Romania - Turceni Thermal Power Project

Report No. 391a-RO FILE Appraisal of b the Turceni Thermal Power Project Romania June 17, 1974 Europe, Middle East and North Africa Region Power and Energy Development Division Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUZVALE7.TS - 1/ Lei 20 = US$1.00 Lei 1 US$0.05 Lei 1 million US$50,000 WEIGHTS AND MEASURES Nm 3 cubic meter at normal temperature and pressure kWh = kilowatt hour = 860 kilo calories (kcal) MW = megawatt GWh = gigawatt hour kV = kilovolt km = kilometer = 0.6 mile billion 109 Btu = British thermal unit = 3.9685 kilo calories mill US$0.001 ABBREVIATIONS AND ACRONYMS MEE = Ministerului Energiei Electrice (Ministry of Electrical Energy) CIEET Centrala Industriala A Energiei Electrice Si Termice (Industrial Central for Electric Power and Heat) SCM = Santier Constructu Montaj (Distribution Construction Department) ISPE = Institutul De Studii Si Proiectari Energetice (Design Institute for Thermal Studies) TEC = Trustul Energo Constructia (Thermal Construction Trust) TENM = Trustul Energomontaj (Electro-mechanical Construction Trust) TEM = Trustul Electromontaj (Transmission and Substation Construction Trust) Rornenergo = Foreign Trade Procurement Enterprise I.B. = Banca De Investitii (Investment Bank) Romania's Financial Year - January 1 to December 31 1/ Assumed rate for this report - official rate is lei 4.97 = US$1.00 (see Para. 2.07) Power and Energy Development Division  APPRAISAL OF THE TURCENI THERMAL POWER PROJECT ROMANIA TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS . ...................... . * . . i-ii 1. INTRODUCTION ................. . , ....... 2. THE COUNTRY AND THE ECONOMY . ........... .... ....... 1 The Country ........................ 1 The Economy e-9.0.00-00.00.0... 2 Energy Resources ... ... . . . . . . . . . . . ........... . .. ..... . .. 3 3. THE SECTOR .................................... Organization of the Power Sector ... ....oo ...... 5 Legislation ........-o ................................... 6 Management and Mlanagement Systems ................. 6 Insurance . . . . . . .oo. o. . . . .... . .. . .. .. . O. . .... . . . . . . O7 The Electric Power Market ......................... 7 Tariffs .......... -- -............ .... .... 7 Financing of the Sector ..... ........-....... -.. 7 Existing Power Facilities ..... .................... 9 Development Program ........ . . . . . ....... ...... ....... .. . 10 Village Electrification ......... - ........ ....... 11 4. THE PROJECT ..o .... o ... o.oo........................... 11 Description o........................oo o... .... .... ..o... .* 1t Cost Estimates ... o... ......0......0.................... ...... 11 Procurement ... o........0.00.. ..................** 13 Insurance ... ....- - ... .. ... * - ...... 14 Disbursements . .o. . ... .. . ... ..0 .......... 14 Engineering and Construction .............. o...... 14 Ecological Aspects .............. ..... ....... ........ 16 This report has been prepared by Messrs. J.N.M. Green (engineer), P.A. Cordukes (financial analyst), I. Hume (economist) and S. Brealey (mining consultant). It is based on information obtained by a mission to Romania in November 1973.  TABLE OF CONTENTS (Cont'd) Page No. 5. JUSTIFICATION .....*..... *................ 17 Load Growth . 17 Comparison of Alternatives ....................... 17 Economic Rate of Return ... ............. . . . . . . . . . . . . 18 6. FINANCIAL ASPECTS .......... . . . . ............................... 19 Sunmary ....... ..*......... ... 0........00*0..0000*... 19 Past and Present Financial Aspects .... ........... 19 Financing Plan ....... ....O..* ............ 20 Future Financial Position ........................ 22 Audit ......... ...... 23 7. AGREEMENTS REACHED . ............................. . 23 ANNEXES 1. Extracts from Government Decree on Conserving Fuel and Energy 2. Mining Aspects of the Turceni Power Project 3. Organization Chart - Ministry of Electrical Energy 4. Organization Chart - Industrial Central for Electric Power and Heat 5. Typical Organization Chart for a Generation Enterprise 6. Decree of the Council of Ministers Establishing the Turceni Enterprise 7. Tariffs 8. Electric Power Sector Planting History and Forecast 9. Electric Power System Capability and Maximum Demand 10. Project Cost Estimate 11. Schedule of Equipment and Materials Suitable for International Competitive Bidding 12. Estimated Schedule of Disbursements 13. Comparison of Alternatives 14. Economic Rate of Return 15. The Accounting System 16. Income Statements for the Years 1970-1980 17. Balance Sheets for the Years 1970-1980 18. Sources and Applications of Funds for the Years 1970-1980 19. Notes and Assumptions on Financial Statements MAPS Electricity System (IBRD 10830) Turceni Thermal Power Station Project (IBRD 10831)  APPRAISAL OF THE TURCENI THERMAL POWER PROJECT ROMANIA SUMMARY AND CONCLUSIONS i. This report appraises a 1320-MW lignite fired thermal power station project for the Government of Romania. Units will be of 330-MW size and are scheduled to be commissioned at 6 monthly intervals in the period September 1977 to March 1979. Turceni is approximately 200 km west of Bucharest in the province of Oltenia, the lignite deposits of which are to be exploited. Ap- proximately 600 km of 400-kV and 110-kV single circuit transmission lines and a switching station are to be built to complement the station. The total cost of the project is estimated at US$353.5 million equivalent excluding in- terest during construction towards which a loan of US$60 million, i.e. 67% of the direct foreign exchange cost of about US$89 million equivalent, is proposed. Equipment and materials for the manufacture of the plant and incorporation at the site would be purchased under the loan. The project represents about 8% of the total construction requirements of the Romanian power sector during the period 1973-1979. ii. Lignite mines and rail links with Turceni are being developed by the Petrosani Coal Enterprise for the Ministry of Mines, Oil and Geology and are not part of the project. iii. Demand for electrical energy has been rising rapidly over recent years largely due to rapid industrialization. The annual rate of growth of demand for power is expected to be in excess of 12% to 1976 and thereafter to decline to 9.4% through 1980. The interconnected system annual peak is expected to reach 13,800 MW by 1979 when the project will be fully commissioned. iv. The Project introduces advances in technology in that the manufac- ture of the boilers, turbines and generators for the power station is to be undertaken in Romania through the purchase of licenses from suppliers of proven designs. Similarly, the development of the lignite mines (though not part of the Project) involves the manufacture of bucket-wheel excavators under license from an established manufacturer. v. The loan would be made to the Investment Bank with the guarantee of the Government of Romania. The Turceni Enterprise will execute the Project with the technical assistance of Romanian design institutes, while the civil works and erection will be arranged with the construction trusts of the Ministry of Electrical Energy. Romenergo, the Ministry's foreign trade enterprise will coordinate the procurement. The items to be financed by the Bank are all to be subject to international competitive bidding under the Bank's guidelines for procurement. Romanian suppliers may, but are not expected to, compete.  - ii - vi. The power sector 1973-79 expansion program, expected to require about US$4.4 billion equivalent, would be financed 46% from internal cash generation, 52% from state budget allocations and 1% each by the Investment Bank and the IBRD. The financing plan is an integral part of the national socio-economic plan. Should the program be changed or the level of internal cash generation vary, state budget allocations would be altered accordingly to meet the needs of the plan. Though the proposed Bank loan is a small part of the total sector requirements, it will meet the foreign exchange cost of most of the equipment and materials suitable for international competitive bidding required for the Turceni project. vii. The Industrial Central for Electric Power and Heat (CIEET) is re- sponsible to the Ministry of Electrical Energy (MEE) for the control, super- vision and financial planning of the enterprises which generate and distribute electric power in Romania. The financial accounts and forecasts of the Indus- trial Central indicate an acceptable financial performance would be maintained by the sector. A recent Government Decree imposing restrictions on the consump- tion and use of energy and an overall review of tariffs and prices is not ex- pected to change the present position because of the total integration of sector finances with those of the State. No specific financial covenants have been agreed but provision has been made for an exchange of views between the re- presentatives of the Bank and the Romanian power sector on financial and econ- omic information to be furnished relevant to the project and its impact on the power sector. viii. Insufficient data in support of the specific thermal alternatives to the Turceni Project investment decision was given. Nevertheless consider- ing the available fuel resources, the plant size and the growth of demand for power in Romania, the decision to build the Turceni power station is judged to be sound. The economic return on the project is expected to be at least 8%. ix. Organization of the sector conforms to the structure common to the whole Romanian system. Management appears competent and operates facil- ities effectively. Management methods and systems are largely standardized. x. Though all the information sought on the power sector was not made available and the Bank's analysis is not as detailed as is customary, adequate data on the project itself was obtained, sufficient to conclude that the proj- ect is suitable for a Bank loan of US$60 million for a term of 25 years in- cluding a 5-1/2 year period of grace.  APPRAISAL OF THE TURCENI THERMAL POWER PROJECT ROMANIA 1. INTRODUCTION 1.01 This report appraises the Turceni 1/ Project to be constructed on the banks of the Jiu river at the junction of the Jilt valley and the Jiu valley in the Gorg district of south-western Romania (MAP IBRD 10830). The Project comprises a thermal power station with installed capacity of 1,320 MW in four units of 330 MW, 400-kV transmission lines, a 400-kV switching station, and a 110-kV line for station starting and standby. Additional works essential for the support of the power station but not part of the Project are the development of the Oltenia lignite deposit by two new mines, South Jilt and Matasari, the extension of existing mines in the region (Map IBRD 10831), and rail links for delivery of fuel from the lignite workings as well as road, rail and housing facilities to support the construction and operating phases of the Project. A loan of US$60 million, the first power loan for Romania, is envisaged. 1.02 Data on the power sector was restricted due to the Romanian regula- tions governing its release and the fact that the Romanians were reluctant to release data which was being revised in line with a recent decree aimed at ronserving fuel and energy (Annex 1). A more comprehensive understanding of the Bank's methods and reasons for its special interest in the power sector has been gained during the period of loan preparation and is expected to grow as association between Romania and the Bank extends. In connection with the Project execution and supervision, detailed reporting requirements including sector indicators have been accepted by the Borrower and the Guarantor. 1.03 This report is based on the findings of a Bank mission consisting of Messrs. N. Green, P. Cordukes, I. Hume and S. Brealey (consultant) which visited Romania between November 7 and 27, 1973, and on data supplied by the Romanian authorities including a "Preliminary Technical and Economic Study" for the Project dated June 1973 and a report entitled "Data and Economic and Technical Elements Concerning the Feasibility of the Turceni Thermal Power Station Scheme". 2. THE COUNTRY AND THE ECONOMY The Country 2.01 The Socialist Republic of Romania, is a country of some 21 million people covering an area of 237,500 km2 stretching westwards from the Danube 1/ Pronounced as "Toorchen".  - 2- Delta on the western shores of the Black Sea to Hungary and Yugoslavia. It is bordered on the north and east by the Soviet Union and by Bulgaria in the south. The country is of varied topography. 2.02 The climate varies between the mountains and the plains; but in general it is East European Continental, dominated by the high pressure systems from Western Soviet Union and from North-Central Asia. Winters are generally long and cold, summers short and hot. Temperatures range from summer highs of 25C to 30C to winter lows of -15C to -20