Sri Lanka - Second Power Distribution and Transmission

 ICRR 10494 Report Number : ICRR10494 ICR Review Operations Evaluation Department 1. Project Data : OEDID : OEDID: C2297 Project ID : P010386 Project Name : Second Power Distribution and Transmission Country : Sri Lanka Sector : Distribution & Transmission L/C Number : Credit 2297-CE Partners involved : Prepared by : Alvaro J. Covarrubias, OEDST Reviewed by : Alain A. Barbu Group Manager : Gregory K. Ingram Date Posted : 08/18/1999 2. Project Objectives, Financing, Costs and Components : The Second Power Distribution and Transmission project, supported by a Credit for SDR 37.5 million (US$50.0 million equivalent) was approved in early FY92 and closed at the end of FY 98. A total of SDR5.66 million (US$7.61 million equivalent) was canceled. The appraised cost of the project was US$ 79.0 million and the actual cost is estimated about US$77.9 million at completion in December 1999 with a delay of 27 months. The objectives of the project were to: (a) support rationalization of the power distribution organization, reduce system losses in distribution system operated by local authorities (licensees), and improve the quality of electricity service; (b) expand the power transmission system to meet demand growth; (c) strengthen the institutional capacity of the Ceylon Electricity Board, CEB; and (d) assist in the preparation of a selected hydroelectric complex . These objectives were to be met by project’s specific components for rehabilitating and expanding the distribution system of the licensees to be taken over by CEB during 1992-95; expanding the capacity of the 220-kV and 132-kV high voltage system; and providing technical assistance for implementing the physical and institutional development components of the project, and preparing the design and bidding documents of the Upper Kotmale hydroelectric plant . A training component was to improve the CEB’s staff in utility management. Over 92 percent of the project financing was allocated to the purchase of equipment and materials for distribution, transmission lines, and transformer and switching substations, and the rest to contract consultant services for the technical assistance component and to carry out a training program. 3. Achievement of Relevant Objectives : In December 1992 CEB had taken over 20 licensees’ distribution systems and two more by end -1997 all of them outside the Northern Province (the total was 56 licensees). CEB did not achieve more because in April 1996 it was agreed to suspend attempts to take over the rest in the north in view of the delicate security situation prevailing there. Later, CEB took over 10 licensees as the security situation improved . The distribution expansion was partially achieved: 240 km of MV and LV overhead lines (target was 495 km); 124 distribution transformers substations (target was 233); and 46,000 service connections (target was 25,000). The achievement in distribution rehabilitation exceeded the objectives : 519 km of LV lines rehabilitated (target was 300) and 20,000 meters replaced (target was 25,000). The objective of expanding the transmission system would be achieved during 1999 with delays ranging from 3 to 5 year when a total of 189 km of HV lines and related substations are expected to be all energized . The energy losses are still at the same 18.7 percent level that was at appraisal and well above the 15 percent target. The institutional development objectives were almost fully achieved . Some CEB’s performance indicators improved (the ratio customers per employee increased from 75 in 1992 to 130 in 1998; accounts receivable decreased from 3.5 months in 1992 to 2.7 in 1998; and self financing ratio is currently about 47 percent). But other indicators did not improve (the rate of return on CEB’s assets remains at about 4.6 percent, i.e. well below the 8 percent covenanted, because electricity tariffs are distorted and do not recover fully the cost of service ). The training program was carried out, but it did not have a significant impact on CEB ’s capabilities. 4. Significant Achievements : See above. 5. Significant Shortcomings : The cumbersome procurement procedures of the Government imposed upon CEB caused significant delays in project implementation. CEB could not take over all the distribution licensees existing in the Northern Province because of the unrest and security situation prevailing in that province . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory No disagreement (text of ICR refers to marginally satisfactory outcome ) Institutional Dev .: Substantial Modest Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : Areas of civil unrest risking difficult security situations should not be included as project component . Project management should be entrusted to competent and stable staff within a project implementation unit . Procurement issues should be addressed and resolved well before project approval by the Board . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : The ICR presents a concise description of project implementation and results . It contains a detailed combined supervision/ICR mission Aide-Mémoire and a rich contribution by the Borrower including an operational plan to complete the project. Some assumptions behind the recalculation of the ERR (i.e. regarding annual O&M and purchased power costs) could have been made more explicit .