Sri Lanka - Second Rural Development Project

Document of The World Bank Lflj S ,-IRFAn. Mio t,, m FOR OFFICIAL USE ONLY - 42 Report No. 2942-CE STAFF APPRAISAL REPORT SRI LANKA SECOND RURAL DEVELOPMENT PROJECT October 31, 1980 South Asia Projects Department Agriculture Division A 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.  CURRENCY EQUIVALENTS US$1 = Rs 15.6 Rs 1 US$0.0641 Rs 1 million = US$64,103 WEIGHTS AND MEASURES 1 long ton = 2,204 lb = 1.016 metric ton 1 hundredweight (cwt) = 50.8 kg = 112 lb 1 bushel (bu) of paddy = 46 lb 1 kilogram = 2.205 lb 1 acre (ac) = 0.405 hectare (ha) 1 mile (mi) = 1.609 kilometers (km) 1 square mile (sq mi) = 640 ha (259 ha) 1 foot (ft) = 30.5 centimeters (cm) 1 chain - 66 ft ABBREVIATIONS AND ACRONYMS ADA - Agricultural Development Authority ADB - Asian Development Bank ARTI - Agrarian Research and Training Institute ASC - Agrarian Service Center BC - Bank of Ceylon CCB - Coconut Cultivation Board CDB - Ceylon Development Board CEB - Ceylon Electricity Board CFC - Ceylon Fertilizer Corporation CFHC - Ceylon Fishery Harbors Corporation CRI - Coconut Research Institute DA - Department of Agriculture DAPH - Department of Animal Production and Health DAS - Department of Agrarian Services DCD - Department of Cooperative Development DF - Department of Forests DH - Department of Highways DL - Department of Labor DLGS - Department of Local Government Services DMD - Department of Marketing Development DMEC - Department of Minor Export Crops DOH - Department of Health DRC - Department of Rural Credit DSI - Department of Small Industries DTW - Deep Tubewell ERR - Economic Rate of Return GOSL - Government of Sri Lanka GDP - Gross Domestic Product GPS - Guaranteed Price Schemes ICB - International Competitive Bidding ID - Irrigation Department IDB - Industrial Development Board LS - Lump Sum M - Million MADR - Ministry of Agricultural Development and Research  FOR OFFICIAL USE ONLY MECRS - Minor Export Crop Research Station MI - Ministry of Industry MT - Metric Ton MPRCs - Multi-purpose Cooperative Socieites NWSDB - National Water Supply and Drainage Board PB - People's Bank PS - Prudent Shopping PV - Present Value RDD - Regional Development Division RDE - Regional Department of Education RDP - Rural Development Project SAPDA - Silk and Allied Products Development Authority SMI - Small and Medium Scale Industries STW - Shallow Tubewell VTD - Vocational Training Division WD - Welfare Division WRB - Water Resources Board FREQUENTLY USED ABBREVIATIONS FOR OFFICERS CE - Chief Engineer DM - District Minister GA - Government Agent/District Secretary lP - Member of Parliament PD - Project Director GLOSSARY anicut - diversion scheme chena - slash and burn or "shifting" agriculture district the principal administrative unit in the country. There are 24 districts in Sri Lanka. maha - northeast monsoon season (October to January) paddy - unhusked rice tank - reservoir for local rainwater storage yala - southwest monsoon season (March to June) FISCAL YEAR January 1 - December 31 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.   SRI LANKA APPRAISAL OF SECOND RURAL DEVELOPMENT PROJECT Table of Contents Page No. I. SECTORAL BACKGROUND ................................... 1 General ............................................... 1 Role of Agriculture in the Economy .................... 1 Performance and Problems .............................. 2 Objectives and Strategy for the Future .... ............ 3 Rural Development Programs ............................ 3 Bank Group Support to Agriculture ..................... 4 II. THE PROJECT AREA ...................................... 4 Physical and Demographic Features ..................... 5 Agricultural Sector .................................... 8 Economic and Social Infrastructure Sectors .... ........ 14 III. THE PROJECT ........................................... 16 Objectives and Approach .............. .. ............... 16 Detailed Features ................... .................. 17 A. Agricultural Sector ........................... 17 B. Water Resources Sector ........................ 22 C. Economic Infrastructure Sector .... ............ 25 D. Social Infrastructure Sector .... ............. 26 E. Project Coordination and Management .... ....... 28 IV. PROJECT COSTS, FINANCING AND PROCUREMENT .... ........... 29 Cost Estimate and Schedule of Expenditures .... ......... 29 Financing .............................................. 30 Procurement ............................................ 30 Disbursements .......................................... 31 Accounts and Audits .................................... 32 V. PROJECT IMPLEMENTATION AND OPERATION ................... 33 Implementation Responsibility .......................... 33 Implementation Schedule ................................ 35 Monitoring and Evaluation .............................. 35 Technical Assistance ................................... 36 Operation and Maintenance (O&M) ........................ 37 This report is based on the findings of a Bank mission comprised of Messrs. W. Fairchild, A. Seager, L. Vidaeus, D. Morrow and Miss Lituma (Bank) and Messrs. R. Desrosiers and Y. Murthy (consultants) who visited Sri Lanka in November/December 1979.  - ii - Table of Contents (continued) Page No. VI. PRODUCTION, MARKETING, PRICES, FARM INCOMES AND IMPACT OF THE PROJECT ON GOSL BUDGET .... ............ 38 Cropping Intensity, Yields and Production .... ......... 38 Marketing and Commodity Prices ........................ 39 Impact on the Government Budget ....................... 44 VII. BENEFITS AND JUSTIFICATION ............................ 46 General ............................................... 46 Employment and Income Effects ......................... 47 Balance of Payments ................................... 47 Economic and Social Infrastructure .... ................ 47 Environmental Impact .................................. 47 Economic Benefits ..................................... 48 Risks and Sensitivity ................................. 49 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS .... ............ 50 LIST OF ANNEXES ANNEX 1 Table la - Total Project - Cost Estimates and Schedule of Expenditures lb - Total Project - Cost Summary by Districts and Components 2 - Coconut Development - Cost Estimates and Schedule of Expenditures 3 - Minor Export Crops Development - Cost Estimates and Schedule Expenditures 4 - Sericulture - Cost Estimates and Schedule of Expenditures 5 - Agricultural Credit - Cost Estimates and Schedule of Expenditures 6 - Agricultural Inputs - Cost Estimates and Schedule of Expenditures 7 - Livestock - Cost Estimates and Schedule of Expenditures 8 - Forestry - Cost Estimates and Schedule of Expenditures 9 - Fisheries - Cost Estimates and Schedule of Expenditures 10 - Irrigation and Water Management - Cost Estimates and Schedule of Expenditures 11 - Groundwater Exploration - Cost Estimates and Schedule of Expenditures 12 - Rural Water Supply - Cost Estimates and Schedule of Expenditures 13 - Roads - Cost Estimates and Schedule of Expenditures 14 - Rural Electrification - Cost Estimates and Schedule of Expenditures 15 - Health - Cost Estimates and Schedule of Expenditures  - iii - ANNEX 1 (cont) 16 - Education and Vocational Training - Cost Estimates and Schedule of Expenditures 17 - Project Coordination and Supervision - Cost Estimates and Schedule of Expenditures 18 - Disbursement Schedule of IDA Credit ANNEX 2 - Agricultural Credit - General Lending Terms and Conditions ANNEX 3 - Minor Export Crops - General Procedure for the Small Homegarden Subsidy Scheme ANNEX 4 - Guidelines for Plans and Designs for Rehabilitation of Major and Minor Irrigation Schemes ANNEX i - Consultant's Terms of Reference ANNEX 6 - Agency Assignments for Project Implementation and Coordination Chart 1 - Organizational Chart ANNEX 7 Table 1 - Prices Used for the Financial and Economic Analysis 2 - Financial Analysis for Replanting Cocoa and Cardamom 3 - Farm Budget for Farmers on Minor and Major Irrigation Schemes 4 - Farm Budget for Coconut Development 5 - Farm Budget for Cocoa, Pepper, Coffee 6 - Farm Budget for Sericulture Settlement Farm 7 - Summary of Economic Characteristics: Economic Rate of Return, Switching Values and Net Present Values 8 - List of Conversion Factors to Adjust Fioaikcial Costs for .he Economic Analysis 9 - Economic Benefit and Cost Streams MAPS IBRD 14948 - Puttalam District: Agro-ecological Zones and Major Irrigatir>n Works IBRD 14949 - Puttalam District: Road Works and Rural Electrification IBRD 14950 - Puttalam District: Social Infrastructure IBRD 14951 - Matale District: Agro-eLological Zones and Major Irrigation Works IBRD 14952 - Matale District: Road Works and Rural Electrification IBRD 14953 - Matale District: Social Infrastructure   SRI LANKA SECOND RURAL DEVELOPMENT PROJECT STAFF APPRAISAL REPORT I. SECTORAL BACKGROUND General 1.01 Sri Lanka has a total area of about 23,500 sq. mi (16.2 M ac), with an estimated population of about 14.7 M. The population has been growing at a moderate 1.7% per annum after accounting for net migration. About three- quarters of the populatioi lives in rural areas with the influx to urban- metropolitan areas being relatively modest. 1.02 Average per capita income currently is about US$200 and has grown only 1% annually during the past two decades. About 40% of the population is estimated to have annual income below the poverty level of about US$75 per capita. 1/ Because of the considerable progress made by the Government of Sri Lanka (GOSL) in satisfying many of the basic needs of its population through a relatively well developed social infrastructure, as well as food subsidy program for the poor, poverty does not take an extreme form. 1.03 Based on rainfall patterns, the island can be divided into two major zones: the wet zone (average annual rainfall of 75-100 inches) in the southwest quadrant, and the dry zone (average annual rainfall 35-75 inches) covering the rest of the island and 64% of the area. A narrow transition band between the dry and wet zone is sometimes referred to as the intermediate zone. About three-quarters of the population resides in the wet zone with an average population density of about 1,800 per sq mi compared to only 200 per sq mi in the dry zone. Until 1950, much of the population growth took place in the wet zone. Since then, successive governments have emphasized the development and settlement of the dry zone through such projects as the Mahaweli Ganga Development Program, which is scheduled to irrigate about 250,000 ac by 1988. As a consequence, the growth rate in the dry zone now exceeds that in the wet zone. This trend is likely to continue for the foreseeable future. Role of Agriculture in the Economy 1.04 Agriculture plays a major role in Sri Lanka's economy. In 1978, it accounted for over one-quarter of GDP, over one-half of total employ- ment, over three-fourths of export earnings and a large share of public revenue. Tea and rubber provide about 60% of the export earnings and about 1/ Tentative Bank staff estimate.  - 2 - 40% of Government revenue through export taxes and duties. Local production of rice, sugar and subsidiary food crops falls short of demand and has to be supplemented by annual imports. 1/ Production, handling, processing, trans- portation, trading and servicing of crops and livestock account for over 95% of the occupation of the rural population. 1.05 Variations in rainfall, altitude, and soils make it possible to grow a wide range of crops with year-round cultivation. Out of some 5.5 M ac under permanent cultivation, 1.6 M ac are in paddy, 1.2 M ac coconut, 0.6 M ac tea, 0.5 M ac rubber, 0.1 M other perennial crops and the remaining 1.5 M ac mixed rainfed farming, mostly as small gardens around homesteads. Cropping intensity on paddy land ranges from about 170% in the wet zone to about 120% in the dry zone with a national average of about 135%. In addition, about 2.5 M ac are under slash-and-burn type shifting agriculture locally known as chena culti- vation. Only one-tenth to one-fifteenth of chena land is cultivated annually. Performance and Problems 1.06 The agricultural sector's performance during the 1960s was mixed. Paddy and rubber production grew at annual rates of 4% and 5% respectively, but tea and coconut production grew at only 1%. Increase in paddy production enabled Sri Lanka to raise its food self-sufficiency from 50% in 1960 to about 80% in 1970. Poor performance in tea and coconut production and adverse international price trends, caused the net surplus (in current prices) of agricultural trade to decline from about US$200 M in 1960 to US$120 M in 1970. 1.07 During the early to mid-1970s, growth in paddy production showed an annual increase of only 0.6%, while production of tea, rubber and coconut declined. Poor weather conditions accounted for some of this down turn, but inappropriate sectoral strategies and policies, which resulted in reduced private initiative and investment, ineffective and demoralized support serv- ices, inadequate maintenance of irrigation facilities and poor water management practices played a major role. 1.08 Responding to this disappointing performance, GOSL in November 1977, initiated a program of economic reforms. The aim was to stimulate production over the medium-term by dismantling controls over resource allocation and establishing strong productive incentives. In the agricultural sector, the response to the new policies was encouraging. These policies, aided by good weather and initial production of the Mahaweli Program, resulted in a 10% increase in agricultural value added in 1977 and was followed by a further 5% increase in 1978--the first sustained increase since the late 1960s. Paddy accounted for most of this increase. In 1979, however, the agricultural sector received a set back due to adverse weather conditions with paddy production stagnating, although erosion of producer margins because of inflation probably played a significant role. Again in 1980, it appears that a serious drought will affect yala paddy production. 1/ Rice imports ranged from 0.2 M MT to 0.5 M MT annually between 1970 and 1979 and wheat flour between 0.3 M MT and 0.6 M MT during the same period.  -3- Objectives and Strategy for the Future 1.09 The major objectives of GOSL's medium term plans and programs for agriculture are to: (a) increase employment and income levels in rural areas, particularly for the benefit of economically disadvantaged people and educated youth; (b) achieve an agricultural growth rate of 5.0% per annum in the next five years to improve nutritional standards and achieve a high degree of food self-sufficiency; and (c) expand export earnings both from traditional agricultural exports such as tea, rubber and coconut and increase exports of cocoa, coffee, and spices. 1.10 GOSL strategy for achieving these objectives emphasizes; (a) main- taining appropriate price incentives; (b) strengthening agricultural support- ing services (extension, research, credit, storage, transportation and marketing); (c) improving input supply services, especially for seeds, plant materials, fertilizers and pesticides; (d) expanding and rehabilitating the acreage under minor export crops; (e) expanding the irrigated acreage and improving water management; (f) improving roads and expanding electrification; and (g) decentralizing planning and development processes. Rural Development Programs 1.11 In its effort to accelerate growth and improve rural living condi- tions, GOSL has recently adopted measures to decentralize planning and devel- opment in the country's 24 districts. These include: (a) appointing a District Minister to oversee planning and development in each district 1/; (b) funding a decentralized capital budget; and (c) initiating of rural development projects in selected districts. District Ministers are appointed by the President from the elected Members of Parliament (MP). The decentral- ized budget finances a limited number of small-scale capital works (generally costing less than Rs 300,000 each). In 1980, each electorate will receive Rs 2.5 M for these projects with authority for utilizing these funds delegated to the Government Agent (GA) in consultation with the concerned MP. 1.12 As part of the decentralization program, GOSL is undertaking a number of rural development projects. These projects emphasize low-cost, quick yielding, labor-intensive investments aimed at better utilization of existing infrastructure and potentials. The main advantages of these projects are: (a) responsiveness to local developmental needs and priorities; and (b) opportunity to achieve regional equity by balancing GOSL investments in high capital cost projects such as Mahaweli Ganga Development, with lower capital 1/ Projects and programs which are of a national concern (e.g. Mahaweli Ganga Project) as well as overall national priorities and policies continue to be handled at the central level.  - 4 - cost and quicker yielding projects in areas that do not receive significant direct benefits from these higher capital cost schemes. 1.13 The IDA supported Kurunegala Rural Development Project (RDP) (Cr. 891-CE) was the first district level RDP undertaken by GOSL. Rural development projects are also underway in Matara, Hambantota, and Nuwara Eliya districts with financial assistance from Sweden, Norway and the Netherlands, respec- tively. The Kurunegela RDP has been implemented so far with few problems The 1979 annual progress report for this project shows that during the first year of operation, accomplishments for all components are generally meeting targets envisioned during appraisal. 1/ The institutional arrangement has been effective in coordinating this 12 component project. 2/ Kurunegla RDP is being used as a model by GOSL for designing future RDPs. Bank Group Support to Agriculture 1.14 Bank Group lending to Sri Lanka has heavily emphasized agriculture and rural development. Since 1968, a total of 11 projects with loans and credit of US$152.5 M have been financed in this sector including: Lift Irrigation (Cr. 121-CE, US$2.0 M); Drainage and Reclamation (Cr. 168-CE, US$2.5 M); Mahaweli Ganga Development I (Ln. 653-CE, US$14.5 M and Cr. 174-CE, US$14.5 M); Agricultural Development Project (Cr. 595-CE, US$25.0 M); Dairy Development (Cr. 504-CE, US$9.0 M); Tank Irrigation Modernization (Cr. 666-CE, US$5.0 M); Mahaweli Ganga Development II (Cr. 701-CE, US$19.0 M); Tea Rehab- ilitation (Cr. 818-CE, US$21.0 M); Tree Crop Diversification (Cr. 819-CE, US$4.5 M); Kurunegala RDP (Cr. 891-CE, US$20.0 M); and Agricultural Extension and Adaptive Research (Cr. 931-CE, US$9.0 M). The first four projects have already been completed. The others are progressing satisfactorily, although the Mahaweli Ganga Development II Project, Tank Irrigation Modernization Project and Kurunegala RDP have some problems of quality control during construction of civil works and have had limited success in implementing water management programs. Steps are being taken to remedy these shortcomings and preventive measures are reflected in this project (paras 3.16 to 3.19 and 5.06). II. THE PROJECT AREA 2.01 The project would cover Matale and Puttalam districts. They were selected because of: (a) high percentage of rural population, about 87% compared to 78% nationally; (b) low per capita income, approximately 60% of the population appears below the annual poverty income level of US$75 per 1/ A June 1980 IDA supervision mission reported the only components with potential scheduling problems are irrigation and water management and agricultural credit where targets for rehabilitating 500 village schemes and short-term crop production loans on 30,000 ac appear to be optimistic. 2/ Consists of a Project Director and supporting staff, District Coordina- tion Committee at the district level, and Project Steering Committee at the central government.  - 5 - capita; and (c) few direct benefits from the Mahaweli Ganga Development Program. Physical and Demographic Features 2.02 Matale District. Matale occupies a landlocked central location on the northern edge of Sri Lanka's highland core. It covers 770.4 sq mi with an estimated population of 352,000 in 1978. Population density varies from about 930 per sq mi in the southern highland zone to less than 75 per sq mi in the eastern zone (Map 14953). There are four parliamentary electorates in the district. 2.03 Mean annual rainfall ranges from about 60 inches in the North to about 150 inches in the southern highlands with much of the rainfall falling during the northeast monsoon (maha season) between October and January. Elevation varies from 200 feet up to 6,248 feet (Gombaniya Peak). About 50% of the district is below 1,000 feet and only 15% above 2,000 feet. Soils can support a wide variety of annual and perennial crops, but require fertilizer for good yields (Map 14951). 2.04 Many of Sri Lanka's major rivers have their headwaters in Matale. These supply irrigation schemes which are mostly located outside the district. Major irrigation schemes within the district include the Kandalama, Dewahuwa and Nalanda reservoir schemes and the Hottota Amuna Ela diversions scheme (Map 14951). The old Minipe Yoda Ela Diversion Scheme commands some 6,500 ac in Matale, but because of poor maintenance and water management irrigates about 4,000 ac. There are six other major schemes and about 450 minor schemes (minor tanks and anicuts) providing irrigation service to an additional 10,000 ac. Five of the major schemes and most of the minor schemes require substan- tial rehabilitation, including an integrated water management program. 2.05 Groundwater exploration has been limited. The geology of this area is characterized by a series of densely fractured crystalline rocks, which when weathered hold reasonable reserves of groundwater for domestic purposes, but generally inadequate for major agricultural development. 2.06 Domestic water supplies are inadequate currently (Map 14953); about 74% of the households rely on shallow wells or pits (each serving about eight households) and 26% on streams and tanks. Reportedly, 50% of the wells are subject to drying up or are contaminated. 2.07 Puttalam District. Puttalam is long and narrow and located on the West central coast. It covers about 1,172 sq mi with an estimated population of about 440,000 in 1978. Population density varies from less than 200 per sq. mi in the northern part of the district to over 1,000 per sq mi in the south (Map 14950). There are five parliamentary electorates in the district. 2.08 The climate is tropical with little variation in temperature but wide variation in rainfall (Map 14948). Maha rains fall over the entire district during October-January, but Yala rains (southwest monsoon) reach only the southern portion of the district during March-June. The northern dry zone receives less than 50 inches annually. The intermonsoonal dry spell stretches over two to three months and creates serious problems of moisture stress.  - 6 - Rainfed crop production is feasible during the maha season; successful yala cultivation requires supplemental irrigation--especially in the dry zone. 2.09 The district has about 180 mi of shoreline (including lagoons) which is responsible for its substantial fishery industry. Topography slopes gently from South to North and toward the western coastal area. Elevation ranges from sea level to 500 feet. Most soils are relatively low in nutrients and require fertilizer for maximum production. Because of the wide combination of soil types, rainfall, sunshine, and humidity, a range of field, vegetable and tree crops can be grown in the district. 2.10 The drainage pattern of the district is from south to northwest and east to west; most streams originating in the central hills in Kurunegala district. Major streams are Maha Oya, Ratambala Oya, Deduru Oya, Mi-Oya and Kala Oya. There are 16 major and 1450 minor schemes that irrigate 8,500 ac and about 30,000 ac respectively. Due to past neglect and inadequate maintenance, most of the irrigation schemes are in poor condition and irrigation service is far below potential. Management of available water is poor. 2.11 The potential for groundwater development in the district appears good in certain areas. Currently, 240 shallow wells and 3,100 pits are irrigating vegetable crops, tobacco and other high value crops on the Kalpitiya Peninsula. Investigations in the Vanathavillu and Madurankuli-Palavi basin indicate promise for deep well development in limestone aquifers. Domestic water supply is mainly from shallow open wells subject to contamination. Many wells in the dry zone go dry during drought periods (Map 14950). 2.12 Land Use. Data on land use for the two districts are inconsistent and fragmentary. The following table shows the best estimate of land use: Table 2.1: LAND USE Matale Puttalam Land Use Acres ('000) Percent Acres ('000) Percent Forests 204 41.2 140 18.7 Paddy 39 7.9 46 6.1 Coconut 27 5.5 160 21.4 Minor Export Crops 26 5.3 - Tea 20 4.0 Rubber 20 4.0 - Other Crops 33 6.6 64 8.5 Uncultivated /a 80 16.1 150 20.0 Other Land /b 46 9.4 190 25.3 Total 495 100.0 750.0 100.0 /a Includes state-owned lands and uncultivated chena. 7H Includes roads, settlements, water areas, etc.  - 7 - 2.13 The largest land use category is forests which are largely scrub jungle. Because of the rough topography, shallow soils and climatic condi- tions, the best use for most lands in this category is forestry--especially in Matale district which contains much of the upper catchment area of the Mahaweli Ganga. About 80% of the paddy (85,000 ac) in both districts is irrigated. Over half of the acreage under minor export crops in Matale District is in small mixed-forest gardens. There are probably around 350,000 ac of state- owned land in the two districts that are used for slash-and-burn chena culti- vation. Crops grown under chena include: manioc, sesame, kurakhan, various coarse grains, vegetables, pulses and mustard. 2.14 Farm Size and Land Tenure. According to the 1973 Census of Agri- culture, there were about 41,200 operational agricultural holdings in Matale and 57,400 in Puttalam districts. About 86% of all agricultural holding in Matale and 81% in Puttalam operate farms smaller than 5 ac; whereas only 14% in Matale and 19% in Puttalam operate farms larger than 5 ac. However, the latter category of holdings make up about 48% of the land in Matale and 67% in Puttalam. Farm distribution size in 1973 was as follows: Table 2.2: FARM SIZE DISTRIBUTION Matale Puttalam Holding (ac) No. No. Area No. No. Area '('000) 7- (%) ('000) (/) (%) Less than 1 13.2 32 5 23.4 41 4 1- 2 12.0 29 11 9.9 17 7 2- 5 10.5 25 36 13.4 23 22 5-10 4.3 11 26 7.4 13 27 10 plus 1.2 3 22 3.3 6 40 Total 41.2 100 100 57.4 100 100 Due to the breakup of holdings larger than 50 ac under the 1972-75 land reform, the current farm size distribution is likely to show a larger per- centage of smaller boldings. The large holdings consist primarily of coconut plantations in Puttalam and tea, rubber, cocoa and cardamom plantations in Matale. 2.15 Detailed information on land tenurial arrangement in Sri Lanka is deficient. It is estimated that in the intermediate zone in Puttalam about two-thirds of the holdings are owner-operated whereas in the wet and intermediate zones in Matale only one-third of the holdings are owner opera- ted. Most of the other holdings in the wet and intermediate zones of the two districts are under partial or full tenancy arrangements. Typical tenancy arrangements involve paying the landowners 25-50% of the produce, with the landowner supplying part of the inputs. In the dry zone in both districts a common tenancy arrangement is for the farmer to hold land on a 99-year lease from the government. Tenancy relationship and rental rates are governed by the Agrarian Services Act of 1979, which affords substantial security to tenants.  -8- Agricultural Sector 2.16 Agricultural Practices and crop Yields. Coconuts are of major importance in Puttalam but of minor value in Matale. Owing to the high watertable in Puttulam's northern coastal areas, trees survive and produce under sporadic and less total rainfall than normally required. Age distri- bution of the districts' palms is: 0-5 years--17%; 6-30 years--37%; 31-45 years--22%; 45-60 years--16%; and, over 60 years--8%. Thus, as elsewhere in the country, 24% of the trees are past their peak productive years (age 6-45 years). 2.17 Cultural practices are deficient. Fertilizer use is about 20 lbs of nutrients per acre, down from a peak of 55 lbs in 1972 and much below the desirable rate of over 100 lbs. Water conservation, in the form of contour trenches, is being practiced on less than 5% of the area. Waterlogging and flooding occur in some areas. 2.18 Most of the palms are of the tall low yielding type. Insufficient rainfall limit the potential cultivation of high yielding dwarf and hybrid palms to about 50,000 ac in Puttalam. Yields average about 1,500 nuts per acre annually, with higher yields occurring in the southern wetter portion of the district. With good cultural practices and replacement of old palms with selected planting material, it is estimated that average annual yields would be about 3,000 nuts per acre per annum. 2.19 Intercropping of coconuts with other perennial crops has been advocated only recently, although successfully practiced in other countries. The Coconut Research Institute (CRI) recommend that coffee, pepper and cocoa intercroppings should be limited to about 10,000 acres in the southern part of Puttulam, unless supplementary irrigation is available. An interesting development, pioneered by private enterprise, is the successful intercrop- ping with cashewnut trees in the northernmost, driest part of the district. Results with improved or natural intercropped pastures are promising through- out Puttulam district. Investigations by CRI indicate that pastures do not affect the yield of coconuts, while generating substantial benefits from animal products. However, the poorly developed sheep and cattle industry in Sri Lanka precludes full economic utilization of this potential. Inter- cropping with annual crops and bananas or plantains is commonly practiced. 2.20 Paddy generally receives supplemental irrigation in Puttalam, but in the wet areas of Matale rainfall is adequate to permit a substantial area to be grown in ponded (asweddumized) fields. Locally developed high yield- ing dwarf varieties predominate. Transplanting is common practice in the wet zone, but infrequently used in dry areas. Land preparation is becoming increasingly mechanized, although, with increasing fuel costs there is renewed interest in animal tillage. 2.21 Paddy yields are somewhat above the national average in Matale 54 bu/ac (1.1 MT/ac) but below in Puttalam, 39 bu/ac (or 0.8 MT/ac). 1/ Yields are higher in the maha than in the yala season. The constraints in 1/ National average yield in 1979 was about 52 bu/ac (1.08 MT/ac).  - 9 - Puttalam are poor water control (flooding as well as drought) and inadequate weed control in broadcast fields. In the dry zones, late planting of paddy is a serious problem. It stems from the competition for labor and power require- ments of chena cultivation. Farmers, who have access to chena lands tradi- tionally prepare these dry land fields prior to irrigated paddy fields to take advantage of seasonal rainfall. The lower priority for labor given to paddy restricts yields and increases demand for stored irrigation water during the maha season--thus reducing stored water available for yala season. Experimental results, and the achievements of the better farmers, indicates a yield potential in excess of 100 bu/ac (over 2 tons/ac) for paddy with the existing varieties. 2.22 Traditionally, chena (slash-and-burn) cultivation involves a 10 to 15 year cycle on State-owned forest/jungle land. Recently, the fallow period has been reduced to about five years. This limits the regeneration of soil fertility. Crops grown are finger millet, sesame (gingelly), chillies, pulses, maize, sorghum, mustard, cotton, manioc and sweet potatoes. Fertilizer is needed for these crops to thrive. Because of concerns about land erosion and other problems associated with chena cultivation, GOSL In 1979 initiated a program to regularize the better quality chena lands for permanent upland cultivation and afforest steep poorer quality chena lands. 2.23 Matale is a major producer of minor export crops--cocoa, coffee, pepper, cloves, cardamom, nutmeg and pawpaw. Substantial acreages of cocoa (about 6,000 ac) and cardamom (about 2,500 ac) are on poorly managed public and private estates. Yields are low, averaging 100 lbs/ac for cocoa and 40 lbs/ac for cardamon. Most of the coffee, cocoa, pepper, cloves, and nutmeg are grown in small mixed gardens, planted among dense stands of jakfruit, arecanut, banana, breadfruit, and other tree crops. Production per tree is low since these gardens are not the major source of income for most owners who use few, if any, inputs. 2.24 The principal class of livestock and their numbers in the project area are shown below: Table 2.3: LIVESTOCK ('000 of animals) Class Puttalam Matale Cattle 73 59 Buffaloes 29 39 Goats 23 14 Poultry 318 189 Cattle are kept principally for slaughter; relatively few are milked. Buffaloes are the major source of draft power. Because demand for working buffaloes has increase faster than supply, their slaughter is banned. Goats are mainly owned by villagers to supply milk and meat. Poultry, in deep-litter houses, is a growing and profitable enterprise.  - 10 - 2.25 The Department of Forests (DF) has well-conceived forestry programs in both districts. These aim to reforest underutilized uplands, and degraded chena lands, to produce timber, pulpwood, and firewood. In the high areas of Matale district, DF afforestation programs are aimed at protecting the Mahaweli Ganga River watershed. 2.26 Pinus caribea is used for steep high-altitude catchment protection. Tectona grandis (teak) and Gmelina arbrea are the dominant hardwoods planted. Fuelwood supplies are provided by Albizia falcataria, A. lebbek, Eucalyptus camalduensis, Aredirock indica (neem), and Leucaena leucocephala (epil-epil) all of which thrive in the dry zones of the project area. 2.27 Sericulture. The Silk and Allied Products Development Authority (SAPDA) was created in 1976. It manages a mulberry and silk producing estate in Kandy district with assistance from UNDP/FAO and Japan. SAPDA supplies materials and technical assistance to private silkworm producers. In Sri Lanka, the acreage under mulberry cultivation has expanded from about 420 ac in 1977 to about 1,200 in mid-1979. About 10 MT of cocoons were exported during 1979. Currently, SAPDA is developing settlement schemes where the principal activity is growing mulberries and silkworms. About 4,000 ac in 17 different electorates are involved. Sericulture appears to be a profitable enterprise for the settlers and has the potential for significant export earnings. In Matale, the 400 ac Bowatena Rubber Estate and 190 ac Rajagamma Estate have been identified as potentially suitable for the cultivation of mulberry and settlement by silk producers. 2.28 Agricultural Research and Extension. The National Rice Breeding Center at Batalagoda in Kurunegala District has developed and adopted high- yielding varieties of rice suitable to all agro-climatic zones of the island. The station is able to meet all foreseeable requirements for the breeder seed of these varieties. 2.29 The Coconut Research Institute (CRI) has developed high-yielding dwarf, tall, and hybrid palms and has recently begun to study various systems of intercropping coconuts. This work is done in association with the Minor Export Crop Research Station (MECRS) at Matale (para 2.30). CRI is also investigating the effects of irrigation on coconuts, and of integrating livestock production with coconut cultivation. 2.30 MECRS at Matale was established under the Department of Minor Export Crops (DMEC) in 1972. The Station has a sound ongoing research program with particularly good success in developing techniques for rapid multiplication of improved varieties of pepper. It has received substantial support from FAO/UNDP. 2.31 With IDA assistance, GOSL is improving the effectiveness of agricul- tural extension services in Sri Lanka (Cr. 931-CE). As of January 1, 1980, production advice for animal husbandry and all crops, except tea and rubber, was assigned to the Department of Agriculture (DA). All extension staff from the Coconut Cultivation Board (CCB) and DMEC have been transferred to DA. Fixed ratios of extension workers to farmers have been established. However, given the proposed acceleration of the minor export crop program under this project, the number of extension workers in the Matale would need to be  - 11 - expanded. The mountaneous terrain where those crops are grown would require suitable motorized transport for field extension staff. 2.32 Agricultural Input Supplies. Fertilizer is retailed by multi-purpose cooperatives, the Department of Agrarian Services (DAS) and private traders approved by the Ceylon Fertilizer Corporation (CFC). In addition, CCB sells mixtures for coconut from four outlets in Puttalam. The retail outlets are supplied from CFC district stores. A continuing problem has been delays by CFC in filling orders from retailers. The supply situation should improve late this year with production from a new urea plant and implementation of the GOSL Fertilizer Master Plan, administered by the National Fertilizer Secre- tariat, which aims to reduce the time to fill orders to 72 hours. 2.33 Fertilizer storage conditions are generally poor. Dunnage is not used; spilled material is not collected and absorbs atmospheric moisture, further spoiling undamaged bags. Package sizes are generally too large for the needs of all but paddy farmers. 2.34 Pesticides and sprayers are marketed by private dealers and DAS. Pesticide storage is generally superior to that of fertilizers; however, fre- quently chemicals are not stored in separate rooms, exposing office and shop workers to fumes. Available sprayers are adequate for field crops and small trees but unsatisfactory for reaching trees more than 10-12 ft in height. 2.35 Availability of improved seeds and other planting materials varies among crops. Paddy seed is produced by DA. DA follows the International Seeds Testing Association's rules and offers readily available good quality paddy seed. Pulse and other crop seeds sold by DA are also of good quality. Vegetative planting material such as tea, cocoa, and coffee stock, are produced by private and government nurseries and the quality is good. Supplies of planting material for cocoa, coffee, pepper, cashew in Puttalam are adequate but those for fruit trees below requirements. In Matale, the supply of planting materials of the minor export crops is inadequate. 2.36 Because of numerous governmental agencies involved in supplying agricultural inputs and marketing, GOSL in 1978 organized the Agricultural Development Authority (ADA) to coordinate these functions. ADA is represen- ted by an Agricultural Manager (AM) residing in each electorate. Currently, ADA's representation in the project area is limited to three AMs in Puttalam. 2.37 Agricultural Credit. Institutional agricultural credit is handled primarily by the two state-owned commercial banks, the People's Bank (PB) and the Bank of Ceylon (BC). PB operates through Multi-purpose Cooperative Societies (MPC) and their banking divisions called Rural Banks. BC operates directly. National agricultural credit policy is established by a Rural Credit Advisory Board. The Board, is chaired by the Governor of the Central Bank and consists of representatives of all institutions involved in agri- culture credit. The Central Banks' Department of Rural Credit (DRC) functions as the Board secretariat and executive. 2.38 In Puttalam, PB has seven branches servicing seven MPC and 27 Rural Banks. BC has 17 outlets including its district office. In Matale, PB has a  - 12 - regional office and eight i in branches servicing 11 MPCs and 15 Rural Banks; BC operates through 16 offic,.s. Both banks follow similar credit policies. Cultivation loans are granted for paddy, 17 other crops, and coconut. The maximum area financed is 10 ac for paddy, 5 ac for other crops and 25 ac for coconuts. Loans are granted according to agreed scales for different crops and agroecological regions. Loans are provided partly in kind (inputs) with direct payment to suppliers and partly in cash. Loans are also provided for farm equipment and land development. Production loans are not made for minor export crops. 2.39 Cultivation loans are for six months for annual crops and five years for coconut including a two-year grace period. Interest is 9% with a 5% penalty on overdues. For other types of agricultural loans, interest rates range from 10% to 14% with repayment periods up to five years. For cultivation loans the Central Bank provides 100% refinance facilities to both banks at a concessionary rate of 2%. For medium and long-term loans the Central Bank provides a 70% r:finance facility at a rediscount rate ranging from 4% to 9%. 2.40 Inflation in Sri Lanka has risen sharply since 1978 and now is about 30%. Consequently, agricultural on-lending rates are negative. Current inflation is largely a result of policy induced price adjustments and short- term aggregate demand-supply imbalance. Inflation is expected to begin to decline in 1981, falling to about 10% by 1983. Thus, ceteris paribus, the interest rates on agriculLural loans should be positive toward the latter half of the project's disbursement period. 2.41 High default rate on agricultural loans is a problem. The situation was aggravated during maha 1977/78 when GOSL instructed the banks to relax lending criteria. Agricultural lending was then guaranteed up to 75% by the Central Bank. As of June 1979, the recovery rate of paddy loans in Puttalam was about 40%, compared to 43% for the country as a whole. The annual volume of loans for other crops in the district fluctuates widely. As of June 1979, only 30% of these loans have been recovered. At the same time, the recovery rate in the Matale on paddy loans was about 64%, and 32% for other crops. 2.42 To improve loan recovery, GOSL in 1979 tightened lending criteria. It launched an aggressive nationwide recovery drive and established policy directives that banks should: (a) not lend to defaulters; (b) implement a vigorous program for the recovery of all overdue loans; (c) formulate their own lending criteria, giving emphasis to the assessment of creditworthiness of the potential borrowers; and (d) lend at their own risk without guarantee from the Central Bank. The overdue position now has improved and not too surpris- ingly the volume of lending has decreased significantly. The banks are now embarking on a program of rescheduling loans and field contacts with farmers in an effort to increase credit volumes. 2.43 Marketing and Processing. GOSL operates a guaranteed price scheme (GPS) for paddy and a number of other crops such as pulses and coarse grains. 1/ Responsibility for implementing GPS rests with the Paddy Marketing Board 1/ GOSL pricing policy is discussed in Chapter VI, paras 6.12 to 6.14.  - 13 - (PMB) which operates mainly through a dispersed network of purchasing centers run by MPC's. Typically, about 40 to 50% of the paddy produced in the two districts was sold to PMB, the rest sold to private traders and millers, or retained for home consumption. However due to changes on GOSL policy, it is expected that procurements by PMB would diminish in favor of private traders (para 6.12). Currently, there are 18 PMB stores in the two districts with a capacity of about 750,000 bushels. Paddy is milled in PMB's own mills and by private contractors. With assistance of USAID, GOSL is expanding the storage capacity. Two stores with a total capacity of 100,000 bushels are under construction in the project area. Marketing of non paddy field crops is mostly through private channels, which has resulted in wide price fluctua- tions. 2.44 Most coconut producers sell fresh nuts to village dealers who in turn sell them to desicated coconut factories or oil mills. A few large estates make copra to be sold to oil mills. About 45% of coconut production is consumed domestically; the balance being exported as coconut oil, copra and desicated coconut. Current capacity of coconut mills in Puttalam is more than adequate, due to decreases in production during the past several years. 2.45 Minor export crop producers generally sell their products to local village traders who resell to retailers for local consumption, or to brokers for exports. Small amounts are sold by smallholders to the Department of Marketing Development (DMD) to be traded locally. 2.46 Fisheries. The coastal fishery in Puttalam produces about 17,500 MT of fish annually for a total landed value of Rs 75 M. This is to about 13% of the total marine fish harvest in Sri Lanka. The industry employs some 12,000 persons and provides income to approximately 7,000 households. The coastal fishing fleet, consisting of over 4,400 craft operates from some 40 fishing centers along the 180 mile coast. The mechanized fishing fleet consists of 1,700 vessels and accounts for two-thirds of total fish landings in the district. 2.47 Inadequacy of year-round anchorage facilities is a primary cause of inter and intradistrict migration of fishermen. The major fishing centers of Kalpitiya, Chilaw and Thoduwawa are located in lagoons or river mouths which lack proper jetties for unloading catches and servicing vessels. Seasonally, the formation of sand bars at river mouths and lagoon inlets prevents the larger boats from utilizing anchorages at these locations. 2.48 Approximately 60% of fish landed in Puttalam district is distributed fresh for consumption in areas outside the district. Daily supplies to the major wholesale market in Colombo are estimated at about 20 MT in the dry season and at 70 MT during the peak seasons of November/December and March/ April. Fish is sold on a consignment basis with Colombo agents collecting fish from landing centers and in return supplying fishermen with ice, fuel, and other needed inputs. Linked to this system for fish distribution is the extension of credit by the Colombo agents to the fishermen. 2.49 Ice requirements for fish preservation exceed daily supplies produced within the district. Ice is therefore trucked in from Colombo by the wholesale  - 14 - agents. Control of the ice supply by these agents weakens the bargaining position of the fishermen. GOSL recently introduced tax concessions to stimulate private sector investment in ice plants. The response has been positive and ice production capacity in Puttalam district is expected to double during 1980. The major impediment towards the establishment of ice plants in the northern part of the district has been the absence of electric power, which is being corrected under both this project and the proposed IDA funded Sixth Power Project of Sri Lanka (Cr. 1048-CE). 2.50 Over 40 boatyards are currently licensed in Sri Lanka. It is estimated that the present boatyard capacity is sufficient to accommodate the foreseen expansion of the fishing fleet in the next five year period. Engine repair services within the district are provided by a small number of private sector workshops and itinerant mechanics as well as by the Ceylon Fishery Harbor Corporation (CFHC). Availability of fishing gear and engine spare parts has improved notably during the last two years. Distribution of parts for some brands of outboard engines continues to be a problem. The Ministry of Fisheries has introduced a national subsidy scheme for promoting the expansion and mechanization of the fishing fleet. Under this scheme fishermen are entitled to subsidies of between 24 and 35% on the cost of boat hulls and engines. Also, the Ministry, in collaboration with commercial banks, has initiated credit schemes for financing up to 88% of the investment cost (net of subsidy). In addition, credit is offered for repairs and pur- chases of fishing gear. 2.51 At the district level, the functions and services of the Ministry of Fisheries are performed by the District Fisheries Extension staff (30 officers). Principal functions include: promotion and operation of the boat mechanization program, assistance to fishermen organizations, enforce- ment of fishery regulations, and collection of statistics. The effectiveness of the organization is limited by lack of transport facilities, inadequate office accommodation and residential quarters for staff. Economic and Social Infrastructure Sectors 2.52 Transport. Most major towns and urban centers of the two districts are well served by roads (Map 14949 and 14952) and by regular bus services. Major towns of Chilaw, Puttalam and Matale are connected to Colombo via the national rail system. The national road network includes 618 miles in Puttalam and 525 miles in Matale supervised by the Department of Highways (DH). Most of these roads are metalled and tarred but because of inadequate maintenance require rehabilitation and upgrading. Most villages and rural settlements are connected to the main network by gravelled rural roads, cart, and foot paths maintained by the Department of Local Government Services (DLGS) in cooperation with village councils. These roads (about 1,300 miles in Puttalam and 1,100 in Matale) are often not passable in the rainy season. There are areas within each district in which the road network is quite inadequate. In Puttalam, the fishing villages along the coast and the northern and northeastern parts of the district are poorly served. In Matale, the eastern region of Laggala is only accessible to regular vehicles by a circuitous route which is often blocked during the rainy season.  - 15 - 2.53 Rural Electrification. Puttalam is served through two grid sub- stations fed from the 132 KV National Grid (Map 14949). Matale is connected to the National Grid at the Habarana Grid Substation and is also served through grid substations at Eriyagama and Mallawapitiya (Map 14952). Sub- transmission to district consumers is primarily through 33 KV overhead lines. The Ceylon Electricity Board (CEB) provides bulk supply to local authorities for retail distribution and direct service to industrial consumers. It also administers 22 rural electrification schemes in Puttalam and 14 in Matale. In total, there are 7,200 domestic/commercial and 101 industrial consumers in Puttalam and 4,300 domestic/commercial and 126 industrial consumers in Matale. Sizeable areas, such as the Kalypitiya peninsula and the northeastern parts of Puttalam and the eastern parts of Matale, have inadequate service. 2.54 Education and Vocational Training. Puttalam's education system has a total of 309 schools of which 109 are primary schools (grades L.K.-5), 161 are junior secondary schools (grades 1-10) and 39 are senior secondary schools (grades 1-12) (Map 14950). Matale has 284 schools, including 116 primary, 123 junior secondary, and 45 senior secondary schools (Map 14953). Total enroll- ment is about 97,000 in Puttalam and 80,000 in Matale. Average participation rates are close to or above the national average: about 75% for ages 6-9, 65% for ages 10-14, and 20% for ages 15-19. The pupil/teacher ratio is about 25, which is comparable to the national average. Public education at all levels is free. 2.55 While the educational system in the districts, under the Regional Departments of Education (RDE), provides a good general education there is need for more emphasis on science and technical education to match the needs of the job market. About 35% of senior secondary students in the two dis- tricts are enrolled in science course compared to 56% in Colombo and 65% in Jaffna district. This puts students from these district at a considerable disadvantage for admission to universities. Facilities for technical educa- tion in junior secondary schools and for the school leavers vocational train- ing program are also inadequate. Attracting and retaining qualified teachers in remote areas is a serious problem. One of the reasons is lack of suitable housing. Only 65% of the teachers in the two districts are graduate or trained teachers compared to over 75% in Colombo and Jaffna. 2.56 The Department of Labor (DL), through its Vocational Training Division (VTD), has a countrywide network of about 300 skill development centers. These centers are located in areas where there is substantial demand for such skills. VTD operates five sewing centers in Matale with capacity to train about 100 persons a year in sewing, cutting, and hand machine embroidery skills. It has no such skill centers in Puttalam. VTD operates several tractor driver training centers, but none in the project area. In Matale, mainly due to the Mahaweli Ganga Project, there is a great demand for tractor drivers, especially those with some knowledge of simple tractor maintenance. 2.57 The Department of Small Industries (DSI) is responsible for cottage industry development. Its main functions are to provide technical advice and to improve the production techniques of rural craftsmen. In Matale, DSI has about 20 industrial centers and workshops turning out products and providing  - 16 - training facilities. There is a huge demand in Sri Lanka for carpenters and craftsmen due to the heavy migration of skilled workers to the Middle East. At present, DSI has four carpentry training centers in Matale with a total capacity to train 60 persons in furniture and construction carpentry. 2.58 Health. Both districts are served by a network of health insti- tutions operated by the Department of Health (DOH)(Maps 14950 and 14953). Thfi Base Hospital in each district provide specialized services; other units provide basic medical treatment. The number of institutions and beds are as follows: Table 2.4: CURATIVE HEALTH FACILITIES Puttalam Matale Type of Institution Institutions Beds Institutions Beds Base hospital 1 348 1 442 District hospital 4 390 1 125 Peripheral unit 4 175 6 292 Rural hospital 3 62 2 36 Maternity homes 2 24 6 72 Central dispensaries 18 - 14 - Hospital beds per 1,000 population are 2.35 in Puttalam and 2.72 in Matale compared to 2.63 for the nation as a whole. Through a system of referrals, serious cases from smaller institutions are sent to larger institutions by ambulance service. Preventive health care is organized through four health units in each district. Family planning services are integrated with maternal and child health service. Medical services are free except for patients who choose to be admitted to private wards in specialized hospitals. 2.59 Although the health institutions of the two districts are compar- able to those for the country as a whole, available health services are often inadequate to meet inpatient and outpatient demand. There is a severe shortage of basic equipment. The referral system is often ineffective due to shortage of ambulances and poor communications. Also, it is difficult to attract and retain qualified medical personnel to the smaller, more remote institutions due to inadequate housing and poor equipment. III. THE PROJECT Objectives and Approach 3.01 The project would seek to improve the productivity, income and living standards of people in Matale and Puttalam districts by: improving the provision of inputs and services required by the agricultural sector; stimulating increased plantings of coconut and minor export crops; rehabili- tating and improving the economic infrastructure; and impro;:ing the social  - 17 - infrastructure. 1/ The project components were identified as high priority by GOSL as a means to achieve its development objectives (paras 1.09 and 1.10). MPs were actively involved in the identification process. Detailed Features 2/ A. Agricultural Sector (Base Cost US$12.65 M) 3.02 The project would promote agricultural activities in the two dis- tricts by accelerating existing programs for coconut, and minor export crops development; supporting sericulture and fisheries; improving supplies of agricultural inputs and agricultural credit; expanding forestry development; and strengthening services for livestock production. 3.03 Coconut Development in Puttalam District (Base cost US$1.25 M). The project would: (a) improve the productivity of about 10,000 ac of established privately owned coconut plantations by improvements in drainage, flood protection and water conservation; (b) rehabilitate by underplanting and/or planting about 7,500 ac of privately owned plantations; (c) intercrop about 1,700 ac with coffee, cocoa and pepper; (d) establish a five-acre CRI substation, to study the techniques and economics of intercropping, and of supplementary irriga- tion; (e) supplement the facilities of CCB by constructing a district office building and providing additional staff, quarters, and equipment; and (f) establish a nursery for fruit tree seedlings to be used for intercropping coconuts. The coconut development program would be carried out by CCB with the exception of the adaptive research farm (303 (c)) under CRI, and nursery (3.03 (f)) would be the responsibility of the Department of Agriculture (DA). Intercrop- ping (3.03 (c)) would be carried out by CCB in close coordination with the Department of Minor Exports Crops (DMEC). Activities (a), (b) and (c) would 1/ Limited funding also provided for Kurunegala district to facilitate implementation of water management programs and project coordination and management in Kurunegala RDP (Cr. 891-CE). (See paras 3.18, 3.19 and 5.06.) 2/ Unless otherwise specified, the Project Components described in this report involves both districts; Matale and Puttalam.  - 18 - be supported by GOSL paid subsidies to growers amounting up to Rs 300/ac in the case of (a), Rs 2,275/ac in the case of (b), and between Rs 1,375/ac to Rs 1,875/ac for (c) depending upon the intercrop. Cost details on the coconut program in Annex 1, Table 2. A discussion of the subsidy is in paras 6.15 and 6.16. Growers would also be eligible for credit to intensify use of fertil- izer (para 3.06 and Annex 2). 3.04 Minor Export Crop Development in Matale District (Base Cost US$1.83 M). The project would benefit minor export crop growers through programs to: (a) plant or replant pure stands of cocoa, cardamon, pepper, cof- fee, clove, and nutmeg on about 7,600 ac of privately owned land and plant or replant minor export crops on about 290 ac in small homegardens; (b) establish a 20 ac Central Nursery to provide improved minor export crop planting material free to project participants. DMEC would procure planting stocks from the commercial nur- series equivalent to that required for its ongoing program; (c) strengthen the research capabilities of MECRS by funding research on: cardamom; pest and disease control; cocoa fermentation; and processing of minor export crops. Over- seas study tours would also be funded; (d) establish a Training Center, near MECRS, for instructing DMEC and CCB staff, DA extension workers, and farmers on cultivation and processing of minor export crops; (e) supplement the capabilities of DMEC by: constructing a district office building and additional staff quarters, and providing equipment and staff; and (f) strengthen DA's extension service capability by providing 30 Village Level Extension Officers (KVS), seven Agricultural Instructors (AI) and transport. The minor export crop development would be implemented by DMEC with the exception of (f) above which would be the responsibility of DA. Activities in 3.04(a) would be supported by GOSL subsidy paid to growers varying between Rs 1,000 to Rs 2,750/ac depending upon the intercrop. Cost details on the minor export crops program are in Annex 1, Table 3; and, General Procedures for Small Homegarden Subsidy Scheme are in Annex 3. A discussion of the justification of the subsidy is in para 6.15 and 6.16. Growers would also be eligible for credit in addition of the subsidy (para 3.06 and Annex 2). 3.05 Sericulture in Matale District (Base Cost US$0.31 M). The project would finance a nucleus estate and settlement scheme for about 125 settler families. By December 31, 1980, GOSL would submit to IDA a SAPDA prepared developmental and operational plan for this component. IDA's acceptance of the plan would be a prerequisite to constructing facilities and settlement.  - 19 - In general, it is envisioned that each settler would be allocated 2 ac of land for mulberry growing and 1/2 ac houseplot on which to build their houses and silkworm rearing sheds, and for growing fruits and vegetables for home con- sumption. SAPDA would establish and operate a 50 ac nucleus estate, which would serve as a training and demonstration center for the settlers and house the advisory and supervisory staff required for the operation. SAPDA would provide the settlers with free mulberry cuttings as required, and third in-star silkworms required during the first year. It would also provide each farmer with the equivalent of Rs 2,000 in construction materials for building each the silkworm rearing shed and the settlers house. SAPDA would purchase the cocoons produced by the settlers, at a pre-determined guaranteed price, for reeling in Sri Lanka or for export. During the first year, the settlers would clear the land and establish mulberry plantations, for which they would be paid standard daily wages. They would have additional employment opportu- nities in the establishment of the nucleus estate until they have sufficient mulberry leaves on which to begin rearing their first batch of silkworms. From the second year onwards, they would be eligible for institutional credit support for their operation (para 3.06). Sri Lanka has a long history of socially and commercially successful settlement schemes. Land ownership and titles would follow the pattern established by these schemes, and more re- cently, followed under the Accelerated Mahaweli Ganga development program. SAPDA would execute this component. Cost details of the sericulture program are in Annex 1, fable 4. 3.06 Agricultural Credit (Base Cost US$5.91). The project would expand the volume of lending for agricultural development through refinancing short- and medium-term loans made by the People's Bank (PB) and the Bank of Ceylon (BC). Credit would be provided to help farmers take advantage of the agri- cultural sector components described above, and in addition for: (a) short-term (seasonal - 6 months) production loans to farmers for paddy and other field crops. It is expected that the cropped area benefitting by institutional credit would in- crease from about 2,100 ac at present to 8,000 ac at the end of five-year period in Matale, and from about 1,500 ac to 4,850 ac in Puttalam; (b) medium-term (up to 5 years) loans to coconut growers to enable farmers to increase fertilizer use. It is expected that institutional credit would be given for about 27,000 ac; (c) long-term (up to 10 years) loans to minor export crop growers to enable farmers to cover installation cost not covered by the subsidy payment. It is expected that insti- tutional credit would be given for about 5,600 ac; (d) medium-term (up to 5 years) loans to farmers, custom opera- tors and cooperatives for purchase of about 75 four-wheeled and 150 two-wheeled tractors in each district. Loans would also be provided for hand sprayers, hand tools; and other equipment;  - 20 - (e) medium-term (up to 5 years) loans to settlers for buying silkworm rearing trays; (f) medium-term (up to 5 years) loans to NPCS to purchase about 20 five ton trucks in Matale and 15 five ton trucks in Puttalam; (g) long-term (up to 10 years) loans for farmers and farmer groups for about 20 deep and about 100 shallow tubewells in Puttalam (para 3.21); (h) long-term (10 years) loans to MPCS and private enterpreneurs for building about 25 fertilizer stores in Matale and 15 in Puttalam; and (i) long-term (10 years) loans to settlers for building about 125 silkworm rearing sheds in Matale. 3.07 The project would strengthen the drive launched by PB and BC to recover or otherwise settle about Rs 9.7 M in loans presently overdue in Matale and about Rs 15.1 M overdue in Puttalam. GOSL would furnish to IDA by December 31, 1980 information from the two banks on: (a) an inventory of defaulters; (b) analysis and classification of their portfolio (based on assessments of farmers' income levels, farmers' earlier payment records, and loan rescheduling when necessary); and (c) a program of collections against willful defaulters, including legal actions,-similar to those being carried out in Kurunegala RDP. The project would also finance study tours for bank field staffs to neighboring countries. 3.08 Lending terms and conditions for loans to be financed under the project are shown in Annex 2 and cost details in Annex 1, Table 5. PB and BC would execute this component. A subsidiary loan agreement specifying the agricultural credit procedures to be followed under the project would be signed between the GOSL and the People's Bank and the Bank of Ceylon in terms and conditions satisfactory to IDA. Execution of such agreement with terms and conditions satisfactory to the Association would be a condition of credit effectiveness. 3.09 Other Agriculture Supporting Services (Base Cost US$0.57 M). The project would improve agricultural input services by: (a) expanding the capacity of four retail fertilizer outlets in each district, and by providing dunnage for all fertilizer stores (20) at Agrarian Service Centers (ASO); (b) improving paddy seed stores at 17 ASC (seven in Matale and 10 in Puttalam); (c) remodeling pesticide storerooms at 20 ASC; (d) providing additional management, executive staff and office facilities for the Department of Agrarian Services (DAS); and  - 21 - (e) supplying additional staff and equipment to ADA to station Agricultural Managers in the four electorates in Matale and the two unserviced electorates in Puttalam. 1/ Except for (e) to be administered by ADA, DAS would execute this component. Cost details are in Annex 1, Table 6. 3.10 Livestock (Base Cost US$0.28 M). The project would improve livestock services by: (a) constructing, equipping and staffing new veterinary clinics in Anamaduwa and Andigama (Puttalam) Galewela and Hettipola (Matale), and upgrading three existing clinics in Puttulam and one in Matale. In addition, simple cattle and buffalo handling facilities would be installed at about 25 locations in each district; and (b) providing artificial insemination services to upgrade cattle and buffalo stock in Matale district. The livestock component would be executed by the Department of Animal Production, and Health. Cost details are in Annex 1, Table 7. 3.11 Forestry (Base Cost US$2.00 M). The project would accelerate an ongoing program of reforestation of degraded and overexploited chena lands in both districts; and afforestation on steep and high elevation grasslands (patana lands), degraded tea plantations and catchment areas of the Mahaweli Ganga Project in Matale. Under the project, timber, pulpwood and fuelwood species would be planted on about 11,500 ac in Matale district and on about 5,000 ac in Puttalam. The project would provide three additional forest nurseries (two in Matale, one in Puttalam), incremental materials, equipment, labor, technical and supervisory staff. The Department of Forests would execute this component. Cost details are shown in Annex 1, Table 8. Fisheries in Puttulam District (Base Cost of US$0.50 M). 3.12 Emphasis would be on improving landing and shore facilities at major fishing centers in Puttulam. To ensure safer and quicker access from the sea to landing centers, the project would install beacon lights at 12 selected locations along the district coast. Local government authorities in coordi- nation with the Welfare Division of the Ministry of Fisheries would be responsible for installing the beacon lights. The project would provide for the construction of jetties at Chilaw, Kalpitiya and at a site yet to be identified under the supervision of Ceylon Fishery Harbors Corporation (CFHC). 1/ To be funded only by the project following independent evaluation of ADA's operation in Kurunegla RDP. GOSL would supply IDA with terms of reference for this evaluation by December 31, 1980.  - 22 - 3.13 The project would provide for the establishment of a fishery service center at a site to be determined, to serve as a demonstration of the effec- tiveness of such a facility in improving the fishery industry. The main function of this facility would be to make available to fisherman and traders a local supply of ice as well as providing space for sale and service of fishing equipment and supplies. All commercial activities would be by private entrepreneurs with management of the facility by an organization satisfactory to IDA. This center would be located at a site offering all year landing faci- lities and capable of generating minimum levels of ice sales and fish storage demand necessary to support satisfactory net cash flows required for financing the operation and maintenance of the facility. GOSL would provide IDA a detailed feasibility study, including design of the facility, economic analysis and operational and management program prior to any commitment leading to the installation of this facility under the project. 3.14 This component would be executed by the Ministry of Fisher- ies. To improve their effectiveness in the district,, the project would provide for the construction of one office building and one residential staff quarter each in Puttalam town and Mahawewa. In addition, the project would provide for transport, and a patrolboat. Cost details on this component are in Annex 1, Table 9. B. Water Resources Sector (Base Cost US$9.09 M) 3.15 Irrigation and Water Management (Base Cost US$8.31). The project would improve delivery of water to about 27,220 ac (19,750 ac maha and 7,470 ac yala) of currently irrigated lands and increase the area irrigated by about 18,050 ac (6,770 ac maha and 11,280 ac yala) through rehabilitation and improvement of existing irrigation systems. The project would provide for rehabilitating about 15 major schemes (10 in Puttalam and 5 in Matale--Annex 1, Tables 10b, c, d, and e) and 240 minor schemes (200 in Puttalam and 40 in Matale) 1/. The Irrigation Department (ID) would be responsible for planning, designing and constructing all rehabilitated schemes as well as operation and maintenance (O&M) of major schemes. The Department of Agrarian Services (DAS) in cooperation with the concerned farmer group would be responsible for the O&M of minor schemes. Cost details for this component are in Annex 1, Table 10. 3.16 Individual schemes would be planned and designed in accordance with ID specifications, following criteria and guidelines agreed with IDA (Annex 4). At least 75% of the minor irrigation schemes to be rehabilitated would be located in the dry zone in each district, with the remainder located in the intermediate zone. Particular attention would be given to improving water management. GOSL would employ local consultants to assist ID in planning, designing, and preparing cost estimates for irrigation and water management schemes (para 3.19): Assurance has been obtained from GOSL that, the plans, designs, and cost estimates, for two major and six minor schemes in Matale and three major and nine minor schemes in Puttalam would be submitted to IDA for review and approval prior to construction of any civil works under this component. 1/ Major schemes command 200 ac or more, whereas minor schemes command less than 200 ac.  - 23 - 3.17 Rehabilitation of civil works would include: (a) strengthening of tank bunds and repairs to sluices, spillway and anicut structures; (b) desilt- ing, re-sectioning and improving main canals and distributaries; (c) repairing, and resectioning embankments, and gravelling the top of those embankments used as farm and access roads--including required drainage structures; (d) construct- ing additional cross regulators, regulators-cum-bridges, drainage outlet struc- tures, culverts, silt traps, etc.; (e) installing measuring devices in the main canals, head regulators, and distributaries to measure discharges as well as evaluate the seepage losses; (f) installing turnouts of suitable size, and control gates in the distributaries; and (h) rehabilitating farm and field ditches with appropriate structures to facilitate water management program including rotational distribution of irrigation water. GOSL intends to under- take a portion (about 25%) of the required earthwork, especially in the dis- tribution system, for rehabilitating irrigation scheme by utilizing farmer donated labor or manpower available through the Food for Work Program suppor- ted by grants of foodgrain from the World Food Programme. In such schemes, the project would provide the required structures. Earthwork constructed in such schemes would be under the technical supervision of ID and would meet ID specifications. Labor intensive techniques would be employed for constructing most civil works although a limited amount of construction equipment would be provided. On project completion, usable equipment would remain within the project area for O&M of irrigation schemes. Project would provide additional staff and equipment for ID. 3.18 As of January 1, 1980, the Agrarian Services Act (No. 58), assigned responsibility for minor irrigation schemes to DAS. Under this Act, DAS can spend up to Rs 100,000 on improving these schemes. Since the cost of rehabili- tating most minor schemes under this project would exceed this amount, GOSL has assigned ID the responsibility for planning and constructing all minor schemes to be rehabilitated under the project, however, DAS in conjunction with the concerned farmer group would prepare the operational program as input to the ID prepared plan. Following rehabilitation these minor schemes would be turned over to DAS for O&M. However, ID would be responsible for maintain- ing tank bunds, anicut and ancillary structures for two years following rehabi- litation. DAS is proposing a major reorganization of its minor irrigation activities in the context of the proposed national Village Tanks Rehabilita- tion Project (VTRP) recently appraised by an IDA mission. The changes envis- aged include the setting up of six regional centers for minor irrigation, each under a qualified engineer; the separation of water management from the ongoing maintenance activities of the department; the evolution of a syste- matic approach to the planning of water management and related programs in minor schemes; the strengthening of elected farmer representatives and farmer groups for carrying out such programs; and the establishment of regular DAS supervision to ensure that the agreed programs are in fact implemented. Given staffing and other constraints, it will take time for these changes to become fully effective. It is envisioned that DAS-adopted techniques and procedures for the proposed VTRP will be appropriately incorporated in this project as they become available. The project would provide DAS with additional staff, training and equipment to carry out its newly acquired responsibilities under the 1980 Act. Since this Act was passed after the effective date of Kurunegala  - 24 - RDP (Cr. 891-CE), funds are provided also in this project for DAS to carry out its minor scheme responsibilities in Kurunegala district. 3.19 Because of the skilled personnel requirements of the Mahaweli Ganga Project and the drain of trained personnel to the Middle East, ID is having difficulty in providing staff to meet its obligations under the Kurunegala RDP. Hence, ID has been unable to adequately prepare required plans, design, and cost estimates for the rehabilitation of irrigation schemes while at the same time maintaining adequate quality control during construction and provid- ing personnel to properly operate rehabilitated schemes. Since this project could experience similar difficulties, GOSL has agreed to: (a) pay overtime and release constraints on travel allowances for ID personnel assigned to the project; and (b) employ local water resources consultants to plan and design many of the irrigation schemes to be rehabilitated in this project as well as for Kurunegala RDP. These consultants would be under the supervision of ID. This action would permit ID to focus on quality control during construction and effective operation and maintenance of project schemes. Appointment of planning consultants would begin about November 1, 1980. Schedule of appoint- ments would permit final planning and design by March 31, 1981 of all schemes scheduled for rehabilitation during 1981. Local consultants would also be used to supervise construction of seven major schemes in Puttalam. Terms of Reference for these consultants are in Annex 5. Following is the breakdown of consulting services estimated to be required for this component: Total Estimated Consulting Services Man/Months Planning Engineers 162 Irrigation Engineers 169 Design Engineers 166 Economists 33 Agriculturalists 56 Technical Assistants 500 Construction Engineers 28 Inspectors 148 Total 1,262 3.20 Groundwater Exploration and Exploitation in Puttalam District (Base Cost US$0.34 M). The project would strengthen field investigations and advisory capabilities of the Water Resources Board (WRB) in Puttalam district by providing additional staff, facilities, and equipment. It also would finance the drilling of about 60 investigation boreholes and about the same number of six and eight inch test wells. This exploration program has been coordinated with, and is an expansion of, the groundwater investigation program being funded by United Kingdom's Overseas Development Ministry. The borehole drilling program would be started during fiscal year 1982 to permit utilization of drilling equipment financed under the Kurunegla RDP (Cr. 891-CE). This component would be executed by WRB. International training would be provided under the project for at least two engineers/ geologists, two technicians and two drillers. 3.21 The project would include a program for limited exploitation of the most promising groundwater areas identified in the course of investigations.  - 25 - About 100 shallow fractional tubewells (STW) would be installed in the coastal plain of the Kalpitiya Peninsula and about 20 deep tubewells (DTWs) in the Vanathavillu and Madurankuli-Palavi basin (para 2.11). These wells would be installed by farmers and farmer groups with assistance of project funded credit (para 3.06). Assurance has been obtained from GOSL that it would provide to IDA for its review, plans for DTWs groundwater exploitation once the investigation phase is completed and prior to implementation. Cost details on this component are in Annex 1, Table 11. 3.22 Rural Water Supply (Base Cost US$0.44 M). The project would install about 100 wells in Matale and 150 in Puttalam in rural areas defi- cient in drinking water. Attempts also will be made to rehabilitate aban- doned wells. Water quality analysis would be made on about 5% of the wells surveyed. Preference would be given to water deficient areas where organized community groups are willing to provide free labor for at least 25% of total unskilled labor requirements. 3.23 The wells would be closed and fitted with handpumps (UNICEF speci- fications) to meet minimum requirements for safe drinking water and would be sited in accordance with criteria agreed for the Kurunegla RDP (Cr. 891-CE). The National Water Supply and Drainage Board would construct the wells and install the handpumps. GOSL has assigned maintenance responsibility for the handpumps and wells to local authorities under the supervision of the Depart- ment of Local Government Services (DLGS), which would also execute this com- ponent. Cost details on this component are in Annex 1, Table 12. C. Economic Infrastructure Sector (Base Cost US$4.57 M) 3.24 Roads (Base Cost US$3.77). About 144 mi of public feeder roads would be rehabilitated under the project (about 33 mi of agricultural roads, and 28 mi of fishery roads, Puttalam; and about 83 mi of agricultural roads in Matale district) and about 7 mi of new roads in Matale would be constructed to shorten about 2 hours travel time between Matale town and the isolated Lagalla electorate. Location of roads to be rehabilitated are shown on Maps 14949 and 14952. Rehabilitation would include graveling (except for steep areas subject to erosion, low areas subject to flooding, and segments in fishery villages, which would be metalled and tarred) and installation of minor drainage structures (24 inches or less in diameter). The roads would be built up to class "D" standards with 50 ft wide right-of-way, 24 ft platform and 12 ft roadway and about 3 inches of compacted gravel surfacing. Labor intensive construction methods would be emphasized although a limited amounts of equipment would be provided to the Department of Highways (DH) for both road rehabilitation and maintenance. This equipment would be assigned to DH in Matale and Puttalam and would remain in these districts upon completion of the project to be used by DH for maintenance of the public road system. 3.25 The project would also upgrade about 175 mi of cart and foot paths-- 100 mi in Puttulam and about 75 mi in Matale. These upgraded roads would be gravelled with 8-10 ft carriageways with drainage structures limited to 24 inch diameter. Construction would be by the DH; but subsequent maintenance  - 26 - would be the responsibility of DLGS. A small amount of equipment is provided under the project for DLGS to augment labor intensive maintenance practices on these rural roads. 3.26 The project provides engineering and supervisory personnel, labor, materials and equipment to improve DH capability to carry out a accelerated road maintenance program in the two districts. Each year DH would prepare an annual work program (para 5.09) for road maintenance in the two districts that would specify road segments to receive accelerated road maintenance; descrip- tion of maintenance work to be undertaken; and estimated cost. Cost details on this component to be executed by DH are in Annex 1, Table 13. 3.27 Rural Electrification (Base Cost US$0.80 M). The project would provide electricity to ten village areas that have potential for rapid econo- mic growth of the region. In Puttalam, five fishing village areas would be electrified (Map 14949). These schemes are necessary for the overall economic development-of fishing industry. Three of the villages, Kandakuli, Talaivilla and Udappuwa would draw their power from 33 kv lines financed by IDA under Sixth Power Project (Cr. 1048-CE). In Matale, the project provides for electrificication of five village areas (Map 14952). Works would involve construction of about 31 mi of 33 kv line, 1 mi of 11 kv line, 12 substations and about 37 mi of low tension line. The rural electrification component would be carried out by the Ceylon Electricity Board (CEB), which also would operate the schemes. Cost details on this component are in Annex 1, Table 14. D. Social Infrastructure Sector (Base Cost US$2.27 M) 3.28 Health (Base Cost US$1.03 M). The project's health component would be executed by the Department of Health and would provide: (a) construction of a new operating theater and surgical ward at district hospital in Puttalam town, a new operating clinic unit at district hospital in Dankotuwa, and a new outpatient unit at base hospital Matale town; (b) provision of basic surgical, laboratory, and other equipment to these new facilities and other hospitals; (c) construction of living quarters for 5 medical officers, 6 Assistant Medical Practitioners, 13 midwives, and 8 nurses; (d) provision of 6 ambu- lances for outlying institutions; and (e) provision of electrical connections with existing lines, for 5 hospitals; 6 water pumps, and 20 refrigerators for the outlying hospitals. 3.29 Sites for new quarters have been selected; quarters would be of the standard design used by the Ministry of Health. Preliminary designs for the new hospital facilities at district hospitals in Puttalam town and Dankotuwa have been prepared. Supervision of construction undertaken by private contractors would be the responsibility of the Buildings Department. Equipment lists have been finalized. Ambulances would be the standard van type except for two locations where a four-wheel drive vehicle are required. The project provides funds for additional staff, required for the new district hospital facilities in Puttalam town and base hospital in Matale town and for operating the new ambulances. Cost details on this component are in Annex 1, Table 15.  - 27 - 3.30 Education and Vocational Training (Base Cost US$1.24 M). The education subcomponent to be executed by the Regional Department of Education (RDE) is designed to improve science, agricultural and technical training in the public school system; to attract and keep qualified teachers in more remote areas, and to upgrade selected senior secondary schools. The project would provide for: (a) constructing of about 49 science rooms for junior secondary schools and provision of basic science equipment for these rooms and existing science units; (b) constructing five workshops (for teaching carpentry, metalwork, weaving, and other technical subjects), 14 agriculture units, and seven home science units and provision of basic equipment for these specialized units. These facilities and equipment would be utilized both by regular classes and the School Leavers Program (part-time evening and weekend training for school dropouts); (c) constructing of about 80 teacher's quarters to serve schools in remote areas; (d) upgrading six senior secondary schools in Puttalam to IA status (comprehensive senior secondary school), having facilities for science laboratories, agriculture and home science units workshops, libraries and hostels; (e) procuring simple science equipment and teaching aids (costing about Rs 4,000 per set) to about 140 primary schools; (f) procuring a jeep and motorcycles, and supplying additional staff to supervise construction of facilities in both dis- tricts; and (g) constructing 60 water supply wells at school locations in remote areas following UNICEF specifications. A preliminary list of sites for construction of buildings has been prepared. Priority for final selection would be given to schools with inadequate facil- ities, highly motivated staff, and located in more remote areas. Contracts for constructing facilities would be awarded to local private contractors. Buildings would be of standard design used by the Ministry of Education. All construction would be supervised by the School Workers Division of the Mini- stry of Education. Equipment lists for science classes, agriculture, home science, and primary schools have been finalized. Equipment lists for other technical education would be finalized by October 1980; wherever possible, equipment would be chosen which can be used for both technical education classes and the School Leavers Program. In order to ensure that new rooms and equipment are effectively utilized, RDE in each district would conduct seminars for all teachers who would use project facilities and equipment.  - 28 - 3.31 The project would also expand vocational training facilities in Matale by: (a) expanding the capacity of the Department of Labor's (DL) sewing centers from 100 students in a one year training program to 200 students in a six month training program by establishing five additional sewing centers, one in each electorate. (b) setting up a tractor driver training program on land to be provided by DL in Dambulla electorate. The course would be run by DL; its aim would be to provide basic training in tractor and implement operation and routine maintenance. Each course would last for approximately one month, train about 20 students, and employ a syllabus prepared by DL's Vocational Training Division. (c) expanding the training capacity of carpentry training centers run by the Department of Small Industries from 60 to 90 students a year. The project would provide for the expansion of the M.C. Road Carpentry Center in Matale town, the establishment of a new center at Galawela, and additional equipment and tools for the center at Nagolla. Cost details on this component are in Annex 1, Table 16. E. Project Coordination and Management (Base Cost US$1.33 M). 3.32 Project management arrangements are discussed in Chapter V. Management items provided under the project include (cost details in Annex 1, Table 17): (a) additional staff, quarters, vehicles, office equipment and supplies for project coordination and management in Matale and Puttalam, as well as for the Regional Deve- lopment Division (RDD) and Accounting Unit in the Ministry of Plan Implementation (MPI) in Colombo. A project office building would be constructed in Puttalam town and an existing government building would be reno- vated as the project office in Matale town; (b) technical assistance in the form of local supervisory consultants (para 5.06) would be provided to assist Project Directors (PD) and RDD in supervising and monitoring progress and quality of work, preparing reports, processing of reimbursement applications and general budget control; and (c) fund for employing a local research institutions or consultants to evaluate the project.  - 29 - IV. PROJECT COSTS, FINANCING AND PROCUREMENT Cost Estimate and Schedule of Expenditures 4.01 Total project cost over the five year project period (January 1981 to December 1985) is estimated at about US$50.0 equivalent with a foreign exchange component of about US$17.0 or about 34%. Estimates are based on January 1980 prices and include about US$1.5 M in import taxes and duties. Physical contingencies amounting to 8% of base cost are included. Price contingencies are estimated to be 60% of base cost in accordance with infla- tion rates as follows: for equipment and vehicles, 10.5% during 1980, 9% during 1981, 8% during 1982, and 7% during 1984 and thereafter and for civil works and other local costs, 30% and 21% during 1980 for civil works and other local costs respectively and 15% during 1981, 12% during 1982 and 10% during 1983 and thereafter. Estimated project costs detailed in Annex 1 are sum- marized below (Table 4.1). Table 4.1: COST SUMMARY BY EXPENDITURE CATEGORY Cost % of Item Local Foreign Total Local Foreign Total Total ----Rs M) --- US$ M-------- 1. Civil Works 126.19 37.92 164.11 8.09 2.43 10.52 21 2. Crop and Forestry Dev /a 44.55 5.60 50.15 2.86 0.36 3.22 7 3. Equipment & Vehicles 5.45 56.98 62.43 0.35 3.65 4.00 8 4. Crop Production Loans 29.95 18.25 48.20 1.92 1.17 3.09 6 5. Loan for Farm Equipment and Vehicles 13.77 27.70 41.47 0.88 1.78 2.66 5 6. Technical Assistance 20.09 6.41 26.50 1.29 0.41 1.70 3 7. Supervision and Administration 54.52 19.14 73.66 3.49 1.23 4.72 9 Base Cost 294.52 172.00 466.52 18.88 11.03 29.91 59 Physical Contingencies 23.31 12.49 35.80 1.49 0.80 2.29 5 Price Contingencies 197.03 80.81 277.84 12.63 5.18 17.81 36 Total Cost /b 514.86 265.30 780.16 33.00 17.01 50.01 100 /a Includes subsidies for coconut, minor export crops and sericulture for US$1.48 M. /b Includes about US$1.5 M equivalent in import taxes and duties.  - 30 - Financing 4.02 The proposed IDA credit of US$33.5 M would finance the full foreign exchange costs and about 53% of the local costs or about 67% of the total project cost net of taxes and duties. The PB and BC would contribute about US$1.34 M equivalent from their own resources for financing part of the agri- cultural credit requirements under the project. About US$0.76 M equivalent would be contributed by farmers as free labor for rehabilitating minor irriga- tion schemes and by departmental staff as down payment for loans to purchase vehicles. GOSL would finance the remaining US$14.4 M equivalent from its budgetary resources. Net of receipts from import taxes and duties on project items, the GOSL contribution would amount to about 29% of the total project cost. The proposed financing plan is summarized in Table 4.2. Table 4.2: PROPOSED PROJECT FINANCING Farmers & IDA % Item Total Cost IDA GOSL PB/BC Dep. Staff of Total -(U______------------(US$ M)---------------------- 1. Civil Works 10.52 8.41 1.68 - 0.43 80 2. Crop and Forestry Dev 3.22 2.10 1.12 - - 65 3. Equipment & Vehicles 4.00 3.39 0.58 - 0.03 85 4. Crop Production Loans 3.09 2.00 1.09 - - 65 5. Loans for Farm Equip- ment & Vehicles 2.66 2.13 (0.27) 0.80 - 80 6. Technical Assistance 1.70 1.70 - - - 100 7. Supervision and Administration 4.72 0.33 4.39 - - 7 8. Contingencies 20.10 13.44 5.82 ,0.54 0.30 65 Total 50.01 33.50 14.41 1.34 0.76 68 Procurement 4.03 Equipment and vehicles with an estimated cif cost of about US$2.50 M (net of contingencies) would be procured through international competitive bidding (ICB) in accordance with IDA guidelines. A preference limited to 15% of the cif price of imported goods or the import duty, whichever is lower, would be extended to local manufacturers in the evaluation of bids. Because of the relatively small quantities, the low unit costs, and the need for country wide standardization of much of the educational and health equipment, it would be impractical to call for tenders on a project basis for these items. Accord- ingly project requirements (cif cost US$0.4 M, net of contingencies) would be combined with national requirements and be acquired under GOSL's procurement procedures acceptable to IDA. Due to strong consumer preference, motorized bicycles and bicycles which would be purchased individually by departmental  - 31 - staff. 1/ Small off-the-counter items costing less than US$10,000 each, which cannot be bulked into packages suitable for international tendering, or items needed urgently for project implementation would be procured by prudent shop- ping, which involves comparing prices from no less than three independent suppliers. Procurement exceeding US$100,000 require IDA's prior review. The aggregate amount of non ICB procurement would not exceed the equivalent of US$1.40 M. 4.04 Because most civil works would be labor intensive, relatively small, seasonal, and scattered over a wide area, it would not be practical to group them into contracts of suitable size for ICB. Therefore, the civil works under the project would be constructed by domestic contractors, and when unavailable by force account. 4.05 Tree crop plantings and related activities for coconut and minor export crop development would be undertaken by the beneficiaries on the basis of GOSL set subsidy rates and regulations using family and/or hired labor and purchasing inputs through normal commercial channels. Forestry development and part of the sericulture work would be undertaken using force account by DF and SAPDA or through award of small unit-cost contracts with petty contractors. 4.06 Purchase of farm inputs, equipment and vehicles financed by agri- cultural credit would be purchased by the sub-borrower through normal commer- cial channels. A sufficient number of local dealerships and agencies and a wide range of appropriate equipment are available to ensure competitive prices. 4.07 Consultants services (paras 3.19 and 5.06) financed under the project would be obtained in accordance with IDA guidelines. Disbursements 4.08 Disbursements of the IDA credit would be made for: (a) 80% of the cost of civil works; (b) 50% of subsidies paid by GOSL to farmers and private estates for coconuts and minor export crops development; (c) 100% of the labor costs involved in sericulture and forestry programs; (d) 100% of foreign expenditures; 100% of local expenditures ex-factory; or 80% of expenditures for equipment and vehicles procured locally; 1/ Procedure would be same as for Kurunegala RDP, whereby GOSL makes medium-term loan available to officials, who in turn purchase motor- cycles, motorized bicycle or bicycle from local dealer. The official would repay loan from government travel allowance for official business.  - 32 - (e) 50% of short-term cultivation loans disbursed by BC and PB in excess of Rs 4.6 M (Rs 3.0 M in Matale and Rs 1.6 M in Puttalam) per calendar year; (f) 80% of loans disbursed by BC and PB for coconut and minor export crops development, agricultural equipment and vehicles, tubewell development, fertilizer stores and silk- worm rearing sheds; (g) 100% of salaries of additional staff for road maintenance and rehabilitation works during 1981, 1982 and 1983, and 50% thereafter; and (h) 100% of the cost of technical assistance. Disbursements for items (a), (b), (c), (e), (f) and (g) would be made against statements of expenditures, documentation for which would be audited and retained for review by IDA supervision missions. All other disbursements would be made against full documentation. The Project Director (PD) would be responsible for the initial preparation of IDA reimbursement applications and submit these reimbursements to the accounting unit in the Ministry of Plan Implementation. This unit would maintain budget control for the project and following review by the supervisory consultants (para 5.06), it would forward the applications to IDA for reimbursement (para 5.05). It is anticipated that final disbursements for the project would be made by June 30, 1986, about six months after the end of project implementation. Estimated disbursement sche- dule is shown in Annex 1, Table 18. 4.09 Retroactive financing 1/ of up to US$1 M is proposed for eligible project expenditures incurred from June 30, 1980 onwards. Accounts and Audits 4.10 Budgetary allocations for the project would be included in the budget of MPI the lead agency for the project. MPI would, in turn, release the funds to the implementing agencies through the two PDs (para 5.01). Each implementing agency would be allowed to make payments and claim reim- bursements from the PD for staff salaries and allowances, on contracts and sundry purchases in line with GOSL's departmental limits for the local heads of implementing agencies for ongoing district programs. All other payments would be settled directly by the PD after receipt of certified documents from the implementing agencies. The PDs would consolidate accounts from the various agencies and submit them to the accounting unit in MPI. The unit would consolidate the accounts for the two districts and after audit would submit these to GOSL and to IDA (para 5.05). The audit report would include, inter alia, a statement verifying that funds disbursed by IDA 1/ Limited to technical assistance, equipment, civil works under the Project Coordination and Management Component, and civil and field works associated with nurseries.  - 33 - against statements of expenditures had been used for the purpose for which they were provided. Assurances have been obtained from GOSL that all agencies involved in project implementation would prepare and maintain separate ac- counts and the Ministry of Plan Implementation would prepare and maintain consolidated accounts for the project, and such accounts, together with disbursement documents, would be audited annually by independent auditors acceptable to IDA and submitted to IDA within six months of the end of each fiscal year. V. PROJECT IMPLEMENTATION AND OPERATION Implementation Responsibility 5.01 The MPI would be the lead agency for the project. The project components would be implemented by existing government agencies and depart- ments (Annex 6). MPI has appointed a full time PD with the rank of Addi- tional Government Agent for each district. The experience, qualifications, functions and responsibilities of these appointees are acceptable to IDA. These PDs would be responsible to MPI for carrying out the provisions of the project in accordance with agreed criteria, procedures and specifications, and would work under the general supervision of the Government Agent/District Secretary (GA) and the District Minister (DM). The PD's responsibilities would include: (a) preparation of annual work programs and budgets in col- laboration with the implementing agencies; (b) updating five-year work plan and budget; (c) release of funds and payments for project expenditures; (d) maintenance of consolidated district accounts; (e) assembly of annual audited accounts of the agencies; (f) preparation of claims for reimbursement by IDA; (g) monthly progress review with each of the implementing agencies; (h) pre- paration of quarterly progress reports; (i) resolution of implementation bottlenecks; (j) liaison with the District Coordinating Committee (DCC) (para 5.02), as appropriate, and (k) assistance to the project cell in RDD in preparing the project completion report. Support staff for each district would include an accounting unit and a planning and coordinating unit supple- mented by supervisory consultants (para 5.06). 5.02 A DCC would be established in each district to: (a) coordinate interdepartmental activities;, (b) monitor progress; (c) review the annual and five-year work plan and budget prior to its submittal to the Rural Development Project Steering Committee (RDPSC) (para 5.04); and (d) ensure general consis- tency of project activities with other distinct developmental activities. DCC would be chaired by the DM with the GA as Vice Chairman, and the PD as the member-secretary. This committee would meet at least bimonthly. Assurance has been obtained from GOSL that it would establish and maintain a District Coordination Committee in each district. 5.03 The implementing agencies are generally well experienced in the type of work to be financed under the project. With additional staffing, technical assistance (para 5.06), and infrastructural support to be provided under the project, all agencies are expected to be fully capable of implement- ing assigned components or subcomponents. While the number of implementing  - 34 - agencies is large (26 are involved, see Annex 6), the tasks they would under- take under the project are relatively straightforward and would require little additional coordination between agencies than existing in the pre-project situation. Also, under Sri Lanka's decentralized development administration, the coordinating and supervising role of the GA is established and proven effective. Thus project arrangements refine and strengthen an existing structure to coordinate and supervise the development effort. This judgement is reinforced by experience gained in the Kurunegala RDP. 5.04 A Project Steering Committee, was established at the national level in MPI for Kurunegala RDP to resolve project-related policy issues, implemen- tation bottlenecks, and problems that cannot be resolved at the district level. It is chaired by the Secretary of MPI, with the Director of RDD as its member-secretary. This committee is to be reconstituted to serve the same role for this project as well as other rural development projects in Sri Lanka. Committee members would be heads of the concerned agencies and depart- ments with GAs and PD's from the RDPs serving as ex officio members on matters relating to their respective districts. GOSL would rename the Committee as RDPSC (para 5.02). In addition to coordination and general project oversight at the national level, this Committee is responsible for: (a) ensuring general consistency of district developmental schemes with national policies and pro- cedures; (b) reviewing quarterly and annual progress reports; (c) monitoring overall progress within the districts; (d) reviewing and approving the annual and five-year work program and budget; and (e) liaising with IDA on project related matters. Assurance has been obtained from GOSL that it would esta- blish and maintain a Steering Committee to coordinate the project. 5.05 The Steering Committee would be serviced by MPI, specifically MPI's accounting unit, monitoring unit and project cell established in RDD. These three organizations would be assisted by supervisory consultants (para 5.06). The accounting unit's responsibilities would involve: (a) centralized budget- ing and accounting for the project; (b) consolidating annual audited accounts from the agencies (through the PDs) and submitting them to IDA; (c) process- ing IDA reimbursement applications; and (d) consolidating annual budgets. The cell's responsibilities shall include: (a) broad general guidance and assistance to the PDs; (b) consolidating annual and five-year work plans, and quarterly progress reports from both districts; (c) monitoring project progress; and (e) preparing the project completion report and feasibility reports for future RDPs. For additional information on project organization see Annex 6. 5.06 The project would provide about 500 man/months of local supervisory consultants as follows: Profession No. Man/Months Team Leader 1 68 Field Engineer 2 116 Agriculturalist 1 62 Accountant 1 68 Technical Assistants 3 186 Total 500  - 35 - The team of supervisory consultants would report to the Director of RDD and would assist the project cell, monitoring unit, accounting unit, and PD's for Puttalam and Matale as well as Kurunegala RDP. Terms of reference for super- visory consultants are included in Annex 5. The services to be performed by these consultants include: (a) prepare/review plans and designs for civil works in compliance with agreed specifications and guidelines (para 3.15); (b) check all completed civil works to determine quality and quantities of work; (c) inspect field works; (d) notification to PD on compliance of agency- certified completed works with agreed project creiteria, guidelines and specifications; (e) assist in preparing reimbursement applications; (f) monitor progress and centralized budget control; (g) monitor, review and assist in procurement matters; and (h) assist preparing quarterly progress reports, annual progress reports, annual and five-year work programs and budgets, and project completion reports. Implementation Schedule 5.07 Project implementation is expected to take five years. However, several components, i.e., livestock, agricultural inputs, education and health are expected to be substantially completed by the end of the third year. Tender documents for all ICB procured vehicles, machinery and equipment were prepared by August 31, 1980 and were available for IDA review in October 1980. Invita- tion to bid are expected to be issued by December 15, 1980 with awards by May 15, 1980, and items delivered by September 1981. Almost all equipment to be procured would be on site during the second year of the project. Staff mobilization will begin by October 1, 1980. Based upon the experience of Kurunegala RDP this is a realistic schedule. 5.08 Much of the supporting infrastructure for the agricultural, econo- mic, and social sectors would be in place within two years of the start of the project. Emphasis in the remaining three years of the projects would be on: rehabilitation of irrigation works and implementing the irrigation water management program; field works associated with coconut development, minor export crops, and forestry; agricultural credit program; and, rehabil- itation and maintenance of the highway feeder and rural road system. 5.09 Each year, the PD in collaboration with the various implement- ing agencies would prepare a detailed annual work program and update the five-year work plan for their district, together with associated budgetary requirements. This document would be supported by appropriate maps, charts, and diagrams and would include estimated manpower and material requirements. By September 30, the DCC would review the work plans and submit them to RDD, where the documents from the two districts would be combined in an annual and updated five-year work plan for the project. Following review and approval by the RDPSC, the project's annual work plan would be sent to IDA for comments. By November 15 of each year, GOSL would send to IDA for comments the detailed project annual work plan for the following calendar year and the annually updated five-year work plan for the remainder of the project period. Monitoring and Evaluation 5.10 The progress of the project would be monitored through quarterly reports submitted by each implementing agency to the PD in each district.  - 36 - Project monitoring in MPI would be by the recently established monitoring unit in RDD. There would be two types of monitoring: "input monitoring" would report progress on construction of civil and field works, procurement of equipment, implementation of programs for planting/replanting, rehabilitation and credit, and additions to staff; "output and benefit monitoring" would report achievements of project works in terms of increased production, improved services, and improved living standards. For "input monitoring," quarterly and annual reports would indicate both financial and physical pro- gress towards the the annual plan targets. Formats would be based, wherever possible, on the formats developed for the Kurunegala RDP. For "output and benefit monitoring," implementing agencies would report at least annually the current level of a carefully chosen "indicator" of progress toward specific objectives. Formats for these reports have been discussed with GOSL and a final version would be agreed during negotiations. 5.11 Each quarter the PD in each district would prepare a consolidated progress report based on the input monitoring reports. It would be reviewed by DCC within two weeks of the end of the quarter. The project cell in RDD, with assistance from the monitoring unit and supervisory consultants, would then prepare a summary quarterly report for the two districts to be discussed by the RDPSC. GOSL would submit quarterly reports to IDA within eight weeks of the end of the quarter. The quarterly reports together with the output/ benefit monitoring reports would be used in preparing the annual project work plan for the coming year (para 5.09) and a comprehensive annual progress report for the year just completed. GOSL would submit an annual progress report to IDA for review and comment by March 31 of the following year. 5.12 For overall evaluation, RDD would contract with local universities, research institutes, or consulting firms for: (a) small, in-depth studies of the development of minor export crops in Matale, coconut development in Puttalam, agricultural credit in both districts, and irrigation and water management in both districts; and (b) an overall evaluation of the project at the end of implementation (Project Completion). Evaluation would be based on data from the monitoring system and special data collection. The on-going work of the Agrarian Research and Training Institute (ARTI) on the evaluation of the Kurunegala Rural Development Project may provide useful guidance for work to be undertaken for the project. ARTI's reports on methodology on evaluation of the Kurunegala project would be made available to any insti- tution involved in the evaluation of this project. GOSL would by December 1, 1980 submit to IDA for comments a detailed plan for project evaluation. Technical Assistance 5.13 To strengthen implementation capacity and improve supervision, the project includes about 1,780 man months of consultancy services as detailed below: (a) 500 man-months of local engineering and accounting spe- cialists (supervisory consultant team see para 5.06); (b) 1,262 man-months of local water resource planning and con- struction consultants to assist the Irrigation Department  - 37 - in the planning and design for rehabilitating major and minor schemes, including water management provisions and construction supervison (see para 3.19); (c) a total of 12 man-months short-term expatriate specialists to advise the Minor Export Crop Department on its home- garden development program (para 3.04); and (d) a total of 6 man-months short-term expatriate specialist to advise with the monitoring and evaluation process and any discipline that might be required. Assurances have been obtained from GOSL that it would employ suitably quali- fied consultants for the above assignments in accordance with timetables and on terms and conditions satisfactory to IDA. Appointment of supervisory consultants would be a condition for credit effectiveness. 5.14 The project also makes provisions for a limited number of short-term study tours to neighboring countries by GOSL-selected project staff for observing the design and implementation of components similar to the ones financed under the project. Operation and Maintenance (O&M) 5.15 Irrigation Works. The ID will be responsible for O&M of the major irrigation schemes down to the field channel level. Responsibility for O&M of field channels (in major schemes) as well as minor irrigation schemes and groundwater schemes would rest with DAS. 1/ DAS staff would work directly with the benefitting farmers in carrying out its O&M responsibilties. 5.16 Vehicle and Equipment Repairs and Service. Minor repairs and services facilities for vehicles and equipment are adequate for present level of equipment in the two districts. New private repairshops are expected to be established with financial support from the Small Scale Industry (SMI) project, IDA Credit No. 942-CE. Major repairs of equipment and vehicles provided under the project would have to be undertaken in departmental workshops located outside the district. The responsibility for the O&M of all such vehicles and equipment lies with the operating agency or department. There are adequate private repair facilities to provide maintenance for farm equipment to be sold to farmers as well as for maintenance of motorcycles, motorized bicycles and bicycles to be sold to Government staff. 5.17 The maintenance and repair of rehabilitated highways would be done under the DH. Special provision has been made in the project to strengthen the O&M capability of DH (para 3.26). Rural water wells as well as rural roads would be maintained by the DLGS in cooperation with local authorities. CEB would be responsible for the O&M of rural electrification. Buildings would be maintained by the appropriate participating agency. 1/ "Agrarian Services Act No. 58 of 1979," Parliament of the Democratic Socialist Republic of Sri Lanka, September 25, 1979.  - 38 - VI. PRODUCTION, MARKETING, PRICES, FARM INCOMES AND IMPACT OF THE PROJECT ON GOSL BUDGET Cropping Intensity, Yields and Production 6.01 Paddy. Cropping intensity in Puttalam irrigation schemes is about 122% but only 77% in Matale. Because of the poor condition of the irrigation schemes to be rehabilitated under the project, only marginal increases in cropping intensity could be achieved without investments such as proposed under the project (paras 2.04 and 2.10). It is estimated that cropping intensity would reach about 160% in Matale and about 157% in Puttalam eight years after the completion of proposed improvements. Better timing in irrigation deliveries together with more timely planting, would bring about increases in yield and in the ratio of harvested to sown areas. At present, average yields are about 54 bu/ac in Matale and 39 bu/ac in Puttalam as compared with the national average of about 52 bu/ac (para 2.21). With improved irrigation water deliveries and increased availability of non water inputs brought about by the project, yields are expected to increase to about 62 bu/ac (1.37 ton/ac) in Matale and 50 bu/ac (1 ton/ac) in Puttalam. At full development, incremental production from project improved irrigation is estimated at about 12,700 MT of paddy in Matale and 14,000 MT in Puttalam (increases of 34% and 65% respectively of district production). Present and future cropping intensities and yields for the rehabilitated schemes are summarized below. Table 6.1: PADDY AREAS, YIELDS AND PRODUCTION Future Future % Increase Over Present Without With Future Situation Project Project Present Without Matale Irrigated area/ac 8,200 8,200 9,600 17 17 Gross sown area/ac 6,300 7,370 15,620 148 112 Gross harvested area/ac 5,885 6,895 15,000 155 118 Average Yield bush/ac 53.5 56.7 62.5 17 10 Production (000 bush) 315.2 391.1 937.6 197 140 (MT) 6,440.0 7,990.0 19,155.0 Puttalam Irrigated area/ac 17,200 17,200 18,900 10 10 Gross sown area /ac 20,950 21,250 29,650 41 40 Gross harvested area/ac 17,255 17,510 27,835 61 59 Average yield (bush/ac) 38.8 41.7 48.6 25 17 Production (000 bush) 669.7 730.3 1,353.9 102 85 (MT) 13,670.0 14,920.0 27,660.0 Total Production (000 bush) 984.9 1,121.4 2,291.5 133 104 (MT) 20,110.0 22,910.0 46,815.0  - 39 - 6.02 Coconut. It is expected that by 1995, when all project plantings/ replantings come into full production, the average yield per acre in the rehabilitated area would increase from the present 1,500 nuts to 2,300 nuts per acre, compared with an estimated 1,800 nuts in a without-project case. The present low yield (about 30 nuts per productive tree) results from a series of drought years, falling fertilizer use, and a general aging of the coconut palm population. Under these circumstances a without-project yield of about 1,800 nuts per ac (or about 35 nuts per productive tree) is probably optimistic. With the project, aging plantations would be reduced and average yield per acre increased to about 2,300 nuts per acre (or about 44 nuts per productive tree). At full development, total production from the rehabilitated area is estimated at about 119.7 M nuts per annum, of which 26.0 M nuts would be due to the project. 6.03 Minor Export Crops. By year 2000 when most new plantings under the project would be in full bearing, project generated production is expected to be about 450 MT of cocoa; 60 MT of cardamon; 1,000 MT of pepper; 500 MT of coffee; 40 MT of cloves; 60 MT of nutmeg and mace. Annual production of project financed intercrops is estimated at 200 MT of coffee, 110 MT of pepper and 36 MT of cocoa. Estimated yields and physical levels of input usage for minor export crops planted under the project are summarized below: Table 6.2: MINOR EXPORT CROPS Year of Peak Production Peak Production Kgr/ac Cocoa 15 225 Cardamon 10 70 Pepper 6 450 Coffee-Robusta 15 250 Cloves 25 250 Nutmeg 25 46 6.04 Sericulture. It is estimated that the project would increase the production of silk cocoons by about 68.8 MT in 1988. Assuming a silk recovery rate of about 10.5%, project induced silk production would amount to about 7.2 MT of silk. 6.05 Wood Products. It is expected that at maturity the project financed forestry program would yield 0.2 M MT of fuelwood and about 45 M cu ft of saw- logs in the Matale; and about 0.2 M MT of fuelwood and about 7 M cu ft of saw-logs in the Puttalam. Fuelwood would be harvested in about 15 years, pine sawlogs in 20 years, and tropical hardwoods sawlogs in 40 years. Marketing and Commodity Prices 6.06 Marketing. Sri Lanka rice imports have averaged about 360,000 tons in the past five years. Even with the highest GOSL projections of increased  - 40 - annual rice production, it is estimated that Sri Lanka will still be importing rice for the next two decades. Consequently, project induced production of about 26,700 MT should be readily absorbed by the domestic market. Current marketing, storage and milling facilities are adequate for present production levels; and are being strengthened under a programs funded by USAID and other donors. 6.07 Coconuts product are staples in Sri Lanka. Due to depressed pro- duction levels and steadily increasing domestic demand, coconut exports have fallen drastically during the last few years. Sri Lanka's share of world trade in copra and coconut oil decreased from about 8% (about 1,000 M nuts) in the 1960s to 3% (about 500 M nuts) at present. Coconut marketing is well developed and handled by the private sector. The Coconut Marketing Authority sets minimum prices for coconuts and coconut products and issues export licenses for copra and other coconut products. It is expected that project induced production (equivalent to 2.5% of total present production and about 5% of present exports) would be readily absorbed by the marketing system. 6.08 Sri Lanka's share of world trade in minor export crops is less than 5% for given crop. Existing private channels for marketing and exporting these products are efficient and can be readily expanded to take care of pro- ject induced production. 6.09 Sri Lanka has recently started exporting silk cocoons and market prospects appear good. The cocoons would be sold by farmers at a guaranteed minimum price to the SAPDA, which in turn would export them mainly to Japan. At full development, project production would represent less than 0.5% of Japan's 1979 imports of silkworm cocoons. Sri Lanka also has the option of reeling silk and exporting either raw silk or silk cloth. 6.10 Firewood, pulpwood, and saw logs produced by the project would be consumed within the country. State-owned plantations developed under the project would be harvested by the State Timber Corporation. Firewood would be sold to local contractors for resale normally within the district, or to the Ceylon Ceramic Corporation for use in the manufacture of tile, brick and ceramics. Saw logs would be sold to final users (public or private saw mills) or to traders for resale. 6.11 Prices. Most agricultural prices in Sri Lanka are influenced heavily by GOSL intervention through import/export controls, taxes, and consumer/producer subsidies and through various guaranteed price schemes (GPS). However, minor export crops are not subject to export controls or duties and domestic prices follow the world market. Silk cocoon prices are controlled at about 50% below export value by the SAPDA. This high margin is presently maintained as compensation for SAPDA's contribution to the cost of settling silk cocoon producers. It is expected that this differential will decrease once sericulture becomes better established in Sri Lanka. Prices for paddy and coconut products are maintained at about 40 to 50% below world market prices. To encourage yield-augmenting input use and to compensate for lower than international prices, GOSL provides subsidies on fertilizer and other inputs. Fertilizer subsidies cover about 75% of cost and are supple- mented by subsidies on irrigation water; land development works (such as  - 41 - colonization schemes); coconut rehabilitation and intercropping, and planting and replanting minor export crops and mulberries. Past GOSL policy that emphasized input subsidies reflected concerns about the inflationary conse- quences of the alternative incentive of increased output prices. However, with the change in Government in 1977 this concern has moderated, and a major emphasis of the present Government is to reduce both producers and consumers subsidies throughout the economy. 6.12 Thus, in 1979, GOSL changed drastically the role of the Paddy Market- ing Board (PMB) and the Food Commissioner (FC) from mere purchasing-cum- distributing agencies, with heavy subsidies for consumers, especially through the food subsidy scheme, to that of market regulators where PMB is to hold the market floor price for farmers' paddy and FC is to hold the ceiling price for rice consumers. The policy objective of this change was to expand the role of private sector in the rice market while concentrating the public sector activities on stabilizing the market with acceptable limits of seasonal variations in prices. Critical to the success of such policies is the range between floor and ceiling prices. This range should be set to provide adequate scope to the private sector without adversely affecting producers and consumer interests. However, the present range between floor and ceiling price is too wide. 1/ Since the end of 1979, the ceiling price level has been determined by the cost-plus import rice price, whereas the floor price level was deter- mined in November 1977 with no further change thereafter. To compensate for inflationary effects and unchanged GPS, GOSL in September 1979 increased the fertilizer subsidies from about 50% of C & F price to about 75%. However, given the minor impact of lower fertilizer prices on net farm income, farmers incentives were barely affected by this action. 6.13 Coconut prices are set by supply and demand, within a framework of export control and export taxation. While the latter has maintained farmgate prices well below border equivalent prices, these prices have been allowed to increase considerably during the last years. This was especially true during 1979 when the indicative price for coconut increased from Rs 800/1,000 nuts to about 950/1,000 nuts. However, a recent IDA analysis 1/ suggests that coconut farmgate prices are still low and would need to be raised by about 25 to 35% to encourage farmers to apply fertilizer at recommended levels. 6.14 In line with the above analysis, IDA has recently recommended to GOSL that it should revise the GPS rice price (increasing it by about 25%) and to allow the indicative price of coconuts to rise by a similar proportion. At the same time, GOSL should reduce the fertilizer subsidies. There are indi- cations that GOSL soon will adopt these measures. Consequently prices used in the financial analysis of the project are based on 1980 constant currency values projected to 1990 financial prices reflecting IDA's recommendation to: (i) increase GPS paddy price; (ii) increase the indicative coconut price; (iii) reduce fertilizer subsidies. Also projected prices reflect growth of wages in real terms. Finally, financial prices for minor export crops and silk cocoons are mainly assumed to follow current price differential between 1/ IDA, Sri Lanka: "Key Development Issues in the 1980's" Volume II: Agricultural Producer Incentives, May 29, 1980, pp. 30.  - 42 - world market prices and farmgate prices. Present and future prices used for the financial analysis are shown in Annex 7, Table 1. 6.15 Subsidies for Planting, Replanting and Rehabilitation of Crops. Uncertainties over land ownership emanating from land reform, and heavy ex- port duties 1/ during years of rising inflation, seriously depressed producers incentives and adversely affected investment in coconut and minor export crop development. Also given the predominantly smallholder nature of coconut and minor export crop holdings, it is inevitable that most farmers give preference to present over future consumption and thus are not keen to make investments (even when they have the means to do so) in ventures such as tree crops, where income is foregone for a long period of time. If an adequate agricul- tural credit system were to be operative in Sri Lanka, lack of investment resources could be partially overcome by special credit schemes. Unfor- tunately such a system does not exist yet. 6.16 Under such circumstances GOSL has introduced subsidy schemes in an attempt to reverse the long term downward trend in production of coconuts and minor export crops. The subsidy for planting, replanting and rehabilitating coconuts and minor export crops covers 50-70% of the total investment cost of such activities. For the financial analysis in this report, it is assumed that subsidy payments for planting, replanting and rehabilitating coconuts and minor export crops would remain essentially unchanged in constant terms. The critical importance of coconuts and minor export crops to Sri Lanka's economy justifies the current subsidy schemes. Under present government policy, coconut subsidies would be fully recovered through export taxation (see para 6.22). Although minor export crops subsidies would not be recovered, such crops present a high potential for GOSL's future export tax earnings. An effective credit system, such as would be introduced under the project, and coconut prices that better reflect their real value, which GOSL is likely to introduce, would lessen the need for subsidies. At this time, however, and despite these developments, a downward adjustment on the level of subsi- dies would appear unnecessarily risky. 6.17 Farm Income. The impact of the project on farm incomes would vary with farm location, cropping pattern, size, and tenancy arrangements. Farm incomes have been analyzed on the basis of ten illustrative models covering investments in irrigation, planting/replanting of coconuts, planting minor export crops, and sericulture. 6.18 The impact of irrigation investments on farm and family income was analyzed individually for farms within minor and major irrigation schemes. As average paddy farms in Matale tend to be smaller than in Puttalam. Farm sizes of 1.9 ac and 2.7 ac, each including 0.5 ac home plot, were used to represent typical situations in Matale and Puttalam schemes respectively. 2/ 1/ Export duty on minor export crops started being reduced by GOSL in 1977 and were totally waived at the end of 1979 in an attempt to increase producers incentives to increase production. 2/ According to the Agricultural Census, 1962, average size of the aswedumized paddyland in agricultural holdings was 1.4 ac in Matale and 2.2 ac in Puttalam.  - 43 - The impact on farm incomes from coconut investments were analyzed for farm models of 5.5 ac and 15.5 ac supplemented by 0.5 ac of upland crops 1/ The impact of investments in cocoa, coffee, and pepper were analyzed on the basis of their being established in the typical mixed forest gardens, in which small- holders plant their tree crops, and that in the typical 4 ac mixed forest garden the equivalent of 1/2 ac of one of these crops would be established. Since a portion of the acreage under cocoa and cardamon development is expected to be on private estates 2/, a per acre financial analysis was developed (Annex 7, Table 2). Lastly, the impact of investments in sericulture were analysed on the basis of settlement holding of 2 ac of mulberries and 0.5 ac of upland crops. The broad parameters of the models along with present and future income levels are shown below and in more detail in Annex 7, Tables 3 to 6. Table 6.3: FAMILY INCOMES Net Family Income Incremental Future Future Income Farm Model Farm Size Present WO W FW -: P ac (%) Matale Paddy (Minor Irrigation) 1.9 2,705 3,640 5,085 88 Paddy (Major Irrigation) 1.9 2,615 3,590 5,810 122 Mixed Forest Garden (1/2 ac of cocoa) 4.0 12,000 12,000 12,835 7 Mixed Forest Garden (1/2 ac of coffee) 4.0 12,000 12,000 14,030 17 Mixed Forest Garden (1/2 ac of pepper) 4.0 12,000 12,000 13,250 10 Sericulture 2.5 - - 10,610 Puttalam Paddy (Minor Irrigation) 2.7 2,160 3,000 5,230 142 Paddy (Major Irrigation) 2.7 2,760 3,850 5,940 115 Coconut (Replant/ Rehab) 5.5 7,180 9,600 11,410 59 Coconut (Replant/ Rehab) 15.5 18,345 25,015 30,180 65 1/ According to the Agricultural Census, 1962, about 50% of the area was in holding sizes of less than 10 ac, 14% in 10-25 ac and 35% in units of 25 ac and above. There is not more recent information of coconut land tenure. 2/ Holdings limited to 50 ac.  - 44 - 6.19 The summary table above shows the large difference in current net farm income for paddy, coconut, minor export crops, and silkworm growers to be benefited by the project. However, a number of factors explain the large disparity in relative incremental benefits of the project. Firstly, small farmers in irrigated schemes, with low intensities, low productivity and high crop risk, would be able to substantially increase cropping intensities and yields and decrease their risks. Hence, they would more than double present income levels. Secondly, coconut farmers with a high proportion of senile palms and low yields on mature plantations would be able to decrease the proportion of senile plantation and increase yields. Thus, their levels of income would increase by more than 50%. Thirdly, in the case of mixed forest garden holdings the increase in total farm income is expected to be moderate since in the illustrative models used only 12% of the farm was assumed to be improved under the project. Fourthly, settlers in the silkworm scheme, former unskilled laborers, would be able to own a farm and realize a farm income of about Rs 10,610 per year. While recognizing that relative incremental income would vary greatly among the project beneficiaries, estimates of financial returns on the directly productive investment activities to be financed under the project indicate annual returns ranging from 17% to 100%. All such activ- ities should be financially attractive to farmers. Impact on the Government Budget 6.20 The capital cost of the project works would amount to Rs 266 M in present value (PV) 1/ terms while the incremental O&M costs of all the project components during the project life is estimated at Rs 46 M in PV. Subsidies for coconut, minor export crops and sericulture would total Rs 14 M (PV). Based on projected international prices and GOSL-controlled prices, future subsidies on incremental fertilizer used due to the project is estimated at Rs 32 M (PV). Agriculture credit would amount to Rs 60 M (PV). Hence the PV of total capital and O&M costs and subsidies over the 25 year life of the project would amount to Rs 418 M. 6.21 GOSL budgetary contribution to the project during the total project life is estimated at Rs 198 M (PV) or equivalent to 47% of total project costs. The balance of Rs 220 M (PV) or 53% of total project costs would be recovered from beneficiaries through different means and from GOSL commercial activi- ties as described hereunder. Since about 30% of the project's investment cost would be directed to the economic and social infrastructure, this level of direct 2/ recovery is very satisfactory and higher than for the average rural development project because of the revenues accruing from the forestry component. 6.22 Recoveries. GOSL revenues through implicit and/or explicit taxation for exports of coconuts and sericulture are estimated to amount to Rs 50 M 1/ Analysis done in constant 1980 Rupees. A 12% p.a. discount rate is used to calculate PV. Costs include physical contingencies but exclude price contingencies. 2/ The project would have substantial secondary benefits a part of which would be captured by GOSL through taxes and duties.  - 45 - (PV). This amount would allow GOSL to more than fully recover investments on these components. The sales of project induced production of fuelwood would provide GOSL a revenue of Rs 101 M (PV). Under the Land Betteresnt Charge Law of 1976, irrigation rates are confined to major irrigation echew.s providing full irrigation facilities. Charges are currently set at Rs 30/ac for schemes with more than 150% cropping intensity and Rs 20/ac for schemes with less than 150% cropping intensity. On this basis incremental water charges for the 15 major irrigation schemes rehabilitated under the project would amount to Rs 3 M (PV). According to the above law, farmers benefiting from 240 minor irriga- tion schemes do not have to pay water charges, instead they contribute labor for the O&M of these schemes. Under the project GOSL would undertake about 25% of the earthwork for rehabilitating these minor schemes by utilizing voluntary farmers labor (para 3.16). It is estimated that this latest contri- bution would amount to Rs 5 M (PV). Hence recoveries on irrigation facilities would amount to Rs 8 M (PV). This level of recovery is considered reasonable because of the low income of most farmers benefitting from improvem-nts to irrigation facilities. Agricultural credit program would be reco'ci-- through credit repayments by farmers estimated at about Rs 61 M (PV), slightly higher than credit disbursements as the average interest rate charged for the dif- ferent types of institutional credit is slightly higher than the 12% discount rate considered to be the annual cost of capital in Sri Lanka. Although investments in minor export crops would not be recovered, future exports would provide a potential for later GOSL revenues. In sum, the total recoveries from the project would amount to Rs 220 M (PV). Table 6.4 below summarizes the total project costs and the estimated recoveries in present value (PV) terms.  - 46 - Table 6.4: PRESENT VALUES OF PROJECT COST AND RECOVERIES Cost Capital Costs: Agricultural Sector 1/ 41.3 Forestry 20.9 Water Sector 106.2 Economic Infrastructure 55.3 Social Infrastructure 29.4 Project Coordination 12.8 Subtotal 265.9 O&M Cost of all Project Components 46.4 Subsidies: Coconuts 7.8 Minor Export Crops 5.2 Sericulture 0.9 Input Subsidies 31.8 Subtotal 45.7 Agricultural Credit 60.3 Total Cost 418.3 Recoveries Water Charges 3.0 Farmer Labor Contribution for Rehabilitation of Minor Irrigation Schemes 4.7 Coconut Export Duty 32.1 Sericulture Implicit Taxation 18.3 Forestry Products 100.5 Repayments on Agricultural Credit 61.2 Total Recoveries 219.8 VII. BENEFITS AND JUSTIFICATION General 7.01 The proposed project would increase agricultural production, raise incomes, and improve living standards in the predominantly rural districts of Matale and Puttalam. By reducing imports of rice and increasing exports of coconut products, minor export crops, and silk cocoons, the project would have a beneficial effect on GOSL's balance of payments. It would also signi- ficantly increase employment opportunities. 1/ Excludes Forestry and Agricultural Credit.  - 47 - Employment and Income Effects 7.02 Due to more intensive land use and improved crop husbandry prac- tices, the project would result in additional direct annual farm employment of about 2 M man days at full development in 1995. The value added in agricul- ture, plus the increase in input requirements should also generate indirect additional employment. Most of the demand would be for unskilled workers and thus provide employment opportunities for farm families with excess family labor and for landless families. 7.03 About two thirds of direct project beneficiaries would be small farmers with operational holdings of less than 2 ac (para 2.15) and present incomes below the poverty level of US$75 per capita per annum. With success- ful project implementation, the incomes of most of these farm families would be raised above the poverty line. Since most of the direct benefits of the project would come from increased farm productivity, the distribution of bene- fits would largely follow the existing land ownership pattern. Thus, even though two thirds of the intended beneficiaries appear to be below the poverty income level, only about one third of the direct benefits are expected to accrue to that group. Balance of Payments 7.04 Based on projected 1990 international prices expressed in constant 1980 dollars, additional exports of coconut products, minor export crops, and silk cocoons should provide incremental foreign exchange earnings of about US$8.9 M per annum by 1995. Import substitution of rice, due to project induced production, should save about US$6.6 M per annum. The foreign exchange costs for tradable recurrent inputs in 1995 is estimated to be US$2.5 M per annum. Thus, at full development, net foreign exchange earnings from the project would be about US$13 M per annum. Economic and Social Infrastructure 7.05 Rehabilitation and expansion of the economic and social infrastruc- ture in the two districts would improve living standards, especially among families in isolated areas. The project would improve drinking water supplies for about 6,250 rural families in each District. Electricity would be supplied to about 1,100 rural households in Matale and 550 in Puttalam. Isolated vil- lages, especially along the coast in Puttalam and in the Laggala region of Matale, would enjoy improved road transport. About 150 schools in Matale and 140 in Puttalam would be provided with additional facilities or equipment. Curative health services throughout the districts would be upgraded. Conse- quently, disparities in living standards within the two districts and the country as a whole would be reduced. Environmental Impact 7.06 The project is expected to have no adverse environmental impact. The forestry program would be beneficial through assisting in the better con- servation of the upper catchment area of Mahaweli Ganga. The project would provide safe drinking water through the installation of 250 wells.  - 48 - Economic Benefits 7.07 In calculating the economic benefits of the project, only the bene- fits generated by the directly productive components e.g. irrigation, coconut, minor export crops, sericulture and forestry development were counted; no attempt was made to quantify the benefits from other project components. On that basis, the overall economic rate of return (ERR) is estimated to be 17%, (18% for Matale and 15% for Puttalam). 1/ The analysis implies that through implementation of the multipurpose project, Sri Lanka's economy would realize a net present value 2! of project benefits of Rs 182 M, (Rs 130 M in Matale and Rs 52 M in Puttalam). If the cost of social infrastructure were excluded, the ERR of the directly productive components is estimated at 23% (24% in Matale and 22% in Puttalam). To analyze the economic viability of each compo- nent, the ERR of individual directly productive components were calculated and are shown in Annex 7, Table 7. ERR for such components range from 17% (Minor Irrigation Puttalam) to 43% (Sericulture in Matale). 7.08 The economic analysis is based on the following assumptions: (a) Prices: Prices of all tradables are calculated as border prices in 1980 rupees. Economic prices for the major agri- cultural products are based on Bank-projected 1990 prices with appropriate adjustments for freight, handling, proces- sing, and quality differentials. Economic prices for non- tradables are based on local rupee prices adjusted by appropriate conversion factors as specified in Annex 7, Table 8. To take account of existing unemployment in Sri Lanka, the economic wage rate for farm labor is estimated at Rs 9.75 per manday (annual average) in 1980 (compared to an average market wage of Rs 13.5), increasing to Rs 12.5 per manday (annual average) in 1990. Input and output prices used in the economic analysis are shown in Annex 7, Table 1. (b) Benefits. The direct project benefits would be increased production of rice, coconut products, minor export crops, silk cocoons, and forestry products. Estimates of incremen- tal production are based on most probable yields and inten- sities attainable with project investments (paras 6.01-6.05). (c) Investment Costs. All project costs except price contingen- cies are included in the economic analysis. (d) Project Life and Phasing of Benefits. A project life of 25 years has been assumed, including the five year period of project implementation. Benefits from increased agri- cultural production would peak after about 15 years (1995). 1/ Project includes physical contingencies but excludes price contingencies. 2/ Discounted at 12% per annum, estimated to be the opportunity cost of capital in Sri Lanka.  - 49 - The phasing of benefits takes account of the differences between productive components to achieve full development and the different rates of project implementation. Phasing of project benefits is shown in Annex 7, Table 9. Risks and Sensitivity 7.09 The risks related to the engineering and agronomic proposals are considered to be within an acceptable range. The executing agencies have experience in carrying out the type of works proposed, while projected yields, intensities, and production techniques have been adequately tested and are currently observable on progressive farms. However, given the nature of the project and the difficulties associated with inter-related works, it would be unrealistic to expect problem-free implementation. 7.10 Poor quality control of irrigation works has been a common problem in Sri Lanka and has been observed at the Kurunegala Rural Development Project. To minimize such risk, the project would employ planning and supervisory con- sultants, an innovation for projects of this type in Sri Lanka. The intro- duction of water management techniques, although proven to be feasible and currently adopted in some areas of Sri Lanka, are taking longer to be imple- mented than previously envisioned. To overcome this problem, the project would provide strong institutional support for the introduction of water management in the two districts. To reflect a more realistic rate of adoption of improved water management under the project, full development of project irrigation works has been estimated to require eight years after completion of project works. Also, sensitivity tests were made for slower rates of adoption and lower intensities than originally estimated for the yala season. 7.11 Problems related to coordination and implementation are often associated with multi-component projects. However, these are not expected to be significant for this project given Sri Lanka's decentralized system of district government (paras 1.11 and 1.13). The proposed management system is a replicate of the system installed in Kurunegla RDP, which has been working satisfactorily. 7.12 Sensitivity tests indicate that the project remains viable under a variety of adverse assumptions about benefits and costs. Results of some important tests are shown below.  - 50 - Table 7.1: SENSITIVITY ANALYSIS Total Rate of Return (%) Project Matale Puttalam (a) Base case 17 18 15 (b) 10% increase in costs 16 17 14 (c) two year delay in realization of increased paddy production 16 17 14 (d) 20% decrease in expected yala cropped area 16 17 14 (e) 20% decrease in expected paddy yields 16 17 14 (f) 20% decrease in benefit from coconut sericulture and minor export crops (slower rate of implementation) 16 17 14 (g) (c) and (f) 15 16 13 (h) (b), (e) and (f) 14 16 12 (i) directly productive components 23 24 22 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 Assurances have been obtained from GOSL that: (a) all plans and designs for facilities under the project (inc- luding irrigation and groundwater), would be in accordance with specifications and guidelines satisfactory to IDA (para 3.16 and 3.21); (b) all agencies involved in project implementation would prepare and maintain separate accounts, and the Ministry of Plan Implementation would prepare and maintain consoli- dated accounts for the project, and such accounts together with disbursement documents, would be audited annually by independent auditors acceptable to IDA (para 4.10); (c) the Project Directors in Matale and Puttalam districts would have experience, qualifications, functions and responsibilities acceptable to IDA (para 5.01); (d) it would establish and maintain a District Coordination Committee in each district and a Steering Committee at the national level (paras 5.02 and 5.04); and  - 51 - (e) suitably qualified teams of supervisory, planning and con- struction consultants (local), as well as short-term expa- triate specialists would be employed on terms, conditions and timetable satisfactory to IDA (para 5.13). 8.03 Conditions for credit effectiveness would be that GOSL would have: (a) executed subsidiary agreements, satisfactory to IDA, with the People's Bank and the Bank of Ceylon regarding agricultural credit operations under the project (para 3.08); and (b) appointed supervisory consultants (para 5.13). 8.04 With the above assurances and conditions, the project would be suitable for an IDA credit of US$33.5 M on standard IDA terms. The borrower would be the Democratic Socialist Republic of Sri Lanka.  SRI LANKA SECOND RURAL DEVELOPMENT PROJECT Total Project Cost Estimates and Schedule of Expenditures Total Cost Local Foreign Total 1980 1981 1982 1983 1984 1985 1986 -------------------------------------------Rs M--------------------------------------- I. Civil Works 126.19 37.92 164.11 2.48 27.63 38.76 42.55 34.04 18.65 0.00 II. Crops and Forestry Develop.l/ 44.55 5.60 50.15 0.09 5.25 7.30 9.74 12.34 15.43 0.00 III. Equipment 5.45 56.98 62.43 6.98 47.29 7.90 0.20 0.06 00.00 0.00 IV. Crop Production Loans 29.95 18.25 48.20 0.00 2.80 6.05 8.95 12.85 17.55 0.00 V. Loans for Farm Equipment 13.77 27.70 41.47 0.00 8.48 8.66 7.96 8.11 8.26 0.00 VI. Technical Assistance 20.09 6.41 26.50 0.67 6.58 6.05 5.23 4.20 2.85 0.92 VII. Supervision and Administration 54.52 19.14 73.66 0.50 9.27 15.57 15.87 15.96. 16.01 0.48 VIII. Base Cost 294.52 172.00 466.52 10.72 107.30 90.29 90.50 87.56. 78.75 1.40 IX. Physical Contingencies 23.31 12.49 35.80 1.07 9.88 7.19 6.97 6.10 4.44 0.15 X. Price Contingencies2! 197.03 80.81 277.84 1.81 21.84 39.98 58.89 73.87 79.73 1.72 Total 514.86 265.30 280.16 13.60 139.02 137.46 156.36 167.53 162.92 3.27 1/ Referred to as Field Works in the tables by components. 2/ Based on the following rates: 1980 1981 1982 1983 1984 1985 Equipment and Vehicles 10.5 9.0 8.0 7.0 6.0 6.0 Civil Works 30.0 15.0 12.0 12.0 10.0 10.0 Other Costs 21.0 15.0 12.0 12.0 10.0 10.0 U,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ m X4 in  SRI LANKA SECOND RURAL DEVELOPMENT PROJECT Total Project Cost Summary by Districts and Components Total Cost Local Foreign Total % of Total Matale Puttalam Kurunegla RDD Agriculture --- Rs M---____ ------- - --------Rs M-------------- Coconut Development 14.11 5.35 19.46 2.49 - 19.46 - _ Minor Export Crops 20.77 7.77 28.54 3.65 *28.54 - - - Sericulture 4.06 0.78 4.84 0.62 4.84 - - - Agricultural Credit 44.42 47.75 92.17 11.81 45.22 46.95 - - Agricultural Inputs 4.91 4.00 8.91 1.14 4.74 4.17 Livestock Development 3.11 1.22 4.33 0.56 1.92 2.41 Forestry 26.40 4.83 31.23 4.0 21.09 10.14 - - Fisheries 4.82 2.99 7.81 1.0 - 7.81 - _ Subtotal 122.60 74.69 197.29 25.27 106.35 90.94 - - Water Irrigation and Water Management 85.29 44.47 129.76 16.61 34.04 82.67 13.05 _ Groundwater Development 2.47 2.89 5.36 0.70 - 5.36 - - Rural Water Supply 2.98 3.82 6.80 0.90 2.98 3.82 - _ Subtotal 90.74 51.18 141.92 18.21 37.02 91.85 13-05 - Economic Infrastructure Roads 35.36 23.43 58.79 7.53 31.59 27.20 - Rural Electrification 8.30 4.15 12.45 1.60 8.02 4.43 - Subtotal 43.66 27-.58 71.24 9.13 39.61 31.63 - _ Social Infrastructure Health 8.34 7.76 16.10 2.06 6.49 9.61 - - Education 12.11 7.18 19.29 2.47 ^5L6 9.73 - _ Subtotal 20.45 14.94 35.39 4.53 16.05 19 34 - - Project Management and Coordination 17.07 3.61 20.68 2.65 2.90 3.22 - 14.56 Total Base Cost 294.52 172.00 466.52 59.79 201.93 236.98 13.05 14.56 Physical Contingencies 23.31 12.49 35.80 4.59 15.00 18.04 1.30 1.46 Price Contingencies 197.03 80.81 277.84 35.62 120.71 142.66 5.31 9.16 a Total Cost 514.86 265.30 780.16 100.00 337.64 397.68 19.66 25.18  ANNEX 1 Table 2 SRI LANKA SECOND RURAL DEVELOPMENT PROJECT Coconut Development (Puttalam District) Cost Estimates and Scheduling of Expenditures- Total Cost Local Foreign Total 1980 1981 1982 1983 1984 1985 I. Civil Works - - - - - - - - - - - - - - - Rs M- - - - - - - - - - - - - - - - Coconut Cultivation Board 0.61 0.26 0.87 0.12 0.12 0.34 0.29 - - Fruit Tree Farm (DA) 0.19 0.08 0.27 - 0.05 0.22 - _ Adaptive Research Farm 0.20 0.09 0.29 - 0.20 0.09 - - Sub-total 1.00 0.43 1.43 0.12 0.37 0.65 0.29 - - II. Field Works Replanting/Underplanting 6.54 1.63 8.17 - 0.31 0.73 1.45 2.28 3.40 Rehabilitation 2.32 0.58 2.90 - 0.18 0.39 0.60 0.71 1.02 Small Gardens 0.10 0.03 0.13 - 0.01 0.02 0.02 0.03 0.05 Intercropping 1.70 0.42 2.12 - 0.10 0.26 0.43 0.60 0.73 Sub-total 10.66 2.66 13.32 - 0.60 1.40 2.50 3.62 5.20 III. Equipment and Transp. Vehicles Coconut Cultivation Board 0.11 1.01 1.12 0.28 0.64 0.20 - - - Fruit Tree Farm 0.01 0.07 0.08 - 0.08 - - - - Adaptive Res. Farm 0.01 0.06 0.07 - 0.07 - - - - Sub-total 0.13 1.14 1.27 0.28 0.79 0.20 - _ - IV. Supervision and Administration Coconut Cultivat!ion Board 1.68 0.83 2.51 - 0.25 0.51 0.59 0.58 0.58 Fruit Tree Farm 0.41 0.17 0.58 - 0.06 0.13 0.13 0.13 0.13 Adaptive Res. Farm 0.23 0.12 0.35 - 0.05 0.07 0.07 0.08 0.08 Sub-total 2.32 1.12 3.44 - 0.36 0.71 0.79 0.79 0.79 V. Base Cost 14.11 5.35 19.46 0.40 2.12 2.96 3.58 4.41 5.99 VI. Physical Contingencies 0.35 0.27 0.62 0.04 0.15 0.16 0.11 0.08 0.08 VII. Price Contingencies 9.71 3.05 12.76 - 0.49 1.26 2.09 3.34 5.58 TOTAL 24.17 8.67 32.84 0.44 2.76 4.38 5.78 7.83 11.65 54  ANNEX 1 Table 3 SRI LANKA SECOND RURAL DEVELOPMENT PROJECT Minor Export Crops Development (Matale) Cost Estimates and Schedule of Expenditures Total Cost Annual Expenditures Local Foreign Total 1980 1981 1982 1983 1984 1985 --- s ---------------------------R M-------------------------------- I. Civil Works. 3.04 1.30 4.34 0.43 2.63 0.80 0.36 0.12 - II. Field Works Regular subsidy program 8.47 - 8.47 - 0.13 0.85 1.65 2.41 3.43 Smallholder subsidy program 0.52 - 0.52 - 0.04 0.12 0.12 0.12 0.12 Subtotal 8.99 - 8.99 - 0.17 0.97 1.77 2.53 3.55 III. Equipment Equipment and vehicles for DMEC 0.15 2.90 3.05 0.48 2.57 - - - - Vehicles for DA 0.02 0.39 0.41 - 0.41 - - - - Subtotal 0.17 3.29 3.46 0.48 2.98 - - - - IV. Technical Assistance Overseas study tours - 0.80 0.80 - 0.16 0.16 0.16 0.16 0.16 Consulting services - 1.12 1.12 - 0.56 0.56 - - - Subtotal - 1.92 1.92 - 0.72 .72 0.16 0.16 0.16 V. Supervision and Administration Salaries and other costs for DMEC 6.20 1.26 7.46 - 1.22 1.56 1.56 1.56 1.56 Salaries and other costs for DA 2.37 - 2.37 _ 0.45 0.48 0.48 0.48 0.48 Subtotal 8.57 1.26 9.83 - 1.67 2.04 2.04 2.04 2.04 VI. Base Cost 20.77 7.77 28.54 0.91. 8.17 4.53 4.33 4.85 5.75 VII. Physical Contingencies 1.18 0.78 1.96 0.09 0.80 0.36 0.26 0.23 0.22 VIII. Price Contingencies 14.14 2.42 16.56 0.20 1.79 2.06 2.70 3.99 5.82 IX. Total Cost 36.09 10.97 47.06 1.20 10.76 6.95 7.29 9.07 11.79 55  SRI LANKA RURAL DEVELOPMENT II PROJECT Cost Estimates & Schedule of Expenditure Sericulture - Matale Local Foreign Total 1980 1981 1982 1983 1984 1985 -----------------------------------Rs Million------------ - ------------------- - Civil Works 0.47 0.20 0.67 0.30 0.37 - - - Field Works 1.15 - 1.15 0.03 0.60 0.52 - _ Equipment and Vehicles 0.20 0.34 0.54 0.29 0.25 - - _ Supervision and Administration 2.24 0.24 2.48 - 0.23 0.56 0.56 0.56 0.57 Base Cost 4.06 0.78 4.84 0.62 1.45 1.08 0.56 0.56 0.57 Physical Contingencies 0.41 0.08 0.49 0.06 0.15 0.10 0.06 0.06 0.06 Price Contingencies 2.02 0.28 2.30 0.14 0.33 0.45 0.34 O.46 0.58 Total Cost 6.49 1.14 7.63 0.82 1.93 1.63 0.96 1.08 1.21 04- LJ1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I  ANNEX 1 Table 5 SRI LANKA SECOND RURAL DEVELOPMENT PROJECT Agricultural Credit Cost Estimates and Schedule of Expenditures Local Foreign Total 1981 1982 1983 1984 1985 ---------------------------------------Rs M-------- -------______________________ I. Short-term Production Loans Matale 12.65 2.50 15.15 0.70 1.55 2.70 4.20 6.00 Puttalam 7.50 2.50 10.00 0.55 1.20 1.90 2.70 3.65 Subtotal 20.15 5.00 25.15 1.25 2.75 7.60 6.90 9.65 II. Medium and Long-term Crop Loans Matale(minor export crops)"/ 6.05 2.00 8.05 0.40 0.80 1.35 2.10 3.40 Puttalam (coconuts)Z 3.75 11.25 15.00 1.15 2.50 3.00 3.85 4.50 Subtotal T1 13.25 23.05 1.55 3.30 4.35 5.95 7.90 III. Loans for Farm Equipment Matalei/ 5.70 13.35 19.05 3.85 3.95 3.65 3.75 3.85 PuttalamE/ 6.05 14.15 20.20 3.94 3.99 4.04 4.09 4.14 Subtotal 11.75 27.50 39.25 7.79 7.94 7.69 7.84 7.99 IV. Loans for Storage and Shed M 1tale1/ 1.57 0.15 1.72 0.59 0.62 0.17 0.17 0.17 Puttalam2/ 0.45 0.05 0.50 0.10 0.10 0.10 0.10 0.10 Subtotal 2.02 0.20 2.22 0.69 0.72 0.27 0.27 0.27 3' V. Vehicles and Equipment- Matale 0.05 0.20 0.25 0.25 Puttalam 0.05 0.20 0.25 0.25 Subtotal 0.10 0.40 0.50 0.50 - - - - VI. Technical Assistance (overseas staff training) Matale - 0.50 0.50 - 0.25 0.25 - - Puttalam _ 0.50 0.50 _ 0.25 0.25 - - Subtotal 1.00 1.00 - 0.50 0.50 - - VII. SuDervision and Administration_/ Matale 0.30 0.20 0.50 0.10 0.10 0.10 0.10 0.10 Puttalam 0.30 0.20 0.50 0.10 0.10 0.10 0.10 0.10 Subtotal 0.60 0.40 1.00 0.20 0.20 0 .20 0.20 0.20 VIII. Base Cost Matale 26.32 18.90 45.22 5.89 7.27 8.22 10.32 13.52 Puttalam 18.10 28.85 46.95 6.09 8.14 9.39 10.84 12.49 Subtotal 44.42 47.75 92.17 11.98 15.41 17.61 21.16 26.01 IX. Physical Contingencies5/ Matale 0.04 0.09 0.13 0.04 0.03 0.04 0.01 0.01 Puttalam 0.03 0.09 0.12 0.03 0.04 0.03 0.01 0.01 Subtotal 0.07 0.18 0.25 0,07 0.07 0.07 0.02 0.02 X. Price Contingencies Matale 17.59 11.03 28.62 1.22 2.81 4.50 7.64 12.45 Puttalam 11.64 17.54 29.18 1.26 3.15 5.19 8.08 11.50 Subtotal 29.23 28.57 57.80 2.48 T9