India - National Capital (Phase I) Power Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4576-IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN OF US$485 MILLION TO INDIA FOR THE NATIONAL CAPITAL POWER SUPPLY PROJECT - PARSE I May 28, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Rupees (Rs) Rs 1.00 Paise 100 US$1.00 = Rs 13.00 Rs 1,000,000 US$76,923 MEASURES AND EQUIVALENTS 1 Kilometer (km) = 1,000 meters (m) = 0.6214 miles (mi) 1 Meter (m) - 39.37 inches (in) I Cubic Meter (m3) = 1.31 cubic yard (cu yd) = 35.35 cubic feet (cu ft) 1 Thousand Cubic Meter (MCM) = 1,000 cubic meters 1 Barrel (Bbl) = 0.159 cubic meter 1 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 barrels 1 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 watts 1 Kilowatt-hour (kWh) 1,000 watt-hours 1 Megawatt-hour (MWh) = 1,000 kilowatt-hours 1 Gigawatt-hour (GWh) 1,000,000 kilowatt-hours 1 Ton of Oil Equivalent (toe)= 10 million kilocalories ABBREVIATIONS AND ACRONYMS BTPS - Badarpur Thermal Power Station CEA - Central Electricity Authority CEMPDIL - Central Mining, Planning & Design Institute Ltd. DESU - Delhi Electric Supply Undertaking GOI - Government of India HSEB - Haryana State Electricity Board ICB - International Competitive Bidding LCB - Local Competitive Bidding LRMC - Long Run Marginal Cost MCD - Municipal Corporation of Delhi MES - Military Engineering Services MMCMD - Million Cubic Meter per Day MOU - Memorandum of Understanding NDMC - New Delhi Municipal Corporation NGL - Natural Gas Liquids NHPC - National Hydro Electric Power Corporation, Ltd. NPP - National Power Plan NRED - Northern Region Electricity Board NTPC - National Thermal Power Corporation, Ltd. PIB - Public Investment Board REB - Regional Electricity Board REC - Rural Electrification Corporation SEB - State Electricity Board Beneficiaries' financial years end March 31  FOR OMCIL USE ONLY INDIA NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I LOAN AND PROJECT SUMMARY Burrower : India, acting by its President. Beneficiaries : National Thermal Power Corporation, Ltd. (NTPC) and Delhi 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$425 million equivalent, with repayment over 20 years, including 5 years grace, at an interest rate of not less than 13.5% per annum; From GOI to DESU: US$60 million, with repayment over 20 years, including 5 years grace, at an interest rate of not less than 11.0% per annum. GOI would baar the foreign exchange and interest rate risks. Financing Plan : GOI/NTPC $ 965.2 million GOI/DESU $ 91.9 million IBRD $ 485.0 million Total $ 1,542.1 million Economic Rate of Return: 11l Staff Appraisal Report : No.6720-IN, dated Ma7 28, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official dutie. Its contents may not otherwise be disclosed without World Bank authoization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT Of THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I 1. The following report on a proposed loan to India for US$485 million equivalent is submitted for approval. The loan would be at the standard IBRD rate of interest and would be repayable over 20 years including 5 years grace. It would help finance a power project located near the National Capital, New Delhi. 2. Background. In the 1950's and 1960's power development in India was focussed almost entirely on the states, with each state striving for self sufficiency. Consequently, power stations were not located optimally and they generally failed to capture economies of scale. In the 1970's GOI changed the thrust of power policy to focus on least cost regional develop- ment, emphasising construction of power stations close to indigenous energy resources. In the Northern Region developments have been concentrated on mine-mouth coal-fired plants in the east of Uttar Pradesh and on hydro schemes in the far north of the Region. Both areas are remote from the very rapidly growing load center of the Capital, Delhi. 3. While this regional focus has been supported b; the Bank and has reduced costs, it has two limitations. Firstly, transmission development has not always kept pace with generation. A number of Bank financed projects, e.g. the Rihand Power Transmission Project, have been designed to strengthen interstate transmission ties. Secondly, even where transmission capacity is adequate, acute overall shortages of power mean that areas with propor- tionately less generation fare badly. Under these circumstances the only feasible way to maintain an adequate power supply to Delhi is to build more capacity in the area. 4. Until recently Delhi has had to rely primarily on the Indraprastha and Badarpur power stations. Both have suffered from inadequate maintenance, at least in part due to shortages of power and, although environmental con- cerns were limited when they were built, both now represent unacceptable sources of pollution. GOI's short term response to this critical power supply position has been to sanction the installation of 6x30 MW combustion turbines. As extended use of these seems likely, there is a strong a priori case for retrofitting them with waste heat recovery boilers and steam tur- bogenerators. In the longer term least cost development requires the estab- lishment of a conventional coal fired plant. The station at Dadri included in the proposed Project is designed to fulfill this role. 5. In addition to the above physical limitations on the supply of power, the complex administration of the Union Territory of Delhi has restricted DESU's autonomy and hindered its efficient operation. Concurrently, inade- quate funding and excessive tariff restraint have constrained DESU's ability to develop its transmission and distribution networks. System development  -2- has been dictated by the availability of resources and the immediate needs of consumers. Priority has consistently been given to expansion at the cost of reinforcement and rehabilitation. As a result, system losses have increased to 22Z, about twice the level experienced in similar but property maintained networks. A 40% tariff increase in April 1985 raised DESU's average tariff above 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 power station operation and power purchases; high system losses; and the burden of interest on accumulated debt. Solution of the problems of power supply to the Capital requires a restructuring of DESU's finances to free it from the legacy of inappropriate past policies and a program to improve power supply facilities coupled with comprehensive streamlining of DESU's operations. 6. Project Objectives. The principal objectives of the proposed Project are to: (a) augment power supplies to the capital; (b) improve the reliability of transmission and reduce system losses; (c) reduce environmen- tal pollution from power generation; (d) move towards more efficient use of existing assets in the power supply system; (e) identify economic oppor- tunities for improving the quality of coal used in power generation; and (f) effect a program of administrative, financial and operational improve- ments in DESU. 7. Project Description. The proposed Project comprises: (a) the construction of the first stage (4x210 MW) of a coal-fired power station at Dadri comprising boilers, turbogenerators, electrical and mechanical equipment, associated civil works and switchyard; (b) rehabilitation of the power station at Badarpur to improve its efficiency and reduce the impact of its future operations on the environment; (c) the construction of about 110 km of double circuit 400-kV 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 engineering of the first stage of the power station at Dadri, in the design and preparation of specificatioas for its ash disposal system, and in a study on improvement of the quality of coal used in power generation; and (e) consulting services to assist DESU in: (i) preparation of a least cost plan for the extension and reinforcement of the distribution network in Delhi; (ii) design and implementation of a system for the compilation, storage and retrieval of technical data on the distribu- tion network in Delhi; (iii) assessment of the economic viability of equipping the combustion turbines adjacent to Indraprashtha with  -3- waste heat recovery boilers and steam turbogenerators; (iv) prepara- tion of a plan for the rehabilitation of the power station at Indraprastha; (v) finalization of its financial statements for 1983/84, 1984/85 and 1985/86; (vi) implementation of a new commercial accounting system; and (vii) execution of an organization and manage- ment study. 8. The total cost of the proposed Project, which will be implemented over a period of about eight years, is estimated at US$1,524.1 million equiv- alent including interest during construction, of which the foreign exchange component is estimated at US$608.9 million (40%). Cost estimates, the financing plan and retroactive financing arrangements are shown in Schedule A. Procurement and disbursement arrangements and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank operations in India are given in Schedules C and D respec- tively. A map, IBRD No. 19611, is attached. The Staff Appraisal Report No. 6720-IN, dated May 28, 1987 is being distributed separately. 9. Rationale for Bank Involvement. Through its participation in the Project, the Bank would be supporting GOI's efforts to: (a) augment gener- ating capacity and alleviate the chronic power shortages in the Capital and the Northern Region; (b) improve the capacity and reliability of power trans- mission in the Capital area and reduce system losses by forming a 400-kV ring around Delhi; (c) make more efficient and fuller use of Badarpur; and (d) bring about environmental improvements by reducing pollution from Badar- pur. In addition, the Bank would, through this Project: (a) introduce DESU to state-of-the-art distribution planning; (b) help to stimulate rehabilita- tion and environmental improvements in relation to Indraprastha; (c) cause L'ESU to investigate the feasibility of converting its combustion turbines to combined cycle plant; (d) help to set DESU on a sound financial footing through execution of a financial recovery program; and (e) ensure a proper analysis of the benefits of improving the quality of coal used in power generation. 10. Agreed Actions. GOI has agreed to: (a) furnish the Bank with the report of its Committee examining power supply arrangements for the Capital by July 1987; (b) furnish the Bank with a satisfactory financial recovery plan for DESU by February 29, 1988, and thereafter implement this plan; and (c) instruct DESU to capitalize interest during construction. NTPC has agreed to: (a) enter into a coal supply contract for the Dadri power station one year prior to the operation of the first unit; (b) maintain accounts receivable for electricity sales at an amount equivalent to its power sales revenues for the two preceding months; (c) achieve annual rates of return on unrevalued net fixed assets in operation of not less than 7% through 1989/90, 9.5% in 1990/91 through 1994/95 and satisfactory rates thereafter; and (d) submit audited financiallstatements together with the auditors' reports within seven months of the end of the related financial year. DESU has agreed to: (a) engage the services of NTPC for the design, engineering and  -4- construction supervision of the 400-kV transmission lines and associated substations. (b) ensure that accounts receivable from electricity consumers do not exceed the equivalent of 4 months electricity sales in 1987/88, 3 months in 1988/89 and 2.5 months thereafter; (c) establish satisfactory arrangements for recovery of Haryana State Electricity Board's share of the costs of operating the Indraprastha power station; (d) implement the finan- cial recovery plan determined by GOI, taking all such measures as are neces- sary to reach a minimum rate of return of 3% after interest in 1990/91 and maintain this performance thereafter; (e) submit unaudived and audited finan- cial statements with the auditor's report for 1983/84 through 1987/88 accord- ing to a timetable acceptable to the Bank; (f) submit unaudited and audited financial statement together with the auditor's report for 1988/89 and there- after within I and 9 months respectively of the financial year end; and (g) carry out studies included in the proposed Project in accordance with timetables acceptable to the Bank. 11. Justification. Economic benefits under the proposed Project are expected from: increases in the quantum of power supplied to consumers; improvements in the quality of power supply; reduced system losses; and greater efficiency in the uses of assets in the public power supply system. The least cost power development program for the Northern Region, of which the proposed Project is an integral part, is expected to have a quantifiable economic rate of return of at least 11%. In addition to its economic benefits the Project would confer environmental benefits through a reduction in pollution from power generation. 12. Risks. There are no extraordinary technical risks associated with the Project. The dual firing feature of the power plant will minimize the risk of plant unavaiL. ;l' y arising from the transportation of coal over a long distance. NTPC is euperienced in the design and construction of gener- ation and transmission facilities but will receive assistance from consult- ants in relation to the dry ash disposal system. 13. Recommendation. I am satisfied that the proposed loan would comply with Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Barber B. Conable President Attachments Washington, D.C. May 28, 1987  Schedule A Estimated Costs: 1/ Local Foreign Total -US$ Million --- Preliminary Works 24.8 - 24.8 Civil Works 109.6 7.7 117.4 Main Plant Equipment 176.0 171.4 347.4 Other Mechanical Equipment 60.9 61.0 121.9 Coal Handling and Transportation 89.7 45.4 135.1 Electrical Equipment 15.2 41.3 56.5 Consulting Services for NTPC 5.0 2.1 7.1 Equipment and Materials for the Badarpur Station 12.7 10.5 23.2 Transmission Lines and Substations 63.7 38.8 102.5 Consulting Services for DESU 3.0 0.7 3.7 Engineering and Administration 49.2 - 49.2 Total Base Costs 609.9 378.9 988.8 Physical Contingencies 37.2 19.3 56.5 Price Contingencies 217.7 90.1 307.8 Total Project Costs 864.8 488.4 1,353.2 Interest During Construction 68.4 120.5 188.9 Total Financing Required 933.2 608.9 1,542.1 Figures may not add due to rounding. Financing Plan: Local Foreign Total ---------US$ million-------- (a) NTPC IBRD - 425.0 425.0 GOI/NTPC 841.3 123.9 965.2 Total 841.3 548.9 1,390.2 (b) DESU IBRD - 60.0 60.0 GOI/DESU 91.9 - 91.9 Total 91.9 60.0 151.9 TOTAL FINANCING REQUIRED 933.2 608.9 1,54241 1/ Includes taxes and duties of about US$43.1 million.  Schedule B Page 1 of 3 Procurement Table (US$ Million) /a Project Elements PROCUREMENT METHOD /b ICB LCB Other Total A. NTPC I. Prelim;nary Works 33.0 33.0 II. 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 (f2.0) (92.0) Ash Handling System 64.9 64 59 (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 e 0 (4.0) (4.0) Other Mechanical Equipment 16.0 39.6 55.6 (4.3) (4.3) IV. Coal Transportation 135.9 135.9 V. 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 14.5 146 *5 (6.0) (6.0) Switchyard Equipment 27.6 27 6 (15.3) (15.3) Other Electrical Equipment 3.0 6.5 9.5 VI. Consultancy Services 9.3 9.3 (3.2) (3.2) VII. Badarpur Rehabilitation 13.0 15.0 28.0 VIII. Engineering and Administration _ 67.7 67.7 Total (NTPC) 722.4 364.8 125.0 1,212.2 (421.8) _(3.2) (425.0)  Schedule B Page 2 of 3 B. DESU I. 400-kV Transmission Lines Towers 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. 400kV Substations Transformers 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 III. 220kV Substations Transformers 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 21.3 V. 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) ia Figures between brackets indicate Bank-financed portion. 7T ICB : International Competitive Bidding. LCB : Local Competitive Bidding. Other: Direct negotiation or not subject to commercial procurement.  Schedule a Page 3 of 3 Disbursements Amount of the Loan Allocated (Expressed in Million Dollar Equiv.) Category X of Expenditure NTPC DESU TOTAL to be Financed I. Equipment and 406.8 52.5 459.3 100X materials II. Consultants' 3.2 2.5 5.7 100X Services III. Unallocated 15.0 5.0 20.0 Total 425.0 60.0 485.0 Estimated Disbursements Bank FY FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95