Sri Lanka - Tree Crop Rehabilitation (Tea) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7339 PROJECT PERFORMANCE AUDIT REPORT SRI LANKA TREE CROP REHABILITATION (TEA) PROJECT (CREDIT 818-CE) June 30, 1988 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their offidial duties. Its contents may not otherwise be dbscosed witheat World Bank authorization. WEIGHTS AND MEASURES Metric System CURRENCY EQUIVALENTS AND EXCHANGE RATES Name of Currency (Abbreviation): Rupee (Rs) 1978 US$1.00 = Rs 15.10 1979 US$1.00 = Rs 15.57 1980 US$1.00 = Rs 16.53 1981 US$1.00 - Rs 19.25 1982 US$1.00 = Rs 20.81 1983 US$1.00 = Rs 23.53 1984 US$1.00 = Rs 25.44 1985 US$1.00 = Rs 27.16 1986 US$1.00 = Rs 28.02 ABBREVIATIONS AND ACRONYMS ASDB = Asian Development Bank BOC = Bank of Ceylon FAO/CP = Food and Agricultural Organization/ World Bank Cooperative Program GOSL = Government of Sri Lanka ICB = International Competitive Bidding IDA = International Development Association JEDB = Janatha Estates Development Board LCB = Local Competitive Bidding MPI - Ministry of Plantation Industries NIPM National Institute of Plantation Management OED = Operations Evaluation Department OFC = Other Field Crops O&M = Operation and Maintenance PCR = Project Completion Report PPAM = Project Performance Audit Memorandum PPAR = Project PerformLnce Audit Report RPM = Resident Project Manager SLSPC = Sri Lanka State Plantations Corporation TRI = Tea Resarch Institute TSDA = Tea Smallholdings Development Authority VP = Vegetal.ively Propagated (Clonal Tea) WB = World Bank FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Ofe of Dioecto-Goewal Operat'e Evahation June 30, 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT * SUBJECT: Project Performance Audit Report on Sri Lanka Tree Crop Rehabilitation (Tea) Project (Credit 818-CE) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Sri Lanka Tree Crop Rehabilita- tion (Tea) Project (Credit 818-CE)" prepared by the Operations Evalua- tion Department. Attachment Yves Rovani by Graham Donaldson 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT SRI LANKA TREE CROP REHABILITATION (TEA) PROJECT (CREDIT 818-CE) TABLE OF CONTENTS Paae No. Preface ..................00........... .. . totoo 0 . .... .. .. .... 1 Basic Data Sheet ........ *........................ *........0........ 1 Evaluation Summary ........ .. . .. ................... ............ iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT BACKGROUND .................. ................... 1 ,Cont'ext ............ . . . . . . #....... .............. 1 Objectives ............................ . . . .......... 1 Design ..........0.... ..............................4..... 1 Finance Plan ................................................. 2 Pre-Implementation Processing .......................... 2 II. PROJECT IMPLEMENTATION AND OUTCOME ..................... 2 Management and Administration ........................... 2 Start-up and Sequence.................................. 2 Procurement ................ .. ...................... 3 Reporting. ........... . . . . . . .. . . . . . . ......... 3 Hutcomes .....D.. p......................................... 3 Economic Performance .............. .. ............... 4 Sustainability ...................... ............... 4 Environmental Effects .............. .................... 4 Human Resource Development................... ......... ..... 4 III. MAIN FINDINGS AND ISSUES .......... ................ 4 Dverview ......................6 0..... .................. 4 Related Experience.......................... ...... 4 Issues Arising.................. .. ........ 5 A. Civil Works Contractors............................ 5 B. Tea Smallholder Pilot Rehabilitation................. 6 Findings and Lessons..... ......................... 7 Annex 1 - Comments from Borrower............................... 9 PROJECT COMPLETION REPORT I. Introduction........ ............ .................... 15 II. Project Identification, Preparation and Appraisal.....*..... 16 III. Project Implementation ............. 0.................oo....... 19 IV. Institutional Performance and Development.".... ........... 26 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. V. Project Impact.............................................. 28 A. Intended Impact ......................................... 28 B. Revised Estimate of Project Impact...................... 28 C. Financial and Economic Re-evaluation.................... 32 VI. Bank Performance................ ................... 34 VII. Conelusions and Lessons Learned............................. 35 PCR Tables 1. Tea Statistics 2. Comparison of Appraisal and Actual Costs 3. Allocation of Credit Proceeds (US$'000) 4. Project Investment Costs & Estate Operating Costs of JEDB & SPC in Financial Terms 5. Investment on Factory Development - Annual Costs 6. Projected Tea Extents in Bearing 7. Tea Yields through Replanting and Infilling 8. Tea Area & Crop Production 9. Cost of Production of Tea 10. Financial and Economic Prices of Tea Used in Analyses 11. Derivation of Tea Prices Used for Economic Analysis 12. Derivation of Tea Prices Used for Financial Analysis 13. JEDB - Project Incremental Cash Flow in linancial Terms - (1985 Constant) 14. SPC - Project Incremental Cash Flow in Financial Terms - (1985 Constant) 15. Total Project - Incremental Cash Flow in Economic Terms - (1985 Constant) PCR Charts 1. Sri Lanka State Plantations Corporation - Organization Chart - (Functional Structure) 2. Sri Lanka State Plantations Corporation - Organization Chart - (General Organization Structure) 3. Janatha Estates Development Board - Organization Chart IBRD 13382 Project Areas PROJECT PERFORMANCE AUDIT REPORT SRI LANKA TREE CROP REHABILITATION (TEA) PROJECT (CREDIT 818-CE) PREFACE This is a performance audit of the Tree Crop Rehabilitation (Tea) Project in Sri Lanka (Credit 818-CE), for which a credit in the amount of US$21 million was approved in June 1978. The project was closed on December 31, 1985 after a one-year extension, but final disbursements were only made in June 1986; the undisbursed credit balance of US$4.8 million (or 23% of the original credit amount) wzs cancelled. Actual expenditures in Rupees exceeded appraisal estimates by 15%. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department (OED) and a PCR dated September 24, 1986, prepared by the FAO/World Bank Cooperative Program. The audit memorandum is based on a review of the Staff Appraisal Report (No. 1892a-CE dated May 12, 1978); th5 President's Report (No. P-2331-CE dated May 19, 1978); the Credit Agreement dated July 12, 1978; and the PCR. Correspondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files have also been consulted, and Bank staff associated with the project have been interviewed. An OED mission visited Sri Lanka in July/August 1987. Discussions were held with project and other borrower officials and project benefici- aries who were interviewed during visits to project sites. The information obtained during the mission was used to test the validity of the conclu- sions of the PCR. The audit concurs with zhe principal points made in the PCR. Points discussed in the audit memorandum have been selected because of their importance for this and other Bank-supported projects. The draft report was sent to the Borrower for comments on May 18, 1988. Comments received from the two participating tea corporations have been taken into account and are attached as Annex 1. The valuable assistance provided during the audit mission in- country review by the Government of Sri Lanka and the executing agencies is gratefully acknowledged while the hospitality received during the field trips in particular has left us with the fondest remembrances. 1 PROJECT PERFORMANCE AUDIT REPORT SRI LANKA TREE CROP REHABILITATION (TEA) PROJECT (CREDIT 818-CE) BASIC DATA SHEET KEY PROJECT DATA Actual as Actual or Percentage Appraisal Current Appraisal Estimate Estlmnto Estimate Total Project Cost (USS million) 86.8 28.4 88 Credit Amount (US$ million) 21.0 18.2 77 Date Physical Components Completed 12/31/88 12/81/85 Proportion Then Completed (X) 40 90 Institutional Performance Adequate Adequate Agro-economic Performance Adequate Adequate No. of Direct Beneficiaries 608008 estate laborers and their families Economic Rate of Return (ERR) 26 27 18 STAFF INPUTS (Staff Weeks) FY76 FY78 FY77 FY78 FY79 FY86 FY91 FY82 FY83 FY84 FY85 FY88 FY87 TOTAL Preappraisal .8 7.5 24.4 32.2 Appraisal 52.4 52.4 Negotiation 8.8 8.8 Supervision 17.7 9.4 6.9 8.8 16.8 18.2 6.8 1.6 21.8 99.7 Other .1 .1 TOTAL .8 7.5 86.7 17.7 9.4 8.9 0.6 18.8 13.2 6.6 1.6 21.8 198.8 CUMULATIVE DISBURSEMENTS CY79 CY86 CY81 CY82 CY83 CY84 CY85 CY86 Appraisal Estimate (USS million) 0.5 5.0 10.0 13.2 17.7 21.0 21.0 21.0 Actual (USS million) 0.6 3.8 4.8 7.9 9.9 11.8 14.1 18.2!/ Actual as X of Estimate 120 88 48 81 56 64 87 77 Date of Final Disbursement lt half CY 1986 as At 6/26/1986 - lit - PROJECT DATES Original Plan Revision Actual Preparation Report 10/77 Appraisal Report No. 1892a-CE 5/12/78 Negotiations 4/78 Board Approval 6/1/78 Credit Signing 7/12/78 Credit Effectiveness 10/12/78 11/80/78 12/28/78 Credit Closing 12/81/84 12/81/65 12/81/8F (Accounts kept open Until 8/36/88) Month/ No. of Special. Perform. Types of MISSION DATA Year Persons Represen.af Rating t/ rd S/ Problems 4/ Preparation 07/77 3 a,b,f - - Appraisal 10/77 8 a,b,f - - Follow-up 02/78 2 d,f - - - Supervision 1 Gs/7e 1 f 1 2 - Supervision 2 97/79 2 f,c 1 2 - Supervision 8 12/79 1 f 1 2 - Supervision 4 97/80 1 f 1 2 - Supervision 6 02/81 1 e 1 2 - Supervision 6 62/82 1 a 1 2 - Supervision 7 10/82 8 ascg 2 2 0 Supervision 8 64/83 1 c 2 2 0 Supervision 9 12/88 1 c 2 2 O,M,T Supervision 19 98/84 1 a 1 1 M Supervision 11 03/86 2 a,* 1 1 M,P I/ a a agriculturist; 6 = tea estate specialist; c a economist; da engineer; * a financial analyst; f= agricultural economist; g forester. I/ 1 a Problem free or minor problems; 2 = moderate problems; 3 a major problems. c/ 1 = Itaproving; 2 = stationary; 8 = deteriorating. !/ T a Technical; M = managerial; P a political; 0 a other. OTHER PROJECT DATA Borrower Government of Sri Lanka (OSL) Executing Agency Janatha Estates Development Board, State Plantations Corp. Follow-on Projects Name Tea Rehabilitation and Diversification Project Loan/Credit No.: Credit 124C-CE Amount (USS) : 29.0 million Approval Date : May 4, 1982 FROJECT PERFORMANCE AUDIT REPORT SRI LANKA TREE CROP REHABILITATION (TEA) PROJECT (CREDIT 818-CE) EVALUATION SUMMARY Introduction 1. About 75% of Sri Lanka's population resides in rural areas, with some 45% of the total active labor force directly employed in agriculture. Agricul.ure has declined as a percent of GDP in constant factor prices from . 30.7% in 1977 to 28.0% in 1984. Agriculture continues, however, to make a significant contribution to both export earnings and Government revenue. Exports of agricultural goods accounted for approximately 64% of total . merchandise exports in 1984 with the three traditional exporte--tea, rubber and coconut--accounting for 43%, 9% and 4% of exports respectively. This represents a decline from the early and mid-1970s when agricultural exports accounted for over 90% of all merchandise export earnings. In addition, direct export taxes on the same 4-hree traditional exports accounted for 22% zf total Government tax revenue in 1984. Nevertheless, the sector's contribution to the economy could be raised. The country's natural resource base, climate and relatively low-wage and literate work force provide it with thw potential to be an efficient producer of a wide variety of agricultural produce. 2. The performance of the tree crops subsector remained disappointing throughout the period and for a long time the Government has been unable to reverse this sector's downward trend despite its importance in earning foreign exchange. The share of Sri Lanka in the world tea markets declined from 33% in 1961 to 21% in 1979. 3. Bank lending for agriculture started in 1968. Three irrigation projects were approved in 1968-70, which fitted the Government's objective of increasing food production. Lending for agriculture accel4rated in the second half of the 1970s, and also became more diversified. Apart from more irrigation projects, it included treecrop rehabilitation, rural development, dairy, forestry and agricultural support services. As of June 30, 1985, gross lending for agriculture amounted to US$530.4 million, or 532 of total lending to Sri Lanka. 4. The Bank nas supported five projects for tree crop development. In addition, smallholder coconut development has been a component in the Bank supported rural development projects. Except for the Smallholder Rubber Development Project, Bank lending so far has been in support of the publicly owned plantation sector. Despite the Government's emphasis on private sector development, even the 1985 Tree Crop IV Project supports substantial investments (US$212 million) almost exclusively in the two publicly owned estate corporations: Sri Lanka State Plantations Corporation (SLSPC) and Janatha Estate Development Board (JEDB).!/ 5. Apart from the Smallholder Rubber Rehabilitation Project, which was in support of an ongoing government scheme to replace overaged, low- yielding rubber trees, the other tree crop projects aimed at improving the efficiency of the tea industry. Project components typically included field programs for replanting and infilling of tea, diversifying unproductive lards into other tree crops, minor export crops or fuelwood, rehabilitating processing and storage facilities, field and nursery equipment, vehicles, housing and estate social infrastructure, and institutional development to strengthen managerial and financial control systems in the two public estate corporations. All projects also included small components to support smallholder tea development. 6. Except for the first tree crop diversification project, which was a failure, implementation of the tea estate rehabilitation projects has generally been satisfactory. After a learning period under the first project, the two corporations have become familiar with Bank procedures. Management of these projects is genera .ly good, and substantial progress has been made with field and factory development on the estates. All projects suffered, however, from high local cost inflation and bottlenecks in the local construction industry, which necessitated modification of civil work programs. Physical implementation has been generally successful, but this project's impact on the resolution of sectoral issues was limited. Objectives 7. The objectives of the project were to assist the Government in improving the economic efficiency of the tea industry by lowering production costs and improving tea quality. Although the project's incremental impact on Sri Lanka's tea output was expected to be small, it was thought that the project would help to slow the decline in production. A major objective was to strengthen the two major government corporations involved in estate management and to assist private tea factory operators and about 180 smaliholder producers as well as to improve living conditions of estate labor by providing them with improved housing and medical facilities. Implementation Experience 8. Project implementation experienced no delays in regard to the field works on the public sector estates but encountered difficulties in 1f SLCPC notes, however, that although planting subsidies have been withdrawn from the public tea corporations, they continue to be available to the private sector. - vi - factory rehabilitation and labor housing. The f!*ld program of replanting, infilling, soil conservation and fuelwood planting has been successful, with most appraisal targets significantly exceeded. Tea machinery was received late because local corporations manufocturing tea machinery were in poor shape and had eifficulties in securing advance financing. The housing construction was severely constrained by the lack of reliable contractors. 9. The project's major shortcoming was the failure to implement the pilot smallholder tea gardens and to rehabilitate private tea factories. Designed as a credit operation, it failed because target beneficiaries lacked acceptable collateral. 10. Due to the delays in machinery deliveries and in housing construction, the Credit had to be extended. The project succeeded in improving performance of the tea estate corporations. Results 11. The project has been successful in establishing better tea gardens and productive tea factories on the public sector estates. In addition, it has been instrumental in the adoption of improved practices. Total production by 1985 was slightly lower than anticipated at appraisal mainly due to later and larger infillings than foreseen at appraisal. Production will increase in the future and will be along appraisal lines. The ERR has been recalculated at 27% compared with 25% estimated at appraisal. Sustainability 12. Cooperation between the Bank and the Sri Lanka tea industry has directed the sector towards the required streamlining and reforms. Sincs tea is the backbone of Sri Lan1Aa's external trade, and due to the competence of the corporations responsible for the estates' efficient management as well as the impact of the Bank-supported follow-on projects, no problems regarding sustainability should be anticipated. Findings and Lessons - The public sector estates corporation strengthening component was successful because it concentrated on limited and well defined objectives in line with existing policies of GOSL and its implementing agencies; and because it financed activities which were well within the capability of an experienced staff, and t- capacity of the corporations which had been constrained by lack of funds prior to project effectiveness (PCR, para. 7.02); - Lack of manufacturing capacity to meet very large orders contributed to the slo;w output of locally manufactured tea machinery (PPAM, para. 11); - vii - - Reliance on small contractors is unjustified if proper assessment of their capacities and interest is not undertaken at the time of project appraisal.2/ Interaction between the Bank*s sector operating divisions on this issue is also warranted (PPAM, paras. 20-28); and - The tea smallholders' pilot rehabilitation component, which failed, should have received much more careful attention at preparation and appraisal, and a stronger indication of Government commitment (PPAM, paras. 29-31). 2/ JEDB notest "In the future there could be greater reliance on estate contractors (i.e. in-house contractors) whose capabilities would enable satisfactory performance in civil works programmes." PROJECT PERFORMANCE AUDIT MEMORANDUM SRI LANKA TREE CROP REHABILITATION (TEA) PROJECT (CREDIT 818-CE) I. PROJECT BACKGROUND Context 1. Tea is Sri Lanka's most important export crop. The Tree Crop Rehabilitation (Tea) Project was the Bank's twentieth lending operation in Sri Lanka and the first of a series of loans/credits for tree crop develop- ment in Sri Lanka. It was designed and approved by the Board in conjunc- tion with the Tree Crop Diversification (Tea) project (Credit 819-CE), already audited.11 2. In 1967, facing the need to improve overall tea production and yields, GOSL appointed a Commission to review the effects of a replanting program to replace old seedling tea with high-yielding clonal material. * The Commission concluded that the replanting program was necessary if the Sri Lankan tea industry was to remain competitive in the world market; as a . corollary, it recommended the diversification of some marginal tea land to other crop3, to avoid marketing excessive supplies on a depressed world tea market. The Bank agreed with the Government and supported the rehabilita- tion of tea production by supporting the estates as well as smallholders through two projects in 1978, and continued financing the tea sector through two more projects in 1982 and 1985. Objective. 3. The project's main objectives were to improve the efficiency of tea estates and the quantity and quality of the tea produced, in soume of the areas with the best potential for growing and making high-class tea (PCR, para. 2.4). Almost simultaneously a project was approved to finance the diversification out of tea of land at lower elevations which lacks the potential for quality production. These two operations taken together were accepted as meeting the Bank's policy governing the financing of tea proj- ects, namely that incremental production of a surplus commodity should not be financed. Design 4. The project was to be implemented by two state-owned plantation corporations which had been established to manage nationalized estates. 1/ See Pr(ject Performance Audit Report, Tree Crop Diversification (Tea) Project (Credit 819-CE), OED Report No. 5041 dated April 13, 1984. - 2 - The project affected 59 estates belonging to the corporations. The project's physical objectives were to replant 560 ha, infill 6,540 ha, improve soil conservation works on 16,000 ha and establish 590 ha of fuel wood plantations. Foxty-two factories were to be rehabilitated and a total of 13,300 labor dwellings repaired or built. The project was considered to be a first step in a comprehensive rehabilitation and rationalization of the tea industry and included a pilot smallholder component. Finance Plan 5. The US$21.0 million IDA credit was intended to finance 68% of the estimated US$30.8 million total project cost. In the event, IDA disbursed US$16.2 million, amounting to 61% of the total US$26.4 million final cost. The US$4.8 million undisbursed balance of the credit which was cancelled was largely due to the effect of depreciation of the Rs against the US$ and partly to delayed implementation of the factory equipment component (PCR, paras. 3.29-3.32). Pre-Implementation Processing 6. The project was prepared in mid-1977 by a GOSL team with assistance from a Bank preparation mission. Only minor modifications were made at appraisal to the project as prepared. The number of tea factories to be rehabilitated were reduced from 55 to 42, while the housing component was increased from 2,580 units to 6,600 units of new labor houses (PCR, paras. 2.1-2.10). II. PROJECT IMPLEMENTATION AND CUTCOME Management and Administration 7. As proposed at appraisal, a Project Coordination Committee (PCC) was established, and a Project Coordinator appointed. The PCC's main tasks were to approve the annual development plans and budgets for the project area of the two corporations in charge of the project components and to meet regularly to review progress, and to examine tenders and award all contracts for the supply of goods and services under the project. This ensured the proper adoption of guidelines in procurement procedures, disbursements and reporting of progress as required by the Bank. The Project Coordinator was able to act as a single point of contact between IDA and the management of the two corporations, who all found the creation of this position a major step toward minimizing implementation problems. Start-up and Sequence 8. Project effectiveness had to be postponed by two months owing to delays in signing the subsidiary loan agreement (PCR, para. 3.1). Procurement delays in the early implementation stage resulted in the -3 - project falling six months behind appraisal schedule shortly after effectiveness. These delays particularly affected the tea factory rehabilitation and labor housing components (PCR, para. 3.8). Procurement 9. As noted above (para. 8) procurement of tea factory machinery and labor housing was problematic. The problem was a result of the limited capacity of the local machinery manufacturing and civil works construction industries, which had not been correctly assessed at project preparation or appraisal. Reporting 10. Periodic reporting by the two public sector estates corporations responsible for project implementation was fully satisfactory. Audits were usually delayed, reflecting a severe backlog in the office of the Auditor General. Outcomes 11. The field program of replanting, infilling, soil conservation works and fuelwood planting has been a notable success, with most appraisal targets having been significantly exceeded. On the other hand, the program of tea factory rehabilitation was very seriously delayed and, although it was eventually almost completed by the end of the project, the impact was far less than anticipated. This was largely a result of the program of machinery replacement being far in excess of the effective capacity of the domestic manufacturers who were awarded all the contracts. 12. The social aspects of the project--improved labor housing and medical and child care facilities--were rather less successful. Difficulties were encountered in constructing new houses due to shortage of suitable contractors and high unit costs. Greater emphasis was therefore put on rehabilitation of existing dwellings, but this created logistic problems in arranging temporary accommodation for workers and their families during renovation of their quarters.2/ Emphasis was switched from the rehabilitation of estate hospitals to the provision or renovation of creches and dispensaries.3/ 2/ In clarification JEDB statest uMidway through the Project, in view of the logistic problems that arose, the conversion of existing Barrack- type or even Single Barrack type Lines into larger rooms for the allottee families was halted and Upgrading of these DB or SB Lines was undertaken through attention to the roofs, ramps & drains, building up and provision of proper doors and windows to kitchens and verandahs, and toilet facilities." 31/ JEDB notes that "there were no changes in the medical programme vis-a- vis estate hospitals," although this appears to be at variance with para. 3.24 of the PCR. -4- 13. The major shortcoming of the project was in the pilot smallholder tea garden and private tea factory rehabilitation component which could not be implemented. Designed as a credit operation, it failed beanse the target beneficiaries lacked acceptable collateral. Economic Performance 14. The financial rate of return of the project's investments in JEDB is estimated at 11%, and that for SPC at 19%. The difference reflecting the larger area involved and higher quality teas at SPC. SAR estimates were 12.5% and 14.5%, respectively. The economic rate of return of the project is re-estimated at 27% compared with an SAR estimate of 25% (PCR, para. 5.22). Sustainability 15. The improvements effected through the project should be sustainable provided tea producer margins for the public sector estate corporations remain sufficiently remunerative, and provided operational standards on the corporation estates are at least maintained at present levels. Environment Effects 16. No detrimental environmental effects are evident from project activities. Fuelwood plantations on 2,800 ha of former tea land considered unsuitable for replanting (which compares very favorably with the 590 ha proposed at appraisal), and rehabilitation or improvement of soil conservation works within the replanted and infilled tea areas will reduce the siltation rate in the two reservoirs downstream of the project areas. Human Resource Development 17. Training visits to overseas tea growing centers by 55 government staff were viewjed as a very successful aspect of the project. III. MAIN FINDINGS AND ISSUES Overview 18. The project has succeeded in its main objectives of launching effective rehabilitation of the two corporations' tea gardens and factories in the project area and has effected improvements in their institutional and technical practices. The rehabilitation of workers' housing was only partially completed and the limited smallholder component did not materialize. Related Experience 19. This successful experience in rehabilitation of public sector tea corporations closely parallels that of an earlier Indonesian project.4/ A notable difference between the two projects is that the Indonesian project was less ambitious in its approach to the private sector, where involvement was confined to a survey of smallholder and private tea estates. Issues Arising A. Civil Works Contractors 20. The project had sizeable civil works components as can be seen from the following table: Total Private Contract (US$ millions) (US$ millions) Housing 8.38 4.3 . Hospital 0.20 0.2 Other 0.10 0.1 Total 8.68 4.6 21. Although this work program may seem small in context with the overall turnover of the country's construction sector which amounted to about US$120 million in the appraisal year (1977),51 timely completion of the envisaged construction program was exacerbated by the Bank's recommendation that the majo share of civil works contracts should go to the "small contractors", whose share of the annual US$120 million volume could be considered small in light of the work done by government owned or parastatal construction companies. The appraisal of the project does not mention any likely difficulties to be expected from small contractors. In the event, only 4,916 new houses and 4,916 house rehabilitation/extensions were completed compared with appraisal targets of 6,600 and 6,700 respectively (PCR, para. 3.21). 22. The apparent lack of analysis of the contractors sector combined with the fact that many reliable contractors were fully occupied with ths tourist boom led to delays in project implemeutation and contributed substantially to the cost overruns. The audit agrees with the statements of the PCR (para. 3.22) that there were indeed "difficulties in securing reliable contractors". 23. There were two shortcomings in the appraisal approach of the projects' civil works component. First there was never a proper assessment of the country's construction sector, its weaknesses and specifically its 41 Indonesia-Tea Project, OED Report No. 3247, December, 1980. 5/ See Sri Lanka Recent Economic Development and Policies for Growth, Report No. 5628-CE dated May 14, 1985. - 6 - annual capacity. Second, a lack of interaction not only between the Bank's different technical departments but even within the Region's agricultural divisions. 24. While the audit agrees that a developing country's small contractor/enterprise sector needs to be developed there is little appreciation in the Bank on what the major constraints are that confront the sector. The situation in the project is illustrative of the problems also encountered by other projects.6/ 25. Small contractors as found in some--not all--villages tend to employ very few xiorkers. Due to transportation as well as housing problems, the area of operations is rather narrow--it hardly reaches beyond a village. Furthermore construction techniques may not be up to required standards, a fact which cannot be overcome by providing these contractors with additional machinery. Where only small contractors exist (or are sought) it is necessary to "design" works and contracts to be suitable for them (both small scale and simplicity being necessary). Since adherence to local bidding procedures is the minimum condition regarding the Bank's procurement procedures, many of these contractors are not capable of submitting cost estimates in writing but present them orally which the Bank in turn cannot accept.71/ 26. On the other brad, the Bank also rejected the employment of "in- house" contractors which had been associated with the tea estates for long periods. Under this system each estate manager employs the services of a contractor whenever need arises. These contractors who live and work next to the estates have little or no chance to overcharge the estates for their work since unit costs or costs per hour are well known to the estate managers and their supervisors. These contractors could have undertaken civil works within a shorter time and at lesser cost.8/ 6/ See also for instance, Ethiopia Second Livestock (Credit 365), OED Report No. 3977 dated June 21, 1982. 7/ JEDB notes to the contrary: "Historically the practice on estates has been to award contracts on the acceptance of written quotations which incorporate a bill of quantities. Thus oral quotations have not been in vogue." SLSPC noted that "This is incorrect as almost all the contractors are capable of submitting cost estimates in writing." 8! In clarification JEDB notes: "During the civil works programme, "in- house" contractors were utilized when the number of units allocated were within their individual capabilities. On some estates the larger number of new houses to be constructed necessitated the net being cast much wider; unfortunately the performance of these external contractors suffered through the movement of skilled artisans to more attractive Continued on next page - 7 - 27. The interaction between Bank operations divisions for any project is important and highlighted in this case by the, relatively speaking, small size of the country's construction sector. Interaction is missing if looking at projects individually--without seeing the Bank-promoted construction volume in the aggregate. Since there is always a chance that the education, public utilities and transport sectors will also require local contractors, an annual assessment of these activities would be warranted prior to deciding on civil works contract arrangements. 28. This lack of interaction between Bank departments is not restricted to civil works contracts but, as the case of this project demonstrates, also affects other sectors. Delivery problems of tea machinery were incurred in the project due to factories producing the machinery encountering financial constraints and having to produce with outdated machinery and equipment (PCR, para. 3.13). Cooperation with IFC or the Industries Department should have highlighted possible constraints or led to securing appropriate financing of the tea machinery industries. B. Tea Smallholders' Pilot Rehabilitation 29. In contrast to the very successful estates rehabilitation components which, besides being well prepared, were efficiently managed by experienced staff from the public sector estate corporations, the smallholders component was a complete failure. The PCR attributes this failure to "lack of support to smallholder tea growers",9/ which "might have been overcome by more significant proposals" (PCR, para. 7.7). 30. The audit, noting that this component is given only the most cursory treatment in the SAR, would go further. A sum total of two paragraphs of descriptive detail, one paragraph on proposed credit arrangements for smallholders and a one paragraph account of the intended Tea Smallholdings Development Authority organizational arrangements for the component hardly do justice to what appears to have been a most challenging pilot component, given the limited understanding of the smallholder tea sector on the part of both GOSL and Bank and the acknowledged weakness of the Tea Smallholdings Development Authority at the time of appraisal. 31. It is the view of the audit that this component deserved much more care and attention in its preparation and appraisal, and commitment during Continued from previous page development projects in the country or overseas for more remunerative employment." 2/ The Agricultural Production and Services Division of the Bank believes that this assessment is misleading. They point out that the smallholder sector in the high country of Sri Lanka is insignificant in contrast to the low country where smallholders produce nearly 40% of the tea. In Continued on next page - 8 - implementation, than it received, and its failure is not surprising given the circumstances. Incompletely prepared pilot components should not be introduced into projects unless there is a clear and firm commitment on the part of both Borrower and Bank to devote the necessary resources to their further planning and implementation in the period following negotiation. Findings and Lessons 32. The main lessons that can be learned from the implementation experience of the project are: (i) that the success achieved resulted from its simplicity in concept and design--essentially providing finance for two experienced state corporations to undertake activities which were within their competence and would have been normal estate activities had nationalization and severe funding constraints not intervened (PCR, para. 4.2); (ii) limiting the geographical coverage of the project facilitated implementation (PCR, para. 7.2), as did the appointment of a project coordinator (PPAM, para. 7); (iii) the lack of complexity and the provision of overseas training opportunity motivated managers to pursue project objectives vigorously (PCR, para. 4.4); and, (iv) the failure of the smallholder pilot program was a result of inappropriate credit arrangements and ;nadequate technical (extension) support (PCR, para. 3.27). 33. Other points of interest noted in the PCR (paras. 3.13-3.16) concern procurement: - The large orders for machinery for the tea factory rehabilitation were awarded to local corporations who lacked the capacity to manufacture sufficient quantities of equipment in the time available. - The labor housing program was severely constrained by the lack of reliable contractors with significant capacity, as they were fully occupied with the tourist boom. Continued from previous page the high country the few smallholders who grow tea do so almost as a sideline; their principal source of income comes from the estate sector. In retrospect, therefore, there should have been no smallholder component in the high country project and the pilot phase should have been left to the subsequent Tea Rehabilitation and Diversification Project which dealt with the low country. FROM J.E.D.B.6 <THU>06.16.'88 12:36 NO.3 ..16,® Annex 1 Page 1 apO~ lg !gns ..pidg - 1 n ANATHrA ESTATf$ 06VLOP 3ARD " 0 CAAaeer '091•4 Qu. a<Ye. > 11$I Ticphfnc N1. P 0. Box sål7$ GrdGfpkk g9dre~, 9~~s 2. iVmhsU Lan, otembo- 3 ST TLEAR DU. Ccaha Donaldson, CK, et, Agrlcutilfe, Infrestructure and Human Raource6s Divialu, operations Evaluiln DUpartment. Thå Wnld Dank. 1818 11 Scrocr, N.V., s4ångtca D.C. 20433, DeX4 tig. Donaldson, me • C;"aiTka Tee Crop RhblLatIW4 (Tea) frojee <Cradf Bl$-CV) Dia1LL Vcgiect Performar.G Audir cpnt Thank you for your leter dated 18 ItAy 194 49d¥mäod to the Chalirma, K. V.3. Söneviracne, and cha eineli,d dw*ft lrojeet Pertoan-. Audit lyavt (Prat) compristng tåe 1roj.et åugizause Audit Memorandum (VPAM) and fhe PUjoct Completion Repore (PCR). we are *Lad g* the oppoiLuuLy to prUumt to you che omm n of d. janathif . rtatcs Developmenr ard ra it A-u^ag I vould hi Appreciated 1f the dial sntec~e oU Uis puggraph, namlj1 ".... palinåag deilciencios wichin the ,te.nr, could be claxilwie. RACE a fftTNOS AND LLSSOns It is wtu.*erd that a påaöidyh be added to road i In the Cuic Lber cculd bo greater relianep nn estate qucåtk0.s (i.ö. in-house tornareri.t' .o cai.åbtLies would enablo ftatfary performance La cL1l wurks prvy .n'.. ..n1 FROM J. E. D. 9.C (THU)e6.16.'88 12135 NO.3 PAi~::Jia~wA?Ri2CONlINIlATJ0N *'ligE Annex1 VAGE 6 Page 2 §.eferenite is ;4..o to an extrnet fram U.is rag&raph wlh tequte "1<rcacer -j:ybas1a vas thcrvfvte put ^n rahabilitatin Of CAtoLU.ig dwlellin,, hut this erented logIbir rgbcmz il arranging tempc- ary acco,nmndation for vorkeru ad their fanlies duting renovativs of tir rltieters", aud elaritif.ation i made 14& respeet of chis aucivity, namelyt Mdway 4hbogh the Project, lu vlew of chu logtatie pnhlems ChL aroso, thi cjonver%ien of oxt!nx voible Barragk-typ ör vcen Slaåle sacfik-type Line% inte lapc rnms for 4ha allottee fanilieas as halte.d and Vlurading of 41h<ge D2 oc SA Lines w4* endefeaken Lttiah atteniqn to he roof*, samps 6 åräinz, bullding up ånd provluion of proper duoka & ~idur. to k<tehans and verandAhs, and Lc419t feetiftCIS. It lai also to be å4ated that rhore wu.e ao cbacs bu the medieal prograwyMe vis-viR attate huspitals. 14 exuA pi PARg~M 25 Pleas4 &ezer te the extract quoMåd fruW thUs pragraph- "Manof thse L cöntiractorw are når. cepabla et subfoltring c~s estimaces in wt,ting but pseent thefn årally which the Bank ta tur cAnnec accp". disetrically the procrica on ¥»LateA bas begu to aard contrauLä on the nreptaå;tt of writtcn 4uotattos which Aicorpeeace a bill 9f quantriies. Thus vial quotet1ons hve nom been in voiu*. PAGE 11 PA!AGRAf & During Lhe civil vorku prograDna. "in-hojse" contrauLocrs vere urtlize wuen Lh* ntubee of unika al lötaccd wer* witbin thelr jadivi dual ejltlities. nn so=C C4cates the largeC u4u0h.r of nQw hou4s9e to be CtQrI¥L£UCIfd nceobtated the net beinr cask uuvh viaeP unfvtunarely thu yekörmenml of thube *xterimt contractora nuffueJ through .he move~ent ef skilled artitann, to morc Cjtractijve developmeat prnjet; La tha enuntry os over*#as for mort rvwuneraf.tVC giyloymeit> we look f.j.ard to rgeeivlng a copy of the tinal roport at a futtire dato. YJAU sinceed'ly, K.V.W. Karfnayaka uener3l man~gr, JANATHA EstJA?TVS DEVEI,lItIPT B0ARD. 17-6-88 1 Annex 1 M. GRAHAM DONALDSON Pape 3 CHIEF,AGRICULTURE, INFRASTRUCTURE N HUMAN RESOURCES DIV. OPERATIONS EVALUATION DEPT. WORLD BANK UASHINGTON FLS FIND BELOU THE COMMENTS OF THE S.L.S.P.C. Im THE DRAFT AUDIT REPORT OF CREDIT CE 818. PAGE/PARA OUR COMMENTS I 1 IN RUPEE TERMS THE ACTUAL UTILISATION EXCEEDED THE ORIGINAL COST (INCLUDING PHYSICAL AND PRICE CONTINGEN- CIES) BY RS. 74.9 MN. OR 15 . VI 4 WITH THE IMPLEMENTATION OF THE 4TH TREE CROP PROJECT THE BOVT. IS IN FACT SUBSIDIZING THE SMALL HOLDER FROM THE CESS THAT HAS BEEN RECOVERED FROM THE TUO CORPNS. UNILST FUNDS R BEING PROVIDED TO THE TUO CORPNS UNDER MTIP FOR FIELD N FACTORY DEVELOPMENT AT 13 INTEREST PER ANNUM, THE REPLANTING SUBSIDIES AFFORDED BY THE STATE TO STATE SECTOR PLANTATIONS UERE WITHDRAUN BUT THE SMALL HOLDERS CONTINUE TO BE PAID A REPLANTING SUBSIDY. CONSIDERING THAT THE CURRENT COMMERCIAL BANK'S INTEREST RATES R ALSO AROUND 13 , THE PRIVATE SECTOR HAS BEEN BENEFITTED CONSEQUENT TO CONTINUATION OF GOT. SUPPORT IN THE FORM OF INCREASED RE/NEU PLANTING SUBSIDIES. VII 6 IT IS DIFFICULT FOR US TO AGREE AS THE DEFICIENCIES HV NOT BEEN MENTIONED N THE STATEMENT APPEARS TO BE A CENSURE ON THE SECTOR. UE R THEREFORE OF THE VIEU THAT THIS SHOULD BE DEALT UITH iN GREATER DETAIL AS IT IS STATED THAT PHYSICAL IMPLEMENTATION HAS BEEN SUCCESSFUL. XI 25 THIS IS INCORRECT AS ALMOST ALL THE CONTRACTORS R CAPABLE OF SUBMITTING COST ESTIMATES IN URITING. MNY TKS N R6DS, DIRECTOR FORATD - 13 - Document of The World Bank FOR OFFICIAL USE ONLY Report No. PROJECT COMPLETION REPORT SRI LANKA 'REE CROP REHABILITATION (TEA) PROJECT (CREDIT 818-CE) September 24, 1986 South Asia Projects Department General Agriculture I Division This docuament has a restrteted distributies and maY be umed bY recipl#nts only in the performtance of their ofitial duties. Its contents may not otherwise be disclosed without %'orld Bank Authorization. - 15 - SRI LANKA TREE CROP REHABILITATION (TEA) PROJECT (Credit-818 CE) PROJECT COMPLETION REPORT I. INTRODUCTION 1.1 Tea is Sri Lanka's most important export crop. It is the main source of foreign exchange earnings amounting in 1985 to about Rsl2,003 million (US$442 million), or about a third of total export earnings. The tea sub-sector employs around 600,000 workers, or 11% of the national workforce, accounts for 3.5% of gross domestic product (GDP) and contributes a significant amount in taxes and duties to the national budget. 1.2 The total area under tea in 1985 is estimated at 232,000 ha. About three-quarters, or 173,000 ha, is grown on estates and the balance by smallholders. The best quality tea areas are at elevations of over 1,220 m (4,000 ft) or "high grown tea", almost exclusively managed as estates and account for about 74,000 ha, or around a third of the total tea area. Mid country a-d low grown tea account for around 39% and 28% of area respectively. . 1.3 Total production of tea increased to 228 million kg in 1965, since when it has progressively declined, due to a number of factors including drought, reduction in area and replanting leading to an increase in the proportion of immature tea area resulting from replanting. After falling to 179 million kg in 1983 production in 1985 increased to 214 million kg. 1.4 The period from the late 1960s up to around 1980 was a time of general decline in the industry, initially as a resuit of lack of reinvestment by foreign companies preoccupied with fears of nationalisation, and discouraged by heavy export taxes and lack of investment incentives. Latterly this was compounded by the eventual land reforms and nationalization in 1972 and 1975, which led to severe dislocation of estate operational and a decline in management standards. During this period the only international assistance was from the Asian Development Sank (As0B) for factory improvement, vehicle purchase and electricity installation. For these purposes AsOB provided two loans totalling US$5.5 million, which completed disbursement in March 1975. - 16 - 1.5 Against this background of a general decline of the tea sector, the W8 appraised the Tree Crop Rehabilitation (Tea) Project in October/November 1977. This was the first of a series of projets aimed at rehabilitating the tea sectoF. Restricted to the Hatton Region (80 kms north-east of Colombo) the project included components to rehabilitate tea estates with a total area of 18,000 ha, through a programme of replanting and infilling; rehabilitation of 42 tea factories; and improvement of labour housing as well as supporting components covering medical services, staff training and updating of tea statistics. The estates were operated by two state corporations, the Sri Lanka State Plantations Corporation (SLSPC) and the Janatha Estates Development Board (JEDB), who were to be the main implementing agencies. The five year project had an estimated cost of Rs493 million (US$31 million). The project, which was originally expected to close in December 1984 was extended to 31 December 1985. 1.6 Information sources for the PCR include: the Tree Crop Rehabilitation (Tea) Project staff app:isal report (No. 1892a - CE) of 12 May, 1978; the Project and Development Credit agreements of 12 July, 1978; the supervision reports; the project preparation report (completed in October 1977) ani project performance reports prepared by SLSPC and JEDB and the project files of the WB in Washington. In addition a draft PCR prepared by the Project Coordinator has been incorporated into this report. The PCR mission also had the benefit of discussions with staff of SLSPC and JEDB, both in Colombo and the project area. II, PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Proje7t Origin 2.1 In the mid 1970s studies were started to examine possibilities for diversification for un-economic tea land. At the same time concern was expressed that the industry was badly in need of rehabilitation and new investment. Initially Government had included rehabilitAtion proposals in the Tree Crop Diversification Project. However, the 1976 appraisal mission of that project had reservations on the selection of the estates to be rehabilitated which eere all on marginal tea land, and'suggested that rehabilitation should be the subject of a separate project. In late 1976 Government and World Bank agreed on the need for a Master Plan for tea industry development and for a tea rehabilitation project. In view of the extreme urgency for new investment it was further agreed that a project should confine itself to the high tea areas which had both the greatest potential for improved performance and where there were virtually no competing feasible land use options. In this way it was hoped to avoid any problem of the project pre-empting the Master Plan findings and recommendations. - 17 - Identification/Preparation 2.2 Project identification started in October 1976 and preparation got under way in May 1977. Preparation was the responsibility of the Ministry of Plantation Industries (MPI) which established a team consisting of staff from the Sri Lanka State Plantations Corporation (SLSPC), the Janatha Estates Development Board (JEDB), the Tea Board, the Colombo Commercial Company <1> and the Tea Research Institute together with the help of an economist provided by the Canadian Iternational Development Agency (CIDA). A Project Steering Committee including representatives from the Ministries of Planning; Plantation Industries; Agriculture and Land and from the Land Reform Commission, the Tea Board, SLSPC and JED was set up to guide the team. Assistance in preparation was also provided by a WB preoaration mission which visited Sri LanKa in Jly 1977. The MPI preparation team finalised their report in October 1977. 2.3 As set out in the preparation report, the project was to rehabilitate tea gardens covering around 18,000 ha and their associated factories in the districts of Maskeliya and Upper and Lower 0ickoya, consisting of 30 estates run by SLSPC, 29 estates run by JEDB as well as 534 ha owned by 183 smallholders. The project area was selected as being an area pre-eminent for tea quality; havin§ virtually no alternative economic land use; and covering the catchments of the Castlereigh and Maskeliya reservoirs which were threatened with increased siltation as a result of the decline in soil conservation In the area. 2.4 The project's objectives were to increase production of made tea, improve quality, reduce production costs, improve the living conditions of estate labourers, and safeguard against silting of the two reservoirs. Project components were: - replanting of 558 ha and infilling of seedling areas where required; terracing and drainage; and planting of 475 ha of the land with trees in sensitive areas of the catchment; - rehablitating 55 of the existing 57 tea factories; - provision of transport means for use both within estates and outside and of associated servicing facilities;. - upgrading of 50% of labour housing through converting labour lines to twin bungalows and construct4ng new twin bungalows to replace the lost lines, as well as rehabilitation of water systems and installation of electricity; - initiating a management training programme for estate personnel; - completing a detailed physical development plan for the project area; - rehabilitation and upgrading of estate health dispensaries; - improving office equipment and communications on estates. <1>, Representing domestic tea machinery manufacturers. - 18 - 2.5 Total costs of the five year project were estimated at USS53 million. Prolect Appraisal 2.6 The project was appraised by W8 in October/November 1977, as set out in the Appraisal Report No. 1892a-CE, dated 2 May, 1978. In general only relatively minor modifications were made to the project as prepared. The most significant of these were with regard to factories and housing components. 2.7 The number of tea factories to be rehabilitated was reduced from 55 to 42, of which 39 were icerated by the estates (JEDB 17 SPC 22) a-nd 3 by private operators. This change was made to allow for rationalisation of factories, including closing some and increasing throughput of the remainder. GOSL appointed a team to study factory rationalisation after the appraisal mission visit, - which resulted in a report produced in January 1979. 2.8 The housing component of the project was expanded at appraisal, the number of new labour houses to be constructed increasing fromd 2,500 units at preparation to 6,600 units at appraisal. Number of houses to be rehabilitated increased slightly from 6,500 units to 6,700 units. 2.9 The project's objectives and components as described in the appraisal report (para. 3.01 and 3.02) are quoted below as follows:- "Principal project objectives would be to increase the quantity, quality and efficiency of t2a production in a selected high potential area with no economic alternatives. The project would improve living conditions for about 150,000 members of estate labour families. It would be a first step in implementing a comprehensive rehabilitation and rationalization programme for the tea industry which would be carried out in parallel with a diversification programme and which would help to integrate the hitherto isolated population of the tea estates into the main stream of national life; an important Government goal. Through a pilot component the project would also examine means to include smallholders in the tea industry development progralm. The project would comprise the rehabilitation of tea estates and tea factories in an 18,000 ha block of some of Sri Lanka's best tea in the Maskeliya, and Upper and Lower Dickoya planting districts. Thirty SPC estates and 29 JEDB estates would be involved as well as a limited number of smallholders. Main components of the proposed five year project are:- (a) field works; expanded programmes of replanting and infilling; renovation of soil conservation works; and establishment of fuelwood plantations. Quantities are (ha): JEDB SPC Private Total Replanting 545 - 15 560 Infilling 3,000 3,500 40 6,540 Soil Conservation 7,500 8,500 - 16,000 Fuelwood 340 250 - 590 - 19 - (b) expanding and reshabilitating 42 factories (JEOB 17; SPC 22; Private 3). (c) providing vehicles for personnel, green leaf and made tea transport. (d) constructing new houses, rehabilitating houses and improving water supplies for estate labour. Numbers are:- JEOB SPC Private Total New 2,900 3.300 400 6,600 Rehabilitation 2,950 3,350 400 6,700 (e) improving project area health services; (f) developirg a training institute for tea nusry personnel; and (g) updating tea area statisticsm. 2.10 In addition to the aims listed in this section on project objectives and brief description quoted above, the appraisal report recognised the benefit of reduced soil erosion and protection of the catchments of the two reservoirs. Estimated project cost was Rs493 million (US$31 million). The main responsibility for implementation rested with the Ministry of Plantation Industries and under the Ministry with tne two state corporations of SLSPC and JEDB. III. PROJECT IMPLEMENTATION Start-up 3.1 The credit was approved by the IDA Board on 1 June. 1978, and signed on 12 July, 1978. The ,credit was expected to become effective on 12 October, 1978, but because of a delay in signing the subsidiary loan agreement between the Borrower and the Bank of Ceylon, it became effertive only on 28 December, 1978. The credit negotiations included discussions of financial control appropriate for SLSPC and JEDB; transfer of estates to the two public corporations; and labour housing specifications and costs. 3.2 Regarding financial controls it was agreed that the two Corporations should be exempted from the provisions of Sections 8 (2) and 10 (3) and (4) of the Finance Act, No. 38 of 1971. This would mean that they would be able to operate their own reserve accounts and would not have to obtain ministerial approval for all investments of over RsSO0,000. It was agreed that mini, eri ' approval of the annual budget would be sufficient. 3.3 On estate ownership it was agreed that the control of estates affected should be transferred from the Land Reform Commission to the two Corporations. 3.4 With regard to labour housing it was agreed that further consideration should be given to housing specifications to endeavoir to reduce per unit housing costs and that these would be reviewed by IDA in July 1978. However, the revised plans put forward suggested still higher construction costs and the consequent need for still further consideration. - 20 - 3.5 During the initial supervision mission in October 1978 it was clear that due to the time taken in procurement of factory equipment and execution of civil works implementation was likely to be six months behind schedule. The probems in procurement and implementation are discussed below. The initial supervision mission also raised with GOSL the whole question of tea prices, taxes, subsidies and margins, topics which were to be the subject of recurring discussions between GOSL and WB. Government had committed Itself in the Development Credit Agreement (0CA) (Section 3.07) to ensure that duties, taxes, cesses and subsidies in respect of tea were maintained at such a level as to enable the tea industry to realise the same measure of financial profitability as was established by the Borrower when setting such duties, taxes and subsidies in its budget of November 1977. Project Changes After Appraisal 3.6 In 1983 it was mutually agreed between GOSL and the WB to make some relatively minor changes to the project, the effect of which was to increase estimated costs to around RsS90 million, or about 20% higher than the Rs493 million projected at appraisal. The increase in cost was due more to higher labour and material costs than to an expansion of project activities. The main changes in the size of the components were as follows:- - Fieldworks: Increase in tree planting sub-component; - Factory Rehabilitation: Including finance for factory civil works; - Vehicles: Increasing the number of trucks and trailers; - Support Component: Increasing finance for workshops, offices, office equipment and soil testing laboratories; - Labour housing: Reducing the targets for new housing and giving greater emphasis to conversion of existing houses and provision of water supplies; - Medical: Increasing finance for upgrading of dispensaries and upgrading existing creches and constructing new ones; - Mini-hydro: Including finance for rehabilitation of existing small hydro-electric schemes on estates mainly through provision of new machinery. 3.7 The above changes were partly financed by reallocation of project funds, in particular for smallholder private sector development, support to the Tea Smallholdings Development Authority and to GOSL for hospital rehabilitation. Allocations had been included at appraisal for pilot activities for smallholder fieldworks, facto-y rehabilitation, vehicles and labour housing. In- the medical component allocations to GOSL were for medical building improvement, equipment, vehicles, salaries and studies. - 21 - Implementation Schedule 3.8 The Implementation schedule proposed for fieldworks presented little difficulty and both corporations were able to keep up with, or even surpass, the targets set. The scheduling of factory rehabilitation presented major difficulties as discussed in paras. 3.11 - 3.14 below and final achievement was very different from the timetable envisaged at appraisal. Little difficulty was experienced in the schedule for vehicle acquisition. Labour housing as discussed in paras. 3.19 - 3.21 below proved much more difficult to implement in a timely manner and the emhasis of the component was changed during project implementation. Implementation of Project Components 3.9 Field Works. INolementation of the fieldwork program was a a notable proetsuccess. as set out in the following table:- SAR Targets and Actual Achievement JEDS ..... .... SLSPC ..... Project Total Uni TaMet Achieved Target Achieved Target Achieved Replanting Y ha S45 723 - - SS 723 Inf lling ?f ha 272 272 509 523 781 795 Soil conservation '000 ft2 N.A. N.A. 18,186 18,145 N.A. N.A. Fuelvood Planting ha 392* 1.490 646* 1,312 1,038* 2,802 * Revised targets. 1 Replanted area is the same as area uprooted. 2/ Infilled area is effective planting extent at 12,500 pt/ha. 3.10 Replanting was confined to JEOB estates, SLSPC already having an existing programme financed outside the project. The aupraisal target for JEB replanting was 545 ha but 723 ha was achieved. Similarly infilling achieved totalled 10.5 million plants, compared to a target of 9.8 million at appraisal. The diversification programme involving planting fuelwood on old unsuitable tea land and for watercourse protection achieved much more than was originally anticipated. At appraisal an area of 590 ha was proposed. This was subsequently revisei to 988 ha in 1983 and actual achievement at the end of December 1985 was 2,800 ha. 3.11 Soil conservation works consisted of rehabilitation of existing drains and terraces and, where necessary, their improvement by addition of new structures. Targets for soil conservation works were reduced in the 1983 project revision and information is only available for SLSPC. By project completion SLSPC had achieved the revised target. - 22 - 3.12 Factory Rehabilitation. The project financed rehabilitation of 53 tea factories owned by the two corporations. Virtually no rehabilitation occurred in the small, private factories component. The Bank of Ceylon (BOC) made one loan of Rs200,000. 3.13 All the equipment financed was domestically manufactured. The manufacturing companies at the start of the project period were also in a rather run down condition, reflecting the state of the plantation industry in general, with their main business being maintenance of existing equipment and some manufacturing of new equipment for exuort. Manufacture and installation of equipment on the scale and according to the schedule proposed at appraisal proved to be too much for them. The problem was made more acute by the metnod of payment and drawing up of the tender specifications. Payment was to be 75% of cost upon delivery and the balance uoon Commissioning. Specifications covered'the machinery but did not cover items such as electrical wiring and switchgear which were the subject of other tenders, but which were necessary for machines to be commissioned and operational. In the majority of cases there was a considerable time lag between installation and the machinery being useable. Domestic manufacturers were in a weak-financial position initially. They also claim that they cut their quotations in order to win the tenders. Having purchased raw materials and components for manufacture, they then experienced delays in payment and consequent liquidity problems. A further source of delay were problems experienced by the manufacturers themselves in procuring imported components. 3.14 In addition to the liquidity problem, the scale of operations and orgamisation of the manufacturers was too small to enable them to cope with the size of the project and the lumpiness of the tenders. Stocks of materials and staff both in Colombo and in depots in estate areas were geared to regular maintenance and repair of existing machinery and: the occasional manuficture of new units.. As a result of the project this changed to manufacture and installation of 20 units or more of machines, which was a bigger task than they could rapidly accomplish. Consequently equipment provision was late and also established maintenance work schedules were badly disrupted. 3.15 A further problem was that from the point of view of the estate superintendents machinery was to be installed during *the dry off-season (January/February) when tea production is lowest. In general it was not possible to observe this seasonality aspect with consequent difficulties for both the factory managers in terms of disruption as well as prdblems for the installing engineers trying to fit machinery into a factory in full operation. 3.16 Due to the problems of machinery manufacture and installation only 3 out of the 53 factories had completed their rehabilitation before 1985.* In some of the worst cases machinery delivered in 1980 only started operating in 1985. However, despite the slower Implementation than originally scheduled, by the termination of the project at the end of December 1985 virtually the entire rehabilitation programme had been successfully completed. 3.17 Vehicles. Vehicle procurement occurred more or less as proposed at appraisal. The only significant changes were as follows: - 23 - Saloon cars: W8 allowed 21 replacements to be included and total numbers at completion were 80 compared to 57 at appraisal. Pick-Ups/4-Wheel Numbers increased to 72 compared with 52 at appraisal drive: Trucks: Numbers increased from 11 to 29 Trailers: Numbers increased from 363 to 408 Herbicide bowsers: Numbers declined from 90 to 51. Other vehicles: As a result of thR 1983 rRvisions. 8 afnh-lances and 2 minibuses were also purchased 3.18 Two problems arose regarding supervision vehicles and provision of tractors. In both cases the tender was awarded for supply of vehicles which although the cheapest bid proved to be unsuited to the conditions and lacked the necessary spares andservice facilities. In each case the situation was redressed by importing replacement cars in 1985 and by changing the type of tractor imported to one already proven in operation on the estates and for which spares and servicing support were already available. 3.19 Import and purchase of transport vehicles by private haulage contractors with finance provided through a line of credit through the Bank of Ceylon (BOC) were lower than appraisal estimates due to the contractors' unwillingness to take credit or in some cases to their inability to provide satisfactory guarantees to BOC in order to obtain the loan. At project completion 12 trucks had been purchased, compared with an estimated 25 trucks at appraisal. 3.20 Support Component. Implementation of the component was satisfactory and included Improvemehts to workshops, offices, provision of office equipment and establishing two soil testing laboratories. 3.21 Labour Housing. The emphasis of the component changed during implementationfrom construction of new houses to improvement of existing ones. Achievement of the labour housing component, compared with the appraisal and 1983 revised estimates was as follows:- -24- A praisal Revised Numbers arget Tret Achie7ed 1196)(end W98) (units).............. New housing 1/ 6,600 5,022 4,916 House Rehabilitation/Extension 6,700 6,264 5,664 g/ 1/ New housing normally constructed in pairs. Numbers refer to per family units. 2f Number of house conversions by JE08 assumed to be equivalent to "re-roofing only" category numbering 2,304 units. In addition 1,748 units were provided with kitchens and 1,921 units with latrines. 3.22 The main problems affecting the labour housing component were the high unit cost which delayed the start of the programe; difficulties in securing reliable contractors and building materials; and the logistical and social aspects of moving labour from their original home to a new one, including the provision of temporary accommodation where quarters were rehabilitated. 3.23 At the same time as the project started, Sri Lanka experienced a construction boom, both in large public dorks projects and an increase in private house construction. AP x result gvod contractors and building materials were in short supply, particularly in relatively remoter places such as the project area. This gave rise to difficulties in implementing the fairly ambitious programme of new construction and the project therefore concentrated to a greater extent on Improvement and expansion of existing accommodation, including provision of piped water. The problems were exacerbated by a sharp increase in costs during the period 1979 to 1981 with a consequent increase in unfulfilled and abandoned contracts. Finally, it was only after several revisions in unit costs and by "relying on estate managers to employ the small local estate contractors that progress in implementation of the component was achieved. 3.24 Medical Services. The medical component was modified durinq during project Implementation. Whereas at appraisal the emphasis had been on hospital rehabilitation and equipping it was decided that greater priority should be given to upgrading dispensaries and creches. Accordingly in the 1983 project revision it was proposed to rehabilitate 62 dispensaries and build or renovate 83 creches. Achievement was 36 and 87 respectively. In addition SLSPC improved 8 maternity wards, out of 9 proposed during the project revision. - 3.25 Training. Training proposals financed by the project included financing construction of a hostel at the Tea Research Institute, provision for overseas visits by senior staff of SLSPC, JEO8 and TRI and provision of 30 man-months of technical assistance for the newly created National Institute of Plantation Management (NIPM). In the event, the project financed renovation of a building acquired by TRI for training purposes and a total of 55 visits by government staff to tea growing areas in Kenya, Indonesia, India and China. The latter proved to be very useful and were a successful aspect of the project. However, the techn4cal assistance for NIPM was not used, since it wa. premature ior expatriate cons6ltants t. be employed effectively before the Institute's staff had been appointed. An overseas tour by the Director to visit tne Agriculture Training Certre in Swaziland was also financed by the project. 3.26 Tea Area Statistics. In July 1986 this component was still uncompleted. Initally the project had financed acquisition of Lancsat imagery which was slow to be delivered and which did not prove to have sufficient resolution to identify the areas with any accuracy. The project subsequently financed additional aerial photography coverage on the basis of which the Surveyor General's Department were to produce maps. As yet due tc shortages of staff and budget, coupled with an overload of work, the mans have not yet been made availab;e. G S, i, requesting adoitional finance far preparation and printing of the maps to be made available from the Fourth Tree Crop Project. 3.27 Smallholder Tea Garden and Private Factory Rehabilitation. The project appraisal report included proposals for pilot scale activities to assist about 180 smallhclders to carry out a replanting and 4n0illi-q programme and to rehabilitate three private factories. Finance was to be provided by a line of credit through BOC with smallholder assistance provided by the Tea Smallholdings Development Authority (TSDA). However in the event the smallholders were unable to provide acceptable collaterals to SOC and TSDA proved insufficiently strong to provide the required support. As a consequence, neither the fie'd improvements nor tne factory rehabilitations were implemented, beyond one loan of Rs200,000 to one private factory operator. 3.28 Mini hydro. As part of the project revisions made in 1980, WB agreed to finance rehabilitation of mini hydroelectric schemes in the project area. Based on consultants feasibility studies 9 schemes were approved (5 for JEDB and 4 for SLSPC) and the equipment installed in 1985. As at July 1986 none of the schemes had become fully operational due to lack of installation of adequate cabling and switchgear or problems with exis:ing water ducting. It is still too early to judge the success of the investments but preliminary results seem to indicate that the feasibility studies may have been over-optimistic on the supplies of water available and hence the period of operation and electricity generation that will be achievable. Project Cost 3.29 Table 2 provides a comparision between actual costs incurred and estimates made at appraisal for the different project components. On completion, this project is estimated to have cost Rs567.985 million (US$26.4), which in Rupee terms is 115% of the SAR estimate of Rs492.9 million. In US dollar terms the project cost represents 86% of the SAR estimate of US$30.8 million. The latter reflects the significant depreciation of the Rupee vis-a-vis the US dollar which has occurred between 1979 (Rs15.57 per USi) and 1985 (Rs27.16 per US$). 3.30 There has been a 21% overrun in the actual costs incurred on the field works component (which.represents 24% of total project cost), as compared to the SAR estimate. This is the result of a combination of two factors - over-achievement of physical targets (33% higher replanting by JEDB, and significant increase in areas diversified as compared to targets set at appraisal); and a marked increase in labour costs with minimlim wage rates having gone up. On the other hand, while actual housing costs are in line with appraisal estimates, the physical achievement of housing targets - 26 - has been consider&bly lower. In addition, project costs also include expenditures on factory ancilliary works (principally civil works) and mini hydropower plants totalling Rs53.6 million (US$2.0 million), neither of which were-provided for at the time of appraisal. Finally, there has been a significant cost overun in the support component, on account of higher expenditures for provision of medical services, workshops, and office and laboratory facilities. Project Financing and Credit Allocation 3.31 The IDA credit of US$21.0 million was expected to finance 68% of total project cost. Actual disbursements against the credit were US$16.17 million, which covered approximately 61% of actual project cost. Tne undisbursed balance of US$4.83 million (23% of the credit) was cancelled. Other than in the first yea-, loan dis ursements were fir behinc t-e appraisal schedule (see bas'c data sheet), principally on account of delayed implementation of the civil works and factory rehabilitation components. 3.32 Table 3 compares actual disbursements for different expenditure categories with the proposed allocation at appraisal. Around 65% of the amount cancelled relates to the factory equipment (37%) and the field development (28%) components. Particularly with regard to the former, this has been on account of delayed implementation. The credit allocation for vehicles and equipment other than factory equipment, and for technical assistance and training, has been more than fully utilised. IV. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT Implementing Agencies 4.1 At the time of appraisal the two principal implementing agencies - the Janatha Estates Development Board and the Sri Lanka State Plantations Corporation - were under the Ministry of Plantation Industries. However, soon after appraisal, the two corporations were elevated to the status of separate ministries, directly under the President, and became independently responsible for implementing their respective parts of the project components. As proposed at appraisal, a Project Coordination Committee (PCC) was established, and a Project Coordinator appointed. The PCC's main tasks were to approve the annual development plans and budgets for the project area of the two corporations and to meet regularly to review progress, and to examine tenders and award all contracts for the supply of goods and services under the project. The establishment of the PCC ensured the proper adoption of guidelines in procurement procedures, conformity in disbyrsements, and satisfactory reporting of progress as required by the Bank. The Project Coordinator was able to effectively act as a single point of contact between IDA and the two Corporations. Both agencies have found that the creation of a position of Project Coordinator has contributed towards minimising problems of implementation. - 27 - 4.2 The project came at a time when the tea sector in Sri Lanka w!s suffering from the after-effects of the uncertainties caused by the land reform programme. Declining profitability was the result of, among others, inadequate replanting and infilling, input application, soil conservation, neglect In-factory maintenance, and generally low management morale. In this regard, the project had a significantly favourable impact on the operations of the two public sector institutions in the project area. The project provided a new impetus to oprrations of both the corporations. Performance of plantation managers was good and benefitted from the closer supervision of achievement of physical and financial targets. The system of selection of managers for study tours according to their performance increased their degree of motivation. 4.3 JEDB and SLSPC jointly own and manage about 58% of all reqistered tea lands in the country, produced 62% of total- tea production in 1984 from their own leaf, and manufact4red a further 11% from leaf ocught from private holdings. In 1980, the Corporations became regionalised, each with six Regional Boards headed by a Chairman and 3 to 4 Directors. The project area comprises virtually all of the Hatton region of SLSPC (31 estates), and part of the JED8 (23 estates) Hatton region. 4.4 For the efficient impl3mentation of the project, both Corporations appointed Project Managers to be responsible for all activities carried out under the project. The Project Managers liaised closely with estate superintenaents in drawing up plan and monitoring progress, as well as with the Project Coordinator who had his office in'Colombo. This delegation of responsibilities resulted in the building up of necessary expertise at Regional and estate level. The last World Bank Supervision Mission (Marcr 1985) found that both the morale of staff and te standards of work on estates was generally high and that the project had had a marked and visible effect on the plantations. The study tours organised under the project also played an important role in upgrading estate and regional management capabilities, as they provided an opportunity to observe the management of tea plantations in other countries. 4.5 While considerable progress has been made under the project in developing the institutions at the regional level, there are areas which still need attention. While a detailed field and factory rationalisation study was carried out under the project, and some of its proposals implemented, there is general agreement in the institutions that there is room for further field and factory rationalisation, in order to create viable operating units. The delays in implementing the factory rehabilitation components, though partly on account of the suppliers inability to meet the schedules, showed that there has been a lack of coordination in the ordering of machinery and the carrying out of complementary civil works for its installation. Finally, the accounting procedures adopted by the Corporations to suit governmental regulations need to be reviewed, and suitable changes introduced for commercial operations. There is also a general need to upgrade the accounting capabilities at estate level. Accounting and Reporting 4.6 Both JEOB and SPC have maintained separate accounts of project expenditures in a satisfactory manner, as required under the Credit Agreement. While these were submitted on time, significant delays were experienced in having project accounts audited. This lapse has been put down to the inadequate staff available in the Office of the Auditor General. - 28 - 4.7 In line with the requirements of the Credit Agreement, six-monthly progress reports were submitted by both JEO8 and SPC. During the period 1919-85, a total of fourteen reports were prepared. The reports provided a good summiry of project activities undertaken during the period under review. Compliance with Covenants 4.8 All covenants, with the exception of providing annually audited project accounts, have been complied with satisfactorily. V. PROJECT IMPACT A. Intended Impact 5.1 The major production impact intended by the project was to increase tea production from 20 million kg to 27 million kg in 1998, with average yields increasing from 1,210 kg/ha to 1,700 kg/he. This was to be achieved through a field development programme of replanting (545 ha in JEW8 only) infilling (3,000 and 3,500 ha respectively in JEB and SLSPC). renovation of soil conservation work (7,500 and 8,500 ha respectively in JEDS and SLSPC). The project also supported the diversification of uneconomic tea land into fuelwood (340 and 250 ha respectively in JEDB and SLSPC). 5.2 Without the factory rehabilitation programme, tea quality and the percentage of main grades were expected to decline steadily, due to continuing deterioration in factory machinery and equipment. The project was expected to upgrade this and add greater flexibility to the process of manufacture. It was expected that after a 10-year period, "with project" prices would average 5% more than tose on a without project basis. At the same time it was expected that the production cost woul4 be 16% lower after a 10 year period with project, as compared to the without project situation. After 20 years this margin was expected to increase to 22%. 5.3 At appraisal, financial rates of return to the investment undertaken were estimated for SPC at 14.5%, and for JEDB at 12.5%. The economic rate of return for the project as a whole was estimated at 25%. 8. Revised Estimate of Project Impact 5.4 Because of delayed implementation, particularly of the factory rehabilitation component, it is still not possible to quantify with certainty the likely benefits in terms of reduced factory operating costs and improved qualit*,, which the project was expected to generate. As shown in Table 5, only 3 SPC factories of the total 53 factories rehabilitated under the project, had completed their investment progone prior to 1985. In view of this, the financial and economic analyses are still dependent on the projection of future benefits. In making the "with" and "without" project - 29 - assumptions for this purpose the bases used are similar to those used in evaluating the latest World Bank financed "Fourth Tree Crops Project" (SAR dated 15 February, 1985). 5.5 Net incremental benefits generated as a result of the project would come from the following sources:- I) Direct increase in tea production in areas where replanting and infilling has been carried out; ii) incremental production arising as a result of arresting "with project", the likely per hectare yield decline which would take place without the project, due to both better management of total tea area which would occur alongside the replanting and infilling programme, and the soil conservation works carried out under the project; iii) quality improvement in tte tea produced in the rehabilitated factories, as compared to a projected decline without the project; iv) reductions in total cost of production on a kilogramme basis "with project"; "without project", these would be expected to increase as a result of higher factory maintenance costs and increasing field cost; and v) incremental production of fuelwood arising out of the diversification programme promoted under the project. This would, of course, be accompanied "with project" by a loss in tea production from tne areas diversified. Field Development 5.6 The field prograrme of replanting, infilling, soil conservation and fuelwood planting have all been completed as envisaged at appraisal. In some instances appraisal targets have been exceeded as shown in para.3.9. 5.7 Crop projections for the analysis carried out.are based on actual yields obtained up to 1985, and thereafter on reolanted and infilled areas coming into bearing each year according to the yield profile for replanting and infilling given in Table 7. The build up of tea area in bearing as a result of replanting done under the project is as given in Table 6. 5.8 In the "with project' situation the mature tea areas would continue to yield at 1985 levels due to better management levels and extensive soil conservation carried out during the project period. In the without project situation, however, seedling tea yields are expected to decline by 1% each year commencing from 1960, and VP/yieldabyO.5% each year from 1987. This would be as a result of increased vacancies created through bush deaths which is higher in seedling than in VP tea. Where vacant patches exist bush deaths are known to spread around the perimeter of such patches due to the effect of radiation of the sun's heat. 5.9 The above assumption is different frov that used in the SAR; the latter assumed that yields without the project would increase marginally. The assumption in the SAR that production would increase 'without project" was based on the premise that some replanting/infilling would take place without the project. The extent of such replanting/infilling is not clearly identified in SAR. For the purposes of the analysis carried out in this 1/ Vegetatively propagated (clonal) tea - 30 - report, it has been assumed that there would be no replanting (by JEOB) <1> and infilling (by both SPC and JED6) without the project. In such a case it is reasonable to assume that there would be a deterioration in the estates' tea stands_and tea production. Furthermore, the assumption made here is conservative when compared with the assumption made for analysing the Fourth Tree Crops Project financed by the Bank (where declines of 29 and 1% respectively are assumed without project). 5.10 For infilling, the effective extent planted was arrived at using the theoretical stand of 12,500 VP plants per ha <2' . Only 80% of the yield attainable through replanting is attributed to infilling due to the effects of root competition and shading. 5.11 Based on the above assumptions, dwith project" production would increase from 20 mi'lion kg in 1979 to 24 million kg in 1998, (the 1998 appraisal target was 27 million kg). Average yields would increase from 1,189 kg/ha in 1985 to 1,483 kg/ha in 1998, (SAR target for 1998 was 1,770 kg/ha). It is not clear from the appraisal report as to how the average yield has been estimated. For the purpose of this analysis, yields on existing areas have -been kept at 1985 levels, "with project", and the higher yields shown in Table 7 brought In for the areas replanted and infilled under the project. The net decline in the "with project" production by kg 2.6 million as compared with appraisal targets could be primarily attributed to droughts in 1980, 1982 and 1983, as evident from the table below. Details of total incremental tea production are shown in Taole 8. Total and Incremental Production in SA and PCR frm 1980-1984 National Total SA Production PCR Incremental Production PCR-SAR Yer Production (PJ (Aal) S ected) PCR (Actual) Incremental ... ...g............(kg sillion) ........... ................. 1979 206 19.7 19.5 1910 191 20.4 18.8 0.? (0.9) (1.6) 1981 210 20.3 19.7 (0.1) .1.1 1.2 1962 18 20.5 17.9 0.2 (1.6) (2.0) 19M3 179 21.4 17.1 0.9 (0.8) (1.7) 194 20 21.9 19.0 0.5 1.9 1.4 1=5 214 22.4 19.6 0.5 SA (0 ) (0.1) (2.6) <1> The extents replanted by SLSPC during the project have been included both in the Owith* and Owithout project* situations (as replanting is not a project funded item for SLSPC). In JEDS, however, replanting is taken only in the mwith project' situation and crop foregone by uprooting is assumed to be 800 kg/ha). <2> Assuming infilling was done in tea stands with a 20% vacancy this project would upgrade the stands on or around 4,000 ha. - 31 - 5.12 The actual crop harvested in 1985 is no different to that in 1979 (19.6 million kg and 19.5 million kg respectively) while the projections at appraisal indicated an increase of 2.6 million kg. Thus the actual crop build-up through field development has not had any impact up to 1985. The increased total production in 1984 is on account of the fact that the first areas uprooted for replanting under the project were planted in 1981, which would be in full bearing in 1984-85. In addition.a large part of the infills would be a full bearing in 1984. With a better distribution of rainfall during that year, rapid recovery in production occurred, with an appreciable amount of crop coming from the new tea area. From 1986 onwards projected incremental production at appraisal compares favourably with current projections. The impact of drought was heavy as project actions for scil conservation and other cultivation measures had only just started. The effect of drought in the future should be reduced by the consarvation works financed Dy tne project. 5.13 Fuelwood production was estimated at 0.27 m3 per tree <1> in 10 years and was costed at Rs150 (net) per m3. The total production of fuelwood would amount to 1,096,000 m3. No coppicing is envisaged as tree are now felled after ring-barking to eliminate possibilities of the fuelwood tainting the tea. Factory Rehabilitation 5.14 A total of 53 factories were rehabilitated (22 JEOB and 31 SLSPC) of ahich two SLSPC factories would only be used during peak production. Due to the delays in the commissioning of factory machinery, 95% of the factories completed their rehabilitation only in 1985 (See Table 5). Thus, the impact in terms of improvement in quality and main grade percentages with rehabilitation cannot yet be assessed accurately. Therefore, adjustment in prices for factory rehabilitation is made on the basis of 0.5% increase in Net Sale Average (NSA) in 1986 and 1.5% in 1987 and thereafter. A similar discount is allowed in the without project situation. This would result in a 3% increase in NSA <2> as against the appraisal targe'. of 5% after ten years with project. Production Costs 5.15 The 'with project" production costs were projected from 1986 (up to 1985 being actual costs) with fixed costs (general charges) beingkept constant at 1985 levels. Variable costs were calculated relative to production, based on 1985 cost levels. In the "without project" situation, fixed costs were assumed to be the same as "with project". The variable cost, calculated in proportion to 1985 cost levels, was increased by 0.5% each year commencing from 1986 to accommodate higher un4i costs for field operations and manufacturing. <1> SAR of the Fourth Tree Crops Project assumes a yield of 0.27 m3 per tree. <2> A quality premium of 3% NSA was allowed in the SAR of the Fourth Tree Crops Project on the basis of actually achieved figures of a sample of factories rehabilitated earlier. - 32 - 5.16 Given the increase in yield "with project", the cost of production (COP) per -kg would fall from a 1985 figure of Rs35.90 to Rs34.80 in 1998. Due to declining yield in the "without project" situation, the COP would increase from Rs36.60 in 1985 to Rs38.70 in 1998 (See Table 9). The net effect is that aith project production costs would be about 10% lower at the end of ten years from completion of the project. 5.17 The greatest impact on production costs up to 1984 has been the increase in daily labour wage rates as shown below:- End of Year Daily Labour Wage Rate (Tea) from 1979-1984 1979-80 1981 1982 1983 1984 Daily wage rate (Rs) 14.00 14.04 16.42 17.89 23.78 % increase over preceeding year - 0.3 17.0 9.0 32.9 % increase over 1979 - 0.3 17.3 27.8 69.8 5.18 The increase which took place in April 1984, where for the first time male and female wage rates in the Plantation Sector were unified, gave female workers an increase of 56% in wages. In addition, a minimum provision af 6 working days per week was also stipulated in April 1984, as against 18c working days per year earlier. These and other factors have resulted in COP increasing by over 100% from 1980 to 1985 as against a 31% increase envisaled at appraisal (Rs9.60 in 1980 to Rsl2.60 in 1985). C. Financial and Economic Re-evaluation 5.19 The analysis has been carried out in constant 1985 prices, with past expenditures restated in 1985 price terms by using*the wholesale price index. Phased investment costs and total estates' operating costs (for the period 1979-85) in current terms for both SPC and JEDS are shown in Table 4. The mini-hydropower plants have been excluded from the analysis, as these are still experiencing problems in operations, and data are not available on how they would perform in future. At any rate, this component represents only around 3% of total project cost. 5.20 Financial and economic prices used for the analysis (Table 10) are based on actual prices obtained in the Colombo auction for the period prior to 1986, and on IBRO price projections for the period from 1986 onwards. In restating historical prices into 1985 constant terms, the IBRO published manufacturing unit value index was used. The derivation of these prices is shown in Tables 11 and 12 respectively. As mentioned earlier, the quality impact of the project as a result of factory rehabilitation has been assumed to occur from 1986 onwards. This has been reflected in terms of a 1% price premium in 1986 and 3% thereafter "with projectu, as compared to the Owithout project" price. - 33 -- 5.21 Re-estimated Financial Rates of Return. Tables 13 and 14 give the project incremental cash flows in financial terms for JEDB and SPC respectively. In line with the approach adopted at appraisal, only 40% of the housing costs (which represent around 35% of actual project cost) have been included in the analysis. Based on these cash flows, a FRR of 11% for JEDB (SAR estimate 12.5%) and 19% for SPC (SAR estimate was 14.5%) have been estimated. The higher FRR for SPC is on account of the considerably larger total area of SPC estates under the project (9,700 ha, as compared to the JEDB total of 6,200 ha), as well as the quality premium assumed for SPC teas, and reflected in their prices, as compared to JED8 tea. It is recognized that within the project area the SPC estates occupy the better tea producing areas; furthermore, the Colombo auction prices received by SPC have historically been higher than JED8 tea. This latter factor was not taken into consideration while estimating the rates of return at appraisal. Furthermore, SPC has in their field development operations, concewtratel on infilling, with whatever replanting they have done not being treated as a project induced operation. Consequently, they have been more involved with consolidating production from existing estates, and protecting against future declines. Such an investment would inevitably yield a higher FRR as compared to JEDB which has significant replanting costs. 5.22 Re-estimated Economic Rate of Return. Table 15 shows the total project cash flow (in 1985 constant prices) expressed in economic terms. Financial costs have been converted into border prices by using conversion factors estimated during the appraisal of the Fourth Tree Crops Project 1/ as follows:- Investment Costs Field Development 0.59 Field and Nursery Equipment 0.82 Factory Rehabilitation 0.75 Housing 0.73 Vehicles 0.78 Medical/Support Component 0.73 Operating Costs 0.60 Standard Conversion Factor 0.85 j/ SAR No. 5265.CE, dated February 15, 1985 - Annex 4, Table 7. Based on the above stated assumption, and a 25 year period of analysis, (1979-2003) the economic rate of return for the project as a whole is re- estimated at 27%; this compares with the appraisal estimate of 25%. 5.23 While the re-estimated ERR comes fairly close to the SAR estimate, they*are not altogether comparable in view of the different "without projectu assumption of declining production adopted in this report. With this assumption and given the higher incremental impact in production terms as compared to the SAR, one would have expected a considerably higher re- estimated ERR. Two factors explain why this has not occurred. 5.24 Firstly, investment costs expressed in economic terms and used in the analysis are, in total, around 30% higher than those used in the analysis for the SAR. This is largely on account of much higher labour and house conatruction costs. Secondly, the SAR assumes that in total, "without project" -ost of production would be higher in all years except two, than the "with project" total cost of production. Calculations which form the basis for this are not clearly shown in the SAR. For the purposes of the analysis carried out in this report, the following bas6s have been used in estimating future total cost of production:. I) "With Project" - Fixed costs in the future would remain at the 1985 levels, while variable costs would change directly in proportion to tea production, at the same per unit level as at 1985. 11) "Without Project" - Fixed costs would remain at the 1985 levels: however total variable costs would increase at 0.5% p.a. over the 1985 levels to account for increased manufacturing costs given the obsolescence In factory machinery. Total field level operating costs can also be expected to increase marginally, though to a much lesser extent. 5.25 This combination of the above two factors has resulted in a re- estimated ERR which is not significantly higher than the appraisal estimate. It is interesting, however, that it comes fairly close to the ERR estimated for the tea component of the Fourth Tree Crops Project (28-31%). VI. BANK PERFORMANCE Project Design and Appraisal 6.1 The Bank's performance during project formulation, preparation and appraisal was very satisfactory. The priority need for such a project was very correctly identified and WB assistance in preparation and subsequent appraisal of the project was very positive. As a result the project lacked complexity in the number of items to be financed and was consequently easier to implement. However, as experience was to show the phising for both factory rehabilitation and labour housing at appraisal was rather more optimistic than could be in fact achieved, although this could not have been anticipated in advance. Supervision 6.2 Subsequent WD support to the project through ten supervision missions was well timed and had a-DOsitive effect in, monitoring the project's momentum. A good aspect of the supervision missions was the continuity of the individual WB staff involved. This appears to have been an important factor in the establishment of good working relations between project staff and those of MB. The flexibility shown by MB in agreeing to the changed project targets in 1983 also contributed to the projects achievements. - 35 - VII. CONCLUSIONS AND LESSONS LEARNED 7.1 The project has been successful in achieving most of its original objectives and has undoubtedly been a major factor in the improvement of both SLSPC and JEDS as institutions. As well as the immediate project benefits such as better tea gardens and factories the project has also been instrumental in the adoption of improved practices, both through direct financial support for activities such as tree planting, or as a result of the study tours which gave managers the possiblity to benefit from experience in other countries. Further important secondary benefits are from the beneficial effect the project must have had on the domestic tea machinery manufacturers and the way in which the proJect, !)-rad the :-iv for subsequent WB support through the Tea Rehabilitation and Diversification Project and the Medium Term Investment Programme. While the mission's judgment of the project is one of general success, it is still premature to attempt any quantification of project benefits, as discussed in Chapter V. 7.2 One of the important contributory factors to the project's general success was its simplicity in concept and design. The project was almost exclusively for the rehabilitation of tea gardens, factories and labour housing belonging to the two corporations in one contiguous area. The relatively small pilot components to prepare the way for more fundamental support to smallholders were never implemented. A further important reason for the project's success was that the project financed activities were well understood and contemplated by the .orporations who had been constrained by lack of funding. Motivation of staff involved in the project, consequently, was never a problem. The main lesson to be learned is that chances of successful implementation increase if project complexity is reduced and the project concentrates on limited and well defined objectives in line with existing policies of the implementing agencies. 7.3 Despite the general success of he project there were inevitable problems and failures from which a number of lessons can be learned. The factory rehabilitation programme proceeded much more slowly than originally foreseen. Since supply of equipment was under ICB procedures it was not possible to provide any credit assistance to local manufacturers who quickly ran into liquidity problems. The situation could, however, have been improved had there been more thorough planning of the factory rehabilitation programme which might have resulted in a further reduction of numbers of tea factories with consequent cost savings. 7.4 The programme of rehabilitation has been successful but it is now recognised that the project could have been still more cost effective had there been a greater rationalisat4on of factories, as proposed at appraisal. In two cases factories that have received project equipment are closed and only used at peak periods and undoubtedly further factory closures are likely in the future. Such investment in factories which are closed down and only used at peak periods cannot be justified. 7.5 Better planning could also have helped the new machinery to come on-stream earlier. Because machinery and electrical cabling and connection were in separate tenders there was often a long delay in machinery being commissioned. In the worst cases machinery delivered in 1980 only became operational in 1985. These problems could have been largely solved, either by including the whole package in one tender, or in closer coordination of - 36 - 7.6 The other main component where the project's success was significantly less than expectations at appraisal was labour housing. Here the probleqs of lack of contractors and materials were added to by the logistical difficulties of moving labour and the provision of temporary housing arrangements as well as the high targets that had been set in ooth number and quality of accommodation adopted during preparation and accepted at appraisal. 7.7 Pilot scale proposals to assist the private sector, amounting to about 5% of total project costs at appraisal, were virtually a complete failure. The main reason appears to have been lack of support to smallholder tea growers and might have been overcome by more significant proposals. However this would have detracted from the project's main objective and the judgment at appraisal to keep the component small, appears correct. SI LAWA TREE Cip REM1tTATIM <TEAI t!qJECT (Credit-819_CE) IA SIATISTICS Total Area lesø hå 241.9 241.9 242.1 242.4 242.3 242.1 201.7 242.1 243.11 244.2 2«4.7 244.9 242.1 231.1 227.9 231.7 - Prod.cnion nillien kg 212 218 214 211 214 214 196 219 M9 2u6 191 211 log 179 219 214 of utmich: »LSC 1 i - - - - - 65 5? u3 a3 S 75 78 71 65 72 73 Kol -- 71 69 71 72 83 7» 85 74 68 71 78 ?riwate Sectsr ' 1 - - - - 71 68 76 44 43 40 46 43 46 57 63 letal export$ 219 209 inI 206 195 213 211 186 193 leg 195 193 191 119 284 I?! Export% earninqs i mlien 1,1t9 1.144 1.ta~ 1,2bl 1.361 1,5j? 2,til 3.503 6,411 5,72 6,171 b,4«4 6,342 9,21 15,764 12.112 Contriheuta z 55 59 59 48 39 49 44 53 48 37 35 31 31 33 42 33 Tea Wed at Co~ié million kg - - - - - 193 182 187 18I 1 9 lag ? M9 let 171 203 197 lenden le - - t 12 13 33 Il 12 11 4 2 33 Waqe rate - #ale Isldag 3.1 3.1 3.2 3.2 4.2 5,0 5.? 9,2 14.1 14.1 Lå. M1.5 22.2 23.8 - c - fenale *2.5 2.5 2.5 2.6 3.2 3.8 4.4 1.2 7.8 11.7 HL. 15.2 153? 16.8 - Fertiliser 1100 øl 107 111 q7 'V 102 107 95 eg 136 105 1119 113 103 116 137 151 Fiel an br!!!Li~t139.E" !P6 l .m!g is 13 osa 61•1 Facte AncIia4r9 korts- - 34,679 1,329 - - mini flydrepoe plants - - 18,871 718-- vehittes 2/ 5,371 3,64 *c*. -J 3,132 95 83 noesing tinci. creches) 195,595 12,225 196k281 8,815 lit 72 medical 7,768 485 5,b38 241 73 5t Training 4,981 255 2,989 141 73 55 Sepport Components 4,167 268 11,84 443 5 il Total test .492,93 3,86 567,B5 26,441 115 Bh 1/ The føllowing awprage rates of etchange per US dollar haut been #sed: 1979 - Rs 15.57, 1981 - Rs 16.53, 1981 - Os 19.25, 1982 - R% 2.81, 1983 - Rs 23.53, 1984 - Rs 25.44, 1985 - Rs 27.16. /IncIedes 12 tpries financed for osd - tea transport by pritate transporters. 33 RI LANKA (CREDIT 918-CE) #u1ratal Acil Ann C sa thalueiIs lis!,W" W"et WaiSR Laf. IWi1l (1) Vehicles and Eqeipment other than Factory Eqvipment 2,900 3,394 (494) 11 117 11 (2) Factory Eqipment 5,600 3,03 1,797 68 (3) Civil srts 5,900 5,289 612 98 (4) Technical Assi%tance and Traininq 300 349 (49) 1/ 116 / (5) Field levelepment 4,700 3,332 1,368 71 (6) Imallocated 1,608 oil 1,66 - Total 21,000 16,166 4,834 2/ 77 L/ No reAllcation at lean proceeds uas carried out. 2/ 231 of total credit. -4 01 Cr *, * ! L1!!!!!!.§1..! -A!%. I19 m U!-!!! inl 1m 111 1 1ffi iimi 21 im M H f!k 19 m ! ff M M? !90 1291 19-9 9fif .................................•••••.•.. ...•.••••.....s'.....••..••..••••••••-.•••••••..••••••••••••••••••••••••••••••.. IUeSN> Fieid hWIMMt 1i.335 16 6 1.91 , 24.944 27.441 - 97.7M4 4.059 4.76 5.179 6.345 6.116 9.592 726 37.633 0 Faeitad er4er Eq@set 536 n73 11I 1.116 1.598 1.113 95 5.991 974 439 23 251 1,719 2.654 927 7 159 l factuf fq@somi t 6p b 5.456 1.143 3.811 2.593 21654 46.654 - 119 11.827 5.799 ?.295 3.30 9.652 47.152 Factert ae.sllart - sa 612 677 .968 4.949 17.109 24.41 - - - - 373 2.319 .524 1t.214 Vbtes 4.213 a.521 1.993 - 2.682 9i 7.454 25,598 4,72 14.624 - - 1.118 - 3.547 24.723 2,esam 2.515 12.152 8.429 1,511 4.482 7.99 44,91 81,641 6.954 11.852 12.379 16.679 16.879 36,3 14.834 114.678 Smertldital 141 9 4% 1.841 527 1.614 4.492 L.M - 1.398 44 761 1.119 1.44? 2,233 @.993 Nass U,drs- - - - - 418 11.149 11.559 - - - - - 5.2 0 .991 7.312 gLM 787 45.629 1.155 35638 42.429 19.162 196.422 392.992 11.599 43.339 28.632 29.744 9.91 6.105 48,534 257.764 C.11I F|bige - 2.531 32.64 39.579 41.942 59.252 68.469 - - 64.292 75.89 67.871 62.821 118.898 32,782 - Vrable CKsts - 9.029 8111994 119.741 126.957 117,184 22.79 - - 136.598 162.534 195.349 197,166 254.933 314.613 - (UNI tes imi ed ti - . m esmseat tests (/ - f4.0321 4.822> <3.139s 4686) £2.5 <2.599) - - - - - - fflaatq tuest at fiamd e~arjct - - - - - 11.378 7.751 5.951 4.232 41.733 11.165 - s.a. 1l.52 1.539.56 155619 164.293 2<4.146 294.65 - .a. 212.252 245,9W 269.176 264.119 414.966 4568 - E 74.9 1N.8 117.0 123.4 54.3 193.7 164.3 - 74.8 118.8 117.5 123.4 154.3 193.7 164.3 - 1/ Aerevesed be JIbitad SP reS etaeltp. 2 Fer JEn. replatinq cmts bad beoe atteded an pftadlaq cmiss. ån addilte to the tsesuftt cbs as preagdeo (er under the pre.1t-i. 2... esva .e It .. @fl tr 3/ oppsiaaeo was Dst s Inder the Orhect for Wr Soch aer. i arrtd set t b S'C ah Inc)#ded for belb 04 *itth, anl *WaIIDOt pre;ftl $#attan'. - 41 - Page 1 E CA (TEA) PRJECT (Cr*dil 918-CE) ..................... 1979 1980 f991 198% MI L98 9MØ IIQTL . .................... (Rs'BØD) ............. I............ 1. Abbetsieigh 34 209 - 332 60 129 1,031 1,795 2. Annefield 34 98 92 1,146 331 863 718 3,272 3. hattalgalla 39 281 27 91 18 78 463 997 4. Darrauella 39 432 778 418 127 258 878 2,930 5. Dictoya 39 117 161 69 48 114 1,485 2,033 6. Fordyce 39 111 30 197 1,107 286 1,485 3,247 7. Glenilt 34 99 838 350 442 173 2,414 4,350 8. H4pcqastenne 34 6 - - 25 123 1,753 1,941 9. Ingestre 88 145 708 642 502 497 8,318 10,900 10. Inverl 39 1,282 238 412 - 112 697 2,780 11. Kirkosuald 98 1,105 284 930 740 912 1,768 5,837 12. Lanach 34 115 b 132 835 159 607 1,937 13. Luccsmhe 39 1,261 292 248 12 143 991 2,976 14. mincing Lang 39 94 152 429 79 114 2,114 3,011 15. Novsakellie 39 11 105 72 207 464 3,267 4,165 16. Robgill 39 236 337 307 201 570 699 2,389 17. Statrd Hill 39 - - - - 20 1,689 1,728 18. Strathdon 90 61 45 147 94 149 2,729 3,304 19. Tiligrie 39 350 209 26 117 136 1,197 2,304 20. Vellai OV 90 260 431 1,281 615 563 1,325 4,565 21. Wanarajab 85 59 618 191 192 512 861 2,508 22. Yillefield - 39 247 218 181 55 133 1,021 1,894 BOARD OFFICE 55 - - - - - 71 126 _Sk 44 6559 l 2 57j7 6M 3&1 79L99! () 1.6 9.2 7.9 11.0 8.2 9.2 52.9 100 - 42 - Pnce 2 (Credit 918-CE) . .. . ..................... .... ......... (f 't0 ...................... 1. Alten - 431 94 167 139 1,238 2,068 2. Adans Peak 162 847 - 68 29 26 1,124 1/ 3. kpunsmick et 298 266 89 - 1,363 2,087 4. Bublnls/Niaskelita 166 538 16 266 83 220 1,299 5. §side 767 361 131 295 11 66 1,631 1/ 6. Fairluwn e1 119 1e 131 - 623 964 7. cofråvilla 82 9 18 796 87 67 1,131 8. Glenogic (Detside) - 191 159 41 - 13 394 9. fahanile 841 299 24 75 65 14 1,309 10. Woral 81 412 4 211 34 511 1,253 11. mecha (Adams Peaki - 581 - 83 19 246 929 12. Stockholm 217 529 69 96 8 372 1,291 13. Strathspej 346 111 912 25 61 633 2,328 14. Nsteliya (booght leaf factory) 77 973 - 94 97 16 1,257 15. Lötapana 21 399 181 2,153 444 928 4,118 16. Cafpion 452 203 729 85 61 183 1,713 17. Bogauana 828 348 31 112 35 312 1,666 18. Kem/St. 3ohn Del Ray 1,205 535 464 353 41 36 2,636 19. Boqawantalawu/Tientsin 427 236 1,063 339 183 214 2,462 20. kotijegalla/Chapelton 324 - 236 606 41 137 1,344 21. Loinorn/Eltofts 130 119 214 216 93 733 1,504 22. Tientsift (anmfacturing - 828 58 56 4 - 946 retterst lea) 23. Theresialnerar 431 347 118 59 - ta7 1,662 24. Ventare 1,136 232 8 17 297 - 1,690 25. Nersed - 68 175 218 61 356 860 26. blinkkennie 582 736 163 126 35 351 1,993 27. Carslinalbineya 963 86 2 - 150 231 1,432 28. Castlerea;h/8sborne 103 50 44 15 52 273 617 29. Lethentf 568 142 107 19 70 9 98 30. Shannen 126 369 294 26 25 - 840 31. Psten - 385 127 174 1,154 389 2,p9 FACTOY ANCILLARY MRR - - - 373 2,318 7,524 10,214 TT. 11,189 11,831 5,709 7,669 5,696 17,177 57,271 (1) 17.9 18.9 9.9 13.4 10.0 30.0 190 1/ New clised. t!qgCîEj TEA EUTEI .lsjflff 1/ im 1% imim M i N M M ........................................ ... . . ... . . .. lea Estent la beriq 6,258 6,828 5,871 5,734 5,652 5,8m 5,51 &,66 6,1% 6,16 rea sprtee 157 137 13 - - - - - - kea a rass 184 172 t17 118 31 - - - - - Area plated in V - 184 172 Ill Il8 138 - - - - kea i* frst wear - - 184 172 Ill 118 131 - - - Arga u jecow "er - - - 184 172 117 iaI 11 - - Mæ, Te* Estent in bearig: .,111 8,581 9,461 8,928 8,86 9,195 9,324 9,49 9,665 9,718 Area prosted 122 169 127 114 15 - - - trea in ras 9 122 169 127 114 15 - - - Area plated in W - 98 122 1h9 127 114 185 - - - Area in first lear Oseep - - 98 12? 169 127 114 385 - - Area n smend ear eikeep - - - 98 122 169 127 114 185 - 1/ Tea Ettenis in bearing op to 1985 are acitat extents. Fre 1986 onwards the rplantinas dse to cone inite plecking vere added en. '44- SR1.LANKA TEE- CROP RCHASLITATION (TEAJ PROJECT Tea Yields throuat-Realantino and Infillina ................. (kglhal ................ In *Realantino Infillind 1 Uproot seedling tes Land Preparation & Plant 2 Rehabilitation Maintain 3 Plant V.P. Tea Maintain 4 Maintain 560 kg/ha S Maintain 800 6 700 kg/ha 960 P 7 1,000 1.200 8 1.200 P 1.440 9 1.500 1.600 10 1800 (t.360 P 11 2,000 (1.520 12 (1.700 P (1,920 13 (1,900 12.160 14 (2.400 - It 15 (2.700 Cycle AVG 11 2.425 1.740 11 From Year 16 onwards an average yield of 2.425 kg/ha is considered for replanting. 11 For infalling. 12.500 plants are taken as an effective ha. From Year 14 they are expected to yield 1.740 kg/ha. SRI LANKA TREE CROP REABILITATION (TEA) PROJECT (Credit SIS-CE) TEA AREA 5 CROP PRODUCTION ................ JE_D_ ................ ......... S L S P C .............. ......••.•••• P R 0 J E C T............. .......... u ................ ......... mo M ' vn m...... ....... . .a m .......... .. 191t bn.i9 tll j, ta! kaslst lm du itla3 tunJa Ets luid (1111 lu 1uJs itua tlaiumti tat 39*314 ais ta* Et k.a lua last. *1's 3 th/ V t 1,LeF bok taU tuW. ~ bk h tL tika LLA biL bd, ttia b11,1 Uit eiu bd= k,w bub taL talu i b" 41#1 ?fem 10, 4 1.u &,m ?, ab 1,t1s V,M 'tu tmta 9 essi,ti,eti sa 9s ,s .Ma a,m $#,cu et,ge 1,1f4 5.25 64 13 1 i.88 9,m 1,4 , t,, 3,33 33,m 'a,m 3,361nmm ,en u,e :i,t ,,as ns,a t, 0 af.e t,,1s im,as 39,s3u »,m 9,t4 3fl 8,38 1,39s 0,338 3,as 6,a8 i,s e,1 .3,m e,u t,m u,m in 3ne 9,m it,t 43,13 3,rl 42.21 &.,1 ?.s& *,^1 G.,*3 P:.41 aie ,sn noe L,ft 4,M I,t A.M #,nM 12,84 U,M §,3 e ,t .Mt igel M,a n, .9 s 1,as 1,as 0,1B no, sm,s ,ux It, t n, ^ $s,ut I9 , ,1 m,1 §^39 &,m1 1.08 1,288 1.124 9,339 11,812 $§,di 1332 ~ 9,41 to:n,1 §$^m #M oja9 0i3 ,94 * O99 3, 143,1 1,143 1 3 l'hu 8 9 ,134 6,33 1,193 3,49 6,nt1 6,90 l,tM 3,it 3,93 33,213 ti,619 3,,13 3n3 6.93 9,81 n .3 t, 8 .0 39814,9 33,Ms 1,950 3,36 35,3t9 36,634 31,6 3,311 ims 1,6 1,1 , ,4 6,%In a,lm 9, ,n 9,Gm tot al,a ?,54 $jie § 11W o 1, as , ,m 1 tm31 .1 9,to9 14GU u .M t 3. i, 4 1 ^ t, % ,3 9n 1 , hs ,t 3 ,69 3 ,5 1 e in e 1 ,14 ,93 9 8 ,33 9 .84 d3,1 4 08, 328 3,3 t 3 n 9,$92 $ M1 t4 u j a h u 1 ,44, t, n e .7 8 12 ,331 3 , 14 %,#0 9 ,9 3,1 1 i m , m a , m § , 0 , s , 4 1 , 13 ? 1 ,c # ,j a 1 1 ,9 1 7 4 3 , 2 91 3 1 1n 92,6 ä 1,tt 8tm,te e13 $ # å n i4 P, s $ , i n 2 1 x 9 ,3 1 3 1 ,63is , t t1, 4 4 ,3 1 8 im 9,1n ,3 9,s^ 8,4 5,n 1,m 9,*:m l,de b 9,lom 4,34 33,31 1,^ lm 9,1 331,0 o,p1 es,94 9,ass G O,im m JIM$ 3 1,14, t t, c 19,%9 Me 63 9,13n 9,sot 3,3 6,8n 1, . 1, 3 9,n4 12,w6 13,43 13,1 l99 9,641 ut.fä 1 13,10 # , i,m R,6 i,4 m n,jm ws.01 934 39,93n e , % 3999 4,39n 9,1 9,39 3,34 6,16 , ?,at1,9s ? ,m 9,$,z ? 3, 13,631 ,34 1999 9,im elffi u,^ 9, o ,^ 4 .: 6 tI ,94 3,94 .93 1,9 13,784 IT,31 m,n1 tetå 4,3n 9,In 9,s1u 5,4n &,a^ 1,1 , 1.9 I,3 $,n# 3834 13^ 3,342 m C,ne u,n itjeå B ,01 1,s 3,a 1,1 OMs6 tepM 0^ 11 ,4 l993 6,3n 9,n4 1,39 3,1t1 6.59 1,5 s,ju 3,833 9,16 33,86 4,34 m,3a9 q99a 9,1i 33,3 m3,m§1it t , 1 ,31 l ista t,t 5,9^ 3,4j 15,M 19,931 ntu 13,31 3993 6.f96 9,t4 q,en l,n 6,9 1,t 13 44 $.m 3993 9,133 33,3ve l q,t 1,0 3 11 3,933 floff 6 ,6 må,9ll 449,639 OM 00 j 1m im 4,1 9,s än1,8t,*§ 6, ^ ?jm 1.1 %,:%,$ t,M 13, 14,sO %,w ste *,m s,% it,969 t,j sim,$ 91 8, 1 s,^ te,fi# pm us, 1,1n 3993t n 4,9 ,13 3 ,3 ,9 6, ^1 1,13p 1,8n13 1 3, m a I, ltm 3, 1 3 ,44 3,8 ~99 9,133 et ^3 13,119 3,33 3111 te*93 , 9 , 3 1 ,16 3 ,1 3,1 , 394 636 919 636 31. ,5 ,11$^,36 913 3,4 334633 39 9,13 3,1 3393 IIM3,93 33,89 39,9 3,1 31,a en,5 9,71 3,34 t91 636 916 3,3 ,9 65 ,3 ,4 ,3 9 1 33,w 1 4,5t9 3,436 3991 I 9 13 0 om33 13, 15 ts.M4 31 .30 äm,6 1,451 R 3 1,9 39,433 31,086 3,33 ^991 6 .,1% ,0 1 99 ,1 4 6,1 st o,^49 $,,9 . ?,l63 9,1 ,3 f 3,11 14,64w 3,3 9 39 1 9,13 , en 11 ,9 a 1,1 0 i s.31,tl u n63 3 8 ,7 M ,431 3 ,96 1 8,31 2 n, bet , 13 m , 9,&,y ?.,ar enju e 6, 1,A69 1,:i .1,41 9,116 l,e 34,4 3,439 im9 9,13 39,nm 11,3t 3,35 1,^ n, ef 9 1 ,45 3,9W t,"$ 19,11s 0,3: 1/ Area in production is given,in hectares. -/ Estate and totaL production given in '000 kg. 3/ Estate Y.P.H. given in kg - based on estate production onty. 4/ Without Projct yield dectines by 1% each year for seedLing tea from 1980, and 0.5% each year for VP commencing from 1987. cr 5/ sLSPC has reptanting of similar extents with and without project, white JEDB has .o reptanting without project m and crop foregone by uprooting in JEDB with project is assumed to be 800 kg/ha!y, ,r. 6/ Out of a total annuat incrementat crop at fuLt devetopment of 5.69 M kgs, JEDB ac.:ounts fo5 2.65 M kgs (47%) and SLSPC for 3.04 M kgs (53%). SRI LMIKA TREEC2OP NEHILITATLM (TEA) PROJECT (kw-dit IIIAC) COST OF PRODUCTION OF TEl (in 1985 cIrrent ad constant Is) ......... U .U ............. ............ SL ....... ........ Peo 1 c ......... UI tIolT I1WilT PROJECT SIi PROJ VITIT PROJECT VITHJ0JT HITIIT PEOJECT hrM Sg Co Car0e1 Lotw Emm gn-tS ant urnnt cnstant a Crmt-tans t .. ..... .. .. .. .. ..$.. . ............ uasi4 t oo0 .............................. . . ... .... *. .. ... 1988 16.20 26.5^ 16.36 26.56 16.41 26.81 16.46 26.8 1 16.36 26.71 16.36 26.73 198 17.01 24.91 17.76 24.80 18.70 26.26 18.80 26.36 18.36 25.61 38.43 25.93 :158~.5 .310 :I :1 I:l :i l:11 Pi:7i I:21 S:4! i9li f:i i! IM98 31.11 25.61 30.28 25.70 30.31 25.71 31.10 26.41 31.21 25.70 31.71 26.11 I995 36.71 36.71 37.6 37.31 35.41 35.41 36.30 36.36 35.96 35.96 36.66 1986 37.81 37.16 35.20 36.66 35.76 36.86 1987 37.16 37.36 35.16 36.46 35.51 36.86 198 36.2- 37.41 34.91 36.56 35.31 36.96 1989 35.8 37.66 34.80 36.76 35.23 37.t1 1996 35.70 37.88 34.76 36.8 35.1t 37.20 1991 35.66 38.61 34.66 36.91 35.66 37.41 1992 35.56 38.20 34.51 37.20 34.96 37.63 1993 35.46 38.40 34.56 37.4 34.96 37.86 994 35.40 38.71 34.56 37.7 34.96 36.16 1995 M. 39.66 34.41 37.86 34.86 38.30 9 5.31 39.21 34.41 37.96 34.8 38.40 997 35.30 * 39.40 34.43 38.26 34.8 38.71 Note: In the cost of a dKcti$D co"Ptaties figures vp to 1985 are acteal costs. From 1986 onuards general charges (fized costs) are maintained at 15 vents with a 6.5 increase to accommudate incremental salaries. Variable costs are is proportion to crop cot at the 1995 luel, vith the withiut project sariahLe cost increasing by 1.51 each year frm 1986. COP in constant terns based*n & 41PI gin o Table 4, and exclodes replanting costs. '0 - 47 - TabLe 10 SRI LANKA TREE CROP REHABILITATION PROJECT (Credit a18-CE) Financial and Economic Prices of Tea Used in Analyses tl . LPs........ Financial 21 Economic I/ Financial Z1 Economic 2/ XALWithout W= Withot Without = Without h ........... (Rs/kg) 1979 11.09 11.09 26.53 26.53 13.04 13.04 30.05 30.05 1980 18.08 18.08 30.27 30.27 21.87 21.87 34.06 34.06 1981 19.46 . 19.46 32.50 32.50 23.79 23.79 36.90 36.90 1982 24.51 24.51 33.18 33.18 26.34 26.34 35.01 35.01 1983 35.92 35.92 51.70 51.70 36.45 36.45 52.54 52.54 1984 45.13 45.13 72.15 72.15 46.55 46.55 74.57 74.57 1985 39.30 39.30 55.84 55.84 40.47 40.4? 58.22 58.22 1986 40.10 40.50 50.07 50.64 40.90 41.32 51.72 52.31 1987-89 39.27 40.49 48.95 50.63 40.06 41.30 50.55 52.29 1990-94 42.74 44.07 56.02 57.92 43.59 44.94 57.86 59.81 1995 on 44.27 45.64 59.15 61.13 45.22 46.62 61.07 63.12 1/ Expressed in 1985 Constant Terms. 1 For derivation of financial prices from 1983 on see Table 12. 11 For derivation of economic prices from 1983 on see Table 11. - 48 - Table 11 SRI LANKA THEE CR0P ESILITATIN (TEA PET) (CIEDIT 818-CE) DERIVATION OF TEA PRICES USE FOR ECONOMIC ANLYIS Actual Pricm! Price Pro&Mj n 1Lt I 1M 12.. 1 M 9!I 19 192' World arkt Price of Tea 1/ USS/ 2.33 3.46 t.98 2.9 2.13 2.01 2.27 2.35 Averale Coloeb FOB Price g1 * 2.23 3.33 2.23 2.51 t.96 1.94 2.19 2.30 off:cial Exchanse late RA/USS 23.53 25.44 27.16 29.3t 29.03 29.05 2? !1 Average Celoeb FOB Price &V Rs/Kg 52.47 77.38 63.57 63.38 54.88 5.32 61.32 64.48 Organization Spcific Prices 4/ JEDB Average FOS Price Rs/Kg 55.25 77.58 6.19 64.31 M.68 55.12 62.22 65.34 SPC Average FOB Price Is/Kg 56.18 79.95 62.57 66.20 57.32 56.74 64.05 67.27 Quality Adivstment for Factory -orovement I/ With Project - JEDI FOB Price Rs/(q 55.25 77.50 61.19 64.31 55.96 5.95 63.15 66.32 - SPC FOB Price a 56.8 79.95 62.57 66.23 57.61 57.59 65.01 68.23 Withe7t Project - JFES FOB Price * 55.25 77.50 63.19 64.31 55.40 54.29 61.28 64.36 - SPC FOB Price * 56.68 79.95 62.57 66.20 57.33 55.88 63.09 66.26 FCB Prices testated in 1985 Constant Ter!s JI With PrOect - J1E3 FOB Price 55.52 76.50 60.19 56.69 56.68 63.97 67.19 * SPC FOB Price 56.36 78.92 62.57 58.36 58.34 65.86 69.17 Witnuat Project - JEDS FOS Price 55.52 76.50 60.19 56.12 55.00 62.07 65.20 - SPC FO Price 56.36 78.92 62.57 57.77 56.61 63.91 67.12 NarketingAecal Costs in Econonic Terns Z/ 3.82 4.35 4.35 6.35 6.05 6.05 6.05 Ecnelic Prices Mitn Project - JED3 51.70 72.15 55.84 53.64 50.63 57.92 61.13 - SPC 52.54 74.57 58.22 52.31 52.29 59.81 63.12 Without Project - HEIS 51.70 72.15 55.84 50.37 48.95 56.12 59.15 - PC 52.54 74.57 58.22 5t.72 53.55 57.86 61. 7 1/ Source: IMS Price Frojections. The prices for 1983-85 are actual prices in current dollars. Fron 1986 ingards, prices are in 1984 constant dollars. - / Colombo auction actual prices for 1903-85. Fron 1986 onuards in 1994 constant dollars, drwived fron ID price projections by retaining the relationship between 1983-65 average IBMD 4 Colombo auction prices. I/ US$ prices converted at relevant pears' exchange rate. 4/ Actual prices received by JED3 & SPC during 1983-85 reflect a prenil over national average price. Prejected price prais based on ratio of actual organization price to national price for average of 1983-85 period. I/ Price increase of 0.5 1966 4 1.51 en prices thereafter for Ovith project'. A silar discount is applied for arriving atVithelt project' prices. The reference price used for this are the Organizatein Specific prices referred to in fostute 4 above. J/ For restating prices, ID published Nansfacturing Unit Value Index Nas used. ZI Financial costs adjusted by SCF of 1.85. F-- IM i !!!LH!! n.!l L nKl!L@ti s is ffi 15 if01 i 19R n lm 10J3 rot trice in 1985 Censtant Terms 1/ 55.52 76.58 61.19 56.69 56.68 63.97 67.18 LSS - (lErt #ity 8.58 8.67 6.65 6.65 6.65 6.65 6.65 cm,s 1.19 1.28 1.50 1.5 1.58 1.54 1.51 ther Chanes 4.88 4.46 4.4 6.69 6.69 6.69 6.69 Ortss Sales Oerae ?/ 41.92 62.9 47.58 41.815 41.84 49.13 52.34 LSS - M valeren las 1/ 5.57 16.33 9.79 1.92 8.92 4.56 6.17 grekers Fee / 8.42 8.62 8.48 8.42 8.42 8.49 8.52 Pelic Sales Ependitere 8.91 8.81 .e1 1.81 8.81 8.81 8.81 lt Sales keveg (With PrejecI 35.92 4.13 39.30 48.58 48.49 44.97 45.64 let Sales aerge fuithelt Preject) §/ 35.92 45.13 39.30 48.18 39.27 42.74 44.27 Fot frie 1985 Cestaft Torr 1/ 56.36 78.92 62.57 58.36 58.34 65.86 69.17 LES hpet lt, Css and other Changes 13.61 14.41 12.61 14.84 14.84 14.84 14.84 Cross Sales Averaq@ 1/ 42.76 64.51 49.96 43.52 43.50 51.02 54.33 LESS - 0d valeren la 3/ 5.87 17.38 8.98 1.76 .75 5.56 7.16 grekers Fe 4/ 8.43 0.65 8.58 8.43 8.44 8.51 8.54 Phlic Sales Expenditere 8.81 .81 8.81 8.81 .e1 1.11 1.81 let Sales erage (With Project) 36.45 46.55 48.47 41.32 41.30 44.94 46.62 let Salu* Average ithelt PrejecI) 5/ 36.45 46.55 49.47 48.98 48.86 43.59 45.22 1/ *Uith Preject' price as derioed in Table. 2 Gross Sales Aerage CSA) estimated b9 dedectinj espert det, cess and #ther changes. / Based en the fellffinj rates: 1983 - 351 en excess et CSA ser $ s 26; 1984 - 52 tin en eletent et GSA beteen ts 28 - 55, 41a en excess of CSA eger Is 55; 1985 - 501 en .. excess et GSA eter s 32; 19% en - 582 tas en ecess et CSA #eer Rs 48. / At 11 of SA. / eing 11 louer than Ith trejectI price ter 1986 and 32 touer thereafter. - 50 - Tabte 13 et • . • e -. e.,. e t , • ID R - - a g me se e *ee.... t. *» - - ; am - --Pt .5 e--. - --- a .5 - 9 2 , . .- .. .5 . , - ~x. - .e «Aet 94-m- e e asa. i~sr - - -:s - IVJ a •- E';-9 e ett Ib. IL - à 8ä i mR m miiim tW n lte *iste uRos aan u nsam m - tsasfe ........................ . . . ~ . t... ..i ...................................................... les IM ulit - * M .' , y, M 1.3 11 ^.a f , f , w 13,1% 1,0 Ks. 13,0 ,1 4,8 K ,W 18 ,0 0 I ,fI8P 1,9S M - ta. te y l,si W,a m s n.m ms.n ,m m,s I,m $^,w u , u im,9U 1,a1 2,t0 ,m1 2jE 11,15 n,a *,m n.,m tee. tes tesmeen ss nia w sa tu sa eu is n,.e 6,28 <,a 1,8f I,jn 8.49 ,8n8 ,as ,U0 .8 3,63 8,8,1 l.u, een .UI01 y - - • u se * * na nu 1 • • lutuSu-Rw t.6 51.1 5.9 m.1 53. 13.9 i i.4 19.9 s4. m. =.4 M-s OL. MJ.s see.3 mi . 61.9 MJ. 4M. --ntuu U I Pt M. 8n.9 W . -t.8 eN. .4J .4 M.s 40.3 M.8 0.0 W.? n. 193 si.3 m I. U1 Pi ltd *, . . . - . - - - - 9.3 I.I <0.8 U8.2 v. , p, 1.9 • SuutalWsus ses u.1 4.8 4.8 3.9 1.4 1.8 4.4 <.1 • • • - m M. .9 .? n.! m1.e j .8 9.1 4.j t . 40.1 . 19.9 11.1 0.8 131.8 mg.9 . 48.2 148.3 9.J MA tujn .< 31.1 30.4 .J M9J S.1 0.6 0.1 «8.4 40. 048. G. 04 4R. 0. CO.4 9M.3 IR.N 3.3 UNsJ Mtåe N.i 30.681.s 11.4 58.1 85. 40.9 9.4 G.2 48. 49.3 må. 40. 40.9 40.1 40. 40.8 1.3 449.2 4. . e .1 19 6.6 It. <.9 D 4.1 94. 9.2 8.. 4.1 6.1 6.1 e. 11. e. 9.1 klspe Le 14 93 1 a 9 rese s Nk.d etes 8.9 1.1 1.3 8.1. 1.3 1.3 8.9 - - - - • • • • - • flWuIhwpLe p1 1.1 8. .. <4 La8 8. * . * * faw Cs • .tu 1s.8 1.6 1.7 8.9 .? - - • • • • • - . - ruturISenw ' • 8.4 8. 1.s - • • • • • • • • 01kme 11.83 a.0 - - 8.8 3.1 - • • <8.8 84.8 • 8.8 - 3.1 •- o.e, l 6.9 e.9 .8 u.8 1. - - • • • • • • • • 1.s.tIaa - 8.8 <.1 1.1 1.8 <.8 8.8 - - • • • • • • - • - 1.8 1. 9 .15. 8.1 8.9. - • • 11.3 8. - - 8.8 - 3. • 2 a.x MP t.0 0. 615.9 4.4 1it.0 1.1 9.9 2.9 G.6 4.6 18.1 IV.1 98 1 .1 0.5 18.1 %.4 .a SFrom Table 8. Inclufus bo~t geenm leaf by estatets IIch as a peentag of total prod~r,ton is very loi (betue 3-51). / Estites at 0.37 a3 per t,ee after 10 Year. Crent costS as s~8t. 1n Table 4 restated en costant 19M prices by usig dholeale price index as given ln thet table. 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DIM cft&jftmaø as 15 amt~ a. cOAøQqA# C"& l *"Au Qo. M. e Øm. mý, te MEG.M. til C~ m Mr- 9 n tit~$ "ga~ IN~ ~tat bæn~ i I Ø~15 OMQ* ru"tti~at Directors at tite ccmtral goard report dleect to tese chairmm.central naced for løstet and spee& ac t i«. SRM LANKA STATE PLANTATIONS CORPORATION - ORGANISATION CHART <GENERAL ORGANISATION STRUCTURE) cnrWTiiAg. (iim8c) stoAmD.;crA..t )rfR ASSISTAlflS ..•..' tir(Ht AflAtr<t s SI1X41tNAl. Re tieADS ar DiviNs . EASor DIVISI0M 0 ~r #~e serto MRW loMN. sitElem(CYtERS) trc oreeeme c~om. -d c~at å~te eem caers ee P o d t ifl R R0Ai OARD 06m101 1!100AI, (ftfa4 x~c .pprog. #FFstates) AA 04 DI REWIM UIMME rAim DIREMIl#t 8 AMuT. MARlArw, 2 ~cCtr~lT FIO ETATE EST?Etoporti toeb 000MTMS)( Mtoståte approft. 500 nectar^q) SkTf111~Oli·M Pieor a f 1o4 li 1-~JR ¯ JANATHA ESTATES DEVELOPMENT BOAR8 ORGANISATION CHART MINIS1Y Of JAKATMA ESTATES MINISTER DEPUiT HinIstEn SE:CREIfAil CENTRAL 00ARD OF GIRECIORS CHIEF AU01T0R REGIONAL 0AR0 1 REGIONAL OABO låg REE B0AORD*0 tv REGIJU. 80A=5 v CENTRAL 0~ Offick (KANTON) (KAXN10/M~A ELITAI, (oAiLAl (KEGALLE/NAUALAPI C U CHA*0mAmj CHAIRMAN CUAIRM HIRUt L,qANHARA PLAMNING ERECUIwE DtRIECUR GENERAL »MAGE 0 1» on -4 i 90 36 so 5 so 0. FSRUARY PROPOSED REGIONS w d Estates to be manoged Estotes to be managed by SPC by JEDB- & I Mocho A ? Rob9d 5 2 Alton 42 (n%estne * 3 Fo,rlown A3 Fordce 9 4 Deeside A4 invary } ma 05 Stockholm A 5 Bartolgala * 6 Strathspey Ao Yiffieeld 7 7 Go.ravilio 47 Wunora,!h RI * 8 Brunswick 4 8 Darawallo T A N K A 09 Brownlow 4 9 Dck,yo li>10 1.axaoa 0 Cas5tlereigh @ 1Morgy A6 Abotslergøsmd 9 12 St John 6( Rey Å 1 2 Movsekelle 5 A:;;z, ® 13 Tsecs, &13 Hopugostenne ob Ared rnap & \4 Venture 914 Shannon SS ®Ib K,rkosWo&d s15 Sti,don Q lo Morar 616 Vella Oya TifficuoIry 47 Norood 017 Co,olma 0 I Bogawana 4 19 BogowanQlowc 020 Kotgallo Moo 021 Campion 022 Lorn 4 SRI LANKA Tree Croo Rehabilitation Project I (Tea) Bou.ndores ef pre5ent PC estotes JEDS estates ond factoriestobetronsferredtoSPC -~ --Bodaries of present JEDB estotes 2 SPC estates ond factories to be tronsferred to JEDB ( SPC factories o SPC foctories to be closed A JEDB factorles ebya 'so, JE DB factories to be closed ] Regioncl off ices for SPC ond JEDB Proposed regional boundary - Project boundory MAS,<f1YA 16 Gross)and VO/R Trees 12 Rods Ra(way 1 5- Rilers *g ~,Mountain ridges47 2 22 0 1 2 3 41 5 6 7 6 j- 3 Kilomneters 0 1 2 3 4 5 Miles t4 8O*3O -40°O~35' 8040"