PACR of a project (8/86-6/92) to improve the management of irrigation systems in Sri Lanka. The project was implemented by the Ministry of Lands, Irrigation and Mahaweli Development (MLIMD), Irrigation Management Division (IMD), the Irrigation Department (ID), Sheladia Associates, Inc. (SAI), and the International Irrigation Management Institute (IIMI). The project was revised to include a performance-based disbursement element to leverage major institutional and policy reforms; the project disbursed $7 million in loan funds in three tranches. The PACD was extended to 9/30/92 to accommodate workshops to institutionalize lessons learned from the project's research studies; and again, to 12/31/92, to resolve minor shortcomings in fulfilling all of the requirements under the third and final tranche. The project transformed the ID from functioning purely as a construction agency to one which works with and through Farmer Organizations (FOs); enhanced the legal status and powers of registered FOs; and turned over the tertiary irrigation systems to Distributary Canal Farmer Organizations (DCFOs) for joint operations and maintenance. However, FOs need to pursue more income-generating activities to remain financially viable and sustainable beyond the PACD. Many FOs have started such activities as fertilizer sales, marketing paddy, and assuming mortgages with great success. It is anticipated that the System Level Farmer Organizations (SLFOs) could expand and improve their activities with some outside assistance and enter into income generating activities such as rice processing, storage and marketing, and wholesaling of inputs. It is expected that A.I.D.'s new Agro Enterprises Project may assist the more commercially oriented organizations to develop such activities. The project conducted a series of Project Review Workshops designed and supported by the Training Resources Group (TRG) under the Irrigation Support Project for Asia and the Near East (ISPAN). These were very effective, and one of the key elements to project success. (Author abstract, modified)