Performance
Evaluation
Report
Sri Lanka: Plantation
Development Project
Independent
Evaluation
Performance Evaluation Report
March 2016
Sri Lanka: Plantation Development Project
This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.
Reference Number: PPE:SRI 2016-06
Project Number: 34023
Loan Number: 1913/1914
Independent Evaluation: PE-787
NOTES
(i)
The fiscal year (FY) of the government ends on 31 December
(ii)
In this report, “$” refers to US dollars.
Director General
Officer-in-Charge
V. Thomas, Independent Evaluation Department (IED)
V. Salze-Lozac'h, Independent Evaluation Division 2, IED
Team leader
Team members
M. Vijayaraghavan, Senior Evaluation Specialist, IED
O. Nuestro, Senior Evaluation Officer, IED
I. Garganta, Associate Evaluation Analyst, IED
In preparing any evaluation report, or by making any designation of or reference to a
particular territory or geographic area in this document, the Independent Evaluation
Department does not intend to make any judgments as to the legal or other status of
any territory or area.
The guidelines formally adopted by the Independent Evaluation Department (IED) on
avoiding conflict of interest in its independent evaluations were observed in the
preparation of this report. To the knowledge of the management of IED, there were no
conflicts of interest of the persons preparing, reviewing, or approving this report.
Abbreviations
ADB
CPS
DFCC
DMF
IED
IEM
MIRC
MPI
O&M
PCR
PDP
PFI
PIU
TA
PRP
RPC
RRP
TASL
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Asian Development Bank
country partnership strategy
Development Finance Corporation of Ceylon
design and monitoring framework
Independent Evaluation Department
independent evaluation mission
marketing intelligence and resource center
Ministry of Plantation Industries
operation and maintenance
project completion report
Plantation Development Project
participating financial institutions
project implementation unit
technical assistance
Plantation Reform Project
regional plantation company
report and recommendation of the President
Tea Association of Sri Lanka
Currency Equivalents
Currency Unit – Sri Lankan rupee (SLRe)
SLRe1.00
$1.00
=
=
At Appraisal
(20 June 2002)
$0.0104
SLRs96.33
At Completion
(6 November 2009)
$0.0087
SLRs114.82
At Independent
Evaluation
(23 September 2015)
$0.0070
SLRs140.95
Contents
Page
Acknowledgements
Basic Data
Executive Summary
vii
ix
xi
Chapter 1: Introduction
A.
Background and Project
B.
Evaluation and Process
1
1
1
Chapter 2: Design and Implementation
A.
Formulation
B.
Impact, Outcomes, and Outputs
C.
Cost, Financing, and Executing Arrangements
D.
Procurement and Construction
E.
Design Changes
F.
Loan Covenants
G.
Policy Framework
3
3
3
4
5
6
6
7
Chapter 3: Performance Assessment
A.
Relevance
B.
Effectiveness
C.
Efficiency
D.
Sustainability
E.
Overall Assessment
8
8
9
13
14
15
Chapter 4: Other Assessments
A.
Impact
B.
Asian Development Bank and Borrower Performance
16
16
17
Chapter 5: Issues, Lessons, and Follow-Up Actions
A.
Issues
B.
Lessons
C.
Follow-Up Actions
19
19
20
21
APPENDIXES
1. Design and Monitoring Framework
2. Project Cost Estimates
3. Implementation Schedule (Appraisal and Actual)
4. Major Loan Covenants Not Complied With by the Borrower
5. Characteristics of Estates Visited by the Independent Evaluation Mission
6. List of Regional Plantation Companies
7. World Commodity Prices and Regional Plantation Companies’ Profitability
8. Financial Internal Rates of Return for Crops
23
33
34
35
39
40
41
42
Acknowledgements
This project performance evaluation report was prepared by a team of staff and
consultants from the Asian Development Bank (ADB) Independent Evaluation
Department (IED). The team comprised staff members Maya Vijayaraghavan (team
leader), Maria Olivia Nuestro, and Irene Garganta; and consultants Edward Breckner
and Charith Amarasekara, who contributed to this report. The team is grateful for the
support provided by ADB staff at the resident mission in Sri Lanka for mission planning
and logistics.
The team thanks ADB staff, staff in government offices in Sri Lanka, and representatives
of nongovernment stakeholders who were interviewed for their time, assistance, and
inputs. Thanks go to the peer reviewers Andrew Brubaker and Srinivasan Palle Venkata
for their valuable comments, which improved the report. Comments on an earlier draft
received from ADB’s South Asia Department were also considered. Nevertheless, the
IED retains full responsibility for this report.
The evaluation was conducted under the supervision of Bob Finlayson, Director,
Independent Evaluation Division 2, and the overall guidance of Vinod Thomas, Director
General, IED.
Basic Data
LOAN 1913/1914-SRI: PLANTATION DEVELOPMENT PROJECT
PROJECT PREPARATION/INSTITUTION BUILDING
TA No.
3594
TA Name
Technical Assistance to the
Democratic Socialist Republic of Sri
Lanka for the Plantation
Development
Project.
No. of
PersonMonths
46
Type
PPTA
Amount
($’000)
800a
Approval
Date
18 Dec 2000
PPTA = project preparatory technical assistance.
a
The amount pertains to ADB amount only.
As per ADB
Loan Documents
114.4
30.0
10.0
20.0
(15.0)
Key Project Data ($ million)
Total Project Cost
ADB Loan Amount (Utilization)
ADB Loan Amount (Utilization for 1914)
ADB Loan Amount (Utilization for 1913)
SDR
Actual
67.2
18.9
10.0
9.0
(5.9)
ADB = Asian Development Bank, SDR = special drawing rights.
Key Dates
Expected
Consultation mission
Fact-finding
Appraisal
Loan negotiations
Board approval
Loan agreement
Loan effectiveness
Project completion
6 Feb 2003
31 Dec 2008
Loan (1913/1914) Closing
Months (effectiveness to completion) 1913/1914
30 Jun 2009
71
Borrower
Executing Agency
Actual
15–20 Oct 2002
21 Apr–1 May 2002
2–20 Jun 2002
25–27 Jul 2003
13 Sept 2002
8 Nov 2002
29 Aug 2003
22 Feb 2010
26 Nov 2009
22 Feb 2010
78
Government of Sri Lanka
Ministry of Plantation Industries
Type of Mission
Fact-finding
Appraisal
Inception
Special project administration
Review
Completion
Evaluation
No. of Missions
No. of Person-Days
1
1
2
2
4
1
1
55
95
20
5
126
65
56
Executive Summary
Tree crops, especially tea and rubber, are an important component of Sri
Lanka’s economy and a major source of employment and export earnings. About 40%
of the country’s tea and rubber land is in the estate plantation sector managed by
regional plantation companies (RPCs). RPCs are commercial entities that have leased
formerly nationalized plantations from the government. The Asian Development Bank
(ADB) helped the government denationalize the plantation operations in the 1990s.
ADB’s Plantation Reform Project, implemented during 1996–2004 was designed to
build up the RPCs and assist with replanting estate lands.
In 2002, ADB appraised its follow-up Plantation Development Project (PDP) in
Sri Lanka, estimating its total cost at $114.4 million, of which ADB was to fund the
equivalent of $30.0 million. It approved an Asian Development Fund loan equivalent to
$20.0 million and a loan equivalent to $10.0 million from its ordinary capital resources
to help finance the PDP. The project’s intended impact was to make the plantation
sector sustainable over the long term without further external assistance. The intended
outcomes were (i) the enhancement of the plantation sector’s profitability, and (ii) the
improvement of the living and working conditions of the estate workforce.
The project scope was wide. The PDP had an investment component to provide
long-term finance for the replanting and expansion of traditional crops, including tea,
rubber, and coconuts; as well as for crop and non-crop diversification, factory
consolidation and automation, and effluent treatment plants. Its social and
environmental component covered self-help housing and amenities, social awareness
programs, and the preparation of land surveys to enhance planning and land use. It
was to support marketing initiatives through product research and development, as
well as fair trade labeling and compliance with requirements of ethical trade. Its
institutional strengthening component was to include assistance for an industry
umbrella body, consulting services, and training and development for out-grower
models. The intended beneficiaries were the estate workers, the RPCs, and their
shareholders.
The project was implemented during 2003–2009, and an ADB project
completion report in 2010 rated it successful. A project completion validation report by
ADB’s Independent Evaluation Department (IED) concurred with this assessment in
2012, although it was prepared immediately after a period of record high prices for tea
and rubber that no longer prevail.
The findings of IED’s project performance evaluation of the PDP in this report
are based on four core evaluation criteria—relevance, effectiveness, efficiency, and
sustainability—and on the additional criterion of impact.
Relevance. The project reflected government and ADB objectives, but the
complex design had weaknesses. It had too many components, including many that
were not feasible. The design included counterpart funding conditions for beneficiaries
that discouraged participation by intended stakeholders. As a result, this evaluation
report rates the project less than relevant.
xii Plantation Development Project
Effectiveness. The two intended outcomes of enhanced profitability of the
plantation sector and improvements in the living conditions of the estate populations
were achieved to only a limited degree. Only 16 of the intended 23 RPCs participated in
the project, and the financial position of most of these enterprises remains highly
dependent on the world prices for tea and rubber. In addition, the average tea and
rubber yields and the labor productivity on these estates have not increased. The
majority of output targets were either not achieved or could not be verified, and
project subcomponents were dropped. A significant but uncertain area of tea and
rubber land was replanted. The evaluation was told that some new planting of forest
trees and oil palm and spice crops occurred. Despite this increased capacity, the RPCs
are not profitable or self-sustaining under the current low commodity price regime and
are asking for government assistance to ensure their continued operations. Although
living and working conditions for estate workers have shown some improvements,
indicating a partial achievement of the PDP’s second intended outcome, labor
continues to flow out of the estates. Given these findings, the project is rated less than
effective.
Efficiency. Implementation delays resulted from shortcomings in process
efficiency, the project was unable to spend funds as appraised, and a large part of the
loan was cancelled. The evaluation could not verify the economic internal rate of return
reported in the project completion report since the electronic files were not available,
nor could the rate be estimated due to uncertainly in the achievement of output
targets. Benefits were further eroded by the closure of the project with part of the
social development component still uncompleted. The project is rated less than
efficient.
Sustainability. No specific measures were included in the project design to
ensure sustainability of any component. Given commodity price forecasts and the
financial state of some of the RPCs, the chances that the majority of the project RPCs
will be profitable, sustainable entities in the future without external support are low.
The project is rated less than likely sustainable.
Overall, the project is rated less than successful.
The evaluation’s examination of the issues revealed no easy answer to the
questions surrounding the estate plantation sector’s future and the prospects for better
lives for the sector’s labor force and the families living on the estates.
The PDP provides three lessons. First, the project’s failure to achieve its
expected impact, and limited achievement of its expected outcomes highlights the
need for ADB to fully assess and understand all socioeconomic, institutional, and policy
considerations when preparing and appraising a project. Second, the targeted
outcomes and outputs of ADB projects should be simple and straightforward, backed
by clearly defined implementation arrangements, and involve a manageable number of
implementing agencies. The PDP design called for dozens of diverse activities to be
carried out by many different agencies. Finally, the PDP showed the need for sound
project administration by ADB, and improvement in its business processes. ADB staff
input for field reviews of the project were delayed; operations lost critical project files,
such as economic and financial models and the PDP’s underlying assumptions—which
highlights the need for more systematic retention of key ADB project records in
electronic format.
Executive Summary xiii
ADB should continue to stay engaged in the sector, at least to monitor
developments. The sector remains important to Sri Lanka’s economy, exports, and labor
market. It should be included in any survey or review ADB undertakes within the
agriculture sector as a whole.
CHAPTER 1
Introduction
A.
Background and Project
1.
Tree crop production, primarily of tea, rubber, coconut, oil palm, and some
spices, makes an important contribution to Sri Lanka’s economy. It comprised 24% of
total exports by value in 20121 and accounted for about 800,000 jobs, or 10% of all
employment in the country.2 The sector is divided into (i) smallholder production by
farmers owning 20 hectares (ha) or less; and (ii) the estate plantation sector, producing
mainly tea and rubber on about 450 estates. About 40% of the country’s tea and
rubber land is held by the estate plantation sector, which accounts for 19% of foreign
earnings and employs 290,000 workers (footnote 1). The estates are managed by
regional plantation companies (RPCs), which are commercial entities that have leased
formerly nationalized plantations from the government.3
2.
The estate plantation sector underperformed after the nationalization in the
1970s of about 500 tea and rubber estates and 400 factories, all of which were put
under the management of two state-owned plantation corporations. A restructuring in
1992 brought about more private sector involvement. A total of 450 plantation estates
were put under the management of 23 state-owned RPCs, but their management was
contracted out to private companies. In 1995, the government began turning the entire
operation of the RPCs over to the private sector through 53-year leases of the
plantation lands, which remained under government ownership. The Asian
Development Bank (ADB) assisted with this process through its Plantation Reform
Project (PRP), which was designed to build up the capacity of the RPCs and help in the
replanting of estate lands.4
3.
In 2002, ADB approved the follow-up Plantation Development Project (PDP),
which is the subject of this evaluation by ADB’s Independent Evaluation Department
(IED).5
B.
Evaluation and Process
4.
The project was implemented during 2003–2009, and an ADB project
completion report (PCR) in 2010 rated it successful.6 IED’s project completion validation
report in 2012 concurred with the PCR rating of successful.7
1
2
3
4
5
6
7
Central Bank of Sri Lanka. 2014. Sri Lanka Socio-economic Data 2014. Colombo.
Planters’ Association of Ceylon. 2014. Ceylon Tea Industry and Regional Plantation Companies. Colombo.
Each RPC manages about 20 estates that range in size from about 150 ha to 500 ha.
ADB. 1995. Report and Recommendation of the President to the Board of Directors: Proposed Loan and
Technical Assistance Grant to Sri Lanka for the Plantation Reform Project. Manila.
ADB. 2002. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Sri
Lanka for the Plantation Development Project. Manila.
ADB. 2010. Completion Report: Plantation Development Project in Sri Lanka. Manila.
Independent Evaluation Department. 2012. Validation Report: Plantation Development Project. Manila:
ADB.
2
Plantation Development Project
5.
IED selected the PDP for post-project evaluation and prepared an evaluation
approach paper in 2015. Findings and lessons drawn from this evaluation will feed into
the country assistance program evaluation (CAPE) for Sri Lanka scheduled in 2016.
6.
The findings of IED’s project performance evaluation of the PDP in this report
are based on four core evaluation criteria—relevance, effectiveness, efficiency, and
sustainability—and on the additional criterion of impact.8 The evaluation aimed to
assess various aspects of the project’s formulation, design, implementation, and
operation and maintenance, as well as the living and working conditions of the estate
workers and the sustainability of the project outcome and outputs. The evaluation was
based on (i) a desk review of project documentation, (ii) information gathered during
the independent evaluation mission (IEM), (iii) a review of available RPC annual reports
and financial statements, (iv) a review of available project data and national statistics
on socioeconomic indicators for estate workers, (v) discussions with ADB project staff
at ADB headquarters and in Sri Lanka resident mission (vi) discussions with government
agencies and other project stakeholders in the country; and (vii) site visits to a
representative sample of the RPC estates.9
8
ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations (amended
in March 2013). Manila.
9
The IEM to Sri Lanka during 28 September–9 October 2015 visited six estates selected to represent a variety
of different regions, districts, and crops.
CHAPTER 2
Design and Implementation
A.
Formulation
7.
The PDP built on the PRP. It had significant policy- and institution-building
components designed, according to the RRP (footnote 4), to “to ensure the plantation
sector’s long-term sustainability without further external assistance.”
8.
The project was formulated under a project preparatory technical assistance
(TA) grant.10 Preparation entailed consultations with the government, the RPCs, and
representatives of the estate workers, who constituted a significant, socially distinct
section of society.
9.
The PDP’s scope was very broad and diverse. It covered almost every aspect of
the support needed to implement the sector’s restructuring program and involved
multiple subcomponents, several of which were divided into additional series of distinct
activities. The project framework in the RRP—since renamed the design and monitoring
framework (DMF) in RRPs—listed more than 30 discrete targets to be achieved to
deliver the project’s outputs. The implementation schedule in Appendix 10 of the RRP
listed 20 different implementation activities. The two loan agreements included a wide
range of policy initiatives and covenants that the government needed to take and meet
that were not listed in the project framework.
10.
The all-encompassing project design produced under the PDP’s preparatory TA
was adopted more or less fully by ADB’s project preparation team. The design was then
broadened during ADB’s internal project processing to include more rigorous
participation requirements.
B.
Impact, Outcomes, and Outputs
11.
The PDP’s intended impact, identified as the goal in the DMF terminology of
the time, was the long-term sustainability of the plantation sector without external
assistance.11 The impact indicator was to be sustained business operations by and
sound financial positions at 23 RPCs. The project’s intended outcomes (termed
objectives) were (i) the enhanced profitability of the estate plantation sector, and (ii)
improved living and working conditions for estate workers. See Appendix 1.
10
ADB. 2000. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for Preparing the
Plantation Development Project. Manila.
11
The RRP prepared in 2002 used terminology that had not yet been revised for the DMF that is currently in
use.
4
Plantation Development Project
12.
Key intended outputs were:
(i)
(ii)
(iii)
(iv)
Investment Component. The PDP was to rehabilitate or develop almost
30,000 hectares of tea, rubber, oil palm, and other crops on
plantations, and supporting processing capacity. Non-crop
diversification and estate tourism were also targeted by this
component. 12
Social and Environmental Component. The project was to rehabilitate
or construct housing and amenities for workers and their families
implement social awareness programs, and prepare land use surveys.
Following a change in scope to drop the housing component, it was
also to rehabilitate 446 kilometers (km) of roads.
Marketing Initiatives Component. The project was to support marketing
initiatives through product research and development, as well as fair
trade labeling and compliance with requirements for ethical trade. A
market intelligence and resource center (MIRC) for tree crops was to be
established.
Institution-building and Project Management Component. The project
was to establish an umbrella trade body, the Tea Association of Sri
Lanka (TASL), and create workable models for subleasing RPC land to
out-growers.
13.
The intended beneficiaries were the estate workers, the RPCs, and their
shareholders. The project’s intended impact, outcomes, and outputs are in the DMF in
Appendix 1.
C.
Cost, Financing, and Executing Arrangements
14.
The PDP’s appraisal and actual costs and the financing arrangements are shown
in Appendix 2. The projected cost at appraisal was $114.40 million and included
physical and price contingencies and an estimate of service charges during
construction. The actual cost at completion was $67.21 million.13
15.
ADB provided one loan from its ordinary capital resources of ¥1,171,600
(equivalent to $10.0 million) and a second from the Asian Development Fund for
SDR13.043 million (equivalent to $20.0 million). This was intended to finance 26% of
the total projected project cost. The balance of the project costs was to be financed by
(i) participating financial institutions (PFIs), which were to provide $8.5 million (or 7%
of the project cost); (ii) the beneficiary RPCs, which were to contribute $38.3 million (or
34%); and (iii) a government share of $37.6 million (33%). In the end, ADB disbursed
$19.0 million, or 28% of the actual project cost of $67.2 million. Two groups of PFIs
provided $4.1 million (6%). The RPCs contributed $21.0 million (31%) and the
government $23.2 million (34%).
16.
The funds were to be allocated through an indirect funding mechanism for
investments in RPCs, and for housing loans. A revolving fund established under the
ADB’s prior PRP was to provide a credit line, and a new plantation fund established
under the purview of the Ministry of Finance was to provide eligible RPCs with equity
and quasi-equity funding instruments. The Development Finance Corporation of Ceylon
12
13
Project targets for non-crop diversification and estate tourism were: to refurbish 20 estate bungalows,
rehabilitate 20 mini-hydro schemes, and construct 1 crude palm oil factory.
Despite this significant cost underrun, the PCR reported that the project’s planting targets for tea and
rubber were doubled. The evaluation found these figures to be questionable.
Design and Implementation
(DFCC) Bank was the apex body for the administration of a credit line for the RPC
investments and for a workers’ housing loan scheme. The PFIs were responsible for
managing the two credit lines.
17.
The Ministry of Plantation Industries (MPI) was the PDP executing and
implementing agency responsible for overall supervision, management, and
implementation. A project coordination committee, chaired by the secretary of MPI,
was established to provide overall guidance and direction. The PRP’s project
implementation unit (PIU) had performed adequately, so it was strengthened to help
carry out the PDP. The Plantation Housing and Social Welfare Trust 14 was expected to
help the PIU operate a workers’ housing loan scheme, construct common amenities for
workers, and provide training for the social programs.
D.
Procurement and Construction
18.
The procurement of goods and services raised no major issues. The PDP used
52.5 person-months of individual national consulting inputs. The appraisal plan had
called for 47.0 person-months of both international and nation consultancy services—
23.0 person-months of international and 24.0 person-months of national. No
significant recruitment problems were encountered, and the consultants were all
recruited individually following ADB’s Guidelines on the Use of Consultants.
19.
The PCR reported that participating RPCs carried out most of the project’s
physical works, which were financed through the credit lines provided by the PFIs and
to a lesser extent using equity sourced from the plantation fund. ADB’s PCR considered
the performance of DFCC Bank and the PFIs to have been satisfactory. Delays occurred
in the setting up of the plantation fund, as well as in sourcing funds from the PRP
credit line. These problems delayed credit use. The RPCs did most of the small housing
and roads works for the social component—such as reroofing; the construction of field
restrooms, playgrounds, and toilets; and road rehabilitation. Bad weather caused some
problems during the road work.
20.
The PCR mission compared the appraisal and actual implementation schedules,
and the results are in Appendix 3. Most components started much later than planned.
Credit provision under the investment component began about 2 years late, and most
social programs were delayed even longer. The government PCR said the credit
provision was delayed mainly by the long time taken by the PFIs in meeting eligibility
criteria, by the RPCs in submitting acceptable strategic plans, and delays in establishing
the plantation fund.
21.
The reluctance of RPCs to participate due to the project’s requirement that they
provide 50% of the funding caused the social component’s major delays. This
requirement was eventually reduced to 40% funding from RPCs for reroofing the
worker’s line accommodation and ergonomic equipment, and 60% sourced from the
project. In addition, the RPCs were released from the requirement to help fund the
social awareness programs and road improvement which were funded from the ADB
project (75%) and the government contribution (25%). Delays for providing training for
RPC workers were resolved when ADB agreed to overseas training. Delays in
14
Later renamed the Plantation Human Development Trust (PHDT). Established by the Government of Sri
Lanka (GOSL) in 1992, it is a tripartite organization consisting of the GOSL, RPCs, and plantation trade
unions. The main objective of PHDT is to implement social development programs to enhance the quality
of life of the plantation community (of one million) in the estates managed by the RPCs.
5
6
Plantation Development Project
implementing the marketing initiatives component and the institutional development
component were primarily due to a lack of interest by stakeholders.
E.
Design Changes
22.
The major design change was the project’s dropping of the credit line to
provide housing for 6,000 workers’ families under the social component and its
replacement with a component for the construction of internal estate roads. The
housing component was eliminated because another program under the Ministry of
Estate Infrastructure and Livestock Development provided more attractive financing.
The project rehabilitated 446 kilometers of roads using tar or concrete and repaired
another 74 kilometers of gravel roads.15 These were basic 8-meter-wide rural roads but
provided strategic access to schools, hospitals, and rural markets. The construction was
supervised by the government’s Road Development Authority.
23.
A minor scope change added the upgrading of tea factories to the PDP’s
marketing initiatives component. In other small changes, components that were no
longer considered viable or received little support from stakeholders were dropped.
These included the planned improvement of common sites and services under the
social development component—abandoned since the associated housing credit line
component had been removed from the scope. An ethical trade initiative under the
marketing initiatives component was replaced by minor factory upgrades. A study of
out-grower systems under the institution-building component did not proceed due to
the RPCs’ lack of interest.16
F.
Loan Covenants
24.
The PCR stated incorrectly that ”covenant compliance was generally achieved,
but some were delayed.” This was not the case. Appendix 4 shows the record of
government noncompliance with ADB loan covenants.17 Several important policy
requirements relating to privatization and industry restructuring were not complied
with. The government did not comply with its undertakings (i) to divest itself of the
three remaining government-owned RPCs and warehouses; (ii) to refrain from
intervening in wage determination in the collective agreements between estate workers
and management; (iii) to eliminate all restrictions on tea exports, except those related
to quality control, and to eliminate price control and panel ratification for non-auction
sales between producers and international buyers; and (iv) to amend the legislation
governing the tea-, rubber-, and coconut-related institutions and reconstitute their
boards to permit greater private sector participation. This noncompliance was due
mainly to a change in government in 2005 after the loan was negotiated. The new
government changed the policy on privatization and divestment.
25.
The PIU failed to comply with the requirements to carry out a social benchmark
survey and monitor and evaluate the project benefits. This noncompliance created a
significant challenge for the IED project performance evaluation. The absence of
monitoring data made it difficult to verify the project’s accomplishments, particularly
for the investment and social development components.
15
16
17
The original scope included the 74 kilometers of gravel road. The additional road building can be
considered an expansion of this subcomponent.
Some RPCs are now considering using out-growers (families which would cultivate idle estate lands and
provide the crop to estate factories for processing).
There were a number of non-complied covenants related to the cancelled workers’ housing component of
the project that are not included in this appendix.
Design and Implementation
G.
Policy Framework
26.
ADB’s 2010 PCR found that Sri Lanka’s plantation sector was still constrained
by a relatively short remaining lease period. This referred to the period remaining on
the RPCs’ leases of government-owned plantation land, which was 35 years at that
time and is about 30 years now. The PCR saw this as a disincentive to continued
investment. It also limited the leases’ usefulness as collateral. The PCR found that the
RPCs were operating under several other constraints. Their workforce remained highly
unionized, raising business and political risks from large-scale industrial action. They
were subject to an uncertain political environment in which crucial government policies
affecting investment decisions—such as those on taxation, forestry, labor rates, and
subsidies—could change in unpredictable ways. Sri Lanka’s RPCs also had responsibility
for a large resident workforce that competitors in India and Africa, for example, did not
have. Added to these factors were the fundamental industry risks, such as extreme
vulnerability to fluctuations in international prices for their products.
27.
One of the aims of the project was crop and non-crop diversification. The RPCs
were encouraged to plant trees on the estates both for ecological reasons and to grow
the firewood required in tea drying. The PCR reported that 4,000 ha were planted with
project funds, but the trees could not be harvested due to government restrictions. The
IEM clarified that to protect the environment trees planted at altitudes above 5,000
feet (about 1,500 m) could not be harvested—this was in fact specified in the RRP’s
environmental criteria—but the approval process for the permitted cutting of trees
below this level was complicated and could take up to 1 year. One of the most
promising crops for diversification was oil palm, and the project aimed to plant 2,500
ha of these trees. However, the government restricted both the conversion of rubber
land to oil palm and the import of oil palm seed, imposing obvious constraints on
achieving this objective. A participating PFI informed the IEM that it was expressly
directed by DFCC Bank not to finance oil palm cultivation.
28.
The obstacles posed by these government policies were exacerbated by a fixed
exchange rate that tended to favor importers over exporters. The worldwide decline in
commodity prices since 2011 has meant that Sri Lanka’s local currency costs for
producing commodities such as tea and rubber have exceeded the prices on the world
market once transport and other transaction costs are factored in. Because the
industries producing these commodities are so important to the economy and labor
market, the government has begun providing subsidies for smallholder producers. So
far, however, it has not extended these to the RPCs in the commercial plantation
sector.
7
CHAPTER 3
Performance Assessment
A.
Relevance
29.
Investment in the tree crop sector in Sri Lanka at the time the PDP was planned
and approved was both relevant to and consistent with the policies and plans of the
current government and ADB strategies and policies.18 The government and ADB
viewed this sector as critically important as a source of employment and income for a
large segment of the population and of exports and foreign exchange earnings for the
economy overall. The project provided long-term finance for investment in the tree
crop sector which was not readily available from other sources. The evaluation was
unable to precisely determine the PDP’s relevance to ADB’s Strategy 2020.19 The 2014
midterm review of Strategy 2020 increases the focus on the agriculture and rural
development sector, but the emphasis is on food security rather than the promotion of
commercial industrial crops like tea and rubber.20 On the other hand, the 2015
agriculture and natural resources 2015–2020 sector operational plan lists agribusiness
development as a key priority.21
30.
The relevance of the project’s investment in the RPCs was diluted by a poor
design that had too many components and included several ambitious policy
requirements. The rigorous requirements imposed for RPC participation compounded
these problems. The project design also included intended outputs that had no
stakeholder support—such as the MIRC, the TASL, estate staff training, land use
mapping, and out-grower studies. The broad scope and complex implementation
arrangements made it difficult from the start to implement and manage the PDP
efficiently.
31.
The transfer of crop estates to the commercial companies using a 53-year lease
while retaining land ownership with the government should have been taken into
account in the project design. The government reforms had not provided freehold title
to the RPCs, many of which considered the remaining lease period too short to provide
sufficient incentive for investments or a basis for sound agribusiness management.22
Most commercial tree crops have a long gestation period before they come into
production—6–7 years for rubber and 4–5 years for tea. This in turn requires that
investors have a long period of production to pay back initial establishment costs. The
The PCR stated that the project’s goal—its impact, in ADB’s revised terminology—and objectives (its
outcomes) were consistent with the government's framework for poverty reduction and ADB’s country
assistance plan.
19
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–
2020. Manila. Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila.
20
ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific.
Manila.
21
ADB. 2015. Operational Plan for Agriculture and Natural Resources, 2015-2020. Manila.
22
The evaluation considered the fact that even shorter leases are the norm in some other tea-producing
countries, but the IEM believes that this is not necessarily an efficient or effective means of land
administration. Unlike the RPCs, for example, Sri Lanka’s smallholder producers have freehold of their tea
and rubber lands.
18
Performance Assessment
project design included a complex funding mechanism based on a revolving fund, a
new plantation fund, an apex bank, and the PFIs. The PRP had proved just a few years
earlier that a much simpler funding model was a successful mode of operation.
32.
As reported in the PCR, the project preparatory TA did not address the design
risks or the need to ensure RPC ownership of the noninvestment components. It did not
identify the influence of other government programs on the likely uptake of the
housing loan scheme. It failed to deal with issues related to the PFI financial exposure
to the sector at the time or with the government policies on land use and land-use
diversification.23
33.
The ad hoc inclusion during implementation of a road component to replace
the housing credit component added more complexity. This additional component did
not have a detailed design or detailed arrangements for supervising the selection of
roads or their construction and operation and maintenance (O&M).
34.
Given the project’s objective and the importance of the policy and institutional
measures, ADB could have considered a smaller scope and a different financing
modality. A sector development program might have been a better financing
instrument, since the operation involved several policy actions. The significant and
difficult policy requirements, such as the divestment of state enterprises and the
reconstitution of industry regulatory agencies, should not have been included in a
project in which ADB’s limited financial participation would give it limited influence.
ADB was originally expected to contribute only 26% of the total project cost—$30.0
million of $114.4 million. This did not give ADB the leverage it needed to ensure that
the necessary policy actions were undertaken or that the borrower complied with the
ADB loan covenants.
35.
The project’s intent was consistent with the government’s and ADB’s priorities,
but the project’s design was weak overall. The PDP is rated less than relevant.
B.
Effectiveness
36.
The project’s intended outputs and outcomes and assessments by the PCR and
PPER of their actual achievement are shown in the DMF in Appendix 1, and discussed
below.
1.
Outputs
37.
Investment component. The evaluation team’s task of establishing the extent to
which the project achieved the targets for the replanting and infilling outputs was
greatly hindered since the monitoring component of the project was not implemented.
ADB undertook no monitoring of these results of the planting support, and the PIU
failed to undertake the field monitoring required by the loan covenants. Instead, the
government’s and ADB PCRs simply estimated output figures for the areas planted to
major crops (tea, rubber, coconut, and oil palm) from input credit line disbursement
figures provided by DFCC Bank. The IEM learned through interviews that the PFIs did
not in fact check the planting results in the field themselves and depended instead on
23
As the ADB PCR states in para. 68: “The core project components relating to investment and social
objectives were coherent and achievable. The inclusion of additional inputs for the development of TASL,
marketing alliances, and demand-based public research were not client-driven nor demanded, (and) lacked
appreciation of the commercial and proprietary rights attached to market relationships, and research
findings as contributing factors for achieving competitive advantage.”
9
10
Plantation Development Project
the RPC’s own reporting to determine the extent of development. The RPC figures
indicate that infilling and replanting for tea and rubber nearly doubled in target areas
as a result of the project. The PCR contends that replanting under the project covered
about 7,861 ha estate plantation tea area and about 25,816 ha of estate plantation
rubber area.24
38.
The IEM’s own impression during the field visits to the six estates selected to
represent those supported by the project was that no replanting of such extensive
areas had recently taken place. This was particularly clear in the case of tea. The
evaluation questions how the original replanting targets could have been doubled
when only three-quarters of the credit line was used. This would have meant that the
preparation consultants and the ADB preparation mission have greatly overestimated
the replanting costs. The IEM attempted to check the replanting figures put forth by
the PCRs by consulting official statistics published by the MPI and preparing a
questionnaire for the project RPCs in which they were asked to provide their own data
on areas replanted with funds from the credit line and the plantation fund.25 Only 6 of
the 16 participating RPCs responded, so the evaluation did not take these data into
account. Crop output data targets listed in the RRP, outputs reported in the PCRs, and
total replanting recorded in official statistics are summarized in Table 1.
Table 1: Discrepancies in Major Output Data for the Investment Component
(ha)
Crop
Target in RRP
Reported Output
in Text of Gov’t.
PCR and ADB PCR
a
Recorded Total
Replanting in
Official
Statistics
b
Tea replanting and infilling
Rubber Replanting
Coconut Replanting
Oil Palm Development
4,125
11,250
2,500
2,500
7,861
25,816
1,138
2,478
3,261
25,078
580
438
ADB = Asian Development Bank, gov’t = government, ha = hectare, IEM = independent
evaluation mission, RRP = report and recommendation of the President.
a
Based on DFCC Bank statistics, years not reported.
b
Government of Sri Lanka, Ministry of Plantation Industries. 2015.Statistical Information on
Plantation Crops 2013. Battaramulla, Sri Lanka. Replanting figures recorded for the years 2005–
2010.
Sources: ADB. 1995. Report and Recommendation of the President to the Board of Directors:
Proposed Loan and Technical Assistance Grant to Sri Lanka for the Plantation Reform Project .
Manila; ADB. 2010. Completion Report: Plantation Development Project in Sri Lanka. Manila;
Government of Sri Lanka, Ministry of Plantation Industries. 2010. Project Completion Report,
Plantation Development Project. Colombo; and Ministry of Plantation Industry statistics.
39.
Official MPI statistics show much lower figures than do the two PCRs for the
replanting or new planting of tea, oil palm, and coconut. They are also slightly lower
for rubber. These figures cover all sources of funding and planting by all the country’s
23 RPCs, not just the areas replanted with project funding in the 16 RPCs that
24
The ADB PCR provides different figures in the text and in the DMF. The figures in the text are consistent
with the government’s PCR and are the ones that have been used for this analysis.
25
The spreadsheet questionnaire asked each respondent to identify its RPC parent company and shareholding
and to provide the available data for 1992–2015 on the size of the estate population and workforce, the
gender composition of the workforce, and its total land and cultivated area. Each was also asked for the
following data related to the major tree crops (tea, rubber, oil palm, coconut, other crops): cultivated area
and production, net sales average and cost of production, labor cost as a percentage of the cost of
production for each crop, the extent of replanting for each crop, the extent of replanting using ADB funds
under the PRP and the PDP, and RPC financial information.
Performance Assessment
benefitted from the PDP. As shown in Table 2, long-term statistics on the total RPC
estate tea and rubber areas reveal a continuing decline, rather than the maintenance of
or an increase in areas planted that might be expected based on the PCRs’ reported
planting figures. The only increases reported by the MPI were for oil palm.26
Table 2: Ministry of Plantation Industries Statistics on Total Regional Plantation
Company Areas Planted to Tea, Rubber, and Oil Palm—2002, 2007, and 2013
(ha)
Year
2002
2007
2013
Tea
87,592
82,513
71,757
Rubber
53,676
47,948
46,313
Oil Palm
–
5,408*
7,937
ha = hectare, *= 2008 data
Source: Government of Sri Lanka, Ministry of Plantation Industries. 2015. Statistical Information on
Plantation Crops 2013. Battaramulla.
40.
Given these findings, this evaluation has viewed the DFCC Bank figures and the
PCR figures with some skepticism, but no clear finding is possible on the actual physical
product of the project investment component. The evaluation concluded that the
replanted rubber area may have come close to the RRP target, but that the targets for
tea replanting and infilling, coconut development, and oil palm development did not.
41.
The PCR notes only 43% of the expected diversification into forestry was
achieved, diversification into other crops was slow, and non-crop diversification was
sluggish (footnote 6, para.54).27 Construction of the crude palm oil factory was
declined by ADB on environmental grounds, and was built using commercial funding.
42.
Social, marketing, and institution-building outputs. Most of the DMF output
targets for these components were either not achieved or the subcomponents were
dropped. Over 7,000 workers’ line rooms were reroofed out of a target of 11,000. The
housing component was dropped, and the additional road work that replaced the
housing credit subcomponent was reported by the PCR to have exceeded original
targets. The IEM verified the existence of some of these roads during field visits
(Appendix 5). Some success was achieved by the workers’ training programs and estate
certification subcomponents. The MIRC was never established, and the TASL was closed
at the end of the project due to a lack of funds for its operation.
43.
Policy measures. The project loan agreements included a series of policy
measures that the borrower committed to undertake relating to the privatization of the
3 RPCs and other facilities that were still owned by the government. The loan
agreements also called for the restructuring of sector management and regulatory
agencies such as the Tea Board, the Rubber Research Board, and the Coconut Research
Board, as well as the establishment of an industry umbrella board. These steps should
have been established as project outputs and listed in the DMF, but they were not. The
only policy covenant complied with was the establishment of the TASL, which did not
survive project closure because it lacked funds to support its ongoing operations.
26
27
According to MPI statistics, in 2008, 4 RPCs were cultivating oil palm—Agalawatte, Elpitiya, Namunukula,
and Watawala. The extent of mature oil palm planted on these RPCs expended from 4,517 ha in 2008, to
4,582 ha in 2009, and to 4,761 in 2010, before declining marginally in 2012 to 4,719 ha.
The PCR reports only 1 RPC invested in estate bungalows and a tea sales center, and there was overall lack
of interest by RPCs.
11
12
Plantation Development Project
2.
Outcomes
44.
The project’s two intended outcomes were (i) the enhanced profitability of the
plantation sector, and (ii) the improvement of living and working conditions for estate
workers.
45.
Enhanced profitability of the plantation sector. The DMF sets four indicators
and objectives for achieving the profitability outcome: (i) the transformation of 23 RPCs
from primary producers to agribusiness enterprises; (ii) reductions in production costs
from SLRs107 per kilogram (kg) for tea and SLRs57 per kg for rubber; (iii) increases in
average kg-per-ha yields from baselines of 1,500 for tea; and 900 for rubber; and (iv)
increases in labor productivity from 18 kg per workday for tea and 6 kg per workday
for rubber.28 Only 16 of the 23 RPCs participated in the project (Appendix 6).29 The
evaluation did not take the production cost reduction goal into account, because it was
based on 2002 costs and did not factor in inflation or future pricing—although all
parties to the project agree that in real terms, the cost of production has increased
rather than decreased as was intended. Yields have dropped or stalled rather than
risen, as targeted. MPI statistics show average RPC yields during 2010–2013 of 1,300
kg per ha for tea (a 200 kg per ha decline from the baseline) and 900 kg per ha for
rubber (unchanged). 30 Labor productivity for tea and rubber also remained unchanged
after the project.
46.
In terms of actual profitability, the IEM examined the financial statements of 14
of the 16 participating RPCs listed on the Colombo Stock Exchange.31 Figure A7 in
Appendix 7 provides the findings. 32 They showed that in nominal terms the profitability
of the RPCs was close to SLRs1.0 billion in 2005 when the project started. Profitability
increased to more than SLRs5.0 billion in 2011 at a time of record prices for tea and
rubber but dropped back to slightly above SLRs1.0 billion in 2015. In real terms, relative
to 2005, aggregate profitability of the 14 listed RPCs declined by more than 50% in
2015. This suggests insufficient crop and non-crop diversification.33 The annual
profitability figures for the 14 RPCs overall mask the highly variable performances by
individual RPCs during 2005–2015. Only 4 of the 14 RPCs reported profits in every year.
The rest reported losses in at least 1 year, and some reported annual losses four times
during the period. With the exception of 2008 and 2011, the 2 years when commodity
prices were high, losses were reported in every year by at least 1 of the 14 RPC and by
as many as 4 in some years.
28
29
30
31
32
33
A further indicator on reduced cost of production has not been taken into account since it is based on a
2002 cost without relation to inflation or future pricing. Nonetheless, all stakeholders agree that the cost
of production has increased rather than decreased.
The target number was reduced because the government did not divest itself of three RPCs, as was
required under the loan covenants. It continues to own them. The other four originally targeted RPCs
were excluded because they did not agree to cap their management fees, which was a requirement for
access to the project credit line.
Government of Sri Lanka, Ministry of Plantation Industries. 2015. Statistical Information on Plantation
Crops 2013. Battaramulla.
The RPCs’ nominal profitability during 2005–2015 period was highly correlated with global commodity
prices for tea (r = 0.59; p = 0.05) and rubber (r = 0.69; p = 0.02).
Most banks and Government agencies in Sri Lanka adopt the December 31 financial year end, while most
private corporations adopt March 31. Since the RPCs were state-run enterprises until the early 1990s,
their financial year ends either on December 31 or March 31. As of 2014, 9 of the 14 RPCs had switched
over to the March 31 financial year end i.e., financial year 2015 refers to RPC year ending on 31
December 2014 or 31 March 2015.
The PCR notes that “RPCs have increasingly sought to develop business plans on a diversified income
stream while retaining their focus on core production systems.” (footnote 6, para.65).
Performance Assessment
47.
At the price levels for their products in 2015, the RPCs claimed in interviews
with the IEM that they could no longer harvest their crops at a profit due to what they
contend are high labor costs. They have requested financial assistance from the
government. Overall, the evaluation found no evidence that productivity and
profitability improved during or since the project.
48.
Improved living and working conditions for estate workers. Achievement of the
second outcome—the improvement of estate workers living and working conditions—
was to be measured against a list of 10 indicator targets. 34 These required the project
to (i) increase the average monthly earnings of workers from a baseline of SRLs2,600;
(ii) provide sanitary and rest room facilities on 300 estates and factories; (iii) promote
worker participation through joint management committees, quality circle, and other
systems on 500 estates; (iv) provide house ownership for 6,000 estate families; (v)
upgrade 11,000 worker line rooms; (vi) provide 150 common sites for leisure and social
welfare facilities; (vii) reduce workers’ sickness incidence from 8.5%; (viii) increase the
birth weight and child weight of workers’ children to the national average; (ix)
integrate estate workers into mainstream village life; (x) reduce the stigma of estate
employment; and (x) reduce the outflow of estate labor force.
49.
Of the indicator targets that can be quantified and meaningfully checked, only
the increase in nominal worker salaries was achieved by the end of the project. By the
time of the PCR mission in 2010, the nominal average had reached SLRs7,605 per
month. As of 2015, it was about SLRs15,000 per month in nominal terms. Most of the
targets were not achieved. The project even fell about 40% short of the line room
reroofing target, although accomplishing it should have been straightforward.
50.
The project is rated less than effective in achieving its intended outputs and
outcomes. The PDP had some positive effect on renewing tea and rubber planting and
extending oil palm areas, although the precise extent of this success cannot be
determined for certain. It improved the financial soundness of some of the RPCs, and
improved the lives of a portion of the estates’ resident population. However, it was less
than effective achieving either of the intended outcomes of enhanced profitability in
the plantation sector as a whole and improvement of the living and working conditions
of estate workers.35
C.
Efficiency
51.
This project performance evaluation could not calculate an economic internal
rate or return (EIRR)36 due to the uncertainty over the extent of the intended benefits
and outputs actually delivered under the project, and the lack of data due to the
executing agency’s and ADB’s lack of monitoring. ADB’s operations department had
lost the spreadsheets used for the PCR economic analysis, so the EIRR reported in the
PCR could not be verified by the evaluation.
34
35
36
The evaluation found that the PCR had made changes in the RRP’s project framework by switching several
of the outcome indicators from the outcome section in the DMF and listing them as output indicators.
The IEM has based its analysis on the indicators in the PCR DMF.
Workers continue to leave the estates. During discussions with the IEM, stakeholders reported that only
about one-quarter of the population still residing on the estates remain employed by the estates, and
these workers tend to be comparatively old. For this reason, their output is still low compared with
workers in other tea-producing countries.
The evaluation also noted that project-wide EIRRs would not normally be calculated for credit lines to
development banks, nor for social development activities such as those in which this project was primarily
involved and which had no direct financial or economic output. The former would be tested on the basis
of one or more representative models, and the latter on a least-cost basis.
13
14
Plantation Development Project
52.
From a process efficiency perspective, the evaluation found the benefits slow to
emerge. The project was approved in 2002, but most implementation took place from
2006–2009. Delays were due to (i) difficulties establishing the apex agency and the PFIs
for disbursing the funds, (ii) problems setting up the plantation fund, (iii) the
reluctance of RPCs to provide counterpart funds for social improvements, (iv) the
dropping of the housing component and its replacement by the road upgrading
component, (v) and the reluctance of stakeholders to participate in several of the
marketing initiatives and institutional development activities. Benefits were further
eroded by the cancellation of part of the ADB loan and the closure of the project with
part of the social development component still uncompleted.37 Only $67.2 million of
the total anticipated project cost of $114.4 (59%) was invested, of which ADB funding
constituted $19.0 million.38
53.
The project is rated less than efficient.
D.
Sustainability
54.
No specific measures were included in the project design to ensure
sustainability of any component. There were no measures to ensure that the increased
planting to be provided by the investment component would be maintained by the
estates and RPCs involved; or that the roofing provided, civil works undertaken,
equipment purchased, roads improved, and agencies established under the project
would be maintained after the project was completed.
55.
Investment component. The evaluation was unable to verify the financial
internal rates of return (FIRRs) reported in the PCR because the operations department
lost the spreadsheets used to generate these estimates. As a proxy, the evaluation
prepared model FIRRs on a per-hectare basis for the crops that were to be planted
(Appendix 8). The models returned FIRRs of 4.57% for tea, 15.44% for rubber, and
42.92% for oil palm. This means that it would have been profitable for RPCs to
participate in the project to replant rubber and oil palm even given the current and
expected reduced international market commodity prices for these commodities.39 The
analysis found tea replanting to be financially viable, although this viability was only
marginal and highly sensitive to price movements and costs of production.
56.
The project RPCs and the estate plantation sector as a whole have mixed
prospects for achieving financial sustainability. Only a few of the participating RPCs
have been consistently profitable. Most RPCs are owned by large holding companies,
and they can potentially access working capital from their parent firms during periods
of financial stress. All 16 participating RPCs operated profitably during years when
prices for their commodities were high. All have survived the current low prices so far,
although they are seeking government support. The estates that the IEM visited had
diversified from commodity tea and rubber into alternative crops (particularly oil palm)
or developed special products. These were green tea, other currently highly valued
types of tea, and crepe rubber, all of which now fetch higher domestic and world
market prices than do commodity tea and rubber. All of the six estates the IEM visited
The ADB PCR notes that “savings of SDR9.146 was cancelled on 23 April 2008 in response to a request
from the government, and reallocated to the Sustainable Power Sector Development Project.” The
government’s PCR reports that additional funds had to be found from other projects to complete the
activities that were already underway.
38
Out of the total ADB loan approval amount of $30 million.
39
The weighted average cost of capital was estimated at 4.15% on an after-tax basis in real terms.
37
Performance Assessment
were well-run and employing sound management practices adopted from their parent
companies.
57.
Despite a good performance by a few RPCs, the traditional tree crops estate
plantation sector is in decline, and the outlook is not promising (Table 2). The area
planted to tea on the RPCs shrank by 20% during 2003–2013, and land planted to
rubber contracted by 15%. One bright spot is oil palm; planting by the RPCs is expected
to continue expanding and reach 10,000 ha by 2016 from about 7,900 ha in 2013.
Given commodity price forecasts and the financial state of some of the RPCs, there is a
low probability that the majority will be profitable in the future without external
support. The industry is unlikely to disappear altogether, however.
58.
Social, marketing, and institutional strengthening. The PCR assumed that the
achievements under the social, marketing, and institutional outputs of the project
would be sustainable. The IED evaluation found this to be unlikely. The O&M required
to sustain the project roads and social civil works has not been guaranteed. The
continuation of the public good provided by these facilities demands public sector
funding for their maintenance, and no provision was made for this in the loan
agreement.40 The main institutions that were to be created by the project—TASL and
the MIRC—cannot be sustained because one closed due to lack of funds, and the other
was never established.
59.
The project is rated less than likely sustainable.
E.
Overall Assessment
The project is rated less than successful (Table 3). The evaluation rated it less
than relevant because of weaknesses in the design. The design included counterpart
60.
funding conditions for beneficiaries that discouraged participation by intended
stakeholders. Parts of the complicated funding arrangements were not acceptable to
stakeholders, and the arrangements as a whole were too ambitious, multifaceted, and
complex. The project was rated less than effective because it failed to achieve most of
the targets for its two intended outcomes. It fell particularly short in its attempts to
enhance the profitability of the plantation sector. It was rated less than efficient due to
the delays in realizing the project’s benefits, an inability to spend project funds as
appraised, and the limited achievement of the intended outcomes and outputs. The
project was rated less than likely sustainable due to the low profitability achieved by
many of the participating RPCs, the continuing contraction of the tree plantation
sector, and the lack of O&M arrangements. A majority of the project RPCs are unlikely
to be profitable, sustainable entities in the future without external support.
Criterion
Relevance
Effectiveness
Efficiency
Sustainability
Overall Rating
Table 3: Overall Performance Assessment
Weight
Assessment
Rating
Value
25%
25%
25%
25%
Less than relevant
Less than effective
Less than efficient
Less than likely
Less than successful
1
1
1
1
Weighted
Rating
0.25
0.25
0.25
0.25
1.00
Note: Highly successful (>2.7), successful (2.7 > S >1.6), less than successful (1.6 > LS > 0.8), unsuccessful
(<0.8)
Source: Asian Development Bank Independent Evaluation Department.
40
The IEM learned that some of the roads are being maintained by the local government authorities.
15
CHAPTER 4
Other Assessments
A.
Impact
61.
From available evidence, the evaluation concluded that the project did not lead
to the changes in the policy environment to which the borrower committed in the loan
documents, or to better or sustained productivity and profitability in the tree plantation
sector.
62.
The wholesale restructuring of the sector envisaged in the RRP has not
occurred—nor was this likely given the less-than-relevant design of the project, the
comparatively modest degree of project funding (and thus of leverage) by ADB, and the
lack of government and stakeholder support for most of the reform measures proposed
in the project design.
63.
The expected impact (or goal) stated in the RRP and its DMF (project
framework) to “ensure the plantation sector's long-term sustainability without further
external assistance” was overambitious given the scale of ADB investment. More could
have been achieved if a less ambitious and more focused project had been designed
and implemented. Given the difficult outlook in the tea commodity market, the project
design could have focused more on facilitating crop diversification.
64.
In terms of social impact, some estate workers and their families benefited
from (i) better roads and communications, (ii) improved living conditions due to
improved roofs in their residences, (iii) enhanced social interaction due to training in
financial management, (iv) increased gender sensitivity and alcohol abuse prevention,
and (v) better working conditions through improved field and factory facilities and the
provision of ergonomic equipment. To what extent these improvements will last is not
clear, because little monitoring has been done and the project sustainability is less than
likely. Roads and trails provided under the project are likely to have had a beneficial
impact by enhancing the lives of the estate population through improved access to
such services as education, health and markets; but the only evidence of this is
anecdotal.
65.
The project intended to have a positive environmental impact through land use
mapping and afforestation. Only a small percentage of estate land was mapped.41
While the PCR and stakeholders report that about 4,000 ha of forest trees were planted
under the project, there is no information on the actual number of trees or where they
might have been planted. The evaluation found no reports of negative environmental
impacts, and it is unlikely any occurred because most of the planting was to be
undertaken on land already or previously under tree crop cultivation. In light of these
findings, the impact of the project is assessed as moderate.
41
The PCR reports land-use surveys were conducted on 31,635 ha (17%) of the 190,000 ha targeted in the
RRP.
Other Assessments 17
B.
Asian Development Bank and Borrower Performance
1.
Asian Development Bank Performance
66.
The project design was too ambitious and included many diverse project
elements and policy conditions. Several of the loan’s policy covenants were not
enforced. The project did not deliver many of the elements under the social and
environmental component, the marketing initiatives component, and the institutional
and project management component. These shortcomings indicate there was
inadequate consultation with stakeholders during the design phase to gain an
understanding of realities on the ground that could prevent achievement of the
project’s intended objectives. Many factors and vested interests can undermine delivery
of outputs and outcomes of development projects in Sri Lanka. In particular, it was not
realistic for ADB’s project preparation team to think that the cash-strapped RPCs would
provide up to 50% of the cost of investment in social components.
67.
The PCR records that during the 6-year implementation period ADB fielded two
special project administration missions, three loan review missions, one midterm review
mission, and one project completion review mission.42 The first loan review mission
was fielded in 2005, 3 years after project approval, and the midterm review mission
was fielded in Dec 2007.43 The complexity of the project and known implementation
problems warranted more timely ADB supervisory input than was provided.
68.
Shortcomings in ADB’s administration of the project contributed to its poor
performance. ADB allowed loan disbursements to continue even when the borrower
did not comply with the covenant on establishment of a project monitoring system;
this led to uncertainly about project outputs and benefits.
69.
The evaluation concludes that the performance of ADB during project
preparation and implementation was less than satisfactory.
2.
Borrower Performance
70.
The PCR said that the staffing by the PIU under the executing agency (MPI) was
often inadequate, and that its performance of its core functions of monitoring,
evaluation, and coordination were not effective. It reported that the key problems
related to the PIU’s lack of a systematic project-wide management information system
and weakness in the design and management of its impact assessment. This resulted in
the prevailing uncertainty about the actual outputs and benefits eventually delivered by
the project. The PCR said that the delays in establishing the revolving fund which
resulted from unclear fund establishment requirements, delayed some investment
programs. From the IEM’s point of view, the most serious deficiency in this list was the
borrower’s failure to comply with the covenant on project monitoring. This has made it
difficult to assess what the project actually achieved.
71.
The borrower did not comply with a significant number of key policy
covenants. This made three of the originally targeted 23 RPCs ineligible to take part in
the project and forced the abandonment of several marketing and regulatory reforms
integral to the project objectives. These difficulties arose because the government that
signed the loan agreement was replaced by another in 2005, after project approval,
42
43
The 2 special project administration missions were fielded in 2004 for a combined total of 5 person days.
The midterm review mission was originally scheduled for 2005.
18
Plantation Development Project
and the newly elected government did not agree with the previous government’s
approach to privatization and the restructuring of the sector. Given these
circumstances, the new government could have renegotiated the loan agreements
rather than accepting the loan funds and conditions and then refusing to comply with
them later.
72.
The executing agency generally followed the agreed arrangement during
implementation. According to the PCR, the turnover of senior staff at the PIU was high
and replacement slow. The PIU's performance was hampered by the delay until 2006 in
the implementation of a majority of the social and environmental program components
due to the RPC’s reluctance to contribute 50% of the cost.
73.
The PCR rated the borrower’s performance partly satisfactory. Based on the
information available, the evaluation team confirms this view and borrower
performance is rated less than satisfactory.
CHAPTER 5
Issues, Lessons, and FollowUp Actions
A.
Issues
1.
Sustainability of the RPCs Uncertain
74.
The RPCs account for about 30% of the production of tea and rubber in the
country and 50% of the processing. They are a major source of foreign exchange and
employment. They play a key role in ensuring product quality in the country’s economy
both by producing high-quality goods (such as high-altitude teas and crepe rubber)
and by maintaining quality control during processing. These value-added activities are
an important part of Sri Lanka’s economy, agriculture sector, and social fabric.
75.
The industry faces systemic issues that hurt its performance. First, the prices for
its products are volatile on international markets. Second, it is constrained by a
traditional and highly restrictive labor system that imposes very high costs that
comparative industries in competing countries do not have to bear. Third, it is subject
to greater government-imposed constraints than are its competitors in other countries.
These include legal and policy restrictions that affect marketing, management, the
crops RPCs can grow, and land ownership. The fourth major issue is the RPCs difficulty
in accessing long-term credit in Sri Lanka. Many of these issues are political and will
require political solutions and a long time to be resolved.
2.
Status and Living Conditions of the Estate Workers
76.
Estate workers constitute one of the poorest segments of Sri Lankan society.
The status and living conditions of this minority population have been major concerns.
The country’s international development partners have paid particular attention to
trying to improve their standard of living, as ADB did in its design of the PDP. However,
the need to assist them can conflict with the need to give incentives to firms to
increase productivity in the plantation sector.
77.
Education levels in the estate population have improved through the efforts
of development partners and the government. Many of the younger generation have
left the estates to find employment in urban areas and have integrated into Sri Lanka
society. Poverty rates in the estates nonetheless remain higher than in other rural and
urban areas.44 Despite increases in estate worker wages during the project period,
44
Based on data from the 2012/2013 government’s household income and expenditure survey, the poverty
headcount based on the national poverty line was 10.9% in the estates, compared with 7.6% in rural areas
and 2.1% in urban areas. The poverty gap index was also higher in the estates, at 1.6%, compared with
1.4% in rural areas and 0.3% in urban areas.
20
Plantation Development Project
estate household incomes are still lower than national and rural averages.45 They also
lag these averages on the indicators for non-income poverty, health, nutrition, and
education.46 The quality of housing and infrastructure in the estate sector remains
poor, and access to high-quality health and education services is still lacking.47
78.
The future of those who remain on the estates will depend on the estates’
profitability. Because labor costs make up a significant proportion of the cost of
production, more efficient value chains must be developed.48 If the estates and RPCs
can reduce overall labor costs and better commodity prices return, they will operate
profitably and be able to pay wages that allow them to retain productive labor.
3.
Considering Future ADB Involvement to help Workers
79.
The estate worker population exceeds 200,000. With families, this demographic
group includes more than 1 million of the country’s most socially and economically
disadvantaged people. As a result, the plantation estate sector cannot be ignored. On
the other hand, ADB’s past and often difficult experience in the sector and the
industry’s persisting structural deficiencies suggest that ADB must be cautious when
considering any further financing in the sector in the absence of major policy and
structural reform.
B.
Lessons
1.
The Importance of the Socioeconomic, Institutional, and Policy
Environment to Project Design
80.
The failure of the project to achieve its intended impact, and limited
achievement of expected outcomes shows that ADB needs to fully assess and
understand all socioeconomic, institutional, and policy factors when it prepares and
appraises projects. If these factors had been properly assessed in the case of the PDP,
ADB could have lowered the outcome expectations. It could have adapted the design
to match the capacity of the implementing agencies and stakeholders. With a full
understanding of the difficult policy environment and entrenched obstacles, ADB could
have imposed stricter policy requirements on the government and actually enforced
these (and other loan covenants) as prior conditions for disbursements of the loans.
One such policy requirement could have encouraged more investment in the RPCs by
lengthening the lease period for the government-owned RPC estates’ lands. If these
steps had been taken, the project might have been more successful.
2.
Need to Understand the Limitation of Project Modalities
81.
The complexity of the PDP’s design was a weakness. As a general principle,
projects should aim for simple, straightforward outputs and outcomes and involve
uncomplicated implementation arrangements and a small number of implementing
agencies if they hope to be successful. Projects must be designed in a way that makes it
feasible for national staff (generally government officers) who often have limited
45
Based on 2012/2013 household income and expenditure survey, mean household income in the estates
was estimated at SLRs30,220, compared with averages of SLRs45,878 at the national level, and SLRs41,478
in rural areas.
46
Levels of of child and maternal malnutrition are higher in the estates.
47
Over two-thirds of the estates’ population still live in line rooms and are less likely to have drinking water,
sanitary facilities, or electricity within the household.
48
The Planters’ Association of Ceylon estimates that labor costs account for 70% of the cost of production for
tea, 50% for rubber, and 25% for oil palm.
Issues, Lessons, and Follow-Up Actions 21
resources and capabilities to manage and implement them. They must also be workable
within the established national practices and procedures. The PDP confirmed that
preparing a project that has dozens of diverse activities to be implemented by a variety
of agencies and seeks to set up new agencies with little stakeholder support, can lead
to limited project success.
3.
The Need for Adequate Staff Input and Maintenance of Project Records
82.
The project’s midterm review was undertaken 2 years late and almost at the
end of the project period at appraisal. This absence of timely oversight and ADB’s poor
curating of the project data and documents contributed to the project’s limited
success. ADB’s business processes could be improved to retain key project financial and
economic analyses records systematically in electronic format.
C.
Follow-Up Actions
83.
In the wake of the adjustments of ADB’s 2020 priorities under the midterm
review and under ADB’s revised interim country partnership strategy (CPS), ADB
support for agriculture in Sri Lanka may once again be an option. ADB’s main thrust in
the agriculture sector is expected to be lending for food security, but the new
agriculture sector operational plan lists agribusiness development as a priority. Given
the importance of the tree crop sector to Sri Lanka’s economy and its income
generation and employment possibilities, ADB could certainly consider reviving its
activities in the tree crop and plantation sectors. This evaluation report suggests that in
considering any tree crop agricultural support ADB recognize that the country’s
smallholders produce about two-thirds of the sector’s output, are more productive,
and account for a greater proportion of the population than the estate plantations.
84.
These issues should be taken into account during the preparation of the CAPE,
and when preparing the next CPS. Any future ADB financing provided to the RPCs
probably should be through nonsovereign operations.
Appendixes
APPENDIX 1: DESIGN AND MONITORING FRAMEWORK
Design Summary
1. Goal (Impact)
1.1 Long-term sustainability
of the plantation sector
without external
assistance
Project Targets (Verifiable
Indicators)
Achievements at PPER Stage
Achievements at PCR Stage
Remarks
Sustained business
operations of 23 RPCs
16 RPCs participated. Their ability
to finance adequate replanting,
infrastructure maintenance, and
social programs is still weak. Four
RPCs have failed to achieve cash
surpluses.
The viability and sustainability of the
RPCs is still in question. Since 2011,
prices of tea and rubber have collapsed
to below the cost of production and
are expected to remain at these levels
for some years to come.
Sound financial position
of 23 RPCs
Of the 16 RPCs, 12 achieved
profitability in 2009 based mostly
on record tea and rubber prices.
In nominal terms, the cumulative
profitability for the 14 publicly listed
RPCs was close to SLRs1.0 billion in
2005 when the project was initiated.
This increased to more than SLRs5.0
billion in 2011 at a time of record
prices for tea and rubber and then
dropped again to only a little more
than SLRs1.0 billion in 2015. In real
terms, compared to 2005, cumulative
profitability declined by more than
50% in 2015.
Productivity gains from project
investment are not expected for
5–7 years.
Any tea which was planted under the
project is now coming into full
production and will likely be harvested
in preference to old areas with
declining yields and quality. Rubber
areas may or may not be tapped,
depending on price trends. Overall
rubber production in the country
dropped from 158,000 metric tons in
2011 to 130,000 metric tons in 2013,
probably due to declining prices. The
estate plantation area under tea and
rubber has decreased significantly
between 2002 and 2013 despite
replanting under the project.
24
Appendix 1
Design Summary
2. Objectives (Outcomes)
2.1 Enhance profitability of
the plantation sector
Project Targets (Verifiable
Indicators)
Transform 23 RPCs from
primary producers to
agribusiness entities
Achievements at PPER Stage
Achievements at PCR Stage
Most RPCs
companies.
increased,
limited by
policy.
remain plantation
Value addition has
but this remains
government sector
Quality certification established
for 61 factories, while minor
upgrading to meet quality
standards has been implemented
in 118 factories.
Remarks
While several RPCs have improved their
management practices and efficiency,
most still remain focused on the
production of bulk products. In reality,
not much scope exists for value
addition in the production of any of
the four major crops concerned (tea,
rubber, oil palm, and coconut) given
the markets that they serve. Moreover,
current government policy restricts
changes from one crop to another, and
it is even difficult to obtain approval
for the replacement of low-return
rubber with higher-return oil palm.
Factory upgrades seem to be effective.
Reduce
cost
of
production
from
SLRs107/kg for tea and
SLRs57/kg for rubber
Cost of production increased to
SLRs332/kg
for
tea
and
SLRs178/kg
for
rubber,
attributable to increased fertilizer
and labor costs.
In nominal terms, by 2014 the costs of
production increased to SLRs459/kg for
tea and SLRs334/kg for rubber. This
was due mainly to very significant
increase in labor costs, which make up
70% of the production cost.
Increase average yields
from 1,500 kg/ha for tea
and 900 kg/ha for rubber
Yields decreased to 1,124 kg/ha
for tea and 733 kg/ha for rubber
in 2009 due to drought, the
global economic crisis (reduced
fertilizer use due to price
escalation), and industrial action.
In 2008, tea yields were 1,419
kg/ha, and rubber yields were
900 kg/ha.
Tea estate yields from 2010–2013
averaged 1300kg/ha, while rubber
yields averaged 900 kg/ha.
Increase
labor
productivity from 18
kg/workday for tea and 6
kg/workday for rubber
Minimum labor productivity is set
at 16 kg/day for tea, but
additional kg are available at a
different wage rate.
The mandated production base for tea
is still 16kg/day, but incentives are
provided by some estates for higher
plucking amounts.
The basic daily
tapping rate for rubber is still 6kg/day,
but incentives also apply for increased
Neither the RRP nor the PCR
specified if the costs are expressed
in nominal or real terms. The PPER
made the assumption that all costs
were reported in nominal terms.
Design and Monitoring Framework
Design Summary
Project Targets (Verifiable
Indicators)
25
Achievements at PPER Stage
Achievements at PCR Stage
Remarks
tapping levels.
Some estates are
experimenting with novel harvesting
techniques and arrangements to
reduce harvesting costs.
2.2 Improve living and
working conditions of
estate workers
Increase workers’ average
monthly earnings from
SLRs2,600
With current negotiated wages
up to SLRs405/day for more than
a minimum of 19 days per
month,
monthly
income
increased to SLRs7,695.
In nominal terms, current monthly
income
for
estate
workers
is
SRLs15,500 based on a 25-day month.
Promote
workers’
participation
through
joint
management
committees, “5S” quality
circle, and other systems
on 500 estates
Joint management committee
concept changed to wider
worker empowerment strategies.
The IEM was not able to observe any
significant impact for this outcome. It
noted a high degree of unionization
among the estate workers.
Improve
access
workers’
homes
other facilities
to
and
A road and track upgrading
component was added to the
project
and
successfully
completed. Rehabilitation of 446
km of tar and concrete roads, 74
km of gravel roads, and
construction of 47,187 linear feet
of concrete footpaths.
Most stakeholders indicated that the
road and track component had a
significantly positive social impact, and
that the RPCs were responsible for their
upkeep. Since most of the roads were
concrete, they are likely sustainable for
at least 10 years from the time they
were constructed.
Reduce workers’ sickness
incidence from 8.5%
Although current data are
unavailable for the estate sector,
estates
report
significant
increases in attendance of
workers. Nutritional programs
targeting mothers and children
have improved the overall the
physical condition of children.
Data reported in the 2012/2013
household income and expenditure
survey indicate that 7.8% of estate
workers were hospitalized in the survey
year.
Increase birth weight and
child weight to national
average
Integrate estate workers
Nutritional programs targeting
mothers and children have
improved the overall the physical
condition of children.
The rates of underweight children in
Nuwara Eliya District (25.5%) and
Badulla District (32.8%) where the
majority of estate workers live is still
Neither the RRP nor the PCR
specified if the income is expressed
in nominal or real terms. The PPER
made the assumption that they
were reported in nominal terms.
26
Appendix 1
Design Summary
3. Outputs
3.1 Investment Component
Core Activities
Project Targets (Verifiable
Indicators)
into mainstream village
life.
Achievements at PPER Stage
Achievements at PCR Stage
Workers are encouraged to
undertake additional incomegenerating activities in villages.
Remarks
above the national average of 21.1%. A
significant
but
not
quantifiable
percentage of the estate population
undertakes economic activities outside
of the estates.
Reduce outflow of estate
labor force
Improved living environments,
working conditions, and higher
wages
have
reduced
the
tendency to migrate out of
estates.
Outmigration remains a problem.
About 61% of the remaining resident
estate workers are 30–60 years old and
unlikely to leave the estates.
Establish Plantation Fund
A
plantation
fund
was
established, and SLRs535 million
disbursed.
The plantation fund has been
liquidated, and funds are now with
DFCC Bank pending return to the
government treasury and repayment to
ADB.
Replant 1,750 ha of tea,
infill 2,375 ha of tea, and
replant 11,250 ha of
rubber
7,861 ha of tea replanted and
infilled, and 25,816 ha of rubber
replanted.
The actual extent of planting under the
project could not be verified. Areas
given in the PCR are based on DFCC
figures, but these were not fieldchecked and are not consistent with
official government replanting statistics
or the IEM’s field observations.
Replant or rehabilitate
2,500 ha of coconut
1,138 ha of coconut replanted.
Official national statistics indicate very
little coconut land was replanted.
Consolidate
factories
tea
2 factories consolidated, 27
factories upgraded, and 6
factories automated.
No change.
rubber
treatment
All participating estates were
required to install effluent
treatment as a condition of
participation in the project, but
no discussion in PCR if this
requirement was met.
No change.
Develop
effluent
facilities
14
40
Design and Monitoring Framework
Design Summary
Crop diversification and
forestry
Noncrop diversification and
estate tourism
Marketing initiatives
Project Targets (Verifiable
Indicators)
Develop 9,500 ha of
forest, 2,500 ha of oil
palm, and 2,400 ha of
other crops
Refurbish
20
estate
bungalows, rehabilitate
20 mini-hydro schemes,
and construct 1 crude
palm oil factory
Establish
5
joint
marketing alliances
27
Achievements at PPER Stage
Achievements at PCR Stage
4,114 ha forest developed (43%
of target), 2,478 ha of oil palm
developed (99%), 646 ha of
other crops developed (27%),
and 187 ha of crop diversification
and forestry undertaken (43%).
Remarks
The figures for forest development and
oil palm plantation cannot be verified,
but those for oil palm are particularly
questionable in view of official
statistics and a government policy that
restricts oil palm seed imports and the
conversion of rubber lands to oil palm.
Fuelwood trees (mostly eucalypts)
planted at altitudes over 5,000 feet
(about 1,500 meters) cannot be
harvested due to environmental
regulations. Trees planted below 5,000
feet may be harvested, but the
approval
process
is
long
and
complicated and may take more than 1
year. RPCs therefore prefer to purchase
fuelwood for the tea factories from
outside sources. The returns on the
forestry development was therefore
not realized despite a significant
development cost.
Only one RPC invested in estate
bungalows and a tea sales
center. Overall lack of interest by
RPCs.
No change.
The palm oil factory was declined
by
ADB
on
environmental
grounds and was built using
commercial funding.
No change.
One RPC invested in marketing
initiatives. Overall lack of interest.
No change.
ADB
had
required
an
environmental clearance in order to
approve funding for the factory.
The
responsible
government
agency had indicated that under
their regulations clearance was not
required and therefore did not
produce
the
required
documentation.
28
Appendix 1
Project Targets (Verifiable
Design Summary
Indicators)
3.2 Social and Environmental Programs
Workers’ housing and
Upgrade and rehabilitate
amenities
estate roads by means of
tar and concrete, and
construct
concrete
footpaths
Achievements at PPER Stage
Achievements at PCR Stage
446 km of tar and concrete roads
and 74 km of gravel roads
rehabilitated.
Remarks
The bulk of the roads (400 km) were
minor internal estate roads 8 meters
wide and constructed of concrete. The
IEM reported that most of the roads it
observed were still in operable
condition.
Construction of 47,187 linear
feet of concrete footpaths.
Reroof
11,000
line
rooms, and construct 150
common site services for
housing
Social Programs
7,413 line rooms reroofed (67%).
The roofing on reroofed line rooms
seen by the IEM was still in good
condition.
Common site services were not
constructed
due
to
nonimplementation of the associated
housing loan scheme.
No change.
Construct 30 playgrounds
8
playgrounds
(27%).
No change.
Construct 300 restrooms
and sanitary facilities
312 restrooms constructed.
Construct ramps and
drains
for
reroofed
housing units
Ramps and drains for
housing units completed.
Construct new preschools
4 new preschools constructed.
No change.
Construct or renovate
water supply schemes for
workers housing
6 water schemes constructed or
renovated.
No change.
Procure 60,000 units of
ergonomic equipment
Allocation fully utilized.
constructed
Those observed by the IEM were simple
open shelters, but estate staff indicated
they were appreciated by the workers.
700
No change.
Design and Monitoring Framework
Design Summary
Environmental Initiatives
3.3 Marketing Initiatives
Research and Development
Project Targets (Verifiable
Indicators)
Train 30,000 workers on
gender issues
Achievements at PPER Stage
Achievements at PCR Stage
18,988 workers provided with
gender training.
Remarks
PHDT indicated that lectures included
both gender issues and alcohol abuse,
and that statistics show that the
incidence of each has declined on the
estates.
Train 30,000 workers in
skills
to
strengthen
housing cooperatives
21,000 workers trained in estate
worker institutions (70%).
No change.
Train 30,000 workers on
household
cash
management
30,989 workers
household cash
(100%).
No change.
Train 30,000 participants
in
alcohol
abuse
prevention programs
30,009 workers trained in alcohol
abuse
prevention
programs
(100%).
PHDT indicated that lectures included
both gender issues and alcohol abuse,
and that statistics show that the
incidence of each has declined on the
estates.
Establish
250
social
development centers
30 social development centers
established (12%), but RPCs
unwilling to contribute 40% of
cost.
No change.
Orient 600 managers
on
human resources
development and 600
estate staff on social
development
196
managers
received
orientation (33%), while no
estate staff members received
orientation.
No change.
Conduct
land-use
capability
survey
on
190,000 ha
31,635 ha were surveyed (17% of
target).
No change.
Support
collaborative
product and research and
development programs
3 research projects implemented
on pesticide residues in tea, leaf
protein from refuse tea, and tea
No change.
trained in
management
29
30
Appendix 1
Design Summary
Project Targets (Verifiable
Indicators)
Achievements at PPER Stage
Achievements at PCR Stage
extract for value-added products.
Remarks
Establish
marketing
intelligence
and
resource center
Center not established.
No change.
Automate tea auction
and electronic trading
Automation of auctions not
undertaken due to reluctance by
key stakeholders in the trade.
No change.
Compliance
of
100
estates with social and
environmental
certification requirements
118 estates obtained
certification (118%).
No change
quality
Certify 50 factories for
fair trade
3.4 Institutional Strengthening and Project Management
Support for industry
Establish umbrella body,
umbrella body
and
ensure
that it
functions
As far as the IEM could ascertain, no
factories had been certified for fair
trade although several had been
certified for environmental soundness.
Umbrella body (Tea Association
of Sri Lanka) supported during
project but eventually closed
down due to inability to finance
itself.
Funding by the government of the
umbrella body through taxes was one
of the policy loan covenants that it did
not comply with.
Consulting inputs
Provide
23
personmonths of international
and 24 person-months of
national
consulting
services to supplement
expertise of RPCs
36 person-months of national
consultants utilized.
No change.
Training
Train 1,000 management
staff
members
and
30,000 workers
Training provided for 3,732
management staff members,
1,543 estate staff members, and
5,859 estate workers.
No change.
Support for developing and
Develop workable models
Not implemented due to lack of
No change.
Design and Monitoring Framework
Design Summary
subleasing outgrower
models
Project management
4. Activities
4.1 Investment Component
4.2 Social and
Environmental Programs
Workers’ housing amenities
Social programs
Environmental initiatives
Project Targets (Verifiable
Indicators)
for subleasing RPCs’ land
and outgrowers
31
Achievements at PPER Stage
Achievements at PCR Stage
stakeholder support.
Remarks
Strengthen
project
implementation unit
Project
implementation
unit
affected by high turnover of
senior staff.
No change.
Provide $66.5 million in
credit and equity and
quasi-equity instruments
$41.6 million in commercial
investments provided.
This figure should be reduced to about
$39.0 million, since about half of the
plantation fund was used for balance
sheet
restructuring
rather
than
investment.
Provide $6.6 million for
estate roads, $3.7 million
for workers’ amenities,
$4.1 million for social
development programs,
and $1.8 million for landuse capability surveys
Actual expenditure of $13.2
million for workers’ amenities,
$0.4 million for social programs,
and
$0.3
million
for
environmental initiatives.
No change.
Component dropped from project
4.3 Marketing Initiatives
Research and Development
Support for ethical trade
initiatives
Provide $1.5 million for
product research and
development
SLRs40 million was provided for
product
research
and
development.
No change.
$1.9
million
for
marketing
intelligence
and resource center, $0.5
million for automated tea
auction, and $2.5 million
for
support
to
nongovernment
organization
initiatives
and fair trade labeling
$0.017 million was provided for
alternative marketing initiatives.
No change.
32
Appendix 1
Project Targets (Verifiable
Indicators)
Achievements at PCR Stage
Provide $1.8 million for
support to umbrella body
$0.46 million was provided to
the Tea Association of Sri Lanka.
The association is now defunct.
Technological support
Provide $0.7 million for
consultancy inputs
$0.112 million was provided for
consultancies.
No change.
Training
Provide $ 2.9 million
for management training
$0.424 million was provided for
training.
No change.
Support subleasing grower
models
Provide $0.4 million for
developing
subleasing
and out-grower models
Project management
Provide $1.2 million for
project management
Design Summary
4.4 Institutional
Strengthening and
Project Management
Support for umbrella body
Achievements at PPER Stage
Remarks
This component was dropped due to
lack of stakeholder interest.
$1.168 million was provided for
project management.
No change.
ADB = Asian Development Bank, Ha = hectare, kg = kilogram, km = kilometer, PCR = project completion report, PPER = project performance evaluation report, RPC=
regional plantation companies.
Sources: ADB. 2012. Completion Report: Plantation Development Project. Manila; and ADB Independent Evaluation Department.
APPENDIX 2: PROJECT COST ESTIMATES
Component
A. Investment Component
Subtotal
B. Social and Environmental
Programs
1. Workers' housing loans
2. Workers' amenities
3. Social development programs
4. Environmental initiatives
Subtotal
C. Marketing Initiatives
1. Research and development
2. Marketing intelligence and
research center
3. Support for automated tea
auctions
4. Support for alternative marketing
Initiatives
Subtotal
D. Institutional Strengthening
1. Support for industry Umbrella
body
2. Consulting inputs
3. Training
4. Support for developing
subleasing and outgrower model
5. Project management
Subtotal
Total base costs
Physical contingencies
Price contingencies
Interest during construction
Total
Source: Asian Development Bank estimates.
Foreign
Exchange
Appraisal
Local
Currency
Total
Cost
Foreign
Exchange
Actual
Local
Currency
Total
Cost
21.60
21.60
44.90
44.90
66.50
66.50
20.10
20.10
29.80
29.80
49.90
49.90
1.90
1.00
0.80
0.00
3.70
4.60
2.70
3.30
1.80
12.40
6.50
3.70
4.10
1.80
16.10
0.00
2.30
0.00
0.00
2.30
0.00
9.20
0.50
0.20
9.90
0.00
11.50
0.50
0.20
12.20
0.30
1.20
1.50
0.25
0.70
0.95
0.00
1.90
1.90
0.00
0.00
0.00
0.40
0.10
0.50
0.00
0.00
0.00
0.00
0.70
2.50
5.70
2.50
6.40
0.46
0.71
1.40
2.10
1.86
2.81
0.10
0.50
0.50
1.70
0.20
2.40
1.80
0.70
2.90
0.10
0.00
0.10
0.42
0.10
0.30
0.52
0.10
0.40
0.00
0.40
1.50
0.40
0.80
5.50
0.40
1.20
7.00
0.00
0.20
0.40
0.00
0.96
1.78
0.00
1.16
2.18
27.50
1.40
3.20
2.30
34.40
68.50
3.40
8.10
0.00
80.00
96.00
4.80
11.30
2.30
114.40
23.51
0.00
0.00
0.12
23.63
43.58
0.00
0.00
0.00
43.58
67.09
0.00
0.00
0.12
67.21
APPENDIX 3: IMPLEMENTATION SCHEDULE (APPRAISAL AND ACTUAL)
Task Description
1
2003
Q2 Q3 Q4
PROJECTED AT APPRAISAL
2004
2005
2006
Q1 Q2 Q3 Q4
Q1
Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007
Q1 Q2
Q3
Q4
2008
Q1 Q2 Q3 Q4
2003
Q1 Q2 Q3 Q4
2004
Q1
2005
Q2 Q3 Q4 Q1 Q2 Q3 Q4
ACTUAL
2006
Q1 Q2 Q3 Q4
2007
Q1 Q2 Q3 Q4
A. Project Management
1. Strengthening PIU
2. Establishment of implementation procedures
B. Investment Component
1. Establishment of the plantation fund
2. Provision of credit line through PFIs and equity
through plantation fund
C. Social and Environment Component
1. Self-Help housing
2. Reroofing schemes
3. Common sites serviced
4. Social awareness programs
5. Strengthening of EWHCS
6. Gender programs
7. Training on household cash management
8. Worker welfare facilities
9. Land survey
D. Marketing Initiative
1. Research and development
2. Ethical trade initiatives
3. Support for alternative marketing initiative—Quality cert.
E. Institutional Development
1. Support for industry federation of associations
2. Technological support to RPCs (Consulting Services)
3. Technical training for workers
4. Training on HR for management and staff
5. Study on outgrower systems and pilot scheme
S
EWHCS = estate worker housing cooperative scheme, PFI = participating financial institution, PIU = project implementation unit, RPCs = regional plantation companies.
Source: ADB. 2010. Completion Report: Plantation Development Project in Sri Lanka. Manila.
2008
Q1 Q2 Q3 Q4
2009
Q1
Q2 Q3 Q4
APPENDIX 4: MAJOR LOAN COVENANTS NOT COMPLIED WITH BY
THE BORROWER
Table A4.1: Major Loan Covenants for Loan 1913 Not Complied With by the Borrower
Reference in
Loan
Agreement
Schedule 6,
para. 9
Covenant
Expected
Compliance Date
Status at Project
Completion
The Borrower shall ensure that the PA (Sri Lanka
Planters Association) shall contract NGOs
satisfactory to the Bank for the social and
environment programs, fair trade labeling, and
strengthening of the EWHCS subcomponents
based on their local knowledge, experience in the
plantation sector and with international fair trade
measures, and experience in participatory delivery
mechanisms
in
demand
driven
project
interventions. The PA, as representatives of the
RPCs, shall assume greater responsibilities in
project implementation including identifying the
gaps in technological expertise in the industry as
well as selection and recruitment of consultants
and NGOs. The role of the PA shall be
documented in agreement(s) among the
Borrower, the PA and the RPCs.
At the beginning
of
implementation
Not complied with.
Schedule 6,
para. 10
The Industry Umbrella Body shall have been
established under the Companies Act and initial
staff shall have been recruited to the satisfaction
of the ADB. The Industry Umbrella Body shall (i)
initiate product development and research, quality
assurance certification and consumer and generic
trade promotion, (ii) facilitate strategic alliances
and collaborate with supporting institutions, such
as the Tea Related Institutions, to ensure
alignment with the industry needs, (iii) serve as
the conduit for trading, (iv) establish liaisons with
NGOs for awareness raising on international codes
of conduct and certification standards relating to
social, welfare and environmental conditions, (v)
initiate research and development for ergonomic
equipment, (vi) initiate incentive and award
schemes on an industry level for promoting social
and processing standards, and (vii) organize trade
fairs for information exchange.
Within
one
month
of
effective date
Originally complied with.
The Tea Association of
Sri
Lanka
was
established but is now
defunct.
Schedule 6,
para. 25
Wage Determination: That the Government shall
refrain from intervening in wage determination in
the collective agreements between estate workers
and management.
During
implementation
Partly complied with.
The
government
intervened for a wage
increase
in
October
2007.
Schedule 6,
para. 26
Accessibility of tax funds: The Borrower shall
reallocate tax funds to the industry Umbrella Body
for research on product development and process
improvement and consider favorably allocating
tax funds to operating expenditures of the
industry Umbrella Body.
By 30 June 2003
Not applicable since the
umbrella
body
was
discontinued due to lack
of funds.
36
Appendix 4
Reference in
Loan
Agreement
Schedule 6,
para. 28(a)
Schedule 6,
para. 28(c)
Covenant
Expected
Compliance Date
Status at Project
Completion
Monitoring and Evaluation: The PIU shall carry out
monitoring and evaluation of the Project benefits
in coordination with Apex Body, the PFIs,
Plantation Fund, RPCs, PHSWT and EWHCS.
During
implementation
Not complied with. No
evaluation of investment
component conducted.
The PIU shall monitor relevant indicators to assess
the performance of the Project, including the
ability of RPCs to list their debt and equity
instruments on exchanges; improvement in
workers’ conditions including reduction in the
outflow of estate labor, improved income, health
and nutrition status and improved status of estate
employment, increase in the number of RPCs
registering for fair trade labeling and ISO
standards, and disbursement of worker housing
Subloans, factory and field restroom construction,
use of ergonomic equipment and levels of
indebtedness and alcoholism. The PIU shall carry
out an impact evaluation study upon project
completion.
During
implementation
Not complied with.
ADB = Asian Development Bank, EWHCS = Estate Workers Housing Cooperative Society, ISO = International Organization for
Standardization , JEDB = Janatha Estate Development Board, LA = loan agreement, MPI = Ministry of Plantation Industries, NGO =
nongovernment organization, PA = Planters' Association of Ceylon, PCR = project completion report, PFI = participating financial
institution, PHDT = Plantation Housing Development Trust, PIU = project implementation unit, PHSWT = Plantation Housing and
Social Welfare Trust, RPC = regional plantation company, SLSPC = Sri Lanka State Plantation Corporation.
Sources: ADB. 2012. Completion Report: Plantation Development Project . Manila; and ADB Independent Evaluation Department
mission 2015.
Table A4.2: Major Loan Covenants for Loan 1914 Not Complied With by the Borrower
Reference in
Loan
Agreement
Schedule 5.
para. 8
Covenant
Plantation Fund (PF):
The Borrower shall ensure that the PF is established
under the purview of the Ministry of Finance of the
Borrower as a Trust under the Trust Ordinance No. 9
of 1917 as amended, the Fund Manager is to be
appointed to the satisfaction of ADB, and that the PF
Subsidiary LA satisfactory to ADB is signed, in each case
prior to disbursement for the PF.
Expected
Compliance Date
Within 6 months
of effective date
(Feb 2004)
Partly
with.
complied
Establishment of
PF delayed (Oct
2004).
Within 9 months
of effective date
(May 2004)
Fund manager
appointed only in
Mar 2006.
Complied
with
but delayed (see
Schedule
5, para. 8).
Not
complied
with.
Schedule 5,
para. 20
Establishment of Plantation Fund and appointment of
Fund Manager with the concurrence from ADB.
By Feb 2004
Schedule 5,
para. 27
The Government shall review the need for the Revolving
Fund before closing the Project and take necessary
action for its continued operation or winding up.
During
implementation
Schedule 5,
para. 29
The Borrower shall ensure:
By Dec 2002
Divestment of Elkaduwa Plantation Ltd. through the
stock market,
Status at Project
Completion
Not
complied
with. Six attempts
were made to
privatize
but
Major Loan Covenants Not Complied With by the Borrower 37
Reference in
Loan
Agreement
Covenant
Expected
Compliance Date
Status at Project
Completion
failed. Per new
government
policy,
no
divestment
will
happen.
Chilaw Plantation Ltd through the stock market
Jun 2003
Not
complied
with. Will remain
under
private
management
contract but will
not be divested,
per government
policy.
Not
complied
with. No action
has been taken.
Kurunegala Plantation Ltd through the stock market
Dec 2003
Management
contract
terminated, and
the government
took over the
management.
Not
complied
with, owing to
resistance
from
stakeholders.
Divestment of the estates and warehouses of JEDB and
SLSPC
By Jun 2003
Not
complied
with.
The Tea
Board maintains
its former role.
Marketing of Tea: Elimination of all restrictions on tea
exports (on recommendation of the Industry Umbrella
Body), except quality control, and, as a first step,
elimination of price control and panel ratification for
non-auction sales between producers and international
buyers.
By Jun 2003
Not
complied
with.
The tearelated
institutions were
not reconstituted
or restructured.
Amendment of the acts of the Tea Related Institutions,
reconstitution of the boards for greater private sector
participation and restructuring of the institutions;
During
implementation
Not
with.
complied
Feb 2004
Not
with.
complied
Submission of the bill on reconstitution of the boards
of the Coconut Research Board, and the Rubber
Research Board, to the Parliament for approval;
Institutional Reforms:
38
Appendix 4
Reference in
Loan
Agreement
Schedule 5,
para 31
Schedule 5,
para. 32
Covenant
Expected
Compliance Date
Phasing out the Plantation Management Monitoring
Division’s role in monitoring the management and
financial performance of the RPCs when all RPCs are
divested.
During
implementation
Wage Determination: That the Government shall refrain
from intervening in wage determination in the
collective agreements between estate workers and
management.
During
implementation
Monitoring and Evaluation The PIU shall carry out
monitoring and evaluation of the Project benefits in
coordination with Apex Body, the PFIs, PF, RPCs, PHSWT
and EWHCS.
Status at Project
Completion
Not
with.
complied
During
implementation
Not
with.
complied
The PIU shall conduct a benchmark socioeconomic
survey based on a representative sample of the estates
to be assisted under the Project. The data to be
collected by the PIU shall include indicators of social
welfare of the estate workers.
During
implementation
Complied
with,
but delayed until
2005.
The PIU shall monitor relevant indicators to assess the
performance of the Project.
During
implementation
Not
with.
complied
The Borrower through the Apex Body, cause PFIs to
monitor and evaluate the benefits of the Subprojects
after they have been completed in accordance with a
schedule to be agreed upon by the Borrower, the PFIs
and ADB.
During
implementation
Not
with.
complied
Carrying out of the Midterm Review by
the Borrower, MPI, Apex Body and ADB.
Year 3 of project
implementation
Complied
with,
but delayed. A
midterm
review
mission was
fielded in Dec
2007.
ADB = Asian Development Bank, EWHCS = estate workers' housing cooperative society, JEDB = Janatha Estate Development Board,
LA = loan agreement, MPI = Ministry of Plantation Industries, PCC = project coordination committee, PF = plantation fund, PFI =
participating financial institution, PHSWT = Plantation Housing and Social Welfare Trust, PIU = project implementation unit, PRP =
Plantation Reform Project, RPC = regional plantation company, SLSPC = Sri Lanka State Plantation Corporation.
Source(s): ADB. 2012. Completion Report: Plantation Development Project. Manila and Asian Development Bank Independent
Evaluation Department Mission 2015.
APPENDIX 5: CHARACTERISTICS OF ESTATES VISITED BY THE INDEPENDENT EVALUATION MISSION
Estate
Population
987
Number
of
Families
250
2,800
(Mid grown)
2,066
466
214
(10% of estate
population)
60
260
Uva Province,
Badulla District
3,000
(Mid grown)
4,300
756
636
(15% of estate
population)
60
709
Tea
(533 ha bearing)
Timber (75 ha)
Central Province,
Nuwaraeliya
District
4,000
(High grown)
3,646
756
669
(18% of estate
population)
61
423
Tea
(307 ha bearing)
Timber (28 ha)
Sabaragamuwa
Province,
Ratnapura
District
700
(Low grown)
4,146
1,133
385
(9% of estate
population)
56
840
Sabaragamuwa
Province,
Ratnapura
District
300
(Low grown)
2,099
535
698
(33% of estate
population)
54
1,200
Tea
(109 ha bearing)
Rubber
(280 ha bearing)
Cinnamon
(23 ha)
Rubber
(745 ha bearing)
Oil Palm
(111 ha bearing)
Name of
Estate
Lavant
Estate
Estate’s Parent
RPC
Kelani Valley
Plantations PLC
listed on the CSE
(CSE: KVAL)
Location of
Estate
Sabaragamuwa
Province, Kegalle
District
Sanquhar
Estate
Pussellawa
Plantations LTD –
not listed on the
CSE
Central Province,
Kandy District
Demodera
Estate
Hapugastenne
Plantations PLC
listed on the CSE
(CSE: HAPU)
Talawakelle Tea
Estates PLC listed
on the CSE
(CSE: TPL)
Kahawatte
Plantations PLC
listed on the CSE
(CSE: KAHA)
Agalawatte
Plantations PLC
listed on the CSE
(CSE: AGAL)
Bearwell
Estate
Pelmadulla
Estate
Peenkande
Estate
Altitude of
the Estate
(feet)
700
(Low grown)
Number of
Workers
252
(26% of estate
population)
Female
Workers
(% of total)
52
Estate
Total Area
(ha)
569
Main Crops
Rubber
(287 ha bearing)
Coconut
(8 ha bearing)
Timber (8 ha)
Cinnamon
(2 ha bearing)
Tea
(80 ha bearing)
Rubber
(46 ha bearing)
Timber & Eucalyptus
(50 ha)
Note(s): Low grown = Grown at an elevation below 2,000 feet, Mid grown = Grown at an elevation from 2,000-4,000 feet, High grown = Grown at an elevation above 4,000 feet.
AGAL = Agalawatte , CSE = Colombo Stocks Exchange , ha = hectares, HAPU = Hapugastenne , KAHA = Kahawatte, KVAl = Kelani Valley, LTD = limited, PLC = Public limited company, RPCs
= regional plantation companies , TPL = Talawakelle.
APPENDIX 6: LIST OF REGIONAL PLANTATION COMPANIES
Name
Listed on the Colombo Stock Exchange
1 Agalawatte Plantations
Number of Estates
15
2 Bogawantalawa Tea Estates
28
3 Elpitiya Plantations
13
4 Hapugastenne Plantations
19
5 Horana Plantations
16
6 Kahawatte Plantations
16
7 Kegalle Plantations
17
8 Kelani Valley Plantations
26
9 Kotagala Plantations
21
10 Malwatte Valley Plantations
22
11 Namunukula Plantations
19
12 Talawakelle Tea Estates
16
13 Udapussellawa Plantations
14 Watawala Plantations
7
19
Participating but unlisted
1 Maturata Plantations
19
2 Pussellawa Plantations
24
Listed but not participating
1 Balangoda Plantations
22
2 Madulsima Plantations
12
3 Maskeliya Plantations
18
Note: Listed and unlisted refer to listing on the Colombo Stock Exchange.
Source: Government of Sri Lanka, Ministry of Plantation Industries. 2015. Statistical Information
on Plantation Crops 2013. Battaramulla.
APPENDIX 7: WORLD COMMODITY PRICES AND REGIONAL PLANTATION
COMPANIES’ PROFITABILITY
Figure A7: Profitability of 14 Participating Listed Regional Plantation Companies and Commodity Price
Movements, 2005–2015
5.00
6,000,000
4.50
5,000,000
4.00
Net Profits
3.00
2.50
3,000,000
2.00
2,000,000
Prices
3.50
4,000,000
1.50
1.00
1,000,000
0.50
-
-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Net Profits of 14 Listed Participating RPCs (SLRs 000's)
Tea Prices ($/Kg)
Rubber Prices ($/Kg)
Oil Palm Prices ($/Kg)
Note: All figures are in nominal terms. 2005 refers to either the financial year ending on 31 December 2004 or 31
March 2005; same for all years through 2015. The Companies Act of Sri Lanka allows for financial year ending either
on December 31 or March 31. Most banks and Government agencies adopt the December 31 financial year end,
while most private corporations adopt March 31. Since the RPCs were state-run enterprises until the early 1990s,
their financial year ends either on December 31 or March 31. As of 2014, 9 of the 14 RPCs had switched over to the
March 31 financial year end.
Sources: World Bank commodity price data, October 2015; Government of Sri Lanka, Ministry of Plantation
Industries; RPC annual reports; and Colombo Stock Exchange filings.
APPENDIX 8: FINANCIAL INTERNAL RATES OF RETURN FOR CROPS
A.
Introduction
1.
The project performance evaluation report calculated a financial internal rate of return
(FIRR) on a per-hectare basis for each of the main crops that were to be planted under the
Plantation Development project in Sri Lanka—tea, rubber, and oil palm. This was done to assess
the financial viability of these plantings from the perspective of the RPCs, which the Asian
Development Bank loan would support. This analysis computed in real terms the weighted
average cost of capital (WACC), the FIRR, and net present value (NPV) of these planting
activities.
2.
The WACC calculation considered various funding sources and their terms. For the
replanting of crops, the only funding source was to be term loans to RPCs provided by the
Development Finance Corporation of Ceylon (DFCC) Bank and other participating financial
institutions (PFIs) with annual interest rates of 10%–15%. For the purpose of calculating the
WACC, an average annual interest cost of 13% was assumed, along with the current corporate
tax rate of 28%. The domestic long-term inflation rate of 5% was assumed to convert the
nominal rates into real rates. The WACC for the RPCs related to the three crops was computed
as 4.15% on an after-tax basis in real terms.
3.
In determining an establishment cost per hectare for each of the three crops, as well as
yields and costs of production, the analysis used data and information provided by the Ministry
of Plantation Industries and the RPCs. Operations and Maintenance costs have been assumed to
grow at 2% per annum on a real term basis. October 2015 World Bank commodities price
indices were used for price forecasts.
Table A8.1: Parameters for Financial Analysis
Crop
Tea
Rubber
Oil palm
Year of
Plantinga
2006
2006
2006
Year of
Production
2010
2012
2010
Establishment
Cost
(SLRs)
SLRs1.95
million, with
50% in year 1
and the rest
phased in
Cost of
Production
(SLRs per ha)b
Starting in 2010
SLRs200,000,
with 50% in
year 1 and the
rest phased in.
Starting in 2012
SLRs200,000,
with 59% in
year 1 and the
rest phased in
Starting in 2010
SLRs700,000
SLRs224,000
SLRs100,000
Yield
(tons per ha)
0.5 tons/ha in year
2010; 1.0 tons/ha
in
2011;
1.5
tons/ha in 2012;
2.0 tons/ha from
2013 to year 2050
FOB Price
(SLRs per ton)
2010 to 2013 data
from MPI statistics,
and World Bank
price
projections
thereafter
0.25 tons/ha in year
2012; 0.5 tons/ha
in
2013;
0.75
tons/ha in 2014;
1.0 tons/ha from
2015 to 2036
1.0
tons/ha
in
2010; 2.0 tons/ha
in
2011;
3.0
tons/ha in 2012; 4
tons/ha from 2013
to 2026
2010 to 2013 data
from MPI statistics,
and World Bank
price
projections
thereafter
World Bank prices
from 2013 to 2013,
and
price
projections
thereafter
FOB = free on board.
a
The bulk of the investment component expenditure was in 2005 and 2006, based on the project’s completion report.
b
Most statistics use a measure of SLRs per kilogram. Based on expected yield, the estimates were converted to SLRs/ha.
Sources: Government of Sri Lanka, Ministry of Plantation Industries. 2015. Statistical Information on Plantation Crops 2013.
Battaramulla; World Bank commodity price data; and Asian Development Bank Independent Evaluation Department.
Financial Internal Rates of Return for Crops 43
B.
Tea
4.
Table A8.2 summarizes the FIRR analysis for tea on a per-hectare basis. The FIRR for tea
was calculated at 4.57%, marginally above the WACC and suggests that planting of tea is
marginally financially viable. However, this financial viability was highly sensitive to movements
in tea prices and the cost of production. As Table A8.2 shows, a 10% decrease in revenue or a
10% increase in the cost of production would result in an FIRR lower than the WACC.
Table A8.2: FIRR and Sensitively Analysis for Tea
Scenario
Base case
10% increase in establishment costs
10% increase in cost of production
10% decrease in revenue
NPV
(SLRs )
2,11,090
26,832
(1,210,015)
(1,415,382)
FIRR
(%)
4.57
4.20
1.44
0.77
Change
(%)
SI
0.80
6.85
8.30
SV
(%)
10
10
10
125
15
12
() = negative, FIRR = financial internal rate of return, SI = sensitivity indicator, SV = switching value.
Source: Asian Development Bank Independent Evaluation Department.
C.
Rubber
5.
Table A8.3 summarizes the FIRR analysis for rubber on a per-hectare basis, which
determined an FIRR of 15.44%. This is well above the WACC and suggests that planting rubber
is financially viable.
Table A8.3: FIRR for Rubber
Scenario
Base Case
10% Increase in Establishment Costs
10% Increase in Cost of Production
10% Decrease in Revenue
NPV (SLRs)
847,245
829,132
557,493
454,655
FIRR (%)
15.44
14.68
12.19
11.13
SI
% Change
0.49
2.10
2.79
SV (%)
10
10
10
202
48
36
FIRR = Financial Internal Rate of Return, NPV = Net Present Value, SI = Sensitivity Indicator, SV = Switching Value.
Source: Asian Development Bank Independent Evaluation Department.
D.
Oil Palm
6.
The analysis for oil palm on a per-hectare basis, presented in Table A8.4, showed an
FIRR of almost 43%, making this crop the most financially viable of the three assessed.
Table A8.4: FIRR for Oil Palm
Scenario
Base Case
10% Increase in Establishment Costs
10% Increase in Cost of Production
10% Decrease in Revenue
NPV (SLRs)
2,528,619
2,510,027
2,428,435
2,156,982
FIRR (%)
42.92
40.86
42.20
39.88
FIRR = Financial Internal Rate of Return, SI = Sensitivity Indicator, SV = Switching Value.
Source: Asian Development Bank Independent Evaluation Department.
SI
0.48
0.17
0.71
%
Change
10
10
10
SV(%)
209
599
141