Water sector of Sri Lanka

www.pwc.com/lk

Water sector of Sri LankaEmbassy of the Kingdom of the Netherlands

Strictly Private and Confidential

June 2014

Draft for Discussion

Scope and Process

Scope of work Our engagement involved a market study on the Water Sector of Sri Lanka.

Our overall work has primarily been to obtain an in-depth understanding of current market of the Water Sector as well as the impact of recent developments. Such findings were primarily based on desktop research carried out based on publicly available information and discussions with key stakeholders as well as an informed interpretation of the results of such information.

Sources of information During the course of our work, we have relied on data and information publicly available, as well as discussions with key stakeholders in the public and private sectors.

It should be noted that during our study, we have reviewed data and information from multiple sources which at times lacked consistency. Where possible, we have attempted to confirm or clarify such inconsistencies, however, in general we have observed a level of inconsistency in the views and information provided by various parties and Government ministries

Draft for Discussion

Scope and process (cont’d)

Limiting conditions This report has been prepared by PricewaterhouseCoopers (“PwC”) solely for the purposes of the Embassy of the Kingdom of the Netherlands. PwC expressly disclaims all liability for any loss or damage of whatsoever kind which may arise from any person acting on any information and opinions relating to the subject matter contained in this report. As such the information contained herein is not to be taken as constituting the giving of investment advice by PwC. The recipient is to rely on its own knowledge, investigation, judgement and assessment of the matters which are the subject of this report and satisfy itself as to the accuracy and completeness of such matters. The services have been performed on a best endeavour basis. PwC will not be responsible for any conclusions or decisions made based on the information available in this Report and the ultimate decision as to whether to proceed with any possible business opportunities will be yours (or of any party associated with you).

June 2014

Glossary

Water sector of Sri Lanka •

Term Definition/Meaning

ADB Asian Dev elopment Bank

ANZThe Australia and New Zealand

Banking Group

AUSAID Australia AID

BCM Billion Cubic Meters

bn Billion

BOD Biochemical Oxy gen Demand

BOI Board of Inv estment

BOO Build Operate Own

BOT Build Operated and Transfer

c. Circa

CBO Community Based Organization

CBSL Central Bank of Sri Lanka

CEA Central Env ironmental Authority

COD Chemical Oxy gen Demand

CMC Colombo Muncipal Council

CSR Corporate Social Responsibility

DANIDADanish International Dev elopment

Agency

DI Department of Irrigation

DM Department of Meteorology

DOT Design Operate Transfer

EDCFEconomic Dev elopment Cooperation

Fund

EIU Economic Intelligence Unit

EPL Env ironmental Protection

ERD External Resource Department

EUR Euro

EXIM Export and Import

ft Feet

GDP Gross Domestic Product

GoSL Gov ernment of Sri Lanka

GWI Global Water Intelligence

IDA International Dev elopment Association

IWMIInternational Water Management

Institute

June 2014

Glossary


Term Definition/Meaning

JICAJapanese International Corporation

Agency

KFW Kreditanstalt für Wiederaufbau

LA Local Authority

LIBOR London Interbank Offered Rate

LKR Lankan Rupee

MASL Mahaweli Authority of Sri Lanka

MC Municipal Council

MCM Million Cubic Meters

MDG Millennium Dev elopment Goal

mn Million

MoFP Ministry Of Finance Planning

MoIWRMMinistry of Irrigation and Water

Resource Management

MoPE Ministry of Power and Energy

MoWSDMinistry of Water Supply and

Drainage

MT Metric Tonne

NGO Non Gov ernmental Organization

NRW Non Rev enue Water

NWSDBNational Water Supply and Drainage

Board

O&M Operation and Maintenance

PLC Public limited Company

PS Pradeshiy a Sabha

RWH Rain Water Harv esting

SACOSAN South Asian Conference on Sanitation

TOT Transfer Operate Transfer

TSS Total Suspended Solids

UC Urban Council

UK United Kingdom

UNEPUnited Nations Env ironmental

Program

UNICEFUnited Nations children's Emergency

Fund

USD United States Dollar

VIP Ventilated Improv ed Pit latrine

WHO World Health Organization

WRB Water Resource Board

WWTP Waste Water Treatment Plant

Scope and Process

1 Executive summary 1

2 Water resources 9

3 Demand for water 13

4 Water treatment 22

5 Sewerage and sanitation sector 27

6 Tariffs 38

7 Financing the water sector 42

8 Trends and Challenges 47

9 Key events in the water sphere 55

10 Key stakeholders 57

11 Potential opportunities and key considerations 63

Page

Table of Contents (1 0f 2)

June 2014

Final report

Table of Contents (1 0f 2)

Appendices

1 Project loans obtained during the year 2013

72

2 Water projects identified for implementation

77

3 Institutional framework

85

4 Country summary

89


June 2014

Executive summary

Section 1


1

June 2014 Water sector of Sri Lanka •

Section 1 – Executive summary

Executive summary

An abundant resource Every year around 1,861 mm of rainfall, equivalent to 120 BCM is received per year in Sri Lanka. About two thirds of this precipitation reverts to the hydrological cycle or into the sea. Of the remaining 35%, two thirds flows into watercourses, and is not therefore fit for human use. A total of some 15 bn m3 of water is therefore available for drinking, agricultural irrigation and industrial use. However, there are significant regional differences in the distribution of useable water. Taking these into account, there are three dominant features in the current water resource availability in Sri Lanka. • The supply of fresh water is

available in satisfactory quantities.

• The major challenge remains with respect to disparities in water availability between different regions due to spatial and temporal variations.

• Increasing levels of pollution and contamination in surface and ground water resources, raise the question of where the solution lies. Whether it would be economical to develop and rehabilitate irrigation infrastructure though may be extremely difficult and expensive vis-à-vis introducing conservation measures 0r drilling of deep wells for consumption purposes.

2

June 2014

Executive summary

Demand continues to rise

Currently, Sri Lanka produces around 46% of its rice requirement but the policy objective of the government is to achieve food security and become self-sufficient in rice by 2020. Therefore the target is to produce 8,200,000 MT of paddy which is more than a 100% jump from the current level. In order to achieve this, the government anticipates introducing efficiency measures leading to a productivity increase of over 40% whilst land area allocated for paddy cultivation is also projected to rise by 20%. This means more water resources are needed, translating into more reservoir and dam capacity to meet irrigation needs.

In order to achieve this goal, For the period 2013 to 2016, USD 1,735 mn has been allocated to rehabilitate and construct reservoirs and dams. Out of which, USD 374 mn has been allocated in 2014 for special projects presenting opportunities for private sector players to participate in design and engineering, construction and funding arrangements. Moreover, opportunities are also available to drive efficiency targets set forth by the government for the irrigation sector.

3



June 2014

4 Water sector of Sri Lanka •


Executive summary

With respect to the domestic sector, based on population estimates up to 2018, it is estimated that the demand for water is set to increase from 1.7 bn m3 to 1.8 bn m3. Growth in the domestic sector is driven by GoSL plans to increase pipe borne water coverage to 60% by 2020 offering an opportunity for the private sector to get involved, mainly in the form of funding arrangements, engineering & design and construction projects. Currently, the government allows the private sector to participate in BOT, BOO, DOT and TOT models, however, the very low tariff structure has remained an impediment to private sector entry. As a result, private sector entry has remained within the provision of loan funding and engineering, design and construction sphere with a handful of players operating on BOT models.

Demand continues to rise - continued

Another potential area for private sector involvement is to provide solutions in order to curb the relatively higher Non Revenue Water (NRW) recorded during the provision of water services in the country. Currently, the island wide NRW stands at c.30% whilst it is 49% in Colombo.

As Sri Lanka continued to record impressive Gross Domestic Product (GDP) growth, the demand for water by the industrial sector is also set to increase. Consequently, pressure on a finite resource is imminent and may place bigger demands on the business sector. Already the industrial sector is levied a relatively higher tariff and any strain on the available resources may raise prices furthermore. Therefore, to continue operating, companies must learn how to do more with less.

June 2014

Executive summary

In view of this, some companies have already introduced water conservation and sustainability measures and more and more decisions are being taken to this effect. It is reported that several conglomerates, hotels and hospitals are setting up their own treatment and recycling plants.

Moreover, with new industrials zones anticipated to come in as part of the 5+1 hub concept, we expect more private sector participation in the water treatment and recycling sphere.

It must be noted that Sri Lanka permits 100% foreign equity in the water sector. Foreign direct investment is made through three routes: competitive bidding, Government approval obtained via the External Resources Department of the Ministry of Finance and Planning and via the BOI for projects identified by the investor. It must be noted that several incentives are offered by the BOI for investing in the water sector in Sri Lanka. Moreover, government guarantees are also provided for investments made via the BOI and a selected few if the entry is through the External Resource Department.

Treating water

Sri Lanka currently uses conventional water treatment techniques owing to suitable climatic conditions, economical and relatively lower water pollution levels. As such, the two main water treatment technologies used in Sri Lanka include; slow sand filtration and rapid sand filtration. This is anticipated to change with the increased levels of pollution and contamination which may require more advanced water treatment technologies.

5



June 2014

6



Executive summary

Sewerage and sanitation Investment in and management of sanitation in the country has not received sufficient priority in the post-independence period. Available sanitation infrastructure has not kept pace with Sri Lanka’s expanding infrastructure program. However, GoSL has recognized the importance of providing improved sanitation services for the upliftment of living standards. In this respect, during the period of 2005 -2011, GoSL has infused around USD 122 mn for the development of wastewater discharging facilities in the country.

Despite this progress, piped reticulated sanitation remains limited to those locations where other forms of sanitation facilities are not possible mainly due to population and housing density. According to statistics collected from the NWSDB, a mere 2.4% of the population have access to a piped sewerage system. This corresponds to a population of approximately 490,000 inhabitants.

. It is understood that Colombo does not have a proper waste water treatment plant resulting in partially treated water discharged to the ocean. Industrialization leading to increased pollution levels have resulted in chemical treatment plants being constructed in the country. At present, water and sanitation services to the majority of industrial zones are provided by the NWSDB in collaboration with the BOI. However, all future industrial zones is anticipated to be on private sector participation models. GoSL anticipates to enhance piped wastewater discharging facilities to 7% of the population by 2020. On the back of doubling piped sewer coverage, the need for increasing public investment is crucial in order to meet sanitation priorities. Generation of wastewater is also anticipated to increase calling for proper discharging methods whilst reducing the adverse impact caused on the environment. Therefore, this is likely to generate a huge market for infrastructure related to wastewater discharging.

June 2014

7



Executive summary

Tariffs Even though the policy strategy of the GoSL highlights the importance of setting tariffs to recover the cost of operation and maintenance, current rates are well below the cost of operations and maintenance and as a result has compelled the government to provide subsidies. According to Global Water Intelligence, water tariffs in Sri Lanka lag far behind several countries. For example, tariffs in Indonesia, Philippines and Thailand are twice the rate paid in Sri Lanka. Consequently, the private sector have swayed away from participating in Sri Lanka as returns on investments are low, especially compared to regional peers. Therefore, revision of the present tariff rates are needed in order to attract private sector players to invest in O&M, BOO and BOT contracts.

Regulatory framework The drinking water and sanitation sector is governed by the parliament through the Ministry of Water supply and Drainage (MoWSD). Although customarily considered to be the apex body responsible for national water resources, the MoWSD is in fact required to coordinate its activities with the agendas of other governmental agencies (e.g. Ministry of Irrigation and Water Resources Management). As a result, coordination and cooperation between stakeholder agencies is often complicated by their frequently competing interests – a situation which is further exacerbated by a patchwork of legislation which has fomented a degree of inter-agency jurisdictional ambiguity.

June 2014

8



Executive summary

Financing the water sector During 2012, the overall level of funding allocated towards the water supply and sanitation sector was 2% of GDP higher than several countries. Moreover, the GoSL has also decided to increase water supply and sanitation expenditure to 2.5% of the gross domestic product (GDP) by the end of the 12th Five Year Plan (2012-17). Despite these efforts, the government alone cannot meet the infrastructure capacity and delivery shortages. As a result of this, the government has continued to attract external financing mainly from bilateral and multilateral partners which have mostly been used for development projects. However, they are currently faced with a different challenge owing to its elevation to a lower middle income earning country. Concessional assistance from bilateral and multilateral partners in general has diminished. It is learnt that financing in the form of export credit have gained in prominence.

The water sector received approximately USD 1.6 bn during 2006-2013. With respect to bilateral development partners, China contributed the largest share whilst the ADB was the biggest multilateral contributor in 2012.

June 2014

Section 2

Water resources

9


June 2014

Aggregate renewable water resources exceed Sri Lanka’s near term water requirement, however regional rainfall patterns mean water availability is still a challenge

10


Section 2 – Water resources

Despite the appearance of water surplus, the timing and distribution of precipitation often produces simultaneous challenges in terms of drought and flood risks. For example, the 2012 drought in the ‘Dry Zone’ weighed down agricultural output such that GDP growth outlook was lowered by 20 basis points.

However, also in 2012 the Western Province (Wet Zone) suffered from severe flooding and consequent disruption to key commercial and industrial regions. Beyond this economic disruption, these factors render a significant proportion of precipitation received non-utilisable.

Source: Ministry of Irrigation and Water Resources Management

Sri Lanka on

average receives

approximately

1 ,861 mm of

rainfall per year.

This aggregate

rainfall, some 120

billion cubic metres

(BCM), is

significantly in

excess of

neighbouring India

(1 ,100mm).

In addition to this,

it is estimated that

surface water

(rivers and lakes)

contain 43-45 BCM

of fresh water and

ground water

reserves of a

further 7 .8 BCM.

Total renewable

water available per

capita stands at c.

2,642 m 3 per

capita (India:

1 ,880 m 3 per

capita) vs. gross

per capita

consumption

footprint of 1 ,385

m 3.

June 2014

Over 64% of annual rainfall is currently non-utilisable as a consequence of insufficient catchment capacity

11



Annual total rainfall :120 BCM

Unavailable to use – 64% Available to use – 36%

Interception of tree canopy, Evaporation, Evapotranspiration,

Percolation, Infiltration & seepage, ground water

recharge etc

Irrigation – 28%

Domestic, Industry and Other – 7%

Discharge to sea – 65%

Source: MoFP and MoIWRM

It is noted that 36%

of total annual

rainfall received is

cited as ‘Available

to Use’ – equivalent

to 43 BCM. Of this,

28% (c.12 BCM) is

used for irrigation

purposes whilst

another 7 % (c.3

BCM) is used for

domestic and

industrial water

consumption.

Around 65% of

utilizable water is

discharged back

into the

hydrological cycle

or into the sea.

Moreover, it is

estimated that

around 64% of the

total precipitation

received is

unavailable for

further usage as a

result of run-offs in

the river system

mainly due to lack

of dam capacity.

Other reasons for

the loss of water

includes infiltration

and seepage,

evaporation,

ground water

recharge etc.

June 2014

Demand for water from the industrial sector is set to increase whilst the agricultural sector continues to remain the largest consumer of fresh water resources

12



With the current state of affairs, Sri Lanka is not in an immediate danger of facing a water shortage. However, the challenge remains in distributing water from abundant regions to water lagging regions owing to spatial and temporal variations in water availability.

This also raises the question of where the solution remains, whether it would be economical to develop and rehabilitate irrigation infrastructure - though it may be extremely difficult and expensive -vis-à-vis introducing conservation measures 0r drilling of deep wells for consumption purposes.

Source: MoFP, EIU, PwC Analysis

Source: MoFP, EIU, PwC Analysis

0

10

20

30

40

50

2013 2018

In m3 mn

Water demand Vs Water supply

Water demand Available usable water

0% 20% 40% 60% 80% 100%

2012

2013

2014

2015

2016

2017

2018

Water demand composition

Agriculture sector Industry sector Domestic sector

Sri Lanka currently

consumes around

16 bn m 3 of water.

Irrigation accounts

for c.80%of total

water consumption

followed by the

domestic and

industrial sectors.

Continued economic

and social

progression coupled

with the

government plans to

become self

sufficient in paddy

cultivation by the

year 2020, is

anticipated to drive

the need for water to

approximately

20 bn m 3 by 2018.

June 2014

Demand for water

Section 3

13


June 2014

The irrigation sector currently consumes around 80% of freshwater resources in Sri Lanka. Paddy cultivation takes up around 90% of water allocated for irrigation

14


Section 3 – Demand for water

Paddy cultivation took 90% of the total land allocated for agriculture. (IMWI - 2010). At present, Sri Lanka produces around 46% of its rice requirement. The objective of the government’s agriculture policy is to increase the country’s food production to achieve food security and become self sufficient in rice by 2020.

As depicted in the table below, the government’s target is to produce 8,200,000 MT of paddy by 2020, more than a 100% jump from the levels reached in 2012. In order to achieve this, the GoSL anticipates to introduce efficiency measures thereby increasing productivity by over 40%.

In addition, the area sown is also projected to rise by 20% requiring rehabilitation and construction of new reservoirs and dams to meet irrigation needs.

According to the Public Investment Strategy 2014-2016, currently field crops (other than paddy) is insufficient to meet local demand. As a result, 40% of the field crop requirements are imported.

However, the government anticipates to change the status quo by enhancing the production of field crops locally. As a result of this, it is expected that the water needed to cultivate these crops will surge requiring additions to the current catchment capacity.

Almost 7 0% of the

world’s fresh water

resources are

consumed by the

agricultural sector.

However, in Sri

Lanka the

consumption

surpasses the

world average and

stands just above

80%.

Source: Department of Census and Statistics, Department of Customs, CBSL

Unit 2004 2008 2012 2016 2020

Production MT '000 2,628 3,875 3,846 6,500 8,200

Area sown Ha '000 779 1,053 1,067 1,180 1,270

Area harvested Ha '000 643 925 883 980 1,050

Productivity Kg/Ha 4,086 4,187 4,353 5,500 6,500

Rice imported MT '000 222 84 28 10 -

Rice exported MT '000 - 5 29 200 50

June 2014

For the period 2013 to 2016, USD 1735 mn has been allocated to rehabilitate and construct reservoirs and dams. Out of which, USD 374 mn has been allocated in 2014 for special projects

15



The incumbent irrigation capacity can only collect 15,000 MCM, which is 35% of current freshwater resources. (source : MoIWRM). The remainder, 28,000 MCM or 65% of rainfall is discharged to the hydrological cycle.

In order to address the matter and to meet its proposed targets, the government has continued to allocate funds to develop the capacity of major catchment bodies.

According to the budget estimates 2014, for the period between 2013-2016, the entire investment in the irrigation sector was USD 1735 mn out of which, 96% (or USD 1662 mn)was for constructing and rehabilitating new reservoir capacity.

Additionally, the budgeted amount for special development initiatives targeting the irrigation sector is expected to rise by 33% to USD 504 mn by 2016 indicating governments plans to further enhance the irrigation capacity.

The table below depicts the historical and future allocations made towards the irrigation sector. The majority of the development funds were allocated to inter provincial schemes where major projects such as Uma Oya Diversion and Moragahakanda and Kaluganga Reservoir Project are funded.

Source: MoFP Estimates

Moreover,

according to the

MoFP an

additional USD 37 4

mn has been

allocated for

special

development

initiatives in 2014.

The projects which

come under these

initiatives are;

inter provincial

schemes, major

and medium

reservoir

development

schemes.

2005 2012 2013 2014 2015 2016

Revised Estimates Estimates Estimates

USD mn USD mn USD mn USD mn USD mn USD mn

Special Development Initiaives 4 202 273 376 512 503

Inter provincial 0.31 132 166 243 374 341

Mahaweli - 4 5 11 55 93

Major 0.30 20 27 61 37 5

Medium - 1 2 6 4 2

Gravity Irrigation 1 4 5 6 6 7

Rehabilitation of Irrigation Schemes 2 32 28 18 19 32

Community Development Project - 8 31 23 7 10

International Training Institute of

Irrigation an Water Management, Kotmale - - - 0.69 0.69 0.70

Feasibility Studies - 2 9 7 8 12

June 2014

Reservoirs and dams have been identified for development presenting opportunities for private players mainly in the form of design and engineering, construction projects and funding arrangements

16



Source: MoIWRM

According to the MoIWRM, plans have also been developed to raise the storage capacity of identified major reservoirs by another 21,500 MCM by 2020. It is expected that these measures will bring down the percentage of usable water discharged to the sea from the current 65% to 50%. Also, the government plans to complete the rehabilitation of 19 major reservoirs among the planned 42 irrigation projects during 2013 to 2015. Furthermore, to improve water retention capacities, tank bund levels have been raised on major reservoirs. The table given across shows the level of capacity improvements targeted in three major reservoirs.

Existing capacity Rising spill Additional water

(Acre feet) level (ft) storage (Acre feet)

Parakrama Samudraya 108,905 1.0 6,200

Minneriya Tank 109,901 1.5 9,450

Girithale Tank 19,764 3.0 2,400

Reservoirs

June 2014

Access to safe drinking water targeting the domestic sector has recorded positive gains.

17



On the back of the GoSL’s plan(Mahinda Chinthanaya) to provide access to safe water to 100% of the population by 2020, the domestic segment which accounted for c.7% of the annual freshwater withdrawal in 2012 has continued to grow. Currently, it is estimated that around 83% of the population have access to a safe source of drinking water.

The World Health

Organisation

(WHO) assess

drinking-water

supply based on

the type and

quality of access

made available to

people. The WHO

recognises three

types of drinking-

water access –

piped water on

premises, other

improved drinking-

water and

unimproved

drinking-water

sources.

Given that access

to safe water is an

indispensable

factor for human

development, is

inextricably linked

to the Millennium

Development Goals

(MDGs) of a

country.

This has mainly been in the form of piped water coverage. It is understood that c.43% of the overall population is served with piped water. NWSDB water schemes account for 31% pipe borne water supply coverage while c.8-9% are local authority and small community water supplies managed by CBOs.

Source: NWSDB, MoFP

2006 2007 2008 2009 2010 2011

Population (million) 20.03 20.23 20.43 20.63 20.84 21.05

Pipe-borne coverage (NWSDB &municipalities) 31.10% 32.00% 33.90% 36.50% 38.20% 40.30%

Pipe-borne coverage (other agencies) 1.00% 1.00% 1.00% 1.00% 0.90% 0.80%

Coverage by protected dug wells 34.00% 33.00% 32.00% 31.00% 31.00% 30.00%

Coverage by hand pumps on tube wells 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%

Coverage by rainwater harvesting 2.00% 2.40% 2.70% 3.00% 3.30% 3.60%

Overall access to safe water 76.10% 76.40% 77.60% 79.50% 81.40% 82.60%

URBAN AND RURAL ACCESS TO SAFE WATER SUPPLY, SRI LANKA, 2006–2011

June 2014

With rising standards of living, pipe borne water coverage has increased. Nevertheless, coverage lags behind in rural areas, offering an opportunity for new infrastructure development

18



Given the spread of piped household connections, several regions experienced strong improvement in access to safe drinking water between 1993 to 2012. Such regions include Sabaragamuwa and the North Central provinces improving by c.27% and c.20% over the reported period.

However, significant disparities in coverage for pipe borne water still remain. Piped water coverage is particularly high in the urban sector, albeit, coverage in the rural sector lags well behind.

Another potential

area the GoSL may

look towards the

private sector is

attributable to the

relatively higher

Non Revenue

Water (NRW)

recorded during

the provision of

water services,

mainly caused

from leaking and

burst pipes, illegal

connections and

metering

inaccuracies.

Currently, the

island wide NRW

stands at c.30%

whilst in Colombo

it stands at a

mammoth 49%.

Based on population estimates up to 2018 and on the assumption that current dynamics remain the same, it is estimated that the demand for water (domestic sector) is set to increase to 1.8 bn m3 by 2018. This mainly is driven by the GoSL’s plans to increase pipe borne water coverage to 60% by 2020. As the government cannot meet this added infrastructure requirement alone, this presents an opportunity for the private sector to get involved, mainly in the form of funding arrangements, engineering & design and construction projects.

Source: NWSDB, CBSL

0

500

1000

1500

2000

2500

3000

3500

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2007 2008 2009 2010 2011 2012

In USD

Pipeborne water coverage - Actual Vs Target

Target - Pipe-borne coverage Actual - Pipe-borne coverage PCI

June 2014

Rural households are the main users of ground water mainly through the use of public taps or standpipes, tube wells, boreholes, protected springs and rain water harvesting

19



Because piped water coverage is still low among the rural sector, the inhabitants depend on public taps or standpipes, tube wells, boreholes, protected springs and rain water harvesting to meet their water needs.

The main reason for such low coverage in piped water connections can be attributed to the significant investment costs associated with the provision of pipe borne water supply plus the lower population density prevalent in these areas. This has prevented the NWSDB from developing such infrastructure.

In all, 95% of the inhabitants without access to an improved drinking-water source live in rural areas.

c.41 -43% of the

population in Sri

Lanka have access

to other improved

sources of drinking

water, mainly

ground water

resources.

Hand pump tube

wells are utilized

by 8% of the

population whilst

another 32% of the

population obtain

their water from

dug wells. Other

sources such as

rainwater

harvesting, safe

natural springs etc.

have accounted for

2 - 3%.

Still, around 17% of

the population

relied on

unimproved

sources

(unimproved dug

wells, unprotected

springs, surface

water or irrigation

channels).

June 2014

As Sri Lanka continued to record impressive GDP growth, the demand for water by the industrial sector has also increased

20



On the back of further growth, pressure from the industrial sector on a finite resource is imminent and may place bigger demands on the business sector.

At present, the industrial sector is levied a relatively higher tariff and any strain on the available resources may raise prices further. Therefore, to continue operating, companies must learn how to do more with less.

It also becomes the responsibility of the government to explore means to conserve water which is unavailable for usage due to river run-offs or alternatively, promote and initiate recycling measures in order to meet increasing industrial needs.

Source: CBSL 2013

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

-

1

1

2

2

3

3

2,006 2,007 2,008 2,009 2,010 2,011 2,012

In USD mnMCM

Value Added in Industry vs Water consumption

The industrial

sector which

contributed to

c.28% of GDP

has consumed

around 7% of

freshwater

resources in

2012. Based on

CBSL data, the

food & beverages,

tobacco,

textiles and

apparel sectors

are the key

drivers of the

industrial

sector.

However,

water

consumption

levels from

above the

industries are

not available.

June 2014

21



In light of the drivers mentioned below, the water sector in Sri Lanka is expected to witness substantial activity

Industry

• Expansion of water intensive industries like pulp and paper industry, food & beverages, thermal power plants and textiles leading to increase in water demand.

• Development of the 5 +1 hub concept and other economic development goals leading to expansion in industry water demand.

• The government has allowed the private sector to participate along the water value chain allowing 100% ownership. Several benefits and incentives are provided at present. Three different entry routes are currently available.

Domestic

• Increased per capita consumption levels due to rising living standards.

• Increased access to safe and pipe borne water to 100% and 60% by 2020. (Mahinda Chinthanaya)

• Declining levels of ground water supply due to increased withdrawals and pollution.

• Township development spread across the country.

• Subsidies for domestic water

consumers via the government budget.

• Substantial investments made in water infrastructure development with the assistance of IDAs and bilateral development partners.

• Establishment of rural water supply unit at the NWSDB – assist CBOs and other village level organisations.

Irrigation

• Demand for water intensive crops like rice are increasing substantially. At present, the country produces around c.46% of its rice needs.

• GoSL anticipates a 20% increase in area sown for paddy cultivation by 2020.

• Currently, the government is focused on rehabilitating irrigation infrastructure with the objective of distributing water from water abundant to lagging regions. For the period between 2006 – 2012, c. USD 893 mn was spent on the agriculture sector. Of this, 43% has been spent on building new reservoirs.

Sector Growth drivers Initiatives

June 2014

Water treatment

Section 4

22


June 2014

Sri Lanka currently uses conventional water treatment techniques owing to suitable climatic conditions, cost effective and relatively lower water pollution levels

23


Section 4 – Water treatment

NWSDB treats water -

Slow sand filtration the main technology along with rapid sand filtration

Water treatment for the supply of drinking water is primarily carried out by the NWSDB. The main water treatment technologies used are slow sand filtration and rapid sand filtration. The country mainly relies on these two technologies because;

• They are economical to establish

• Suitable climatic conditions

• Simple design and construction

• Relatively low pollution levels

Sri Lanka operates nearly 200 water treatment plants. Of this, there are 15 plants which employ the slow sand filtration process.

Pebble Matrix Filtration: On the rise

As a result of the high turbidity and in order to make water suitable for drinking, the NWSDB with the assistance of development agencies is looking towards introducing the pebble matrix filtration system.

This has been implemented in Manik Ganga, a river which faces high levels of turbidity during monsoons. The plant has both slow sand filtration as well as the pebble matrix system, where local materials and chemicals are used.

Existing water

treatm ent

system s -

Our discussions

with the NWSDB

revealed that

information

pertaining to

treatment

technologies of all

its plants are not

available.

Nevertheless, we

were able to obtain

information

regarding the

treatment plants

installed for the

Western province.

June 2014

The reported treatment capacity in the Western Province is 967,000 m3 per day, out of which only the Kotabodawatta Sump and Ingiriya plants use chlorination

24



Source: NWSDB

There are 12 other

treatment plants

that cater to the

requirements of the

Western Province.

The table opposite

depicts the existing

capacity as well as

the current

production of

water treatment

plants.

Water Treatment Plant

Capacity

m3/day

Production

m3/day

Labugama 59,000 44,300

Kalatuwawa 91,000 83,000

Ambatale 500,000 547,000

Kosgama 2,750 1,100

Penrithwatta 3,000 1,100

Kotabodawatta 3,800 N/A

Kelani Right Bank 180,000 N/A

Raddolugama N/A 9,000

Pugoda 7,500 7,500

Ranpokunagama N/A N/A

Kirindiwela 3,000 750

Kethhena 56,800 N/A

Kandana 60,000 N/A

Ingiriya 450 N/A

Mathugama 200 N/A

June 2014

The largest treatment plant located in Ambatale produces 9% more water than its design capacity

25



According to the NWSDB water supply master plan, the oldest water treatment plant is located in Labugama. With a production capacity of 59,000 m3/day, the current daily production is 44,300 m3. The bulk of the treated water is supplied to Colombo as well as parts of Battaramulla, Kaduwela and Jaltara.

Kalatuwawa, the second oldest treatment plant, has a capacity of 91,000 m3/day, and a recorded daily production of 83,000 m3.The plant was built to supplement the production stemming from Labugama and to supply additional requirements to parts of Colombo.

The oldest and the

largest water

treatment plants are

Labugama and

Ambatale

respectively.

The largest treatment

plant in the country,

the Ambatale water

treatment plant,

produces an average

547 ,000 m 3 of water

per day. Water

produced at the

Ambatale treatment

plant is sourced from

the Kelani river and is

distributed to

Colombo, Kotte,

Kollannawa,

Maharagama etc. It

is noted that the

production capacity

in this plant is

500,000 m 3 /day

and records at

NWSDB indicates that

current operations

have been

overloaded.

June 2014

Substantial investments towards enhancing water treatment capacities are anticipated up to 2018

26



- 0.50 1.00 1.50 2.00 2.50 3.00

Western…

Central

Southern

Eastern

North…

Sabarag…

Uva

Western…

Western…

North…

Northern

Forecasted treatment capacity additions by province

Source: NWSDB

To ensure the provision of safe water and to meet increasing demand from the domestic and industrial segments, the NWSDB has targeted substantial investments into the water treatment area. Treatment technologies obviously will depend on the quality of water. Based on our discussions, it is anticipated to be carried out through conventional treatment methodologies. However, the NWSDB also acknowledges the need to introduce advanced water treatment technologies due to the increased contamination of surface water resources.

June 2014

Sewerage and sanitation sector

Section 5

27


June 2014

Sewerage and sanitation infrastructure is well outdated and lags far behind. However, focus in this area is gaining momentum with significant investments being made in infrastructure development

28


Section 5 – Sewerage and sanitation sector

Sanitation is a broad concept, one that includes safe management of human excreta, waste water, storm water, solid waste, industrial and agricultural wastes, household refuse and animal excreta. Based on the scope of the work, our focus of the study has been limited to the safe management of human excreta and waste water segment.

Access to sanitation facilities is considered a fundamental right which safeguards the health and dignity of a human being. Lapses or lags in sanitation systems impacts the health of the community and the environment and can be extremely serious.

Therefore, good sanitation is pivotal for good health and for wealth creation individually and the for whole economy. The economic benefits that accrue due to improved sanitation include savings in healthcare expenditure, improved worker productivity, healthy community and reduced water treatment costs.

However, there seems to be a change of stance. The GoSL has recognized the importance of providing improved sanitation services for the upliftment of living standards. In this respect, during the period of 2005 -2011, the GoSL has infused around USD 122 mn for the development of wastewater discharging facilities in the country.

Moreover, a dedicated ministry was also established in 2007. At present, the ultimate responsibility for the provision of safe sewerage and sanitation services rests with MoWSD. In this respect, a separate division for sewerage and sanitation was also establised at the NWSDB, responsible for sewerage planning, designing, project implementation and piped sewerage provision

The National Policy on Water Supply and Sanitation was formulated in 2002 under the Ministry of Housing and Plantation infrastructure. Up to now, sanitation has been covered under this policy. According to South Asian Conference on Sanitation (SACOSAN,) Sri Lanka is currently in the process of enacting a new policy covering the sanitation sector.

It must be noted

that investment and

management of

sanitation in Sri

Lanka has not

received sufficient

priority in the post-

independence

period.

The sewerage

system in Colombo

was built c.100

years ago, resulting

in large urban and

rural areas being

devoid of a

centralized

sewerage, supply

and treatment

system. Available

sanitation

infrastructure has

not kept pace with

Sri Lanka's

expanding

infrastructure

program and even

investments related

to sanitation and

sewerage lags far

behind in

comparison to

drinking water

supply.

June 2014

Access to safe sanitation has reached its highest levels - nevertheless 4% of the populace still use unimproved sanitation facilities

29



There has been significant improvement in Sri Lanka with respect to using improved sanitation facilities.

According to a study by the UK Department for International Development, around 92% of the population had access to improved sanitation in 2010, up from 70% in 1990. This increase can be attributable to increased emphasis and recognition given by the GoSL on the sewerage and sanitation development in the country.

About 4% of the population still use shared sanitation facilities whilst another 4% use other unimproved sanitation facilities. According to WHO/UNICEF, unimproved facilities include pit latrines without a slab or platform, hanging latrines and bucket latrines.

According to the WHO/UNICEF Joint Monitoring Program for Water Supply and Sanitation, improved sanitation refers to the use of the following facilities; Flush or pour flush to:

• Piped water system • Septic tank • Pit latrine • Flush or pour flush

Ventilated improved pit (VIP) latrine

PIT latrine with slab Composting toilet

70

3

13 14

76

4 10 10

82

4 7 7

88

4 5 3

92

4 4 5

-

10

20

30

40

50

60

70

80

90

100

Improved Shared Other unimproved Open defecation

Estimated sanitation coverage in Sri Lanka from 1990 to 2010 (%)

1990

1995

2000

2005

2010

Source: UK Department for International Development`

June 2014

Piped sewerage and sanitation is a mere 2.4% of the population with the majority of this provided in Colombo

30



Despite progress in access to improve sanitation facilities, piped reticulated sanitation remains limited. According to statistics collected from the NWSDB, a mere 2.4% of the population have access to a piped sewerage system.

This corresponds to a population of approximately 490,000 inhabitants to those locations where other forms of sanitation facilities are not possible mainly due to population and housing densities.

Moreover,

according to the

NWSDB, only 19%

of the Greater

Colombo

population

(Kolonnawa,

Dehiwela and

Mount Lavinia) in

2010 was

connected to the

piped sewerage

system whilst

another 66% use

on-site facilities

and the remaining

15% have no

sanitary facilities.

The population

with no sanitation

facilities disposes

their waste water

on the seashore,

canals and on

available open

ground giving rise

to environmental

and health

concerns.

The Colombo city,

falling under the

auspice of the

Colombo Municipal

Council (CMC)

accounts for c.7 6%

of the country's

entire piped

sewerage.

Nevertheless, the

available

infrastructure is

woefully

inadequate. The

CMC which is

responsible for the

provision of

sanitation services

in Colombo is

constrained by lack

of funds for

investment in

capacity

enhancements

mainly due to the

lack of wastewater

tariffs.

June 2014

Colombo does not have a proper waste water treatment plant resulting in partially treated water discharged to the ocean

31



The existing piped sewer network in Colombo, comprises of c.320 km of sewers and18 pumping stations in two catchments north and south. Based on our discussions with the NWSDB, it is learnt that the current system has no treatment plant for sludge and wastewater. Wastewater is partially treated or screened for solidified waste and then discharged directly into the ocean via two sea outfalls located in Wellawatte and Mutwal.

Our discussions also identified that the system is giving rise to a number of environmental and health problems calling for proper treatment techniques. Moreover, the sewer lines have frequently collapsed and blockages resulting in flooding neighbourhoods with untreated wastewater.

However, some of the deficiencies are being addressed under the on-going Greater Colombo Wastewater Management Project. According to the Ministry of Local Government, the project began in April 2010 and is expected to be completed by December 2014.

The total estimated project cost including contingencies is USD 93 mn out of which USD 80 mn was financed by the Asian Development Bank with another USD 13 mn contributed by the GoSL. The project involves upgrading the sewerage infrastructure, strengthening institutional and operational capacity of the CMC. Thus, it is designed to improve the urban environment and public health for residents in Colombo through improvements of wastewater management services.

Piped sewerage

facilities are also

available in

Kataragama,

Hikkaduwa ,

Kandy and major

housing complexes

located mostly in

the Colombo and

greater Colombo

areas. Moreover,

large industrial

zones in various

parts of the

country are

provided with

piped sewerage

and sanitation

services.

Source: NWSDB

Housing schemes

No. of

connections

Population

coverage

Soysapura 1973 8656

Matthegoda 1177 4966

Jayawadanagama 674 2886

Maddumagewatta 315 1302

Raddolugama 2126 8789

Maligawatta 1552 6516

Crow Island 294 1215

Stace Road 240 992

Hantana 409 1625

Digana Village 258 1425

Mulleriyawa 242 970

Jalthara 400 1692

Total 9660 41034

June 2014

Industrialization leading to increased pollution levels have resulted in advanced chemical treatment plants being constructed

32



Based on our discussions with the NWSDB, it is learnt that the main industrialized areas (Ja-ela and Ratmalana) are prone to serious water pollution and the current partial treatment system is unable to meet this need. In view of this, chemical treatment plants (WWTP) are currently being constructed in the Ja-ela and Ratmalana areas.

These plants are constructed through concessionary credit provided by the Swedish International Development Agency to the Government of Sri Lanka. The Swedish consultant agency Sweco International in co-operation with EML Consultants are working as consultants. Construction work was carried out by the Danish company PIHL and China GEO.

The Ja-Ela WWTP is located approximately 15 kilometres north of Colombo. This is targeted towards the industries, residences and housing complexes located in the area. The plant’s full capacity is anticipated to be reached in the year 2030, when the design flow is 819 m3/h.

Source: Uppsala University Sweden

Year 2007 2030 Unit

Wastewater flow, domestic 3,856 5690 m3/d

Wastewater flow, industrial 2,060 2560 m3/d

Design flow (Qdesign) 620 819 m3/h

BOD5 3,519 4382 kg/d

COD 9,856 12269 kg/d

NH4-N 472 587 kg/d

N-tot 708 881 kg/d

P-tot 167 208 kg/d

TSS 4,236 4899 kg/d

Design loads and flows of the Ja-Ela WWTP [EIA Ja-Ela 2003/04]

June 2014

Water and sanitation services for all future industrial zones is anticipated to be on private sector participation models

33



Based on discussions with the Board of Investment (BOI), we understand that drinking water and wastewater treatment and sanitation services are provided by the BOI to almost all the major industrial zones in collaboration with the NWSDB.

However, services for two of these zones are provided by private players on the basis of an agreement entered between the BOI and the private players.

Water and

sanitation services

for all industrial

zones considered

for future

development

which forms part

of the

government’s

development plan,

particularly the

proposed 5+1 hub

concept, is

anticipated to be

provided under

private sector

participation

models.

Source: NWSDB

Housing schemes No. of Population

Soysapura 1973 8656

Matthegoda 1177 4966

Jayawadanagama 674 2886

Maddumagewatta 315 1302

Raddolugama 2126 8789

Maligawatta 1552 6516

Crow Island 294 1215

Stace Road 240 992

Hantana 409 1625

Digana Village 258 1425

Mulleriyawa 242 970

Jalthara 400 1692

Total 9660 41034

June 2014

The GoSL expects to double piped sewerage and sanitation by 2020 presenting a tremendous opportunity for infrastructure development and increasing waste water treatment capacity

34



The GoSL

anticipates to

enhance piped

wastewater

discharging facility

to 7 % of the

population by

2020 from the

current 2.4%. On

the back of

doubling piped

sewer coverage,

the need for

increasing public

investment is

crucial in order to

meet sanitation

priorities.

Generation of wastewater is also anticipated to increase calling for proper discharging methods whilst reducing the adverse impact caused on the environment.

Therefore, this is likely to generate a huge market for infrastructure related to discharging wastewater. While not an indication of gain in GDP, it nevertheless indicates potential economic activity that sanitation can generate.

Source: NWSDB

0

50000

100000

150000

200000

250000

300000

2014 2015 2016 2017 2018 2019 2020

No. of sewerage connections

June 2014

Despite ambitious plans to double piped sewerage, the cost of obtaining such connections has continued to act as an impediment

35



Information obtained from the MoFP indicates that on average, 808 households have obtained piped wastewater discharging connections per year since 2006. In 2011, only 542 new sewerage connections have been provided islandwide.

Moreover, key issues related to sewerage is the non-charging of sewerage fees to customers falling under the purview of the Colombo Municipal Council. Services are provided free to households, presenting challenges associated with reinvestment and periodic maintenance.

However, piped sewerage services in the Kandy region where the infrastructure is still being developed is provided at a fee embedded in the bill for drinking water services too.

On average, a

household located

adjacent to a

sewer network has

to pay around USD

229 to obtain a

sewer connection

from the system.

However, with the

increase in the

distance from the

sewer network, the

cost per

connection is set to

increase owing to

increase in pipe

laying cost.

Therefore, the cost

of obtaining such a

connection has

continued to act as

an impediment for

increasing piped

sewer coverage in

the country.

June 2014

Wastewater treatment and safer disposal mechanisms is the need of the hour as the present situation is not sustainable

36



According to UNEP (2001), it is estimated that each day in the Colombo Metropolitan Region, 428 metric tons of sewerage is released into the ground through septic tanks and pit latrines in addition to another 138 metric tones of sewerage released into waterways.

The quality samples obtained from ground water wells registered with the NWSDB indicated that 2% of wells tested contain nitrates. This may possibly be as a result of shortcomings in the sewerage disposal mechanisms currently in place.

The other major

contributor

towards improved

sanitation has been

in the form of on-

site facilities.

About 84% of the

population (c.16

mn), primarily in

rural areas use

individual or onsite

facilities.

The most common

type of toilet is

water sealed

latrines connected

to a septic tank or

a closed pit. The

process lacks a

proper treatment

mechanism and as

a result, a large

amount of

wastewater is

released to the

ground or water

ways.

Kandy suffers from a serious problem of wastewater disposal. There is no proper system of wastewater disposal, and c. 80% of used water is released to the Mahaweli river significantly impacting pollution levels.

June 2014

Identified potential for developing on-site sanitation remains large

37



The identified

market for

providing on-site

sanitation services

is large: supplying

new systems and

replacing old ones,

is estimated by the

NWSDB and

presented in the

graph opposite.

It is understood

that the estimates

take into account

the cost of

installing new

latrines, toilets and

the design element

for latrines and

toilets.

However, it does

not consider the

cost of developing

proper treatment

mechanisms or

plants for the

identified areas.

Therefore, the

potential market is

anticipated to be

much larger.

Source: NWSDB

0 5 10 15 20 25

Gampaha

Kandy

Colombo

Kurunegala

Batticaloa

Nuwara eliya

Puttalam

Jaffna

Galle

Kalutara

USD mn

Identified investment potential - On site sanitation

June 2014

Tariffs

Section 6

38


June 2014

Tariff strategy is intended to recover the cost of operation and maintenance for the provision of water services

39


Section 6 – Tariffs

The current tariff revision system in place requires the NWSDB to conduct a water tariff study and determine how much increase is needed. The tariff proposal study is submitted to the NWSDB Board for deliberation and approval. Upon approval by the Board, the tariff proposal is submitted to MoWSD for confirmation by the Minister. However, no public consultation is conducted before a new water rate is implemented.

The tariff structure for all major types of customers encompasses both a fixed and a variable component. A significant feature of the present tariff structure is that non-domestic users provide a substantial cross subsidy to domestic users. This is practiced through providing the first block of consumption at a very low tariff.

Even though, the

policy strategy of the

GoSL highlights the

importance of setting

tariffs to recover the

cost of operation and

maintenance, current

rates are well below

the cost of operations

and maintenance.

Water tariffs still

remain very much a

contentious and

politicized issue as

access to water is

traditionally

considered a right.

The prevailing tariff

policy takes into

consideration the

need to make water

affordable to lower

income groups.

June 2014

Current rates are well below the cost of operations and maintenance requiring substantial government subsidies

40



Approximately 35% to 55% of total costs for the provision of water services are sunk or other fixed costs. Excluding these fixed costs, the NWSDB has to incur an additional c. LKR 28 for every 1,000 litres of water produced. When comparing this to consumption, the average tariff for a household consuming 1,000 litres of water is only LKR 25.

To put this into perspective, around 82%of NWSDB connections consume less than 25,000 litres of water per month, approximating to a volume of about 150 MCM annually. This gives an indication of the amount of subsidies the NWSDB has to depend on in order to provide water services.

Source: MoFP Annual report

Source: MoFP Annual Report

1.26 1.72 1.560.57

0.88

1.492.71 4.77

0.00

1.00

2.00

3.00

4.00

5.00

6.00

0-10 10-15 16-20 21-25

USD

Tariff composition

Government subsidy Cost borne by the consumer

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011

LKR per CBM of water

Average Bill rate Vs unit cost of production and supply

Average bill rate - Domestic Average bill rate - All sector

Average bill rate - Non - domestic Total Unit cost at consumer Door Step

Based on MoFP

data, it is learnt

that revenue

collected covers

only a portion of

the utility's total

costs. The

government

provides a subsidy

in the order of

c.10%-c.60% of the

total tariff.

Moreover despite

water tariffs being

revised upwards in

the recent years (as

depicted in the

graph opposite),

water rates in Sri

Lanka remain

among the lowest

vis-a-vis regional

countries.

June 2014

Present tariff rates are well below regional countries, therefore swayed away private sector participation and is insufficient to meet investment needs

41



Key challenges in water pricing and tariff structure • Water pilferage and system losses

leading to ineffective metering systems makes it difficult to implement volumetric usage-based collection initiatives.

• Tariff structures across user groups vary with industrial users paying the most for water while domestic tariffs are heavily subsidized and provide additional power subsidies.

• Tariffs continues to be a politically

sensitive issue - revisions to rates to reflect actual costs is a challenge the NWSDB is faced with.

• Tariff structures do not encompass built-in components that incentivize users to manage their water usage. Moreover, there are no penalties levied for excessive use of freshwater. This has continued to act as an impediment to introducing demand-side management measures.

Source: GWI 2011

According to

Global Water

Intelligence,

water tariffs in

Sri Lanka lags far

behind several

countries (e.g.-

tariffs in

Indonesia,

Philippines and

Thailand are

twice the rate

paid in Sri

Lanka). This

remains an to be

an impediment

for private secor

players to invest

in water and

sanitation

treatment plants

and related

infrastructure.

In Sri Lanka, the

current pricing

framework is

conceived to

address

consumption but

not necessarily

supply.

Therefore,

revision of the

present tariff

rates is needed

in order to

attract private

sector players to

invest in O&M

andBOT

contracts.

0.13

0.07

0.30

0.25

0.28

0.21

0.58

0.14

0.74

0.70

0.22

1.16

- 0.20 0.40 0.60 0.80 1.00 1.20 1.40

Colombo (Sri Lanka)

Chandigargh (India)

Bangalore (India)

Bandung (Indonesia)

Bangkok (Thailand)

Addis Adaba (Ethiopia)

Amman (Jordan)

Chennai (India)

Dakar (Senegal)

Daejeon (South Korea)

Davao (Phillippines)

Casablanca (Morroco)

USD

Water Tariffs

June 2014

Financing the water sector

Section 7

42


June 2014

China overtook Japan to become Sri Lanka’s largest bilateral development partner whilst the ADB topped the multilateral contributors in 2012

43


Section 7 – Financing the water sector

Over the years, Sri Lanka has benefited from a rapid influx of external financing, mostly used for development projects. MoFP statistics indicate that external financing has increased at an annual growth rate of c.18% during 2006 - 2012.

On an absolute basis, foreign funding received has increased from USD 1.6 bn to USD 3.1 bn for the aforementioned period.

Of the USD 3.1 bn commitment made by development partners and lending agencies, c.USD 2.7 billion was in the form of project loans whilst the remainder was grant assistance (USD 0.37 billion). With respect to bilateral development partners, China contributed the largest share whilst the ADB was the biggest multilateral contributor in 2012.

Source: External Resource Department (MoFP)


International

funding

institutions

providing external

assistance in the

water supply

sector are Japan

International

Cooperation

Agency (JICA),

Asian

Development Bank

(ADB),

Government of the

Peoples Republic

of China via the

China Exim Bank,

KfW of Germany,

AUSAID, EDCF ,

ANZ/FIC of

Australia, New

Zealand and

DANIDA etc.

0 500 1,000 1,500

ChinaIndia

JapanWorld Bank

NetherlandsADB

UN AgenciesSaudi Arabia

UKOFID

GermanyFrance

IFADSpainKorea

USA

Foreign Financing - 2012

Loan

Grant

0%

10%

20%

30%

40%

50%

60%

0

500

1000

1500

2000

2500

3000

3500

2006 2007 2008 2009 2010 2011 2012

in USD

External financing Vs External Debt to GDP%

Total foreign financing External Debt as a % of GDP

June 2014

Owing to the elevation of its status as a lower middle income earning country, Sri Lanka is faced with a renewed challenge to obtain external financing

44



Sri Lanka is currently faced with a different challenge owing to its elevation to a lower middle income earning country. With a higher per capita income level, concessional assistance from bilateral and multilateral partners in general has diminished. Thus, the GoSL has been compelled to alter its funding strategy by using semi concessional external financing, commercial and capital market fund raising arrangements.

Furthermore, financing in the form of export credit has gained in prominence. Additionally, steps have also been taken to obtain funding from the non-concessional window of the World Bank – International Bank for Reconstruction and Development to expand financing options.


Overall,

concessional

assistance received

from bilateral and

multilateral

development

partners have

decreased from

over 90% of total

foreign debt in

2000 to around

50% in 2013.

Funding mix - 2000

Concessional Loans (% of Total Foreign Debt)

Non Concessional Loans (% of Total Foreign Debt)

Funding mix - 2012

Concessional Loans (% of Total Foreign Debt)

Non Concessional Loans (% of Total Foreign Debt)

Sri Lanka has also

successfully tapped

into capital market

financing with

sovereign bond

issues, most recent

being for USD one

billion with a 10

year maturity.

June 2014

External finance accounted for c.56% of total funding channelled into the water sector whilst the remainder was funded by the GoSL in 2013

45



As per the MoFP,

the water sector

received

approximately USD

1 .6 billion in total

during 2005 -

2013. These were

either concessional

financing extended

in the form of

outright grants,

credits with longer

maturities or low

interest, and/or

mixed credits (loan

and grant

combined).

Foreign

commitments

targeting the

water and supply

sector in Sri Lanka

was estimated to

be USD 249 in

2013. (1 .7 % of the

total external

funding committed

towards the

country).

Source: External Resource Department (MoFP) Loans obtained for various projects targeting the water and sanitation sector during 2012 and 2013 including funding terms are provided in annexure 1.

2006 2007 2008 2009 2010 2011 2012 2013

Agriculture & Irrigation 183 38 546 40 96 14 35 -

Defence 50 - 100 - 300 - - -

Education & Training 91 108 40 - 51 14 107 212

Ground Transport - 65 153 - 597 391 439 283

Health & Social Welfare 50 12 164 40 41 3 184 315

Housing & Urban Development 25 9 41 - - 10 471 -

Ports & Shipping 124 607 116 65 35 24 809 155

Power & Energy 155 1 74 1084 199 217 362 166

Rehabilitation 15 34 2 187 253 215 - -

Roads & Bridges 360 329 421 320 916 1021 246 335

Water Supply 140 238 233 198 312 177 69 249

Other 234 234 177 279 458 37 431 253

Total 1427 1675 2067 2213 3258 2123 3153 1968

Sector-Wise External Financing Commitments from 2006 to 2013 Sep. (USD mn)

June 2014

At present the government spends 2% of GDP on water supply and sanitation and expects to increase the figure to 2.5% of GDP

46



During 2012, the

overall level of

funding allocated

by the GoSL

towards the water

supply and

sanitation sector

was 2% of GDP -

comparatively

higher than several

countries.

Sri Lanka is at the centre of a large scale development program. The challenge is significant, as nearly 85% of the country’s population live in rural areas. On the back of this, provision of safe water and sanitation for all its citizens has received added impetus. To address the substantial infrastructure gap, GoSL has decided to increase water supply and sanitation expenditure to 2.5% of the GDP by the end of the 12th Five Year Plan (2012-17).

Despite these

efforts, the country

still lags behind in

infrastructure. The

government

continues to

encourage external

funding into this

area as the

government alone

cannot meet the

infrastructure

capacity with

existing delivery

shortages.

June 2014

Trends and Challenges

Section 8

47


June 2014

Expanding production capacities in water intensive industries have resulted in companies adopting their own wastewater treatment plants

48


Section 8 – Trends and Challenges

Companies operating in various sectors in Sri Lanka have taken notable measures in embracing technology to conserve and enhance water usage for a combination of reasons.

Companies have realised that with the rapid expansion in economic activity, they may be required to build capacity. This does come with a significant cost, in the form of capital expenditure plus the periodic outlay they may have to incur. Expanded capacity means more volume which will consequently be translated into more water being consumed.

The challenge is further exacerbated with the relatively higher industrial tariffs levied on them. As such, companies have been compelled to explore means to do more with less.

Companies look beyond near-term cost implications and take a long term view of the business risks and the need for water conservation and sustainability.

In this respect, some companies have introduced water conservation and sustainability measures as part of their Corporate Social Responsibility (CSR) agenda. More and more decisions are being taken on the basis of where to put assets taking environmental considerations into account.

With these factors

in mind, several

companies have

started to operate

their own

treatment plants. A

selected few are as

follows;

- DIMO PLC

- United Motors

- Brandix

- MAS Holdings

- Dipped Products

PLC

- Hayleys Knitting

Need for waste water treatment

plants

Rapid Industrialisation

Expansion in production capacities/ High tariffs

Corporate Social

Responsibility

June 2014

Water provision and conservation is becoming an important agenda item for companies attempting to raise their Corporate Social Responsibility (CSR) profile

49



At present, a considerable amount of CSR projects have been focused on providing safe drinking water and sanitation services. These projects are implemented throughout the country, and as a result many rural areas have been provided access to safe drinking water and sanitation services.

A brief description of some of the CSR projects connecting the water sector are given below;

• Brandix, an apparel manufacturer, has executed over 460 water supply schemes in over 15 districts, under its “Care For Our Own” water supply program. During 2012-13, the company donated 115 pipe borne water supply schemes,293 wells, 5 community wells, 35 tube wells as well as 11 rainwater harvesting systems.

• Coca Cola Sri Lanka, in collaboration with United Nations Development Programme built and repaired 46 wells and 67 toilets in Polonnaruwa and Trincomalee.

• Laugfs Group, has embarked on a project to provide safe drinking water for two schools in Dehiattakandiya, situated in the Amapara district.

• Hatton National Bank implemented a safe water drinking project for 75 families in Mannar. The bank also dredged 125 wells to provide safe drinking water to families in Mavillaru. The bank also built a tank in Chunnakkam in collaboration with the NWSDB.

June 2014

Rainwater harvesting has gained impetus with institutionalization, however it’s still at a nascent stage of development

50



Rainwater harvesting for water supply is fast becoming a major option driven mainly due to its simple technology, easy maintenance, assured supply on-site and ownership by the individual. RWH gained further traction for domestic use with the institutionalization of this source by the NWSDB in 1995.

In 1996, the Lanka Rainwater Harvesting Forum came into being for the purpose of promoting and research of rainwater harvesting. Following several successful research projects, RWH was deemed a suitable water supply option for the rural poor, particularly in the dry zone.

Consequently, in 1998, NWSDB constructed 73 rainwater harvesting systems in Yatinuwara in the Kandy district.

According to the WRB, in 2010, there were more than 23 institutions and organization implementing rainwater projects. It is also estimated that there are more than 31,000 systems with 14,200 domestic tanks benefiting nearly 71,000 people throughout the country

In 2005, GoSL passed a national policy on rainwater harvesting for the purpose of managing water resources in the country. The policy objective is aimed at encouraging communities to control water near its source by harvesting rainwater. The policy was followed by necessary legislation which was gazetted on 17/04/2009, to amend the Urban Development Authority by-laws on drainage. These amendments made rainwater harvesting mandatory in certain categories of new buildings in areas under municipal and urban council jurisdiction.

June 2014

Small and medium-scale industries have no proper wastewater disposal systems, resulting in shallow water contamination problems

51



It was also noted that certain industries tend to discharge untreated or partially treated effluent into nearby drains polluting the groundwater.

Research conducted by key stakeholders and academic institutions point out inadequate waste water treatment in key areas of the country. For instance, the Kelani river which supplies water to Colombo is affected by solid waste and untreated waste water.

Additionally, in Kurunegala wastewater comes from vehicle service stations and the general hospital where water is not treated and directly discharged to open drains. Similarly, industries in Anuradhapura, direct their wastewater close to the Malwathu Oya or open drains.

On the basis of

discussions with

the NWSDB, it is

learnt that a major

concern of late is

related to the

quality of ground

water resources in

the country. Based

on random quality

measurements

conducted by the

NWSDB in water

supply schemes

under them, it has

been found that

many small and

medium-scale

industries have no

proper wastewater

disposal systems

resulting in

shallow water

contamination

problems.

June 2014

Good quality ground water resources have dwindled owing to increased application of fertilizers and pesticides in agriculturally intensive regions

52



Ground water

contamination is

particularly

rampant in

agricultural areas

in the country.

Usage of fertilizers

has resulted in the

discharge of

harmful chemicals

into the ground. It

is estimated that

about 40% of tube

wells constructed

during the last

decade were

abandoned due to

contamination.

It is learnt that excessive fluoride in ground water is mainly confined to the dry zone. Inhabitants in some areas of the Central, North-Central, North- Western, South and Eastern regions of the country are reported to have dental fluorosis due to excessive amounts of fluoride in drinking water. About 11% of wells had water with hardness greater than 600 mg/l. Excessive hardness is mainly limited to specific parts of the dry zone and associated with bearing rock formations. Excessive chloride in groundwater is present in the coastal regions while iron is prevalent in the wet zone and in lateritic aquifer.

Data collected on

ground water

quality by the

NWSDB revealed

that excessive

concentrations of

fluoride, chloride,

nitrate, hardness,

and iron were

present. It was

noted that c.18% of

these wells had

fluoride

concentration

greater than the

World Health

Organization

(WHO) guidelines.

Source: Ministry of Irrigation and Water Resource Board

Chemical Parameter

Number of

wells

analyzed

Value

above the

WHO limit

Electrical Conductivity (ms/cm) 13,945 5%

Hardness (mg/l) 12,955 11%

Fluoride (mg/l) 13,081 18%

Iron (mg/l) 13,014 36%

Chloride (mg/l) 10,557 4%

Sulphate (mg/l) 7,023 3%

Total Alkalinity (mg/l) 10,609 13%

Nitrate (mg/l) 9,626 2%

June 2014

Seasonal variations in rainfall patterns and the need to distribute water from abundant to water lagged regions is a growing concern

53



Institutional challenges

There is lack of reform with regards to water allocation rights amongst various stakeholders. The situation is further exacerbated by a patchwork of legislation which has fomented a degree of inter-agency jurisdictional ambiguity.

Moreover, other challenges faced in the area of regulations and policy includes the absence of a proper tariff revision mechanism. Urgent regulatory changes in the form of licencing are also key in order to control groundwater resources.

Insufficient substitutes being developed in order to cater to the rising demand

Treatment of wastewater, rainwater harvesting and water recycling are currently being done at a very negligible scale in Sri Lanka.

Concerns relating to financial sustainability

The current tariff rate is insufficient to cover capital, operational and maintenance cost . Therefore, a significant reliance on external finance for water infrastructure development is expected for the near future.

Seasonal variations in rainfall patterns

There is a regional disparity in the availability of water across the country due to uneven rainfall. On average, annual rainfall to wet, intermediate and dry zones are in the range of 2,500-5,000 mm, 1,750-2,500 mm and 500-1,750 mm respectively.

This presents an opportunity as well as a challenge with respect to distribution of water from wet and intermediate zones to dry zones which accounts for more than 1/3 of land area. This is further intensified by the lack of substitutes as mentioned previously.

June 2014

The need to improve water storage capacity and enhance efficiency are key issues faced by the irrigation sector

54



Public perception as a critical success factor

Water is considered to be a public good rather than a commodity deterring tariff revisions. Present tariffs do not fully reflect actual costs associated with water supply impacting the investment made into the water and sanitation sector.

Non Revenue Water accounts for 30% of total water production

The high percentage of NRW can be attributable to system losses, pilferage and distribution losses. GoSL has taken the initiative to reduce the NRW to a national average of 30% which is still significantly high.

Issues facing the irrigation sector - lack of capacity; lack of information; siltation of tanks and water shortages

Out of the available freshwater resources in the island, only c.30%-36%, can be stored through the existing irrigation schemes, highlighting the critical need of capacity expansion. The remainder is not used for productive activities and is released to the sea.

Siltation of reservoirs and tanks is a growing area of concern. Additionally according to the public investment strategy 2014-2016, deforestation and intrusion of forest conservation have increased the severity of siltation in reservoirs. This has also caused the drainage basins to decrease in area.

Furthermore, the lack of information and data in specific areas such as regional variation in water, capacities in water retention and facts on groundwater is a major barrier concerning decisi0n making for policy makers and institutions.

It is also noted that another issue faced by the irrigation sector is the occurrence of water shortages. This is mostly prevalent in districts located in the North Province, Eastern Province, North Central, North Western and restricts development activities as well as human settlement.

Moreover, the dry zone in the country accounts for most of the paddy production. According to the Institute of Policy Studies, it is anticipated that in 2025, certain dry zones in the island will face absolute scarcity of water.

June 2014

Key events in the water sphere

Section 9

55


June 2014

Key events in the water sphere

56


Section 9 – Key events in the water sphere

Third

International

Symposium

on Water

Quality and

Human Health

: Challenges

Ahead

20 - 21 June

2014

International

Forum for

Trade &

Industrial

waste 2014

14 Sep 2014

Third

International

Conference on

Climate

Change and

Social Issues

2014

30th – 1st

August 2014

International

Conference on

Poverty and

Sustainable

Development

17 – 18 June

2014

June 2014

Key stakeholders

Section 10

57


June 2014

Oversight of Sri Lanka’s water resources has been distributed over a number of agencies with potentially conflicting interests

58


Section 10 – Key stakeholders

According to the constitution of Sri Lanka, the State, under the auspice of the MoWSD, is required to assume overall responsibility for the supply of drinking water and for the provision of access to sanitation services. Although customarily considered to be the apex body responsible for national water resources, the MoWSD is in fact required to coordinate its activities with the agendas of other governmental agencies (e.g. MoIWRM). However, coordination and cooperation between stakeholder agencies is often complicated by their frequently competing interests. The situation is further exacerbated by a patchwork of legislation which has fomented a degree of inter-agency jurisdictional ambiguity.

For example, the national policy on Water Supply and Sanitation was formulated in 2002 by the Ministry of Housing and Plantation Infrastructure in order to provide a framework for the supply of safe drinking water and access to sanitation services. However, as set out above, the responsibility for the provision of drinking water supply and sanitation currently vests with the MoWSD. The functions and responsibilities of the various governmental agencies with direct and indirect interests in the water sector are set out in the following page.

June 2014

59



Institutional set up

Ministries are responsible for regulating the sectors as well as enacting laws

under their purview

The respective boards and authorities primarily act in

the capacity of implementing agencies to their respective ministries

Local authorities are

responsible for managing and operating water schemes under them

• GoSL Government of Sri Lanka • MoPE-Ministry of Power and Energy • CEB-Ceylon Electricity Board • MoIWRM-Ministry of Irrigation and Water

Resource Management • PUCSL-Public Utilities Commission of Sri

Lanka • CEA-Central Environmental Authority • MoWSD-Ministry of Water Supply and

Drainage • NWSDB-National Water Supply and Drainage

Board • UC-Urban Council • PS-Pradeshiya Sabha • MC- Municipal Council • WRB-Water Resource Board • MA-Mahaweli Authority • ID- The Department of Irrigation • MOE- Ministry of Environment

Roles and responsibilities of the aforementioned institutions are

provided on Annexure 03 this report

June 2014

The NWSDB plays a prominent role throughout the water value chain

60



While MoWSD has the responsibility of providing water and sanitation services, the NWSDB is entrusted with carrying out this service on its behalf. In this respect, design, construction, operations and maintenance of all pipe-borne water supply services rests with the NWSDB. Moreover, as it’s not feasible to get involved in the provision of water and sanitation services in rural areas due to high infrastructure costs, as a counter measure, the NWSDB has adopted a participatory model with the involvement of NGOs and CBOs. The CBOs are village level organisations who are responsible for designing, constructing and operating water supply schemes comprising of treatment plants and distribution networks in their respective areas. The NWSDB, in some instances collaborates with the municipalities to monitor the collection of water from lakes, rivers and other major water bodies as well as the treatment of non-purified water and wastewater.

Even though there are no formal restrictions on entry for private sector players, the NWSDB dominates the water and the sewerage value chain. Private sector participation is limited to implementing projects financed by state budgetary streams, international aid and development funds. Our discussions revealed that low tariff rates levied on the end consumer is the main deterrent on private participation as it leads to low return on investments and longer pay back periods. Except for a handful, private players have generally refrained from operating water schemes on private-public participation models. As a result of this, it is the NWSDB which has taken the responsibility to operate water schemes targeting the urban areas whilst rural areas are taken care of by CBOs and village level organisations.

June 2014

Private players have been active in the design and construction, and supply of water related equipment

61



Based on information collected, it is understood that private players have been very active and keen to get involved in the design and construction sphere for water collection infrastructure, water and sewerage distribution networks and to supply equipment related to water and sewerage infrastructure and services. In addition, water treatments plants and equipment including chemicals and gases are now being procured from the private market. Also, private sector involvement can be witnessed in the purification segment where leading conglomerates and major corporates have set up in house processing plants. The water value chain including areas of private sector participation is set out in the following page.

Acknowledging the

need for more

private sector

participation, the

BOI anticipates

provision of water

and sanitation

services to all

future industrial

zones to be based

on private-public

participatory

models. It must be

noted that a

similar model has

already been

adopted for a

project

implemented in the

east coast of Sri

Lanka.

June 2014

Water sector value chain

62



Water Collection &

Treatment Distribution

Sewerage

& Sanitation Other Services

• Sierra Construction (Pvt.) Ltd.

• Access engineering (Pvt.) Ltd.

• Link Engineering (Pvt.) Ltd.

• Maga Engineering (Pvt.) Ltd.

• Vonlan Constructions (Pvt) Ltd.

• International Construction Consortium (Pvt.) Ltd.

• Befesa Agua S.A.U

• China Geo-Engineering Corporation (Sri Lanka)

• Degremont SA- Sri Lanka

• Besix Sanotec SA

• Kolon-Samsung C&T JV

• NCC LTD- India

• Mega Engineering Infrastructure Ltd.

• Beijing Sound Engineering CNTC JV

• China CMIIC Eng. Const. Cor.

• China Complete Plant Import & Export Corp.

• Tetra Tech

• ABB AG

• M/S Squire Mech

Engineering (Pvt)

Ltd

• M/s. Engineering

Projects (India) Ltd.

• M/s. Beijing

Municipal

Construction Group

Co. Ltd.

• NCC LTD- India

• Sino Hydro

• Farab Construction

• CAMC Engineering

Collection of

surface water

Desalination

Fresh water

treatment

Supply to

industries

Sewerage and

sanitation

Design &

Construction

Supply to

domestic

consumers

• NWSDB Operations &

Maintenance

Source: PwC industry research and NWSDB

June 2014

63


Section 11

Potential opportunities and key considerations

June 2014

More funding is needed to ensure the country meets the envisaged long term development plans

64


Section 11 – Potential opportunities and key considerations

Despite the large influx of funding channelled into the water sector, more is needed to ensure the country meets the envisaged long term development plans set out in the “Mahinda Chinthanaya” and the MDG. Moreover, shifting demographics and changing consumption patterns are straining freshwater resources. Although, Sri Lanka does not face the immediate danger of a water shortage, the growing gap between supply and demand is increasingly exerting more pressure on the available resources. This situation opens up potential opportunities to businesses engaged in the water and sanitation sphere. Furthermore, companies that are capable of offering sustainable solutions in the water sector stand to benefit the most.

Investors/Financiers/Project developers are allowed entry through three routes: • Competitive bidding for

projects advertised by the NWSDB for which funding has already been allocated/obtained.

• Government approval obtained via the external resources department of the Ministry of Finance and Planning.

• Investor are allowed to directly approach the BOI subsequent to identifying a project for development.

Competitive bidding Competitive bidding is the preferred purchasing technique used by the NWSDB. Project developers are invited publicly to submit their proposals for projects identified in priority order by the NWSDB. This is in principle designed to achieve the lowest possible price and the highest possible quality for projects where funding has already been obtained.

Approval route - MoFP Project developers/Investors/ Financiers are allowed to identify potential projects for development and submit proposals to the External Resources Department of the Ministry of Finance and Planning (MoFP). Subsequent to evaluation of the submission, at its discretion, MoFP enters into discussions with the Project developers/ Investors/Financiers and grant permission for entry. Approval route – BOI Investors are allowed to identify potential projects for development and submit proposals to the BOI. Subsequently, the BOI coordinates with the NWSDB on behalf of the investor to take the project off the ground provided that it meets qualifying criteria.

June 2014

Opportunities for private sector players exist under 4 different clusters

65



The following key factors are likely to intensify pressure on existing water resources: • Increasing emphasis by the

government to achieve its social and economic development goals

e.g.-GoSL plans to be fully self sufficient in paddy production.

• Dilapidated infrastructure • Growing water imbalances between

wet and dry zones of the country. • Deterioration of water quality due

to accelerated human and industrial activity.

• Uncertain and extreme weather conditions (i.e. uncertain rainfall and intense draught seasons).

Distribution and

management

Water and waste water treatment

Information and expertise

Water and food

June 2014

Invigorating irrigation

66



Given that much of the agricultural land is located in the dry zone and due to water not being evenly distributed, some parts of the country regularly experience water shortages. Against this backdrop, significant effort and resources is needed to reduce this imbalance.

Taking this into account, GoSL has already placed emphasis on developing large scale reservoirs and dams under the Mahaweli Development Authority. In addition, discussions are underway to rehabilitate half of the estimated 18,000 constructed ponds or tanks in the dry zone that are classified as ‘abandoned’ or badly in need of repair.

List of projects identified for rehabilitation and reconstruction is set out in the following page.

Key considerations Different line ministries related to the water sector have conflicting motives which has burdened the sector. In the past there have been attempts to develop an authority to regulate the sector. However such efforts did not bear fruit. At present, there is lack of transparency and predictability in the water sector, which has curtailed private sector participation.

There is a need for

substantial

investment for

rehabilitation of

existing irrigation

facilities, enhancing

existing capacity as

well as building new

capacity.

Opportunities exist

for suppliers

engaged in design

and construction

phase, suppliers of

water saving and

advanced irrigation

technologies and

equipment.

June 2014

List of on going and new irrigation projects

67



Source: Ministry of Finance and Planning

Name of the project DistrictsTotal estimated cost

(LKR Mn)

Total estimated cost

(USD Mn)Duration Funding source

Moragahakanda and Kalu Ganga Matale 64538 492.7 2007-2016 China, Saudi, Kuwait, OPEC

Uma Oya Multipurpose Badulla, Monaragalla, Hambantota 76316 582.6 2007-2016 Consolidated fund

Kumbukkan/Nakkala Oya Monaragala 12000 91.6 2012-2016 Consolidated fund

Lower Malwathu Oya Anuradhapura/Vavuniya 10000 76.3 2012-2017 Consolidated fund

Rehabilitation of medium and major irrigation schemes Vary 10000 76.3 2009-2014 Consolidated fund

Yan Oya Reservior Anuradhapura 8700 66.4 2007-2015 Consolidated fund

Thalpitigala Reservior Badulla 8200 62.6 2012-2014 Consolidated fund

Mahaweli Consolidation project (system B) Polonaruwa/ Batticaloa 2800 21.4 2007-2014 Consolidated fund

Rideemaliadda Integrated development Badulla 1100 8.4 2012-2016 Consolidated fund

Deduru Oya Resevoir Kurunegala 6200 47.3 2005-2014 Consolidated fund

Ellewewa Reservior Ratnapura 470 3.6 2012-2014 Consolidated fund

Gal Oya Navodaya Ampara 1260 9.6 2008-2014 Consolidated fund

Gonagalathenna Tank Kandy 55 0.4 2012-2014 Consolidated fund

Gurugal Oya Nuwara Eliya, Kandy 400 3.1 2007-2014 Consolidated fund

Kalugal Oya reservior Ampara 1517 11.6 2012-2014 Consolidated fund

Lower Uva Moneragala 550 4.2 2007-2014 Consolidated fund

Mahagona Reservior Matale 70 0.5 2007-2014 Consolidated fund

Morana Reservior Badulla 1700 13.0 2012-2015 Consolidated fund

Rambukkan Oya Reservior Ampara 3970 30.3 2007-2014 Consolidated fund

Wilakandiya Reservior Badulla 81 0.6 2012-2014 Consolidated fund

Digili Oya Reservior Matara 1460 11.1 2012-2015 Consolidated fund

Nape udawathura Reservior Matara 40 0.3 2012-2014 Consolidated fund

Weli Oya Development Vavuniya, Mullaitivu 6000 45.8 2012-2016 Consolidated fund

Iranamadhu Irrigation development project Kilinochchi 2842 21.7 2012-2017 Consolidated fund

Name of the project DistrictsTotal estimated cost

(LKR Mn)

Total estimated cost

(USD Mn)Duration Funding source

Diversion of Mahaweli water to Wayamba Kurunegala, Matale 13,000 99.2 2014-2019 Consolidated fund

System B Maduru Oya RB Development Batticoloa 38500 293.9 2014-2018 Consolidated fund/ ADB

Rehabilitation of Gin Ganga flood regualtion project Galle 700 5.3 2014-2016 Consolidated fund

Minipe anicut raising project Kandy 2000 15.3 2015-2018 Consolidated Fund/JICA

Diversion of Mahaweli water to Wayamba Kurunegala, Matale 13000 99.2 2014-2019 Consolidated fund

DSWRPP Phase 2 Islandwide 44822 342.2 2015-2019 Consolidated fund/WB

Maduru Oya - System BRB Development Batticoloa 38500 293.9 2014-2018 Consolidated fund/ ADB

Flood and Draught mitigation/ climate resilence programme Islandwide 11300 86.3 2015-2018 Consolidated fund/WB

Mudeni Aru Basin development programme Ampara, Batticoloa 18000 137.4 2016-2018 Consolidated fund/ ADB

June 2014

Conserving water

68



Conserving water resources have become a necessity in the face of irregular water shortages and droughts. Finding ways to use water more efficiently particularly in water lagging regions for agriculture has received added impetus.

One area receiving particular attention is irrigation improvement and efficiency. There is also interest for affordable technology and tools catered to the capital scarce local environment. In this respect, GoSL, has implemented several projects with the assistance of its developments partners to promote such technology.

For example, The Sustainable Agricultural Water Management Project (SAWMP) was implemented to popularize low-cost solar powered drip irrigation technology designed to help save water, increase yields and reduce labour cost and inputs.

Additionally, local companies are also looking for avenues to enter this space with particular attention on supply of products relating to drip irrigation. A few examples of such companies are ;

- Solar Solutions Pvt Ltd

- Piyadasa Agro Pvt Ltd

- Jinasena Group of Companies

- Citigardens Sri Lanka Pvt Ltd

Key considerations These new irrigation technologies look very promising. Nevertheless, the speed at which they are actually establish themselves eventually depends on a large extent on the available financing and it is usually the farmers themselves who have to make the investments. Having said that, it must be noted that Sri Lanka is a country where farmers largely depend on agricultural subsidies, particularly for fertilizers used in their harvest. Therefore, the amount that will be made available for such investment depends on the farmer’s income.

June 2014

Gap in water and wastewater treatment capacity

69



There is potential opportunity for suppliers of water and wastewater treatment plants, owing to capacity additions envisaged under the NWSDB’s plan for increasing piped borne water and sewer coverage.

Another factor driving demand for more treatment plants is due to intensified contamination of water resources as a result of rapid industrialization. With this, the conventional treatment plants that are currently being used are not up to the task, presenting a serious problem that needs to be addressed in the future.

Private sector

involvement can

be witnessed in the

purification

segment where

leading

conglomerates and

major corporates

have set up in

house processing

plants. This

represents a major

opportunity for

water treatment

equipment

manufacturers and

private developers

of water plants.

Key considerations The water quality and the cost associated with providing water are factors considered by the NWSDB in selecting suppliers. Therefore, introducing advanced technologies for the purpose of treating water and wastewater may not suit the local context as water contamination levels are relatively low plus any advanced technology is associated with an extra cost.

June 2014

Construction and development of water and wastewater distribution infrastructure

70



.

Key considerations Urban water distribution systems in Sri Lanka are operated by the NWSDB. Although there are no restrictions on foreign investment towards operating distribution networks, low tariffs, high non-revenue water and inaccurate water metering have deterred private-public participatory models.

Key considerations Based on a study conducted by the World Bank in the south western region of Sri Lanka, it was concluded that fewer households preferred to connect to the system if the private sector was involved in the water distribution process.

As a result of the government’s plans to connect the majority of the population with piped water and sewerage, it has presented opportunities for private sector players specializing in the water sector. Areas for potential entry includes engineering design and construction, supply of equipment related to water and sanitation and consulting firms.

Resolution for Non-Revenue Water (NRW) issues, (where treated water is distributed but for which no payment is received), represents an important way in which the operating performance of networks can be improved. As a result, private players in the water distribution market supplying advanced technologies or expertise, such as high efficiency pumps, advanced water measurement technologies, network leakage detection and repair, integrated monitoring systems, stand to benefit from this.

Decentralized water supply systems are also expected to receive a boost as it may not be viable to provide centralized infrastructure to areas with lower population densities. Moreover, our discussions with the NWSDB indicates that unidentified gaps in water infrastructure still remain. As a result there are regions where water and sanitation projects are still to be identified.

List of water and

sanitation projects

identified for

development is

attached in

annexure 2.

June 2014

71



Other areas for potential opportunities

Integrated water resource management

It is understood that the government with the assistance of its development partners is moving in the direction of adopting integrated approaches to water management. The ADB in Sri Lanka has also adopted a water supply and sanitation strategy aimed at introducing integrated approaches that promote sustainable management of water resources. In this respect, management and consulting firms specialising in this area will become increasingly important as environmental and climate change is anticipated to be given increasing importance during planning future projects.

Information gathering and database management

Sri Lanka’s development of the water sector has been accompanied with the need to develop and establish a comprehensive database. Currently, information is scattered amongst various stakeholders operating in the sector. Also, the exchange of information between water utilities, public and private sector organisations is vital to the safety of the nation's water supply as well as for planning resources for the future.

Key considerations There is a risk of demand and supply not being met at the required timelines due to the protracted procurement process and ambiguous economic policies implemented at times.

June 2014

Appendix

Section 12

72


June 2014

73


Section 12 – Appendix

Appendix 1 - Project loans obtained during the year 2013

Bilateral

Export Credit

Export Import

Bank of United

States

UniCredit Bank

Austria AG

(Austria)

Implementation of

the Greater

Rathnapura Water

Supply Scheme

Banco Bilbao

Vizcaya

Argentaria S.A.

(Spain)

Rate

Japan

Tranche 2- 0.01%

Tranche 1 - 1.4%Anuradhapura

north water supply

project (phase 1)

Interest typeUS $ million

Project

Development

partner/ lending

agency

Development

partner/ lending

agency

Project

11

Commitment

fee(from

undisbursed

balance

Grace period

(years)

Maturity(including

grace period

years)

Amount

committed Interest rate per annum

53.9 Fixed

0.35% 2

25- 7

Grace period

(years)

Maturity(including

grace period

years)

Amount


Commitment

fee(from

undisbursed

balanceUS $ million Interest type Rate

EURIBOR - 6

Month EURIBOR -

6 Month

for EUR

Variable29.4

3 14.5

Rehabilitation of

Labugama Water

Treatment Plant

project

22.5 Fixed 1.03% -

16

0.50%CIRRVariable64.9

Badulla, Haliaela,

Ella Integrated

Water Supply

Project

Interest Free - 0.40% 6.5

Augmentation of

Mahiyangana

WaterSupply

Project

13.5

8 24

Asian

Development

Bank

Dry Zone Urban

Water & Sanitation

Project - Additional

Financing

40.1 Fixed

1% During

Disbursing

Period, 1.5%

Period, During

Repaying Period

-

Export Import

Bank of Hungary

Rehabilitation of

Kalatuwawa Water

Treatment Plant

23.5 Fixed 1.03% - 3 15

June 2014

74



Appendix 1 – Project loans obtained during the year 2013

Disbursed during Jan- Sep 2013

8.34

US $ million Interest type Rate

Grace period

(years)

Maturity(including

grace period

years)

Bilateral

Development

partner/ lending

agency

Project

Amount


Commitment

fee(from

undisbursed

balance

Eastern Province

Water Supply

Development

5.65 Fixed

Upper Kotmale

Hydro Power

Project (II)

India

Greater Dambulla

Water Supply

Project I

5.77

Rehabilitation of

Kilinochchi Water

Supply Scheme

(Grant)

0.3

Fixed

Water Sector

Development

Project (II)

12.4 Fixed

Kandy City

Wastewater

Management

0.57 Fixed

1.50% - 10

14

Greater

Trincomalee water

Supply Project

France 0.98 Fixed 1%

LIBOR -6 Month

for USD0.50%Variable

Water Sector

Development

Project

Japan

10.21 Fixed

1.40% 0.10% 10 30

0.20% 0.10% 10

40

0.65% 0.10% 10 40

0.65% 0.10% 10

11 30Fixed 1.50% -Korea 10.19

- 10

40

30

3

28

Ruhunupura Water

Supply

Development

N/A

June 2014

75




UniCredit Bank

Austria AG

(Austria)

Augmentation of

Mahiyangana

Water Supply

Project

2.68 Fixed N/A 0.40% 6.5 16

US $ million

1% 3 13

0.80% 0.25% 3 12241.9 Fixed

120.35% 2

Export Credit

Integrated water

Supply Scheme

Integrated water

Supply Scheme

Integrated water

Supply Scheme

0.92% 0.15% 6

Interest rate per annum

Interest type Rate

Development

partner/ lending

agency

Project

Amount

committed

EURIBOR -6

Month for EUR

Implementation of

the Greater

Rathnapura Water

Supply

1.7 Variable

Agence

Francaise De

Development

Implementation of

Jaffna Killinochchi

Water Supply &

Sanitation Project

(France)

0.39 VariableEURIBOR -6

Month for EUR

Banco Bilbao

Vizcaya

Argentaria S.A.

(Spain)

Australian & New

Zealand

Investment Bank

(Australia)

10.52 VariableLIBOR -6 Month

for USD

AB Svensk Export

Credit (Sweden)

Ratmalana & Ja-

Ela Wastewater

Treatment

Facilities Project

(Sweden)

5.9 Fixed

7

N/A

Rehabilitation of

Kalatuwawa Water

Treatment Plant

4.64 Fixed N/A -

0.25%

Rehabilitation of

Labugama Water

Treatment Plant

project

4.46 Fixed N/A

Export Import

Bank of Hungary

Fortis Bank

NV/Fortis Banque

SA (Belgium)

Implementation of

Kolonna and

Balangoda Water

Supply Projects

(Belgium)

Nordea Bank

Denmark A/S

(Denmark)

Kelani Right Bank

Water Treatment

Plant (Denmark)

3.24 Interest Free 0.25% 3 12

- 8 20

13

25

8 8

Commitment

fee(from

undisbursed

balance

Grace period

(years)

Maturity(including

grace period

years)

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1% During

Disbursing

Period, 1.5%

During Repaying

Period

Fixed2.99

Variable0.79

0.15%

- 8 32

Commitment

fee(from

undisbursed

balance

Grace period

(years)

Maturity(including

grace period

years)

- 8 32

0.75% 5

8 32

1% During

Disbursing

Period, 1.5%

During Repaying

Period

8 32

LIBOR -6 Month

for USD5 25

1% During

Disbursing

Period, 1.5%

During Repaying

Period

0.15%

Fixed1.15

Secondary Towns

& Rural Com-

Based Water

Supply Add (XDR)

-

-Fixed0.52

Jaffna &

Kilinochchi Water

Supply & Sanitation

Project (ADF)

LIBOR -6 Month

for USD

1% During

Disbursing

Period, 1.5%

During Repaying

Period

Fixed1.48

Greater Colombo

Wastewater

Management

Project (ADF)

N/A

Greater Colombo

Wastewater

Management

Project (OCR)

2.36 Variable

- 8 32

24

LIBOR -6 Month

for USD

Development

partner/ lending

agency

Project

Amount


US $ million Interest type Rate

Dry Zone Urban

Water and

Sanitation Project

Multilateral

Dry Zone Urban

Water and

SanitationProject

(Grant)

0.31

Asian

Development

Bank

Variable0.31

Secondary Towns

& Rural Com-

Based Water

Supply Add (OCR)

Variable0.17

Jaffna &

Kilinochchi Water

Supply & Sanitation

Project (OCR)

LIBOR -6 Month

for USD

0.05 Fixed

1% During

Disbursing

Period, 1.5%

During Repaying

Period

Secondary Towns

& Rural

Community

Water/Sanitation

Secondary Towns

& Rural

Community

Water/Sanitation(O

CR)

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Appendix 2 – Water projects identified for implementation

Central Province

Kandy North ( Pathadumbara WSP) Kandy 1 14,300 108.68

Greater Matale WSP Matale 2 28,415 215.95

Pathahewaheta Kandy 2 150 1.14

Kundasala Haragama WSP Kandy 3 19,418 147.58

Laggala New Township Matale 3 3,000 22.80

Nuwara Eliya Ws & S Nuwara Eliya 4 2,650 20.14

Wilgamuwa Matale 5 930 7.07

Kotmale Riverside WSP Nuwara Eliya 5 675 5.13

Hasalaka WSP Kandy 5 850 6.46

Galagedara Kandy 5 240 1.82

Kandapola WSP Nuwara Eliya 5 600 4.56

Sabaragamuwa Province

Galigamuwa Kegalle 1 1000 7.60

Hemmathagama Kegalle 1 7,040.00 53.50

Ratnapura Distribution Ratnapura 1 1,000.00 7.60

Padalangala Distribution Ratnapura 1 180 1.37

Ruwanwella Kegalle 1 3,410.00 25.92

Warakapola Kegalle 1 4,110.00 31.24

Sabaragama University Ratnapura 1 1,180.00 8.97

Eheliyagoda Ratnapura 2 4,080.00 31.01

Projects/ Programmes District Rank

Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)

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Appendix 2 – Water projects identified for implementation

Southern Province

Katuwana-Kirama Intergrated WSS Hambantota 1 2,018.00 15.34

Ruhunupura Stage ll Hambantota 2 5,109.00 38.83

Bentota Galle 2 800 6.08

Matara St.lV Matara 3 15,162.00 115.23

Imaduwa WSS Galle 5 1,492.00 11.34

Greater Galle St.lll Galle 6 5,408.00 41.10

Ruhunupura Phase l (Distribution) Hambantota 6 1,500.00 11.40

Weeraketiya WSS Hambantota 6 670 5.09

Galle MC Area WSS Galle 8 330 2.51

Western Province - North

Gampaha Attanagalla Minuwangoda WSP Gampaha 30000 228

Katana WSS Gampaha 1 1,650 12.54

Divulapitiya WSS Gampaha 2 1,600 12.16

14.82

11.63

Kelani Right Bank WSP Gampaha 4 22,000 167.20

Barawakumbuka & Rote WSS Hambantota 9 320 2.43

Mirigama, Kandalama,Kelaniya &

ganegoda Group of Town WSSGampaha 2 1,530

22.04

20.23Middeniya Angunukolapellessa

Integrated WSS Hambantota 4 2,662.00

Uragasmanhandiya, Pitigala,

Dikkumbura, Gonapinuwala, WeligamaGalle/Matara 7 2,900.00


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)

Reh. Of District Main from Church Hill to

KelaniyaGampaha 3 1,950

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Appendix 2– Water projects identified for implementation

Western Province- Central

Towns East of Colombo District WSP

22.80

Kosgama Awissawella Integrated WSP Colombo 3 1800 13.68

Western Province- South

Replacing of Aged Asbestos Cement

Pipe Lines & Cast Iron Pipe Lines in

Manager (Dehiwala) Area

Kalutara 3 2,370.00

Water Supply to Ranaviru Gammanaya

Horana - MillaniyaKalutara 4 330

Project 1 - Distribution System for

Diyagama & Padukka Balance Areas

Project 2- Reservoirs Transmission and

other civil works

Project 3- Homagama, Padukka,

Seethawake Distribution

Aluthgama,Mathugama & Agalawatte

Integrated WSP (Kalutara St. lll)Kalutara 1 11,580.00

Colombo

Colombo

Colombo 2

2

2 3,000.00

3,000.00

4,000.00 30.40

22.80

Colombo City Water Supply

Improvement ProjectColombo 1 1,300.00 9.88


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)

88.01

152.61

18.01

2.51

Kalutara, Bandaragama, Horana &

Ingiriya Intergrated WSP (Kaluganga

WSP -Ph.ll St.l)

Kalutara 2 20,080.00

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North Western Province

Anamaduwa Integrated WSS (Phase l) Puttlam 3 7,310 55.56

Dankotuwa Intergrated WSS(Phase l) Puttlam 5 8,700 66.12

Deduruoya Integrated WSS Kurunegala 6 8,480 64.45

Galgamuwa Integrated WSS Kurunegala 7 3,000 22.80

Mawathagama Augmentation Kurunegala 8 2,000 15.20

Wandurapinuella Kurunegala 9 25,000 190.00

North Central Province

Anuradhapura North WSP Anuradhapura 1 22,830 173.51

Anuradhapura South WSP Anuradhapura 2 18,620 141.51

Galenbindunuwewa WSP Anuradhapura 3 1,793 13.63

Lankapura WSP Polonnaruwa 3 1,900 14.44

Thambuththegama WSP Anuradhapura 4 1,810 13.76

Welikanda WSP Polonnaruwa 5 2,700 20.52

Anuradhapura North Phase II Anuradhapura 5 23,000 174.80

Towns North of Polonnaruwa Polonnaruwa 5 2,600 19.76

Medigiriya Distribution Phase II Polonnaruwa 5 1,300 9.88


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)

Alawwa-Polgahawela integrated WSS

(Stage l)Kurunegala 2 8,640 65.66

Makandura - Pannala & Kuliyapitiya

Intergrated WSSKurunegala 4 8,110 61.64

Greater Kurunegala Water Supply &

Sanitation ProjectKurunegala 1 12,930 98.27


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)

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Northern Province

Mankulam WSS Mullathivu 1 1,890 14.36

Mullathivu WSS Mullathivu 1 1,000 7.60

Kombavil WSS Kilinochchi 2 50 0.38

Thalaimannar WSS Mannar 3 70 0.53

Cheddikulam Vavuniya 4 70 0.53

Araly WSS Jaffna 6 110 0.84

Uva Province

Monaragala Buttala Integrated WSS Monaragala 2 4,430 33.67

Kiriibbanwewa WSS Monaragala 4 2,190 16.64

Hambegamuwa WSS Monaragala 6 1,600 12.16

Atampitiya WSS Badulla 6 1,400 10.64

Eastern Province

Ampara Distribution Ampara 1 3,000 22.80

Yan Oya WSS Trincomalee 1 6,200 47.12

Valachchanai WSS Batticaloa 2 16,000 121.60

Bandarawela, Haputale, Diyathalawa

Integrated WSPBadulla 1 8,700

Badalkumbura- Alupotha Integrated

WSSMonaragala 5 2,870


Total Estimated

Cost of the each

Project (LKR mn)

Maharambaikulam, Madeenangar WSS Vavuniya 5 90

Supplying Insulations Package Plants of

Jaffna & Kilinochchi DistrictJaffna & Kilinochchi 6 300


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)

Total Estimated

Cost of the each

Project (USD mn)

0.68

2.28


Total Estimated

Cost of the each

Project (LKR mn)

Total Estimated

Cost of the each

Project (USD mn)

5.70

21.81

66.12

Kandeketiya WSS Badulla 6 750

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82



Appendix 2 – Sanitation projects identified for implementation

Projects in pipeline in Western province

Project RankImplementation

(months)

Total

Estimated

cost in USD

Ratmalana-Moratuwa & Jaela/ Ekala - Phase

2 Wastewater Disposal Project1 36 70

Keliniya/ Peliyagoda wastewater disposal

project4 60 176

Kalutara Wastewater Disposal project 6 60 57

Projects in pipeline in southern province


(months)

Total

Estimated

cost in USD

Galle/ Matara Township septage treatment

Plants2 24 1.52

Matara Wastewater Disposal Project 3 60 168

Projects in pipeline in Central province


(months)

Total

Estimated

cost in USD

Nuwara Eliya Wastewater Disposal project 5 60 9

June 2014

83



Appendix 3 - Institutional framework

According to the Sri Lankan constitution, water supply and sanitation sector is the subject of legislation by the parliament via the MoWSD. However, there are several government agencies and legislations dealing with water in the country. Given these laws have been enacted over a period of time to meet a specific need at a given point in time, as a consequence, in some cases overlaps exist in their responsibilities and jurisdictions. Thus, creating confusion and conflict in water resources allocation among different stakeholders. The challenge in regulating the water sector is further exacerbated since water bodies do not confine themselves to the political boundaries drawn up given their over-lapping jurisdiction. For example, the national policy on Water Supply and Sanitation was formulated in 2002 by the Ministry of Housing and Plantation Infrastructure in order to provide a framework for the supply of safe drinking water and access to sanitation services. However, as set out above, the responsibility for the provision of drinking water supply and sanitation currently vests with the MoWSD.

Furthermore, local water bodies can serve more than one local body. Therefore, rule-making in these areas requires the significant involvement of all the concerned stakeholders. Therefore, co-ordination and co-operation is required on exploration and development of national level policies. Functions and related responsibilities of identified water government agencies are detailed in the following pages.

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Ministry of Water supply and Drainage (MoWSD) The MoWSD was established by a gazette notification in 2007. The Ministry is in charge of drinking water and is the apex body responsible for policy formulation, enacting and enforcing the legislation and directing the investment programme and coordinating amongst stakeholders. The MoWSD is responsible for coordinating and monitoring the semi-autonomous NWSDB which functions as the lead implementation agency rolling out large-scale, infrastructure programmes in the urban and rural water sectors. Although the Ministry coordinates implementation, it does not have the responsibility for allocating financing for NWSDB programmes. The allocation of donor funds for water and sanitation is presently coordinated by the External Resources Department (ERD),which sits within the Ministry of Finance and Planning.

Ministry of Irrigation and Water Resources Management (MoIWRM) The MoIWRM is responsible for policy formulation and implementation of projects concerning irrigation systems, rainwater harvesting, and ground water development in the country. The Ministry is the custodian of all surface water bodies and has been concerned with the protection of surface water quality in the country. This aspect is looked after by the WRB which comes under the purview of the MoIWRM. Through the Mahaweli Authority, the ministry overlooks all matters relating to Mahaweli development in the country. The main focus of this programme is the provision of water for agriculture development in dry zones plus water for hydro electricity generation plants.

Ministry of Power and Energy (MoPE) The MoPE is mandated to formulate and implement the national energy policy for the country. The Ministry is also mandated to plan and develop electricity generation facilities covering hydro, thermal plants whilst also to promote and develop indigenous renewable energy resources and promote energy efficiency in the country.

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National Water Supply and Drainage Board (NWSDB) The NWSDB, which functions under the purview of the MoWSD is responsible for providing drinking water in the country. Its role can be described as the provider of water services whilst acting as a facilitator for the provision of sanitation services in the country. The Board has a nationwide network of regional establishments through which it initiates water supply and sewerage development activities, and currently operates around 313 water supply schemes. The Board Act empowers the NWSDB to design, construct and manage pipe borne water supply projects in all parts of the country. Apart from that, the NWSDB also provides technical assistance to other stakeholders/agencies involved in the sector.

As a centralized agency, the NWSDB has primarily focused its efforts on rolling out large-scale infrastructure schemes, principally in urban areas. Given that some aspects of the delivery of both water and sanitation require community level participation, the NWSDB has devolved some functions of water and sanitation to CBOs. In this respect, the responsibility of the NWSDB extends to the supply, distribution or sale of bulk water to Local Authorities and other institutions or organizations such as NGOs, CBOs, etc. Local Authorities (LA) According to the 13th amendment to the constitution in 1978, both the central government and the provincial councils are responsible for the provision of water supply and sanitation facilities. The local authorities (LAs) in Sri Lanka are classified according to the following structure: • Municipal Council (MC) • Urban Council (UC) • Pradeshiya Sabha (PS)

In some parts of the country, LA’s operate and manage water supply schemes in their localities. LAs are also authorized to design and implement their own water supply and sanitation projects. In this respect, the role of the NWSDB is limited to the supply and provision of bulk water for an agreed rate to the LAs. Where the LA’s lack the technical expertise to design and implement water supply and sanitation projects on their own, the NWSDB gets involved in the provision of necessary technical expertise to design and implement these projects.

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Water Resources Board (WRB) Under Act No. 29 of 1964 the WRB is mandated to advise the MoIWRM, on the control, regulation and development, including conservation and utilization, of the water resources of the country. The agency is also tasked to advise the Ministry about prevention of pollution of rivers, streams and other water resources, formulation of national policies relating to the control and use of the water resources of the country. Some of the key objectives are indicated below: • The multi-purpose development and use of water resources; • The short and long term provision of water for domestic supplies and industrial supplies; • The control of salinity; • Preparation of comprehensive and integrated plans for the conservation, utilization, control and development of the ground water resources of the country;

• Co-ordination of the activities of government departments, local authorities, and public corporations in regard to surveys of basic data and other investigations relating to hydrogeology. Due to funding constraints and staff limitations, WRB functions are reduced and limited to groundwater investigations in specified areas such as the WRB Jaffna office. It is dependent on commercial drilling for demands created by the NGOs, the private sector and donor supported projects. According to the amended Water Resources Board Act of 1999, the WRB has the responsibility to advice the minster of MoIWRM in relation to; control, regulation and development of water resources, the prevention of water pollution; formulation of national policies.

Co-production is more institutionalised in the sanitation sector, where the nature of consumption – less networked coverage, widespread reliance on plot-level systems – implies greater need for more decentralised, household-level organisation. The construction, operation and maintenance of plot-level systems, which entails the capture, pumping, trucking, treatment and eventual disposal of large quantities of septage, is undertaken by both private sector firms and CMC.

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The most critical of institutions amongst many which deal with development, management and conservation of water are the Department of Irrigation (DI), Mahaweli Authority of Sri Lanka (MASL), Department of Meteorology (DM) and the Central Environmental Authority (CEA); each functioning under different Ministries of the central government. As set out earlier, in the absence of a water policy covering the overall water value chain, the institutions mentioned above have competed against each other to obtain water allocation rights in order to meet their respective objectives falling under its mandates. The Department of Irrigation (DI) The Department of Irrigation, which comes under the purview of MoIWRM, is primarily responsible for water resources planning, project formulation, construction and maintenance of surface water sources. It is also informally responsible for daily and seasonal allocation of water for irrigation.

With respect to Mahaweli Master Plan, it anticipates storing 7,400 MCM (6 mn Acre feet) of water in 15 reservoirs coming under the Mahaweli basin. The project area spreads over 13 administrative districts and covers about 39% of the land area in the country and of 55% of the dry zone area.

A key stakeholder for the department is the agriculture sector. Some of its key functions in relation to the agriculture sector include; construct irrigation and settlement projects for the purpose of cultivation for food production; protect cultivated land by constructing drainages, flood protection systems and salt water exclusion projects. The Mahaweli Authority of Sri Lanka (MASL). Established in 1979, the MASL currently operates under the MoIWRM. It’s main responsibility entail the implementation of the Mahaweli Master Plan covering the construction and operation of reservoirs, irrigation distribution system, installations for the generation and supply of electricity. As part of this plan, the MASL is also tasked with the maintenance and rehabilitation of irrigation networks, administration of land and enhancing the production of agriculture during the post settlement process.

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The Central Environmental Authority (CEA) The CEA was established in August 1981 with the objective of integrating environmental considerations in the development process of the country under the provision of the National Environmental Act No:47 of 1980. The CEA was given wider regulatory powers under the National Environment (Amendment) Acts No:56 of 1988 and No:53 of 2000. A key area of authority given to the CEA was the issuance of licenses through the environmental protection licensing (EPL) scheme. Such licenses require licensees to discharge pollutants in accordance with the standards mandated by the CEA to protect the environment and other relevant authorities. Currently, CEA activities are decentralized via regional offices while some of the CEA powers have been devolved to relevant local government authorities and other respective institutions.

Public Utilities Commission of Sri Lanka (PUCSL or the Commissions) The PUCSL is the authorized regulatory body set up to oversee the electricity, petroleum and water services in the country. Despite the Commission being assigned as the official regulator for the water service industry, in the absence of an industrial act, at present, the PUCSL does not have authority to regulate this sector. Nevertheless, the PUCSL has continually indicated its intentions to the MoWSD (currently acting in the capacity of the regulator for the industry). For this purpose, in 2008, the Commission provided inputs for the finalization of draft amendments to the National Water Supply & Drainage Board (NWSDB) Act designed to enable the regulation of the Water Supply and Sanitation Industry by the Commission.

The Department of Meteorology (DM) The Department of Meteorology is responsible for gathering rainfall information needed for estimating available water supplies nationwide.

June 2014

Appendix - 4 Sri Lanka is a growing economic and social hub situated on the main trade routes between Asia and the Middle East • Sri Lanka is an island nation

situated at the crossroads of major shipping routes connecting South Asia, Far East and the Pacific with Europe and the Americas. The location of the country is of strategic importance, as a part of the fast growing Indian sub-continent with the Colombo port ranked no. 32 amongst the Top 50 Container Ports in the world.

• The government of Sri Lanka (GoSL) has planned to transform Sri Lanka into a dynamic global economic centre by developing six strategic hubs; a knowledge hub, a commercial hub, a naval & maritime hub, an aviation hub, a tourism hub and an energy hub.

89



Key country facts

Name Democratic Socialist Republic of Sri Lanka

Location 880 km north of the equator, off the South-East coast of India

Total area 65,61 0 sq km (width – 226 km, length – 433 km)

Administrativ e capital Sri Jay awardenapura Kotte

Commercial capital Colombo

Population 20.3 mn (48.5% - male, 51 .5% - female)

Time zone GMT + 5.30

Ethnic groups Sinhalese (7 4.9%), Tamil (1 5.4%), Muslim (9.2%), Other (0.5%)

Religions Buddhist (7 0.2%), Hindu (1 2.6%), Islam (9.7 %), Christian (7 .4%), Other (0.1 %)

Languages Sinhala, Tamil, English

Currency Sri Lankan rupee (LKR)

June 2014

Sri Lanka economy at a glance

90



Liberal investment policies, attractive tax

concessions and investment incentives

One of the highest HDIs (.715) in the region

Forecast GDP growth of over 7% for 2014. Current GDP per capita of 3,282 (2012) is expected to reach USD 8,397 in 2022.

Leading institutions such as Bloomberg ranked Sri Lanka as one of the fastest growing economies and City Group identifying Sri Lanka as one of the 3G

economies (Global, Growth, Generators).

Relaxation of strict foreign exchange control and reforms of the BOI is set to further reduce red

tape

Ranked 85th out of 183 countries in the ease of

doing business rankings by World Bank

Infrastructure projects worth USD3.6 billion

have been budgeted by the Government for year

2013.

June 2014

With the end of the civil war, Sri Lanka has experienced rapid economic growth driven by the expansion of infrastructure, domestic demand and improved investor confidence

• Sri Lanka has witnessed a steady upswing in economic growth due to greater focus in rebuilding and developing the domestic economy with the end of the civil conflict.

• Average GDP growth between 2006 and 2013 was 6.7% with 7.5% GDP growth recorded in the past 4 years. According to the Economic Intelligence Unit, real GDP growth in 2013 is expected to be c.7% with a growth of 6.9% targeted for 2014.

• The stable economic performance of the country was also supported by growing expansion of infrastructure, improved investor confidence and domestic consumption.

As the economy stabilizes following the end of the civil conflict, long term growth for Sri Lanka is expected to be bullish, driven by high levels of capital inflows, the possibility of developing its trans shipment hub and a shift in labour from agriculture to higher value industries within the manufacturing and service sectors affording an increase in purchasing power.

• Inflation has also continued on a moderate path with inflation declining in 2013 due to supply improvements and prudent monetary management. Y-o-Y CPI inflation as at end 2013 was estimated to be 6.9% and expected to decline to 5.1% in 2014.

• The country’s GDP per capita of USD 3,282 in 2013 is expected to reach USD 8,397 by 2022 (Business Monitor International) indicating an improvement in living standards in the future.

91



0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2005 2006 2007 2008 2009 2010 2011 2012 2013(est.)

2014(for.)

GDP growth (in real terms) %

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2006 2007 2008 2009 2010 2011 2012 2013(est.)

US

D

GDP per capita (USD)

Source: CBSL

Source: CBSL

June 2014

Sri Lanka’s social indicators remain superior to other regional countries. However changes in demographic trends are likely to have an impact on more segments of the economy

• As the economy grows, unemployment and poverty indicators have also improved. Employment generation continued to increase with expanding economic activities and unemployment falling to 4.5% of labour force (H1 – 2013)

• Sri Lanka was also ranked 92nd in the world in the Human Development Index – the highest ranked country the South Asian region – advancing to the high human development category from the medium human development category.

• Thus, the country is on target to meet most of the Millennium Development Goals with the UNDP identifying Sri Lanka as an early achiever on 10 of the 21 indicators.

• Thus, the dependency ratio has declined, with c.1.6 working persons for 1 dependant person. The WHO estimates that by 2020, more than 30% of the population will be over 60 with c. 61 dependents per 100 adults.

• The country’s demographic transition will have a significant impact on key aspects of the economy including education, health and social security amongst others.

92



Demographic trends

• The 2011 Census of Population and Housing indicated a 0.7% decline in the annual growth rate of the population between 2001 and 2012. This is primarily attributed to a declining birth rate, low death rate and increasing outward migration.

• The population under 15 years has decreased from 35.2% in 1981 to 25.8% in 2011. Conversely, the population above 60 years has almost doubled by 2011 to 12.2%

Social indicators: regional countries

Sri Lanka India Bangladesh Nepal Pakistan Bhutan Maldives

Human Development Index 0.715 0.554 0.515 0.463 0.515 0.538 0.688

Population below poverty line % 15.2 27.5 40 30.9 22.3 23.2 n/a

Unemployment rate 4.2 2.5 4.5 2.7 5.9 3.1 11.7

Expectation of life at birth, years 75 66 69 69 66 68 77

June 2014

Fast growing rural urban migration is evident within the country, making sustainable urban development linking sectoral and regional development a necessity

Urbanisation and township

• Based on the 2011 Census, only 15.1% of the population live in urban areas with the urban landscape primarily consisting of small urban settlements along the coast. Business Monitor International (BMI) estimates 30% of the population to be living in urban areas by 2050.

• Albeit the smallest district in terms of size, the Colombo district remains the most populous and most urbanized. Colombo is the centre of the economic activity and as such, has attracted a large proportion of internal migration.

• Sri Lanka’s Urban Vision is to develop a countrywide system of competitive and well-linked cities in five metro regions (Colombo, North-Central, Southern, Eastern, and Northern) and nine metro cities (Ampara, Anuradhapura, Batticaloa, Colombo, Dambulla, Hambantota, Jaffna, Polonnaruwa, and Trincomalee).

• GoSL initiatives, particularly in relation to infrastructure development and the Colombo development plan, has done much to encourage further urbanisation of the city.

• The Colombo City development conceptual framework includes construction of housing, waterfront development and flood mitigation, improvement of basic urban infrastructure and city beautification. Other cities have also been earmarked for urban development to ensure balance to regional development throughout the island.

• Improving connectivity across the island is of paramount importance with the construction of several expressways, rehabilitation of the Northern railway and the opening of a second international airport. Thus, several secondary cities are emerging as a new urban centres e.g.. Hambantota.

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June 2014

GoSL has articulated a 5-hub concept (now 5+1 concept) to drive economic growth through the development strategically important economic zones: aviation, commerce, shipping, energy and tourism

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Naval hub •Colombo port – a container mega hub •Develop Hambantota port as a service and industrial port •Trincomalee – bulk cargo and port related industrial activites •Commercial harbour and fishing in Oluvil •Regional ports in Kankasanthurai and Point Pedro

Commercial hub •Establish Sri Lanka as economic centre for commercial services •Redefined Colombo city and port city in Galle Face •Development of Hambantota as an economic centre •Jaffna revival – Atchcuvely Industrial Zone, rebuilding of Northern Railway line and bridge between the South and Jaffna peninsula

Aviation hub •Major development of Bandaranaike International Airport (BIA) •Second international airport in Mattala •Development and upgrading of domestic airports

Tourism hub •Tourism earning to increase to USD 3.1 bn and tourist arrivals to increase by 2.5 mn by 2016 •Several up coming hotel projects in Colombo and the south coast •Sustainable tourism development the key focus •Restoration of old colonial buildings for commercial purposes

Energy hub •3 stage oil exploration project off the Southern Coast •Sri Lanka’s biggest wind power project in Uppudalawa •Develop renewable energy sources

Knowledge hub •75% ICT literacy by 2016 and IT sector as a key export earner • Plans for international universities to set up in Sri Lanka •Designated knowledge cities (Gampaha, Jaffna etc) •Provision of necessary infrastructure and cutting edge technology

June 2014

Increasing inward foreign direct investment flows (FDI) signal growing investor confidence in the country

• Sri Lanka has an open market economy and was the first country in South Asia to liberalize its economy. Although economic growth has been uneven due to domestic and global challenges, unburdened by the end of a civil war, Sri Lanka is expected to realize its economic potential over the coming years. Government policy is largely supportive of foreign investment, employing investment policies conducive for foreign investment.

• The post war boom and the subsequent opening up of the economy has led to increased investor confidence and improvements in Sri Lanka’s business rankings on global stage. According to the Doing Business 2014 report published by the World Bank and the IFC, Sri Lanka was ranked at no.85 of 189 countries in terms of ease of doing business. It is also ranked no.90 in the World Economic Freedom Index, higher than its regional comparators while the country’s credit rankings also remain higher than India and Pakistan.

Supportive investment policies

Investors are accorded investment incentives including:

• tax holidays,

• constitutional guarantees on investment,

• exemptions from exchange control and custom duty

• 100% repatriation of profits

• total foreign ownership provided on almost all economic segments

• bilateral investment protection agreements with 28 countries

• double taxation avoidance agreements with 38 countries.

• In 2013, Sri Lanka FDI surpassed US$ 1 bn for the third consecutive year recording FDI’s worth USD 1.5bn. The first three quarters of 2013 saw FDI of USD 870 mn via 55 projects across the country. The majority of investments were received for the manufacturing sector with China ranking as the biggest investor in the country.

• As such, the country’s Investment Promotions ministry is targeting USD 2.5 bn in 2014.

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June 2014

Sri Lanka’s 2014 budget highlights government commitment to developing the water sector as part of accelerating economic growth

• Sri Lanka’s 2014 budget which was passed in December 2013 indicated the Government objectives of accelerating economic development in order to be able to address the emerging aspirations and goals particularly of the low and middle income groups with better health and education, better standards in housing and healthy living, and focus on agriculture for food security.

• As such, the budget offers several proposals to promote the water sector.

Budget proposals 2014 - Water supply and sanitation

• USD 300 million has been invested to reduce nonrevenue water to 20% by 2016;

• Water connections to 1 million households are expected to be provided by 2016 via completion of on-going water supply schemes. LKR 300 million (USD 2 mn)is proposed to be allocated for community water supply schemes;

• LKR 2,300 million (USD 18 mn) has been proposed to rehabilitate paddy lands - this task including rehabilitation of tanks and minor irrigation schemes;

• LKR 1,700 million (USD 13 mn) proposed for downstream and livelihood development activities associated with recently developed reservoirs;

• LKR 900 million (USD 7 mn) allocated to provide water purification systems to villages in the North Central Province.

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June 2014

Key contacts

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Ministry of Irrigation & Water Resources Management 500, T.B.Jayah Mawatha, Colombo 10 Telephone: +94 11 2684710/ +94 11 2676844 Fax: +94 11 2676846

E-mail:

[email protected]

www.irrigation.gov.lk

Department of irrigation 230, Baudhaloka Mawatha, Colombo 07 Telephone: +94 11 2584 984 Fax : +94 11 2505890 Email : [email protected] www.irrigation.gov.lk

National Water Supply and Drainage Board Galle Road, Ratmalana Telephone: +94112638999, +94112611589, +94112637194 Fax: +94112636449 Email: [email protected] www.waterboard.lk

Water Resources Board 2A, Hector Kobbekaduwa Mawatha, Colombo 07, Telephone: +94112697050 Fax: +94-11-2696894 Email: [email protected] www.wrb.gov.lk

External Resource Department 3rd Floor, The Treasury Secretariat Building, Colombo 01. Telephone: +94112484500, +94112484600, +94112484700 Email: [email protected] www.erd.gov.lk

Mahaweli Authority of Sri Lanka No.500, T.B. Jayth Mawatha, Colombo 10. Telephone:+94112687491 Fax: +94112688340 www.mahaweli.gov.lk

Board Of Investment 24th Floor, West Tower, World Trade Centre, Echelon Square, Colombo 01 Telephone: +94112430626, +94112427086, +941112434403 Fax: +94112346629 www.investsrilanka.com

International water management institute (IWMI) 127, Sunil Mawatha, Pelawatte, Battaramulla Telephone: +94112880000, +94112784080 Fax: +94112786854 Email: [email protected] www.iwmi.org

mailto:[email protected]



June 2014

Key contacts

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Central Environmental Authority 104, Denzil Kobbekaduwa Mawatha, Battaramulla, Tel: +94117877277, +94117877278, +94117877279, +94117877280 E-mail: [email protected] www.cea.lk

Ministry of Environment and Renewable Energy 82, Sampathpaya, Rajamalwatte Road, Battaramulla Telephone: +94112865452 E-mail: [email protected] www.environmentmin.gov.lk

Ministry of Finance and Planning The Secretariat Building, Colombo 1, Telephone: +94-11-2484500, +94-11-2484600 , +94-11-2484700 Email: [email protected] www.treasury.gov.lk

Department of National Planning 1st Floor, The Secretariat, Colombo 01 Tel : +94112484566 Fax : +94112431620 www.treasury.gov.lk

Ministry of Land and Land Development "Mihikatha Medura",Land Secretariat, No.1200/6, Rajamalwatta Avenue, Battaramulla, Telephone: +94 11 2797500 Fax : +94 11 2887445 Email : [email protected] www.landmin.gov.lk


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Corporate Finance and Strategy Consulting

June 2014

Water sector of Sri Lanka

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