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Agence Française de Développement

SRI LANKA

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SRI LANKAAGENCE FRANÇAISE DE DÉVELOPPEMENT

Sri LankaSri Lanka reached the lower middle-income status in 2010 and continued to experience rapid economic growth during the following years. The country also experienced free elections in January 2015 that confirmed the country’s stand for democracy and wealth sharing.

These past years have started to gradually erase the physical traces of the devastating 2004 tsunami and the 30-year long civil war that ended in 2009. However, many challenges remain for Sri Lanka in its path to achieve an inclusive socio-economic growth.

Agence Française de Développement (AFD) has been operating in Sri Lanka since December 2004 tsunami. AFD’s objective was to reconstruct damaged infrastructure and boost economic recovery in poor regions in the east of the country, especially near Trincomalee. AFD’s mandate now is to promote green and inclusive growth in Sri Lanka.

AFD’s strategy in Sri Lanka

AFD’s financing is in line with the aim of supporting the country’s public policies: increase access to drinking water, energy efficiency and development of renewable energy. AFD also works in the sanitation sector and promotes an integrated urban development, with a focus on transport. AFD also supports the private sector with various financial tools.

AFD’s financial tools A variety of financial tools are available in Sri Lanka by AFD: ■■ Long-term loans (in EUR or USD) on preferential terms to the public sector (State and State-owned companies) and the private sector (banks, companies, microfinance institutions);

■■ Equity investments in companies’ equity or investment funds via AFD’s subsidiary PROPARCO;

■■ Grants to finance French consultancy missions (FEXTE fund) that provides technical support to projects. These grants cannot be used for feasibility studies.

These instruments can be used to promote different types of projects of varying amounts and to assist the various development stakeholders, both public and private. AFD can also mobilize funds from the EU Asian Investment Facility and develop capacity building programmes.

In addition to providing loans, AFD also brings in its expertise and thoughts on the country’s sectorial and cross-cutting strategy.

The country’s largest water tank, in Kinniya © Charlotte Boutboul

AFD commitments in Sri Lanka from 2005 to 2015 (in EUR M)

Identified Awarded Signed

Energy Water Sanitation Roads Urban develop-

ment

Other

200

150

100

0

50

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SRI LANKAAGENCE FRANÇAISE DE DÉVELOPPEMENT

AFD’s activities in Sri Lanka

Strong partnership with the Asian Development Bank Since 2010, AFD has been working closely with the Asian Development Bank (ADB), which is a key partner.

AFD and ADB have signed a co-financing framework agreement that facilitates management delegations.

In Sri Lanka, AFD is co-financing three projects in the water and electricity sectors.

AFD has conducted three post-tsunami operations:

■■ A highly concessional loan to rebuild infrastructure in the Eastern Province has contributed to build roads (A 15, B 10), bridges, drinking water pipes, power lines and community development projects (EUR 79m);

■■ A loan to the Central Bank of Sri Lanka to finance a training center - the Advanced Construction Training Academy (ACTA) - and to initiate a credit line for small and medium scale construction companies effected by the Tsunami (EUR 10 M). The Central Bank has consequently offered concessional financing to public and private banks that were refinancing their business clients who have been affected by the tsunami;

■■ In 2009, a grant was allocated to the French NGO Solidarité Laïque to structure and develop the early childhood sector in particularly in the war-effected Eastern province, in partnership with three local associations (EUR 600,000).

Project in partnership with the Asian Development Bank: water treatment plant upgrade for the city of Colombo © Laurent Pacoud

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SRI LANKAAGENCE FRANÇAISE DE DÉVELOPPEMENT

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Pipe laying, Trincomalee © Laurent Pacoud

Promoting green and inclusive growth In 2009, AFD was authorized to develop its lending activity in Sri Lanka with a clearly defined mandate: to promote green and socially inclusive economic growth. The objective is to commit between EUR 100m and EUR 150m a year to support the country’s development. This objective is restricted by a stringent mandate focused on the opportunities already identified for infrastructure projects and still with a single client: the Government of Sri Lanka, which benefits from the best credit risk. Consequently, AFD’s country strategy is organized every year in consultation with the Sri Lankan Government. AFD operates in the sectors presented below.

Improve access to drinking water: a priority for AFD The sector is rapidly developing in Sri Lanka thanks to the Water Board, the national public water utility. The objective of the suc-cessive Governments is to regularly connect new households to a high-quality and affordable drinking water network. This is made possible through low-cost production and a low non-revenue-water rate. Two AFD projects contribute to this objective: in Jaffna, the aim is to eventually connect 300,000 people to a drinking water network and a part of this population to sanitation; and in Colombo, the project involves replacing transport pipes and upgrading the Ambatale water treatment plant.

Develop wastewater treatment: a promising sector Less than 2.5% of households are connected to a sanitation network. AFD is contributing to the national effort by financing an extensive sanitation program called the Sanitation and Hygiene Initiative for Towns (SHIFT), the first component of which was approved by AFD board in 2014. This loan will finance the con-struction of a sewer system and wastewater treatment plant in Negombo. In the years ahead, new loans will be approved to equip cities on the southwest coast with the facilities required to preserve the environment and the tourism capital. The European Union has delegated a EUR 5.7m technical assistance grant to AFD in order to improve the Water Board capacities to manage this extensive program.

Help develop a better energy mix and improve energy efficiency The cost of electricity remains high in Sri Lanka. The Government has invested in low-cost coal-fired power plants, which emit high levels of carbon dioxide and sulfur. There is therefore a need to rebalance the energy mix towards greener production and to reduce losses on transmission and distribution grids. These are AFD’s two objectives in this sector in which AFD is co-financing three substations under a more extensive program to reduce energy losses. AFD is also directly financing 4 substations in the country’s central region in order to absorb the power generated by small-scale hydropower plants.

Promote an integrated urban development approach To address the dispersion of responsibilities among a number of public agencies, the development of secondary cities needs to be refocused towards greater consultation between stakeholders. The aim is to enhance the competences of local authorities in order to give new impetus to cities. In this context, AFD wishes to participate in the Strategic City Development Program (SCDP) promoted by Sri Lanka. Together, we will focus its efforts on developing the heritage and tourism potential of the city of Anuradhapura.

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AFD and the fight against climate change50% of the financing allocated by AFD around the world contrib-utes to preventing or mitigating the consequences of climate change. In 2014, AFD allocated EUR 2.8bn in foreign countries and in the French overseas territories for development projects that also have a positive impact on the climate. AFD’s commit-ment is thereby to mainly finance projects with a strong climate benefit that reduce or avoid excessive carbon emissions, while respecting the country’s economic development. In Sri Lanka, this could lead to a rise in the sea level – the flooding of land –, an increase in the number of natural disasters and a greater rain unpredictability. Consequently, AFD wishes to work alongside the

Sri Lankan Government and support its policies for climate change adaptation and the reduction of greenhouse gas emissions.

For example, in the central part of the country, AFD is financing substations that will connect small-scale hydropower plants to the domestic grid. This will limit the development of thermal power plants and will also increase transmission efficiency by reducing grid losses. In addition, AFD is financing the rehabilitation of the Ambatale water treatment plant. This rehabilitation will include the replacement of outdated electromechanical equipment, improving the energy efficiency of drinking water production in Colombo.

Prospects for AFD in Sri Lanka AFD’s aim is to build on its worldwide experience of financing projects in other sectors related to its mandate, such as promoting urban mass transportation, waste recycling, sustainable forest management and biodiversity.

Artificial water reservoir for Colombo’s water supply © Laurent Pacoud

Support to the private sectorIn Sri Lanka, PROPARCO works with local banks via banking intermediation. At the end of 2014, its commitments stood at USD 90m. The priority sectors are renewable energies (wind and solar power, hydropower, biomass) and energy efficiency, but also agro-business, microfinance, health, education and sustainable tourism. The broad scope of operations makes it possible to respond positively to a large number of projects, with the systematic objective of harmonious, green and socially inclusive growth.

Activities financed by PROPARCO in the microfinance sector © PROPARCO

AGENCE FRANÇAISE DE DÉVELOPPEMENT

5 rue Roland Barthes 75598 Paris Cedex 12 – France Tel. +33 1 53 44 31 31 Fax +33 1 44 87 99 39 www.afd.fr

AFD COLOMBO

33 - 1/3 West TowerWorld Trade Center - Echelon SquareColombo - Sri Lanka Tel. 11 529 9780afdcolombo@afd.fr

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AGENCE FRANÇAISE DE DÉVELOPPEMENT

Stupa in Anuradhapura © Laurent Pacoud

Agence Française de Développement (AFD), a public financial institution that implements the policy defined by the French Government, works to combat poverty and promote sustainable development. AFD operates on four continents via a network of 71 offices and finances and supports projects that improve living conditions for populations, boost economic growth and protect the planet. In 2014, AFD earmarked EUR 8.1bn to finance projects in developing countries and for overseas France.

FFEM

The French Facility for Global Environment / Fonds Français pour l’Environnement Mondial (FFEM) is a bilateral public fund initiated by the French Government in 1994. The FFEM secretariat and its financial management are entrusted to Agence Française de Développement (AFD). FFEM co-finances projects that encourage the protection of the global environment in developing countries. Its co-financing is exclusively via grants and is used for the implementation of pilot projects that combine environmental protection and economic development in the recipient countries. FFEM is an influential strategic instrument for the French policy on Official Development Assistance regarding global environmental protection. Its activities focus on the topics of biodiversity, international waters, the climate change, land degradation and desertification, persistent organic pollutants and the stratospheric ozone layer. By the end of 2014, FFEM had co-financed 275 projects with EUR 317m. Two-thirds were earmarked for sub-Saharan Africa and the Mediterranean.

www.ffem.fr - ffem@afd.fr

PROPARCO, AFD’s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

www.proparco.fr

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