Document of

The World Bank

FOR OFmFCIAL USE ONLY

Report No. 7181

PROJECT COMPLETION REPORT

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT(LOAN 2187-CE)

April 4, 1988

Industry and Energy Operations DivisionCountry Department 1Asia Region

T lbi documient bas a westricted distribution and may be used by recipients only In the performance of|their offidal duties. Its contents may not otherwise be disclosed witbout World Bank authorization.

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* 101 M OfAL U ONLYTO* WOtLD SANK

WasIwlon. D.C. 2133

Gi. ii OtwGUW

April 4, 1988

mEORANDUN TO THE EXECUTIVB DIRECTORS AND THi PRESIDENT

3UBJECT: Project Completion Report on Sri LankaZiahth (Diesel) Power Project (Loan 2187-CE)

Attached, for information, La a copy of a report entitled

"Project Completion Report on Sri Lanka Eighth (Diesel) Project (Loan

2187-CE)" prepared by the Asia Regional Office. Purther svaluation of this

projeat by the Operations Evaluation Department has not been made.

Attachment

d p oW d_ it conu o o_ b dbc bo_ W _1 I

eOIVIcAL 0 WINLYSRI

EIGHTH (DIESRLT POWER PROJECT CLOMN 2187-cf

PROJECT COMPLETION REPORT

TABLE Or CONTENTS

Preface ........... ..... ................ IBlsic Data Shoet .I...I..* .**

Highlights ........... *

I. INTRODUCTION . ......... e*.. . .. oe.. 1

The Power Subsector .................................... 1Bank Group Investment ........... 2

TI. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL e..... 3

Project Origin, Preparatong, Appraisal,Negotiation and Approval ................. . .....*.** 3

Project Objectives ....... 4Project Description . .. ................ .. ...... 4

III. IMPlEMENTION ............. *.*....* ....*.*.... 4

Loan Effectiveness .*... ........ *.... ... *.............. 4Project Design and Engineering ......................... 4Project Executlon ............ 5Project Cost ......... ....... ........................... 6Disbursements ......... .......... ..... .. o.... . 7

rv. OPERATING PERFORMANCE *.........*.....*.* ............. 7

V. FINANCIAL PERFORMANCE a

Accountlng Systems, Organization and Audit a......... Tariffs .... e..s.e.s.e.e.ee*eeeeeeeee 8F4inancal Performance *.....ee.e... ... .............. 9

Present Financial Position .... 11Accounts Receivable ................................... 12

VI. INSTITUTIONAL DEVELOPMENT 13

VII. ECONOMIC JUSTIFICATION ............... .................. 14

VIII. PERFORMANCE OF THE BORROWER AND THE BANK ... 1........... 15

IX. CONCLUSIONS ...................... *.. .. ................16

Thisdocum -ha aresuti distdbutoendmy boe db y gipmsw ns peumaMof their ofcl dutieml t contentsanmy not otmwiM be witb od W Bank latbodwmtl

TAW.L OF CONTENTS (Cont'd)

Pe RO LO

1. Outstanding tem to Complete the Turnkey Contract .... 172. stimated and Actual Project Cost .................... 183. Cumulative forecast and Actual Disbursements ......... 194. Forecast & Actual Demand for Electricity - 1981-85 ... 20S. InCOm Statements - Projcetions and Actual ..........* 216. Balance Sheet* - Projections and Actual .............. 227. Sources and Applications of Fundsa Statment -

Projections and Actual ... ...... ......... 238. Es-Post Economic Costs end Benefits .................. 24

ATYAC tMENT

Comments from the Borrower ......... e..... *e......................... 2S

I~~~

PROJICT CCMPLETION NIPORT

B1I0TB (DIESEL) PORE PROJECT - (LOAN 2187-CE)

PREACE

j 1. The project Involved the turnkey construcetLn of an 80 MN dieselpower station at Sapug k nan near Colombo, the capiutl of S8l Lanka. Itcovered all civil, mechanical and electrical works and technical services,includiog engineerting, supervision and training of personnel. A project loanof USS42.7 lillion vas approved on June 6, 1982, with full comercial opera-tion of the plant (4 a 20 MN) schaduled for March 1984, and loan closure forMarch 31, 1985. iowever, slower-than-expected procureent and civil dlitur-bances delayed full comLisioning until September 1, 1984. Since, however,any lt_ms were outstanding, the closing dato wa extended by one year and theloan actually closed on August 8, 1986.

2. The total project cost wa US$51.3 mlllion, 951 of the originalestimate of US$54.0 million; hoever, net of port duties and tazes, theproject ws completd at 811 of the estimted cost, or US$41.0 million com-pared to US$50.5 million. Local costs, includin Import duties and taxe ofUS$10.3 million (almost triple the estimted US$3.5 million), were US$15.0capared wth the SA estimate of US$12 millon, and foreign costs wereUS$36.3 illion compard with the estimated US$42.0 million. Favorable mrketconditions In 1982 led to bids for below the orignal estimate, causing con-sid*eable savings In the turkey contract. As a reslt, only US$34.2 mllionwa disbursed from the loan US$6 million of the original nunt wa canclledon December 1, 1985, and the remaining US$2.5 amllion was cacelled on Auguto, 1986, following loan closure.

3. This Project Completion aport wa prepared by the South Asia legionon the basis of the Staff Appraisal Report 3891b-Cl dated May 20, 1982, theLoan and Project Agrements, dated Augut 8, 1982, a completion report sub-mitted by the borrower, docuents In Bank files, and a mission to Srl Lanka inOctober 1986.

4. In accordance wlth the ?evised procedures for project performanceaudit reporting, ths Project Completion Report wa read by the OperationsEvaluation Departent O(OED), but the project wll not be audited by OlD staff.OD sent copies of the draft report to the Borrwer and Executing Agecy forcoute. The comAnts received jve boon taken Into account In preparin thefiml report and tlhy are reproduced as an Attachment to rbe Report.

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SRI LANKA

CEYLON ELw'TRICITY BOAD (CBS)

EIGCTH (DIESEL) POWER PROJECT - Loan 2187-CE

BASIC DATA SUEET

Key Project IDcat(in US$ Millioin)

AppraisalEstimate Actual

Project Cost 54.0 51.3Loan Amount 42.7 34.2 /1Disbursed 42.7 34.2Cancelled - 8.5 12Repaid - 2.4Outstanding - 31.8Date for Completion of Physical Components 03/84 09/84Proportion Completed by Target Date (C) 100 90Economic Rate of Return (Z) 14 18Institutional Performance Mixed Improving

Cumulative Estimated and Actual Disbursements(US$ Kill'ion)-

1983 1984 1985 1986

Appraisal Estimate 13.5 41.6 42.7Actual 5.2 29.1 34.0 34.2Actual as Z of Eastimate 39 70 79 80

/1 The interest rate was 11.6Z.

/2 Disbursement was extended to May 31, 1986, to enable payment of the moneywithheld on the main contract under the Performance Guarantee. However,because no final settlement was reached on outstanding contract issu e,the remaining funds in the loan were cancelled after closing. CUM is tomeet outstanding payments of about US$3 million from its own funds.

-r~..,.rr _R - _r - .W *w--I-I

Other Project Data

AppraisalItem Estimate Revision Actual

Concept in the Bank - - 10-19-81Negotiations 05-12 to 14-82 --Board Approval 06-22-82 06-24-82 06-24-82Signing - - 08-18-82Effectiveness 11-16-82 - 11-11-82Closing Date 03-31-85 03-31-86 08-08-86Borrower, Executive Agency Ceylon Electricity Board (CEB)Fiscal Year of Borrower January-DecemberFollow-up Project Ninth Power Project (CEB - Distribution

Expansion and Rehabilitation)

mission Data /1

Month/ No. of No. of man Date ofYear Weeks persons Week Report

Preparation 11/12/81 /2Appraisal 01182 1-1/2 3 3 05/20/82 /3Supervision 1 10/82 1 2 1 01/10/83 IlSupervision 2 03/83 1/2 1 1/2 04/06/83Supervision 3 06/83 1-1/2 1 1-1/2 08/05/83Supervision 6 02/84 1 1 1 03/22/84Supervision 5 09/84 3 4 10 11/12/84 /5supervision 6 01/85 1 1 1 02/27/85 /6Supervision 7 06/85 2 3 6 08/12/85Supervision 8 10/85 1 1 1 11/18/85 /7

t

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Country Exchange Rates

Name of Currency Rupee (SLRs)Appraisal year average USRI - Rs 20.50Intervening years average US$1 - Ra 25.04Completion year average US$1 - Rs 28.36

/1 Al missions were combined covering supervision of all on-going projects,collection of sectoral information for a power subsector report, andpreparation of the Ninth Power Project. Of the 25 total manweeks stated,about four can be considered as exclusive for supervising the lighta. PowerProject.

/2 The project was developed in 1981, in the course of supervising theongoing Sixth Power Project (1048-CE) and preparation/appraisal of theSeventh Power Project (1210-CE), during which CBS urgently requested anincrease in thermal capacity following extensive power shortages in 1979and 1980. In addition, projected delays in hydro plant commissioningdates were expected to cause further shortages during 1983-1985. A firstproject brief was issued on November 12, 1981. Shortly thereafter duringnegotiations for the Seventh Power Project, the main technical elementswere discussed.

/3 The contents of the appraisal report for the Eighth Power Project, exceptfor the chapters pertaining to project information and justification,were substantially the same as those in the appraisal report for theSeventh Power Project.

/4 A full supervision report was not issued; memoranda dated November 11,1982 and January 10, 1983 covered all three ongoing projects.

/S Supervision of the Sixth, Seventh and Eighth Power Projects, andidentification of the Ninth Power Project.

/6 No full supervision report of this (consultant's) visit was issued. Seememorandum of this date.

/ The three ongoing projects were supervised at the time when the NinthPower Project was appraised.

SRI LANKA

CEYLON ELECTRICITY BOARD

EIGHIH (DIESEL) POWER PROJECT s Loan 2187-CE

PROJECT COMPLETION REPORT

Highlights

1. Delays in several hydro stations under construction by the MahaweliAuthority of Sri Lanka, and the need for the-'al back-up to the hydro systemin case of below-average rrinfall, prompted the Bank in 1981 to take 1uickaction to assist CEB in financing a diesel power station of up to 120 MW.Subsequently, the station's size was reduced to 80 MW following lower loadforecasts which were prepared to take account of a slow-down in economicactivity (para. 2.01).

2. In view of the need for early completion, bid documents were issuedin January 1982. Commissioning of the power station was initially targetedby CEB for late 1983, but delays in finalizing financing arrangements andproject preparation, including Bank review of bid documents, necessitated arevision of the commissioning date to March 1984 (para. 3.03). Because ofthis delay, interruptions in power supply, totalling about 37 GWh (1.7X oftotal sales), occurred from November 1983 through February 1984.

3. The objective of speedy physical completion of the project was sub-stantially met (para. 3.03). The project was appraised in January 1982 andapproved by the Board in July 1982. A contract for a 4 x 20 MV plant wasawarded on October 12, 1982 with a target completion date of mid-July 1984.In the event the fourth and final unit was coummissioned in September 1984(para. 3.03). The principal reason for the delay was slower than expectedprocurement and civil disturbances in mid-1983. Although all the units werecommissioned by September 1984, final acceptance was delayed because ofnumerous outstanding items which the contractor had not completed (para.3.04).

4. The project achieved its technical objectives, although CBS has hadconsiderably lower requirements for thermal generation than were forecast.This was due to favorable hydrological conditions and to lower demand forelectricity because of slower economic growth. Consequently, throughend-1986, energy generation by the new plant was minimal. Its main functionhas been as a back-up plant to meet demand during maintenance and periods oftechnical supply difficulties. For example, in 1986, the 3 x 67 KW Kotmalehydro statrion developed penstock difficulties and was taken out of serviceuntil 1988. Thus, compared to the SAR forecast, the benefit of the Sapugas-kanda power station as a reserve and peaking plant has increased and itsenergy function has decreased substantially (para. 4.01).

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5. 1U primary project objective was to provide additional generatingcapacity to meet forecast demand at least cost. The institutional objectiveswere generally those agreed under previous lending operations, particularlythe Sixth (Cr. 1048-CE) and Seventh (Cr. 1210-CE) Power Projects. Institu-tional objectives and actual performance are not discussed in detail ih thepresent report, but will be addressed in the forthcoming completion reportfor the Sixth and Seventh Power Projects. Although CEB's financial perfor-mance was generally satisfactory (paras. 5.03-5.07) during the period whenthe project was constructed, 1982-85, its wider institutional performancewas mixed. The principal issue was inadequate staffing, as a result of lowremuneration and the exodus of expert staff to work in tLa Middle Eastcountries (para. 6.01). In early 1985 CEB had only 300 qualified engineers,of whom fewer than 102 had more than five years' experience with CEB. Sincejob opportunities elsewhere, particularly in the Gulf countries, are nowseverely restricted the staffing of CEB appears to be improving. Anaccelerated program for the implementation of institutional changes is under-way, and agreement was reached under the Ninth Power Project (Cr. 1736-CE)that CEB would prepare, and put into effect by December 31, 1987, a scheme ofincentives and a promotion policy based on merit to assist it in the reten-tion and recruitment of suitable staff.

p~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SRI LANKA

CEYLON ELECTRICITY BOARD (CEB)

EIGHTH (DIESEL) POWER PROJECT - Loan 2187-CE

PROJECT COMPLETION REPORT

I. INTRODUCTION

1.01 Csa's electricity sales increased annually about 9.5Z during 1961-80,includirsg about 11.51 in 1978-80. During the latter years, the Governmentdecided to accelerate the construction of large multipurpose projects, prin-cipally in the Mahaweli basin, including hydro power components for transferto CEB upon completion. In this context, CUB required the accelerated expan-sion of its transmission system, both at the existing 132-kV level and at ahigher voltage level (220-kV), to allow for more extensive transmission ofelectricity and to connect the new hydro stations to the national grid forsupply to the main demand centers. Although CEB was restructured in theearly 1970s to cope with this rapid growth, the need for further restructur-ing became apparent at the end of the decade in order to assure its efficientoperation in 180s. The Bank Group addressed the technical and institutionalproblems that arose as a result of this rapid growtb under the Sixth andSeventh Power Projects.

The _ower Subsector

1.02 Electricity supply in Sri Lanka began as a private sector operationin 1905. It ceased as a private business in 1927, when the Covernment boughtthe utility and created a government department for electricity supply. CEBwas created as a statutory corporation in 1969 to take over that department'scesponsibilities for the generation and transmission of electricitythroughout the country and distribution in the networks which had beenoperated by its predecessor. Remaining distribution networks were operatedby local authorities, and during the project period, 1982-1985, CEB suppliedelectricity in bulk to 214 local authorities which accounted for aboutOte-fourth of total supply. These local authorities (licensees) were mainlyOrgnized on a municipal basis servicing relatively small load centers which"eTe dominated by domestic consumers. Due to their perennial financialPrOblems ant high distribution losses (25-30X being common), the Covernmentin 1984 created the Lanka Electric Company (LECO) under the Companies Act totake over licensees gradually. The Asian Development Bank is assisting LECOn thbe organizational aspects of this endeavor and in renovating networks.

1.03 In 1982, CUB's total installed capacity was 55' KW, all intercon-nected in one system. The hydro/thermal capacity mix was 66:34, 369 NW and190 MI respectivelyt including 120 MW gas turbine capacity. The main trans-QSision voltages were at 132-kV (915 km) and 66-kV (344 km). Distributionwas served by a system of 33-kV (5,230 km) and 11-kV (1,205 km) overheadlines- The lengths of the licensees' distribution facilities are not on

record.

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1.04 The CEB statutes allow it a reasonable measure of autonomy, whichhas not been realized, particularly since it was brought under the super-vioory responsibility of the Ministry of Power and Energy that was created inthe early 19800 to rationalize the energy sector. For economic and politicalreasons, the Government has reserved to itself a substantial role in policymac.ers and appoints both CUB's Chairman, who is also Secretary of State of

* the Ministry of Power and Energy, and the Ceneral Manager. The conditions ofservice for all CUB staff are subject to Covernment regulations which allowmidnimal room for incentives. The loss of experienced staff to the privatesector and overseas has been exacerbated by a promotion system based onseniority rather than merit. In early 1985, of the 300 engineers in CEB lessthan 10 has more than five years' experience with CEB. LEC0, by contrast,

i is substantially free from Government interference and allowed to set inde-pendent service conditions. However, a agreement with CEB, which is theprincipal shareholder, prohAibits employment of CEB personnel and, thus, theformation of LECO has not contributed to the exodus of experienced personnelfrom CUB.

1.05 During project execution, the power subsector encountered manydifficulties, reflecting economic and political problems in the country. Itis, therefore, satisfactory to note that CEB's financial viability wasgenerally maintained by adequate tariff rate adjustments (para. 5.03). Evenso, owing to structural deficiencies, some financial problems wereexperienced, particularly with regard to accounts receivable (para. 5.09).

e This issue was addreased under the Ninth Power Project (Cr...1736-CE).

1.06 Although the execution of works (including Bank Croup financedprojects) suffered from many delays, CEB's installed cspacity increased from559 MW in 1982 to 949 MW in 1985, an increase of 701. In December 1985, theplant mix was 679 MS hydro (increase of 85x) and 270 MW thermal (increase of42Z). The 220-kV system was substantially completed by mid-1986--about twoyears late. The delays in most works, including the project, did not causeany difficulties of substance, because growth in demand was slower thanoriginally projected (paras. 4.01 and 5.05).

lank Group Involvement

1.07 To date, rhe Bank Group has supported the power subsector throughnine projects, excluding the Ukuwela power station (1976, which is a part ofa multipurpose Mahaweli Development Project). Up to and including theSeventh Power Project, loans amounted to US$58.4 million equivalent andcredits to US$61.5 million equivalent (Fifth, Sixth and Seventh Powerprojecte), excluding Ukuwela. The loan for the Eighth Power Project wasUS$42.7 million. Total original commitments (including the recently approvedNinth Power Project) were US$209.9 million equivalent, about 20X of BankGroup lending to Sri Lanka (as of September 30, 1986).

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II. PROJECT IDENTIFICATION, PPREPARATION AND APPRAISAL

ePrjct Origin, Preparation. Appraisal, Negotiation and Approval

2.01 An electricity demand forecast for 1981-90 was prepared under theSeventh Power project (CL81). The projected growth rate was 24Z for 1981,9.1Z for 1982, 21.6X for 1983 and 14.9Z for 1985. On this basis, and assum-ing that the 120 KW of existing gas turbine capacity would operate at a 70Splant factor from 1982 onwards, the energy deficit was projected to be about

s 200 GWh (71) in 1984 and 100 GWh (31) in 1985 under normal hydro conditionsafter allowing for the commissioning of the Victoria 3 X 70 MU hydro plant.In 1980 CEB, assisted by consultants, initiated studies for additional ther-mal capacity and in 1981, prepared a long-term least cost generation planningstudy in cooperation with the Bank Croup, using the Wien Automatic SystemPlanning Package (WASP). As a result of the study, the originally envisagedneed for a 120 MW thermal plant was reduced to 80 KW. The project wasdeveloped in the course of supervising the Sixth Power Project and develop-ment of the Seventh Power Project. During preparation of the latter project,the Bank Group decided to pursue the Eighth Power Project as soon as possibleand agreed in November 1981 to initiate its processing.

2.02 Project appraisal occurred in January 1982, focusing only on techni-cal and economic aspects. Except for the chapters pertaining to the projectand justification, the appraisal reports of the Seventh and Eighth PowerProjects were almost identical.

2.03 - Partial financing through an IDA credit was considered but theproject did not form part of IDA's long-term lending program. Upon requestof IDA, the Government investigated the possibilities of other financing. Noadditional financing could be realized in view of the requirements for therapid completion requiring a single construction responsibility (turnkeycontract), consequently in April 1982 the Bank decided on a loan to cover thefull foreign exchange requirements.

2.04 The Loan was neigotiated in May 1982, approved by the Board oanJune 24, 1982, and became effective November 11, 1982. Because the project'sobjectives were primarily technical and economic (para. 2.06), its institu-tional objectives repeated those of the Seventh Power Project. Other objec-tives I/ were defined under the Sixth and Seventh Power Projects, and will bediscussed in the forthcoming combined project completion report for thoseprojects; the present report discusses institutional objectives in generalterms only (Chapter VI), but provides details on financial performance(Chapter V).

J

1/ Rain objectives: improvements in (a) organizational structure,(b) management information, control and performance, (c) planning,including long-term planning and annual updating, (d) budgeting, account-ing procedures, internal and external audits, (e) annual review of tariffstructure and rates, (f) lowering of inventory levels, (g) reduction inaccounts receivable, (hJ staff training, and Ci) coordination withGovernment on joint development schemes.

_ ~-~,--.- -.- ~ -- - - -.

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2.05 Tariff revisions were implemented in accordance with long-runmarginal cost (LRNC) principles, based on CEB tariff studies in 1981 and 1984(para. 5.03). While CEB's tariff rates were unchanged between 1972 and 1977,the average rate, excluding the fuel adjustment charge was increased by about75Z in 1979, about 232 in 1980, 60X in 1981 and about 32Z in 1982. Based onthe 1984 LRMC study, a further rate increase of about 80X was introduced in1985.

Project Objectives

2.06 The major objective of the project was to prevent electricityshortages by providing additional capacity through a type of plant that wouldremain economically justified throughout its normal life span. It wasforecast that without the project, even if all hydra stations under construc-tion were completed on time, Sri Lanka could experience both capacity andenergy shortages through 1985, when maximum demand was expected to be 698 MWand firm capacity (after reserves) only 653 MW (giving a shortfall of about6Z). Energy demand for 1985 was forecast at 3,313 GWh, while total plantgenerating capability during an average hydrological year would be 3,193 GWh(shortfall of about 41). Although not specifically stated, the project wasto continue efforts toward CZB's institutional improvement that were agreedto under the Sixth and Seventh Power Projects.

Project Description

2.07 The project comprised the turnkey construction of an 80-MW dieselpower station at Sapugaskanda in the northern suburbs of Colombo near therefinery and a new pot&ble water plant' a 132-kV substation, and consultingservices for final design preparation of bid documents and supervision ofconstruction.

III. IMPLIEMENTATION

Loan Effectiveness

3.01 Except for the standard legal provisions, there were no conditions ofeffectiveness and, following compliance, the loan became effective, withinthe 90-day provision after signing on govember 11, 1982.

Project Design and Enginecering

3.02 The power station was originally designed to be executed withradiator cooling. In the bidding documents, however, CEB sought bids foralternative cooling towers which would use water from a new treatment plantunder construction by the Potable Water Authority, which welSomed theprospect of CEB as a consumer with a demand of about 1,800 m per day, orabout 15X of the treatment plant's capacity. CEB selected the cooling towersystem, due to its lower capital (about one-fourth) and operational costs,compared to a radiator cooling system. In hindsight, this choice is ques-tionable, since the use of potable water for power station cooling would nothave high priority in times of technical problems or severe drought. Some

technical problems at the gotable water plant have caused rationing to CEB.A storage tank for 3,000 m (less than two days of full power plant opera-tion) is expected to be contracted soon to cover some fluctuation in supply.Therefore, CEB should initiate a study to ascertain if and when a partial orcomplete replacement of the potable water supply, using a closed systemcooling, would be required. However, reverting to river water would not bean acceptable solution, since the heavy pollution would adversely affect thethermal system and the engines would have to be derated.

Project Execution

3.03 The project was executed reasonably satisfactorily. Bid documentswere opened in April 1982, and CEB planned to award the contract immediatelyafter loan signing. Bid evaluation, however, was extremely difficult 1/,causing a four-month delay. The award was made in October, and the contractsigned on November 12, 1982. Initially agreed dates for completion wereApril through June 1984. Under a bonus provision, the first two (20 NW each)units were to be completed in February 1984 and the two remaining units (20MW each) in July 1984. However, in July 1983, civil disturbances interruptedwork and personnel subsequently returned to the site more slowly thanexpected. The revised target date for the first two units, late April 1984,was met, as was August 15, for the third unit; however, the fourth unitstarted operations two weeks late on September 1, 1984.

3.04 Although the units were ready for commercial operation, work notdirectly connected to the running of the machines. remain to be completed.Numerous important items were missing e.g., most tools and spares had notarrived and much outstanding work was pending, such as fire pcotectionfacilities, repair of unreliable control circuitry, and installation ofworkshop facilities. Some teething problems were experienced, such as gasleakages in the cylinder heads of one engine and turbo-blower problems forall engines. The manufacturer was investigating the causes in late 1986 andhad returned one blower to the factory for tests in order to remedy thedefects. CE8's main difficulties with the contractor, however, are notqualitative, but quantitative, with respect to contract completion. "Asbuilt" drawings are still to be completed, and spares used by the contractorprior to preliminary takeover have not been replaced (see Annex 1). As aresult, final acceptance certificates have not been issued. The contractordisputed a penalty applied to the late completion of the fourth unit andfinal payment of retention monies had not been made in October 1986.

1/ The question arose whether the lowest evaluated bidder was to beconsidered "responsive" in the light of the requirement of proven opera-tional experience with the machine offered. Three different committeesin Sri Lanka had different opinions and opinions in IDA were similarlydivided. Representations by the various manufacturers further aggravatedthe situation until consensus was reached on non-acceptability of thediesels because, although based on a well known design, they had neveroperated commercially at the required speed, capacity and number ofcylinders, while diesels offered by competitors had proven operationalexperience, despite a slightly older design (diesel manufacturers upgradedesigns and performance almost continuously).

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3.05 In view of the outstanding issues between CEB and the contractor, theBank extended the original closing date of March 31, 1985 by one year.During supervision, CEB was repeatedly requested to take measures to solvethe outstanding problems and disburse the required funds. CEB was not in aposition to issue the Taking Over Certificate although the plant was commis-sioned, due to the Contractor not meeting the contractual requirements inregard to supply of spares to issue the certificate for payment by July 1986and the Bank finally informed CEB that it would only disburse againstrequests reiching the Bank before August 1, 1986. The Bank informed CEB, onMarch 10, 1986, of the closing procedure. The remaining funds were cancelledfrom the loan account on August 9, 1986. Amounts due to the contractor(excluding disputed amounts) at the end of August 1986 amounted to about US$3million equivalent.

3.06 CEB reporting to the Bank during project execution did not civer allaspects of the project. Although the consultants reported monthly to CEB,the condensed information sent to the Bank as quarterly reports (alsoprepared by the consultants) was inadequate since they only contained infor-mation on the "contract" work. Only seven quarterly reports were received bythe Bank, the first dated June 30, 1983 and the seventh, June 1986. Noreports were submitted between September 1984 and June 1985. The reportswere not supplemented by a separate CEB report giving its views on projectexecution and supervision, progress on project work e-ecated by CEB, andproviding full project accounting information. The same problems wereapparent for the Sixth and Seventh Power Projects. This issue was addressedby a supervision mission in 1985. CEB now submits comprehensive quarterlyreports to the Bank, including project accounts which have been computerized.CEB's unsatisfactory reporting performance was apparently due to lack ofexperienced staff, who were already overburdened with day-to-day work.

Project Cost

3.07 The project was completed at a cost of about US$51.3 million, includ-ing a front-end fee of about US$0.6 million, compared with an originalestimate of US$54 million. The estimate was prepared on the basis of actualbids for the diesel engines which had been opened prior to preparation of thefinal SAR. As the bids were invited on firm price basis, no provision wasincluded for price contingencies. Although the overall cost was 95% of theestimate, the actual foreign cost (US$36.3 million) was only 862 of theestimate (US$42 million). However, the actual local cost (at US$15 millionequivalent) was 125% of the original estimate (US$i2 million), largelybecause import duties, estimated at US$3.5 million, were US$10.3 million.The contractors' actual local costs were only about half the estimate, US$3.9million versus US$7.4 million. CEB did not keep detailed records of its owncosts, particularly supervision and overhead costs. Consequently CEB's owncosts have been estimated in this report. This defect has been rectifiedunder the new system of accounts and improved project accounting system(para. 3.06).

3.08 As is usual, variation orders were issued. They amounted to about5.6% of the original foreign portion of the contract price and 11.0% of thelocal portion, and were thus roughly in line with the estimated physicalcontingencies of 5% and 10% respectively. However, in 1985 it was apparent

that considerable sums would remain undisbursed and US$6 million was can-celled on December 1, 1985. At the closing date, only US$34.2 million (801)of the original loan amount of US$42.7 million had been disbursed; thus, afurther US$2.5 million was cancelled on August 9, 1986, following the closingof the loan.

3.09 Before the first cancellation, CEB had sought Bank agreement to usethe savings to purchase equipment for a new training school. This requestwas outside the description and scope of the project; subsequently IDA agreedto consider financing the equipment under the Sixth and Seventh Powerprojects, which included specific training provisions.

Disbursements

3.10 The estimated and actual disbursements are shown in Annex 3. Theactual disbursements were both lower than had been estimated and occurred ata slower rate because: (i) the contract was signed later than expected;(ii) the foreign cost was below the estimate; (iii) civil disturbancesdelayed completion; and (iv) outstanding technical problems were not resolvedexpeditiously by the contractor, and retention monies could not be releasedbecause the final completion certificate had not been issued.

IV. OPERATING PERFORMANCE

4.01 - When the project became operational in 1984 the demand conditionswere very different to those projected in the SAR, The growth rates of peakdemand and energy consumption in the period 1981-1984 were much lower thanhad been projected. The comparison of forecast and actual demand for elec-tricity is shown in Annex 4. Except in 1983, just prior to the Project'scompletion in 1984, hydro conditions were good. In 1984 peak demand, at 487MW, was 201 (123 MW) below the SAR estimate. Similarly, energy demand, at2,261 GWh, was 22X lower than the projected level. This trend and favorablehydro conditions continued in 1985 and 1986 and, as a consequence, in theperiod 1984-86, the new plant's role, as a prospective provider of energy andcapacity, was changed to that of standby plant.. Without the project, thecapacity deficit would f-ave been about 20 MW in 1984 and 1986, and the 1985surplus would have been 50 KW. In practice, the plant was only required forenergy purposes during March through May 1985, when production was only about47 CWh.

4.02 These events and changes in demand do not constitute an argument thatthe plant should have been postponed. CE8's management acted expeditiouslywhen the worsening capacity and energy capabilities showed the possibility oflarge power shortages which had persisted from 1979 through 1983. Sub-sequently, the physical condition of the Kelanitissa steam plant steadilyworsened and it was taken out of service in 1985 for rehabilitation and hydroplapt construction delays have occurred due to penstock problems at Kotmale.The present benefit of the plant, as standby capacity, is only temporary; itis expected to generate significant quantities of energy in the period1989-1996. An additional benefit of the plant is that of cost savingsresulting from the postponement of new thermal plant by at least a year (theaunual growth of peak demand is in the order of the plant's capacity).

-8-

V. FINANCIAL PERFORMANCE

Accounting Systems, Organization and Audit

5.01 CEB made substantial progress in improving its financial managementpractices during project implementation. Modern accounting systems andprocedures for better financial reporting and control were implemented, basedon the recommendations of the consultants recruited under the Sixth PowerProject (Cr. 1048-CE). Accounting activities, with the exception of revenueaccounting, were decentralized, billing was automated and steps taken toautomate other areas of accounting and financial reporting, and an internalaudit unit was established. These changes have resulted in streamlinedfinancial reporting procedures and have improved CEB's control over itsfinances by providing management with detailed and timely information.Furthermore, in order to rationalize the values of assets and to establishproper depreciation schedules the Board engaged consultants under the SixthPower Project (Cr. 1048-CE) to carry out a Fixed Asset Accounting Study. Thefinal report was issued in February 1987.

5.02 As with other public corporations, the external audit of CEB'saccounts is carried out by the Auditor General of Sri Lanka, which is accept-able to the Bank Group. Although the quality of audits has been satisfac-tory, until FY85 .they were often submitted late to the Bank. This was aresult of the lengthy tima required for CEB to finalize the accounts becauseof its complex internal reporting procedures. However, following CEB'sreorganization and improvements in reporting procedures (para. 5.01) in 1984,the 1985 audited accounts were submitted within the covenanted period.

Tariffs

5.03 CEB's tariffs have been increased regularly to ensure compliance withthe financial performance covenant agreed with the Bank Croup (para. 5.06).As agreed under the Sixth Power Project (Cr. 1048-CE), tariff studies basedon long-run marginal cost were undertaken in 1981 and 1984 and formed thebasis for significant changes in CEB's tariff structures. The tariff revi-sion in March 1985 changed the tariff structure to allow for separate energyand demand charges for hotel, industrial and general purpose consumers withcontract demands exceeding 40 kVA, and optional time of day energy rates forindustrial and hotel consumers. As shown in Table 1, the average revenueper kWh (excluding fuel surcharge) increased from Rs 0.78 in 1982 to Rs 1.36in 1985, i.e., at an average annual rate of about 26%. In contrast, the SAR,forecast increases in average revenue from Rs 0.71/kWh to Rs 0.98/kWh, orabout 12.5% a year.

-9-

Table 1

Average Tariff Revenue per kWh Sold, 1982-1985(Excluding Fuel Surcharge)

- - SAR Estimate- --- -------Actual---

2 zRs/kWh Increase Rs/kWh rncrease

1982 0.710 22.4 0.776 32.41983 0.790 11.3 0.845 8.91984 0.790 - 0.780 (7.7)1985 0.976 23.5 1.362 74.6

Financial Performaiee

5.04 CEB's income statements, balance sheets and sources and applicationsof funds statements, comparing the SAR forecasts with actual results for theperiod 1982-85 (and current estimates for 1986), are presented in Annexes 5,6 and 7 and summarized in Table 2.

- -S- -.- -~ -

'1 ~~~~~~~~~~~-10-

Table 2

CEB's Operating Results 1982-85

Comparison of SAR Estimates with Actual Results

----1982 -- -----1983-- --- 1984----

SAR SAR SAR SAR

Esti- Esti- Esti- Esti-

mates Actual mates Actual mates Actual mates Actua

Electricity Generation 2,354 2,066 2,585 2,114 2,884 2,261 3,313 2,46.

(CWh)Electricity Sales (CWh) 2,001

1,679 2,196 1,792 2,451 1,876 2,816 2,06.0

Electricity Losses (X) 1S 19 LS 15 15 17 15 lr

Average Rate (RsWkWh) 0.71 0.78 0.19 0.84 0.79 0.78 0.98 1.3f

… --------- Rs million

Operating Revenues 3,317 2,442 4,090 4,021 4,495 2,254 4,745 3,234

Operating Expenses 2,393 1,628 2,991 3,190 3,433 1,444 3,223 1,35:

Operating I'.come(After Tax) 739 532 149 393 1,057 764 1,522 1,71

Operating Ratio (2) 72.1 66.7 73.1 79.3 76.5 64.1 67.9 44.

Average Rate Base 6,411 6,137 8,532 6,963 13,312 10,351 19,027 16,06

Rate of Return onAverage Net FixedAssets in Operation(S) 11.9 8.7 8.8 5.6 7.9 7.4 8.0 10.

lnternal Cash a

Generation (X) 35 72 22 24 21 21 17 -

5.05 CEB's financial performance during the project implementation period

was satisfactory, despite adverse conditions that prevented it from achieving

the level of electricity generation and saLes projected in the SAR.

Gener-

ation increased from 2,066 GWh in 1982 to 2,464 GWh in 1985, i.e., an average

annual increase of 6.4X compared to the SAR forecast of 13.6X.

The principal

reason was the much slower growth of electricity sales than had been

projected in the SAR (para. 4.01). Actual sales increased from 1,679

GWh

in 1982 to 2,061 GWh in 1985, representing an average annual

growth rate of

7.6Z, compared to the SAB projection of 13.62 Although electricity

losse-

remained higher than the estimated level of 152 (due to a overloaded

system

and metering and billing problems), they improved from a high of 192 in 1982

,to 16% in 1985. 'Although the lower sales resulted in a lower

level of total

revenue, average revenue exceeded the SAR forecasts (except for

1983) due to

the periodic tariff increases (para. 5.03) and activation of

the fuel sur-

charge. This enabled CEB to achieve a more favorable operating ratio

than

the SAR projections and show a distinct improvement in all

years except 1983.

In 1983, this ratio was 79.3 (compared to the SAR estimate of 73.1), mainly

because of a 1302 increase in administration costs, stemming from (i) wage

and salary increases, and (ii) interest payments on overdrafts

necessitated

by cash flow problems resulting from the acute accounts receivable

situation

(para. 5.09). The operating ratio improved during the fOllowing

two years,

reaching 44.12 in 1985, compared to the SAR estimate of 67,9%,

mainly because

- fil I h1;t I nd ntenance costs.

5.06 CEB's agreed measure of financial performance is an after tax minimumrate of return of 8% on revalued average net fixed assets in operation. Thisrate of return was 11.4Z in 1981 and 8.7% in 1982. In 1983, however, therate of return was 5.6Z due to the heavy income tax liability which wasunderestimated by CEB in setting the tariff rates for that year. The tab ;slevied on operating income, after deducting a depreciation allowance of 12.52for newly commissioned assets, and based on the straight line method for allother assets. A smaller depreciation expense for income tax purposes, causedby delays (from the planned 1983 to 1984) in the transfer of Mahaweli assetsto CEB, resulted in a larger taxable income and, therefore, in a greater taxliability than had been estimated for 1983. Excluding this tax liability,the rate of return would have been 11.2% in 1983. Moreover, as a result ofthe delays the asset base in 1984 was higher than projected, and conse-quently, the rate of return was 7.4%. Audited accounts for 1985 show thatprimarily due to the 75% increase in the average tariff rate in March 1985,CEB achieved a rate of return of 10.72.

5.07 The significant tariff increase of 42% in mid-1982 resulted in rela-tively high levels of resource availability for investment in 1982. However,in that year, CEBS's investments were re.atively low, since major generationprojects were being undertaken directly by Government under the AcceleratedMahaweli Project (AMP) for transfer to CEB upon completion. These factorsresulted in a high self-financing ratio of 722 for 1982, measured as theratio of net internally generated cash available for investments to averageof investments made in the preceding, current and succeeding years. Incontrast, the underestimation of CEB's income tax Liability in 1983 andconsequent inadequate resource mobilization through tariff increases,resulted in a lower self-financing ratio of 242 for the year. In 1984 and1985, CEB achieved self-financing ratios of 21% and 14%, respectively. Thesecomparatively low levels of self-financing should be viewed in the light ofGovernment's practice in treating the transfer of Mahaweli assets to CEB.The current practice is to transfer, at cost, the power component of thescheme as equity or part equity/part loan, and concurrently treat that costas a part of CEB's investment for the year of transfer. This overstates theutility's investment for the year and understates its level ofself-financing. If CEB's investments, net of Mahaweli transfers for 1984 and1985 are considered, the self-financing ratio would have been 49% and 43X,respectively.

Present Financial Position

5.08 CEB's balance sheets reflect fixed assets revalued annually as peragreement with the Association under the Fifth Power Project (Cr. 372-CE).CEB's balance sheet as of December 31, 1985, is presented in Annex 6 andsummarized in Table 3.

-12-

Table 3

CEB's Balance Sheet (As of December 31, 1985)(in Rs Million)

Assets

Gross Fixed Assets 27,276Less: Accumulated Depreciation 6,306

Net Fixed Assets 20,970Work-in-Progress 1,800

22,770

Other Assets

Current Assets 4t987Less: Current Liabilities 1,156

3,831Total Assets 26,684

Equity and Liabilities

EquityGovernment of Sri Lanka 7,035Consumer Contributions 1,776Revaluation Surplus 8,931Retained Earnings 4,033Total Equity 21,775

Long-term Debt 4,909Total Equity and Liabilities 26,684

Debt/Equity Ratio 18/82

Government's equity contribution, primarily in the form of transfer ofNahaweli assets (para. 5.07) to CEBS, increased from 11Z of total equity as ofDecember 31, 1982 to 32Z as of December 31, 1985 and was a major reason forCEB's strong capitalization position with a debt/equity ratio of 18/82. Inaddition, the coverage of debt service by gross funds generated internallywas satisfactory at 3.1.

Accounts Receivable

5.09 Under this and preceding Bank Croup power projects, CEBS is requiredto'ensure that its accounts receivable do not exceei. three months' billings.Although it has made considerable efforts to satisfy this covenant, CEB's -accounts receivable have persistently exceeded the agreed level. The result-ing cash flow problem necessitated extensive use of overdraft facilities,which in turn resulted in increased operating costs, particularly in 1983(para. 5.05). The three categories of consumers which were responsible formost of the accounts receivable as of December 31, 1985 were: localauthorities (402 of total accounts receivable and 11.6 months' billings);

-13-

private consumers (37Z of total accounts receivable and 4.1 months' bill-ings); and Government departments (9Z of total accounts receivable and 7.9months' billing). Therefore, in order to ease cash flow problems, CUBinitiated in 1985 a number of measures to reduce accounts receivable. Addi-tionally, in September 1985, the Government aessumed responsibility for thepayment of arrears and future accounts for street lighting, the accountsreceivable for which had exceeded 48 months in mid-1985, but which have nowbeen settled. By end-August 1986, receivables from local authorities werereduced to 4.65 months billing, primarily because of a revenue grant of Re450 million from the Covernment to CES, which was used to write off an equiv-alent amount from local authority receivables. With these measures, CBS hasbeQn able to reduce its total receivables from 4.5 months' billings in Hay1985 to 3.3 months in August 1986.

VI. INSTITUTIONAL DBVEWPMENT

6.01 As indicated above (para. 2.04)2 the details on CUB's institutionaldevelopment will be discussed in the forthcoming joint completion report forthe Sixth (Cr. 1048-CE) and Seventh (Cr. 1210-C8) Power Projecte. The siZua-tion during the project period (1982 to early 1986) can be summarized asfollows:

(a) in 1982 CEB's autonomy was not appropriate for the requirements of arapidly growing power utility, and it did not improve materiallyduring project execution;

* - (b) the exodus of experienced personnel due to low remuneration peaked in1984 and thereafter leveled off, due to the decrease in employmentopportunities overseas, particularly in the Gulf countries. Thesituation was exacerbated by CES's promotion policy emphasizingseniority rather than merit. A scheme is being developed under theNinth Power Project to address this issue;

(c) CgB, during the project period, suffered continuously from a numberof manpower problems. It was simultaneously overstaffed in somedepartments and deficient in key personnel in many important func-tional areas. The lack of experienced middle-level staff to improveproductivitj and maintain efficient professional discipline was themain cause. The situation can be expected to improve through acomprehensive strategy which is being developed under the Ninth PowerProject;

(d) under the Sixth (Cr. 1048-CE), Seventh (Cr. 1210-C8) and Eighth PowerProjects, CEB's organization was regionalized and redefined. Newsystems of operation procedures (including accounting and administra-tion) were introduced. During execution of the project, however,systems design and implementation proceeded at a slower pace than wasexpected and were operating only partially at the end of 1986; and

-14-

(a) nevertheless, the changes in td) above have already markedly improvedfinancial reporting, control of finances and the timely provision ofinformation to management. Effective streamlining of the lowerlevels of CEB's organization, however, cannot be expected to becompleted before the early 1990s and will depend largely on therecruitment, training and retention of middle management and higherlevel staff.

VII. ECONOMIC JUSTIFICATION

7.01 Project justification was based on the least cost approach. However,the lack of a well-defined investment program forced the final comparison tobe made in terms of three thermal planting alternatives operating in isola-tion from the supply system: operation of (i) 120 MN existing gas turbinesplus 80 NW new diesel capacity; (ii) 40 NW existing gas turbines, plus a newcombined cycle of the remaining 80 MS of gas turbines and 40 NW ofezhaust-fired steam units; or (iii) 120 NW of existing gas turbines only. Atall discount rates, alternative (i) was the least-cost option. There-evaluation of the project using 1986 prices confirms that it was theleast-cost option.

7.02 The SAR calculated the economic internal rate of return (EICR) on theproject in isolation from the supply system. Benefits were estimated interms of consumers' willingness to pay for electricity, and costs in terms ofborder prices. The SAR did not discuss the rationale for the chosenmethodology. Since the operation of the 80 mw thermal plant is highly sensi-tive to hydrological conditions and hydro plant completion, the EIRR shouldhave been e.stinated using a total system, time slice, analysis, in terms ofboth the plant's projected energy and power outputs and its contribution toimproving reliability of supply. The station was forecast to generate about1,600 GWh in its first three years of operation, but in the event, generatedless than 10 of this aount.

7.03 The ERl has been recalculated in accordance with the SAR method, butusing 1986 constant prices (Annex 8). Projected thermal generation for1986-2002 was assessed, using the WASP III system planning model. Benefitswere measured in terms of consumers' willingness to pay for electricity; Rs2.44/kWh using 1986 prices compared with Rs 2.09/kWh in the SAR. On thisbasis, the ex-ante internal economic rate of return is about 18Z, comparedwith 14S in the SAM. The principal reason for the increase is the con-siderably lower economic cost of fuel.

7:04 The SAR estimated the cost of transmission and distributionfacilities attributable to the project at 30% of its capital cost. This wasan underestimate. 1/ In addition, the plant is operating, and is expected tooperate, below the projected plant factor. Assuming a "worst case" scenario

1/ Power Subsector Review, Report No. 5713-CE, dated July 25, 1986, Table7.2, page 70 shows that investments in transmission and distribution

1 'st - 11I' ;nvotst *&ts 4 n *"nerat;on.

-1S-

of a plant factor of 0.40 and an increase in capital cost for transmissionand distribution to 45X of the project's own capital cost, the ex-ante eIRRwould decline to about 121, compared to the opportunity cost of capital of10x.

VIII. PERFORKANCE OF THE BORROWER AND THE BANK

8.01 CEB's performance regarding project execution was generally satisfac-tory. In recognition of its lack of experienced personnel, day-to-day super-vision of construction was entrusted to consultants, assisted by some CBSengineers who thereby gained considerable experience. However, the followingobservations appear relevant:

(a) in anticipation of restricted access to unpolluted and sufficientsources of natural cooling water, C8B should assess the feasibilityof installing radiator cooling;

(b) the timely amendment of the performance bond clause of the contractwould have avoided the accrual of the large amount of retentionmonies, and would have allowed the remaining funds in the loanaccount to be largely disbursed. However, the amendment of thePerformance Bond would have required seeking approval of the Cabinetas the contract was awarded on the recommendations of the CabinetTender Board.

(c) the-diesels are being run sparingly which: (i) reduces thepossibility of overcoming teething problems before the plant isrequired to run at a high-load factor; (ii) limits training oppor-tunities and, thus, increases the risk factor in future operation athigh load; and

(d) reporting on project execution and accounting was inadequate, exceptfor the main contract during project implementation and improved in1986.

8.02 The Bank Group maintained good relations with the borrower, consider-ing the difficult institutional problems during project execution resultingfrom economic problems and civil disturbances in the country. Such difficul-ties had little effect on project completion.

8.03 The possibility of future problems stem_ing from the use of potablewater for cooling should have been anticipated and alternatives explored.

A

-16-

IX. CONCLUSIONS

9.01 The project was satisfactorily executed except for the contractor'snon-performance regarding outstanding items. The plant has, since commis-sioning, been required to operate at low capacity which constitutes aconsiderable financial and economic benefit since less oil was imported andused, but this operating situation has precluded CEB staff from gainingnecessary experience.

9.02 The project did not, and was not expected to, contribute materiallyto institutional improvements. Institutional issues were addressed under theSixtb and Seventh Power Projects. The primary objective of the project wasto assure additional thermal capacity to meet forecast demand for electricityat least cost.

9.03 The period of project execution (1982-85) was a difficult one forCEB. Although the situation is improving, fundamental problems remain tobe resolved; especially the recruitment and retention of experienced staff.

-17A-

SRI LANKA

- ~ CEYLON ELECTRICITY BOARD (CEB)

EIGHTH (DIESEL) POWER PROJECT - Loan 2187-CE

PROJECT COXPLETION REPORT

Outstanding Items to Complete the Turnkey Contract

Diesel Units - temperature test 'of gentsdixes not made- "as built" drawings of diesel and generator

control missing- field suppression switches cannot be locked- turbo charge failures (seizures, shafts bending)- electronic overspeed protection to be replaced- viscosimeters to be modified

Emergency Set - no individual starting batteries, separate from110-V general supply

Control Desk, etc. - 25 deviations from specs to be corrected

400 V Switchgear - 5 deviations from specs to be corrected

DC Equipment - "as built" drawings missing

132-kV Facilities - detailed wiring diagrams missing- failed current transformers have not been replaced

Civil Works - 25 various corrections outstanding

Telephone - 7 digressions and repairs to be corrected

Spares - spares used during the trial runs beforecomaissioning have not been replaced

-18.

ANNEX 2

SRI LANKA

CEYLON ELECTRICITY BOARD (CEB)

EIGHT! (DIESEL) POWER PROJECT - Loan 2187-CE

PROJECT COMPLETION REPORT

Estimated and Actual Project Cost

Actual asPortion of

Estimate Actual Estimate-US$ Million-- (Z)

Land - 0.2 -Civil, Electrical and MechanicalWork under Turnkey Contract 47.7 39.1 82

CEB's Work: Network Connection, CablingWater Supply 0.6)Storage ) 0.6 71Water Tank )Fuel Pipeline 0.1)

Consulting Services 2.0 1.0 50CEB's Supervision 0.1 0.1 100Customs Duties and Taxes 3.5 10.3 291

Total 54.0 51.3 95=== ==

Main Contract

Complete Power Station

Awarded to : Alsthom Atlantique, FranceRelease of Bid Documents : January 11, 1982

A Date of Order : November 12, 1982Contract Amount : Fr.F. 268,001,358 + SLRs 93,660,640Final Contract Amount : Fr.F. 283,024,084 + SLRs 103,993,192Contract Date of Completion : February-July 1984Actual Completion : April-August 1984

-19-

i ANNEX 3

SRI LANKA

CEYLON ELECTRICITY BOARD (CEU)

EICHTH (DIESEL) POWER PROJECT - Loan 2187-CE

PROJECT COMPLETION REPORT

Cumulative Forecast and Actual Disbursements

Actual as aProportion

FY Estimate Actual /1 of Estimate----US$ Million---- (…)

1983 13.5 5.20 39

1 ,984 41.6 29.12 70

19as 42.7 33.90 79

1986 34.16 80

1987 34.17 80

11 Disbursement was extended from March 31, 1985 to March 31, 1986 to enablepayment of retention monies, and then to July 31, 1986. The loan closedon August 8, 1986. A total of US$8.5 million was cancelled (US$6 millionon December 1, 1985 and US$2.5 million on August 9, 1986).

~~~~~~~~~~SS

-20-

ANNEX 4

SRI LANKA

CEYLON ELECTRICITY BOARD (CBS)

BIGHTH(DIESEL) POWER PROJECT - Loan 2187-CE

PROJECT COMPLETION REPORT

Forecast and Actual Demand for Electricity 1981-85

1981 Ii 1982 1983 1984 1985

Peak Demand (MW)

Forecast 447 498 546 610 698Actual 413 431 437 487 515

Capacity Surplus (Deficit) (Mw)

Forecast (14) (35) (43) (63) (19)Actual 0 (28) (94) 60 136

Energy Demand (GHh)

Forecast 2,112 2,354 2,584 2,884 3,313Actual /2 1,958 2,083 2,134 2,261 2,461

Energy Surplus (Deficit) (CVh)

Forecast (102) 0 (130) (470) (15)Actual (86) (12) (20) 474 564

/1 At appraisal, a forecast ("unaudited" data).7i Includes deficits not met through 1983.

set LANA -21-CEYLON 5IECTrIctT NM

EIGHTH (SIISlL) PON4l POQJEC? LoWn 2187-CPOJET COLMIT *EPCmR

.........................

Ino Stitefnts sat Projections VS. ACtuaL.. .-. . ..... . . ...-. ............. .. .. .--. .. .. .. ........

(in Rupe Niltlions)192 "1983 1984 1985 '956

SAN SAN SA UR SAMProjection Actual Projection Actual Projcetfon Actuat Projection Actual Projection AcratL

CO GERATED (1tLItONS) 2354 to0 2583 2114 284 2261 3313 246 38 2315

KW NO (NILLIONfl 2001 1679 2196 l 245t 1s7 a231 2061 3101 ace

KW mS 0 G/NmG tIDRXU(2) a 1 as a a as a es a

Avg. TAMIFFAW IOLOCCEHTS) 71 75 79 84 79 75 96 134 '1051 149

TIGU RiEVIMOF lUCTRICiT? 1431 1303 13 1514 1934 14 4? 2807 32U 339

SJCNAu 1894 1140 2355 2507 2559 5 199 114 2080 41

OP1`TIhOR1 VEE O Os 0 0 0 4 14 0 153

- FRO # CASN a 0 0 0 0 0 0 24....... ....... .. ....... ....... ... ....... ....... ... ....... ....... ... ....... .......... ... ................ ... ................ ...

TOTAL OEATING usVmS 3317 2442 400 4021 449 2254 4745 3236 54 3877

OPERATING I2IPNEEuw wCT `1820 9?1 2270 2n11 2470 489 1920 III 2000 40

OPwATIOII AUAIIMANCU 169 1n7 211 20o 285 423 341 547 479

iWIOURTAX 46 51 83 46 n9 20 94 u 104 104

AOUIHISTIRI 4A1 OTHER 76 l11 86 255 3 t8r 100 Im 109 189O_RCIATICO 22 39 341 371 43 4o0 66 "61 us "9

....... ....... .. ....... ....... ... ....... ....... ... ....... ....... ... ....... .............. ..... .................... ..............

; TOTAL OPTtNG WE S 9 16 299 3190 343 144 3W 13 355 1 77

of OPEATING IH tI 924 514 1099 31 l5 610 1522 1NS 1759 2107I I TAX 5 a82 330 43 0 46 0 1"9 0 31

MET INCOe AVAILAIL n9 532 749 393 ti 74 152 1714 1759 2074

INTEREST 78 9 19 18 392 33 T4 409 109 W.

IT ST CRUM O TIOHS 78 95 a 108 39 321 7 409 1093 64r

NuT SURpLUS "I1 436 684 2515 668 443 77a 1305 664 1469

LESERSEmim"aICN4.LWPURT 0 0 0 0 0 0 40 0 I!--Z~~~~~i .......... ............ ....... ........ ..... .......... .. . ., ... . ,,.,...... ........ ..............

NiT PROIT 661 434 696 28 65q ~ 36 "7a 1265 666 M3'5

RtAT Cf RlTURN OH AVER NE HTFIXED ASStt IH OPERATICN 1'1.9 8.7 8.8 S.6 7.9 7.4 5.0 10.? 8.0 .*

OPErATING tATIoP 2.1 6. 73.1 79.3 74.5 64.1 67.9 o .I 7.1I .. -AvERAGE RATE 8A*5 1 613? 3532 6963 1312 *:351 *M27 1S6;4 Zie87

-22- AlNKX 6S31I LANKA-

CgYLN ELECTEICITY WMI

ElSIEN (01E1EL) POW163 PROCJECT Lout 2187-CtPRtojECT CUEPLETION RIPOIT

Islamc iste . so Projections Vs. Actual

(in R.peas Mhillions)1962 1963 1984 1985 1986

Projection Actual Profection Actuat Projection Actual ProjectIon Actua Projection Actual

FINEDSS 3 13 I OPIRATIW 1low 1100 1424.6 1297 21971 1972 2790 27M7 30507 36559

LESStCLUM.OPRICIATION 255 3310 3511 3947, 436 5009 5391 6306 4630 784

NIT FINE A$SST9 IN OPERATIN 774 69 1073 903 17611 1471 2251 2097 2367 28665

CONTUMCION to P1OG1t$ 1655 1033 1966 179 140 246 162 1800 a30 3082

TOTAL. FINED ASSET 9559 am2 1270 10821 1777 17175 22673 227 26177 31747

1VE3C311 ... ... 6 ... 13 . 0 .. 9

CASM 56 159 107 -3 338 777 60 2444 940 2312

INvENTIEU 346 776 374 104.6 402 82 430 922 456 1626

ACwuvTS UcElIVU& UP 1317 1023 1545 1124 1604 M8 1169 1336 1305

OINER AfCIEYAK1[$ 435 576 446 1319 462 346 477 452 493 497

TOTAL 0.5*33 £3313 16 am2 1951 390 2325 3549 297 493 322 5942

TOfAL A3315 ns 115465144 14736 20096 2073 25646 276O 29402 37M4

CAPITAL AND LIISILITIES

EQUITY1 145 909 1655 1063 1375 2496 169 703 1895 1 1992

0O161 CON?II6TISt 516 75 641 1400 746 1521 891 1776 1016 1972

IEVALUATIOU UNFISS 4202 5067 5050c 5871 614 7352 *7532 8931 9333 11029

RETAINED IANINSS 212 1999 273 2614 3396 3687 4176 403 84 5339.... ... . ... .. .... ... ... ... ...

TOTAL EQUITY a32 a76 10275 11150 12162 15058 14494 2177 1708 30332.... ... ... .... ... ... ... ... ... ...

LONG T61K 081' 230 139 3650 2259 696 4820 10001 4909 11111 5777

CURRENT LIA3ILITIIS 597 1237, 726 1327 948 859 1152 1156 1205 15'5

T*TAL CAPITAIC ANO LIA8ILITIES I122 1156 1654 14736 20096 27n7 2566 27840 29402 3M2.ma.... ..asaaa *as.... *as.... us..... assura,e sinuss.. sense"u assuagel - 33333

OEBT AS I OF 0121`91WITY 22 is 26 I? 36 24 .1 18 3;

!OUITY AS IOF OEBT4SJtY 76 as 74 a3 64 76 SI) 52 61

0EIT AS I OF EGUITY 27.6 171.5 35.5 20.3 57.4 32.3 69.0 22.5 65.0

CURRENT RtATIO 2.5 2.3 2.7 2.9 2.5 A..1 2.6 4.3 2.?

SMI LANA -23-CEYLCO ELECTRIICITY BOARDO

Et:GNTN (OISL)G PWlt PROJECT Loa 21U7-CCPROJECT COCALETION REPORT

f ~~~~~~~~~~~.........................soef Aid AplICations Of Fundi Statmnts - SAM PrOjctions Vs. Actual

....................................................

Cm" Rupe Milblon)1982 1963 1984 1985 198U

SA SAm SAM SA soProjection Actuat Pro jection Actual Projectfon Actual Projection Actual Projection Actual

CINTEA 801353................

iIgttUL nkten

NET ItNCE AVAILALI 924 814 1099 831 lOSr 810 1522 183 179 21C8OVPRCIATION 242 329 341 371 498 460 684 641 803 958LES:REUEAC & O tVOLOPOENT 0 0 0 a a 7 0 40 0 164

~~~~~~~.... .......... ... .. .......... ..... ..... ....... ..... ........ ..... ....... ....... .......... ............ ......

TOTAL INTERNL Fnm ATED 1186 142 1440 1202 1555 1263 2206 28 2 2902

EOtit? CUnTRIUTIOUS 315 238 427 95 20 1438 20 453 a 49?OTHE CUTRIUUTI0I 115 285 125 64? 125 121 125 ns 125 9

13 LOWM (USO Vill) 277 107 576 599 23 139 6.wiU LOAN 1005 65 0 2000FOREIGN LOAN 94 1260 1264 3117 349 3O 433 1425 1221

TOTAL O111015 1..005 161 1537 1371 3693 27 2 572 1625 12...... ... ... ...... ....... ...... ....... ...... ........ ....... .......

TOTAL SOUR SOF 2661 1824 S29 3315 593 S74 Sam 7709 4312 9282_3333 wasua **_auuu _uuauuu 3383333 uu 3333 ._33g.. *a.auu

APPUICATIS OF FoS

TNE PRJECT 87 0 251 702 0 406 74 0 10CSTI CTIIn mm 1134 982 2380 95 485 472? 4173 65S 2500 7837

TOTAL CSX1011T1 PMM 2004 982 2631 1660 448 5133 4173 4729 2soo 7?OUST SEVICEIltERST 78 9n 198 108 392 321 74. 409 512 acrANUTIZATION 6s 84 ll2 120 188 15 356 344 1093 S39

...... ~~~~....... I. .......... ...... ........ .. .,. ... ..... ........ ...... . ............ ........ .. ....

tOTAL KIET tIC1 143 181 310 228 580 76 1100 753 1605 94

INCS TAX 185 282 350 43 4 19 31iNs.1eCROe 142CNANGES IN RESERv 917,vAIAtIONtN tIO UING CAPITALCASN INCREAS .3 95 so .13 231 7S1 524 1667 60 -32oTERI ?NAN CASII t52C 332 253 18 1152 97 o7? 84 S 525 I.? -Zs

....... ....... . ....... . ....... .. ......... .... ....... ....... ... ....... ....... ... ....... ..... ..............................

T ItNCEASE 329 380 238 969 328 1'0 XS 1111 IC? t;:....... ...... ....... ...... ...... ....... . ...... ....... . ...... ....... ....... ....... ....... .......

TOTAL APLItCATIO, O FUN 2661 !326 3129 3315 5393 M575 5ao0 7'09 4.312 2:t*8sen *|se- 8687 *-Bass- .... . SaWROWN soon". ........ .... a s. ............ ... .. ame:

OElt SE.VICI COVERA . . 3.9 5 2.? 2.0 3.3 1.t 3.:INTERNAL CASN CENERATION 35 n 2 22 24 21 21 I? 94 39........................................... s........5

tI dmtft{", retwion rtw(as 38 mi t*4 o i schoduzto fir ditmremen in 193?

CEvLON ELECTRICITY BOARO (CEO)

EIGHTH (DIESEL) POWER PROJECT - LOAN 2107-CE

PROJECT COMPLETION REPORT

EX-POST ECONHWIC COSTS AoD SENEFITS

1900 lHRU

" ~ ~ ~ ~ ~ 19 1_98_t§4 t9t 1U6_ ,l°W 1O" U M IMF 1§ 0 1 I=O 199 993 1094 tO99

Costs (Sisi

omerat son CIF 497 279 50 9 73Local 4l 6 - It

vote t 50 * 15 1 g

tronselblon andDistribution CIF 42 I"0

Locos 3 l 62Total 5 in

Intel invesl _ nts(t.onumitc S90 541 S5 9 aS

upart son and uinten ncoCEi.eratlon 2.4 6.0 7 27 69 114 122 124 13S OS 133 77 77

Iea,,bmisslon andDistribution 40 6.0 a a a 8 a 8 6 0 e a

lass lOAM -14.05 11 11 -7 m122 i- i 6 143 93 seT

Irtugs Se e6 4 48 139 243 260 2 6 312 189 319 176 *4%1a

ttyruitProducea GMn 39.3 80.4 7.1 91 265 455 469 491 140 333 534 300 300

1:11oul.atd COh 30.2 4t.5 5.4 71 210 361 393 401 441 273 439 240 246

8b061etutb Illillb)

eSect is -at avurdle* testam tol tar iffetc 'lb I.bltkWhII 23.6 6J.2 S.2 107 317 545 S93 606 666 412 662 374 374

- ot averagef."Oumic * ^# i ff

6.810 "SI l.a4IbWts 73.6.113.4 13.2 173 512 881 9519 978 1076 666 1071 60S 605

Halw ut -ua Uril Finncial 1I Economic

"A abue as. (above) 16 1.5.

i. bbbs Case *50S CapPtal and operatIonol 14.S 17

tubs tfo transmission and adstrIbution3. babe eob *S0 Capitol nd opepatitonal cost 11 12.5

for iIfsdbitbbion and distribution ari -251for cetereaiwn and Geles and maIntenance cost.

P4

of lSStdtubb lotlb vacl%es the fuel cost recovery charge for tho financial rate of roturn calculationt

s..ee Gusbt bliuld be escluced. In 1983 and 1904 sveroge rates eret Rs 0.18I/iWh and Rs 1.361W51

I4 .W4ee IiweIy. ts IlI IkWh appiIes eron 1931 onwarO.

p - *1 ,

j

!U 0342 16 22 194-1-649672 KILAI C L goW1

T - 2s - 2. of 2

a°o~t& Papa I@ Of #^ -~~~~~~~~~~~~~e w i, los 9-. -"

to" 2 woo* "ulb gq &ua*4b ~.605 fteAo. Ott. 540 *sUSS e L il.&

CEYLON ELECTRICITY BOARD *o suo fto. eism e *-.6-w Mawa*PhiWe6 D AN fIP5mgMN s. Wofim .0.Bx 30 eat2.5 L

"s429@SSOd" MO "5Ssi4me_ T.TI FX.: U-1-54W72 Tehge_ I "AWAY' WN -0' IR

sl..1 "tcZl 3 3 1 ~~J 2 0 1 6 3 ~~.amM) :'= fl

LA-I DGM/PR/4/9 ; E J284 Marc 'IS

In: M.'asnigt e 40. ' 39Mr. Rene A. RibiActing ChiefJolicy-Based Lendingenergy Industry and Urban Sectors DivisionOperations Evaluation DepartmentThe World Bank1818 H Street, N.W.Washington D.C. 20433U.S.A. CO

Dear Sir. I%

Project Completion Report - C-Sri Lankes Eighth (Diesel) Power Project(Loan 2187-CE)

1 wish to refer to your letLer dated January 26. 1988and wish to indicate the following observations with

regard to the draft Project Completion Report on theabove mentioned project.

1. Page v - 3rd Para - 4th Line

The target completion date was Mid July 1964 and not

Mid June 1984.

2. Page v - 3rd Para - 8th Line

'until November 1986' has to be 4oleted since final

acceptance has not beon issued up-to-date.

3. Page 0 - Para 3.04

We request correction of the Cirst *entence as

*Although the units were ready for cusmerical

operation, work not directly connected to t\erunning of the machines riuain to be completed'.

(Contd/.. 2)

26 - &~~~~TTAC9NEKT

- 26 - ~~~~~Page 2 of2

26

4. Page-6 - Para 3.05

We wish you to delete the word *No action was taken*

and amplify the sentence as follows.

CBD was not in a position to issue the Taking Over

Certificate although the plant was commissioned, due

to the Contractor not meeting the contractual

requirements in regard to supply of apares to iisue

the certificate for payment by July 1986' and bank

finally informed CEB .......

5. Paie 16 - Para 8.01

I wish to make the following with regard to

amendment of the Performance Bond.

"The amendment of the Periormance Bond would have

required seeking approval of the Cabinet as the

* contract was awardad on the reccammndations of the

Cabinet Tender Board". (

Yours faithfully

Ceneral ManagerCEYLON ELECTRICITY BOARD.

/ I'