Report No. PID9352

Project Name -Distance Learning Project (@)

Region South Asia Regional Office

Sector Institutional Development

Project ID LKPE69784 Public Disclosure Authorized Borrower(s) SRI LANKA

Implementing Agency Address DISTANCE LEARNING CENTER LTD. Distance Learning Center Company 28/10 Malalasekere Mawatha, 7, Sri Lanka Contact Person: Mr. Prabath Gunathunga Tel: 94-1-587671 Fax: 94-1-584406 Email: [email protected]

Environment Category C

Public Disclosure Authorized Date PID Prepared January 9, 2001

Projected Appraisal Date November 6, 2000

Projected Board Date February 20, 2001

1. Country and Sector Background BACKGROUND: Sri Lanka was the first South Asian state to liberalize its economy in 1977. However, insufficient exposure to international experience and policy trends limited the follow-up process of individual sector reform. Key stakeholders fearful of change were unaware of how similar concerns were addressed in other countries. The proposed LIL is intended to bridge this knowledge gap in support of market reform.Moreover, the public sector has not adequately adapted to the Public Disclosure Authorized liberalized economy. There is a need to examine the role of the bureaucracy, its interface with the private sector, access to technology and human resource capacity in the context of the modern demands of business and civil society. Sri Lanka is confronted with serious shortfalls in governance, be it the capacity to plan at the center, implement decisions at the periphery or ensure corporate governance. The scrutiny of public finances is weak at all levels of government. Internal control and audit systems have not been modernized in line with international best practice, the liberalized economy and devolution. The existing civil service culture hinders good governance, accountability and transparency. The reform of the civil service is needed for an institutional framework supportive of market-led growth. The Government has set up a 'Public Service Management Development Authority' (PSMDA) to address these issues.While distance learning alone will not resolve the shortcomings of public administration, it will nonetheless facilitate Public Disclosure Authorized improved governance through knowledge transfer. It will expose local decision-makers to international best practice and enhance the skills of local decision-makers in the priority areas of economics, finance and management. There is at present no incentive for a civil servant to undergo training since it does not determine his or her career prospects. The absence of mandatory on-the-job training for civil servants impacts negatively on administrative capacity. The PSMDA recommends an Annual Performance Review to decide promotions, increases in remuneration and training in the civil service. It proposes amendments to the Sri Lanka Administrative Service Minute to this effect. If this were to be implemented, it will increase civil service training as a whole.The internet, e-business and WTO-led trade liberalization have reinforced the globalization of markets and a degree of convergence in business operations. Improved corporate governance is therefore needed to facilitate strategic international partnerships. Sri Lanka is still short of the skills required in this context. The private sector lacks exposure to the latest trends in corporate finance and management. It lacks the supporting institutions and human resources that are critical to sound corporate governance. Several senior executives are due to retire while new leaders are poised to take over. Knowledge enhancement and skills development are needed in this transitional context. Distance learning course modules relayed from international institutions will strengthen corporate management while access to the latest technical information will allow the Sri Lankan private sector to effectively compete in the global economy. The recent proliferation of private training institutions in Sri Lanka is reflective of the demand for global knowledge in a fast changing world. However, these management institutes still lack real time access to the latest training materials, case studies and technical information from top notch accredited international content providers committed to excellence. The professional training system largely entails bringing individual experts to teach a course to a limited audience in Sri Lanka or sending a restricted number of persons abroad for training. This piece-meal approach is of insufficient scale to promote market reforms or enhance capacity in the public and private sectors. Neither is it cost-effective. The strategy of the Government is to introduce the distance learning method to complement existing training programs in the country and strengthen the scope of such programs. Multi-media internet-based distance learning will focus on global knowledge, governance and policy reform at lower cost. Distance learning will be a public-private partnership committed to serve the training needs of both sectors effectively.EXISTING TRAINING PROGRAMS: The Sri Lanka Institute for Development Administration (SLIDA), incorporated by an Act of Parliament in 1982, is the training arm of the civil service. It trains 3000 senior and middle-level civil servants each year, and inducts new recruits into the administrative service. It has 17 full time resource persons and several part-time lecturers. The Treasury funds 85t of the SLIDA budget while the rest is earned from course fees charged to the private sector, management consultancies and customized training. It identifies the course curriculum in keeping with official policy requirements, regular needs assessments and the feedback of past trainees. Internet-based distance learning will increase SLIDA's live access to relevant international experience, latest policy trends and specialized knowledge. It will facilitate increased policy debate within the civil service on current development issues. Distance learning will offer an increased range of courses that will keep pace with developments in the international arena and more positively impact on administrative capacity within Sri Lanka. The Sri Lanka Institute of Local Governance (SLILG), was incorporated by an Act of Parliament in September 1999. The Thirteenth Amendment to the Constitution (1987) devolved several administrative responsibilities to the eight provinces. The provincial bureaucracy, however, lacked the financial management and strategic planning skills to take on the responsibilities assigned to it. To date, no province has been

- 2- able to develop a corporate plan or enact relevant legislation. Rural divisional secretaries lack internet connectivity and exposure to global knowledge. The 'Commission of Inquiry on Local Government Reforms' in 1999 emphasized the need to build capacity at the local level. SLILG endeavors to rectify the widespread lack of capacity and supports eight provincial-level "Management Development Training Units" (MDTU) to train provincial civil servants. SLILG, with a training budget of Rs 16 million, now has 100 external resource persons. It develops course curricula for the MDTUs, trains provincial-level trainers, holds workshops for senior provincial bureaucrats and undertakes consultancy assignments for provincial line agencies. As a new institution, SLILG still lacks the expertise to effectively train grass roots government officers in management. Most MDTUs are not fully functional either.The overall training required at present in the devolved authorities is of a rudimentary nature. Internet-based distance learning will not be the best instrument to address such needs. The English language course modules and the required level of expertise prevent middle-level provincial cadre from effectively using the Distance Learning Center (DLC). The limited size of the provincial and local government budgets also pre-empts the extensive use of DLC facilities.Senior grades in the provincial and local levels, however, can avail themselves of distance learning modules in financial management, policy analysis and broad development issues. The Government intends to approach other donors to support the initial training of provincial chief secretaries, deputy chief secretaries, secretaries to provincial ministries and divisional secretaries on a pilot basis. Distance learning will vastly enhance training opportunities and link grass-roots decision-makers to the borderless world of knowledge.The Sri Lanka Institute of Directors (SLID), established by the Ceylon Chamber of Commerce under the Company's Act in April 2000, was envisioned to provide training and development support for corporate executives. It emerged in response to a broad demand for education in corporate governance, currently unavailable in Sri Lanka. SLID, soon to be converted into an independent body, is in the process of developing a training program for business managers. It acts as an information resource and discussion forum for private directors. SLID has a membership of 735 Directors, Senior Managers and Corporate Partners. It organizes breakfast meetings on e-commerce and corporate governance, and external diploma programs for directors at the Chartered Institute of Directors in London, the University of Ulster and the Wharton School of Business in Singapore. In a survey of its membership carried out in August, 2000, most directors identified web-based learning experiences and distance learning programs in corporate governance, e-business and the legal ramifications of directorship as a priority.The Distance Learning Project is intended in part to strengthen the SLID program by linking it to international best practice. The real-time transfer of specialized knowledge will enable trained directors to effectively exercise their responsibilities of oversight and fiduciary control over management.The Center For Banking Studies, affiliated to the Central Bank of Sri Lanka, offers course modules in commercial and investment banking, fund management, risk management and financial sector development. The courses offered vary in duration from one year diploma programs to half-day workshops on specific topics. Despite a partnership with international training institutes, the Central Bank still needs to either send staff abroad for more specialized training or bring international experts. Both options are expensive and largely dependent on the availability of donor funds. Expenditure related

-3 - to airfare and per-diems are significant, notwithstanding donor-financed course fee exemptions. Distance Learning is intended to reduce the costs of training, widen the technical exposure and complement the Center's existing program by promoting a transfer of knowledge through satellite-based technology. It will beef up the curriculum through increased international inputs and help strengthen the domestic environment for financial sector reform.The Skills Development Fund (SDF) was established in early 2000 in keeping with the recommendations of the 'Presidential Task Force on Tertiary Education and Vocational Training' to introduce a training culture in the public and private sectors. It provides (i) job entry training for new recruits; (ii) on-the-job training for managers; and (iii) retraining to facilitate retrenchment and flexible labor markets. The Government owns 90t of its shares and intends to divest this through a private offering in November 2001 and a public offering one year thereafter. The SDF, a Board of Investment registered company, provides a needs analysis for individual firms and then designs a customized training program using external resource persons registered with it. It is envisaged that the SDF will incorporate distance learning modules in its training programs. The DLC Company, likewise, will rely on the SDF to undertake regular needs assessments on its behalf. Corporate conglomerates such as Maharajahs and have set up their own training institutes i.e. the Maharajah Institute of Management and the Ceylinco-owned International College of Business and Technology. These are fully owned subsidiaries of the parent company and are intended in part to upgrade the skills of employees, provide a foreign MBA education within Sri Lanka, and help introduce international best practice and knowledge to corporate staff. It is envisaged that distance learning modules will be included in their training programs and DLC facilities used for the purpose. Ceylinco Consolidated is a multi-million dollar Sri Lankan conglomerate established in 1939. Its training institutes include the International College of Business Technology, Ceylinco Insurance College, the Ceylinco Institute of Excellence, the Colombo Business School and the Training Center. It has identified international training partners such as the University of Western Sydney, the South Australian Tertiary and Further Education Program, the National University of Singapore and the Abdul Razzak University in Malaysia to educate local cadre in the latest business and management practices. Ceylinco itself has a vision of tele-education and is eager to participate in the management of the DLC Company. The public and private initiatives referred to above were intended to strengthen capacity through improved training. The proposed distance learning project, a public-private partnership, will increase the scope of such programs and ensure international standards. The latest internet-based courses, with a focus on global knowledge, governance and policy reform will support current efforts to enhance capacity in Sri Lanka.DISTANCE LEARNING CENTER: The Government incorporated the DLC Company in June, 2000 and registered it under the Company's Act in September, 2000. The Ministry of Finance owns 100t of the DLC Company's shares. It plans to divest 49t of the Company's shareholding once the market base is developed and the DLC is financially viable. This is anticipated in the fourth year of DLC's operations. SLID and Ceylinco Consolidated, for instance, are keen to buy shares of the DLC Company to ensure that it meets their training needs. The DLC Business Plan, expected to be finalized in March, 2001, will define the strategy and timeline for divestment. An accounting firm will be hired to price the shares and oversee the sale thereof. The DLC Company will relay relevant courses

- 4 - developed by international distance learning institutes while trained local experts will facilitate the delivery of such courses. The Company will benefit from the products offered by the Global Distance Learning Network (GDLN) of the WBI, the Monterey Institute of Technology in Mexico, City University of Hong Kong, Open University of Hong Kong, the Singapore campus of the University of Chicago, Waseda University in Japan, Monash University, the University of Adelaide in Australia, the WTO and ILO. The DLC Company will identify training courses available abroad with the active participation of potential clients. It hired a market research firm which surveyed government departments, the private sector and financial institutions in October, November and December, 2000. The market survey assessed client interest and ability to pay for courses offered. The survey reveals that a significant demand exists in Sri Lanka for internationally-relayed distance learning courses. The survey findings, included in the project files, will be used to develop a course curriculum, price courses and prepare the DLC business plan. The business plan, in turn, will define the long term strategy of the Company, delineate a plan to ensure cost recovery and lay out a timeline for partial privatization. It is envisioned that user fees charged by the DLC Company will cover operating costs by the end of the fourth year of operations. Its pricing policy will be designed to attract more clients for DLC services, allow for gradual cost recovery and ensure a sustainable market share. A solid precedent exists for the fee-based delivery of training workshops and courses in Sri Lanka. The private sector has demonstrated its willingness to pay as seen in the newer management institutes that have arisen in Colombo. Organizations such as the Maharajah Institute of Management, Ceylinco's International College of Business Technology and the SDF, for instance, provide customized training programs at commercial rates. The DLC Company will charge Government officials for the courses offered at initially subsidized rates. This will ensure that only those capable and eager to be trained will be nominated by their supervisor to attend courses.It is anticipated that DLC facilities will be reserved in part for the use of high revenue earning programs targeted at the clientele of SLID, Ceylinco and the SDF. This will ensure steady returns and financial viability in a few years.The market strategy will facilitate publicity, create demand for programs and enhance the attractiveness of the hitherto untested distance learning method. A consultancy firm will be hired in March, 2001 to develop the strategy and promote the DLC. High profile workshops targeted at senior bureaucrats and corporate executives will be relayed to help consolidate initial market demand.

2. Objectives The Project will pilot a distance learning initiative to (a) strengthen the environment for policy reforms and (b) build capacity in the public and private sectors. Distance Learning will facilitate the increased dissemination of the latest technical information and cross-country experience in support of market reforms. Senior public and private sector decision-makers will access interactive multi-media and internet-based training programs developed by the World Bank Institute (WBI), major universities, private corporations and technical organizations around the world. This exposure to global knowledge will enhance the capacity of Sri Lankan decision-makers to conceptualize and implement reforms. The introduction of better policies will, in turn, lead to improved governance, poverty reduction and economic growth. An IDA Learning and

- 5 - Innovation Loan (LIL) will support the establishment and operation of the Distance Learning Center (DLC) Company in Sri Lanka.

3. Rationale for Bank's Involvement N/A for a LIL

4. Description The Project will have one component i.e. support for the establishment and operation of the DLC Company. It will help the DLC Company to initiate operations and achieve financial viability. The single component includes several activities i.e. the (a) selection and relay of distance learning course material; (b) financing of DLC operating costs on a decreasing basis over the first four years of operation; (c) technical assistance for staff training, a market survey, development of a business plan, a market campaign, and periodic evaluation of center operation/management effectiveness; (d) establishment of financial accounts/annual audits; (e) civil works; and (f) purchase, installation and initial maintenance of distance learning technology. The civil works entails the construction of a fourth floor in SLIDA to house the proposed DLC with a videoconference room to accommodate 35 persons, two computer rooms outfitted for 20 computer stations each, and an administrative office. The procurement of equipment for the DLC, includes the purchase and installation of VSAT, video, telecommunications and microprocessor equipment, furniture and other equipment for DLC operation and security. IDA will procure equipment on behalf of the client to ensure technical compatibility with the GDLN and economies of scale.The total cost is estimated at US $ 3.1 Million of which IDA will finance US $ 2 Million. IDA will cover the DLC's initial deficit in operational revenue, equipment costs and 85t of the costs of civil works. The DLC in Colombo will be part of a sustainable network of interactive classrooms in some fifty centers around the world with full voice, video and data connectivity to the different centers. It will be designed as a node in the GDLN. The GDLN strategy is to deliver training to clients close to their place of work; in stages, rather than in one block of time; to groups from one team in a department, rather than to only one or two representatives; as a group activity rather than as a lonely home study; to multiple groups in several countries simultaneously; as an activity related to problem solving in their workplace; and with direct applicability to their jobs. To achieve this, a combination of four main technologies, Videoconferencing, Internet, Cd-rom and Print, will be used in an integrated manner.The core of the DLC will be two technology-based class rooms reflecting the specific requirements of the distance learning method. One room will be used for "live" (or synchronous) video interaction between local course participants, remote instructors and international participants, while the second room will be used for independent, time-flexible (asynchronous), internet-based study. Connectivity will be achieved through a "Very Small Aperture Terminal" (VSAT) satellite antenna similar to that provided at World Bank Field Offices. Investment Cost a.Civil Works (Buildings, lifts, AC) b.Equipment (DLC, LAN, Telecom, Furniture etc.) c.Consultancy (Market Survey, Business Plan etc.) and Training

PPF Finances Operating Costs

-6- a. Satellite Bandwidth and servicing b. Personnel d. Other costs (utilities, telephone, variable costs)

5. Financing Total ( US$m) Total Project Cost 3

6. Implementation Implementing Agency: The DLC Company located in the SLIDA premises, will implement the project. It was incorporated in June, 2000 and registered under the Company's Act in September, 2000 with an initial share capital of Rs 250 Million. A Board of Directors governs the DLC Company. Its members include nominees of the Ministry of Public Administration, the Ministry of Finance, Center for Banking Studies, SLID, Ceylinco Consolidated and SDF.The Board of Directors will define corporate policy, oversee management, approve the annual business plan, assess the DLC's financial statements and ensure that the DLC Company is financially self-sustaining over time. The Board will ensure the participation of the public and private sector in curriculum development.Daily management of the Center is entrusted to a Chief Executive Officer (CEO) who was appointed in July, 2000 on the basis of proven experience in enterprise management. A team consisting of an IT expert, a facilitator/trainer, an experienced accountant and an office assistant will be recruited over the next four months to support the CEO. An accountant from SLIDA has been seconded to the DLC Company to work in the interim on a part time basis.Project PreparationThis includes incorporation of the DLC Company (legal procedures, nomination of Board members, appointment of the CEO), the selection of course curricula, and designing the proposed site (video-conference room, computer room etc. SLIDA handled initial project preparation and will continue to oversee construction activity. The CEO co-ordinated project preparation activities since July, 2000. The cost of project preparation is being financed largely through an IDA PPF of US $ 100,000 approved in April, 2000. The DLC Company is satisfactorily maintaining the PPF accounts.The DLC Company hired a market research firm in September, 2000 to survey potential clients, elicit learning priorities and recommend a feasible fee structure. The Market Survey was completed in December, 2000 and its findings are included in the project files. The Company will develop the course curriculum in early 2001 by incorporating client preferences captured by the survey. It will submit an initial Business Plan for IDA review and approval in March, 2001. The plan will outline the corporate vision, developmental strategy, courses to be offered, stakeholders to be targeted, financial projections, and a timeline for divestment. The consultant, funded out of PPF funds, completed the relevant architectural drawings, finalized technical specifications, BoQ and bid documents in July, 2000. The DLC Company invited bids in August and awarded the contract in November, 2000. IDA procurement guidelines were followed. It is anticipated that the civil works will be completed by April 30, 2001. The Bank's ISG will provide assistance and expertise to procure, install and test videoconferencing equipment in May 2001. The DLC is expected to start operations in June, 2001.Project ImplementationThe DLC Company will continuously assess demand for training, identify and program appropriate training courses available overseas, and market the center. It will partner with different training institutes to further its outreach. The DLC Company will target its

-7 - program at senior decision-makers at the central and provincial public service, the private sector and the financial sector. It will partner with SLIDA to train civil servants; with SLILG to reach out to senior provincial administrators; with SLID, Ceylinco Consolidated and SDF to educate private sector executives; and with the Center for Banking Studies to train bankers. The DLC Company will also liaise with relevant Ministries to disseminate technical information pertinent to increased private investment in infrastructure/utilities. The Company will develop and submit Annual Business Plans to IDA by December 1 of each year. The financial component of the Business Plan will detail the financing of operational expenses, and specify credit fund proceeds and capital mobilized by the DLC Company.

7. Sustainability N/A for a LIL

8. Lessons learned from past operations in the country/sector N/A for a LIL

9. Program of Targeted Intervention (PTI) N

10. Environment Aspects (including any public consultation) Issues The proposed back-up diesel power generating unit will comply with the Government of Sri Lanka's standards for emissions and noise. The Central Environmental Authority will issue an Environmental Protection License for the generator and will routinely monitor the DLC Company's compliance with license conditions. IDA will review compliance during supervision missions.

11. Contact Point:

Task Manager Naresha Duraiswamy The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 94-1-5-448070 Fax: 94-1-5-440357

12. For information on other project related documents contact:

The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop

Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.

This PID was processed by the InfoShop during the week ending, January 12, 2001.

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