Mahaweli Ganga Development Project

RESTRICTED Report No. PA-29a

Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accurocy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

MAHAWELI-GANGA DEVELOPMENT PROJECT

STAGE I

CEYLON Public Disclosure Authorized

December 30, 1969 Public Disclosure Authorized

Agriculture Projects Department

Aoc*flo __65- 3-3 CURRENCY EQUIVALENTS

At "Official" Exchange Rate

US$1.00 = Ceylon Rupees (Rs.) 5.95 Rs 1.06 = us$o.168 Rs 1 million = us$168,000

At Higher Effective Exchange Rate

US$1.00 = Ceylon Rupees (Rs) 9.23 Rs 1.00 = us$o.lo8 Rs 1 million = US$108,000

WEIGHTS AND MEASURES

1 acre (ac) = 0.405 hectares 1 mile (mi) = 1.609 kilometers 1 square mile (sa mi) = 2.564 square kilometers 1 foot (ft) = 0.3048 meters 1 acre-foot (ac-ft) = 1233.3 cubic meters 1 inch (in) = 25.4 millemeters 1 cubic foot per second (cusecs) = 0.0283 cubic meters per second 1 pound (lb) = 0.4536 kilograms 1 long ton (ton) = 1.016 metric tons 1 metric ton (m ton) 2204 pounds 1 megawatt (MW) = 1,000 kilowatts 1 gigawatt hour (GWH) = 1 million kilowatt/hours

LOCAL MEASURES

1 bushel (bu) paddy = 46 pounds paddy

ACRONYMS AND ABBREVIATIONS

UNDP - United Nations Development Program FAO - Food and Agriculture Organization CEB - Ceylon Electricity Board DGEU - Department of Government Electricity Undertakings ECI - Engineering Consultants Inc. of Denver, Colorado, U.S.A. USOM - United States Operation Mission SAR - Sodium Absorption Ratio CEYLON

MAHAWELI GANGA DEVELOPMENT PROJECT

STAGE I

Table of Contents

Page No.

SUMMARY AND CONCLUSION ...... i - ii I. INTRODUCTION ...... II. BACKGROUND ...... 2 III. THE PROJECT AREA ...... 4 Climate ...... 5 Topography ...... 5 Soils ...... 5 Population, Land Tenure and Communications ...... 5 Crop Production ...... 5 Water Resources ...... 6 Irrigation ...... 6 Supporting Agricultural Services ...... 7 Transport and Processing Facilities ...... 7 IV. THE PROJECT ...... 8 General Description ...... 8 Subsequent Phase of Development ...... 8 Proposed Works ...... 9 Construction Schedule ...... 10 The Power Plant ...... 11 Water Supply ...... 11 Status of Engineering ...... 12 Cost Estimates ...... 12 Financing ...... 15 Procurement ...... 16 Disbursement ...... 16 V. ORGANIZATION AND MANAGEMENT ...... 17 Project Management and Coordination ...... 17 Operation and Maintenance ...... 18 Recovery of Costs ...... 19 Supporting Agricultural Services and Credit ...... 20 Auditing of Accounts ...... 21

This report, prepared by Messrs. ffrench-Mullen, Malone, Beach, Myint, Winston, Reese, and Kirmani, is based on documents submitted by the Ceylonese authorities, reports of the UNDP/FAO studies and findings of a Bank appraisal mission which visited Ceylon in February-March 1969. The mission consisted of Messrs. M.D. ffrench-Mullen, S.S. Kirmani, D.G. Reese, J. Beach, and D. Mitchell (Consultant). Table of Contents (Cont'd)

Page No.

VI. PRODUCTION, MARKET PROSPECTS, PRICES, AND FARM INCOME 21

Production ...... 21 Market Proapects ...... 22 Prices ...... 22 Gross Value of Production ...... 23 Farm Income ...... 23

VII. POWER ...... 24

Polgolla's Contribution to the System ...... 24 Production allocation GWH ...... 25 Comparison with a thermal Alternative ...... 25 Allocation of Costs to Power ...... 26

VIII. BENEFITS AND JUSTIFICATION ...... 26

IX. RECOMMhNDATIONS ...... 28

ANNEXES

Annex 1 - Agriculture Annex 2 - Existing Water Resources in the Project Area Annex 3 - Project Description Annex 4 - Construction and Investigation Schedule Annex 5 - Water Supply and Irrigation Requirements Annex 6 - Consultant Services Annex 7 - List of Equipment and Transport Annex 8 - Cost Estimates Annex 9 - Allocation of Costs between Irrigation and Power Annex 10 - Organization Chart Annex 11 - Market Prospects and Prices for Agricultural Crops

Annex 12 - Rate of Return to the Economy Annex 13 - Expenditure Schedule

Maps

1. Mahaweli Ganga Development Project - Stages I, II, and III 2. Mahaweli Ganga Development Project - Stage I Civil Works 3. Ceylon Electrical Grid CEYLON

MAHAWELI GANGA DEVELOPMENT

PROJECT - STAGE I

SUMMARY AND CONCLUSIONS i. In recent years, considerable success has been achieved by farmers in Ceylon in increasing production of foodstuffs to replace imports, particularly rice. This has been achieved primarily by increasing yields. To reach self-sufficiency in rice, expansion of the area under paddy production will be necessary in addition to measures for increasing yields. Major expansion of acreage is possible only in the dry zone, where suitable land is available. Economic development of these areas depends on the provision of year round irrigation, the water for which would have to be supplied from the wet zone. Asso- ciated with such transfer of surface water would be substantial hydro- electric power potential suitable to meet part of the estimated growth in demand. ii. A four year UNDP/FAO study of the largely untapped water resources of the largest river in Ceylon, the Mahaweli Ganga, has resulted in the formulation of a Master Plan, to be implemented in three phases for the development of some 900,000 ac of land in the dry zone and the installation of 970 MW of generating capacity. The Mahaweli Ganga Development Program comprises proposals for the development under three separate schemes, of Phase I of the Master Plan. Because of the magnitude of the task involved, and the need for further investigation, the Government of Ceylon proposed implementing the first of these schemes in three stages. iii. This report contains the appraisal of the project which consists of Stage I of the first scheme of the Mahaveli Ganga Development Program. The project includes the diversion of Mahaweli Ganga water, at Polgolla, to augment irrigation supplies to 126,700 ac (cultivated) of land located in two areas in the dry zone, and the installation of a hydro-electric power plant of 40 MW capacity at Polgolla. Provision is made for the on- farm development of 4,000 ac of sugarcane and for feasibility studies required for subsequent stages of the scheme under the Mahaweli Ganga Devel- opment Program. Major construction works required for the full development of the area would need to be carried out under this first stage project. iv. The project would result in increasing rice production by some 83,000 m tons - equivalent to about one-quarter of the country's imports in 1968 and about 7% of the country's consumption. Sugar production in the area would triple but the incremental production would be less than 5% of current imports. Ceylon's firm generating capacity would expand from 320 MW to 340 MW. - ii - v. The cost of the project is estimated to be US$ 50,0 million, of which the foreign exchange component, including interest during construction on the Bank loan (see para. x below), would be US$ 29.0 million. vi. The Mahaweli Development Board would be set up to administer and execute the project. It would be responsible to the Minister of Land, Irrigation and Power and the Project would be coordinated at the Ministerial level by the Cabinet Planning Sub-committee. On completion of the Program, the Board would hand over its operation and maintenance to established Gov- ernment agencies. Consultants would be required to assist in all aspects of the project, this being the first irrigation project of its type in Ceylon, involving diversion and conveyance of water over considerable distances. vii. The two major construction works, costing about US$ 28 million, namely the Polgolla and Bowatenna complexes, 'would be subject to international competitive bidding, the remaining minor works, consisting of a total of about US$ 4.7 million, would be done either by the Irrigation Department on force account or local contractors. Vehicles, equipment, consultant services, engineering, contingencies and interest during construction account for the remainder of the total cost. The feasibility study work would be carried out by consultants with the Irrigation and Agriculture Departments. viii. The rate of return to the economy, with foreign exchange costs and benefits calculated at the higher effective exchange rate, would be about 12%. Assuming no opportunity costs for family labor, the return would be about 14%. These returns are higher than those from separate projects for irrigation and power. The tentatively estimated rate of return to the economy for all three stages of development of the Mahaweli Ganga Development Program is 12%; and for agriculture separately is 11%. ix. Previous Bank Group financing for agriculture and power in Ceylon includes a credit, in 1968, of US$ 2 million for a low lift irrigation project, a credit in 1969 for a drainage and reclamation project of US$ 2.5 million, and Bank loans totalling US$ 61.5 million for power development in Ceylon. The power loans consist of (a) US$ 19.1 million made in 1954 (101-CE); (b) US$ 7.3 million made in 1958 (209-CE); (c) US$ 14.1 million made in 1961 (288-CE); and (d) US$ 21 million for the Maskeliya Oya Stage II hydro-electric project made on July 23, 1969. x. Assurances were obtained during negotiations on the points listed in paragraph 9.01. The project is suitable for Bank Group financing of US$ 29 million to cover the ioreign exchange requirements, including interest during construction and commitment charges on the Bank loan. Bank Group financing would include an IDA credit of US$ 14.5 million and a Bank loan of US$ 14.5 million. The Bank loan would be for 30 years, including a grace period of six years. The remainder of the financing, US$ 21 million equivalent, would be provided by the Government, which would be the borrower. CEYLON

MAHAWELI GANGA DEVELOPMENT

PROJECT - STAGE I

I. INTRODUCTION

1.01 The Government of Ceylon has requested Bank Group financing in the amount of US$ 29 million equivalent to assist in a project involving the transfer of water from the wet zone to two non-contiguous areas of the northwestern and the northeastern parts of the dry zone. The objec- tive is to augment water supplies to 126,700 acres of land to permit double cropping of paddy in addition to partially irrigated sugarcane cultivation. These lands at the present suffer from lack of reliable irrigation supplies. In addition, the transfer of water would generate up to 40 MW of hydro-power at Polgolla. The project would be carried out over a period of five years. It is part of the Government's Irrigation Program included in the current development plan.

1.02 One of the main objectives of the development plan is the early attainment of self-sufficiency in food. The Government hopes to achieve this goal through expansion and rehabilitation of irrigation, provision for flood protection and drainage facilities 1/, reclamation of land and measures to increase yields.

1.03 The loan/credit request was prepared by the Ministry of Plan- ning and Economic Affairs following a UNDP/FAO study of Ceylon's largest river - the Mahaweli Ganga - and its water resources development potential (1965-1968). The study formulated a Master Plan, to be implemented in three phases over a 30 year period, for irrigation of 900,000 ac of land in Ceylon's dry zone and the installation of 970 MW of hydro-power. The Government prepared and submitted to the Bank Group, on November 2, 1968, a feasibility report for the development of the Mahaweli Ganga De- velopment Program (Phase I of the Master Plan) under 3 separate schemes. After discussion with the Bank, the Government decided that:

(a) the first scheme should be implemented in 3 stages (Map I) because of the magnitude of the task and the need for further investigations,

(b) the project would comprise only Stage I of the first scheme.

1.04 This report, prepared by Messrs. ffrench-Mullen, Malone, Beach, Myint, Reese, Winston and Kirmani is based on documents submitted by the Ceylonese Authorities, reports of the UNDP/FAO studies and the finding of

1/ A credit of US$ 2.5 million equivalent has been made for a Drainage and Reclamation Project. The Project will drain 13,200 ac of land in the southwest of the wet zone of Ceylon. a Bank Appraisal Mission, which visited Ceylon in February/March of 1969. The mission consisted of Messrs. M.D. ffrench-Mullen, S.S. Kirmani, D.G. Reese, J. Beach and D. Mitchell (Consultant).

II. BACKGROUND

2.01 Ceylon is a tropical island in the Indian Ocean with a gross area of 25,332 sq mi. In 1968, the population was estimated at 12 million with an annual growth rate of 2.2%. The land area is divided into distinct wet and dry zones (Map I). The wet zone is situated in the southwest quadrant of the island and covers about 30% of the land area; it supports more than three-quarters of the population and accounts for about 82% of the cultivated land. Colombo, the capital and largest city, is located on the southwest coast.

2.02 The dry zone covers the remainder of the island, excepting the drainage basin from the wet zone which cuts through the dry zone in a northeasterly direction. The main stem of this drainage system is the Mahaweli Ganga. In the dry zone, some irrigated farming takes place, mainly with supplies from reservoirs (locally known as tanks) fed by local streams. There are considerable areas of undeveloped land suitable for rice and subsidiary food crops.

2.03 The agricultural economy of Ceylon is divided between estate agriculture, producing export crops, and peasant produced food crops. Estate agriculture has dominated the economy. Tea accounts for about 62% of the value of the country's agriculturel exports, rubber 16% and coconuts 10%.

2.04 Agriculture has been groving at about 3.2% annually (1961-68), compared with an overall growth of 4% for the economy. It accounts for 36% of the gross domestic product, 90% of foreign exchange earnings, and provides employment for about 53% of the population.

2.05 Ceylon imports basic foodstuffs. In 1968, 45% of the total value of imports was expended on food: of this expenditure, rice accounted for about 35% and sugar for about 10%. In recent years, the Government's agricultural policy has been oriented towards reducing these food imports, rice in particular, through increased domestic production. The acreage planted and yields of rice have more than doubled since 1962. There has also been a marked increase in the production of subsidiary food crops. Largely as a result of this increasing local production, rice imports have declined for several years in a row, and only 343,000 tons were imported in 1968. With little local production of sugar, imports are rising with the growth of population; some 225,000 tons are presently imported.

2.06 Ceylon's efforts to boost domestic production of rice and subsidiary foodcrops have been quite successful. The main techniques have -3- been production incentives, such as a guaranteed price scheme, and substantial subsidies for inputs and services. Production credits have been made available to farmers through some 4,500 Multipurpose Cooperative Societies, which also supply the physical inputs and, on behalf of the Agrarian Services, purchase the produce. High yielding varieties have been made available. Supporting services available to the farmer, including extension and research programs, are generally adequate at the present level of production.

2.07 There is considerable room for further improvement of productivity, particularly through adoption of recommended farming practices; for example, an average of 14 lb per ac of nitrogen was used by rice farmers last year, as compared to a recommended rate of 45 lb per ac. In the long term, if Ceylon is to become self sufficient, it will be necessary to increase the area under rice. There is a comparative scarcity of land available for the further development of food production in the wet zone. There is, on the other hand, an abundance in the dry zone, where any major expansion in the cultivated area has to take place. For the development of such land to be economic and to obtain maximum production, irrigation must be provided. Moreover, the production of existing irrigated lands could be substantially increased in the dry zone if an assured irrigation supply were available throughout the year. The Mahaweli Ganga is the logical source of additional irrigation supplies.

2.08 Ceylon also has growing power needs. The effective generating capacity of the present system is presently 261 MW, including 191 MW of hydro capacity. The firm capacity of the system is about 220 M4W. Fa- cilities under construction and proposed would bring installed capacity by the end of 1973 to 400 MW. Upon completion of transmission facilities, now under construction, the major generating facilities will be integrated into a single system and it will be possible to service most of the island from central generating sources. Responsibility for all phases of electricity development and distribution is exercised by the Ceylon Electricity Board (CEB), an autonomous electricity authority created in July 1969 to take over the activities of the Department of Government Electrical Un- dertakings (DGEU) in the Ministry of Land, Irrigation and Power.

2.09 As noted above in para. 1.03, the Mahaweli Ganga Development Master Plan, proposed by the UNDP/FAO study for long term development of the largely untapped water resources of the Mahaweli Ganga, envisages the progressive development of the dry zone through:

(a) the provision of irrigation for 900,000 ac of land, 246,000 ac of which are partially irrigated; and

(b) the generation of 970 MW of hydro-power. - 4 -

The Master Plan proposes this development in three phases which are summarized below:

Partially New Total Hydro-Power Phase Irrigated Land Irrigation Generated …____------'000 acres ------MW

I 144 184 328 663 II 21 209 230 14 III 81 261 342 293

TOTAL: 246 654 900 970

2.10 The Mahaveli Ganga Development Program comprises the three schemes proposed for developing Phase I of the above Master Plan. The three stages of the first scheme (para. 1.03) would result in developing 24% of the 900,000 ac eventually to be irrigated. The proposed Mahaveli Ganga Development Project envisages development of Stage I of this scheme.

III. THE PROJECT AREA

3.01 The proposed project area lies in two non-contiguous areas (Annex 1), situated some miles to the north of the main diversion dam at Polgolla (Map I) near the center of the island, and identified as areas H and IH in the northwest and areas G, Dl and D2 in the northeast (Map II). Over two-thirds of the existing cultivation lies in two areas, namely H and Dl (Annex 1). Land used for the total project area (all three stages of the first scheme) by sectors is as follows:

Cultivable Cultivated Gross Sector Area Area Area ------'000 acres ------…--______

Northwest 113 56 156 Northeast 118 71 146

TOTAL: 231 127 302

3.02 Of the area under cultivation, about 123,000 ac is mainly planted with rice and 4,000 ac under sugarcane in area Dl. The areas are farmed by peasants, save for sugarcane which is cultivated on an estate basis. The agricultural methods used vary from manual cultivation of the paddy fields through animal draught to tractor cultivation. Irrigation water is often in short supply and irrigation methods are wasteful of water. Substan- tial benefits will accrue from a mpre assured and reliab_e supply of irrigation water. Further, in the long term, substantial increases in the production of crops for import substitutlon, such as chillies, onions, legumes, maize, et;~. are feasible with adeniate farmer training a d a year reund supply of irrigation water. -5-

Climate

3.03 The two areas have similar weather conditions. The mean annual rainfall is 56" in the northwest and 65" in the northeast sector. The rainfall in both seasons, Maha and Yala, is sometimes insufficient for the growth of paddy, which is the main crop. Over 79% of the rainfall occurs in the Maha season from October to March; the balance occurs in the Yala season from April to September. The monthly distribution of rainfall is often erratic, with heavy concentration in a few months in Maha. Temperatures range from about 90 F (32 C) maximum to about 75 F (24 C) minimum. The climate is suitable for rice and a wide range of tropical crops of all types.

Topography

3.04 In general, the topography is well suited to irrigation. The northwestern area is situated in a valley (the Kala Oya), where the relief is somewhat undulating. Irrigated land is presently restricted to valley bottom land and the adjacent slopes. The northeastern area, situated on the western bank of the lower Mahaveli Ganga is, in general, less undulating and the forest cover is somewhat denser.

Soils

3.05 A soil survey of these areas carried out by the Land Utili- zation division of the Irrigation Department, is comprehensive and the soil types and series have been defined. There appears to be no problem of salinity or alkalinity. A land classification is necessary to determine the optimum cropping pattern and appropriate land utilization in the area.

Population, Land Tenure and Communications

3.o6 According to the 1963 census, the population in these areas is largely rural (80%). This is made up of tenant and owner-cultivators, the former are protected under the Paddy Land Act of 1958 and the latter under the Land Development Ordinance of 1935 and subsequent amendments, which provide for the systematic development and alienation of crown I/ land. Both laws give the farmer adequate security of tenure and guard against fragmentation of holdings. They also provide for the payment of water charges, if holdings are provided with irrigation facilities (Annex 1).

Crop Production

3.07 Cropping intensity presently varies from 130% to 180%. Dis- counting weather conditions, yields have tended to rise steadily in the past decade, but particularly in the last three years. The standard of rice cultivation has been improving (though certain inefficient methods,

1/ Which comprises the majority of land available for development. - 6 -

such as broadcasting seed, are still practiced). The advent of tractors has had a positive influence on the timing of planting. Improved rice varieties are produced locally and are in general use, though it is estimated that present yields could be doubled under ideal conditions. The major constraint to the continued rise in productivity is the inadequate irrigation supplies for the Maha crop in years when the rains are late or partially fail and the shortage of irrigation water to permit full cropping in the Yala season (Annex 1).

Water Resources

3.08 The existing irrigated lands in the project area receive their water requirements from rainfall and storage tanks.

3.09 The monthly distribution of rainfall is erratic with heavy concentration in the few months of the Maha and little or no rainfall in some months of the Yala season. The effective rainfall in both seasons is insufficient for the growth of paddy.

3.10 Canal supplies from storage tanks are often insufficient to meet crop requirements. The run-off from local catchments is so low in dry years that the tanks are not filled to capacity. The trans-basin diversion from the Amban Ganga has improved the Maha supplies to the northeastern area, but it is still insufficient in the Yala season, while the northwest area suffers in both seasons from want of adequate water. Unless new sources of water are tapped, the existing irrigated lands would continue to suffer, and with the proposed development of new areas, it is even more essential. The only available source is the Mahaweli Ganga, the largest river in Ceylon. The water resources in the project area are discussed further in Annex 2.

Irrigation

3.11 The irrigated land in the northwestern area is served by two systems of irrigation in the Kala Oya basin. Major irrigation schemes are maintained and operated by the Irrigation Department, and minor schemes are built and operated by farmers. A link canal is nearing completion connecting the Kalawewa-Yoda Ela Canal with the Nachchaduwa tank near Anuradhapura (Map I). In order to improve the water supply to the Kala- wewa system, a new trans-basin diversion canal from the Nalanda reservoir was recently constructed to divert 40,000 ac-ft annually from Nalanda Oya, a tributary of the Amban Ganga.

3.12 The existing irrigation system suffers from an inadequate water supply, lack of control devices, insufficient irrigation network and inadequate drainage. Maintenance of the irrigation facilities is rather poor. Minor village tank schemes are unable to efficiently irrigate the areas they are designed to serve. Most of the irrigated lands in the northwest area are at present under paddy cultivation. There is no assurance of a continuous supply to the area. - 7 -

3.13 The existing irrigated lands in the northeastern area are supplied in various ways. Area G is served directly from the Elahera-Minneri canal while area Dl receives its supplies from four major tanks, which are augmen- ted by the Elahera-Minneri-Kantalai canal. The irrigated land in area D2 is supplied by the Parakrama Samudra tank.

3.141 The drawbacks to the irrigation systems described for the Kala Oya basin are equally applicable to the northeastern area except that the water supply is relatively more assured because of the perennial flows in the Amban Ganga. The maintenance of the Elahera-Minneri-Kantalai canal, especially below the Minneriya tank, is very poor and the system suffers from the additional disadvantage of widely spaced field canals which cannot be maintained effectively.

3.15 Compared to the irrigated area of land in the Kala Oya basin, the lands under the Elahera and Polannaruwa systems receive adequate supplies in the Maha season because of the more reliable source of water from the Am- ban Ganga. However, in the Yala season, the whole area has been irrigated only in seven out of 14 years; in one year there was no irrigation and the remaining six years about 80% of the lands were irrigated. Most of the irrigated lands are under paddy.

Supporting Agricultural Services

3.16 The supporting services available to the farmer, namely, agricultural research, extension, agronomic services, land development and cooperatives etc. are generally adequate for the present level of production, but would require to be intensified for the level of husbandry and production projected (Annex 1).

Transport and Processing Facilities

3.17 Transport facilities within the project area are adequate to handle the immediate increase in output. Road, rail and air communications with the main consuming centers in Ceylon are adequate. Additional farm- to-market roads would be needed in connection with land to be developed in subsequent stages. The consultants, provided for in the project, would study the need for additional farm-to-market roads and prepare cost estimates.

3.18 The rice milling capacity of Ceylon is adequate for the increase in production. The quality of processing leaves much to be desired. In the long term, new rice mills would be required. - 8 -

IV. THE PROJECT

General Description

4.01 The project, which would be implemented over a five year period, is Stage I of the first scheme in the Mahaweli Ganga Development Program. It includes:

(a) improved water supply to 126,700 ac of existing irrigated land of which 56,200 ac is in the northwestern area and 70,500 ac in the northeast;

(b) installation of 40 MW of hydro- power generating capacity;

(d) provision for investigation and other work necessary for on-farm development of existing and new land in the northwestern sector in a subsequent stage;

(e) as explained below, the project would also provide for additional water to enable the development of 104,500 ac of new land under irrigation in subsequent stages of the scheme.

Subsequent Phase of Development

4.02 The irrigation facilities to be constructed in Stage I of the first scheme would be adequate not only to meet the full water requirements of the project area, but those to be subsequently developed under the scheme in Stages II and III. Diversion dams, tunnels and main canals must be constructed in the initial stage, although they would not be fully utilized until the completion of Stage III. It would be neither technically feasible nor economically sound to split the work and construct them in stages. The civil works are designed to meet the estimated gross annual water requirements of the 231,000 ac to be irrigated on full development of all 3 stages. The table below indicates the total area for which the main water supply facilities are constructed, the areas benefiting from this supply and the on-farm development proposed under different stages of the Scheme. -9-

STAGE Main Water Supply Area Benefiting From On-farm Facilities For Water Supply Facilities Development

Existing New Land Land Total ------'000 Acres… ------

Stage I 231 127 - 127 4

Stage II - - 57 57 113

Stage III - - 47 47 114

TOTAL 231 127 104 231 231

Proposed Works

4.03 The works and facilities to be provided in Stage I consist of:

(a) Construction

1. Construction of the Polgolla complex consisting of a low diversion dam on the Mahaweli Ganga at Polgolla, a 5 mile long diversion tunnel and a 40 MW hydro-electric plant;

2. Construction of training works and channel improvements on the Dhun Oya and Sudu Ganga;

3. Construction of the Bowatenna complex consisting of a high diversion dam on the Am- ban Ganga at Bowatenna, a tunnel 5 miles long and a 5 mile long canal to feed the Kalawewa and Kandalama tanks;

4. Remodelling of the existing Elahera weir and the 38 mile long Elahera-Minneri-Kantalai canal to carry 1,500 cusecs;

5. The redesigning of the irrigation system, the construction of drainage systems, land levelling and sub-soiling on 4,000 ac planted to sugarcane in the northeastern area.

(b) Investigations

1. Investigations of the northwestern area for development of 113,100 acres in Stage II which include aerial surveys, land classification, planning for irrigation and drainage works, determining land clearance and - 10 -

development costs, cropping patterns, water requirements and development of cost estimates and preparation of a feasibility report.

2. Determination of optimum farm size bearing in mind the present proposal of 5 ac of irrigated land per farm and the possible limitations of crop rotations and labor requirements.

3. Study of the merits of settling the farmer on his land or in a village away from his farm.

1. Provision of office and housing facilities for maintenance and operation staff.

2. Provision of equipment and plant for maintenance and operation of Stage I works.

(d) Agriculture Service Facilities

1. Provision of transport, visual aid and demonstration equipment as well as equipment for agricultural land development.

2. Provision of additional facilities at the Maha Illuppalama Agricultural Research Station to support the work on investigations and studies.

A detailed description of the works is presented in Annex 3 (also see Map II).

Construction Schedule

4.04 The project would be completed in five years. The Polgolla complex, which includes the installation of the hydro-electric plant, is the major item of construction. The most critical construction operation of the project is the 5 mile tunnel which would take 3 years. The Bowatenna complex, the relatively simple Sudu Ganga training works and the remodelling of the Elahara weir and canal would be so scheduled as to be completed in time to utilize the water supplies as they become available from Polgolla.

4.05 It would also be necessary to carry out on-farm development of 4,000 ac of sugarcane over four years, involving land levelling, sub-soiling, redesign of the irrigation system, and the constrcution of a drainage system, to fully utilize the additional water supplies. - 11 -

4.o6 Investigations in the northwestern area would be completed in two years to enable a start to be made when work on the project is nearing completion, thereby ensuring maximum utilization of technical staff and man- power. The schedule for the project is at Annex 4.

The Power Plant

4.07 The Polgolla hydro-electric plant with an installed capacity of 40 MW, would be an integral part of the Polgolla complex. It would be a run-of-river plant with little storage capacity to regulate the river flows at the diversion point. If it were to operate as an isolated plant, the amount of firm or continuous power would be less than 10 MW in an average water year and, in a dry year, would be almost zero. However, Polgolla would be an integral part of the national power system (Map III) and must be evaluated as such. The operation of the power plants (most with major storage features) in other watersheds with differing regimes, and the thermal capacity at Colombo can be coordinated with Polgolla to develop maximum contribution to the system. It has been demonstrated by computer studies based on simulation models taking into account these factors that Polgolla's dependable peaking capability is 20 MW.

4.08 On completion, the power assets would be transferred to the Ceylon Electricity Board. This Board and its predecessor, the Department of Gov- ernment Electrical Undertakings were appraised in connection with the Mas- keliya Oya project (636-CE). The pover plant would be interconnected with the Board's system at Iriyagama switching station, which is located a short distance from Polgolla.

Water Supply

4.09 The project works would control the surface water supply from three natural sources, namely: runoff from local streams feeding the existing tanks, and the flows in the Mahaweli Ganga and the Amban Ganga rivers. These sources would be operated as an integrated water supply system to meet the total 1.7 M ac-ft. of yearly irrigation demands when fully developed.

4.10 The runoff from local streams into the tanks would contribute only 0.55 M ac-ft. (32%) to the total demands. Other requirements would be met from the Mahaweli Ganga river through the Polgolla tunnel release, and the Amban Ganga river. The long-term discharge data of the rivers covering a 20-year period (1944-1964) indicate that the total yearly available flow during the irrigation season is more than the demands in 16 years out of 20. In the remaining four years, a shortage of less than 30%, which can be tolerated and has been taken into consideration in evaluating the benefits of the project.

4.11 After analyzing the effect of several alternate sizes of tunnel at Polgolla and Bowatenna, the Elahera Canal and storage capacities of the tanks in the project areas, with a view to meeting the gross annual vater requirements of 1.7 million acre feet, the Bank found that a 2500 cusecs - 12 -

tunnel may be required at Polgolla, a 1500 cusecs tunnel at Bovatenna, and 1500 cusecs canal at Elahera. These capacities are larger than those originally proposed by the Government. Cost estimates have been prepared assuming the above capacities which the Bank feels will be verified in studies that are being undertaken by the Government of Ceylon. Should the cost estimates made during the period of the study exceed those already provided for, any excess is likely to be minor and could be met from the allowance for contingencies.

4.12 According to system operation studies conducted by the Bank, full irrigation requirements would be met in 16 out of 20 years, with shortages of less than 30%, which can easily be tolerated, in the remaining four years. The adequacy of the water supply, irrigation requirements and the quality of water are discussed further in Annex 5.

Status of Engineering

4.13 The Government of Ceylon has retained the services of Engineering Consultants Inc. (ECI) of Denver, Colorado, USA to prepare the designs, cost estimates and contract documents for all engineering works. Acceptable designs, cost estimates and contract documents are available for the Polgolla complex and the on-farm development of 4,000 ac of sugarcane. Acceptable designs and estimates are available for the Bowatenna complex and other works. These consultants will supervise all construction work done by contract and force account.

4.14 Sufficient data are not available to establish reliable estimates of the irrigation areas in the northwestern area of the project as well as costs of development and potential benefits. The above consultants will carry out the necessary studies, investigations and prepare cost estimates to enable the on-farm development in Stage II, of 56,200 ac of land under cultivation in the northwestern area and the development and settlement of 56,900 ac of land, mainly under forest. The study is expected to take two years and interim and final feasibility reports would be prepared.

4.15 A list of consultants services to be used on the project is in Annex 6. Consultants, acceptable to the Bank Group, have been employed since August 1969. The Bank Group approved their terms of reference and contract.

Cost Estimates

4.16 The cost estimates of the civil works were prepared from detailed designs, quantity estimates and unit prices developed by the consultants in Ceylon which were considered adequate.

4.17 The project is estimated to cost Re 280 million (US$ 47.0 million equivalent) of vhich the foreign exchange component would be Rs 155.0 million (US$ 26.0 million equivalent), exclusive of interest during construction and commitment charges. It is expected that the major works at Polgolla and - 13 -

Bovatenna would be undertaken by foreign contractors, as local contractors do not have experience in tunnel construction. The foreign exchange costs have therefore been based on the use of foreign contractors for the major works, and include the estimated foreign exchange cost of imported components, and of other materials purchased locally.

4.18 Provisions for engineering and administration amount to 10% of the construction cost of major works, which would be contracted on the basis of international competitive bidding and 15% for all work carried out on force account. An overall contingency provision of 20% has been included; 15% for unforseen expenditures and 5% for price escalation. The cost estimates for equipment and transport (Annex 7) are based on recent price quo- tations in Ceylon and would be subject to international competitive bidding. The detailed estimates (Annex 8) are summarized hereafter: - 14 -

COST ESTIMATES

Million Rupees US$ Million Equivalent Local Foreign Total Local Foreign Total

1. Polgolla Complex 43.9 65.5 109.4 7.4 11.0 18.42/ 2. Bowatenna Complex 30.9 27.7 58.6 5.2 4.6 9.8 3. Sudu Ganga Training Works 5.7 5.2 10.9 0.9 0.9 1.8 4. Elahera Weir & Canal 5.1 1.9 7.0 0.9 0.3 1.2 5. Buildings and Camps 3.1 1.3 4.4 0.5 0.2 0.7 6. Agricultural Land Development 0.3 0.4 0.7 0.1 0.1 0.2 7. Investigations & Extension 2.3 1.0 3.3 0.4 0.2 o.6

8. Equipment & Vehicles - 11.5 11.5 - 1.9 1.9

Sub-Total 91.3 114.5 205.8 15.4 19.2 34.6

9. Engineering & Consultant Services

(a) Consultant services 6.o 13.4 19.4 l.o 2.2 3.2 (b) Engineering & Overheads 6.5 1.5 8.0 1.1 0.3 1.4

Sub-Total 12.5 14.9 27.4 2.1 2.5 4.6

10. Contingencies

Physical 15% 15.8 19.2 35.0 2.6 3.2 5.8 Price Increases 5% 5.3 6.4 11.7 0.9 1.1 2.0

Sub-Total 21.1 25.6 46.7 3.5 4.3 7.8

Total 124.9 155.0 279.9 21.0 26.0 47.0

11. Interest & Commitment

Charges during construction 3/ - 17.6 17.6 - 3.0 3.0

Grand Total: 124.9 172.6 297.5 21.0 29.0 50.0

1/ Discrepancies are due to rounding. 2/ Including cost of power facilities. 3/ Interest at 7% on Bank Loan and 3/4 :of 1% commitment charge on the undisbursed portion of the Bank Loan. - 15 -

Financing 4.19 The Bank Group would finance the foreign exchange component of US$ 29.0 million (Rs 172.6 million), which is 58% of the project cost. Of this amount, US$ 14.5 million (RS 86.3 million) would be an IDA Credit. The remaining US$ 14.5 million (Rs 86.3 million) would be a Bank Loan, including interest during construction and commitment charge on the undisbursed portion of the loan. Repayment of the Bank Loan would be over 30 years, including a grace period of six years. 4.20 US$ 15.7 million (Rs 93.4 million) of the cost would be allocated to power; the foreign currency component of this allocation would be US$ 9.4 million (Rs 55.7 million) (Annex 9). 1/ On completion of the power plant the power assets would be transferred to the Ceylon Electricity Board on terms and conditions acceptable to the Bank Group and the Board. An assurance on this point was obtained during negotiations. 4.21 The Ceylon Government would meet the rupee costs of the project through annual budget allocations and has already contributed the equivalent of approximately US$ 2.0 million as its share of the cost of project preparation. 4.22 The approximate project expenditure schedule, including disbursement of the proposed Bank Group financing, is shown below:

EXPENDITURE SCHEDULE 1/

Millions of Rupees 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 TOTAL Government of Ceylon 5.2 13.0 26.3 36.4 34.4 9.6 124.9 IDA Credit 8.7 23.1 41.8 12.7 - - 86.3 Bank Loan 2/ 0.2 0.8 0.8 29.3 41.4 13.8 86.3 Total: 14.1 36.9 68.9 78.4 75.8 23.4 297.5 (US$ million equivalent) 3/ 2.4 6.2 11.6 13.2 12.7 3.9 50.0 Withdrawals from the Bank Loan account would be made only after the proceeds of the IDA Credit would have been fully withdrawn or committed save for interest and commitment charges during construction which would be met out of the Bank Loan.

1/ The conversion to dollar equivalent is made at the official exchange rate of US$ 1 equal to Ceylon Rupees (Rs) 5.95. 2/ Including interest and commitment charges on the Bank Loan during construction. Commitment charges, in 1969/70 are only for 3 months. 3/ Discrepancies due to rounding.

1/ The cost of works to be allocated to power is approximately US$ 15.7 million (Rs 93.4 million) of which US$ 9.4 million (Rs 55.7 million) is foreign exchange plus US$ 0.9 million (Rs 6.3 million) interest and commitment charges on the Bank Loan during construction. - 16 -

Procurement

4.23 All civil engineering works of Polgolla and Bowatenna and all procurement contracts for power plant, electrical and mechanical works, vehicles and equipment would be contracted on the basis of international competitive bidding in accordance with Bank Group's normal procedures. A 15% preference would be given to local manufacturers. This is expected to apply only to certain types of vehicles. The remaining works on Sudu Ganga and Elahera, which are too small and widely spread to attract international competitive bidding, would be carried out under the supervision of the Board either on force account or by the Irrigation and Agricultural Departments or by local contractors or other organizations in accordance with procedures satisfactory to the Bank Group. Buildings and Camps, agricultural land development, investigations and extension works would be carried out by either government agencies or local contracts.

Disbursement

4.24 About US$ 9.6 million equivalent of the proposed loan and credit would cover the cif cost of imported electrical and mechanical equipment for the Polgolla and Bowatenna complexes; construction and workshop equipment for supervision; vehicles and equipment for agricultural land development, investigation and extension; other supplies, materials and equipment required for the project; and the foreign exchange cost of consultant's services. Disbursement of the above costs would be against full documenta- tion. Disbursements under contract for major civil engineering works of the Polgolla and Bowatenna complexes would be made on a percentage basis to cover the estimated foreign exchange components of these works, which total about US$ 24.9 million equivalent of which about US$ 12.7 million, or 50%, would be covered by disbursements from the loan and credit. Disburse- ments for minor civil engineering works on the Sudu Ganga, the Elahera weir and canal, buildings and camps, agricultural land development, investigations and extension would be made on a percentage basis to cover the estimated foreign exchange components of these works. These minor works total about US$ 4.7 million equivalent of which about US$ 1.7 million, or 37%, would be disbursed from the loan and credit. Supervising consultants would be responsible for certifying all the above expenditures. About US$ 3.0 million of the proposed loan would cover interest and commitment charges. Savings in any category under the allocation of proceeds would be made available for overruns in any other category; any surplus remaining would be cancelled. - 17 -

V. ORGANIZATION AND MANAGEMENT

Project Management and Coordination

5.01 The Mahaweli Development Board would be created by legislation and be responsible to the Minister of Land, Irrigation and Power and the Project would be coordinated at the Ministerial level by the Cabinet Plan- ning Sub-committee. The draft legislation was commented on and agreed to by the Bank prior to it being sent to the legislature.

5.02 The Board would comprise three appointed voting members, of whom one would be the chairman; four ex-officio voting members, representing the ministries concerned, namely Land, Irrigation and Power, Agriculture and Food, Finance and Planning, and two ex-officio non-voting members representing the Departments of Irrigation and Agriculture and a voting representative of the Ceylon Electricity Board. Close liaison would be obtained with the ministries concerned through their representatives on the Board who would be of the rank of permanent secretary.

5.03 The Board would be responsible for promoting, operating and coordinating irrigation, drainage, land, agricultural and economic development in the declared special areas. This would include but be not limited to planning, programming, progress control, coordinating the project, procurement, budget, finance, and accounting. It would be financed by regular subventions from the annual government budget. It would make its own rules and regulations, recruit its own staff and determine their emoluments.

5.o4 The chief executive of the Board, who would be directly responsible to the Chairman, would be the general manager. He would be assisted by two deputies, one of whom would be an experienced irrigation engineer, and the other an experienced agriculturist. These in turn would be assisted by professional and technical staff, as well as supporting accounting and clerical staff at headquarters. The headquarters staff, which would be small, would be hired directly or seconded from the Government service. The work of the Board would be carried out by divisions, specially created, in the Irrigation, Agricultural and other related departments, to exclusively deal with the Mahaweli project. To ensure coordination at the field level, "special project" units would be established (paragraDh 5.16). The organization chart is at Annex 10.

5.05 The following steps with respect to organization and management would be conditions of effectiveness:

(i) the enactment and coming into force of legislation acceptable to the Bank, establishing the Board and defining its powers; (ii) notification by the responsible Minister that the establishment of the Board, the appointments of its chairman and members shall have been published in the Ceylon Government Gazette; - 18 -

(iii) the publication in the Ceylon Government Gazette of the Minister's order declaring the project area to be a "special area" under the jurisdiction of the Board;

(iv) the setting up of an organization structure for the Board, acceptable to the Bank, and the filling of senior positions on the Board's staff; and

(v) the appointment of the general manager and deputy general managers satisfactory to the Bank Group.

5.o6 To ensure effective coordination, meetings of the cabinet sub- committee should be held twice a year, with the Board meeting at least once a month, and more frequently, if the need arises, particularly during the construction period.

Operation and Maintenance

5.07 Operation and maintenance procedures, as established by the Board, would be devised to meet the respective needs of irrigation and power to the extent possible. Based on an operation study, a diversion schedule would be established in advance for each year. The criteria would be reviewed and revised from time to time to reflect operating conditions.

5.08 On completion of a suitable level of development in the basin, the Board would give consideration to handing over the administration, operation and maintenance of the project area and the facilities to suitable regular government agencies, such as the Departments of Irrigation and Agriculture.

5.09 It is important that the effect of the additional supplies of water on soil conditions and crop production be monitored; this information will be of considerable value for future land development. An assurance was obtained during negotiations that the monitoring of the effect of additional water supplies on soil conditions and crop production would be carried out for ten years.

5.10 The standard of maintenance of the tanks and canal systems needs considerable improvement and the existing field organization would need to be strengthened with staff and funds to effectively use the maintenance equipment to be provided. An assurance to this effect was obtained during negotiations.

5.11 The annual cost of operating and maintaining the project on completion of construction has been estimated at Rs 2.2 million (US$ 0.3 million). Of this amount, Rs 0.8 million (US$ 0.1 million) would be for the operation and maintenance of the portion of the Polgolla complex allocated to electric power. The remainder, Rs 1.4 million (US$ 0.2 million) would constitute the annual costs for irrigation. These costs would average Rs 11 per acre of cultivated land which is a reasonable cost. - 19 -

Recovery of Costs

5.12 Farmers are presently assessed an annual water charge of Rs 5 per acre. The rate of collection is extremely low, save in areas where water supplies and supporting agricultural 3ervices are more certain.

5.13 Assurances were obtained during negotiations that water charges in the project areas would be raised to cover in full the estimated costs of operation and maintenance as well as a reasonable portion of the capital invested. Pending further study, provided for in the project, it is proposed to increase the annual water charge to not less than Rs 40 per acre of cultivated land when additional water becomes available, of which Rs. 29 per ac would contribute to the recovery of the investment. 1/ This increase of Rs 35 per acre amounts to only 12% of the increased net income of a 1 acre holding (see para 6.08). Full recovery of capital, with interest at 7% per annum for 50 years, together with the costs of operation and maintenance would require water charges of Rs 113 per acre per annum. An assurance was obtained also that a comprehensive water charge study would be undertaken and completed within three years, with the assistance of consultants. This study would determine a suitable schedule for the introduction of water charges for the project having due regard to farmers' incentives and capacities to pay. On completion of the study, the Borrower and the Bank Group would consult and agree on a schedule of charges to be introduced when the project becomes operative, such annual changes to be not less than Rs 40 per acre of cultivated land. Given the small size of holdings in the project area, it is doubtful that farmers would, at present, be able to pay any charges substantially higher than Rs 40 per acre of cultivated land. The direct revenue, including land tax, presently levied and future levies, on completion of the project, would be as follows:

Direct Revenue Without With Increase - - - Rs per ac ------

Water charges 5 40 35

Land Tax 20 20

TOTAL: 25 60 35

Operating and Maintenance Costs Negligible 11 11

Operating Surplus 25 492/ 24

1/ Over 50-year period this would be equal to 18% of capital investment with interest at 7% per annum or 66% of the capital invested without interest. 2/ This would represent recovery of capital invested with interest of about per annum. - 20 -

Supporting Agricultural Services and Credit

5.14 Obtaining full benefits from the project will depend upon improved husbandry practices and the use of recommended inputs and improved varieties. The extension services in the project area would have to be intensified and credit needs would have to be studied.

5.15 Channels for providing inputs, namely cooperatives, depots of the Agrarian Services and private sector organizations, are adequate. Short-term credit facilities extending from the People's Bank through cooperative societies and Rural Banks (branches of the People's Bank), are adequate under present conditions, but may not be adequate to meet the requirements that may develop with increased water supplies. The extent of the credit needs associated with higher levels of productivity is not known. Assurances were obtained during negotiations that the Government would make arrangements, acceptable to the Bank Group, to carry out a study of the need for short, medium and long term credit of farms in the project areas, and that arrangements would be made to make such credit available through adequate channels.

5.16 Following the acceptance of recommendations of an FAO/IBRD Coopera- tive Programme Mission to Ceylon in 1966, the Government set up a pilot organization (the Elahera Special Project) in an area to be developed in Stage III, to improve the coordination of intensified extension services. This "Special Project" technique involves the appointment of a resident manager who is responsible for coordinating and directing the activities of resident staff from all agencies operating in a defined area. The results were sufficiently encouraging that the technique was subsequently extended to nine additional settlement schemes. The Government has indicated its intention to apply this technique to the project areas; this is essential if forecasted yields 'are to be realized. Assurances were obtained during negotiations that the Government would establish special project units by June 30, 1972 throughout the project areas which would be staffed by a resident manager who would coordinate and direct the activities of resident staff of all extension agencies, operating in each unit.

5.17 Most applied research for the project area would be carried out by the Maha Illuppalama Agricultural Research Station, which was established in 1946, in the northwestern area. The station is generally well equipped and staffed for its essential tasks. However, there is a need to expand the irrigation facilities of the station, to intensify work on crop rotations, with and without livestock, and expand the staff and financial resources of the agricultural engineering division. Assurances were obtained during negotiations that this station would be provided with the necessary additional staff, equipment and financial resources to enable it to meet the research needs of the project.

5.18 A sugar research station is under construction on the sugar estate. Priority should be given to the completion of this station. Prior to the availability of water from the Mahaweli Ganga, it would be necessary, for test purposes, to make available water from present supplies throughout the year to enable some 200 ac of sugarcane to be fully irrigated every 10 - - 21 -

14 days with a minimum application of 2 inches of water per ac. An assurance was obtained during negotiations that sufficient irrigation water would be released from the Kantalai tank to the sugar estate to enable, at intervals and in quantities to be determined by the sugar estate, adequate irrigation of 200 ac of sugarcane throughout the year.

Auditing of Accounts

5.19 Separate accounts for the project would be maintained by the Board. An annual audit of these accounts by the Auditor-General's Department, which is responsible to Parliament, would be satisfactory. Assurances were obtained that:

a) separate accounts for the project would be established and maintained in a manner acceptable to the Bank Group;

b) the accounts would be audited annually by the Auditor- General's Department; and

c) copies of the audit report would be submitted to the Bank Group within four months of the completion of each financial year.

VI. PRODUCTION, MARKET PROSPECTS, PRICES, AND FARM INCOME

Production

6.01 The project would, at full development, lead to an expansion of cropped area under rice and increase the average yields of rice and sugar cane over levels currently obtained in the project area with partial irrigation. The cropped area, yields and production increases expected to result from the project are shown below:

Crop Cropped Area Yields Production

,Without With Without With Without With 'Projectect Pro Ject Project Project Project Increase

'000 acres -- -- m tons/acre --- -- '000 m ton --

Rice

Maha Crop 119.89 122.70 0.70 0.91 83.9 111.7 33% Yala Crop 72.87 111.46 o.63 0.91 45.9 101.4 121%

TOTAL 192.76 234.16 o.67 0.91 129.8 213.1 64%

Sugar 4.00 4.00 1.00 3.60 4.10 14.20 246% - 22 -

The "without project" estimate assumes all yield increases which could occur without the project. The "with project" estimate assumes, con- servatively, that rice will continue to be grown throughout the,project area, except for 4,000 acres now under sugarcane. Although some successful demonstrations have been carried out in the growing of chillies and onions, crop diversification of major significance is not expected for some years since more widespread demonstrations of the use of crops other than rice are needed for farmers to gain the skills and techniques required for such production.

Market Prospects

6.02 The rice and sugar production resulting from the project is des- tined for domestic consumption. Market prospects for them appear promising. (See Annex 11).

6.03 Ceylon's domestic requirement for rice in 1968 was estimated at 1.2 million tons. About 1/3 of this requirement was met through imports. By 1977, when the project works are fully completed, the country's annual rice requirement is projected to rise to about 1.7 million tons. The present momentum in rice production (para. 2.05) and the relatively low level of current yields, as compared to what is possible with existing technology, suggest that Ceylon may approach self-sufficiency in rice. With the combined impact on rice production of technical innovation, economic incentives and the increase in paddy area by new projects, it should be possible for Ceylon to reduce substantially, if not eliminate, its need for rice imports by 1977. The increased output of 83,000 m tons of rice from this project, equivalent to only about 25% of the country's rice imports and 7% of the country's consumption in 1968, would be easily absorbed.

6.o4 The 10,000 tons of additional sugar resulting from the project, which constitutes less than 5% of current imports, should be easily absorbed in the market. In addition, Ceylon's annual demand for sugar is projected to rise from 230,000 tons in 1968 to 377,000 tons in 1977.

Prices

6.05 For valuation of the rice output of the project, a farm gate price of US$100 (equivalent to Rs 923 - when the dollar is converted at the higher effective exchange rate 1/ now prevailing in Ceylon) per metric ton has been used in this report. This would be equivalent to pricing a bushel of paddy at Rs 12.8 instead of the official price of Rs 14.0 paid under the Government Guaranteed Price Scheme. Current world export prices range from about US$150 for Burmese rice (SMS 42% broken Rangoon) to US$180

1/ Currently two effective exchange rates exist in Ceylon: the "official" exchange rate of US$ 1 Rs 5.95 and the foreign exchange entitlement certificate premium of 55% which gives an effective exchange rate of Rs 9.23 US$ 1. The latter rate has been used as an exchange rate. It already covers about 50% of Ceylon's payment transaction. - 23 - per m ton of Thai rice (5% broken Bangkok). A reasonable long-term world average price, in terms of Burmese (42% broken) rice, would be about US$95 - 100 per m ton fob Rangoon. The valuation of the project's output of milled rice at US$100 per m ton is based on the projections 1/ for Burmese rice adjusted for quality, transportation, and other charges. The price used in this report for valuation of rice is about 9% below the prevailing official rice price. 6.o6 The white sugar (ex-factory) has been valued at US$0.05 per lb or US$110.20 per m ton. The value of sugar produced in the project would thus be equivalent to Rs 1,017 per m ton when converted at the higher effective exchange rate 2/. The value, of the by-products (molasses, alcohol, and bagasse), which is substantial in Ceylon, is disregarded assuming that it offsets the cost of sugar processing 1/. Gross Value of Production

6.07 Given the acreage, yield, production and price assumptions cited earlier, the annual gross production value of the project area is expected to increase from the present level of Rs 124.9 M (US$ 13.5 M equivalent) to Rs 210.5 M (US$ 22.8 M equivalent) at full development which should be obtained within eight years of the commencement of the project. Farm Income 6.08 The potential benefits obtainable under the project, at full development would provide considerable incentive for farmers to participate in it. The projected net income (after charges) from cultivating a 1 acre holding would be expected to rise as follows: Average Annual Farm Incomes Per Acre of Paddy With and Without Project (Rs per cultivated acre) Without With Increase %Increase Project Project Gross Production Value 990 1,595 605 62 Production Costs 660 980 320 48 Income before taxes and water charges 330 615 285 86 Land Tax 20 20 0 0 Water Charges 5 40 35 700 Income after taxes and water charges 555 2 82

1/ See Annex 11 for details.

2/ Currently two effective exchange rates exist in Ceylon: the "official" exchange rate of US$ 1 = Rs 5.95 and the foreign exchange entitlement certificate premium of 55% which gives an effective exchange rate of Rs 9.23 = US$ 1. The-latter rate has been used as an exchange rate. It already covers about 50% of Ceylon's payment transaction. - 24 -

VII. POWER

Polgolla's Contribution to the System

7.01 Hydrological studies carried out by consultants indicate that, when integrated into the system, Polgolla's contribution in an average water year, would be 20 MW of continuous power, equivalent to 175 GWH of firm energy per annum. Secondary energy availability would amount to 45 GWH. Except at times of very low flow, when it may be appropriate to utilize the small storage capacity of the Polgolla pond to enable Polgolla to 'peak' the pover facilities would be used to the maximum extent possible.

7.02 The Polgolla plant would fill an anticipated gap in the supply of electricity. The appraisal report for the Maskeliya Oya Stage II Hydroelectric project (PU-17 of July 10, 1969) deals in some detail with the electric power market in Ceylon. For the Electricity Board's system as a whole, based on various indices, the average annual rate of growth through the six fiscal years 1968-74 is estimated to be about 15%. However, growth will be higher in the first three or four years, due to the addition of large industrial loads; forecast growth during the last two years is only about 10%. This lower rate of growth has been assumed to continue after the commissioning of Polgolla. On this conservative basis, Polgolla would be fully utilized by 1976. Further new generating capacity would be required shortly thereafter. A 120 MW installation at Victoria Falls, another project in the proposed development of the Mahaweli Ganga, is scheduled to be commissioned in the late 1970's.

7.03 The table below indicates the estimated system capacity, energy requirements, and the manner in which energy production is likely to be allocated to the various generating facilities. The allocation assumes that Polgolla would be available at the beginning of 1974. - 25 -

1973 1974 1975 1976

System demand MW 251 276 305 336

Reserve requirement MW 45 45 45 45

Total capacity requirement MW 296 321 350 381

Capacity available MW 366 386 386 386

Energy sales GWH 1,081 1,190 1,310 1,440

Losses GWI 179 195 210 235

Energy requirements GWH 1,260 1,385 1,520 1,675

Production allocation GWH 1973 1974 1975 1976

Existing hydro 1,171 1,185 1,185 1,185

Grandpass steam 80 90 105 230

Grandpass G/T 9 10 10 40

Polgolla - 100 220 220

Total 1,260 1,385 1,520 1,675

Comparison with a thermal Alternative

7.o4 In the process of integrating a thermal station into the system, the station's characteristics must be recognized; thus a thermal alternative cannot be an exact replacement for a hydro station. As Ceylon has no proved sources of fossil fuels, and bearing in mind the characteristics of the other plants on the system, it is most likely that the best thermal alternative to Polgolla would be a 35 MW gas turbine unit, located in an extension to the Grandpass thermal station. This would burn imported-fuel and would be more flexible in operation than an additional conventional steam unit. It would cost about US$ 1501KW installed: this cost covering local civil works, import duty (20%) and other indirect 'costs.

7.05 The cost comparison of the two alternatives was made over an assumed 50-year! life f6r each alternative, on a present value, i.e. discounted cash' flow basis. The calculation of fuel costs was made at the premium exchange rate of Rs 9.23 = US$ 1.00 (para 6.05), resulting in a cost of fuel, exclusive of duty, of Rs 166 per ton. Average station heat rates, likely to be attained in operation (14,500 and 17,500 BTUs - 26 - per KWH for the steam and gas turbine installations respectively), were used. At this fuel cost, it was found that with a discount rate of less than 14% Polgolla represents the more economic choice.

7.o6. The cost of fuel used in the calculation, equivalent to about US$ 18 per ton, is fairly expensive. In the main, the high cost is due to the Board's inability to conclude a more favorable contract for oil supplies because of the small quantities used. If generation by thermal plant were to be developed on a larger scale, some reduction in oil prices should be possible. For example, the price of oil in Singapore is about US$ 12 per ton. But even at such a low price, which Ceylon isB not likely to command, Polgolla would still be more attractive at a discount rate of less than 11%.

Allocation of Costs to Power

7.07 Multipurpose projects present the problem of how to allocate joint investment costs between the two sectors, to provide figures for comparison with the benefits expected from these sectors. There is no unchallengable method of making the allocation, but the "Separable Costs Remaining Benefits" method followed in Annex 9 at least has the merit of relating the allocations to the minimum costs of obtaining the benefits flowing from the scheme, or their actual value, if this be less.

VIII. BENEFITS AND JUSTIFICATION

8.01 The major quantifiable benefit to be derived from the project would be the

(i) substantial increase of agricultural production (para. 6.01), and farm incomes (para. 6.08),

(ii) the generation of up to 40 MW of hydro-power from the Polgolla power station contributing to expanding Ceylon's firm generating capacity from 320 MW to 340 MW (para. 4.07).

These would result from augmenting irrigation supplies to enable farmers to increase their yields per acre and the installation of a hydro-electric power plant at Polgolla. Additional annual agricultural output resulting from the project would consist of 83,000 m tons of rice (equivalent to about one-quarter of the country's imports in 1968 and about 7% of the country's rice consumption) and about 10,000 m tons of sugar vhich accounts for about 5% of current imports. The project would make a substantial contribution towards closing Ceylon's rice deficit and help improve the balance of payment position through annual savings in rice and sugar imports estimated at about Rs 54 M (US$ 9 M equivalent).

8.02 At full development, the annual gross value of agricultural production of the project area is expected to reach about Rs. 210.5 M (US$22.81 M equivalent), nearly 70% higher than the present level. - 27 -

After deducting production costs, the net value of agricultural production would reach Rs 64.6 M (about US$7 M equivalent). Of this the incremental net value of production would be Rs. 29.0 M (US$3.15 M equivalent). This net production would represent a direct benefit to the economy of about Rs 26.1 M (US$2.83 M equivalent) annually after deduction of operation and maintenance costs.

8.03 The annual incremental net value of all benefits (including power 1/ which accounts for Rs 26.4 M) would be Rs 55.4 M (us$6.o M equivalent).

8.o4 In calculating the project's rate of return to the economy, the following assumptions were used:

(i) a useful life of the project of 50 years;

(ii) a price equivalent to

(a) US$100 per m ton for valuation of rice output of the project and

(b) US$0.05 per lb of sugar

(iii) an effective exchange rate of Rs 9.23 US$1 (See para. 6.05 and Annex 11),

(iv) cost of family labor equivalent to prevailing wage rates.

8.05 Using these assumptions, the rate of return to the economy would be about 12%, whereas the return on a single purpose project, constructed at Polgalla for irrigation only, would be about 9% and, similarly, a single purpose project for power only, would be about 11%. The estimated rate of return to the economy for all stages of development of the first scheme of the Mahaweli Ganga Development Program (para. 4.02) is 12%, and for agriculture separately is 11%. At the upper range of projected rice prices of

1/ Electric power output has been valued at the generating station. For the first two years of operation, the output from the project would be replacement energy. On this basis, it can be valued at Rs. 0.07 per kWh, equivalent to the cost of fuel per kWh for units generated in the Central Electricity Board's existing thermal station (at Rs. 9.23 = US$ 1.00). For subsequent years, energy has been valued at Rs. 0.12 per kWh, equivalent to the total cost per unit generated in a new thermal station. - 28 -

US$110 per m ton (approximately equal to prevailing Government purchase price when converted at this higher effective exchange rate) the rate of return to the econonm would be about 14%. To the extent that the opportunity cost of family labor is less than the allowed wage rate, these rates of return would be slightly higher. Assuming zero cost of family labor at the lower rice price, the return would also be about 14%. The project is economically justified both in terms of the return to the economy and its contribution to foreign exchange savings.

IX. RECOMMENDATIONS

9.01 During negotiations assurances were obtained that the Government would: (i) undertake studies to determine optimum capacity of tunnels for Polgolla and Bowatenna (para 4.11);

(ii) employ consultants, acceptable to the Bank Group (para 4.15);

(iii) on completion of the works at Polgolla, transfer the power assets to the Ceylon Electricity Board on terms and conditions acceptable to the Bank Group and the CEB (para 4.20);

(iv) monitor for 10 years, the effect of additional water supplies on soils and crop production (para 5.09);

(v) improve the standard of maintenance of tanks and canal systems and strengthen the existing field organization with staff, funds and equipment (para 5.10);

(vi) raise water charges to not less than Rs 40 per acre per annum to cover the estimated cost of operation and maintenance as well as recovery of a reasonable portion of the capital invested (para 5.13);

(vii) make a comprehensive study to determine an appropriate schedule of water charges to be levied on beneficiaries, to be completed within three years (para 5.13);

(viii) make arrangements for the study of credit availability and needs of farmers in the project areas (para 5.15);

(ix) establish special project units throughout the project areas, each staffed by a resident manager (para 5.16);

(x) expand the irrigation facilities to intensify work on crop rotations at the Maha Illuppalama Agriculture - 29 -

Research Station as well as provide additional staff, equipment and financial resources to meet the research needs of the project areas (para 5.17);

(xi) release sufficient water annually (from the Kantalai tank) to fully irrigate, for test purposes, 200 acres of sugarcane (para 5.18);

(xii.) ensure that the project accounts would be audited by the Auditor-General's Department (para 5.19).

9.02 Conditions of effectiveness of the loan and credit, would be:

(i) the enactment and coming into force of legislation acceptable to the Bank, establishing the Board and defining its powers (para 5.05);

(ii) notification by the responsible Minister that the establishment of the Board, the appointments of its chairman and members shall have been published in the Ceylon Government Gazette (para 5.05);

(iii) the publication in the Ceylon Government Gazette of the Minister's order declaring the project area to be a "special area" under the jurisdiction of the Board (para 5.05);

(iv) the setting up of an organization structure for the Board, acceptable-to the Bank, and the filling of senior positions on the Board's staff (para 5.05); and

(v) the appointment of the general manager and deputy general managers satisfactory to the Rank Group (para 5.05).

9.03 With the indicated assurances, the proposed project constitutes a suitable basis for a loan and credit of US$ 29 million. The Borrower would be the Government of Ceylon.

ANNEX 1 CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I

AGRICULTURE

Background

1. In 1968, the population of Ceylon was estimated at 12 million with an annual growth rate of 2.2%. The gross area of the island is 25,332 square miles. It is divided into distinct wet and dry zones, based on the amount and pattern of rainfall and demarcated by the 75 in mean annual isohyet.

2. The wet zone is situated in the south-west quadrant of the island and covers about 30% of the land area; it supports more than three-quarters of the population. Land use for agriculture in the wet zone is much larger than in the dry zone; about 82% of the cultivated land of Ceylon is situated in the wet zone. Thus, there is a comparative scarcity of land available for the development for food production in the wet zone and, relatively, an abundance of land for development in the dry zone. Any major expansion in the cultivated area has to take place in the less developed dry zone. An assured irrigation water supply is essential for this zone, if full use is to be made of presently cultivated land as well as new land.

3. Agriculture, whose growth has averaged 3.2% annually (1961-1968) compared with an overall growth of 4% for the economy,, is the dominant factor in the economy of the island and accounts for 36% of the gross domestic product, 90% of its foreign exchange earnings and provides employment for about 53% of the population. In 1968, 45% of the total value of imports was expended on food and of this expenditure, rice accounted for 36% and sugar for 10%. Over the past ten years, Ceylon's annual imports of rice have averaged about 500,000 m tons. During the last three years, as a result of increasing local production, rice imports have declined from 485,ooo m tons in 1966 to 375,000 m tons in 1967 and 3 43,000 m tons last year. Local sugar production is negligible. Imports of sugar are rising with the growth of population and some 225,000 m tons are presently imported. 4. The agricultural economy of Ceylon is divided between estate agriculture, producing plantation crops, mainly tea, rubber and coconuts and peasant produced food et al crops for domestic requirements. Estate agriculture has dominated the economy. The value of exports has declined somewhat in recent years., with tea accounting for about 62% of the value of the country's agricultural exports, rubber 16% and coconuts 10%. 5. In recent years, the Government's agricultural policy has been oriented towards increasing domestic agricultural production with a view to reducinS imports of rice in particular and subsidiary food crops. Consider- able success has been achieved in increasing rice production. The acreage planted and yields over tha period 1962 to 1965 were relatively constant but have increased steadily since 1966; the area planted in 1968 was 113% of the 1962 acreage&and yields were 122%. The increase in domestic supplies of rice has been refleoted in a decrease in imports from a peak in 1965 (a drought year) of 642,000 tons to 343,000 tons in 1968. There has also been a marked increase in the production of subsidiary food crops. ANNEX 1 Page 2

6. These increases in food production have been obtained by the use of production incentives such as a guaranteed price scheme, substantial subsidies for inputs of fertilizers, irrigation water, seeds and tractor services. Adequate production credits have been made available to farmers through Village Multipurpose Cooperative Societies; there are 44,500 of these in Ceylon. These Cooperatives not only provide the channel through which credit is made available to the farmer, but supply the physical inputs of fertilizer, agro-chemicals and, on behalf of the Agrarian Services, purchase the produce that the farmer wishes to sell to the Government under the Guar- anteed Price Scheme. At the end of the first quarter of 1968, 9,220 4- wheeled tractors were licensed in Ceylon of which there were 1,704, L418 and 456 respectively in Anuradhapura, Polonnaruwa and Trincomalee areas. There is no comparable record of the number-of 2-whaeled tractors in the country but it is considered that their numbers have increased considerably since their number was estimated at 1,500 in the Agricultural Development proposals for 1966-1970. Credit for 2-wheeled tractors is regarded as short-term and for 4-wheeled as medium-term. Steps have been taken to have inputs available in the farming areas at the right time. High yielding varieties have been made available and an intensive effort has been made by all agencies and the farmer to boost domestic production.

7. The increased production has been obtained mainly by increasing productivity per acre. Further increases can be expected to accrue with greater use of the recommended inputs; an average of 14 lb ac of nitrogen was used by rice farmers last year while the recommended rate of application is 45 lb ac. In the long term, if Ceylon is to become self-sufficient, it would be necessary to increase the area under rice.

8. In the dry zone, existing agricultural production is seriously hampered by a shortage of irrigation water with the result that full double cropping is impossible and even a single orop is occasionally jeopardized because of the failure of the rains and the consequential lack of water in the reservoirs. There are also considerable areas of undeveloped land suitable for rice and subsidiary food crops. For the development of such land to be economic and to obtain maximum produotion, irrigation must be provided. Moreover, the production of existing irrigated lands could be substantially increased in the dry zone, if an assured irrigation supply was available throughout the year. There is therefore some urgency in commencing irrigation projects in the dry zone, utilizing water available in the wet zone. Such water will be relatively expensive because of the distances involved and the storage requirements to ensure year round availability. The utilization of the Mahaweli Ganga water to develop new irrigated areas in the dry zone as well as to augment the supply to cultivated areas, in the long term, should go a long way towards meeting Ceylon's need for increased arable acreage to enable self-sufficiency in staple food stuffs. It would also provide power to be utilized by the national electricity undertaking.

Area

9. The gross land area and net cultivable acreage of the Project, Stages ANNEX 1 Page 3

I, II and III are as follows:

Gross Net Cultivable Acreage Total Commanded Cultivable Area Acreage Existing New Aareage

North-West

H 1h6,000 46,200 56,900 103,100 IH 10,000 10,000 - 10 000 Total 16000 5,00 5100

North-East

G 18,300 4,800 7,500 12,300 Dl 109,900 47,500 40,100 87,600 D2 18,200 18 200 - 18,200 Total 146l700 70540 118,1_00

Grand Total 302L400 126,700 104,500 231,200

10. All three stages of the project involve the on-farm development of existing cultivated land of 56,200 ac in areas H and IH and 52,300 ac in areas G and Dl together with the development under irrigation of 104,500 ac of new land, mainly under forest. The project does not envisage the on- farm development of the 18,200 ac in area D2 but only the augmenting of the irrigation supply to this area.

11. Stage I envisages the augmenting of the irrigation water supply to 126,700 ac of presently irrigated land in areas H, IH, G, Dl and D2 of which 122,700 ao is planted, mainly to rice and 41,000 ao is under sugarcane in area Dl.

Climate

12. Ceylon is a hot, tropical island influenced by the north-east and south-west monsoons which occur in the Maha (October to March) and the Yala (April to September) seasons, respectively. The catchment area of the Mahaweli Ganga, which will supply the bulk of additional irrigation water, is situated in the wet zone with an annual average rainfall, above the Pol- golla diversion dam., varying from 90 in to 200 in. The project area is situated in the dry zone; the north-western area has a mean annual rainfall of 56 in and the north-uastern area of 65 in of which 70% and 78% respectively fall during the Maha season, based on observations from six rain gauging stations in the project area extending over 50 years. Based on 30 ygars observations, mean maximum temperatures in the project area are 88 0 -89 F (31°- 320 C) and minimum temperatures 730 -77°F (23 0 -25°C). Relative humidity varies from 60% during the day in dry weather to 90% at night. The climate is suitable for rice and a wide range of tropical crops of all types. ANNEX 1 Page 4

Topogrgphy

13. The north-western area is situated in the Kala Oya valley where the relief is more undulating than in the north-eastern area. Irrigated land is presently restricted to valley bottom land and the adjacent slopes. About half of the area of the valley is covered by semi-deciduous forest 60 ft high. The north-eastern area, situated on the western bank of the lower Mahaweli Ganga is, in general, less undulating and the forest cover is somewhat denser. Gradients vary from slight to moderate on the slopes of the valleys while the valley bottom land is relatively flat. Topography under the command of the tanks and primary canals should offer no constraint but will probably involve additional construction of canals because of the undulating nature of the areas.

Soils

14. The dominant soils of the valley bottom are low-humic gleys; alluviums also occur on the flood plains. The former, slowly permeable soils are used for rice. With drainage, they could grow a limited range of crops in the dry season. The dominant soils in the remainder of the project are red-brown earths which are vell to moderately drained varying from sandy clay loams to silty clays and loams. Rice is grown on these soils and they are suitable for a wide range of tropical crops. The growth of crops on these soils is possible in the Naha rainy seaaon but, to ensure optimum yields, supplemental irrigation is required; crop production in the Yala dry season is dependent on irrigation.

15. The soil survey of the project areas carried out by the Land Uti- lization division of the Irrigation Department is comprehensive and the types and series have been defined. There appears to be no problem of salinity or alkalinity in the areas. Certain of the red-brown earths are affected by a relatively compacted gravel layer 30-40 in from the surface which will affect permeability and the btpe of tree crops that may be grown. A land classification is necessary to define the irrigable land classes and their distribution and extent.

Land Tenure

16. About 40% of the arable acreage of Ceylon is farmed by tenants. The Paddy Land Act of 1958 gave tenant rice cultivators the unalienable right to occupy and use paddy land they had been cultivating and to pass on this right to their heirs. It also restricted the rent that could be demanded by landlords. It provided for the formation of cultivation committees at the village level to plan and set the crop targets for paddy production and generally organize the cultivation of the crop.

17. The Land Development Ordinance of 1935 and subsequent amendments provide for the systematic development and alienation of crown land, which comprises the majority of land available for development. A cultivator first obtains a permit to clear and use a specified area of crown land at a ANNEX 1 Page 5

fixed annual rental of 2% of the unimproved value of the land. His right to use the land is guaranteed provided he fulfills the conditions on the permit as to residence, use to which the land is put, etc. He has the right to nomi- nate his successor but cannot sell his holding. Provision is made for him to pay an irrigation rate, if irrigation facilities are provided at any time. Provided the permit holder carried out the improvements and other conditions specified in the schedule of the permit to the satisfaction of the Government Agent of the District in which the land is contained, within the times specified, he will be entitled to receive a grant to the land. Following a Land Commission report, amendments are proposed to permit the grant holder to sell his grant provided that the sale is to another peasant farmer. It also proposes to permit the land to be mortgaged. The latter amendment is to facilitate the recovery of loans by Cooperatives. Recovery prooedure is through the courts and the ultimate penalty is eviction. In the event that no peasant buyer is available, Government is entitled to resume the land by paying off all debts. The land is purchased over 20-25 years at the unimproved value plus capital improvements such as the value of land clearing, house subsidies, etc. that the permit holder might have received.

18. These are the tenure patterns in the project area. They give the peasant farmer adequate security of tenure and guard against fragmentation of holdings.

Supporting Agricultural Services

19. The supporting servioes available to the farmer are generally adequate for the present level of production and, in recent years, have been largely responsible for the increased production of paddy. At the village level, the various services dealing with the ffrmer, such as agricultural extension, agrarian services, land development and cooperatives are represented by trained officers who are backed by technical trained staff at the division level' and by graduate staff with specialists at the district level. These in turn, are backed by adequate research et al services at the national level. Each agricultural extension worker advises 3-4 cultivation committees and supervises 700-l,500 ac of rice land.

20.. In area G of the project, the Elahera Special Projeot was comnenced in the Maha 1967/68 season following acceptance of recommendations of an FAO/ IBRD Cooperative Program Mission, which visited Ceylon in 1966 to review the irrigation program. The Special Project involves intensification of all extension services in the area to be directed and cooordinated by a resident Project Manager with a view to raising the yields of paddy as rapidly as posi. sible, introducing crop diversification and better utilization of irrigation water. The value of such intensification has been demonstrated and as a result, this technique was extended to nine additional special projects in 1968/69 on Colonization (settlement) schemes. The Government plans to apply this special project technique to the project areas} this is essential if forecasted yields are to be realized.

21. The Maha Illuppalama Agricultural Research Station, established in ANNEX 1 Page 6

1946, is situated in the north-western area and will serve the project areas. The station is well equipped and staffed to meet the applied research and development needs of the project. The agricultural engineering division of e station would be of considerable value in the development of the project areas. However, there is a need to expand the irrigation facilities Of the station and for intensifying work on crop rotations, with and-4ithout livestock, as well as the staff and financial resources of the agricultural engineering division.

22,. A sugar research station is under construction at Sri Lanka sugar estate in area Dl. Priority should be given to the completion of this station with a view to raising yields of sugar per acre. Pending the availabilor ity of additional water from the project to the Kantalai tank in 1973/74, it would be necessary for the sugar estate to obtain adequate irrigation wat'r from' the Kantalai tank, throughout the year, to enable some 200 ao of sut t- cane to be fully irrigated once uvery l0-lh days with a minimum applica;on to the root zone of 2 in of water per ac. The provision of this water4s essential to obtain information on potential yields of sugar per ac from plants and ratoon canes where water is no longer the constraint, and thus enable the estate to make the best use of the full irrigation water supply that should become available to it in 1973/74.

Cropping Patterns and Yields

23. Rice is the main crop grown in the project areas. Vegetables, chillies, onions, legumes, other cereals and tropical fruits are cultivated to a very limited extent, although all these crops are well suited to the areas. Livestock is limited to working animals, mainly water buffalo. The use of h-wheeled and 2-wheeled tractors is on the increase for cultivation, threshing and transportation.

24. The Goverzment's policy and the incentives given to farmers, coupled with demonstrations, have led to considerable increases in production of import substitution crops such as chillies, onions et al. However, it will be some years before these crops will be incorporated to a significant extent into the cropping pattern of the project areas. There is an urgent need for suitable crop rotations with and *ithout rice to be tried out in the field wo determine their practicality and economics under peasant farming conditions. Provision has been made for this in the project.

25. For the next few years, it is expected that rice will continue to be almost the sole crop grown on the project. The cropping intensity presently varies from 130% to 180% and is expected to rise to 180% and 200%. In any one year, these intensities depend on the rains and the amount of supple'- mentary irrigation available in the storage tanks. With partial failure of the Maha rains last season, it was estimated that about 30% of the rice fields in area H had remained uncultivated.

26. Improved rice varieties have been produced locally and are in gen.' eral use. They are capable of doubling the present yields, provided there is adequate irrigation water, the recommended inputs of fertilizer, agro-chemicals, ANNEX 1 Page 7 etc. are used and a reasonable standard of cultivation is maintained. Preliminary trials with the Philippine variety IR8 have indicated that still greater yields are obtainable.

27, The standard of rice cultivation has been improving as has the timing of planting with the advent of tractors. A delay in the commencement of the rains means a delay in the start of cultivation where manual labor or buffalo are used to prepare the paddy fields. The bulk of the crop is broadcasted, labor being short for transplanting which as usual gives higher yields. Weed control is reported to be often deficient.

28. Yields of rice in the project areas are generally low. The average yields of the area harvested in the north-western area for the past seven years for the Naha and Yala orops were 0.60 and 0.75 m tons ac of rice and in the north-eastern area 0.75 and 0.63 m tons ac. Discounting weather conditions, yields have tended to rise steadily in the past decade, particularly in the last three years and should continue to do so provided existing Gov- ernment policies are maintained. The major constraints in this continued rise is the inadequacy of irrigation supplies for the Maha crop in years when the rains are late or partially fail and the shortage of irrigation water to permit full cropping in the Yala season.

Cost of Production

29. It is expected that rice will continue for some,years to come to be the main crop grown in the project areas. It was decided, for this and other reasons, to restrict Stage I of the project to rice production. The cost of production data hereunder is based on an owner-cultivator, the type of cultivator occupying Colonization schemes and the type that will occupy the new land to be developed in Stages II and III. The costs assume that improved seed will be sown broadcasted or in rows and that all inputs will be unsubsidized. ANNEX 1 Page 8

COST OF PRODUCTION OF RICE (Rupees per acre per crop)

Present Situation Rs

Gross Return Maha Season 44 bushels/ac @ Rs 1411 616.00 Yala Season 42 " /ac @ Rs 1E/ 5=t.00 Cost of Production Land Preparation 105.00 Planting 3 50 Weeding 64.00 Manuring 30.00 Irrigation 35.00 Pest and Disease 4 .00 Harvesting 24.00 Post Harvest 80.00 Total Cost 7l12 .50 Land Tax_/ 10.00 Irrigation Tax_/ 2.50 Total Cost b21.O0 Net Return Maha Season 191.00 Yala Season 163.00

Third Year After Full Water Supply

Gross Return Maha Season 65 bushels/ac @ Rs 1h1/ 910.00 Yala Season 65 " /ac @ Rs 14k/ 910.00 Cost of Production 712.50 Add. Manuring 6k4.oo Add. Pest and Disease 30.00 Add. Harvesting 4.00 Add. Post Harvest 4.00 Total Cost 512.50 Land Tax/., 10.00 Irrigation Tax ./ 12.50 Total Cost 537.00 Net Return Maha Season 373.00 Yala Season 373.00

1/ Paddy. 2/ Half the yearly tax per crop. CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I ANNEX 2

EXISTING WATER RESOURCES IN THE PROJECT AREA

1. The existing irrigated lands in the project area have two sources of water supply, rainfall and the canal supply from storage tanks. Over 70% of the rainfall occurs in the Maha season from October to March and the balance in the Yala season from April to September. The monthly distribution of rainfall is often erratic with heavy concentrations in a few months in Maha. The long term average and selected dry-year average rainfall at Maha Illuppalama and Polannaruwa stations, which can be considered as representative of H and IH, and Dl and G areas respectively, are given below.

Maha Illuppalama Pol&nnaruwa Year Maha Yala Annual Maha Yala Annual ------inches ------_

Dry Years 1945-46 33.7 1h.7 48.4 13.0 10.3 23.3 12917-h8 25.1 15.7 1,0.8 50.o 6.7 56.7 1949-50 45.9 12.9 58.8 50.2 7.0 57.2 1952-53 17.7 15.6 33.3 38.5 23.9 6.%14 1955-56 23.3 7.2 30.5 26.1 11.14 37.5 1958-59 24.2 19.7 43.9 44.6 7.7 52.3

Average of 20 yrs. 19414-45 to 1963-64 42.4 17.4 59.8 51.4 14.7 66.1

2. The effective rainfall in both seasons is insufficient for the growth of paddy, which is the main crop, as shown below by the UNDP/FAO study for dry years.

H and IH Area Dl and G Area Maha Yala Maha Yala

Average Effective Rainfall (in) 17.4 12.0 23.7 7.6 Percentage of crop Requirement 53 32 72 20

3. The local yield of tanks in the project area is quite low in dry years with the result that they are not filled to capacity. The combined yield of Kandalama, Kalawewa, Usgala Siyambalangamuwa and Rajangana tanks in the H area is 378,000 ac-ft on the average, with a low of only 59,000 ac-ft in a dry year like 1955-56 compared to their total effective capacity of 195,500 ac-ft. The diversion of some 20,000 to 140,000 ac-ft annually from Nalanda reservoir to the Kalawewa tank since 1958 has slightly improved the position, but the supplies are still short in Maha and complete- ly inadequate in Yala.

4. The' Anuradhapura city tanks serving the IH area comprising the Nachchaduwa (141,100 ac-ft), Nuwarawewa (36,000 ac-ft), Tissawewa (2,900 ac- ft) and Bosawak Kalama (1,800 ac-ft) are not filled to capacity except in ANNEX 2 Page 2 the very wet years. The Kalawewa-Yoda Ela trans-basin canal provides supplemental supplies to fill the Tissawewa tank and a new link canal has been constructed to supplement the supply to Nachchaduwa tank. Even so, acute shortage of water continues, especially in the dry years.

5. The combined yield of Giritale, Minneriya, Kaudulla and Kantalai tanks in the Dl and G areas is 172,000 ac-ft on the average with a low of only 18,000 ac-ft in a dry year like 1955-56 compared to their effective capacity of 363,000 ac-ft. The major source of supply to these tanks is the diversion from Amban Ganga through the Elahera canal which is generally adequate to meet the Maha requirements of existing irrigated lands, except in the very dry years, but is still inadequate to meet the Yala requirements.

6. There is the need, therefore, to tap new sources of water to make up the deficiency in the water supply to the existing irrigated lands in the project area and with the proposed development of new lands, it is even more essential and inescapable. The only available source is the Mahaweli Ganga, the largest river in Ceylon, which is largely untapped. CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I ANNEX 3

PROJECT DESCRIPTION 1. The engineering works comprising the Mahaweli Ganga Development, to be constructed under Stage I, include the Polgolla complex, the Bowa- tenna complex, the Sudu Ganga training works and the remodelling of the Elahera weir and the Elahera-Minneri -Kantalai canal. When these works are completed in 1973-74, additional water from the Mahaweli Ganga and the Amban Ganga could be made available to make up the deficiency in the water supply to existing irrigated lands of 56,200 ac in areas H and IH and 70,500 ac in areas Dl, D2 and G. The works to be constructed in Stage I are designed to meet the ultimate water requirements of 213,000 ac of existing and new lands in areas H and II (113,100 ac) and Dl and G (99,900 ac) which would be developed in Stages II and III respectively.

2. In addition to the engineering works, Stage I includes detailed investigations of existing and new lands in areas H and II to be developed in Stage II which, inter-alia, include, preparation of the feasibility report, detailed cost estimates, aerial survey, land classification and development, irrigation and drainage works, cropping patterns and water requirements, settlement of farmers and agriculture extension services. Drainage and land levelling equipment is provided for on-farm development of 4,000 ac of sugarcane in area Dl.

Polgolla Complex

3. The Polgolla complex consists of a low diversion dam across the Mahaweli Ganga about a mile downstream of Kandy city, a 5 mile long diversion tunnel to divert the Mahaweli flaws to the Dhun Oya, thence into the Sudu Ganga, a tributary of the Amban Ganga, a 40 MW hydro-electric plant at the end of the tunnel with a by-pass outlet for irrigation releases and a tail-race canal outfalling into the Dhun Oya, a tributary of the Sudu Ganga. The diversion dam would be a concrete ogee structure, 565 feet long at crest and 55 feet high above foundation, with ten hook type, spillway gates, 21 feet high and 40 feet wide, and a 21h feet wide roadway on the crest. The spillway would be capable of passing a discharge of 210,000 cusecs, which corresponds to a flood of 100 year frequency, without causing any significant damage to developments upstream and without affecting the railway bridge located about 6,100 feet upstream of the Polgolla site. The dam would be operated to provide a minimum continuous release of 150 cusecs downstream for sanitation, wild life and domestic use and to head up water up to the maximum operating pool level at elevation 1,4h6 feet when the maximum head across the Dam would be 23 feet. The minimum operating pool level would be at elevation 1438 feet which would provide a regulating storage of 2,000 ac-ft. The geology of the site is favorable for construct- ing a low dam. The site had been selected after examining other alternatives both upstream and downstream, the main consideration being the suitability of the tunnel intake and not the geology. Rock outcrops are exposed at a few points both upstream and downstream of the site. The rocks are mostly quartzo-feldspathic-biotitic gneisses having almost vertical dips. Seven holes with an aggregate length of 312 feet have been drilled along the axis of the dam. The core data revealed that weathering was deeper, particularly on the right bank, but sound rock was available at a maximum depth of 20 feet to adequately support the structure. The foundations would require grouting and an upstream grout curtain would be constructed to avoid uplift pressures under the downstream floor. ANNEX 3 Page 2

5. The diversion tunnel would be 26,450 feet long with a horseshoe section 19 ft 6 in in diameter, capable of diverting 2,500 cusecs of the Mahaweli flows into the Amban Ganga through the Dhun Oya and Sudu Ganga. It would be a pressure tunnel and would be lined throughout its length. The tunnel alignment has been selected after considering several alternatives. Although 28 bore holes with an aggregate iength of 3,709 feet have been drilled in the region for examining alternative alignments, the geological data along the final alignment is based on 5 drill holes only with a total length of about 1,000 feet. The rocks along the tunnel trace consist mainly of gneisses with interbeds of quartzites and granulites except in the tail end where hard crystalline limestones and calc gneisses were found. Several closed faults and shear zones traverse the tunnel area and are represented by long and narrow drainage valleys at the ground surface between mountain ridges. At these sections, problems of fractured rocks and seepage water are likely to be encountered during construction. Several geologists visited the site from time to time during 1959-68 and expressed favorable views on the feasibility of the tunnel. Experience on the construction of the Maskeliya tunnel, which is also 5 miles long and passes through similar geology, supports the conclusion that no unsurmount- able problems would be expected during the construction of the Polgolla tunnel. Nevertheless the data of only 5 bore holes along a 5-mile long tunnel does not provide sufficient information to international contractors to prepare accurate and competitive bids and it would be prudent to carry out additional drilling before the tender documents are issued. The Irri- gation Department is carrying out the additional drilling suggested at their cost. 6. The hydro-electric plant is to contain two vertical shaft turbo- generator sets with a rated capacity of 20 MW each and designed for a nominal discharge of 1,000 cusecs and an operating head of 268 feet. The maximum head would be 300 feet and the minimum 230 feet. At the downstream tunnel portal there would be a steel penstock, 13 feet in diameter and about 1,300 feet in length, which would enter a manifold from which two outlets would convey the water to the turbine units with a third outlet to 'serve as a by-pass discharging directly into the tail race which joins the Dhun Oya. 7. The Polgolla power plant would increase the firm power capacity of the system by about 20 MW and would contribute 220 million kWh of energy annually. In order to connect the power station to the existing 132 KV transmission network, the Ceylon Electricity Board would construct a short double-circuit 132 KV transmission line from the Switching Station located near Kandy.

Bowatenna Complex 8. The Bowatenna complex consists of a highdiversion dam on the Amban Ganga at Bowatenna, a 5 mile long diversion tunnel on the left bank followed by about a mile long lined canal up to Dambulla Oya, a bifurcation structure at Dambulla Oya to release part of the flows to the Dambulla Oya which discharges into the Kalawewa tank and the remaining part into a short earthen canal which will feed the Kandalama tank. ANTEX 3 Page 3

9. The diversion dam would be a concrete structure, 880 feet long at the crest and 132 feet high with five radial gates, 36 feet wide and 214 feet high, and a 16 feet wide roadway on the crest. The spillway would have a capacity of 125,000 cusecs which corresponds to a flood of 100 year frequency. The maximum operating pool level of the dam would be at elevation 820 feet and the minimum at 800 feet which would provide an active storage of 21,000 ac-ft. The geology of the site is favorable. Rock outcrops are exposed which are fractured and jointed, consisting of gneisses and quartzites. Borehole data along the dam axis shows some frac- turing at depths, indicating the need for grouting.

10. The diversion tunnel would be 25,000 feet long with an unlined horseshoe section 10 feet in diamter capable of discharging 1,500 cusecs under pressure. Six boreholes have been drilled along the 5 mile length of the tunnel. In the upper part of tTh-' tunnel, the rock formations consist of gneisses and quartzites which a fractured and jointed. In the lower half of the tunnel the roclc consists of calc gneisses and crystalline limestone. The groundwater table lies closer to the ground surface in the lower half of the tunnel alignment and may give rise to difficult problems of care of water during construction. Geologists from USOM, FAO and UNIDP mentioned in para 5 above, inspected the site and endorsed the feasibility Of the tunnel. For supplying adequate information to contractors on the geology of the tunnel, additional drill holes are to be made along the axis.

11. The tunnel would lead to an open-cut with depth of cut varying from 65 to 15 feet in a length of 4,160 feet to Dambulla Oya. The canal would have a capacity of 1,500 cusecs and would be lined with concrete. At Dambulla Oya there would be a bifurcation structure for diverting 1,200 cusecs into the Dambulla Oya which feeds the Kalawewa tank while the remaining discharge of 300 cusecs would be conveyed through a short unlined canal, the Kandalama canal, to the Maha Oya which discharges into the Kan- dalama tank.

Sudu Ganga Training Works

12. Water released from the Polgolla tunnel and hydro-electric plant would be conveyed to B3owatenna through the natural channels of Dhun Oya, Sudu Ganga and Amban Ganga rivers. The additional flow of up to 2,500 cusecs in these channels would affect their natural regime, particularly in the Dhun Oya and the upper reaches of the Sudu Ganga, where the existing capacity of the channels is less than 2,500 cusecs. Channel improvements and training works would be required to prevent erosion and damage to existing improvements. Inspection of the channels has also indicated that parts of the cultivated land along the banks of the Sudu Ganga, which would be subjected to flooding, may have to be acquired and 3 road bridges on the Sudu Ganga would have to be remodelled to improve their waterways. Some drop structures may have to be constructed to stabilize the channel. ANNEX 3 Page 4 Elahera-Minneri-Kantalai-Yoda Ela Canal

13. The Elahera-Minneri-Kantalai-Yoda Ela canal (referred to as the Elahera canal) is an old canal which has been restored and remodelled several times in the past two decades. It takes off from the Elahera weir on the Amban Ganga and runs along a contour to the Minneriya tank with a by-pass feeder to the Giritale tank. It takes off again from the Minneriya tank, passes above the Kaudulla tank, augmenting the supplies to the latter through a special feeder and then spills into the Yoda Ela canal which discharges into the existing Kantalai tank. The total length of the canal from the Elahera weir to Kantalai tank is about 38 miles consisting of 22 miles from Elahera to Minneriya and 16 miles from Minneriya to Kantalai. Its present capacity is 1,000 cusecs in the first 4.9 miles, 1,250 cusecs from 4.9 to 6.3 miles and 1,500 cusecs in the remaining 15.7 miles to the Minneriya tank. From the Minneriya tank, the canal has a single bank on the right side and intercepts all the drainage from the left bank. Here it is in effect, a catch-water drain with large pools at places where the natural streams enter the canal. In view of its high right bank, it can carry over 2,500 cusecs of peak floods. The entire canal from Elahera weir to Kantalai is poorly maintained. Below Minneriya tank there is a heavy growth of weeds and bushes which restrict the waterway and cause heavy water losses.

1h. In order to meet the full irrigation requirements of areas Dl and G and also to fill the tanks in time .for regulation and storage, the capacity of the Elahera canal would be increased to 1,500 cusecs up to the Minneriya tank. Beyond this point, no increase in the theoretical capacity is required, but considerable work has to be done to restore the waterway by clearing the weeds and bushes and widening the restricted sections. After the canal is fuIlly remodelled, it would require heavy annual maintenance to maintain its capacity as the numerous natural streams entering the canal throughout its length would cause silting, encourage weed growth and create large standing pools. The alternative is to construct .a regular canal with two banks, crossing all the natural drainage lines by siphons underneath the canal. This would require 16 drainage siphons to cross the 1l6 natural streams draining a catchment of 40 square miles on the left bank from Elahera to Minneriya and another 65 drainage siphons to cross the 65 natural streams draining a catchment area of 17 square miles on the left bank from Minneriya to Kantalai. The main advantages of this alternative would be the reduction of water losses and annual maintenance costs. How- ever, the main disadvantages are the heavy capital cost of construction, the hazards of damage to the numerous cross drainage works during heavy rains, which would increase the annual maintenance cost and might also make the canal inoperative at times and, above all, the waste of an important source of water from the left bank catchment of the canal varying from 60,000 to 20,000 ac-ft annually, which can be regulated in the tanks and utilized for irrigation. 15. The Elahera weir would be remodelled to raise its pond level by an additional 2 feet and a new head regulator would be constructed on the left bank, adjacent to the existing regulator, with a capacity of 700 cusecs to provide additional supplies to the Elahera canal. The first 1,000 feet of the Elahera canal runs through a deep cut in rock and is lined with concrete. It would be widened and remodelled to increase its capacity to 1,500 cusecs. ANNEX 3 Page 5

Investigations - Areas H and IH

16. Area H is estimated to contain 46,200 ac of irrigated land and 56,900 ac of new land, mainly under forest, which is suitable for and capable of being irrigated. Area IH is estimated to contain 10,000 ac of irrigated land; no new land is available. Additional irrigation, drainage and agricultural investigations are required in these areas before they can be appraised for further development. These investigations and studies would involve, but not be limited to, the foUowing:

a) review of existing data and reports; b) aerial photography at a scale of 1:10,000 to enable production of rectified prints and mosaics; c) review the existing contour mapping; d) land classification of areas at a scale of about 1:10,000; e) water supply, water mana, iiient and use studies, including seepage and evaporation iosses and use of measuring devices; f) land development and on-'arm development costs for existing and new lands based on typical farm layouts from sample plots on representative areas covering 10% of the total irrigable area; g) agronomic and farm management studies to establish optimum cropping patterns with and without livestock; h) socio-agro-economic studies of settlement patterns and suitable farm sizes; i) establish an overall irrigation and drainage plan including flood control; J) establish costs of recommended farm layouts; k) study farm-to-market road requirements; 1) review and advise on expanded agricultural extension service requirements and siting and layout of demonstration farms; mn) determine project agricultural benefits using internal rate of return; n) prepare interim and final feasibility reports; and o) recommend type or organization suitable for execution and operation of Stage II.

On-Farm Development

17. If 4,000 ac of sugarcane in area Dl are to be able to use efficiently and fully, the increased water supply that should be available by October 1973, the irrigation and drainage systems will require redesigning and improvement and the fields will require levelling and sub-soiling. Equipment has been provided in the project to enable this work to be completed by the end of September, 1973.

18. It would be necessary for on-farm development work to be carried out immediately on 200 ac, prior to the arrival of equipment being provided under the project. This work would be done by equipment already in the country, to enable information to be obtained on the yield of sugar per acre, when water is no longer the constraint. This in turn, will require the sugar estate to have first call on the available water in the Kantalai tank for irrigating adequately 200 ac of sugarcane throughout the year. This involves making available sufficient water to permit a minimum application of 2 in of water to the root zone every 10-1T days.

CEYLON: MAHAWELI GANGA DEVELOPMENT PROJECT -STAGE I CONSTRUCTION AND INVESTIGATION SCHEDULE

1969 1970 1971 1972 1973 1974

STAGE I

POLGOLLA COMPLEX ISSUE SPECIFICATIONS AND BID DOCUMENTS AWARD MARC DELIVERED OCTOBER I A CONSTRUCTION

BOWATENNA COMPLEX UE SPECIFICATIONS AND BID DOCUMENTS AWADECEMBER I WATER CONSTRUCTION

SUDU GANGA AND ELAHERA IMPROVEMENT PLANS AND SPECIFICATIONS DELIVERED OCTOBER I CONSTRUCTION (FORCE ACCOUNT)

AGRICULTURAL LAND DEVELOPMENT

INVESTIGATIONS AREAS H AND IH AERIAL PHOTOGRAPHY LAND CLASSIFICATION a LAND DEVELOPMENT IRRIGATION AND DRAINAGE SYSTEMS AGRICULTURAL INVESTIGATIONS E/2 INTERIM AND FINAL FEASIBILITY REPORTS

(2R) IBRD- 4381 x _ a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

CEYLON ANNEX 5

MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I

WATER SUPPLY AND IRRIGATION REQUIREMENTS

Sources of Water

1. The water supply scheme for the project consists of:

a) diversion of the natural flows of Mahaweli Ganga at Polgolla through the Pblgolla tunnel into the Amban Ganga, a tributary of the Mahaweli Joining the main river 87 miles downstream of Polgolla;

b) distribution of the diverted flows of Mahaweli and the natural flows of the Amban Ganga at the Bowatemna site, about 30 miles downstream of the Polgolla tunnel, to areas H and IH through the Bowatenna tunnel and to areas Dl and G through the Elahera weir and canal located on the Amban Ganga, 1 miles downstream of Bowatenna;

c) regulating the river supplies diverted through the Bowatenna tunnel and the Elahera weir through a system of tanks in the areas H and IH and areas D1 and G. respectively, and integrating them with the local inflows into the tanks from their respective catchments;

d) re-use of drainage water from upstream irrigated lands by regulation at the lower tanks.

2. There are, thus, four sources of water supply to the irrigated areas, the Mahaweli Ganga, the Amban Ganga, the streams locally known as "Oyas" feeding the tanks and the return flows from the upstream irrigated areas that can be re-used as supplemental supplies in the lower areas. In an irrigation system that depends on such diverse and relatively independent sources of supplies, the adequacy of water supplies in quantities and times required by the crops would depend not only on the accuracy of the estimates of the available water from the various sources but also on how effectively these supplies are integrated, regulated, distributed and utilized.

3. The Mahaweli Ganga is the major source of water supply. It is the largest river in Ceylon with a total length of about 200 miles, a catchment area of 4,034 sq mi, and a mean annual flow of 7.2M ac-ft. At Polgolla, the river has a catchment area of 508 sq mi and a mean annual flow of 1.9 M ac-ft. Daily records of gauge and discharge observations of the Mahaweli Ganga are available from October 1944 at the existing gauging station a few miles downstream of Polgolla. As the catchment area at this station is only 519 sq mi compared to 508 sq mi at Polgolla and as the inflow between the two stations is not significant, the data from this gauging station provides an adequate and reliable basis for estimating the river flows at Polgolla.

4. The Amban Ganga is the largest tributary of the Mahaweli with a total catchment of 574 sq mi and a mean annual flow of 1.2 M ac-ft. At Bowatenna, where the river has a catchment of only 188 sq mi, no gauge and discharge observations have been made. The nearest gauge site on the river is at the Elahera weir, 14 miles downstream of Bowatenna, where records of gauge and discharge observations have been maintained since October 1944. The river has a catchment area of 318 sq mi at Elahera and carries a mean annual flow of 0.72 M ac-ft. However, lack of discharge data at Bowatenna is not a serious impediment to the assessment of the water supply as the diversions at Bowatenna do not exceed the Polgolla supplies and a significant part of the total supplies at Bowatenna must be passed downriver for use at the Elahera weir.

5. Observed data of run-off from streams feeding the Kandalama, Kalawewa and Rajangana tanks in areas H and IH and of the Minneriya, Giritale, Kaudulla and Kantalai tanks in the areas Di and G is not available. Records of water levels in the tanks and the issue of water from their sluices have been maintained over several decades which could provide a basis for estimating the yields from the local catchments but studies, carried out by the UNDP/FAO, indicate that the records are inconsistant and are not reliable. In the circumstances, the only practical method of estimating the run-off from the local catchments is to utilize the rainfall data which is available for a sufficiently long period from a fairly dense network of rain gauging stations in the areas. Estimates of local yield into the various tanks, prepared by UNDP/FAO, appear quite conservative. In dry years, the annual yield of all tanks in the H area varies from 60,000 to 200,000 ac-ft and in the Dl and G areas from 20,000 to 120,000 ac-ft.

6. Estimates of drainage yield from irrigated areas that would be available for re-use in the lower areas are based on a 10% yield from a crop rotation of paddy-paddy-legume, 719 from paddy-cash crops and 5% from all other rotations. The estimated annual drainage yield is 56,500 ac-ft from area H and 60,200 ac-ft from areas D1 and G.

Areas to be Irrigated

7. The areas to be irrigated in the project would be developed in three stages. In Stage I the existing irrigated areas of 46 ,200 ac in H, 10,000 ac in IH, 47,500 ac in Dl and 4,800 ac in G would be provided with additional water for double cropping. As the available supplies would exceed the total requirements of the above areas, the existing irrigated lands in area D2, served from the Angamedilla weir on the Amban Ganga, below Elahera, can be provided with additional supplies temporarily for raising two crops annually. In Stage II, the existing areas of 56,200 ac and the new areas of 56,900 in H and IH would be fully developed during the period 1973 to 1979, while the existing areas of Dl , G and D2 would continue to receive additional irrigation supplies as in Stage I. In Stage III the existing areas of 52,300 ac and the new areas of 47,600 ac in D1 and G would also be fully developed. At this stage, the existing areas of D2 would be provided with such additional supplies as are surplus to the full requirements of areas H, IH, D1 and G.

Water Requirements

8. The maximum water requirements would be developed after Stage III is completed but the engineering facilities constructed in Stage I should be adequate to meet the full requirements of all three stages of development.

9. At the present time, it is difficult to estimate accurately the consumptive use of crops to be irrigated because of the serious gaps in the ANNX5 5 Page 3

available data. There is no acceptable land classification of the areas to be irrigated, the cropping patterns to be adopted are theoretical and have not been checked in the field and no check has been exercised in the field in respect of intensity of clearing forests and the extent of land leveling required. Some data on water requirements for the rice crop is available from the studies carried out at the Maha Illuppalama Agriculture Research Station but practically no information is available in respect of other crops. In view of these gaps in the available data, it is not possible to determine with any accuracy the water requirements of the crops to be irrigated. There- fore, the mission suggested that simultaneously with the construction of the main engineering works in Stage I, intensive investigations and studies should be carried out to make good the deficiencies in the available data. For purposes of appraisal, it is necessary to estimate the water requirements as accurately as possible utilizing the available data and making such assumptions with regard to the missing data as may be required, recognizing that the estimates are subject to modification whon the proposed investigations and studies are completed during the next eighteen months.

10. The UNDP/FAO mission carried out studies on the cropping patterns proposed for the H, IH, D1 and G areas and estimated the water requirements using the Blaney-Criddle Method, making certain assumptions to determine the coefficients in the formula. A review of these studies indicated that, in the absence of reliable data, the estimates prepared by the UNDP/FAO, which are quite conservative, can be adopted for testing the adequacy of water supplies for the areas served. These estimates have been modified by including the existing areas of TH and 30% of the new areas of H, which were excluded in the UNDP/FAO proposals. The results are summarized in the table overleaf.

11. The figures of water duty given in the above table are gross duties at the head sluices of the tanks and take into account the distribution losses, field losses and wastage. It may be noted that the figures of estimated duties, annual as we1l as monthly, given by the UNDP/FAO in the Final Report, the Detailed Reports and the Detailed liater Balance studies do not tally. Apparently they were modified from time to time using different assumptions. For purposes of the appraisal report, the values given in the Detailed Wiater Balance studies, which are generally higher, have been adopted. This would provide a more severe test of the adequacy of the water supplies.

12. The gross water requirements of areas H and IH at the Bowatenna dam and of areas Dl and G at the Elahera weir would include the additional losses in the tanks and the main feeder canals. The losses which were estimated by the UNDP/FAO, on a theoretical basis, appear low considering the conditions of the existing tanks and the canals. The estimated tank losses have therefore been increased by 50%, the Kala Oya canal losses by 30% and the Elahera canal losses by 65%. On this basis the gross annual water requirements for areas H and IH at Bowatenna amount to 8466,000 ac-ft and for areas D1 and G at IElahera amount to 886,000 ac-ft.

Adequacy of the Water Supplies

13. Records of measured flows of the Mahaweli near Polgolla and of the GROSS WATER REQUIREIMENTS OF AREAS H, IH, Di AND G AT THE TANKS

Cropping Patterns 1 2 3 Total

Areas (1000 acres) - H and IH

H - Existing 46.2 46.2 H - New 14.2 546 37.1 56.9 IH - Existing 10.0 10.0

Sub-total 70.4 5.6 37.1 113.1 Percent 62 5 33 100

Annual Duty at Tanks (feet) 8.5 5.5 4.5 7.2 Annual Water Requirements (1000 acre feet) 598.4 30.8 166.9 796.1

Areas (1000 acres) - DI and G

D, - Existing 43.5 4.o 47.5 Dl - New 20.0 4.0 13.1 3.0 40.1 G - Existing 4.8 4.8 G - New 3.7 1.0 2.8 7.5

Sub-total 72.0 5.0 15.9 7.0 99.9

Annual Duty at Tanks (feet) 8.5 5.5 4.5 7.2 Annual Water Requirements (1000 acre feet) 612.0 27.5 71.6 50.4 761.5

Note: Cropping Patterns: 1) Paddy-paddy-legume; 2) Paddy-high value crops - legume; 3) High value crop rotation of cotton, groundnut, vegetables etc. 4) Sugarcane. 0CDI ANN 5Yw Page 5

Amban Ganga at Elahera, which form the bulk of the water supplies to the project are available since October 19h4. The UNDP/FAO carried out "De- tailed Water Balance Studies" for a 20 year period, 1944-64, using a 20O0 cusecs tunnel at Polgolla, a 20,000 ac-ft regulating reservoir and a 700 cusecs tunnel at Bowatenna and a 1,500 cusecs canal at Elahera to meet the water requirements of H, D and G areas but excluding the IH area which was not included in their proposal. These operation studies revealed that there was a deficit in water supply for 7 years out of 20 of which 19h5-46, 19h7-48, l9L9-5o, 1952-53, 1955-56 and 1958-59 were most critical and that the assurance of irrigation water to lands under the command of the Kalawewa tank in the H area did not exceed 65 percent. Consequently, the UNDP/FAO team re- duced the new area under H by 30%, that is, by 16,900 acres, and concluded that with this reduction in the area, the project would be assured of 85% irrigation even in the dry years. It was also concluded that the capacity of the Bowatenna tunnel should be increased to 750 ousecs and that it should actually be constructed for a capacity jf 1,000 cusecs to take care of the area deleted under H under a future scheme. The system operation followed was not very effective in integrating and distributing the available supplies as it created substantial shortages in the supplies to the areas served by the Kalawewa tank while surpluses were left in the Rajangana tank and almost the full requirements of D1 and G areas were met. The studies did not provide an adequate basis also for testing the size of the Polgolla tunnel, the need for the Bowatenna storage and the size of the Bowatenna tunnel. The UNDP/FAO scheme was subsequently modified by the Irrigation Department by eliminating the 20,000 ac-ft storage at Bowatenna and increasing the capacity of the Kalawewa tank by a corresponding amount. The consultants reviewed the changes and concurred with the proposals of the Irrigation Department. 14. The project includes, interalia, a 2,000 cusecs tunnel at Polgolla, a low dam without storage at Bowatenna, a 1,000 cusecs tunnel at Bowatenna, a 1,500 cusecs canal at Elahera and the proposal for increasing the capacity of the Kalawewa tank by 20,000 ac-ft as a substitute for the storage eliminated at Bowatenna. Wfhile at first sight the scope of these works appears comparable with those in the UNDP/FAO scheme, the areas to be irrigated under the project have been increased substantially by the inclusion of 30% of the new area under H and the whole of the existing area under IH amounting to 26,900 ac. This factor together with the increased estimated losses in the tanks and the feeder canals would create a higher demand on the available water supply and if the UNDP/FAO system operation is followed the assurance of irrigation to lands under the Kalawewa tank would be lower than 65% indicated in their study.

15. In order to test the adequacy of the engineering facilities in the project and to determine the shortages in the water supply to the ultimate area of 213,800 ac under H, IH, D and G in Stage III, the 6 dry years mentioned in para 13, which were found most critical in the UNDP/FAO studies, have been selected. The water supplies available in these dry years and their comparison with the long term averages are shown in the table overleaf. 16. System operation studies were carried out for the 6 dry years to meet the ultimate irrigation requirements of H, IH, D,.land G areas utilizing the available water resources indicated in para 15. The availability of drainage water from the irrigated lands has been discounted in the first AITN7, 5 Page 6

WATER SUPPLY - '000 ac-ft

Year Mahaweli Amban Ganga Local Yield Local Yield Total. (Oct.-Sept.) at at of of fl & G Polgolla Rlahera H Tanks Tanks

1945-46 19377 777 396 52 2,602 1947-h8 937 433 217 116 1,703 1949-50 1,634 620 162 124 2,5.0 1952-53 1,522 376 103 32 2,033 1955-56 1,883 138 59 18 2,098 1958-59 2,331 WhO 108 53 2,932 Average 1, 6 14 477 171 66 2,331 20 year average 1944-64 1,917 650 378 172 3,117 Lowest in any year 937 138 59 18 1,152

instance as the quantity is rather small. The sizes of the engineering structures assumed in the studies in the first instance are (a) Pblgolla tunnel - 2,000 cusecs, (b) Bowatenna tunnel - 1,000 cusecs, (c) -lahera canal - 1,500 cusecs, (d) total capacity of tanks in H areas - 195,500 ac-ft, and (e) total capacity of tanks in D, and G areas - 363,000 ac-ft. The studies revealed the following deficit in meeting the full irrigation requirements.

Year Total Water Total Irrigation. Deficit Percentage Resources Requirements '000 ac-ft Deficit '000 ac-ft '000 ac-ft

19h5-h6 2,602 1,732 - - 1947-h8 1,703 1,732 603 35 1949-50 2,S54o 1,732 97 6 1952-53 2,033 1,732 W3 26 1955-56 2,098 1,732 526 30 1958-59 2,932 1,732 130 8

17. It would be noted that although the total water resources in the dry years exceeded the irrigation requirements, except in the year 19h7-118, there would be consistent shortages in meeting the requirements which shows that the engineering facilities would be inadequate to effectively regulate and utilize the available supplies. Detailed analysis of the hydrological data and the system capability to utilize the resources led to the following conclusions in respect of the sizes of various facilities in the project.

Storage on Mahaweli

(a) Without storage on the Mahaweli Ganga at Polgolla or at some Page 7

other site upstream, it would not be possible to utilize the water resource of Mahaweli effectively.

(b) Storage on Mahaweli would be more effective in integrating the other sources of supplies compared to any alternative storage olt the Amban 'anga or in the tanks of II, Ill, Dl and G areas.

(c) The Master Plan prepared by the UNDP/FAO envisages construction of a storage reservoir at Kotmale with an effective storage capacity of 2b2 ,600 ac-ft at a later stage. IJhen this storage is completed, a more effective utilization of the Mahaweli flows in the project would be possible. fIor instance, with a 2,000 cusecs capacity tunnel, the average annual diversion at lPolgolla will be 1.10 ac-ft without Kotmale reservoir and 1.25 1I ac-ft writh Kotmale reservoir. The effect in dry years would be more signi- ficalntl.

Size of Polgolla Tunnel

(dl) The size of the Polgolla tunnel has a vital effect on the water supply to the project. The annual diversion in dry years with a tunnel capacity of 2,000 and 2,500 cusecs would be as follows:

Year Mahaweli at Annual Diversion - '000 ac-ft Percentage Polgolla With With Increase '000 ac-ft 2,000 cusecs 2,500 cusecs Increase

19),';-h6 1,377 877 965 88 10 19)07-ht6 937 465 508 lh3 9 19499-50 1,63)i 927 1,006 79 9 192-5.3 1,522 823 878 55 7 195'5-56, 1,883 1,025 1,138 113 11 1958-59 2,331 1,139 1,276 137 12

Average 1,614 876 962 86 10

(e) A tunnel of 2,500 cusecs at Polgolla would increase the annual diversion by 10% compared to a 2,000 cusecs tunnel. It would increase the annual diversion from Mahaweli to Dowatenna by 66,000 ac-ft and would have approximately the same effect as a 86,000 ac-ft storage on Mahaweli with a 2,000 cusecs tunnel at Polgolla. Considering that the study is based on 5-day average flows at Polgolla, its effectiveness in utilizing the daily fluctuating supplies would be more than indicated by the above figures.

(f) The incremental cost for raising the capacity of Polgolla tunnel from 2,000 to 2,500 cusecs would be relatively small compared with the benefits obtained from a more reliable supply of water to the irrigated areas. It would be prudent, therefore, to construct the Polgolla tunnel for a capacity of 2,500 cusecs initially as it would be impossible to change its capacity at a later stage.

Storage at Bowatenna

(g) With a varying flow up to 2,000 ousecs from Polgolla and a wide range of fluctuating flows in the Amban Ganga, a reservoir on the Amban Ganga at any site upstream of Elahera would be valuable for regulating the two sources of supplies. The existing Nalanda reservoir of 20,000 ac-ft capacity on the Nalanda Oya, a tributary of the Amban Ganga, which was constructed to divert part of the flows to the Kalawewa tank would be useful partially to regulate the Amban Ganga flows but would not be as effective as storage at Bowatenna to integrate and regulate the combined supplies from Mahaweli and Amban Ganga. (h) Without storage at Bowatenna, the extent of utilization of the Mahaweli and Amban Ganga supplies through a 1,000 cusecs Bowatenna tunnel and a 1,500 cusecs Elahera canal would be as follows:

Annual Supplies - '000 ac-ft Year Polgolla Amban Ganga Total Total Diversion Unutilized Diversion Flow at to H, IH, D1 and Supply Elahera a Areas 1945-46 877 777 1,654 1,381 273 1947-48 465 h33 898 807 91 1949-50 927 620 l,547 1,400 147 1952-53 823 376 1,199 1,151 48 1955-56 1,025 138 1,163 1,153 10 1958-59 1,139 440 1,579 1,452 127

(i) The actual utilization would be less effective than indicated in the table above as the Amban Ganga flows are based on monthly averages. (j) Notwithstanding its advantages, investment in a storage reservoir at Bowatenna at this stage can be avoided firstly, because it would increase the cost of the project substantially and, secondly, because its utility would diminish when the proposed 1ibragahakanda reservoir with a gross storage of 600,000 ac-ft is constructed on the Amban Ganga upstream of the Elahera weir, as envisaged under the Master Plan.

Size of Bowatenna Tunnel

(k) In the absence of a regulating storage at Polgolla or Bowatenna the ability to divert supplies to Areas H and IH for direct utilization as well as for filling the main storage tanks with an aggregate capacity of 185,000 ac-ft would largely depend on the size of the Bowatenna tunnel. The UNDP/FAO team has already recommended increasing the Bowatenna tunnel capacity from 750 to 1,000 cusecs, but the question whether 1,000 cusecs is the optimum capacity is still left unanswered. Detailed operation studies have indicated that a 1,500 cusecs tunnel at Bowatenna would significantly reduce the shortages not only in the H and IH areas, which it serves directly, but also in the Dj and G areas by transfering more supplies than needed for storage in H and IH tanks, when there is surplus supply below Elahera and reducing the diversions when the supplies are short. The results of the study are shown below:

Total D)eficit in H, IH, DT and G - '000 ac-ft

Polgolla Polgolla Polgolla Polgolla 2,000 cusecs 2,000 cusecs 2,500 cusecs 2,500 cusecs Bowatenna Bowaterna Bowatenna Bowatenna Year 1,000 cusecs 1,500 cusecs 1,000 cusecs 1,500 cusecs

1945-t6 - - - _ 1947-48 603 603 567 541 1949-50 97 61 63 10 1952-53 415*3 421 360 1955-56 526 513 444 [31 1958-59 130 66 11l

(1) The results given in the above table also indicate the relative effectiveness of increasing the capacity of Polgolla tunnel versus Bowatenna tunnel. The combined effect of increasing the capacity of both tunnels is significant, and would be more significant if daily discharges on Amban Ganga are considered instead of the monthly averages used in the study.

(m) The extent of reduction in shortages does not indicate the full advantages of increasing the capacity of the tunnels, especially in regard to their effectiveness in filling the tanks in project areas and providing the flexibility in the system operation. The following table gives the additional supplies to the H and IH areas which can be stored in the tanks to make up the shortages and to increase the flexibility in their operation as well as to provide carry-over storage.

Additional Transfer to Project Areas - '000 ac-ft Polgolla Polgolla Polgolla 2,500 cusecs 2,000 ousecs 2,500 cusecs Bowatenna Bowatenna Bowatenna Year 1,000 ousecs 1,500 ousecs 1,500 cusecs l9b5-h6 29 16 29 1947-48 36 _ 42 1949-50 36 44 87 1952-53 22 48 83 1955-56 82 - 95 1958-59 16 64 130

Average 37 29 78 (n) The additional cost of increasing the capacity of the Bowatenna tunnel from 1,000 to 1,500 cusecs would be relatively small compared to the bencfits from additional storage in the H and IH tanks and the added flexibility provided in the system operation.

(o) Kandalama, Kalawewa, Kattiyawa, Maha nIluppalama, Rajarigana and Usgala Siyambalanganuwa tanks in the H area have a combined effective capacity of 195,500 ac-ft. In dry years, the local yield from their catchments is quite small as indicated in para 15 and they would not be filled to capacity, even with the increased sizes of the Polgolla and Bowatenna tunnels. Consequently, increasing the capacity of the Kalawewa tank by 20,000 ac-ft as presently planned would be unnecessary. The tanks in the IH area would be effective for local regulation only and they have already excess capacities compared to their local yields.

(p) Giritale, Minniriya, Kaudulla and Kantalai tanks in the D4 and G areas have a combined effective capacity of 363,000 ac-ft. The annual yield from their catchments is considerably smaller as shown in para 15. Any further increase in the storage capacity of these tanks would not be required.

18. In view of the results discussed above, the initial operation studies were revised using a 2,500 cusecs tunnel at Polgolla and a 1,500 cusecs tunnel at Bowatenna. The results of the water balance are summarized below.

Critical Polgolla Amban Local Total Gross Deficit Un- Years Diversion Ganga Yield Supplies Irrigation utilized Flow of Tanks Requirements Surplus ------'O- w - 1 _ ac-?t ------19h5-h6 965 777 448 2,190 1,732 - 458 1947- 48 508 433 333 1,274 1,732 541 83 19h9-50 1,006 620 286 1,912 1,732 10 190 1952-53 878 376 135 1,389 1,732 360 17 1955-56 1,138 138 77 1,353 1,732 431 52 1958-59 1,276 440 161 1,877 1,732 - 15

19. The unutilized surplus indicated in the above table represents the sum of the water escaped below the Elahera Weir and the end storage left in the tanks. In addition, there is a substantial surplus below Polgolla in the above years as shown below, which occurs mainly in the Maha season and cannot be transferred to the Amban Ganga because of the limitations in the Polgolla tunnel capacity. Increasing the tunnel capacity over 2,500 cusecs would be of little use as the surplus occurs at a time when it is not required or when the tanks are already full. When the proposed Kotmale reservoir on the Mahaweli Ganga, upstream of Polgolla, is constructed as envisaged in the Master Plan, the utilization of the Polgolla tunnel would be very effective. ANN1EX Page 11

Critical Mahaweli Down- Polgolla Unutilized Years at stream Diversion Surplus Polgolla Uses

- - - -'000 ac-ft ------1945-46 1,377 110 965 302 1907-h8 937 110 508 319 1949-50 1,634 110 1,006 518 1952-53 1,522 lo 878 53h 1955-56 1,883 110 1,138 635 1958-59 2,331 110 1,276 945

20. The works provided in Stage I would meet the full requirements of areas H, IH, D1 and G in 1. out of 20 years without any difficulty. In the remaining 6 years, which are exceptionally dry, the requirements can be fully met in 2 years while shortages varying up to maximum of 30% can be expected in the remaining years. The reuse of drainage recovery and the local yield of the tanks in the IH area which have been discounted in the study would reduce the shortages to some extent. On the other hand, as the study is based on monthly average flows, the actual utilization of supplies would not be as effective.

21. Considering that the full requirements of areas H, IH, DT and G can be met in 16 out of 20 years and in the remaining 4 years the shortages would be less than 30%, the works provided for in Stage I would be adequate for the development of the full areas under the project.

Quality of Water

22. The UNDP carried out a study on the quality of the water of the Mahaweli Ganga, Amban Ganga, Kalawewa tank and the Minneriya tank. The tests indicated that the waters of the Mahaweli and Amban Ganga are of excellent quality having a conductance of less than 250 micro mho per centimeter and can be used for irrigation of all soils without developing problems of salinity. They have a sodium absorption ratio (SAR) of less than 10 and would not pose any danger of alkalinity problems. Tests on water samples from Kalawewa and Minneriya tanks indicated conductance of 250 to 750 micro mho. They can be used for irrigation of medium salt tolerant crops and would not require any special salinity control measures provided drainage is not impeded. Their SAR values are also less than 10. As the bulk of the irrigation requirements would be met from the river supplies, the overall quality of water for irrigation can be considered as good.

CEYLON ATh, 6 MAHAWFLI GANGA DEVELOPMENT PROJECT - STAGE I

COI'NSULTANT S ERTIICES

11 The work of the consultants would fall into two distincl. cate-

Eories as follows:

(A) Investigations and sti:dies in are rT! and ETl with a view to

briny;ing these areas to feasibility level for appraisal o:f

Sta ge II.

(P) Work required for the execution of Stage I

The investigations and studies required under (A) above wouLId

-4cln-ucle Ilut not be lirited to the follownlig:

(1) Reviewf existing d..ta and reports.

(2) Specify and control aerial photography at a scale of 1:10,000 to enable the production of good rectified print-s and rnosaics.

(3) Review the existing contour mapping to determine its adequacy and recommend any additional iwork that may be considered nccessaryO

(4) Conduct a land classification at scale of about 1:10,000 to conform with the standards nortaally accepted by the TJ.2. Bureau of Reclamation.

(5) Perform water supply, water management and use studies, including seepage and evaporation losses and use of measutring. devices.

(6) Determine land development and on-farm development costs for existing and new lands (unit costs for various types) for clearing, levelling., on-farm development, irrigation and drainage based on typical farm lay-outs from sample plots on representative areas covering 102, of the total irrigable area.

(7) Study the farm-to-market road requirements and make recommendations.

(8) Carry out agronomic and farm management studies to establish optimum cropping patterns on a mixed farminipg basis as well as withlout livestock.

(9) Conduict socio-agro-economic studies of settlement pa-tterns (on-farm or villares) and on suitcable farm sizes. ANNEX 6 Page 2

(10) Assist the Government in undertaking a comprehensive water charges study which would relate the recovery rate to farmers' incentives and capacity to pay.

(11) Establish an overall irrigation and drainage plan for areas H and IH. Review and recommend designs and cost estimates for reservoirs (including increased storage capacity), main canals, laterals and irrigation and drainage systems, including surface and sub-surface drainage and flood control.

(12) Establish costs for recommended farm lay-outs.

(13) R-eview and advise on agricultural extension services-to provide farmer education and training in proper land and water utilization for the various recommended crops and livestock. Advise on the establishment and lay-out of demonstration farms in representative areas.

(14) Determine project agricultural benefits and perform economic analyses based on the internal rate of return.

(15) Prepare feasibility and final reports based on the above investigations and work adequate for project appraisal in accordance with standards acceptable to financing organizations.

(16) Recommend the type of organization suitable for execution and operation of Stage II.

3. The work required of the consultants under (B) above would include but be not limited to the following:

(1) In respect of the Polgolla and Bowatenna complexes

(a) The conducting of model tests.

(b) The preparation of construction and contract documents.

(d) The evaluation of bids and recommendations for the award of contracts.

(e) The preparation of construction drawings and administration and supervision of construction.

(2) In respect of the Dhun Oya and Sudu Ganga improvements, Elahera weir and the Elahera-Minneri-Kantalai canal and agricultural land development, the work required ~Tould be the review of detailed design and construction drawings, recommend any modifications that may be necessary and supervise construction. The scope of work iN (1) and (2) above would involve the following: AJNEX 6 Page 3

(a) The preparation of schedules, cost estimates and reports involving engineering and construction schedules, estimates of construction and progress reports.

(b) The preparation of designs and specifications involving hydrologic and geologic design, materials, hydraulic model tests, design criteria, construction and purcahse specifications, review of others' designs, issuance of specifications and specifications for award.

(c) General supervisory services involving supervision, coordination and administration, in co-operation wTith the Irrigation Department, all phases and elements of the construction of the works. This would comprise surveys and investigations, lines and grades, the preparntion of con,truction drawings, concrete control testing, inspection of construction, testing and inspection of materials and equipment, the review of contractor's construction plans, checking payments, safety regulations, supervision of and final testing and initial operation of all operating units and the training of personnel of the Borrower.

ANNEX 7 CEYLON

MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I

LIST OF EQUIPMENT AND TRANSPORT

1. Irrigation Department

Number Approximate Cost Us$ '000 (a) Construction / Excavator Draglines - 1 cu yd 3 180 Dozers - D6 3 90 Motor Grader - 100 hp 1 20 Trucks - 3 ton 2 7 Jeeps 4 WD 8 20 Pick-ups 4WD 4 12 Rehabilitation of Kaudulla Workshop 160 Mobile Workshop 1 25 Spares 15% 77 Total 9 Contingency 20% lid (b) Maintenance and Operations 2/ Trucks - 3 ton 3 11 Pick-ups 4WD i ton 4 12 Jeeps 4 WD 16 40 Telecommunication Equipment 100 Equipment for Hydrological Measurements 4 Spares for Transport 15% 9 Total i76 Contingency 20%

(c) Investigations H and IH Equipment for Hydrological Measurements, Soil Tests etc. 10 Survey Instruments and Equipment 40 Trucks 3 ton 3 11 Jeeps 4 WD 16 40 Pick-ups 4 WD i ton 2 6 Spares for Transport 15% Total 116 Contingency 20% 23

/ Construction equipment and transport for Polgolla and Bowatenna Complexes is separately included in the main construction contracts. / Equipment and transport under 1 (a) and 1 (d) will also be available for maintenance and operation after the works are completed. ANNEX 7 Page 2

2. Investigations H and IH Agriculture Department and Agricultural Land Development Number Approximate Cost US$ '000

Excavator Draglines - 3/4 cu. yd 3 175 with side equipment, back hoe etc. 1 20 Motor Grader - 100 hp 1 25 Scrapers - 15 cu. yd 3 75 Land Leveller with hydraulic scraper 1 5 Crawler Tractors - 180 hp 6 300 Angle Dozer blade 1 6 Clearing Dozer blade with portable grinder 1 6 Dozer Toolber with equipment 1 4 Disc Harrow 1 8 Wheel Tractors - 4w, 40 hp with equipment 10 40 Wheel Tractors - 4W, 60 hp with equipment 4 20 Wheel Tractors - 2W, 10 hp with equipment 10 15 Pumps - 6 in with equipment 6 21 Pumps - 8 in with equipment 2 8 Jeeps - 4WD 15 45 Jeep Station Waggon - 4WD 5 20 Pick-ups - 4WD ½ ton 6 20 Trailers 4 5 Laboratory Equipmenit - 20 Survey & Drafting Equipment 4 Miscellaneous Equipment 20 Spares 15% 129

Total 991 Contingencies 20% 9 Grand Total 1 7 Contingencies 305 Annex 8

CEYLON

MAHAWELI GANGA DEVELOPMENT PROJECT - Stage I

OOST ESTIMATES 1/

Million Rupees US$ Million Equivalent Local Foreign Total Local Foreign Total

1 PolgoUla Complex Land & Land Rights 0.8 - 0.8 0.1 - 0.1 Works 42.1 47.9 90.0 7.1 8.1 15.2 Materials & Equipment 1.0 17.6 18.6 0.2 2.9 3.1 sub-Total 43.9 6. 109.4 74 11.0 18T 21

2 Bowatenna Complex Land & Land Rights 1.1 - 1.1 0.2 - U.2 Works 29.8 27.7 57.5 5-0 4.6 9.6 sub-Total 30.9 27.7 58.6 5.2 77 9.8 3 Sudu Ganga Training Works Land & Land Rights 0.8 - 0.8 0.1 - 0.1 Works 4.9 _,.2 10.1 0.8 0.9 1.7 sub-Total 5.2 10.9 1.8

4 Elahera Weir & Canal 5.1 1.9 7.0 0.9 0.3 1.2 5 Buildings & Camps 3.1 1.3 4.4 0.5 0.2 0.7 6 Agricultural Land Development 0.3 0.4 0.7 0.1 0.1 0.2 7 Investigations & Extension - H & IH 2.3 1.0 3.3 0.4 0.2 0.6 8 Equipment & Vehicles (a) Irrigation Department Construction - 3.3 3.3 - 0.6 0.6 0 & M - 1.4 1.4 - 0.2 0.2 Investigations H & IH - 1.0 1.0 - 0.1 0.1 (b) Agriculture Department Investigations & Extension - H & IH - 1.8 1.8 - 0.3 0.3 Agricultural Land Development - 4.0 4.0 - 0.7 0.7 sub-Tot.a - 11. Ti7¢ - 1.9 1.9 9 Consultant Services 6.o 13.4 19.4 1.0 2.2 3.2 10 Engineering & Overheads 6.5 1.5 8.0 1.1 0.3 1.4 11 Contingencies Physical 15% 15.8 19.2 35.0 2.6 3.2 5.8 Price IncrXases 5% 5-3 6.4 11.7 0.9 1.1 2.0 sub-Total 21.1 264.3 -7T Total 124.9 155.0 279.9 21.0 26.0 _TT7V 12 Interest & Commitment charges during construction 17.6 17.6 - 3.0 3.0

Grand Total: 172.6 297.5 21.0 29.0 200.

1 Discrepancies are due to rounding. 2/ Including cost of Power facilities. 3/ Interest at 7% on Bank Loan and 3/4 of 1% commitment-charge on the undisbursed portion of the Bank Loan.

ANNEX 9 CEYLON

MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I ALLOCATION OF COSTS BETWEEN IRRIGATION AND POWER

1. The allocation of the costs of the Polgolla complex between its two users, i.e. irrigation and power, follows the Separable Costs Remaining Benefits methods.

2. The various costs and benefits in the computation (Table 9-1 to 9-3) have been put on a comparable basis by first calculating present values, for a 50-year period (the life of the project) discounted at a rate of 8% per annum, then reducing them to annual equivalent values. The maximum cost allocation to power and irrigation has been established for each by taking the benefits in the project for that function or the cost of obtaining equivalent benefits through an alternative project, whichever is smaller. The benefits from power have been taken as the discounted value of fuel displacement for the first two years of operation and for subsequent years as the total cost, inc'uding capital costs of energy generated in a new thermal station, whilst those from irrigation as the value of the increased agricultural production (Table 9-3). lowever, in the present case, the costs of alternative projects are less for both sectors.

3. For power the cost of Victoria Falls (a future project in the Mahaweli Ganga development) has been taken as the alternative. The capital cost of power in this project, after deducting the allocated cost to irrigation, is Rs 195 million, including interest during construction. Based on these costs and assuming a 50-year life, it is estimated that the average value per kWh for that portion of the capacity comparable to Polgolla is about Rs 0.0h5.

4. Separable costs (Table 9-2), representing the minimum allocations, have been determined by estimating the cost of the Polgolla complex were it to be used only for irrigation and the cost were it to be used for power alone. Each of these costs has been subtracted from the total cost of Polgolla as proposed for both uses to give separable costs for the other function (e.g. cost of total project less cost of irrigation only equals separable costs of power and vice-versa).

5. The residual costs of the project (i,e. total project costs less separable costs) have been allocated to pofer and irrigation (Table 9-3) in the same proportion as the lesser of benefits or costs which remain after separable costs are subtracted from them. The residual costs are then added to the separable costs to give the total allocation for power and irrigation separately. The allocated works out to 60% for power and 40% for irrigation. Applying these ratios to the Rs 155.6 million estimated capital cost of the project gives Rs 93.4 million for power and Rs 62,2 million for irrigation, of which foreign costs are Rs 55.7 million for power and Rs 37.2 million are for irrigation.

6. The allocation of 60% to power results is an installed cost of US$ 392 per kw, which is high even after allowing for the smallness of the project. Of course, the cost allocation is solely on a financial basis and has no bearing on the economic justification of the project, which is based on the benefits of the project as a whole to the economy. The allocation here is illustrative and represents only one of a range of possible allocations which might justifiably be adopted for division of the assets and the terms and conditions of transfer to the Ceylon Electricity Board would depend upon the particular circumstances and conditions prevailing at the time of transfer and would have to be acceptable to the Bank Group and the Board (para 4.02). ANNNEX 9 Page 2

Table 9-1 - Summary

Annual Equivalents of Present Values Discounted at 8%

Power Irrigation - Total ... 0 . 1000 Rupees . .... a) Total cost of scheme - unallocated - - 11s,400 b) Separable costs - allocated 4,200 1,000 5 200 c) Residual costs - unallocated - - 6,00 d) Residual costs - allocated 2,640 3,560 (6,200) e) Total cost of scheme - allocated 6,840 4,560 11,400 f) Percent allocation 60% 40% 100%

Table 9-2 - Calculation of Separable Costs

Present Value Annual Equivalent (Discounted @ 8% Value © 8% over over 50 years) 50. years ...... 000 Rupees:...... a) Cost of irrigation onel/ 88,400 7,200 b) Cost of power alone_ 127,000 10,400 c) Cost of.scheme wIth both irrigation and power- ! 139,900 11,400 d) Separable costs of power (c-a) 51,500 4,200 e) Separable costs of irrigation (c-b) 12.,900 1,000

1/ Capital costs of Rs 98.1 million (Table 9-5) and Rs 1.4 million annual 0 & M costs for Polgolla as irrigation project only. 2/ Capital costs of. Rs 139.7 million (Table 9-6) and Rs 0.9 million annual 0 & M costs.for Polgolla as power project only. 3/ Polgolla complex-as proposed, Rs 155.6 million in capital.costs plus Rs 1.4 million annual 0 & M costs (see text of main report). ANNEX 9 Page 3

Table 9-3 - Calculation and Allocation of Residual Costs

Annual Equivalents of Present Values Discounted at 8%

1. Residual Unallocated Costs '000 Rupees a) Total cost of scheme 11, 100 b) Less separable costs 5,200 c) Residual costs 6,200

2. Allocation of Residual Costs Power Irrigation Total . .000 Rupees. .

a) Benefits from scheme1/ 2/13,6o 8,400 22,000 b) Costs of alternative schemes- 7,686 5,700 13,386

c) Lesser of a) or b) 7,686 5,700 13,386 d) Less separable costs 4 200 1 000 5,200 e) Surplus i d ,16 f) Proportion 43% 57% 100% g) Residual costs allocated on basis of f) 2,640 3,560 6,200

1/ Present Value (Discounted @ 8% Annual Equivalent Over 50 years) Value Benefits from scheme: Power 166,200,,000 13,600,o000 Irrigation 102,900,000 8,400,000 2/ Present Value (Discounted ) 8% Annual Fquivalent Over 50 years) Value Cost of alternative schemes:

Power - based on proposed - 7,686,000 Victoria Falls hydro- electric soheme

Irrigation - single-purpose 69,800,800 5,700,000 irrigation project on alternative alignment (Table 9-14) with Rs 77.6 million capital costs plus Rs 0.7 million annual 0 & M costs ANNEX 9 PageP4

Table 9-4

Capital Costs of Single-Purpose Irrigation Project on Alternative Alignment

(Unlined Tunnel 3.5 Miles Long)

Millions Rupees

Local Forei Total

Land and Land rights 0.8 - 0.8

Diversion Dam 5,4 11.0 16.4

Tunnel intake 0.2 0.5 0.7

Surge chamber - - --

Tunnel 18.4 17.8 36.2

Penstocks

Power Plant

Tail Race -

Access Roads & Bridges 0.5 0.4 0.9

Camps 1.4 0.9 2.3

Channel improvements to 1.0 0.5 1.5 Dhun Oya

Sub Total 27,7 31.1 5T8

Eng'g & Admin. 10% 2.8 3.1 5.9

30.5 34.2 64.7

Contingencies 20% 6.1 6.8 12.9

Total 36.6 41.0 77.6 ANNE2.9 Page

Table 9-5 Capital Costs of Polgolla Complex a3 Irrigation Project Only

(Unlined Tunnel 5 Miles Long)

Million Rupees Local Foreign Total

Land and Land rights 0.8 - 0.8

Diversion Dam 5.4 11.0 16.A1

Tunnel Intake 0.2 0.5 0.7 Surge chamber - - -

Tunnel 26.3 25.1 51.7

Penstocks -

Power Plant - - -

Tail Race 1.0 0.5 1.5

Access Roads and Bridges 0.5 0.4 0.9

Camps 1.4 0.9 2.3

35.6 38.7 74.3

Eng'g & Admin 10% 3.6 3.9 7.5

39.2 h2.6 81.8

Contingency 20% 7.8 8.5 16.3

47.0 51.1 98.]. ANNEX 9 Page 6 Table 9-6

Capital Costs of Polgolla Complex as Power Project Only

(Unlined Tunnel 5 Miles Long)

Million Rupees

Local Foreig Total

Land and land rights 0.8 - 0.8

Diversion dam 5.4 11.0 16.4

Tunnel intake 0.2 0.5 0.7

Surge chamber 0.7 0.9 1.6

Tunnel 26.31 25.4 51.7

Pens tocks 1.1 2.8 3.9

Power plant 5.2 17.8 23.0

Tail race 2.6 5.9 8.5

Access roads and bridges 0.5 0.4 0.9

CaEps 1.4 0.9 2.3

44.2 65.6 109.8

Eng'g and Admin (6%) 2.6 3.9 6.6

46.8 69.5 116.4

Contingency (20%) 9.4 13.9 23.3

Total 54.2 83.4 139.7 CEYLON: MAHAWELI GANGA DEVELOPMENT, PROJECT I-STAGE I ORGANIZATION CHART

CABINET SUB-COMMITTEE ON PLANNING

MINISTER OF LAND, IRRIGATION AND POWER

MAHAWELI DEVELOPMENT BOARD

MEMBERS NON VOTING MEMBERS Tr,. Appointed Memben (on. of oho- uill be Otain-otp) Di-fotor of Inogotfgi Pemotant Seorrory - Irrigatiort Di-woor of Agi-tultr. P-eoort Seoreto,y -Agri-ult-r Paranor SarMay - P'5loain POr-Mt Soretory - Fir R.rpramotiv- of Ceylon Eleotni.ity Board ADMINISTRATION

GENERAL MANAGER Pe-ronn St

1 Dopt~~~~~ty Mettagor'~~~~~~ ~ l l Coontaoocr me, l

D..t G 1M . . Dqruy G..ol Monger Depury Lr.nd C-m;i.i- eno A.ist-t Comri.i- S-i A.r/rrU S.tic abe olto Co-P-qutot- Agtorbe Sarit.. DOq.y Dirct.or of Irigatiotn DOqury Direotor of AgritIlt-e

Deigr ErrgiOeer Orief CornmrHotr Eyngnor Coriona one M,rinonone Rogun,er Aaisntt Direotor Reorch Aourjont Ditnror i Mrthowei Molw-Ii Maht Illoppplano Rotemoion

|______|______GOVERNMENTAGENTS

Reidenr Engi.oer R.oid.ot ERoi-noo Reidont Enn-r RonMdnt Ers;r Prinnoruoo fhfg9oI1o Bootaoan Elaber Sd.C-ngTa

DioErtiot Mt E:g Di.tnict Eot-roioi Officer Dinoit Lotd Offhcer Ai.tont Commisionrr A.irtont Co-ni--or wdi Moh-owli Mo_hourei Co-oproti-on Agrarian Serricn wohouroi Mob,wo1i

*Spcoral Ptojoot Offier I I I I I Field Engineer Agritolwtl Offinor Colorirotron Offieer Senior Co-opetoti-o InWecto, DiniAonol Officer Agt-rioo Srvicr > I z z Ag,icoltorl Inap-t-r mx

Di-otly nopoyad by te Board or -oded to the B-ad. Ett,-ion W.,k.rt 05 IBRD - 4726

CEYLON ANNEX 11

MAHAWELI GANGA DVEELOPMENT PROJFCT - STAGE I

MARKET PROSPECTS AND PRICES FOR AGRICULTURAL CROPS

Rice

1. Rice is the staple item in the Ceylonese diet. Total consumption of milled rice in 1968 was estimated at approximately 1.2 million m tons (100 kg per capita), of which 0.9 million m tons were produced locally. Projections of future demand vary, depending upon assumptions regarding population growth, income, and per capita demand (which in turn depends upon the income elasti- cities of damand assumed). In any case, demand for rice can be expected to increase to at least 1.5 - 1.7 million m tons by 1977 - 1978 and probably to more than 2.0 million m tons by 1985. 1/

2. Imports, which averaged 52h,000 m tons in the ten-year period 1958- 1967, supplied a substantial portion of Ceylon's rice consumption. With expanding local production, however, imports have declined in the past three years. 'In 1966 they were approximately 485,000 m tons, in 1967 about 375,000 m tons, and in 1968 about 3h3,000 m tons. Most of Ceylon's imports have come from Burma and mainland China under government contracts. 3. The local price of rice is supported under the government's Guaranteed Price Scheme at Rs 14 per bu of paddy. From 1952 to December 1967, the guaranteed price was Rs 12 per bu. Prices also are affected by the government's provision to the entire population of a free rice ration which makes up about 45% of total rice consumption. The weighted average producer price in 1967 was Rs 13.08 a bushel and during the previous ten years or so was about Rs 11.60.

4. I[(Jntil recently the locally supported price was considerably above world market prices as can be seen from the comparison below.

Guaranteed Price Import Unit Value (Rs per bu of paddy)

1964 12 6.94 1965 12 7.17 1966 12 7.32 1967 12 (lth after Dec.) 8.72 1968 14 13.60 (Jan-June)

5. liecent world market prices for rice have been the highest since the early 1950's. They presently range from approximately US$150 per m ton of Burmnese riJce (SM3, 4j2% brokens, FOB Rangoon) to US$180 per m ton of Thai white rice (5% brokens, FOB Bangkok). At the official exchange rate (Rs 5.95 = US$1.00), these are approximately equivalent to Rs 12.50 and Rs 15.00 per bu of paddy. Actual unit costs landed in Ceylon, of course, would vary somewhat.

1/ The most recent Bank economic report, "Current Economic Position and Prospects of Ceylon" (SA - 2a), Feb. 7, 1969, projects demand for milled rice rising to 1.3 - 1.4 million m tons in 1973 and 1.5 - 1.7 million m tons in 1978. Vidya'Sagar, "Demand Projections for Agricultural Commodities in Ceylon" (UNDP Special Fund Economic Programming and Planning Project), estimates 1975-1977 demand at 1.7 million m tons in 1968. The FAO, Agri- cultural Commodities - Projections for 1975 and 1985" (Rome, 1967), puts 1975 demand at 1.8 - 2.0 million m tons and 1985 demand at 2.3 - 2.6 million m tons. ALRTEX 11 Page 2

6. Between 1970 and 1975, a large upswing in production and supplies available for export is expected to cause a substantial decline in wrorld rice prices. The average FOR price for Burmese rice during that time is projected to decline to about IJS$, 100 per m ton and for Thai rice to about IJS ,$140 per m ton. In terms of Ceylonese rupees, the prices would approximately equal Rs 8.32 and Rs 11.67 per bu of paddy at the offical rate of exchange. After 1975, average FOB prices for rice may well decline further to an average of TJS$ 90 to 100 for Burmese and approximately US$ 120 for N14ai rice, equivalent to Rs 7.50 - 8.32 and Rs 10.00 per bu of paddy.

7. The official exchange rate of Rs 5.95 m US$ 1.00, however, does not adequately reflect the scarcity value of foreign exchange in Ceylon. The government, in recognition of this condition, has established a higher rate of Rs 9.23 = US$ 1.00 which now covers nearly 50% of payment transcations. Since the trend has been to gradually transfer more and more transactions to this higher rate, it would be more appropriate to use it to convert international into local prices. At this higher rate, prices of USf3 100 and ITS'>1)tO per m ton of rice would be equivalent roughly to Rs 12.80 and Rs 17.92 per bu of paddy respectively.

8. The following are the average landed costs of rice imported into Cey- lon during 1963 - 1968:

Average Landed Cost in 22Ylon

(US$ per m ton)

1963 100.3 1964 10h.2 1965 108.3 1966 113.3 1967 124.7 1968 (9 mos.) 154.2 Average 117.5

9. The average landed costs, which include imports from all sources, over this period were usually US$ 3 - 5 above the export prices of Burmese rice (S3S, 142% brokens, FOB Rangoon).

10. Given the anticipated export price of U13$ 100 per ton for Purmese rice it would be reasonable to value rice produced in Ceylon after 1973 - 197)1 Cthe pl?nned commencement of the project) at a minimum of IUS:' 100 - 105 per m ton. At Hs 9.23 = US$ 1.00. this would be equivalent to approximately Rs 12.o0 - Rs 13.56 per bu of paddy and, at the current official rate Rs 8.32 - Rs 8.75. It is assumed that internal transportation and handling costs to move both domestic and importecl rice from point of production or import to consumingf centers are rouglu y equal and therefore can be disregarded.

Sigar

l1o Consumption of white sugar in Ceylon in 1966 - 1967 was approximately 233,000 tons (21 kg per capita). Vidya Sagar estimates demand to rise to 347,000 tons by 1975, 377,000 tons by 1977 and 426,000 tons by 1980. Imports, which supply the bulk of the country's requirements, have risen steadily from 121,078 tons in 1957 to 225,590 in 1967 and 220,000 tons in 1968. Local production is coInfined to twfo factories, one at Kantalai (in the project areaT and the other at Galoya. ANNEX 11 Page 3

12. The plant at Kantalai belongs to the state-owned Sri Lanka Sugar Corporation. In 1968-69, the plant produced 7,670 m tons of sugar and 3.400 m tons of molasses, considerably below capacity. The plant's distillery is the largest producer in Ceylon (729,300 proof gallons in 1965-66) of rectified spirits (for blending into arrack) and accounted for 34% of the island's total consumption in 1965-66.

13. All sugar (plantation white) from the plant is sold to the Food Commissioner, currently at a price of Rs 504 per long ton, or Rs 0.225 per lb. Since resent production costs are estimated at Rs 0.65 per lb the plant loses financially on its sugar output. Its sales of spirits to the Excise Department, however, brings substantial profit which more than offsets any loss.

14. The landed cost of imported sugar in Ceylon during 1966-67 ranged between Rs 0.18 and Rs 0.25 per lb, equal to Rs 397 - Rs 551 per m ton. Over the ten-year period, 1958-1967, the average landed cost was Rs 480 per m ton. Major suppliers have been mainland China, Taiwan, Poland and the U.S,S.R.

15. The recently concluded International Sugar Agreement provides for a price range of US$0.0325 - US$0.0525 per lb of raw sugar. In the period during which the project comes into operation, the price is expected to be near the floor figure, say about US$0.035 per lb. In terms of white sugar, this would mean an FOB price probably about US$0.045 - US$0.050 per lb. Allowing for transport and handling, Ceylon-produced white sugar is valued at US$0o050 per lb (or US$110.20 per m ton). At the exchange rate of Rs 9.23= US$1.00, the value of sugar produced in the project would be Rs 1017per m ton, and at the present official rate Rs 656.

Subsidiary Crops

16. Condiments and spices are widely used in Ceylon. Estimated demand for 1970, 1975 and 1980 is shown belows 1/ Demand for Condiments and Spices

1970 1975 1980 ('000 m tons) Chillies (dried) 44.3 49.4 55.0 Rdd Onions 41.7 46.6 51.9 Bombay Onions 63.2 70.6 78.6 Garlic 2.5 2.8 3.1 Ginger 4.6 5.1 5.7 Tum*ric 4.3 4.8 5.3 Fenugreek 1.1 1.2 1.3 Mustard 1.9 2.1 2.4

1/ Source - Vidya Sagar, "Demand Projections for Agricultural Commodities in Ceylon".

ANNEX 12 CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT - STAGE I

RATE OF RETURN TO THE ECONOMY 1. The rate of return to the economy from the Mahaweli Ganga Develop- ment Project - Stage I has been calculated at 12%. This calculation assumes a project life of 50 years beginning in 1969-70 with the first investment. Water deliveries are assumed to begin in October 1973 so that the first year of electric power and crop production with increased water supplies would be 1973-74. Cost-investment, 0 & M and farm production have been adjusted for subsidies and taxes, and imported items translated into local currency at the exchange rate of Rs 9.23 - US$1.00. Capital costs of Rs 279.9 million (= US$47 million), with a foreign exchange component of US$25.8 million, after adjustment, total Rs 365.3 million (see Annex 13). Agricultural Benefits 2. The gross and net values of agricultural production have been calculated for each year on the basis of thu following assumptions:

Agricultural Benefits With Project Without 1975-76 Paddy Project 1973-74 1974-75 and thereafter Area cultivated (ac) 119890 122,700 122,700 122,700 Area cropped (* ) 192,760 234,160 234,160 234,160 Yields (bu/ac)-V 48 51 58 65 Production (m 4ion bu) 9.3 11.9 13.5 15.2 Price (Rs/bu)_.( 12.90 12.90 12.90 12.90 Gross production value (4 million) 120.0 153.5 174.2 196.1 Production costs (Rs/ac)-. 441 469 528 589 Total (Rs million) 86.8 111.7 125.7 140.3 Net production value (Rs million) 33.2 41.8 48.5 55.8 Sugar Area cultivated/cropped (ac) 4,000 4,000 4,000 4,000 Yields (M tons of sugar/ac) 1.1 2.0 3.0 3.6 Production ('000o tons of sugar) 4.1 8.1 12.2 14.2 Price (Rs/m ton)- 1,017 1,017 1,017 1,017 Gross production value (4 million) 4.2 8.2 12.4 14.4 Production costs (Rs/ac)2' 441 809 1,155 1,328 Total (Rs million) 1.8 3.4 4.8 5.6 Net production value (Rs million) 2.4 4.8 7.6 8.8

Total Agriculture Net production value (Rs million) 35.6 46.6 .56.1 64.6 Cumulative increase in NPV (Rs million) - 11.0 20.5 29.0

1/ Weighted average of Maha and Yala seasons in the two project areas. V/ Equivalent to US$100 per ton of milled rice @ Rs 9.23 - US$1.00. 3/ Equal to per oropped acre production costs of Rs 413, 433, 473, 515 with imported fertilizers and insectioides valued at Rs 9.23 a US$1.00. Both family and hired labor costs are included and prices of fertilizers, insecticides and seeds are adjusted for taxes and subsidies. / Equivalent to US$110.20 per m ton .- US$0.05 per lb.@ Rs 9.23 - US$1.00. §/ Equal to per acre production costs of Rs 420, 770, 1,100, 1,265 adjusted for imported elements valued at Rs 9.23 - US$1.00. ANNEX 12 Page 2

Power Benefits

3. Power benefits have been based on the annual power which would be generated and used in the Ceylon Electricity Board system -- 100 million kWh in 1973-74 and 220 million KWh in subsequent years. This output has been valued (1) in the first two years at the equivalent cost of fuel which alternatively would be consumed in thermal generation to obtain the same output -- Rs 0.07 per kWh, and (2) in subsequent years at the cost of fuel savings plus capital investment in a new theimal plant -- Rs 0.12 per kWh, since demand by that time would require this additional capacity. In both cases, imported elements in operation, maintenance and capital costs have been converted into local currency at the rate of Rs 9.23 . US$1.00 and adjusted for taxes.

Operation and Maintenance Costs

4. Operation and maintenance costs for the project have been estimated at Rs 2.2 million per annum. Adjusting for the higher rate of exchange for imported items, the annual figure becomes Rs 2.9 million. It includes the costs of replacing vehicles for extension workers every five years and other minor replacement items. Major electrical equipment has been assumed to have a life of 50 years.

Effects of Changes in Projeot Costs and Values of Output

5. If the investment cost of the project should increase by US$2.0 million (any greater increase is regarded as unlikely), the rate of return would decline to slightly less than 12%. Given the possibility that after 1975 the price of rice landed in Ceylon may fall below US$100 per m ton (the price assumed in the calculation above), if the price were to decline to US$90 per m ton after 1975, the rate of return to the economy from the project would be about 11%. If the price after 1975 were to go still lower, say to US$85 per m ton, the rate of return would decline to around 10%. At this time, a decline of such magnitude appears unlikely.

6. On the other side, if the average rice price during the project life were to be higher than US$100 per m ton, the rate of return would be greater than the calculated 12%. At US$110 per m ton, it would be ; w "=t 14%. Changes in the assumed price of sugar (US$110.20 per m ton) would not affect the rate of return as drastically. Even a drop of 50% in the landed price (to a level below the current price converted at Rs 9.23 = US$1.00) would still give a rate of return of about 10% or better. CEYLON

MAHAWELI-GANGA DEVELOPMENT PROJECT - STAGE I ~RaeoReturntoteEonom (Rs 9.23 - US$ 1.00) (Rs Million) Agriculture Power Total Incremental Incrementar Incremental Present Worth Gross Net Net Net Not Incremental Diescounted Production Production Production Production Production Production 1&/ Project Capita)l at 12% Year Value Cost Value Value Value Value CostsY Benefits Costs Benefits Costs 1969/70 124.2 88.6 35.6 - - 18.7 - 16.7

1970/71 124.2 88.6 35.6 _ _ 48.8 _ 38.9 1971/72 124.2 88.6 35.6 _ - _ - 91.1 64.9

1972/73 124.2 88.6 35.6 - _- 96.1 61.1 1973/74 161.7 115.1 46.6 11.0 7.0 18.0 2.9 15!1 88.4 9.1 50.1 1974/75 186.6 130.5 56.1 20.5 15.4 35.9 2.9 33.0 22.2 16.7 11.3 1975/76 210.5 1U5.9 64.6 29.0 26.4 55.4 2.9 52.5 - 23.7 - 2018/19 210.5 145.9 64.6 29.0 26.4 5.-4 2.9 52.5 - 197.4 -

TOTAL 365.3 246.9 243.0

1/ Includes replacement of vehicles for extension works every five years.

POl

CEYLON

Mahaweli Ganga Development Project - Stage I

Expenditure Schedule 1/

1969/70 1970/71 1971/72 1972/73 1973/74 1-974/75 Total

- - - - (Rs million) ------

Local 5.2 13.0 26.3 36.4 34.4 9.6 124.9 Foreign Excbange (i) atUSi$1.00 Rs 5.95 8.9 23.9 42.6 42.0 41.4 13.8 172.6 (Ii) at US$1.00 Rs 9.23 13.8 37.0 66.o 65.1 64.2 21.4 267.5

Total irements (i at US$1.00 Rs 5.95 -7E 2997. 2/ (ii) at US$1.00 Rs 9.23 19 .0 92.3 101.9 31.0 392.4 3/

1/ Figures rounded

2/ Total financial requirement of Rs 297.5 million = Rs 279.9 million plus interest and commitment charges of Rs 17.6 million

3/ Total financial requirement of Rs 392.4 million = Rs 364.7 million plus interest and commitment charges of Rs 27.7 million

Note For determination of the economic rate of return, capital cost of about Rs 365 million (see note 3/ above) equivalent was used instead of about Rs 280 m-illion (see note 2/ above) equivalent. In the case of the former figure, the foreign exchange component was converted at the higher effective exchange rate of US$1.00 = Rs 9.23 and the latter figure at US$1.00 = Rs 5.95

MAP 1. CEYLON

MAHAWELI GANGA DEVELOPMENT PROJECT 1 ______STAGES I . f lf

1-k~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1

lIS ANE ND AX

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MAP I[

CEYLON MAHAWELI GANGA DEVELOPMENT PROJECT I STAGE I CIVIL WORKS

SCALE

4 0 4 a 12 MLES

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POWERHOUSE

AUGUST 1969 IBRD 2&61T

MAP III

TRANSMISSION LINES Existing Under construction Proposed

132KV double circuit

V¢ (:\JAFFNA 132KV single circuit N 66KV double circuit

33KV single circuit

d j > DIESEL GENERATING STATIONS A

A. ) ;i >STEAM GENERATING STATION CD * )AKILINOCHCHI HYDRO GENERATING STATIONS U 132KV STEP-DOWN SUBSTATIONS Q * 4 TRINCOMALEE

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CEYLON ELECTRICAL GRID AMBALANGODA

0 10 20 30 40 50 GALLE MILES

AUGUST 1969 IBRD- 2639