Sri Lanka - Fourth Mahaweli Ganga Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4885-CE STAFF APPRAISAL REPORT SRI LANKA M1AHAWELI GANGA DEVELOPMENT PROJECT IV May 4, 1984 South Asia Projects Departnent Irrigation Division I This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwisp be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1 = Rs Rs 1 US$ end-CY83 25.0 0.0400 UNITS AND EQUIVALENTS 1 millimeter (mm) 0.0394 inches (in) 1 meter (m) 3.2808 feet (ft) 1 kilometer (km) = 0.6214 miles (mi) 1 hectare (ha) = 2.4711 acres (ac) 1 kilogram (kg) = 2.2046 pounds (lb) 1 metric ton (ton) 1.0;61 long tons (1 ton) 1 m3'sec 35.3357 cubic feet/sec (cusec) 1 bushel of paddy 20.8655 kg PRINCIPAL ABBREVIATIONS USED AMDP - Accelerated Mahaweli Development Program ASC - Agrarian Service Center BC - Bank of Ceylon CB - Central Bank CIDA - Canadian International Developmelit Agency CRCS - Comprehensive Rural Credit Scheme DPM - Deputy Resident Project Manager ERR - Economic Rate of Return FD - Forest Department FSS - Food Stamp Scheme GOSL - Government of Sri Lanka LB - System B Left Bank MASL - Mahaweli Authority of Sri Lanka MEA - Mahaweli Economic Agency NECA - Mahaweli Engineering and Construction Agency NDK - Nagolla Dee-ela Kadiunne-ela NPW - Net Present Worth 0CC - Opportunity Cost of Capital O&M - Operation and Maintenance PB - People's Bank PMB - Paddy Marketing Board PV - Present Value PW - Present Worth RB - System B Right Bank RCAB - Rural Credit Advisory Board SCF - Standard Conversion Factor SLCC - Sri Lanka Cashew Corporation SV - Switching Value T&V - Training and Visit Agricultural Extension System USAID - United States Agency for International Development WFP - World Food Programme Fiscal Year January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANIA MAHAWELI GANGA DEVELOPMENT PROJECT IV Loan. Credit and Project Suumary Borrower: rhe Democratic Socialist Republic of Sri Lanka Amount: Bank Loan: US$12.1 million (including capitalized front-end fee) IDA Credit: SDR 28.3 uilliom (US$30.0 million equivalent) Terms: Bank Loan: Repayment in ZO years, iaclud:aig five years' grace, at the standard variable interest rate; front-end fee of 0.25% of the base loan amount. IDA Credit: Standard Project Description: The project would provide facilities for nev irrigation in about 14,000 ha and settlement of 18,200 families ot the Right Bank of Haduru Oya River, enhance irrigation to about 1,800 ha of existing cultivated area and establish fuelwood aud cashew plantations in non- irrigated project areas. It would also provide settlement assistance, social infrastructure, uanagememt facilities, technical assistance, training, and support Sri Lanka's ongoing environmental protection program. The project faces no major risk. This document has a restricted distribution and may be used by recipients only in the performance or their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii- (US$ Milliom EguiMalent) Proiect Costs:a/ Proiect Components Local Foreign Total A. Irrigation Facilities NDK Dam 4.46 6.96 11.42 Main & Branch Canals 18.64 30.66 49.30 Tertiary System & Land Development 6.66 12.15 18.81 Subtotal 29.76 49.77 79.53 B. Social 6 Administrative Infrastructure Roads 5.57 4.74 10.31 Others (incl. health, education, and administrative facilities) 10.51 3.92 14.43 Subtotal 16.08 8.66 24.74 C. Environmental Program 0.78 0.10 0.88 D. Cashew Plantations 0.36 0.22 0.58 E. Fisheries 0.11 0.01 0.12 F. Equipment & Vehicles 1.10 4.51 5.61 G. Training & Monitoring 0.48 0.01 0.49 B. Administration 2.23 0.01 2.24 I. Operations and Mainten- ance during Construction 3.79 0.06 3.85 Total Base Costs 54.69 63.35 118.04 Physical Contingencies 4.68 5.30 9.98 Price Contingencies 15.71 16.37 32.08 Front-end Fee on Bank Loan 0.03 0.03 Total 75.08 85.05 160.13 Financing Plan: (US$ Million Equivalent) Local Foreipn Total IDA/IBRD 12.60 29.43 42.03 Saudi Fund 9.20 40.90 50.10 CIDA 25.30 14.70 40.00 Government 28.00 28.00 Total 75.10 85.03 160.13 Rate of Return: 12 percent a/ Includes taxes and duties of US$1.3 million equivalent  Est imated Disburasement: (US$ million Ecalivalent) E_ 1985 1986 1987 jt8S 1989 990 knr.ual 0.03 5.50 10.10 12.90 8.90 4.60 CGimulative 0.03 5.53 15.63 28.53 37.43 42.03 Staff APpraisal Rkeprt: No. 4885-CE of May 4, 1984 EIBRD No. 17493, IBRD No. 18231 i  -iv- STAFF APPRAISAL REPORT SRI LANKA MAHAWELI GANGA DEVELOPMENT PROJECT IV Table of Contents Page No. PROJECT SUMMARY BACKGROUND , I. SECTORAL BACKGROUND * , .****. 1 General *e. , ..0 .,. ....... ***. .*...... ******************** 1I Agricultural Sector ....... ..0. .... . .. . . 2 Irrigation Subsector 3 ....... ........*...... ,* 3 Mahaweli Ganga Development Program ........................ 4 Bank Group's Role in Mahaweli Ganga Develop ment........,,,.,, 6 ImDplementation Progress of Mahaweli Ganga Development Projects II and III ............... . *.. . ... Oa. ... ............. *.... 6 II. PROJECT AREA o. ..ooo...ooo.oooo.....go.......... * ..o..*., 7 General *.... ,.*.* ,..- 7 Climate *...0.,..O....0. ,0*.0*.** ..*********.******e*** 8 Topography and Drainage ................. 8 Soils and Land Suitability for Irrigation Development ..ooo.. 9 Rural Credit ....... ....*e..... .......*.* **... ..9 III. THE PROJECT .....*..o..o...* ...o..o,o,,**oo....oo....oo.... 10 General. ..... . ... ... .....I.... .*.*..*.*. *....a..*a... . . 10 Principal Project Features ., .............. .... . . ........... . .., 10 Description of Project Works, Facilities, and Programs ...... 11 Water Supply and Demand ........................ 17 Status of Project Preparation s.., 18 Technical Assistance ....................., ., ,, 18 Cost Estimates ,....,0.000...........1......., ...... 19 Implementation Schedule and Settlement Rate 21 Finiancing 21 Procurement ,.3..... .........,., , 23 Accounts and Audit , 24 Disburoements .................... 25 Eavironmental Impact ...... oo.w.0........ 26  -v- IV. ORGANIZATION AND MANAGEMENT .. . .................. 28 Mahaweli Authority of Sri Lanka , .,........... 28 Mahaweli Engineering and Construction Agency , 28 Mahaweli Economic Agency .. *.. *. , 28 Agricultural Supporting Services .. 29 Project Design and Construction ........ 30 Operation and Maintenance ................... ... . 30 Monitoring and Evaluation 31 Aralaganwila Irrigation Training Center and Farm , 31 V. PRODUCTION, MARKETING AND PRICES, FARM INC.OME, AND COST RECOVERY ..................... .....,, .., 32 Agricultural Development with the Project 32 Future Development without the Project ... Yields and Production ........... 33 Marketing and Pricing of Project Output ..................... 34 Farm Income 36 Cost Recovery/Impact on Government Budget .,,,.. ,, 38 VI. BENEFITS, JUSTIFICATION, AND RISKS .............. 42 Overview ...... , , , , , , .. 42 Employment and Income Effects 43 Direct Foreign Exchange Effects ........... 43 Benefits to the Economy and Economic Analysis 44 Project Risks and Sensitivity Tests ,., , 46 VII. RECOMMENDATIONS ..................... 47 LIST OF ANNEXES ANNEX 1 Table l: Projected Land Use in Project Area ........ .............. 50 Table 2: Climatological Factors Related to Estimating Crop Water Requirements ..................... ........... 51 Table 3: Weighted Rainfall for System B .......................... 52 Chart 1: Cropping Calendar and Rainfall Pattern ....... 53 Table 4: Project Irrigation Water Requirements ................... Table 5: Total Average Annual Water Requirements for System B .... 55 Table 6: Natural Inflows to NDK Reservoir ........................ 56 Table 7: Natural Inflows to Maduru Oya Reservoir ................. 57 Table 8: Flow Available for Diversion to Maduru Oya Reservoir through Link Tunnel ................ ... * 58 Table 9: Summary of Water Quality Data ........................... 59  -vi- ANNEX 2 Table 1: Irrigation and Drainage System Summary ................... 60 Table 2: Infrastructure Development by Zones ..................... 61 Table 3: Project Components by Time ............................. 62 Table 4: Project Expenditures by Time ............................ 63 Table 5: NDK Dam and Feeder Canaal ........................,....... 64 Table 6: Main and Branch Canals , 65 Table 7: Tertiary System and Land Development 66 Table 8: Roads ... .* . , .. .... . , 67 Table 9: Infrastructure Facilities and SeLclement ................ 68 Table 10: Environmental Protection and Enhancement 69 Table 11: Cashew Plantations 44 *. *.0444444444 *.44....44444444444.4440.44,70 Table 12: Fishery Development ........................,,,,.. 71 Table 13: Training and Monitoring Programs ........ 72 Table 14: Administrative and General Expenses ..................... 73 Table 15: Equipment and Vehicles 74 Table 16: Estimated Schedule of Disbursements ....... 75 Chart 1: Implementation Schedule - Main and Branch Canals 76 Chart 2: Implementation Schedule - Tertiary Distribution and Drains, Roads, On-farm Development and Settlement Assistanc e*... @4 4.4444.. . . . a... *...... ........... * , 77 ANNEX 3 Chart 1: Organization Chart - Mahaweli Authority of Sri Lanka .... 78 Chart 2: Organization Chart - Mahaweli Engineering and Construction Agency ...* .......4 . ......a.... .. 79 Chart 3: Organization Chart - Mahaweli Economic Agency 80 Chart 4: Organization Chart - MEA Structulre at Block and Unit Level *44444444444444...... 4., 81 ANNEX 4: Draft Terms of Reference for Consulting Services .. . 82-89 ANNEX 5: Table 1: Summary of Cropped Area, Yields and Production ... . 90 Table 2: Crop Input Requirements ........................., 91 ANNEX 6: Table 1: Prices Used in Financial and Economic Analyses .. . 92 Table 2: Illustrative Punanai Scheme Farm Budget ... 93-94 Table 3: Illustrative New Settler Farm Budget ... 95-96 Table 4: Project Budgetary Impact/Cost Recovery .................. 97 Table .5: Economic Real Flow . ....44*444*44*....... , 98-99  -vii- Table 6: Relative Importance of Project Benefit and Cost Streams with Switching Values ..................... 100 Chart 1(A): Plot of Present Values of Total Project Costs and Benefits Chart 1(B): Locus of Total Project Cost and Benefit Switching Values. 101 ANNEX 7: Related Documents and Background Papers in Project File.. 102 MAPS IBRD J7493 - Sri Lanka Mahaweli Ganga Development Program (Systems B & C) IBRD 18231 - Sri Lanka Mahaweli Ganga Development Project IV  SRI LANKA MAHAWELI GANGA DEVELOPMENT PROJECT IV BACKGROUND 1.1 The Mahaweli Ganga Development Program has been the centerpiece of the Government of Sri Lanka's (GOSL) public investment effort since the current administration came to power. In late 1977, GOSL decided to accelerate implemen- tation of the Progra'a to reduce food imports, unemployment, and energy deficien- cies and to provide settlement opportunities. An exceptional amount of financial support was generated from international donors for accelerated program develop- ment. The proposed project would be the fourth in a series of irrigated agricul- tural projects to be assisted by the Bank Group under the Mahaweli Program: the first project has been completed; the second is expected to be completed by mid-1984; and the third, appraised in 1980 and started in 1982, is sti:ll in early implementation stages. In addition, the Bank has played an active role in advis- ing on the composition of the Mahaweli Program and in coordinating external assis- tance for its financing. 1.2 GOSL has attached high priority for System B development for two main reasons: (a) to utilize water resources from the recently completed Maduru Oya Reservoir and (b) to serve as irrigated resettlement areas for persons from upstream reservoir basins where dams are currently being constructed as well as from overpopulated, economically depressed areas elsewhere in the country. In early 1983, GOSL formally requested Bank participation in financing development of either the System B Left or Right Dank downstream projects. CIDA and the Saudi Fund for Development have indicated their intent to co-finance development of the Right Bank (RB). Because of USAID's expected expanded role in financing Left Bank (LB) development with co-financing from Australia, the Saudi Fund for Development, and the EEC, and the ongoing implementation of that work, the Bank has opted to participate in RB development and thereby to remove its outstanding financing gap. 1.3 In 1980, a feasibility report for System B was prepared by Acres Interna- tional, Ltd., with financing and supervision f