RESTRICTED Report No. PU-36a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF WAPDA POWER PROJECT WATER AND POWER DEVELOPMENT AUTHORITY WEST PAKISTAN July 29, 1970 Public Utilities Projects Department Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
RESTRICTED
Report No. PU-36a
This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
APPRAISAL OF
WAPDA POWER PROJECT
WATER AND POWER DEVELOPMENT AUTHORITY
WEST PAKISTAN
July 29, 1970
Public Utilities Projects Department
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Currency Equivalents
Currency Unit a Rupee (PR)US$1 a PRs 4.76PRl US$ 0.21PRe 1 million u US$ 210,0001 paisa .O PR - 0.21 US cent
hoursNVA a Megavolt-aupre- 1,000 kilovolt-arperesM?VAr a MIgavolt-ampere reactivekV a Kilovolt 1,000 volts
WAPDA's Financial Year ends June 30
Abbreviations and Acronyms
APPA Airican Public Power AssociatLonHarza Hara ng Cmpar InternationalIBP Indus Basin Pro3ectKE5C Karachi M1ectric Supply Corporation Ltd.PIC Paldktan Insurance CorporationPMSD Power Market Survey DivisionSCARPs Salinity Control and Reclamation ProjectsUSAID U.S. Agmncy for International DevelopmentWAPDA West Pakiatan Water and Power Development Authority
WEST PAKISTAN
APPRAISAL OF WAPDA POWER PROJECT
TABLE OF CONTENTS
Page No.
SUMMARY AND CONCLUSIONS ............................ i
This report was prepared by Messrs. J. J. Fish and F. Rydell.
LIST OF ANNEXES
ANNEX
1. List of Recent Studies and Summaries of Recommendations
2. Detailed Description of the Project
3. Actual and Forecast Income Statements, 1965/66 - 1974/75
4. Actual and Forecast Balance Sheets, June 30, 1966-1975
5. Interest Schedule, 1969/70 - 1974/75
6. Amortization Schedule, 1969/70 - 1974/75
7. Debentures Schedule, 1969/70 - 1974/75
8. Forecast Source and Application of Funds Statement, 1969/70 - 1974/75
9. Schedule of Arranged Foreign Loans
CRART
1. Substation Capacity and System Demand, Actual and Forecast 1963-1975
MAP
WEST PAKISTAN
APPRAISAL OF WAPDA POWER PROJECT
SUMMARY AND CONCLUSIONS
i. This report covers the appraisal of a Project to augment the sub-station capacity of the power system of the West Pakistan Water and PowerDevelopment Authority (WAPDA). A development credit of $23 million isproposed, which would be relent to WAPDA on normal Government lendingterms for concessionary foreign credits, i.e. at 4X interest and repayableover 20 years after a grace period of 5 years. The Credit would cover theforeign exchange costs of the Project, whose total cost would be about$40.0 million equivalent.
ii. The Project would include about 900 MVA of substation capacity,which would meet WAPDA's requirement for transmission and distributionsubstations in its development program for the period 1971-1973. The Proj-ect also includes provision for teclnical assistance to establish a trans-former repair program and provision for employment of consultants for thestudy of certain management problems. WAPDA would engage consultants forprocurement and construction supervision. Other engineering arrangementsare satisfactory.
iii. This would be the first lending operation for WAPDA apart fromthe Bank Group's participation in the Indus Basin Development Fund Agree-ment. A separate group within WAPDA administers the Indus Basin Project(IBP) which is isolated from the rest of the organization. The proposedCredit will establish closer ties between the Association and WAPDAwhich should prove invaluable as the Indus Basin development program movesinto the operating phases.
iv. The quality of service offered by WAPDA's power system has beendeclining. Recent investigating missions have noted that institutionalreforms, as well as technical improvements in the system, are needed toreverse the decline. The proposed Project would remedy many of the tech-nical difficulties. To achieve some of the institutional reforms, WAPDAhas agreed to improve accounting and system planning, to review other managementareas where improvements in efficiency may be possible, and to introduce neededchanges.
v. Goods financed by the Credit would be procured by internationalcompetitive bidding, but participation of local suppliers would be permittedin contracts for low-voltage switchgear, with a local preference of up to15%. It is proposed that the Association finance the full cost of theswitchgear, whether from local or off-shore suppliers. If local supplierswin awards, about $800,000 of local costs may be financed from the credit.
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vi. The proposed project would provide substation capacity to supplywaiting agricultural and industrial loads, correct serious deficiencies inthe existing secondary transmission and distribution systems, and enablethe full benefits of earlier investments to be realized. The segmentednature of the Project, as well as the lack of accurate costs due tolimitations in WAPDA's accounts, makes it impossible to calculate anincremental rate of return for the Project. However, the specific returnwould tend to be very high; a result of the large investment in existinggenerating and transmission facilities.
vii. WAPDA's power investment requirements for 1970/71 through 1973/74mount to PRs 2,300 million (US$482 million). The proposed Credit wouldcover 5% of these requirements, other foreign loans approximately 35% andGovernment loans 37%. Miscellaneous income would provide about 2% and WAPDAhas agreed to increase its financial rate of return to enable it to financethe balance of 21% from its net internal cash generation. Much of this in-crease could come from improvements in system efficiency, but a tariff in-crease may be required later in the project period to obtain the necessaryfunds.
viii. The Project represents about half of WAPDA's investment require-ments for its secondary transmission program over the project period. Thisprogram is needed to utilize investments already made in generation anddistribution facilities. As a condition of the proposed Credit, the Govern-ment has agreed that sufficient funds would be made available for the Proj-ect and the related transmission lines needed to complete the secondarytransmission program to permit utilization of the Project facilities.
ix. The proposed Project would form a suitable basis for a developmentcredit of $23 million.
WEST PAKISTAN
APPRAISAL OF WAPDA POWER PROJECT
1. INTRODUCTION
1.01 The Government of Pakistan has requested Bank Group assistancein financing a Project to augment the transmission and distribution sub-station capacity of the power system of the West Pakistan Water and PowerDevelopment Authority (WAPDA). The total cost of the Project is estimatedto be about $40 million equivalent. The foreign exchange component of$23 million equivalent is proposed to be covered by a development creditto the Government, to be relent to WAPDA as the beneficiary under theGovernment's normal relending terms for power projects (paragraph 7.24).
1.02 The proposed Project would provide substation capacity to supplywaiting agricultural and industrial loads, thereby restoring balance toWAPDA's power system and enabling the full benefits of earlier investmentsto be realized. In addition, the Project would provide capacity for normalgrowth requirements during the first half (1970-1973) of the 4th Planperiod.
1.03 The Bank Group has had a long-standing involvement in water andpower development in Pakistan, principally through the Indus Basin develop-ment program. There have been two loans and one credit as contributionsto consortium financing of multi-purpose projects in the WAPDA servicearea: Loans 266-PAK (1960) and 548-PAK (1968), totaling $115 million,and Credit 60-PAK (1964) for $58.5 million. As the executing agency forthe project works, only a very small part of which has been for power,WAPDA has done a remarkable job of implementation. The Authority has alsodone well in meeting load growth in its power system under the handicap oflimited resources. Nonetheless, there are substantial shortcomings, asnoted in the reports of recent review missions (paragraoh 2.05); servicequality is mediocre and system losses and energy unaccounted for are veryhigh, among other difficulties. Financing for the proposed Project, whichwas requested by the Government early in 1969, provides an opportunity toassist WAPDA in seeking solutions to its power problems.
1.04 This report is based on information collected by Messrs. J. J.Fish and F. Rydell during an appraisal mission to Pakistan in November/December 1969.
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2. BACKGROUND
The Economq
2.01 Of Pakistan's total population oc 132 million, about 61 millionlive in West Pakistan. The annual per capita income in this Province isestimated to be $130. Although its economy is predominantly agricultural,there has been a very rapid growth of industry, which started from anegligible base at Pakistan's iriZependence in 1947 and reached 15% of GDPin 1968/69. Urbanization also has been increasing. Economic and politicalconditions have been generally unsettled in the past two years. It isexpected that the growth of the economy over the next five years will beabout 5% ?er annum; somewhet less than the 6% average annual rate achievedover the past decade.
2.02 Powe : demand in West Pakistan has been increasing at about 17%per year, due to the requirements of a-riculture for tubewell pumping andof industry and the urban centers for electricity services. This highgrowth rate - coupled wit.h WAPDA's lack of sufficient finances to properlyexpand the transmission and distribution capacity of its power system --has led to the decline in qual_ty of service provided by the power system.
Indus Basin Development
2.03 Under the Indus Waters Treaty of 1960, it was agreed that a seriesof civil engineering works should be constructed in West Pakistan to aid inthe replacement of river flows diverted to irrigation u3es in India. Theprogram of works, known as the Indus Basin Project (IBP), comprised linkcanals, barrages and Mangle Dam. Mangla, completed in November 1967, in-cluded 400 MW of generating capacity which was financed separately fromthe IBP. Further de'relopment of the Basin is being undertaken throughconstruction or the Tarbela Dam Project, started in 1968 and financed withConsortium assistance. WJAPDA, as the agency responsible for implementationof the IBP, set up a separate section in its organization to administer IBPand this section has enjoyed considerable autonomy. Previous Bank Grouplending operations for the IBP did not involve WAPDA's power wing, so theproposed Credit would be the first lending operation to WAPDA in its capa-city as a public utility.
2.04 WAPDA's power system is related to agricultural development in theIndus Basin in two important respects: (1) the system will come to dependheavily on the generating capacity of both Mangla and Tarbela, and (2) thetubewells included in the irrigation works already require one-fourth of thesystem's output and represent most of the waiting agricultural load. Thenumber of both private and public wells has increased dramatically since1960. From 5,000 in that year, the private tubewells have increased to75,000, half of them electrified and the remainder diesel-powered. By mid-1969 there were 3,800 operating public tubewells, all electrified withanother 2,400 completed and awaiting connection. The load characteristics
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of these tubewells lead to different patterns of power consumption; theprivate tubewell load varies with the farmers' need for supplemental irri-gation water, while the public wells -- installed in the Salinity Controland Reclamation Projects (SCARPs) for land reclamation purposes -- place aregimented high load-factor demand on the power system.
2.05 Four recent reports covering WAPDA and the power sector arerelevant to this appraisal. Descriptions of these reports and summariesof the recommendations are given in Annex 1. The first of these, the 1967Lieftinck Report, established the content and justification of WAPDA'spower system development program. This was followed by the report of a1968 Bank mission which reviewed progress in implementation of the Lieftinckprogram; gave detailed suggestions for improvements in operations and manage-ment in the fields of planning, accounts and billing, personnel and training;and recommended a study of WAPDA's organizational structure. In 1969 therewere two subsequent reports; one by Lord Hinton (the Bank's special advisoron power) which recommended narrowing WAPDA's responsibilities and improvingefficiency through changes in management policies, and the other--a study ofWAPDA's need for consulting services in management and operations--preparedby a group from the American Public Power Association (APPA) sponsored byU.S.AID.
2.06 During negotiations WAPDA agreed to undertake some of the changesin procedures and policies recommended in these reports; however, in viewof the then impending dissolution of unitary government in West Pakistan, itwas decided not to require specific changes in WAPDA's organizational structureas conditions of the proposed credit. Lord Hinton' s report, which containsrecommendations in line with the Bank Group's views on reorganization (para-graph 6.04), was distributed to the Government so as to be available whenthe decisions on WAPDA's future form are made.
3. THE POWER SECTOR
3.01 Generation of public power in West Pakistan is split between WAPDAand Karachi Electric Supply Corporation Ltd (KESC). KESC has 390 MW ofinstalled generating capacity and supplies Karachi and environs. Peak demandin 1969 was 200 MW. WAPDA, with headquarters in Lahore, operates four sys-tems supplying virtually the rest of West Pakistan (see Map). WAPDA's in-stalled capacity as of June 1969 was 1158 NW and the peak demand in 1969 wasabout 700 MW, not including load shedding estimated at 85 MW, made necessaryby the shortage of transmission and substation facilities. The largestsystem is the Northern Grid supplying the Punjab, which accounts for 90% ofWAPDA's sales and revenues.
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KESC
3.02 KESC has about 220,000 customers. Sales were about 1000 GWh in1969 and have been growing at about 17% in recent years, although the growthrate slowed to only 11% last year due to the generally unsettled politicaland economic conditions. KESC is a private s3tock company with Governmentparticipation. It possesses dynamic managemant and its system is well run.There is no significant unsatisfied demand. KESC has been the beneficiaryof four previous loans/credits; the latest (Loan 488-PAX. in 1967) coveredthe addition of a 125-MW unit at KESC's Korangi C generating station.
WAPDA Sales
3.03 As of June 1969, WAPDA had 1,072,000 customers, mostly in urbanareas. Sales for the year ending June 30, 1969, were about 3000 GWh, inthe following categories:
The importance of industrial and agricultural sales is evident. Bulk salesare primarily to private distrubutors operating in Rawalpindi and Multan;WAPDA sells at retail throughout the rest of the service area. Its saleshave grown at an average rate of 17% per year over the past 10 years despiteload shedding due to equipment shortages and breakdowns, the Indo-PakistaniWar, and periodic refusals to connect new loads (there has been a moratoriumon connection of agricultural and industrial loads since September 1968).Simultaneously, there has been a steady increase in losses and energy un-accounted for, from 24% of net generation in 1965/66 (already quite high) to32% in 1968/69. Increases in distribution system losses due to the need forsystem rehabilitation in urban areas account for a large part of these losses,but unrecorded consumption also ie significant and distorts the consumptionfigures given above. During negotiations WAPDA agreed with the Associationon a program for undertaking a comprehensive effort, administered by a spe-cific group, to identify and reduce system losses, and to report to theAssociation periodically on progress in this matter.
The WAPDA System
3.04 WAPDA's basic system is shown on the Map. The main generatingsources are the hydro plants in the north at Warsak (160 MW) and Mangla(400 MW), and thermal plants at Lyallpur (132 MW), Multan (265 MW) and nearthe gas fields in the south at Sukkur (50 MW) and Gudu (220 MW, under con-struction). In addition, there are gas turbines at Lahore and Hyderabad,and several small hydro stations utilizing head differences on irrigationcanals. The small system at Quetta is based on a coal-fired plant and willcontinue to be expanded on that energy source.
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3.05 WAPDA's basic transmission system is 132 kV, structured arounda double-circuit loop which forms the Northern Grid. A 220-kV line is just
being completed to connect Mangla with the load centers near Lahore, andthere is a 220-kV tie between Multan and Lyallpur. Subtransmission is at66 kV and 33 kV. By mid-1968, WAPDA had over 6500 miles of transmission/
subtransmission lines and over 23,000 miles of 11-kV distribution lines.
3.06 Part of WAPDA's difficulties in meeting system demand in recent
years has been due to forced improper operation of generating plant andother facilities, due to shortage of spare parts for proper maintenance and
repair. Steps to remedy this situation have been taken, notably through
obtaining Government approval to import spares on a cash-cum-bonus basis(i.e., purchasing foreign exchange through bonus vouchers, which raisesthe effective exchange rate to about PRs 9 per dollar), and developing a
routine program for identifying and purchasing adequate stocks of spares.
Load Forecasts
3.07 Routine load forecasting is the responsibility of WAPDA's Power
Market Survey Division (PMSD), a separate organization within WAPDA thathas its own staff in the Authority's regional offices. The Division pre-pares an annual forecast report, which is delivered to WA-PDA's other depart-ments much as a consultant's report would be. The Authority then proceedsto seek financing for the short-range development program outlined in the
PMSD report. Since this can be a protracted undertaking (paragraph 6.08),the required system changes are introduced only two to three years afterthe need is identified, and inevitably are unresponsive to interim shiftsin load patterns. This planning defect is partly responsible for the pre-sent shortage of substation capacity and the consequent inability of the
system to serve new customers. For example, in the new industrial areabetween Lyallpur and Lahore -- relocated as a result of the Indo-PakistaniWar -- the planning delay has resulted in a severe shortage of substation
capacity. Of the total of 31,600 applications for service pending inOctober 1969, representing 258 MW of load, nearly half were in the Lyallpur-
Lahore region. During negotiations this matter was disecussed and WAPDAagreed to review planning of short-range expansion and the function of thePMSD.
3.08 The PMSD estimate is demand-based and is used primarily as asystem planning tool. For revenue forecasting purposes WAPDA's accountingdepartment has prepared its own estimate of sales based on past trends.These latter estimates predict a rate of growth of 16% per annum for thefirst three years 1970 through 1972, and 10% thereafter. With suitableadjustment for system losses the accounts department's estimates of salescan be reconciled with PMSD demand estimates and also with the estimatesof sales and generation in the Lieftinck Report. The forecast shown inAnnex 3 is the accounts department's estimate adjusted for a decrease in
unbilled consumption. Because it is impossible to predict with any degree
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of accuracy the extent of the present large unsatisfied demand, the degreeof success which may be expected in reducing unbilled consumption and otherlosses, and the changing pattern of private tubewell utilization, theseforecasts will require frequent revision to enable adjustments to be madeto the development program as conditions change.
The Development Program
3.09 The power market in West Pakistan has been the subject of numerousinvestigations, notably the intensive study undertaken in conjunction withthe Lieftinck Report (paragraph 2.05), because of the economic importanceof the tubevell load and its relation to planning in the agriculture sectorand the need for reliable estimates upon which to base the Indus Basindevelopment. The basic structure of WAPDA's long-range program has beenestablished in these previous studies. The proposed Project would meetthe shortage of substation capacity which has developed in this program.
3.10 WAPDA's future generating program, which follows the Lieftinckreco mendations, includes the 2100-MWT Tarbela project (the first stage, 700MW, is under construction) additional units at Mangla, and a 200-MW additionat Gudu. No new generating sites are proposed through 1980, with the pos-sible exception of a 200-MW development at the Lakhra coal field near Hyder-abad. The 132-kV transmission system will be extended south from Sukkur toHyderabad and on to Karachi by 1972, replacing the temporary Hyderabad-Karachi connection and completing the interconnection along the full lengthof the Indus Basin. To make full use of Tarbela, however, a stronger tieis needed and will be provided by a 500-kV transmission link. The firstsection of this line, from Lyallpur to Gudu, is to be built under a pro-posed Russian credit, and the Tarbela-Lyallpur link is now being designed.The section from Gudu to Karachi is being restudied because of potentialproblems with saline corrosion and contamination, and as a result construc-tion will be deferred to 1978 or later. During negotiations WAPDA agreedto keep the Bank Group informed on the progress of these studies and theproposals for system development.
3.11 The generation and transmission program described in the precedingparagraph, together with on-going projects, accounts for 52Z of WAPDA's pro-posed investment during the 4th Plan period. The remaining 48% of the in-vestment, which includes the proposed Project, is for secondary transmission(15%) and distribution (33%). This program would increase WAPDA's totalfixed assets by 66% in the next five years. Though not an excessively highrate of expansion for an efficient utility of WAPDA's size, it may be ex-pected to put a severe strain on WAPDA's resources until such time as orga-nizational reforms can be introduced.
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4. THE PROJECT
4.01 The Project comprises primarily additions to and expansions ofWAPDA substations, including about 900 MVA of transformer capacity and neces-sary switchgear and auxiliary equipment. This would meet WAPDA's require-ments for substations for the first 3 years of the 4th Plan period (FY 1971-1975). Incidental transmission line materials, a transformer repair program,engineering services and management assistance also are included. Portionsof the Project will be taken into service as completed, and all work shouldbe finished by mid-1974. Annex 2 gives a detailed description of the Projectcontent.
Substations
4.02 The Project includes procurement and installation of equipment inhalf of WAPDA's 200 substations to reinforce the 220/132-kV and 132/66-kVsystems and to provide capacity to meet the growing demand. Less than 10%of the capacity to be added will be at new locations.
4.03 WAPDA has prepared detailed schedules of equipment, includingtransformers, proposed for each substation. Since one of WAPDA's short-comings is lack of flexibility in planning (paragraph 3.07), which willtake some while to correct, reasonable variations in locations and equipmentspecifications would be allowed during the execution of the Project providedthat the basic "reinforcement" character of the Project is not altered.
4.04 The Project includes devices for voltage control at distributionsubstations to supplement similar equipment being added under a U.S. AIDprogram, and 11-kV switchgear required to connect the proposed transformercapacity to the distribution lines.
Transmission Lines
4.05 The Project would include double-circuiting one section of the132-kV line between Dharki and Rohri in the Upper Sind area which will re-quire the addition of 64 route miles of new conductor on existing towers.This conductor, which would be of a type not manufactured in Pakistan, wouldcomprise the only major foreign exchange requirement in WAPDA's extensiveline-construction program complementing the proposed Project.
Transformer Repair Program
4.06 At the present time, about 300 MVA of substation transformercapacity (20% of WAPDA's total) is out of service. WAPDA has workshopsand heavy equipment adequate to handle these large units, but needs tech-nical assistance and financing for the repair parts and special equipment
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needed to make use of these facilities for rehabilitating transformers.The Project would include instructors for on-site training and the repairparts and equipment needed to continue the transformer repair program throughthe construction period. The engineering consultants (paragraph 4.08) woulddevelop and guide the program. Because of the uncertainty of the timing ofthe rehabilitation program and the exact technical characteristics of therehabilitated transformers, the Project cost estimate provides for all newtransformers. However, if available, suitable repaired units would be subs-tituted for new units otherwise required.
Cost Estimate
4.07 The estimated costs of the Project are shown below:
Local Foreign Total Local Foreign Total- - - PRs million - - - - US$ million - -
Total Construction Cost 79.3 109.5 188.8 16.7 23.0 39.7
The contingency allowance of about 10% is reasonable. The local costs in-clude 50% duty on imported materials. Excluding the duty, the distributionsubstations would cost about $15/kVA, which is comparable with substationcosts in similar systems.
Engineering; Consulting Assistance
4.08 The basic system design was prepared by Harza Engineering Co.International (Harza), a U.S.A.-based firm, WAPDA's general con-sultants. Detailed designs and specifications are being prepared byWAPDA's Design and Standards Department. During negotiations WAPDA con-firmed that it will engage consultants to review and approve the specifi-cations and supervise implementation of the Project. As a condition ofeffectiveness of the proposed Credit, WAPDA would be required to have com-pleted arrangements for engaging the consultants. In addition to theseconsultants, the project also includes provision for management assistanceas described in paragraph 6.03.
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Procurement
4.09 Except for transformer repair parts and other minor proprietaryitems, procurement will be by international competitive bidding in accord-ance with the Association's guidelines. Participation of local manufacturersof 11-kV switchgear would be allowed, since Government has agreed to waivethe prohibition on the import of such switchgear in the event the contractawards are won by off-shore suppliers. A local preference of 15% onthe CIF price, or the prevailing duties if lower, has been requested bythe Government and would be allowed. It is proposed that the full cost ofthe 11-kV switchgear be financed from the Credit, whether provided by localor off-shore suppliers. This cost is estimated at $1,600,000. Since thevalue added in local manufacture is estimated to be 35% to 60%, or anaverage of about 50%, about $800,000 equivalent of local costs would befinanced if all the contracts are awarded to local firms. These would bethe only local costs financed from the Credit.
4.10 WAPDA's previous practice has been to construct grid stationsunder large multiple-station furnish-and-install contracts. This procedurerequires the participation of local contractors and manufacturers' agents.For the bulk of this Project, WAPDA has agreed to invite separate tendersfor transformers and other equipment and local erection services. Thisprocedure should encourage wider participation and consequently lower prices.
Disbursements
4.11 Disbursements under the proposed Credit would be restricted to theactual foreign exchange cost of imported materials and services, withthe exception of costs of 11-kV switchgear (paragraph 4.09). Savings resul-ting from the utilization of repaired transformers or favorable purchasecosts, and which are not needed for the Project, would be cancelled.
4.12 Some previous Bank Group operations in Pakistan have been subjectto protracted delays in disbursements, in some cases arising from the com-plex import-licensing arrangements. To avoid a repetition of this ex-perience, during negotiations discussions were held with WAPDA and the Gov-ernment to identify possible problems. The engineering consultants (para-graph 4.08) would be requested to bring to the attention of WAPDA and theAssociation any such matters that threaten to delay the Project.
5. PROJECT JUSTIFICATION
5.01 WAPDA's power market has been the subject of several studies indepth in connection with the Indus Basin development (paragraphs 2.05 and3.09). Routine load forecasting for system planning is the responsibilityof WAPDA's Power Market Survey Division (PM.SD). The latest forecasts madeby PMSD (paragraph 3.08) closely coincide with results from earlier studies
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when allowances are made for assumptions concerning the loss-reductionprogram and changes in shape of the demand curve. WAPDA's present planningis based on the latest PMSD forecasts.
5.02 The basic structure of WAPDA's long-range development program hasbeen established from the load forecasts made in the earlier studies, theprogram being the least-cost solution to the problem of meeting the fore-casts. Because no substantial modifications are being proposed in the fore-casts, no major changes in the development program are contemplated. Un-fortunately, partly due to the protracted time in implementing projects andpartly due to inadequate planning, as presently seen, a shortage of distri-bution equipment has developed especially with respect to substation equip-ment, e.g., substation transformers (as shown in Chart I). The Project in-cludes equipment required to make good the shortage and thus enable the out-put from the largei program of new generating equipment to be made effective.
5.03 The proposed Project comprises part of WAPDA's development program.Because of the program's complexity and the segmented nature of theproject (see paragraphs 3.11 and 4.01), as well as the lack of adequate costdata from WAPDA's accounts, it has not been found possible to calculate anincremental rate of return for either the Project or the development programas a whole. Since the need for the Project is acute in order to utilize thegenerating and transmission facilities (paragrah 5.02), whose costs can beregarded as "sunk" (i.e., would be excluded from the arithmetic of the rateof return calculation), the rate of return for the Project would tend to behigh.
6. THE BENEFICIARY
Organizational Structure
6.01 WAPDA was created in 1958 as an autonomous agency of the Govern-ment of West Pakistan to "... provide for the unified and coordinateddevelopment of the water and power resources of West Pakistan." The Actestablishing the Authority vested in it substantial powers to accomplishthis purpose, but these have been eroded by subsequent specific regulationsand de facto relationships that have developed between the Authority andthe Government.
6.02 WAPDA is organized in two "wings" -- one dealing with power andthe other with the construction of major irrigation works (the "water"wing). Whereas the preceding discussion in this report has centered on theoperations of the power wing, the comments on organization and relatedmatters in this section apply equally to both wings.
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6.03 The Act of 1958 specified that the Authority would consist of aChairman and two members; a third member (Finance) was added in 1967. TheAct implies that the Authority (the board) is to be a policy-making body,but in fact the regulations that were adopted reserve so many decisionsto the board that inevitably it is drawn into the day-to-day operations.This has resulted in delays in the decision-making process, which constitutesone of WAPDA's main weaknesses. As part of a reorganization in December1969, the two members concerned with the power and water activities, respect-ively, were designated "Managing Directors" and are to function as the chiefexecutives of entirely separate organizations below board level. The thirdmember retains control over some central functions such as legal services,the computer, budget coordination, and WAPDA House. Each wing memberhas the benefit of staff advisors. As this reorganization is still ina state of flux, it is too early to tell whether it will be effective inreducing the backlog of administrative matters awaiting decision. Duringnegotiations WAPDA agreed to employ consultants or make other arrangementsin consultation with the Association for studies in the fields of management,accounting, engineering and training and for reviewing the recommendationsresulting from such studies and the means of implementing such recommendations.WAPDA also agreed to review with the Association before December 31, 1970, themethods to be used in carrying out these studies and, when recommendationshave been received, the time schedule for implementing the accepted recom-mendations. This will include reviewing with the Association whether thestudies and their implementation can best be carried out by WAPDA itself orby consultants. The foreign exchange cost of such consultants may be financedin whole or in part from the proposed Credit provided they are employed underterms and conditions satisfactory to the Association. The consultants couldinclude a team of experts drawn from a public utility or related organizationin line with Lord Hinton's recommendations on this matter (Annex 1, page 5,para. x).
Reorganization
6.04 The dissolution of West Pakistan into four smaller provinces mayresult in some changes in WAPDA's organizational structure. TheBank Group has indicated to the Government a preference for a form oforganization -- essentially that recommended in Lord Hinton's report -- inwhich the power wing would remain intact under some sort of federal umbrella.Responsibility for generation/transmission would remain principally a centralconcern, but local offices could be given increased autonomy for distributionand retailing operations. This would preclude problems of assuring financialautonomy and viability, coordination of planning, and utilization of scarcemanagement talent -- all or some of which would arise in any other form ofreorganization involving a redistribution of WAPDA's assets. An extremereorganization that established independent operating agencies in eachprovince would be a retrograde step, and it is difficult to envisage such anarrangement working successfully.
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6.05 The dissolution decree issued by the President on April 2, 1970,provides that WAPDA shall remain as an entity under the Office of the Presi-dent, guided by a multi-provincial council. While this appears to be asatisfactory arrangement, its continued functioning will depend on WAPDA'sability to improve its efficiency and provide effective service. Duringnegotiations WAPDA agreed to keep the Association informed of any subse-quent proposal for reorganization; however, In order to protect the Asso-ciation's interests, the legal documents for the proposed Credit includeprovision that any substantial change in organization affecting WAPDAwhich would have an adverse effect on the Project or WAPDA's operationscould be considered an event of default.
Consulting Services
6.06 Since 1960, WAPDA has retained Harza as its general consultantsfor engineering and planning services in both the power and water fields.During this period, Harza has trained WAPDA staff in this work and hasgradually transferred much of it to WAPDA. Harza's contract has been financedunder a series of U.S. AID loans/grants. In addition, WAPDA employs projectconsultants on an ad hoc basis.
Personnel
6.07 WAPDA is one of the largest employers in Pakistan and along with itscontractors employs 73,000 persons. Half of these are direct employees ofthe Authority's power wing, including about 1000 engineers. Because of adeliberate policy of labor-intensification on the part of the Government,the absolute number of employees is larger than would be expected in asimilar size utility elsewhere in the world. An investigation of thisaspect of WAPDA would fall naturally to the management consultants (para-graph 6.03). Utilization of the engineers presents a problem, as thetendency is to treat this group as a cadre of generalists to be drawn on formanagement talent. As a result -- and also because of specific promotionpolicy -- advancements tend to be attained obliquely rather than verticallyin the organization; hence there is little, if any, continuity of experiencein any one discipline. This policy has inhibited the Authority in developinga cohesive, responsive organization, and it is this point that is most oftencritized by those reviewing its or-anization (cf. Annex 1, the summaries ofrecommendations). During negotiations WAPDA agreed to review its employeecareer-development policy as one of the areas to be studied in the reviewof management procedures.
Financial Constraints
6.08 Under present Pakistan Government policies, the Authority isdependent on direct external aid arrangements to finance the foreign ex-change costs of its major projects. In the past these have been largelybilateral and barter agreements. While it has been relatively easy toobtain credits for major generation and transmission projects under such
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arrangements, the financing of substation capacity, spare parts and similarsmaller requirements has presented problems, particularly with respect tothe lack of flexibility for changes in project content and underestimatingthe time needed to arrange credits for this purpose. One result is thepresent shortage of substation capacity, which has become a serious bottle-neck to system growth. As equipment for distribution and sub-transmissionlines is available from local sources, there have been fewer problems inthis part of the power system.
6.09 The Act of 1958 requires WAPDA to obtain Government approval ofany "scheme" which it intends to construct. This provision has been inter-preted as requiring Government approval of all capital expenditures WAPDAproposes, including requirements for normal system expansion in substations,secondary transmission, and distribution. This is in addition to the 5-yearand annual budgets presented for Government approval. Government control ofmajor investment decisions, particularly for multi-purpose schemes, isnecessary; but excessive control of other expenditures inhibits WAPDA'sability to fulfill its basic function of providing adequate service to allwho apply. This inhibition shows up most often as cutbacks in the distri-bution program where incremental changes are most easily accommodated.During negotiations this matter was discussed, particularly with respect toWAPDA's ability to retain increases in internal cash generation resultingfrom increased efficiency thus providing incentive for WAPDA to introduceoperating economies and reduce losses.
Accounting
6.10 WAPDA's present accounting system is based primarily on the onethat existed in pre-partition days, with subsequent modifications. Such asystem -- essentially concerned with accountability of cash and verificationof expenditures, and based on obsolete accounting procedures and records --cannot provide management with the meaningful and timely financial informa-tion necessary for decision-making and control over operations. Duringnegotiations assurances were obtained that WAPDA would establish an im-proved accounting system for the power wing satisfactory to the Associa-tion. This system will be based on a system of accounts especiallyadapted to public utility accounting and capable of supplying timelymanagement information.
6.11 Fixed plant accounting is deficient, as the fixed assets are notclassified. Classification of assets is essential for recording proper depre-ciation charges. Because of this situation TJAPDA has been recording annualdepreciation by applying a flat 2-1/2% rate to all fixed plant in operation.Based on WAPDA's own preliminary estimates of the value of fixed assetsthat could be classified under the major headings of hydro and thermalgeneration and transmission and distribution, and applying normal deprecia-tion rates to these classifications, a composite depreciation rate of 3-1/2%is obtained. During negotiations assurances were obtained that -- until plantaccounts have been properly classified and the correct depreciation re-corded -- the annual depreciation rate will be increased to 3-1/2% com-mencing in FY 1970/71.
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6.12 WAPDA's computer center functions as a separate service depart-ment. It has its own budget and charges are recorded for the services itrenders to other departments or to organizations outside WAPDA, such as thePakistan Western Railway and the Police Department. The IBM 360/30 computersystem was commissioned in December 1968. In the beginning many problemswere encountered, particularly with respect to acquiring experienced per-sonnel and the training of staff, but these are now being overcome.
7. FINANCIAL ASPECTS
7.01 Since the proceeds of the proposed Credit will be totally allo-cated to power development, the information in this section applies onlyto WAPDA's power wing. The information in the financial statements isderived from WAPDA's power wing accounts, which are kept independently fromthose of the water wing and the whole organization, and for purposes ofthis report the forecast has been based on the assumption that WAPDA willretain its present form after the Provincial break-up (paragraphs 6.04 and 6.05).Rven if it does not retain this form, the forecast should still remainvalid since the consolidated systems must operate as a viable power sector.
Tariffs
7.02 The Act of 1958 authorizes the Authority to establish its owncharges for electricity, but in practice WAPDA must secure Governmentauthorization before new rates can become effective.
7.03 The Act provides that --
"The rates at which the Authority shall sell power shallbe so fixed as to provide for meeting the operatingcosts, interest charges and depreciation of assets, theredemption at due time of loans other than those coveredby depreciation, the payment of any taxes and a reason-able return on investment."
The Government has never specified what constitutes a "reasonable" return,and this lack of a clear financial goal has led to unsatisfactory earnings(paragraphs 7.07 and 7.08) and inadequate funds (paragraph 2.02).
7.04 WAPDA's tariffs have been criticized as being complex and in-equitable, and several tariff studies have been made in recent years byHarza, the Harvard Advisory Group, and WAPDA's own personnel. These
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studies were undertaken for the primary purposes of simplifying the ratestructure, making charges more equitable, and providing WAPDA with morefunds for expansion purposes. In the light of these studies the Authorityrevised its tariffs as of July 1, 1969. These revisions simplified charges,corrected some inequities and increased the average revenue per kWh soldby about 18%, from 11.01 paisa/kWh to about 13.0 paisa/kWh (2.7 US¢/kWh).
7.05 As will be seen from the financial plan, it has been assumedthat WAPDA would provide from its net internal cash generation about 21%of the total funds required during the construction period of the project.WAPDA could achieve this increased level of self-financing in one or moreways; e.g., by tariff increases, increases in sales beyond those forecastor an increase in operating efficiency. For the present forecast it hasbeen assumed that, in addition to reducing system losses (paragraph 3.03),a tariff increase of about 8% would become effective at the beginning ofFY1972/73. These improvements are expected to result in rates of returnof 8.1%, 8.0%, and 8.4%, respectively, in the years 1972/73, 1973/74, and 1974/75. During negotiations assurances were obtained that WAPDA would achievean annual rate of return, after depreciation charges as specified in para-graph 6.11, of not less than 8% commencing in 1972/73, that Government wouldpermit WAPDA to increase its tariffs if necessary in order to achieve sucha return, and that WAPDA would not reduce its tariffs below present levelsin the years to 1972/73. WAPDA further agreed to work towards the goal ofachieving a 10% rate of return and generating sufficient funds forfinancing at least 30% of its capital expenditures while maintaining adebt-service coverage of not less than 1.5. The means of achieving theseobjectives are to be reviewed with the Association not later than June30, 1972.
Past Operations
7.06 Income statements covering operations for the years ending June30, 1966, through 1969 are shown in Annex 3. Highlights of these incomestatements are summarized in the following table, with the rupees expressedin millions:
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Item 1965/66 1966/67 1967/68 1968/69
1. kWh sent out (million) 2,754 2,847 3,520 4,2942. kWh sold (million) 2,089 2,097 2,486 2,9393. kWh sold as a percentage of
9. Total interest charges (PRs) 87 99 103 13510. Net income (PRs) 14 (14)2/ 35 211. Rate of return 4.7% 3.5% 6.1% 5.2%12. Times interest covered 1.0 0.7 1.2 0.9
1/ Decrease2/ Net loss
7.07 The data in the above table does not depict very successfuloperations during the period 1965/66 through 1968/69. Especially signifi-cant is the percentage of kWh sold to kWh sent out, which shows a veryunfavorable trend. The year 1966/67 was a particularly unfavorable year,as indicated by the low rate of return of 3.5%, but this was primarilyattributed to the aftermath of the Indo-Pakistani War. Interest coveragewas inadequate during the period.
7.08 The table indicates the volatile nature of WAPDA's past opera-tions, especially the yearly up and down movement of such important itemsas operating expenses (items 6 and 7), operating ratio (item 8), net income(item 10), rate of return (item 11) and interest coverage (item 12). Therates of return achieved during the years 1965/66 through 1968/69, rangingbetween 3.5% and 6.1%, cannot be considered as satisfactory. Moreover,the reported earnings during this period have been overstated to the extentthat WAPDA did not record adequate depreciation charges (paragraph 6.11).With proper depreciation charges, the range of the rate of return wouldhave been 2.4% to 4.9%.
Present Financial Condition
7.09 WAPDA's balance sheets as of June 30, 1966, through June 30, 1969,are shown in Annex 4. The balance sheet as of June 30, 1969, was obtainedduring the November/December 1969 appraisal mission, at which time WAPDA'sbooks for the fiscal year had not yet been officially closed. Althoughprovisional and unaudited, it is deemed acceptable for purposes of thefollowing review of WAPDA's financial position:
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Summary Balance SheetJune 30, 1969
Amount (million)US$
ASSETS Rupee Equivalent
Fixed Assets
Net fixed assets in operation 2,879 605Work in progress 302 63
1/ Includes PRs 63 million long-term debt due within one year.
7.10 Fixed assets in operation consist of the following:
(PRa million)
Assets transferred from the ElectricityDepartment of the West Pakistan Provin-cial Government 424
Assets transferred from Central Government 720
Assets acquired since 1958 2,143
Total 3,287
Less: Reserve for depreciation 408
Net fixed assets in operation 2,879
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7.11 Assets transferred from the Electricity Department in 1959 weretaken over at original cost less accumulated depreciation. Assets trans-ferred from the Central Government consisted of Warsak hydro plant at PRs260 million and Mangla hydro plant at PRs 460 million. Transferred costsof both hydro plants were based on construction costs directly associatedwith power only, such as intake structure, tunnel, power house, mechanicaland electrical equipment, and switchyard facilities.
7.12 The capital consists of PRs 1,311 million equity and PRs 1,916million debt excluding PRs 63 million debt due within one year. Valuationsassigned to the transferred assets are offset in the balance sheet bysimilar amounts in the equity accounts. The justification for classifyingthese accounts as equity is based on a 1969/70 agreement between WAPDAand the government that the Authority would not be obliged to repay theprincipal amounts, but would be required to pay a 4% annual return onthe value of the transferred assets.
7.13 The following schedule summarizes the debt position as of June30, 1969, including long-term debt due within one year:
Amount (million)us $
Source Rupee Equivalent
West Pakistan Provincial Government 1,286 270Debentures 295 62Foreign loans 398 84
Total 1,979 416
Details on these loans may be found in the Interest and AmortizationSchedules in Annexes 5 and 6, respectively.
7.14 Because of local fund shortages on the part of the West PakistanProvincial Government, WAPDA was authorized by the Government in 1961/62to issue debentures. Debentures were sold to local banks and insurancecompanies, and all issues were secured by mortgages on specific powerstations. Details are given in Annex 7.
7.15 WAPDA's balance sheet at June 30, 1969, shows a current ratioof 1.4/1.0 and a debt/equity ratio of 60/40, and indicates a satisfactoryfinancial position at that time.
Audit
7.16 Under its Act, the Authority is required to be audited everyyear by the Comptroller and Auditor-General of Pakistan. About 400 Govern-ment auditors are attached to the Authority on a permanent basis; they are
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located at all points of its operations throughout West Pakistan. Most oftheir activities are confined to the detailed audit of claims for reim-bursement prior to actual payment, and stores control. The annual auditreport contains copies of the financial statements and the comments areprimarily limited to such routine matters as shortages of stores and dis-crepancies in expenditures.
7.17 In addition, annual audits are made 'oy external independentauditors; A. F. F'erguson and Company, a firm of U.K. Chartered Accountants,audits the water wing, and Rahim Jan and Company, a Pakistani firm of manage-ment consultants and Chartered Accountants, audits WAPDA's Machinery PoolOrganization, which is accounted for as another separate entity. Thepower wing, however, does not employ external auditors. During negotia-tions assurances were obtained that WAPDA would engage independent auditorsacceptable to the Association to carry out annual audits of the power wingand issue complete and detailed audit reports, commencing with the year1970/71.
Insurance
7.18 About one-half of WAPDA's insurance is carried with the PakistanInsurance Corporation (PIC), a semi-autonomous company under the Ministryof Commerce. Local private insurance companies provide the remaininginsurance. If the coverage involves imported power facilities andmaterials, the insurance placed with Pakistani insurance firms is rein-sured with foreign insurance companies.
7.19 While on the surface it appears that WAPDA's insurance coverageis satisfactory, in effect there are many shortcomings. Within the past5 years WAPDA has had difficulty in settling its claims with PIC.Current unsettled claims with PIC total about PRs 5 million, repre-senting about 50 claims on plant and about 300 claims relating to marineand transit insurance. Another problem is the current procedureof collecting claims involving foreign exchange. In many cases a claimagainst a foreign insurance company is settled and Lhe foreign exchangeis credited to the State Bank of Pakistan in favor of the local insurancecompany. The latter then remits these funds, converted into rupees at theofficial exchange rate, to WAPDA. To replace the damaged items, WAPDA mustthen re-acquire the necessary foreign exchange at a rate much higher thanthe official rate, thereby materially increasing the purchase price. Thisadded cost to WAPDA could be avoided if the proceeds of the foreign in-surance claim would be credited to the Authority as foreign exchange avail-able for replacement purposes, or if settlement of claims could be madeby the actual repair or replacement of damaged equipment or materialsrather than through cash payments. During negotiations arrangementssatisfactory to the Association were agreed upon whereby WAPDA would beprovided with adequate insurance protection.
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Financial Plan
7.20 Forecast source and application of funds statements for the 6-year period 1969/70 through 1974/75 are shown in Annex 8. While theproposed Project is expected to be essentially completed by the end of1972/73, some work and final retention payments will be carried over into1973/74.
7.21 In the 4-year period through 1973/74, fund requirements areexpected to total about PRs 2,295 million (US$482 million equivalent),consisting of estimated construction expenditures of about PRs 2,233 mil-lion (US$469 million equivalent) including interest during construction,and an increase in net working capital of PRs 62 million (US$13 millionequivalent). The proposed Project, estimated to cost about PRs 208 million(US$44 million equivalent) - including interest during construction of aboutPRs 19 million (US$4 million equivalent) - represents only about 9% of thefund requirements.
7.22 A summary of the source of funds for the 4-year period 1970/71through 1973/74 is presented in the following table:
Amortization of long-term debt 354 74Debenture sinking-fund requirements 56 12Return on equity 183 38
Total Deductions 1,196 251
Net Internal Cash Generation 471 99 20.5
Borrowings 1,772 372 77.2
Other Sources 52 11 -2.3
Total 2,295 482 100.0
7.23 On the basis of the revenue forecast as shown in the income state-ment (Annex 3), WAPDA would provide about 21% of the required funds from itsinternal cash generation after payment of interest charged to operations,amortization of long-term debt, debenture sinking-fund requiroments, andreturn on equity. Except for a very small amount from other sources,about 2% of the required funds and consisting mostly of interest
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income and security deposits, the balance of the required funds would beprovided by long-term borrowings amounting to about PRs 1,772 million or77% of the total as shown below.
Item Amount (million)US$
Rupee Equivalent
1 Undrawn balances of existingforeign loans 1.5 0.3
2 Proposed Central Government loan(IDA Credit) 109.5 23.0
3 Other foreign loans 805.2 169.2
4 Government loans 855.9 179.8
Total 1772.1 372.3
7.24 Estimated draw-downs of these loans are shown in Annex 8, interestpayments in Annex 5, and amortization payments in Annex 6. It has beenassumed that the Credit proceeds would be relent to WAPDA on normal Govern-ment lending terms for concessionary foreign exchange loans for power pro-jects -- i.e., 4% interest, a grace period of 5 years, and an amortizationperiod of 20 years. Items 1, 2 and 3 above cover the total estimated for-eign costs of the construction program during the 4-year period, 1970/71through 1973/74. Of this total, WAPDA has already made arrangements for 9foreign loans amounting to about PRs 198 million. Details on these newforeign loans are given in Annex 9. The Government loans are the localfunds necessary to cover the estimated local costs which will not beprovided from WAPDA's own funds.
7.25 The financial plan is satisfactory. During negotiations assur-ances were obtained from the Government that if there is a shortage of fundsto complete the Project, sufficient funds to cover such shortage will prompt-ly be made available to WAPDA. This covenant was extended to cover WAPDA'ssecondary transmission project, which is the only portion of the capital in-vestment program directly related to the proposed Project.
Future Earnings
7.26 Forecast income statements showing operating results for the 6-yearperiod 1969/70 through 1974/75 are presented in Annex 3. The estimated saleof energy during this period has been based on WAPDA's forecast, which israther conservative. Sales are expected to increase about 106% -- from kWh2,939 million in 1968/69 to kWh 6,040 million in 1974/75, and sales revenue
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is forecast to increase about 162% -- from about PRe 324 million in 1968/69to about PRs 850 million in 1974/75. This revenue estimate is based on the18% increase in average price per kWh which became effective in July 1969,and an additional 8% increase to become effective in July 1972 (paragraph7.05). Depreciation charges have been included on the basis of a 3-1/2%composite rate (paragraph 6.11).
7.27 Under these assumptions, WAPDA's estimated annual rate of returnon the average net fixed assets in operation should increase from 5.2% in1968/69 to a high of 8.4% in 1974/75. Interest coverage would increasefrom 1.3 to 1.6 times and annual debt service coverage would vary between1.2 and 1.6 times; somewhat low, but satisfactory in view of Government'sfinancial participation in WAPDA and the large expansion program.
Future Financial Position
7.28 Forecast balance sheets (Annex 4) show WAPDA's financial positionat the end of each year 1969/70 through 1974/75. The balance sheets clearlyreflect the extent of WAPDA's expansion during this period. Gross fixedassets in operation increase about 78% -- from PRs 3,287 million at June30, 1969, to PRs 5,840 million at June 30, 1975.
7.29 A new asset, the debenture sinking-fund account, appears on thebalance sheets commencing in 1969/70. This account increaes from PRs 12million in 1969/70 to PRs 84 million in 1974/75 through sinking-fund de-posits and accrual of interest earned. By 1978/79 this fund is expectedto reach PRs 105 million, at which time it will be used to redeem Deben-tures Issue V, the last outstanding debentures.
7.30 The current position should remain satisfactory throughout the6-year period. This is indicated by a current ratio ranging from 1.3/1.0to 1.7/1.0.
7.31 It is not contemplated that the Government will make any futureequity investments, and therefore the increase in equity will result onlyfrom accumulated retained earnings. Total equity is shown to increasefrom PRs 1,311 million in 1968/69 to PRs 1,763 million in 1974/75 or about34%.
7.32 Total long-term debt shows a substantial increase of about PRs1,840 million -- from PRs 1,979 in 1968/69 to PRs 3,819 million in 1974/75.This large increase is not unexpected, since under the financial plan long-term debt would be providing about 77% of the total fund requirements duringthe Project construction period (paragraph 7.23). Although large, the debtis not excessive, as indicated by the debt/equity ratio in Annex 4. Thisratio is 60/40 at the end of 1968/69 and would reach 70/30 during the threeyears 1971/72 through 1973/74, declining to 68/32 in 1974/75.
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8. RECOMMENDATIONS
8.01 During negotiations agreement was reached on the following prin-cipal points:
(a) a program for reducing losses (paragraph 3.03);
(b) employment of consultants or making other arrangementsin consultation with the Association for studies ofmanagement problems and for implementing neededchanges (paragraphs 6.03 and 6.07);
(c) improving WAPDA's accounting system and procedures, in-cluding depreciation practices (paragraphs 6.10 and 6.11); and,
(d) a rate of return of not less than 8% starting with fiscalyear 1972/73 (paragraph 7.05).
8.02 The proposed Credit would not become effective until WAPDA hascompleted arrangements for engaging engineering consultants for theProject (paragraph 4.08).
8.03 The proposed Project forms a suitable basis for a developmentcredit of US$23.0 million, to be relent to WAPDA at 4% interest for a termof 25 years including a 5-year grace period.
July 29, 1970
ANNEX 1Page 1 of 6 Pages
PAKISTAN
WAPDA POWER PROJECT
LIST OF RECENT STUDIES AND SUMMARIES OF RECOMMENDATIONS CONCERNING WAPDAAND THE POWER SECTOR
1. STUDY OF THE WATER AND POWER RESOURCES OF WEST PAKISTAN (The LieftinckReport)
July 1967 (published in book form in 1969 by The Johns Hopkins Press).Prepared by a World Bank study group headed by Dr. P. Lieftinck;A. Robert Sadove, deputy head; Thomas C. Creyke, Irrigation and Agri-culture. In four volumes plus Annexes. (This is the second part ofthe Study, the first part dealt with the technical and economic justi-fication of the Tarbela Project.)
Purpose: To serve as a basis for development planning in the waterand power sectors of the economy.
Basic Recommendations:
i) Tarbela dam should be constructed, to be completed by 1975/76.
ii) A significantly higher proportion of total investment shouldgo to the power sector.
iii) The major markets should be interconnected at 380 kV.
iv) A careful reappraisal of prospective loads be undertakenin the early 1970's.
v) A detailed development program was proposed.
vi) Emphasis must be placed on distribution construction byproviding funds, improving inventory control, and trainingworkers.
vii) Improvements in organization and management should beachieved by adjusting the existing organizational structureand improving coordination, rather than by creating newentities.
viii) Streamline tubewell project work.
lx) Public agencies should rely on private enterprise toimplement programs wherever possible.
ANNEX 1Page 2 of 6 Pages
x) Review the wisdom of the policy of subsidizing powercosts for tubewells.
xi) Create a Provincial Irrigation Authority to formulateoverall irrigation policies including water distribution.
xii) Increase authority of power system dispatchers.
xiii) Improve WAPDA's billing, collecting and accountingprocedures.
xiv) Nuclear power should be investigated after 1980.
2. REPORT OF THE INDUS BASIN REVIEW MISSION - POWER
May 1969, prepared by C. Willoughby and T. Berrie of the Bank staff.
Purpose: To update the Bank's information on the power sector, andto review the Lieftinck Report program and progress in attaining thegoals set therein.
Recomaendations:
i) Improve the relevance of the Power Market SurveyDivision's activities.
ii) Appraise the practicability of changing the shapeof the load curve through load limiting or tariffincentives.
iii) Re-examine program priorities in light of probablebudgetary cuts, with particular reference to the500-kV Karachi connection.
iv) Emphasize circuits from Mangla and Tarbela, anddistribution construction.
v) Improve dispatching techniques.
vi) Make a concerted attack on reducing system lossesand thefts.
vii) Restrict new connections, and increase substationcapacity.
viii) Improve inventory coordination.
ix) Introduce a commercial outlook to WAPDA's organization.
x) Overhaul the accountancy/inventory system.
ANNEX 1Page 3 of 6 Pages
xi) Make a study of organization and methods.
xii) Review salary schedules to obtain promotion flexibility.
xiii) Expand the training program.
xiv) Reconsider the subsidized tariff for tubewells andrevise tariffs to encourage off-peak use.
xv) There should be a reorganization study of WAPDA.
The report was transmitted to Pakistan, but there is noclear evidence that the recommendations for internal improvementswere noted.
3. STUDY OF WAPDA's NEED FOR FUTURE CONSULTING SERVICES
June 1969, prepared under contract to U.S. AID by a team organized bythe American Public Power Association headed by Kenneth Holum.
Purpose: To assess the technical, managerial and administrative capa-bilities of WAPDA, and to advise as to the specific needs for futureconsultant assistance.
Recommendations:
i) The team recommended a program of 150 man yearsof consulting services in eight functional classi-fications, designed to make WAPDA self-sufficientin all major functions by October 1974.
The team recommended services in the following categories:
I. Management and Administration.
A. A management firm, to conduct an audit anddevelop specific recommendations to improvemanagement structure and personnel policies.
B. A management team, to assist the Board ininterpreting and implementing the firm'srecommendations.
II. Financial Management.
A. A financial management firm to devise amodernized system of accounts.
B. A computer systems firm to advise on theuse of WAPDA's computer.
ANNEX 1Page 4 of 6 Pages
III. General Consultants.
A. Continuation of the general power consultingservices.
B. Continuation of the general water consultingservices (including SCARP).
IV. Employee Training.
A. A management-training program, to be conducted byan established educational institution in WestPakistan.
B. A firm of employee training consultants, toexpand and coordinate the employee-trainingprogram.
C. A team of safety engineers.
ii) The Team recognized that the services would be of benefitonly if the Authority's personnel policies are modifiedso that trained employees are retained in those areas forwhich their skills have been developed.
4. AN ENQUIRY INTO THE ORGANIZATION OF THE WATER AND POWER DEVELOPMENTAUTHORITY OF WEST PAKISTAN
November 1969, prepared by Lord Hinton of Bankside, the Bank's SpecialAdvisor on Power.
Purpose: Anticipating the proposed lending action and seeking furtherguidance in organizational matters, in September 1969 the Bank commis-sioned Lord Hinton of Bankside (former chairman of the U.K. CentralElectricity Generating Board) to review WAPDA's organizational needsand especially, to explore Government constraints on WAPDA in mattersof organization and operation.
The principal recommendations were:
i) WAPDA's responsibilities are too wide and they mustbe narrowed ...separate the Water Wing from the PowerWing, setting up a West Pakistan Electricity Authorityand returning the Water Wing to the Irrigation Depart-ment ...
ii) Conversion of the Irrigation Department into anautonomous or semi-autonomous Government agency.
ANNEX 1Page 5 of 6 Pages
iii) A Power and Water Planning Board sitting under thechairmanship of the Secretary of Power and Water.
iv) Decentralization of authority and responsibilityfor distribution and retailing of electricity,but not sale through municipal authorities.
v) Separation of WAPDA's promotional ladders so thatthe normal man commits himself to a career ingeneration or in transmission or in distributionand retailing.
vi) Abandonment of the Civil Service pattern of thepresent structure and practices and adoption ofone of the systems which has been found to be satis-factory in industry. This applies equally to theseparate bodies into which WAPDA should be split.
vii) Bank financing of machinery spares and repaircomponents for generation and transmission plant offoreign manufacture.
viii) Commencement of the next stage of distributionreinforcement without delay and consideration by theBank of how this might best be done.
ix) Sending of one of the advisors regularly used bythe Education Projects Department to Pakistan toform an expert opinion of the need for help (indeveloping WAPDA's training facilities).
x) Arranging for one of the well-managed utilitiesin an overseas country to father WAPDA.
xi) Support in principle by the Bank to recommendation1A of the Holum Report for a management "audit".
xii) A study by WAPDA of the accountancy system used bythe Pakistan Railways.
xiii) Employment of a firm of Chartered Accountants ex-perienced in industrial work as WAPDA's auditors.
xiv) A cautious approach to computerized billing in thelight of WAPDA's experience and local knowledge.
xv) Support for the Holum Report's recommendation thatthe employment of general consultants should becontinued at around its present level.
M= 1Page of 6 pages
xvi) A cautious approach by the Bank to re4omn4at4An IVAof the Holum Report (management training programme).
xvii) The sending of staff to a single selected uti4tyfor training.
xviii) Support by the Bank for recommendation IVC of theHolum Report on limited lines (safety training).
ANNEX 2Page 1 of 2 pages
PAKISTAN
WAPDA POWER PROJECT
DETAILED DESCRIPTION OF THE PROJECT
Description
Cost estimates for the Project are based on purchase and installa-tion of equipment and provision of services as indicated in the followingschedules. It is specifically intended to allow reasonable adjustments inthe Project as required to meet shifting load patterns and design changes.
repair parts and spares for substation transformers
2. Switchgear Bays:
132 kV; 153 ea. 66 kV; 27 ea.
3. Circuit Breakers:
132 kV; 159 ea. 66 kV; 14 ea.
4. Low-Voltage Switchgear:
11-kV metal clad; 450 sections
5. Capacitors:
11-kV, 400 MVAr, metal clad or outdoor, with switching equipment,controls and cabling.
B. TRANSMISSION LINE MATERIALS
1. 64 route miles of bundled "Tiger" conductor, to be strung onexisting towers;
2. imported special hardware and accessories for this and otherlines in the related program;
ANNEX 2Page 2 of 2 pages
3. erection services and technical assistance, if required.
C. ENGINEERING, INSPECTION, SUPERVISION AND TRAINING
1. Engineering services for specification review, procurementsupervision and bid evaluation, contract administration,construction coordination and inspection and adm-inistrationof the transformer-repair program, all associated with theProject. (220 man months.)
2. Inspection and forwarding services for equipment financedunder the credit.
3. On-site training services for repair and maintenance ofsubstation and distribution transformers (60 man months),related equipment and special-purpose vehicles and toolssufficient to equip up to three workshops.
4. Consultants in utility management (120 man months).
Cost Estimate Local Foreign Total Local Foreign Total---- PRs million ---- ---- US$ million --
Tot Irnere_se or (D,czerae) innot Vorti Capitta S 779 41 7.792 22.682 22.213 62.228 17.14?7
Tota plication of 67j 6 6 86538 917.473 884.21- 823.909 3.9098 778,119
ash bel_ce be,iAing At fr 39,100 21,049 24,590 29,182 3h ,314 37,977jb inoeos, or (decreas) UsIg Yer (15,051) 541. h1,52 5,162 3,633 14,187ash balmoe end or year 24,049 2h,590 29,182 314,31A4 37,977 O'Wj
las am,al debt sorv ie _-"etad byintrnal ceh gmwrattoo l. 1.3 1.3 1.6 1.6 1.6
une 3, 1970
WEST PAKISTAN
WATER AND PGWER DEVELOPMENT AUTHCRITY
POWER WING
POWER PROJECT
Schedule of Arranged Foreign Loans.(Rupee Thousand)
Source of Loan Project to be Financed Amount Interest(PRs thousand) Rate
Arranged Foreign Loans
Italian suppliers' credit System additions renewals and replacements 6,ooo 6%Italian credit Consulting services - Quetta power station 1,200 6Italian credit Consulting services - Kala Shah Kaku
transmission lines 1,349 6
Total 852i9
Czechoslovakian credit Gudu power station 109,671 2½Czechoslovakian credit Hangla, 5th and 6th units (turbines,
generators and cables) 16 695 2½
Total 126,366
Yugoslovian credit Rangpur unit - tubewell electrification 28,363 3
UK suppliergl eredlt Railway electrification 10,314
German capital aid Grid stations 22,099 3
German capital aid Mangla 5th and 6th units switchgear 2,h39 3
Total 24,538
Grand Total 198,130
PAKISTAN CHART 1
WAPDA POWER PROJECTDISTRIBUTION SUBSTATION CAPACITY
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