Sri Lanka - Third Mahaweli Ganga Development Project

Docamit of The World Bank FOR OMCIAL USE ONLY Repot Not 12509 PROJECT COMPLETION REPORT SRI LANKA THIRD 1AHAWELI GANGA DEVELOPHENT PROJECT (CREDIT 1166-CE) JOVEKBER 22, 1993 FILE COPY Report No: 12509 Type: PCR Agriculture Operations Division Country Department III South Asia Region This document has a restricted distribution and mav be used b recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Name of Currencv = Sri Lanka Rupees (Rs) Appraisal Year (1980) US$1 - Rs 16.5 Average 1981-1990 US$1 = Rs 28.2 Completion Year (1991) US$1 = Rs 41.4 Fiscal Year of Borrower January 1 - December 31 Weights and Measures All tons are metric tons (2,204.6 Ibs) 1 acre = 0.4047 ha 1 gallon = 4.54 liters 1 bushel of paddy = 20.8655 kg Abbreviations AMDP = Accelerated Mahaweli Development Program BMS = Bench Mark Survey D and F = distributary and field (canals) EEC European Economic Community ERR = economic rate of return FMU = Flow Monitoring Unit FO farmer organisation GDP = gross domestic product GOSL = Government of Sri Lanka JICA = Japanese International Cooperation Agency MASL = Mahaweli Authority of Sri Lanka MCM = million cubic meters MDB = Mahaweli Development Board MEA Mahaweli Economic Agency MECA Mahaweli Engineering and Construction Agency MUP = Model Unit Program O&M operation and maintenance ODA = Overseas Development Administration (United Kingdom) OECF = Overseas Economic Cooperation Fund (Japan) OFC = other field crops OFD = on-farm development PCR = Project Completion Report PMHE = Promoting Multifunctional Household Environments RPM = Resident Project Manager SAR Staff Appraisal Report SLCC = Sri Lanka Cashew Corporation SOP = Seasonal Operation Plan USAID = United States Agency for International Development WFP World Food Programme WMS = Water Management Secretariat  BOR oMCwM Use ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of lraotor-enetal Opesations Evtluadon November 22, 1993 MEMORANDUM TO THE EXEC-tW DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion R port on Sri Lanka Third Mabawei Gani Development Project (Credit 1166-CE) Attached is the Project Completion Report on Sri Lanka - Third Mahaweli Ganga Development Project (Credit 1166-CE). The Evaluation Summary, and Parts I and Ell were prepared by the South Asia Regional Office. Part II was prepared by the Borrower. This was the third irrigation project assisted by the Bank under the Mahaweli Ganga Development Prngram: a key part of the Government's development strategy. The project provided irrigation infastructure for about 28,000 hectares, cleared jungle, settled farmers, assisted on-farm development, and constructed roads and social infrastructure. Although construction, settlement and production targets were largely met when the Credit closed, the project will not be completed until 1994 after great delays. There were many implementation problems, costs exceeded estimates by a third (in US$), some deficient works require rectification and some settlers did not meet agreed criteria. The project outcome is rated unsatisfactory, with an economic rate of return re-estimated by the Regional Office of 4 percent (18 percent at appraisal). This was mainly because of much lower prices for rice, delayed implementation and higher project costs. Operation and mainte- nance arrangements are deficient and land titles were not issued to settlers. Cost recovery was abandoned as farm incomes are lower than expected. The program has raised environmental issues. Institutional development objectives were only partially achieved and sustainability is uncertain. A further development phase is under preparation, mainly to improve parts of the physical infrastructure and to restructure the Mahawei Authorty. The PCR provides a full and frank account of project implementation and outcomes. Part U (by the Borrower), using different methodolog from Part L, re-estimates the economic rate of return at 14 percent. OED understands that comme' : .,ure sought from the cofinanciers (the Kuwait Fund and OECF) but that none were received. It is intended to audit the project to follow up, inter alia, on the economic analysis, and on sustainability and environmental issues. Attachment This document ihas a resticted distributio and my be used by recipients only in the pe formance of ther offical duties. Its contents may not otherwise be discosed without Wodd Ourk oi horzation.  FCOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT SRI LANKA THIRD MAHAWEU GANGA DEVELOPMENT PROJECT: (Cr. 1166-CE) TABLE OF CONTENTS PREFACE ........................................ i EVALUATION SUMA0ARY ................... ..................... PARTI ................... 1 1. Project Identity .1......................................... 1 2. Background ....................................... 1 3. Project Objecvesand Description ............... ........................ 2 4. Project Desig and Organization ................................................... 3 5. Project bnplmentadon ................................... 4 6. Project Resuls .............................................................. 9 7. Project Sustainability ......................... 11 8. Bank Performance ......................... 15 9. Borrower Performance ........................ 16 10. Project Reationship ......................... 16 1L Consuing Servis ...................... 17 12. Project Documentation and Data ...................... 17 PART ....................... 18 Lo General Comments ............................................................ 18 2.0 PCR Economic Analysi ...................... 18 3.0 Revised Esdmate of the ERR ..................................................... 19 4.0 Farm Budget ......... 23 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.  5.0 Comments in Repect of Specific Issues under Various Sections ............................ 23 6.0 Other General Observations .............................................. . 28 TABLES Table 1 - Calcilation of Import Parity Price of Paddy . 29 Table 2 - Paddy Production and Value of Zone 3-6 . 29 Table 3 - Paddy Production and Value of Production in Zone 1 .30 Table 4 - Calcuation of Cost of Fertlizer .31 Table S - Cost of Production of Paddy .32 Table 6 - Economic Cash Flow .33 Table 7 - Farm Budget ......................................, 34 PART m ..35 1. Related Bank Credits .35 2. Project Timetable .36 3. CreditDisbursements. 36 4. Project Implementation .37 A. Estimated and Actua Implem.entaion 37 B. Implementation by Zone .38 5. Project Cost and Fmancing ..39 A. Project Cost .39 B. Project Financig .40 C. Capital and Recurrent Expenditures by Year .41 6. Project Resuts ..42 A. DirectBenefits .42 B. Economic Impat .42 C. Finacial Impact .42 D. Studies .42 7. Status of Covenants .43 8. Use of Bank Resources .44 A. Staff Inputs 44 B. Miions. .44 ANNEX 1 - Fmcial and Economic Re-Evaluation ANNEX I TABLES Table I - Non-Mechanized and Broadcast Case With Project Table 2 - Paddy Area, Yield and Production and Other Field Crops Area Table 3 - Economic Price of Paddy Table 4 - Economic Price of Fertilizers Table 5 - Economic Price of Milk Table 6 - Prices Used in Fnmancial and Economic Analysis Table 7 - Inflation Indices for Local and Foreign Eachange Costs Table 8 - Economic Cash Flow  i PROJECT COMPLETION REPORT SRI LANKA THIRD MAHAWELI GANGA DEVELOPMENT PROJECT (Cr. 1166-CE) PREFACE 1. This is the Project Completion Report (PCR) for the Third ;iahaweli Ganga Development Project in Sri Lanka for which IDA Credit 1166-CE in the amount of SDR 73.3 million (US$90.0 million equivalent) was approved on June 23, 1981. Finance was also provided by the Kuwait Fund and the Overseas Economic Cooperation Fund of Japan (OECF). The credit closing date was extended foir times, by one year each time, to December 31, 1991, and the credit account was kept open until April 30, 1992, to accommodate final disbursements. The last disbursement was made on May 12, 1992, raising the disbursed total to SDR 59.14 million (US$68.48 million equivalent), or 81% of the original credit amount. The undisbursed balance of SDR 14.16 million was cancelled. The Kuwait Fund and OECF agreed in 1991 to extend their loans to December 31, 1993, and May 20, 1993, respectively, to help finance remaining project works-now expected to be completed in 1994. 2. Parts I and III of the PCR were prepared by an FAO/World Bank Cooperative Program mission"lwhich visited Sri Lanka in October 1992, and reviewed by the Agricultural Operations Division, Country Department HI, South Asia Region. Preparation was based on a revievw of relevant project documentation, field visits, and discussions with the Borrower's project staff and IDA staff associated with the project. Part II was prepared by the Borrower. 'I Messs J. H. Weatherhogg (agricultural economist) and A. Tabet (irrigation engineer).  ii PROJECT COMPLETION REPORT SRI LANKA THIRD MAHAWELI GANGA DEVELOPMENT PROJECT (Cr.1166CE) EVALUATION SUMMARY Objectives 1. The third in a series designed to support the Mahaweli Authority of Sri Lanka (MASL) as a comprehensive area development authority, the project was to increase agricultural production and provide for new settlement through development of 18,500 ha of new irrigated area in Zones 3-6 of System C, to provide improved water supply to 5,600 ha of new irrigated area developed with EEC assistance in Zone 2, and provide additional water for 3,620 ha of exsting irrigated area. 2. These objectives involved jungle clearing land levelling and on-farm development over a gross area of about 31,000 ha; settlement of 18,500 families each with 1 ha of irrigated land and a 0.2 ha homestead plot, as well as 5,500 non-farming families (also with a homestead plot); and provision of required irrigation, road and social infatructure. In addition, the project included proposals for fuelwood (3,000 ha) and cashew (2,000 ha) plantations. Consistent with the Government's heavy reliance on the public sector as the agent of development, MASL also provided support services such as extension, performed commercial functions like input and output marketin& and operated and maintained the irrigation system. Enviromental issues were largely subordinated to the task of building the irrigation infrastructure. Implementation Experience 3. The project has been reasonably sucoessful in attaining its objectives of development of new irrigated area and related settlement, albeit over a much longer implementation period than originally expected. Total irrigated area developed by project completion is now estimated at around 17,700 ha, or about 96% of the appraisal target of 18,500 ha. The number of farmer settlers shows a similar development. 4. Headworks, transbasin, main and branch canals were well constructed, and generally completed with less delay than the more minor works-with the exception of main and branch canals, which were completed about three years behind schedule. Land clearing and levelling, excavation of distribution and field canals, and construction of structures proceeded much more slowly than expected due to delays in contract award, poor performance of contractors, shortage of suitable construction materials, and security problems. Initially, there was an attempt to speed up implementation by use of precast structures. However, this method proved unsatisfactory due to difficulty in ensuring adequate compaction around the structures and was abandoned in favor of in-situ construction.  iv 5. Supervision and control were initially poor due to lack of experienced staff, use of small contracts and inexperienced contractors, and imprecise tender specification, but were improved by training programs and sharing of work betweei larger and smaller contractors on a block by block basis. 6. Implementation of the roads and social infrastructure components has also been reasonably satisfactory. Changes of project design during implementation included surfacing of market roads, which has only been 39% achieved, and significantly smaller investment in schools and teacher hoLsing and medical facilities, progress of which is 73% and 64%, respectively. Eight water supply schemes are only 50% complete. 7. Development of the 3,000 ha of fuelwood and 2,000 ha of cashew plantations has not been satisfactory. Only around 1,200 ha of fuelwood plantations have been successfully established, and surviving cashew trees are estimated to number around 30,000, equivalent to 300 ha fully stocked. The appraisal expectation that settlers would cultivate significant areas of field crops other than paddy in the irrigated area has not been realized so far. Results 8. The project is expected to achieve its main objectives of developing an irrigated area of around 17,700 ha, settlement of families, and provision of roads and necessary social infrastructure. However, assuming project completion at the end of 1994, implementation, will have taken more than twice as long as the six years originally planned, and the cost of Rs 8.45 billion (US$263.1 million) will be about 133% (30% in US$ terms) higher than originally budgeted. 9. Paddy yields are projected by the PCR mission to slightly exceed appraisal estimates and to reach 5.2 tons per harvested hectare in the Maha season and 4.8 tons in the Yala season. However, as the total irrigated area developed is expected to be about 96% of the appraisal target, total annual paddy production is estimated at 145,000 tons compared with the SAR projection of 153,000 tons. Cultivation of other field crops in the irrigated area in Yala has developed much more slowly than expected at appraisal and is assumed to remain at around 1,000 ha in future, compared to an SAR projection of around 2,600 ha. 10. Re-estimation of financial benefits indicates that present income of farming settler families is about double the estimated "without project" income. This is considerably lower than the five or six- fold increase projected at appraisal. The main reasons for this result are lower p,-ddy prices, increased cost of fertilizer following the abolition of subsidies, and higher than anticipated use of other inputs, particularly labor. 11. The economic rate of return (ERR) for the project is re-estimated to be about 4%, compared to 18% estimated at appraisal. The main causes of this disappointing result are lower actual and projected paddy prices. Sustainability 12. To be sustainable in the present more stringent budgetary environment, MASL must concentrate on Its essential basin management functions including provision of water for irrigation and power generation, and environmental management. It will therefore have to transfer peripheral functions to national line agencies or the private sector. Extension services, for example, should be handed back to the streamlined national extension service. Commercial activities like seed farms and  v dairy production units should be, privatized, while farmer organizations should take over the operation and maintenance (O&M) of field and distributary channels. Without this last step in particular, the irrigation system is likely to deteriorate, necessitating premature rehabilitation, since budgetary allocations for O&M have been well below requirements. 13. Other disappointing aspects with regard to the project's sustainability are the decline in loan repayments and the number of farmers taking credit; the steady decline in collection of water charges; lack of funds in the responsible departments for maintaining the buildings constructed by the project; inability of the Mahaweli authorities to coitinue maintaining the road network constructed by the project; lack of attention to promoting a sustainable pattern of development for upland areas, resulting in encroachment of remaining forest areas and wildlife problems; and as yet only limited attempts to integrate livestock into the farming systems. Findings and Lessons Learned 14. With the advantage of hindsight, the project illustrates the unsustainability of the Accelerated Mahaweli Development Progra