Sri Lanka - Year 2000 Emergency Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22915 IMPLEMENTATION COMPLETION REPORT (IDA-3 1620) ONA CREDIT IN THE AMOUNT OF SDR 21.0 MILLION TO THE SOCIALIST REPUBLIC OF SRI LANKA FOR A YEAR 2000 EMERGENCY ASSISTANCE PROJECT 12/20/2001 Finance and Private Sector Development Unit South Asia Region 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 (Exchange Rate Effective December 22, 1998 at the time of negotiations) Currency Unit = Sri Lanka Rupees Rs 68.2 = US$ 1 US$ 0.015 = Rs I For the calculation of the US$ equivalent, an average exchange rate of Rs 74.45 = US$ I was used FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AWDR Average Weighted Deposit Rate CAS Country Assistance Strategy CBSL Central Bank of Sri Lanka CEB Ceylon Electricity Board CINTEC Council of Information Technology DCS Department of Census and Statistics DFIs Development Finance Institutes DO Development Objective EPF Employees Provident Fund ETFB Employee Trust Fund Board GOSL Government of Sri Lanka IDA International Development Association IP Implementation Progress IRD Inland Revenue Departnent IT Information Technology MOF Ministry of Finance PCU Project Coordinating Unit TA Technical Assistance Y2K Year 2000 Vice President: Mieko Nishimizu Country Manager/Director: Mariana Todorova Sector Manager/Director: Marilou Jane D. Uy Task Manager: Shideh Hadian  FOR OFFICIAL USE ONLY SRI LANKA YEAR 2000 EMERGENCY ASSISTANCE PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 9 6. Sustainability 12 7. Bank and Borrower Performance 13 8. Lessons Learned 16 9. Partner Comments 18 10. Additional Infonnation 21 Annex 1. Key Performance Indicators/Log Frame Matrix 22 Annex 2. Project Costs and Financing 23 Annex 3. Economic Costs and Benefits 26 Annex 4. Bank Inputs 27 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 28 Annex 6. Ratings of Bank and Borrower Performance 29 Annex 7. List of Supporting Documents 30 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.   Project ID: P063472 Project Name: YEAR 2000 EMERGENCY ASSISTANCE PROJECT Team Leader: Shideh Hadian TL Unit: SASFP ICR Type: Core ICR Report Date: December 20, 2001 1. Project Data Name: YEAR 2000 EMERGENCY ASSISTANCE L/C/TFNumber. IDA-31620 PROJECT Country/Department: SRI LANKA Region: South Asia Regional Office Sector/subsector: FY - Other Finance KEY DATES Original Revised/Actual PCD: 12/31/98 Effective: 03/09/99 03/09/99 Appraisal: 11/03/98 MTR: Approval: 01/19/99 Closing: 06/30/2001 06/30/2001 Borrower/lImplementing Agency: CENTRAL BANK OF SRI LANKA Other Partners: STAFF Current At Appraisal Vice President: Mieko Nishimizu Mieko Nishimizu Country Manager: Mariana Todorova Roberto Bentjerodt Sector Manager: Marilou Uy Marilou Uy Team Leader at ICR: Shideh Hadian Shideh Hadian ICR Primary Author: Shideh Hadian 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time:  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Project Development Objectives -. To assist the Government of Sri Lanka (GOSL) on an urgent basis in its efforts to prevent possible business disruption in the country's economic and financial sectors as a result of the Year 2000 (Y2K) problem. The project focused on assisting the country's banking sector and selected critical government agencies to adopt and implement a well-defined contingency-based strategic plan for Y2K compliance. Assessment of Project Objectives - The objectives of the project were clear, realistic, and achievable. Prior to year 2000, the Y2K problem attracted increasing attention worldwide. The financial sector was especially vulnerable to Y2K computer problems and was potentially at high risk (both from a financial 1 profitability perspective as well as a reputational perspective), as the entire financial sector is "date-dependent" for all operations. In addition, the financial institutions have greater computerized interactions with other institutions (data transfers among banks, the central bank, clearing houses, regulatory agencies, financial markets, Society for Worldwide Inter-bank Financial Telecommunications (SWIFT), and others). Many financial institutions rely heavily on third party transaction processing and outsourced services. The Central Bank of Sri Lanka (CBSL) recognized the potential threat and high risk of the Y2K problem for the banking system and the national economy and took the initiative to ensure that the operations of the banking system would continue uninterrupted. At the time, this problem was considered priority by the highest authorities in many countries. In Sri Lanka, too, at the request of the President of Sri Lanka, a National Task Force was set up to take remedial actions in several sectors. This Y2K task force was chaired and managed by the Sri Lanka Council of Information Technology (CINTEC), a central body for all information technology-related activities in the country. All sectors had representatives on the Task Force and met on a regular basis during the critical period. The task force identified four main constraints in finding solutions to the Y2K problem and taking fast remedial actions. First, institutions lacked adequate financial resources. Second, they faced shortages in support services by vendors. Third, they had difficulty in recruiting IT professionals for the public agencies because of low wages in the public sector. Fourth, many of the institutions had ineffective or inadequate program management. There was a general knowledge of interdependencies among institutions and sectors, however details were lacking. Therefore it was essential to develop a well-defined contingency/continuity plan and fill the knowledge gaps. In addition, lengthy and cumbersome procurement procedures in the country were perceived to be a bottleneck in achieving the very much needed timely actions. The Country Assistant Strategy (CAS; May 21, 1996) envisaged Bank support for financial sector development and assistance for banking and macroeconomic stability. In view of this, South Asia Management fully supported this project which was reflected in the CAS Progress Report presented to the Board in January 1999. The Y2K project also had support from senior management Bank-wide. A July 20, 1998 memo from the Managing Directors indicated that "while the Bank's effort should focus on the diagnosis and awareness, we should also be prepared to respond promptly to borrower emergency requests for technical and financial assistance with in-depth remediation assessment and action programs". In view of this, the World Bank responded positively to the Government of Sri Lanka's urgent request for technical and financial assistance to address the Y2K problem. Sri Lanka was one of the four countries that accepted the World Bank's offer for lending assistance. However, many countries benefited from the InfoDev grants which provided additional financing for remediation efforts. Due to the nature of the problem and its potential widespread adverse impacts both within the country and at the international level, the project risk was "Substantial". The project was also inherently complex due to: (i) a low level of understanding of the Y2K problem; (ii) a chain of dependencies among sectors, -2-  institutions, and countries; (iii) complexity of remedial work in particular in the financial sector; (iv) uncertainty in many areas (impact on other sectors, other institutions, and other countries); (v) unavailability of careful and in-depth assessments of the affected systems in several government sectors; (vi) limited local capacity in many institutions; (vii) limited financial resources; and (viii) the uniqueness and emergency nature of the problem. Despite these risks and complexities, the project objectives were achieved satisfactorily. 3.2 Revised Objective: The main objectives were not revised. However, as mentioned in detail in section 3.4 (below), a small amount (about US$ 124,000) was used for enhancement of security of the CBSL's Network System. The objective of this added component was related to the overall project objectives. It was also important for the financial system of the country. 3.3 Original Components: Project Components as Presented in PAD - At the request of the GOSL, the proposed IDA credit was in the amount of US$29.0 million equivalent. The proceeds of this loan were considered a supplement to the 1999 budget allocated for the Y2K remediation in the country and helped the Government in providing the foreign exchange requirements. The project had two main components: the financial sector component and the government agencies component. 1. Financial Sector Component - The total IDA allocation for this component was US$2 1.0 million equivalent which was utilized by the CBSL as follows. I (a) - A Credit Component of US$20.0 million was to be on-lent, through the CBSL, to the public banks, some private banks, and selected finance companies for their eligible Y2K related expenditures including the cost of consultants and equipment. The sub-loans were provided to the banks at a rate similar to their cost of funds, that is the Average Weighted Deposit Rate (AWDR). AWDR is defined as the weighted average of interest paid to depositors by all commercial banks on interest bearing deposits, as calculated and issued monthly by CBSL. The applicable interest rate was a rolling 6 months AWDR. The maturity of the sub-loans was not more than 10 years inclusive of a grace period of two years. The repayment period was based on the preferential treatments given due to the emergency nature of the project to provide adequate flexibility for project implementation for a wide range of agencies. The sub-loans financed up to 80 percent of the cost of the Y2K remediation activities for the public banks and up to 60 percent for the private commercial banks, and finance companies. The Central Bank borrowed the proceeds allocated for the credit component from the GOSL at the rate of AWDR minus one percent, with a maturity of 10 years inclusive of 2 years grace period. The details of terms and conditions of the CBSL loan as well as the administrative arrangements were included in a Subsidiary Loan Agreement between the CBSL and the GOSL. I (b) - A Technical Assistance Component of US$1.0 million for CBSL Project Coordinating Unit (PCU-CBSL) to conduct its scaled-up Y2K monitoring and supervision of the banks. Although some private banks did not need financing from CBSL, their Y2K activities were closely monitored by the CBSL. The Central Bank audited the private banks along with the public banks for Y2K readiness. II. Government Agencies Component - The total IDA allocation for this component was US$ 8.0 million. The TA was provided to finance the cost of required equipment (hardware, software, embedded systems), experts (local and intemational) for various technical tasks, and short-term staff training in the institutions under the purview of the Ministry of Finance and Planning (MOFP). - 3 -  II (a) - Project Coordination - US$0.5 million was allocated for setting up a Project Coordinating Unit in the MOFP (PCU-MOFP). This unit was responsible for providing technical and financial assistance to the agencies under the purview of the MOFP and closely monitoring their Y2K remediation activities. 11 (b) - Y2K Remediation Sub-projects - This component of US$7.5 million was for financing the Y2K activities of critical public sectors agencies. Among those were Internal Revenue Department, Census and Statistics Department, the Sri Lanka Insurance Corporation, the Sri Lanka Customs, and several other public administration agencies. See section 5.4 for more details. 3.4 Revised Comnponents: The project Components did not change during the life of the project. However, on June 14, 2000, a request was made by the CBSL (through MOFP) for fund allocation, in the amount of US$ 124,000, under this project to upgrade the network management system in the Central Bank. IDA agreed to this proposal and accordingly informed the Government on June 27, 2000. The Development Credit Agreement of January 22, 1999 was amended accordingly. Although this request was not directly linked to the Y2K problem, it was very much in line with the broad objective of the project. With increased use of the internet and electronic financial transactions, both within Sri Lanka and world wide, it was essential for the CBSL to maintain high standards of security and reliability for their network and internal/external operations and to ensure continuity of operations as well as seeing that unauthorized access to the CBSL network is prevented including denial of service attacks. Threats from extemal sources including viruses have been increasing as use of the internet grows and more individuals use the internet to obtain services and information. Installation of this network system was completed satisfactorily on June 28, 2001. Assessment of Project Components - The scope of the project and its components were chosen by the government, in consultation with the IDA appraisal team, based on certain agreed criteria: the importance of the sectors, the level of potential risks, the critical roles these sectors play in the national economy, and most of all the need of these sectors for financial and technical resources. The project was carefully designed in order to achieve the desired output. The project design and administrative/financial arrangements were one of the key factors to the successful implementation of the project. 3.5 Quality at Entry: Project preparation was satisfactory and considered as "Best Practice" by the Bank's Informatics Group at that time. The Y2K project was prepared on a fast track to respond to the urgent request of the GOSL for technical and financial assistance for its remediation activities before the turn of Century. Appraisal was completed in mid November 1998 and the project was approved by the Board on January 19, 1999. At the time, Y2K related technical assistance projects were prepared based on the streamlined procedures recommended by the World Bank's Y2K Task force. Due to the emergency nature of the project, a PCD was not prepared. However, a complete Project Appraisal Document (PAD) was prepared by the Team right after the appraisal mission and all the other business process requirements for project preparation were met. The key factors to the success of the project and satisfactory quality at entry pertain, among other things, to the realistic and achievable project scope and coverage, well thought out project design, and establishment of effective administration arrangements for project implementation. To the extent they were related to this emergency operation, the Bank's Safeguard Policies were fully met. On August 20, 1999, the Task Team was informed that the Y2K Emergency Assistance Project was selected for review by the Quality Assurance Group (QAG). A Quality at Entry Assessment was carried out as part of their Third QAG operations in the Calendar Year 1999 (QEA3). The review was completed by December 31, 1999. The rating of the project was as follows. - 4 -  Areas of Rating Rating 2=Satisfactory 1. The Project/Operation's Concept, Objectives and Approach 2 2 Technical and Economic Aspects 2 3 Environmental Aspects NA 4 Poverty and Social Aspects 2 5. Financial Management Aspects 2 6 Institutional Capacity Analysis 2 7. Readiness for Implementation 2 8. Risk Assessment and Sustainability 2 OVERALL Assessment of Quality 2 9. Bank Inputs and Processes 2 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Project implementation was satisfactory and the project fully achieved its stated objectives. At the turn of the Century on January 1, 2000 the roll over to year 2000 was completed successfully without any incidents. Outcome of specific components are presented below. 4.2 Outputs by components: Outcome for the Bankina Sector Component - In January 2000, the CBSL reported that roll over was completed without any incidents and that banking operations were continuing as usual. They also reported receiving no complaints from customers. The Y2K remediation efforts also included corrections for the Leap year date (February 2000 has 29 days and year 2000 has 366 days). The CBSL continued to watch the banks' financial statements for February 29, 2000 and thereafter for perceived business risks associated with particular Y2K related dates such as March 31, 2000 (end of fiscal year for some agencies), October 10, 2000 (first date to require 8 digit date field), and December 31, 2000 (end of the year and check for 366 days), etc. While elaborate and detailed business continuity plans were prepared by each individual bank and by the Central Bank for the entire banking sector, there was no need for putting these plans into effect. The Information Technology (IT) Departrnent of CBSL confirmed full compliance of the banks on their hardware and software applications by conducting an independent compliance audit. The Banking Department in charge of accounting, clearing, and settlement systems informed that interbank transactions and clearing systems were operating without any Y2K related problem. The Bank Supervision Department of CBSL confirmed that they had been closely monitoring the banking operations, and that the monthly financial statements of the banks as of January 31, 2000 (and thereafter) did not show any Y2K related inaccuracies. Subsequent supervision missions (and the ICR mission in June 2001) and monthly reports from the Central Bank confirmed continuous satisfactory functioning of the banking sector. The CBSL has also rolled over to the new millennium successfully. The payment systems in Sri Lanka including the Automated Cheque Clearing System (SLACH) and the Sri Lanka Interbank Payments System (SLIPS) and their back ups have been operating and business continues as usual. The bank supervision department of the CBSL has not encountered any problems pertaining to transmission of reports and/or data from the banks. In addition, even though they were prepared to handle it, the CBSL did not encounter - 5 -  any liquidity shortages before the new year as there was no Y2K panic in the country. This can be attributed, in part, to the fact that many institutions announced their Y2K readiness in the local newspapers before the start of 2000. In fact, more cash was withdrawn right before the Presidential election on December 21, 1999 but was deposited back after the election was over. This indicated the public confidence with the Govermment's effective remediation actions. CBSL's Network Management System - As part of the Y2K Credit to Sri Lanka, a sub-project was authorized to increase the CBSL's security of the network which supports its intemal operations. The upgrade project involved the purchase of both hardware and software. The hardware purchased included four Compaq Proliant servers (ML370). The software installed and put into operation on these servers included a firewall to protect the internal network from unauthorized access from the intemet, network management software, and virus protection software. Prior to implementation of this project there was only a proxy server in operation which afforded limited protection for the intemal network. The multiple servers provided for redundancy and backup. By installation of this hardware and software, CBSL has significantly increased its network security and reduced its exposure to various types of risks. The installation of the system was completed on June 28, 2001. Outcome of Government Agencies Component - This component was also implemented satisfactorily. No major Y2K related events were reported and all the critical agencies were Y2K compliant. The PCU-MOFP reviewed the Y2K status of 19 institutions which are under the purview of the MOFP. These institutions were rated with respect to their remediation activities on awareness, hardware readiness, software and applications readiness, testing, contingency plan, and overall readiness. Technical assistance was provided by the PCU-MOFP to each individual agency according to their needs and their relative importance for the overall economy. The institutions supported by this project included: Board of Investrnent; Census and Statistics Department; Ceylon Electricity Board; Department of Pensions; Department of Valuation; Development Lotteries Board; Employees Trust Fund; Extemal Resources Department, Ministry Office, State Accounts Department, and National Budget Department in MOFP; Inland Revenue Department; Lady Lochore Loan Fund; National Gems and Jewelry Authority; National Insurance Corporation; Sri Lanka Insurance Corporation; National Lotteries Board; Securities and Exchange Commission, and Sri Lanka Customs. Most of the activities were completed on time, however there were delays in the implementation of three sub-projects -- Census and Statistics Department (CSD), National Budget Department (NBD), and Employees Trust Fund Board (ETFB). Of these three only the ETFB was completed before the project closing date. Due to delays in procurement process, the other two institutions could not complete their remediation projects before January 2000. Because of the nature of the work in these situations, this delay did not immediately affect their operations at the turn of the Century and no business disruption was reported after January 1, 2000. Commitments were made and these projects started, however, implementation delays were encountered mainly because of the slow tender process. The ETFB managed to complete their project successfully in June 2001. The projects for CSD and NBD could not be completed before the project closing mainly due to long delays in the review of the bid documents by the Tender Board. Some details on these two agencies are provided below. Census and Statistics Department's (CSD) Y2K remediation activities were mostly completed before year 2000, in particular those related to their regular processing of data and their day-to-day administration. Two PC-based data entry clusters and the upgrade of one mainframe system were implemented before the rollover date. However, procurement of required equipment (a main frame server) for their 2001 Census (which was considered necessary for CSD to be able to perform its Census successfully and on time) was delayed and procurement of the system could not be completed by the Y2K -6 -  project closing date. Therefore, this component of the CSD project was not eligible for financing under IDA Credit. The Government is aware of the importance of this project and is taking actions to avoid business disruption on the Census later on. The cost of this component (US$ 484,500) will be borne by the Govermment. National Budget Department (NBD) is responsible for preparation and monitoring of the annual national budget. The NBD's operations are mostly manual and are semi-automated with not many date dependent applications. The remediation work for NBD started late and was not completed by start of 2000. Preparation of the 2000 budget was completed using the computer systems in the Privatization Enterprise Reform Commission. The Department had defined the requirements for the computer system and replacement of their computer network. The tender was awarded and installation started. The work was not completed by June 30, 2001 and therefore this sub-component could not be funded from IDA fund. The cost of this project (US$ 79,000) again will be financed by the Government. 4.3 Net Present Value/Economic rate of return: N.A. 4.4 Financial rate of return: N.A. 4.5 Institutional development impact: Project impact on the institutional development was "Substantial". Particular Institutional Impacts on the Banking Sector - Y2K experience brought the banking sector closer together and firther improved networking within the financial sector. The Y2K issue provided an opportunity to upgrade technology in the banking sector which would inevitably increase their overall efficiency. Another positive institutional impact of the Y2K event is that the importance of IT and its role in the business operations, service delivery, and customer relations in the banking sector are now better understood and taken more seriously by the top management and operations departrnents. More institutions now believe that IT management discipline and IT skills development are becoming increasingly important as IT expands into every aspect of life. Many banks now have better knowledge and records of their IT inventory and are better positioned to identify their IT needs (equipment, training, expertise, etc). The contingency plans were enhanced and converted to disaster management business continuity plans, and preparation and updating of these plans by the banks increased their knowledge of business operations, in particular those in more critical areas and linkages/dependencies. The banks plan to continue updating their IT inventory and disaster management plans on a regular basis. Another institutional impact was that the Y2K Task Force for banking sector has been transformed into a Technology Review Commnittee which continues to meet and discuss various technology issues related to the banking conmmunity. Particular Institutional Impacts on the Central Bank - CBSL played an important role during the Y2K crisis both within the country (through effective awareness camnpaign and training programs) and at the regional level (when in July 1999 they hosted the South Asia Association for Regional Cooperation (SAARC) Conference on cooperation and contingency planning with respect to Y2K). There is now a greater acceptance of the CBSL as a leader in the banking sector due to their strong role in the Y2K initiative. As mentioned above, the Network Management System for the Central Bank has substantially increased the security of its network system and its internal operations. Business contingency plans which were prepared for Y2K were taken very seriously at the critical time and are now being modified to be used for general disaster recovery and unforeseen events. -7-  Installation of the Network Management System in CBSL was a key step in mitigating IT risks from external sources. Because the steps taken under this sub-project represent IT industry best practice, it was recommended that the rationale, procurement details and some of the technical aspects of what was done by CBSL be shared with other government ministries and organizations within the Banking sector as similar measures will be required by all organizations in the near future. Central Bank uses the banking sector IT sub-committee that was created as a result of Y2K as a vehicle to further share information among the banking sector on various advancement/development projects. Institutional Impacts on all Concerned Institutions, Including Banks - The Y2K project also contributed to staff development in the areas of IT and Project Management in all concerned institutions. Training programs, development of contingency plans by each institution, effective execution of remediation task based on best available practices, widespread staff cooperation within institutions, effective communication and team work within institutions and among sectors, and involvement and commitment at all levels have significantly improved the way these institutions work. Many staff in the concerned banks and government agencies felt that the Y2K remediation exercise not only upgraded the skills of IT staff but enhanced their project management capacity. This enhancement of skills and institutional capacity building was accomplished through formal training which related directly to the task at hand, as well as the hard work done under tight schedules, team work, the need for attention to details, effective interacting with and managing the consultants. All institutions are now very appreciative of this aspect of the project and the impact it had on each and everyone involved in this national effort. Another activity which has long term benefits is the understanding of the need for keeping up-to-date records of the IT infrastructure and application systems and software. This is now being practiced by most institutions. The Y2K initiative caused the private and public institutions to realize their interdependencies and the need for on-going coordination and information sharing, both within the country and internationally. Y2K work also brought the business staff and IT staff closer together and increased the mutual understanding of each others operations and issues. This impact of the project has continued. Technical Impact of the Project - The Y2K problems addressed by the IDA Credit for Sri Lanka, while focussing on the financial sector and key govemment ministries, had effects well beyond the remediation of just Y2K defects for those receiving direct financial aid. Benefits came not only from the acquisition of Y2K compliant hardware, software and the advice of expert consultants, but from the education and learning on an extensive range of IT systems and technology issues. In addition, because IDA allowed for limited upgrading of IT and communications hardware and software systems affected by Y2K, a large number of government ministries and financial sector institutions used Y2K as an opportunity to introduce technology that allowed for the streamlining and irnprovement of business processes which improved communications within their own organizations (e.g., between business and IT staff), with clients, suppliers, and the public. When the Y2K issue emerged, the Government of Sri Lanka made special efforts through CBSL and CINTEC to educate government ministries, the business community, the financial institutions, and the general public about potential problem areas, corrective measures, testing, etc. These education efforts along with the work on Y2K remediation itself focussed attention and just not on Y2K, but on information and communications technology in general and the benefits that can come from effective use of this technology. This was coupled with other technology developments -- such as the exponential growth and use of the World Wide Web, growth of commerce and business via the internet, globalization in general, and demands for more efficient and responsive systems - significantly improved the demand for IT skills and infrastructure. In this rapid technological change environment, the Y2K Credit provided the means to significantly enhance and upgrade the technology infrastructure and systems of approximately 19 governmental ministries, 12 financial institutions, and the Central Bank. A list of equipment (PCs, Servers, - 8 -  etc.) and software acquired under the credit is kept in the project files. These investments in hardware and software, expanded communication links, training and consultancies significantly benefiting the country and adding to the technical capacity of the recipient institutions. One example of a direct benefit coming from the Y2K funded investment in new hardware and software is the implementation of a new application system in the Employees Trust Fund. Previously it took between two to three weeks to create a check via the then manual process. With the new system, this process is being done in two to three days. In addition, there has been a significant decrease in the amount of paid overtime and improved the accuracy of the records. As mentioned earlier, another example is the Central Bank's new Network Management System (see section 4.2 for more details). 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: The project was completed successfully and no extemal factors affected project implementation. With firm commitment and hard work, implementing agencies minimized the impact of potential risks associated with their respective businesses. Each institution realized that failure to comply would have been a risk to another sector / institution. However, it is important to mention potential external risk factors that were outside the control of the implementing agencies and could have affected any sector and institution. The Y2K problem was widespread, and could have had adverse economic consequences for countries and institutions that did not deal with it properly and in time. It could have impacted every type of computer system (personal computers, servers, mainframe systems) and most software programs. The financial sector was especially vulnerable to Y2K computer problems and as such was potentially at high risk. Therefore, in the global financial markets, noncompliance of one institution could have created problems in many other institutions. Every institution, sector and country was subject to this external risk factor through linkages that were outside their control. In other words, the Y2K problem was not an isolated one. The network of relationships and dependencies among institutions, sectors, and countries was beyond national borders, and for that reason created further uncertainty and risk. Therefore, solving the Y2K problem required collective and collaborative efforts both within and among the different institutions. All the institutions worked together and provided support and assistance to one another during the critical period in order to minimize the external risk. 5.2 Factors generally subject to government control: As indicated before, some of the government agencies under the purview of the MOFP were behind in their remediation efforts, even at the end of 1999. The reasons for this slow implementation varied; however, a main reason was the Government's slow process of technical evaluation of tenders and procurement of Y2K related equipment. Slow procurement was a known problem, and special efforts were made to address this problem at the time of appraisal. A special Y2K Technical Evaluation Committee and Y2K Tender Conmmittee were established to ensure speedy procurement for Y2K related activities; however these committees did not meet as regularly as originally envisaged. This arrangement minimized the problem to a large extent; however, in some instances the process was still slow resulting in delays in completion of projects in certain institutions. The IDA missions were instrumental to rectify this bottleneck, in particular in the last part of 1999 when several tenders pending approval of the Y2K Tender Committee were reviewed and approved during December 1999 supervision mission and actions were taken to expedite procurement of critical systems. These collective efforts by IDA and the two PCUs minimized the above -9-  mentioned risk factor and as indicated, only two projects in CSD and NBD were found ineligible for IDA financing. 5.3 Factors generally subject to implementing agency control: Some of the delays in the procurement of systems and required equipment in CSD and NBD could have been avoided if these institutions were more proactive to start and complete their projects on time. 5.4 Costs andfinancing: At the request of the government, retroactive financing limited to 10 percent of the loan amount and for activities started after May 1, 1998 was approved to cover the cost of project activities contracted early. In addition, due to the emergency nature of the problem, contracts for procurement of equipment related to the Y2K remediation activities were eligible for financing from May 1, 1998 subject to a ceiling of US$ 2.9 million (10 percent of the loan amount). In March 2000, the IDA supervision mission reviewed the utilization of the funds and concluded that roughly 40 percent of the IDA Credit of US$ 29.0 million may not be utilized. The main reason was that in addition to the committed and utilized amount, several sub-loan applications (amounting to about US$ 15.7 million) were submitted by the banks; however, rejected on the grounds that some related transactions on Y2K remediation activities were made before May 1, 1998 and therefore did not fall within the eligible period for retroactive financing and /or they had not conformed to Bank procurement procedures. In addition, some banks did not provide timely and adequate supporting documentation to the CBSL. This shows that the original estimate of the IDA credit component for sub-loans (US$ 20 million) made at the time of appraisal correctly reflected the actual demand for the sub-loans (see Table 1). The other reason for underutilization of the IDA credit was scaling down of activities by some institutions, sharing of consultants by all banks for independent testing, and ineligibility of sub-loan applications by some banks. Subsequently, the implementing units made an estimate of the expenditure for the remaining life of the project and on August 24, 2000, the Government sent a request for cancellation of US$ 8.5 million and a re-allocations of US$ 1.3 million from the "Unallocated" category to the "Goods" category. A total of US$ 5.5 million was cancelled from banking sector component (with US$ 4.5 million from sub-loan category) and US$ 3.0 million from allocations made to the Government agencies components. IDA acceptance of this request was communicated to the Government on August 30, 2000 and the Development Credit Agreement (dated January 22, 1999) was amended accordingly. The aggregate cost figures are presented in Annex 2. The following sections provide a more detailed picture of the fund utilization of the IDA Credit for various components. It should be mentioned that figures in this section were provided by the borrower and indicate the approximate magnitude of utilization by the concerned agencies, which may be slightly different from the records in the Bank Loan accounting, mainly due to exchange rate differences among the Sri Lanka Rupee, the US Dollar, and the SDR. Overall, over 50 percent of the credit fund was effectively utilized and almost all of the planned projects were completed satisfactory. The entire allocation for retroactive financing was also utilized. Utilization of Credit for Sub-loans (Category I.a) - The details of utilization of the Credit proceeds for the Banking Sector Component (sub-loans) is presented in Table 1. These sub-loans will be paid back by the sub-borrowers to the Government. With the utilization of US$ 11.3 million for sub-loan, a total of US$ 8.7 million was cancelled at the end of project. - 10 -  Table 1 - Summary of Sub-loans to the Financial Sector (Rs. Million) Actual Utilization % share of Requested Sub-loans Total Demand Banks (Rs. Million) A utilization (%) B Rejected (Rs. for Sub-loans Million) C D=A+C State Banks 334.4 40.2 426.7 761.1 Bank of Ceylon (BOC) 217.1 26.1 217.6 434.7 People's Bank (PB) 117.3 14.1 209.1 326.4 Private Domestic Banks 470.2 55.5 607.0 1,077.2 Commercial Bank of Ceylon Ltd 46.9 5.6 13.2 60.1 Hatton National Bank Ltd 60.1 7.2 78.4 138.5 Pan Asia Bank Ltd 56.3 6.8 29.4 85.7 Sampath Bank Ltd 141.1 16.5 87.7 228.8 Seylan Bank Ltd 108.3 13.0 365.3 473.6 Union Bank of Colombo Ltd 6.6 0.8 29.6 36.2 Nations Trust Bank Ltd 50.9 5.6 3.4 54.3 Specialized Banks 14.3 1.7 84.9 99.2 DFFC Bank Ltd 14.3 1.7 2.2 16.5 National Savings Bank 0.0 0.0 37.7 37.7 National Development Bank td 0.0 0.0 12.6 12.6 Pramuka Bank 0.0 0.0 32.4 32.4 Finance Companies 21.5 2.6 10.8 32.3 Central Finance Company Ltd 18.0 2.2 10.1 28.1 Merchant Credit 3.5 0.4 0.7 4.2 0.0 Total (Rs. Million) 840.4 100.0 1,129.4 1,969.8 US $ (Million) 11.3 15.8 27.0 Utilization of Credit for CBSL's Project Administration (Category I.b) - Table 2 shows expenses incurred for project implementation activities. Over 93 percent of the expenditures were for consultancies, seminars, and training organized and provided by the CBSL during the critical period before the start of new millennium. Table 2 - Expenses of PCU-CBSL for Project Management Expenditure Categories USS (Actual) % of total Expenditures Goods and Equipment 19,155 2.89% Consultancies 619,603 93 50% Training 22,254 3.3 6 % Traveling 282 0.04 % Office Supplies 282 0.04% Recurrent Expenses 423 0.06% Financial Audit Fee 0 = 0 .0% Miscellaneous Expenses 704 0.1 1% Total Expenses by the PCU-CBSL 662,703 100.00% - 11 -  Utilization of Credit by the PCU-MOFP for Project Administration (Category II.a) - Out of the US$ 500,000 initial allocation, a total of USS 122,000 was utilized by the PCU-MOFP for project management. Over 70 percent of the funds were used for consultancies, office equipment, training, and workshops. Utilization of Credit for Government Agencies Sub-Projects (Category II.b) - Table 3 below shows the amounts utilized by 16 institutions under the purview of the MOFP plus 3 more public agencies from other line ministries (highlighted). A total of about US$ 2.83 million was disbursed. Four critical institutions (ETFB, Insurance Corporation, Inland Revenue, and State Accounts Department) account for over 50 percent of the expenditures. Table 3 - Public Agencies Component Status of Utilization of IDA Credit Fund Government Agencies Amount Disbursed US$ % of Total Census & Statistics Department 449,403 15.86% Employees Trust Fund Board 725,208 25.59% Sri Lanka Insurance Corporation 293,416 10.30% Inland Revenue Department 238,883 8.43% State Accounts Department 180,624 6.37% External Resources Department 140,871 4.97% Ministry of Finance Office 125,801 4.44% Board of Investment 84,624 2.99% Securities and Exchange Commission 93,780 3.33% Ceylon Electricity Board 73,345 2.59% National Lotteries Board 66,046 2.33% Development Lotteries Board 49,340 1.74% Ministry of Industrial Development 38,267 1.35% Lady Lochore Loan Fund 49,656 1.75% Department of Pensions 48,871 1.72% Registrar General Department 28,256 1.00% National Budget Department 0 Council for Information Technology 17,668 0.62% National Gem & Jewelry Authority 6,465 0.23% CBSL's Network Management System 123,320 4.35% Total 2,833,843 100.00% 6. Sustainability 6.1 Rationale for sustainability rating: In the context of Y2K projects, sustainability was viewed as the business continuity of the institutions after the year 2000. The Y2K remediation and systems upgrading led to successful institutional development, the impact of which will lead to continued and improved business operations beyond the life of the project. See section 4.5 for detailed discussion on the project impact on institutional development which is likely to be sustained. - 12 -  6.2 Transition arrangement to regular operations: The Y2K project was unique in nature and considered an emergency operation. Therefore, it was not envisaged that it would lead to a future operation. However, during the Y2K exercise, the MOFP and CBSL observed several weaknesses in their information technology infrastructure, policy, and strategy and took a proactive approach to rectify these weaknesses. The business needs of the MOFP and CBSL in an environment where IT touches every aspect of their operations, made them take actions to further advance the capacity of their institutions, in particular in the area of IT infrastructure. The Government believed that after successful transition to year 2000, the momentum was right for further modernization of IT in the two key institutions (MOFP and CBSL) and therefore at the time of the Y2K project supervision in March 2000, they formally requested that the unutilized project balance be re-allocated for enhancement of IT policy/infrastructure in these institutions. The request was specifically to: (i) further develop the IT infrastructure in the two revenue generating institutions, namely the Sri Lanka Customs and the Internal Revenue Department; and (ii) improve the administration of the CBSL's IT infrastructure in the areas of communication network, IT policy, and major applications (payment systems). While the IDA mission and Bank management agreed with the objective of the proposed use of the unutilized balance, they felt that extension of Y2K project for new programs with a different scope and objectives would be contrary to World Bank policy. This matter was discussed with the Sri Lanka delegation during the Spring Meetings (2000) in Washington and it was decided that this proposal would be considered for financing under a different project. Subsequently, the Government made a proposal to IDA for strengthening of the CBSL, and the strengthening of MOFP was taken up by the ADB. Bank management responded positively and a project for strengthening of the Cental Bank of Sri Lanka, with wider scope and coverage, was prepared on a fast track during FY01. The project was approved by the Board on June 19, 2001. The objective of this new project is to support the CBSL in its efforts to undertake a fundamental restructuring and reorganization program. The reform effort, which is being spear-headed by the central banking authorities, aims to create a lean, well-functioning, modem, and efficient Central Bank capable of supporting strong economic growth over the medium to long term. The project is expected to pave the way for further financial sector reform with the ultimate objective of establishing a fully private, competitive, and prudently managed banking system. The project supports: (a) the Central Bank's reorganization and restructuring efforts, which include completely revamping the human resource management function and rewarding staff based upon merit rather than time-in-service; devolving non-core central banking functions to other agencies; strengthening the core CBSL functions (economic management and financial system stability); and implementing a Voluntary Retirement Scheme (VRS) in line with the above objectives; (b) upgrading the payments system and other key central banking functions, including the introduction of a real-time gross settlement system (RTGS); developing and integrating a scripless Government securities system with the RTGS; and computerizing the general ledger of the central bank; and (c) undertaking studies and technical consultancies. 7. Bank and Borrower Performance Bank 7.] Lending: Bank performance for the preparation of the project was satisfactory. The project was well-designed and planned. The Government of Sri Lanka was very appreciative of the Bank's performance throughout the project, but more so with respect to the fast preparation of the project which provided the needed technical and financial assistance in a timely fashion. On September 29, 1998, the Government of Sri Lanka - 13 -  requested IDA support for an emergency program to deal with the Y2K problem in the country's banking sector and some critical government agencies. With the positive response from Bank management, a mission visited Colombo during November 4-13, 1998 to appraise the project. Due to the emergency nature of the problem, the project was prepared on a fast track and a loan package amounting to SDR 21 million (US$ 29 million equivalent) was negotiated in Washington during December 21-23, 1998. The project was approved by the World Bank Board on January 19 and was signed on January 22, 1999. This was record project preparation time by the Bank. The project was considered "Best Practice" by the Informatics Group of the World Bank with respect to the quality of the appraisal document, project design, and implementation arrangements. A peer reviewer from the Federal Reserve Bank of USA fully endorsed all the elements of the project, including its approach and design. At the time of project appraisal, the financial management capacity of both implementing agencies were assessed in accordance with LACI requirements and were found adequate. Special audit arrangements were included in the legal covenants given the emergency nature of the project, i.e., for the PCU to submit annual and biannual audited financial statements to the Bank. Based on the assessment, the project adopted the intemal control and procedures of the CBSL which were well-established and documented. The CBSL was the financial administrator for the entire project, although the MOFP was responsible for providing detailed information on their activities. The CBSL established and maintained a separate set of accounts for recording all financial transactions of the project in accordance with sound accounting practices. Procurement assessment of the project was also undertaken at the time of appraisal. The procurement of the Y2K project was mostly based on the Y2K procurement guidelines issued by the Bank (Operational Core Support for Procurement, OCSPR) in November 4, 1998 to accommodate the flexibility for procurement of the Y2K related expenditures financed under this project. A series of training courses on Bank procurement guidelines were offered for the implementing agencies following the project appraisal. 7.2 Supervision: Project supervision and monitoring by the IDA project team was highly satisfactory and helped the CBSL and MOFP in achieving the agreed objectives. The Y2K project was supervised in the field in February 1999, June 1999, December 1999, March 2000, and June 2001. Due to the nature of the project, closer and more frequent supervision was required in 1999 and early 2000. Supervision missions were considered extremely useful by the Govemment and all the implementing institutions in providing the needed guidance and technical advise during the critical period. These reviews were thorough and comprehensive and effectively identified areas that needed more attention by the concemed agencies. The supervision reports were detailed on the status of the readiness of the institutions and utilization of the funds. Based on the advice of the project team, at the beginning of the project, a Monitoring and Reporting System was established by the PCUs. Detailed information on all the project activities was collected throughout the project life which substantially helped both the implementing agencies and IDA to effectively monitor project activities on a timely basis and identify areas that needed more attention. In addition, in January 2001, IDA requested that an audit be carried out by the PCUs on all physical equipment procured under the project. The PCUs created an inventory of the equipment, software, and services procured under the Y2K credit. These records will be kept for future independent audits by the Bank and/or the Government. 7.3 Overall Bank perforrnance: Satisfactory. - 14 -  Borrower 7.4 Preparation: Borrower's performance during project preparation was satisfactory. At the time of appraisal, it was decided that the Y2K project would be managed by CBSL for the banking sector and by MOFP for the public agencies. The Government cooperation with the IDA team to prepare the project on fast track was excellent. Before the team left Colombo, the two Project Coordinating Units (PCUs) were established, staffed, and ready to move. 7.5 Government implementation performance: The commitment that the Government made at the inception of the project continued throughout the project. Both MOFP and CBSL were highly motivated and committed to achieving the objective of the project on a timely fashion. In particular, commitment and leadership at high levels to ensure the project success was noteworthy. 7.6 Implementing Agency: The PCU-CBSL was headed by an executive director of the Central Bank and was responsible for implementation of the project and periodic monitoring of the Y2K remediation efforts in the banking sector. This responsibility was shared by the Central Bank's Banking Supervision and IT departments. Leadership of the Central Bank Govemor, commitment at all levels, team work, and cooperation with the IDA project team by all the concemed agencies were commendable and significantly contributed to the successful operation of the project. While each individual institution was responsible for its own Y2K program, leadership by the MOFP was considered important in ensuring that the critical businesses will be Y2K ready. The PCU-MOFP was created and was headed by a senior officer and staffed by locally recruited IT experts. Both of the PCUs liased with the joint national task force regularly. This periodic reporting was essential to keep the Y2K national plan up-to-date, to inform each institution about progress in the other sectors, and to plan for contingency measures at the national level. The PCU-CBSL was instrumental in the success of the project and achieving the project objectives with regards to the banking sector. It successfully monitored the Y2K activities of the banking sector, and became more active as the new millennium approached. The PCU-CBSL provided valuable advice to several banks to find the best and quickest solution to their Y2K problems and coached these banks throughout their projects. The PCU-CBSL indicated that their US$ 1.0 million allocation for Y2K project management was extremely helpful in providing needed funds for timely consultancies, training and workshops, publicity programs, preparation of the Business Continuity Program for the entire banking sector, carrying out independent testing, and organizing regional workshops. The PCU-CBSL was particularly effective in assisting the two large state owned commercial banks (BOC and PB) to meet their Y2K targets. The PCU-MOFP hired three IT experts, one seconded from Ceylon Electricity Board, and two were locally hired. There was a high degree of competence and motivation on the part of the PCU-MOFP team. The three technical experts were instrumental in providing expert advise to the concemed agencies and for effective implementation of the project. They had thorough knowledge of the compliance status of all institutions as well as the progress of each sub-project. This proved especially valuable in negotiating difficult procurements, and providing useful advice and timely resolution of problems and issues. The PCU-MOFP was active in improving awareness among the management of the institutions by holding - 15-  regular monthly meetings under the Chairmanship of the Project Director, the Deputy Secretary to the Treasury. The reporting and auditing of the PCUs were very effective, thorough, and timely. The reporting systems established at the beginning of the project were maintained properly and regularly throughout the project. The independent audit reports were received on or close to due dates. However, the audit report received in July 2001 had a qualified opinion primarily due to some delays in receiving some information from the implementing agencies under the MOFP and no significant accountability issues were recorded. The observation raised by the auditors in the Year 2000 audit report was not material and the explanations provided by the PCUs were acceptable. In addition, each bank and government agency set up a Y2K task force within their respective institution. At the institution level, significant attention to the Y2K problem and commitment to ensure readiness was noticeable throughout the project. Most institutions gave priority to the Y2K remediation efforts and committed to manage the task effectively and on a timely manner. 7.7 Overall Borrower performance: Satisfactory 8. Lessons Learned Some of the benefits/lessons of the projects were covered in section 4.5 of the ICR. Other lessons derived from preparation and implementation of this project are outlined below. * The Y2K project had focused objectives and a clear scope. Despite being a one of a kind project prepared for its emergency, widespread, unique, and uncertain nature, the project was implemented in a satisfactory manner. The Y2K experience shows that projects with well-defined and focused objectives have a better chance of success. * The project was demand-driven and therefore there was a firm commitment at the highest level in the country. This shows that for successful project implementation, leadership, management and conmuitment are the keys to success. Although staff in the concerned institutions fully cooperated on this national problem, the continuing leadership and involvement of high level authorities for centralized decision-making, planning, and monitoring proved to be necessary to achieve the desired outcomes. * Part of the success of the project can be attributed to good project preparation and project management. The experience under this emergency project indicates that for managing and implementing such a project, there is a need for sufficient flexibility to react to unforeseen circumstances. Elements and activities built into the project design (such as timely training and awareness programs, consultancies, and networking) were instrumental in achieving the development objectives. * Putting the implementing agencies in the drivers seat and giving them full responsibility for project implementation and monitoring added to the project success and proved to be beneficial in achieving the project objectives in a timely manner. Considering the appraisal capacity of the staff of the PCU-CBSL, IDA increased the free limit for reviewing the sub-loan applications to provide more flexibility to the borrower to implement the project more expeditiously. This aspect of the project was successful. - 16 -  * Other elements of the project which contributed to successful project implementation were rapid recognition of the skill gaps and timely training programs/workshops and independent testing, development of contingency plans, effective project execution, widespread cooperation and team work, effective communication, and involvement and commitment at all levels. * As mentioned, the project greatly benefited the concerned institutions and the country as a whole. Some of the benefits are likely to have long term effects. However, it must be mentioned that all the collective efforts and the momentum created during the project will not last in the future. In crisis or emergency situations such as natural disasters, there is an opportunity to accomplish what would seem impossible under normal conditions. The existence of the Y2K problem allowed for a synergy and coming together of organizations and individuals that successfully worked together on this common problem. When the crisis seemed to be over on January 2, 2000 the momentwn and urgency for this level of cooperation was no longer felt necessary. This was inevitable for the Y2K problem and perhaps for other emergency operations. The recognition of this and the ability to use it is critical to achieving extraordinary results. * Lessons drawn from remediation efforts in Sri Lanka and from many reliable sources on Y2K issues, indicate that effective project management and adoption of a contingency-based remediation plan were key elements for successful Y2K compliance. The management of this project was based, to the extent possible, on international best practices and sharing of their information. This interrelation and interaction at the international level and disclosure of institutions and countries readiness were effective tools for all countries to feel the pressure and respond to the needed and timely remedial actions. * Satisfactory and smooth implementation progress of the project was, in part, due to effective project administration by the PCUs which contained staffed from the implementing agencies, CBSL and MOFP. The project implementation design was strong in that it made good use of staff in the two implementing agencies. Although the CBSL and MOFP were supplemented with experts and consultants (recruited locally), the main responsibility stayed with the implementing agencies and the work was managed by the staff of these implementing institutions. The implementation experience of this and several other projects in Sri Lanka shows that projects with a good and effective Apex system were implemented more successfully and smoothly than projects which had either a weak or no Apex system. * Timely procurement of required goods (hardware, software) and services (consultancies) was considered a major potential bottleneck for this project, mainly due to the unique fixed-date nature of the Y2K project. Therefore, Bank procurement guidelines were streamlined to allow some flexibility. The procurement process in Sri Lanka is lengthy and cumbersome. Despite setting up a special Tender Board and Tender Evaluation Committee for this project, and extensive initial training for the PCU staff, procurement problems/issues prevailed throughout this project and affected some of the institutions (CSD and NBD). The lesson here is that the borrower needs to face the procurement issues up front and try to make proper arrangements to review and resolve procurement issues in a timely manner in order to avoid unnecessary delays in project implementation. For example, the Govemment can set up a specialized evaluation and tender committee for each project and ensure that procurement matters are attended as and when needed. - 17-  9. Partner Comments (a) Borrower/implementing agency: GOVERNMIENT'S ASSESSMENT OF THE EMERGENCY Y2K TA PROJECT (This part was included in the ICR without any revision by the Bank) 1. Introduction The main objective of the Y2K Assistance Project to assist relevant sectors in its efforts to prevent possible business disruption in the country's economic and financial sectors as a result of the Year 2000 (Y2K) problem. As there were no on-going projects to assist the banking sector, the government requested funds to support the banking sector and selected critical government agencies to adopt and implement a well defined contingency-based strategic plan for Y2K compliance. The project had two main components: the financial sector component and the government agencies component. I. Financial Sector Component - The total IDA allocation for this component was US$2 1.0 million equivalent which was utilized by the CBSL as follows. I (a) - A Credit Component of US$20.0 million was to be on-lent, through the CBSL, to the public banks, some private banks, and selected finance companies for their eligible Y2K related expenditures including the cost of consultants and equipment. I (b) - A Technical Assistance Component of US$ 1.0 million for CBSL's Project Coordinating Unit (PCU-CBSL) to conduct its scaled-up Y2K monitoring and supervision of the banks. 1I. Government Aeencies Component - The total IDA allocation for this component was US$ 8.0 million. The TA was provided to finance the cost of required equipment (hardware, software, embedded systems), experts (local and intemational) for various technical tasks, and short-term staff training in the institutions under the purview of the Ministry of Finance and Planning (MOFP). II (a) - Project Coordination - US$0.5 million was allocated for setting up a Project Coordinating Unit in the MOFP (PCU-MOFP). This unit was responsible for providing technical and financial assistance to the agencies under the purview of the MOFP and closely monitoring their Y2K remediation activities. 2. Principal Performance Ratings 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, IHU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: S Institutional Development Impact: S Bank Performance: S - 18-  3. Assessment of Development Objective and Design 3.1 Original Objective: To assist the Government of Sri Lanka (GOSL), on an urgent basis, in its efforts to prevent possible business disruption in the country's economic and financial sectors as a result of the year 2000 (Y2k) problem. The project will focus on assisting the country's banking sector and selected critical government agencies to adopt an implement well defined contingency-based strategic plan for Y2k compliance. 3.2 Original Components: 1. Financial Sector component * Credit Line for Banking sector and some finance companies Technical Assistance for CBSL 2. Government Agencies Component * PCU in MOF * Y2k remediation sub project 4. Achievement of Objective and Outputs 4. 1 Outcome/achievement of objective: The project objectives were satisfactorily met by assuring that financial institutions and selected critical government agencies (Custom, Inland Revenue etc..) were Y2k compliant by the target date. There were no reported business disruptions and all the institutions had prepared their contingency plans in case of emergency 4.2 Outputs by components: Two State Banks, Bank of Ceylon and People's Bank to be Y2K compliant especially considering their un preparedness at the time of commencing the project. The project with the assistance of other financial sector institutions ensured that those two financial institutions were compliant on time averting any disruption in the financial market. Other than these two State Banks, sub loans were granted to Private Domestic Banks (Commercial Bank of Ceylon Ltd. Hatton National Bank Ltd. Pan Asia Bank Ltd. Sampath bank Ltd. Seylan bank Ltd. Union Bank of Colombo Ltd Nations Trust bank Ltd.), Specialized Banks (DFFC Bank Ltd National Savings bank National Development Bank Ltd.) and to finance companies (Central Finance Company Ltd. Merchant Credit) in order to compliant avoiding any short of disruption in the Financial Market. 4.5 Institutional development impact: IT competence was developed. Y2k highlighted the importance of IT and it's role in the banking sector and other agencies. The project introduced net working among IT personal. While addressing the Y2k compliant issue, the level of IT was also upgraded and contributed to improve the efficiency. - 19-  5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Coordinating with the Presidential Task Force. However there were no unnecessary interventions due to the realization of the nature of the problem. 5.2 Factors generally subject to government control. Liaison between the Ministry of Finance (MOF) and CBSL. 5.3 Factors generally subject to implementing agency control: i. Availability of resources to access required technical assistance and equipment ii. Establishment of two separate project units under the MOF & CBSL who has technical and professional experiences. iii. Leadership given by the Central Bank and the commitment & support from the management levels were lessened after January 2000 which affected the disbursement procedures. 5.4 Costs andfinancing: It was difficult to estimate specially the Government component and as a result it was over estimated at the preparation stage, and it resulted in cancellation of funds during the year 2000. Bank estimates were on target. However due to WB procurement terms and procedures some of the applications had to be rejected. 6. Sustainability 6.1 Rationale for sustainability rating: * satisfactory * Contingency plans were maintained. * Equipment is maintained upgraded and staff networking continued regularly 6.2 Transition arrangement to regular operations: Equipment was transferred to respective government agencies. They pasted stickers on equipment to identify equipment purchased under the project. 7. Bank and Borrower Performance Bank 7.1 Lending: Satisfactory 7.2 Supervision: - 20 -  Satisfactory 7.3 Overall Bank performance: Satisfactory Borrower 7.4 Preparation: Satisfactory 7.5 Government implementation performance: Satisfactory 7.6 Implementing Agency: Satisfactory. However after January 2000 the interest was lessened 7.7 Overall Borrower performance: Extremely satisfactory. Demonstrated the capacity of the country to work well during an emergency and proved the capacity to coordinate among themselves as a team. 8. Lessons Learned Inter dependence and coordination is very important to implement such projects. Work as a group getting professionals to handle the work make implementation easy. Y2k issue provided an opportunity to upgrade technology in the banking sector which inevitable increase their over all efficiency. * Business contingency plans which were prepared for Y2k are now been modified to be used for general disaster recovery and unforeseen events. Many Banks now have better knowledge and records of their IT inventory. Keeping up to date records of the IT infrastructure and application system soft wear are now being practice by most institutions. Y2k highlighted the importance of IT and it's role in the business operations, service delivery and customer relation in the banking sector and other agencies. The lack of interest of the top management of some banks to borrow under this project for their procurement made for Y2k related project exposed the ignorance as they failed to take advantage of the law cost funds. (b) Cofinanciers: There was no Cofmancier (c) Other partners (NGOs/private sector): 10. Additional Information All the aspects of the project are covered in the ICR. NA. - 21 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: Indicator/Matrix Projected in last PSR ActuallLatest Estimate (i) the number of financial insttutions able to There was no Y2K related incidence in the The same. prevent disruption in their critical businesses financial sector and all financial institutions and continue to operate without any major continued business as usual after year 2000. problems after the year 2000; (ii) the estimated amount of damages avoided There was no damage - No complaint from The same. or minimized in the financial and economic customers. sectors; (iii) the number of cri6cal govemment All govemment agencies continued their The same. agencies able to continue their normal normal business after year 2000. No Y2K operations; related damages were reported. (iv) the readiness and ability of critical sectors As the economic and social activities The same. to quickly recover (measurable by the time contnued as usual, no damages were penod) from any possible system damage or reported, business contingency plans were business disrupbon after the year 2000. not needed. Output Indicators: Indicator/Matrix Projected in last PSR ActuallLatest Estimate End of project - 22 -  Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million I. Financial Sector Component l.a. Credit Line for Banking Sector 28.50 16.82 58.9 l.b. Project Administration by PCU-CBSL 1.20 0.72 60.1 II. Government Agencies Component II.a. Project Coordination by PCU-MOFP 0.70 0.13 18.6 lI.b. Y2K Remediation Sub-Projects 7.60 3.56 46.8 Total Baseline Cost 38.00 21.23 Total Project Costs 38.00 21.23 _ Total Financing Required 38.00 21.23 Notes: I/ IDA allocations were: US$ 20 m for I.a; US$ 1 m for Ib; US$ 0.5 m for II.a; and US$ 7.5 for II.b categories. 2/ The total utilization figures were provided by CBSL and are estimated in US$ based on an average exchange rate for the project life. Therefore, these figures may not be excat utilization amount due to margin of exchange rate error of about 5 to 10 percent. Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ Million) Expmditure Catoiy Procn kitNediod Toaal Cost (hicking L1B Spping Direc QCBS Odier contingees) 1. Goods 1020 8.0C 10.00 2820 (6.10) (4.80) (6.00) (16.90) 2. Constancy 7.80 2.00 9.80 (7.40 (1.90) (9.3 TAL 1020 800 10.00 7.80 200 38.00 1_ _ (6.10) (4.80) (6.00) (7A)l (190)1 (26.20) Figures in parenthesis are the amounts to be financed by the IDA credit. LIB is Limited Intemational Bidding; QCBS is Quality and Cost Based Selection. Other includes quality based selection (QBS), single source selection and individual consultants. - 23 -  Project Costs by Procurement Arrangements I. Component 1 - Financial Sector Components (US$ Million) Procurement Method Total Cost (including Expenditure Category LIB Shopping Direct QCBS Other contingencies) 1. Goods - IDA Share 0.58 5.42 5.28 11.28 - Fl's Share 0.39 2.59 2.57 5.54 2. Consultancy - IDA Share 0.64 0.02 0.66 - GOSL Share 0.05 0.00 0.06 TOTAL 0.96 8.01 7.85 0.70 0.02 17.54 II. Government Agencies Component (US$ Million) Procurement Method Expenditure Category ICB NCB Other N.B.F Total Cost 1. Goods - 3.32 - I 3.32 2. Services/Consultancies 0.23 - - 0.05 | 0.28 M iscellaneous (PCU .Admin) X 0.09 0 .09 Total 0.23 3.32 0.14 - 3.69 Project Financing by Components (USS Million) Components Appraisal Actuals/ Percentage Latest Estimates of Appraisal World Bank (IDA) 29.00 14.69 50.7 Government of Sri Lanka 0.50 1.00 200.0 Sponsors (banking sectors) 8.50 5.54 65.2 Total 38.00 21.23 55.9 - 24 -  IDA Credit Utilization by Cateeorv per DCA 1/ Catezorv Disbursements (SDR) Disbursement (US$ Equivalent) 1. Subloans for Part A.1 of the Project 8,532,672.01 11,287,591.29 2. Goods for Parts A.2 and B of the Project 1,919,833.88 2,510,789.78 3. Consultants' services and training for Parts A.2 and B of the Project 616,268.62 826,103.37 4. Incremental operating costs for Parts A.2 and B of the Project 53,699.02 72,406.80 Difference due to cross-exchange rate On disbursement to the Special Account - 214,053.44 - 9,598.82 Total Disbursements 10,908,420.09 14,687,292.42 Cancellation (August 25, 2000) 6,500,000.00 8,485,945.00 Total Disbursements 10,908,420.09 14,687,292.42 Undisbursed amount to be cancelled 3.591,579.91 5.826.762.58 2/ Original Amount of the Credit 21,000,000.00 29,000,000.00 1/ Due to exchange rate differences amnong SL Rupee, SDR, and US$, reconciliation of utilization for project components and those for project categories is difficult. 2/ The undisbursed amount in US$ will be the equivalent of SDR 3,591,579.91 calculated at an exchange rate at the time of cancellation. - 25 -  Annex 3. Economic Costs and Benefits Not Applicable - 26 -  Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, I FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Appraisal/Negotiation I1/ 1998 two Information S S appraisal Technology/Informatics 12/1998 one Economist/Operations Officer negotiation one Industrial Economist/Financial Sector one Financial Management Specialist one Procurement Specialist Supervision 2/1999 one Information S S Technology/Inforrnatics 6/1999 one Economist/Operations Officer 12/1999 one Industrial Economist/Financial Sector 2/2000 one Financial Management Specialist one Procurement Specialist ICR 6/2001 one Information S S Technology/Informatics one Economist/Operations Officer one Industrial Economist/Financial Sector one Financial Management Specialist (b) Staff Stage of Project Cycle | Actual/Latest Estimate No. Staff weeks US$ ('000) Appraisal/Negotiation II 64.13 Supervision 41 191.11 ICR 8 25.70 Total 60 280.94 Costs include travel and labor. - 27 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating O Macro policies O H O SU O M O N * NA 3 Sector Policies O H 0 SU 0 M N 0 NA O Physical O H *SUOM O N C NA O Financial O H *SUOM 0 N O NA O Institutional Development 0 H 0 SU 0 M 0 N 0 NA O Environmental 0 H 0 SU O M 0 N 0 NA Social E Poverty Reduction OH OSU O M O N * NA O Gender O H OSUOM O N * NA O Other (Please specify) O H OSUOM O N * NA O Private sector development 0 H O SU O M 0 N 0 NA n Public sector management 0 H 0 SU 0 M 0 N 0 NA El Other (Please specify) 0 H * SU 0 M 0 N 0 NA Technical impact of the project was highly satisfactory, details are available in the ICR main text. - 28 -  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating