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Completion Report Sri Lanka Plantation Development Project

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					Completion Report




Project Number: 34023
Loan Number: 1913/1914
December 2010




Sri Lanka: Plantation Development Project
                           CURRENCY EQUIVALENTS

                  Currency Unit        –     Sri Lankan rupee/s (SLRe/SLRs)

                            At Appraisal           At Project Completion
                            (20 June 2002)         (6 November 2009)
       SLRe1.00       =     $0.0104                $0.0087
          $1.00       =     SLRs96.33              SLRs114.82

                                 ABBREVIATIONS

       ADB             –       Asian Development Bank
       ADF             –       Asian Development Fund
       DFCC            –       Development Finance Corporation of Ceylon
       EA              –       executing agency
       EIRR            –       economic internal rate of return
       FIRR            –       financial internal rate of return
       EWHCS           –       estate workers' housing cooperative society
       ha              –       hectare
       MPI             –       Ministry of Plantation Industries
       OCR             –       ordinary capital resources
       PCR             –       project completion report
       PFI             –       participating financial institution
       PHDT            –       Plantation Housing Development Trust
       PIU             –       project implementation unit
       PPTA            –       project preparatory technical assistance
       RPC             –       regional plantation company
       SDR             –       special drawing rights
       TASL            –       Tea Association of Sri Lanka
       WHO             –       World Health Organization

                                       NOTES

(i)    The fiscal year (FY) of the government ends on 31 December.

(ii)   In this report, "$" refers to US dollars.
 Vice-President     Xiaoyu Zhao, Operations 1
 Director General   Sultan H. Rahman, South Asia Regional Department (SARD)
 Director           T. Matsuo, Agriculture, Natural Resources and Social Services Division,
                    SARD

 Team leader        S. Campbell, Social Development Specialist, SARD
 Team member        F. de Leon, Associate Project Analyst, SARD




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

BASIC DATA                                                              i
I.     PROJECT DESCRIPTION                                              1
II.    EVALUATION OF DESIGN AND IMPLEMENTATION                          2
       A.   Relevance of Design and Formulation                         2
       B.   Project Outputs                                             3
       C.   Project Costs                                               8
       D.   Disbursements                                               8
       E.   Project Schedule                                            8
       F.   Implementation Arrangements                                 9
       G.   Conditions and Covenants                                    9
       H.   Consultant Recruitment and Procurement                     10
       I.   Performance of Consultants, Contractors, and Suppliers     10
       J.   Performance of the Borrower and the Executing Agency       10
       K.   Performance of the Asian Development Bank                  11
III.   EVALUATION OF PERFORMANCE                                       11
       A.   Relevance                                                  11
       B.   Effectiveness in Achieving Outcome                         11
       C.   Efficiency in Achieving Outcome and Outputs                12
       D.   Preliminary Assessment of Sustainability                   13
       E.   Impact                                                     14
IV.    OVERALL ASSESSMENT AND RECOMMENDATIONS                          15
       A.   Overall Assessment                                         15
       B.   Lessons                                                    15
       C.   Recommendations                                            16

APPENDICES
1. Design and Monitoring Framework                                     17
2. Social Assessment                                                   23
3. Project Cost Estimates                                              31
4. Project Economic and Financial Reevaluation                         34
5. Implementation Schedule                                             41
6. Major Loan Covenants (Loan No. 1913)                                42
7. Major Loan Covenants (Loan No. 1914)                                51
8. Status of Engagement of Consultants                                 61
9. Project Completion Report Rating                                    62
                                                                                                      i


                                            BASIC DATA

A.     Loan Identification

       1.      Country                                   Sri Lanka
       2.      Loan Numbers                              1914 and 1913
       3.      Project Title                             Plantation Development Project
       4.      Borrower                                  Government of Sri Lanka
       5.      Executing Agency                          Ministry of Plantation Industries
       6.      Amount of Loan (L1914)                    ¥1,171.6million ($10 million equivalent)
               Amount of Loan (L1913)                    SDR15.043 million ($20 million equivalent)
       7.      Project Completion Report Number          PCR: SRI 1194

B.     Loan Data

       1.      Appraisal
               – Date Started                            2 June 2002
               – Date Completed                          20 June 2002

       2.      Loan Negotiations
               – Date Started                            25 July 2002
               – Date Completed                          27 July 2002

       3.      Date of Board Approval                    13 September 2002

       4.      Date of Loan Agreement                    8 November 2002

       5.      Date of Loan Effectiveness
               – In Loan Agreement                       6 February 2003
               – Actual                                  29 August 2003
               – Number of Extensions                    2

       6.      Closing Date
               – In Loan Agreement                       30 June 2009
               – Actual                                  26 November 2009 (Loan 1914)
                                                         22 February 2010 (Loan 1913)
               – Number of Extensions                    1

       7.      – Interest Rate (L1914)                   LIBOR-based
               – Commitment Charge                       0.75% on a staggered basis
               – Front-End Fee                           1%
               – Maturity (number of years)              20
               – Grace Period (number of years)          5

               Terms of Loans (L1913)
               – Interest Rate                           0%
               – Maturity (number of years)              32
               – Grace Period (number of years)          8

       8.    Terms of Relending (L1913)
             – Interest Rate                           AWDR
             – Maturity (number of years)              Up to 15 years
             – Grace Period (number of years)          Up to 7 years
             – Second-Step Borrower                    Regional plantation companies
AWDR = average weighted deposit rate, LIBOR = London interbank-offered rate.
ii


             9.      Disbursements
                     a.     Dates (Loan 1914)
                                   Initial Disbursement       Final Disbursement          Time Interval

                                     13 November 2003          26 November 2009            72.5 months

                                       Effective Date        Original Closing Date        Time Interval

                                       29 August 2003          26 November 2009            74.9 months


                     b.      Dates (Loan 1913)
                                    Initial Disbursement      Final Disbursement          Time Interval

                                       1 October 2003           22 February 2010           76.7 months

                                       Effective Date        Original Closing Date        Time Interval

                                       29 August 2003           22 February 2010           77.8 months

                     c.      Amount (million) – Loan 1914
                                Original      Last Revised     Amount          Amount       Undisbursed
                Category                                                                                a/
                               Allocation       Allocation     Canceled      Disbursed        Balance
       01    Credit                409.70             513.70              0       513.70         (104.00)
       02    Plantation Fund       585.80             585.80              0       585.80
       03    Front End Fee          11.70              11.72              0        11.72            (0.02)
       04    Interest Charge       164.40              42.71              0        42.71           121.69
             Total (Yen)          1171.60            1153.92              0      1153.92            17.68
                                                                                                           a
             Total ($)              10.00                9.94             0          9.94             0.18
     a
       An undisbursed loan amount of ¥17.68 million was canceled at the loan closing date on 26 Nov. 2009.

                     d.           Amount (million) – Loan 1913
                                      Original       Last Revised    Amount      Amount    Undisbursed
                  Category           Allocation                                                     a/
                                                       Allocation    Canceled   Disbursed   Balance
       01    Credit                        2.912                   0          0          0           0
       02    Civil Works                   1.623              3.005       2.32       3.005           0
       03    Equipment                     0.556              0.299         0.4      0.299           0
       04    Vehicles                      0.094              0.106           0      0.106           0
       05    Training                      2.387                   0          0          0           0
       05A Training (Social)                    0             0.189       0.75       0.189           0
       05B Training (Others)                    0             0.133      0.761       0.133           0
       06    Research & Devt.              1.091                0.27          1       0.27           0
       07    Recurrent Cost                 2.66              0.562       1.86       0.562           0
       08    Consulting                    1.128              0.036         0.5      0.036           0
       09    Interest Charge               0.486                0.08          0       0.08           0
       10    Unallocated                   2.106                   0     0.755           0           0
       11    Quality Certification              0             1.216         0.8      1.216           0
             Total (SDR)                  15.043              5.897      9.146       5.897           0
                                                                                                       a
             Total ($)                         20             9.032          15      9.032          0
     a
       Savings of SDR9.146 million was canceled on 23 April 2008 in response to a request from the
     government and reallocated to the Sustainable Power Sector Development Project.
                                                                                          iii



        10.    Local Costs (ADB Financed)
                                               Appraisal Estimate           Actual
                - Amount ($ million)                  16.8                    6.35
                - Percent of Local Costs              21.0%                  14.6%
                - Percent of Total Cost               14.7%                   9.4%

C.      Project Data

        1.     Project Cost ($ million)
Cost                                         Appraisal Estimate            Actual

Foreign Exchange Cost                               34.40                   23.65
Local Currency Cost                                 80.00                   43.56
   Total                                           114.40                   67.21

        2.     Financing Plan ($ million)
Cost                                         Appraisal Estimate            Actual

     Borrower-Financed                                37.6                     23.15
     Asian Development Bank-Financed                  30.0                     18.97
     Beneficiary-Financed                             38.3                     20.98
     Other Participating Financial                     8.5                      4.11
     Institution-Financed
          Total                                      114.4                     67.21

         3.      Cost Breakdown by Project Component ($ million)
Component                                             Appraisal Estimate     Actual
A. Investment                                                     66.5         49.9
    Subtotal                                                      66.5         49.9
B. Social and Environmental Programs
    1. Workers' Housing Loans                                      6.5           0.0
    2. Workers' Amenities                                          3.7          11.5
    3. Social Programs                                             4.1           0.5
    4. Environmental Initiatives                                   1.8           0.2
    Subtotal                                                      16.1          12.2
C. Marketing Initiatives
    1. Collaboration in Product Research and                       1.5              1.0
         Development
    2. Marketing Intelligence and Resource Center                  1.9              0.0
    3. Support for Automated Tea Auctions                          0.5              0.0
    4. Support for Alternative Marketing Initiatives               2.5              1.8
    Subtotal                                                       6.4              2.8
D. Institutional Development
    1. Support for Industry Umbrella Body                          1.8              0.5
    2. Consulting Inputs                                           0.7              0.1
    3. Training                                                    2.9              0.4
    4. Support for Developing Subleasing and                       0.4              0.0
         Outgrower Models
    5. Project Management                                          1.2           1.1
    Subtotal                                                       7.0           2.1
Total Base Cost                                                   96.0          67.1
Physical and Price Contingencies                                  16.1           0.0
Interest during Construction                                       2.3           0.1
     Total                                                       114.4          67.2
iv


         4.     Project Schedule
 Item                                                           Appraisal Estimate               Actual
 Date of Contract with Consultants:

 Plantation Fund Consultants                                       Quarter 2 2003             1 April 2004
     Management Finance Specialist                                                            1 April 2004
     Legal Expert                                                                             1 April 2004
     Management Securities Expert                                                             1 April 2004
     GIS and GPS Survey Expert                                                              13 August 2005
     Baseline Socioeconomic Survey                                                          7 January 2005
     Impact Assessment Study                                                                 26 June 2009
     Gender Specialist                                                                     1 November 2006
     Environment Consultant                                                                   13 July 2007
     Civil Engineer (Roads)                                                                    2 July 2007
     Civil Engineer (Roads)                                                                 1 February 2008
     Civil Engineer (Roads)                                                                1 September 2008
     Civil Engineer (Roads)                                                                  16 June 2009
 Office Equipment
     First Procurement (PIU)                                                              17 November 2003
     Last Procurement (PIU)                                                                 10 March 2007
 Equipment (Ergonomic)
     First Procurement                                                                    17 November 2004
     Last Procurement                                                                       29 June 2009

 Other Milestones
 Loan 1914:
     First Reallocation of Loan Proceeds                                                  19 December 2002
     Second Reallocation of Loan Proceeds                                                    30 April 2008
     First Partial Cancellation                                                             15 June 2009
     Extension of Loan Closing Date                                                         29 June 2009

 Loan 1913:
    Major Change in Scope and Implementation and
    First Reallocation of Loan Proceeds                                                       2 April 2007
    Second Reallocation                                                                       3 July 2009
    Third Reallocation                                                                     22 February 2010
    Extension of Loan Closing Date                                                           29 June 2009
    First Partial Cancellation                                                               23 April 2008
    Final Cancellation                                                                     22 February 2010
GIS = geographical information system, GPS = geographical positioning system, PIU = project implementation unit.

       5.                 Project Performance Report Ratings
Loan 1914
                                                                               Ratings
                                                             Development                  Implementation
 Implementation Period                                        Objectives                     Progress
 1 January to 31 December 2002                                Satisfactory                  Satisfactory
 1 January to 31 December 2003                                Satisfactory                  Satisfactory
 1 January to 31 December 2004                                Satisfactory                  Satisfactory
 1 January to 31 December 2005                                Satisfactory                  Satisfactory
 1 January to 31 December 2006                                Satisfactory                  Satisfactory
 1 January to 31 December 2007                                Satisfactory                  Satisfactory
 1 January to 31 December 2008                                Satisfactory                  Satisfactory
 1 January to 31 December 2009                                Satisfactory                  Satisfactory
                                                                                                                       v



 Loan 1913
                                                                                    Ratings
                                                                Development                    Implementation
 Implementation Period                                           Objectives                       Progress
 1 January to 31 December 2002                                   Satisfactory                    Satisfactory
 1 January to 31 December 2003                                   Satisfactory                    Satisfactory
 1 January to 31 December 2004                                   Satisfactory                    Satisfactory
 1 January to 31 December 2005                                   Satisfactory                    Satisfactory
 1 January to 31 December 2006                                   Satisfactory                    Satisfactory
 1 January to 31 December 2007                                   Satisfactory                    Satisfactory
 1 January to 31 December 2008                                   Satisfactory                    Satisfactory
 1 January to 31 December 2009                                   Satisfactory                    Satisfactory
 1 January to 30 September 2010                                  Satisfactory                    Satisfactory

 D.       Data on Asian Development Bank Missions
                                                                                    No. of
                                                                    No. of         Person-          Specialization
 Name of Mission                                Date               Persons          Days             of Members
 Loan fact-finding                      21 April–1 May 2002           5              55               a, b, c, d, e
 Appraisal                                 2–20 June 2002             5              95               a, b, c, d, f
 Inception                                19–28 November              2              20                   a, g
                                                2003
 Special project administration           28–29 June 2004              1               2                    h
 Special project administration         23–25 August 2004              1                3                   i
 Loan review 1                            19–29 April 2005             5               55              b, g, j, k, l
 Loan review 2                            25 July–3 August             2               20                 b, g
                                                2006
 Midterm review                            4–12 December               5               45              g, h, j, l, m
                                                2007
 Loan review 3                            22–24 September              2                6                 g, m
                                                2008
 Project completion report               4–16 October 2010             5                               g, j, k, l, n
a = senior project economist, b = economist, c = environmental specialist, d = technical assistance consultant and
financial analyst, e = technical assistance consultant and financial management specialist, f = counsel, g = associate
project analyst, h = gender specialist (Sri Lanka Resident Mission), i = senior rural development specialist, j = project
implementation specialist (Sri Lanka Resident Mission), k = staff consultant (international), l = staff consultant
(national), m = senior rural development economist, n = social development specialist.
                                                                                                                   1


                                      I.       PROJECT DESCRIPTION

1.      A loan of ¥1,171.6 million ($10 million equivalent) from ordinary capital resources (OCR)
and one of SDR15.043 million ($20 million equivalent) from the Asian Development Fund (ADF)
were approved in September 2002, and declared effective on 29 August 2003 for the Plantation
Development Project in Sri Lanka.1 The original closure date was 30 June 2009. The project’s
objectives were to (i) enhance the profitability of the plantation (or estate) sector, and (ii)
improve the living and working conditions of estate workers. The project had four main
components.

2.      The first component, for investment, was to provide long-term financing for the regional
plantation companies (RPCs) through a credit line and a revolving fund, formed under the
Plantation Reform Project, 2 through participating financial institutions (PFIs). The financing
would be used for field development and mechanization for tea, rubber, and coconuts; crop and
noncrop diversification including spices and coffee as well as for forestry and estate tourism;
factory consolidation and process automation, effluent treatment for rubber, and rehabilitation of
minihydropower stations; and marketing ventures. To enable some RPCs access to the credit,
the Plantation Fund was to be established to provide equity and quasi-equity financing.

3.       The second component, focused on social and environmental programs, addressed the
social well-being of estate workers who faced poor living and working conditions. To improve
living conditions and increase home ownership, housing loans to 3% (6,000) of worker families
were budgeted, as well as financing for the reroofing of traditional estate housing known as line
rooms. Worker amenities were to be constructed or provided, such as rest and sanitation
facilities, playgrounds, social development centers, and ergonomic and protective work
equipment. Further, social development programs were designed to empower workers by
strengthening workers’ institutions and improving technical and life skills to reduce ethnic
tensions and to facilitate integration into mainstream society. Other programs aimed to reduce
the entrenched problems of alcoholism, domestic violence, and indebtedness on estates.
Orientation on human resources and social development issues was to be provided to estate
management and human resources and health staff to improve the labor–management
relationship. Lastly, environmental initiatives aimed to develop a better understanding of
land-use transformations to improve land-use planning, fertilizer and pesticide use, and thus
profitability.

4.     The third component, for marketing initiatives, recognized the lack of work on processing,
product research, and development on estates. Therefore, it was to support research for
developing more efficient manufacturing machinery and product development. In addition, it was
to support industry modernization by developing and testing software for automated tea
auctions and electronic trading. To enhance industry customer focus, it was to establish and
finance a market intelligence and research center to facilitate overseas alliances and to promote
Ceylon tea. It also aimed to promote fair trade labeling certification in the sector to meet the
requirements of a small, but growing, niche market for fair trade and sustainable tea.



1
    Asian Development Bank (ADB). 2002. Report and Recommendation of the President to the Board of Directors:
    Proposed Loans to the Democratic Socialist Republic of Sri Lanka for the Plantation Development Project. Manila
    (Loans 1914 and 1913, for $10 million and $20 million, approved 13 September).
2
    ADB. 1995. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical
    Assistance Grant to Sri Lanka for the Plantation Reform Project. Manila (Loan 1402[SF}, for $80 million, approved
    9 November).
2


5.     The fourth component was for institutional development and project management. The
Tea Sector Strategy Study 3 recommended the establishment of a self-regulated industry
umbrella body comprising all stakeholders (i.e., smallholders, RPCs, private tea factory owners,
brokers, and exporters) to champion sector-wide issues such as regulatory reform, quality
assurance, and process improvement. The umbrella body, the Tea Association of Sri Lanka
(TASL), was to initiate product development and research, facilitate strategic alliances, establish
the market intelligence and research center, raise awareness of international codes of conduct
and certification standards for social welfare and environmental conditions, initiate incentive and
award schemes to promote social and processing standards, and organize trade fairs. The
component also provided for consulting services, to be supported by the Planters’ Association of
Ceylon for identifying, absorbing, and adopting new technology relevant to all RPCs. A training
subcomponent was also included to help RPCs implement strategies to offset increased market
competition. In recognition of looming labor shortages, pilot schemes to transform workers to
outgrowers (contract growers) were to be investigated. The project implementation unit (PIU)
was to be strengthened for project monitoring and management.

                      II.      EVALUATION OF DESIGN AND IMPLEMENTATION

A.        Relevance of Design and Formulation

6.      The project’s goal (i.e., impact) and objectives (i.e., outcome) were consistent with the
government's Framework for Poverty Reduction in Sri Lanka and the country assistance plan,
2001–2002 of the Asian Development Bank (ADB)4 by seeking to secure the recently privatized
plantation sector's contribution to the economy and to improve the social well-being of estate
workers who, at the time, represented one of the most disadvantaged groups in Sri Lanka.5
Further, the design contributed directly to the private sector development objective of the ADB
country assistance program based on strategies to (i) promote the enabling conditions for
private sector development, and (ii) to direct investment to the private sector via loans and
equity instruments. The design built on the lessons learned from the successful Plantation
Reform Project that supported the then-newly privatized RPCs.

7.     The project preparatory technical assistance (PPTA) report presented a strong analysis
of the status, performance, and operation of RPCs with options for addressing their financial
weakness both in their balance sheets and in their profitability.6 Its social assessments were
comprehensive and targeted key issues for social well-being and for worker productivity. The
PPTA, however, did not address design risks nor the need to ensure RPC ownership of the
noninvestment programs. It also failed to identify the influence of other programs on the likely
uptake of the housing loan scheme and to address issues relating to PFI financial exposure to
the sector and government policy relating to land use and land-use diversification.

8.      During project implementation, there was one major change in scope to address
implementation constraints. This included (i) adding plantation factory modernization to the
eligible activities under the investment component; (ii) withdrawing the housing loan scheme,
and reallocating funds to rehabilitating estate roads; (iii) reducing the RPC contribution to social
programs from 50% to 40% for social amenities, with the social awareness program becoming a

3
    This study was carried out under footnote 2.
4
    ADB. 1999. Country Assistance Plan: Sri Lanka (2000-2002)
5
    Government of Sri Lanka, Department of External Resources. 2000. A Framework for Poverty Reduction in Sri
    Lanka. Colombo.
6
    ADB. 2000. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for the Plantation Development
    Project. Manila (TA 3594, for $800,000, approved 18 December).
                                                                                                                      3


grant financed by ADB (75%) and the government (25%); (iv) adding items to the list of eligible
civil works and ergonomic equipment; (v) adding the upgrading of tea factories to meet
certification standards for the marketing initiatives component; and (vi) adding international
training for estate managers to the training subcomponent. At the request of the government,
about SDR9.1 million ($15 million equivalent) was canceled from the ADF loan in June 2008.
The project was under-disbursing and the government was looking for additional funds for a
power project.

B.       Project Outputs

9.    This section presents project achievements relative to output targets by component and
subcomponent. A summary of the design and monitoring framework is in Appendix 1.

         1.       Component 1: Investment

10.     This component's output comprised the establishment of the Plantation Fund involving
the formation of a trust, contracting a fund manager, and capitalizing the trust. The Plantation
Fund supported RPC balance sheet restructuring through issuance of equity and debentures,
enabling RPCs to obtain additional credit through the project credit line. The fund capitalization
included ¥585.8 million from OCR and SLRs800 million from the Plantation Reform Project's
revolved funds. The fund manager was appointed in March 2006. The fund advanced SLRs535
million to six RPCs by 31 July 2009 using guaranteed redeemable debentures and redeemable
debentures. Core production activities were supported through the credit line, including
upgrading existing crop production systems, replacing low-yielding seedling tea, infill planting to
increase production per hectare (ha) and to reduce costs per hectare, establishing a rubber crop,
upgrading coconut crops, consolidating tea factories, and treating effluent at rubber factories.

                           Table 1: Core Production Activity Achievements
                                                                          Achievement         Shortfall
               Output                                Project Target           DFCC             Excess
               Tea replanting (ha)                             1,750
                                                                                    7,861          3,736
               Tea infill planting (ha)                        2,375
               Rubber planting (ha)                          11,250                25,816        14,556
               Coconut upgrading (ha)                          2,500                1,138        (1,362)
               Tea factory consolidation (each)                   14                     2           (12)
               Factory modernization                                --                127             n/a
() = negative, DFCC = Development Finance Corporation of Ceylon, ha = hectare.
Note: DFCC quarterly reports indicate far larger areas of project activities due to participating financial institutions
reporting the same area more than once.
Sources: DFCC quarterly reports, Ministry of Plantation Industries, project implementation unit.

11.     This component also supported programs to increase estate land productivity through
diversification into oil palm, other vegetable and spice crops, and forestry for logs and fuelwood.
Land resources are badly underutilized in RPCs with some existing land use uneconomic due to
suboptimal crop performance, fertility, and soil condition. Forestry for fuelwood and log sales is
potentially profitable, especially for estates producing high-grown tea and with declining access
to rubber wood from replacement planting for factory energy systems. Energy reliability in tea
factories is critical for the achievement of quality standards and certification.
4


                             Table 2: Crop Diversification Achievements
                                              (hectare)
                                                                     Achievement           Shortfall
              Output                             Project Target          DFCC               Excess
             Forest development                            9,500                4,114          (5,386)
             Oil palm development                          2,375                2,478            (103)
             Other crop development                        2,400                   646         (1,754)
             Subtotal                                    14,400                 7,238          (7,162)
            () = negative, DFCC = Development Finance Corporation of Ceylon.
            Source: DFCC quarterly reports and project implementation unit project completion report.

12.    Investment funds were also used for noncrop diversification and estate tourism
enterprises. The project was to support the refurbishment of 20 estate bungalows, rehabilitation
of 20 existing minihydropower plants, and construction of an oil palm factory. Three estate
bungalows were refurbished, while no minihydropower plants were rehabilitated. A tea sale
center was funded, and an oil palm factory proposal was rejected by ADB on environmental
grounds but was subsequently constructed using commercial funds sourced by an RPC. Finally,
marketing initiatives based on five joint marketing alliances were to be supported; however, only
one RPC invested in its own marketing initiative.

       2.        Component 2: Social and Environmental Programs

13.     The living environment of estate workers has long been characterized by lower
standards when compared to the general rural population in Sri Lanka. Apart from resulting in
low self-esteem, standards of health have also been adversely affected. The project hoped to
improve the living environment as well as empower them by providing training in a range of
topics to improve the overall quality of life. The implementation of the programs were delayed
due to the relatively high contribution (50% of cost) that the RPCs were expected to contribute.
However, implementation was successful due to subsequent changes to the financing method.
See Appendix 2 for the social assessment.

14.     Workers' housing and amenities. The housing loan scheme was not implemented, as
a parallel program introduced by the Ministry of Estate Infrastructure and Livestock
Development provided more attractive financing. The funds allocated to this activity and the
associated common services (e.g., water, sewerage, and electricity) were therefore allocated to
rehabilitation of estate roads. The road rehabilitation program was a good fit with the project
objectives of improving the living environment of estate workers, and demand was high from
both workers and RPC management. At project conclusion, all stakeholders agreed that the
road rehabilitation was of great benefit in improving access to schools, hospitals, and rural
markets. In fact, the project completion report (PCR) mission noted that workers considered the
road rehabilitation program as one of the most beneficial for them. A total of 446 kilometers of
roads were rehabilitated with either tar or concrete, while another 74 kilometers of gravel roads
were rehabilitated.

15.    Of a project target of 11,000 housing units to be reroofed, 7,413 (67%) were achieved.
Implementation was affected in 2004 by a market shortage of roofing sheets. RPCs were also
reluctant to participate due to the 50% contribution required; their contribution was subsequently
reduced to 40%. Reroofing of line rooms is a temporary measure until individual detached
housing options are developed in the future.

16.    Of a target of 30 playgrounds, only 8 (27%) were built under the project. Some estates
had existing facilities such as volleyball courts prior to the project, leading to limited demand. A
                                                                                                  5


total of 47,187 linear feet of concrete footpaths were also constructed, which were positively
received by workers. This was an urgent requirement, providing access to worker housing and
work areas, especially in hilly terrain. The project also added several categories of social
infrastructure to address the demand from workers and RPC management. These included the
construction of 1,746 toilets, 6 water schemes, and 4 new preschools. A total of 700 housing
units also benefited from ramps and drains.

17.     Worker facilities and equipment. A total of 312 field and factory restrooms were
constructed, exceeding the target by 4%. Of this total, 70% were field restrooms, which were
practically nonexistent prior to the project, resulting in inconvenience, lack of self-esteem, and
the prevalence of urinary tract-related health problems in female workers. The factory restrooms
have resulted in improved hygiene standards and convenience to the workers in a commodity
market increasingly influenced by quality and hygiene concerns.

18.     The allocation of 60,000 items of ergonomic equipment was fully utilized. However,
items procured indicated more emphasis on productivity, since the purely ergonomic items,
such as improved plucking baskets, were not well received. Modern plucking machines were
also introduced in some estates. The project also showed flexibility in allowing equipment to be
procured that was not in the original design, such as two-wheel tractors. Items procured have
both direct and indirect impacts in improving the conditions of the workers.

19.     Social development programs. The full implementation of the social development
programs was delayed until 2006 due to the reluctance of the RPCs to contribute 50% of the
cost as initially envisaged. To address this, ADB increased its contribution initially to 60% and
then to 75%, while in the final arrangement the government contributed the balance of 25%. As
a further impetus, RPC participation in the social programs was a prerequisite to availing of the
investment component. As much as 80% of the programs were implemented by the Plantation
Housing Development Trust (PHDT), a tripartite organization with representation from the
government, RPCs, and trade unions.

20.     Gender-based programs sought to empower women on the estates through improving
their awareness and problem-solving capability. A total of 18,988 workers (63% of the target)
were trained. The other social programs also were expected to primarily benefit women.

21.     As the manifestation of poverty on the plantations originates more from the inability to
manage daily finances than low absolute incomes, the project trained 30,009 workers (above
the target) in improving household cash management, which has resulted in improved savings
habits of households. The cooperative bank, Vanisa, increased its deposit base from SLRs44
million in 2006 to SLRs72 million in 2010. Since most of these programs were implemented by
PHDT, the approach was successfully interwoven with the activities of the estate worker
housing cooperative societies (EWHCSs) with which PHDT has been closely involved. While
participants were trained in the importance and technique of cash savings, added training was
also provided in skills required for income-generating activities. The PHDT introduced concept
of “happy families,” which are identified based on social criteria, has influenced other families to
improve their own lives.

22.    Strengthening of estate worker institutions, as noted, was closely related to the
household savings programs, and achieved 70% of the target. The membership of estate
workers in the respective EWHCSs grew from 45% in 2006 to 90% in 2009, primarily due to the
project interventions. The mission observed that EWHCS activities greatly reduce the
dependency of workers on informal moneylenders.
6



23.     The estate sector has been characterized by a high incidence of alcohol abuse,
estimated at 60% in 1991 by the World Health Organization (WHO)7. A combination of factors
has resulted in this situation, including low self-esteem, ignorance of the ill effects of alcohol
abuse, cold climate, and availability of cheap illicit liquor at estates. The project aimed to
counter this through a combination of awareness creation, propaganda, and peer pressure. The
intervention included street dramas, banners and posters, and screening of affected families.
The PCR mission witnessed two street dramas staged by the workers and estate youth, which
were very creative. The intervention was successful, with 100% of the target group of 30,000
reached. United Nations Population Fund (UNFPA) 8 statistics showed a reduction in the
prevalence of alcohol abuse to 44.34% of the estate population by 2008 that can be mainly
attributed to the intervention.9 A measure of sustainability has been introduced through train-
the-trainers programs aimed at estate staff and volunteers.

24.     Of a total of 250 social development centers envisaged, only 30 (12%) were completed.
The main reason was the low interest by RPCs due to the requirement of 50% of the
contribution required from them, later revised to 40%. The activity also included the
rehabilitation of the offices of the estate cooperative societies. The completed social
development centers are used for many activities.

25.    Environmental initiatives. The project was to facilitate a land-use capability survey on
190,000 ha, with the objective of optimizing land use at the estates by providing data for the
RPCs for planning changes in cropping patterns. The survey was not taken up as expected due
to the reluctance of the RPCs to contribute 50% of the cost initially, and having to forego
revenues during any transformation of existing land use in the long term. A total of only 31,635
ha were surveyed with project assistance (17% of the target) by five RPCs, plus soil surveys on
700 ha. One RPC that had undertaken the work had found the results useful as a
decision-making tool, an example being the adoption of a part of a surveyed estate for tourism.
However, the RPCs have not been able to directly link the survey output to regular agricultural
management due to lack of the appropriate technological application.

        3.      Component 3: Marketing Initiatives

26.     The sum of $1.5 million was allocated to collaboration in product research and
development. In reality, RPCs carried out their own activities in this respect and were unable to
collaborate through the Planters' Association of Ceylon. Many were also reluctant to share
research and development outside of their own company. Once the requirement to share the
results was relaxed, two investments were eventually made. One was a company who invested
in technology to develop tea extracts for beverages, cosmetics, health supplements, dyes, and
agricultural applications. The other was research by the Tea Research Institute of Sri Lanka into
protein extraction from tea.

27.     A key activity of TASL was to introduce an automated tea auction system. At the time
this was being promoted by TASL, a similar system was facing embarrassing implementation
problems in India. In Sri Lanka, due to the generally older age group of influential auction users,
their comfort with the manual auction system, and their suspicion of technology, the timing
simply was not right for introduction of an automated system, so it did not go ahead.

7
  World Health Organization, 2006. Regional Health Forum Volume 5, No. 1 (2006), WHO South-East Asia
8
  Study by PHDT for UNFPA on Alcohol Prevention and Gender-based Violence. Unpublished, 2009.
9
   This estimate is confirmed by estate sources.
                                                                                                 7


       4.      Component 4: Institutional Development and Project Management

28.     This component represented 3% of the project investment. The sum of $1.8 million was
budgeted to support the operations of the industry umbrella body, TASL, but only $0.8 million
was disbursed. Only the certification process made good progress, and TASL was wound up by
November 2008. There was not enough broad-based support in the sector for such an
organization at the time, and existing organizations that were already undertaking some of these
functions (although not representing the breadth of stakeholders envisaged for TASL) resisted
giving them up. Stakeholders were unwilling to contribute financially to the running of the
organization once ADB funding ended, and the government refused to contribute going forward
through the tax on tea exports.

29.     Demand for institutional training was also much lower than predicted. First, identification
of those to be trained, areas of training, and suitable providers (i.e., a training needs analysis)
was left to the RPCs, who did not have the time or resources to do so. Second, RPCs were
reluctant to pay their 40% contribution for the training unless they could claim the workers'
wages, travel, and meals against their share, to which ADB and the Ministry of Plantation
Industries (MPI) did not agree.

30.    Training needs were identified during the project design (PPTA) at three levels:
       (i)    For management. Change management, strategic management, and human
              resources development.
       (ii)   For estate technical staff. Estate accounting, office automation, and information
              technology at the office level, and mechanization and factory automation at the
              factory level.
       (iii)  For field staff. Improved agricultural practices.

31.     Managers, however, were reluctant to send workers for training since the usual system
featured managers training workers. Also, interest was in 2–3-week courses, but the upper limit
was 2 weeks. The National Institute of Plantation Management was envisaged as a key training
provider, but it was restructured, so it was unable to provide the training. Due to low
disbursements, ADB agreed to a request from RPCs to allow international and other types of
training to improve the commercial management and leadership skills of RPC and estate
management staff. RPCs valued this type of training very highly, stating that it was not available
within Sri Lanka and met the industry need for managers with improved leadership skills. As a
result, the anticipated 3:1 budget ratio of training between workers and management was, in
fact, reversed.

32.     There was zero disbursement for the subcomponent to develop subleasing and
outgrower models. When the PIU advertised for a consultant to undertake a study on this, the
Ceylon Workers Congress immediately complained. It argued that such a study would lead to a
situation where the International Labour Organization convention on core labor standards would
be breached, and the employment contracts of the estate workers would be endangered. They
also threatened to launch industrial action on the estates. Although the accuracy of the claims
was not tested, the subcomponent was dropped. There was also scant support from RPCs
themselves, since utilizing outgrower models was seen as losing control of quality standards of
production. Some plantations have since adopted this model on their own, however.

33.     Of $1.2 million budgeted for project management, $0.9 million was disbursed, mainly
due to the difficulty of filling certain PIU management positions consistently. The main constraint
was the inability to hire a financial management specialist at the budgeted rate to assist the
8


RPCs to develop their 5-year strategic business plans. This constraint was overcome by hiring a
consultant under the consultancy budget of the investment component.

C.         Project Costs

34.     At appraisal, the project cost was estimated at $114.4 million, of which $34.4 million
(34%) was to be in foreign exchange costs and $80.0 million (70%) equivalent in local currency.
The OCR loan at appraisal was ¥1,171,600 ($10.0 million equivalent) and the ADF loan totaled
SDR13.043 million ($20.0 million equivalent), to finance 26% of the total project cost. PFIs were
to provide $8.5 million or 7% of the total project cost, beneficiaries $38.3 million or 34% of the
total project cost, and the government $21.2 million or 33% of the total project cost. The
appraisal estimate included physical and price contingencies and an estimate of service
charges during construction.

35.     The actual cost at completion was $67.21 million, of which $23.65 million was in foreign
exchange costs and $44.56 million equivalent in local currency (Appendix 3). This excluded the
reallocation of savings of SDR9.146 million ($15 million equivalent) in 2008 to the proposed
Power Sector Development Project10, which reduced the ADB contribution by almost 50%. The
impacts of cost changes on the project’s economic and financial rates of return are elaborated in
Appendix 4.

D.         Disbursements

36.     A total of $18.97 million was disbursed under the ADB loan, 100% of the revised loan
amount or 63% of the original loan amount of $30 million equivalent (Appendix 3).
Disbursements were low during 2003–2006, mainly due to the delayed implementation of the
workers’ housing loan scheme and lack of interest from participating RPCs in the social and
environmental program and marketing initiative components. Disbursements picked up in 2007
with the reallocation of the $4.3 million from the workers’ housing loan scheme and $2.3 million
savings from training and unallocated categories to the civil works for estate road rehabilitation.
Likewise, flexibility in the implementation of the social development programs improved
disbursement in 2007 up to project completion. In 2007, the imprest advance was also
increased from $375,000 to $700,000. Disbursements from the loan account were completed on
22 February 2010, the actual loan closing date for the ADF loan.

37.     Disbursement under the OCR loan picked up in 2005 with the establishment of the
Plantation Fund and the release of its $5.0 million advance. Disbursements were completed on
26 November 2009, the actual loan closing date. Following the last disbursement on 26
November 2009, ADB canceled the undisbursed loan balance of ¥17.68 million.

E.         Project Schedule

38.    The loan became effective on 29 August 2003, with a planned implementation period of
6 years, and an actual closing date of 22 February 2010. Loan effectiveness was delayed by 6
months to enable the government to meet effectiveness conditions. As envisaged, the
investment component started in the first year, and subloan applications and equity financing

10
     ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loans, Grant,
     Administration of Grant, and Technical Assistance Grant to the Democratic Socialist Republic of Sri Lanka for the
     Clean Energy and Access Improvement Project. Manila (Loan Nos. 2518 and 2519-SRI, for $25 million and $135
     million, approved 14 April).
                                                                                                9


were made available to RPCs within the first 5 years of the project. Other components
commenced the first year except the workers’ housing loan scheme, which was delayed and
eventually canceled due to implementation of a more attractive package by the government.

39.     In June 2009, the loan period was extended by 5 months for the ADF loan (until 30
November 2009) to allow reallocation of surplus loan proceeds from other Sri Lanka projects
needed to finance the anticipated deficit of $430,000 to fund ongoing activities such as research
and development. This deficit was the result of the cancellation of unutilized savings of $15
million, agreed to during the High-Level Country Portfolio Review Mission in March 2009.
Likewise, the OCR loan was extended by 1 month (until 31 July 2009) to enable full
disbursement of the Plantation Fund. The actual loan closing dates were 22 February 2010 for
the ADF loan and 26 November 2009 for the OCR loan. Appendix 5 contains the
implementation schedule.

F.     Implementation Arrangements

40.     The PIU was established by the recruitment of new staff and the absorption of some of
the supporting staff and capital assets of the preceding Plantation Reform Project, and all senior
staff had assumed duties by the third quarter of 2003. The PIU experienced a high turnover of
senior staff through most of the project period, a problem aggravated by delays in replacing the
outgoing staff. The PIU's performance was also hampered by delayed implementation of the
social and environmental program component until the second half of 2007 due to reluctance of
the RPCs to contribute 50%, which was resolved with the project taking up the full costs of the
social development programs and 60% of social infrastructure programs. The PIU was able to
meet most of its targets by project end and also adhered to documentation standards.

41.     The PIU showed flexibility in implementation by adopting a demand-driven approach.
Some new activities were undertaken, such as minor improvements to factories, which replaced
earlier marketing initiatives activities for which there was no demand from the RPCs. However,
there were some issues relating to project monitoring. The baseline survey was undertaken only
in the third year of the project, while the impact assessment study was affected by a relatively
short implementation time frame, limiting the potential for a comprehensive sample survey. The
Project Coordinating Committee was established in the third quarter of 2003 and met regularly
throughout the project period, facilitating implementation by approving the numerous changes in
scope required.

42.    PHDT assisted the project in the implementation of estate infrastructure and social
development programs. The PCR mission was pleased to note the innovative approach used by
PHDT in the alcohol prevention program by linking it to the household savings improvement
program. The Development Finance Corporation of Ceylon (DFCC) Bank served as the apex
body for the investment component. Tasks included preparation of subproject agreements,
coordination of subloan programs, channeling funds through PFIs, and submitting withdrawal
applications. Establishment of the Plantation Fund was delayed until March 2006 with the
appointment of a national, rather than an international, manager as designed.

G.     Conditions and Covenants

43.    Covenant compliance was generally achieved, but some were delayed. Noncompliance
related largely to the divestiture of RPCs and the implementation of effective monitoring and
evaluation. The elimination of restrictions on the marketing of tea was also not complied with.
These had also failed to be addressed in previous projects, which show a lack of government
10


interest in this approach. The impact of noncompliance was delayed implementation,
maintenance of high transaction costs in the sector, and failure to identify significant positive
project benefits. Covenants related to worker housing were all essentially waived, since this
component was canceled. Specific covenant compliance is presented in Appendices 6 and 7.

H.     Consultant Recruitment and Procurement

44.     A total of 52.5 person-months of individual consulting inputs (national) were utilized
during the project period against 47.0 person-months (23.0 person-months of international and
24.0 person-months of national) planned at appraisal. RPCs hired consultants at their own costs
to assist in their diversification and marketing activities. No significant procurement problems
were encountered since all were recruited individually following ADB Guidelines on the Use of
Consultants (2010, as amended from time to time). The list of consultants is presented in
Appendix 8.

45.      Small civil works—such as reroofing; construction of field restrooms, playgrounds, and
toilets; and road rehabilitation—were carried out by the RPCs on a force account basis. The
procurement of office equipment and vehicles was carried out by the PIU using local competitive
bidding and shopping procedure. Likewise, procurement of ergonomic equipment was carried
out by the RPCs using local competitive bidding procedures in accordance with ADB
Procurement Guidelines (2010, as amended from time to time). All procurement of goods and
services financed by subloans was carried out by RPCs through competitive bidding in
accordance with procedures acceptable to ADB.

I.     Performance of Consultants, Contractors, and Suppliers

46.     PHDT undertook most of the responsibility for the implementation of the social
development programs, including amenities. It drew upon its past experience and regional
presence to implement the activities, and can be commended for the creativity and sustainability
introduced, especially by linking the prevention of alcohol abuse to household savings. Positive
feedback was also received for the approach used by the Alcohol and Drugs Information Centre
in implementing the prevention of alcoholism programs.

47.      While the baseline survey was extensive, the impact assessment survey at the end of
the project was limited to small focus groups, effectively losing an opportunity to measure the
positive impacts of the project. The consultant stated that inadequate time was provided as well
as little support for a structured impact assessment. The consultancy for strategic planning has
been effective, although some delays were experienced.

48.    The use of a private sector apex body to implement the credit line was unprecedented,
since the Central Bank of Sri Lanka usually undertook this function. DFCC Bank, selected as
the apex body, performed in a satisfactory manner.

J.     Performance of the Borrower and the Executing Agency

49.     MPI, as executing agency (EA) undertook its role and implemented the project mostly as
planned. However, PIU staffing was often inappropriate for the tasks required, and core
functions such as monitoring, evaluation, and coordination were not always effective. Key
problems, relating to the lack of any systematic project-wide management information system
and weakness in the design and management of the impact assessment, resulted in significant
underreporting of project benefits. The EA did not adequately reflect changes from the previous
                                                                                               11


Plantation Reform Project, taking inadequate responsibility for the coordination and monitoring
of the investment component. The PPTA capability assessment of the EA is considered
reasonable, with the EA not experiencing the significant institutional change of other sectors
during this time in Sri Lanka. On completion, the EA is effectively unchanged in terms of
institutional capacity other than the integration of the project director into the MPI Plantation
Management and Monitoring Division.

50.    Borrower performance was partly satisfactory. Flexibility and commitment to the social
development programs was shown by increasing its share of financing to 25% to replace the
contribution of RPCs to enable implementation. Delays in the establishment of the revolving
fund, due to unclear fund establishment requirements, delayed some investment programs.

K.     Performance of the Asian Development Bank

51.     Overall, ADB’s performance was satisfactory. ADB fielded one inception, one midterm
review, two special administration, and six supervision missions during project implementation.
The changing priorities of the government and the changes to the project design added
significant complexity to project administration. The appointment of a fund manager was
delayed due to the design proposal for an international fund manager that was not supported by
the new government. In hindsight, given the modest fund size, the requirement for international
management and the subsequent delays were not warranted. Other issues were managed well
and were able to retain the distribution of benefits between RPCs and workers through
reallocations of loan funds and changes to eligibility criteria. The willingness to support
demand-driven needs through flexible, responsive project administration was a significant
contribution to project achievements.

                      III.    EVALUATION OF PERFORMANCE

A.     Relevance

52.     The project is rated relevant. The design goal of ensuring the long-term sustainability of
the plantation sector without external assistance propelled the RPCs to change their inherited
strategies to market-oriented strategies to meet the quality and marketing requirements required
in competitive world markets. The social development programs were relevant to the
government’s poverty reduction goals and to the classification of the project as a poverty
reduction project, and were designed to address urgent social issues such as inadequate
housing and amenities, poor household financial management, and alcohol abuse.

53.     The design included ambitious initiatives to implement structural changes in the tea
industry, especially in joint marketing, joint product research and development, and tea auction
automation. These subcomponents, representing about 4% of project cost, cannot be viewed as
relevant to achieving project goals, and added complexity to project implementation. The major
change in design in replacing the housing loan scheme with estate road rehabilitation was well
received by estate workers and was relevant to project objectives.

B.     Effectiveness in Achieving Outcome

54.      The project was effective in achieving its outcome. In the investment component, the
project provided the only source of long-term financing available to the RPCs for the
development of productive assets. The field development of tea and rubber has exceeded
targets; however, commercial sustainability remains weak for at least 4 of the 16 RPCs. Crop
12


diversification into oil palm has achieved targets, although only 43% of the expected
diversification into forestry has been achieved due to uncertainty relating to the harvesting of
timber by the RPCs. Diversification into other crops has been slow, with the exception of
cinnamon. Noncrop diversification has also been sluggish, with only one RPC investing in estate
tourism.11 The consolidation of factories to improve efficiencies was unpopular; instead, most
investment was in upgrading and automation. More than 100 tea factories have achieved
certification standards required by markets. In addition, project initiatives have contributed to
increased awareness of both management and workers of the importance of quality in
production. The project target of establishing marketing alliances was not achieved due to the
RPCs preferring to adopt their own individual marketing arrangements.

55.     The project's social dimension was highly effective. Access to estate worker housing
has been greatly improved with investment in roads and footpaths. The reroofing of line rooms
was effective where implemented, despite a shortfall in targets mainly due to supply constraints
during project implementation. Field and factory restrooms have improved the working
conditions of the workers, especially women. The project has contributed to reducing drudgery
at the workplace by the substitution of ergonomic equipment in place of labor, while also
enhancing the dignity of labor. The original design anticipated the adoption of ergonomic
plucking baskets, which was not successful due to nonacceptance by workers. The PCR
mission noted that some RPCs had been innovative in identifying equipment that was
ergonomic as well as productive, such as a new type of portable plucking machine. The social
development activities were also highly effective in improving the savings and cash
management of worker families. The strategy adopted by PHDT—linking the alcohol abuse
prevention program with the household savings program—resulted in households
understanding that reduced alcohol consumption and increased disposable income are linked.

56.     The project component on marketing initiatives were not effective. The implementation
strategy required major changes to the existing marketing system that were unacceptable to
stakeholders. The automation of the tea auction and electronic trading was also not
implemented due to negative lessons from other competing auction centers.

C.         Efficiency in Achieving Outcome and Outputs

57.     The project is rated efficient due to a reevaluation of the economic internal rate of return
(EIRR), which is estimated to be 19% compared to 16% at appraisal. While production returns
have yet to be captured in balance sheets and bottom lines of RPCs, the extent of investment is,
in combination with the previous sector projects, considered significant. If RPCs can control
their wage costs, their profitability should improve.

58.     The higher EIRR reflects the larger areas of tea and rubber replanted as well as rapid
increases in commodity prices, especially for rubber, tea, and oil palm. The incremental benefits
are also high, due to ageing seedling tea plantings that are experiencing rapidly declining yields
while rubber replanting is using land previously not in production. For diversification crops, it is
assumed that the land used was previously out of production. Forestry benefits are included;
however, current and ongoing disputes over forest harvesting rights on estate land suggest that
the rights to the actual trees may not be secure for the RPCs. Many of the gains have been
eroded by the wage increases, and continued investment in replanting of upland tea provides a
much lower marginal return on investment, highlighting the importance of land diversification
and outstanding forestry issues on upland estates.

11
     However, the project period did coincide with a period of civil insurgency, which has now ended.
                                                                                                  13



59.     Insufficient data were collected for the PCR to ascertain the benefits of the 127 tea
factories modernized. Site visits indicated that 10%–15% of output was of higher net value as
there were fewer rejections and repacking. Further worker participation increased from less than
80% of workdays to over 90%, with 100% being achieved in individual factories, increasing
processing efficiency and output per factory worker. The scale of these benefit streams and the
social benefits of social development activities are likely to be substantial. The project economic
and financial reevaluation is given in Appendix 4.

D.     Preliminary Assessment of Sustainability

60.     The project is likely to be sustainable on the basis of the highly sustainable nature of its
inputs. For the investment component, investment in new tea vegetative propagated clones and
rubber planted under the previous project are increasing yields, while areas planted under this
project will provide continued increases at greatly enhanced levels of output. Further,
diversification into oil palm, spices, and fruits are moving from proof concept into full production.
While RPC revenue increases have a high probability, the ability to convert these into margins
remains a low probability due to wage escalation, inflation-linked lease payments, and
uncertainty over rights to forestry resources. In the longer term, the capital cost of estate
infrastructure will place additional burdens on the RPCs, as will the shortage of labor.
Mechanization of pruning, planting, and the trialing of new low-cost mechanical pluckers are
options currently being pursued. Financial sustainability of tea estates, especially upland tea
estates, is less than secure given the current low margins and the expected pressure from
low-cost competitors. RPC sustainability, however, is only one aspect of project sustainability.

61.     On the social side, the project had an additional benefit in terms of enhanced worker
satisfaction with working conditions. This has had tangible impacts on worker productivity, both
in terms of output and decreased absenteeism. Upgrading of factory floors (i.e., tiling on the
ground floor and coating with zinc aluminum sheets on the upper wilting floors) and bird netting
have both improved the quality of the product, resulting in lower rejected or repacked tea as well
as enabling factory certification and market access. Both of these have had an impact on
product price. Introduction of equipment (e.g., crates, chainsaws, two-wheel tractors, pole
trimmers and blowers, and hole borers) has improved the efficiency of undertaking key
plantation tasks and reduced the labor requirement, addressing the increasing problem of labor
shortages, especially at lower elevations. Utilization of mechanical equipment has retained
younger workers in the industry, who previously had been reluctant to do plantation work in
factories and fields. Upgrades of management systems and the training of workers has
empowered workers at all levels to contribute in strategic ways to production improvements,
further enhancing engagement.

62.     Improvements in living conditions have had enormous impacts on the estate population’s
level of well-being. Managers report corresponding increases in constructive working
relationships, both with workers and their unions. The project's social programs to deal with the
problems of alcoholism, indebtedness, and gender disempowerment have also had measurable
impacts that, particularly when delivered in an integrated manner with training of trainers, are
showing incremental and generational improvements. The social investments are likely to be
highly sustainable, given the changes in attitudes and the empowerment of workers to take
charge of their own finances and to diversify their livelihoods.

63.   Through the project, the RPCs as agribusinesses have developed the required systems
and practices for economic sustainability but are still constrained a relatively short remaining
14


lease period (35 years) that acts as a disincentive for continued investment and limits the use of
the lease as collateral; a workforce that remains highly unionized, raising business and political
risks from large-scale industrial action; an uncertain political environment (i.e., key government
policies that underpin investment decisions—such as those on taxation, forestry, labor rates,
and subsidies—change in an unpredictable manner); and responsibility for a large resident
workforce that competitors in India and Africa, for example, do not have. Added to this are a
number of industry risks, such as dependence on fluctuating international prices—including
fertilizer, which comprises 10%–15% of production cost—and increased vulnerability due to
climate change including droughts, increased temperatures, and high-intensity rainfall.

E.         Impact

64.    The impact of the project is significant. The project achieved land-use change on 42,054
ha (25%) of RPC land,12 including replanting and infilling of tea (7,861 ha), rubber (25,816 ha)
and coconut (1,138 ha) that is expected to generate an incremental gross revenue stream to the
16 RPCs of an estimated SLRs9,540 million per year within 10 years. Diversification of land use
provided additional forestry (4,114 ha) with a value of SLRs6,865 million over 30 years, oil palm
(2,478 ha), and spices and fruits (646 ha) providing revenues of nearly SLRs200 million per
year after 5 years. Ecotourism impacts were less than expected, given the limited investment
and ongoing conflict during project implementation.

65.     RPCs have increasingly sought to develop business plans on a diversified income
stream while retaining their focus on core production systems. Factory consolidation was limited
to two factories; however, the inclusion of factory modernization had significant, and unexpected,
impacts, including improved returns from reduced product rejection, certification to maintain
market access, improved employee working conditions with gains in employee attendance
(15%–20%), increased factory productivity, and worker empowerment. Factory modernization
contributed to remarkable improvement in worker–management relationships, with workers
actively involved in quality targets; factory procedures; and development of improved equipment,
process flow, and work conditions. PFIs report positive outcomes from their involvement in the
project, which has seen them diversify and increase their investment in the sector, especially
when problem balance sheets were strengthened using project resources.

66.     The social development programs improved social infrastructure, economic
infrastructure (i.e., estate roads), and social and human capital within the estates. The project
was central to extending best management practices through increased social empowerment.
Estate workers who participated are substantially better off in terms of their well-being, status,
and participation in both work and decision making. The incomes of most estate workers are
well above poverty lines, and their social and heath indicators have substantially improved with
health indicators often exceeding national averages. Worker saving schemes linked to
cooperatives have also resulted in estate management supporting social programs through
provisioning of cooperatives, and providing credit to cooperative members. Wider social
programs have seen marked improvement in the status of estate workers, with estates providing
uniforms, health checks and services, child care, and the promotion of independent housing
schemes. The project has played a strong supporting role in the redefinition of social conditions,
working conditions, and management–worker relationships to the benefit of both. The single
overriding impact of the project has been to change the culture of estate management and
operations.

12
     When combined with the Plantation Reform Project output of 32,280 ha, the two ADB projects have directly
     contributed to a total of 74,335 ha or 44% of the 165,395 ha for RPCs reported in the PPTA.
                                                                                                     15


             IV.     OVERALL ASSESSMENT AND RECOMMENDATIONS

A.     Overall Assessment

67.     The project is rated successful. Core project activities, relating to more than 90% of
project funds, including RPC balance sheet restructuring, plantation crop upgrading, and
diversification, exceeded targets by substantial margins. Social programs effected significant
improvement to estate worker empowerment and their access to social infrastructure. However,
continued plantation sector cost escalations, changing government policy and commitment to
RPC lease conditions, and RPC vulnerability to reduced margins and weak balance sheets
combined to ensure that the expected project impact of stand-alone, RPC sustainability was not
achieved during the project period.

B.     Lessons

68.     First, delays were avoidable if the PPTA financing percentages had been retained.
During the loan appraisal and negotiation phase, the recommended financing percentages of
the PPTA of 70% ADB–30% RPC for social amenities and 90% ADB–10% RPC for the social
development programs were adjusted to 50% ADB–50% RPC, resulting in RPCs not
participating. Given the weak balance sheets and the lack of profitability, the desire for greater
ownership through increased financial contribution was inconsistent. The subsequent increase
in ADB financing overcame the issues, and implementation proceeded rapidly over 3 years.
Second, there was unnecessary design complexity and add-ons. The core project components
relating to investment and social objectives were coherent and achievable. The inclusion of
additional inputs for the development of TASL, marketing alliances, and demand-based public
research were not client-driven nor demanded, lacked appreciation of the commercial and
proprietary rights attached to market relationships, and research findings as contributing factors
for achieving competitive advantage.

69.     Further, there were insufficient financial and governance benefits to merit insistence on
an international fund manager when the size of the fund was extremely limited and the duration
of funds available for investment short. In addition, project outcome and impact indicators were
poorly defined in terms of sustainability and what this represented. There was inadequate
consideration of sector financial risks, including wage inflation, and political risks relating to price
escalation in the sector. A major cost item, the inflation adjustment formula for RPC leases, was
not reflected in the institutional nor design framework.

70.      The use of a credit line was an effective implementation modality. Significant advantages
from longer loan periods, grace periods, and fixed interest rates during a period of high and
rising interest rates and markedly lower capital availability supplied a definite demand. The use
of fixed interest rates during the current period of declining interest rates has, however,
increased the requests for early repayment. DFCC, the Ministry of Finance, and MPI should
consider the option of interest rate adjustment to outstanding loans. Similarly, the apex body
agreement did not adequately cover for the recycling of early repayments, and, as such, interest
earned and loan repayments can be retained by the apex body. PFIs are required to pass early
repayments back to the apex body.
16


C.     Recommendations

       1.      Project-Related

71.     Future monitoring. Critical issues within the plantation sector require more accurate
information for policy and decision making. MPI should develop its depth of understanding with
supporting data relating to cost of production, incremental yields, and labor productivity.
Understanding the demographic profile of resident populations and workers, and the balance
between availability and demand for labor, will assist the sector develop more comprehensive
policy and institutional arrangements to be more efficient and productive.

72.     Covenants. The PCR mission suggests the covenant on the revolving fund in its
existing form be maintained to 30 November 2011 to enable re-revolving of the fund.

73.     Further action or follow-up. By January 2011, the EA should work closely with the
Planters' Association of Ceylon to prepare a detailed proposal for revolving the ADB investment
funds under the OCR loan, including those within the existing revolving fund, to support
investment into continued replanting and diversification programs by all RPCs. This should be
presented to Ministry of Finance on the basis of ongoing financial sector constraints in providing
longer-term finance. The EA, Planters' Association of Ceylon, and PFIs should prepare a policy
brief on the importance of developing increased RPC lease certainty to enable leases to be
used as financial security and collateral for presentation to the Cabinet by March 2011.

74.    Additional assistance. Additional assistance for (i) social housing programs, and (ii)
continued development of sector infrastructure and value addition needs to be more fully
assessed. Options for use of public–private partnerships in the sector need further elaboration
and presentation to the Ministry of Finance and donors for consideration in future project
planning.

75.      Timing of the project performance evaluation report. The report is recommended for
completion by mid-2012 to inform future programming by the government and ADB, with the
scope of evaluation expanded to include the production impacts of the previous Plantation
Reform Project and the Plantation Development Project. An early evaluation will capture
important impacts, including those related to social empowerment and its link to plantation
production and processing efficiency. The inclusion of the previous Plantation Reform Project
will incorporate the yield and cost of production benefits arising from plantation investments that
take at least 7 years to be realized. Supporting data collection are required with options to
include repeat surveys of PHDT and the project baseline surveys offering efficiencies. Under all
options, surveys of nonparticipating estates and plantations should be used as a control group.

       2.      General

76.    Greater clarity in the choice of indicators and targets in design would ensure that the
achievement of targets is within the control of project implementation agencies, their contractors,
and beneficiaries. Financing plans prepared during the PPTA should be retained unless there is
analysis to prove that alterations will not impact implementation. More detailed analysis of PFIs
should include sector exposure limits and the impact of large investments on the exposure of
smaller institutions. Lastly, implementation schedules should be more realistic regarding the
time required to establish the procedures and authorities to disburse under a credit line modality.
                                                   DESIGN AND MONITORING FRAMEWORK
                                        Project Targets
Design Summary                       (Verifiable Indicators)                                Achievements                           Assumptions and Risks
1. Goal
Long-term sustainability   Sustained business operations of 23 RPCs       16 RPCs participated. Their ability to finance        Continued losses limit balance
of the plantation sector                                                  adequate replanting, infrastructure maintenance,      sheet strength and constrain
without external                                                          and social programs is still weak. Four RPCs have     future investment.
assistance                                                                failed to achieve cash surpluses.
                                                                                                                                Increased social investment
                                                                                                                                costs       decoupled       from
                                                                                                                                productivity and market returns.

                           Sound financial position of 23 RPCs            Of the 16 RPCs, 12 achieved profitability in 2009     Continued cost escalation
                                                                          based mostly on record tea and rubber prices.
                                                                          Productivity gains from project investment are not    Inability to replace labor with
                                                                          expected for 5–7 years.                               labor-saving technology

                                                                                                                                Market risks for upland tea

                                                                                                                                Supply response to high
                                                                                                                                commodity prices results in
                                                                                                                                declining prices.
2. Objectives
Enhance profitability of   Transform 23 RPCs from primary producers       Most RPCs remain plantation companies; however,       World commodity prices are
the plantation sector      to agribusiness entities                       there is increased value addition, although this      maintained.
                                                                          remains limited by government sector policy.
                                                                                                                                Strategic business plans are
                           Reduce cost of production from SLRs107/kg      Cost of production increased to SLRs332/kg for tea    well thought out to improve
                           for tea and SLRs57/kg for rubber               and SLRs178/kg for rubber, attributable to            financial viability.
                                                                          increased fertilizer and labor costs.
                                                                                                                                Innovative     technology      is
                           Increase average yields from 1,500 kg/ha for   Yields decreased to 1,124 kg/ha for tea and 733       adopted.
                           tea and 900 kg/ha for rubber                   kg/ha for rubber in 2009 due to drought, the global
                                                                          economic crisis (reduced fertilizer due to price      The banking sector has long-
                                                                          escalation), and industrial action. In 2008, tea      term funds for investments.
                                                                          yields were 1,419 kg/ha, and rubber yields were
                                                                          900 kg/ha.                                            There are appropriate policies to
                                                                                                                                support private sector.




                                                                                                                                                                    Appendix 1
                           Increase labor productivity from 18            Minimum labor productivity is set at 16 kg/day for
                           kg/workday for tea and 6 kg/workday for        tea, but additional kg are available at a different   There is political commitment to
                           rubber                                         wage rate.                                            reforms.

                                                                                                                                Environmental criteria are
                                                                                                                                appropriate.




                                                                                                                                                                    17
                                                                                                                                                                    18
                                       Project Targets
Design Summary                      (Verifiable Indicators)                               Achievements                              Assumptions and Risks




                                                                                                                                                                    Appendix 1
Improve living and        Increase workers’ average monthly earnings     With current negotiated wages to SLRs405/day            RPCs are committed to improve
working conditions of     from SLRs2,600                                 above a minimum of 19 days per month, monthly           workers’ conditions.
estate workers                                                           income increased to SLRs7,695.
                                                                                                                                 Estate workers     and   unions
                          Promote workers' participation through joint   Joint management committee concept changed to           cooperate.
                          management committees, “5S” quality circle,    wider worker empowerment strategies. Quality
                          and other systems on 500 estates               certification established for 61 factories, while       Appropriate labor legislation is
                                                                         minor upgrading to meet quality standards has           in place.
                                                                         been implemented in 118 factories.
                                                                                                                                 The government does not
                          Improve access to workers' homes and           Rehabilitation of 446 km of tar and concrete roads,     intervene in wage and labor
                          other facilities                               74 km of gravel roads, and construction of 47,187       matters.
                                                                         linear feet of concrete footpaths

                          Reduce workers’ sickness incidence from        Although current data are unavailable for the estate
                          8.5%                                           sector, estates report significant increases in
                                                                         attendance of workers. Nutritional programs
                          Increase birth weight and child weight to      targeting mothers and children have improved
                          national average                               overall the physical condition of children.

                          Integrate estate workers into mainstream       Workers are encouraged to undertake additional
                          village life                                   income-generating activities in villages.

                          Reduce outflow of estate labor force           Improved living environments, working conditions,
                                                                         and higher wages have reduced the tendency to
                                                                         migrate out of estates.

3. Outputs
1. Investment Component
                          Establish Plantation Fund                      Plantation Fund established, and SLRs535 million        RPCs adopt conditions of
                                                                         disbursed.                                              lending and monitoring systems.

Core activities           Replant 1,750 ha of tea, infill 2,375 ha of    9,705 ha of tea replanted and infilled (236%), and      RPCs sublease surplus land for
                          tea, and replant 11,250 ha of rubber           36,186 ha of rubber replanted (321%).                   diversification.

                          Replant or rehabilitate 2,500 ha of coconut    1,345 ha of coconut replanted (54%).                    Policy constraints and marketing
                                                                                                                                 regulations are removed.
                          Consolidate 14 tea factories                   2 factories consolidated, 27 factories upgraded,
                                                                         and 6 factories automated.                              Agreement among management
                                                                                                                                 and workers and unions to
                          Develop 40 rubber effluent treatment           All participating estates were required to install      adopt innovative technologies
                          facilities                                     effluent treatment as a condition of participation in   with implications for labor
                                           Project Targets
Design Summary                          (Verifiable Indicators)                                 Achievements                           Assumptions and Risks
                                                                              the project.                                          requirements

Crop diversification and   Develop 9,500 ha of forest, 2,500 ha of oil        4,114 ha forest developed (43%), 2,478 ha of oil      Appropriate     mechanism      for
forestry                   palm, and 2,400 ha of other crops                  palm developed (99%), 646 ha of other crops           collaborative    research       is
                                                                              developed (27%), and 187 ha of crop diversification   adopted.
                                                                              and forestry undertaken (43%)
                                                                                                                                    The government is committed to
Noncrop diversification    Refurbish 20 estate bungalows, rehabilitate        Only one RPC invested in estate bungalows and a       support the sector and ethical
and estate tourism         20 mini-hydro schemes, and construct 1             tea sales center. Overall lack of interest by RPCs.   trade initiatives.
                           crude palm oil factory
                                                                              The palm oil factory was declined by ADB on
                                                                              environmental grounds, and was built using
                                                                              commercial funding.

Marketing initiatives      Establish 5 joint marketing alliances              One RPC invested in marketing initiatives. Overall
                                                                              lack of interest.

2. Social and Environmental Programs
Workers’ housing and       Upgrade and rehabilitate estate roads by           Rehabilitation of 446 km of tar and concrete roads,   RPCs profitability is sustained.
amenities                  means of tar and concrete, and construct           and 74 km of gravel roads
                           concrete footpaths                                                                                       Criteria for selecting workers for
                                                                              Construction of 47,187 linear feet of concrete        participation are appropriate.
                                                                              footpaths
                                                                                                                                    Implementation     capacity        is
                           Reroof 11,000 line rooms, and construct 150        7,413 line rooms reroofed (67%)                       maintained.
                           common site services for housing
                                                                              Common site services were not constructed due to      Appropriate      programs     are
                                                                              nonimplementation of the associated housing loan      developed.
                                                                              scheme.
                                                                                                                                    Appropriate training institutions
                           Construct 30 playgrounds                           8 playgrounds constructed (27%).                      are selected.

                           Construct     300   restrooms   and     sanitary   312 restrooms constructed.                            The government is committed to
                           facilities                                                                                               RPC     and      nongovernment
                                                                                                                                    organization social programs.
                           Construct ramps and drains for reroofed            Ramps and drains for 700 housing units
                           housing units                                      completed.                                            RPC management is committed
                                                                                                                                    to social programs.




                                                                                                                                                                            Appendix 1
                           Construct new preschools                           4 new preschools constructed.

                           Construct or renovate water supply schemes         6 water schemes constructed or renovated.
                           for workers housing




                                                                                                                                                                            19
                                                                                                                                                                   20
                                         Project Targets
Design Summary                        (Verifiable Indicators)                                    Achievements                          Assumptions and Risks




                                                                                                                                                                   Appendix 1
Social programs             Procure 60,000      units      of   ergonomic    Allocation fully utilized.
                            equipment

                            Train 30,000 workers on gender issues            18,988 workers provided with gender training.

                            Train 30,000 workers in skills to strengthen     21,000 workers trained in estate worker institutions
                            housing cooperatives                             (70%).

                            Train 30,000 workers on household cash           30,989 workers trained in household cash
                            management                                       management (100%).

                            Train 30,000 participants in alcohol abuse       30,009 workers trained in alcohol abuse prevention
                            prevention programs                              programs (100%).

                            Establish 250 social development centers         30 social development centers established (12%),
                                                                             but RPCs unwilling to contribute 40% of cost.

                            Orientate 600 managers on human                  196 managers received orientation (33%), while no
                            resources development and 600 estate staff       estate staff members received orientation.
                            on social development

Environmental initiatives   Conduct land-use     capability survey on        31,635 ha were surveyed (17% of target).
                            190,000 ha

3. Marketing Initiatives
Research and                Support collaborative product and research       3 research projects implemented on pesticide           Appropriate mechanisms for
development                 and development programs                         residues in tea, leaf protein from refuse tea, and     collaborative research by
                                                                             tea extract for value-added products.                  institutions and engineering
                                                                                                                                    companies are developed.
                            Establish   marketing       intelligence   and   Center not established.
                            resource center

                            Automate tea auction and electronic trading      Automation of auctions not undertaken due to
                                                                             reluctance by key stakeholders in the trade.

                            Compliance of 100 estates with social and        118 estates obtained quality certification (118%).
                            environmental certification requirements,
                            and certify 50 factories for fair trade
                                            Project Targets
Design Summary                           (Verifiable Indicators)                              Achievements                          Assumptions and Risks
4. Institutional Strengthening and Project Management
Support for industry          Establish umbrella body, and ensure that it   Umbrella body (Tea Association of Sri Lanka)         Government commitment           to
umbrella body                 functions                                     supported during project but eventually closed       deregulation is sustained.
                                                                            down due to inability self-finance.
                                                                                                                                 Industry stakeholders develop
Consulting inputs            Provide 23 person-months of international      36 person-months of national consultants utilized.   appropriate   mechanism    for
                             and 24 person-months of national consulting                                                         consultation.
                             services to supplement expertise of RPCs
                                                                                                                                 Consultants are recruited
Training                     Train 1,000 management staff members and       Training provided for 3,732 management staff         judiciously.
                             30,000 workers                                 members, 1,543 estate staff members, and 5,859
                                                                            estate workers.                                      Technical expertise required is
                                                                                                                                 appropriately   identified  by
Support for developing       Develop workable models for subleasing         Not implemented due to lack of stakeholder           RPCs.
subleasing        and        RPCs’ land and outgrowers                      support.
outgrower models                                                                                                                 Identified training needs are
                                                                                                                                 appropriate.
Project management           Strengthen project implementation unit         Project implementation unit affected by high
                                                                            turnover of senior staff.                            Trainers        are     recruited
                                                                                                                                 judiciously.

                                                                                                                                 RPCs are committed to human
                                                                                                                                 resources development.

                                                                                                                                 Cooperation of workers and
                                                                                                                                 unions is forthcoming.

                                                                                                                                 Models developed are
                                                                                                                                 appropriate and compatible with
                                                                                                                                 existing social system.

4. Activities
1. Investment Component
                             Provide $66.5 million in credit and equity     $41.6 million in commercial investments provided.    Strategic business planning is
                             and quasi-equity instruments                                                                        adopted.

                                                                                                                                 Institutional   strengthening   is




                                                                                                                                                                      Appendix 1
                                                                                                                                 appropriate.

                                                                                                                                 Activities are implemented on
                                                                                                                                 schedule.




                                                                                                                                                                      21
                                                                                                                                                                   22
                                           Project Targets
Design Summary                          (Verifiable Indicators)                                  Achievements                       Assumptions and Risks




                                                                                                                                                                   Appendix 1
                                                                                                                                  RPSs’ equity is forthcoming.

2. Social and Environmental Programs
Workers’ amenities         Provide $6.6 million for estate roads, $3.7         Actual expenditure of $13.2 million for workers'   Road construction resources
                           million for workers' amenities, $4.1 million        amenities, $0.4 million for social programs, and   are available when needed.
Social programs            for social development programs, and $1.8           $0.3 million for environmental initiatives.
                           million for land-use capability surveys                                                                Strengthening of estate worker
Environmental initiatives                                                                                                         cooperatives is appropriate.

                                                                                                                                  The government policy for
                                                                                                                                  worker housing is consistent.

3. Marketing Initiatives
Research                and   Provide $1.5 million for product research        SLRs40 million was provided for product research
development                   and development, $1.9 million for marketing      and development, and $0.017 was provided for
                              intelligence and resource center, $0.5 million   alternative marketing initiatives.
Support for ethical trade     for automated tea auction, and $2.5 million
initiatives                   for support to nongovernment organization
                              initiatives and fair trade labeling
4. Institutional Strengthening and Project Management
Support       for   industry Provide $1.8 million for support to umbrella      $0.46 was provided to the Tea Association of Sri
umbrella body                 body                                             Lanka.

Technological support         Provide $0.7 million for consultancy inputs      $0.112 was provided for consultancies.

Training                      Provide $ 2.9 million for management             $0.424 was provided for training.
                              training

Support for developing        Provide $0.4 million for developing
subleasing   and  out-        subleasing and out-grower models
grower models

Project management            Provide $1.2 million for project management      $1.168 was provided for project management.


ha = hectare, kg = kilogram, km = kilometer, RPC = regional plantation company.


Noted by:

________________________________                                                                          ___________________________________
Takashi Matsuo, Director, SANS                                                                            Sultan H. Rahman, Director General, SARD
                                                                                          Appendix 2      23


                                         SOCIAL ASSESSMENT

A.        Background

1.     The Plantation Development Project included a comprehensive social and environmental
program accounting for around 18% of the total project cost and comprising investment in
physical infrastructure and increasing social awareness. This appendix describes the impact of
the social programs on the target groups, which were estate workers and their families.

B.        Socioeconomic Profile at Project Commencement

2.       A baseline survey, undertaken as part of the project monitoring framework, was
presented in mid-2005, 2 years after the commencement of the project, and did not accurately
reflect the baseline situation. The economic features shown below were obtained from a survey
by the Central Bank of Sri Lanka in which the estate sample size corresponds to 600
households taken around the time of actual project commencement.13 These form the basis of
assessment of the project impact. This source also shows comparative figures for the rural and
urban sectors.

             Table A2.1: Comparative Economic Profile of the Estate Sector at Project
                                         Commencement
                                                   Estate      Rural     Urban         All
                                                  Sector      Sector     Sector      Island
       One month Income SLRs. Mean (Per              2,579       5,406      9,491       5,760
       income Receiver)
       One month Income SLRs. Median                 2,243       3,940      5,563       3,878
       (Per Income Receiver)
       Gini Coefficient                             0.2915      0.4494    0.5369      0.4790
       Unemployment Rate %                              6.9       10.2       13.4        10.4
       Savings as % of Income (Adjusted)              -22.9       10.0       16.3        10.4
       Indebtedness to Commercial Banks (By            23.0       68.6       59.2        67.3
       Amount) % distribution
       Indebtedness to Money lenders (By Amount)       22.9        9.2         7.3         9.3
       % distribution
       Interest on Loans above 100% p.a; %             11.7        2.9         4.8         3.4
       distribution
() = negative.
Source: Government of Sri Lanka, Central Bank of Sri Lanka. 2005. Consumer Finances and Socio-economic Survey
2003-2004. http://www.cbsl.lk/cbsl/cfs03_04.html
a
  The survey period was from October 2003 to October 2004, hence the date is shown as 2003-2004. This has no
reference to a financial year.

3.      From above, the average incomes in the estate sector were lower than in the other
sectors of the economy. The estate median 1-month income was 48% of the rural median
income; however, as monetary income, this does not reflect many of the nonmonetary benefits
of estates such as free housing, the lack of commuting costs, free health care, child care, and
cheap fuel. Estate workers also have the added benefit of secure employment and pension
benefits provided by the employer. The very low Gini coefficient is a reflection of equality of the
incomes within the estate workforce.

13
     Government of Sri Lanka, Central Bank of Sri Lanka. 2005. Consumer Finances and Socio-economic Survey
     2003/04. http://www.cbsl.lk/cbsl/cfs03_04.html
24         Appendix 2



4.      The unemployment rate in the estate sector was comparable with the other sectors in Sri
Lanka. Among the negative aspects of the economic condition of estate workers were the very
low level of savings and the high level of indebtedness. Estate sector households showed a
negative savings rate of –22.9%. Only 33% of estate households had a positive savings record,
compared with 50% of the households in the other sectors. Further, there was a high
dependence on informal moneylenders, often at exploitative rates of interest. The primary
underlying cause for misallocation of resources is as a lack of awareness of the importance of
financial management. Another important reason was the absence of ownership, especially of
housing, that removed a sense of mission from the allocation of resources.

5.      Higher-than-average expenditure on alcohol was also a feature of estate sector
households. Statistics on alcoholism are difficult to obtain, due to reluctance in responding by
individuals and the unclear dividing line between moderate drinking and alcoholism. The Alcohol
and Drug Information Centre estimated that the incidence of problem drinking was probably
around 35%–40% of the male population at the time of project commencement. The Plantation
Human Development Trust (PHDT) estimated that 53% of men and 14% of women abused
alcohol in the estates at project commencement. That alcohol leads to violence against women
was documented by a household assessment at six estates conducted by CARE International in
199814.

C.         Project Interventions and Achievements

6.       The project interventions were designed to meet the needs of the estate population
according to their priorities. To improve the workers’ living environment, indicated as the top
priority, the project provided for, for example, the reroofing of the existing barracks-type housing
known as line rooms; upgrading of access roads and footpaths; and the construction of toilets,
water schemes, and other types of estate infrastructure. Ergonomic equipment was provided to
ease drudgery at the workplace and also to enhance the dignity of those working at an estate. A
comprehensive program of social awareness programs was also designed to address pressing
social issues such as poor savings habits, awareness of gender issues, and alcohol abuse.

           1.       Workers' Housing and Amenities

                      Table A2.2: Housing and Amenities Project Achievements
 Category of Civil Works                                      Units Planned            Units Completed
 Construction of new workers' houses                                       6,000                            0
 Upgrading and rehabilitation of estate roads                                  0                          446
 (kilometers)
 Reroofing of workers' houses                                              11,000                        7,413
 Provision of common site amenities                                           150
 Graveling roads (kilometers)                                                   0                          74
 Construction of ramps and drains (housing units                                0                         700
 covered)
 Creation of battery-charging centers                                           0                         2
 Improving sanitation (toilets)                                                 0                     1,746
 Upgrading staff quarters                                                       0                       202
 Construction and upgrading of water schemes                                    0                         6
 Concrete footpaths (feet)                                                      0                    47,187
 New preschools                                                                 0                         4
 Construction of factory restrooms                                            300                        93
 Construction of field restrooms                                                                        219

14
     CARE International. 1998. Household Livelihood Assessment of the Estate Sector.
                                                                                                  Appendix 2      25


 Category of Civil Works                                    Units Planned                  Units Completed
 Development of social development centers and                               250                                  30
 estate cooperative buildings
 Construction of playgrounds                                                  30
 Upgrading hospitals                                                            0                                  1
 Creation of cooperative office                                                 0                                  1
 Construction of hot water-bathing units                                        0                                  2
 Upgrading dispensaries                                                         0                                  1
Source: Plantation Development Project- Project Completion Report of Ministry of Plantation Industries.

7.     A description of some targets and achievements at project completion are described
below.
       (i)   Construction of new workers' houses. The project design included an
             ambitious program to provide individual detached housing to the workforce,
             providing housing loans to workers to construct their own houses on a self-help
             basis. The total number of housing units at the estates of the regional plantation
             companies (RPCs) was estimated at around 180,000. Of this total, approximately
             80% comprised line rooms. This type of housing—in existence since the late 19th
             century—provides a congested, unhygienic living environment to workers. The
             housing loan scheme, however, was not implemented due to the Ministry of
             Estate Infrastructure and Livestock Development offering a more attractive
             housing loan scheme, which also included a grant component. An acceptable
             alternative was discussed between stakeholders, and the rehabilitation of estate
             roads was chosen.
       (ii)  Upgrading and rehabilitation of estate roads. At project conclusion, all
             stakeholders, including workers and management, agreed that the rehabilitation
             of roads has improved access to schools, hospitals, and rural markets. A total of
             446 kilometers of roads were rehabilitated with either tar or concrete, while
             another 74 kilometers of gravel roads were rehabilitated. The roads that were
             selected for the project were those related to the workers’ living environment.
       (iii) Reroofing of workers' houses. The preceding Plantation Reform Project15 had
             a very successful reroofing component, rehabilitating around 45,000 line room
             housing units. Because it was recognized that the complete transformation of the
             estate housing model will take several decades to accomplish, the short-term
             reroofing solution had to be continued in this project. Of a project target of 11,000
             housing units to be reroofed, a total of 7,413 (67%) was achieved.
             Implementation was affected in 2004 by a market shortage of roofing sheets.
             RPCs were also reluctant to participate initially due to the availability of other
             options from parallel assistance programs and their required 50% contribution,
             which was subsequently reduced to 40%. The project completion report (PCR)
             mission observed that workers were highly appreciative of the benefits of this
             component.
       (iv)  Provision of common site amenities. This component envisioned the provision
             of amenities such as water, sewerage, and electricity to the new houses that
             were to be constructed. The component was not undertaken due to the
             nonimplementation of the housing component.
       (v)   Construction of restrooms and sanitary facilities. A total of 312 field and
             factory restrooms were constructed, exceeding the target by 4%. Of this total,
             70% were field restrooms. This is seen as one of the major social achievements

15
     ADB. 1995. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical
     Assistance Grant to Sri Lanka for the Plantation Reform Project. Manila (Loan 1402[SF}, for $80 million, approved
     9 November).
26     Appendix 2


                of the project, especially from a gender perspective. Field restrooms were
                practically nonexistent prior to the project intervention, resulting in inconvenience,
                lack of self-esteem, and the prevalence of urinary tract-related health problems in
                female workers. The factory restrooms have resulted in improved hygiene
                standards and convenience for the workers in a commodity market increasingly
                influenced by quality and hygiene concerns.
       (vi)     Concrete footpaths. Providing access to workers' housing and work areas
                especially in hilly terrain, a total of 47,187 linear feet of concrete footpaths were
                constructed and have been very positively received by workers.
       (vii)    Construction of playgrounds. Of a target of 30 playgrounds, only 8 (27%) were
                built. The mission noted that some estates already had some sports facilities,
                such as volleyball courts, prior to the project, and this was seen as one of the
                reasons for the low rate of implementation.
       (viii)   Other infrastructure not included at appraisal. The project also added several
                categories of social infrastructure to address the demand from workers and RPC
                management. These included the construction of 1,746 toilets, 6 water schemes,
                and 4 new preschools. A total of 700 housing units also benefited from ramps
                and drains.

       2.       Provision of Ergonomic Equipment

                   Table A2.3: Ergonomic Equipment Project Achievements
              Equipment                              Units Planned          Units Purchased
              Plucking shears                                     25,000                      732
              Plucking baskets                                    30,000                    3,569
              Two-wheel tractors                                       0                       74
              Crates                                                   0                   20,789
              Jumbo crates                                             0                    9,897
              Mist blowers                                             0                      126
              Power chainsaws                                          0                       25
              Wood splitters                                           0                       04
              Solar panels                                             0                       30
              Office sets for cooperatives                             0                       03
              Latex bowser                                             0                       14
              Multichoppers                                            0                       24
              Pole pruners                                             0                       50
              Water bowser                                             0                       10
       Source: Plantation Development Project- Project Completion Report of the Ministry of Plantation Industries.

8.      The aim of this initiative was to ease the burden of the tea pluckers through the
introduction of plucking shears and ergonomic plucking baskets. However, the pluckers and
estate management did not show much enthusiasm for these tools. In the case of plucking
baskets, the replacements available in the market were not acceptable to the pluckers. The
project introduced other alternatives to meet the demand from the RPCs.

9.        Due to the variety of equipment that was purchased, a more realistic measure of
achievement is the amount of funds spent rather than the number of units. The allocation was
fully utilized on a variety of equipment that had an impact on both productivity and well-being of
workers. However, the list of items procured shows that the RPCs placed more emphasis on
productivity, since the purely ergonomic items, such as the improved plucking baskets, have not
shown much use. A modern plucking machine, with advantages of portability and control of
plucking quality, was introduced on some estates. The project did demonstrate flexibility in
allowing equipment to be procured that was not in the original design, such as two-wheel
tractors.
                                                                                                   Appendix 2       27



10.    The PCR mission also observed that this initiative influenced the management of the
RPCs to substitute labor with machinery. With rising labor costs and scarcity of labor in Sri
Lanka, this is an inevitable process, and the trend will continue in the coming years.

           3.       Social Development Programs

                  Table A2.4: Social Development Programs Project Achievements
           Social Development Program                 Trainees Planned               Trainees Actual
           Gender issues                                              30,000                          18,988
           Prevention of alcoholism                                   30,000                          30,009
           Household cash management                                  30,000                          30,989
           Strengthening      estate   workers'                       30,000                          20,885
           institutions
           Orientation of estate management                              600                              196
           Orientation of estate staff                                   600                                 0
           Team building                                                   0                            1,005
           Source: Plantation Development Project- Project Completion Report of the Ministry of Plantation Industries.

11.     At project preparation, the financing percentages proposed for the social development
programs were 90% ADB contribution and 10% RPC contribution. This was changed to a 50:50
basis during the processing of the project. To address this during implementation, ADB
increased its contribution initially to 60% and then to 75%, while in the final arrangement, the
government contributed the balance of 25%. As a further impetus, participation of the social
programs was a prerequisite to availing of benefits under the investment component of the
project. As much as 80% of the programs were implemented by PHDT, a tripartite organization
with representation from the government, RPCs, and trade unions. However, the full
implementation of the social development programs was delayed until 2006 due to the
reluctance of the RPCs to contribute their 50%.

12.        The achievements comprise the following.
           (i)   Gender issues. The gender programs sought to empower women on the estates
                 through improving their awareness and problem-solving capability. A total of
                 18,988 workers (63%) were trained against a target of 30,000. The other social
                 programs also were expected to primarily benefit women, and this achievement
                 is satisfactory in the wider context.
           (ii)  Alcoholism prevention. The estate sector has been characterized by a high
                 incidence of alcohol abuse, estimated at 60% of the population in 1991 by the
                 UNFPA16. A combination of factors has resulted in this situation, including low
                 self-esteem, ignorance of the ill effects of alcohol, cold climate, and the
                 availability of cheap illicit liquor at the estate. The alcohol abuse prevention
                 program aimed to counter this through a combination of awareness creation,
                 propaganda, and peer pressure. Activities also included creating banners and
                 screening affected families. The program was successful, reaching 100% of the
                 target group of 30,000. UNFPA statistics, quoted by PHDT, show a reduction in
                 the prevalence of alcohol to 44.34% of the estate population by 2008 that can be
                 mainly attributed to project interventions. This estimate is confirmed by estate
                 sources. A measure of sustainability has been introduced by the training-of-
                 trainers programs aimed at estate staff and volunteers. The PCR mission
                 watched two street dramas staged by the workers, which were very creative and
                 effective.
16
     2009. Study by PHDT for UNFPA on Alcohol Prevention and Gender-based Violence. Unpublished.
28     Appendix 2


       (iii)   Household cash management. The manifestation of poverty in the plantations
               originates more from the inability to manage daily finances than due to any
               reason directly related to incomes. The project successfully trained 30,009
               workers in improving their household cash management, which has resulted in
               an improvement in their savings habits. Since most of this training was
               implemented by PHDT, the approach was interwoven with the activities of the
               estate worker housing cooperative societies (EWHCSs) with which PHDT has
               been closely involved. This approach has had considerable success. While the
               participants were trained in the importance and technique of cash savings, added
               training was also provided for skills required for income-generating activities. The
               PHDT-introduced concept of “happy families,” which are identified based on
               social criteria, has influenced other families to improve their own lives.
       (iv)    Strengthening estate worker institutions. This activity was closely related to
               the household cash management activities, and achieved 70% of the target. The
               membership of estate workers in the respective EWHCSs grew from 45% in
               2006 to 90% of estate households in 2009, primarily due to project interventions.
               The cooperative bank, Vanisa, increased its deposit base from SLRs44 million in
               2006 to SLRs72 million in 2010. The mission observed that EWHCS activities
               also greatly reduced the dependency of workers on informal money lenders.
       (v)     Social development centers. Of a total of 250 social development centers
               envisaged, only 30 (12%) were completed. The main reason was the low interest
               by RPCs was due to their required 50% contribution, later revised to 40%. The
               activity also included the rehabilitation of the offices of the EWHCS. Where
               centers were built, they are currently used for diverse activities.
       (vi)    Human resources development. The project target of orienting 600 managers
               on social welfare aspects was only partly successful. Only 196 managers (33%)
               were trained, while no estate staff members received orientation. The intention of
               this activity was to prepare the management and staff for the large volume of
               programs that were expected under social welfare. The lack of progress can be
               attributed to the delay that affected all social programs due to the RPCs'
               unwillingness to contribute their expected share during the first years of the
               project.

D.     Gender Impact

13.      Most of the social interventions under the project have had a direct impact on women.
Women on plantations work longer hours than most men. For instance, female tea pluckers
work an average of 4 hours longer each day than their male counterparts who attend to other
activities on the tea estate like planting and pruning. Further, prior to their work on the tea
estates, most women have to undertake a range of domestic-related activities, including food
preparation, which they have to repeat on their return from work. Under these circumstances, it
is encouraging to note that the following project interventions have been of direct benefit to
women:
         (i)    factory and field restrooms;
         (ii)   new child care centers;
         (iii)  factory improvements, such as tiling of floors which make the work environment
                more comfortable and clean;
         (iv)   ergonomic equipment, especially such items as crates at factories and latex
                tankers to carry latex;
         (v)    social development programs in gender-related topics and direct training on self-
                employment projects; and
                                                                                      Appendix 2     29


        (vi)    household cash management training and awareness, associated with the
                strengthening of the EWHCSs.

E.      Impact on Poverty

14.     A realistic measure of project impact on the incidence of poverty on estates is difficult
due to very small sample of the impact assessment. However, secondary data provided some
indication of the incidence of poverty in the project area at the time of project implementation.
The most current data available were from the Household Income and Expenditure Survey from
2006-2007.17 The mean monthly per capita expenditure for the estate sector was SLRs3,078,
which is lower than the urban and nonestate rural sectors, and amounts to only 57% of the
national average. Yet in interpreting this anomaly, estate expenditure must be viewed in the
context of lower expenditure needs brought about by free housing, low commuting requirements,
and low-cost fuelwood. In addition, in terms of average dietary energy consumption, the estate
sector at 2,420 kilocalories per capita fared better than the nonestate rural sector at 2,138
kilocalories as well as the national average of 2,118 kilocalories.18 The estate sector therefore
showed mixed results in the incidence of poverty.

15.    For project-specific impact, the PCR mission was able to meet beneficiaries of the social
development programs who reported an increase in savings due to improved cash management
and a reduction in expenditure on alcohol. Some of the training provided to women has
increased household income. Overall impact on poverty reduction has also been positive. A
comprehensive impact assessment at the end of the project would have provided a unique
opportunity to measure the poverty reduction impact of the project.

F.      Overall Impact of Social Programs

16.     Both the estate workers and management have responded positively to the project's
social initiatives. The project investments had a major impact on meeting some of the short-term
needs of estate worker housing, especially the reroofing and sanitation activities. However, a
sustainable solution to the problem of estate worker housing is still decades ahead, since the
replacement of the line room concept with detached housing to suit the modern age is limited by
the implementation capability of both the beneficiaries and the concerned institutions.

17.    The estate road rehabilitation subcomponent, serving as a substitute for the redundant
housing loan scheme, was well received by the estate workers. The PCR mission observed that
the road rehabilitation has resulted in the introduction of bus services and access of three-wheel
vehicles to estate housing in cases of emergencies.

18.    Some project interventions have resulted in greatly enhanced self-esteem as well. These
were especially noticeable in the case of factory improvements and field and factory restrooms.
The factory workers appeared to be proud to work in the factory and found that their work was
made much easier by the innovations both directly and indirectly supported by the project.
These interventions have contributed to more of the estate youth preferring to remain on the
estate to work. Further, the project has contributed to a change in the management attitudes
toward the workers. Due to the improved social infrastructure and social awareness, workers


17
   Government of Sri Lanka, Ministry of Finance and Planning, Department of Census and Statistics. 2008.
   Household Income and Expenditure Survey 2006/07. Colombo.
18
   The minimum required level is 2,030 kilocalories per capita per day.
30     Appendix 2


have a more collaborative and cordial relationship with the staff and management at the estate
level.

19.      Some of the project interventions, such as minor factory upgrading, have improved the
ability to obtain various categories of quality certification demanded by markets. The project has
also supported the provision of vocational training to workers, especially women, which has
resulted in additional income to families.

20.      Despite the deficiency of statistics to measure impact, the alcoholism prevention
programs have resulted in a significant increase in awareness of alcoholism among men,
women, and especially children. The innovative approaches used in implementation of this
activity, such as street drama and art competitions, deserve credit and have also provided an
opportunity to unlock the creative potential of estate workers and their families. The project has
also contributed to a marked reduction of the production of illicit alcohol to almost zero levels
where the activity has been implemented. Where possible, volunteers have been trained in the
implementation of the alcoholism prevention programs, introducing sustainability.
                                                                                         Appendix 3     31


                                    PROJECT COST ESTIMATES

                     Table A3.1: Project Cost Estimates and Disbursement
                                           ($ million)

                                                    Appraisal                          Actual
 Component                            Foreign         Local      Total     Foreign       Local      Total
                                     Exchange        Currency    Cost     Exchange     Currency     Cost
 A. Investment Component                 21.60           44.90    66.50        20.10       29.80     49.90
                         Subtotal        21.60           44.90    66.50        20.10        29.80    49.90
 B. Social and Environmental
 Programs
 1. Workers' Housing Loans                   1.90         4.60     6.50         0.00         0.00    0.00
 2. Workers' Amenities                       1.00         2.70     3.70         2.30         9.20   11.50
 3. Social Development Programs              0.80         3.30     4.10         0.00         0.50    0.50
 4. Environmental Initiatives                0.00         1.80     1.80         0.00         0.20    0.20
                         Subtotal            3.70        12.40    16.10         2.30         9.90   12.20
 C. Marketing Initiatives
 1. Research and Development                 0.30         1.20     1.50         0.25         0.70     0.95
 2. Marketing Intelligence and
 Research Center                             0.00         1.90     1.90         0.00         0.00     0.00
 3. Support for Automated Tea
 Auctions                                    0.40         0.10     0.50         0.00         0.00     0.00
 4. Support for Alternative Marketing
 Initiatives                                 0.00         2.50     2.50         0.46         1.40     1.86
                         Subtotal            0.70         5.70     6.40         0.71         2.10     2.81
 D. Institutional Strengthening
 1. Support for Industry Umbrella
 Body                                        0.10         1.70     1.80         0.10         0.42     0.52
 2. Consulting Inputs                        0.50         0.20     0.70         0.00         0.10     0.10
 3. Training                                 0.50         2.40     2.90         0.10         0.30     0.40
 4. Support for Developing
 Subleasing and Outgrower Model              0.00         0.40     0.40        0.00         0.00     0.00
 5. Project Management                       0.40         0.80     1.20        0.20         0.96     1.16
                         Subtotal            1.50         5.50     7.00        0.40         1.78     2.18
 Total Base Costs                           27.50        68.50    96.00       23.51        43.58    67.09
 Physical Contingencies                      1.40         3.40     4.80        0.00         0.00     0.00
 Price Contingencies                         3.20         8.10    11.30        0.00         0.00     0.00
 Interest during Construction                2.30         0.00     2.30        0.12         0.00     0.12
 Total                                      34.40        80.00   114.40       23.63        43.58    67.21
Source: Asian Development Bank estimates.
          32       Appendix 3


                                   Table A3.2: Project Cost Estimates and Financing Plan

                                                      APPRAISAL                                   ACTUAL
                                      ADB Govt.         Local Cost         Total   ADB Govt.       Local Cost         Total
                Item                  Total   Total   PFIs Bene- Total             Total Total   PFIs Bene- Total
                                      Cost    Cost         ficiaries               Cost Cost          ficiaries                FC     LC
A. Investment Component
  1. Total Base Cost                   7.2    31.4     6.7   21.2   27.9    66.5    9.9   19.0    4.1   16.8   20.9   49.9     20.1   29.8
  2. Contingencies                     1.2     5.3     1.1    3.6    4.7    11.2     …      …      …      …      …      …               …
  3. Interest During Construction      1.6       …     0.0    0.0    0.0     1.6     …      …      …      …      …      …               …
             Subtotal (A)             10.0    36.7     7.8   24.8   32.6    79.3    9.9   19.0    4.1   16.8   20.9   49.9     20.1   29.8
B. Social & Environmental
  1. Workers' Housing Loans            3.9     0.0     0.6    2.0    2.6     6.5     …      …     …       …       …      …        …      …
                           a
  2. Workers' Amenities                1.9     0.0     0.0    1.8    1.8     3.7    5.1    3.2    …     3.2     3.2   11.5      2.3    9.1
  3. Social Development Programs       2.0     0.0     0.0    2.1    2.1     4.1    0.3    0.2    …     0.0     0.0    0.5      0.0    0.5
  3. Environmental Initiatives         0.9     0.0     0.0    0.9    0.9     1.8   0.04     …     …     0.2     0.2    0.2      -      0.2
           Total Base Cost             8.7     0.0     0.6    6.8    7.4    16.1    5.4    3.4    …     3.4     3.4   12.2      2.3    9.9
  Contingencies                        1.5     0.0     0.1    1.1    1.2     2.7     …      …     …     -       -      -        -      -
  Interest During Construction         0.4     0.0     0.0    0.0    0.0     0.4     …      …     …     -       -      -        -      -
            Subtotal (B)              10.6     0.0     0.7    7.9    8.6    19.2    5.4    3.4    …     3.4     3.4   12.2      2.3    9.9
C. Marketing Initiatives
  1. Research and Development           0.7    0.0     0.0    0.8    0.8     1.5   0.42    …      …      0.6    0.6    1.0      0.2    0.7
  2. Marketing Intelligence             1.0    0.0     0.0    0.9    0.9     1.9     …     …      …       …      …      …        …      …
  3. Support for Automated Tea
      Auctions                          1.7    0.0     0.0    0.1    0.1     1.8     …     …      …      …       …      …       …       …
  4. Support for Alternative
      Marketing Initiatives              …     0.0     0.0    1.2    1.2     1.2    1.9    …      …      0.0    0.0    1.9      0.5    1.4
           Total Base Cost              3.4    0.0     0.0    3.0    3.0     6.4    2.3    …      …      0.6    0.6    2.8      0.7    2.1
  Contingencies                         0.6    0.0     0.0    0.5    0.5     1.1     …     …      …       …      …      …        …      …
  Interest During Construction          0.1    0.0     0.0    0.0    0.0     0.1     …     …      …       …      …      …        …      …
            Subtotal1(C)                4.1    0.0     0.0    3.5    3.5     7.6    2.3    …      …      0.6    0.6    2.8      0.7    2.1
D. Institutional Development
  1. Support for Industry Umbrella
      Body                              1.4    0.4     0.0    0.0    0.0     1.8    0.4    0.2    …       …      …     0.5      0.1    0.4
  2. Consulting Inputs                  0.6     …      0.0    0.1    0.1     0.7   0.01   0.05    …       …      …     0.1      -      0.1
  3. Training                           1.4     …      0.0    1.5    1.5     2.9   0.20   0.01    …      0.2    0.2    0.4      0.1    0.3
  4. Support for Developing
      Subleasing and Outgrower
      Models                            0.2      …     0.0    0.2    0.2     0.4     …      …     …       …      …       …       …      …
  5. Project Management                 0.8    0.4     0.0    0.0    0.0     1.2    0.6    0.5    …       …      …    1.14      0.2    1.0
           Total Base Cost              4.4    0.8     0.0    1.8    1.8     7.0    1.2    0.7    …      0.2    0.2    2.1      0.3    1.8
  Contingencies                         0.7    0.1     0.0    0.3    0.3     1.1     …      …     …       …      …       …       …      …
  Interest During Construction          0.2    -       0.0    0.0    0.0     0.2     …      …     …       …      …       …       …      …
            Subtotal (D)                5.3    0.9     0.0    2.1    2.1     8.3    1.2    0.7    …      0.2    0.2    -        0.3    1.8
Total Base Costs                      23.7    32.2     7.3   32.8   40.1    96.0   18.8   23.1    4.1   21.0   25.1   67.1     23.5 43.6
Contingencies                          4.0     5.4     1.2    5.5    6.7    16.1     …      …      …      …      …      …        …    …
Interest During Construction           2.3      …      0.0    0.0    0.0     2.3    0.1     …      …      …      …     0.1      0.1   …
Total Cost                            30.0    37.6     8.5   38.3   46.8   114.4   19.0   23.1    4.1   21.0   25.1   67.2     23.7 43.56
Percentage Financed                     26% 33%         7% 34%              100% 28% 34%           6% 31%               100%          67.2
         … = not available, ADB = Asian Development Bank; FC = foreign currency; LC = local currency; PFI = participating
         financial institution ;
         a
           Workers amenities includes (i) civil works (CW) for reroofing, playground, rest room, SDU etc.; (ii) CW for road
         rehabilitation/gravel roads; and (iii) ergonomic equipment.
                                                  Table A3.3: Breakdown of Annual Disbursement
                                                                    ($ million)


Category           Descriptions         2003        2004         2005        2006        2007         2008        2009      2010         TOTAL

01         Investment                 109,293      32,328   5,476,350   2,156,005   1,013,015      971,237     179,962         0    9,938,191.00

           Subtotal                   109,293      32,328   5,476,350   2,156,005   1,013,015      971,237     179,962         0      9,938,191

02         Civil works                 93,317      50,081     275,384     158,116   1,054,412     2,362,500    651,483         0    4,645,293.00

03         Equipment                    9,411       7,709      45,910       2,926      75,815      216,288     101,369         0     459,428.00

04         Vehicles                    98,283      54,559           0           0           0            0           0         0     152,842.00
           Training (social
05A        awareness)                       0           0       3,032       1,188      23,065      112,781     152,188         0     292,254.00

05B        Training (others)           13,505      14,107      60,548      12,590      49,711       19,587      30,969         0     201,017.00

06         Research & Development       5,601       1,857       6,696           0      19,696       31,869     109,999    241,091    416,809.00

07         Recurrent Cost             154,221      18,851     196,691      84,940     154,896      142,399      85,279         0     837,277.00

08         Consulting                    661       17,510      16,767         468       6,467        1,681      10,399         0      53,953.00

09         Interest                         0       4,534       4,829      14,577      17,543       44,114      37,531         0     123,128.00

10         Unallocated                      0           0           0           0           0            0           0         0

11         Quality Certification            0           0           0           0     170,625      930,712     748,717         0    1,850,054.00
           Imprest Account - MPI
           (Social & Other
99A        Component)                       0           0           0           0           0            0           0         0              0

99B        Imprest Account - DFCC           0           0           0           0           0            0           0         0              0




                                                                                                                                                   Appendix 3
           Subtotal                   374,999     169,208     609,857     274,805   1,572,230     3,861,931   1,927,934   241,091   9,032,055.00

           Total                      484,292     201,536   6,086,207   2,430,810   2,585,245     4,833,168   2,107,896   241,091    18,970,246
      DFCC = Development Finance Corporation of Ceylon, MPI = Ministry of Plantation Industries
      Source: Asian Development Bank estimates.




                                                                                                                                                   33
34     Appendix 4


                   PROJECT ECONOMIC AND FINANCIAL REEVALUATION

A.       Economic Reevaluation

         1.       Methodology and Assumptions

1.      An economic reevaluation was completed for the Plantation Development Project with
the objective of comparing the economic internal rate of return (EIRR) at project completion with
that estimated at appraisal. However, the comparative analysis is incomplete due to the lack of
access to the detailed analysis at the time of appraisal. The reevaluation is also indicative only
due to (i) the lack of a detailed break down of project investments in component 1, (ii) the failure
of the project completion report (PCR) to identify temporal and spatial distribution of project
impacts, (iii) the lack of an effective monitoring system to capture significant social impacts, and
(iv) most of the production benefits yet to be achieved.

2.       The re-evaluation was based on the trading margins for the range of benefits quantified,
including tea replanting, rubber replanting, coconut replanting, oil palm establishment, forestry
development, and other cash crops such as spices. The appraisal also included benefit streams
from ecotourism and marketing and price benefits. However, given the limited uptake of these
activities, and the void of data in the PCR and evaluation study, these were not included in the
reevaluation. The trading margins were assessed for with- and without-project scenarios and
excluded the capital investment financed by the project, which were not identified by subproject.
The net trading margins were then aggregated by the physical scope achievements (Table
A4.1). The aggregated benefits were then offset against the project investment costs, and an
EIRR was estimated. The without-project scenario adopted was derived from the project
preparatory technical assistance and appraisal reports, updated to 2009 values. No benefits
from the social development program, factory modernization, and marketing initiatives were
quantified due to the lack of data.

                           Table A4.1: Physical Scope Achievements

                                  December    December   December   December   September
 Annual Physical Targets            2006        2007       2008       2009       2010       Total
 Field Development of Mechanization
 Tea planting and infilling (ha)      1,931      2,178      1,261      2,478          13     7,861
 Rubber planting (ha)                 5,994      6,919      3,476      8,962         465    25,816
 Coconut planting (ha)                  633         99         10        397                 1,138
 Crop and Noncrop Diversification
 Forest developed (ha)                  912        659      1,647        836          60     4,114
 Oil palm developed (ha)              1,139      1,339                                       2,478
 Other crops developed (ha)             228        165         97        150           6       646
 Bungalows (each)                                    3                     1                     4
 Factory and Process Automation
 Estates with factories
 modernized                                                    23          2           2        27
 Factory automation                                             4          2                     6
 Factories consolidated                                                    2                     2
 Minihydropower
 Marketing Ventures
 Joint marketing                                                1                                   1
ha = hectare.
Source: Project records.

3.    All costs and benefits are expressed in mid-2009 Sri Lanka rupees in a world price
numeraire. A standard conversion factor of 0.94 was applied as per the appraisal report to
                                                                            Appendix 4           35


convert border to domestic prices. Investment costs of tradable goods were adjusted to constant
2009 values using the manufacturing unit value index published by the World Bank and
nontradable costs by the consumer price index for Colombo (Table A4.2). A shadow wage rate
factor of 1.0 was applied to reflect the labor shortage on most low- and mid-altitude estates,
because resident laborers often seek work outside of the estate sector. Duties and taxes were
excluded, and financial charges were deducted from investment costs. A nil residual value was
applied to civil works and equipment costs.

4.      An exchange rate of SLRs114.98 to $1.00 was used to convert constant dollar values
into their local currency equivalents. A 30-year project life was applied to cover the expected
economic life of tea and rubber plantations; shorter-duration crop replacement was included as
an annual replacement input to operating costs.

5.      Table A4.3 presents the whole project investment cost by category. These are detailed
by Asian Development Bank (ADB) financing, with government and beneficiary contributions
allocated on the same yearly proportion of total financing as ADB financing. The yearly project
costs in economic prices are presented in Table A4.4.

         2.       Prices

6.       The project's quantified incremental outputs comprised (i) incremental yields from aged
seedling tea that is experiencing rapid yield declines due to age and climate change impacts; (ii)
incremental yields from the replanting of rubber that is currently nonproductive; (iii) incremental
coconut yields of about 1,500 nuts per hectare (ha) as low-productive aged trees are replaced;
(iv) the production of sawlogs, thinnings, and fuelwood from eucalyptus planting; (v) incremental
oil palm production established on unproductive coconut and rubber estate land; and (vi)
incremental output from diversification into a range of spice and fruit crops as represented by a
representative cinnamon crop.

7.     The derivation of economic border prices is presented in Table A4.5. Forestry output
values were defined in terms of economic stumpage values based on expected mean annual
increments and local costs. Details are presented in Table A4.6. Import parity prices for fertilizer
are presented in Table A4.7.

         3.       Main Quantified Incremental Outputs

8.     Estate crops. Quantifiable estate crop benefits applied in the reevaluation are presented
in Table A4.8 in terms of projected yields and incremental yields per crop.
                                                        Table A4.2: Reevaluation Indices




                                                                                                                                                      36
Parameter                                 Unit         2001     2002       2003      2004        2005        2006      2007      2008      2009
Average annual exchange rate          SLRs              90.86    96.12      96.54    101.11      101.43      106.68     110.1    108.76    114.98
Exchange rate (2009 = 1)              index            1.2655   1.1962     1.1910    1.1372      1.1336      1.0778    1.0443    1.0572    1.0000




                                                                                                                                                      Appendix 4
Domestic inflation                    CPI %              14%      10%         6%        9%         11%         10%       16%       23%        3%
Local inflation (2001 = 1 year end)   index            1.0000    1.096     1.1596    1.2639      1.4030      1.5433    1.7871    2.1910    2.2655
Local inflation (2001 = 1 mid-year)   index            1.0000   1.0469     1.1273    1.2106      1.3316      1.4714    1.6607    1.9788    2.2279
Inflation multipliers (mid 2009 =1)                    2.2279   2.1281     1.9763    1.8403      1.6731      1.5141    1.3415    1.1259    1.0000
                                      index 1990
MUV Index, August 2010 data           =0                94.32     93.14    100.12    107.03      107.63       108.74   113.85    121.48    115.49
MUV Index                             %               (2.90%)   (1.25%)    7.49%     6.90%       0.56%        1.03%    4.70%     6.70%    (4.93%)
MUV year-end 2001 = 1                 index             1.000     0.987     1.061     1.135       1.141        1.153    1.207     1.288     1.224
MUV mid-year 2001 = 1                 index            1.0000    0.9937    1.0238    1.0975      1.1379       1.1470   1.1797    1.2469    1.2558
MUV multipliers (mid-year 2009 = 1)                    1.2558    1.2637    1.2266    1.1442      1.1036       1.0949   1.0645    1.0072    1.0000
MUV = manufacturers unit value.
Source: ADB project records.

                                                      Table A4.3: Project Investment Costs
                                                                       ($)
                              2003                 2004            2005             2006              2007               2008             2009
 Investment Component           439,200               32,328        5,287,593        2,953,221           74,830             971,237         179,962
 Non-ADB financing            1,764,601              129,886       21,244,285       11,865,336          300,649           3,902,198         723,044
 Subtotal all financing       2,203,801              162,214       26,531,878       14,818,557          375,479           4,873,435         903,006
 Other Components
 Civil works                     93,317               50,081         275,384          158,116             1,054,412       2,362,500         651,483
 Equipment                        9,411                7,709          45,910            2,926                75,815         216,288         101,369
 Vehicles                        98,283               54,559
 Training, social                                                      3,032            1,188                23,065         112,781         152,188
 Training, other                 13,505               14,107          60,548           12,590                49,711          19,587          30,969
 Research                         5,601                1,857           6,696                                 19,696          31,869         109,999
 Recurrent costs                154,221               18,851         196,691           84,940               154,896         142,399          85,279
 Consulting services                661               17,510          16,767              468                 6,467           1,681          10,399
 Quality certification                                                                                      170,625         930,712         748,717
 Interest                                              4,534            4,829           14,577               17,543          44,114          37,351
 Subtotal social                374,999              169,208          609,857          274,805            1,572,230       3,861,931       1,927,754
 Non-ADB Financing              345,442              155,871          561,789          253,145            1,448,310       3,557,541       1,775,812
 Social, All Financiers         720,441              325,079        1,171,646          527,950            3,020,540       7,419,472       3,703,566
 Project Total                2,924,242              487,294       27,703,524       15,346,508            3,396,019      12,292,907       4,606,572
ADB = Asian Development Bank.
Source: ADB project records.
                                         Table A4.4: Project Investment Costs Sri Lanka Rupee by Year

SLRs (million)                         2003                 2004              2005              2006             2007             2008           2009
Commercial Investments                          213                 16            2,561             1,431                 36             470             87
Other Components                                 70                 31              113                51                292             716            358
Project Total                                   282                 47            2,674             1,482                328           1,187            445
SLRs (millions constant 2009 values)
Commercial Investments                          420                 31             5,062            2,827                 72             930            172
Other Components                                137                 62               224              101                576           1,416            707
Total                                           558                 93             5,286            2,928                648           2,345            879
   SLR = Sri Lankan rupee
   Source: ADB project records.

                                                            Table A4.5: Export Parity Prices

                                                                         Tea         Rubber         Rubber        Pepper         Cinnamon      Cinnamon
Mid-2009 Prices                                Tea Financial         Economic       Financial      Economic      Economic        Financial     Economic
FOB Colombo, $ per kilogram                                3.56                            1.99                                        12.00
FOB Colombo, SLRs per kilogram                           409.42            409.42       229.19          229.19     1,149.80         1,379.76      1,379.76
Less : Brokerage                                           3.98              3.74          1.55           1.46       273.83           379.51        356.74
        Public sale expenses SLRs34 per lot                0.10              0.05
        GST on brokerage + public sales                                                    0.09
        Tax                                                7.50                            4.00
        Medical aid tax
        Packing materials and transport                   44.56             41.88        26.73           25.13          205.37       227.71        214.05
Farm Gate Price (NSA)                                    353.28            363.75       196.81          202.60          670.61       772.54        808.97
   FOB = free on board, GST = goods and services tax, NSA = net sales allowance, SLR = Sri Lankan rupee.
   Sources: Government PCR and ADB project records.




                                                                                                                                                              Appendix 4
                                                                                                                                                              37
38      Appendix 4


                               Table A4.6: Export Parity, Eucalyptus
                                         (per cubic meter)

                        Parameter                              2010    2015    2020
                        Projected FOB                            224     231      258
                        MUV                                         1      1        1
                        FOB, constant 2009                       281     289      323
                        Quality adjustment                          0      0        0
                        Adjusted FOB                             112     116      129
                        Freight                                  106     110      121
                        Border price, Colombo CIF ($)            218     226      250
                        Border price, Colombo CIF (SLRs) 25,093 25,956 28,777
                        Port charges                           3,011   3,115    3,453
                        Domestic transport                     2,886   2,985    3,309
                        Parity price                          30,990 32,056 35,539
                        Logging and transport                  3,000   3,000    3,000
                        Overhead                                 930     962    1,066
                        Profit and risk                        7,747   8,014    8,885
                        Stumpage (Economic, 2009)             19,313 20,080 22,588
                CIF = cost insurance freight, FOB = free on board, MUV = manufacturers unit value,
                SLR = Sri Lankan rupee
                Source: ADB Mission Estimates, World Bank Commodity Price Forecast, “Pinksheets.”

                                  Table A4.7: Import Parity Prices

                                                              Fertilizer,         Fertilizer,
                Parameter                                     Financial          Economic
                FOB 2001, $ per ton                                       117
                Freight                                                    50
                Insurance                                                   1
                Colombo CIF, $                                            168
                Colombo CIF, SLRs                                     15,596              15,596
                Duties                                                 1,014
                Port handling charges                                  1,170               1,100
                Wholesale price                                       17,780              16,696
                Wholesale margin                                       1,333               1,253
                Retail Price                                      19,113.20           17,949.25
                CIF = cost insurance freight, FOB = free on board, SLR = Sri Lankan rupee.
                Source: ADB Mission Estimates, World Bank Commodity Price Forecast, “Pinksheets.”

                                   Table A4.8: Estate Crop Yields
                                       (kilograms per hectare)

                                      Year    Year   Year   Year   Year    Year   Year    Year    Year    Year
                                       1       2      3      4       5      6       7       8       9      10
  Tea replanting mid or high (with       0       0      0      0   2,09    2,82   2,33    2,10    1,90    3,000
  project)                                                             0      0       0       0       0
  Tea replanting mid or high (without     1,40 1,40 1,20 700        675    1,37   1,10     675   1,250
                                                                                                   650
  project)                                   0    0    0                      5       0
  Coconut replanting (with project), nuts    0    0    0    0      0          0     2,00 3,00 3,000
                                                                                  1,00
  per hectare                                                                         00      0
  Coconut replanting (without project),   2,50 2,50 2,00 2,00 2,00 1,50             1,50 1,50 1,500
                                                                                  1,50
  nuts per hectare                           0    0    0    0      0     0            00      0
  Rubber replanting, kilograms per           0    0    0    0      0     0          1,54 2,22 2,366
                                                                                   762
  hectare                                                                              3      0
Sources: ADB PPTA Reports; EML, 2009 Evaluation of Plantation Development Project Report for PMO; Field
Interviews
                                                                            Appendix 4          39



 9.      Tea replanting. The reevaluation did not differentiate between low-, mid-, and high-level
 tea and assumed all tea investment was based on replanting as opposed to infilling due to the
 lack of actual data for the classes of tea production that were used in the appraisal report. The
 reevaluation used tea replanting based on discussions with beneficiaries during the fact-finding
 mission. The model assumed replanting with vegetative-propagated tea to replace seedling tea
 over 30 years of age. In the without-project situation, existing tea would experience rapidly
 declining yields that would fall from 1,000 kilograms (kg) per ha to 600 kg/ha to 800 kg/ha.
 Significant changes since appraisal have included a doubling of the auction price for tea, and
 similar increases in estate sector wages and tax charges.

 10.    Rubber replanting. Reevaluation of rubber replanting used existing nonproductive
 rubber land that had been left unused during past periods of low commodity prices. Rubber
 prices have stimulated replanting of trees that were cut for fuelwood and not replaced. Rubber
 prices have increased in real terms since appraisal by fourfold, while wage rates have increased
 by 100%.

 11.     Coconut replanting. The coconut replanting model was based on replacement of
 low-yield trees with new varieties. Over 9 years, the new planting will increase production levels
 by 100% from 1,500 nuts per ha to 3,000 nuts per ha.

 12.     Crop diversification. Estates have reduced the area planted with tea, especially the
 upland tea estates that have been planted with eucalyptus for saw logs and fuelwood. Total
 yields are spread over 25 years, with a total volume harvest of 270 cubic meters per ha. Outputs
 are expected in years 6, 12, and 25. The reevaluation assumed that the use of planted trees will
 be possible despite the current ban on all RPC forest-cutting rights. The forestry stumpage
 economic values are presented below.

                        Table A4.9: Economic Stumpage Values, Eucalyptus
                                               (%)

                                                                                 Grade Price
                                                                        Grade    (SLRs/cubic
         Item                              Year 6   Year 18   Year 25   Ratio      meter)
         More than 45 cm                                        34         1       22,588
         38 cm–45 cm                                            10        0.9      20,329
         25 cm–27 cm                                    5        6       0.86      19,426
         Less than 25 cm                               30       10       0.55      12,423
         Fuelwood                           100        65       40                  400
         Average economic price             400      4,958    12,281
         Financial price 2009               380      6,500    16,800
cm = centimeter, SLR = Sri Lankan rupee.
Source: ADB Mission Estimates

 13.     Oil palm. Oil palm production was based on moving unused estate land into oil palm. Oil
 palm production was valued at farm gate reflecting the rejection of financing an oil palm factory.
 Production was fully incremental based on a without-project scenario of no production, and the
 capital investment costs included the costs of land development. Production is expected after 5
 years, with yields increasing to 20 ton per ha by year 10. Oil palm prices have increased
 markedly since appraisal, with the 2009 price being 300% higher than the price at appraisal.

 14.    Cinnamon. Cinnamon production was based on an endemic cinnamon species that is
 considered high value and in high demand. Small areas of mostly unused estate lands were
 40      Appendix 4


 being planted with a range of spice crops including pepper, vanilla, and cinnamon. Currently,
 estates are training staff for peeling quills and twigs and for developing higher-value applications
 and markets. The production of quills is possible from year 3, however the higher volume sticks
 are available from year 5 after planting. Currently, estates are training staff for peeling quills and
 twigs and for developing higher value applications and markets.

                                    Table 10: Diversified Crop Yields
                                              (per hectare)

                             Year    Year     Year     Year   Year   Year   Year   Year   Year   Year
                              1       2        3        4      5      6      7      8      9      10
  Cinnamon quills               0       0      120      300    420    480    540    600    600     600
  (kilograms)
  Oil palm (tons)               0        0         0      0    5.0    9.6   13.5   17.6   18.4     19.2
Sources: ADB PPTA report and Mission interviews.

           4.        Economic Reevaluation

 15.     The estimated project financial internal rate of return (FIRR) is 17% and the EIRR is
 19%, compared to appraisal estimates of an FIRR of 14% and an EIRR of 16%. The project is
 considered to have been viable and efficient, especially given the narrow range of benefits
 quantified. No crop-level FIRRs were possible given the lack of data on the capital expenditure
 per crop. The economic efficiency of the project has benefited from significant increases in
 commodity prices, which for commodities other than tea, provide a strong medium-term outlook.
 Upland tea outlook is likely to be weaker than the other commodities due to strong competition
 for market shares; however, current forecasts suggest only a low probability of reduced price.
 Offsetting the commodity price increases have been marked increases in capital input costs,
 especially wages. With 60% of total costs being wages, the continued inflation of wages creates
 significant risks for the future sustainability of estates as currently operating. Improved social
 and working conditions have been demonstrated by the project to improve productivity while
 increasing mechanization of planting, pruning, and, in part, picking, which is reducing reliance
 on labor. The reduced reliance on labor is offset by the reality of each estate having a resident
 work force that is strong politically, requiring labor substitution to be introduced slowly as labor
 retires or migrates for work.

 16.     The cancellation of a significant part of the Asian Development Fund loan for social
 programs strengthened the EIRR by reducing capital investment in programs for which no
 benefits were quantified.

 17.    In conclusion, the economic efficiency of the project is considered to be high, with
 substantial nonquantified benefits supporting this conclusion.
                                                                                           IMPLEMENTATION SCHEDULE
                                                                                              Appraisal versus Actual

                                                                               PROJECTED AT APPRAISAL                                                                     ACTUAL
                    Task Description                            2003        2004    2005   2006    2007                     2008        2003        2004        2005       2006         2007        2008        2009
                                                              Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

A. Project Management
   1. Strengthening PIU
  2. Establishment of Implementation Procedures
B. Investment Component
   1. Establishment of the Plantation Fund
   2. Provision of Credit Line through PFIs and Equity
      through Plantation Fund
C. Social and Environment Component
  1. Self-Help Housing
  2. Reroofing Schemes
  3. Common Sites Serviced
  4. Social Awareness Programs
  5. Strengthening of EWHCS
  6. Gender Programs
  7. Training on Household Cash Management
  8. Worker Welfare Facilities
  9. Land Surveys
D. Marketing Initiatives
   1. Research and Development
  2. Ethical Trade Initiatives
  3. Support for Alt. Marketing Initiatives - Quality Cert.
E. Institutional Development
   1. Support for Industry Federation of Associations
  2. Technological support to RPCs (Consulting Serv)
  3. Technical Training for Workers
  4. Training on HR for Management and staff
  5. Study on Outgrower Systems and Pilot Scheme




                                                                                                                                                                                                                            Appendix 5
                                                                                                                                                                                                                            41
42      Appendix 6


                   LOAN NO. 1913-SRI: PLANTATION DEVELOPMENT PROJECT
                                 MAJOR LOAN COVENANTS

 Reference to                       Covenant                         Compliance            Status at Project
      Loan                                                             Date                  Completion
  Agreement
Section 4.01         The Borrower to carry out the Project         During                Complied with.
                     with due diligence and efficiency and in      implementation
                     conformity with sound administrative,
                     financial, engineering, environmental,
                     agricultural and agribusiness practices
Section 4.02         The Borrower to make available to the         During                Complied with.
                     PIU on a timely basis the funds,              implementation
                     facilities, services, land and other
                     resources which are required to carry
                     out and to operate and maintain project
                     facilities.
Section 4.03         (b) The Borrower shall cause the              During                Complied with.
                     Project to be carried out in accordance       implementation
                     with      plans,     design     standards,
                     specifications, work schedules and
                     construction methods acceptable to the
                     Borrower and the Bank. The borrower
                     shall furnish, or cause to be furnished,
                     to the Bank, promptly after their
                     preparation,      such    plans,    design
                     standards, specifications and work
                     schedules,        and     any      material
                     modifications      subsequently      made
                     therein, in such detail as the Bank may
                     reasonably request.
Section 4.06 (b)     The Borrower to maintain or cause MPI,        Not later than 9      Complied with. Audit
                     PIU, the Apex Body and the PFIs               months after the      reports submitted.
                     respectively, to maintain separate            end of fiscal year.
                     accounts       for     their    respective
                     components and have such accounts
                     and related financial statements audited
                     annually,      in     accordance      with
                     appropriate auditing standards.
Section 4.07(b)      Submission of quarterly progress              Within 1 month at     Complied with.
                     reports.                                      the end of each       Quarterly progress
                                                                   quarter.              reports submitted.
Section 4.07(c)      Submission of PCR.                            Three months          Complied with.
                                                                   after the physical    Received in July 2010.
                                                                   completion
Section 4.10         The Borrower shall promptly inform the        During                Complied with.
                     ADB of any proposal to amend, or              implementation
                     repeal any provision of the Act or the
                     DFCC Act and shall afford the ADB an
                     adequate opportunity to comment on
                     such proposal.
Section 4.11         (a) The Borrower shall take all action        During                Complied with.
                         which shall be necessary on its part      implementation
                         to enable the Apex Body to perform
                         its obligations under the Project
                                                                                    Appendix 6       43


 Reference to                  Covenant                       Compliance          Status at Project
    Loan                                                        Date                Completion
  Agreement
                     Agreement, and shall not take or
                     permit any action which would
                     interfere with the performance of
                     such obligations.
                (b) No rights or obligations under the
                     Apex Subsidiary LA shall be
                     assigned, amended, or waived
                     without the prior concurrence of the
                     Bank.
Schedule 3,     Establishment of an Imprest Account at      Immediately after   Complied with.
para. 8(a)      the Central Bank of Sri Lanka for the       Loan
                Social and other components and for         effectiveness
                the apex Body for the Worker Housing
                Loan scheme.
Schedule 3,     No withdrawals to be made from the          Upon signing of     Complied with. Sixteen
para. 9         Loan Account to be provided to any          the agreement       RPCs entered into the
                RPC until that RPC has entered into an                          agreement.
                agreement with the Borrower to revise
                that RPC’s lease payments and its
                management fees.
Schedule 6,     The Apex Body shall ensure that             By September        The workers’ housing
para. 7         Subsidiary        Loan       Agreements     2004                loan scheme was
                satisfactory to the ADB shall have been                         canceled. There was
                entered into with PFIs for the Worker                           no demand due to a
                Housing Loan Scheme.                                            more attractive
                                                                                housing loan package
                                                                                introduced by the
                                                                                government.
Schedule 6,     (a) The PFIs, under the supervision of      During              Workers’ housing loan
para. 8             the Apex Body and pursuant to the       implementation.     scheme canceled and
                    terms of the SLA, shall implement                           funds reallocated to
                    the Worker Housing Loan Scheme.                             workers’ amenities.
                    The PFIs shall be responsible for (i)
                    approval and disbursement of
                    Subloans,        (ii)      monitoring
                    performance of Sub-borrowers, (iii)
                    submitting their refinancing claims
                    to the Apex Body for submission to
                    the Bank, (iv) maintaining records
                    on Sub-borrowers and Project
                    accounts, and (iv) submission of
                    quarterly reports to the Apex Body.

Schedule 6,     (a) The Borrower shall ensure that          During              Workers’ housing loan
para. 9             PHDT shall assist the PIU in            implementation      scheme canceled.
                    implementing the Workers Housing
                    Loan Scheme, and development of
                    common amenities for workers and
                    training for the social programs
                    under the Social and Other                                  Not complied with.
                    components.
                (b) The Borrower shall ensure that the
                    PA shall contract NGOs satisfactory
44     Appendix 6


 Reference to                    Covenant                          Compliance          Status at Project
    Loan                                                             Date                Completion
  Agreement
                    to the Bank for the social and
                    environment programs, fair trade
                    labeling, and strengthening of the
                    EWHCS subcomponents based on
                    their local knowledge, experience in
                    the plantation sector and with
                    international fair trade measures,
                    and experience in participatory
                    delivery mechanisms in demand-
                    driven project interventions. The
                    PA, as representatives of the RPCs,
                    shall           assume           greater
                    responsibilities         in      project
                    implementation including identifying
                    the gaps in technological expertise
                    in the industry as well as selection
                    and recruitment of consultants and
                    NGOs. The role of the PA shall be
                    documented         in      agreement(s)
                    among the Borrower, the PA and
                    the RPCs.
Schedule 6,     (a) The Industry Umbrella Body shall             Within 1 month of   Complied with. TASL
para. 10            have been established under the              effective date      was established.
                    Companies Act and initial staff shall        (September          However, TASL is now
                    have been recruited to the                   2003)               defunct, due to failure
                    satisfaction of the ADB. The                                     of the industry to
                    Industry Umbrella Body shall (i)                                 support it.
                    initiate product development and
                    research,        quality      assurance
                    certification and consumer and
                    generic      trade     promotion,     (ii)
                    facilitate strategic alliances and
                    collaborate        with       supporting
                    institutions, such as the Tea
                    Related Institutions, to ensure
                    alignment with the industry needs,
                    (iii) serve as the conduit for trading,
                    (iv) establish liaisons with NGOs for
                    awareness raising on international
                    codes of conduct and certification
                    standards relating to social, welfare
                    and environmental conditions, (v)
                    initiate research and development
                    for ergonomic equipment, (vi)
                    initiate    incentive      and    award
                    schemes on an industry level for
                    promoting social and processing
                    standards, and (vii) organize trade
                    fairs for information exchange.
Schedule 6,     a.        Project Coordinating                   By November         Complied with.
para. 11        Committee                                        2003
                A PCC, chaired by the Secretary of
                MPI, shall be established with
                                                                                  Appendix 6      45


 Reference to                  Covenant                         Compliance       Status at Project
    Loan                                                          Date             Completion
  Agreement
                representatives from the Ministry of
                Finance, ERD, CBSL, Apex Body, PFIs,
                PIU and PA. The PCC shall be
                responsible for interagency coordination
                and provide guidance in policy issues to
                the PIU for implementing the Project.
Schedule 6,     b. Worker Housing Loan Scheme                 During           Workers’ housing loan
para. 12        Relending and Onlending Operations            implementation   scheme canceled.
                Criteria for Designation of PFIs

                (a) Except as the Bank may otherwise
                agree, the Borrower shall cause the
                Apex body to ensure that for initial
                designation and continuing participation
                under the worker Housing Loan
                Scheme each PFI: (i) is formally
                incorporated under the Companies Act
                or specific Act of Parliament, (ii) has
                audit      reports     without     material
                qualification by auditors for each of the
                5 preceding years, (iii) is in compliance
                with CBSL guidelines and Basle
                guidelines on financial soundness
                including capital adequacy and liquidity,
                profitability, solvency, return on average
                assets, debt service coverage ratio and
                long-term debt to equity ratio, and
                including CBSL’s limits set for single
                borrower and loans to PFI directors,
                officers and related interests, (iv) has
                agreed to provide quarterly information
                on Project implementation in a
                standardized format, (v) has assigned a
                senior staff member for coordination
                and overall monitoring of Subloan
                operations, (vi) has an appropriate
                organizational structure, environmental
                policy and established procedures to
                carry out environmental due diligence
                (including review of the Rapid
                Environmental Assessment), (vii) has
                undertaken that loan collection ratios
                shall show an improvement each year
                after receiving funds under the SLA,
                (viii) has not defaulted on any loan or
                refinancing granted by the Borrower or
                CBSL, (ix) has been formally approved
                by CBSL, (x) has entered into a SLA
                with Apex body satisfactory to ADB.
                (b) Any PFI which, after its designation
                is found not to satisfy any of the above
                criteria may be de-designated by the
                Apex Body.
46     Appendix 6


 Reference to                   Covenant                         Compliance       Status at Project
      Loan                                                         Date             Completion
  Agreement
Schedule 6,     Subsidiary Loan Agreements:                    During           Complied with.
para. 13(b)     (a) Except as the Borrower and the             implementation
                    ADB shall otherwise agree, the
                    SLAs to be entered into between
                    the Apex Body, on behalf of the
                    Borrower, and each of the PFIs
                    shall include the terms and
                    conditions in accordance with this
                    schedule.
Schedule 6,     (b) The Borrower (through the Apex
para. 13(b)         Body) shall furnish the ADB with a
                    copy of each Subsidiary LA entered
                    into by the Apex Body with the PFI
                    concerned upon execution of each
                    such agreement.
                (c) Upon failure by any PFI to perform
                    its obligations under the SLA, the
                    Apex Body shall be entitled to
                    terminate the SLA with such PFI(s),
                    provided that such action shall not
                    unduly disrupt Subloan activities
                    under the Project.
Schedule 6,     Relending Terms:                               During           Workers’ housing loan
para. 14        (a) Apex Body shall ensure that the            implementation   scheme canceled.
                    proceeds of the Loan allocated to
                    the Worker Housing Loan Scheme
                    shall be relent to each PFI on a
                    first-come-first served basis, and
                    subject to the terms and conditions
                    of the relevant Subsidiary Loan
                    Agreement.
                (b) The terms for relending the
                    relevant proceeds of the Loan to
                    each PFI under the SLA shall
                    include: maturity period of up to 15
                    years; interest with respect to
                    amounts withdrawn from the Loan
                    Account shall be at a rate per
                    annum equal to the prevailing
                    AWDR; an undertaking that the
                    subloan         agreements          with
                    subborrowers shall include the
                    agreement of the concerned RPC
                    or any other necessary party to
                    transfer     the    lease      to    the
                    Subborrower upon repayment of the
                    Subloan.
Schedule 5,     The terms of relending the relevant            During           Workers’ housing loan
para. 15        proceeds of the Loan to each PFI under         implementation   scheme canceled.
                the SLAs shall include the following: (i)
                the subsidiary loan shall have a maturity
                period of up to 15 years, (ii) interest with
                respect to amounts withdrawn from the
                                                                                  Appendix 6      47


 Reference to                  Covenant                         Compliance       Status at Project
    Loan                                                          Date             Completion
  Agreement
                Loan Account shall be at a rate per
                annum equal to the prevailing AWDR,
                (iii) an undertaking that the Subloan
                Agreements with Subborrowers shall
                include the agreement of the concerned
                RPC or any other necessary party to
                transfer the lease to the Subborrower
                upon repayment of the Subloan.
Schedule 6,     Loan amounts relent to the PFIs               During           Workers’ housing loan
para. 16        (including     amounts     arising    from    implementation   scheme canceled.
                Subloan repayments) shall be used only
                for making Subloans to eligible
                Subborrowers        and     to     eligible
                Subprojects, to finance the reasonable
                foreign exchange and local currency
                cost of goods and services required for
                Subprojects.
Schedule 6,     Onlending to Subborrowers and                 During           Workers’ housing loan
para. 17        Subprojects:                                  implementation   scheme canceled.
                Each PFI shall ensure that each eligible
                subborrower satisfies the criteria:
                he/she: (i) is a registered employee of
                an RPC; (ii) is selected through a
                participatory procedure by EWHCS or
                another existing workers’ society or
                committee acceptable to the Bank,
                which procedures will include measures
                to ensure adequate opportunities for
                women subborrowers; and (iii) has
                participated in the household cash
                management training and other social
                programs offered to the relevant
                plantation.
Schedule 6,     Each PFI shall ensure that each eligible      During           Workers’ housing loan
para. 18        subproject: (i) is part of an estate          implementation   scheme canceled.
                housing project with a minimum of 25
                units; (ii) is for construction of single
                family home; (iii) is within a settlement
                development plan developed by the
                RPC and satisfactory to the ADB; (iv)
                has satisfactorily completed a Rapid
                Environmental Assessment and meets
                the environmental laws and regulations
                of Sri Lanka and the ADB’s
                environmental guidelines as applicable
                to the subproject.
Schedule 6,     The financing package for Subprojects         During           Workers’ housing loan
para. 19        for each Subborrower shall be as              implementation   scheme canceled.
                follows: (i) up to an average of 85% of
                each Subloan may be financed out of
                the Loan; (ii) the remaining percentage
                of each Subloan shall be financed by
                the PFI; and (iii) the minimum equity
48     Appendix 6


 Reference to                  Covenant                        Compliance       Status at Project
    Loan                                                         Date             Completion
  Agreement
                contribution in cash or in kind by a
                Subborrower for each Subproject shall
                be 30% of the total Subproject cost.
Schedule 6,     Subloans:                                    During           Workers’ housing loan
para. 20        Each PFI shall ensure that Subloans for      implementation   scheme canceled.
                eligible Subprojects shall be made on
                the following terms: (i) onlent on a first
                come, first served basis for eligible
                Subprojects at rates not more than
                AWDR plus 5 for a period of 15 years;
                (ii) no Subloan shall exceed SLRs
                100,000; (iii) the proceeds of the
                Subloan shall be used only for goods
                which are produced in and supplied
                from, and services which are supplied
                from, member countries of the ADB; (iv)
                the goods and services to be financed
                out of the proceeds of the Subloan shall
                be used exclusively in the carrying out
                of the Subproject; and (v) the subloan
                agreement shall include the agreement
                of the concerned RPC or any other
                necessary party to transfer the lease to
                the Subborrower upon repayment of the
                Subloan
Schedule 6,     Each Subloan shall be made on terms          During           Workers’ housing loan
para. 21(a)     whereby the PFI concerned shall              implementation   scheme canceled.
                obtain, under a written Subloan
                agreement with the Subborrower in
                form acceptable to the ADB, rights
                adequate to protect the interests of the
                Borrower, the ADB and the PFI.
Schedule 6,     Each PFI shall promptly and effectively      During           Workers’ housing loan
para. 21(b)     exercise its rights under each Subloan       implementation   scheme canceled.
                agreement in accordance with the
                standards of a prudent lender and in
                such manner as to protect the interests
                of the ADB, the Borrower and the PFI
Schedule 6,     c. Withdrawals of Loan Proceeds for          During           Workers’ housing loan
para. 22        Subloans                                     implementation   scheme canceled.

                (a) Each PFI, in requesting withdrawals
                of Loan proceeds for Subloans, shall
                submit a withdrawal application to the
                Apex Body in form and substance
                satisfactory to ADB and the Apex Body.

                (a) The Apex body shall make
                    disbursements from the Imprest
                    Account only in respect of subloan
                    withdrawal             applications
                    corresponding to Subborrowers and
                                                                                   Appendix 6      49


 Reference to                  Covenant                         Compliance        Status at Project
    Loan                                                          Date              Completion
  Agreement
                     Subprojects which have been
                     processed in full compliance with
                     the applicable provisions of this
                     Schedule.
                (b) Any amount disbursed by the Apex
                     Body from the Imprest Account
                     shall be deemed to have been
                     relent to the relevant PFI under the
                     relevant SLA and onlent to the
                     relevant Subborrower under the
                     relevant Subloan agreement.
Schedule 6,     The PFIs shall enable representatives         During            Workers’ housing loan
para. 23(b)     of the Apex Body and the ADB to               implementation    scheme canceled.
                inspect the PFIs, the Subborrowers, the
                Subprojects, and any records and
                documents relevant to the Project
Schedule 6,     Social and Other Components:                  During            Complied with.
para. 24        The Borrower shall ensure that the MPI,       implementation
                through PIU, implements fully the Social
                and Other components of the project as
                set out in Part B, Schedule 1 to this LA,
                in each case to the satisfaction of the
                ADB. The borrower shall ensure that
                the Social and Other components
                comply with applicable environmental
                laws and regulations of Sri Lanka and
                ADB’s       Environmental       Guidelines
                including the conduct of a Rapid
                Environmental Assessment for all
                construction        and      infrastructure
                improvements
Schedule 6,     Wage Determination:                           During            Partly complied with.
para. 25        That the Government shall refrain from        implementation    At some point, the
                intervening in wage determination in the                        government intervened
                collective agreements between estate                            for a wage increase in
                workers and management.                                         October 2007.
Schedule 6,     Accessibility of tax funds: The               By 30 June 2003   Not complied with, but
para. 26        Borrower shall reallocate tax funds to                          not applicable.
                the industry Umbrella Body for research
                on product development and process
                improvement and consider favorably
                allocating tax funds to operating
                expenditures of the industry Umbrella
                Body.
Schedule 6,     Budgetary            allocation         for   During            Complied with.
para. 27        expenditures           after       Project    implementation
                Completion: The Borrower shall
                maintain all necessary budgetary
                allocations for financing the recurrent
                expenditures to be incurred after the
                completion of the Project for the proper
                operation and maintenance of the
                Project facilities including expenditures
50      Appendix 6


 Reference to                         Covenant                         Compliance             Status at Project
    Loan                                                                 Date                   Completion
  Agreement
                     as      required    for    the      efficient
                     management of such facilities.
Schedule 6,          d. Monitoring and Evaluation                    During                Not complied with. No
para. 28(a)          The PIU shall carry out monitoring and          implementation        evaluation of
                     evaluation of the Project benefits in                                 investment component
                     coordination with Apex Body, the PFIs,                                conducted.
                     PF, RPCs, PHSWT and EWHCS
Schedule 6,          The PIU shall conduct a benchmark               First year of         Complied with but
para. 28(b)          socioeconomic survey based on a                 project               delayed. Consultant
                     representative sample of the estates to         implementation        recruited and report
                     be assisted under the Project. The data         (by August 2004)      completed in August
                     to be collected by the PIU shall include                              2005.
                     indicators of social welfare of the estate
                     workers.
Schedule 6,          The PIU shall monitor relevant                  During                Not complied with.
para. 28(c)          indicators to assess the performance of         implementation
                     the Project, including the ability of RPCs
                     to list their debt and equity instruments
                     on exchanges; improvement in workers’
                     conditions including reduction in the
                     outflow of estate labor, improved
                     income, health and nutrition status and
                     improved status of estate employment,
                     increase in the number of RPCs
                     registering for fair trade labeling and
                     ISO standards, and disbursement of
                     worker housing Subloans, factory and
                     field restroom construction, use of
                     ergonomic equipment and levels of
                     indebtedness and alcoholism. The PIU
                     shall carry out an impact evaluation
                     study upon Project Completion.
Schedule 6,          A mid-term review shall be conducted            At the end of the     Complied with but
para. 29             by the Borrower and the Bank to                 third year of         delayed. Fielded in
                     evaluate the Project design and                 project               December 2007.
                     implementation status.                          implementation.
ADB = Asian Development Bank, AWDR = average weighted deposit rate, CBSL = Central Bank of Sri Lanka, DFCC
= Development Finance Corporation of Ceylon, ERD = External Resources Department, EWHCS = Estate Workers
Housing Cooperative Society, ISO = International Organization for Standardization , JEDB = Janatha Estate
Development Board, LA = loan agreement, MPI = Ministry of Plantation Industries, NGO = nongovernment
organization, PA = Planters' Association of Ceylon, PCC = project coordination committee, PCR = project completion
report, PF = Plantation Fund, PFI = participating financial institution, PHDT = Plantation Housing Development Trust,
PIU = project implementation unit, PHSWT = Plantation Housing and Social Welfare Trust, RPC = regional
plantation company, SLA = subsidiary loan agreement, SLSPC = Sri Lanka State Plantation Corporation, SLTDB =
Sri Lanka Tea Development Board, TASL = Tea Association of Sri Lanka.
                                                                                          Appendix 7     51


                  LOAN NO. 1914-SRI: PLANTATION DEVELOPMENT PROJECT
                                MAJOR LOAN COVENANTS

 Reference to
                                                                    Compliance           Status at Project
     Loan                          Covenant
                                                                      Date                 Completion
  Agreement
Section 4.01        The Borrower to carry out the Project         During               Complied with.
                    with due diligence and efficiency and in      implementation
                    conformity with sound administrative,
                    financial, engineering, environmental,
                    agricultural and agribusiness practices
Section 4.02        The Borrower to make available to the         During               Complied with.
                    PIU on a timely basis the funds,              implementation
                    facilities, services, land and other
                    resources which are required to carry
                    out and to operate and maintain project
                    facilities.
Section 4.05(a)     The Borrower to:                              During               Complied with.
                    (i)        maintain, or cause MPI, PIU        implementation,
                          the Apex Body, the PFIs and the         but not later than
                          Plantation Fund too maintain,           9 months after
                          separate accounts for the Project;      the end of fiscal
                    (ii)       have such accounts and             year.
                          related financial statements audited
                          annually, in accordance with
                          appropriate auditing standards;
                    (iii)      furnish to ADB, as soon as
                          available but in any event not later
                          than nine months after the end of
                          each related fiscal year, certified
                          copies of such audited accounts
                          and financial statements and the
                          report of the auditors all in English
                          language; and
                    (iv)       furnish to ADB such other
                          information concerning accounts
                          and financial statements and the
                          audit thereof as ADB shall from to
                          time reasonably request.
Section 4.05(b)     The Borrower shall enable ADB, upon           During               Complied with.
                    ADB’s request, to discuss the                 implementation
                    Borrower’s financial statements for the
                    Project referred to in paragraph (a)
                    above and the Borrower’s financial
                    affairs related to the Project with the
                    Borrower’s auditors and with the
                    auditors who prepared such statements,
                    and the Borrower shall authorize and
                    require, or cause MPI, the Apex Body,
                    the Plantation Fund or the PFIs to
                    authorize        and       require,    any
                    representative of such auditors to
                    participate in any such discussions
                    requested by ADB, provided that any
                    such discussion shall be conducted only
52     Appendix 7


 Reference to
                                                              Compliance          Status at Project
    Loan                       Covenant
                                                                Date                Completion
  Agreement
                in the presence of an authorized officer
                of the Borrower, MPI, the Apex Body,
                the Plantation fund, or the PFI
                concerned unless the Borrower, MPI,
                the Apex Body, the Plantation Fund or
                such PFI shall otherwise agree.
Section 4.06    The Borrower shall enable ADB’s             During              Complied with.
                representatives to inspect the Project,     implementation
                the goods financed out of the proceeds
                of the loan, and any relevant records
                and documents.
Section 4.08    The Borrower shall take all action which    During              Complied with.
                shall be necessary on its part to enable    implementation
                the Apex Body to perform its obligations
                under the Project Agreement, and it
                shall not take or permit any action which
                would interfered with the performance
                of such obligations.
Section 4.09    The Borrower shall promptly inform the      During              Not yet due.
                ADB of any proposal to amend, or            implementation
                repeal any provision of the Act or the
                DFCC Act and shall afford the ADB an
                adequate opportunity to comment on
                such proposal.
Section 4.10    (a) The Borrower shall exercise its         During              Complied with.
                     rights under the Apex Subsidiary       implementation
                     Loan Agreement in such a manner
                     as to protect the interests of the
                     borrower and ADB and to
                     accomplish the purposes of the
                     Loan.
                (b) No rights or obligations under the
                     Apex Subsidiary LA shall be
                     assigned, amended, or waived
                     without the prior concurrence of
                     ADB.
Schedule 3,     Establishment of an Imprest Account at      Immediately after   Complied with
para. 9(a)      the Central Bank of Sri Lanka for the       Loan
                Social and other components and for         effectiveness
                the apex Body for the Worker Housing
                Loan scheme.
Schedule 3,     Conditions of Withdrawals from Loan         During              Complied with.
para. 10        Account                                     implementation      Plantation Fund
                Notwithstanding any other provision, no                         established and fund
                withdrawals shall be made from the                              manager appointed.
                Loan Account for the Plantation Fund
                until the Plantation Fund has been
                established and the Plantation Fund
                Subsidiary LA has been signed and
                became legally binding, in each case to
                the satisfactory of ADB.
Schedule 3,     Notwithstanding any other provision of      During              Complied with. Sixteen
                                                                                      Appendix 7       53


 Reference to
                                                                Compliance          Status at Project
      Loan                     Covenant
                                                                  Date                Completion
  Agreement
para. 11        this LA, no withdrawals shall be made         implementation      RPCs signed an
                from the Loan Account to be provided to                           agreement to cap
                any RPC until that RPC has entered                                management fees.
                into an agreement with the Borrower to
                revise the RPC’s lease payments and
                its management fees.
Scheduled 5,    The PIU established under the                 During              Complied with.
para. 3         Plantation Reform Project (Loan 1402-         implementation
                SRI[SF]) shall be maintained for the
                Project. The Borrower shall ensure that
                the PIU shall be provided with required
                authority for project implementation.
Schedule 5,     The Apex Body shall be responsible for        During              Complied with.
para. 5         the implementation of the Credit              implementation
                Component and for this purpose shall
                enter into the Apex Subsidiary LA with
                the Borrower. The foreign exchange risk
                shall be borne by the Borrower.
Schedule 5,     The PFIs under the supervision of the         During              Complied with.
para. 7         Apex Body and pursuant to the terms of        implementation
                the Subsidiary Las, shall implement the
                credit component. The PFIs shall be
                responsible for (i) approval and
                disbursement       of     subloans;    (ii)
                monitoring      performance      of   the
                Subborrowers; (iii) submitting their
                refinancing claims to the Apex Body for
                submission to ADB; (iv) maintaining
                records on Subborrowers and Project
                accounts; and (v) submission of
                quarterly reports to the Apex Body.
Schedule 5,     Plantation Fund (PF):                         Within 6 months     Partly complied with.
para. 8         The Borrower shall ensure that the PF         of effective date   Establishment of PF
                is established under the purview of the       (February 2004)     delayed (Oct 2004).
                Ministry of Finance of the Borrower as a                          Fund manager
                Trust under the Trust Ordinance No. 9                             appointed only in
                of 1917 as amended, the Fund                                      March 2006.
                Manager is to be appointed to the             Within 9 months
                satisfaction of ADB, and that the PF          of effective date
                Subsidiary LA satisfactory to ADB is          (May 2004)
                signed, in each case prior to
                disbursement for the PF
Schedule 5,     Project Coordinating Committee                By November         Complied with. Last
para. 9         A PCC, chaired by the Secretary of            2003                PCC meeting
                MPI, shall be established with                                    convened on 31 July
                representatives from the Ministry of                              2006.
                Finance, ERD, CBSL, Apex Body, PFIs,
                PIU and PA. The PCC shall be
                responsible for interagency coordination
                and provide guidance in policy issues to
                the PIU for implementing the Project.
Schedule 5,     Credit Component and Relending                During              Complied with. Six
54     Appendix 7


 Reference to
                                                                  Compliance       Status at Project
      Loan                      Covenant
                                                                    Date             Completion
  Agreement
para. 10(a)     and Onlending Arrangements:                     implementation   PFIs appointed.
                Except as ADB may otherwise agree,
                the Borrower shall cause the Apex Body
                to ensure that for initial designation and
                continuing participation under the Credit
                component each PFI should posses the
                criteria specified under items (i) to (ix) of
                this section.
Schedule 5,     Except as the Borrower and ADB shall            During           Complied with.
para. 11(a)     otherwise agree, the subsidiary LAs to          implementation
                be entered into between the Apex Body,
                on behalf of the Borrower, and each of
                the PFIs shall include the terms and
                conditions set forth in this Schedule and
                Schedule 4 to this LA, and shall attach
                or incorporate the Environmental
                Criteria for Selection of Subprojects
Schedule 5,     The Borrower shall furnish the ADB with         During           Complied with.
para. 11(b)     a copy of each Subsidiary LA entered            implementation
                into by the Apex Body with the PFI
                concerned upon execution of each such
                agreement
Schedule 5,     Failure by any PFI to perform its               During           Complied with.
para. 11(c)     obligations under any Subsidiary LA,            implementation
                the Apex Body shall be entitled to
                terminate the relevant Subsidiary LA
                with PFIs
Schedule 5,     Relending Terms:                                During           Complied with.
para. 13         (a) the Subsidiary loans shall have a          implementation
                      maturity period based on the
                      gestation period of the subprojects
                      from 10 years for marketing,
                      processing       and      engineering
                      subprojects, to 15 years for core
                      crop     development       and     crop
                      diversification subprojects, to 20
                      years     for    forest     plantations
                      subprojects.
                (b) Interest with respect to amounts
                     withdrawn from the loan account
                     date shall be at a rate per annum
                     equal to the prevailing AWDR
                (c) Relending rate shall be reviewed
                     from time to time to minimize any
                     subsidy element to PFI.
Schedule 5,     Loan amounts relent to the PFIs                 During           Complied with.
para. 14        (including      amounts      arising     from   implementation
                Subloan repayments) shall be used only
                for making subloans to Subborrowers
                meeting the eligibility criteria in
                paragraph 15 of this Schedule to
                finance      the     reasonable       foreign
                exchange and local currency cost of
                                                                                       Appendix 7     55


 Reference to
                                                                     Compliance       Status at Project
    Loan                         Covenant
                                                                       Date             Completion
  Agreement
                goods and services required for
                Subprojects.
Schedule 5,     Onlending to Subborrowers and
para. 15        Subprojects:
                Each PFI shall ensure that each eligible           During           Complied with.
                subborrower meets the following                    implementation
                criteria:
                (a) the Subborrower is a divested RPC
                     or its subsidiary, a joint venture of
                     or with divested RPCs, a lessee of
                     land from a divested RPC or a
                     divested JEDB/SLSPC estate:
                (b) the Subborrower shall                 have
                     submitted a strategic business plan
                     acceptable to the PFI and the Apex
                     Body to show how the subborrower
                     intends       to     enhance        future
                     profitability       and         corporate
                     governance;
                (c) the Subborrower, if an RPC, shall
                     have entered into agreement with
                     the      Borrower      to   cap       their
                     management fees in return for the
                     Borrower revising the basis for
                     calculation of the RPC lease
                     payment;
                (d) the Subborrower shall                 have
                     developed        satisfactory     human
                     resource development plans and
                     recruited      a    qualified     human
                     resource development officer and a
                     social mobilizer for each cluster of
                     estate; and
                (e) the Subborrower shall consider
                     different options in its core crop and
                     diversification activities to optimize
                     land use and labor opportunities
                     and to build up soil organic matter
                     and improve soil fertility.
Schedule 5,     Each PFI shall ensure that each                    During           Complied with.
para. 16        Subproject meets the following criteria:           implementation
                (a)       the Subproject shall take place
                     on RPC land and be in one of the
                     following        areas;      (i)      field
                     development and mechanization n
                     core activities of tea, rubber and
                     coconuts, (ii) crop and non-crop
                     diversification including spices,
                     coffee, forestry and estate tourism,
                     (iii) factory consolidation and
                     process        automation,        effluent
                     treatment for rubber factories and
                     rehabilitation of mini-hydro stations,
56    Appendix 7


 Reference to
                                                                Compliance   Status at Project
    Loan                         Covenant
                                                                  Date         Completion
  Agreement
                    and (iv) vertical integration through
                    marketing ventures.
                (b)    The FIRR is higher than the
                    onlending interest rate in real terms;
                (c)    The Subproject is certified as
                    having met the environmental laws
                    and regulations of Sri Lanka and
                    ADB’s applicable environmental
                    guidelines and the Environmental
                    Criteria for the Selection of
                    Subprojects.

                (d) In        subprojects     involving
                    diversification    or   commercial
                    forestry, areas for diversification
                    and commercial forestry shall be
                    demarcated      in    a   land-use
                    plan/forestry management plan;

                (e) In Subprojects for factories, the
                    factories for rationalization shall
                    have a capacity of not less than 1
                    million kilograms of made tea per
                    annum and for each factory to be
                    rationalized, two factories of the
                    same RPC in the vicinity shall be
                    closed;

                (f)    In subprojects involving joint
                      marketing alliances shall involve at
                      least two RPCs, which collectively
                      shall contribute at least 60% of the
                      total equity of at least SLRs 200
                      million over the first two years of the
                      Subproject; or a single RPC-
                      marketer which shall invest at least
                      SLRs 75 million of total equity over
                      the first two years of the Subproject,
                      and in each case, shall introduce its
                      own brands in the international
                      market;

                (g) If the proposed Subproject involves
                    planting and/or processing of
                    products such as palm oil, no such
                    Subproject will be approved or
                    implemented until a detailed
                    economic, physical, social and
                    environmental impact assessment
                    has been carried out, approved by
                    the Central Environment Authority
                    and ADB, and a report circulated to
                    the Board of Directors of ADB 120
                                                                                         Appendix 7      57


 Reference to
                                                                    Compliance         Status at Project
    Loan                            Covenant
                                                                      Date               Completion
  Agreement
                          days before implementation of the
                          Subproject.
Schedule        5,   The financing package for Subprojects        During             Complied with.
para. 17             for each Subborrower shall be as             implementation
                     follows: (i) up to an average of 76% of
                     each Subloan may be financed out of
                     the Loan; (ii) the remaining percentage
                     of each Subloan shall be financed by
                     the PFI; and (iii) the minimum equity
                     contribution in cash or in kind of each
                     Subborrower shall be as follows: (a)
                     20% of total cost for crop diversification
                     subprojects, 30% of total cost for
                     processing and marketing subprojects,
                     and 40% of total cost for core crop
                     subprojects.
Schedule        5,   Subloans                                     During             Complied with.
para. 18             Subloans shall have maturity periods         implementation
                     based on the gestation period of the
                     subprojects, which shall range from 10
                     years for marketing, processing and
                     engineering subprojects, to 15 years for
                     core crop development and crop
                     diversification subprojects, to 20 years
                     for forest plantations subprojects;
                     The maximum amount of each subloan
                     shall be equivalent to $2 million.
                     Each subloan shall be made on terms
                     whereby the PFI concerned shall
                     obtain, under a written Subloan
                     agreement with the Subborrower in
                     form acceptable to ADB, rights
                     adequate to protect the interests of the
                     Borrower, ADB, Apex Body and PFI.
                     Each PFI shall promptly and effectively
                     exercise its rights under each subloan
                     agreement in accordance with the
                     standards of a prudent lender and in
                     such manner as to protect the interests
                     of ADB, the Borrower, Apex Body and
                     PFI.
Schedule        5,   Establishment of Plantation Fund and         By      February   Complied with but
para. 20             appointment of Fund Manager with the         2004               delayed (see Schedule
                     concurrence from ADB.                                           5 para. 8)
Schedule        5,   Upon establishment of Plantation Fund,       During             Complied          with.
para. 21             the Borrower shall ensure that (i)           implementation     Trustees    appointed.
                     Trustees satisfactory to ADB are                                Fund          manager
                     appointed; (ii) a Fund Manager                                  appointed    only    in
                     satisfactory to ADB is appointed                                March 2006.
                     meeting all the criteria sets out in this
                     section.
Schedule        5,   Relending:                                   During             Complied with.
para. 23             The Borrower shall ensure that the           implementation
58    Appendix 7


 Reference to
                                                                     Compliance        Status at Project
    Loan                            Covenant
                                                                       Date              Completion
  Agreement
                     proceeds of the Loan allocation to PF
                     including the revolving fund as at 1
                     January 2003 shall be relend to the PF
                     pursuant to the PF Subsidiary LA.
Schedule        5,   The Borrower shall ensure that the            During            Complied with.
para. 24             resources of the PF are used to invest        implementation
                     in eligible RPCs subprojects which meet
                     the criteria under items (i) to (x) of this
                     schedule.
Schedule        5,   The Borrower shall ensure that any one        During            Complied     with    but
para. 25             investment by the PF in an RPC shall          implementation    delayed.
                     not exceed 10% of the PF’s capital or
                     20% of RPC’s paid up capital,
                     whichever is lower, and shall have a
                     tenure no longer than 20 years.
Schedule        5,   The Borrower shall ensure that the            During            Complied     with    but
para. 26             agreement between MPI and CBSL with           implementation    delayed.
                     respect to the resources of the
                     Revolving Fund established under Loan
                     1402-SRI shall be revised so that the
                     resources of the Revolving Fund as of 1
                     Jan 2003 shall be made available to the
                     PF as described in para 23 of this
                     Schedule.
Schedule        5,   The Government shall review the need          During            Not complied with.
para. 27             for the Revolving Fund before closing         implementation
                     the Project and take necessary action
                     for its continued operation or winding
                     up.
Schedule        5,   The Borrower shall ensure:
para. 29             Divestment of Elkaduwa Plantation Ltd.        By     December   Not complied with. Six
                     through the stock market                      2002              attempts were made to
                                                                                     privatize but failed. As
                                                                                     per new government
                                                                                     policy, no divestment
                                                                                     will happen.

                                                                                     Not complied with. Will
                                                                                     remain under private
                                                                                     management contract
                     Divestment of Chilaw Plantation Ltd.          By June 2003      but will not be divested
                                                                                     as per government
                                                                                     policy.

                                                                                     Not complied with. No
                                                                                     action has been taken.
                                                                                     Management contract
                                                                                     terminated, and the
                                                                                     government took over
                                                                                     the management.
                     Divestment of Kurunegala Plantation           By     December
                     Ltd. through the stock market                 2003              Not complied with.
                                                                                     Warehouses  leased
                                                                                        Appendix 7       59


 Reference to
                                                                     Compliance       Status at Project
    Loan                            Covenant
                                                                       Date             Completion
  Agreement
                                                                                    out to private parties
                                                                                    on long-term leases
                                                                                    without executing legal
                                                                                    agreement.

                                                                                    Not complied with
                     Divestment of the estates             and                      owing to resistance
                     warehouses of JEDB and SLSPC.                 By June 2003     from stakeholders.




                                                                                    Complied with.

                     Marketing of Tea:
                     Elimination of all restrictions on tea        June 2003
                     exports (on recommendation of the
                     Industry Umbrella Body), except quality
                     control, and, as a first step, elimination
                     of price control and panel ratification for                    Complied with.
                     non-auction sales between producers
                     and international buyers.

                     Institutional Reforms:
                     Amendment of the acts of the Tea                               Not complied with, as
                     Related Institutions, reconstitution of the   During           the        government
                     boards for greater private sector             implementation   retained estate lands.
                     participation and restructuring of the
                     institutions;
                                                                                    Complied           with.
                     Submission of the bill on reconstitution                       Situations    reviewed
                     of the boards of the Coconut Research                          periodically.
                     Board, and the Rubber Research                February 2004
                     Board, to the Parliament for approval;

                     Phasing out the Plantation Management
                     Monitoring Division’s role in monitoring
                     the    management       and    financial
                     performance of the RPCs when all              During
                     RPCs are divested.                            implementation

                     Wage Determination:
                     That the Government shall refrain from
                     intervening in wage determination in the
                     collective agreements between estate          During
                     workers and management.                       implementation
Schedule        5,   Budgetary Allocation for expenditures         During           Complied with.
para. 30             after Project completion                      implementation
                     The Borrower shall maintain all
                     necessary budgetary allocations for
                     financing the recurrent expenditures to
                     be incurred after the completion of the
                     Project for the proper operation and
60      Appendix 7


 Reference to
                                                                    Compliance            Status at Project
    Loan                            Covenant
                                                                      Date                  Completion
  Agreement
                     maintenance of the Project facilities (not
                     including facilities owned by the RPCs),
                     including expenditures as required for
                     the efficient management of such
                     facilities.
Schedule        5,   Monitoring and Evaluation
para 31              The PIU shall carry out monitoring and       During               Not complied with.
                     evaluation of the Project benefits in        implementation
                     coordination with Apex Body, the PFIs,
                     PF, RPCs, PHSWT and EWHCS.

                     The PIU shall conduct a benchmark                                 Complied with but
                     socioeconomic survey based on a              During               delayed.   Consultant
                     representative sample of the estates to      implementation       recruited and report
                     be assisted under the Project. The data                           submitted in August
                     to be collected by the PIU shall include                          2005.
                     indicators of social welfare of the estate
                     workers
                                                                                       Not complied with.
                     The PIU shall monitor relevant
                     indicators to assess the performance of
                     the Project.                                 During               Not complied with.
                                                                  implementation
                     The Borrower through the Apex Body,
                     cause PFIs to monitor and evaluate the       During
                     benefits of the Subprojects after they       implementation
                     have been completed in accordance
                     with a schedule to be agreed upon by
                     the Borrower, the PFIs and ADB.
Schedule        5,   Carrying out of the Midterm Review by        Year 3 of project    Complied with but
para. 32             the Borrower, MPI, Apex Body and ADB         implementation       delayed. A midterm
                                                                                       review mission was
                                                                                       fielded in December
                                                                                       2007.
ADB = Asian Development Bank, AWDR = average weighted deposit rate, CBSL = Central Bank of Sri Lanka, DFCC
= Development Finance Corporation of Ceylon, ERD = External Resources Department, EWHCS = estate workers'
housing cooperative society, JEDB = Janatha Estate Development Board, LA = loan agreement, MPI = Ministry of
Plantation Industries, PCC = project coordination committee, PF = plantation fund, PFI = participating financial
institution, PHSWT = Plantation Housing and Social Welfare Trust, PIU = project implementation unit, PRP =
Plantation Reform Project, RPC = regional plantation company, SLSPC = Sri Lanka State Plantation Corporation.
                                                   STATUS OF ENGAGEMENT OF CONSULTANTS

                                                                                               No. of                    Contract     Expenditure
                                                                                 Contract                    Date of
 No.                   Position                                Name                            Months                    Amount        including
                                                                                  Period                  Commencement
                                                                                               Utilized                  (SLRs)      Taxes (SLRs)
       National:
                                                  Tilak Padmarajadasa &
  1    Management Finance Specialist                                            6 months          4        1 Apr 2004                    1,398,000
                                                  P. C. K. Abeykoon                                                      2,007,900
  2    Legal Expert                               K. M. P. R. Karunaratne       4 months          4        1 Apr 2004                    1,458,000
                                                                                                                         1,610,200
  3    Management Securities Expert               Ranel T. Wijesinghe           4 months          3        1 Apr 2004                    2,012,500
                                                                                                                         2,500,000

       Geographical Information System and
  4                                               K. L. A. Ranasinghe           6 months          4        13 Aug 2004                     645,000
       Geographical Positioning System Surveys                                                                            900,000
       - Expert
                                                  Environment and Management
  5    Baseline Socio Economic Survey                                           4 months          4        7 Jan 2005                    1,959,313
                                                  Lanka                                                                  1,959,313
  6    Gender Specialist                          V. Palaniappan                6 months          6        1 Nov 2006                      900,000
                                                                                                                          900,000
  7    Local Consultant, Civil Engineer (Roads)   K. O. U. Karunanayake         18 months         2         2 Jul 2007                     600,000
                                                                                                                         1,800,000
  8    Local Environmental Consultant             C. M. M. Chandrasekara        intermittent     3.5       13 Jul 2007                   1,202,500
                                                                                                                         2,000,000
  9    Local Environmental Consultant             K. G. D. Bandaratilake        intermittent      1        13 Jul 2007                     335,000
                                                                                                                         2,000,000
 10    Local Consultant, Civil Engineer (Roads)   R. A. B. H. Rajapaksha        12 months         4        1 Feb 2008                      400,000
                                                                                                                         1,200,000
 11    Forestry Consultant                        Dunstan Fernando              6 months          6        14 Nov 2007                      93,750
                                                                                                                          187,500
 12    Local Consultant, Civil Engineer (Roads)   H. D. S. N. Premasiri         12 months         1        1 Sep 2008                      300,000
                                                                                                                         1,200,000
 13    Local Consultant, Civil Engineer (Roads)   S. V. Ekanayakage             6 months         2.5       15 Jun 2009                     250,000
                                                                                                                          600,000
 14    Carrying out Impact Assessment             EML Consultants               2.5 months       2.5       26 Jun 2009                     333,816
                                                                                                                          993,500




                                                                                                                                                     Appendix 8
 15    Study of Wage Structure                    Resource Management Consult   2.5 months       2.5       7 Jan 2009
                                                                                                                          170,000
                                                                                                                                           294,400
 16    Impact Assessment Study on Donor           Resource Management Consult   2.5 months       2.5       7 Jan 2009
                                                                                                                          566,000
       Funded Welfare Projects & Benefits to
                                                                                                52.5
       Plantation Workers
Source: Quarterly Progress Report of Executing Agency (Ministry of Plantation Industry)




                                                                                                                                                     61
       62         Appendix 9


                                        PROJECT COMPLETION REPORT RATING

                                                                                       Rating                                PCR
                    Weight                                                                                    PCR
   Criterion                                      Definition                       Description and                         Weighted
                     (%)                                                                                     Rating
                                                                                       Value                                Rating

 Relevance            0.2       The consistency of the Project's goal, and        Highly Relevant (3)          2.0             0.4
                                outputs with the Government's
                                development strategy, ADB's lending               Relevant (2)
                                strategy for the country, and ADB's               Partly Relevant (1)
                                strategic objectives at the time of approval
                                and evaluation.                                   Irrelevant (0)

 Effectiveness        0.3       The achievement of purpose as specified           Highly Effective (3)         2.0             0.6
                                in the policy goals and the physical,
                                financial and institutional objectives            Effective (2)
                                adopted at project approval, or as formally       Less Effective (1)
                                modified during implementation.
                                                                                  Ineffective (0)

 Efficiency           0.3       Comparison of the achievement of project          Highly Efficient (3)         2.0             0.4
                                purpose with the use of inputs based on
                                implementation performance with                   Efficient (2)
                                consideration of the EIRR or cost                 Less Efficient (1)
                                effectiveness of the investment.
                                                                                  Inefficient (0)

 Sustainability       0.2       Likelihood that human, institutional, and         Most Likely (3)              2.0             0.4
                                financial resources are sufficient to support
                                achievement of results and benefits over          Likely (2)
                                the economic life of the project.                 Less Likely (1)
                                                                                  Unlikely (0)

 Overall              1.0       The overall weighted average of the four          Highly successful                            1.8
 Assessment                     criteria. If one of the criteria has a score of   (OWA > 2.7)
 (Weighted                      0, the rating to be downgraded to partly
 average of                     Successful.                                       Successful
 above                                                                            (1.6 < OWA < 2.7)
 criteria)                                                                        Partly Successful
                                                                                  (0.8 < OWA < 1.6)
                                                                                  Unsuccessful
                                                                                  (OWA is < 0.8)
ADB = Asian Development Bank, EIRR = economic internal rate of return, OWA = overall weighted average, PCR = project completion report
      Source: ADB, 2009, Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations, Manila.

				
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