US-AEP Export Advisor - Sri Lanka: Environmental Market Analysis

Because of the relatively slow growth of industry in Sri Lanka, industrial pollution has not reached critical levels, except in a few areas. Sri Lanka suffers from resource depletion problems, such as deforestation and coastal degradation caused by the mining of coral reefs, deforestation, wildlife destruction caused by agricultural and industrial encroachment, poaching and tourism. Excess vehicle emissions, largely from reconditioned vehicles, are the main cause of air pollution. Unleaded gas is unavailable. Urbanization and industrialization have yielded environmental problems typical of developing countries, including land and water resources, forestry, energy, and urban and industrial pollution. The country is only beginning to address the need for a more comprehensive resource management plan, environmental regulatory and enforcement framework.

With the exception of the capital city of Colombo, there is a dirth of environmental information about the remainder of the country. Therefore, this report focuses mainly on metropolitan Colombo.

Colombo Metropolitan Area

Sri Lanka is an island rich in natural resources. Its population of 18 million also has a high literacy rate of 90%. The government has been mobilizing its limited resources to propel Sri Lanka into a competitive regional center. At the heart of this strategy is the development of the Colombo Metropolitan Area (CMA). CMA bears the brunt of the existing industrial and urban population, containing 25% of the island's population, over 70% of the country's industrial activities, and generating 40% of the total country's GDP.

The National Environmental Plan addresses several aspects of the development of Colombo Metropolitan Area.

Environmental Projects for the Colombo Metropolitan Area
in the National Environmental Plan

Preparation of a wastewater and sanitation master plan and a long-term solid waste management strategy for Greater Colombo
Preparation of a program for the rehabilitation of Colombo's natural drainage system, focusing on restoration of the Beira Lake, and addressing marsh filling and stream and canal reservation settlement
Preparation of a program for continuous monitoring of pollution levels in selected rivers and public education on the effects of pollutant buildup in water bodies
Preparation of a Water Resources Master Plan addressing the environmental issues related to water use

The World Bank is financing the Colombo Environmental Improvement project at a cost of $49 million. Below is a breakdown of project costs.

Colombo Environmental Improvement Project Costs

Sector	US$ millions
Municipal Solid Waste Management	5.8	6.7	12.5
Wastewater Collection Systems	6.7	2.4	9.1
Beira Lake Catchment Pollution Control	7.2	2.8	10.0
Technical Assistance
Project Preparation Advance	0.1	0.6	0.7
Implementation Support	1.1	2.0	3.1
Capacity Building	1.4	2.3	3.7
Total Base Cost	22.3	16.8	39.1
Physical Contingencies	3.3	2.4	5.7
Price Contingencies	2.5	1.7	4.2
Total Project Cost	28.1	20.9	49.0
Source: World Bank

Multilateral institutions work closely with government to strengthen institutional capabilities and help meet infrastructure needs. Below is the financing plan for the project. IDA financing will cover about 80% of total project costs.

Colombo Environmental Improvement Project Financing Plan

Financing Source	Local	Foreign	Total	%
IDA	18.1	20.9	39.0	80
Government of Sri Lanka	10.0	-	10.0	20
Total	28.1	20.9	49.0	100
Source: World Bank

MARKET ESTIMATES AND ANALYSIS

Environmental Business International estimated the total environmental market in Sri Lanka at around $50 million in 1995. Water utility revenues account for nearly half of total estimated revenues.

Environmental Market Breakdown

Market Segment	US$ millions
Equipment
Water Equipment & Chemicals	5
Air Pollution Control	5
Instruments & Monitoring Systems	2
Waste Management Equipment	1
Process & Prevention Technology	1
Services
Solid Waste Management	5
Haz Waste Management	0
Consulting & Engineering	3
Remediation	0
Analytical Services	1
Water Treatment Works (municipal & industrial)	10
Resources
Water Utilities	20
Total	53
Source: � Environmental Business International, Inc. (San Diego, California)

Because of the relatively limited market size, there are very few environmental consulting and engineering companies competing for business. Environmental Resources Management (U.S.) thus far is the only major global environmental company with a local office.

GOVERNMENT ACTION

The Central Environmental Authority (CEA), created in 1982, functions under the Ministry of Transport, Highways, Environment and Women's Affairs. CEA is the central agency with a policy and regulatory mandate. The National Environmental Steering Committee (NESC) oversees and coordinates all environment-related programs, plans and projects. Municipal, urban and local government administrations are responsible for enforcing environmental standards within their respective jurisdictions.

The government issued a National Environmental Plan in 1991, which set a framework for enhancing sustainable development and addressing emerging pollution problems and environmental degradation. While the legislation covers an array of environmental concerns, there is a fundamental lack of implementation and enforcement. CEA is short on financial resources and institutional capabilities. Moreover, local governments give little, if any, attention to environmental programs.

Note: Environmental Business International provided the environmental market analysis and statistical data, using EBI's market segmentation framework. The EBI analysis is based on independent primary and secondary research, as well as information provided by the US-AEP. Other information in this report is based on published articles appearing in EBI's regional newsletter, Asia Environmental Business Journal, and other references as listed above.

Sri Lanka: Environmental Market Analysis