Sri Lanka - Sixth Power Project

Document of 6 The World Bank FOR OFFICIAL USE ONLY Report No. 2905b-GE SRI LANKA SIXTH POWER PROJECT (CEYLON ELECTRICITY BOARD) STAFF APPRAISAL REPORT 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 autborization.  SRI LANKA SIXTH POWER PROJECT (CEYLON ELECTRICITY BOARD) CURRENCY EQUIVALENTS US$1.00 = SL Rs. 15.6 SL Rs. 1.00 = US$0.64 MEASURES AND EQUIVALENTS 1 kilometer (km) = 0.6214 mile 1 kilovolt (iV) = 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 ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank CEB - Ceylon Electricity Board CPC - Ceylon Petroleum Corporation GSL - Government of Sri Lanka MPE - Ministry of Power and Energy MDA - Mahaweli Development Authority FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA SIXTH POWER PROJECT (CEYLON ELECTRICITY BOARD) STAFF APPRAISAL REPORT Table of Contents Page No. I. THE ENERGY AND POWER SECTOR ...........................1 A. Energy Resources .................................1 Hydro Power ....... ..........................1 Traditional Fuels ........................... 2 Petroleum ................................... 2 B. The Power Subsector .............................. 3 Sector Organization ......................... 3 External Assistance ......................... 3 Existing Facilities ......................... 4 Access to Service and Status of Supply ...... 5 Rural Electrification ....................... 6 System Losses ............................... 6 Historical Consumption ...................... 6 Load Forecast ............................... 7 II. THE IMPLEMENTING AGENCY ............................... 8 Lending Arrangements .................................. 8 Organization .......................................... 8 Management and Staffing ............................... 9 Management Systems .................................... 10 Accounting and Budgeting .............................. 11 Training ...... 11 Proposed Transfer of Local Authority Distribution Systems .......... ................................ 11 Audit . ................................................ 12 Insurance ........... .................................. 12 This report is based on the findings of an IDA mission comprising B.C. Davis and J.C. Ryan who visited Colombo on two occasions between November 1979 and February 1980 and K.G. Jechoutek who visited Colombo in December 1979. 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.  - ii - Table of Contents (Cont'd) Page No. III. THE PROJECT ........................................... 12 Objectives .12 Description .13 Project Cost .14 Project Financing Plan .15 Engineering and Implementation .15 Procurement .17 Disbursements .17 Land Acquisition .17 Risks .18 IV. FINANCIAL ANALYSIS .18 CEB's Statutory Position ........................ 18 Past Financial Performance .18 Present Financial Position .19 Fixed Asset Valuation .20 Transfer of Assets from the Mahaweli Development Authority .20 Inventories .21 Long-term Borrowings .21 Billing and Collection .22 Revenues and Tariffs .23 Present Position .23 Future Requirements .............................. 23 Financing Plan .24 Future Finances .25 V. JUSTIFICATION .26 Approach .26 Economic Costs and Benefits .27 Results .27 VI. PROPOSED AGREEMENTS .28  - iii- Table of Contents (Cont'd) ANNEXES Page No. 1. Power and Energy Balances (through 1990) .30 2. Generating Facilities .31 3. Existing Transmission and Distribution Systems .32 4. Load Forecast (through 1990) .34 5. Organization Chart .35 6. Reporting Requirements .36 7. Project Description .37 8. Project Cost Estimate .45 9. Construction Schedule .46 10. Schedule of Estimated Disbursements .47 11. Income Statement (FY1974 through FY1979) .48 12. Tariff Structure .49 13. Income Statement (FY1978 through FY1987) .50 14. Flow of Funds Statement (FY1978 through FY1987) .51 15. Balance Sheets (FY1978 through FY1987) ...................... 52 16. Assumptions for Financial Projections .53 17. Monitoring Indicators .58 18. Economic Analysis .59 19. Related Documents and Information in the Project File .67 MAP 10199Rl - Sixth Power Project  IA A  SRI LANKA STAFF APPRAISAL REPORT SIXTH POWER PROJECT (CEYLON ELECTRICITY BOARD) I. THE ENERGY AND POWER SECTOR A. Energy Resources 1.01 Sri Lanka's annual consumption of commercial energy per head is low; in 1976 it was reported as 106 kg standard coal equivalent 1/, compared with 2,069 kg per head in the world, 426 in all developing countries, 218 in India, 181 in Pakistan, 49 in Burma and 33 in Bangladesh. The range was from 11 in Nepal to 25,236 in Qatar. 2/ By 1979 Sri Lanka's consumption had risen to about 123 kg per head. The people also consume relatively large amounts of traditional fuel, mainly firewood; estimates of annual consumption vary from 180 to 320 kg of fuel wood per head. It has been estimated 3/ that in 1975, 62.2% of energy consumed was supplied by firewood, with 26.3% coming from coal and oil, and 11.5% from electricity. 1.02 There are no known reserves of coal, oil or natural gas in the country. There is some peat but deposits are said to be small, scattered and difficult to drain. Hydro Power 1.03 Sri Lanka has an area of 25,332 square miles. Most of its precip- itation comes from the Southwest monsoon from March to September and from the Northeast monsoon for the rest of the year. 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. 1.04 Sri Lanka's hydropower potential totals about 6,400 GWh per annum, or 1,460 MW at 50% 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 to the southwest. Some hydro power has already been developed in each of these basins. 1.05 Present installed hydro generating capacity totals 328 MW out of a total installed capacity of 398 MW. Seven more stations are planned to bring 1/ 1 kg standard coal equivalent = 7,000 kilocalories. 2/ 'World Energy Supplies 1972-76.' U.N., New York 1978. 3/ 'Towards an Energy Policy in Sri Lanka.' T.L. Sankar, April 1978.  the total installed to about 1,090 MW. The present yield of firm energy is about 1,500 GWh per year; projected additions will increase this to about 3,740 GWh by 1991. GSL's plans envisage that by 1991 all hydro sites with potential exceeding 15 to 20 MW will have been developed. There may well be smaller sites that are economic; further surveys are needed to determine this. 1/ Ceylon Electricity Board (CEB) has agreed to update information on potential hydro sites to enable consultants to be appointed for detailed hydro-feasibility studies. Traditional Fuels 1.06 Wood is the most widely used fuel; statistics on the subject are scarcze but it appears that annual consumption may be between 4 and 5 million tons. There is concern that the use of wood as fuel at this rate of con- sumption is leading to deforestation. The cutting of trees for use as lumber may also be contributing significantly to this problem. Petroleum 1.07 Exploration is taking place and it is expected that drilling both onshore and offshore will be started in 1980. Sri Lanka was recently classified as having favourable geological prospects for potential oil or gas discoveries whichl gives some cause for hope. 2/ 1.08 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 (40,000 bbls per day). The refinery does not produce enough kerosene or diesel fuel to satisfy local demand and the deficits are imported. These fuels are sold on the local market at prices lower than either the cost of importing them or of producing them locally. Furnace oil, a blend of residual and distillate used in CEB's steam power station, is produced by CPC in greater quantity than the local market can absorb; the surplus is exported at a higher price than local users pay. Gasoline is sold at a high price to offset the cost of subsidizing kerosene and diesel. 3/ 1.09 Data from CPC indicate that refined imports have been rising rapidly in riecent years to meet increasing demand for kerosene and auto diesel fuel: table 1.1 indicates that whilst net consumption rose by 32% in 6 years, the market value of that consumption rose by 667%. 1/ The last report on this subject was the updating in 1967/69 by UNDP/FAO of Pfeiffer's 1958 report. 2/ World Bank Staff Working Paper No. 289, April 1978. 3/ Prices in effect on January 27, 1980 were: Kerosene 13.68 Rs/IG Auto diesel 13.50 Rs/IG Furnace Oil 12.40 Rs/IG Gasoline 37.50 Rs/IG  - 3 - Table 1.1: CONSUMPTION OF PETROLEUM PRODUCTS (Tonnes 000's) 1973 1974 1975 1976 1977 1978 1979 Crude imported 1,750 1,530 1,465 1,447 1,530 1,444 1,415 Refined imports 33 20 6 20 77 167 312 Exports 954 556 629 652 682 576 631 Consumption 829 994 842 815 925 1,035 1,096 Value of consumption US$ 21 81 72 75 92 106 161 million at current prices B. The Power Subsector Sector Organization 1.10 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 Gov- ernment 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 CEB, a statutory corporation, was established with responsi- bility for the generation, transmission and distribution of electricity in the country. CEB supplies power direct to consumers and at present also sells in bulk to 214 local authorities who retail to their own consumers. It is expected that in 1980 CEB will take over the distribution systems at present owned by local authorities and sell direct to all consumers. The recently formed Ministry of Power and Energy is responsible for supervision of CEB's policies. 1.11 CEB has in the past been responsible for the development of generating capacity and is presently engaged in building Bowatenne (40 MW) and Canyon (30 MW) hydro stations. For the next several years hydro generating capacity will be developed by the Mahaweli Development Authority (MDA), an agency established under the Ministry of Irrigation and Mahaweli Development having responsibility for the implementation of the accelerated Mahaweli multi-purpose development program. As they are completed, the Mahaweli hydro-generating facilities will be transferred to CEB for operation. During the next ten years some 540 MW of additional hydro capacity will be developed in this way at Victoria, Kotmale, Randenigala and Rantembe (Annex 1). External Assistance 1.12 Sri Lanka has in the past obtained external financial assistance in the form of loans or supplier credits towards the foreign exchange costs of its  - 4 - power sector development program. The Bank made four loans totalling US$58.4 million between 1954 and 1969 for the development of hydro and steam generating capacity as follows: (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; and (d) Loan 636-CE (US$21.0 million) to CEB 1/ 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. Loan 653-CE/Credit 174-CE (US$29.0 million) to GSL was approved in 1969 for the multi-purpose Mahaweli Ganga Development project of which the 50 MW Ukuwela (Pologolla) power station forms a part and is now operated by CEB. Further, in 1973, a US$6 million IDA credit (372-CE) was approved for the development of CEB's transmission and distribution systems. All works were completed satisfactorily although managerial (paras 2.08 and 2.09) and financial (para 4.02) improvements have been less than expected since CEB was established. A further strengthening of CEB is an important feature of the proposed project. Project completion reports in respect of Loan 636-CE and Credit 372-CE to CEB are under preparation. 1.13 More recently, the Asian Development Bank (ADB) has provided finance for construction of the Bowatenne and Canyon hydro stations, for completion in 1980 and 1981 respectively, and for rural electrification. The planned con- struction of hydro generating facilities at Samanalawewa with aid from the USSR has now been postponed until the late 1980's. GSL is arranging bilateral financing of the construction of hydro generation components of the Mahaweli program as follows: - Sweden (Kotmale), U.K. (Victoria) and West Germany (Randenigala/Rantembe). In addition to the proposed project GSL has requested IDA assistance in the financing of CEB's further program of thermal generating capacity (para 1.16) and transmission works (para 3.07). Existing Facilities 1.14 CEB's existing generating, transmission and distribution facilities are described in Annexes 2 and 3 and illustrated on map 10199Rl. CEB's present insitalled capacity is 390 MW, all interconnected on one system. In addition there are many privately owned generating stations, most of them less than 500 kVA but ranging as large as 5.75 MW in CPC's refinery at Sapugaskanda. The transmission and distribution system comprises 549 miles of 132 kV line with 17 substations, 214 miles of 66 kV lines with 9 substations, about 3,000 miles of 1/ CEB was established in June 1969.  -5 33 kV, and about 750 miles of 11 kV lines. The system control and load dis- patching centre is at Kolonnawa, and all important plants and switching centers can communicate by means of power line carrier. Trouble crew vehicles have radio communication. Access to Service and Status of Supply 1.15 The total energy generated by CEB's power stations in 1979 was 1,540 GWh, about 97% of it by hydro. CEB supplied about 155,000 consumers, including 214 local authorities who distributed electricity to another 205,000 consumers, making the total number of consumers about 360,000. Of these, about 263,000 were domestic. Allowing an average of 6.5 persons to a family unit, this suggests that at present only about one household in eight has electricity connnected. Rural electrification has been extended to about 2,000 of a total 25,000 villages (para. 1.19). Electricity consumption per head was less than 90 kWh in 1979. The great majority of households use firewood for cooking and kerosene for lighting. 1.16 The Bowatenne station is scheduled to be commissioned by the end of 1980, Canyon by the end of 1981, and Victoria and Kotmale in 1984/85. These new hydro stations will not be on line in time to prevent shortages of energy from 1980 through 1985. To prevent energy shortages in the years 1980-85 CEB is purchasing three gas turbines of 20 MW each which should be installed in 1980. Similarly, the system will not have firm generating capacity to meet peak power demand from 1980 unless these gas turbines are installed. Fore- casts indicate that another block of thermal generation will be needed after these gas turbines and before the next major hydro station; CEB has con- sultants working on a long range study to determine the means of meeting this demand at least cost. 1.17 The quality of service to most of CEB's consumers is acceptable; there are exceptions to this but most will be taken care of under the proposed project. 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 consumers have been constantly connected to existing lines so that voltages at peak times are well below acceptable levels. CEB will have to carry out a heavy and costly program of upgrading when it takes over the local authority systems, for which CEB has requested GSL finan- cial assistance. The largest of the local authority undertakings, Mt. Lavinia, r with about 14,000 consumers and serving a population of about 250,000 people, was taken over by CEB in 1979. Some of the local authorities serve as few as 100 consumers. 1.18 Maintenance of CEB's generating stations has been done reasonably well in the past but there are signs of recent deterioration. Adequate systems exist for keeping plant history and maintenance records but in many stations these are not being 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 are par- ticularly evident at the Kelanitissa steam plant.  -6- Rural Electrification 1.19 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 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 1983, an additional 1,150 villages will be con- nected under the current Rural Electrification project financed by ADB. Simul- taneously, more rural electrification will be done under GSL's decentralized budget. Under this scheme an MP may transfer funds out of his constituency's development budget to CEB, who will then electrify areas chosen by the MP. About 50 schemes a year, each covering one or two villages, are expected to be implemented in this way at a cost of about Rs 50 million per year. 1.20 Until now, rural electrification schemes have been selected rather at random. The qualifying requirement has been a gross revenue equal to at least 12% of the investment. The results so far have been disappointing; forecasts of demand have been over optimistic and actual revenues have averaged only 8% of investment. The response has been to relax the financial criterion; only 5% return is now required or, alternatively, 12% on an investment in low voltage plant only. 1.21 The ADB project will have significant effects:- (a) the rural electrification force in CEB is to be expanded and empowered to scrutinize and monitor the formulation and implementation of new schemes, as well as to implement the ADB Project. CEB has agreed to appoint a Project Manager for rural electrification and a Load Promotion and Monitor- ing Unit; (b) economic analysis and discounted cash flow calculations are to be introduced into the feasibility analysis of rural schemes; (c) CEB will arrange installment financing of house wiring and con- nection charges. System Losses 1.22 On an extensive but lightly loaded system such as CEB's a differ- ence of 15% between energy generated and energy sold is reasonable. Up to 1976 losses were recorded as less than 12%, but in 1977 they started to in- crease and are now about 16%. Since, in future, sizeable blocks of energy will have to be generated thermally, it is essential to identify the reasons for the increase in losses and to curb the trend. As part of the proposals to improve management (para 2.09), CEB will investigate systems losses and under- take a study of load management and conservation. Historical Consumption 1.23 Growth in consumption of electrical energy in the long run 1961 to 1978 has averaged 9.3% p.a., ranging from 17.8% in 1966 to 3.3% in 1974. From  - 7 - 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. 1.24 The short and long term annual growth rates for each class of con- sumer 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 1961-65 3.6 14.5 3.8 7.4 8.7 1965-70 6.3 18.3 6.3 12.0 13.0 1970-75 6.3 8.8 6.8 5.7 7.8 1975-78 12.0 4.3 9.1 7.3 6.4 1977-78 11.9 14.0 7.4 9.0 11.6 1961-78 6.6 12.0 6.3 8.2 9.3 Table 1.3: ENERGY SALES 1961 1966 1971 1976 1978 % x% %% g Domestic 15.5 11.3 8.9 9.5 10.3 Industrial 33.3 43.6 51.7 51.4 51.0 Commercial 21.7 17.0 12.9 13.9 13.7 Local Authorities 29.5 28.1 26.5 25.2 25.0 100.0 100.0 100.0 100.0 100.0 Load Forecast 1.25 CEB prepares an annual short term (5 or 6 years) 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 and commercial properties, and rural electrification schems. 1.26 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.  - 8 - 1.27 Load forecasts have been prepared recently by various authorities studying the Mahaweli development program and the energy sector of Sri Lanka, and these forecasts taken together endorse CEB's own sales forecast. There does not, however, appear to be justification for CEB's assumption that losses will rapidly fall back to 12.5% from the recent 16%. In view of the strength of growth in the economy and in electricity sales since 1977, and the large number of energy consuming developments projected in the next few years, pre- dictions of growth rates higher than the long term average in the past seem plausible although perhaps optimistic. Reports from recent economic studies predict that the rate of inflation will become excessive unless GSL moderates the pace of development in the country. Further, the price of electricity is at present unduly low, on average about US$0.02 per kWh, and a more appropriate pricing policy, when introduced, may reduce the growth in demand in some extent (para. 5.03). 1.28 The best central estimate derived from work by CEB, NEDECO and the appraisal mission is summarised in Table 1.4 and is shown in greater detail in Annex 4. Table 1.4: ENERGY SALES FORECAST 1978-87 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Energy Sales GWh 1161 1294 1470 1625 1800 1990 2200 2450 2695 2965 Increase % 11.4 11.5 13.6 11 11 11 11 11 10 10 Losses % 16 16 15 15 14 14 14 13 13 13 Generation GWh 1382 1540 1730 1910 2095 2315 2560 2815 3100 3410 Load Factor % 54 54 54 54 55 55 55 55 55 56 Peak demand MW 291 325 366 404 435 480 531 584 643 695 II. THE IMPLEMENTING AGENCY Lending Arrangements 2.01 GSL will be the recipient of the proposed credit (US$19.5 million equivalent) and will onlend the proceeds (paragraph 4.24) to CEB, the imple- menting agency for the project. A similar arrangement was made under the earlier transmission annd distribution project (Credit 372-CE). 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 genera- tion, 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 impor- tant 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 1970s under Loan 636-CE. While some minor modifications have been made in recent years the original pattern is basically unchanged and meets CEB's present needs (Annex 5). Changes may be required in future as a result of the extension of rural electrification schemes and of the takeover of local authority distribution systems. An assurance has been obtained that CEB will submit to IDA, in advance, any proposal for major change to CEB's organizational structure. 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 is an experienced and long-serving engineer who is due to retire shortly. He is assisted by two Additional General Managers, four Deputy General Managers and a Finance Manager. With the exception of the Finance Manager, who is a qualified accountant, all top management posts are filled by engineers. The Commercial and Personnel Managers, Chief Internal Auditor and the Legal Officer all report directly to the General Manager. CEB's senior management structure is set out in Annex 5. 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 experienced considerable difficulty in retaining trained 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 addi- tional responsibilities of such posts. The lack of experienced engineering staff in the 30-45 age range is particularly noticeable at CEB while qualified accountants are now extremely difficult to recruit. These problems appear to be common to many public sector enterprises in Sri Lanka and, in an effort to improve the attractiveness of the public sector, GSL recently made such salaries tax-exempt.  - 10 - 2.07 CEB's present manpower is about 10,000, against an authorized total of 11,098 in 1979. Manpower has increased as follows in recent years: Table 2.1: CEB MANPOWER 1975 1976 1977 1978 1979 --Actual--------- Authorized Actual 1. Managerial, pro- fessional and administrative staff 235 244 285 329 357 312 2. Technical, clerical and other support staff 1,895 1,934 2,379 2,476 3,412 2,787 3. Labor Grades (skilled semi-skilled and un- skilled) 6,050 6,308 6,712 6,918 7,329 6,849 8,180 8,486 9,376 9,723 11,098 9,948 Annual percentage increase - 4% 10% 4% 2% While CEB's staff numbers are high in relation to the size of its operations and the number of consumers it serves the increase in recent years has been reasonable. A major part of the increase in CEB manpower has resulted from an expanding works program, particularly the rural electrification program undertaken by force account. Further manpower increases are expected follow- ing the absorption of the local authority distribution systems and for the operation and maintenance of planned generation, transmission and distribu- tion facilities. Management Systems 2.08 Comprehensive management information, accounting and budgeting systems were introduced by CEB in 1973 following a study by consultants, Urwick International Ltd., financed under Loan 636-CE. While the systems are satisfactory and are relevant to CEB's operations, senior management is not utilizing the information system, and this has resulted in a lack of control of CEB's activities. Staffing difficulties in recent years have led to serious delays in the preparation of periodic management reports, particularly financial reports. Internal audit arrangements have never been satisfactorily established in CEB although recently it was agreed with ADB that a Chief Internal Auditor be appointed. The Chairman has agreed to consider making the person appointed responsible to the Chairman to ensure greater independence of action.  - 11 - 2.09 While some improvements are expected following the strengthening of CEB's accounting staff during 1979 CEB's managerial shortcomings require investigation and follow up action. The Chairman has suggested that Urwick International Ltd. be retained (a) to review managerial performance and methods in CEB and in particular reporting and control procedures, including internal audit arrangements and (b) to recommend improvements and prepare necessary management development and training programs (para 2.11). The cost of this study and the implementation of a program of improvements to be agreed with IDA, including the possible employment of management advisers, will be financed under the proposed project. The appointment of management consultants is a condition of credit effectiveness. Regular and improved reporting is expected and details were agreed at negotiations (Annex 6). Accounting and Budgeting 2.10 CEB's management was unable to offer full explanations for the sub- stantial increases in operating costs in FYs 1979 and 1980 (paragraph 4.04). Financial and associated records are in arrears and financial reporting is infrequent. GSL agrees that the present lack of budgetary and cost controls in CEB requires an urgent remedy. CEB has appointed local accountants (a) to assist CEB staff in bringing records up-to-date, preparing timely FY1979 accounts for audit and preparing current financial control reports and (b) to analyze and report on the reasons for increases in CEB operating costs in FY1979. The provision of satisfactory accounts for FY1979 is a condition of credit effectiveness. Training 2.11 CEB operates a residential training center at Castlereagh for tech- nicians which offers engineering courses related to CEB's operations. Accom- modation is limited and CEB is planning to develop non-residential technical training facilities in Colombo as a result of a recent investigation by the National Rural Electric Cooperative Association, Washington, D.C., financed under the USAID program. Regular training programs are required to fit engineers for managerial positions; at present six-months on-the-job training is given to newly qualified engineers prior to assuming responsibility for operating facilities but there is no program for progressive management dev- elopment. Training programs are also required to familiarize accounting staff with CEB's financial operations and reporting requirements for financial control. The preparation of such programs has been discussed with CEB and an assurance has been obtained that, following completion of the management study (para 2.09), CEB will submit to IDA a satisfactory training program for all cadres of CEB staff by June 30, 1981 and will thereafter implement the agreed program. Proposed Transfer of Local Authority Distribution Systems 2.12 While CEB supplies power directly to some 155,000 domestic, com- mercial and industrial consumers throughout Sri Lanka, another 205,000 con- sumers are supplied by local authorities which purchase power in bulk from CEB. The quality of local authority service to consumers is unsatisfactory  - 12 - and GSL has recently determined that CEB should assume responsibility for the distribution facilities of the local authorities under powers contained in the 1969 CEB Act. CEB will take over all staff, assets and liabilities relating to electricity supply and CEB has requested GSL to make available funds for the rehabilitation of the distribution systems. 2.1:3 The transfer of responsibilities to CEB will impose a considerable burden on CEB's present staff and may affect CEB's financial viability; local authority billing and collection procedures, in particular, will require care- ful review. GSL has been asked to consider a phased takeover consistent with CEB's capabilities. CEB is presently collecting detailed information from each local authority and, when the results are known, will be in a position to consider any necessary changes to its organization and managerial structure and to assess the financial implications. CEB will associate the management consultants (para 2.09) with this task and will keep IDA informed of progress and submit, for IDA's agreement prior to the date of transfer, a program for integrating the local authority systems. An assurance to this effect has been obtained. Audit 2.14 In accordance with previous arrangements under Credit 372-CE, CEB's accounts are audited by the Auditor-General, who has attached a specific team of officers to CEB. In the past, delays in submitting audited accounts to IDA within the required six months of the year-end have occurred repeatedly. CEB's FY1978 audited accounts were received some eight months late. The problem arises in part from delays by CEB in submitting the accounts for audit and in part from delays in releasing the Auditor-General's report. CEB is required, under the 1971 Finance Act, to submit its accounts for audit within four months of the year-end. The Auditor-General should report to Parliament within ten months of the year-end. Following discussions with the Auditor-General, improvements are expected from FY1979 onwards, particularly as greater prior- ity will be given to World Bank audit requirements. However, it seems unlikely that a target of six months will be achieved in the near future. It is pro- posed, therefore, that CEB should in future submit unaudited accounts to IDA within four months of the year-end (at the time of submitting them to the Auditor-General) and the Auditor-General's report within ten months of the year-end. An assurance to this effect has been obtained. Insurance 2.15 CEB has for a number of years borne its own insurable risks and has established an Insurance Reserve to which an annual contribution of 1/10% of gross fixed assets values is transferred from retained earnings. This arrange- ment is satisfactory. III. THE PROJECT Objectives 3.01 The project is designed to enable CEB to augment its transmission and distribution facilities between 1981 and 1984, in order to meet increasing  v il v demands for electricity from all parts of the country and all sectors of the economy and to strengthen CEB's management and commercial performance. It will permit power and energy from power stations now under construction to reach the consumers. It is intended to:- (a) increase the availability of power 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. (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 estates, hotels and commercial buildings soon to be erected in the course of the redevelopment of the city of Colombo. (e) furnish distribution lines and substations necessary to permit consumers to be connected to the system. Description 3.02 The proposed project consists of the following components (for more detail see Annex 7 and Map 10199R1): (a) 172 miles of 132 kV second circuits to be strung on existing 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 substations. (j) Construction and service vehicles.  - 14 - (k) Operational buildings and staff quarters. (1) Engineering and management consulting services, technical assistance and training. Project Cost 3.03 The estimated cost of the proposed project is Rupees 987.5 million (US$63.3 million) including contingencies and customs duties. The estimated costs are summarized in Table 3.1 and shown in greater detail in Annex 8. Table 3.1: SUMMARY OF ESTIMATED PROJECT COST Description Foreign Local Total Foreign Local Total ------(Rs Million)----- (US$ Million Equivalent) 132 kV Transmission Lines 66.6 10.1 76.7 4.2 0.7 4.9 132 kV Sub and Switching Stations 29.4 2.8 32.2 1.9 0.2 2.1 33 kV Subtransmission Lines 115.0 43.9 158.9 7.4 2.8 10.2 Colombo Distribution System 160.8 30.6 191.4 10.3 2.0 12.3 Other Distribution Works 43.2 22.5 65.7 2.8 1.4 4.2 Vehicles and Tools 8.3 - 8.3 0.5 - 0.5 Buildings - 7.0 7.0 - 0.4 0.4 Consulting Services/Training 24.6 6.6 31.2 1.6 0.4 2.0 CEB's Supervision - 8.1 8.1 - 0.5 0.5 Sub-total 447.9 131.6 579.5 28.7 8.4 37.1 Contingencies: Physical 44.7 13.2 57.9 2.9 0.8 3.7 Price 123.0 73.0 196.0 7.9 4.7 12.6 Project Cost before Customs Duties 615.6 217.8 833.4 39.5 13.9 53.4 Customs Duties - 154.1 154.1 - 9.9 9.9 TOTAL PROJECT COST 615.6 371.9 987.5 39.5 23.8 63.3 3.04 The cost estimates were developed by CEB based on the costs of recently undertaken comparable work or recent quotations and updated to end 1979 prices. Physical contingencies average 10% and range from 5% for supply of certain substation equipment to 25% for trenching and cable jointing according to the nature of the item. Price contingencies amounting to 19.9% of the project cost were calculated using the following rates of escalation:- 1979 1980 1981 1982 1983 1984 Foreign % 12 10.5 9 8 7 7 Local % 18 21 15 12 9 9 Customs duties ranging from 5% to 50% on imported equipment and materials were allowed as applicable, amounting to 15.6% of the total project cost. The cost estimates are adequate.  Project Financing Plan 3.05 It is proposed that parallel financing of the project be arranged between IDA (US$19.5 million) and the Saudi Fund (US$20 million). The combined amount (US$39.5 million) would cover 100% of the foreign costs of the proposed project and represents 62% of the total project cost (or 74% excluding customs duties). CEB will be expected to meet all local costs from internal cash gene- ration. The components to be financed by IDA, the Saudi Fund and CEB are iden- tified in Table 3.2. 1/ A firm commitment for Saudi funding for the project is a condition of credit effectiveness. Table 3.2: PROJECT FINANCING PLAN /a US$ Million Percentage (X) Equivalent IDA 132 kV lines 6.0 132 kV Substations and Switching Stations /b 3.0 33 kV Subtransmission 8.0 Vehicles and tools 0.5 Consultancies/Training 2.0 19.5 30.8 Saudi Fund Colombo Distribution 14.0 Other Distribution 4.0 33 kV Subtransmission 2.0 20.0 31.6 CEB Local costs 23.8 37.6 63.3 100 /a Excluding interest during construction and working capital require ments. /b Includes the cost of the 132 kV switchyard extensions for Colombo distribution. Engineering and Implementation 3.06 Most of the works in the proposed project are of kinds which already exist on CEB's system and with which CEB's engineers have substantial previous experience; they are thus able to produce their own designs, specifications and tender documents, and to supervise the construction. The one area in which 1/ An alternative, which the Saudi Fund has suggested, provides for IDA to finance all 33 kV subtransmission works and the Saudi Fund to finance consultancies.  - 16 - CEB does not have previous experience is the proposed indoor primary substa- tions in Colombo. Foreign engineering consultants will be retained for the design and supervision of that part of the project and their appointment is a condition of credit effectiveness. Engineering costs are estimated at US$0.4 million. The contract will provide for about 36 man months of for- eign engineers' services at an estimated man month cost of US4'8,500 including salaries, costs, fees, international travel and subsistence. 3.07 A future project, for which IDA assistance has been requested, comprises the 220 kV and 132 kV lines, substations and switching stations re- quired to transmit the output from the planned generating stations at Victoria, Kotmale and Randenigala - Rantembe into the Colombo area. CEB's engineers in 1979 performed studies which indicated that a voltage higher than 132 kV would be economic for this phase of expansion, and their findings were con- firmed by consultants, who recommended 220 kV for certain of the new lines. Detailed engineering design for this work will be needed shortly and provision has been made under this project for the appointment of foreign consultants for design work and preparation of tender documents. Engineering costs are estimated at US$1 million. The contract will provide for about 90 man months of foreign engineers' services at an estimated man month cost of $8,500 inc- luding salaries, costs, fees, international travel and subsistence. 3.08 The project will be completed in stages between late 1981 and March 1984 (Annex 9). 3.09 During the period of the project, CEB's construction forces will be performing the following line work which will limit their availability for the proposed project: Ukuwela - Bowatenne line; 32 km of 132 kV single circuit to be built in 1981. Pannipitiya - Neboda line; 38 km of 132 kV double circuit, to be built in 1982/83. Canyon - Laxapana line; 10 km of 132 kV single circuit, to be built in 1980/81. Relocation of 5 km of 132 kV line for the Kotte Parliamentary complex in 1980/81. ADB Rural Electrification Project covering 1150 villages in 1981/83. Special Projects rural electrification - 300 km per year. Routine system augmentation - 400 km of line and 150 sub- stations per year. 3.10 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 distri- bution substations, and the 132 kV underground cables. Single responsiblity contracts are preferred because they place undivided responsibility for all the  - 17 - work upon one contractor, thus avoiding disputes which otherwise arise between the construction contractor and the owner or the suppliers of materials over such difficulties as late deliveries and the repair or replacement of materials found defective. The remaining construction work in the project will be performed by CEB's own work force. Procurement 3.11 International competitive bidding in accordance with IDA's guide- lines 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 foreign equipment and materials to be employed or erected by CEB. Vehicles, equipment and materials not exceeding US$10,000 an item and US$100,000 in aggregate may be procured in accordance with local procedures, which are satisfactory. The foreign components to be financed by the Saudi Fund will be procured and disbursed in accordance with Saudi Fund's require- ments. Disbursements 3.12 The credit will be disbursed against the following items:- (a) 100% of the foreign expenditures of contracts for: (i) 132 kV transmission lines (ii) 132 kV substations and switching stations, including the changes to the 132 kV switchgear at Kolonnawa and Kelanitissa required for Colombo distribution. (b) Equipment and materials for the 33 kV subtransmission lines and vehicles and tools: 100% of the foreign expenditures for directly imported items, or 100% of the local expendi- tures (ex factory) for locally manufactured items or 65% for locally procured items. (c) 100% of the foreign expenditures of consultancies, techni- cal assistance and training. 1/ A schedule of estimated disbursements is given in Annex 10. To cover payments to engineering and management consultants it is recommended that retroactive financing not exceeding US$350,000 be authorized for expenditures incurred after May 1, 1980. 1/ Land Acquisition 3.13 Land is required for the grid substation at Valachchenai and the two new primary distribution substations in Colombo. The land is owned by govern- ment agencies and will be transferred to CEB when required. 1/ This item may be financed by the Saudi Fund in which case retroactive financing would not be required.  - 18 - Risks 3.14 The project consists of normal electric utility work entailing no unusual risks and no particular difficulty is foreseen in its execution. Price contingencies in the cost estimates have been allocated so as to mini- mize the risk of cost overruns due to delays. IV. FINANCIAL ANALYSIS CEB's Statutory Position 4.01 CEB's finances are regulated by the provisions of the 1969 CEB Act and the 1971 Finance Act, which affects all public corporations in Sri Lanka. CEB is required, by Section 38 of the 1969 CEB Act, to operate in a commer- cial manner so as to ensure that revenues are sufficient to meet all outgoings, including depreciation and interest, and a reasonable proportion of development costs. CEB's statutory obligations were amended in two important respects following IDA approval of Credit 372-CE 1/ in 1973: (a) CEB is permitted to charge depreciation in its accounts based on a current valuation of fixed assets rather than the historic cost of such assets. (b) CEB's obligation to pay an 8% annual dividend on GSL's equity capital is waived each year until CEB has generated a 30% contribution to the combined annual capital expenditure on electricity supply, including interest during construction, of CEB and any other body responsible for undertaking a joint scheme with CEB. Past Financial Performance 4.02 CEB was required, under IDA Credit 372-CE, (Project Agreement Section 4.04(a)(ii)) to maintain tariffs at levels sufficient to produce, from FY1974, at least an 8% annual rate of return on currently valued net fixed assets. In this respect CEB's financial performance has been unsatisfactory mainly as a result of unchanged tariff levels between April 1, 1972 and December 1, 1978. The failure to increase tariffs reduced CEB's capacity to contribute to its investment program in recent years, although the overall contribution from FY1974 through 1978 was 33%. 2/ In the seven years FY's 1972 through 1978 whereas the average cost of energy (including depreciation) per kWh rose by 58% from Rs 0.11 to 0.17 CEB's average sales revenue per kWh rose by only 6%, from Rs 0.15 to 0.16. 1/ These conditions have been repeated under the proposed Credit. 2/ After allowing for increased working capital requirements the amount available was equivalent to 10% of capital investment between FY1974-78.  - 19 - 4.03 CEB's actual financial operations for the five years to FY1978 and the estimated position in FY1979 are summarized in Table 4.1 below and are shown in greater detail in Annex 11. Table 4.1: CEB INCOME STATEMENT (FY1974 through FY1979) (Rupees Million) -------------Actual--------------- Estimated 1974 1975 1976 1977 1978 1979 Energy Sales (GWh) 892 965 996 1,042 1,161 1,294 Sales Revenue (Rs/kWh) 0.16 0.16 0.16 0.16 0.18 /a 0.30 Operating Revenues 158 169 178 197 242 406 Less Operating Costs including Depreciation 91 103 121 151 196 309 Operating Surplus 67 66 57 46 46 97 Interest 79) (15) (16) T2) (28) E2) Operating Ratio /b 42% 44% 53% 48% 47% 50% Average Currently Valued /c Net Fixed Assets (ANFA) 972 1,034 1,104 1,921 2,148 2,686 Rate of Return on ANFA 6.9% 6.4% 5.2% 2.4% 2.1% 3.6% Contribution to CEB's Investment Program 63% 51% 37% 43% 16% 30% /a Sales revenue/kWh increased from Rs 0.16 to 0.18 in FY1978 as a result of a tariff increase on December 1, 1978. /b Operating costs before depreciation divided by operating revenues. /c Following an initial valuation of CEB's fixed assets at January 1, 1972 subsequent revaluations of fixed assets, using local indices agreed with IDA, were incorporated in CEB's accounts on January 1, 1977 and 1978. A further revaluation to January 1, 1979 will be made in CEB's FY1979 accounts: it is estimated that this will increase the value of CEB's fixed assets by 37-1/2%. Present Financial Position 4.04 CEB's tariff increase from December 1, 1978 averaged about 80% and increased sales revenue/kWh from Rs 0.16 in FY1978 to Rs 0.30 in FY1979. CEB's tariff structure was also modified substantially and a fuel adjustment clause was authorized. To date, however GSL has not permitted the full fuel adjust- ment (paragraph 4.17). CEB confidently expected, in late 1978, to make at least an 8% rate of return on net fixed assets in FY-1979 but operating cost increases of about 80% in FY1979 and the higher than expected revaluation of assets reduced the rate of return to about 4%. Cost increases resulted in part from increased thermal generation, cyclone damage and pay and price escalation but so far CEB has been unable to offer full explanations for all the increases (paragraph 2.10).  - 20 - 4.05 CEB's financial position as at December 31, 1978, based on audited accounts for FY1978, was as follows: Table 4.2: CEB AUDITED BALANCE SHEET (at December 31, 1978) (Rupees Million) ASSETS: Net Fixed Assets 2,221 Work in Progress 446 2,667 Current Assets 525 Less: Current Liabilities 259 266 Total 2,933 LIABILITIES Equity: GSL/Consumer Contributions 527 Revaluation Reserve 1,147 Retained Earnings 619 2,293 Loans 525 Other /a 115 2,933 /a "Other" represents the transfer to CEB of the Ukuwela hydro- station from the Mahaweli Development Board on terms yet to be finalized. While CEB's balance sheet appears satisfactory, with a current ratio 2.0 and a debt/equity ratio 19:81, several matters need to be resolved and appro- priate adjustments made in CEB's future accounts (paragraphs 4.06 to 4.11): (a) Fixed Asset Valuation 4.06 CEB's unaudited accounts for FY1979 will not be available before mid-1980, but should incorporate a further revaluation of fixed assets as at January 1, 1979 in accordance with the movement of certain GSL published indices during 1978. This method of valuation was previously agreed with IDA and will form the basis of future annual reviews of CEB's fixed asset values. (b) Transfer of Assets from the Mahaweli Development Authority (MDA) 1/ 4.07 The 1969 CEB Act authorized CEB to enter into "joint schemes" with government bodies for the generation of electricity although the legislation makes no mention of the operational and financial aspects of such arrangements. Previously, the Mahaweli Development Board (MDB) constructed the Ukuwela (earlier known as "Polgolla") 40MW hydro-plant as part of a multi-purpose 1/ MDA has succeeded MDB as the agency responsible for the accelerated Mahaweli program.  - 21 - project (with assistance from IDA Under Credit 174-CE) and it was agreed that the power assets should be transferred to CEB on terms to be agreed with IDA. Subsequently, under Credit 372-CE, GSL agreed to certain conditions 1/ to ensure that CEB is sufficiently involved in the formulation of future joint schemes, several of which are now planned under the accelerated Mahaweli program, and, further, that the power assets are transferred to CEB on com- pletion of the schemes on terms agreed with IDA. These requirements were further discussed during negotiations and the earlier conditions are repeated under the proposed credit. 4.08 The Ukuwela hydro-plant was commissioned in July 1976 and is oper- ated by CEB but a satisfactory transfer of the assets has yet to be reflected in CEB's accounts. An amount of Rs 115 million is included, provisionally, under fixed assets in CEB's balance sheet at December 31, 1978 together with an equivalent liability. The nature of this liability is uncertain as GSL has not advised CEB of the terms under which such assets are to be transferred. At negotiations, GSL's proposals were received and are being reviewed. It has been agreed that this will be completed before December 31, 1980. (c) Inventories 4.09 The estimated value of CEB's inventories at December 31, 1979 is about Rs 200 million, which represents about 18 months supply of materials and spare parts. This is due, in part, to stockbuilding because of the diffi- culties in obtaining foreign exchange in earlier years. This level appears excessive and inventory controls will be reviewed by the management consul- tants (paragraph 2.09). Assurances have been obtained that CEB will reduce inventories to a satisfactory level by end FY1982 and that GSL will ensure the timely availability of foreign exchange for the future purchase of CEB's inventory requirements. 2/ (d) Long-term Borrowings 4.10 Most of CEB's long-term loans are received from GSL under onlending arrangements. GSL bears any foreign exchange risk on such loans which CEB services in local currency. CEB is also responsible for servicing certain for- eign loans, which were transferred from DGEU when CEB was established in 1969, and on which CEB has so far borne the foreign exchange risk. CEB's long-term borrowings do not reflect the latter liability in that the amounts outstanding are based on the historic figures at the time of transfer to CEB, as reduced by subsequent repayments. CEB has unsuccessfully attempted to recover from GSL the debt service on such loans in excess of their historic value. 3/ GSL 1/ Development Credit Agreement 372-CE, S3.02. 2/ Under Development Credit Agreement 372-CE (Section 3.03) GSL agreed to make available to CEB the foreign exchange needed to repair or replace assets. 3/ CEB maintains a separate account, known as the 'Deputy Secretary, Treasury - Parity Variance Account' for this purpose which, at December 31, 1978, stood at about Rs 122 million.  - 22 - has never acknowledged this liability and CEB may have to write-off this amount against 'retained earnings' in future years. Nevertheless, GSL has been asked to further review this matter urgently. An assurance has been obtained that this matter will be resolved before December 31, 1980. 4.11 Tbh terms for GSL funding to CEB in FYs 1978 and 1979 have yet to be determined. This is unsatisfactory and again GSL has been asked to resolve this matter before December 31, 1980. Further, GSL has been asked to advise CEB, in advance, of the terms of any future loans not covered by an onlending agreement. (Such loans are made generally towards financing the local costs of CEB projects). Billing and Collection 4.12 CEB's billing and collection performance has been reasonably satis- factory in recent years. Under Credit 372-CE, CEB's customer receivables on the last day of each month should not exceed the aggregate billings for the three months' ending on the same day. CEB has made considerable efforts to meet this target and while the precise position at December 31, 1979 is not yet known the August 31, 1979 figures indicated receivables equivalent to 3.6 month's billings. Some deterioration has occurred during 1979 in the position of the local authorities (receivables at August 31, 1979 equal 5.7 months billings) arising from: (a) the large tariff increase in December 1978 following which GSL agreed that the local authorities should continue to pay at the old rates and GSL would pay the balance to CEB on their behalf; (b) the decision that CEB should take over the local authority distribution systems (paragraph 2.12) which has led to an increase in local authority arrears. 4.13 CEB's present billing and collection arrangements are centralized at the head office in Colombo and most customer accounting is processed by computer. CEB has considerable difficulty in recruiting satisfactory meter reading staff and errors on meter readings are estimated in excess of 10%. CEB is conscious of this problem and is constantly striving to secure improve- ments. CEB estimates that over 50% of monthly bills are for less than Rs 15 (US$1) but is reluctant to introduce a fixed charge in view of potential abuses. Accounting for large consumers, who comprise about 3,000 of CEB's 155,000 consumers but account for about 80% of CEB's sales revenues, is handled by a separate section to facilitate prompt recovery proceedings. 4.14 CEB's existing obligation, under Credit 372-CE, to ensure that customer receivables do not exceed three months' billings is repeated under the proposed credit. Further, at negotiations, an assurance has been obtained that (a) GSL will ensure the payment by the local authorities to CEB of all current bills and (b) a program will be agreed to clear local authority arrears. 1/ 1/ Arrears will be settled as part of the transfer arrangements, but should the transfer be delayed beyond September 1980, GSL will agree with IDA a program by October 31, 1980.  - 23 - Revenues and Tariffs Present Position 4.15 The details of CEB's recent tariff structure are set out in Annex 12. CEB's tariffs were unchanged between April 1972 and December 1978 when the present tariffs were introduced. CEB's average tariff increased by about 80% from Rs 0.16 to 0.30/kWh (about USU2). The tariff level is still low by international standards, reflecting the hitherto almost exclusive consumption of hydro-generated energy. CEB's average cost, including depreciation, was about Rs 0.25/kWh in FY1979. This situation will change significantly in the early 1980's, a period during which CEB will need to generate considerable thermal energy to meet demand pending the commissioning of the Victoria and Kotmale hydro-stations in 1984/85. Most local authority retail tariffs are below the level of CEB's and, following CEB takeover of the systems, retail tariffs will be fixed by law at then current CEB levels. 4.16 CEB's present tariffs are insufficient in relation to both financial rate of return and economic long-run marginal cost criteria. Present average tariffs range from Rs 0.25/kWh for domestic consumers to between Rs 0.29-0.38/ kWh for non-domestic consumers. Domestic consumers pay a declining block tariff - Rs 0.31/kWh for the first 50 units per month and Rs 0.21/kWh for units in excess of 50: there is little incentive to conservation. 4.17 GSL approved the inclusion of a fuel adjustment clause in CEB's tariff schedule in December 1978 to be used during periods of thermal generation in the early 1980's. 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 units per month and to non-domestic consumers on units in excess of 75% of recent minimum monthly consumption. Over 60% of domestic consumers use less than 50 units per month and so will be unaffected. However, in FY79 CEB was not permitted to use the fuel adjustment clause and in FY80 the higher rate for domestic consumption has been limited to Rs 0.50/ kWh. Although no accurate prediction can be made of the financial or con- servation consequences of such an arbitrarily constructed clause CEB hopes to recover fuel costs in full and to obtain some reduction in energy demand. 1/ Future Requirements 4.18 CEB is presently engaged on a study of long run marginal cost (LRMC) pricing with technical assistance from the Bank: LRMC based - tariffs would be of the order of Rs 1.80/kWh for low voltage consumers and R 0.80/kWh for high voltage consumers. Presently, however, there is cross-subsidization of domestic consumers for socio-political reasons. While it would be unreason- able to expect the immediate adoption of LRMC pricing, some improvement in the tariff structure is expected on completion of the present study. CEB has 1/ CEB intends to revise the fuel adjustment clause as part of the present tariff review (para 4.19).  - 24 - agreed to complete the present study and review the tariff structure before December 31, 1980 in consultation with GSL and IDA, and will thereafter imple- ment any agreed recommendations in accordance with a satisfactory timetable. 4.19 In order to improve CEB's financial performance and achieve an 8% rate of return on average currently valued net fixed assets, a tariff increase of about 65% is required prior to credit effectiveness: it is estimated that an increase in the average tariff from Rs 0.30 to 0.50/kWh is needed to achieve this target (in FY80 such an increase, from July 1, would produce about a 7% rate of return). CEB will also ensure that the cost of fuel is recovered in full through the operation of the fuel adjustment clause. 4.20 A further assurance has been obtained that, thereafter, CEB will review tariffs annually, before the start of CEB's 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. 4.21 From FY1982 tariffs will increase further from the present levels to meet increases in operating costs, price escalation and CEB's contribution to investment. In FY's 1982/83 CEB may have to increase tariffs to the equivalent of a 10% rate of return in order to generate sufficient internal resources to meet the local costs of its investment program. 1/ In FY1984, the average tariff 2/ is estimated at Rs 0.76/kWh (USc/5/kWhT and, thereafter, following the commissioning of the Mahaweli hydro-stations, it is estimated to increase to Rs 1.17/kWh (USe 7-1/2 kWh) by FY1987. In real terms this represents a doubling of tariffs from the present level. Financing Plan 4.22 CEB's investment program through FY1984 is presently under review following GSL's recent exercise to limit public expenditure. Most of the hydro-power investment in the 1980's in Sri Lanka will be carried out under the accelerated Mahaweli program with the power assets being transferred to CEB on completion of each scheme (para 4.07). CEB is not expected to con- tribute to these schemes which will be financed under bilateral arrangements. However, CEB will have to provide transmission links to the proposed hydro- stations and meet short-term power needs through 1985 by further thermal investments. Following completion of present studies, CEB will prepare an investment program through FY1984 and will submit this to IDA by October/ November 1980. 4.23 CEB's estimated financial requirements for the period FY1981 through FY1984 and the sources of funds are summarized in Table 4.3. 1/ CEB officials indicated, at negotiations, that as an alternative CEB may borrow from local banks. 2/ Excluding the fuel adjustment surcharge which is estimated at Rs 0.36/kwh in FY1984 and Rs 0.14/kWh in FY1987.  - 25 - Table 4.3: CEB FINANCING PLAN FY81 THROUGH FY84 Rupees US$ Million Percentage Million (equivalent) % Requirements Capital Expenditure: Sixth Power Project /a 1,080 69.2 17 Other Projects 4,541 291.1 73 Working Capital 592 38.0 10 6,213 398.3 100 Sources of Funds CEB Internal Cash Generation 3,470 222.4 56 Less: Debt Service 1,211 77.6 20 Contribution to Investment 2,259 144.8 36 IDA Credit 304 19.5 5 Saudi Fund 312 20.0 5 Other Loans /b 2,140 137.2 34 Consumer Contributions 468 30.0 8 GSL Grants 730 46.8 12 6,213 398.3 100 /a Including interest during construction (Rs 92.5 million). lb Onlending by GSL to fund existing commitments (US$17.1 million) and the foreign costs (US$120.1 million) of future projects. 4.24 The proceeds of the IDA credit of US$19.5 million will be made available to CEB by GSL at 10% interest for a 20 year period with 3 years grace. 1/ GSL will bear any foreign exchange risk in accordance with the 1969 CEB Act. The execution of an onlending agreement satisfactory to IDA is a condition of credit effectiveness. 4.25 To protect its future financial viability, CEB has agreed not to incur any long-term debt without IDA's prior agreement unless its maximum future debt service is covered at least 1.25 times by its most recent 12 months' operating surplus before depreciation. Future Finances 4.26 Financial projections for the period FY78 through FY87 are set out in Annexes 13-15. Assumptions used to prepare the projections are set out in 1/ CEB's commercial borrowing is negligible and loans are obtained towards foreign and local expenditures from GSL whose present lending rate is below 10%. Inflation in Sri Lanka was 1977 15%, 1978 9%, 1979 18% and is forecast at 1980 21%, 1981 15% and 1982 12%.  - 26 - Annex 16. Salient features of CEB's future finances, which are satisfactory, 1/ are summarized in Table 4.4. Table 4.4: SUMMARY OF CEB'S FUTURE FINANCES 1980 1981 1982 1983 1984 1985 1986 1987 1. Average Revenue /a /b (Rs/KWh) 0.56 0.74 0.86 1.08 1.12 1.09 1.22 1.31 (USJ/kWh) 4 5 6 7 7 7 8 8 2. Average Tariff /b (Rs/kWh) 0.40 0.50 0.62 0.73 0.76 0.88 1.05 1.17 (at FY80 prices) (0.40) (0.43) (0.47) (0.49) (0.47) (0.51) (0.57) (0.60) 3. Average Cost of Energy Sold /c (Rs/kWh) 0.30 0.40 0.43 0.57 0.61 0.48 0.49 0.49 (US4/kWh) 2 2 3 3 4 3 3 3 4. Operating Ratio /c 53% 54% 49% 53% 55% 44% 40% 37% 5. Rate of return on Net Fixed Assets (%) - annually revalued 6.6 8 10 10 8 8 8 8 6. Debt service coverage 3.1 3.3 3.2 3.0 2.4 2.0 1.6 1.5 7. Contribution to Investment (%) /d 32 29 33 45 31 25 19 22 8. Current Ratio 1.8 1.8 1.7 1.8 2.0 2.1 2.2 2.4 9. Debt/Equity Ratio 25:75 25:75 31:69 32.68 29:71 40:60 46:54 48:52 /a Including fuel adjustment surcharge. 7W To satisfy minimum financial requirements. / c Before depreciation. 7-7 Based on a three year average; in FYs 1985-1987 the percentage declines, reflecting the transfer to CEB of assets from the Mahaweli Development Authority - Victoria (1985), Kotmale (1986) and Randenigala (1987) as indicated in Annex 14. 4.27 Key indicators which will be used in monitoring CEB's performance are set out in Annex 17. V. JUSTIFICATION Approach 5.01 The proposed project is an integral part of the total power sector investment program in Sri Lanka, incorporating CEB's expenditure on generation, 1/ It is unlikely, based on the assumptions in Annex 16, that CEB will be liable to pay either income tax or dividends on GSL equity (para 4.01(b)) in the period FY1980 through 1987.  - 27 - transmission and distribution, the Mahaweli program of hydroelectric stations, and the Samanalawewa hydro station. It includes transmission of the addi- tional 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 although each component of the project is justified as the solution to its own problem. The method employed in this report is one of justifying the entire investment program, covering the proposed project implicitly. 5.02 As several agencies are involved in the planning of parts of the in- vestment program, conscious efforts to identify an overall least-cost solution are only beginning. The only presently available aggregate investment program therefore, is analyzed with respect to its feasibility in economic terms, rather than compared to other potential programs. Economic Costs and Benefits 5.03 The investment program in its present form is presented in Annex 18 Table 1. It represents all known planned expenditure relevant to the power sector for the period 1980-1989, and is based on CEB demand forecasts. The program implies a high marginal cost per incremental unit, a fact that is likely to lead to significant tariff increases in the near future (para 4.21). 5.04 Where available, costs are expressed in CIF or equivalent border terms. Local costs are converted to border prices using a shadow/market wage ratio and a standard conversion factor (Annex 18, paras. 3 to 5). Economic benefits arising from incremental supply to electricity consumers are calcu- lated as the total willingness to pay including the consumers' surplus, assumed to be approximated by the cost and extent of using alternative energy sources for economic activities and lighting (Annex 18, paras 6 to 12). Results 5.05 The use of expected 1980 tariff revenues (including fuel surcharge) as a proxy for benefits leads to a minimum rate of return of 3%, indicating that tariffs are well below marginal cost. An attempt was made to quantify additional benefits in the form of user surplus (paragraph 5.04), assuming various possible shapes of the demand curve for power. In economic terms, the rate of return is likely to be between 8% and 16%, the best estimate being about 12%. A 10% increase in costs would reduce the rate of return to about 10%, while a 10% decrease in costs would boost it to over 13% (Annex 18, Table 3). Hence, the investment program in its aggregate form is justified in economic terms.  - 28 - VI. PROPOSED AGREEMENTS 6.01 During negotiations the following agreements were reached with CEB: (a) CEB will submit to IDA, in advance, any proposal for major change to CEB's organizational structure (paragraph 2.04). (b) CEB will appoint management consultants 1/ to review present management problems and will thereafter implement an agreed program of improvements (paragraph 2.09). (c) CEB will submit to IDA satisfactory accounts for FY1979 1/. (paragraph 2.10). (d) CEB will submit to IDA a satisfactory training program before June 30, 1981 and will thereafter implement the agreed program (paragraph 2.11). (e) CEB will agree with IDA a satisfactory program for the transfer of the local authority distribution systems (paragraph 2.13). (f) CEB will submit to IDA its unaudited accounts within four months and the auditor's report within ten months of the fiscal year- end (paragraph 2.14). (g) CEB will appoint engineering consultants in connection with the design and supervision of certain works forming part of the Colombo distribution system 1/ (paragraph 3.06); (h) No dividend will be paid on CEB's equity capital until earnings exceed 30% of capital expenditure (paragraph 4.01). (i) CEB will reduce Inventories to a satisfactory level by December 31, 1982 (paragraph 4.09). (j) CEB's Consumer accounts receivables will not exceed the equiv- alent of three months' billings (paragraph 4.14). (k) CEB will review its tariff structure before December 31, 1980 in consultation with GSL and IDA and will thereafter implement any agreed recommendations (paragraph 4.18). (1) CEB will revise tariff levels in order to produce an annual rate of return on currently valued net fixed assets of at least 8%; an immediate increase of about 65% is a condition of credit effectiveness (paragraphs 4.19-4.20)); and (m) CEB will ensure debt service coverage of at least 1.25 times (paragraph 4.25). 1/ Special condition of credit effectiveness.  - 29 - 6.02 Further, at negotiations, the following agreements were reached with GSL: (a) GSL will ensure (i) adequate participation by CEB in the planning of the Mahaweli program and in other joint schemes and, (ii) the prompt transfer of assets to CEB from MDA on terms satisfactory to IDA (paragraph 4.07); (b) GSL will ensure agreement before December 31, 1980 in respect of the following matters: (i) the terms of the transfer to CEB of the Ukuwela hydro- station (paragraph 4.08); (ii) the settlement of the amount shown outstanding in CEB's accounts in respect of the parity variance on foreign loans (paragraph 4.10); and (iii) the terms of funding to CEB in FYs 1978 and 1979 (para- graph 4.11). (c) GSL will ensure the timely availability to CEB of sufficient foreign exchange for the purchase of inventories and spare parts (paragraph 4.09); and (d) GSL will ensure the timely payment of all amounts owed to CEB by its local authorities (paragraph 4.14). 6.03 With a firm commitment for Saudi funding 1/ (para 3.05) the proposed project is suitable for an IDA Credit of US$19.5 million. 1/ Special condition of credit effectiveness.  - 30 - ANNEX 1 SRI LANKA Sixth Power Project (Ceylon Electricity Board) Power anid Eaergy Balances 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Laksapana 3x8.33 + 2 x 12.5 MW 50 Inginiyagala 2x2 + 2x3 NW 0 Udawalawe 3x2 mw 2 Wimalasurendra 2x25 Nw 50 Polpitiya 2037.5 w 75 New Laksapana 2x50 MW 100 Ukuwela 2x18.5 MW 36 3131/ 313 313 313 313 313 313 313 313 313 313 Bowatenne lx40 MW 40 40 40 40 40 40 40 40 40 40 40 Canyon 1x30 MW 30 30 30 30 30 30 30 30 30 30 Victoria 3x72 MW 216 216 216 216 216 216 216 Kotmale 3x700 NW 210 210 210 210 210 210 Randenigala 2x34 MSw 68 68 58 68 68 Rantembe 2x23 NW 46 46 46 46 Samanalawewa 3x51 NW 153 Kelanitissa Steam 2x25 NW 40 40 40 40 40 40 40 40 40 40 40 Pettah diesels 6 Ng 2 2 2 2 0 0 0 0 0 0 0 Chunnakam diesels 14 MW 8 8 8 8 0 0 0 0 0 0 0 Thermal I 3x2O MW 60 60 60 60 60 60 60 60 60 60 60 Thermal II 100 NW - - 60 100 100 100 100 100 100 100 100 Capacity start year NW 363 463 493 553 593 799 1,009 1,077 1,123 1,123 1,123 Capacity added in year MW 100 30 60 40 206 210 68 46 - - 153 Capacity end year MW 463 493 553 593 799 1,009 1,077 1,123 1,123 1,123 1,276 Installed for peak MW 423 463 553 593 727 939 1,009 1,077 1,123 1,123 1,225 Firm capacity (25% Standby) NW 338 370 442 474 582 751 807 862 898 898 980 Maximum demand NW 366 404 435 480 531 584 643 695 763 833 908 Energy demand GWh 1,730 1,910 2,095 2,315 2,560 2,815 3,100 3,410 3,745 4,085 4,455 Hydro existing 1980 GWh 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 Bowatenne 108 GWh 80 108 108 108 108 108 108 108 108 108 Canyon 144 GWh 110 144 144 144 144 144 144 144 144 Victoria 686 GWh 200 686 686 686 686 686 686 Kotmale 376 GWh 50 376 376 376 376 376 Randenigala 366 GWh 366 366 366 366 Rantembe 158 GWh 158 158 158 Samanalawewa 400 GWh _ 200 Total hydro energy GWh 1,500 1,580 1,718 1,752 1.952 2,48 3,80 3,338 3,338 3,538 Kelanitissa Steam GWh 210 260 260 260 260 260 260 260 260 260 260 Diesels GWh 10 10 10 10 - - - - - - - Thermal I GWh 50 260 260 260 260 260 260 260 260 260 260 Thermal II GWb - - 100 420 700 700 700 700 700 790 700 Available thermal energy GWh 270 530 630 1,040 1,220 1,220 1,220 1,220 1,220 1,220 1,220 Thermal energy required GWh 230 330 377 563 608 327 286 230 407 747 917 1/ 313 MW is effective capacity; installed capacity is 328 Ml  ANNEX 2 - 31 - SRI LANKA Sixth Power Project (Ceylon Electricity Board) Generating Facilities Existing Date of Installed Effective Type Commisiioning Capacity MW Capacity MW Old Laksapana hydro 1950/58 50 50 Inginiyagala " 1950 10 0 Uda Walawe if 1968 6 2 Wimalasurendra (Norton Bridge) " 1965 50 50 Polpitiya (Maskeliya Oya Stage 1) " 1969 75 75 New Laksapana (Maskeliya Oya Stage 2) " 1974 100 100 Ukuwela (Polgolla) it 1976 37 37 Sub Total 328 314 Kelanitissa (Grand Pass) steam 1962 50 40 1/ Pettah- diesel 1954 6 2 1/~~~~~~~~~~~~~~~~~i Chunnakam- 1954 14 8 Sub Total 70 50 Total 398 364 Under Construction Kelanitissa gas 1980 60 turbines Bowatenne hydro 1980 40 Canyon " 1981 30 Victoria 1984 216 Kotmale 1985 210 1/ It is intended that these stations will be retired in 1982.  - 32 - ANNEX 3 Page 1 SRI LANKA Sixth Power Project (Ceylon Electricity Board) Existing Transmission and Distribution Systems The CEB system operates at 132 kV, 66 kV, 33 kV and 11 kV. 132 kV System 1. The 132 kV system comprises 549 miles of line, of which 361 miles are double circuit and 188 miles single circuit. 2. At the heart of the system are the two largest hydro generating stations, Polpitiya and Laksapana, connected together by four 132 kV circuits. Wimalasurendra hydro station, at Norton Bridge, is also connected to Laksapana by a short double circuit line. 3. The largest load centre is at Kolonnawa near Colombo; it is fed by four circuits from Polpitiya. There are tees off these lines to substations at Thulhiriya and Oruwala. Also feeding into Kolonnawa are two circuits from the steam power station at Kelanitissa. 4. From the bars at Kolonnawa a single circuit runs south to substations at Pannipitiya and Ratmalana, whilst another double circuit runs north up the coast to substations at Sapugaskanda, Katunayaka, Bolowatta and Puttalam. From Polpitiya a double circuit runs north up the middle of the island as far as Anuradhapura, from where it continues as a single circuit by way of Kilinochchi substation to Chunnakam in the northernmost part of the country. Between Polpitiya and Anuradhapura there is a substation at Habarana, as well as an incoming tee from the hydro station at Ukuwela. From Anuradhapura a single circuit tap takes off to Trincomalee on the east coast. Starting from the busbars at Laksapana, a double circuit line runs down as far as Galle on the south coast, with substations along the way at Balangoda and Deniyaya. 66 kV Network 5. The system consists of about 214 miles of double circuit line associated with the earliest power developments. In the old part of the Laksapana station there are 66 kV busbars connected to Kolonnawa receiving station by a double circuit line which also feeds substations at Padukka and Avissawela. Another double circuit from Laksapana runs east, to substations at Norton Bridge, Nuwara Eliya and Badulla. From Badulla a single circuit continues east as far as the hydro station at Inginiyagala; this section was constructed for 132 kV but is at present operated at 66 kV. A third line originating at Laksapana carries two circuits north as far as Kandy. From there to Kurunegala there is a single circuit built for 132 kV but operated at 66 kV.  ANNEX 3 - 33 Page 2 6. The 66 kV system is interconnected with the 132 kV system by interbus transformers at Kolonnawa and Laksapana. Subtransmission and Distribution 7. The major load centres of Colombo are served by an 11 kV underground system, but the remainder of the country is served by more than 3,000 route miles of overhead lines at 33 kV, and 750 miles at 11 kV. Important points have alternative supply routes. Most of the 132 kV substations are inter- linked by 33 kV subtransmission lines to facilitate maintenance. 8. The city of Colombo draws its power 'at 33 kV from Kolonnawa, where there are four 30 MVA transformers. Four 33/11 kV substations designated A, B, C and D are connected to Kolonnawa and to each other by about 28 miles of underground cable. Each of these substations serves its own 11 kV ring. The rings are normally open so that each is effectively two radial feeders, so as to simplify protection. Most of the 11 kV/400 V substations on these rings contain two 500 MVA transformers. Ring A serves a predominantly domestic market, while the central ring B serves the main commercial and port areas. Ring C covers the mainly industrial part of Colombo to the north, whilst D serves other areas of domestic and commercial consumers. 9. There is some overhead LT distribution in Colombo, but most is done by underground cables. Radial feeders from the substations supply feeder pillars, from where distribution cables run out and are tapped for consumer service connections.  SRI LANKA Sixth Power Project (Ceylon Electricity Board) Load Forecast ~~Actual Average Annual .-- Estimated -Average Annual Increase % Increase % 1975 1976 1977 1978 1979 1975 79 1980 1981 1982 1983 1984 1995 1986 1987 1988 1989 1990 1979-90 Sale,: GWh Do-estic 91 95 107 119 134 10.2 147 161 175 193 219 Small Industry 252 252 254 289 315 5.7 336 354 378 403 443 Large Industry 268 261 263 300 365 8.0 467 559 663 770 865 Comercial 130 137 151 163 169 6.8 184 196 209 225 245 Local authorities 224 251 267 290 311 8.5 336 355 375 399 428 Total Sales GWh 965 996 1,042 1.181 Total Sales (Sest Central Estimete) 1,294 7.6 1,470 1,625 1,800 1,990 2,200 2,450 2,695 2,965 3,260 3,555 3,875 10.5 Losses % 10.6 12.1 14.4 16.0 16 15 15 14 14 14 13 13 13 13 13 13 V Total Generation GWh 1,079 1,133 1,217 1,382 1,540 1,730 1,910 2,095 2,315 2,560 2,915 3,100 3,410 3,745 4,085 4,455 10.1 Load Factor % 56 54 53 54 54 54 54 55 55 55 55 55 56 56 56 56 Maximum Demand MW 219 240 261 291 325 366 404 435 480 531 584 643 695 763 833 908, 9.8 Nos. of Consumers . 19791/ Domestic 79,799 86,604 97,998 113,950 122,670 263,815 287,500 312,900 340,500 370,400 420,900 438,000 476,000 519,000 566,000 617,000 673,000 8.9 Smll Indostry 2,909 3.064 3,246 3.480 3,753 8,711 9,150 9,600 10,100 10,600 11,100 11,700 12,300 13.000 13.700 14.400 15.000 5.1 Large Industry 54 56 56 62 63 63 63 63 63 64 64 65 66 67 68 69 70 Comercial 22,834 24,200 24,311 26,509 28,402 86,812 92,900 99,400 106.100 113,100 121,000 129,000 137,000 147,000 157,000 168,000 180,000 6.9 Local Authorities 537 548 556 568 591 - - - - - - - - Total 106,133 114,472 126,167 144.569 155.479 359,401 389.613 421.963 456,763 494,164 535,064 578,765 625,366 679,067 736,768 799,469 868,070 8.4 1/ Figures for 1979 and after reflect the overall totals including consumers at present supplied by local authorities.  SRI LANKA SIXTH POWER PROJECT (CEYLON ELECTRICITY BOARD) Organization Chart CHAIRMAN _ VICE CHAIRMAN ________________________ g SECRETARY TO THE BOARD GENERAL MANAGER |ADDITIONALGENERAL ADDITIONAL GENERAL MANAGER MANAGER OPERATION & MAINTENANCE DEVELOPMENT& CONSTRUCTION I.I DEPUTY GENERAL DEPUTY GENERAL DEPUTY GENERAL DEPUTY GENERAL FINANCE MANAGER MANAGER MANAGER MANAGER | PROJECT MANAGER MANAGER GENERATION OPERATING DIVISIONS SYSTEM PLANNING CONSTRUCTION M AWORNAGER RESEARCH& HYDRO DEV. & CENTRAL GARAGE DEV. UNIT UNIT PERSONNEL LEGAL OFFICER INTERNAL AUDIT COMMERCIAL MANAGER j OFFICER MANAGER World Bank - 21440  - 36 - ANNEX 6 SRI LANKA Sixth Power Project (Ceylon Electricity Board) Reporting Requirement The following reports will be provided to IDA. Similar comprehensive reporting was agreed under Credit 372-CE. QUARTERLY (Within 30 days of the quarter-end) (a) PROJECT REPORT A summary of progress under the project with annexes for the following: (i) Project Cost Estimate. (ii) Schedule of Orders and Deliveries of Equipment. (iii) Expenditure and Commitments Statement. (iv) Actual and Forecast Disbursements of the IDA Credit. (b) FINANCIAL REPORT (i) Income, Flow of Funds and Balance Sheet (for the current fiscal year). (ii) Accounts Receivable) ) (iii) Inventories ) (Analysis at end of quarter) (iv) Sales ) ANNUALLY (a) Unaudited accounts and supporting statements (within 4 months of year-end). (b) Audit report (within 9 months of year-end). (c) Financial plan - three year capital and revenue forecast (within 90 days of the start of the fiscal year). (d) CEB's Annual Report (within 6 months of year-end).  - 37 - ANNEX 7 Page 1 SRI LANKA Sixth Power Project (Ceylon Electricity Board) Project Description 1. 132 kV Lines 1.1 Kolannawa to Ratmalana 132 kV transmission line. The work comprises the provision of a second circuit on existing towers over a distance of 12 miles. Ratmalana grid substation is at present fed by a single 132 kV circuit from Kolonnawa. This substation serves the largest industrial centre in Colombo, and the load on it has been growing rapidly. The sub- station was originally equipped with two 15 MVA transformers, and these were later uprated to 18 MVA each by the addition of forced air cooling. In September 1979 the night peak was 34 MW, sustained from 6.30 to 9.30 pm; the day load was 23 MW. New 30 MVA transformers had already been purchased and were ready for despatch from the manufacturer's works by the end of 1979. The Ratmalana substation load can at present be supported on a Sunday by means of the 33 kV subtransmission, which will permit the first 132 kV circuit to be de energized whilst work is in progress on the second. This double circuit line will be tapped near Pannipitiya to feed a new grid substation for the Parliamentary Complex at Kotte and industrial loads in that vicinity. 1.2 There is at present a single circuit 132 kV line from Anuradhapura to Trincomalee via Kantalai. A second circuit will be strung on the existing towers from Anuradhapura as far as Kantalai, from where a new single circuit will depart to Valachchenai. This piece of work is therefore subdivided into two parts: - 1.2.1 Anuradhapura to Kantalai 132 kV transmission line The work consists of stringing a second circuit on existing towers over a distance of 40 miles. 1.2.2 Kantalai to Valachchenai 132 kV transmission line The work is to build approximately 50 miles of single circuit line. Trincomalee is at present served by one 10 MVA transformer and another similar transformer has already been ordered to meet the increasing load. A large flour mill in Trincomalee is expected to be completed in 1980; owned by Prima, of Singapore, it is expected to cost Rs 350 M and will require  ANNEX 7 - 38 - Page 2 9 NW. The coast near Trincomalee is expected to be the scene of the develop- ment of a number of large new tourist hotels in the coming decade; such hotels may be expected to demand up to .5 MW each. At Valachchenai there is a state owned complex of paper mills, which draws 6 MW and is fed only by a 33 kV line from Habarana, 50 miles away. Twenty miles of this line runs through jungle, and poles are frequently damaged by elephants. Losses on the line are high and the reliability of supply at the paper mills is unacceptable. Construction of this 132 kV link will release the existing 33 kV line to serve the territory between Kantalai and Valachchenai, where new settlements will be arising out of the Mahaweli developments. This is good country for growing rice, and the coastal area has potential for tourist hotels. 1.3 Anuradhapura to Chunnakam 132 kV transmission line. The work is to provide a second ciruit on the existing line over a distance of 120 miles. Chunnakam grid substation feeds the largest load centre in the north of the country and is at present equipped with three 10 MVA transformers; the load in September 1979 was 17.5 MW. Tenders have been called for two 30 MVA transformers to replace the present three, thus doubling the capacity. Load flow studies indicate that voltage drop on the line will be unacceptable by the end of 1980, and also that losses will have risen to about 5 MW at peak. The second circuit will cure these problems. The northern part of the country has only one circuit feeding it. There is an 8 MW diesel plant at Jaffna, but this is costly to operate and is not large enough to support the load by itself. The second circuit is needed to give security of supply; without it, the diesel station will have to be run in order to maintain voltage. Chunnakam is the site of a large cement factory taking about 10 MW; because of the shortage of cement manufacturing capacity in the country there are plans to expand this plant. Any outage on the existing line causes loss of production of cement which is both scarce and valuable. This second circuit will also improve security of supply to the Kilinochchi substation, which feeds the Paranthan Chemicals Corporation, an important industrial consumer. The second circuit will have to be installed with the first circuit energised, as there is no 33 kV subtransmission link to this area. 2. 132 kV Substations and Switching Stations 2.1 Valachchenai 132/33 kV Substation. The work will provide 2 bays of 132 kV and 6 bays of 33 kV switch- gear and all associated equipment. The two 10 MVA transformers needed are already on hand.  - 39 - ANNEX 7 Page 3 2.2 Ratmalana 132 kV switching station. The work will add one bay of 132 kV switchgear and accessories. 2.3 Kolonnawa 132 kV switching station. The work will add one bay of 132 kV switchgear and associated equip- ment. 2.4 Anuradhapura. The work will add three bays of 132 kV switchgear and associated equipment. 3. 33 kV Subtransmission Lines The project includes about 500 miles of 33 kV lines, consisting of 40 separate extensions varying in length from 4 miles to 24 miles. Four of these extensions are needed for operational needs such as closing loops. The remainder will serve new loads large enough to provide revenues sufficient to justify the capital cost of the extensions. 33 kV extensions such as these but less than 5 miles in length are normally covered by routine system augmenta- tion provisions in CEB's annual budgets. Attachment 1 to this Annex lists the estimated loads and consumers or other justification for these extensions. 4. Colombo Distribution System The city of Colombo is at present fed from Kolonnawa near the north east boundary of the city. A network of 33 kV cables from Kolonnawa feeds four primary substations, which in turn feed consumer substations by an under- ground network of 11 kV cables. The four primary substations will soon reach the limit of their firm capacity and in order to meet load growth it is planned to increase the capacity of two of the substations (where there is space to do so), and to add two new substations. CEB's engineering studies indicate that the most economical scheme is to install 132/11 kV transformers in the new substations, fed by 132 kV cables from Kolonnawa and Kelanitissa. Because of space restriction and in order to avoid salt pollution from the nearby ocean these substations may be indoors. The work in this section of the project thus consists of: - 4.1 Extension to the 132 kV switchgear at Kolonnawa and Kelanitissa. 4.2 Supply and installation of 13 route kilometers of 132 kV cable to form a single loop connecting the two supply points and the two substations. A tentative route for the cable has been chosen and will be fixed after detailed surveys.  - 40 - ANNEX 7 Page 4 4.3 Supply and erection of two 132/11 kV primary substations, located at Fort and Union Place. Each substation will be equipped initially with two 30 MVA, ONAF transformers, with provision for a third. 4.4 Modifications and additions to the 11 kV underground cable system as necessary to share the load between the proposed new arrangement of six substations. 4.5 The augmentation of existing substations C and D by the addition of a third 33/11 kV, 12.5 MVA, ONAF transformer and accessories at each of them. 4.6 The supply of transformers, switchgear and equipment for 40 consumer substations, 11 kV/400 V, rated 500 to 750 kVA each. (Connection charges to cover the cost of these substations will be levied on the consumers for whom they are constructed). 5. General Distribution This part of the project provides for 250 consumer substations, 33 kV/400 V, of capacities varying from 50 to 500 kVA, and an average of 1/2 mile of 33 kV line with each substation. 6. Vehicles and Tools The project provides for the supply of 25 vehicles outside Colombo and 6 for Colombo. Provision is also made for tools for CEB's forces who will build 33 kV distribution lines. 7. Buildings The project includes various buildings associated with the transmis- sion and distribution system: - an area office, stores and quarters at Valachchenai; depots and quarters at Kilinochchi and Mannar; and quarters at Anuradhapura and Ratmalana. 8. Consultancies, Technical Assistance and Training 8.1 Engineering of 132 kV primary substations and cables. The work required is to review the conclusions of CEB's preliminary studies as to capacity, layout, voltage, etc; to prepare detailed designs, drawings, specifications and tender documents; to assist in the evaluation of tenders and preparation of contracts; to inspect materials and equipment at the factories and during installation on site; to assist with commissioning. The work will be performed in collaboration with CEB's engineers. The estimate provides for about 36 man months of engineering. 8.2 Engineering of 220 kV transmission lines, substations and switching stations required to deliver power from Victoria and Kotmale into the Colombo area. The estimate provides about 3% of a preliminary estimate of the capital cost of these transmission facilities, equivalent to about 90 man months of engineering.  - 41 - ANNEX 7 Page 5 8.3 Management Consultancy. The estimate provides for about 50 man months of consulting services. This is to cover reviewing the operation of the systems installed by consultants in 1973 to ascertain why management information is no longer being produced, and to rectify this deficiency; and to provide for advisers to management while experience is gained. 8.4 Some foreign exchange costs may be incurred for training CEB staff overseas in order to accomplish training objectives which are to be agreed with IDA.  ANNEX 7 ATTACHMENT 1 - 42 - Page 1 List of 33 kV Subtransmission Lines Legend: T - town I - industry B - bulk supply RE - rural electrification scheme WESTERN DIVISION Miles KVA Remarks W 1. Udugampola - Minuwangoda 4.5 150 Interconnection. 3RE W 2. Willattawa Junction-Chilaw 8 750 llB, 10I, 5RE W 3. Divulapitiya-Minuwamgoda- Kotugoda 11.5 2,000 7B, 4T, 4RE W 4. Agalawatto-Kalawana 14 850 41, 71, 4RE W 5. Hattipola Bowatte (Kurukandiya) 10 2,500 6I, 2T, 4RE W 6. Mawaramandiya-Yakkala 12.75 3,000 101, 5T, 5RE W 7. Ingiriya-Ratnapura 23 3,000 12I, 5T, 8RE, Interconnection W 8. Baduwatta (Colombo/Ratnapura Rd.) Kurugammodara (Panadura/Ratnapura Rd.) 10 1,500 6I, 4T, 4RE W 9. Radawana-Miriswatte 8 750 5I, 4T, 2RE W10. Radawana-Dompe 10 1,200 4I, 5T, 3RE Wll. Palavi-Rajakdaluwa 20 - 6RE, Interconnection Bolawatta/Puttalam Grid Substation  ANNEX 7 ATTACHMENT1 Page 2 SOUTHERN DIVISION Miles KVA Remarks S 1. Keembiya to Baddegama 6.5 800 4B, 4RE, Interconnection Galle-Deniyava Subs. S 2. Nagoda to Talgaswela 4 550 6B S 3. Makumbura-Batemulla 8 100 2RE S 4. Talgaswela-Pitigala 8 100 2RE S 5. Malpudanella-Udugama 20 1,380 9B, 5RE CENTRAL DIVISION C 1. Ambepussa-Edurapotha 9.7 500 2B, 4RE C 2. Kawatayamuna-Matale to Naula 14 600 3B, 4RE C 3. Yatigaloluwa-Polgahawela to Narammala 7 250 5RE C 4. Ragala-Haraspedda and Watumulla 6.5 250 5RE NORTHERN DIVISION N 1. Talawa-Tambuttegama-Ranjangana 6.5 150 3RE, Irrigation scheme N 2. Valekadai junction off Valachchenai 4 300 4I, 2RE N 3. Kankesanturai-Kondavil 10 2,200 Replacing old line N 4. Kilinochchi-Paranthan & Mankulam- Mulathivu 50 2,000 12RE, Paranthan Chemicals, tourist hotels N 5. Anuradhapura-Talawa-Eppawela 16 150 4RE, Interconnection A'pura and Habarana Grid Substations N 6. Punkudutivu/Nainativu (Ext.) 6 300 3RE. Now using diesels. N 7. Muthur-Alloi 8 400 2I, 4B, Irrigation N 8. Lovelane-Chinabay 6 1,000 25RE. Replacing old line. N 9. Mampuri-Kalpitiya 20 175 5RE. Fisheries-diesels. N10. Galkulama-Nikawaratiya 20 300 5RE. Interconnection Puttalam/Kurunagala Grid Subs Nll. Puttalama-Mulankandaweli 22 400 Fisheries Corporation Program  ANNEX 7 ATTACHMENT 1 44 Page 3 EASTERN DIVISION Miles KVA Remarks E 1. Karametiya-Mahiyangana 15 450 3B, IT, 4RE E 2. Meephakula-Taldena 4 140 3RE E 3. Koslanda-Wellawaya 9 2,000 4B, 1RE E 4. Kakachchachawatte-Piyangala 5 150 3T E 5. Piyangala-Mahaoya 24 150 1B, 3RE E 6. Mahaoya-Padiyatalawa 12 100 3T, 3RE E 7. Balangoda-Kaltota (Tapped off Wikiliya 33 kV line) 10.5 260 4RE E 8. Obegoda-Siyambalanduwa 16 500 6B, BRE E 9. Thirukkoondaiadimadu-Vakarai 16 600 6RE, 3I, 2 Tourist Hotels  - 45 - ANNEX 8 SRI LANKA Sixth Power Project (Ceylon Electricity Board) Project Cost Estimate Foreign Local Total Foreip Local Total (Rs Thousand) (US$ Thousand) 132 kV Transmission Line.s equivalent Kolonnawa to Ratmalana 2,556 180 2,736 164 12 176 Anuradhapura to Valachchenai 38,520 8,100 46,620 2,469 519 2,988 Anuradhapura to Chunnakam 25,560 1,800 27,360 1,638 115 1,753 66,636 10,080 76,716 4,271 646 4,917 132 kV Sub and Switching Stations Valachchenai 15,300 1,925 17,225 981 123 1,104 Kolonnawa and Ratmalana 5,660 370 6,030 363 23 386 Anuradhapura 8,475 475 8,950 543 35 578 29,435 2,770 32,205 1,887 181 2,068 33 kV Subtransmission Lines 500 miles 115,000 43,900 158,900 7,372 2,814 10,186 Colombo Distribution System 132 kV Switching 3,875 400 4,275 248 26 274 132 kV Cables 57,142 6,756 63,898 3,663 433 4,096 132 kV Substations 60,518 20,600 81,118 3,879 1,321 5,200 11 kV Network modification 12,165 800 12,965 780 51 831 Primary Substations augmentation 14,105 2,000 16,105 904 128 1,032 Consumer Substations 13,000 13,000 833 833 160,805 30,556 191,361 10,307 1,959 12,266 Other Distribution 125 miles 33 kV line 12,500 15,000 27,500 801 961 1,762 250 substations 30,750 7,500 38,250 1,971 481 2,452 43,250 22,500 65,750 2,772 1,442 4,214 Vehicles and Tools 8,250 8,250 529 529 Buildings 7,000 7,000 449 449 Consulting Services 24,550 6,650 31,200 1,574 426 2,000 CEB's Supervision 8,143 8,143 522 522 447,926 131,599 579,525 28,712 8,439 37,151 Contingencies - Physical 44,682 13,159 57,841 2,864 844 3,708 Price 123,041 73,014 196,055 7,887 4,680 12,567 615,649 217,772 833,421 39,463 13,963 53,426 Customs Duty 154,059 154,059 9,876 9,876 TOTAL PROJECT COST 615,649 371,831 987,480 39,463 23,839 63,302  SRI LANKA SIXTH POWER PROJECT (CEYLON ELECTRICITY BOARD) Construction Schedule 1980 1981 1982 1983 1984 _ I 1 2 | 3 4 1 2 3 4 1 2 3 4 1 2 3 4 132 kV line Kolonnawa to Ratmalana _ , . 132 kV line Anuradhapura to Valachchenai ,J .. t _ _ 132 kV line Anuradhapura to Chunnakam _ ... Grid Substation Valachchenai _ Switching stations Kolonnawa and Ratmalna C leee _ Switching station Anuradhapura ........** ... 33 kV Subtransmission Lines iii ee . * -.-. ..- . 33 kV Distribution lines and substations - iii .. ..