FILE C OPY Report No. 1103-RO Appraisal of the Riul Mare-Retezat Hydropower Project Romania March 17, 1976 ProjectsDepartment Europe, Middle East and North Africa Regional Office FOR OFFICIALUSEONLY Documentof the World Bank This document has a restricted distribution andmay beused byrecipients onlyin theperformance of theirofficial duties. Its contents may not otherwise bedisclosed without WorldBank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
FILE C OPYReport No. 1103-RO
Appraisal of the Riul Mare-RetezatHydropower Project RomaniaMarch 17, 1976
Projects DepartmentEurope, Middle East and North Africa Regional Office
FOR OFFICIAL USE ONLY
Document of the World Bank
This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS(As of March 1976)
Currency unit = leu(s), lei (pl)
lei 20 = US$1.00lei 1 = US$0.05lei 1,000,000 = US$50,000US$1 = lei valuta 4.97 in convertible
currency terms= lei valuta 6.67 in Comecon
currency terms
WEIGHTS AND MEASURES
m = meter = 3.28 feetkm = kilometer = 0.62 mileha = hectare = 2/47 acresi 3 cubic meter = 1.31 cubic yardskWh = kilowatt hour = 3,414 British thermal unitsGWh = Gigawatt hour = 1 million kWhkW = kilowatt 1 thousand wattsMW = Megawatt = 1 thousand kWkV = kilovolt = 1 thousand voltst = metric ton (tonne) = 1.1 US tons = 2,204.6 pounds1 = litercm = centimeteratm = atmospheremin = minute of timek/cm2 = kilogram per square centimetermt/s cubic meter per secondhr = hour
GLOSSARY OF ABBREVIATIONS
I.B. = Banca de Investitii (Investment Bank).CIEET = Centrala Industriala a Energiei Electrice Si Termice
(Industrial Central for Electric Power and Heat).MEE = Minislaubii Energiei Electrice (Ministry of Electrical
Energy).ISPH = Institutul de Studii si Proiectari Hidroelectrice
(Institute of Hydroelectric Studies and Designs).tSCM = Santier Constructu Montaj (Distribution Construction
Department).ISPE = Institutul de Studii si Proiectari Energetice
(Institute of Power Studies and Designs).
Government of RomaniaFiscal Year
January 1 to December 31
FOR OFmFCIAL USE ONLY
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
Table of Contents
Page No.
STARY ...... ......... .. i-ii
I . INTRDDUCTION ....................................... ......... 1
II. THE POWER AND ENERGY SECTOR . .. .. ...... 2
A. Power and Energy Resources . ................. 2B. Power and Energy Sector ..................... 4C. The Development Program ..................... 8
III. THE PROJECT ...................................... 9
IV. THE PROJECT ENTITY ............................... 16
V. FINANCE ... ....................................... 16
A. Past Performance and Present Positionof the Sector ........ ................. . 16
B. Financing Plan .............................. 18C. Future Performance ........... ............... 20D. Accounts and Audit . ........................ . 21
VI. BEMEFITS AND JUSTIFICATION .... .................. 21
VII. AGREEMENTS REACaED AND RECOMENDATI(O ............ 23
This report was prepared by Messrs. J.N.M. Green (Engineer), P.A. Cordukes(Financial Analyst) and R. Bloor (Consultant).
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. 1I contents may not otherwise be disclosed without World Bank authorization.
Table of Contents (cont'd)
ANNEXES
1. Council of Ministers of the Socialist Republic of Romania - Decision2. Energy Generation, Sales History and Forecast3. Electric power tariffs4. Electric Power System Capability and Maximum demand5. Electric Power Sector Planting History and Forecast6. Civil Engineering Design Aspects of the Project7. Capital Estimate as of December, 19758. Statement concerning tConvention" regulating riparian interests9. Program of Execution10. Estimated Schedule of Disbursement11. An Extract from the Ecological Report on the Impact of the Project12. Income Statements for the Years 1973-198513. Balance Sheets for the Years 1973-198514. Sources and Applications of Funds 1973-198515. Notes and Assumptions for Financial Forecasts16. Justification17. Comparison with Alternatives
MAPS
Electricity System (IBRD 11790)Riul Mare-Retezat Hydropower Project (IBRD 11791)
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
Summary
i. This report appraises a hydroelectric power Project for the Govern-ment of Romania. The Project comprises a clay-cored rock-fill dam 173 metershigh to be constructed on the Riul Mare river. It includes a 335-MW tnder-ground power station, Retezat, with two generating units and a smaller 14-MWpower station at Clopotiva. Retezat is in the Transylvanian mountain regionof Central-West Romania.
ii. The total cost of the Project is estimated to be US$250.1 millionequivalent having a foreign exchange content of US$54 million towards whicha loan of US$50 million is proposed. This amount would represent about 20%of the estimated cost of the Project and about 93% of the foreign exchangecosts. The remainder of the finance will come from internal sources of theIndustrial Central and the State Budget.
iii. The Project is a part of the 1976-80 5-Year Plan of the IndustrialCentral for Electric Power and Heat (CIEET) which collates and coordinatesthe power sector production and investment plans for the Ministry of ElectricalEnergy (MEE). Execution of the Project will be the responsibility of theHatzeg generating enterprise which has been established specifically for carry-ing out the Project and associated future power developments. As in the caseof the first power loan 1028-RO, the Turceni Thermal Power Project, the Minis-try's design institutes and construction trusts will design and construct theProject works, and the loan will be made to the Investment Bank (IB). Construc-tion started in the last quarter of 1974 with the upgrading of access roads.The generating units are expected to be installed by the end of 1981 and thedam construction to be completed in 1903. A detailed study of the impact ofthe Project on the ecology of the area has been made. The Bank will seek theGovernment's agreement to reduce to a minimum the adverse impact of the Projecton the environment. The proposed arrangements for the organization and imple-mentation of the Project are acceptable.
iv. Demand for power is expected to have increased 10% in 1975, about7% p.a. in 1976-80 and 6% thereafter to 1985. The objective of the Projectis to supply a part of the peaking power needs of the system. The plant willcontribute directly and indirectly 469 MW and 739 GWh p.a. to the system inan average water year. In 1985, the system primary peaking demand will beof the order of 3,200 MW towards which the main hydro peaking stations in-cluding the timely Riul Mare-Retezat Project would contribute 1,800 MW.
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v. The Romanians have proposed a suitable list for the selection ofcontracts covering goods to the full value of the loan, suitable for interna-tional competitive bidding under the Bank's guidelines. It is expected thatRomanian suppliers would compete successfully such that local currency ex-penditures totalling about US$39 million will be covered under the loan.
vi. The CIEET's financial performance in 1973 and 1974 was not as goodas expected. The rates of return on average net fixed assets and workingcapital declined from 4.6% in 1973 to 2.9% in 1974 compared with rates of about5-6% expected at the time of the Turceni Appraisal. However, if taxes aretreated as a debt service item and not as an operating expense, these ratesof return improve to about 9%. Despite difficulties in meeting planned tar-gets over the last 2 years these results still reflect satisfactory financialperformance. The CIEET investment plans for the Project construction period1975-81 will require about IJS$4.4 billion. Internal sources are expected tofinance 33%, the State Budget 64% and IBRD loans including the proposed loanabout 3%. The forecasts for 1975-85 show the average contribution to invest-ment from internal sources would be 31%. This level of performance wouldbe satisfactory in the Romanian context. As the power sector plans are inte-grated with those of the rest of the economy, changes in the demand for fundsin the power sector are absorbed by the State budget. Tariffs and prices arereviewed as part of the long-term planning process and any changes are reflectedin the forecasts for the economy as a whole thus preventing distortion duringplan implementation. Therefore, the Bank expects that the Government will re-view electricity tariffs at 5-year plan intervals. The Government has describedits current policy and plans for the financing of the power sector and hasagreed in a supplemental letter to continue to furnish financial and economicinformation to enable the Bank to evaluate benefits of the Project.
vii. Though the Romanians used a mathematical model in 1972 to simulatethe power sector development which pointed to the need and appropriateness ofthe Riul Mare-Retezat Project to meet system primary peaking demands, themission was not able to verify the result. The Borrower has agreed to provideto the Bank an analysis of the future electric power sector development com-plete with data and methodology used, before requesting it to consider fi-nancing a further power project in Romania. A comparison with alternativegas turbine and pumped storage projects showed the proposed Project to beattractive. The economic rate of return is estimated to be 6-1/2%.
viii. A statement by Romania quoting from an existing relevant agreementwith Hungary declares that the Project does not infringe on the riparian rightsof Hungary.
ix. In the circumstances of the agreements reached, the Project is suit-able for a Bank loan of US$50 million to the Investment Bank with the guaranteeof the Government of Romania. A term for the loan of 20 years including 5years of grace is proposed.
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
I. INTRODUCTION
1.01 The Government of Romania has requested a loan from the Bank tofinance the Riul Mare-Retezat Hydroelectric Project (the Project). Formingpart of the development plan of the electric power sector, the Project is tobe executed by the Hatzeg Enterprise which itself is an organ of the Indus-trial Central for Electric Power and Heat (CIEET) under the control of theMinistry of Electrical Energy (NEE). The Investment Bank (IB) will be theBorrower.
1.02 The Project comprises a clay-cored, rock-fill dam across the RiulMare river with supplementary diversions of neighboring streams dischargingthrough a headrace tunnel to an underground power station with 335 MW ofplant delivering 605 GWh p.a. which in turn discharges in direct cascade toan above ground power station having 14 MW of installed plant delivering 25GWh p.a. Cascade power generating schemes on the Riul Mare downstream to itsconfluence with the Strei river and thence along the Strei to its confluencewith the Mures river (Map IBRD 11791) can be enhanced by 141 MW of power and111 GWh p.a. of energy output as a consequence of the water stored and re-gulated by the Project dam. Connections will be made with the main 220-kVtransmission network.
1.03 The Project is estimated to cost US$250.1 million equivalent. Theforeign cost is estimated to be US$54 million towards which a loan of US$50million is proposed.
1.04 Finance for the Project was assured at the time the Council of Min-isters approved the principal techno-economic indicators (para. 3.07) relatingto the investment. This approval was granted on December 20, 1974 by a "Deci-sion" signed by the President of the Council of Ministers. The documentdetails the main parameters of the Project: physical, financial and opera-tional as well as delegating certain powers and discretions to facilitate itsexecution (Annex 1). However, the Government has requested Bank assistancein meeting the foreign cost component.
1.05 The Bank has made one loan for the development of the Romanian powersector; Loan 1028-RO of US$60 million in 1974, for a 1320-MWf steam powerplant burning lignite, including transmission lines at 400 kV and 110 kV some600 km in length, and an associated switching station. Apart from disburse-ment delays related to unfamiliarity with international competitive biddingprocedures, the project is progressing satisfactorily.
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1.06 This report is based on a technical and economic study prepared bythe Institute of Hydroelectrical Studies and Desizns (ISPH) of the MEE entitled"Riul Mare-Retezat UHE - Technical Economical Synthesis Studv" dated March 1975,and the findings of a Bank mission consisting of Yessrs. 2. GrCe1. . C&ordukesand R. Bloor (Consultant) which visited Romania from June 4 to 24, 19715.
1.07 Whereas the appraisal of the first power loan was carried out throughthe MEE, this appraisal was undertaken largely with the assistance of theInvestment Bank. The arrangement restricted the mission's access to informa-tion and staff of the MEE who were better acquainted with the Bank's require-ments for power sector loans, following the experience with the first loan.The appraisal reflects the best judgments of the mission on the basis of theinformation obtained.
II. THE POWER AND ENERGY SECTOR
A. Power and Energy Resources
2.01 Romania is nearly self-sufficient in energy resources which areprincipally crude oil, natural gas, coal, lignite, and hydroelectricity; someof this last is on international borders and shared with riparians. In addi-tion, bituminous shale and geothermal resources are being investigated andmay prove to be exploitable.
Crude Oil
2.02 Crude oil production is approximately 14.5 million tons p.a. andimports have risen gradually, standing at about 6 million tons in 1974. Ex-ports of refined petroleum products have risen in parallel with imports andwere 4.6 million tons in 1974. Whilst the known indigenous reserves of oilare expected to last only through this decade at the present rate of extrac-tion, oil exploration including off-shore drilling in the Black Sea is inhand, but prospects are uncertain.
Natural Gas
2.03 Natural gas reserves are estimated to last a further 30-50 yearsat the present 30 billion m3 p.a. extraction rate. In recognition of thedwindling reserves of oil and gas, the cost of oil in foreign exchange andthe value of gas as a chemical feed stock, the Government has placed anembargo on their use for heating purposes in new plants including power sta-tions. W4here possible, plants using oil or gas for heating are required tobe converted to an alternative fuel.
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Fossil Fuels
2.04 Th- fossil fuel reserves are 90% lignite; 3,000 million tons areestimated to be exploitable with present techniques, that is about one thirdof the total deposits. Nearly all the lignite is found in Oltenia where by1985 the ultimate capacity of the field is likely to be developed at 54 mil-lion tons p.a. Of this output only 10.6 million tons p.a. is uncommitted andavailable for use in plants to be commissioned in the period 1980-85. Theuse of bituminous shales to the extent of 1.4 million tons p.a. is proposedalthough the technology for its successful application is still not adequatelydeveloped.
Hydro
2.05 The hydro resources of Romania are assessed at 12,300 MW capableof providing 37,000 GWh p.a. from some 630 sites. Of this, 2,400 MW and 12,300GWh p.a. is Romania's share of five installations on the river Danube. By1975, 2,622 MW (22%) of the hydro resources had been developed and becomeoperational, and the Iron Gates I station on the Danube contributes 40% of this.A further 1,800 MW (15%) of the resources is either under construction or com-mitted. Of the uncommitted balance (7,878 MW), 17% is located in four siteson the Danube and the remainder would need to be exploited in some 580 siteshaving an average capacity of 11 MW and only a few of these will individuallycontribute appreciably to the system capacity whilst most are at present tooexpensive to justify development. The Riul Mare Project is the largest of theremaining sites which can be exploited at an acceptable cost.
Geothermal
2.06 A new impetus has been given to the search for geothermal resourcesin commercial quantities, but no information on this subject was made avail-able.
Existing Facilities
2.07 By 1974, the total installed plant capacity of Romania of which 96%is interconnected, was 10,676 MW delivering 46,301 GWh p.a. and meeting asystem demand of 7,470 MW during the December peak period. The apparentlylarge plant margin is a result of the restrictions introduced in November 1973to cope with the oil crisis resulting in a reduced growth of demand. Detailsof generation and sales 1970 to 1974 are given in Annex 2. The largest unitsizes now being connected to the system are of 330-MW rating. Hydro plantcontributed 2,383 MW (22%) of system capacity and 8,399 GWh (18%) of theenergy. The interconnected system is shown on Map IBRD 11790 annexed hereto.
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International Power Connections
2.08 International power connections exist with Hungary at 400 kV, withCzechoslovakia at 400 kV through USSR, with Bulgaria at 220 kV and a secondlink with Yugoslavia is in preparation but not yet connected. At present,exports of electric energy to Czechoslovakia, in payment for plant supplied,are the main international transfers. Under this contract 2,000 GWh p.a.are being exported to Czechoslovakia until 1980. Imports of energy and ca-pacity are small and no reliance is placed on them.
B. The Power and Energy Sector
Organization of the Power Sector
2.09 The Ministry of Electrical Energy (MEE) administers the sector througha board comprising the minister, three deputy ministers and the various direc-tors of subordinated organizational units. The NEE presently employs in ex-cess of 100,000 personnel and is responsible overall for the research, plan-ning, design, construction and operation of all public power supply installa-tions in Romania.
2.10 Among the various units subordinated to the NEE are design and re-search institutes, training centers, construction trusts, foreign trade enter-prises and a national dispatch center. It is the design institutes and theconstruction trusts which are responsible to the MEE for the preparation,design, construction and supervision of major power projects in Romania,including the Riul Mare-Retezat Project.
2.11 Power generation, transmission and distribution facilities are op-erated by enterprises which report to the Industrial Central for ElectricPower and Heat. (In addition to selling electric energy, some of the generat-ing enterprises also sell heat, in the form of steam, to industrial and agri-cultural undertakings.) The Central collates the 5-year and annual investmentand production plans of the enterprises, which are then submitted to the MEE.Each enterprise prepares monthly production statements and balance sheets forthe Industrial Central, which serves as the head office of the enterprisessupervising their activities and reviewing their finances. The IndustrialCentral has a staff of about 160 and is directed by one of the deputy minis-ters of the NEE.
2.12 There are 16 generating enterprises employing about 17,000 staffand 17 distribution enterprises with about 28,000 staff. A generating enter-prise is a self accounting unit responsible for a single plant or a group ofgenerating plants covering a manageable regional area and distinguished by itsthermal and hydro character. The distribution enterprises are similar, butwithin each is a distribution construction unit (SCM). Distribution worksup to 110 kV are designed by staff of the enterprises but the SCM units carry
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out the construction. The SCM units employ about 4,000 staff and are inde-pendent self-accounting departments of the distribution enterprises. Thereare also two manufacturing/repair enterprises (about 4,000 staff) which sup-ply and service the generation and distribution enterprises.
Legislation
2.13 The organizational units of the MEE including the Industrial Centraland its enterprises are basically subject to the same legislation 1/ as thatwhich regulates and controls all economic units in the Romanian socialist sys-tem. Some of this legislation, which is implemented through Ministry of Fi-nance instructions, covers matters ranging from depreciation rates, classifica-tion of accounts, distribution and payment of benefits, to the preparation offinancial reports for the Central.
2.14 The Ministry of Electrical Energy has its own statutes or regulationswhich prescribe the functions and use of electric energy. They incorporate thetariff rates, conditions of supply and instructions on the application of theregulations.
Management and Management Systems
2.15 Each enterprise is headed by a General Assembly of the Working Peoplewhich is represented by a Working Peoples Committee and an Operating ManagementCollective. The Assembly generally meets twice a year. Similarly, the manage-ment and direction of the Industrial Central and all other organizational unitsof the MEE is directed by representatives of the people. Executive responsi-bility is in the hands of the general manager, (who is appointed by the min-istry), assisted by an executive board. In the case of the NEE, the ministerand the heads of the respective organizational units have executive authority.
2.16 The best evaluation of the competence and the adequacy of the man-agement and staff can be gauged from the performance of the sector. The min-ister and the deputy minister of the MEE are technical specialists who havebeen appointed from within the electric power sector, as is generally thepractice in technical sectors. Despite the very rapid growth of the systemover the last decade, staff of the enterprises appeared competent and knowl-edgeable, exercising delegated authority and responsibility. Performancetrends per employee have been consistently upward in the past decade. Al-though this undoubtedly reflects the general growth in the sector (e.g. in-creasing sizes of generating units), the general impression gained is one ofincreasing efficiency combined with productivity gains. Management methodsand decision-making processes, while following a procedural code and con-strained by the dictates of standardization, employ modern tools and methodsfor data collection and evaluation. The design institutes and the construc-tion trusts of the MEE have proven performance records and they seem to belargely independent of foreign consulting services.
1/ Law No. 11/71 - covers organization and management of the Centrals andEnterprises. Decree No. 76/73 - covers organization and management of theMinistries and other State Bodies.
6
Insurance
2.17 Insurance of normal business risks is not practiced in Romania.However, enterprises do set aside a small share of benefits (para. 2.20) tocover unforeseen events. This reserve is sufficient to meet minor loss ordamage. The Government acts as its own insurer supporting enterprises whichsuffer major losses arising from events beyond their control. Where normalbudget provisions are not adequate to meet the cost of replacement of a majorasset, specific provision is made in the next State Budget.
Tariffs
2.18 Tariffs are approved by the Council of Ministers and are uniformthroughout the country. They have been virtually unchanged since 1963 ex-cept for some restructuring as from January 1974 which introduced additionaldifferential tariffs for low, medium and high voltage consumers (Annex 3).These changes were expected to increase revenues by only about 1% in 1975 andprovide an average revenue per unit sold of .321 lei or US1.6 cents equiva-lent. This restructuring has helped to better reflect the cost of supply indistribution tariffs. Over 95% of the 4.8 million consumers are domestic whouse about 8% of energy generated and provide about the same proportion ofrevenues. On the other hand large industrial consumers use more than 70% ofgeneration and provide about 66% of the revenues. In recent years tariffshave adequately covered operating and administration costs and provided abouthalf of future investment needs. Little information was obtained on the ex-tent to which the tariff structure reflects the marginal costs of supply.It is clear that the Government broadly aims to keep power prices as low aspossible to foster industrial growth. During the next 1976-80 plan periodit is not proposed to increase tariffs; any increases in costs are expectedto be absorbed. Therefore tariff yields are expected to decline in realterms up to 1980. After 1980 the proposed joint developments with neighbouringcountries, Iron Gates II and Turnu Maguarele with Yugoslavia and Nicopole withBulgaria are expected by the MEE to increase efficiency and reduce averagecosts of production.
Financing of the Sector
2.19 Being part of a centrally planned economy, the power sector finan-cial plans are integrated with those of all other sectors to form the Socio-Economic Plan. This plan covers a 5-year period, currently 1976-80. Priorto the commencement of each year, the annual production and investment plansfor each sector are collated and submitted by each Ministry to the StatePlanning Committee and the Ministry of Finance, which coordinate all financialneeds into a Financial Plan. The main component of the Financial Plan is theState Budget but the Financial Plan also includes self-financing of enterprises,funds from depreciation, and foreign funds. The Socio-Economic Plan, the Fi-nancial Plan and the State Budget are submitted through the Council of Minis-ters for the approval of the National Assembly whereby they achieve the status
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of law. Finance required to meet the production plans is allocated from State
Budget funds by the National Bank. Each enterprise is allowed a "minimum'normal working capital calculated according to a prescribed formula and anyadditional requirement can be obtained from the National Bank as a short termloan. These loans are subject to a nominal rate of interest (2 to 5%) and areavailable for periods of up to a maximum of 12 months.
2.20 The distribution of benefits or net income is planned when the an-
nual production plan is prepared. The first priority is a minimum contribu-tion of 10% of net income, payable to the State Budget. The xworkers' share
of benefits, if the planned level of benefits has been attained, is then also
paid. This benefit normally amounts to 2% of the annual net wages bill and
is increased or reduced proportionally to the degree to which planned benefitsare exceeded or not met. Loans and working capital must be repaid and the
Industrial Central then receives a portion of benefits, sometimes as much as70-80%, towards its re-investment requirements. Between 1% and 4% is left to
each Enterprise to improve social amenities and to cover capital revairs andother minor investments. There is also a reserve fund not exceeding 0.5% to
meet expenditures on representation and unforeseen expenditures. Should there
be any balance remaining after the first distribution of benefits, a seconddistribution is made but the amount allocated to the State Budget is shared
equally with the local administration budget. If an enterprise is unableduring the year to meet the planned distribution payments or other commitments,and it is required to borrow additional working capital, such funds are sub-ject to a penalty rate of interest of 12%. The determination of the level of
planned benefits is thus a fundamental part of the total planning process,any decisions to vary earnings will have an impact not only on funds available
for reinvestment in the sector, but also on the State Budget and the Financial
Plan for the country, and most importantly on the workers.
2.21 The investment plans are prepared separately from the productionplans and are based on projects approved by the delegated authority; theenterprise, the Industrial Central, the MEE or the Council of Ministers.Projects estimated to cost in excess of 70 million lei (US$3.5 million equiv-
alent) are approved by the Council of Ministers after careful vetting andanalysis by the MEE, the Investment Bank and the State Planning Cornittee.Projects estimated to cost 30 million lei and up to 70 million lei are ap-
proved by the MEE; projects estimated to cost 10 million lei and up to 30million lei by the Industrial Central. Up to 10 million lei, projects can
be approved by the enterprise.
2.22 Investment expenditure is financed firstly from internal sources,a predetermined portion of planned benefits, depreciation funds and othersources (largely the sale of scrap material and obsolete equipment). Theremainder is provided by way of allocations from the State Budget or in the
form of loans from the Investment Bank. The latter at the present time are
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not significant in amount. However, the Investment Bank does play a signi-ficant role in the allocation and expenditure of all investment funds in thatit is responsible for authorizing all investment expenditures in accordancewith the approved plans. It has staff in all districts who review theprogress of investment projects, ensure that expenditures are properly au-thorized and finally arrange the transfer of funds effecting payment.
2.23 In practice the Industrial Central coordinates the sector finances.Each enterprise pays its depreciation, planned share of benefits and taxestwice monthly from its revenues. Depreciation funds, which are treated asreal expense items, are paid to the Investment Bank for the credit of theIndustrial Central, and other items to the National Bank for the credit ofthe State.
C. The Development Program
2.24 The power sector development program is evolved by the MEE usingits specialized agencies: the Institute of Power Studies and Designs (ISPE),and the Institute of Hydroelectric Studies and Designs (ISPH), which use datasupplied by the various generating and distributing enterprises throughoutthe country. The power development plans are closely coordinated with the5-year national development plans and are reviewed annually. The presentcycle ends in 1975 to be followed by the 1976-1980 plan. Annex 4 shows theplanned generation plant development and Annex 5 gives the make-up in greaterdetail. Since the oil crisis in 1973 there have been several revisions ofthe load forecasts, each successively more conservative; but the planting pro-gram has not yet been adjusted to reflect the lower requirements. This reporthas assumed annual sales increases of 7% for the years 1976-80 followed byincreases of 6% to 1985, which are conservatively realistic and use as astarting point the forecasts for 1975. On this basis, the system firm plantcapacity in 1976 will be greater than needed by about one year's demand growth.By 1983 some 4,900 M of installed plant would be in excess of the system needs(some 3 years too soon) if the rate of development does not exceed the assump-tions which are at the low end of the probability range. ISPE has mathematicalmodels for the study of the economic development of the power system as wellas for the analysis of plant reserve margins, system demand forecasting, etc.,which are based on up to date techniques as used in other countries havingsystems of similar and greater complexity. Their methods have been presentedat international conferences. The Bank has sought and obtained the Borrower'sagreement to provide an analysis of the future electric power sector develop-ment. Such analysis, including the data and methodology used, is to be providedto the Bank before requesting it to consider financing a further power projectin Romania.
2.25 The power development plan provides for maximum utilization ofindigenous lignite and hydro resources. By 1980 some 3,930 M1 of lignite-fuelled plant will be consuming about 33 million tons p.a. Allowing that
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after 1980 the second stage of the Turceni project will be commissioned re-quiring 11 million tons p.a., the full potential of the Oltenia deposit, whichcontains nearly all the country's reserves, will have been absorbed unlessthe life of the lignite field is reduced from 70 years as now foreseen.
2.26 The development of hydro resources is geared, as one would expect,to the preferential exploitation of those giving the higher return on invest-ment and limited to those comparable with their appropriate thermal alterna-tives. With the exception of Danube river schemes (1350 H4), the remaininguncommitted hydro potential (7878 MW) is best suited for development to meetthe system peaking demands.
2.27 The commissioning of 440 MW of nuclear plant in 1981/82, followedby 1,090 MW in 1983 and 650 MW in 1985, is planned. Negotiations are activelyin hand for the supply of equipment, know-how and manufacturing licences.
2.28 The extension of supplies to the rural community has been activelypursued since 1960 and is now virtually complete excepting only such remotelocations as are unlikely to be connected to the main system. For practicalpurposes electric power is available to all inhabitants of the country.
IIT. THIE PROJECT
A. Objectives
3.01 The Project is the key component of a cascade development on theRiul Mare and Strei rivers. It is designed to supply a part of the peakingpower needs of the system and all cascade stations will serve the same pur-pose, except that at any stage of development, the lowest station will serveto reregulate the flow in the river downstream of the cascade and supply baseload power.
B. Description
3.02 The Project comprises the following works (see map IBRD 11791).
(a) A reservoir called Gura Apelor to be formed by a clay-cored,rock-fill dam, Tomeasa, 173 m high across the valley of theRiul Mare in the neighborhood of Mount Retezat from which theProject takes its name. A high pressure tunnel 18.4-km longconveys the reservoir releases to the Retezat undergroundpower plant of 335 MW having two units working with a grosshead of 583 m. The tailrace of Retezat is also the headraceof the above-ground 14-MW powerhouse, Clopotiva, which uses ahead of 25 m. There are 25 secondary intakes which collect
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water from adjacent streams and drop it into the pressuretunnel or convey it through a tunnel 34 km long to Gura Apelorreservoir.
(b) Transmission lines at 110 kV will interconnect the Retezat-Clopotiva power stations and 220-kV lines will connect theRetezat power station with the existing system at Barul Mare.
(c) Roadworks needed for the execution of the Project are in hand.These will later serve general communication and tourism pur-poses; but since the standard of construction will be nogreater than required for the Project purposes, they are con-sidered a charge to the Project.
3.03 The first cascade power station downstream of Clopotiva power sta-tion is called Ostrovul-Mic. The headpond of this station will be completedbefore the commissioning of the Project works and will be able to reregulate,to an acceptable pattern, the short duration flows (about 5 hr per day) fromthe Project. The cost of this work is attributed to the development of theOstrovul-Mic power station. Because reregulation is essential for the opera-tion of the Project, the Loan Agreement includes the Ostrovul-Mic works as partof the project description although they form part of a separate stage of theriver development.
C. Status of Engineering
3.04 The design institute, ISPH, has a long record of activity with some39 hydroelectric schemes completed and commissioned by 1974. A further 18schemes are actively under construction or have recently been commissioned.By way of illustration, Iron Gates I of 2,100 MW on the Danube was engineeredin collaboration with Yugoslavia: the highest head developed by ISPH is inthe Ciunget Lotru power station, where a discharge of 80 cubic meters persecond under a head of 809 m through 3 pelton wheel turbines delivers 510 MW,and at the Arges power station 4 Francis turbines under a head of 324 mdeliver 220 MW. The Project thus lies within the scope of experience ofISPH. The choice of Francis type turbines is appropriate for the size ofthe proposed units operating under a head of 583 m gross because there aredifficulties dimensionally in providing an adequate number of nozzles aroundthe periphery of a pelton wheel which is the alternative type suitable forthe operating head. The selection of the type of dam and the choice of itsheight has been carefully made taking all the usual factors into consideration.Annex 6 gives a more detailed evaluation of civil engineering aspects. Engine-ering designs are as well developed as is usual at this stage of the Project.The Borrower has provided in the design of the dam for the inclusion of moni-toring instruments to observe stability throughout its life. The Borrower hasundertaken to cause the hydroworks, including the dams, to be inspected regu-larly in accordance with appropriate engineering practice for the safety ofthe structures and their operation.
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D. Cost Estimate
3.05 - The estimated cost of the Project (Annex 7), excluding interestduring construction, is US$250.1 million (lei 5,002 million) of which the esti-mated foreign exchange cost is US$53.8 million if it is assumed, as islikely, that Romanian suppliers will win all contracts under conditions ofinternational competitive bidding (i.c.b.), in which they compete. A summaryof the cost estimate is shown below:
Lei millions US$ millions ProjectProject Element Local Foreign Total Local Foreign Total Cost
A. Civil works &plant erection 2,855 801 3,656 142.7 40.1 182.8 73.1
B. Electrical &Mechanicalequipment 236 29 265 11.8 1.5 13.3 5.3
D. Management, engi-neering and othercosts 178 - 178 8.9 - 8.9 3.5
Sub-total 3,409 835 4,244 170.4 41.8 212.2 84.8
Contingency allowances:
Physical/a 323 84 407 16.2 4.2 20.4 8.2
Price/b 194 157 351 9.7 7.8 17.5 7.0
Sub-total 517 241 758 25.9 12.0 37.9 15.2
Total ProjectCost 3,926 1,076 5,002 196.3 53.8 250.1 100.0
Note: Figures in this Table have been rounded.
/a 10% on Project elements A, B and C.
/b 2% p.a. on Project elements A and C and 7-1/2% p.a. on direct foreigncomponent of A and total of B.
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3.06 The cost estimate is based on that of ISPH updated to December 1975,having been discussed with all the executing agencies, and is in conformitywith the system of regulated prices that applies in Romania. Where scheduledrates are not determined, the Decision document of the Council of Ministerslays down the guidelines for costing purposes (Annex 1). Whereas the systemof fixed prices tends to provide ample margins and physical contingencies upto 5% are allowed, this estimate has added price contingencies at the rate of2% p.a. on local works and supplies. In the controlled situation in Romania,price escalation has hitherto been negligible, but 2% p.a. is consideredprudent and adequate to reflect conditions in the execution period. For foreigngoods directly imported as well as the electrical and mechanical equipment forthe power stations, the estimate has assumed a price increase of 7-1/2% in theproject execution period. The physical contingencies allowed in this estimatewere assessed at 10% on the base costs of the construction works, i.e., civilworks, electro-mechanical equipment of the power stations and transmissionlines.
E. Financing
3.07 The Project is an integral part of Romania's 5-Year Plan 1976-80for the electric power sector and will be financed as part of the developmentprogram of the CIEET. It represents about 6% of the US$4.4 billion (equivalent)investment requirements of the CIEET during the construction period (1975-81).About 33% of the required funds will be derived from internal sources and mostof the remainder will be provided from the State Budget. In addition to theCIEET investment, the HUNEDOARA Council, in whose county the Project will belocated, will contribute 95 million lei for modernizing access roads and theMEE will provide 74 million lei for transmission links, substations and riverregulation. The decision of the Council of Ministers No. 1612 dated December 20,1974 which has approved the technical and economic indicators for the Projectconstitutes the Government authorization for project construction and the ex-penditures to be incurred. At the Bank's request an official copy of the Deci-sion was provided at negotiations.
3.08 The proposed Bank loan of US$50 million is expected to finance about20% of the estimated cost of the project of US$250.1 million. It has beenassumed that the Bank loan would be for a term of 20 years including a 5-yearperiod of grace subject to interest at 8-1/2%. The loan would be made tothe Investment Bank, which is responsible for authorization and control ofinvestment expenditure in the power sector. It would be guaranteed by theGovernment of the Socialist Republic of Romania. As in the case of the firstpower loan for the Turceni Thermal Power Project, the Investment Bank would meetthe debt service on the Bank loan and has agreed that the sum of the annualbenefits and provision for depreciation of the Hatzeg Enterprise would, afterthe Project is completed in 1981, be sufficient to cover the debt service pay-ments on the Bank loan. Proposals for formal onlending of Bank loans to ben-eficiary enterprises are still being considered. After the Project is complete,
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the assets which are taken on charge will be valued, if imported and financedout of the proceeds of the loan, using a rate of exchange of US$1 = 20 lei.Duties on isprted iteus will be included. Where items are manufactured inRomania and financed under the loan, it is understood that they will be valuedaccording to Rommnian foreign trade prices.
3.09 Since, under the Romanian system, any changes in prices are notapplied to projects for which the Council of Ministers have approved thetechnical and economic indicators unless supplementary approval for the in-creased cost of imports has been obtained (although this is reportedly seldomdone, but has happened in the case of the previous power loan), the need forfinancing of a possible cost overrun as a result of price increases shouldnot arise. Prior to the approval of the indicators, firm contract prices havebeen established with the suppliers of plant and the construction trusts forthe civil and electro mechanical works. However, should additional funds berequired they would be provided in the first instance from resources of theCIEET or if they proved to be insufficient from the State Budget.
F. Implementation
3.10 An enterprise responsible for the execution of the Project and centredat Hatzeg, has been established which will also be responsible for the furtherhydropower development of the Riul Mare and Strei rivers. This is suitablefor the effective implementation and operation of the Project. Prior to thecreation of the Hatzeg enterprise, the Project was the responsibility of theCluj enterprise.
3.11 The Project will alter the pattern of flow of the Riul Mare whichhas a mean annual flow of 457 x 106m3 at the dam site. With exception of theperiod needed to fill the Gura Apelor reservoir, this volume of water willstill join the Strei river annually. The Strei river flows into the Mureswhich enters Hungary near the town of Arad. In Hungary the Mures joins theTisa and eventually reaches the Danube in Yugoslavia. A riparian interestcan be said to exist. The mean annual flow of the Mures at the Hungarianborder with Romania is 5200 x 106m3 which means that the Project influencesthe Mures conditions to a minor degree by reducing flows in flood seasons andincreasing flows in the dry periods. Map IBRD 11790 illustrates the relevantcatchment areas. The Romanian authorities have stated that the Project isnot harmful to other riparians and the mission agrees with this view. RegardingRomania's association with Hungary, there is an agreement between them inrespect of the Mures river which regulates the development in the river courseextending 34.5 km upstream of the border. As the Project is beyond this limit,the Government has stated that no riparian problem arises. A written statementquoting from an existing "Convention" between Romania and Hungary dealing withriparian interests has been received (Annex 8) and is acceptable.
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3.12 Land acquisition and wayleaves are within the competence of theMinistries to arrange, and mechanisms for the resolution of such mattersexist and are part of the normal Project execution process once the invest-ment is decided and authorized. Compensation in accordance with publishedscales is paid to farmers, cooperatives and others whose productive capacityor facilities will be detrimentally affected, and some payments have alreadybeen made. The site of the Project is virtually uninhabited by man and humanresettlement is not a problem.
Construction
3.13 The construction of the Project started in the last quarter of 1974with the upgrading of the access roads. Diversion of the Riul Mare is pro-posed in early 1977, and the first turbine delivery is scheduled for the thirdquarter of 1978 followed by its generator in early 1979. Commissioning ofthe first unit of the Retezat station should be complete by the end of 1980followed by the second unit a year later. The Clopotiva units are to becommissioned in the first and second quarters of 1982. W4hereas the fillingof the dam will have reached minimum operating level in 1980, dam construc-tion will continue through 1983 at which time the upper levels of the asphalticmembrane will be completed (Annex 9). This construction schedule is consideredrealistic.
3.14 The organizations that will execute the Project works are thefollowing:
(a) Trustul de Constructii Hidroenergetice (T.C.H.) which is theHydropower Construction Trust. This organization was foundedin 1950 and has completed more than 2,400 MW of installed hydrocapacity. The scope of wrork undertaken covers the full rangeof civil engineering needs of such works-
(b) Trustul Energo Montaj (T.EnM), which is the Electro-mechanicalConstruction Trust, performs the erection and commissioning ofthe electro-mechanical plant in the power stations. T.EnM canclaim an even wider experience since it performs the erectionservices in both hydro and thermal power plants:
(c) Trustul Electro Montaj (TEM) is the Transmission and SubstationConstruction Trust which in its own field is as experiencedas its sister organizations;
(d) Various other organizations concerned with roads, water supply,forestry, game and fisheries will take part.
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Procurement
3.15 The Decision of the Council of Ministers which provides approval forthe Project presupposes that all works will be executed by the constructiontrusts of the MEE and that the plant will be manufactured in Romanian factories,and sets the limit on the amount of foreign currency which may be expended onthe purchase of goods from foreign sources. In this case, lei valuta 0.688million (US$103,000 equivalent) is authorized for expenditure in COMECONcountries and lei valuta 3.41 million (US$686,000 equivalent) is authorizedfor expenditure in convertible currency areas. These sums provide for thedirect foreign procurement needs of the executing enterprise, but excludeforeign procurement by other entities such as the civil construction con-tractor and plant manufacturing enterprises. There is no assumption madethat Bank finance will become available. The limits set by the Decision No.1612 may be exceeded should the cost of imported equipment prove to be higherthan estimated and also in the event that foreign suppliers win contracts underi.c.b. that would otherwise have been supplied from Romania. It has beenrecorded in agreed minutes of negotiations that the Project will be implementedtaking into account the needs of the Project and the conditions set out in theLoan Agreement specifying the eligibility of funds for disbursement. Thus,the terms of Decision 1612 are not to be construed as being limiting in thissense.
3.16 At negotiations, the Romanians represented a list of goods for se-lection to the full amount of the loan, suitable for i.c.b. under the Bank'sguidelines, and this is recorded in a to the Loan Agreement.It is expected that Romanian supplie r ii esuE.essfully for all con-tracts for which they submit bids and a domestic preference of 15% would beapplied or the applicable customs duty, whichever is the lesser. In this eventlocal currency expenditures to the extent of about US$39 million would becovered under the loan.
Disbursements
3.17 Disbursements from the proposed Bank loan would be made for 100% ofthe foreign exchange cost or ex-factory cost of equipment and supplies. Anyfunds remaining undisbursed after completion of the Project would be cancelled.The closing date for disbursements is expected to be December 31, 1981. Theestimated quarterly disbursement schedule is given in Annex 10.
G. Environmental Impact
3.18 The Project is in a mountainous area exceeding 900 m above sealevel, beautifully scenic and richly endowed with flora and fauna. A nationalpark, which includes a special scientific reserve, has been established formany years (Map IBRD 11791). The relevant authorities concerned with such
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matters have made a detailed study of the impact of the Project on the ecologyof the area and have made certain recommendations regarding the design andmanagement of the Project in this regard (Annex 11). As a direct result ofthe study, the main pressure tunnel from the Gura Apelor reservoir has beenrelocated from the right bank of the river to the left. The secondary intaketunnel which traverses the national park will be excavated so as to place theadits outside the scientific reserve, and road access will be arranged tocause a minimum of disturbance. Abstractions of water to the secondary in-takes have been restricted in accordance with the recommendations of theecological study. No additional measures are considered necessary. Theappraisal mission is satisfied that all those aspects, that are within thecompetence of the power authorities, will be respected. The Borrower has under-taken to cause the Project to be carried out in conformity with appropriateecological and environmental practices and to report on these matters atregular intervals in accordance with the reporting requirements recorded ina Supplemental Letter to the Loan Agreement.
IV. THE PROJECT ENTITY
4.01 The designated Project Entity is the Hatzeg Generating Enterprisewhich was set up in March 1976.
4.02 The organization and management of enterprises is according to welltried patterns and is effective. At the same time there are organizationalresearch departments both in the MEE and the CIEET responsible for constantreview and improvement of these matters. The impression gained by the missionis that the systems and structures are appropriate and comparable with ef-fective systems in other countries.
4.03 The staff employed, especially in the engineering fields, is wellqualified and experienced according to the needs for the job. In the fieldof accountancy, there are indications that accounting is used principally asa means of recording historical data and is constrained by the rigid systemof standardization of presentation. More analytical methods geared to moderndecision-making practices would be beneficial; but whilst the rigid centralplanning system prevails it is doubtful whether there would be adequate scopefor the application of such techniques.
V. FINANCE
A. Past Performance and Present Position of the Sector
5.01 In the appraisal report for the first power loan, the TurceniThermal Power Project, a review was made of the financial performance of theenterprises in the Romanian power sector for the years 1970-72 inclusive.
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During these years the sector was co-ordinated by two centrals. However, fromApril 1, 1973 a single central (the Industrial Central for Electric Power andHeat - CIEET) was established. The financial performance of the sector forthe years 1973-74 as recorded by the CIEET is presented in Annexes 12-14.
5.02 The Turceni appraisal was conducted at the time of the 1973 "energycrisis" which the Government of Romania responded to by enacting a decreeaimed at rigid conservation of fuel and energy. In particular, the structureof electricity tariffs was revised and average revenue from electricity sales(1973 .313 lei per kWh) was expected to increase about 1.4% by 1975 as aresult of the revised tariffs. Sales in GWh were expected to increase 11.3%in 1973, 15.3% in 1974 and 9.8% in 1975. In fact actual sales growth in theseyears was only 4.7% and 9.1% respectively and the forecast for 1975 was foran unrealistic 18% increase.
5.03 The operating results for 1973 and 1974 were not as good as forecastnot only because of the reduction in sales but also because the average costsper unit sold of .268 lei or USO1.34 (1973) and .264 lei or USJ1.32 (1974)were 15-16% above the appraisal estimate prepared for the Turceni project.Substantial increases in fuel prices effective January 1974 were absorbedwithout any corresponding adjustment to tariffs. Despite the increased fuelprices, overall savings in fuel costs were achieved because of the reductionin thermal generation but they were more than offset by increased operation,maintenance and administrative expenses. Wage increases of the order of 8%were made during 1974 reflecting productivity gains during the 5-year planperiod which commenced in 1971. In addition social security contributionswere increased from 11% to 15% of gross wages as from January 1, 1974.
5.04 At the beginning of 1974, taxes on the production of electric andthermal energy were repealed and a new tax (or interest) of 4% was introducedto be applied to invested funds, i.e. the value of net fixed assets at thebeginning of the year and working capital funds. The new tax provided about900 million lei in additional revenue to the State Budget in 1974 and repre-sented about 20% of total operating revenues, by comparison with the productiontax which took up about 14% of operating revenues.
5.05 The net effect of the reduced sales, increased costs and the revisedtaxation provisions was to reduce net income in 1973 by about 0.4 billion leior 16% and in 1974 by about 1.7 billion lei or 53%. The rate of return onaverage net fixed assets and working capital declined from 4.6% in 1973 to 2.9%in 1974 compared with expected rates of about 5-6%. However, if the tax oninvested funds were to be treated as an interest charge which it is, and not asan operating expense, the rates of return for these years would improve to 8.7%and 8.8% respectively. For the purposes of this report and future financialanalysis within the Romanian power sector, this tax will be treated as aninterest charge.
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5.06 No significant change in the financial position of the power sectoris reflected in the 1973 and 1974 balance sheets of the CIEET which are includedin Annex 13. There is no long-term debt and consequently no debt servicecommitment 1/ (except for commitment fees on the Turceni Thermal Power Projectloan which was signed July 10, 1974). Although investment expenditures exceededpreviously planned estimates by 1 billion lei (about 7%), gross fixed assetsonly increased in value by about 12.5% (1970-72, 14.5%) to 70.7 billion lei(about US$3.5 billion equivalent). The value of fixed assets continues to bebased on recorded costs and the level of inflation remains insignificantalthough a comprehensive review of prices has been carried out under Law No.19/1971 during the last 2-3 years. Slightly more than half of the CIEET invest-ment requirements in 1973 and 1974 came from internal sources. The remainderwas provided from the State Budget. Because of reduction in net income, StateBudget allocations were increased by 1.9 billion lei (32%) and the 10% min-imum contribution to the State Budget normally payable under the BenefitsLaw (No. 858 of 1973) was waived for 1974.
5.07 Despite the difficulties in meeting the planned targets over theyears 1973 and 1974 the CIEET's accounts reflect satisfactory financial perfor-mance. However, they do reflect the need for more careful review of forecastsso that they realistically reflect the impact of changing circumstances e.g.impact of the energy Decree. Although the forecasts may not always beachieved, CIEET's financial viability will not be jeopardized because theplans of the Industrial Central are a part of the national Socio-Economic Planwhich is financed from State sources.
B. Financing Plan
5.08 The forecast sources and applications of funds of the CIEET for theperiod 1975-85 are given in Annex 14. A condensed version for the Projectconstruction period 1975-81 is given below:
1/ Although "interest on invested funds" is shown under "debt service" inAnnex 14, it is not strictly debt service since it is calculated on thevolume of funds invested in fixed assets and working capital. However,"debt service" is considered the most appropriate heading under which toshow it.
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1975-1981(Millions of Lei) _
Sources of Funds
Internal SourcesBenefits Reinvested 33,650 38Depreciation Reinvested 26,425 30Sales of Scrap etc. 584 1
Gross Internal Sources 60,659 69Less: Debt Service (31,199) (36)
Total External Sources 58,255 67Total Sources of Funds 87,715 100
Construction RequirementsProposed Riul Mare-Retezat HydropowerProject (including interest duringconstruction) 5,225 /1 6Other Construction 82,490 94Total Construction Requirements 87,715 100
/1 Total interest during construction on the Project is 223 million lei.
5.09 It can be seen from the above table that the CIEET investment programwill require about 87.7 billion lei (USS4.4 billion equivalent). Internalsources are expected to finance 33%, the State Budget 64% and IBRD loans in-cluding the proposed loan about 3%.
5.10 At the time of the Turceni appraisal, it was decided in discussionswith the MEE that for the purposes of the Bank's forecasts 70% of totalbenefits should be assumed to be available for reinvestment in the CIEETexpansion program. This assumption has not been followed for the purposes ofthe present analysis since new principles are being considered for adoptionfrom the start of the new 5-Year Plan period in 1976 to simplify the processof distribution of benefits in order to eliminate transfer from enterprises to
the budget which are subsequently returned as budget allocations. Under theexisting benefits law, a minimum contribution to the State budget of 10% is
required. In 1974 the contributions to the budget were waived (para. 5.06)and only nominal amounts of 300 million lei in each of the years 1975-80 and400 million lei in each of the years 1981-85 have been provided at the insti-gation of the MEE and the CIEET.
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5.11 The 1975-81 investment program prepared by the CIEET has been pro-portionally reduced by the mission by about 7% to match its best estimate ofthe most probable growth in energy sales. One of the principal reasons forpresenting a reduced program is that the CIEET is required to reflect nationallyplanned targets in the forecasts even though they appear unrealistic. Thiswas confirmed during negotiations by the Romanians who informed the Bank thatactual sales for 1975 fell short of the planned target by about 8%. The rea-son given for this shortfall was mainly the restrictions imposed by the Govern-ment on the use of energy as a result of the world energy crisis. As a resultthe figures, particularly those for sales of energy and the investment planfor the 1976-80 5-year plan, have been revised subject to approval by theGovernment expected in April 1976. The Bank expects that the decisions takenor to be taken by the Government which will be reflected in the approved 5 yearplan for 1976-80 will confirm the assumptions in this report with respect tosales growth and the investment plans for the power sector. Following reviewof the 1976-80 5-year plan, the Government have undertaken in a supplementalletter to furnish the results of their review to the Bank.
C. Future Performance
5.12 The financial forecasts 1975-85 prepared by the CIEET were based onan 18% increase in energy sales in 1975 and thereafter an annual average growthrate of about 7% to 1985. These sales growth rates produced rates of returnon average net fixed assets in service and working capital (when calculated onthe same basis as for the Turceni Report), ranging from a high of 3.3% in 1975to a low of 0.5% in 1985 (Turceni 4-6% 1975-80). The reduced rates of-returncan be attributed to two principal factors: firstly, operation, maintenanceand administration costs which were previously expected to decline between1975 and 1980 in terms of cost per unit sold by about 26% but are now expectedto remain at about 1973 levels because of the restructuring of internal prices,and secondly the revised taxing mechanism. The projections also showed anaverage contribution to investment from internal sources of 38% by comparisonwith 46% for Turceni (1973-80).
5.13 In the light of recorded sales growth in 1973 of 4.7% and 1974 of9.1% and after discussion with staff of the MEE and the CIEET, the sales fore-casts have been revised and the financial forecasts have been recalculated toreflect the revised estimates and are shown in Annexes 12-14. Details ofassumptions used for these forecasts are given in Annex 15. Operating costshave been assumed to be constant. However, no increases in tariffs have beenassumed. If the new tax on invested funds is treated as an interest rate,rates of return ranging from 8.4% in 1975 to 4.5% in 1985 are obtained. Theforecasts for 1975-85 show the average contribution to investment from internalsources would be 31%. This level of performance would be satisfactory in theRomanian context and the decline in the forecast financial performance to 1985is not viewed with concern because the Bank expects that the Government will
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review electricity tariffs before 1985 and very likely at the end of the 1976-805-year plan. Under the Romanian economic system, increasing costs or a higherlevel of investment than planned is not normally rectified by increasing pricesin one particular sector. As the power sector plans are integrated with thoseof the rest of the economy, changes in the demand for funds in the power sectorare absorbed by the State budget. Varying the level of taxes and contributionsto the State budget can also be used to improve financial performance of thesector. Tariffs and prices are normally reviewed as part of the long-termplanning process so as to ensure that any changes are reflected in the fore-casts prepared for the economy as a whole thus preventing distortion duringplan implementation. They are not adjusted to reflect changing costs or supplyand demand as in market economies.
5.14 Since the Bank's conventional financial covenants have been found tobe incompatible with the Romanian economic system, as in the case of the firstpower project, no financial covenants have been sought. Instead, the Govern-ment has described its current policy and plans for the financing of the powersector. The Borrower has agreed in a supplemental letter to continue to fur-nish financial and economic information to enable the Bank to evaluate thebenefits of the Project to the Romanian economy and the position of the HatzegEnterprise in the Romanian power sector. There will continue to be reasonableopportunity for representatives of the power sector and the Bank to discussthis information.
D. Accounts and Audit
5.15 The Investment Bank will continue the auditing arrangements agreedfor the Turceni power loan i.e. that it will furnish to the Bank independentaudit reports on its financial statements and those of the Industrial Centraland the Project enterprise (Hatzeg). The reports will be prepared by theMinistry of Finance and submitted to the Bank within three months of the endof each fiscal year except in the case of Investment Bank itself for which anaudit report will be submitted within four months of the end of each fiscalyear.
VI. BENEFITS AND JUSTIFICATION
6.01 The power system would be improved to the extent of the value of thepeak load capacity of the Project. As described in greater detail in Annex16 the plant will contribute directly and indirectly 469 MW and 739 GWh p.a.in an average water year or less than 2% of the system needs in 1989 whenthis benefit will mature in full.
6.02 In 1985, the system primary peaking demand i.e. in excess of baseload and secondary peaking requirements, will be of the order of 3,200 MWtowards which the main hydro peaking stations including Riul Mare-Retezat would
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contribute 1,800 MW. The 1,400 MW of peaking demand remaining would be con-tributed by other base and secondary peak load plants such as the Danubeschemes. Very short duration peaks can also be met by the use of gas turbinesof which there are presently 109 MW. Despite the fall off of system demandgrowth in 1973/74, the Project is timely.
Return on Investment
6.03 The Romanians used a mathematical model in 1972 to simulate thepower sector development which under the conditons then applicable indicatedthat, by 1985, the development options still open to choice pointed to the needand appropriateness of the Riul Mare-Retezat Project to meet system primarypeaking demands. Annex 16 gives a brief summary of the assumptions used andthe outcome of the analysis. The results indicate that under any of theassumed conditions of fuel importation, fuel cost, and specific investment costfor nuclear plant, there is a place in 1985 for hydro peaking capacity to theextent of 400 MW, and the Riul Mare Project with its associated downstreamcascade development fills this need being the cheapest of the hydro schemesfrom which a choice could be made. It has not been possible to examine the1972 calculations nor in other ways to verify the result. However, it isevident from discussions that the exercise was not undertaken for purelyacademic reasons and that it is likely to have played a part in the developmentof the program now being followed. The conclusions regarding the developmentof other types of generation, particularly of base load plant, have undoubted-ly been altered to comply with the Government embargo on the further use ofoil or gas for industrial heating processes of which power generation is con-sidered to be one.
6.04 A comparison with a gas-turbine and a pumped storage type of alter-native made by the ISPH (Annex 17) shows that the equalizing discount rate isnot less than 10% and that higher rates would apply if the cost of fuel wereset at US$100 per ton as opposed to the US$66 per ton used in the comparison.As noted in para. 3.06, by virtue of the fixed pricing systems used for goodsand services in Romania, costs can be estimated reliably and economic com-parisons are not sensitive to this reliability factor.
6.05 Aside from the output of electric power, other benefits are associ-ated with the Project. River regulation will provide a perennially secureflow in the Riul Mare and Strei rivers, the Gura Apelor reservoir recreationalbenefits and road works which by extension beyond the Project area will serveto improve communications. Such benefits are judged to be relatively smalland would not materially influence the Project's justification.
6.06 The internal rate of return on the Project is estimated to be6-1/2% (Annex 16) if benefits are measured by incremental revenue attribut-able to the Project and financial costs are adjusted for taxes and otherinternal transfers. The return of 6-1/2% is not susceptible to the inter-pretation that could be placed upon it in a market economy, in which itcould be compared with the opportunity cost of capital and therefore providean indication of the extent to which consumers' willingness to pay is being
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used to signal Project justification, and is thus not an appropriate indicator.The Romanian power tariffs which have been used to gauge the least level ofbenefits attributable to the Project have, in the past, been adequate to gen-erate a 40-50% cash contribution to investments in the sector, and as suchhave been at satisfactory levels (para 2.18). It is likely that increasingreal costs of power sector development will lead to higher real tariffs (para5.13). In this case, the rate of return would be commensurately higher.
VII. AGREEMENTS REACHED AND RECOMMENDATION
7.01 During negotiations, agreement was reached on the following principalissues:
(a) the Investment Bank has agreed to provide to the Bank ananalysis of the future electric power sector developmentcomplete with data and methodology used, before requestingit to consider financing a further power project in Romania(para 2.24);
(b) the Investment Bank has undertaken to cause the hydroworks,including the dams, to be inspected regularly in accordancewith appropriate engineering practice (para 3.04);
(c) the Investment Bank would meet the debt service payments on theBank loan, as proposals for formal onlending of Bank loansto beneficiary enterprises are still being considered inRomania (para 3.08);
(d) the Investment Bank gave assurances recorded in agreedminutes of negotiations that goods needed for the Projectand to be financed out of the proceeds of the loan will beprocured in accordance with the provisions of the LoanAgreement and will not be subject to the limitations containedin Decision No. 1612 (para 3.15);
(e) a list of goods for selection to the full amount of theloan, suitable for i.c.b. under the Bank's guidelines, hasbeen agreed between the Investment Bank and the Bank(para 3.16);
(f) the Investment Bank has agreed to cause the Project to becarried out in conformity with appropriate ecological andenvironmental practices and to report on this subjectregularly (para 3.18);
(g) the Government agreed to furnish to the Bank the resultsof their review of the 1976-1980, 5-year plan (para 5.11);
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(h) the Investment Bank has agreed to continue to furnishfinancial and economic information to enable the Bank toevaluate the benefits of the Project to the Romania economyand the position of the Hatzeg Enterprise in the Romanianpower sector (para 5.14);
(j) the Investment Bank will continue the auditing arrangementsagreed for the Turceni power loan except that the audit reporton its own accounts will be submitted within 4 months(previously 3 months) of the end of each fiscal year (para 5.15).
7.02 In the foregoing circumstances, the Project is suitable for a Bankloan of US$50 million to the Investment Bank with the guarantee of the SocialistRepublic of Romania. An appropriate term for the loan is 20 years, including5 years of grace.
March 17, 1976
ANNEX 1
Page 1 of 3APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
Council of Ministers of theSocialist Republic of Romania
Decision No. 1612
concerning the approval of the main techno-economic parameters of the investment"Hydropower Plant - Riul Mare-Retezat" and some provisions for the implementationof this Project.
The Council of Ministers of the Socialist Republic of Romania decides:
Article 1
The principal techno-economic parameters for the investment "HydropowerPlant - Riul Mare-Retezat" are approved as follows:
Total amount of the investment 4,100 million leiof which
- amount for civil construction and plantinstallation, of which 3.,440 million lei
- civil construction 3,387 million lei
Total installed capacity 34°' MW
Electricity generation in averagewater year 630 GWh
Useful storage volume 200 million m3
Total cost of imports, of which 14.098 million lei valuta
- froM socialist countries 0.688 " "- comvertible currency 314l0 I o
Specific investment parameters:
- lei/kW installed 11,750- lei/kWh generated 6.51
Cost of electrical energy sent out 0.378 lei/kWh
ANNEX 1Page 2 of 3
Annual operating surplus before tax, of which 201.4 million lei
- nnual surplus after tax 43.6 million lei
Pay back period from surplus before tax 20.3 years
Specific index of personnel 0.50 men/Nlw
Date of final acceptance for commercial operation
- Hydropower plant Retezat:
Unit No. 1 of 167.5 MW Fourth quarter 1980Unit No. 2 of 167.5 MW Fourth quarter 1981
- Hydropower plant Clopotiva
14 MW Second quarter 1982
Construction period to final acceptanceof first unit 76 months
Period allowed to achieve techno-economic para-meters after cormissioning of tota1 capacity 12 months
Amount of associated investment, of which 169 million lei
- from the budget of the Hunedora District Council 95 million lei
- from the budget of the Ministry of ElectricalEnergy 71 million lei
Article 2
By exception of the provisions under the Decision of the Council ofMinisters No. 744/1957, the following conditions for the preparation of thedetailed cost schedules are approved:
(a) for underground works for which cost standards are not available,and for which corresponding standards for surface works wouldotherwise have to be used, the labor costs shall be calculatedaccording to the scales approved for mine workers in respect ofunderground work;
ANNEX 1Page 3 of 3
(b) the labor costs for which standards do not exist, shall be deter-mined in the bill of quantities by applying the appropriate costfactors in force at the time that the detailed bill of quantitiesis prepared;
(c) the expenditures for compensation in respect of site conditions,night shift working, work in artificial light, and during coldweather, shall be met from a separate expenditure head in thebill of quantities in which a provision equal to 3% of the costof civil works and plant erection,shall be made for this purposein addition to the 5% provision permitted for contingencies;
(d) in respect of works executed for the Ministry of Energy by theHydropower Construction Trust - Bucharest, for the "HydropowerPlant Riul Mare-Retezat", an overhead expense provision for theHydropower Construction Trust will be provided amounting to 115%of the labor costs in the estimate. For works performed by otheragencies the provision for overhead costs will be established bythe Inspectorate General of the State for the Guidance and Controlof Designs and Execution of Construction, on the basis of justifica-tions which will be presented by the respective agencies; and
(e) the costs of site organization shall be determined progressivelybased on documentation from the designers and the constructionagencies and shall be authorized and checked by a commission forthis purpose comprising delegates of the Ministry of ElectricalEnergy, the State Planning Committee and the Investment Bank, andshall be approved by the Ministry of Electrical Energy. Savingsif any from the amount of 387 million lei presently provided forsite organization shall be cancelled from the funds authorizedunder Article lo
Article 3
The dispatching center for the operation of the hydropower plantsof the Riul Mare-Retezat cascade shall be placed in the town of Hateg. Financingof the construction and equipment of this shall be from the amount providedunder Article 1.
The following tariffs were introduced effective January 1, 1974. Theyreflect broadly the cost of supply at differing voltage levels for each consumercategory. At the same time they are set to discourage use for non-productivepurposes such as public and general lighting in contrast to industrial and otherlarge consumers.
ACTIVE POWER
I. CONSUMERS SUPPLIED WITH LOW VOLTAGE (Ool-l kV)
A. Single part Tariffs for:
1. Public lighting:
- including maintenance of installations 0.80 lei/kWh- excluding maintenance of installations 0.54 lei/kWh
2. General lighting:
&) not differentiated by period of consumption 0.75 lei/kWhb) differentiated by period of consumption
- consumption during peak evening hours(between 1800 and 2100 hours) 155 lei/kWh
- consumption during remaining hours(from 2100 to 1800 hours) 0.60 leiAkWh
NOTE: The two part rates given in Section I.7 may also be applied to theconsumers indicated in Sections 1.2 to 15, under the conditions tobe established by regulation for the supply and use of electric power,in all cases in which this can ensure minimum consumption of electricpower with a minimum of power absorbed during peak hours.
II. CONSUMERS SUPPLIED WITH MEDIUM VOLTAGE (1-110 kV)
1. Urban and interurban electric traction:
A. Single part tariff
a) not differentiated by period of consumption 0.30 lei/kWhb) differentiated by period of consumption:
- consumption during peak evening hours(between 1800 and 2100 hours) 0.O0 lei/kXh
- consumption during remaining hours (from2100 to 1800 hours) 0.28 lei/kWh
ANNEX 3
Page 4 of 10
2. Users in agriculture. excluding irrigation
A. Single part tariff
a) not differentiated by period of consumption 0.34 lei/kWhb) differentiated by period of consumption:
- consumption during peak evening hours(between 1800 and 2100 hours) 0.57 lei/kWh
a) not differentiated by period of consumption 0.14 lei/kWhb) differentiated by period of consumption:
- consumption during peak evening hours(established by order of Ministry ofElectrical Energy) 0.27 lei/kWh
- consumption daring remaining hours 0.12 lei/kWh
3. Other consumers
A. Single part tariff
a) not differentiated by period of consumption(excluding irrigation) 0.36 lei/kWh
b) differentiated by period of consumption:
- consumption daring peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) o.60 lei/kWh
- consumption during remaining hours 0.33 lei/kWh
OR
ANNEX 3Page 5 of 10
- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) 0.60 lei/kWh
- daytime consumption 0.h2 lei/kWh
- nighttime consumption 0.20 lei/kWh
B. Two part tariff
Power rates:
- Based on metered maximum demand: /
a) not differentiated by period of consumption 1152 lei/kW p.a.b) differentiated by period of consumptions
- for maximum power absorbed during eveningpeak hours 1176 lei/kW p.a.
- for maximum power absorbed outside eveningpeak hours in excess of power absorbedduring evening peak hours 588 lei/kW p.a.
OR
- on basis of connected plant rating. 972 lei/kVA p.a.
Energy rates:
a) not differentiated by period of consumption(excluding irrigation) 0.17 lei/kWh
b) differentiated by period of consumption:
- consumption during peak evening hours (es-tablibhed by order of Ministry of ElectricalEnergy) 0.30 lei/kWh
- consumption during remaining hours 0.15 lei/kWh
OR
- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEbergy) 0.30 lei/kWh
- daytime consumption 0.18 lei/kWh
- nighttime consuption 0,11 lei/kWh
A1.;zX 3
Page 6of 10
NOTEs 1. A two part tariff is generally applied to major consumers.2. The rates for medium voltage and for supply at a voltage of
0.5-1 kV are applied to petroleum drilling and extraction.3. The single part tariff (II 3 A) will be applied to the consumers
indicated in Section II 3 having several meter points and tothose having electric power plants of their own at which themaximum absorbed power cannot be totalled simultaneously.
III CONSUMERS SUPPLIED WITH HIGH VOLTAGE (110 kV and higher)
1. Railroad electric traction
A. Single part tariff
a) not differentiated by period of consumption 0.26 lei/kdhb) differentiated by period of consumption:
a) not differentiated by period of consumption(excluding irrigation) 0.26 lei/kWh
b) differentiated by period of consumption:
- consumption during peak evening hours (es-tablished by order of Ministry of Electrical
Energy) 0.42 lei/kWh
- consumption during remaining hours 0.25 lei/kWh
OR
- consumption during peak evening hours (es-tablished by Ministry of Electrical Energy) 0.42 lei/kWh
- daytime consumption 0.31 lei/k4i
- nighttime consumption 0.15 lei/kWh
B. Two part tariffs
Rates for metered maximum demand.
ANm 3Page 7 of 10
a) not differentiated by peridd of consumption 696 lei/kW p.a.b) differentiated by period of consumption
- for maximum power absorbed during eveningpeak hours 708 lei/kW p.a.
- for maximiu power absorbed outside eveningpeak hours in exceas of power absorbed duringevening peak bours 348 lei/kW p.a.
OR
- rate for connected plant rating 600 lei/kVA p.a.
Rates for energy.
a) not differentiated by period of consumption(excluding irrigation) 0.17 lei/kWh
b) differentiated by period of consumptiont
- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) 0.30 lei/kWh
- consumption during remaining hours 0.15 lei/kWh
OR
- consumption during peak evening hours (esta-blished by order of Ministry of ElectrioalEnergy) 0.30 lei/kWh
- daytime consumption 0.18 lei/kWh
- nighttime consumption 0.11 lei/kWh
NOTE: 1. A two part tariff is generally applied to major consumers.2. The single part tariff (III 2 A b) will be applied to the consumers
indicated in Section III 2 having several meter points and to thosehaving electric power plants of their own at which the maximumabsofibed power cannot be totalled simultaneously.
IV. RATES FOR PRODUCTION AND SUPPLY OF EXPORTED ELECTRIC POWER
Single rate
- consumption during peak evening hours 0.45 lei/kWh
- daytime consumption 0.27 lei/kWh
- nighttime consumption 0.17 lei/kWh
ANNEX 3Page 8 of 10
WATTLESS POWER
Single rates for:
1. Consumers supplied with low voltage 0.046 lei/kVARh
2. Consumers supplied *ith medium voltage 0.036 lei/kVARh
3. Consumers supplied with high voltage 0.026 lei/kVARh
NOTEs Wattless power is invoiced only if the average monthly power factor islower than 0.92.
RATES FOR PRODUCTICW AND SUPPLY OF ELWTRIC POWER SUPPLIED IN ThE NATIONALPOWER GRID BY CONSUMERS HAVING ELECTRIC POWER PLANTS OF THEIR OIWN
ACTIVE POWER
Single rate:
a) differentiated by period of consumption:
Power supplied during peak evening hours (es-tablished by order of Ministry of Zlectrical 1era gy)O.35 lei/kWh
Power supplied during remaining hours 0.23 lei/kWh
b) not differentiated by period of consumption. 0.25 lei/kWh
NOTEs If the average annual planned cost price is higher than 0.25 lei/kWh,the average rate for delivery will equal the planned cost price in therespective year plus a profit of 3%, and the rates of 0.35 and 0.23 lei/kWh will be increased in proportion to the ratio of the average ratefor supply and 0.25 lei.
WATTLESS POWER
Single rate:
1. Wattles6 electric power supplied to the requirement ofthe dispatcher without special starting of a generatingaet or a synchronous compensator 0.02 lei/kVARh
2. Wattless electric power supplied to the requirementof the dispatcher when special starting of a generatingset or a synchronous compensator is necessary. 0.06 lei/kVARh
ANNEX 3
Page 9 of 10
INCREASES AND REDUCTIONS IN RATES
1. Reductions in rates for metered maximum demand or connected plantrating are applied as follows to seasonal consumers not participating in theannual power grid peak:
Basic period of operation Reduction, in %
May 1 to September 30 30April 1 to September 30 25March 1 to October 31 15
2, Certain industrial consumers who are able to reduce their demandduring periods of system peak may earn reductions in their tariffs accordingto their performance in this respect. (Scales not supplied)
3. If the established normal maximum demand is exceeded during thepeak evening hours, the following power rate increases will be applied tomajor industrial consumers:
Increase in % for power exceededFor single ex- For repeated ex-cess per month cesses in same
month
AA. Consumers contracting for powerunder 1000 kW:
-- power exceeded up to 10% 50 100-- power exceeded 10-20% 100 150-- power exceeded more than 20% 150 200
B. Consumers contracting for power over1000 kW:
-- power exceeded up to 5% 50 100-- power exceeded 5-10% 100 200-- power exceeded 10-20% 150 250-- power exceeded more than 20% 200 300
Power excesses of less than 20 kW are exempt from application ofthe rate increases.
4. For electrsic power supplied to a major industrial consumer for aperiod longer than 30 consecutive minutes, at a voltage or a frequency outsidethe contract limits, the supplier will grant a rate reduction of 12.5% to25%, under the conditions specified in the regulations governing the supplyand utilization of electric power.
ANNEX 3
Page 10 of 10
OTHER PROVISIONS
1. Consumers will be placed in the tariff system (low-medium-highvoltage; single part-two part; metered maximum demand-connected plantrating; not differentiated-differentiated by period of consumption; etc.)in accordance with the regulations governing the supply and utilizationof electric power, effort being made to achieve minimum consumption ofelectric energy, with a minimum peak demand.
2. If consumers request electric power supply installationssupplementary to those specified by laws and regulations in force,such consumers will pay the supplier annually 15% of the respectivefixed assets for the operation of these installations.
3. The fixed rates specified in this Appendix also constitutethe rate limits.
March 1976
ANNEX 4
ROMANIAElectric Power System Capability
26 and Maximum Demand
24
22
20-
TOTAL PLANTS INSTALLED IN ROMANIA / ;(ROMANIAN PLAN) *
18 P J
40P
FIRM PLANT CAPACITY
0~~~~~~~~~~~~~~~~~~~~~~~~~~0
14 - /0
12 -
40,
10~~~~~~~~~ - SY5\ STE MAUXIMUM DEMAND DEC.1 ; #~~~~~~~~~~~~~~4 ( MI SSI1ON E STIM ATIE
6 _ }#
HISTORICAL FORECAST
4'~~~~~~~~~~~~~~~4
1970 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85
END OF YEAR
World Bank 15152(R)March 1976
APPRAISAL OF
THE RIUL MARE-RETEZAT HYSROPC1WER PROJECT
RCHANIA
Electric Power SectorPlanting History & Forecast
Rated Cumulative Cumulative Cumulative Interconnected Security Firm Stximum System AnnualType Date Capacity Thermal Total Hydro Total System Total Plant Margin Capacity Demand Load Factor Generation
Cerna Motru Tismana H 106Dragan Iad H 73Siret H 28
Various H 20 4,025 17,402 17,181 4,838 12,564 11,090 6,137 68,o70
1980 Turceni T/L 330Borzesti T/G-4O 50
Brazi T/O 50
Navodari T 50
Craiova T/L 50
Tirnaveni T 50
Galati T/G 100
Retirements T -21 14,036Olt H 198 oRiul Mare H 167Dahgan H 77
Sebes H 27
Siret H 86Various H 56 4,636 18,472 4,920 13,752 11,850 6,120 72,550
APPRAISAL OF
THE RI'J MARE-RETEZAT HYDROP(OER PROJECT
ROMANIA
Electric Power SectorPlanting History & Forecast
Rated Cumulative Cumulative Cumulative Interconnected Security Firm Mllximum System AnnualType Date Capacity Thermal Total Hydro Total System Total Plant Margin Capacity Demand Load Factor Generation
Li Security margin increased to allow for new nuclear technique.
March 1976
ANNEX 6Page 1 of 5
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANL
Civil Engineering Design Aspects of the Pro.ject
Introduction
1. The Project is characterized by the large number of individualstructures -- some of impressive size. The earth and rockfill storage dam"Barajul Tomeasa" is 173 m high (there are not mary of this type higher) andcreates the reservoir "Gura Apelor" which serves principally as the retainerof the live storage. A high pressure tunnel 18.4 km long conveys the reser-voir releases to the "Retezat" underground power plant of 325 MW and a grosshead of 583 m. The tailrace of Retezat is also the headrace of the "Clopotiva"above-ground powerhouse of 14 MW and a head of 25 m. There are 25 secondaryintakes which collect water from adjacent streams and drop it into the pressuretunnel or convey it through a tunnel 34 km long to Gura Apelor reservoir.
Hydrology
2. The region is wet with annual rainfall reaching 1,500 mm per year.The dischge record at the dam site is 39 years long and the average flowis 8.5 m-Vs. This and other records form a basis for the satisfactory dsaignof the Project. The secondary catchments contribute an average of 6.0 mJ/s.
TopograpIw
3. The region is mountainous and heavily timbered. Rock falls lyingat the steepest stable angle of repose are common. There are maps of thereservoir area with a scale of 1:5000 with 5 m contour intervals. There aremaps of areas containing the main structure with scales varying from 1:2000down to 1:200 with 1 m contour intervals. There are general maps of theregion with scales of 1:5000, 1:10,000 and 1:25,000 with contour intervalsres- ctively of 5 m, 10 m, and 20 m. The maps are adequate for the presentstage of planning.
Geology
4. The geology at the dam site has been explored by 19 drill holes,18 adits, and 26 test pits. Water and grout pressure tests have been madeand in-situ testing has been done. The explorations have been thoroughand modern. Unfortunately, we could not enter the adits which had been mined
j/ By Mr. R.L. Bloor, Bank Consultant.
ANNEX 6Page 2 of 5
and served their purpose some years ago and without support were dangerous.The drill cores were stacked and not readily available considering time limita-tions. A cursory inspection revealed the reasons for some weaknesses in theleft abutment described below.
5r The steeper right abutment is good quality quartz schist -/dipping 50°to 600 downward and into the abutment -- a situation favorable for constructinga chute spillway on this side. The left abutment is granite in the upper third,breccia (a weaker rock) 20 to 60 m thick below that and the same rock as theright abutment at the bottom. There are several indications of weakness com-pared to the right abutment; high grout and water losses (up to 7.6 l/m/min/atm),low moduli of elasticity (10,000 to 15,000 kg/cm ), low in-situ compressivestrengths (60 kg/cm ), and high core losses (up to 40%)e The cores offer anexplanation: the rock in the middle third of the slope is of wafer-thin beddingor schistosity standing on edge due to mountain forming reorientations andweathered); it is satisfactory for a rockfill dam foundation (consolidationgrouting is contemplated) but it would not be satisfactory for concrete struc-tu-es. An alternate site 2 km downstream was studied for an arch dam. It wase. :idoned because of estimated higher costs and consumption of energy (suchas 'he energy used in manufacturing cement, etc.). The sites for secondarycaLchment structures have been studied by reference to general geology (theywiall be in granite or crystaline schists) and test pits. Since the structuresare small and flexible as to location this is satisfactory for the time being.
6. The reservoir has been explored by general geological methods (theusual way) and by six drill holes to verify the fact that a small area ofmetomorphosed (changed by heat and pressure) limestone is not of the type whichcontains cavities. Leakage is not to be expected and while the steep slopesmay cause earth slides in the reservoir they will be of small volume due tothe thin alluvial cover.
7. The 18.4 km long headrace tunnel lies in good quality granite formost of its length and a small amount of schist. Although the left banklocation has been chosen recently and therefore not yet studied in detail thereappears to be no reason for any unusual tunnel problems.
8. The same may be said for the Retezat powerhouse area on the basisof reliable general geology. The rocks will be gneissic (laminated), granular,or schistose granites which are generally compact and hard. Explorations arejust beginning and include exploratory adits along the lines of the accesstunnel and a cable gallery. Through the latter we were able to inspect therock to near the powerhouse area and it was of excellent quality. It is likely,however, that the roof and walls of the powerhouse cavern will need supportby anchors, wire mesh, and shotcrete -- a satisfactory solution. The tailrace
1/ A schist is a rock formed by a geological mountain making movement similar tothe movement of a pack of playing cards which has its cross section changedfrom a rectangle to a parallelogram. The schistosity may represent a weak-ness in shear parallel to its direction.
ANNEX 6Page 3 of 5
tunnel and channel get into fYssurred granite and earth cuts. These alsoform the headrace for the Clopotiva powerhouse which will be founded onfissurred granite. These conditions led to the use of this low head power-house for which the conditions are acceptable.
Dam Design
9. The height of the dam was established by economic studies uBingGovernment criteria to determine the optimum live storage -- 200 aillion m3
which required a dam 173 m high. This high dam has been designed in accor-dance with well-accepted criteria having factors of safety of 1 to 1.3 orl.4 (including earthquake shock factors) for slope stability, a clay corebetween multi-layered filters upstream and downstream. Alluvium will be re-moved fron the left abutment (rock outcrops on the right) and consolidationgrouting will be used under the core on part of the left abutment. The core-will be carried to rock in the stream bed; otherwise stream bed material upto 20 m thick (called ballast) -- a sand, gravel, boulder mixture with afavorable angle of friction of 350 will be left in place. The rockfill 1asan angle of friction of 35 to 400. The embankment contains 10 million m ofmaterial; some rock has sensibly been replaced by ballast in areas of lowstress since it costs less. There will be a grout curtain 70 m deep in threelines of holes under the full length of the dam.
10. Spillway design is based partly on thq 39 year flow record at thesite which has a maximum recorded flow of 660 mi/s. Using statistical methodsthe 10,000 years Alood would be 1,580 ms/s. By other stud4eB a maximum possibleinflow of 1,930 m-/s was computed which reduced to 1,500 mn/a by automaticstorage in the freeboard range of the dam. A conservative spillway capacityof 1,500 ; 3/s was adopted. It will be in the good rock of the right abutmentin the form of a concrete lined chute with a section of free-flowing tunnelat the downstream end. Velocities may reach 20 m/sec at a vertical curvenear the downstream end and a coating of epoxy is being considered. The designis conservative.
Pressure Tumnel
11. There is no powerhouse at the dam; t e water is conveyed 18.4 km ina 4.9 m diameter tunnel designed to carry 70 Is under pressures varyingfrom 110 to 170 m of water (146 to 225 lbs/in ) to a penstock which drops intoan underground powerhouse containing two 170-MW Francis turbines operatingunder a design head of 521 m. An alternative study with two powerhouses (oneat the dam) was made but was found to cost substantially more. The proposedtunnel is on the left side of the river but a location on the right side wasstudied and found to have fewer advantages as regards secondary catchment andhigher costs. The tunnel is concrete lined, ring beams are used throughoutand steel linings are used near the ends and at three adits where rock cover
ANNEX 6Page a of 5
is minimal. Fhrthermore, strength of the good quality granite rock is mobilizedto take 60% of the pressure by grouting and radial prestressed anchor rods.The design is unusual but it has been carefully worked out and should be adequate.
Powerhouses
12. The high head underground powerhouse, Retezat, is of routine designwith one 3.7 m diameter underground penstock lined with 60 to 80 cm of concreteand 22 to 60 mm of steel, a partially underground surge shaft, one powerhousecavern containing two butterfly valves on branches of the penstock, anothercontaining the Francis type turbo-generator machinery 17 m wide and 60 m longand a third containing transformers. Access will be by a 300 m long tunnelon a 3.5% grade. For reasons of geology and topography (see para. 8), it wasfound expedient to place the tailrace of the underground powerhouse 25 m abovestream bed and develop that head in an above-ground powerhouse, Clopotiva,containing two 7-MW Kaplan units. A study was made to eliminate the low-headplant but it was found to be more expensive.
Secondary Catchments
13. The secondary catchments are unusual elements of the Project althoughthes have been used on at least two other river systems in Romania. They add6 m /s average flow to the 8.5 m3/s of the main river. On the left side of theriver which contains the main pressure headrace tunnel the water of four tribu-taries is caught and dropped through tunnels and shafts totalling about 3 kmlong into the pressure tunnel. On the right side of the river the flow of 21tributaries is caught and dropped through tunnels and shafts totalling 4 Ianlong into a main colleFtor tunnel 33.9 km long with a free-flow cross sectionbetween 7.5 and 10.5 m which discharges into the main reservoir. The water-catching structures are essentially elongated reinforced concrete boxes buriedacross the streams. The top side of one end of the box is at stream bed andserves as a spillway and also contains a horizontal grating sized to acceptfrom h to 8 times the average flow. The remainder of the box buried in onebank serves as a silt and sand catcher and passes the water to the collectingshafts and tunnels. There are automatic washing arrangements controlled bya sector gate and enough earth cover to avoid freezing. Ten of these structureson other rivers are in operation and 35 more are being completed. They areexpected to be visited once a month to provide adequate maintenance. Studieswere also made for providing alternative small power plants on the tributariesbut the cost was several times greater.
Materials for Construction
14. Some of the mnterials for construction are situated rather far frcmthe dam. One million m of clay for the dam core must come from a pit 30 kmaway and one million m3 of fine sand for concrete aggregates and filters willprobably come from 50 km away; fine sand will be within 30 km of the powerhouqes.Two million m3 of coarse sand and ballast are within 2-3 km and six million m-of rockfill are only 5-7 kn away. The question was raised as to why fine sandcould not be made near the site by crushing rock or ballast but the designers
ANNEX 6Page 5 of 5
believed the nearby materials available might be too bard for crushing tocompete with the long haul. The conditions are acceptable and they may im-prove as explorations continue. Under no circumstances do they suggestanother type of dam.
Construction and Schedules
15e Construction will be carried out by enterprises which have alreadybuilt 40 hydroelectric plants and have 20 others under construction. Theseplants include all types of large dams and nearly 300 km of tunnels. Manyaccess problems in mountainous areas have been solved in the past. Adequateexperience for the construction of the Project thus appears assured.
16. Work on access roads and underground works was started in 1974.The pace of construction has not been fast up to the present but the scheduledoperation of the first generating unit in 1981 and final Project completionby 1984 are realistic if more construction plant is brought to the Projectas expected.
Cost Estimates
17. The difficulties of constructing the Project have been recognizedby the cost estimators and enumerated as follows: the works are widespreadand far from population centers, the topography is rough, the climate is badfor construction, i.e. wet, access is difficult and expensive, power supplyis distant as are materials for the clay core of the embankment and concreteaggregates. Having taken these conditions into acceunt, the estimators havecomputed in detail the amounts of material, equipment and personnel needed,and the cost of operating and maintaining the equipment and providing livingquarters. As is usual in this part of the world contingencies are regardedwith suspicion and have been limited to 5%; the estimators have assured me,however, that quantities have been liberally estimated.
Conclusions
18. The engineering design for the Project is conservative and thorough(note the studies of alternatives), available construction forces have theexperience to build it, the estimated time required for construction and theCoot estimate are acceptable.
March 1976
A1nIEX 7
APPRAIBAL OF
TM RIUL MK-RtSZA! HYDROEWZR }RJBCT
RQWI
Capital Eatite as of December 1975
Lei milliona US$ millis equivalent ofLocal Forei Total Lo Pore Total Project Cost
International Bank forReconstruction and Development1818 H Street, N.W.Washington, D.C. 20433
Gentlemen:
Re: Riul Mare-Retezat Hydropower ProjectThe Influence on the International Waters
Regarding your request for a statement concerning the effect of the RiulMare-Retezat hydropower project on the Mures River at the Romanian border, weinform you as follows:
1. Article 2 of the "Convention between the Socialist Republic ofRomania and the People's Republic of Hungary concerning the settlement ofthe hydrotechnical matters of the river courses forming the border or inter-secting the border" states:
"Neither Party shall execute on his own territory without prioragreement of the other parties, works or take measures whichhave the effect of significantly increasing or decreasing theflow of the rivers as established in conformity with the presentConvention for the permanent river courses or increasing the volumesand levels at the border of the non-permanent waters (canals) so thatdamage could be caused on the territory of the other Party."
2. The above-mentioned article is relevant to the Riul Mare-Retezat hydro-power project and in the Convention there are no other articles which modifythe content of that article.
3. The construction and operation of the Riul Mare-Retezat hydropower instal-lations will not alter the regime of the Mures River at the border of Romania soas to contravene the provisions of the above-mentioned Convention.
4. In these circumstances the riparian countries have no cause for objectionto the execution and operation of the project.
An Extract frm the Ecological Report onthe Impact of the Pro.ject
Principal Recommendations
The best solution is to modify the original plan by changing themain intake on the left bank of the Mare river. The first sector of theintake on the left bank may be represented by the 6.5 kilometers initiallyplanned as a secondary intake between the dam and the Bodu. Downstream fromthe confluence with the Bodu the intake would follow the left bank of theMare river as far as the bend in the latter.halfway between the Bodu andClopotiva. Here the intake can be switched to the right bank, receiving asa secondary intake the one originally planned to draw the waters of the Barbatand Riusor rivers. After that it will follow the originally planned route asfar as the Retezat Hydroelectric power station at Clopotiva. The waters ofRades creek can be drawn directly into the dam lake through a short secondaryintake corresponding to the original portion of the main intake as it wasprovided in the original plan.
These recommendations to change the route of the main intake areindicated in the accompanying sketch (not included here, see IBRD 11791).
In this way all the planned catchments can be used outside of theZlatula and the other streams on the reservation. Thus the scientific reserva-tion remains intact, Zlata creek is ne:-t tapped, a discharge of water isprovided for that is very s2ightly less than that originally planned, and mostof the operations will be shifted to the left bank, which is less rocky.
The following additional measures are recommended to lessen the badeffects of the operations upon the natural environment in the area where thedan is being built (Gura Apei):
(1) The workers should be permitted to go downstream toward Clopotivain their spare time but not upstream or on the slopes. The trucksthat bring in materials and go backc down epty should be directedto carry workers to spend their spare time in the village0
(2) Doubling the forest and hunting guards.
(3) Propoganda posters opposing the destruction or disturbance of game,devastation of natiue (especially the vegetation), etc.
(4) The film theaters in the area, especially those that may be providedin barracks, should show as many documentaries as poszible on subjectsof natural protection.
ANNEX 11Page 2 of 3
(5) All quantities of wood essential to the operations should be takenfrom the site of the future lake, where the forest will be cut.Not a single tree should be cut outside the site of the fature lake.
(6) All quantities of gravel, sand, clay etc. should be procured fromdownstream only or from the site of the future lake and not fromupstream or from slopes. Creation of gravel or clay pits on theLapusnic Mare or any other river that will feed the lake would havevery serious effects not only upon the vegetation and naturalenvironment but also upon the lake itself, threatening it withrapid silting. Actually such operations (as for example the claypit originally proposed on the Lunca Berhinei) would require clearingthe forest and removing the fallow soil over many tens of hectaresin areas with abundant precipitations with much snow and ice, Thewaters would wash it all away and carry huge quantities of alluvialdeposits into the Tall.ys. The deep excavations inevitable in connec-tion with such operations would lead to a radical change in thehydrological system of the Lapusnic Mare. It would take centuriesto replace the soil and a vegetation that would retain and filterthe waters. Meanwhile the Lapusnic Mare would completely andrepeatedly silt up the lake at Gura Apei.
(7) Before the forest is cut on the site of the lake, both the CMN(Commission for Natural Monuments) and the Cluj CCB (Center forBiological Studies) should be notified at least one or two monthsin advance of the date the clearing will begin. A group of botanistsfrom the CMN and the Cluj CCB will visit the site, transplant theplants they see fit outside the site of the lake and herbalize otherplants.
(8) The Hunting and Salmon Breeding Service in the Ministry ofrForestryEconomy, General Directorate of Forestry should be notified about amonth before the Mare river is dammed. This service will send anumber of guards provided with fishing gear, water suckers etc. tostop the poaching when the river dries, collect the fish and transferthem to the lake.
(9) The CMN and the Bucharest Institute of Biological Sciences shouldalso be notified of the date the lake will begin to fill. A groupof zoologists will visit the site, check the gradual withdrawal ofthe terrestrial fauna as the water rises, collect what is necessaryand save some of the animals that cannot save themselves.
(10) Barracks that will house the workers must be built outside theNational Park.
(11) Concentration of the operations on the left bank (where the present studyrecommends the main water intake to be placed) will make it possibleto avoid traffic in the main area of the park. For this purpose thefootbridges put in when the geological studies were made must be dismantled.
ANNEX 11Page 3 of 3
(12) Periodical instruction of personnel in the National Park's regimeand the observance of this regime.
(13) Selection of the quietest possible working methods.
(14) Minimizing the use of explosives.
(15) Providing the Mare river with an adequate discharge.
March 1976
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
Industrial Central for Electric Power and Heat (CIEET)Income Statements for the Years 1973-1°o5
Net Income 2,287 1,631 1,815 1,469 1,229 u_ 858 491 84 (204) (528) (984) (1,381)
Rate of Retorts l)
Average Net Fixed Assets in Service and ActualWorking Capital 45,182 50,710 57,176 65,661 72,633 78,425 87,391 97,599 104,7i 112,176 10,225 133,218 148,453
Operating Income as % thereof 8.7 8.8 8.4 7.4 7.0 6.5 6,2 5.7 5.5 5.3 5.O 4.7 4.5
March 1976
APPRAISAL OF
TIlE RIUL MARE-RETEZAT H4YDROPCWER PROJECT
ROMAHIA
Industrial Central for Electric P-wer and Heat (CTEET)Balance Sheets for the Years 1973-1965
(In Millions of Lei)
A -- -----------Actal-orecast ------------------------------As of December 31 1973 1976 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
C Contribution to Investors, 55 47 43 35 34 36 33 31 27 34 27 27 27 31
Depreciation Expenses less nrounts allocated for non-centralised iv-toent
March 1976
ANNEX 15Page 1 of 4
APPRAISAL OF
THE RIUL MARE RETEZAT HYDROPOWER PROJECT
ROMANIA
Notes and Assumptions for Financial Forecasts
A. Income Statement
1. Electric energy sales are based on forecast growth in electricity salesin Romania of: 10% in 1975, 7% in 1976 through 1980, 6% in 1981 through 1985.Planned sales to neighbouring countries have been added to the quantitiesobtained: 1975 through 1980: 3,800 GWh, 1981 through 1985: 1,800 GWh.The decrease of 2,000 GWh from 1981 represents a reduction in sales toCzechoslavakia following expiration of the existing contract agreement in1980. Energy produced by auto producers has been subtracted. Electricitytariffs are assumed to increase by 5% in mid-1976 and a further 5% in mid-1981. The average revenue per unit sold shows a continuing downward trendattributed to increasing consumption by agricultural consumers who are onpreferential rates and a greater volume of sales at high tension i.e. at260 lei per kWh compared with low tension charges of 420-440 lei per kWh.
2. Sales of heat assumed to increase 6% in 1975 and thereafter (as perRomania's estimate), 5.4% in 1976, 4.3% in 1977, 4.6% in 1978, 4.8% in 1979,4.2% in 1980, 5% in 1981 and 1982 and 4% in 1983 through 1985. It is expectedthat prices for thermal energy will be reviewed prior to the commencement ofthe 1976-80 5-Year Plan but no increases have been assumed for the purposesof these projections. The forecasts are based on consumer requirements andavailability from thermal plants.
3. Other Operating Revenue
(a) Income from sales of steam, industrial water and ash
(b) Revenues from the manufacturing/repair enterprises.
4. Other Income includes net income of the distribution constructionunits (SCM) which are self-accounting and independent from the enterprises.
5. Operating Expenses
(a) Operation, Maintenance and Administration expenses are based on theaverage cost per unit sold shown in CIEET's estimates as follows (in lei perKWh):
ANNEX 15Page 2 of 4
1975: .0693 1976: .0668 1977: .0648 1978: .0644
1979: .0663 1980: .0669 1981: .0645 1982: .0651
1983: .0651 1984: .0618 1985: .0605
The CIEET was not able to furnish any detailed breakdown of these costs andexplained that they are estimated on the basis of the historical cost perthousand units produced. Standard costs are agreed annually for purposes ofplanning by the State Planning Committee and the MEE. No escalation factorhas been built into these estimates.
(b) Purchased power comes from three distinct sources:
(i) imports from neighboring countries with whom trans-mission lines are interconnected;
(ii) surplus power from auto producers largely that of theMinistries of Chemical Industry and Heavy Machinerywhich generate power for heating purposes; and
(iii) electricity generated during the commissioning of newplant (operating costs are capitalized after offset-ting revenues received).
(c) Fuel costs are based on CIEET's estimates as follows (in lei perKWh):
The estimates have been derived from forecast quantities of fuel expected tobe available for power generation up to 1980. After 1980 the estimates re-flect the expected trend. No escalation factor has been built into theseestimates except in the case of coal for which about 3% per annum has beenallowed.
(d) Depreciation is calculated using the conventional straight linemethod. The rates are prescribed in Law 62 of 1968. The figures includedepreciation on the assets of the manufacturing/repair enterprises, but noton the distribution construction units. Depreciation on assets used by thedistribution construction units (SCM) which operate within each distributionenterprise is not included in the figures as SCM units are self-accounting.Average rates of depreciation have been applied based on CIEET estimates:
(a) Interest on invested funds which is applied at the rate of 4% onnet fixed assets at the beginning of the year and working capital funds.This interest is not paid on items financed by IBRD loans since the benefici-ary is already paying debt service on the loan. The MEE is proposing to seekrelief from the interest because the higher level of capital investment nownecessary and the greater emphasis on more capital intensive hydro works isadversely affecting the 5-Year Plan projections 1976-80. It is consideredthat the power sector is unlikely to be granted any special considerationand no change in this interest charge has been assumed, and
(b) interest and commitment fees on IBRD loans are provided accordingto the terms of the Turceni loan agreement and the proposed Bank loan. Inter-est on short-term loans by the National Bank are included under operation,maintenance and administration expenses.
B. Balance Sheet
7. Fixed Assets
Assets are valued in respect of their foreign content when financedfrom the proceeds of a Bank loan at a rate of exchange of US$1 = 20 lei plusthe duty applicable except where items manufactured or similar to those manu-factured in Romania are imported in which case they will be valued accordingto the Romanian catalogue price (internal prices) plus duty. However, theyno longer use the Romanian internal price for goods manufactured in Romaniawhich are financed from the loan but the foreign trade price converted atthe rate of US$1 = 20 lei. All other fixed assets are valued at constructioncost. Investments made by other Ministries and vice versa, as they are gen-erally not known, have been ignored. It is expected they would largely offseteach other. Net fixed assets in service correspond to the total of equity andborrowings.
8. Work in Progress
Finance for capital work in progress comes from three sources:internal cash generation, state budget allocations and investment creditors.The sum of these sources will match the work-in-progress figure in each yearof the forecasts.
ANNEX 15Page 4 of 4
9. Current Assets and Current Liabilities
Forecasts are based on estimates projected by the CIEET. Undistri-buted benefits at year end have been included under accounts payable - opera-tions and enterprise current balances are included under accounts receivable.
10. Sources of Working Capital
Funds are provided to each enterprise by the National Bank for work-ing capital to meet costs of production. They take two forms: a workingcapital fund which is fixed annually based on the minimum "normal" workingcapital required during the year and short-term loans which are drawn as re-quired to meet any excess. Short-term loans are made available from theNational Bank at rates of interest around 2-5% for periods up to a maximumof one year. They are repaid from benefits.
C. Sources and Applications of Funds
11. Benefits reinvested is the balance remaining to meet debt service andinternal requirements after deducting benefits distributed from operatingand other income. Benefits distributed comprise: state budget allocations,annual bonus distribution to workers, increase in working capital funds, pay-ments for modernization of plant, social welfare and the reserve fund.
12. Depreciation
Similarly with depreciation, an assumption was made that all de-preciation moneys paid to the Investment Bank by the enterprises of theIndustrial Central would be reinvested in the sector. However, in the caseof fixed assets that have reached the end of their useful life, depreciationcharges have been continued but only 60% of the depreciation has been treatedas a source of funds; 15% is distributed by the CIEET to other enterprisesfor non-centralized investments and the remaining 25% is used for improvingequipment within the enterprises.
13. Sales of Scrap are derived chiefly from materials used on investmentprojects. These funds are paid directly to the National Bank and are nottreated as income in the income statement.
Mlarch 1976
A-NNEX 16Page 1 of 4
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
Justification
Load Growth Forecasts
1. The growth of the Romanian power sector was comparatively rapidat some 16.5% p.a. during the decade 1960-1970. Thereafter it reduced toabout 10% on average in the period 1970 to 1975. The impact of the decreeof November 1973 enforcing economy measures in the use of energy, resultedin a sharp reduction of sales and power demand. However, since the objectivewas to improve efficiency of utilization rather than to restrict developmentand industrial output, and the production targets of the 5-year plan 1971-1975 are still intended to be met, the growth rate is expected to be about10% in 1975. Although this will have been affected by the flood damagesustained during June and July, the figures assumed for this report are ofacceptable accuracy for the purpose in hand. In the Romanian system, theestimates of future performance are derived from the correlation of statisti-cal trend analyses, the analysis of the power requirements to achieve theindustrial targets for the future 5-year plan period, and the socio-economicindicators for the period considered. This has led to a judgment that a7% annual growth rate for the period 1976 - 80 is likely to be followed bya 6% annual growth of electricity sales within Romania during 1981-1985.Such expectations are modest and may well be on the low side. Annex 2 showsthe projections on the basis described above.
2. At present, the system load factor is at a high 71% in terms ofenergy generated and power demand at the generator terminals. The high pro-portion of energy used by industry operating at high utilization factorssupports this condition. It is however expected that there will be a pro-gressive decline in the next decade to a 69% load factor and the systemmaximum demands shown in Annex 2 reflect this trend. The projected figuresof maximum demand used in this report are, however, 8-1/2%, and 14% below theofficial forecast demand for 1980 and 1985 used by the Romanians as a basefor their planting programs. It is clear from the diagram of the Romaniansystem planting capability and demand forecast, Annex 4, that there is a riskof over-planting in the later years. Up to 1977 there is likely to be aone year margin of safety in the commissioning of plant over and above theplanned system reserves shown in Annex 5. Thereafter unless developmentis faster than anticipated in this forecast, the program of planting becomesprogressively more premature until in 1983 it is three years in advance ofthe requirements.
ANNEX 16Page 2 of 4
3. As is to be expected, substantially all new plant to be commis-sioned in the period up to 1980 is either actively under construction or hasreached a stage of final commitment as has this Project.
Development Program
4. Mathematical models to evaluate and compare alternative developmentpatterns of the Romanian power system have been used by the borrower for morethan ten years. These evaluations have included the selection of the powergeneration development program, the development and analysis of the transmis-sion system, the probabilistic analysis of plant failure and system reliabil-ity leading to the evaluation of the optimum system plant reserve capacityand others.
5. In June of 1969, at the Power Systems Computation Conference held inRome, a paper was presented entitled "Models for the study of power systemdevelopment by means of digital computers". This paper describes a linearprogram to determine the present worth least cost development plan taking intoaccount the many variable assumptions that are usual in such work.
6. In 1972, at about the time that the decision to proceed with theRiul Mare Project was taken, a least cost development program was evaluatedand the final result is summarized in Attachment 1. It has not been possibleto review the program and input data used to obtain this result and such dataas was made available is not sufficiently complete to allow an independentanalysis which would give adequate confidence in the results to warrant theattempt. It must be remembered that the Project, Riul Mare-Retezat, is onlya small part of the total power station construction program. However, the
_ results indicate that under any of the assumed conditions of fuel importation,3'Ti2lelcost,and specifi$. nye,s,,ent cost for nuclear plant, there is a place
in 1985 for-,hydro peaking&capacity to,,he,extent of 400 MW and the Riul MareI project with its associated downstream cascade development, fills this needbeingt cheapest-of the hydro schemes from which a choice could be made.The impact of increased fuel costs since 1972 (the time of decision), wouldnot affect this situation. Whereas the assumptions of installed plant needshave been reduced by 29% since the program was run, this cannot be said toinvalidate the decision then taken to proceed with the Project, but indicatesthe need to review the program in respect of the timing of plant installationwhich is still amenable to change. On the basis of the limited data presented,the Borrower claims that the Riul Mare Project forms part of the least costdevelopment program. Facilities were however not granted to examine in detailthe data leading to this conclusion.
7. This Project is planned to come into service to the extent of 25%of full output in 1981, 52% in 1982, 85% in 1983 and to be fully operationalin 1984. In 1983, the 349 MW of Project plant is 15% of the total 2,327 MWof new plant to be commissioned in that year. At that time, the system peak-ing power requirement will be about 3,000 MW, towards which the Project will
ANNEX-16Page 3 of 4
contribute 11-1/2% in terms of power, and 12% in terms of the energy require-ment in the peak area of the load curve. The characteristics of the Projectare such that 96% or more, of its energy will be delivered during the systempeak demand hours for an average 5 hours per day. Thus, the benefits attrib-utable to the Project are at least as great as the value of the energy thatcan be sold during peak hours. Since all the available energy can be creditedwith the highest rate of benefit, it can be argued that the installation ofgreater MW power capacity would result in a lowering of the economic benefit/cost ratio. The Project is designed to operate the equivalent of 1,800 hoursper year at full power rating and fits into the peak area of the system loadcurve. Since the annual energy available from the water potential is fullyutilized in the design, any additional installed power capacity would resultin a lower annual utilization of the plant. Power demands of lower time dura-tion are more economically met by the application of power reserves of runningbase load plant or other low capital cost plant. The installed plant capacityis considered appropriate.
Calculation of Benefits
8. Since all the 349 MW of power and 630 GWh of energy from the Projectwill be sold in the system peak area, they will attract revenue appropriate tothat sales class. In order to judge as closely as possible the value at thepower station, it is reasonable to use the tariff that applies to customerspurchasing power at 110 kV and above. Under this tariff, power taken duringevening peak hours is charged at 706 lei p.a. per kW of demand and an energycharge of 0.30 lei per kWh.
9. The Project plant is assumed to have a station loss of 3% and trans-mission losses to the consumer's terminals of a further 5%. The saleablepower is thus 321.6 MW and energy 580.5 GWh p.a.
10. The benefit based on the foregoing would thus be:
Million lei
321,600 kW at 706 lei/kW 227
580.5 GWh at 0.30 lei/kWh 174401
Less annual cost of transmission lineoperation and maintenance
580.5 GWh at 0.002 lei/kWh 1400
which works out at 0.69 lei/kWh sold.
ANNEX 16Page 4 of 4
11. According to the Borrower's analysis of the yields from tariffs andthe sales allocable to the three areas of the load curve, in the categoriesof base, secondary peak and primary peak, the effective weighted valuesrelative to the average yield of the whole system is:
1.8 times average yield in primary peak,1.15 " " " secondary peak, and0.935 " " " base load area.
12. The average yield in 1974 was 0.324 lei/kWh for sales in Romania,whereas a yield of 0.373 lei/kWh was realized for export sales. It isreasonable to assume therefore that the higher figure is more representativeof the economic value than the lower internally controlled price. At peakperiods, the value would be not less than 0.373 times 1.8 i.e. 0.67 lei/kWhwhich relates well with the first estimate of 0.69 lei/kWh. It is reasonableto assume therefore that the direct benefits are not less than the saleableoutput valued at 0.67 lei/kWh, i.e. 389 million lei per annum.
13. An evaluation of the useful energy that could be generated down-stream of the Project both with and without the water storage capacity of theProject works, leads to the conclusion that a net gain of 100 GWh are obtain-able for sale, comprising a gain of 202 GWh at primary peak, a loss of 47 GWhat secondary peak and a loss of 55 GWh at base load in an average year.
Thus the benefit to be derived is:
Million lei
202 GWh at 0.67 lei/kWh 135.3
Less 47 GWh at 0.43 lei/kWh 20.2
Less 55 GWh at 0.35 lei/kWh 19.25
95.85
14. Although the regulation of the Riul Mare, and to a lesser degreethe Strei river before it joins the Mures river, will tend to make more wateravailable during the normally low flow periods, no basis was available forany assessment of its economic worth in terms of, say, supporting industrialdevelopments which previously would have been inhibited by the lack of areliable perennial source of water. The value of regulated water for agri-cultural purposes was not considered to be significant to the area involved.Flood control benefits were discounted because no evidence could be presentedof previous flood damage in the region influenced by the Project.
March 1976
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
Least Cost Development Program Analysis ofRomsanian Power Generation System
Assumptions:
Date analysis made: 1972
Projected plant requirements in 1985 Annual generation - 150,000 GWh, System maximum demand in December - 25,700 HP, System load factor 66.69%
Approximation of load duration curve 86.7 El - 16,840 hrs Period T comprises Jan, Feb., Mr., Oct.,80.7 E2 = 27~~~~~,51 hrs Nv,Dec.
72.2 E3 = 25,973 hrs71.1 ~~~~~Elf 9,938 hrs Period II April, May, June, July,
E5 30,607 hire Aug., Sept.57.5 E6 =27,150 hrs
54555 Blocks El & E4 - represent evening peak.E2 & ES - represent daily mean loaLd.
El E2 E3 Elf ES E6 E3 & E6 -represent night aLnd restdays load.
821 1617 1930 514 1796 2082 hrs/annum
GPeriod I - 4368 h ) FPeriod II - 4392 h
Energy resources available for power development:
a) Solid carboniferous: 15,464 x 103 tonnes coal equivalent of which
- lignite 10,600- brown coal 270- bituminous schyst 1,430- hard coal 3,194
b) Hydrocarbons 11,450 x 103 tonnes coal equivalent(oil and gas)
c) Industrial gases etc. 1,500 x 10 tonnes coal equivalent
d) Hydroelectric (defined later)
e) Nuclear
PI- 0aT
APPRAISAL OP
ThE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMARIA
Least Cost Development Program Analysis of
Romanian Power Generation SystemAssumptions:
Generating facilities: A. Existing and committed plant allowing for retirements in period 1975-1985.
a) Condensing thermal plant 10,100 MW of which
(i) natural gas fired with unit sizes from 50 to 200 MW 1,200 hW
(ii) oil fired with units from 200 MW to 330 MW 2,740 Mw
(iii) oil fired with units of 100 MW or less 300 MW
(iv) lignite fired with units of 200 MW 600 NW
(v) lignite fired with units of 330 MW 3,930 MW
(vi) coal fired with units from 100 to 200 MW 1,350 MW
b) Non condensing thermal plant 5,742 MW of which
(i) gas and oil fired with unit sizes from 50-100 YW 5,100 MW
(ii) coal fired with units greater than or equal to 25 MW 700 MW
c) Hydroelectric plant 5,160 MW producing 14,870 GWh in an average year; of which
(i) Primary peaking stations 2,139 MW 3,928 GWh
(ii) Secondary peaking stations 1,757 MW 2,190 GWh in period I and
2,920 GWh in period TT
(iii) Danube stations 1,265 MW " 2,655 G0Wh in period I and
3,155 GWh in period TI
B. Additional planting possibilities in period 1980-1985,
a) Hydroelectric plant
(i) Primary peaking capacity : Specific investment cost 11,000 lei/kW installed, Output; 400 MW and 800 GWh (Riul Mare)
Variants studied Variable Importation quantity Imported fuel price Specific investment cost of Nuclear plant
I No imports 540 lei/tce 7,000 lei/kW installed
II restricted 6imports 700 lei/tie 8,200 lei/kW Installedto TO x 10 tce
III unrestricted 900 lei/tce
Results: Varian-
Prarameter 1 2 3 4 5 6 7 8
Fuel importation level I T TT I IT I ITII TIT
Fuel importation cost level - I T III III I TIT
Nuclear investment cost level IT T II I II I II I
Total installed capacity of which 36,720 36,750 36,760 36,760 36,530 36,670 36,560 36,720Uncommitted capacity of which 15,760 15,788 15,799 15,799 15,570 15,710 15,600 15,764
Primary peaking capacity 4oo 400 400 40 4oo00 400 400 400Secondary peaking and base load capacity 440 243 - - - -Ramped storage capacity 1,000 845 139 139 4,94o 2,360 3,400 94Lignite fired with 330 md units 3,160 3,370 2,490 2,490 P,310 3,000 2,310 2,430Bituminous schale with 330 Ml units 750 750 750 750 680 680 680 680Oil fired with imported oil with 330 2W units 660 660 7,920 7,920 66o 660 6,210 8,680Nuclear capacity 9,350 9,520 4,100 4,100 6,580 8,610 2,600 3,480
Excess of cost over least cost % 16.78 8.68 3.27 0 21.32 8.50 3.25 8.04
Operating Cost & Increase Increase Total Net BenefitCapital Coot Capital Additiqns Operating
1 ost additional pjant Total Cost Sales from Riul Mare Strei Benefits + or -Year Basic in Cascades 1 Basic > in cascade L.Ž Basic Project Cascade Cascade Basic Basic
/1 On basis of initial value of civil works 3521 x 106 lei in 1983depreciated ror 4i years e ij p.m. straight line.
2 Assusms costs 30% greater than Borrower's estimate.3 Assumes cos
ts 5% greater than Borrower's estimate.
March 1976
ANNEX 17Page 1 of 3
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMA'NTA V
Comparisons with Alternatives
1. The ISPH has presented an analysis making comparisons with directalternatives in the form of an equivalent gas turbine plant and an equivalentpumped storage plant to achieve the same level of benefit as is attributableto the Riul Mare-Retezat Project including the enhanced power and energycapacities of the downstream cascades influenced by the storage and regulatingcapacity of the Gura Apelor reservoir. The following assumptions were made.
(1) The cost streams cover a 65-year period which supposes thatthe Project and the downstream cascade stations will take 15years to develop and that the works will have a 50-year lifethereafter.
(2) Alternatives are brought to a co'nmon worth base at the begin-ning of 1984 using discount rates of 4, 6, 8, 10 and 12%.
(3) The firm power of the Project is 328 MW to which 141 MW ofenhanced capacity of the cascade stations must be added givinga total plant capacity of 469 MW for the Project.
(4) The Project delivers 628 G1h p.a. to the system and the increasedcapacity of the cascade stations is 111 GWh p.a., i.e. a totalof 739 GWh p.a. after full development. Appropriate lesseramounts are allowed in line with the Project and cascade com-missioning prograrn.
(5) The cascade development of the Riul Mare will be executed inthe period 1983 to 1986 and that on the Strei downstream of theRiul Mare confluence between 1986 and 1988.
(6) Due to the lesser availability of gas-turbine plant the com-parable G.T. unit would need to be rated 1.18 times greater i.e.469 x 1.18 = 553 MW. Correspondingly to allow for greaterplant auxiliary losses the equivalent annual energy at alter-nator terminals will need to be 793 GWTh in a year of fullequivalent utilization.
(7) For a pumped storage alternative, the power at generatorterminals would be the same as the Project, 469 MW. To supplythe same delivered energy, 739 GWh assuming a pumping efficiency
ANNEX 17Page 2 of 3
of 68%, the pumps would absorb 1087 GWh p.a. at full utiliza-tion. Such energy would be supplied at marginal cost which isassumed to be the fuel cost only.
(8) The electro-mechanical plant was assumed to have a life of25 years after which it would be replaced.
(9) Operating costs for all plant are calculated assuming anaverage wage of 2,000 lei/month plus 15% contribution forsocial insurances as judged appropriate for the year 1980.
(10) The cost of additional plant in the cascade stations downstreamof the Project was assumed to be 2,000 lei/kW, and operatingcosts at 40 lei/per additional installed kW/year.
(11) Investment for gas-turbine plant is estimated at 2,750 lei/kWspread over a 3-year construction period in the proportion of25%, 45% and 30%. A plant life of 25 years is assumed.
(12) Gas turbine operation and maintenance not including fuel costsis 52 lei/kWh.
(13) Fuel costs are based on a price of US$66/t of fuel oil or 1,000lei/tonne coal equivalent fuel. The specific consumption of agas turbine is taken as 0.578 kg coal equivalent per kWh and0.4 kg coal equivalent for a steam plant in the secondary peakarea.
(14) The specific investment for a pumped storage scheme is taken aslei 4,000/kW installed spread over a four year constructionschedule in the proportion of 15%, 25% 35% and 25% and having alife of 25 years.
(15) Operation and maintenance costs of a pumped storage plant ex-cluding the pumping energy costs are taken as 70 lei/kWh.Pumping energy costs are based on the fuel costs of a base steamplant at 0.336 kg coal equivalent/kWh including transmission linelosses.
2. The comparison of the cost streams gives the following results interms of worth in 1980 in millions of lei, see Attachment 1.
3. In both comparisons the equalizing discount rate exceeds 10%. Al-though the Bank's estimate of the Project cost exceeds the 4,100 million leiassumed in this comparison, this will not significantly alter the conclusionsince similar increases would apply to the thermal alternatives and further-more full costs assumed in this comparison to reflect fuel oil at USS66 perton are some 33% lower than present or likely future costs.
March 1976
APPRAISAL OF
THE RIUL MARE-RETEZAT HYDROPOWER PROJECT
ROMANIA
Comparison With Other Po_wer StationsAnnual Costs (million lei)
Cascade Downstream the Riul Mare and Strei Rivers Gas-fuelledRetezat and Clopotiva Hydro Downstream the Riul Mare and thermal power station U.H.E,A.P,
Power Stations Strei Rivers Ex-Year Investments Expenditures Investments Expenditures Total Investments penditures Total Investments penditures Total
