Sri Lanka - Eighth (Diesel) Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 389lb-CE STAFF APPRAISAL REPORT SRI LANKA EIGHTH (DIESEL) POWER PROJECT May 20, 1982 Regional Projects Department South Asia Projects This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  SRI LANKA EIGHTH (DIESEL) POWER PROJECT CURRENCY EQUIVALENTS US$1.00 = SL Rs 20.5 SL Rs 1.00 = US$0.049 MEASURES AND EQUIVALENT 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) = I million watts 1,000 kilowatts 1 kilowatt hour (kWh) = 1,000 watt hours 1 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 GSL - Government of Sri Lanka GTZ - German Agency for Technical Cooperation LRMC - Long-Run Marginal Cost MPE - Ministry of Power and Energy MASL - Mahaweli Authority of Sri Lanka PPAR - Project Performance Audit Report USAID - United States Agency for International Development. FISCAL YEAR J January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA EIGHTH (DIESEL) POWER PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE ENERGY AND POWER SECTOR ................................. I A. Energy Resources ........................................ 1 Hydro Power .......................................... 1 Traditional Fuels .................................... I Petroleum ............................................ 2 B. The Power Subsector ..................................... 3 Sector Organization .................................. 3 External Assistance .................................. 3 Existing Facilities .................................. 5 Development Program .................................. 5 Access to Service and Status of Supply ............... 7 Plant Maintenance .................................... 7 Rural Electrification ................................ 8 System Losses ........................................ 8 Historical Consumption ............................... 9 Load Forecast ........................................ 10 II. THE BORROWER AND IMPLEMENTING AGENCY ...................... 12 Lending Arrangements ...................................... 12 Organization .............................................. 12 Management and Staffing ................................... 13 Management Systems ........................................ 14 Training .................................................. 14 Local Authority Distribution Systems ...................... 15 Audit ..................................................... 15 Insurance ................................................. 15 This report is based on the findings of an IDA mission comprising B.C. Davis, K.G. Jechoutek and J.C. Ryan, who visited Colombo in January 1982 and upon Staff Appraisal Report 3399a-CE: Seventh (Mahaweli Transmission) Power Project dated January 21, 1982. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Table of Contents (Cont'd) Page No. III. THE PROJECT ....... .............. .. ........................ 16 Objective ........ ............. .. ......................... 16 Fuel Supply ....................... ........................ 16 Description .......................... ..................... 16 Engineering, Implementation and Procurement ....... ........ 17 Project Cost ....................... ....................... 18 Project Financing Plan ................ .. .................. 18 Disbursements ....... ............. .. ....................... 19 Land Acquisition ....................... 19 Risks ............................. ........................ 19 IV. FINANCIAL ANALYSIS ......................................... 19 CEBs Statutory Position ............... .. .................. 19 Past Financial Performance .............. .. ................. 20 Present Financial Position .............. .. ................. 22 Billing and Collection ............... . . .. ................... 23 Revenues, Tariffs and Marginal Cost ..................... 25 Transfer of Assets from the MASL ........... .. .............. 27 Financing Plan (FYs 1982-85) ............. .. ................ 27 Future Finances ....... ............. .. . ...................... 29 V. JUSTIFICATION ....... .............. .. ....................... 31 Background ........................ ......................... 31 Least Cost Solution ...... ............ .. .................... 31 Power Balances ..................... ....................... 32 Energy Balances ....... ............. .. ...................... 33 Economic Rate of Return .... 34 VI. AGREEMENTS REACHED AND RECOMMENDATION ........ .. ........... 35  -3- Tables of Contents (Cont-d) Page No. ANNEXES 1. Power and Energy Balances (through 1990) .... ............ 36 2. Generating Facilities ................................... 37 3. Existing Transmission and Distribution Systems .... ...... 38 4. Kelanitissa Steam Power Station Overhaul Program .... .... 41 5. Load Forecast (through 1990) ............................ 42 6. Organization Chart ...................................... 43 7. Reporting Requirements .................................. 44 8. Thermal Generation Costs ................................ 45 9. Construction Schedule ................................... 49 10. Schedule of Estimated Disbursements ..................... 50 11. Income Statement (FY1976 through FY1980) .... ............ 51 12. Tariff Structure ........................................ 52 13. Income Statement (FY1979 through FY1988) .... ............ 57 14. Flow of Funds Statement (FY1979 through FY1988) .... ..... 58 15. Balance Sheets (FY1979 through FY1988) .... .............. 59 16. Power Sector Investment Program (FY1981 through FY1990) . 60 17. Assumptions for Financial Projections .... ............... 61 18. Economic Rate of Return ................................. 65 MAP IBRD 16386   SRI LANKA STAFF APPRAISAL REPORT EIGHTH (DIESEL) POWER PROJECT I. THE ENERGY AND POWER SECTOR A. Energy Resources 1.01 Sri Lanka in 1981 had a population of 14.9 million and a gross national product of $250 per capita. Energy consumed in 1980 amounted to about 3.7 million toel/, of which 60% was provided by fuelwood, 13% by hydropower and 27% by imported oil. The country has no known reserves of coal, oil or natural gas, and its small deposits of peat are not significant. An Energy Assessment mission from the Bank visited Sri Lanka in June 1981 and its report will be published shortly. Hydro Power 1.03 Sri Lanka has an area of 25,332 square miles. Most of its precipitation comes from the Southwest monsoon from about May to September and from the Northeast monsoon from about December to March. Annual average rainfall varies from less than 40 inches in some northern parts of the island to more than 200 inches in places on the southwest slopes of the hills. Hydro power potential totals about 6,600 GWh (1.7 million toe2/) per annum, or 2,500 MW at 30% load factor, mainly in three basins centered on the central highlands. They are the Mahaweli Basin in central Sri Lanka, the Walawe Basin to the south, and the Kehelgamu-Maskeliya Basin to the southwest. Some hydro power has already been developed in each of these basins. 1.04 Installed hydro generating capacity totals 369 MW out of a total installed capacity of 559 MW. Six more hydro stations are planned to bring the total hydro installed to about 1,100 MW by 1990. The present yield of firm energy is about 1,500 GWh per year; projected additions will increase this to about 3,240 GWh by 1990 (Annexes 1 and 2). Traditional Fuels 1.05 Wood is the most widely used fuel. From such statistics as are available it appears that annual consumption of wood from the forests is between 3.8 and 5.4 million tons per year (1.5 - 2.2 million toe). To this must be added 0.3 million tons per year (0.1 million toe) of fuelwood from rubber and coconut plantations. 1/ toe = tonne oil equivalent = 10.2 x 106 kcal 2/ Primary equivalent based on 0.25 kgoe/kWh = 10,500 BTU/kWh = 2,646 kcal/kWh  -2- Petroleum 1.06 Exploration is taking place. Sri Lanka was recently classified as having favourable geological prospects for potential oil or gas discoveries, but the chances of substantial finds are thought to be slight. 1.07 Ceylon Petroleum Corporation (CPC), a statutory corporation, is the sole importer and refiner; its refinery near Colombo has a capacity of 2.35 M tonnes per year. The refinery does not produce enough kerosene or diesel fuel to satisfy local demand and the deficits are imported. Kerosene is sold on the local market at a price lower than either the cost of importing it or of producing it locally. Furnace oil, a blend of residual and distillate used among other purposes to fuel CEB's steam power station, is produced by CPC in greater quantity than the local market can absorb and the surplus is exported. Gasoline is sold at a high price to help offset the cost of subsidizing kerosene.l/ 1.08 Data from CPC given in Table 1.1 indicate that refined imports have been rising rapidly in recent years to meet increasing demand for kerosene and diesel fuel. Table 1.1: CONSUMPTION OF PETROLEUM PRODUCTS (Tonnes OOO's) 1973 1974 1975 1976 1977 1978 1979 1980 Crude imported 1,753 1,526 1,465 1,447 1,530 1,444 1,444 1,861 Refined imports 33 20 6 20 78 168 312 102 Exports 770 555 630 655 682 576 608 731 Consumption 1,016 991 841 812 926 1,036 1,148 1,232 Value of consumption US$ million at current prices 23 81 68 73 93 105 172 295 1/ Prices in effect on June 2, 1981 were: Kerosene 17.68 Rs/IG Furnace Oil 19.50 Rs/IG Auto diesel 27.00 Rs/IG Gasoline 45.50 Rs/IG Heavy Diesel 25.80 Rs/IG  -3- B. The Power Subsector Sector Organization 1.09 Sri Lanka's first public electricity supply was made available in Colombo in 1895 by Messrs Boustead Bros. The business was soon taken over by United Planters Co., who extended it and in 1899 built the Colombo electric tramways. In 1902, the Colombo Electric Tramways and Lighting Co. Ltd. was formed and provided electricity supply until 1927 when the Department of Government Electrical Undertakings (DGEU) was established to control the utility, which had by then been purchased by the Government. DGEU was succeeded in 1969 when the Ceylon Electricity Board (CEB), a statutory corporation, was established with responsibility for the generation, transmission and distribution of electricity. CEB supplies power direct to consumers and also sells in bulk to local authorities who retail to their own consumers. The Ministry of Power and Energy is responsible for supervision of CEB's policies. 1.10 CEB has in the past been responsible for the development of generating capacity and is now building the Canyon (60 MW) hydro station. For the next several years hydro generating capacity will be developed by the Mahaweli Authority of Sri Lanka (MASL), an agency established under the Ministry of Mahaweli Development, having responsibility for the implementation of the Accelerated Mahaweli Program. As they are completed, the Mahaweli generating facilities will be transferred to CEB for operation. During the next ten years some 580 MW of additional hydro capacity will be developed in this way at Victoria, Kotmale, Randenigala and Rantembe (Annex 1). External Assistance 1.11 Sri Lanka has in the past obtained external financal assistance towards the foreign exchange costs of its development program. The Bank Group has made available for power developments the following loans and credits, totalling US$148.9 million: (a) Loan 101-CE (US$15.9 million) to GSL in 1954 to help finance the 25 MW expansion of the Laksapana hydroelectric scheme. (b) Loan 209-CE (US$7.4 million) to GSL in 1958 to help finance construction of a 25 MW thermal plant at Kelanitissa, Colombo. (c) Loan 283-CE (US$14.1 million) to GSL in 1961 to help finance a 25 MW expansion at Kelanitissa.  -4- (d) Loan 636-CE (US$21.0 million) to CEBl/ in 1969 to help finance the 90 MW Maskeliya Oya Stage II project, a 25 MW gas turbine, and management consultancy and engineering services. US$4.5 million of this loan was cancelled when the gas turbine was not purchased. (e) Credit 372-CE (US$ 6.0 million) to GSL in 1973 for reinforcement and extension of CEB's transmission and distribution systems. (f) Credit 1048-CE (US$ 19.5 million) to GSL in 1980 for the Sixth Power Project to provide further reinforcement and improvement of CEB's transmission and distribution systems. (g) Credit 1210-CE (US$36.0 million) to GSL in 1981 for the Seventh Power Project, to finance 220 kV transmission lines from the Mahaweli hydro stations to Colombo and to provide further reinforcement of CEB-s existing transmission systems. (h) Further, the Bank Group made available Loan 653-CE/Credit 174-CE (US$29.0 million) to GSL in 1969 for the multi-purpose (irrigation and power) Mahaweli Ganga Development of which the 38 MW Ukuwela power station formed a part. 1.12 Six projects have been completed satisfactorily, that under Credit 1048-CE is in progress, whilst the Seventh Power Project (Credit 1210-CE) is just starting. Project Performance Audit Reports (PPAR) have been prepared for three of the above projects. That for Loan 653-CE/Credit 174-CE, which was for both irrigation and electricity, concluded that although implementation was seriously delayed, the agricultural and power benefits turned out to be much greater than expected at appraisal; the benefit of power generated was much increased by the rise in petroleum prices in 1973 and afterwards. The PPAR report on Loan 636-CE, for the 90 MW New Laksapana hydro station, concluded that the project had been well conceived and constructed; it was built at low cost, and its timing was fortunate in that it was almost complete at the time of the 1973 oil crisis. A significant institutional advance under Loan 636-CE was the establishment of CEB as a public corporation, replacing the Department of Government Electrical Undertakings. Despite a promising start, CEB did not develop as well as expected and both the Sixth (Credit 1048) and the Seventh (Credit 1210-CE) projects seek to promote significant advances in CEB's management. The PPAR report dealing with Credit 372-CE concluded that the project met its major objectives; the extensions to the transmission and distribution system built under it, though completed late, enabled full use to be made of the Ukuwela and New Laksapana hydro stations. 1/ CEB was established in June 1969.  -5- 1.13 The Sixth Power Project is about a year behind schedule. Effectiveness of Credit 1048-CE was postponed about 6 months because of a delay in arranging cofinancing, and further delays arose owing to the complexities of making procurement decisions, and because of changes of senior staff in CEB. CEB has agreed to take action to ensure quicker procurement and to avoid such delays in future. The Seventh (Mahaweli Transmission) Power Project was approved by the Board on February 23, 1982, and is expected to become effective shortly. 1.14 CEB's management shortcomings were noted in appraisal of previous power project and in the PPAR report on the Fifth Power Project. A review of CEB's managerial performance and methods, financed under Credit 1048-CE, has been carried out by consultants, and action is being taken to restore management systems, provide support to senior management, and implement comprehensive training programs for all types of staff (paras 2.09-2.11). 1.15 The Asian Development Bank (ADB) has provided finance for construction of the Bowatenne and Canyon hydro stations and for rural electrification. GSL has arranged bilateral financing of hydro generation components of the Mahaweli program as follows: - Sweden (Kotmale), U.K. (Victoria) and the Federal Republic of Germany (Randenigala). Construction of the Samanalawewa hydro development has been postponed until the early 1990's. Existing Facilities 1.16 CEB's existing generating, transmission and distribution facilities are described in Annexes 2 and 3. CEB's present installed capacity is 559 MW, all interconnected on one system. In addition there are privately owned generating stations, most of them less than 500 kW but ranging as large as 5.75 MW in CPC's refinery at Sapugaskande and 6 MW at the urea factory. The transmission and distribution system comprises 569 miles of 132 kV line with 17 substations, 214 miles of 66 kV lines with 9 substations, about 3,250 miles of 33 kV, and about 750 miles of 11 kV lines. The system control and load dispatching centre is at Kolonnawa, and all important plants and switching centers can communicate by means of power line carrier. Development Program 1.17 Of recent years detailed planning has not usually extended more than four or five years ahead, but in mid 1981 CEB prepared a detailed development plan to meet its generation requirements over the next 15 years. The plan has not yet been officially adopted by GSL. The proposed hydro program shows additions to the end of this decade bringing the installed capacity to about 950 MW with a firm energy capacity of 3,170 GWh. In the first four years of the next decade, additions to hydro capacity of 1,000 MW and 2,000 GWh are  -6- proposed. To complement the hydro, some hundreds of megawatts of thermal plant will be needed between 1985 and 1994. 1.18 During the negotiation of the Seventh Project it was agreed that steps would be taken to put CEB-s planning on a workable footing. The new General Manager should make planning a matter of high priority for his personal attention. A corporate planning department should be formed to plan generation and transmission and their associated capital expenditures. The same group should play a leading role in the preparation of one year and five year operational budgets and capital budgets. The group would be required to produce, by the end of 1982, a comprehensive development plan for generation, transmission and distribution. The plan would extend 15 years ahead and would be reviewed and updated annually. The assurance giveni by CEB under Credit 1210-CE to submit such a plan, endorsed by GSL. to IDA by December 31 each year from 1982, was repeated under the proposed project. 1.19 CEB requires an effective planning unit to pursue a number of pressing problems, including: (a) the immediate addition of the proposed 80 MW diesel power station, which is necessary if energy shortages in 1984 and 1985 are to be minimized (Annex 1). (b) the timely commissioning of Victoria: in particular the impounding of the 1984 monsoon rains is of primary importance and CEB must make every effort to avoid delay. (c) the energy shortages likely in 1982, 83 and 84: programs to minimize their impact, by means of economies and demand management, have to be worked out in advance. (d) the need for one or two coal fired generating stations toward the end of the present decade: sites need to be selected and secured very soon. 1.20 In order to optimize the management and operation of the Mahaweli resource, as well as the planning of future construction, it is expected that CEB and MASL will cooperate closely, perhaps forming a joint planning unit. An immediate planning requirement is an exhaustive hydro identification and ranking study. CEB has requested GSL to have this performed and financed by the German Agency for Technical Cooperation (GTZ), who have done similar service to other countries. The planning unit will establish and maintain its mathematical models and computer programs in Colombo, so that forecasts and plans can be updated as needed, and suggested changes from any quarter can be readily and fully evaluated. Services required to assist CEB in establishing its planning department will be funded from Credit 1048-CE.  -7- Access to Service and Status of Supply 1.21 The total energy generated by CEB's power stations in 1980 was 1,668 GWh, about 89% of it hydro. CEB supplied about 208,000 consumers, including 218 local authorities who distributed electricity to another 226,000 consumers, making the total number of consumers about 434,000. Of these, about 333,000 were domestic. This suggests that at present only about one household in eight has an electricity connection. Rural electrification has been extended to over 2,000 of a total 25,000 villages (para 1.27), but electricity consumption per head was less than 100 kWh in 1980. The majority of households use firewood for cooking and kerosene for lighting. 1.22 The Bowatenne hydro station was commissioned in 1981 and Canyon is scheduled to be commissioned in 1982. Victoria and Kotmale are to come on line in 1984 and 1985. To prevent shortages of capacity and energy before the new hydro becomes available it was necessary to install additional thermal plant. Three 20 MW gas turbines were installed in late 1980 and early 1981. A second group of three 20 MW gas turbines was installed in 1981/82. 1.23 Further generation will be needed in addition to the six gas turbines to supply the forecast energy needed in 1984, 85 and 86, and it is intended that this will be provided by the project. 1.24 In the months of May through August 1980 there was load shedding to the extent of about 50 GWh (about 3.5% of annual sales), made necessary by lower than average rainfall, poor availability of steam units, and the breakdown of one hydro unit at New Laksapana. Only one of the gas turbines was in service before the end of 1980 because of ordering and construction delays. CEB entered 1981 with its hydro reservoirs only 2/3 full, and load shedding was again inevitable. It was started in February and continued into June, with the loss of an estimated 69 GWh of sales. Toward the end of the period, supplies to the general public were off for 8 hours per day, and 16 major public corporations were shut down to husband the little water remaining in the reservoirs. Plant Maintenance 1.25 The maintenance of CEB's transmission and distribution system has been adequate although unsystematic. Less satisfactory are the distribution lines of some of the local authorities, where for many years only the barest maintenance has been done and more consumers have continually been added to existing lines so that voltages at peak times are well below acceptable levels. The largest of the local authority undertakings, Mt. Lavinia, near Colombo, with about 14,000 consumers and serving a population of about 250,000, was taken over by CEB in 1979.  -8- 1.26 Maintenance of CEB's generating stations was done reasonably well in the past, but has deteriorated in recent years. Adequate systems exist for keeping plant history and maintenance records but in many stations they 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 duly been serviced. These deficiencies were particularly evident at the Kelanitissa steam plant, but efforts are now being made to restore this station to a reasonable level of reliability. A satisfactory overhaul program for the plant has been prepared and is set out in Annex 4. Rural Electrification 1.27 The first rural electrification schemes were undertaken in the early 1960s. Sri Lanka has about 25,000 villages and CEB had provided service to about 2,000 of them by the end of 1979. Some of the local authorities who buy in bulk from CEB have extended their lines into nearby villages, adding to the extent of rural electrification. By the end of 1984, an additional 1,150 villages will be connected under a Rural Electrification project financed by ADB and GSL at a total cost of US$ 31.8 million. 1.28 The ADB project is expected to introduce some significant improvements in the handling of rural electrification: (a) the rural electrification force in CEB will be expanded and empowered to scrutinize and monitor the formulation and implementation of all new schemes and to implement the ADB Project. CEB has agreed to appoint a Project Manager for rural electrification and to establish a Load Promotion and Monitoring Unit; (b) economic analysis and discounted cash flow calculations will be employed in the feasibility analysis of rural schemes; (c) CEB will arrange installment financing of house wiring and connection charges. System Losses 1.29 Before 1976, energy losses on CEB's system were less than 12%, but they have since been rising and are currently reported in excess of 16%. Moreover, these figures do not include losses in the retail operations of the local authorities, who buy in bulk about 25% of the energy sold by CEB and distribute it at low efficiency. Analysis suggests that an acceptable level for overall losses would be about 13% of gross generation. In future, substantial blocks of energy will have to be generated thermally every year making better control of losses even more important. CEB will establish a cell within the planning group to monitor and control losses with funds provided under the Seventh project.  -9- Historical Consumption 1.30 Growth in consumption of electrical energy over the period 1961 to 1980 has averaged 9.5% p.a., ranging from 17.8% in 1966 to 3.3% in 1974. From 1972 to 1977 there was a period of weaker growth, but it appears that a rate higher than the long term trend is now being established. 1.31 The short and long term annual growth rates for each class of consumer are summarized in Table 1.2. Energy sales since 1961 are analyzed in Table 1.3. Table 1.2: ANNUAL GROWTH IN ENERGY DEMAND Local Domestic Industrial Commercial Authorities Total % % % % % 1961-801/ 8.8 11.2 7.8 8.6 9.5 1961-65 3.6 14.5 3.8 7.4 8.7 1965-70 6.5 18.3 6.2 10.7 13.0 1970-75 7.6 8.7 8.1 5.9 7.8 1975-80 16.9 4.5 12.4 10.3 8.4 1977-78 11.2 13.9 7.9 8.6 11.4 1978-79 28.6 7.0 24.5 7.6 11.8 1979-80 30.1 3.0 14.8 17.0 11.4 Table 1.3: ENERGY SALES BY CATEGORY 1961 1965 1970 1975 1978 1979 1980 % % 7.% 7- 7 Domestic 15.5 12.8 9.5 9.4 10.3 11.9 13.8 Industrial 33.3 41.1 51.8 53.9 50.7 48.5 44.9 Commercial 21.7 18.0 13.3 13.5 14.0 15.6 16.1 Local Authorities 29.5 28.1 25.4 23.2 25.0 24.0 25.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1/ 1980 sales are as estimated without load shedding.  -10- Load Forecast 1.32 CEB compiles an annual energy sales forecast from forecasts of the consumption of each class of consumer within each of CEB's geographical divisions. In so doing, historical trends are considered for each of the 23 areas which together make up the divisions. Due weight is given to known prospective loads such as housing schemes, industrial parks, commercial areas, individual industries, commercial properties, and rural electrification schemes. For longer term forecasting, correlation and regression analyses are used. All consumers are divided into three categories, and growth rates are related to gross domestic product, to value added in mining and manufacturing and export processing, and to population. To accommodate deviations from the trend, upper and lower limit estimates are made. 1.33 CEB's power and energy forecast of August 1981 is summarized in Table 1.4 and is shown in greater detail in Annex 5. Table 1.4: ENERGY AND POWER DEMAND FORECAST 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Energy Sales GWh 1446 1795 2001 2196 2451 2816 3101 3364 3662 3987 4342 Increase % 11.4 24.1 11.5 9.7 11.6 14.9 10.1 8.5 8.9 8.9 8.9 Generation GWh 1728 2112 2354 2584 2884 3313 3648 3958 4308 4691 5108 Peak Demand MW 382 447 498 546 610 698 769 834 908 989 1077 The energy sales figure for 1980 is an estimate of what consumption in that year would have been if there had been no load shedding (the actual was 1396 GWh), and this is used as the base for the forward projections. Because of load shedding in 1981 the actual figure for 1981 will be less than that shown, by an estimated 69 GWh. The figures do not provide for supplying an extension to the Ceylon Cement Corporation-s factory, which will install its own generation to supply about 90 GWh per year. The large increase from 1980 to 1981 and the strong growth forecast for the following four years are supported by evidence of contracts signed and construction in progress. 1.34 The heavy load shedding experienced in 1980 and 1981 may have repercussions on some of the planned enterprises included in the forecast. Some slippage in the construction, commissioning and building up to full scale operation of new industrial and commercial ventures can be expected. CEB and GSL may be expected to try to reduce demand by promoting energy savings in the operations of Government industries and the private sector, by raising tariff demand charges and even by shutting down uneconomic operations in critical periods. These and other measures may cause growth in demand to lag behind CEB-s projections. For purposes of generation and transmission planning, however, CEB's forecast is appropriate.  -11- 1.35 The growth of sales by class of consumer is summarized in Table 1.5. It is forecast that growth in domestic consumption will be depressed by the recent increases in tariff and by the fuel surcharge, and will fall from its very high rates of recent years back to about 11% for the remainder of the decade. Similarly, the rate of growth in consumption by local authorities, whose consumers are mainly domestic and commercial, is expected to be somewhat less than in recent years, and is taken to be about 10%. 1.36 Small and medium industries, defined as taking less than 1,000 kVA, are projected to have an underlying growth from 1980 to 1984 of 6%, to which is added the Greater Colombo Economic Commission's forecast for each year; for 1985 and thereafter 8% growth is used. Consumption by large industries is forecast to increase by 13.9% per year on average up to 1985. This is explained mainly by the considerable number of projects expected to come to fruition in 1981-83. The underlying growth for the period 1980-83 was taken as 4% p.a., and after 1983, 8% was applied. 1.37 Commercial consumption is forecast to continue to grow rapidly in the years up to 1986, as it has in the recent past. Up to 1986 an underlying growth rate of 11% is expected, and to this is added the individual consumptions of the expanded airport at Katunayake, the substantial loads to be fed at the Urban Development Authority's developments in Colombo, and the new Parliamentary complex at Kotte. After 1987 a rate of 10% is estimated for all commercial consumers taken together. Table 1.5: AVERAGE ANNUAL GROWTH OF ENERGY SALES Actual Forecast 1977-80 1980-85 1985-90 Domestic 23.0 11.0 11.4 Small and Medium Industry 7.6 13.2 8.0 Large Industry 8.2 13.9 8.0 Commercial 15.6 21.0 9.3 Local Authorities 11.0 9.8 9.8 Railways - - 5.7 All Classes 11.5 14.3 9.0  -12- II. THE BORROWER AND IMPLEMENTING AGENCY Lending Arrangements 2.01 CEB will be the borrower of the proposed loan (US$42.7 million equivalent) and will be responsible for implementing the project (para 4.19). Organization 2.02 CEB was established by the CEB Act, No. 17 of 1969 (1969 CEB Act) as the successor to the Department of Government Electrical Undertakings (DGEU) and is responsible for the development and coordination of the generation, supply and distribution of electrical energy in Sri Lanka. While CEB is a public corporation the 1969 CEB Act does not endow it with fully autonomous powers and the government has reserved to itself a substantial role in important policy matters and in particular tariffs, capital investment, borrowing and the appointment of the Chairman and the General Manager. The conditions of service of all CEB staff are subject to GSL regulation. CEB is also subject to the provisions of the Finance Act, No. 38 of 1971 (1971 Finance Act) which regulates the finances of all public corporations in Sri Lanka. 2.03 CEB is a corporate body governed by a seven-member Board; members serve a five-year term and may be reappointed. Board members are appointed by GSL - four with experience in either engineering, commerce, administration or accountancy, and the others representing local authorities, industry and the Ministry of Finance - and may be removed at any time. The Chairman is appointed from amongst the Board members. The present Chairman is also the Secretary, Ministry of Power and Energy. 2.04 CEB-s organization structure was designed by consultants, Urwick International Ltd., in the early 1970's under Loan 636-CE. While some modifications have been made in recent years including the addition of two posts of Additional General Manager, the original pattern is basically unchanged. Changes were proposed by CEB as part of the general management improvements now taking place in CEB (para 2.08). They would strengthen the decentralization of CEB's operations while retaining key controls in Colombo. So far the changes have not been introduced, partly as a result of the severe operational difficulties CEB experienced in late 1981. CEB recently requested a proposal from its management consultants for modifications to the organizational structure to be implemented as part of their ongoing assignment (para 2.10). This proposal is presently under review. The assurance obtained under Credit 1210-CE that CEB will submit to 1)k, in advance, any proposal for major change to CEB's organizational structuire was repeated under the proposed project.  -13- Management and Staffing 2.05 While the Chairman is responsible through the Board for policy matters and close liaison with government, the General Manager is CEB's Chief Executive Officer. He is responsible for the overall direction and control of CEB's day-to-day business. The present General Manager was recently promoted to the post and is an experienced and long-serving engineer. He is presently assisted by an Additional General Manager, four Deputy General Managers and a Finance Manager. With the exception of the Finance Manager, who is not a fully qualified accountant but is a competent and long-serving officer, all top management posts are filled by engineers. The Commercial and Personnel Managers, Chief Internal Auditor (vacant), and the Legal Officer all report directly to the General Manager. CEB-s present senior management structure is set out in Annex 6. Below this level, CEB operations are decentralized and are controlled at plant (for generation) and divisional level. Each of the seven operating divisions into which Sri Lanka is organized is headed by a Divisional Manager, who is a qualified engineer; the divisions are further divided into areas which are the primary units for systems maintenance, meter reading and consumer services. 2.06 CEB has had considerable difficulty in retaining experienced staff in recent years as many engineers and accountants have left for overseas or private sector posts offering substantially higher monetary rewards. Salary differentials for senior CEB staff do not adequately reflect the heavy additional responsibilities of such posts. The lack of experienced engineering staff in the 30-45 year range is particularly noticeable at CEB. While qualified accountants are now extremely difficult to recruit, recently CEB has had some success in strengthening its finance staff with partly qualified persons. These problems appear to be common to many public sector enterprises in Sri Lanka. 2.07 CEB-s present manpower is about 11,000 against an authorized total of about 14,000. Manpower has increased as follows in recent years: Table 2.1: CEB MANPOWER May December 31 1975 1976 1977 1978 1979 1980 1981 1. Managerial, pro- fessonial and administrative staff 235 244 285 329 312 344 336 2. Technical and clerical staff 1,895 1,934 2,379 2,476 2,787 3,132 3,083 3. Labor Grades 6,050 6,308 6,712 6,918 6,849 7,037 7,669 08,486 9,376 9,723 9,948 10,513 11,088