Document of The World Bank FOR OFF'eIAL USE ONLY .v , I' f'- ReportNo. 6029-PNG STAFF APPRAISALREPORT PAPUA NEW GUINEA YONKI HYDROELECTRIC PROJECT April 21, 1986 ProjectsDepartment East Asia and Pacific RegionalOffice This document has a restricted distribution andmay be used by recipients only in the performance of their offlcial duties. Its contents may not otherwise be disclosed without World Bsnk sutborization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFF'eIAL USE ONLY
.v , I' f'-
Report No. 6029-PNG
STAFF APPRAISAL REPORT
PAPUA NEW GUINEA
YONKI HYDROELECTRIC PROJECT
April 21, 1986
Projects DepartmentEast Asia and Pacific Regional Office
This document has a restricted distribution and may be used by recipients only in the performance oftheir offlcial duties. Its contents may not otherwise be disclosed without World Bsnk sutborization.
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CURRENCY EQUIVALENTS
Currency Unit Kina (K}1 Kins (K) USUI Kina 100 toea (t)
(As of December 1985)
FISCAL YEAR
July 1 to June 30 through 1977January 1 to December 31 beginning in 1978
WEIGHTS AND MEASURES
m - meter (3.281 feet)cu m = cubic meter (35.31 cubic feet)cms = cubic meter per second (35.315 cubic feet per second)km kilometer (0.62 miles)sq km = square kilometer (0.386 square miles)kWh = kilowatt hour (860.42 keals)-GWh = gigawatt hour (1,000,000 kilowatt hours)kW = kilowatt (1,000 watts)MW = Megawatt (1,000 kilowatts)kV = kilovolt (1,000 volts)KVA kilovolt-ampere (1,000 volt-amp es)TCF = trillion cubit feet (0.283 x 10 cum)
PRINCIPAL ABBREVIATIONS AND ACRONYMS USED
ADAB - Australian Development Assistance BureauADB - Asian Development BankBCL - Bougainville Copper LimitedCIF - Cost, Insurance, FreightEIB - European Investment BankELCOM - Electricity CommissionEPU - Energy Planning UnitERB - Engineering Review BoardILO - International Labor OrganizationMME - Ministry of Minerals and EnergyOECF - Overseas E:conomic Cooperation FundPNG - Papua New GuineaSMEC - Snowy Mountains Engineering Corporation of AustraliaTR - Touche Ross Services Pty (PNG)
t -- i - FOR OMCIAL USE ONLY
PAPUA NEW GUINEA
YONKI HYDROELECTRIC PROJECT
Loan and Project Summary
Borrower: Independent State of Papua New C inea (PNG)
Beneficiary: The Electricity Commission (ELCOM)
Amount:. =US$28.6 million
Terms: 20 years, including 5 years o grace on repayment ofprincipal, at the standard variable interest rate.
Relendings: The Government will onlend the proceeds of this loan to ELCONat its applicable rate for power project8 (currently 11X) orat the prevailing Bank rate, whichever is higher, for the sameterm as the proposed Bank loan. ELCOM will assume the foreignexchange risk.
ProjectDescription: The project comprises: (a) construction of a 60 m high
earthfill dam on the Ramu River with a total embankment volumeof about 1.8 million cu m, a spillway system and outlet struc-ture, and associated works; (b) installation of two additional15 MW generating units together with step-up transformers atthe existing Ramu I power station; (c) relocation of a part ofthe Highlands highway and local access roads, together totally22 km; (d) engineering and consulting services; (e) a trainingprogram; (f) technical assistance for institutional support;and (g) a rural electrification component.
Benefits: The proposed loan supports a major hydroelectric powerdevelopment which would reduce ELCOM's dependence on costlyimported oil and replace it with indigenous hydro resources.The project would also provide adequate training andinstitutional support to assist ELCOM's development of localstaff resources, and develop an institutional and policyframework for a future rural electrification program.
Risks: The project faces no special risks, ELCOM has endeavored tominimize the project risks during construction particularlywith respect to the treatment of the embankment f-.i*ation. Agrout curtain has been designed to fill cavities in tie con-glomerates with cement and possible sand lenses %ith themicalgrout. The design is satisfactory. ELCOM has al- *._tedpromptly in preparing to upgrade the operating voltage for thetransmission lines to 132 Kv. Whatever risks remain are notjudged to be significant enough to preclude proceeding withthe loan.
This document hts a rsted distibution and may be used by recipients only in the perfomaneof their offcal dutios Its contents may not otherwise be dislosed without World Bank muthmimtlon.
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Estimated Costs: Local Forei Total----US5 nnll ion --
Civil works 14.0 21.0 35*0Electrical and mechanical 2.0 5.0 7.0Engineering and consulting services /a 3.0 5.6 8.6Construction related establishment expenses 5.5 - 5.5Training and institutional development 9.4 5.1 14.5Rural electrification 1.2 2.4 3.6
a/ Includes US$1 million Project Preparation Facility from the Bank, whichwill be refinanced from the proposed Bank loan, and US$1 millionequivalent grant from ADAB.
b/ Includes import duties and taxes of about US$1.2 million equivalent.
PAPUA NEW GUINEA
YONRI HYDROELECTRIC PROJECT
Table of Contents
Page No.
I* THE ENERY SECTOR .....-.-- ....................-....* I
A. Energy Resource Overview 1D. Energy Consumption ... 2C. Institutional Aspects ...................... , .. 2D. Sector Issues and Policies 3
II. THE POWER SUBSECTOR ......... 4
A. Background 4B.* Institutions....... S .**.*....*.*..
C. Subsector Policy and Sta y . . g y SD. Bank Participation in the Subsector ................. 5
III. THE BENEFICIARY 0 00 0 0 00...... 00000 , 6
A. Introduction 6B. Orgai gto. n i z a t i on..... 0...0....000 7
C. Financial Management ............ .*..**.......** 12Financial Planning ....... 0000 0 12Management Information Systems 13Electronic Data Processing ....................... 13Commercial Practices 00000000000000000000000000000013Accounting 14External Audit .0 0.0 0...0. 15Internal Audit is.........o. 15Insurance 15Income ......... * 15
This report was prepared by Messrs. Weigong Cao and Jamil Sopher, whoappraised the project in September 1985 with the assistance of Mr. GerryDunnion, Training Consultant.
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Pate No.
IV. ELCOM'S POWER MARKET AND THE PROGRAX ............... ...... 16
A. ELCOM's Operation ................... 16B. Load Forecast .... ......... t 18C. Power Development Programs for Port Moresby and
Ramu Systems * 19
V. THE PROJECT . 20
A. Project Objectives * ................................. 20R. Projecr Description .......................-. 21
Yonki Dam - Main Civil Works ...... ................ 21Engineering and Consulting Services ............... 22Training, Manpower Development and
Institutional Support .......................... 23Rural Electrification .... ......................... 24
vI. FINANCE *6***000*****000e**0.*60000.......60**.*....*, 32
A* Introduction * *4**4S** ........................... 32B. Past and Present Financial Performance ............... 33
35"aluation of Assets ,.............................. 36
C* ............................................ ........ 36D. Financing Plan ............... 38E* Future Finances .. so ........................... ...... 40
VII. ECONOMIC ANALYSIS .. *...* ................................ 43
A& Background ...* ...................................... 43B. Least Cost Analysis of the Ramu System .... ........... 43C. Internal Economic Rate of Return for the Project ..... 45
VIII. AGREEMENTS AND RECOMMENDATIONS ... ... ..................... 45
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ANUMEXES
1. ELCOM's Organization Chart2. Terms of Reference for the Institutional Support Technical Assistance3. Existing Ceneration Facilities4. Operating Statisics5. Electricity Sales by Category of Consumers6. Existing Transmission and Substation Facilities7. Port Morseby and Ramu Systems8. Ramu System - Electricity S&les by Catagory of Consumers9. Port Moresy System - Electricity Sales by Category of Consumers10. ELCOM': Load Forecast (1985-95)11. Blance of Ramu System Load Requirements and Capabilities12. The 1985-1995 Power Investment Plan13. Pertinent Project Data14. Terms of Reference for the Construction Management Services15. Terms of Reference for the Training Consultants16. Terms of Reference for Rural Electrification Institutional and Policy
Development17. Project Cost Estimate18. Organization Chart of the Construction Unit19. Project Construction Schedule20. Engineering, training, Technical Assistance and Rural Electrification
Implementing Schedules21. Key Dates of Project Implementation Schedule22. Disbursement Schedule23. Financial Statements and Projections24. Least - Cost Analysis25. Internal Economic Rate of Return26. Selected Documents and Data Available in the Project File
HAP
Yonki Hydroelectric Project (IBRD 19385)
PAPUA NEW GUINEA
YONKI HYDROELECTRIC PROJECT
I. THE ENERGY SECTOR
A. Energy Resource Overview
1.01 Papua Nev Guinea (PNG) is spread-over 2,072,000 sq km of tropicalseas north of Australia. The eastern half of the istand of New Guinea andthree largest outer islands - namely, New Britain, New Ireland andBougainville - comprise most of the land surface of 462,000 sq km. The landsurface shows unusual diversity with extremely rugged mountain ranges, widevalleys, large river systems, extensive jungles, and vast swamps. AlthoughPNG's population is rather sparse at 3.2 million, the country is relativelywell-endowed with energy resources. However, its energy options are severelyconstrained by the difficult topography, the geographical fragmentation of thepopulation and the small size of total domestic energy demand. The most abun-dant energy resource is the hydroelectric potential created by the mountainoustopography and generally heavy rainfall, particularly on the Fly, Purari, andKibori rivers flowing into the Gulf of Papua and the Musa river flowing intoOro Bay (see Map IBRD 19385). The total hydropotential is estimated at14,000-21,000 MW (or nearly 5 to 7 kW per capita, one of the highast for anycountry in the world). However, because of the scattered islands and limiteddemand in anf one locality, development of large hydro resources has not beenjustifiable.y Existing hydro stations aggregate only 123 MW and most of themare run-of-the-river power stations with little firm energy potential.
1.02 Substantial exploration work has been done in the oil and gassubsector in the past fifty years. Moderate size gas discoveries have beenmade, both onshore and offshore, with gas reserves conservatively estimated at1.5-5.0 TCF and condensates at over 60 million barrels. However, consideringthe large area underlain by sedimentary rocks with potential for petroleum andnatural gas, past exploration has been quite modest and these hydrocarbonresources are essentially univaluated. In order to accelerate petroleumexploration 1n PNG, activity under a Bank financed Petroleum ExplorationTechnical Assistance Project was begun in 1982. This project has alreadyresulted in bids for exploration of 14 blocks in the9Papuan Basin. PNG'sextensive forests provide a significant biomass potential. These forestscover nearly 33 million hectares, of which less than lOX are being exploited
1/ One difficulty in planning hydro development is the lack of streamgauging records for all except the largest rivers. The joint UNDP/WorldBank Energy Assessment Program in PNG has recommended that action betaken to introduce new gauging stations on small rivers throughout thecountry. As of 1983, expanded efforts in conducting an inventory ofmini-hydro resources were being pursued, with assistance from the NewZealand Government.
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for logging operations. The country has surface manifestation of geothermalenergy. Coal occurrences have been reported in Gulf Province and near Lae.These have generally been small deposits of low grade coal with seams dippingat moderate angles. The country': resourci,base provides a wide variety oflong-term options for its energy planners.-
B. Energy Consumption
1.03 Traditional fuels (wood, charcoal and crop residues) are the mainsources of energy for the rural population (approximately 80X of PNC's totalpopulation). Limited studies conducted in certain localities have estimatedfuel wood consumption at 1.2 kg/capita/day, equivalent to 1.4 million tonsannually. On this basis fuel wood contributes about 37Z of total energyconsumption. In most of the rural areas, fuelwood is likely to continue to beused for cooking in households, and the demand for this purpose may be expec-ted to grow at the same rate as the population.
1.04 In 1984, PNG imported about 674,500 tons of petroleum products,representing about 90% of commArcial energy consumption in PNG. During theperiod 1976-84, overall consumption increased by an average of 4.4% annually;the increase was particularly high for diesel oil (8.2%) as a result of(a) increased thermal power generation; and (b) a shift from gasoline .odiesel oil in the transportation sector. On the other hand, consumption offuel oil and gasoline increased at a slower rate (1.5% and 0.2% p.a., respec-tively). The energy sector of PNG has developed alongside the variousenclaves. The major enclave is Bougainville Copper Limited (BCL), which is onBougainville Island separated from the country's major demand centers andwhich consumed almost 37% of total consumption of petroleum products in 1984(250,000 tons). Most of this fuel was residual fuel oil used in powergeaeration.
1.05 Electricity consumption in 1984 was approximately 1,200 GWh, ofwhich about 62% was used by BCL. The Electricity Commission (ELCOM) supplied421 GWh to 43,000 consumers in 1984. The per capita consumption of electri-city in PVG is about 387 KWh (1984); this is very low compared to 487 KWh(1982) in Fiji, 405 KWh (1982) in Philippines and 764 KWh (1982) inMalaysia. With only 34,200 domestic connections currently, less than 7% ofPNG's population has access to electric power.
C. Institutional Aspects
1.06 The Ministry of Minerals and Energy (MME) has broad responsibilitiescovering the assessment and development of PNG's minerals and energy resour-ces, the monitoring of mining and petroleum licensees, land surveys, waterresources, mapping and cartography, geological surveys, the formulation ofnational energy policy and the implementation of certain renewable energy
2/ A mure detailed discussion than appears herein is prov,ded in: "Reportof the Joint UNDP/World Bank Energy Sector Assessment Program: Papua NewGuinea - Issues and Options in the Energy Sector," (June 1982).
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projects. Under the Minister, a Secretary supervises the Ministry's threedivisions which respectively have responsibility fort (a) Policy andPlanning; (b) Geological Surveys; and (c) Mines. ELCOM, the national powercompany, reports directly to Minister of Minerals and Energy. ELCOM is organ-ized as a Commercial Statutory Authority whose policies are formulated by aBoa-d of Commissioners.
1.07 The Energy Planning Unit (EPU) of the Policy and Planning Divisionof MME has responsibility for energy planning. So far, the Unit has mainlyprovided advice on key energy projects, has initiated the collection and com-pilation of sector data, and promoted the use of renewable energy resources.
D. Sector Issues and Policies
1.08 Although PNG is well-endowed with potential energy resources, allits commercial energy needs are currently met through imported petroleumproducts and, to a limited extent, hydropower generation. Oil imports in 1984were estimated at US$159 million (CIF), representing more than 7% of GNP andmore than 10% of export revenue. Without major efforts by the Government toreduce this deper.dence, energy imports wi2l eventually impose a severe burdenon the economy. The Government established EPU in 1978 for assisting it inits efforts to diversify sources of energy. EPU has emphasized the role ofrenewable resources for alleviating PNG's energy problems. These include, inparticular, ethanol for the transport sector, wood pyrolysis for the indus-trial sector, and solar water heating and photovoltaics for households. Moreconventionai areas of activity tended to be neglected and energy planning didnot advance significantly. The Government has reouested technical assistancein developing a strategy for improving the current situation by identifyingand implementing a reliable and least cost supply option, which would reducedependence on imported petroleum products. During the past three years, withjoint UNDP/Worli Bank assistance, EPU began to place more emphasis on theelectricity subsector, where 42% of petroleum products are used, and whereoptions are available to substitute for the oil used in power generation. Workhas begun on comprehensive energy studies and planning, aiming at organizingand accelerating the oil and gas exploration effort and the rational develop-ment of other indigenous energy resources. Efforts to optimize the powerexpansion program based on the least cost development plan (paras. 4.09-4.11)are also in progress.
1.09 While progress has been made in strengthening the sectoral policyand technical capabilities, the pace of this development has been slow andfurther action is required. MME has traditionally focused on hard-rockminerals (so far, mostly copper and gold), as these contribute substantiallyto the Government's revenue earnings. PEG's commercial energy needs aremainly met through imported petroleum products. However, the energy sector isnow in transition, with the Government encouraging the development of thecountry's vast hydroelectric potential and its natural gas and oil, all ofwhich could play a pivotal role in PNG's energy future. The rate at which PNGcan respond to, and therefore benefit from, these changes depends largely onthe imagination and dynamism being shown by its policy level institution indirecting and controlling activity aimed at implementing these new energysector policies. Institutional strengthening in the areas of planning, imple-
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mentation, and system operation is therefore a high priority which should beaddressed in the context of mrjor development projects in the sector(paras. 3.08-3.15).- -
1,10 The scant domestic utilization of electricity, particularly in ruralareas, indicates that rural electrification is a sector issue which needsaddressing. Development of the courtry's rich agricultural and resourcepotential depends directly on efforts to enhance the capability of largersegments of PNC's population to exploit those resources; achieving a greaterpenetration of electricity into the rural areas, especially the Highlands-, isessential to these efforts. However, because of the sparse population anddifficult tertain, most rural electrification projects are prohibitivelyexpensive. Consequently, the Government of PNG will need to develop policyparameters and an institutional framework for enabling investment in ruralelectrification. The proposed project addresses this particular issue(para. 5.09).
II. THE POWER SUBSECTOR
A. Background
2.01 At the end of 1984, the total installed capacity of the power sub-sector in PWG was about 467 MW, of which about 26% (123 MW) was hydroelectricand 74% (344 MW) was diesel. Tne scattered smaller islands and the extremelyrugged (in some places inaccessible) mountain ranges on the main island pre-clude any possibility of a fully integrated power system. At present, publicelectricity suppt y in PNG consists of 19 independent power systems serving 25urban centers scattered throughout the country. At the end of 1984, theinstalled capacity and generation in the country were:
Table 2.1: THE INSTALLED CAPACITY AND GENERATION IN THE COUNTRY
Installed Capacity (MW) GenerationHydro Thermal Total (%) (GWh) (Z)
2.02 ELCOM is responsible fcr public electrictty supply thrQughout thecoantry. At the end of 1984, ELCMM's system bad a total installed capacity ofabout 195 MW (this represented about 42% of the total installed capacity inthe country). ELCOM also operates and maintains a number of small facilities(totalling abotst 7 MW) for which the Government retains ownership and finan-cial responsibility. The installed capacity of facilities owned by otherprivate sector entities is about 267 MW. The largest private licensee, withan installed capacity of 196 NW, is BCL. BCL sells its residual power toELCON for distribution in the Kieta-Arawa area in Bougainville Province. Asmall hydro plant with an installed generation capacity of 3.5 MW, which islocated near Bauine to the south of Lae, is owned by PNG Forest ProductsLtd. The rest of the private generating facilities are owned by mining andforest companies, plantations and religious organizations. These includemostly small diesel units and also a number of small hydro plants.
C. Subsector Policy and Strategy
2.03 The fundamental objectives underlying ELCOM's strategy for electricpower development are as folLows:
(a) meeting the increasing demand for public electricity supply in thecountry;
(b) utilizing indigenous natural resources, especially firm hydropower}to reduce the country's dependence on costly oil imports;
(c) providing less costly power to industrial, commercial, rural anddomestic consumers;
(d) rationalizing power production and distribution through expansion ofthe high-voltage transmission grid;
(e) recruiting, developing, compensating and maintaining a workforce forthe electric power industry, capable of sustained performance atinternationally acceptable standards and comprised, to the greatestextent possible, of PNG nationals.
D. Bank Participation In The Subsector
2.04 During FY71 and FY74 the Bank made two loans (now fully disbursed)to ELS/N totalling $34 million to help finance a hydroelectric power plant andrelated training. The First Power Project (Loan 737-PNC) financed the firststage of the Upper Ramu Hydroelectric Development Scheme (Ramu I). Completionof the project was delayed by about nine months. A cost overrun of about 29Zwas incurred, primarily because of currency fluctuations. A ProjectCompletion Report (No. 1687) dated October 1979 was prepared. The lessonslearned included: (i) detailed project preparation, particularly extensiveexploratory drilling, contributed towards successful implementation of theproject; and (ii) training programs helped further the policy of employingnational staff. The Second Power Project (Loan 999-PNC) consisted of
(a) technical assistance for ELCOM's in-service training program during theperiod 1974 through 1979; (b) financing of the shortfall in funds for meetinKthe foreian exchange expenditures for the Ramu I project; and (c) distributionsystem expansion. The project was executed as planned. The objectives of theproject have largely been met. The project was completed on schedule and atthe estimated cost. A Project Completion Report (No. 3912) dated April 1982was prepared. An important lesson learned from this project is that local-ization, especially of senior management, should be implemented after a muchlonger period of in-service training, and expatriate support should be main-tained until local counterparts have gained adequate experience (paras. 3.09-3.11). The Bank's involvement in the power subsector remains highly desir-able.
III. THE BENEFICIARY
A. Introduction
3.01 ELCOM will be the beneficiary of the proposed loan. ELCOM wasestablished as a Commission of the Government of PNG in 1963. Later, over-sight of its activities was assigned to the MME. In October 1983, it wasreorganized as a Commercial Statutory Authority, continuing to report to thesame Ministry. ELCOM's management enjoys nearly complete indepgndence inmanaging day-to-day affairs. So long as it respects Government guidelines,management provides the predominant inputs and has responsibility fordecisions concerning planning, contracting, staffing, pricing, and financingof investment. ELCOM's customer service operations are conducted from 25 loadcenter facilities. In addition, ELCOM operates about 27 small and technicallysimple generating facilities. Its field locations are scattered throughoutthe PNG side of New Guinea and on the islands of New Britain and Bougainville.
3.02 ELCOM has been remarkably effective at managing its operations andat operating its facilities. To attain this effectiveness, ELCOM has reliedheavily on expatriates for both guiding operations and management, and devel-oping local manpower resources. With their help, ELCOM has successfully builtexpansion projects, operated its system, adapted modern office technology forits own use, and introduced some sophisticated managerial systems and proce-dures. Now, however, ELCOM is beginning to implement a substantial expansionprogram (para. 6.16). After completion of that program it will become amedium sized utility facing much greater technical and managerial complexitythan it does currently. In view of its anticipated future requirements,ELCOM's results in developing local manpower resources has been dis-appointing.
3.03 Initially, the Government of PNG asked the Bank to include in theproposed project an extensive training component aimed at furthering ELCOM'smanpower development objective. In the context of appraisal, an intensiveassessment of ELCOM's potential to adjust to its future role revealed numerousfactors that had frustrated past manpower development efforts, including:
(a) A lack of standardization among similar jobs;
(b) a profusion of managerial systems and procedures, often includingseveral aimed at achieving the very same managerial objectives;
(c) except for financial management -,here the development of systems andprocedures was centralized, scant effort to eliminate redundant orunnecessary activities;
(d) a tendency among expatriates to emphasize their operationalobjectives while underplaying their manpower development objectives;and
(e) a lack of the breadth and depth needed to meet the increasedcomplexity of technical and managerial demands expected during theintermediate term future.
In the following analysis, ELCOM's organization, staffing, management, train-ing, operations and maintenance, commercial practices, and financial systemsand procedures are examined against this background. Where appropriate, theproposed project includes manpower development components aimed at enhancingELCOM's ability to meet its future responsibilities.
B. Organization
Structure
3.04 ELCOM's Board of Commissioners is responsible for establishingpolicies and ensuring that management conducts operations effectively and inaccordance with those policies. The Board consists of seven commissioners,including the Chairman. They are selected from among high-ranking public ser-vants and distinguished private sector businessmen. They are usually appoin-ted by the Minister of Minerals and Energy for terms of two years, and may bereappointed upon completion of their terms.
3.05 ELCOM's organization structure is displayed in Annex 1. Thatstructure is similar to the structure of Australian utilities of similar sizeand scope. Operations are decentralized, with each location being managed asa separate entity consisting of units organized to provide specific ser-vices. The headquarters staff is organized functionally around particulardisciplines. This organization structure is appropriate to ELCOM's currentand anticipated needs.
Personnel and Staffing
3.06 Currently, to correct for past tendencies to carry excessive numbersof semiskilled and unskilled staff, ELCOM has put in effect a recruitmentfreeze and is developing a program for reducing its staff. New personnel canbe recruited only if ELCOM has a vacancy and it can prove both (i) that theparticular position is critical and (ii) that no present employee possessesthe requisite skills. -Otherwise, vacancies must either be filled through
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redeployment or be left unfilled. Table 3.1 shows ELCON's establishment andstaffing, 4istributed according to function, as of August 31, 1985:
Table 3.1: ELCOM: ESTABLISHMENT AND STAFFING -- ALLOCATED BY DEPARTMENT(As of August 31, 1985)
Positions Positions Establish-Department filled vacant ment
Top management 11 0 11Middle management and staff --
- centers and HQ 718 234 952Administration 403 165 568Commercial 190 79 269Planning 9 17 26Operations and maintenance 421 182 603Design and construction 96 83 179
Total 1,848 760 2,608
3.07 Including 293 temporary appointments who are not counted as staff,ELCOM had a total of 2,141 employees as of August 31, 1985. This aggregatenumber may appear ample for ELCOM's current size and scope; however, it beliesshortages of certain categories of professionals, most particularly engineersand supervisors. In addition, ELCOM has imbalances between the availabilityof, and its deployment requirements for skilled, semiskilled and even someunskilled staff. Moreover, if expansion proceeds is expected (para. 6.16),its current establishment could be severely stretched even if all existingvacancies were filled. In connection with its Management Information System(para. 3.18), ELCOM is currently installing a well-designed manpower planningand budgeting procedure; when fully operational, that exercise could greatlyenhance ELCOM's management of its manpower resources.
3.08 At the same time, ELCOM's establishment provides far too manydifferent categories of staff; and, too often, the level of skills, knowledge,and qualifications varies greatly for the various jobs within the same cate-gory. To make more effective ELCOM's efforts at (i) manpower planning;(ii) manpower development (para. 3.11); and (iii) training (paras. 3.12 and5.08), ELCOM needs to implement a Job Standardization Study, included underthe proposed project, which would, inter alia, include recommendations for:
(a) simplifying the number of staffing categories;
(b) defining clearly staffing category and job requirements;
(c) stan4ardizing jobs;
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(d) standardizing to the degree possible skills, knowledge, andqualifications required for each job; and
(e) developing job manuals.
At negotiations, ELCOM agreed that it will (i) by January 1, 1987t appointconsultants, according to terms of reference and selection proceduresacceptable to the Bank, to conduct a Job Standardization Study; (ii) byDecember 31, 1987, complete the study and discuss its recommendations with theBank; and (iii) according to a schedule acceptable to the Bank, implementthose mutually agreed recommendations. Terms of reference for this Study,which were discussed and agreed at negotiations, are shown in Annex 2.
Expatriate Staff
3.09 As of August 31, 1985, ELCOM employed about 126 expatriates,distributed functionally as shown in Table 3.2.
Table 3.2: ELCOM'S EXPATRIATE STAFF - ALLOCATED BY DEPARTMENT(As of August 31, 1985)
Department Headquarters Field offices Aggregate
Top management 7 7Middle management and staff 5 - 5Administration 20 2 22Commercial 19 - 19Planning 2 - 2Operations and maintenance 25 11 36Design and construction 24 11 35
Total 102 24 126
Most expatriates occupy positions in or serve as advisors to top management oftheir departments. They bring to ELCOM levels of expertise which are largelyunavailable among PNG nationals. These expatriates have not only managerialand advisory functions, but they also have manpower development objectives.
3.10 The Government of PNG has a continuing concern about the increasingcost to the economy, including related capital outflows, associated with main-taining the large overall number of expatriates in PNG. It has a policy oflocalizing as rapidly as prudently possible the staffs of most large Govern-ment establishments. In response to this policy, ELCOM abruptly reduced itsexpatriate staff after independence, with a consequent rapid deterioration inthe quality of operations and maintenance of plant and equipment, commercialpractices, and manpower development.
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3.11 While ELCOM ultimately needs to reduce substantially its reliance onexpatriates, it should not do so prematurely and abruptly once again.Instead, ELCOM should try to accomplish a phased replacement of expatriates bysuitably trained national officers. In this regard, the expatriates should beencoutraged to provide enhanced technology transfer and special on-the-jobtraining to carefully selected local personnel. The proposed Bank loan wouldsupport this objective through a provision of an allocation of US$1.2 million,which would be applied to financing some or all of the foreign exchange por-tion of existing compensation for qualified expatriate senior- and middle-level managers and advisors, between January 1, 1987 and December .31, 1989.ELCOM would use the foreign exchange obtained through this allocation toenable an equal amount of local currency generated from operating revenues tobe invested otherwise in the project; moreover, ELCOM would specifically beprohibited from using the allocation to increase the compensation of anyexpatriate over the level stipulated in that expatriate's contract or,-atcontract renewal, over the level authorized by ELCOM's Board of Commissioners.Details regarding disbursements against this allocation were discussed andconfirmed during negotiations; accordingly, the amount of disbursements couldbe allowed to vary from month to month, provided that it did not exceedUS$60,000 in any given month and that the remaining balance at the end of eachmonth was sufficient to finance disbursements of at least US$20,000 per monththereafter. To qualify, an identified expatriate would have assigned to himfor the purposes of technology transfer or on-the-job training, one or moreidentified counterpart PNG nationals. Prior to January 1, 1987, the qualifiedexpatriates would be asked to develop specific training objectives for hisidentified couterpart(s); these objectives would include a program forincreasing the scope of the counterpart's responsibility upon attainment ofmonitorable levels of improved job related proficiency. ELCOM would furnishthese objectives to the Bank for review t :d comment. Thereafter, ELCOM wouldfurnish to the Bank a semiannual report summarizing the progress of eachexpatriate in pursuing his manpower development objectives. At negotiations,ELCOM agreed to advise the Bank prior to making any decisions which mightresult in major changes to ELCOM's organization.
Training
3.12 ELCOM has for years placed a high priority on formal training. Ithas built and equipped a complete training college adjacent to its headquar-ters building, provided some training facilities at several of its largerfield offices, and employed numerous expatriate training specialists. Despitethese substantial inputs, the results of ELCOM's training efforts during therecent past have been disappointing because (a) the training staff emphasizedacademic and general training in preference to programs designed to impartspecific skills and knowledge needed for specific jobs, and (b) line managerswere not involved in training and its aftermath sufficiently to ensure thattrainees used the concepts and techniques covered in their courses to improvejob performance. Through administration of the allocation for compensatingexpatriates (para. 3.11), ELCOM will use a component of the proposed projectto redirect the attention of line managers toward manpower development and thenecessary direct linkages between formal training, improved job performance,and greater devolution of responsibility to lower levels of staff. In addi-tion, the proposed project includes a provision for new training inputs
(para. 5.08), including some fasalities and new training specialists, whichare appropriate to ELCOM's training needs as redefined during appraisal.
Technical Activities
3.13 ELCOM's technical activities are divided into three categories:
(a) Planning - ELCOM has developed its own ten year (1985-1994)Generation, Transmission, and Distribution Development Plan. Now,it needs to follow this global effort with detailed plans; prepar-ation of these detailed plans will involve a substantial volume ofcomplex work, etpecially if the interconnection of the Port Moresbyand Ramu grids is to be undertaken as intended during the period.ELCOM's capacity to produce this work is limited due to its lack ofsuitably experienced and qualified staff. In the near term, ELCOMwill need the continued support of expatriates to realize itsplanning activities. In the long term, it needs to decide which ofits planning activities should appropriately be the responsibilityof ELCOM staff and which may be handled by consultants (para. 3.15);
(b) Design and Construction - ELCOM staff designs and constructs alldistribution and some wood pole transmission lines; consultants andcontractors are used to implement all generation and other trans-mission projects. For the future, ELCOM's expansion plans are soextensive that its present staff may have difficulty meeting its ownshare of the design and construction responsibilities (para. 3.15).To the degree possible, ELCOM should standardize designs, materials,and work methods for all localized construction (para. 3.14); and
fc) Operations and Maintenance - In recent years, ELCOM has operated andmaintained its plant and equipment well in relation to load factor,plant availability and supply continuity. Transmission and distri-bution losses have averaged about 10Z,' which is satisfactory inview of the low customer density and the extensiveness of distribu-tion networks. However, with the expected growth in demand andcorresponding increase in complexity of the system, standardizedoperational procedures and practices need to be developed and imple-mented (para. 3.14). In addition, ELCOM needs to review its organi-zational arrangements to ensure closer coordination betwen opera-tions and maintenance activities and support systems such asmaterials management, manpower planning, financial budgeting andmanagement information (para. 3.15). The current operation andmaintenance units lack suitably qualified staff to meet likelyfuture requirements anticipated as a result of ELCOM's projectedgrowth (para. 3.15).
3/ Not including station use, which amounts to nearly 21 of generation(para. 4.01).
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3.14 In its technical functions, ELCOM is increasingly handicapped by alack of standardization. Increased standardization of design of the systemsit constructs could result in increased decentralization of that activity,with consequent savings resulting from maximizing the use of locally availablematerials and enhancing levels of individual productivity. By increasinglystandardizing operations and maintenance procedures, ELCOM could increase theproductivity of its staff and enable training efforts to be more effective.The proposed project includes a provision of technical assistance aimed atincreasing standardization of ELCOM's technical functions and developingmanuals for standard operating procedures. At negotiations, ELCOM agreed thatit will (i) by January 1, 1987, appoint consultants, according to terms ofreference and a selection procedure acceptable to the Bank, to standardizeELCOM's technical functions and to prepare manuals for standard operatingprocedures; (ii) by December 31, 1987, complete the manuals and discuss theconsultants' recommendations with the Bank; and (iii) according to a scheduleacceptable to the Bank, implement those mutually agreed recommendations.Terms of reference, which were discussed and agreed at negotiations, aredisplayed in Annex 2.
3.15 Once job categories have been defined clearly and activities havebeen standardized to the degree practicable, ELCOM needs to assess the rangeof its functional activities in the light of resources available to it. Itneeds to determine which of those activities should remain under its directresponsibility and which may be entrusted to consultants and contractors. Inaddressing those responsibilities it wishes to retain, it should identify theresources it needs and the financial and training inputs needed to developthose resources. To this end, the proposed project contains a provision for atechnical audit. At negotiations, ELCOM agreed that it will (i) by June 30,1988, appoint consultants, according to terms of reference and a selectionprocedure acceptable to the Bank, to conduct a technical audit; (ii) byJanuary 31, 1989, complete the audit and discuss the consultants' recommenda-tions with the Bank; and (iii) according to a schedule acceptable to the Bank,implement those mutually agreed recommendations. Terms of reference, whichwere discussed and agreed at negotiations, are displayed in Annex 2.
C. Financial Management
Financial Planning
3.16 ELCOM is one of four Commercial Statutory Authorities required tosubmit a five-year rolling financial plan to the Government by December ofeach year. In October 1984, ELCOM did submit its first such plan, the basisof which was the ten year engineering plan (para. 3.13(a)). Formulation of thefinancial plan involved substantial coordination between ELCOM's finance staffand all technical departments.
3.17 ELCOM prepares budgets annually in coordination with the Govern-ment's budget exercise. The budget is reviewed and updated several timesduring the year. ELCOM compiles some operating results monthly and morecomprehensive data quarterly; variance analyses are conducted to establish whyresults may have differed from budget.
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Management Information Systems
3.18 In early 1984, ELCOM received a US$250,000 technical assistancegrant from the Asian Development Bank (ADB) to (a) recommend an integratedaccounting package, adaptable for use with electronic data processing, toserv-ce ELCOM's future needs for management information, and (b) prepareinternal audit manuals. Touche Ross Services, Pty. of PNG (TR) was selectedto provide this technical assistance. In July 1984, TR recommended using anintegrated accounting system named MIDAS; TR then developed the extensivemanuals needed to adapt MIDAS for ELCOM's use and delivered the r age toELCOM in March 1985. To date, implementation is proceeding as exed4itiouslyas prudently possible. An accounts payable system is already in operation.The general ledger system is scheduled for introduction in January 1986. Theinventory control system is scheduled for introduction in February 1986* andthe fixed asset accounting system will be introduced thereafter, most likelyin June 1986. All organization changes needed to accomodate the managementinformation system have been made and ELCOM is currently trying to recruitnecessary suitably qualified speoialists.
Electronic Data Processing
3.19 ELCOM began computerizing its activities in early 1981 with thepurchase of a small mainframe computer. In January 1982, ELCOM began operat-ing a live general ledger system, which included production of various manage-ment reports. In late 1983, ELCOM introduced a computerized revenue billingsystem, with Port Moresby becoming the first center to have its customeraccounts maintained on the computer. The payroll system was computerized inearly 1984. Also in early 1984, ELCOM substantially upgraded its computerhardware. Since then, a number of ELCOM officers have arranged the purchaseof a variety of personal computers. To cope with this proliferation ofdifferent hardware and software, a Computer Policy Committee was-formed toreview the purchase of new equipment and standardize future electronic dataprocessing development at ELCOM.
Commercial Practices
3.20 Accounts Receivable. ELCOM's commercial systems are necessarilyslow and cumbersome due to the lack of reliable mail service (for that reason,many trade credits in PNC assume a 45 day payment period). Even so, ELCOM'srecent performance at billing and collecting has been disappointing (para.6.04) and ELCOM is currently taking remedial action. ELCOM's systems andprocedures differ depending on whether or not the consumer is a governrmentagency; collections from governmental consumers are much slower than from thegeneral public. All of ELCOM's consumers are metered.
3.21 Government Consumers. The meters on each government installationare intended to be read monthly. When all bills for all installations belong-ing to a particular Ministry (or Department) have been accumulated, a singleitemized bill is written and sent to that Ministry. This results in a singlelarge claim which will not be paid until the individual Ministry has verifiedall included line items. In some cases, this process means that bills may beoutstanding for as much as 90 days. The Government of PNG has agreed that
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ELCOM may now remit bills for larger installations directly to the individualMinistry as soon as the particular meter is read, and separate from all otherbills pertaining to that Ministry'. ELCOM believes this could shorten thecollection time at least for bills pertaining to larger government installa-tions by as much as 20 days. ELCOM has tried, with unfavorable results,discotnecting installations belonging to Ministries which had protracted theirpayments excessively.
3.22 General Public Consumers. ELCOM's policy is that each consumer'smeter should be read monthly by a meter reader, who enters the reading onto apreproduced bill generated at headquarters. That preproduced bill includesany outstanding balance. The customer has two days from the rendering of abill to pay any opening balance (thus implying a 32 day payment cycle). ELCOMdisconnects without exception customers who are in default within very fewdays of the due date's passing. As a result, it experiences very fewinstances of default among general public consumers.
3.23 ELCOM's principal internal problem in collecting from both govern-mental and general public consumers is that the current staff of meter readershas not been able to keep pace with the rate of growth of consumer connec-tions. As meters are not being read as intended every 30 days, bills on thebooks represent much more than 32 days' consumption (para. 6.04). ELCOM iscurrently strengthening its staff of meter readers and is exploring approachesfor making them more productive. As ELCOM's operating cash flow expands, itcannot afford to manage its billing and collection activities loosely. If thesteps that are already being taken -- namely, (i) increasing the number ofmeter readers; (ii) increasing the productivity of meter readers; and(iii) billing large government installations separately -- do not succeed inshortening the period of outstanding accounts receivables, ELCOM may need toconsider adopting other measures to realize that objective. At negotiations,ELCOM gave an undertaking that it will reduce accounts receivable (net ofunread meter accruals) and maintain them at less than 45 days' sales,beginning in 1986.
3.24 Accounts Payable. In periods of constrained liquidity, ELCOM hasobtained short-term finance inter alia, by stretching its accounts payable(para. 6.04). As it grows, ELCOM 1TE become increasingly reliant on receiv-ing favorable commerical credit terms. Such favorable terms would b;e avail-able only if ELCOM observes continual discipline in managing its accountspayable. At negotiations, ELCOM gave an undertaking that it will maintainaccounts payable (net of accrued interest) at the aggregate of (a) one and onehalf month's construction expenditures and.(b) one and one half month's cashoperating expenses.
Accounting
3.25 ELCOM uses a double entry commercial accounting system patternedafter the one being used by the State Electricity Commission of Victoria,Australia. The system was first adopted in 1963, and was modified in 1977 toimprove the system's costing procedures. Otherwise, the only substantivechanges were those necessitated by adaptation of the system for computeriza-tion. The accounting system is adequate and appropriate for ELCOM.
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External Audit
3.26 ELCON's annual accounts must be audited by the Auditor General'sDepartment, or its nominee. Until 1981, the audit was performed by the Audi-tor General's own stafft thereafter, ELCOM's audit was performed by majoraccounting firms (TR between 1981-83, and Peat Marwick Mitchell of PNG in1984), acting on behalf of the Auditor General. Accounting and auditingstandards are established and monitored by the PUG Associotion of AccountantsInc. In turn, the Auditor General has a stated objective that audits forGovernment bodies should meet internationally acceptable stsadards. As aresult, ELCOM's audit reports for the recent past have been comprehensive,thorough, and well documented. These audit arrangements are satisfactory. Atnegotiations, ELCOM agreed that six months after the end of each financialyear, it will furnish to the Bank audited annual accounts for the year justconcluded, together with the certification and report of an acceptableauditor.
Internal Audit
3.27 ELCOM has an active internal audit unit. The unit reviewscontinuously the accounts at field offices and headquarters for accuracy andfor conformity to accounting standards; until recently, however, it did notreview the appropriateness of accounting procedures. In 1984, TR preparedinternal audit manuals (para 3.11). In addition to its past activities, theinternal audit unit will review (a) the appropriateness of accountingprocedures; (b) inputs and outputs of the management information system; and(c) inputs for and the compilation of ELCOM's annual financial statements.ELCOM is currently recruiting from within PN5 and abroad, suitably qualifiedpersonnel needed to implement these new activities. The range and scope ofELCOM's internal audit activities are satisfactory.
Insurance
3.28 ELCOM has been insuring its assets against large risks withcommercial insurers. In order to maintain premiums at acceptable levels, itscommercial policies include large deductible provisions (K 1 million on eachcasualty loss, up to an aggregate maximum of K 2 million in any calendaryear). ELCOM believes it has adequate liquidity or, alternatively, access toshort term credit to cover these deductibles. ELCOW's risk management activi-ties have been satisfactory to its commercial insurers; moreover, its casualtylosses have been minor in recent years. These insurance arrangements aresatisfactory.
Income Taxes
3.29 ELCOM has been subject to income tax since 1983. The tax rate is35% of taxable income. Taxable income is defined as income after interestcharged to operations and deductions allowed under the tax code. Currently,those deductions include (a) an allowance of 100% of training expenses (whicheffectively means that training expenses are subtracted twice from revenuesfor tax purposes) and (b) all interest during construction (which gets capita-lized and is not charged to revenues for reporting purposes).
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IV. ELCOM'S POWER MARKET AND THE PROGRAM
A. ELCOM's Operations
4,01 ELCOM's operations are conducted from 25 load center facilities,which supplied 421 GWh to about 43,000 consumers in 1984. Of this totalconsumption, 121 CGh (or 29%) were for domestic use and the balance (71%) wasfor commercial/industrial consumption. At the end of 1984, ELCOM's totalinstalled capacity was about 195 MW, consisting of about 117 MW of hydro (60%)and 78 MW of thermal generation (40%). The major generating stations arelisted in Annex 3. Table 4.1 below, which shows ELCOM's annual growth ratesof energy generation, sales and number of consumers from 1974/75 to 1984,demonstrates the changed market situation. In addition, ELCOM purchased forresale 32-58 GWh from privately owned sources of generation. Total systemlosses were about 12%, including station use. ELCOM's operating statisticsand electricity sales by category of consumers are given in Annexes 4 and 5respectively.
Table 4.1: ELCOM's INSTALLED CAPACITY, ENERGY GENERATION, SALES AND CONSUMERS
Installed Energy Energy NumberCapacity Generation Sales of Consumers
/a Includes purchased capacity (9-12 MW) from private sources.75 Includes purchased energy (32-58 GWh) from private sources.
4.02 The largest load centers are served through three independentsystems, which although modest in size, are integrated networks: (i) the PortMoresby System serving the National Capital District (City of Port Moresby) aswell as surrounding towns in Central Province; (ii) the Ramu System servingLae, Kadang, and the Highlands region; and (iii) the Gazelle Peninsula System
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serving the Rabaul, Kereuat and Kokopo areas in East New Britain Province.The PNG electricity systems are depicted in Map IBRD 19385. The transmissionand substation facilities for the three independent systems are listed inAnnex 6. The Port Moresby and Ramu Systems (details in Annex 7) alone accountfor more than-75% of the power generated by ELCON, with the balance shared bythe Gazelle Peninsula System and the many isolated generating facilities,which usually serve single localities.
4.03 In the period 1974/75 to 1984, energy generation has been growing atan average annual rate of about 4.0X for the Port Moresby System and 5.6X forthe Ramu system. Growth rates in peak demand and energy generation over thepast 10 years are shown in Table 4.2.
Table 4.2: HISTORICAL LOAD GROWTH
Peak Demand (KW) Energy Generation (GWH)Year Port Moresby Ram-i Port Moresby Ramu
4.04 Past load growth in the Ramu System was rapid in the late 1970s dueto the economic expansion of that period, followed by considerably slowergrowth in the early 1980s resulting from (a) unreliable power supply caused bypoor maintenance during late 70s and early 80s; (b) high tariffs caused byrising fuel prices and dry weather conditions; and (c) the economicrecession. Of the 155 GWh energy sales in 1985 (the first full year ofindustrial tariffs) in the Ramu system, 22.6% have been consumed by domesticusers, 61.3% by commercial and small industrial enterprises, and 16.1% bylarger industries. Annexes 8 and 9 give details of energy sales by categoriesof users from 1978 to 1985 for Port Moresby and Ramu respectively.
4.05 The distances between the Port Moresby and Ramu grids (on the orderof 420 km) and the relatively small magnitude of their demands ard rates ofgrowth, have juitified their continued isolation through the 1970s and 1980s;but integration of the resources within the two largest grids through aunified high voltage system is a future ELCOM objective.
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B. Load Forecast
4.06 The load forecasts of ELCOM as a whole, and the Port Morseby andRamu grids separately, were made by analyzing historical energy sales data byconsumer category for each load center. Trends=in growth of the number ofconsumers and average use were noted and projections were extrapolatedaccording to these trends, taking into account the future economic environmentof the load center. Information on future economic developments in each loadcenter was obtained from various government departments and consultations atsite with local government and business officials. The energy sales forecastsalso included projections of new large consumers developed in the context ofan on-going power market survey of ELCOM's local centers. Energy salesprojections for each load center were consolidated to provide overall ELCOM,as well as Port Moresby and Ramu, load forecasts. Energy requirements fromthe supply systems were derived from the total energy sales by applying appro-priate losses developed from historical data. Peak demand was then derivedfrom energy requirements by applying an appropriate system load factor.Energy requirements and peak demand of ELCOM for the period 1985-1995 areshown in Annex 10. The load forecasts of Port Moresby and Ramu are shown inthe following table:
Table 4.2: LOAD FORECAST (1985-1995)
Peak Demand (MW) Energy Generation (GWh)Port Moresby Ramu Port Moresby Ramu
4.07 The Ramu System is expected to be the fastest growing supply systemin PUG and surpass the Port Moresby system's total load in 1991. The peakdemand and energy generation for the Ramu System would be increased from 32 MWand 179 GWh in 1985 to 75 MW and 413 GWh in 1995, representing an annual rateof about 8.7%.
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4.08 This load forecast is reasonable considering that: (a) the loadgrowth in the early years 1985 to 1987 reflects a number of conservativeassumptions, including (i) a decrease in the real value of tariffs with onlyminor tariff increases over the next two to three years; (ii) the introductionof an industrial tariff that discourages autogeneration 4t; (iii) economicrecovery from the world recession of 1981-83; and (iv) the connection of anumber of tea and coffee factories and government centers in the highlands;(b) the population of the supply area of the Ramu system is approximately 2million, representing about two thirds of the nation's total population, Andrural communities there close to the system are likely to be connected astheir financial health improves; and (c) energy sales are apt to grow rapidlyin the early 19909 as 8aresgXt of the likely beneficial effects of both thePorgera Gold Mining Project- on the local economy and the connection by roadof the highlands region with Port Moresby.
C. Power Development Programs for Port Moresby and Ramu Systems
4.09 Power expansion planning is mainly conducted by ELCOM with theassistance of consultants. The extensive investigations made by ELCOM and itsconsultants, Gibb Australia and Snowy Mountains Engineering Corporation ofAustralia (SMEC), have considered a number of alternative power system devel-opment programs for both the Port Moresby and Ramu systems. The systemdevelopment programs examined included alternative scenarios involving hydroplants, thermal plants and possible interconnection of the two major systemsby a transmission line (para. 7.01). The study has indicated that the optimumpower development program for the Port Moresby and Ramu systems is as follows:
(a) a 12 MW heavy-oil diesel plant at Moitaka in the Port Moresby systemby the end of 1984;
(b) a 13 MW hydroelectric power station at the Rouna IV site in the PortMoresby System by the end of 1986;
(c) an additional 6 MW heavy-oil diesel plant at Moitaka in the PortMoresby system by the end of 1987;
4/ A recent survey conducted by ELCOM estimates 15 MW of the privategeneration capacity in areas which ELCOM could service withoutsignificant distribution expense, including approximately 7.3 MW in Lae,2.5 MW in Coroka and 3.6 MW in Mt. Hagen. Autogeneration in 1984 isestimated to account for 40-50 CWh of energy. Assuming ELCOM supplies50% of this demand, its load will increase by 20-25 Giii.
5/ The load of the Porgera gold mine (17-45 MW depending on production rate)is not included in the forecast as it may be built as an enclave projectusing local hydro generation. Two further projects planned for the late1980's, early 1990's are (a) two cement factories near Lae (4 MW); and(b) the Bundi chromite mine near Madang (about 10 MW). These loads arealso not included in the forecasts.
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(d) a 12 NW gas turoine plant at Lae in the Ramu system by the end of1987;
(e) a regulating reservoir upstream of the existing Ramu I Power stationat Yonki in the Ramu system by the end of 1990;
(f) installation of 2 x 15 MW turbine-generator units in the existingRamu I Power station by the end of 1990;
(g) a high-voltage transmission line interconnection between the PortMoresby and Ramtu system for completion in the period 1990-95,following commissioning of the Yonki Dam; and
(h) a 5 x 18 MW hydroelectric power station at the Ramu 2A site in theproposed Ramu-Port Moresby interconnected system in 1995.
4.10 A review of the development program supports ELCOM's decision tostart the proposed Yonki Hydroelectric Project as expeditiously as possible.It also shows that the construction of the proposed Yonki HydroelectricProject is fully justified by load growth expectations in the Ramu Systemalone, and does not depend on the potential interconnection of the PortMoresby and Ramu Systems. Nevertheless, following completion of the proposedYonki Hydroelectic Project, the Ramu System is likely to have some excessenergy available; this energy could be used in the Port Moresby System duringthe 1990-1994 period, if a transmission interconnection between the twosystems were constructed. The transmission interconnection needs to becarefully investigated. The appropriate timing for the interconnection is nowbeing studied under an ADB technical assistance project. The Ramu System'sbalance of system load and capacity is given in Annex 11.
4.11 ELCOM's generation expansion plan, 1985-1995, includes ongoing workstotaling 26.7 MW, and new projects of 140 MW capacity (including the YonkiHydroelectric Project). The cost of the expansion plan (excluding interestduring construction) is estimated at about K 298.8 million (US$298.8 million)for the period 1985-1995. Of that total, K 183.7 million (US$183.7 million)represents foreign costs and K 115.1 million (US$115.1 million) representslocal costs (Annex 12).
V. THE PROJECT
A. Project Objectives
5.01 The proposed project supports a major hydroelectric powerdevelopment which would reduce the PNG's dependence on costly imported oilinsofar as ELCOM's operations are concerned, and replace it with indigenoushydro resources. Besides this, the proposed project furthers objectivesincluding:
(a) adequate training and institutional support to assist ELCOM'sdevelopment of its local staff resources;
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(b) development of an institutional and policy framework for futurerural electrification efforts; and -
(c) cofinancing.
B. Project Description
5.02 The proposed project is located on the Ramu River in the EasternHighlands of PNG, about 190 km by road from Lae and 24 km from Kainantu (seeMap IBRD 19385). The Yonki dam is the first of a four-stage Ramu Hydroelec-tric Development Scheme. The dam site is adjacent to the Yonki township, nearwhere the Highlands Highway crosses the Ramu River, and approximately 3 kmupstream from the existing Ramu I run-of-the-river power station. The -
construction of the dam will provide a storage reservoir to increase the firmenergy of the Ramu 1 from the existing 126 GWh level to 418 GWh, and the firmenergy of the planned Ramu 2A and Ramu 3 hydroelectric stations.
5.03 The proposed project comprises:
(a) construction of a 60 m high dam, a spillway system and outletstructure, and associated works;
(b) installation of two additional 15 MW generating units together withstep-up transformers in the spaces provided at the Ramu I powerstation;
(c) relocation of a part of the Highlands Highway and local accessroads, together totalling 22 Kn;
(d) engineering and consulting services;
(e) a training program;
(f) technical assistance for manpower development and institutionalsupport; and
(g) a rural electrification component.
Yonki Dam - Main Civil Works.
5.04 The Dam comprises the following main civil works: (a) constructionof a 60 m high zoned earthfill dam with a total embankment volume of about1.8 million cu. m; (b) an ungated concrete chute type spillway with a crestlength of 85 m; (c) the diversion and outlet works, consisting of twin 4.0 mdiameter concrete culverts appoximately 430 m long (one conduit to be steellined to form a permanent outlet conduit), a concrete outlet tower measuring7 m in diameter and 46 m high, and associated gate structure; (d) a concretedissipator structure and associated outlet works control valves; (e) therelocation of 6 km of the Highlands Highway, including relocation over the damcrest and across a bridge over the spillway; (f) the construction ofapproximately 16 km of local access roads above flood level near the reservoirarea (Annex 13).
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Engineering and Consulting Services
5.05 In September 1984, a joint venture of SMEC in association withCardno and Davies of PNG was selected in accordance with the Bank Guidelinesas the consulting engineer, to provide the following services:
Stage I
(a) update and extension of previous studies in order to bring theproposed project to full feasibility status; and
(b) preparation of a detailed cost estimate and construction schedule.
State II
(a) preparation of detailed design drawings, schedules, bills ofquantities, tender specifications and conditions of contract; and
(b) preparation of prequalification documents for contractors andassistance in prequalification evaluation, and preparation of fulltender documentation for the project.
Stage III
(a) preparation of supplementary notices to amend tender documents, ifnecessary; and
(b) assistance for tender evaluation.
5.06 This project preparation activity is being co-financed by a ProjectPreparation Facility (PPF) financed by the Bank pt)d a grant from theAustralian Development Assistance Bureau (ADAB).' The terms of contract havebeen agreed between ELCON and SMEC (in association with Cardno and Davies).Their engineering and consulting service commenced in October 1984. Theconsulteacy has been extended to include construction supervision, projectcontrol and responsibility for the final commissioning of the works. Terms ofreference foi the 'onettuction management services are given in Annex 14. AnEngineering Review Board (ERR) has been established to advise on the designand safety aspects of the Yonki dam. Since November 1984, ERB has made threevisits to the site to review the investigation, layout and design of the YonkiDam. ELCOM will continue using the services of ERB throughout construction ofthe proposed project.
5.07 A full feasibility report for the proposed project was completed inAugust 1985 and reviewed by ELCOM, ERB and the Bank. The detailed study hasconcluded that construction of a storage reservoir at Yonki is feasible. The
6/ US$1 million from the Bank in the form of a PPF which will be refinancedfrom the proposed loan, and AUD$1.45 million from ADAB in the form of a
art£ubdable grant.
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tender documents and the civil works prequalification evaluation reportprepared by SMEC were reviewed in detail by the Bank and ERB.
Training, Manpower Development and Institutional Support
5.08 Initially, ELCOM asked the Bank to include in the proposed project atraining program with substantial incremental inputs of training specialistsand facilities (para. 3.12). At appraisal, ELCON and the Bank determinedinstead that ELCOM's existing training activities (with some minor incrementalinputs) could produce the results desired if (a) training curricula wereadjusted to make them more relevant to job performance and (b) greaterstandardization of jobs and operating procedures, aimed at increasing thefungibility of training (paras. 3.06-3.15) were introduced. Thus, theproposed project includes a number of components which, taken together, areintended to increase the effectiveness of ELCOM's existing manpowerdevelopment efforts. Specifically, these components are:
(a) ELCOM's existing training program. The existing program is includedin the proposed project because all other incremental inputs havebeen designed to enhance its effectiveness. ELCOM would continueimplementing this program regardless of whether it would undertakethe proposed project. ELCOM would finance from operating revenuesthe cost of the existing program, estimated at about US$1.9 millionequivalent per year in constant prices (or, for the entire projectperiod, US$9.4 million equivalent in constant prices); it wouldaccount for these costs as operating expenses.
(b) New training inputs. These include:
(i) A provision for three training specialists with wide experiencein organizing electric utility training programs and proce-dures. These specialists would be retained for about two yearseach, according to terms of reference which were discussed withand found acceptable by the Bank (Annex 15). Employment of thesethree specialists would cost about US$1.1 million.
(ii) A provision to upgrade existing training facilities and furnishnew equipment specifically related to training in operation andmaintenance of power system plant and equipment. These new orupgraded facilities would cost about US$1.2 million.
(iii) A provision of overseas fellowships to selected PNG nationalsamong ELCOM's senior staff. These overseas fellowships wouldcost about US$0.3 million.
These new inputs would represent incremental expenses which the Bankwould finance in their entirety. However, consistent with normalpractice in PNG, the cost of these inputs would be deducted fromoperating revenues as and when incurred, and not capitalized.
(c) Technical assistance for specific manpower development activities,including:
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(i) A study to categorize and standardize jobs and prepare jobmanuals (para. 3.08), estimated to cost about US$0.3 million;
(ii) A consultancy to standardize ELCOM's technical functions andprepare manuals for standard operating procedures (para. 3.14),estimated to cost about US$0.7 million; and
(iii) A consultancy to perform a technical audit (para. 3.15),estimated to cost about US$0.3 million.
These consultancies would-represent incremental inputs and theircost would be financed entirely by the Bank. ELCOM would capitalizethe cost of these consultancies.
(d) Institutional support. Through use of an allocation of US$1.2illion to help defray a portion of the foreign exchange required tocompensate existing expatriates at existing compensation levels,ELCOM will attempt to redirect the effort of those expatriatestoward their manpower development objectives (para. 3.11). Theseexpenditures would not be incremental. Bank finance would be usedonly to the extent that ELCOM would invest an equal amount of localcurrency in other project expenditures.
At negotiations, ELCOM agreed to implement training in accordance with aprogram that was discussed with and found acceptable by the Bank.
Rural Electrification.
5.09 Initially, ELCOM asked the Bank to include in the proposed project asubstantial rural electrification component. At appraisal, ELCOM indicated ithad made a preliminary plan to extend distribution networks in certain ruralareas to substitute for diesel generation where economically justified, and tosupply adjacent unsupplied villages from these extensions, also where economi-cally justified. However, the cost of extending supply for rural electrifica-tion in most parts of PNC must necessarily be high due to long distances,difficult terrain, and the low density of consumers; and the financial returnsmust necessarily be low, especially in the earlier years before adequatedemand develops and load factor improves. The initial proposal presumed thatELCOM would execute rural electrification subprojects and operate and maintainthe resultant systems, without a satisfactory analysis of the economic orfinancial impact of these activities on ELCOM. While the Government and ELCOMhad developed policies for selecting, implementing and supporting rural elec-trification activities, these policies had not been properly documented andthe Bank was unable to evaluate either the policies themselves, the consis-tency of the proposed subprojects with this policy base, or even the role thatthe Covernment had assigned to rural electrification in its developmentplanning. Moreover, ELCOM expressed a need to examine and refine its designand construction standards to ensure that the subprojects indeed met leastcost criteria. Therefore, the project's originally proposed rural electrifi-cation component was revised at appraisal to provide these prerequisites andenable undertaking certain acceptable rural electrification pilot projectsthereafter. It now includes the following components:
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(a) Extension of electricity supply networks which would provideimmediate socio-economic benefits to residents in the vicinity ofthe proposed project;
(b) A study to document and amplify on rural electrification policy andstandards. The study would make specific recommendations regard-ing: (i) financing and pricing policy issues related to loaddevelopment prospects and the capital and operating costs to be usedin subproject design; (ii) the institutional and policy framework,project criteria, and procedures for implementing rural electrifica-tion tailored to the specific needs of PNG; (iii) design and con-struction standard for distribution extensions, together withtraining requirements in connection with those standards; and(iv) social and economic factors and the use of unquantifiable bene-fits for clarifying criteria for selecting rural electrificationprojects. Although the study would address Government policyissues, ELCOM is likely to be the study's principal beneficiary;therefore it should be expected to finance and execute the study.At negotiations, ELCOM agreed that it will (i) by January 1, 1987,appoint consultants, according to terms of reference (Annex 16) anda selection procedure acceptable to the Bank, to assist in conduct-ing a study of policies and standards for future rural electrifica-tion activity; (ii) by March 31, 1988, complete the study anddiscuss with the Bank the preliminary findings; and (iii) accordingto a schedule acceptable to the Bank, implement the mutually agree-Able recommendations of the study. The Government of PNG agreed toassist ELCOM with the study and participate, as appropriate, in thediscussion with the Bank; and
(c) An allocation of US$1.8 million to finance future rural electri-fication pilot projects acceptable to the Bank, which are developedin accordance with the po'icy criteria established under the ruralelectrification study, and which would be implemented between July1988 and July 1990. This 4llocation would be disbursed only on theconditions that the rural electrification study has been completedand that the Bank agrees with those of the study's recommendationsbeing implemented.
C. Project Cost Estimate
5.10 The estimated cost of the proposed project is summarized below:
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Table 5.1: PROJECT COST SUMMARY
Local /a Foreign Total Foreign cost------- (US$ million) ------- as Z of total
/a US$ 1 = K1.7b Includes US$1 million PPF from the Bank, which will be refinanced from
the proposed loan, and US$1 million equivalent grant from ADAB./c Includes import duties and taxes of about US$1.2 million equivalent.7- Physical contingencies include 15% for civil works, and 10% for
electrical and mechanical equipment, training and rural electrification.
5.11 The cost estimate is based on end-1985 price levels. Unit rates forcivil works were estimated on the basis of current prices in PNC for equip-ment, materials and labour. Also taken into consideration were pricestendered for construction projects in the Highlands of PNG and in some casesprices tendered from construction projects in Malaysia. The rates so obtainedwere applied to the bill of quantities for each feature to arrive at the costof the civil works. Cost estimates for the supply and erection of electricaland mechanical .Lant have been developed from prices for recently awarded con-tracts for equ pment of similar characteristics. Physical contingenciesinclude an overall contingency of 15% for civil works, and 10% for electricaland mechanical equipment, rural electrification, technical assistance andtraining. The price contingencies for all foreign and local costs were
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estimated on the basis of assumed annual rates of escalation of 7% for 1986and 1987, 7.5% for 1988, 7.7Z for 1989, 7.6% for 1990 and 4.5% thereafter. Adetailed project cost estimate is given in Annex 17.
D. Project Financina
5.12 The proposed project is expected to cost US$117.4 miliion (includinginterest during construction), of which US$63.1 million represents foreigncost and US$54.3 million, local cost. The Government of PNG has agreed, inprinciple, to cofinancing arrangements wherein the Bank would provide aboutUS$28.5 million (25% of the total financing requirements excluding duties andtaxes), the Overseas Economic Cooperation Fund (OECF) of Japan about US$38.0million, and the European Investment Bank (EIB) about US$16 million. Theforeign costs of the project would be met from the following constituents:(i) US$15.8 million from the proposed Bank loan, which would cover 25% oftotal foreign costs; (ii) about US$26.8 million from the OECF loans;(iii) about US$9.0 million from the EIB loan; (iv) about US$1.0 million from7,the ADAB grant; and (v) about US$10.5 million from internal cash generation.-About US$30.9 million from the balance of the EIB, OECF and Bank loans willcover a portion of local costs. ELCOM is expected to finance US$33.9 millionof the total project cost from internal cash generation, specifically includ-ing all of the local costs associated with training. Ninety-eight percent ofthe total cost (i.e., the total excluding duties and taxes) of the main civilworks is expected to be financed jointly by the three cofinancers. The totalexpenditure of engineering and consulting services and the foreign cost oftraining, technical assistance for manpower development and ruralelectrification will be financed solely by the Bank. OECF would finance on aparallel basis, the electrical and mechanical equipment. Cross-effectivenessof the cofinancing arrangements would be a condition of effectiveness of theproposed loan. The tentative financing arrangement for this project would beas shown in Table 5.2:
7/ ELCOM's financing of foreign exchange would be restricted to interestduring construction.
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Table 5.2: FINANCING PLAN FOR THE PROJECT
Source of Local' Foreign Totalfinancing - (US$ million) ----
IBRD 12.7 15.8 /a 28.5
ADAR - 1.0 1.0
EIB 7.0 9.0 16.0
OECF 11.2 26.8 38.0
Internal Cash Generation 23.4 10.5 /b 33.9
Total 54.3 63.1 117.4
/a Includes US$1 million PPF, which will be refinanced from the proposedloan.
lb Both OECF and EIB will not permit the use of its funds to financeinterest during construction. As the Kina is a freely convertiblecurrency, ELCOM has the capacity to purchase the foreign exchange neededto meet interest during construction not otherwise financed.
E. Procurement
5.13 The proposed project will include one major contract for the maincivil works and one electrical and mechanical equipment contract. The maincivil works, being financed jointly by the three cofinancers, will be procuredon the basis of international competitive bidding in accordance with theBank's procurement guidelines. Materials and equipment for training and ruralelectrification, being financed solely by the proposed Bank loan, would begrouped in appropriate bidding packages and procured in accordance with theBank's limited international bidding procedures. Margins of preference todomestis manufacturers would not apply in this case because equipment andmaterials required for the project are not produced locally. Minor items ofequipment (not exceeding US$100,000 per contract up to an aggregate amount ofUS$1.0 million), could be procured in accordance with local competitivebidding procedures or on the basis of international and local shopping basedon comparing price quotations from at least three qualified foreign or localsuppliers to ensure competitive prices. Engineering and consulting servicesfinanced solely by the Bank will be procured in accordance with the Bank'sguidelines. Contracts over US$100,000 would be reviewed by the Bank prior toissuance.
5.14 The electromechanical equipment financed solely by OECF will beprocured by international competitive bidding in accordance with OECF procure-ment guidelines.
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5.15 The procurement arrangements are summarized below:
Table 5.3: PROCUREMENT ARRANGEMENTS
Procurement Method (US$ million)Project element ICB Others
Total cost
Civil works 48.5 - 48.5(10.0) /a (10.0)
Electrical and mechanical. 9.7 9.7
Engineering and consulting - 10.9 10.9(8.9) (8.9)
Construction related establishmentexpenses 7 1.0 7.0
Training 18.9 18.9(6.6) (6.6)
aural electrification 4.6 4.6(3.0) (3.0)
Total 48.5 51.1 99.6(10.0) (18.5) (28.5)
/a Figures in parentheses are the respective amounts expected to be financedby the proposed Bank loan.
F. Project Implementation
5.16 ELCOM is the implementing agency for the proposed project. Duringconstruction ELCOM will be responsible for implementing the project assistedby the SMEC. ERB would also inspect the site from time to time during theconstruction period. ELCOM's management has established a construction unitto coordinate project implementation and supervise construction. The managerof the construction unit and other key staff have already been appointed.Support staff will be organized for coordination with ELCOM's staff at thesite, the engineering consultant and the various groups concerned with land,ecological and sociological issues; and also for recording project costs andpreparing progress reports. The organization of this construction unit isshown in Annex 18. The proposed establishment and staffing of the projectimplementation unit is satisfactory to the Bank. The Yonki township has beenwell maintained and will serve as the headquarters for ELCOM's constructionsupervision unit.
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5.17 Tenders for the main civil works have been opened in March 1986, andthe contract will be awarded by August 1986, immediately after loan approval.For the electromechanicaL contract, tenders were invited in early 1986 and thecontract will be awarded by late 1986. The main civil works construction isexpected to begin in November 1986 and be sufficiently completed before March1990 to allow maximum storage before that year's wet season ends. The commis-sioning dates for Ramu I units 4 and 5 are scheduled for May and September1990 respectively. A detailed construction schedule is shown in Annex 19.The total construction time, including the time needed for rerouting of thehighway over the dam crest, is expected to be about four years.
5.18 ELCOM will retain consultants under terms satisfactory to the Bankfor the implementation of the institutional development technical assistanceand the rural electrification study, and for supervision of constrvction ofthe proposed project. ELCOM estimates needing 790 man-months of consultingand training services for the training program (80 man-months), job class-ification study (24 man-months), development of standard operating procedures(50 man-months), technical audit (18 man-months), rural electrification study(18 man-months) and construction supervision (600 man-months). Annexes 2, 14,15, 16 and 20 present the proposed terms of reference and the implementingschedules for the services mentioned above. In view of the interrelationshipbetween several of the institutional support efforts, ELCOM may elect tocombine them into a single consultancy. Otherwise, ELCOM is aware that itwill need to coordinate the consultants' efforts.
C. Disbursement
5.19 Disbursements for the civil works would cover about 98Z qf totalexpenditures and would be prorated between the three cofinancers.l' The Bankloan would be disbursed against 10OZ of the total expenditures of consultingservices, and 100% of the foreign exchange cost of other technicalassistance. For materials and equipment for training and rural electrifi-cation, the Bank loan would be disbursed against (i) 100l of the foreignexchange cost of directly imported materials and equipment and (ii) 85% oftotal expenditures for imported equipment procured locally off-the-shelf. Forminor items of materials and equipment financed by the Bank, not exceedingUS$100,000 per contract, a Statement of Expenditure, prepared and certified byELCOM, constitutes acceptable documentation for disbursement purposes.Relevant supporting documents, however, will be retained by ELCOM and will bemade available for review by Bank supervision missions. The $1.0 millionadvance from the Bank's Project Preparation Facility, used to finance the
8/ During negotiations, it was agreed that for the civil works contract tobe financed by RIB, OECF and the Bank, that the Project Control Sectionof ELCOM would coordinate with the contractor, through the engineer, tofacilitate payment. EIB would be sent an advance billing so that EIBwould be able to arrange payment to the Borrower and ELCOM before the duedate. It is proposed that OECF and the Bank would make direct paymentsto the contractor upon receipt of an invoice. EIB will reimburse about18% of the contract; OECF 59%; and IBRD 21%.
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of the consultant services for project preparation, will be refinanced throughthe loan. The proposed Project contains a provision of up to US$300,000 tofinance retroactively certain activities, expected to begin after May 1, 1986and continue throughout the summer of 1986, for extending the distributionsystem within the Yonki vicinity.
5.20 Based on the implementing schedules shown in Annexes 19, 20 and21, a schedule of estimated disbursements has been prepared (Annex 22).Comparison was made with disbursement profiles for hydroelectric projectsBankwide. The project is expected to be fully completed by December 31,1990. The ctosing date for the proposed loan would be December 31, 1991,which would allow adequate time for payment of retentions.
H. Monitoring and Reporting
5.21 In order to inform the Bank, the other cofinanciers, and theBorrower about progress in implementing the proposed project, ELCOM has agreedto furnish quarterly progress reports and submit a project completion reportto the Bank not later than six months after the closing date of the loan.
I. Ecology
5.22 From 1984-1985, ELCOM engaged Cameron McNamera Kramer of PNG(consulting engineers) to carry out an Environmental Assessment of the Yonkireservoir area. All ecological aspects have been fully considered. Thereservoir area has no mineral resources, forests, or fishery resources ofsignificant economic value. The assessment was reviewed and endorsed inprinciple by the Department of Environment and Conservation. No environmentalproblems of significance are expected to arise as a result of the project'sconstruction. Since implementation of the environmental plan depends largelyon cooperation between different groups and agencies, ELC4M'a Board hascreated a small interagency environmental unit. ELCOM has also initiated acomprehensive plan for the socio-economic development of the area surroundingthe Yonki reservoir, known as the Arona valley. A comprehensive reportcontaining several area investment proposals has been prepared by the PNGInstitute for Applied Social and Economic Research. This has also beenreviewed within PNG by various central and provincial agencies and approved bythe PNG Government. The only component of this plan included in the proposedproject is the provision of electricity in the immediate vicinity of the YonkiDam (para. 5.09).
5.23 The reservoir will inundate an area of 21.5 sq km. Environmentalaspects of the project have received serious and timely consideration; andtheir resolution was simplified considerably becouse ELCOM had purchased theland for the reservoir area in the early 19709 when the Ramu 1 project wasbegun. In addition to the land for the reservoir, strips of land were alsopurchased on each side of the Ramu River between the proposed dam site and theoutlet portal of the Ramu 1 tailrace tunnel. Since purchasing the land, ELCOMhas leased it to residents of the vicinity for cattle grating and coffeeproduction. No settlements are located within the reservoir area, although afew of the lessees have built huts near their plantations. ELCOM has alreadyprepared a three year program for closing the cattle ranch. This program
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would begin with project construction. ELCOM has also completed the necessaryarrangements for the purchase of small parcels of land needed to relocate asection of the Highlands Highway and to secure the quarry needed to supplyrock for construction of the dam.
5.24 Assessment of the rate at which sediment would accumulate within theYonki reservoir shows that sedimentation is not as serious a problem as wasonce postulated. The loss of storage is estimated at about 28.8 million cu m,representing 8.4Z of total storage volume, after 50 years and 56.3 millioncu m, or 16.8X, after 100 years. Observations of the bed material between thedam and the Ramu 1 headpond, which ranges from small pebbles and rocks toboulders, indicates that degradation of the riverbed in this area is unlikely,although some scour can be expected for a short period in the vicinity of thespi'lway plunge pool when high'flood flows pass over the spillway. Thesituation is expected to stabilize quickly.
J. Risks
5.25 The Yonki dam project is subject to risks normally associated withcivil works in difficult terrain and heavy wet season rain. ELCOM has decidedto use conduits for river diversion in order to avoid possible problems withthe difficult ground through which diversion tunnels would have to be driven.Most of the embankment will rest on a foundation of competent conglomerates.There is no danger of significant landslides occurring either at the damsiteduring or after construction, or around the reservoir perimeter after filling.ELCOM has endeavored to minimize the project risks during construction, par-ticularly with respect to the treatment of the embankment foundation. A groutcurtain has been designed to fill cavities in the conglomerates with cementand possible sand lenses with chemical grout. The design is satisfactory.ELCOM has relied heavily on the services of ERB, whose advice will continuebeing sought should any unusual technical problem in connection with theconstruction of the dam embankment arise. ELCOM has also acted promptly inpreparing to upgrade the operating voltage of the Ramu-Lae and Ramu-Madangtransmission lines to 132 Kv. Whatever risks remain are not judgca to besignificant enough to preclude proceeding with the loan.
5.26 At negotiations, ELCOM agreed that, after completion ofconstruction, it will conduct periodic inspections, to be performed byindependent engineering experts acceptable to the Bank, of the dam andassociated work. To this end, ELCOM would propose to the Rank appropriatearrangements for conducting such inspections, not later than one year beforethe expected completion of the main civil works. These inspections woulddetermine any deficiencies in the condition of the aforementioned structures,or in the quality and adequacy of maintenance or method of operation of thesefacilities, which may endanger their safety.
VI. FINANCE
A. Introduction
6.01 ELCOM became a Commercial Statutory Authority in October 1983. Inthat context, it has responsibility for maintaining satisfactory revenues,
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meeting its expenses and debt service, formulating and financing its invest-ment program (with some guidance and assistance from the Government of PNG),and mobilizing resources for the Government of PNG through payment of taxesand dividends. ELCOM enjoys broad autonomy in formulating and promulgatingtariffs; moreover, it may raise commercial borrowings, both domestically andfrom abroad, on the strength of its financial statements and without specificpermission from the Government of PNG.
B. Past and Present Financial Performance
6.02 ELCOM's financial performance for the period 1981-19b4 is displayedin detail in Annex 23. Key financial indicators for that period are presentedin Table 6.1:
Table 6.1: SUMMARY OF ELCOM'S FINANCIAL PERFORMANCE1981-1984
Financial Year ended Dec 31 1981 1982 1983 1984- Audited -
Power sold (GWh) 423 394 398 421Average revenue (TOEA/kWh) 10.2 12.1 14.1 13.8
/a On historically valued assets.Th The ratio of cash available for investment divided by that specific
year's capital expenditure./c The ratio of dividends to total equity.
34 -
6.03 ELCON's financial performance in recent years has varied, interatia,- with the weather. In 1984, rains were bountiful. ELCOM was able tomeet more than 80X of its demand with hydro power. Profitability was high andELCOM was even able to reduce its tariff by about 16X. In contrast, 1981 and1983 (to a lesser degree) were dry years; and ELCOM needed to rely heavily oncostly diesel generation for supplying its base load. In those years, ELCOMneeded to increase its tariff substantially to cover the costs associated withhaving to rely more heavily than normal on thermal generation. Under previousBank loans and existing ADB loans, ELCOM has agreed to set its tariff so thatrevenues would cover all operating costs (including depreciation), incometaxes and a 10% return on historically valued net fixed assets in operation.ELCOM has consistently used this financial performance objective for settingits tariff. Its results have varied from this target due to factors,-such asthe amount of rainfall, beyond its control. Thus, it is complying with pastfinancial performance agreements.
6.04 Liquidity. During the recent past, ELCOM's collection of accountsreceivable has lagged its own targets. Excluding an unread meters accrualaveraging K 3.4 million in both years, accounts receivable represented 59 dayssales in 1983 and 53 days sales in 1984. About 80% of ELCOM's revenues arefrom the general public and collection of these revenues has been averaging 45days; the remaining 20% of revenues accruing from the public sector has beenrequiring between 85 and 90 days for collection. ELCOM intends to reduceaccounts receivable (net of the unread meter accrual) to less than 45 days'sales beginning in 1986 (para. 3.23), by (a) increasing the frequency of meterreadings for general public consumers (paras. 3.22 and 3.23) and (b) adjustingsome of the billing procedures being followed with regard to governmentconsumers (paras. 3.21 and 3.23). Similarly, in the period 1981-1983, ELCOMfinanced its working capital requirements in part by stretching accountspayable and by raising short term liquidity borrowings. In 1984, ELCOMapplied some of the additional cash flow obtained from selling a higher pro-portion of low cost hydropower to repay the liquidity borrowings and reducepayables to levels consistent with normal credit terms in PNG. ELCOM intendsto take a more disciplined approach to its accounts payable in the future(para. 3.24). While reflecting ELCOM's lackluster commercial performance in1981 and 1982, its current ratio presents a misleadingly negative view ofELCOM's liquidity in subsequent years. Because income taxes and dividends areaccrued at the end of the current year but not payable until some months intothe following year, ELCOM's year end current liabilities beginning in 1983would normally reflect much higher proportions of its annual expenses than wasthe case previously. Moreover, ELCOM manages its cash prudently, preferringto invest in its expansion projects and borrow for liquidity purposes(para. 6.06) rather than accumulate cash months in advance of anticipatedlarge expenditures. Therefore, ELCOM's current ratio would necessarily be lowfrom 1983 onward.
9/ Other factors having a bearing on ELCOM's profitability are staffreductions, stability of fuel prices, and availability for sale of somenew hydro generation.
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6.05 In recent years, ELCOM invested primarily in development of hydro-power resources for the Port Moresby grid. The Government of PNG authorizedthese investments on the condition that ELCOM finance a significant amount ofthe cost from internal cash generation, ELCOM's financial performance targetfor a normal hydrological year of a 10 rate of return of on historicallyvalued assets (para. 6.03) has usually also enabled it to self-finance anaverage of about 48f of its annual investment program. This impressive levelof self-financing;.. was achieved when ELCOM's investment program was moremodest than is projected for coming years. In order to remove price distor-tions and enhance general revenues, the Government of PNG made ELCOM liablefor income taxes in 1983 and imposed on ELCOM the expectation of a regulardividend beginning in 1984. In the future, ELCOM intends to continueself-finance somewhat more modest levels of its investment program- (para.6.22) after making satisfactory contributions to general revenues throughtaxes (para. 3.29) and dividends (para. 6.08).
6.06 During the recent past, ELCOM's balance sheet has remained consis-tently strong, except for its working capital position. Debt has averagedonly about 46% of capitalization. Although liquidity has sometimes beenconstrained, ELCOM has enjoyed substantial overdraft privileges and easyaccess to short term lines of credit. In any case, debt service coverage hasaveraged 3.0 and has exceeded 1.5 even in 1981, ELCOM's most difficult year.
6.07 Because of its strong balance sheet, good earnings, and conservativefinancial management, ELCOM has not had difficulty in raising long term debtfrom international as well as domestic lenders. As of December 31, 1984,loans denominated in foreign exchange comprised about 25% (about K 45 million)of ELCOM's total capitalization. In late June 1985, ELCOM raised Yen 1,700million (about K 7.1 million at that time) in long term debt from a syndicateled by the Yasuda Trust Banking Ltd. of Japan. Owing to this relatively easyaccess to the international commercial credit markets and the freeconvertibility of the Kina, ELCOM has not had difficulty meeting its foreignexchange needs.
Dividends
6.08 Since 1984, the Government of PNG has expected ELCOM to pay adividend. ELCOM's Board of Commissioners voted to pay a dividend equal to 19%of its net income after interest charged to operations and income taxes. In1984, the dividend was Kina 2.1 million, representing a yield of about 2% onequity capital. Based on ELCOM's current policy of setting dividends at 19%of after tax earnings, the Government's yield is likely to remain in the 2-3%range in the intermediate future (Annex 22 and Table 6.4).
10/ The self-financing ratio relates cash available for investment to thatspecific year's capital expenditure. This differs substantially fromcontribution to investment (para. 6.22), which relates cash availabLa forinvestment to the average capital expenditure for (i) the immediatelypreceding year; (ii) the current year; and (iii) the next year.
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Valuation of Assets
6.09 ELCOM currently accounts for its fixed assets on an historical costbasis. With inflation averaging 7% per year over the recent past, the use ofhistorical cost substantially understates the value of ELCOM's plant andequipment. Revaluation of assets is an accepted accounting practice in PNGand ELCOM plans to use consultants, currently on retainer, to develop amethodology and conduct a revaluation of its fixed assets prior to June1986. ELCOM intends that the revaluation would be based on a comprehensiveengineering assessment, to be conducted in the field, of all its generatingplants and zone substations and a review, to lue conducted at ELCOM head-quartersp of its accounting and engineering data concerning transmission,distribution and other assets. ELCOM intends to use the methodology andinformation provided by the consultants so that its own staff can revalue itsassets regularly thereafter. If the revaluation is satisfactory to theAuditor General of PNG, it would be incorporated into ELCOM's annual accounts;otherwise, ELCOM would maintain these records in memorandum form. At neloti-ations, ELCOM gave an undertaking that, beginning with the year endedDecember 31, 1986, it will conduct, according to a methodology acceptable tothe Bank, an annual revaluation of its assets, either in its books of accountsor in memorandum form. In the context of appraisal, an approximaterevaluation was attempted; this effort indicated that the replacement value ofELCOM's gross fixed assets in operation is likely to be greater than histor-ical cost by about 100%. Such an adjustment in the rate base implies thatELCOM's seemingly comfortable average rate of return of 10% on historicallyvalued assets translates to a modest average rate of return of about 4% onrevalued assets.
C. Tariff
6.10 ELCOM charges all its consumers nationwide according to a simplystructured uniform tariff summarized in Table 6.2:
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Table 6.2: SUMMARY OF ELCOM'S TARIFF
~-~~-~~~--- Rate --------e--__
Consumer category June 1, 1984 - After Oct 1, 1985Sept 30, 1985
Industrial consumers:Demand charge /a K 11.00 per kVA -K 10.00 per kVAEnergy charge 8.00 toea per kWh 8.0 toea per kWh
Consumers with prepayment meters 15.4 toea per kWh 15.4 toea per kWh
All other consumers lbEnergy chargeFirst 100 kWh /c 11.5 toea per kWh 10.5 toea per kWhBalance 14.0 toea per kWh 14.0 toea per kWh
/a Large industrial and commercial consumers with a demand of approximately200 kVA or more pay a minimum demand charge of K 2,200 through September30, 1985 and K 2,000 thereafter.
lb The charge for public lighting is a flat rate assessed yearly, based onthe size and type of light fitting.
/c The minimum monthly amount for each connected meter is K 5.00. Chargesfor periods of more or less than one month will be calculated on a prorata basis.
In addition to the charges shown above, consumers pay a fee of K 20 forinitial connections and of K 5 for reconnections or changes in service.
6.11 In addition to ELCOM's generation, several private concerns receivepower from their own thermal installations, all of which burn imported petro-leum fuels. ELCOM is entitled, pursuant to the Electricity Commission(condition of supply) by-laws, to impose a standby charge which may not exceed50% of the difference between the amount actually paid to ELCOM by any con-sumer generating privately a part or all of his electricity requirements, andthe amount that would have been paid had ELCOM supplied all his requirements.The standby charge is intended primarily to discourage industrial consumersfrom buildi.ag new autogeneration facilities in areas where they could easilyobtain their supplies from ELCOM, and also to encourage consumers who havebeen using autogeneration to purchase their power from ELCON, where reasonablyfeasible. ELCOM has not yet actually imposed any standby charges.
6.12 The tariff provides ELCOM with average revenues of about 13.7 toeaper kWh. According to a recent joint UNDPlBank study, this average of13.7 toea/kWh would provide revenue similar to a marginal cost based tariff.Currently, industrial consumers are modestly cross subsidizing all other con-sumers; also, consumers in Port Moresby, PNG's only substantial urban concen-tration, are cross subsidizing consumers elsewhere in the country. These
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cross subsidies are acceptable for smaller consumers in view of the relativelyhigh price of electricity and the modest income levels prevalent in PNG.
6.13 ELCOM's financial performances as indicated by its rate of return,is somewhat-lower than would be expected given that tariff revenues aresimilar to those that would be generated by a marginal cost based tariff.This is attributable primarily to the low density of consumers, which in thepast has prevented ELCOM from taking advantage of economies of scale. ELCOMhas already had to -invest heavily in subtransmission and distribution infra-structure, and its investment program does not anticipate significant growthof service into new geographical areas. While ELCOM's major new investmentsare intended to replace costly diesel generation with capital intensive hydrogeneration, the investment program's overall cost is lower than the capitaland recurrent cost associated with existing generation, transmission anddistribution facilities. Moreover, as growth in demand is not expected toabsorb completely major additions to capacity directly upon completion of newprojects but rather only a few years later, the anomaly of a tariff producingrevenues similar to long run marginal cost also producing modest financialperformance is expected to continue into the late 1990s.
6.14 For the future, ELCOM projects continuing to achieve modest levelsof financial performance (Table 6.4 and para. 6.22). These results areacceptable to the Bank primarily because they are based on the assumption thatthe tariff will be adjusted regularly so that it continues to approximate longrun marginal cost. Because of the low penetration of electricity into the PNGmarket, a tariff which exceeds long run marginal cost would give impropersignals to the consumers.
D. Financing Plan
6.15 ELCOM's financing plan for the period of implementation of theproposed project, 1985-1991, is provided in Table 6.3:
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Table 6.3: ELCOM'S FINANCING PLAN, 1985-1991
K Mln. US$ Mln/a z
Internal Cash GenerationNet Income before Interest 235.0 135.0 49Depreciation 82.2 82.2 11
Operating Cash Flow 317.2 317.2 66
(Less) Working Capital Increases (3.8) (3.8) (1)(Less) Taxes Payable 14.5 14.5 3(Less) Dividends Payable 23.7 23.7 5
Sources ,f FinanceOnlent World Bank funds 28.5 28.5 6OECF of Japan 38.0 38.0 8European Investment Bank 16.0 16.0 3Asian Development Bank 25.0 25.0 5Other onlent International Loans 97.3 97.3 20Commercial Loans 108.2 108.2 22
Total Finance 313.0 313.0 64
/a Currently K 1 = US$1
40 -
6.16 ELCOM is expecting to implement an extremely ambitious investmentprogram during the period. The proposed project (including associated capi-talized interest), which alone would increase ELCOM's historically valuedgross fixed assets in operation by 57%, accounts for only about 24% of ELCOM'splanned investment. After allowing for payment of taxes and dividends, ELCOMplans to finance about 36% of its investment program from tariff revenues.
6.17 The Government of PNG has a policy of channelling all officialinternational loans (including proceeds of loans from the Bank, OECF, EIB, ADBand other development agencies) through the Department of Finance (DOF), withDOF then onlending the proceeds to ELCOM for 20 years, including five years ofgrace on repayment of principal, at the higher of the standard for onlendingto Commercial Statutory Authorities or the rate the Government actually paysfor the funds. Currently, the standard onlending rate for CommercialStatutory Authorities is 11%. ELCOM bears the full foreign exchange riskassociated with its official borrowings; while the Government implicitlyguarantees repayment, it normally needs not enter into formal GuaranteeAgreements with the lending institutions. The maturity and grace periods ofthese onlending arrangements are consistent with the terms of the Bank loan.At negotiations, the Government of PNG agreed that it will onlend the proceedsof the proposed Bank loan to ELCOM for 20 years, including five years of graceon repayment of principal, at an interest rate representing the higher of itsstandard rate for onlending to Commercial Statutory Authorities or theprevailing Bank rate.
6.18 ELCOM intends to secure the balance of needed investment financingfrom commercial lenders, either within PNG or abroad. As its debt/totalcapitalization ratio is projected to remain at or below 63% and its debtservice coverage is projected to exceed 1.5 throughout the period, ELCOMbelieves it will remain capable of obtaining attractive credit terms. ELCOMintends to choose between domestic and offshore sources of commercialborrowings based on comparisons of available offers, adjusted to reflect theGovernment of PNG's expectation of foreign exchange movements. For projectionpurposes, these commercial loans have been assumed to be available for tenyears, including four years of grace on repayment of principal, at an interestrate of 13%. These assumptions are based on ELCOM's experience in raisingdebt finance in June 1985 (para. 6.07).
E. Future Finances
6.19 Projections of ELCOM's financial performance for the period 1985 4,
together with the assumptions underlying those projections, are presented inAnnex 23. Key financial indicators for the projection period are presented inTable 6.4.
- 41 -
Table 6.4: KEY FINANCIAL INDICATORS, 1985-1994
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
Power sold (GVh) 466 501 550 585 624 662 705 749 796 849Average revenue
/a Based on historical value of gross fixed assets.7r Based on notional revaluation of gross fixed assets effective as of Dec. 31, 1984
(para. 6.09)./c The ratio of cash available for investment divided by that specific year's capital
expenditure./d The ratio of dividends to total equity.
- 42
6.20 During the projection period, ELCOM's historically valued rate baseis expected to grow by about 307% (or 15% compounded annually). Because asignificant proportion of the new generating capacity will be used to replacecostly diesel generation with lower cost hydro generation, power sales areexpected to increase only by about 100X (or 7.2% compounded annually) andoperating revenues are expected to increase only by 207X (or about 11.9% com-pounded annually). During the projection period, ELCOM's tariff is expectedto increase by 53% (or about 4.4% compounded annually); however, in constant1985 prices, the tariff will actually decrease marginally between 1985 and1994. As reflected by its operating ratio, ELCOM will maintain or increaseits profitability because of expected decreases in its aggregate costs as theproportion of low-cost hydro power to ELCOM's overall sales increases.
6.21 Based on the assumption of normal hydrological years, ELCOM isexpected to remain in sound financial health. ELCOM's past performance indi-cates that it has been quick to adjust its tariff to variations in weather(para. 6.03) and that its access to liquidity borrowings is adequate toovercome the cash constraints of dry years (parr. 6.06). During the projec-tion period, ELCOM expects to self-finance an average of about 33% of itsannual investment program. It expects to realize an average annual rate ofreturn, computed after income tax and before interest and dividends, onhistorically valued assets of 10.5%. Its debt to total capitalization ratioremains consistently at or less than 63% and its debt service coverage con-sistently exceeds 1.5. Although its current ratio remains low (para. 6.04)ELCOM should erjoy satisfactory liquidity.
6.22 In the past, ELCOM has set its rates to meet the financialperformance objective of a 10 rate of return on historically valued assets.While this has enabled ELCOM to self-finance about 40% of its investmentprogram in the past, its future investment program is substantially moreambitious (para. 6.16) and self-financing must follow the Government'srecently introduced income tax (para. 3.29) and dividend (para. 6.08)requirements. Thus, in setting its rates, ELCOM should focus on meetinginternal case generation targets in preference to rates of return. To ensurethat it continues to realize acceptable levels of financial performance(paras. 6.20-6.21), at negotiations ELCOM agreed to take steps, including butnot limited to increasing its tariff, to realize revenues sufficient to meetits cash operating expenq17s, all debt service, income taxes, dividends p!tbleand, beginning in 1987,_ 30% of its average annual investment program.-In addition, ELCOM agreed that, unless the Bank accepts otherwise, it mayincur additional debt only if a reasonable forecast of its net revenues afterexpenditures for each year during the term of the debt to be incurred shall beat least 1.5 times ELCOM's projected debt service requirements. Compliance
11/ Until the proposed loan becomes effective, most likely in late 1986,ELCOM would maintain its existing tariff.
12/ The average of (a) its investment programs for (i) the immediatelypreceding year and (ii) the current year and (b) its expected investmentprogram for the next year.
- 43
with these agreements implies that ELCOM's tariff will continue to providerevenues similar to a marginal cost based tariff.
VII. ECONOMIC ANALYSIS
Background
7.01 Numerous studies of potential hydroelectric developments to servethe Port Moresby and Ramu Systems had been undertaken over the past tenyears. As a result of these studies, ELCOM preselected various potentialhydroelectric developments and engaged Gibb Australia to conduct a finalevaluation of alternatives. Their initial study, which was completed in 1983,involved the investigation, evaluation and ranking of the various hydro-electric alternatives. The final study, completed in 1984, primarily involvedthe comparison of alternative development plans, including hydro and thermalplant alternatives for both the Ramu System alone and for the interconnectedsystem, in order to establish the least cost development plan and identify thepriority projects. A report entitled "Port Moresby and Ramu Systems Plans"was prepared by Gibb Australia in June 1984. The investigation makes clearthat construction of the Yonki hydro project by 1990 forms a vital part of theleast cost development plan for both the separate development of the Ramusystem and the interconnected system. The study was then updated in 1985 bySMEC, with the result of confirming that Yonki Hydroelectric Project is themost economic development for the Ramu System.
Least Cost Analysis of the Ramu Syste=
7.02 The Yonki reservoir will increase the firm energy of Ramu I from theexisting 126 GWh level to 418 GWh. Further indirect benefits of the proposedProject include the elimination of the severe turbine erosion presentlyoccurring from the Ramu River silt load; the utilization of facilitiespreviously constructed in the Ramu 1 Power Station; the general economicdevelopment of the immediate area with service industries, agricultureprojects and tourism; and the dry season irrigation potential which couldbecome available below the Ramu Gorge.
7.03 The proposed Project also facilitates some further hydroelectricdevelopments of the Ramu Gorge below the Ramu I Power Station. These develop-ments provide highly economic power for the country's long term plans forindigenous resource exploitation (Annex 24, para. 3). In particular, severalmining projects under investigation in the Highland region are enhanced by theprospect of economic ELCOM power being available. Moreover, as a result ofthe proposed Project, the proposed trans-island transmission line has pros-pects of becoming economically viable, thereby providing additional generationoptions to Port Moresby.
7.04 The least-cost analysis wa3 made on a program basis using thediscounted cash flow technique. The following four alternatives, each ofwhich would satisfy the projected demand up to 1995, were compared:
44 -
Comi ssioningYear Alternative A Alternative B Alternative C Alternative D
1990 Yonki Hydroelectric Lae heavy oil Lae heavy oil Lae heavy oil(Yonki dam and addi- diesel diesel dieseltional 2 x 15 KW in (2 x 7.S MW) (2 x 7.5 MW) (2 x 7.5 MW)Ramu I)
1991 Lae heavy oil Lae heavy oil Lae heavy oildiesel diesel diesel(1 x 7.5 MW) (1 x 7.5 MW) (1 x 7.5 MW)
1992 Lae heavy oil Lae heavy oil Lae heavy oildiesel diesel diesel(1 x 7.5 MW) 1 x 7.5 MW) (1 x 7.5 MW)
1994 Lae heavy oil Ramu 2A BariKewadiesel (50 MW) (1 x 25 MW)(2 x 7.5 MW)
1995 Lae heavy oildiesel(1 x 7.5 MW)
Alternative A with the Yonki hydro project is the basic alternative. Alterna-tive B is a heavy oil diesel alternative. Alternative C is a mixed hydro andthermal alternative., involving thermal stations using heavy oil diesel and therun-of-the-river hydro electric station, Ramu 2 A. Alternative D is a thermalalternative comprising gas turbines fired from the adjacent BariKewa gasfields and heavy oil diesel stations. The comparison which was made on aconstant price basis, considers the total present value of capital investmentand operation, maintenance and fuel costs. The fuel costs were calculated ona system basis assuming merit-order operation of generating plants. All costswere based on end-1985 price levels. Taxes and duties were excluded. Foreignexchange costs were not shadow priced, due to the recent devaluation of Kina.
7.05 The economics of the proposed Yonki Hydroelectric Project has beenexamined in light of recent and projected drop in oil prices. The equalizingdiscount rate between alternative (A) and alternative (B) is 13.9% while theequalizing discount rate between alternative (A) and alternative (C) is 17.4%,and between A and D is 18.1%. Alternative (A) with the Yonki hydro project,would therefore be the most economic alternative as long as the opportunitycost of capital in real terms is less than 13.9%. This demonstrates that theYonki Hydroelectric Project is economically justified. A sensitivity analysisbetween alternative (A) and alternative (B) indicates that even with a 30%increase in the cost of the Yonki Dam and zero increase in fuel prices,
- 45 -
alternative (A) is still the least cost solution up to a discount rate ofabout 12.1% (Annex 24). As another sensitivity test for variations in realoil prices between US$12 a barrel and US$20 a barrel (zero escalation), theequalizing discount rate between Alternative A and Alternative B variesbetween 11.9% and 14%. Thus the Project meets the Bank's economic criteria.
Internal Economic Rate of Return for the Proposed Project
7.06 The internal economic rate of return (IERR) was calculated byequalizing the net present value of the economic costs and benefits attribu-table to the proposed project. The costs included are (a) capital investmentfor the project, including associated transmission; (b) operation andmaintenance costs; and (c) recurrent costs associated with distribution.Benefits were derived based on the 1985 average tariff. The IERR thuscalculated is 16.5% for the proposed project (Annex 25).
VIII. AGREEMENTS AND RECOMMENDATIONS
Agreement with the Government
8.01 During negotiations assurances were obtained from the Governmentthat, it would assist ELCOM with the study of rural electrification policiesand standards and would participate, as appropriate, in the discussions aboutthe study's findings with the Bank (para. 5.09).
8.02 During negotiations, further assurances were obtained from theGovernment regarding onlending the proceeds of the proposed Bank loan to ELCOMon terms satisfactory to the Bank (para. 6.17).
Agreement with ELCOM
8.03 During negotiations, assurances were obtained from ELCOM regardingthe following:
(a) ELCOM will (i) by January 1, 1987, appoint consultants, according toterms of reference and a selection procedure acceptable to the Bank,to conduct a Job Standardization Study; (ii) by December 31, 1987,complete the study and discuss the Study's recommendations with the
- Bank; and (iii) according to a schedule acceptable to the Bank,implement these mutually agreed recommendations (para. 3.08).
(b) ELCOM will consult Bank prior to making any decisions which mightresult in major changes to ELCOM's organization (para. 3.11).
(c) ELCOM will (i) by January I, 1987, appoint consultants, according toterms of reference and a selection procedure acceptable to the Bank,to standardize ELCOM's technical functions and to prepare manuals ofstandard operating procedures; (ii) by December 31, 1987, completethe manuals and discuss the consultants' recommendations with theBank; and (iii) according to a schedule acceptable to the Bank,implement those mutually agreeable recommendations (para. 3.14).
- 46 -
(d) ELCON will Ci) by June 30, 1988, appoint consultants, according toterms of reference and a selection procedure acceptable to the Bank,to conduct a technical audit; (ii) by January 31, 1989, completethe audit and discuss the consultants' recommendations with theBank; and (iii) according to a schedule acceptable to the Bank,implement those mutually agreeable recommendations (para. 3.14).
(e) ELCOM will, six months after the end of each fiscal year, furnish tothe Bank audited annual accounts for the year just concluded,together with the certification and report of an acceptable auditor(para. 3.26).
(f) ELCOM will (i} by January 1, 1987, appoint consultants, according toterms of reference and a selection procedure acceptable to the Bank,to assist in conducting a study of policies and standards for futurerural electrification activity; (ii) by March 31, 1988, complete thestudy and discuss the study's preliminary findings with the Bank;and (iii) according to a schedule acceptable to the Bank, implementthe mutually agreeable recommendations of the study (Para. 5.09).
(g) ELCOM will, after completion of construction, conduct periodicinspections, to be performed by independent engineering expertsacceptable to the Bank, of the dam and associated works. To thisend, ELCOM would propose to the Bank appropriate arrangements forconducting such inspections, not later than one year before theexpected completion of the main civil works (para. 5.26).
(h) ELCOM will take steps, including but not limited to increasing itstariff, to realize revenues sufficient to meet its cash operatingexpenses, all debt service, income taxes, dividends payable and 30%of its average annual investment program (para. 6.22).
(i) ELCOM will, unless the Bank accepts otherwise, incur additional debtonly if a reasonable forecast of its net revenues after expendituresfor each year during the term of debt to be incurred shall be atleast 1.5 times ELCOM's projected debt service requirement for thesame year (para. 6.22).
8.04 During negotiations, undertakings were obtained from ELCOM regardingthe following:
(a) ELCON will re-luce accounts receivable (net of unread meter accruals)and maintain them at less than 45 days' sales, beginning in 1986(para. 3.23).
(b) ELCOM will maintain accounts payable (net of accrued interest) atthe aggregate of (a) one and one half month's construction expendi-tures and (b) one and one half month's cash operating expenses (para3.24).
-47-
(c) ELCOM will conduct, according to a methodology acceptable to theBank, an annual revaluation of its assets, either in its books ofaccounts or in memorandum form (para. 6.09).
Conditions of Effectiveness
8.05 Execution of the subsidiary loan agreement between the Governmentand ELCOM and approval of the Loan Agreement by the Government would be condi-tions of effectiveness of the proposed loan.
8.06 Cross effectiveness of the cofinancing arrangements would be afurther condition of effectiveness of the proposed loan (para. 5.12).
Recommendation
8.07 Subject to agreements being reached or conditions being fulfilled onthe above matters, the project is suitable for a Bank loan to the Governmentof PN6 of $28.5 million.
_-48- -u
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-49 AM-
Page 1
PAPUA NW GUINEA
ELECTRICITY COMMISSION
YONKI HYDROELECTeIC PROJECT
Terms of Reference for the Institutional Su ort
Technical Assistance
A. Job Category_Classification Programme
Objective
To enable ELCOM to have an effective, fully integrated Job CategoryClassification System, consistent with:
(a) the tasks, activities and requirements of the Engineering,Commercial and Administration.
(b) the Manpower Planning Systems currently being installed.
(C) the Management Information System currently being installed.
Scope of Work
Experts with wide experience in the power industry should workdirectly with the Manpower Planning Manager and in close collaboration withall the operating line managers to finalize and implement a Job CategoryClassification System. The project should be completed not later than twelvemonths after mobilization of the consultant.Terms of Reference
(i) Examine all existing job categories and add or delete newcategories as required.
(ii) Review present job categories, define the key tasks, andidentify the qualifications, knowledge and skill levelsrequired for each job.
(iii) For each job category, identify the appropriate salary scalewithin the existing payroll system.
(iv) For each work location/budget center, allocate all existingstaff into the new job categories.
(v) Integrate the new Job Category Classification with the ManpowerPlanning Systems, ensuring that the Performance Appraisal,Training Needs Analysis and Manpower Budgeting Systems areadapted to new requirements.
- 50-ANNEX 2Page 2
(vi) In formulating the new category classification, visit relevantmanagers and consultants as often as necessary for discussionsregarding introduction and implementation of the new system.
(vii) Ensure that all forms, registers, and information sheets areproperly developed and circulated for use.
(viii) During the study, prepare monthly progress reports for theELCOM Project Manager.
(ix) Submit a final report describing the results of the completedtechnical assistance and identifying those matters requiringfurther attention.
B. Standard Operating Procedures
Objective
To develop and implement Standard Operating Procedures for ELCOM'sEngineering, Commercial and Administration activities, and to assure theirconsistency with ELCOM's overall policies and objectives.
Scope of Work
(a) Review the existing systems and procedures in use within theEngineering, Commercial and Administration functions.
(b) Review with the line managers the activities requiring specialattention and/or interdepartmental coordination.
(c) Finalize a complete set of manuals of Standard OperatingProcedures for all Engineering, Commercial and AdministrationFunctions.
Terms of Reference
In particular, the consultant will:
(i) Review the organization structure and systems in use forplanning, design, construction, operation and maintenance, inorder to establish lines of communication and control. Thisreview should concentrate on communications arrangementsbetween headquarters and outlying field offices.
(ii) Review the organization structure and systems in use forpersonnel management, administration services, inventorymanagement and transport in order to establish the lines ofcommunication and control. The consultants must concentrate oncoordinating existing management systems with those that havebeen recently designed; to the degree possible, duplicationshould be eliminated and paper flows streamlined.
- 51 -ANNEX 2Page 3
(iii) Review Present Operating Proce'dures for all of these functions,based on modern utility practices as adapted to ELCOM'sspecific tequirements.
(iv) Where appropriate, ensure that the new procedures willcoordinate effectively with existing systems. This willrequire that these consultants coordinate their activitles withother related on-going consultancies related to the ent1neeringand administrative functions.
(v) Prepare manuals outlining the procedures for each of the majoractivities.
(vi) Implement a communications and training program to facilitateintroduction of the new procedures by management, supervisorsand staff.
c. Technical Audit
Timing
This activity could only begin following completion of the JobCategory Class'.ication Programme and the study of Standard OperatingProcedures.
Objective
To ensure that a technical audit of all positions within theCommission is carried out which will (a) develop a comp ehensive data base forELCOM's manpower planning unit; (b) enable initiation of performanceevaluation systems; and (c) identify training needs and other staffdevelopment requirements.
Scope of Work(i) Production of an inventory of skills and manpower resources
currently available on ELCOM's staff.
(ii) Production of a year by year projection of ELCOM's needs forskills and manpower resources through 1995.
(iii) Production of lists and task necessary for each occupationalposition within the Commission.
(iv) Production of lists of skills, knowledge and attitudesnecessary for each of the above tasks.
(v) Production of position descriptions for each position in asuitable format which will include-performance standards foreach of the identified key tasks.
- 52 -
ANNEX 2Page 4
(vi) Identification of any shortfalls in skills and manpowerresources among ELCOM's national staff, =ipected through 1995.
Terms of Reference
In particular the consultants will, under the direction of theProject Coordinator, maintain good working relationships within the Cowiissionas part of a team involved in occupational analysis, still testing andstandard setting. The consultants will liaise closely with the Commissioner'sManpower Planning unit while implementing the larger part of theiractivities. Finally, the consultants will liaise the larger part of theiractivities. Finally, the Consultants will provide expertise to the team whichwill be responsible for the following:
(a) Based on information provided by the Commission's PersonnelDeparment, develop a listing of skills, attitudes, experiences,and other job related justifications currently available onELCOM's staff.
(b) Based on information provided by the Commission's planningdepartment, develop a year by year projection of skills,attitudes, experiences and other job related qualificationsthat are expected to be needed through 1995.
(c) Identify shortfalls in the above qualities among ELCOM'snational staff, expected year by year through 1995.
(i) Classify these shortfalls as to quantity and quality ofmanpower resources;
(ii) Identify sources of manpower resources to overcomeexpected quantitative shortages.
(iii) Identify training and other methods to overcomeexpected qualitative deficiencies.
(d) Make appropriate recommendations about structural arrangementswithin ELCOM that may arise from expected expansion ofparticular activities.
(e) Assist in the design and implementation of an in-house trainingprogram so that relevant Commission staff are capable ofperforming their required tasks to a satisfactory internationalstandard.
(f) Develop job descriptions for all Commission staff in line withstandard Commission format with particular reference to thefallowing:
- Identification of main duties of each occupation and thekey tasks;
_ 53 _ ANNgX 2Page 5
- List the skills, knowledge and attitudes necessary for eachposition;
- Develop man specifications for each position keeping inmind Commission objectives;
- Incorporate standards of performance expected in each ofthe key tasks inthe position descriptions.
(g) Consult with relevant Commission staff in order to achiveagreement in the execution of the required tasks.
(h) Review current Commission determination and procedures manualsin order that conflicts do not exist with the teams findings.
/a tncludes purchased capacity (9-12 MW) from private sources.7i; ulncudes purchased energy (32-58 MWh) from private sources.7 Industrial users were billed on general supply tariff in 1981, 1482, 1983 and most of 1984.
1. The Port Moresby System supplies PNG's largest load center. In1984, the system's annual energy generation was 199 GWh and peak demand,42.4 MW. The main source of generation is the Rouna Hydroelectric complex(3 hydroelectric stations in cascade) located on the Laloki River about 25 kmfrom Port Moresby. The Rouna complex has a total installed capacity of 49 MWand generates an estimated 155 GWh of hydroelectric energy in an averge yearand 97 GWh in a dry year. Two 16 MW gas turbines at Moitaka provide supple-mentary energy during dry periods.
2. The transmission system in Port Moresby consists essentially of a66 kV overhead line ring between the switchyards at the Rouna hydroelectriccomplex and at the Moitaka gas turbine power station, and one bulk supplysubstation; and radial 66 kY feeders emanate from the ring to two other bulksupply substations. The primary distribution system consists of a network of11 kY overhead feeders emanating from the bulk supply substations andproviding supply through stepdown transformers to a low voltage 415/240 Voverhead distribution system.
3. The Ramu System is the second largest system in PNG and the largestwith respect to area served. It covers seven provinces, serving four majorload centers at Lae, Madang, Coroka and Mt. Hagen and minor centers at Yonki,Kainantu and Kundiawa. In 1984 the system's annual energy generation was 165GWh and peak demand 29.9 MW. The main source of generation is the Ramu IHydroelectric Station, a run-of-the-river station, located on the Upper RamuRiver. The Ramu I Station has an installed capacity of 45 MW and generates anestimated 282 GWh of energy in an average year and 126 CWh in a dry year. Asecond hydroelectric development, the Pauanda Station commissioned in 1983,has an installed capacity of 12 MW and generates an estimated 60 GWh ofhydroelectric energy in an average year and 40 GWh in a dry year. Dieselplants comprising approximately 13 MW at Lae and 9 MW at Madang providesupplementary thermal energy during dry periods.
4. The existing Ramu transmission system operates at 66 kV and suppliesthe main centers of Lae, Madang, Goroka and Mount Hagen. The voltages ofprimary distribution from the bulk supply substations are 11 kV in Lae andMadang and 22 kV in Highlands. Low voltage distribution is at 415/240 V.
59 ~~~~~~~ANNEX 8-59-
PAPUA NEW GUINEA
ELECTRICITY CCMNISSION
YONKI HYDROELECTRIC PROJECT
Ramn System - Electricity Sales by Category of Consumers(GWh)
1. ELCOM's generation expansion plan, 1985-1995, includes ongoing works
totaling 26.7 MW, and new projects of 140 MW capacity, as followst
Table 4.4: ELCOM'S GENERATION PROGRAM (1985-1995)
Project Type Capacity (1w) Completion date
1. Under ConstructionNoitaka diesel 12 1985Rouna IV hydro 13 1986Mini-hydro plants hydro 1.7 1987
Subtotal 26.7
2. New ProjectsYonki hydro 30 1990Lae gas turbine 12 1987Luwini hydro 2 1989Noitaka diesel 6 1990Ramu 2A hydro 90 1995
Subtotal 140
Total 166.7
2. The major transmission system expansion plan involves (a) thereinforcement of the existing networks to cope with the increasing loadrequirements and to improve system reliability; and (b) the construction ofthe-transmission line for system interconnection. Details are sumnmarizedbelow:
- 64 -
AMNEX 12Page 2
Voltagelevel No. of Length Completion
Project (kV) circuits (km) date
1. Under ConstructionPort Noresby Reinforcement 66 single - 1985Ramu Reinforcement (Phase 1) 132 single 220 1986
2. New ProjectsRamu Reinforcement (Phase 2)
Ramu-Goroka No. 2 line 132 single 80 1987Goroka-Mt. Hagen No. 2 line 132 single 140 1988
Ramu-Lae No. 2 line 132/220 single 110 1989Ramu-Port Moresby Interconnection 220 single 420 1994
3. ELCOM is currently proceeding with plans to reinforce the Ramutransmission system. Phase 1 will upgrade the existing Ramu-Lae and Ramu-Madang lines to 132 kV operation. Both lines were initially built andinsulated for 132 kV, and all necessary transformers have been on-site in PNGfor some time. This project will be completed soon after installation of 132kV switchgear, currently on order, at Ramu and Lae. The Ramu-Lae line isexpected to be operating at 132 kV by the end of 1985; the Ramu-Madang line isexpected to be operating at higher levels in 1986. To improve voltage andsecurity of supply in the Highlands region, particularly if the Pauanda hydroplant is taken off line, Phase 2 includes provisions for duplicate 66 kV lines(132 kV construction) from Ramu to Goroka (1987) and from Goroka to Mt. Hagen(1988). This reinforcement is required, whether the proposed YonkiHydroelectric Project proceeds or nott to improve the quality of supply to theHighlands Region. The reinforced transmission system is capable of acceptingthe generation from two additional units at the Ramu 1 power station. Thecost of the Phase 1 reinforcements will be financed by ELCON. The Phase 2Highlands Reinforcement Project (Ramu-Goroka-Mt. Hagen) is being consideredfor financing by ADB.
4. The cost of the Power Development Plan (excluding interest duringconstruction) is estimated at about K 298.8 million (US$298.8 million) for theperiod 1985-1995. Of that total, K 183.7 million (US$183.7 million)represents foreign costs and K 115.1 million (US$115.1 million) representslocal costs (Table 1).
New ProjectsRamu-Goroka No. 2 line 2.9 6.6 9.5Goroka-Mt. Hagen No. 2 line 6.2 9.3 15.5Ramu-Lae No. 2 line 8.6 12.9 21.5Ramu-Port Moresby interconnections 29.3 29.4 58.7Other transmission works 1.2 1.5 2.7
Subtotal 48.2 59.7 107.9
- Total 115.1 183.7 298.8
- 66 -ANMEX 13Page 1 of 3
PAPUA NEW GUINEA
ELECTRICITY COMMISSION
YONKI UYDROELECTRIC PROJECT
Pertinent Project Data
1. Location Yonki dassite on Ramu River about0.5 km from Yonki township andabout 0.3 km downstream from theezisting Highlands Highwaycrossing.
2. Catchment area 850 sq km
3. Average annual inflow 983 x 106 cu m
4. Flood
Probable maximum flood (PMF) 10 600 cmsMeasured maximum at Yonki 610 cms
5. Reservoir
Maximum high water level EL 1268.7Normal high water level EL 1 258 mNormal minimum water level EL 1 230 mAvailable drawdown 28 m 6Storage at EL 1 258 332 x 10 cu mStorage at EL 1 230 18.4 x 1066cu mActive storage 313.6 x 10 cu mSurface area at EL 1 258 21.2 sq km
6. Dam
Type Zoned earthfillCrest elevation EL 1 270 mMazimum height 60 mCrest length 580 mVolume of embankment 1.86 x 106 cu mUpstream slope 1:3.5Downstream slope 1:3
7. Cofferdams
Slope Upstream.1:3Downstream 1:3
Upstream cofferdam crest elevation EL 1 238 mDownstream cofferdam crest elevation EL 1214 m
-67- ANNM 13
Page 2 of 3
8. Diversion conduits
Diameter 2 x 4 mLength 430 mCapacity 238 cms
9. Spillway
Type Ungated open channel chuteMaximum discharge (PMF) 6 870 cmsCrest length 85 m
10. Outlet structure
Type Wet tower with bulkhead dewateringcontrols
11. Outlet works
Type Concrete dissipatorControl valves Two 1.8 m cone valvesGuard valves Two 2.0 m butterfly valvesMaintenance release valves One 1.8 m cone valve
One 2.0 m butterfly valve
12. Highway relocation
Length 6 km
13. Local road relocation
Length 16 km
14. Additional power generation facility in Ramu 1 power station
Turbine capcity 15.5 MW rated, 17.5 MW maximumNumber of units 2
TurbineType Vertical shaft, francis turbineRated head 185 mDischarge at rated output 9.4 cmsRevolving speed 750 rpm
GeneratorType Vertical shaftNumber of units 2Output 18,000 KVAVoltage 11 kVFrequency 50 Hz
- 68 -AM= 13Page 3 of 3
TransformerNumber of units 2capacity 18900 KVAVoltage 11/138 kV
-69- ANNEX 14
Page
PAPUA NEW GUINEA
ELECTRICITY COMMISSION
YOWI MYDROELECTRIC PROJECT
Terms of Reference for the Construction Management Services
Papua New Guinea Electricity Commission (ELCOM) requires the services of anEngineering Consultant to supervise the construction phase of the YonkiHydroelectric Project. The Engineering'Consultant shall be responsible forthe administration of contracts in accordance with the respective conditionsand for the supervision of construction and technical control of the executionof the Works and the satisfactory completion and commissioning thereof.Accordingly, Snowy Mount&ins Engineering Corporation of Australia (SMEC) willbe "The Engineer" for both the civil and plant contracts. The EngineeringConsultant shall also advise ELCOM on all matters affecting the execution andsatisfactory completion and operation of the Works in accordance with soundengineering practice. In the discharge of their responsibilities theEngineering Consultant shall perform the following duties:
A. Carry out filed investigations And surveys, preparing designs,drawings, estimates and other engineering documents as are necessaryfor the construction of the Works including as may be applicable inthe particular case:
(i) Preparing all detailed construction drawings to enable theWorks to be constructed.
(ii) In the event of unforeseen design changes, carrying outadditional field investigations including topographical surveysto obtain the necessary information on foundations andconstruction materials including diamond drilling, testpitting, soil sampling and testing and permeability testingetc., at the site of the Works.
(iii) In the event of unforeseen design changes, preparing alladditional and supplementary drawings necessary for thecontractors to enable them to carry out the Works to completionthereof within the time determined in accordance with thecontracts.
(iv) Preparing and periodic updating of schedules for engineeringprocurement and construction.
B. The supervision and administration of the contracts entered into byELCOM for the Works and the technical control of the construction ofthe Works including as may be applicabLe in the particular case:
-70 - ANNEX 14Page 2
(i) Undertaking all communications with the Contractors on behalfof ELCOM.
(ii) Establishing major reference points for vertical and horizontalcontrol of structural layouts and equipment installations asdatum for setting out of the Works by the contractors.
(iii) Supervising and controlling on the site of the Works the dueand proper execution and satisfactory completion of the Worksin-accordance with the specifications. Administering allcontracts and coordinating the work required to maintainengineering procurement and contractors' schedules to achievethe most economical cost of the Works and completion thereofwithin the time determined in accordance with the contracts.
(iv) Carrying out all measurements required for the processing ofall claims for progress payments for the contracts.
(v) Processing and certifying all certificates for payments due tocontractors for materials, works, plant, machinery andequipment supplied or to supplied, delivered or erected underall contracts which are entered into by ELCOM for the executionof the Works. The Engineering Consultant shall also issuecertificates of completion and for taking-over and finalcertificates relating to contracts.
(vi) Examining contractors' proposals including fabrication andassembly drawings to ensure full compliance with thespecifications.
(vii) Give all necessary instructions to the contractors to ensurecompletion of the works to the highest standards, provided thatno instruction shall be given (except in an emergency situationwhich is considered by the consultant Engineer to increase thecost of Works by more than K 10,000, without prior approvalfrom the client.
(viii) Inspecting all plant, machinery, equipment and materialssupplied by Contractors or Subcontractors for the Works in therespective places of manufacture by means of both locally basedinspection services and specialist visits by the EngineeringConsultant including arranging and supervising of tests toensure full compliance with he specifications before deliveryand submitting to ELCOM periodically reports on inspectionscarried out.
(ix) P-.paring and submitting to ELCOM monthly and quarterlypcogress reports in a form to be approved by ELCOM.
(x) Arranging and supervising tests of materials, works, plant andmachinery on the site of the Works to ensure compliance withthe specifications.
-71- ANNEX 14Page 3
(xi) Keeping, maintaining and delivering to ELCOM in good conditionall site records which are necessary for the operation andmaintenance of the Works.
(xii) Supervising the preparation and submission to ELCOM in goodtime "as built" drawings covering all parts of the Civil Worksand one set of microfilms and transparencies of these drawings.
(xiii) Supervising the preparation and submission to ELCOM in goodtime of Completion Reports and Operation and Maintenance Manualfor the Civil Works.
(xiv) Supervising the preparation by the Plant Contractor inaccordance with the requirements of Contract 19/85 of work-as-executed drawings and operation and maintenance instructionsfor the whole of the Plant.
(xv) Advising ELCOM on all spares requirements for contracts andcontrolling the cataloguing of all spares in accordance withELCOM's requirements.
(xvi) Assisting in settling disputes or differences which may arisebetween ELCOM and Contractors.
C. Duties of a general nature including as may be applicable in theparticular case:
(i) Performing any duties which the Consulting Engineers may berequired to carry out under any contract entered into by ELCOMfor the execution of the Works.
(ii) Performing all necessary services and duties with respect tothe proper engineering, field supervision and management on thesite of the Works to ensure successful commissioning andoperation of the Works.
-72- AMNNEX iPage 1
PAPUA NEW CUINEA
ELECTRICITY COMMISSION
YONKI HYDROELECTRICITY PROJECT
Terms of Reference for the Provision ofTraining Consultants
Objective
To assist ELCOI to finalize and implement short and long termtraining objectives, policies and programs in order to improve organizationaleffectiveness and individual job performance and to accelerate thelocalization program.
Scope of Work
A training expert and two technical officers with knowledge andexperience of electric utility operations will work directly on the trainingfunction with ELCOM's managers. The scope of work includes:
- Finalize the priority training needs and long-term trainingrequirements within the framework of the long-term manpower plans.
- Finalize the review of the training facilities and equipmentavailable and conclude proposals for the provision of the necessaryresources.
- Finalize the organizational changes and the changes approved for theactivities of ELCOM's training function and implement the revisedstructures and staffing.
- Finalize the five-year training program for ELCOM.
- Prepare training manuals and curricula for the training program.
Terms of Reference
The consultant will in particular:
(i) Review and analyze all the training and manpower development studiescompleted in ELCOM in the past five years.
(ii) Discuss and agree with managers regarding the priority trainingneeds and present and anticipated job performance deficiencies,considered in the light of future needs.
(iii) Finalize proposals for the organization structure, staffingarrangements, and interdepartmental relationships for the trainingfunction.
73AM= 15Page 2
(iv) Finalize the review of the existing training facilities, equipmentand accommodations, aid in implementing a plan for providingrefurbished and new facilities and equipment. Where specialfacilities for operation training are necessary, the extent andlocation for these should be determined.
(v) Develop, refine and implement training programs for supervisors toimprove their skills in implementing on-the-job training programs.
(vi) Assess effectiveness of the training instructors and further developand implement an instructor training program including assistance intraining situations and course preparation.
(vii) Review all existing training courses and curricula and producetraining manuals for all (a) introductory training; (b) improvedperformance training; (c) development training; and (d) instructorand supervisor training.
(viii) Develop and further implement the program of training fellowshipsfor local managers to study utility practices and procedures abroad.
(ix) Coordinate the new training programs and developments with the newsystems being developed in the Engineering and Administrativefunctions including: Management Information System, StandardOperation Procedure Program, Job Category Classification System,Kanpower Planning System, and others as appropriate.
74_ANNEX 16Page 1
PAPUA NEW GUINEA
ELECTRICITY COO4ISSION
YONKI HYDROELECTRICITY PROJECT
Terms of Reference for Technical Assistance for theDevelopment of Rural Electrification Polici and Standards
Objective
To ensure that an effective Rural Electrification Policy is properlydeveloped and documented to meet the specific requirements of Papua New Guineaand to determine acceptable standards for distribution extensions inaccordance with that Policy.
Scope of Work
The technical assistance described herein shall include, but not belimited to, the following scope of work.
Ii) To review the development of Rural Electrification in PNG andto identify the financing and pricing policy issues related toload development prospects and the capital and operatingcharges.
(ii) To review and agree the institutional and policy framework, theproject criteria and the procedures for Rural Electrificationtailored to the specific needs of PNG.
(iii) To produce a manual on design a.,d construction standards fordistribution eztensions and to implement an appropriatetraining program in connection with design standards andconstruction techniques.
(iv) To identify the social and economic factors and theunquantifiable benefits which would be useful to clarifycriteria for selecting rural electrification projects.
Terms cf Reference
(i) Review the various reports and studies on Rural Electrificationin PNG. In particular, reference should be made to thefollowing topics.
(a) Review methodology in connection with deriving ruralelectrification project benefits, with particularattention to customer acceptance, load growth andconsumption patterns for typical rural supply systems inPUG.
-75- ANNEX 16Page 2
(b) Review the methodology used in the analysis of the costsof diesel generation and develop a basis of comparisonwith uetwork supply costs taking capital, operation andalternative sources of electricity supply factors intoaccount.
(c) Review the required levels of rate of return necessary tojustify subproject development.
(d) Review the procedures for the calculation of subsidies orcross subsidies to help ELCOM meet the costs associatedwith rural electrification.
(ii) Discuss with the relevant Government of PNG departments, ELCON,and other appropriate agencies in PNG their views regardingRural Electrification policy and plans.
(iii) Examine and evaluate ELCOM's distribution design standards andsystems with particular reference to the following:
(a) Production of a set of standards suitable to PNGconditions, involving all distribution extension criteria.
(b) Prepare a manual of procedures for stock procurement andinventory in connection with distribution materials.
(c) Prepare and implement a training program covering designstandards and construction techniques for ELCOMDistribution Branch personnel.
(iv) Identify productive uses and social improvements that would bederived from Rural Electrification.
(v) Review and agree with all the agencies concerned the overallpolicy framework and the investment criteria for RuralElectrification in PUG.
/a US$ R 1.7n Includes US$1 million PPF from the Bank, which will be refingnced from the pro-
posed loan, and US$1 million equivalent grant from DAB./c Includes import duties and taxes of about US$1.2 million equivalent.7r Physical contingencies include 152 for civil works, and lOX for electrical and
mechanical equipment, training and rural electrification.
PAPUA NEW GUINEAYONIn HYDRO ELECRIC PROJCT
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0 N 0 I M1 A UA J J A 0 N 0 J F A M A N 0 J F M AM J J A SN 0 J F A AM J J A N 0 I F U A.
1. Yonki Dam Civil Works- Prequalification of contractors
including Bank review 10/10/85 11/11/85- Tender period 12/01/85 03/01/86- Tender evaluationz, lending agencies
review of tender evaluation reportand award recommendation
- Contract award and mobilization 03/02/86 06/31/86- Construction of civil works 09/01/86 12/31/90
2. Ramu 1 Electrical and Mechanical Works- Tender period 03/01/86 04/30/86- Tender evaluation, reco_mendation,
review and contract award 05/01/86 10/01/86- Design, manufacture and delivery 10/02/86 12/31/86- Installation and testing 08/01/89 07/31/90- Commercial operation Unit No. 4 05/31/90- Commercial operation Unit No. 5 09/01/90
3. Construction Supervision 07/0/186 07/31/90
4. Training- Training consultants 01/05/87 12/31/89- Upgrading existing training facilities
and providing new equipments 01/05/87 12/31/88- Overseas fellowships 08/01/89 03/31/89
5. Institutional support technical assistance- Job classification study 01/05/87 11/30/87- Development of standard operating
procedures 01/05/87 02/28/88- Technical audit of the engineering
function 03/01/88 08/30/88
6. Rural Electrification- Institutional and policy development
study 01/05/87 12/31/87- Extension of the electricity supply
networks in the Arona Valley 01/05/88 12/31/89- Pilot projects 07/01/88 07/31/90
- 81 - AMUEX 22
PAPUA NEW GUINEA
EECTRICUTY COMMISSION
YONKI HYDOELRCTfIC PROJECT
Disbursement Schedule
Disbursement profiles Fstimated disbursement schedule(cumulative X disburse_ent) Cumulative Disburse-
Bank fiscal t disburse- ment during CumulativeYear and Bank-wide /a ment semester disbursementSemester USS million)
0tbvr bhed Cetersi"' Li 8ii 236 22 237 20 253 W 2N 3 S 2 ge1 - ight oil 43 45 S 1 56 5Is 9 44 11i l - eivy ol II 40 43 S 0 le 93 4 13 43m iarhime 3 3 3 I I
ACCUUTS PAYABLE TIIO 2.0 1.9 2.0 2.1 ;.1 (.9 1.3 1.7 1.8 2.0535DD 555D=W 5 =5=" X $ S W W B 5 5 5 5 g 5
- 102 - Aanex 23
Assumptions for Financial Projections
Income Statement
(1) Total Generation -- is derived in the table entitled'Sales and Generation" (page 15).
(2) Losses -- is derived in the table entitled "Sales andGeneration' (page 15).
(3) Power Sold -- is derlved in the table entitled 'Salesand Generation" (page 15).
(4) Average Revenue -- is derived in the table entitled'Derivation of Average Tariff" (page 6).
(5) Thermal Generation Expense -- is derived in the tableentitled "Direct Cash Flow' (page 16).
(6) Hydro Generation Expense -- is derived in the tableentitled "Direct Cash Flow" (page 16).
(7) Transmission Expense -- is derived in the table entitled"Direct Cash Flow (page 16).
(8) Distribution Expense -- is derived in the table entitled"Direct Cash Flow (page 16).
(9) Administration Expense -- is derived in the tableentitled "Direct Cash Flow" (page 16).
(10) Training Expense -- is derived in the table entitled"Direct Cash Flow (page 16).
(11) Depreciation -- is derived in the table entitled "FixedAsset Formation (page 9).
(12) Non-operating Income -- is assumed to increase from 1914levels by 10% each year.
(13) Total Interest Payments -- is the sum of interestcapitalized and interest charges to operations.
(14) Interest Capitalized -- is derived in the scheduleentitled "Borrowings Statement" (page 12).
(15) Interest Charged to Operations -- is derived in theschedule entitled "Rorrowings Statement" (page 12).
(16) Income Tax -- is derived in the schedule entitled "Taxesand Dividends" (page 17).
- 1o3 - Auun= 23
(17) Dividend -- is derived in the schedule entitled 'Taxesand Dividends" (page 17).
Flow of Funds
(18) Net Working Capital Increases -- excludes Cash andLiquidity Borrowings.
(19) Principal Repayments -- is derived in the table entitled"Borrowings Statement (page 12).
(20) Yonki Hydroelectric Project -- is derived in the tableentitled "Capitalization Values` (page 8).
(21) Other Projects -- is derived in the table entitled"Capitalization Values" (page 8).
(22) Capitalized Interest -- is derived in the table entitled'Borrowings Statement (page 12).
(23) Onlent Woxld Bank funds -- is derived in the tableentitled "IBRD" (page 13).
(24) OECF of Japan -- is derived in the table entitled"Borrowings Statement" (page 12).
(25) European Investment Bank -- is derived in the tableentitled "Borrowings Statement" (page 12).
(26) Asian Development Bank -- is derived in the tableentitled "Borrowings Statement" (page 12).
(27) Other Onlent International Loans -- is derived in thetable entitled "Borrowings Statement" (page 12).
(28) Commercial Loans -- are derived in the table entitled"Comme-cial Borrowings" (page 14).
Balance Sheet
(29) Gross Fixed Assets in Operation -- is derived in thetable entitled "Fixed Assets Formation" (page 9).
(30) Accumulated Depreciation -- is derived in the tableentitled "Fixed Assets Formation" (page 9).
(31) Net Fixed Assets on Operation -- is derived in the tableentitled "Fixed Assets Formation" (page 9).
(32) Work -in Progress -- is derived in the table-entitled"Fixed Assets Formation" (page 9).
(33) Inventory -- is projected to increase in relation toinflation.
- £04 - A,nnex 23
(34) Accounts Receivable -- is derived in the table entitled'Receivables and Payables" (page 18).
(35) Current Assets -- is projected to increase in relationto inflation.
(36) Revaluation Reserve -- is derived in the table entitled"Fixed Asset Formation" (page 9).
(37) Lijuidity Borrowings -- are those amounts necessary toenable ELCOM to maintain cash at a minimum of K 0.2million.
(33) Accounts Payable -- is derived in the schedule entitledfReceivables and Payables" (page 18).
(39) Other Current Liabilities -- is expected to increasewith inflation.
- 105 -ANNEX 24Page 1
PAPUA NEW GUINEA
ELECTRICITY COMMISSION
YONKI HYDROELECTRIC PROJECT
Least-Cost AnalZsis
Alternatives
1. The least-cost analysis was made on a program basis using thediscounted cash flow technique. The following three alternatives, each ofwhich would satisfy the projected demand up to 1995, were compared:
CommissioningYear Alternative A Alternative B Alternative C Alternative D
1990 Yonki Hydroelectric Lae heavy oil Lae heavy oil Lae heavy oil(Yonki Dam and addi- diesel diesel dieseltional 2 x 1S MW in (2 x 7.5 MW) (2 x 7.5 MW) (2 x 7.5 MW)Ramu I)
1991 Lae heavy oil Lae heavy oil Lae heavy oildiesel diesel diesel(1 x 7.5 MW) (1 x 7.5 KW) (1 x 7.5 MW)
1992 Lae heavy oil Lae heavy oil Lae heavy oildiesel diesel diesel(l x 7.5 MW) (1 X 7.5 MW) (1 x 7.S MW)
1994 Lae heavy oil Ramu 2A BariKewa(2 x 7.5 MW) (50 MW) (1 x 25 MW)
1995 Lae heavy oil(1 x 7.5 MW)
2. The Yonki Hydroelectric Project would contribute additionally twounits of 15 MW to the existing Ramu I Station and accordingly add 292 GWh offirm energy per year and 174 GWh of average energy output to Ramu I.Alternative A with Yonki hydro project is the basic alternative. AlternativeB is a heavy oil diesel alternative. Alternative C is a mixed hydro andthermal alternative, involving thermal stations using heavy oil and run of theriver hydro electric station of Ramu 2 A. Alternative D is a thermalalternative comprising gas turbines fired from the adjacent BariKewa gasfields and heavy oil stations.
- 106 -ANNEX 24Page 2
Associated transmission facilities were taken into consideration inthe comparison. The Yonki reservoir will also provide downstream benefits tothe future development s qges of the Ramu River but they are not included herefor economic evaluation.-
Capital Cost
4. All costs were based on end-1985 price level. Taxes and duties wereexcluded. Foreign exch.nge costs were not shadow priced, due to recentdevaluation of Kina.
5. The capital cost estimated for various projects without shadowpricing is as follows:
Plant and associatedtransmission facilities Cost/KW
C K million) (US$)
Tonki Dam andRamu 1 additions (+ 30 MW) 56.9 1,897.0
Rarmu 2 A (without YonkiDam-50 MW 69.1 1,382.0
Lae Diesel-heavy oil( x 7.5 KW) 8.8 587.0(1 x 7.5 MW) 3.5 467.0
BariKewa Gas Turbine andCas Development -(1 x 25 MW) 59.1 2,364.0
Operation and Maintenance Costs
6. Estimated 0 & M costs for the different types of plant are asfollows:
1/ SMEC has also made a long-term least cost development study includinggeneration expansion program up to the year 2015. This program,involving the complete development ci the Ramu River below Yonkireservoir, confirms the relative benefit of Yonki hydroelectric projectas demonstrated in this Annex.
7. Fuel costs expressed in constant 1983 dollar and are based on recentBank's projection of future fuel prices.
Fuel costPlant (t/Kwh)
1. Existing ThermalLae and Madong Diesels 4.00
2. Future ThermalLae Diesels - Heavy Oil 3.20Bsra Kewa Gas 0.00
8. The fuel consumption of alternative programs was calculated byenergy balance study on a system basis, taking into consideration thescheduling of energy generatton according to merit order operation so as tominimize fuel costs and fuel savings to the system.
Result of Analysis
9. The total present worth of three alternatives at different discountrates is as follows:
10. The equalizir.g discount rate between Alternative A and Alternative Bis 13.9% while the equalizing discount rate between Alternative A andAlternative C is 17.42, and between A and D is 18.12. Alternative A withYonki hydro project would then be the least cost solution when the opportunitycost of capital in real terms is less than 13.92.
Sensitivity Tests
11. Sensitivity tests between Alternative A and Alternative B forvariations in capital cost for dam construction, fuel cost and different loadgrowth were made with the results shown below:
- t°9 - ANNEX 24Page 5
EqualizingNo increase in capital cost for dam discount rate
Load growth as ELCOM forecast0O escalation in fuel cost 13,93Z escalation in fuel cost 15.2
Lower load (-101)0 escalation in fuel cost 13.83X escalation in fuel cost 15*1
301 increase in capital cost for dam
Load growth as ELCOM forecastO escalation in fuel cost 12.33Z escalation in fuel cost 13.5
Lower Load (-1O)01 escalation in fuel cost 12.131 escalation in fuel cost 13.3
12. The economics of the Yonki Hydroelectric Project has been examinedin light of the recent and projected drop in oil prices. As another sensi-tivity test for variations in real oil prices between US$12 a barrel and US$20a barrel (zero escalation), the equalizing discount rate between Alternative Aand Alternative B varies between 11.91 and 14Z. Thus the Project meets theBank's economic criteria.
- 110 -
ANE 25Page 1
PAPUA NEV GUINEA
ELECTRICITY COMMISSION
YONKI HYDROELECTRIC PROJECT
Internal Economic Rate of Return
General
1. The internal economic rate of return (IERE) was calculated byequalizing the present value of the economic cost and benefits attributable tothe project. The analysis was made on an incremental basis using 1985 as thebase year.
Costs
2. Capital Costs. The costs are net of taxes and duties and includethe full costs of the generation and associated transmission costs, Annualdisbursements are given below:
3. Estimated OM cost was given in Annex 24. Other system operatingcosts were estimated at 2.5 t/kWh based on 1984 operation analysis of which0.6 t/kWh represents the capital recovery cost of the distribution systeminvestment.
- i11 - ANNEX 25
Page 2
Benefits
4. The incremental sale attributable to the project is the energygeneration by the project af-ter a4justing for generation and transmission anddistribution system losses (about 12Z). Revenues from the sales of electri-city at the retail level were used as a measure of the economic benefits. Theaverage tariff of 13.7 t/kWh used was based on the actual tariff levels in the1985.
Internal Economic Rate of Return
5. The internal economic rate of return (IERR) of the project is thediscount rate which equalizes the present values of the economic costs andbenefits. The IERR thus calculated is 16.5Z. Detailed calculation is givenin Table 1.
- 112 - ANNEX 25Table 1
PAPUA NEW GUINEA
YONKI HYDROELECTRIC PROJECT
Electricity Commission
Internal Economic Rate of Return
Capital 0&N Other-system /a Generation Sales at /b /ccost cost operating costs at plant retail level Revenue
/a Other system operating costs are estimated at 2.5 t/kWh.
lb System losses are calculated at 12%.
/c Average tariff at the retail level of 1985 was calculated at 13.7 t/kWh.
- 113 - ANNEX 26
Page 1
PAPUA NEW GUINEA
ELECTRICY COMMISSION
YONKI HYDROELECTRIC PROJECT
Selected Documents and Data Availablejin the Project File
A. Selected Reports and Studies Related to the Sector
Adl Papua New Guinea: Issues and Options in the Energy Sector, Reportof the joint UNDP/World Bank Energy Sector Assessment Program.Report No. 3882-PNG, June 1982.
A.2 Papaa New Guinea: Energy Sector Institutional Review: Proposed forstrengthening the Department of Minerals and Energy. Report of thejoint UNDP/World Bank Energy Sector Management Assistant Program.Report No. 023/8t, October 1984.
B. Selected Reports and Studies Relatd to the Subsector
B.1 Papua New Guinea: Power Tariff Study. Report of the jointUNDP/World Bank Energy Sector Management Assistanct Program. ReportNo. 024/84, October 1984.
B.2 Electricity Commission's Ten Year Plan (1985-1994), ELCOM, October1984.
B.3 Electricity Commission's 21st Annual Report, ELCOM, December 1983.
B.4 Electricity Commission's 22nd Annual Report, ELCOM, December 1984.
C. Selected Reports and Studies Relatd to the Project
C.1 Feasibility Report for Yonki Dam Project, SMEC, July 1985
Volume 1 Executive SummaryVolume 2 Engineering and EconomicsVolume 3A Geotechnical Investigations Report and DrawingsVolume 3B Ceotechnical Investigation Appendix AVolume 3C Geotechnical Investigation Appendixes B to NVolume 4 HydrolQgy
C.2 Ramu System Hydro Investigation Study. Investigation of Hydro PowerAlternatives. Gib Australia, Merz and McLellan and Partners,Willing and Partners PTY LTD, July 1983.
Volume 1 Main ReportVolume 2 DrawingsVolume 3 Cost Estimates
-114- ANNEX 26
Page 2
C.3 Port Moresby and Ramu Systems Development Plans. Gibb Australia,Mera and McLellan and Partners, Willing and Parnters PTY LTD, June1984.
Volume I Main ReportVolume 2 Appendices and Drawings
C.4 Yonki Dam Project Enviornmental Assessment: Physical Environment,Cameron Wclamara Kramer, May 1985.
C.5 Social Impact of the Yonki Dam, PNG Institute of Applied Social andEconomic Research, Msy 1985.
C.6 Review of Reservoir Sedimentation for Yonki Dam Project, E.L.Pemperton. Report prepared for PNG Electricity Commission, December1983.
C.7 Review of Probable Maximum Precipitation Estimate for Ramu RiverBasin Above Yonki Damsite. John P. Miller. Report prepared for PUGElectricity Commission. September 1985.
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