Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 389lb-CE

STAFF APPRAISAL REPORT

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

May 20, 1982

Regional Projects DepartmentSouth Asia Projects

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

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SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

CURRENCY EQUIVALENTS

US$1.00 = SL Rs 20.5SL Rs 1.00 = US$0.049

MEASURES AND EQUIVALENT

1 kilometer (km) = 0.6214 mile1 kilovolt (kV) = 1,000 volts1 megavolt ampere (MVA) = 1 million volt amperes

= 1,000 kilovolt amperes1 megawatt (MW) = I million watts

1,000 kilowatts1 kilowatt hour (kWh) = 1,000 watt hours1 gigawatt hour (GWh) = 1 million kilowatt hours

ABBREVIATIONS AND ACRONYMS

ADB - Asian Development Bank

CEB - Ceylon Electricity BoardCPC - Ceylon Petroleum CorporationDGEU - Department of Government Electrical UndertakingsGSL - Government of Sri LankaGTZ - German Agency for Technical CooperationLRMC - Long-Run Marginal Cost

MPE - Ministry of Power and EnergyMASL - Mahaweli Authority of Sri LankaPPAR - Project Performance Audit ReportUSAID - United States Agency for International Development.

FISCAL YEARJ

January 1 - December 31

FOR OFFICIAL USE ONLY

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. THE ENERGY AND POWER SECTOR ................................. I

A. Energy Resources ........................................ 1Hydro Power .......................................... 1Traditional Fuels .................................... IPetroleum ............................................ 2

B. The Power Subsector ..................................... 3Sector Organization .................................. 3External Assistance .................................. 3

Existing Facilities .................................. 5Development Program .................................. 5Access to Service and Status of Supply ............... 7Plant Maintenance .................................... 7

Rural Electrification ................................ 8System Losses ........................................ 8

Historical Consumption ............................... 9Load Forecast ........................................ 10

II. THE BORROWER AND IMPLEMENTING AGENCY ...................... 12

Lending Arrangements ...................................... 12

Organization .............................................. 12Management and Staffing ................................... 13

Management Systems ........................................ 14Training .................................................. 14

Local Authority Distribution Systems ...................... 15Audit ..................................................... 15Insurance ................................................. 15

This report is based on the findings of an IDA mission comprising B.C. Davis,

K.G. Jechoutek and J.C. Ryan, who visited Colombo in January 1982 and uponStaff Appraisal Report 3399a-CE: Seventh (Mahaweli Transmission) PowerProject dated January 21, 1982.

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

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Table of Contents (Cont'd)

Page No.

III. THE PROJECT ....... .............. .. ........................ 16

Objective ........ ............. .. ......................... 16Fuel Supply ....................... ........................ 16Description .......................... ..................... 16

Engineering, Implementation and Procurement ....... ........ 17Project Cost ....................... ....................... 18Project Financing Plan ................ .. .................. 18

Disbursements ....... ............. .. ....................... 19Land Acquisition ....................... 19Risks ............................. ........................ 19

IV. FINANCIAL ANALYSIS ......................................... 19

CEBs Statutory Position ............... .. .................. 19Past Financial Performance .............. .. ................. 20Present Financial Position .............. .. ................. 22Billing and Collection ............... . . .. ................... 23Revenues, Tariffs and Marginal Cost ..................... 25

Transfer of Assets from the MASL ........... .. .............. 27Financing Plan (FYs 1982-85) ............. .. ................ 27Future Finances ....... ............. .. . ...................... 29

V. JUSTIFICATION ....... .............. .. ....................... 31

Background ........................ ......................... 31Least Cost Solution ...... ............ .. .................... 31Power Balances ..................... ....................... 32Energy Balances ....... ............. .. ...................... 33

Economic Rate of Return .... 34

VI. AGREEMENTS REACHED AND RECOMMENDATION ........ .. ........... 35

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Tables of Contents (Cont-d)

Page No.

ANNEXES

1. Power and Energy Balances (through 1990) .... ............ 362. Generating Facilities ................................... 373. Existing Transmission and Distribution Systems .... ...... 384. Kelanitissa Steam Power Station Overhaul Program .... .... 415. Load Forecast (through 1990) ............................ 426. Organization Chart ...................................... 437. Reporting Requirements .................................. 44

8. Thermal Generation Costs ................................ 459. Construction Schedule ................................... 49

10. Schedule of Estimated Disbursements ..................... 5011. Income Statement (FY1976 through FY1980) .... ............ 5112. Tariff Structure ........................................ 5213. Income Statement (FY1979 through FY1988) .... ............ 57

14. Flow of Funds Statement (FY1979 through FY1988) .... ..... 5815. Balance Sheets (FY1979 through FY1988) .... .............. 59

16. Power Sector Investment Program (FY1981 through FY1990) . 6017. Assumptions for Financial Projections .... ............... 6118. Economic Rate of Return ................................. 65

MAP

IBRD 16386

SRI LANKA

STAFF APPRAISAL REPORT

EIGHTH (DIESEL) POWER PROJECT

I. THE ENERGY AND POWER SECTOR

A. Energy Resources

1.01 Sri Lanka in 1981 had a population of 14.9 million and a grossnational product of $250 per capita. Energy consumed in 1980 amounted toabout 3.7 million toel/, of which 60% was provided by fuelwood, 13% byhydropower and 27% by imported oil. The country has no known reserves ofcoal, oil or natural gas, and its small deposits of peat are not significant.An Energy Assessment mission from the Bank visited Sri Lanka in June 1981 andits report will be published shortly.

Hydro Power

1.03 Sri Lanka has an area of 25,332 square miles. Most of itsprecipitation comes from the Southwest monsoon from about May to Septemberand from the Northeast monsoon from about December to March. Annual averagerainfall varies from less than 40 inches in some northern parts of the islandto more than 200 inches in places on the southwest slopes of the hills.Hydro power potential totals about 6,600 GWh (1.7 million toe2/) per annum,or 2,500 MW at 30% load factor, mainly in three basins centered on thecentral highlands. They are the Mahaweli Basin in central Sri Lanka, theWalawe Basin to the south, and the Kehelgamu-Maskeliya Basin to thesouthwest. Some hydro power has already been developed in each of thesebasins.

1.04 Installed hydro generating capacity totals 369 MW out of a totalinstalled capacity of 559 MW. Six more hydro stations are planned to bringthe total hydro installed to about 1,100 MW by 1990. The present yield offirm energy is about 1,500 GWh per year; projected additions will increasethis to about 3,240 GWh by 1990 (Annexes 1 and 2).

Traditional Fuels

1.05 Wood is the most widely used fuel. From such statistics as are

available it appears that annual consumption of wood from the forests isbetween 3.8 and 5.4 million tons per year (1.5 - 2.2 million toe). To thismust be added 0.3 million tons per year (0.1 million toe) of fuelwood fromrubber and coconut plantations.

1/ toe = tonne oil equivalent = 10.2 x 106 kcal

2/ Primary equivalent based on 0.25 kgoe/kWh = 10,500 BTU/kWh= 2,646 kcal/kWh

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Petroleum

1.06 Exploration is taking place. Sri Lanka was recently classified ashaving favourable geological prospects for potential oil or gas discoveries,but the chances of substantial finds are thought to be slight.

1.07 Ceylon Petroleum Corporation (CPC), a statutory corporation, is thesole importer and refiner; its refinery near Colombo has a capacity of 2.35 Mtonnes per year. The refinery does not produce enough kerosene or dieselfuel to satisfy local demand and the deficits are imported. Kerosene is soldon the local market at a price lower than either the cost of importing it orof producing it locally. Furnace oil, a blend of residual and distillateused among other purposes to fuel CEB's steam power station, is produced byCPC in greater quantity than the local market can absorb and the surplus isexported. Gasoline is sold at a high price to help offset the cost ofsubsidizing kerosene.l/

1.08 Data from CPC given in Table 1.1 indicate that refined imports havebeen rising rapidly in recent years to meet increasing demand for keroseneand diesel fuel.

Table 1.1: CONSUMPTION OF PETROLEUM PRODUCTS

(Tonnes OOO's)

1973 1974 1975 1976 1977 1978 1979 1980

Crude imported 1,753 1,526 1,465 1,447 1,530 1,444 1,444 1,861Refined imports 33 20 6 20 78 168 312 102Exports 770 555 630 655 682 576 608 731Consumption 1,016 991 841 812 926 1,036 1,148 1,232Value of consumption

US$ million atcurrent prices 23 81 68 73 93 105 172 295

1/ Prices in effect on June 2, 1981 were:

Kerosene 17.68 Rs/IG Furnace Oil 19.50 Rs/IGAuto diesel 27.00 Rs/IG Gasoline 45.50 Rs/IGHeavy Diesel 25.80 Rs/IG

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B. The Power Subsector

Sector Organization

1.09 Sri Lanka's first public electricity supply was made available inColombo in 1895 by Messrs Boustead Bros. The business was soon taken overby United Planters Co., who extended it and in 1899 built the Colomboelectric tramways. In 1902, the Colombo Electric Tramways and Lighting Co.Ltd. was formed and provided electricity supply until 1927 when theDepartment of Government Electrical Undertakings (DGEU) was established tocontrol the utility, which had by then been purchased by the Government.DGEU was succeeded in 1969 when the Ceylon Electricity Board (CEB), astatutory corporation, was established with responsibility for thegeneration, transmission and distribution of electricity. CEB supplies powerdirect to consumers and also sells in bulk to local authorities who retail totheir own consumers. The Ministry of Power and Energy is responsible forsupervision of CEB's policies.

1.10 CEB has in the past been responsible for the development ofgenerating capacity and is now building the Canyon (60 MW) hydro station.For the next several years hydro generating capacity will be developed by the

Mahaweli Authority of Sri Lanka (MASL), an agency established under theMinistry of Mahaweli Development, having responsibility for theimplementation of the Accelerated Mahaweli Program. As they are completed,the Mahaweli generating facilities will be transferred to CEB for operation.During the next ten years some 580 MW of additional hydro capacity will bedeveloped in this way at Victoria, Kotmale, Randenigala and Rantembe (Annex1).

External Assistance

1.11 Sri Lanka has in the past obtained external financal assistance

towards the foreign exchange costs of its development program. The BankGroup has made available for power developments the following loans andcredits, totalling US$148.9 million:

(a) Loan 101-CE (US$15.9 million) to GSL in 1954 to help finance

the 25 MW expansion of the Laksapana hydroelectric scheme.

(b) Loan 209-CE (US$7.4 million) to GSL in 1958 to help financeconstruction of a 25 MW thermal plant at Kelanitissa, Colombo.

(c) Loan 283-CE (US$14.1 million) to GSL in 1961 to help finance a25 MW expansion at Kelanitissa.

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(d) Loan 636-CE (US$21.0 million) to CEBl/ in 1969 to help finance

the 90 MW Maskeliya Oya Stage II project, a 25 MW gas turbine,and management consultancy and engineering services. US$4.5

million of this loan was cancelled when the gas turbine was notpurchased.

(e) Credit 372-CE (US$ 6.0 million) to GSL in 1973 for reinforcement

and extension of CEB's transmission and distribution systems.

(f) Credit 1048-CE (US$ 19.5 million) to GSL in 1980 for the SixthPower Project to provide further reinforcement and improvementof CEB's transmission and distribution systems.

(g) Credit 1210-CE (US$36.0 million) to GSL in 1981 for the SeventhPower Project, to finance 220 kV transmission lines from the

Mahaweli hydro stations to Colombo and to provide further

reinforcement of CEB-s existing transmission systems.

(h) Further, the Bank Group made available Loan 653-CE/Credit 174-CE

(US$29.0 million) to GSL in 1969 for the multi-purpose(irrigation and power) Mahaweli Ganga Development of which the

38 MW Ukuwela power station formed a part.

1.12 Six projects have been completed satisfactorily, that under Credit

1048-CE is in progress, whilst the Seventh Power Project (Credit 1210-CE)

is just starting. Project Performance Audit Reports (PPAR) have beenprepared for three of the above projects. That for Loan 653-CE/Credit

174-CE, which was for both irrigation and electricity, concluded that

although implementation was seriously delayed, the agricultural and power

benefits turned out to be much greater than expected at appraisal; the

benefit of power generated was much increased by the rise in petroleum prices

in 1973 and afterwards. The PPAR report on Loan 636-CE, for the 90 MW New

Laksapana hydro station, concluded that the project had been well conceived

and constructed; it was built at low cost, and its timing was fortunate in

that it was almost complete at the time of the 1973 oil crisis. A

significant institutional advance under Loan 636-CE was the establishment of

CEB as a public corporation, replacing the Department of Government

Electrical Undertakings. Despite a promising start, CEB did not develop aswell as expected and both the Sixth (Credit 1048) and the Seventh (Credit

1210-CE) projects seek to promote significant advances in CEB's management.

The PPAR report dealing with Credit 372-CE concluded that the project met its

major objectives; the extensions to the transmission and distribution system

built under it, though completed late, enabled full use to be made of the

Ukuwela and New Laksapana hydro stations.

1/ CEB was established in June 1969.

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1.13 The Sixth Power Project is about a year behind schedule.Effectiveness of Credit 1048-CE was postponed about 6 months because of a

delay in arranging cofinancing, and further delays arose owing to thecomplexities of making procurement decisions, and because of changes ofsenior staff in CEB. CEB has agreed to take action to ensure quickerprocurement and to avoid such delays in future. The Seventh (Mahaweli

Transmission) Power Project was approved by the Board on February 23, 1982,

and is expected to become effective shortly.

1.14 CEB's management shortcomings were noted in appraisal of previouspower project and in the PPAR report on the Fifth Power Project. A review of

CEB's managerial performance and methods, financed under Credit 1048-CE, hasbeen carried out by consultants, and action is being taken to restoremanagement systems, provide support to senior management, and implementcomprehensive training programs for all types of staff (paras 2.09-2.11).

1.15 The Asian Development Bank (ADB) has provided finance forconstruction of the Bowatenne and Canyon hydro stations and for ruralelectrification. GSL has arranged bilateral financing of hydro generationcomponents of the Mahaweli program as follows: - Sweden (Kotmale), U.K.

(Victoria) and the Federal Republic of Germany (Randenigala). Constructionof the Samanalawewa hydro development has been postponed until the early1990's.

Existing Facilities

1.16 CEB's existing generating, transmission and distribution facilitiesare described in Annexes 2 and 3. CEB's present installed capacity is 559

MW, all interconnected on one system. In addition there are privately owned

generating stations, most of them less than 500 kW but ranging as large as

5.75 MW in CPC's refinery at Sapugaskande and 6 MW at the urea factory. Thetransmission and distribution system comprises 569 miles of 132 kV line with17 substations, 214 miles of 66 kV lines with 9 substations, about 3,250miles of 33 kV, and about 750 miles of 11 kV lines. The system control andload dispatching centre is at Kolonnawa, and all important plants and

switching centers can communicate by means of power line carrier.

Development Program

1.17 Of recent years detailed planning has not usually extended more than

four or five years ahead, but in mid 1981 CEB prepared a detailed developmentplan to meet its generation requirements over the next 15 years. The planhas not yet been officially adopted by GSL. The proposed hydro program showsadditions to the end of this decade bringing the installed capacity to about

950 MW with a firm energy capacity of 3,170 GWh. In the first four years ofthe next decade, additions to hydro capacity of 1,000 MW and 2,000 GWh are

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proposed. To complement the hydro, some hundreds of megawatts of thermalplant will be needed between 1985 and 1994.

1.18 During the negotiation of the Seventh Project it was agreed thatsteps would be taken to put CEB-s planning on a workable footing. The newGeneral Manager should make planning a matter of high priority for hispersonal attention. A corporate planning department should be formed to plan

generation and transmission and their associated capital expenditures. Thesame group should play a leading role in the preparation of one year and five

year operational budgets and capital budgets. The group would be required toproduce, by the end of 1982, a comprehensive development plan for generation,transmission and distribution. The plan would extend 15 years ahead andwould be reviewed and updated annually. The assurance giveni by CEB underCredit 1210-CE to submit such a plan, endorsed by GSL. to IDA by December 31each year from 1982, was repeated under the proposed project.

1.19 CEB requires an effective planning unit to pursue a number ofpressing problems, including:

(a) the immediate addition of the proposed 80 MW diesel powerstation, which is necessary if energy shortages in 1984and 1985 are to be minimized (Annex 1).

(b) the timely commissioning of Victoria: in particular theimpounding of the 1984 monsoon rains is of primary importanceand CEB must make every effort to avoid delay.

(c) the energy shortages likely in 1982, 83 and 84: programs tominimize their impact, by means of economies and demandmanagement, have to be worked out in advance.

(d) the need for one or two coal fired generating stationstoward the end of the present decade: sites need to beselected and secured very soon.

1.20 In order to optimize the management and operation of the Mahaweli

resource, as well as the planning of future construction, it is expected thatCEB and MASL will cooperate closely, perhaps forming a joint planning unit.An immediate planning requirement is an exhaustive hydro identification andranking study. CEB has requested GSL to have this performed and financed by

the German Agency for Technical Cooperation (GTZ), who have done similarservice to other countries. The planning unit will establish and maintainits mathematical models and computer programs in Colombo, so that forecastsand plans can be updated as needed, and suggested changes from any quartercan be readily and fully evaluated. Services required to assist CEB inestablishing its planning department will be funded from Credit 1048-CE.

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Access to Service and Status of Supply

1.21 The total energy generated by CEB's power stations in 1980 was 1,668GWh, about 89% of it hydro. CEB supplied about 208,000 consumers, including218 local authorities who distributed electricity to another 226,000consumers, making the total number of consumers about 434,000. Of these,about 333,000 were domestic. This suggests that at present only about onehousehold in eight has an electricity connection. Rural electrification hasbeen extended to over 2,000 of a total 25,000 villages (para 1.27), butelectricity consumption per head was less than 100 kWh in 1980. The majorityof households use firewood for cooking and kerosene for lighting.

1.22 The Bowatenne hydro station was commissioned in 1981 and Canyon isscheduled to be commissioned in 1982. Victoria and Kotmale are to come online in 1984 and 1985. To prevent shortages of capacity and energy beforethe new hydro becomes available it was necessary to install additionalthermal plant. Three 20 MW gas turbines were installed in late 1980 andearly 1981. A second group of three 20 MW gas turbines was installed in1981/82.

1.23 Further generation will be needed in addition to the six gas turbinesto supply the forecast energy needed in 1984, 85 and 86, and it is intendedthat this will be provided by the project.

1.24 In the months of May through August 1980 there was load shedding tothe extent of about 50 GWh (about 3.5% of annual sales), made necessary bylower than average rainfall, poor availability of steam units, and thebreakdown of one hydro unit at New Laksapana. Only one of the gas turbineswas in service before the end of 1980 because of ordering and constructiondelays. CEB entered 1981 with its hydro reservoirs only 2/3 full, and loadshedding was again inevitable. It was started in February and continued intoJune, with the loss of an estimated 69 GWh of sales. Toward the end of theperiod, supplies to the general public were off for 8 hours per day, and 16major public corporations were shut down to husband the little waterremaining in the reservoirs.

Plant Maintenance

1.25 The maintenance of CEB's transmission and distribution system hasbeen adequate although unsystematic. Less satisfactory are the distributionlines of some of the local authorities, where for many years only the barestmaintenance has been done and more consumers have continually been added toexisting lines so that voltages at peak times are well below acceptablelevels. The largest of the local authority undertakings, Mt. Lavinia, nearColombo, with about 14,000 consumers and serving a population of about

250,000, was taken over by CEB in 1979.

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1.26 Maintenance of CEB's generating stations was done reasonably wellin the past, but has deteriorated in recent years. Adequate systems exist

for keeping plant history and maintenance records but in many stations theyare not kept up to date. There is no planned maintenance schedule for eachstation to permit management to check easily that all items of plant are

provided for and have duly been serviced. These deficiencies were

particularly evident at the Kelanitissa steam plant, but efforts are now

being made to restore this station to a reasonable level of reliability. Asatisfactory overhaul program for the plant has been prepared and is set outin Annex 4.

Rural Electrification

1.27 The first rural electrification schemes were undertaken in the early

1960s. Sri Lanka has about 25,000 villages and CEB had provided service to

about 2,000 of them by the end of 1979. Some of the local authorities whobuy in bulk from CEB have extended their lines into nearby villages, addingto the extent of rural electrification. By the end of 1984, an additional

1,150 villages will be connected under a Rural Electrification projectfinanced by ADB and GSL at a total cost of US$ 31.8 million.

1.28 The ADB project is expected to introduce some significantimprovements in the handling of rural electrification:

(a) the rural electrification force in CEB will be expanded and

empowered to scrutinize and monitor the formulation andimplementation of all new schemes and to implement the

ADB Project. CEB has agreed to appoint a Project Managerfor rural electrification and to establish a Load Promotionand Monitoring Unit;

(b) economic analysis and discounted cash flow calculations will

be employed in the feasibility analysis of rural schemes;

(c) CEB will arrange installment financing of house wiring and

connection charges.

System Losses

1.29 Before 1976, energy losses on CEB's system were less than 12%, but

they have since been rising and are currently reported in excess of 16%.

Moreover, these figures do not include losses in the retail operations of

the local authorities, who buy in bulk about 25% of the energy sold by CEBand distribute it at low efficiency. Analysis suggests that an acceptable

level for overall losses would be about 13% of gross generation. In future,substantial blocks of energy will have to be generated thermally every year

making better control of losses even more important. CEB willestablish a cell within the planning group to monitor and control losses with

funds provided under the Seventh project.

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Historical Consumption

1.30 Growth in consumption of electrical energy over the period 1961 to1980 has averaged 9.5% p.a., ranging from 17.8% in 1966 to 3.3% in 1974.From 1972 to 1977 there was a period of weaker growth, but it appears that arate higher than the long term trend is now being established.

1.31 The short and long term annual growth rates for each class ofconsumer are summarized in Table 1.2. Energy sales since 1961 are analyzedin Table 1.3.

Table 1.2: ANNUAL GROWTH IN ENERGY DEMAND

LocalDomestic Industrial Commercial Authorities Total

% % % % %

1961-801/ 8.8 11.2 7.8 8.6 9.5

1961-65 3.6 14.5 3.8 7.4 8.71965-70 6.5 18.3 6.2 10.7 13.01970-75 7.6 8.7 8.1 5.9 7.81975-80 16.9 4.5 12.4 10.3 8.4

1977-78 11.2 13.9 7.9 8.6 11.41978-79 28.6 7.0 24.5 7.6 11.81979-80 30.1 3.0 14.8 17.0 11.4

Table 1.3: ENERGY SALES BY CATEGORY

1961 1965 1970 1975 1978 1979 1980% % 7.% 7- 7

Domestic 15.5 12.8 9.5 9.4 10.3 11.9 13.8Industrial 33.3 41.1 51.8 53.9 50.7 48.5 44.9Commercial 21.7 18.0 13.3 13.5 14.0 15.6 16.1Local Authorities 29.5 28.1 25.4 23.2 25.0 24.0 25.2

100.0 100.0 100.0 100.0 100.0 100.0 100.0

1/ 1980 sales are as estimated without load shedding.

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Load Forecast

1.32 CEB compiles an annual energy sales forecast from forecasts of theconsumption of each class of consumer within each of CEB's geographicaldivisions. In so doing, historical trends are considered for each of the 23areas which together make up the divisions. Due weight is given to knownprospective loads such as housing schemes, industrial parks, commercialareas, individual industries, commercial properties, and ruralelectrification schemes. For longer term forecasting, correlation andregression analyses are used. All consumers are divided into threecategories, and growth rates are related to gross domestic product, to valueadded in mining and manufacturing and export processing, and to population.To accommodate deviations from the trend, upper and lower limit estimates aremade.

1.33 CEB's power and energy forecast of August 1981 is summarized in Table1.4 and is shown in greater detail in Annex 5.

Table 1.4: ENERGY AND POWER DEMAND FORECAST

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Energy Sales GWh 1446 1795 2001 2196 2451 2816 3101 3364 3662 3987 4342Increase % 11.4 24.1 11.5 9.7 11.6 14.9 10.1 8.5 8.9 8.9 8.9Generation GWh 1728 2112 2354 2584 2884 3313 3648 3958 4308 4691 5108Peak Demand MW 382 447 498 546 610 698 769 834 908 989 1077

The energy sales figure for 1980 is an estimate of what consumptionin that year would have been if there had been no load shedding (the actualwas 1396 GWh), and this is used as the base for the forward projections.Because of load shedding in 1981 the actual figure for 1981 will be less thanthat shown, by an estimated 69 GWh. The figures do not provide for supplyingan extension to the Ceylon Cement Corporation-s factory, which will installits own generation to supply about 90 GWh per year. The large increase from1980 to 1981 and the strong growth forecast for the following four years aresupported by evidence of contracts signed and construction in progress.

1.34 The heavy load shedding experienced in 1980 and 1981 may haverepercussions on some of the planned enterprises included in the forecast.Some slippage in the construction, commissioning and building up to fullscale operation of new industrial and commercial ventures can be expected.CEB and GSL may be expected to try to reduce demand by promoting energysavings in the operations of Government industries and the private sector, byraising tariff demand charges and even by shutting down uneconomic operationsin critical periods. These and other measures may cause growth in demand tolag behind CEB-s projections. For purposes of generation and transmissionplanning, however, CEB's forecast is appropriate.

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1.35 The growth of sales by class of consumer is summarized in Table 1.5.It is forecast that growth in domestic consumption will be depressed by therecent increases in tariff and by the fuel surcharge, and will fall from itsvery high rates of recent years back to about 11% for the remainder of the

decade. Similarly, the rate of growth in consumption by local authorities,whose consumers are mainly domestic and commercial, is expected to besomewhat less than in recent years, and is taken to be about 10%.

1.36 Small and medium industries, defined as taking less than 1,000 kVA,are projected to have an underlying growth from 1980 to 1984 of 6%, to whichis added the Greater Colombo Economic Commission's forecast for each year;for 1985 and thereafter 8% growth is used. Consumption by large industriesis forecast to increase by 13.9% per year on average up to 1985. This isexplained mainly by the considerable number of projects expected to come tofruition in 1981-83. The underlying growth for the period 1980-83 was takenas 4% p.a., and after 1983, 8% was applied.

1.37 Commercial consumption is forecast to continue to grow rapidly in theyears up to 1986, as it has in the recent past. Up to 1986 an underlyinggrowth rate of 11% is expected, and to this is added the individual

consumptions of the expanded airport at Katunayake, the substantial loadsto be fed at the Urban Development Authority's developments in Colombo, and

the new Parliamentary complex at Kotte. After 1987 a rate of 10% isestimated for all commercial consumers taken together.

Table 1.5: AVERAGE ANNUAL GROWTH OF ENERGY SALES

Actual Forecast1977-80 1980-85 1985-90

Domestic 23.0 11.0 11.4Small and Medium Industry 7.6 13.2 8.0Large Industry 8.2 13.9 8.0Commercial 15.6 21.0 9.3Local Authorities 11.0 9.8 9.8Railways - - 5.7

All Classes 11.5 14.3 9.0

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II. THE BORROWER AND IMPLEMENTING AGENCY

Lending Arrangements

2.01 CEB will be the borrower of the proposed loan (US$42.7 millionequivalent) and will be responsible for implementing the project (para 4.19).

Organization

2.02 CEB was established by the CEB Act, No. 17 of 1969 (1969 CEB Act)as the successor to the Department of Government Electrical Undertakings(DGEU) and is responsible for the development and coordination of thegeneration, supply and distribution of electrical energy in Sri Lanka. WhileCEB is a public corporation the 1969 CEB Act does not endow it with fullyautonomous powers and the government has reserved to itself a substantialrole in important policy matters and in particular tariffs, capitalinvestment, borrowing and the appointment of the Chairman and the GeneralManager. The conditions of service of all CEB staff are subject to GSLregulation. CEB is also subject to the provisions of the Finance Act, No.38 of 1971 (1971 Finance Act) which regulates the finances of all publiccorporations in Sri Lanka.

2.03 CEB is a corporate body governed by a seven-member Board; membersserve a five-year term and may be reappointed. Board members are appointedby GSL - four with experience in either engineering, commerce, administrationor accountancy, and the others representing local authorities, industry andthe Ministry of Finance - and may be removed at any time. The Chairman isappointed from amongst the Board members. The present Chairman is also theSecretary, Ministry of Power and Energy.

2.04 CEB-s organization structure was designed by consultants, UrwickInternational Ltd., in the early 1970's under Loan 636-CE. While somemodifications have been made in recent years including the addition of twoposts of Additional General Manager, the original pattern is basicallyunchanged. Changes were proposed by CEB as part of the general managementimprovements now taking place in CEB (para 2.08). They would strengthen thedecentralization of CEB's operations while retaining key controls in Colombo.So far the changes have not been introduced, partly as a result of the severeoperational difficulties CEB experienced in late 1981. CEB recentlyrequested a proposal from its management consultants for modifications to theorganizational structure to be implemented as part of their ongoingassignment (para 2.10). This proposal is presently under review. Theassurance obtained under Credit 1210-CE that CEB will submit to 1)k, inadvance, any proposal for major change to CEB's organizational structuire wasrepeated under the proposed project.

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Management and Staffing

2.05 While the Chairman is responsible through the Board for policymatters and close liaison with government, the General Manager is CEB's ChiefExecutive Officer. He is responsible for the overall direction and controlof CEB's day-to-day business. The present General Manager was recentlypromoted to the post and is an experienced and long-serving engineer. He ispresently assisted by an Additional General Manager, four Deputy GeneralManagers and a Finance Manager. With the exception of the Finance Manager,who is not a fully qualified accountant but is a competent and long-servingofficer, all top management posts are filled by engineers. The Commercialand Personnel Managers, Chief Internal Auditor (vacant), and the LegalOfficer all report directly to the General Manager. CEB-s present seniormanagement structure is set out in Annex 6. Below this level, CEBoperations are decentralized and are controlled at plant (for generation)and divisional level. Each of the seven operating divisions into which SriLanka is organized is headed by a Divisional Manager, who is a qualifiedengineer; the divisions are further divided into areas which are the primaryunits for systems maintenance, meter reading and consumer services.

2.06 CEB has had considerable difficulty in retaining experienced staff inrecent years as many engineers and accountants have left for overseas orprivate sector posts offering substantially higher monetary rewards. Salarydifferentials for senior CEB staff do not adequately reflect the heavyadditional responsibilities of such posts. The lack of experiencedengineering staff in the 30-45 year range is particularly noticeable at CEB.While qualified accountants are now extremely difficult to recruit, recentlyCEB has had some success in strengthening its finance staff with partlyqualified persons. These problems appear to be common to many public sectorenterprises in Sri Lanka.

2.07 CEB-s present manpower is about 11,000 against an authorized totalof about 14,000. Manpower has increased as follows in recent years:

Table 2.1: CEB MANPOWER

MayDecember 31 1975 1976 1977 1978 1979 1980 1981

1. Managerial, pro-fessonial andadministrative staff 235 244 285 329 312 344 336

2. Technical andclerical staff 1,895 1,934 2,379 2,476 2,787 3,132 3,083

3. Labor Grades 6,050 6,308 6,712 6,918 6,849 7,037 7,66908,486 9,376 9,723 9,948 10,513 11,088

…= = = = = = = = = = = = = = = =

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Whilst CEB-s staff is large in relation to the size of its operations

and the number of consumers it serves, the rate of increase over the pastsix years has been held to an average of 5.2% per year, which is reasonablein view of an expanding program of works, a rural electrification program,undertaken by force account, and the need to cover a high turnover of skilledlabor.

Management Systems

2.08 Comprehensive management information, accounting and budgetingsystems were introduced by CEB in 1973 following a study by consultants,Urwick International Ltd., U.K. financed under Loan 636-CE. While thesystems are satisfactory and are relevant to CEB's operations, seniormanagement is not utilizing the information system, and this has resulted in

a lack of control of CEB-s activities. Staffing difficulties in recent yearshave led to serious delays in the preparation of periodic management reports,

particularly financial reports. Present Bank Group reporting requirements,outlined in Annex 7, are not being achieved. Internal audit arrangementshave never been satisfactorily established in CEB largely due to theinability to recruit a Chief Internal Auditor. Considerable emphasis is nowbeing placed upon improved reporting and internal audit (paras 2.09 - 2.10).

2.09 In view of the acknowledged weaknesses in CEB's present management

arrangements, CEB agreed under the sixth power project (Credit 1048-CE) toimplement a program of management improvements. To this end, UrwickInternational Ltd., were recalled to review the situation and, in particular,the status of implementation of their earlier recommendations and theeffectiveness of management practices in certain specified areas and torecommend a program of measures to restore CEB's managerial effectiveness.

2.10 This short assignment was completed irn February 1981 andrecommendations for the "restoration" phase cover (a) general managementadvice, (b) restoration and further development (e.g. computerization) ofCEB's systems, and (c) the introduction of management development andtraining programs. The restoration of management systems and the developmentof training (para 2.11) are most urgent tasks and CEB has recently appointed

Urwick International Ltd., with their extensive background knowledge for thispurpose. The appointment of a general management advisor requires a person

experienced in power utility management and CEB will be discussing a numberof options with the Bank Group in the coming months. Funding is availableunder Credit 1048-CE for the "restoration" program.

Training

2.11 CEB operates a residential training center at Castlereagh for

technicians which offers courses related to CEB's operations. Accommodationis limited and CEB is planning to develop non-residential technical training

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facilities in Colombo as a result of an earlier investigation by the NationalRural Electric Cooperative Association, Washington, D.C., financed under theUSAID program. Regular training programs are required to fit engineers formanagerial positions; prior to assuming responsibility for operatingfacilities newly qualified engineers should receive six-months on-the-jobtraining: at present this requirement is not consistently achieved. Thereis no program for progressive management development. Training programs arealso required to familiarize accounting staff with CEB's financial operationsand reporting requirements for financial control. CEB agreed under Credit1048-CE to submit to IDA a satisfactory training program for all cadres of

CEB staff by June 30, 1981, and thereafter to implement an agreed program.CEB has submitted an outline training program after discussions with the BankGroup and following Urwick-s recent report. This proposal is now beingdeveloped to suit CEB's needs. Provision to finance training expenditure is

made under the sixth and seventh power projects.

Local Authority Distribution Systems

2.12 While CEB supplies power directly to some 208,000 domestic,commercial and industrial consumers throughout Sri Lanka, another 226,000

consumers are supplied by local authorities which purchase power in bulk fromCEB.The quality of local authority service to consumers is unsatisfactory(para 1.25). GSL planned that CEB should assume responsibility for thedistribution facilities of the local authorities. CEB would take over all

staff, assets and liabilities relating to electricity supply. In view ofCEB's present managerial problems and the heavy additional burden such atransfer would place on CEB, including its financial position, the transferis not now proceeding.

Audit

2.13 The present arrangements under Credit 1210-CE require CEB to submit(a) unaudited accounts to IDA within four months of the year-end (the timepermitted by law for their submission to the Auditor General) and (b) theAuditor General's report on the accounts within ten months of the year-end.CEB's FY 1980 unaudited accounts were submitted for audit in May 1981, aconsiderable improvement on earlier years, but the issue of the final auditreport was slightly delayed (November 1981). The above arrangements aresatisfactory and will continue under the proposed project.

Insurance

2.14 CEB has for a number of years borne its own insurable risks and hasestablished an Insurance Reserve to which an annual contribution of 1/10% ofgross fixed assets values is transferred from retained earnings. This

arrangement is satisfactory.

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III. THE PROJECT

Objective

3.01 MASL is at present constructing new hydro power stations at Victoria(210 MW, 686 GWh), Kotmale (134 MW, 310 GWh) and Randenigala (122 MW, 366GWh). The first unit at Victoria is not scheduled for commissioning until mid1984, and the first at Kotmale will not come in before mid 1985 at theearliest. Randenigala will follow in 1986. Even if all these plants arefinished on schedule, Sri Lanka could experience shortages of power andenergy up to 1986 (paras 5.07 and 5.08). The objective of the project is toprevent such shortages whilst providing plant of a type that will remaineconomically justified throughout its normal life span. Studies of theloading to be expected on the existing Kelanitissa steam plant, the existinggas turbines and the proposed new station indicate that the least costsolution is to equip the proposed plant with large diesel engines capable ofburning residual fuel oil at high efficiency (Annex 8).

Description

3.02 The project consists of a complete 80 MW diesel power station locatedat Sapugaskanda in the outskirts of Colombo. The site of the station waschosen mainly because it is adjacent to the CPC-s refinery, permitting theheavy fuel oil to be delivered at minimum cost direct from refinery to powerstation by a short heated pipeline, avoiding the cost and complication ofcarrying it in heated vehicles. The site has good foundation conditions andan adequate supply of water to permit the use of cooling towers. Access tothe site, including that needed for delivering heavy loads, is adequate. Itis located close to an existing 132 kV substation into which the output fromthe new station can conveniently be fed.

Fuel Supply

3.03 CPC is prepared to enter into a long term contract to supply CEB withresidual fuel, of which it expects to have surplus supplies for theforseeable future. The price will be Platt's Oilgram average for ArabianGulf Posting for High Sulphur Fuel Oil, less a discount of US$6.00 per tonne.Based on Platt's postings for January 1982, this would make CEB's cost US$159per tonne, the same as that already being paid in similar circumstances bythe Fertiliser Corporation. The comparable price for the distillate fuelneeded for gas turbines or combined cycle machines is US$330 per tonne. Thefuel cost for diesel engines using residual fuel is estimated to be aboutRsO.68 per kWh, compared with Rsl.40 for combined cycle plant, and Rs2.1O foropen cycle gas turbines. The proposed diesels would assume the base loadthat would otherwise have to be carried by the gas turbines.

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Engineering, Procurement and Implementation

3.04 In order to permit contractors to make their most economical offers,the specification called for a station of approximately 80 MW capacity, madeup of between four and eight units. The contractor will supply, erect andconstruct the whole power station, including

Civil worksBuildings and foundationsEngines and auxiliariesPipingPower station craneBuilding and site servicesGenerators and Transformers132 kV, 11 kV and 400 kV switchgearD.C. EquipmentWiring, cabling and earthingSite tests on completionStaff training at manufacturers works

The short transmission link needed from the project site to theexisting Sapugaskanda 132 kV grid substation is not included in the project,but will be constructed by CEB's own forces and financed under the Seventh(Mahaweli Transmission) Power Project.

3.05 To ensure that the generators are brought on line by the target date,the station will be supplied, constructed, commissioned and tested under onesingle responsibility contract to be awarded after international competitivebidding in accordance with IBRD guidelines. A contractor experienced inprojects of this type will be able to coordinate design, procurement andconstruction so as to bring the first unit into service in October 1983, withthe others following at intervals of 2 to 4 weeks through February 1984. AConstruction Schedule is shown in Annex 9: tenders were opened on April 8,1982 and are under evaluation. CEB hope to award the contract by July 1982.

3.06 CEB were assisted in the preparation of the specifications and tenderdocuments by their foreign consultants, Preece, Cardew & Rider, U.K. who willbe responsible for contract administration, inspection and testing duringmanufacture, and site supervision of construction of the works. Theengineering contract provides for about 200 man months of the foreignengineers- and inspectors services at an average man-month cost (includingfees, international travel, subsistence, allowances and reimbursable foreigncosts) of US$7,500.

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Project Cost

3.07 The estimated cost of the project is Rsl,107 (US$54.0 million),including contingencies and customs duties (Table 3.1). The cost estimate isbased on tenders received and which are at present under evaluation. Sincethe specification called for firm prices, no price contingency is provided,but physical contingencies of 5% on foreign costs and 10% on local costs areincluded to provide for any unforseen work that might become necessary.Customs duties averaging 10% of the cost of foreign plant and materials wereallowed, and amount to 6% of the total project cost.

Table 3.1: ESTIMATED PROJECT COST

Rs million $ million equivalentForeign Local Total Foreign Local Total

Engines & auxiliaries 472 20 492 23.0 1.1 24.1Generators & auxiliaries 82 3 85 4.0 0.1 4.1Electrical plant & cabling 82 4 86 4.O 0.1 4.1Fuel oil line - 2 2 - 0.1 0.1Water supply - 10 10 - 0.5 0.5Spares and tools 20 - 20 1.,0 - 1.0Civil works & buildings 72 90 162 3.5 4.4 7.9Building services 51 3 54 2.5 0.1 2.6Quarters - 25 25 - 1.2 1.2Training plant staff 10 - 10 0.5 - 0.5

Consulting services 31 4 35 1.5 0.2 1.7CEB supervision - 2 2 - 0.1 0.1

820 1f 6-3 -98-3 40.0 779 T777Contingencies 41 16 57 200 0.8 2.8Project cost before duties 861 179 1,040 42 .O 8.7 5077Customs duties - 67 67 - 3.3 3.3Total Project Cost 861 246 1,107 42.0 12.0 47UFront-end Fee on Bank loan 14 - 14 0.7 - 0.7Total Financing required 875 246 1,121 412.7 TT TT

Project Financing Plan

3.08 The whole of the foreign cost of the project, estimated at US$42million and representing 78% of the total project cost, will be financed bythe proposed IBRD loan. The whole of the local cost, estimated at Rs246million (US$12 million), and being 22% of the total project cost, will befinanced by CEB from internally generated funds which are adequate for thispurpose (para 4.18).

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Disbursements

3.09 The Loan will be disbursed against the following: -

(a) 100% of the foreign expenditures under the Sapugaskanda PowerStation Contract.

(b) 100% of foreign expenditures on engineering consultants.

A schedule of disbursements is provided in Annex 10: it assumes that theConstruction Schedule, which is one of the contract documents, will beadhered to, and that the specified terms of payment will be met. The Bankhas no appropriate disbursement profile for this type of project, and theschedule adopted calls for unusually rapid disbursement of the loan, but itis consistent with the urgent need for the project to be completed on time,and the expectation that CEB and their consultants will succeed in ensuringthat it is. It is recommended that retroactive financing not exceedingUS$4.2 million be authorised to cover payments for items (a) and (b) abovemade after April 1, 1982 but before the signing of the proposed loanagreement.

Land Acquisition

3.10 The proposed site of the diesel power station has already beenacquired by GSL. Soils investigation work was completed and a preliminaryreport issued to tenderers early in February 1982.

Risks

3.11 The main risk associated with the project is that it will run lateand the added generating capacity will not be available when most needed atthe end of 1983.

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IV. FINANCIAL ANALYSIS

CEB's Statutory Position

4.01 CEB's finances are regulated by the provisions of the 1969 CEB Actand the 1971 Finance Act, which affects all public corporations in Sri Lanka.CEB is required, by Section 38 of the 1969 CEB Act, to operate in acommercial manner so as to ensure that revenues are sufficient to meet alloutgoings, including depreciation and interest, and a reasonable proportion

of development costs. CEB's statutory obligations were amended in twoimportant respects following IDA approval of Credit 372-CE in 1973: 1/

(a) CEB is permitted to charge depreciation in its accounts basedon a current valuation of fixed assets rather than the historiccost of such assets.

(b) CEB-s obligation to pay an 8% annual dividend on GSL's equitycapital is waived each year until CEB has generated cashequivalent to a 30% contribution to the combined annualcapital expenditure on electricity supply, including interestduring construction, of CEB and any other body responsible

for undertaking a joint scheme with CEB.

Past Financial Performance

4.02 CEB's actual financial operations for the five years to FY 1980 aresummarized in Table 4.1 below and are shown in greater detail in Annex 11.

1/ These conditions were repeated under the Credits 1048-CE and 1210-CE

and are retained under the proposed Project.

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Table 4.1: CEB INCOME STATEMENT (FY 1976 through FY 1980)

(Rupees Million)

1976 1977 1978 1979 1980

Energy Sales (GWh) 996 1,042 1,161 1,298 1,396

Sales Revenue (Rs/kWh) 0.16 0.16 0.18 0.30 0.59Operating Revenues 178 197 242 435 887LessOperating Expenses andDepreciation 121 151 196 258 564

Net Income (beforeinterest) 57 46 46 177 323

Interest (16) (25) (28) (43) (27)Net Income (afterinterest) 41 21 18 134 296

Operating Ratio a/ 53% 48% 47% 32% 46%Average Currently ValuedNet Fixed Assets (ANFA) b/ 1,047 1,864 2,147 2,611 3,660

Rate of Return on ANFA 5.4% 2.5% 2.1% 6.8% 8.8%Contribution to CEB'sInvestment Program 37% 43% 16% 67% 58%

CEB was required, under IDA Credit 372-CE, to maintain tariffs atlevels sufficient to produce, from FY 1974, at least an 8% annual rate of

return on currently valued net fixed assets in operation. In this respectCEB's financial performance through FY 1978 was unsatisfactory mainly as a

result of unchanged tariff levels between April 1, 1972 and December 1, 1978.CEB has, however, satisfactorily revalued its fixed assets through FY1980

using agreed local indices. In the seven years FY's 1972 through 1978whereas the average cost of energy (including depreciation) per kWh rose by

58% from Rs 0.11 to 0.17 CEB's average sales revenue per kWh rose by only 20%from Rs 0.15 to 0.18. Following a tariff increase on December 1, 1978, sales

revenue rose to Rs 0.30/kWh in FY 1979. Except for an unexpectedly large

a/ Operating expenses before depreciation divided by operating revenues.

b/ Following an initial valuation of CEB's fixed assets at January 1, 1972,subsequent revaluations of fixed assets, using local indices agreed with

IDA, have been incorporated in CEB's accounts annually from FY's 1977through 1980.

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(37 1/2%) movement in the indices used for fixed asset revaluation, thecovenanted 8% rate of return would have been achieved, the actual being about7%. Operating expenses increased in FY 1979 by about 32%, much less thanbudgetted, bringing the average energy cost to Rs 0.20/kWh.

Present Financial Position

4.03 In order to achieve the 8% rate of return required by IDA, CEB was

required to make a further tariff increase as a condition of effectiveness ofCredit 1048-CE. From October 1, 1980, GSL authorized CEB (a) to increasetariffs from an average Rs 0.30 to Rs 0.58/kWh and (b) to introduce a revisedfuel adjustment surcharge on all consumers so as to recover automatically the

monthly fuel cost of thermal generation (para 4.11). Following theserevisions CEB's rate of return on revalued assets in FY 1980 was about 9% andis estimated at about 11% in FY 1981. This constitutes a very satisfactoryturnaround of CEB's finances since FY 1978.

4.04 CEB's financial position as at December 31, 1981, is estimated (Annex15) as follows:

Table 4.2: CEB BALANCE SHEET (at December 31, 1981)(Rupees Million)

ASSETS:Net Fixed Assets 6,164Work in Progress 783

6,947

Current Assets 1,350Less: Current Liabilities 494 856

Total Assets 7,803

LIABILITIES:Equity:

GSL 1,073Consumer Contributions 401Revaluation Reserve 3,401Retained Earnings 1,521 6,396

Loans 1,407Total Liabilities 7,803

4.05 CEB's FY 1981 balance sheet indicates a highly satisfactorydebt/equity ratio of 18:82 (debt service was covered 6.4 times by earnings).CEB's current ratio is estimated at 2.7 times but this will fall to abouttwo times in the 1980's. CEB will have to maintain a tight control over the

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level of consumer receivables (paras 4.06 - 4.10) and inventories to minimize

working capital requirements. 1/

Billing and Collection

4.06 CEB's billing and collection performance has been reasonably

satisfactory in recent years. Under Credit 1210-CE, CEB's consumerreceivables on the last day of each month should not exceed the aggregate

billings for the three months ending on the same day and this requirementis retained under the proposed project. CEB has made considerable efforts

to meet this target. The position at December 31, 1980 indicated receivablesequivalent to 3.2 months billings compared to 3.6 months billings at end FY

1978. As CEB-s revenues quadrupled in this short period the presentreceivables position represents a commendable performance by CEB staff, giventhe many difficulties associated with their task ranging from unreliabilityof meter readings to computer bureau problems and inadequate physicalconditions. CEB's management consultants (para 2.10) are presentlyreviewing meter reading, billing and collection arrangements (including

computerization) in an effort to improve efficiency.

4.07 Some deterioraton in the position occurred in FY 1981 and it is

estimated that, at December 31 last, receivables represented about 4 monthsbillings. An analysis of consumer receivables estimated at end FY 1981 isas follows:

1/ Under Credit 1048-CE, CEB agreed to reduce inventories to a satisfactory

level by December 31, 1982 and GSL agreed to ensure the timelyavailability of foreign exchange for inventories: materials management

problems have already been reviewed by CEB's management consultants andaction is being taken to improve controls. These conditions wererepeated under Credit 1210-CE and are retained under the proposedproject.

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Table 4.3: ANALYSIS OF CONSUMER RECEIVABLES (estimated at December 31, 1981)

Amount EquivalentOutstanding Number of(Rs.million) Months Billings

Heavy Supplies:

Private 73 2.5Public Corporations 135 3.0Government 21 3.3Local authority:

to September 30, 1981 29 5.7from October 1, 1981 73 3.0

102 8.7Street Lighting 16 25.3Total Heavy Supplies 347 3.3

Ordinary Supplies 175 7.8Grand Total 522 4.1

4.08 CEB has a separate unit to handle large consumers accounts, which aremaintained on a manual system. The above table indicates that CEB ismaintaining a tight credit control over most large consumers, theexception being the 218 local authorities which CEB supplies in bulkand for street lighting, the latter being the responsibility of the ColomboMunicipal Council. Local authority billings to September 30, 1981, are atpre-December 1978 tariffs by agreement between GSL and CEB. GSL wasbilled separately in respect of the tariffs increases, including the fuelsurcharge, after December 1, 1978 and has paid to CEB all such amounts dueup to September 30, 1981.

4.09 GSL agreed, under Credit 1048-CE to ensure the timely paymentof future amounts owed by the local authorities to CEB togetherwith arrears in accordance with an agreed program. At that time GSL wasproposing to transfer the local authority systems to CEB and this led to adeterioration in the local authority arrears position. Arrears wouldhave been settled as a part of the transfer arrangements. The transfer hasnow been abandoned. An assurance was obtained, therefore, under Credit1210-CE, that from October 1, 1981, the local authorities will pay the currentCEB tariffs for bulk supplies and introduce retail tariffs which aresufficient to cover CEB's bulk supply charges and the local authoritiesdistribution costs. This requirement is retained under the proposed projectIn the context of the further tariff increase by CEB from June 1, 1982(para 4.13) the Bank Group has advised GSL and CEB recently of the need toensure, by retail tariff increases or by budgetary provision, the availability

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to Government departments, public corporations and local authorities ofadequate funds to meet CEB's bills.

4.10 The bulk of CEB's billings are of relatively small amounts andare maintained on computer. They constitute some 25% of CEB's billingsby amount. Over 50% of such monthly accounts are for less than Rs 15. Thedifficulty of recruiting satisfactory meter readers poses a continuingserious problem for CEB and leads to some delays in billing and problems incollection. CEB is experiencing difficulties in obtaining a reliablebureau service to meet the growing volume of such bills. CEB is strivingfor improved performance in this sector.

Revenues, Tariffs and Marginal Cost

4.11 The details of CEB's recent tariff structure are set out in Annex 12.CEB's tariffs were unchanged between April 1972 and December 1978 but sincethen the record has been very impressive. Two tariff increases were

introduced from December 1978 and again from October 1980 which have raisedCEB's average tariff by about 260% from Rs 0.16 to 0.58/kWh (about 3 UScents). 1/ A further tariff increase is due to take effect from June 1, 1982as a condition of effectiveness for the Seventh (Mahaweli Transmission) Power

Project. This will raise the average tariff, inclusive of fuel surcharge, tothe equivalent of about US cents 9/kWh. In addition to raising tariff

levels in recent years, which has enabled it to meet financial rate of returncriteria, CEB has also made significant structural improvements to its

tariffs. Domestic consmers now pay higher block tariffs and non-domestictariffs have been rationalized. Further, from October 1, 1980, CEB isrecovering automatically the cost of fuel needed for CEB's increasingthermal generation by way of a surcharge on consumers' monthly bills. Thefirst 200 units of domestic consumption (equivalent to a maximum charge ofUS$ 5) are exempt from the surcharge and this exempts over 90% of domesticconsumers. The exemption limit will be reduced to 150 units a monthfrom June 1, 1982.

4.12 CEB agreed under Credit 1048-CE to carry out a study of long runmarginal cost (LRMC) pricing with technical assistance from the Bank,and to implement any agreed recommendations. This study should have beencompleted by December 31, 1980 but staffing constraints in particularhave led to delay and it was agreed to extend the deadline by one year toDecember 31, 1981. Preliminary results of the study were discussedduring negotiations for the Seventh power project in November 1981 andfurther refinements were agreed for the results to be useful for tariff

1/ with the addition of the fuel surcharge this was equivalent to about 6 UScents/kwh. in 1981.

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restructuring. These have since been made and, following furtherdiscussions with the Bank Group in January 1982 agreed proposals for majorstructural improvements along LRMC lines were submitted to GSL as part of thereport tariff revision (para 4.13). This represents a significant stepby incorporating economic considerations in tariff setting and would resultin an average tariff 1/ equivalent to about two-thirds of LRMC comparedto about 45% at present. While the financial projections (table 4.5)show the average revenue declining in real terms over time as the shareof thermal generation in the system declines, it is unlikely that tarifflevels would fall to the present percentage of LRMC. Marginal cost islikely to decrease over time for the same reason. At negotiations CEBagreed to update the tariff study periodically and make the resultsavailable to the Bank Group for review and comments prior to implementation.

4.13 The results of the tariff study indicate that LRMC of power supplyin the CEB system ranges from about Rs 1.70/kWh to about Rs 3.50/kWh,depending on voltage of supply and consumption pattern. The sales-weightedaverage LRMC is calculated to be about Rs 2.60/kWh. Although these resultsnecessarily are subject to a large error margin because of their sensitivityto basic assumptions about future operations, the tariff study is satisfactoryand provides CEB with a useful broad indicator for long-term cost recovery.While tariff restructuring is proposed according to LRMC principles, lifelinerate requirements for low-income domestic consumers and the special problemsof bulk supply to local authorities will also be recognized. Tariffs(including fuel surcharge) for industrial and commercial consumers will nowbe close or equivalent to LRMC levels and structure. Domestic tariffs forconsumption above 150 kWh/month will be equivalent to 70-80% of LRMC, whilelower consumption block tariffs will taper down to a lifeline rate. Localauthority tariffs will be patterned on domestic tariffs because of theirnature as suppliers of low-voltage retail consumers.

4.14 An assurance was obtained at negotiations that CEB will continue,as previously, to review tariffs annually, before the start of each financialyear to ensure that revenues are sufficient to meet operating expenses, includingfuel and depreciation, and to produce at least an 8% rate of return oncurrently valued net fixed assets. While the presently agreed rate of returnis 8%, CEB-s tariff increase from June 1, 1982 will produce a rate of returnof 12% in FY 1982 and 9% in FY 1983. This will generate sufficient internalresources to meet the local costs of CEB's approved investment programthrough FY 1985. From FY 1985 onwards further tariff increases will berequired to enable CEB at least to maintain the covenanted 8% rate of return:the amount of such increases will depend to a great extent upon the size ofCEB's future investment program.

1/ inclusive of fuel adjustment surcharge.

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Transfer of Assets from MASL

4.15 The 1969 Act authorizes CEB to enter into "joint schemes" with otheragencies for the generation of electricity. The Act does not detail thearrangements for the transfer and operation of assets created under suchschemes. Subsequently, under Credit 372-CE, GSL agreed to ensure that CEB issufficiently involved on the formulation of all future joint schemes, and thatthe power assets are transferred on completion to CEB on terms satisfactory toIDA. This was done in the case of the 38 MW Ukuwela hydro station constructedunder the Mahaweli Ganga Stage I (para 1.11(g)). Most of the hydro-powerdevelopment in the 1980's in Sri Lanka will be carried out under the AcceleratedMahaweli Program. CEB is not required to contribute to the costs of theseschemes during the construction phase but ownership will be transferred toCEB on their completion. The need for adequate co-ordination between CEB andMASL in the design and construction of these facilities was discussed in thecontext of the Sixth and Seventh Power Projects. CEB is not represented onthe MASL Board and such representation would require legislation. However,technical co-ordination between the two agencies is satisfactory. GSL agreedunder Credit 1210-CE to ensure proper future co-ordination between CEB andany other agency involved in a joint scheme. Furthermore, in view of themajor impact that the Victoria and Kotmale assets will have on CEB's finances,GSL and CEB have agreed a satisfactory provisional basis for the transfer ofthese assets. (Annex 17 para 14).

Financing Plan (FYs 1982-85)

4.16 CEB's presently approved investment program through FY 1985comprises the ongoing ADB-assisted Bowatenne, Canyon and Rural Electrificationprojects, the IDA-assisted Sixth (transmission and distribution), Seventh(Mahaweli transmission) and proposed Eighth (Diesel) projects, and varioussmall system augmentation works.

4.17 CEB has not, in past years, been liable to pay income tax. However,from April 1981 the basis of annual depreciation allowances used in thecomputation of tax liability has been changed. In future CEB will be entitledto claim a 12 1/2% depreciation allowance on newly commissioned assets overan eight year period as compared to the previous 100% allowance in the firstyear. Consequently, it is estimated that CEB may incur a tax liabilitytotalling Rs 535 million in FY's 1982/83 but thereafter thetransfer of major hydro-stations will create tax losses to be carried forwardto subsequent years. As part of the recent tariff discussion (para 4.13)GSL has agreed to return to CEB, in the form of equity capital, theamount of any such income tax payments in FYs 1982/83.

4.18 CEB's estimated financial requirements for the period FY's 1982through 1985 and the sources of funds are as follows:

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Table 4.4: CEB FINANCING PLAN (FY 1982 through FY 1985)

Rupees US$ Million PercentageMillion Equivalent %

Requirementsa/

Capital Expenditure 6,491 316.6 100

Sources of FundsCEB Internal CashGeneration 5,854 285.5 90

Less: Debt Service (2,133) (104.0) (33)Working Capital (1,503) (73.3) (23)

Contribution to Investment 2,218 108.2 34FForeign loans/credits b/ 2,961 144.4 46

Consumer Contributions 490 23.9 7GSL Equity 822 40.1 13

6,491 316.6 i-O

4.19 The proposed Bank loan of US$42.7 million will be made available toCEB at 11.6% for a period of 20 years including a 2 year grace period. CEBwill also pay to GSL an annual guarantee fee of 1% on the outstanding balanceof the loan. 1/ GSL will bear any foreign exchange risk in accordancewith the 1969 CEB Act.

a/ Includes sixth, seventh and the proposed eighth (80 MW diesel) powerprojects.

b/ GSL onlending to CEB including the existing IDA Credits 1048-CE and1210-CE.

1/ These terms are similar to those for onlending to CEB the recentlyapproved IDA Credit 1210-CE for the seventh power project. (20 yearsincluding a three year grace period at 12% interest). Inflation in SriLanka was 1979 - 16%, 1980 - 24%, 1981 - 23% and is forecast to declineto 10% by 1985 (1982 - 17%, 1983 - 14%, 1984 - 12%).

-29-

4.20 To protect its future financial viability, CEB has agreed previouslynot to incur any long-term debt without IDA's prior agreement unless itsmaximum future debt service is covered at least 1.25 times by its most recent12 months' operating surplus before depreciation. This requirement isretained under the proposed Project.

Future Finances

4.21 Financial projections for the period FY 1982 through FY 1988 are setout in Annexes 13-16. Assumptions used to prepare the projections are setout in Annex 17. Salient features of CEB's future finances, which aresatisfactory, are summarized in Table 4.5. The fluctuation in CEB's averagerevenue in future years results from the operation of the fuel adjustmentclause and the fluctuation in the projected level of fuel consumption.

-30-

Table 4.5: SUMMARY OF CEB'S FUTURE FINANCES

1982 1983 1984 1985 1986 1987 19881. Average Revenue a/ b/

(Rs/kWh) 1.66 1.86 1.83 1.69 1.72 1.63 1.82(US cents/kWh) 8 9 9 8 8 8 9

2. Average Tariff b/(Rs/kWh) 0.71 0.79 0.79 0.98 1.05 1.10 1.17

3. Average Cost ofEnergy Sold c/

(Rs/kWh) 1.16 1.37 1.20 0.90 0.90 0.76 0.90(US cents/kWh) 6 7 6 4 4 4 4

4. Operating Ratio c/ 70 73 65 53 52 47 505. Rate of return on

annually revaluedNet Fixed Assets d/ 12 9 8 8 8 8 8

6. Debt service coverage 7.0 3.5 2.7 2.0 1.6 1.9 1.77. Contribution to CEB's

Investment Program e/ ------ 34% ------ ------ 32% -----

8. Current Ratio 2.9 2.8 2.5 2.7 2.7 2.4 2.09. Debt/Equity Ratio 22/78 26/74 36/64 41/59 39/61 46/54 45/55

a/ Including fuel adjustment surcharge.

b/ Assuming a tariff increase of 36% from mid-1982 and further increases fromFY 1985 to meet a minimum of 8% financial rate of return on currentlyvalued net fixed assets.

c/ Before depreciation.

d/ Rate of return before tax is about 14% and 13% respectively in FYs1982/83.

e/ Excluding works undertaken by MASL for subsequent transfer to CEB andnet of changes in working capital.

-31-

V. JUSTIFICATION

Background

5.01 CEB had to carry out extensive load shedding in 1980 (50 GWh) and 1981(69 GWh), owing to lower than average rainfall, breakdowns of existingplant, and delays in commissioning some of the 6 gas turbines installedbetween late 1980 and early 1982 (para 1.24). The power shortages caused widespreaddisruption, losses and inconvenience, and both GSL and CEB were anxious toavoid any further repetition of them. Although new hydro stations wereunder construction at Bowatenne, Canyon, Victoria, Kotmale and Rendenigala,it was evident from the load forecasts that further power shortages could beexpected in 1982, 83 and 84 before the larger new hydro stations started tocome on line. CEB therefore carried out studies in 1981 based on their thencurrent load forecast, and concluded that, in addition to the gas turbinesthen being installed, a further 120 MW of thermal plant would be required toavoid the possibility of a serious shortage in 1984.

Least-Cost Solution

5.02 To determine the optimum type of plant, the study compared threepossibilities: -

(a) The addition of 120 MW of residual fuel burning (rfb) diesels.

(b) The addition of 100 MW of rfb diesels, and also 20 MW of steamplant using the exhaust gases of 40 MW of existing gas turbines,forming 60 MW of combined cycle plant.

(c) The addition of 80 MW of rfb diesels, and also 40 MW of steamplant using the exhaust gases of 80 MW of existing gas turbines,forming 120 MW of combined cycle plant.

The study considered the additional capital costs of each alternative, andthe fuel costs for the whole system when incorporating each of thealternatives, over a period of ten years.

5.03 It was found that with the fuel costs adopted at that time, thepresent values of the streams of capital and operating costs for each of thethree alternatives differed by less than 2%, or much less than the margin oferror of the data. Since no clear choice between the available types ofthermal plant emerged from that cost study, other factors were considered,and GSL and CEB elected to purchase diesels, mainly because they would burnresidual fuel which would be in excess supply in Sri Lanka for the forseeablefuture, and which would otherwise have to be exported. Gas turbines andcombined cycle plant need distillate fuel, of which Sri Lanka must import alarge part of its needs.

-32-

5.04 Because of the Bank's insistence on the preparation of a properlyoptimised least cost long term generation program, CEB planning staffassisted by Bank personnel carried out further studies later in 1981 inWashington, using the Wien Automatic System Planning (WASP) computer program.The main object of these studies was to evaluate various options forexpanding CEB's system to meet the predicted load growth over the next 15years, and hence to determine the type and sizes of plant which should beinstalled, and when, to form the long run least cost program. At the sametime, the roles to be played in this program by the gas turbines and dieselsthat were forced into the system in the present period of shortages wereexamined.

5.05 Later in 1981, after review by a Bank energy mission, CEB adopted anew reduced demand forecast. The demands for 1984, for example, were reducedby 47 MW and 225 GWh. As a result of this, CEB and GSL decided to installonly 80 MW of rfb diesels instead of 120 MW. Using experience gained in theWASP study, the energy expected to be generated by each type of plant wasrevised. This clearly displayed the major role to be played in the long termby the proposed diesel plant (Annex 8).

5.06 Since the estimated capital cost of the rfb diesels is not muchdifferent from that of the combined cycle, whilst the fuel cost of thediesels is much lower, and because the open cycle gas turbines will receivelittle use after 1984, it is evident that the least cost solution is toprovide the whole 80 MW by diesels. To illustrate this, in Annex 8 two casesare compared, Case A having all diesels, and Case B having the minimum amountof combined cycle. A third possibility, Case C, indicates the much highercost of operating gas turbines only, and shows that in the conditionsspecified the diesels would pay for themselves by way of fuel savings inabout 2 years. With average hydro flows, which are somewhat higher, it wouldtake longer.

Power Balances

5.07 After the addition of a total of 120 MW of gas turbines in 1980/82and the Canyon hydro plant (30 MW, 130 GWh) at the end of 1982, the effectivecapacity installed on CEB's system will amount to 553 MW. To arrive at thereliable capacity for peaking, it is necessary to deduct the largest hydrounit (50 MW), one gas turbine (20 MW), and one steam turbine (20 MW).Without the project there could be substantial power deficits, particularlyin 1984, as shown in Table 3.1.

-33-

Table 5.1: POWER BALANCES 1982 to 1986(a) Without Project

1982 1983 1984 1985 1986

Demand MW 498 546 610 698 769

Reliable Capacity MW 463 463 463 653 807Surplus (Deficit) MW (35) XT) (147) (T5) -TR

With addition of the project's 80 MW of diesel plant the position wouldbecome: -

(b) With Project

1982 1983 1984 1985 1986

Demand MW 498 546 610 698 769

Reliable Capacity MW 463 503 547 717 871Surplus (Deficit) MW T3-5) (T) T6T) T9

The probable peak deficit in 1984 would thus be reduced from 24% to 10%,which should be manageable without extensive disruption of supplies.

Energy Balances

5.08 Since the hydro stations are operated in integration and there isan appreciable amount of thermal plant on the system, studies have shown itto be feasible to consider about 25% of the secondary hydro energyl/ as firmwith a probability of about 94%. For study purposes CEB takes the energycapability of each plant to be its firm capability plus 25% of its secondaryenergy. The first six months of the year in Sri Lanka are a dry periodduring which the hydro reservoir levels fall, whilst the second six monthsare a wet period during which reservoirs fill, and if hydro planning is to bereliable it is necessary to consider each period separately. When this isdone the short term energy balances without the proposed 80 MW of dieselsappear in Table 3.2. For this purpose it was assumed that the gas turbineswould achieve a plant factor of 60%.

1/ Defined as the difference between the firm energy (with a probabilityof virtually 100%) and the average energy obtained.

-34-

Table 5.2: ENERGY BALANCES 1982 -1986

1982 1983 1984 1985 1986

Without Project Dry Wet Dry Wet Dry Wet Drv Wet Dry Wet

Energy required GWh 1130 1224 1240 1344 1384 1500 1590 1723 1751 1897Hydro Capability GWh 731 793 777 847 777 847 1145 1353 1287 1551Thermal Available GWh 415 415 415 415 415 415 415 415 415 415Surplus (Deficit) GWh 16 (16) (48) (82) (192) (238) (30) 45 (49) 69

Without the project there could be a deficit in 1984 of 430 GWh, 15% of thetotal energy requirement. All deficits could be met by the proposed 80 MW ofplant, operated at a maximum plant factor of 68% in the second half of 1984.

Economic Rate of Return

5.09 For purposes of the cost/benefit analysis, the project cost isincreased by a notional transmission and distribution component, and comparedto benefit proxies ranging from tariff revenue only to estimates ofconsumers willingness to pay for energy (including part of consumers'surplus). All benefit estimates are applied to incremental energy sales fromthe project after system losses. Tariff revenue is calculated constant atthe 1983 level and fluctuating over time in real terms. The upper limit ofbenefit valuation is estimated as the cost of using alternative energysources. Calculations are performed with fuel costs increasing over time inreal terms. Costs and benefits are expressed in CIF or equivalent borderprices, local values are converted to border prices using a shadow/marketwage ratio and a standard conversion factor (Annex 8).

5.10 The minimum rate of return, assuming valuation of incrementalincremental demand at the tariff level, is 14%. With variations of capitalcost by 30% up or down, this rate decreases to 7% and increases to 25%,respectively. If a portion of consumers surplus beyond this minimum isestimated, the rate of return increases to 34%. A variation of capital costin this case by plus or minus 30% yields a range of rates of return between 2and 58%.

-35-

VI. AGREEMENTS REACHED AND RECOMMENDATION

Agreements during Negotiations

6.01 Satisfactory agreements were reached with GSL/CEB during negotiationswith regard to:

(a) the preparation and submission by December 31, 1982, and

thereafter annually, of a long-term power development plan(para 1.18)

(b) modifications to CEB's organizational structure (para 2.04)

(c) implementation of CEB's training program (para 2.11)

(d) audit of CEB-s accounts (para 2.13)

(e) restriction of dividend payments by CEB and charge ofdepreciation on revalued assets (para 4.01)

(f) control of CEB's inventory levels and the provision of foreignexchange bv GSL for inventories (para 4.05)

(g) CEB-s consumer receivables not to exceed three months' billings(para 4.06)

(h) timely payment by GSL-s local authorities of CEB's bulk supply

charges and adequate local authority retail tariffs (para 4.09)

(i) improvements to CEB's tariff structure (para 4.12)

(j) rate of return on CEB's currently valued net fixed assets(para 4.14)

(k) arrangements for GSL co-ordination of Joint Schemes (para 4.15)

(1) CEB's debt service coverage (para 4.20)

Recommendation

6.02 With agreement on the above matters the proposed project is suitable

for a Bank loan of US$42.7 million equivalent.

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I X�0NV

-37-ANNEX 2

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Generating Facilities

Installed EffectiveYear of Capacity Capacity

Existing Type Commissioning MW MW

Old Laksapana Hydro 1950/58 50 50Inginiyagala Hydro 1950 10 0Uda Walawe Hydro 1968 6 2Wimalasurendra (Norton Bridge) Hydro 1965 50 50Polpitiya (Maskeliya Oya Stage I) Hydro 1969 75 75New Laksapana (Maskeliya Oya Stage II) Hydro 1974 100 100Ukuwela (Polgolla) Hydro 1976 38 36Bowatenne Hydro 1981 40 40

369 353

Kelanitissa (Grand Pass) Steam 1962 50 40Kelanitissa Gas Turbines 1980/82 120 120Pettah Diesels 1954 6 2Chunnakam Diesels 1954 14 8

559 523

Under Construction

Canyon Hydro 1982/83 60Victoria Hydro 1984 210Kotmale Hydro 1985/87 134

Planned to 1990

Diesels 1983/84 80Randenigala Hydro 1987 122Rantembe Hydro 1988 48

Thermal (Coal) 1989 120.Broadlands Hydro 1990 20

390

Planned beyond 1990

Samanalawewa Hydro 1990/91 240Steam 200

Upper Kotmale Hydro 120Steam 100

Kukule Hydro 250Ratnapura Hydro 35Uma Oya Hydro 150Bing Hamala Hydro 110Jasmin Hydro 40

-38-ANNEX 3

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Existing Transmission and Distribution Systems

220 kV System

1. Under the Seventh Project (Credit 1210-CE) a 220 kV system is beingbuilt to transmit from the Mahaweli hydro stations, Victoria, Kotmale andRendenigala, into Colombo. A 220 kV substation will be established atBiyagama, in the outskirts of Colombo, fed by a double circuit line 70 kmlong from Kotmale. From Biyagama three 220 kV double circuit lines will runto substations at Kelanitissa (16 km), Pannipitiya (17 km), and Katunayake(23 km).

2. The 220 kV link from Rantembe/Randenigala to Victoria is beingprovided under the Randenigala project, and that from Victoria to Kotmaleis being provided under the Victoria project.

132 kV System

3. The 132 kV system comprises 569 miles of line, of which 361 milesare double circuit and 208 miles single circuit.

4. At the heart of the system are the two largest hydro generatingstations, Polpitiya and Laksapana, connected together by four 132 kVcircuits. Wimalasurendra hydro station at Norton Bridge is also connected toLaksapana by a short double circuit line.

5. The largest load centre is at Kolonnawa near Colombo; it is fed byfour circuits from Polpitya. There are tees off these lines to substationsat Thulhiriya and Oruwala. Also feeding into Kolonnawa are two circuits fromthe steam units and gas turbines at Kelanitissa power station.

6. From the bars at Kolonnawa a single circuit runs south to asubstation at Ratmalana, whilst another double circuit runs north up thecoast to substations at Sapugaskande, Katunayaka, Bolowatta and Puttalam.From Polpitiya a double circuit runs north up the middle of the island as faras Anuradhapura, from where it continues as a single circuit by way ofKilinochchi substation to Chunnakam in the northernmost part of the country.Between Polpitiya and Anuradhapura there is a substation at Ukuwela, intowhich the line from the Bowatenne hydro station feeds, and another atHabarana. From Anuradhapura a single circuit tap takes off to Trincomalee onthe east coast. Starting from the busbars at Laksapana, a double circuitline runs down as far as Galle on the south coast, with substations along theway at Balangoda and Deniyaya.

-39-

7. The 132 kV system is being reinforced and extended. Second circuitsare being strung on existing towers from Anuradhapura to Chunnakam, fromAnuradhapura to Kantalai, and from Kolonnawa to Ratmalana. A new singlecircuit line is being built from Kantalai to Valachchenai, and atValachchenai a new grid substation will be constructed. The foregoing workis financed under the Sixth Power Project (Credit 1048-CE) and is scheduledfor construction in 1981-1984. Other extensions to be built in the sameperiod are a double circuit from Pannipitya to Neboda and a single circuitfrom Canyon to Laksapana.

8. Under the Seventh Project (Credit 1210-CE) the system is beingfurther reinforced with a 132 kV line from Rantembe to Badulla, which willpermit power from the Mahaweli stations to be injected at Badulla into theold 66 kV system, and also permit the line Badulla to Inginiyagala to beoperated at 132 kV.

66 kV System

9. The system consists of about 214 miles of double circuit lineassociated with the earliest power developments. In the old Laksapanastation there are 66 kV busbars connected to Kolonnawa receiving station by adouble circuit line, which also feeds substations at Padukka and Avissawela.Another double circuit from Laksapana runs east to substations at NortonBridge, Nuwara Eliya and Badulla. From Badulla a single circuit continueseast as far as the hydro station at Inginiyagala; this section wasconstructed for 132 kV but is at present operated at 66 kV. A third lineoriginating at Laksapana carries two circuits north as far as Kandy. Fromthere to Kurunegala there is a double circuit built for 132 kV but operatedat 66 kV.

10. The 66 kV system is interconnected with the 132 kV system by interbustransformers at Kolonnawa and Laksapana.

Subtransmission and Distribution

11. Most of the country is served by a system of about 3,250 route milesof overhead lines at 33 kV, and 750 miles at 11 kV. Important points havealternative supply routes. Most of the 132 kV substations are interlinked by33 kV subtransmission lines to facilitate maintenance. Under the Sixth PowerProject about 500 miles of 33 kV subtransmission lines will be added.

12. The city of Colombo draws its power at 33 kV from Kolonnawa, wherethere are three 30 MVA transformers. Four 33/11 kV substations designated A,B, C and D are connected to Kolonnawa and to each other by about 28 miles ofunderground cable. Each of these substations serves its own 11 kV ring. Therings are normally open so that each is effectively two radial feeders, so asto simplify protection. Most of the 11 kV/400 V substations on these ringscontain two 500 MVA transformers each. Ring A serves a predominantly

-40-

domestic market, while the central ring B serves the main commercial and portareas. Ring C covers the mainly industrial part to the north of Colombo,whilst D serves other areas of domestic and commercial consumers. There issome overhead LT distribution in Colombo, but most is done by undergroundcables. Radial feeders from the substations supply feeder pillars, fromwhere distribution cables run out and are tapped for consumer serviceconnections.

13. The four primary substations in Colombo are nearing the limit oftheir capacity. Under the Sixth Power Project two new bulk supplysubstations will be established, each containing two 30 MW, 132/11 kVtransformers, fed by underground cables from Kelanitissa and Kolonnawa. Atthe same time two of the existing substations will be increased in capacityby the addition of 12.5 MVA transformers, and the ll kV underground cablenetwork will be modified appropriately.

-41- ANNEX 4

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Kelanitissa Steam Power Station Overhaul Program

1982

No. 1 TurbineReplace last two rows of LP bladingRepair throttle valveReplace H.P. heater tubesGeneral overhaul of auxiliaries

No. 2 BoilerRepair furnace rear wallReplace economiser coilsReplace economiser inlet header and distribution pipesReplace air preheater tubesRecondition shot cleaning plantGeneral overhaul of auxiliaries

1983

No. 2 TurbineReplace LP bladingGeneral overhaul

No. 1 BoilerReplace air preheater tubesReplace economiser coilsReplace economiser inlet headerRecondition shot cleaning plantGeneral overhaul of auxiliaries

1984No. 1 Turbine

General overhaul

BoilersInspection and repairs of chimneysGeneral overhaul and repairsduring turbine outage

SRI LANKA

EIGHTH (DIESEL) POWdER PROJECT

Load Forecast through 1990)

Estimatedwith noload

Actual Shedding E Estimated

Sales 1975 1976 1977 1978 1979 1980 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Domestic GWh 91 95 107 119 153 192 199 221 245 272 302 335 372 432 475 523 576

Small and medium Industry GWh 252 252 254 289 305 305 316 374 428 473 544 588 635 686 741 800 864

Large Industry GWh 268 261 263 300 325 321 333 493 517 555 591 638 689 744 a" 868 937Commercial GWh 130 137 151 163 203 225 233 286 323 355 390 429 472 709 780 858 944

Local Authorities / GWh 224 251 267 290 312 353 365 401 440 483 530 582 639 702 771 847 930

Urban Development Authority- GWh - - - - - - - 20 48 58 94 175 214 - - -

Railways GWh -- - - - - --- 69 80 )91 91 91 91

Total Sales GWh 965 996 1,042 1,161 1,298 1,396 1,446 1,795 2,001 2,196 2,451 2,816 3,101 3,364 3,662 3,987 4,342

Losses X 10.6 12.1 14.4 16.0 14.9 16.3 16.3 15 15 15 15 15 15 15 15 15 15

Total Generation GWh 1,079 1,133 1,217 1,382 1,526 1,668 1,728 2,112 2,354 2,584 2,884 3,313 3,648 3,958 4,308 4,691 5,108

Maximum demand UDA-/ MW - - - - - - - 5 12 14 23 43 53 - - - -Coincident maximum demand

from railways MW - - - - - - - - - - 15 18 20 20 20 20

Maximum demand from otherconsumers MW 219 240 261 291 329 369 382 442 486 532 587 640 69 814 888 969 1,057

Maximum Demand MW 219 240 261 291 329 369 382 447 498 546 610 698 769 834 908 989 1,077

Load Factor % 56 54 53 54 53 52 52 54 54 54 54 54 54 54 54 54 54

Numbers of Consumers

Domestic 79,799 86,604 97,998 113,950 142,224 167,991 183,110 199,600 217,600 237,000 258,500 282,000 299,000 317,000 335,000 356,000Small and medium Industry 2,909 3,064 3,246 3,480 3,818 4,411 4,693 5,000 5,300 5,600 6,000 6,400 6,800 7,200 7,700 8,100

Large Industry 54 56 56 62 61 62 63 63 64 64 65 66 67 68 69 70

Commercial 22,834 24,200 24,311 26,509 31,407 34,868 37,308 39,900 42,700 45,700 48,900 52,100 56,000 60,000 64,000 69,000

Local Authoritima 218 218 218 218 218 218 218 218 218 218 218 218 218 218 218 218

Total 105,814 114,142 125,829 144,219 177,728 207,550 225,392 244,781 265,882 288,582 313,683 340,784 362,085 384.486 406,987 433,368

1/ Supplies to UDA in Colombo and IKotte; after 1986 these are included with commercial.

Source: CEB

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Organization Chart

CHAIRMAN

_ VICE CHAIRMAN ]

_____________________ SECRETARY

TO THE BOARD

GENERAL MANAGER

| ADDITIONALGENLRAL | | ADDITIONAL GENERAL

MANAGER MANAGER

OPERATION & MAINTENANCE DEVELOPMENT &CONSTRUCTION

DEPUTY GENERAL DEPUTY GENERAL DEPUTY GENERAL DEPUTY GENERAL

MANAGER MANAGER MANAGER MANAGER ANAGER INANCE

GENERATION OPERATING DIVISIONS SYSTEM PLANNING CONSTRUCTION

MANAGER

WORKSHOPS RESEARCH & HYDRO DEV.

& CENTRAL GARAGE DEV. UNIT UNIT

PERSONNEL LEGALOFFICER 1 INTERNALAUDIT COMMERCIALMANAGER [ jWOFFICER MANAGER B

World Bank -- 21440

ANNEX 7-44-

SRI LANKA

EIG'HTH (DEISEL) POWER PROJECT

Reporting Requirements

The following reports will be provided to IDA. Similar comprehensivereporting was agreed under Credit 1048-CE.

QUARTERLY (Within 30 days of the quarter-end)

(a) PROJECT REPORT

A summary of progress under the project with annexes for thefollowing:

(i) Project Cost Estimate.(ii) Schedule of Orders and Deliveries of Equipment.(iii)Expenditure and Commitments Statement.(iv) Actual and Forecast Disbursements of the IDA Credit.(v) Construction Schedule

(b) FINANCIAL REPORT

(i) Income, Flow of Funds and Balance Sheet (for the currentfiscal year).

(ii) Accounts Receivable )(iii)Inventories ) (Analysis at end of quarter)(iv) Sales )

ANNUALLY

(a) Unaudited accounts and supporting statements (within 4 months of year-end).(b) Audit report (within 10 months of year-end).(c) Financial plan - three year capital and revenue forecast (within 90 days

of start of the fiscal year).(d) CEB's Annual Report (within 6 months of year-end).

-45-ANNEX 8Page 1 of 4

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Thermal Generation Costs

CEB's expected thermal energy generation by type of plant for theyears 1984 to 1995 as derived from the WASP study of July 1981 and subse-quently modified to comply with the reduced load forecast of August 1981 isgiven in the table on page 3. This tabulation was prepared considering eachhalf year, but here has been simplified to show only full years. The 40 MWof Kelanitissa steam units and the 120 MW of gas turbines already exist, andthe table assumes that the 80 MW of diesels of the project have been added.

The costs for two main alternatives are compared in the tabulationon page 4. Case A assumes the whole of the additional 80 MW to be dieselscapable of burning residual fuel, as proposed in the project and shown onpage 3. For comparison, Case B is also considered, in which it is assumedthat there will be a new 40 MW diesel station, but also that boilers will beadded to the exhausts of four of the existing gas turbines, generating steamenough to drive two 20 MW steam turbines, thus forming a combined cycle plantof 120 MW. In each case the added capacity totals 80 MW.

The generation from the hydro stations and the Kelanitissa steamunits are conmon to both cases. Thus for this purpose it is sufficient tocompare on the one hand the costs arising from loading the 80 MW of dieselsas far as possible and filling in with the open cycle gas turbines asnecessary (Case A), and on the other hand loading the 40 MW of diesels asfully as possible and meeting the remaining energy demand with the combinedcycle plant (Case B). The predicted increase in the real cost of fuel of 3%per annum would be applicable to both cost streams and would not affect theresult and has therefore been omitted.

Capital costs were taken as $625 per kilowatt for the diesels,and $750 kW for the boilers and turbines needed to form the combined cycleplant. The local component of these costs (17%) was subdivided 50/50between labour and materials and shadow priced using standard indices.

Fuel and operation and maintenance costs per kWh generated werecalculated as follows: -

-46-

ANNEX 8Page 2 of 4

Diesels Gas Turbines Combined Cycle

Fuel Residual Distillate DistillatePrice US$/tonne 159 330 330

Rs/tonne 3,260 6 6,765 6 6,765 6Heat content kcal/tonne 10.3 x 10 3 10.5 x 10 10.5 x 106Cost of heat Rs/kcal .3165 x 10 .644 x 10 .644 x 10Heat rate kcal/kWh 2,150 3,262 2,171Fuel cost Rs/kWh 0.68 2.10 1.40O&M Rs/kWh 0.19 0.48 0.39

Total Fuel + O&M Rs/kWh 0.87 2.58 1.79

A partly developed Case C is shown for comparison, giving theestimated operating costs on the assumption that gas turbines were used togenerate the energy otherwise allocated to diesels or combined cycle, andit is seen that under the conditions assumed the operating cost savings dueto the diesels would repay their capital cost in less than two years. Thegeneration of 1,011 GWh in 1984 would require the gas turbines to achievethe improbable plant factor of 96%. Case C is not further developed,because in the absence of a new diesel or combined cycle plant the loadingon CEB's other stations would not remain as assumed in this study.

The results of the comparison of Cases A and B, tabulated on page 4,demonstrate that all diesel alternative is the cheaper.

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Expected Energy Production by type of Plant 1984-95

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Generation Required GWh 2,884 3,313 3,648 3,958 4,308 4,691 5,108 5,563 6,058 6,597 7,184 7,823

Hydro Capability GWh 1,624 2,498 2,838 3,300 3,646 3,646 3,646 4,110 4,590 4,590 4,975 5,413

Kelanitissa Steam (40 MW) 249 175 174 138 68 51 97 96 75 95 95 115

Gas Turbines (120 MW) 433 121 146 68 48 0 59 46 74 14 85 144

Coal (120 MW) - - - - - 649 730 753 731 1,435 1,516 1,570

Project Diesels (80 MW) 578 519 490 452 546 345 576 558 588 463 513 581 Z

OQ tD X

o ob 0

-48- ANi 8Page 4 of 4

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Comparison of Thermal Generation Costs

Case A - (a) Existing 120 MW Gas Turbines(b) 80 MW Diesels

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Total GTs and diesels GWh 1,011 640 636 520 594 345 635 604 662 477 598 725Generated by diesels GWh 578 519 490 452 546 345 576 558 588 463 513 581Operating Cost at Rs0.87/kWh Rs million 503 452 426 393 475 300 501 486 512 403 446 505

Generated by GTs GWh 433 121 146 68 48 0 59 46 74 14 85 144Operating Cost at Rs2.58/kWh Rs million 1,117 312 377 175 124 0 152 119 191 36 219 372

Total Rs million 1,620 764 803 568 599 300 653 605 703 439 665 877

Capital Cost Rs million 1,179

Present value of Operating and Capital costs at 10% discount rate = Rs§X936 million.

Case B - (a) 40 MW of existing Gas Turbines(b) Combined cycle of 80 MW of existing gas turbines plus 40 MW of exhaust fired steam units(c) 40 MW of Diesels

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Total GTs and diesels GWh 1,011 640 636 520 594 345 635 604 662 477 598 725Generated by diesels GWh 289 260 245 226 273 173 288 279 294 232 257 290Operating Cost at RsO.87 Rs million 251 226 213 197 238 151 251 243 256 202 224 252

Generated by CC GWh 722 380 391 294 321 172 347 325 368 245 341 435Operating Cost at Rsl.

79Rs million 1,292 680 700 526 575 308 621 582 659 439 610 779

Total Rs million 1,543 906 913 723 813 459 872 825 915 641 834 1,031

Capital Cost Rs million 1,297

Present value of Operating and Capital costs at 10% discount rate = Rs80Q99 million.

Case C - Existing 120 MW Gas Turbines only

1984 1985 1986 1987 1988

Generated by GTs GWh 1,011 640 636 520 594Cost at Rs2.58 Rs million 2,608 1,651 1,641 1,342 1,533

SRI LANKAEIGHTH (DIESEL) POWER PROJECT

Construction Schedule

1982 1983 1984

J I F I| MI|A |FM J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

TURNKEY'MOBILIZATION CONTRACT

SET-UP ON SITE, SOIL INVESTIGATION CHECKS AWARD

PILING -- LOADINGS, G.A., CALCULATIONS, DETAILS | | |_

- MANUFACTURE AND SHIPMENT ) TEST PILE

- INSTALLATION

POWER HOUSE ZONE EXCAVATIONS 0 l O

POWER HOUSE BASEMENT CONSTRUCTION,1234567

DIESEL-GENERATOR BLOCKS CONSTRUCTION ( KM)

POWER HOUSE MAIN STEELWORK

SECONDARY STEELWORK AND CLADDING -0

POWER HOUSE CRANE

POWER HOUSE ANNEXES FLOORS, ROOFS, WALLS l W )

DIESEL-GENERATOR UNIT NO.1 INSTALLATION

COMMON SYSTEMS AND UNIT NO.1 AUXIL.TESTING

UNIT NO.1 OFF-LOAD AND ON-LOAD TESTS

UNIT NO1 RELIABILITY TEST ft

UNIT NO.2 R.T. ONK

UNIT NO.3 R.T. 0

UNIT NO.4 R.T. .

UNIT NO.5 R.T. M

UNIT NO.6 R.T. 0

UNIT NO.7 R.T. -

World Bank-23817

-50-

ANNEX 10

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Schedule of Estimated Disbursements

IBRD Fiscal Disbursements (US$ million) CumulativeYear Quarter Quarterly Cumulative Percentage

1983 1 4.6 4.6 112 0.5 5.1 123 0.7 5.8 144 7.7 13.5 32

1984 1 7.9 21.4 502 8.8 30.2 713 7.3 37.5 884 4.1 41.6 96

1985 1 1.1 42.7 100

-51- ANNEX 11

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Income Statement, FY1976 through FY1980

(Audited figures unless otherwise stated)

(Rupees million)

Year EndingDecember 31 1976 1977 1978 1979 1980

(estimated)-/ (audited) (unaudited)

Energy Generation (GWh) 1,133 1,217 1,382 1,540 1,526 1,668

Energy Sales (GWh) 996 1,042 1,161 1,294 1,298 1,396

Energy Losses (%) 12.1 14.4 16.0 16.0 14.9 16.3

Sales Revenue (Rs/kWh) 0.16 0.16 0.18 0.30 0.30 0.59-

Revenues:

Sales 161.3 170.8 205.3 388.5 392.0 826.0

Other 16.9 25.9 36.5 18.0 42.9 61.1

178.2 196.7 241.8 406.5 434.9 887.1

Expenses:

Generation 9.1 9.8 13.3 29.0 15.9 26.5

Fuel 4.6 1.1 7.4 27.9 24.3 253.7

Transmission 6.8 5.5 7.6 16.7 4.6 4.4

Distribution 26.0 24.8 35.2 59.1 37.9 53.7

Administration 37.1 38.5 46.0 66.4 51.8 64.6

Insurance 1.5 2.6 3.1 4.5 4.4 6.5

Depreciation 36.1 68.4 83.3 105.8 119.3 154.2

121.2 150.7 195.9 309.4 258.2 563.6

Operating Income 57.0 46.0 45.9 97.1 176.7 323.5

Less: Interest (15.9) (24.7) (27.8) (24.1) (43.1) (27.0)

Net Income 41.1 21.3 18.1 73.0 133.6 296.5

Operating Ratio 53% 48% 47% 50% 32% 46%(before depreciation)

Average Net Fixed Assets 1,047 1,864 2,147 2,686 2,611 3,660

Rate of Return on ANFA 5.4% 2.5% 2.1% 3.6% 6.8% 8.8%

1/ Sixth Power Project (Credit 1048-CE) Appraisal

2/ Sales include revenues from fuel surcharge (Rs 309.5 mill) equivalentto Rs 0.22/kWh.

-52- ANNEX 12

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Tariff Structurel/

Unit Charge Maximum Demand Minimum MonthlyCategory (Rs/kWh) Demand (Rs/kVA) Charge (Rupees)

1978 1980 1978 1980 1978 1980

1. Domestic/Charitable:

First 50 units 0.31 0.35 - - )Over 50 units 0.21 - - - )5 1051 - 350 units - 0.45 - - )Over 350 units - 0.70 - -

2. Religious Premises 0.18 0.30 - - 5 10

3. Bulk Supply (toLocal AuthorityLicensees)

a) Up to 400 V 0.20 0.35 17 20 5/kVA 10/kVA

b) Over 400 V 0.19 0.35 15 18 5/kVA l0/kVA

4. General Purposes:

a) Up to 400 V/50 kVA 0.36 0.60 - - 10 upto 20 upto

10 kVA; 10 kVA;5/kVA 10/kVAover over10 kVA 10/kVA.

b) Up to 400 V/over 50 kVA 0.25 0.60 19 20 5/kVA 1O/kVA

c) Over 400 V 0.24 0.60 17 20 5/kVA 10/kVA

5. Street Lighting 0.25 0.50 - - - -

/ Tariffs increases were introduced from December 1, 1978 - October 1, 1980and June 1, 1982.

-53-* ANNEX 12'

e~~~~6~~~ ~~~

The Gazette of the Democratic Socialist Republic of Sri LankaEXTRAORDINARY

q°n 189/11A - 1982 cp-d 24 Ezi roc 63S- 1982.04.24No. 189111A-SATURDAY, APRIL 24, 1982

(Published by Authortty)

PART I: SECTION (I) - GENERAL

Government Notifications

CEYLON ELECTRICITY BOARD 2. The monthly charges for supply under this tariff shallbe at a basic rate of 40 cents per unit (exempted from the Fuel

Tariffs arnd Charges Adjustment charge).

NOTICE is hereby given in terms of Section 62(2) of the CeylonElectricity Board Act, No. 17 of 1969, that it is intended to 3. The above charge shall be subject to a minimum chargeintroduce with effect from 1st June, 1982, the following tariffs of Rs. 10/- in respect of any month.and charges for the supply of electrical energy to all directconsumers of the Ceylon Electricity Board who are suppliedby the integrated hydro-thermal electrical power system. SECTION 3-STREEI LIGRTIwG TA:amp

K. S. Y. W. P];RERA, Of 1. This rate shell apply to supplies given for the purpoeK. K.Y, W PxRR-1*of public street lighting only.

23rd April, 1982. Chairman.Ceylon Electricity Board, 2. The monthly charges for energy supply under this tariffSir Ct alam A. Gardiner Mawatha. shall be at a basic rate of So Cents per unit plus Fuel Adjustmentcotob 2.Charge in accordance with Section 10.

SEcTrIo2 1-DoMsTIc TARiFF

Raete D.1 SECTIox 4-TABirr FoB BuLx SuPPLY TO LIcQNsCs

1. This tariff shall apply to supplies of electricity used for The rate L.l and L.2 set out below shall apply to Bulk Sup.domestic purposes in private residences. plies provided to License"s within the meaning of the Electrioity

2. The monthly charges for supply under this tariff shall be- Act. The "domestic consumers" mentioned in this SectionFor the first 60 units (1st Block) at a basic rate of 40 cents refer to domestic consurers Of th li

per unit (exempted from the Fuel Adjustment Charge). Rate L. I

For the units in excess of 60 units and upto 150, units This rate shall apply to supplies delivered and metered at(2nd Block) at a basic rate of 80 cents per unit (exempted 400 volts or lems. The monthly charges under this tariff shallfrom the Fuel Adjustment charge). be the sum of the charges (a), (b) and (c) given below, subject

to a mninimUma charge of Rs. 30/- per KVA of Assessed Demand.For the units in excess of 160 units and upto 500 units

(3rd Block) at a basic rate of 80 cents per unit plus Fael (b) A maximum demand charge at the rate of Rs. 50/- perAdjustment Charge in accordance wvith Section 10. KVA of maaximum demand at each individual point of

For the units in excess of 600 units (4th Block) at a basic supply made during the month.rnte of Re. 1.00 per unit plus Fuel Adjustment Cliarge (b) Unit charges for Blocks of energy as followsin accordance with Section 10.

(i First Block of Units equal to 120% of the sum ofThe above charges shall be subject to a minimum of Rs. 10/- Units used per month by domestic consumer,

in respect of any month. consuming upto 50 Units per month

SECTION 2-RaLtGIOUS PREMISES AIxD APPRoVED plus 120% of 50 Units x number of domestic

CA-rTABLLu IWS5TlTT7roxs-TARFs consumers consuming above 60 Units per

Rlate R.l month at a basic rate of 30 cents per unit.

1. This rate shall apply to the supnly of electricity to (a) (ii) Second Block of Units equal to 120% of the sumof Units used in excess of 50 Units per montha place of public religious worship inclung a private residence by domnetic consumers consuaing in excess ofor residencesof a priest or priests wheresuchresidence or residen-ces are associated with and are within the curtilage of a place 60 Units and up to 100 Units per monthof public religions worship and ts. (b) approved charitable pius 120% of 60 Unitsx number of domesticinstitutions. The installation should not include any buildings consumers consuming above 100 Units perused mrsinly or wholly for comamercial purposes. month, at abasic rate of 50 cents pen Unit.

1 A

* .AYNEX .12.

I waZh*t: (I) tr4- &t,aa 3d2z¶?1 ZIt 6W4$'*nJ qi C@ee e1,>t B.-4StG.MPAtr 1: Sac. (I)-GAZ=ET'E EXTRAORDINARY OF THE DEMOCR$ATIC SOCIALIST BEFtBLiTe OF SRI LANX_A 112.t024

(W) Third Blo4k of Unita e'qul to l20% of the sm of Raft r P- IlUits ia excess o1 100 Units per month by I 'T4is rat $ P pply to eepoes Gt eah adivIderi potdo0"etic moasuns consuming in "'css of lO of supply deliver e metered e

t400 volta or lEss d wher

units and up to 150 Units per mnonth the A_ed Demand is les than 50,VA.

plus 123% of 10 tJnita 't number of domoetic j ycosumers consumifng above I 60 Units par Mntik 2. T'h monthly _hargI for Izpi at each individual pointat a basic rate of 656 cets per Unit. of Supply undr thisa -riff sa bent a baic rae of 70 eta per

*unit plus fuel adjustmet charg !z accordance With bection 10.(iv) Fourth Block of Units oas of all units pur.

tWad Ver month by the LEoenee in exces of S. Upto an Aseead Dm,nd of 10 XVA7 tb minimumthe Tum of Units in the First, Second and Third monthly charge shall be Ps. 120/--. W-heni the Asased DeusandBlocke, at a basie rate of 65 cents per Unit. exceeds 10 KVA the minrimum monthly charge shbll be aapOi-

plu Ra. 608 per XVA of Awawoi Desad in excew of IO gtVA.(c) Fuel Adusatment Charge for all units in the Fourth Block A

in (b) above, in accordance with Section 10. Pate GP.2.

1. This rate shall apy to sujp.nee at eeah individual pointFor the ptirpooe of coOpwJation of monthly biHs by tne Caylom of suppiy delivered and aetewd s4t 40 volta r lows and whare

Elctricity Board the Licensee shad provide in the ma'ner the A Demand is equal to or a:eceedso SO EVArequested by the Ceylon Electrioity Board the monthly dete.is ofconaptioii of their rqtail gupplies. Until seuh data is provided 2. The monthly charge for suppZiss undar this tarif sha beto the stisfaotion of the Ceylon Electricity Board the monthbX the en of the charges (a) sadi (b) given bdow subject to abils shall be worked out on an cetimated basis by the Ceylon minimum monthly charge of Bc. 80/- per KVA of AimedElectricity Board. . Demand.

ResL.2 2 (a) A maximom demand ehasre at the rate of Ba. 125/-This rate shall apply to supplies delivered and meterod at per EVA of Maxium demand made dutlng the orothk

more than 400 volts. The monthly charges under this tariff (b) A baQic rate of 65 ets. p&r unit pla fizal adjustmeutshall be the sum of charges (a), (b) and (c) given below sbject charg in accordance with Section 10. 1to a minimum charge of Ba. 30/- per KVA of Assessed Demand.

4/ Rete 0P.S(a) A maximum demnand charge at the rate of Rs. 45/- perKVA of maximum demand at heach individual point ' 1. This rate shall apply to upp isa delivered and mehoedof supply made during the month. - at more than400 volts,

2. The monthly charges for aupnlieL at each individual point(b) TTnit eiarges for Blocks of er:ergy as foUow a : s of euppiy under this tariff shall bh thfe sm of tib chargs () and

(i) First Block of Units equal to 120% of the sum of (b) give below subject to a monthly minimum chsrgi ofUznits used per month by d'onestic consumers Rs. 55i- per KVA of A d Demand.consuming u.p to 60 Units per moonth (a) A maximum dens.d charob at the rate of Rz. 115/-

phIns 10% of 60 Units a number of domestic per EVA of maximum denaud madde during the month.consuner consuming above 50 Units par month (6) A bsic rete of 60 ots. per un olus fuel adj t charaat a basic rate of 30 cents per unit, in aCCOrdance With SEction iO.

(ii) Second Block of Units equal to 120% of the sumof Unita used in excess of 50 Units per month bydomestic consumers consuming in excess of Stoow &-lcrs.t T50 Units and up to 100 Units per month

The rates 1.1, 1.2. ad I.3 set our below shall be applicable to aplus 120% of 50 Units x number of domestic supply of electricity used wholly or mainly for motie pr

consumers consuming above 100 units per or for electro-cheniicel procees iz factories, workshops, foun-month, at a basic rate of 50 cents per unit. daries, oilmills, spinning and weaving mniil, pumping Stations,

port and dock installations and other similar industrial inseam-(iii) Third Block of Units equal to 120% of the sum of tions, but shal not be applicable to a supply of electricity for

Unite used in excess of 100 Units per month by standby purpoedomestic consumers consuming in exoss of100 Units and upto 150 Units per month Rata 1.1

plus 120% of 50 Units x number of domestic 1. Th)s rate shal apply to supplies at ewah individual pointconsumers consuming above 160 Units per of supply, deliverd and meterer. at .00 volts orz les and where -

month, at a basic rate of 55 cente per Ulnit. the A d Demand is less than 5 EVA.2. The monthly charge for supplies at each individual point

(iv) Fourth Block of tUnits consisting of all unitR pUm- of supply under this tariff ahall be at a basic rste of 65 eta.chased per month by the Lionsee in excess of par unit plus fuel adjustment charge i accordance with Sectionthe sun of Units in the Fizst, Second and Third 10.Blocks, at a bisic rate of 56 cents per Unsit

3. Upto an Assessed Demand of 10 KVA the monthly mini-(c) Fuel A%jutment Charge for All Units in the Fourth Block mum charge shall be Rs. 1O0/-. When the Asesd Demand

in (b) above, in aocordacce with Section 10. exceeds 10 EVA the monthly minirocen charge shall be BR. 100/-plus, P. 60!- per EVA of Azeseese Demand in smcees of 10 KVA.

Fo the purpow of computation of monthly bils by the CeylonElectricity Board the Licensee sill provide in the manner ate 12requested by the Ceylon Electricity Board the monthlydetails of 1. This rate shall apply to supplies at each ind3ividual pointconsumption of their retails-appliee. Until such data is provided of supply delivered and metered at 400 volts or kls and whereto the satisfaction of the Ceylon Electricity Board the monthly the Assessed Demand is equal'to or e7oceds 50 EVA.bills shall be worked out oo an estimated basis by the CeylonElectricity Board. 2. The mouthly.charges for supplies under thig tariff sball

be the sum of the cbarges (a) and (6) given below, subject to amonthly minimum charge of Rs. 50/- per KVA of Amadsed

SECoTIO 6 --OtirsuA PcRprosx Ta-uT, Demand.

The rates GP. i, tGP 2 arwi GO? 3 set out below shall be applica- (a) A maximum demand charge at the rate of Re. 100/- perbhi to a supply of electricity to be used. in shops, offices, banks EFiVA of raximum demand made during the monthwarehouse, public buildings, hospitals, educatioral establishmentsplaces of entertainment and other similar premises but shall (b) A unit charge at a basic r .te of 60 cts. per unit pica fuelnot be applicable to a supply of electricity for standby purposes, adjustmeat charge in a-ec.rd,*nce with Sectioz 10.

-55- ANNEX 12

I @iz)aa 3 (I) ot%t3-0 '~ yCS3 =2I114ZS az)E`& eSd~ndead Come kt5c* 03-L982.O4.24

C r.(l) GAZETTE EXTRAORDINARY OF THTE DEMTOCRATIC SOCIALIST REPUBLIC OF SRI LANAK-1982.04.24

Rate 1.3 Except in cases where specifically exempted, an averaged

1. This rate shall apply7 to sujpplies delivered and~ intereil Fuel Adjastment Chiarge) en the units shl] be levied monthly inat mnore than 400 volts, addition to the charges at the basic rates per unit given. The

present ainnual avearage, estimated Fuel Adjuistment, Charge is

2. The monthly charges for supplies, at, eachi individatil 1 ioinl, 185 perc'stof supply under this atariff shall Iio the rum of the chat-ga- (at)aind (b) given below, subject to ani tly n'ioimurn charge ofi At theo end' oF ther year the~ actual fuel. test will be comparedRts. 45/- per I(YA of Asse,sseclDemn toid if any modification is necessary, this will be made in the

ilemanri. ~~~Fueol Ailjtstment Chiarge) percentage for thep next year, or if(-i) -A maximtim demand charge at. thec rate, If F`-c ()ll;- per hieco:;ssrv ir rqobIoifeto ilb ae

EiVA of maiximumr( dleiatol ma-ha ibrntlifi, moeulh. aneefrq nt odicinwilbmd.

(I)A and it cargo at a basic rate of 52 etc-a~r iiii j)lil At the beginninig of act-h subsequent year or as found necessary.fuel adljustet hrg n cordet11 ,-ca ori u he estimated Fucl A ljustnmettt Charge percentage applicable

tinent charg,~ iTI W -0 for that yeiar or periodi t-ill ho announced by the Ceylon Elee-

SEcTrecr 7--HOTELS Tacics- trictty B3oard, for tho be,nofit of the consumers.

The rates Hotels I, Hotels, 2 a,nd Hlotels .3 tot, out, bilow shaU E NIOSANDCA FITON

be applicable to a, supply of electricity to he usedl in- Hotels. irlTtN ADcaRtAlOs'l'ourist Hotels, Restaurants.q C1vfcs andI other simailar piernmits I - Tliat Zlanthly Charges ' andi Fitel Adjulstment Chargefurt shall not be applicable Li; a, -r fplvl of olect ticioit for sitan-thny It0,ll ha based on the routine mneter readiings which shall bepurposes. t,ison at a,pproximately:10day~s intervals. WAhere such readings

Rate Rotc) I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ?liW neot bee,n ta,ken assessments of the readings shall be madeRate Hotel I hv~~~~~~~~~b the Gocnrai MTanager of tho Ceylon Electricity Boardl and used

1. This rate shall applyl i,i -pplo icea so: iniv,lidual pofin tofr crisaptitation of tfie inontbly charges anti F'uel Adjustmenitof supply db-lives-ed aiii m~tt's-ali at 400 v: -Is or less and utmos-e Charge.

the Assssed Dmand ig1"., t-lwl -J Kvik.2. WNhen the dlate of coi-nmnaicemient of supply is other than2. The monithly -itar-ge. fi- sitpi~c- at each indiviidual point the liortinal routine mecter readling date, the uniit charge) shall

ocf supply' under this tariff shai] he at a bash, raite of 70 ctq. ri-ln.tic as l,fiire while the~ ineximnurn irdemand charges shall beper uinit p)1 is fueal adjustrmciiTi Ii rrce in. aio-ini'da 0 w n ith >1' t tacn lvitrtal on a pro-raft~ basis diopeint)i g on the poriot after cenneci-It(. tSi"n rif supp- y.

3. Upi o ani AXssost-si I Ji.-i and lit lISKA thein it lily 3. TIhe, iiax tilein at ii a XiD ovottaunperes; (KVA) fornoinimnim elierge shall toie si lt- IateAs120-edIlom-teI ao,y inoimth shall, itioi ia o t rho instrumeont uscoIl. bu

ptis Rt.. 0(/O- per KVA. of Asesei w)ttintil in o-x ice if pI-Q K A. (a) Thell highenst nutil-a, it amiperes -egiskirid by the oieinandinditrtor rnitiltipitil hr rho cUrrent transforme(r ratio

RPale Hotls id the) declare~i voltage an(i ilivliledt by- 1.000iir

-. This rate shiall apply tom supplies, ai at i, iv- ii tuall po. 11iiiof suipply delives-odi a-id metereod at 4(0 evitli sum- li,-s ;mil wis-ero 151 Yl inctI- loiam

1- ii Kileovoltamnperes obtained in the

thep AssAessed J)emnanid is equial to or *'\~ -".ais ~iIKY I" .fT'l 1 in-astireil 05,r lii-c\Cperiods of not lessI hatii 15 miutiue ilitl-rvi-l.

2. Thei mnonthl', chaLr; it -r .ipplios Lind-r this- iifi' slial. ci'tfie sint of the rh-i-er's, lii antiI )li) givcu It-I its itijit hi i Ti, ica-t of the retorICil inazifuiuto Iieintiti[ In EVA is riot a

uticnthli milii ni im cli argo of R,;. -5/- ptr II V. if 5 T- <u--h)- nuber. rhsl Tnaximi min rlomntat i hargeable shall be" the

JItm Aania\-iwn i-lamrgn glut-s-it il-cRmutoberiii xvli) cAx iiit maxd-'Tea in I . isc itu rat I li--to if Es.e1-sG - lii 4. 'l'ht oxpr-ass ion ' A-osseild Termaiti ' In kilovoltaniperes

IsV3. -f axisitn l:ian' mi )eiluati th mifl - n11t t,tit sirvtct 'alapact re-squirel by the consumer based(b) A ii isiit, iharge at a baxsi~ ntafil ). ;5 crc. per tiait 1ilkii fue~l etcn 4 jjt-iiKi:tto:i. ci the date, of' coninection or as subsequently

atl ti nu lti-Wi i..lttIt vur:-)it, tile, reqimns,t of the citasirner, such assessedi demaisnd

Pete Hotels 3 la-ha~~~~~~~~~b, ig mi-t Icsthau the actuial maximlum demrand madle or likelyPinte Hot,~~~~~~~~18 3 ~~I-i 1cc3 m ade froml tiTne I.e time, The assessed demnand shall not

I. This r,1-I sha~ll appaiy to sapplies de.teIant tieaitlreil ha1 r,--las-i- tremat eiy c,irca amnount unitil after the expiry ofat more thata 4iic-iis terolve months fi-ro tllme idate at which suich assessed demand

2. The montlily dilysfar slipplio at ead,, in lie-i.~iiialpoint of suppcIy under t his tnt iff slushl be ti-1- sum nf thi.)edotty',s 5. The -it-nil - it-n i it tie, oi attxt of coerce -lire hl(a) and (b) gt-la hi-leer, sub ie,t to) a nionithll mninimium- cbs n-go li-ahAw n i (NIWH). -cbre h-if Its- 70;1- per 1-15A of A\u-sossc- Demand.

(a) A maxiimum dm-ttnil chat-ge at slite rate of Rts. 140;.- NII.CELa,a•aerS CHARGESper KVA of maximum iulensatI rondo curing tlte E's. ea,

isionth. I.2s-lilctf Tssu

(5) A ttnii ibtarit, tt a basiic rail i~f SO etc. pr unit lie,j fuelo -t -s-li-t- f ir-s tstallation andl exti-ilsions toatl (iicttiiiuiitn.y -go in ~s-tla -a eeiila t~c-s ou lit. -~.-< <> ion-- Free

Rates tar statildby piiVposise shall lIt (lilt ermine') lie the, s-ir I - For tin-i,hat v, It tf if cr art-a 2,60)0 sq - t -Manage,r. Coyilin EL~ - tci-i i tv u3-r-i. in a-cI cs.sr I-c,

SEIMO'N q --- T).PO',[T Ar,,ATN'T ELEC~TRJGTTY xtotison - 20 00ANit, SECURTYrs its BeARt i `-1it1P>mr_'sT

iii) or itu-:callation.s if fitter area raore thanThe~ El-itriciiis la.-I <all iitiia1-ptitajPpr-x-.not,,:----- 2Ot n.t -

equn)allt clm a b -e-si -- i!lCCusitfti ot C,itilu,ie tn-tnlla:ioxi citr evety 2.000 --q

until icc. - - Sit 00~~~~~~y, ~:,nrN ar i~rn

h-tni- -fur-- i 2,1)40 sq. ft. i"Fr.-Ji.-.s 10 ,IitSttTi5n~ ci -ir nqxrr tb--wit --- 2 tij

iTo, sxp-sip- --a nittirt- no se--zrt of s-ue! in it-. z-s--'--a Mi: -u - Mlr iv-'1

I. ue-ti tt-ei th Ic i .- o'rtte 1- r lktciugars bt- e ) rs-c-oem- Ai'--ste-u>is -- > -1 t>,- .- cl r at -uneiister s request (it the mrmacurimros

Charg le-cc- ti~'t iIto ial tcit. xeop-n-hoti- of-Is etieer -ants-s-Is plus, hr mititis 2I per renit.'omens *li'i,1ew! iJwi,,1of-ioiertitnifu' ills osis-it i-~~~~~~~~~~~~~

tIt'. toosol berfisdl--- 10 0

-56- ANNEX 12

I wdqO: (I) c 4 e° 9dsosu> CO SW0 d@ z dd" q8 vOa. 0* !o-1982.04.24PA3T I.- SzC. (I)-GAZETTE EXTRAORDINARY OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA-1982.04.24

Chavgeafoo Ddays in Payment: 5. Reconnection Fee aftei' Disconnection at coneumer's fequeB:In the event of a consumer being in arrears of his electricity Be. c.

bills for a perid of two months or more, a surcharge of 20 per Reconnecting the supply after supply had Feencent. may be levied from such consumer in respect of such out- disconnected at the request of the same consumer 60.00standing arrears. The application of this surcharge shall beat the discretion of the General Manager, Ceylon Electricity 6. Failure of Supply:Board. If a disconnection order is issued in respect of a consumer (a) Rteplacement of pole fuse . .. Freetho is in arrears of his electricity bills, the above surcharge willbe applied together with a charge of Rs. 50.00. (b) Fee for attendance of Futsemnan for replacemenit

of fused service fuse for an -installation of anChage foe b*aah of Regulations: assessed demand less than 50 KVA .. 20.00If any regulations under which supply has been provided is (c) Fee for replacement of fused service fuse or

violated (for example, tampering of meters, breaking of cut-out resetting of breaker for installations where theand meter seals, etc.) by any consumer a charge of Rs. 2,000.00 assessed demand exceeds 50 KVA 120.00will be levied in addition to the installation being liable fordisconnection. Further any unmetered consumption will be Tariffs, charges and fees; published in any previous noticesliable for assessment and recovery. The period of assessment applying to consumer. fed from the national grid are herebywill be at the discretion of the General Manager, Ceylon Electri- revoked.city Board. 4-68

PRINTED AT THE DEPARTMENT OF GOVERNMENT PR-NTING, SRI LANKA

-57- ~~~~~ANNEX 13

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SRI LANKA

EIGHTH (DIESEL) POWER PROJECTlIb-CEYLMN ELECTY BOARD FLUh OF FUNDS RUPEES MILL 03/31/82

,,,,,, ,, ,,.M...,,.... *....... .._ .- ,_._............. 0------- .... _._."-som ........ w_..-.9_-_ _-.__w't-- ...... n-01979 1960 1981 1982 1983 1984 1985 1966 1967 1988

SUURCES OF FUNO$

INCOME BEFORE DEPRECIATIUN 296.00 47T,70 7S4,70 1000,7l 1089,64 1555,29 2106.00 2562,19 2925.97 3353.31,.,......... 0 V_,.._., _,W_ _ove., w_.__.__ , _,_........ .. " __, ..... ... ,... , *._ ... "... ... .. ... __,

GROSS INTERNAL GENERATION 299,00 477,70 754&7u 1000,71 bUe9.84 f'SS.29 2lo8O,O 2!b2,19 2925,97 3353,31OTHtR CONTRIBUTIONS 0,90 313.60 $3,00 11S,00 laS,@0 121,00 121,00 125,00 125,00 125,00EOUITY TNCREASE 56.40 116.7o 396,00 35S,oo '42700 20.00 20.00 0,00 0,00 0,00TOTAL LOANS 166,90 537,50 266.00 1005.11 1Jb7,U4 369R.34 ' 126,58 1625,00 5d5,oo 2925o00

TOTAL SOURCES 530,20 1'445,50 1489,0 247,8Z 3179,31 1359,63 5979,50 4312.19 9$5797 6'03S31

APPLICATIONS Of FUND$

INVE3TMENT IN PkOJECTs1 000 0o.0 o 0,00 649.67 1411 I2 464,52 192.S4 0 00 00o0 0,00

OTHER C!t INVESTMENT 311,00 7o5oSo 1488,00 1354,g0 1219,00 720,00 480,00 asoO,oo 4090,00 4500100MAHAWEL! TRANSFER$ 0,00 0.00 0,00 0,00 0ole0 300.00 3o00,00 0,00 3600,00 0,00

TOTAL INVESTMENT 311.00 705.50 148.00 20o3.&7 2630,11 4484,52 4172,54 2500,00 h1l0,O: MSoo,00DEBT SERVICE;

TOVTAL, AmnRTIZATION 44,60 36,70 55,00 65,00 112,00 186,00 551.75 Sl2.15 S14,15 658,15TOTAL OPERATIONAL INTERE51 43,10 27,00 63,00 77,89 196.Z6 391.9 744.14 1091,97 1040,83 1344,9

TOTAL bt2T SERVICE 87e0 i5,70 118.00 142,09 310.16 579.95 1099,89 1605.12 1S54,98 2002,84 ¢INCRASAl IN UOR4KCAPTYAL 131,50 67,430 .136,30 329,16 23.33 328w *S 1 *9,3 iagXSxX s:sss-=4:g z~x lgauxam *81ssasem 2zemages xx sags2st xxxxsxass sxxwstws ts:Wgau axaxuxs X lTOTAL APPLICATII)NS S30,20 I145,50 1469.70 2475,62 5079,51 5692.63 5179,58 431,19 9S75,91 6403h,o3

0t1t sERvICE RATIO 2/ 3038 7,27 6,40 7,00 3,51 2,68 a,01 160 1 88 1,67% COuNTPIRUTON To INVESTMENT 4- 24 - 34 3 2 -2>

/ Seventh and proposed Eighth TDA assisted power projects

2/ Net of working capital

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

I7wCEYLUN ELECTY BOARD OALANCE SHEJT RUPEES MILL 03/31/82

ne, .... e............* … a....... .,aa...aa-a .

1979 1980 1981 1962 1983 1904 1985 1986 1987 1988

A S S E TSV.0 ... _.-. *

FIXRD AS37TS IN UPtR, 4383,60 6416080 0459.92 10559,71 1446,*38 21970,91 Zt9o6,58 305O7,11 36947,68 41103,50MINUS ACCUM.DEPRECIATION 1322,40 1818,06 8295,92 2855,91 3511.15 4360,24 5194,88 66Z9,66 08U7,53 9807,74

~~~~~~~~~~~~~'--.n.a *.eee*w .___ e e ...... WC ,,,fl *Z,_We, _,_,P,, .e.a... ,,_

NET FIXE6 ASSETS 7071,40 644,74 6164,00 7703,80 I0t35.13 17610,67 22511.70 2387r,46 28860,15 31295,7bWORK IN PROGRESS 565,00 325,40 783,40 1787,07 1i429;9 77,31 71,8 2203,65 63u3,85 9603,84CASh AND BANKS 95,60 195,30 59.46 56,44 106,68 337,73 860,06 940,03 828,99 442,71AetOUNTS RECEIVA8LE 108.20 326,20 489.03 829,18 1022,46 1123,82 1146,25 1335.55 1371,14 1663,83SUNDRY RtCEIVABLES 388,10 563,50 422,00 435,00 448,00 462,00 477,00 493,00 509,00 S26,00INVENTARTeS 200.90 192.°0 318,93 346,04 473it3 401,76 419,8, 4455s.b 4'$8,oI St1.99RECHARgEABLES 27,40 52,30 60.1s 67,96 75,44 82,98 89.68 96,79 104,54 112,90

TOTAL CU4RENT ASSETS 814.20 14l7,9o 1349,57 1734,61 1026.31 ';06.2, 3;62,81 3321.04 3297.28 3257,43s3uZ:3sU :ZUssUU3 uzuuajz: zumauasm s*5Ua.s3 su33x-

3s meatuses cuanoeis u.USuuum .3atams

TOTAL ASSeTS 4440.60 o398.04 8296091 11225,49 14654*93 20096.27 25646.36 29402,34 38461,28 44157,03

EUUITY AND kIABILITIES @

EQUITY 560.00 676,70 1073,70 1427,70 1654.10 1074.70 1094,70 1894.70 1894.10 1694,70IONtRISUTIUNS 34,10 347.70 400,70 515,70 b40,10 765,70 990.70 1015.70 1140.70 IZ6S.76REVALUATION SURPLUS 1914,40 2704,85 3401,26 4202,58 505S,O0 6123,52 7332,37 9333,3 11243,50 13552.31O9E9ATIONAL SUkPLUS 737.90 1634.39 1520,93 2182,3 273a.12 198 ,07 4176,12 4842,15 5799,78 6735,19

TOTAL COuITY 3246.40 4763,64 6395.59 8328.21 10178,12 1*161,99 14493,89 17085.8 20078,68 21447,90

LONG TEQH DEBT(NET) 723,70 1206,20 1407,2° 2300,11 3449.78 86,37 10000.80 11111.6 16976,51 19087.36

ACCOUNT pAYAbLES 431.80 373.20 429,18 484,07 b38.32 S92.16 659.52 690,69 745,9/4 805,62CURRENT MATURITIES 36.70 55,0 0 65,OO IIa,oo 188I00 355,75 1*2,15 514,15 6c5,1s 816,15

TOTAL CURRENT LIAMILITIE4 470.50 128,20 494,18 596,97 726,32 947,91 1151,o7 1204,84 1404,09 1621.77

TOTAL LIABILITIES 1194,20 1634,40 1961,38 2897,1. 4176.10 7934.28 11192,47 12316,49 183V2,60 20709,13 z

TOTAL C5IrITYaLIABILITIC3 4440,60 6398.04 *2'6,97 11225.49 214O54*13 o0096,27 25646,36 29402.34 38461128 441i5703 x

'WoKRINS CAPITAL.MILLION 3e8,40 1056,70 920,39 1249,65 1487,99 1616.14 2423,29 2630,35 2551,34 2451,81h6URRENT RATIO 1I73 3034 2,73 2,91 2,19 2,54 2,66 2,76 2,35 2,01S DISTOMEST+EQUITY) 16.13 20020 18e03 21*64 26.20 36,49 40,83 39.41 45,82 44,87

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Power Sector Investment Program 1981-90

(Rs million in 1980 prices)

TOTAL 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Generation

CEB: Bowatenne/Canyon 631 140 211 280 - - - - - - -Thermal phase 1 378 378 - - - -

Thermal phase 2 1/ 1,240 120 870 250 - - - - - -

2/Non-CEB:- Kotmale 6,600 1,330 1,630 1,620 1,510 510 - - - -

Victoria 4,850 1,090 1,260 1,500 1,000 - - - - -Randenigala/ 5,350 - 1,070 620 920 1,110 250 320 610 450 -

Rantembe

Transmission/Distribution

Sixth IDA 760 80 320 250 110 - - - - -Seventh IDA 1,152 - 319 716 69 48 - - - - -

Other 1,097 266 227 172 253 179 - - - - - g

Rural Electrification

ADB project 490 313 120 57 - - - - - -other works 3/ 15,036 297 359 330 300 300 1,850 3,400 3,300 2,900 2,000

Total Power Sector 37,584 4,014 6,386 5,795 4,162 2,147 2,100 3,720 3,910 3,350 2,000

- Assuming diesel plant (80 MW)

-/Includes complete headworks.

3/From 1986 includes all CEB capital investment.

1

-61-

ANNEX 17

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Assumptions for Financial Projections

1. Financial projections of CEB's activities have been prepared forthe period through FY 1988 using, as a base, CEB's FY 1979 audited and FY1980 unaudited accounts.

INCOME STATEMENT

REVENUES (Annex 13)

2. Energy sales are taken from the "Load Forecast through 1990" (Annex4) with the exceptions of (i) FY 1981 where sales have been reduced by 100CWh to 1695 GWh to reflect supply interruptions during the year.

3. The present average tariff is Rs 0.58/kWh. An increase to RsO.79/kWh has been approved to take effect from June 1, 1982 to enable CEBto generate sufficient cash to meet its contribution to the presentinvestment program. From FY 1985 tariffs have been projected at a ratesufficient to enable CEB to continue to meet the covenanted 8% rate of returnon currently valued net fixed assets.

4. The Fuel Adjustment Surcharge is included under "Other OperationalRevenues" and is assumed to recover, in full, the fuel cost of thermalgeneration together with the 2% turnover tax levied on CEB's sales revenues.

OPERATING COSTS

5. Operating and maintenance costs of power generation, transmissionand distribution in FYs 1979/80 were equivalent to about 2% of gross fixedassets in operation at previous December 31 and have been projected on thisbasis, taking into account newly commissioned plant.

6. Full costs are based on the projected annual thermal energy require-ments indicated at Annex 1, with escalation of prices at 8% annually throughFY 1985 and 6% annually thereafter.

7. Turnover Tax is assessed at 2% of the current year's sales revenues.CEB will probably be liable to Income Tax in FYs 1982/83 but thereafterdepreciation allowances will produce tax losses.

8. Administration costs are increased from FY 1981 by 20% in FY 1982,15% in FY 1983 and 10% annually thereafter.

-62-

9. Depreciation is calculated at 2 3/4% of annually revalued gross fixedassets in operation with a half year's allowance for assets commissionedduring the year.

10. Annual contributions to CEB's Insurance Fund (1/10th of gross fixedassets) are included under operating and maintenance costs (paragraph 5).

11. Provision for bad and doubtful debts is a nominal RS 15 millionannually.

FLOW OF FUNDS STATEMENT (Annex 14)

12. CEB's investment program is set out in Annex 16: the positionthrough FY 1985 is as approved by GSL including the proposed 80 MW dieselproject. Beyond FY 1985 the investment program is very tentative and a blockprovision has been included in the years FY 1986 through FY 1988 based uponCEB's preliminary assessment of requirements, through FY 1990 at 1981 prices.

13. CEB's financing plan through FY 1985 comprises existing commitmentsby way of GSL equity/loan in respect of ongoing projects including the IDA-assisted sixth and seventh projects together with the proposed Bank loan forthe 80 MW diesel. GSL Equity representing the reinvestment of income taxpayments is included in FYs 1982/83. The balance of funds will come fromCEB's internal resources. From FY 1986 GSL loans are assumed at 65% of theinvestment program (terms: 10 years, 10% interest). Consumer contributionsof Rs.125 million annually are assumed through FY 1990. assumed through FY1990.

14. Transfer of Mahaweli Assets

On completion of the various projects the power components will betransferred to CEB for operation and maintenance. Adjustments will be madein CEB's accounts to reflect this transfer, including an agreed proportion ofthe common costs (e.g. dams): Sums included in the financial projectionsare:

Rs Million Year

Victoria 3,300 1984Kotmale 3,500 1985Randenigala 3,600 1987

CEB will become responsible for servicing an equivalent amount ofdebt from the year following full commissioning of each scheme. Such loansare repayable at 10% interest over 30 years.

-63-

BALANCE SHEET (Annex 15)

Fixed Assets

15. CEB's fixed assets have been revalued to FY 1980 in accordance withthe movement of indices previously agreed with IDA. Thereafter, annualrevaluations have been projected based upon current guidelines of priceescalation for foreign and local goods: from FY 1981 through 1984 by 15%,13%, 11% and 10%, and by 8% annually thereafter.

16. Work-in-progress represents capital expenditure under the proposedproject and other CEB projects indicated at paragraph 12 above; transfershave been made to the fixed asset account on commissioning of new facilities.

Current Assets

17. The following assumptions have been made:

(a) Accounts receivable: equivalent to 3 months' billings.

(b) Inventories are to be reduced to "more reasonable levels" by

December 31, 1982 l/ and thereafter maintained at these levels;

in the meantime the level at end FY 1980 is escalated annuallyusing current Bank international price guidelines.

(c) Sundry Receivables have been reduced in FY 1981 by the aiaountof GSL arrears in respect of local authority tariffs andprojected using the latest escalation rates.

(d) Rechargeable works outstanding have been escalated annuallyin accordance with the percentage issued for fixed assetrevaluation (paragraph 15).

Equity

18. Equity comprises CEB's initial capital, as increased from time to

time by GSL grants towards construction costs income tax (paragraph 7),consumer contributions, revaluation surplus and retained earnings(operational surplus).

1/ Credit 1048-CE.

-64-

Long-term Debt

19. Long-term debt comprises (a) existing GSL loans to CEB includingthose made under onlending arrangements with IBRD, IDA, ADB, OPEC and theSaudi Fund (to cover foreign costs of previous and ongoing projects), and(b) loans required in accordance with paragraph 13 above to fund CEB'sinvestment program through 1988.

20. Current Liabilities comprise accounts payable, deposits and sundryitems which have been adusted annually for price escalation and currentmaturities of long-term loans (representing amortization due in the followingfiscal year).

-65-

ANNEX 18

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Economic Rate of Return

Economic Costs

1. Cost items are valued at CIF or equivalent border prices, where

available. The remaining local costs are split into labor and other localcost components, and adjusted by a shadow/market wage ratio of 0.67, and by astandard conversion factor of 0.91.

2. The foreign (CIF) and local (domestic price) components of newcapacity are estimated to be as follows:

Foreign (%) Local (%) of which Labor (%)

Thermal generation 83 17 8.5

Transmission & Distribution 68 32 25.5O & M - Thermal generation 90 10 7

- T & D - 100 50

3. Operating and maintenance expenditure for transmission anddistribution is assumed to amount to 3% of cumulative investment, forgasturbines to Rs 0.50/kWh, and for diesel operation Rs 0.20/kWh. Fuel costof thermal plants is based on early 1982 international prices 1/. The fuelcost amounts to Rs 0.67/kWh for diesel thermal plant, and Rs. 2.11/kWh for

gas turbines. A 3% p.a. increase in real terms is assumed as the base casefor fuel cost.

Economic Benefits

4. Benefits of electricity supply accruing to final consumers areassessed as the willingness to pay for a given quantity of energy forspecific purposes, expressed in CIF terms or border price equivalent.Analysis of this willingness to pay is based on (i) tariff revenue, and (ii)observed expenditure on alternative energy sources in the absence of

electricity supply. The sum of revenue and consumer surplus is estimated asthe area under the derived demand curve for energy required for outputproduction or lighting.

1/ Residual fuel oil: US$159/tonne FOB Colombo; Distillate: US$330/tonne CIFColombo.

Domestic electricity consumption

5. Almost 90% of Sri Lanka households are using kerosene lamps forlighting; in rural areas, this percentage rises to 97%. Domestic uses ofelectricity other than lighting are limited (with the exception of theColombo metropolitan area): about 85% of total domestic electricityconsumption is estimated to be used for lighting purposes. In the absenceof electricity supply, households would use kerosene: the total amount oflighting, however would be significantly lower due to the high cost of thekerosene alternative. About 15% of present total domestic electricity usecan be considered minimum lighting requirements. This portion is valued atthe economic cost of Rs 6.16 per kWh equivalent. The remainder ofconsumption is assumed to be valued at a price declining to Rs 1.51/kWh (theexpected average domestic tariff revenue including fuel surcharge, assumed torepresent the lower limit of willingness to pay in real terms from 1983onwards). These values are applied to CEB-supplied domestic consumption aswell as to that part of the "bulk supply" to municipalities that is estimatedto be domestic use.

Low-voltage Commercial (General Purpose) Consumption

6. As with domestic consumption, it is assumed that 15% of electricityconsumption would be replaced by kerosene lighting, the remainder decliningin value to the consumer up to the margin of about Rs 2.13/kWh, the averagecommercial tariff revenue including fuel surcharge. Domestic and commercialconsumption together (including their shares of CEB "bulk supply") accountfor about 44% of total electricity consumption.

Industrial, High-voltage Commercial, and Hotel Consumption

7. For most of these consumers, the alternative to power supply is owndiesel generation, in the form of maintaining a standby generating set forprotection against power outages. This safeguard has become quite common inrecent years, as power cuts have increased. In the absence of the project,there would be substantial daytime cuts necessary (particularly during 1983,1984, and 1985, and to a smaller extent in the following years) to preservelimited energy during the dry season. An average utilization of a standbyset of about 500 hours per year would be necessary in this case. The averageeconomic cost of operating a standby generating set for 15 years at this rateis estimated to be Rs 2.80/kWh.

8. Using this value for an estimated 10% of total incrementalconsumption of these consumers, the valuation of the remaining consumptiondeclines to the average expected tariff of about Rs 1.90/kWh for industry andlarge commercial consumers. The anticipated average tariff for hotels isapproximately equal to the maximum value.

-67-

9. The total economic weighted value of a unit of incrementalconsumption can be summarized as follows:

% ofConsumer Category Consumption Value (Rs/kWh) 1/

Domestic/LV Commercial 7 6.16Domestic 18 1.37LV Commercial 21 1.94Ind./Large Comm. 5 2.80Ind./Large Comm. 47 1.73Hotels 2 2.80Weighted 2.09

Although the cost assumptions (para 3) provide for a real increase in fuelcost, it may not be valid to assume that the upper limit of willingness topay would increase correspondingly. Accordingly, the fuel cost componentof benefits is held constant in real terms.

10. The average CEB tariff revenue, based on financial performancecriteria, is expected to reach Rs 1.86/kWh (including fuel surcharge) in1983. Although Table 45 shows fluctuations due to the expected applicationof a variable surcharge, the observed willingness to pay reached at thatpoint is expected to be maintained in real terms. In economic terms, theaverage tariff is Rs 1.69/kWh.

Transmission and Distribution Cost

11. A notional component of transmission and distribution investment isadded to the project cost, to enable comparison of costs and benefits atretail level. Based on the Sri Lanka power sector development program, thisamounts to about 30% of generation investment in terms of market prices.

System Losses

12. Total system losses, used to determine sales arising fromimplementation of the project, amount to about 17% of units sent out. Thisincludes estimated losses within the jurisdiction of the local authorities.

1/ Tariff value adjusted by SCF. Replacement demand valued at maximum,

remainder at tariff.

-68-

Results of Cost-Benefit Analysis

Internal Net Present Value (Rs mn)Benefit Cost Rate of Return at discount rate of

(in real terms) (in real terms) (%) 10% 13% 15%

Base Cases

Tariff constant Fuel Cost 14 218 28 -72

Increasing

Economic constant Fuel Cost 34 1,712 1,255 1,018

Increasing

SensitivityEconomic constant Fuel Cost

Increasing,cap. cost+ 30% 23 1,291 842 611

Economic constant Fuel CostIncreasing,cap. costminus 30% 58 2,133 1,667 1,425

Tariff constant Fuel CostIncreasing,cap. cost+ 30% 7 -203 -384 -479

Tariff constant Fuel CostIncreasing,cap. costminus 30% 25 639 440 335

March 1982

SRI LANKA

EIGHTH (DIESEL) POWER PROJECT

Economic Cost and Benefits (1982 constant prices, Rs mn.)

1995-1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 2003

Costs Generation - CIF 205 820 - - - - - - - -- Local 31 125 - - - - - - - -

Total 236 945 - - - - - - - - - - -

T & D 66 264 -

Total investment 302 1,209 - - - - - -0 & M - generation - 116 104 98 69 109 69 115 112 118 93 103 116

-T & D - 8 8 8 8 8 8 8 8 8 8 8 8Total investment and

0 & M 302 1,333 112 106 98 117 77 123 120 126 101 109 124Fuel - constant price - 387 348 328 303 366 231 386 374 394 310 344 389

- 3% p.a. real 34increase - 387 358 348 331 412 268 461 460 499 404 462 538-

Total Cost - fuel constant 302 1,720 490 434 401 483 308 509 494 520 411 453 513- fuel increase 302 1,720 470 454 429 529 345 584 580 625 505 571 6621-

Benefit Energy sent out (GWh) - 578 519 490 452 546 345 576 558 588 463 513 581Energy sold (GWh) - 480 431 407 375 453 286 478 463 488 384 426 482

Tariff benefit - 811 728 688 634 766 483 808 782 825 649 720 815Econ. benefit - 1,033 901 851 784 947 598 999 968 1,020 803 890 1,007

l/ Fuel cost increase at 3% p.a. until 2003.

March 1982

IBRD 16386800 APRIL 1982

SRI LANKA

C hunn.kcn EIGHTH (DIESEL) POWER PROJECT: Proposed Power Stotion (prolect)

' '-; .-s - D Proposed Power Staoton (ron-prolect)

. Power Stotions Under Constroct,on (non-prolect)

Eesrrrg '32 IV Powe L Ces

F'Es,ieg 132 kV Power nes operated ot 66 kV

-......... * Eosreg 66 kV Power L ne

P-oposed 132 kV Power Line (nor-prorect)

, r :-, e c Proposed 220 kV Power Lines (non-project)

0, , \ o Cities ond Towns

9, Urban Areo 90

Anuradhapura O

80 ura -Vlaichchenai 80

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Kolonnaw ............

COLOMBOj~ Ponnipitrya

-: 7C'C~ ~ ~ 820

PAK STAN

-60 -6 BANGLA-eD ESH

200 2

KILOMETERS 0 8M ILES _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _0

10 20 30 40 50o0~orC,o,c

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c,wsocowr c55C C~C0ocLANKA

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