Power distribution and transmission project
  Report No: ; Type: Report/Evaluation Memorandum ; Country: Sri Lanka; Region: South Asia; Sector: Electric Power & Other Energy Adjustment;
                                        Major Sector: Electric Power & Other Energy; ProjectID: P010312


Sri Lanka: Power Distribution and Transmission Project (Credit 1933-CE)

The Implementation Completion Report (ICR) on the Sri Lanka Power Distribution and Transmission Project (Credit
1933-CE, approved in FY88), was prepared by the South Asia Regional Office and reviewed by the Operations
Evaluation Department (OED). An IDA Credit for SDR40.5 million (US$40.5 million equivalent) was approved on June
23, 1988. The Credit was closed on December 31, 1994, as originally scheduled. Of the Credit amount, SDR13.7
million (US$19.4 million equivalent) were disbursed, and the remaining SDR15.5 million (US$21.5 million equivalent)
was canceled at the time the Credit was closed. Cofinancing was provided by the Overseas Economic Cooperation Fund
of Japan. The ICR includes the Borrower's evaluation but no comments from the Cofinancier.

The objectives of the project were: (i) to improve the quality of and expand the supply of electricity in Sri Lanka; and (ii)
to strengthen the institutional capabilities of the Ceylon Electricity Board (CEB), the dominant entity in Sri Lanka's
power sector. The project consisted of investment and technical assistance components. The investment components
included:
(a) the construction of about 230 km of transmission lines and related substations; and (b) the construction and
rehabilitation of 3,700 km of distribution lines and related substations and service connections. The technical assistance
included: (a) consulting services to support the investment components of the project; (b) a feasibility study for the
proposed Kalu Ganga Multipurpose Dam (KGMD); and (c) an institutional strengthening program.

The objectives of the project were only partially achieved. The project was modified in 1991 to substitute a transmission
line in an area affected by security problems by two substations in other areas. The project was restructured in 1993 and
the closing date was extended by two years, to 1996, contingent upon strict adherence to a dated action plan that included
agreed target dates for meeting the agreed rate of return covenant, submission of audited accounts and various
procurement-related activities. Failure by the Government of Sri Lanka and CEB to comply with the action plan resulted
in project closure on December 31, 1994. Nevertheless, CEB continued implementing the project with its own funds.
Based on the most recent supervision report (dated June 1996), the transmission and distribution components of the
project had been only 35 percent completed, but the CEB was still planning to complete them by December 1996. The
delays in implementation were mainly due to protracted procurement delays, poor inventory management, and limited
capacity of local contractors. The feasibility study for the KGMD led to a change in design from a reservoir-type
multipurpose project to a run-of-river type power project. In regards to institutional strengthening, a tariff study
supported major tariff increases in 1993 and 1994 which helped the CEB reach the covenanted financial rate of return in
1994 and 1995. CEB's capability to plan, design, construct and maintain its distribution and transmission network
improved significantly. A training program for mid-level officers was successfully carried out. A computerized billing
system has been partially implemented. The ICR has no information on the implementation of a management
information system and a consumer relations unit, which were also part of the project. The economic rate of return
(ERR) of the project, estimated at 8 percent at appraisal, was reestimated as 10 percent in the ICR, based on the rather
optimistic assumption that the physical works would be completed in December 1996, as planned by the CEB.

OED rates the overall project outcome as marginally satisfactory: even though there was only limited progress on the
physical objectives, there were substantial accomplishments on the institutional and financial objectives. The
sustainability is rated as likely. The institutional development impact was substantial. The Bank's performance is rated
as satisfactory. These ratings are consistent with those in the ICR except for outcome which was rated as satisfactory.
A major lesson from the Bank's experience is that a realistic assessment of the implementation capacity of the responsible
agencies is essential for the satisfactory preparation, appraisal and supervision of projects.

The ICR is satisfactory. It provides a carefully structured discussion of the achievement of the project's objectives,
supported by extensive statistical information and a detailed evaluation provided by the Borrower, and draws the
appropriate lessons. The project may be audited.