$60 Million Additional Loan for Water Supply Project in Sri Lanka

News Release | 13 December 2006

MANILA, PHILIPPINES - ADB is lending an additional US$60 million to support a project that is helping increase access of the poor in three provinces in Sri Lanka to safe water and sanitation.

The loan will help the Secondary Towns and Rural Community-Based Water Supply and Sanitation Project, approved in 2003 with a $60.3 million loan, achieve its objective of bringing clean water to nearly a million people and better sanitation to more than 170,000 people.

The project is providing water in four urban areas - Batticaloa and Muttur in the North-East province, Polonnaruwa in the North Central province, and Hambantota in the Southern Province. Most of the people in these areas are vulnerable due to years of conflict and the impact of the December 2004 Indian Ocean tsunami disaster.

The project is also carrying out a rural water supply program in the North Central and North-East province, and is helping the National Water Supply and Drainage Board improve its operational and financial efficiency.

"By improving access to safe water and sanitation, thereby decreasing waterborne diseases and reducing the amount of resources spent on these, the project is helping reduce poverty and promote human development," says Tatiana Gallego-Lizon, an ADB Urban Development Specialist.

Project costs are exceeding the original estimate because of a rise in prices of construction materials particularly after the tsunami, underestimation of some costs during appraisal, engineering and design modifications, and increases in government taxes and duties. From $86.3 million, the project is now estimated to cost $175.2 million.

"Without additional loans, the project would be unable to meet its objectives," adds Ms. Gallego-Lizon.

The new loan will be composed of a $46.5 million loan from ADB's concessional Asian Development Fund (ADF), and $13.5 million from its ordinary capital resources (OCR). Of the ADF loan, $18.5 million will come from unutilized amounts of closed loans to the Government of Sri Lanka.

The ADF loan carries a 32-year term, including a grace period of 8 years. Interest is charged at 1% per annum during the grace period and 1.5% per annum subsequently. The OCR loan has a 25-year term, including a 5-year grace period. Interest is based on ADB's LIBOR-based lending facility.

The Government will provide a total of $51.8 million equivalent to meet the project's new total estimated cost. The beneficiary communities will shoulder $3 million equivalent. The project's target completion date has been moved from March 2009 to December 2009.