Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6720-IN STAFF APPRAISAL REPORT INDIA NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I May 28, 1987 Energy Division South Asia Projects Department This document has a restricteddistribution and may be used by recipientsonly in the performanceof their offlcial duties. Its contents may not otherwise be disclosed withoutWorld Bank authoization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 6720-IN
STAFF APPRAISAL REPORT
INDIA
NATIONAL CAPITAL POWER SUPPLYPROJECT - PHASE I
May 28, 1987
Energy DivisionSouth Asia Projects Department
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 Bank authoization.
1 Kilometer (km) 1,000 meters (m) = 0.6214 miles (mi)1 Meter (m) = 39.37 inches (in)1 Cubic Meter (m3 ) 1.31 cubic yard (cu yd) = 35.35 cubic feet (cu ft)1 Thousand Cubic Meter (MCM) - 1,000 cubic meters1 Barrel (Bbl) 0.159 cubic meter1 Normal Cubic Meter = 37.32 Standard Cubic Feet (SCF)
of Natural Gas (Nm3)1 Ton (t) 1,000 kilograms (kg) = 2,200 pounds (lbs)1 Metric Ton (39 API) = 7.60 barrels1 Kilocalorie (kcal) 3.97 British Thermal units (BTU)1 Kilovolt (kV) = 1,000 volts (v)1 Kilovolt ampere (kVa) = 1,000 volt-amperes (VA)1 Megawatt (MW) = 1,000 kilowatts (kW) = 1 million watts1 Kilowatt-hour (kWh) = 1,000 watt-hours1 Megawatt-hour (MWh) = 1,000 kilowatt-hours1 Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours1 Ton of Oil Equivalent (toe)= 10 million kilocalories
ABBREVIATIONS AND ACRONYMS
BTPS - Badarpur Thermal Power StationCEA - Central Electricity AuthorityCEMPDIL - Central Mining, Planning & Design Institute Ltd.DESU - Delhi Electric Supply UndertakingGOI - Government of IndiaHSEB - Haryana State Electricity BoardICB - International Competitive BiddingLCB - Local Competitive BiddingLRMC - Long Run Marginal CostMCD - Municipal Corporation of DelhiMES - Military Engineering ServicesMMCMD - Million Cubic Meter per DayMOU - Memorandum of UnderstandingNDMC - New Delhi Municipal CorporationNGL - Natural Gas LiquidsNHPC - National Hydro Electric Power Corporation, Ltd.NPP - National Power PlanNRED - Northern Region Electricity BoardNTPC - National Thermal Power Corporation, Ltd.PIB - Public Investment BoardREB - Regional Electricity BoardREC - Rural Electrification CorporationSEB - State Electricity Board
Beneficiaries' financial years end March 31
FOR OMCIL USE ONLYINDIA
NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I
LOAN AND PROJECT SUMMARY.
Borrower: India, acting by its President.
Beneficiaries: National Thermal Power Corporation, Ltd. (NTPC) andDelhi Electric Supply Undertaking (DESU).
Amount: US$485.0 million
Terms: Repayment over 20 years, including 5 years grace,at the applicable rate of interest.
Onlending Terms: From the Government of India (GOI) to NTPC: US$425million equivalent, with repayment over 20 years,including 5 years grace, at an interest rate of notless than 13.52 per annumS From GOI to DESU: US$60million, with repayment over 20 years, including5 years grace, at an interest rate of not less than11.0% per annum. GOI would bear the foreign exchangeand interest rate risks.
Project Description: The main objective of the Project is to assist inmeeting electricity demand in the Capital area throughthe addition of 840 KW of thermal capacity. Theproject comprises the installation of four coal-fired210 KW units at Dadri (Uttar Pradesh), as well as theconstruction of about l10 km of 400-kV transmissionlines and four associated 400-kV and 220-kV substationsto complete the 400-kV transmission ring around Delhi.The project also provides for the rehabilitation of anexisting 710 KW thermal power station at Badarpur, nearDelhi. In addition, the project will provide forinstitutional strengthening of DESU through studies forreorganization and the development of a distributionmaster plan, and through the execution of a financialrecovery plan. Consultancy support will be providedfor these studies, as well as for studies for theimprovement of the quality of coal used in powergeneration, for rehabilitation of existing plant atIndraprastha, and for design and engineering of themain plant. The project will introduce dry ash disposalas a new technology in India. There are no unusualrisks. The dual firing feature of the power plantminimizes the risk of plant unavailability that couldresult from the transportation of coal over a longdistance. NTPC is experienced in the design andconstruction of generation and transmission facilities,but will receive assistance from consultants on thedesign of the dry ash disposal system.
This document has a rstricted distribution and may be used by recipients only in the performaeof their ofcial duties. Its contents may not otherwise be disclosed without World Bank authorzon.
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Estimated Costs: 1/
Local Foreign Total-------US$ Million---------
Preliminary Works 24.8 - 24.8Civil Works 109.6 7.7 117.4Main Plant Equipment 176.0 171.4 347.4Other Mechanical Equipment 60.9 61.0 121.9Coal HUndling and Transportation 89.7 45.4 135.1Hlectri^al Equipment 15.2 41.3 56.5Consulting Services for NTPC 5.0 2.1 7.1Equipment and Materials for theBadarpur Station 12.7 10.5 23.2
Transmission Lines and Substations 63.7 38.8 102.5Consulting Services for DESU 3.0 0.7 3.7Engineering and Administration 49.2 - 49.2Total Base Costs 609.9 378.9 988.8Physical Contingencies 37*2 19.3 56.5Price Contingencies 217.7 90.1 307.8
Total Project Costs 864.8 488.4 L353.2Interest DuringConstruction 68.4 120.5 188.9
Total FinancingRequired 933.2 608.9 1,542.1
F3igures may not add due to rounding.
Financing Plan:Local Foreign Total-…---US$ mil lion-- ----
Loan and Project Summary ..... ................... .. ........ i-iii
Is SECTORAL CONTEXT o.......................................... 01
Commercial Energy Resources ....... ......................... 01Electricity Supply and Demand .............................. 02Organization of the Power Subsector ....... .................. 03Finance and Pricing ........................................ 03Power Subsector Planning ......... .......................... 05Management and Operations ....................... 05GOI's Strategy in the Power Subsector........................ 06Bank Group Strategy in the Power Subsector ................. 08Bank Group Participation .. ................................. 09
II, THE BENEFICIARIES ................... ........................ 10
A. NATIONAL THERMAL POWER CORPORATION ...................... 10
Existing Facilities and Development Program ................. 10Organization and Management *000O0**000.....0....... 11Recruitment and Training ... 0 ....... ..................... 12Performance .......... .................. *.***********++ 12
B. DELHI ELECTRIC SUPPLY UNDERTAKING ............. .......... 12
History and Organization .................................... 12Organization Structure ...................................... 14Personnel and Staffing .... ... *.....*. .......... 15Training .................................................... 16Planning and Development ................................ 16
This report has been prepared by Messrs. Luiz Gazoni (Senior Power Engineer),Wynne P. Jones (Senior Economist), Paul Hubbard (Financial Analyst),P.C. Kapur (Consultant) and A. Posada (Consultant).
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Pase No.
III. THE PROJECT ........ ..................... ........ . 17
B. DELHI ELECTRIC SUPPLY UNDERTAKING ................... .. 35
Financial Organization 35Accoimting System 36
Audit .................. 37
Data Processing 37
Insurance 37
Taxes 38
Billing and Collections eec.c..e.c... . .... e. 38
Past and Present Financial Performance 38
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Page No.
Accounts Receivable *0 @.............................. 40Electricity Tariff .0...... a.ooe.oee.....o............... 41DESU's Financial Recovery Plan .................... o.e... 41Financial Projections .................. * 43Financing Plan ............... . e . . e.... 44On-Lending ............... e..o. 45
V. PROJECT JUSTIFICATION AND ECONOMIC ANALYSIS .X *............... 46
Least Cost Analysis oeoe*.ovoeoeo,.o.eoo*..e e e, *. o 46Internal Economic Rate of Return .oo.o.oo.o.o ,......o.ooo..oo.. 46Justification for Bank Involvement 47
VI. AGREEMENTS AND RECOMMENDATIOINS .......... 00.0.0.,....0..00...0 48
4.1 Chapter IV Annexes - Table of Contents4.2 NTPC's Financial Performance Indicators4.3 NTPC's Consolidated Income Statement4.4 NTPC's Balance Sheets4.5 NTPC's Source and Application of Funds Statements4.6 NTPC's Financing Plan4.7 NTPC's Projected Regional Tariffs versus Long-Run Marginal Costs (LRMC)4.8 NTPC's Rate of Return on Net Revalued Assets4.9 NTPC's Investment Program4.10 Assumptions for NTPC Financial Projections4.11 DESU Suggested Terms of Reference of Consultants for:
A. Bringing Accounting Work Up to DateB. Implementation of the Commercial Accounting SystemC. Organization and Management Study
4.12 DESU's Income Statements4.13 DESU's Balance Sheets4.14 DESU's Sources and Application of Funds Statements4.15 DESU's Assumptions for Financial Projections
5.1 Electricity Demand and Supply - Northern Region5.2 Internal Economic Rate of Return
6.1 Related Documents in the Project File
MAP
IBRD 19611
INDIA
NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I
STAFF APPRAISAL REPORT
I. SECTORAL CONTEXT
Commercial Energy Resources
1.01 India's principal commercial energy sources comprise coal, oil, gas,hydro and nuc'ear energy. Of the nonrenewable resources, coal is the mostabundant. Reserves of thermal coal have been estimated at slightly more than100 billion tons, of which 25 billion are proven. Although reserves areample, the quality of coal produced is generally low and is deteriorating.The high ash content, up to 50X, increases power station capital and operat-ing costs and has exacerbated problems of coal transport. GOI's emphasis onconcentrated development of pithead stations helps to address transportproblems but will not reduce the other costs associated with poor coalquality. In any case pithead development will be constrained by pollutionand water availability. GOI appointed the Fasal Committee to examine theproblems of coal supply to thermal power stations. This committee, whichreported in October 1983, made a large number of recommendations, affectingall aspects of supply from coal preparation to railway operations(para 1.14); the great majority of these recommendations have been acceptedby GOI. The Bank is supporting GOI's efforts in this area through itslending to the coal sector. The Dudhichua Coal Project includes studies toexamine coal linkages and identify potential improvements in handling andtransportation facilities. Coal quality is also being addressed, partic-ularly through the inclusion of appropriate quality incentives in coal supplycontracts.
1.02 Proven and probable petroleum reserves comprise approximately 510million tons of oil and 390 million toe of natural gas. Despite recentincreases in domestic production, India still imports about one third of itsoil requirements, which in PY84 cost the equivalent of 40X of its merchandiseexports. GOI has therefore given high priority to oil and gas explorationand, at the same time, has implemented measures, including economic pricing,to restrain the rapidly growing demand for oil products, particularly middledistillates. In the past, GOI has generally limited natural gas to premiummarkets such as petrochemicals and fertilizer; however, delays in theconstruction of gas infrastructure have resulted in substantial volumes ofgas being flared. The Bank has encouraged GOI to develop the necessaryinfrastructure and to allow other economic uses of gas including power gener-ation. In response, GOI has begun to invest in pipelines and has recentlyrevised its policy on the use of gas for power generation (paras 1.14 and1.15).
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1.03 India's hydroelectric potential is equivalent to about 1009000 NW.At present only 14,000 MW have been developed, 4,700 MS are under construc-tion and a further 23,000 MW are being studied for future development. Theprominent role of hydro generation in regional least-cost power developmentplans has led GOI to emphasize the need to accelerate hydro development;however, progress has been slow owing to the lack of financial resources ofstates with the greatest hydro potential, the time required to resolve waterrights and environmental issues, and the limited technical resources avail-able for the simultaneous preparation of a large number of hydro schemes.Attempts to address these issues through increased central sector involvementhave so far met with limited success (para 1.07).
1.04 The country's uranium reserves could support a modest nuclear program(8,000 - 10,000 MW), and thorium reserves are enough for a large fast breederprogram. India's nuclear power generating capacity is currently 1,095 MW.
Electricity Supply and Demand
1.05 In 1984/85 utilities' gross power generation amounted toapproximately 157,000 GWh from an installed capacity of just over 42,000 MW.Almost 60Z of generation was from coal, 34X from hydro, and the rest fromoil, nuclear energy, and natural gas. Electricity losses have risen slowlybut steadily over the last few years and now exceei 26% of gross generation.The detericrating quality of coal has increased station-use and the largeexpansion in very low load density rural electrification, together withinadequate investment in other transmission and distribution, have increasedsystem losses. The Bank has stressed the importance of balanced investmentto reduce system losses and improve scrvice quality and will continue tosupport transmission and distribution investments designed to achieve theseobjectives.
1.06 Over the past two decades, the consumption of electricity has grownapproximately twice as fast as total commercial energy consumption and nowaccounts for more than 302 of the latter. Even though the power subsectorreceives 20-25% of total public investment, electricity supply has not keptpace with demand and shortages have been prevalent throughout the country.Total consumption has grown at an average annual rate of 8X although theincreasing severity of power shortages indicates that potential demand hasgrown more rapidly. The Central Electricity Authority (CEA) has forecastdemand growth in the range 10-11X per year between 1984/85 and 1994/95(Annex 1.2). However, actual growth will continue to be supply constrained.The principal sectoral shares of total electricity consumption are:industrial, 57%; agricultural, 182; and domestic, 131, (Annex 1.1).Agriculture's share has grown steadily owing to increased electrical irriga-tion pumping made possible by rural electrification and encouraged by heavysubsidies.
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Organization of the Power Subsector
1.07 Responsibility for the supply of electricity is shared between theCentral and State Governments. The state electricity boards (SEBs) and theregional electricity boards tREBs) are controLled by states; CEA isadministered by the Department of Power within the Ministry of Energy and theNational Thermal Power Corporation (NTPC), the National Hydro-Electric PowerCorporation (NHPC), and the Rural Electrification Corporation (REC) arecentral sector corporations responsible to the Department of Power. SEBswere instituted under the Electricity (Supply) Act, 1948 (the Act), topromote the development of the power subsector and to regulate private licen-sees such as the Tata Electric Companies. Although SEBs are supposed to beautonomous in managing their day-to-day operations, in practice they areunder the control of St.te Governments in such matters as capital investment,tariffs, borrowings, pay, and personnel policies. As a first step towardsnational integration, the SEBs have been grouped into five regional systems,each coordinated by an REB. Coordination responsibilities include overhauland maintenance programs, generation schedules, interstate power transfersand concomitant tariffs. CEA was created in 1950 to develop national powerpolicy and to coordinate the various agencies involved in supplying elec-tricity. It is formally responsible for vetting investment proposals,providing consulting support to SEBs, assisting in the integration of supplysystems, training of personnel, and research and development. However, inits execution of these responsibilities, CEA has been severely limited byshortages of skilled staff and other resources. Without any direct respon-sibility for the provision of finance it has been unable to assume a verypositive role in the development of the subsector. In view of this, GOI hasdecided recently to form the Power Finance Corporation to complement CEA infostering development of the subsector (para 1.16). NTPC and NHPC wereformed in 1975 to construct and operate large power stations and associatedtransmission facilities. They sell bulk power to the SEBs for distribution.NTPC has had marked success and although it accounts only for about 5X ofinstalled capacity it is growing rapidly. In contrast, NHPC is still strug-gling to establish a role for itself; the states control water rights and arereluctant to relinquish hydro sites to the Center. This has prompted GOI toexplore joint ventures between the Center and states for the development ofhydro schemes. REC was established in 1969 to ceordinate rural electrifica-tion and provide financial and technical expertise for SEB schemes.Currently, REC finances more than 70% of total rural electrification invest-ment. AL present there is no organization with responsibility for thedevelopment of a national transmission grid, although GOI is contemplatingthe formation of such a body (para 1.17).
Finance and Pricing
1.08 The SEBs as a whole are estimated to have made a combined loss in1984/85 of approximately Rs 11,230 million (US$935 million) exclusive ofsubsidies, corresponding to a return on historically valued net fixed assets
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of 2.3Z before interest and -8.11 after interest. Internal cash generation,which was equivalent to only about 2.7Z of capital expenditure in 1984/85,has been correspondingly poor. Almost all SEB capital expenditure isfinanced by debt, primarily loans from state governments. Recognizing theunsatisfactory state of SEB finances GOI has, through an amendment to the Actnotified in April 1985, required SEBs to earn an annual return, after meetingoperating expenses, taxes, depreciation and interest, of at least 31 on theirhistorically valued net fixed assets (GOI does not accept the principle ofrevaluation of assets). The Bank supports this initiative by GOI and haschanged the form of its financial covenant to reflect this. Although, interms of the Bank's conventional method of calculation, the return specifiedin the Act generally corresponds to a modest return on revalued assets in therange of 4 to 61, it, nevertheless, represents a very substantial improvementon current performance. Many SEBs, particularly those of the poorer states,are expected to experience considerable difficulty achieving this level ofperformance. NTPC's tariffs are approximately equal to its long-run marginalcosts (LRMC); however, there are deficiencies in tariff structure and GOIhas agreed to undertake in close cooperation with the Bank such studies asmay be necessary to address these. As is to be expected from their currentfinancial performance, SEBs' tariffs do not adequately reflect their LRMCs.An analysis of 1981 SEB tariffs indicated that they were on average only justover 502 of LRMC. A preliminary analysis of 1986 tariffs suggests that theyare now 60-70% of LRMC and achievement of the stipulated rate of return wouldimprove the average ratio still further. However, the structure of tariffsis still unsatisfactory. Tariffs are frequently excessively complex and verylittle has been done through tariffs either to achieve load management or totap selectively consumers' willingness to pay, which in many cases substan-tially exceeds existing tariff levels. At the instigation of the Bank, LRMCtariff studies were carried out for almost all of the states in the late1970's. However, these studies were generally of poor quality and the Bankhas since endeavoured to agree with GOI on a methodology for LRMC tariffstudies. Progress has been slow because, despite espousing energy prices"which reflect true costs" its both the Sixth and Seventh Plans, GOI and thestates continue to oppose economic pricing of power for reasons associatedwith social and agricultural objectives. In lending to individual SEB's theBank will continue to address state-specific programs to improve resourcemobilization, for example, by developing financial programs capable, as aminimum, of achieving the rate of return specified in the Act. Where higherreturns are both feasible and desirable the Bank will press state governmentsto use their discretion under the Act to notify a higher rate of return. Sofar as tariff structure is concerned the Bank will continue to require SEBsto carry out tariff studies wherever tariff structures appear to be badlydistorted, in order to impress on the relevant authorities the true costs ofcross-subsidization. This has been done under both the Chandrapur ThermalPower Project (Loan 2455-IN) and the Kerala State Power Project(Loan 2582-IN). However, resistance to economic pricing is such thatprogress in pricing reform is likely to be slow (para 1.18).
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Power Subsector Planning
1.09 The Bank has consistently encouraged GOI to pursue integratedplanning and coordinated operation of the country's electricity supply sys-tems. In response, GO has prepared a set of regional least cost developmentplans, published as the National Power Plan (NPP) in 1983. Although the NPPrepresents a good first step towards integrated planning, it needs furtherrefinement and regular updating. In addition, such a plan can only lead toeffective improvements if complemented by measures to bring about coordinatedsystem operation. At present only the Northern Region is achieving this.COI is encouraging states to reach the necessary agreements on operatingparameters but progress is likely to be slow so long as severe powershortages exist. Even if coordinated intra-regional operation is achieved,inter-regional transfers will be very difficult without the use of directcurrent facilities to overcome problems of frequency control. The first suchfacility, a link between Northern and Western Regions, is a component of theCentral Power Transmission Project (Loan 2283-IN). A second direct currentlink has been included in the Rihand Power Transmission Project(Loan 2535-IN). To facilitate further integration GOI has agreed, under thelatter project, to undertake a study of the long-term development of anational transmission system and to examine related institutional and commer-cial issues. Disparities between the long-term NPP, national five-yearplans, short-term budgets and actual performance have been substantial. Owingto the lack of resources, fewer projects have been included in the five-yearplans than in the NPP and, as a result of inadequate allowance for escalationand delays in project implementation, still fewer have been executed. Theresulting power deficit has undermined rational planning by necessitatingrapid expansion of supply rather than long-term least-cost development; forexample, shorter gestation thermal plant has been favored at the expense oflower cost hydro. Furthermore, it has prompted overinvestment in captiveplant, a second best measure leading to excessive use of high value petroleumproducts for power generation. In addition to supporting GOI's efforts toincrease the supply of power, the Bank will continue to stress to GOI therole of pricing and load management in eliminating the deficit, and theimportance of integrating planning and pricing.
Management and Operations
1.10 In contrast to the good performance of NTPC, the SEBs' management andoperational capabilities have not kept pace with the expansion of supply. Ingeneral, SEBs have adequately qualified engineering staff, but lackexperienced personnel in financial planning and control. The relatively lowstatus and pay of these personnel exacerbates the already significant paydifferential between the public and private sectors and makes it difficult torecruit competent staff. Management practices are generally outmoded andinadequate. Accounts have been maintained principally to track cash receiptsand expenditures, and there has been little use of accounting information formanagerial purposes. Consequently, the Bank has encouraged GOI to develop a
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new uniform accounting system for SEBes. After initial delays, implementationis now proceeding. In addition, the Bank will continue to support institu-tional development programs through lending to individual SEBs.
1.11 The operations of many SEBs are hampered by the poor condition oftheir plant and equipment. Factors that have contributed to the poor stateof thermal plant include inadequate maintenance (in part due to capacityshortages), deficiencies in manufacture, lack of spares, and the poor qualityof coal; in general, these problems have been recognized by the relevantauthorities and corrective steps are being taken. Distribution systems havesuffered from inadequate maintenance and overloading owing to inadequateinvestment. Rehabilitation, particularly of thermal plant and distributionnetworks, appears to be a very cost-effective way to improve efficiency andaugment system capacity. GOI has recently started to implement a rehabilita-tion program for thermal plant but is less able to effect improvements indistribution. The Bank will continue, whenever appropriate, to includerehabilitation components in its projects.
GOI's Strategy in the Power Subsector
1.12 In essence the Five Year Plan constitutes the only formal statementof GOI's energy and power policies. Although formalization of power policy,in particular, is made difficult by the constitutional arrangement in whichresponsibility for power is shared between Center and states (para 1.07),the Seventh Plan, nonetheless, reflects a broad consensus of the objectivesof energy and power policies. The principal objectives of GOI's energypolicy are to: (a) develop energy supplies economically at a rate commen-surate with growth in the economy and social needs; (b) substitute indigenousenergy resources for imported petroleum wherever this is both technically andeconomically feasible; and (c) encourage the rational and efficient use ofenergy resources. Although power policy is governed by essentially the sameobjectives, alleviation (or at least containment) of acute power shortagessuffered nationwide dominates GOI's short-term strategy. Over the longerterm, achievement of least-cost development assumes greater importance. Inaddition to the initial steps of its long-term strategy, GOIs short-termstrategy provides for a number of specific measures to address powershortages, including:
(a) rehabilitation of thermal plant - a program involving some 30 plantsis currently being implemented (para 1.11);
(b) accelerating the implementation of ongoing projects - a recentreorganization of Government created a new ministry specifically tomonitor and improve implementation of public sector projects;
(c) a more liberal attitude towards captive generation;
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(d) permitting the construction of shorter gestation gas or oil-firedplants (para 1.02); and
(e) improving the quality and reliability of coal supplies, throughimplementation of the majority of the recommendations of the FazalCommittee (para 1.01).
1.13 GOI's long-term strategy requires a blend of policies designed toaddress investment, organizational institutional and financial issues. Withrespect to investment, resource constraints severely limit the quantum ofinvestment available to the power subsector. The Seventh Plan allocation isalmost exactly half the sum sought by the Working Group on Power, a sum whichwas itself inadequate to eliminate power shortages. Long-term investmentpriorities are:
(a) accelerated hydro developmert (para 1.03);
(b) an increased proportion of investment in transmission anddistribution (para 1.05);
(c) the formation of a national grid (para 1.09);
(d) coal beneficiation to improve both quality and homogeneity(Para 1.01);
(e) diversification of the modes in which coal for power generation istransported, possible examples include the introduction of coastalshipping or slurry pipelines;
(f) diversification of the fuels used for power generation, GOI nowrecognizes that gas fired plant, especially combined cycle, has aneconomic role to play in system development (para 1.02); and
(g) steady growth in the development of nuclear power (para 1.04).
1.14 Long-term organizational/institutional and financial issues are morecontroversial and GOI still needs to identify clearly defined strategies inthese areas. GOI recognizes the institutional and financial weakness of manyof the SEBs but constitutional constraints limit the rate at which the Centercan bring about improvement. Measures which GOI is following include:
(a) increasing the role of efficient central sector institutions,particularly NTPC (para 1.07);
(b) implementation of a uniform system of commercial accounting for allSEBs (para 1.10);
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(c) requiring, through recent amendment of the Act, that SEB1 earn a rateof return of not less than 3X after all expenses and interest(para 1.08), a significantly more stringent financial requirementthan hitherto; and
(d) a more receptive treatment of private sector proposals for powergeneration, particularly when it can be demonstrated that suchdevelopments are mobilizing resources which would not otherwise beavailable to the public sector.
In addition, GOI has decided to form the Power Finance Corporation as afinancial intermediary serving the subsector (para 1.07). It is expectedthat funds lent by the Corporation would be attractive to SEBs because, atleast in part, they would be additional to agreed plan outlays. However,loans would be subject to conditionality designed to improve the efficiencyand financial strength of beneficiaries.
1.15 GOI recognizes that the development and operation of an integratednational grid will be difficult to achieve with the present organization ofthe subsector and GOI is contemplating the formation of a separate body withresponsibility for the grid (para 1.07). However, many commercial andinstitutional problems remain and, as yet, GOI has no strategy for theirsolution; although, under the Rihand Power Transmission Project, GOI hasaccepted that these aspects of grid development need to be addressed(para 1.09).
Bank Croup Strategy in the Power Subsector
1.16 The Bank supports the elements of GOI's strategy identified above butfeels that, while each of these elements is desirable, they do not addressall of the serious deficiencies in the subsector. In particular, additionalefforts are needed to address problems in the areas of planning, pricing/loadmanagement, institutional development and finance. The prevalent nature ofthese problems suggests that a sector-wide approach should be sought.However, the comparative autonomy of the states/SEBs from the Center makes itdifficult to achieve progress in this way. With the exception of the intro-duction of uniform commercial accounting in SBs, few improvements at thestate level have been realized through umbrella projects coordinated by CEAor REC, primarily owing to the very weak control that these institutions areable to exercise over SEBs. Consequently, the Bank is changintg the mix ofits lending away from such umbrella I.eojects towards a more direct involve-ment with individual SEBs, where state-specific programs can be designed toaddress areas of deficiency. Initial experience with individual SEBssuggests that the prospects for improvement are encouraging. Pricing andfinance are the most problematic areas (para 1.08) and the Bank has indicatedthat it will only work with those SEBs that are prepared to improve theirfinancial performance.
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1.17 In parallel with lending to individual SEBs. the Bank proposes con-tinued support for expansion of the central sector, because: (a) increasedreliance of the states on central sector generation appears to be the bestway to encourage decisions at the state level consistent with the nationalinterest; and (b) a higher proportion of total generation provided ateconomic tariffs by the central sector will help to improve tariffs to finalconsumers. The difficulties that GOI has experienced in bringing hydroprcjects into the central sector mean that NTPC will continue to be the mainvehicle for the Bank's support of the central sector. NTPC's record to dateis impressive. However, it is still far from being a mature institution and,owing to its rapid development, it will continue to face problems in which itcould benefit from Bank support. In the wider context, the Bank feels thatan institutional review of the power subsector is needed and it is desirablethat this should include a review of the organization and functions of CEA.The Bank will also pursue with GOI the possibility of Bank-financed technicalassistance to improve CRA's capabilities.
1.18 In addition to addressing areas in which GOI's strategy appearsdeficient, it is appropriate that the Bank should focus on aspects of thestrategy already adopted, where the Bank can do most to catalyze progress.en this respect specific aspects identified include:
(a) integration of power supply including the formation of the nationalgrid - the Bank will continue to support projects such as the Centraland Rihand Power Transmission Projects, the latter will afford theBank the opportunity for an active involvement in studies oflong-term transmission development (para 1.09);
(b) accelerated hydro development - by broadening lending operations toencompass individual SEBs the Bank is able to support hydro projectsand, where the additionality of the Bank's funds to plan outlays iscrucial, it is abie to bring about developments which might nototherwise take place; and
(c) elements of strategy that involve concerted action by organizations,both inside and outside the power subsector - the Bank can coordinateits own lending operations within the different subsectors in orderto improve intersectoral cooperation. Priority examples concernimprovements in coal quality and transportation, and the use ofnatural gas for power generation.
Bank Group Participation
1.19 The Bank has made 22 loans (US$2,709 million) and 17 IDA credits(US$2,409 million) for Indian power projects (Annex 1.3). Nineteen projectshave been completed: 13 generation, 5 transmission, and 2 rural electrifica-tion. Projects currently under implementation include 12 generation, 3 ofwhich are hydro, 2 transmission, 1 rural electrification, and the Kerala
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Power Project, which includes a broad spectrum of generation, transmissionand distribution. With respect to NTPC projects, the first-phase projects atSingrauli, Korba, and Ramagundam were commissioned on or ahead of schedule.The second-phase extension at these sites, the Farakka, Rihand PowerTransmission and Combined Cycle Power Projects are proceeding satisfactorily.The Third Rural Electrification Project, which has suffered significantprocurement problems, is about three years behind schedule.
1.20 A performance audit conducted in 1980 for the Second PowerTransmission Project (Credit 242-IN) concluded that the project succeeded inhelping the nine beneficiary SEBs extend their transmission systems to meettheir growing power requirements. Utilization of generating capacity inthese SEBs exceeded the appraisal forecast. However, the audit highlighted-the difficulties of effecting institutional improvements in the absence of aclose working relationship between the Bank and beneficiary 8SEs. Anotherperformance audit, conducted in 1985 for the First and Second Rural Elec-rification Projects (Credits 572-IN and 911-IN), concluded that India'srural electrification program, of which the projects were a part, has helpedthe country to achieve food self-sufficiency, alleviate poverty, and trans-form the rural economy. In common with the previous audit this alsoemphasized that the Bank should devote resources to deal with the SEBsindividually.
II. THE BENEFICIARIES
A. NATIONAL THERMAL POWER CORPORATION
2.01 NTPC, a beneficiary of the proposed loan, was established in 1975 asa publicly owned utility, under the general supervision of the Ministry ofEnergy. It is responsible for designing, constructing, and operating largethermal power stations and transmission lines, and for the sale of powergenerated to the SEBs. NTPC has broad powers to carry out its operationsexcept for decisions on investment plans and financing which require Govern-ment approval before implementation. NTPC is also subject to periodicexamination by the Committee on Public Undertakings, a body established byGOI to monitor the performance of public sector enterprises.
Existing Facilities and Development Program
2.02 NTPC commenced generating electricity in 1982 and, by the end of1985/86, operated 11 new 200 KW units (5 at Singrauli, 3 at Korba and 3 atRamagundam) and 2,130 km of 400-kV transmission lines. In addition, it hasunder construction 7 power plants with a total capacity of 8100 MW and11,000 km of transmission lines. NTPC also operates the 720 MW Badarpurstation near Delhi, and is responsible for construction of the 270 NW captivepower station being established at Korba for the Bharat Aluminium Company, on
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a management-fee basis. NTPC expects to commission some 6000-7000 MW duringthe Seventh Plan and, on the basis of starts provided for under the SeventhPlan, will commission a further 5000-6000 MW during the Eighth Plan.
Organization and Management
2.03 In response to the rapid increase in NTPC's operational and construc-tion activities, a study to develop a decentralized organizational structurewas initiated in 1981, with assistance from power utilities/consultants inthe UK and the USA. On the basis of this study, NTPC adopted a regionalorganizational structure in August 1982, with each Region under the charge ofan executive director responsible for the design, construction and operationof generation and transmission facilities. Regional headquarters have nowbeen established for:
(a) the Northern Region, with responsibility for the power stations atSingrauli and Rihand, together with the associated transmissionsystem;
(b) the National Capital Region, with responsibility for the powerstation at Badarpur and the planned station at Dadri;
(c) the Western Region, with responsibility for the power stations atKorba and Vindhyachal, together with the associated transmissionsystem;
(d) the Southern Region, with responsibility for the power station atRamagundam and the Southern Regional Transmission System;
(e) the Eastern Region with responsibility for power stations at Farakka,Kahalgaon and Talcher, together with the associated transmissionsystem.
Recently, NTPC has centralized design and procurement in order to utilzetrained manpower more efficiently. It has also created the post of Director(Projects and Operations) to ensure that adequate attention is given to powerplant operations.
2.04 With decentralization, the corporate headquarters is progressivelyconcentrating its role on policy-making and the provision of functionalguidance to the Regions and operating divisions. The principal corporatefunctions are finance, personnel and administration, planning and monitoringdesign, procurement and comuercial. The finance, personnel and design groupsare headed by Directors who are members of NTPC's Board. The procurementgroup is responsible to the Executive Director (Corporate Contracts andMaterials). The planning and monitoring group reports to the Chairman andManaging Director and the commercial group to Director Finance. The presentcorporate organization structure is shown in Annex 2.1.
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Recruitment and Training
2.05 Recruitment is progressing satisfactorily and is expected to meetNTPC's expanding operational needs. In 1985, NTPC had about 14,200employees. This number is expected to reach about 32,000 by 1990. Initially,NTPC emphasized the recruitment and training of executives, engineers andsupervisors, who account at present for nearly 40Z of its staff. However,with the increase in operating plant, the emphasis has been gradually shift-ing toward the recruitment and training of skilled workmen and plantoperators, who will account for about 70X of staff by 1989/90. Trainingcenters have been established at NTPC's plant locations. These centers, withworkshops, training materials, and hostel facilities, are designed to trainyoung graduates, diploma holders and operating staff. NTPC also providesspecialized training in management and other aspects of the power sector atthe Centre for Education in Power Management in Delhi, the Central Instituteof Training at Badarpur and other academic institutions. In addition,specific programs are organized in collaboration with power organizations ofinternational repute, e.g. the Central Electricity Generating Board (U.K.).
Performance
2.06 NTPC's construction performance has been satisfactory with most ofthe generating units and transmission lines being completed within theplanned construction time. Such delays as have arisen in projects have beenprimarily due to delays in placement of orders for the major equipment(boiler and turbo-generators) and not in actual construction. Transitionfrom construction to operation is also being carried out successfully. NTPChas, with the assistance of Central Electricity Generating Board (U.K.),prepared detailed procedures for plant commissioning, operation and main-tenance. Major emphasis has been placed on the introduction of maintenanceplanning using computers and standard work procedures. Generating units underoperation have achieved satisfactory generation levels. A Research andDevelopment unit has been established to carry out applied research and toassist in outage analysis.
B. DELHI ELECTRIC SUPPLY UNDERTAKING
History and Organization
2.07 The first license for the sale of electricity in Delhi was granted in1905. A succession of private electric supply companies operated in the areaas licensees under the Indian Electricity Act (1910) until the DelhiElectricity Board was formed in 1951. The Board was established pursuant tothe Electricity Supply Act (1948) which was introduced by GOI to expedite thecreation of state electricity boards and to regulate their operations. In1957, GOI established the Municipal Corporation of Delhi (MCD) under the
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Municipal Corporation Act to administer municipal services in the capitalarea including electricity supply. The Delhi Electric Supply Undertaking(DESU) was established as one of the three wings of MCD. It assumed controlof the assets of the Delhi Electricity Board. The other two wings of MCD areresponsible for the administration of water supply and sewerage disposal andgeneral services, including various municipal services such as road main-tenance, garbage collection etc.
2.08 DESU is entrusted with the supply of electricity, through generationor purchase from other sources, and the transmission and distribution ofpower in the Union Territory of Delhi comprising approximately 1485 squarekilometers. However, the Undertaking was unable to maintain the neededinvestment in generation capacity because of inadequate resource mobilizationcaused by GOI's maintenance of electricity tariffs at levels which were belowthe financial cost of supply, and the inadequacy of budgetary allocations.Consequently, as demand for electricity increased within the Delhi area,DESU's purchases of power, mainly from the government owned Badarpur powerstation increased, reaching in 1985/86 about 3/4 of DESU's total energysupply. DESU's investments have focused mostly on the distribution componentof its system but these have also been inadequate due to the shortage ofresources. As a result, system losses worsened from 151 in 1980/81 to anestimated level of 22% in 1985/86 (para 4.30). DESU has been incurringfinancial losses since 1973/74 and presently is in an insolvent position(para 4.27).
2.09 The Municipal Corporation of Delhi (MCD), which is headed by aCommissioner who reports to the Mayor of Delhi, is responsible for approvingDESU's annual revenue and capital budgets. DESU's budget and revenuerequirements for the Five Year Plans are prepared in consultation with CEAand the Department of Power. After ratification by MCD they are submittedthrough the Delhi Administration and Ministry of Home Affairs to the PlanningCommission of GOI for approval. The involvement of several agencies of thegovernment in the decision making process is time consuming and divertsDESU's staff from the important task of operating and developing the utility.With the objective of improving the existing arrangements for the supply ofpower in the Delhi area, GOI has appointed a committee to identify areas ofdeficiency and to recommend reorganization as necessary (para 2.12).
2.10 The Delhi Electric Supply Committee, which was also established underthe DMC Act consists of seven members, four of whom are elected municipalcounselors and three of whom are appointed by GOI on the basis of theirexperience and knowledge in the field of electricity supply. The Committeefunctions as a Board of Directors in setting the policy framework for DESU'soperations and meets weekly on administrative, procurement and budgetmatters. Under the DMC Act, the General Manager (Electricity) DESU, is not amember of the Committee. However he is vested with responsibility for super-vising DESU's daily activities subject to the Committee's policy guidance andhe has sufficient independence in managing the day to day operations.
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Organization Structure
2.11 DESU's organization structure is shown in Annex 2.2. There are threedistinct functional departments in the Undertaking: Personnel and Administra-tion, Technical, and Finance and Accounts. The first two are headed byAdditional General Managers and the third by the Financial Advisor and ChiefAccounts Officer (FA&CAO). Each department is further subdivided intofunctional units as shown in the organization chart. For example, theresponsibilities of the Additional General Manager (Technical) include super-vision of planning, distribution, construction, generation and commercialfunctions such as billings and collections. DESU has decentralized theprovision of distribution and customer services to 20 district offices whichare grouped into five circles within the Union Territory of Delhi. Eachdistrict is an independent unit headed by an Executive Engineer responsiblefor connections, disconnections, maintenance as well as for billings, collec-tions and accounting. The Executive Engineer for each District reports tothe Superintending Engineer for the circle who in turn is responsible to theChief Engineer (Distribution) in the Technical Department at headquarters.One anomaly in the organization structure is that the commercial accountingstaff in the districts, who perform the billings and collections and preparethe monthly accounts, report to the district Executive Engineer without lineresponsibility to the FA & CAO who relies on their output.
2.12 DESU has responded to the demands of its substantial growth inoperations (i.e. approximately 120,000 new consumer connections and 11% p.a.electricity sales growth since 1980/81) on an ad hoc basis by introducingnew functional units into its basic structure or expanding existing units.To date DESU has not conducted a major review of either its organizationstructure or its managerial procedures and practices, to determine whetherthese are appropriate for its present and future needs. Consequently anumber of deficiencies in the organization structure and procedures havearisen. For example, DESU's job descriptions and delegation of authority toline and district managers have not been adequately established in many casesand the tasks performed by managers and staff sometimes require betterqualifications than originally envisioned. A review of DESU's organizationstructure, procedures and practices would be carried out under the proposedProject (para 2.13). Similarly, GOI is aware of the need to review DESU'soverall role in the power sector and has recently established a Committee toinvestigate the existing arrangements for the supply of electricity withinthe capital area. The Committee is expected inter alia to assess DESU'sorganization status as a wing of MCD with a view to determining whether DESUshould be separately constituted as an electricity board to operate in amanner similar to that of state electricity boards. It was agreed duringnegotiations that GOI would provide a copy of the committee's report to theBank by July 31, 1987 (para 6.02(a)).
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2.13 In view of the existing deficiencies in DWSU's organization structurean4 procedures there is a need to carry out a thorough study of the functionsand activities of DESU's departments. Such a study should be undertaken withthe assistance of consultants and would delineate a detailed organizationplan based on the proposals emanating from GOI's review of DESU, particularlyas regards the prospect of DESU being established as an electricity board(para 2.12). Moreover, the proposed study would recommend a suitable andeffective organization and management structure and would propose policiesand practices that would enable DESU to perform its projected functions andresponsibilities for the next decade to ensure an efficient and reliablesupply of power to the Delhi area. Rules, regulations and reportingrelationships in both technical and financial areas would be reviewed with aview to streamlining delegation of responsibilities and lines of communica-tion and to developing a suitable management informatiou system. Therefore,in view of the need for such a study DESU agreed during negotiations to:(i) recruit management consultants by December 31, 1987 to carry out anorganization and management study in accordance with terms of referenceacceptable to the Bank; (ii) review the recommendations of the study with theBank by June 30, 1989; and (iii) commence implementation of the agreed recom-mendations in accordance with an agreed timetable by September 1, 1989,Annex 4.11(C), (para 6.04(g)(iv)).
Personnel and Staffing
2.14 Since June 1982 DESU has adhered to the government-wide hiring freezedictated by GOI. New personnel can be recruited only if there is a vacancyand DESU can prove that no present employee possesses the requisite skills.Otherwise vacancies must be filled through redeployment. As a result, DESU'sstaff was reduced since 1982 by 3,068 from the sanctioned level of 28,857 to25,789. This has been achieved by not filling vacancies at the lowest cleri-cal and labourer levels in the organization, which DESU considered to beoverstaffed, and by promoting from within for higher level positions.
2.15 So far, the large number of vacancies has not been a serious con-straint for DESU because of the excessive staff which it has traditionallycarried in comparison to the size of its operations. For vacated positionsrequiring skills not available from within the organization DESU has in somecases been able to hire key staff from outside. Mowever, in common with theSEBs, DESU has not attracted sufficient numbers of adequately trained staffdespite its compensation packages being generally higher than those providedto government employees. In order to upgrade the skills of its staff, DESUhas plans to improve and expand its training activities for both technicaland accounting employees (para 2.16). In many cases the activities of DESU'semployees are not specified in job descriptions and are not conducted accord-ing to specified procedures and policies. The proposed Organization andManagement Study (para 2.13) would review the existing staffing arrangementsand procedures and recommend a staffing pattern and policies which would makemaximum use of DESU's existing staff.
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Training
2.16 DELU has been unable to sustain an appropriate training program forstaff because of its chronically weak financial position. However, itsinterest to expand training activities and upgrade the skills of staff issupported by GOI and is evidenced by the establishment in 1984 of a traininginstitute which is temporarily located in the substation building at Okhla.A permanent site with residence facilities is expected to be operational in1988. The institute is expected to cover all training relevant to DESU'sactivities in generation, construction, transmission and distribution,planning, commercial, stores, administration and accounting. Considerableplanning and work remains to be done in the preparation of course syllabi andtraining materials, recruitment of suitable training staff and in thescheduling of courses. Training activities have already commenced at Okhlabut have been limited to technical trel-ing of new engineers, substationoperators, cable jointers and linemen, ate. In addition, on the job traininghas also been provided to apprentice electricians, fitters, boiler attendantsetc. as per the Indian Apprenticeship Act, 1961. A review of the presentand planned training arrangements as well as recomMendations for improvementswould be one of the objectives of the proposed Organization and ManagementStudy (para 2.13). The proposed consulting assistance for the Implementationof the Commercial Accounting System would provide training for accountingstaff (para 4.19).
Planning and Development
2.17 The expansion of the DESU's network has been primarily driven by theimmediate needs of the consumers with little attention to how this expansionintegrates with the long term least cost development plan. This shortcomingis a consequence of the shortage of financial resources and inadequateplanning capabilities. DESU has set as one of its objectives the formulationof a long term development plan involving the strengthening of its planningcapabilities and integrating the development plan with its financial require-ments for the futlre. As a first step in achieving this objective, DESUwould need to outline a plan establishing the overall framework for thedevelopment of the distribution system in Delhi over the next 15 years. Thedevelopment of the plan would encompass, inter alia: (i) the planning anddesign concepts aimed at improving reliability of supply and optimization oflosses; (ii) a distribution development plan for the period 1988-2000; and(iii) a plan to modernize DESU's operation and supervising control and loaddispatch. In order to outline this plan DESU agreed at negotiations torecruit consultants satisfactory to the Bank by not later than December 31,1987 to prepare a distribution least cost development plan for the city ofDelhi and its suburbs in accordance with terms of reference summarized inAnnex 3.1 (para 6.04(g)(i)).
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2.18 DESU lacks a system of technical files to compile, store, and allowfor easy retrieval of up-to-date information on the distribution system andpower plants. To address this shortcoming, DESU agreed during negotiationsto recruit consultants by not later than December 31, 1987 to design andimplement a technical files management system. Implementation of the systemwould be completed by December, 1988 (para 6.04(g)(ii)).
2.19 DESU is currently installing a 6x30 MW combustion turbine powerstation adjacent to the Indraprastha power station. In view of the powersupply shortage in the Northern Region, these combustion turbines areexpected to operate in excess of 4000 hours per year. Therefore, there couldbe economic merit in converting them to combined cycle to improve theefficiency by which the fuel is used. Improvements of the order of 30% inefficiency and the addition of about 90 MW of generating capacity to thesystem can be expected with the retrofitting of these machines. Hence, DESUagreed during negotiations to engage consultants not later than December 31,1987 to study the feasibility of retrofitting the above turbines with wasteheat recovery boilers and steam turbogenerators and review the recommenda-tions of the study with the Bank (para 6.04(g)(i)).
2.20 Some renovation works are currently being implemented by DESU at theIndraprastha steam power station. However, additional work is still neededin the area of coal handling facilities, which lack sufficient capacity tohandle the additional coal tonnage required by the boilers due to the lowerthan designed quality of the supplied coal, and in the cooling water supplywhich does not meet environmental standards. Therefore, DESU agreed duringnegotiations to recruit consultants to prepare a renovation program for theIndraprastha power station not later than December 31, 1987 and review theprogram with the Bank by June 30, 1988 (para 6.04(g)(iii)).
III. THE PROJECT
Project Setting
3.01 In the 1950's and 1960's power development in India was focussedalmost entirely on the states with each state striving for self sufficientdevelopment. Consequently, power stations were not necessarily locatedoptimally and, because they tended each to serve only one state, theygenerally failed to capture economies of scale. In response, GOI changed thethrust of power policy during the 1970's and focussed on the objective ofleast cost regional development. This has led to emphasis being given to theconstruction of power stations in close proximity to indigenous energyresources. So far as the Northern Region is concerned, developments havebeen concentrated on coal-fired plants close to the coal fields in the eastof Uttar Pradesh and on hydro schemes in the far north of the Region. Both
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areas are remote from the very rapidly growing load center of the Capital,Delhi.
3.02 While this regional focus has reduced the costs of generation andhas been actively supported by the Bank it has two limitations. Firstlyttransmission development has not always kept pace with generation. A numberof Bank financed projects, e.g. the Rihand Power Transmission Project, areaimed at strengthening interstate transmission ties. Secondly, even wheretransmission capacity is adequate, the acute shortages of power mean thatareas with proportionately less generation are unable to maintain reasonablepower supplies. Under these circumstances the only feasible way to maintainan adequate power supply to Delhi is to build more capacity in the area.
3.03 At the moment Delhi has to rely primarily on the Indraprastha andBadarpur power stations. Both have suffered from inadequate maintenance,at least in part due to shortages of power, and, although environmentalconcerns were limited when they were built, both now represent unacceptablesources of pollution. GOI's short term response to the critical power supplyposition has been to sanction the installation of 6x30 NW combustion turbinesto be operated on middle distillates and to devise a program for rehabilita-tion of Badapur. Although initial expectations were that the combustionturbines would operate only for very short periods it now appears likely thatextended operation will be required and there is a strong a priori case forretrofitting these combustion turbines with waste heat recovery boilers andsteam turbo generators. In the longer term least cost development requiresthe establishment of a conventional coal fired plant. The station at Dadriincluded in the proposed Project is designed to fulfill this role.
3.04 In addition to the above physical limitations on the supply of power,the complex administration of the Union Territory of Delhi has restrictedDESU's autonomy and hindered its efficient operation. Concurrently, inade-quate funding and excessive tariff restraint have constrained DESU's abilityto develop its transmission and distribution networks. System developmenthas been dictated by the availability of resources and the immediate needs ofconsumers. Priority has consistently been given to expansion at the cost ofreinforcement and rehabilitation. As a result, system losses have increasedto 22Z, about twice the level experienced in similar but properly maintainednetworks. A 40% tariff increase in April 1985 raised DESU's average tariffabove that of most State Electricity Boards. However, despite this increase,DESU has not been able to cover its costs owing to: the high costs of powerstation operation and power purchases; high system losses; and the burden ofinterest on accumulated debt. Solution of the problems of power supply tothe Capital requires a restructuring of DESU's finances to £ree it from thelegacy of inappropriate past policies and a program to improve power supplyfacilities coupled with comprehensive streamlining of DESU's operations.
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Project Objectives
3.05 The principal objectives of the proposed Project are to: (a) augmentpower supplies to the capital; (b) improve the reliability of transmissionand reduce system losses; (c) reduce environmental pollution from powergeneration; (d) move towards more efficient use of existing assets in thepower supply system; (e) identify economic opportunities for improving thequality of coal used in power generation; and (f) effect a program ofadministrative, financial and operational improvements in DESU.
Project Description
3.06 The proposed Project comprises:
(a) the construction of the first stage (4x210 MW) of a coal-fired powerstation at Dadri comprising boilers, turbogenerators, electrical andmechanical equipment, associated civil works and switchyard;
(b) equipment, materials and works required for the rehabilitation ofthe power station at Badarpur to improve its efficiency and reducethe impact of its future operations on the environment;
(c) the construction of about 110 km of double circuit 400-kY transmis-sion line and related 400-kV and 220-kV substations at Karawalnagar,Bawana, Bamnoli, and Ballabgharh;
(d) consulting services to assist NTPC in the review of the engineeringof the first stage of the power station at Dadri, in the design andpreparation of specifications for its ash disposal system, and astudy on improvement of the quality of coal used in power generation;and
(e) consulting services to assist DESU in: (i) the preparation of a leastcost plan for the extension and reinforcement of the distributionnetwork in Delhi (pare 2.17); (ii) the design and implementation of asystem for the compilation, storage and retrieval of technical dataon the distribution network in Delhi (para 2.18); (iii) the assess-ment of the economic viability of equipping the combustion turbinesadjacent to Indraprastha with waste heat recovery boilers and steamturbogenerators (para 2.19); (iv) the preparation of a plan for therehabilitation of the power statior at Indraprastha (para 2.20);(v) the finalization of its financial statements for 1983/84, 1984/85and 1985/86 (para 4.20); (vi) the implementation of a new commercialaccounting system (para 4.19); and (vii) the completion of anorganization and management study (para 2.13).
A detailed description of the proposed Project is given in Annex 3.1.
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Project Costs
3.07 The estimated cost of the proposed Project, including contingenciesbut excluding duties and taxes, is US$1,310.1 million. Taxes and duties,and interest during construction would amount to about US$43.1 million andUS$188.9 million, respectively. Thus, the total financing requirement wouldbe US$1,542.1 million, of which about US$609 million would be direct andindirect foreign exchange. Details of the estimated costs of the Projectare set out in Annex 3.3 and summarized in Table 3.1.
Table 3.1: ESTIMATED PROJECT COSTS /a
Local Foreign Total Local Foreign TotalRs Million ------- ------US$ Million------
Total FinancingRequired 12,131 7,915 20,046 933.2 608.9 1,542.1
a/ Figures may not add due to rounding.
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Cost estimates for the proposed power plant at Dadri are based on indicativeproposals made by prospective bidders and are comparable with recent pricesfor similar works in India. Cost estimates for other equipment and materialsare based on the most recent quotations received for similar projects. Theestimated cost for the consulting services is based on current experiencewith other projects in India. Base prices were updated to March, 1987.Physical contingencies of lO% on civil works and 5% on equipment were assumedon the basis of experience with similar projects and amount to about 6X ofthe base cost. Price contingencies, which amount to about 31X of the basecost, are based on the following expected annual inflation rates: (a) localcosts - 1986/87 to 1995/96, 6%; and (b) foreign costs - 1987 to 1996, 4%.
Project Financing
3.08 A Bank loan of US$485.0 million would cover about 37% of the totalcost of the proposed Project, net of duties and taxes, and would amount to79% of the estimated foreign exchange requirements. The balance of theforeign exchange requirement, amounting to about US$124 million requiredwould be met from GOI foreign exchange resources. The Bank loan would bedivided between NTPC and DESU. An amount of US$425 million would be used byNTPC to finance part of the foreign cost of the first stage of the powerstation at Dadri and consulting services. The financing of local costsamounting to about US$841 million would be met from NTPC's internal cashgeneration, plus equity and loans from GOI. The balance of the Bank loan,US$60 million, would be used by DESU to finance part of the foreign exchangecost of equipment and material for the 400-kV transmission ring around Delhiand consulting services. The financing of local costs amounting to aboutUS$92 million would be met by contributions from GOI and from DESU's internalcash generation. Table 3.2 shows the proposed financing plan for NTPC andDESU.
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Table 3.2: PROJECT FINANCINC PLAN(Us$ million equivalent)
GOI may consider suppliers or export credits for the major equipment, if asuccessful bidder or other agency provides an acceptable financing proposalfor the lowest evaluated bidder in cash terms. In this event, GOI's con-tribution would be reduced accordingly, and, if required, the Bank wouldreallocate its contribution towards the financing of these items to otheritems in the Project, as appropriate. The foreign exchange risk would beborne by GOI. Cost of overruns would be covered by NTPC and DESU.
Project Engineering and Consulting Services
3.09 NTPC has considerable experience in the design and construction ofthermal power stations and associated high voltage transmission system.Field investigations for the Dadri power station have been carried out byNTPC to provide the information needed for the preparation of plant layoutand the civil works involved. The technic5l specification for the procure-ment of the main plant equipment have already been prepared by NTPC andcleared by the Bank. Some assistance would be required by NTPC only for thereview of the deviations from earlier power stations' design and to assist asnecessary in the preparation of the specifications. However, in the case ofthe dry ash disposal system, which involves new technology, NTPC wouldrequire the services of experienced consultants to undertake the completedesign and preparation of specifications. The consulting services for thereview of the engineering of the power station and for the design of the ashdisposal syscem would require about 120 man-months which would be coveredunder the proposed Project.
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3.10 DESU has no experience in the design and construction of 400-kVtransmission networks. At present, the first segment of the 400-kV trans-mission ring around Delhi is being constructed by NTPC, financed under theRihand Power Transmission Loan (Ln. 2555-IN). This was needed to transmitpower from NTPC's power plants to SEBs in the Northern region. When the restof the ring, to be owned by DESU, is completed, NTPC and DESU would be ableto provide a more reliable supply of power to the Capital area. The timelycompletion of the ring would play a critical role in improving the quality ofelectricity supply in the Capital area. However, as DESU has not had pre-vious experience in the implementation of 400-kV lines, DESU has agreed toengage NTPC to carry out the design, engineering and construction supervisionof the transmission lines and related substations as well as provide DESUwith assistance in procurement matters (para 6.04(a)).
3.11 The Badarpur power station near Delhi comprises 3 units of 100 MWcommissioned between 1973 and 1975 and 2 units of 210 MW each commissioned in1978 and 1981. The power station is owned by GOI and operated on its behalfby NTPC. The performance of these generating units has not been satisfactorybecause of: (a) the inadequate design of boilers and turbines; (b) the supplyof coal of lower heat value than assumed when the boilers were designed;(c) the insufficient supply of cooling water; and (d) an unacceptable levelof fly ash precipitation due to the failure of fly ash precipitators. NTPChas completed the detailed engineering and specifications for a rehabilita-tion program to upgrade the performance of generating units and remedy thecurrent environmental problems created by the operation of the power plant.The program was reviewed by the Bank and found satisfactory. Details of theproposed rehabilitation program are shown in Annex 3.1.
3.12 Technical consulting services would be needed to assist DESU in:(a) the development of a distribution least cost development plan (para2.17); (b) the design and implementation of a technical files managementsystem (para 2.18); (c) the completion of a feasibility study for theretrofitting of the turbines adjacent to the Indraprastha station(para 2.19); (d) the design of a rehabilitation program for the Indraprasthapower station; and (e) the design, engineering and construction supervisionfor the 400-kV transmission lines and related substations (para 3.10). Atotal of the 600 man-months of consultants have beea included in the proposedProject for the above assignments. In addition to the above technical ser-vices DESU would also require about 200 man-months of consultancy to carryout the organization and management studies (para 2.13), to assist inbringing DESU's accounting work up to date and in implementing the new com-mercial accounting system (para 4.19).
Land Acquisition
3.13 The land required by the power station at Dadri is estimated to beabout 1,000 ha, all of which is uninhabited and about 50% is government land.
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Consequently, the construction of this station would not involve any reset-tlement. NTPC and GOI confirmed during negotiations that all the land neededfor the power station is already in NTPC's possessiono DESU has confirmedthat the routing of the transmission lines has been finalized, and that ithas acquired the land needed for the substations. None of the land acquisi-tion for the proposed Project requires any resettlement.
Cooling Water Supply
3.14 The cooling water for the proposed power station at Dadri would beprovided by a closed-circuit system with cooling towers. Water for thecooling system would be supplied from the Mat Branch Canal. During theannual maintenance of the canal, escimated to require about four weekst waterfor the cooling system would be tapped from the nearby Hindon River in UttarPradesh. Both sources have sufficient flow throughout the year to cover thepower station's water requirements.
Fuel Supply
3.15 Coal for the Dadri power station would be supplied from the Piparwarblock of the North Karanpura Coal field, in the State of Bihar. The blockhas estimated reserves of about 194 million tons. The proven reserves wouldbe sufficient to operate the fully developed 1840 MW Dadri power station overits estimated useful life of about 30 years. The Piparwar Block, with over-burden varying in thickness between 3 and 14 meters, is suitable foropen-cast mining. The development of the coal mine to meet the phased coalrequirement of the power station should present no major difficulties.Advance action has already been authorized by the Public Investment Board(PIB), which gives the coal company the authorization to prepare for thedevelopment activities such as land acquisition, infrastructure development,mine design, etc. However, in view of the fact that timely development ofthe mine is critical for the success of the proposed Project, GOI provided tothe Bank mine development program indicating major milestone, e.g. PIBapproval, completion of land ecquisition, bid invitation, contract award, anddelivery dates of equipment for the mine, as well as schedules for overburdenremoval and coal production.
3.16 Coal would be transported about 1,200 km by rait-trains from the mineto the Dadri railway station over the Northern Railway Main Line. The spurline from Piparwar mine block to the main line is included in the minedevelopment plan. From the Dadri railway station, unit-trains would be movedabout 8 kms to the coal storage yard at the power station by NTPC-ownedlocomotives. The unit-trains will be made up of automatic bottom dischargewagons to speed up unloading. Indian Railways have been experimenting withrunning 9,000 ton trains on the main railway line. The results have satis-fied the Bank that the additional coal requirement of about 12,500 tons perday for the proposed Dadri power station can be transported over the proposedroute. In order to guard against the possibility of interruptions in supply
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and delivery of coal, the boilers would also be designed to burn fuel oil.The proposed power station would have a fuel oil handling plant designed tosupply all the four units and with sufficient storage capacity for 10 daysoperation. During negotiations, NTPC agreed to enter into a coal supplycontract at least one year before the operation of the first unit. Thecontract would be subject to prior review and comment by the Bank (para6.03(a)).
3.17 The power sector suffers from the deteriorating quality of coal duemainly to exhaustion of better grades. Greater selectivity of mining,improvement in coal handling and, possibly, beneficiation, could economicallyimprove coal quality. Preliminary studies by the Central Mining Planning &Design Institute Ltd. (CEMPDIL) indicate that there is a prima-facie case forbeneficiation of coal for the proposed Project. To complement these studiesand help confirm whether beneficiation would be economic in this case, theProject includes a detailed study of the benefits to be derived from improve-ments in the quality and consistency of coal for power generation (para3.06(d)).
Project Implementation
3.18 NTPC has extensive experience in successfully implementing largepower stations. As a result, no major difficulties are foreseen in theconstruction of the proposed Dadri power station. The proposed power stationwould be implemented over a period of eight years, starting October 1986.The four units would be commissioned between October 1991 and April 1993.The proposed construction schedule for the power station is shown inAnnex 3.2. The construction schedule can be considered realistic, givenNTPC's experience in this field. The construction of DESU's portion of thering would be done over a period of about five years starting in June 1986.The construction schedule for the transmission ring and associatedsubstations is shown in Annex 3.2. The rehabilitation of the Badarpur powerstation has already started and is expected to be completed by January 1988.DESU has already hired consultants for the implementation of the commercialaccounting system. DESU has agreed to hire consultants for all other assign-ments by December 31, 1987 (para 6.04(g)).
Procurement
3.19 The procurement arrangements are summarized in Table 3.3 below andthe major milestones of the procurement process are shown in Annex 3.2. Themajor contracts for the mechanical and electrical equipment and works wouldbe procured on a supply-and-erect basis and some contracts would also includecivil works (e.g. coal handling, substation structure and transmissionlines). This would ensure contract coordination during implementation.Procurement for equipment, material and works, estimated to cost about US$800million, would be tendered on the basis of international competitive bid-ding (ICB), in accordance with Bank's guidelines. NTPC has already invited
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bids for the boilers and the turbogenerators which are now being evaluated.Documents for individual NTPC contracts estimated to cost above US$3.5 mil-lion equivalent and DESU contracts estimated to cost above US$1.0 millionequivalent would be subject to prior review by the Bank. This would coverabout 90% of the contracts. Local manufacturers would be expected to bid formost categories of equipment. A domestic preference of 15X or the corre-sponding import duty, whichever is less, would be applied in bid comparisonfor equipment contracts. Consultants for project engineering and for DESUstudies will be selected and employed in accordance with Bank guidelines.
Project Elements PROCUREMENT METHOD /bICB LCB Other Total
A. NTPC
I. Preliminary Works 33.0 33.0II. Civil Works 2.0 169.8 171.8
(2.0) (2.0)III. Mechanical Works
Steam Generator and Auxiliaries 272.3 272.3(208.9) (208.9)
Turbo Generator and Auxiliaries 200.2 200*2(92.0) (92.0)
Ash Handling System 64.9 64,9(26.5) (26.5)
Control and Instrumentation 22.6 22.6(18.0) (18.0)
Circulating Water System 22.1 22*1(7.5) (7.5)
Coal Handling Plant 47.3 47*3(25.0) (25.0)
Water Treatment Plant 7.0 7.0(4.0) (4.0)
Other Mechanical Equipment 16.0 39.6 55.6(4.3) (4.3)
IV. Coal Transportation 135.9 135.9V. Electrical Equipment
Power Transformers 7.3 7.3(6.0) (6.0)
Bus Ducts 3.0 3.0(1.3) (1.3)
Switchgear 12,6 12.6(5.0) (5.0)
Power and Control Cables 14.5 14.5(6.0) (6.0)
Switchyard Equipment 27.6 27*6(15.3) (15.3)
Other Electrical Equipment 3.0 6.5 9.5
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VI. Consultancy Services 903 9.3(3.2) (3.2)
VII. Badarpur Rehabilitation 13.0 15.0 28.0VIII. Engineering and Administration 67.7 67.7
Total (NTPC) 722.4 364.8 125.0 17212 2(421e8) (3.2) 1425eO)
B. DESU
I. 400-kV Transmission LinesTowers 15.0 15.0
(12.6) (12.6)Conductors 16.5 16.5
(13.2) (13.2)Insulators and Hardware 6.2 6.2
(4.5) (4.5)Erection (and works) 13.6 13.6
II. 400-kV SubstationsTransformers 6.9 6.9
(5.0) (5.0)Other Equipment and Material 23.0 23.0
(15.2) (15.2)Civil Works and Erection 11.1 11.1
II. 220-kV SubstationsTransformers 5.4 5.4
(4.0) (4.0)Other Equipment and Material 11.3 11.3
(3.0) (3.0)Civil Works and Erection 6.1 6.1
IV. Engineering and Administration 21.3 21.3V. Consulting Services 4.6 4.6
(2.5) (2.5)Total (DESU) 84.3 30.8 25.9 141.0
(57.5) (2.5) (60.0)
C. TOTAL PROJECT 806.7 395.6 150.9 1,353.2
(479.3) (5.7) (485.0)
/a Figures between brackets indicate Bank-financed portion.T7 ICB : International Competitive Bidding.
LCB : Local Competitive Bidding.Other: Direct negotiation or not subject to commercial procurement.
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Disbursement
3.20 Disbursement from the proposed loan would be made against 100X of thecost of consultants and 100% of the CIF (ex-factory if manufactured in India)cost of equipment and materials procured under ICB. The Bank has authorizedretroactive financing of up to US$1,000,000 to cover DESU's expendituresafter May 1, 1987 and, prior to loan signing, on consultancy for assisting inthe implementation of the commercial accounting system and NTPC's consultancysupport for the design and engineering of the transmission lines and substa-tions. The estimated disbursements for the NTPC and DESU components of theproposed Project, shown in Annex 3.4, have been determined from the Bank'sstandard disbursement profile for thermal power projects in India and theBank-wide profile for transmission projects, respectively. The closing datefor the loan would be June 30, 1995. Disbursements would be fully docu-mented. To facilitate disbursements, a special account would be establishedfor the loan with an authorized allocation of US$25.0 million.
Ecology
3.21 Environmental clearance for the Dadri power station has been obtainedby NTPC from the Department of Environment of the Ministry of Environment,Forests, and Wild Life (MEFWL). No environmental or forestry clearances arenecessary for the 400-kV ring around Delhi. Burning of high ash coal (about40% ash) results in substantial quantities of bottom ash and fly ash. NTPCplans to dispose of the ash by building a dry ash disposal system. Sincethis technique is new to India NTPC will employ consultants familiar with thesubject to assist in the planning of this element of the Project (para 3.09).More details about the pollution control measures for the project can befound in Annex 3.1.
Project Risks
3.22 No unusual risks are foreseen in the execution of the Project. Riskof damage due to fire, explosion, etc., would be covered by the respectivecontractors during the construction phase, and, after commissioning, by NTPC,through its insurance policies, which are satisfactory. Technical riskswould be minimized by the use of consultants as needed.
Project Monitoring
3.23 NTPC and DESU will submit, starting with the quarter in which theloan is declared effective, quarterly reports covering the work of consult-ants, physical progress, costs, disbursements and administrative aspects ofthe proposed project. In addition, there will be annual financial andadministrative reports from both NTPC and DESU. Completion reports will beprepared by NTPC and DESU not later than six months after commissioning oftheir respective parts of the Project.
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IV. FINANCE
A. NATIONAL THERMAL POWER CORPORATION LIMITED
Accounting Organization and Systems
4.01 In 1979, NTPC, assisted by A.F. Ferguson Co. (India), designed andsubsequently implemented well conceived systems for financial and costaccounting, project accounting, inventory control, billing, fixed assetsaccounting, and payroll. The corporation has established decentralizedautonomous accounting units at the site of each plant in operation.A.F. Ferguson Co. has monitored the implementation of these systems and hasassisted in the training of accounting staff. Well designed managementinformation and budgetary control systems were also introduced in 1979 andthese have been effective in providing the inputs needed for planning andmonitoring. An internal audit unit has been established with adequate sys-tems and qualified staff. Training of accounting staff is well organized,and recruitment of qualified staff is adequate to meet forecast requirements.NTPC's accounting operations are functioning in a satisfactory manner,
Past Financial Performance
4.02 NTPC initiated its development program in 1977/78 and commercialactivities began in 1982/83. During 1983/84, 1984/85, and 1985/86 NTPC'sfinancial performance has been satisfactory and financial results comparefavourably with the forecasts prepared by NTPC and approved by the Bank.NTPC's financial statements for 1982/83-85/86 are given in Annexes 4.2 to4.5 and a summary of financial results is shown in Table 4.1.
Table 4.1 Highlights of NTPC's OperationalResults for 1982/83-85/86
4.03 Electricity sales amounted to 3835 GWh in 1983/84 and more thandoubled to 8316 GWh in 1984/85 after the commissioning of the first threeunits (3x200 MW) at Ramagundam. In 1985/86 sales increased by another 54% to12,839 GWh as a result of an improvement in NTPC's plant load factor to 74%from 581 in 1984/85, at the 200 NW units of the Ramagundam, Korba andSingrauli power stations. This increase in plant load factor occurred due tothe stabilization of the Ramagundam units, increased availability of theSingrauli unit due to tha completion of scheduled maintenance and because ofa sustained high level of performance by the Korba units.
4.04 In 1983/84, NTPC realized a net income of Rs 449 million and earned arate of return on historical net fixed assets in operation of 11.3% whichexceeded the covenanted requirement of 7X for 1984/85-89/90 agreed with theBank. In 1984/85, NTPC's sales revenues amounted to Rs 3t326 million and arate of return on historical net fixed assets in operation of 12.5% wasrealized. As a result of the improved plant load factor, sales revenuesincreased to Rs,12p839 million in 1985/86 and the rate of return was 17.2Z.NTPC's returns in 1983/84, 1984/85, and 1985/86 correspond to rates of returnon revalued assets of approximately 9.3%, 10.11 and 13.5% respectively, whichare satisfactory. NTPC's cash generation as a percentage of investment was3%, 12% and 111 in 1983/84, 1984/85 and 1985/86 respectively. Growth insales, combined with adequate tariffs, and control over operating expenseshave accounted for the overall sound financial performance of NTPC. The lowcontribution to investment is temporary and is acceptable in view of the factthat NTPC continues to have a small sales volume in its early years ofoperation relative to the very large capital investment program underimplementation. Assets in operation at the end of 1985/86 amounted to Rs16,047 million, representing only about 34Z of total fixed assets includingRs 32,569 million of assets under construction. ITPC's debt equity ratio of36/64, current ratio of 1.2 and debt service coverage of 5.0 times in 1985/86were satisfactory.
Accounts Receivable
4.05 NTPC's collection of accounts receivable during its first two yearsof oDperation was poor but significant improvements have occurred since then.The outstanding receivables of 7.2 months sales equivalent at the end of1983/84 declined to 5.2 months at the end of 1984/85 and have recentlydropped further to about 2.8 months in May 1987. Several initiatives wereimplemented to achieve these reductions. NTPC has taken action to reducereceivables through provisions in its bulk supply agreements which requirethat each concerned SEB open an irrevocable letter of credit equivalent toone months power purchases and remit payment for power purchases not coveredby letters of credit within 30 days of receiving bills from NTPC. Althoughin some cases the amounts of these are less than the amounts required by theterms of the bulk supply agreements the arrangement has proved effective
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where implemented, and NTPC is pressing for all S8B customers to open lettersof credit in the required amounts. In addition, GOI has recently takenaction, through diversion of central issistance to the states, to settle 80Zof the amounts owed by SEBs to NTPC, which are undisputed and more than twomonths overdue. After the remaining amounts are paid to NTPC in 1987 underthis arrangement, the overall level of ac.:ounts receivable would be below theequivalent of two months sales. During negotiations NTPC agreed to maintainits accounts receivable, arising from sales of electricity at a level notexceeding the proceeds of its power sales for the two preceding months(para 6e02(b)).
Future Financial Performance
4.06 NTPC's projected financial statements for 1986/87 through 1995/96and related assumptions are presented in Annexes 4.2 to 4.W0. A summary ofprojected financial ratios and financial indicators is given in Table 4.2.
Self Financing Ratio % 11 12 8 29 49 50 84Operating Ratio Z 54 55 55 47 46 45 46Debt/Debt + Equity 34/66 37/63 41/59 44/56 41/59 40/60 42/58Current Ratio 1.2 .6 .9 2.0 2.0 1.8 6.9Debt Service (times) 5.0 3.2 2.8 2.7 2.9 2.4 2.4
4.07 The financial forecasts for NTPC indicate that electricity sales areexpected to increase from 12,839 GWh in 1985/86 to 87,695 GWh in 1995/96,representing an average annual rate of growth of about 21%. During the sameperiod average revenue is expected to increase from 40 paise/kWh to 94paise/kWh in accordance with the projected tariff increases outlined underthe bulk supply agreements with SEB's. These agreements allow for adjust-ments in the basic tariff rate to reflect changes in fuel prices and othercosts (Annex 4.10(g)). The projected increase in average revenue representsan average annual growth rate of about 8.91 which is higher than the expectedrate of inflation in India of about 6.0% up to 1996. As a result, averagerevenue would be maintained at a level marginally above the estimated LRMC(para 4.13). The forecast decline in electricity sales of 1.61 from 1985/86to 1986/87 reflects the expectation that the high plant load factor achievedduring 1985/86 would decrease to a normal level and this effect would
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dominate the increased sales from newly commissioned plants (para 4.03). Theforecast increase of 21X in average revenue from 40 paise/kWh in 1985/86 to51 paise/kWh in 1986/87 is largely a result of an increase in the proportionof sales made to SEB's that are charged higher tariff rates because of thehigher capacity costs associated with the plants which provide the power.During 1986/87 increased sales are anticipated to SEB's in the SouthernRegion and power would be sold to SEB's in the Eastern Region for the firsttime. For SEB's in these two Regions the generation costs are higher and asa result the applicable tariff rates would be more than for SEB's in theNorthern and Western Regions (Annex 4.7).
4.08 NTPC's operating revenues are projected to increase from Rs 5,233million in 1985/86 to Rs 81,993 million in 1995/96. Operating expenses as apercentage of operating revenues are expected to remLin at a satisfactorylevel of 45% to 55% throughout the period, based on the projected regularadjustment of NTPC's tariffs as per the bulk supply agreements. NTPC'sprojected financial rates of return on historical net assets in operationvary between 12% and 17% during the forecast period according to the timingof work in progress being converted to assets in operation, and the con-comitant build up in generation, tariff rates and sales revenues. Theforecast rates of return compare favourably with the covenanted rates.The same rate of return requirement of 7% for 1984/85-89/90 and 9.5% for1990/91-94/95, and thereafter annual rates of return at levels satisfactoryto ensure the financial viability of NTPC reiterated under the Combined CyclePower Project (Loan 2674-IN) would be repeated for the proposed Project(para 6.02(f)). NTPC's rates of return on net revalued assets based on a proforma evaluation (Annex 4.8) are projected to Se between 8% and 11% in theforecast period. NTPC's internal cash generation is projected to remain lowthrough 1989/90 as a result of rapid expansion of new investment relative toexisting commercial operations. By 1990/91 it will reach 43% of estimatedcapital expenditures and remain at a satisfactory level thereafter. Thetariffs used in making NTPC's financial projections have been derived fromthe terms of the bulk sales agreements with the SEB's. These tariffs arehigher than actually required to satisfy the agreed revenue covenant. Whilethere is no reason to expect lower tariffs, financial performance at thecovenanted rates of return has been analyzed. During 1984/85 to 1995/96 thecovenanted rate of return would still yield positive internal cash generationand a small contribution to investment. After 1989/90 NTPC's self financingratio is projected to continue to rise above 30Z.
4.09 NTPC's projected balance sheet reflects the large investment programand anticipated rapid growth in operations. Total capitalization is expectedto increase from Rs 52,526 million in 1985/86 to Rs 418,777 million in1995/96 and corresponds with a rise in the debt/equity ratio from 36/64 to42/58 for the same years. Projected debt/equity ratios and debt servicecoverage are satisfactory. NTPC's net working capital position is expectedto remain satisfactory over the forecast period.
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Future Investment and Financing
4.10 NTPC's financing plan for the period 1985/86 to 1992/93 is presentedin Table 4.3. NTPC would finance about 301 of its investment program (includ-ing IDC) from internal cash generation. The proposed Bank loan would financeabout 2X and the balance of 68% would be financed from long term loans andbonds (39X) and GOI's equity investment (29%). NTPC's financing plan hacbeen assured by GOI's undertaking to provide any necessary additional fundsto finance the investment program. In February 1986, NTPC made its firstpublic bond issue. One million secured, redeemable bonds of Rs 1,000 each,yielding 14% interest per annum, were issued and fully purchased. The amountof funds raised through the bond issue, equivalent to about US$76.9 millionprovides only about 0.4% of NTPC's financing requirements for 1986/87-92/93but represents a new source of financing made possible by NTPC's sound finan-cial perfirmance. Additional bond issues are planned for future years.Total capital expenditures, including IDC, for the period are expected toamount to just over Rs 250 billion of which the estimated cost of Rs 20,046million (including IDC) for the proposed Project would represent 8%.Dividends on equity are not anticipated and it has been assumed that surplusfunds during the period would be applied to the investment program.
Table 4.3 NTPC's Financing Plan 1985/86-92/93
Rs Million US$ Million ZSources of Funds
Net Income Before Depreciation & Interest 125,841 9,680 50Less - Net Increase in Working Capital 5,952 458 -2Less - Debt Service 45,740 3,518 18
Net Cash Available for Investment 74,l49 5,704 30Bank Loan for Proposed Project 6,305 485 2Other Loans 97,898 7,531 39GOI Equity 74,336 5,718 29
Total 252,688 19,438 100
Investment Program(including IDC)
Proposed Project 20,046 1,542 8Other Capital Expenditures 232,642 17,896 92
Total 252,688 19,438 100
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Taxation
4.11 NTPC is liable for income tax. However, in view of its large capitalexpenditure program, no income tax liability would arise during the period ofthe financial projections. The investment and depreciation allowancespermitted by GOI are greater than NTPC's projected amount of taxable income.A tax equalization reserve is, therefore, not necessary at this time.
Audit
4.12 NTPC's auditors are appointed by the Company Law Board, on the recom-mendation of the Comptroller and Auditor General of India and are members ofthe Indian Institute of Chartered Accountants. The auditors' report issubject to review and comment by the Auditor General. For 1984/85 theappointed auditors were P.K. Maheshwari & Co. and Coel, Carg & Co., bothfirms of Chartered Accountants. The audited financial statements andauditors' report for 1984/85 were submitted to the Bank on time and werefound to oe satisfactory. The auditors' reports contained no substantiverecommendations or adverse comments. As with previous Bank Group credits andloans, NTPC agreed during negotiations to provide the Bank with auditedfinancial statements within seven months of the end of the financial year towhich they relate, together with a certified report by the auditors, andcomments of the Comptroller and Auditor General of India (para 6.02(g)).
NTPC's Tariffs/Bulk Supply Contracts
4.13 A comparison of NTPC's projected regional tariffs with estimates ofthe generation and bulk transmission long run marginal costs (LRMC) over theperiod 1985/86-95/96 is provided in Annex 4.7. NTPC's average tariff foreach region is expected to remain reasonably close to 1OOZ of LRMC throughoutthe period. NTPC's tariffs are generally lower than the projected costs ofgeneration for the SEBs. However, there are likely to be times when someSEBs' short-run marginal costs would be lower than NTPC's full tariff. Thisissue is addressed below.
4.14 Under previous loans and credits, GOI and NTPC agreed to sell powerfrom NTPC's power plants under contracts satisfactory to the Bank. These havenow been concluded with the Delhi Electric Supply Undertaking, the DamodarValley Corporation, the Electricity Department of the Union Territory of Coa,and all SEBs designated to receive power from NTPC plants. The ElectricityDepartment of the Union Territory of Pondicherry is not expected to receivepower from NTPC until early 1988. A contract in respect of this entity istherefore not yet requir6u but will be concluded at the appropriate time.NTPC's role in the generation and transmission of electricity is forecast toincrease substantially. This will impose new requirements on the bulk supplytariff structure and, in this context, issues which need to be addressedinclude: (a) the potential multiplicity of tariffs - the existing regionalbulk supply tariff is set on a station specific basis, reflecting the fact
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that NTPC is presently operating only one station in each region. Thisapproach would result in a multiplicity of tariffs with the comissioning ofadditional plants in each region; (b) recovery of transmission costs - thereis no provision in the existing tariffs for recovering costs of transmissionfacilities now under construction that are not associated with specificgenerating stations; and (c) merit order operation - SEBs, which at timeshave surplus generating capacity (e.g., at night during the monsoon), find itcheaper to incur their own short-run marginal costs and avoid the "full" NTPCtariff even though NTPC's short-run marginal costs may be lower than those ofthe SEBs. This leads to operation of plant out of merit order, consequentlywasting resources. These potential deficiencies of NTPC's tariff structureare currently being addressed under Loan 2674-IN.
On-Lending Arrangements for the Proposed Project
4.15 An amount of $485 million from the proposed Bank loan would be onlentto NTPC by GOI in accordance with a Subsidiary Loan Agreement which willprovide for a maturity of 20 years, including a grace period of 5 years withinterest payable on outstanding balances at not less than 13.5X per year.The Bank has in the past required a minimum on-lending rate based on GOI'snormal interest rate for assistance to NTPC and this would currently corre-spond to a minimum on-lending rate of 14%. However, as DESU will indirectlybear this interest rate burden and in view of DESU's financial circumstances,OI has requested the slightly lower minimum on-lending rate of 13.52 peryear which is acceptable to the Bank. This rate still provides a sufficientmargin over the current Bank rate of 7.92Z to cover the foreign exchange,interest rate and guarantee risks which are to be borne by GOI. The conclu-sion of a Subsidiary Loan Agreement satisfactory to the Bank would be acondition of effectiveness of the proposed Bank loan (para 6.01(a)).
B. DELHI ELECTRIC SUPPLY UNDERTAKING
Financial Organization
4.16 DESU's Finance and Accounts Department is headed by the FinancialAdvisor and Chief Accounts Officer (FA&CAO) who is qualified for officethrough his 20 years of experience and training as a member of the IndianAudit and Accounts Service (IAMS). tie was appointed to DESU by MCD with theconcurrence of the Union Public Service Commission for a three year term,which may be extended. The FA&CAO is assisted at headquarters by two DeputyFinance Officers and three Deputy Chief Accountants who are responsible forsupervising the various accounting functions.
4.17 DESU maintains four accounting offices in the field for prescreeningand processing of expenditures for new works and for payments to staff. Eachis headed by an audit officer who supervises 25 to 30 staff. In addition,
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the PA&CAO is responsible for 38 revenue collection offices which receivepayments from customers for electricity bills.
4.18 None of DESU's accounting staff is a chartered accoun mt. Some ofthe senior staff are members of the Central Accounts and Finance Service.Many accounting staff have not received sufficient training to perform fullyaccording to their position and level. Consequently, the burden of finaliz-ing accounts and preparing routine financial reports for MCD and GOI hasfallen on the FA&CAO and his deputies and has been a constraint in improvingthe efficiency of the accounting operations. Accounting work has beenseriously in arrears, at least in part due to shortages of trained staff.However, some improvements have been noted since the appointment of theincumbent FA&CAO.
Accounting System
4.19 The method of accounts compilation has until recently been governedby the Maintenance of Accounts Regulations, 1959. In March 1986 GOIinstructed DESU to introduce from the commencement of 1986/87 the new uniformsystem of commercial accountiig that SEBs began implementing in 1985/86. Theproposed Project includes consultancy services to assist DESU to implementthe new commercial accounting system and provide extensive on-the-job andclassroom training for two years after implementation. Annex 4.11 containssuggested terms of reference. In view of the urgency for these services,the Bank has authorized retroactive financing to cover initial expenditureson this consultancy (para 3.20). To bring about full consistency with theaccounting practices of the SEBs, GOI agreed, during negotiations, to requireDESU to capitalize interest during construction (para 6.02(c)).
4.20 As previously noted, DESU is seriously in arrears (i.e. about fouryears behind) with its accounts preparation. DESU has recently taken stepsto accelerate clearance of its backlog of accounts and, during negotiations,agreed to furnish the Bank with unaudited financial statements for: 1983/84and 1984/85 by October 31, 1987; 1985/86 by March 31, 1988; 1986/87 by August31, 1988; and 1987/88 by December 31, 1988 (para 6.04(e)). Furthermore, DESUagreed to furnish audited financial statements for these years within threemonths of the respective unaudited statements (para 6.04(e)). DESU hopes tomaintain this schedule without external assistance. However, DESU has agreedthat, should it be unable to meet this schedule given its own resources, itwould promptly engage consultants to assi£t in the preparation of accounts(para 6.04(e)). The proposed Project includes a provision for such assis-tance, should it prove necessary (for suggested terms of reference see Annex4.11). DESU has agreed to furnish unaudited financial statements and auditedfinancial statements together with the auditor's report, for 1988/89 and eachsubsequent financial year, within 6 and 9 months respectively of the finan-cial year end (para 6.04(f)).
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Audit
4.21 DESU's accounts are audited satisfactorily by the Municipal ChiefAuditor who belongs to the Controller and Auditor General's organization andis appointed with the prior approval of GOI. The latest year for which theaudited accounts are available is 1980/81. Audit of 1981/82 and 1982/83accounts is expected to be completed by July 1987. DESU plans to submit tothe Bank its unaudited and audited accounts from 1983/84 onwards according tothe schedule described in para 4.20. Although DESU currently employs auditofficers, staff shortages and the backlog of accounts have caused them tofunction as accounts officers and their potential benefits have not beenrealized. However, DESU recognizes the importance of the internal auditfunction and the proposed Organization and Management Study (para 2.13) wouldoutline a structure for the internal audit unit, its staffing and a programfor staff training.
Data Processing
4.22 DESU's management recognizes the benefits of computerized datahandling and is presently automating the rapidly growing data base and infor-mation flow within its system. As a first step, computerization of consumerbilling has been successfully introduced at seven of its district offices andalso for all bulk supply connections and industrial connections above 5 kWThe work is currently being handled by three private computer consultingfirms on a contract basis. In addition, DESU engaged the ElectronicsCorporation of India Ltd. (ECIL) to carry out a study to assess its futurecomputing needs and suggest a computer system configuration. The study whichwas completed in 1985 led to a decision by DESU to set up its own internalcomputer centre to provide support for load despatch, consumer billing,inventory management and personnel and payroll activities. It is anticipatedthat a mainframe computer will be procured through ECIL and that the centrewill be staffed and operational by the end of 1987/88.
Insurance
4.23 DESU maintains a small Risk Insurance General Reserve fund as a formof self insurance for fixed assets. A large fund is not required sinceDESU's assets are spread throughout Delhi and the risk of a major loss isminimal. Furthermore, GOI makes funds available to DESU to ensure theprovision of power supply in the Delhi area. This arrangement has proved tobe satisfactory. However, a review of DESU's insurance coverage would needto be undertaken at such time as DESU's status may change to that of anelectricity board (para 2.12).
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Taxes
4.24 As a wing of the Municipal Corporation of Delhi, DRSU is not liablefor payment of any income taxes. However, on behalf of MCD, DESU does col-lect from its consumers an electricity tax which is presently levied at therate of 2.8 paise/kWh.
Billing and Collections
4.25 All electricity consumption is metered. Meter reading and billingis monthly for all non-domestic consumers above 5 kW and bimonthly for allothers. Bills are generally issued within 15 days of meter reading andpayment is due within another 15 days. DESU levies penalty charges for latepayments and, although most consumers pay on time, the overall collectionperformance has been poor because of large uncollected amounts owing fromNDMC and MCD (para 4.31).
Past and Present Financial Performance
4.26 As previously stated DESU's accounting is in arrears and the finan-cial analysis in the following paragraphs for 1982/83 through 1985/86 istherefore based on provisional figures provided by DESU, which may undergochange as the accounts are completed and audited. Although some changes arelikely, these are not expected to alter significantly the conclusions drawn.
4.27 DESU has been incurring losses since 1973/74 and is presently insol-vent. Its accumulated losses to end of 1985/86 are estimated at Rs 3,671million. Since DESU has minimal equity capital it has been showing itsa%cumulated losses improperly as "Assets" in its balance sheets. DESU's networth as of March 31, 1986 was minus Rs 3,431 million as shown in Table 4.4.
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Table 4.4 DESU's Net Worth as of March 31, 1986(Rs Million)
Total fixed assets 4,938Accounts receivable - electricity 1,709Accounts receivable - others 2,185Other current assets 366
Sub total 9,218LessLong term borrowing from GOI 4,898Unpaid interest on 001 loans 1,581Payable for Power purchases (of which 4,576Rs 3,775 million is owed to GOI for powerpurchases from Badarpur Thermal Power
Station - BTPS)Other accounts payable 1,317Consumers' security deposits 277
Sub total 12,649
Net worth (-) 3,431
4.28 DESU's actual and provisional financial statements (income statement,sources and application of funds statement and balance sheets) for1980/81-1985/86 are in Annexes 4.12-4.14. Table 4.5 shows the highlights ofDESU's operational results for the last 6 years.
& Table 4.5: Highlights of DESU's OperationalResults for 1980/81-1985/86
(Rs Million)
80/81 81/82 82/83 83/84 84/85 85/86Electricity Sales (GWh) 2,372 2,567 2,841 3,043 3,418 3,960Operating Revenues 1,066 1,250 1,451 1,596 1,904 3,011Operating Expenses 1,098 1,537 1,868 2,270 2,710 2,944Operating Income - 32 -287 -417 -674 -806 67Interest 129 138 163 170 208 287Net Income -161 -425 -580 -844 -1,014 -220Accumulated Loss 588 1,013 1,593 2,437 3,451 3,671Average Tariff(P/kWh) 38.0 41.3 44.2 45.5 50.0 70.9Operating ratio Z 103 123 129 142 142 97Debt as X of Debt + 128 157 213 368 1,292 334Equity 1/Current ratio 0.8 0.7 0.7 0.6 0.5 0.6
1/ For calculation of this ratio accumulAted losses are treated as negativeequity.
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4.29 DESU's revenues fell far short of its operating expenses in all theyears through 1984/85. These losses climbed sharply between 1981/82 and1984/85. In 1983/84 and 1984/85 DESU's revenues did not even cover the costof fuel and purchased power. A tariff increase of about 42%, permitted byGOI in April 1985, helped DESU earn an operating income of Rs 67 million in1985/86, but this was insufficient to cover the interest liability of Rs 287million. As a result the net loss for the year was Rs 220 million raisingthe total accumulated loss to end of 1985/86 to Rs 3,671 million. All per-formance indicators, i.e. operating ratio, current ratio, debt/equity ratioetc. for all the six years were unsatisfactory.
4.30 DESU's poor financial performance has been the result of a variety offactors. All capital expenditures have been met from GOI's loans. At theend of 1985/86 these loans amounted to Rs 4,898 million and interest accruedthereon to Rs 1,581 miliion. DESU has been unable to make any payments ofprincipal or interest to GOI since 1974 primarily because GOI's regulationhas maintained chronically low tariffs. DESU's poor performance alsoreflects excessive operating expenses resulting from the high cost of powerpurchases, particularly from the old and inefficient GOI owned BadarpurThermal Power 6tation (BTPS) (para 3.11). DESU has not been paying for thispower in full since 1979 and its accounts payable to GOI in respect of pur-chases from BTPS amounted to Rs 3,775 million at the end of 1985/86. This isestimated to have increased to Rs $395 million by March 31, 1987. Its owngeneration costs are also high because of its reliance on high cost thermalplant and the low plant factor at Indraprastha. Moreover, DESU's systemlosses in recent years have been in the range of 18%-221, which are excessivefor a utility primarily serving such a concentrated load center. DESU hasdeveloped a program to reduce these losses and expects to bring them down to16X by 1986/87. However, the financial projections (para 4.36) assume thatthe system losses will be 19X in 1986/87 and 18% from 1987/88 through 1994/95to guard against an unrealistically optimistic forecast.
Accounts Receivable
4.31 DESU's overall performance in the recovery of its receivables hasbeen unsatisfactory. At the end of 1985/86 the receivables for electricitysupply amounted to Rs 1,709 million, equal to over seven months' billing. Ofthis, an amount of Rs 1,371 million (i.e. about 80X) is owed by three maindefaulters: (a) New Delhi Municipal Corporation (NDMC) - Rs 868 million;(b) Water Supply and Sewerage Disposal Wing of MCD - Rs 383 million; and(c) MCD General Wing - Rs 120 million. Measures to address this problem aredetailed in para 4.35. Because of its accounting backlog, DESU is unable toprovide an age profile of its receivables. Control over accounts receivablein respect of other electricity sales appears to be generally good, althougha disaggregation of receivables by category of consumption was also unavail-able due to deficiencies in account preparation. During negotiations, DESU
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agreed to take all action necessary to ensure that its accounts receivablefrom electricity consumers does no exceed the equivalent of 4 months sales in1987/88, 3 months in 1988/89 and 2 months thereafter (para 6.04(b)).
4.32 DESU's other receivables as of the end of 1985/86 aggregated Rs2,185 million. These include an amount of Rs 843 million due from theHaryana State Electricity Board (HSEB) on account of its share of the costsof Indraprastha (HSEB receives one-third of the total power produced at thatstation). During negotiations, GOI agreed to establish satisfactory arrange-ments for the recovery of HSEB's share of the costs of the Indraprastha powerstation (para 6.04(c)). The balance of receivables is accounted for byadvances for purchase of materials (Rs 822 million), advances to staff (Rs 28million) and other collectibles (Rs 492 million).
Electricity Tariff
4.33 The DMC Act empowers the Delhi Electric Supply Committee to fix and,from time to time, revise charges for the supply of electricity. In prac-tice, however, changes in the tariff require the approval of GOI. DESU'selectricity tariff remained almost unchanged for six years prior to April1985 when COI permitted a major revision in rates (para 4.29) which raisedthe average rate by about 42% to 71 paisa/kWh (approx US 5.5 cents/kWh). Theaverage marginal cost (strictly average incremental cost) for the NorthernRegion as a whole has been estimated at 82 paisa/kWh in economic terms.
4.34 High voltage consumers including large industrial consumers pay amonthly demand charge based on the recorded/contracted kVA load plus anenergy charge based on consumption. A fuel surcharge is applied only to thehigh voltage consumers, large industrial consumers, and the two bulkpurchasers (NDNC & MES) which account for about 45% of consumption. Theremaining 55% of consumption is not subject to surcharge. However DESU htasrecently proposed to GOI that the fuel surcharge be applied to all categoriesof consumers and this measure forms part of the proposed financial recoveryplan for DESU (para 4.35(g)).
DESU's Financial Recovery Plan
4.35 DESU's past losses, loans and liabilities are large and the pos-sibility of their liquidation from internal cash generation is remote. Theircontinuation in DESU's books would distort its future operating results. Toput DESU on a sound financial footing and to enable it to operate in accord-ance with accepted commercial principles the implementation of a satisfactoryfinancial recovery plan is required. An appropriate plan would free DESUfrom past problems by immediate measures to produce an acceptable, i.e.,solvent, balance sheet and would include longer term measures to improveDESU's future financial performance. GOI recognizes the need for such a planand wishes to have DESU gradually improve its financial perforiance to thepoint where it is able to meet the criterion of a 3% rate of return after
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interest, stipulated for SEBs under the amended Electricity (Supply) Act. Itappears feasible for DESU to do this by 1990/91. Measures to achieve thiswhich will shortly form the basis of a proposal to the Indian Cabinet, andwhich are acceptable to the Bank, include:
(a) offsetting Rs 1556 million owed to DESU by various Governmentorganizations against an equivalent part of the Rs 5395 million owedby DESU to GOI for purchases of powers from BTPS, together withinterest thereon;
(b) waiving of the balance of Rs 3841 million under (a), owed by DESUto GOI;
(c) waiving cumulative interest owed by DESU to 001 as of March 31, 1986;
(d) waiving interest of Rs 1200 million due to GOI for the years 1986/87and 1987/88;
(e) conversion of 50X of the outstanding principal of GOI loans as ofMarc#,31, 1986, amounting to Rs 4898 million, to equity (or perpetualLoanif with the remaining 502 bearing the interest rate applicable toOI's departmental undertakings;
(f) financing of future investment by 50% loan/ and 50Z equity (orperpetual loan);
(g) extension of DESU's fuel surcharge to:
ii) all consumers except domestic during 1987/88; and
(ii) all consumers including domestic during 1988/89; and
(h) such tariff increases as are necessary so as to progressively earnby 1990/91 a rate of return after interest of 3X as required by theElectricity Supply Act.
1/ Should conversion to equity within the timescale envisaged pose legaldifficulties for GOI, an alternative would be to convert the loans andaccrued interest to "perpetual" loans which are not callable and whichbear no interest.
2/ The proposal currently under consideration involves loans which wouldbear interest but not be repayable. During negotiations the Bank indi-cated that, although it supported the provision of a proportion offinance as equity, it would still be desirable that the loans, which aremade, be repayable with a reasonable maturity, e.g. 20 or 25 years.
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While the measures as finally approved by Cabinet may differ in detail fromthose described above, GOI has agreed to furnish to the Bank by February 29,1988, and thereafter implement a satisfactory financial recovery plan suchthat DESU will earn 3X after interest from 1990/91 (para 6.02(b)). DESU, inturn, has agreed to take all measures necessary, including adjustment oftariffs, to ensure that, commencing with 1990/91, it achieves the 3% rate ofreturn after interest,
Financial Projections
4.36 DESU's projected financial statements for 1986/87 through 1994/95are presented in Annex 4.12 to 4.14. The assumptions for the financialprojections, which reflect the implementation of the financial recovery plan,are given in Annex 4.15. Table 4.6 summarizes the projected key indicatorsfor each year during the period.
Rate of return(after interestexcluding IDC)on net fixed assets 1/ -11.3 -3.9 -1.1 2.2 3.1 3.3 3.4 3.4 3.3at beginning of year X
Rate of return(before interest)on average netfixed assets x I/ -8.3 -2.2 7.5 8.3 8.4 8.4 8.2 9.4 9.1Operating ratio 1.06 1.02 0.94 0.92 0.92 0.91 0.92 0.91 0.91Self financing ratio - -8 -5 15 16 19 24 26 39Debt service coverage - 0.4 1.0 1.3 1.5 1.5 1.5 1.4 1.4(times)
Debt/Debt plus equity X 10 16 20 22 25 27 28 29 29Current ratio 1.6 1.6 1.6 1.6 1.6 1.5 1.5 1.5 1.5
1/ Historically valued.
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4.37 DESU's sales forecast shows an average annual growth rate of about10% through 1994/95. Its revenues will increase from Rs 3,011 million in1985/86 to Rs 15,021 million in 1994/95, an average annual increase of 19.6%.DESU's operating expenses during the same period are projected to increaseat an average annual rate of 18.6% from Rs 2,944 in 1985/86 to Rs 13,726million in 1994/95. DESU's operating ratio of 106% in 1986/87, which isexpected to decline to 91% in 1994/95, is high and results mainly from thehigh cost of fuel (including the expensive diesel which will be used inDESU's combustion turbines) and the heavy cost of purchased power supplied,mostly from thermal sources. Fuel and purchased power account for about 80%of DESU's operating expenses. DESU's electricity tariffs are higher thanmost SEBs operating in India and the scope for further improving DESU'soperating ratio through large tariff increases is considered very limited.
4.38 DESU's fixed assets would increase from Rs 4,958 million at the endof 1985/86 to Rs 16,334 million at the end of 1994/95. Most of the invest-ment during the 9 year period is for transmission and distribution lines.The only currently identified investment in generating capacity is estimatedto cost Rs 2,335 million and would be for the replacement of thermal units atRajghat power station, expected to be completed by 1989/90.
4.39 Implementation of the financial measures set out in para 4.35 wouldenable DESU to transform itself from an organization suffering chronic lossesto a financially viable utility. The financial projections indicate thatDESU would meet the agreed 3% rate of return covenant commencing in 1990/91with modest nominal increases in basic tariffs, exclusive of the fuelsurcharge, of between 1% and 6% per annum. Tariffs inclusive of the fuelsurcharge are expected to increase at an average annual rate of about 9% innominal terms over the period 1986/87 to 1994/95. Assuming a projectedaverage annual rate of inflation of about 6% for this period, the averageannual increase would amount to approximately 3% in real terms. DESU wouldearn rates of return (before interest) of about -8% in 1987/88, -2% in1988/89 and about 7-9% in 1990/91-1994/95 on average net fixed assets (his-torically valued) in operation. DESU's self financing ratio would improve toabout 15% in 1989/90, 24% in 1992/93, and 39% in 1994/95. Because of theproposed conversion of past loans into equity, its debt/equity ratio would below but would rise gradually from 16/84 in 1987/88 to 29/71 in 1994/95.DESU's projected financial performance is considered satisfactory.
Financing Plan
4.40 DESU's financing plan for the period of execution of the proposedProject i.e. 1987/88-1993/94 is presented in Table 4.7. DESU would financeabout 13% of its investment program (including interest during construction)from internal cash generation. The proposed Bank loan would finance about 7%and the balance of 80% would be financed from GOI's loans to DESU (43%) andGOI's equity investment (37%). The proposed Project, including interestduring construction, is expected to comprise about 18% of DESU's investmentprogram for the period.
Less - Debt service 4,512 347 -42Net - cash available forinvestment 1,342 103 13
Bank Loan For Proposed Project 781 60 7GOI loans 4,553 350 43GOI Equity 3,884 299 37
Total 10,560 812 100
Investment ProgramNiincluding IDC)
Proposed Project 1,946 151 18Other capital expenditures 8,614 661 82
Total investment Program 10,560 812 100
On-Lending
4.41 An amount of US$ 60.0 million from the proposed Bank loan would beon-lent by GOI to DESU for a 20 year term including 5 years of grace periodand repayment of principal in equal semi-annual installments with interestpayable on outstanding balances. GOI's current rate of interest for loansmade to DESU is 1 and in the financial projections that rate has also beenassumed for the on-lent Bank loan. An on-lending rate of 11% would provide asufficient margin over the current Bank rate of 7.92% to cover the foreignexchange and interest rate risks which are to be borne by GOI. The conclu-sion of a financial arrangement satisfactory to the Bank would be a conditionof effectiveness of the proposed Bank loan (para 6.01(b)).
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V. PROECT JUSTIFICATION AND ECONOMIC ANALYSIS
Least Cost Analysis
5.01 The two principal components of the proposed Project are the 4x210 MSpower station at Dadri and the 400-kV transmission line which will complementexisting NTPC lines to form a ring around Delhi. With regard to the powerstation, CEA has, with the aid of the optimization model WASP-III, prepared aleast cost system expansion plan for the Northern Region, based on the loadforecast given in Annex 5.1. The earliest feasible implementation of thepower station forms an integral part of the least-cost plan meeting theconstraints outlined in para 3.2. The assumptions used, including the loadforecast, and the results of the optimizatio" modelling have been reviewed bythe Bank and found satisfactory. With regard to the transmission component,a range of options were considered and the Bank is satisfied that the con-figuration chosen (including voltage level) constitutes part of the leastcost development of power supply to the Capital.
Internal Economic Rate of Return
5.02 Benefits of the Dadri power station and the 400-kV transmissioncomponent cannot readily be separated from those of other investments ingeneration, transmission and distribution. Therefore, having establishedthat these form part of the least cost expansion plan for the NorthernRegion, it is appropriate to carry out a cost-benefit analysis of the plan asa whole in order to ensure that the expansion envisaged is desirable. Forthis purpose, a "time-slice" of the Northern Region's investment program hasbeen analyzed. Capital costs of the investment program (covering generation,transmission and distribution) together with incremental operating and fuelcosts are given in Annex 5.2. The benefits of the investment program relatemainly to the incremental consumption which it makes possible.I/ A minimummeasure of benefit, ignoring consumer surplus, can be derived from incremen-tal sales revenue. In the absence of adequate class specific consumptionconversion factors, the standard conversion factor (estimated to be 0.8) hasbeen applied to convert financial revenue into a measure of economic benefit.On this basis the minimum internal economic rate of return achieved by theNorthern Region program is 1X.
1/ The program may also lead to benefits in terms of a reduction in the costof meeting existing demand, particularly through fuel savings. However,the energy deficit is such that by far the greater part of the outputavailable from plants in this program will lead to increased sales. Fuelsavings resulting from this program are likely to be small and this ele-ment of the benefits has therefore been ignored.
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5.03 However, this estimate is more a reflection of the level of tariffsthan of the economic merit of the investment program. The estimated minimumeconomic rate of return, 14t is less than the established opportunity cost ofcapital, and this is indicative of the fact that retail tariffs in theNorthern Region, particularly agricultural, are presently substantially lessthan LRMC (para 1.08). However, this generalization does not apply to DESU,the direct and indirect beneficiary of the proposed Project. DESU's tariffsare much closer to LRMC and would be closer still with extension of the fuelsurcharge to all consumers (para 4.35 and Annex 4.12). In reality, theprogram will confer benefits in excess of those described above. There willbe consumer surplus associated with the incremental consumption; consumers'reactions to the severe shortages of power experienced at present, andexpected for the foreseeable future, suggest that willingness to pay substan-tially exceeds present tariff levels. In addition there will typically beother external benefits,
5.04 In order to derive a more realistic internal economic rate of return,it is useful to estimate a measure of consumer surplus, at least forindustrial and agricultural consumers. Their willingness to pay will berelated to the costs of autogeneration and diesel pumping respectively. Manyconsumers are presently observed to find these options economic when publicsupply is not available. Annex 5.2 presents an estimate of dieselautogeneration costs at Rs 1.12/kWh. It would, however, be unreasonable toassume that all industrial consumers would be willing to pay this price forthe whole of their consumption from the public supply system. Therefore, asa conservative measure, it has been assumed that the consumer surplusattributable to incremental sales can be derived from an average of the costof autogeneration and the prevailing tariff. Similarly, for agriculturalconsumers the equivalent cost of diesel pumping has been estimated atRs 2.21/kWh and average willingness to pay has been estimated at halfwaybetween the average agricultural tariff and this alternative cost. This morerealistic measure of the benefit of consumption results in an internaleconomic rate of return of 11% for the Northern Region. However, it mustagain be stressed that this represents a lower bound estimate as domesticconsumer surplus and other external benefits, have still not been included.
Justification for Bank Involvement
5.05 Through this Project, the Bank would be supporting GOI's efforts(para 3.05) to:
(a) augment generating capacity and alleviate the chronic power shortagesin the Capital and the Northern Region;
(b) improve the capacity and reliability of power transmission in theCapital area and reduce system losses by complementing other NTPClines to form a 400-kV ring around Delhi;
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(c) make more efficient and fuller use of existing plant throughrehabilitation of Badarpur; and
(d) bring about environmental improvements by reducing pollution fromBadarpur.
In addition to supporting the above objectives, the Bank would, through itsinvolvement in this Project:
(a) introduce DESU to state-of-the-art distribution planning throughconsultancy services for preparation of a distribution master plan;
(b) help to stimulate rehabilitation and environmental improvements inri'ation to the Indra Prastha power station;
(c) cause DESU to investigate the feasibility and economics ofretrofitting waste heat recovery boilers/steam turbogenerators to thecombustion turbines adjacent to Indra Prastha;
(d) help to set DESU on a sound financial footing through execution ofa financial recovery program (para 4.35); and
(e) ensure that a proper analysis is made of the benefits of improvingthe quality coal used in power generation.
VI. AGREEMENTS AND RECOMMENDATIONS
Agreements
6.01 During negotiations, the following conditions of effectiveness wereagreed:
(a) the conclusion of a subsidiary Loan Agreement between GOI and NTPC,satisfactory to the Bank specifying (i) an interest rate of not lessthan 13.5 per annum; and (ii) a repayment term of 20 years including5 years grace (para 4.15); and
(b) the conclusion of a Financial Arrangement between GOI and DESU,satisfactory to the Bank specifying (i) an interest rate of not lessthan 11% per annum; and (ii) a repayment term of 20 years including 5years grace (para 4.41).
6.02 During negotiations, GOI agreed to:
(a) provide to the Bank the report of its Committee examining powersupply arrangements for the Capital by July 31, 1987 (para 2.12);
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(b) furnish to the Bank by February 29f 1988, and thereafter implement, asatisfactory financial recovery plan for DESU (para 4.35); and
(c) require DESU to capitalize interest during construction.
6.03 During negotiations NTPC agreed to:
(a) enter into a coal supply contract at least one year prior to thecommissioning of the first unit of the proposed power station. Thecontract would be furnished to the Bank for prior review and comment(para 3.16);
(b) maintain its accounts receivable at a level not exceeding theproceeds of its power sales for the two preceding months (para 4.05);
(c) achieve annual rates of return on unrevalued net assets in operationsof not less than 7% through 1989/90, 9.5% in 1990/91 through 1994/95,and thereafter annual rates of return at levels satisfactory toensure the financial viability of NTPC (para 4.08); and
(d) submit to the Bank audited financial statements within seven monthsof the end of the financial year to which they relate, together witha certified report by the auditors and comments of the Comptrollerand Auditor General of India (para 4.12).
6.04 During negotiations, DESU agreed to:
(a) engage the services of NTPC for the design, engineering and construc-tion supervision of the 400-kV transmission lines and associatedsubstations (para 3.10);
(b) ensure that accounts receivable from electricity consumers do notexceed the equivalent of 4 months electricity sales in 1987/88;3 months in 1988/89 and 2.5 months thereafter (para 4.31);
(c) establish satisfactory arrangements for recovery of the Haryana StateElectricity Board's share of the costs of operating the Indraprasthapower Wtation (para 4.32);
(d) take ail measures necessary, including adjustments of tariffs, toensure that commencing with 1990/91 it achieves a minimum rate ofreturn of 3X after interest (para 4.35);
(e) submit unaudited and audited financial statements with the auditor'sreport for 1983/84 through 1987/88 according to a timetable accept-able to the Bank and, if necessary to achieve this, promptly engageconsultants to assist in the preparation of accounts (para 4.20);
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(f) submit unaudited and audited financial statement together with theauditor's report for 1988/89 and each subsequent financial year,within 6 and 9 months respectively of the financial year end (para4.20); and
(g) carry out the studies included in the proposed Project in accordancewith the following timetable:
(i) with the exception of the consultants that may be engaged toassist in the preparation of accounts, all consultants notalready appointed should be appointed by December 31, 1987;
(ii) the technical files management system should be designed andimplemented by December 31, 1988 (para 2.18);
(iii) the renovation and modernization program for the Indraprasthapower station shall be provided for review by the Bank byJune 30, 1988 (para 2.20); and
(iv) the recommendations from the consultants carrying out theorganization and management study should be reviewed with theBank by June 30, 1989; and by September 1, 1989, the imple-mentation of the agreed recommendations should commence inaccordance with an agreed timetable (para 2.13).
Recommendation
6.05 The proposed Project is suitable for a Bank loan of US$485 millionequivalent.
WA51CXAL CAPITAL em SUU gamy FROJ? - mUASE I
Electricity Generation. Sel end Pattern of lnetm Consumption - All India
India First DVC - B3karo - Konar 23 4/50 2/56 18.50 16.72 CompleteIndia Second DVC - Maithon - Panchot 72 1/53 6/58 19.50 10.50 CompleteTata Trombay Power 106 11/54 9/66 16.20 13.85 CompleteTata Second Trombay 164 5/57 9/66 9.80 9.66 CompleteIndia Third DVC - Purgapur 203 7/58 6/65 25.00 22.00 CompleteIndia Royna Power 223 4/59 4/65 25.00 18.70 CompleteIndia Pover Transmission 416 6/65 12/70 70.00 50.00 CompleteIndia Second Kothagudem Pover 417 6/65 12/70 14.00 13.97 CompleteTata Third Trombay Thermal Power 1549 4/78 12/84 105.00 42.04 CompleteIndia Ramagundam Thermal Power (*) 1648 1/79 12/86 50.00 42.19India Farakka Thermal Power (*) 1887 6/80 3/87 25.00 0.00India Second Ramgundam Thermal Power (*) 2076 12/81 6/88 300.00 125.13India Third Rural Electrification 2165 6/82 6/86 304.00 216.09India Upper Indravati Bydro 2278 5/83 6/91 156.40 .39India Central Power Transmission (') 2283 5/83 3/89 250.70 4.96India Indira Sarovar 2416 5/84 6/92 157.40 4.27India Second Farakka Thermal Power (*) 2442 6/84 12/91 300.80 6.71Tats Fourth Trombay Thermal Power 2452 6/84 6/90 135.40 35.12India Chandrapur Thermal Power 2544 5/85 12/92 300.00 24.63India Rihatd Power Transmission (*) 2555 5/85 12/89 250.00 23.31India Kerala State Power 2582 6/85 9/91 176.00 0.03India Combined Cycle (*) 2674 4/85 12/91 485.00 -
Total 3,194.20(Total Loans for NTPC Projects) (1,711.50)
IDA Credits
India Fourth DVC - Durgapur 19 2/62 12/69 18.50 19.88 CompleteIndia Second Royna Power 24 8/62 9/70 17.50 21.10 CompleteIndia Kothagudem Power 34 5/63 12/68 20.00 24.13 CompleteIndia Beas Equipment 89 6/66 6/74 23.00 26.32 CompleteIndia Second Power Transmission 242 4/71 3/77 75.00 72.93 CompleteIndia Third Power Transmission 377 3/73 9/78 85.00 85.00 CompleteIndia Rural Electrification 572 7/75 12/80 57.00 57.00 CompleteIndia Fourth Power Transmission 604 1/76 6/83 150.00 149.87 CompleteIndia Singrauli Thermal Power (*) 685 3/77 12/83 150.00 150.00 CompleteIndia Korba Thermal Power (*) 793 4/78 3/85 200.00 194.83 CompleteIndia Ramagundam Thermal Power (*) 874 1/79 12/86 200.00 200.00India Second Rural Electrification 911 5/79 3/84 175.00 171.75 CompleteIndia Second Singrauli Thermal Power (*) 1027 5/80 3/88 300.00 260.81India Farakka Thermal Power (*) 1053 6/80 3/87 225.00 208.58India Second Korba Thermal Power (*) 1172 7/81 12/89 395.09 250.37India Upper Indravati Hydro 1356 5/83 6/91 189.29 62.66India Indira 8arovar SF010 5/84 6/92 122.00 4.20Indii Indira Sarovar 1613 5/85 6/92 15.05 -
Total 2,425.43(Total Credits for NTPC Projects) (1,475.00)
(*) NTPC Projects.
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Annex 3.1Page 1 of 7
INDIA
NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I
Technical Description of the Project
National Capital Thermal Power Plant
1. The National Capital Thermal Power Plant is to be established nearDadri, Chaziabad District, Uttar Pradesh State. The steam power station willhave an ultimate capacity of 1800 MW and is to be built in two stages: afirst stage comprising four 210 KW units and a second stage with two 500 MWunits. Only the first stage is part of the proposed Project.
2. The power plant will consist of generating units with boiler plant,turbogenerator sets, ancillary electrical and mechanical equipment generatedat this power station over 220 kV/400 kV AC transmission system. The trans-mission lines required for power evacuation have already been provided underthe Rihand power transmission project. In fact the proposed power stationadjoins the receiving HVDC/AC substation of this transmission scheme. Fromthe Rihand receiving substation two outgoing 400 kV transmission lines willlink the power station to the proposed 400 kV transmission ring around Delhidescribed herein below.
3, The 210 MW turbines will be three cylinder, tandem compound condens-ing type on single reheat and regeIerative feed-water beating cycle. Initialsteam conditions will be 150 kg/cm and 535 degree centigrade. The gener-ators will be hydrogen cooled rated 235,000 kVA. The boilers will be naturalcirculation, multifuel (1001 pulverized coal-fired and 1001 oil-fired), drybottom, balance draft type using direct firing system. Each boiler will havea continuous evaporation rate of 670 tons per hour with a superheater outletpressure of 156 kg/cm' and 540 degrees centigrade. The feed water tempera-ture will be about 240 degrees centigrade. One 240 IVA three-phase trans-former will be provided for each 210 NW unit to step up its generation to 220kV. The power at 220 kV will be further stepped up to 400 kV by two 480 EVA,400/200 kV three-phase autotransformers and then connected to the 400 kVswitchyard which is being constructed to receive power from the Rihand powerstation through HVDC and to further evacuate it to the Delhi 400 kV ring.Under the NTPC part of the proposed Project additional transformationcapacity will be provided at the Karval Nagar and Ballabhgarh substations bymeans of two 315 MVA, 400/220 kV autotransformers at Karwal Nagar and oneautotransformer of same rating and characteristics at Ballabhgarh.
Annex 3.1Page 2 of 7
4. The proposed Dadri power station will utiLize coal from the PiparwarBlock of the North Karanpura Coalfield in Ranchi District, State of Bihar.The coal will be brought to the power station over the Indian Railway networkup to Dedri (approximate distance: 1200 km) and then to the power stationover an 8 km railway siding to be constructed. An alternative fuel oilsupply is envisaged to cater to the requirement for 100% fuel oil firingfacility for all four units at full load. Fuel oil storage capacity will beadequate for 10 days operation of the power station with 1002 fuel oil firingin all four units. The fuel oil will arrive at the power station in railwaytank wagons.
5. Sufficient water for a once through circulating cooling water systemis not available at Dadri throughout the year. A close cycle cooling watersystem with cooling towers has been adopted therefore for the proposed powerstation. Make-up water will be drawn from the Nat Branch Canal about 4 kmdistance and during the periods of canal closure for maintenance (3 to 4weeks per year) from the Hindon River about 25 km away from the plant area.
6. The salient features of the proposed power generation developmentare the following:
Boilers - Designed for full firing with either coal or fueloil.
Transfer of Coal - By means of "Unit Trains" with bottom-dischargewagons.
Cooling Water System - Close circuit cooling water system with coolingtowers. Alternative make-up water supply from theNat Branch Cancal or the Hindon River. Make-up waterwill be pumped through steel pipelines into anauxiliary reservoir located at the plant area.
Ash Handling and - The total ash generated by the four boilers will beDisposal conveyed to a disposal site about 1 km away from the
power station in a conditioned form to constructan artificial dry-ash mound which will then belandscaped. Bottom ash will be conveyed to the siteby belt conveyor while fly ash will be moved bypneumatic means.
Annex 3.1Page 3 of 7
Land Requirements - A total area of approximately 1000 ha is requiredfor the power plant, coal yard, switchyard, ashdisposal, and operators' housing facilities. A verylow percentage of the land at the selected powerplant site falls under semi-agriculture type; cherest is classified as barren non-agricultural land.
Pollution Control - Coal Dust: Fugitive dust from coal hauling areawill be controlled by spraying water at appropriatelocations.
- Ash: At the ash disposal area fugitive dust willbe controlled through water sprays. The compactedash mounds will be covered with a layer of fertilesoil and then seeded in stages.
- Emission: Ambient concentrations of S02 are to becontrolled by dispersal through a 225 m high four-flueconduit stack. Additionally, space will be providedfor flue gas desulphurization equipment should thatbecome necessary in the future.
- Electrostatic precipitators with an efficiency ofnot less than 992 will limit particulate emissionfrom flue gases to comply with current emissionstandards.
- Water: The power station will utilize a closedcircuit recirculating water cooling system withcooling towers; therefore, no thermal pollution willoccur. Liquid discharges from the plant will betreated as necessary. The demineralizer wastes,boiler blown-down, cooling tower blow-down, andboiler cleaning wastes will be neutralized. Theneutralized effluent along with coal storage arearunoff will be directed to a sedimentation basin.After sedimentation, the effluent will be dischargedinto the main plant drain.
Delhi 400 kV Transmission Ring
7. Delhi's anticipated electric power demand is forecast to reach 4000NU in fiscal year 2000/2001. To accommodate power demand of this order ofmagnitude a 400 kV ring around the city is being established with 400/220 kVsubstations at Karawal Nagar, Bawana, Bamnoli, and Ballabhgarh. These sub-stations will feed into the existing 220 kV Delhi Transmission Ring. The
Annex 3.1Page 4 of 7
400 kV transmission lines from Dadri to Karawal Nagar and to Ballabhgarh, aswell as the 400/220 kV substations at Karawal Nagar and Ballabhgarh, arsabeing constructed by the NTPC as part of the Rihand power transmitisionproject, while the Karawal Nagar-to-Bawana, Bawana-to-Bamnoli, andBamnauli-to-Ballabhgarh transmission lines and the 400/220 kV substationsat Bawana and Bamnoli will be constructed by DESU as part of the proposedProject.
8. Given the severe right of way problems in the city area the 400 kVring is conceived to take care of power requirements beyond fiscal year2000/2001 in the time frame of the transmission system useful life. Sincethe Dadri-to-Karawal Nagar and Dadri-to-Ballabhgarh lines are being builtwith quad-bundle configuration it was felt that provision of same configura-tion in the remaining sections of the 400 kV ring should also be adopted.
9. In order to inject power from the 220 kV Delhi transmission ring intothe city 66 kV subtransmission system at Karawal Nagar, Bamnoli, and Bawana,DESU will install 220/66 kV substations as part of the proposed Project.These substations are needed to take care of the expanding demand in theseareas of Delhi.
10. The DESU portion of the 400 kV ring and the complementary 220/66 kVsubstations will have the following characteristics:
All these lines will be double circuit quadruple blundle BERSIMIS ACSRconductor on self-supporting latticed bolted steel towers. Two 7/3.66 mmgalvanized steel ground wires will be used to protect the line against light-ing strokes. Since the transmission ring will be built on the outskirts ofthe city, anchor towers will be provided in larger numbers than forcross-country lines. Maximum span will be limited to 300 m.
11. The proposed Project includes the following studies:
(i) preparation of a Distribution Master Plan for Delhi;
(ii) feasibility study for retrofitting the combustion turbogeneratorsbeing installed at Rajghat with the addition of heat recoveryboilers and steam turbogenerators; and
(;ii) complementary studies to improve the availability of generating unitsat the Indra Prastha power station and to upgrade the powerplant's pollution control facilities to meet environmental standards.
Distribution Master Plan
12. The studies involved in preparing a distribution master plan aredirected at establishing the overall framework for the development of thedistribution system in the city of Delhi within a 15-year horizon. Inessence the studies will:
(i) review the existing planning and design concepts and developsuitable criteria oriented towards improved reliability of supplyand optimization of energy losses;
(ii) evolve the distribution development plan up to the year 2000/2001when the demand is expected to reach 4000 MW;
5iii) identify the distribution works and investment needed in a 5-yearinitial time-slice;
(iv) develop a plan to modernize DESU's operation and supervisory controland load dispatch centers in Delhi;
(v) review the existing training practices and prepare a plan toimprove training; and
(vi) review DESU's technical and commercial set ups and develop plansto upgrade their effectiveness.
Retrofitting of Combustion Turbines
13. DESU is installing six 30 MW combustion turbogenerators at the siteadjacent to the Indraprastha power plant. These units will be burning liquiddistillate fuel. Given the fact that the gas turbine units will be operatingin excess of 4000 hours per year and that the substantial power supply
Annex 3.1page 6 of 7
shortages are foreseen in the Northern Region of India in the coming decade,it seems desirable to study the feasibility of improving both the efficiencyand the capacity of this power station. This objective can be accomplishedby the installation of heat recovery boilers to use the gas turbines wastedexhaust heat and steam turbogenerators. A study would establish the economicand technical feasibility of the possible repowering scheme.
Complementary Studies for Indraprastha Rehabilitation
14. DESU is presently carrying out a number of rehabilitation work atIndrapastha; nevertheless additional work is required to fully rehabilitatethe power generating units. The complementary studies deal with: (a)renovation of the cooling water system, particularly cooling towers to meetenvironmental standards; and (b) the coal handling facilities. In additionthe studies will establish a detailed plan to carry out all rehabilitationwork.
Rehabilitation of the Badarpur Power Station
15. The main facility supplying the Capital Region power supply require-ments is the 720 KW Badarpur coal-fired power station near Delhi. This powerstation is currently being operated by NTPC although the facilities wereestablished by the Central Electricity Authority over a span of eight years(1973 to 1981). For different reasons, including inadequate design of majorcomponents, insufficient supply of cooling water, and supply of coal wellbelow originally designed for heating value, the power station's performancehas deteriorated to the point that major rehabilitation works are needed.NTPC has prepared a detailed rehabilitation plan of which some works havebeen,started. In essence the rehabilitation involves:
(a) replacement of plate superheaters in the boilers of the three100 MW units;
(b) provision of isolating dampers for PA fans in the boilers ofthe two 210 NW units;
(c) replacement of the coal pulverizer mills bottom for unitNo. 5 (210 MU);
(d) installation of new no-flow coal alarms in raw coal feedersfor the 210 MU units;
(e) replacement of coal pulverizer mills discharge valves for the210 MW units;
(f) installation of new coal pulverizer mill reject handling systemfor the 210 MW units;
Anne: 3.1Page 7 of 7
(g) provision of isolating gates before burner mouths for the210 NW units;
(h) modification/replacement of electrostatic precipitators for the100 MS units;
(i) installation of new control equipment for boilers of the 100 NWunits;
(j) replacement of steam control valves for the 210 NW units;
(k) installation of new instrumentation for the boilers of the100 MW units;
(1) installation of new coal handling plant;
(im) modification of ash handling system for the new electrostaticprecipitators in the 100 MW units;
(n) modification of the high pressure ash water disposal system forthe 100 MW units; and
NTPC's Financial Performance Indicators 4*02NTPC's Consolidated Income Statements 4.03NTPC's Balance Sheets 4.04NTPC's Statement of Sources and Application of Funds 4.05NTPC's Financing Plan 4.06NTPC's Projected Regional Tariffs versus
Long-Run Marginal Costs (LRMC) 4.07NTPC's Rate of Return on Net Revalued Assets 4.08STPC's Investment Program 4.09Assumptions for NTPC Financial Projections 4.10DESU suggested Terms of Reference of
Consultants For: 4.11A. Bringing Accounting Work Up to DateB. Implementation of the Commercial Accounting SystemC. Organization and Management Study
DESU's Income Statements 4.12DESU's Balance Sheets 4.13DESU's Sources and Application of Funds Statements 4.14Assumptions for DESU's Financial Projections 4.15
NATIUIAiL I0hL PE CWIOTII LIIHTENATIUS CWITAL PEER 911Y M T N I
1. The financial statements in this report reflect NTPCts financialposition and operations for the period FY77 through FY96, and consist of:
(a) income statement (Annex 4.3) with supporting statementsand schedules of tariffs compared to Long-Run KarginalCosts (Annex 4.7), rates of return on net revalued assets,(Annex 4.6), and scheduled commissioning of power plants(Annex 2.2);
(b) statement of source and application of funds (Annex 4.5) withsupporting financing plan (Annez 4.2), and investment program(Annex 4.1); and
(c) summarized balance sheets as at March 31st of each year(Annex 4.4).
2. PY83 through FY86 data reflect actual operating results, while thefinancial projections for FY87 through FY96 are based on the followingassumptions:
ANNEX 4.10Page 2 of 7
(a) Stabilization of Power Generation:
Operating GWhs/MW GWhs/UnitHours/year per year per year
200 NW UNITS: - First 6 months : 2500 2.5 500- Next 6 months : 4000 4.0 800- Second year : 5500 5.5 1100
210 NW Units: - First 6 months : 2500 2.5 525- Next 6 months : 4000 4.0 840- Second Year : 5500 5.5 1155
500 KW Units: - First unit commissioned at each station
- First year : 2500 2.5 1250- Second year : 4000 4.0 2000- Third year 5000 5.0 2500- Fourth year 5500 5.5 2750
500 NW Units: - Subsequent units of each station
- First year 2500 2.5 1250- Second year : 4000 4.0 2000- Third year : 5500 5.5 2750
CTG 100 NW - From comissioning 5500 5.5 550
Combined Cycle(CTG + STG) - First Year : 4000 4.0 400300 NV - Second Year : 5500 5.5 550
ANNEX 4.10Page 3 of 7
(b) Fuel Costs:
Northern RegionSingrauli Rihand Muradnagar
Coal: 200 & 210 KW Units- Calorific Value (Kcal/Kg) 4900 N/A 3200- Heat Rate (Kcal/KWh) 2131 N/A 2043- Boiler Efficiency Z 87.49% N/A 87.521- Kgs per KWh 0.4971 N/A 0.7295- Price per ton-Re 231.40 N/A 312.15- Cost per GWhs Base Cost 1985 0.1150 N/A 0.2277
Coal: 500 NW Units- Calorific Value (Kcal/Kg) 4900 4000 N/A- Heat Rate ([cal/KWh) 2016 2027 N/A- Boiler Efficiency Z 86.63Z 87.00X N/A- Kgs per KWh 0.4749 0.5825 N/A- Price per ton-Rs 231.40 147.78 N/A- Cost per GWh: Base Cost 1984 0.1099 0.0861 N/A
Fuel Cost Factor to include Oil 120.0X .120.0% 130.01
SouthernWestern Region Region
Korba Vindhyach Ramagundam
Coal: 200 & 210 MW Units- Calorific Value (Kcal/Kg) 3200 4350 4500- Heat Rate (Kcal/KWh) 2043 2150 2014- Boiler Efficiency 1 87.521 86.491 88.602- Kgs per KWh 0.7295 0.5715 0.5051- Price per ton-Rs 112.84 147.78 258.07- Cost per GWh: Base Cost 1985 0.0823 0.0844 0.1304
Coal: 500 NW Units- Calorific Value ([cal/Kg) 3200 N/A 4500- Heat Rate ([cal/KWh) 2016 N/A 2033- Boiler Efficiency Z 86.69% N/A 87.28Z- Kgs per KWh 0.7267 N/A 0.5176- Price per ton-Rs 112.84 N/A 258.07- Cost per GWh: Base Cost 1984 0.0820 NIA 0.1336
Fuel Cost Factor to include Oil 130.0% 120.01 120.01
AU 4.10Page 4 of 7
Eastern RegionFar4kka Xahalgeon Talcher
Coal: 200 & 210 MW Units- Calorific Value (Kcal/Kg) 3200 3200 N/A- Heat Rate (Kcal/KWh) 2020 2150 N/A- Boiler Efficiency 1 87.16Z 86.49Z N/A- Kgs per KWh 0.7242 0.7768 N/A- Price per ton-Re 120.05 120.50 N/A- Cost per GWh: Base Cost 1984 0.0869 0.0933 N/A
Coal: 500 MW Units- Calorific Value (Kcal/Kg) 3200 N/A 2800- Heat Rate (Kcal/KWh) 2027 N/A 2060- Boiler Efficiency Z 86.69X N/A 87.00X- Kgs per KWh 0.7307 N/A 0.8456- Price per ton-Re 120.05 N/A 78.00- Cost per GWhs Base Cost 1984 0.0877 N/A 0.0660
Fuel Cost Factor to include Oil 130.01 130.0 130.01
Northern & Western RegionsGas Based Stations All Reaions
Combined C cle Coal-FiredcTC (CG STG) New Projects
1000 Nmr-Rs 1800.00 1800.00 201.86- Cost per GWh: Base Cost 1985 0.5634 0.4044 0.1252
Coal: 500 KW Units- Calorific Value (Kcal/Kg) - - 4520- Heat Rate (Kcal/KWh) - 2027- Boiler Efficiency Z - - 87.002- Kgs per KWh - - 0.5155- Price per ton-Rs - - 201.86- Cost per GWh: Base Cost 1985 - - 0.1041
Fuel Cost Factor to include Oil - - 130.0%
ANMEU 4.10Page 5 of 7
The escalation rates applied to the above base 1985 fuel costs forcalculating cost increases and tariff fuel surchaiges were are set out in(c) below.
(c) Escalation Factors
The financial projections and project costs are based on 1986 pricesescalated at the Bank's price escallation factors for the foreign and loalcomponents. The turbo-generators and boilers are, however, subject to thefollowing maximum price escalation from the date of order:
Singrauli 200 NW units - 252Korba, Ramagundam, Parakka, and other 200/210 MS units - 20X(In the case of Vindhyachal (210 KW units) fixed-price contractsapply)500 MW units for all projects - 152 Turbo-generators
- 2O0 Steam-generators
Physical contingencies
Civil works - 10 of construction costsEquipment - 52 of equipment costs
(d) Operations & Maintenance Expenses
Power stations - 2.52 on original cost of 200 MW plant- 2.02 on original cost of 500 MS plant
Transmission & satellitecommunication network - l.O on original cost
(e) Depreciation
Power stations - 3.52 on original cost of plantTransmission & satellite
communication network - 2.62 on original cost
(f) AuxilliaEZ Consumtion
Auxilliery power consumption for station use has been assumed at 1O0for 200/210 KW units and combined cycle ges/stem units 2.52, and 82 for500 NW units.
(g) Tariffs
Tariffs have been determined from the formulae of the Regional bulksupply contracts which provide for:
ANNEX 4.10Page 6 of 7
(i) fuel costs with an automatic fuel price adjustment clause;
(ii) depreciation applied to capital costs escalated to currentcosts;
(iii) operations and maintenance costs based on capital costs forpower plants and transmission facilities, escalated to currentcosts;
(iv) loan interest at the prevailing GOI interest rate (currently14X) on estimated balance of loan principal outstanding;and
(v) return on equity at 10X.
(h) Capital Reguirements
(i) Other capital requirements would met by NTPC's internal cashgeneration combined with GOI advances in the form of equity andshare capital subject Fo the condition that unpaid loans, atthe end of each year, does not exceed share capital andretained earnings. Equity capital advances would precede GOIloan funding, except for Bank Loans 2555-IN and 2674-IN, andthe Bank loan for the proposed Project.
(ii) QO! loans (including the onlending of the proposed Bank loanand previously approved credits and loans) are assumed tofinance projects included in NTPC's investment program.Interest on loans up to the date of commissioning of each unitwould be capitalized, while subsequent interest would becharged to Revenue. Repayment of principal is assumed in 30semi-annual installments commencing on the first anniversaryfollowing the end of the five-year grace period. The totalloan drawdown for each year, and for each project, is assumedas a separate GOI loan for purposes of loan repayments.
(i) Balance Sheet
(i) Cash is assumed at 10 days operating expenses less depreciation.
(ii) Accounts receivable are assumed at a level of equivalent totwo months total operating revenue for FY87 and for each yearthereafter.
ANNEX 4.10Page 7 of 7
(iii) Inventories are assumed at a level equivalent to 15 days coalcosts (including fuel surcharge), 60 days oil costs, 1.5 yearscosts of spares requirements, and 6 months costs of chemicalsand lubricants.
(iv) Loans and advances are assumed at 1S of annual revenue,Rs 15 million, an added Rs 2 million per year to provide forloans to officers.
(v) Other current assets are assumed to be a constant figure of 4million each year.
(vi) Current liabilities are assumed at 1X of annual fuel costs,15 days of salaries, 21 of annual operations and maintenancecosts, loan principal repayments projected for the subsequentsubsequent year, and one month's average yearly capitalexpenditure.
AINEX 4.11Page 1 of 6
NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I
DELHI ELECTRIC SUPPLY UNDERTAKING
Suggested Terms of Reference of Consultants for:
A. Bringing Accounting work up to dateB. Implementation of the Commercial Accounting SystemC. Organization and Management Study
A. BRINGING THE ACCOUNTING WORK UP-TO-DATE
Background
DESU's accounting work is in arrears. Audited financial accounts are avail-able only for the years up to FY'81. Accounts for FY'82 and FY'83 have beensubmitted to the Chief Municipal Auditor. It is proposed to hire consultantsas may be necessary to assist in bringing the accounting work up-to-date.
dbjective
The objective of the consultants assistance is to accelerate the process ofcompilation/finalization of DESU's accounts for FY'84, FY'85 and FY'86. Theconsultants will, in consultation with the FA and CAO of DESU identify the"arrears of work" in respect of accounts for each of the three years in thefield offices and at headquarters and prepare a program of work with a viewto completing the accounts according to a timetable agreed with the Bank.
Scope of Work
The consultants will form Teams or Task Forces on which DESU will alsoappoint its accounting staff to work in such districts/revenue office orheadquarters of other offices as may be necessary. The number and composi-tion of such teams, their scope of work and time tables for completion ofvarious items of work will be decided by DESU's PA & CAO.
ANNEX 4.11Page 2 of 6
B. IMPLEMENTATION OF THE COMMERCIAL ACCOUNTING SYSTEM
Objective
The objective of the study would be to assist DESU in implementing a Commer-cial Accounting system (CAS) by:
(i) training of Finance and Accounts Staff, at all Accounting Unitsincluding Head Office, for the CAS;
(ii) post implementation assistance, supervision and review of the CAS;and;
(iii) assistance in closing the books of accounts and compiling annualaccounts for the first two years after the System is fullyimplemented.
Scope of Work
The scope of work for introduction of Commercial Accounting System, trainingand post implementation review would include:
(a) formal classroom training for existing staff at Head Office andother accounting units;
(b) preparation and supply of the materials needed for training;
(c) visits by the Consultant's staff to accounting units at periodicintervals to review the progress in implementation of the systemand to give guidance as needed;
(d) recommend amendments in the procedure as a result of experiencegained during training an initial implementation period.
Terms of Reference
(i) Prepare with DESU a detailed program for implementation of the CAS,including a training schedule;
(ii) Review and adjust, if necessary, the organization and staffing ofthe Accounting Wing of DESU. This part should be carried out inclose coordination with the Management and Organization consultants;
(iii) Design and discuss with the FA & CAD of DESU the procedures,formats, forms, etc. to be implemented. To the degree possible,the Consultants should make use of the existing forms and
AM=EX 4.11Page 3 of 6
procedures, or simplification thereof, which are satisfactoryand meet with the requirements of the CAS;
(iv) Provide formal classroom training to the DESU Finance and AccountStaff on the proposed CAS;
(v) Make periodic visits as needed and as agreed with DESU to theAccounting Units during CAS implementation to review the progressand to give on-the-spot guidance and advice;
(vi) Ensure that forms and registers recommended for use are properlycompleted and that procedures laid down in the areas of financialaccounting and information systems are properly followed;
(vii) Assist DESU Accounting Staff in closing of Accounts for thefinancial years ended March 31, 1987 and 1988;
(viii) Prepare quarterly progress reports on the implementation of CAS andhelp in preparing special reports, as required by DESU;
(ix) Furnish reports discussing implementation as well as further stepsto be taken where progress is tardy or unsatisfactory;
(x) At the end of the training and implementation assignment, furnisha report describing matters that require continuing attention; and
(xii) Maintain at all times a proper liasion with whatever Consultantsare appointed by DESU for (a) computerization of Accounting andother records, and (b) the Organization and Management study.
C. ORGANIZATION AND MANAGEMENT STUDY
ObjectiveThe objective of the Study would be to:
(i) Recommend suitable and effective organization and managementstructure, policies and practices to enable DESU to perform itsfunctions based on DESU's current responsibilities and growthprojected for the period FY'87 to FY'95;
(ii) Recommend a staffing pattern and training program based onconsiderations of optimized staff size and on making maximumuse of DESU's existing staff for the period FY'87 to FY'95;
ANNEX 4.11Page 4 of 6
(iii) Review the existing internal systems and procedures, rules andregulations, and reporting, both technical and financial, with aview to streamlining delegation of responsibilities, lines ofcoDmunications,.and flow of information;
(iv) Develop a suitable Management Information System (MIS) aimed ateliminating unneceisary data gathering while producing reports whichprovide necessary information; and
(v) Assist DESU in the implementation of the proposed recommendations.
Scope of Study
(i) Review the existing organization and management structures of DESUand recommend changes where necessary keeping in view the futuregrowth requirements of DESU for next ten years;
(ii) Analyse the structure of all major functional units taking intoaccount their tasks and their inter-organizational relationships;
(iii) Assess the staffing pattern, training requirements and recruitmentschedule in order to determine and classify the various postsrequired for DESU as a whole and for the functional unitsindividually;
(iv) Review the structure and activities of DESU's commercial andfinancial departments to assure their appropriateness and efficientoperation;
(v) Propose the organization structure, staffing and procedures for aninternal audit unit;
(vi) Prepare reporting systems for operation management, planning, andproject monitoring; and assist the Project Office in establishing anadequate monitoring and reporting system during project execution;
(vii) Prepare a program for implementing those changes andrecommendations that are agreeable to DESU and assist DISUin carrying out the program
(viii) Design a Management Information System$ and
(ix) Coordinate with concerned staff and electronic data processingconsultants for computerizing the Managoment Information Systemprocedures.
AUNU 4.11Pag 5- of 6
Terms of Reference
The Consultants will in particular:
(a) Analyze the weaknesses in the present organization structure, ifany, and would suggest alternative organization proposals, keepingin view:
(i) the purposes and objectives of the organization;
(ii) functional areas to be covered;
(iii) specialization and division of work;
(iv) line and staff functions and span of control; and
(v) extent of centralization and decentralization needed.
(b) Prepare a staffing proposal based on the recommended organizationstructure, and assess the extent to which the existing staff canfulfill the required functions and duties, identifying the staffingrequirements on yearly basis.
(c) Review the present training arrangements and make recommendationsfor improvements in DESU's training program to make it morecompatible with DRSU's current and future needs.
(d) Prepare complete job specifications and job manuals setting outsuitable qualifications and experiences for various categories ofemployees.
(e) Analyze the current information systems and recommend MIS which willinculde inter alias:
(i) Information to be collected, where, when and by whom;
(ii) Design of various reporting formats for different functionaldepartments including construction, generation, transmission,distribution, financial, com_rcial, personnel, statisticaland administrative;
(iii) Flow of reports;
(iv) Procedure for synthesis and analysis of reports;
(v) Procedure for follow-up actions;
AMNEX 4.11Page 6 of 6
(vi) Suitable structure for the Internal Audit; and
(vii) Comprehensive review of organization, practices andprocedures used by DESU's commerciaLband financialdepartments.
(f) The report shall recommend procedures as needed for assessment ofdemand; purchase of stores - both capital and maintenanceindicating the stages (indenting, calling of tenders, awarding ofcontracts etc.) scope and feasibility of centralized anddecentralized purchases; inventory control procedures; and fixationof maximum, minimum and reorder levels.
(g) Review the administrative procedures and internal control systems,rules and regulations in effect at DESU and suggest improvements.The areas to be covered by the review would include, but be limitedto, establishment procedures, adequacy and direction ofcommmunication flow and gaps therein, inter-departmentalrelationships, duplication of actions and prepare theImplementation Schedule for various recommendations andassistance required during implementation.
(h) Assist DESU in the implementation of the recommendations.
INDIANATIONL CAPITAL PowR SWi'Ly PROJECT PAS I
DELNI ELECTRIC SUPPLY UERTAINE A 12ACTUAL AN FORECAST INC1 STATENTS ---
1. The financial projections are based on the electricity sales forecastfor DESU as estimated by the Twelfth Power Survey completed by GOI in 1985.The forecast was adjusted during appraisal in consultation with DESU to takeinto account the most recent sales data. The sales forecast shows that a 101-er annum average growth rate is anticipated for FY'86 to FY'95. Systemlosses are assumed to decline to 191 in FY'87 from 22X in FY'86 and to remainconstant at 18% in the forecast period.
2. The financial projections reflect the financial strengtheningmeasures for DESU to be undertaken by GOI and DESU. Detailed assumptions forthe various projections are given below.
(a) Income Statement
(1) Sales of Electricity reflect the revenue earned from GWh sales attariff rates adequate to earn at least 3% surplus beginning with FY'91 asstipulated in the Financial Recovery Plan.
(2) Fuel Surcharge is the revenue earned by DESU to compensate forincreases in fuel prices and purchased power during the projection period.It is assumed that GOI would approve DESU's proposal that the fuel surchargewould apply to all categories of consumption and this would be implementedgradually from FY'88 through FY'90. Presently, this surcharge is applicableto large industrial consumers, non-domestic HT consumers, NDMC and MRS whichaccount for about 45% of consumption.
(3) Central Excise Duty was abolished by GOI as of October 1, 1984.
(4) Purchase of Power is based on DESU's power requirement in _zcess ofits own generation. The purchase cost is based on the price per kWh fromeach source. The cost of power obtained from Bairasuil Hydro is escalated at2.5% per annum and the cost from thermal sources (including Badarpur,Singrauli and other thermal stations) at 8% per annum. These escalationfigures were adopted by DESU in consultation with CEA and the mission.
AM=EX 4.15Page 2 of 4
(5) Fuel costs are based on DESU's actual fuel prices in first quarterFY'87 and on the quantity of eachl fuel consumed by DESU's generation plants.The large increase in fuel costs in FY'87 over FY'86 reflects the cost ofhigh speed diesel fuel for gas turbines which became operational in April1986. The escalation rates adopted by DESU given below were prepared inconsultation with CEA and are considered reasonable.
Assumed escalationper annum
Cost in forecast period
coal Rs 525 per M.T. 81furnace oil Rs 3,411 per kilolitre 2.5Xgas (high speed Rs 3,461 per kilolitre 2.5%
diesel fuel)
(6) Staff costs and other expenses are assumed to escalate at 10 perannum.
(7) Operation and Maintenance costs are estimated to be SS of gross fixedassets at the beginning of the fiscal year.
(8) Depreciation is assumed to be 3X of gross fixed assets at the begin-ning of the fiscal year.
(9) Interest expenses are related to new borrowings (i.e. 112 for all GOIloans including the on-lent Bank loan). It is assumed that all outstandingdebt at March 31 1986 is converted to perpetual loan and that D8SU paysinterest of 11X on half of the amount converted. Interest is assumed capi-talized in respect of the Bank project and new generation investment but notfor subtransmission and distribution schemes which are assumed to be com-pleted in less than one year.
ANNEX 4.15Page 3 of 4
(b) Balance Sheet
(1) Gross fixed assets and work in progresa are based on historical costsand DESU's investment program.
(2) Cash is assumed at one month's operating expensee less depreciation.
(3) Inventories are estimated at 51 of total fixed assets.
(4) Accounts Receivable for electricity sales are assumed to ba theequivalent of three months sales revenues in FY'87 and FY'88; 2.8 months inFY'89 and 2.5 months thereafter. It is assumed that the outstanding amountsdue from N.D.N.C. and MCD are settled in FY'87.
(5) Accounts Receivable (others) are assumed to increase at 10X per annumfrom FY'87 onwards. It is assumed that the outstanding amount owed by HSEBto DESU is settled in FY'87.
(6) Accumulated Losses are assumed to be cleared in FY'87.
(7) GOI Equity/Perpetual Loan in FY'87 represents adjustments made in accord-ance with the planned financial strengthening of DESU. The outstandingamount of GOI loan and accrued interest thereon is converted into equity andadjustments are made for waiving of accounts payable to Badarpur power sta-tion, clearing of accumulated losses, sentlement of accounts receivable andother changes in working capital in FY'87. It is assumed that furtherinvestments will be financed 501 by debt and 502 by internal sources and newequity injection from GOI.
(8) Long Term Debt as of March 31, 1986 is assumed to be converted toequity/perpetual loan. It is assumed that further investments would befinanced as stated in para 7.
(9) Accounts Payable-Power Purchase are assumed to be maintained at alevel of 2.5 months of power purchase costs from FY'87 onwards. It isassumed that accounts payable for power purchases from Badarpur power stationas of March 31, 1986 are waived in FY'87. Plan.
(10) Other Current Liabilitie' Are assumed to increase at A `' -or annumfrom FY'87 onwards. It is assumed that the outstanding amounu of interestpayable &s of 31 Narch 1986 is converted to equity/perpetual loan.
(c) Sources and Application of Funds
(1) The proposed IBRD Loan is assumed to be on-lent from GOI to DESU witha repayment term of 20 years including a 5 year grace period at an interestrate of 11X per annum.
ANNEX 4.15Page 4 of 4
(2) The GOI Loans are assumed to be lent to DESU with a repayment periodof 15 years at an interest rate of 11.
(3) The Capital Expenditure program prepared by DESU and reviewed by themission is based on 1986 cost estimates and incorporates the Bank's priceescalation factors for the foreign and local cost componants.
(4) The debt service obligations of DESU reflect the expectation underthe financial strengthening plan that the outstanding amount of loans andinterest payable at March 31, 1986 would be converted to perpetual loan.
1. As described in Chapter 5, the proposed Project forms an integralpart of the expansion program for the Northern Region and, therefore,cost-benefit analysis needs to be carried out on the program as a wholerather than on the Project in isolation. A time-slice of the NorthernRegion's investment program has, therefore, been analyzed. Capital cost,incremental operation and maintenance, incremental fuel cost and benefitstreams for the Northern Region are shown in Table 1. Assumptions underlyingthese figures are detailed below.
Capital Costs
2. Anticipated capital expenditure on generation at financial prices hasbeen converted to economic prices by (i) expressing the imported content atcif prices; (ii) valuing unskilled local labor at 0.75 of the market wagerate; and (iii) applying the estimated standard conversion factor, 0.8, tolocal costs. Transmission and distribution capital expenditures have beenestimated at 5QX of generation expenditure.
Operation and Maintenance Costs
3. Incremental annual operating and maintenance costs have beenestimated as the following percentages of capital value: coal-fired gener-ating plant 2.5%; combined cycle and gas turbine 2Z; hydroelectric 1.13%; andtransmission and distribution 1.0X.
Fuel Costs
4. Average fuel consumption of new coal-fired plant has been estimatedat 0.61 kg/kWh. The economic cost of coal at the pit head has been estimatedat Rs 164/ton. The economic cost of delivering coal to load center stationshas been estimated at Rs 0.54/ton mile. The economic cost of gas has beenestimated at Rs 1,800/MCM and specific consumption at 0.225 CM/kWh.
Case 1. Benefits
5. Case 1. benefits are based solely on incremental revenue at existingtariff levels. These allow for system losses which are assumed to remainconstant at 20% of net generation in the Northern Region. The average tariffin financial terms is Rs 0.60/kWh. After application of the standard conver-sion factor (0.8), this represents Rs 0.48/kWh in economic terms.
ANNEX 5.2Page 2 of 3
Case 2. Benefits
6. In Case 2, the benefits of incremental consumption include elementsof consumers' surplus for both industrial and agricultural consumers,Surplus has been imputed at half of the difference between the average tarifffor each category and the alternative costs of autogeneration for industrialconsumers and diesel pumping for agricultural.
7. The cost of industrial autogeneration has been estimated as follows:
Purchase price (incl. installation) Rs 4,300/kWLife of set 15 yearsAverage utilization 302Discount rate 122Operation and maintenance cost Rs 215/kW per annumFuel and lubricant Rs 0.80/kWhAverage cost Rs 1.12/kWh
8. The cost of electricity which would equate the cost of electricalpumping with that of diesel is calculated as follows:
Electric Diesel
Motor/engine size 5.0 HP 7.0 HPLife Years 15.0 10.0Investment Cost Rs 4,000 Rs 10,250Cost of diesel/hr Rs 4.82
1. Feasibility Report for the National Capital Thermal Power Project,National Thermal Power Corporation Ltd., New Delhi, March 1986.
2. Report on the Renovation and Modernization Scheme for Badarpur ThermalPower Station, National Thermal Power Corporation Ltd., New Delhi.
3. Project Feasibility Report for the 400-kV Ring, Delhi Electric SupplyUndertaking, New Delhi, November 1985.
4. Draft Environmental Impact Assessment for the National Capital ThermalPower Project, National Thermal Power Corporation Ltd., New Delhi, March1985.
5. Report of the Committee set up by the Planning Commission to study theaspect of rail transport of coal to Muradnagar Thermal Power Station,Planning Commission, Government of India, New Delhi, February 1986.
6. Techno-Economic Justification Studies for the National Capital PowerProject, Central Electricity Authority* New Delhi, April 1866.
7. Sectoral Data for World Bank Appraisal, Central Electricity Authority,New Delhi, March 1986.
8. Project Detailed Cost Estimate - COMPASS, May 19, 1987.
IBRD 19611PAJOSTN'J *1 ~~~~~~~~~~~~~ ~~~ INDIA 77'401
s *Dent[:hi. NATIONAL CAPITAL POWER 7ProjeCt Aea -28-4928'40' SUPPLY PROJECT
B&NNGDIESH PHASE I
PROPOSED: . 0 1 2 3 4 5INDIA EZZII ~~~~~~~~~~Power Plant Site I I
