Yugoslavia - The economy (Vol. 5 of 5) : The electric power industry

R_E_S_TR I C_T E D Annex IV to AiI2 t-Al I Z VolI. 5 r- 1 This report was prepared for use within the Bank. It may not be published nor may it be quoted bs reprei...... the Bank's views. The Bank accepts no | responsibility for the accuracy or completeness of the contents of the report. T1 'ERMATIONATL RAMTN 1FOR RE TPCON5TTRTCTTCON AND DRVEL.OPMENT THE ELECTRIC POWER INDUSTRY X11 YUGOSLAVIA January 19, 1961  ANNEX _V THE ELECTRIC P1.:ER IWDUSTRY IN YUGOSLAVIA Table of Contents SUIM-RY i-i I. THE SETT _ G Resources 1 The Recient Growth of the Industry 2-3 The System Today 3-5 II. ORGANIZATIOI3 AND OPERATIONJ OF THE INDUSTRY Organization 6-8 The Calculations of Costs 8-9 The Return on Investment in Power 9-10 The Financing of Investment 10-11 The Criteria for Investment 11 III. THE INVLSTi'iN PLANS FOR 1960-66 12-13 MAP TABLES (1 - 11) APP FUDIX I _ STATB'1UT OF COCiJITIOMS UNDER !.i1HICH YUGOSLAV ITNWESTI 1ET7 - RAN1( VtTT.T. BF.CF:T1VK Ai\Tj KiUAT.UATPT APP.TC.iAATOTN FClp TLOAriS FOR ELECT.tIC POIV. R PRODUCTION  SUIvYARY i. Yugoslavia is richly endowed with water power resources of which only 7% are at present developed. A large expansion of hydro plant can be made with relatively low investment per unit of capacity. There are also large resources of coal of low quality distributed widely about the country. ii. Much progress has been made since the war towards the construc- tion of a national po-wer sy-stem. Since 1950 the rate of growth of electricity production has been 14-15% per year, or about double the Euro- pean average. Since 1953 the growth has been even more rapid. In the early post-war years, heavy emphasis was placed on hydro projects. The existing system is heavy on hydro (60% of capacitv)7 short on storage and subject to large reductions in available power during the annual low water periods in the fall. This nroblem of no er shortages during periond of low water and the need to construct new capacity quickly have led to a reannraissl of the role of thermal plants in the system. It is now expected that roughly 65% of capacity will be hydro by the mid-1960's instead of the previous goal of S0:. iiia The industry is organized in a u-ique way. Each plant is a separate enterprise. There is a single transmission enterprise for each Rep_ublic and there are many d Strbutin- enterprises. Their operations are coordinated through associations of producers (Unions) on the Republican level and on the Federal level. iv. Fower is sold throughout the country according to a uniform schedule of rates while each producer is paid for his output according to a set of standards devised for his particular enterprise. The Republlcan. Unions act as financial intermediaries - buying from producers and selling to distribution enterprises. Deficits arnd s-urpluses are balanced out at the Federal :Level. The method by which the costs of producing enterprises are coml-puted is biased in favor of hydro power mainly because of especialily low capital charges. However, since these costs do not provide the prin- .Lpa.L UasiLs :or L inves IVUtientU decisions, the flects ofi suehi distortions are limited. V. Tinvestment is financed largely by loan funds from outside the industry, mainly those administered by the Investment Bank. However, enterprises con- tribute to these funds through the capital tax and that portion of their depre- ciation which is used to repay loans. There are plans to increase the power rate so that a greater armiount of the funds used for investment can come from the enterprises. vi. In addition to consideration of investment costs, the criteria under which loans are to be granted in the future by the Investment Bank recogni1ze the need for the rapid construction of generating facilities, the need for firm po-wer and the desirability for local (Republics, local governments and enterprises) participation in the investment.  vii. The plans for expansion seem realistic and the industry's staff appears competent to carry them out. The extension of the 220 K.V grid an,cl the construction of plants with considerably larger units than those hereto- for manke economic sense. A.,Althouk the method of finW-4 is unusual, it is workable and there are reasons to expect that what seems to be its most obvious deficiency, the not unusual one of charging too little for power, rmy be alleviated this year.  The Electric Power Industry in Yugoslavia I. T H E SErimTTIN? Resources 1. The water power resources of Yugoslavia have been estimated to be sufficient to produce 66 bill-Ion kWh per year. At the present time less than 5 billion kWh or about 7% of this potential is developed. Yugoslav resources are of the same order of magnitude as those of Italy and France, somewhat less than Sweden and substantially exceeded only by those of Norway. However, among all Western European countries only Norway has more unex- ploited water power. Of this vast potential the Yugoslavs estimate that 30 billion kl,Jh can be developed at an investment of 15 to 35 dinars per annual kM;lh produced. (Assuming 4,000 hours operation per year and 632 dinars to the dollar - the present clearing rate - 35 dinars per kWh per year is equivalent to $220 per KW). Even with a generous allowance for the usual optimism of such estimates, there is no doubt that the country has nany economically attractive hydro-electric sites. 2. The physical basis for this happy situation lies in the fortunate combination of high mountains and heavy rainfall. From the mountains that parallel the Adriatic Coast (Dinaric Alps) and those which extend northward through Slovenia into Austria (Julian Alps) the land drops quickly towards the Adriatic Sea, or the plains of the Sava and Danube rivers. As a result of the warm moist winds which sweep northward from the MSediterranean, these mountain areas receive heavy precipitation, especially in the winter months. The highest rainfall in Europe is in the mountains of Niontenegro. In the southern parrt of the country this results in peak stream flows during the winter. In the north where the run off is retarded by the freezing weather, the rivers reach their peak in the spring. The combination of heavy flow, and steep gradients produces conditions most favorable for hydro-electric developnment. On the other hand, the seasonal character of the precipitation results in large variations over the year in the flow of the rivers. Though the water regime of the northern Alpine rivers compliments that of the southern rivers to some extent, the availability of water in late summer mnd early fall is far below that of the early part of the year. At the present time generation during the driest part of the year (August to October) is about 40%0 of the maximum possible generation in the period of high water (Piarch toiApril) and the variation. between generation in an average and a dry Year (1 out of everv 10) is about 20%. In terms of power development, this makes it necessary to supplement run of the river power plants with a combinantion nof lnrap reservoirs and thermal plants. 3. Fortuantely +.he nal resources of Yugoslavia are extensive even if of very low quality. Reserves are distributed widely about the country and are estimated to be 21.6 billion tons, 90% of' which is lignite. At the current rate of consumption, this quantity would last for 1,000 years. At the present time about 205-' of coal production is used for the generation of electric power and this proportion is steadily increasing.  The Recent Growth of the Industry 4. The production of electric power has always received heavy emphasis in the Yugoslav development plans. Between 1946-1959 about 20% of total investment in industry and mining was allocated to electric power. As a result about 4/5 of the country's power capacity has been constructed since the war and production has been increased to a level about 8 times pre-war. Since 1950 the rate of growth of power production has been 14-15% or roughly double the European average. However, in spite of this rapid expansion, consumption in 1959 had only reached 435 klJh per capita - a level below that of Spain and Hungary. The variations among areas within the country are very great. The per capita consumption in Slovenia is about 7 times that of Miacedonia and lAontenegro, and is similar to Belgium and France; the c- sunption in the other too republics is similar to that of Greece and Turkey. 5. In the post-war expansion particular emphasis has been given to the construction of hydro capacity, especially in the earlier years. 14here- as 65% of total capacity and 61% of total generation was accounted for by thermal plants in 1939, the proportions had dropped to 40% and 42% by 1959. However, as shown in the following table, the preference for hydro appears less strong in the recent years. Rates of Growth of Canacitv Hvdro Thermal Total 19L5-50 6.5 3.5 5.0 1950-55 17.5 6=0 1A 1955-60 17-n 12-n 15= 6. This apparent shift in the evaluation of the relative merits of the two tvnes of plants is also refleet.Pd in a chnnge in exP.ec-tatin-n ofn the future composition of capacity. A few years ago it was expected that the svstsm would have its capaIetv divided roughly 80% hytr-o and 20% thermal by the mid-1960's; today the plans are for a balance of 65% hydro and 35% therm.al instead. The shilft ins the empzhasis from hydro to the-rm.al carant in this case be explained simply in terms of the increasing cost of hydro as the best sites are developed.* In. fact, a nuvmber of the h;ydro proj ects constructed in the early period were very high cost - much higher than those nowy being const+ructed - and the Yugoslavs frarly state- that- vu1er he investment criteria they are now using, these would never have been built. 7. Basically the growing recognition of the attractiveness of therrMi power has been the result of the development of more realistic methods of 1/ On the basis of data presented by the Federal Electricity Union, hydro- electric plants now being constructed are averaging 40% cheaper than those constructed during the early post-war years.  - 3 - evaluating costs and benefits. In the early post-war period under the system of centralized administrative management, cost considerations were secondary, capital costs in particular were neglected, 1/ and the attraction of monumental projects was as strong in the field of electric power as else- where. The fact that domestic production could supply a greater part of the equipment for hydro-electric stations than for thermal plants was also in part a cause (and probably in part an effect) of the emphasis on hydro. The general re-organization of the economy with the increasing emphasis on costs, prices and profits, the hard problem of continual pcwer shortages during periods of low water and the need to construct new power capacity quickly all have forced the YueQslav authorities to adopt more realistic methods of project appraisal. / The System Todav 8. By 1959 generating capacity in Yugoslavia had reached 1884 MW, of which 601 was hydra and L0O thermal AR% of this total consisted of plants generating for public supply; the remainder was accounted for by industrial plants generating principallv forv their nu se Most, of this capacity, 85% of the hydro and 55% of the thermal, was built since the war. 9. The hydro plants are mostly run of the river but storage capacity has been increased sharply in recent - S. In 1T 5 itA wa- 5 of total annual hydro generating capacity. By 1960 this had reached ll$ and pro- jects under construction are expected to bring it 4 ' by -1 ever- theless, it will still not be sufficient to prevent a considerable decline in the availability of po-wer during thle annual low water period in the fall. XV. Irlc tilermaL capaciuy of