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LESSONS:

Plantation Development Project

sector: Agriculture, Natural Resources, and Rural Development | country: Sri Lanka

First, delays were avoidable if the project preparatory technical assistance (PPTA) financing percentages had been retained. During the loan appraisal and negotiation phase, the recommended financing percentages of the PPTA of 70% ADB-30% regional plantation company (RPC) for social amenities and 90% ADB-10% RPC for the social development programs were adjusted to 50% ADB-50% RPC, resulting in RPCs not participating. Given the weak balance sheets and the lack of profitability, the desire for greater ownership through increased financial contribution was inconsistent. The subsequent increase in ADB financing overcame the issues, and implementation proceeded rapidly over 3 years. Second, there was unnecessary design complexity and add-ons. The core project components relating to investment and social objectives were coherent and achievable. The inclusion of additional inputs for the development of Tea Association of Sri Lanka (TASL), marketing alliances, and demand-based public research were not client-driven nor demanded, lacked appreciation of the commercial and proprietary rights attached to market relationships, and research findings as contributing factors for achieving competitive advantage.

Further, there were insufficient financial and governance benefits to merit insistence on an international fund manager when the size of the fund was extremely limited and the duration of funds available for investment short. In addition, project outcome and impact indicators were poorly defined in terms of sustainability and what this represented. There was inadequate consideration of sector financial risks, including wage inflation, and political risks relating to price escalation in the sector. A major cost item, the inflation adjustment formula for RPC leases, was not reflected in the institutional nor design framework.

The use of a credit line was an effective implementation modality. Significant advantages from longer loan periods, grace periods, and fixed interest rates during a period of high and rising interest rates and markedly lower capital availability supplied a definite demand. The use of fixed interest rates during the current period of declining interest rates has, however, increased the requests for early repayment. THe Development Finance Corporation of Ceylon (DFCC), the Ministry of Finance, and Ministry of Plantation Industries (MPI) should consider the option of interest rate adjustment to outstanding loans. Similarly, the apex body agreement did not adequately cover for the recycling of early repayments, and, as such, interest earned and loan repayments can be retained by the apex body. Participating financial institutions (PFIs) are required to pass early repayments back to the apex body.

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