Document of

The World Bank

FOR OMCIAL USE ONL

WRp No. 12045

PROJECT CON TION REPORT

SRI LANKA

FOURTH TREE CROPS PROJECT(CREDIT 1562-CE)

JUNE 22, 1993

MICROGRAPHICS

Report No: 12045Type: PCR

Agriculture Operations DivisionCountry Department IIISouth Asia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Baik authorization.

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WEIGHTS AND MEASURES

cubic meter (m3) 1 c308ucbic yards1 kilomater (kn) = 0.62 miles1 meter (m) = 1.09 yards1 kloram (kg) = 2.2 pounds1 hectare (ha) 2.47 acres1 square meter (m2) = 10.76 square feet1 metric ton (t) - 2205 pounds

ACRONYMS

ADB Asian Development BankCOP Cost of ProductionCrC Cut, Tear and Curl (tea)RR Economic Rate of Return

FRR Fmanca Rate of ReturnFICP Fourth Tree Crops ProjectIDA International Develoment AssocatioIU Institutional Development UnitDMB Investment Moniting BoardEIM International Monetary FundJEDB Jatha Estates Development BoardMTIP Medium Term Ivestment ProgramNSA Net Sales AverWeODA Overses Development Administration

of the UK GovermentPCR Project Completion ReportSAR Staff Appraisal ReportSCF Standard Conversion FactorSLSPC Sri lanka State Plantations Corporation

FISCAL YEAR

January 1 - December 31

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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4SX r- I:ss

PROJECT COMPLETION REPORT

SRI LANKAFOURTH TREE CROPS PROJECT

(Credt 1S62-)

Table of Coen_t

Preface iEvluation Summary ii

PAItT k PROJECT REVIEW FROM BANK}S PERSPECTIVE

L Project Identity 12. Background 13. Project Objectives and Desciption 24. Project Design and Organization 35. Project Implemeon 46. Project 77. Projet Sustnabilit9& Bank Performance 99. Borrower Performance 1010. Project Robtiousbip 1011. Consulting Services 1112. Project Documentation and Data 11

PART 11 PROJECT REVIEW FROM BORROWVR.S PERSPECTIVE 12

PART I: STATISTICAL INFORMATION

1. Related Bank Loans and/or Credits 142. Project imetable 13. Credit Disbursement

A. Estimated and Actual Di 16(IDA Creit)

B. AnnualDibursements 17(AU Co4lnancers)

4. Major Indicators of Project Implementation 185. Project Costs and Fmancng

A. Project Costs 19B. Project Fmancing 20

6. Project ResultA. Dire Benefits 21B. Economic Impact 22C. Financ ia Impact 22D. Studies 23

7. Status of Covenants 24& Use of Bank Resources

A. Staff Inputs 27B. Mission 28

A.NNEXS

Annex 1 Re-Estimation of the Economic and Financial Rates of Retu 29Annex 2 Fmancial Performance of JEDB and SLSPC 54Annex 3 Area of Old Seeding and Vegetatively Prpagted Tea 55Annex 4 Procurement of Vehides and Factory EquipmeDt 56

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POJECCOrIWFIP ON RlEPRT

SRI IANK&FOWT TaEE CROPS PROD=

(Cred L

Pehee

L Is is the ProjectCompletion Report (MCR) for the Fth Tree Cops Project i Sri L a, for whihCredit 1562-CE in the amount of SDR 565 minai (US5S.0 million eqvalet) was approved on March 21,1985. The original losing dafte (June 30,19I0) was eufteded twice, first by one year and then by ski months,to Decmber 31,1991, and the ed accot was keptg open for for months beyond the findl osing date. Withtih last paymen made on May 27, 1992, the Credt was fully dismired.

2. Parts I and MI of dth PCR w preprd by the Agriculture Operations Division, Country DepartmenA South Asia Region, and Part l by the Borrowe. ITh PCR based, IMLA a, on the Staff ApprasaRepor the Deveopment Credit Agreement; peavisio rprts betwe thk Bank and theBorrower intemal Bank memowanda interisA review documet of the Bank and co-b_sande; and field workby a PCR miss_o which viited SrA La1k in JnJuly 1992. In June 1992, the Technical Asstac Team,acing on behalf of the Dutch and Nowegian Governments, undetook a reew of the Soa Wellue compowhich was taken into account in prepuing this PCR The Asian Deveopmen Bank (ADD) itnds to prepis own PC

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PROJECT COMPLETION REPORT

SRI LANKAFOURTH TREE CROPS PROJECT

(Cret 162-CE)

Evaluation Summary

1. The Fourth Tree Crops Project was the last in a series of four Bank supported operations designed toincrmese tree crops production in a context of public sector management and a policy, institutional and regulatoryenviroment ciaracterized by heavy taxation and contr'Js.

objetives

2. ITe main objective of the Fourth Tree Crops Project was to reverse the decline of tea, rubber andcoconut productin on the pubhc sector estates which were operated by tae Janatfa Estate DevelopmentCorporation (JEDB) and Sri Lanka State Plantation Corporation (SLSPC). The project was designed to providefunds totallig US$211.8 million over a five-year period with an IDA contribution of SDR 565 million(US$55.0 million) and co-financing (Part M/5B) by the Asian Development Bank (loan equivalent to US$45.0million), the Netherlands, Norway and the Unked Kndom (grants equivalent to US$8.0 million, US$55 milionand US$55 million, respective), and the Government of Sri Lanka (counterpart funds equivalent toUS$9.8 million). The funds were provided to: improve estate productivy, manly through mvestments i fielddeveopment and factory rehabiitafion; strengthen the management and financal control capabilties of the twocorporais; and raise the qualiy of life of estate workers through improvements in housing, as wel as healtand social welfare facilities.

ImpemtatonExperie

3. Disuption from civil unest in 1988/89 contributed to extensmn of the five-year project period, initiallyby a year to June 1991, and therafter to December 199L The IDA credit was fully disbursed, and the creditaccount was closed on Apri 30, 109Q The Development Credit Agreement (DCA) and the Staff AppraisalReport (SAR) provided an apoprpate frame Aork for implementation. Comprehensive implementaton data

was colcted at estate level, but the eportg formats itsed for agegtio of information by the corporationsand the Investment Monitoring Board (PMB) did not full) meet requirements for monitoring progress in relationto stated project objectives (par 12.2). Project accounting and audng procedures were generally satisfactory,although submiion of required reports was frequentl,- delayed (Part 111/7).

4. Technically, the field program was stifactory, reflectig the generally good operating standards achievdby estate staff often during dicult, or dangu>cus, circumstances. However, substial larger areas of tea andrubber were replanted tan envisaged at appraisal (para 5.5), causing an escalation in counterpart fundingrequirements as the workers involved were part of a fisxd labor force whose employment was mandatory andfor whom no other productive use was available. The original IDA disbursement percentage for fielddevelaopment was ineased to reduce the drain on counterpart funds, and two credit reallocation; were madeto support field development activities. While inadequate attention was paid by JEDB and SLSPC to insttuuoalstrenghening the main problems were more fundamentaL JEDB and SlSPC were two of the largest plantationcor in the world but several factors combined to erode their corpate efficiency and financial positon.These were:

(a) absence of the financial direion and corporate management sills required for enterprises ofsuch size and complext,

(b) iapropriate accounting policies and financial reportn

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(c) persstent polical and buaucratic interference in management at all levels

(d) inappropriate lbor and wage policies imposed on the corporadons resulting in low laboreffedenc and crased operating costs;

(e) ufoeseen mojor decies in mmodity prices from the exceptionally high levels used inproject appraisal; and

(f) excessive product taoD, ;dg a highly detrient*l ad valorem sales tax which acted asa disincentive to quality i

Results

5. The project has ceed the opportunity to improe estate petfomance fom s nay creasedassets. Re-estimated economic benefits from the project are consderably below apprisal estnates, mainybecause of the decine in projected commodity prices and an increase in the econoc cost of productio Teaand rubber production has so far delned with the project, due to the higher than expected proportion ofimmature stands, which in the case of rubber w lasrely due to the need to uproot newly planted ares thatwere susceptible to disease, and the low tha expected emphas on yield stiulatin md slaughter tapping.Main ecoomic benefits ae expected to be raied when tees planted under the project come into beang(Annex 1).

6. Some 400,000 estate work benefited from improved housing and ;ealth care faciitAdvantage was taken of exch rate mvement to expand construction of key socal welfare facilities onestates. As a result, the disparity in lving conditions and health indicators between resident estate famie andthe populo at lge has contiued to be reduced (par 6.5 and Part m/4 and 6A).

Sustanablty

7. The need for the istional osa af .JEDB and SISPC has been largely ovtaken by therecent (June 1992) transfer of plantation from the coporti to twey-two Govnment ownedcompanies run under contact by pdvamte companies. Since most of the new companes are invilvedin downsteam (procesing and/or marketig) actidves in tree crops industry, they have a vested interest inmaintining and improvig upon the advanc gned under the project Reduco in expert taxation (whichhave also assited tea and rubber outside the prject) have graduall improved producer incentivesand should subsantassist the new mc companies to benefit fiom project investment Labor andwage polcies and practices rem3in to be reformed.

Findigs and Lesons Lernd

8. Despite the poor financal management of JEDB and SLSPC and the corporations' vuneabiliy topolitaly detemined wage increases and other fators wh resulted in their eventual insolvency, the projectprovided a major injectoln of funds whi will help to sustai the planation industry for the medium and longerterm Continued IDA associati with JEDB and SLSPC has maintained the dialogue with Government on keypolicy ies and facitated the eveal move towards the ivwolvement of pnvate sector management. Severalmajor lessons may be drawn from this projee

(a) As businsses tree crops plati should be managed by independent, autoanmous priatesector agen who have either ful ownership rights or long-term leases;

(b) To permi such agnt to opere efficenty, the policy, istitutiona and regWaty envonmentgovning the tree cops ssector should be as free as possile of export taes, poltaInterference, restrictive labor pohcies and practices and marketing regulations;

(C) With a complex proect involng seveal co-financiers and exeutig agncies, thee is a needto ensure a fim commitment by donos to financing specfic components and estabhlishapprvpriate implementation and monitng procedures. More frequent donor supervisian inthe early stags of the pr4ject could assist this procus.

(d) In dealing with commodity-based enterprises of the size and complky of JEDB/SLSPC, thereis a need to apply iteratioa sandards of accointing, reportn and control over corporatefinances to permit approprie management responses to be made to cbanges in financialconditions, coast of production, fiscal policy and internation market opportuniies Improvedfinancial direction would have stengthened the corpoations ability to resist unwarrantedinterrence by demonstraig the consequences.

(e) Investment in social welfare developmen is valuable ven in tbe contxt of a commerciallybased program, partiuarly in view of its contibuton towards improvements in laborattendan and fitness for work.

(f) There is etive, if not quite up-to-date, tehnical knowledg avalable locally in the plantatioindustry. This, togther with the qualy of tcnical support which coud have been proidedby dons during supervion, should have ensured adoption of optmal field production andploesing procedur in relation to changes in oprtg circumstances. Howver, this was notfuly achieved in pacce.

(g) To maintain its comparative advantage in the tree crop sector, Sri Ianka needs to ensure thatresearch programs reflect the existing know base and adequately address the evolvingcommercial requements of the intational industy and do not remain confined toinvestigtions of acadmic or insular interest.

(g) Ipexpnse monitorin& by use of local resourcs, of the qualiy of work performed under aproject, as distinct from the more readiy available physical and fisnncial data, couWd providea valuable indicadto of stin .

PROJECT COMPLETION REORT

SRI LANKAFOURTH T.XE CROPS PROJECT

(CREDIT 1562-CE)

PART L PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Projec IdUtty

Name : Fourth Tre Cmp PecCredit No. : L5624CRVP IJnit : South Asia RegionCountry : Sri ankaSetor : AgriSubsector : Te Crops

2. Background

2.1 In the decade prior to appraisa in 1984, the conibution of tree crops to export eanins fell fram 87%to 47% and to GDP from 15% to 11%. The re-vitalization of the plantation sement of the tree crop industry(responsible for some 57% of Sri Lankas tea-culiated area, and 35% of rubber-culivate area) was tWeora major goverment objective Declie was to be reversed through insttutional and polcy improvments, andthe rehabilitation of the productive base in the public sector under the Janatha Estates Development Board(JEDB) and the Sri Lanka State Plantations Corporation (SLSPC)/, which had assnued respnsbit forestate operations folowing natiliza in the mid-1970s. A con&uing World Bank objectie has been tochnel resources into a sector in whic Sri lanka has a comparativ advantae in order to sabiit In theshort tem, and promote sustinable export growth in the medium term. The approach has led to a sei ofivestmnt in agictre, indudig sessive projects in support of tree crops (Part M/1). T sratW hasepasid: (a) rehabiitation of the exing capial base; and (b) improvd opeation and maintenance of estateasseK

2.2 The threat of atintion prior to the land reforms of 1972 had causd of estatesAs a result JEDB and SISPC inheaited estates i wbich ifrastructure had become ru down, tree plant andplnation manteance neglected, and sol erosion widespread. Under the oporatons, upkeep of the esttesgradually improved, albeit at a sower rate than expected mainly due to goenents adequa sctralplannig policies, oapzationa probloms in the corpatioiis themelve and imposition of excesv exporttaxes (especialy on tea) which acted as disincentiv to production and specificaly discowaged qualimprovements.

2.3 Goverment repo for the aricul sector has been dipere among miistries withoutfunctonal aison, often pemtting co ditory decisions to be made, and polcies to be eablsd or coodntedwhich detracted fiom the stated dojective of reving the tree crop indusry. In I977 in collboraton with theIMP, govement intrdud a series of polcy reforms designed to liberalize the economy and allow a greaterrole for the private setor. Howv, investments in the tree crop sub-ector cninued to focus on theopeations of JEDB and SISPC. Until 1983, JEDB/SLSPC corporate planning had been rericted to the annubudgeig process rather than being linked to a longer-term ivestment strategy, and the tree crop sub-storhad contnued to decline or at best stgnae. With IDA asitance, the govn ment therefore formulated the

/ Refered to below as the corporations.

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Medium Term Investment Progam (MTIP) to group five-year investment proposals for the corporations' 530estates into regional plans for implementation by their Regional Boards, wvich were then amalgamated intoJEDB and SLSPC corporate plans as the basis of a single inxestment program for plantations. The establishmentof MTEP was viewed as a major, positive step in promoting improved collaboration for corporate and sub-sectorpolicy formulatiot between t0te corporations and the Ministry of I nance and Planning

2.4 The Fourth Tree Crops Project (FTCP) was designed to provide funds during the period 1985-1990 forMTIP. FTCP 4"iding permitted estate-level and institution building investments to be substantialy increased.The equivalent o0 JS$211.8 million was to be provided through cofinancing arrangements (Part M/SB) involvingIDA (SDR 56.5 million), the Asian Development Bank [ADB] (SDR 45.17 million), Government of theNetherlands (Dfl 27 million), Government of Norway (US$5.5 million), Overseas Development Administration(ODA) of the UK Government (f 5 million), Bank of Ceylo. (local funds equivalent to US$10 mEion) and theGovernment of Sri Lanka (local costs equivalent to US$82.8 million).

2.5 Despite MTIP and the activities of the project, athc introduction of economic policies continued tooccur. The authority of both Central and Regional Management Boards of the corporato was undermnedby poitical interference in day-to-day affairs, adding to difficulties ready beig experienced due to majorinadequacies in corporate planing and financial direction. In addition, unanticipated increases in productioncosts (para 5.9) coincided with substan decreases in commodity prices, especially of tea As a result; by 1988the corporations had become insolvent requiring major policy shifts to be considered for austaining the sub-sector, and financil support mechanisms to be installed for both corporations.

2.6 As a result of supervon mission recommendations, government has examined all aspects of the sub-sector to ident options for increasing estate productivity. Under the modified political Apeci of thepresent government (reflectng global di ent with the concept of a centrally planned economy) therehas been a growing recognon of the need to reintroduce private sector involvemet in the plantation indusryto increase opratil efciency, inject greater dynamism and re into the sub-sector, and balt thecontinuous, hea drain on public resources by JEDB and SLSPC. This has led to the contracting of estatemanagement to private companies. Wie, at this junctwe, estate ownersip remains vested in the state, twenty-two management companies have been established to run the 450 estates which are condered viable, withgovernment overseeing the operations of these companies through its contol of the twenty-two newly establshedBoards. Initially the oporatis will only retain responsibility for about 50 -caled non-vable estates.

3. Project Objecdves and Dscption

3.1 Proj Ob The project was designed to reverse the decline of tea, rubber and coconutproduction through improvements in the productivity of all public aector estates, rehabilition of factories,adoption of soil conservation measures, provision of field and nursery equipmeot and procurement of v£hidesThe project was to strengtheon JEDB/SLSPC management and fnancial control capabilities and raise the qualitof life of estate taborers through improved housing, health and social welfare programs.

3.2 Project investents were based on requirements identified by estate suendet andRegional Boards of the corporations as part of MTIP plans, annual work programs, and the annual budgetpreparation process in JEDB and SLSPC. Project components were intended to be mutuay supptive topromote improved estate productvity and corporation control. The main components were:

(a) Field Development infilling and new planting in tea, and replanting in tea, rubber and coconutsas the basis for sustainable increases in estate produ ty. Soil conservatin measures wereto be promoted wher necessary.

(b) Provbion of fild and nurser equipment.(c) Vebicles: for estate transport input and product haulage), and program supemsion.

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(d) Factory RehabilUtaon:Tea -quality improvements were to be made through rhabiiion of 134 JEDB factories and138 SLSPC factories provided their projected econmic rate of return (ERR) was greater than10%; exp e on was to be made wih conveion to 'cut, tear and curr (Crc) teamufacture;Rubber - rationalization of processing capaciy was anticpated; speified levels of productionof sole crepe, pale crepe, and latex concentrate w establshed as thresholds for factoryinvestment;Coconuts - provisions were made for renovation of processing facilities, and new installationsof inexpen technology associated with copra producion.

(e) Renovaton of Minihydros: rehabilitatio of up to 140 mini-hydro schemes, provided theirprojected ERR was greater than 10%, in order to supplement power from the ational grid andcontribute to savings in crop processing costs

(f) Housing: provWision or renovation of labor and staff quarters(g) Socdal Welfare: improvement of child care and medical facilities(h) tutonal Developmt: esblishment of Planning Units in each corporation to aid

improvement of management and operaonal dsills and procedures at all levels in JEDB andSLSPC, establishment of the independet Inestment Mitoidng Board (1MB) to report onphysi progress, particularly in quliaive terms, provson of funds for sudies leading to asmallholder MTlP.

4. Proje Design and Orgunzation

41 The prqectls concept was consstent with governments empai on supporting JEDB and SLSPC, andtook account of lessons learned from previous projectl Under MTIP, overal project management rested withthe Central Boards of JEDB/SLSPC, rather than an individual poject manager. FTLCP activities then becamepart of the recogized functions of existin techn and managerial staff. With the exception of the CrC teaemponent, the project was not designed to be inoive but to use proven production and processingtechnology. Any new deveopments wore to come m pras of the respeive research institutes whoseresponsiveness to subsector needs was assumed at app LT A reductio in the dipaity in welfare statusbetween estate familes and the population at t ge, conidered a prerqusite for improved labor relations onesates, was to result from the combined effec.s of the housing and social welfar components. Projectmontoring was assigned to an indqeedent body regitrd under the State Agiculturl Corporadons ACLZ/

4.2 The project proided an approprate balance between mprovements in estate in6rastructure (eg. factoryrehailittio housing and social welfre programs) to generate immediate beneft, and investments with alonger term prectv (chiefly field de lopumet and insitudona ). The fic status of thecoporation during the 1970s had prevented adequate prams of inf&ilng, rep g, factory renovation,housing improvement or social welfare. The scale of the problem was such that only part of the bacldog ofmaintenance requirements was to be tacked by the project, with cepndiu decisis concerning productionand proceing to be based on firm economic criteria. At the time of appraisa hower, as a result of politcamanipulation in a major producing wuntry, tea pres we extreme high and both copoan were profitableandhad accumulatedsubstanal financialreseres. Unfortunatelythe temporaynature ofthis phenomenonwasnot adeqately re ized. Assumptis were made concerning the cpraton' ability to fmance the project,which took iufficent account of the inevitable decine in tea prices lTe project dedgn suffied a furthersevere weakness in not recogizing the need for the copation to be adequately capitalized before incurring

A/ IDA has subsequently funded the Agicul Resarch Prjet (Credt I71 which Icludes upport to theTea, Rubber and Coconut Research 1aiutes

Z/ Subsequent9 y gazetted as the Inestment Monit4oig Board (1MB) on September 10, 1985 (Gazette No. 366/7).

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abnormaly high expenditure which was essentially for maintenance (Le. of eisting plantations and factories).The financial and accounting implications of having to undertake a major catching up process to overcome pastneglect, were not given adequate attention.

43 While the fragility of the corporations in relation to future commodity price projections was insufficientlyreconized, minimum debt service ratios were built into project design to act as financial safeguards.

4A The design reflected major policy concerns shared by government and IDA. The maintenance ofadequate producer margins was recognized as critical and had already led to government's establishment of aWorking GroupV in 1984 to ensure inter alia (a) the continued adequacy of producer margins pendingrestrucuring of tree crop taxation; (b) achievement of a non-distortionary tax and subsidy rate across the varioustree crops; and (c) allocation to producers of a greater share of international prices without unsustainable lossin government revenue. Resultant taxation changes are summarized in Annex 1, Table 16.

S. Project ImplementatIon

5.1 Credit Effectiveness and Project Start-up. Credit 1562-CE was sigped on May 9, 1985 and becameeffective on September 23, 1985. The first disbursement under the project was made on November 15,1985 withthe transfer of US$32 million to the Special Account.

52 Implementation Schedule. FTCP was to be implemented over a five-year period from September 1985to June 1990. Tne original closing date was extended, initially to June 1991 and later to December 1991, andthe credit account was kept open until April 30, 1992 (Part m1/2).

53 Disburwments. FoUowing reallocations between categories and an increase in the disbursementpercentage for field development from 35% to 90%, IDA funds were fuly disbursed by the end of the project.Exchange rate movements led to the equialent of US$73.6 million being disburwsed from the credit which hadoriginally been equivalent to US$55 millon. The equivalent of US$46.4 million was disbursed fiom the ADBloan wh chldosed on June 30, 1992. ADB disbursements for factory rehabiliation were lower than expected,permitn reallocatons to be made to cover esallating field development costs. Due to exchange ratemovements, balances of Dfl 4.9 million and NKr 32 million remain in the Dut and Nor an grants, despitephyical targets being exceeded in the social welfare componentY ODA funds were withdrawn from theproject, precluding implementaton of the mini-hydro component

5.4 Separate project accounts were mataed by JEDB and SLSPC which were audited by the office ofthe Auditor GeneraL Early misunderstandings in the operation of the Specil Account were successfullyresolved, but there was need for reminders to be issued by both IDA and ADB concrning receipt of auditreports as pre-requisite for further disbursement against Statements of Expenditure (Part m/7).

1/ The Workin Group includes reprsentatives of the Central Bank, the Mnstries of Policy and Pamung PlntatonIndustres and Fmance, the Sri Lanka Tea Board and the Rubber Conmission

Funds remaiing under the Dutch/Norwegian grants are being used to prpare for fuwthw asstae under aPlantations Health, Housing and Socal Welfare Tru to be supported by new grants from the Netherlands andNorway. Establhment of the Trust wM enable socia welfare ment to condue, despite p*atlzation of estatemanagmen.

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5.5 Crtic Variances in 1mp)emeajion. held Development The area affected by field development (tea,rubber and coconut), including development funded by ADB after IDA funds were drawn down, was 11% ofthe appraisal emate (art Im/4). However, the corporations placed far greater emphasi on replanting(162% of appraisal estimate) than infilulng, which (including underplanting of coconut) amounted to only 499oof the appraisal estimate (42% for tea alone). The total area of new plantng was 84% of appraisad estimatesThe corporations concentrated on replanig and planting for severa reasons: the stitus of many seedling teafields was such that infihling was no longer approriate; many fields required comprehensive soil restoration, soiconservation and drainage works; given the fixed and excessive labor force, replanig provided more employmentwith greater future benefits; and, since replantg was capitmd (para 9.2), the effect was to reduce theapparent cost of production (COP).

Factory Rehablitaon: Based on earlier project eperience, the staff appraisal report (SAR) recommended atukey approach to factory rehabqitation. This approach was not followed by either orporation. JEDBaggregated its rehabilitation requirements following the required economic assessments of factory utilization butthis approach greatly slowed proement By contrs, SLSPC carried out procurement on a piecemea basisrather than making and evaluatig comprehensive programs of factoy renovation. Only 37% of total estimatedrehabilitation expenditures were incurred before the decision was taken (May 1991) to realocate funds to meetrising field development costs.

M'inh4ydro Renovation: Despite reports confirming schemeviability based on an analsis of potential pilotschemes /2, ODA withdrew its funds. A valuable opportunity to reduce factory operaig costs as aconuion to improved estate vablity was therefore lost.

Housing and Socal Welfare: The component was modified from the SAR on clearer assessments of estate needsmade during implementation. The emphasis on creches and dispensaries/health centers was reduced, whieprovision for latrines ad re-roofing of housing was increased. Advantage was taken of exchange rate movementsto fund additioa houses, water schemes and maternity wards (Part m/4).

lnttutlonal Dwdopment: Considerable efforts were made during successive supervision mssions to encourageesablshment of the Institutional Deveopment Units (IDUs) in JEDB and SLSPC. SLSPC never appraedte- need for institutional development and only used funds under this component for procurement of a smallamount of equipment. JEDB established its IDU and consuants were engaged to design and implement JEDBtainig pograms in association with the Natio Institute of Plantati Management However, training wasperceived as a one-time activity rather than a continuous process for upgrading operating standards. SLSPCreluantly established a smal Planng Unit and conitently ignored it. JEDB, on the other hand, had acompetent unit but did not utilize it effectively. Consequendy there was a continued ladc of strategc coporateplanning and polic formulation in the manament of both orgniations

5.6 Variatons from the SAR could have been reduced through effective financial control and managerialresponsveness within the corporations, and (in the case of mini-hydro renovation) greater recognion by thedonor of joint responsibilities and funding complementart. Components funded by dferent agencies tendedto be viewed as discrete activities. Inspite of frequent discussions during supervision missions and jointparticipaton in the Mid-Term Review, inter-agency contac has been used more for information purposes thanfor continuous overall policy review and sustined project overview.

11 PFiures are based on DMB summaries and indude all development under the projet regadless of funig sourcOHowever, discrpandes occur in field development data as presented by MB and the corpons wic have notbeen sasfacory explained

Z/ Sri Tank Mii-hydro Rehabiation Project, Finl Report by Salford Cril BE eing Ld in assodadon withBinnie and Partners for ODA, August 1986.

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5.7 A succssd innovation in the pret was the establishment of MB. Operating with a competent boardand very smal staff and relying on local onsulants to undetake al field work MB proved cost effective. Itsrepors on the qualiy and standard of work in field development factory rehabilitation and contructon forsocial welfare prvded a unique perspctiv on project progress which has been imitated in other projects in SriLanka and elsewhere.

5.8 Risk Idenfia The bigh noioal cost of replanting and long pay back period wer stressed in theSAR, which required an ERR of at least 10% to justify the acviy. However, the corporatios faced withgurpls labor as a fied cost found replantig to be more attractive than tIe leffective infilling of old seedlingtea. As tea prices declined and the copoatons reseres were expended, the high proportion of fielddevelopment costs shouldered by the corpoatn had to be financed by expensie overdrafts. Institutional rskswere not anticipated at appraisal, possibly because too much was expected from plnnig units, insfitutionaldevelopment and consulants proposals on aco unting practices. Perhaps because of the obvious competenceof many JEDB, SISPC managers in planting, the absence of Financial Directors with the experence and statureto handle billion-dollar corporations was not seen as a risk to project implementa In fact a lack of efficiencyat aU leves made both corporations more vulnerable to the shifts in COP and commodity prices xperieedduring the project period. Sensitivity analysis should have taken explicit account of fluctuations in commodityprices. Since the analysis was only made in economic terms, it did not demonstrate the grave risks to corporatefinancal vbility which major increases in COP and wide, and largely downward, price fluuatins imposed.l/Relevant commodity prices and projections are given in Annex 1, Table 10 which show current projections ofworld prices in constant US dollars some 30-50% below those used in the appraisal analys.

5.9 Unfaseen Factors Affeg lmemouneiam The apprsal could not foresee the damaging, politicayimposed, excessive wage inceases, nor the imposition of a guaranteed six-day work weec, which made labor afixd cost A sbstant increase in wage rates imposed in late 1984, together with further increases during theproject period, made without due reference to the potential impact on COP and the crpoatn' financialviability, was a sgnificant contributory factor to the continuing financial crisis in JEDB and SLSPC. Under thecombined effect of the six-day weel/ and wage increases, estate labor now represents a fied cost, accountigfor ove 65% of total cost The effect of increased labor costs on corporate performance during the project waseamerbated by the relatively low labor efficieny in the public sector. Further, since the field developmentcomponent of FTCP initially had a high level of countpart fuding (55% fom the corporation), the lvel officld crop development reqired under the project bwcme an ineasig burden on corporate finances Theeffect was compounded by the emphasis on replanting rather than infMling of tea However, given the inflexiblequantum of labor, management behaved logically in using the surplu for productive invesmnt Fundingreallocations and changes in disbursement peretage (para 53) were made in response to the deteriorationin coroation finances and to minimized overdraft financing of field investments.

5.10 The unrest and insurgeny in 1988/1989 caused major disruptions to the project. At least 25 estatesuperintendenswere murdered as part of an effort to disupt the economy and destabiize the government. Thatany project activity was continued under such cicumstanc is a credit to both JEDIS and SLSPC, and inparicar the estate staff who were completel exposed to tefrorist actvity throughout the period The succssuphysical achievements in field development sere as a monument to thew loyaly and bravey.

1/ Commodity prce changeswe not ncluded In the SAR senstvity analyss, although swicng vauee for benefitswere cdulated.

2/ Imposition of the six-dy week alone (equialent to offering 18 cta days to the entire work force) repnted a5.6% Incremental cost haapk i of Gowmnme*at Poliie on she Fusancio Perfimaaaiae of JEDB and SLSPC. WoddBeak 199L

-7-

5.11 The inertia often associated with the management of large parastatal organizations and the persstentpoitical and bureaucratic interference were not recognzed as risks in the SAR. However, experience underthe project confirms that JEDB and SISPC lacked the flexibility of response and strategic planning capabilityto anticipate or accommodate adjustments in produion, processing and marketing to meet changin marketcircumstances. Durng most of the implementation period, each corporation was configured as a ministry withHis Excellency the President as minister. This arrangement inevitably restricted access by IDA supervisionmissions to the principal decision maker. With the change of government in 1989 the corporations were placedunder the new Misty of Plantation Industries. The first two ministers to hold the portfolio held diametricallydifferent views The first abolished the Regional Offices and created aclusteraw (of estates) as management units.His successor immediately reversed this arrangement The resulting confusion and demoralization severelydamaged the corporations. JEDB in partcuar suffered from the changed management approach. Manycompetent managers were lost and the fnanil and accounting services virtually collapsedL During the last yearof the project, financial control broke down in both corporations and losses escalated inexplicably.

5.12 A completely unanticipated, but potentially positive, influence on the plantation industry has been thechange in political climate in Sri Lanka under the present government with its interest in increasing the role ofthe pivate sector. Wbile the major impact on estate performance will be felt after the end of the project period,the poicy changes also affected government's attitude towards reduction in exort taxation (the need for whichhad been cntinuously promoted by IDA) and fical planning during the project period, improving the investmentcimate for prducers.

5.13 Actions not Taken which Influenced lInIme t Some provisions were made at appraisal toimprove financial and managerial control Seve key design requiements remained unmet including: (a) theappointment of sufficient board members external to the corporations; (b) the appointment of suitably qualifiedand expeienced financial directors to the Central Boards; (c) adequate follow-up of technical and financialrecommendations made by DMB and donor supevision missions; and (d) close monitorng of corporate financesand associated management actions in relation to crieria identified at appraisal and specfied in the DevelopmentCredit Agremenet.

5.14 The corporations were obliged to utilize obsolete planting materials and relied heavily on famiia;r fieldtechniues and processing technology. The tree crop research institutes have been widely criticized for failingto conduct research to alow Sri Lanka to keep pace with developig international trends in technology (especiallyas regards tea processing), and failing to broaden the aviable genetic base with imported, high yieldg loneHeavy reliance in rubber replanting on the localy developed clone RRIC 103 led to severe l6ses following itsfield suseptblity to Connsgow disease.

6 PoJect Resiuts

6.1 The fiul effect of the project in reversing the decine in tree crop production cannot yet be quantified.Even without the disruption by the insurgenq in 1988/89, only the earliest project rubber plants would nowcome into bearing, and tea plantings reach their third year of produco However, the standard of planting isreportd by 1MB to be generally good, which indicates that future performance should be satisfactory. Wbilethe tlecnical performance of the corporatio has been adequate to maintain estates in a generally satisfactorycondition, many improvements couild have been made in production practices. Bureaucratic procedures and lackof icentive deterred many from making the necessary extra effort. Corporation financialpeformanc has been hindered by shortcomin in manaemet procedures, crippling increases in productioncosts, simultaneous reductions in commodity prices and lower than expected production from existing areas./

X/ Emphasis on replanting in both tea and rubber has iaeead the propordon of inmature stands with consequetshort-em reductions in producton.

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62 EconDmicRate ofRetum MR. The re-calculated ERRs for tea and rubber are 9.6% and 112% fowJEDB, and 10.9%o and 15.0% for SLSPC, respectively. Returns are substantil lower than appraisal estimates.

Compario of Average Economic Prices, Costs and Retuns(1985 constant prices)

Tea Rubber

Average Economic Price 1995-2004 (Rs/kg) 38.6 44.5 25.6 31.4Average Economic Cost 1995-2004 (Rs/kg) 25A 16.6 11.4 7.8ERR 10% 30% 13% 26%

The main reasons for the lower returns in the PCR are (i) lower projected long run prices for both rubber andtea; and (ii) higer projected economic costs. Increases in cost projectios stem almost entirely from an inceasein the economic conversion factors used for Sri Lanka)/ Increases in real wage rates have on average beenoffset by prqected inceased efficenc and reduction in other costs. Details of the re-estimation of the ERRand discussion of factors contributing to the lower returns are presented in Annex L

63 Financial Rate of Return (FRR). The recent fiancial performances of JEDB and SLSPC aresumnmaized in Anex 2. At appraisal an overal FRR of 18% was estimated for the project by comparing 'withproject and 'without project projections. Re-estimation of the FRR, assuming that future taxes average 20%of net sales average (NSA) for rubber and 10% of NSA for tea, gives returns of 6.6% and 6.9% for tea and 7.8%and 9.4% for rubber for JEDB and SLSPC, spectively. Both corporations are technicay islvent and, at theime of estate transfer to the private managment companies, were bemg sustained by government sbventnOf some Rs 400 milion (UJS$9.5 million) per month to pay wages and cover overdraf interest. Given thisunfortunate base situation, projected FRRs would be too low for the project to be financially susinable withoutmajor changes in organizatio.

6.4 oiWecImgnat Etstate level investments under F'CP have helped the privatization process by increasngthe asset value and productve potential of the estates, hence increasing their attractiveness to privatemanagement companies The pressures exerted on government to reduce export taxation on tea and rubber haveimproved the economic climate for tree crop invesment, both in the plantation and smaMhlder sectors Thecontinued inadequacies of JEDB/SLSPCs strategic planning and (especially) finaCial direction prevented thecorporations from taklng full advantage of either the gradual tax reductions or estate level investmentopportuit

6.5 Significant improvements have been made to the housing and social welfare facilities avaihble to residentestate workers (numbering some 400,000) as evdened by the physical progres under those components andthe positive trends reported in health indicators.

6.6 Increased tree cover from replanting and infilling programs, diversifaon into fuelwood and theplanting of shade trees in tea, together with physical soil conservation measures, have provied improvedenvironmental protection Non-complance with the covenant concerning control of rubber factory effluents, dueto ladk of counterpart funds, continues to be a cause for concem

1/ At appraisal the convrion fstor for labor and most inputs was 0.6; now it is 0.9. Had 0.6 been used in thisanalysb, economic coat would have been tea Rs 16.9/kg and rubber Rs 7.6/kg, virnua the same as at appnisal

9 -

7. Prjwect Sustabuablilty

7.1 Expocted institutional benefits have been largely ovaertaken by the trander of management responsibilityfrom JEDB and SLSPC to prvate sector management However, indiiduals associated with and taned underthe project are remanig in the industry which will continue to benefit from their experience. Technicaladvantages gained at estate level are expected to be retained and improved upon, since most of the newmanagement companies are involved in downstream activs in the industry (eg. commodity brokerage andmarketing), and have a vested interest in maintaining high estate standards. Howver, the susamabDlity ofproject bnefits under the new management system remains at risk in several ways should the compames: (a)fail to reduce production costs and improve labor efficiency, (b) be unwiling or financially unable to conineto undertake necessary mainanc and production investments to keep the plantations and facilities at optimumcapacity; (c) be unable to invest in modern processing technolofg, and (d) fail to respond at estate level tochanging market demands. It wM be important for govment to avoid undue interference in the acfivities ofthe private sector, and to maintain appropriate incentives for the companies' continued involvement A majorextenl risk factor is the trend of future commodity prices and the impact of prices on the companie' abiitto maintain adequate producer margins/

& Dank Performance

81 IDA has given high priority to the tree crop sub-xsector and supported a series of ivestment prjectsfor both plantaio and smallholders (Part M/i). Following a tree crop sub-setor review in 1983 (Report 4890-CE), continuing dialogue with govenment aowed the pr-appraisal of FTCP to move quickly to appraisaTwelve months elapsed between the first two Bank supervisions of the project (Part r/8B), but thereafter morefrequent visits were made. Folowing intificaton of the financal crises in JEDB and SISPC m early 1988a thorough Mid-Term Review was carred out in September 198 in collaboration with other donors. Thereafteratention became more heavily focused on financial management isues, possibly reducing attention to technicalconsiderations. With more frequent superision early in the project, the imporance of adopting strong financialcontrol procedures could have been given greater emphasis from the outset. Inti difficuties with SpeialAccount opeation and regular auditing may then have been forestalled. The differences which emerged betweenJEDB and SISPC in both the inerpretation of the SAR and the emphasis each placed on physical content andprocedural aspects of implenttin, may also have been minmied. The positive guidance provided throughsuperision mins has been supplemented in 1991 by detailed technical studies undertaken as part of theongoing restructuring of the tree crop sub-sector associated with the Government/IMP/World Bank dialoguefor strtu support, and the progress towads renewed private sector involement in the management of theplntation industry.

8.2 Project experience suggests the need for: (a) ensuring apropiate operating and monitoring procedures,and a correct inteprtatn of project desg; (b) more intensive monitoring of finacial procedure and results;and (c) greater assurance of folow-up actions being taken in response to recommeda, and of adherenceto provisions embodied in the Development Credit Agreement. In the case of FTCP, dealing with majorcorporations, a closer monitoring of corporate finakncial management, accounting and financial reporting, inaccordance with intrnational accounting standards, coupled with timely, independent audit from the outset ofthe project would have been beneficiaL

1/ Prite sector proder margns have cons been some 200% above those in the public sector over the projectpeiod.

Z/ An assessment of the hnpact of COP macases on corporate finances was made by the Banl's Januaiy 1988wpeavion misdon. ADB missions were financiallUy oriented from the outset of te project but more concemedwith disbursements and accounting tan oveall financ managm and control sqtems of JEDB and SLSPC.

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9. Borrower Perormance

9.1 Government polcies on the employment, utilization and remuneration of labor and the continuedimposition of commodity export taxes, albeit at gradually reduced rates, have been counter-productive toacbieving the stated objectives of the project. The agro-technical pefomance of the Bower has generallybeen satisfactory and, with the variations outlined above, allowed estate level investments to be sustained underoften extremely difficult circumstances. In view of the importance of reducing overall costs of production andthe restrictions imposed by labor reuations, the corporatio should have placed greater emphasis on addingvalue to their products tbrough increased attention to pro ing, including ensuring the availabity of modernProcessing technology.

92 Major weaknesses relate to the overal management and financial control capabilities of JEDB andSLSPC, declining staff morale associated with the lack of incentives to reward initiative, orgaonal onfusion,and a growing disillusionment with the public sector's control of, and poltical interference in, the stictlycommercial aspects of the platation industry. Different and unc procedures of accounting forreplanig were adopted by each corporation. By capitalizing replaning costs, JEDB created an over-optmstcview of its financuil status. SLSPC switched between aptaln replanting costs, and including them in theprofit and loss account, as deemed expedient, to present its financial position in a more advantageous llgk Suchprocedures encouraged the false assumption that JEDB/SLSPC could absorb proposed wage increases. Withthe benefit of hlindsigt, JEDB and SLSPC may concur with the Banks earlier insistence on the importance ofth institutional development component, the need for competent Fnance Directors on the Boards, andadherence to high standards of account financial reporting and financial controL Had financial planning skmsin the corporations been greater, JEDB and SLSPC would have been in a stronger osition to resist polticallymotivated interference in thetr affas The lack of adequate flexibility in bureaucratic public instiu torespond to changing commercial requirements is widely recgnize The Government of Sri Iana has evidentlynow moved towards a similar view by intducing private sector management into its plantation comp

9.3 Estabhlishment of FTCP within the framework of MTIP gave the corporations considerable managementleeway and permitted diferences to arise in both SAR itepetabon and implementaton emphasis. Inretrospect, this degree of independence was not always justified. Given the size of the corporate entitiesoncerned and the lack of corporate (as distinct from estate) management skils, consdeation could have been

gen at apprais to provision of a senior finandal director of intenaionl statue in each corporatio

9.4 Government has been faced with sevre problems of insurgency and political pressures from powerulabor unions. In response, employment conditions have been introduced which haw increased the immobilityof estate labor and advrsely affected labor efficient and estate productivity. The resultant effects on thefinancial status of JEDB and SLSPC, and current projections of economic benefits, place a heavy burden on thenew management companies to seek innovative ways to reduce estate production costs and improve labor useefficiency in order to maintain a viable plantation industy.

10. ProJect Relationship

10.1 The relationship between the Bank and the Borrower and the implementing agencies has generally beenvery good. However, instances have occurred where conants have not or could not be fully met (Part m/7),and where agreed actions hav subsequently been ignored or inadequately folowed up. Because of the unsettledpolitical and security situation and the frequentty precarious financial state of the corporations, it was not alwaysfeasible for government to fuly comply with all covenats.

10.2 Relationships among the external co-financers generally have been satisfactory, the main exeption beingthe funding of the mini-hydro component, where pressure from the World Bank on behalf of ovrall projectinterests faied to encourage ODA to maintain its inolvment The remaining co-financiers copated fUllyin the Mid-Term Review and responded posively to changing physical requirements of the project as wel as

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the need for funding re-allocation between components and categories to minimize the financial difficulties ofJEDB and SISPC.

11. Consulting Semces

11.1 The institutional development conscy for JEDB was carrie out as schedul SLSPC opposed aconsultancy on instiunal development (para 5.5). A consulta on computerizaon of JEDB produced soundrecommendations which were initially conterted by a local firm and then dropped due to the corporaton'sfinancial crisis. The cotancy associated with the min hydro component was successuy completed but itsrecommendations were not accepted by ODA (para 5.5).

12. Project Dmeaon and Dat

12.1 The SAR was widely ditribed among management personnel in JEDB/SLSPC. Interprtation of itsimplementation requrements varied both wihi and between corpoat Procedures were dearly stated inthe Development Credit Agreement whih allowed attention to be drawn to shortcomings during supervonmissions.

12.2 The recent compu i of informatio at central level m JEDB and SLSPC simplified the colatonof information for dte PCR. However, gaps in information remain dw partly to the dise of corporation stafffllowimg the transfer of managment responsit, and partly to in in and incompleteness of dataas presented by the corporons and DMB.

12.3 The coninued presence of the Mlnistry of Plantaion Industzys Project Coordinator, and participationin the mission of the local financial consultant who has had involvement in the project from the nitil designste, greatly faciitated data coltion and inpretato by the PCR mssn

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PART IL PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

1. Geneaml

1. The project was implemented at a time when the thinkin of the Sri Lankan authorities in relation tothe plantation industry was subject to major changes. In 1983/84 when the project preparation was undertaken,the government had not extended the fee market philosophy to the plantation industry. All large estates wereowned by the government and the industry as a whole was subject to a series of regulations and controls whichwere inherited from the prevous regime of controlled economy and were applied without change. Dring thisperiod, the priorty was to run the estates without major disruptions particularly in relation to the employmentof labour. By the time the project was completed, arrangements had been made to hand over the managementof 90% of estates to private companies and serious discussions were taking place for appropriate deregulationof the industry.

2. Project appraisal and loan negotiations took place during a time when the industry was enjoying a boom,and the project was completed at a time when the prices were very poor and the tea market in particular wasfaced with uncertainty resulting from the politcal developments in Iraq and the former Soviet UnioL

3. The performance of the project in relation to the appraisal estimates and targets should be analysedkeeping the above factors in mind.

2X Maor Cbang

4. The project has been subject to significant changes over time in relation to the allocation of funds forvarious aciviies. As a result the focus of the project has changed significantly.

S. At appraisal of the project, field development, covering replanting, new planting and iofilliog accountedfor 35% of the project costs. Infilling accounted for 73% of the total extent of field development.

6. However, at completion 65% of the total project costs had been incurred on field development and 64%of the total extent under field development had been replanting, It is useful to find out whether these changeswere the result of conscious decisions foUowig careful analyses or whether they were short term remedies forfacing the hard realities of the management of the two corporations particularly in relation to labour. There isevidence that field development was used by the two corporatios as a convenient means of absorbing excesslabour.

7. Factory development, which was expected to account for 13.5% of the total project costs, received only3% of the total investment at completion. With hindsight, this appears to be a lost opportuny for the twocrporatos in relation to converting their factories into CrC tea for which the world demand is growin&

3. Rates of Rurn

& Although the PCR estimates show positive rates of return for the major project components, they aresignificantly below appraisal estimates. Due to policy induced distortions the financial rates of return are lowerthan economic returns as expected.

9. It is well known that the JEDB and the SISPC were faced with a severe financial crisis from about 1989.The main problem was an ever increasing cash deficit caused to a great extent by the very ambitious investment

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progammes they were committed to. The other reasons were sagnating prices, deciing production andincreasiog recurent costs.

10. The project may have contributed to the finanial crisis in the followmg mannr:

(i) Poor financial rates of return on investments as swe by PCR estimates.

(i) ligh rates of replaiun and the adverse impact on the cash flow due to uprootn of tea andrubber.

(iii) Unrealistically higb immature areas resuling in low cash inflow relative to outflow, parcularlyin the case of rubber. The optimum immature area for rubber is 18 - 20%. However, mostestates have immature areas extending to around 40%.

(iv) The need to borrow funds required to fil JEDB / SLSPC commiment under the projectat commercial rates, usualy at the overdraft interest rate, which m effect increased the effecteinterest rate of proje^t investment

4. Project Montoring

IL The project covenants required major investment desions on field development and factoryrehabiltat to be justified by individual project appraisals. There is no evidence that this requirement wasactually complied with In the absence of such analses, it is difficult to ascertain whether the nvestments werereally justified

12. Although reguar estate visits were conducted and investments were inspected, the implications of theseinvestm on the cash flows and profits and losses of tie estates and the cor ra were never anayed.Tis is perhaps the most serious design flaw of the project The institution crtated for this purpose, the DMB,does not appear to have had the necessay skills for such an undertaking

. Overallnpact

13. There is geneal agreement that the project was insumental in maintaining the capital stoc of the twocorporatons in good order even if substantial impromemets in performance may not have maeased in therelevant estates under the management of the two corporations. The consultants who visited the estates fordocumentation related to re-suctuing of management commented very favourably on the agriculur condionof the estates in generaL The credit for much of this should go to the project. It is expected that the privatemanagement companies wi make the best out of these investments and improve on the returns from the project.

14. in any event tree aops have a long gestation (immature) period and at completion of the project verylitde of the field development activities had begun to give returns.

15. It is now clear that in the case of rubber, major field development hvestments may not be required forat least two years. In the case of tea, the management compaies are again loong into the benefit costS ofreplanting vs. infillingt At present the emphasis is on inilling and maintaining the immature areas.

16 Factry development and rehabilitation, a major actvity which was downsized eventually, could havemade an immediate impact on the performance of the estates by reducing unit cost of manufacture andimprving the quality of output.

.

PARr DL 1rATSICAL DIFORM AI

L RIEATED BANK LOANS AND/OR CREDIS

te -Titke }nAn)ol S Me

Tree Crop Rehab. (rea) To imphove economic ffcnq of tea du&stry & to 1978 Completd Ethatseen as been a swaemawle praePrjec (Cr. 81E Inmove tea qual tear smallholdercomponents weafuTreo Crop Dh _s Divsion of unproofble m-con tea et into 197 Caneled in Opposition of labor union to the brkdow ofCrea) Project (Cr. 819-CE sma units to be planted to a diersiy of cops 1980 estates ptevented ful pjt ImplemntatI

induding spices, fruit trees & fudwood.

Tea Rehabilitation & To reduce tea production costs whie imving 1982 Completed Tea field progrms were generaly satifactor.Diversification Project (Cr. qualit through rehabiliaon & diversification of Dierdfxcation targets were scaled down due to1240-CE) public estates & reha aon of tea factories, lmitions of estate pesonnel s & la&k ofplanting maials. Factoy rehabilitaton was alsoscaled down, but the program consdered ccessful with improvements in tea qualty & factory laboreficen. Undisbursed blance of SDR 6.1 millioncanceDed.

Agricultural Research To raise farmerse incomes by increasing agricultural 1987 OngoingProject (Cr. 1776-CE) production through development of better varieties.

Project provides for steghening capty forprogramming of research & infrastructural support atresearch institutions.

Second Smalholder Rubber To incease both smaholderse incomes & Sr 1988 OngoingProject (Cr. 1909-CE) La s foreig czdiange earnings by sdmulatng

imon in the qualiy and value of smaliholderrubber. Ine project would also assist theGovernment to ratonalie and imprwe the effiiencyof its iniutonal upport - notably the aeMnionsewice & adaptive reseah.

2. PROJECr TfiMrABLE

Dato Date Datehm PRevd A

- deniiaion(Eectve Project

PrPon 1983/841v

PreAppal Jwnuary/Febauuy 1984 March 1984

Appraisalissim Iauay/Fehua 1964 Mar'ch 1984 V

* La/CreiNegotiton July 1964 Fdbuazy 1985

Board A oval October 1984 03/21/85

LMa/CreditOSIgnature05/09/85

Effecvess June 195 October 1965 09/23/85

Loan/Cret Closing 06/30/90 (i) 06/30/91(i) 12/31/91 12/31/91

Lo/Credit Completion 04/30/92

Pmed by JEDB/SLS'C.

Followig World Bank/GovenAent agreement on secaal les after themission, the proea was omidered as appraised in July 1984.

3.CREW DSBI

MlA Credit(Cumulmtve, i Nlon)

FYN6 Fs FM Fm Fno F1 F

- SDR 1S2 305 429 503 565 - -

- US$ 143 29.7 41. 49h 55.0

Actal

- SDR 8S 163 22.1 29.6 35.7 53.7 56.S

- USS 93 19.1 2C9 36.6 44.6 699 73.6

Actual as % ofApprais

- SDR 56 S3 52 59 63 9S 100

- USS 63 64 64 75 81 127 134

Date of Fmal Dbunezt May 27, 92

- 17 -

_ .. ._~~~~~~

X s w f:

i o, -§xRU -

_~ tES Sa!' s g

_ 55 $ $ ^ E } §'4 '4

_ ~ej g !

;I

q ! iRnX BE §g! §E B85~~~~'

Bf _ .

'z _}E§g S §

i dR w eBgS t

! w 'A-

2 }2 a1 4 0030t

* 18 *

4. MAJOR INDICATORS OF PROJECr IFLEMEWNATION

Appr isa Esim ActuaJEDI SLSPC Toa JEDI SLSPC Total

Field Dentoomet (ha)

Now PnatiAg 176 541 717 393 697 1,090Repanting 1,183 133 3,116 3,771 4,407 8,178nfg sl,0o9 5,241 10,330 1,539 2,756 4,295Total 6,448 7,71S 14,163 S,703 7,860 13,63

New Planting 777 l91 2668 551 1,191 1,742Replnting 3263 6,381 9,644 5,3s5 9,574 14,927

Total 4,040 872 12 S,904 10,76S 16,669CoconutsReplantlng 1,469 - 1,469. Undeplantng U.S. .LL n.a. 793 . 793.New Plantng ILL n. ns. 1S - ISDerdflcaion m1,800 5,700 7,500. Fuelwood I/ ns n.s na. 4,911 7,719 12,630.M Crops1/ .s us 94 3,440 3,534

Tea N134 138 mS72 233 284Rubber IL& n.s. - 10/ 35 65Coconuts 59 - 59 59 ns 59

CotWes 488 351 839 1,103 1,261 2,364Junior staff Quat - Now 38 18S 223 252 256 S08

- Upgadig - 248 248SenoStaff Quarters - New 17 S0 67 74 166 240

-Upgading - * * - 454 4S4* atecut Bu.4dows 12 - 12 . 24 - 24

C:recha * Now 163 256 419 172 143 315_ Up4g 375 - 375 169 268

Mten Wards - Now 10 32 42 26 29 SS- Upgading 17 - 17 21 78 99

Dispensedaes/Halth Cets Now 70 2 72 68 38 106-Upgrdn 61 9 70 66 112 178

Hospitals Upgading . . 13 16 29Vhicles *Ambula 23 1 24 10 5 iS

- Pick-ups 4 4 8 6 17 23.Bldhs/Motor Cyles 94 113 207 77 132 209

Medeal Staff Housing - Now 51 49 100 203 164 367- Upgdng . . 39 223 262

Water Supply Schemes . 534 394 938Latre - NO W . 17,109 14,813 31=

-Upgradg . . . 1,150 353 1,5l3Ru-roofig - Wokers Housing I 4,962 6,S16 11,498

L/ Soure: 'ES mumtmaries. Data unelew, may inadhe prePTCP divesIfcation/ADB rvie ndt 100% rehbIto cri out by JEDB in only 6 ta actore Rehabion susewhom

75-100% in 20 factodre S0-75% in 10 hatores; 2S- In 10 factorfs; 0.25% in 8 factories./ JEDB has carred out 75% rehabitation in 10 rbber factore and S0.7S% _ in a further 9 fatorieA/ als include umbes bing omplted with misti hndbig in 1992.

Notw /na * not spfied/not avaial

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5. PROJECr COSIS AND FINANCING

A. Proiect Costs

Appraisal Estimate Acual TotalUS$0OOO USS °°°

Local Foreign Total Local Foreign % Fonri Total

Field Development 66,700 15,000 81,700 74,211 85,878 54 160,089

Field and Nurse Equipment 3,100 1,900 5,000 1,247 2,301 65 3,548

Vehicbles 2,500 7,400 9,900 23,461 10,0S4 30 33,515

Factoy Rehailitation 13,300 8,500 21,800 1,047 7,039 87 80IM

MIlHydro Units 4,200 4,100 8,300 , _

HOusIg 9,200 2,900 12,100 453 14,674 97 LS,127

Socal Welfare 7,800 2,900 10,700 859 16,315 95 17,174

stuonal Development 6,600 5,200 11,800 - 111 100 111

Base Coats 113,400 47,900 161,300 101,278 L3372 S7 237,650

Physc Contigencies 6,300 2,100 8,400

Price C onigecs 32,500 9,600 42,100

TOTALCOSIS 152,200 59,600 211,800 101,Z78 136,372 57 237,650

SowD: JEDBISLSPC mvconls.

-20-

B. t nc

Appraisal Esiate Actual

Amount USS '000 % Amount US$ 00 %

IDA

Civil Works 1,071 inEquipment and Funiture 7,009 2,301

Plantation Developinent 36,017 70,027

Traing and Technical Asstance 4,96S 1,181

Special Account 3,018 12

Unalocated 2920

ADB

Vehides 8,770 10,055

Factory Development 18,475 7,039

Housing 16,630 14,674

Instiutional Development 1,125 111

Fidd Development 14,56

ODAI/_

Govt. of Neerlands/Norway 2/

Bank of Ceylon

JEDB and SLSPC

TOTAL

/ Futding withdrawnL/ AU funds dibursed in SL Rs.

Savec: JEDB/SLSPC and IDA sweds.

-21 -

6. PROJECr RESULTS

(I) Inremental Production and Revenue

Appas Estiate Benefits at PCR Estimate ofof Benefis at Full PCR/Closing Date Benis at FulDevelopment 11 ______ Devdelpmen

Incremental Production (mt/year)

Tea JEDB 22801 (3,683) 18,584SLSPC 25,142 (1,239) 21,124

Rubber JEDB 6,605 59 7,5SSPC 13,528 83 16,567

Coconuts (in nuts) JEDB 185 n.a n aIncremienta Revenue21

(Rs milon)

Tea JEDB 8965 (78) 851SLSPC 1,003.5 5.0 1,043.0

Rubber JEDB 177.5 8.0 207.0SLSPC 3582 10.0 4080

coconuts JEDB 383 n.f.t n.L

11 Full development was to be reahed in 2001 (SAR, page 52). Tables in the SAR allowopasat 2014. FIgues quoted are from ERR projecdons for 2014.

V,' At economic price

(Ni) Health Beet

JEDB SLSPC1985 1990 1985 1990

Crude Birth Rate (per V0O) 31.8 19.8 30.6 17.6

Matel Mortaly Rate 0.7 1.6 1.7 22

Infant Mortay Rate (per '000 live births) 54 44 45 31

Neo.Natal Moralt Rate( ) 40 30 33 19Low Birth Weight(%) n.a n.a 42 15

t onal Births (%) n.a n.a 69 90Crude Death Rate 2 (per V0) n.e. n.e 7.7 6,8Lve Births (midwffe iatned) n.. n.a 1,00/ 233Live Births (other) n.a n.a. 1,S36 405

1/ Health lIdicators based on 1992 nreys by Tecnical Assitance Team, SodalWelfare Prqect, Gverents of Neterlands and Norway.

V/ Sri Lnka as a whole - 623/ 1986 as base year.

Data Imusate a continution of the smprovements sa sce nationaladton and especayfrom the 1980s.

- 22.

B. Ecnmic

-ps PCR BmahEstmate (at ffina deveopment) I

ERR(overall) 26 10-IS

TeaJEDB 31 9.SLSPC 28 10.9

RubberJEDB 24 112SLSPC 28 1S.0

coconutJEDB 18 n.a

Fuelwooda/ 50+ n.eTotal Project

JEDB 27 not cculatodSLSPC 26 not calculaed

1/ Iheme Is now an expecton that estate produtivity wiMineaso and processg effiden IcoW folowing theprMlimdon of _anagentent. These bef havenot been

C.

Fianal Rates of Reltun

-ppnW PCR EstimEsBmate

TeaJEDB 22 6.6SLSPC 21 69

RubberJEDB iS 7.SLSPC 18 9.4

CoconutJEDB 12 Ua.

Total ProjectJEDB 18 not caluedSLSPC 19 not calulated

D. 2hdb

e as at A - B Slatus Imnac1. Renovatio of mini-hydro schemel Completed 19816 l ens f*om stud but fn whdra n

6y ODA foloig anals by Brish HiOh Commsio, Colombo.2I Establishment of Institutional Complotd 197 Cotept of situtional doeeopmn rejectd by SISPC.Deveopment Units in JEDB/S.SPC. IDU estahed in JEDB but gen inufficet attenion to

bave a maor lng-tm impact on cosporaoe apbilyfor mangeia and financal controL Successl provionof TA and taining to assit in coordination of Socal Welfire programrefted in socia Indktom

3. Design of M1R for the smaholder Completed 1990? ADB curently finding a smamfer tea prject; IDA fungdtee crop sector Incuding liison Second Sma nider Rubber Project (Credit 1909.CE).btween est and smalodkm

4. Study of tion and procedres Complotd 991 Supported under funding raos (1989) and assocedavailable for estate pion /. ith ongoing rsuauring of trtee rops sbsor.S. b n of estae unt Plans pp red Intend JEDB/SLSPC actions subsequt take to compucrizaid regional collatn as part of information at central le, indep t of plamed sWy._ w Inforl m/IIation seme i , t isiteme

I/ Study added to poject at time of fis fung realocatk.

7. SrATUS OF COVENANS

A4_ae Sw am C

DCA 202(b) Boarow to madntan In t35 a Specal Account in BOC. Complied wlL

DCA 3.02(a) Borer to rekad procees of Crodt to BOC under Complbd wt.finning me approved by Assodaon.

DCA 3.2(b) Boroe to cae BOC to relend proceeds of Credit to Compled wiJEDB and src under sqoe su" loan

DCA 3.04 Boer to a%oint to Nationa nstu of Plantoe Complied whLMl_gomtbte te cl ass_tmp vidded undeir Cr.

DCA 3.05 Borrowr to cause Wodtng Group on Tee Crop Sector Compliedth.Produ Incent_ s to monior faors affecting producermrgin of/hwene in the tree aop deor andrecommend furthe a4ustmen of ta strctur

DCA Sched 4 Para 1 No tea replanting wM take place in any estate unl UnknowA. Previous mmaries show complance. Replntingeconomk rtu Is at least 10%. coiszdeably n cess of tagets sgests ERR rle may

not have been rdl 4l

DCA Sched 4 Parm 2 Rubber wi not be uprooted and replanted until old Parl Weather cndti not alvays appr ate forrubber has been exploited both by chemical stimulation complnc successfu emia stimulation, epeialy in areas wthand by upward tppng above the re tUpping paneL double m n Ey wi appL notA signed sment to this effect dd accompany a by m of

DCA Sdhed 4 Pam 3 No hwestment wl be made in renovatng any tea Pati JEDE aried out sudis for eall rehabittion.fctoy unles the proposed inestment wi result in an compliace SLSPC did peceme rnation to oeromERR of at least 10%. proessng bottnec. Unle if thi was on basi of

ERR eakul_od

i~~I I

~~~ I

~itii-l Ij i,iliii,i0 ~ ~ I i

|S~ I I A 8 A

AUWA sectio

DCA Sched 4 Paa 11 By September 1 of each yr, JEDB and SPC dsall No longer Delays eape d in earlie yearfwrish Bow and Asso a_ un prction of oapUed wihtheir rective crporte debt mvc raios and draft

_vemt and mue budges for the nod FY.

lbe antsow ap_r in the separae Prjec Agreeme for each corpot

PA 4.01(a) Bad h maitain reoord and separ aount an Complidwap_diue for which Credit withdrawals are rested

- Satemm of apediu (SODs).

PA 4.01(b) Eac shl retai untl one year after the dodsig date all Compied wit.rocord eAmb pendire spa SOB L

PA 4.Q2(a) Boc shl have is asounts and fiacl saments for Complied widLteach FY aed by indepdent auditos

PA 4M2(b) Badh shall funi A_di not lter t 9 mons Compwlied L Delays freenly occurred requring corptor to beafter each FY cetified copie of finana staement and foed dat m would not aoqet ihdalaudit repo% hIcuding sepamte opo n expendires appcaions based on SOEs if SOE audit was wvedeemade agit SODL

PA 4.02(d) D h rnih Asodatio not lter than 6 months CompSed with. Delays frqueny ocaurred.after each FY unaudited epa accounts & nauditedanua owpot finaal state t

;V

- 27 -

8. USE OF BANK RESOURCES

A. Staff IIrpunt(StaffWeeks)

Stage ofPro& ect CZcle Plnl Reviseu FIn

Through Appralsal n.a. n.a. 99.0

Appralsal through BoardApproval n.a. n.a. 12.5

Board Approval throughEffectlveness n.a. n.a. n.a.

Supervlsion n.a. n.a. 175.9 1/

TOTAL n.a. n.a. 287.4

... ... .. 1 ....... 9iI/ Includlng 12.9 staffveeks for PCR preparation.

- 28

B. igsglons

Stage of outh/ Numer of DA" spiaiustion Rating Tps ofProj et Cycle Year Persans in Field RereZntd A/ status Problms k

Identification/Preparation

Prepation

Pre-Apaisal 03/84 7 28 A,B,D,E.I,P

Appraisal, a/ 03/84

Supervision 1 08/85 S 16 A,B,E 2 D,F

Supervisioan 2 06/86 3 22 A,B,C 2

Supervision 3 01/87 3 11 A,B,J 2 D

Suprvision 4 0/87 2 6 B,C 2 C

Supervision 5 01/88 2 13 B,C 2 B,E,D,F

Supervision 8 05/88 2 2 B,C 2 D,E.F

Supvmision 7 ii' 09/88 7 12 A,B.C 3 D.Z,F

Superision 8 04/89 2 7 B,C 3 D0,5F

Supervision 9 06/89 2 8 B,C 3 B,D,E,F

supervision 10 12/89 4 10 B,C,I 4 B,D

Supervision 11 05/90 2 20 C 3 B,D,F

Supervision 12 07/90 1 4 C - D

Supervision 13 10/90 4 19 B,C,E 3 D,E,F

Supervis. 14 S/ 03/91 8 22 B,C,D,E,F,G,l,l 2 D,1,F

Supervision 15 11/91 1 22 C 3 D,E,1

J/ A: A _roamist or Agrioultural ecoeist; 3: Financial dansit; C: Tree crop seialst; D: Tea specialist; t:Rubber specialist; F: Cocenub rsearch speialist; 0: TOs research specialiut; : Ta maketinS specialist; I:Institutional deelopmet specialist; J: Foret specialist; K: Rubber researcb specialist; P: Power (mini-hydro)oeneer.

2/ A: Field developmnt; B: Factory rehsbiitaticn/proourement; C: Institutional deelopmt; D: Financial.performneo; Z: Enviromaental aspects; F: Management performane.

S/ No separate appaisal mission. Following /O_overent ag_eement on seotoral issue after the pre-appraisalmission, the poject was onsiderd appraised in July 1984.

IV W 1-tem review.

M/ Combined FTC? sparvision, ongog support to Troe Crp Subsector Restrueturing, and prliminuar design of TreeCrops VI.

- 29 - Annex IPROJECT COMPlETION REPORT

SRI LANKAFOURTH TREE CROPS PROJECT

(Cr. 1562-CE)

Re-Estimation of Economic and Fiancial Rates of Return

Genen

1. The economic analysis at appraisal was in border prices with international prices converted into Sri Lankarupees at an exchange rate of US$1 = Rs 25.17. All values were expressed in 1984 constant prices. The PCRanalysis has been done using 1985 constant prices for the major crops of tea and rubber for each of the corporations.Lack of data prevented the re-analysis of investments in coconut and firewood production. Following what was doneat appraisal, the analysis excludes benefits and cost of ongoing projects.

Economic Beneftts

2. The primary benefits of the project would be realized from the incremental production of tea and rubber,but with some benefits also to be realized from incremental coconut and firewood production. The prices of tea andrubber used for the 1985-1991 period are the actual prices received, adjusted for export taxes and converted to 1985contant prices using a domestic deflator (see Table 1). Thereafter, econoc prices are assumed to move in parallelto World Bank commodity price projections using the real Sri Lanka 1988-1990 prices as a base. The pnces usedare adjusted Net Sales Average (NSA) prices for the blend of grades and product types produced by the corporations'estates. The NSA without the project would be lower as the necessary investment to maintain product quality wouldnot have been made. Accordingly, it is estimated to decline to 2% lower than the vith project' level by 1992.Because of different financial NSA prices for the corporations, the economic prices for the two are also not the same.

EconomIc Costs

3. Project costs include physical conugencies but exclude pnce contnencis, dutes, taxes and subsidies.Costs of production (COP) were taken from corporation records for the years 1985-1991 and are excusive of taxes,interest and depreciation. COP with the project is estimated to remain constant in real terms at 1991 levels.Improved labor productivity as the estate labor force declines due to normal attrition, and as better managementpractices are insthuted, is amumed to be offset by bigher real wage rates. In the without project situation, it isestimated that unit COP would increase relative to COP with project and by 1994 would be 35% higher. Atappraisal a standard conversion factor (SCF) of 0.85 was applied to the local content of imported goods and localinputs. The SCF for Sri Lanka has subsequently been adjusted to 0.90 (July 1991). At appraisal a shadow wage rateof 75% of the market rate was used, but this was subsequently adjusted to 55% to take into account a major wageincrease shortly after appraisaL At present (from July l99) a shadow wage rate of 90% of the market rate is used.In the re-analysis, the orginal SAR conversion factor of 0.60 applied to the COP was increased in regular ncrementsto the 1991 value of 0.90.

4. Investment costs used in the economic analysis are estimated financial costs modified by a conversion factorof 0.85. These include investments made during 1985-t991 plus additional expenditure required to finish off plantstarted during the project period. In consistency with production estimates (see below) without project investmentin replanting was assumed to take place at 25% of the with project rate but at 50% of the with project cost perhectar.

5. Actual production figures are available for the 1985-1991 period. Incremental production for 1992 andthereafter is estimated by applying the SAR yield schedule for rubber and tea to the reatized new planig(replanting, new planting, inlling) achieved over 1985-1991. The area of trees/bushes uprooted during the project

Annex 1- 30 -

period is assumed to be replanted under the project. An allowance is also made for producom losses due to III.removal of productive trees/bushes for replanting. As the replanting program would have been smaller in thewithout project situation, production without project would be somewhat greater than with project until sh timeas the replanted areas come into bearing/maturity. For rubber, the without project production takes accout ofOUtpUt from inemental planting, while for tea, because there are no without project plantings, production withoutproject is assumed to gradually decline at 05% p.a.

Economic Rate of Retmu

6. The recalculated rates of return are summarized in the table below, and the calcuiations are given in Tabls2-5. For the project as a whole, the economic rate of return (ERR) is estimated to fail within the range of10%-15%.

Revised Economic Rates of Return

Percentage

TeaJEDB 31.0 9.6SLSPC 28.0 10.9

RubberJEDB 24.0 112SLSPC 28.0 15.0

7. The re-calculated economic rates of return are substantially lower than the appraia estimates, for a numberof reasons whic coultd ot have been anticipated at appraisaL The main reasons for te lower ERRs are discussedbelow. The primary factors which have adversely affected the financdal performance of the croratio (and theERR) have been dealt with in detail in a separate paper, and this analyss wM not be ropeated here.

Factors Coutribudag to the Lowe ERRs

8. Cmmodt Pnces. The world market prices of tea and rubber began to decine at about the time ofapprial, have not yet recovered, and show no signs of recovery over the next several year Table 10 prvides acompaison of actual prices (1984-1991) and revised estimates with the appraisal eimates It woud not have beenpossible to anticipate the price decline. A sensitivity test on commodity prices was not done at appraisal, althoughswitching values were calculated. Given the historical volatility of tea and rubber pries, a sensitivity teatinorporating cost overruns and dedlines in prces and yields mght have been useful and revealin& Alwugh arevised ERR was not calculated on the coconut invesentm, the re-calcated ERR would prbably be wel belowthe appraisal estimate, given that the realized and expected coconut prices are, on average, about 57% of the pricsused at appraisal.

I/ Impact of Govrmme Policies on the Fnancal Performance of JBDB and SLSPC; Anabsis of Past and Pr%eedFi ial Performance; Aglur Operations Divson, Countly Depameit I, Asia Region, July 1991.

Annex 1

- 31 -

9. SO Yilds Available data do not permit an analysis of the yields obtained from the incremental areasplanted under the project. At any rate, rubber planted during PY 1 is only just coming into bearing, and new teahas been producing for only several years. Total production of rubber and tea appeas to have declined since theprcject started (1985-1991) whereas the SAR anticipated rubber and tea production increases of about 14% and 8%,respectively, through 1991. The reasons for the production shortfall are not clear. Production data for rubber seemto indicate that intensive 'slaughtee tapping with stimulation has not been practiced on the area to be replanted;otherwise the drop in production need not have been so pronounced. Concerning rubber yields in general, few ofthe estates appear to achieve yields significantly over 1,100 kg/ha for any age of planting. While there is no doubtthat the appraisal yields can be attained under efficient estate operations and with good clonal material, some doubtcould be expressed as to whether sufficient supplies of good planting material could have been available to satisfythe proposed planting program

10. Baswline Pouction Data, For SLSPC tea the baseline production figues used in the SAR appear to haveincluded 'bought-in' tea as well as own production, but for JEDB it appears that the production figures are for estate-grown tea only. This would have some effect on revenues, and the ERR, as the processing of bought teas is generallyprofitable. The revised ERR calculations include the production of 'made' tea from 'bought-in' tea as weB as estate-grown tea. The NSA is the average of prices receive4 for all 'made' teas, and the COP covers the cost of productionof tea from 'bought-in' la as well as own leaf.

1L Field g The field program consss of feling, uprooting clearing, sofl condtioning (tea) andmaintenance during imuaturity. A comparison of the SAR program and the realized progress, 1985-1991, is givenin Tables 11 and 12. There are disepancies between the field development figures of the plantations and theInestment Monitoring Board (AMB). The PCR mission was unable to either resolve these discrepancies or to obtaina rationa explanation for them. Overall, the SAR field development program has been largely achieved, but theprogram extended over seven years rather than five. The SAR tea infiHg target was not met (38%), but this maybe due to reporting discrepancies and lack of a clear definition of infilling. Spot infilling is not popular among theesate managers.

12. QMgjng Costs. Since appraisd there have been significant increases in the wage rate for estate labor, andthe effect was further exacerbated by the requirement that the estates must offer six workdays a week to the laborforce, whether or not their services are needed The effect of the wage increases on corporate profitabiliq isanalyzed in detail in the paper referred to above (para 7). Estate labor costs constituted about 60%o of directoperating costs in 1990 and perhaps 70% by 1992 (excluding interest, depreciation, corporate overheads, etc.).Although the SAR does not give the wage rate used in calculating costs of production, the above paper has calatedthe 1986 total wage cost at Rs 34.60/day (Table 14), and the PCR mission has calculated the 1992 total cost of thelabor compensation package at Rs 80.75/day. In constant 1985 prices these labor costs are, respecively, about Rs 32and Rs 36. There has thus been an increase in both the economic and financial wage rate. The total wage bi hasprobably inceased over the appraisal figure due to the requirement to offer work for six days a week The changein the shadow wage rate for unsklmed labor from about 55% of the market rate at appraisa to 90% at present alsohad a negative effect on the estimated ERR, given that labor costs represent a high proportion of total cost ofproductio

13. ersip Factors. Changes (numerical increases) in the conversion factors used have meant that the gapbetween financial and economic pices and costs has narrowed Higher economic prices, especially for the laborelement in the cost of production, have led to signficantly higher economic costs than were estimated at appraisal.The present World Bank shadow wage for unkied labor in Sr L anka is 0.9 of the going financial wage. The PCRmissio feels that this shadow rate maybe too high for estate abor, given the extreme lack of alternative employmentopporn for the resident workers who consttute about 67% of the total labor force.

Annex 1

- 32 -

inaudal Rat of Return

14. Assumptions on phycal phasng of mvestent, productuo and costs as well as world price levels arenaturally the same for the financial rate of return (FRR) callations as for the ERR calculaions outlnd above.PRR calculations ame made comparing %Wth projects and *without project situatios, as was done at appraisd, in 198Sconstant prices. Actua taxes are alowed for i the years 1985-1991, while for 1992 onwards export taxes of 1O%of NSA for tea and 20% for rubber are assumed. The recalculated rates of return are summaied in the tablebelow, and the caluao are given in Tables 6-9.

Revised Fmancial Rates of Retum

TeaJEDB 22.0 6.6SLSPC 210 6.9

RubberJEDB 15.0 7.8SLSPC 18.0 9.4

iS. Give that both orporation are technicaly io t and, at the time of estate trnsfr to the prvatemnagement companies, were being susained by goverment subvenions of some RS 400 mIllion (US$9.S million)per month to pay wages and cover ova interest, the projected FRRs would be too low for the project to befianialDy susainable without major cnges in orgnization.

-33 - Ann 1

Table 1. Deflators for Sri Lanka (1985-100)

Year CPI Domestic MUV US$ MUV Exchange MUV Rs MUVDeflator In US$ Deflator Rate In Rs Deflator

(Rs based)

1985 246.4 1.000 100.0 1.000 27.16 2,718 1.0001986 266.0 0.926 117.9 0.848 28.02 3,304 0.8221987 286.6 0.860 129.5 0.772 29.44 3,813 0.7121988 326.6 0.754 138.9 0.720 31.81 4,420 0.6151989 364.4 0.676 137.9 0.725 36.05 4,970 0.5481990 442.8 0.556 145.8 0.686 40.06 5,840 0.4651991 503.0 0.490 148.7 0.673 41.37 6,151 0.4421992 550.3 0.448 152.9 0.654 44.40 6,787 0.400

Note: The main deflator used In this PCR Is the Domestic Deflator.

t at i3 N N

iitit I I

I X i - - - - - - - - - - - - - -

I'8 orK*-------------88-Sb t 8

| i X it {X XI . i .. } - MMMOkO O18 MMMM __4 |i| -4 i

I a ,~~

It

1----

Table 2. (cont Calcubion of Econombi & Fiacl Poee of Tea for JEDS

-With Proe- -W Whout ProjectYear WB fid NSA Av Tax Eoon Domesc Econ Financial Reducton Soon Financial

Price % of NSA Priem Dewtor Prie Price In Eoonnic Prce Prie(19665) (PA" (Curront Re) 1965.10 Constant Constant Prdt9o donstn Constant

'85 Re 'U Re to lower '8S R '85 RquaR

A B CwA^(+) 0 E=C*D F=E-Tax wtou proja H.((1-G)) I-H-Tax

1986 1.98 32.27 26.4S6 40.79 1.000 40.79 32.27 0.0% 40.79 32.271986 1.64 30.26 16.6% 36.28 0.926 32.68 28.03 0.0% 32.68 28.031987 1.32 35.99 18.0% 41.75 0.s80 35.89 30.94 0.0% 35.89 30.941988 1.29 41.20 10.5 45.53 0.754 34.35 31.08 0.0% 34.35 31.081989 1.46 55.54 8.1%A 60.04 o.676 40.60 37.56 0.6% 40.39 37.371990 1.39 53.29 1 1.5% 59.42 0.556 33.08 29.65 1.0% 32.73 29.361991 1.24 56.09 7.0%A 60.02 0.490 29.40 27.48 1.5% 28.96 27.081992 1.34 10% 34.96 31.78 2.0% 34.28 31.151993 1.32 10% 34.44 31.31 2.0% 33.75 30.681994 1.33 10% 34.70 31.54 2.0% 34.00 30.911995 1.34 100% 34.98 31.78 2.0% 34.26 31.151996 1O% 35.08 31.88 2.0% 34.38 31.241907 10% 35.17 31.97 2.0% 34.46 31.331998 10%6 35.27 32.07 2.0% 34.57 31.421999 10% 35.38 32.16 2.0% 34.67 31.522000 1.36 10% 35.48 32.26 2.0% 34.77 31.612001 10%6 36.94 33.68 2.0% 36.20 32.912002 106 38.40 34.91 2.0% 37.63 34.212003 10% 39.86 36.24 2.0% 39.07 35.612004 10% 41.32 37.67 2.0% 40.50 36.822005 1.64 10o 42.79 38.60 2.0% 41.93 36.122006 1O%A 42.79 38.90 2.0% 41.93 38.122007 10%6 42.79 38.90 2.0% 41.03 38.122008 1046 42.79 38.90 2.0% 41.93 38.122009 10% 42.79 38.90 2.0% 41.93 38.122010 10o 42.79 38.60 2.0% 41.93 38.122011 10%4 42.79 38BO 2.0% 41.93 38.122012 10% 42.79 38.90 2.0% 41.93 38.122013 10% 42.79 38.90 2.0% 41.93 38.122014 10% 42.79 38.90 2.0% 41.93 38.12

Note: From 91. the economi pc 'wih prjet moe In p uaa wIh Bank pre ost in real tmaitanng the ow peceta discotM as on avrp In 1988-I (21.4%).

- 36 Annex-

g s ! I - - - - - - - - - - - - - - - -

------------------ _---------------Itt tt

Ii ~ i i e f'

4U§;gK K gl2 KK|K22l| a3 st

be~~~~~~~~J ja'8lEdN885g!B!!l Ii*|' S la X§iWnffafX2it VIIiX

S _ _______________ i I!! ljjJIœ tf8a2g'st>|0 .j'j44 EXgti

!~~~~~~~~~~~i iiii l ,8 > .tt - <8!!l|

3;~~ | f t8ot o8°!N0*2oitflhIJY

Table 3. (conA) Calculation of Econofmi & Finaneil Prices of Tea for SPC

-With Proct- - W PrWjectYear WB tnd NSA Av Tax Econ Deflator Econ Finani Reducton Eon Financial

Price Rekg % Of Price 1985=100 Price Pdce in Economnic Price Prie(196 $) NSA Curr Re Constan Caostant Price due Constant Constant

'85Re '8SRe tolower '8Rs '6SRequafltyWithot

A 8 CwA*(B) I E=C*D F=E-Tax G H-(E^(1-) I-H-Tax

1085 1.0 22.61 26.4% 41.22 OA26 38.16 3021 0.0% 38.18 30.2119se 1.64 32.13 18Mb% 87.4s o0s 32.21 27.92 0.0% 32.21 27.021987 1.32 38.77 10.0% 44.97 0.754 33.93 29.25 0.0% 33.93 29.261988 1.20 41.39 10.5 45.74 o0.76 30.92 27.98 0.0% 30.93 27.901980 1.46 58.34 8.1% ea.07 O0.59 35.09 82.4e 0.5* 84.92 32.30180 1.39 O6.52 n1l.s 73.0o 0.4S0 35.79 32.09 t.0o 3S.43 31.771991 1.24 66.09 7.0% 90.02 0.448 30.49 28.50 1.5% 30.03 28.071992 1.34 10% 32.95 29.96 2.0% 32.29 29.361993 1.32 10% 32.48 29.51 2.0% 31.81 28.921994 1.33 10% 32.71 29.73 2.0% 32.06 29.141995 1.34 10% 32.96 29.96 2.0% 32.29 29.381990 10% 33.05 30.0S 2.0% 32.39 29.441997 10% 33.15 30.13 2.0% 32.48 29.531008 10% 33.25 30.22 2.0% 32.58 29.621999 10% 33.34 30.31 2.0% 32.8 290.712000 1.36 10% 33.44 30.40 2.0% 32.77 20.792001 10% 34.62 31.65 2.0% 34.12 81.022002 10%b 36.20 32.91 2.0% 35.47 32.252002 10% 37.57 34.16 2.0% 36.82 33.482004 10A 36.95 36.41 2O0% 38.17 34.702006 1.64 10% 40.33 36.6o 2.0% 39.2 35.932006 10% 40.33 36.6e 2.0% 39.52 35.032007 10% 40.33 36.66 2.0% 39.52 a5.J32008 10% 40.33 36.66 2.0% 39.52 36.932009 10% 40.33 36.6e 2.0% 39.52 35.932010 10% 40.33 3a.e6 2.0% 39.52 35as.2011 10% 40.33 36.66 2.0% 36.52 35.932012 10% 40.33 36.68 2.0% 39.52 35.s92013 10% 40.33 36.66 2.0% 39.52 35A.92014 10% 40.3a 36.66 2.0% 39A52 35.62

NHto: Fromi1091. economnd price rkbth jermovieen parlllwpdth SankpicebweamsinresatmmantIn te _amse pewenta discotut as on averaoe In 198-190 (14.3t).

tee.t$ 3w9°8aR8"°8X8828g t

IFIt[X} 6l"BBw;;"oe@*" ' -, l{iti§if}t- -fS&;4tS,§g|gg wii _a

Sj! i .i 0 0 F

Ej ¢ I -6fJ {wgeiifiie|c

5g8tt! II I5lS"A"@*|o!%Sg$ 00*

a~~~~~~~~~~~~~~ j-tS g§*IqgXC t8sa g ea ta ; ea;R ;ues

ItX 1 egooSooo } hR Pe<" §! W8t XI EI - I:;e|o2222 fS }t3ool 45 go1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

| ~ ~ ~ ~ ~~ 40 I-_e"""Xo>X*6^ ii-; { "^ , "s !!?l0 I;o .s0 50 t I I

zsuuv~~~ hw1

Tabb 4. (conr) Calculadon of Economi & Financial Prices of Rbbw pw kg fr JEDB In Conrsn 1986 PrIces

-Wlth Pro}ot- -Withot PWoW ctYear WB nd NtSA AV Tu Econ Deltor Eoon Fnancial Reduction Econ Finansal

Price R1kg % of Pdie 1965100 Prie Price In Economic Prce Prie(1965$) NSA Curr Re Constant Constant Prce due Constn Constt

I8 Re '85 Rs to bw '85 Re '6 ReA B C-A-(B) 0 EC*D F-E-Tax quality

wcutprta HuE (1 I=H-Tax

19e6 0.92 17.56 19.0% 20.0 1.000 20.0 17.68 0.0% 20.90 17.561096 0.81 21.81 28.2% 27.96 0.06 26.90 20.20 0.0% 25.90 20.20Is7 0.86 20.36 29.9% 26.47 O08 22.76 17.52 O.O% 22.76 17.521988 0.93 27.8 35.1% 37.64 0.754 28.40 21.02 0.0% 28.40 21.0219o 0.81 26.11 42.9% 37.31 0.676 25.23 17.66 o05 25.10 17.571990 0.70 27.60 38.9% 38.34 0.560 21.33 18.36 1.0% 21.12 16.201091 0.68 23.s na na 0.400 20.89 11.68 1.5% 20.58 11.501992 0.68 20% 20.28 10.00 2.0% 10.87 16.561993 0.60 20% 2120 17.e6 2.0% 20.77 17.31994 0.73 20% 22.43 18.6s 2.0% 21s. 18.311106 0.85 20% 28.11 21.76 2.0% 25.9 21.331966 20% 26.3e 21.97 2.0% 25.83 21.53197 20% 26.60 22.17 2.0% 26.07 21.73im 20% 26.8 22.37 2.0% 26.31 21.93im 20% 27.10 22.66 2.0% 2e6.5 22.132000 0.89 20% 27.34 22.78 2.0% 26.76 22.332001 204* 27.10 22.56 2.0% 2165 22.13200g 20% 26.65 22.37 2.0% 2.3 21.032003 20% 26.60 22.17 2.0% 2607 21.732004 20% 26.3 21.97 2.0% 25.83 21.532006 0.85 20% 26.11 21.76 2.0% 25.5 21.332006 20% 26.11 21.76 2.0% 2560 21.332007 20% 20.11 21.76 2.0% 25.69 21.32006 20% 26.11 21.76 2.% 25.60 21.332009 20% 26.11 21.76 2.0% 26.56 21.32010 20% 26.11 21.76 2.0% 26.6 21.332011 20% 26.11 21.76 2.0% 25.56 21.332012 20% 20.11 21.78 2.0% 265.0 21.332013 20% 26.11 21.76 2.0% 25.5s 21.32014 20% 26.11 21.76 2.0% 25.69 21.33

Note: Frm 1s9s1 economI proe WlMh peo8t moves In pal wih Bank ptbce fora In real tms,malnalning the ar pwntage dIcount as on avagi 1066- 190(7.3%).

§l ttgSU. t3|ew8"2;sa@ 8***"2g

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lip -!iii ii °°°;blSS3;wES3$} " t $ii |3} |§3!t I",,99o 0 3 23 e i||et

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1l B -.X;;^l;8;olfliSJf4}i§XDG 1

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fIPP l fIu !uEIEat;utss5 aswE t4 § g

I~~~~~ _ - --- - -

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Tabb 7.GPC TEARl#DFRROCULAT1O

VfTH PRWSOT WWOURECT

albI a! ae Totl Net I el di TOW Not Ibo. biwt- I bo.-Yow- Prod. Fin PFb Renue OOP Cost VaUe IPod Pi Pr COP Cost Vau I sbn. mont I Senedf

On-) Reg (PeA ) oleSko) Mo") ItOn) Pt" (b RI (Pq90) (-ft MWon-) 1(-R MOBan--) I (Re M)I I I

86 1 70.100 30.21 2.20 34.70 267 (30 I 73.204 30.21 2211 34.70 2.640 ( I 0 177 I (177)60 2 70,so0 27.62 1068 31.64 2,243 M1 71.t 27.62 1,968 31.04 2.256 (28 1 101 I (100)67 3 67,700 2.S 1,860 S814 t129 (140)1 8.94 29.2 1.s0 0S14 2.148 (180 I 1 23 I (2D2)86 4 60.M 27.99 1,6 12. 2,26 0" 1 7,t" 27s90 t13 3z28 2.263 0 I t4 243 1S6 6 66.40 6z46 .068 a$t 2,0e6 (2a) 430 32.0 2,081 3:M 2,140 (69 l 32 235 (90 8 86.820 32.8 2,138 13S0 2.239 (too) I 7,092 *1.77 2,157 $4.11 2318 (188) I so 212 1 (184)91 7 87.300 26.60 1.916 20.68 2,0t1 () I 6,73s 2e.07 1,328 30.46 2,006 (18) 1 72 8 I (a)V8 67,186 29*8 2,012 29.68 2,007 6 1I6396 29.3 2,006 30.63 2,006 (7) 1 2 90 1 2S0 S em28 29.51 2.015 29.e8 2,040 20) 68s.os 26.02 1,968 30.78 2,094 (126) 1 101 Be0 2104 10 s.0os6 29.73 2.06S 29.88 2,063 (10) I 67,712 29.14 1,973 30.06 ,094 (121) 1 II 6o I 8190 11 70.208 2906 2.106 29.66 2,06 6 67,s74 2s.3 1,973 30.0 2,0e4 (106) I 111 40 1 710B 12 71,689 3a06 2.161 29.s 2,119 t2 67.0S7 29a4 1,074 3003 2.073 (41S I Ill 2a 1 9107 13 73.800 30.13 2.218 29e.8 2.199 19 ee702 2as3 1,970 30.93 7,083 (93) I 112 1 11290 14 7416 30.22 2.201 29.88 2,238 2S 106,36 29.62 1,s08 30.93 ,083 (7)1 l1t2 I 1120016 76s693 30.31 2,32S 29.S 2,32 S3 1tW,N3 29.71 1,s62 30.93 2,042 ( 1)1 114 I 114

2001 a 7s.1ts so34 2,317 29.8 28W 41 1 t706 29.79 1,068 30.08 2,032 (74) 11l8s I 116Ot 17 79.732 31s 2.6 298 2,382 141 I437s 31.02 2,028 30.93 2,022 0 135 136 Ii)0218 6 3o3 02.91 2,647 29.8s 2,403 243 1e6,0s 3.26 2,09830s30 2,012 86 167 I 1t703 to * 0,813 34.18 2.74 29.6 2,400 38468 ,726 3346 2,167 30.63 2,002 161 16t0 I 1I00420 s8,8t6 3641 2,000 29.68 2,447 46 1 64,402 3470 2,236 30.93 1,s02 243 1 2o I 2to08 21 82.683 3t86 3,03.1 296 2,470 881 I oso 36 2,302 30.08 1,082 021 240 1 24008 22 82,487 36.6 3.024 29.8 2,466 G66 1 63.780 39 2,29 30.93 1,72 319 1 240 1 24007 23 81,46 36.6 2,s02 29.88 2.431 862 I 63,441 0.93 2279 30.0 1,982 317 1 234 1 28405 24 8M2 38.s 3.020 29.8S 2,461 6S9 60.123 S 05.93 2,28 30.93 1,062 316 248 1 24309 26 8MM77 3o6 3.0 2 Se,461 8 I 62,608 3.s0S 2,267 30.93 1,042 314 1 24 I 24410 29 82,m 36.6 3.020 29.88 2.46 SO I 62,40 SL30 2.246 30.08 I,033 3 1 246 1 24611 27 62,377 3SO6 3.020 29.8 2,461 569 I 8t181 3L*8 2,234 30.03 1,023 31 1 248 1 24812 28 82377 3.08 3,02 29.S 2,6 S69 1 61870 s3893 28 30.93 1.918 310 1 249 1 2491329 62,877 366 3,020 29.6 2,S4 669 I1 61.61 s36s 212 30.S3 1.004 308 i 261 1 26114 30 s2,37 3t8 S.020 29. 2,461 869 I61.263 3608 2,201 30.93 1.604 308 1 282 1 262

FFRR &s0NPV @ 10%: (316)

af Fot 1966 lOuh 1091 producon, N Sde AVae ad & ast of pdWuGin (CP) 0aft a olp ene.FPrm 1002 fmaksoUX ad to b a.ulaesNlttO toI0 of NS

bE Prductn wh ptOst wtr t" aooeunt of vaplaud ad new planrtnaIed over 1908-101.di Mue fc taNl to W%of 'WMit proeor - by 1992 due to drp bI qu*f armuItof ad of reweatMet bI tatlet Muned tohi -o 46 v wht 'vableet by 1 b_ oo r a _ t ut po'. aW AOtuSIMWIIIIW ootb b_an aogr Igwe to It IM06to10. Pso wd h tdt992 to 1007 inlde on the mo_ut

ntutobg ntoprodutIn . _pWth tat dudetho protpeud.

Anex I- 44 -

jA O It N2 *R 3~ * | X 4 t 8 8 g t E 8 u a s oa -

------ ----- --- j

3|3s llEElERsaisEt}|||hla3tw3BRtRkiRslk~~~~~s1 f

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I ltt-stst8k8Rtgt«6§tg ~~~~~~44 -s rllgEElglit3i|Z|tltW 4-3 4.4 .---

s.q E s *a l1 W8|E8|S;lo8Boo: 7}m

45 AnnexlI

,t -------- -------- -------

a I

Table 10: Complson of Rubbr. Tea and COoONIt World PricesSAR and RPteed EsUmte

at bi elI ~~~ ) ( Tca J (~~~~~-Coconut Oi.- )

MRAPrCoWd -- - OM Projected _-Acuud- SAM _cb dR --1" 1986 1Ow S%oS 1984 1986 1985 as o8f 08 1085 atof

SAR mR SARYear dilo

- USV*Ikg--- eb -USS t- tg %

1684 1.28 1.20 1.11 80.0 36 SA38 3.40 1033 110.8S t1O4.3 106.01086 12 1.300 0.92 70.8 2.77 2.79 1.08 71.0 848.8 690.0 69.61066 1.3 t.371 0.81 59.1 2m 2.40 1.64 68.3 720.8 251.9 34.91987 1.36 1.371 0.88 62.7 2.38 2.40 1.32 56.0 720.8 341.3 47.41988 1.38 1.371 0.93 67.8 2.38 2.40 1.29 53.8 720.8 407.0 56.61069 1.36 1.371 0.81 59.1 2.3 2.40 1.40 00e. 720.8 376.0 52.01990 1.43 1.442 0.70 46.6 23 2.25 1.39 61.8 669.3 231.0 36.01901 1.43 1.442 0.68 47.2 2.23 226 1.24 56.1 660.3 291.0 44.119s2 1.43 1.442 0.66 45.8 223 2.26 1.34 59.6 669.3 432.0 66.61093 1.43 1.442 0.69 47.9 2.23 226 1.32 58.7 M66.3 378.0 57.81994 1.43 1.442 0.73 60.6 223 2.25 1.33 60.1 609.3 349.0 52.1996 1.48 1.492 0.86 67.0 2.41 2.43 1.34 56.1 m.1 367.0 57a.41e99 1.48 1.492 0.86 67.6 2.41 2.43 1.34 66.1 639.1 37t.0 68.11097 1.48 1.492 0.80 58.3 2.41 2.43 1.36 56.0 639.1 376.0 58.719a8 1.48 1.492 0.87 68.3 241 2.43 1.36 56.0 6 63.1 379.0 50.31099 1.46 1.492 0.88 59.0 2.41 2.43 .36 656.0 63.1 383.0 69.02000 1.48 1.492 0.69 69.7 2.41 243 1.30 60.0 639.1 387.0 60.62001 1.48 1.402 0.98 69.0 2.41 2.43 1.41 56.0 639.1 372.4 66.32002 1.46 1.482 0.67 688 41 2.43 1.40 00.1 639.1 257.0 66.O2003 1.48 1.492 0.87 69.3 2.41 243 1.*2 92. 6. 343.2 63.72004 1.46 1.492 0.86 57.6 2.41 2.43 1A8 86.2 m.1 328.6 SiA2006 1.48 1.492 0.86 67.0 2.41 2.43 1.4 57A m1.1 314.0 49.1

Unwel ns *AM SA.4 01s 6

oi FMSNo. 1. spotNowYetLIt Lodon iodon Waverae pc roevd for sM te

di bA rer to ode wld pdoe or6Ot4-181 dhe mo reeontSanpkWprc p4eonei -e 1181912 danord-.

ef CeniluIcntn 86 onduitpries

s dur OUR and Bd Pi tCmmodtyPisorecadmdautu iew*Oommeit MOWst. WorMd Bank. AprU 18O2

47 ~~~~~~~~~Annexl- 47 -

Tab!l. TZA: FW.dDanudp t- Comule _dAclAlbIvanand Appsl. lanalsa

1915 1916 1987 191I 1919 1990 1991 TOW.ha

A. Aetn PNstance V

New Pluetg JWB 42 77 51 104 62 24 33 J39RqIAgu J10B 468 360 423 471 627 602 120 3,7711nflhg JEDB 665 118 178 212 156 178 32 1,539

Sdb-Totl: JEDI 1.175 555 652 767 s45 10 1S 5,703

Nowl ai SPC 189 70 84 94 128 56 76 697Rcp$ui SPC 431 515 545 795 709 629 763 4.407

8PC 892 694 461 218 11 127 13 2,756Sdb-ToaI SFC 1,512 1.279 1. 1,107 1,018 812 1,042 7,60

Now Plantig TOTAL 231 147 135 198 190 10 109 1'mP_&Ofn TOTAL 199 875 968 1,266 1,336 1.231 1,603 8,178haDing TOTAL 1.5S7 812 639 430 337 305 215 4,295

TStLb TOTAL 2.687 1.134 1,742 1,894 1,163 1.616 1,9Z7 13,563

Il. Apaa Eaia

Newntng JEDW 39 34 34 34 35 - - 176Rql8nt IEDB 233 24S 241 234 230 - - 1,183hmlig WEDI 712 992 1,142 1,162 1,061 - - 5,069S-TetL: JEDW 914 1,271 1,417 1,430 1.346 - - ,448

Now ing SFC 99 116 108 105 113 - - 541laPlat SIC 424 426 3S3 37 329 - - 1.9M3Infhling SPC 1,248 1,247 1,060 939 747 - - 5,241&bTdsk SPC 1,771 1,789 1,5S1 1,415 1.189 - - 7,715

New PhIntIg TOTAL 138 150 142 139 148 - - 717i _aut TOTAL 657 67 624 605 559 - - 3,116

ldmag TOTAL 1,960 2,259 2.202 2.101 1.126 - - 10,S30TdetL TOTAL 2.75S 3,060 2,968 2,845 2535 - - 14,163

C. JAcI Pedamm. as % ofApp.a Egle

NOW P'Antn JWID 108% 226% 149X 306% 178% an ea 223%RIalalg WIm 201% 147% 176% 201% 273% at a 319%Jaing IJDB 93% 12% 16% 11% 14% na a 30%

Sb-Tak JEDW 119% 44% 46% 55% 63% a n 1s6

New Plant SIC 191% 60% 78% 90% 113% a la 129%R et SPC 102M 121% 142% 214% 216% as a 226%hmaiing SIC 71% 56% 43% 23% 24% Xn a 53S-TdaL: SIC 85% 71% 70% 7% 116% an 102%

New Pln8i TOTAL 167% 9SX 9% 142% 129% an 152%RIatbng TOTAL 137% 130X 155% 209% 239% au a 262%luingE TOTAL 79% 36% 29% 20% 18% an a 42%

TotaL TOTAL 98% 60% 59 67% 74% u n 96%

tl Tak fl r _a cptd by IMI fom WID ad SPC lpato. Howove, tdeae am_bua ld _s (up to 30%) btwsn d o fli_ s4ppUW byed o te prtiom and _the DAL

Anmex 1- 48 -

Table 12. RUBBER. Field Dvdopeqntw - ConVazlswi of Atuad Acd&vemosntand Appraisld Esmat

1985 1986 1987 1988 1989 1990 1991 Totaha

A. Actua Performance It

NowPlanting JEDI S1 47 41 112 ISe 116 26 551Rplntniqg JEDB 664 695 682 923 942 743 705 5,354Sub-Totd: JEDB 71S 742 723 1,034 1,100 859 731 5,904

Now Plating SPC 151 189 199 250 4s 170 164 1,191Ropaning SPC 833 1,430 2,918 1,403 1.139 876 976 9,574Sub-Total: SPC 984 1,619 3,116 1,653 1,207 1,046 1,140 10,765

Now Planting TOTAL 202 236 240 362 226 286 190 1,742Relanting TOTAL 1,497 2,125 3,600 2,326 2,081 1,619 1,681 14,927

Tota: TOTAL 1,699 2,361 3,839 2,687 2,307 1,905 1,871 16,669

D. Appraia Est

Now Platindg JEDE 237 195 163 114 68 - - 777Replaning JEDB 657 745 693 595 573 - - 3,263

Sub-Total: JEDE 894 940 856 709 641 - - 4,040

Now Plantg SPC 558 402 400 310 221 - - 1,891Roplanng SPC 1,519 1,360 1,317 1,181 1,004 - - 6,381Sub-Tod: SPC 2,077 1,762 1,717 1,491 1,225 - - 8,272

Now Plantng TOTAL 237 19S 163 114 68 - - 2,668Replautg TOTAL 6S7 745 693 S95 S73 - - 9,644

Totd: TOTAL 894 940 856 709 641 - - 12,312

C. Actua Pedormnco as % of Apptsa Estim

Now Planting JEDS 22% 24% 25% 98% 232% na na 71%R_paing JEDB 101% 93% 98%S SS% 164% a na 164%Sub-Toad: JUDB 80% 79% 84% 146% 172%S na na 146%

Now Planng SPC 27% 47% 50% 81% 31% an an 63%Rqeantlg SPC 55% 10S% 222% 119% 113% na na 150%Sub-Totld: SPC 47% 92% 181% 111% 99% na na 130%

Now Plnting TOTAL 8S% 121% 147% 317% 333% na na 65%RePating TOTAL 228% 285% S19% 391% 363% na Oa 155%

Totd: TOTAL 190% 251% 449% 379% 360% an na 135%

11 Coq flg e.

- 49 -

Annex 1Table 13: Planton Dm Labor Wage Rates 1/

Rupa per day

-Toe- -Rubber- CoconutYear Adult 2/ Child Adult Child Adult Chbld

1985 24.50 20.21 24.65 20.86 19.90 16.901986 26.21 21.85 26.36 22.00 19.90 16.9019U7 27.83 22.93 27.98 23.08 19.90 16.901988 3/ 36.52 30.64 36.S2 30,64 36.52 30.641989 40.60 33.70 40.60 33.70 40.60 33.701990 48.32 39.49 48.32 39.49 48.32 39.491991 52.24 42.43 S2.24 42.43 52.24 42.431992 59.12 48.59 59.12 48.59 59.12 48.59 (though June)

1/ Icluding Coat of Living Adjustment (COLA).2/ FroA 19S4 equal wages for male & female.31 From 1988 equal pay for al crops.

Source.: JED.

Table 14: Value of Total Compensation PakgeAdult Tea Worker 1/

R?pse per Day

1992 1990 1989 1988 1987 1986

Ban Raft 2V 59.12 46.40 40.60 36.52 27.83 26.43

EPF 7.09 S.57 4.87 4.38 3.34 3.17Tru"tFund(ETF) 1.77 0.14 1.22 1.10 0.83 0.79Holiday Pay 4.22 1.72 1.50 1.35 1.03 0.97Rat. Grat 4.22 1.02 0.89 0.80 0.61 0.58AtadattceBonus 1.66 1.30 1.14 1.02 0.78 0.73Sub-Tota: 18.97 9.75 9.62 8.6S 6.59 6.24Other 3/ 2.66 2.66 2.46 2.28 2.01 1.93TOW Non-Wag 21.63 12.41 12.08 10.93 8.60 8.17Total Cost 80.75 S8.81 52.68 47.45 36.43 34.60CurratUS$4/ 1.84 1.46 1.46 1.49 1.24 1.24

I/ Mission cdcuain f 1992 frm JEDI data; for other yeas t fm TreecrpsResucturin pae, Ane 12. with corrctm for apparent asitmctic emos.1990 gures we estimat.

2V iludes cost of living adjustm (COLA).3/ Housing, mdical, oather welfre, line upkeep, etc.4/ Calculated at averge exhae raft for the year.

- 50 -

Anam 1

Tablo 1S: Labor Cost in COP

JEDEJIsD

19B3 1984 1985 1966 1967 1968 1989 1990Total COP (Rs/kg) 2421 30.47 38.90 36.86 41.02 47.04 51.i7 57.26

Laboras% of 53 54 54 61 60 56 60 61COPLabor Rs/kg 83 16AS 2101 19.90 2520 26.34 30. 34.93

Rubbot

l983 1984 196S 1986 1987 1988 1989 990

Ttal COP (Rs/kg) 9.6 12.7 18.79 19.71 17.99 22.45 27.66 2285

Lbor as % of 38 50 61 S0 51 47 59 61COP

Labor Rs/kg 3.68 6.44 1146 9.85 9.17 16.55 16.30 13.94

SiSPC

1983 1984 1985 1966 1987 1988 989 1990

Total COP (Rs/kg) 2801 34.67 3S.12 3S.32 3822 45.21 527 55.18

Labor as % of 59 62 63 63 59 60 S8 60COP

Labor Rs/kg 16.S3 2L46 213 2225 2255 27.13 30.72 33.11

1983 1984 1985 1966 1987 1968 1969 1990

Total COP (Rs/kg) 12.94 1439 1S.S 185 1933 23.89 2619 27A64

Labor a % of 62 59 62 61 64 60 61 62COPLabor Rs/kg 8.02 8.49 9.82 11.32 1237 14.33 1536 17.14

Sauw: JEDB/SLSPC - A Papr for the Taeap Ramtudng 1mjecL Wodd Bank Juy 1991.

- 51 -

Anne1

Table 16: Tam and Dutims on Tea and Rubber

A. Tea Taaion

Tea Export Duty Ad ValoremYew Total Tea Taxation

Bulk Padccet Green Bags Rate Threshold Can as % of NSA

(Rs/kg) (%) -(R) (Rs)

1960 10S0 850 10.50 1.00 * 0.90 S48

m61 8.00 6.50 8.00 1.00 - - o09 493

92 8.00 6.50 8.00 1.00 - - 090 365

1963 9.00 7.50 9.00 2.00 - 125 4L0

1984 7.00 5.50 5.00 1.50 50 32 150 567

18 S.00 3.50 5.00 OS.0 50 40 2.0 264

1986 3.50 2.00 3.50 0.50 50 40 2.00 h6

97 3.50 200 3.50 0.00 50 40 2.00 16.0

1988 15D 1.00 150 0.50 50 44 2.00 10.5

1989 LSO 1.00 1.50 0.50 50 60 2.0 8.1

1990 1.50 1.00 lS. 0.50 S0 65 3.50 lLS

1991 100 naL VaL nA. 40 65 2.00

B. Dutis and Ceses on Rubber Exports(Rs/kg)

Year GSA Aveage Ca Duty & Can Duty & Ca

(Av. Value) Expor Duty % of GSA %of NSA

1961 21.80 9.40 0.86 46 89

1982 17.7C 6.55 0.86 42 72

1963 22.80 9.10 1.36 46 8S

1964 26.16 8.02 1.36 36 56

V85 2134 2.12 1.36 16 19

1986 23.84 3.79 1.36 22 28

W 27.6S 4.95 1.46 23 30

198 3733 833 1.46 26 3S

1989 3617 9.00 1.71 30 42

M990 36.50 8.50 1.70 28 39

Screw WorW Grop on Tme Crp Taxadn (raw 1992).

- 52 -

1maI

Table 17: Estate Labor Fore

SLSPC JEDB TOTALYear Total Regular Ca"l Total

198S 220,296 193,436 3x440 225,76 446,1721986 210,750 19S,098 28?5A6 223,694 434,4441987 201888 189,143 25,593 214,736 4166141988 201,871 186,718 24,44S 211,163 413,0341989 200,S37 181,5S7 25,163 206,720 407,2S71990 192,744 174,002 27,482 201,484 394,2281991 185,572 168,170 24,716 192,886 378,458

Note Tihe total etate labor force decblned by about 15% ovea the period 1985-1991 at an averagerate of about 11,300 workers per year.

Source SPC and JEDE, July 1992.

- 53 -

Anne I

Table 18: Comparative Tea Statisdcs

A. Major Exporters of Tea(% of world exports)

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Sri anka 21.5 21.5 22.1 18.1 21.7 20.7 213 20.6 20.8 18.0 24.0

India 26.0 28.3 23.2 23.9 23.0 22.4 20.9 20.9 21.0 195 213

KeMya 8.7 8.8 9.7 11.5 9.7 132 1.0 13.9 13.1 14.4 10.6

China 12.6 10.8 12.9 143 15.4 14.4 17.7 17.9 18.8 18.1 10.8

B. Tea Yield(kg/ha)

1985 1986 1987 1988 1989 1990Sri Lanka 92S 954 968 1,029 1,025 1,110

India 1,92S 1,868 1,964 2,297 2,009 2,313

Kenya 1,754 1,698 1,824 1,889 2,135 2,318

C. Costs of Production(Rs/kg)

1984 1985 1986 1987 1988 1989 1990

State Sector 35.58 36.37 37.95 39.01 45.83 51.19 59.50

Private Sector 30.00 33.26 33S2 36.71 41. 47.80 55.30

D. Tea Plucking - Productivt of Labor

Sri Lanka State Sector Private South North Kaya

High Medium LOW Sector India India

Yield (kg/ha) 1.416 1,064 1,325 2,442 2,127 2,300 2137

Intake per pludcer 14.22 10.54 15.81 2454 26.22 4&00 25.24

Laborperha 3.57 2.98 3.08 2.70 2.67 250 2.20

Laborcost as % of COP 49 49 49 n.a 39 S0 n.a

Sowcxs: A, B & D - Sn Lanka. Tmrecps Resau ing Projeat The Fnancial Peifomnan of JEDBand SLSPC. Worid Bank 1991.C - Sn Lanka Tea Boawd (1992).

- 54 -

Annex 2

PROJECT COMPLEIION REPORTSRI LANKA

FOURTH TREE CROPS PROJECT (Cr. 1562-CE)

Summary of Financal Performance(Rs Million)

A. Janatha Estates Development Board (JEDB)

1984 1985 1986 1987 1988 1989 1990 1990'

Net Fixed Assets 1,714 2,179 2,610 3,119 3,615 3,968 4,472 4,472

Bank O/D & S.T. Loans 9 25 229 223 791 1,155 843 843Term Liabilities 818 1,117 1,459 1,853 2,224 2,522 2,513 2,044

Govt. Direct Contribution 1,051 1,104 1,147 1,161 1,161 1,161 1,162 2,631

Capital Expenditure 509 628 622 690 722 598 690 690

Revenue 3,937 2,924 2,710 3,058 3,663 4,359 4,995 4,995Profit Before Tax 958 -233 -486 -336 -586 -119 -414 -414

Cotp. Income Tax paid 600 0 0 0 0 0 0 0

Net Profit Margin (%e) 9.1 -8 -17.9 -11 -16 -2.7 -5.1 -5.1

Interest Cover (times) 0 0 -02 12 5.1 0.5 15 1.5

Profit after Tax 358 (233) (486) (336) (586) (119) (414) (414)Current Ratio 1.7 1.8 12 0.9 0.7 0.7 0.8 08

Debt-Equity Ratio 12 1.1 1.8 2.4 62 83 16.8 2.5

Retur on Equity 19.6 -133 -33.9 -26.7 -779.8 -18.1 -73 -14

B. Sri Lanka State Plantations Corporation (SLSPC)

1984 1985 1986 1987 1988 1989 1990 1990*

Net Fixed Assets 1,433 1,665 2,086 2,7 3,280 3,623 3,991 2,991

Bank O/D &S.T. Loans 5 237 358 381 579 810 249 249

Term Liabilities 811 1,105 1,296 1,689 2,085 2,272 3,316 1,335

Govt. Direct Contrbution 836 808 808 806 806 806 806 2,787

Capital Expenditure 434.0 317.0 534.0 773.0 737.0 551.0 633.0 633.0

Revenue 3,640 2,772 2,768 3,062 3,433 4,178 4,931 4,931

Profit Before Tax 727 (101) (199) 12 (234) 180 (247) (247)

Corp. IncomeTaxpaid 151 0 0 0 0 0 0 0

Net Profit Margin (%) 15.8 (3.6) (72) 0.4 (6.8) 4.3 (2.9) (2.9)

Interest Cover (tines) 0.0 (0.9) 2.1 0.4 12 0.4 0.7 0.7

Profit after Tax 576 (101) (199) 12 (234) 180 (247) (247)

Current Ratio 1.3 1.4 1.2 1.1 0.8 0.9 1.2 1.2

Debt-Equity Ratio 1.0 1.5 2.0 2.2 3.6 32 3.5 0.8

Return on Equity (%) 35.5 (7.7) (17.1) 1.0 (22.9) 13.8 (10.8) (4.3)

* This column has the projected 1990 figures after GOSL's conversion of debt into equity.

Soure: Company Financial Reports.

- 55 -

Annex 3

PROJECT COMPLETION REPORTSRI LANKA

FOURTH TREE CROPS PROJECT (Cr. 1562-CE)

Area-/ of Old Seedling Tea (OST) and Vegetatively Propagated (VP) Tea(Hectares)

1985 1986 1987 1988 1989 1990 1991

JEDB

OST 41,849 42,812 41,122 37,608 35,640 34,989 34,896

VP 14,306 14,680 15,267 15,387 16,199 15,787 16,706

Total 56,155 57,492 56,389 52,995 51,839 50,776 51,602

% VP 25.5 25.5 27.1 29.0 31.2 31.1 32.4

SLSPC

OST 38,425 33,946 32,557 29,984 28,417 27,717 26,799

VP 15,692 16,009 16,412 18,094 18,208 18,311 18,980

Total 54,117 49,955 48,969 48,078 46,625 46,028 45,779

% VP 29.0 32.0 33.5 37.6 39.1 39.8 41.5

E/ Extent in beadng.

- 56 -

Annex 4

PROJECT COMPLETION REPORTSRI LANKA

FOURTH TREE CROPS PROJECT (Cr. 1562-)

Procurement of Vehicles and Factory Equipment

Table 1: Vehicles

Appraisal Estimate Actual

JEDB SLSPC Total JEDB SLSPC Total

Cars & Pidkups 118 154 272 166 247 413

Trucks 1SS 146 301 110 111 221

Tractors 230 198 428 218 209 4Z7

Trailers 344 252 596 - 73 73

Tanker Trailers 113 73 186 49 49

Motor Cycles 163 147 310 141 28 169

Total 1,123 970 2,093 635 717 1,352

- 57 -

AnnM 4

Table 2. Factory Equipment

A. Janatha Estates Development Board

Apraisa F'stimate ActualOuatt Value Rs '000 Quntt Value-Rs 0

ivsment Costs

Elevators 25 176,104 6 1,986,141Troughs and Fans 183 867,189 112 23,167,672Rolers 57 767,996 7 2,840,050Breakers and Conveyors 110 504,309 70 7,727,96ECP Driers 28 1,665502 3 5,408,480FDB Modules 7 286,230Humidifiers 68 101,025 60 4,849,602Fumaces and Conwvyors 17 614,547 4 3,964,470Scles 58 180,052Silten and Conveyors 141 598440 S 233,019Etractors and Winnowers 124 615,110 29 7,476,728Power and lectrial Works 10 1,033,870 1 312,978Crc Macines

Rotorvanes 56 480,860 29 6,551,9Other Equipment 214 1,722,719 33 21022,883

Sub-total Tea 94613.95 85S41.954

B.

Not specified 3,068,632

C. Coconuts

Renovation of Fils 10 8,763Constucion of New Kilns 14 53,373Construction of Barbecue 18 22987Constuction of Stores/Kitchens 17 826Renovation of Barbecus n.s. 8,483

Sub-total Coconuts 16;276

GRAND TOTAL _

- 58 -

Amiex 4

B. Sri Tanka State Plantadons Corporadon

rama il stima ActialQuitian Value Rs '000 Quantity Value Rs00

ameant Const

A. Tea

mlemat 21 151,290 .Tm&s and Fans 199 1,324,S92 279 6,72S

Rolles 131 1,84S,28 54 1S,384Breakm and Conveyors 1?3 700,068 82 1,87EDCP Driers 40 2,44 14,815FDB Modules 16 680,243. Humidifiess 129 191,38 193 2,43Fumnaces and Conveors 7 22C,?C8-Scales 91 3S2,S32Siftes and Convmeyt 151 6S3,729 60 3,811xtrots and Winnows 91 655,912 S2 10,719

P-ower sand Erlecicl Wor 1,366 334,32 47 I'mSCCMaddnes I 38,63

Rotorvanes 85 S5,88? 73 7,59Oth:r Equipmw 359 749,713 59 2,0S8

Sub-total Tea IL2.4 665C

G'"l Region Ds736,05:'ormna Region 1M ,441,844BWangoda Raegon 84. 5,397

Sub-total Rubber 3.023,291

GRAND TOTAL 1402= a

N _ / 61' ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~8'IBRD 18232

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