Sri Lanka - Sixth Power Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-2837-CE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SIXTH POWER PROJECT June 3, 1980 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 authorIkthon.  CURRENCY EQUIVALENTS US$l = SL Rs 15.6 SL Rs 1 US$0.064 WEIGHTS AND MEASURES 1 kilometer (km) = 0.6214 mile 1 kilovolt (kV) = 1,000 volts 1 megavolt ampere (MVA) = 1 million volt amperes = 1,000 kilovolt amperes 1 megawatt (MW) = 1 million watts - 1,000 kilowatts 1 kilowatt hour (kWh) = 1,000 watt hours I gigawatt hour (GWh) = 1 million kilowatt hours ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank CEB - Ceylon Electricity Board CPC - Ceylon Petroleum Corporation DGEU - Department of Government Electrical Undertakings MDA - Mahaweli Development Authority FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA SIXTH POWER PROJECT Credit and Project Summary Borrower: The Democratic Socialist Republic of Sri Lanka. Beneficiary: Ceylon Electricity Board (CEB). Amount: US$19.5 million equivalent. Terms: Standard. Relending Terms: The Government of Sri Lanka would relend the proceeds of the IDA Credit to CEB at 10% interest per annum for 20 years, including three years' grace, with Government bearing foreign exchange risk. Co-financier: Saudi Fund for Development, US$20.0 million equivalent. Project Description: The Project is designed to enable CEB to increase its transmission and distribution facilities from 1981 through 1984, in order to meet increasing demands for electricity from all parts of the country and all sectors of the economy. The Project will permit power from hydroelectric stations now under construction to reach consumers and includes primary transmission, sub- transmission, and distribution works. Also included are consulting services to review management performance and to assist with preparation of engineering design for transmission works from the hydroelectric stations which are being developed under the Accelerated Mahaweli Ganga Development Program, and training. The Project faces no unusual risks. IThis document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: US$ Million Equivalent Local Foreign Total 132 kV Transmission Lines 0.7 4.2 4.9 132 kV Substations and Switching Stations 0.2 1.9 2.1 33 kV Subtransmission Lines 2.8 7.4 10.2 Colombo Distribution System 2.0 10.3 12.3 Other Distribution Works 1.4 2.8 4.2 Vehicles and Tools - 0.5 0.5 Buildings 0.4 - 0.4 Consulting Services/Training 0.4 1.6 2.0 CEB's Supervision 0.5 - 0.5 Sub-Total 8.4 28.7 37.1 Contingencies: Physical 0.8 2.9 3.7 Price 4.7 7.9 12.6 Project Cost Before Customs Duties 13.9 39.5 53.4 Customs Duties 9.9 - 9.9 Total Project Cost 23.8 39.5 63.3 Financing Plan: US$ Million Equivalent Local Foreign Total IDA - 19.5 19.5 Saudi Fund - 20.0 20.0 CEB 23.8 - 23.8 Total 23.8 39.5 63.3 Estimated Disbursement: IDA FY 1981 1982 1983 1984 Annual 2.4 9.6 5.1 2.4 Cumulative 2.4 12.0 17.1 19.5 Economic Rate of Return: 12% /a Staff Appraisal Report: No. 2905-CE dated June 3, 1980 Map: IBRD No. 10199R1 /a Based on user surplus. If all future benefits are valued at expected 1980 tariff levels and dam costs are fully allocated to power, the return would be 3%.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SIXTH POWER PROJECT 1. I submit the following report and recommendation for a proposed development credit to the Democratic Socialist Republic of Sri Lanka for the equivalent of US$19.5 million on standard IDA terms to help finance a sixth power project. The entire proceeds of the Credit would be relent to the Ceylon Electricity Board (CEB) at 10% per annum for a term of 20 years, including 3 years' grace, with the Government bearing the foreign exchange risk. The Government is making co-financing arrangements with the Saudi Fund for Development for a Loan of US$20 million to help finance the pro- posed project (paragraph 48). PART I - THE ECONOMY 1/ 2. The most recent economic report, "Development in Sri Lanka: Issues and Prospects" (Report No. 1937-CE, March 22, 1978) was distributed to the Executive Directors on March 23, 1978. An economic mission visited Sri Lanka in December 1979 to prepare an economic report which is scheduled for distri- bution in May 1980. This section draws on the preliminary findings of that mission. Country Data are provided in Annex I. 3. After several years of relative stagnation, Sri Lanka's economy is experiencing rapid growth and unprecedentedly high levels of savings and investment. This remarkable turnaround is explained by the Central Bank of Ceylon as the "spontaneous reaction of a long repressed economy to its liberalization by the new economic policies initiated in 1977." Until 1977, Sri Lanka's growth performance was below both need and potential. Although GDP growth in the 1960s, at 4.4% per annum, was above the average for low income countries, growth slackened sharply in the 1970-77 period to 2.9% per annum, just below the average for low income countries. Through much of this period, the terms of trade deteriorated steadily, eroding even these modest gains: as a consequence, per capita gross national income rose by a mere 0.9% per annum during the 1960-76 period. The slowdown in economic growth in the 1970-77 period is attributable to a combination of factors, including inadequate investment, poor management of the economy and a policy environ- ment unconducive to growth and investment, which were compounded by bad weather and a sharp rise in the cost of imported food and fuel. 4. The three tree crops--tea, rubber and coconuts--which are still the mainstay of the economy, suffered from low replanting and inadequate in- centives. These problems were exacerbated by a dual exchange rate, introduced 1/ This part is substantially the same as Part I of the Report and Recommen- dation of the President to the Executive Directors on a proposed credit to the Democratic Socialist Republic of Sri Lanka for a Second Water Supply and Sewerage Project Report No. P-2820-CE, dated May 21, 1980).  - 2 - in 1968, that discriminated against these crops, and by the uncertainties surrounding a protracted nationalization (1972-75) of the larger estates. After the exceptional output growth of the 1960s, rice yields and cropping intensities declined in the 1970s due to poor institutional support. Invest- ment in manufacturing was low, and the inefficiency of most public and private sector firms nurtured in a highly protected environment resulted in industrial growth of less than 2% per annum. The only bright spots were subsidiary food crops and industrial exports which benefited from good incentives. 5. An inadequate public savings effort, caused by inelastic revenues and an uncontrolled increase in recurrent expenditures, inhibited public investment. Private savings and investment were constrained by an unfavor- able policy environment. The high incremental capital output ratio in the 1970s (5.5 as against 3.5 in the 1960s), reflected the fact that the invest- ment that did take place was both inefficient and highly capital intensive. 6. The poor growth rates and the slow changes in the structure of output matched neither the jobs nor the changes in employment structure that the labor force required. Slow output growth, the excessive capital intensity of investment, the mismatch between the job aspirations of those with post- primary education and the jobs available to them, the post war demographic bulge, and rising female participation rates contributed to a massive increase in open unemployment, estimated at over 1 million, or nearly 20% of the labor force in 1977. 7. In sharp contrast to this poor economic performance, Sri Lanka's social achievements in relation to per capita income have been outstanding. Sri Lanka has about one and one-half times the life expectancy, almost thrice the literacy, one-quarter the infant mortality and half the birth rate that would be expected for a country at its per capita income level. Nutrition levels have been adequate, and in the 1960s there were parallel gains in income distribution. 8. Improvements in the quality of life, in particular the rise in health standards, the spread of education and the availability of subsidized food, have been important factors in the decline in mortality. The increasing age of marriage, the spread of female education and employment, and a vigorous family planning program, have also contributed to a sharp decline in fertility. As a consequence, the growth rate of population has dropped from 2.6% per annum in the 1953-63 intercensal period to 2.0% per annum in the 1963-73 period. Allowing for net migration, population is currently increasing at only 1.7% per annum. 9. The gains in the social field were made possible by favorable initial conditions. Compulsory primary education was introduced as early as 1901. The food ration was introduced in 1942. Thus, at the time of Independence in 1948, Sri Lanka already enjoyed high levels of adult literacy and life expectancy. These initial gains were consolidated and expanded in the post-Independence period through large expenditures on social services and the food subsidy, which accounted for two-fifths to one-half of government revenues in the 1960s and early 1970s. These expenditures were traditionally financed by harnessing the surpluses of Sri Lanka's three major tree crops (tea, rubber, and coconut),  -3- which provided the Government with both an easy revenue source and foreign exchange earnings. These surpluses began to disappear in the late 1960s as government policies discriminated against these crops and the terms of trade deteriorated. With growth in other productive sectors in the economy also decelerating in the 1970-77 period, the budgetary resources available for social programs were squeezed by inelastic revenues and rapid inflation. As a consequence, expenditures on social services other than the food subsidy began to decline as a proportion of total current expenditures and GDP, threat- ening the hard-won gains in health and education. In sum, the economy was no longer generating the resources needed to sustain a large program of welfare expenditures. Moreover, the very size of those programs reduced the scope of policy makers to shift resources to development. 10. The policy changes introduced in 1977, following the election of the United National Party, were intended to break this vicious circle. The new Government identified its objectives as the revival and resuscitation of the economy and increased employment through (i) increased capacity utili- zation in the productive sectors, (ii) stimulation of savings and investment, and (iii) efforts to encourage exports and import substitution in foodgrains. A program of policy reforms was developed in close consultation with the IMF. Its principal aim was to dismantle controls over resource allocations and initiate price adjustments with a view to establishing more realistic relative prices. These reforms were supported initially by an IMF standby arrangement covering 1978 for SDR 93 million. On January 26, 1979, the Fund's Executive Board approved an SDR 260 million Extended Arrangement covering the 1979-81 period. 11. The following broad policy reforms have been introduced: Exchange Rate Reform: The exchange rate was unified on November 16, 1977 at a depreciated rate of Rs 16 - US$1.00 and allowed to float. This implied a depreciation of 46% against the official rate prevail- ing prior to unification, 11.2% with respect to the Foreign Exchange Entitlement Certificate rate, and 29.5% with respect to a transactions- weighted average rate of the two markets. 1/ Import Liberalization: The trade and payments regime was liberal- ized. With the exception of foodgrainu and petroleum products, public sector import monopolies were terminated. Prior licensing of imports was abolished for all but a handful of commodities. The tariff structure was revised and simplified. Interest Rate Reform: To encourage financial savings and discourage speculative imports, interest rates were raised sharply. Price Controls: These ended for most commodities. 1/ Prior to unification, all exports other than tea, rubber and coconut products and all imports other than food, fertilizers and drugs were channelled through the certificate market. Since November 1972, the FEEC rate was maintained at a 65% premium over the official rate.  - 4 - Budgetary Policies: The unification and depreciation of the exchange rate caused tree crops export tax revenues and the cost of food, fertilizer and petroleum subsidies to rise sharply. Business Turnover Tax rates were substantially lowered and rationalized to be con- sistent with the new import tariff and exchange rate. To limit the increase in cost of food subsidies, rice and sugar rations were initially confined to the poorer half of the population, and the subsidy on imported wheat flour was reduced through a series of adjustments in the domestic price. On September 1, 1979 the Gov- ernment introduced a system of food and kerosene stamps for families with monthly incomes less than Rs 300 to replace specific food sub- sidies and rationing, and to target benefits to the poorest. Ini- tially about seven million persons were issued with food and kero- sene stamps. To offset the adverse impact of these changes on real incomes, public sector wages have twice been adjusted upwards, and in February 1978 an income supplement was introduced at Rs 50 per month to benefit the poorest households in which one or more persons had no gainful employment. Public corporations were asked to pass on cost increases, except in the case of fertilizer, petroleum, milk and public transport, where price increases were initially deferred to cushion the impact on consumers. The Government has subsequently made sizable adjustments in flour, rice and sugar prices, bus fares, and petroleum prices. The burden of subsidies and transfers has, as a consequence fallen from around 9% of GNP in 1978 to around 5% in 1980. These changes, taken together with higher aid receipts, have permitted a sizable step up in capital expenditures. Tax Reform: The tax structure has been rationalized and simplified with a view to increasing the elasticity of revenues. The burden of personal and company taxation has been lowered. Agricultural Pricing Policies: The domestic procurement price for rice was increased by 21%. With the related increase in flour prices, incentives for paddy and other flour substitutes benefited. Fresh coconut prices have also been increased by 30% and the export duty on coconut products has been appropriately adjusted. While the uni- fication of the exchange rate ended formal discrimination against tree crops, the export duty on tea was initially set at a level which effectively siphoned off most of the benefits to the Government. As tea prices fell and production costs rose in 1978-79, the Government responded to the reduced producer margins by a lowering of taxes on tea. Further adjustments in both the structure and level of tea taxation will be needed to maintain and improve incentives. 12. The economic reforms have been accompanied by a major effort at stepping up public investment. The Government's capital expenditures jumped from 6% of gross national product at market prices in 1977 to an average of 13% in 1978 and 1979, as government departments responded to an improved budgetary resource position by embarking on long overdue replacement invest- ments and new projects that had been shelved earlier for lack of resources. The Government has also embarked on four major new programs which are to be  the lead projects in a five-year rolling public investment program. These are: (i) Accelerated implementation of the Mahaweli Ganga Development Program, by far the largest multi-purpose river basin development ever undertaken in Sri Lanka; (ii) a 200 square-mile free trade zone north of Colombo under a newly constituted Greater Colombo Economic Commission which has established the first Investment Promotion Zone near Colombo's international airport, Katuna- yake, and is planning others, and has approved some 92 proposals involving a total investment of US$176 million by December 1979; (iii) a massive housing and urban renewal program with its main focus on the Colombo metropolitan region; and (iv) the construction of a new capital complex at Kotte, a suburb of Colombo. 13. These four programs will together cost an estimated Rs 25 billion, or 43% of the projected Rs 60 billion public investment program over the 1980-84 period. The Government's tentative macro-economic scenario envisages public investment taking one-half of total investment which is expected to average an ambitious 23% of GNP in 1980-84 as against 16% in the early 1970s. To enable this increase to materialize, gross domestic savings are expected to average 16.3% of GNP, and net external inflows nearly 7%. This implies a substantial increase in external inflows which averaged 2.3% of GNP in the 1970-76 period. Official development assistance is to finance 54% of public investment. 14. The underlying public investment strategy is to balance the large investment requirements of the Government's high priority programs against the urgent rehabilitation and fresh investment needs in other sectors. The main thrust of the public sector program is to lay the foundation for longer term development, both by improving the efficiency of use of existing infrastructure investments and by expanding the longer term growth capacity of the economy. The strategy thus implicitly relies on the private sector to respond to the economic reforms and the stimulus of the public sector investment program, and provide much of the short-term growth. 15. The initial response of the economy to the policy reforms and the accompanying acceleration in public investment has been encouraging. Economic growth between 1977 and 1980 is estimated at an impressive 6.7% per annum. This growth has been shared by almost all sectors of the economy, with the most dynamic sectors being construction, mining and quarrying, electricity, gas and water and manufacturing. The only major exception has been the tree crop sector. This impressive performance is due to a number of factors including the improved availability of inputs following import liberalization, an increased role for the private sector in distribution, and the removal of price controls. 16. Domestic savings reached 15% of GNP in 1978 and 1979, well above historical levels. Financial savings, as measured by fixed and savings deposits, have responded dramatically to the change in interest rates. Public and private investment have also risen sharply, bringing total invest- ment to 20% of GNP in 1978 and 25% in 1979. This has been reflected in a four-fold increase in capital goods imports from $84 million in 1977 to an estimated $350 million in 1979. Much of the investment reflected pent up demand for replacement of antiquated equipment in industry and transport.  - 6 - Investment approvals in 1978 and 1979 for manufacturing reached record levels; those involving foreign collaboration totalled $300 million, of which over one-half were in the new free trade zone. Although there is little data available on employment, the Central Bank estimates a sizable (102,000) increase in the public sector and organized private sector employ- ment in 1978 as against an increase of 40,000 in 1977. This would have contributed to the fall in open unemployment from an estimated one million to 900,000, or 16% of the labor force. 17. The exchange rate adjustment, other policy induced price increases and related wage increases, and the removal of price controls contributed significantly to inflationary pressures in 1978 and 1979. However, these pressures were moderated in 1978 by a bumper paddy harvest, increased capacity utilization in the economy, increased availability of imports and the benefi- cial effects of competition from imports and in domestic distribution. Thus average annual inflation was held to 9% in 1978. There was a marked deterior- ation in 1979 - average annual inflation rose to 18% (32% on December 1978 to December 1979 basis) due to an acceleration in money supply expansion on account of the continued buildup in gross external assets and the rapid domestic bank credit expansion, and to a sharp increase in construction sector costs, as the increase in investment levels led to shortages of construction materials and skilled labor. 18. Not surprisingly, the current account deficit in the balance of payments rose sharply to $150 million in 1978 and $360 million in 1979. After a strong surge in 1978, merchandise imports rose by a further 41% in 1979 to $1,450 million, or twice 1977 levels, reflecting sizable increases in the cost of petroleum imports, and substantial real increases in non-food consumer goods, intermediate and investment goods imports. Exports rose by a more modest 18% to $900 million in 1979. However, as in 1978, the current account deficit was more than offset by non-monetary capital inflows, resulting in an increase in net foreign exchange reserves by a further $46 million. Gross reserves rose by $121 million to $519 million at end 1979, due largely to drawings on the Extended Fund Facility. Reserves are currently equivalent to about four months imports. Preliminary balance of payments projections for 1980 suggest a further marked deterioration in the current account deficit to $600 million, due in part to the sharp rise in the cost of petroleum imports. Net petroleum imports as a percentage of non- petroleum exports will rise from 14% in 1979 to 26% in 1980. At currently projected aid levels, net reserves are likely to fall by nearly $60 million in 1980. 19. Success in attaining the Government's medium-term development objectives is conditional on a number of factors. The Government will need to carefully continue reviewing the content of its public investment program. As presently proposed, it will severely strain the domestic availability of skilled manpower and construction materials. To the extent that this forces a greater reliance on imports, it will further strain the balance of payments, which is already under severe pressure on account of the oil price increase and other factors that will result in a deterioration in the terms of trade. Moreover, domestic production and exports will need to increase at a rapid rate to ensure the required level of import substitution and export promotion  implicit in the Government's macro-framework. This, in turn, will require further efforts to improve price and export incentives, and the quality of management in the public sector, and particularly in the tree crop sector. A further essential precondition is an adequate level of public savings to generate the required resources for public investment without infringing on the financing needs of the private sector. While the Government has already undertaken a number of important resource mobilization measures, this will need to be an area of continuing vigilance. However, success will ultimately be contingent on larger aid flows which are needed to ensure that an ambitious development program, with a strong rehabilitation component, can be implemented within the framework of a liberalized import regime. The Government is antici- pating that aid flows will finance over one-half of the public investment pro- gram, including considerable local cost financing. In this way, the Govern- ment's own considerable resource mobilization efforts will be supplemented, while at the same time providing strong balance of payments support during this period of economic transformation. 20. Aid donors have responded enthusiastically to the new policy environ- ment in Sri Lanka. Aid commitments in 1978 from members of the Sri Lanka Aid Group totalled US$362 million, an increase of 60% over 1977. Aid commitments in 1979 totalled a massive $660 million, including $220 million for the acce- lerated Mahaweli Program. The grant element of aid commitments is currently around 63% and is expected to improve further. The debt service ratio in 1979, excluding Fund repurchases, stood at around 8.0%, declining from 15.0% in 1977 and 10.0% in 1978, due to improved export earnings and the decline in outstand- ing short- and medium-term borrowings. PART II - BANK GROUP OPERATIONS IN SRI LANKA 21. Since the beginning of its operations in Sri Lanka in 1954, the Bank Group has made eight loans totalling US$72.9 million (net of cancellations) and 24 credits totalling US$342.5 million (net of cancellations and exchange adjustments) in support of 30 projects. About 42% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 14% for power, and the remainder for development finance company operations, highways, a program credit (mainly involving the import of raw materials for industry), water supply, road transport, small and medium industries and tech- nical assistance. Eight loans and eight credits have been fully disbursed so far. During FY80, IDA credits for a total of US$132.0 million have been approved for a Technical Assistance Project, a Road Passenger Transport Proj- ect, a Smallholder Rubber Rehabilitation Project, a Telecommunications Project and a second Water Supply and Sewerage project. 1/ Annex II contains a summary statement of Bank Group operations as of March 31, 1980, together with notes on the execution of ongoing projects. 1/ The latter three projects are scheduled to be presented to the Board before the proposed Sixth Power Project.  - 8 - 22. An IFC equity investment of about US$100,000 equivalent in the Development Finance Corporation of Ceylon (DFCC) and an IFC non-revolving line of credit of US$2.0 million to the government-owned Bank of Ceylon for on-lending to private small- and medium-scale industrial enterprises were approved in FY78. IFC also approved an investment of US$2.32 million in a synthetic textile mill, and US$986,000 in a polypropylene bag manufacturing plant in FY79. IFC has very recently approved an increase in equity invest- ment of about US$51,000 equivalent in DFCC. 23. The Bank Group's current strategy is focused on the agricultural sector to support Government efforts to increase food production and reduce its dependence on food imports, and to raise productivity, employment, incomes and living standards of the rural population in Sri Lanka. Projects to sup- port basic infrastructure are also included. In addition to providing financ- ing for the ongoing Mahaweli Ganga Development Project II and the Mahaweli Ganga Technical Assistance Project, the Bank Group is assisting the Government of Sri Lanka in accelerating the implementation of the Mahaweli Ganga Develop- ment Program (paragraph 12) principally through the coordination of external assistance for project preparation and implementation. It is expected that significant investment opportunities for IDA and other Aid Group members will flow from this effort. A rural development project and a Mahaweli Ganga Development III project are being appraised. 24. The Bank Group presently accounts for 10.3% (IBRD, 3.3%; IDA, 7.0%) of Sri Lanka's total debt outstanding and disbursed, and 6.5% (almost totally IBRD) of debt service. It is projected that the Bank Group's share in total external debt will increase to 19% by 1985 (with the IBRD's share declining to 0.7%). The Bank and IDA shares in the debt service are expected to decline to about 4% by 1985. PART III - THE POWER SECTOR 25. The source of most of Sri Lanka's energy at present is firewood. Wood provides about 62% of the total energy, the rate of consumption per capita being estimated as between 180 and 320 kg per year. Although the per capita use of wood has increased very little over the past fifteen years, there is concern about deforestation. A forestry sector review mission by IDA has recently completed its work and is currently reviewing its findings with the Government. 26. There are no known reserves of coal, oil or natural gas. Explora- tion is in progress, and drilling both onshore and offshore will be started in 1980, but the likelihood of substantial finds is small. The sole importer and refiner of petroleum and its products is Ceylon Petroleum Corporation (CPC). Its refinery has a capacity of 2.35 million tons per year and produces enough gasoline for the country, but part of the needs for diesel and kerosene are imported. More heavy furnace oil is produced than domestic needs, the surplus being exported as bunker fuel. Domestic prices of all fuels except gasoline are subsidized. Liquified Petroleum Gas (LPG) is not important at present but it is in excess supply, is relatively cheap and its use is likely to increase.  - 9 - 27. The total potential for hydro energy in the country is estimated as 6,400 GWh per year. The yield from existing hydro developments is about 1,500 GWh per year, and the additions now planned will increase it to about 3,740 GWh by 1991. This may exhaust all feasible hydro sites with potential in excess of 15-20 MW. A survey of smaller hydro projects is planned. Ceylon Electricity Board (CEB) 28. The CEB is a public corporation, established in 1969 to replace the Department of Government Electrical Undertakings (DGEU). It is governed by a seven member Board appointed by the Government, which has reserved control of tariffs, capital investment, borrowing, the appointment of the Chairman and the General Manager, and the conditions of service of all employees. The CEB is subject to the provisions of the 1971 Finance Act regulating the finances of public corporations. 29. The CEB has adequate organization and management systems designed by international consultants, but CEB's management needs improvement. In common with other public corporations, CEB has problems in retaining experi- enced staff. Although CEB is able to recruit newly graduated engineers, its salaries are not competitive to retain its engineers once they have gained experience, hence there is an acute shortage of intermediate engineers. A similar situation exists for trained accountants. 30. The CEB's employees at the end of 1979 totalled 9,948, against an authorized total of 11,098. Over the period 1975 to 1979, the number employed increased at an average annual rate of 5%. This rate of increase is reason- able, but the ratio of one employee to every 15 consumers is high. CEB's employee numbers will increase following the absorption of the distribution systems now operated by local authorities. 31. The CEB is charged with the responsibility for the generation, transmission and distribution of electricity in the country. In addition to selling directly to consumers, CEB sells in bulk to 214 local authorities who, in turn, retail to their consumers. This arrangement is to be discon- tinued shortly when CEB takes over these distribution systems and retails direct to all consumers. There are a number of privately owned generating plants but, except for one at the CPC refinery, they are mainly for standby purposes and generate little energy. Some local authorities in remote areas provide part time electricity service from diesel generators. 32. In the past, CEB has been responsible for the development of its own generating capacity, except for the Ukuwela station on the Mahaweli Ganga, and is at present constructing hydro stations at Bowatenne and Canyon. In the next few years, however, the Mahaweli Development Authority (MDA) will develop hydroelectric power stations at Victoria, Kotmale and Randenigala. The MDA is an agency established under the Ministry of Mahaweli Development to implement the multi-purpose Mahaweli Ganga Development Program which involves the con- struction -of dams, hydroelectric stations and irrigation works. As each hydro electric development is completed, it will be transferred to CEB for operation. The CEB is currently carrying out, with assistance from consultants, a master plan study integrating thermal and hydro power generation to provide least cost power.  - 10 - 33. The CEB at present has 398 MW of installed generating capacity, of which 328 MW is in seven hydro plants and the balance in a steam turbine and two diesel stations. The main transmission system operates at 132 kV over 549 miles, and there is an older 66 kV system of 214 miles. Subtransmission and distribution at 33 kV extend to about 3,000 miles, and there are about 750 miles of 11 kV overhead distribution lines. In the city of Colombo the distribution is mainly by underground cable, at 11 kV. 34. Maintenance of CEB's generating stations has been reasonable in the past, but there are recent signs of deterioration. Adequate systems exist for keeping plant history and maintenance records, but in many stations these are not kept up to date. There is no planned maintenance schedule for each station to permit management to check easily that all items of plant are provided for and have been duly serviced. The distribution systems, which CEB will shortly inherit from local authorities, have had too many consumers added to them with- out corresponding reinforcement, and have not been well maintained. Up to 1976 system losses were recorded as less than 12%, but in 1977 losses started to increase and are now estimated at about 16%. As a part of agreed plans to improve CEB's management (paragraph 67), CEB will investigate system losses and undertake a study of local management and conservation. Access to Service 35. In 1979, CEB was supplying about 155,000 consumers including 214 local authorities who were supplying 205,000 consumers, making a total of about 360,000; of these about 263,000 were domestic. Electricity consumption in 1979 was less than 90 kWh per capita. The quality of service to most of CEB's consumers is acceptable. Further service improvements are expected under the proposed project. Rural Electrification 36. The rural electrification (RE) program arises more from broad economic and social considerations than from specific productive requirements such as irrigation pumping. 1/ The program has already been extended to about 2,000 of Sri Lanka's 25,000 villages. By 1983, an additional 1,150 villages will be connected under the recently approved rural electrification project financed by the Asian Development Bank (ADB). A further 50-60 villages per year will be electrified using Government funds. The CEB has arrangements to finance house wiring and connection charges by installment payments. A load promotion and monitoring unit will be introduced in the course of the ADB project. Status of Supply 37. The CEB's existing hydro-generating stations are reliable for about 1,500 GWh per year, but in 1979 the energy requirement exceeded this by 3%. 1/ The exploitable groundwater resources of Sri Lanka are relatively limited. However, rural electrification facilitates the development of small industries.  - 11 - The maximum power demand was 325 MW, compared with a firm capacity of about 300 MW, a deficit of about 8%. New stations are under construction at Bowatenne (40 MW by end 1980), Canyon (30 MW by end 1981), and Victoria (216 MW in 1984), but even with these additions there will not be enough power to cover the demand until 1985 when another 210 MW of hydro will come on line at Kotmale. To prevent shortages of energy and power from 1980 to 1985 CEB, will install 60 MW of gas turbines in 1980, and is contemplating further thermal plant installation in 1982/83 (paragraph 32). Electricity Consumption 38. The consumption of electrical energy increased at an average annual rate of 9.3% from 1961 to 1978, varying from 17.8% in 1966 to 3% in 1974. Growth was weak from 1972 to 1977, but with the resumption of economic growth in the last two years 1977-79 it averaged 11.4% per annum. Forecasts made by various authorities, including those studying the Mahaweli developments and CEB, project that growth will continue strong in the immediate future with some tapering off after 1984. The best estimate indicates growth of about 12% in 1980 tapering to 9% by 1989, allowing for 5% suppression of demand due to tariff increases. Development Program 39. The CEB's near term generation program is dominated by the Mahaweli multi-purpose program which, in its accelerated form, calls for the addition to CEB's system by 1989 of six or seven hydro electric stations totalling about 600 MW. As a result of this program, work on the Samanalawewa project, which was to have been financed by Russia and commissioned in 1983, has been deferred until the late 1980's. This change in planning and the unexpected upturn in load growth in the past two years have left CEB facing a shortage of generating capacity which will be met by the installation in 1980 of gas turbines burning diesel fuel, and by further thermal capacity in 1982/83. 40. Studies of the transmission system by CEB's engineers in 1979 indi- cated that a voltage higher than 132 kV would prove economical in handling the flows of power to be expected from Mahaweli developments in the mid-1980s. This finding was confirmed by consultants who recommended the use of 220 kV lines from the Victoria/Kotmale/Randenigala areas to the load centers of Colombo, and planning for future expansion of the grid is proceeding on that basis. The Bank Group's Role and External Assistance 41. Between 1954 and 1969, the Bank made four loans totalling US$58.4 million for power developments in Sri Lanka. The first three were made to the Government and the fourth (Loan 636-CE, US$21.0 million) to the newly established CEB. In 1969 the Bank and IDA extended US$$29.0 million (Loan 653-CE/Credit 174-CE) for a multi-purpose development on the Mahaweli. This included the construction of the Ukuwela hydroelectric station, which is now operated by CEB. In 1973, IDA extended a credit (Credit 372-CE) of US$6 million for the development of CEB's transmission and distribution systems. The proposed project is the sixth lending operation by the Bank Group to the Sri Lanka power sector, and the third to the CEB. Physical implementation  - 12 - of the previous projects has been satisfactory. Completion reports for the projects financed under Loan 636-CE and Credit 372-CE are under preparation. An organizational structure and appropriate public utility management and financial systems were developed for CEB by consultants financed under Loan 636-CE. Severe staffing difficulties in recent years and the lack of adequate management training for senior management have prevented the full utilization of CEB's systems. A further strengthening of CEB's management is an important feature of the proposed project (paragraphs 67-68). The CEB has been unable to achieve the 8% rate of return on currently valued net fixed assets since 1974 as required under Credit 372-CE because of the unwillingness of the pre- vious Government to authorize tariff increases after April 1972. Substantial tariff increases were achieved in 1978 and the proposed project is designed to further enhance CEB's financial performance (paragraph 54). 42. The ADB has more recently provided financing for the Bowatenne and Canyon hydro stations, and for rural electrification. The Government is arranging bilateral financing of the Mahaweli hydro stations, from the UK for Victoria, Sweden for Kotmale and Federal Republic of Germany for Randenigala. The Government requested IDA's assistance in financing the transmission facilities required to link the Victoria and Kotmale hydroelectric stations to the grid system. These facilities are not included in the bilateral assistance for the Mahaweli schemes. IDA assistance has also been requested for additional thermal generation facilities to come on stream in 1982/83 (paragraph 39). PART IV - THE PROJECT 43. The proposed project was prepared by CEB and was appraised in January/February 1980. The Staff Appraisal Report entitled " Sixth Power Project, (Ceylon Electricity Board)" (No. 2905-CE dated May 12, 1980) is being distributed separately to the Executive Directors. Negotiations were held in Washington on May 5, 1980. The Government of Sri Lanka and CEB were repre- sented by a delegation headed by Mr. James H. Lanerolle, Secretary, Ministry of Power and Energy and Chairman, Ceylon Electricity Board. A timetable of key events relating to the project and special conditions of the proposed credit are given in Annex III. Project Objectives 44. The project is designed to increase CEB's transmission and distri- bution facilities between 1981 and 1984 in order to meet increasing demands for electricity from all parts of the country and all sectors of the economy, and to strengthen CEB's managerial and commercial performance. It will permit power from hydroelectric stations now under construction to reach consumers. It is intended to: (a) increase the quantity and reliability of high voltage grid supplies transmitted to areas where load will soon exceed present capacity; (b) transmit high voltage grid supplies to areas where none is available at present;  - 13 - (c) extend and reinforce subtransmission lines so as to improve the quality of present supplies and to provide electricity in areas as yet unserved; (d) provide supplies for new housing, hotels and commercial buildings soon to be erected in the course of the redevelop- ment of the city of Colombo; and (e) furnish distribution lines and substations necessary to permit consumers to be connected to the system. Project Description 45. The proposed project consists of the following components: (a) 172 miles of 132 kV second circuits to be strung on exist- ing towers to improve supplies to Ratmalana, Jaffna and Trincomalee; (b) 50 miles of new single circuit 132 kV line to Valachchenai; (c) 132 kV grid substation at Valachchenai; (d) extensions to existing 132 kV switching stations at Kolonnawa, Ratmalana and Anuradhapura; (e) 500 miles of 33 kV subtransmission line; (f) two new 132 kV primary distribution substations in Colombo with their supply cables; (g) augmentation of existing primary distribution substations in Colombo; (h) extensions and alterations to the 11 kV underground cable network in Colombo fed by these substations; (i) 125 miles of 33 kV overhead distribution line and 250 sub- stations; (j) construction and service vehicles; (k) operational buildings and staff quarters; and (1) engineering and management consulting services and training. Project Implementation 46. The CEB is responsible for the implementation of the project. It has carried out similar works in the past. Much of the detailed engineering can be handled by CEB's engineers. Consultants will be appointed shortly to design and supervise the installation of indoor primary substations in Colombo  - 14 - as CEB staff have no previous experience in this work. Appointment of these consultants would be a condition of credit effectiveness (Section 5.01(c) of the draft Development Credit Agreement (DCA)). The cost of engineering con- sultancy and local office and transport is estimated at US$0.4 million, including,about 36 man-months of services at an average cost of US$8,500. Construction is expected to be completed by March 1984. 47. A future project, for which IDA's assistance has been requested, comprises the 220 kV lines, substations and switching stations required to transmit the output from the hydroelectric stations at Victoria, Kotmale and Randenigala into the Colombo area. Detailed engineering design for this work will be needed shortly and provision has been made under the proposed project for the appointment of consultants for design work and preparation of tender documents. Engineering costs are estimated at US$1.0 million. The contract will provide for about 90 man-months of consultant services at an estimated man-month cost of $8,500 including salaries, overhead costs, fees, inter- national travel and subsistence. Cost and Financing and Relending 48. The total project cost is estimated at about US$63.3 million equiv- alent (including taxes and duties of about US$9.9 million equivalent) with a foreign exchange component of US$39.5 million. The estimates are based on December 1979 prices. Price contingencies have been estimated assuming annual inflation of 21% for 1980, 15% for 1981, 12% for 1982, and 9% there- after for local costs; and 10.5% for 1980, 9% for 1981, 8% for 1982, and 7% thereafter for foreign costs. Physical contingencies average 10% and range from 5% for supply of certain substation equipment to 25% for trenching and cable joining according to the nature of the item. The proposed Credit of US$19.5 million equivalent, together with the Saudi Fund loan (US$20.0 mil- lion equivalent), would finance the full foreign exchange cost, or about 74% of total project cost (excluding custom duties). The local costs, amounting to about US$23.8 million equivalent, would be funded from CEB by internal cash generation. The proposed Credit would also finance the foreign exchange cost of the primary and subtransmission (major part) works and related equip- ment, consultancies and training. The Saudi Fund loan would, on a parallel basis, finance the foreign exchange cost of a part of the subtransmission works, the distribution works and related equipment. Satisfactory arrange- ments for financing by the Saudi Fund would be a condition of effectiveness of the proposed Credit (Section 5.01(f) of the draft DCA). 49. The entire proceeds of the IDA Credit would be onlent to CEB at an interest rate of 10% per annum, over a period of twenty years, including 3 years' grace, with the Government bearing the foreign exchange risk. Exe- cution of the subsidiary loan agreement between the Government and CEB is a condition of effectiveness of the proposed Credit (Section 5.01(b) of the draft DCA). 50. Although the average annual rate of inflation has risen sharply since 1978, reaching 18% in 1979, it is expected to peak in 1980, and decline to about 12% by 1982. The current inflation is largely a result of policy- induced price adjustments in administered prices and short-term demand-supply  - 15 - imbalances in certain sectors, most notably construction. The Sri Lankan authorities expect production to respond positively to the price changes and the liberalization of the economy, and together with a tight rein over govern- ment budgetary deficits and credit expansion, to cause a slowdown in the rate of inflation by 1981. Procurement and Disbursements 51. The 132 kV components of the project will be constructed under four single responsibility contracts. These will cover the 132 kV transmission lines, the grid substation and switching stations, the 132 kV primary distribution substations, and the 132 kV underground cables. The remaining construction work in the project will be performed by CEB's work force. International competitive bidding in accordance with IDA's guidelines will be employed in the award of all major components to be financed by IDA, including both the contracts for the high voltage lines and substations and the supply of equip- ment and materials to be employed or erected by CEB. Vehicles, equipment and materials estimated to cost less than US$10,000 equivalent per item may be procured in accordance with local procedures, which are satisfactory to IDA. The aggregate of such purchases would be limited to US$100,000 equivalent. The foreign components to be financed by Saudi Fund will be procured and dis- bursed in accordance with Saudi Fund's requirements. 52. Disbursements from the Credit will be made as follows: (a) 100% of foreign expenditures of contracts for: 132 kV trans- mission lines, and 132 kV substations and switching stations, including the changes to the 132 kV switchgear at Kolonnawa and Kelanitissa required for Colombo distribution; (b) 100% of foreign expenditures for directly imported items or 100% of local expenditures (ex-factory) for locally manufac- tured items and 65% for locally procured items for equipment and materials for the major part of the 33 kV subtransmission lines; vehicles and tools; and (c) 100% of foreign expenditures for consultants and training. 53. It is recommended to retroactively finance about US$350,000 for expenditures for engineering and management consultants, incurred after May 1, 1980. CEB's Finances Past Performance and Present Position 54. Under IDA Credit 372-CE (1973), CEB was required to maintain tariffs at levels sufficient to produce from 1974, at least an 8% rate of return per annum on currently valued net fixed assets. The CEB has satisfactorily re- valued its fixed assets up to 1978, in accordance with an index-linked formula agreed with IDA. The CEB's rate of return declined from 7% in 1974 to 2% in 1978. This was mainly due to the fact that the Government did not allow CEB  - 16 - to increase its tariffs between April 1, 1972, and December 1, 1978. The CEB's inability to increase its tariffs limited its contribution to its investment program in recent years, although CEB's overall contribution from 1974 to 1978 was about 33% which was satisfactory. In December 1978, the new Government allowed CEB to increase its tariffs on the average by about 80%. As a result of these tariff increases, CEB's rate of return in 1979 improved to about 4%. With the proposed increase of about 65% in CEB's tariff (para- graph 62), CEB's rate of return would increase to about 7% in 1980 and 8% in 1981. 55. The 1978 audited accounts indicate satisfactory current and debt/equity ratios (2:1 and 19:81, respectively). A further revaluation of fixed assets, however, is necessary in the 1979 accounts in accordance with the movement of local indices used for this purpose. 56. Under Credits 174-CE and 372-CE, it was agreed to transfer to CEB all hydroelectric stations developed under the Mahaweli program. The first of these, Ukuwela (previously known as 'Polgolla'), was commissioned in 1976 but the terms of its transfer remain to be finally resolved. During negotia- tions the Government's proposal for the terms of the transfer were received and are being reviewed by IDA. These terms will be finalized, subject to agreement with IDA, before December 31, 1980 (Section 3.04(a) of the draft DCA). The previous requirement (Credit 372-CE) to transfer future hydro- electric stations to CEB on terms satisfactory to IDA will be repeated in the proposed project (Section 3.02(d) of the draft DCA). 57. The CEB's present inventory levels represent some 18 months supply. This is excessive and is to some extent due to past difficulties in obtain- ing foreign exchange. Inventory controls will be reviewed by management consultants and CEB would reduce inventories to a satisfactory level by December 31, 1982 (Section 4.07 of the draft Project Agreement (PA)). In addition, the Government would ensure the timely availability of foreign exchange for future purchases (Section 3.03(a) of the draft DCA). 58. All CEB's long-term foreign exchange borrowing is arranged through the Government, and the Government bears the foreign exchange risk. Several loans were transferred to CEB, however, on its establishment in 1969 from the DGEU. The liability for the foreign exchange risk on the transferred loans was never clearly defined and CEB has sought to recover from the Government the additional debt service arising from currency devaluations. Over the past ten years, CEB has borne about Rs 122 million of additional debt service on the transferred loans, which has not been reimbursed. The Government would resolve this matter before December 31, 1980 (Section 3.04(b) of the draft DCA). The CEB may be required to write-off the above amount against its retained earnings. The Government would advise CEB, by December 31, 1980, of the terms of funding to CEB during 1978 and 1979 (Section 3.04(c) of the draft DCA). In addition, the Government would advise CEB, in advance, of the terms of any future loans not covered by an onlending agreement. Tariffs 59. The CEB's tariffs remained unchanged between April 1972 and December 1978. The present average tariff (equivalent to USi2 per kWh) is low by  - 17 - international standards and is insufficient in relation to financial rate of return or long-term marginal costs criteria. Operating costs have hitherto been low reflecting the almost exclusive hydro-generated energy. This position will change significantly in the early 1980s when CEB will need to generate considerable thermal energy until the Mahaweli hydro-generation stations are commissioned, from late 1984 onwards. Most local authority tariffs are below CEB's and, following takeover by CEB, retail tariffs will be fixed by law at then current CEB levels. 60. In December 1978, the Government approved the inclusion of a fuel adjustment clause in CEB's tariff schedule. This was intended to reflect the increasing cost of thermal generation based upon the price of fuel as against the price prevailing on July 31, 1978. The higher rate will be charged to domestic consumers on consumption in excess of 50 kWh per month and to non- domestic consumers on units in excess of 75% of recent minimum monthly con- sumption. Over 60% of domestic consumers use less than 50 kWh per month and so will be unaffected. However, in FY1979, CEB was not permitted to use the fuel adjustment clause and in FY1980 the higher rate for domestic consumption has been limited to Rs 0.50/kWh. 61. The CEB is making a study of long run marginal cost (LRMC) pricing with technical assistance from the Bank. Currently, however, there is cross- subsidization of domestic consumers, by commercial and industrial consumers, for socio-political reasons. The CEB would, by December 31, 1980, complete the on-going tariff study and review its tariff structure, in consultation with the Government and IDA. The CEB would implement any agreed recommen- dations in accordance with a timetable satisfactory to IDA (Section 4.06 of the draft PA). 62. In order to improve CEB's financial performance and achieve the required 8% rate of return on average currently valued net fixed assets, CEB will increase its tariffs by about 65% as a condition of effectiveness of the proposed Credit (Section 5.01(e) of the draft DCA). It is estimated that an increase in the average tariff from Rs 0.30 to 0.50/kWh (about 65%) is required in a full year to achieve this target (in FY80 such an increase from July 1, would produce about 7% rate of return). The Government and CEB would also ensure that the cost of fuel is recovered in full through the operation of the fuel adjustment clause. The CEB intends to revise the fuel adjustment clause as part of the present tariff review. The CEB would also review tariffs annually, before the start of every financial year, to ensure that revenues are sufficient to meet operating costs (including fuel costs) and depreciation and to produce a rate of return on currently valued net fixed assets of at least 8% annually (Section 4.04(a) of the draft PA). 63. Tariffs will increase further from the present levels (average Rs 0.30/kWh) to meet increases in operating costs, price escalation and CEB's contribution to investment. During the project period, the average tariff/ kWh would rise from the proposed Rs 0.50 (paragraph 62) to Rs 0.62 (1982), Rs 0.73 (1983) to Rs 0.76 on completion of the project in 1984. Thereafter, it will rise following the commissioning of the Mahaweli hydro-electric stations to Rs 1.17/kWh in FY1987. In real terms, this presents a doubling of tariffs from the present level. Such tariff levels are sufficient to produce at least an 8%  - 18 - rate of return on currently valued net fixed assets in each year and in 1982 and 1983 would produce a 10% rate of return which is required to enable CEB to finance the local costs of its investment in those two years. Future Finances 64. The CEB's investment program and financing plan through 1984 is cur- rently being reviewed. Most of the hydro-power investment in the 1980's will be carried out under the Accelerated Mahaweli Ganga Development Program with the power assets being transferred to CEB on completion of each scheme. However, CEB will have to provide transmission links to the proposed hydro-stations and meet short-term power needs through 1985 by additional thermal investments. Following completion of present studies, CEB will prepare a firm investment program through FY1984 and will submit such a program to IDA by October/November 1980. The CEB's long-term finances through 1987 are satisfactory. The CEB will have satisfactory current (1982 - 2.0 and 1987 - 2.4) and debt/equity (1984 - 29/71 and 1987 - 48/52) ratios. Debt service coverage of at least 1.25 will be required (Section 4.03 of the draft PA). Billing and Collection 65. The CEB's billing and collection performance has been reasonably satisfactory. It is required, under Credit 372-CE, to keep customer receiv- ables to no more than the equivalent of three months' billings. The latest figures, at the end of August 1979, indicated receivables equivalent to 3.6 months' billings. CEB's control of the billings of large consumers is satis- factory. A major factor in the recent increase was the position of the local authorities (equivalent to 5.7 months' billings) many of whose bills are unpaid pending the takeover of their systems by CEB. The CEB's present obligation will be repeated under the proposed credit. In addition, the Government will ensure the payment by local authorities to CEB of all current bills, and establish a satisfactory program to clear local authorities arrears (Section 3.03(b) of the draft DCA). Arrears will be settled as part of the transfer arrangement but should the transfer be delayed beyond September 1980, the Government will agree with IDA a program by October 31, 1980. Management Systems and Accounting 66. Comprehensive management and accounting systems were introduced by CEB in 1974 based on recommendations of consultants, financed under Loan 636- CE. The systems are satisfactory but staffing difficulties in recent years have led to serious delays in preparing management, particularly financial, reports. This has reduced management effectiveness and control. 67. While some improvements will follow the strengthening of the account- ing staff in 1979, present managerial problems require closer examination. The previous consultants (paragraph 66) will be retained to review the present position, recommend improvements and prepare management development and train- ing programs. Their appointment will be a condition of credit effectiveness (Section 5.01(c) of the draft DCA). The CEB will submit to IDA, in advance, any proposal for major change to CEB's organizational structure (Section 3.03 of the draft PA). The estimated cost of the study including the possible  - 19 - employment of management advisers to CEB is included in the proposed project. Improved reporting to IDA was agreed during negotiations. 68. The CEB has appointed a local firm of accountants to assist in bring- ing accounting records up-to-date, and preparing current financial control reports. The CEB would submit satisfactory 1979 accounts to IDA as a condition of Credit effectiveness (Section 5.01(d) of the draft DCA). Training 69. Present training facilities are limited but a recent consultants' report on artisan training, financed under the USAID program, is being reviewed by CEB. Management training needs will be identified by management consultants. The CEB will submit to IDA a satisfactory training program for all cadres of staff by June 30, 1981, and will thereafter implement the agreed program (Section 3.04 of the draft PA). Benefits and Risks 70. The proposed project is an integral part of the total power sector investment program in Sri Lanka, incorporating CEB's expenditure on genera- tion, transmission and distribution, the Mahaweli program of hydroelectric stations, and later, the Samanalawewa hydroelectric station. It serves to transmit the additional power generated to satisfy incremental demand at the load centers. Its nature as a selected aggregate of individual lines and substations does not lend itself to isolated justification: therefore, the entire investment program, covering the proposed project implicitly, has been justified. 71. The minimum rate of return on the available power sector investment program (including the complete headworks, but excluding irrigation downstream costs and benefits) is about 3%, using tariff revenue only as a proxy for benefits. This indicates that tariffs are well below marginal cost. The true economic rate of return would be significantly higher, if full benefits of incremental power supply to the economy could be quantified. It was attempted to quantify these additional benefits by using the cost and extent of use of alternative energy sources for economic activity and for lighting. On this basis, the economic rate of return is likely to be between 8% and 16%, the best estimate being 12%. Based on the overall feasibility of the invest- ment program the project is justified as a necessary part of the program. 72. The project consists of normal electric utility work entailing no unusual risks and no particular difficulty is foreseen in its execution. PART V - LEGAL INSTRUMENTS AND AUTHORITY 73. The draft Development Credit Agreement between the Democratic Socialist Republic of Sri Lanka and the Association, the draft Project Agree- ment between the Association and the Ceylon Electricity Board, and the Recom- mendation of the Committee provided for in Article V, Section l(d) of the  - 20 - Articles of Agreement are being distributed to the Executive Directors separately. 74. Special conditions of the Credit are listed in Section III of Annex III. The following events of suspension have been added, namely: if CEB fails to fulfill its obligations under the Project Agreement (Section 4.01(a) of the draft DCA); if the Ceylon Electricity Board Act changes in a way which would have a material and adverse effect on the execution of the project (Section 4.01(c) of the draft DCA); and if the Saudi Fund loan (Section 4.01(e) of the draft DCA) is suspended or prematured. Additional conditions of effectiveness include: the appointment of engineering and management consultants (Section 5.01(c) of the draft DCA), satisfactory arrangements for financing by the Saudi Fund (Section 5.01(f) of the draft DCA), an electricity tariff increase of about 65% (Section 5.01(e) of the draft DCA), and CEB to submit to IDA satisfactory accounts for FY79 (Section 5.01(d) of the draft DCA). 75. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 76. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments June 3, 1980  - 21 - Annex I Page 1 of 6 pages TABLE 3k SRI LANA - SOCIAL INDICATORS DATA SUE! IgrEuNCE cwrs (AUSTZD AS LAND AZA (TUOUSAND SQ. M.) $ 1 I AA - MOST RCECPTS ESTD(ATZ) TOTAL 65.6 S6Z SAE HNM HIICGH AMICMLTURAL 24.2 IAT RECEIT GCOGRAPHIC INCOME INCONZ 19O /b 1970 k ESTIMATE A RZGION L GROUP G r GUP PER CAPITA (USS) 60.0 100.0 190.0 191.1 209.6 467.5 EmRGY CONSUMPMON PR CAPITA (KLOGURAS OF COAL EIZQVALUT) 107.0 153.0 106.0 69.1 83.9 262.1 POUATIO AD VISAL STATISTICS POLATION. MID-TEAR (MILLIONS) 9.9 12.5 14.1 URIA POPULATION (CEUPIIS OF TOTAL) 17.9 21.9 24.3 13.2 16.2 24.6 PoPULATION PRO.JHTIONS POPULATION IN TEA 2000 mILiONS) 21.0 STATIONAIT POPULATION (MILLIONS) 30.0 TE STATIONARY POPLATION IS EACD 2070 POPULATION DENSITY PER SQ. %. 151.0 191.0 215.0 86.6 49.4 45.3 PER SQ. EK. AGRICULTURAL LAND 507.0 518.0 583.0 330.2 252.0 149.0 POPULATION AGE mSTruC (PUCzmT) 0-14 YRS. 42.1 41.9 38.0 44.3 43.1 45.2 15-64 YRS. 54.3 54.5 58.0 52.4 53.2 51.9 65 YRS. AND ABOVE 3.6 3.6 4.0 3.1 3.0 2.8 POPULATION GCOvE RATE (PERCENT) TOTAL 2.5 2.4 1.7 2.4 2.4 2.7 URA 4.8 4.3 3.7 4.1 4.6 4.3 CRUDE BIRTH RATE (Pn THOUSAND) 36.0 30.0 26.0 44.4 42.4 39.4 CRUDE DETIR RATE (?ER TWUSND) 9.0 7.0 6.0 16.4 . 15.9 11.7 GRSS REPRODUCTION RATE 2.5 2.3 1.8 3.2 2.9 2.7 FAMILY PLANNIG ACCEPTORS. ANNUAL (THOUSADS) .. 55.3 113.0 USERS (PERCENT OF MARRIED W) .. 8.0 44.0 7.9 12.2 13.2 FOOD AND NUTRITION IDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 89.2 103.0 120.0 99.4 98.2 99.6 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 98.0 94.0 91.0 93.0 93.3 94.7 PROTEINS (GRAMS PEII DAY) 46.0 43.1 42.6 56.1 52.1 54.3 OF WIECH ANIMAL AND PULSE 13.7 11.6 8.9 10.4 13.6 17.4 CHILD (AGES 1-4) MNOTALITT RATE 7.0 3.0 2.0 19.2 18.5 11.4 HALTH LIFE EPECTANCY AT ITH (TEALS) 62.0 67.0 69.0 49.1 49.3 54.7 INPANT MORTALITY RATE (PEI THOUSAND) 63.0 51.0 47.0a .. 105.4 68.1 ACCESS To SAFE WATER (PERCENT 0F POPULATION) TOTAL .. 21.0 20.0 31.5 26.3 34.4 URBAN *- 46.0 45.0 63.9 58.5 57.9 RURAL .. 14.0 13.0 20.1 15.8 21.2 ACCESS To EXCRETA DISPOSAL (PEICENT OF POPULATION) TOTAL *- 64.0 59.0 15.7 16.0 40.8 URBAN *- 76.0 68.0 66.8 65.1 71.3 RURAL - 61.0 55.0 2.5 3.5 27.7 POPULATION PER PHYSICIAN 4500.0 .. 6230.0k 7107.9 11396.4 6799.4 POPULATION PER NURSING PERSON 4150.0 2730.0 2240.0 12064.0 5552.4 1522.1 POPULATION PER ROSPITAL BED TOTAL 330.0 330.0 330.0 2738.4 1417.1 726.5 URBAN .. 130.0 140.0 .. 197.3 272.7 RURAL .. 570.0 600.0 .. 2445.9 1404.4 ADMISSIOmS PER HOSPITAL BED .. 54.0 51.3 .. 24.8 27.5 HOUSING AVERAGE SIZE OF HOUSESOLD TOTAL 5-4/f 5.8 .. .. 5.3 5.4 URBAN 6.3/f 6.3 .. .. 4.9 5.1 RURAL 5.2/f 5.5 .. .. 5.4 5.5 AVERAGE MBER OF PERSONS PER ROOM TMTAL Z.0 2.5 .. URBAN 2. 1j 2.7 ..7 RURAL 2.0/f 2.5 .. ACCESS To ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 7. 5/ 9.0 . .. 2.5 28.I URHAN 35-971 34.5 *- *- 17.8 45.1 RURAL 2.371 2.8 .. .. .. 9.9  -22 - Annex I Page 2 of 6 pages TABLE 3A SRI LAM1A - SOCIAL INDICATORS DATA SHEET SILI LANA REFERENCE GROUPS (ADJUSTED AYERACES S MZ SAME NlEX HIGHE!R noBT RECZNT GZOCAPUC INCOME INCOME 1960 Lb 1970 lb ESTIMATE /b REcION /c GROUP Id GROUP /I EDUCATION ADUWD ENRIOLLMENT RATIOS PRIMARY: TOTAL 95.0 99.0 77.O/ 59.5 63.3 82.7 MALE 100.0 104.0 80.0/g 74.9 79.1 87.3 ?ZMALZ 90.0 94.0 73.Oa 43.7 48.4 75.8 SECONDAY: TOTAL 27.0 51.0 55.0 19.5 16.7 21.4 AISE 38.0 50.0 54.0 27.8 22.1 33.0 P4LE 16.0 51.0 56.0 10.0 10.2 15.5 VOCATIONAL ENROL. (1 OF SZCON Y) .. 1.0 1.0 1.3 5.6 9.8 PUPIL-TEACHER RATIO PRINARY 31.0 .. 29.0 42.2 41.0 34.1 SECONDARY .. .. .. .. 21.7 23.4 AWLT LITERACY RATE (PERCENT) 75.0/h 77.6 78.1 25.5 31.2 54.0 CONSUMPTION PASSENGER CARS PER THOUSND POPULATION 8.0 7.0 6.8 2.3 2.8 9.3 RADIO RECEIVERS PER THOUSAND POPULATION 36.0 .. 38.0 15.5 27.2 76.9 TV RECEIVEZS PE THOUSAND POPULATION .. .. .. .. 2.4 13.5 NEWSPAPER ("DAILY CENERAL INTERESTr) CIRCULATION PER THOUSAND POPULATION 36.0 49.0 .. 6.2 5.3 18.3 CINEMA ANNUAL ATTENDANCE PEM CAPITA 3.0 .. 4.0 .. 1.1 2.5 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3391.0 4188.0 4707.0 FEMALE (PERCENT) 22.6 23.7 28.5 21.4 24.8 29.2 AGRICULTURE (PERCENT) 56.3 55.1 54.0 66.3 69.4 62.7 INDUSTRY (PERCENT) 13.5 14.4 15.0 9.6 10.0 11.9 PARTICIPATION RATE (PERCENT) TOTAL 34.3 33.5 34.6 35.8 36.9 37.1 MALS 50.8 49.2 48.2 52.3 52.4 48.8 FEMALE 16.2 16.5 20.3 15.7 18.0 20.4 ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.2 1.3 1.2 1.4 INCOME DISTRIBUTION PECENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.4 .. 18.6 .. .. 15.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 52.1 43.4 42.8 .. .. 48.2 LOWEST 20 PERCENT OF HOUSEHOLDS 4.5 7.5 7.3 .. .. 6.3 LOWEST 40 PERCENT OF HOUSEHOLDS 13.7 19.2 19.3 .. .. 16.3 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US5 PER CAPITA) URBAN .. .. .. 86.5 99.2 241.3 RLUAL .. .. .. 74.2 78.9 136.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. .. .. 91.9 179.7 RURAL .. .. .. 50.4 54.8 103.7 ESTIMAIh D POPULATION BELOW POVERTY LNCOME LEVEL (PERCENT) URFsAN .. .. .. 44.3 44.1 24.8 RURAL .. .. .. 52.4 53.9 37.5 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population_eighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b 'Jnless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c South Asia; ,!d Low Income ($280 or less per capita 1976); /e Lower Middle Income (S281-550 per capita, 1976); /f 1963; /g Registered; /h 1962; ,i 1973; /4 public education only. Most Recent Estimate of GNP per capita is for 1978. August, 1979  - 23 - ANNEX I wunim Or SmUL MICM= Page 3 of 6 pages Notes Atog the data a- dram fe souce generally Judged the net ethoritatt sad reliable, it hould also be oted shot they w not be intrn- tionsi o.pe,rhle beonne of the i.ok of stanWdarIed definition, ad cenoete ned by different countries ie ooleotisg the data. The data are, soasthelsee, use ful to desribe orders of gnitude, indloate trend., and chertmise oerasis ajor difference between coutrie.. The adJusted scop average for meah indicator arc ppj1ltioa-welghtd gemeric en, -ecluding the estrme -Ines of the indicator an the most popalstd country Is each groP. th t leek of data, group s.-rages of all iadieatars for Capital Purples Oil Zqjrts- ad of indicators of Anoes. to Water and floreta Disposal, Housing, 1ncoa Distrihtion sad=ery fo ohe ooaty (sops ar poul.stion-eighted g-itrio ean without em.oisie of the eatreg nines sed the most popolatd ootutr. inetecvreofcnries p te indicators depnds enaalhiixo ata dMis at uniform. cation moat be exerised in relatia avraes. of one indicator to asother. These areaet are metl useful ~Asarottin of '1eaete vauswedoering the vales f one- indicator at a time -nn the country and refernc Lrow.. LME AREA (thousad sq.h.) Accssto ore:taPle.oD sal(percent of pulto)-total urb ad rura - Tota - Totelsrfscr are -prising land are and inland waes Etrofpol (totl rbn n rural) sered. by -oceta disposa a Agr7icuItura - Mest escrat estimt of agriculturl are used tWo,a LlrePri.. pretages of their repetive pomlatio- dicreta disposal -y include orporasetty for croPs, patre,eaht ad kitchen garden or to the colcinad disposal1, nith or without treataet, of hot ,e- rt lefallow, and waste-water by onter-bor- ysten or the use of pit privies an'dr tuilar OAR PR CAPITA (us4) - GNPl per capita estimates at current wegft Price, p 4i p scat satc ivdd ytatrofpaciig hsiin calculated by am bocrerioc method - W-rld lank Atas(op-7 bss) .ifit rea e a chot univriyie. 190, i7,nd197$ data. Raseultionca pe ars-ing rerso - ropolation dicided by outertof prcticlog asic CAIA- Annol osuptc of -onrisl eserms an fenle graduate nurses, pratical nurses, ad asaistan a (coal nd linite,petroL-s, natural gao ad hydro-, ulsar and ge- P.seultin per Hospital Bed - total, urbanend rrl opoltion (totAl, ucla, themalectiiy in kilogram of coal eciulvlet per capita; 1960, and rura) divided by.their rpetcto rof hospotal beds aailable in 1970, ad 1976 data. Publi adPrvtgeraanspeiali-ed hoiilad rehabilitation eo FHospitals are estbl iehents peruacetly otaffed by at leas.t -c physician POPULATION ADil VITAL STATISTICS tatablishasts. providing principally custodial car - not included. Rural Total po~flntii~W .-YeiT lll -n) - An of July 1; i960, 1970, and hoepitalo,hwee, incdlud health and edial ceter ct pe-anetly staffed 1977 data, by a phynician (but byamdical.. asistant, nurs, idife, coo) which o,ffe Orbac Ppulaion (ver-et of total) - Ratio of urban to total popsiatica; in-patient a-ndaiead pr-cide a liadisd range of medica. facilotie.. diffret definitions of urban arean may affect -parbility of data Adaedsi2ns per HospitalBe - Total nuaer of dainsi.n. to or dloobrge- fr c sng -ootrira; 1i960, 1970, and 1975 data, hospItals divided by the oaer- of bed,. Rudp,I4ti- ipy 200 -Correct ppulation projections ae base.d on OUSHING 17touopaI7loby age and sec and thire martality end fertility AvrgI1c fHueod (persons Per household) - total urban adrua- rates Projertion prmtrs frotaity rates coprise of three A1 household consitsf a grup of 1individuals etc ni- living qurter and levels asoelg i,fe r-peotny at tinth inre... cng ith voutry' a their ala eal. A boarder or lodger esy or e not he o-cldvd io the Per apitn i.com level, and fe-lo loPe e-pe-ta tabilisiog at%' household for saitica pross 77.5 pesr. Thic perntoro for fevtility rate also. hav threlve Averag ube- of pere per coca - total cuba, ad rura - Average comber ac-iebg doolice cc fertility o-ordiog to i-noom level and past of' peecs e coot in alluban and rura .opied con-etio..ni d-ilisgo, famIly coering Perform=nc.tRachdo-utry is thon assigned use of these _ repcively. lOslling oclude Io-pernc-t otruct-rs and unocoupied pnrt-. nine _ubications of aaity an fertility tredo. for projertioc Access 1to Electricity ) Percest ofid-cliago) - totnl urban, no rura - Co- purposes. vest~~~~~~~~..Iol dsrlllno cit, eletricity in liig quarter as percetage ot linroonacy populatOoo-Insucatiovnry populatooc ~~~~~~~ther us no groth otol., urba, sod rua- wll1 o-cpoisy ore the lirth rat rsequl so the deth -t, and alothe age o -uout rean-hott isi acievd onl atrfrtility rates UCRATIONI vltoc- to thic rpleocact'tloo of Ico toe repodution rate Abs djuot.d InroMlntRto each gvveret... ofcnsrolosof eacly. Theasinr pop- Pru uhoo. -toa, male. an -fnle - -Cne total, anle an rend eco l.it Au uice -o ctited tchve bas- ofthe projected vharnteroicoeettf l agesa h risuylve -c ctage of rsopeti Pc rcry of the popultooc in tho Year 2000, nod the rate of decline of fertclity obhool-ag Ppoplotioo s.. really Jinoludec childre egro (- il petr hut rate tu reTln_cno lecr. adjusted for differet lengths of primary ed-othoc for cr-cie- olth Year statione.ry =opltiurc is -eochtd - Thsc year oboe stationary population unvra ducalo cooi- uo ap eced lId prect -cor tun pup~ils ci-c has beecrearhd. are _nc cv ahoc tic officia~l school age. ,Poplation Densty IvcdrIohc1-ttl,I moead female optdt i.o;ooooi Per toqI. Nfi.sd-y-ar popuistoc Per oquar- kol-tei (ld h-tIsree) of edctooeursa es oryeasofapolprnr 1-7-ecto; total re proides general octioss, or ~ ea tor.isnieg i-5truct-si I'-e p,pclc Per ol. t.agricultura land - Computed as abov for 1giutoa -ad usually of 12 to 17 Year of age; --rr-p-odcsrouvc r ocoeroly PouoinAgo Struoture -pe ts)I- Chldr- V0-1C your), cordig-age Vocat ionl nrltt(peevet of Veuoac) - V tic-a1 -ctit.ti- lcoitridc 1-5-hI year), and rctorcd ) y pers and over)n p-rvetage of sid-peac t=cti-l, indctriol, or utter program shich operte oodrp,ndrctlyo popsintiun; 1970,1970, and ion7 dots. depactaato of ceoadary inctitcutioso. Poultin rot RI (percet) - total - Roi-ua croith rotes of total mId- -Pupil-taher tiocprsryad croonds1 - Tot,1 otudento -olioo it yerppltiOc fr- 1950-iO, Idl0-7I, and 1970-77. proeny ed serod_ry FMve divided by -ob_ero _foarer Ic nycore Populti -row Rate (Percent) - urban - Annual gro..th rates of urban poidig l-r- poPolation- for 1950-b0, 1960-70, nod 1970-75. Adult literc- rt ...rct Lt - orte adults nIble tv rid vod -ctc 0 Crude Birsh hate yr- thousad) - dAnu1 live birtho Per tho-ad of sod- a -rreIsgv of total adult popuIstico pod i' pero nod over. y-a pojoulotico; 10 19710, an, d 1977 data. _rudeleatlate :Rerlthouoand) A- una eatho, pvc thou-ad Os es-pey- CO0I5~PTION poivilatc cc 100,)170, and 1977 da.t Pssoe,Cr pr uad poplation) - Pt groc cascoro ot-ccr Ilcos Reproduotice iat - A,rrg cuoh- of douhters cocon iii1 bear cra.t9ing los tha vigt pesos pdcloc ur-bulcoco bhute an- i cIic cc icr nornoI reProduosove pvrood if she -opeice p_ ses sgr- vehicles opo_oic ZctOl cop cos ully ficoY-pa ovroescdico is 1oRoO, R.div Aslvl pr iusdppunio 1 tpvcy rooor orro I'71tc 1971 b-ov-cts to geor-l public per thoucnd of poplutlnto;coldruocuo Panily Plesnoc - Acptors, Annual (thou-ds) - ovAl . nunbo of rvcIrersscI..tr ico adl.on ,rc shooegiiltrti.. of r-t -t oceptor- of birtb-costri ocic- und-e aupic- cf natio...l fsnlly vff_t; dnto foe re-vt yro coy oct be c-o-cnlosscvtrc-cnroi plciog p-rogros aoishco l-icenin. Fanily Flont-ovspcet fmro on)- Pcere-tag of m-cod TV ccleciprtosaOpputo)-: ecce u roco coe o hild-bccigag: i-jlros ubodh~' ourZhrh-votco1 dvvi-r pblicprtose poultin;rvlud-fsuslior--d Ti re-ice- or.coutri- to all anirOd cote ic sae g gr...p. and on pear sv regout-tion of TV sets sac effet. IlruPoPer Circulatloo (per thousand Iuultios) t, I Ii l P11ANDt NUTRITIONt ofi - Piw ti ovegrocclro f F, r" d-ti- (1%9-7L ID -1,.,d,, If P- -pocro-td priwurily to rcdig g...r. cr00. It i oooivoo -sv lily" anua produoit onf tI ?lifoo oesditiet Product,Ion _odos~ coed sd of it scp-r nt le-t four tooro o-kc. ferd and .0 1-do-ecoces b-si.7 Cocp,di tiv cove primar 7good -icnAcs tcdnrpefpto or Irr - ite - the euni- of ti k cv otrar-tr-d of osgsr shih -e rodll and coot'sic OtIe,M= ovddrodI ee ril dso 0 to deo..c-o cin--o ttd soI OiLs v. offec od ten-r coo luded). Acgrcgatv pdu-toon of euch cotry soOty tl V cc Inod on onti-1t nc-r9 pcvduvvr prioc _eighto. Per -nit spl fclre percent f reurvmenttc - Computed fro LAPi0 FlORC ocergy voioslvns fmcr0 food supplvo -viishlv is c-otrpprcpt"ccao Poro t-uc'do - o--c-itll. octav P.r..o., inoluoli servo. Pr lop Acuibablo -uppliv ocpro- dometic production, imports less foo sd unPecyled it -clud-g h-uiosic, trdents, nt fvfinos "ic 1cpet, vidohagv bctc.kh Set ;.ppoloc roclodr anic1 focd, s-do soniu ovuctrien are0t _0eps,bl-. Iuniosndocfsod prcoic,sd iosoen iv dort-buto-c. Req-nr- Pems%p(pprcest - Penl Uhr orsIcprcestgv oh ct01 "th foro.. occoruvecotimatd by PFAconb-d ot phpoiclocg-1 needs o cra 961311urf,-(l7j,o) Ba 1- rsr,-n fo-siog, fo..eosoy, huntiog sod - tceloty _.d ocoltb _ucooceig s-mi r -osetol t-cprrturs, bcdp -vihto, fishing so p--tc g vs ot-ol lo1,or force. ng odoo itiiivt . ppulinti I, sod aooc11 icrovt fo_ Idustry ) perot) - LaIb e Poor 1 icoing, costooo foust-eng ord Poe -spito ouppyf prti r0 p _dp etcn-soct-tot ice ParCcpntloId Rate (perc...t) -totul, mole and f-etui -seionino ospits -ct splof foo Per d. Pro suppip sf fIod In ocinno -catholty 'Itro or ootpsted us1 cttl sol, cc fot _ olor Ci err t-pe -tv.oq.rmroPoe sI tcvo _n e_tblished p ,hi. protde for 5 orogr of btotl, soe oyfmor upltioc of nIld I os"poIorip ei .11--linuo oc 0 grato ototl poioPcr dc coo 20 gra if i',, -97O, and 1970 o~tt- Th-c see IL'l-c or:cict _o. ticrf,cot;io so ,I.cdpus -roso, If otich 10 Irano oh-u1o II .....prloc.....rs ... lur o the _pu.l-to sod lices I.0 ree-s. 0 se- oooe mccsadad c loe ha thoeo If 75 grn fttlpoti o r ront olsuos Igecof .annn protro onavccrgv foe the ccclId, propoced Isp PAl F Iutol e,peod-vcp P00 - 'itt - cpultoc icie it uno Io so t00r ot Inc Toiro World Fod- .rvp the I Tohor fooitn group of 10.04` pv-r_ peotris suppy fro oreisd pluc - troco supply of fiod cr-i-d decor toinni vod pulor i gan pcr vI p 1504E DISTRIBUTION Oil gsl-)Mortality hatAetoc l-1 Ooc denths pee th .a-d Percentaeo PI io"t brws-- o ib t yos an d hind) - -ec r ly ri-bet cceg GroP 1-I Yesro- to ob,ider is thin aegoP; fo ut d_e-prcn,coet 20 pecet, p_rvt 20 p-rcct, and poor-t oh percenIt cpin, vosecIn cots dcr- 0iPo f orI suls If houscholds. KFiobOt PVE=cr TApomT OVOCIfPO li~fe Buprotanp r h r-cct o-c of peso of loehtmtd icoePocs os col11 e otti-,ha c uo IOns 1 Rtceslotp Ontot _,pcr ticl std) - AnuI.. Ocothn of itfanto unr -r cutrit-io 11y odequare dirt plus -ortiol scon-fc.odr-qsi--enc5 o peo f gr Pee -ohIosd 1)0- bithrri -fferdonle- Iooefe,l itrtsi, tuhv,ad -uoisttrest os-i.e aecI__ to Rural ec1oti- poverty ini--m iron is vr-toord vi boerge per cpi to osfe srse supip Cinoluds oreaed sofaor tnsee cc untreated but peechcoal ooom o tie~ -cur. Irl_c I_ocIs derod iroc thc rura Ic-1 snooe.Osa.cotrs sote sc-rb to rIot feon1 pectcor boehios0 'P,rin, slbi djustorot fur bigher ovof Olosig in urbanso ad -aniesy cells so p_r_rto,n3 of tiv_ r-eP-cti- popu,it i_o v tcetdPplt P eSosl. W -bocoePveeyscn byrd- ) p-rnt) - crss and an .lo_ see 0A pulio fountois or orandpso icoted oct onc than rurl -- Pcs cf popuistio )uba sodeua)borr bolcpe 2 _tsoesfonahous so icc ouidvecd no belog cithiirc...o.nble Os -- Misht Ic-use In rural _orvo _ ee Idol anw_ scol.d ivyI 005, sth oi..... fe as-orfvs f the %,cusehod do coo hov to cprnd IroEovoocI ad cioo cj lots L,-oisi, 00 - 0e .f ttcoups in fo_ i_ tic eanilpuw-T-rov-dc hooo_i os-locan c- o:oio- --ese nvt Augoot 1971  Annex I - 24 - Page 4 of 6 pages SRI LANXA ECONOMIC DEVELOPMENT DATA SHEETS ACTUAL EST 1965 1970 1976 1977 1978 1979 NATIONAL ACCOUNTS 1/ (MILLIONS OF US$ AT 1975 PRICES) Gross Domestic Product 1783.0 2354.0 2747.3 2811.4 3020.7 3294.7 Gains from Terms of Trade 539.7 242.2 185.1 413.4 362.6 324.7 Gross Domestic Income 2322.7 2596.2 2932.4 3224.8 3383.3 3619.4 Imports 1189.8 1017.3 913.5 999.3 1272.8 1550.8 Exports - Volume -670.2 -662.9 -660.5 -694.5 -754.8 -819.0 Exports - TT. Adjusted -1209.9 -905.1 -845.6 -1107.9 -1117.4 -1143.7 Resource Gap - TT. Adjusted -20.1 112.1 67.9 -108.6 155.4 407.1 Total Consumption 2055.9 2239.0 2563.6 2648.2 2891.1 3219.0 Investment 246.8 469.4 436.8 468.0 647.6 807.5 National Savings 244.3 297.9 350.7 570.6 511.1 434.6 Domestic Savings 266.9 357.3 368.9 576.6 492.3 400.4 GDP at Current US$ 1686.6 1870.6 2424.2 2821.3 2546.3 3370.4 SECTOR OUTPUT (SHARE OF GDP AT 1975 PRICES) Agriculture 0.444 0.422 0.376 0.387 0.322 0.306 Industry 0.171 0.211 0.217 0.201 0.260 0.269 Services 0.385 0.367 0.407 0.412 0.418 0.425 PRICES (1975 - 100) Export Price Index 65.65 56.86 95.16 119.13 125.63 138.59 Import Price Index 36.37 41.64 74.33 74.67 84.86 99.24 Terms of Trade Index 180.52 136.55 128.02 159.53 148.05 139.65 GDP Deflator (US$) 94.59 79.47 88.24 100.35 84.30 102.30 Annual Average Exchange Rate 4.76 6.85 10.88 11.06 15.61 15.57 Growth Rates 1978 Share 1965-77 of GDP NATIONAL ACCOUNTS 1/ (MILLIONS OF US$ AT 1975 PRICES) Gross Domestic Product 3.9 100.0 Gains from Terms of Trade 12.0 Gross Domestic Income 2.8 112.0 Imports -1.4 42.1 Exports - Volume 0.3 25.0 Exports - TT. Adjusted -0.7 37.0 Resource Gap - TT. Adjusted 5.1 Total Consumption 2.1 95.7 Investment 5.5 21.4 National Savings 7.3 16.9 Domestic Savings 6.6 16.3 GDP at Current US$ 4.4 PRICES (1975 - 100) Export Price Index 5.1 Import Price Index 6.2 Terms of Trade Index -1.0 GDP Deflator (US$) 0.5 SELECrED INDICATORS 1965-77 ICOR 4.37 Import Elasticity - -0.39 Average National Savings Rate 0.11 Marginal National Savings Rate 0.32 Imports/GDP 0.44 Investment GDP 0.16 Resource Gap/GDP 0.04 1/ Components may not add up because of rounding.  - 25 - SRI LANKA Annex I Page 5 of 6 pages BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE 1973 1974 1975 1976 1977 1978 1979 ACTUAL EST. SUMMARY OF BALANCE OF PAYMENTS (US$ Million) 1. Exports (incl. NFS) 424.3 570.4 628.2 628.5 827.3 950.0 1135.0 2. Imports (incl. NFS) 445.3 731.7 798.8 679.0 746.2 1081.0 1539.0 3. Resource Balance -21.0 -161.3 -170.6 -50.5 81.1 -131.0 -404.0 4. Net Factor Service Income -17.3 -16.6 -18.4 -20.1 -15.0 -15.0 -16.0 .1 Net Interest Payments -14.7 -14.7 -15.9 -18.6 -14.0 of which on PUB M&LT Loans-15.5 -16.5 -20.6 -23.1 -22.1 .2 Direct Investment Income -2.7 -2.0 -2.4 -1.5 -1.1 .3 Workers Remittances (net) .0 .0 .0 .0 .0 5. Current Transfers (net) .2 -.2 2.8 6.6 10.5 22.0 48.0 6. Balance on current account -38.1 -178.1 -186.2 -64.0 76.6 -124.0 -372.0 7. Private Direct Investment .5 1.3 -.2 .0 -.3 2.0 47.0 8. Grants & Grant-like Flows 13.0 42.0 77.0 58.0 60.8 58.0 139.0 PUBLIC M&LT LOANS 9. Disbursements 83.8 146.3 157.4 210.4 150.1 236.0 186.0 10.Amortization -39.1 -52.4 -117.7 -103.8 -101.9 43.0 -44.0 1l.Net Disbursements 44.7 93.8 39.7 106.7 48.2 193.0 142.0 OTHER M&LT LOANS 12.Disbursements .0 .0 .0 .0 .0 .0 .0 13.Amortization .0 .0 .0 .0 .0 .0 .0 14.Net Disbursements .0 .0 .0 .0 .0 .0 .0 15.Use of IMF Resources -1,4 33.3 27.9 11.1 46.9 36.0 67.0 16.Short-term Capital Transactions -9,8 13.2 -2.8 -22.6 6.5 .0 .0 17.Capital Transactions NEI 28,2 62.3 -12.0 -31.8 -56.9 -35.0 92.0 18.Change in Reserves (- = Increase) I/ -37.1 56.8 56.6 -57.4 -183.0 94.0 48.0 19.Net Foreign Exchange- Reserves (end of period) -11.0 -67.8 -124.4 -67.0 116.0 210.0 258.0 GRANT AND LOANS COMMITMENTS (US$ Million) 1. Official Grants 21.1 37.0 76.0 53.1 104.3 123.7 ) 660.0 2. Total Public M&LT Loans 92.1 233.1 285.8 221.8 167.6 324.9 ) .1 IBRD .0 .0 .0 .0 .0 .0 .0 .2 IDA 6.0 24.0 29.5 .0 41.2 25.5 68.0 .3 Other Multilateral 2.8 2.5 30.0 8.1 49.7 83.2 42.2 .4 Governments 58.4 72.9 196.6 140.9 69.7 192.8 .S of which Central2y Planned Economies 2/ 2.6 21.4 56.1 4.2 1.7 10.0 .6 Suppliers 25.0 133.6 29.7 72.7 7.0 23.4 .7 Financial Institutions .0 .0 .0 .0 .0 .0 .0 .8 Bonds .0 .0 .0 .0 .0 .0 .0 .9 Public Loans NEI .0 .0 .0 .0 .0 .0 .0 3. Other M&LT Loans (where available) .0 .0 .0 .0 .0 .0 .0 MEMORANDUM ITEMS 1. Grant Element of Total Commitments 45.000 27.100 55.700 39.800 64.400 62.686 67.521 2. Average Interest Rate .037 .051 .029 .040 .021 .024 .020 3. Average Maturity (years) 23.700 13.600 28.800 20.500 35.400 29.529 39.715 ---------------------------------------- 1/ Net Foreign Assets: US$ Equivalent of Line 31, IFS. 2/ Includes CMEA Countries, Peoples Republic of China, North Korea, North Vietnam. figures not available May 16, 1980  - 26 - Annex I Page 6 of 6 pages SRI LANKA DEBT AND CREDITWORTHINESS ACTUAL 1973 1974 1975 1976 1977 1978 MEDIUM AND LONG TERM DEBT (DISBURSED ONLY) Total Debt Outstanding (DOD End of Period) 484.8 587.3 598.0 702.3 787.0 974.5 Including Undisbursed 680.1 875.7 997.0 1,103.8 1,217.9 1,428.1 Public Debt Service -54.6 -68.9 -138.4 -126.8 -124.0 -94.9 Interest -15.5 -16.5 -20.6 -23.1 -22.1 -22.8 Other M&LT Debt Service .0 .0 .0 .0 .0 .0 Total Debt Service -54.6 -68.9 -138.4 -126.8 -124.0 -94.9 DEBT BURDEN Debt Service Ratio 12.9 12.1 22.0 20.2 15.0 10.0 Debt Service Ratio 1/ 13.5 12.4 22.4 20.4 15.1 10.1 Debt Service/GDP 2.7 2.7 5.2 5.2 4.4 3.7 Public Debt Service/Government Revenue 15.7 10.0 19.0 20.0 23.5 14.7 TERMS Interest on Total DOD/Total DOD 3.2 2.8 3.4 3.3 2.8 2.3 Total Debt Service/Total DOD 11.3 11.7 23.1 18.1 15.8 9.7 DEPENDENCY RATIOS FOR M&LT DEBT Gross Disb./Imports (Incl. NFS) 18.8 20.0 19.7 31.0 20.1 24.1 Net Transfer/Imports (Incl. NFS) 6.6 10.6 2.4 12.3 3.5 15.4 Net Transfer/Gross Disb. 34.9 52.9 12.1 39.7 17.4 63.6 EXPOSURE IBRD Disb./Gross Total Diub. 6.5 3.4 3.6 1.6 1.3 .7 Bank Group Disb./Gross Total Disbursements 12.4 10.9 12.2 4.0 8.7 5.6 IBRD DOD/Total DOD 6.6 5.8 6.1 5.1 4.4 3.3 Bank Group DOD/Total DOD 9.5 10.0 12.5 11.3 11.3 10.3 IBRD Debt Service/Total Debt Service 8.0 7.4 4.0 4.7 4.9 6.1 Bank Group Debt Service/Total Debt Service 8.1 7.5 4.2 5.0 5.2 6.5 OUTSTANDING DECEMBER 31, 1977 EXTERNAL DEBT (DISBURSED ONLY) AMOUNT PERCENT IBRD 34.3 4.4 Bank Group 89.0 11.3 Other Multilateral 43.8 5.6 Governments 574.9 73.0 Of Which Centrally Planned Economies 2/ 52.8 6.7 Suppliers 79.2 10.1 Financial Institutions .1 .0 Bonds .0 .0 Public Debt NEI .0 .0 Total Public M&LT Debt 787.0 100.0 Other Public M&LT Debt .0 .0 Other M&LT Debt .0 .0 Total Public Debt (Including Undisbursed) 1,217.9 154.8 Total M&LT Debt (Including Undisbursed) 1,217.9 154.8 DEBT PROFILE Total Debt Service 1978-82/Total DOD End of 1977 63.5 1/ Including Net Direct Investment Income 2/ Includes CMEA Countries, People's Republic of China, North Korea, North Vietnam Figures not available February 27, 1980 -  - 27 - ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1980) US$ Million Loan or Amount (net of Credit cancellations) No. Year Borrower Purpose Bank IDA Undisbursed Eight loans and eight credits fully disbursed 72.9 66.8 504 1974 Sri Lanka Dairy Development 9.0 6.9 666 1976 Sri Lanka Tank Irrigation 5.0 4.4 701 1977 Sri Lanka Mahaweli Ganga Development II 19.0 18.8 709 1977 Sri Lanka Water Supply 9.2 3.7 742 1977 Sri Lanka DFC - Industrial IV 8.0 3.4 818 1978 Sri Lanka Tree Crop Reha- bilitation (Tea) 21.0 20.2 819 1978 Sri Lanka Tree Crop Diver- sification (Tea) 4.5 3.1 891 1979 Sri Lanka Kurunegala Rural Development 20.0 19.1 900 1979 Sri Lanka Road Maintenance 16.5 16.5 931 1979 Sri Lanka Agricultural Extension and Adaptive Research 15.5 15.5 942 1979 Sri Lanka Small and Medium Industries 16.0 15.9 979 1980 Sri Lanka Mahaweli Ganga Technical Assistance 3.0 3.0 994 1980 Sri Lanka Road Passenger Transport 53.0 53.0 Total, /a 72.9 266.5 183.3 of which has been repaid 40.2 - Total now outstanding 32.7 266.5 Amount sold, 3.6 of which has been repaid 3.6 Total now held by Bank and IDA /b 32.7 282.5 Total undisbursed Nil 183.3 /a A credit of US$16.0 million for a Rubber Rehabilitation Project and US$30.0 million for a Telecommunications Project have recently been approved by the Executive Directors but have not yet been signed. /b Prior to exchange adjustments. B. STATEMENT OF IFC INVESTMENT (as of March 31, 1980) Amount of US$ Million Year Obligor Type of Business Loan Equity Total 1977 The Development Finance Development Banking Corporation of Ceylon - 0.1 0.1 1978 Bank of Ceylon Development Banking 2.0 - 2.0 1979 Cyntex Textiles 1.9 0.4 2.3 1979 Mikechris Industries Polypropylene Bag 0.9 0.1 1.0 1980 Development Finance Corporation of Ceylon Development Banking - 0.05 0.05 Total Commitment now held by IFC 4.8 .65 5.45  - 28 - ANNEX II Page 2 C. PROJECTS IN EXECUTION 1/ Cr. No. 504 - Dairy Development Project; US$9.0 million of August 9, 1974; Effective Date: February 10, 1975; Closing Date: December 31, 1980 The original project, as appraised in 1973, was designed to increase milk production on about 2,400 dairy farms covering 42,000 acres in the Coconut Triangle and Mid Country of Sri Lanka by providing credit, technical assistance and a strengthened milk collection, transport and marketing system. Complementary objectives were to establish pilot units for commercial calf rearing and pasture management systems and to provide processing equipment to the National Milk Board. However, progress was severely constrained by the poor supply of cattle available for supplying to project borrowers. The poor supply of cattle was due to import problems and an over-estimation of the national herd at appraisal stemming from unreliable Government statistics. Moreover, unrestricted slaughter of cattle was stimulated by a rapid increase in concentrate feed prices which made milk production unattractive plus the relatively high consumer price of fish and poultry meat. It, therefore, became necessary to reformulate the project. Before proceeding with refor- mulation, the Government was requested to provide appropriate incentives to the dairy sector by raising the producer price of milk and stabilizing feed prices. Appropriate action was taken in November, 1978, and the climate for dairying has improved accordingly. The revised project would focus on what was a small component of the original project -- support to dairy co- operatives. Under this component, dairy farmers would be organized in a manner similar to the successful Anand pattern of Dairy Cooperatives in India. The National Dairy Development Board (India) helped in the prepa- ration of the reformulated project. Under this reformulation, the supply of inputs and services would become key activities which would include pro- vision of technical assistance and credit to farmers and support for milk collection, transport and marketing. The successful ongoing pilot calf/heifer rearing and pasture programs have been expanded. The number of beneficiary farm families would be substantially increased (current estimate approximately 10,000 vs. 2,400 in the original project) and the project would contribute to a considerable increase in income of existing landless and small farmer dairy producers. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 29 - ANNEX II Page 3 Cr. No. 666 - Tank Irrigation Modernization Project; US$5.0 million of January 12, 1977; Effective Date: April 12, 1977; Closing Date: June 30, 1981 The project covers five tank areas, serving a total cultivated area of 31,500 acres. The project includes: (a) construction works for improving irrigation and drainage facilities; (b) improvement of farm roads; (c) provi- sion of farm equipment for land preparation and plant protection; (d) strength- ening of agricultural supporting services, particularly extension; and (e) technical assistance for improving the operation and maintenance of the irri- gation systems. The construction program continues to lag behind the revised schedule by about one year. In August 1979 IDA approved the procurement of about US$1.5 M of additional construction equipment under the Credit as a means of improving construction progress and the quality of the work. The construc- tion program for two of the tanks, Mahakandarawa and Mahawilachchiya, is fairly well advanced; completion of the major part of this work is expected by the end of 1980. Work is in the initial stages on the other three tanks. The quality of project management has been a serious constraint to effective implementation. A new management team is to be provided. Also, it has been agreed with the Government that a three-member consulting team, funded un0pr the IDA credit or the U.K. grant, would be provided for up to two years to assist the Irriga- tion Department in the design and supervision of the project. IDA provided a design engineer for about six weeks during February/March 1980 to review and assist in the design of irrigation works to be undertaken in 1980 until the consulting team is appointed. With these measures, project implementation (measured both in terms of time and quality) is expected to improve signifi- cantly. A study has been undertaken on 120 ac in the project area to train farmers in making use of rainfall for land preparation and early cultivation, thus conserving tank water for yala cultivation. This technical assistance program is to improve water management and water use efficiencies in the project area and appears to be successful. The T&V system of agricultural extension is not yet operating effectively. However, the Secretary, Ministry of Agriculture is taking a special interest in the program and is confident that he can make it successful. Cr. No. 701 - Mahaweli Ganga Development II Project; US$19.0 million of June 27, 1977; Effective Date: December 29, 1977; Closing Date: June 30, 1983 The Credit will help finance construction of irrigation and drainage schemes on 40,000 acres of new land in the Mahaweli Ganga dry zone, together with providing O&M facilities and equipment, production support in the form of necessary tilling power and implements, marketing, transport and processing facilities for 71,000 acres and improved agricultural extension services for 106,000 acres. Cofinancing arrangements have been made with Canada, the Netherlands, the United Kingdom, the United States and the EEC. Considerable progress has been achieved in the construction of the irrigation system and the outlook for completing the project about 1-1/2 to 2 years ahead of schedule  - 30 - ANNEX II Page 4 remains good. The settlement of many areas has begun. A total of about 2,600 farms out of a total of about 13,500 had been settled by early 1980 and settlement of all areas is scheduled for completion by late 1980. On-farm development work has been completed for about 1,000 farms but is not keeping pace with settlement. The completion of social infrastructure is lagging far behind other project components but steps are being taken to accelerate this work. Water issues were started in November 1979 in some of the recently settled project areas and water charges have been initiated in adjoining areas of System H completed previously (a total of about Rs 120,000 had been collected by mid-November 1979). A feeling of optimism is prevalent among project staff. Quality control measures and the quality of completed works continue to improve but are still not up to desired levels. Much of the work is only partially completed and considerable cleanup remains in areas where construction work is essentially complete. The agricultural extension program is adversely affected by inadequate staffing and morale and discipline of extension staff are low. The Secretary, Ministry of Agriculture, is personally taking steps to rectify these conditions. A farmer training program (organized in part of System H) is achieving excellent results and will be expanded over the total area. Disbursements are still far behind schedule but are expected to increase significantly with the approval of several requests for withdrawal by mid-1980. Cr. No. 709 - Water Supply Project; US$9.2 million of June 30, 1977; Effective Date: February 8, 1978; Closing Date: June 30, 1983 This credit will help finance improvement of existing piped water supplies to Colombo and five adjacent towns south of Colombo. In addition, the project will provide piped water to five adjacent towns north of Colombo and Ambalangoda and Kalutara on the southwest coast of Sri Lanka. It also includes provision for expenditures on spare parts and equipment, technical assistance and training. An additional credit of Canadian $5.0 million from Canadian funds administered by IDA is assisting in financing this project. Recently, an EEC Special Action Credit Agreement of US$7.0 million has been signed. Actions were taken in implementing some institutional changes, intro- ducing a new bulk water tariff, and establishing new accounting procedures both in the National Water Supply and Drainage Board and in local authorities. Despite initial delays, the WDB has made good progress during the past year, particularly in procurement. Cr. No. 742 - Fourth Development Finance Corporation of Ceylon Project; US$8.0 million of September 30, 1977; Effective Date: December 16, 1977; Closing Date: December 31, 1981 This credit will meet a substantial portion of DFCC's estimated foreign exchange requirements for lending to private sector industrial projects and tourism. Subprojects for US$7.8 million have been authorized.  - 31 - ANNEX II Page 5 DFCC remains a competent institution, with a rapidly increasing level of activity, which could increase further provided that DFCC's staffing problems are overcome as well as the constraint caused by the low equity base. Cr. No. 818 - Tree Crop Rehabilitation (Tea) Project; US$21.0 million of July 12, 1978; Effective Date: December 28, 1978; Closing Date: December 31, 1984 The credit would assist the Government in improving the economic efficiency of the tea industry by lowering production costs and improving tea quality in the project area, as well as in stemming the decline in tea output. Project progress is satisfactory. Procurement is under way; all tender documents have been issued. In the case of housing, awards have been made and construction started. Field works, replanting and infilling, are on schedule. All other project components, namely health component, training component and tea area measurement, are progressing satisfactorily. Cr. No. 819 - Tree Crop Diversification (Tea) Project; US$4.5 million of July 12, 1978; Effective Date: December 15, 1978; Closing Date: June 30, 1983. This credit would help the Government in its initial effort in a long-term program to rehabilitate, diversify and settle degraded mid-country lands, mainly nationalized tea estates. The National Agricultural Development and Settlement Authority, the project executing agency, has developed into a mature development organization which is operating efficiently under capable management. Despite some delay in procurement of equipment, progress in field work is impressive. Cluster selection and homestead and farm demarca- tion are nearly complete and soil conservation work (bench terraces, lock and spill drains, graded stone terraces) well under way and accelerating. Foun- dations for about 500 houses have been laid and these houses are at various stages of construction. Implementation of settlement aspects of the project (settler selection, transfer of non-citizen labor to other estates, and land allocation) has just started. This is the most sensitive and potentially difficult part of the project. Cr. No. 891 - Kurunegala Rural Development Project; US$20.0 million of April 26, 1979; Effective Date: August 27, 1979; Closing Date: June 30, 1984. The project aims to assist the development of the District of Kurunegala in an integrated manner for purposes of raising productivity, employment, incomes and living standards and to develop a replicable model for rural development for other districts in Sri Lanka. The project will provide for rehabilitation of existing irrigation schemes accompanied by improved water management practices to fully exploit the irrigation potential, and for programs for replanting/underplanting, intercropping and fertilizing of smallholder coconut plantations. The project will also strengthen agri- cultural extension services, improve the supply of input services such as  - 32 - ANNEX II Page 6 fertilizer distribution and seeds supplies, and lay the foundation for a viable agriculture credit system. These directly productive investments will be complemented by investments in transportation, health, education, water supply and rural electrification. Subsidiary loan agreements with participating banks have been signed and the project unit set up. A super- vision mission reviewed the project in August, 1979 and reported good progress. Cr. No. 900 - Road Maintenance Project; US$16.5 million of June 22, 1979; Effective Date: December 19, 1979; Closing Date: June 30, 1984 The project aims to improve the highway system of Sri Lanka by a program of enhanced periodic and routine maintenance. It would assist the Government in the rehabilitation of 112 miles of road, resurfacing of 150 additional miles and strengthening, repairing or replacement of 30 bridges. The project would also provide plant and equipment for workshops and strengthen the road maintenance services of the Department of Highways. Consultants have recently been appointed and started their work. Cr. No. 931 - Agricultural Extension and Adaptive Research Project; US$15.5 million of July 24, 1979; Effective Date: October 4, 1979; Closing Date: June 30, 1985 The project would help Sri Lanka to (a) introduce a Training and Visit (T&V) extension system throughout the entire country, (b) strengthen adaptive research, and (c) improve and expand training of extension officers. The project would establish a link between research and extension and enhance the intensity, coverage and the content of agricultural extension services. A unified extension system would be developed, under which extension workers would receive biweekly training, visit farmers according to planned schedules, and transmit extension messages. Cr. No. 942 - Small and Medium Industries Project; US$16.0 million of July 24, 1979; Effective Date: October 23, 1979; Closing Date: June 30, 1984 The principal objectives of the project would be to encourage and assist growth and productivity improvement of small and medium firms, defined as enterprises having plant and equipment valued at less than Rs 1 million, so as to increase their contribution to efficient low cost employment creation, export expansion, regional development and economic growth. The project would have two main components - credit and technical, management and marketing services. Under the credit component, it is proposed to establish a fund in the National Development Bank (NDB) to provide refinancing of subloans made to small and medium industries by commercial banks and the Development Finance Corporation. The technical services component would be implemented by the Industrial Development Board, Department of Small Industry, Department of  ANNEX II Page 7 Textile Industries, and the National Institute of Management, and directed at specific subsectors - rubber products, light engineering, subcontracting exchanges, handlooms, coir products, and rice milling. Cr. No. 979 - Mahaweli Ganga Technical Assistance Project; US3.0 million; not yet effective The project is to provide technical assistance for: (i) preparation of a reconnaissance-level study of plans for conveying and utilizing surplus Mahaweli Ganga water to develop land in three alternative areas in order to select the best plan for a transbasin diversion project; (ii) ongoing review of designs and tender documents for the Right Bank Transbasin Canal, and preparation of final designs and tender documents for construction of civil works and social infrastructure for part of System C in the Mahaweli Basin; and (iii) support for other studies and designs of projects in the Mahaweli Ganga Development Program. Training of local staff is included throughout the project. An EEC Special Action Credit of US$2.0 million equivalent has been provided to assist in financing consultants' services for the ongoing review of the designs and tender documents for the Right Bank Transbasin Canal and the preparation of final design and tender documents for System C. Cr. No. 994 - Road Passenger Transport Project; US$53 million; not yet effective. The project would improve the availability and reliability of public road passenger transportation services throughout Sri Lanka. It would intro- duce improved maintenance standards, thereby improving fuel efficiency. It also aims to improve the financial condition of Sri Lanka Central Transport Board and Regional Transport Boards (RTBs), and progressively reduce and by 1983 eliminate Government subsidies for public bus operations. The project provides for the purchase of 2,100 bus chassis, which will be assembled at the assembly plant in Sri Lanka. It also includes improvements of bus main- tenance facilities and practices in RTBs, traffic engineering measures to improve bus flows on roads, and technical assistance and training for the execution of the project and institution building.  - 34 - ANNEX III Page 1 SRI LANKA SIXTH POWER PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the Country to prepare the project Six months (b) The agency which has prepared the project Ceylon Electricity Board (c) Date of first presentation to the Association and date of the first mission to consider the project July 1979 and November 1979 (d) Date of departure of appraisal mission January 24, 1980 (e) Date of completion of negotiations May 5, 1980 (f) Planned date of effectiveness October 1980 Section II: Special IDA Implementation Actions None.  - 35- ANNEX III Page 2 Section III: Special Conditions Conditions of Effectiveness (a) The appointment of engineering and management consul- tants (paragraph 46); (b) Satisfactory arrangements for financing by the Saudi Fund (paragraph 48); (c) Increasing the electricity tariff by about 65% (para- graph 62); and (d) CEB to submit to IDA satisfactory accounts for FY1979 (paragraph 68). Other Conditions (a) Government to finalize the terms of transferring Ukuwela Station to CEB by December 31, 1980 (paragraph 56); (b) CEB would reduce its inventories by December 31, 1982, and the Government would ensure availability of foreign exchange for further purchases (para- graph 57); (c) Government would settle CEB's outstanding loans by December 31, 1980 (paragraph 58); (d) CEB would revise tariffs to maintain at least 8% rate of return on currently valued net fixed assets (paragraph 62); and (e) Government would ensure payment by local authorities of all current bills and establish a program to clear arrears (paragraph 65).   IBRD 10199 Ri I0t 8l' Su., X APRIL 1950 SRI LAKA SIXTH PO ER PROJECT (CEYLON ELECTRICITY BOARD) ?E>> . M POWER TRANSMISSION AND DISTRIBUTION PROJECT KARAIT n / 132 KY NIE-EXISTNG o~~~~~~~~~~~~~~~~~~~~~~~4 f --^ V LINE-FXISTIN ..............-6 KU LINE (112 KU CONSTRUCTIONI _____._'_ 33 KY LINE-ExISTING * ;_ KNKLTHERMAL POWER STATION A - \ ; HYORD POWER STATION v W * GRID SUBSTATION K CYDRO POWER STATtON UNDER CONSTRUC~TION GRID SUBSTATION PROPO -132 KYU LNE PROPOSED 3- KV LIUF-PROPOSE o DISTRitBUTION EXTENSIO MANKULAM SC SINGLE CIRCUVT DC DOULE CIRCLJIT POWER STATIONS LAIKSAPANA SO MW PULMODDA ( ) WMALASURENORA 60 MW KESLANtTISSA 110 MW .OLPPTIYA (MASKELIYA OYA STAGE J) 75 MW VAVUNIYA \ j tGINIYAGALA 10 MW TRINCOM LEEs @1DNNAKAM 14 MW V RORAWUPOTANA LIt UDA WALAWE 6 MW NEW LAKSAPANA (MASKELIYA OYA lEO MW / 5c /Y i @ UKUWLA 37 MW 1 SOWATENtE tUNDER coNsTRUTION) 40 MW ANURADHAPUR / CA.YON LMNDER CONSTRUCTION( 30 MW gS < EPPAWELA / \ YVICTORIA IUNDER CONSTRUCTION) 216 MW