75878 May 2012 PPIAF Assistance in Sri Lanka The Democratic Socialist Republic of Sri Lanka (Sri Lanka) is an island in the Indian Ocean about 28 kilometers off the southeastern coast of India with a population of about 21 million. Sri Lanka has changed dramatically since May 2009, when the 26-year armed conflict ended and the resettlement of internally displaced persons was mostly completed. The macroeconomic situation has much improved, and Sri Lanka is now a middle-income country. PPIAF has been engaged in Sri Lanka since March 2000. Technical Assistance for Sri Lanka’s Enabling Environment In March 2000 the government requested PPIAF assistance to help the Public Enterprise Reform Commission with its privatization program in infrastructure sectors. The PPIAF-funded technical assistance consisted of supporting the Public Enterprise Reform Commission to develop a framework for the regulation of infrastructure sectors so as to reduce risk for investors if the government proceeding with privatization. An analysis of the institutional framework and a review of alternative structures for a regulatory office were carried out. The report published “Consolidated Strategy for Regulating Infrastructure in Sri Lanka� suggested that an organization based around regulatory issues rather than sectors was the most appropriate framework for Sri Lanka and recommended the establishment of a multi-sector regulator. This recommendation was accepted by the government and led to follow-on support in 2002 from PPIAF for drafting the legislation for the creation of the multi-sector regulator. Following the second PPIAF technical assistance, the Public Utilities Commission of Sri Lanka (PUCSL) was established by the Act No 35 of 2002 as a multi-sector regulator to regulate certain physical infrastructure industries in the country. It came into operation in mid 2003 with the appointment of the first group of Commissioners and its Director General. Initially the PUCSL Act provided for regulation of the electricity and water service industries. Later in March 2006, petroleum was also added to the list of industries to be regulated by the PUCSL. Results of PPIAF’s Activities for Sri Lanka’s Enabling Environment Category Outputs Enabling environment reform  Report on Sri Lanka’s institutional framework “Consolidated Analyses/assessments prepared Strategy for Regulating Infrastructure in Sri Lanka,� 2001 Policies prepared or legal or regulatory changes  Draft law for the creation of a multi-sector regulatory body, 2002 recommended Category Outcomes Enabling environment reform Policies adopted, legislation  Public Utilities Commission of Sri Lanka (PUCSL) established passed/amended, or regulation by Act No 35 of 2002 issued/revised  The Public Utilities Commission of Sri Lanka (PUCSL) came Institutions created or into operation in mid 2003 with the appointment of the first strengthened group of Commissioners and its Director General 1 Technical Assistance for Sri Lanka’s Water Sector In December 2002 the government requested PPIAF funding to review draft legislation for the water and sanitation sector. At that time, the government had prepared a draft version for new legislation to be enacted in order to enable private sector participation in the sector. PPIAF assistance consisted in funding legal expertise to review the draft Water Services Reforms Bill prepared by the government. The PPIAF-funded legal review validated the government’s draft law and suggested minimal changes to the proposed Water Services Reforms Bill draft in order to respect the stated desire of the government to move forward as quickly as possible in order to avoid uncertainty. The Water Services Reforms Bill was appropriately amended, accepted by the government and approved by the Cabinet in 2003. However, with a change in government in 2004, this Bill was not validated by the new Parliament. Results of PPIAF’s Activity in Sri Lanka’s Water Sector Category Outputs Enabling environment reform Policies prepared or legal or regulatory changes  Legal review of the draft Water Services Reforms Bill, 2003 recommended Technical Assistance for Sri Lanka’s Telecommunications Sector In 2007 the government requested PPIAF assistance to assess the need for and feasibility of a comprehensive backbone network in Sri Lanka. Availability of broadband services is essential to economic development. At that time, cost-effective and reliable high-speed Internet connectivity was not widespread in Sri Lanka. Access was limited to a few main cities and towns where ADSL-enabled switches allowed broadband services to be offered over telephone lines to nearby customers. In this context, PPIAF funded a study to determine the feasibility of a national backbone network. The consultancy study provided policy options for the development of a national communications backbone infrastructure in Sri Lanka; and a thorough technical and economic assessment of the options for implementing a public-private partnership (PPP)-based national backbone network. The financial analysis showed that in the long term, the national backbone was viable and could be financially independent without the need for continuous funding. Following the PPIAF-funded feasibility study, the regulator and government decided to develop nation- wide backbone infrastructure under a PPP arrangement. Results of PPIAF’s Activity for Sri Lanka’s Telecommunications Sector Category Outputs Project cycle-related assistance  Feasibility study “Nationwide Communications Backbone in Sri Transaction support Lanka,� March 2008 Category Outcomes Project cycle-related assistance Transactions facilitated  PPP backbone infrastructure under development 2