Sri Lanka - Eighth (Diesel) Power Project

Document of - ! v The World Bank P t ,-; FOR OFFICIAL USE ONLY Report No. P-3351-CE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE CEYLON ELECTRICITY BOARD WITH THE GUARANTEE OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR AN EIGHTH (DIESEL) POWER PROJECT June 7, 1982 This document has a restricted distribution and may he used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  SRI LANKA EIGHTH (DIESEL) POWER PROJECT CURRENCY EQUIVALENTS US$1.00 = SL Rs 20.5 SL Rs 1.00 = US$0.049 MEASURES AND EQUIVALENTS 1 kilometer (km) = 0.6214 mile 1 kilovolt (kV) - 1,000 volts 1 megavolt ampere (MVA) = 1 million volt amperes = 1,000 kilovolt amperes 1 megawatt (MW) I 1 million watts - 1,000 kilowatts 1 kilowatt hour (kWh) = 1,000 watt hours I gigawatt hour (GWh) 1 million kilowatt hours ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank CEB - Ceylon Electricity Board CPC - Ceylon Petroleum Corporation GOSL - Government of Sri Lanka LRMC - Long-Run Marginal Cost MASL - Mahaweli Authority of Sri Lanka SRI LANKA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA EIGHTH (DIESEL) POWER PROJECT Loan and Project Summary Borrower: Ceylon Electricity Board (CEB). Guarantor: The Democratic Socialist Republic of Sri Lanka. Amount: US$42.7 million equivalent, including the capitalized front-end fee of about US$0.7 million. Terms: 20 years, including a grace period of 2 years with interest at 11.6% per annum. The Government of Sri Lanka (GOSL) would bear the foreign exchange risk. The Borrower would pay GOSL a guarantee fee of 1% per annum. Project Description: The project aims at constructing an 80 MW diesel station as a least cost solution to help CEB meet both the short-term power shortage through mid-1984 and the long-term need for thermal generation through 1990. Main components of the project are: (1) engines and generators; (2) electrical plant and equipment; (3) civil works; and (4) technical services including engineering consultancy. The main risk associated with the project is that it will run late and the added generation capacity will not be available when most needed from the end of 1983. US$ IMillion Equivalent Estimated Cost: Foreign Local Total Engines and Generators 27.0 1.2 28.2 Electrical Plant and Equipment 5.0 0.1 5.1 Civil Works and Buildings 6.0 6.3 12.3 Training and Technical Services 2.0 0.3 2.3 Sub-Total 40.0 7.9 47.9 Physical Contingency 2.0 0.8 2.8 Project Cost 42.0 8.7 50.7 Customs Duties - 3.3 3.3 Total Project Cost 42.0 12.0 54.0 Front-end Fee on Loan 0.7 - 0.7 Total Financing Required 42.7 12.0 54.7 | 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- Financing Plan: US$ Million Equivalent Foreign Local Total IBRD 42.7 - 42.7 CEB - 12.0 12.0 Total 42.7 12.0 54.7 Estimated Disbursement: US$ Million Equivalent IBRD FY FY83 FY84 FY85 Annual 13.5 /a 28.1 1.1 Cumulative 13.5 41.6 42.7 Economic Rate of Return: 14% Staff Appraisal Report: No. 39816-CE, dated May 20, 1982 Map: 16386 IBRD /a Includes a front-end fee of about US$0.7 million.  INTERNATIONAL BANK FOR RECONTSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE CEYLON ELECTRICITY BOARD FOR AN EIGHTH (DIESEL) POWER PROJECT 1. I submit the following report and recommendation on a proposed loan to the Ceylon Electricity Board (CEB) with the guarantee of the Democratic Socialist Republic of Sri Lanka in an amount of US$42.7 million equivalent to help finance an Eighth (Diesel) Power Project. The loan would have a term of 20 years, including 2 years of grace, with interest at 11.6% per annum. The Government of Sri Lanka (GOSL) would bear the foreign exchange risk. GOSL would charge CEB a guarantee fee of 1% per annum on the outstanding amount of the Bank loan. PART I - TIIE ECONOMY 2. The most recent economic report, "Economic Adjustment in Sri Lanka: Issues and Prospects" (Report No. 3901-CE, May 27, 1982), was distributed to the Executive Directors on May 27, 1982. Country data are provided in Annex I. 3. After several years of relative stagnation, Sri Lanka's economy has experienced sustained growth. This growth has been the direct result of the economic liberalization of 1977, and the development push associated with it. Until 1977, Sri Lanka's growth performance had been below both need and potential. Although GDP growth in the 1960s, at 4.4% per annum, was above the average for low income countries, it 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 1970-76 period. The slowdown in economic growth in the 1970-77 period was attributable to a combination of factors, including inadequate investment, poor management of the economy, and a policy environment not conducive to growth and investment; these factors were compounded by poor weather in some years and a sharp rise in the cost of imported food and petroleum. 4. The three tree crops--tea, rubber, and coconuts--which are still the mainstay of the economy, suffered from low replanting and inadequate incentives. These problems were exacerbated by a dual exchange rate system, introduced in 1968, that discriminated against these crops, and by the uncer- tainties surrounding a protracted nationalization (1972-75) of the larger estates. After the exceptional output growth of the 1960s, rice yields and cropping intensities declined in the 1970-77 period due to poor institutional support. Investment in manufacturing was also low, and the inefficiency of  - 2 - most public and private sector firms, nurtured in a highly protected environ- ment, resulted in growth of manufacturing of 1% 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 uncontrolled growth in recurrent expenditures, inhibited public invest- ment. Unfavorable policies further constrained private savings. The slow growth rates and changes in the structure of output provided neither the jobs nor the employment structure for a growing labor force. The low output growth, the excessive capital intensity of investment, the mismatch between the job aspirations of those with post-primary education and the jobs avail- able to them, the post-war demographic bulge, and the rising female par- ticipation rates contributed to a massive increase in unemployment, estimated at over 1 million, or some 18% of the labor force in 1977. 6. 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 which would be expected for a country at its per capita income level. Nutrition levels have been adequate, and in the 1960s paralleled gains in income dis- tribution. These improvements in the quality of life, in particular the rise in health standards, the spread of education and the availability of sub- sidized 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, population growth, net of migration, has dropped steadily, from 2.7% per annum in the 1953-63 period to 2.2% per annum in the 1963-71 period, and 1.7% per annum during 1971-81. 7. Favorable initial conditions induced these social gains. Compul- sory 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, expenditures which accounted for two-fifths to one-half of government revenues in the 1960s and early 1970s. These expenditures were traditionally financed by capturing the surpluses of the three major tree crops, which provided the Government with easy sources of revenue and foreign exchange. These surpluses began to decline in the late 1960s as government policies discriminated against tree crops and export unit prices weakened. As growth in other productive sectors also decelerated in the 1970-77 period, the budgetary resources available for social programs were squeezed between inelastic revenues and rapid inflation. As a consequence, expenditures for social services other than the food subsidy began to decline as a proportion of total current expenditures and of GDP, threatening the hard-won gains in  - 3 - health and education. In short, the economy could no longer generate the resources needed to sustain the large program of welfare expenditures. Moreover, the very size of those programs reduced the scope for policy makers to shift resources to development. 8. 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 sustained revival and resus- citation of the economy and increased employment through (i) increased capacity utilization in the productive sectors, (ii) stimulation of savings * and investment, and (iii) efforts to encourage exports, and import substitu- tion in foodgrains. A program of policy reforms was developed in close consultation with the IMF. 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 which covered the 1979-81 period. The principal aim of the reform program was to dismantle controls over resource allocation and initiate price adjust- ments with a view to establishing more realistic relative prices. By 1980, these goals had largely been achieved. 9. The program of reforms comprised a number of major policy initia- tives. The exchange rate was unified 1/ on November 16, 1977, at a depreciated rate of Rs 16 = IJSS1.00 and allowed to float. This implied a depreciation of 46% against the official rate prevailing prior to unifica- tion, and 11.2% with respect to the Foreign Exchange Entitlement Certificate (FEEC) rate. The trade and payments regime was liberalized. Public sector import monopolies were almost entirely terminated. Prior licensing of imports was abolished for all but a handful of commodities. The tariff structure was revised and simplified. Other budgetary taxes and subsidies were adjusted to reflect the change in trade and exchange rate policies. In particular, rice and sugar rations were confined to the poorer half of the population, and the food subsidy was eliminated through a series of adjust- ments in administered prices. On September 1, 1979, the Government intro- duced a system of food and kerosene stamps for families with monthly incomes of less than Rs 300 to replace specific subsidies and food rationing, and to target benefits to the poor. To help offset the adverse impact of these changes on real incomes, public sector wages were periodically adjusted upwards. Public corporations were asked to pass on cost increases, except for fertilizer, petroleum, milk, and public transport, for which price increases were initially deferred to cushion the impact on consumers. The Government subsequently eliminated the overall subsidy on petroleum products 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 - and made sizable adjustments in bus and train fares, electricity and fer- tilizer prices. The burden of selected subsidies and transfers, as a conse- quence, fell from around 10% of GDP in 1977 to around 3% by 1981. These changes, and higher aid receipts, have helped permit a sizable increase in capital expenditures. 10. Agricultural pricing policies have changed dramatically. The domestic support price for paddy was increased by 21% in November 1977, by 25% in November 1980, and by a further 15% in the course of 1981 following substantial increases in fertilizer prices. With the related increase in flour prices, incentives for paddy and other flour substitutes benefited. 9 At the same time, there was a large policy-induced decline in the role of the state in domestic rice trade. Fresh coconut prices were also increased, and in November 1981, the system of fixed and variable duties which had effec- tively insulated the large domestic coconut market from the world market was replaced by a sliding scale export system that allowed some linkage between the two markets. While the unification of the exchange rate ended formal discrimination against tree crops, high export duties, particularly on tea, continued to siphon off most of the operating surplus for the Government. As tea prices fell and production costs rose in 1978-79, the Government responded to the reduced producer margins by lowering taxes on tea exports. The Government also ended most price controls, and reformed the interest rate and tax systems. The burden of company and personal taxation was lowered, and the taxation system was rationalized to increase revenue elasticity; nevertheless, the overall revenue elasticity to economic growth and domestic inflation remains low as taxes on slowly growing tree crop exports still average over 30% of current revenues. Interest rates were also raised sharply to encourage savings and discourage speculative imports. However, inflation eroded these rates and in April 1980 further upward adjustments were made. 11. These economic reforms were accompanied by a major effort to step up public investment. The Government-s capital expenditures jumped from 6% of GDP in 1977 to an average of 13% in 1978 and 1979, and 19% in 1980, as government departments responded to the initial improvement in the budgetary resource position and embarked on long overdue replacement investments and new projects that had been shelved earlier for lack of resources. At the same time, the Government undertook three 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 multipurpose river basin development program 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 of several Investment Promotions Zones near Colombo-s international airport and by end-1981 had signed agreements with 68 investors involving a total investment of US$100 million; and (iii) a massive housing and urban renewal program with its main focus on the Colombo metropolitan region, including the construction of a new capital complex at  - 5 - Kotte, a suburb of Colombo. Budgetary expenditures on these three programs will amount to Rs 34 billion, or 34% of projected budgetary resources over the 1982-86 period. The underlying public investment strategy seeks to balance the large investment requirements of the Government-s high priority programs with the urgent rehabilitation and fresh investment needs in other sectors. The main thrust of the public sector program is to lay the founda- tion for longer-term development, both by encouraging efficient use of exist- ing infrastructure investments and by expanding the longer-term 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. Private fixed investment responded well, increasing from about 7% of GDP in 1977 to 12% by 1980, and helping overall fixed investment to exceed 31% of GDP in 1980. 12. In response to the policy reforms and the accompanying acceleration in investment, economic growth in 1978-81 averaged an impressive 6.5% per annum. This growth was shared by almost all sectors of the economy, par- ticularly construction and services. The only major exception has been the tree crop sector. The otherwise 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. Although there is little information avail- able on employment, Central Bank estimates suggest that unemployment dropped from 18% of the labor force to 15% between 1977 and 1979. 13. Despite this strong performance, major weaknesses in economic performance had emerged by 1980. In particular, the national savings effort had not matched the rapid rise in investment. Gross national savings fluc- tuated around 15% of GDP during the 1978-80 period, while recourse to foreign savings to finance the higher investment rose from 4.5% of GDP in 1978 to 20.0% in 1980. Although the Government has succeeded in containing the costly consumer subsidy and transfer programs, expenditures on which have declined as a percent of GDP (para 9), relatively inelastic revenues combined with steadily rising other recurrent expenditures and declining terms of trade resulted in hardly any public savings over the 1978-80 period. As a result, the Government has financed its rapidly rising capital expenditures through foreign aid, and increased domestic borrowings. Initially the Government met its domestic financing requirements through non-expansionary borrowings from captive financial institutions, which could mobilize increased private savings following the interest rate reform. However, resources raised through these channels have not grown as rapidly as the budgetary deficit, and the Government was increasingly forced to undertake expansionary borrowings from the Central Bank. Between 1978 and 1979, these rose from 0.4% to 1.2% of GDP and in 1980 increased sharply to 10.5% of GDP. It has also resorted to the use of foreign commercial loans to help finance the deficit, borrowing US$50 million in 1980, and US$75 million in 1981.  -6 - 14. Inflation has also increased sharply since 1977. The exchange rate adjustment, the other policy-induced price increases and related wage increases, the removal of price controls, and the build-up of external assets, which added to the money supply, contributed significantly to infla- tionary pressures in 1978 and 1979. However, these were moderated by bumper paddy harvests, increased capacity utilization in the economy, increased availability of imports, and the beneficial effects of competition from imports and in domestic distribution. Since then, rapid growth in the broad money supply--38% in 1979 and 32% in 1980-- added a sizable "built-in" increase to the system. Together with the corrective price increases designed to reduce budgetary subsidies and keep pace with rapid increases in international petroleum, wheat and sugar prices, these pressures caused inflation (as measured by the Colombo Consumer Price Index) to accelerate from an average of 11% in 1978 and 1979, to 26% in 1980. 15. Rapid expansion in economic activity has been reflected most vividly in the balance of payments. Import volume growth since 1978 has averaged 15%. Between 1978 and 1980, the net petroleum import bill more than tripled and increased from 11% to 36% of non-petroleum exports, while capital goods imports more than doubled in response to the acceleration in invest- ment. However, exports have shown barely any volume growth as declining tree crop export volumes offset the strong growth in garments exports. These adverse trade volume trends were compounded by an 18% terms of trade deterioration over the same period. The rapid growth in tourism receipts and private remittances from abroad in this period failed to offset the deterioration on the trade account and the current account deficit rose from $124 million (4.5% of GDP) to $805 million in 1980 (20.0% of GDP). In 1978 and 1979, rapidly rising non-monetary capital inflows due mainly to increased net aid disbursements more than offset the current account deficit, and Sri Lanka continued to add to its net international reserves, albeit at a declin- ing rate. In 1980, however, net international reserves fell by $220 million, and by end-1980 gross international reserves stood at $377 million, or equiv- alent to less than nine weeks of imports of goods and non-factor services. With the rapid drawdown in reserves, the public sector has begun to make significant use of commercial financing. 16. The Government, realizing in early 1981 that continuation of the 1980 trends would risk continued high inflation and unsustainable pressures on the balance of payments, took corrective steps. Budgetary expenditures were held below their 1980 level in nominal terms, implying significant cuts. Capital expenditures declined significantly from 19% of GDP in 1980, to about 14% of GDP, and were held to below their 1980 level in nominal terms. As a result, the overall deficit declined from 23% to 16% of GDP; bank borrowings, from 10.7% to 4.5% of GDP. Similar improvement was achieved in the balance of payments, where the current account deficit declined from 20% to 15% of GDP, and net international reserves declined by only an additional $33 mil- lion over 1980. Due mainly to large disbursements under the IMF Extended  - 7 - Arrangement and Compensatory Financing Facility, Sri Lanka's gross interna- tional reserves increased to $451 million, equivalent to about 11 weeks' imports coverage. The stabilization measures also resulted in a significant decline in inflation--the Colombo Consumer Price Index averaged 18% growth during 1981, compared to 26% in 1980. Despite the significant achievements in 1981, continued strong measures will be needed throughout the medium term to ensure that budgetary expenditures are consistent with overall economic stability, as many of the large development schemes the Government has initiated are only now beginning to peak. Sri Lanka will also have to care- fully monitor balance of payments developments, commercial borrowings in particular, and accelerate exports growth to ensure longer-run stability in the external sector. 17. Aid donors have responded enthusiastically to the Government's development initiatives, the average level of aid commitments in 1978-80 was almost 120% higher in nominal terms and almost 40% higher in real terms than in 1975-77. Commitments in 1981 rose to a record US$815 million. Most of the growth has come in project aid, reflecting the Government's efforts to increase investment, particularly in the Accelerated Mahaweli Program. Since public investment is now overprogrammed, continued high levels of aid will depend upon donors' abilities to shift from project to non-project aid to finance a sizable portion of local costs and provide supplementary financing for ongoing projects where needed. The Government will need to maintain donor confidence in its economic policies and management through a vigorous domestic resource mobilization program and continued restraint on government expenditures. Despite recent measures to support its investment program, Sri Lanka's budgetary situation remains tight. The adverse impact on revenues of slowly rising export prices and volumes, and rapidly rising import prices, has increased budgetary pressures. Local cost financing, in support of Sri Lanka's own resource mobilization efforts will not only provide valuable relief to these budgetary pressures but also supplement foreign exchange resources needed in support of balance of payments. 18. External public debt outstanding and disbursed stood at US$1,585 million at the end of 1980, amounting to about 37% of GDP. However, this is mostly long-term concessional debt. As a result, the debt service burden is relatively low; debt service ratio in 1981 excluding IMF repurchases stood at 8.7% of exports of goods and non-factor services, declining from 16.7% in 1976. While this sustained decline is due in part to improved export earn- ings, the main cause has been a decline in outstanding short- and medium-term commercial borrowings. Recent resort to commercial finance means that the debt service ratio will begin to rise again. This should not pose economic problems if early steps are taken to further reduce the ratio of the current account deficit to GDP. If this does not happen, Sri Lanka will again have to begin undertaking significant shorter maturity commercial borrowings to fill the gap between the current account deficit and likely concessional aid flows. In that case, the debt service ratio could increase quickly.  PART II - BANK GROUP OPERATIONS IN SRI LANKA 19. Since the beginning of its operations in Sri Lanka in 1954, the Bank Group has approved eight loans totalling US$72.9 million (net of cancella- tions) and 31 credits totalling US$595 million 1/ (net of cancellations) in support of 37 projects. About 47% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 18% for power, 11% for transport, and the remainder for development finance company opera- tions, a program credit (mainly involving the import of raw materials for industry), water supply, constrution industry, telecommunications and small and medium industries. Eight loans and eight credits have been fully dis- bursed so far. Annex II contains a summary statement of Bank Group opera- tions as of March 31, 1982, together with notes on the execution of ongoing projects. 20. IFC has an equity investment of about US$150,000 equivalent in the Development Finance Corporation of Ceylon (DFCC). Two IFC lines of credit totalling US$7.0 million have been made to the Government-owned Bank of Ceylon (BOC) for term loans to medium industries. IFC has also an investment of US$260,000 in an equipment leasing company. In FY81, IFC approved an investment of about US$0.7 million in equity and about US$17.0 million in loans for a new hotel project in Colombo. 21. The Bank Group's current strategy focusses on the agricultural sec- tor. It aims to support Government efforts to increase food production and reduce dependence on food imports, and to raise productivity, employment, incomes and living standards of the rural population in Sri Lanka. This strategy includes projects to support basic infrastructure. In addition to providing financing for the Second and Third Mahaweli Ganga Development Projects and the Mahaweli Ganga Technical Assistance Project, the Bank Group is assisting GOSL to implement the Accelerated Mahaweli Ganga Development Program (Accelerated Mahaweli Program) principally through coordinating external assistance. The Board approved a Tea Rehabilitation and Diver- sification Project on May 4, 1982. Currently under appraisal are a forestry project, an industrial development project and a rural development project. 22. The Bank Group, as of end 1981, accounted for 9.7% (IBRD, 1.8%; IDA, 7.9%) of Sri Lanka's total debt outstanding and disbursed, and 6.3% (over 80% IBRD) of debt service on official medium and long-term debt. The projected Bank Group's share in total existing external debt outstanding and disbursed will increase to 17% by 1985 (with the IBRD's share declining to 1.3%). The 1/ As of March 31, 1982.  - 9 - Bank and IDA portions of this debt service are expected to decline to about 4% by 1985. PART III - THE POWER SECTOR Power Source and Potential 23. Sri Lanka-s energy consumption in 1980 amounted to 3.7 million tonne of oil equivalent (toe), of which 60% was provided by firewood, 27% by imported oil and 13% by hydropower. The rate of consumption of firewood is estimated to be between 3.8 and 5.4 million tons (1.5-2.2 million toe) per year. Although the per capita use of wood has increased very little over the past fifteen years, the absolute increase rose to a degree that there is now concern about deforestation. There are no known reserves of coal, oil or natural gas. Exploration off the northwest shore is in progress, but the likelihood of substantial finds is small. The sole importer and refiner of petroleum and its products is Ceylon Petroleum Corporation (CPC). Its refinery has a capacity of 2.35 million tons per year and produces enough gasoline for the country, but part of the needs for diesel and kerosene is imported. More heavy furnace oil is produced than the domestic market needs, the surplus being exported as bunker fuel. Liquified Petroleum Gas (LPG), though not important at present, is in excess supply, and as it is relatively cheap, its use is likely to increase. 24. The total potential for hydro energy in the country is estimated at 6,6no GWh per year. The firm energy available from existing hydro develop- ments is about 1,500 GWh per year, and the additions now planned will increase it to about 3,240 GWh by 1990. A ranking study of all remainina hydro sites is planned. Ceylon Electricity Board (CEB) 25. CEB is a public corporation, established in 1969 to replace the Department of Government Electrical Undertakings. It is governed by a seven member Board appointed by GOSL. GOSL controls tariffs, capital investment, borrowing, the appointment of the Chairman and the General Manager, and the conditions of service of all employees. CEB is subject to the provisions of the 1971 Finance Act regulating the finances of public corporations. CEB has adequate organization and management systems designed by international con- sultants in 1973 under the Fourth Power Project (Loan 636-CE for US$21.0 million) of 1969. However, its managerial effectiveness, in recent years, has declined. A program of measures for improvement of management and train- ing is currently in place (paras 52 and 53).  - 10 - Generation and Transmission 26. CEB is responsible for the transmission and distribution of elec- tricity in the country and for the development of its own generating capacity with the exception of the Ukuwela station constructed under the Mahaweli Ganga Development Program. CEB's recent generation program includes two hydro stations of 40 MW at Bowatenne (commissioned last year) and of 60 MW at Canyon (scheduled for commissioning later this year). In all CEB has 559 MW of installed generating capacity, of which 369 MW is in eight hydro plants and the balance in steam turbine, gas turbine and diesel stations. The main transmission system, extending over 569 miles, operates at 132 kV but there is also an older 66 kV system (214 miles). The first elements of a 220 kV grid are to be constructed in 1983/84, part under the Victoria Project (IJ.K. assisted) and part under the Seventh Power Project (Credit 1210-CE). Sub- transmission and distribution lines at 33 kV extend to about 3,250 miles, and there are about 750 miles of 11 kV overhead distribution lines, whereas in the city of Colombo the distribution is mainly by underground cables. 27. The Mahaweli Authority of Sri Lanka (MASL), which is an agency under the Ministry of Mahaweli Development for implementing a multi-purpose program for construction of dams, hydro stations and irrigation works, is responsible for the construction works at Victoria (210 MW), Kotmale (134 MW), and Ran- denigala (122 MW). As each hydro component under this program is completed, it will be transferred to CEB for operation. The Victoria and Kotmale hydro stations, now under construction, are scheduled to come on line in 1984 and 1985 respectively. Construction works on Randenigala project is scheduled to start this year. Recently, satisfactory terms for the transfer of hydro stations at Victoria and Kotmale were agreed between MASL and CEB. There are a number of privately owned generating plants but, except for one at the CPC refinery, these are mainly for standby purposes. A large captive generating plant is planned for the expanded cement factory at Chunnakam. Some local authorities in remote areas provide part time electricity service from diesel generators. Electricity Consumption 28. The consumption of electrical energy increased at an average annual rate of 9.5% from 1961 to 1980, varying from 17.8% in 1966 to 3.3% in 1974. Growth was weak from 1972 to 1977, but with the acceleration of economic activity it averaged 11.5% per annum during 1977-80 despite the severe load shedding. CEB forecasts that annual growth will continue at about 15% in the immediate future with some tapering off to about 9% after 1985. 29. In 1980, CEB was supplying electricity directly to about 208,000 consumers. In addition, CEB sells in bulk to 218 local authorities who retail to about 226,000 consumers, making a total of about 434,000. Elec- tricity consumption in 1980 was less than 100 kWh per capita. The total  - 11 - energy generated by CEB's power stations in 1980 was 1,668 GWh, against the estimated requirement of 1,728 GWh. Load shedding took place during 1980 (May-August) and 1981 (February-June) due to lower than average rainfall, and the breakdown of a hydro unit. Rural Electrification 30. Rural electrification, at present, is available to about 2,000 of Sri Lanka's 25,000 villages. Under a rural electrification project financed by the Asian Development Bank (ADB), CEB has planned to provide connections to additional 1,150 villages by 1984 and to arrange financing of house wiring and connection charges by installment payments. A load promotion and monitoring unit will also be introduced in CEB under this project. Development Program 31. CEB's generation program through 1990 calls for the addition of about 600 MW of hydro generating capacity. About 500 MW of this total would be contributed by the Accelerated Mahaweli Program alone. In order to prevent capacity and energy shortages before enough new hydro stations - Canyon, Victoria and Kotmale - are commissioned, CEB installed 120 MW of gas turbines in two phases during 1980 and 1981. CEB undertook a study in early 1981 to determine the least cost solution for meeting imminent energy shortages by mid 1984 and beyond. GOSL and CEB decided to install an 80 MW diesel plant on the basis of this study. 32. CEB is also preparing a 15-year master plan for power generation, transmission and distribution on a least cost basis. CEB will submit this plan, endorsed by GOSL, to the Bank by December 31, 1982, and thereafter update it annually by December 31 of each subsequent year (Section 4.06, draft Loan Agreement (LA) and Section 3.03(b) draft Guarantee Agreement (GA)). 33. Studies of the transmission system by CEB's engineers in 1979 indi- cated that a voltage higher than 132 kV would be necessary to handle the flows of power to be expected from Mahaweli developments in the mid-1980s. This finding was confirmed by consultants who recommended the use of 220 kV lines from the Victoria-Kotmale-Randenigala/Rantembe areas to the load cen- ters of Colombo. Future expansion of the grid will proceed on that basis (para 26). Sector Coordination 34. Recognizing CEB's role in the overall development of the power sec- tor, IDA under the previous credits has emphasized the need for adequate coordination between CEB and other agencies, particularly MASL, involved in  - 12 - the preparation, design and construction of any "joint scheme". 1/ The level of coordination between CEB and MASL presently is limited to technical mat- ters. As agreed under the Seventh Power Project (Credit 1210-CE), the Government would ensure proper coordination between CEB, MASL and other relevant agencies (Section 3.02(a), draft (GA)). The Bank Group's Role and External Assistance 35. Between 1954 and 1969, the Bank made four loans totalling US$58.4 million for power development in Sri Lanka. The first three were made to GOSL and the fourth (1969) to the newly established CEB. In 1969 the Bank and IDA extended US$29.0 million (Loan 653-CE/Credit 174-CE) for a multi-purpose development on the Mahaweli, which included the construction of the Ukuwela hydro (38 MW) station now operated by CEB. These loans and the credit helped establish a total generating capacity of 203 MW, of which, 153 MW was hydro and 50 MW thermal. The Bank Group-s involvement in the improve- ment of transmission and distribution systems started with the Fifth Power Project (Credit 372-CE) for an IDA credit of US$6.0 million in 1973, followed by the Sixth Power project (Credit 1048-CE) for US$19.5 million for further reinforcement and improvement of existing transmission and distribution systems in 1980. Another credit of US$36.0 million (Credit 1210-CE) was approved recently primarily to establish 220 kV transmission lines for the first time in the country. 36. Physical implementation of previous projects has been satisfactory. Recent Project Performance Audit Reports for the Fourth (1969) and the Fifth (1973) Power Projects and the Mahaweli Multipurpose Project (1969) expressed satisfaction about the implementation and initial operation of these projects. An organizational structure and appropriate public utility manage- ment and financial systems were developed by consultants financed under the Fourth Power Project. Staffing difficulties in recent years and the lack of adequate management training for senior management have prevented the full utilization of CEBEs systems. Further strengthening of CEB's management and training was a feature of the Sixth and Seventh Power Projects. 37. ADB has provided financing for the Bowatenne and Canyon hydro sta- tions, and for rural electrification (para 30). GOSL has arranged bilateral aid for the Mahaweli hydro stations; from UK for Victoria and from the Federal Republic of Germany for Randenigala; it is using Swedish import support credit funds for the partial financing of the Kotmale project. A 220 kV transmission line from Randenigala-Rantembe to Victoria is being financed under assistance from Federal Republic of Germany as part of the Randenigala 1/ "Joint Scheme" means any scheme designed for the generation of electrical energy, irrigation of land, control of flood and the like purposes as defined under the Ceylon Electricity Board Act No. 17, 1969.  - 13 - project. The UK-assisted Victoria hydro project includes a 220 kV transmis- sion link from Victoria to Kotmale. PART IV - THE PROJECT 38. The proposed project was prepared by CEB with assistance from con- sultants and appraised in January 1982. The Staff Appraisal Report entitled "Eighth (Diesel) Power Project" (No. 39816-CE, dated May 20, 1982) is being distributed separately. Negotiations were held in Washington from May 11 to 14, 1982. GOSL and CEB were represented by a delegation led by Professor K.K.Y.W. Perera, Secretary to the Ministry of Power and Energy and Chairman, CEB. A timetable of key events relating to the project and special condi- tions of the proposed loan are given in Annex III. Objective 39. The near term objective of the project is to meet shortages of elec- tricity expected to emerge in the first half of 1984 by establishing an 80 MW diesel station. It will also provide thermal generation which wili 'e required for CEB system through 1990 even if the hydro stations at V-ztcria, Kotmale and Randenigala under the Accelerated Mahaweli Program are commis- sioned as scheduled. The type of plant to be furnished under the project will remain economically viable throughout its normal life span. Project Description 40. The project consists of an 80 MW power station, complete in every detail, the prime movers of which are diesel engines capable of burning residual fuel oil. The supply of such fuel would be available from the Ceylon Petroleum Corporation on a long term contract. The fuel cost is estimated at Rs 0.68 per kWh, compared to Rs 1.40 for a combined plant of gas turbine and diesel generators, and Rs 2.10 for gas turbine plant only. The station will be located adjacent to the refinery at Sapugaskanda in the outskirts of Colombo. Engineering and Implementation 41. The project will be implemented by means of a single responsibility contract. The contractor will supply, erect and construct the entire power station. Components of the station include civil works, engines and gener- ators with auxiliaries, electrical plant, building services, spares, and staff training at manufacturers' works. The short transmission link needed from the project site to the existing Sapugaskanda 132 kV grid substation is not included in the project, but will be constructed by CEB's own forces and  - 14 - financed under the Seventh Power (Mlahaweli Transmission) Project. Specifica- tions and tender documents were prepared by CEB and engineering consultants who will be responsible also for supervision of construction. The cost of engineering consultancy services is estimated at about US$1.5 million, based on 200 man-months of foreign engineering services at an average cost of US$7,500 per man-month to cover fees, subsistence, allowances, international travel and reimbursable foreign costs. Project Cost and Financing 42. The total project cost is estimated at about US$54.7 million equiv- alent (including customks duties of about US$3.3 million equivalent) with a foreign exchange component of US$42.7 million inclusive of a front end fee of about US$0.7 million. The station would be supplied and constructed under a single responsibility fixed price contract (bids already opened (para 44)), hence, the provision of price contingency has not been made. Physical con- tingency of 5% on foreign costs and 10% on local costs is included. The estimate also covers the cost of technical services including the consulting engineers' services. The proposed Loan of US$42.7 million would finance the full foreign exchange cost. The local costs amounting to US$12.0 million equivalent would be funded from CEB's internal cash generation. 43. The proposed Loan would be made to CEB on the standard IBRD interest rate of 11.6% per annum for a period of 20 years, including 2 years of grace, with the guarantee of GOSL. GOSL in turn would charge CEB a guarantee fee of 1/ per annum (Section 3.05, draft GA). Since CEB cannot undertake foreign exchange risk under the Ceylon Electricity Board Act of 1969, GOSL would bear the foreign exchange risk. Procurement and Disbursements 44. The only way in which the station can be completed by early 1984 is by letting a single contract for the supply, construction, commissioning and testing of the entire works, to a contractor experienced in projects of this type. This contract will be procured through international competitive bidding in accordance with the Bank's guidelines. Tenders were opened on April 8, 1982 and thie contract is expected to be awarded by July 1982. The Loan will be disbursed against 100% of the foreign expenditures under the power station contract and 100% of foreign expenditures on technical services including services of the engineering consultants. Retroactive financing of up to US$4.2 million is recommended for expenditures incurred after April 1, 1982. Tariffs and Finances 45. Tariffs: CEB has satisfactorily revalued its fixed assets up to 1980, in accordance with an index-linked formula agreed with the Bank. As the Government did not authorize tariff increases, CEB was unable to achieve  - 15 - the 8% rate of return on currently valued net fixed assets in operation from 1974 to 1978 as required under the Fifth Power project (1973). The present Government which came in power in late 1977, authorised first two tariff increases between 1978 and 1980. As a result of these increases, CEB's average tariff rose frorm Rs 0.16/kWh to 0.58/kWh excluding fuel surcharge. Its financial rate of return on revalued assets, having declined from 7% in 1974 to 2% in 1978, increased to about 9% in 1980. Since October 1980, CEB is also recovering automatically each month from its consumers the cost of fuel for its increasing thermal generation. With the addition of fuel sur- charge, the average tariff was equivalent to about US6 cents per kWh in 1981. However, over 90% of domestic consumers, whose monthly consumption was below 200 kWh (equivalent to a maximum charge of UJS$5), were exempt from the fuel surcharge until end of Mtay 1982. 46. CEB will continue to review its tariffs annually before the start of eachi financial year to ensure that revenues are sufficient to meet operat- ing expenses, including taxes, if any, and to produce a rate of return of at least 8% on currently valued net fixed assets in operation (Section 5.05(a), draft LA). Tariffs were reviewed by CEB in recent months to meet one of the conditions of effectiveness of Credit 1210-CE. As a result, tariff increase package involving an average tariff increase of 36% has been approved by GOSL effective June 1, 1982. The average tariff including fuel surchiarge now amounts to the equivalent of about US9 cents per kWh. The exermption of first 200 units of domestic consumption fronm the fuel surcharge has also been reduced to 150 units from June 1, 1982. 47. Tariff Structure: In addition to increases in tariff levels, which have enabled CEB to meet its financial rate of return commitment, CEB has made some improvements to its tariff structure. Domestic consumers now pay higher block tariffs and non-domestic tariffs have been rationalized. The study of long-run marginal cost (LEIIC) pricing has been completed and the results reviewed by the Bark. Major structural improvements along LR11C lines were submitted to GOSL as part of the tariff increase package (para 46). The average tariff effective June 1, 1982 is about two-thirds LRMC as against 45% previously. 48. Present Financial Position. CEB's financial position at end 1981 indicates a satisfactory debt/equity ratio of 18:82 with debt service covered 6.4 times by earnings. The financial rate of return on revalued assets is estimated at about 11%. The current ratio is estimated at 2.7. CEB would reduce inventories which, at end 1979, were found to be equivalent to 18 months' need, to a level satisfactory to the Bank (Section 5.08, draft LA). GOSL has also agreed, as under the Seventh Power Project, to ensure the timely availability of foreign exchange for inventories (Section 3.03(a), draft GA). Based on a review of materials management problems by CEB's consultants, action is being taken to improve inventory control.  - 16 - 49. Future Finances: CEB-s presently approved investment program for FY82-FY85 comprises mainly hydro generation and rural electrifiation (ADB-assisted), and transmission and distribution (IDA-assisted). The program includes the proposed addition of an 80 MW diesel plant. Total financing required for the program is estimated at about US$317 million equivalent. About 34% of this total is projected to be met by CEB through its internal resources to be generated by the recent tariff increase (para 46) together with the return, as already agreed by GOSL, of income tax pay- able by CEB in FYs 1982 and 1983 following recent changes in tax legislation. CEB's long term finances through 1988 are satisfactory, with debt/equity ratio increasing to 45/55 in 1988 following the transfer of assets under the Accelerated Mahaweli Program and the current ratio falling to about 2.0. As under Seventh Power Project, debt service coverage of at least 1.25 times will be assured (Section 5.04, draft LA). 50. Billing and Collection: In recent years CEB's billing and collection performance has been satisfactory except for the collection from the local authorities. CEB is required, under the Seventh Power Project, to ensure that consumer receivables do not exceed the equivalent of three months bill- ings. CEB's present obligation will continue under the proposed Loan (Sec- tion 5.06, draft LA). At December 31, 1981, the consumer receivables amounted to 4.1 months of billings against 3.2 months at end 1980. CEB expects this deterioration to be temporary: it is largely attributable to problems connected with the present computer arrangements for billing, which CEB-s consultants are presently reviewing and to delayed payments by local authorities. In view of the difficult financial situation of the local authorities, GOSL undertook to cover the difference between the effective tariff charged by the CEB and the lower rate paid by the local authorities since December 1978. The obligation of GOSL in this respect has now been paid in full to CEB, and a decision has been made for the local authorities to pay full CEB tariffs as of October 1, 1981. GOSL would also ensure that each of the local authorities would pay the current CEB tariff and also introduce retail tariffs sufficient to cover CEB's bills for bulk supply and their own costs of distribution as well (Section 3.04, draft GA). Institutional Development 51. Staff: Currently, CEB-s employees total about 11,000 against an authorized strength of about 14,000. Over the period 1975 to 1980, the number of employees increased at an average annual rate of about 5%, which is reasonable considering CEB's expanding work program and particularly the rural electrification program undertaken by force account. In common with other public corporations in Sri Lanka, CEB has considerable difficulty in retaining experienced staff in recent years as many engineers and accountants have left for overseas or for the private sector which offer substantially higher salaries. Nevertheless, CEB has recently filled a number of key financial posts.  - 17 - 52. Training: CEB's present training facilities are inadequate in rela- tion to the training needs. Managerial training for engineers, on-the-job training for newly recruited engineers, and training for accounting staff in CEB's financial operations are some of the critical areas requiring atten- tion. These would be covered by the training program financed under the Sixth and Seventh Power projects. 53. Management Systems: Comprehensive reporting, accounting and budget- ing systems were introduced by CEB in 1973 based on recommendations of con- sultants financed under the Fourth Power Project (1969). The systems are satisfactory, but in recent years, financial and management information reports have not been produced on a regular and timely basis. This has reduced management effectiveness and control. CEB agreed under the Sixth Power Project (1980) to implement a program of management improvements. Accordingly, the management consultants who designed the original systems were recalled to review the position. They have recently begun a program of measures to restore managerial effectiveness which covers (a) general manage- ment advice, (b) restoration and further development of CEB's system, and (c) a training program. CEB, therefore, has decided to retain the management consultants further to implement their recommendations. Funding for this assignment has been provided under the Sixth Power project. 54. Reorganization: CEB's present organization originally designed by the consultants under the Fourth Power Project is basically unchanged except for a few modifications made in recent years. Changes now being contemplated as part of the management improvement aim at further decentralization of CEB's operations while retaining key controls at headquarters in Colombo. As agreed under the Seventh Power Project, CEB will submit to the Bank, prior to implementation, any proposal for major organizational change (Section 4.03, draft LA). 55. System Improvement: Maintenance of CEB's generating stations was satisfactory in the past, but has deteriorated in recent years; maintenance schedules are not kept up to date for each station to permit management to ensure satisfactory servicing. Distribution systems have had too many con- sumers added to them without corresponding reinforcement, and have not been well maintained. Before 1976, energy losses on CEB's system were recorded at less than 12%, but in 1977 they started to increase and are now estimated at about 16%. As a part of agreed plans to improve CEB's management (para 53), CEB will investigate system losses and undertake a study of load management and conservation. Benefits and Risks 56. Studies undertaken by CEB with assistance from Bank staff indicate that the proposed project, comprising 80 MW of diesel generators, offers the least-cost solution for CEB both in the short-term and in the longer term. Without the project the country would suffer substantial power and energy  - 18 - deficits from 1984. The economic rate of return on the project, with benefits valued at the recently approved tariff level (para 46) is about 14%. 57. While every measure is being taken to ensure timely completion (para 41), the major risk faced by the project is one of delay in commissioning, thereby not meeting the demand for electricity from the end of 1983. A single responsibility contract with supervision by consultants is considered to be the best way of minimising the risk. PART V - LEGAL INSTRUIENTS AND AUTHORITY 58. The draft Loan Agreement between the Ceylon Electricity Board and the Bank, the draft Guarantee Agreement between the Democratic Socialist Republic of Sri Lanka and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being dis- tributed to the Executive Directors separately. Special conditions of the loan are listed in Section III of Annex III. 59. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 60. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments June 7, 1982  -19- ANNEX I Page 1 TABLE 3A SRI LANKA - SOCIAL INDICATORS DATA SHEET SRI LANKA REFERENCE GROUPS (WEIGHTED AVERAGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMTE). TOTAL , .65. MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTURAL 25.8 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) 60.0 100.0 230.0 232.3 1136.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 114.4 143.3 140.2 499.4 1150.6 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 9889.2 12514.0 14542.0* URBAN POPULATION (PERCENT OP TOTAL) 17.9 21.9 26.1 17.3 40.8 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 21.3 STATIONARY POPULATION (MILLIONS) 31.0 YEAR STATIONARY POPULATION IS REACHED 2065 POPULATION DENSITY PER SQ. KM. 150.8 190.8 221.7 153.6 373.1 PER SQ. KM. AGRICULTURAL LAND 507.0 518.0 552.9 360.3 2382.8 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 42.1 41.9 36.9 37.4 39.8 15-64 YRS. 54.3 54.5 59.0 59.2 56.7 65 YRS. AND ABOVE 3.6 3.6 4.1 3.5 3.5 POPULATION GROWTH RATE (PERCENT) TOTAL 2.5 2.4 1.7 2.1 2.3 URBAN 4.7 4.4 3.6 3.4 3.8 CRUDE BIRTH RATE (PER THOUSAND) 35.5 29.7 27.6 27.7 29.7 CRUDE DEATH RATE (PER THOUSAND) 9.1 6.8 7.4 10.2 7.5 GROSS REPRODUCTION RATE 2.5 2.3 1.8 2.5 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 55.3 113.0 USERS (PERCENT OF MARRIED WOMEN) .. 8.2 41.0 20.4 44.1 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 93.0 103.0 140.0 107.1 123.7 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 97.0 108.0 96.0 98.6 112.6 PROTEINS (GRAMS PER DAY) 44.0 47.0 43.0 56.9 62.5 OF WHICH ANIMAL AND PULSE 13.0 13.0 7.0 14.2 19.7 CHILD (AGES 1-4) MORTALITY RATE 5.8 4.8 3.4 14.6 4.8 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 62.0 63.5 65.6 57.7 64.0 INFANT MORTALITY RATE (PER THOUSAND) 55.0 51.0 49.0 89.1 50.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 21.0 20.0 30.1 45.9 URBAN' .. 46.0 45.0 65.8 68.0 RURAL .. 14.0 13.0 20.1 34.4 ACCESS TO EXCRETA DISPOSAL (PERCENT OP POPULATION) IOTAL .. 64.0 59.0 17.6 53.4 URBAN .. 76.0 68.0 71.0 71.0 RURAL .. 61.0 55.0 4.8 42.4 POPULATION PER PHYSICIAN 4493.1 6610.7 6751.2 3857.7 4428.7 POPULATION PER NURSING PERSON 4150.0 2258.0 2055.0 6411.8 2229.7 POPULATION PER HOSPITAL BED TOTAL 319.0 322.0 342.0 1132.8 588.5 URBAN .. 217.6 241.1 322.3 579.6 RURAL .. 569.6 584.2 5600.5 1138.5 ADRISSIONS PER HOSPITAL BED .. 56.5 51.3 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4/c 5.8 URBAN 6.3/c 6.3 RURAL 5.527 5.5. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.0/c 2.5 URBAN 2.10 2.7 RURAL 2.0/c 2.5 ACCESS TO ELECTRICITY (PERCENT OP DWELLINGS) TOTAL 7.5/c 9.0 URBAN 35.9/c 34.5 RURAL 2.3/E 3.0 * The updated 1980 CNP per capita and Population esLinaItcs a. shown in thoe 1941 World Pank Atlas are $270 (at 1978-80 prices) and 14,815,000 respectively.  -20- ANNEX I Page 2 TABLE 3A SRI LANKA - SOCIAL INDICATORS DATA SHEET SRI LANKA REFERENCE GROUPS (WEIGHTED AVERAGES - MOST RECENT ESTIMATE)a MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCATEO' ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 99.0 94.0/d 85.9 99.8 MALE 100.0 104.0 98.07/ 94.4 100.6 FEMALE 90.0 94.0 90.0/d 64.5 98.8 SECONDARY: TOTAL 27.0 47.0 52.0 38.0/aa 53.5 MALE 38.0 46.0 63.0 34.67i 58.4 FEMALE 16.0 48.0 40.0 18.07i 48.6 VOCAT1ONAL ENROL. (X OF SECONDARY) .. 1.0 1.0 3.8 21.1 PUPIL-TEACHER RATIO PRIMARY 31.0 .. 32.0 32.8 34.2 SECONDARY .. .. .. 19.9 31.7 ADULT LITEKACY RATE (PERCENT) 75.0 /s 77.6 85.0 52.8 86.5 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 7.0 6.8 1.7 12.7 RADIO RECEIVERS PER THOUSAND POPULATION 35.8 40.0 71.2 35.3 174.1 TV RECEIVERS PER THOUSAND POPULATION .. .. .. 3.7 50.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 36.0 46.9 .. 14.6 106.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 3.0 .. 4.7 3.4 4.3 LAEOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3390.9 4186.9 5011.4 FEMALE (PERCENT) 22.6 23.7 24.4 29.3 37.4 AGRICULTURE (PERCENT) 56.3 55.1 54.3 69.8 50.2 INDUSTRY (PERCENT) 13.5 14.4 14.1 14.1 21.9 PARTICIPATION RATE (PERCENT) TOTAL 34.3 33.5 34.5 39.7 40.2 MALE 50.8 49.1 50.7 51.5 49.8 FEMIALE 16.2 16.5 17.3 23.3 31.1 ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.2 1.1 1.1 INCOME DISTRIBUTION PERCENT OP PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.4 18.2 18.6 HIGHEST 20 PERCENT OP HOUSEHOLDS 52.1 43.4 42.8 LOWEST 20 PERCENT OF HOUSEHOLDS 4.5 7.5 7.3 LOWEST 40 PERCENT OF HOUSEHOLDS 13.7 19.2 19.3 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 134.1 248.6 RURAL .. .. .. 111.6 193.7 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 249.8 RURAL .. .. .. .. 234.3 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. .. 41.7 21.2 KURAL .. .. .. 51.7 32.2 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /aa China included in total only. /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 1976 and 1979. /c 1963; /d Due to changes Sn duration of levels in education, the ratios are net strictly comparable over time; /e 1962. May, 1981  -21- ANNEX I Page 3 DEFINITIONS OF SOCIAL INICATORS Notes Although the date or dr- fra sources. g-eneraii odged the ous auhoritaive nd reliable, it should ela be toted oboe they oey ac be inte- nationlly ..omp-tble because of the lath of srad-rdced definititn and cocpts used by diff-eren -o-cteein 1tollecting the data. The date ee thels.., ..seto1 to d...rthe ordees of agcitude, utdttae treodo, and oaatrtstertato oujor ditffre.tte bste-oo nris Therefetljeoe gro-upsare (1 tsaocuoegotoftchesob)artuoo-rpaa.d (2), aruIr gupthsun-hs higharso--ge cccset- nhectountoygraop of the subject tannery (encept for "Coyttal Sueplos Ill faportees' geoup sheet "Middle intone moan Aft too ond ftddle East' eetoichosen-,aciu ahof stronger soet-otloralsfdlhttal It the r Str.tc ooo dote the arerate are popol eno neightd attecsaofreohoidttrad shonttl- he sootity ot the counrie tt lrop headeco tot that iodtoetcr.. S in ths -oer.og of --unriesa-or the tocoosteed cte olity ofdt an oeo nfot,cacanesthanoised t.terlagicgorogettoeiodlcaeortoaoother Tes ... e..ages oe oly usful tn ton-otg thel--otfc on.tdilt-tnrItattoas-g thactouoryan.d eafreate. groups. LAINS dARE (rho....od sq.k..) Pop`ito pa Oeytui - Be - tcttl, b..co, ond totl - lpulatt.on(ou T-te - Tota -ufac- racaotlglo re t oadetr.ohc aud- eurl itded by th,iat -P-cio tubh of hospitl hed Agrioleual latsactof gttcltuul aoo oad eopooriy orpeesnsuly oatlble in pobli tad prirate g.enerl andiaeliedhsia n e toe croy, porae k rht sod kirohet -ad-n oe t Ie falcon; moo doco, herlotocnao.Oata 0 etoloott y-bri .en.. yPstaffed by 0leasr o I hotioic. sE-blisheett. yrocido.t riroipelly aso G~IS R Ft OIT li)-IP par -opits a f- its- -ot . ccte.osrdet pritca, -al- dil cardteare not ooud.tR-o1 h-spita.l ho-erec, ...d Ia.... cuand hy o-i-cevreo -etbd ea World tad Alale (IPS7-P9b-hst); 196, sa ed .o.cter :ro permanenly steffed by a phyittioo (hue by 1970, end 1979 data. edi-1a.. ai....oc, ours, idotfa,I etc.) ahih offee tn-ratitsa etc- dutto. otd pr-ctde a lisitsd range of sedi-el facilities. Forase- ENEtGY COttSUKPTION Fit CAPITA - An tol -otsupti- of -omerla ero,gy (-ta ricol .u.p.se orheo honyaiusI teiAIde 5to, pyrlcpiyeigaerol hapitiale, "Illotepeelp...... ...a.u...lgason dhlydro-,tu-laaeundseg-h-ralel- ando slepIh.:oolorualcoptoaonicl-Iondotes-iny ariley) to kItlograns of coa euiat par cpe;1960. 1970, ond 1979 cancers. ipeotalird hIyta ae nludsd onl otds total. data. Aedoi....n Par Ptarialte Ed -Tctnl nooarAtadlf ioY s ora dl.rbagea from hyoisdivided by the ...her of hedo. POFULATION AND VITAL. STATSTiICS Tata Froato MiOd-Sno Irhou--da) - As of July 1; t960, 1900, and 1979 HOUSING daa A..r.na Sirs OF tH"ahd (p.....eeros hrs- eil nna.aesa sd atI dilf-aetdfotoaofobaorara dtc cyrbl ddoe td their sa-i toe A hoader or lodger oy or nsy oa he s-1aded ano.g.o.nrrt-; 196i, 1971, uod 1979 data. th hoahi for... ottis!eiprpa P.os, ntoya 95 tre pylto proeo.o.aorehatd ot ,199 her of pero- Per -oa de all uehs, sad eo-a aorupisd -nesotiasa toa- ooato yatnd a c or otlc t fertil tytts d-Iliga., r-peccio-ly. De,slitaga -IrldO ot-pe-aeor st-r-- sod ProjecionP. protere for _ortlity _act coyte of hees leveloanos- oto.tupied Parts. toIote LIoc. a or oeatoottcutpsytcetoOor cose fictto (ereth of dsritea Y rarat, uris,eteat- lae,alfn IFe np ..ooy -bailieltg at 77.1 yeas Tho p.... Co--i-tna deligath lstifya Il.ag qontee -speoneg settee or farcl icr rte als hara those Settle asoolag dttllo nof tota, ebar, and rura d-llingsosetey fertility a-c-ditg to itr-n level ard peat fI-,,y pinocog perfoonrt. la th.. c tty tciao assl..ttgd one of these clot -buiostoo of -rtoity EllTION otd feetil icy cotr.Is too -e-leoto ynp-oa.- Addused tE-1lm-t eio- it-ttotry roeularlor-_Ioanotorr yyuoco ther eI to grouth slreFinr P thoo, --os, uead _Emal-uoa toeS .sl ted tenal chebietbtace lop totha de-hth-r,o-do~laorheagestr__r r't- etelle..ft lgeotha prioaoylee-a ptnEse of repetiv saatoooen. 'ht. is achieved ocly ofooe fertilitry rates d-lien priesry school-ategepoulat.o.e; -oaly lorlodes chtldes aged 6-11 there..a t InIc -eoslo oiotrepeod-irotooeae,hsoeu.th g.oeranion yearsb hodjustedfE_rdifernregesoyioeyduei E; o ofoeneeneoteif enacty.Th.a-cac...uoyroru.letto-st......cuorlesiot u-uo_nsaldcosi.ooef -Ysesa OeDl eee !--atd oc the tase of he pro e-ttAcd rcc iccso the p1oyctlatt stcse otlo are b c or atone itse offit-lO0 tool ag. do the year 1100, ond the rte of d_Idea of faotllty rate to replace- ....d.y shoo - tta, rule and feos - Computd .s boe.; se...edar setlve.euatooeqIe t _asf ou year of apero-d primary isrtl Year stai.onr ..yc... o u ta-hed - Ths your that stati-ory pFoyl-i- poiesgceo oatios,orteacher trotting iotrutt..s for pops sIte bus been ..uhod. us..olly of 12 to 17 years of age; tortsrad-c ....ses Ire ge..se-11y Fousiolsity etoldad. Parsu. Pint-ynrouatopttaq...orakilo..atec 1100h. -)f tstaaecFOostooleroleuePert...t of ...ooedar) -fnVa-tosa i-itttuc... tota ae;1960, 107 ard 179 dan. Holde tboiniel icd-triul, or other progeass ahith preasse iodepsod- Per q. kI .deeinrualod - Coputd aaob-ov forsgiutellsnd snloasdprtet osrodrinti-uviocs o"lY; 9i,1970 And 1979 doto. Fupil -teache, r-to - Ftotaso. sd setodry - TataI -tdea- e-eolbd It Fo2volaion has teenocre freeet -Children 77-lu years.) -okiog--g (It- P=ie aud aecoedarn level dividsd hr teter of toah-f Is the 66 ess, o retled ... .... sod over) as perc-ntife of cdid-ya- to~ orrsondlo isos..le. lot ion; 19h 1970, an 1979 data Adult literacy rte. (nece-) - Literat adults eble to reed sod ante) Porulati-n Ifoeth Octe (perc-n) - tota - Actua groch raes of total Itd- psree-etoo of total adult paplsiot aged Ct yese aad over. yea poultin Eon 1910-60. 1960-701, aed 1971-79. ..uato lnth Rats Peeret_) -uthac -AIua go--hrae ofuba porn- ClONSUMPTION latio_ fof 1910-60, 1961_0, sed IF970-79. Fassta tare (ere cht...nd rorulat,ion) - P....e.e tar - otrte etat C-.de Btieh nets ver thoo-ad9 - nna Ice biett e pr chouod of sl-ercraoiols hnaght persoos; anolcdts -nhula-o, hearses sad dorlstA; 1960, 1970, ned 179 data. sotoayvbtlo Ceud leeh Rate Ot buod Atonl dosths tar tho....ods af otd-yeor Radil Oseeee Over thousan.d otpolatiot - All typse of ett..ese far eadin opu,lsr.or; 1960, 1970, ond 1979 data, broad taste. to gorlpht pe hre a fpoalacto; earlodsr- G....arrAuotp otae-uvr usauuaboeofdu-hteo-oo -otclhbeerio ' utesAsooritounreadt yoerInhe tea,se-tianaofesdt dtilty races; usoily fiva a areras erdto E16,170,ad17.to onre abolished litetoig. Fasly Pluttitolo ..oe ..Ieo (thousan.ds) - do.l -obe o -ctpsr r0 t..caivere (rer thousad rprolatio - t re-el-rs for henado..satoe o'f hiteb-coctroIdevice order oettof -si-rl fenily PIla.nogo Frosg-. g _oel bt per thous..ad pnpolacton oldanlte-d0 eeve Fesily pl-otto-Sseera Joeroe_ ofo_arridea...-Fervseae fotredteo'nti -ado yarnhtegsFeitof seesa tI f ecas of tidhring ago 015-Au yeoea( oho us birth-totteoldeistoteoootrnlttOvrh sdrrutit- teS the.vrg tIe- almrrId wsetosn gego.. ulettoc of ''dailygers intret eorpse'' dfised asoeridlol ...iatondeoed poli-rtly to tet..arito genrln. .I -istsdeA FOO0AN u NU TRITcnIONI sbe dslly IC itIepeso en least fou tme oIeak loden of Food Frod olnvtCro.16-1=19-Idno1o ait cta leedna At-edan- rerCarie ver fet - B ..sd os the sober of frdtlo fal od _o_Atte_. PoAn9 ia eolde eted o d foad end tcLets s old aurto tie Fear, otllgadmssons to detn-iotIss tea o-clod-r year beets. Cotosdlitietovo toIay goods e.g. sugar.oo sa ouieuits tostsad of augur) which tor edible and coo-iturse (a g -offet ard tetar eclded A....g..gat produc no each co...rry I. bate d tonLAiOR FORCE nainloerag Prodnoeprc gh,.; 1961-65. 1970,an 1979 durs. Tota Labor Fore )thoos...da) - E-ottclly strive Person, ieoldiog yet ttatooutd of loree (erost o rotiremeets).- Comutd ee ad ftfresadonoloe utetldu dhonsets- -ed-os, ser,. par day. n-ollable uppl-w c-prise do-esl prducItio. isyo-te lee atop-bale; 1960. 1979 aed 1979 date.r anpor... o.dIotoe it1 scoo,k. tat anpyln sac lo~d eoanmal feed,sea,Felaortc -Fslt lob forte as --tge of tatu labo Eoros. q--enteens. ... foo _ rcsSg nd__ loosi icibutioc. Reqoir- nrnlreoe tc)-labo foreI ferela, -oetyt, horto sadI -t,c tore eittscud by eiA hose d 00 phI tlgi codsfraulai- fi.hioR as 'etero-ge of totaltlbat tarot; 1960,190ad97doe 'ity ool houlth ct-idotta etiratou toopo,tacurs body wIgtoho,p ag.Cdnae- oaro-t) - Labor furte to aiwieg, tototlt atre and sadachcc fppuoic n lotg1 pretfroeeo n Ilrrty etrsoeasu areega of toe Debr 7mre 41t, hnaod lve; 19-h,197,ad17 data..17 o 97 79dat. Per -spi-e -orri of orotoin (gra.. rer day) - Fr-tit cote f Per t-ylta FarcioetnRaerect - .tta, mal., ad feml-Ptio ttsa tee oypy o fod pr day tot supp-ly of food is defined as above. Rs- aci.t oe r cwoe sttl mae1 edfml ~labofros ncrscefor all co...tries establIshed by fiSDA proide ftofmlion. os-s-tge of tota, rule sod feole ppultio w llagasrespottl; allaevosf t0 grass of tota procteo per day end 0 gran of -cinue.d 1961, 191,1 and 1979 dat.- Thstases. be...d .s tID'e peciipti.lreface puleI roei, of which 19 gross should he -nloa yr-ret. Thesosoaod- reflotIingao-e struore of the ropulstioa, and loss time twee.d,A srdoueIloun-eoh-cebosoof 7bgrnv..... rtttnodl23stsasf feeelocoaefrosa-io...laon.rs.. nisl prteo as .. average foe th.v d roted by FAD to the Third iE...... edtoYRto Rt fpopulation undet li end t5 sad ovr Ootdroditvy 1hAl-ho. i570 od 1970 dan t h tcl ao-tra Per -acits -rten nrl trt Ila and robe - _rto spply of food de- IC -.TO rive tro anial ad p sI ros per.. daY; 1961-h5, 1970 and 1977 dae - toanndooo Child (cots 1-A7MrtliyRa:te(,ewe thousand) -1Acua deaths per hooso.. iv FdrotPo. o Friv-e CIco- (both do ash sod ktod( - Itte-ied by riobe- ag rop1- pees to;, ohlldr- it this age geou.p; for sos deelptotu- Ipron .ihs 1 eor yose2 ecet5- eretI een clsdtdacd fotlife tshian; 1960, 1900 rd 1979Auto of h-neholde. FPOVERTY TARGET GROUPFS LIfe p . lrtsty usBioh (ye- -. Averag.e -umsho or ywrc of life remai-uc The fol11olg -sistee sre vr yrnmt esrsof poery evl, at brt;I1961, 170a I190 Ioa.ad h old.h ateete lncoIde..ablaauriton Infect oraitRaevert ...mcd -l At-na deaths of icf-rrsudae Yt or EtmcdAslt oat noa ee oswtret)-ri a ua he f PIop itotul urba, end -enrl) wIth r .o:snhl ots to safe. affrdale.'ydq,-11. ..r oi atrspply )ilooldsfeee sufb-etr o nrae u ute-otala-d Esttioted teli-to oea Ota ee (-Ortcois uhesd 1no oebtoraccev Fouain. It so uecaropbijtroe tomoftotuey rb lrlI eivdOo h ua coadre shbtgec I stobeacs fta house Carurolr attus Esimte Pt tato talnobolee _rer ftre e _e fo ettf -.Pit. do-nor hae.c pc ofthi duopro".Po.ucac ctoo the.. da t eocpibg th por" cor iotaes o ith ir oaacle.-oblaco f h_oeeoIlpou mayt -Intlura-~y .- th -oleso..an -dIsposl, alet or ulhn rsco,e tf htaoevh... fceocsa tola lees . liotsot Fotloto re Frsots- oplototdiidd by -ohrofpotlod.tla rhsi cnnulfttderfeooae-dt..l...oclti-ovEeeitdypleoeli-od Fonlclo a - tuestan. F treatil- I FFlaioIto-lded hr ,,onshc o .r.ceitl saed o fe_rul gra nesbtcuraa .. prcia .ures. fsd siotave tores.oilII  - 22 - ANNEX I Page 4 SRI LANKA: ECONOMIC INDICATORS OUTPUT IN 1981 BY SECTOR ANNUAL RATE OF GROWTH (%, constant prices) Value Added $ Million % 1970-77 1978-81 1970-81 Agriculture 1,169 28.7 2.0 4.4 2.9 Industry a/ 1,191 29.2 2.1 7.3 3.9 Services 1,718 42.1 3.7 7.3 5.0 Total b/ 4,078 100.0 2.9 6.5 4.2 GROSS DOMESTIC PRODUCT IN 1981 US$ Million % GDP at Market Prices 4,437 100.0 Investment 1,291 29.1 Gross National Savings 637 14.4 Current Account Balance 654 14.7 Exports of Goods and NFS 1,331 30.0 Imports of Goods and NFS 2,099 47.3 GOVERNMENT FINANCE Central Government (Rs Million) % of GDP at Market Prices 1981 1975 1980 1981 Current Receipts c/ 15,259 17.2 19.9 17.9 Current Expenditures d/ 16,748 18.3 23.7 19.6 Current Surplus -1,489 -1.1 -3.8 -1.7 Capital Expenditures e/ 11,834 7.3 19.3 13.9 External Assistance 7,576 3.2 9.2 8.9 a/ Manufacturing, mining, construction, and utilities. b/ GDP at factor cost. c/ Includes capital revenue. d/ Includes advance accounts. e/ Includes net lending. May 27, 1982  - 23 - ANNEX I Page 5 COUNTRY DATA - SRI LANKA MONEY, CREDIT, AND PRICES 1970 1975 1976 1977 1978 1979 1980 1981 (end of period) (Rs Million) Money and Quasi Money 3,061 4,712 6,251 8,636 10,803 14,957 19,709 24,286 Bank Credit to Public Sector 2,680 2,460 3,725 4,834 4,518 6,703 13,075 16,918 Bank Credit to Private Sector 1,446 3,363 3,919 5,714 8,666 11,853 16,343 20,563 (Percentages or Index Numbers) Money and Quasi Money as 1 of GDP 22.4 17.8 20.9 24.0 25.3 28.7 31.7 28.4 General Price Index (1970 = 100) 100.0 143.3 145.2 147.0 164.8 182.6 230.3 271.7 Annual Percentage Changes in: General Price Index +5.9 +6.7 +1.3 +1.2 +12.1 +10.8 +26.1 +18.0 Bank Credit to Public Sector +15.9 +9.4 +51.4 +35.0 -6.5 +48.4 +95.1 +29.4 Bank Credit to Private Sector +0.7 +5.5 +16.5 +45.8 +51.7 +36.8 +37.9 +25.8 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (1981) 1979 1980 1981 (US$ Million) 5 Million % Exports of Goods, NFS 1,137 1,295 1,331 Tea 334 31.6 Imports of Goods, NFS 1,583 2,211 2,099 Rubber 150 14,2 Resource Gap (deficit = -) -446 -916 -78 Coconut Products 52 4.9 Interest Payments (net) -9 -12 -80 All Other Commodities 521 49.3 Workers' Remittances - - - Other Factor Payments (net) -6 -14 -6 Total 1,057 100.0 Net Transfers 48 137 2DO Balance on Current Account -413 -805 -654 Direct Foreign Investment 47 43 50 EXTERNAL DEBT (5 Million) a/ Net MLT Borrowing 162 247 365 Disbursements (225) (309) (408) December December Amortization (63) (62) (43) 1980 1981 Capital Grants 144 138 183 Other Capital (net) +108 +157 +23 Total Outstanding 2,385.5 3,074,0 Chsnge i1 Reserve- (+ = increase) +48 -220 -33 Total Outstanding 1,327.4 1,584.9 Gross Reserves (end-year) t26 377 451 and Disbursed Net Reserves (end-year) +258 +38 +5 DEBT SERVICE RATIO b/ (x) 9.4 8.7 RATE OP EXCHANGE IBRD/IDA LENDING, March 31. 1982 ($Million) I 3RD IDA End 1977 US$1.00 = Rs 15.56 Outstanding and Disbursed 28.6 148.5 Rs 1.00 = US$0.06 Undosbursed - 445.9 Outstanding, including Undisbursed 28,6 594.4 End 1978 US$1.00 = Rs 15.51 Rs 1.00 = US$0.06 End 1979 us$1.00 - Rs 15.45 Rs 1.00 = US$0.06 End 1980 US$1.00 = Rs 18.00 Rs 1.00 = US50.06 End 1981 U8$1.00 = Rs 20.55 Rs 1.00 = US$0.49 a/Repayable in foreign currencies and with a maturity over one year. b/Ratio of debt service, excluding short-term capital movements and TIF repurchases, to exports of goods and non-factor services. South Asia Programs Department May 27, 1982  -24- ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1982) US$ Million Loan or Amount (net of Credit cancellations) No. Year Borrower Purpose Bank IDA Undisbursed Eight loans and eight credits fully disbursed 72.9 66.8 504 1974 Sri Lanka Dairy Development 9.0 5.1 666 1976 Sri Lanka Tank Irrigation Modernization 5.0 2.1 701 1977 Sri Lanka Mahaweli Ganga Development II 19.0 13.0 709 1977 Sri Lanka Water Supply 9.2 .4 742 1977 Sri Lanka DFC - Industrial IV 8.0 .5 818 1978 Sri Lanka Tree Crop Rehab. (Tea) 21.0 15.3 819 1978 Sri Lanka Tree Crop Diver. (Tea) 4.5 .3 891 1979 Sri Lanka Kurunegala Rural Development 20.0 15.6 900 1979 Sri Lanka Road Maintenance 16.5 13.8 931 1979 Sri Lanka Agricultural Extension and Adaptive Research 15.5 13.8 942 1979 Sri Lanka Small and Medium Industries 16.0 7.4 979 1980 Sri Lanka Mahaweli Ganga Technical Asst. 3.0 1.9 994 1980 Sri Lanka Road Passenger Transport 53.0 45.2 1017 1980 Sri Lanka Rubber Rehabilitation 16.0 15.7 1020 1980 Sri Lanka Telecommunications 30.0 30.0 1041 1980 Sri Lanka Second Water Supply 30.0 29.8 1048 1980 Sri Lanka Sixth Power 19.5 19.4 1079b/ 1981 Sri Lanka Second Rural Development 33.5 32.4 1130b/ 1981 Sri Lanka Construction Industry 13.5 12.1 1160b/ 1981 Sri Lanka Village Irrigation Rehab. 30.0 29.4 1166b/ 1981 Sri Lanka Mahaweli Ganga Development 90.0 76.9 1182b/ 1982 Sri Lanka Second Small & Medium Industries 30.0 30.0 1210 1982 Sri Lanka Seventh Power 36.0 36.0 Total, 72.9 595.0 446.1 of which has been repaid 44.3 0.6 Total now outstanding 28.6 594.4 Amount sold, 3.6 of which has been repaid 3.6 Total now held by Bank and IDA a/ 28.6 594.4 a/ Prior to exchange adjustments. b/ Actual credit amount is in terms of SDR with the US$ value being shown in the Statement of Development Credits in terms of US$ computed at March 31, 1982 rate.  -25- ANNEX II Page 2 B. STATEMENT OF IFC INVESTIENT (as of March 31, 1982) Amount (US$Million) Year Obligor Type of Business Loan Equity Total 1970 Pearl Textile Textiles 2.50 0.75 3.25 1977/80 The Development Finance Corporation of Ceylon Development Banking - 0.15 0.15 1978/81 Bank of Ceylon Development Banking 7.00 - 7.00 1979 Cyntex Textiles 3.15 0.54 3.69 1979 Mikechris Industries Polypropylene Bag 0.89 0.10 .99 1980 LOLC Leasing - 0.25 0.25 1981 Taj Lanka Hiotels 19.30 .70 20.00 Total Gross Commitments 32.84 2.49 35.33 Less: Cancellations, Terminations, Repayments, and Sales 15.17 .75 15.92 Total Commitments now Held by IFC 17.67 1.74 19.41 C. STATUS OF PROJECTS IN EXECUTION AS OF MARCH 31, 1982 I/ Cr. No. 504 - Dairy Development Project; US$9.0 million of August 9, 1974; Effective Date: February 10, 1975; Closing Date: December 31, 1981 Project focus has been shifted from the provision of credit for cattle purchase and on-farm development to the establishment of Dairy Producer Associations along the lines of the successful Anand pattern in India. The Closing Date was extended by one year to permit Credit proceeds to be used to finance the feasibility study for a proposed milk processing plant near Kandy. The extension was also intended to provide IDA with the 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the understanding that they do not purport to present a balance evaluation of strengths and weaknesses in project execution.  ANNEX II -26- Page 3 opportunity to continue its dialogue with the Government on the milk price/ subsidy issue. The consultant's report recommended a plant costing about US$16.0 million, which the Government considers too large. In view of this, the overall poor performance of the project, and lack of progress on milk price/subsidy issue, it has been decided not to extend the present closing date. However, the books are being kept open till June 1982 to allow disbursement against committed expenditures. Cr. No. 666 - Tank Irrigation Modernization Project; US$5.0 million of January 12, 1977; Effective Date: April 12, 1977; Closing Date: June 30, 1983 Given the local budget constraints, good progress was made in project implementation during 1981. Staff positions and equipment provided are sufficient to complete the project by end 1983, excluding some drainage works and farm roads which have been deleted by the Government for budgetary reasons. The water management program introduced in one tank area during Maha 1980/81 went very well, but its envisaged extension to all five tanks has not yet taken place. Severe drought in Anuradhapura district during Maha 1981/82 caused a total failure of the paddy crop at the Mahakandarawa Tank, where the water management program had been initiated the year before, and a partial failure was experienced at Pavatkulam. Cr. No. 701 - Mahaweli Ganga Development II Project; USS19.0 million of June 21, 1Y/7; Eftective Date: December 29, 1977; Closing Date: June 30, 1983 With the exception of irrigation system infrastructure in one block of the command area (about 1200 ac) and various buildings (about 580) throughout System H, the construction of irrigation and social infrastructure in the project area is essentially completed. Work remaining to be done is scheduled for completion by early 1983. IDA has recommended that a massive and concerted effort be made to make the irrigation system responsive and operational. The Government agreed to establish a special construction unit to undertake the needed modification and completion work, staffed by experienced and capable technical staff. Cr. No. 709 - Water Supply Project; US$9.2 million of June 30, 1977; Effective Date: February 8, 1978; Closing Date: June 30, 1983 The Project has made good progress in completing the procurement of equipment and materials and in advancing the construction of civil works. The IDA Credit and the IDA-administered CIDA Credit are almost entirely disbursed. Financial Management of the National Water Supply and Drainage Board (WDB) has improved with WDB now producing the financial information  -27- ANNEX II Page 4 required for management. WDB's progress in implementing consumer metering is now satisfactory as a result of steps taken to accelerate the program; WDB is now experiencing the difficulties normally expected to accompany the introduction of consumer billing and collection; measures are being taken to alleviate the difficulties. Cr. No. 742 - Fourth Development Finance Corporation of Ceylon Project; US$8.0 million of September 30, 1977; Effective Date: December 16, 1977; Closing Date: December 31, 1981 DFCC's management problems have improved under the new General Manager, although problems at the Board of Directors level still persist. DFCC's capitalization and hence its exposure limits are to be expanded by means of an increase in its issued share capital from Rs 24 million to Rs 60 million. Credit 742-CE has been fully committed and all disbursements are expected to be completed by May 1982. Cr. No. 818 - Tree Crop Rehabilitation (Tea) Project; U$21.0 million of July 12, 1978; Effective Date: December 28, 1978; Closing Date: December 31, 184 Project progress is close to target for field work and the standard of field operations is high. New factory equipment is improving tea quality and reducing cost of production. Housing has fallen behind schedule because of escalating costs but the introduction of new designs and materials has increased building momentum. The smallholder component has lagged behind estate development because of weak smallholder extension; this position is slowly improving. Cr. No. 819 - Tree Crop Diversification (Tea) Project; US$4.5 million of July 12, 1978; Effective Date: December 15, 1978; Closing Date: June 30, 1983 Project activities have been seriously affected by political and social opposition to the breakup of mid-country estates into settlements. Despite impressive activity in diversification and housing construction the project has only been able to allocate a small number of settlements. Continued unanticipated responsibility for tea lands and for settlement maintenance has drained project finances. The Credit is more than 90% disbursed. Government has handed back to Land Reform Commission some project areas including project financed houses and diversified crops. IDA is undertaking a detailed review of the project.  -28- ANNEX II Page 5 Cr. No. 891 - Kurunegala Rural Development Project; US$20.0 million of April 26, 1979; Effective Date: August 27, 1979; Closing Date: June 30, 1984 The project is generally on schedule; rural electrification works have already been completed; and rural roads, health, livestock and education works should be completed by June/July 1982. Problems on quality of construction of irrigation and education works were identified at early stage of project implementation. Supervisory consultants, appointed for the Second Rural Development Project (Cr. No. 1079), are helping to improve construction activities. Improvements on the institutional arrangements for agricultural credit, water management, and agricultural extension are somewhat slower than expected. High cost overruns were noted in nearly all project components. Efforts are being made to cut down cost by introducing farmers' donated labor for some of the activities. Cr. No. 900 - Road Maintenance Project; US$16.5 million of June 22, 1979; Effective Date: December 19, 1979; Closing Date: June 30, 1984 A general 25% reduction in budget allocations 1981, followed by a further 10%, has meant a rescheduling of proposed expenditures for the project. This has been possible without sacrificing principal project objectives but at the cost of deferring major rehabilitation work until towards the end of the project. The allocation for 1982 has been increased to the original estimate and it is expected that the project would be completed by mid-1984, almost nine months later than estimated at appraisal. Cr. No. 931 - Agricultural Extension and Adaptive Research Project; US$15.5 million of July 24, 1979; Effective Date: October 4, 1979; Closing Date: June 30, 1985 The basic infrastructure and programs for providing agricultural extension services in line with the T&V system have been established and the Department of Agriculture is making steady progress in implementing the system. Effective linkages have been established between research, training and extension activities. Revised technical assistance and overseas training programs have been agreed with Government and are being implemented. Civil works started during the past two years have been completed while vehicles and equipment for current requirements have been procured. Disbursements have been slow due to delays in recruitment, civil works, staffing, procurement and technical assistance program.  -29- ANNEX II Page 6 Cr. No. 942 - Small and Medium Industries Project; US$16.0 million of July 24, 1979; Effective Date: October 23, 1979; Closing Date: June 30, 1984 The principal objectives of the project would be to encourage and assist growth and productivity improvement of small and medium firms, defined as enterprises having plant and equipment valued at less than Rs 1 million, so as to increase their contribution to efficient low cost employment creation, export expansion, regional development and economic growth. The subloan amount has been fully committed, and disbursements which have accelerated during the last six months, are expected to be completed one year ahead of schedule. Most technical and marketing service assistance activities have been launched. Cr. No. 979 - Mahaweli Ganga Technical Assistance Project; US$3.0 million of April 16, 1980; Effective Date: July 7, 1980; Closing Date: September 30, 1982 A review of the final draft report for the Transbasin Diversion Study was held in Colombo during M4arch 1982 and the consultant was asked to prepare cost and time estimates for completion of some additional studies. It is expected that an extension of the credit will be required to complete these studies. Cr. No. 994 - Road Passenger Transport Project; US$53.0 million of April 16, 1980; Effective Date: October 27, 1980; Closing Date: June 30, 1983 After a long delay by the beneficiary (SLCTB) in preparing bidding documents for the procurement of the first batch of 660 bus chassis, a tender was awarded in August 1981 and the first deliveries began in January 1982. A second invitation to bid was issued in February 1982, and an award for 400 chassis is expected in September 1982. The SLCTB is preparing a third tender for complete buses. Orders for workshop machinery, critical units and spares have been delivered but disbursements are lagging. Cr. No. 1017 - Smallholder Rubber Rehabilitation Project; US$16.0 million of June 24, 1980; Effective Date: September 10, 1980; Closing Date: June 30, 1986 The project continues to progress well. The replanting program in particular is proceeding at above target levels. Distribution of fertilizer is also taking place properly. Response by farmers to participate in replanting under the project has been highly satisfactory.  -30- ANNEX II Page 7 The institution building aspects of the project have been progressing slowly. This is not having serious repercussions on the physcial implementation of the project. However, measures are underway to speed up the institutional aspects of the project. Consultants for training, processing, and replanting scheme administration have submitted their draft reports. Construction of Training Center is complete. Cr. No. 1020 - Telecommunicatons Project; US$30.0 million of June 24, 1980; Effective Date: September 10, 1980; Closing Date: June 30, 1985 The Government has already established a separate Telecommunications Department as part of orgaizational improvements under the project. The Goverment has also increased overseas telephone and telex rates. Procurement is about two to three months behind schedule but otherwise proceeding well in accordance with the revised schedule. Cr. No. 1041 - Water Supply and Sewerage II Project; US$30.0 million of September 24, 1980; Effective Date: February 26, 1981; Closing Date: September 30, 1983 WDB has appointed engineering consultants to supervise the construction of the sewerage works under the Project and the financial consultants for completion of WDB's organization management and financial study. The project expenditures have been rephased to reflect the reduction in local resource allocation during 1981. Procurement of materials and equipment, and civil works for the major component of the water supply project are proceeding according to the new agreed schedule. Cr. No. 1048 - Sixth Power Project; US$19.5 million of September 24, 1980; Effective Date: March 30, 1981; Closing Date: March 31, 1985 The IDA financed components are now proceeding satisfactorily. The average tariff for power supplied by the Ceylon Electricity Board was increased from about Rs 0.30 to Rs 0.98/kWh on October 1, 1980. The LRMC tariff study was recently completed and structural improvements are proposed as part of the tariff increase scheduled prior to effectiveness of the Credit for the Seventh Powei Project. CEB has appointed consultants for a program of "restoration" of systems and training: a comprelhensive training program has been prepared and implementation has started. Engineering consultants have been appointed to design the project components to be financed by the Saudi Fund.  - 31 - ANNEX II Page 8 Cr. No. 1079 - Second Rural Development Project; US$33.5 million of February 2, 1981; Effective Date: June 2, 1981; Closing Date: June 30, 1986 The project is making satisfactory progress. Supervisory and planning consultants have been appointed. Project equipment, with the exception of a few items, have been procured and handed out to the respective agencies. Construction programs for all components are generally on schedule. Cr. No. 1130 - Construction Industry Project; US$13.5 million of June 1, 1981; Effective Date: August 19, 1981; Closing Date: June 30, 1984 Overall project progress is satisfactory and on schedule. Pilot training programs for basic artisans in carpentry and masonry, and technical site supervision started in August. The 'on-site' phase of these programs have just began and are being monitored closely to determine whether the downturn in the construction sector would seriously jeopardize this aspect of the project. Programs in Plant Mechanics started in early October 1981, and a Plant Operator course began in early November 1981. Cr. No. 1160 - Village Irrigation Rehabilitation Project; US$30.0 million of July 15, 1981; Not Yet Effective; Closing Date: December 31, 1986 Construction activities during 1981 fell slightly below appraisal estimates manily due to budgetary constraints. The investigation program has also lagged slightly behind schedule although this is not expected to affect the 1982 program significantly. The institutional changes in the Department of Agrarian Services in support of a systematic water management program have been made, an adviser has been recruited and training programs initiated. Procurement of equipment has proceeded on schedule and orders for the bulk of equipment to be supplied under the project have been placed. Cr. No. 1166 - MIahaweli Ganga Development Project III; US$90.0 million of November 5, 1981; Effectiveness Date: February 5, 1982; Closing Date: December 31, 1986 The credit became effective on February 8, 1982. The Japanese OECF loan agreement was signed on October 16, 1981, and the Kuwait Fund A.E.D. loan agreement has been initialed in draft form and Board approval is imminent. Construction of the Right Bank Transbasin Canal is somewhat behind schedule but the quality of completed work is good. The contractor requested a contract extension of seven months (from December 1981 to July  -32- ANNEX II Page 9 1982), but later reduced the extension request to four months and is importing additional equipment. Cr. No. 1182 - Second Small and Medium Industries Project; US$30.0 million of February 5, 1982; Closing Date: December 31, 1985 The Credit is not yet effective. Cr. No. 1210 - Seventh (Mahaweli Transmission) Power Project; US$36.0 million of April 8, 1982; Closing Date: May 31, 1985 The project is not yet effective.  ANNEX III -33- Page 1 SRI LANKA EIGHTH (DIESEL) POWER PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the Country to prepare the project 6 months (b) The agency which has prepared the project Ceylon Electricity Board (c) Date of first presentation to the Bank and date of the first misson to consider the project November 1981 and January 1982 respectively. (d) Date of Departure of appraisal mission January 1982 (e) Date of completion of negotiations May 14,1982 (f) Planned date of effectiveness August 31, 1982 Section II: Special IDA implementation Action None  -34- ANNEX III Page 2 Section III: Special Conditions (a) CEB would continue to review its tariffs annually before the start of each financial year to ensure at least an 8% rate of return on currently valued net fixed assets in operation (para 46); (b) CEB would submit a long-term power development plan endorsed by GOSL to the Bank by December 31, 1982 for its review and thereafter update it annually by December 31 of each subsequent year (para 32); and (c) Government would ensure that the Local Authorities levy tariffs sufficient to cover CEB's bills for bulk supply and their own costs of distribution, and pay the current CEB tariff (para 50).  IBRD 16386 APRIL 1982 SRI LANKA ,h~nr~ao ,EIGHTH (DIESEL) POWER PROJECT C hunn. ~ko \ Proposed Power Stotion(project) ri "'9>