Sri Lanka - Seventh (Mahaweli Transmission) Power Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-3195-CE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SEVENTH (MAHAWELI TRANSMISSION) POWER PROJECT February 3, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its eontents may not otherwise be disclosed without World Bank authorization.  SRI LANKA SEVENTH (MAHAWELI TRANSMISSION) POWER PROJECT CURRENCY EQUIVALENTS US$1.00 = SL Rs 18.5 SL Rs 1.00 = US$0.054 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 (MV) 1 million watts 1,000 kilowatts 1 kilowatt hour (kWh) = 1,000 watt hours 1 gigawatt hour (GWh) 1 million kilowatt hours ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank CEB - Ceylon Electricity Board CPC - Ceylon Petroleum Corporation GOSL - Government of Sri Lanka LRMC - Long-Run Marginal Cost MPE - Ministry of Power and Energy MASL - Mahaweli Authority of Sri Lanka PPAR - Project Performance Audit Report USAID - United States Agency for International Development SRI LANKA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA SEVENTH (MAHAWELI TRANSMISSION) POWER PROJECT Borrower: The Democratic Socialist Republic of Sri Lanka. Beneficiary: Ceylon Electricity Board (CEB). Amount: SDR 31.3 million (US$36.0 million equivalent at the time of negotiations). Terms: Standard. Relending Terms: The Government of Sri Lanka (GOSL) would relend the proceeds of the IDA Credit to CEB with interest at 12% per annum for a period of 20 years including three years of grace. GOSL will bear the foreign exchange risk. Co-financier: OPEC Fund, US$11.0 million equivalent. Project The project will help meet the country's increasing demand Description: for electricity and is designed to deliver efficiently, reliably, and at a minimum cost, the output from the hydro- electric power stations in the Mahaweli basin to the principal load centers in the Colombo area. It also builds on the institutional capabilities developed under the earlier projects and provides for better coordination within the power sector. Components of the project are: 126 km of 220 kV double circuit and 38 km of 132 kV single circuit transmission lines; (b) one new 220/132 kV substation, extensions to 3 existing 132 kV substations, one new 132 kV switching station and extensions to an existing 66 kV substation; (c) replacement of circuit breakers with new ones of higher rupturing capacity; (d) vehicles, tools and buildings; (e) equipment for power factor correction, power line carrier, and for loss reduction cell; and (f) engineering consulting services, technical assistance and training. The project involves normal electric utility work to be implemented by a well established organization, CEB, and thus does not carry any unusual risk. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: US$ Million Equivalent Foreign Local Total Transmission Lines 19.8 6.4 26.2 Substations 5.4 1.6 7.0 Transformers 4.4 0.4 4.8 Circuit Breaker Replacement 3.0 0.5 3.5 Other Equipment 1.7 0.9 2.6 Vehicles and Tools 0.2 - 0.2 Consultants/Training 1.6 0.2 1.8 CEB Supervision - 0.5 0.5 Sub-Total 36.1 10.5 46.6 Contingencies: Physical 3.4 1.0 4.4 Price 7.3 5.9 13.2 Project Cost Before Customs Duties 46.8 17.4 64.2 Customs Duties - 12.1 12.1 Total Project Cost 46.8 29.5 76.3 Financing Plan: US$ Million Equivalent Foreign Local Total IDA 35.8 0.2 36.0 OPEC Fund 11.0 - 11.0 CEB - 29.3 29.3 Total 46.8 29.5 76.3 Estimated Disbursement: US$ Million Equivalent IDA FY FY82 FY83 FY84 FY85 Annual 2.6 15.3 16.1 2.0 Cumulative 2.6 17.9 34.0 36.0 Economic Rate of Return: 14% Staff Appraisal Report: No. 3599a-CE dated January 21, 1982. Map: IBRD 16016 R  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SEVENTH (MAHAWELI TRANSMISSION) POWER PROJECT 1. I submit the following report and recommendation for a proposed Development Credit to the Democratic Socialist Republic of Sri Lanka in an amount of SDRs 31.3 million (US$36.0 million) on standard IDA terms to help finance a Seventh (Mahaweli Transmission) Power Project. The entire proceeds of the Credit would be relent to the Ceylon Electricity Board (CEB) at 12% interest rate per annum for a term of 20 years, including three years' grace, with Government bearing the foreign exchange risk. To help finance part of the foreign exchange cost of the proposed project, the OPEC Fund would provide a loan of US$11.0 million, free of interest, for a period of 20 years, including 5 years of grace, with a service charge of 3/4 of one per cent per annum on amounts withdrawn and outstanding. PART I - THE ECONOMY 1/ 2. The most recent economic report, "Sri Lanka: Policies and Prospects for Economic Adjustment" (Report No. 3466-CE, May 15, 1981), was distributed to the Executive Directors on May 26, 1981. 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 is attributable to a com- bination 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. 1/ This part is substantially the same as Part I of the President's Report on a Second Small and Medium Industries Project for Sri Lanka (Report No. P-3124-CE, dated September 23, 1981) which was approved by the Executive Directors on October 13, 1981.  -2- 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 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- si.dized 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  -3- 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 health and education. In short, the economy could no longer generate the resources needed to sustain a 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 to cover the 1979-81 period. The principal aim of the reform program was to dismantle controls over resource allocation and initiate price adjustments 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 I/ on November 16, 1977, at a depreciated rate of Rs 16 = US$1.00 and allowed to float. This implied a depreciation of 46% against the official rate prevailing prior to unifica- tion, and 11.2% with respect to the Foreign Exchange Entitlement Certificate (FEEC) rate. The trade and payment 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 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- 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 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 9% of GDP in 1978 to around 5% in 1980. 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 5% in February 1981 following a sub- stantial increase in fertilizer prices. With the related increase in flour prices, incentives for paddy and other flour substitutes benefited. At the same time, there occurred a large policy-induced decline in the role of the state in domestic rice trade. Fresh coconut prices were also increased and the export duty on coconut products was appropriately adjusted. 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 produc- tion costs rose in 1978-79, the Government responded to the reduced producer margins by lowering taxes on tea. 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 have averaged 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  -5- 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-1980 had signed agreements with 64 investors involving a total investment of US$130 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 Kotte, a suburb of Colombo. Budgetary expenditures on these three programs will amount to Rs 34 billion, or 52% of projected budgetary resources over the 1981-85 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 has so far responded well, increasing from about 7% of GDP in 1977 to 15% by 1980, and helping overall fixed investment to exceed 33% of GDP in 1980. 12. In response to the policy reforms and the accompanying acceleration in investment, economic growth in 1978-80 averaged an impressive 6.8% 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 impressive performance is due to a number of factors including the improved availability of inputs following import liberaliza- tion, an increased role for the private sector in distribution, and the removal of price controls. Although there is little information available 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 emerged in 1980. In particular, the national savings effort has not matched the rapid rise in investment. Gross national savings fluctuated 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 19.5% 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 its 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 mobilized through these channels have not grown as rapidly as the  -6- budgetary deficit, and the Government has been increasingly forced to under- take 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. 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--has 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 have 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 a 20% 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 (19.5% 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, especially the public corporations, have 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. The 1981 budget proposes to reduce government capital expenditures from 19% of GDP in 1980 to 14% of GDP in 1981, and the overall budgetary deficit was reduced from 21% to 15% between 1980 and 1981. In addition, the Government has moved to limit public sector purchases of equipment and construction of new buildings and taken  -7-. steps to raise additional resurces and impose a control mechanism over capi- tal expenditures by public corporations. Preliminary indications are that the adjustment measures taken in 1981 have succeeded in improving economic performance, the overall budget deficit is estimated to have declined to 15% of GDP. The current account deficit in the balance of payments to about 15% of GDP, and average annual inflation to below 20%. Continued strong measures will be required throughout the medium term to ensure that public sector investment is consistent with available resources, as many of the large development schemes the Government has initiated are only now gathering full momentum. 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. Most of the growth came in project aid, reflecting the Govern- ment's efforts to increase investment, particularly in the Accelerated Mahaweli Program. Since public investment is already overprogrammed, con- tinued high levels of aid will depend upon donors' abilities to shift from project to non-project aid and to finance a sizable portion of local costs; 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 pres- sures. Local cost financing, in support of Sri Lanka's own resource mobi- lization 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$1,335 million at the end of 1980, amounting to about 35% of GDP. However, this is almost all long-term concessional debt. As a result, the debt service burden is relatively low; debt service ratio in 1980 excluding IMF repur- chases stood at 9.3% of exports of goods and non-factor services, declining from 13.3% in 1977. While this sustained decline is due in part to improved export earnings, the main cause has been a decline in outstanding short- and medium-term commercial borrowings. Unless the ratio of the current account deficit to GDP continues the improvement began in 1981, 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.  -8- 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 cancel- lations) and 25 credits denominated in US dollars totalling US$362 million and 4 credits denominated in Special Drawing Rights totalling SDR 134.3 million (net of cancellations and exchange adjustments) in support of 35 projects. 1/ About 54% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 13% for power, 12% for transport, and the remainder for development finance company operations, a program credit (mainly involving the import of raw materials for industry), water supply, telecommunications and small and medium industries. Eight loans and eight credits have been fully disbursed so far. Annex II contains a summary statement of Bank Group operations as of September 30, 1981, together with notes on the execution of ongoing projects. 20. An IFC equity investment of about US$100,000 equivalent in the Development Finance Corporation of Ceylon (DFCC) and two IFC lines of credit totalling US$7.0 million have been made to the Government-owned Bank of Ceylon (BOC). The first IFC loan to BOC, made effective in 1979, consisted of US$2.0 million for term loans to firms with fixed assets of below Rs 6 million (US$385,000); the second IFC loan of US$5.0 million is geared to larger enterprises with eligible subloans ranging from US$83,000 to US$1.0 million. IFC also approved an investment of US$3.68 million in a synthetic textile mill, and US$986,000 in a polypropylene bag manufacturing plant in FY79. During FY80, IFC approved an increase in equity investment of about US$51,000 equivalent in DFCC and 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 sector. 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 the Government to implement the Accelerated Mahaweli Ganga Development Program (Accelerated Mahaweli Program) principally through coor- dinating external assistance. The Board approved the Second Small and Medium Industries Project on October 13, 1981. Recently the appraisals of a second 1/ As of September 30, 1981; Loan 659/Credit 133 (1969) and Loan 653/ Credit 174 (1970) are counted as two single projects.  -9- tea rehabilitation project and an industrial sector credit have been com- pleted. 22. The Bank Group, as of end 1980, accounted for 9.7% (IBRD, 2.3%; IDA, 7.4%) of Sri Lanka's total debt outstanding and disbursed, and 6.5% (over 80% IBRD) of debt service on 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 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. The source of most of Sri Lanka's energy at present is firewood, which provides about 60% of the total energy, the rate of consumption being estimated to be between 3.8 and 5.4 million tons 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 deforesta- tion. 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 are 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 6,600 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 remaining 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  -10- adequate organization and management systems designed by international con- sultants in 1973 under the Fourth Power Project (1969)1/. However, its managerial effectiveness, in recent years, has declined. A program of measures for improvement of management and training is currently in place (paras 55 and 56). 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, except for the construction of the Ukuwela station on the Mahaweli Ganga. CEB's recent generation program has included two hydro stations of 40 MW at Bowatenne (commissioned last year) and of 60 MW at Canyon (scheduled for commissioning th4s year). In all CEB has 499 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). Subtransmission and distribution lines at 33 kV extend to about 3,250 miles, and there are about 750 miles of 11 kV overhead dis- tribution 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 accelerated program for construction of dams, hydro stations and irrigation works, is responsible for the construction works at Victoria, Kotmale, and Randenigala. As each hydro component under this program is completed, it will be transferred to CEB for operation. The Victoria (210 MW) and Kotmale (201 MW) hydro stations, now under construction, are scheduled to come on stream in 1984 and 1985 respectively. Construction works on Randenigala project (122 MW) is scheduled to start this year. Recently, satisfactory preliminary 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 extended 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 resumption of economic growth in the last three years (1977-80) it averaged 11.5% per annum despite the 1/ Loan 636-CE (US$21.0 million)  -11- 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. Electricity Supply 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 energy generated by CEB's power stations in 1980 was 1,668 GWh, against the estimated requirement of 1,728 GWh. Load shedding was inevitable 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 instalment payments. A load promotion and monitor- ing unit will also be introduced in CEB under this project. Development Program 31. CEB's generation program through 1990 is dominated by the Accelerated Mahaweli Program which calls for the addition of about 600 MW of hydro generating capacity to CEB's system. In order to prevent capacity and energy shortages before enough new hydro stations - Canyon, Victoria and Kotmale - are commissioned, CEB installed six 20 MW of gas turbines in two phases during 1980 and 1981. To meet further energy needs through 1985, CEB undertook a study in early 1981 to determine the least cost solution and as a result GOSL and CEB have decided to install an 80 MW diesel plant, for which GOSL has requested IDA financing. 32. CEB is also preparing a long term (15 years) master plan for power generation, transmission and distribution on a least cost basis. CEB will submit this plan, endorsed by GOSL, to the Associaton by December 31, 1982, and thereafter update it annually (Section 3.06, draft Project Agreement (PA)). 33. Studies of the transmission system by CEB's engineers in 1979 indicated 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.  -12- Sector Coordination 34. Recognizing CEB's potential role in the overall development of the power sector, IDA has continued to emphasize the need for adequate coordina- tion between CEB and other agencies, particularly MASL, involved in the preparation, design and construction of any "joint scheme". 1/ The level of coordination between CEB and MASL presently is limited to technical matters. Under the proposed Credit, provision has been made for GOSL to ensure proper coordination between CEB, MASL and any other agency associated with any joint scheme (Section 3.02(a), Draft Development Credit Agreement (DCA). 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 million2/ for a multi-purpose development on the Mahaweli, which included the construction of the Ukuwela hydro (38 MW) sta- tion 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 transmission and distribution started with an IDA credit of US$6.0 million (Fifth Power Project)3/ in 1973 followed by another credit of US$19.5 million in 1980 (Sixth Power Project) 4/ for further reinforcement and improvement of transmission and distribution systems. 36. Physical implementaton 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. Severe staffing difficulties in recent years and the lack of adequate management training for senior management have prevented the 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. 2/ Loan 653-CE/Credit 174-CE 3/ Credit 372-CE 4/ Credit 1048-CE  -13- was a feature of the Sixth Power Project (1980) and also forms an important part of the proposed project (para 56). 37. ADB has provided financing for the Bowatenne and Canyon hydro stations, and for rural electrification (para 30). GOSL has arranged bilateral financing 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 German aid as part of the Randenigala project. The UK-assisted Victoria hydro project includes a 220 kV transmission link from Victoria to Kotmale. As the transmission line linking Kotmale to the prin- cipal load centers in the Colombo area is not covered under the above men- tioned bilateral assistance for the Accelerated Mahaweli Program, GOSL requested IDA's assistance. PART IV - THE PROJECT 38. The proposed project was prepared by CEB with assistance from consultants and was appraised in May/June 1981. The Staff Appraisal Report entitled "Seventh (Mahaweli Transmission) Power Project" (No.3599a-CE dated January 21, 1982) is being distributed separately. A timetable of key events relating to the project and special conditions of the proposed Credit are given in Annex III. Negotiations were held in Washington from November 16-20, 1981. GOSL and CEB were represented by a delegation headed by Profes- sor K.K.Y.W. Perera, Secretary, Ministry of Energy and Power. Project Objectives 39. The main objective of the project is to deliver at minimum cost the output from hydro stations in the Mahaweli basin to the principal load cen- ters in the Colombo area and to establish the first elements of a 220 kV grid that will eventually cover much of the country. It would also help improve the reliability of the existing 66 kV network. The projet also helps build on the institutional capabilities developed under the earlier projects and provides for better coordination within the power sector. Project Description 40. The proposed project consists of the following components: (a) 126 km of 220 kV double circuit transmission line from Kotmale to the load centers around Colombo and 38 km of 132 kV single circuit transmission line from Rantembe to Badulla;  -14- (b) one new 220/132 kV substation, extensions to three existing 132 kV substations, one new 132 kV switching station and extensions to an existing 66 kV substation; (c) replacement of circuit breakers with new ones of higher rupturing capacity; (d) equipment for power factor correction, power line carrier, and for a loss reduction cell; (e) vehicles, tools and buildings; and (f) engineering consultancy services, technical assistance and training. Project Implementation 41. CEB will be responsible for the implementation of the proposed project. CEB's engineers have worked closely with experienced consultants, appointed under the Sixth Power Project (1980), on the conceptual design and specifications to ensure that the newly introduced 220 kV lines would even- tually evolve into a 220 kV grid covering much of the country. Consultancy services will be extended to include the supervision of construction. The cost of engineering consultancy services is estimated at US$1.3 million based on 140 man-months of foreign engineering services at an average cost of US$9,300 per man-month to cover international travel, subsistence, allowances and reimbursable foreign costs. Project Cost and Financing, and Relending 42. The total project cost is estimated at about US$76.3 million equiv- alent (including customs duties of about US$12.1 million equivalent) with a foreign exchange component of US$46.8 million. The estimates are based on 1981 prices. Price contingencies have been estimated assuming annual infla- tion of 23% for 1981, 17% for 1982, 14% for 1983, 12% for 1984 and 10% there- after for local costs; and 9% for 1981, 8.5% for 1982, 8% for 1983, 7.5% for 1984 and 7% thereafter for foreign costs. Physical contingencies average 10%. The proposed Credit of US$36.0 million equivalent, together with the proposed OPEC Fund Loan (US$11.0 million equivalent), would finance the full foreign exchange cost (about 73% of total project cost excluding duties), and a small amount (US$0.2 million equivalent) of local cost for training (para 55). The remaining local costs, amounting to about US$29.3 million equiv- alent, would be funded by CEB from internal cash generation. Satisfactory arrangements for financing by the OPEC Fund is a condition of effectiveness of the proposed Credit (Section 5.01(c), draft DCA). 43. The proceeds of the IDA Credit would be onlent to CEB with interest at 12% per annum, for a period of twenty years including 3 years of grace,  -15- with GOSL bearing the foreign exchange risk. The execution of the subsidiary loan agreement between GOSL and CEB is a condition of effectiveness of the proposed Credit (Section 5.01(b), draft DCA). 44. The average annual rate of inflation as measured by the GDP deflator rose sharply after 1978, reaching 24% in 1980. In early 1981, GOSL took a series of adjustment measures which succeeded in reversing the trend and reducing estimated inflation in 1981 to about 20%. GOSL is expected to continue and strengthen the adjustment measures, leading to a further decrease in inflation to about 10% by 1985, implying a 2% real interest rate at this time. GOSL does have a policy of maintaining positive real interest rates over the medium term. Current inflation is largely a result of policy-induced price adjustments in administered prices, short-term demand-supply imbalances in certain sectors, most notably construction, as well as imported inflation. The Sri Lankan authorities expect production to continue to respond positively to the price changes and the liberalization of the economy, and together with a tight rein on government budgetary deficits and credit expansion, cause the gradual slowdown in the rate of inflation. Procurement and Disbursements 45. The 220 kV and 132 kV lines will be constructed under one single responsibility contract, while all substations and switching stations will be covered by another contract. There will be major contracts for power trans- formers, replacement of circuit breakers and power line carrier equipment, and a number of relatively minor supply contracts for other materials. All major components to be financed by IDA and the OPEC Fund will be procured under international competitive bidding in accordance with IDA's guidelines. Vehicles, equipment and materials estimated to cost less than US$15,000 equivalent per item may be procured in accordance with local procedures, which are satisfactory to IDA, but not exceeding US$150,000 equivalent in aggregate. For materials and equipment tendered internationally, the stand- ard domestic preference of 15% on the c.i.f. price or the prevailing duty, whichever is less, will be applied in bid evaluation. 46. The Credit will be disbursed on the basis of 100% of the foreign expenditures for 220 kV and 132 kV transmission lines; 100% of foreign expen- ditures for directly imported items, or 100% of the local expenditure (ex-factory) for locally manufactured items, or 65% for locally procured items (equipment and materials for power transformers, power line carrier, loss reduction program, and vehicles and tools); 100% of foreign expenditures on engineering consultants, technical assistance, and training. The OPEC Fund loan will be disbursed against the foreign expenditures for substations and replacement of circuit breakers.  -16- Tariffs and Finances 47. Tariffs: CEB has satisfactorily revalued its fixed assets up to 1980, in accordance with an index-linked formula agreed with IDA. As the Government did not authorize tariff increases, CEB was unable to achieve 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, has authorised two tariff increases, the first on December 1, 1978 and the second on October 1, 1980. As a result of these increases, CEB's average tariff rose from Rs 0.16/kWh to 0.58/kWh (about 3 US cents).l/ Its financial rate of return on revalued assets, having declined from 7% in 1974 to 2% in 1978, increased to about 9% in 1980 and is estimated at about 11% in FY81. Since October 1980, CEB is also recovering automatically each month from its consumers the costs of fuel for its increasing thermal generation. However, over 90% of domestic con- sumers, whose monthly consumption is below 200 kWh (equivalent to a maximum charge of US$5), are exempt from the fuel surcharge. 48. CEB will continue to review its tariffs annually before the start of each financial year to ensure that revenues are sufficient to meet operat- ing expenses and to produce a rate of return of at least 8% on currently valued net fixed assets (Section 4.04(a), draft PA). While CEB's rate of return on its currently valued net fixed assets is estimated at 11% in FY81, CEB will have to increase tariffs by about 50% in FY82 (equivalent to 12% rate of return) to meet the local cost of its approved investment program through FY85. This increase in tariffs is a condition of credit effective- ness (Section 5.01(e), draft DCA). 49. 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. CEB agreed under the Sixth Power Project (1980) to carry out a study of long-run marginal cost (LRMC) pricing and review its tariff structure by December 31, 1980 and, thereafter to implement any structural improvements agreed with IDA and GOSL. Due to some initial delays brought about by staffing problems in CEB, IDA agreed to defer the completion date to end-December, 1981. Prelimi- nary results of the study have been reviewed by IDA and CEB has been advised to make some revisions. The recommendations of the study will be presented shortly to GOSL for approval after consultation with IDA. 1/ With the addition of fuel surcharge, the average tariff was equivalent to about US cents 6 per kWh in 1981.  -17- 50. CEB's 1980 unaudited accounts indicate a satisfactory debt/equity ratio of 20:80 with debt service covered 7.3 times by earnings. The current ratio of 3.3 is relatively high but will fall to a more satisfactory level (about two times) in the 1980s. The level of inventories, which, at end 1979, was found to be equivalent of 18 months' need, was high. CEB is required to reduce inventories, to a level satisfactory to IDA, by December 31, 1982, while GOSL also agreed to ensure the timely availability of foreign exchange for inventories. Based on a review of materials management problems by CEB's consultants, action is being taken to improve controls. Covenants similar to those in the Sixth Power Project relating to provision of foreign exchange and reduction of inventory levels are provided under the proposed project (Section 3.03(a), draft DCA; Section 4.07, draft PA). 51. Future Finances: CEB's presently approved investment program for FY81-FY85 comprises mainly hydro generation and rural electrifiation (ADB-assisted), and transmission and distribution (IDA-assisted). The program includes an addition of 80 MW diesel plant which has also been endorsed by GOSL with a commitment to contribute Rs 800 million in equity. Total financing required for the program is estimated at US$431.0 million equivalent. About 46% of this total is projected to be met by CEB through its internal resources. 52. CEB's long term finances through 1988 are satisfactory. CEB will probably become liable to pay income tax in FYs82 and 83 following recent changes in tax legislation. CEB's debt/equity ratio will increase from 18/82 in 1981 to 44/56 in 1988 following the transfer of assets under the Accelerated Mahaweli Program. The current ratio is expected to remain satis- factory falling from about 2.7 in 1981 to 1.9 by 1988. Debt service coverage of at least 1.25 times as required under the Sixth Power Project will con- tinue under the proposed Credit (Section 4.03, draft PA). 53. Billing and Collection: In recent years CEB's billing and collec- tion performance has been satisfactory except for the collection from the Local Authorities. CEB is required, under the Sixth Power Project (1980), to ensure that consumer receivables do not exceed the equivalent of three months billings. At December 31, 1980, the figure was 3.2 months as against 3.6 months at end 1978, during which time CEB's revenues have quadrupled. CEB's present obligation will continue under the proposed credit (Section 4.05, draft PA). 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. As of March 31, 1981, the obligation of GOSL in this respect amounted to Rs 200 million. This has now been paid in full by GOSL to CEB, and a decision has been made for the Local Authorities to pay full CEB tariffs as of October 1, 1981. GOSL will pay to CEB the balance of Rs 108 million on Local Authorities' account through September 30, 1981. Set- tlement of these arrears by GOSL is a condition of effectiveness (Section 5.01(d), draft DCA). GOSL will ensure that the Local Authorities pay the  -18- 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 DCA). Institutional Development 54. 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%, a ratio of one employee to 15 consumers, 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, 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 been able to fill a number of key finance posts. 55. Training: CEB's present training facilities are inadequate in relation to the number of employees trained. 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 presently identified to be covered by the training program proposed under the project, having been prepared under terms of the Sixth Power Project. Financing of this program includes a sum of US$200,000 to cover the local costs of the program mainly to ensure against implementation delays. 56.. Management Systems: Comprehensive reporting, accounting and budgeting systems were introduced by CEB in 1973 based on recommendations of consultants financed under the Fourth Power Project (1969). The systems are satisfactory, but in recent years, financial and management information reports had 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 now recommended 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 is available under the Sixth Power project. 57. 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. The assurance obtained under the Sixth Power Project that CEB will submit to  -19- IDA, in advance, any proposal for major organizational change, will continue under the proposed Credit (Section 3.03, draft PA). 58. 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 56), CEB will investigate system losses and undertake a study of load management and conservation. 59. Benefits and Risks: The proposed project is an integral part of the total power sector investment program in Sri Lanka, incorporating CEB's expenditure on generation, transmission and distribution and hydroelectric stations under the Accelerated Mahaweli Program. It is the critical link conveying the additional power to be generated at Randenigala, Victoria and Kotmale to the load centers. The rate of return on the small incremental investment would be extremely high. However, the method employed in this report is one of justifying the entire investment program including the proposed project and recognizes all inherent costs. 60. The economic justification involves quantifying benefits by using the cost and extent of use of alternative energy sources for economic activity and for lighting. On this basis, the best estimate of the economic rate of return is about 14%. Based on the overall feasibility of the invest- ment program, the project is justified as a necessary part of the program. 61. The project consists of normal electric utility work entailing no unusual risks and no particular difficulty is foreseen in its execution. PART V - LEGAL INSTRUMENTS AND AUTHORITY 62. The draft Development Credit Agreement between the Democratic Socialist Republic of Sri Lanka and IDA, the draft Project Agreement between IDA and the Ceylon Electricity Board, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 63. Special conditions of the project are listed in Section III of Annex III. Conditions of effectiveness (Section 5.01, draft DCA) include: (a) satisfactory arrangements for financing by the OPEC Fund, (b) execution of the subsidiary loan agreement between the Government and CEB, (c) an  -20- increase of tariff by about 50% over the existing average tariff, and (d) payment by GOSL of the arrears on the Local Authorities account through September 30, 1981. 64. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 65. I recommend that the Executive Directors approve the proposed Credit. A. W. Clausen President Attachments February 3, 1982.  -21- ANNEX I Page 1 TABLE 3A SRI LANKA - SOCIAL INDICATORS DATA SHEET SRI LAA REFERENCE GROUPS (WEIGHTED ARAGES LAND AREA (THOUSAND SQ. KM.) - HOST RECENT ESTIMATE>L TOTAL , 6 5.6 MOST R1CENT LOW INCCI MIDDLE INCOME AGRICULTURAL 25.8 1960 /b 1970 /b ESTIMATE /b ASIA 6 PACIFIC ASIA 6 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 OF 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 OF POPULATION) TOTAL .. 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 ADMISSIONS PER HOSPITAL BED .. 56.5 51.3 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4/c 5.8 URBAN 6.T37 6.3 RURAL 5.27T 5.5 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.0/c 2.5 URBAN 2.17i 2.7 RURAL 2.o77 2.5 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 7.5/c 9.0 URBAN 35.9/c 34.5 RURAL 2.3/c 3.0  -22- ANNEX I Page 2 TABLE 3A SRI LANKA - SOCIAL INDICATORS DATA SHEET SRI LANKA REFERENCE GROUPS (WEIGHTED AVERACES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 99.0 94.0/d 85.9 99.8 MALE 100.0 104.0 98.07d 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 34.67;; 58.4 FEMALE 16.0 48.0 40.0 18.07;iii 48.6 VOCATIONAL ENROL. (D OF SECONDARY) .. 1.0 1.0 3.8 21.1 PUPIL-TEACHER RATIO PRLMARY 31.0 .. 32.0 32.8 34.2 SECONDARY .. .. .. 19.9 31.7 ADULT LITESACY RATE (PERCENT) 75.0 /e 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 48.9 .. 14.6 106.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 3.0 .. 4.7 3.4 4.3 LABOR 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 FEMALE 16.2 16.5 17.3 23.3 31.1 ECONOMIC UEPENDENCY RATIO 1.3 1.4 1.2 1.1 1.1 INCOMfE DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.4 18.2 18.6 HIGHEST 20 PERCENT OF 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 RUKAL .. .. .. 111.6 193.7 ESTIMATED RELATIVE POVERTY INCOME LEVEL (111$ PER CAPITA) URBAN .. .. .. .. 249.8 RURAL .. .. .. .. 234.3 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. .. 41.7 21.2 RURAL .. . .. 51.7 32.2 Not available Not applicable. NOTES la 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 in duration of levels in education, the ratios are not strictly comparable over time; /e 1962. May, 1981  -23- tt4iNA J. Page 3 DEFINTION1S0 OP SOCIAL NDItCAT 0RS Notes: Although the Adtuat dosa fromsure genrall judgsd the cast authoritative atd reliable, itsol blohtted that they sa nor he IntrI cattooall comparabe acausof the lak of atadcetsdi dadftelittec aedr ropt: see.d by doff scent route eI t oi otg theda. The dat e, os theists,.. usful to dsa.teiba oodern of ts Itus,tdtiatttrends, ud h. retrIss trtat major differanoas .-.I h .t.. anritea. The reeao "gop Ir It). the l a ...contry group of the -uhi eo -atryae.d (2) s...ntry group wIth aenhthge urg nosta h ore ru ofch ehso ouor (ecet,o th"iapisltur. u Oi iyrters" grophee MIdl noeNorth Air lot and erdl fast is boteheateu. f srronger socic-ultarI I fica)eI h refr E sene ru fE datta th tvrgc 'r pouaio rigtdarruti v for nech indicator aed h.-a oly tah.e saolyoftrodoia airu!asdt o that c-ifror. ...e he coverage at...utriet ancg9 tie indioc..ors dopende orti uvilability of dais and is ot unifrm, cauion sut he ...rrlasd ic relating averages of one indicao to another. The...vEvugur -v-ly useful to ovopan h vlso oneIn i_tc_o a tos aoo the --tory cod tef-erne grop... iRte- . LAND1 Milk (thousard sq.k.) Pcpulntivc Per(oailtd-too,dr,rdual oplit(oc, Titta - lordI tuf- -oto -onprian Orglad ursa sod itl-nd watoe- uran -sd Pur l)-dvidd hy Irtl rrbyeind ruhro- hsitlhd Aerto-Iroral- 1 imt o grfriotru- eso sedteprarly or psnsIt".aalai "In puhc so,d,db pr hc-r eerci cod ubcitie hosptal andve- toe crps, psue,m es o ice gadens or to lie fsil1c; 1979 data. hbahilttato.o..r...ositls ceo votnblinhooot peaenlystffed G!T - GNP Per ..Pit. b~~~ ~~~~~~~~~y a ra i pyi-c stbihat p-oidovg c'rioipel oast cuisred by namecooversice methd as Corid tankAtlas (1977-79 basis); '.I1 etd sediro1 o.tnar cot per...onvoly tfo hp apysIIa -!(boo by 190,cd 99 aa.sdialnicat,ote,I ioTY r. hc tort-aio oc T. r.t.~~~~~~~~Acin o provIde i-1,ded oRe of moic tiis a tca and ligtnit, ptoan sua en sd hydro-, -uolo- endi' oohersa. 1elec- cod rotol honpti-lq lecl o rua oprlsdsdcl n aent t1riciy) in kilogram of coal squialerI yet ccPital 1960 , 1970, and 1979 conoses. ipolfe _optil nh. inclde onlyordrttal POPUL,ATION AND1 VITAL STATISTICi .,i..d~ddb h .brI e. 1toed Popu ti-cro Mtd-Yeac (tbh-suds) - Au of Juily 1; i96i, 1970, seAd 1979 HOUSINGO data. Ovee. f lrsoc Sian f boucebod ooc per ...uabId) - rood, urban und cud Triar Poculsolr (prrcrnt vtrural) - Outloot other to ttal population I brouslold vosirP..of.. goop ofhi.d.viual oslo therelir... quaten dif~f-rcnt deftooticoc of u-ln ueu ma puffertt cororll y vf dat co hirmi rcn oadro Ocd-c ry orh cay rotlibe, inlded-i scngccre;li,17,sd1979 de. tircoool_otSOtnOslpryss levo~ co ftnln ife opocanc stiliseg r 77) pers.the pats-dooconicoa dvelllngiv viol alo11iriytolvngqatoaa focicounry s obc osogud onpfthsitu obrutrdo ooaiy tOCTO ard Perth try trsodn tot projevoico purposes. Adjucrod torollueco Ocoflhca 1 1. I-- -.-P So-rcorif oplard o-osrtosioory-1 pouato rtherey I nor gronol tiers. t.. Primr Fool. - roti aecdfol ,rcrrr soudfn ti inbrr i qa to; ntP. d.. ot, rots, sod Th. pbogs orer- enro1tllmen oel.jf oi hgaa olertpritcy innliig as tl, peretgr feesstvge cb eysenc lvlofuitrtberoutarrtedin a goretc orchcodur- ordtorr lnth f-rnryeorton.r utt"t rate1~il - male - Can-pored t shone; actor dor i-h.... yea 200, sod tie. o dolvgonfrilt rt no replace- EDUCATOodtN col tta aeadf Pucuietivo lrta-tq .ly rer'.r encpiudedpl. . ;- -l-1r.e.11 Per iso ho.. tdya pplo:npriqaell'srr(iilosts t oaioa urloPt_eosto scnar)--otica ot-ui roodp ...I.ivl, area; 1i0t 107 andt199hdata.irYud btechnicalf, idusfrlal, re other !pro rssdd oprt loptd Pefs. ho. urrrculturlf .sd. Coypuh. ts-e t shov fo agicotrlIedatlyo sdfatooso sceayinttt only; 1960, 1970 urd 1970 data. Pupil- tesobar~~.i. 1 ciro - mry e d sodrv -Tta trd sessroldt hA pare,ted re tiredbi f6 yhear audover)a phe- e-nage- of hid-marpopoi- roresondngIenlP lsoon IRh,r 1970, sod 1979 dcta. Idolsliteracyrtlitrare (poccent-- biterte. sdfl lb 1 ro. readsdats yerpplatIon foS1T-...90-0.sd 90-9 YoulocoCro Ootllti-rnrcrt)- ured-AnouuirgrowthIrates of urban.pops- C0fdSlfryT7f Cerud kirn -c (pd-er rPoPs1nd) - Puera live kilrrh.pr, thousand . of ci--oa tare saIn lass riser sOb-on pesos - nldseabua s,hase a pplro;1960, 1970, and 0979 dots. cinlt dr vehice. Vpd pplto;196I,1970 sor99dtairacstiotirl ulcyr huado pplno: cldsc oi r Ars;uuel dc-pa avraessdigtn 90,190,adt97. er sutei1 boise cinig ofbithcotrol dvace coder. _ Chaicese ofpooclfsl potniporm n ray publi perd tyo1ssed popaldroy byc -bss fe tooted if reeier Pasly 1sriu-Tets recoo otmarie soan)- eroarcs o mrrid r uourissan -o yers cbrrgsratno Otstde i fs 6oma of, enddlore ee(l-i eas coserrt-oasl 0noa o14crae irylttc(crthuan roltin)-Shw eveterr is ot calso- dot 'trar Pheels. CouItdlttos roost primary goods (e.g. sugaroanbs.and mabdir.unIts. tear aPee',1dd) Igor 0rnprdoci efd eahcutr9 sbse cLRSOC -e Brgy aqiaeco ntfo oplr vial io~h coutr peers pita.. coverin popoltia ..of al -cess i. lfeiln b te cutie r part.. da.r1560 Av 9n6ble 7nppiesncpiedmetcpon1r97mprs0c ntcatshs 90,17 n 17 ae nooca n (Pringe..it Idook .. 1t spliesenlue nialfed,aids,Pml oret aaelbrfrsa ece eo oa labori force mIIIe Ott 1960 t 1t 70c by Fu 9 doerd cvpynlcclsed o omlcc-tita0a ecn so total labo'P rI; foce. 168 1978--~I . and1979 detn. orcyhRf (e sod -ho ..o dcsleio -ovrunAnn rmprtue ho arin,'lledery(orao)-laohtrs tmiig,cesrctc, athrur co no iniuooto poplat 1t cd. h.lnio 17 nd per ft for csesa adi els..riviy oe o a sprerg fttllbrfro 90 househol level; 1967-0,en 1971, ucd..1977 dots. 1970 and...1979. data. herdoaeoernoI cos or7 cu f otl roon nd23crm ofiflstoimatc ar frtnat_iona sore.... ' t -1 cotpil tP..a.c.se o roarl,prpse ty u i hsTirgrmai lpndnr a-o-rai`o ooitonude 5'n_6_ndoe r-lcidPoo Otcy;161hO 17 sod- 1927 data to tie, ndI19 total ~ ll. labo frc ...ig -._ . ....b.i Per canto proteic -or 2fyeaia ar rln-P -oiey cPIp.. of r food ds- -11I- - e --.In r.. orres data deived frcu lif tables; 1960 1971 and t197 doOr, ie ofnouc eoda. p J_ . OtdI'TO POrPOPTO4 TOOCtOh btt -0-1d8i0-PSing tiI I T, on- f Fone Per tood-i liv biob. Ae6utrpoert inom leelis ic loom Irvel oou aic stoical- percentages of neirvsspeo 01cr ppulatirna. Innrbl n Ensaulic tsrkta..I de -ima itrho Y Jcnr.frl.iarlee is drvd free th roral. -cces dt t drat Aiseos - Iperdorco of lopco hir-toyaJ. grico. and. royalR -RC percentges oftbsirrspeorierrI pou fto -urmornts disp tn d may tooludie -f-.,i-~d co at-ee yetrbrn yoe rteueo i prd_icios end sidtm.iPe Y~ btceonomro anlsscd. rjotns.pren bc estlltor. a id P.ru dyio rat Phsrliacppi - Pp ritto divIed byroirf pred tit og phyi-ePP 9 fl 1d ,eiII. qmaltitlesalecrdoII te-d rp es,priccticsl durseuod1asasartofoses  -24- ANNEX I Page 4 SRI LANKA: ECONOMIC INDICATORS OUTPUT IN 1980 BY SECTOR ANNUAL RATE OF GROWTH (%, constant prices' Value Added $ Million % 1970-77 1977-80 1970-30 Agriculture 1,038 27.6 2.0 3.5 2.5 Industry a/ 1,116 29.6 2.1 8.6 4.0 Services 1,612 42.8 3.7 7.6 4.9 Total b/ 3,766 100.0 2.9 6.8 4.0 GROSS DOMESTIC PRODUCT IN 1980 US$ Million % GDP at Market Prices 4,130 100.0 Investment 1,480 35.8 Gross National Savings 675 16.3 Current Account Balance 805 19.5 Exports of Goods and NFS 1,295 31.3 Imports of Goods and NFS 2,211 53.5 GOVERNMENT FINANCE Central Government (Rs Million) % of GDP at Market Prices 1980 1975 1979 1980 Current Receipts c/ 12,927 17.2 23.1 18.9 Current Expenditures d/ 14,594 18.3 22.8 21.4 Current Surplus -1,667 -1.1 0.2 -2.4 Capital Expenditures e/ 12,772 7.3 14.1 18.7 External Assistance 5,717 3.2 7.2 8.4 a/ Manufacturing, mining, construction, and utilities. b/ GDP at factor cost. c/ Includes capital revenue. d/ Includes advance accounts. e/ Includes net lending. September 11, 1981  -25- ANNEX I Page 5 COUNTRY DATA - SRI LANKA MONEY, CREDIT, AND PRICES 1970 1975 1976 1977 1978 1979 1980 (end of period) (Rs Million) Money and Quasi Money 3,061 4,712 6,251 8,636 10,803 14,957 19,709 Bank Credit to Public Sector 2,680 2,460 3,725 4,834 4,518 6,703 13,075 Bank Credit to Private Sector 1,446 3,363 3,919 5,714 8,666 11,853 16,343 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 22.4 17.8 20.9 24.0 25.3 28.7 28.9 General Price Index (1970 = 100) 100.0 143.3 145.2 147.0 164.8 182.6 230.3 Annual Percentage Changes in: General Price Index +5.9 +6.7 +1.3 +1.2 +12.1 +10.8 +26.1 Bank Credit to Public Sector +15.9 +9.4 +51.4 +35.0 -6.5 +48.4 +95.1 Bank Credit to Private Sector +0.7 +5.5 +16.5 +45.8 +51.7 +36.8 +37.9 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (1980) 1979 1980 (US$ Million) $ Million % Exports of Goods, NFS 1,135 1,295 Tea 373 35.7 Imports of Goods, NFS 1,539 2,211 Rubber 156 14.9 Resource Gap (deficit = -) -404 -916 Coconut Products 45 4.3 Interest Payments (net) -9 -12 All Other Commodities 471 45.1 Workers' Remittances - - Other Factor Payments (net) -7 -14 Total 1,045 a/ 100.0 Net Transfers 48 137 Balance on Current Account -372 -805 Direct Foreign Investment 47 43 EXTERNAL DEBT ($ Million) b/ Net MLT Borrowing 162 247 Disbursements 225 309 December December Amortization 63 62 1979 1980 Capital Grants 144 138 Other Capital (net) +67 +157 Total Outstanding 1,773.3 2,264.9 Change in Reserves (+ = increase) +48 -220 Total Outstanding Gross Reserves (end-year) 626 377 and Disbursed 1,091.1 1,327.6 Net Reserves (end-year) 258 38 DEBT SERVICE RATIO ./ (X) 9.8 9.3 RATE OF EXCHANGE IBRD/IDA LENDING, June 30, 1981 ($ Million) I3RD IDA 1967-71 End 1976 US$1.00 = Rs 5.93 US$1.00 = Rs 8.83 Outstanding and Disbursed 21.7 111.9 Rs 1.00 = US$0.17 Rs 1.00 = US$0.11 Undisbursed - 249.7 Outstanding, including Undisbursed 23.7 361.6 End 1972 End 1977 US$1.00 = Rs 6.70 US$1.00 = Rs 15.56 Rs 1.00 = USSO.15 Rs 1.00 = US$0.06 End 1973 End 1978 Foreign Exchange Entitlement Certificate (FEEC) Rtates d/ US$1.00 = Rs 6.75 US$1.00 = Rs 15.51 Rs 1.00 = US$0.15 Rs 1.00 = US$0.06 1968 US$1.00 = Rs 8.54 (44% FEEC) 1969 to 1971 US$1.00 = Rs 9.19 (55% FEEC) End 1974 End 1979 1972 (end) US$1.00 = Rs 10.38 (55% FEEC) US$1.00 = Rs 6.69 US$1.00 = Rs 15.45 1973 (end) US$1.00 = Rs 11.13 (65% FEEC) Rs 1.00 = US$0.15 Rs 1.00 = US$0.06 1974 (end) US$1.00 = Rs 11.04 (65% FEEC) 1975 (end) US$1.00 = Rs 12.72 (65% FEEC) End 1975 End 1980 1976 (end) US$1.00 = Rs 14.57 (65% FEEC) US$1.00 = Rs 7.71 US$1.00 = Rs 18.00 1977 (until Nov. 15) US$1.00 = Rs 13.02 (65% FEEC) Rs 1.00 = US$0.13 Rs 1.00 = US$0.06 a/ Customs data. b/ Repayable in foreign currencies and with a maturity over one year. c/ Ratio of debt service, excluding short-term capital repayments and IMF repurchases to exports of goods and non-factor services. d/ The certificates were abolished on November 15, 1977. South Asia Programs Department September 11, 1981  - 26 - ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 30, 1981) US$ 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 5.5 666 1976 Sri Lanka Tank Irrigation Modernization 5.0 2.5 701 1977 Sri Lanka Mahaweli Ganga Development II 19.0 14.1 709 1977 Sri Lanka Water Supply 9.2 .5 742 1977 Sri Lanka DFC - Industrial IV 8.0 1.2 818 1978 Sri Lanka Tree Crop Rehabilitation (Tea) 21.0 16.7 819 1978 Sri Lanka Tree Crop Diversification (Tea) 4.5 0.6 891 1979 Sri Lanka Kurunegala Rural Development 20.0 16.2 900 1979 Sri Lanka Road Maintenance 16.5 15.8 931 1979 Sri Lanka Agricultural Extension and Adaptive Research 15.5 14.1 942 1979 Sri Lanka Small and Medium Industries 16.0 9.7 979 1980 Sri Lanka Mahaweli Ganga Technical Assistance 3.0 2.4 994 1980 Sri Lanka Road Passenger Transport 53.0 49.5 1017 1980 Sri Lanka Rubber Rehabilitation 16.0 15.8 1020 1980 Sri Lanka Telecommunications 30.0 30.0 1041 1980 Sri Lanka Second Water Supply 30.0 30.0 1048 1980 Sri Lanka Sixth Power 19.5 19.5 Total, 72.9 362.0 244.1 of which has been repaid 43.5 0.5 Total now outstanding 29.4 361.5 Amount sold, 3.6 of which has been repaid 3.6 Total now held by Bank and IDA /a 29.4 361.5 Undisbursed 244.1 /a Prior to exchange rate adjustments.  - 27 - ANNEX II Page 2 B. STATEMENT OF IDA CREDITS EXPRESSED IN SDR (As of September 30, 1981) Amount in SDR Million Credit (less cancellations) Number Year Borrower Purpose Original Undisbursed 1079 1981 Sri Lanka Second Rural Development 25.6 25.6 1130 1981 Sri Lanka Construction Industry Project 10.9 9.7 1160 1981 Sri Lanka Village Irrigation Rehab. 24.5 24.5 1166 /a 1981 Sri Lanka Mahaweli Ganga Development Project 73.3 73.3 Total 134.3 133.1 of which has been repaid 0.0 Total now outstanding 134.3 Total now held by IDA 134.3 Undisbursed 133.1 /a not yet signed C. STATEMENT OF IFC INVESTMENT (as of September 30, 1981) 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 Development Banking Corporation of Ceylon - 0.15 0.15 1978/81 Bank of Ceylon Development Banking 7.00 - 7.00 1979 Cyntex Textiles 3.15 0.53 3.68 1979 Mikechris Industries Polypropylene Bag 0.89 0.10 .99 1980 LOLC Leasing - 0.25 0.25 1981 Taj Lanka Hotels 17.30 .70 18.00 Total Gross Commitments 30.84 2.48 33.32 Less: Cancellations, Terminations Repayments and Sales 12.98 .75 13.73 Total Commitments now held by IFC 17.86 1.73 19.59  - 28 - ANNEX II Page 3 D. STATUS OF PROJECTS IN EXECUTION AS OF SEPTEMBER 1, 1981 1/ 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 opportunity to con- tinue its dialogue with the Government on the milk price/subsidy issue. The consultants report recommended a plant costing about US$16.0 million, which the Government considers too large. In view of this, the overall poor per- formance of the project, and lack of progress on milk price/subsidy issue, it has been decided not to extend the present closing date. Cr. No. 666 - Tank Irrigation Modernization Project; US$5.0 million of January 12, 1977; Effective Date: April 12, 1977; C~losing Date: June 30, 1983 Excellent progress has been made on the progress of the project during the last six months. The staff and equipment provided are capable and adequate to complete the project by end 1982 if required local funds are made available by the Government as needed. However, the Government currently is experiencing a severe shortfall of local funds and most Depart- mental budgets have been sharply reduced (average of 25-35%). The water management program initiated during the last maha season went very well (in fact, the program averted a complete crop failure which would have occurred due to drought conditions) and farmers reaction to it was good. A similar program will be introduced in the other four tanks during the next maha season. Cr. No. 701 - Mahaweli Ganga Development II Project; US$19.0 million of June 27, 1977; Effective Date: December 29, 1977; Closing Date: June 30, 1983 Project implementation slowed somewhat during the last quarter of 1980 and 1981, due primarily to the shortage of local funds for the project. Management problems and the turning over of settlement and operation and 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 29 - ANNEX II Page 4 maintenance responsibilities to Mahaweli Authority from Mahaweli Development Board have also contributed to a slowing of work activities. The Government has agreed to provide sufficient funds in 1981 and 1982 for project imple- mentation. Despite the above temporary setback, about 85% of the irrigation works and 40% of irrigation infrastructure have been completed. Also, over 80% of the farms have now been settled. The farmer settlers appear, for the most part, to be satisfied with their new farms and with the project. The project is expected to be completed by end-1982. 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 the procurement of equipment and materials and in 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 required for management. WDB's progress in implementing consumer metering is unsatisfactory. It has recently taken steps to accelerate the program. 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 limite 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 end February 1982. Cr. No. 818 - Tree Crop Rehabilitation (Tea) Project; US$21.0 million of July 12, 1978; Effective Date: December 28, 1978; Closing Date: December 31, 1984 Project progress is close to target for field work, in spite of severe drought in early 1980. Housing and health components are behind schedule. Consultants have been engaged to help implement these components. Tea margins have deteriorated due to doubling of tea fertilizer prices. The Government is expected to take compensatory measures to restore tea margins. 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 Despite some delay in procurement of equipment, progress in field work is impressive. Cluster selection and homestead and farm demarcation, and soil conservation work have been completed. About 2,000 settlers have occupied their houses. Farm planting schedule was disrupted by the severe and prolonged drought last year. With better conditions this year, all plantings are expected to be completed by end-1981.  - 30 - 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 and education works should be completed by the end of the year. Problems on quality of construction of irrigation and education works were identified at early stage of project imple- mentation. Supervisory consultants, appointed for the Second Rural Development Project (Cr. No. 1079), will help improve construction activities. Improve- ments on the institutional arrangements for agricultural credit and agricul- tural 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, 19_84 A general 25% reduction in budget allocations for the present finan- cial year, 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. Meantime, institution building and introduction of improved road maintenance methods continue, and providing it is possible for Government to provide increased funds for subsequent years, project completion is expected by March 1984, six months later than planned 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 Implementation during the first year has been slower than anticipated due to delays in procurement and staffing. Recently, however, most full time staff have been recruited and procurement of vehicles and equipment are underway. With these, implementation is likely to improve. Civil works are progressing satisfactorily. Some questions have been raised as to the feasibility of operating the T&V method of extension in the wet zones dominated by tree crops, absentee landlord and inadequate infrastructure. These and other implementa- tion issues are under review by IDA and the Government. 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,  - 31 - ANNEX II Page 6 so as to increase their contribution to efficient low cost employment creation, export expansion, regional development and economic growth. About 80% of the total subloan amount has been committed, and disbursements which have acceler- ated 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; US3.0 million of April 16, 1980; Effective Date: July 7, 1980; Closing Date: September 30, 1982. The consultants for System C has completed the contract assignment and departed Sri Lanka. The consultants for the Transbasin Diversion Study completed the Planning Report for the study in June 1981 and distributed copies for review. The consultant's work has been somewhat delayed by the lengthy review of mid-term Planning Report. The effects of this delay, together with the possible extension of the consultants TOR to study possible transfer of water to the Gal Oya Basin, may delay the completion of the Final Report by 6-8 weeks and entail added work of 6-7 man months. Cr. No. 994 - Road Passenger Transport Project; US$53 million of April 16, 1980; Effective Date: October 27, 1980; Closing Date: June 30, 1983. Consultants have commenced work in the fields of procurement, industrial engineering and accounting and route planning. Procurement is lagging about 18 months behind appraisal estimates. No disbursements have been made except for consultancy services. Because of the present delays, the original plan of 2,100 bus chassis is unlikely to be accomplished either in time or within the project costs. Current indications are that only 1,600 new buses will be put into service during the project period. Cr. No. 1017 - Smallholder Rubber Rehabilitation Project; US$16.0 million; Effective Date: September 10, 1980; Closing Date: June 30, 1986. The project continues to make satisfactory progress, most of the proposed institutional reorganization has been completed. The replanting target for 1981 season is expected to be met. Response by farmers to par- ticipate in replanting under the project has been highly satisfactory. The training component has been slightly delayed due to difficulty in finding suitable consultants. Cr. No. 1020 - Telecommunications 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 organizational improvements under the project. The Government 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.  - 32 - ANNEX II Page 7 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, 1985. WDB has appointed engineering consultants to supervise the construc- tion 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 the current year. Cr. No. 1048 - Sixth Power Project; US$19.5 million of September 24, 1980 Effective Date: March 30, 1981; Closing Date: March 31, 1985. Procurement is proceeding satisfactorily; tender documents for four of the five contracts to be financed by IDA have been advertised. An agreement for cofinancing in the amount of US$20.0 million was signed between the Government and Saudi Fund for Development on January 8, 1981. The average tariff for power supplied by the Ceylon Electricity Board was increased from about Rs 0.30 to Rs 0.58/kWh on October 1, 1980. The first phase of manage- ment consultancy has been completed and engineering consultants have been appointed to design the project components to be financed by the Saudi Fund. 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 during the initial period of project implementation. Supervisory consultants have been appointed and procurement of essential vehicles and equipment initiated. Cr. No. 1130 - Construction Industry Project; US$13.5 million of June 1, 1981; Effective Date: August 19, 1981; Closing Date: June 30, 1984. Consultants have already been appointed and begun their work. The Project Director has also been appointed. Satisfactory progress has been achieved in the preliminary works for project implementation. Cr. No. 1160 - Village Irrigation Rehabilitation Project; US$30.0 million of July 15, 1981: Effective Date: September 24, 1981; Closing Date: December 31, 1986. Project start has been satisfactory. Cr. No. 1166 - Mahaweli Ganga Development Project III; US$90.0 million; not yet signed; Closing Date: December 31, 1986.  ANNEX III - 33 - Page 1 SRI LANKA SEVENTH (MAHAWELI TRANSMISSION) POER PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the Country to prepare the project 12 months (b) The agency which has prepared the project Ceylon Electricity Board (c) Date of first presentation to the Association and date of the first misson to consider the project April 1980 and October 1980 respectively (d) Date of Departure of appraisal mission May 22, 1981 (e) Date of completion of negotiations November 20, 1981 (f) Planned date of effectiveness May 3, 1981 Section II: Special IDA implementation Action None  -34- ANNEX III Page 2 Section III: Special Conditions Conditions of Effectiveness (a) Satisfactory arrangements for financing by OPEC Fund (para 42); (b) Execution of the subsidiary loan agreement between the Government and CEB (para 43); (c) An increase of tariff by about 50% over the existing average tariff (para 48); and (d) Payment by GOSL of the arrears on the Local Authorities account through September 30, 1981 (para 53) Other Conditions (a) CEB would reduce its inventories to reasonable levels by December 31, 1982, and the Government would ensure availability of foreign exchange for future inventory purchases (para 50); (b) 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 48); 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 53).  rni: 0~~~~~~~~~~~~~~ Er-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(' 0~~~~~~~~~~~~~~ a 0~~~~~~~~~~~~~~~~~~~~~~~~ QY~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3 (O 0 <~~~~~~~~~~~~~~~~~~~~~r z -3 :D~~~~~~~~~~~~~~~~~- 4-1 t ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~ ~o~-00I> 0 -'~~~~~~~~~~~~~~~~~~~~~~~~a -05-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 >~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Q z Sr,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~l rb s~~~~~~Cl z ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ -~~~~~~~~ ~~~~~' o 0F 4 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~m; Q~~~V7 olI