 1/ Date for Completion of Physical Components 06/30/72 07/31/76 Proportion Completed by Appraisal Target Date (%) - 50 Proportion of Time Overrun (%) - 100 Economic Rate of Return 25 neg. to 16 OTHER PROJECT DATA Original Actual or Item Plan Revisions Est. Actual First Mention in Files or Timetable - - 11/65 Government's Application - - 06/67 Negotiations - - 04/05/68 Board Approval - - 06/04/68 Credit Agreement Date - - 06/19/68 Effectiveness Date 08/05/68 - 08/05/68. Closing Date 06/30/73 12/31/75 12/31/77 Borrower Government of Sri Lanka Executing Agency Irrigation Department Fiscal Year of Borrower January 1 - December 31 Follow-on Project Name none MISSION DATA Month/ No. of No. of Man- Date of Item Year Weeks Persons Weeks Report Identification 10-11/65 ./ Preparation 1967 Appraisal 09/67 4 4 16 05/68 Total 4 16 Supervision I 01/69 2 1 2 01/23/69 Supervision II 01/70 2 2 4 02/11/70 Supervision III 03/71 2 2 4 03/10/71 Supervision IV 10/71 1 2 2 11/28/71 Supervision V 05/72 2 2 4 07/06/72 Supervision VI 01/73 2.5 2 5 03/10/73 Supervision VII 11-12/73 2 1 2 02/04/74 Supervision VIII 09/74 1.5 1 1.5 11/06/74 Supervision IX 03/75 2 2 4 06/14/75 Supervision X 03-04/76 1.5 2 3 05/26/76 Supervision XI 03-04/77 3 2 6 06/02/77 Total 23.5 37.5 Completion 06-07/78 1.2 2 2.5 10/12/79 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Rupees (Rs.) Year: Appraisal Year Average Exchange Rate: US$1 = Rs. 5.95 Intervening Years Average US$1 = Rs. 5.95-7.7 Completion Year Average US$1 = Rs. 15.50 1/ Plus an exchange rate adjustment of US$200,000. 2/ An FAO/IBRD Cooperative Program mission originally identified the project.  - iii - Project Performance Audit Report SRI LANKA LIFT IRRIGATION PROJECT (Credit 121-CE) DISBURSEMENT TABLE (US$ million cumulative) Semester Appraisal Actual as Ending Estimate Actual % of Estimate 06/30/69 400 - 12/31/69 - 155 - 06/30/70 1,100 383 35 12/31/70 - 639 - 06/30/71 1,600 639 40 12/31/71 - 866 - 06/30/72 2,000 1,008 50 12/31/72 - 1,155 - 06/30/73 - 1,298 - 12/31/73 - 1,367 - 06/30/74 - 1,381 - 12/31/74 - 1,720 - 06/30/75 - 1,780 - 12/31/75 - 1,820 - 06/30/76 - 1,822 - 12/31/76 - 1,923 - 06/30/77 - 1,965 - 12/31/77 - 2,136 I/ . 1/ Includes exchange rate adjustment of US$200,000, US$64,000 has been cancelled.  - iv - Project Performance Audit Report SRI LANKA LIFT IRRIGATION PROJECT (Credit 121-CE) HIGHLIGHTS The Lift Irrigation Project aimed to support the Government's policy to attain self-sufficiency in food crops. The main objective was to increase production of onions and chillies, and, at the same time, improve the incomes of the small farmers in the project area. Project objectives were to be achieved by investments in lift irrigation and development of 6,500 acres of land; 6,100 acres of which were under existing settlement projects and 400 to be settled by educated but unemployed single youths. The project has so far failed to achieve its main objectives. Implementation of the project was delayed by about four years due to delays in procurement, civil unrest, mis-specification of equipment and lack of interest by the settlers. Although irrigated land development has almost reached that envisaged at appraisal, much of the water available for irrigation is not being utilized at present because of other crop priorities and interests of farmers. In 1973-76 droughts reduced water supplies, hindering development and production under irrigation. Due to uncertainties about future production of high value crops on project lands, the re-estimated rate of return may range from negative to 16%, compared with 25% estimated at appraisal. Other points of interest are: - extension services were inadequate to support and promote pro- duction of new crops (PPAM paras. 9 and 10); - project design was deficient (PPAM paras. 9, 12 and 13); - Borrower was not sufficiently informed about Bank's withdrawal and disbursement procedures (PPAM paras. 14 - 18); and - Bank continues to restructure project and improve project per- formance even after project completion (PCR paras. 5.05 - 5.07).  Project Performance Audit Memorandum SRI LANKA LIFT IRRIGATION PROJECT (Credit 121-CE) I. SUMMARY 1/ 1. The Lift Irrigation Project was the first IDA, and the fifth Bank Group-financed project in Sri Lanka. It was designed to increase pro- duction of upland high-value cash crops, particularly chillies and onions which play a significant part in Sri Lankan diets, and which at the time of appraisal were maily imported at an annual cost of over US$11 million equiv- alent. In the mid-1960s, the Government launched programs to attain self- sufficiency in rice, which is the staple foodgrain, and subsidiary food crops such as chillies and onions. The Lift Irrigation Project was a component of these progams aiming at increased production of chillies and onions. 2. The project was to construct irrigation channels and provide pumps, pumphouses and water delivery structures to irrigate about 6,500 acres of upland in four non-contiguous areas in the so-called "dry zone" of Sri Lanka. Water was to be supplied to individual farms by pumping from existing gravity irrigation canals which were already supplying paddy fields. The estimated cost of the project was US$3.3 million equivalent, for which an IDA credit of US$2.0 million was approved in June 1968. The Irrigation Department (ID) was responsible for project implementation. The credit became effective in June 1968 and the project was expected to be completed in mid-1972. 3. There was an initial delay in procuring equipment and vehicles because of problems in opening letters of credit. Subsequent delays in ordering, delivering and assembling equipment resulted from the general unrest prior to and during the elections of May 1970. The change of Govern- ment that followed the elections further slowed progress and civil distur- bances in 1971, which led to travel restrictions and restrictions on the use of blasting material, caused more delays. By 1972 it became clear that water use efficiency by farmers was likely to be lower than *estimated at appraisal and therefore, until it could be improved by training and practice, additional pumps would have to be installed. The project was not completed till July 31, 1976, four years later than expected at appraisal. Internal and worldwide inflation during the prolonged development-period, and the unforeseen cost of the extra pumps, increased project cost from the US$3.3 million estimated at appraisal to US$5.1 million actually expended by completion. 1/ Adapted from the PCR. - 2 - 4. It is difficult at present to judge whether the project will be fully successful. In one of the four areas, the project has achieved the results that were forecast. In another, farmer participation has been limited and much more time than was originally expected will be needed until full development is reached. The Agricultural Extension Services and the Irrigation Department are making an intensive effort to promote the growing of upland crops in this area. In a third irrigated area, farmers do not use project facilities, preferring to devote all their time and water resources to paddy production. In the fourth area, a youth settlement scheme, where no paddy land was given to the settlers, the project has met expectations. Due to the less than satisfactory overall performance, the project's economic return is estimated currently at 16% compared with 25% of appraisal, however, the audit judges the current estimate to be at the upper range of possible returns (see PPAM paras. 19 - 25.) 5. The principal reasons for the lower than hoped-for utilization of project facilities appear to be: (a) the drought which limited water supply in the years 1973-76 and during which farmers concentrated on their paddy; (b) initial frequent breakdown of pumps; and (c) inability of the project authorities to convince farmers of the benefits of growing non- traditional crops and to overcome deep-seated preferences for concentrating on paddy. While the situation is currently improving, a considerable, sus- tained education effort is still required to ensure success. II. MAIN ISSUES A. Deficiencies in Project Design 6. The project has so far failed to achieve its main objectives, i.e. improving the incomes of the project area's small farmers and contrib- uting to Sri Lanka's self-sufficiency in chillies and onions production. By 1978/79 only about 1,500 acres of the 6350 acres irrigable carried high value crops such as chillies, onions or other vegetables and in the audit's view it is doubtful that production is likely to expand dramatically during the fore- seeable future.1/ 7. The project was intended to introduce chilli-onion production on a commercial scale on irrigated land. This meant introduction of new tech- nologies which required additional labor input by the farmer families. The Bank's involvement in project preparation was only marginal. The project was prepared by the Government in 1966 and its proposals were reviewed by 1/ A lower estimate of acreage under high value crops (634 ac) was supplied to the audit mission by the Local District Engineer in charge of the Project. The Region's latest mission obtained information indicating that some 1,500 acres were under high value crops in 1978/79. Without an actual independent survey it will be impossible to determine the exact acreage of high value crops. - 3 - a FAO Cooperative Program mission (CPM) in the same year. The mission re- quested additional information on alternative power supplies for the pumps, revised cost estimates, etc., but no consideration was given to a socio- economic survey. There was a lack of awareness that technology alone could not solve all problems in a complex and inter-disciplinary water management scheme and that sociological and attitudinal constraints had to be resolved. 8. Farmers were not aware of efficient cultivation practices of onions and chillies and preferred to spend more time on paddy cultivation, a crop with which they are familiar. It g1 ould be noted that the average farmer, according to the appraisal report - , cultivates about 3 acres paddy land in the valley bottoms, requiring about 220 days labor input with peaks at transplanting and harvesting times. These labor peaks are competing with time required for chilli/onion production. Confronted with this situation, farmers gave priority to their subsistence crop: paddy. 9. Farmers' reluctance to take up chilli/onion production was also due to insufficient supporting services. Research information was and still is scanty. As a consequence crop water requirements were underestimated at appraisal and 11 to inadequate design capacities of the water conveyance and pumping system.- Farmers did not receive adequate instructions on culti- vation practices and pest control, a serious problem in onion cultivation. 10. According to the appraisal report extension would have been pro- vided through village agents supervising about 200 acres each. However, since these agents lacked experience with irrigated chillies and onions, the project provided for the services of an agronomist with the necessary qualifications to assist in the training of extension workers assigned to the project. This agronomist was never employed because no qualified candi- date could be located. Extension efforts have been further hampered by participating farmers being scattered over wide areas. 11. Provision of credit to farmers was left to the local credit system without any Bank participation. The Peoples Bank established by the Govern- ment to extend credit to farmers could not operate as hoped for because many prospective borrowers were defaulters of previous loans which made them automatically ineligible for new loans. Cumbersome application procedures also deter many farmers from applying. 1/ Appraisal Report page 3, para. 3.08. 2/ The Region states that it is true that appraisal estimates of water requirements were lower than actual usage which is excessive and reflects poor water management techniques, in part as a consequence of inadequate extension advice. Appraisal estimates will prove to be in line with actual usage when a reasonable degree of effective water management is achieved, a task now being given high priority by GOSL and the Bank. 12. No arrangements were made to improve or provide marketing facili- ties. While chillies can be dried and stored at farm level, onions are a highly perishable crop under Sri Lanka's climatic conditions. The need to market onions immediately following the harvest leads to extremely de- pressed prices which, in the farmers' view, make onions a very unattractive crop. Necessary cold storage to maintain the market equilibrium would be difficult to provide in light of the diffuse nature of project areas. 13. The appraisal did not highlight the fragmentation of farmers' fields being scattered over the higher side of the contour canals but gave the impression that upland fields would be also in blocks. As a conse- quence of the fragmentation, conveyance losses of water increased and farm deliveries proved insufficient during drought periods. The critical water supply situation was further aggravated by insufficient control of engines and pumps selected. The high speed engines and pumps procured under the project did not give the required discharge and their performance was below specific- ations. To compensate for the unsatisfactory performance, 6 inch pipes had to be substituted for 8 inch pipes. B. Delays in Project Implementation 14. Considerable delays occurred in project implementation due to the Borrower's difficulties in opening letters of credit and consequently late arrival of equipment. There are three different approaches in dealing with letters of credit. First, a Borrower can select one of his country's leading banks to open a letter of credit in cooperation with a bank in the supplier's country. Second, the Borrower can select a bank in his country to open a letter of credit and in certain cases may find that the commer- cial bank in the supplier's country is unwilling to open or confirm the credit without some guarantee or security. In this case the Borrower, after considering all circumstances may decide to request either an irrevocable agreement to reimburse the commercial bank or qualify its commitment depending on the relations between the Borrower and its bp nkers in its own country and the commercial bank in the supplier's country. - 15. Finally, a Borrower may also submit an application prior to having paid for goods or services. The Bank will then make payments directly to suppliers on the Borrower's behalf. If payment is to be made on a contract on the basis of work performed, an engineer's certificate or progress report needs to be submitted, showing that the payment has become due. In case of goods to be delivered, evidence of shipment in the form of a copy of the bill 1/ Guidelines for Withdrawal of Proceeds of World Bank Loans and IDA Credits; page 4, para. 7. Application for Agreement to Reimburse - Procedures V and VI. - 5 - of lading, or statement of the supplJ7r that goods have been shipped, or forwarder's certificate are required. - This approach does not entail any costs to the Borrower as opposed to opening letters of credit where bank charges apply. 2/ 16. Briefing of the Borrower on the Bank's disbursement procedures was inadequate. The members of the negotiating team were invited for dis- cussions with disbursement officers, received some forms concerning dis- bursement requests and copies of the "Guidelines for Withdrawal of Proceeds of World Bank Loans and IDA Credits". This procedure had not provided adequate information to permit the Borrower, especially the financial staff of the project, to grasp the use of the least cumbersome and most cost effective way for the project's financial transactions.2/ 17. Following appropriate tendering procedures bids for furnishing equipment had been received by late 1968. Despite a Bank supervision mission in December 1968, the letter of credit issue was not discussed in detail. In May 1969 the Bank cabled: "Four of the nine orders transmitted refer to letters of credit in currencies other than country of origin. These should be amended to provide for payment in currency of the country of origin of the goods." This cable proved to be not too helpful to the Borrower and did not advise him of the cheaper procedure, i.e. direct payments to suppliers. By October 1969, the equipment was still awaiting shipment because the sup- plier could not agree to the openning of a letter of credit without IDA guarantee. Only then was the Borrower properly informed. Due to this delay the equipment did not reach Sri Lanka until March 1970. I/ Ibid, para. 6. Application to Enable Payment to be Made - Procedure III. 2/ Controllers Department states that the Bank has no desire to usurp the functions performed by commercial banks. Direct payments are ideal for payments to consultants or the down or final payment on an equipment contract. Payments against shipment portion presupposes a high degree of trust by the buyer, and release of shipping documents before receipt of the funds is not normally agreed to by the seller. 3/ The members of the negotiating team briefed on disbursement procedures were the incumbent Director of the Irrigation Department and a Senior Assistant Secretary, both, due to their position, not directly dealing with project disbursements. Considering that this was the first project financed by IDA for this agency, the inclusion of a disbursement officer in the first supervision mission would have been helpful. - 6 - 18. This experience would call for a more active involvement of dis- bursement officers in covering disbursement issues in Bank documents. Due to the fact that negotiating teams usually do not include officials who would be involved in disbursements (see also para. 16, footnote 3), assignment of Bank disbursement officers to the first supervision mission visiting the projects should be considered in cases involving new borrowers or where special atten- tion may be otherwise warranted. C. Economic Rate of Return 19. The project has so far failed to create the expected impact, namely improving incomes of the participating small settlers and making Sri Lanka self-sufficient in subsidiary foods, mainly onions and chillies. Irrigated farming has been taken up at a slow pace by the farmers and cultivation of high value crops has been even more disappointing with only 1,500 acres under chillies, onions and other high value crops in the 1978/79 growing season.!Y One sub-area (Nagadeepa) with 1,200 acres has made no use of the project irrigation facilities at all. Farmers interviewed by the audit mission gave no indication that their attitude vis a vis the project is changing. They referred to the problems described in Section A above, re- confirming their reluctance to make use of the project provided irriga- tion facilities. 20. Despite the project's slow progress to date and the apparent lack of farmers' interest, the PCR assumes that full development would be reached within the next ten years, and this would give the project an economic rate of return of 16% (PCR paras. 4.06, 4.07). To foster more development in the project areas during the next years, the Region will continue its supervision activities until 1982. 21. The audit mission finds that the ERR of 16% represents the high- est possible rate but doubts that it can be obtained. This reservation is based on the following: (i) farmers' reluctance to participate in the past years; (ii) considerable reduction in the producer price of chillies and onions; and (iii) lack of adequate supporting services. 1/ The audit mission obtained information from the Local District Engineer in charge of the project showing that only 634 ac were under high value crops in 1978/79. - 7 - 22. It has been pointed out to the audit mission that tree crops such as bananas, mango, citrus, etc. would be introduced on the irrigated plots. Tending these trees would be less labor absorbing than chilli and onion production, thus there would be less competition for the farmers' labor from paddy production. These crops would give a similar high return as chillies/onions and thereby safeguard the project's economic viability. This argumentation may be questioned on several grounds. First, it does not take into account that farmers have already tree crops on their house plots. The appraisal report stated: "On the homestead sites of the colonist schemes, some coconut, mango, lime, jak, or banana trees are grown." 1 Assuming that tree crops are introduced, consideration needs to be given to the extended period (7 years) some of the fruit trees require until full production. By assuming full development within eleven years, all project areas ought to be planted by 1982, in the view of the audit mission a rather unrealistic assump- tion. The PCR's Tables 18-23 showing the expected area development do not indicate any tree-plantings up to now. Further, farmers would be expected to uproot existing fruit trees, which offer them some returns, to be replaced by trees which require several years before fruiting the first time. Based on farmers' conservativism, not restricted to Sri Lanka, it is unlikely that many of them will participate in such a scheme. 23. Second, if tree crops were to be substituted for the production of chillies and onions, water requirements would be substantially reduced, and canals and pumps would be overdesigned. Returns obtained from tree crops will be less than what could have been expected had the irrigation system been designed for tree crops; however, tree crops could produce an acceptable return. 24. There is also the possibility of double counting project benefits in the PCR's ERR calculation. It is pointed out that extension activities financed under the Tank Irrigation Modernization Project (Cr. 666-CE) of 1975, the Mahaweli Ganga II Irrigation Project (Cr. 701-CE) and the National Agricultural Extension Project (Cr. 933-CE) of 1977 would be provided to the project areas (PCR, para. 4.11(d)). At least some benefits of increased output need to be credited to these extension activities and cannot be attrib- uted to the Lift Irrigation project. 25. With all the present uncertainties about future project development, the ERR could range from negative to 16%. In view of the substantial changes proposed in project design and the cultivation pattern, a more precise pro- jection would be unrealistic. 1/ Appraisal Report, page 4, para. 3.10.  - 9 - SRI LANKA LIFT IRRIGATION PROJECT (CREDIT 121-CE) PROJECT COMPLETION REPORT I. BACKGROUND 1.01 Sri Lanka does not produce sufficient rice and other food crops to meet domestic demand. It imports large quantities of rice and wheat flour and, until quite recently, substantial amounts of spices and vegetables, many of which can be grown in Sri Lanka. For example, between 1955 and 1966, the annual value of imported dried chillies increased from about Rs 27 M to Rs 48 M, onion 1/ imports from Rs 9 to Rs 20 M. In 1965, the Government of Sri Lanka (GOSL), concerned about the increasing costs of such imports, formulated a policy aimed at achieving self-sufficiency in food and subsidiary food crops as its first priority. The Lift Irrigation Project was designed to increase the production of chillies and onions, both of which are staple components of the Sri Lankan diet. 1.02 The project was the IDA's first and the Bank Group's fifth lending operation in Sri Lanka. It was one of a number of agricultural projects identified by a FAO/World Bank Cooperative Program Mission which visited Sri Lanka in October and November 1965. The Government has prepared the project in early 1966; the proposals were reviewed by a FAO/World Bank CP mission in June/July 1966, which advised that further studies were required. The final project proposal and request for financing were submitted formally to IDA in June 1967. 1.03 The project proposal envisaged lift irrigation and agricultural development on 13,500 ac, made up of 6,100 ac of uplands in existing settle- ment schemes established several years before for landless laborers, and 1/ Any reference to onions, unless specifically stated otherwise, refers to the Spanish bulb onion (known in Sri Lanka as Bombay onion) and to shallots. - 10 - 7,400 ac of land alotted for settlement of unemployed, educated single youths. An IDA mission appraised the project in September/October 1967. The mission recommended that the innovative youth settlement scheme component be reduced to a 400 ac pilot area, to gain experience for a future, larger project. In February 1968, the Government agreed. Negotiations for a c-edit to support the smaller reduced project were held in Washington, D.C. between April 29 and May 3, 1968. The project was approved by the Board of Executive Directors on June 4, 1968 and the Credit Agreement (Credit 121-CE) for US$2.0 M equiv- alent signed on June 9, 1968. II. THE PROJECT Project Components 2.01 The project was designed to increase domestic production of chillies and onions. It included: procurement and installation of pumps; construction of irrigation distributary systems to serve about 6,500 ac; land leveling over the entire area; mechanized clearing of 400 ac for the youth settlements and construction of about 200 cottages; procurement of vehicles and tractors necessary for the project; engineering, administration and provision of technical services to assist in the training of extension workers assigned to the project; and operation and maintenance during the implementation period, which was at appraisal expected to be between July 1968 and June 1972. The Project Area 2.02 The project consists of four non-contiguous areas in Sri Lanka's dry zone, where paddy irrigation schemes for settlers have been in operation since the 1940s. Each of the four areas is made up of a number of separate blocks. Under the earlier settlement scheres each family had been given about 5 ac, consisting of 3 ac of paddy land supplied with gravity irrigation in the valley bottom, and a two-acre dry-land house lot on the adjacent valley slope. Under the Lift Irrigation project 1 ac of each house plot was to have been irrigated by pumping from the gravity irrigation canals supplying the paddy areas, to enable the cultivation of chillies and onions. In the youth settlement area, each youth was to be assigned 2 ac of irrigated upland; I ac of unirrigated land in a common area would be for housing and a garden plot. These settlers would not be allocated.any land for rice culture. Thus, the areas to be irrigated under the project were to have been one acre for each settler family and two acres for each member of the youth settlement colony. All project area land is State Land. At appraisal, the acreage to be developed in each scheme was as follows: - 11 - Scheme Net Irrigated Area (ac) Settlement Schemes Vavunikulam 500 Mahakadarawa 1,000 Rajangana 3,500 Polonnaruwa 1,100 Youth Scheme 400 Total 6,500 Costs and Financing Plan 2.03 Project cost was estimated at appraisal as Rs 19.6 M (US$3.3 M equivalent at the 1969 rate of exchange of Rs 5.90 to the US dollar). The breakdown of costs was as follows: Foreign Local Exchange Total Costs Component Costs (US$'000 Equivalent) Pump Procurement and Installation 160 450 610 Irrigation System 620 285 905 Land Development 650 30 680 Housing for Youth Settlement 60 - 60 Vehicles and Tractors - 200 200 Contingencies 20% 300 195 495 Engineering, Administration and Agricultural Specialist 110 50 160 Operation and Maintenance during initial four year of project life 120 70 10O Total 2,020 1,280 3,300 2.04 The IDA credit (121-CE) of US$2.0 M (then Rs 11.9 M), covered approximately 60% of estimated total project cost. The balance of the cost, totaling Rs 7.7 M, was to be met by GOSL. The Intended Beneficiaries 2.05 Project works were expected to augment settler family incomes and provide additional work for the family by enabling the growing of chillies and onions on houseplots. It was appreciated that, except in Vavunikulam, settlers had no previous experience of growing these crops under irrigated conditions. However, GOSL and the appraisal mission considered that, given proper guidance, settlers would learn the necessary practices. At the time of appraisal, the youth settlement scheme was considered more risky than the scheme involving the colonist settlers. - 12 - The Implementing Agencies 2.06 The Irrigation Department (ID) of the Ministry of Land, Irrigation and Power was responsible for the design, construction and O&M of the irri- gation facilities. Land leveling was the responsibility of the Lands Depart- ment of the same Ministry. All works were to be constructed by force account. Imported equipment and materials were to be procured under international competitive bidding (ICB). Extension services were to be provided by the Agriculture Department (AD) of the Ministry of Agriculture through village agents; -- there was to be one District Agriculture Officer in each of the project areas. All village agents assigned to the project were to receive in-service training at the Department's Extension Services Training Institute at Maha Illupalama. The project also provided funds for the employment for two years of an agricultural extension specialist to assist in the training of extension workers. Project Benefits 2.07 It was estimated at appraisal that at full development, expected to take eight years after project completion, production of dried chillies would amount to 3,250 long tons or roughly 19% of average 1963-66 imports. The projected onion production would be 11,000 long tons, also about 19% of imports. The annual gross value of production from project lands, at 1968 prices, was estimated to increase from a negligible level to around Rs 14 M per annum. After deducting production costs, the annual direct benefits to the economy at full development were estimated at about Rs 9.5 M. The project's economic rate of return was estimated to be 25%. On the basis of prices set under the Government guaranteed price scheme (GPS) of 1969, net return to a settler family from the cultivation of 1 ac of chillies and one-third of an acre of onions was expected to be about Rs 1,100 at the end of the first year after project completion, increasing to Rs 2,300 in five years; these returns would be additional income for settlers who also cultivate paddy. Income from the cultivation of 3 ac of paddy during the wet season and 1.5 ac during the dry season was estimated at Rs 1,350 net. Corresponding annual net income to the youth scheme participants, growing 2 ac of chillies and two-thirds ac of onions, was estimated at Rs 800 at the end of the first year after project completion, increasing to Rs 4,100 in five years. Not having any paddylands, this was also their estimated total income. III. PROJECT IMPLEMENTATION Effectiveness and Startup 3.01 There were no conditions of effectiveness of the credit other than those laid down in the General Conditions Applicable to Development Credit Agreements. The credit was declared effective on August 5, 1968, 15 days before the date specified in the Development Credit Agreement (DCA). Imple- mentation was scheduled to start in February 1969 after the end of Maha (north- east monsoon) rains. There were, however, initial delays due to the ID not - 13 - being able to allocate sufficient supervisory personnel and vehicles to the work sites, and also because GOSL was slow to open letters of credit for imported equipment. 3.02 Further delays occured in ordering, delivering and assembling equip- ment due to the general unrest before and during the election of May 1970. With the change of Government after the elections, personnel were transferred and responsibilities for projects were reallocated between Government depart- ments. This resulted in a general slow-down of the work. In April 1971, because of civil disturbances, security measures were enforced throughout the country and restriction of travel made access.to work sites difficult. The use of blasting materials and construction equipment was curtailed, strict curfews were enforced. Consequently, all project work was stopped and many project officers were withdrawn. Construction was resumed again in late 1971 but proceeded slowly. By the original completion date of June 30, 1972, only 20% of the project area was provided with irrigation facilities but only 10% was estimated to be under cultivation during the yala season (February-August) (Table 1). The slow pace of agricultural development was due to incomplete land leveling and the limited impact of agricultural extension, caused partly by a shortage of operating of funds and transport facilities. By June 1973, the original closing date of the credit, only about 55% was disbursed and it was estimated that the project was 2-1/2 years behind schedule. Revision of Project Area 3.03 By October 1969, GOSL reached the conclusion that settlers in Mahakandarawa, on 1,000 ac, and in the Polonnaruwa area on some 540 ac, would not utilize irrigation water to be supplied under the project. These farmers preferred to cultivate their old lands in the reservoir area at times when it was not flooded: the time of cultivation clashed with the use of lift irriga- tion water. The farmers also continued with their earlier slash-and-burn (chena) cultivations and consequently had little time and no interest to grow the subsidiary crops. Therefore, GOSL proposed to IDA that the area undc5r the Polonnaruwa scheme be reduced by 540 ac and that this and the Mahakandarawa area of 1,000 ac should be replaced in the area of the Nagadeepa tank west of Kandy (1,200 ac), and through increasing the area of the Rajangana scheme by 332 ac, thereby maintaining the total project area at 6,500 ac. IDA accepted these proposals. The revisions were finalized in 1970. The original and revised project areas are shown below: - 14 - Schemes At Appraisal Revised Change Reason for Reduction ------------------------ ac irrigated--------------- Vavunikulam (c) 500 500 - Mahakanderawa (c) 1,500 - -1,000 Lack of interest Rajangana (c) 3,500 3,840 +340 Nagadeepa (c) - 1,200 +1,200 Polonnaruwa Parakrama Samudra (c) 600 309 -291 Shortfall of suit- Giritale (c) 200 154 - 46 able land as Minneriya (c) 300 121 -179 result of semi- Bakamuna (y) 200 176 - 24 detailed soil survey Konduruwewa (y) 200 200 - Total 6,500 6,500 0 (c) = Settlement Scheme (y) = Youth Scheme Physical Progress 3.04 By December 1968, bids for equipment and materials has been received and plans for civil works to be executed in 1969 had been completed. Then came a delay in procuring equipment and vehicles because of failure to open letters of credit in time. A further constraint on progress occurred in early 1970 due to a shortage of vehicles and of supervisory personnel at work sites. By the beginning of 1970, work on the youth schemes had not been started, although in the first quarter of 1970 it was still expected that the project could be completed on schedule. 3.05 Serious delays occurred following the election in May 1970. For nine months civil works ceased, new orders were not placed, and deliveries and assembly of material and equipment were suspended. Land leveling started only in 1971. Civil insurrections in April 1971 further delayed progress. Following the insurrection, a number of security measures were enforced, which restricted travel, access to work sites, and the use of explosives and construction equipment. Consequently all works stopped and many project officers were withdrawn. When work resumed, the four crawler tractors pur- chased for land clearing and levelling proved to be too light and new, bigger machines had to be ordered. 3.06 In 1972, due to lack of experience in growing irrigated upland crops, the actual field water requirements for chillies and onions turned out to be nearly double that estimated at appraisal. To meet this, additional pumps had to be installed. It is expected that, when better water management and operating methods, currently being developed as part of the IDA-supported Tank Irrigation Modernization Project (Cr. 666-CE), are adopted by the growers in the Lift Irrigation Project, irrigation requirements will be close to appraisal estimates. When this happens, the extra pumps will not be required and could be used as standby units or moved elsewhere. - 15 - 3.07 In the Rajangana scheme, the settlers would not clear the jungle and therefore the task had to be taken over by the Government. Only 20% of the irrigation facilities were installed by the original completion date of June 30, 1972, and only about half of the total.6,500 ac was being irrigated by 1978. However, additional areas are being irrigated year by year, and it seems probable that by 1982 most of the area would be used for irrigated upland crops (para 3.14). 3.08 In 1973, it was found that the engines that powered the 8 inch pumps were unable to perform as specified: they were overheating, used excessive amounts of oil, vibration was excessive and water deliveries were below specifications. For this reason, it was decided to change to a 6-inch pump powered by a different engine. The decision caused additional delays. Project completion at this time was expected by the end of 1974 -- a delay of two-and one-half years. 3.09 By 1974, a'substantial part of the civil works were completed. In Vavunikulam, which was completed first, all pumphouses were erected in 1972; all other civil works were completed in 1973. In Rajangana, the lining of channels was completed in 1974, but the rest of the civil works were not completed until 1976. In Nagadeepa, works were not completed until 1976. Both the Youth and Settlement schemes in Polonnaruwa were completed before 1974, except the jungle clearing which was completed in 1975. In 1976, all civil works were complete. The credit was closed in 1977, almost five years behind schedule. The following table compares the completion data for physical works in each scheme. Polonnaruwa Vavunikulam Rajangana Nagadeepa Youth Settlement I.- Completion date, estimated at appraisal 1971 1972 n.a. 1972 1972 II. Completion date, revised in 1970 1972 1973 1973 1972 1972 III. Completion, Actual (1) Pump In- stallation 1973 1976 1976 1973 1974 (2) Pumphouses 1972 1976 1976 1972 1973 (3) PVC Raising Mains 1973 1976 1976 1973 1973 (4) Lining of Channels 1973 1974 1975 1974 1974 (5) Land Clearing and Jungle Clearing 1973 1976 1975 1975 1975 - 16 - 3.10 At project completion in 1976, the total irrigable area under the project was 6,357 ac (Table 1), compared with the 6,500 ac planned. Details at appraisal, revision and at completion of the project, are shown below: Maha-' Polonnaruwa Total Vavunikulam Rajangana kanadarawa Nagadeepa Youth Colonist Appraisal 6,500 500 3,500 1,000 Nil 400 1,100 Revision in 1970 6,500 500 3,832 Nil 1,208 376 584 Completion 6,357 502 3,688 Nil 1,208 376 583 Agricultural Development 3.11 Agricultural development did not start on any scale before land leveling was completed. In Vavunikulam, all works were completed in 1973; in the other schemes, land leveling was not completed until 1975 or 1976. Thus the first full crop year after project completion was the yala season of 1977. However, for a number of reasons, actual land utilization was much lower than expected at appraisal. The following appear to be the principal reasons. (a) Appointment of an Agronomist. The project originally envisaged securing the services of an agronomist with experience in growing irrigated chillies and onions. Because the local varieties were low yielders, the introduction of improved varieties was essential; their identification and testing was to have been one of the agronomist's main tasks. No suitable candidate could be found. However, by 1971, the Maha Illupallama research station had developed an improved variety of chillies and had started work on improving the varieties of onions. The research station has identified an improved package of practices, including higher rates of fertilization and the proper balance of nutrients in the mix. It remains an unresolved question whether, had an agronomist been assigned to the project, uptake of growing chillies and onions would have been significantly higher. The more fundamental issue relates to the need for proper coor- dination with the extension organization (see (d) below). (b) The Weather. There were persistent droughts between 1973 and 1976, during which irrigation water was in short supply. It was the farmers' request that available water should be used for paddy, their subsistence crop, with which they were most familiar. - 17 - (c) Problems with Pumps. Initially, pumps broke down frequently and repairs were slow. Therefore water supplies were not reliable. This problem had been resolved when the ID estab- lished new workshops and the unsuitable engines (para 3.08) replaced or supplemented. (d) Agricultural Extension. At appraisal it was expected that agricultural extension would be the task of the Ministry of Agriculture. However, after the reallocation of dev- elopment projects between the Ministries (para 4.02), the Ministry of Agriculture had to share agricultural extension with the Land Department of the Ministry of Lands, Irrigation and Power who are responsible for the Special Project Areas. Both Ministries tended to concentrate extension efforts on paddylands, even to the extent of encouraging the district Government agents to allocate water for paddy in preference to upland crops when water shortages were expected. Technical knowhow on upland crops was available at the Maha Illupallama research station but the station staff gave low priority to teaching it to extension agents. The T&V system of agricul- tural extension was introduced under the Tank Irrigation Modernization Project (Cr. 666-CE) of 1975, and was extended in 1976 to the Vavunikulam area which is served with water from a tank being improved with funds from CR. 666-CE. Similarly under the Mahaweli Ganga II Irrigation Project (Cr. 701-CE) the T&V system was extended to Rajangana in 1977. Subject Matter Specialists (SMS) in chillies and onions were therefore available only in Vavunikulam and Rajangana. Attempts are being made in Polonnaruwa to assist chilli growers; success is only partial. The Lands Department retains control over agricultural extension activities in the youth settlement areas, and achieves indifferent results. It is hoped that the National Agricultural Extension Project, (Cr. 933-CE) which has been signed in July 1979 under which all extension services would be provided by the Ministry of Agriculture, will be able to provide all areas with the necessary technical advice. (e) Production Credit. Although assurances were obtained from GOSL at negotiations that production credit would be made available, GOSL was unable to comply because many project beneficiaries did not repay previous loans for paddy culture. The default precluded them frui receiving further loans. (f) Lack of Institutional Coordination. The ID which manages the irrigation system, and the Ministry of Agriculture which advises on crop calendars, did not coordinate their activities. The Ministry of Agriculture did not advocate a short planting season which could have reduced the period during which pumping was required. In some cases ID has arbitrarily shortened the pumping period and many farmers - 18 - who planted chillies late and therefore had their crops damaged were thus discouraged from planting chillies and onions again. (g) Lack of Basic Knowledge on Irrigated Upland Crops. Except in the Vavunikulam scheme, the settlers had experience and expertise in only rice and chena (slash and burn) cultiva- tion. Consequently, they chose to devote their time to the more familiar crops. The extension services were unable to persuade them to do otherwise. Development in the Sub-areas 3.12 Vavunikulam (500 ac) is, and always has been, the most advanced area. The principal reason appears to be the fact that the settlers were Tamils from the Jaffna area, who had a long tradition of growing irrigated upland crops. Farmers in this scheme began to utilize the irrigation water as soon as it became available in 1973 and have maintained a high rate of use ever since. They are the only project farmers who pay water charges (para 4.28). 3.13 In Nagadeepa (1,200 ac) no irrigation is going on at present. GOSL stated that soon after the pumps were installed in 1976, the water has been utilized to assist the establishment of fruit trees on 600 ac, principally mangoes, jakfruit, murunga (a tropical forest tree, the fruit of which is cooked and used as a vegetable), but some papayas, bananas and passion-fruit are also being grown (Appendix 1). Once established, most of these trees require no irrigation for survival and low yields; the farmers of the area have not been exposed to the idea of irrigating tree crops to achieve high yields. Adaptive research and an intensive agricultural extension work need to be carried out to induce growers to irrigate tree crops. The Department of Agriculture has posted extra Agricultural Instructors and KVSs (village level workers) in April 1979 to strengthen the service. 3.14 Rajangana (3,700 ac) completed in 1976, is the largest unit in the project. Because of frequent interruption in the water supply due to druught, utilization to date had been limited. However, since water supplies in the main tank have been augmented by return flows from the Mahaweli II Scheme (Cr. 705-CE), the degree of utilization is now increasing. The extension organization, already improved under the Mahawali II Scheme, will be further improved under the proposed National Agricultural Extension Project. Once some current problems regarding the allocation of irrigated lands are resolved, it is expected that full utilization of the irrigable area will take about four years. 3.15 The Youth Settlement Scheme, (370 ac), on the whole, has been successful. The settlers have no other potential source of income and, there- fore, despite the indifferent technical.assistance given by the extension service, have built up their cultivated area satisfactorily. The major prob- lem is that 72 ac of the project area in Bakamuna has not been used since 1974 because GOSL has been unable to select 36 settlers. Settler selections made - 19 - in May 1977 were cancelled by the new Government elected in July 1977. It is now GOSL's declared intention to have the area settled by December 1979 (Appendix 1). 3.16 The Polonnaruwa Settlement Schemes (580 ac) are using the pumped water for tree crops and pulses. In one small sub-area, the pumps have been removed by GOSL because the farmers would not use the water. In two others utilization to date has been minimal. 3.17 Summary figures for the whole project are shown below. They refer to the 1977 season. Polonnaruwa Vavunikulam Rajangana Nagadeepa Youth Colonist Total --------------------- ac --------------------- Irrigable 502 3,688 1,208 376 583 6,357 Of which irrigated: Chillies 486 294 nil 174 189 1,173 Onions 80 12 nil 200 /a nil 292 Total irrigated 566 306 nil 174 189 1,435 /a Other vegetable crops; no onions grown. Cropping Intensity 3.18 At appraisal, the cropping intensity for areas irrigated by the project was expected to be 133%. It soon became clear, however, that cultiva- tion of onions was not catching on as well as the cultivation of chillies. This was because onions are more perishable than chillies and are more sus- ceptible to disease, the control of which requires expensive fungicides. Because of slow progress in Rajangana, present cropping intensity is only 28%, excluding Nagadeepa. However, with the exception of Nagadeepa, it seems reasonable to assume that the envisaged cropping intensity will be reached within the next 7 to 10 years. Yields 3.19 Experience in the Vavunikulam scheme indicates that the yields esti- mated at appraisal will eventually be exceeded. The appraisal estimate of 10 cwt of chillies, and 5 tons (100 cwt) of onions, has already been exceeded in Vavunikulam and closely approximated by the more enterprising farmers in the other areas. Production 3.20 At appraisal, it was expected that by full project development in 1984, the production of chillies would be 65,000 cwt, and onions, 200,000 cwt per annum. It is now estimated that at full development, expected to - 20 - occur about 1990 production would be about 54,000 cwt of chillies and 45,000 cwt of onions. This reduction is due to lower estimates of cultivated area than expected at appraisal: chillies on 4,650 ac and onions on 445 ac at full development compared to 6,500 and 2,200 ac, at appraisal. Project Costs 3.21 Total project cost increased by 79%, from Rs 19.6 M estimated at appraisal to Rs 35 M actual expenditure by completion. The IDA credit of US$2.0 M was not increased and all the cost overrun was borne by the GOSL. The cost increase was due to higher than estimated irrigation requirements which required increases in the carrying capacity of the lined channels as well as in number of pumps to be installed. The rate of cost escalation during the extended implementation period was also a major, unexpected factor. The actual direct foreign exchange cost was lower than estimated, however: US$1.0 M against the original estimates of US$1.3 M. The cost of the water delivery system turned out to be three times the original estimate. The following figures compare project cost estimated at appraisal with actual cost. Appraisal Actual Local FE Total Local FE Total Total cost in M Rs 12.0 7.6 19.6 24.3 10.6 34.9 Total cost in M US$ 2.0 1.3 3.3 4.1 1.0 5.1 As a result of the cost increase, the Government's contribution was increased from US$1.3 M to US$3.1 M. Disbursement 3.22 The following table compares disbursement performance estimated at appraisal with actual disbursements: 1960 1970 1971 1972 1973 1974 1975 1976 1977 1978 Cumulative in %: Appraisal 20.0 55.0 80.0 100.0 Actual 0.0 19.0 32.0 47.0 55.0 59.0 79.0 81.0 88.0 98.8 /a /a US$64,000, which was not disbursed, was cancelled when the project was closed on December 31, 1977. Owing to the devaluation of the US dollar in 1971, GOSL's indebtedness to IDA increased by about US$200,000. Compliance with Credit Covenants 3.23 Reporting. Progress reports on project execution by the Irrigation Department were timely and adequate. Reports on agricultural progress were poor, consequently most supervision missions had to search for agricultural data. In accordance with the Credit Agreement, a separate account of project - 21 - expenditures was duly maintained. However, audit reports are several years behind schedule: the latest was for FY 1974. - 3.24 Procurement. Initial delays in opening letters of credit occured which held up procurement; later, procurement procedures and progress were adequate. 3.25 Production Credit to Growers. Although GOSL gave assurances that the production credit needs of chilli and onion growers would be provided through farmers' cooperatives (which, in turn, would receive their funds from the People's Bank) credit was not made available because many of the farmers had previous debts and were not eligible to receive new credits. This may well have slowed down the realization of project benefits. 3.26 Assured Water Supply. To ensure achievement of project production targets an assurance was obtained that the project area will have priority in the allocation of irrigation water. In many cases, however, farmers requested that water be made available for paddy instead; 1977 was the first season in which water supply for the project was reliable. The Rajangana scheme's water regime was considerably enhanced after 1977 by the return flows of the Mahaweli II project area. 3.27 Appointment of an Agronomist. Within 12 months of effectiveness, the project authority should have employed an agronomist whose qualifications were acceptable to the Association. However, in spite of repeated efforts, it was not possible to find a suitable candidate. Subsequently, GOSL and IDA agreed that, instead, the services of the Maha Illupallama agricultural research station would be used. 3.28 Water Charges. In Vavunikulam, water charges have been levied at the rate of Rs 300 per acre per season'since 1975; elsewhere, by 1978, no water' charges had been collected although orders have been issued in late 1978 to organize their collection. At appraisal, it was expected that by the fifth year of operation a charge sufficient to cover the operation, maintenance and depreciation cost for pumps and engines would be collected from the beneficiaries; an assurance to this effect was obtained from GOSL. The appraisal mission envisaged that such a charge was reasonable, given the expected high net benefits. 3.29 In 1968, the appraisal mission has estimated that annual water charges, including an allowance for replacing the pumps and engines when they wear out, would be Rs 135 per acre. By 1972, a supervision mission concluded, and ID concurred, that the water charge should be Rs 300. This figute covered actual 0&M costs only, with no provision for pump and engine replacement when no longer repairable. When water charges were-first imposed in Vavunikulam in 1975, this was the amount actually charged. Current estimates by the ID put the cost at Rs 700 without the replacement component and at Rs 1,000 in- cluding a replacement allowance. The amount is consistent with a 12% annual inflation rate, without allowing for the fact that the Sri Lankan currency was Rs 5.90 for US$ in 1972 and now stands at Rs 15.35 per US$. Detailed analysis of how the three.sets of figures have been derived are in Table 21. - 22 - 3.30 Project Coordination. A Coordinating Committee was set up to ensure coordination between the agencies involved in project execution. The lack of coordination among field officers of the various agencies became a serious problem that was not envisaged at appraisal. Supervision missions have drawn GOSL's attention to the matter but no meaningful progress was made in resolv- ing it. Bank Performance 3.31 Relations between the Bank and the Borrower were good and the Bank has played an important role throughout the project cycle. During project formulation, it was the Bank's view that because of the experimental nature of the youth settlement schemes, the 7,400 ac for inclusion in the project by GOSL should be reduced to 400 ac and treated as a pilot scheme. In view of the seemingly insoluble problems associated with the selection of only 36 additional settlers, whether sufficient settlers could have been found for 7,400 acres is a matter of conjecture. 3.32 The economic justification for the project was based mainly on the premise that the country should produce its requirement of chillies and onions instead of importing them. During appraisal, and even during the earlier years of project implementation, the question of farmers' acceptance of, and complete participation in, onion and chilli growing was not seriously ques- tioned by the Bank. Soils were suitable, water seemed sufficient and the crop budgets indicated attractive returns. The important factors which should have been identified during project formulation and appraisal and which should have been monitored carefully throughout the implementation period were: (a) the slow start made by settlers in cultivating chillies and onions. The causes of this reluctance should have been analyzed much earlier instead of assuming that it was simply due to farmers being called upon to grow a crop to which they were not accustomed and therefore as they become more familiar with them, their resistance to grow chillies or onions will be overcome. (b) to agree that the expatriate agronomist not be recruited. With the benefit of hindsight, it now seems at least pos- sible that, had he been appointed, the project benefits would have been realized earlier; (c) Progress of civil works and disbursements during the earlier years of project execution received much more attention during supervision than agricultural progress. However, supervising the use of the water would have been handicapped by inadequate supplies caused by prolonged drought between 1973 and 1976. Therefore, the real causes of the slow development of cultivation of chillies and onions may not have been clearly identified, even if the orientation of the supervision missions had been different, until the drought ended in 1977. - 23 - IV. FINANCIAL AND ECONOMIC IMPACT Farm Income 4.01 Incomes of participating farmers have increased substantially because of the project. Before the project, settlers could cultivate only unirrigated crops like cowpeas, green and black grams, and leaf vegetables in their house plots, in quantities just about sufficent for home use. Tree crops grew slow by more difficult to establish and gave low yields. Incomes from these crops, even when marketed, were not significant. With the project, farmers are able to grow high-value crops which, because of irrigation, also yield well. 4.02. Based on the interviews with farmers and field officials, and material prepared by various Government agencies, the following crop budgets (showing "valued-added" per acre) have been prepared to indicate project impact on farms. Detailed crop budgets are provided in Tables 7 and 9. Chillies (1 ac) Bombay Onions (1/3 ac) Appraisal /a Actual Appraisal /b Actual (1978) (1978) ---------------------Rs---------------------- Yield per acre (cwt) 10 10 100 90 Gross Value of Production 3,934 7,840 1,573 3,300 Direct Production Cost /b 644 1,156 524 620 Value Added /c 3,270 6,684 1,049 2,680 Water Charges 192 1,000 44 333 Value Added After Water Charges 3,078 5,684 1,055 3,540 /a In 1978 prices: a price deflator of 0.572 was used. 7-b Excluding family labor cost. /c Gross value of production minus cash input cost. 4.03 However, the fact that the settler farmers also had to cope with three acres of paddy, about half of it (depending on the availability of water) double cropped, has posed the issue of how best to use his and his family's labor. Table 10 shows total monthly labor requirements for 3 acres of paddy, all cropped in the Maha and 1-1/2 acres cropped in the Yala. If, in addition, the farmer grows 1 ac chillies and 1/3 ac onions, his peak labor requirements are as follows: - 24 - Rice Chillies Onions Total (man/days) February /a 39 22 - 61 September /b 45 - 5 50 /a Lab,gur requirements for harvesting maha and land preparation for yala paddy. /b Labour requirements for harvesting and storing yala and land preparation for maha paddy. In February, both rice and chillies require maximum care in seed bed prepara- tion, transplanting (only chillies; rice is normally broadcast) and weeding. Family labor is fully extended and outside help difficult to find. In September the onion harvest, which is a laborious operation demanding a great deal of care and attention to detail, coincides with the need to harvest, thresh and store the Yala rice. Hence the farmer's manifest reluctance to commit himself to chillies and onions instead of rice, unless he can be assured of comparably good results for his extra efforts. Therefore until the extension service, by developing and advocating fail-safe methods of growing and storage, can induce enough confidence in chillie and onion culture, and the availability of water at the right time is ensured, farmers, forced to choose between paddy and the new crops, are likely to concentrate their resources on the less risky, and more familiar, paddy. 4.04 In some areas farmers use their lift irrigation water to grow tree crops and either consume or sell the fruit. Crop budgets (Table 16) show the benefits they are likely to derive from these crops, compared to chillies and onions. Benefits are somewhat lower, but so are risks and labor demands at a time when the farmers and his family are already heavily committed in the paddy areas. 4.05 The crop budgets in Table 6 and v show that while the yield of chillies at project completion was close to what appraisal estimates, the increase in price from Rs 225/cwt in 1969 (Rs 393/cwt in 1978 prices) to Ra 784/cwt in 1978 (Rs 7/lb) doubled the gross value over that expected at appraisal. Although production costs have also doubled, value added after estimated water charges rose about 85% over appraisal estimates. The price of onions -- Rs 27/cwt in 1969 (Rs 47 cwt in 1978 prices) increased to Rs 110/cwt, while production costs did not increase significantly. As a result, the value added more than tripled. In spite of these potential high income opportunities, farmers appear reluctant to grow onions because of the risk from disease, the crop's high labor requirements especially at the time when the yala rice crop requires much attention, (para 4.03) and also because of the risk of bad weather during harvesting, drying and storing prior to sale. A major extension support is needed to assist with onion growing in general and problems of harvest, drying and storage in particular, which has actually been started in April 1979 (para 3.13). - 25 - Economic Rate of Return 4.06 Separate economic rates of return have been calculated for each scheme because past and expected future progress is likely to be at different rates. Vavunikulam reached full development thriee years after physical comple- tion, instead of the five years estimated at appraisal. However, judging from field observations and interview with farmers and officials, it will require considerable time before other schemes reach full development. The currently expected rate of adoption is shown in Tables 18-22. 4.07, In recalculating economic rates of return, it was assumed that: (a) project life was 30 years from the beginning of project implementation (1969); and (b) market wage rates were adjusted to make allowance for the highly seasonal nature of demand for farm laborer. The estimated averaged shadow wage rate is Rs 11/day for men and Rs 9/day for women, i.e. about 85% of the market rate at peak seasons. Economic rates of return ranged from 11% in the Nagadeepa scheme to 32% in the Polonnaruwa Youth Scheme. Economic rate of return for the entire project is 16%, compared with 25% estimated at appraisal. The following table summarizes calculated economic rates of return: I. At Appraisal (entire project) 25% II. At Completion, estimated rates return (percent) Vavunikulam 24. Rajangana 14 Polonnaruwa (settlers) 19 Polonnaruwa (youth) 32 Nagadeepa 11 Entire project 16 The Polannaruwa Youth scheme shows a higher rate of return than expected at appraisal because of higher farmer response. In the Nagadeepa scheme no onions and chillies have been grown until now. However, the Government is making an intense effort to promote the growing of high value tree crops, such as bananas, passion fruit, pineapples and citrus. IDA will follow up closely on Government's efforts. If the economic rate of return for Nagadeepa is recalculated assuming full development of tree crops in place of onions and chillies the rate of return is the same, 11%. Sensitivity Analysis 4.08 Project viability under different assumptions has been tested by using "switching values". Switching value is expressed in percentage points of tolerance shown by the key variable, taking capital at its opportunity cost. This is a measure of how far the variable can differ from its most likely value before the project becomes economically unacceptable. By - 26 - reducing or increasing the key variable the switching value reduces the present value of net benefits to zero, discounted at the cost of capital. In this project, the key variable is the cultivated area. The opportunity cost of capital is taken at 10%. Using these two assumptions, it is estimated that the switching values of the separate project areas are as follows: Switching Values Vavunikulam -59 Rajangana -34 Polonnaruwa Colonist -53 Youth -73 Nagadeepa -11 Entire Project -42 4.09 Thus, under the present input-output relationship and price struc- ture, each sub-area, with the exception of Nagadeepa, has a satisfactory rate of return with considerable safety margins. V. CONCLUSIONS AND RECOMMENDATIONS 5.01 - The project concept and objectives were well suited to the general framework of agricultural development in Sri Lanka. The project was designed to utilize areas which are not suitable for growing paddy or export crops. At the time of project formulation, unemployment in both urban and rural areas posed serious problems; the project was designed to alleviate the problem. Because of insufficient domestic production, imports of chillies and onions, which are important parts of the daily 4iet, represented a considerable drain on Sri Lanka's foreign exchange resources. Climate and soil are suitable to grow these crops; water seemed the only limiting factor. 5.02 Because of the prolonged drought before 1977, and because the proj- ect was completed only in 1976, the real test will come in the next few years. The Vavunikulam scheme, where the farmers have had experience of upland irrigated crops, the scheme may be regarded as a success. In the Rajangana scheme, the largest in the project, farmer use irrigation facilities is, until now, limited. The principal reasons would seem to be the prolonged drought and the fact that farmers had an alternative in paddy cultivation which they knew and which provided their basic food supp1y. Until now the Nagadeepa scheme has not been successful. Farmers in this scheme at present do not seem to have any interest in crops other than paddy and fruit trees. The Polonnaruwa Youth schemes are successful because these settlers do not have paddyland to which they might otherwise have given priority. Polonnaruwa settler farmers grow mainly pulses and fruit trees and only small areas of onions and chillies. Efforts would still have to continue to induce them to grow high-value crops. - 27 - 5.03 The reasons for the slower than expected response of farmers to facilities offered by project (where applicable) appears to be a combination of the following factors: (a) lack of motivation: earnings from paddy are deemed suffi- cient by many of the farmers, the extra effort required to grow a labor-intensive and upland crop on the home plot (instead of a tree crop which requires almost no effort once established) does not appeal to them; (b) even if the motivation is present, the fact that the labor peaks of upland crops coincides with those of rice, the safer and more familiar crop--acts as a disincentive; (c) the highly scattered nature of the project sites made it difficult for GOSL to deploy high-grade staff for extension work; the staff they were able to allocate to the project were unable to influence the farmers; and (d) farm gate prices of chillies have substantially declined recently while those of paddy increased markedly. While the profit margin on chillies still remained highly satis- factory, the incentive to cash in on it has been reduced. (e) the growing of onions proved more risky than assumed at appraisal, and it is now expected that only some 30% of the area forecast and appraisal will be planted. This assumption is reflected in Tables 18-22. 5.04 For future projects, an assurance must be obtained from GOSL that they Would ensure the allocation of irrigated plots to farmers who would actually cultivate them. This may well preclude providing irrigation to house plots, since it would not seem practicable to allocate those to others than the owners of the house. Recommendations 5.05 The results obtained in Vavunikulam and in most of the Youth Scheme underline the soundness of the project concept. The results also indicate that, even if full O&M costs are levied, the financial benefits to farmers could be considerable. Therefore GOSL should be urged to continue striving towards the realization of potential project*benefits in all areas, (though in some areas high-value fruit trees may replace chillies and onions) and IDA should continue to supervise the project until it is clear that the benefit will indeed be realized. This is estimated to take till June 30, 1982. An IDA mission has visited Sri Lanka in June 1979. This mission has obtained assurances from GOSL that they would endeavor to take actions according to the following timetable: - 28 - (a) In the Bakamuna Youth Scheme. The remaining 36 settlers would be selected by October 1, 1979 and occupy their lands by December 1979, to be able to start cultivation in January 1980; (b) In Nagadeepa 1/ due to the drastic decline in prices of chillies and onions,-chillies from Rs 40 per lb in 1976 to about Rs 8.0 per lb in June 1979 and onions from Rs 3.50 per lb to Rs 1.0 per lb during same period - farmers prefer to grow Yala paddy and permanent tree crops rather than chillies and onions under lift irrigation, particularly because the latter require more man-power and attention. At present about 50% (of the 1,200 ac) have already been planted with permanent tree crops such as jak, mango and murunga. These are deep rooted trees and they were irri- gated with lift irrigation water at least during the first one or two years, before their roots penetrated deep enough to gather adequate moisture. These crops and other types of orchard crops which may be planted will give higher yields if given irrigation water during the Yala season. Because of the foregoing, it has been agreed that the lift irrigation watdr need not be utilized only for growing chillies and onions, but may be used to grow any crop includ- ing permanent tree crops provided that such crops would give a favorable financial return to farmers, as well as a viable economic rate of return for the project. The Department of Agriculture will submit the evaluations of crops they pro- pose to recommend to farmers to grow to the World Bank for review. It was agreed that growing of banana, papaya, citrus, which need irrigation water during the Yala season, should give handsome financial and economic rates of return. The Department of Agriculture indicated that they felt con- fident that farmers could be persuaded to grow such crops and that the remaining 600 acres could be covered within two years. The Department has sufficient seedlings and will make them available for sale to the farmers. It was agreed that during the Yala.season water from the storage tank would be given to lift irrigation as the first priority. Only when there is excess supply would the water be given for paddy cultivation through gravity irrigation. 1/ For full details concerning agreements reached with GOSL, reference is made to the Mission's Aid Memoire, attached as Annex 1. This section is a condensation of the Aide Memoire. - 29 - The Department of Agriculture undertook to post two Agricul- tural Officers and three Village Level Workers (KVSs) to Nagadeepa to provide extension services to farmers since April of this year. More would be posted whenever it was deemed necessary. (c) In the Polonnaruwa Colonist Scheme, water charges, at least sufficient to cover O&M costs, should be collected, starting on January 1, 1980. The charge should be levied from all farmers who have access to water, irrespective of the fact whether they use it or not. One Subject Matter Specialist should be posted to the area and charged with close training and supervision of KVS on upland crops; a Rural Development Specialist should assist the extension officials in the entire Polonnaruwa complex, i.e. not only the IDA-supported Colonist Lift Irrigation Project but also the Youth Settlers and Colonist projects financed from other sources. (d) A Task Force has been established in each district covered by the Project. It comprises of the Government Agent or Additional Government Agent as Chairman; the Chief Irriga- tion Engineer in the district and the District Agricultural Extension Officer (DAEO) as members. These task forces would be charged with the responsibility of promoting and implementing irrigated agricultural development in the sub- projects within their jurisdiction, including the provision of planting materials. The task force is scheduled to report to the Directors of Agriculture and Irrigation by December 1979 so as to enable the agricultural extension service to implement the recommendations in the season beginning January 1, 1980. 5.06 In addition to the foregoing, GOSL should ensure adequate agricul- tural extension support for the project ar.as, with due allowance for the fact that the potential participants are scattered over a wide area yet require close specialist advice and support. The National Agricultural Extension and Research Project (Cr. 933-CE) should consider this when draw- ing up its detailed staffing plan. Adequate extension support, coupled with action to change the irrigation season and thereby avoid labor peaks, is expected to go a long way in providing additional motivation to farmers to utilize project facilities more fully. 5.07 The current price level of the crops likely to be grown under the project, while much lower than during 1975 and 1976, is still adequate*to give the farmers a fair return for their efforts. Once this is realized by the farming community, the present price level is not expected to be a deterrent to chillie growing. - 30 - TABLE 1 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGAlON PROJICf (CRLDIT 121-CE) Progress of Civil Works (Cumulative) Total Operational Polonnaruwa Revised Vavunikulam Rajangana Nagadeepa Youth Colonists Actual Eqtimate 1973 Installation of Pumpsets (nos.) 1971 Nil Nil Nil Nil Nil Nil 1972 2 3 Nil Nil Nil 5 1973 12(c) 49 7 6(c) 12 86 1974 12 49 16 6 14(c) 97 1975 12 58 27 6 14 117 1976 13- 76(c) 34(c) 6 14 143 Erection of Pumphouses 1971 Nil Nil Nil Nil Nil Nil 1972 1 3 Nil 6(c) 12 22 1973 12(c) 42 7 6 13(c) 80 1974 12 46 16 6 13 93 1975 12 51 27 6 13 109 1976 12(c) 66(c) 34(c) 6 13 132 Installation of PVC Rising Mains (ft) 1971 Nil Nil Nil Nil Nil Nil 1972 14,200 33,250 5,222 8,350 4,600 65,622 1973 29.300(c) 108,950 11,355 20,600 25,255 195.460 1974 29,300 132,000 30,969 20,700(c) 30,030(c) 242,999 1975 29,300 200,000 31,500 20,700 30,030 311,530 1976 29,300 220,000(c) 33,300(c) 20,700 30,030 333,330 Earthwork for Channels (cubes) 1971 Nil 5,390 Nil 1,000 1,136 7,526 1972 567 6,435 372 1,690 1,351 10,415 1973 9,400(c) 18,531 3,I96 1,965 7,805 41,194 1974 9,400 41.454 17,940 1.965 ,8,909(c) 79,668 1975- 9,400 50,500(c)i/ 34,000 2:127(c):i 9,461 1/ 105,488 1976 9,400 50,500 46,000(c) 2.127 9,461 117,488 Lining cf Channels (ft) 1971 Nil 74,900 Nil 5.450 23,250 103,600 1972 1,360 96,900 18,790 7,080 23,455 147,585 1973 108,000(c) 295,139 92,560 45,372 111,749 386,820 1974 108,000 583,660(c) 126,168 46,345(c)130,070(c) 994,243 1975 108,000 608,000 1/ 295,000(c) 49,295 1/130,070 1,190,365 Land Level ling and Jungle Clearing (ac) 1971 Nil Nil Nil Nil Nil Nil 1972 Nil Nil Nil Nil Nil Nil 2,426 1973 500(c) 1,196 103 304 400 2,503 5,294 1974 500 1,021 274 341 525 2,661 6,500 1975 502 1/ 3,050 1,208(c) 371(c) 583(c) 5,714 6,500 1976 502 3,688(c) 1,208 376 2/ 583 6,357 6,500 Notes: (c) Completed 1/ Additionil work was found necessary. 2/ Area smaller than estimated. PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Installations and Command Area by Subprojects Pump Pumpp Rising Concrete Area Cropped Houses Installed Total Forebays Mains Lining Land in 1977 Remarks (no.) 4" 6" 8" Number (no.) (000 ft) (000 ft) Levelled Acre % Colonization Schemes Vavunikulam 7 1 7 5 13 16 29.3 105.0 500 486 97 ) Properly cleared Rajangana 24 2 58 16 76 56 220.0 583.7 3,832 1,731 45 ) and levelled Nagadeepa 19 12 13 9 34 19 31.5 323.9 1,208 NIL NIL Never cultivated Polonnaruva (a) Giritalle 3 1 2 - 3 5 ) 154 85 55 Land clearing (b) Minneriya 2 - 2 - 2 3 ) 121 52 43 in these schemes (c) Parakrama Samudra was partial; trees (i) Sungavila 1 - 2 - 2 2 ) 85 ) were replanted or. (ii) Kalinga Ela 3 1 2 - 3 5 ) 31.2 130.1 92 ) 123 51 preserved by owners. (iii) Laksanyana I - 1 - 1 2 ) 65 (iv) D2 & D3 2 1 1 - 2 3 ) 67 NIL NIL Abandoned; pumps removed. Youth Settlement Schemes (d) Konduruweva 1 1 1 2 4 ) 200 156 78 (e) (i) Bakamuna II 1 1 1 1 ) 20.6 49.3 104 60 58 (ii) Bakamuna III 1 1 1 2 2 ) 72 NIL NIL Not allocated. TOTAL 65 19 91 33 143 117 332.6 1,192. 6.500 2.693 41 1/ 3" pump; the only one in the project. - 32 - TABLE 3 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Estimated and Actual Expenditure Appraisal Estimate Actual Local FE Total Local FE Total ----- U$ '000----- ----- S.L. Rs '000 ----- 1. Pump and Installation 160 450 610 750 3,600 4,350 2. Distribution 620 285 905 11,000 8,100 19,100 3. Land Development 650 30 680 6,259 50 6,309 4. Housing for Youth 60 - 60 - - - 5. Engineering & Administration 110 50 160 600 50 650 6. O&M for Four Years 120 70 190 800 300 1,100 7. Contingency on #1-4 300 195 495 1,053 478 1,531 Total 2,020 1,280 3,300 20,462 14,878 35,340 1/ Total- (US$ '000) 2,020 1,280 3,300 3,704 1,443 5,147 2/ S.L. Rs were converted to US$ approximately- as follows: Rates of Exchange 1968-71 = Rs 5.95 1972-74 = Rs 6.65 1975 = Rs 7.50 1976 = Rs 7.70 1977 = Rs 15.50 1/ Recalculated based on above exchange rates. 2/ Only approximations can be used because it was not possible to establish the dates when local expenditures occurred and relate them to the dates of the frequent exchange rate alterations. - 33 - TABLE 4 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Estimated and Actual Schedule of Disbursements (US$ '000) Appraisal Actual Per Annum Cumulative Per Annum Cumulative 1969 400 400 - - 1970 700 1,100 383 383 1971 500 1,600 255 638 1972 400 2,000 292 930 1973 168 1,098 1974 83 1,181 1975 399 1,580 1976 43 1,623 1977 143 1,766 1978 170 1,936 Amount cancelled on project closure 64 2,000 Note: Sri Lanka's indebtedness to IDA has increased by about US$200,000 equivalent because of the two devaluations of the US dollar in February 1973. PROJECT COMPLETION REPORT SRI LANKA.: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Total Area Cultivated in 1977 (Acres) Bldck and Total Green Irrigable Cropping Chilies Onions Gram Cowpea Others Cropped Area Intensity Rajangana 294 12 - 359 1,018 48 1,731 3,832 45 Vavunikulam 486 80 100 - 240 906 500 181 Nagadeepa - - - - - 1,208 NIL Polonnaruwa District Parakrama Samudra 32 3 - 48 40 123 309 40 Giritalle 19 - - 50 15 84 154 54 Minneriya 22 - - 24 6 52 121 43 Bakamuna 65 - - 14 12 91 176 52 Konduruwewa 124 - - 30 2 156 200 78 Total 1,042 92 459 184 363 3,143 6,500 493 - 35 - Table 6 SRI LANKA PROJECT COMPLETION REPORT Labour and Tractor Requirements per Acre of Chillies Jan Feb Mar Apr May Jun Jul Total Man/days Land preparation 5 4 9 Planting 2 4 6 Weeding & Fertilizing 6 6 6 18 Pest Control 2 1 2 2 7 Irrigation 2 2 3 3 3 13 Harvest & Trans. 1 1 2 4 Total 7 16 10 10 6 6 2 57 Woman/days Planting 3 3 6 Weeding 5 4 9 Manuring 3 3 6 Harvesting 9, 9 18 Drying 3 3 6 Total 6 6 5 4 12 12 45 Total manual labour 13 22 15 14 6 18 14 102 Tractor/hrs. Ploughing 2 3 5 Cultivating 2 2 4 Total 4 5 9 - 36 - TABLE 7 PROJECT COMPLETION REFOkT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Financial Crop Budget - Chilies (per acre) With Project Output Unit Unit Price (Rs) Quantity Value (Rs) Production cwt 784 10.0 7,80 Input: Seed lb 30.0 2.0 60.0 Chili Mixture 50 kg (bag) 44 6.0 264.0 Farm Yard Manure ton 100 5.0 500.0 Acetellic (50% ec) 200 ml (bottle) 34.9 3.0 104.7 Tractor Rental hr 15.7 12,0 188.L Bags 1 5.5 7.0 38.5 Total Cash Input Cost 1,155.6 Gross Margin 6,68h.L " 1/ Imputed Labor Cost- Men (@ Rs 13/day; 57 days) 741.0 Women (@ Rs 11/day; 45 days) 495.0j Water Charges 1,000.0 Net Farm Income 4,448.4 1/ Market wage rate of Rs 8.0 for men ard Rs-6.0 for Women plus a meal cost of Rs 5.0. - 37 - TABLE 8 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Labor and Tractor Reauirement - Onions (per acre) J F M A M J J A S 0 N D Total Uan/days Prep. of Bed 10 3 13 Planting 11 2 Weeding 4 4 4 12 Pest Control 11 2 Fertilizer Application 1 1 2 Irrigation 1 2 2 2 7 Harvest 8 8 16* Drying 1 1 2 Total 12 11 8 7 9 9 56 Woman/days Farm Yard Manure Spreading 2 2 Planting 2 2 4 Weeding 4 6 6 16 Harvest 3 3 6 Dryizng 2 2 Total 4 6 6 6 5 5 32 Total Manual Labor 16 17 14 13 14 14 88 Tractor (hr): Plowing 2 3 5 Rotary Cultivator 2 2 4 Total 4 4 9 - 38 - TABLE 9 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Financial Crop Budget - Bombay Onions (per acre) With Project Output Unit Unit price (Rs) Quantity Value (Rs) Production cwt 110 90 9,900.0 Input: Seed Onion kg 220 2 440.0 Farm Yard Manure ton 100 4 4co.o Onion Mix 50 kg (bag) 50 5 250.0 Malathion 200 ml (bottle) 30 2 6o.o Tractor Rental hour 15.7 8 125.6 Bags 1 5.5 110 605.0 Total Cash Input Cost L,850.6 Gross Margin 8,049.4 Imputed Labor Costl/ Men (@ Rs 13/day; 40 days) 520.0 Women (@ R-. 11/day; 24 days) 26L.0 Water Charges 1,000.0 Net Farm Income 6,265. 4 1/ Market wage rate of Rs 8.0 for men and Rs 6.0 for women plus a meal cost of Rs 5.0. - 39 - Table 10 SRI LANKA PROJECT COMPLETION REPORT Lift Irrigation Project (Cr.121-CE) Labour Requirements to Grow 3 ac Rice in the Maha and 1-1/2*ac in the Yala Season. 1/ January 33 July 12 February 39 August 16 March 25 September 45 April 6 October 21 May 5 November 12 June 13 December 12 Total 239 1/ Appraisal of the Tank Irrigation Modernization Project Report No. 951a-CE, November 15, 1975. PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Project Cost by Schemes (Rs '000) 1968-6911 1969-7011 1970-711/ 1971-721/ 1973!' 19742. 1975 1976 1977 Total Vavunikulam Local 441.3 381.6 310.6 296.7 319.5 393.8 - 100.9 2,244.4 Foreign Exchange - 209.6 170.6 163.0 175.5 216.3 - - 55.4 990.4 Total 441.3 591.2 481.2 459.7 495.0 610.1 - - 156.3 3,234.8 Rajangana Local 419.1 301.1 289.7 1,053.4 2,825.5 3,138.2 3,125.1 1,092.3 - 12,244.4 Foreign Exchange - 147.4 141.8 515.8 1,383.4 1,536.6 1,530.2 534.8 - 5,790.0 Total 419.1 448.5 431.5 1,569.2 4,208.9 4674.8 4,6553 1,627.1 - 18,034.4 Nagadeepa 0 Local - - 323.3 245.1 552.9 2,593.7 1,687.5 125.4 88.7 5,616.6 Foreign Exchange - - 149.1 113.0 255.0 1,196.0 778.2 57.8 40.9 2,590.0 Total - - 472.4 358.1 807.9 3,789.7 2,465.7 183.2 129.6 8,206.6 Polonnaruwa Local 503.3 713.2 562.6 488.6 507.4 617.2 559.4 6.1 - 3,957.8 Foreign Exchange - 314.2 247.9 215.3 223.6 271.9 246.4 2.7 - 1,522.0 Total 503.3 1,027.4 810.5 703.9 731.0 889.1 805.8 8.8 - 5,479.8 Total Local 503.3 1,395.9 1,486.2 2,083.8 4,205.3 6,742.9 5,372.0 1,223.8 189.6 24,063.2 Foreign Exchange - 671.2 709.4 1,007.1 2,037.5 3,220.8 2,554.8 595.3 96.3 10,892.4 Total 503.3 2,067.1 2,195.6 3,090.9 6,4. 9,963.7 7,2. 1,819.1 285.9 3495. 3 1/ October-September. / October 1, 1972 to December 31, 1973. 3/ Calendar Year. - 41 - TABLE 12 PROJECT COMfPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Economic Indices for Selected Indicators Cost of Wage International Living Rates Inflation 1969 57.2 30.4 41.9 1970 60.5 30.7 44.8 1971 62.1 31.0 47.6 1972 66.0 32.5 57.7 1973 72.4 36.8 61.3 1974 81.3 46.0 75.1 1975 86.8 52.8 84.8 1976 87.9 54.0 86.1 1977 89.0 68.0 92.5 1/ 100.0 100.0 100.0 1/ Estimated. Sources: Sri Lanka, Central Bank of Ceylon, Bulletin, April, 1978 World Bank, Price Prospects for Major Primary Commodities, June 1977. - 42 - TABLE 13 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Farmgate Values of Principal Crops (1978) Bombay Green Black Onions Gram Gram Chilies -------------- (SL Rs)2/ ----------- CIF per ton, Colombo 2,023 7,033 6,129 13,438 CIF per cwtl 103 358 312 684 Handling costs in port 8 9 9 18 Landed cost/cwt 111 367 321 702 Inland transport and overheads 20 56 56 115 Imputed farmgate value 131 423 377 817 1/ 1 cwt is 112 lb or 50.9 kg. 2/ SL Rs 15.50 = !US$1 Source: Cooperative Wholesale Establishment, Colombo. Note: Green gram and black gram are alternative crops to be grown on the houseplots. They benefit little if anything from irrigation. Yields are about 60% of that of chillies and therefore gross returns per acre about one quarter. -43 - TABLE 14 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Economic Crop Budget - Chilies (per acre) With Proiect Output Unit Unit Price (Rs) Quantity Value iRs) Production cwt 817 10 8,170 Input Seed lb 31.0 2.0 62 Chili Mixture 50 kg (bag) 153.0 6.o 918 Farm Yard Manure ton 100 5.0 500 Acetellic (50o ec) 200 ml (bottle) 34.9 3.0 105 Tractor-rental hr 15.7 12.0 188 Bags 1 5.5 7.Q 39 Total Cash Input Cost 1,812 Gross Margin 6,358 1/ Inputed Labor Cost- Men (@Rs 13/day; 57 days) 629 Women (@ Rs 11/day; 45 days) 419 Net Farm Incorm- 53 1/ Market wage rate of Rs 8.0 for men and Rs 6.0 for women plus a meal cost of Rs 5.0; a standard conversion factor for labor of 0.85 was used. -44- TABLE 15 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Economic Crop Budget - Bombay Onions (per acre) With Project Output Unit Unit price (Rs) Quantity Value (Es) Production cwt 131 90 11,790 In-ut Seed Onion kg 220 2 440 Farm Yard Manure ton 100 4 400 Onion Mix 50 kg (bag) 58 5 290 Malathion 200 ml (bottle) 30 2 60 Tractor Rental hr 15.7 8 126 Bags 1 5.5 110 605 Total Cash Input Cost 1,921 Gross Margin 9,869 Inputed Labor Costi/ Men (@ Rs 13/day; 40 days) 443 Women (@ 11/day 2L days) 226 Net Farm Income 9,200 1/ Market wage rate of Rs 8.0 for men and Rs 6.0 for women plus a meal cost of Rs 5.0; a standard conversion factor.for -labor of 0.85 was used. SRI LANKA PROJECT COMPLETION REPORT Lift Irrigation Project (Cr. 121-CE) Financial Projections of Growing Tree Crops (per acre over twenty years) Pine- Passion Citrus Citrus Bananas apples Papaya Fruit Mango Oranges Mandarin Onions Chillies IZR % 61 44 71 95 21 26 21 345 262 Gross Present Value of Production (G.P.V.) Rs. 43,860 69,820 47,370 89,700 19,480 33,700 27,620 65,500 51,750 Total Present Cost of Prcduction (NPC) Rs. 17,830 38,860 17,040 30,510 9,370 15,900 16,640 25,700 23,850 Net Present Value (NPV) Rs. 26,030 30,960 30,330 59,190 10,120 17,800 10,980 39,800 27,900 ZPV/N?C Ratio 1.46 0.67 1.78 1.94 1.08 1.12 O.C5 1.55 Annual Labor Requirement Average 42 95 25 46 36 46 84 88 102 Year of Full Production 47 115 31 57 35 48 105 88 102 Source: Mission estimates based on views expressed by GOSL. Chi - 46 - TABLE 17 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Project Cost Estimates - Vavunikulam (Rs '000) Project Costs Deflators Adjusted Project Cost Local Foreign Local International Local Foreign Total Exchange Exchange 1969 536.7 52.4 57.2 41.9 938.3 125.1 1,063.4 1970 363.9 199.9 60.5 44.8 601.5 446.2 1,047.7 1971 307.1 168.7 62.1 47.6 494.5 354.4 848.9 1972 286.4 157.3 66.0 57.7 433.9 272.6 706.5 1973 255.6 140.4 72.4 61.3 353.0 229.0 582.0 1974 393.8 216.3 81.3 75.1 484.4 288.0 772.4 1975 - - 86.8 84.8 - - - 1976 - - 87.9 86.1 - - - 1977 100.9 55.4 89.0 92.5 113.4 59.9 173.3 1978 - - 100.0 100.0 - - - 47 - TABLE 18 SRI LANKA PROJECT COMPLETION REPORT Lift Irrigation Project (Credit 121-CE) Incremental Benefited Area, and Benefit and Cost Streams' - Vavunikulam Scheme Project Year Chillies Onions Benefits Cost2/ O&M ac -------- '000 Rs '000 Rs '000 Rs 1969 0 1,063.4 0 1970 0 1,047.7 0 1971 0 848.9 0 1972 0 706.5 0 1973 0 582.0 0 1974 100 20 715 772.4 84 1975 200 30 1,338.0 0 161 1976 353 70 2,518.4 0 296 1977 436 8) 3,051.2 173.3 361 1978 0 361 1979 1980 1981 1982 1983 1984 1985 i 1986 2,678.0 1987 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 436 80 3,051.2 0 361..2 Economic Rate of Return: 24% 1/ In 1978 prices. 2/ Local and foreign exchange costs have been adjusted based on domestic and international price deflators accordingly. -48 - TABLE 19 SRI LANKA PROJECT COMPLETION REPORT Lift Irrigation Project (Credit 121-CE) 1/ Incremental Benefited Area, and Benefit and Cost Streams- - Rajangana Scheme Area Year Chillies Onions Benefit Project Cost O&M ---------- ac -------- '000 Rs '000 Rs '000 Rs 1969 0 0 0 1,847.5 0 1970 1,495.6 1971 2,229.2 1972 4,711.0 1973 7,116.5 1974 4, 7,444.5 1975 0 6,270.9 1976 220 10 1,260.2 2,133.7 53 1977 294 12 1,671.5 0 214 1978 528 30 3,079.7 390 1979 600 35 3,508.0 445 1980 720 45 4,237.2 535 1981 850 60 5,065.5 637 1982 1,000 90 6,138.0 763 1983 1,200 120 *7,476.0 924 1984 1,600 150 9,876.0 1,225 1985 1,800 180 11,214.0 1,386 1986 2,200 210 13,614.0 1,687 1987 2,600 240 16,014.0 1,988 1988 3,000 270 18,414.0 v 2,289 1989 3,500 300 21,345.0 0 2,660 1990 3,600 320 22,060.0 15,656 2,744 1991 0 1992 1993 1994 1995 1996 1997 ,, 1998 3,600 320 22,060.0 0 2,744 Economic Rate of Return: 15.5% 1/ In 1978 prices. 2 Local and foreign exchange costs have been adjusted based on domestic and international price deflators accordingly. - 49 - TABLE 20 SRI LANKA PROJECT COMPLETION REPORT Lift Irrigation Project (Credit 121-CE) Incremental Benefited Area, and Benefit and C51t Streams- - Polonnaruwa Colonization-Schemes- Area 3 Year Chillies Onions Benefits Project Cost 0 & M ----------ac------- '000 Rs '000 Rs '000 Rs 1969 0 0 0 93.0 0 1970 331.6 1971 256.9 1972 198.8 1973 158.8 1974 683.6 1975 570.8 1976 0 0 0 3.0 0 1977 75 5 444.3 0 56 1978 80 6 480.0 60 1979 85 7 515.8 64 1980 90 8 551.5 69 1981 100 9 613.8 76 1982 110 10 676.1 84 1983 120 12 747.6 92 1984 150 15 934.5 116 1985 200 20 1,246.0 154 1986 250 25 1,557.5 193 1987 300 30 1,869.0 231 1988 350 35 2,180.5 w 270 1989 400 40 2,492.0 0 308 1990 450 45 2,803.5 2,884 347 1991 500 50 3,115.0 0 385 1992 1993 1994 1995 1996 1997 NY %,J 1998 500 50 3,115.0 385 Economic Rate of Return: 19% 1/ In 1978 prices. 2f Includes Parakrama Samutra Scheme (PSS), Giritalle and Minnerlya Schemes. 3/ Local and foreign exchange costs have been adjusted based on domestic and international price deflators accordingly. - 50 - TABLE 21 SRI LANKA PROJECT COMPLETION REPORT Lift Irrigation Project (Credit 121-CE) 1/ Incremental Benefited Area, and Benefit a;4 Cost Streams- - Polonnaruwa Youth Schemes- Area Year Chillies Onions Benefits Project Cost 0 & M ---------ac-------- '000 Rs '000 Rs '000 Rs 1969 0 0 0 59.6 0 1970 212.1 1971 164.3 1972 127.1 1973 101.6 1974 437.0 1975 364.7 1976 ) 0 1977 1.90 0 1,008.9 133 1978 200 20 1,246.0 154 1979 230 25 1,451.3 179 1980 260 30 1,656.6 203 1981 300 1,869.0 231 1982 340 2,081.4 259 1983 376 2,272.6 284 1984 1985 1986 4/ 1987 0 1988 1,236 1989 0 1990 1991 1992 1993 1994 1995 1996 1997 v 1998 376 30 2,272.6 0 284 Economic Rate of Return: 32% 1/ In 1978 prices. 2/ Includes Bakamuna and Kondurawewa schemes. 3/ Local and foreign exchange costs have been adjusted based on domestic and international price deflators accordingly. TABLE 22 - 51 - SRI LANKA LIFT IRRIGATION PROJECT (CREDIT 121-CE) Project Completion Report 1/ Incremental Benefitted Area, and Benefit and Cost Streams- - Nagadeepa Scheme Year Chilies Onions Beneits Project Cost 0&M ()----------(ac) ----('000 Rs)- 1969 0 0 0 0 0 1970 118.1 1971 443.8 1972 430.2 1973 646.3 1974 3,789.7 1975 2,465.7 1976 183.2 1977 1 129.6 " 1978 0 0 0 0 0 1979 20 2 124.6 15 1980 50 5 311.5 38 1981 100 10 623.0 77 1982 150 15 934.5 115 1983 200 20 1,246.0 154 1984 250 25 1,557.5 193 1985 300 30 1,869.0 231 1986 350 35 2,180.5 270 1987 400 40 2,492.0 308 1988 450 45 2,803.5 346 1989 500 50 3,115.0 385 1990 550 55 3,426.5 0 423 1991 600 60 3,738.0 7,004.0 462 1992 700 70 4,361.0 539 1993 800 80 4,984.0 616 1994 900 90 5,607.0 693 1995 1000 100 6,230.0 770 1996 110 6,761.0 840 1997 4 1998 1100 100 6,761.0 0 840 Economic Rate of Return: 11% 1/ In 1978 prices. - 52 - TABLE 23 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Project Operating Costs 1977 1978 Area Money Cost/ Est. Area Estimated Cost/ Cropped Spent (RsOOO) Acre Cultivated Expenses Acre 1/ 1/ Vavunikulam 845- 480 568 859= 705 821 Rajangana 1,731 775 448 1,706 1,300 762 Nagadeepa - - - - - - Polonnaruwa Colonists 259 201 776 250 237 948 Youth Settlers 247 135 625 260 177 681 Total/average 3,082 1,591 516 3,075 2,419 787 1/ Includes 359 acres outside the IDA pioject but managed as one unit. - 53 - TABLE 24 PROJECT COMPLETION REPORT SRI LANKA: LIFT IRRIGATION PROJECT (CREDIT 121-CE) Estimates of Pump Operation, Maintenance and Replacement Costs (per acre) Appraisal Revised Estimate Estimate 1973 1978&/ Pump Operation 10 40 80 Security of Pumps - 35 50 Distribution System (Maintenance) 20 25 40 Control and Issue of Water - 40 50 a/ Fuel and Lubricants- 65 75 180 Repairs 15 35 150 Rt aeftnt Charge 10 300 Supervision- and Transport - 50 100 Contingencies 15 - 50 TOTAL 135 300 1,000 a/ Based on 2,000 pumping hours per annum. b/ By mechanical engineers. c/ By ID and Bank Staff. Appendix 1 -54 - Page 1 AIDE-MEMOIRE June 18,1979 1. This memo summarizes the conclusions and agreements reached at the meeting held at the Ministry of Land and Land Development in Colombo on June 15, 1979, between the Government of Sri Lanka Officials and the World Bank Mission on the further implementations of the Lift Irrigation Project (Credit 121 -CE) and the Drainage and Land Reclamation Project (Credit 168 CE). The meeting was attended by the following: Government of Sri Lanka 1. Mr. Nanda Abeywickrama, Secretary, Ministry of Land and Land Development. 2. Mr. A.Maheshwaran, Director, Irrigation Department. 3. Mr. H. W. Jayasekera, Director, Department of Agriculture. 4. Mr. R.U.Fernando, Additional Director, Irrigation Department. 5. Mr. L.R.Senaratne, Deputy Director (Extension) Department of Agriculture. World Bank 1. Mr. K. Pranich 2. Mr. Stanley Baker Lift Irrigation Project (Credit 121 CE) 2. Bakzmuna Youth Scheme: The following schedule was agreed. The remaining 36 settlers will be selected by Octoberl, 1979 and will occupy their lands by December 1979, to be able to start cultivation in early 1980. 3. Nagadeepa Scheme (a) Due to the dra,:ic decline in prices of chillies and onions, (chillies from +&444-mc-fRs, '4C) per lb. in 197ao Rs. 6.t per lb. at present and onions from Rs.0*to per lb, to Rs. 1o per lb. during same period) -farmers prefer to grow Yala paddy and permanent tree crops rather than growing chillies and onions under lift irrigation, particularly because these latter crops require more laborious man-power and attention on their part. At the present,out of 1200 acres of upland area earmarked for lift irrigation, about 50% have already been planted with permanent tree crops such as jak, mango and murunga trees. These are deep rooted trees and the Government claimed that they were planted with lift irrigation water at least during the first one or two years before their roots penetrated deep Appendix 1 Page 2 - 55 - enough to gather adequate moisture from deep soils. These crops and other types of orchard crops which may be planted will give higher yields if given irrigation water during the Yala season. (b) Because of the above reasons, it has been agreed that the lift irrigation water need not be utilized only for growing chillies and onions, but may be used to grow any crop including permanent tree crops provided that such crops would give a favourable financial return to farmers, as well as render a viable economic rate of return for the project. The Department of Agriculture will submit the evaluations of crops they propose to recommend to farmers to grow to the World Bank for review. (c) It is the opinion of all concerned at the meeting that growing of tree crops such as banana, papaya, citrus, which need irrigation water during the Yala season, should give handsome financial and economic rates of return. However, this has to be evaluated and proven before a firm decision can be made. The Department of Agriculture indicated that they felt confident that farmers could be persuaded to grow such crops and that the remaining 600 acres could be covered within two years. The Department has sufficient seedlings of these crops and will make them available for sale to the farmers. (d) It was agreed that during the Yala season water from the storage tank would be given to lift irrigation as the first priority. Only when there is excess supply would the water be given for paddy cultivation through gravity irrigation. (e) The Department of Agriculture informed the meeting that two Agricultural Officers and three- Village Level Workers.(KVSs) had been posted in this sub-project area to carry out the extension services to farmers since April of this year. More could be posted whenever it was deemed necessary. 4. Water Charges: The Secretary of Land and Land Development informed the meeting that since October 1978 his Ministry had instructed the Government Agents to prepare lists of beneficiaries under the Lift Irrigation project and to collect water charges at the rate of Rs. 300 per acre from them. He understood that most of the lists had been prepared and that collection had already started for some areas.. 5. Task Force: It was agreed that'a Task Force would be established in each district coverd by the Project. Each task force would comprise the Government Agent or Additional Government Agent as Chairman and the Chief Irrigation Engineer in the district and the District Agricultural Extension Officer (DAEO) as members. These Task Forces would be charged with the responsibilities of promoting and implementing irrigated agricultural development in the sub-projects within their jurisdiction, including the provision of planting materials. Appendix I - 56- Page 3 Drainage and Land Reclamation Project (Credit 168 CE) 6. Funds for 0 &M of Project: The Irrigation Department pointed out that funds received in 1979 from the Government for the 0 & M of this project has been increased to about three times those received 1-2 years earlier, as shown below: Year Amount Received Total Acreage Rate/acre Rs. 1977 925,400 28,685 Rs.32 1978 940,000 28,685 Rs.33 1979 3$000,000 48,398 Rs. 62 For 1980 a request has been made for an allocation of Rs. 5,229,000 for the 0&M of 48,398 ac. This works out to a rate of Rs. 109 per ac. which would be adequate to provide full 0&M requirements of the project. 7. Salinity, Sampling and Testing: The sampling of water at various points in the rivers behind the tidal control gates and testing of these samples have been carried out by the Irrigation Department since 1970 and this work is being continued. 8. Operation of Tidal Control Gates: During the wet',season most of the time the direction of flow is from the paddy fields into the river and from the river into the sea. Hence most of the time these gates will remain open and will only be closed on those occasions when the flow reverses from the sea into the rivers'. The operation of the gates becomes very important during dry months when the tidal effects are felt at the gates. These gates are operated by Irrigation Department personnel who have been given training and instruction for this purpose. In the Bolgoda Scheme where there are large number of gates and it is expensive for the Irrigation Department to employ gate keepers to operate them, it is agreed that farmers organizations will be organized and the operation of these gates will be carried out by these organizations. The Irrigation Department will continue to carry out the repair and maintenance of these gates. If this should prove to be successful, similar arrangements will be made for other schemes in the project in the future. 9. 1 Bentota Agricultural Research Station: This Station will continue to carry out research work, in particular to find varieties of paddy suitable for peat soils and to improve yields of present local varieties on peat and bogged soils. The Department of Agriculture will communicate with research stations in Malaysia where peat soils prevail along the coastal areas, and with IRRI in the Philippines. Appendix 1. Page 4 - 57 - 10. 0&M Charges: Towards end of 1978, the Ministry of Land and Land Development instructed the Governments Agents to prepare a list of project beneficiaries and to collect from them Rs. 30 per acre for the O&M charges. The results of collection are not known at the present. The Irrigation Department has not conducted the study to determine the repayment capacity of project beneficiaries and has agreed to commence the study by October 1,1979. Signed : Secretary, Ministry of LQnd and Land Development Signed: Mr. K.Pranich, Chief Agriculture Division'A",South Asia Projects World Bank - 58 - Appendix 1 Page 5 Distribution List of Aide Memoires- H.E. Minister of Land, Land Development and Mahaweli H.E. Minister of Agricultural Development and Research Secretary of Land and Land Development Secretary of Agricultural Development and Research Director, Irrigation Department Director, Department of Agriculture Add1n. Director, Irrigation Department (Mr. Fernando) Deputy Director, Department of Agriculture (Mr.Senaratne) Mr. David Thomas, World Bank Resident Representative June 18,1979 SRI LANKA LIFT IRRIGATION PROJECT SCHEMES LOCATION MAP Roads Demarcation of Wet ••..@• and Dry Zones JAFFN MANNAR SCHEME No. 2 DR Y ZONE MAHAKANDARAWA SCHEME No. i VAVUNIKULAM TRINCOMALEE -ANNURADHAPURA . l SCHEME NO. 4 . 0 POLONNARUWA PUTTALAM POLONNARUWA SCHEME No. 3 RAJANGANA BATTICALOA CHILAW1,. KANDY Gangc COLOMBOZ KALUTARK GALLE I MBANTOTA MATARA 0 24 43 l . MiLES FEBRUARY 1968 IBRD 2151R(PPA)