Document ofThe World Bank

Report No: 21774-CE

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED IDA CREDIT

IN THE AMOUNT OF SDR1.6 MILLION

(US$2.0 MILLION EQUIVALENT)

TO THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

FOR THE

SRI LANKA: DISTANCE LEARNING PROJECT

February 01, 2001

Finance & Private SectorSouth Asia Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 2001)

Currency Unit = SRI LANKA RUPEESLRs. 1 = US$0.0108

US$1 = SLRs.93

FISCAL YEARJanuary 01 December 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyCBS Center for Banking StudiesCEO Chief Executive OfficerDCA Development Credit AgreementDLC Company Distance Learning Center CompanyEA Environmental AssessmentFRs Financial RegulationsGDLN Global Distance Learning NetworkGoSL Government of Sri LankaICBT International College of Business and TechnologyIDA International Development AssociationILO International Labor OrganizationISG Information Services GroupIT Information TechnologyLIL Learning and Innovation LoanMDTU Management Development Training UnitsMIS Management Information SystemNCB National Competitive BiddingNS National ShoppingPMR Project Management ReportsPPF Project Preparation FacilitySA Special AccountSDF Skills Development FundSLID Sri Lanka Institute of DirectorsSLIDA Sri Lanka Institute of Development AdministrationSLILG Sri Lanka Institute of Local GovernanceSOE Statement of ExpendituresVSAT Very Small Aperture TerminalWBI World Bank InstituteWTO World Trade Organization

Vice President: Mieko NishimizuCountry Director: Mariana Todorova

Sector Director: Marilou UyTeam Leader Robert AndersonTask Leader: Naresha Duraiswamy

SRI LANKASRI LANKA: DISTANCE LEARNING PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 32. Key performance indicators 3

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 32. Main sector issues and Government strategy 43. Learning and development issues to be addressed by the project 84. Learning and innovation expectations 9

C. Project Description Summary

1. Project components 102. Institutional and implementation arrangements 113. Monitoring and evaluation arrangements 13

D. Project Rationale(This section is not to be completed in a LIL PAD)

E. Summary Project Analysis

1. Economic 142. Financial 143. Technical 144. Institutional 145. Environmental 166. Social 167. Safeguard Policies 17

F. Sustainability and Risks

1. Sustainability 172. Critical risks 183. Possible controversial aspects 19

G. Main Loan Conditions

1. Effectiveness Condition 192. Other 19

H. Readiness for Implementation 19

I. Compliance with Bank Policies 20

Annexes

Annex 1: Project Design Summary 21Annex 2: Detailed Project Description 23Annex 3: Estimated Project Costs 25Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 26Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 30Annex 6: Procurement and Disbursement Arrangements 36Annex 7: Project Processing Schedule 42Annex 8: Documents in the Project File 43Annex 9: Statement of Loans and Credits 44Annex 10: Country at a Glance 46

MAP(S)

SRI LANKA

Sri Lanka: Distance Learning Project

Project Appraisal Document

South Asia Regional OfficeSASFP

Date: February 1, 2001 Team Leader: Naresha DuraiswamyCountry Manager/Director: Mariana Todorova Sector Manager/Director: Marilou Jane D. UyProject ID: P069784 Sector(s): BI - Institutional DevelopmentLending Instrument: Learning and Innovation Loan (LIL) Theme(s): Public Sector; Private Sector

Poverty Targeted Intervention: N

Project Financing Data[ 1 Loan [X] Credit [ Grant [ ]Guarantee [ Other:

For Loans/Credits/Others:Amount (US$m): 2.0

Proposed Terms: Standard CreditGrace period (years): 10 Years to maturity: 40Commitment fee: 0 Service charge: 0.75%Financing Plan: Source Local :: -. Foreign TotalBORROWER 1.00 0.00 I.00IDA 0.00 2.00 2.00LOCAL GOVTS. (PROV., DISTRICT, CITY) OF BORROWING 0.00 0.00 0.00COUNTRY

Total: 1.00 2.00 3.00

Borrower: SRI LANKAResponsible agency: DISTANCE LEARNING CENTER LTD.Distance Learning Center CompanyAddress: 28/10 Malalasekere Mawatha, Colombo 7, Sri LankaContact Person: Mr. Sanath EdiriweeraTel: 94-1-587671 Fax: 94-1-584406 Email: sanath98@slt.lk

Other Agency(ies):Department of External Resources, Ministry of FinanceAddress: The Secretariat, PO Box 277, Colombo 1Contact Person: Mr. Faiz Mohideen, Director-GeneralTel: 94-1-434876 Fax: 94-1-447633 Email:Sri Lanka Institute of Directors

Address: 50 Navam Mawatha, Colombo 2, Sri LankaContact Person: Ms Alikie IsmailTel: 94-1-328880 Fax: 94-1-449352 Email: alikie@chamber.Ik

Estimated disbursements ( Bank FYIUS$M):jlg~ 2 001 2003g H 2003p &o

Annual 1.10 0.30 0.30 0.30.Cumulative 1.10 1.40 1.70 2.00

Project implementation period: March 1, 2001-December 31,2004Expected effectiveness date: 03/01/2001 Expected closing date: 06/30/2005

OCS PM5 F R. U 2OD

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A. Project Development Objective

1. Project development objective: (see Annex 1)

The Project will pilot a distance learning initiative to (a) strengthen the environment for policy reforms and(b) build capacity in the public and private sectors.

Distance Learning will facilitate the increased dissemination of the latest technical information andcross-country experience in support of market reforms. Senior public and private sector decision-makerswill access interactive multi-media and internet-based training programs developed by the World BankInstitute (WBI), major universities, private corporations and technical organizations around the world. Thisexposure to global knowledge will enhance the capacity of Sri Lankan decision-makers to conceptualizeand implement reforms. The introduction of better policies will, in turn, lead to improved governance,poverty reduction and economic growth. An IDA Learning and Innovation Loan (LIL) will support theestablishment and operation of the Distance Learning Center (DLC) Company in Sri Lanka.

2. Key performance indicators: (see Annex 1)

Performance indicators will be used to assess the impact of distance learning on the policy environment andits sustainability in enhancing institutional capacity. The indicators include the (a) number of specificinitiatives introduced that impacts on sector reform in designated areas covered by distance learning (e.g.pension reform, insurance reform etc. (b) number of trained directors implementing best practice guidelineson corporate governance; (c) demand for and utilization of distance learning services as demonstrated incourse enrollment; and (d) ability to cover operating expenses through fees (100% of operating expenses tobe covered by revenue generation in the 4th year of project implementation).

An inventory of information obtained will be entered into the DLC MIS. The indicators will be measuredthrough an in-built monitoring/evaluation mechanism within the MIS. The system will have the capacity torecord relevant information and will include an accounting system that measures the cost and revenue of theorganization. Sector reviews and surveys of trainees will also be used to measure indicators and get anindication of improvement over time.

B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: CAS of 5/21/1996 document Number 15633-CE Date of latest CASdiscussion: The Progress Report of 12/23/98 and the latest CAS discussion of 12/23/98 was discussed inthe Board on 01/19/99. Document Number IDA/R98-190

The preparation of a new CAS began this fiscal year. The CAS emphasizes policy reform and dialogue. Itsupports efforts to (a) improve fiscal discipline; (b) promote sustainable private sector-led growth, (c)enhance the institutional and policy framework for increased investment in infrastructure and (d) addresssecond generation human resource issues. The Distance Learning LIL will be an important instrument inthe realization of CAS objectives. It will open new opportunities for policy dialogue with a wider audiencewithin Sri Lanka by facilitating increased access to the latest technical information and internationaldevelopment expertise. It is a low-cost and high-impact intervention.

The LIL will promote reform by encouraging senior decision makers to rethink the role of the state inpoverty reduction and economic growth in light of international experience and specialized knowledge. The

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project will facilitate the increased dissemination of international best practice on corporate governance, anessential ingredient for private sector-led growth. Sri Lanka will be better positioned to bridge the digitaldivide, reduce the knowledge gap and participate in the information-based economy.

2. Main sector issues and Government strategy:

BACKGROUND: Sri Lanka was the first South Asian country to liberalize its economy in 1977.However, insufficient exposure to international experience and policy trends limited the follow-up processof individual sector reform. Key stakeholders fearful of change were unaware of how similar concerns wereaddressed in other countries. The proposed LIL is intended to bridge this knowledge gap in support ofmarket reform.

Moreover, the public sector has not adequately adapted to the liberalized economy. There is a need toexamine the role of the bureaucracy, its interface with the private sector, access to technology and itshuman resource capacity in the context of the modem demands of business and civil society.

Sri Lanka is confronted with serious shortfalls in govemance, be it the capacity to plan at the center,implement decisions at the periphery or ensure corporate govemance. The scrutiny of public finances isweak at all levels of govemment. Intemal control and audit systems have not been modemized in line withintemational best practice, the liberalized economy and devolution. The existing civil service culturehinders good govemance, accountability and transparency. The reform of the civil service is needed for aninstitutional framework supportive of market-led growth. The Government has set up a 'Public ServiceManagement Development Authority' (PSMDA) to address these issues.

There is at present no incentive for a civil servant to undergo training since it does not affect his or hercareer prospects. The absence of mandatory on-the-job training for civil servants impacts negatively onadministrative capacity. The PSMDA recommends an Annual Performance Review to decide promotions,increases in remuneration and training in the civil service. It proposes amendments to the Sri LankaAdministrative Service Minute to this effect. If this were to be implemented, it will increase civil servicetraining as a whole.

While distance learning alone will not resolve the shortcomings of public administration, it will nonethelessfacilitate improved governance through knowledge transfer. It will expose local decision-makers tointernational best practice and enhance the skills of local decision-makers in the priority areas ofeconomics, finance and management.

The internet, e-business and WTO-led trade liberalization have reinforced the globalization of markets anda degree of convergence in business operations. Improved corporate governance is therefore needed tofacilitate strategic international partnerships. Sri Lanka is still short of the skills required in this context.The private sector lacks exposure to the latest trends in corporate finance and management. It lacks thesupporting institutions and human resources that are critical to sound corporate govemance. Several seniorexecutives are due to retire while new leaders are poised to take over. Knowledge enhancement and skillsdevelopment are needed in this transitional context. Distance leaming course modules relayed fromintemational institutions will strengthen corporate management while access to the latest technicalinformation will allow the Sri Lankan private sector to effectively compete in the global economy.

The recent proliferation of private training institutions in Sri Lanka is reflective of the demand for globalknowledge in a fast changing world. However, these management institutes still lack real time access to thelatest training materials, case studies and technical information from top notch accredited international

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content providers committed to excellence. The professional training system largely entails bringingindividual experts to teach a course to a limited audience in Sri Lanka or sending a restricted number ofpersons abroad for training. This piece-meal approach is of insufficient scale to promote market reforms orenhance capacity in the public and private sectors. Neither is it cost-effective.

The strategy of the Government is to introduce the distance learning method to complement existingtraining programs in the country and strengthen the scope of such programs. Multi-media internet-baseddistance learning will focus on global knowledge, governance and policy reform at lower cost. Distancelearning will be a public-private partnership committed to serve the training needs of both sectorseffectively.

EXISTING TRAINING PROGRAMS: The Sri Lanka Institute of Development Administration(SLIDA), incorporated by an Act of Parliament in 1982, is the training arm of the civil service. It trains3000 senior and middle-level civil servants each year, and inducts new recruits into the administrativeservice. It has 17 full time resource persons and several part-time lecturers. The Treasury funds 85% of theSLIDA budget while the rest is earned from course fees charged to the private sector, managementconsultancies and customized training. It identifies the course curriculum in keeping with official policyrequirements, regular needs assessments and the feedback of past trainees.

Internet-based distance learning will increase SLIDA's live access to relevant international experience,latest policy trends and specialized knowledge. It will facilitate increased policy debate within the civilservice on current development issues. Distance learning will offer an increased range of courses that willkeep pace with developments in the international arena and more positively impact on administrativecapacity within Sri Lanka.

The Sri Lanka Institute of Local Governance (SLILG), was incorporated by an Act of Parliament inSeptember 1999. The Thirteenth Amendment to the Constitution (1987) devolved several administrativeresponsibilities to the eight provinces. The provincial bureaucracy, however, lacked the financialmanagement and strategic planning skills to take on the responsibilities assigned to it. To date, no provincehas been able to develop a corporate plan or enact relevant legislation. Rural divisional secretaries lackinternet connectivity and exposure to global knowledge. The 'Commission of Inquiry on Local GovernmentRefonns' in 1999 emphasized the need to build capacity at the local level.

SLILG endeavors to rectify the widespread lack of capacity and supports eight provincial-level"Management Development Training Units" (MDTU) to train provincial civil servants. SLILG, with atraining budget of Rs 16 million, now has 100 external resource persons. It develops course curricula forthe MDTUs, trains provincial-level trainers, holds workshops for senior provincial bureaucrats andundertakes consultancy assignments for provincial line agencies. As a new institution, SLILG still lacks theexpertise to effectively train grass roots government officers in management. Most MDTUs are not fullyfunctional either.

The overall training required at present in the devolved authorities is of a rudimentary nature.Internet-based distance leaming will not be the best instrument to address such needs. The English languagecourse modules and the required level of expertise prevent middle-level provincial cadre from effectivelyusing the Distance Learning Center (DLC). The limited size of the provincial and local government budgetsalso pre-empts the extensive use of DLC facilities.

Senior grades in the provincial and local levels, however, can avail themselves of distance learning modulesin financial management, policy analysis and broad development issues. The Government intends to

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approach other donors to support the initial training of provincial chief secretaries, deputy chief secretaries,secretaries to provincial ministries and divisional secretaries on a pilot basis. Distance learning will vastlyenhance training opportunities and link grass-roots decision-makers to the borderless world of knowledge.

The Sri Lanka Institute of Directors (SLID), established by the Ceylon Chamber of Commerce under theCompany's Act in April 2000, was envisioned to provide training and development support for corporateexecutives. It emerged in response to a broad demand for education in corporate governance, currentlyunavailable in Sri Lanka. SLID, soon to be converted into an independent body, is in the process ofdeveloping a training program for business managers. It acts as an information resource and discussionforum for private directors.

SLID has a membership of 735 Directors, Senior Managers and Corporate Partners. It organizes breakfastmeetings on e-commerce and corporate govemance, and external diploma programs for directors at theChartered Institute of Directors in London, the University of Ulster and the Wharton School of Business inSingapore. In a survey of its membership carried out in August, 2000, most directors identified web-basedlearning experiences and distance learning programs in corporate govemance, e-business and the legalramifications of directorship as a priority.

The Distance Learning Project is intended in part to strengthen the SLID program by linking it tointernational best practice. The real-time transfer of specialized knowledge will enable trained directors toeffectively exercise their responsibilities of oversight and fiduciary control over management

The Center For Banking Studies, affiliated to the Central Bank of Sri Lanka, offers course modules incommercial and investment banking, fund management, risk management and financial sector development.The courses offered vary in duration from one year diploma programs to half-day workshops on specifictopics. Despite a partnership with international training institutes, the Central Bank still needs to eithersend staff abroad for more specialized training or bring international experts. Both options are expensiveand largely dependent on the availability of donor funds. Expenditure related to airfare and per-diems aresignificant, notwithstanding donor-financed course fee exemptions. Distance Learning is intended to reducethe costs of training, widen the technical exposure and complement the Center's existing program bypromoting a transfer of knowledge through satellite-based technology. It will beef up the curriculumthrough increased international inputs and help strengthen the domestic environment for financial sectorreform.

The Skills Development Fund (SDF) was established in early 2000 in keeping with the recommendationsof the 'Presidential Task Force on Tertiary Education and Vocational Training' to introduce a trainingculture in the public and private sectors. It provides (i) job entry training for new recruits; (ii) on-the-jobtraining for managers; and (iii) retraining to facilitate retrenchment and flexible labor markets. TheGovernment owns 90% of its shares and intends to divest this through a private offering in November 2001and a public offering one year thereafter.

The SDF, a Board of Investment registered company, provides a needs analysis for individual firms andthen designs a customized training program using external resource persons registered with it. It isenvisaged that the SDF will incorporate distance leaming modules in its training programs. The DLCCompany, likewise, will rely on the SDF to undertake regular needs assessments on its behalf.

Several other private sector firms have also invested in training. For example, corporate conglomeratessuch as Maharajahs and Ceylinco Consolidated have set up their own training institutes i.e. the MaharajahInstitute of Management and the Ceylinco-owned International College of Business and Technology.

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These are fully owned subsidiaries of the parent company and are intended in part to upgrade the skills ofemployees, provide a foreign MBA education within Sri Lanka, and help introduce international bestpractice and knowledge to corporate staff. It is envisaged that distance learning modules will be included intheir training programs and DLC facilities used for the purpose.

Ceylinco Consolidated is a multi-million dollar Sri Lankan conglomerate established in 1939. Its traininginstitutes include the International College of Business Technology, Ceylinco Insurance College, theCeylinco Institute of Excellence, the Colombo Business School and the Seylan Bank Training Center. It hasidentified international training partners such as the University of Western Sydney, the South AustralianTertiary and Further Education Program, the National University of Singapore and the Abdul RazzakUniversity in Malaysia to educate local cadre in the latest business and management practices. Ceylincoitself has a vision of tele-education and is eager to partner with the DLC Company.

The public and private initiatives referred to above were intended to strengthen capacity through improvedtraining. The proposed distance leaming project, a public-private partnership, will increase the scope ofsuch programs and ensure international standards. The latest internet-based courses, with a focus on globalknowledge, governance and policy reform will support current efforts to enhance capacity in Sri Lanka.

DISTANCE LEARNING CENTER: The Government incorporated the DLC Company in June, 2000and registered it under the Company's Act in September, 2000. The Ministry of Finance owns 100% of theDLC Company's shares. It plans to divest 49% of the Company's shareholding once the market base isdeveloped and the DLC is financially viable. This is anticipated in the fourth year of DLC's operations.SLID and other private sector firms have already expressed interest to buy shares of the DLC Company toensure that it meets their training needs. The Ministry of Finance will define the strategy and timeline fordivestment. An accounting firm will be hired to price the shares and oversee the sale thereof.

The DLC Company will relay relevant courses developed by international distance leaming institutes whiletrained local experts will facilitate the delivery of such courses. The Company will benefit from theproducts offered by the Global Distance Learning Network (GDLN) of the WBI, the Monterey Institute ofTechnology in Mexico, City University of Hong Kong, Open University of Hong Kong, the Singaporecampus of the University of Chicago, Waseda University in Japan, Monash University, the University ofAdelaide in Australia, the WTO and ILO.

The DLC Company will identify training courses available abroad with the active participation of potentialclients. It hired a market research firm which surveyed government departments, the private sector andfinancial institutions in October, November and December, 2000. The market survey assessed clientinterest and ability to pay for courses offered. The survey reveals that a significant demand exists in SriLanka for internationally-relayed distance learning courses. The survey findings, included in the projectfiles, will be used to develop a course curriculum, price courses and prepare the DLC Business Plan,expected to be finalized in March, 2001. The Business Plan, in turn, will define the long term strategy ofthe Company, delineate a plan to ensure cost recovery and include financial projections.

It is envisioned that user fees charged by the DLC Company will cover operating costs by the end of thefourth year of operations. Its pricing policy will be designed to attract more clients for DLC services, allowfor gradual cost recovery and ensure a sustainable market share. A solid precedent exists for the fee-baseddelivery of training workshops and courses in Sri Lanka. The private sector has demonstrated itswillingness to pay as seen in the newer management institutes that have arisen in Colombo. Organizationssuch as the Maharajah Institute of Management, Ceylinco's International College of Business Technology

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and the SDF, for instance, provide customized training programs at commercial rates. The DLC Companywill charge Governnent officials for the courses offered at initially subsidized rates. This will ensure thatonly those capable and eager to be trained will be nominated by their supervisor to attend courses.

It is anticipated that DLC facilities will be reserved in part for the use of high revenue earning programstargeted at the clientele of SLID, the SDF and other private sector companies. This will ensure steadyreturns and financial viability in a few years.

The market strategy will facilitate publicity, create demand for programs and enhance the attractiveness ofthe hitherto untested distance learning method. A consultancy firm will be hired in March, 2001 to developthe strategy and promote the DLC. High profile workshops targeted at senior bureaucrats and corporateexecutives will be relayed to help consolidate initial market demand.

3. Learning and Development issues to be addressed by the project:

The Project is designed as a LIL to (a) test the impact of training on policy reforn in Sri Lanka; (b)evaluate the sustainability of distance learning as a tool to enhance institutional capacity; (c) assess thecountry's ability to use information technology to bridge the knowledge gap; (d) pilot links between thepublic and private sectors in the training and retraining of professionals; and (e) test the market for a largerprogram of civil service reform

The LIL will tie in with the Bank's recent emphasis on mediating the transfer of knowledge rather thanmoney. The WBI has had considerable experience in the production, delivery and evaluation of distancelearning course materials. The intent is to develop a dynamic knowledge management system in Sri Lankacapable of distilling international experience and making it available for further adaptation and use in alocal setting. The Project will help build the capability in Sri Lanka to adapt relevant policy and technicalknowledge to the domestic context, and when possible to create new knowledge, which in turn might beuseful for other countries. Sri Lanka will be better positioned to exploit the new information andcommunications technologies to increase its own knowledge base.

The Project will support internal policy dialogue with provincial decision-makers, hitherto excluded fromsector deliberations in Sri Lanka. It will link the provincial decision-maker to the informnation superhighway and enable increased regional input in national planning. By convening officers of differentdepartments in one forum, it will also facilitate internal debate on the reform agenda.

Likewise, the Project will convene the public and private sector in high-profile deliberations on issues ofnational interest. This interface will create opportunities for improved governance. The DLC will linkcorporate executives in Asia to facilitate an exchange of views.

There are several success stories of the delivery of courses over satellite and via the internet. The WorldBank supported the African Virtual University in 1997, the first-ever technology-based educationalnetwork serving sub-Saharan Africa. The cyber-space university has been piloted in 16 English speakingand eight French speaking tertiary education centers and offers specialized certification programs withcontent from major universities, private corporations and organizations in North America, Europe andAfrica. It will soon offer degree programs as well.

Likewise, the Virtual University of the Monterey Institute of Technology in Mexico delivers coursesthrough printed texts and live and prerecorded television broadcasts, with communications betweenstudents and faculty aided by the internet. It enrolls 9,000 degree and 35,000 non-degree students each year

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in Latin America. The City University of Hong Kong launched its interactive 'i-MBA' program in 2000.Offered in partnership with Hong Kong's dominant phone company, the program delivers internet-basedlectures and tutorials through a broadband network. The bandwith allows real-time visual imaging whilepre-recorded course materials are broadcast on cable television. The Distance Learning Project in SriLanka attempts to replicate the benefits of such programs with a more specific focus on policy reform andgovernance.

4. Learning and innovation expectations:

Z Economic 151 Technical X Social L ParticipationIX Financial X Institutional [l Environmental D Other

Economic: It is the expectation of the project that increased access to global knowledge will facilitate betterpolicies, improved governance and higher rates of economic growth.

The project is also expected to demonstrate an economically viable method of delivering relevant training toreduce the current and expensive practice of sending officers abroad for specialized training or the importof international trainers. The project will enable more decision-makers to have access to high-qualitytraining in a wider variety of fields in Sri Lanka itself Moreover, increased training will be provided atlower cost leading to an effective use of funds.

Financial: Financial viability hinges on market development, relevance of courses to the local context, thewillingness to pay, and cost recovery. The project will finance a decreasing share of DLC operating costsover project duration to permit gradual market development and increased user fees.

However, there is a risk that the DLC Company might not break even due to the costs of relaying coursesusing satellite technology. The lack of familiarity with the advanced multi-media technology, and theincreasing availability of cheaper and more conventional international training programs in Sri Lanka willpose financial risks. IDA and the Government will agree upon a risk mitigation plan by July 31, 2001.

Technical: The project will introduce advanced communications technology in the training of senior publicand private sector officers. This will increase the use of the internet in the public sector and introduceadministrators to a range of information technology options. The consequent use of information technologyfor policy planning and training purposes, will revolutionize decision-making at the provincial level.

Institutional: The DLC Company will be an independent entity run on a commercial basis. The Company,a public-private partnership, is well positioned to introduce private sector work norms and best practice inthe civil service training program. It will likewise orient the corporate sector to issues of development andcivic responsibility. The DLC Company situated at the public-private interface, occupies the niche to serveboth sectors effectively.

Social: It is an expectation that the internet-based training programs for provincial and local-levelbureaucrats will increase administrative effectiveness at the grass-roots and better meet the developmentneeds of the rural poor through increased access to global knowledge. The provincial administrator,hitherto excluded from high-level policy deliberations, will have an increased opportunity to interact withcentral civil servants in joint training programs. This would have a significant impact in conflict-affectedareas where Government cadre have been effectively cut off from access to the latest global trends andinformation.

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Some donors have also expressed interest to support the use of the DLC facilities to relay courses on socialcohesion, gender equity and human rights for decision-makers.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

The Project will have one component i.e. support for the establishment and operation of the DLCCompany. It will help the DLC Company to initiate operations and achieve financial viability. The singlecomponent includes several activities i.e. the (a) selection and relay of distance learning course material; (b)financing of DLC operating costs on a decreasing basis over the first four years of operation; (c) technicalassistance for staff training, a market survey, development of a business plan, a market campaign, andperiodic evaluation of center operation/management effectiveness; (d) establishment of financialaccounts/annual audits; (e) civil works; and (f) purchase, installation and initial maintenance of distancelearning technology.

The civil works entails the construction of a fourth floor in SLIDA to house the proposed DLC with avideoconference room to accommodate 35 persons, two computer rooms outfitted for 20 computer stationseach, and an administrative office.

The procurement of equipment for the DLC, includes the purchase and installation of VSAT, video,telecommnunications and microprocessor equipment, furniture and other equipment for DLC operation andsecurity. IDA will procure equipment on behalf of the client to ensure technical compatibility with theGDLN and economies of scale.

The total cost is estimated at US $ 3.1 Million of which IDA will finance US $ 2 Million. IDA will coverthe DLC's initial deficit in operational revenue, equipment costs and 85% of the costs of civil works.

The DLC in Colombo will be part of a sustainable network of interactive classrooms in some fifty centersaround the world with full voice, video and data connectivity to the different centers. It will be designed asa node in the GDLN. The GDLN strategy is to deliver training to clients close to their place of work; instages, rather than in one block of time; to groups from one team in a department, rather than to only one ortwo representatives; as a group activity rather than as a lonely home study; to multiple groups in severalcountries simultaneously; as an activity related to problem solving in their workplace; and with directapplicability to their jobs. To achieve this, a combination of four main technologies, Videoconferencing,Internet, Cd-rom and Print, will be used in an integrated manner.

The core of the DLC will be two technology-based class rooms reflecting the specific requirements of thedistance learning method. One room will be used for "live" (or synchronous) video interaction between localcourse participants, remote instructors and international participants, while the second room will be usedfor independent, time-flexible (asynchronous), internet-based study. Connectivity will be achieved througha "Very Small Aperture Terminal" (VSAT) satellite antenna similar to that provided at World Bank FieldOffices.

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Indicative Bank- % ofComponent Sector Costs % of financing Bank-

(US$M) Total (US$M) financingInvestment Cost Institutional 0.0 0.0

DevelopmentCivil Works (Buildings, lifts, AC) 0.45 14.3 0.39 19.4Equipment (DLC, LAN, Telecom, 0.83 26.4 0.69 34.3Furniture etc.)Consultancy (Market Survey, Business 0.29 9.2 0.26 12.9Plan etc.) and Training

PPF Finances Institutional 0.12 3.8 0.10 5.0Development

Operating Costs Distance 0.0 0.0Education/Education Technology

Satellite Bandwidth and servicing 0.71 22.6 0.30 14.9Personnel 0.15 4.8 0.07 3.5Maintenance 0.44 14.0 0.15 7.5Other costs (utilities, telephone, 0.15 4.8 0.05 2.5variable costs)

Total Project Costs 3.14 100.0 2.01 100.0

Total Financing Required 3.14 100.0 2.01 100.0

2. Institutional and implementation arrangements:

Implementing Agency:

The DLC Company located in the SLIDA premises, will implement the project. It was incorporated inJune, 2000 and registered under the Company's Act in September, 2000 with an authorized share capital ofRs 250 Million. A Board of Directors governs the DLC Company. Its members include nominees of theMinistry of Finance, SLIDA, Center for Banking Studies, SLID, the SDF and the Ceylon Chamber ofCommerce.

The Board of Directors will define corporate policy, oversee management, approve the annual businessplan, assess the DLC's financial statements and ensure that the DLC Company is financiallyself-sustaining over time. The Board will ensure the participation of the public and private sector incurriculum development.

Daily management of the Center is entrusted to a Chief Executive Officer (CEO). A team consisting of anIT expert, a facilitator/trainer, an experienced accountant and an administrative secretary will be recruitedover the next four months to support the CEO. An accountant from SLIDA has been seconded to the DLCCompany to work in the interim on a part time basis.

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Project Preparation

This includes incorporation of the DLC Company (legal procedures, nomination of Board members,appointment of the CEO), the selection of course curricula, and designing the proposed site(video-conference room, computer room etc. SLIDA handled initial project preparation and will continue tooversee construction activity. The CEO co-ordinated project preparation activities since July, 2000.

The cost of project preparation is being financed largely through an IDA PPF of US $ 100,000 approved inApril, 2000. The DLC Company is satisfactorily maintaining the PPF accounts.

The DLC Company hired a market research firm in September, 2000 to survey potential clients, elicitlearning priorities and recommend a feasible fee structure. The Market Survey was completed in December,2000 and its findings are included in the project files. The Company will develop the course curriculum inearly 2001 by incorporating client preferences captured by the survey.

It will submit an initial Business Plan for IDA review and approval in March, 2001. The plan will outlinethe corporate vision, developmental strategy, courses to be offered, stakeholders to be targeted andfinancial projections.

The Department of Buildings, funded out of PPF funds, completed the relevant architectural drawings,finalized technical specifications, Bills of Quantity and bid documents in July, 2000. The DLC Companyinvited bids in August and awarded the contract in November, 2000. IDA procurement guidelines werefollowed. It is anticipated that the civil works will be completed by April 30, 2001. The Bank's ISG willprovide assistance and expertise to procure, install and test videoconferencing equipment in May 2001. TheDLC is expected to start operations in June, 2001.

Project Implementation

The DLC Company will continuously assess demand for training, identify and program appropriatetraining courses available overseas, and market the center. It will partner with different training institutes tofurther its outreach.

The DLC Company will target its program at senior decision-makers at the central and provincial publicservice, the private sector and the financial sector. It will partner with SLIDA to train civil servants; withSLILG to reach out to senior provincial administrators; with SLID, SDF and other private traininginstitutes to educate private sector executives; and with the Center for Banking Studies to train bankers.The DLC Company will also liaise with relevant Ministries to disseminate technical information pertinentto increased private investment in infrastructure/utilities.

The Company will develop and submit Annual Business Plans to IDA by December 1 of each year. Thefinancial component of the Business Plan will detail the financing of operational expenses, and specifycredit fund proceeds and capital mobilized by the DLC Company.

Financial Management and Reporting

The project will begin with traditional financial management and disbursement arrangements through aSpecial Account in the Central Bank and SOEs. The DLC Company will produce Project ManagementReports (PMR) comparing actual expenditure against budget, annual financial statements and disbursementapplications. The DLC Company will maintain a consolidated account of all expenditure under the project.

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The DLC Company will recruit an accountant to handle overall financial management and book keeping,while audit functions will be contracted out to an experienced firm appointed by the Auditor-General.

Procurement

The DLC Company reviewed designs and bid documents prepared by its consultants, and finalizedcontracts for civil works assignments. Goods financed by IDA credit will be procured in accordance withthe Bank's Guidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 andrevised in January and August, 1996, September 1997 and January 1999. Consultant services financed bythe IDA credit will be procured in accordance with the Bank's Guidelines for Selection and Employment ofConsultants by World Bank Borrowers published in January 1987 and revised in September 1997 andJanuary 1999.

On behalf of the borrower, IDA will procure network access equipment for the videoconference room, andcomputers and computer-related communications equipment on a sole source basis to ensure compatibilitywith the GDLN. The satellite bandwidth rental contract will be procured on a direct contract basis (onesupplier selected under the Bank umbrella). IDA undertook this responsibility for other GDLNparticipating centers as well.

IDA is better positioned to take advantage of product development, technological expertise and bulkprocurement offered by GDLN to facilitate rapid project start-up and provide needed support throughoutimplementation. This arrangement will ensure quality control, timely installation, uniform standards in allGDLN participating centers and economies of scale. The Government of Sri Lanka and IDA will enter intoa formal procurement agreement to this effect.

The DLC Company will procure residual equipment using national and international shopping. It will selecta local vendor to maintain the network equipment and identify a contractor to supply selected IT equipmentavailable in Sri Lanka by April, 2001.

IDA cleared the DLC Company's Procurement Plan for the first year of operations. The Company willprepare an annual Procurement Plan for each year thereafter.

3. Monitoring and evaluation arrangements:

The DLC Company will report progress on project implementation. It will submit annual project reviewsand quarterly project progress reports to its Board and IDA. The quarterly progress reports will besubmitted one month after the end of each quarter and will provide complete information on DLCoperations, the courses offered, audiences targeted, the implementation of the business plan, and problemsfaced.

Sector reviews and surveys of trainees will be used to provide an independent assessment of projecteffectiveness. At the end of each course, trainees will evaluate the course and the feedback obtained will beentered into the MIS. These will be used to measure performance indicators and get a sense of improvementover time. The MIS will include an accounting system that measures the cost and revenue of theorganization.

D. Project Rationale

[This section is not to be completed in a LIL PAD. Rationale should be implicit in paragraph B: 3.]

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E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):[For LIL, to the extent applicable]O Cost benefit NPV=US$ million; ERR = % (see Annex 4)* Cost effectivenesso Other (specify)The cost of delivering training through internet and satellite-based distance learning will be less than thecurrent arrangement of sending Sri Lankan decision-makers abroad for similar specialized training orbringing in international trainers on a regular basis.

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)[For LIL, to the extent applicable]The project will finance initial operations costs, recurrent expenditure, and the procurement, installationand maintenance of equipment. The DLC Company is expected to attain financial sustainability at the endof the fourth year of operations by generating sufficient revenue through user fees to cover operating costs.An adequate pricing policy will be designed to allow for market development and gradual cost recovery.

There is a substantial risk, however, that the DLC Company might not break-even during the duration ofthe project owing to the costs of distance learning, the availability of cheaper and more conventionaltraining options in Sri Lanka, the lack of familiarity with the technology used and the unwillingness to payfor the courses offered. This could threaten the long-term financial viability of the DLC Company. A riskmitigation plan will be agreed upon with Government during project negotiations.

3. Technical:[For LIL, enter data if applicable or 'Not Applicable']The DLC Company will recruit an experienced IT expert to handle the set up and use of equipment. As thetechnology involved is quite advanced, the project will provide the full time IT expert with intensiveon-the-job training in operation and maintenance. The "Information Services Group" (ISG) of the WorldBank will order, install and test much of the equipment. World Bank IT staff at the Colombo office will beavailable to provide occasional guidance.

A stand-by generator is in place to protect against power failures. The technology will be chosen to ensurecompatibility with the GDLN and benefit from the expertise gained through the development of thisnetwork. Future upgrading and replacement of equipment will seek compatibility with domestic and Bankcommunication systems to the extent possible.

Funds will be set aside under the project for the initial maintenance of equipment. Equipment maintenancewill be contracted out through competitive bidding to qualified firms in Colombo or representatives of theequipment suppliers.

4. Institutional:The DLC Company was incorporated in June, 2000 and registered in September, 2000. It is apublic-private partnership intended to increase access to global knowledge, facilitate policy reform andsupport good governance. Its staff will be recruited in stages. The Government will divest up to 49% of itsshareholding during the project duration.

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4.1 Executing agencies:

The DLC Company will implement the project. The Company will partner with SLIDA, SLILG, the Centerfor Banking Studies, SLID, SDF, the Ceylon Chamber of Commerce and private sector training institutes.

4.2 Project management:

The Board of Directors will provide strategic direction and oversee project implementation. The Board willdesignate a Working Committee of two to three members by March 1, 2001 to help run DLC CompanyOperations. The members of the working committee will be selected from partner organizations of the DLCCompany represented on the Board i.e. SLIDA, SLID and the Chamber of Commerce. The WorkingCommittee, the CEO and his staff will be responsible for project management.

4.3 Procurement issues:

On behalf of the borrower, IDA will procure network access equipment for the videoconference room, andcomputers and computer-related communications equipment on a sole source basis to ensure compatibilitywith the GDLN. The satellite bandwidth rental contract will be procured on a direct contract basis (onesupplier selected under the Bank umbrella). The Govermment of Sri Lanka and IDA will enter into a formalprocurement agreement to this effect.

IDA is better positioned to take advantage of product development, technological expertise and bulkprocurement offered by GDLN to facilitate rapid project start-up and provide needed support throughoutimplementation. This arrangement will ensure quality control, timely installation, uniform standards in allGDLN participating centers and economies of scale.

The DLC Company will procure residual equipment using national and international shopping. It will selecta local vendor to maintain the network equipment and identify a contractor to supply selected IT equipmentavailable in Sri Lanka.

4.4 Financial management issues:

The DLC Company will have a satisfactory financial management system, as per OP/BP 10.02requirements, for managing project finances by Credit Effectiveness date. Currently, due to the limitednumber of financial transactions, the accountant from SLIDA is assisting the DLC Company, on apart-time basis, to process and record project payments. However, by April 1, 2001, an appropriatelyqualified full time accountant is expected to be recruited to the DLC Company and will be responsible forfinancial management of the project.

The DLC Company will produce the full set of PMRs from the inception of the project. The requirementsfor the reports will follow the simplified formats. The reports will not be used as the basis fordisbursements, unless and until it is mutually agreed by the DLC Company and IDA. Refer to the ProjectFiles for the PMR formats. For justifications for continuing with the traditional disbursement method,please refer Annex 6.

The DLC has been incorporated and registered as a limited liability company. As such, DLC will complywith the requirements of the Sri Lanka Accounting Standards, which are similar to the InternationalAccounting Standards in all material aspects, and will be audited by an audit firm to be appointed by theAuditor General of Sri Lanka. As the DLC Company has been established under the initial patronage ofSLIDA, the internal control framework of SLIDA will be adopted for the project in so far as it is relevantto the operations of DLC.

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5. Environmental: Environmental Category: C (Not Required)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

The proposed back-up diesel power generating unit will comply with the Government of Sri Lanka'sstandards for emissions and noise. The Central Environmental Authority will issue an EnvironmentalProtection License for the generator and will routinely monitor the DLC Company's compliance withlicense conditions. IDA will review compliance during supervision missions.

5.2 What are the main features of the EMP and are they adequate?

N/A

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: N/A

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

N/A

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

N/A

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

It is an expectation that the internet-based training programs for provincial and local-level bureaucrats willincrease administrative effectiveness at the grass-roots and better meet the development needs of the ruralpoor through increased access to global knowledge. The provincial administrator, hitherto excluded fromhigh-level policy deliberations, will have an increased opportunity to interact with central civil servants injoint training programs. This would have a significant impact in conflict-affected areas where Governmentcadre have been effectively cut off from access to the latest global infonnation.

Some donors have expressed interest to support the use of DLC facilities to relay courses fordecision-makers on social cohesion, gender equity and human rights.

6.2 Participatory Approach: How are key stakeholders participating in the project?

The DLC Company surveyed senior public officials, provincial decision-makers and private sectorexecutives in October, November and December, 2000 to ascertain client preference for course content.The market survey will be used to ensure a demand-driven course curriculum. Courses will be designedwith the active participation of beneficiaries who will benefit from access to a wider selection and higherquality of cost-effective training than is currently available.

The Ministry of Finance, SLIDA, the Center For Banking Studies, SLID, SDF and the Ceylon Chamber ofCommerce will be represented in the Board of Directors of the DLC Company. Stakeholders represented onthe Board will steer the development of the new center, oversee its business plan and ensure that trainingactivities and curricula are consistent with national priorities.

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Other stakeholders include institutions that provide training to similar target groups such as the OpenUniversity, National Institute of Business Management, the Postgraduate Institute of Management,Ceylinco Consolidated and the Maharajah Institute of Management. Institutions such as these will beconsulted in order to coordinate actions and schedules, and avoid a duplication of effort.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

The DLC Company will consult legislators, academics and the media to plan distance learning workshopsand high-level policy dialogue in the region, as and when the need arises.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

N/A

6.5 How will the project monitor performance in terms of social development outcomes?

Sector Reviews and Survey of Trainees

7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project?

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes * NoNatural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes * NoForestry (OP 4.36, GP 4.36) 0 Yes 0 NoPest Management (OP 4.09) 0 Yes * NoCultural Property (OPN 11.03) 0 Yes * NoIndigenous Peoples (OD 4.20) 0 Yes * NoInvoluntary Resettlement (OD 4.30) 0 Yes NoSafety of Dams (OP 4.37, BP 4.37) 0 Yes * NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes * NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

N/A

F. Sustainability and Risks

1. Sustainability:

This section is not to be completed in LIL PAD.

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2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasurelFrom Outputs to ObjectiveThe significant cost of the progran M The Govermnent will consider setting asideprevents the public and the private sector resources in its training budget for the program.from fully participating therein Other donor support will also be elicited to help

meet the costs of training. The private sectorpresence in the DLC Board will ensure that thecourses offered meet their requirements and fallin line with their budgetary considerations. Inaddition, IDA funds will cover a decliningpercentage of initial operating costs.

Distance learning courses offered are not M A market survey helped identify training areasrelevant to the country's development relevant to client needs and will be used toneeds and market demand ensure a demand-driven course curriculum.

DLC revenue forecasts are not met S The DLC Company Management will prepareresulting in cash deficiencies restricting timely annual operating budgets and presentoperations. these to the Board of Directors. Management

will also submit quarterly annual financialstatements of revenue and expenditure to theBoard showing actuals against budget. Atnegotiations it will be agreed that GoSL, andeventually the private sector partners in theDLC will enter into formal undertakings to meetany DLC Company cash operating shortfalls inproportion to their respective shareholdings.

Annual financial statements will be preparedwithin one month of the end of financial yearand will be duly audited by private sectorauditors. Audited financial statements will bepresented annually to the Board within 3 monthsof the close of each financial year.

From Components to OutputsThe public is not familiar with the M The project will market the strengths of themulti-media and intemet technology, and distance learning method, support training forwould prefer more conventional training technical staff and contract out maintenance to aprograms. The technology used may not well established vendor. ISG will providebe stable given initial maintenance and back-up support and oversight.teething problems.

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DLC management lacks a pro-active and M The private sector presence in the Board ofaggressive business orientation Directors will ensure a strong commercial

orientation. The Government's decision tosubsequently divest 49% of the DLC's shareswill increase private sector participation in DLCoperations. Employees, with a private sectorbackground, will also be recruited on acompetitive basis.

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

G. Main Loan Conditions

1. Effectiveness Condition

2. Other [classify according to covenant types used in the Legal Agreements.]

H. Readiness for Implementation

X 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

X 1. b) Not applicable.

1 2. The procurement documents for the first six months' activities are complete and ready for the start ofproject implementation; and a framework has been established for agreement on standard biddingdocuments that will be used for ongoing procurement throughout the life of LIL

Z 3. The LIL's Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

E 4. The following items are lacking and are discussed under loan conditions (Section G):

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1. Compliance with Bank Policies

1. This project complies with all applicable Bank policies.O 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Naresha DuraiswamyO' Marilou Jane D., Marl M TodorovaTeam Leader Sector Manager Country Manager

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Annex 1: Project Design SummarySRI LANKA: Sri Lanka: Distance Learning Project

.3 w;'w jj'. ., ' 7v * .

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Enhance the institutional and Number of reforms introduced Sector Review There is a policy commitmentpolicy framework for private within Govemment to addresssector-led growth the reform agenda

Increased private investment Country Reportsin key sectors of the economy

Follow-on DevelopmentObjective:Mainstream the use of Number of public and private DLC Annual Report Access to knowledge anddistance leaming as an professionals trained information is transformedongoing tool to increase into better policiesaccess of public and privatesector professionals to globalknowledge.Civil service reform

Project Development Outcome I Impact Project reports: (from Objective to Goal)Objective: Indicators:Strengthen the environment Number of specific initiatives Sector Review Exposure to the latestfor policy reform introduced that impacts on technical information and

sector reform in designated cross country experience willareas covered by distance help build a policy consensusleaming. on the need for reform

Build capacity in the public Number of directors, trained Annual Survey of Trainees Access to knowledge isand private sectors in the distance leaming transformed into improved

program, implementing best performance by private sectorpractice guidelines on executivescorporate govemance.Ability to cover operating Data generated from the The public and private sectorexpenses through fees (100% Project Management are able and willing to investof operating expenses to be Information System in the distance leamingcovered by revenue generation methodby the 4th year of projectimplementation).

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Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:Distance learning facilities Numnber and variety of DLC Annual Report The relevance of DLCextensively used to train organizations using DLC training to country needs anddecision makers and private market demandsector managers

Number of public and privateprofessionals trained

Viable cost recovery plan in DLC self financing at the end Annual audit report of the Trainee organizations'place and operational of its fourth year of operations Center willingness and ability to pay.

DLC Company revenueforecasts are met.

Project Components i Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)Support to Establishment US$ 1.40 Million DLC Annual Audit report DLC Management has aDLC (Civil Work and Major IDA Finance: US$ 1.18 strong business andEquipment) Million commercial orientation.

Periodic Progress Reports andFinancial ManagementReports.

Institutional Support for US $ 1.74 Million Quarterly Disbursement Technology works reliablyOperations IDA Finance: US$ 0.82 Reports and is accepted by trainees.

Million

Total Cost US$ 3.14 MillionIDA Finance: US$ 2.0Million

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Annex 2: Detailed Project Description

SRI LANKA: Sri Lanka: Distance Learning Project

By Component:

Project Component I - US$3.14 millionThe Project will have one component i.e. support for the establishment and operation of the DLCCompany. It will help the DLC Company to initiate operations and achieve financial viability. The singlecomponent includes several activities i.e. the (a) selection and relay of distance learning course material; (b)financing of DLC operating costs on a decreasing basis over the first 4 years of operation; (c) technicalassistance for staff training, a market survey, development of a business plan, a market campaign, andperiodic evaluation of center operation/management effectiveness; (d) establishment of financialaccounts/annual audits; (e) civil works; and (f) purchase, installation and initial maintenance of distanceleaming technology. IDA will finance US$ 2.0 Million of the total project cost.

The civil works entails the construction of a fourth floor in SLIDA to house the proposed DLC with avideoconference room to accommodate 35 persons, two computer rooms outfitted for 20 computer stationseach, and an administrative office.

The procurement of equipment for the DLC, includes the purchase and installation of VSAT, video,telecommunications and microprocessor equipment, fumiture and other equipment for DLC operation andsecurity. IDA will procure equipment on behalf of the client to ensure technical compatibility with theGDLN and economies of scale.

Implementing Agency: The DLC Company, an independent organization located in the SLIDA premises,will implement the project. It was incorporated in June and registered under the Company's Act inSeptember, 2000 with an authorized share capital of Rs 250 Million. A Board of Directors, withrepresentatives of the Public and Private Sectors, govems the DLC Company. These include the Ministryof Public Administration, the Ministry of Finance, SLID, Ceylinco Consolidated and SDF.

Project Oversight and Coordination: The Board of Directors will define corporate policy, overseemanagement, approve the annual business plan, assess the DLC's financial statements and ensure that theDLC is financially self-sustaining over time. The Board will ensure the participation of the public andprivate sector in curriculum development. It will supervise the implementation of the project.

Project Implementation: Daily management of the Center is entrusted to a Chief Executive Officer(CEO). A team consisting of an IT expert, a facilitator/trainer, an experienced accountant and an officeassistant will be recruited over the next four months to support the CEO. An accountant from SLIDA hasbeen seconded to the DLC to work in the interim on a part time basis.

Project Financing: The total cost is estimated at US $3 Million of which IDA will finance US $2 Million.The IDA credit will finance DLC civil works, equipment, consultant services and training related to DLCstart-up. Over the project implementation period, the IDA credit will also finance, on a decreasing basis,DLC operating expenditures, including staff training and required studies and audits. As the market for itsservices develops, the DLC Company is to mobilize an increasing share of financing for its operatingexpenses, to achieve self-sufficiency within four years. Thereafter the DLC Company should operate andrenew its equipment through self-generated revenues.

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To facilitate project implementation, a special account will be established by the DLC Company in theCentral Bank on terms and conditions satisfactory to IDA. The DLC Company will operate this specialaccount.

Financial Management and Reporting: The DLC Company will have a satisfactory financialmanagement system, as per OP/BP 10.02 requirements, for managing project finances by CreditEffectiveness date. Currently, due to the limited number of financial transactions, the accountant fromSLIDA is assisting the DLC Company, on a part-time basis, to process and record project payments.However, by April 1, 2001, an appropriately qualified full time accountant will be recruited to the DLCCompany and will be responsible for financial management of the project.

The DLC Company will produce the full set of PMRs from the inception of the project. The requirementsfor the reports will follow the simplified formats. The reports will not be used as the basis fordisbursements, unless and until it is mutually agreed by the DLC Company and IDA. Refer to the ProjectFiles for the PMR formats. For justifications for continuing with the traditional disbursement method,please refer Annex 6.

The DLC has been incorporated and registered as a limited liability company. As such, DLC will complywith the requirements of the Sri Lanka Accounting Standards, which are similar to the IntemationalAccounting Standards in all material aspects, and will be audited by an audit firm to be appointed by theAuditor General of Sri Lanka. As the DLC Company has been established under the initial patronage ofSLIDA, the internal control framework of SLIDA will be adopted for the project in so far as it is relevantto the operations of DLC.

Monitoring and Reporting Arrangements: The DLC Company will report progress on projectimplementation. It will submit annual project reviews and quarterly project progress reports to its Boardand IDA. The quarterly progress reports will be submitted one month after the end of each quarter and willprovide complete information on DLC operations, the implementation of the business plan, and problemsfaced.

Sector reviews and surveys of trainees will be used to provide an independent assessment of projecteffectiveness. At the end of each course, trainees will evaluate the course and the feedback obtained will beentered into the MIS. These will be used to measure performance indicators and get a sense of improvementover time. The MIS will include an accounting system that measures the cost and revenue of theorganization.

Procurement: The only civil works financed under the project entails the construction of a fourth floor inSLIDA estimated at $ 340,000, to house the proposed DLC. The fourth floor will have a video conferenceroom, two computer rooms, and an administrative office .SLIDA invited bids in August and awarded thecontract in November, 2000. IDA procurement guidlines were followed.

The procurement of goods consists of: (i) Global Connectivity Equipment for DLC ($250,000); (ii) LocalArea Network for DLC ($ 38,000); (iii) Pedagogical Equipment for DLC ($ 312,000); (iv) IT accessories($ 137,000); (v) office equipment $(6,000); (vi) air-conditioning/generator plant for DLC ($ 112,000); and(vii) furniture ($ 38,000).

Consultants will be required to: (i) conduct a market survey ($12,500); (ii) prepare a business plan($12,500): (iii) prepare a market strategy ($12,500); and (iv) provide other technical assistance ($49,000).

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Annex 3: Estimated Project Costs

SRI LANKA: Sri Lanka: Distance Learning Project

Expenditure Accounts Breakdown and Project Cost

(USs '000)

Base Cost Physical Price Total nci. IDA Finances 21Conting- Conting- Conting-encies encies encies

LocalProject Components Foreign Financing

Exchange (Excl. Duties Total inc. () ofFinancing Taxes) &Taxes Taxes Amount Total

1. Investment Costs =

Project Preparation Facility 11

PPF- Finances Goods 43.96 5.5sa 49.46 4.95 0 30 54.70 46.49 85.0

PPF- Finances Consultants Services 51.0( 6.31 57.38 2.870i _3 60.5 53.25 87.

Subtotal Project Preparation Facility 94.96 11.87 106.83 7.81 0.62 115.27 99.75 86.5

Civil Works 359.10 44.89 403.99 40.40 8.99 453.38 385.37 85.01

Goods

DLC Equipment 31

DLC Global Connectivity Equipment 187.00 37.4C 224.40 22.4 3.70 250.5 208.79 83

DLC Pedagogical tools 232.43 46.49 278.92 . 27.89 4.60 31 1.4 259.5 83.3

DLC Local Area Network (LAN) 27.90 5.58 33.48 3.35 0.55 37.38 31.15 83.3

DLC Logistics 72.50 14.5- 80 8.70 1.44 97.1 80.9 83.

DLC Local Equipment 4/ 98.50 24.63 123.13 12.31 2.03 137.4 109.98 80.1lSubtotal DLC Equipment 618.33 . 128.60 746.93 74.69 12.32 833.93 690.37 82.7

Consultant Services and Training I

Local Consultants 20.00 2.50 22.50 1.13 1.80 25.42 22.60 88.9

Intemabonal Consultants 140.8C 35.20 22.00 198.0 9.9 13.4 221.31 196.72 88.

Foreign Training 35.00 - 35.00 1.75 1.9? 38.67 38.67 100.0

Subtotal Consultant Services andTraining 175.80 55.2D 24.50 255.50 12.78 17.13 285.41 257.99 90.4

Total Investment Costs 794.13 509.26 209.88 1.513.24

135.68 39.06 1.687.99 1.433.48 85.0

fl. Recurrent Costs =

Operatin Cost

Satellite Bandwidth and Servicing Cost __ 556._O 69.5C 625.5t 50.01 706.79 302 4!94.4

Staff Cost _ 135.60 - 135.60 6.78 10.84 153.22 6.8 42.8l

Maintenance _ 339.40 42.43 381.83 19.09 36.72 437.64 145.25 33.2

Other Operating Cost _;120.00 15.00 135.0 6.75 12.34 154.09 52.8 34

Total Recurrent Costs _ 151.0i 126.931 1.277.93 63.901 109.92 1.451.74 566.18 39.0

Total 794.13 1,660.26 336.78 2,791.17 199.58 148.981 3.139.73 1,999.66 63.7

11 PPF financed procurement of goods and consutancies of the project durng prepatory stage.

2/ IDA does not finance taxes; its contribution to total project cost net of taxes is 66 percent.

3/ Items procured by the Wortd Bank on behalf of the borrower

4/ Items Procured Locally by the Borrowers

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Annex 4: Cost Effectiveness Analysis SummarySRI LANKA: Sri Lanka: Distance Learning Project

Summary of benefits and costs:This Annex analyses the cost effectiveness of training programs through the Global Distance LearningNetwork (GDLN). It compares the cost of delivering distance learning training courses with currentlyavailable conventional training and course delivery options for the target market.

There are, at present, several training institutes in Sri Lanka offering various short and long term trainingprograms catered to the needs of the public and private sector. Some of these institutions and theirmandates can be summarized as follows, see Section B-2 for details.

i. The Sri Lanka Institute of Development Administration (SLIDA), an arm of the civil service,trains senior and middle-level civil servants in management and development. It also inducts new recruitsinto the administrative service.

ii. The Sri Lanka Institute of Local Governance (SLILG) helps train bureaucrats at the local andprovincial level.

iii. The SLILG will offer courses through eight provincial-level "Management DevelopmentTraining Units" (MDTU). However, only one provincial MDTU has been fully set up.

iv. The Sri Lanka Institute of Directors (SLID), established by the Ceylon Chamber of Commerceto provide training and technical advice for corporate executives. Distance leaming is intended in part tosupport and strengthen the SLID program by linking it to intemational best practice.

v. The Center For Banking Studies, is the training arm of the Central Bank of Sri Lanka and offerscourse modules in commercial and investment banking, fund management, risk management and financialsector development.

vi. The Skills Development Fund was established in early 2000 following the recommendations of the"Presidential Task Force on Tertiary Education and Vocational Training". It provides (i) job entry trainingfor new recruits; (ii) on-the-job training for managers; and (iii) retraining to facilitate flexible labor marketsand retrenchment.

vii. The Maharajah Institute of Management and the Ceylinco-owned International College ofBusiness and Technology are fully owned subsidiaries of the parent company and are intended to upgradethe skills of employees, provide a foreign MBA education within Sri Lanka, and help introduceintemational best practice and knowledge to corporate staff

In the absence of reliable and comprehensive data on the training market in Sri Lanka, preliminary datawas obtained on the cost of offering courses for the institutions mentioned above. This data will be used tocompare the cost of training programs currently available in the country with those programs proposed forthe Distance Learning Center (DLC) Company.

One indicator to compare costs of course delivery is the unit cost of course delivery per student day inthe current system of in-service training of professionals with the one proposed for the DLC Company.

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This indicator reflects all measurable features, but does not reflect the less tangible but as important featureof easier/wider access to state-of-the-art knowledge. For example, courses taught by local resource personsmight not have the same standard as courses delivered through the GDLN. In a comprehensive evaluationthese benefits need to be factored in, though hard to quantify.

The following brief analysis will compare the unit cost of course delivery of the current system available inSri Lanka with the one proposed for the DLC Company.

1. Unit Cost in the Sri Lanka Distance Learning Center:

In the case of the GDLN, the unit cost of course delivery per student per day is defined as total operatingcost plus average (re-investment cost divided by the total number of students taught at the average courselength. The estimated cost structure of the GDLN looks as follows:

Sri Lanka - Distance Learning CenterCalculation of Per Unit Cost

Year 1 Year 2 Year 3 Year 4 Year 5Operating Cost (US$) 248,430 374,050 402,300 427,140 457,497Average Re-investment Cost 156,162 156,162 156,162 156,162 156,162(US$)Total Cost (US$) 404,592 530,212 558,462 583,300 613,659Capacity Utilization (%) 29% 39% 52% 58% 68%Student Participation (No of 5,300 7,100 9,360 10,425 12,300Student) Cost Per Student Per Day (US$) 76 75 60 56 50

The DLC is designed to have two computer class rooms, and one videoconference room with a totalcapacity of 74 seats. In Sri Lanka, there are 245 working days per year, leaving aside weekends and publicholidays. This means that the DLC can accommodate 18,130 participants each year if it runs at fullcapacity. However, it is estimated that the operating capacity utilization of DLC will increase gradually,reaching 68% in the fifth year of operation. Capacity utilization of 29% in the first year implies that 5,300student day use the DLC facilities. Given the cost of operation of USS 404,592, unit cost is US$ 76 perday per student in the first year. It is envisioned that as more students use the Center, the per unit cost ofoperation will decline to approximately US$ 50 in the fifth year. Considering the cost structure of DLC, itis further expected that, over 90 percent of the capacity of the center will be utilized in the long run and perunit cost will decline and stabilize at about US$ 37 per student per day.

2. Unit Cost of the Existin2 Training System:

In this section, the cost per student per day will be presented for training programs offered by localinstitutions as well as the cost of intemational training.

2.1. Unit Cost for Short Term Proerams conducted Locallv

These programs are conducted within Sri Lanka and use local lecturers and trainers. The cost of trainingprograms vary slightly depending on the subject matter. Programs on marketing, information technologyand computer science are more expensive (by up to 40 percent) than other programs such as humanresources development, engineering, etc. Therefore, figures in the table indicate the range of average perunit cost. Most of these programs are organized for groups which makes the per unit cost lower. On

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average these courses are one to two days in duration, with the majority also providing lunch and tea forthe participants. It should be mentioned that this is the per unit operating cost. Most of these institutionshave their own premises and class rooms.

Training Institutions Average Estimate Per UnitCost (in US$)

Public Sector Training InstitutionsLocal Training at Sri Lanka Institute for Development Administration (SLIDA) 7.5 - 15.0Local Training at Sri Lanka Institute of Local Governance SLILG) 9.5 - 12.7Local Training at Center for Banking Studies (CBS) 10.0 - 20.0Sri Lanka Skills Development Fund 20.0 - 25.0Private Sector Training InstitutionsLocal training at Sri Lanka Institute of Directors (SLID) or the Chamber of 32.0Commerce

2.2. Per Unit Cost for Longer Term Proerams

Corporate Conglomerates such as Maharajahs and Ceylinco have set up their own training institutionswhich are fully owned subsidiaries of their parent company. Ceylinco, for example, has several trainingarms such as: (i) Ceylinco Insurance College offering programs in risk management, financial markets andrelated topics; (ii) CISCO for information technology programs; (iii) ICBT which offers programs intertiary education, marketing, banking, and related fields; and (iv) Ceylinco Center for excellence for shortterm management development programs. Many of these programs give trainees a certificate or diplomawhich is highly valued by students and is considered to be an important factor to attract participants.Ceylinco will offer a degree/diploma program with the collaboration of University of Western Sydney inJanuary 2001. This program will invite international lecturers or send local instructors abroad for trainingto educate students upon their return. The cost for a two year program is US$ 9,500.

Programs organized by the ICBT Estimated cost per day perstudent

Short term two weeks training with expatriate teachers (cost of bringing a teacher 63from Region)Two Years program on Business Management @ US$ 9,500 per program per student 18CISCO six month program @ US$ 9,000 per program per student 65

2.3 International Trainin2

In the case of training professionals overseas, the unit cost of course delivery per student per day is definedas the travel plus subsistence cost of each student. On average, the unit costs of courses deliveredinternationally are approximately US$ 151 and US$ 357 per student day in the region and elsewhererespectively. It is assumed that no tuition fee is charged for courses to make it comparable to GDLN(where it is also assumed that there is no fee for course content). In most cases course fees abroad arewaived for Sri Lankan Government participants. Where there is a charge, the international training costwould be significantly higher.

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Foreign Training Travel Cost Subsistence Cost of 1 week Cost per day per(US$) (US$) program (US$) student (US$)

At the Region (South-East 250 115 1,055 151

At Overseas (UK, USA) 1,100 200 2,500 357

2.4 Total Unit Cost of Current Trainin2 System

The quality and content of programs that will be offered through GDLN are not comparable to thoseorganized by local training agencies While the GDLN program makes the latest and best practicesaccessible to senior decision-makers and high-level practitioners who demand such training, the localprograms offered by the government training institutions are geared to middle to lower level officers.The overall training required at present in the devolved authorities is of a rudimentary nature and includesoffice management, English language skills, computer literacy and the induction of new recruits. TheHi-tech DLC program will not be the best instrument to address such needs. These courses often use localresources and are much less costly than GDLN programs.

The GDLN programs should instead be compared with international training opportunities available for SriLankan decision-makers. The information presented above clearly indicates that the per unit cost of theprograms offered through the GDLN is much more effective than international training, assuming the samequality and course content. This will be specially true in the long run when the DLC is expected to use 80to 90 percent of its capacity, which will bring down the per unit cost of training. The GDLN courses willbenefit senior-level management and decision-makers, who pressed for time, prefer a time effectiveprogram.

The DLC is therefore a cost-effective training option for its target group of senior decision-makers.

Main Assumptions:See above

Cost-effectiveness indicators:See above

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Annex 5: Financial SummarySRI LANKA: Sri Lanka: Distance Learning Project

Financial Feasibility Analysis of the Distance Learning Center

1. Distance learning, using the state-of the art telecommunications facilities and video conferencing, is newto Sri Lanka and for that matter to many parts of the World. Therefore, market demand for such mode oftraining has not been fully tested world wide and in particular in developing countries. A Market Surveyfor DLC in Sri Lanka was conducted recently and its findings indicate that there is interest and demand fordistance learning; more from the private sector than from the public sector. However, the market demandfor and receptivity of such method of training will only be tested when the center is operational. Thesupply of training programs (quality of courses, timing, content, quality of trainers, quality of facilities andtransmission of programs, and management of the center) and demand for distance learning training(attendance, request for specific programs, etc.) will determine the price in the market. It is expected thatpricing policy, cost sharing principle, level of demand, and utilization of the center will be establishedduring a pilot phase of six months to one year. The pilot phase should help the DLC management team tobetter set their financial and market goals, design an appropriate marketing policy, and revise theirBusiness Plan accordingly.

The financial analysis presented in this Annex (Table C) was conducted to determine the terms of financialviability of the proposed project. In the absence of adequate and reliable data regarding the training marketin Sri Lanka, some assumptions were made regarding pricing policy, cost sharing principle, level ofdemand, and DLC capacity utilization during the life of the project and for 10 years beyond. Theseassumptions were based on several interviews with the public and private sector, the Market Surveyconducted in October-December 2000, estimated DLC operating costs, and the goal of the center to becomefinancially self-sustainable in the fourth year of operations.

Main assumptions.

2. Revenue Generation Capacity of the DLC: the most crucial set of assumptions pertains to the revenuegeneration pattems. To derive an estimated/projected annual revenue for the DLC Company, assumptionswere made on the type of training programs to be provided by the WBI, those based on the experience ofother distance learning centers (Seminars and Global Development leaming), and those programs to beoffered by other institutions (WTO, ILO, universities, etc.). Based on the physical capacity of the center,and type and duration of the courses, assumptions were made regarding the average participant's days peryear. The numbers present a conservative scenario, in view of the fact that DLC is new to the Country.

Given Sri Lanka's holidays per year, capacity utilization of the DLC was estimated to be around 30 percentin the first year, increasing gradually to about 60 percent by the 4th year of the project life and will furtherincrease to 80-90 percent in the medium to long term. Table C shows that the average cost of providingtraining per student will decline with increasing capacity utilization. The average training fee is set ataround US$ 25 per student per day in the first year, increasing gradually with increasing demand for theDLC facilities to US$ 45 in the 4th year of operation. It is assumed that the fee paid by the private sectorwill be higher than fee paid by the public sector, at a ration of 4 to 1. That is, assuming utilization of theprivate and public sector per year to be 50/50, the private sector fee per student per year will be US$ 40and that for the public sector will be US$ 10. This price seems to be competitive and affordable for mostpublic and private institutions and is therefore expected to attract more students in both sectors.

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3. Other financial revenue: the amount of financial support to the DLC Company to balance its operatingcost over the first years of operation is determined by the extent to which the Center can generate its ownrevenue. Hence, it is defined as the residual between the revenue generated and total funding required tocover operating costs before depreciation.

Operating Cost.

4. Satellite Bandwidth Rent: the satellite bandwidth cost includes the yearly rental cost for the bandwidthand a corresponding service charge. Bandwidth costs are fixed costs, i.e. they do not depend on capacityutilization rates. Annual base cost is estimated at US$138,700 on the basis of existing rates provided bythe supplier.

5. Personnel: The center will need 5 local staff which include a Director (CEO), a Training Coordinator,an IT Manager, an Accountant/Financial Management Specialist, and an Administrative Secretary.Annual salaries are based on the market rate currently prevalent in the country which will increaseaccording to the annual inflation rate.

6. Maintenance: the estimated maintenance costs are based on the following assumptions: locallyprocured equipment (personal computers, furniture, etc.) and civil works have a yearly maintenance of 10%of initial investment cost; internationally procured equipment (equipment for videoconferencing room) has ayearly maintenance cost of 20% of initial investment cost. This high rate accounts for possible contractingout maintenance activities of sensitive equipment to a qualified foreign or regional company.

7. Utilities: utility costs include expenditure on electricity, telephone and water, which were estimated tocost around US$15,000 in the initial year and increase with the annual inflation rate.

8. Variable Operating Cost: These mainly comprise costs related to office supply, local travel,marketing, and other variable costs. It is also estimated that the Global DLCs will share some of the WorldBank management fee starting the third year of their operations. The costs are US$ 10,000, $ 20,000, andS 30,000 from year 3 onward.

9. Depreciation and Re-Investment Cost: equipment is assumed to depreciate at different rates.Depreciation assumptions were made according to the rate applied for similar equipment in other DLCs.Re-investment costs is expected to be born by the DLC Company when the time comes, and based on theassumptions that DLC's goal is to become self-sustainable and commercially-run in the fourth or fifth yearof its operations.

10. Financial Statements and Results. Based on the above assumptions, basic financial statements of theCenter have been determined for the first five years of operation. Annex 5, Table C (financial summary forrevenue-generating entities) presents the income and cash flow statement as well as its projected balancesheet. It shows that under the above assumptions (excluding depreciation), the Distance Learning Centerwill be economically viable and self-sustaining (reach its break-even point) once its capacity utilization rateattains or exceeds 50% (representing sale of over 9,000 student-days per year). The fee charged perstudent per day is a subsidized fee and will only cover part of the operating cost of the operation. The IDACredit will cover the balance until the Center is self-sustainable and capable of generating operatingsurplus starting fourth year of its operations. From the market perspective, this fee seems to be reasonableconsidering the demand for the DLC and capacity \ willingness of the public and private sector to pay forthese type of courses.

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11. The income statement suggests that the break-even point (operating cost minus depreciation) will beattained in the fourth year, when the capacity utilization rate reaches 52% (at a unit cost of US$ 40 per dayper student). With increasing capacity utilization of the DLC and higher fee, the DLC Company can runan operating surplus. The overall equilibrium (including depreciation to allow for reinvestment) is attainedin the sixth year at an utilization rate of 70% and a unit price of US$ 50 per day per student.

To achieve this goal, an intensive marketing campaign will be needed from the DLC management team to:diversify distance learning products and services, win customer loyalty through steadily improving qualityof service and competitive pricing, and provide training courses that meet expressed demand and clientexpectations. This emphasizes the importance of a qualified business-oriented manager to develop effectivemarketing tools and attract enough clients to ensure Center competitiveness and financial sustainability.

12. Initial pricing of the Center's services aims at promoting DLC products, and attracting more decisionmakers to strengthen their managerial and policy formulation capacity, which is difficult to quantify ineconomic and financial terms. Consequently, the operating deficit (excluding depreciation) of the first threeyears will be covered through special Government support through IDA credit proceeds from this proposedLIL. This financial support will match the exact deficit (without depreciation), projected to be around US$280,000 for the first three years, making up about 44% of generated income over that period. Thissupport will be provided on a decreasing basis over this 3-year period as follows: 85% of operating cost inthe first year, 50% in the second, and 10% in the third. As the initial subsidized training fee of US$25 perperson, is in the low range, it may be raised in relation to the market demand for certain high-demandcourses. A flexible market-driven pricing policy should improve the financial viability of the project.

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A. Project Cost by Category(US$ 000)

Totals Including Contingencies

Years 1 2 3 4 Total

1. Investment CostsCivil Works 453.38 L -1 453.38

Goods 888.6 T T T 888.63

PPF-Goods (Furniture, Other Equipment) 54.70 - - - 54.70

DLC Equipment la 833.93 T T 833.93

DLC Global Connectivity Equipment 250.54 - - - 250.54

DLC Pedagogical tools 311.41 - - - 311.41

DLC Local Area Network (LAN) 37.38 - - - 37.38

DLC Logistics 97.14 - - - 97.14

DLC Local Equipment/b 137.47 - 137.47

Consultant Services and Training 134.33 68.36 70.60 72.69 345.98

Local Consultants 6.03 6.23 6.49 6.68 25.42

Intemational Consultants 52.81 54.44 56.20 57.87 221.31

Foreign Training 14.92 7.68 7.91 8.15 38.67

2. PPF-Consultants Services 60.57 - - 60.57

Total Investment Costs T 1476.34 68.36 70.60 72.69 1.687.99

il. Recurrent Costs ___

Operatinc Cost

Satellite Bandwidth and Servicing Cost 167.52 173.26 180.42 185.59 706.79

Staff Cost 36.32 37.56 39.11 40.23 153.22Maintenance 17.47 134.99 140.57 144.60 437.64

Other Operating Cost 27.12 28.05 42.19 56.74 154.09

Total Recurrent Costs 248.42 373.86 402.30 427.16 1j45174

Total Project Cost 1,724.76 442.22 472.90 499.85 3,139.73

B. Required Financing

Required Financing 1 2 3 4 Total

Project Operating Cost 248.4 373.9 402.3 427.2 1,451.7

Revenue Generation 106.0 237.2 365.4 458.6 1 2

Operating Profit/Loss -142.4 -136.7 -36.9 31.5 -284.5

total investment Cost 1,476.3 68.4 70.6 72.7 1,688.0

Total Surplus /Deficit -1,618.8 -205.0 -107.5 -41.2 -1,972.5

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Table 1: Project Operating FinancingSri Lanka: Distance Learning Project (UL)

C. Financial Summary for Revenue Eaming Project Entities

1fi1611 1 2 3 4 5 6 7 8operabnq assumption:

% caDacitv utitisation 29% 39 52% 58% 68% 74% 81% 81 y4number of student days 5,30 7,1 9,30 10.425 12,30 13,36 14,68 14.680pice per student Der dav (US$) 20 34 40 45 45 50 55 E1

Revenue 106,000 237.200 36400 456.000 533500 630,t 763 837.110Fixed Operating Cost 221,310 346,000 360.110 370.400 388.920 408.366 428784 450,224Satelite Bandwidth Rent 167.520 173.500 180,400 185,600 194.880 204.624 214,855 225,598Personnel 36, 37,500 39 40,200 42,210 44,321 46,537 48,86Maintenance 17470 135,000 140,60 144,600 151.830 1594 167,393 175,76

Variable Operattng Cost - 28,050 32190 36,740 3,5 40,506 42,531 44,658Other Ooeratina Cost 10,0I0 20.000 30.000 30.000 40,000 40,00Total Ooeratmin Cost 248A30 374,050 402,300 427,140 457,497 478,872 511,315 534.881ODerabnq Profit I Deficit 142. 136,85 -36.90 76.003 1511,3 25198 302,229Grant for Operating Cost 142430 136.850 36,900Total Operatin Profit I Defidt . 286 76,0 151 251,985 302,2Depreciabon 156.162 156,162 156,162 156,162 156.162 156,162 156,162Conmmitment Fee / Interest _

Net Income -156,162 -156.162 .127,302 -80,159 -4.834 958 146.

ResourcesNet Income -156,162 -156,162 -127,302 -80,159 -4834 95,822 146,066Depreciation added bacrk 156,162 156,162 156.162 156.162 156162 156,162 156.1E2Loan I Credit Proceeds 400 180,000 159,00 159000

Total Resources 1,480.000 180,000 180,000 187.860 76,003 151,328 251,98 302.229Expenses I .

Inital Investment and Re-investment 1,480,000 670.6 72,690 66,560 97,424 332.162 75,948

Loan Reoavmnent (Prrncoal) .Total Expenses 1,480.000 68,360 70,600 72,690 66,560 97,424 332,162 75,948Net Cash Flow - 1640 1 0J4 0 413 53 (801771

Net Cumulative Cash 111.640 221,040 336.210 345.653 399.558 319,380 54566-Net Fixed Assets 1.480.000 1,392,198 1,306,635 1,223,163 1.133,561 1 .074,822 1250,821 1,170.607Plus Cumulative DeDreciation 0 156,162 312,325 468.487 624.649 780.812 936.974 1.093,136Fixed Assets 1.480.00 1.548.360 1.618.960 1.691.650 1.758.210 1.855,634 2.187.795 2263.743Total Assets 1,480,000 1,660,000 1,840,000 2,027860 2,103,863 2,255,191 2,507,176 2809.404Long Term Loan 1.480.000 1,660.000 1,840.000 1.999.000 1.999,000 _1,999000 1,999,000 1,999,000Equity (Capital & Retained Eamings) - - - 28860 104,863 256,191 508,176 810404Total Uabilitbes 1.480.000 1,660,0 1 00 2,027.860 2.103863 2.255,191 2,507.176 2.809.404

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Table I (contd.): Project OperatingSri Lanka: Distance Leaming Project (LIL)

C. Financial Summary for Revenue Eaming Project Entities

Yearsk0on oalk,n, 9 10 11 12 13 14 15 16operabnq assumption:

% capacity utilisaton 88% 88% 90% 90% 98% 980 X 98% 98%number of student days 15,995 15,99 16,395 16, 17,715 17.71' 1771 17,71onrce Der student per day (US$) 67i 73 81 891 97 107 118 130i

Revenue 1.008,607 1,107.061 1,223,375 1,342,51 1,602,179 1,75919 1.931,916 2.121,90Fixed Operating Cost 472,735 496,371 521,190 547,249 574,612 603,343 633,510 665,185

Satellite Bandidth Rent 236.878 248.7'2 261,158 274.216 287.92i 302,323 317,439 333,311

Personnel 51,307 53,872 56,565 59,394 62,363 65,482 68,756 72,193

Maintenance 184.550 193,778 203,467 213,6( 224,3Z 2355 247,31 259,681

Variable Operafing Cost 46,891 49.235 51,697 54.28 56.996 59,848 62,838 65.980

Other Operatina Cost 40.000 40.000 40.000 40.000 40.000 40.000 40,000 40,000Total Operating Cost 559,625 585.607 612,887 641,531 671,608 703.188 736,348 771,165Operating Profit/ Deficit 448,982 521.461 610.488 700,981 930,571 1,056,009 1,195,569 1,350,743Grant for Operating Cost

Total Operating Profit I Deficit 448,982 521,46 610,488 700,981 930.571 1 ,056,00E 1.195,569 1,350,743Depreciation 156,162 156.162 156.162 156.162 156.162 156.162 156t162 156,162Commitment Fee / InterestNetIncome 29Z820 365. 454,32 54,81 774,4 899, 1,039,406 1,194,581

SuMVMCash R0W$m,t_ResourcesNet Income 292,820 365,299 454.326 544,819 774,409 899, 1,039,406 1,194,581

Deprecia6on added back 156,162 1561 156,162 156,162 156, 162 1561 6 156,162 156.162

Loan / Credit Proceeds 0 0 0 0 0 0

Tobl Resources 448.902 521,461 610,488 700.981 930.571 1,056009 1,195,569 1350,743

Expenses

Ini6al Investment and Re-investment 79,395 315,480 90,807 161,533 99,397 387,014 341,332

Loan RepaVment (Prnipaal)

Total Expenses 79395 315,480 90,807 161533 99,397 387,014 341,332 0Net Cash Flow 369,587 205,981 519,681 539,448 831,174 668,995 854,236 1,350,743

- Sumrnav BabrloeSheONet Cumulative Cash 915,248 1,121,229 15640.911 2.180,359 3,011,533 3.680.528 4.534.764 5.885,507Net Fixed Assets 1,093.840 1,253,158 1,187802 1,193,173 1136407 1 ,367259 1,552,429 1.396,267

Plus Cumulative Deoreciation 1,249,298 1,405,461 1,561.623 1,717.785 1,873.948 2,030.110 2,186,272 2,342.435Fixed Assets 2,343,139 2,658619 2.749.425 2,910.958 3.010.355 3.397.369 3,738,701 3,7383701Total Assets 3,258,386 3,779848 4,390,336 5,091,317 6,021,888 7.077,896 8,273,465 9,624,208

Long Term Loan 1,999000 1,999,000 1,999,000 1.999,000 1,999,000 1.999,000 1,999,000 1,999.000Equity (Capital & Retained Eamings) 1,259.386 1,780,848 2,391,336 3,092,317 4,022,888 5,078,896 6,274,465 7,625,208Total Liabilities 3,258,386 3.7796848 4,390.336 5,091.317 6.021.888 7.0771896 8,273,465 9.624,208

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Annex 6: Procurement and Disbursement ArrangementsSRI LANKA: Sri Lanka: Distance Learning Project

Procurement

1. The procurement of goods, works, and services will be carried out in keeping with the DLC Company'sProcurement Plan cleared with IDA. The management of procurement activities under the project will bethe responsibility of the DLC Company.

The only civil works financed under the project entails the construction of a fourth floor in SLIDAestimated at $ 340,000, to house the proposed DLC with a video conference room, two computer rooms,and an administrative office. The DLC Company invited bids in August and awarded the contract inNovember, 2000. IDA procurement guidelines were followed.

Goods to be procured include: (i) Global Connectivity Equipment for DLC ($250,000); (ii) Local AreaNetwork for DLC ($ 38,000); (iii) Pedagogical Equipment for DLC ($ 312,000); (iv) IT accessories ($137,000); (v) office equipment $(6,000); (vi) air-conditioning/generator plant for DLC ($ 112,000); and(vii) fumiture ($ 38,000).

The consultancy assignments envisaged include: (i) a Market Survey ($12,500); (ii) preparation of aBusiness Plan ($12,500): (iii) Market Strategy ($12,500); and (iv) other Technical Assistance ($49,000).

2. The DLC Company will prepare Procurement Schedules for civil works, goods and services, includingcontract packages. Procurement of works, goods and services under the project will be carried out inaccordance with the provisions of Bank's, "Guidelines: Procurement under IBRD Loans and IDACredits", published January 1995 and revised January and August 1996, September 1997 and January1999. Procurement of consultants will be in accordance with the provision of the "Guidelines: Selectionand Employment of Consultants by World Bank Borrowers", January 1997 revised September 1997 andJanuary 1999.

The Procurement Methods applicable to various expenditure categories are summarized in Table A.Procurement Thresholds and prior review requirements are outlined in Table B.

Procurement Methods (Table A)

3. Works: This will be carried out following NCB procedures given the nature and magnitude of theconstruction of an additional floor to an existing building to house the DLC.

4. Goods: IDA (ISG Department) will procure Global Connectivity Equipment, Local Area Network, andPedagogical Equipment for the DLC on behalf of the Borrower (for compatibility reasons with the GlobalDistance Learning Network) on a direct contracting basis to benefit from bulk discount from Banksuppliers. To this end, a Procurement Agreement (annexed to the DCA) will be signed between the GOSLand IDA.

The DLC Company will procure other IT accessories ($137,000) such as UPS, Scanner, VHS recordersand TV monitors, and office equipment ($6,000) following National Shopping (NS) Procedures.Installation of two elevators and air-conditioning plant for DLC will be procured following NCB procedureunder two separate contracts. Furniture estimated to cost $38,000 will be procured by NS.

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5. Consultancy Services and Studies: All the consultancy services and the studies envisaged under theproject are of small duration and involve small amounts. These consultants will be selected through ashortlist and based on Consultants' qualification following paragraph 3.7 of the guidelines or on the basisof selection of individual consultants following section V of the guidelines.

Prior Review Thresholds (Table B)

6. Civil Works: IDA's prior review was obtained for the construction of the DLC.

7. Goods: IDA's prior approval will be required for all NCB contracts. All other contracts will besubjected to post review.

8. Consultant Services:. IDA will review the TOR, cost estimates, and short list for all consultancycontracts.

Procurement methods (Table A)

Project Cost by Procurement Arrangements(US$ '000),

Procurement MethodExpenditure Category NCB NS Other Total Cost1. Works 340.9 340.9

(289.8) (289.8)2 GoodsConnectivity Equipment 562.0 562.0Pedagogical Equipment (465.2) (465.2)IT accessories, office 272.0 272.0equipment, LAN (225.2L (225.2)Plant for DLC 112.5 112.5

(95.6) (95.6)Sub total 112.5 272.0 562.0 946.4

(95.6) (225.2) (465.2) (786.0)3. ServicesNational consultants 25.4 25.4

(22.6) (22.6)International Consultants 221.3 221.3

(196.7) (196.7)Foreign Training 38.7 38.7

(38.7) (38.7)Sub total 285.4

(258.0)4.Recurrent Costs 1451.7

(566.2)5. PPF 115.3

(100.0)Total Project Cost 3139.7

(1999.6)1\ items procured by the World Bank on behalf of the Borrower

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review

2. Works All contracts NCB Prior review in accordancecivil Works with paragraph 2 and 3 of

Appendix I to theProcurement Guidelines

2. Goods All contracts estimated to NCB Prior review in accordancel

cost over US $ 25,000 with paragraph 2 and 3 of

Appendix I to the

Procurement Guidelines

All other contracts NS Post review

3. Services Contracts over US $ SBCQ, IC With respect to each

12,500 contract for theemployment of consultingfirms estimated to cost the

equivalent of US $ 12,500or more, the procedure setforth in paragraphs 1, 2

(other than the thirdsub-paragraph of

paragraph 2 (a) and 5 ofAppendix 1 to the

Consultant Guidelines shallapply.

Total value of contracts subject to prior review:

Overall Procurement Risk Assessment

Low

Frequency of procurement supervision missions proposed: One every six months (includes special

procurement supervision for post-review/audits)

Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.

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Disbursement

Allocation of credit proceeds (Table C)

I. FINANCIAL MANAGEMENT

1. Financial Management Arrangements: The Distance Learning Center (DLC) Company will beresponsible for the implementation of the project. The Chief Executive Officer, who will be supported by ateam of professionals, including an Accountant, will lead the implementation efforts.

2. Internal Controls: The internal control framework of the Sri Lanka Institute of DevelopmentAdministration (SLIDA) will be the basis for the intemal control system of the project. SLIDA's internalcontrol framework is similar to the Financial Regulations (FRs) of the GOSL, which are well establishedand documented and cover almost every aspect of financial administration. The internal control system ofSLIDA will be adopted for the project in so far as it is relevant to the operations of DLC. This system isexpected to provide the necessary safeguards for ensuring orderly and efficient conduct of project activities.(A review of the FRs can be found in the Country Profile of Financial Accountability report and in theCountry Financial Accountability Assessment study carried out by consultants.)

3. Accounting System: Separate set of accounts will be maintained for recording all financialtransactions of the Company. The Chart of Accounts to be used for the project would be similar to the onethat is currently being used by SLIDA, modified slightly to suit the specific needs of the project (SLIDA 'schart of accounts is available in the project files). As DLC has been registered as a public limited liabilitycompany, it will follow the Sri Lanka Accounting Standards, which are similar to the InternationalAccounting Standards in all material aspects, and maintain accounts on an accrual basis.

4. Financial Accounting Procedures Manual: Though the DLC Company will adopt the existinginternal control systems and chart of accounts of SLIDA, the DLC is required to develop a FinancialAccounting Procedures Manual to record these guidelines for future reference. This will enable easyreference to DLC policies and procedures.

5. Computerization: The DLC Company will take necessary action to identify and/or modify asuitable accounting software for computerization of the Company accounting and reporting system. As theDLC Company's operations are similar to that of a profit oriented company, identification or developmentof a suitable accounting package is expected to be completed by December 31, 2001.

6. Staffing: An Accountant will be recruited to the DLC Company by April 1, 2001 to supervise thefinancial management aspects of the project and to be responsible for ensuring timely recording and reliablereporting of all financial transactions.

7. Auditing: The Company's accounts will be audited by an audit firm to be appointed by theAuditor-General of Sri Lanka that is acceptable to IDA. The DLC Company will be responsible forsubmitting to IDA annual audited project financial statements, within six months after the end of eachfiscal year.

II. DISBURSEMENTS

8. The project will follow the traditional disbursement method. Given that the DLC Company isexpected to operate as a self-financing entity at the end of the project period, it is important to build its

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financial management capacity for managing regular operations. This entails maintaining records inaccordance with the SLAS, on an accrual basis, and managing cashflows of the DLC Company's operatingactivities. Thus, it is proposed to relieve the DLC Company of the burden of preparing PMRs fordisbursement purposes, i.e. classifying transactions for PMR reporting and forecasting cashflows of itsstart-up activities. Instead, the focus would be on building DLC Company's capacity to operate as a privatesector company. However, the DLC Company will produce the full set of Project Management Reports(PMRs) throughout the life of the project. The requirements for the reports will be kept simple.

9. Special Account (SAK: The DLC Company will be responsible for opening and operating a SA atthe Central Bank of Sri Lanka according to terms and conditions acceptable to the IDA. The SA will bedenominated in US Dollars. The amount of advance in the SA should not, at any given time, exceed theequivalent of US$ 250,000.

10. Statement of Expenditure (SQE): Withdrawals under the credit may be made on the basis ofStatement of Expenditure (SOE) procedure for:

(a) Contracts for goods and equipment costing less than $ 25,000 each(b) Contracts for consultancy services with individuals costing less than $ 50,000(c) Contracts for consultancy services with firms costing less than $ 100,000(d) All incremental operating costs and training expenses

11. Retroactive Financing: To assist the Government of Sri Lanka (GoSL) with prompt execution ofBank-financed operations, the credit will retroactively finance IDA's share of eligible project expenditurespaid for by the GoSL prior to the credit signing date. Therefore, payments made for eligible projectexpenditures before the date of the Credit Agreement, but after December 1, 2000, in respect ofdisbursement category 1 can be claimed under the Credit, subject to an aggregate amount not exceeding theequivalent of US $ 200,000.

12. Project Management Reports: The DLC Company will produce the full set of PMRs from theinception of the project. The requirements for the reports will follow the simplified formats. The reportswill not be used as the basis for disbursements, unless and until it is mutually agreed by the DLC Companyand IDA. Refer to the Project Files for the PMR formats.

13. Allocation of Credit Proceeds: The disbursement categories to be used for the project andallocations of the credit proceeds amongst these categories are given in the table below.

14. Action Plan

ACTION TARGET DATEI1. Recruitment of an Accountant |April 1, 20012. Financial Accounting Procedures Manual JulY 31, 20013. Computerization of Accounts December 31, 2001

15. Documents in Project Files

(i) Chart of Accounts of SLIDA(ii) - Parliamentary Act establishing the Sri Lanka Institute of Development Administration andsubsequent amendments to the Act.(iii) Memorandum and Articles of Association of the Distance Learning Centre Limited.

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(iv) Financial Statements of SLIDA for the year ended December 31, 1999.

Table C: Allocation of Credit Proceeds

Civil works 0.35 100% of foreign expenditure; 85% oflocal expenditure

Goods 0.63 100% of foreign expenditure; 100% oflocal expenditure (ex-factory cost); and85% of local expenditure for other items

procured locally.Consultant Services and Training 0.25 100%Incremental Operating Costs 0.54 80% for 2001; 66% for 2002; 30% for

2003; 0% for 2004Project Preparation Facility 0.10Unallocated 0.14

Total Project Costs 2.01

Total 2.01

Use of statements of expenditures (SOEs):

See above

Special account:See above

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Annex 7: Project Processing ScheduleSRI LANKA: Sri Lanka: Distance Learning Project

Time taken to prepare the project (months) 9 12First Bank mission (identiflcation) 11/15/99Appraisal mission departure 07/03/2000 11/05/2000Negotiations 08/15/2000 01/25/2001Planned Date of Effectiveness 09/01/2000 03/15/2001

Prepared by:

Distance Leaming Center Company

Preparation assistance:

Project Preparation Facility

Bank staff who worked on the project included:

Name Speciaitl

Naresha Duraiswamy Task Leader, Institutional DevelopmentShideh Hadian Project Finance and Institutional DevelopmentGyanchander Gongireddy Distance Leaming TechnologyMansoor Dailami Distance Learning PedagogyJulitta Rasiah Financial ManagementJayantha de Mel ProcurementSuresh Peiris Infornation Technology

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Annex 8: Documents in the Project File*SRI LANKA: Sri Lanka: Distance Learning Project

A. Project Implementation Plan

Borrower Project Implementation Plan - November, 2000. Please see Project Files

B. Bank Staff Assessments

Identification Mission Back To Office Report - December 1999.Appraisal Mission Aide Memoir- November 2000

C. Other

Market Survey - December 2000. Please see Project Files*Including electronic files

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Annex 9: Statement of Loans and Credits

SRI LANKA: Sri Lanka: Distance Learning ProjectDec-2000

Difference between expectedand actual

Orginal Amount in US$ Millions disbursementsProject ID FY Purpose IBRD_ IDA GEF Cancel. Undisb. Orig Frm Rev'd

P044809 2000 LEGALANDJUDICIALREFORMS 0.00 18.20 0.00 0.00 15.98 -1.10 0.00

P058070 2000 North-East Irnigated Agriculture Proect 0.00 27.00 0.00 0.00 24.41 -0.75 0.00

P063472 1999 EMERGENCYY2KTA 0.00 29.00 0.00 8.49 4.14 13.98 0.00

P010525 1998 GENERAL EDUCATION II D.00 70.30 0.00 0.00 56.00 30.74 0.00

P034212 1998 MAHAWELIRESTRUCTURI 000 57.00 0.00 0.00 30.10 9.58 0.00

P035828 1998 CONS OF MEDIC PLANTS 0.00 0.00 4.60 0.00 2.63 0.47 0.00

P010498 1997 ENERGYSERVICESDLVY 0.00 24.20 5.90 0.00 9.94 3.33 0.00

P010513 1997 ENVIRONMENTALACTION 000 14.80 0.00 0.00 8.64 7.88 0.00

P039965 1997 ENERGY SERV.DLVY. 0.00 24.20 5.90 0.00 3.49 0.94 0.00

P010526 1997 HEALTH SERVICES DEV 0.00 18.80 0.00 3.46 5.17 6.61 0.00

P010517 1996 PVTSECTINFRASDEV 0.00 77.00 0.00 0.00 63.01 61.65 9.75

P042266 1996 TEACH ED &DEPLOYMENT 0.00 64.10 0.00 0.00 27.99 24.91 0.00

P042263 1996 TELECOM REG & PUBL. 0.00 15.00 0.00 0.00 4.64 5.68 0.00

P010467 1995 COL. ENV. IMPROV. 0.00 39.00 0.00 0.00 12.46 16.39 0.00

P010409 1993 COMMUNITY WAT SUPP/S 0.00 24.30 0.00 0.00 0.00 0.47 0.00

P010412 1993 PUBLIC MAN.ENT.ADJ(SECAL)ISUPP 0.00 5.80 0.00 0.00 0.00 0.00 0.00

P010419 1993 PRIVATE FINANCE DEVELOPMENT PROJ (PFDP) 0.00 60.00 0.00 5.21 0.00 2.22 0.00

P010420 1993 CLOSED(T) COLOMBO URB TRANSPOR 0.00 20.00 0.00 6.00 0.00 5.74 0.00

P010386 1992 POWER DISTRIBUTION 0.00 50.00 0.00 7.54 0.00 6.30 0.00

P010388 1992 ECON. RESTRUCT. SUPPLEMENTAL 0.00 5.20 0.00 0.00 0.00 0.00 0.00

P010398 1992 SECONDAGRIC.EXTENSI 0.00 14.30 0.00 6.U4 0.00 6.32 0.00

P010363 1991 3RD ROADS 0.00 42.50 0.00 4.69 0.00 3.98 0.00

P010373 1991 TELECOMS. II 0.00 57.00 0.00 7.21 0.00 8.49 8.49

P010378 1991 IRRIG. REHAB. 0.00 29.60 0.00 5.94 0.00 5.01 -0.01

Total: 0.00 787.30 16.40 55.09 268.59 218.83 18.23

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SRI LANKASTATEMENT OF IFC's

Held and Disbursed PortfolioDec-2000

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1999 Aitken Spence 0.00 2.73 0.00 0.00 0.00 2.73 0.00 0.001996/97 Asia Power 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001999 DCR Lanka 0.00 0.09 0.00 0.00 0.00 0.05 0.00 0.001992 Eagle NDB 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.001981 Lanka Hotels 0.00 0.64 0.00 0.00 0.00 0.64 0.00 0.001997 Lanka Orix 1.50 0.30 0.00 0.00 0.60 0.16 0.00 0.001996 Lanka Orix Lease 1.11 0.00 0.00 0.00 1.11 0.00 0.00 0.001998 MLL 0.00 0.00 1.80 0.00 0.00 0.00 1.80 0.002000 NDB Housing Corp 0.00 1.14 0.00 0.00 0.00 0.00 0.00 0.001999 Nations Trust 0.00 1.09 0.00 0.00 0.00 1.09 0.00 0.001997 Packages Lanka 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.001992 Pyramid Trust 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.001999 SAGT 35.00 7.30 0.00 0.00 5.00 2.33 0.00 0.001988/95 Union Assurance 0.00 0.50 0.00 0.00 0.00 0.50 0.00 0.00

Total Portfolio: 37.61 15.21 1.80 0.00 6.71 8.92 1.80 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic2000 Suntel 0.00 0.00 7500.00 0.001998 Apollo Lanka 5000.00 0.00 1558.15 0.002000 NDB Credit Line 35000.00 3500.00 0.00 0.00

Total Pending Commitment: 40000.00 3500.00 9058.15 0.00

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Annex 10: Country at a Glance

SRI LANKA: Sri Lanka: Distance Learning ProjectLower-

POVERlY and SOCIAL Sri South middle-Lanka Aaia income Development diamond'

1999Population, mid-year(millions) 19.0 1.329 2,094 Life expectancyGNP per capita (Atlas method, USS) 820 440 1,200GNP (Attes method, US$ bilions) 15.6 581 2,513

Average annual growth, 1993-9

Population (%) 1.3 1.9 11Laborforce(%) 1.6 2.3 1.2 GNP Gross

per pnmaryMot recant estimate (latest year availab, 1993-99) capita enrollmentPoverty (% of population below national poverly line) 25Urban populabtion (% oftotalpopulation) 22 28 43Life expectancy at birth (years) 73 62 69Infant mortality (per 1,000 live birdhs) 17 75 33Child malnutrition (% of children under 5) 38 51 15 Access to safe waterAccess to improved water source (X of population) 64 77 86Illieracy (% ofpopulation age 15+) 11 46 16Gross primary enrollment (% of school-age population) 109 100 114 Sn Lanka

Mate 110 110 114 Lower-middle-income groupFemale 108 90 116

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1979 1989 1998 1999Economic ratios

GDP (US$ billions) 3.4 7.0 15.4 16.0Gross domestic investment/GDP 25.8 21.7 25.1 27.1 TradeExports of goods and servicesvGDP 33.7 27.3 36.2 35.3Gross domestic savingslGDP 13.8 12.2 19.1 19.8Gross national savings/GDP 14.6 23.8 23.9

Current account balance/GDP -6.7 -5.9 -1.5 -3.1 DomesticInterest payments/GDP 0.8 1.6 0.8 1.0 Savings InvestmentTotal debttGDP 46.2 74.1 55.4 547 SavinTotal debt servicelexports 12.9 18.6 6.5 10.0Present value of debtUGDP 40.8Present value of debtlexports 90.8

Indebtedness1979-89 1989949 1998 1999 1999-03

(average annual growth)GDP 5.0 5.3 4.7 4.3 5.5 Sn LankaGNP per capita 3.4 4.0 3.4 2.4 3.6 -- Lower-middle-income groupExports of goods and services 5.5 7.4 1.0 4.0 4.7

STRUCTURE of the ECONOMY1979 1989 1998 1999 Growth of Investment and GOP (%)

(% of GDP)Agriculture 26.9 25.6 21.1 20.7Industry 28.2 26.8 27.5 27.3 1 0

Manufacturing 19.1 15.3 16.5 16.4 5 .Services 44.8 47.6 51.4 52.1 F

Private consumption 77.1 77.3 71.1 71.2 94 9s 95 97 98 99General government consumption 9.2 10.5 9.6 9.0 -GDI ( OGDPImports of goods and services 45.8 36.8 42.2 42.6

1979-89 1989-99 1998 1999 Growth of exports and imports I%)(average annual growth)Agriculture 3.5 2.1 2.5 4.5 15Industry 5.0 7.1 5.9 6.0 ^

Manufacturing 5.5 8.3 6.3 4.4 1.Services 6.5 5.6 5.1 4.0

Private consumption 5.7 5.7 7.5 6.4General govemment consumption 7.0 5.9 3.4 -2.5 oGross domestic investment 7.5 6.9 15.2 6.4 - .1 msor sImports of goods and services 8.0 8.4 11.5 7.0Gross national product 5.0 5.3 4.6 3.9

Note: 1999 data am preliminary estmates.

-The diamonds show four key indicatrs in the country (in bold) compared with ts income-group average. If data are missing, the diamond wiltbe incomplete.

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Sri Lanka

PRICES and GOVERNMENT FINANCE1979 1989 1998 1999 Inflation (%)

Domeatlc prl cea 2(% change) .Consumer prices 10.8 11.6 9.4 4.7 15Implicit GDP deflator .. 8.1 9.2 4.6 ro

Govamment finance 5

(% of GOP, Includes cuffent grants)Current revenue .. 24.0 17.9 18.2 54 95 Be 37 98Current budget balance .. 1.4 -1.7 -0.4 -GOP deflator _CPIOverall surplus/deficit .. -8.7 -8.4 -6.9

TRADE

(US$ millions) 1979 1989 199B 1999 Export and import lvels (USS mill.)

Total exports (fob) .. 1,558 4,798 4,600 enoTea .. 379 760 621 **flOther agricultural goods .. .. 352 373 4.000Manufactures .. 490 2,460 2,425

Total imports (cl) .. 2,226 5,890 5,899Food .. 94 723 655 2n001) '-Fuel and energy .. 165 215 257Capital goods .. 333 1,477 1,565 o 5 94

Export price index (1995=100) .. .. 141 139Import price index (1995=100) , . 116 122 SlExp.rts *rmprrtsTerms of trade (1995=100) .. 121 114

BALANCE of PAYMENTS

(UJS$ millions) 1979 1989 1998 1999 Current account balance to GDP(%)

Exports of goods and services 1,134 1,851 5,712 5,565 ;Importsofgoodsandservices 1,537 2,565 6,659 6,718Resource balance -403 -714 -947 -1,153

Net income -15 -163 -160 -253Net current transfers .. .. 900 911 PCurrent account balance -226 -414 -227 -495

Financing items (net) .. .. 190 758Changes in net reserves .. .. 37 -263

Memo:Reserves including gold (US$ millions) .. .. 1,984 1,639Conversion rate (DEC, locallUSS) 15.6 36.0 66.1 69.6

EXTERNAL DEBT and RESOURCE FLOWS1979 1989 1998 1999

(US$ mil//ions) Composition of 1999 debt (US$ mill.)Total debt outstanding and disbursed 1,554 5,1B1 8,526 8,727

IBRD 33 82 26 15 G. 433 A:15IDA 78 702 1,648 1,651 F 556 :1,51

Total debt service 159 422 452 683IBRD 7 12 6 8IDA 1 7 24 27 C 265

Composition of net resource flowsOfricial grants 116 195 114Official creditors 103 298 379 504Pnvate creditors 10 -48 126 -201 E 4,049 D 1,758

Foreign direct investment 47 20 193Portfolio equity 0 0 6

World Bank programCommitments 68 20 57 56 A - IlRD E - Blate|alDisbursements 15 59 97 48 B - IDA 0 - Other multiler.1 F - Priv-tePrincipal repayments 4 7 19 4 C - IMF G-Shor-teNet flows 11 53 78 44Interest payments 3 12 14 14Net transfers 7 41 64 30

Development Economics 9/9/00

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MAP SECTION

IBRD 27509

< > < k z

| R H;' . A _ 1f t = \ f

DECEMBER 1996