Sri Lanka - Kurunegala Rural Development Project

Document of The World Bank y FOR OFFICIAL USE ONLY Report No. 2292a-CE SRtI LANKA STAFF APPRAISAL REPORT KURUNEGALA RURAL DEVELOPMENT PROJECT March 8, 1979 South Asia Projects Department Agriculture Division A This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank autborization.  CURRENCY EQUIVALENTS US$1 = Rs 15.5 Rs 1 = US$0.065 Rs 1 million = US$64,516 WEIGHTS AND MEASURES 1 long ton = 2,240 lb = 1.016 metric tons 1 hundredweight (cwt) = 50.8 kg = 112 lb 1 bushel (bu) of paddy - 45 lb l pint = 0.57 liters 1 acre (ac) = 0.405 hectare (ha) 1 mile (mi) = 1.609 kilometers (km) 1 square mile (sq mi) = 640 ac (259 ha) 1 foot (ft) = 30.5 centimeters (cm) 1 chain ' 66 ft. PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ADA - Agricultural Development Authority ADB - Asian Development Bank ARTI - Agrarian Research and Training Institute ASD - Agrarian Services Department BC - Bank of Ceylon CB - Central Bank CCB - Coconut Cultivation Board CEB - Ceylon Electricity Board CFC - Ceylon Fertilizer Corporation CRI - Coconut Research Institute DA - Department of Agriculture DAPH - Department of Animal Production and Health GOSL - Government of Sri Lanka GPS - Guaranteed Price Scheme ICB - International Competitive Bidding ID - Irrigation Department IRRI - International Rice Research Institute LS - Lump Sum M - Million MADR - Ministry of Agricultural Development and Research MPC - Multi-Purpose Cooperatives O&M - Operation and Maintenance PB - People's Bank PMB - Paddy Marketing Board PS - Prudent Shopping  FOR OFFICIAL USE ONLY FREQUENTLY USEI) ABBREVIATIONS FOR OFFICERS AGA - Assistant Government Agent Al - Agricultural Instructor A', - Agricultural Officer CDO - Coconut Development Officer DAEO - District Agricultural Extension Officer GA - Government Agent KVS - Village Level Worker (Krushikarma Viyaptha Sevaka) Pb - Project Director SMS - Subject Matter Specialist T: - Techni-al Assistant GLOSSARY anicut - diversion scheme asweddutpized - leveled and bunded land suitable for impounding water. By tradition, this is used interchangeably with paddy land. ayurvedic - indigenous system of medicine. chena - slash and burn or "shifting" agriculture district - the principal administrative unit in the country. 'here are 24 districts in Sri Lanka. kurakkan - ringer millet: maha - northeast monsoon season (October to January) mammoty - hand hoe manioc - cassava, the plant from which tapioca is made paddy - unhusked rice tank - reservoir for local rainwater storage yala - southwest monsoon season (March to June) FISCAL YEAR January 1 - December 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   SRI LANKA KURUNEGALA RURAL DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. SECTORAL BACKGROUND .................................... L General ........................................... L Role of Agriculture in the Economy. 2 Performance and Problems ........................... 2 Objectives and Strategy for the Future. 3 Integrated District Developmient Programs .. Bank Group Support to Agrictlture. 5 II. THE PROJECT AREA . Location and Demography .5 Climate and Physiograph .. . . A. Climate .. B. Topography ancd Soils .6 C. Water Resources ard Drainage. 7 Agricultural Production . .8 A. Land Use. 8 B. Farm Size and Land Tenure. 9 C. Farming Practices, Yields and Production 10 Agricultural Supporting Services . .12 A. Research and Extersion .12 B. Farm Input Supplies .14 C. Agricultural Credit ......... . ......... 15 D. Marketing and Processing .16 E. Coordination of Irput Supplies. 17 Social Infrastructure and Living Standards 17 A. Transport and Comnunications. 17 B. Electrification. 13 C. Water Supply. 13 D. Health Facilities .19 E. Educational Facilities .19 This report is based on the findings of an IDA mission which visited Sri Lanka in March/April 1978, and incLuded Messrs. P. Garg, P.N. Gupta and S.Z. Husain (IDA); and Ng Siew Kee, Z. Matmor, and H. Vieilhescaze (Consu'Ltants). A follow-up mission composed of Messrs P. Garg and P.N. Gupta visited Sri Lanka in August 1978.  -2- Table of Contents (Cont'd.) Page No. III. THE PROJECT .. 20 Objectives and Approach . . .20 Detailed Features. .......................... 21 A. Irrigation and[ Water Management 21 B. Coconut Develu)pment .24 C. Agricultural Extension .26 D. Agricultural Input Supplies .27 E. Agricultural Credit .27 F. Livestock. .......................... 30 G. Groundwater E::ploration .30 H. Rural Roads . 31 I. Rural Water Supply .31 J. Rural Electrification .32 K. Health . 32 L. Education . 33 M. Project Coord:nation and Investigations .33 IV. PROJECT COSTS, FINANCING AND PROCUREMENT .34 Cost Estimates and Schedule of Expenditures 34 Financing .......................... 37 Procurement .......................... 37 Disbursements .38 Accounts and Audits .40 V. PROJECT IMPLEMENTATION AND OPERATION .40 Implementation Responsiriility .40 Coordination and Manageaient .42 Implementation Schedule .44 Monitoring and Evaluation .45 Technical Assistance .46 Operation and Maintenance .47 VI. PRODUCTION, MARKETING AND FINANCIAL ASPECTS .48 Cropping Intensities, Yields and Production .48 Market Prospects and Prices .50 Farm Incomes .51 Cost Recovery .53 Impact on the Government Budget .54  -3- Table of Contents (Cont'd.) Page No. VII. BENEFITS AND JUSTIFICATION ............................ 54 General ................................. ......... 54 Production and Balance of Payments ............. .. 55 Employment .............................. .......... 55 Social Infrastructure ............................ 55 Distributive Impact ... ........................ . 56 Environmental Impact ..... ........... . ...... ......... . 56 Economic Rate of Return ..... ..................... 56 Sensitivity and Risks .............. 58 Project Replicability ..... ...........o............ 59 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS ................ 60 ANNEXES Annex I - Project Are.a Details Annex 2 - Detailed Cost EstimatEs Annex 3 - Financial and Economic Analyses Annex 4 - Related Documents and Background Papers CHARTS WB 20053 - Proposed Project Orgarization WB 20054/55 - Implementation Schedule MAPS WB 13943R - Physical Features and Land Use WB 13944 - Social Infrastructure WB 13945 - Major Irrigation Works and Rural Electrification WB 13946R - Proposed Transport Network   SRI LANKA KURUNEGALA RURAL DEVELOPMENT PROJECT STAFF APE'RAISAL REPORT I. SECTORAL BACKGROUND General 1.01 The island nation of Sri Lanka occupies about 25,300 sq mi (16.2 M ac) and has an estimated population of 14.5 M or a population density of about 570 per sq mi. The population is growing at a moderate 1.6% per annum. The average per capita income level is low -- about US$200 in 1978 and has grown only by about 1% per year over the past two decades. About 40% of the popula- tion is estimated to have annual income levels below the "official" poverty level of about US$50 per capita. 1/ However, because of the considerable progress made by Sri Lanka in satisfying many of the basic needs of its popu- lation through a relatively well developed social infrastructure as well as the food subsidy program for the poor, poverty in Sri Lanka does not take the extreme form found in neighboring South Asian countries. 1.02 About three-quarters of Sri Lanka's population live in rural areas. Although the proportion of urban population has increased steadily from about 12% in 1901 to the current 23%, much of the increase has been due to the growth and reclassification of small rural towns into urban areas. The influx of rural population into major urban metropolitan areas has been rather modest and this can be largely attributed to the: (a) relatively low and steadily narrowing rural-urban income differentials; (b) low incidence of rural landlessness; (c) well dispersed social infrastructure such as health, educq- tion and transport facilities; and (d) uniform application of the various food subsidy programs to both the rural and urban population. Because of the relatively slow growth of the major metropolitan areas, Sri Lanka has largely avoided the problems of urban congestion and decay, typical in many other developing countries. 1.03 Based on the rainfall pattern, the island can be divided into two distinct zones: the wet zone (average annual rainfall of 75-200 inches) in 1/ Based on the cutoff level used in determining eligibility for subsidized food rations.  -2- the southwest quadrant, and the dry zone (average annual rainfall 35-75 inches) covering the rest of the island. A narrow transition band between the dry and the wet zone is sometimes characterized as the third climatic zone, the intermediate zone. 1/ About three-quarters of the population reside in the wet zone, giving it an average population density of about 1,800 per sq mi compared to only 200 per sq mi in the dry zone. Until about 1950, much of the growth took place in the wet zone. Since then, however, successive govern- ments have heavily emphasized the development and settlement of the dry zone. As a result, during the past few decades the growth rate in the dry zone has far exceeded that for the wet zone. This trend is likely to continue for the foreseeable future. Role of Agriculture in the Economy 1.04 Agriculture plays a major role in Sri Lanka's economy, accounting for about one-third of the Gross Domestic Product, over one-half of total employment, about 80% of export earnings and a large share of public revenues. Much of the activity in manufacturing, transport and the service sectors also relates to either supply of inputs to agriculture or processing of agricul- tural produce. In the rural areas, the dependence on agriculture is almost total with over 95% of the rural population involved in agriculture, directly or indirectly. 1.05 Sri Lanka's climate is suitable for year-round cultivation. The variations in precipitation, topography and soils make it possible to grow a wide range of crops including tea, rubber, coconuts, paddy, tubers and roots, coarse grains, pulses, vegetables and fruits. Out of some 5.5 M ac under permanent cultivation, 1.6 M ac are under paddy, 1.2 M ac under coconut, 0.6 M ac under tea, 0.5 M ac under rubber, 0.1 M ac under other perennial crops and the remaining 1.5 M ac under mixed rainfed farming, mostly as small gardens around homesteads. In addition, about 2.5 M ac are under slash and burn type shifting agriculture locally known as chena cultivation. Typically, only about one-fifth of the chena land is cultivated in any year. Where sufficient water is available, it is common practice to produce two or more crops a year. The cropping intensity on paddy lands ranges from about 175% in the wet zone to about 110% in the dry zone, the average for the whole country being about 130%. 1.06 Tea and rubber are primarily export crops providing about 60% of total export earnings and through export taxes and duties, about 40% of Government revenues. Coconut is also exported although only as a residual, after satisfying the quite substantial domestic demand for the various coconut products. Paddy and most other food crops are grown solely for domestic consumption. Performance and Problems 1.07 The agricultural performance over the past two decades has been rather mixed. There have been modest increases in production and employment 1/ The Kurunegala District, the proposed project area, mostly falls with- in this transition zone.  and some progress has been made towards food self-sufficiency. The sector has, however, been unable either to provide a major stimulus to the rest of the economy or to make any significant dent in the chronic unemployment problem faced by Sri Lanka. 1.08 During the 1960s, agricultural production grew at an annual rate of 3.4% with a relatively good growth in paddy (6%) and rubber (5%), but a meager 1% growth in tea and coconut. The increased paddy production enabled sub- stantial progress towards food self-sufficiency -- from about 50% in 1960 to about 80% in 1970. However, despite this, the net surplus (in current prices) on trading of agricultural commodities declined from about US$200 M in 1960 to only US$120 M in 1970 due to stagnation in tea and coconut production as well as adverse price trends in externaL markets. Performance in the 1970s has been much worse. Except for subsidiary food crops and minor export crops such as spices, production virtually stagnated or even declined. Paddy pro- duction in 197, for example, was only 5% above the level achieved in 1970. For tea, rubbEr and coconut, production remained below the levels attained in 1970. 1.09 The generally poor weather condi:ions experienced during the 1970s are partially responsible for this inadequate performance. Mostly, houever, the reasons are related to sectoral strateg,ies and policies over the past two decades. The policy of import substitutioln has been partially successful, but increased fooc. self-sufficiency has come a: the cost of a severe neglect of the rest of the sector, particularly plantation crops. Sectoral develcpment has also suffEred from: (a) the inability to mobilize adequate investaent resources for agriculture; (b) emphasis on costlier but more "visible" exten- sive developmEnt, neglecting the more intenisive use of resources already developed; (c) inadequate attention to operation and maintenance, which neces- sitated frequent and costly rehabilitation; (d) ineffective and demoralized agricultural supporting services due to in3titutional uncertainties as well as excessive political interference; (e) iaadequate planning for disposal and proper management of lands acquired under Land reform; and (f) a systen. of controls, subsidies and taxes which discouraged private initiative and invest- ment. Objectives ancL Strategy for the Future 1.10 GOSI. recognizes the pivotal role of agriculture in stimulatir.g economic growt:h and rural development in Sri Lanka. It is also aware of the constraints imposed upon growth by past policies and programs. The major objectives of GOSL's medium-term plans and programs for agriculture are to: (a) increase agricultural employment as well as improve income levels, particularly for the economically dis- advantaged groups; (b) increase self-sufficiency in basic food items such as paddy, milk, sugar, fish and pulses so as to improve nutritional standards and to insulate the economy from excessive fluctuations in external markets; and  -4- (c) expand export earnings both from traditional agricul- tural exports and from "non-traditional" items such as cocoa, coffee, pepper and spices. 1.11 The Government strategy for achieving these objectives emphasizes better utilization of the existing potential through institutional and policy improvements as well as rehabilitation of the production base, where necessary. Among policies and programs being given high priority by GOSL are: establish- ment of appropriate price incentives for producers; strengthening of agricul- tural supporting services such as research and extension, credit, iarm power supply, and fertilizer distribution; improved irrigation water management; improved nianagement of state controlled lands; stepped up programs for rehab- ilitation of the plantation crops; and improvements in living conditions of plantation labor. Through these measures, the Government hopes to step up the agricultural growth rate to 4.5% per annum over the next five years. With adequate attention to implementation problems, this is an attainable target. For the longer-term needs of the economy, the Government is also emphasizing further expansion of irrigated agriculture in the dry zone through accelerated developmenit of the Mahaweli River basin. Integrated District Development Programs 1.12 To encourage grassroot participation and to reduce implementation problems at the field level, GOSL is encouraging decentralization of planning, monitoring and coordination. In line with this approach, it has recently established a District Ministerial system and appointed a Minister to each of the 24 districts in Sri Lanka. The District Ministers, ex officio Deputy Ministers to all the development-oriented Ministries in Sri Lanka, would oversee and coordinate the planning and implementation of all developmental programs 1/ in their respective districts. Overall national priorities and policy guidelines would be established at the Colombo level. Technical guid- ance and supervision for the field staff of various agencies and departments would also be from the respective Headquarters in Colombo. As the District Minister set-up has just been started, many of the detailed working procedures are still to be worked out, and it would be some time before it is fully operational. 1.13 The decentralization program clearly holds the potential for quick resolution of implementation bottlenecks as well as for making development plans more responsive to local needs and resources. The extent to which this potential would be realized in practice would depend largely upon: (a) the ability to avoid partisan political considerations in resource allocation at the local level; (b) development of harmonious relationship between line Ministries in Colombo and the District Ministers; (c) the strengthening of planning and monitoring capabilities at the district level; and (d) the preparation of sound technical criteria and policy guidelines for use in the formulation of district plans. 1/ Projects and programs which are of national importance (e.g. the Mahaweli program) would, however, continue to be handled at the central level.  1.14 To give an operational corLtent to the decentralization program, the Government is proposing to undertake a number of Integrated District Develop- ment Projects. Each of the districts is to be surveyed and studied and a dev- elopment plan is to be prepared taking into consideration the leading sectors and activities that need investment support to promote a balanced and accel- erated growth. The district projects are to emphasize low-cost, quick--yielding, labor-intensive investments aimed at better utilization of the existing poten- tial by relaxing critical bottlenecks and constraints. The main advantages of the district projects would be: (a), increased responsiveness of developmental efforts to local needs and priorities; (b) promotion of balanced regionial development by enabling resources to be channeled into non-Mahaweli areas; and (c) an opportunity for balancing high-capital intensity and long-gestation of most other developmental programs of GOSL. 1.15 The proposed project for the Kurunegala District would be the first attempt by Sri Lanka to develop an entire district in an integrated manner. It is expected that over the next decade most districts in SrL Lanka would be covered by similar projects. Proposals for development of two other districts, Hambantota and Matara are under preparation with assistance from Norway and Sweden, respectively. The proposed Kurunegala project would also include support for preparation of similar projects for four other districts for possible financing by external agencies. The four proposals are expected to be ready by June 1980. Bank Group Support to Agriculture 1.16 During the last several years, Bank Group lending to Sri Lanka has heavily emphasized agriculture and rural development. Since 1968, a total of nine projects have been financed in this sector including: Lift Irrigation (Cr. 121-CE, US$2.0 M); Drainage and Reclamation (Cr. 168-CE, US$2.5 MI); Mahaweli Ganga Development I (Ln. 653-CE, US$14.5 M and Cr. 174-CE, US$14.5 M); Dairy Development (Cr. 504-CE, UJS$9.0 M); Agricultural Development Project (Cr. 595-CE, US$25.0 M); Tank Irrigation Modernization (Cr. 666-CE, US$5.0 M); Mahaweli Ganga Development II (Cr. 701-CE, US$19.0 M); Tea Rehabilitation (Cr. 818-CE, US$21.0 M) and Tree Crop Diversification (Cr. 819-CE, US$4.5 M). The first three of these projects have been successfully completed. The others are progressing satisfactorily, although due to large scale emigration of skilled manpower to the Middle East and Africa during the past few years, manpower availability is beginning to be a constraint. II. THE PROJECT AREA Location and Domography 2.01 The proposed project would cover the entire administrative district of Kurunegala, one of the 24 districts in Sri Lanka. The district, located in the western part of the country, has a land area of about 1,850 sq ii and an estimated population of 1.15 M. Kurunegala town, the district hnead- quarters, is about 60 mi north of Colombo, the national capital (Map 13943R).  - 6 - Kurunegala is the third largest district in the country, accounting for about 7% of the total area and 8% of the population. The district is predominantly rural; according to the 1971 Population Census, 96% of the population was rural compared to about 78% nationally. Kurunegala town with a population of about 27,000 is the principal urban center in the district. All other towns in the district have a population under 6,000. Average population density is about 620 per sq mi. The density varies considerably within the district -- from less than 400 in the northern parts to over 1,000 per sq mi in the southeast. 2.02 Since the early 1950s, the district has had a net outmigration to other districts of about 2% per decade, a result of the gradual population shift towards the dry zone as well as increasingly limited scope for opening up of new areas within the district. The total labor force is estimated at about 450,000. According to the 1971 Census, the unemployment rate in Kurune- gala was about 14%, somewhat lower than the national average of 19% but con- siderably higher than 5-10% found in most dry zone districts. About two-thirds of employment is in the agriculture sector; manufacturing and mining accounted for about 10%; construction about 2% and the service sector for the rest. As elsewhere in the country, health and educational standards are generally quite high; the literacy rate is over 85% and life expectancy is about 68 years. Climate and Physiography A. Climate 2.03 The climate in the project area is tropical with only slight varia- tions in temperatures but heavy, variable rainfall (Annex 1, Table 1). Annual precipitation follows a distinctly bi-modal pattern, particularly in the south- ern part. The northeast monsoon (maha season) brings rainfall to the whole district during October-December. The southwest monsoon (yala season) brings rainfall mostly to the southern part during March to June. 2.04 On the basis of precipitation, the district can be divided into four distinct zones: dry, semi-dry, semi-wet, and wet zones (Map 13943) with mean annual rainfall of below 60, 60-75, 75-90 and over 90 inches, respectively. The intermediate zones (semi-dry and semi-wet) cover about 70% of the district, the dry zone covers about 20%, and the wet zone about 10%. The total amount as well as distribution of rainfall varies considerably from year to year. Frequently, rainfall occurs in the form of high intensity storms, resulting in limited soil storage and excessive run off. Run off estimates indicate that only about 60% of the rainfall received is effective. Probability data indi- cate that rainfall is generally adequate for rainfed crop production during the maha season in all parts of the district. During the yala season, rainfed paddy production is feasible in the wet and semi-wet zones but at considerable risk. The total rainfall in semi-dry and dry zones is inadequate for the economical cultivation of coconut. B. Topography and Soils 2.05 The topography slopes gently downward from south to north and towards the coastal plain. Except in areas adjoining Kandy and Matale Districts, the  - 7 - elevation ranges from about 50-2,000 ft above mean sea level. In addition to the general slope, there are local urLdulations in surface relief related. to the stream patterns in the district. 2.06 Soils in the district vary considerably as regards texture and drainability. The texture varies from moderately fine (reddish brown earths and low humic gleys) to coarse (regosols), and drainability from poor (low humic gleys) to well drained (reddish brown earths). The soils have a shallow profile, mostly varying in depth from about 2-5 ft. The PH values indicate that most soils in the district are slightly acidic to neutral. All the soils are low in nutrients and fertilizing is essential for good crop yields. The combination of the various soil textures and drainage characteristics with different rainfall patterns makes it possible to grow a wide range of cr'ops in the district. C. Water Resources and Drainage 2.07 The drainage pattern of the district is predominantly from south to north and east to west, with most streams originating from the central hills of the island and flowing towards the western coast. The major streams flowing through the district are: Karambalan Oya, Maha Oya, Deduru Oya and Mi Oya. Most of these streams are perennial, although with large variation in flows from month to month. The streams generally feed either major irrigation tanks or diversion schemes. Recently, two lift irrigation schemes serving a total estimated area of 1,000 ac have been constructed on Maha Oya. Reliable data on stream flows is unavailable and hence, it is difficult to make any defini- tive judgment about the potential for further irrigation development from these streams. Clearly, however, thiere is scope for some additional lift irrigation schemes, particularly for supplementary yala irrigation in the intermediate zone. For longer term lplanning and development, it is essential to initiate systematic monitoring of the various stream flows. 2.08 Because of relatively high rainfall and run offs, conditions are favorable for surface water storage for irrigation during dry periods. This potential was recognized from the earliest times and numerous tanks, big and small, were constructed. With the passage of time, most of these fell into disuse until restoration during the past few decades. Currently, there are nine major operating tanks in the district with service areas ranging from about 800 to 5,000 ac (Map 13945 and Annex 1, Table 2). The total service area for the nine tanks is estimated at about 25,000 ac. There are also about 3,000 village tanks and 600 village anicuts (diversion schemes) with a poten- tial service area of about 95,000 ac. However, due to inadequate maintenance, many of the village irrigation schemes are in poor condition and actual service areas are considerably below the potential. Currently, the total service area under the village schemes is estimated at about 70,000 ac. 2.09 As in the rest of the country, poor management practices are the most serious constraint to the effective use of irrigation facilities. Largc amounts of water are wasted because of excessive surface run off, improper channel distribution systems, excessive seepage, insufficient control of water issues, improper operation of sluice gates, over application of irrigation  -8- water and delayed and staggering planting leading to poor utilization of rainfall. Currently, average water duty in irrigated areas is estimated at about 5 ac-ft per ac for maha paddy and 7 ac-ft per ac for yala. With rehabilitation of the conveyance systems and adoption of improved water man- agement practices, these duties could be reduced by as much as one-third (Annex 1, Table 3). GOSL is aware of the potential for increased production through better management of water resources. Recent policy decisions place heavy emphasis on improved irrigation water management and provide an encouraging setting for action in this crucial area. 2.10 The hydrogeological conditions and groundwater resources in the district are yet mostly unexplored. However, as most of the district is underlain by crystalline rock, prospects of economically exploitable ground- water are likely to be limited. Some 30 test wells have been drilled in the district over the past few years and a total of ten shallow tubewells with low yields are in testing operations. The investigations have been limited due to the lack of suitable equipment for drilling in crystalline rock. The existence of some 85,000 village wells (some of them inoperative) indicates the presence of localized groundwater resources with constituting aquifers in unconsolidated sediments and fractures, joints and other openings in weathered parts of the crystalline rocks. Further exploration is required for identification of areas with groundwater potential. 2.11 Practically the entire district is free from deep or prolonged flooding and there are no severe drainage problems. Agricultural Production A. Land Use 2.12 Out of the total land area of some 1.2 M ac, about 0.6 M ac are under permanent cultivation, 0.1 M are forests, 0.1 M ac are under non- agricultural uses such as settlements, roads and water bodies and the rest are under chena cultivation. Coconut and paddy are the two most important crops covering about 380,000 ac and 170,000 ac, respectively. For both coconut and paddy, Kurunegala has the highest acreage among all the districts in Sri Lanka, accounting for about 35% and 13% of the respective crop acreages in Sri Lanka. Rubber is cultivated on some 15,000 ac. Mixed rainfed farming (mostly as small gardens around homesteads) including fruits, vegetables, spices and pulses accounts for the remaining 35,000 ac under permanent cul- tivation. The cropped area and the crop mix under chena cultivation vary from year to year according to climatic and market conditions. Data on land use under chena cultivation is hard to obtain and notoriously unreliable. On a crude basis, an average of about 100,000 ac are cropped under chena farming each year, the main crops being: manioc and tubers, 50,000 ac; kurakkan and other coarse grains, 20,000 ac; vegetables, 15,000 ac; and pulses, 15,000 ac. Most of the coconut and rubber land is in the southern part of the district with a wet/semi-wet climate; paddy land is distributed fairly evenly in the district while chena cultivation is mostly practiced in the less-densely populated northern part with a dry/semi-dry climate.  -9- B. Farm Size and Land Tenure 2.13 Reliable and consistent data on farm sizes and land tenure in Kurunegala district are lacking due to: (a) fragmentary nature of most past surveys; (b) complexity of land use and tenurial practices; and (c) changes due to land reform during 1972-75. 2.14 According to the 1973 Census of Agriculture, there were about 172,000 operational agricultural holdings in Kurunegala, including about 300 estates of 20 ac or more with ten or more resident employees. The average operational holding size was about 4 ac comlpared to about 2.5 ac in Sri Lanka as a whole. The estimated farm size distribution is summarized below: Table 2.1: FARM SIZE DISTRIBUTION Operational Holding Size Number % of Total Area % of Total (ac) '000) ('000 ac) 0 - 1 42 24 20 3 1 - 3 69 40 116 17 3 - 10 52 30 252 38 10- 20 5 3 66 10 20+ 4 2 213 32 Total 172 100 667 100 Due to the break-up of the 50+ ac holdings during the 1972-75 land reform, the current farm size distribution is likely to be considerably less skewed than that indicated above. Also, larger holdings mostly consist of coconut planta- tions while smtaller holdings contain mostly asweddumized land. Because of the generally lower income levels on coconut lands as compared to asweddumized lands, the skewness, adjusted for land productivity, would be even smaller. 2.15 Abott 88% of all the holdings ars privately owned, 9% are owned by the Government and the rest belong to reli;ious and other institutions. A variety of larnd tenure patterns prevail in the district; about half the hold- ings are ownect singly, 10% owned jointly, 15% held as grants or leases on the Government owELed (crown) lands, and the re3t as encroachments and other forms of tenure. Most holdings comprise 3-4 par^els, often under different tenurial arrangements. It is estimated that about 60% of the farm families in the dis- trict are owner-cultivators, 30% owner-cultivator cum tenants and the lest pure tenants. Typical tenancy arrangements involve paying the landowner 25-50% of the produce with the landowner supplying some of the cash inputs. The tenurial conditions and rental rates are governed by the Agricultural Lands Law of 1973. 2.16 Target Groups. Minimum holding sizes required to provide subsistence level incomes (US$50, para 1.01) vary considerahly with the land productivity and tenurial arrangements, as well as earnings 'rom off-farm employment. In most cases, however, a 3 ac holding can adequately support a family of 5-6 people. On this basis, about two-thirds of the farm families in the district are currently below the poverty level.  - 10 - C. Farming Practices, Yields and Production 2.17 Coconut. According to a 1977 survey of coconut holders in Kurunegala District, about 80% of the palms lie within the productive age group of 7-60 years; about 10% of the palms are above 60 years old, mostly senile and requir- ing replanting; and the rest are immature as underplantings. Only about 5% of the coconut area was interplanted with other crops, primarily pastures, coffee, pepper and pineapple. The planting material is almost exclusively local tall (Typica variety) selections. The estimated mean palm stand of 69 per ac is higher than the recommended 64 per ac. Weed control is not a serious problem except in the 10-25 ac holdings with absentee owners. Overall, only about 5% of coconut holders reported fertilizer use in 1977, although the proportion of users on larger holdings (over 25 ac) was much higher at about 25%. Due to inadequate fertilizer application, particularly during the past 3-4 years, the palms show widespread symptoms of malnutrition and a large scale fertilizer program is urgently needed. Contour drains to minimize soil loss and retain soil moisture are practiced only on about 10% of the holdings. In some low- lying areas on slope bottoms, waterlogging due to inadequate field drainage is also a problem. In underplanted smallholdings, very often the low yielding senile palms are retained well beyond the recommended fifth year of under planting, and the consequent overshading by the taller palms retards the growth of the young palms. Pests and disease infestation of mature palms is not a serious problem in the district. Although over one-third of the coconut acre- age is suitable for intercropping, less than 5% are intercropped at present. 2.18 Reliable data on coconut yield and production levels is unavailable. According to the 1977 survey, the yield averaged about 1,250 nuts per ac, a sharp decline from the reported yield of about 1,700 nuts per ac in 1975 -- mostly due to adverse weather conditions and reduced fertilizer application. The survey also showed significant yield variation by holding size -- varying (in 1977) from about 900 nuts per ac in holdings below 3 ac to over 1,300 nuts for holdings above 25 ac, largely reflecting better management levels in the bigger holdings. Even the 1975 yield level is less than half the genetic yield potential of the existing plantations in the district indicating consider- able scope for increasing productivity by increased use of fertilizer as well as better management practices. On the basis of reported 1975 yield levels, the total district production in a normal year would be about 030 M nuts. 2.19 Paddy. Of the total asweddumized 1/ paddy area of 170,000 ac, about 25,000 ac are under major irrigation schemes, 70,000 ac under minor irrigation schemes, and the rest under rainfed cultivation. Most of the rainfed paddy area is in the southern part with a wetter climate. Typically, about 90% of the asweddumized land is cultivated during the maha season and 50% during the yala season. Sowing of the maha crop starts in October/November. Except for tillage, cultivation is mostly carried out by manual labor. Because of inade- quate farm power for land preparation (para 2.33) and the priority given to chena cultivation, maha sowing is often extended into late January thus wasting most of the maha rainfall. The crop is harvested between February and April. 1/ Leveled and bunded land suitable for impounding water.  - :11 - Subject to water availability in the tanks, yala paddy is broadcast during March/April for harvest in June/July. In southern parts of the district, some rainfed yala cultivation is also praclticed. However, it is highly risky due to the erratic rainfall pattern. Presently, paddy is mostly broadcast, al- though transplanting and row seeding are becoming more popular. According to a crop cutting survey during maha 1976/77, about three-quarters of farmers in Kurunegala were using improved varieties of paddy and about two-thirds were using fertilizer although only half of them at recommended levels. 2.20 During 1977, climatically a "good" year, average paddy yields were about 50 bushels (1 ton) per ac 1/ during the maha season and 42 bushels (0.85 tons) per ac during the yala season. In both cases, they were about 5% below the national average. Ten other districts had yields higher than those in Kurunegala with six outperforming the District by 30% or more, indi- cating a vast potential for improvement over present levels. Total paddY production was estimated at about 6.3 M bus;hels (128,000 tons) during the maha and 4.0 M bushels (82,000 tons) during the yala or a total annual pro- duction of 10.3 M bushels (210,000 tons). The district production accounted for about 11% of national production during maha, 16% during yala and 13% overall. In a "normal" year, paddy production would be about 20% lower. The trends in paddy area, yields and production levels for Kurunegala are detailed in Annex 1, Table 4. 2.21 Chena Cultivation. Chena agriculture is practiced in nearly all jungle areas. Clearing and land preparation commences in June or July and is normally completed by August. This is followed by burning. Sowing and plant- ing on chena land commences with the maha rains towards the end of September and extends to the end of November. Cereals (kurakkan and maize) are normally planted first, followed by chillies and vegetables. Roots and tubers (manioc and potatoes) and pulses (green grams and cow peas) are planted last. Crop husbandry standards are generally low and the main inputs are labor and seeds. Most farmers perceive chena as a hedge against total or partial failure of the paddy crop. For this reason, only when the chena crops are secured do tlne farmers transfer attention to paddy lands resulting in delayed maha planting and consequent waste of rainfall. This attitude, often quite rational from the view point of a small farmer given unreliable irrigation supplies due to poorly maintained and operated irrigation schemes, is a major constraint to better use of land and water resources in the district. Traditionally, chena land was cropped once every 20-25 years. With increasing population pressure, the fallow period is now much shorter (about 4-5 years). The shortened cycle has serious implications for the long run productivity of the land. There is clearly a need for developing viable settled systems of rainfed farming to replace chena cultivation. 2.22 Data on yields and production levels of the chena crops is extremely limited and often contradictory, partly because of the complex nature of chena cultivation, often involving a mixture of as many as five crops in the same 1/ On net harvested area basis. By definition, 85% of the gross harvested area is taken as the net harvested area.  - 12 - plot. Because of poor management standards, yields are believed to be gener- ally low. Average per ac yields are estimated at: 4 cwt (0.2 tons) for kurakkan and maize; 80 cwt (4 tons) for manioc and sweet potatoes; 5 cwt (0.25 tons) for pulses such as cowpeas and green gram; and 4 cwt (0.2 tons) for chillies. The average annual production of some of the main chena crops over the past two years is reported to be as follows: manioc, 180,000 tons; potatoes and yams, 35,000 tons; cowpeas and other pulses, 8,000 tons; oil- seeds, 2,000 tons; kurakkan and other coarse grains, 3,000 tons; and chillies, 1,500 tons. The reported acreage, yield and production trends are detailed in Annex 1, Table 5. Agricultural Supporting Services A. Research and Extension 2.23 Research. The National Rice Breeding Center (Batalagoda) and the Coconut Research Institute (Lunwila) are located within the district. Two other important institutes, the Dry Zone Research Station (Maha Illupalama) and the Minor Export Crops Research Station (Matale), are both less than 50 mi away from the district. 2.24 Sri Lanka has had a good rice breeding program. During the 1960s, the "H" series of locally bred varieties replaced most of the traditional varieties. Subsequently, Sri Lanka has successfully incorporated IRRI strains to produce varieties suitable to its own conditions. At Maha Illupallama, considerable progress has been made in introducing and developing new varie- ties of chillies, green gram, black gram, pigeon peas (dhal) and cowpeas. Pioneering field research is also underway on increasing productivity of lands under irrigation schemes through improved cropping systems and irriga- tion water management as well as on stabilized rainfed farming syst;ems for replacing chena cultivation. The Coconut Research Institute has recently released f'or commercial planting new high yielding hybrids which come into bearing in. the fifth year and have a yLeld potential of over 6,000 nuts per ac. However, the new hybrids require more exacting climatic and scil con- ditions and thus are not suited to all coconut growing areas in Sri Lanka. 2.25 Extension. Presently, several different agencies are responsible for extension work in the district, the principal ones being: the Department of Agriculture (DA); the Coconut Cultivation Board (CCB); the Land Commis- sioner's Department, the Department of Minor Export Crops (DMEC); and the newly established Department of Animal Production and Health (DAPH). Among these, DA through its extension Division has by far the heaviest involvement. The Division is headed by a Deputy Director whose professional staff consists of ten senior Subject Matter Specialists (SMSs) for cereals, pulses, tobacco, plant protection, horticulture and seed certification and production. The field operations are controlled by a District Agricultural Extension Officer (DAEO) in each of the 24 districts. The district level staff includes district SMSs who are usually agricultural diploma holders and who by training or experi- ence have specialized in certain subjects. The middle level staff consists of Agricultural Instructors (AIs), who are also agricultural diploma holders. Each AI is assisted by a number of village level workers (KVS) who have taken one year training in the Practical Farm Schools. The number of KVSs per Al  - 13 - varies with the area of the range covered by the AI and its production potential. 2.26 The Kurunegala District includes the following extension staff at present: one DAEO; one additional DAEO; ten SMSs; 48 AIs; and 175 KVSs. Only 135 KVSs are involved in extension work, the rest being responsible for the sale of seed and planting material as well as accounting. The staff is responsible for the agricultural extension activities of some 165,000 farm families, i.e., about 1,200 farm families per KVS. 2.27 Extension activities are technically backstopped by: (a) the Batalagoda Rice Research Center; (b) the Research Division of the Agriculture Department, Peradeniya; and (c) the Maha Illuppalama Research Station. Con- tacts with research institutions are mostly informal and of an irregular nature. In-service tra:.ning is provided by the Training Institute at Peradeniya and the Maha Illuppalama Research Station. The district office has one old jeep which is in poor working condition. Out of the 48 AIs, only 11 have motor- cycles; most KVSs do not have any transportation. 2.28 Extension work on coconut lands is the function of the Coconut Cultivation Board (CCB). Field operations are spread over seven regions, two of which --- Kurunegala and Kuliyapitiya -- are in the Kurunegala District. Each regional office is headed by a Senior Coconut Development Officer (SCDO). The district field staff consists of 25 CDOs who are mostly Agriculture Diploma holders. Each CDO is assigned to an area covering 5,000-6,000 farmers. The staff is charged with the responsibility of extension, advisory work relating to plant protection as well as the management of various coconut development subsidy schemes. The technical backup for extension is provided by CRI The workload related to the various subsidy schemes is rather heavy. Also, the CDOs are handicapped by poor mobility due to lack of transport as well as absence of village level workers. These factors have tended to keep the extension effort of the staff to the minimum and incidental to their other activities. 2.29 Responsibility for extension work in two special projects (Hakwatuna and Usgala Siambalangamuwa) were with the Land Commissioner's Department who had two AOs, one AI and four KVSs attached for this purpose. In preparation for the proposed reorganization of extension services under the project, these have recently been merged with the extension organization of DA. As regards livestock, nine Veterinary Surgeons, assisted by 40 KVSs operate in the district under the control of DAPH. Main activities include disease control (preventive vaccination), artificial insemination program and the enforcement of health and other regulations. The Department: of Minor Export crops with one AO, two AIs and two KVSs is responsible for extension work on crops such as cocoal, coffee and pepper. 2.30 Main problems impeding efficiency of the present agricultural extension system are: (a) fragmentation of the agricultural extension service with emphasis on individual crops and without concern for overall production possibilities;  - 14 - (b) pursuit of unrelated and, often, conflicting activities; (c) weak links with the agricultural research institutions; (d) inadequate in-service training for the field staff; (e) insufficient contact with the farmers due to inadequate manpower and absence of well structured work programs; and (f) lack of transport and inadequate operating budgets. GOSL is aware of these problems and is placing a high priority on solving them. Under the IDA financed Tank Irrigation Modernization Project (Credit 666-CE), the extension service in the Anuradhapura District has been reorgan- ized along the Training and Visit (T&V) system. The results so far are en- couraging although some difficulties have been experienced due to delays in appointment of additional staff, improper selection of contact farmers as well as political interference in staff placement. A project to extend the T&V system on a nationwide basis, incorporating the experience from the Anurad- hapura District, has recently been appraised for possible financing by IDA. B. Farm Input Supplies 2.31 Seeds and Planting Material. For paddy and other field crops, farmers obtain seeds from the extension service and the Multi-purpose Coop- eratives (MPCs), which, in turn, get them from Government farms and from certified seed growers. There is a great deal of farmer-to-farmer exchange and many cultivators save their own seed, especially for paddy. Foundation and registered seed are grown on Government farms. Multiplication is done mostly by certified growers. Currently, there are no facilities in Kurunegala for cleaning and processing of the seeds obtained from certified growers. Such facilities are available in other major paddy producing districts and have proved to be very popular with the farmers. 2.32 For coconut, there are two nurseries run by CRI, with a total capa- city of 150,000 plants, sufficient for the replanting of only about 1,500 ac per year. Recently, a nursery for intercrops such as cocoa, coffee, and pepper has also been started; however, the output remains much below the requirements. Shortage of good quality planting material is a serious con- straint to accelerating replanting and intercropping programs in the district. 2.33 Agricultural Equipment. As elsewhere in Sri Lanka, for the past two decades there has been a steady shift towards tractorization of land prep- aration for paddy cultivation. Draft animals, however, still account for about half of the land preparation for paddy cultivation in the district and they will continue to have an important role for the foreseeable future, parti- cularly in the wetter, southern parts of the district where holding sizes are smaller and land preparation is physically less taxing. Land preparation for chena cultivation is done almost exclusively by manual labor. Due to stagnation in the draft animal population and severe restrictions on imports of tractors and mammoties (hoes) during 1970-77, the farm power situation got progressively worse. During 1977, the district had in estimated 100,000 buffaloes, 450  - 15 - four-wheel tractors and 300 two-wheel tractors, adequate to cultivate on:Ly about 100,000 ac over the recommended 45-day cultivation period, compared to the asweddumized area of 170,000 ac. Inadequate farm power availability has been a major constraint to fuller utilization of the land and water resources in the district. With import liberalization over the past year, the situation has improved considerably and several popular brands of tractors are now readily available with local dealers and agents. Currently, the main co-n- straint is the lack of suitable credit fac:Llities for financing such purchases by the farmers. Availability of good qual:ity mammoties, particularly the brands popular with farmers, is still a problem. 2.34 Fertilizers. Until recently, the Ceylon Fertilizer Corporation (CFC) was the sole importer for all fertilizers; now the imports are also open to the private sector. Mixing and distribution at the wholesale level is handled by both public and private sector organizations with the private sector mostly catering to large plantation estates. Retail sales for paddy and field crops are through MPCs as well as Agricultural Service Centers (ASCs) supervised and supported by the Agrarian Services Division (ASD) of the Ministry of Agricul- tural Development and Research. Retail sa:Les for coconut are handled mostly by CCB. At present, in Kurunegala Districc, ASD operates ten fertilizer stores, with a total capacity of about 5,200 tons and CCB, four stores with a capacity of 1,300 tons. In addition, MPCs and ASCs have an all-purpose storage capacity of about 7,000 tons, a pai7t of which is used for fertilizer storage. Recently, retail sales have also been opened to the private sector. 2.35 Farmers are generally aware of the benefits to be derived from increased fertilizer use and a number of farm surveys indicate substantial unsatisfied demand due to an inefficient distribution and marketing network as well as inadequate agricultural credit ,upport, particularly for coconut. A comprehensive review of the fertilizer p-ocurement, distribution and market- ing problems has been completed recently w.th assistance from the Federal Republic of Germany and it is expected tha: overall fertilizer availability will improve considerably during the next Eew years. At the district level, most serious bottlenecks relate to inadequate storage and transport facilities. 2.36 Agro-chemicals. Active ingredients and emulsifiers for all pesti- cides are imported, both by the private sector and the Ceylon Petroleum Corporation but most of the formulation talces place in Sri Lanka. The range of pesticides available is comprehensive and adequate, and packaging is good. GOSL controls both the retail prices and the range of products that can be sold. The private sector firms have their own field Advisory Services and run demonstrations on farmers' fields. They have a network of subdistributors at the village level and also supply MPCs and ASCs. All formulations are liquid, therefore they must be applied through sprayers which are usually rented from a neighbor or from the MPCs. A shortage of sprayers at the farm level is a serious constraint. C. Agricultural Credit 2.37 Principal sources of institutional agricultural credit are the two nationalized commercial banks -- the People's Bank (PB) and the Bank of Ceylon (BC). The Bank of Ceylon lends directly to the farmers through its  - 16 - 40 ASC branches in the district. The People's Bank lends through MPCs as well as through MPC's Rural Bank branches, totalling 37 in Kurunegala. Both banks follow essentially similar credit policies, set forth by the Ministry of Agricultural Development and Research (MADR). Currently, cultivation loans are granted for paddy and some 17 other field crops. The maximum area financed is 10 ac for paddy and 5 ac for other crops. Loans are grantec according to the scales of finances approved by IIADR for different crops in various agro- ecological regions. Loans are disbursed partly in kind (inputs) with direct payments to supplier, and, partly in cash. Loans are also provided for farm equipment and land development, however, no production loans are made for coconut lands. 2.38 Cultivation loans are for six months. The lending rate to the bor- rower for cultivation loans is 9% with a penalty of 6% charged on overdues. For other types of agricultural loans, interest rates range from 10-14% with a repaynment period of up to five years. For cultivation loans, the Central Bank provices 100% refinance facilities to both banks at a concessionary 2% rate. Default guarantees of up to 75% were also provided by the Central Bank; how- ever, to improve credit discipline and encourage greater involvement of the lending institutions in agricultural credit, GOSL has discontinued the default guarantees beginning with the maha 1978/79 crop loans. Agricultural lending activity by the two Banks in the Kurunegala district for the past few years is suntmarized in Annex 1, Table 6. 2.39 A long standing problem with agricultural credit in the district, as in the rest of the country, has been the high default rate, typically averaging over 50%. This has prevented greater farm population coverage by institutional credit. Also, it has meant a continuous drain or, the Govern- ment treasury. In part, the high lefaults are due to weakness in agricul- tural credit operations. Largely, however, they result from the lenient attitude adopted by successive governments toward habitual defaulters. GOSL is seriously concerned about the problems with the current agricultural credit program and is hoping to use the proposed project as a vehicle for developing a financially viable credit system while providing coverage to most of the farm population. With technical assistance from the Asian Development Bank (ADB), GOSL is undertaking a comprehensive review of the agrictltural credit operations in Sri Lanka. The findings of the review are expected over the next few months. D. Marketing and Processing 2.40 To ensure remunerative prices to farmers, GOSL operates Guaranteed Price Schemes (GPS) for paddy and a number of other crops such as pulses and coarse grains. Responsibility for implementation of GPS for all crops rests with the Paddy Marketing Board (PMB) which operates through a well dispersed network of purchasing centers run by MPCs. Typically, about 25% of the paddy production in the district is sold to PMB; the rest is either sold to private traders and millers or retained for home consumption. Peak procurement periods are after the maha crop, between March and May. From purchase centers, paddy is transferred to PMB stores. Currently, there are some 17 PMB stores in the district varying in size from about 600 to 6,000 tons with a total effective storage of about 23,000 tons. Milling of paddy procured by PMB is done  - 17 - both at PMB owned mills and private lmills contracted by PMB. Total monthly milling capacity in the district available to PMB is estimated at about 2,000 tons. In addition, there are some 100 private mills of various sizes which do custom milling for private traders and farmers. Milled rice is sold at cost to the Food Commissioner for distribution through the rationing system. Due to inadequate storage, transport and milling facilities as well as insufficient supervision of the retail purchasing centers, procurement operations breakdown during the peak procurement periods and farm gate prices go below the support prices particularly in years with good crops. With assistance from USA-ID, GOSL is implementing a nationwide program to improve the paddy procurement operations and to provide associated physical infrastructure requirements. 2.41 Marketing of non-paddy field crops is mostly through private channels. Guaranteed Price Schemes have been much less successful for these crops and prices often fluctuate considerably from month to month. GOSL is considering measures to improve marketing of these crops. 2.42 The vast majority of coconut holders sell fresh nuts to village dealers who in turn sell them to desiccated coconut factories or oil miLls. A few larger holders make copra which is then sold to oil mills. Estates normally sell fresh nuts directly to desiccated coconut factories or make copra for sale to oil mills. The district is adequately served by 11 desic- cated coconut factories and 12 oil mills. Of these, four are integrated, producing desiccated coconut, coconut oil and poonac. Due to depressed production lavels, most of the mills havE functioned at below capacity over the past several years. E. Coordination of Input Supplies 2.43 To improve the timely availability of various agricultural s;upplies and services to the farmers, the Government has recently established an Agri- cultural Development Authority (ADA) under the Ministry of Agricultural Devel- opment and Research. The Authority is to appoint an Agricultural Manager to each of the 160 electorates in the country, who would monitor and coordinate the input distribution program of the various agriculture supporting agencies and departments. It is intended that through its monitoring, ADA would help identify any problem areas at an early stage, for remedial actions, if neces- sary, at the highest levels of the Government. Currently ADA is operating in 11 electorates of which five are in the Kurunegala district. Given the frequent breakdowns in the past in activities such as fertilizer distribution, paddy procurement, credit distribution and recovery, and farm power availability, ADA can clearly play an important role in accelerating the agricultural devel- opment in Sri Lanka. However, for its efforts to be successful, ADA wiLl have to concentrate, at least initially, only on a few critical inputs and services. Also, its effectiveness will depend greatly upon developing harmonious rela- tions with the field staff of the various agencies to be monitored and coordinated. Social Infrastructure and Living Standards A. Transport and Communications 2.44 Most major towns and urban centers in the district are intercon- nected by a network of about 900 mi of metalled and tarred roads, and served  - 18 - by publicly operated regular bus service. Kurunegala town itself is well connected by class A roads with other major cities/towns in Sri Lanka such as Colombo, Kandy, Puttalam and Anuradhapura (Map 13946R). In addition, about 70 mi of railroad runs through the district, connecting Kurunegala with Anuradhapura, Kandy and Colombo. Most villages and rural settlements are connected to the main network through some 7,000 mi of gravelled roads and dirt tracks, mostly maintained by the village councils. Many of these are, however, unpassable during part of the rainy season. The transport network is generally adequate for the needs of the area. There is, however, a need for rehabilitating/upgrading some of the well-travelled village council roads, particularly in the underdeveloped northern part of the district. 2.45 Telecommunication facilities link Kurunegala with Colombo. There are also some 25 small exchanges linking various district towns with Kurun- egala. Because of outdated equipment and limited capacity, the quality of service is generally poor. Under an ongoing project, the Kurunegala exchange is to be modernized to provide direct dialing facilities from Colombo. This is expected to be completed by the end of 1979 and should substantially improve access by telephone to the district. B. Electrification 2.46 Kurunegala District has lagged behind the rest of the country in electrification. According to the 1971 Census of Housing, only 2% of the occupied private housing units in the district had electricity compared to 9% for the country. Electricity supply to the district is provided mainly through a 66 KV/33 KV Grid Substation of 6 MVA capacity at Mallawapitiya, about 3 mi from Kurunegala. A 132 KV main transmission line presently energized at 66 KV connects Mallawapitiya Grid Substation to the National Transmission Network (Map 13945). Currertly, in Kurunegala, there are about 100 industrial/commercial users purchasing directly from the Ceylon EfLectric- ity Board (CEB) and 17 local authorities drawing bulk supplies from CEB for retail distribution. In addition, 40 rural electrification schemes are admin- istered direztly by CEB. The total number of consumers is about 7,000. With rapid growth of prospective consumers for domestic, commercial and industrial uses in the district, demand for rural electrification schemes is large. The main constraint is the high initial investment in providing electricity to small dispersed settlements, particularly when they are away from the existing high tension lines. C. Water Supply 2.47 According to the Housing Census of 1971, only 2% of the households in Kurunegala had a piped water supply compared to some 20% in the country as a whole. Besides Kurunegala town, six other localities in the district are served by piped water. Most of the households depend upon shallow wells--50% share community wells and about 35% have private wells. About 10% of the households depend upon other sources of water such as streams, rivers and tanks. There are about 85,000 shallow wells in the district or an average of 25 wells per village. Some of these wells have probably gone dry; however, the number of such wells is unknown. Because of an uneven geographical  - 19 - distribution of the wells, there are several water deficient areas in the district (Map 13944). D. Health Facilities 2.48 The district is served by a good network of medical institutions. The largest institution in the district is the General Hospital in Kurunegala town with some 800 beds and facilities for surgery, obstetrics and gynecology, pediatrics, ENT, eye and dental care and laboratory work. In addition, there are ten district hospitals, 14 peripheral units, four rural hospitals, nine maternity homes and 40 central dispensaries (Map 13944). 1/ The total bed strength is about 2,500, i.e., about 500 people per bed. Through a system of referral, serious cases from smaller institutions are sent to larger institu- tions by an ambulance service. Preventive health care work in the district is organized through 12 Health Units each headed by a Medical Officer of Health. The Units provide for the control of communicable diseases, sanitation, family health, epidemiological surveillance and health education. Family planning services are integrated with maternal and child health service. Except for patients who choose to be admitted into paying wards in big hospitals, medical services are free of cost. 2.49 The health facilities are generally adequate to meet the needs, particularly considering that there are also several ayurvedic clinics operated by the local bodies, as well as numerous private practitioners. The main problems with the health care system in the district, as in the rest of the country, are: shortages of drugs and medical equipment due to financial constraints; shortage of qualified medical personnel due to emigration as well as their reluctance to live in relatively inaccessible rural areas with poor housing and other basic amenities; and an ineffective referral system due to shortage of transport vehicles and poor communications, leading to an underutilization of outlying facilities and overcrowding at the main facilities. Attention paid to preventive health care has also been highly inadequate. E. Educational Facilities 2.50 The district has a total of about 820 schools of which 230 are primary schools (grades 1-5), 350 junior secondary schools (grades 1-10) and 120 senior secondary schools (grades 1-12). In addition, there are two teachers' training colleges, 25 school-based centers for vocational education of school leavers and a technical institute in Kurunegala town. Usually, primary education facilities are available within one mile of pupils' homes, junior secondary within three miles and senior secondary within five miles. Total enrollment is about 200,000. Average class size is about 40 in the primary grades and 30-35 in the higher grades. Out of a total of some 8,200 1/ All these are mostly general practitioner facilities with typical bed strength of 100 for a district hospital, 30-40 for a peripheral unit, 15-20 for a rural hospital, and about ten for a maternity home.  - 20 - teachers in the district, about 6,800 are trained and certified graduates. Participation rates are quite high -- over 85% for age group 6-9 years, 65% for age group 10-14 years, and 20% for age group 15-19 years. Except for charges on non-classroom facilities such as playgrounds, education is free for all students. 2.51 Due to poor equipment and facilities at the smaller schools as well as difficulties in finding qualified teachers for posting at such schools, there is a substantial underutilization of smaller outlying schools and as a result, overcrowding at the main schools. There is also a need for more emphasis on science and vocational education, geared to the needs of the job market in the country. III. THE PROJECT Objectives and Approach 3.01 The proposed project aims to evolve a replicable model of regional development for raising productivity, employment, incomes and living standards of the rural population in Sri Lanka. The main assumption underlying the project approach is that the existing economic and social infrastructure in Sri Lanka is substantially underutilized and prospects exist for a rapid and significant improvement through strengthening of the development-oriented institutional services, accompanied by modest but critical complementary investments in physical infrastructure. 3.02 The proposed project is designed to emphasize: (a) directly productive investment-s; (b) local level political participation in identification of project investments (accompanied by sound selection criteria, applied consistentlyl; (c) reduction of intra-regional disparities; (d) financial, technical and insti:utional replicability; and (e) labor-intensive, quick-yielding rehabilitation works rather than new construction. 3.03 Because of the predominant position of coconut and paddy in the district's economy as well as the scope for large production increases for both crops, the principal project thrust would be to rehabilitate the pro- duction base and to improve supporting services essential for increased paddy and coconut production. Specifically, the project would include: (a) rehabilitation of existing irrigation schemes accompanied by improved water management practices to fully exploit the irrigation potential;  - 21 - (b) stepped-up programs of replanting/underplanting, inter- cropping and fertilizing of smallholder coconut plantations to overcome the past neglect; (c) reorganization and strengthening of agricultural extension services to improve their effectiveness; (d) improvements in input supply services such as fertilizer distribution, seed supplies, planting materials and farm equipment; and (e) strengthening of agricultural credit facilities for crop production loans as well as for investment in farm equip- ment and machinery. These directly productive investments would be complemented by limited invest- ments in transportation, health, education, drinking water supply and rural electrification to improve utilization and effectiveness of the existing facilities, to reduce intra-regional disparities and to develop the social infrastructure for growth in the long-term. 3.04 Although the proposed project includes some 12 different components, it does not purport to tackle all aspects of regional development. Instead, the project design represents a pragmatic compromise between comprehensiveness and manageability. Even after the project, substantial scope should exist for further investments in components included under the project as well as for incorporatioII of new components. 1/ Detailed Features A. Irrigation and Water Management (Base Cost US$5.50 M) 3.05 The project aims to increase the irrigated area under cultivation through rehabilitation and/or improvement of the existing irrigation schemes along with strictly enforced better water management practices. The project would also promote further exploitation of the surface water resource in the district through supplementary lift irrigation schemes. 3.06 Major Irrigation Schemes. The rehabilitation of the nine major tank schemes in the district (para 2.07) would include the following works (Annex 2(a), Table 3): (a) desilting and enlarging oiE the main canals and distributaries; (b) repairing, enlarging and gravelling of embankments used as farm roads; 1/ One such component could be promotion of rural industries for expanding and diversifying employment opportunities in rural areas.  - 22 - (c) lining of selected reaches of the conveyance system to reduce excessive seepage losses; (d) construction of some 65 additional regulators, ten regulator-cum-bridges, 60 drainage outlet structures, ten culverts, and 25 silt traps; and (e) installation of about 530 turnouts of varying sizes from 4 to 24 in, and about 80 distributory gates for turnout modifications and improvements. To facilitate equitable water allocation, the distribution system would be improved so as to enable controlled deliveries to individual farms, t)pically averaging 2.5 ac. 3.07 Preliminary investigations for all nine tanks have been completed. Work on detailed surveys and designs for channel modifications and structure locations is in progress and is expected to be completed for two schemes by June 30, 1979 so that construction can be started within the first year of the project. 3.08 Village Irrigation Schemes. The project would provide for rehabil- itation of some 500 village irrigation schemes (tanks and anicuts). The project works would include: (a) repairs, extension and/or raising of embankments; (b) repairs to sluice and spillway structures of village tanks and the overflow structures of anicuts; (c) replacement of sluice gates, and installation of new gates for anicuts; and (d) desilting and enlargement of field channels. Land clearing for any new areas brought under cultivation would be done by the farmers themselves. 3.09 The village schemes for rehabilitation would be selected according to the following socio-economic and technical criteria: Village Tanks (a) the command area under each tank would not be less than 20 ac; (b) useful storage of tank would not be less than 50 ac-ft; (c) tank would directly benefit at least ten families; (d) rehabilitation cost would not be more than Rs 7,000 per incremental irrigated ac; (e) tank bed would not be of pervious soils and tank should have been filled at least three times in the past four years; and (f) total area benefited would be at least ten times the pri- vately owned land to be submerged, if any.  - 23 - Village Anicuts (a) catchment areas for an independent anicut would not be less than 1.0 sq mi; (b) distance between two anicuts on a stream would not be less than 1 mi and the catchment area in between two anicuts not less than 0.5 sq mi; (c) command area would not be less; than 30 ac; (d) anicut would directly benefit at least 15 families; and (e) rehabilitation cost would not be more than Rs 7,000 per incremental irrigated acre. To ensure balanced intra-regional development, expenditures on rehabilitation of village schemes in any electorate would not exceed 20% of the total for the district. 3.10 A total of about 130 village irrigation schemes have already been identified. Additional schemes would be identified and selected during the project period. Detailed surveys and investigations are in progress for schemes proposed for rehabilitation in the first year of the project. Assur- ances have been obtained from GOSL that selection of village irrigation schenies for rehabilitation under the project would be in accordance with criteria agreed upon by IDA. 3.11 Lift Irrigation Schemes. The project would provide 20 trailer- mounted pumping units of 6 inch size and two of 12 inch size for lift irriga- tion from perennial streams and other water bodies for relief during periods of untimely dry spells. Forebays and main feeder channels as well as concrete pads and ramps for mobile pumps would be constructed at suitable locations. About eight locations along Dedura Oya and Maha Oya where lift irrigation would be feasible have already been identified. Investigations for identi- fication of other sites are in progress. Operational details concerning man- agement of supplementary irrigation facilities are expected to be finalized by June 30, 1979. 3.12 Improved Water Management. The project would bring all major irrigation schemes as well as the selected 500 village irrigation schemes in the district under improved management. Problems which can be overcome without rehabilitation of the physical systems (e.g., improving operation of main sluices, coordinating tank water releases with rainfall and crop water requirements as well as shifting cropping calendars to benefit fully from rainfall) would be adopted in all nine major schemes in the first year of the project. Comprehensive measures including introduction of rotational irrigation, possible only with improvements to the physical systems, would be phased with the rehabilitation program. For village schemes, the project would adopt the highly successful model developed at the Maha Illupalama Research Station over the past several years. The model emphasizes advancing of cropping calendars, avoidance of staggered cultivation, use of proper paddy  - 24 - varieties and mobilization of group action through education and training. Production increases of 30-50% in one year have been obtained in irrigation schemes where the Station has tried its program so far. The proposed project would be the first large scale replication of the Maha Illupalama model. Close cooperation has been assured from the concerned research staff. Several train- ing sessions for the agricultural field staff have already been conducted and the program is being tried in ten village tanks during the current 1978/79 maha. This would provide valuable experience for full implementation under the project. 3.13 Support under the project would include construction of additional regulators, control structures, flow measurement devices and field outlets required for effective water management. Additional staffing for efficient water distribution and management would also be included. 3.14 Equipment. Labor intensive techniques would be emphasized for the project works. However, to ensure timely implementation and high quality construction, the project would also provide limited amounts of construction equipment and vehicles (Annex 2(a), Table 2). After completion of the project, the left over usuable equipment, if any, would be used for operation and maintenance (O&M) of rehabilitated irrigation schemes. B. Coconut Development (Base Cost US$3.70 M) 3.15 The project objectives would be to: (i) increase productivity of mature plantations through improved husbandry practices, particularly increased fertilizer application; (ii) rehabilitate neglected plantations by stepping up replanting/underplanting of senile palms; and (iii) intensify use of coconut lands, through intercropping. The project effort would be con- centrated in the wet and semi-wet zones (covering 70% of the coconut acreage in Kurunegala) as the climatic conditions for coconut production are more favorable in these areas. Also, the project would emphasize smaller holdings (below 25 ac, accounting for about half of the total coconut acreage) because the neglect on such holdings has been more severe and hence the scope for improvement is greater. 3.16 Improved Husbandry Program (Annex 2(b), Tables 2-5). Over the five year implementation period, the project would aim to triple fertilizer use in the district -- from about 10,000 tons per annum at present to 30,000 tons in 1983. As a result, about 150,000 ac or about 40% of the total coconut acreage in the district would be adequately manured. To achieve this, fer- tilizer marketing and the distribution system would be greatly improved (para 3.24). To overcome the financial constraints faced by smallholders, medium-term credit facilities would be introduced for financing fertilizer purchases by coconut cultivators (para 3.26). 3.17 The project would also support construction of contour drains on some 20,000 ac as well as removal of excess palms from 40,000 ac. The strengthened and unified agricultural extension service, to be established under the project (para 3.22) would facilitate the dissemination of improved husbandry practices for coconut.  - 25 - 3.18 Replanting/Underplanting (Annex 2(b), Table 2). The project would greatly increase the current replanting/underplanting rates -- from an esti- mated 2,000 ac per annum at present to about 8,000 ac per annum in 1983, the last year of the project. Overall, the project would increase the replanted/ underplanted area during 1979-83 from a projected 10,000 ac without the project to about 25,000 ac with the project. The project targets are quite modest in relation to the replanting/underplanting requirements in the dis- trict (para 2.17) and have been set taking into consideration the limited implementation capacity of the Coconut Cultivation Board at present. To overcome the effects of the past neglect, the replanting rate targeted for 1983 would have to be maintained for several years even after project completion. 3.19 The planting would be with both the selected local tall varieties as well as the high yielding hybrids (paru 2.24), depending upon the agrco- climatic conditions in the different areas as well as the farmers' preferences. Eight new nurseries each wil:h a capacity of about 60,000 plants would be established to provide high quality seedlings. Two existing nurseries would also be improved. In order to reduce transplanting shock and shorten the immaturity period, seedlings would be raised in polythene bags. 3.20 Intercropping (Annex 2(b), Table 3). Due to the limited prac- tical know-how and experience in Sri Lanka with intercrops as well as a lack of field-tested technical packages for use by the extension service, the project's target for intercropping would be a modest 10,000 ac -- cocoa (2,000 ac); coffee (3,000 ac), pepper (3,000 ac) and other crops (2,000 ac) -- only about 5% of the total district acreage suitable for intercropping. The project would, however, emphasize the bui.ding up of a strong technical base for possible future expansion on a large -;cale. Support under the project would include establishment of five nurseries, each with an annual output of about 200,000 plants, to supply planting tiaterials for cocoa, coffee and pepper. In addition, about 50 demonstration plots in the farmers' fields would be established in the district to help in preparing appropriate tech- nical packages for the extension service as well as in propagating inter- cropping. The nurseries and the demonstration plots would be established and operated with technical guidance from the Minor Export Crops Research, Station at Matale. 3.21 Vehicles, office buildings and equipment, and additional staffing Annex 2(b), Tables 4-7) would be provided to the Coconut Cultivation Board and the Department of Minor Export Crcps to assist them in implementation of the project proposals. They would also be provided additional financial assistance for supporting stepped up programs of replanting/underplanting, rehabilitation and intercropping in accordance with GOSL's ongoing subsidy schemes as summarized below:  - 26 - Table 3.1: COCONUT DEVELOPMENT SUBSIDY SCHEMES /a Item Estimated Dev. Cost- GOSL Subsidy ------------ - Rs ---------------- Coconut Replanting/underplanting (per ac) 5,000 1,800 Intercropping (per ac) Cocoa 2,200 1,200 Coffee 2,400 1,100 Pepper 2,950 1,500 Removal of Excess Palms (per palm) 16 16 Contour Drains (per chain) 24 24 /a Including imputed cost of family labor. Tentative site selections for nurseries and demonstration plots have already been made. Detailed surveys and investigations are underway and final site selections would be made by June 30, 1979. C. Agricultural Extension (Base Cost USi1.00 M) 3.22 The various agricultural extension services in the district (para 2.24) would be consolidated and reorganized on the basis of the Training and Visit system. Current staff levels would be increased to provide one KVS for about every 600 farm families. Additional SMSs and supervisory staff such as AOs and AIs would also be assigned. Support under the project would include (Annex 2(c), Tables 1-3): (a) incremental salaries, allowances and recurrent expendi- tures for the strengthened extension service during the project period; (b) transport vehicles for increasing mobility of the field staff; (c) office and audio-visual equipment for the extension service; and (d) construction of about 50 staff quarters in remote areas and extension to the head office building in Kurunegala. 3.23 Locations for staff quarters have already been selected. Surveys and site investigations are in progress. Buildings will be constructed accord- ing to the standard designs used by the Department of Agriculture, which are considered satisfactory. The work program under the project would be consist- ent with that under the forthcoming National Extension Project (para 2.30). Assurances have been obtained that the organizational set-up as well as the  - 27 - work program for the agricultural extension service in the project area would be satisfactory to IDA. D. Agricultural Input Supplies (Base Cost US$1.05 M) 3.24 The project would improve supplies of critically needed farm inputs and services as well as provide better monitoring and coordination of the various input supplies at the farm level. Support under the project would include (Annex 2(d), Tables 1-3): (a) establishment of a seed processing center to supply quality seed for paddy and other field crops; (b) con3truction of fertilizer stores for MPCs and ASCs and provision of transport lorries to ASD to improve the fertilizer distribution within the district; (c) impart and cash sale to farmers of about 50,000 mammoties; (d) incremental salaries, allowances and recurrent expendi- tures for extending ADA's operations to the entire district; and (e) vehicles and office equipmeant for ADA and ASD staff to improve their effectiveness for better coordination of farm input supplies. 3.25 Site investigations for the seed processing center have already been completed. The plant setup and machinery would be similar to those in 12 other centers, currently operating successfully in other districts of Sri Lanka. Mammoties would be imported through the State Trading Corporation and sold to the farmers through MPCs and ASCs. E. Agricultural Credit (Base Cost US$7.05 M) 3.26 The project objective would be to lay the foundation for a viable agricultural credit system while encouraging high participation by the farmers, particularly the small farmers. The project would emphasize resolving past default problems through recovery drives and rescheduling where necessary, strengthening of lending operations for the future and a strict enforcement of credit discipline. Credit facilities under the project would finance (Annex 2(e), Tables 2-3): (a) short-term production loans for paddy and other field crops It is expected that the cropped area covered by institutional credit would be tripled from about 10,000 ac at present to about 30,000 ac by 1983; (b) medium-term production for supporting the fertilizing program on about 50,000 ac of coccnut lands (para 3.16);  - 28 - (c) medium-term loans for purchase of about 200 four-wheel tractors, 500 two-wheel tractors and about 1,000 hand sprayers by farmers and private sector tractor pools; and (d) medium-term loans for purchase of 20 five-ton trucks by MPCs. 3.27 Recovery of Overdue Loans. To foster credit discipline and to impress upon the farmers a break from the past practice of overlooking habitual defaults, the project would launch a concerted drive for recovery and settlement of some Rs 13 M in overdue debts owed by an estimated 25,000 farmers in the district. Consolidated inventories of overdue debts would be prepared and the defaulters would be classified into wilful or non-wilful debtors taking into consideration their assets and income levels 1/ as well as earlier payment records. All wilful defaulters would be asked to repay their loans within one month of receiving the recovery notices, failing which legal actions would be initiated. For non-wilful defaulters, the debts would be rescheduled for payment in a number of installments determined on the basis of their repayment capacity as well as the outstanding amounts. The resched- uling agreement would clearly stipulate that any failure to repay the install- ments on time would lead to legal actions for recovery of the entire unpaid balance. 3.28 Before launching the recovery drive, the elected representatives of the district would be fully briefed on the project objectives and approach on agricultural credit and their support would be solicited in explaining and publicizing project actions to their constituents. With a well organized publicity and education campaign, it is expected that most of the default cases would be settled without recourse to legal measures. However, the threat of expeditious and strong legal sanctions would also be of crucial importance for success of the recovery drive. The Peoples' Bank and the Bank of Ceylon have already worked out detailed programs for streamlining and expediting the procedures for prosecutions of wilful defaulters. 3.29 Credit Operations under the Project. The main features of the lending under the project would be as follows: (a) Loan Eligibility. Loans would ;iot be given to defaulters and all borrowers would be required to have an agro-identity card indicating essential agriciltural and financial inform- ation about the farmer. The project would provide for the preparation of suitably designe1 agro-identity card which would be issued to farmers at a nominal cost. For better control and supervision, a farmer would be required to have all his borrowings from only one bank. (b) Terms and Conditions. To channel the credit to small farmers, maximum area financed would be limited to 10 ac for paddy; 1/ Income data could be readily obtained from ration card entitlements.  - 29 - 5 ac for subsidiary food crops; aind 25 ac for coconut. Culti- vation loans for paddy and other field crops would be made for a period of six months with a two month extension, where necessary, due to market conditions. Cultivation loans for coconut would be repayable in five years including a grace period of two years. Loans for farm machinery and equipment would be repayable over a maximum of five years with semi- annual installments. A down payment of 10-20% would be required for purchase of farm machinery and equipment. Most of the farm machinery would be sold to project area farmers, however to channel private sector savings and enterprise into agricul- tural development, private sector farm machinery pools would also be eligible for financing under the project. A down payment of at least 20% would be required from operators of such pools. Also, their rental rates and areas of operation would be subject to periodic reviews by the Agricultural DevElopment Authority. In t:he case of cultivation loans, the security would be in the form of crop bonds or guarantee of any two persons acceptable to the banks. For farm equipment, a lien would be taken on the equLpment in addition to the guarantee of any two persons acctiptable to the banks; (c) Lending Procedures. Loan application forms for both banks would be standardized and simplified to cut down on excessive delays. Disbursements would mostly be in kind with direct payments to suppliers. AppraisaL and supervision procedures would be strengthened to enable the banks to have close con- tact with the borrowers throughout the lending cycle. Account- ing systems and internal inspection and audited procedures would also be strengthened for the two banks. Additional staffing, vehicles and office equipment would be provided under the project for strengthening the lending operations in the district; (d) Refinancing and Guarantees. The Central Bank would provide 100% refinance for cultivation loans and 70% for farm machinery and equipment. In line witlh GOSL policy, the lending banks would not be given any guarantee against default and would lend at their own risk; and (e) Interest Rates and Spreads. In line with on-going GOSL schemes, an interest rate of 9% per annum 1/ on cultivation loans and 14% per annum on Loans for farm machinery would 1/ With a penal rate of 15% per annum for late payments.  - 30 - be charged from the borrowers. 1/ Refinancing from the Central 13ank would be on terms and ccnditions consistent with the on-going countrywide programs and would provide a weighted average spread of about 5% t. the lending banks. These spreads ire considered adequate to cover the relevant administrative and other costs to the banks. 3.30 The lending operations under the project including terms and condi- tions, interest rates, guarantee provisions and procedures for prosecutions of defaulters would be revised, following consultation with IDA, in light of the findings of the on-going review of the agricultural credit operations in Sri Lanka (para 2.38). Assurances have been obtained that agricultural credit operations under the project including the procedures for prosecution of defaulters would be in accordances with rules, regulations and procedures satisfactcry to IDA. To this end, separate subsidiary agreements, satis- factory tc IDA, would be executed between GOSL and the Peoples' Bank and the Bank of Ceylon. Execution of such agraements would be a condition of credit effectiveress. F. Lives;tock (Base Cost US$0.15 M) 3.31 The project would strengthen animal disease control and veterinary services Ln the district. The number of veterinary ranges will be increased from 9 to 14 to provide better service in the poorly served northern part of the district. Support under the project would include: (a) construction of offices, c:linics and staff quarters at three remote locations; (b) urgently required 3ffice equipment and simple surgical instruments for field works and (c) trans3ort vehicles to improve mobility of the field staff. Sit:e investi- gations fir the proposed buildings are in progress. Building will be of standard iesigns used by the DAPH. G. Groundwater Exploration (Base Cost US$0.55 M) 3.32 The project would provide for exploration of the groundwater re- sources in the District, together witlh an assessment of the potential for economic exploitation of such resourci!s. Support under the project would include: (a) construction of about 150 test wells of about two-and-a-half inch diameter; (b) construction of about 30 test wells of six inch diameter; (c) provision for hydrogeological map3ing and surveying; and (d) equipment and vehicles for implementing the well drilling and testing program. After 1/ During 1978, the inflation rate in Sri Lanka averaged about 15% and a simvlar inflation rate was expected for 1979 due mainly to adjustments in pri,:ing policies. However, it is expected that the policy-induced price adjustment would be completed by 1980. As a consequence, the inflation rat'a is expected to drop and stabilize at about 7% per year by FY1981. This would imply a positive real interest rate over most of the disburse- ment period of the project.  - 31 - completion of the exploration program, the equipment would be used, if feas- ible, for development of groundwater resources in Kurunegala District. In case groundwater development in Kurunegala is found to be uneconomical, the equipment would be used for explorations inL other parts of Sri Lanka. H. Rural Roads (Base Cost US$0.80 M) 3.33 The project would provide for rehabilitation/upgrading of about 130 mi of high priority rural roads, mlostly in backward areas of the district. The roads for improvement under the project have been selected taking into consideration: (a) present condition and utilization of roads; (b) potential development impact on the traversed area; (c) population served; and (d) importance of road for marketing of farm produce. 3.34 The roads would be built up to class "D" standards with 50 ft wide right-of-way, 24 ft platform and 12 ft roadway. The roads would be con- solidated earthen roads with about 3" of compacted gravel surfacing. Tne rehabilitation would involve about 0.3 M cu yd of earth work, 0.1 M cu yd of surfacing and 140 culverts and small causeways (Annex 2(h), Table 3). Labor intensive construction methods would be emphasized. To ensure high quality as well as timely implementation, limited amounts of equipment an,d vehicles (Annex 2(h), Table 2) would also lbe provided under the project. Following completion of the project, any leftover equipment would be used for maintenance of the road network in the District. Site investigations and preliminary surveys for all the roads have been completed and the detailed designs are under preparation. I. Rural Water Supply (Base Cost US$0.60 M) 3.35 The project would include installation of about 400 dug wells in areas with drinking water deficiency (Annex 2(i), Tables 1-2). About 170 of the wells are expected to be in sandy st:rata, 100 in hard laterite and the rest partly in hard laterite and partly in hard rock. Equipment and vehicles needed for the construction program would also be provided. 3.36 Based on the available data on density of drinking wells, areas deficient in drinking water have been tentatively identified (Map 13945). To aid in final selection, about 10% of the wells in the district would be surveyed on a random sample basis. The survey will yield information on the size, ownership of wells, status of wells (whether or not operating), depth and behavior of water table, strata conditions, population served, and known reasons for failure of wells. About 5% of the inventoried wells will also be subjected to chemical tests for water quality. Attempts would also be made to reactivate the abandoned wells in the deficit areas by improving the water quality and/or increasing the yield.  - 32 - J. Rural Electrification (Base Cost US$0.80 M) 3.37 The project would assist electrification of 16 rural areas which are close to existing transmission lines and have potential for rapid economic growth (Annex 2(j), Tables 1-3). The project works would include construction of about 25 mi of 33 KV distribution lines, 65 mi of low-tension lines and about 18 substations of various sizes. Transport vehicles would be provided to increase mobility during construction. Based on projected revenues three years after electrification, all schemes would yield an annual return of at least 5% on overall capital expenditures. All 16 schemes have already been identified and investigated (Annex 2(j), Table 3). K. Heali:h (Base Cost US$0.35 M) 3.38 The project would improve effectiveness of the existing health care delivery system in the district by promoting better utilization of smaller out- lying curative facilities as well as strengthening the preventive care facil- ities. Support under the project would include (Annex 2(k), Tables 1-2): (a) construction of six residential quarters for medical officers/mid-wives so that all medical institutions with in-patient facilities would have accommodations for at least one medical officer and one midwife; (b) construction of offices for health units at five locations where adequate private buildings are not available for renting. At four of these places, residential quarters would also be constructed fcr medical officers; (c) provision of ambulances and other transport vehicles to improve the referral system, to increase mobility of the supervisory personnel and tc facilitate distribution of medicines to outlying facilities; (d) electrification by diesel generators of three hospitals which are away from the power transmission lines and have more than 20 beds. A standby diesel generator would also be included for the General Hospital at Kurunegala; and (e) provision of urgently needed simple medical equipment such as sterilizers, refrigerators, operating theatre instru- ments and wheel chairs, mostly for the outlying institu- tions. Sites for construction of buildings have already been investigated. Buildings will be of standard designs used by tFe Health Ministry. Investigations of hospitals to be electrified have also been completed.  - 33 - L. Education (Base Cost US$0.70 M) 3.39 The project objectives would be to improve the quality of eduzation in the school system, strengthen facilities for vocational and technical education, improve utilization of outlying smaller schools and to reduce the existing disparities within the district. Support under the project would include (annex 2(1), Tables 1-2): (a) provision of simple science equipment to about 120 primary schools, 80 junior secondary schools and 3 senior secondary schools; (b) provision of training equipment for crafts such as cloth weaving, metal work, ceramics and woodwork, dress making, watch repair, radio repair, typing, home-science and metal work to 5 junior secondary schools and about 40 schools with school-leavers program; (c) provision of equipment for technical education to the Kurunegala and Kuliyapitiya Technical Institute; (d) construction of about 40 teacher!;' quarters for schools in remote areas; (e) construction of about 140 science rooms for junior secon- dary schools; and (f) upgrading of seven senior-second.iry schools so that each electorate would have at least one comprehensive senior secondary school having facilities such as science labora- tory, workshop, agricultural unit and library. Sites for construction of buildings have a'.ready been selected. Building would be of standard designs used by the Ministry of Education. Equipmernt lists for science and crafts education have already been finalized. Equip- ment lists for technical education would be finalized folllowing review by the consultant included under the project (para 5.15). M. Project Coordination and Investigationis (Base Cost US$1.05 M) 3.40 The project would support ongoing GOSL efforts aimed at strengthen- ing planning and coordination of multi-sect:oral district development projects in Sri Lanka. The project would include: (a) vehicles, office equipmett and additional staffing for proj- ect coordination and management both in Kurunegala and in Colombo. Support would also be provided for evaluation of the project impact. An office building would be constructed for the project secretariat in Kurunegala; (b) support for preparing a statistical handbook for the Kurunegala district to provide a reliable and readily avail- able data source for developmental planning in the distr[ct.  - 34 - A considerable amount of data is currently available; however, it lies scattered in numerous agencies, often unknown to potential users. Also, the quality of existing data is highly variable. The existing data would be compiled, eval- uated and edited. Any gaps would be filled through supple- mentary surveys. The statistical handbook could be updated periodically. Following development of the handbook for Kurunegala, GOSL intends to do the same for other districts; (c) support for investigation and preparation of other develop- mental schemes in the district to ensure a pipeline of sound proposals for future investments in the district; and (d) support for preparation of similar rural development proj- ects for about four districts for possible future financing by IDA or other aid agencies. The districts have been selected by GOSL taking into consideration: (i) current living standards; (ii) potential for low-cost, quick- yielding development; and (iii) balanced regional growth. The proposed districts and the developmental emphasis are as follows: Puttalam (coconut and fisheries); Matale (minor export crops); Vavunia (subsidiary food crops and paddy); and Moneragala (paddy and rainfed agriculture). The terms of reference for preparation of the development plans have been already finalized. IV. PROJECT COSTS, FINANCING AND PROCUREMENT Cost Estimates and Schedule of Expenditures 4.01 Total project costs over the five year project period (January 1979 to December 1983) are estimated at US$30.0 M equivalent. The foreign exchange component is estimated at US$12.8 M or about 43% of the total project cost. CosV estimates are based on unit prices adjusted to January 1979 price levels and include about US$0.8 M in import taxes and duties. Physical contingen- cies of 10-15% for civil works, 5% for field works and equipment, and 10% for recurrent expenditures have been included. Because of the several major in- vestment programs (e.g. the Mahaweli development) proposed by GOSL for the next few years as well as the policy-induced price adjustments (para 3.29), the domestic inflation rates for investment goods, particularly for civil works, are expected to be substantially higher than the corresponding rates internationally. Accordingly, price contingencies have been estimated assuming the following inflation rates. Annual Inflation Rate (%) 1979 1980-83 Foreign Costs 6 6 Local Costs 15 10  - 35 - 4.02 Major elements in the cost estimate are: civil works (US$6.5 M); field works (US$2.3 M); 1/ equipment and vehicles (US$4.2 M); crop production loans (US$4.0 M); loans for farm equipment and vehicles (US$2.9 M); technical assistance (US$0.7 M), and engineering and administration (US$2.8 M) totalling to a base project cost of US$23.3 M. Physical contingencies (US$1.4 M) and price contingencies (US$5.3 M) raise the total project cost to US$30.0 M. Estimated project costs, detailed in Annex 2, are summarized below (Tables 4.1 and 4.2). Table 4.1: COST SUMMARY BY EXPENDITURE CATEGORY % of Total Project Item Local Foreign "otal Local Foreign Total Cost --------(Rs M) - -- ----- TuS$M)T