India - Karnataka Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4556-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$330 MILLION TO INDIA FOR THE KARNATAKA POWER PROJECT May 13, 1987 This documet has a restricted distribution and may be used by recipients only in the performance of their official duties. Its matents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Rupees (Rs) Rs 1.00 = Paisa 100 US$1.00 = Rs 13.00 Rs 1.00 = US$0.07? 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) 1 Cubic Meter (m3) 1.31 cubic yard (cu yd) = 35.35 cubic feet (cu ft) 1 Hectare (ha) 10,000 m2 = 2.471 acres (ac) 1 Kilogram (kg) = 2.2046 pounds (lb) 1 Ton (t) = 1 metric ton = 2,200 lbs 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 (KW) - 1,000 kilowatts (kW) = 1 million watts 1 Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours 1 Horse Power (HP) = 0.75 kilowatts (kW) ABBREVIATIONS AND ACRONYMS AG - Accountant General of Karnataka CAS - Commercial Accounting System CEA - Central Electricity Authority CIF - Cost Insurance Freight cWC - Central Water Commission DOFW - Department of Forests and Wildlife GOI - Government of India GOK - Government of Karnataka GOKDF - Government of Karnataka Department of Forests IBRD - International Bank for Reconstruction and Development ICB - International Competitive Bidding IDA - International Development Association KEB - Karnataka Eiectricity Board KPC - Karnataka Power Corporation LCB - Local Competitive Bidding LIB - Limited International Bidding LRMC - Long Run Marginal Cost MIS - Management Information System NHPC - National Hydro Electric Power Corporation NPP - National Power Plan NTPC - National Thermal Power Corporation O&M - Operation and Maintenance POE - Panel of Experts REB - Regional Electricity Board REC - Rural Electrification Corporation SCADA - System Control and Data Acquisition SEB - State Electricity Board SOE - Statement of Expenditures SREB - Southern Regional Electricity Board Beneficiaries' financial years end March 31  FOR omCAL USE ONLY INDIA KARNATAKA POWER PROJECT LOAN AND PROJECT SUlMMARY Borrower : India, acting by its President. Beneficiaries : Karnataka Power Corporation (KPC), Karnataka Electricity Board (KEB), Government of India-- Central Electricity Authority (CEA). Amount : US$330 million equivalent. Terms : Repayment over 20 years, including 5 years grace, at the applicable rate of interest. Onlending Terms : Government of India (GOI) to Government of Karnataka (GOK): As part of Central assistance to Karnataka for development projects on terms and conditions applicable at the time; GOK to KPC: About US$197 million, repayment over 20 years, including 5 years grace at interest rate of not less than 10.75% pa; GOK to KEB: About US$132 million, repayment over 20 years, including 5 years grace at an interest rate of not less than 10.75% pa. GOI would bear the foreign exchange and interest rate risks. (GOI would retain about US$1.0 million for the CEA component of the proposed Project). Financing Plan : Government of Karnataka $449.3 million Kuwait Fund for Arab Economic Dev. $ 27.0 million Karnataka Power Corporation $ 85.0 million Karnataka Electricity Board $ 55.9 million IBRD $330.0 million TOTAL $947.2 million Economic Rate of Return: 12% Staff Appraisal Report : No. 6695-IN, Mty 13, 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 authorzation.  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 KARNATAKA POWER PROJECT 1. The following report on a proposed loan to India for US$330 million equivalent is submitted for approval. The loan would be at the standard variable interest rate and would be repayable over 20 years including 5 years grace. It would help to finance a power project in the State of Karnataka in Southern India. 2. Background. Karnataka has no indigenous coal resources and, apart from imports from Government of India (GOI) owned stations or neighboring states, it has been primarily dependent for power on the development of its own hydro resources. These are economically attractive but delays in project preparation have left the State with chronic power shortages. The typical energy cut that the Karnataka Electricity Board (KEB) has had to impose on large consumers has increased from around 25% in 1981/82 to 75% in 1985/86, a trend mirrored in applications for captive plant, which have grown from about 5 MW in 1981/82 to 150 hW in 1985/86. The rising demand for captive plant, using high value fuels, underscores the importance of accelerating the development of low cost hydro resources for the public supply system and the Kalinadi basin offers particularly attractive opportunities for this. The Karnataka Power Corporation (KPC), which is the agency responsible for power generation in the State, has planned development of the basin in three stages. Stage-I, including construction of the Supa dam, is nearing comple- tion. This dam will provide very large storage at the head of the Kalinadi river and allow downstream sites with minimal storage to be utilized throughout the year. Three sites were initially identified by KPC for development in Stage-II and were posed to the Bank. Since then a private sector industrial company has expressed interest in developing one of these sites and Government of Karnataka (GOK) is waiting for a decision on this from GOI. The remaining two sites, Kadra and Kodasalli, are included in the proposed Project. Plans for Stage-III, which would involve tributaries to the Kalinadi, are still very tentative owing to significant environmental problems. Following completion of Stage-II there will be six reservoirs and five power stations in the Kalinadi basin. 3. Karnataka, in common with most other states in India, has failed to develop its transmission and distribution systems at a rate commensurate with growth in generation. Consequently, these systems have become increasingly overloaded, resulting in an adverse effect on system losses which have recently been estimated at approximately 22% of net generation. KEB is responsible for transmission and distribution in Karnataka. At the request of the Bank, KEB has prepared a transmission plan for inclusion in the proposed Project that would not just serve to evacuate power from Kalinadi but would also reinforce the existing grid and reduce system losses. The  -2- plan will greatly strengthen transmission between the gen"ration complex in the northwest of Karnataka and the State's largpst load conter, Bangalore, in the oautheast. The grow,h in demand in Bangalore, which has boon the fastest growing city in India, has strained not just the transmission system but also the local distribution system. KEB urgently needs to develop and implement a distribution master plan for Bangalore, but does not have in-house expertise in state-of-the-art distribution planning technique. 4. Project ObJectives. The proposed Project is designed to: alleviate power shortages in Karnataka and the Southern Region by exploiting low cost indigenous hydro resources; provide efficient transmission capacity to evacuate power from the Kalinadi complex and reduce system losses; extend the life and make fuller use of the Sharavathi power station; optimise generation from the Kalinadi complex; prepare plans for more efficient distribution; effect institutional, operational and financial improvements in both KPC and KEB; and make progress towards more efficient use of the Southern Region's generation facilities. 5. Project Description. The proposed Project comprisest (a) construction of a 3 x 40 MW hydro scheme at Kodasalli; tb) construction of a 3 x 50 MS hydro scheme at Kadra; (c) resettlement, rehabilitation and compensatory afforestation measures associated with (a) and (b); (d) renovation of the existing Sharavathi hydro power station; (e) implementation of a computerized generation management scheme for the complete Kalinadi complex, including installation of 'System Control and Data Acquisition' (SCADA) equipment and associated communications; (f) computerization of management information and accounting systems and certain planning activities in KPCI (g) execution of a training program for KPC; (h) consultancy services for (a) to (g) above and advice on treatment to reduce seepage from the Talakalale dam; Ci) construction of: (i) about 570 kms of single and double circuit 400-kV line; and (ii) about 300 kms of single and double circuit 220-kV line together with associated substations; (j) consultancy services for: ti) the design and construction supervision of 400-kV lines and substations; (ii) preparation of a distribution master plan for Bangalore followed by supervisory assistance for further distribution planning by KEB; and (iii) advice on protection and compensation aspects of transmission; (k) implementation of an institutional development program for KEB, including acquisition of data processing facilities, consultancy and training services for: (i) development of a system for maintaining technical records; (ii) establishment of proper fixed asset registers; (iii) establishment of a management information system; (iv) an organization and management study for the finance function; (v) computerization of certain activities in planning, operational statistics, accounting and inventory control; and tvi) a tariff and metering study; and (1) consultancy services for the design of load dispatch arrangements for the Southern Region. 6. The total cost of the proposed Project, which will be implemented over a period of about 8 years, is estimated at US$947.2 million equivalent  -3- including interest during construction, of which the foreign exchange com- ponent is estimated at US$372.2 million (39%). 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 Group operations in India are given in Schedules C & D respec- tively. Two maps, IBRD Nos. 19792R and 19793, are attached. 7. Rationale for Bank Involvement. Through the Project, the Bank would support GOI/GOK's efforts to: (a) alleviate power shortages in the Southern Region by exploiting indigenous hydro resources; (b) undertake timely renova- tion of the Sharavati hydropower station; and (c) augment transmission capacity, thereby reducing system losses. In addition the Bank would help to: (a) maximise the value of generation from the Kalinadi complex; (b) introduce state-of-the-art distribution planning techniques to KEB; (c) effect institutional and financial improvements in relation to both KPC and KEB; and (d) support progress towards fully integrated operation of the Southern Region. The Project is, therefore, fully consistent with the Bank's strategy towards the Indian power subsector. 8. Agreed Actions. GOK has agreed to: (a) onlend the proceeds of the loan to KPC and KEB at an interest rate of not less than 10.75% pa; (b) make all its loans to KPC and KEB repayable over 20 years including 5 years of grace and; (c) ensure the implementation of the resettlement plan (involving 544 families) agreed with the Bank. In addition, GOK has agreed to cause KEB to: (a) earn a rate of return after interest of at least 3%; (b) collect, by Apil 1, 1990, accounts receivable from its principal debtors as of March 31, 1987, in accordance with a dated and monitorable plan acceptable to the Bank; (c) clear arrears due to KPC in accordance with a program paralleling the reduction in the Board's own accounts receivable; (d) pay promptly all future sums owing to KPC using a revolving letter of credit; (e) clear anomalies in its asset accounts in accordance with a timetable acceptable to the Bank; and (f) install meters for all consumers that should be metered and replace faulty meters in accordance with a timetable acceptable to the Bank. KPC has agreed to: (a) appoint experts in engineering geology and foundation engineering to the dam review panel of experts (POE) by July 31, 1987; (b) review with the POE the results of investigations of the limestone forma- tion at Kodasalli and furnish a report recommending treatment, if necessary, to the Bank by N. iember 30, 1987; (c) initiate, by July 1, 1987, a study to develop a program of actions to reduce seepage from the Talakale dam; (d) take all measures necessary to earn a rate of return after interest of at least 3%; and (e) revise reporting arrangements and ensure a full complement of suitably qualified staff for its internal audit unit by December 31, 1987. GOI has given an assurance that the relevant regulatory authorities will monitor all existing or future sources of pollution that may materially affect water quality in the Kadra and Kodasalli reservoirs and ensure adherence to GOI's environmental standards.  -4- 9. Justification. Economic benefits tnder the proposed Project are expected from (a) increases in the quantum of power supplied to consumers; (b) improvements in the quality of power supply; (c) reduced system lossas; and (d) greater efficiency in the use of assets in the public power supply system. The least cost power development program for the Southern Region, of which the proposed Project is an integral part, is e-2ected to have a quantifiable economic rate of return of at least 12Z. 10. RisIs. There are no extraordinary technical risks associated with the Project, which does not involve any engineering technology beyond the limits of well known practices. With the exception of a limestone formation at Kodasalli, which is the subject of specific investigations, the geological information is adequate and indicates good conditions. KPC and KEB have sufficient staff experienced in supervising and executing activities similar to most of the project components and consultants will be used in all areas in which KPC or KEB lacks in-house expertise. 11. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Barber B. Conable President Attachments Washington D.C. May 13, 1987  Schedule A INDIA KARNATAKA POWER PROJECT Estimated Cost 1/ Item Local Foreign Total