Completion Report

Project Number: 39415-013 Loan Numbers: 2733 and 2734 Technical Assistance Number: 7778 September 2018

Sri Lanka: Sustainable Power Sector Support

Project

This document is being disclosed to the public in accordance with ADB’s Public Communication Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – Sri Lanka rupees (SLRs)

ABBREVIATIONS

ADB – Asian Development Bank

CEB – Ceylon Electricity Board DMF

– design and monitoring framework EIRR – economic internal rate of return

EMP – environmental management plan FIRR – financial internal rate of return GAP – gender action plan ICB – international competitive bidding

IEE – initial environmental examination LIBOR – London interbank offered rate MOPE – Ministry of Power and Energy NCB – national competitive bidding NDB – National Development Bank PAM – project administration manual PUCSL – Public Utilities Commission of Sri Lanka

QCBS – quality- and cost-based selection SDR – special drawing right

SLSEA – Sri Lanka Sustainable Energy Authority TA US

– –

technical assistance United States

WEIGHTS AND MEASURES

km – kilometer kV – kilovolt MVA – megavolt ampere MVAr – megavolt ampere reactive MW – megawatt

NOTE

(i) The fiscal year (FY) of the Government of Sri Lanka ends on 31 December. “FY”

before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 31 December 2018.

(ii) In this report, "$" refers to United States dollars.

At Appraisal At Project Completion (11 November 2010) (31 December 2016)

SLRs1.00 = $0.00895 $0.00680 $1.00 = SLRs111.67 SLRs146.98

Vice-President Wencai Zhang, Operations 1 Director General Hun Kim, South Asia Department (SARD) Director Sri Widowati, Sri Lanka Resident Mission, SARD Team leader Ranishka Wimalasena, Senior Project Officer, SARD

Team members Mohamed Asmi, Project Analyst, SARD

Gladys Franco, Associate Social Development Officer, SARD Sudarshana Jayasundara, Social Development Officer, SARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project Design and Formulation 1 B. Project Outputs 2 C. Project Costs and Financing 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Technical Assistance 6 H. Consultant Recruitment and Procurement 6 I. Gender Equity 8 J. Safeguards 8 K. Monitoring and Reporting 9

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9 B. Effectiveness 10 C. Efficiency 11 D. Sustainability 12 E. Development Impact 12 F. Performance of the Borrower and the Executing Agency 13 G. Performance of the Asian Development Bank 14 H. Overall Assessment 14

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14 B. Recommendations 15

APPENDIXES 1. Design and Monitoring Framework 16 2. Project Cost at Appraisal and Actual 18 3. Project Cost by Financier 20 4. Disbursement of ADB Loan and Grant Proceeds 22 5. Contract Awards of ADB Loan and Grant Proceeds 23 6. Status of Compliance with Loan Covenants 24 7. Economic Reevaluation 30 8. Financial Evaluation 35 9. Implementation of the Gender Action Plan and Achievements 41 10. Technical Assistance Completion Report 55

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BASIC DATA A. Loan Identification

1. Country Sri Lanka 2. Loan number and financing source 2733-SRI: Ordinary Capital Resources

2734-SRI: Asian Development Fund 3. Project title Sustainable Power Sector Support

Project 4. Borrower Government of Sri Lanka 5. Executing agency Ministry of Power and Renewable

Energy 6. Amount of loan Loan 2733-SRI: $110.0 million

Loan 2734-SRI: SDR6.426 million 7. Project completion report number 1709 8. Financing modality Sovereign Project Loan

B. Loan Data

1. Appraisal – Date started – Date completed

18 August 2010 27 August 2010

2. Loan negotiations – Date started – Date completed

5 October 2010 6 October 2010

3. Date of Board approval 27 January 2011 4. Date of loan agreement 20 June 2011 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

19 September 2011 17 November 2011 2

6. Project completion date – Appraisal – Actual

April 2014 December 2016

7. Loan closing date – In loan agreement – Actual – Number of extensions

30 October 2014 31 December 2016 2

8. Financial closing date – Actual

Loan 2733-SRI: 24 January 2018 Loan 2734-SRI: 3 October 2017

9. Terms of loan Loan 2733-SRI

– Interest rate – Maturity – Grace period

Loan 2734-SRI – Interest rate – Maturity – Grace period

LIBOR and 0.60% less a credit of 0.30% 25 years 5 years 1.0% during the grace period and 1.5% thereafter 32 years 8 years

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10. Terms of relending (if any) – Interest rate

10%

– Maturity 25 Years – Grace period – Second-step borrower

5 Years Micro-hydro developers

11. Disbursements

a. Dates

Initial Disbursement 16 April 2012

Final Disbursement 28 September 2017

Time Interval 65.4 months

Effective Date

17 November 2011

Actual Closing Date 31 December 2016

Time Interval 61.4 months

b. Amount ($)

Loan 2733 ($) Category Original

Allocation (1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance

(6 = 4–5)

1. Works 77,130,000 (3,788,907) 0 73,341,093 66,612,348 6,728,745 2A. Equipment - CEB

8,890,000 17,080,000 0 25,970,000 14,073,694 11,896,306

2B. Equipment - SLSEA

240,000 0 0 240,000 153,389 86,611

3A. Consulting services - CEB

5,750,000 (2,371,093) 0 3,378,907 3,313,627 65,280

3B. Consulting services - SLSEA

130,000 0 0 130,000 47,941 82,059

4. Credit Line - SLSEA

1,290,000 0 0 1,290,000 101,471 1,188,529

5.Interest charge

5,490,000 0 0 5,490,000 1,455,882 4,034,118

6A. Unallocated - CEB

10,920,000 (10,920,000) 0 0 0 0

6B. Unallocated - SLSEA

160,000 0 0 160,000 0 160,000

Total 110,000,000 0 0 110,000,000 85,758,352 24,241,648

Loan 2734 (SDR)

Category Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed

Balance (6 = 4–5)

1.Equipment 5,436,000 881,000 0 6,317,000 5,519,339 797,661 2.Interest Charges

109,000 0 0 109,000 103,762 5,238

3.Unallocated 881,000 (881,000) 0 0 0 0 Total 6,426,000 0 0 6,426,000 5,623,101 802,899

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C. Project Data

1. Project cost ($ million) Cost Appraisal Estimate Actual Foreign exchange cost 73.02 70.93 Local currency cost 89.01 62.41 Total 162.03 133.34

2. Financing plan ($ million)

Cost Appraisal Estimate Actual Implementation cost Borrower financed 30.72 27.90 ADB financed 114.34 92.52 Other external financing 0.00 0.00 Total implementation cost 145.06 120.42 Interest during construction costs Borrower financed 11.31 11.31 ADB financed 5.66 1.61 Other external financing 0.00 0.00 Total interest during construction cost 16.97 12.92 Total Cost 162.03 133.34

3. Cost breakdown by project component ($ million) Component Appraisal Estimate Actual 1. Civil works 32.57 70.35 2. Equipment 67.08 22.45 3. Consulting services 5.88 3.36 4. Other Costs 6.56 6.56 5. Interest during construction 16.97 12.92 6. Taxes and duties 20.52 17.70 7. Contingencies 12.45 0.00 Total 162.03 133.34

4. Project schedule

Item Appraisal Estimate Actual Construction of Grid Substations Q4 2010–Q3 2013 Q4 2010–Q2 2017 Construction of Transmission Lines Q4 2010–Q3 2013 Q4 2010–Q2 2015 Procurement of Equipment for CEB Q4 2010–Q1 2014 Q4 2010–Q1 2017 Connection of Micro-Hydropower Projects Q4 2010–Q1 2014 Q4 2010–Q4 2016 Procurement of Equipment for SLSEA Q4 2011–Q2 2012 Q2 2013–Q1 2015 Detailed Engineering for Moragolla Hydropower Plant Q4 2010–Q3 2012 Q4 2010–Q4 2014 Dates First procurement Q4 2010 Q1 2012 Last procurement Q3 2012 Q1 2017 Completion of equipment installation Multiple Contracts (Total= 66)

Start of operations Multiple Contracts (Total= 66)

5. Project performance report ratings

Implementation Period Ratings {Development Objectives} {Implementation Progress}

From 1 April 2011 to 30 June 2011 Actual Problem From 1 July 2011 to 31 December 2011 On Track From 1 January 2012 to 31 March 2012 Potential Problem From 1 April 2012 to 30 June 2012 On Track From 1 July 2012 to 30 September 2012 Potential Problem From 1 October 2012 to 31 December 2012 On Track From 1 January 2013 to 30 June 2013 On Track From 1 July 2013 to 31 December 2013 On Track From 1 January 2014 to 30 June 2014 On Track

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Implementation Period Ratings {Development Objectives} {Implementation Progress}

From 1 July 2014 to 31 December 2014 On Track From 1 January 2015 to 30 June 2015 On Track From 1 July 2015 to 31 December 2015 On Track From 1 January 2016 to 30 June 2016 On Track From 1 July 2016 to 31 December 2016 On Track

Note: ADB performance rating systems changed on 1 January 2011 to one rating.

D. Data on Asian Development Bank Missions

Name of Mission Date No. of Persons

No. of Person-Days

Specialization of Members

Fact finding mission 8–12 June 2009 3 15 a, b, c Inception mission 15–25 February 2010 4 28 a, b, c, f Consultation/appraisal mission

18–27 August 2010 2 8 a, c

Procurement review mission

9–13 May 2011 2 6 a, g

Project inception mission 12–16 September 2011 4 16 a, c, i, h Project review mission 14–23 May 2012 4 32 a, i, j, d Project review mission 19– 23 November 2012 2 10 i, d Mid-Term review mission 1–5 July 2013 4 20 i, c, j, d, Project review mission 9–13 December 2013 4 20 i, b, d, c Project review mission 3–6 March 2014 2 8 c, d Project review mission 24–30 April 2015 3 15 c, k, l Project review mission 3–7 October 2016 2 10 c, d Project completion review 12–16 December 2016 2 10 d, m

a = Senior Energy Specialist, b = Energy Specialist, c = Project Implementation Officer, d = Project Analyst, f = Director, g = Senior Portfolio Management Specialist, h = Associate Project Officer, i = Principal Energy Specialist, j = Environmental Specialist, k = Senior Project Management Specialist, l = Operation Assistant, m = PCR consultant

I. PROJECT DESCRIPTION 1. Sri Lanka’s power sector struggled to meet the growing demand for electricity at acceptable reliability and sufficiently low cost during the decade leading to 2010. The transmission system was weak and substantial investments were required to strengthen the network and improve its reliability. About 15% of households—primarily in rural areas—did not have access to electricity. In Eastern Province the electrification ratio was 67.3% in 2009, while in Uva Province the ratio was 70%—below the national ratio of 85.4%. A considerable portion of energy was generated through expensive oil-fired thermal generation, with high fuel prices and posed a threat to the country’s energy security and the environment. The country urgently needed to develop clean energy and indigenous renewable energy sources, reduce losses, and improve energy efficiency. The Sustainable Power Sector Support Project was designed to expand on Asian Development Bank (ADB) interventions in the power sector.1 These interventions were initiated under the Clean Energy and Access Improvement Project, which was designed to support sector reforms following approval of the Sri Lanka Electricity Act in March 2009.2 2. The project and associated technical assistance (TA) for Implementation of Energy Efficiency Policy Initiatives were approved on 27 January 2011.3 The expected impact was reliable, adequate, and affordable power supply for sustainable economic growth and poverty reduction in Sri Lanka. The expected outcome was improved coverage, efficiency, and reliability in the delivery of electricity. The project had three major components: (i) transmission system strengthening in Eastern, North Central, Southern, and Uva provinces; (ii) rural electrification expansion and distribution system improvement in Eastern and Uva provinces; and (iii) energy efficiency improvement and renewable energy development.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 3. The project objectives were well aligned with Sri Lanka’s 10-year development framework, 2006–2016, which envisaged increasing investment in developing basic infrastructure in the country’s rural areas, expanding and diversifying generation capacity, developing renewable energy sources, rationalizing the tariff structure, and increasing access to electricity, particularly in remote areas.4 The project was also in line with Sri Lanka’s National Energy Policy and Strategies5, a 10-year plan for the energy sector covering the period up to 2016, which envisioned the sustainable development of energy resources, conversion facilities, and delivery systems to enable access and use of safe, reliable, and competitively priced energy services by the entire population.

1 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loans and

Administration of Technical Assistance Grant to the Democratic Socialist Republic of Sri Lanka: Sustainable Power Sector Support Project. Manila.

2 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loans, Grant, Administration of Grant, and Technical Assistance Grant to the Democratic Socialist Republic of Sri Lanka for the Clean Energy and Access Improvement Project. Manila.

3 ADB. 2010. Technical Assistance to Democratic Socialist Republic of Sri Lanka for Implementation of Energy Efficiency Policy Initiatives. Manila.

4 Government of Sri Lanka. Mahinda Chintana: Vision for a New Sri Lanka—A Ten Year Horizon Development Framework, 2006–2016. Colombo.

5 Government of Sri Lanka, Ministry of Power and Energy. 2006. National Energy Policies and Strategy of Sri Lanka, Colombo.

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4. At the time of appraisal, ADB’s country partnership strategy for Sri Lanka6 focused on (i) funding transmission projects to remove grid constraints and absorb additional capacity from renewable energy sources, (ii) improving energy efficiency and reliability by strengthening the transmission network, (iii) expanding access to electricity by improving connectivity for the poor, and (iv) mitigating climate change by financing clean energy projects and supporting energy efficiency initiatives. The project was well aligned with these strategic imperatives. 5. The formulation of the project was supported by project preparatory TA approved in 2009.7 The design of the transmission component relied on planning and analysis undertaken by the Ceylon Electricity Board (CEB) and was part of a coherent medium-term prioritized investment program designed to deliver the government’s strategy and objectives for the sector. New outputs were added to the project scope during implementation to utilize loan savings (paras. 8, 10 and 14) that were still consistent with the overall project objectives. Given uncertainties inherent in rural electricity distribution, a flexible design was adopted in consultation with key stakeholders. The micro hydro subproject’s design was complicated and involved subsequent design changes. 6. ADB has been the main development partner working in Sri Lanka’s power sector and project designers ensured that the project did not duplicate the work of other development partners. At completion, all project outputs were achieved except for the micro hydro subproject. The project was relevant both at appraisal and at completion. B. Project Outputs

1. Output 1: Strengthened transmission network

7. At appraisal, the following subprojects were planned under this output: (a) New Galle power transmission development: Construction of New Galle 3 x 31.5 megavolt-ampere (MVA) 132/33 kilovolt (kV) grid substation, including 30 megavolt-ampere-reactive (MVAr) breaker-switched capacitor banks, and a 40 kilometer (km) double circuit 132 kV transmission line from Ambalangoda to New Galle; and (b) North East power transmission development: Construction of Mahiyangana-to-Vavunativu (via Ampara) 129 km double circuit 132 kV transmission line; Monaragala-to-Madagama 16 km double circuit 132 kV transmission line; stringing of second circuit of the existing 163 km 220 kV transmission line between the Kotmale and Anuradhapura grid substations; Monaragala 1 x 31.5 MVA 132/33 kV substation; Vavunativu 2 x 31.5 MVA 132/33 kV grid substation; Polonnaruwa 1 x 31.5 MVA 132/33 kV grid substation; and augmentation of the existing Ampara 132/33 kV grid substation with the addition of 2 x 132 kV feeder bays. 8. All targets for this output were achieved. In addition, loan savings due to competitive bidding and exchange rate fluctuations (para. 18) allowed an additional 31.5 MVA transformer and associated 33kV feeder bays to be added to both the Monaragala and Polonnaruwa substations. Loan savings also allowed the addition of 20 MVAr of breaker-switched capacitor banks at the Polonnaruwa substation—a major upgrade to the Kiribathkumbura substation—and the procurement of materials to re-conductor about 55 km of 132kV transmission line. The Kiribathkumbura substation upgrade extended the implementation time schedule of the project to May 2017, with financing by the CEB, which was 5 months beyond the loan closing date of 31

6 ADB. 2008. Country Partnership Strategy: Sri Lanka, 2009–2011. Manila. 7 ADB. 2009. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for the Sustainable Power Sector

Support II Project. Manila (project preparatory TA 7363-SRI, for $800,000, approved on 13 October and financed on a grant basis from the Japan Special Fund).

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December 2016. These additional components were justified because they improved the reliability of electricity supply. Loan savings also allowed the CEB to procure five additional licences for power system simulator for engineering (PSS/E) transmission network analysis software for the CEB’s transmission planning department. Siemens Industry Incorporated (USA) is the sole proprietor of PSS/E and consequently the software was acquired on a direct contracting basis.

2. Output 2: Expanded and improved rural electrification network and distribution

system in rural areas of Eastern and Uva provinces.

9. At appraisal, the following subprojects were planned: (a) Ampara District distribution development in Eastern Province: Construction of 165 km 33 kV and 593 km 0.4 kV distribution lines, including 67 33/0.4 kV distribution substations, to electrify 12,190 households in 113 villages under various rural electrification schemes;8 (b) Ampara District distribution network reliability improvement: Improvement of a 33 kV medium voltage network comprising installation of 75 auto-reclosers and 100 load break switches; (c) Eastern Province distribution capacity development: Purchase of tools and specialised utility vehicles for construction and maintenance for 30 line gangs in Ampara, Batticaloa, and Trincomalee districts; and (d) Strengthening of distribution system in Uva Province: Strengthening distribution systems in the Haldummulla and Ragala areas in Uva province, including construction of 33 kV primary distribution backbone line (33 km of double circuit and 12 km of single circuit) and upgrading 9 km of existing 33 kV line to remove network constraints. 10. Almost all of this output’s targets were achieved. Because of issues with difficult terrain and span lengths, the plan to reinforce an existing 9 km line in Uva Province was abandoned and a different existing line was instead reinforced. The supply of equipment to construct a gantry (a terminal station) at Haldummulla was delayed due to a land transfer issue. This gantry was still under construction at the time of preparing this report.9 Meanwhile, loan savings allowed for an additional lot (bid as five sub-lots), which included 33kV auto-reclosing circuit breakers, load-break switches, disconnectors, surge arrestors, and cables.

3. Output 3: Energy efficiency improved and renewable energy developed

11. At appraisal, the following subprojects were planned: (a) Estate micro hydro rehabilitation and repowering pilot: Consulting support to develop detailed technical specifications and eligibility criteria for micro hydro rehabilitation and grid connection; engineering assessment and environmental and social safeguards monitoring of the pilot; and a credit line of $1.29 million to private developers for about 19 micro hydro projects providing an estimated 1.3 megawatts (MW) of grid-connected capacity; (b) Energy appliance testing laboratory: Purchase of lighting appliance testing equipment; (c) Reactive power management:

Installation of 40 MVAr breaker-switched capacitor banks for loss reduction at the Aniyakanda, Ambalangoda, and Katunayake grid substations; and (d) Moragolla hydropower station: Preparation of a detailed engineering design of the proposed Moragolla hydropower station (about 30 MW).

8 Poor households were to be provided with a credit to be recovered in installments over an extended period of time

to enable them to finance initial connection charges. The credit was to be available through ADB's Clean Energy and Access Improvement Project (footnote 1).

9 The site at Haldummulla gantry was transferred from the government which was used by a religious entity. No acquisition issues arose, but there were delays in the valuation process and in securing the required documentation. Construction will be completed by November 2018.

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12. The estate micro hydro rehabilitation subproject, which attracted attention from plantation companies at the appraisal stage, was not delivered as anticipated and only one micro hydro installation was repowered under the loan. 10 The design of this subproject was complicated and was inappropriate due to implementation arrangements which involved numerous participants—the Ministry of Power and Energy as executing agency, the Sri Lanka Sustainable Energy Authority (SLSEA) as implementation agency, the National Development Bank (NDB) as the intermediary bank for credit line management, a contracted energy services company, and individual consultants to supervise design and implementation. Delays in engaging the intermediary bank, conflicts between the contracted energy services company and individual consultants over scope of work, and disagreements over the recruitment of implementation contractors contributed to significant slippage in the implementation time frame. According to the SLSEA, of the 19 shortlisted sites (across 11 plantation companies), 7 either did not submit the requisite documents to the NDB or failed the NDB’s financial risk assessment. In all other cases, subproject implementation was terminated by the plantation company, mostly because of the decline in the price of tea, which reduced cash flow available to service the proposed loans. 13. Preparation of the detailed engineering design for the proposed Moragolla hydropower station was achieved. This was delivered in accordance with its terms of reference and at significantly lower cost than estimated at appraisal. 14. All other targets from this output were achieved. Additional scope was made possible through loan savings, including procurement of consulting services to design a sustainable, efficient, and innovative public lighting solution for the Galle Fort (a UNESCO world heritage site). Minor changes in scope were also made to procure additional testing equipment for the SLSEA’s lighting laboratory.

4. Output 4: Improved livelihood of local communities in Ampara District

15. This output was achieved through an additional grant financing.11 The output focused on supporting livelihood activities (especially for women), training beneficiaries on the safe use of electricity equipment, training beneficiaries to harness income opportunities emerging because of improved electricity access, and productive use of microcredit linked to income opportunities (para. 42). Except the training for the CEB related meter reading and maintenance crew, all other activities were completed.

C. Project Costs and Financing 16. At appraisal, the project was estimated to cost $162.03 million. The foreign exchange cost accounted for $73.02 million (about 45% of the estimated total), including $5.66 million for financial charges during construction. The local currency cost was estimated at $89.01 million (55% of the estimated cost). ADB was to provide a loan for $110 million from its ordinary capital resources and a loan for the equivalent of $10 million from its Special Funds resources to finance 6% of the project cost. The government and the CEB were to fund the balance of $42.03 million (representing 26% of total project costs).

10 Most of the plantation companies historically owned and operated microhydros 11 ADB.2011. Report and Recommendation of the President to the Board of Directors: Proposed Grant to the

Democratic Socialist Republic of Sri Lanka for the Improving Gender-Inclusive Access to Clean and Renewable Energy in Bhutan, Nepal, and Sri Lanka. Manila.

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17. At project completion, the project cost totalled about $133.34 million, of which ADB financed $85.76 million from its ordinary capital resources and $8.37 million from its Special Funds resources. The CEB and the government financed the balance of $39.21 million. The government’s contribution was for taxes and duties (by way of exemption), land acquisition, environmental and social mitigation, and the balance of costs incurred on additional components after the loan closing date. Among others, the Moragolla hydropower station detailed design was completed at a significantly lower cost than estimated at appraisal (the actual cost was $3.23 million, compared with $5.75 million estimated at appraisal). Subproject cost estimates at appraisal and at project completion are in Appendix 2. 18. The main reasons for the lower-than-expected project costs were the weakening of the Sri Lankan rupee versus the United States (US) dollar (the appraisal cost estimate adopted an assumption of a constant exchange rate of SLRs112 to the US dollar, at completion exchange rate recorded as SLRs146.98 to the US dollar); robust competition among bidders; and a high engineers’ estimate. For the foreign exchange component, the total actual cost was higher than the estimate ($69.32 million compared with $64.46 million at appraisal) because of the additional scope. D. Disbursements 19. Loan proceeds were disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). Since loans were not effective until November 2011, the overall disbursement program was delayed by about 12 months. Additional components to utilize loan savings further extended disbursements to the end of 2016. It appears that the disbursement schedule at appraisal was aggressive (it called for almost 90% of funds to be disbursed within 24 months). Direct payment, reimbursement, and commitment procedures were used for disbursement. An advance fund procedure was used only for estate micro hydro repowering sub project by SLSEA. Actual disbursed amounts were $85.76 million for loan 2733 (78% of $110 million) and SDR5.62 million for loan 2734 (88% of SDR6.42 million) resulting a cancelation of loan balance $24.24 million (under loan 2733) and SDR0.80 million (under loan 2734). E. Project Schedule 20. Loan effectiveness was delayed because of delays in approval of the subsidiary financing agreement between the government and the CEB and the project agreement between the government and SLSEA. ADB extended the deadline for loan effectiveness by 2 months, from 19 September 2011 to 17 November 2011. ADB also extended the loan closing date twice from 30 October 2014 to 31 December 2016. The loan extensions were approved primarily to accommodate the components added because of loan savings, and also to allow for completion of ongoing construction activities. 21. Implementation of the new Galle power transmission development subproject was delayed. These delays were due to contractors’ poor performance and partly because of unforeseen site conditions. The contract for construction of the Galle substation was extended by 150 days, and the CEB applied liquidated damages. The contract for construction of the Ambalangoda-to-Galle transmission line was extended by 281 days, and the CEB applied liquidated damages. Subprojects under the North East power transmission development were executed within reasonable time periods. The contract completion date for the transmission substations was extended by 3 months to allow for unforeseen site conditions, and then was extended by another 12 months because of the additional scope added to the Polonnaruwa and Monaragala substations. The contract for transmission lines under this subproject was executed

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within a 3-month time extension because of unforeseen site conditions. The CEB noted no delays in the implementation of equipment supply contracts under the original scope. However, at loan closing some equipment procured under the additional scope (approved by ADB in April 2016) had not been received, and the CEB’s own funds were used to cover the outstanding balance. 22. The project schedule developed at loan appraisal envisaged that implementation of the estate micro hydro repowering subproject would take 29 months. This time frame was not met because recruitment of individual consultants was delayed by 4 months, selection and contracting of an energy services company to manage the subproject took 14 months, and the participating financial institution took 5 months to complete the financial risk assessment. Meanwhile, a drop in the market price for tea exerted cash-flow pressure on tea estate companies, and many lost interest in the subproject. Commissioning and testing of the rehabilitated micro hydro installation at the only tea estate to proceed was completed in December 2016 (a total implementation period of more than 48 months). F. Implementation Arrangements 23. The CEB established 3 dedicated project implementation units, headed by an additional general manager, in each of its transmission, projects, and distribution divisions. Project implementation arrangements for the components implemented by the CEB were adequate, although the CEB’s accounting division struggled to meet its project accounts reporting deadlines because of the expanded project portfolio of the CEB. The SLSEA established a project implementation unit, headed by a deputy director general and supported by two project managers. However, given the complexity of the estate micro hydro repowering subproject, it is likely that the project manager lacked experience to effectively bring all the stakeholders together. This was further underscored by the institutional inexperience of SLSEA at the outset of the project. Overall, implementation arrangements as designed at appraisal appear to have been inadequate for the estate micro hydro repowering subproject (paras. 12 and 22). G. Technical Assistance 24. The associated TA for Implementation of Energy Efficiency Policy Initiatives (footnote 3) was processed to support the implementation of key energy efficiency initiatives of the government and to complement the energy efficiency and renewable energy component of the investment project. The expected impact of the TA was a more sustainable, cleaner, and more reliable power supply; improved business productivity; and improved quality of life through minimized energy use. The TA completion report (Appendix 10) notes that the TA generally met its targets and was of satisfactory quality to the clients. The overall implementation rating of the TA was successful, as the TA’s major outputs were met and the assigned tasks under the terms of reference were implemented. The TA was relevant, effective, and efficient in achieving outputs and outcome, and the TA outcome was considered likely to be sustainable. H. Consultant Recruitment and Procurement

1. Consultant Recruitment 25. At appraisal, it was assessed that the CEB had the required technical design, procurement, construction management, financial, and administrative institutional capacity to implement the project, and that a project implementation consultant was not required. This was in part due to the design of the international competitive bidding (ICB) packages, which required the contractors to complete detailed surveys, perform equipment testing, and adjust the scope

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based on the actual condition of the existing systems. The CEB recruited independent safeguard consultants to prepare social and environmental management plans and support related monitoring and reporting. 26. The performance of the consultants for the Moragolla hydropower plant detailed design was satisfactory. The SLSEA’s inexperience and unfamiliarity with ADB procedures led to a lengthy 14-month process to recruit and contract an energy services company for the micro hydro repowering subproject. The performance of the energy services company was less than satisfactory. Due to the specific technical nature of the work, the international consultants for the Galle Fort lighting design were appointed on a direct recruitment basis. The consulting contract for this work was executed competently and professionally.

2. Procurement 27. The procurement of goods and services under the ADB-funded project components was carried out in accordance with ADB’s Procurement Guidelines (2010, as amended from time to time). The subprojects implemented by the CEB had (i) 6 transmission procurement lots on an ICB turnkey method; and (ii) 27 goods (equipment supply) procurement lots, of which 20 lots were bid on an ICB method, 4 lots on a national competitive bidding (NCB) method and 3 lots using the shopping method. Equipment for SLSEA’s lighting laboratory was procured on a shopping basis and a line of credit was established for procurement under the estate micro hydro repowering subproject. The CEB prepared draft bidding documents for all its ICB and NCB procurement lots. 28. Turnkey contracts for 132kV transmission substations and lines. All transmission turnkey contracts were bid internationally, following a single-stage, two-envelope process. The CEB took advance action to prepare specifications and bid documents and submitted drafts to ADB in October 2010. At the CEB’s request, and as a consequence of the high price submitted for the lowest-priced technically responsive bid, the contract for supply and installation of breaker-switched capacitor banks at the Ambalangoda, Aniyakanda, and Katunayake grid substations was rebid separately as an ICB goods contract (lot A2), initially as five sub-lots and using a one-stage, one-envelope bidding procedure. 29. Loan savings allowed for the addition of a 31.5 MVA transformer and associated 33kV feeder bays to be included in each of the Monaragala and Polonnaruwa substations (executed through a contract variation to the existing contractor); a major upgrade to the Kiribathkumbura substation (executed through a new turnkey contract awarded in February 2015); and the procurement of materials to construct about 55km of 132kV transmission line (executed through four supply-only sub-lots for which contracts were signed in March 2016 and April 2016). 30. Equipment supply contracts for 33kV and 11kV distribution. The first NCB contracts for supply of distribution equipment were signed in January 2012 and most of the originally planned lots were completed by late 2013. The CEB reports that the procurement process consumed more time than expected because of the requirement to obtain approvals at various government levels. Furthermore, procurement lots 1 (conductors), 3 (vehicles) and 6 (medium voltage and low voltage materials) needed to be split and rebid because no single bidder was able to bid for all items in each lot successfully. 31. Procurement of lighting laboratory equipment. At appraisal, it was envisaged that all lighting laboratory equipment would be procured under a single NCB contract. In September 2012, the Ministry of Power and Energy and the SLSEA requested a change from NCB to the shopping procedure for this procurement, with six separate lots each valued at less than

8

$100,000. ADB approved this request and the shopping procedure was used to procure equipment for 11 sub-lots. The SLSEA noted no significant procurement issues. I. Gender Equity 32. The project was classified as effective gender mainstreaming, with a range of innovative activities and approaches (e.g., pilot-tested free connection to the grid for poor and poor women-headed households financed by the loan and the Japan Fund for Poverty Reduction Grant Improving Gender-inclusive Access to Clean and Renewable Energy (footnote 11). The original design and monitoring framework (DMF) consisted of five gender-related indicators. Four were reflected in the original gender action plan (GAP), while one was inadvertently omitted. In 2015, the CEB operations management team requested that ADB drop one DMF indicator and two noncore GAP activities, as these were outside the scope of the CEB’s mandate.12 These revisions are reflected in the DMF (Appendix 1) and GAP (Appendix 9). Savings resulting from the two dropped GAP activities were used to expand the coverage of the core GAP activity and related target aimed at increasing household connections (see target 1 [activity 2] in the GAP Achievement Matrix). A 65% increase in free connections for poor households, from 2,200 households to 3,642 households, including 1,885 households headed by women (52% of poor serviced households) was accomplished. Despite CEB’s initial skepticism of introducing free connections to households below the poverty line, the project overachieved its targets. This has set an important precedent that will inform the ADB South Asia Department’s inclusive energy solutions program well beyond this project.13 The GAP Achievement Matrix is fully aligned with the (revised) DMF and presents the achievement for all four DMF gender-related indicators and seven GAP activities. 33. The collaboration of the CEB with Practical Action (local non-government organization) and the Pradeshiya Sabhas in Ampara District in the consultative, iterative and transparent process for the identification of the poor and especially poor women-headed households was a remarkable achievement in the context of post-war Sri Lanka considering the prevailing context in the Ampara District. Appendix 9 provides a comprehensive discussion of the GAP achievements and includes the GAP Achievements Matrix.

J. Safeguards 34. The project was classified as category B for environmental impacts. An initial environmental examination was prepared for each of the distribution components, the estate micro hydro rehabilitation subproject, the Galle substation and transmission subproject, and the northeast substations and transmission subproject in accordance with ADB’s Safeguard Policy Statement (2009) and government guidelines and regulations. The documents were disclosed locally and in ADB website. No additional initial environmental examinations were required since investments related to the additional scope were implemented within the existing facilities. Line routes were aligned across paddy fields, marshy lands, and abandoned land to the extent possible to minimize impacts. Potential additional impacts identified during construction by the CEB’s

12 During the review mission of 22–27 April 2015, CEB operations management formally informed ADB that two GAP

activities (under the “Transmission and Distribution Systems” headings of the original GAP [2 and (3)a]) and one DMF indicator were outside the scope of its mandate and could not be delivered. The GAP activities were “women technicians trained in substations constructions, O&M” and “women technicians trained in construction, O&M of distribution lines and substations.” The DMF indicator was “1,500 people (target 30% women) from deprived and vulnerable HHs trained in electricity-related skills.” These changes are reflected in Appendix 1.

13 The inclusive energy solutions program consist of approaches, knowledge products, and capacity building activities that aim to integrate and promote gender and social inclusion perspectives in energy projects.

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internal monitoring division were acted on and directives complied with in a timely fashion. No complaints were received from the public regarding the environmental aspects of the project, and no safety issues were reported. The CEB submitted semi-annual reports on the implementation of environmental management plans and related monitoring to ADB upon initiation of field work for most contracts, and these were posted on ADB’s website until January 2017. 35. At appraisal the project was classified as category B for involuntary resettlement and category C for indigenous people’s impacts in accordance with ADB’s Safeguard Policy Statement. At appraisal, the resettlement plan noted that no project components were expected to have significant social impacts. As expected at appraisal, the project did not require physical resettlement nor impact on indigenous peoples or ethnic minorities. K. Monitoring and Reporting

1. Conditions and Covenants 36. The main cause of the delay in meeting the conditions for loan effectiveness was the time taken to obtain the legal opinions of the CEB and the SLSEA on the subsidiary financing agreements, and the legal opinion of the Attorney General of Sri Lanka on the loan agreements. The CEB and the Attorney General did not provide their legal opinions to ADB until 1 week before the original deadline for loan effectiveness (19 September 2011), and the SLSEA provided its legal opinion even later. ADB’s review of these legal opinions necessitated minor amendments to legal opinions. At the request of the government, ADB twice extended the deadline for loan effectiveness, which was finally declared on 17 November 2011. 37. All loan covenants were complied with except for the covenant requiring the SLSEA to issue labeling regulations for corresponding appliances by the end of 2011, and submission of financial reports by the CEB. The government published labeling regulations for compact fluorescent lamps in 2009, for ceiling fans in 2013, for magnetic ballasts and liner fluorescent lamps in 2016. The SLSEA is working on labeling regulations for air conditioners and refrigerators. The requirement to submit financial reports was complied with, but submission was delayed for every year of the project because of multiple stakeholders involved. These delays did not negatively impact project implementation. Ongoing delays in the submission of the CEB’s corporate-level financial statements and the CEB’s and SLSEA’s project audited financial statements to ADB were noted and discussed with both entities during implementation. These delays were due to Parliament’s prolonged process of ratifying the audited statements. The project imposed no additional financial performance or financial management covenants on the implementing agencies. The CEB’s corporate-level financial projections prepared at appraisal demonstrated the extent to which the CEB’s financial performance would be dependent on tariff policy decisions outside of its control. In this context, and given the recent reentry of ADB into Sri Lanka’s power sector at the time of appraisal, the decision not to impose additional financial covenants can be understood. Details of compliance with key loan covenants are in Appendix 6.

III. EVALUATION OF PERFORMANCE A. Relevance 38. The project is rated relevant. At appraisal, the project was consistent with the government’s development goals for the energy sector, in particular its goal to develop basic infrastructure to increase access to electricity in remote rural areas. The project was also well aligned with ADB’s country partnership strategy at the time, with its focus on transmission

10

capacity, energy efficiency, and energy access. The project design and modality were effective. The logical linkages of results in the DMF and indicators at various levels of results were appropriate (Appendix 1). The project delivered significant new electricity transmission and distribution capacity to previously underserved parts of the country, opening new opportunities for economic development in tourism and small industry. The provision of high-voltage transmission capacity to Galle should catalyze further investment and economic growth in this important area; indeed, demand for electricity in this city rose sharply over the last 5 years of the project. The project has contributed to the government’s stated goal of 100% electrification of the country. The project components complemented to the work of other development partners (mainly Japan International Cooperation Agency) and bilateral support for reaching 100% electrification (para. 6). 39. Loan savings were utilized for new subprojects that focused on improving the reliability (rather than the quantity) of supply, reflecting the increased economic value of electricity in the country and providing further evidence of the project’s relevance. These changes during the implementation were approved to cater to future demand growth in project areas and reflected project flexibility. 40. Investment and capacity-building support to the SLSEA has boosted Sri Lanka’s energy efficiency initiatives, and a complete consumer appliance and lighting regulation and testing regime is now within sight. Although the outcome related to hydropower projects at appraisal was relevant, internal (i.e., design of the estate micro hydro rehabilitation subproject was arguably flawed in its complexity) and external (i.e., decline in the price of tea) factors reduced the likelihood that it would be implemented successfully (para. 12). Notwithstanding design weakness for this component, overall the project is assessed as relevant. B. Effectiveness 41. The project is rated effective. The outcome envisaged at the appraisal was improved coverage, efficiency, and reliability in electricity service delivery. The project substantially achieved this outcome. The first indicator for this outcome included at appraisal was a reduction in the technical and commercial losses of the CEB’s network from 14.6% of net generation in 2009 to 12.0% by 2016. The losses reported in 2016 were 9.6% and on a downward trajectory.14 The second indicator was an increase in the electrification ratio in the Eastern Province from 67.3% in 2009 to 80.0% by 2016. Electrification is now effectively 100%. The third indicator for this outcome was a decrease in distribution losses from 11.02% in 2009 to 10.00% by 2016. The CEB no longer reports distribution losses directly; however, overall technical and commercial losses are about 9.6% in 2016—confirmation that this target has been met. The fourth indicator was the connection to the grid of 19 micro hydro projects with total capacity of about 1.3 MW. This was not achieved and in hindsight was very unlikely to have been achieved, since only 19 rehabilitation projects were shortlisted in the first place. The last indicator was the implementation of energy efficiency labeling for lighting, fans, refrigeration, and air conditioning appliances by 2013. This has been partially achieved: the SLSEA has implemented labeling regulations for compact fluorescent lighting, linear fluorescent lamps, magnetic ballasts, and fans. Draft standards for air conditioning and refrigeration appliances were not released. Most outputs were substantially completed, notwithstanding the challenges with the estate micro hydro subproject.

14 Ceylon Electricity Board, Statistical Digest, 2016. Colombo.

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42. Using the project performance and monitoring system developed for output 4, the outcomes of the GAP activities were assessed through an end-line survey.15 The survey results showed that:

a) Women have acquired a significant decision-making role in the acquisition of household appliances.

b) Enterprise-development training helped women improve the quality of their products (especially in food processing and tailoring), increase market sales, and increase monthly average income. The training on value addition in tailoring empowered women to make repairs on sewing machines by themselves.

c) Fifty-three (53%) of the trained individuals started their own enterprises after completing the training. Entrepreneurs surveyed reported a 28% increase in average production sold in the market, and a 59% increase in their monthly average income.

d) Women and men who participated in the awareness-raising seminars noted two types of behavioural changes: energy conservation and reduced use of electrical appliances, and increased use of efficient electrical appliances.

43. While two of the five outcomes indicators, envisaged at appraisal which relates to the project’s energy efficiency and renewable energy component have been partially/not achieved, these components accounted for less than 5% of the project’s overall investment cost (and the two relevant subprojects accounted for less than 1% of the project’s overall cost). In this context, and given the project’s mixed performance in achieving the outcomes envisaged at appraisal, a weighted evaluation is appropriate for assessing overall effectiveness. Although the outcomes relating to estate micro hydro repowering was not achieved and appliance labeling was only partially achieved, the project is, nonetheless rated effective after applying a weight to the energy efficient and renewable energy output based on its relative financial cost.16 44. The project applied environmental and social safeguards policies and implemented good practices. Line routes were largely aligned through paddy fields and unused lands to minimize impacts. No complaints were received from the affected parties (paras. 34 and 35). C. Efficiency 45. The project is rated efficient. The economic internal rate of return (EIRR) for the transmission and distribution subprojects was recalculated using the approach adopted at appraisal, but using actual capital costs and physical quantities and the CEB’s revised demand forecasts. The EIRR was re-estimated at 18.1% (Appendix 7), which is lower than the appraisal estimate of 23.2%, principally because of the lower value ascribed to unserved energy in this reevaluation17 (the value used at appraisal was an order of magnitude higher than the value used for this reevaluation) and the inclusion of costs that were excluded from the EIRR calculation at appraisal.18 The reevaluated EIRR exceeds the assumed hurdle rate (12%) under a realistic range of downside scenarios (20% decreases in benefits, a 20% increase in operations and maintenance, a 20% increase in electricity supply costs, and a combined downside scenario), 15 The survey had 140 participants: 80 participants who had received enterprise-development training (covering all five

types of training covered under the JFPR grant), of whom 57 (or 71%) were women; and 60 trainees from energy awareness programs, of whom 40 (or 66%) were women.

16 Energy efficiency and renewable energy outputs were allocated a 1.10% and 1.12% weightage respectively. 17 The capital and operating costs of the reactive power management subproject (part of the energy efficiency and

renewable energy component) and the capital costs of specialized vehicles procured under the project were included in the reevaluation but were excluded at appraisal. No specific benefits were ascribed in either case, although in practice it is likely that the reactive power subproject contributed to loss reduction

18 Unserved energy refers to the energy demand at customer end, but not supplied due to a deficiency in the generation or in the transmission and distribution.

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demonstrating the robust nature of the project’s economic performance. The EIRR for the estate micro hydro rehabilitation subproject was not estimated at appraisal and has not been calculated as part of this completion report because of lack of information and the failure of this subproject. 46. The project completion schedule was extended mainly to accommodate the additional scope included to utilize loan savings and to finish ongoing construction work (paras. 20 and 21). The timely approval of scope changes to utilize loan savings rather cancelling funds is an indication of process efficiency of the project to support additional benefits. D. Sustainability 47. Financial Sustainability: The financial internal rate of return (FIRR) of the overall transmission and distribution outcomes of the project is calculated to be 6.3%, higher than the project’s estimated weighted average cost of capital of 3.3% (the assumed benchmark for the project). Details of the FIRR calculations are in Appendix 8. The aggregate FIRR calculated at appraisal was 10.8%, but this did not reflect the full tariff methodology approved by the Public Utilities Commission of Sri Lanka (PUCSL) subsequent to appraisal (which is the principal reason for a higher FIRR being calculated at the time). Implementation of PUCSL’s tariff methodology has materially improved the financial sustainability of the project as it ensures that the CEB is able to recover its (efficiently incurred) costs through end-use consumer tariffs and earn a return on capital employed. This means that most of the risks relating to the project’s financial sustainability are transferred to the CEB’s customers. Historically, the CEB’s financial performance has been poor, reflecting electricity tariffs set well below cost-recovery levels, high and unsustainable debt, and expensive electricity generation from independent power producers. The tariff methodology introduced by the PUCSL in 2011 should, over time, allow the CEB to return to profitability.19 On the other hand, the government will continue to provide budget support for SLSEA. 48. Institutional Sustainability: The CEB is adequately resourced and appears to have sufficient institutional capacity to sustain the project. The CEB is becoming more independent from the government, although policy and regulatory risks remain, especially in the areas of energy security and pricing policy.20 Decentralization of the CEB’s activities is encouraging and has improved the CEB’s responsiveness to customers. The SLSEA’s capacity and institutional knowledge also improved significantly during the project. 49. Environmental and social sustainability. Environmental and social impacts during construction were minimal and no adverse impacts are anticipated in the long term. The public generally understands the importance of optimizing electricity use and stakeholders generally accept and embrace the project. The impact of energy efficiency standards for customer appliances and the implementation of a comprehensive appliance testing regime will prevent potentially undesirable environmental impacts related to the increased penetration of appliances.

50. Considering its financial, institutional, environmental, and social sustainability, overall, the project is rated likely sustainable. E. Development Impact 51. The project impact identified at appraisal was (the provision of) reliable, adequate, and affordable power supply for sustainable economic growth and poverty reduction, with the following

19 Analysis of the CEB’s financial result for the 3 years to December 2016 is in Appendix 8. 20 An energy pricing formula is being developed under an IMF program scheduled for approval in October 2018.

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indicators: (i) electrification ratio increased from 85.4% in 2009 to 98% in 2016; (ii) average cost of power reduced by 25% by 2016 (2009 baseline: SLRs18.69/kWh); (iii) 500 MW of renewable energy added by 2016 (2007 baseline: 123 MW); and (iv) the CEB generating sufficient cash to cover operating costs by 2015. The first indicator has been achieved, as the country has 100% electrification. The anticipated calculation method for the second indicator was not given and therefore alternative proxy of average (accounting) cost of electricity sold (since it captures generation, transmission, and distribution costs as well as the CEB’s corporate costs and finance charges) was used for the last full year of data available. A slight increase in nominal terms is noted (from SLRs15.0 per kWh in 2010 to SLRs15.3 per kWh in 2015). However, a decrease of about 40% in the average cost of power in real terms was achieved. The third indicator has been achieved, with 518 MW of renewable energy capacity introduced by 2016. The fourth and final indicator has been met, as the CEB has achieved positive earnings before interest, tax, depreciation, and amortization (EBITDA) in every year since 2013. 52. Despite the uncertainty surrounding the second impact indicator, the contribution of the project to its development impact is rated highly satisfactory. The project delivered positive impacts through a marked increase in the CEB’s ability to meet electricity demand growth and through its contribution to the government’s achievement of 100% electrification. Supply is more reliable and of a higher quality, benefiting from grid generation reserves and abundant transmission capacity. Confidence in the CEB’s ability to maintain supply is expected to encourage more energy-intensive activities, which will enhance the CEB’s revenues and ultimately benefit all customers. Social interventions, especially those targeting women, have had significant positive impacts. The project also contributed to ADB’s results framework targets.21 F. Performance of the Borrower and the Executing Agency 53. The borrower was the Government of Sri Lanka and the executing agency was the Ministry of Power and Energy. The overall performance of the borrower and the executing agency was satisfactory, and no issues of substance were noted during project implementation. Some process delays were experienced at times, particularly in reaching loan effectiveness and in securing approvals in relation to bid documents and contract award, which in turn contributed to overall project implementation taking longer time. However, a marked strengthening in the relationship between ADB and the executing agency was apparent during project implementation. 54. The CEB successfully implemented the project without the need for implementation consultants. The CEB acted as both employer and project manager of the main turnkey contracts and mobilized its own engineers to monitor work progress at the project sites daily. The CEB demonstrated its ability to technically formulate, appraise, engineer, and project-manage complex electrical transmission and distribution projects. In general, the CEB was responsive to requests from ADB. Counterpart funds were made available on time. The overall performance of the CEB was satisfactory. On the other hand, the SLSEA appears to have had difficulty implementing the estate micro hydro rehabilitation subproject. A review of the design of the subproject suggests that while the complexity of the subproject was understood at appraisal, the capacity of the SLSEA to bring together all subproject stakeholders was overestimated, especially considering the SLSEA’s lack of institutional experience at the time. The overall performance of the SLSEA was less than satisfactory. Two covenants—one on submission of financial statements by the CEB

21 These included (i) 185km transmission lines installed or upgraded; (ii) 912km distribution lines installed or

upgraded; (iii) 11,772 new households connected to electricity; (iv) 518MW installed energy generation capacity; and (v) 320 tons of carbon dioxide equivalent avoided per year. The results framework indicator related to students benefiting from school improvement program or direct support is not relevant to the project.

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and one on energy efficiency labeling for appliances by the SLSEA—were only partially complied with. However, considering the small scale of the SLSEA’s related components, the overall performance of the borrower and executing agency is rated satisfactory. G. Performance of the Asian Development Bank 55. ADB had three project officers involved during project implementation and conducted nine review missions. The missions included visits to all project sites. The government and the CEB recognized the positive role that the ADB missions played in providing advice on technical issues, prompt review of bid documents and bid evaluation reports, and close monitoring of environmental mitigation measures. The implementing agencies appreciated their close working relationship with ADB. Project correspondence during implementation was strong, reflecting proactive management by ADB project officers and timely approvals as required. The SLSEA commented that it struggled with the need to apply ADB’s selection processes for the relatively small energy services company contract but was otherwise positive in its comments regarding ADB’s performance. Overall, the performance of ADB is rated satisfactory. H. Overall Assessment 56. The project was generally implemented in accordance with arrangements identified during appraisal and, with the exception of the microhydro rehabilitation subproject, it has generally met expectations. Visits to project sites during the project completion review noted that the project facilities are of high quality, are being well maintained, and are functioning without interruption. The addition of components to absorb loan savings is reflective of the project’s design flexibility and an overall improvement in the ability of the CEB to prepare bid documents, gain necessary approvals, and execute contracts without delays. Gradual improvements in the financial and institutional status of the CEB have had a positive effect on sustainability. The DMF was appropriate and useful as a project evaluation tool, and the performance monitoring and evaluation system managed by ADB’s project officer was effective. Based on this review’s relevance, effectiveness, efficiency, and sustainably ratings, the overall rating of the project is successful.

Overall Ratings

Criteria Rating Relevance Relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Highly satisfactory Borrower and executing agency Satisfactory Performance of ADB Satisfactory ADB = Asian Development Bank. Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS A. Issues and Lessons 57. Implementation delays occurred during the initial period of the project, particularly with the government approval and tendering processes. To minimize such delays, procurement plans should consider the capacity of executing and implementing agencies to approve bid documents, evaluations, and contract awards in a timely manner. Although several reasons can be cited for

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the failure of the micro hydro rehabilitation subproject, an important lesson is that new and/or under resourced entities should not be tasked with managing complex project designs with myriad stakeholders and a requirement for multiple approvals. 58. The absence of a single point of contact within the CEB for managing overall implementation issues and providing a coordinated approach increased ADB’s administration burden at times. Appointing a single point of contact should be considered for future projects. B. Recommendations

1. Project Related 59. Future monitoring. The project-funded facilities are operating as planned. The CEB will continue to monitor and evaluate the project’s impact and ensure that the relevant safeguard loan covenants are complied with. ADB staff responsible for implementing and processing of energy sector projects in Sri Lanka should continue to monitor the overall performance of the CEB’s transmission and distribution networks and the financial performance of the company, as encapsulated in the CEB’s annual reports and periodic reports from the PUCSL. 60. Covenants. Other than the requirement for the SLSEA to issue labeling regulations for appliances and for the CEB to undertake periodic financial reporting, all project covenants had been complied with at project closure. Subsequent loans have imposed progressive financial performance and financial management covenants on the CEB. 61. Further action or follow-up. ADB should follow up on the SLSEA’s progress in labeling the energy efficiency of household appliances.

62. Additional assistance. Subsequent loans have included technical assistance to the CEB and other energy sector entities, and therefore no specific additional assistance is required as a follow-up to the project. 63. Timing of the project performance evaluation report. A project performance evaluation report may be undertaken anytime after the finalization of this report.

2. General

64. At appraisal, it is recommended that greater attention given to assessing the capacity of implementing agencies to effectively manage complex projects, regardless of the project’s size and budget. This is particularly true for entities that are relatively new, have limited institutional experience, and/or are dependent on the government for operational budgets. Large teams of consultants do not necessarily compensate for inadequate institutional capacity. It is further recommended that ADB pay attention to understand how procurement packaging and expected contract values can impact the speed with which executing and implementing agencies can obtain the requisite approvals.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK Design Summary Performance Indicators and Targets Project Achievements Impact Reliable, adequate, and affordable power supply for sustainable economic growth and poverty reduction

Electrification ratio increased from 85.4% in 2009 to 98% in 2016 Average cost of power reduced by 25% by 2016 (2009 baseline: SLRs18.69/kWh) 500 MW of renewable energy added by 2016 (2007 baseline: 123 MW) CEB generating sufficient cash to cover operating costs by 2015

Achieved. Household electrification was reported as 99.3% in 2016. Achieved. (Accounting) cost of electricity sold1: 2010: SLRs 15.0/kWh in 2015 SLRs 15.3/kWh (a decrease of about 40% in real terms was achieved). Achieved. 518MW of renewable energy added to the network by 2016. Achieved. EBITDA positive in 2013, 2014 and 2015.

Outcome Improved coverage, efficiency and reliability in service delivery

Technical and commercial losses of the CEB network reduced from 14.6% of net generation in 2009 to 12.0% by 2016. Increase in electrification ratio in Eastern Province from 67.3% in 2009 to 80.0% by 2016 Decrease in distribution losses from 11.02% in 2009 to 10.00% by 2016 19 micro (< 300 kW) hydropower projects with total capacity of about 1.3 MW connected to the grid under net metering arrangements Energy efficiency labeling implemented for lighting, fans, refrigeration, and air conditioning appliances by 2013

Achieved. Total losses 9.63% in 2016 Achieved. Electrification ratio in Eastern province reached 98% in 2016 Achieved. Distribution losses not reported separately. However, total system losses of 9.63% confirms that the distribution losses are well below 10% Not Achieved. Only one micro hydro power plant connected (capacity <0.1 MW). Partially achieved. Labeling implemented for compact fluorescent lighting, linear fluorescent lamps and magnetic ballasts, fans. Labeling for refrigeration and air conditioning not completed.

Outputs 1. Strengthened transmission network 2. Expanded and improved distribution network in rural areas of Eastern and Uva provinces 3. Energy efficiency improved and additional renewable energy developed

220 MVA of transformer capacity added to the transmission network by September 2013 185 km of 132 kV transmission lines added to the transmission network by September 2013 Second circuit stringing of 163km of 220 kV transmission line completed by September 2013 30 MVAr installed on 33 kV for loss reduction at Galle grid substation

Achieved. 220 MVA of transformer capacity was added by April 2015. Achieved. 185 km of 132kV transmission lines added by June 2015. Achieved. Second circuit stringing of 163km of 220 kV transmission line completed by May 2014. Achieved. 30 MVAr installed at Galle grid substation

1 A proxy indicator of average cost of electricity sold is used and the calculation method was adjusted.

Appendix 1 17

Design Summary Performance Indicators and Targets Project Achievements 4. Improved livelihood of local communities in Ampara district of Eastern Province

12,190 rural households (target: 20% of serviced poor households headed by women) connected to electricity in 113 remote villages in Ampara district, 165 km of 33 kV distribution lines and 593 km of 0.4 kV distribution lines constructed in Eastern Province 45 km of 33 kV primary distribution backbone line added and 9 km of 33 kV line capacity increased in Uva Province to improve power quality to poor rural households including those headed by women About 1.3 MW of micro hydro power capacity added to the grid resulting in 4,140 tons of CO2 emissions equivalent

avoided per year 40 MVAr of reactive power devices installed on 33 kV for loss reduction Establishment of energy efficient laboratories Training of 90 energy auditors (target: 30% women participation) Energy efficient lighting trials implemented Detailed engineering for Moragolla hydropower plant prepared. 750 local community members (target: 30% women) trained in repairs of technical equipment. Awareness of 12,000 local community members raised (through support of women motivators) on safe and efficient use of energy for newly electrified households

Substantially achieved. 11,772 houses connected. Including 3,642 poor households (or 31% of serviced households), 1,885 of which were headed by women (or 52% of poor serviced households). Achieved. 165 km of 33kV distribution line and 693 km of 0.4kV distribution line constructed. 45 km of 33 kV primary distribution backbone line construction and 9 km of new 33 kV line constructed in Uva Province. Partially achieved. 0.1 MW of micro hydro power capacity added to the grid resulting in 320 tons of CO2 emissions equivalent

avoided per year. Achieved. 40 MVAr of reactive power devices installed. Achieved. Efficient testing laboratories established. Partially achieved. Training of 91 energy auditors including 13 (14%) women Achieved. Energy efficient lighting trials implemented Achieved. Detailed design for Moragolla hydropower plant prepared. Achieved. A total of 774 participants (524 or 68% were women) were trained in the following areas: Business development, value addition in tailoring business, assembly of LED bulbs, fruit processing technologies, farm management and dairy processing technologies. Partially achieved. 11,426 electricity users out of whom 7,355 women (or 64%) attended.

CEB = Ceylon Electricity Board; EBITDA = Earnings before interest, taxes, depreciation, and amortization; km = kilometer; kV = kilovolt; kW = kilowatt; kWh = kilowatt-hour; LED = Light emitting diode; MVA = megavolt-ampere; MVAr = megavolt-ampere of reactive power; MW = Megawatt.

Source: Asian Development Bank, Ceylon Electricity Board Annual Report, Ceylon Electricity Board Statistical Digests

18 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL ($ million)

Item Appraisal Estimate Actual Estimate

FX LC Total FX LC Total

A. Transmission

T1 - New Galle Substation and Associated Transmission Line 14.73 8.01 22.74 14.36 7.57 21.93 i. New Galle 132/33 kV substation 8.01 1.08 9.09 9.13 2.09 11.22 ii. Ambalangoda-Galle 132 kV transmission Line 6.72 6.26 12.98 3.85 4.59 8.44 Items not funded by ADB a 0.00 0.67 0.67 0.00 0.67 0.67 Additional Scope:

Installation of BSC banks at Ambalangoda, Aniyakanda and Katunayake Grid Substations

1.38 0.22 1.60

T2 - Northeast Substations and Associated Transmission Lines 32.26 26.71 58.97 39.21 13.13 52.34

i. New Monaragala, Polonnaruwa, Vavunativu 132/33 kV substations and augmented Ampara 132/33 kV substation

10.70 6.90 17.60 12.2 4.01 16.21

ii. Medagama-Monaragala and Mahiyangana-Vavunativu 132 kV transmission lines

15.66 12.47 28.13 12.52 5.45 17.97

vii.

Kotmale-Anuradhapura 220 kV transmission line (2nd cct stringing) 5.90 3.43 9.33 4.92 1.30 6.22

Additional scope: Kiribathkumbura 13233 kV substation augmentation 5.81 0.74 6.55 New Chillaw-Bolawatta & Badulla-Medagama 132kV transmission lines 3.71 0.12 3.83 PSS/E software licences 0.05 0.00 0.05 Items not funded by ADB a 0.00 3.91 3.91 0.00 1.51 1.51

Subtotal (A) 46.99 34.72 81.71 53.57 20.70 74.27

B. Distribution

D1 Rural electrification (Ampara) 3.81 4.96 8.77 1.81 5.08 6.89 D2 Distribution reliability improvement (Ampara) 2.50 0.11 2.61 1.88 0.02 1.91 D3 Distribution tools and equipment 3.14 0.00 3.14 1.81 0.52 2.33 D4 Strengthening of distribution system in Uva Province 0.32 1.22 1.54 1.67 0.76 2.43 Additional scope:33kV switchgear for reliability improvement 5.08 0.02 5.10 Items not funded by ADB a 0.00 5.26 5.26 0.00 4.70 4.70

Subtotal (B) 9.77 11.55 21.32 12.25 11.10 23.35

Appendix 2 19

C. Energy Efficiency and Renewable Energy

E1 Estate hydropower plant rehabilitation and repowering 0.68 0.81 1.49 0.05 0.10 0.15 E2 Energy efficiency testing laboratories 0.12 0.13 0.25 0.09 0.01 0.10 E3 Reactive power management 1.15 0.06 1.21 1.19 0.00 1.19 E4 Moragolla hydropower plant detailed design 5.75 0.00 5.75 2.09 1.14 3.23 Additional scope - consulting services for Galle Fort lighting 0.08 0.00 0.08 Items not funded by ADB a 0.00 0.35 0.35 0.00 0.35 0.35

Subtotal (C) 7.70 1.35 9.05 3.50 1.560 5.10

Taxes and Duties b 0.00 20.52 20.52 0.00 17.70 17.70

Total Base Cost 64.46 68.14 132.60 69.32 51.10 120.42

Contingencies

i. Physical 2.57 2.75 5.33 0.00 0.00 0.00

ii. Price 0.33 6.81 7.14 0.00 0.00 0.00

Financing Charges During Implementation 5.66 11.31 16.97 1.61 11.31 12.92

Total Project Cost 73.02 89.01 162.03 70.93 62.41 133.34

FX = foreign exchange, kV = kilovolt, LC = local currency a/ Includes land, environmental and social mitigation and project management overheads capitalized to project. Appraisal estimates used in the absence of information from CEB. b/ For most subprojects, CEB did not provide actual expenditure on taxes and duties. Instead, taxes and duties were re-estimated based on rates used at appraisal.

Source: Asian Development Bank, Ceylon Electricity Board and Sustainable Energy Authority estimates.

20 Appendix 3

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier ($ million) Item $ million

Cost

ADB

Government / CEB

OCR % of Cost

Category

ADF % of Cost

Category

Amount % of Cost

Category

A.

Investment Costs

1. Civil works and erection 32.57

28.93

89%

0.00

0%

3.64 11% 2. Equipment

3. Consultants

a. Project management, design andsupervision

67.08

5.88

58.62

5.88

87%

100%

8.46

0.00

13%

0%

0.00 0%

0.00 0%

b. Capacity Development 0.00 0.00 0% 0.00 0% 0.00 100%

4. Taxes and duties 20.52 0.00 0% 0.00 0% 20.52 100%

Subtotal (A) 126.04 93.43 74% 8.46 7% 24.16 19%

B.

Other Costs

1. Land 1.39

0.00

0%

0.00

0%

1.39 100% 2. Environmental and social mitigation 1.74 0.00 0% 0.00 0% 1.74 100%

3. Project management and construction supervision

3.42 0.00 0% 0.00 0% 3.42 100%

Subtotal (B) 6.56 0.00 0% 0.00 0% 6.56 100%

Total Base Cost 132.60

93.43

70%

8.46

6%

30.71 23%

C.

Contingencies

1. Physical 5.33

4.72

89%

0.61 11%

0.00 0% 2. Price 7.14 6.36 89% 0.77 11% 0.00 0%

Subtotal (C) 12.47 11.08 89% 1.37 11% 0.00 0%

D. Financing Charges During Implementation 1. Interest during implementation 16.81 5.33 32% 0.17 1% 11.31 67%

2. Commitment charges 0.16 0.16 100% 0.00 0% 0.00 0%

3. Front-end fees 0.00 0.00 0% 0.00 0% 0.00 100%

Subtotal (D) 16.97 5.49 32% 0.17 1% 11.31 67%

Total Project Cost (A+B+C+D) 162.03 110.00 68% 10.00 6% 42.03 26%

ADF = Asian Development Fund. Note: 1. Numbers may not sum precisely because of rounding. Source: Asian Development Bank

Appendix 3 21

PROJECT COST AT COMPLETION BY FINANCIER

Table A3.2: Project Cost at Completion by Financier

Item $ million

Cost

ADB

Government / CEB

OCR % of Cost

Category

ADF % of Cost

Category

Amount % of Cost

Category

A.

Investment Costs

1. Civil works and erection

70.35

66.71

95%

0.00

0%

3.64 5% 2. Equipment

3. Consultants

a. Project management, design andsupervision

22.45

3.36

14.23

3.36

63%

100%

8.22

0.00

37%

0%

0.00 0%

0.00 0%

b. Capacity Development 0.00 0.00 0% 0.00 0% 0.00 0% 4. Taxes and duties 17.70 0.00 0% 0.00 0% 17.70 100% Subtotal (A) 113.86 84.30 74% 8.22 7% 21.34 19%

B.

Other Costs

1. Land

1.39

0.00

0%

0.00

0%

1.39 100%

2. Environmental and social mitigation 1.74 0.00 0% 0.00 0% 1.74 100% 3. Project management and construction

supervision 3.42

0.00 0% 0.00 0% 3.42 100%

Subtotal (B) 6.56 0.00 0% 0.00 0% 6.56 100%

Total Base Cost

120.42

84.30

70%

8.22

7%

27.90 23%

C.

Contingencies

1. Physical

0.00

0.00

0%

0.00

0%

0.00 0% 2. Price 0.00 0.00 0% 0.00 0% 0.00 0% Subtotal (C) 0.00 0.00 0% 0.00 0% 0.00 0%

D. Financing Charges During Implementation

1. Interest during implementation 12.92 1.46 11% 0.15 1% 11.31 88% 2. Commitment charges 0.00 0.00 0% 0.00 0% 0.00 0% 3. Front-end fees 0.00 0.00 0% 0.00 0% 0.00 0%

Subtotal (D) 12.92 1.46 11% 0.15 1% 11.31 88%

Total Project Cost (A+B+C+D) 133.34 85.76 64% 8.37 6% 39.21 29%

Note: 1. Numbers may not sum precisely because of rounding. Source: Asian Development Bank

22 Appendix 4

DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS

Table A4.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ )

Annual Disbursement Cumulative Disbursement

Year Amount

($ ) % of Total Amount

($ ) % of Total 2012 10,421,110 11% 10,421,110 11% 2013 21,121,432 22% 31,542,542 34% 2014 33,935,613 36% 65,478,155 70% 2015 12,217,205 13% 77,695,360 83% 2016 15,129,371 16% 92,824,731 99% 2017 1,299,154 1% 94,123,885 100% Total 94,123,885 100.0% ADB = Asian Development Bank. Source: Asian Development Bank.

Figure A4.1: Projection and Cumulative Disbursement of ADB Loan Proceeds

($ million)

Source: Asian Development Bank.

0

20

40

60

80

100

120

1 2 3 4 5 6

$ million

Year

Actual Projected Actual Trend

Appendix 5 23

CONTRACT AWARDS OF ADB LOAN AND GRANT PROCEEDS

Table A5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds

($ ) Annual Contract Awards Cumulative Contract Awards

Year Amount

($ ) % of Total Amount

($ ) % of Total 2012 63,825,765 69% 63,825,765 69% 2013 6,210,680 7% 70,036,445 76% 2014 7,901,030 9% 77,937,475 84% 2015 7,952,351 9% 85,889,826 93% 2016 6,629,643 7% 92,519,469 100% Total 94,123,885 100.0% ADB = Asian Development Bank. Source: Asian Development Bank.

Figure A5.1: Projection and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Note: Projections of contract awards are not available. Source: Asian Development Bank

0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5

$ million

Year

Actual Trend

24 Appendix 6

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan/Project Agreements

Status of Compliance

General The Borrower, MOPE, CEB and SEA shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

LA 2734, Schedule 5, Para. 1

Complied with.

The Borrower shall ensure that MOPE, PUCSL, CEB and SEA undertake all necessary regulatory actions and technical measures to enable connection of small renewable energy sources to the grid on a net metering basis.

LA 2734, Schedule 5, Para 2.

Complied with.

The Borrower shall ensure that in respect net metered micro hydro schemes up to 300 kW, PUCSL provides a mechanism for granting exemptions from the requirement to hold a generation license; and SEA provides a streamlined process for granting energy permits

LA 2734, Schedule 5, Para 2.

Complied with.

The Borrower shall ensure that SEA issues labeling regulations for corresponding appliances by the end of 2011.

LA 2734, Schedule 5, Para 4.

Partly complied with. The regulation for compact fluorescent lamps was published in 2009, ceiling fans in 2013, linear fluorescent lamps and magnetic ballasts in 2016. Regulations for air conditioners and refrigerators are not published.

The Borrower shall ensure that SEA issues energy audit regulations by the end of 2010 and establishes accreditation requirements and procedure for energy auditors by end of March 2011.

LA 2734, Schedule 5, Para 5.

Complied with.

The Borrower shall ensure that SEA submits the selection criteria for micro hydro project developers and participating financial institution(s) for approval by the Borrower and ADB.

LA 2734, Schedule 5, Para 6.

Complied with

Within 90 days from the Effective Date, the Borrower and CEB shall establish a grievance review mechanism, acceptable to ADB, to receive and facilitate resolution of affected peoples' concerns, complaints, and grievances about the Project's land acquisition, resettlement and environmental impacts. The Borrower and CEB shall (a) make public the existence of this grievance review mechanism; and (b) proactively and constructively review and address grievances of affected people in relation to the Project.

LA 2734, Schedule 5, Para 15.

Complied. Grievance redress mechanism is already existing in the government system governed by the Sri Lanka Electricity Act and accordingly supervised by Public Utility Commission of Sri Lanka

Appendix 6 25

The Borrower, CEB and SEA shall comply with ADB’s Anticorruption Policy (1998, as amended to date), cooperate fully with any investigation by ADB and extend all necessary assistance, including providing access to all relevant books and records for the satisfactory completion of such investigation.

LA 2734, Schedule 5, Para 16.

Complied with.

CEB and SEA shall ensure that the anticorruption provisions acceptable to ADB are included in all bidding documents and contracts, including provisions specifying the right of ADB to audit and examine the records and accounts of the executing and implementing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

LA 2734, Schedule 5, Para 17.

Complied with.

The Borrower, CEB and SEA shall ensure that the Project is implemented with emphasis on strict financial management and adherence to monitoring and reporting systems, and compliance with the local procurement regulations/guidelines published by Department of Public Finance. The Borrower, CEB and SEA shall also facilitate financial audit by the Auditor General's office of all Subprojects and allow random and independent spot checks of implementation and fund flow by ADB. CEB and SEA shall also maintain Project websites that will be updated regularly and will include (i) bidding procedures, bidders, and contract awards; (ii) use of the funds disbursed under the Project; and (iii) the physical progress of the Project.

LA 2734, Schedule 5, Para 18.

Complied with.

Safeguards. The Borrower shall ensure, and cause CEB and SEA to ensure, that the Project is undertaken, and all Project facilities are designed, constructed, implemented, operated, and maintained in accordance with the Borrower’s applicable laws and regulations and the Safeguard Policy.

LA 2734, Schedule 5, Para 7.

Complied with.

The Borrower shall ensure, and cause CEB and SEA to ensure, that (i) the EMP is implemented in accordance with its terms so that all adverse environmental impacts during construction and operation of the Project are mitigated; and in the event of any unanticipated adverse environmental impacts, such impacts are reported to CEA and ADB, and remedial actions taken to mitigate the impacts in consultation with the affected persons, CEA and ADB; (ii) an additional environmental study is undertaken and corresponding approval from the CEA is obtained should there be changes in the Project design that have significant environmental impacts; (iii) the IEE and the EMP are updated, as necessary, during the course of Project implementation and

LA 2734, Schedule 5, Para 8.

Complied with.

26 Appendix 6

submitted to ADB for approval; and (iv) reports are submitted to ADB on a semi-annual basis on the implementation of the EMP. The Borrower shall ensure, and cause CEB and SEA to ensure, that (i) all contractors are provided with the IEE and the EMP, and that the contractors implement the required mitigation measures as described in the EMP in a satisfactory manner, and report the implementation of the EMP on a regular basis, along with any deviation from the IEE; (ii) the bidding documents include the requirement to comply with the EMP; and (iii) the compliance by the contractors with the environmental impact mitigation and monitoring requirements is closely monitored.

LA 2734, Schedule 5, Para 9.

Complied with.

The Borrower shall ensure, and cause CEB and SEA to ensure, that the Project and the Project facilities are not located within national parks, wild and planted forests and wildlife sanctuaries, or near any monuments of cultural or historical importance.

LA 2734, Schedule 5, Para 10.

Complied with.

The Borrower shall ensure, and cause CEB and SEA to ensure, that (i) land acquisition, and relocation, resettlement, and compensation of all people who are affected by the Project are promptly carried out, and the Project is implemented, in accordance with the Borrower’s applicable laws and regulations, the Safeguard Policy, and the RP; (ii) all land and rights-of-way required for the Project are made available in a timely manner; (iii) the RP is disclosed to the affected people in local languages, and all compensation and resettlement benefits are paid, in accordance with the RP, to the affected people prior to their displacement from their land, house, or asset and commencement of civil works; (iv) the RP is updated prior to any realignment, disclosed to the affected people, and submitted to ADB for approval and disclosure on ADB's website prior to commencing any land acquisition or resettlement activity for the realigned section; (v) the construction of towers and the stringing of the lines, are carried out, whenever possible, during off cropping seasons; (vi) an external monitoring agency is engaged for independent monitoring and evaluation of resettlement activities; and (vii) reports on land acquisition and resettlement, along with the external monitoring agency report, are submitted to ADB on a semi-annual basis.

LA 2734, Schedule 5, Para 11.

Complied with.

In the event of any significant or related impacts on indigenous peoples, the Borrower shall prepare and implement an indigenous peoples plan in accordance with the Borrower’s applicable laws and regulations and the Safeguard Policy. In the event of non-

LA 2734, Schedule 5, Para 12.

Complied with.

Appendix 6 27

significant impact on indigenous peoples, the Borrower shall comply with the requirements set out in the RP. The Borrower shall ensure, and cause CEB and SEA to ensure, that a full consultation and participation process is undertaken with all stakeholders as and when appropriate during Project implementation, including: (i) stakeholder analysis; (ii) provision and disclosure of documents to the stakeholders; (iii) announcement of the date for consultation on specific issues; and (iv) monitoring of the consultation and participation process, which are also included in the progress reports and the reports of the external monitoring agency.

LA 2734, Schedule 5, Para 13.

Complied with.

The Borrower shall ensure, and cause CEB and SEA to ensure, that all Works contracts include the obligation of the contractors to record the condition of pathways, other local infrastructures, and agricultural land prior to commencement of Works and to reinstate them to at least their pre-Project condition upon completion of the Works.

LA 2734, Schedule 5, Para 14.

Complied with.

The Borrower shall ensure that (i) the gender action plan for the Project, prepared in consultation with the Borrower and approved by ADB, is implemented in accordance with its terms; (ii) adequate resources are allocated for the implementation of such gender action plan; and (iii) key gender outcome and output targets are monitored regularly and achieved.

LA 2734, Schedule 5, Para 21.

Complied with.

Sector The Borrower shall ensure, and cause CEB and SEA to ensure, that the contractors comply with all applicable labor laws; provide equal pay for equal work; do not employ child labor; provide appropriate facilities for the children of the construction workers in construction campsites; and provide equal opportunities for women and men in the construction activities.

LA 2734, Schedule 5, Para 19.

Complied with.

The Borrower shall ensure, and cause CEB and SEA to ensure, that contractors (i) provide appropriate training and information materials for workers on HIV/AIDS prevention; (ii) use non-governmental organizations approved by the Borrower's Ministry of Health; and (iii) observe local protocols concerning acceptable behavior towards the local population.

LA 2734, Schedule 5, Para 20.

Complied with.

The Borrower, CEB and SEA shall make available all counterpart funds required for timely and effective implementation of the Project, including any funds required to make land available for the Project, to mitigate unforeseen environmental and social impacts and to meet additional costs arising from design changes, price escalation in construction costs

LA 2734, Schedule 5, Para 22.

Complied with.

28 Appendix 6

or other unforeseen circumstances. Section 2.08. (a) CEB and SEA shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loans and the expenditure of the proceeds thereof; (ii) the items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of CEB and SEA; and (v) any other matters relating to the purposes of the Loans. (b) Periodic Reports. Without limiting the generality of the foregoing, CEB and SEA shall furnish to ADB periodic reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the period under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following period. (c) Project Completion Report. Promptly after physical completion of the Project, but in any event not later than 3 months thereafter or such later date as ADB may agree for this purpose, CEB and SEA shall prepare and furnish to ADB a report, through the Project Executing Agency, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by CEB and SEA of their obligations under this Project Agreement and the accomplishment of the purposes of the Loans.

PA 2733/2734 Schedule 2.08

Complied with. Complied with. Complied with.

Financial. Section 2.09. (a) CEB and SEA shall each (i) maintain separate accounts for the Project; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, through the Project Executing Agency, promptly after their preparation but in any event not later than 6 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the proceeds of the Loans and compliance with the covenants of the Loan Agreements as well as on the use of the procedures for imprest accounts and statement

PA 2733/2734 Schedule 2.09

Partially complied with. SEA indicated that it is financed by government budget and therefore no financial statements are available. CEB audited financial statements are available up to 2016. Audited project accounts were submitted late for all years.

Appendix 6 29

of expenditures), all in the English language. CEB and SEA shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. (b) CEB and SEA shall enable ADB, upon ADB's request, to discuss the financial statements of CEB and SEA and their financial affairs from time to time with the auditors appointed by CEB and SEA pursuant to Section 2.09(a) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of CEB or SEA, as the case may be, and the Project Executing Agency, unless the Project Executing Agency shall otherwise agree.

30 Appendix 7

ECONOMIC REEVALUATION

1. General 1. This economic reevaluation considers the total project investment as a whole. The reevaluation is based on estimated cost and benefit streams expressed in constant 2016 dollars. Figures from the appraisal evaluation, which were expressed in 2010 values, have been adjusted to 2016 values for the purposes of comparison. Analysis was conducted at the subproject level, following the approach used at appraisal, and then aggregated to calculate an overall economic internal rate of return (EIRR) for the project.

2. Economic Costs 2. Project investments. The domestic price numeraire was used for this reevaluation. Traded inputs were valued at their border price equivalent values and then adjusted to the domestic price numeraire by multiplying by the shadow exchange rate factor (SERF) used in recent project economic evaluations in Sri Lanka (1.06). This compares with the SERF of 1.02 used at appraisal, a value calculated using a simple trade-weighted approach. Non-traded inputs were valued at domestic prices. It was assumed that there are no significant distortions in the wage rates for skilled labor. In the case of unskilled labor, underemployment exists in the economy, and a shadow wage rate (SWR) of 0.75 was adopted. Taxes and financing charges were excluded. The average conversion factor for aggregated costs was 0.85, and the annual economic costs used in the economic reevaluation are summarized in Table A7.1.

Table A7.1: Financial and Economic Costs of the Project (2016 SLRs million)

Year Project Financial Costs

Project Economic Costs

2012 2,304 2,025 2013 3,663 3,138 2014 4,949 4,118

2015 1,246 1,022 2016 2,885 2,492 Total 15,047 12,794

Source: Asian Development Bank estimates, based on annual financial disbursements

3. Operation and maintenance costs. At appraisal, it was assumed that operations and maintenance (O&M) would have an annual cost of about 1% of initial capital costs for transmission subprojects and 1.5% for distribution subprojects. These assumptions were adopted for this reevaluation. The specific conversion factor for O&M costs was estimated to be about 1.0 and therefore no shadow pricing of O&M costs was undertaken. 4. Cost of supply. Following the approach used at appraisal, the cost of supply was valued at SLRs 15.5 per kWh (in 2016 terms) on the basis of the (economic) average incremental cost (AIC) of electricity supply in Sri Lanka. This was derived from CEB’s 2015 Generation Long-Term Generation Expansion Plan (LTGEP)1 adjusted to include the average incremental cost of transmission and distribution. This value is higher than used at appraisal (which was based on the CEB’s 2010 LTGEP), reflecting the increase in the percentage of non-conventional generation capacity in the expansion plan

1 Ceylon Electricity Board. 2015. Long-Term Generation Expansion Plan 2015-2034. Colombo.

Appendix 7 31

3. Economic Benefits

5. Demand forecast. CEB’s electricity demand forecast was adopted for economic analysis purposes at appraisal. The forecast is developed using a standard top-down econometric approach to estimate the national demand for electricity based on expected national income growth (measured by growth in gross domestic product) and population growth. It relates growth in these variables to electricity growth through regression analysis on historical data. CEB’s updated demand forecast (prepared in 2015) was used for this reevaluation. 6. At appraisal, it was noted that capacity constraints in both transmission and distribution networks mean that some equipment is loaded to or beyond design capacity. The investment was primarily concerned with removing these network constraints, improving reliability of supply and reducing losses through additional line and substation capacity and the addition of capacitor banks to reduce reactive power flows. 7. The Galle substation and transmission subproject (“T1”) has provided 94.5 megavolt-amperes (MVA) of incremental peak substation capacity. In the absence of this new capacity (that is, in the without-project case), demand growth over time would result in substation capacity constraints and subsequently demand would remain unserved. Based on demand at each substation in the area and the daily load profiles noted during site visits, an estimated 18 GWh would not have been served by the grid in the without-project case in 2016. CEB’s forecasts indicate that this will increase to around 136 GWh by 2027, beyond which it has been assumed that no further demand growth could be met without further investment (in transmission and downstream distribution facilities). 8. At appraisal, it was envisaged that the northeast substations and transmission subproject (“T2”) would add 126 MVA of grid substation capacity, with benefits similar in nature to subproject T1. Loan savings meant that an additional 63 MVA of transformer capacity was added to this subproject, and the old, end-of-life transformers at Kiribathkumbura substation were also replaced. As per subproject T1, the benefits of the initial 126MVA of incremental transformer capacity arise from meeting demand that could otherwise not be met from the grid (about 65 GWh in 2016, increasing to 445 GWh by 2026). The additional 63 MVA of substation capacity delivered through loan savings are primarily to increase supply reliability rather than to meet demand growth. The economic benefit of this improved reliability is a reduction in expected unserved energy, which is the product of the energy at risk and the probability of an outage. On the basis that an estimated 10% of the average load of a single transformer represents energy at risk and adopting a typical transformer probability of failure of 0.8%, this subproject contributes to avoided unserved of about 0.2 GWh per year. Similarly and based on fault data supplied by CEB, a further 0.5 GWh of unserved energy is avoided through the rehabilitation of Kiribathkumbura substation. 9. Based on appraisal estimates and physical evidence, for both transmission subprojects it has been assumed that in the without-project case, 30% of demand not met in peak periods and 15% of demand not met at other times would be met from alternative energy sources (small-scale diesel generation) – a resource cost saving – with the balance assumed to be incremental output. 10. The Ampara rural electrification subproject (“D1”) facilitated connection of 11,772 rural households to the grid (versus 12,190 assumed at appraisal).2 Based on estimated consumption per household and CEB’s demand forecast, this subproject added an additional 9 GWh of grid

2 CEB statistics.

32 Appendix 7

electricity consumption, increasing to 20 GWh by 2026. Of this, an estimated 20% is displaced alternative energy sources (primarily kerosene for lighting) and 80% is induced consumption. Because this subproject did not fund the customer service drop and meter (is was funded under other projects), the estimated cost of external and internal wiring for each household connection was included as an additional capital cost in the economic analysis. 11. The Ampara distribution reliability improvement subproject (“D2”) aims to reduce losses (by optimizing medium voltage feeder lengths) and reduce the high number of unscheduled, short-duration power outages that are currently experienced. Based on the estimates made at appraisal (adjusted for the actual physical quantities installed), it is estimated that this subproject has reduced losses by 4.6 GWh (a resource cost saving). This is forecast to increase to about 7.8 GWh by 2026. At appraisal, it was estimated that this subproject would reduce the incidence of short-term outages by 25% and their duration by 75%, and these assumptions have been adopted for the purposes of this reevaluation (the new facilities have not been in operation for long enough to make an assessment regarding actual reductions in outage incidence and duration). As a consequence, this subproject has reduced unserved by an estimated 11.9GWh. 12. The principal quantifiable economic benefit of the Uva province distribution strengthening subproject (“D4”) is loss reduction. Load flow analysis undertaken at appraisal (adjusted for actual physical quantities delivered) indicates initial loss reduction of about 1.5GWh, increasing to 2.6GWh by 2026. 13. Because economic benefits could not be directly quantified and given their relatively small scale, the energy efficiency and renewable energy subprojects (lighting laboratory, reactive compensation, estate microhydro rehabilitation3 and Moragolla hydropower plant detailed design) were excluded from the economic analysis at appraisal. For the purposes of this reevaluation, distribution subproject “D3” (tools and vehicles) was included as a cost but without corresponding benefits (it is noted that it was excluded entirely at appraisal). 14. Non-incremental output arising from displacement of alternative energy sources was valued at the levelized economic cost of kerosene lamps for domestic consumers (SLRs 47.1 per kWh equivalent in 2016) and diesel generation for other consumers (SLRs 25.8 per kWh equivalent in 2016), adjusted over time in accordance with the World Bank’s fuel commodity price forecasts. Non-incremental output arising from loss savings from valued using the same value used to value the cost of supply (SLRs 15.5 per kWh) as described above. 15. Incremental output arising from increased network capacity was conservatively valued at the weighted average end-use consumer tariff in FY2016 (SLRs 16.1 per kWh) ignoring any consumer surplus likely to accrue due to inherent difficulties in its estimation. Incremental output arising from rural electrification was valued at the average of the average domestic rural tariff and the cost of displaced alternative energy sources (SLRs 33.5 per kWh in 2016, increasing to 52.5 per kWh by 2026 in line with forecast increases in the underlying price of oil). 16. The reduction in expected unserved energy was valued based on the value estimated and published by the Public Utility Commission of Sri Lanka (PUCSL) ($0.50 per kWh in 2011 terms, equivalent to SLRs 95.9 per kWh in 2016 terms).

3 As noted elsewhere, microhydro rehabilitation at only one of a targeted 19 tea estates was completed. At the time

that this report was prepared, no operational information was available for the completed rehabilitation to allow for an economic cost-benefit analysis to be completed. However, given that only one rehabilitation was completed, it is expected that the overall costs to implement this subproject far exceed the economic benefits.

Appendix 7 33

4. Economic Reevaluation

17. Based on the estimates of economic costs and benefits as described above, the aggregate economic internal rate of return (EIRR) was recalculated to be 18.1%. This value is lower than the appraisal evaluation of 23.2%, principally on account of the lower value ascribed to unserved energy (the value used at appraisal was an order of magnitude higher than the value used for this reevaluation) and the inclusion of the capital cost of distribution subproject D3. However, the overall EIRR still comfortably exceeds the assumed hurdle rate of 12%. At the subproject level, EIRRs for T1, T2 and D2 are marginally lower than at appraisal due to the lower value ascribed to unserved energy. EIRRs for subprojects D1 and D4 are slightly higher than at appraisal due to higher household consumption and greater loss reduction (respectively) than estimated at appraisal. The overall EIRR calculation is shown in Table A7.2 and Table A7.3 shows the EIRR for each subproject.

Table A7.2: Reevaluated Economic Costs and Benefits of the Project (2015 SLRs million)

Year Benefits Costs Net

Incremental Output

Non-Incremental

Output Capital Supply O & M Benefits 2012 0 0 2,025 0 0 (2,025) 2013 0 0 3,138 0 0 (3,138) 2014 0 332 4,118 443 14 (3,880) 2015 0 707 1,022 871 57 (633) 2016 363 814 2,492 1,545 109 (2,357) 2017 611 1,349 0 2,082 128 610 2018 974 1,734 0 2,503 128 1,001 2019 1,471 2,278 0 3,092 128 1,539 2020 1,899 2,793 0 3,646 128 1,959 2021 2,481 3,362 0 4,242 128 2,459 2022 2,940 3,871 0 4,685 128 3,091 2023 3,467 4,467 0 5,402 128 3,950 2024 4,033 5,020 0 6,068 128 4,763 2025 5,014 5,424 0 6,547 128 5,432 2026 5,939 5,624 0 6,787 128 5,770 2027 6,684 5,653 0 6,825 128 5,830 2028 7,061 6,328 0 5,987 128 8,214 2029 7,130 6,328 0 5,987 128 8,215 2030 8,001 6,536 0 6,178 128 8,607 2031 8,003 6,912 0 6,524 128 9,317 2032 8,377 7,214 0 6,801 128 9,885 2033 9,057 7,675 0 7,226 128 10,754 2034 9,601 8,065 0 7,585 128 11,490 2035 10,433 8,242 0 7,747 128 11,823 2036 11,138 8,361 0 7,857 128 12,048

EIRR 18.1% ( ) = negative, EIRR = economic internal rate of return, O&M = operations and maintenance Source: Asian Development Bank estimates

34 Appendix 7

Table A7.3: Reevaluated Subproject Economic Internal Rates of Return

Subproject EIRR

Transmission

T1. New Galle substation and associated transmission line 15.7%

T2. North east substations and associated transmission lines 22.0%

Distribution

D1. Ampara rural electrification 16.4%

D2. Reliability and loss reduction 9.1%

D4. Uva network strengthening 2.2%

Aggregate Transmission and Distribution 18.1% Source: Asian Development Bank estimates

18. Sensitivity analysis. For this reevaluation, the impact of EIRR of a reduction in benefits was tested and an increase in O&M costs was examined. For each of these risks, the sensitivity of the aggregate EIRR was tested and switching values were calculated.4 Results of the sensitivity analysis, which are summarized in Table A7.4, reflect the robust economic returns from the project even under a combined downside scenario. It is clear from this reevaluation that the decision to construct the project facilities was correct from an economic perspective.

Table A7.4: Results of Sensitivity Analysis

Sensitivity Parameter Variation EIRR Switching

Value Base case 18.1%

1 Value of unserved energy - 20% 18.0% -2453.2% 2 Value of incremental consumption - 20% 15.3% -43.5% 3 Cost of supply (and value of losses) + 20% 15.3% +43.6% 4 O&M costs + 20% 18.0% +1256.9% 5 Combined (1-4) 12.0%

Source: Asian Development Bank estimates

4 A switching value measures the percentage change in the variable required to reduce the EIRR to the assumed

hurdle rate.

Appendix 8 35

FINANCIAL EVALUATION

1. General 1. This financial re-evaluation was carried out in accordance with the Asian Development Bank’s (ADB’s) guidelines for financial management and analysis of projects.1 This reevaluation considers the project investment as a whole and compares the financial internal rates of return (FIRR) against the recalculated real weighted average cost of capital (WACC) for the investment. The sensitivity of the FIRR to adverse changes in the underlying assumptions was also assessed. Financial benefits flowing to the Ceylon Electricity Board (CEB) consist primarily of an increase in regulated revenue accruing from newly constructed transmission and distribution facilities: a tariff is determined by the jurisdictional regulator, the Public Utilities Commission of Sri Lanka (PUCSL), based on its view of reasonable and efficient capital costs, power purchase costs, operations and maintenance costs, overhead costs, depreciation, and a return on capital employed.. To assess financial viability, the weighted average cost of capital (WACC) of the investment was calculated and compared with the total investment’s financial internal rate of return (FIRR). 2. A tariff methodology approved by the Public Utilities Commission of Sri Lanka (PUCSL) in December 2011, which was after project appraisal. The financial analysis undertaken at appraisal recognized that a PUCSL was planning to formalize a tariff methodology and estimated a tariff trajectory based on a preliminary methodology discussed with PUCSL at the time. However, the appraisal financial analysis did not model the revenue cap form of regulation that PUCSL has subsequently imposed, and consequently reported a relatively higher FIRR of 10.3%. The PUSCL’s tariff methodology is fully reflected in this reevaluation. PUCSL’s methodology adopts a 5-year control period with annual adjustments permitted for changes in certain parameters (including inflation and the cost of electricity generation). Major tariff filings are prepared and submitted by licensees including Ceylon Electricity Board (CEB) at the start of each control period (most recently in August 2015), while simplified filings are made annually to ensure the revenue control formula is applied properly. 3. FIRR was calculated separately for each of the transmission and distribution components and then aggregated (with only the aggregated result presented here). The assets created under the reactive power management subproject were included in the regulated asset base for the transmission component for the purposes of this financial reevaluation. Other energy efficiency and renewable energy subprojects have been excluded from this financial reevaluation: neither the Moragolla hydropower detailed design nor the appliance testing laboratory subprojects are energy efficiency or renewable energy projects in the traditional sense as no assets were created against which revenue is earned and neither involves the payment of subsidies, making financial (sustainability) invalid; and the owner of the only micro hydro plant that was rehabilitated under that subproject was unwilling to reveal any financial information in relation to the operation of the plant.

2. Project Costs 4. Project costs. Project capital costs include equipment, civil engineering and erection costs, project management costs, expenditure on safeguards, purchase of land, and taxes and duty. No physical or price contingencies were charged to the project. Financial charges during construction were omitted from this FIRR reevaluation. Total annual expenditure against the project was estimated from actual annual loan disbursements and from the CEB’s reported total

1 ADB. 2005. Financial Management and Analysis of Projects. Manila.

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expenditure from counterpart funds. The project closed in 20162 and all monetary values were converted to 2016 equivalent values in accordance with ADB guidelines, as summarized in Table A8.1.3

Table A8.1: Conversion of Project Costs to 2016 Price Levels

Year Foreign

Cost Local Cost

Foreign Price Index

Local Price Index

Foreign Cost

Local Cost Total Cost

($ million) (SLRs million) (2016 base) (2015 base) (2015 SLRs million)

2012 8.4 922.3 99.4 85.0 1,248.5 1,084.8 2,333.3 2013 15.4 1,244.5 98.0 90.7 2,321.1 1,372.3 3,693.4 2014 21.3 1,709.9 98.3 94.8 3,197.0 1,803.2 5,000.2 2015 6.7 471.8 98.6 96.7 997.1 488.0 1,485.1 2016 12.0 1,174.1 100.0 100.0 1,773.2 1,174.1 2,947.3

Total 63.7 5,522.7 9,536.9 5,922.5 15,459.4 Note: Foreign price index reflects the manufactured exports unit value (MUV) index (https://knoema.com/WBMFRUVI2014Nov/manufactures-unit-value-index-muv-world-bank-2014?tsId=1000000). The local price index is based on the gross domestic product (GDP) deflator for Sri Lanka contained in IMF World Economic Outlook’s database (https://knoema.com/IMFWEO2016Oct/imf-world-economic-outlook-weo). Source: Asian Development Bank estimates 5. Operations and maintenance costs. Actual incremental O&M costs attributable to the project cannot be calculated with any accuracy. PUCSL’s regulatory allowance for operations and maintenance (O&M) costs (for renovation and maintenance of physical assets) is 2.0% of gross fixed assets, escalated annually at a rate set periodically by PUCSL (this means that the CEB is allowed to recover annual O&M costs equal to 2.0% of the capitalized asset value of the project), however O&M is essentially a pass-through and is likely to be subject to a true-up at a subsequent price reset. For this reason, this financial reevaluation is not sensitive to O&M cost assumptions and the O&M cost was set equal to the regulatory allowance.

3. Project Benefits 6. Regulated revenue from new assets. As noted above, most of the incremental revenue earned by the CEB for the facilities is calculated in accordance with regulations set by PUCSL. Under the revenue control formula, CEB is allowed to earn annual revenue equal to the sum of accounting depreciation, a return on invested capital that includes the actual cost of debt and a return on equity, efficient O&M costs (2% of component capital costs), and applicable taxes. 4 In the current control period, PUCSL has set the allowed after–tax real rate of return on assets at 2%. The published tariff methodology states that PUCSL will set the return on assets to allow “a positive return on equity based on the cost of the long-term debt of the Government of Sri Lanka,” in addition to actual debt costs.5 For the first tariff period, PUSCL set the allowed return on equity to zero. In projecting revenue, it has been assumed that CEB’s revenue allowance will reflect the published tariff methodology from the start of the next control period (2021), with allowed return

2 CEB incurred some expenditure on the project in the first quarter of 2017. This expenditure has been included in 2016

expenditure for the purposes of this reevaluation. 3 Asian Development Bank, Independent Evaluation Department. 2013. ADB Guidelines for Preparing Performance

Evaluation Reports for Public Sector Operations. Manila. 4 Annual allowed revenue is the total electricity revenue that the jurisdictional regulator has agreed to allow the

electricity distributor to recover during the subsequent year. The tariff that is subsequently calculated is just the mean by which the allowed revenue is recovered from customers. CEB not incentivized to under-forecast sales quantity (and thereby increase tariff) because over-recovery of revenue (compared to the allowed) is recovered in subsequent years (by way of a downward adjustment in allowed revenue).

5 Public Utilities Commission of Sri Lanka. December 2011. Tariff Methodology. Colombo, page 3-20.

Appendix 8 37

on equity of 8.5% (real, post tax) represented 30% of CEB’s capital financing (that is, an equity-to-assets ratio of 70%. The cost of electricity generated and purchased is a pass-through cost, with transmission and distribution loss trajectories set by PUCSL at the beginning of the control period. This allowed revenue approach was adopted to estimate the financial benefit streams for the investment. 7. Incremental revenue from reduced distribution losses. Loss trajectories for CEB are set by PUCSL at the start of each regulatory period. CEB can recover electricity purchase costs in accordance with PUCSL’s loss trajectories. To date, CEB has been successfully in meeting PUCSL’s loss targets, meaning that CEB is able to recover its cost of electricity generation and purchases. For this reason, in this reevaluation is has been assumed that CEB does not recover incremental net revenue for loss reduction; instead, the company just recovers costs and a return on assets for loss reduction investments.

4. Financial Internal Rate of Return 8. Incremental cash flows earned by CEB from project assets were estimated based on the methodology and assumptions described above. The evaluation period was 25 years from 2012. Assets were assumed to have an average economic life reflective of the depreciation rates set by PUCSL, and terminal values were ascribed based on remaining regulatory book value at the end of the evaluation period.6 Project assets were depreciated on a straight-line basis in accordance with depreciation rates set by PUCSL. The project’s overall FIRR was reevaluated at 5.1% (post-tax real), as shown in Table A8.2. This is considered a reasonable rate of return.

Table A8.2: Financial Re-evaluation of the Project (2016 SLRs million)

Year

Incremental Revenue

Costs Net Cash Flow Capital O & M Tax

2012 0 2,304 0 0 (2,304)

2013 0 3,663 0 0 (3,663)

2014 0 4,981 176 0 (4,981)

2015 1,052 1,482 325 196 (803)

2016 2,709 2,919 326 546 (1,081)

2017 2,544 0 329 506 1,712

2018 2,395 0 332 469 1,597

2019 2,779 0 336 581 1,866

2020 2,608 0 339 537 1,736

2021 2,449 0 342 496 1,614

2022 2,299 0 345 458 1,500

2023 2,160 0 349 422 1,392

2024 2,030 0 352 389 1,292

2025 1,908 0 355 358 1,198

2026 1,795 0 359 329 1,110

2027 1,689 0 362 302 1,028

2028 1,590 0 176 276 951

2029 1,498 0 366 253 879

2030 1,412 0 369 231 812

2031 1,333 0 373 211 749

2032 1,258 0 376 192 691

6 Cash flow beyond the evaluation period would reflect the remaining asset regulatory book value, so this is considered a good approximation for asset residual value.

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Year

Incremental Revenue

Costs Net Cash Flow Capital O & M Tax

2033 1,190 0 380 174 636

2034 1,126 0 383 158 585

2035 1,066 0 387 142 537

2036 1,012 0 391 128 493 Terminal value: 2,382

FIRR (Post-tax real): 6.3% ( ) = negative, FIRR = financial internal rate of return, O&M – operations and maintenance. Source: Asian Development Bank estimates

9. Benchmark financial internal rate of return. The assumed hurdle rate for this reevaluation is the project’s overall real post-tax weighted average cost of capital (WACC). The main sources of finance were the ADB ordinary capital resources loan (about 66% of the capital cost to CEB) and the ADB Asian Development Fund Loan (about 6% of the capital cost to CEB), both of which were on-lent to CEB on a back-to-back basis as a local currency loan carrying a nominal interest rate of 10% (with a corporate income tax shield of 28%), equity from the government and CEB’s internal funds (about 28% of the capital cost to CEB). Cost of equity was estimated as 15.0% based on pricing of recent long-term government bonds (11-12%) and an estimated margin to reflect project risk and tenor (3%). As shown in Table A10.3, project WACC was re-estimated at 3.3%. The project’s reevaluated FIRR of 6.3% comfortably exceeds this hurdle rate. The aggregate FIRR calculated at appraisal was 10.8% and the aggregate WACC was estimated to be 0.6%. The lower WACC at appraisal is attributable to a lower nominal cost ascribed to government’s and CEB’s contributions (an average nominal required return of 5% was applied at the time). As noted in above (para. 2), the FIRR calculated at appraisal did not reflect the PUCSL’s full tariff methodology approved subsequent to appraisal, and this is the principal reason for a higher FIRR being calculated at the time.

Table A8.3: Re-estimation of Project Weighted Average Cost of Capital

Source Amount (SLRs million)

Weight (%)

Pre-Tax Nominal

Cost (%)

Inflation Rate

Post-Tax Real Cost

(%)

Weighted Post-Tax

Real Cost (%)

ADB OCR and ADF Loans 10,855 70.9% 10.0% 6.0% 1.1% 0.7% Equity 4,461 29.1% 15.0% 6.0% 8.5% 2.5% Total 15,316 100.0% 3.3% ADB = Asian Development Bank, ADF = Asian Development Fund, OCR = ordinary capital resources Source: Asian Development Bank estimates

5. CEB’s Financial Performance

10. Before 2010, CEB typically received operating subsidies from the Government but no such subsidies have been received since 2011, even though CEB has inferred subsidy support in its tariff petitions to PUCSL. CEB has consequently had insufficient operating cash flow to meet debt service obligations to the Government and to pay its fuel bills and to pay independent power producers for power purchases, with the result that the company has had to borrow on a short-term basis to meet these shortfalls. A windfall profit in 2013 (discussed further below) allowed the company to discharge some of its debts. 11. By the end of 2011, CEB’s accumulated losses had reached SLR 139 billion. CEB’s financial performance and position have seen modest improvement since 2012. Firstly, a new

Appendix 8 39

tariff methodology became effective in 2011, which in principle allowed CEB to recover efficient operating and capital costs (although implementation of this tariff methodology has been characterized by lack of transparency and missed targets for regulatory decisions and tariff adjustments). Secondly, the introduction of IFRS in FY2012 caused CEB’s revaluation reserve to be transferred to retained earnings, with the net result that CEB’s accumulated losses became an accumulated profit of SLR 136 billion as at the end of 2012. It is noted, however, this is a really no more than an adjustment to presentation of financial statements with no net balance sheet impact. Thirdly, In 2014 the Government converted nearly SLR 162 billion of outstanding debt owed by CEB to equity (a gearing reduction from 63% to 35%), thereby significantly removing pressure on the company’s ability to service its debt. 12. CEB annual financial results remain heavily influenced by the climate and, in particular, inflows to hydropower reservoirs. Inflows were very high in 2013, resulting in a much lower cost of generation than expected and allowed for in tariffs. This meant that CEB was able to report a net profit in 2013 (SLR 12.9 billion), its first in recent history. Similarly, accounts for 2015 show a windfall profit of (SLR 19.3 billion). However, the tariff settings currently applied by PUCSL do not provide for any return on equity, and therefore, given that incentive-based regulation has not yet been implemented, any profits earned must be the result of over-recovery of costs (that is, the current tariff allows CEB to earn more than the revenue it requires to meet its costs). This over-recovery will ultimately be offset against CEB’s allowed revenue in future years. In other words, the profit in 2013 and 2015 should not be considered as sustainable and does not necessarily reflect good operational performance on the part of CEB (although it does provide cause for optimism). In 2016 low inflows into hydropower reservoirs required CEB to call upon additional thermal generation. Compared to 2015, hydropower generation was 1,700GWh (almost 30%) lower, with most of this deficit made up by oil-fired generation. As a result, CEB’s cost of generation was very high and CEB’s financial results showed a negative gross margin and a significant net loss (SLR 13.5 billion). 13. In summary, although CEB remains fundamentally limited and financially stressed by its inability to generate sufficient cash flow to reinvest in its business and to meet its present supplier obligations, some improvement is apparent. CEB claims to have moved to full cost recovery, but the lack of transparency in regulatory submissions and determinations (and the lag between costs being incurred and included in revenue allowances) makes it difficult to ascertain the veracity of this claim. CEB is still not apparently meeting debt service obligations on loans from the Government, even though about half of this debt has now been converted to equity. Improvement is expected however, from 2021 when PUCSL begins to include an allowance for return on equity in the revenue cap formula it applies to CEB. In addition to improving CEB’s cash flow, this will provide CEB with a revenue buffer to absorb some of the volatility arising from CEB’s exposure to hydro inflows.

Table A8.4: Summary of CEB’s Financial Performance 2013-2016 Item 2013 2014 2015 2016

Audited

FINANCIAL

Revenue (SLRs m) 194,147 202,645 188,684 206,811

Operating expenses (SLRs m) 120,721 173,240 139,402 194,523

Gross margin (SLRs m) 73,425 29,405 49,282 12,288

Overheads (SLRs m) 28,269 19,506 4,087 4,452

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Item 2013 2014 2015 2016

Audited

Interest due (SLRs m) 12,813 7,030 5,135 4,311

Depreciation & amortization (SLRs m) 20,491 24,047 29,379 27,597

Foreign exchange losses (SLRs m) 0 0 0 0

Net profit before tax (SLRs m) 18,636 -15,003 19,408 -13,234

Principal repayments (SLRs m) 38,109 18,389 15,865 14,742

Capital expenditure (SLRs m) 65,474 59,714 40,547 39,279

Operating cash flow (SLRs m) 13,208 14,336 20,523 17,509

Net cash flow (SLRs m) 16,381 -1,681 203 -68

Short term borrowings (SLRs m) 20,513 18,915 15,955 18,724

Long term borrowings (SLRs m) 366,678 201,686 197,307 200,937

Trade creditors (SLRs m) 72,359 64,147 43,904 73,012

Return on average net fixed assets 10.0% 1.6% 7.4% 1.3%

Debt-service coverage ratio 0.3 0.6 1.0 0.9

Current ratio 1.1 0.9 1.2 1.0

Debt:equity ratio 63:37 34:66 32:68 33:67

Receivable days 31 28 30 24

Appendix 9 41

IMPLEMENTATION OF THE GENDER ACTION PLAN AND ACHIEVEMENTS

1. The project was classified as effective gender mainstreaming, with a range of innovative

activities and approaches (i.e. pilot-tested free connection to the grid for poor and poor women-

headed households financed by the Loan and attached Japan Fund for Poverty Reduction (JFPR) Grant on: Improving Gender-inclusive Access to Clean and Renewable Energy [JFPR 9158]. The

(original) DMF consisted of five gender-related indicators [revised: four (2015)], four [revised:

three (2015)] consistently reflected in and one inadvertently omitted from the (original) gender

action plan (GAP), included as Activity 2 (Target 2) in the GAP Achievement Matrix below. In 2015, the (new) CEB Operations Management Team asked the ADB to drop one DMF indicator

and two non-core GAP activities as these were outside the scope of the CEB mandate1. In line

with the CEB mandate and the need for urgent response in war-affected areas, savings from the

two GAP activities were used to expand the coverage of one of the core DMF/GAP activity and related indicator/target aimed to increase household connections [see activity 2 (Target 1), GAP

Achievement Matrix], doubling free household wiring connections coverage for poor households

from 2,200 to 3,642 households, including 1,885 women-headed households (52% of poor

serviced households). The GAP Achievement Matrix is fully aligned with the (revised) DMF and presents the achievement on all four DMF gender-related indicators and seven GAP activities.

2. During the inception mission for the JFPR 9158 Grant, the project executing agency, CEB,

and the international firm to implement the Grant, ENERGIA (International Network on Gender and Sustainable Energy), agreed on a division of tasks. CEB’s critical responsibility was to focus

on the extension of the rural connectivity to poor households (with focus on women-headed

households and the international firm, ENERGIA, through Practical Action—its national partner

nongovernment organization was in charge of the gender policy review, awareness raising campaign on safe and efficient use of electricity, and enterprise-related trainings.2 The

collaboration of CEB with Practical Action and -through Practical Action- its engagement with the

Pradeshiya Sabhas in Ampara District- in the consultative, iterative and transparent process for

the identification of the poor and especially poor women-headed households was a remarkable achievement, in the context of post-war Sri Lanka, considering the prevailing context in the

Ampara District. The JFPR 9158 activities were undertaken in Ampara district of Eastern

Province, which is one of the less developed districts in the country. At the time of project

implementation, 65% of Ampara’s population were living below poverty line. Agriculture is the

main source of income, in addition to small and medium scale industries such as garment factories, mining and tourism industries and trade. Agriculture is also the mainstay for a large

number of women affected by the war. A significant number of HHs are headed by women due to

death, disability or disappearance of the male head during the conflict years, and the subsequent

Tsunami.

1 During the review mission 22-27 April 2015, CEB Operations Management formally informed ADB that two GAP

activities (under the Transmission and Distribution Systems’ headings of the (original) GAP [2 and (3)a] namely, “women technicians trained in substations constructions, O&M” and “women technicians trained in construction, O&M of distribution lines and substations” and the DMF indicator “1,500 people (target 30% women) from deprived and vulnerable HHs trained in electricity-related skills” were outside the scope of its mandate and could not be delivered upon. These changes are reflected in Appendix 1.

2 ETC Foundation. 2013. Grant-9158: Improving Gender-Inclusive Access to Clean And Renewable Energy. Interim Report: Volume 1. Unpublished. p. 11.

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3. The achievements and outcomes of the GAP activities were grouped below according to

the three components of JFPR 9158 Grant and include discussions of the results of the end-line

survey.

Component A: Review of energy sector policies, legal and regulatory frameworks

4. The Grant assessed the gender inclusiveness of the energy sector at three levels: policy,

programs and organizations. The review largely focused on electricity access, including grid extension and off-grid electrification, covering three tiers of governance in the country -- national,

provincial and divisional (Pradeshiya Sabha). Specific documents reviewed included the National

Energy Policy and Strategies of Sri Lanka, 2008; the Provincial Energy Statutes, 2011 (draft); the

Pradeshiya Sabha Act, 1987; the Electricity Act, 2009; and the Sustainable Energy Authority Act. Significant findings were as follows:

• Most policy and programming documents in the energy sector are silent on gender. • One category missing in national policies is women headed HHs (which constitute as

much as 20% of the population). • In the implementation of most off-grid projects, local women are not consulted regarding

issues related to the use of local resources or gender differentiated energy needs. The potential of involving women in project management functions is missed, except in a few locations that are managed by nongovernment organizations s and community-based organizations. In these, women have demonstrated their abilities as custodians of local resources and as managers of decentralized energy systems.

• The National Energy Policy and Strategies of Sri Lanka, which primarily focuses on electricity, is silent on cooking fuels and biomass, except for a mention of biofuels as a source of commercial energy.

5. Recommendations on strategies to benefit and empower women and reduce gender inequalities in the energy sector were the following:

• Mainstream gender in energy sector policies • Establish gender sensitive targets and indicators in energy programs • Ensure participation of women in energy plans and programs • Provide women with energy-related information and training and involve women in training

on technical and business development aspects of energy projects and ensure that they have access to information on available energy options and provisions.

• Establish targeted programs for women-headed HHs • Promote women’s use of energy for productive enterprises • Develop a biomass fuel strategy- Among the goals of the strategy should be to ensure

financial allocations that promote access to modern fuels and more efficient biomass combustion technologies for HHs and small enterprises.

Component B: Improving rural women’s access to electricity and improving service delivery in Eastern Province

6. End-line Study Approach and Methodology. Qualitative information was gathered through

Focus Group Discussions. Information was collected from 140 households who were benefited

by the project interventions. Eighty households were selected from the enterprise trainees while sixty were selected from those who attained energy awareness creation. Systematic sampling

procedure was followed to select the sample to assure proportionate distribution of the sample.

Appendix 9 43

Five types of enterprises that have been introduced through the program and the awareness

creation program was well covered. Sample included 29% men and 71% women from the

enterprise trainees and 33% men and 66% women from efficient use of electricity awareness creation program.

7. Increasing access to clean energy for rural communities. A total of 11,772 houses were

connected to the grid including 3,642 poor households (or 31% of serviced households), 1,885 of which were headed by women (or 52% of poor serviced households).

8. All the surveyed households have grid electricity connections so the total sample use

electricity for lighting and for powering a wide range of household appliances. Decisions on energy use revealed several patterns; decisions made by men alone/ women alone or jointly. Joint

decision making is widely seen in regard to electricity.

9. Decision on use of energy sources. The use of the energy sources that the households

have access to is decided not only by the type of sources, availability the devices and the

appliances that are in use but also by the local context and gender specific responsibilities shouldered by men and women. In around 54% of the households’ women make own decisions

on energy usage for cooking which is primarily based on wood-fuel. In 49% of the households’

decisions on water heating which take place in the women-dominated cooking domain are also

made by women. Women make decisions on electricity usage for ironing in 40% of the households.

10. The profile of energy usage decision making suggests that decisions made by men alone is rather low. And the highest is for mobile phones, where 40% of the men are making decisions,

followed by 38% in radio use, 34% in space heating and less than 30% pertaining to other categories. Please see data in Table 1 below.

Table A9.1: Households decision making on energy usage

Energy usage

Decision

maker-

Male

Decision

maker- Male

%

Decision

maker-

female

Decision

maker-

female %

Decision

maker-

Both

Decision maker- Both % Total

Cooking 10 19% 29 54% 15 28% 54

Lighting 16 30% 9 17% 28 53% 53

Space Cooling

(A/C, Fan)

17 34% 8 16% 25 50% 50

Water Heating 9 20% 22 49% 14 31% 45

Mobile Charging 20 40% 7 14% 23 46% 50

Computer 3 25% 2 17% 7 58% 12

TV 12 29% 6 15% 23 56% 41

Radio 9 38% 2 8% 13 54% 24

Ironing 8 17% 19 40% 20 43% 47

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11. Overall pattern reveals that a substantial percentage of decisions are being made by men

and women jointly particularly regarding the application of electricity. For instance, 53% of the

households make joint decisions in electricity application for lighting; 58% in using for computers, 56% for TVs, 54% for radio, and 50% for space cooling. Implication here is that most of the joint

decision making is closely associated with the electricity which is a commercial source of energy

used for shared services.

12. Purchase of electrical appliances. Figure 1 shows that in 52% of the surveyed

households, decisions on purchasing kitchen appliances are made by women alone and jointly

in another 35% while only 13% are made by men alone. Decisions on purchasing sewing

machines are made by women alone and jointly. The overall pattern in decision making shows that it is mostly done by women followed by joint decision making with a low percentage made

by men alone.

Figure A9.1: Decision making by men and women in purchasing household appliances

13. Energy-related livelihood training. The baseline survey showed that the women in Ampara

were mostly engaged in, among others, dairy products, fruit processing, local textiles, mostly un-electrified and home-based. Women faced a number of bottlenecks in running and expanding

their businesses, including lack of technology and lack of security (in terms of operating machines

and running the business alone). The target groups for the livelihood trainings included existing

entrepreneurs, aspiring potential entrepreneurs (who have business ideas and commitment to implement), and new aspirants. In view of the results of the baseline survey, capacity building

Appendix 9 45

programs implemented were in five areas: (i) business development; (ii) value addition in tailoring

businesses; (iii) assembly of LED bulbs; (iv) fruit processing technologies; and (v) farm

management and dairy processing technologies.

14. Field discussions particularly the key informant discussions suggested that after the training, the trainees have improved the quality they supplied to the market to fetch a better price.

They use various appliances like blenders, refrigerators in regard to food processing and dairy,

and electric or motor based sewing machines and also the improved quality of dresses have

enabled to increase the income substantially. Quite clearly the skills, knowledge and the capacity have been increased with a focus on the demand and the market. They keep the ledgers, records

on cost of raw materials and profit and market orders. Table 3 below indicate the changes in

women’s enterprises as a result of participation in the enterprise trainings.

Table A9.2. Changes incurred in relation to the enterprise development training

Indicators Before

Training

After

Training

Average number of products sold per month (per entrepreneur) 1354 1736

Average monthly income (per entrepreneur) 9572 15199

Average number of persons engaged (per enterprise) 2 2

Average hours spent per day on economic activity 4.50 5.37

Number of enterprises those availed loans 17 24

15. It was expected that the time allocated by the trainees would be affected by the increased

entrepreneurial skills. Electricity applications in enterprises as well as the management improvements intended to provide direct and indirect benefits. Average number of hours spent

per day on various activities is used as a direct indictor capturing changes (See Table 4 below). Changes included increases as well as the decreases.

Table A9.3: Changes in time allocation by activity of the trainees

Activity Stage

Total

hours/day Frequency

Avg.

hours/day Change

House Work

Before Training 220 70 3.14 (0.22)

After Training 216 74 2.92

Economic Activities

Before Training 270 60 4.50 0.87

After Training

387 72 5.37

Social/Community

Work/ Religious

Before Training 76 66 1.16 (0.05)

After Training 75 68 1.11

Leisure

(Entertainment)

Before Training 108 56 1.94 (0.23)

After Training 108 63 1.71

Socializing/ Meeting

Friends or Neighbors

Before Training 44 44 1.01 0.06

After Training 50 47 1.07

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Activity Stage

Total

hours/day Frequency

Avg.

hours/day Change

Learning / Reading/

Education

Before Training 82 45 1.81 0.17

After Training 105 53 1.98

Family commitments

(taking Children to

school)

Before Training 97 51 1.90 (0.05)

After Training 102 55 1.85

16. An increase in time allocation has occurred in two areas; in economic activity and learning activities. Overall time allocation pattern showed that amongst others, the time allocated per day

by a trainee on economic activity is higher. Before training it has been around 4.5 hours per day

and increased to 5.37 after training, recording a 19% increase. In time spent on learning, a

marginal increase was captured with a nine percent increase. Time spent on housework, social/ community work, leisure, and family commitments shows a slight reduction. This suggests that

the changes that take place in economic activities and learning potentially contribute to

production, income and well-being while reducing the time spent on non- remunerative areas of

work.

17. Specific enterprise- based changes witnessed include:

In Value addition in dress making training- Additional technical skills enables women to make machine repairs by themselves. Women feel empowered, more confident and are able to reduce

income and market loses during machine failures. Out of nineteen women surveyed, eight have

purchase electric sewing machines, and one has fixed a motor to manually operated one. Eight

women reported that they have repaired their sewing machines themselves, and seven have started keeping business records. All reported increased local sewing orders, piece work from

large shops in town, sub contracts for children’s garments.

In dairy management- 5 of the interviewees (in a sample of 12) have partly mechanized the processing of fresh milk using blenders. One with a small sale outlet has purchased a refrigerator.

In food processing, out of eight sampled, one trainee has purchased a refrigerator and another

blender.

Other results reported include the following:

• Accessing finance for business development: In business planning, 9 (in a sample of 22)

entrepreneurs have obtained loans after the training and another 6 who had standing

loans have started to pay back. Six in dairy also have obtained loans after their training.

• Acquisition of new household assets: A wide range of new purchases for household

applications have been made by women who are mostly in dress making. This was driven

heavily by their needs to reduce the pressure of traditional chores. Blenders, gas cookers,

water heaters, grinders, refrigerators, irons, and rice cookers are reported as time saving appliances and so beneficial to women in their ability to gain time for alternative work.

• Changes in time use pattern: The trainees demonstrated an increase in time allocated in

two areas; economic activity and learning activities. Among others, the average time

allocated per day by a trainee on economic activity increased from 4.5 hours to 5.37 hours

after training, a 19% increase. In learning activities, a marginal increase was recorded with

Appendix 9 47

nine percent increase in the time spent on learning. Time spent on housework, social/

community work, leisure, and family commitments shows a slight reduction.

• Startups: The survey performance reflected by 78 who received training, in terms of labor enrolment is also taken into consideration. Out of the 78 trainees who were surveyed, 48

(62%) were engaged in enterprises prior to the training, while the rest 30 were interested

in starting up their own enterprises. After the training, out of these 30, 16 started up

enterprises.

18. Awareness-raising on efficient use of energy for newly electrified households For

the awareness campaign on the safe and efficient use of electricity, 135 programs were

conducted covering all the 20 divisional secretariat areas in the Ampara district. A total of 11,426 persons attended, of whom 7,355 (64%) were women.

Two types of behavioral changes were noticed:

19. Energy conservation and reduced hours of use of electrical appliances: All households

reported that the awareness campaign had made them conscious of their energy use behavior

and the potential of savings that can be brought about by change in habits. Each and every

household surveyed reported a change in energy consumption behavior, mainly in terms of reducing the hours of use (27%). Reduction in hours of use is identified in all items except in the

case of sewing machines and phone charging. The highest reduction is in hours of use for ceiling

fans with 83% reduction (a reduction of six hours), and 82% in ironing (a reduction of 3.8 hours),

all high energy consuming appliances. This is followed by 67% reduction in hours of water heating;

58% in use of rice cookers; 33% in use of incandescent bulbs; 33% in TV usage; 32% using refrigerators and in the range of 11% to 21% regarding the others.

20. Use of efficient electrical appliances: Some changes have also taken place in the number

of appliances used by the households reflecting either an adoption of energy efficient items or discarding and reducing heavy energy consuming items. There has been an 8% increase in the

use of table fans (which are more energy efficient than ceiling fans); and a 67% rise in the use of

chargers. The usage of rice cookers has reduced by 44%, water heaters/ kettles by 67% and

irons by 57%.

Component C: Project Performance and Monitoring System 21. ENERGIA prepared a project performance monitoring system (PPMS), and based on the

indicators therein, they conducted the end-line surveys, which included an assessment of the achievement of the key performance indicators of the Grant. A case study report entitled, Sri

Lankan Women Come Together in Producer Groups to Assemble LED Bulbs” was prepared and

presented during the Subregional Conference on Going Beyond the Meter: Inclusive Energy

Solutions in South Asia in Jaipur, Rajasthan, India in April 2016.

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Overall Assessment of GAP Achievements

22. In summary, the gender-related initiatives brought positive changes to the lives of the women beneficiaries of the project. These include: • The awareness raising sessions resulted in reduction of hours of use of high energy

consuming electrical appliances and adoption of energy efficient items. • Trainings on enterprise development activities helped women improve the quality of their

products, especially in food processing and tailoring, increase market sales and monthly average income. The training on value addition in tailoring empowered women as they were able to make repairs on sewing machines themselves.

• The women have also acquired significant decision-making role in the acquisition of HH appliances.

23. All seven GAP activities and three out of four (75%) quantitative targets achieved. Hence, the implementation of the GAP is considered successful.

Appendix 9 49

GAP Achievements Matrix

Activity, Indicator, Target Achievement at Completion Assessment Activity 1: Gender review of energy sector programs and policies A report summarizing and showcasing gaps, opportunities, best practices and lessons learnt in gender mainstreaming in Sri Lanka.

ENERGIA prepared well-researched country-specific paper on the pro-poor and gender-related aspects of energy sector policies, strategies, programs, and practices. A national knowledge sharing workshop was conducted on 16 August 2013 to disseminate the findings. ENERGIA also did a comparative gender assessment of the energy sector policies of the three developing member countries (Sri Lanka, Bhutan and Nepal) and presented the results in a regional report.

Activity completed

Expansion of Rural Electrification and Distribution System Improvement

Activity 2: Increasing access to clean energy for rural communities.

1. Target. 12,190 rural households (target: 20% of serviced poor households headed by women) connected to electricity in 113 remote villages in Ampara district, 165 km of 33 kV distribution lines and 593 km of 0.4 kV distribution lines constructed in Eastern Province

• 11,772 houses connected including 3,642 poor households (or 31% of serviced households), 1,885 of which were headed by women (or 52% of poor serviced households).

Activity completed Target achieved

Activity 3: Women’s livelihoods enhanced through skills training

2. Target. Training for 750 local community members in the Ampara district [30% women] in TV, mobile phone repairs; HH equipment repairs; sewing machines; three-wheelers' repairs.

• Capacity building programmes were implemented – with a total of 774 participants (524 or 68% were women) -- in the following areas:

• Business development: This program included basic knowledge and skills on production and service provision; marketing; book keeping and financial management and business management. A total of 183 persons (137 women and 46 men) attended.

• Value addition in tailoring businesses: Seven batches of 3-day training program on “value addition and use of electricity in tailoring units” were held (4 in Tamil medium, 3 in Sinhala medium) at different locations in Ampara. The training included basic skills on operations, maintenance and simple repairs of sewing machines and their motors; and new designs, measurements and cutting related to ladies’ garments and dress making – with a total of 272 participants (266 women and 6 men).

• Assembly of LED bulbs: This included training on assembling LED bulbs and support for starting up and improving related businesses. In all, six 2-day training programs were conducted, covering 190 participants (150 men and 40 women).

• Fruit processing technologies: Two training programs on fruit processing were conducted, both residential three-day workshops. The total number of participants was 60 (including 23 men and 37 women).

• Farm management and dairy processing technologies: Two four-day training sessions (1 Tamil, 1 Sinhala) on cattle and cottage farm management and dairy processing technologies were held in National Livestock Development Board Farm Digana, Kandy. A total of 69 participants attended the program (25 men and 44 women).

Activity completed, Target achieved

50 Appendix 9

Activity, Indicator, Target Achievement at Completion Assessment Activity 4: Awareness raising on the safe and efficient use of energy for newly electrified HHs

3. Target. The strategy will include raising the awareness of newly electrified HHs (10,000 electricity users)3 on: (i) safe and efficient use of electricity [i.e., use of compact fluorescent lamp (CFL)]; (ii) energy-related livelihood opportunities; and (iii) energy consumption habits and patterns for HH tasks.

• In all, 135 programs were conducted covering all the 20 divisional secretariat areas of the Ampara district. A total of 11,426 electricity users (each representing a HH), out of whom 7,355 (64%) were women attended.

• All presentations were made in local languages (Sinhala and Tamil). Power point presentations and discussions were used extensively. Demonstrations were used on different types of bulbs.

• Among the 54 households surveyed who attended the awareness programme, the understanding on electricity saving methods was higher among women: 87% women were able to recall more than two electricity saving methods, while 13% didn’t respond.

• The data on the total situation suggests several key measures on which both genders pay attention to:

• Use of energy saving bulbs (CFL/LED) for saving household electricity consumption • Use of table fans instead of ceiling fans for cooling air • Reducing the frequency of ironing to once a week (instead of daily) • Opening of windows during nights (for cooling) • Switching off refrigerator during peak hours

• Women also mentioned several additional measures such as reducing the use of rice cookers, reducing the number of times the refrigerator is opened, reducing the use of electric items during hours.

Activity completed. Target achieved.

Energy Efficiency and Renewable Energy

Activity 5: Women trained as energy auditors 4. Target. Training of 90 energy auditors

(target: 30% women)

• Training of 91 energy auditors including 13 (14%) women which -as confirmed by SLSEA corresponds to 100% of eligible women at the time of the training.

Activity completed Target partially achieved

Monitoring and Evaluation

Activity 6: Gender mainstreamed PPMS system A gender mainstreamed PPMS template will be developed for the project to monitor (bi-yearly reporting) progress towards gender equality outcomes, targets and indicators.

ENERGIA prepared a project performance monitoring system (PPMS), and based on the indicators therein, they conducted the end-line surveys, which included an assessment of the achievement of the key performance indicators of the Grant. A case study report entitled, Sri Lankan Women Come Together in Producer Groups to Assemble LED Bulbs” was prepared and presented during the Subregional Conference on Going Beyond the Meter: Inclusive Energy Solutions in South Asia in Jaipur, Rajasthan, India in April 2016.

Activity completed

Activity 5: Pre or post implementation impact-based surveys and monitoring Baseline data will be generated to enable impact-oriented surveys and monitoring of: (i)

• Baseline survey conducted, and results were used as basis not only to assess the impact but also to validate or make realistic the GAP targets.

• The end-line survey had a total of 140: 80 enterprise development (covering all five types of training) trainees, of whom 57 or 71% were women and 60 who

Activity completed

3 In the original GAP, the target was estimated at 12,000. Being just an estimate, the target was reassessed by the Project and determined during the baseline

survey conducted in 2013 by Practical Action. Based on the results of this survey, the target was reduced to 10,000 electricity users, each representing a HH.

Appendix 9 51

Activity, Indicator, Target Achievement at Completion Assessment reduction in women’s time burden spent on HH chores; (ii) increase in women’s employment; and (iii) improved women’s health.

attended energy awareness programs, of whom 40 or 66% were women. The end-line survey results showed, among others, that the: (a) Time of women for HH chores (including child care) decreased from 11.3 to 8.9 hours per day (21%). For both women and men, time for income generating activities increased from 4.5 to 5.37 hours per day (19%), and time for leisure decreased from 1.94 to 1.71 hours per day (12%); (b) The percentage of HHs using fuelwood as primary source of energy also decreased from 99 to 85%; (c) Trainings on enterprise development activities helped women improve the quality of their products, especially in food processing and tailoring, increase market sales and monthly average income. The training on value addition in tailoring empowered women as they were able to make repairs on sewing machines themselves.

• 53% of the trained individuals started their own enterprises after the training; (c) The entrepreneurs surveyed reported a 28% increase in average production sold in the market and a 59% increase in the monthly average income; (d) Women have also acquired significant decision-making role in the acquisition of HH appliances.

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Women come together in producer groups to assemble LED bulbs

One of the interventions under the project was to train men and women assembling technologies such as LED bulbs

which have a good demand in the market and complementing this with enhancing the awareness of the communities

on ways to reduce expenditure electricity. The training included building the trainees’ understanding on electricity,

electronics and safety; energy efficiency and costing of domestic lighting options, and market opportunities and hands

on training on the assembly process.

Story 1: Husband supports wife’s bulb producers’ group

ChamilaJayanthi of the Rajawewa group, assembling a LED bulb

Chamila Jayanthi is a member of the producers group ‘Rajawewa’. Her husband Suranga has a small workshop, well equipped with meters and testing tools, that she and other group members can use. He is also helps to source raw material through his contacts to help Chamila’s group start the LED assembling enterprise. Suranga agreed to stock the group’s products at his sales outlet in the town, where electric appliances and stocks items like bulbs, plugs and wiring materials are repaired. For the Rajawewa group, this was a way to get initial capital to help them start up. Along with orders for his own shop, Suranga purchased raw material for the LED bulbs for the group; a convenient and reliable arrangement. The Rajawewa members affirm that forming a producer group has enabled them to include women who are less capable and in acute poverty. Chamila wants to have a formal registration to handle the complete process as a business enterprise. Group based operation is a replicable model that is being used to address issues pertaining to lack of capital and confidence. Women prefer to work in small groups that share the returns as also divide the risks. For them, a group based enterprise is more than an enterprise, it is a space for learning, sharing information and social networking as well.

54 Appendix 9

Women come together in producer groups to assemble LED bulbs

Story 2: Building Synergy

Uksiripura is a small, interior village in the Damana Divisional Secretariat Division. After attending LED bulb training in Damana in June 2013, the women formed a four-member group ‘Suhada Kantha Karya Sanvidanaya’ since none of them had any capital and unwilling to take loans individually. The women got together and collected LKR 200 from each. They work in a house that has some spare space. The group produces two bulbs per week and by following a round robin system, one woman takes the bulbs in that week. She keeps one bulb for the household if she needs and sell the other one or sells both. The returns are ploughed back as common capital for further production. Women enjoy the flexibility to work independently, and welcome other women in the community to come and learn the skill from them.

Women view working in small groups rather than individually as a risk mitigation strategy. It helps them learn from each other, pooling their capital expands enterprise opportunities. The round robin system that the women producer groups have adopted follows the seettu and Cheetuare traditional systems of savings and credit. The participants of the group contribute an agreed sum of money to a pool on a daily, weekly, two-weekly or monthly basis. The pooled amount is awarded to one member of the group at a time, either in an agreed order or by drawing lots. The system enables people who find it difficult to save to gain access to a lump sum of money which they would otherwise not be able to acquire. It offers the added advantage of accommodating members with differential capabilities: the ones with less confidence look at it as an opportunity to build their skills and gain experience. Producer groups also help to reduce the vulnerability to market competition. In group operation, building leadership skills and support on financing, enterprise development, and market linkage is as important as technical skills.

Appendix 10 55

TECHNICAL ASSISTANCE COMPLETION REPORT

TA No., Country and Name Amount Approved: $1,850,000

TA 7778-SRI: Implementation of Energy Efficiency Policy Initiatives Revised Amount: $1,850,000

Executing Agency Ministry of Power and Energy

Source of Funding Asian Clean Energy Fund

Amount Undisbursed: $359,076

Amount Utilized: $1,490,924

TA Approval Date: 27 January 2011

TA Signing Date: 3 March 2011

Fielding of First Consultants: 15 June 2011

TA Completion Date Original: 30 April 2013

Actual: 30 October 2014

Account Closing Date Original: 30 April 2013

Actual: 26 January 2015

Description Asian Development Bank's (ADB) Country Operations Business Plan (2010-2012) for Sri Lanka envisaged financing of a Sustainable Power Sector Support Project. Based on discussions with the Government of Sri Lanka (GOSL) and project preparatory studies, an associated technical assistance (TA) has been processed to enhance an expected project impact. The TA supports implementation of key energy efficiency initiatives of the GOSL and Sustainable Energy Authority (SEA) of Sri Lanka and complements energy efficiency and renewable energy component of the investment project. The SEA, an implementing agency, is a government body with responsibility for developing and implementing energy efficiency and renewable energy policy and initiatives in Sri Lanka. In exercising this responsibility, the SEA has developed mandatory efficiency measures for domestic and commercial energy use to be implemented through regulations to the Sri Lanka Sustainable Energy Authority Act No. 35 of 2007. The current and proposed regulations will (i) compel appliance manufacturers and importers to comply with minimum energy efficiency performance standards and energy efficiency product labeling requirements, (ii) place obligations upon large commercial, industrial and government energy users to actively monitor and report energy use and develop and implement energy efficiency programs. While these regulations are either in place or planned, significant work is required to achieve effective implementation. The SEA is also responsible for the identification and promotion of new energy efficiency initiatives and the development of energy efficiency policy. The purpose of the TA is to (i) provide implementation assistance to develop local expertise and infrastructure for the effective implementation of nominated SEA energy efficiency programs, and (ii) conduct field trials and evaluations of energy efficient lighting technology necessary to develop technical guidelines for future energy efficient lighting promotions, initiatives and interventions by the government, development partners and private sector.

Expected Impact, Outcome and Outputs The expected impact of the TA was sustainable, cleaner and reliable power supply, improved business productivity and quality of life through minimized energy use by businesses and households. Implementation of energy efficiency measures supported by this TA resulted in improvements in the efficiency of electrical energy use producing multiple impacts through reduction in the requirement for new generation and transmission capacity, avoided transmission and distribution losses, reduction in Green House Gas emissions and economic benefits from improved utilization of resources. The anticipated outcome of the TA was increased energy efficiency of household, industrial and commercial sector energy use through the effective implementation of key SEA program initiatives. It was estimated that when fully implemented these initiatives will result in energy savings of approximately 460 gigawatt-hour and, thus, in about 354,000 metric tons of carbon dioxide emissions equivalent avoided per year. Specific outputs expected from the TA were the following: (i) establishment of certified appliance testing laboratories for lighting, ventilation, air conditioning and refrigeration products and appliances, (ii) design guidelines and recommended products for energy efficient domestic lighting based on results of lighting device field trials and study, (iii) strategy report and draft policy for the maximum use of energy efficiency lighting in Sri Lanka, and (iv) training of energy auditors.

Delivery of Inputs and Conduct of Activities Consultants were recruited according to the Guidelines on the Use of Consultants by ADB and its Borrowers. The original terms of reference (TORs) were adequately formulated to ensure achievement of the TA outputs. Total number of requirement for consulting services was 17 person-months for international consultants, and 53 person-months for national consultants. A consulting firm (International Institute for Energy Conservation – Asia, Thailand in association with Energy Solve International (Pvt) Ltd., Sri Lanka) was engaged for undertaking study, surveys and lighting trials for Efficient Lighting Solutions for Households and Policy Study on Efficient Lighting Systems. Various individual experts with experience in (i) establishing certified laboratory facilities for the testing and certification of cooling, ventilation, and lighting equipment, (ii) energy efficient lighting, (iii) energy efficiency and demand side management, (iv) project management, (v) lighting policy and strategy, and (vi) energy auditing were also engaged. The consultants' activities were carried out in close coordination with the Ministry of Power and Energy (MOPE), an executing agency, and SEA. The consultants performed their tasks in accordance with the TORs. The performance of the consultants was rated

56 Appendix 10

satisfactory, with performance of some individual consultants rated excellent. There were no major issues during the TA implementation, and all inputs and activities were implemented as planned. TA completion date was extended from 30 April 2013 to 30 October 2014 to (i) accommodate for initial delays in design, manufacturing, delivery and installation of an energy efficiency testing laboratory for refrigeration appliances, (ii) accommodate the monitoring period prior to the conduct of the required post-installation survey for energy efficient lighting devices, (iii) complete energy auditors training and specialized training on lighting standards and laboratory procedures, and (iv) complete all payments under the TA. The SEA provided inputs in terms of an office space and counterpart staff. Overall, the performance of the executing and implementing agencies was generally satisfactory. ADB closely supervised the TA activities and outputs through regular communication with consultants, tripartite meetings and review missions, at times combined with other project and TA related missions to Sri Lanka, to asses TA progress and resolve implementation issues. ADB staff actively facilitated TA activities, coordinated consultants' field visits, monitored their outputs and provided guidance in the preparation of TA reports. The overall performance of ADB was satisfactory.

Evaluation of Outputs and Achievement of Outcome The TA outputs generally met the targets and were of a satisfactory quality to the clients. These included: (i) The lighting testing laboratory and energy efficiency testing laboratory for refrigeration appliances have been established and are operational. The activities included preparation of laboratory equipment specifications and testing standards; procurement, installation, testing and commissioning of the specialized state-of-the art equipment; and specialized training by suppliers on the use of equipment. Relevant labelling regulations are operational. (ii) Design guidelines and recommended products for energy efficient domestic lighting were based on results of lighting device field trials and study The base line household survey and monitored field trials to determine the most appropriate lighting configurations for urban and rural households in terms of target lighting levels, lamp type and luminaire design, lamp sizing and placement were conducted, including retrofitting surveyed households. Upon completion of retrofitting, the post installation surveys were undertaken. Based on the field trials and study, the guidelines were designed and energy efficient products recommended that were acceptable to the government. (iii) Strategy report and implementation plan on energy efficient lighting were developed. The strategy report on energy efficient lighting was discussed with stakeholders, disclosed for consultation and then finalized. (iv) Training programs for energy auditors were delivered. As part of this output, course syllabus and training materials were developed. As a result, Energy Auditor Manual (4 volumes), covering Approach to Energy Auditing, Electricity Supply and Use, Air Conditioning and Lighting, and Thermal Energy Systems, has been prepared by consultants and published. Three training sessions, including theoretical and practical training at industrial enterprises, for energy auditors covering 90 participants have been conducted in November 2012, March and July 2013. Each participant was provided the Energy Audit Manual. Specialized energy efficiency measurement equipment and tools have been procured, used during the training sessions and subsequently transferred to the implementing agency for the use by certified energy auditors. The following design guidelines, strategy and knowledge products were developed: (i) Lighting Application Guidelines for Residential Sector; (ii) Lighting Tips for Homes; (iii) Lamp Waste Management Strategy and Action Plan for Sri Lanka; (iv) Development of Energy Efficient Lighting Policy for the Residential Sector; and (iv) Energy Auditor Manual (published in 2013). All the above outputs effectively contributed to the expected TA outcome being generally achieved.

Overall Assessment and Rating Despite some delays, the TA's overall implementation rating is successful as the TA’s major outputs are met and the assigned tasks under the TORs are implemented. The TA was relevant, effective and efficient in achieving outputs and outcome. The TA outcome is likely to be sustainable.

Major Lessons The GOSL is highly interested in promoting energy efficiency and sustainable energy development. There is a need for a strong commitment from the GOSL in pursuing further energy efficiency programs, improving relevant regulatory framework, raising energy efficiency awareness among the public, and community involvement. Continuation of efforts through new TAs and investment activities in energy efficiency development is essential.

Recommendations and Follow-Up Actions Further assistance to the government through a number of relevant institutional capacity building TA and investment project interventions and further follow up actions on implementation of TA recommendations are needed to ensure that the impacts of the TA are sustainable. ADB currently provides a follow-up regional technical assistance Asia Energy Efficiency Accelerator,1 which covers interventions in Sri Lanka, to further strengthen capacity for demand-side energy efficiency activities.

Prepared by: Mukhtor Khamudkhanov Designation: Principal Energy Specialist

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

1 ADB. 2013. Regional Technical Assistance for Asia Energy Efficiency Accelerator. Manila (TA 8483-REG).