Sri Lanka - Second Water Supply and Sewerage Project

Document of FILE COpy The World Bank FOR OFFICIAL USE ONLY Repor No. P-2820-CE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SECOND WATER SUPPLY AND SEWERAGE PROJECT May 21, 1980 This dKumeut bs raideted dstribution and may be used by reipients only In the perfonance of thdr ofcial duts. ts contents my not otberwise be disclosed without World BDnk authoriwton.  CURRENCY EQUIVALENTS US$1 = Rs 15.6 1/ Rs 1 US$0.064 Rs 1 million = US$64,103 MEASURES AND EQUIVALENTS 1 acre (ac) = 0.405 hectare (ha) 1 mile (mi) = 1.609 kilometers (km) 1 liter (1) = 0.22 Imperial gallons (Ig) or .26 US gallons (g) 1 cubic meter (cu. m) = 220 Imperial gallons or 264.2 US gallons ABBREVIATIONS AND ACRONYMS CIDA - Canadian International Development Agency SFD - Saudi Fund for Development WDB - National Water Supply and Drainage Board WHO - World Health Organization Imgd - Million imperial gallons per day Ig - Imperial gallons lcd - liters per capita per day mld - million liters per day FISCAL YEAR January 1 - December 31 1/ At the time of appraisal, current exchange rate of US$1 = Rs 16.3.  FOR OFFICIAL USE ONLY SRI LANKA SECOND WATER SUPPLY AND SEWERAGE PROJECT Credit and Project Summary Borrower: The Democratic Socialist Republic of Sri Lanka. Beneficiary: National Water Supply and Drainage Board (WDB). Amount: US$30 million equivalent. Terms: Standard. Relending Terms: Government would relend the proceeds of the credit to the WDB for 24 years, including five years of grace, with interest at 9% per annum. Project Description: The project would improve the existing water supply system serving Greater Colombo area. It would also improve the sewage collection system serving Colombo and extend the system to adjacent urban areas. The project would include the following major items: (a) Water Supply. Construction of a river water intake on the Kelani Ganga and a transmission main to Ambatale treatment plant. Construction of water treatment components to increase the capacity of Ambatale treatment plant. Construc- tion of a pumping station and transmission main to convey water to Kolonnawa. Construction of a distribution reservoir, pumping station and transmission main at Kolonnawa. (b) Sewerage. Construction of sewage collection and conveyance facilities in Colombo, Kolonnawa and Mt. Lavinia. Construction of sewage disposal facilities including two ocean outfalls. (c) Other Items. Provision of replacement and spare parts required for repair of existing plant and equipment. Provision of miscellaneous items of new plant and equipment. Provision of consulting services for: supervision of construction of the sewerage component; detailed design of a further package of works; a water dis- tribution system study for the Greater Colombo area; a solid waste collection and disposal study for the Colombo Municipal area; and an organization and management study for WDB, including implementation of management procedures and policies and training for WDB staff in new procedures. 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.  Training of WDB personnel in water treatment, plant operation and management, accounting and financial management. The project faces no major risk. WDB, assisted by consultants to supervise construction of sewerage component, would be competent to implement the project. Estimated Cost: 1/ US$ Million Equivalent Component Local Foreign Total Water Supply Civil Works 4.7 0.5 5.2 Equipment 1.5 6.2 7.7 6.2 6.7 12.9 Sewerage Civil 14.0 1.7 15.7 Equipment 10.1 21.6 31.7 24.1 23.3 47.4 Other Items Spare Parts, Vehicles and Equipment - 2.0 2.0 Engineering: Consultants 0.3 1.5 1.8 WDB 1.5 - 1.5 Technical Assistance 1.4 2.4 3.8 Training - 1.0 1.0 Land Acquisition 1.0 - 1.0 Harbor Charges 1.9 1.9 Sub-total 6.1 6.9 13.0 Base Cost Estimate 36.4 36.9 73.3 Physical contingencies 2.8 1.5 4.3 Price contingencies 9.4 7.0 16.4 Sub-total 12.2 8.5 20.7 Total Project Cost 48.6 45.4 94.0 Financing Plan: US$ Million Equivalent Source IDA 30.0 Saudi Fund for Development 30.0 Government 34.0 Total 94.0 1/ Includes taxes and duties of US$12 million equivalent.  - iii. - Estimated US$ Million Equivalent Disbursement: IDA FY 1981 1982 1933 1984 1985 Annual 0.7 8.4 11.5 6.4 3.0 Cumulative 0.7 9.1 20.6 27.0 30.0 Economic Rate of Return: 4.6%, based on incremental water sales alone. Staff Appraisal Report: No. 2904 of May 15, 1980   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SECOND WATER SUPPLY AND SEWERAGE PROJECT 1. I submit the following report and recommendation for a proposed development credit to the Democratic Socialist Republic of Sri Lanka for the equivalent of US$30.0 million on standard IDA terms to help finance a second water supply and sewerage project. The proceeds of the credit would be relent to the National Water Supply and Drainage Board (WDB) for 24 years, including five years of grace, with interest at 9% per annum. Saudi Fund for Development (SFD) is expected to participate with a loan of US$30.0 million equivalent. PART I - THE ECONOMY 1/ 2. The most recent economic report, "Development in Sri Lanka: Issues and Prospects" (Report No. 1937-CE, March 22, 1978) was distributed to the Executive Directors on March 23, 1978. An economic mission visited Sri Lanka in December 1979 and prepared an economic report which is being distributed. This section draws on the findings of that mission. Country Data are provided in Annex I. 3. After several years of relative stagnation, Sri Lanka's economy is experiencing rapid growth and unprecedentedly high levels of savings and investment. This remarkable turnaround is explained by the Central Bank of Ceylon as the "spontaneous reaction of a long repressed economy to its liberalization by the new economic policies initiated in 1977." Until 1977, Sri Lanka's growth performance was below both need and potential. Although GDP growth in the 1960s, at 4.4% per annum, was above the average for low income countries, growth slackened sharply in the 1970-77 period to 2.9% per annum, just below the average for low income countries. Through much of this period, the terms of trade deteriorated steadily, eroding even these modest gains: as a consequence, per capita gross national income rose by a mere 0.9% per annum during the 1960-76 period. The slowdown in economic growth in the 1970-77 period is attributable to a combination of factors, including inadequate investment, poor management of the economy and a policy environ- ment unconducive to growth and investment, which were compounded by bad weather and a sharp rise in the cost of imported food and fuel. 4. The three tree crops--tea, rubber and coconuts--which are still the mainstay of the economy, suffered from low replanting and inadequate in- centives. These problems were exacerbated by a dual exchange rate, introduced in 1968, that discriminated against these crops, and by the uncertainties surrounding a protracted nationalization (1972-75) of the larger estates. 1/ This part is substantially the same as Part I of the Report and Recommen- dation of the President to the Executive Directors on a credit to the Democratic Socialist Republic of Sri Lanka for a Telecommunications Project (Report No. P-2698-CE, dated April 24, 1980), which was approved on May 15, 1980.  After the exceptional output growth of the 1960s, rice yields and cropping intensities declined in the 1970s due to poor institutional support. Invest- ment in manufacturing was low, and the inefficiency of most public and private sector firms nurtured in a highly protected environment resulted in industrial growth of less than 2% per annum. The only bright spots were subsidiary food crops and industrial exports which benefited from good incentives. 5. An inadequate public savings effort, caused by inelastic revenues and an uncontrolled increase in recurrent expenditures, inhibited public investment. Private savings and investment were constrained by an unfavor- able policy environment. The high incremental capital output ratio in the 1970s (5.5 as against 3.5 in the 1960s), reflected the fact that the invest- ment that did take place was both inefficient and highly capital intensive. 6. The poor growth rates and the slow changes in the structure of output matched neither the jobs nor the changes in employment structure that the labor force required. Slow output growth, the excessive capital intensity of investment, the mismatch between the job aspirations of those with post- primary education and the jobs available to them, the post war demographic bulge, and rising female participation rates contributed to a massive increase in open unemployment, estimated at over 1 million, or nearly 20% of the labor force in 1977. 7. In sharp contrast to this poor economic performance, Sri Lanka's social achievements in relation to per capita income have been outstanding. Sri Lanka has about one and one-half times the life expectancy, almost thrice the literacy, one-quarter the infant mortality and half the birth rate that would be expected for a country at its per capita income level. Nutrition levels have been adequate, and in the 1960s there were parallel gains in income distribution. 8. Improvements in the quality of life, in particular the rise in health standards, the spread of education and the availability of subsidized food, have been important factors in the decline in mortality. The increasing age of marriage, the spread of female education and employment, and a vigorous family planning program, have also contributed to a sharp decline in fertility. As a consequence, the growth rate of population has dropped from 2.6% per annum in the 1953-63 intercensal period to 2.0% per annum in the 1963-73 period. Allowing for net migration, population is currently increasing at only 1.7% per annum. 9. The gains in the social field were made possible by favorable initial conditions. Compulsory primary education was introduced as early as 1901. The food ration was introduced in 1942. Thus, at the time of Independence in 1948, Sri Lanka already enjoyed high levels of adult literacy and life expectancy. These initial gains were consolidated and expanded in the post-Independence period through large expenditures on social services and the food subsidy, which accounted for two-fifths to one-half of government revenues in the 1960s and early 1970s. These expenditures were traditionally financed by harnessing the surpluses of Sri Lanka's three major tree crops (tea, rubber, and coconut), which provided the Government with both an easy revenue source and foreign exchange earnings. These surpluses began to disappear in the late 1960s as government policies discriminated against these crops and the terms of trade  - 3 - deteriorated. With growth in other productive sectors in the economy also decelerating in the 1970-77 period, the budgetary resources available for sociaL programs were squeezed by inelastic revenues and rapid inflation. As a consequence, expenditures on social services other than the food subsidy began to decline as a proportion of total current expenditures and GDP, threat- ening the hard won gains in health and education. In sum, the economy was no longer generating the resources needed to sustain a large program of welfare expenditures. Moreover, the very size of those programs reduced the scope of policy makers to shift resources to development. 10. The policy changes introduced in 1977, following the election of the United National Party, were intended to break this vicious circle. The new Government identified its objectives as the revival and resuscitation of the economy and increased employment through (i) increased capacity utili- zation in the productive sectors, (ii) stimulation of savings and investment, and (iii) efforts to encourage exports and import substitution in foodgrains. A program of policy reforms was developed in close consultation with the IMF. Its principal aim was to dismantle controls over resource allocations and initiate price adjustments with a view to establishing more realistic relative prices. These reforms were supported initially by an IMF standby arrangement covering 1978 for SDR 93 million. On January 26, 1979, the Fund's Executive Board approved an SDR 260 million Extended Arrangement covering the 1979-81 period. 11. The following broad policy reforms have been introduced: Exchange Rate Reform: The exchange rate was unified on November 16, 1977 at a depreciated rate of Rs 16 = US$1.00 and allowed to float. This implied a depreciation of 46% against the official rate prevail- ing prior to unification, 11.2% with respect to the Foreign Exchange Entitlement Certificate rate, and 29.5% with respect to a transactions- weighted average rate of the two markets. 1/ Import Liberalization: The trade and payments regime was liberal- ized. With the exception of foodgrains and petroleum products, public sector import monopolies were terminated. Prior licensing of imports was abolished for all but a handful of commodities. The tariff structure was revised and simplified. Interest Rate Reform: To encourage financial savings and discourage speculative imports, interest rates were raised sharply. Price Controls: These ended for most commodities. Budgetary Policies: The unification and depreciation of the exchange rate caused tree crops export tax revenues and the cost of food, fertilizer and petroleum subsidies to rise sharply. Business Turnover 1/ Prior to unification, all exports other than tea, rubber and coconut products and all imports other than food, fertilizers and drugs were channelled through the certificate market. Since November 1972, the FEEC rate was maintained at a 65% premium over the official rate.  - 4 - Tax rates were substantially lowered and rationalized to be con- sistent with the new import tariff and exchange rate. To limit the increase in cost of food subsidies, rice and sugar rations were initially confined to the poorer half of the population, and the subsidy on imported wheat flour was reduced through a series of adjustments in the domestic price. On September 1, 1979 the Gov- ernment introduced a system of food and kerosene stamps for families with monthly incomes less than Rs 300 to replace specific food sub- sidies and rationing, and to target benefits to the poorest. Ini- tially about seven million persons were issued with food and kero- sene stamps. To offset the adverse impact of these changes on real incomes, public sector wages have twice been adjusted upwards, and in February 1978 an income supplement was introduced at Rs 50 per month to benefit the poorest households in which one or more persons had no gainful employment. Public corporations were asked to pass on cost increases, except in the case of fertilizer, petroleum, milk and public transport, where price increases were initially deferred to cushion the impact on consumers. The Government has subsequently made sizable adjustments in flour, rice and sugar prices, bus fares, and petroleum prices. The burden of subsidies and transfers has, as a consequence fallen from around 9% of GNP in 1978 to around 5% in 1980. These changes, taken together with higher aid receipts, have permitted a sizable step up in capital expenditures. Tax Reform: The tax structure has been rationalized and simplified with a view to increasing the elasticity of revenues. The burden of personal and company taxation has been lowered. Agricultural Pricing Policies: The domestic procurement price for rice was increased by 21%. With the related increase in flour prices, incentives for paddy and other flour substitutes benefited. Fresh coconut prices have also been increased by 30% and the export duty on coconut products has been appropriately adjusted. While the uni- fication of the exchange rate ended formal discrimination against tree crops, the export duty on tea was initially set at a level which effectively siphoned off most of the benefits to the Government. As tea prices fell and production costs rose in 1978-79, the Government responded to the reduced producer margins by a lowering of taxes on tea. Further adjustments in both the structure and level of tea taxation will be needed to maintain and improve incentives. 12. The economic reforms have been accompanied by a major effort at stepping up public investment. The Government's capital expenditures jumped from 6% of gross national product at market prices in 1977 to an average of 13% in 1978 and 1979, as government departments responded to an improved budgetary resource position by embarking on long overdue replacement invest- ments and new projects that had been shelved earlier for lack of resources. The Government has also embarked on four major new programs which are to be the lead projects in a five-year rolling public investment program. These are: (i) Accelerated implementation of the Mahaweli Ganga Development Program, by  far the largest multi-purpose river basin development ever undertaken in Sri Lanka; (ii) a 200 square-mile free trade zone north of Colombo under a newly constituted Greater Colombo Economic Commission which has established the first Investment Promotion Zone near Colombo's international airport, Katuna- yake, and is planning others, and has approved some 92 proposals involving a total investment of US$176 million by December 1979; (iii) a massive housing and urban renewal program with its main focus on the Colombo metropolitan region; and (iv) the construction of a new capital complex at Kotte, a suburb of Colombo. 13. These four programs will together cost an estimated Rs 25 billion, or 43% of the projected Rs 60 billion public investment program over the 1980-84 period. The Government's tentative macro-economic scenario envisages public investment taking one-half of total investment which is expected to average an ambitious 23% of GNP in 1980-84 as against 16% in the early 1970s. To enable this increase to materialize, gross domestic savings are expected to average 16.3% of GNP, and net external inflows nearly 7%. This implies a substantial increase in external inflows which averaged 2.3% of GNP in the 1970-76 period. Official development assistance is to finance 54% of public investment. 14. The underlying public investment strategy is to balance the large investment requirements of the Government's high priority programs against the urgent rehabilitation and fresh investment needs in other sectors. The main thrust of the public sector program is to lay the foundation for longer term development, both by improving the efficiency of use of existing infrastructure investments and by expanding the longer term growth capacity of the economy. The strategy thus implicitly relies on the private sector to respond to the economic reforms and the stimulus of the public sector investment program, and provide much of the short-term growth. 15. The initial response of the economy to the policy reforms and the accompanying acceleration in public investment has been encouraging. Economic growth between 1977 and 1980 is estimated at an impressive 6.7% per annum. This growth has been shared by almost all sectors of the economy, with the most dynamic sectors being construction, mining and quarrying, electricity, gas and water and manufacturing. The only major exception has been the tree crop sector. This impressive performance is due to a number of factors including the improved availability of inputs following import liberalization, an increased role for the private sector in distribution, and the removal of price controls. 16. Domestic savings reached 15% of GNP in 1978 and 1979, well above historical levels. Financial savings, as measured by fixed and savings deposits, have responded dramatically to the change in interest rates. Public and private investment have also risen sharply, bringing total invest- ment to 20% of GNP in 1978 and 25% in 1979. This has been reflected in a four--fold increase in capital goods imports from $84 million in 1977 to an estimated $350 million in 1979. Much of the investment reflected pent up demanid for replacement of antiquated equipment in industry and transport. Investment approvals in 1978 and 1979 for manufacturing reached record levels; those involving foreign collaboration totalled $300 million, of  - 6 - which over one-half were in the new free trade zone. Although there is little data available on employment, the Central Bank estimates a sizable (1023000) increase in the public sector and organized private sector employ- ment in 1978 as against an increase of 40,000 in 1977. This would have contributed to the fall in open unemployment from an estimated one million to 900,000, or 16% of the labor force. 17. The exchange rate adjustment, other policy induced price increases and related wage increases, and the removal of price controls contributed significantly to inflationary pressures in 1978 and 1979. However, these pressures were moderated in 1978 by a bumper paddy harvest, increased capacity utilization in the economy, increased availability of imports and the benefi- cial effects of competition from imports and in domestic distribution. Thus average annual inflation was held to 9% in 1978. There was a marked deterior- ation in 1979 - average annual inflation rose to 18% (32% on December 1978 to December 1979 basis) due to an acceleration in money supply expansion on account of the continued buildup in gross external assets and the rapid domestic bank credit expansion, and to a sharp increase in construction sector costs, as the increase in investment levels led to shortages of construction materials and skilled labor. 18. Not surprisingly, the current account deficit in the balance of payments rose sharply to $150 million in 1978 and $360 million in 1979. After a strong surge in 1978, merchandise imports rose by a further 41% in 1979 to $1,450 million, or twice 1977 levels, reflecting sizable increases in the cost of petroleum imports, and substantial real increases in non-food consumer goods, intermediate and investment goods imports. Exports rose by a more modest 18% to $900 million in 1979. However, as in 1978, the current account deficit was more than offset by non-monetary capital inflows, resulting in an increase in net foreign exchange reserves by a further $46 million. Gross reserves rose by $121 million to $519 million at end 1979, due largely to drawings on the Extended Fund Facility. Reserves are currently equivalent to about four months imports. Preliminary balance of payments projections for 1980 suggest a further marked deterioration in the current account deficit to $600 million, due in part to the sharp rise in the cost of petroleum imports. Net petroleum imports as a percentage of non- petroleum exports will rise from 14% in 1979 to 26% in 1980. At currently projected aid levels, net reserves are likely to fall by nearly $60 million in 1980. 19. Success in attaining the Government's medium-term development objectives is conditional on a number of factors. The Government will need to carefully continue reviewing the content of its public investment program. As presently proposed, it will severely strain the domestic availability of skilled manpower and construction materials. To the extent that this forces a greater reliance on imports, it will further strain the balance of payments, which is already under severe pressure on account of the oil price increase and other factors that will result in a deterioration in the terms of trade. Moreover, domestic production and exports will need to increase at a rapid rate to ensure the required level of import substitution and export promotion implicit in the Government's macro-framework. This, in turn, will require further efforts to improve price and export incentives, and the quality of management in the public sector, and particularly in the tree crop sector.  A further essential precondition is an adequate level of public savings to generate the required resources for public investment without infringing on the financing needs of the private sector. While the Government has already undertaken a number of important resource mobilization measures, this will need to be an area of continuing vigilance. However, success will ultimately be contingent ei larger aid flows which are needed to ensure that an ambitious development program, with a strong rehabilitation component, can be implemented within the framework of a liberalized import regime. The Government is antici- pating that aid flows will finance over one-half of the public investment pro- gram, including considerable local cost financing. In this way, the Govern- ment's own considerable resource mobilization efforts will be supplemented, while at the same time providing strong balance of payments support during this period of economic transformation. 20. Aid donors have responded enthusiastically to the new policy environ- ment in Sri Lanka. Aid commitments in 1978 from members of the Sri Lanka Aid Group totalled US$362 million, an increase of 60% over 1977. Aid commitments in 1979 totalled a massive $660 million, including $220 million for the acce- lerated Mahaweli Program. The grant element of aid commitments is currently around 63% and is expected to improve further. The debt service ratio in 1979, excluding Fund repurchases, stood at around 8.0%, declining from 15.0% in 1977 and 10.0% in 1978, due to improved export earnings and the decline in outstand- ing short- and medium-term borrowings. PART II - BAN~K GROUP OPERATIONS INi SRI LAN~KA 21. Since the beginning of its operations in Sri Lanka in 1954, the Bank Group has made eight loans totalling US$72.9 million (net of cancellations) and 23 credits totalling US$312.5 million (net of cancellations and exchange adjustments) in support of 29 projects. About 42% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 14% for power, and the remainder for development finance company operations, highways, a program credit (mainly involving the import of raw materials for industry), water supply, road transport, small and medium industries and technical assis- tance. Eight loans and eight credits have been fully disbursed so far. During FY80, IDA credits for a total of US$102.0 million have been approved for a Technical Assistance Project, a Road Passenger Transport Project, a Smallholder Rubber Rehabilitation Project, and a Telecommunications Project. Annex II contains a summary statement of Bank Group operations as of March 31, 1980, together with notes on the execution of ongoing projects. 22. An IFC equity investment of about US$100,000 equivalent in the Devel- opment Finance Corporation of Ceylon (DFCC) and an IFC non-revolving line of credit of US$2.0 million to the government-owned Bank of Ceylon for on-lending to private small- and medium-scale industrial enterprises were approved in FY78. IFC also approved an investment of US$2.32 million in a synthetic textile mill, and US$986,000 in a polypropylene bag manufacturing plant in FY79. IFC has very recently approved an increase in equity investment of about US$51,000 equivalent in DFCC. 23. The Bank Group's current strategy is focused on the agricultural sector to support Government efforts to increase food production and reduce its dependence on food imports, and to raise productivity, employment, incomes  - 8 - and living standards of the rural population in Sri Lanka. Projects to support basic infrastructure are also included. In addition to providing financing for the ongoing Mahaweli Ganga Development Project II and for the Mahaweli Ganga Technical Assistance Project, the Bank Group is assist- ing the Government of Sri Lanka in accelerating the implementation of the Mahaweli Ganga Development Program (para 12) principally through the coor- dination of external assistance for project preparation and implementation. IDA credits recently approved cover road transport, rubber estate rehabili- tation and telecommunications. A power transmission project will shortly be presented for Board approval and a rural development project is in an advanced stage of preparation. 24. The Bank Group presently accounts for 10.3% (IBRD, 3.3%; IDA, 7.0%) of Sri Lanka's total debt outstanding and disbursed, and 6.5% (almost totally IBRD) of debt service. It is projected that the Bank Group's share in total external debt will increase to 19% by 1985 (with the IBRD's share declining to 0.7%). The Bank and IDA shares in the debt service are expected to decline to about 4% by 1985. PART III - WATER SUPPLY AND SEWERAGE IN SRI LANKA General 25. A nationwide summary of water services data from the 1971 census indicates that about 2.0 million people (71%) of the 2.8 million urban popula- tion have access to piped water. Of the 9.9 million rural population, only 1.3 million (13%) have access to piped water. Furthermore, no water supply system consistently provides safe water because: supplies are intermittent; the standard of treatment plant operation is low; supplies of chlorine (an important chemical for disinfecting water) are unreliable; and no authority or agency accepts responsibility for continuously monitoring water quality. 26. Levels of waste disposal services are equally unsatisfactory; only the capital city, Colombo, has water-borne sewerage which currently serves about 50% of its housing units. Of the total 1971 urban population of Sri Lanka, some 23% had flush toilets, 57% had some other form of latrine, and 20% had no service. In rural areas, 2% had flush toilets, 56% had some other form of latrine, and 42% had no service. Despite the Government's endeavors in recent years to satisfy increasing sector demands caused by an expanding population and high rates of urban growth, recent estimates indicate that levels of service have declined since 1971. 27. The urban population is located in 135 communities, 66 of which have piped water and the remaining 69 rely on wells and surface water sources of doubtful quality and poor yield. Only three of the piped water systems provide water on a 24-hour basis, and the quality of water supplied is not always satisfactory. Of the four towns outside the Greater Colombo area with popu- lations exceeding 50,000 (Kandy, Galle, Jaffna and Trincomalee), only Kandy and Galle have a 24-hour piped water service. The WDB has also undertaken projects to improve water supply in some smaller towns, e.g., Kurunegala, Matara, and Mannar under assistance from bilateral donors.  - 9 - 28. The southwestern coastal area of Sri Lanka, the most densely popu- lated sector of the country, depends almost entirely on surface water sources for its piped water supplies. Groundwater sources yield small quantities of water of poor quality, and are frequently polluted by wastes from nearby inadequate sanitation facilities. Although large rivers from the central highlands provide ample water for the southwestern coastal area, the water is frequently turbid and is heavily polluted. Extensive works comprising river water intakes, pumping and treatment plants are therefore essential components of most systems supplying potable water in this area. Water Supply and Sewerage in the Project Area 29. The city of Colombo, the national capital and the largest city in Sri Lanka (estimated 1979 population 0.64 million), forms the central urban core of the project area. Colombo is the principal commercial and industrial center of Sri Lanka and also the center of a large and rapidly growing tourist industry. It is well linked to the remainder of the country by a network of roads, has a large thriving port for international vessels, and has an inter- national airport. The project area includes urban development extending to the south and north of Colombo, designated as Towns South and Towns North, respectively. The estimated 1979 population of the eleven municipal areas in which the project area is located was 1.5 million. The estimated 1979 popuLation of the project area was 1.1 million. The existing piped water suppLy system is insufficient to provide a 24-hour service to the project area and will be supplemented under the proposed project. The capacity of the existing waterborne sewerage system, which at present is not adequate to serve Colombo municipal area, will be increased under the proposed project and the system will be extended to serve part of Kolonnawa and part of the Dehiwala/Mt. Lavinia municipal areas. 30. Failure of the southwest monsoon in 1976 resulted in a severe water shortage and a reduction in the hours of supply to 4 to 6 hours per day. An even more severe water shortage was subsequently averted by the temporary installation of pumps to increase the quantity of water obtained from the Kelani Ganga, at Ambatale, by about 30 million liters per day (mld). This water is chlorinated but is not fully treated, a procedure which cannot con- sistently produce safe water and is, therefore, most unsatisfactory. In recent years it has become increasingly difficult to maintain a 24-hour water supply to Colombo and Towns South, and there is a tendency to draw down the existing impounding reservoirs to levels at which the reliability of these sources is severely reduced. 31. The present Colombo sewerage system is the only waterborne sewerage system in operation in Sri Lanka. It is a separate sanitary system (conveys sewage only and excludes most surface water), most of which was constructed between 1906 and 1913; although there have been some extensions and renewals in recent years, they are limited in extent. Therefore, the system is old and inadequate. Small sewage treatment plants, which were part of the original system and served the northern and southern drainage areas of Colombo, became partially inoperative by 1918 and were finally taken out of service in 1956.  - 10 - Since then, untreated sewage has been continuously discharged to the lower reaches of the Kelani Ganga and to the sea. The sewage collection and con- veyance systems became heavily overloaded by 1951 when the population of the service area reached almost 0.4 million, resulting in flows of about twice the design capacity. 32. Except for small amounts of groundwater from privately constructed shallow wells there are three sources of water serving the project area. Two of the sources are impounding reservoirs, located in upland catchment areas at Labugama and Kalatuwawa, some 44 kilometers (km) from Colombo. These sources have been developed to their full potential to supply about 136 mld of fully treated water, which is equivalent to about 30 million imperial gallons per day (Imgd). 33. The third source of supply is the Kelani Ganga, a large river which has an extensive upland catchment area to the northwest of Colombo and which discharges to the Indian Ocean, close to Colombo. The works, which withdraw water from the Kelani Ganga, treat the water and pump it to the distribution system are located at Ambatale, some 14 km upstream from the coast, and 11 km from Colombo. In mid-1980, the completion of pumping installations at Ambatale (under Credit 709-CE, paragraphs 37-40) will provide a capacity of 183 mld (40 Imgd) at the Ambatale works and a total yield of 318 mld (70 Imgd) of fully treated water from all sources. Colombo and adjacent municipal areas to the south are the only parts of the project area currently receiving piped water. Under the First Water Supply Project which will be completed in 1982, the area of supply will be increased to include adjacent municipal areas to the north of Colombo. 34. The Ministry of Local Government, Housing and Construction has pri- mary responsibility for development of water supply and sewerage facilities throughout Sri Lanka. The Ministry executes its responsibilities through the principal executing agency in the sector, the National Water Supply and Drain- age Board (WDB), and through local authorities. The WDB was created in 1975, from the then Department of Water Supply and Drainage. Since then, it has been responsible for planning, design and construction of water supply systems throughout Sri Lanka, although its activities have been largely confined to water supplies in urban and the larger rural communities. 35. WDB assists local authorities in planning and constructing water supply systems and frequently retains responsibility for operating the head- works of such systems. Most local authorities operate and maintain their own distribution systems and collect revenue. However, in some cases this function is performed by WDB. In the Greater Colombo area, the water sources, transmis- sion and treatment systems are operated by WDB, and water is supplied in bulk to Colombo Municipality and to five adjacent municipalities located to the south of Colombo. 36. Substantial investment in capital works is necessary since parts of the water supply system, as well as substantial parts of the sewerage infra- structure, must be enlarged, renovated or even constructed in their entirety from the water source to the sewage outfall. The comparatively large invest- ment in sewerage reflects the long failure to recognize the growing need to provide adequate sewage conveyance and disposal systems to serve the capital city.  - 11 - Review of Progress of the First Water Supply Project 37. The First Water Supply Project (Credit No. 709-CE of June 30, 1977) was identified from the master plan and feasibility studies of water supply and sewerage services for the southwest coastal area. These studies and the resulting reports were prepared in 1972 by consulting engineers under contract to the World Health Organization (WHO) as executing agency for the United Nations Development Program (UNDP). The project was designed to complete the priority works proposed by the consultants under the master plan and to meet water demands in the Greater Colombo area until 1982/83 when further exten- sions to increase the supply of water to the service area would be necessary. The project covers (a) improvement and extension of the existing piped water supply system serving approximately 1.2 million people in Colombo and five municipalities south of Colombo; and (b) provision of new water supply systems for some 0.4 million people in five municipalities north of Colombo and in the towns of Ambalangoda and Kalutara. To achieve these objectives, the project includes two independent components. One component consists of improv- ing, expanding and integrating the water supply systems serving the Greater Colombo area, while the second provides new piped water systems for Ambalangoda and Kalutara. The project also includes provision of spare parts and equipment, technical assistance and training. The technical assistance component provided consultant services to prepare the engineering designs and tender documents for the project now proposed. 38. In addition to IDA credit of US$9.2 million, the First Water Supply Project also included a CIDA credit of US$4.8 million equivalent. Although the credits were signed in June 1977, credit effectiveness was delayed until February 1978, due to a change in Government and subsequent civil unrest. An EEC Special Action Credit of US$7.0 million equivalent was committed in November 1979 to meet foreign exchange cost overruns and finance part of the civil works costs which were not financed under Credit 709-CE. 39. Many unforeseen difficulties were encountered from the beginning of the First Water Supply Project. The change in Government in July 1977 and subsequent civil unrest delayed credit effectiveness and slowed project implementation in the first year. However, following this period, WDB made remarkable progress in preparing procurement documents for equipment, mate- rials, and civil works. As of March 31, 1980, an amount of US$7.7 million had been disbursed from the credits. This amount is expected to increase to about US$10 million by September 1980. A tariff study has been satisfactorily completed. WDB retained a local firm of consultants to design and place into operation a commercial accounting system suitable for a public utility organ- ization. The system was brought into operation in January 1980 and a team of consultants is training WDB personnel in its use and operation. 40. The metering program included in the First Water Supply Project has fallen behind schedule due to a number of factors, including (a) a long delay in the supply of meters, (b) a reluctance on the part of local authorities to accept the concept of metering, and (c) inadequacy of maps and connections records. These difficulties have now been overcome to a large extent. The Government strongly supports the concept of consumer metering. As a result, the metering program has made good progress in recent months.  - 12 - WDB has now accepted a realistic metering program to install not less than 1,000 meters each month. Under this program, metering in the Greater Colombo area will be completed by 1988. 41. Under the First Project, WDB and the Government agreed to certain measures to correct deficiencies in WDB's management and finance functions. At the time, WDB had recently been formed from a Government department, from which it inherited an accounting system which served as a record of cash receipts and payments; neither a balance sheet nor an income statement was prepared. Because of the inadequate accounting system and management pro- cedures, the management neglected financial control as a tool for operating WDB; WDB was reluctant, or even unable, to begin operating as a comercial- oriented public utility rather than a government department. All parties recognized that correcting these deficiencies required time and would become possible only as WDB management gradually increased its appreciation and acceptance of a commercial type of operation. There has been progress in improving WDB's management and finance functions, but it is now clear that the task of management and financial reform is greater than was originally envisaged. PART IV - THE PROJECT 42. The proposed project, which was identified from the master plan, was prepared by WDB with the assistance of engineering consultants and appraised by an IDA mission in January/February 1980. Negotiations were held in Washington in April 1980. The Government delegation was led by Mr. R. Paskaralingam, Secretary, Ministry of Local Government, Housing and Construction. A supplementary Project Data Sheet is attached as Annex III. Project Description 43. The project contains two major components. The water supply compo- nent would supplement the First Sri Lanka Water Supply Project by providing for the treatment, transmission and distribution of an additional 125 mld of water to the Greater Colombo area, sufficient to meet demand in the project area until 1990. An increase in the number of public taps would greatly enhance access for poorer sections of the community. A more intensive program to detect distribution system losses and repair existing mains, as well as a program to meter all connected domestic consumers, would be implemented with the proposed project. 44. The sewerage component was prepared with the help of consultant services provided under the First Water Supply Project. This component would improve the sewage collection and conveyance system in Colombo and in parts of Kolonnawa and Dehiwala/Mt. Lavinia. The project would include the con- struction and renovation of about 30 km of sewers, 15 sewage pumping stations, 20 km of force mains, and the construction of two ocean outfalls for the safe disposal of sewage. It will serve an area of 40 sq. km. and provide adequate capacity for all properties in the sewered area to be connected.  - 13 - 45. Institution building is a major objective of the project. To achieve organizational and management reforms, consultants would be retained, as a condition of effectiveness, to: (a) identify a suitable organizational structure for WDB; (b) recommend improved management procedures and policies; and (c) bring into operation systems and procedures for billing, stores management, financial accounting and control (draft DCA, Section 6.01(c)). In addition, a management adviser would be assigned to WDB by January 1, 1981 (draft DCA, Section 3.03). The adviser would report to the Chairman, WDB and Secretary to the Ministry of Local Government, Housing and Construction. 46. Other items of technical assistance under the project would provide for: detailed engineering design of a further group of water supply and sewer- age works; a water distribution study for the Colombo Municipal area and adjacent towns to the south; and a solid waste collection and disposal study for the Colombo Municipal area. Training under the project would be directed towards most categories of WDB's supervisory staff including: finance and management staff, sewerage engineers, plant chemists and plant superintendents. Organization and Implementation 47. Detailed engineering designs for the project have been completed by consulting engineers under the direction of WDB engineering staff. As execut- ing agency for the project, WDB will have a separate group of engineers formed as a project unit to implement the project. Although WDB has staff capable of carrying out the water supply component, it has few engineers with experience in sewerage works. As a condition of effectiveness, the Government would engage engineering consultants to supervise sewerage construction (draft DCA, Section 6.01(c)). As regards finance and accounting staff, frequent turnover is a major problem. WDB would retain the services of a firm of accountants if its finance and accounting staff is unable to perform the duties assigned to it. The project is scheduled to be implemented over a five-year period; this program is realistic since most contracts are expected to be ready for award as soon as the credit becomes effective. 48. Local authorities are now responsible for operation and maintenance of the water distribution systems in the project area. WDB will take over, by December 31, 1981, retailing of water and sewerage services in Colombo and adjacent municipalities to the south (draft DCA, Section 3.06). It will also then be responsible for maintenance and operation of the distribution systems. The Government has undertaken to obtain the acceptance of the appro- priate local authorities to this institutional rearrangement. 49. Under the provisions of Law No. 2 of 1974 establishing the WDB, owners of properties located within 100 meters of a public sewer system may be required to connect to the system. The Government would by January 1, 1982 implement a satisfactory program to provide assistance to lower income property owners to meet the cost of sewer connections (draft DCA, Section 3.04).  - 14 - Financial Aspects 50. An accounting system based on commercial principles was adopted when WDB was established as a separate financial entity in 1975. However, imple- mentation of the system has proceeded slowly due in part to WDB's extra- ordinarily rapii growth. As a result, statements for the period (1975-78) are satisfactory only as an indication of operating performance. Under the First Water Supply Project, WDB was to generate an annual surplus sufficient to return 5% on historically valued net fixed assets in operation within the project area in 1978 and 6% in 1979. In 1978 and 1979, within the project area, WDB realized rates of return on historically valued net fixed assets in operation of 8% and 7.5% respectively. As of December 31, 1979, within the project area, the debt/equity ratio was 38:62, providing an adequate margin for further borrowing; on WDB's entire operations, the debt/equity ratio was even better at 23:77. Liquidity is sufficient to assure continued smooth financial operations. 51. Currently, WDB's revenues within the project area accrue from bulk water charges to local authorities. The bulk water rate has increased annually from Rs 0.60/1,000 Ig in 1977 to Rs 1.35/1,000 Ig, effective January 1980. The local authorities, in turn, have attempted to cover these bulk water charges and expenses related to water distribution by allocating between 30% and 60% of property tax revenues to this service. However, WDB's slow progress in implementing a program under the first project to meter all connected domestic properties has limited local authorities' ability to charge for water. WDB will install meters on existing property connections at a rate of at least 1,000 meters per month and install meters, where appropriate, on all new connections (draft PA, Section 3.05). User charges for water will be trans- ferred to a metered basis, district by district, as soon as meters are in place. In addition, WDB will complete the installation of bulk meters by June 30, 1981 (draft PA, Section 3.06). 52. The tariff structure recently accepted for implementation by the Government is based on the principle of marginal cost pricing. Commercial and industrial consumers, many of whom are already metered, are to be charged Rs 12.44/1,000 Ig, which is the rate computed for WDB as long term marginal cost of water. Similarly, the Government will increase the rate for water consumed at public taps to the long-term marginal cost of water and pay for water consumed at public taps. Metered consumers will receive sufficient water to meet basic needs at nominal cost, approximately an equivalent amount of water at a rate somewhat above that being effectively charged under the current property tax allocation, and all additional consumption at marginal cost. In order to minimize consumer resistance to metering and direct tariffs, the domestic charges would be increased to full rate over a five-year period. WDB will further receive revenues for sewerage services, based on 70% of water revenues, from the Government and relevant local authorities until 1983; in 1984 and thereafter, these sewerage revenues will include a component of user charges and thus will be shared between the users, the local authorities, and the Government (draft DCA, Section 4.01(a)). The formula for the estab- lishment of levels of sewerage user charges will be agreed by the Government, WDB and IDA prior to their introduction in 1984 (draft DCA, Section 4.01(b)). The Government will take all steps necessary, including adjustment of tariffs,  - 15 - to maintain WDB's aggregate revenues in the project area at a level sufficient to produce a minimum rate of return of 8% on revalued fixed assets in 1982 and thereafter (draft DCA, Section 4.02(a)). Although WDB's asset base is expected to expand considerably as a result of the addition of assets from the First Water Supply Project and the proposed project, a metered tariff supplement by sewerage revenues outlined above has sufficient revenue generation potential to realize an 8% return on revalued net fixed assets. For operations outside the project area, WDB would ensure that these are not subsidized from project area revenues (draft DCA, Section 4.02(b)). 53. Government has agreed to impose a tariff which provides WDB with the maximum user revenue given the low level of affordability in the greater Colombo area. The bottom third of Colombo's income distribution will receive water free at public taps; despite this, projections show that half of the project area's household connections will pay more than 6% of their available income for water, even assuming a decrease in consumption of about 25% from present levels. The tariff makes maximum use of the limited base for cross- subsidization; the principal business establishments in the project area, mostly small, family operated commercial enterprises, enjoy little real economic strength. 54. WDB has experienced relatively little difficulty in collecting its revenues. While local authorities frequently lacked the liquidity to make timely payments of their water bills, the First Water Supply Project included an agreement that the Government guarantee the timely remittance of these payments. WDB has relied heavily on this guarantee for collection from local authorities. Because of the cash requirement imposed by WDB's continued rapid rate of growth, timely revenue collection continues to be a high priority for WDB. Under the proposed project, the Government will continue to ensure timely payment of WDB bills by local authorities (draft DCA, Section 3.02). Assis- tance by consultants will be provided for development of an efficient and effective revenue operation within the project area. 55. Under the aforementioned arrangements, WDB would, commencing in 1982, be financing about 25% of its capital investment program in the project area from internal cash generation. WDB would not incur any long-term debt unless the 12-month net revenues, prior to realization of debt service requirements, would cover such maximum future debt service at least 1.5 times (draft PA, Section 4.04). Project Costs and Financing 56. The estimated cost of the project is US$94.0 million, of which US$45.4 million represents foreign exchange costs and US$12.0 million repre- sents taxes and duties. Physical contingencies have been calculated at rates varying between 4% and 15%, depending on the type of work. Price contingen- cies have been calculated assuming annual inflation of 21% for 1980, 15% for 1981, 12% for 1982 and 10% for 1983 and 1984, for domestic costs; and 10.5% for 1980, 9% for 1981, 8% for 1982 and 7% for 1983 and 1984, for foreign costs. 57. Engineering consultants' charges for supervision of sewerage con- struction is estimated at 4% of base cost of the component. The cost of  - 16 - engineering consultants' services for feasibility and detailed designs for a future project is estimated to be US$1.5 million, 6% of the estimated con- struction cost of US$25 million. For the study on the water distribution system, 150 man-months of local services and 60 months of expatriate services would be required at a total estimated cost of US$1.0 million. The cost of the organization study, including implementation and training, iF estimated at US$0.7 million, covering 500 man-months of local services and 20 man-months of expatriate services. 58. The proposed IDA credit of US$30.00 million would provide 37% of the cost of project excluding duties and taxes. The Saudi Fund for Development (SFD) is expected to participate with a loan of US$30.0 million equivalent on a parallel financing basis. The proposed SFD contribution would finance another 37% of the cost of the project excluding duties and taxes. The balance (US$34.0) million) would be provided by the Government. A list of goods and works to be financed out of its loan has been proposed to SFD. We intend to finalize this list in consultation with the Government and SFD. SFD loan is expected to be signed later this year. This will be in line with implementation requirements of the projects. A special condition of effectiveness would be a commitment of the proposed SFD assistance (draft DCA, Section 6.01(d)). In the event that SFD finance is not forthcoming the Government would provide alternative financ- ing from either some other donor or its own resources. 59. The proposed credit would be relent to WDB as a government loan at an annual interest rate of 9% and a term of 24 years, including a five- year grace period. Interest will accrue during the grace period. Execution of the subsidiary loan agreement between the Government of Sri Lanka and WDB would be a condition of effectiveness (draft DCA, Section 6.01(b)). The Government would bear the foreign exchange risk. 60. Although the average annual rate of inflation has risen sharply since 1978, reaching 18% in 1979, it is expected to peak in 1980, and decline to about 10% in 1983. The current inflation is largely a result of policy- induced price adjustments in administered prices and short-term demand-supply imbalances in certain sectors, most notably construction. The Sri Lankan authorities expect production to respond positively to the price changes and liberalization of the economy, and together with a tight rein over government budgetary deficits and credit expansion, to cause a slowdown in the rate of inflation by 1981. Subsequently, domestic inflation is expected to come more closely in line with international inflation. Procurement and Disbursement 61. All contracts for equipment and materials and all civil works contracts financed under the credit will be awarded under international competitive bidding procedures in accordance with the Association's guide- lines, with the exception of items costing less than US$100,000 with an aggregate value of no more than US$1.0 million. Such items would be procured under local procedures which are acceptable to the Association. Most contracts, except those for construction of short lengths of small diameter sewer, are expected to be won by foreign contractors.  - 17 - 62. Disbursements under the credit would be made as follows: (a) 100% of foreign expenditures on directly imported, 100% of local expenditures (exfactory) on locally manufactured and 60% of expenditures on locally pro- cured equipment and materials; (b) 100% of total expenditures on civil works excluding sewers and force mains; and (c) 100% of expenditures on training and consultant services. A preference margin of 15% or the currcnt rate of import duty, whichever is less, would be granted to local equipment manu- facturers competing under international competitive bidding. A preference margin of 7-1/2% would be allowed to local contractors in evaluating civil works bids. Benefits and Risks 63. Based only on the value of incremental water sales, the project has an economic rate of return of 4.6%; however, most of the benefits of the project cannot be measured in economic terms. With the present inadequacy of water supplies and waste disposal, the Colombo area and adjacent towns face serious threats to health and economic vitality. Water supplies at public taps are available for only 2-4 hours a day and on an irregular basis. Middle and upper income households maintain continuity of water supply by construct- ing storage tanks. Thus, hardships imposed by present irregular supplies tend to affect the poorer sections of the community more than middle or higher income groups. The quality of water is doubtful; treatment works are operat- ing beyond capacity and in order to meet demands, untreated water is being pumped directly from river intakes to the bulk water supply. Problems of availability and quality of water are being addressed by the First Water Supply Project. However, these investments will be insufficient from about 1982 when a water deficit is again expected. Government is introducing metered charges for water in order to encourage conservation. The sewerage system is severely overloaded and is overflowing into city streets. Raw sewage is being dumped directly into the Kelani river within the municipal limits of Colombo; outbreaks of cholera and typhoid have occurred repeatedly over the past decade as a consequence. 64. The proposed project would increase the supply of potable water and upgrade sewerage facilities. In addition, it would further strengthen the institutional capacity of WDB to design, build and operate water and sewerage works. The project would allow an increase in the number of household water connections serving almost 0.5 million more people. By 1991, the number of public taps would be doubled, serving about half of the project's benefi- ciaries, thus increasing accessibility and reducing waiting time. 65. The sewerage component will improve sanitation and public health in the area by eliminating the overflow of raw sewage to the storm-water drain- age systems and streets. Construction of ocean outfalls will eliminate the dumping of raw sewage into the Kelani river and hence reduce health hazards in the project area. Oceanographic studies of the outfall designs have shown that adequate dispersion will be achieved and the likelihood of surface con- tamination or shore pollution will be minimal. 66. The project would benefit the entire Colombo area population of 1.5 million by significantly reducing the threat of epidemics of water and sanita- tion related diseases. Water-borne and sanitation-related disease in Sri  - 18 - Lanka is one of the more major persistent threats to health in an otherwise healthy nation. Gastro-enteric infections, soil borne helminths, and skin infections account for about 26% of hospital admissions and about 16% of deaths in hospitals. Information on the diseases seen in clinics and health centers is not available, but it is probable that common water-borne diseases are presented more frequently at these facilities than at hospitals. Minor gastro-enteric complaints probably do not routinely receive medical attention but are likely to disable victims for one to four days per episode. In 1973- 1976 an outbreak of cholera appeared in the project area. Standards of hygiene and water use are high in Sri Lanka; greater availability of water and the safe disposal of wastes will significantly reduce the incidence of water and sanitation-related diseases. The project would also reduce the vulnerability of the tourist industry to a potential loss of markets due to outbreaks of disease. Furthermore, the improved reliability of the water and sewerage services would improve economic opportunities. 67. In addition to providing safe and continuous supply of water to all sections of the community and institutional reforms allowing more efficient delivery of service, the project will extend consumer metering and introduce tariffs that are affordable. These would discourage waste and excessive consumption, yet provide sufficient water to meet essential daily requirements at affordable cost. 68. The risks involved in this project are no greater than can normally be expected with operations of this type. Because the project involves mod- erately large and complex civil engineering works, there is a risk that tempo- rary shortages of materials, delays on the part of manufacturers in meeting contractual delivery schedules or lack of management skills during the con- struction phase will lead to delays. There is also a risk that the extensive sewerage works, which are unavoidably located in the already congested streets of Colombo, will seriously disrupt the normal flows of activity in the city. However, WDB is aware of these risks and, with experience gained during the first project and the assistance planned under the proposed project, is expected to be able to minimize their impact. PART V - LEGAL INSTRUMENTS AND AUTHORITY 69. The draft Development Credit Agreement between the Democratic Socialist Republic of Sri Lanka and the Association, the draft Project Agree- ment between the Association and WDB and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 70. Special Conditions of the credit are listed in Section III of Annex III. Additional conditions of effectiveness include the appointment of con- sultants for supervision of sewL ige construction and for the organization, management and finance study, and the commitment of SFD loan. 71. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.  - 19 - PART VI - RECOMMENDATION 72. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments May 21, 1980  - 20 - Annex I TABLE 3A Page 1 of 6 pages SRI LANMA - SOCLAL INDICATORS DATA SHEET STIO LANMA 117ERICE GROUPS (ADJUSTED ADAGES LAND ARYA (TEOUSAIC SQ. CH. ) -MOST aLECENT ESTL NATE TOTAL 65.6 SAME SAME NET HIGHER AGRICULTURAL 24.2 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 /b ESTIMATE lb REGION /c CROUP /d GROUP > GNP PfR CAPITA (USS) 60.0 100.0 190.0 191.1 209.6 467.5 MERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 107.0 153.0 106.0 69.1 83.9 262.1 POPULATION AND VITAL STATISTICS POPULATION. KID-TEAR (MILLIONS) 9.9 12.5 14.1 URRAN POPULATION (PDCENT OF TOTAL) 17.9 21.9 24.3 13.2 16.2 24.6 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 21.0 STATIONARY POPULATION (MILLIONS) 30.0 YEAR STATIONARY POPULATION IS REACHED 2070 POPULATION DENSITY PER SQ. EM. 151.0 191.0 215.0 M6.6 49.4 45.3 PER SQ. 04. AGRICULTURAL LAND 507.0 518.0 583.0 330.2 252.0 149.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 Yrs. 42.1 41.9 38.0 44.3 43.1 45.2 15-64 YrS. 54.3 54.5 58.0 52.4 53.2 51.9 65 YES. AND ABOVE 3.6 3.6 4.0 3.1 3.0 2. 8 POPULATION GROWTH RATE (PERCET I TOTAL 2.5 2.4 1.7 2.4 2.4 2.7 IRBAN 4.8 4.3 3.7 4.1 4.6 4.3 CRUDE 8I1TS RATE (Pt THOUSAND) 36.0 30.0 26.0 44.4 42.4 39.4 CRUDE DEATH RATE (PER THOUSAND) 9.0 7.0 6.0 16.4 15.9 11.7 GROSS REPRODUCTION HATE 2.5 2.3 1.8 3.2 2.9 2.7 FAMILY PLANNING ACCEPTORS. ANNUAL (THOUSANDS) .. 55.3 113.0 USERS (PERCENT OF MARRIED WOMEN) .. 8.0 44.0 7.9 12.2 13.2 FOOD AND NUTRITION INDEX OF POOD PRODUCTION PER CAPITA (1969-71-100) 89.2 103.0 120.0 99.4 98.2 99.6 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQuIRaMENTS) 98.0 94.0 91.0 93.0 93.3 94.7 PROTEINS (GRAMS PER DAY) 46.0 43.1 42.6 56.1 52.1 54.3 OF WHICH ANIMAL AND PULSE 13.7 11.8 8.9 10.4 13.6 17.4 CRILD (AGES 1-4) MORTALITY RATE 7.0 3.0 2.0 19.2 18.5 11.4 HEALTH LIFE EVPECTANCY AT BIRTH (TEARS) 62.0 67.0 69.0 49.1 49.3 54.7 INFANT MORTALITY RATE (PER .HOUSAND ) 63.0 51.0 47* L .. 105.4 68.1 ACCESS TO SAFE WATER (PERCENT OF POPULATION) MOTAL .. 21.0 10.0 31.5 26.3 34.4 JRgAN .. 46.0 45.0 63.9 s8.5 57.9 RURAL .. 14.0 13.0 20.1 15.8 21.2 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 64.0 59.0 15.7 16.0 40.8 7RBAN .. 76.0 68.0 66.8 45.1 71.3 RURAL .. 61.0 55.0 2.5 3.5 27.7 POPFLATION PER PHYSICLAN 4500.0 .. 6230.0JR 7107.9 11396.4 6799.. POPULATION PER NURSLNG PERSON 4150.0 2730.0 2240.0 12064.0 5552., 7522.1 POPULATION PER ROSPITAL BED TOTAL 330.0 330.0 330.0 2738.4 1417.1 726.5 URBAN .. 130.0 140.0 .. 197.3 272.7 RLRAL * 570.0 600.0 .. 2445.9 1404.4 ADMISSIONS PER EOSPITAL SED . 54.0 51.3 .. 24.8 z7.5 HOUS ING AVERAGE SIZE OF HOUSEHOLD TO.AL ~.'f 5.8 .. . 5.3 5.4 UTRAN 6.3/f 6.3 -. .9 5.1 RURAL 5.2/f 5.5 .. .. 5.. 5.5 AVERAGE NUMBER OF ?ERSONIS PER ROOM MOTAL ..3/f 2.5 .. :RSAN -. f Z. 7 - RURAL 2.0/f Z. 5 ACCESS *o ELEC-RICTY /PERCENT DF DWELL:NGS) -O-AL - i5 9. 3 * -23. 28.1 RSAN 35. 9,f 34. .. .. i7.d .. RURAL 2.37T 2.d .. .. .. 9.9  - 21 - Annex I Page 2 of 6 pages TABLE 3A SRI LANIA - SOCIAL INDICATORS DATA SHEET SRI LAA REFERENCE GOUPS (ADJUSTED )yACES - MOST RECENT ESTIMATE - SAME SAME NEXT HIGHER MosT RECENT GROIAPRIC INCOME INCOME 1960 lb 1970 /b ESTIMTE lb RlGION /c GROUP /d GROUP /e iDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 99.0 77.0/i 59.5 63.3 82.7 MALE 100.0 104.0 80.01 74.9 79.1 87.3 FEAIL 90.0 94.0 73n.o 43.7 48.4 75.8 SECONDARY: TOTAL 27.0 51.0 55.0 19.5 16.7 21.4 HALE 38.0 50.0 54.0 27.8 22.1 33.0 FEKALE 16.0 51.0 56.0 10.0 10.2 15.5 VOCATIONAL ENROL. (% OF SECONDARY) .. 1.0 1.0 1.3 5.6 9.8 PUPIL-TEACHER RATIO PRIMARY 31.0 .. 29.0 42.2 41.0 34.1 SECCNDARY .. .. .. .. 21.7 23.4 AWLT LITERACY RATE (PERCENT) 75.0/h 77.6 78.1 25.5 31.2 54.0 CONSUMPTION PASSENCER CARS PER THOUSAND POPULATION 8.0 7.0 6.8 2.3 2.8 9.3 RADIO RECEIVEIRS PER THOUSAND POPULATION 36.0 .. 36.0 15.5 27.2 76.9 TV RECEIVERS PER THOUSAND POPULATION .. .. .. .. 2.4 13.5 NEWSPAPER ("DAILY GENERAL INTEREST') CIRCLATION PER THOUSAND POPULATION 36.0 49.0 .. 6.2 5.3 18.3 CINEMA ANNUAL ATrENDANCE PER CAPITA 3.0 .. 4.0 *- 1.1 2.5 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3391.0 4188.0 4707.0 FEMALE (PERCENT) 22.6 23.7 28.5 21.4 24.8 29.2 AGRICULTURE (PERCENT) 56.3 55.1 54.0 66.3 69.4 62.7 INDUSTRY (PERCENT) 13.5 14.4 15.0 9.6 10.0 11.9 PARTICIPATION RATE (PERCENT) TOTAL 34.3 33.5 34.6 35.8 36.9 37.1 MALE 50.8 49.2 48.2 52.3 52.4 48.8 EEHALE 16.2 16.5 20.3 15.7 18.0 20.4 ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.2 1.3 1.2 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF ROUSEHOLDS 26.4 .. 18.6 .. .. 15.2 1IGHEST 20 PERCENT OF HOUSEHOLDS 52.1 43.4 42.8 .. .. 48.2 LOWEST 20 PERCENT OF HOUSEHOLDS 4.5 7.5 7.3 .. .. 6.3 LOWEST 40 PERCENT OF HOUSEHOLDS 13.7 19.2 19.3 .. .. 16.3 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. .. 86.5 99.2 241.3 Rt'RAL .. .. .. 74.2 78.9 136.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 91.9 179.7 RURAL .. .. .. 50.4 54.8 103.7 ESTIMATED POPULATION BELOW POVERTY LNCOME LEVEL (PERCENT) URPAN .. .. .. 44.3 44.1 24.8 RURAL .. .. .. 52.4 53.9 37.5 Not available Not applicable. SOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c South Asia; 'd Low Income ($280 or less per capita 1976); /e Lower Middle Income (S281-550 per capita, 1976); /f 1963; /g Begistered; /h 1962; 'i 1973; Li public education only. Most Recent Estimate of GNP per capita is for 1978. August, 1979  - 22 - ANNEX I pZrEW GM OFSOr-JZ, =rATCASPage 3 of 6 pages Ploise; Although the data or dean fro soone genrally Juged the met authtrit&ti'@ e,d reliable, it hold also be nted that they ay1 oot he intena- ti .ai . ompnrahl osoa of the lank of nt-aadadind dtnltinn end tcpoepe usd by itffer*,i coutries in coileotieg the date. The date r,nntoe. useful to. des-ibe orders of aeeitude, Ledionte trends end ohareteise -et.it sajor differe-osbhtosen -ot1inite5 Th 1ng 1gpu,-vr es: for .-Jh ledintor se popolaoioa-night.d geaeetrio er,eoidt. the extrem eueofthe Indicator ad the -ut poyuated noantr ti a roup Iu t lan Io data, g p avrg,o l niaosfor Cepital1 duplu- Ol apertere nod f Indicators of Ac...ee to dater- ra .. Zrta Dinesa, hcusng,InomeDteribilo ed -tvrty for ote -cutry greupe r0pQpulatlo,-.5ighted gemri n L titlot -noluol of the eotree vaus a In r ns.., ocs ttToft Dersel potn fpnui.in totluhnen oa - Total etofase urea tomyroetog lud -e end bled eater.. _~Tep. oa,uhe,sdcrl evd teoreta tl.epola deiulu4 - net repet e.titosn of egi-oltur.1 area used tepr"riiy M.eretegre of their repeoti-rpouatos.mrn,. disposal eq Iolude or peu-etly foetrv pasture, neket ed titchen gerde or to the oUItleoti ad dispoesI, cith or uwithot treataent, of hinsen errete lirfello ad eete-nater byf 0.0r-born systes or the use of pit prLines eNd sile GNP POCAPITA (US$) - tKP per -pita .etitatn at ourret serie priocs, irptepnet,,I $ i -Ppltion ablide byotrf patnig phye;iais amiIet.dto by sae oner- o -ethod as dorid B.O dtls. (1976-78 besis); ..iFiYomidolehoo t nvreit'y lee.ro rt. it,9"' t i 197 no 9$daaO,rlna s Purin Persom nito hiided by number of pr,aonioing sale 17W M U)PTIO PlO CAPITA - Pnnual onnumtion of osiaenrr nod for.i,s graduate uss preetia1 nurse, end aeistestnrss '74li6'onte,eriuu cdiirigo u ydo-,,tuI;r end ge-PotuIation pr HospitalbPd t.totl. -obe. nod rual ouato tota, u-tno, thermal eleuritoy Iv ilogrno of oa equ ireet pe 96t;1*0, odra)divided by their r-p-ottoi ue fhsia esaalbet 1970, nod 1976 dana. ~~~publI ed private . genra nod eilohhosyt tal nod rebabll'tati- o-ntr.- 1970, -d 1911's ~~~~~~~~~~~~~hospitals arc establinat.t pernontlu' tAffed by at least -e phy.ioL-o POftUATION ADI VfTAL. lATIST77 Es.hblichmonts providing prL-nipally cus tod. Iacr r not Inoldn. Fura Toal7punto. cidifear aillion) - hA. of JulIy It 1*0, 1973, nod hoepituls, no.e.er, inolude he.Itb and aedie vtier out pe nnly utafie fl7Tdeoa. ~~~~~~~~~~~by ap I 'ioi 'hut by a medloal anebetnt, su,rer, midnifo, io. ) uno :fI Urhsn PnuI,to vevet of total) - Rtatl of urba to total popo1ntioo; in-patient uoeodatinn end p-oids aJieited vr-ge of csdioal ncloi differeot orfinitbooc of ~rhen areas e n.ffeot vomperabiluty of date Addminsiou ochoeital hd - Total number of neneeto or tlIshargen fros efg9o6r0s il 1955, nd 1977 Oetm . t ipto.in diIde by tho outer of bed-. y - Cret popja.tiot pro,tetione ar asud on _____ 217ctei popuatIon by gc ad -c end trts eartaliny and fertility Arere-, lieo oshold proos per hiuenL.I) -total cr0.0 ad rrl rates yrl; to paeoeefr eprtonlity rate. oumprise of ithee 0 ousehold osne fagou fi divdaaootare lio-d ;uarte- -o Ieve: aseumug -if rctenc at birh icragn ith ooutry' e their nubi eeal. A ooader or lo4gdge qo sfttt tcdo h pe a ito.oo level, nod fe-al ofe eoctnay tehiloinghnt..ousehod for etatlati-a orens 7-. 5 pears~. Thc -ae ters for fertiliyrate also hart three lI.ei. Averse ounnr o oeen e om- toa-Ihn o rura -Average totte aumcgd-oi-e in fertilI ty norolng toiooi leve nod Paet ofprocpr onl otn drua ouid otretoa ot-2.Ic_cc f Iit oaigprfnao.tutoty1ethe -nslgod oeof these reepetively. toeIliogs etolds o-oenn tut.nndivu:uorv nIne coehintio- of mortality aud frly irosfrpooto ceeo lorot eco fdeloo oa,iOs o ii Diativerytcuonto - i a otatIou-y populatio there inc. gru-th tota, irha, to rura dtelliog r-peoti-ely. ocuoc vte horth rate on eqlt thc death rate, nd aLso the .ge truotu eceo ontart This -note-d -ly nftc, fertilIty raten EDItuA:c etalloe o tIe rerL-eto level of -it .ti rprodunti-t rate, oheu.Aot nrln ao enbjort- tohtcorpee otne eonouy. The snatio.tno poPo- Pit000- -tta,al end fenale-Irose .tot, tale to n eaoonol lntiotsooeoaao tlmateo 00the heelo ofthe poeedhentrninetofalestoinPrIery level aspcreatng-c of ..ssetlve or na of the yoptlatioo1 vh. year 000, nod the rove f ce-lin of fertility s.oln. py.aion oolyinluecide ae hL er rite to el. sti lee._.cteoo different c-gtho of prieary suaio routzt0 tear etatio..ary pplto ivenhed - The year nOon sititary pnpulati-oo o varuuoa~d tio- enrol-en eq ....ed lOt peretooe oerpl -ieOeleccahed. ar eo rthr o fioa.ooiae PouaInDensity deodycnol-tta,ml nod female optdn t 0 eoo. per ... o..- Odd-year populstin per sqnr killomner (lo etre)o0dcotoCrqie nt ..eet for ya o apoe Y.romas-;-I otutl t.t.l ZZ. ~~~~~~~~~~~~~~~~prerdee geea-I aina,o teeher trainingI otoiot for Po;il.s F* . eareatorl en - Cospted - eho fnr WAoslsn les u LalyIf L2 to 17 yemenr of ag; orepeee nsesaegenerally pnwuAnLoni AgeSton-twe bper-t) - Children (0-10 years.), emrhimg-eg eetoa enrltatt oron of eseodeep)- nainl Intitutions inoud. (15-64 ya.,a reie 0 ee d ovr epereanaen. nf S.d-pee tsehaloal, iutria, rother peegra edith oprate ladepeettotly or a =osane 1960' 1970, ad 1977 data. dptrtents of .eeeeedao Institutions ppats rsoRate (peroemi) it.W Anneal x-eth rates of totel id. "itItmhrrto-otr edsenay-Ttlsuet. enrolld In per epltimsfr Se,.o, 9.-0,ad 97-7. prir ad snone evl hi.ide by muhrstof teahers ho tOe cy-- Pemu4ln 0-veO` at1 pecet - urai-Ana grath rates of urban epecAidi levels pcp.lmtiee for 199000,196070,Ma 197-77.A~t Irc 9p.47rg.fret5..}.prnnt - Litrnie edulto (sOle to rea ad -it.) an C-" W t. ?5 th-W)- Annual lice hinds psr thoused of eid- I"691$ag tat oii tpoPIetlatio aged 15 Year ad over. jOn ofali&1960, 1970, enid 1977 data. Tfl49D