Sri Lanka - Industrial energy conservation : prefeasibility studies for selected industries

Joint UNDP/World Bank Energy Sector Management Assistance Program Activity Completion Report No. 054t86 Country: SRI LA Activity: INDUSTRIAL ENERGY CONSERVATION: PREFASIBMT-T STUDIES FOR SEiCTED NDUSTRIES MARCH 1986 Report of the oint INDP/WoM d Bank Energy Sector Management Asstance Program This document has a restricted distribution. Its contents may not be discklsed without authorization from the Government, the UNDP or the World Bank.  A7 'nA S RMENERGY SECTOR WiiW&T ASSISTANCE PrOGRAN The Joint UNDP/Worid Bank Energy Sector Management Assistance Program (ESMAP), started in April -1983, assists countries. in implementing the main investmont and policy' recommendations of the' Energy Sector Assessment Reports produced under another Joint UNDP/World 'Bank "Program. ESM4P,, provides staff ar4 consultant assistance in formulating and justifying priority pre-investment and investment projects and in providing management, institutional and policy support. The reports produced tinder this Program provide governments. donors and potential investors with the information needed to speed up project preparation and tmplementation. ESMAP activities can be,5classified broadly into three groups: Energy Assessment Status'Reports: these evaluatq, achieve- ments in the year_'A-following issuance of the original assessment report and point' out where urgent action is ,still needed; - Project Formulation and Justificatioa: work( designed to accelerate the "preparation and implementation of investment projects; and - ''.- - Iistitutioihal and Policy Support: this wor* also fre'quent1y leads to the .dentification of techntcal assistance packages. The Proram ainm to- supplement, advance and strengthen the impact of bilateral- and. multilate'ral resourcew, already available' fo-r technical assistance in the energy sector. '). -Funding' of the,Program The Program is a major international effort and,_while the core 'finance has been provided by the UNDP and the World Bank, important financial contributions to tpe Program have also been made by a number of bilateral agencies.- Countriesowhich have now made or pledged initial contributions to tho programs through the UNDP Energy Account, or through other cost-sharing arrangements with UNDP>S are the Netherlands, Sweden, Australia, Switzerland, Finland, United Kingdom, Denmark, Norway, and New Zealan,, Further Information For further infortiation on the Program or to obtain copies of J -'completed ESMAP reports, which are listed at the end of this document, please contact: Division for Global and OR ' Energy Strategy apd Interregional-Projects preinvestment Div. II United Nations Development" Jnergy Department - Program World Bank On, United Nations Plaza - 1818 H Street, N.W. New York, N.Y. 10017 WashingtoA, DnC. 20433  SRI LANKA INDUSTRIAL ENERGY CONSERVATION: PREPEASIBILITY STUDIES FOR SELECTED INDUSTRIES MARCH 1986  - DIVam US$1.00 a Is. 25 (Rupees) RENWO COENUSIM FACTORS 1 tonne of oil equivalent (toe) - 10.0 million kcal - 39.68 million BTU Fuel Toe per tonne Petroleum crude oil 1.03 LPG 1.06 gasoline/naphtha 1.09 kerosene/Av turbo 1.06 diesels 1.05 fuel oil 0.98 bitumen 0.89 Coal 0.65 Fuelwood 0.40 Charcoal 0.65 Electricity is converted to tonnes of oil equivalent in this report on the basis of thermal generation replacement at 302.42 toe/GWh.  TABLE OF CaUTTs Page I. UNTRODUCTION...... 9999990 * 9 ....0.....9..09 9** .00******* 1 10~~~~~~~~~~~~~~~~~~~~~~~~~ The National Energy Demand Management and Conservation Program (NED2CP)....................... 2 Scope of ESMAP Assistance. *...*0*00000* **#0 0 . ....... . 3 Further Government Actions to Promote Conservation.... 4 Policy Issues Requiring Further Attentiono............ 4 II. OVERVIEW OF THE INDUSTRIAL SECTOR C T OR0*0000............. 6 Sector Description................. ................. 6 Energy Consumption in Industry and Commerce#.......... 7 III. RESULTS OF THE PREFEASIBILITY STUDIES .................. 8 Overview of the Industries Involved in the Prefeasibility t e. . . . . 8 Company Profiles and Possible Conservation Projects... 9 Ceylon Steel Corporation (CSC) ..................... 11 Ceylon Plywood Corporation (CPC) .................... 11 National Paper Corporation (NPC) .................... 11 Richard Pieris and Company Ltd ...................... 12 Paranthan Chemicals Corporation (PCC)............... 12 Prima Ceylon Ltd.................................. 12 Colombo General Hospital (CGH) ...................... 13 British Ceylon Corporation (BCC).................... 13 Pugoda .....................9...99..................... 14 Ceylon Glass Company, Ltd. (CGC).................... 14 Sri Lanka (Ceylon) Rubber Manufacturing Company, Ltd . . 99999999949999996999999 14 Dunagha Coconut Producers Cooperative Society....... 15 Mattake'le State Tea Plantation .*....99*........... 15 IV. COSTS AND 3ENMFITS OF THE POSSIBLE ENERGY CONSERVATION PROJECTS IDETFIED IN THE PRFEASIBILITY STUDIES ..... 16 V. THE FEASIBILITY STUDIES AND THEIR IMPLMENTATION ........ 21  ANNEXES Annex 1 Summary of Possibla Conservation Projects for Bach facility Visited .................. . .. 26 Ceylon Steel Corp.. . * 27 Ceylon Plywood Corp. 28 National Paper Corpe.*. ........... ............***** 29 Richard Pieris & Co., Ltt 30 Paranthan Chemicals Corp.. ...................... 31 Prima Ceylon, Ltd................. 32 British Ceylon Corp ................ . 33 Pugoda Textile Mills.... 34 Dunagha Coconut Producers Cooperative Society....... 35 Ceylon Glass Co., Ltd............................... 36 Mattakelle State Tea Plantation .................... 37 Sri Lanka (Ceylon) Rubber Manufacturing Co., Ltd.... 38 Ceylon Tobacco Co........................ .......... 39 Annex 2 Detailed Prefeasibility Study Reports, by Corporation Compan,y Vstt........ 40 Ceylon Steel Corp................... ... 41 Ceylon Ceramics Corp.. ................. 63 Ceylon Plywood Corp .......... 64 National Paper Corp................. 64 Richard Pieris & Co, Ltd ... 108 Lever Brothers (Ceylon), Ltd ........................ 119 Paranthan Chemicals Corp ................ 125 Prima Ceylon, Ltd.................... . 140 Motel Lanka 1b. .7i .................... *006 157 Colombo General Hospital .................... 163 Ceylon Tobacco Co., Ltd ............ 176 British Ceylon Corp ................ ... 188 Pugoda ................ ~~202 Associated Motorways, Ltd........................... 216 Ceylon Glass Co., Ltd (Ratmalana Factory) ........... 217 Dunagha Coconut Producers Cooperative Society....... 229 Tea Estates: Mattakelle State Tea Plantation....... 242 Sri Lanka (Ceylon) Rubber Manufacturing Co., Ltd.... 258  suagUY Overview 1. This report presents the resuits of prefeasibility studies of potentially highly profitable opportunities to improve the efficiency of energy use in 16 industrial plants, one hotel and one hospital in Sri Lanka. 1/ Funded under the joint UNDP/World Bank Energy Sector Management Assistance Program (ESMAP), the prefeasibility studies were carried out as part of an ongoing government of Sri Lanka program to promote energy conservation in industry. As the next step in this program, the government is now seeking donor funds to take the studies to the feasibilitq level. The total funds sought to complete the feasibility studies amount to approximately U8$1.3 million. 2. The simple economic payback for the various projects identified by the prefeasibility studies ranges from 0.9 years to 3.5 years. Taking all the projects together, the simple economic payback is 1.8 years. The low payback periods indicate that the more rigorous financial and economic rates of return analyses at the feasibility level will not exclude the projects proposed and may, in fact, identify additional projects. Most of the individual projects proposed in this report are of low risk. Before investing in energy efficiency equipment in three of the public corporations studied (the Ceylon Steel Corporation, the Paranthan Chemicals Corporation, and the Ceylon Plywood Corporation), however, an overall review of each corporation's operations, comparative advantage, and incentive framework should be carried out in order to address the issues of economic and financial viability. 3. In anticipation of donor support, the government is making in- stitutional arrangements such that on completion of the donor funded feasibility studies the investment phase of the industrial energy conser- vation program can proceed. It is expected that, on completion of the feasibility studies, initial investments of US$9.1 omllion will be required. 2/ 1/ This report was prepared on the basis of the results of a visit to Sri Lanka in May-June 1984 by Messrs. A. Streicher (specialist in industrial energy conservation, consultant), To Bleakley (specialist in industrial energy conservation, consultant), and G. Caskin (Vorld Bank). Messrs. G. Caskin and N. King (World Bank) were the authors of the text. 2/ Subsequent to the completion of the prefeasibility program, some companies have started to implement the prefeasibility recommendations. Details of the current investment requirements can be obtained from the government coordinating agency, the Energy Efficiency, Demand Management and Conservation Task Force (EDNAC).  - ii - Energy Conservation in the Industrial and Commercial Sectors in Sri Lanka 4. Foremost among Sri Lanka's options for reducing its oil import bill, which absorbed about 392 of export revenues in 1983, is energy con- servation in industry and commerce. It has been estimated that a con- certed energy efficiency imrrovement program focusing initially on the largest energy users in the industrial and commercial sectors could result in oil savings on the order of US$24 million within three or four years and improve the electricity supply/demand balance at a relatively low investment cost. Recognizing the financial attractiveness of cutting operating costs through energy conservation, several private firms in Sri Lanka have already embarked on their own energy demand management pro- grams. For the majority of private firms and in particular for public corporations, however, there has been relatively little action in this area. This is due to a lack of: (a) general awareness of the benefits of energy conservation, (b) expertise with respect to recent conservation technology, and (c) financing. The Government's Program to Promote Conservation 5. In view of this lack of action, in 1982 the government estab- lished the Energy Efficiency Demand Management and Conservation Task Force (EDMAC) in the Ministry of Power and Energy. EDMAC has designed and begun implementing an energy conservation program for industry and commerce. By mid-1984, EDMAC had held energy conservation seminars for industry management, and, with USAID assistance, trained 45 Sri Lankan engineers in energy conservation and analyzed the technical and economic feasibility of conservation investments in two industrial plants. 6. The government then requested ESNAP assistance for prefeasi- bility studies to continue identifying possible savings in selected enterprises. These industries were chosen on the basis of: (1) their higher than average energy consumption, (2) having EDMAC trained engineers who pould participate in the work, (3) the replicability of the work in similar plants, and (4) their willingness to participate. The 18 companies account for about 15Z of total 1983 final consumption of oil and electricity in industry and commerce, and include both private and government-owned corporations. Financial viability is an issue in three of the latter (the Ceylon Steel Corporation - CSC, the Ceylon Plywood Corporation - CPC, and the Paranthan Chemicals Corporation - PCC). The government subsidies required by public enterprises such as CSC place a heavy burden on the central budget. A recent World Bank study of  - iii - industrial and trade policies in Sri Lanka 3/ made a strong case for undertaking a fundamental rationalization of the industrial sector, supporting in particular the government's recent emphasis on credible financial performance by public enterprises. In line with this approach, CSC, CPC, and PCC need to be reviewed to ascertain whether there is a comparative advantage for these industries in the Sri Lankan context. These analyses should be carried out by teams of the appropriate tech- nical, financial and economic specialists. Substantial investment in energy efficiency equipment in these three corporations should await the outcome of these reviews. Results of the Prefeasibility Studies 7. The prefeasibility studies identified possible energy conser- vation projects which involve work ranging from lw-cost measures (e.g., ckanges in operational procedures) to more expensive investments (e.g., waste heat recovery systems). Energy efficiency will be financially highly attractive to the companies involved, whose total energy costs can be cut by almost 25X, giving savings of US$4.2 million a year for a total investment of about US$9.1 million. 8. From the country's point of view, the aggregate energy savings which could be achieved by this level of investments is about 18*000 toe per year, or about 4X of the 1983 final consumption of oil and elec- tricity in industry and commerce. The simple economic payback for the total investment is 1.8 years. Economic and financial analysis was simplified in line with the prefeasibility nature of this work. The low payback periods indicate that the results of the more rigorous financial and economic rates of return analyses at the feasibility level will not diminish the effectiveness of the projects proposed. The feasibility studies may, in fact, identify additional projects. Of even greater significance than the actual level of savings, however, is the catalytic role of these projects in promoting further energy conservation acti- vities in other industries. This will be schieved both through the projects' demonstration value and the building up of local expertise. Even the feasibility studies are designed to maximize this transfer of technology by making use of the services of local energy conservation consultants and ensuring that plant personnel, particularly energy man- agers and EDMAC trainees, take an active part in the studies. 9. The feasibility studies themselves will cost US$1.3 million in all (Table 1), which gives a rather high ratio of front-end to project costs (14.3Z). This is because it is probable that these studies will 3/ Selected Issues of Industrial and Trade Policies in Sri Lanka (Report No. 4795-CE), World Bank, January 1984.  - iv - turn up additional, financially attractive conservation possibilities, because certain conservation measures requiring little or no investment vill be implemented in the course of the studies, and in particular because the feasibility studies include a technical assistance package which involves training Sri Lankans in industrial energy conservation. Donor agencies can finance one or several feasibility studies, which require funds for both local and foreign costs. Studies with similar technology have been grouped into more cost effective packages. The Overall Framework for Industrial Energy Conservation in Sri Lanka 10. A successful program to achieve financial and economic savings through energy demand management (i.e., conservation and uiterfuel substitution) must consist of several interrelated elementss (a) appropriate government actions to create an economic environment which provides incentives to rationalize energy use; (b) technical assistance to identify and evaluate attractive energy demand management opportunities at the company level; and (c) financial arrangements to fund viable demand management activities. 11. In addition to providing technical assistance in evaluating conservation possibilities through its EDMAC program, the government has also increased industry's incentive to conserve energy by raising petro- leum prices and power tariffs. With respect to financing, EDMAC has initiated discussions with the National Development Bank and the Development Finance Corporation of Ceylon. These institutions have indicated an interest in receiving assistance to set up the institutional arrangements required to make funds available for viable conservation projects identified in the feasibility studies. The government should ensure that such a financing mechanism is in place by the time the feasibility studies have been completed.  Table 1 SUMNARY OF FEASIBILITY STUDIES IDENTIFIED AND OF SIMPLE PAYSACKS OF ASSOCIATED ENERGY CONSERVATION Pf0JECTS FeaslbilIlty Simple Payback of Study Cost a/ Assoclated Project Company Total Financlal Economic ('COO USO) (years) Ceylon Steel corporation 260 1.3 0.9 Ceylon Plywood Corporation 75 2.6 1.9 National Paper Corporation 210 3.2 2.9 Rlchard Plerls & Company Ltd. 12 1.2 1.5 Prlma Ceylon Ltd. 40 1.0 1.2 Ceylon Tobacco Company Ltd. b/ - 3.0 3.5 Pugoda Textile Mills 75 1.7 1.4 Ceylon Gass Company 125 1.6 2.1 Sri Lanka Rubber Manufacturing Co. 23 1.7 0.9 Dunagha Coconut Producers CAoperative Society 13 2, n/a c/ Mattakelle State Tea Plantation 23 1.5 n/a c/ Lever Brothers bl n/a n/a Paranthan Chemicals Corporatlon d/ 100 6.0 n/a Hotel Lanka Oborol b/ -- <1.0 n/a Colombo General llosiItal f/ 100 n/a n/a o/ BrItish Ceylon Corporation 75 1.1 n/a e/ Associated Notorways g/ - -- Ceylon Ceramlis Corporation ' __ Total g/ 1,289 2.2 1.6 "n/a" means "not applicable" for reasons explained In the footnotes. a/ Includes foreign and local consulting costs and 25S contingency for metering Installotions, b/ These companies have Impleented their own energy conservation programs and do not require technical or financial assistance. For Information, the simplo paybacks of possible Investments In energy efficIency In these com- panies are given here for the cases where they could be calculated on the basis of the prefeasibillty studies. c/ For these industrles, conservation measures Involve saving fuelwood. Glven the difficulties Involved In determining the economic value of wood, only financlal paybacks were calculated In these cases, d/ Improving the energy efficlency In this plant would require a complete retro- fit. Given the extent of the work Involved, only the financial payback has been estimated. The cost given for the feasibility study Is an upper limit. / WDue to a lack of sufficiently detailed data on energy efficiency In those facilities, paybacks will be established by the feasibility study In the Hospitalts case, and only financial paybacks were estimated for British Ceylon. f/ Feasibility study Includes plant Installation cost on the order of $90,000. a/ At the request of the government, detalls on the Ceylon Ceramics Corporation and on Associated Motorways, Ltd. do not appear in this report. They should be requested directly from those two companies. The totals In this table, however, do include the figures for those companies. Only a financial payback was calculated for Associated Notorways.  - vi - 12. As EDMAC pursues the next step in its program, i.e., the feasibility studies, three policy issue related to energy demand management in Sri Lanka should be considered further. The first of these is the need to ensure that EDMN" keeps playing a strong leadership role in this area, acting as a catalyst for conservation work. The second is the question of incentives for rationalizing energy use. Recent increases in energy prices, technical assistance in project identifica- tion, and availability of financing may not prove sufficient to influence a satisfactory number of enterprises to implement conservation measures. In this case, the general operating environment for energy conservation, and in particular the incentive structure for both private and public entities, should be examined more closely. Finally, special attention should be paid to the issue of substituting wood for petroleum in industries. EDXAC should coordinate any promotion of such a use of wood with the Ministry of Lands and Land Development's ongoing work to define a strategy in the forestry sector. For areas of existing or impending wood shortage, the costs and benefits of this type of substitution to the economy should be examined. Industries should consider investing in wood plantations to meet their own energy needs. Structure of This Report 13. After a description in Section I of the present report of EDMAC's ongoing industrial energy conservation program and the scope of ESNAP assistance to it, 3ection II presents a brief overview of Sri Lanka's industrial sector and in particular of its energy consumption. Section III provides a more detailed picture of each enterprise studied, including highlights of its energy situation and identified conservation options. A summary analysis in Section IV of the costs and benefits of these potential energy conservation projects is followed by a presentation in Section V of the feasibility studies now required co further define the projects. For quick reference, a comprehensive list of possible conservation measures, with their respective costs, benefits and simple paybacks can be found, by company visited, in Annex 1. Finally, Annex 2 consists of the consultants' detailed report on each enterprise, covering its history, production, markets, finances, plans and energy situation. These individual reports discuss each firm's energy consumption, costs, and demand management organization. In addition, they analyze the costs and benefits of each company's potential conservation projects and present terms of reference for the required feasibility study.  I. IInRDuCTION Background 1.1 Sri Lanka's energy situation had deteriorated dramatically by the end of the 1970's. The marked improvement in economic performance after 1978 brought with it a rapid increase in the demand for commercial energy. As the rate of growth of domestic energy production (hydropower) actually declined during this period, the economy's oil import requirements increased by about 60X between 1977 and 1981 and, because of the 1979 doubling of oil prices, the proportion of non-oil export earnings 4/ devoted to importing petroleum rose from 111 to 412. The net import biil peaked in 1982, consuming almost half of non-petroleum export earnings, and fell slightly in 1983, to about 392 of non-oil export earnings. 1.2 An energy assessment mission 5/ in June 1981 concluded that a concerted energy efficiency improvement program, focussing initially on the largest industrial and commercial energy users, could result in sub- stantial oil savings ($24 million per year by 1984/85) and improve the electricity supply/demand balance at a relatively low investment cost. The main constraints that needed to be overcome were the absence of an effective institutional framework for carrying out this task and the need for technical support in conducting energy audits and the other pre- investment work. The mission also recommended a number of changes to the structure and level of energy prices to complement this demand management effort. Since the energy assessment, a number of enterprises, particu- larly private ones, have set up their own energy demand management pro- grams. Overall, however, the initiative taken by both private and public enterprises in this area has been limited, in spite of the attractive potential financial savings. In addition to reflecting the lack of tech- nical expertise, especially with respect to recent technology, this has been due to an unfamiliarity with the possible benefits of conservation and a lack of financing for the required capital investments. 4/ Production from Sri Lanka's oil refinery does not match domestic demand. Consequently, Sri Lanka re-exports petroleum products, in- cluding fuels produced in excess of this demand and bunker sales. 5/ The final report of that mission, Sri Lanka: Issues and Options in the Energy Sector (Report No. 3794-CE) was issued in May 1982 as part of the joint UNDP/World Bank Energy Sector Assessment Program. A subsequent update, Sri Lanka: Energy Assessment Status Report, was issued in January 1984 as part of the UNDP/Iorld Sank Energy Sector Management Assistance Program.  -2- The National Energy Demand Management and Conservation Program (NEDMCP) 1.3 Following up on the World Bank/UNDP energy assessment report of May 1982, the government of Sri Lanka embarked upon an industrial energy conservation program. In October 1982, the Energy Efficiency Demand Management and Conservation Task Force (EDMAC) was established in the Ministry of Power and Energy under the supervision of the Senior Energy Advisor to the Minister (the President of Sri Lanka). Although EDMAC has been focussing its efforts on energy conservation in industry, it has also been instrumental in setting up a special cell in the Ceylon Elec- tricity Board (CIB) to reduce power system losses, in reviewing elec- tricity and petroleum pricing policies, and in examining options for energy savings in transport (with ESMAP assistance). 6/ 1.4 In collaboration with the Ministry of Industries and Scientific Affairs and other government energy institutions, EDMAC has launched a four phase energy demand management and conservation program for industry and commorceo. The programs goal is to achieve energy savings of up to about US$20 million per year within three years. The four phases were designed as followst Phase Is informational campaign to promote energy conservation among comWpay executives and plant managers. Phase III training of plant engineers in the technical and finan- cial evaluation of conservation possibilities. Phase IIIt identification, analysis, financing and implementation of specific conservation projects in large, key indus- tries. Phase IY: dissemination, i.e., promotion of energy conservation among middle and small size industrial and commercial enterprises, and establishment of energy conservation as a self-sustaining activity in industry and commerce. 1.5 By mid-1984, EDMAC had completed Phases I and II and initiated Phase III. Promotion of energy conservation under Phase I included a two week introductory course for senior energy managers in large private and public sector establishments, and a half-day Senior Executive Seminar for over 150 heads of large enterprises and senior ministry officials. Under Phase II, EDMAC, with USAID assistance, trained a core group of plant engineers in energy demand management. Forty-five Sri Lankan engineers, 6/ All these programs are described in greater detail in "National Energy Demand Management and Conservation Program (NEDNCP)" by Mohan Munasinghe, Sri Lanka Government Report, April 1984.  -3- chosen from the largest energy consuming industries, both public and private, have attended EDMAC training courses. These engineers repre- sented companies which accounted for 60X of the total energy consumed by industry and 13X of the nation's energy requirements. The courses in- volved classroom instruction and in-plant training, including complete energy audits by 32 of the participants of two industrial facilities, the Sri Lanka Tyre Corporation and the Thulhiriya Textile Mills. 1.6 These two audits have led to starting in on Phase III of the demand management and conservation program, the identification and even- tual implementation of specific conservation projects. On the basis of the audits and with USAID assistance, EDMAC has completed detailed engin- eering, financial, and economic feasibility studies on the rehabilitation of the steam generation and distribution systems in each plant. The studies identified total investments of US$1.9 million, with a simple payback period of less than two years. Scope of ESMAP Assistance 1.7 The EDMAC/USAID courses created a cadre of trained Sri Lankan engineerst but both they and their companies required practical assis- tance in proceeding with the evaluation of conservation possibilities in their various plants. Accordingly, and at the request of the government, the joint UNDP/World Bank Energy Sector Management Assistance Program (ESNAP) assisted EDMAC in carrying out prefeasibility studies in 16 individual plants, one hospital and one hotel. 1.8 Prior to site visits by the consultant teams under ESMAP, plant engineers trained at the courses collected basic data required for the pre-feasibility studies. The teams, consisting of EDMAC engineers and the consultants who had assisted EDMAC in running the training courses, visited the 18 facilities in the summer of 1984. In keeping with the objective of estimating the size and cost of potential energy savings before deciding to proceed with a more detailed evaluation at the feasi- bility level, each plant visit lasted only between one half and two days. On the basis of the results, the consultants, with the assistance of EDMAC staff, drafted a report on each facility, covering the company's background, plant production and markets, its energy use, and its poten- tial for energy conservation. Each report describes the scope and cost of possible conservation measures. Having been reviewed by the companies in question and ESMAP staff at the World Bank, these prefeasibility studies are featured here in final form in Annex 2. In addition to iden- tifying possibilities for saving energy, these studies provide terms of reference for the feasibility studies which now need to be carried out in each facility in order to design the conservation projects which will achieve these savings. This ESMAP document presents the results of these prefeasibility studies so that EDMAC can use them in seeking interna tional donor assistance in funding the feasibility studies, which con- stitute the next step in EDNAC's program.  -4- Further Government Actions to Promote Conservation 1.9 The government has started taking steps to ensure that on completion of the feasibility studies adequate funds will be available to carry out viable projecta. EDMAC has initiated a dialogue on energy conservation with the National Development Bank and the Development Finance Corporation of Ceylon. These institutions have indicated an interest in receiving assistance to set up the administrative procedures required for expediting the financing of these projects. 1.10 In addition to establishing EDMAC to initiate an energy conser- vation program and taking steps to secure funding for conservation proj- ectst the government has also increased industry's incentive to conserve energy by modifying its petroleum and power pricing policies. Petroleum prices were raised in July 1983 to reflect higher costs and the devalua- tion of the Rupee. An important structural change was the virtual elimi- nation of the general subsidy on kerosene. To protect the purchasing power of lower income households, the value of kerosene stamps, provided to about half of the population, was also raised at the same time. This increase in the price of kerosene also permitted the CPC (Ceylon Petro- leum Corporation) to increase industrial diesel prices which had not been increased for fear of substitution by cheap kerosene. This increase in the price of diesel has already resulted in a shift by industries to the use of less costly, heavier fuels. Petroleum prices in Sri Lanka are now broadly in line with international prices. With respect to electricity, the rationalization of tariffs in mid-1982 brought their structure more in line with long-term marginal supply costs. Moreover, capacity charges for electricity, which had been artificially low, were tripled to reflect the actual cost of delivering peak power requirements. This has encour- aged major consumers to install power factor correction equipment, there- by improving their consumption efficiency and reducing distribution and investment costs for the power company. Policy Issues Requiring Further Attention 1.11 In funding the 18 prefeasibility studies discussed in this report, the UNDP/World Bank ESNAP assistance was intended to further industrial energy conservation in Sri Lanka within the context of a coherent strategy devised by EDMAC. This report therefore presents the results of these studies and makes recommendations as to the implementa- tion of the required feasibility studies, but does not provide an in- depth analysis of the overall framework for energy conservation in Sri Lanka. It is clear that the government has made significant progress towards promoting energy conservation through both institutional reforms and changes in policy. As EDMAC pursues its program, three policy related points need to be raised: (a) maintaining EDMAC's leadership role and (b) incentives for both private and public sector enterprises to  take conservation measures and (c) the economics of interfuel substitu- tion with respect to wood. 1.12 In view of the significant potential benefits of energy con- servation to ti's economy, there is a need for EDMAC to keep playing a strong catalytic role in this area. Recent increases in energy prices, EDMAC's promotional work, technical assistance in project identification, and availability of financing may not prove sufficient to influence a satisfactory number of enterprises to implement conservation measures. In this case, the general operating environment for energy conservation, and in particular the ineentive etrueture for both private and public enterprises, should be examined merg closely. Such an analysis would suggest further possible policy decisions to promote conservation, for example changes in government fiscal policy in the case of private companies and direct incentives to managers in public corporations. Finally, special attention should be paid to the economics of substituting wood for petroleum in industries. EDMAC should coordinate its analysis of this issue with the Ministry of Lands and Land Development's ongoing work to define a strategy in the forestry sector (see para. 3.6).  -6- II. oVERVIEW OF TaE IU ASTRIAL SECTOR Sector Description 2.1 In 1982, manufacturing industry 7/ output accounted for about 15% of Sri Lanka's CDP at factor prices. Based on a manufacturing survey for the same year, value added by industrial groups can be broken down as follows: food, beverages and tobacco, 33X; chemicals, petroleum and rub- ber, 292; non-metallic mineral products other than petroleum, 131; fabri- cated metal products, machinery and transport equipment, 121; textiles, wearing apparel and leather industries, 71; and others, including paper and wood products, 6%. Excluding petroleum products, which are in essence re-exports of surplus refined products, manufacturing industry exports made up 272 of the total value of exports in 1982. The main industrial exports are garments (19% of the total 1982 value of non-oil exports), food, beverages and tobacco (31), and leather, rubber, wood and ceramics (31). Garments have a high import content in raw materials used, an estimated 661 in 1982. 2.2 Industry consists of 28 public sector corporations, about 9,000 registered private factories, and over 20,000 unregistered small and cottage industries. Excluding petroleum, the state sector produced about 38X of value added in industry in 1981 In addition to petroleum, state corporations play a major role in the wood, paper, and basic metals industries. Private production is heavily concentrated in garments, and in the food, beverage and tobacco subsector. 2.3 A recent World Bank study of industrial and trade policies in Sri Lanka 8/ analyzed the problem of manufacturing public enterprises. The study identified aspects of these firms which have been detrimental to their financial viability, causing many of them to become a strain on the government budget. A case was made for undertaking a fundamental rationalization of the industrial sector. A first step in this process would be for the government to formulate a coherent overall industrial strategy, clearly articulating the objectives of public enterprises and government's involvement in them as part of that strategy. Supporting the government's recent emphasis on credible financial performance by the 7/ As described below (Section III), ESMAP prefeasibility studies for energy conservation were also carried out in agroindustries (e.g., a coconut processing plant and a tea estate), and in commerce (e.g., the Lanka Oberoi Hotel). However, most of the work was concentrated on manufacturing industries. In view of this, this sectoral over- view will focus on manufacturing industries. 8/ Selected Issues of Industrial and Trade Policies in Sri Lanka (Report No. 4795-CE), World Bank, January 1984.  public enterprises in order to reduce the burden they impose on the central budget, the study recommends a three pronged approach to these firms: (1) shutting down the small number of corporations which can be proven not to be economically viable, (2) selling to the private sector the public enterprises which already appear able to compete in the market, and (3) gradually exposing the remaining enterprises, which constitute a majority of all such firms, to market competition in order to establish their viability. To carry ttis out, the study proposes an integrated list of reforms aimed at changing the incentive environment of public enterprises, thereby promoting market competitiveness through greater efficiency in these firms. The ESNAP assistance in energy conservation provided to public enterprises should be seen as part of this overall approach in that it seeks to improve the financial performance of these corporations by cutting their energy costs, thereby making their products more competitive. However, it should be clear that these energy efficiency improvements do not substitute for the more fundamental reforms that are needed. Energy Consumption in Industry and Commerce 2.4 According to the UNDP/World Bank energy assessment report, the industrial and commerci '. sector was responsible for about 30% (1.07 mil- lion toe) of Sri Lanka's total, final energy consumption and about 36Z (548 thousand toe) of national final demand for oil and electricity in 1980. More specifically, it accounted for 602 of electricity sales, 27Z of direct petroleum consumption and a quarter of all the fuelwood used in the country. Industrial energy consumption was also found to be heavily concentrated in a relatively small number of companies. Since 1980, the industrial and commercial sector's direct consumption of oil and elec- tricity has dropped and its concentration has been less pronounced because: (a) the fertilizer plant has not been operating continuously and (b) the Cement Corporation, another heavy consumer, converted to using coal. Total industrial and commercial final consumption of oil and electricity in 1983 is estimated at 510,000 toe, or about 30% of the country's total, final demand for those types of energy in that year. 9/ 9/ The toe equivalent of electricity is calculated on a thermal genera- tion replacement basis. Final consumption excludes distribution losses but includes transformation losses, which are allocated on a prorated basis between the various consuming sectors.  - 8 - 111. RESULTS O THE PREFRASIIILITY STUDIES Overview of the Industries Involved in the Prefeasibility Studies 3.1 As the next step in its overall program to promote energy con- servation in industry and commerce, EDMAC selected 16 of the country's larger industries, a large hotel and a hospital for the ESMAP prefeasi- bility studies. These companies accounted for about 15% of total, final consumption of oil and electricity consumption in industry and commerce in 1983. They were chosen for their higher than average consumption of snergyt for having EDMAC-trained engineers who could participate in the work, for the replicability of indentified conservation measures in similar plants, and for their interest in participating. As a result of the prefeasibility studies, most of the industries are now candidates for feasibility level work and, eventually, capital investment. 3.2 The companies involved in the prefeasibility studies included both private and government-owned corporations. All of the facilities visited had at least one engineer who had attended the EDMAC/USAID train- ing course. In general, the private firms were in a relatively sound financial position. Overall, they were well managed with respect to energy efficiency and were aware of possible energy efficiency improve- ments. The Ceylon Tobacco Company (CTC), for example, has established a specialized consulting subsidiary to assist other companies in energy auditing and engineering. The ESMAP prefeasibility work identified potential energy conservation projects in the following private firms: Lever Brothers (Ceylon) Ltd., Prima Ceylon Ltd., Hotel Lanka Obetoi, and CTC. Subsequent to the ESMAP visit these four companies are already undertaking their own self-financed programs and except for Prima Ceylon require no financial or technical assistance. 3.3 In contrast, financial viability is an issue in three of the government-owned corporations (i.e., the Ceylon Steel Corporation -CSC, the Ceylon Plywood Corporation - CPC, and the Paranthan Chemicals Corporation - PCC). There is presently no analytical basis for judging whether these three industries have a comparative advantage in Sri Lanka, taking into account the need to make optimal use of Sri Lanka's resources. In line with the recommendation of the recent World Bank study of industrial and trade policies in Sri Lanka to rationalize the country's industrial sector, it is recommended that the technical, financial, and economic aspects of these three corporations be thoroughly reviewed in order to address this question of economic and financial viability. This analysis should cover in particular the management and incentive difficulties faced by these enterprises. Further substantial investment in energy efficiency equipment at CSC, CPC, and PCC should await the outcome of these reviews.  - 9 - 3.4 Past efforts to increase energy efficiency in government-owned corporations, though varied, has generally been limited. Some industries have taken initiatives to save energy, and many of them have broached the institutional problem by appointing energy managers or convening regular meetings of the directly concerned staff. Overall, however, there is little awareness of conservation techniques in state corporations, and those responsible for energy often have other duties that take priority over energy activities. Both financial assistance to the government- owned industries and technical assistance to their plants' engineering staff will therefore clearly be required in most cases. This assistance will be required to carry out the feasibility projects identified in this report and to implement those projects which prove viable. Each company has reviewed its prefeasibility study, presented in full in Annex 2, and is anxious to receive assistance. Company Profiles and Possible Conservation Projects 3.5 The paragraphs below present brief profiles of the companies, both state-owned and private, which require financial and/or technical assistance. These profiles are drawn from the detailed evaluations in Annex 2. 10/ The profiles provide an overview of the companies' situation and in particular, an idea of their capability to implement energy efficiency projects. The highlights of each company's energy situation and of its options for improving energy efficiency, as determined by the prefeasibility studies, are also presented here. A comprehensive list of possible conservation measures, with their respective costs, benefits and simple paybacks can be found in Annex 1 for each company visited. 11/ The costs and benefits of the possible 10/ At the request of the government, detailed information on the Ceylon Ceramics Corportion (CCC) and Associated Motorways, Ltd. (AM) is not published in the present report. The results of the energy efficiency prefeasibility studies on these companies are therefore not presented in Annex 2, nor are the companies profiled in this section. Donors interested in obtaining information on CCC and/or AM should contact those companies directly. 11/ Excluding Lever Brothers, Hotel Lanka Oberoi, Colombo General Hospital, Associated Notorways and the Ceylon Ceramics Corpora- tion. The first two of these have established their own energy conservation programs and require no technical or financial assist- ance. The costs and benefits of each of the possible conservation projects were not analyzed in any detail for them. In the case of the hospital, a lack of adequate energy use data made it impossible to estimate the costs and benefits of each of the identified potential projects. These costs and benefits will therefore be established by the feasibility study. See footnote 10 with respect to Associated Motorways and The Ceylon Ceramics Corporation.  - 10 - energy efficiency projects and their aggregate effects are discussed further in Section IV, while Section V deals with the cost and the implementation of the feasibility studies now required to better define these projects. 3.6 It should be noted that the prefeasibility study results have brought up an issue which requires further attention in terms of national energy policy. This is the substitution of wood for oil. In the case of several firms (including the National Paper Corp., Richard Pieris and Co. and the Sri Lanka Rubber Manufacturing Co.), replacing oil with fuelwood is suggested as a potentially attractive option from a financial view- point, and one that merits study at the feasibility level. Currently, there are only local shortages of wood in Sri Lanka. It is widely agreed, however, that the country is being deforested. If this continues at the present rate, the production potential of Sri Lanka's forests will be significantly reduced within 30 years, with adverse environmental consequences and severe localized shortages before that. 3.7 Given the need for measures to arrest this trend, the ongoing IDA Forest Resources Development Project (Cr. 1317-CE) includes the preparation of a Forestry Sector Master Plan. This is being coordinated by the Planning Unit in the Ministry of Lands and Land Development. The plan is being formulated on the basis of, among other inputs, a forest inventory and a wood market and demand study. This study covers the structure, geographical distribution and magnitude of the demand and the market for wood and wood-based products. It aims at identifying wood products, markets, prices and current supply systems. Under the IDA Forestry Project, a detailed five year investment program will also be drawn up to start implementing the Master Plan. 3.8 In defining energy demand management policies and programs, EDMAC should take advantage of this forestry sector planning effort. Specifically, any promotion of the use of wood as a petroleum substitute should be coordinated with the Ministry of Lantds and Land Development's overall strategy for dealing with the fuelwood and forestry issue. Before encouraging such a use of wood in areas of existing or impending shortage, special attention should be paid to its costs and benefits to the economy. From the point of view of the individual firms considering burning wood for fuel, the question of the availability and cost of wood over the life of the equipment involved should be analyzed as part of the proposed energy demand management feasibility studies. The firms should also consider investing in planting wood to meet their energy needs, as this could be an economically viable option under certain conditions. For example, investment in fuelwood plantations has been supported by IDA to substitute fuelwood for petroleum products in Sri Lanka's tea industry. 12/ 12/ This is being carried out under the Tree Crop Rehabilitation (Tea) Project (Cr. 818-CE) and the Tea Rehabilitation and Diversification Project (Cr. 1240-CE).  - 11 - Ceylon Steel Corporation (CSC) 3.9 As Sri Lanka's only steel mill, this company produces mainly for the domestic construction and metal markets. The state-owned mill faces financial difficulties due to high production costs and competition from cheaper imported products. CSC has taken a number of energy saving initiatives and has a nominal energy manager. In view of the significant potential for further energy cost reduction in CSC, staff need to be assigned on a permanent basis to energy management activities. CSC is the largest single consumer of oil and electricity of the 18 facilities visited, account.ng for almost 201 of these facilities' total 1983 consumption of those types of energy. It is estimated that about 251 of CSC's total energy bill could be saved annually by measures (e.g., improvement of mill operations, electric demand control, reheat furnace improvements) with a simple financial payback of 1.3 years. Ceylon Ptywood Corporation (CPC) 3.10 CPC operates several facilities in Sri Lanka, including sawmills and plywood, chipboard, and furniture factories. CPC's production is very dependent on local conditions. The corporation, whose chief engineer acts as energy manager, has undertaken several successful efforts to cut energy bills, including the full substitution of wood waste for oil in boilers, the reduction of electric peak demand, and correction of the power factor. Recently CPC received assistance from SIDA in conducting a detailed energy audit, which had not yet taken place at the time of the ESMAP prefeasibility study. Results from the latter indicate that US$400,000 worth of energy savings could be achieved annually by measures (e.g., installation of air heaters, electric load management, power generation from wood waste) with an average simple financial payback of 2.8 years. National Paper Corporation (NPC) 3.11 The state-owned NPC has three mills, one of which, at Embilipitiya, was visited. The mill produces paper products from rice straw exclusively for the domestic market. The Embilipitiya mill recorded a before-tax profit of Rs. 4.4 million (US$0.18 million) in 1983, on a turnover of Rs. 249 million (US$10 million). An assistant mill engineer has been placed in charge of energy savings. Several steps have already been taken to conserve energy, and a study is underway to examine the feasibility of generating on-site power to cut electricity costs. NPC's paper may be overdried. An increase in its moisture content by 1% would save about US$250,000 per year at no cost. Several other measu:es, including improvements in the boiler room and waste heat recovery from the paper machines, would reduce Embilipitiya's total energy bill by 15Z, with an average simple financial payback of less than one year. The installation of a new multifuel boiler with cogeneration would cut the total bill by another 281, but the financial payback for this project would be 4.7 years.  - 12 - Richard Pieris and Company Ltd. 3.12 This company's Arpico factory produces rubber and plastic goods as well as steel furniture. Most of the products are for the domestic market, exports accounting for roughly 61 of sales. With the exception of FY1981-1982, Richard Pieris and Company has made steady profits during this decade. The company is in a relatively sound financial position, and is considering modernization and expansion plans, including the installation of a wood-fired boiler to meet anticipated production increases. According to the ESMAP prefeasibility study, a wood-fired boiler with a lower rated capacity than the one being considered by the company would cut Richard Pieris and Company's energy bill by over 25Z, with a financial payback of 1.3 years. Improving the steam generation and distribution system would reduce the bill by another 6X, with a financial payback of less than one year. Paranthan Chemicals Corporation (PcC) 3.13 PCC is a state industrial concern involved in the manufacture and distribution of salt-based heavy chemicals, particularly caustic soda and chlorine. The company produces for the domestic market, where demand has historically been much higher for caustic soda than for chlorine. This has restricted plant production because the two chemicals must be produced at fixed ratios to each other, and it would not be economically justified to produce caustic soda if the associated chlorine could not be sold. PCC's activities are managed by its own resources without government subsidy. While it has been making reasonable profits in the past, the company now finds itself in a poor financial situation. The major problems facing the Paranthan plant stem from its obsolescence, the high cost of retrofitting with more efficient equipment, and the low domestic demand for chlorine. Paranthan's size is well below world scale, and it is not clear that a facility of its capacity could compete effectively with imports. Improving PCC's energy efficiency would entail a complete retrofit, with a simple financial payback of 6 years. The issue of the industry's economic and financial viability should be resolved before proceeding with such extensive work. Prima Ceylon Ltd. 3.14 The private, foreign-held Prima Ceylon Ltd. plant produces flour solely for use in domestic markets. The plant is in excellent condition and well maintained, and the company is in a sound financial position. Plant management is actively seeking methods to reduce energy consumption at the mill and energy conservation efforts are part of the day-to-day assignments of the electrical department engineers. While Prima Ceylon has the financial resources to implement economically sound energy conservation projects, it will require technical assistance to review its complex conservation options. These range from boiler modifications to waste heat recovery to load management planning. Combined annual savings could reach about US$170,0O0 for an investment of the same amount.  - 13 - Colombo General Hospital (CGH) 3.15 CCH is placed under the Ministry of Colombo Hospitals and Family Health. The hospital is in a very poor financial situation but copes admirably within overall budgetary constraints. Internal funds are available only for critical improvement programs. There are three electrical engineers from CEB (Ceylon Electricity Board) attached to the hospital, but there is no formal energy management organization or budget. The principal energy conservation initiative to date has been the gradual replacement of incandescent bulbs with fluorescent tubes. Various measures (repairing gas leaks, using gas stoves, installing air- tight doors, installing an LPG system) would cut hospital fuel costs by at least 202, with financial paybacks of approximately one year. The capital cost of these meabures has been included in the proposed feasibility study so that, once the study has verified their economic viability, the measures can be implemented immediately. Given the lack of detailed energy consumption data at the Hospital, the feasibility study will also establish the costs and benefits of further measures, including major retrofitting. A modernization and expansion program for the Hospital, including the installation of a new, all-electric laundry, has been proposed under Finnish assistance. It is critical that energy efficiency be considered in this and all such programs. Oil-using thermal equipment should be installed instead of electric equipment in this case and whenever possible. In terms of useful energy, fuel can be two to three times less expensive than electricity. The lower investment cost of electrical equipment is not justified on a life-cycle cost basis. The feasibility study will address this issue so that, in its expansion, the Hospital can minimize its energy costs. British Ceylon Corporation-(Cc) 3.16 BCC is categorized as a government-owned business undertaking. Its plant produces coconut oil, soaps, disinfectants, talcum powers and steel drums for the domestic and export markets. Exports accounted for roughly one-third of total sales in 1982. Although the plant is old and generally in poor condition, the company was profitable through the first three years of this decade, even in the face of the international and domestic recession. There is a staff member in the engineering department who is in charge of energy conservation efforts. It is likely that 20-25X of BCC's total energy consumption could be saved through an adequate conservation program, but there were insufficient data to accurately evaluate the benefits of several of the possible conservation projects which were identified. Opportunities for saving energy at BCC include boiler improvement, replacement of various steam ejectors, and installation of capacitors. The projects whose benefits could be estimated (replacement of some of the steam ejectors and installation of capacitors) would save about US$30,000 with a payback of a little over one year. The proposed feasibility study, which includes an energy audit, would provide the necessary information for a comprehensive evaluation of BCC's energy saving options.  - 14 - Putoda 3.17 The operazion of this government-owned textile mill is contracted out on a profit sharing basis to an Indian management firm. Pugoda sells cloth solely co the domestic market. Exports are gained indirectly through selling to garment matufacturers who in turn sell to the major western markets. According to management, the company was expected to show a profit in the financial year 1983-84. The chief engineer and his subordinate engineer are responsible for energy con- servation activities. While the plant is generally well run and energy conservation activities receive good attention, specific energy consump- tion remains high, indicating scope for further energy cost reduction. Energy conservation projects acceptable to the corporation (i.e., with a maximum payback of about 2 years) are: (1) waste heate recovery, (2) capacitor installation, (3) chiller operation improvement, and (4) burner controls. These measures will reduce the annual energy bill by about 10. Ceylon Glass Company, Ltd. (CCC) 3.18 CCC is the only manufacturer of glass containers in Sri Lanka, and has captured 70X of the domestic market. Imports accosnnt for the balance of the market, because CCC does not produce certain sophisticated containers and does not accept orders for small quantities. The company's past financial situation has been good. However, in 1983 it suffered a 1oss due to kiln reconstruction costs. CCC may also suffer a loss in 1984, but should become profitable again in 1985. While no energy management organization exists at present, the company is considering setting up an "energy cell" which will be led by a senior engineer. A variety of measures, in particular insulation of CGC's furnace, could reduce the firm's energy bill by about 25X, with financial paybacks of less than two years. Sri Lanka (Ceylon) Rubber Manufacturing Company, Ltd. 3.19 This privately-owned company uses natural rubber latex as a raw material to produce technically-specified grades of block rubber for export and also centrifuged latex for local use. The company recorded profits in both 1982-83 and 1983-84. With regard to energy corservation, the factory has been considering improving the power factor through the installation of correction equipment. Although this measure is indeed recomended on the basis of the prefeasibility study, it appears that most of the possible energy savings at the rubber factory would come from substituting wood for diesel oil through the installation of a multifuel air heater. This measure alone would cut the plant's energy costs by an estimated 40X, with a financial payback of under two years. However, while a wood-fired (or multifuel) air heater seems technically feasible, it has not been tried in Sri Lanka. As part of the feasibility study, a suitable air heater would therefore have to be designed and installed. This testing of the heater's technical, economic and financial viability should be done in conjunction with the Rubber Research Institute.  - 15 - Dunagha Coconut Producers Cooperative Society 3.20 This plant produces copra, dessicated coconut and coconut oil. It is wholly owned by a cooperative society of coconut plantation owners. About 90% of the coconut oil is sold for use on the local market, while copra is sold to both the local and export markets. Dessicated coconut is mainly exported. The cooperative, which employs a professional management staff, is financially sound, has little long-term debt and has generated considerable cash which is held in fixed deposits. The plant's capacity for manufacturing dessicated coconut has recently been expanded by 501, the expansion being entirely self funded. Vo energy conservation activities have yet been undertaken at the plant. The plant consumes wood as well as diesel oil and electricity. Possible conservation projects include: (1) power factor correction, (2) sterilizer improvements, and (3) improvements to air heaters and dryers. This last item would reduce the plant's wood consumption. Up to about 401 of annual fuel costs could be saved through investments, with an overall financial payback of two years. Mattakelle State Tea Plantation 3.21 This plantation has a completely self-contained factory for the manufacture of tea and also processes tea from adjacent plantations. About 901 of the tea grown in Sri Lanka has an export market. There have been no extensive energy conservation activities at the Mattakelle Estate* which consumes electricity, fuel oil, and fuelwood. There seems to be a large scope (between 15 an' 501) for energy cost savings in tea estates in general. Options identified at Mattakelle include: (1) design of new wood-fired air heaters, (2) use of dryer waste heat for drying fuelwood, and Z3) substitution of biogas for wood as a fuel for cooking on the estate. Together these measures would cut energy costs by 201, for an overall financial payback on the required investments of one and a half years.  - 16 - IV. COSTS AND BEMNITS OF THE POSSIBLE RDRGY CONSREVATION PROJECTS IDINTID INTE PRBIIBILITY STUDIES 4.1 As seen in Section III, the prefeasibility studies identified possible energy conservation projects which involve work ranging from low-cost measures (e.g., changes in operational procedures) to more expensive investments (e.g., waste heat recovery systems). The methodo- logies for the financial and economic analysis of these projects were simplified in line with the prefeasibility nature of the studies. As an initial project filtering mechanism, simple financial and economic pay- back periods were calculated. The calculation of the economic payback differs notably in that the economic value of average annual benefits was estimated taking the opportunity costs of electricity and fuel oil into account. Sensitivity analyses of each project's economics were not carried out. Table 4.1 summarizes for all the facilities visited, except Lever Brothers, the potential projects together with their costs, bene- fits and simple paybacks. 4.2 The combined energy bill for the 18 companies studied was found to be about US$18.4 million in 1983. The projects identified would re- duce total energy costs to the industries by approximately US$4.2 mil- lion, or almost 25X. A total investment of US$9.1 million would be required to yield this level of savings. Taking all the projects together, the payback period is 2.2 years financial and 1.8 years economic. Table 4.1 shows how short the payback period is for the majority of projects, which indicates that nearly all of them should provide high rates of return at the feasibility level. From the point of view of the individual companies, these identified projects are therefore financially attractive in that they will increase the firm's competitiveness through reduced energy expenditures. 4.3 The aggregate energy savings which could be achieved by this level of investments is estimated at 18,000 toe per year. This amounts to about 4% of the 1983 consumption of oil and electricity in industry and commerce. In addition, the successful implementation of these proj- ects will serve as a catalyst to further promotion of energy conservation in other firms, both through the projects' demonstration value and the building up of local expertise. In this regard, there are already en- couraging signs, such as CTC's consulting subsidiary (par&. 3.2), that some private sector organizations will offer energy audit and conserva- tion services to industry in the near future. The enrollment of local cons.ltants in the feasibility studies will provide a mechanism for tech- nology transfer and strengthening of local technical skills. 4.4 The dissemination of conservation technology is particularly important in the case of agro-industries. The proposed conservation work on the Dunagha coconut processing plant and the Mattakelle Tea Planta- tion, for example, can be readily applied to similar facilities. In fact, the tea, coconut, and rubber research institutes should work together with local specialized engineering and consulting firms to develop appropriate, cost-effective conservation techniques for commer- cialization throughout agro-industry.  Table 4.1: SUMMARY OF POSSIBLE ENERGY CONSERVAT1% ARGJECTS a Average Annual Project Cost Financial Benefit Simple Payback Company/Corporation Candidate Projects Total Foreign Local Total Forelgn b/ Local Financial cl Economic dt ('000 USS) (OO0 USS) (years) Ceylon Steel Corp. Improvement of mill operations, 1,095 620 475 868 704 164 1.3 0.9 electric demand control, reheat furnace Improvements, melting shop rehabilitation and hot analysis of billets Ceylon Plywood Corp. Dust extraction system improvement; 1,116 959 157 403 265 138 2.8 1.9 installation of air heaters; steam system rehabilitation; electric load management, electricity gener- ation from wood waste National Paper Corp. Instrumentation; boiler improve- 3,673 2,938 735 1,142 1,019 123 3.2 2.9 ments; waste heat recovery from dryers; reduction of pulping energy requirements; rehabilitation of the chemical recovery plant, new multi- fuel boller/cogeneration Richard Pieris & Co. Steam system improvement; installa- 220 188 32 181 163 18 1.2 1.5 Ltd. tion of new wood-fired boiler Paranthan Chemicals Plant retrofit with new equipment 906 n/a n/a 152 n/a n/a 6.0 n/a Corp. Prima Ceylon Ltd. Boiler improvement; waste heat 170 136 34 171 154 17 1.0 1.2 recovery from diesel engines; load management  Average Annual Project Cast Financial Benefit Simple Payback Company/Corporation Candidate Projects Total Foreign Local Total Foreign b/ Local Financial c/ Economic d/ ('000 USS) ('000 USS) (years) Colombo General Miscellaneous housekeeping meaures; n/a n/a n/a n/a n/a n/a n/a n/a Hospital major retrofitting British Ceylon Corp. Boller Improvement; replacement of 31 28 3 29 24 5 1.1 n/a steam eJect /s and installation of capacitors- Pugoda Textile Mills Waste heat recovery; capacitors; 154 114 40 90 76 14 1.7 1.4 chiller operation Improve_ent; burner controls Dunagha Coconut Pro- Power factor correction; sterilizer 35 13 22 17 a 9 2.0 n/a ducers Cooperative and air heater lmprovements Ceylon Glass Co., instrumentation; furnace Insulation; 383 281 102 215 193 22 1.8 2.11 Ltd. automatic controls; burner replace- ment and waste heat recovery Mattakelle State Improvement of air heaters; wood 34 2 32 23 5 18 1.5 n/a Tea Plantation a. ying and generation of biogas Sri Lanka Rubber Power factor correction; Installa- 26 2 24 15 13 2 1.7 0.9 Manufacturing Co., tion of a multifuel air heater Ltd. Hotel Lanka Oherol Electric load demand management; 70 n/a n/a 100 n/a n/a <1.0 n/a Improved lighting efficiency; boiler housekeeping; Improved kitchen energy use  Average Annual Project Cost Financial Benefit Simple Payback Company/Corporation Candidate Projects Total Foreign Local Total Foreign k/ Local Financial c/ Economic d/ ('000 LOSS) (lOQO US$) (years) Ceylon Tobacco Co. Steam system rehabilitation and 124 84 40 40 36 4 3.1 3.5 waste heat recovery; Installation of a multifuel boiler Associated Motorways f/ Various measures - - - - - - - Ceylon Ceramics Corp. f/ Various measures - - - Totals f/ 9,145 4,092 2.2 1.8 a/ Excludes Lever Brothers (Ceylon), Ltd. (requires no assistance In conservatlon; costs/benefits of possible projects not estimated). The cost of the feasibility study for each project is given in Table S.1 and discussed In Section V. SN/As means not applicable for the fol- lowing reasonss Paranthan Chemicals - given the extent of the work, only the figures given were estimated; Colombo Hospital - various energy-saving measures already identifled and with paybacks of about one year should be