JBIC ODA Loan Project Mid-Term Review 2006
Evaluator: Junko Fujiwara (OPMAC)
Time of Mid-Term Review Field Survey: February 2007
Project Title: Democratic Socialist Republic of Sri Lanka “Upper Kotmale Hydro Power Project” (L/A No.SL-P74)[Loan Outline]
Loan Amount/ Contract Approved Amount/ Disbursed Amount: 33,265 million yen/ 18,955 million yen/ 3,616 million yen (as of end of March 2007)
Loan Agreement: March 2002 (5 years after L/A signing)
Project Completion Date: April 2011
Loan Expiry Date: October 2012
Executing Agency: Ceylon Electricity Board (CEB)
Operation and Maintenance Agency: Ceylon Electricity Board (CEB)
Selection Criteria for Mid-Term Review: Special Yen loan
[Project Objective]
The objective of the project is to meet the increasing demand for electric power after 2008 by building a runoff-river hydropower plant (150 MW) on the Kotmale River(upstream from the existing Kotmale Dam) with the environmental and social consideration, a tributary of the Mahaweli River, thereby contributing to Sri Lanka’s economic
growth.
Consultant: J-Power
Contractor: Lot 1: Maeda Corporation; Lot 2: Maeda Corporation, Nishimatsu Construction Co., Ltd.
[Mid-Term Review Result]
Item
Relevance

Ex-ante Evaluation (at the time of appraisal) (March 2002)(1) National policy level
The importance of development of the electric power sector was emphasized in the
Six Year Development Program, 1999-2004.

1

Result of mid-term review and ex-post evaluation results asestimated at the time of mid-term review(1) National policy level
The Mahinda Chintana, Development Framework 2006-2016, which the Sri Lankan
government is currently implementing, estimates a GDP growth rate of 8% for the
next 6 years and 9% to 10% macroeconomic growth thereafter. Sri Lanka aims to raise
the per capita GDP to Rs. 485,000 (US$3,960) by 2016 (purchasing power parity
US$13,000) and to become a more developed country. Electric energy, ports,
transportation, telecommunications, and the small and medium company sectors arereferred to as the main driving forces in the secondary sector of industry, and thegrowth rate of this sector is expected to be 8%-9%.

(2) Policy level
In the Six Year Development Program, 1999-2004, the main issues in the electric
power sector were listed as improvement of efficiency and reliability, expansion of
power generation capacity to meet demand, development of transmission,transformer, and distribution facilities and improvement of the electrification rate in
response to aging facilities and the expansion of power generation capacity, andstreamlining of the fee system.
a) Sector reorganization
The Power Sector Policy Directions, enacted in 1997, centering on gaining of acompetitive advantage over other Asian countries in the cost of electricity bysupplying electric power at low cost to the economy, society, and environment, tomeet future energy demand. It called for split of the CEB electric generation,transmission, and distribution sectors, promotion of mobilization of private
resources in the thermal power generation sector, and introduction of a law throughestablishing an independent regulatory agency.
b) Expansion of power generation capacity
The amount of electric power generated by Sri Lanka has increased at an average of
7% during the past 20 years and was expected to increase at 6%-10% annually inthe future.
c) Development of electricity transmission and distribution network
The development is being pursed in accordance with the Electricity Transmission
Network Development Plan (10-year plan) (2000) and the Medium Voltage
Distribution Network Development Plan 1995-2005.
d) Rural electrification
The stated goal was to raise the rural electrification rate from 56.6% to 80% by
2005.
(3) Planning level
This project is the final large-scale hydropower generation project as a powersource in Sri Lanka, as most have already been developed. To ensure a stable power
supply that is not affected by weather, while focusing on thermal power generation,
it is also highly necessary to fully develop the hydropower resources in Sri Lanka,
which lacks its own sources of fuel. The project aims to meet peak demand of 2,346
MW in 2008. In the plan to achieve power generation facility capacity, the planned
increase in hydropower is 220 MW, and of that, this project contributes 150 MW(the remaining 70 MW are to be produced by the Kukule Hydropower Plant). In
addition, a coal-fired power generation plant (300 MW) is planned. This project,
together with the thermal plant, was indispensable for meeting the electric power
demand in the latter part of this decade.

2(2) Policy level
The electric power sector development plan in the Mahinda Chintana, Development
Framework 2006-2016 mentions diversification and expansion of energy production
through coal-fired and hydro power plant projects, new fuels and liquid fuel power
generation projects, and renewable energy resources. The plan also emphasizes
streamlining of the fee system and increased access to electricity particularly in remoteareas. The following items are listed as the most important issues, and it is estimatedthat Rs. 818,145 million is required to implement all the measures.
i) Expansion of access to electric powerii) Streamlining of electric fee system, debt reduction, achievement of subsidy goalsiii) Diversification of fuels for power source development and energy conservationiv) Promotion of renewable energy developmentv) Promotion of transmission and distribution network developmentvi) Achievement of greater efficiency in supply-side energyvii) Achievement of greater efficiency in demand-side energyviii) Improvement of knowledge management, plan preparation, and fund investmentin the electric power sectorix) Promotion of reorganization and regulatory development(3) Planning level
In the Long Term Generation Expansion Plan 2006-2020 (CEB (2005), a progressive
increase in power generation capacity and the amount of electric power supplied isplanned. The increase in electric power supply to be achieved by the construction andoperation of this project’s plant (150 MW) and the Kelawarapitiya Combined Cycle
Power Plant (300 MW) is to be the main source of electric power until theconstruction of the three currently-planned coal-fired power plants (total 2,000 MW)
and the construction of other hydropower plants (Broadlands: 35MW, Uma Oya: 15
MW, Gin Ganga: 49 MW, Moragolla: 27 MW). In the overall power source
development plan, the high relevance and importance of this project at the planninglevel is emphasized.
The power generation cost of this project is 8.009 yen/kWh (calculated when projectEffectiveness (Impact)(1)Operation and effectindicators(1)Operation and effect indicators
a. Quantitative effects

plan was altered in 2005; Rs. 7.28/kWh at an average 2005 exchange rate of 0.91).
The transmission and distribution cost in that year was Rs. 3.14/kWh. The current
average retail rate is fixed at Rs. 10.75/kWh. Assuming that the retail rate is raised in
the future by the promotion of the CEB’s operational efficiency supervisory functions
and approved by the Public Utilities Commission of Sri Lanka, the unit cost of power
generation of this project will be low compared to the average retail cost and may be
expected to contribute marginally to the improvement of CEB’s financial status.
Accompanying the increase in fuel prices and the start of operation of the thermal
power plants, it is pointed out even in the above-mentioned Mahinda Chintana,Development Framework 2006-2016 that CEB’s unit cost of power generation willreach Rs. 15.0/kWh in 2010. The only factor that will suppress the rise in power
generation cost for the time being is the start of operation of this project’s hydropower
plant, at an appropriate scale and in a timely manner, together with the Kukule
Hydropower Plant which began operation in recent years. Therefore, this project’s role
to improve CEB operations is large.
However, it is forecasted that completion of construction will be delayed from theoriginal plan, like the Kelawarapitiya Power Plant, and this will affect to power source
development overall. Power shortages of 200 MW in 2007 and 405 MW in 2008 are
the forecasts. There is apprehension that these power shortages will necessitate
large-scale planned outages in 2007 and 2008.
Under this project, JBIC provided Special Yen Loans. This is a system established in
December 1998 for the rapid economy recovery of Asian nations which had been
affected by the economic crisis. In addition to promoting projects that provide a strong
economic stimulus to the market and have a strong impact on the creation of
employment, the primary objectives of the Special Yen Loan are (i) the preparation of
an attractive business environment for private investment, and (ii) the realization of
structural economic reform through improvements in productivity. Under this system,
even more discretionary loans are granted than in regular projects, thereby providing
assistance to the relevant country. This project will ease the tight supply-demandsituation of electric power in Sri Lanka and will develop a stable power supply system
which is considered indispensable for sustained economic growth, and so this Special
Yen Loan is recognized as relevant.
(1)Operation and effect indicators
a. Quantitative effects

1) Operation and effect indicators

1) Operation and effect indicators

Hydro utilization factor (%)

Definition
Electric power generated
in specified period(kWh)/generated power available

Original target
97%(Electric
power generated：
512GWh/year）

3

Hydro utilization factor (%)

Definition
Electric power generated
in specified period(kWh)/generated power available

Target (2012)
97% （ Electric
power generated：
409GWh/year）

Outage hours due toregularinspection(hours/year)
Outage due to trouble(hours/year)
Netelectric
energyproduction(GWh）for same period（kWh）
×100
As indicated by indicator
nameOutages due to machine
trouble, operational errors,
weather, etc.
Electric energy production
minus energy consumed in
the power plant

Total
hours/year

263

407GWhTotal
hours/year

263

407GWhSource : Materials attached to Questionnaire
Note: No actual figures are available since the plant is not yet in operation.

Source: Internal JBIC materials-Reason for review of electric power generated
From the standpoint of environmental consideration, construction of a facility tointake water from the tributary was abandoned (Cabinet approval, April 2005), andsubsequently review of cost calculations and quantitative effects was conducted(Agreement by JBIC: October 2005). The effects assumed at the time of the ex-anteevaluation were consequently revised downward due to such changes.
2) EIRR 12.46% (revised)
3) FIRR: There is no mention of FIRR in the revised project planning documents on
which Cabinet approval and JBIC agreement was based.

2) Economic internal rate of return（EIRR）：14.11%
3) Financial internal rate of return（FIRR）：6.84%
4) Target month/year: August 2009

4) Target month/year: February 2010 (revised)b. Qualitative effects
Stable supply of electric power(2)Factors which may
influencetheeffectiveness and impact

Outage hours due to regularinspection (hours/year)
Outage hours due tomachinetrouble(hours/year)
Netelectric
energyproduction（GWh）

for
same
period(kWh)×100
As indicated by indicator
nameOutages due to machine
trouble,operational
errors, weather, etc.
Electric
energyproduction minus energy
consumed in the power
plant(2)Factors which may influence effectiveness and impact
a. Environmental impact
Sri Lanka’s Ministry of Forestry and Environment requested CEB to prepare a basin
environmental management plan to prevent water pollution and soil erosion, and todevise all measures possible for the environmental problems raised in the EIA
processing.
In response, it was decided that the executing agency would conduct projectmonitoring using project staff and that the executing agency would present a reportto the Environmental Committee.

4b. Qualitative effects
Stable supply of electric power (no revision)(2)Factors which may influence effectiveness and impact
a. Environmental impact
The final project plan is being implemented based on the recommendations foralleviating environmental impact as mentioned in the EIA report. As stated above,from the standpoint of environmental consideration, construction of a facility to intake
water from the tributary was abandoned. Due to this, there will be no reduction ofwater volume of the waterfall, which was an initial environmental impact concern.
Furthermore, environmental considerations by the contractors are incorporated into thecontract documents as an “Environmental Management Plan.”
To manage the progress of the project in an ongoing manner, the Environmental
Committee meets every other month at the Ceylon Environmental Authority. The
parties concerned share information on the progress condition of the project andb. Resident relocation
CEB is to prepare the Resettlement Action Plan (RAP) (scheduled for completion in
March 2002). JBIC’s agreement with RAP is a condition for contracting
consultants.
457 households are to be relocated (SAPROF 2001 statistics). In addition to this, itwill be necessary to relocate a small number of households at the water intake point
and in the road expansion and construction area.
In the ex-ante evaluation, it was confirmed that discussion with residents by the
Relocation Committee had been carried out and that agreement had been reached onresident relocation, conditioned on information notifications through an information
center, appropriate substitute land, and provision of compensation (relocatedresidents will be offered nearby residences and incidental facilities for free).

matters of concern in the environmental sector and have a questions and answers
session, thereby endeavoring to ensure transparency.
The holding of these meetings by the CEA is prescribed by the Extraordinary Gazette
Notification No. 1283/19 of April 10, 2003: National Environmental Regulation No.1
of 2003, Upper Kotmale Hydropower Project – Monitoring, and joining the meeting ascommittee members are staff from the ministries, authorities, bureaus, and local
political organizations.
In the same Gazette, reference is made to the Watershed Management Plan, and it
states that tree planting should be conducted using local species of plantings, under thesupervision of the Environment Authority, to prevent landslides, etc. The cost of this isincluded in the consultant expense, and the plan is to implement planting as part of theconsultant services.
b. Resident relocation
1) Resettlement Action Plan
Prior to the start of construction, the Resettlement Action Plan was prepared in
February 2003. JBIC conducted a review of the plan, and based on JBIC’s comments
and onsite conditions, a revised version was prepared in January 2005.
Currently the Income Enhancement Program is being implemented, and it offers local
young people opportunities for job training. In addition, it is planned to use revolving
funds after the relocation.
Discussion with residents scheduled for relocation is regularly conducted (see below),
and various arrangements are made to prevent problems or quickly resolve them.
In addition to this, a Grievance Redress Committee, the brainchild of the executing
agency, was set up to offer the optimum relief measures.
There are 498 households targeted for relocation (485 residential households and 13
residential households combined with commercial enterprises, in 11 communities).
The living space offered at the relocation site will exceed the previous living space.
(Even households with less than 37m2 will be compensated with approximately 46m2
in living space. However, space offered for commercial enterprises will remain
approximately the same.)
2) Construction of housing at relocation site
Discussions with residents to be relocated and other concerned parties are almost
completed based on the recommendation of RAP. Land acquisition is also completed,and construction of relocation housing is proceeding (as of February 2007, housing in
two locations is nearly complete).
Relocation of residents is a premise of much of the overall process, but the executing
agency has been keeping its stance of taking into consideration as much as possible

5the intention of the residents, and has had many discussions with residents to makemany changes in the design of the relocation housing. For this reason, frequent delays
occurred in the overall process, and each time, the schedule was readjusted. The land
and housing at the relocation site are larger than the resident’s previous land andhousing, and it is planned to move the entire community a maximum distance of 1.2
km from the original location.
c. Social considerations
Employment of local residents is being promoted. As of February 23, 2007, there were864 (71%) local hires out of 1,215 employees in Lot 1, and as of March 1, 2007, there
were 946 (66%) local hires out of 1,443 employees in Lot 1. Preparations areunderway to start Lot 2 construction (scheduled to start on April 9), and as of March 5,2007, there were 34 (51%) local hires out of 67 employees in Lot 2. It is desirable to
pay attention so that employment opportunities and surplus income in the project area
are not limited to specific residents (relocated residents, related parties, and agitators,etc.) Furthermore, there are no striking signs of the phenomenon where otherindustries are subjected to pressure, for example, massive employment of plantation
farm workers.

c. Social considerations

d. Water volume secured and weather data
The main river systems in Sri Lanka are the Mahaweli river system and the Laxapana
river system, and the Upper Kotmale River is part of the Mahaweli river system. At
the time of the mid-term review, there was no particular problem with the water
volume of the Mahaweli river system.
Furthermore, according to the original plan, the catchment area is 397.2km2, average
inflow volume is 17.82m3/s, and maximum water intake volume is 46.7m3/s.
Accompanying changes in the plan (2005; see “Efficiency, (1) Output” below, thefigures became 310.6km2, 13.2m3/s, and 36.9m3/s, respectively. The basis for thesecalculations is data on average rainfall from 1981 to 1998 which was confirmed at thetime of SAPROF. Since currently no system for regular monitoring of water volume
secured has been established, continued collection of rainfall data in the future isnecessary.
(3) Factors which may influence sustainability
a. Progress in reorganization of electric power sector
Although there is no visible progress in the split up of CEB, a bill to introduce laws
and regulations through the creation of an independent regulatory agency is being
prepared for approval by the Cabinet. To pass this bill will allow the agency toapprove fees. It is anticipated that appropriate fees will be set so that the actual cost ofelectric power (Rs. 14.0/kWh) can be collected.
b. Financial status of CEB

d. Water volume secured and weather data(3)Factors which
influencesustainability

may
the

(3) Factors which may influence sustainability

6

Further improvement in management is needed as loss was large (Rs. 15,707 million
in 2004; Rs. 6,852 million in 2005) both in 2004 and in 2005,.
c. Electric power fee system
Due to increased supply-side costs stemming from soaring fuel prices, review of thefee system is urgently needed. This is also spurring on the preparation of the bill toestablish a regulatory agency, which will play a role in sector reorganization.
d. Activities by local residents and politiciansParticipation by local politicians, etc., in the Environmental Committee in (2) a. aboveis encouraged, and information on the progress of the project is constantly provided.
Since local residents have been incited by politicians before, it is desirable to continue
to provide correct information to everyone through all channels, including theEnvironmental Committee, Residents’ Committee, and Housing Committee.
Information forreference
Efficiency(1) Outputs(1) Outputs
The output content and volume as well as the M/M of the consulting services
assumed at the time of the ex-ante evaluation are as follow.

Preparatory
Construction(Lot1)

Civil
Engineering
Construction(Lot2)

Construction Classification
New construction, widening, andrepair of access roads
Buildingoffacilities
forconstruction
Preparation of resident relocationarea(including
housing
construction)
Building of 33 kV power
distribution lines for construction
Headrace dam (concrete gravity
dam)

Regulating Reservoir
Headrace tunnel

Scale/Quantity
Total length: 44.2 km,
Width: 5 m(1) Outputs
The output content and volume as well as the M/M of the consulting services at thetime of completion, as assumed at the time of the mid-term evaluation, are as follow.
(Changes shown in italics.) The content is basically as planned except for the changes
in the plan for the headrace dam.

Preparatory
Construction(Lot1)

Distance: 41 km
H=35.5m、Crest length:
175m、
Openablesluice(10m*10m*5 sluice)0.8MCM,
Total area: 0.25km2
D=4.3m、
L=12,532m

7

Civil
Engineering
Construction(Lot2)

Construction Classification
New construction, widening, andrepair of access roads
Building of facilities forconstruction
Preparation of resident relocationarea(including
housing
construction)
Installation of 33 kV power
distribution lines for construction
Headrace dam (concrete gravity
dam)

Regulating Reservoir
Headrace tunnel

Scale/Quantity
Total length: 43 km
53 facilities
495 facilities

Distance: 32 km
H=35.5m 、 Crest length:
175m、
Openablesluice(10m*10m*5 sluice)0.8MCM,
Total area: 0.25km2
D=4.3m、
L=12,532m

Tailrace Tunnel
Surge Tank
Penstock Tunnel
Underground Power Plant
Tailrace Tunnel
Switch Yard
Surge chamber

D=4.3m, L=459m
Restrictedorifice,
D=12m, H=98m
D=4.3~1.45m,
L=792.86m
W=19m,
L=50.5m,
H=36.5m
D=4.3m, L=459m

Tailrace Tunnel
Surge Tank
Penstock Tunnel
Underground Power Plant
Tailrace Tunnel
Switch Yard
Surge chamber

Restricted orifice, D=8m,
H=57.7m,Upper chamber
W=4m, H=12m

Headrace Dam

Andrew diversion tunnel:
Pundal fall pump (250kW),
pile line
Puna diversion:

Generators(Lot4)

Relevant
Transmission
Lines(Lot4)
Consulting
Services

A=2.2M*2m, L=3,676m

Devon diversion tunnel

Cancelled due to plan change

A=2.2m*2m, L=58m

Andrew diversion tunnel:

Cancelled due to plan change

D=0/7m, L=500m

Pundal fall pump (250kW),
pile line
Puna diversion:

Cancelled due to plan change

A=2.2m*2m, L=5,227m

Surge Tank

Hydro Power
Facilities(Lot3)

Penstock pipe
Turbines(Vertical axis, Francis,
600rpm,)Generators(Vertical axis, 3-phase,AC synchronous)
Main transformers(13.8/220 kV *3D * OFWF, indoor)
Switch Yard (220 kV double busbar, 220 kV Gas insulated
switchgear (outdoor) )220kV transmission lines (single
Zebra conductor)

Foreign:
D/D、T/D、PQ、
evaluation

D=12m, H=98m

Headrace Dam

Devon diversion tunnel

Hydro Power
Facilities(Lot3)

D=4.3m, L=459m
Restricted orifice, D=12m,
H=98m
D=4.3~1.45m,
L=792.86m
W=19m,
L=50.5m,
H=36.5m
D=4.3m, L=459m

72MM

77,000 kW *2units
88,000 kVA *2units
88,000 kVA*2units

2 circuits;
Distance: 17.5 km

Local
46MM
(38+8)

8

Generators（Lot4）(planned)

Relevant
Transmission
Lines（Lot5）(planned)
Consulting
Services

Cancelled due to plan change

Surge Tank
Penstock pipe
Turbines(Vertical axis, Francis,
600rpm,）Generators(Verticalaxis,
3-phase, AC synchronous)
Main transformers (13.8/220 kV* 3D * OFWF, indoor)
Switch Yard(220 kV double busbar, 220 kV Gas insulated
switchgear (outdoor) )220kV transmission lines (single
Zebra conductor)

D/D、T/D、PQ、
evaluation

Foreign:62MM77,000 kW *2units
88,000 kVA *2units
88,000 kVA*2units

15.2km

Local
172MM

Projectmanagement
supportEnvironmental
management
Construction
supervision
Managementof
CEB Hydro Power
Generation
Department(HydroGenco*
following split）

61MM

152MM
(110+42)

49MM

69MM

457MM

826MM
(626+200)
N/A

27MM

Projectmanagement
supportEnvironmental
management
Construction
supervision
Managementof
CEB Hydro Power
Generation
Department(HydroGenco*
following split）

40MM

155MM

40MM

69MM

433MM

606MM

N/A

N/A

*Name of company dedicated to hydro power generation following split from
CEB.
(2) Project period(2) Project period
March 28, 2002 – August 2009 (planned) (7 years, 5 months)

Results of Special Yen
Loan Satisfaction Survey(1) Purpose of introduction
The significance of the Special Yen loan at the time it was extended is as follows.
Sri Lanka was strongly affected by the Asian economic crisis from 1998 to early
1999. For the country’s full economic recovery, there was a need for continued
support of economic structural reform.
a. This project consisted of a plan for construction of a large-scale hydro power
plant. The civil engineering works included many artifices in the construction
methods out of consideration for the environment during implementation, andtechnology from Japan was necessary.
b. Demand for electric power in Sri Lanka thenceforth was expected to grow by 6%
to 10% annually, and so construction of power generation facilities was an urgent
matter. Development of electric power is essential for development of economic
infrastructure; if this project was not actualized, the already-strained electric power

9(2) Project period
March 28, 2002 – April 2011 (altered) (9 years, 1 month)
The reasons for the extension of the project period were that the consultant contract
was signed in November 2003 and there were multiple changes in the planned
construction site for employee’s permanent facilities. Due to this, the project period
was extended to 122.5% of the originally planned period.
(1) Purpose of introduction
According to the executing agency and the Ministry of Finance and Planning, thereasons for the introduction of the Special Yen Loan and its attractiveness lie in the
low interest rate, the longer repayment period, swift project implementation, and theadvanced level of Japanese technological capabilities.
(2) Competition and procurementa. Competition
At the time of this field study (February 2007), selection of contractors for Lot 1 andLot 2 were finished, while P/Q’s for Lot 3 and Lot 4 have been done. The number ofparticipating bidders was 4 in Lot 1 and 3 in Lot 2. In Lot 1, 3 out of 4 companies
were accepted to bid, and they tendered bids. In Lot 2, all 3 companies were accepted,
of which just 2 tendered bids.
The executing agency stated that, compared to similar types of projects funded withregular Japanese ODA loans, in this project there were few Japanese contractors that
tendered bids, and moreover, the number of bidders tendering bids was further reduced

industry was expected to further deteriorate, and there was concern that smooth
implementation of economic restructuring would be hindered.
c. It was expected that procurement from Japan, mainly for construction of theheadrace dam and water channels, and for materials and equipment of hydro power
generation, power generators, etc. would exceed 50% of the total JAPANESE ODA
loan amount overall, and so the opportunity for Japanese companies to participate
was extremely large.
(source: JBIC materials)

by the trend toward forming joint ventures, and so competition was limited. (On theother hand, the executing agency states that the successful bid price stayed at the samelevel as regular infrastructure projects.) The Ministry of Financial Planning wasconcerned because it had the impression that the limited number of bid tenders
hampered free and proper competition. The consultant’s view was that there had beena movement among the Japanese companies to restrain each other, and so the numberof bids was small.
On the other hand, from the contractor’s point of view, the stipulation of tiedprocurement itself is not supportive of competition. The number of truly competitive
bidders is in fact limited due to the technological capability, organizational ability, andfunding capability even if there are many bidding companies. Even if more than 10companies tender bids, the competition is actually among two or three companies. It isalso pointed out that, in the case of tied procurement, there is a merit to exclude
dumping contractors from other countries since bidders are restricted to Japanese
corporations, in addition to the regular PQ.
b. Procurement
The executing agency pointed out that there are cases where highly competitive costestimates and optimal supply sources cannot be selected because of the strict
regulations governing countries of origin for materials and says that it is desirable torelax conditions on country of origin ratio, etc. The Ministry of Financial Planning’sview is that it is difficult to apply the country-of-origin rule not only in this project but
in all large-scale infrastructure projects. The reason is that, since the overallprocurement volume is large and a broad range of items is procured in the case oflarge-scale infrastructure projects, when the country-of-origin rule is applied,
coordination of procurement within and among lots becomes complex and requires
time, meeting cost goals is difficult because it increases the number of Japanese
products, which are higher in cost, and participation only by Japanese bidders is aprecondition, even if their numbers are few. The consultant stated that it is desirable toabolish the country-of-origin rule. 1 It was pointed out that, in recent years, there havebeen many cases of Japanese contractors working outside of Japan, and when
production of products is limited to Japan, they reverse-export overseas products,
which adds on intermediary time and expense. Moreover, it was stated that while there
is no difference in products and quality manufactured overseas by Japanesecompanies, it cannot be denied that there is a possibility of inviting higher costs andbudget overruns by limiting procurement sources of products and materials to
Japanese procurement.

1

In Special Yen loans, a procurement condition is that less than 50% of the Japanese ODA loan funds may be used to procure goods and services originating in countries other than Japan.

10Furthermore, the percentage of Japanese products procured for this project is; Lot 1:
10%, Lot 2: 50%, Lots 3 thru 5: 80% (planned).
(3) Local Contractors
In the Special Yen loan system, the primary subcontracting is tied to the two countries
involved. The executing agency points out that, because primary subcontracting
contracts are tied to the two countries, it is forced to select local contractors who haveno experience in Japanese ODA projects. There would be no problem in Lot 1 because
the contractors are engaged in essentially local construction, but in Lot 2, there would
be a concern that local contractors do not have technological capabilities because they
have few technological workers to implement Lot 2. Moreover, the consultant statesthat in Lot 3 and Lot 4 there are likely to be services that will be unprocurable except
from third countries.
(4) Cost
Both the consultant and the contractors point out the high cost of equipment, materials,
and products under the Special Yen Loan procurement conditions, as stated in (2)babove.
On the other hand, the Ministry of Financial Planning does not consider the higher
cost to be due to the Special Yen loan (because it is tied to Japanese companies), butrather its opinion is that “using not only Japanese contractors but any foreign
contractors costs more than using local contractors to perform the same level ofwork.”
a. Lot 1 (preparatory construction)
When the L/A was approved, the estimate for Lot 1 was 4,300 million yen (foreign
currency: 297 million yen, local currency: 2,770 million yen). The actual contract
approved amount was 4,341 million yen (foreign currency: 699 million yen, local
currency: 3,572 million yen). In the percentage of the budget approved by thegovernment, the foreign currency amount more than doubled. This was largely due tothe unavoidable change from LCB to ICB, but it is difficult to make a simple costcomparison.
b. Lot 2
When the L/A was entered, the estimate for Lot 2 was 15,785 million yen, and theactual contract approved amount was 11,888 million yen. Looking at the breakdown,
the local currency amount increased over the original assumption (2,577 million
rupees to 4,120 million rupees), but the foreign currency amount significantly
decreased (12,035 million yen to 7,318 million yen). The totals of both the bid price11and the contract price were below the consultant’s estimate (of 13,796 million yen.
(6) Evaluation of contractors by executing agency
When requested to evaluate the performance of the contractors, the executing agency
responded as follows.
Lot 1
Lot 2
Satisfied
1) Technological capability, Slightly dissatisfied
implementation capability,
O&M capability2) Adherence to schedule
Slightly dissatisfied
Satisfied3)
Qualitylevelof Satisfied
Satisfiedconstruction
4) Project management
Somewhat safisifed
Satisfied5) Quality of results
N/A
N/A
6) Technology transfer
N/A
N/A
One of the reasons for the ratings of “Slightly dissatisfied” in Lot 1 was that selection
and management of secondary subcontractors were not thoroughly done, which haveaffected to the management of the work schedule.
Lessons Learned
Recommendations

andLessons learned
a. Social considerations· This project is being conducted in a region that requires very much careful attention and policies even by the domestic administration in terms of its complex topography,
culture, and religion, etc. There was a variety of interference in this large-scale infrastructure project in this region prior to its implementation (as well as during the project
implementation), including a protest movement by persons concerned about the impact on the environment and heavy intervention by local politicians. In such case, it isimportant to conduct a survey of current conditions over a long term, to conduct a meticulous study beforehand of measures for existing problems and potential problems,
etc., and to prepare a tailor-made action plan.
· To prepare a revised RAP, a social development consultant was hired who has abundant relevant experience and has coped with many issues in resident relocation. In therevised RAP, reflecting experience gained in the project theretofore, well-planned, comprehensive measures were proposed, including job training for residents andpreparation of a revolving fund for resident relocation, and these measures were put into practice. The posture of CEB, which has constantly and diligently devised measures
for improvement during the project implementation, is a model of successful social consideration. It will be instructive to quote the revised RAP as important referencematerial when implementing other large-scale infrastructure projects. It is desirable to widely share the experience of the social development consultant and the executing
agency, including the project director.
· It would have been desirable for the borrower and the executing agency to recognize the large expense involved in the measures for residents and to take adequate budgetarymeasures in advance.
b. Environmental considerations· It is worthwhile to mention that a Gazette was approved for periodically holding committee meetings including persons in the environmental field so that it could formallycreate a venue for reporting of the progress of the construction.

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· There is a protest movement by citizens groups and politicians concerned about the project’s environmental impact as well as newspaper reports on such impact, and it isindispensable for project management to maintain its stance of diligently communicating to constantly keep people informed of the current conditions. It is desirable for thisexperience to be widely shared with future projects.
c. Quick alteration of operation and effect indicators due to changes in output· The relationship between the executing agency and the consultant is extremely good, and it is based on mutual efforts to make concessions and firm trust in each other’s
technological capabilities. Since this is a Special Yen loan, bids on all lots were tendered by Japanese contractors, but the consultant swiftly conducted a cost estimate,calculated the operation and effect indictors, and confirmed the details with the executing agency. It is desirable to share with future projects the flexibility as the occasion
demanded and the realistic stance in the face of changing conditions consisting of changes in the output accompanying downward revision of the plan due to environmental
considerations.
d. Special Yen loan
· The cost estimate used as the basis for the L/A signing was based on the assumption of a regular Japanese ODA loan at the time of the ex-ante evaluation. It was switched toa Special Yen loan without changing the basis of the estimate. It would have been desirable to have an appropriate review at the stage of the L/A signing.
· Due to differences among countries in practices and customs concerning procurement, the strict rule of country-of-origin ratio led to an increase in the contractor’s burden.
There were time restrictions in the project schedule that made it difficult to respond individually to each problem, such as those with import customs tax, etc., and the issues
were too large for one contractor to handle. It is desirable for JBIC to take care to collect similar examples from each output and to request action from the Sri Lankan
government.
· While the merits for the Sri Lankan government included the low interest rate, long-term financing, swift implementation, and introduction of advanced technologicalcapability, procurement sources as sub-contractors are limited for Japanese prime contractors, and it is desirable to devise measures so that the principle of competition
functions properly.

Indicators set for use attimeof
ex-postevaluation

Recommendations· It is desirable to periodically implement follow-up studies on the improvements in the living environment of relocated residents following the completion of the project.
Through this, not only will “good practices” in the project’s resident relocation be put in written form, but the resident relocation will have ongoing value as a model ofsuccessful social measures and is likely to greatly contribute to project formation in the future.
· From the standpoint of securing adequate water volume, it is necessary to continually collect and monitor rainfall data.
Same as operation and effect indicators shown above.
(1) Operation and effect indicators
The operation and effect indicators were set at the time of the ex-ante evaluation.
Due to downward revision of the project scale, there were changes in the target
levels (as stated above). There is no reference to FIRR in the revised projectplanning documents, etc., but it is necessary to recalculate FIRR at the time of the
ex-post evaluation.
(2) Executing agency’s evaluation system (measurement of indicator levels,etc.)· It is planned to assign experienced monitoring staff to the Upper Kotmale Hydro
Power Plant and the CEB Power Generation Bureau, and budgetary measures arebeing studied.

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· With regard to the condition of power plants and transmission and distributionlines supervised by CEB, the System Control Center, an accessory of CEB
located in Colombo, manages the supply volume on an hourly basis byconducting monitoring of power generation amount and high-voltage electricity
production and also adjusting the output among power plants.
· Furthermore, approximately 20 years have elapsed since the System Control
Center was established, and it is becoming aged. Only 1/3 of the overallmonitoring is conducted online, and the remainder of the data input and renewal
is conducted by telephone. The CEB staff pays close attention to fully use theirtechnological capabilities, but human error is unavoidable and so improvement of
the facilities is desirable.

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