Sri Lanka - Fifth Power Project

CIRCULATING COPY TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1211-CE REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF SRI LANKA FOR A FIFTH POWER PROJECT (POWER TRANSMISSION AND DISTRIBUTION) March 22, 1973 |This report was prepared for official use only by the Bank Group. It may not be published, , quoted or cited without Bank Group authorization. The Bank Group does not accept  Currency Unit Sri Lanka Rupee (R) US$1* = Rs 6.78 R 1 . US$0.15 Rs 1,000 = US$147.00 Rs 1,000,000 = US$147,000 Foreign Exchange Entitlement Certificate (FEEC) Rate: US$1 = Rs 11.19 R 1 = US$0.089 Rs 1,000 = US$89.37 Rs 1,000,000 = US$89,365 Fiscal Year - January 1 to December 31 * The Sri Lanka rupee is tied to the Pound Sterling at Rs 15.60 per Pound. Consequently, the rate towards the US Dollar has been floating with the Pound since June 1972. The cross-rate has been about Rs 6.8 per US Dollar in recent months. The Foreign Exchange Entitlement Certificate (FEEC) rate, applicable to most non-food imports, is the official rate plus 65 percent (55 percent until Novemer 1972).  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SRI LANKA FOR A FIFTH POWER PROJECT (POWER TRANSMISSION AND DISTRIBUTION) 1. I submit the following report and recommenda.ion on a proposed development credit to the Republic of Sri Lanka for the equivalent of US$6.0 million on standard IDA terms to help finance a project for the extension of the transmission and distribution facilities of the Ceylon Electricity Board (CEB). The proceeds of the credit would be relent to the CEB for 20 years, including 3 years of grace, with interest at 7-1/4 percent per annum. PART I - THE ECONOMY 2. The latest economic report, entitled "The 1973 Economic Outlook for Sri Lanka" (No. 47a - CE), was distributed to the Executive Directors on January 23, 1973. The report represents the findings of a mission which visited Sri Lanka between November 10-25, 1972. The conclusions of the report are summarized below. The country data sheet is given in Annex I. 3. The economy of Sri Lanka had been profoundly affected by the insurgency in 1971; the production of major crops declined, and investment activity reached a low point, particularly in the government sector. Real income per head declined by about 1.5 percent. In 1972 some recovery of production would have been possible, but drought conditions affected the output of paddy as well as tea and coconut, and hence exports. This was offset only in small part by production gains in onions and chillies (imports having been banned) and other minor crops. In industry, considerable improvement in the operation of some public sector firms (textiles and tires, notably) was in large part offset by the decline in others and in the private sector. 4. Activity in the private sector remained depressed. No massive nationalization has been implemented or even proposed, but the level of confidence remains low under the cumulative impact of various pieces of legislation and new measures designed to impose ceilings on personal incomes. 5. Overall investment in 1972 did not recover to the preinsurgency level, and was still lower in real terms than in 1969 both in the private and public sectors. Private consumption also declined in real terms during this period; only public consumption expanded at a rate of about 4 percent a year. Part of this took the form of increased military expenditure.  - 2- 6. One of the most pressing problems is open unemployment which was about 13 percent in 1969, and as much as two-thirds for young people under 24. The situation has steadily deteriorated since then, and the number of new jobs created in 1972 was even less than in each of the two preceding years. 7. Given the poor prospect for the revival of private investment, the key to development in Sri Lanka is capital formation in the government sector. To raise sufficient investible resources, it is imperative for the government to generate public savings, which have been negative in the last few years. There was some improvement in fiscal performance in 1972 compared with 1971, but not sufficient to arrest or reverse the declining trend in public capital formation. 8. The 1973 Budget contains new tax measures to increase revenues but it also envisages an increase in current expenditures; on a net basis, the new measures will yield about Rs 400 million of new resources or 3% of GNP; the result is expected to be a small current surplus of about Rs 56 million. The principal new revenue measure is a change in the rate as well as in the coverage of the Foreign Exchange Entitlement Certificate (FEEC) - a form of general import surcharge. The gross yield of this is Rs 382 million. Another step is the withdrawal of the free rice ration from income tax payers, yielding Rs 25 million. The remainder consists of various changes in excise duty, other indirect taxes, and profits from the sugar monopoly. Additional expenditures arise from wage increases, and from minor tax adjustments and price support measures for export crops. 9. The budget measures for 1973, although substantial in appearance, are insufficient as a basis for a new effort to generate economic develop- ment. Public investment in real terms will not only remain well below the peak of 1968, but barely recover from the low point reached in the last two years. The budget measures also will tend to worsen the disadvantages borne by producers of export crops by further widening the differential between the effective exchange rate applied to exports and imports. 10. Furthermore the budget estimates are based on extremely optimistic assumptions for the prices of main food imports, e.g., wheat, rice and sugar, which have increased quite steeply in 1972 and have continued to go up in recent months. Most recent estimates indicate that the cost of Sri Lanka's essential imports in 1973 will be higher by almost $50 million, or more than 20 percent, than the estimates underlying the budget. Much of this increase will fall as a charge on the budget, while at the same time compressing the capacity to import other goods subject to FEEC's and other taxes, and thereby causing a reduction in revenues. 11. Since the report was prepared, the Government has taken additional measures to raise revenues and reduce pressure on the foreign exchange resources: (a) an increase in the price of wheat flour and of rice; (b) in- creases in prices of petroleum products; (c) a reduction in the sugar ration from 2 lbs to 1 lb. per head per month. In February 1973 the procurement price for domestic rice was also increased from Rs 14 to Rs 18 per bushel.  -3- These measures constitute an element of improvement in fiscal policy, and give an incentive for the increase of local production of rice in substi- tution of imports. The Government has also cut the allocation for textile imports by almost half. However, the increase in the cost of both imported and domestically procured rice, and of other Government imports, together with the loss of FEEC and other revenue, will more than offset the revenue gains from the upward revision of prices for consumer goods sold by the Government. The result is likely to be a deficit in the Government budget in the order of Rs 50-100 million instead of the estimated surplus of Rs 56 million. One problem, of course, still is the reluctance of the Government to remove the food subsidy, which represents a net charge on the budget of over Rs 600 million. 12. As noted in the report, the Government's fiscal efforts to mobilize resources for economic development have been limited in relation to the magnitude of the problem which Sri Lanka faces. Yet it needs to be pointed out that the adversities arising in the external sector, under the impact of cumulative price developments in the outside world, have hit the country on an unprecedented scale. While Sri Lanka's major exports continue on a long term declining price trend, her import prices already went up substantially in 1972; and the loss in excess of $50 million arising in 1973, on account of these terms of trade development, is worsening the country's financial position sufficiently to make it even more difficult at this stage for the Government to mobilize resources for public investment. 13. On the balance of payments side, export earnings declined in 1972 by 2.7 percent and are likely to decline further by perhaps 2 percent in 1973 to about US$314 million. This outlook is based on the assumption of a slight decline in the price of tea, and a reduction in the volume of coconut exports affected by the drought; this will only partly be offset by an increase in rubber exports. With the higher world market prices for major food stuffs, the cost of food imports is now at the equivalent of 14 percent of GNP or some $190 million, compared with $165 million in 1972. 14. An Aid Group for Sri Lanka, for which the Bank acts as the Chairman, was formed in 1965 and has held nine meetings. At the ninth meeting in February 1973, the participants recognized that the grave economic problems confronting Sri Lanka had been further aggravated by adverse weather conditions and deteriorating terms of tade. From indications expressed at that meeting, it appears likely that assistance by members of the Aid Group other than IDA and the Asian Development Bank during 1973 will amount to about $60 million, mainly in commodity assistance. 15. The current debt service ratio is about 18 percent. In view of the poor balance of payments and economic development outlook, external aid to relieve an exceedingly serious situation should be on very soft terms.  - 4 - PART II - BANK GROUP OPERATIONS 16. Since 1954 the Bank has made seven loans totalling $73.5 million and the Association has made four credits totalling $20.1 million to Sri Lanka. The proposed credit would bring the total amount of Bank Group assistance to Sri Lanka to $99.6 million. The sectoral composition of Bank Group operations to date is as follows: Number of (US$ million less Sector Operations cancellation) Irrigation and Power 7 85.2 Industrial Finance 2 5.2 Highways 1 0.7 Land Reclamation 1 2.5 Total 11 93.6 17. Over ninety percent of Bank Group assistance has been in the irrigation and power sectors. This strategy reflects the irrigation needs vital to the development of the agricultural sector and the growing demand for power in the industrial sector. Of the eleven loans and credits, four are fully disbursed. The FY 69 credit for the highways (originally in the amount of $4.9 million) was cancelled, after disbursement of $0.7 million, at the request of the Borrower following Government's decision to make major changes in the scope of the project. The remaining six loans and credits have all been made since 1968. There have been some delays in project execution and disbursements, mainly due to the civil disturbances of April 1971. However, project execution has improved and is now proceeding at a satisfactory pace. As of February 28, 1973, the total amount outstanding was $75.4 million, including an undisbursed balance of $38.4 million. Annex II contains a summary statement of Bank Loans and IDA Credits as of February 28, 1973, and notes on the execution of on-going projects. No IFC investments have been made in Sri Lanka. 18. Bank Group assistance to Sri Lanka in the foreseeable future is expected to be mainly in the agricultural sector which is given high priority by the Government. Investment in this sector is expected to rasult in an expansion of output and employment. There are reasonable possibilities of import-substitution in agriculture along with the development of export crops, which would have a positive effect on the balance of payments. A credit in the amount of about $5 million for a livestock project is being prepared for FY74. Identification of an irrigation project is also currently underway.  - 5 - PART III - THE POWER SECTOR IN SRI LANKA 19. Per capita consumption of electricity in Sri Lanka at about 60 Kwh is among the lorw'est in the world. In the early 1960's total electricity consumption increased at an average annual rate of 10.3 percent but subse- quently declined to 9 percent per annum during the economic slowdown in 1968-1971. While domestic and commercial electricity consumption has maintained a fairly steady low annual growth rate of 5.5 percent, the rate of increase in industrial power consumption fell off notably, from 18 percent per annum during 1961-1968 to about 11 percent per annum thereafter. Nevertheless, industry presently accounts for more than half of the total electricity consumption. According to the Government's Plan for industrial expansion over the next 4-5 years, industrial demand for electricity was projected to increase at about 18 percent per annum. However, in View of the current difficult economic situation, 13 percent would be a more realistic estimate for planning purposes. This rate, which is slightly higher than the 11 percent per annum during the recent past, is based only on expected additional sales to existing major industries, and does not take into acccunt any planned new industry, the implementation of which is not assured at present. With electricity demand growth rates of 13 percent per annum projected for the industrial sector and 5.5 percent per annum for the domestic and commercial sectors, the overall average growth rate would be 10 percent per annum during the next few years. Total electricity sales are projected to increase from 787 Gwh in 1972 to 1257 Gwh in 1977. 20. Up to 1968, electricity generation, transmission and most of the distribution was controlled by the Department of Government Electrical Under- takings (DGEU). However, DGEU was not equipped to cope with the growth of the sector, and in 1969, the Ceylon Electricity Board (CEB), was created as an autonomous agency under the Ministry of Public Works, Irrigation and Power. 21. The power system (see map attached) is operated as an integrated grid. There are three main grid centers servicing primarily the Colombo area and the central hills. The grid centers are interconnected and in addition there are a number of radial transmission lines reaching distant load centers. The transmission system operates at 132 kV, 66 kV, 33 kV and 11 kV. There are 400 miles of double circuit and 230 miles of single circuit 132 kV lines in operation. The 66 kV system is limited to about 70 miles of double circuit lines connected with earlier development. Except for the major load center of Colombo, which is served by an 11 kV network, distribution is through an extensive 33 kV network which now extends over 2,220 miles. The system is comprised mainly of single circuit lines. As the system expands, alternative supply routes are being arranged to the more important load centers. 22. The CEB system provides power to plantation estates, industrial enterprises, municipalities, commercial and domestic consumers and for rural electrification programs. Present facilities are adequate to meet the demand for power until about the end of 1973. Thereafter power requirements will be met by two new hydroelectric stations with capacities of 90 MW (Maskeliya  -6- Oya) and 50 MW (Polgolla, of the Mahaweli Ganga complex). The former is expected to be commissioned in early 1974 and the latter by mid-1974; both projects are being financed by the Bank Group and the extension to the main 132 kV system needed for these projects will be provided by the proposed pro- ject. Two more hydroelectric plants are planned for 1975 (Bowatenna - 40 MW - to be financed by ADB) and 1977 (Samanalawewa - 120 MW). 23. As a result of the provision of these facilities, the plantation sector is expected to be fully served; approximately 500 factories will be connected to the system; the ongoing program of rural electrification of 500 villages will be completed; and a new rural electrification program of the same magnitude undertaken. PART IV - THE PROJECT 24. The proposed project was appraised by a mission during June/July 1972. The mission's report entitled "Appraisal of the Fifth Power Project (Power Transmission and Distribution) of the Ceylon Electricity Board" (No. 21a-CE) dated March 14, 1973, is being circulated separately. A credit and project summary is attached as Annex III. 25. At the negotiations, held in Washington in February 1973, the Government of Sri Lanka was represented by Mr. T.W. Mendis, Chairman of CEB, and Mr. S. Velayutham, Deputy Director for External Resources, Ministry of Planning and Employment. Mr. Mendis also represented CEB. Description of the Project 26. The proposed project comprises the construction of 490 miles of transmission and distribution lines together with associated substations. A part of the project will help to rehabilitate and expand the distribution facilities in Colombo. The project components are: a. 90 miles of 132 kV transmission lines and associated substations; b. 400 miles of single circuit 33 kV distribution lines and associated substations; and c. 11 kV and low tension switchgear, distribution transformers and ancillary equipment for the Colombo distribution system. 27. Part of the 132 kV line would strengthen the supply to Trincomalee, its power requirements being estimated to increase to 7,000 kVA by 1976. A 12-mile double circuit 132 kV line linking the Polgolla hydro-station to the main grid system is required by mid-1974 to feed annually about 170 GWh of energy into the CEB system. About half of the 33 kV extensions are required to improve reliability of supply to existing load centers by providing an alternate source of supply. The rest of the 33 kV extensions would connect  -7 new centers of consumption. Some of the 11 kV switchgear would enable the Colombo distribution system to meet an additional demand of about 10 MVA immediately. The rest of the 11 kV switchgear would upgrade the existing low capacity switchgear. 28. The engineering, preparation of specifications and construction of the project will be carried out by CEB's own staff which has gained sufficient experience in the execution of similar projects. Engineering and preparation of specifications are nearing completion and tenders could be invited in early 1973. Field construction is planned to begin in January 1974 and to be completed by the beginning of 1976. 29. Taking into account the effect of recent changes in exchange rates, the total project cost is estimated at US$9.8 million equivalent including $0.5 million for customs duties. 1/ The foreign exchange component is estimated at US$6.0 million and the local costs at $3.8 million. The proposed credit would finance the foreign exchange component. The proceeds of the credit would be relent to the CEB for a term of 20 years including three years of grace, at 7-1/4 percent per annum. The CEB will finance 30 percent of total project cost from its owm resources and the remaining 9 percent is expected to be met by connection charges paid by consumers. In the absence of indigenous sources of supply, all project equipment would be imported. Procurement would be made through international competitive bidding in con- formity with the standard guidelines. 30. The CEB has a seven-member Board of Directors all appointed by the Government: four with experience in engineering, commerce, administration, or accountancy; three representing respectively industry, local authorities, and the Treasury. The Chairman is appointed by the Government from among the Board members. The General Manager, appointed by CEB's Board of Directors, with the approval of the Government, is the chief executive officer. He is assisted by deputies responsible for system planning, construction, operation and maintenance, administration and accounting. Loan 636-CE made provision for consultants services to assist the Government in setting up an accounting system, undertaking a revaluation of assets and reorganizing the administration of the CEB. The consultant's interim recommendations on the accounting system are being implemented. The revaluation of assets and the reorganization study of the technical depart- ments are expected to be completed by mid-1973. The financial projections are based on unaudited 1971 figures which, for the first time, incorporate current asset values based on the asset revaluation study. 1/ The rupee is tied to the Pound Sterling and is consequently floating vis-a-vis the Dollar. All estimates and calculations contained in the Appraisal Report and cited in this report are based on the exchange rate of Rs 11.19 to the Dollar. This is the effective rate for the CEB which is required to buy Foreign Exchange Entitlement Certificates (FEECs) for all imports; the FEEC charge now amounts to 65% of the official rate of Rs 6.78.  -8- 31. A return of 4.8 percent on recently revalued net fixed assets in operation is forecast for 1973. This would permit generation of sufficient revenues which would cover 30 percent of estimated capital expenditures in that year. From 1974 onwards CEB's tariffs would be set to achieve a rate of return of 8 percent on currently valued net fixed assets in operation. To meet these requirements no increase in present tariffs is expected to be needed before 1975, when a 10 percent tariff increase is assumed in forecast revenues. It was also agreed that dividend or other similar payments would not be made to the Government until a minimum 30 percent internal contribution to investment had been allowed for in any year. Debt-service coverage is not expected to fall below 1.5 times internal cash generation. Further debt will not be incurred if it would reduce coverage below this level. 32. To satisfy the growing demand for electricity, for which economic rates will be charged, CEB is continuing with the implementation of a program of development of the generation, transmission and distribution facilities briefly described in paragraphs 22 and 26, of which the project forms part. The facilities provided by the project will not only make it possible to utilize effectively capacity made available by other investments, but will also improve the reliabilitv and quality of service to consumers. The revenues arisinp from system improvement and expansion cannot be allocated meaningfully between the various parts of the program and a separate economic rate of return for this project has not been estimated. 33. The facilities to be provided by the project do not pose any ecological problems. Tne Colombo 11 kV distribution svstem is underground and only reinforcement of equipment would be involved; the 132 kV transmis- sion lines pass mostly through jungle areas and the 33 kV lines are short spurs in rural areas. PART V - LEGAL INSTRUMENTS XND AUTHORITY 34. The draft Development Credit Agreement between the Republic of Sri Lanka and the Association, the draft Project Agreement between the CEB and the Association, the Recommendation of the Committee provided for in Article V, Section I(d) of the Articles of Agreement and the text of a resolution aDproving the proposed credit are being distributed to the Executive Directors separately. The provisions of the draft agreements conform to the normal pattern for credits for power projects.  -9 - 35. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 36. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachments March 22, 1973   ANNEX I O0UNT8Y DATA - SRI LANKA Area: 65,607 km2 Population: 1972 13.1 million Rate of growth (1965-72) 2.3% p.a. Population density: (per sq. km.) to total area 200 to arable land (196k) 3,033 Official Estimatesl/Mission Estimate Gross National Product: (1971) Rs. 12,677 million (at current marktet prices) Rate of growth at constant prices (1971) 0.9% Rate of growth at constant prices (1968-1971) 3.2% GIP per capita (US$ equivalent) (1971) $162 $110 Gross Domestic Product at Factor Cost (1970) Rs. 9,856 million Of which (%). Agriculture 34 Manufacturing 15 Construction 6 Transpcrt and Communication 9 Trade 13 Other Services 23 (Average) % of GNP at Market Prices (Official Estimates)i/ 1971 1961-70 Gross investment 1T.2 15.4 Gross savings 16.1 12.9 Balance of payments current account deficit 1.1V 2.5/ Investment income payments 1.1 o.6 Goverrment revenue 21.1 21.5 July 1, 1972 Average Annual Change ,%) Rs. million 191-1971 Total money supply 2,111 5.3 Time and savings deposits 1,313 13.4 Bank credit to public sector (net) 2.171 11.3 Cosmercial Bank credit to private sector (gross) 1,910 10.0 Rev. Estimates Average Annual Change (%) 1971-72 1960/61-71/72 (Rs. million) Public Sector Operations Government current receipts 3,070 6.6 Government current expenditure 3,053 7.3 Surplus/Deficit 17 Irregular Government capital expenditure 910 5.3 Total external assistance to public sector (net) 317 25.0 External Public Debt (US$ million) June 1972 January 1968 Total debt outstanding (including IMF drawings) US$ million 618 304 Debt service ratio to export earnings (excluding 1972 (est.) 1968 IMF repurchases 18% Short-term Debt (less than 1 year) US$ million 71 2 Balance of Payments (US$ million) 1972 1971 1970 1969 Tesat. Total exports 321 330 335 321 Total imports 366 376 392 446 CUrrent invisibles (net) -13 -7 -20 -17 Net current account balance -52 -59 -77 -142 Increase in exchange reserves (-) -4 -24 -5 54 Commodity Concentration of Exports 1972 1961-66 (Average) Tea, rubber, coconut products (3 maJor exports) 85% 93% Exchange Reserves (US$ million) 1972 &971 1970 1969 1961-66 (3une ) (Average) Liquid Balances Abroad 1.9 2.7 4.4 2.6 14 IMF dravings outstanding 99 85 88 105 29 External Financial Assistance (Us$ million) 1972 1971 1970 1969 1968 (est.) Total gross disbursements 58 863/ 63 69 56 1/ Due to inconsistent use of exchange rates in national accounts, exports are uniervalued , and the share of imports, investment, and savings in GNP are overstated. 2/ For 1971 about 4 percent after correction for exchange rates, and about 6 percent for earlier years. 3/ Including $25 million free foreign exchange loan from China.   ANNEX II Page 1 of 3 THlE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA A. STATEKENT OF BANK LOANS AND IDA CREDITS (as at February 28, 1973) U.S. $ Million Amount (less cancellations) Loan or Credit No. Year Borrower Purpose Bank IDA 1/ Undisbursed 4 loans and a credit fully disbursed 39,5 0.7 121-CE 1968 Government of Ceylon Irrigation - 2.1 1.0 634-CE 1969 Development Finance Industrial Corporation of Ceylon Finance 3.0 - 2.3 636-CE 1969 Ceylon Electricity Board Power 16.5 - 10.5 168-cE 1969 Government of Ceylon Land Reclamation - 2e5 1.8 653-CE 1970 Government of Ceylon Irrigation/Power 14.5 - 14.2 174-CE 1970 Government of Ceylon Irrigation/Power - 14-8 8.6 Total 73.5 20.1 38.4 of Which has been repaid 18.2 - Total now outstanding 55.3 20.1 Amounts sold 3.6 of which has been repaid 3.3 0.3 Total now held by Bank & IDA 55.0 20.1 Total UJndisbursed 27.0 11.4 38.4 1/ Amount after 1971 exchange adjustment.  ANNEX II Page 2 of 3 B. PROJECTS IN EXECUTION / (M) Credit No. 121 - Lift Irrigation Project; US$2 million of June 19, 1968; Closing Date: December 31, 1975 A two-year delay is expected in the completion of the project. This is partly due to the civil disturbances during April 1971 and partly because of inadequate facilities to service and repair land-levelling machinery. A recent supervision mission reported definite signs of improvement in the implementation of the project: engineering and agricultural staff have been strengthened and the maintenance of equipment has improved. According to a revised construction scheduled, the project is now expected to be completed in December 1974. The original Closing Date of June 30, 1973 has accordingly been postponed for the first time to December 31, 1975. (ii) Loan No. 634 - Second Development Finance Corporation Project; US$3 million of July 18, 1909; Closing Date: December 31, 1975 Due to the slowdown in economic activities, there have been delays in committing funds. However, an amendment to the Development Finance Cor- poration of Ceylon (DFCC) Act, now before the National Assembly, should permit the DFCC to expand somewhat its activities by lending to small-scale industrial enterprises and cooperatives. In addition to a disbursed amount of $0.7 million, $1.5 million have already been committed. The original Closing Date of December 31, 1973 has been postponed for a second time from December 31, 1974 to December 31, 1975, to allow sufficient time for presentation of new projects to DFCC and the completion of disbursements. (iii) Loan No. 636 - Maskeliya Oya Power Project; US$16.5 million of July 28, 1969; Closing Date: December 31, 1974 The completion of the project is expected to be delayed by about one year. This is due to: (a) delays in the preparation of bidding documents and the subsequent placing of orders; (b) delays in the import of adequate construction equipment by the civil works contractors; and (c) a prolonged strike at the turbine factory. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weakness in project execution.  ANNEX II Page 3 of 3 Site works are now proceeding reasonably satisfactorily and the planned commissioning of the project towards the end of 1973 is realistic. The original Closing Date of September 30, 1973, has been postponed to December 31, 1974, to allow for completion of disbursements, including retention monies on civil works. (iv) Credit No. 168 - Land Reclamation and Drainage Project; US$2.5 million of November 13, 1969; Closing Date: December 31, 1974 The construction is about two years behind schedule, due mainly to civil disturbances and inadequate construction equipment and lack of facilities to service and repair this equipment. A revised equipment procurement list has been agreed and additional equipment is going to tender soon. The project is expected to be completed by December 1976. A postponement of the Closing Date will be required accordingly. (v) Loan No. 653 and Credit No. 174 - Mahaweli Ganga Development Project; (Irrigation/Power); US$14.5 million each and both of January 30, 1970; Closing Date: june 30, 1976 Although the expected date of first water deliveries from this project is one year behind schedule, progress in all construction areas is generally satisfactory and no further delay is anticipated. Over 90 percent of civil work contracts have already been awarded and all major equipment contracts are expected to be finalized within three months. The civil works are expected to be completed by the end of 1974. The Loan and credit are expected to be fully disbursed by the Closing Date.   ANNEX III Page 1 of 2 SRI LANKA - FIFTH POWER PROJECT (POWER TRANSMISSION AND DISTRIBUTION) CREDIT AND PROJECT SUMMARY Borrower: The Republic of Sri Lanka Beneficiary: The Ceylon Electricity Board (CEB) Amount: US$6.0 million Terms: Standard Relending Terms: The Government would relend the proceeds of the proposed credit of $6.0 million to the CEB at 7-1/4% per annum for 20 years including 3 years grace period. Project Description: The purpose of the project is to extend the transmission and distribution facilities of the CEB. Two projects financed by the Bank (one under Loan 636-CE and the other under Loan 653-CE and Credit 174-CE) will increase the installed capacity of power by 65% from 261MWJ to 401MW. The proposed project would enable utilization of this power. The components of the project are: (1) 90 miles of 132 kV transmission lines and associated sub-stations; (2) 400 miles of single circuit 33 kV distribution lines and associated sub-stations; (3) 11 kV and low tension switchgear, distribution transformers, and ancillary equipment for the Colombo distribution system. Estimated Cost US$ Million Local Foreign Total 1) 132 kV extensions 0.43 2.01 2.44 2) 33 kV extensions 1.27 2.70 3.97 3) 11 kV and low tension switchgear 0.10 0.79 0.89  ANNEX III Page 2 of 2 US$ Million Local Foreign Total 4) Buildings 0.71 0.71 5) Engineering and Administration 0.54 0.54 6) Customs Duties 0.54 - 0.54 7) Contingencies: Price 0.17 0.41 0.58 Physical 0.02 0.09 0.11 TOTAL 3.78 6.0 9.78 Financing Plan: US$ Million IDA 6.00 CEB 3.78 /1 TOTAL 9.78 /1 Includes connection charges collected from consumers. Estimated Disbursements: US$ Million FY 1973/74 0.150 FY 1974/75 4.780 FY 1975/76 1.070 Procurement Arrangements: Imported equipment would be procured on basis of international competitive bidding. Appraisal Report: No. 21a-CE, dated March 14, 1973  IBRD 10199R 810. 81' ~~~~~~~~~~~~~~~~~~~MARCH 197:3 80