Sri Lanka - Postal Sector Reform Project

Report No. PID6951 Project Name Sri Lanka-Postal Sector Reform Project Region South Asia Sector PSD Project ID LKPA57176 Borrower Government of Sri Lanka Implementing Agency Sri Lanka Post Transworks House Colombo 1 Sri Lanka Tel: 941 328 301 Fax: 941 440 555 Date of this PID October 9, 1998 Tentative Appraisal Date December 1998 Tentative Board Date July 1999 Background Sri Lanka Post (SLP), currently a department of the Ministry of Posts, Telecommunications and Media, is characterized by inefficient operations, poor quality of service, and a lack of customer and commercial orientation. Due to under-investment in the sector, the postal network is in poor condition and requires significant investments for modernization and rehabilitation. SLP's substantial operating losses, totaling Rs 4,106 million over the past ten years (in nominal terms), are a significant fiscal drain on the Government. In addition, the financial services business of SLP is ineffective as a channel for savings mobilization and funds transfer, despite having access to a huge network of retail outlets and a large customer base. The Government of Sri Lanka is seeking to transform the national postal service into an efficient, high quality provider of both postal communication and financial services. It is undertaking a comprehensive postal reform program to rapidly improve the quality of service and financial performance of SLP with technical and investment assistance from IDA. The reform strategy involves policy reform, institutional reform, commercialization of operations, and introduction of new technology. SLP will be converted into a state-owned corporation with full operating autonomy and commercial freedom to enter into private sector partnerships. The scope of SLP's monopoly will gradually be reduced to encourage greater private involvement in the sector and develop a competitive environment in the postal service, while a regulatory body will be established within the Ministry to regulate reserved services. A voluntary separation program and operations improvement plan will be undertaken to maximize efficiency. Post offices will be transformed into modern, attractive retail outlets providing a diversified portfolio of market-driven products and services (such as e-mail, fax, internet). Counter automated will be introduced to improve the speed and accuracy of transactions, and modern accounting systems will be introduced to improve financial management. The financial services business of SLP will also undergo a dramatic  rehabilitation and reform effort. The Government would like to use the financial services system as a vehicle to increase savings mobilization and provide a convenient means for funds transfer, particularly for those consumers whose needs are not being addressed by Sri Lanka's banking system -- rural residents, low-income communities, small enterprises, senior citizens, students, etc. The Government's strategy to reposition postal financial services is to enter into a strategic partnership with an experienced financial institution in order to attract significant investments in the financial services infrastructure and supplement the lack of institutional capacity within SLP. Project Objectives The objective of the project is to rehabilitate, renew, and strengthen the national postal network and institutional capacity of the sector in order to: (i) sustainably and effectively provide reliable, efficient, low cost postal communications service to all citizens of Sri Lanka; and (ii) use the national postal network to promote savings mobilization and funds transfer, especially in the rural areas and among low-income communities. Project Description The proposed project is comprised of three main components: I. Network Strengthening (i) Transformation of 50 post offices into modern, new type post offices with counter automation for mail and financial services (investment; TA) (ii) Strategy for reconfiguration of retail network (TA) II. Institutional and Regulatory Reform (iii) Establishment of regulatory capacity (TA) (iv) Capacity development through structured training programs (TA) (v) Financial advisory services for strategic partnerships in postal financial services and commercial communications services, such as E-mail, fax (TA) III. Operational Improvement (vi) Decentralization of sorting function; mail operations equipment (investment) (vii) Voluntary separation program (TA) (viii) Introduction of commercial accounting systems (investment) (ix) Strengthening of delivery fleet (investment) Project Financing The project will be financed jointly by the World Bank (66%) and the Government of Sri Lanka (34%). Project Implementation The Borrower is the Government of Sri Lanka. The project will be implemented by Sri Lanka Post over a five year period. A Project Management -2 -  Unit (PMU) will be responsible for overall project management and coordination. Project Sustainability The sustainability of the project requires full support of labor and management during project implementation. Government is required to provide financial support to Post Office (about Rs. 700 million) during first five years of reform program. This figure, however, is much less than the potential financial drain on the Government if no reform is undertaken (by about Rs. 4-5 billion). Lessons from Similar Projects Although there are very few Bank projects that address postal sector reform, there are many lessons from developed and developing countries around the world that have undergone reform of their postal service. International best practice indicates that for postal sector reform to be successful and sustainable, it needs to be comprehensive in scope, and must address the institutional, regulatory, and policy environment under which the postal service operates. Reflecting this notion, the project was developed as part of a comprehensive reform program for the postal service. The overall reform program supports postal policy reform, institutional restructuring and development, legislative reform, regulatory reform, capacity strengthening, operational improvement, infrastructure strengthening, human resource development, and product and service diversification and development. International experience also suggests that for developing countries in particular, significant investment outlays are required because often the sector has been the victim of long standing government neglect. The Postal Reform Project is addressing this problem by allocating investments for priority areas with the objective of rapidly developing internal cash generation capacity. Poverty Category Not applicable Environmental Aspects The environment category is C, since no potential environmental impact from project implementation seems likely. Program Objective Categories The primary program objective category is private sector development, although the project also supports economic management objective by facilitating the financial self-sufficiency of the postal service. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 - 3 -  Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending October 9, 1998. - 4 -