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.