Ceylon - Mahaweli Ganga Development Project

RESTRICTED Report No. PA-29a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accurocy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION MAHAWELI-GANGA DEVELOPMENT PROJECT STAGE I CEYLON December 30, 1969 Agriculture Projects Department Aoc*flo __65- 3-3  CURRENCY EQUIVALENTS At "Official" Exchange Rate US$1.00 = Ceylon Rupees (Rs.) 5.95 Rs 1.06 = us$o.168 Rs 1 million = us$168,000 At Higher Effective Exchange Rate US$1.00 = Ceylon Rupees (Rs) 9.23 Rs 1.00 = us$o.lo8 Rs 1 million = US$108,000 WEIGHTS AND MEASURES 1 acre (ac) = 0.405 hectares 1 mile (mi) = 1.609 kilometers 1 square mile (sa mi) = 2.564 square kilometers 1 foot (ft) = 0.3048 meters 1 acre-foot (ac-ft) = 1233.3 cubic meters 1 inch (in) = 25.4 millemeters 1 cubic foot per second (cusecs) = 0.0283 cubic meters per second 1 pound (lb) = 0.4536 kilograms 1 long ton (ton) = 1.016 metric tons 1 metric ton (m ton) 2204 pounds 1 megawatt (MW) = 1,000 kilowatts 1 gigawatt hour (GWH) = 1 million kilowatt/hours LOCAL MEASURES 1 bushel (bu) paddy = 46 pounds paddy ACRONYMS AND ABBREVIATIONS UNDP - United Nations Development Program FAO - Food and Agriculture Organization CEB - Ceylon Electricity Board DGEU - Department of Government Electricity Undertakings ECI - Engineering Consultants Inc. of Denver, Colorado, U.S.A. USOM - United States Operation Mission SAR - Sodium Absorption Ratio  CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT STAGE I Table of Contents Page No. SUMMARY AND CONCLUSION ....................................... i - ii I. INTRODUCTION ........ .............. .................... II. BACKGROUND ................................. . 2 III. THE PROJECT AREA ......... .............................. 4 Climate ................................. . 5 Topography ........ ................ . 5 Soils ................................. . 5 Population, Land Tenure and Communications ......... 5 Crop Production ....... .............. . 5 Water Resources ....... .............. . 6 Irrigation ........................ 6 Supporting Agricultural Services .... .......... 7 Transport and Processing Facilities ................ 7 IV. THE PROJECT ............ 8 General Description ................................ 8 Subsequent Phase of Development .. ................... 8 Proposed Works ....... ............... . 9 Construction Schedule ............. .. ............... 10 The Power Plant ....... ........... .................. 11 Water Supply .................... ................... 11 Status of Engineering ............. .. ............... 12 Cost Estimates ....... ............ .................. 12 Financing . ............................ 15 Procurement ........................................ 16 Disbursement ....................................... 16 V. ORGANIZATION AND MANAGEMENT ........................... 17 Project Management and Coordination ........ ........ 17 Operation and Maintenance ........... .. ............ 18 Recovery of Costs ............... .. ................. 19 Supporting Agricultural Services and Credit ....... . 20 Auditing of Accounts .............. .. ............... 21 This report, prepared by Messrs. ffrench-Mullen, Malone, Beach, Myint, Winston, Reese, and Kirmani, is based on documents submitted by the Ceylonese authorities, reports of the UNDP/FAO studies and findings of a Bank appraisal mission which visited Ceylon in February-March 1969. The mission consisted of Messrs. M.D. ffrench-Mullen, S.S. Kirmani, D.G. Reese, J. Beach, and D. Mitchell (Consultant).  Table of Contents (Cont'd) Page No. VI. PRODUCTION, MARKET PROSPECTS, PRICES, AND FARM INCOME 21 Production ......................................... 21 Market Proapects .................. ................. 22 Prices ............................................ 22 Gross Value of Production ........... .. ............. 23 Farm Income .................... .................... 23 VII. POWER ................................................. 24 Polgolla's Contribution to the System ............. . 24 Production allocation GWH ........... .. ............. 25 Comparison with a thermal Alternative ....... ....... 25 Allocation of Costs to Power .......... .. ........... 26 VIII. BENEFITS AND JUSTIFICATION ............................ 26 IX. RECOMMhNDATIONS ....................... ... . 28 ANNEXES Annex 1 - Agriculture Annex 2 - Existing Water Resources in the Project Area Annex 3 - Project Description Annex 4 - Construction and Investigation Schedule Annex 5 - Water Supply and Irrigation Requirements Annex 6 - Consultant Services Annex 7 - List of Equipment and Transport Annex 8 - Cost Estimates Annex 9 - Allocation of Costs between Irrigation and Power Annex 10 - Organization Chart Annex 11 - Market Prospects and Prices for Agricultural Crops Annex 12 - Rate of Return to the Economy Annex 13 - Expenditure Schedule Maps 1. Mahaweli Ganga Development Project - Stages I, II, and III 2. Mahaweli Ganga Development Project - Stage I Civil Works 3. Ceylon Electrical Grid  CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I SUMMARY AND CONCLUSIONS i. In recent years, considerable success has been achieved by farmers in Ceylon in increasing production of foodstuffs to replace imports, particularly rice. This has been achieved primarily by in- creasing yields. To reach self-sufficiency in rice, expansion of the area under paddy production will be necessary in addition to measures for increasing yields. Major expansion of acreage is possible only in the dry zone, where suitable land is available. Economic development of these areas depends on the provision of year round irrigation, the water for which would have to be supplied from the wet zone. Asso- ciated with such transfer of surface water would be substantial hydro- electric power potential suitable to meet part of the estimated growth in demand. ii. A four year UNDP/FAO study of the largely untapped water resources of the largest river in Ceylon, the Mahaweli Ganga, has resulted in the formulation of a Master Plan, to be implemented in three phases for the development of some 900,000 ac of land in the dry zone and the installa- tion of 970 MW of generating capacity. The Mahaweli Ganga Development Program comprises proposals for the development under three separate schemes, of Phase I of the Master Plan. Because of the magnitude of the task involved, and the need for further investigation, the Government of Ceylon proposed implementing the first of these schemes in three stages. iii. This report contains the appraisal of the project which consists of Stage I of the first scheme of the Mahaveli Ganga Development Program. The project includes the diversion of Mahaweli Ganga water, at Polgolla, to augment irrigation supplies to 126,700 ac (cultivated) of land located in two areas in the dry zone, and the installation of a hydro-electric power plant of 40 MW capacity at Polgolla. Provision is made for the on- farm development of 4,000 ac of sugarcane and for feasibility studies re- quired for subsequent stages of the scheme under the Mahaweli Ganga Devel- opment Program. Major construction works required for the full develop- ment of the area would need to be carried out under this first stage project. iv. The project would result in increasing rice production by some 83,000 m tons - equivalent to about one-quarter of the country's imports in 1968 and about 7% of the country's consumption. Sugar production in the area would triple but the incremental production would be less than 5% of current imports. Ceylon's firm generating capacity would expand from 320 MW to 340 MW.  - ii - v. The cost of the project is estimated to be US$ 50,0 million, of which the foreign exchange component, including interest during construc- tion on the Bank loan (see para. x below), would be US$ 29.0 million. vi. The Mahaweli Development Board would be set up to administer and execute the project. It would be responsible to the Minister of Land, Irrigation and Power and the Project would be coordinated at the Ministerial level by the Cabinet Planning Sub-committee. On completion of the Program, the Board would hand over its operation and maintenance to established Gov- ernment agencies. Consultants would be required to assist in all aspects of the project, this being the first irrigation project of its type in Ceylon, involving diversion and conveyance of water over considerable distances. vii. The two major construction works, costing about US$ 28 million, namely the Polgolla and Bowatenna complexes, 'would be subject to inter- national competitive bidding, the remaining minor works, consisting of a total of about US$ 4.7 million, would be done either by the Irrigation Department on force account or local contractors. Vehicles, equipment, consultant services, engineering, contingencies and interest during cons- truction account for the remainder of the total cost. The feasibility study work would be carried out by consultants with the Irrigation and Agriculture Departments. viii. The rate of return to the economy, with foreign exchange costs and benefits calculated at the higher effective exchange rate, would be about 12%. Assuming no opportunity costs for family labor, the return would be about 14%. These returns are higher than those from separate projects for irrigation and power. The tentatively estimated rate of return to the economy for all three stages of development of the Mahaweli Ganga Development Program is 12%; and for agriculture separately is 11%. ix. Previous Bank Group financing for agriculture and power in Ceylon includes a credit, in 1968, of US$ 2 million for a low lift irri- gation project, a credit in 1969 for a drainage and reclamation project of US$ 2.5 million, and Bank loans totalling US$ 61.5 million for power development in Ceylon. The power loans consist of (a) US$ 19.1 million made in 1954 (101-CE); (b) US$ 7.3 million made in 1958 (209-CE); (c) US$ 14.1 million made in 1961 (288-CE); and (d) US$ 21 million for the Maskeliya Oya Stage II hydro-electric project made on July 23, 1969. x. Assurances were obtained during negotiations on the points listed in paragraph 9.01. The project is suitable for Bank Group financing of US$ 29 million to cover the ioreign exchange requirements, including interest during construction and commitment charges on the Bank loan. Bank Group fi- nancing would include an IDA credit of US$ 14.5 million and a Bank loan of US$ 14.5 million. The Bank loan would be for 30 years, including a grace period of six years. The remainder of the financing, US$ 21 million equiv- alent, would be provided by the Government, which would be the borrower.  CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I I. INTRODUCTION 1.01 The Government of Ceylon has requested Bank Group financing in the amount of US$ 29 million equivalent to assist in a project involving the transfer of water from the wet zone to two non-contiguous areas of the northwestern and the northeastern parts of the dry zone. The objec- tive is to augment water supplies to 126,700 acres of land to permit double cropping of paddy in addition to partially irrigated sugarcane cultivation. These lands at the present suffer from lack of reliable irrigation supplies. In addition, the transfer of water would generate up to 40 MW of hydro-power at Polgolla. The project would be carried out over a period of five years. It is part of the Government's Irrigation Program included in the current development plan. 1.02 One of the main objectives of the development plan is the early attainment of self-sufficiency in food. The Government hopes to achieve this goal through expansion and rehabilitation of irrigation, provision for flood protection and drainage facilities 1/, reclamation of land and measures to increase yields. 1.03 The loan/credit request was prepared by the Ministry of Plan- ning and Economic Affairs following a UNDP/FAO study of Ceylon's largest river - the Mahaweli Ganga - and its water resources development poten- tial (1965-1968). The study formulated a Master Plan, to be implemented in three phases over a 30 year period, for irrigation of 900,000 ac of land in Ceylon's dry zone and the installation of 970 MW of hydro-power. The Government prepared and submitted to the Bank Group, on November 2, 1968, a feasibility report for the development of the Mahaweli Ganga De- velopment Program (Phase I of the Master Plan) under 3 separate schemes. After discussion with the Bank, the Government decided that: (a) the first scheme should be implemented in 3 stages (Map I) because of the magnitude of the task and the need for further investigations, (b) the project would comprise only Stage I of the first scheme. 1.04 This report, prepared by Messrs. ffrench-Mullen, Malone, Beach, Myint, Reese, Winston and Kirmani is based on documents submitted by the Ceylonese Authorities, reports of the UNDP/FAO studies and the finding of 1/ A credit of US$ 2.5 million equivalent has been made for a Drainage and Reclamation Project. The Project will drain 13,200 ac of land in the southwest of the wet zone of Ceylon.  a Bank Appraisal Mission, which visited Ceylon in February/March of 1969. The mission consisted of Messrs. M.D. ffrench-Mullen, S.S. Kirmani, D.G. Reese, J. Beach and D. Mitchell (Consultant). II. BACKGROUND 2.01 Ceylon is a tropical island in the Indian Ocean with a gross area of 25,332 sq mi. In 1968, the population was estimated at 12 mil- lion with an annual growth rate of 2.2%. The land area is divided into distinct wet and dry zones (Map I). The wet zone is situated in the southwest quadrant of the island and covers about 30% of the land area; it supports more than three-quarters of the population and accounts for about 82% of the cultivated land. Colombo, the capital and largest city, is located on the southwest coast. 2.02 The dry zone covers the remainder of the island, excepting the drainage basin from the wet zone which cuts through the dry zone in a northeasterly direction. The main stem of this drainage system is the Mahaweli Ganga. In the dry zone, some irrigated farming takes place, mainly with supplies from reservoirs (locally known as tanks) fed by local streams. There are considerable areas of undeveloped land suit- able for rice and subsidiary food crops. 2.03 The agricultural economy of Ceylon is divided between estate agriculture, producing export crops, and peasant produced food crops. Estate agriculture has dominated the economy. Tea accounts for about 62% of the value of the country's agriculturel exports, rubber 16% and coconuts 10%. 2.04 Agriculture has been groving at about 3.2% annually (1961-68), compared with an overall growth of 4% for the economy. It accounts for 36% of the gross domestic product, 90% of foreign exchange earnings, and provides employment for about 53% of the population. 2.05 Ceylon imports basic foodstuffs. In 1968, 45% of the total value of imports was expended on food: of this expenditure, rice accounted for about 35% and sugar for about 10%. In recent years, the Government's agri- cultural policy has been oriented towards reducing these food imports, rice in particular, through increased domestic production. The acreage planted and yields of rice have more than doubled since 1962. There has also been a marked increase in the production of subsidiary food crops. Largely as a result of this increasing local production, rice imports have declined for several years in a row, and only 343,000 tons were imported in 1968. With little local production of sugar, imports are rising with the growth of population; some 225,000 tons are presently imported. 2.06 Ceylon's efforts to boost domestic production of rice and sub- sidiary foodcrops have been quite successful. The main techniques have  -3- been production incentives, such as a guaranteed price scheme, and sub- stantial subsidies for inputs and services. Production credits have been made available to farmers through some 4,500 Multipurpose Cooperative Societies, which also supply the physical inputs and, on behalf of the Agrarian Services, purchase the produce. High yielding varieties have been made available. Supporting services available to the farmer, in- cluding extension and research programs, are generally adequate at the present level of production. 2.07 There is considerable room for further improvement of produc- tivity, particularly through adoption of recommended farming practices; for example, an average of 14 lb per ac of nitrogen was used by rice farmers last year, as compared to a recommended rate of 45 lb per ac. In the long term, if Ceylon is to become self sufficient, it will be necessary to increase the area under rice. There is a comparative scar- city of land available for the further development of food production in the wet zone. There is, on the other hand, an abundance in the dry zone, where any major expansion in the cultivated area has to take place. For the development of such land to be economic and to obtain maximum produc- tion, irrigation must be provided. Moreover, the production of existing irrigated lands could be substantially increased in the dry zone if an assured irrigation supply were available throughout the year. The Mahaweli Ganga is the logical source of additional irrigation supplies. 2.08 Ceylon also has growing power needs. The effective generating capacity of the present system is presently 261 MW, including 191 MW of hydro capacity. The firm capacity of the system is about 220 M4W. Fa- cilities under construction and proposed would bring installed capacity by the end of 1973 to 400 MW. Upon completion of transmission facilities, now under construction, the major generating facilities will be integrated into a single system and it will be possible to service most of the island from central generating sources. Responsibility for all phases of elec- tricity development and distribution is exercised by the Ceylon Electricity Board (CEB), an autonomous electricity authority created in July 1969 to take over the activities of the Department of Government Electrical Un- dertakings (DGEU) in the Ministry of Land, Irrigation and Power. 2.09 As noted above in para. 1.03, the Mahaweli Ganga Development Master Plan, proposed by the UNDP/FAO study for long term development of the largely untapped water resources of the Mahaweli Ganga, envisages the progressive development of the dry zone through: (a) the provision of irrigation for 900,000 ac of land, 246,000 ac of which are partially irrigated; and (b) the generation of 970 MW of hydro-power.  - 4 - The Master Plan proposes this development in three phases which are sum- marized below: Partially New Total Hydro-Power Phase Irrigated Land Irrigation Generated