Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9163 FROJECT COMPLETION REPORT SRI LANKA SIXTH POWER PROJECT (CREDIT 1048-CE) NOVEMBER 30, 1990 Industry and Energy Division Country Department I Asia Region 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. LIST OF ABBREVIATIONS AMP Accolerdted Mahaweli Program CEB Ceylon Electricity Board ERR Economic Rate of Return GOSL Government of Sri Lankca IDA International Development Association PCR Project Completion Report TO* wOaRD *gI FOR OFFICIAL USE ONLY wa0smten. DC. 20433 U.S A Office of Diretor.-moral operatic" 3awl"uae1 November 30, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Sri Lanka Sixth Power Proiect (Credit 1048-CE) Attached, for information, is a copy of a report entitled "Project Completion Report on Sri Lanka - Sixth Power Project (Credit 1048-CE)" prepared by the Asia Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment The oaeument hkm g mvm dunhbuuoe end may o d by usa enI ia Uh e Of theif Officia " Is cmau maY r mt Oehtsw be dundu thout Wod ank *utbwmn. FOR OFFICLIL USE ONLY SRI LANKA SIXTH POWER PROJECT (CREDIT 1048-CE) PROJECT COMPLETION REPORT Table of Contents Page No. Preface ...... ...................................................... Evaluation Summary .ii PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity .. 2. Background .. 3. Project Objectives and Description .. 2 4. Project Design and Organization.. 2 5. Project Implementation.. 3 6. Project Results.. 5 7. Project Sustainability .. 6 8. Bank Performance.. 7 9. Borrower Performance.. 7 10. Project Relationship.. 7 11. Consulting Services.. 7 12. Project Documentation and Data . PART III Statistical Inforamtion 1. Related Bank Loans and/or Credits .. 8 2. Project Timetable.. 9 3. Credit Disbursements ..10 4. Project Implementation ..11 5. Project Costs end Financing ..12 6. Project Results ..14 7. Status of Covenants ...................... 15 8. Use of Bank Resources ..17 ANNEX ........................................................... 19 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. PROJECT COMPLETION REPORT SRI LANKA SIXTH POWER PROJECT (CR. 1048-CE) PREFACE This is the Project Completion Report (PCR) for the Sixth Power Project in Sri Lanka, for which Credit 1048-CE in the amount of US$19.5 million was approved on June 19, 1980. The credit was closed on March 31, 1988, three years behind schedule. The last disbursement was on October 3, 1988 and the undisbursed balance of US$0.55 million was cancelled. The PCR was prepared by the Industry and Energy Division, Country Department 1, of the Asia Region. Preparation of this PCR was started during IDA's supervision mission of the ongoing power projects in February 1989, and is based, inter alia, on the Staff Appraisal Report, the Development Credit and Project Agreements, supervision reports, and correspondence between IDA and the Borrower. The Borrower provided information required for the preparation of Part III of the PCR. The comments of the Borrower on Parts I and III of the PCR have been incorporated in the final report. The lorrower did not complete Part II as requested. . ii - PROJECT COMPLETION REPORT SRI LANKA SIXTH POWER PROJECT (CR. 1048-CE) EVALUATION SUMMARY Objective The main objective of the project was to assist the Ceylon Electricity Board (CEB) to augment and reinforce its transmission and distribution facilities to meet increasing demand and improve the quality of supply (para. 3.1). Implementation Experience Project implementation experienced long delays, necessitating extension of the credit closing date by three years. The main reasons for the project slippages included: (i) delays in finalizing the cofinancing arrangement; (ii) protracted internal procurement processing; (iii) poor performance of contractors; (iv) weak project management; and (v) occurrence of civil disturbances (para 5.1). Project Results The project's primary objective was achieved. Except for two sub- components, all project components were completed. Implementation of a decentralized organization structure for CEB was completed in early 1987 (para 6.1). Project Sustainability Being part of the utility's least-cost investment program, the project will maintain r. steady level of net benefits throughout its economic life. Given the Governmer.t's commitment towards enabling CEB to achieve a minimum 8% rate of return on revalued net fixed assets, CEB is expected to maintain a sound financial position (paras 7.1 and 7.2). Findings and Lessons Learned T1- importance of conducting a thorough review during project appraisal of the constraints facing project implementation and the project entity's project management capacity cannot be over-stressed. Technical assistance should be incorporated in the project scope to address identified deficiencies. Also, advance procurement actions . ld be initiated in view of the protracted nature of the .orrower's internal procurement processing procedure (para. 8.1). SRI LANKA SIXTH POWER PROJECT (CR. 1048-CE) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Project Name: Sixth Power Project Credit No.: 1048-CE RVP Unit: Asia Country: Sri Lanka Sector: Energy Subsector: Power 2. Background 2.1 Sri Lanka has few indigenous resources. The major indigenous resources are hydropower and fuelwood. There are no known hydrocarbon reserves. The hydropower potential is estimated to be about 2,300 MW, with an energy Dotential of about 6,600 GWh a year under average hydrological conditions. In 1980, installed hydro-generating capacity was 331 MW. Per capita energy consumption in 1980 was about 232 kg of oil equivalent, 68% of which was supplied by fuelwood and agricultural residues, 29% by imported petroleum products and 3% by hydropower. 2.2 The country's substantial dependence on imported energy and its high cost since 1973 strongly influenced the Government of Sri Lanka's (GOSL) energy sector policy, the principal objectives of which are to: (a) develop domestic hydropower resources to reduce the country's dependence on imported oil; and (b) improve the access to, and quality of, electricity supply throughout the country. To accord with this policy, GOSL has given high priority to the development of the power subsector. The centerpiece of hydropower development was the Accelerated Mahaweli Program (AMP), which added 533 MW generating capacity to the national grid (Victoria, 210 MW; Kotmale, 201 MW; and Randenigala, 122 MW) during 1984-1988. 2.3 The Ceylon Electricity Board (CEB), formed in 1969, is a statutory corporation with responsibility for the generation, transmission and, to a major extent, the distribution of electricity in Sri Lanka. In 1980, CEB's total installed generating capacity was 421 MW, comprisirng 331 MW hydroelectric plants and 90 MW thermal plants. In parallel with the development of hydropower plants constructed under the AMP, CEB is the executing agency for the complementary investments required to augment and reinforce its transmission and distribution systems in order to meet the increasing demand for electricity. 2.4 The Bank Group's involvement in the power subsector started with a loan of US$19.1 million (Loan 101-CE) in 1954 to help filnance a 25 MW expansion of the Laksapana hydroelectric scheme. To date, the Bank Group has financed Len operations in the power subsector, of which eight have been completed. The 2 Sixth Power Project and the four subsequent lending operations are consistent with the Bank Group's strategy for the Sri Lankan power subsector, aimed at supporting efforts to ensure the efficient development of the subsector to meet demand at least cost. The Sixth Power Project initiated organizational reforms in CEB to strengthen its planning, operational a i financial management capabilities. Also, under the same project a tariff study was carried out and a 8% rate of return on revalued average net fixed assets was set as a financial objective for CEB, which provides a useful broad indicator for cost recovery and has been the driving force behind the various tariff adjustments implemented by GOSL since 1981. 3. Project Objectives and Description 3.1 The main objective of the project was to assist CEB to augment and reinforce its transmission and distribution facilities to meet increasing demand and improve the quality of supply. The project comprised a four-year time slice (1981-1984) of CEB's investment program for the augmentation and reinforcement of the 132 kV transmission system and distribution system. The key project components were: (a) 172 miles of 132 kV second circuits to be strung on existing towers to improve supplies to Ratmalana, Jaffna and Trincomalee; (b) 50 miles of new single circuit 132 kV line to Valachchenai; (c) construction of a new 132 kV grid substation at Valachchenai and augmentation of three existing 132 kV switching stations at Kolonnawa, Ratmalana and Anuradhapura; (d) Colombo Distribution System Expansion; (e) construction of 500 miles of 33 kV subtransmission lines; (f) construction of 250 distribut-on substations together with 125 miles of associated 33 kV spur lines; (g) vehicles and tools; and (h) engineering and management consulting services. 4. Project Design and Organization 4.1 The project scope was defined based on the load forecast and system studies prepared by CEB. Project design was straight-forward. During proiect appraisal, GEB decided to undertake itself the engineering and project management for IDA-financed components and construct the 33 kV project components through force account, with the Bank's concurrence. Although CEB had previous experience with such works, the manpower requirements, division of responsibilities between the central construction department and the seven divisions under the two operating regions, project scheduling, monitoring and 3 reporting arrangements were not assessed and defined during appraisal and credit negotiations. This omission contributed to the excessive implemenration slippage of the 33 kV project components (para 5.3). 5. Project Implementetion 5.1 The most critical variance betwoen planned and actual project implementation was excessive delays in the construction of the Habarana- Valachchenai single circuit 132 kV line (60 miles) and the 33 kV components. The original project completion date was March 1984. The credit was closed on March 31, 1988 after three extensions, indicating an overall project implernentation delay of 48 months. Delays dogged the project from the beginning of implementation. The planned and actual completion dates for each project component are compared in Table 4, Part III. The main reasons for the project slippage were: (a) delays in finalizing the cofinancing arrangement by the Saudi Fund (mainlv for the Colombo Distribution System Exparsion component) which dela i the IDA credit's effectiveness by six months; (b) protracted procurement processing and tender evaluation within CEB/GOSL; (c) poor performance by several contractors; (d) project management deficiencies; and (e) civil disturbances. 5.2 132 kV transmission lines. During project appraisal, it was agreed that CEB would implement the 132 kV project components through four single responsibility contracts, which would cover: (i) the 132 kV transmission lines, the 132 kV grid substation and switching stations financed by IDA, and (ii) the 132 kV primary distribucion substations and the 132 kV underground cables for the Colombo distribution system financed by the Saudi Fund. During implementation, the scope of the 132 kV transmission lines component was somewhat changed. First, construction of the second circuit 132 kV line ;rom Anuradhapura to Kantalai was undertaken by CEB's force account and thus deleted from the projecz scope; instead of this, construction of the 132 kV second circuit from Kantalai to Trincomalee (12 miles) was added. Second, the new single circuit 132 kV line to Valachchenai was rerouted from Habarana instead of Kantalai. The length of new route is about the same, but the total distance the energy must travel from the source of supply is shorter, leading to reduction in transmission losses. 5.3 Tenders for the 132 kV transmission lines closed on May 12, 1981. However, CEB was unhappy with the lowps; evaluated bidder's amount of experience in stringing the second circuit lines on existing towers with the first circuit live and preferred to award the contract to the second lowest evaluated bidder, whose pricc was 2.7% higher, but who had more experience. IDA did not agree with CEB's recommendation. A solution to this long-standing impasse was finally found by splitting the original contract scope into two 4 part:s: the first covered the stringing of the second circuit along three existing lines and was awarded to the more exper'enced conitractor; the second was for the construction of the new single circuit 132 kV Habarana- Valachchenai line and was awarded to the lowest evaluated bidder. By good fortune, when the works were so divided, each of the two contractors was the lowest evaluated bidder for the works awarded. The two contracts were awarded on December 3, 1982, two years behind the SAR schedule. 5.4 The contract for stringing the second circuit 032 kV lines was satisfactorily conipleted by March 1935. However, construction of the single circuit 132 kV Habarana-Valachchenai line was plagued with problems from the outset. First, the contract award was not accepted by the contractor until May 1983. Ther, implementation suffered a fourteen-month delay (September 1983-November 1984) on account of strikes at the contractor's factory in India, followed by a seven-month delay (November 1984-May 1985) due to civil disturbances in the project area. The contractor remobilized in October 1985, but progress was extremely slow. By the end of 1986, only 54 of a total of 345 towers required for the 60 mile-long line had been erected and only 90 foundations had been completed. Even material supplies were not complete. The material delivered by then was available for 35 additional towers, thus CEB was unable to take up the erection work on force account. As the line route was in areas affected by the civil disturbances, the zontractor showed no interest in completing the work. Consequently, the contract was cancelled in 1987. No alternative arrangement was made to complete the erection work for this line. 5.5 33 kV Components. As mentioned in para 4.1, during project appraisal, CEB decided to construct the 33 kV components on force account. However, the manpower requirements, division of implementation responsibilities, as well as scheduling and monitoring aspects were niot defined. Had strong project management been in place, this project organization deficiency could have been rectified in an early stage. Unfortunately CEB's overall project management capacity was constrained and overstretched as a result of the accelerating exodus of experienced officers from CEB to better paid jobs in the Middle East and elsewhere, as well as the competing demands on the central project department. Apart from under-staffing, project management suffered from the lack of an effective scheduling and monitoring system. Consequently, construction of the 33 kV components was neglected, and little work was carried out until 1984. ln June 1984, CEB decided to contract out about 250 miles of 33 kV lines erection works to local contractors. Two local contractors were engaged in July 1984; due to their inexperience, progress was dismal, and one contract was eventually cancelled at the end of 1986. A third contractor was engaged in August 1985, who satisfactorily completed 66 miles of erection works in May 1987. Due to competing demands, CEB's construction gangs were not available for the project, and erection work through CEB's force account only started in August 1986. By credit closing date, out of a total of 500 miles of 33 kV subtransmission lines, 375 miles were completed, including 275 miles constructed by CEB's force account. Erection works for about 60 miles of 33 kV lines were not taken up due to civil unrest and resultant depressed electricity demand which did not justify the lines. Erection works for the 250 distribution -ubstations with associated 33 kV spur 5 lines were completed by the construction gangs in the two operating regions ir. mid-1989. 5.6 Given the delays in constructing the 132 kV Habarana-Valachchenai line and the 33 kV coiaponents, and under-utili7ation of credit funds as a result of lower actual costs, IDA agreed, in February 1985, to finance additional substation works at Kand', Kurunegala and Habarana in the amount of US$4.8 million. These works were completed by mid-1988. 5.7 The occurrence of civil disturbanLes which affected project implementation could not have been foreseen during project appraisal. However, inadequate assessment by the Bank staff of CEB/GOSL's procurement procedures, CEB's project management capacity and the strength and availability of CEB's force account conscruction gangs during project appraisal contributed to the project slippage. A more thorough reviev of the internal procurement and bid evaluation procedures would have sharpened the Bank's appreciation of this issue and led Bank staff to: (i) initiate discussions with GOSL regarding the need to striamline the internal procurement procedure; (ii) pay more attention to procurement packaging, particularly the need of separating the 132 kV lines cnmponent into two packages in view of the technical requirements involved with stringing the second circuits on existing toiwers with the firsr circuit line, thus avoiding an 18-month procurement delay; and (iii) initiate advance procurement actions. Also, a more careful review of the capacity of, and competing demands on CEB's force account construction gangs would have led Bank staff to recommend supply and erection contract for at least a portion of the 500 miles of 33 kV subtransmission lines. 6. Project Results 6.1 Except for the 132 kV Habarana-Valachchenai line and about 125 miles of 33 kV lines, all project components were completed. The project's primary objective was thus achieved. Apart from the construction of physical facilities, the project provided management consulting services to re-examine CEB's organization structure, as the existing structure was inappropriace for its expanead size anid responsibilities. The consultants recommended a decentra `zed organization consisting of seven departments at headquarters, two operating regions with seven divisions under them, and a generating group. In September 1982, CEB's Board agreed to restructure CEB in accordarce with the consultants' recommendations. Implementation of the new organizational stru-ture began in January 1984 and was completed in early 1987. This was an important step in strengchening CEB's institutional capasity. 6.' Since the project constituted an integral part of CEB's 1982-1992 investment program, its benefits to consumers cannot be separated from those generated by the rest of CEB's capital expenditure. Thus the economic rate of return (ERR) is reassessed for the entire investment program, as at appraisal. The ERR thus calculated is about 3.4% (if average tariff is used as a proxy of economic benefit) or 12.2% (if consumers' willingness to pay is used as a measurL of economic benefit). The ERRs compare very well with the appraisal 6 estimates of 3.3% (based on average tariff) and 11.6% (based on consumers' wiilingness to pay) respectively. Two variances are noteworthy which have mutually off-setting impacts on the rate of return. One variance relates to the load forecast. At appraisal, energy sales were pro]ected to grow at an avera6e annual rate of 10% during 1981-1990; this waE an overestimate compared with the historical average annual growth rate of 7.6% for 1975-1980. Actual encrgy sales growth avecaged 8.2% p.a. during 1981-1986 and 1.8% p.a. during 1987-1989. The sluggish sales growth during the past three years was the result of civil disturbances which seriously curtailed the level of economic activities and thus de,mand for electricity in the troubled areas of the country. Correspondi'ig to che lower demand growth wa,' the postponement of major investment, -.g., the commissioning of the Rantambe hydropower plant (49 MW) and the Samanalawewa hydropower plant (120 MW) has been shifted to 1990 and 1991, respectively, instead of 1987 and 1990 as assumed at appraisal. 7. Project Sustainability. 7.1 The project is a part of CEB's least-cost expansion program. Based on the GDP growth projections prepared by the Bank for the Econom_... Restructuring Credit (Cr. 2128-CE) and the hi.storical linkages between the GOP and electricity consumption, electricity sales are projected to grow at an annual rate of 5% in 1990, 6% in 1991, 7% in 1992, and 7.8% thereafter. In this context, the project will maintain a steady level of net benefits throughout its economic life. The benefits are likely to be aiigme_nted by CEB's take-over of local authorities' distribution systems, a process supported by IDA Credit 1933-CE. 7.2 Under the project, GOSL/CEB agreed to carry out a tariff study based on long-run marginal cost and to implement tariff adjustments to enable CED to achieve a rate of return on revalued average net fixed ass_ts of not less than 8%. Tariff increases were introduced in 1982 (32%), 1985 (75%), 1988 (17%) and 1990 (40%). As a result, CEB met the rate of return target during 1985- 1988. In 1989, the rate of return was below 8% mainly due to depressed electricity sales. The tariff study completed in 1981 was updated in 1984 an'i is now being updated under IDA's Power Distribution and Transmission Project (Cr. 1933-CE). Given this record, it is expected that GOSL would continue to support CEB to meet its financial objective. CEB's financial performance for 1981-1989 is given in Annex 1. 8. Bank Performance. 8.1 Through the project, the Bank made a positive contribution to CEB's physical and institutional development. The main weaknessec of the Bank's performance were: (a) inadequate emphasis on project implementation arrangements; and (b) inadequate assessment of CEB's project management capability and the impact of the continuing exodus of experienced staff from CEB on project management. In retrospect, Bank staff should have: (i) pressed for more concrete project implementation arrangements, including definition of the staffing levels and authority of the project management unit, and the requirements and availability of construction gangs for the 33 kV project components; (ii) increased the scope of consultant services to supplement CEB's in-house project management capacity since it had experienced 7 difficulties retaining experienced staff due to governnment-imposed ceilings on remuneration; and (iii) paid more attention to procurement packaging and allowed advance procurement actions in view of the protracted internal procurement procedure. These lessons are very relevant for future lending operations. 9. Borrower's Performance. 9.1 Considering the staff constraints faced by CEB and the general conditions in the country during project implementation, the attainment of the primary project objective is a tribute to the dedication of CEB management and project staff. The main weaknesses of the CEB's performance were: (a) protracted internal procurement processing and bid evaluation; (b) slow decision-making which affected the resolution of implementation issues; and (c) weak project management resulting from under-staffing of the project management unit, inadequate authority assigned to project managers, and lack of an effective project monitoring and reporting system. The experience of the project points to the critical need for CEB/GOSL to streamline the internal procurement procedures and strengthen project management to ensure timely and efficient implementation of ongoing and future projects. 10. Project Relationship. The Bank maintained close working relationships with GOSL and CEB on the project. 11. ConsultinF Services. The performance of the engineering consultants for the design and supervision of the Colombo distribution system expansion component and of the management consultants was satisfactory. 12. Project Documentation and Data. The legal documents adequately reflected the project's objectives. The Staff Appraisal Report provided a useful framework to monitor project implementation. CEB's project cost accounting has improved since 1986 and is being strengthened. CEB provided useful information for the preparation of the PCR. - 8 - PROJECT COMPLETION REPORT SRI LANKA SIXTH POWER PROJECT (CREDIT 1048-CE) PART III 1. Related Bank Loans and/or Credits Loan/Credit Year of Title Purpose Approval Status Comments LN 0101-CE To help finance the 25 MW expansion 1954 Completed Aberdeen-Laksaapana of the Laksaapana hydroelectric scheme LN 0209-CE To help finance construction of a 26 MW Grandpa.a Thermal thermal plant at Kelanitissa. 1958 Completed LN 0283-CE To help finance a 25MW expansion at 1961 Completed Norton Bridge Hydro. Kelanitissa. & Thermal LN 0836-CE To help finance the 90 MW Maskellyha 1969 Completed Fourth Power Project Oya Stage II project. CR 0372-CE For reinforcement and extension of CEB's 1973 Completed Fifth Power Project transmission and distribution systems. CR 1210-CE To help finance construction of a 220 kV 1982 Completed Seventh Power Project transmisr-or, link to vacce.e power from the hydropower stations in the Mahalweli basin to the principal load center in Colombo area. LN 2187-CE To finance construction of 80MW thermal 1982 Completed Eighth Power Project capacity at Sapugaskanda. CR 1736-CE For reinforcement and expansion of CEB's 1986 Under implementation Ninth Power Project distribution systems. CR 133-CE To help finance the rehabilitation ano 1988 Under implementation Distribution & expansionb of about 130 local licensees Transmision distribution systems to be taken over by CEB and reinforcement of CEB's transmission system. -9- 2. Project Timetable Item Date Date Date Planned Revised Actual Identification 07/00/79 Preparation 11/00/79 Appraisal Mission 01/29/80 Loan/Credit Negotiations 05/05/80 Board Approval 06/19/80 Loan/Credit 09/24/80 Signature Loan/Credit 03/30/81 Effectiveness Loan/Credit Closing 03/31/85 03/31/86 03/31/87 03/31/88 Loan/Credit Completion 09/30/85 09/30/86 09/30/87 10/03/88 -10- 3. Credit Disbursements Bank Fiscal Estimated Actual Actual % of Year/Quarter Cumulativ Cumuilative Estimated 1981 1 2 0.5 3 1.0 4 2.4 1982 1 4.5 0.02 0.5 2 7.0 0.12 1.7 3 9.5 0.14 1.5 4 12.0 0.33 2.8 1983 1 13.7 1.08 7.9 2 15.0 2.26 15.1 3 16.2 4.27 26.4 4 17.1 6.77 39.6 1984 1 17.9 7.62 42.6 2 18.6 7.92 42.6 3 19.3 8.23 42.6 4 19.5 8.86 45.4 1985 1 8.95 45.9 2 9.16 47.0 3 9.45 48.5 4 9.86 50.6 1986 1 10.17 52.2 2 10.86 55.7 3 11.07 56.8 4 11.38 58.4 1987 1 12.45 63.8 2 14.64 75.1 3 14.94 76.6 4 15.92 81.6 1988 1 15.86 81.3 2 16.07 82.4 3 17.09 87.6 4 17.63 90.4 1989 1 18.92 97.0 2 18.95 97.2 Date of Flnal Disbursement 10/03188 -11- 4. Project Implementation Panned Contract Contract Actual Proiect ComDonents Conpletion Award Completion Completion Comments 132 kV Transmission Lines Kolonnawa to Ratmalana 06/82 12/84 Anuradhapura to Chunnakam 09/82 03/85 Anuradhapura - Kantalai 12/83 03/85 Kantalai to Valachchenai 12/83 Not completed See note 1 132 kV Sub & Switching Stations Extension of Kolonnawa & Ratmalana Switching Stations 06/82 12/84 Extension of Anuradhapura Switching Station 06/82 07/86 Valachchenai Grid Substation 12/83 11/86 Colombo Distribution Extension of 132 kV Switchgear at Kolonnawa & Kelanitissa 06/82 04/85 Installation of 132 kV Cables 06/83 04/85 Erection o! two 132/11 kV Primary Substations 06/83 04/85 Augmentation of two Existing Primary Substations 12/83 05/85 11 kV Network Modifications 12/83 05/rS 30 Consumer Substations 03/84 05/85 33 kV Subtransmission Lines 12/83 Not completed See note 2 Other Distribution 33 kV Distribution Lines & 250 Consumer Substations 03/84 06/89 Additions to Project Scope New Substation at Kandy 0US8 Upgrading Kurunegala Substation 06/88 Augmentation of Habarana Substations O6/88 Stringing the Second Circuit from Kantalai to Trincomalee Comments: 1. This section was rerouted from Habarana to Valachchenai following further system studies; construction of the line was suspended in 1987 due to poor perfc7mance of the contractor and civil disturbances in the project area. 2. By end 1 889 about 000 kms of 33 kV lines were constructed as compared with the original target of 800 kms; the costs of towers in the amount of US$1.96 million were provided by the cofinancier, the costs of conductors and erection works were financed by CEB -12- 5. Project Costs and Financing A. Project Costs (USS million) Appraisal Estimate- Actual u Local Foreign Local Foreign Item Costs Costs Total Costs Costs Total 132 kVTransrnision Lines 0.64e 4.271 4.917 0.313 4.010 4.323 132 kv Sub & Switching Stations 0.181 1.887 2.068 0.544 8.303 6.847 33 kV Subtransmission Lines 2.814 7.372 10.186 0.022 1.956 1.978 Colombo Distribution System 1.959 10.307 12.266 2.139 12.539 14.678 Other Distribution Works 1.442 2.772 4.214 0.812 3.900 4.811 Vehicles & Tools 0.529 0.529 0.011 0.586 0.597 Buildings 0.449 0.449 0.141 0.000 0.141 Consulting Services 0.426 1.574 2.000 0.284 2.055 2.339 CEB's Supervision 0.522 0.522 0.246 0.000 0.246 Custons Duties 7.178 7.178 9.835 0.000 9.835 Total Base Costs 15.617 28.712 44.329 Physical Contingencies 1.56 2.884 4.424 Price Contingencies e.6e2 7.887 14.549 Total Project Cogst 23.839 39.483 63.302 14.347 31.448 46.795 -13- B. Project Flnancing (US$ million) Pianned Credit Sources Agreement Final IDA Categories: (1) Equipment, materlals & 8,500 11,361 Installations for the 132 kV system (2) Equipment, materials & 2,500 4,950 Installations for the 33 kV system (3) Vehicles and services 500 153 equipment (4) Equipment & materials 5,500 989 for distribution systems (5) Consultants' services 1,500 1,492 and training (6) Unallocated 1,000 Total IDA 19,500 18,945 Other External Source 20,000 13,448 CEB Contribution 23,800 14,347 Total 63 46.740 'includes US$0.9 million disbursed for the Seventh Power Project (Cr. 1210-CE). 6. Project Results A. Direct Benefits B. Economic Impact Appraisal Estimate at Appraisal Estimate at Indicators Estimate Closing Date Estimate Completior Economic Rate of Return Energy Sales (GWh) 1985 2,450 2,061 Average Tariff as a Proxy 3.3% 3.4% 1980 3,875 2,475 of Benefit Number of Consumers: Combined TarifflConsumers' 1985 313,700 394.100 Willingness to Pay: 1986 433.400 000,000 Stepped demand curve 7.6% 8.9% Concaved demand curve 11.6% 12.2% Straight-line demand curse 16.0% 15.3% Assumptions Time-slice of Investment 198089 1982-92 Program Incremental Basis Yes Yes i Exclusion of Duties & Taxes Yes Yes Application of Standard Yes Yes Conversion Factor -15- 7. Status of Covnants Section Subb Credit Acreement 3.02(c) The Borrower shall take action to enable CEB In compliance to parthIpatb in the supervision and control of th dosign, construction and operation of the asset referred to in 3.02(d). 3.02(d) The Borrower shall transfer to the Board all In compliance assts relating to the generation, trans- mission or distribution ot electricity con- structed under Joint Scheme not later than the coming into operation of such asets. 3.03(a) The Borrower shall provide foreign exchange In compliance to enable CEB to maintain adequate inven- tories. 3.03(b) The Borrower shall ensure tiemly payment of Not In full compliance The Borrower is taking electricity owed by the local authorities actions to address this to the Board. Issue. 3.03(c) The Borrower shall take actions to enable In compliance CES to effect tariff adjustments as re- quired to comply with provisions of Section 4.04 of the PA. 3.04 The Borrower shall ensure the completion of the following: (a) the transfer to CEB of the Ukuwela hydro- In compliance station; (b) settlement of outstanding amount in CEB's In compliance accounts in respect ot parity variance on loans repayable in foreign currencies; and (c) determination of the terms of fudning by In compliance the Borrower to the CEB for 1978 and 1979. -16- Project Agreement 3.03 CEB shall furnish to IDA any proposal for In compliance major changes in CEB's organizational structure prior to impimeneting such proposals. 3.04 CEB shall implement a staff training pro- In compliance gram with a timetable satistactory to IDA. 3.05 In the event that electricial undertakings In compliance carried on by local authorities are to be transferred to CEB, CEB shall prepare and agree with IDA on a program for such trans- fer. 3.06 CEB shall implement program for the In compliance improvement of its management. 4.02 CEB shall furnish to IDA its unaudited In compliance annual accounts within four months from the end of each fiscal year and audited accounts within ten months from the end of each such year. 4.03 Except as IDA shall otherwise agree, CEB In compliance shall maintain a long-term debt service coverage not less than 1.25. 4.04(a) CEB shall before the start of each fiscal In compliance year review, and adjust if necessary, its tariffs to achieve an annual return on the current value of its net fisced assets in service of ot less than 8%. 4.04(b) CEB shall not pay any dividend on the share In compliance capital of the Board before CEB's self- financing capability reaches a level of not less than 30%. 4.05 CEB shall ensure that total dues from con- In compliance sumers for electricity supplied shall not f (ceed three months' billings. 4.06 CEB shall complete on-going tariff study and Not in compliance. CEB is implementing measures review its tariff structure and thereafter to bring the accounts receiv- implmenet agreed recommendations in accord- able to the covenanted level. ance with satisfactory timetable. -1 7- 8. Use of Bank Resources A. Staff Inputs Stage of Project Cycle Planned Revised Final Through Appraisal 50.7 Appraisal through 11.1 Board Approval Board Approval through 5.0 Effectiveness Supervision 62.2 PCR 4.0 4.0 4.0 133.0 S. Use of Bank Resources B. Mliions Mo/ No of SWe In Special- Performance Type of St&" Yea Persons Field kzation RPtina Problems StJPERVISION 10/3O 3 1 FA/PE/EC 1/2 N/A 01/31 I I FA N/A (no S0) Audit report overdue 061 2 1 FA/PE 1/2 Coflnancing delays Procurement delays 01/82 3 2 FAIPE/EC 1/2 Manageent weakness Contract award delays 06/82 1 1 FA NA (no SPI) Management weaknoe Procurement delays 10/82 2 1 FA/PE NA(no50) Financlal-cashflow Retain management consultants 03/V3 1 0.6 PE 1/2 Procurement delays Disbursements behind schedule oU83 1 1.5 PE 1/2 Anticipated compltion behind chedule Management weakness Disbursements behind Schedule 01/84 1 1 FA 2/2 Anticipated completion behind chedule Management weakness Disbursements behind schedule 0/84 4 3 FA(2YPE(2) 2/2 Anticipated completion behind schedule Disbursements behind schedule Management weakness Contract delays 07/85 3 2 FA/PE/EC 2/2 Anticipated completion behind schedule Civil disturbances 10/85 1 1 PE 3 Civil disturbances/factory trikes Local contractors' performanoe below par Force account work performance below par. 05/85 3 1 EE/FA 2/2 Anticipated compietion behind chedule 05/80 2 1 PE/FA 3 Ethnic disturbances Unsatisfactory performance of contractors 10/86 2 2 EE/FA 3 AnticIpated competion behind schedulo Disburwments behind schedule Management wakness 10/87 2 2 FA/PE N/A Ethnic disturbances Unsatisfactory performance of corntractors O0U 2 Ethnic disturbances Unsatisfactory performance of contractors 02/E9 2 PE/FA(Cons) N/A PCR 08/89 2 PE/FA(Cone) 2 Sri Lanka Sixth Power Project(Cr.1048-CE) Project Comptetion Report CEB-Income Statements 1981-1989 (SL Rs million) 1981 1982 1983 1984 1985 1986 1987 1988 1989 Energy Generation(GWh) 1872 2066 2114 2261 2464 2653 2701 2799 2857 System Loss(%) 20 19 15 17 16 16 16 15 18 Erwnrgy Sales(GWh) 1503 1679 1792 1877 2061 2232 2258 2370 2339 Sa.es Growth(M) 8.0 11.7 6.7 4.7 9.8 8.3 1.2 5.0 -1.3 Tariff Increaseo.) Average Tariff(Rs!XWh) 0.59 0.77 0.84 0.78 1.36 1.48 1.47 1.68 1.67 Operating Revenue Electricity Sates 881 1302 1514 1464 2807 3306 3319 3985 3915 Fuel Surcharge 758 1140 2507 566 114 17 1259 268 65 Other Operating Revenues 224 146 117 166 141 131 Interest Earnings 169 366 364 229 275 Total Operating Revenue 1639 2442 4021 2254 3236 3806 5108 4623 4386 Operating Expenses Fuel Cost 560 971 2311 489 111 17 1223 229 60 Operation & Maintenance 132 167 207 288 341 481 528 724 942 Turnover Tax 31 51 46 20 88 116 137 128 119 Acuinistration 101 110 255 187 172 166 244 345 409 Depreciation 256 329 371 460 641 922 802 1038 1308 Total Operating Expenses re81 1628 3190 1444 1353 1702 2934 2464 2838 Operating Income 558 814 831 810 1883 2104 2174 2159 1547.9 Less: Interest Charged Operations 63 95 108 321 409 515 813 979 640.1 Expenditure Of Feasi. Studies 7 40 108 45 Net Income Before Tax 495 719 73 482 1434 1589 1253 1135 907.8 Income Tax 282 ;38 46 169 360 Net Income 495 437 285 436 1265 1229 1253 1135 907.8 ==5= U===5 =5=5= 5=55= =555= ==55Z =5=X- =5=5 5 Return On Met Fixed Assets(%) 11.4 8.7 5.6 7.4 10.7 8.6 9.4 7.9 5.1 OQ XL~ >4 Sri Lanka Sixth Power Project(Cr.1048-CE) Project Coepletion Report CEB-Salance Sheets 1981-1989 ( as of December 31 cf, in SLRs willion) Assets ------ 1981 198 1983 1984 1985 1966 1987 1968 19q9 Fixed Assets Gross Fixed Assets In Lse 8641 11006 12978 19722 27276 30901 35864 43221 49028 Lens Cua. Depreciation 2557 3310 3947 5009 6306 7248 8789 11368 13789 Met Fixed Assets 6085 7696 9032 14713 20970 23653 27095 31853 35239 Construction In Progress 812 1033 1790 2462 1800 2872 4996 9534 15030 Investment In Subsidiaries 8 8 8 13 83 194 219 295 324 Insurance Escrow Account 105 148 182 18 Current Assets Cash 62 159 -3 777 2444 3870 2657 1397 841 Inventories 717 776 1045 822 922 1001 1178 1651 2183 Accounts Receivable 507 1317 1545 1604 1169 916 1093 1678 1496 other Receivables 578 576 1319 346 452 360 2483 3435 2581 TotaL Current Assets 1864 2828 3906 3549 4987 6147 7411 8161 7103 0 Total Assets 8769 11565 14736 20737 27840 32971 39669 50025 57884 2222= 32=2 =232 2232 223=2 2222 232 2222 2 Equity Goverment Equity 732 969 1065 2498 703 5 7251 7333 8m7 8047 Consmur Contribution 468 753 1400 1521 1776 1980 2125 2285 3080 Revaluation Surplus 3900 5067 5871 7352 8931 8249 1C7T8 15641 18843 Retained Eamings 1563 1999 2814 3687 4033 5262 6473 7TI3 8512 Total Equity 6664 8788 11150 15058 21775 22742 26709 33586 3882 Long Term Debt 1453 1539 2259 4820 4909 8537 10835 13636 16617 Current Liabilities 653 1237 1327 859 1156 1692 2325 2803 2735 Total Equity And Liabilities 8769 11564 14736 20737 27840 32971 39869 50025 57884 Current Ratio 2.9 2.3 2.9 4.1 4.3 3.6 3.2 2.9 2.6 Lon Term Debt 18 15 17 24 18 27 29 29 30 o /Equity 82 85 83 76 82 73 71 71 70 Fb Sri Lanka Sixth Power Project(Cr.1048-CE) CEB-Funds Flow Statements 1961-1988 t in SLRs million) Sour-a_ 1981 1982 1983 1984 1965 1966 1967 1988 ------- ----- ----- ----- ----- . ..... . ..... - - - - - - Met Income 495 437 285 436 1265 1229 1216 1175 Depreciation 256 329 371 460 641 922 802 1038 ..... -----. ..... ----- . . ..... ..... ..---.. ---.-- .. ........... ....... .. InternaL Cash Generation 751 766 656 896 1906 2151 2018 2213 Gover-ment EqiLty 55 238 95 1434 4537 216 81 704 Consumer Contribution 121 285 647 121 255 204 145 159 Loan 29Z 161 1371 2948 433 4033 2693 3165 .--- Total Sources 1219 1450 2769 5399 7131 6604 4937 6241 Applications Construction Progrm 941 962 1660 5133 4659 5359 4119 5470 Investrent In Subsidiaries 70 111 25 76 Debt Rep ymnt 97 86 120 155 344 405 396 364 Deposit To Escrow Account 105 42 34 Chang In Reserve 917 4 24 Incres In Working Cepitat Cah Incr ea -159 98 -162 -? *6- I6 -1n93 -1260 other Than Cash Increase 340 284 * - y -5Z_ -E 1844 1533 Total AppLicationr 1219 1450 2.ow 5399 7131 6604 4937 6241 LTD Service Coverage 5.1 4.8 3.4 2.6 3.1 2.9 2.3 2.4 Contritt1on to InvestmntCM) S0 30 - 12 - 17 29 26 0