India - Central Power Transmission Project

Doiunlt of The World Bank FOR OrFICIAL USE ONLY RepqotN 12550 PROJECT CONPLETION REPORT INDIA CENTRAL POWER TRANSMISSION PROJECT (LOAN 2283-IN) NOVEMBER 22. 1993 MICROGRAPHICS Report No: 12550 Type: PCR Energy Operations Division Country Department II (India) South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwbe be disclosed without World Oank authorization.  COUNTRY EXCHANGE RATES AND ABBREVIATIONS Currency Unit = Rupee (Rs.) Rs, 1 Paise 100 Runee (Rs.)/USS Exchance Rates and CPI (Yearly Averages) Consumer Price Index Fiscal Year Runees/USS FY80/81=100 FY83 'Project appraisal & approval) 10.10 /I FY84 11.36 FY85 12.37 133.3 FY86 12.61 141.2 FY87 12.96 148.0 FY88 13.92 163.2 PY89 16.23 176.3 FY90 17.50 190.6 FY91 22.74 216.3 FY92 26.20 237.0 (estimate) /a Conversions in the Staff Appraisal Report were made at Rs 9.5/US$. Government of India and National Thermal Power Corporation Fiscal Year: April 1 - March 31 neasures and gouivalents I ToO (t) = 1 metric ton-l,000 kg.=2,200 lbs. 1 Kilovolt (kV) = 1,000 volts (V) 1 Kilovolt ampere (JcA) - 1,000 volt-amperes (VA) 1 Kilowatt-hour (kVh) * 1,000 watt-hours 1 Megawatt-hour (MWh) * 1,000 kilowatt-hours 1 Gigadatt-hour (GWh) 5 1,000,000 kilowatt-hours Abbreviations and Acronyms CEA Central Electricity Authority DESU Delhi Electric Supply Undertaking GOI Government of India IBRD International Bank for Reconstruction & Development IDA International Development Association MOU Memoranda of Understanding NHPC National Hydroelectric Power Corporation NPTC National Power Transmission Corporation NT2C National Thermal Power Corporation POWERMRID Power Grid Corporation of India ROR Rate of Return SEBs State Electricity Boards  FOR OFFICIAL USE ONLY THE WORLD BANK Washngto D.C. 20433 U.SA Office of Director-Gue:al Operations Evaluatton MEMORANDUM TO THE EXECUTIVE DIRECTORS ANP THE PRESIDENT December 10, 1993 SUBJECTs ProJect Completion Report on India Central Power Transmission Proiect (Loan 2283-IN) Attached in the 'Project Completion Report on India - Central Power Transmission Project (Loan 2283-IN)" prepared by the South Asia Region. Part 1I -as provided by the Borrower. The US$250.7 million loan iacreased the capacity of the transmission grid feeding power from the National Thermal Power Company (NTPC) to the regional power companies. The Bank approved a revision in the project scope which waa fully justified under the original project objectives. Almost half of the losn amount was canceled (US$119.2 million) partly because of foreign currency savings. There were three extensions and the project was not fully completed at loan closing. All the project objectives were substantially obtained albeit with substantial delays. The re-estimated economic rate of return is 112 (not directly comparable with the initial figure because of the change in scope). NIPC maintained its good financial health but its performance in bill collection has prompted the Bank to insist on very strong remedial actions by the Goverrment with respect to the least responsive State Electricity Boards. The project strengthened NTPC's transmission planning and project management capacity. The know how thus acquired was transferred to POWERORID, the recently created national transmission company. Overall, the project outcome is rated as satisfactory, its sustainability as likely, and its institutional impact as substantial. The PCR gives a thorough account of project preparation and implementation which was mostly uneventful except for the initial delays. No audit is planned. Ti documnt has a restricted distributio and way be used by recipients only in the performsace of their officil duties. Its contents may not otherise be disclosed without World ank authorizatiou.  FOR OMCIL USE ONLY PROJECT COMPLETION REPORT INDIA CENTRAL POWER TRANSMISSION PROJECT - S~~LOAN 2283-IN). Table of Contents Page No. PREFACE ..... ................................................. EVALUATION SUMMARY .............. ii PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE .1 Project Identity. 1 Project Background ................................ 1 Project objectives and Description. 3 Project Design and Organization. 4 Project Implementation .S Environment, Resettlement and Rehabilitation 10 Physical Results .10 NTPC's Financial Performance ..1 Compliance with Loan Covenants .15 Sustainabil4.ty and Internal Economic Rate of Return .15 Bank Performance . 15 Borrower Performance .16 Performance of Consultants and Contractors .17 Project Relationship .18 Project Documentation and Data .................... 18 PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ... ....... 19 PART III STATISTICAL SUMMARY ............................... 23 ANNEXES 1 Description of the Original Project ......... ........ 33 2 Description of the Revised Project .34 3 Availability of Transmission Lines an Substations in 1992 .35 4.1 Income Statements .36 4.2 Sources and Application of Funds .37 4.3 Balance Sheets ...................................... 38 This document has a rcstricted disribution 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.  PROJECT COMPLETION REPORT INDIA CENTRAL POWER TRANSMISSION PROJECT (LOAN 2283-IN) Preface This is the Project Completion Report (PCR) for the Central Power Transmiseion Project, for which Loan 2283-IN in the amount of US$250.7 million was approved on May 19, 1983. The loan was made to India, acting by its President, for on-lending to the National Thermal Power Corporation (NTPC). The original loan closing date of Marcn 31, 1989, was extended three times and the loan was closed on March 31, 1992. On December 5, 1991, an amount of US$S0 million of savings arising mainly because of exchange rate variations were cancelled from the loan account. Disbursements were completed on September 8, 1992, and the undisbursed balance of US$69.2 million was cancelled. Thus, total disbursemants under the loan amounted to US$131.5 million. On August 16, 1991, the management of the project (operation and maintenance of the assets in service and implementation of those still under construction) was transferred from NTPC to the National Power Transmission Corporation Ltd. (NPTC), the newly established utility responsible for transmission and grid operations, under a Management Contract signed between the two Corporations. NPTC was later named Power Grid Corporation of India Ltd. (POWERGRID). On January 8, 1993, an Ordinance providing for all the rights, titles and other interests related to the transmission systems of NTPC and two other centrally-owned utilities', to be transferred to POWERGRID, with effect from April 1, 1992, was promulgated by the i.re:ident of India. At the time of preparation of this PCR, the Bank was in the process of finalizing the modifications on the Development Credit, Loan and Project Agreements to formalize the transfer of the Bink loans and IDA credits from NTPC and NHPC to POWERGRID retroactively with effect from April 1, 1992. With regard to Loan 2283-IN, assets and liabilities for about US$3.4 million remained with NTPC and assets and liabilities for about US$128.1 million have been transferred to POWERGRID. The amounts will be finalized after accounts between NTPC and POWERGRID are settled. The PCR was prepared by the Energy Operations Division of the Country Department II (India) of the South Asia Regional Office, and by NTPC and POWERGRID. The former prepared the Preface, Evaluation Summary and Parts I and III of the PCR, while the implementing agencies prepared Part II, and provided all the supporting data. Preparation of Parts I and III of the PCR was based on information in the Staff Appraisal Report, the Loan and Project Agreements, and material on the project in Bank files and that provided by NTPC and POWERGRID. The preparation was also based c- discussions with some of the Bank staff who were involved with the project and the officials of the Government of India (GO!), NTPC, POWERGRID and the project beneficiaries (i.e., State Electricity Boards) during a PCR mission to India in February 1993. - 1 National Hydro Power Corporation (NHPC) and North-Eastern Electric Power Corporation (NBEPoO).  PROJECT COMPLETION REPORT INIA CENTRAL POWER TRANSMISSION PROJECT (WOAN 2283-Ix) Evaluation Summarv Obiectivqs The two main objectives of the project were: (a) to support 001's strategy to extend and improve power supply through the establishment of centrally owned regional grids and intra-regional connections leading to the promotion of a national grid; and (b) to improve, in the long run, the operational, institutional and financial performance of the State Electricity Boards (SEBs), by assisting in the development of a financially sound, and technically and institutionally competent centrally-owned power utility which would serve as a model to SEBs (Part I, para. 3.1). Xmplementat*on ExDerience NTPC (and, since August 1991, POWERGRID) successfully implemented the project. Implementation of the project components financed under the loan was really begun in April 1987, almost four years from Board approval. The delay was mostly due to NTPC's decision not to proceed with the implementation of the 400 kV transmission lines and substations in the Southern Region (major portion of the Project) until firm agreements were reached with the State Electricity Boards in the Southern Region on the cost recovery arrangements for the transmission facilities to be built under the project. In the meantime, the planning was r-dified by GO and subsequently the description of the project was amended twice. At appraisal, all the project components were scheduled to be commissioned by March 1988. At the time the Bank closed the loan on March 31, 1992, the project was not completed. Supplies and works amounting 'o US$23.2 million remained - these expenditures are being funded under Loan 3577-IN, anid are expected to be completed during FY94 (Part I, paras. 5.2 and 5.10). Results Overall the project achieved its physical objectives, albeit with substantial delays. The project has been the first major component in the establishment of centrally owned regional grids and intra-regional connections. The power transmission capacity in the Southern Region has been increased in a manner which helps optimal utilization of the installed thermal and hydro capacities in this region and permits for exchanges between the Southern and Western Regions. The interconnection between the Northern and the Western Regions is currently used for limited exchanges of power between the two regions and helps the stability of the systems (Part X, para. 7.1). The project contributed in making NTPC an efficient utility, but did not, however, contribute towards the longer-term objective of improving - - the operational, institutional and financial performance of SEBs (Part I, 7.1).  - iii - NTPC's financial rate of return an historically valued net fixed assets declined from a high 17* in FY86 and FY87 to 15%-in FY92 against the covenanted rate of return of 9.5%. Because of the changes agreed by the parties on the project description, it is not possible to make a reasonable comparison between the internal economic rate of return (IBRR) of the original and revised project scopes. The IERR for the project ar implemented was estimated at II% (Part I, paras. 8.1 and 10.2). Sustainabilitv The project is sustainable, even though at present its components are not yet being fully utilized. Sustainability is certainly assured for the future, as the facilities built under the project are integral components of the transmission system development program in India (Part I, para. 10.1). Insufficient generation and transmission tariffs and an unchecked increase of NTPCs and POWERGRXD's accounts receivable could endanger such sustainability. The Bank, GOI, NTPC and POWERGEID have been taking actions to avoid such occurrence. Findings and Lessons Learned Major findings are as follows: a) The project was not completely finalized when the Bank approved it - the first transmission line equipment contract was awarded in March 88, four years ten months from the date of approval by the Bank. Furthermore the specific conditions for effectiveness had to be modified. The long delay in the start-up of project implementation, and the consequent project revision, are attributed partly to the Bank not verifying that there was full agreement and understanding on the part of the SEBs to pay NTPC for the transmission charges. NTPC's unwillingness to begin work before all contracts with the Southern Region SEBs were signed was not appreciated sufficiently. Therefore, the Bank approved this Loan prematurely (Part I, paras. 5.1 and 5.2); b) Once implementation got under way, NTPC implemented the project successfully, with only minor problems and delays (Part I, para. 5.3); c) The Bank's agreement on the "revised" project (para. 3.3) which was determined to require some three additional years for its completion, gave GOI and NTPC the perception that the loan would be extended until the completion of the project; therefore, the Bank's decision not to extend for a fourth time the closing date of the loan came as a surprise to GOI and NTPC (Part I, para. 5.4); d) The project contributed to the enhancement of NTPC's (later POWERGEID'.) expertise in the area of high voltage transmission, created employment of local labor and helped to the development of local manufacturing industry (Part I, paras. 5.5 and 5.6); e) The average time taken from bid opening to the award of the contract (including Bank acceptance of She proposed award) was generally less than nine months. In an effort to speed up procurement, standard bidding documents will in futvre be used by NTPC and PC ERGRID.  - iv - They would also give further emphasis to finishing promptly the payments for the contracts, so that the closing dates of new loan(s) would not need to be extended (*art I, para. 5.7); f) By the t_me the Loan was closed India had repaid almost half of the loan amount utilized (Part I, para. 5.101; g) The area where NTPC's performance fell considerably short of e%pectations was in bill recovery. Maintaining a specific level of accounts receivables was not a condition of this loan and it was only introduced in 1985 under Loan 2555-IN for the Rihand Power Transmission Project. Substantial arrears by SEEs affected NTPCs financial position adversely (Part I. paras. 8.2 and 12.2); h) GO! interventions through the central appropriations helped NTPC resolve, albeit for limited periods, its accounts receivable problem. These interventions aimed at having NTPC operate efficiently, thus keep the electric energy supply at an adequate level. It is doubtful that 0OI's actions have led to SEBs improving their operational efficiency and their billing and collection procedures and practices. What is equally important, but so far received little attention, is the need for energy conservation on the customer side through adoption of appropriate tariffs and tariff structure at SEBs and through end-use efficiencies (Part 1, para. 8.4); i) The SAM adopted the conventional rate of return (ROR) on average historic fixed assets in operation as the sole covenant for NTPC's financial performance. This performance indicator is less appropriate for a fast growing utility where the utility's major concern is to ensure the availability of adequate funds for investment. Furthermore, when the revenues collected are substantially lower than the revenues accrued (due to the large accounts receivable), the financial performance indicators such as ROR, operating ratio, etc., are less meaningful (Part I, para. 8.6); j) A more appropriate covenant would have been a cash generation covenant, e.g. "contribution towards investment" which would have also highlighted the deterioration in NTPC's performance (Part $, para. 8.6); and k) Bank's position (only partially shared by GO!) is that the electricity industry provides a service which has to be fully paid through user- charges. The perception of the State Governments and SEBe, perhaps for political reasons, is that provision of electricity is partly a social service. The transfer of funds to NTPC through central appropriations is but another subsidy (whether it comes from GOS or from SEB), and not a direct payment through tariffs (Part I, para. 12.4).  Major lessons learned from this project are -summarized below: a) As a precondition for further Bank loans, more emphasis should be given to improving the commercial arrangements between NTPC and its clients. However, this has proved to be difficult to achieve in practice unless the financial performance of the SEBs i8 improved (Part I, para. 12.4); b) To enable NIPC to operate on a purely commercial basis, GOI should allow NTPC to sell to other customers the allocated shares of the SEBs which do not comply with their agreements with NTPC. In cases where technical reallocation (by limiting availability of power to a particular SEB) cannot be implemented, commercial reallocation can be done. This can be done by limiting allocations to a defaulting SER and charging a stiff penalty for drawals exceeding the reduced allocation (Part I, para. 12.4); and - c) As a result of the changes in the overall economic policy environment within which WMPC is operating, its financial policies need orientation. Under the circumstances, it would be appropriate to change the existing rate of return covenant into a self financing ratio covenant, because it would not only provide a better monitoring mechanism for NTPC's financial performance, but also provide better support to NTPC towards meeting its development challenges tPart I, para. 8.6). The lessons drawn from this and previous projects implemented by NTPC have been used in the preparation, appraisal and negotiations of the NTPC Power Generation Project, which was approved on June 29, 1993: a) GOI has adopted new investment and commercial policies and electricity tariffs allowing NTPC to shut-off or restrict power supply if its clients are in default with their bulk supply agreements. These policies are designed to introduce better commercial discipline at SEEs, along with improving NTPC's own operational and financial performance, including improving revenue collection (para. 12.3); b) NTPC has agreed with the Bank on an internal cash generation covenant (para. 8.6); c) GO: established POWERGRID to: (i) improve the efficiency in power transmission and systems oper~__ons, through an extensive restructuring of the transmission sector; and (ii) complement its policy initiatives to encourage private generation and competition in power generation (para. 2.6); and d) The Bank and NTPC agreed on standard bidding documents whose use would curtail the procurement period (para. 5.7). The last two points were also taken into account under Loan 3577-IN for the POWRGRID System Development Project.  PROJECT COMPLETION REPORT CENTRAL POWNER TRANSMISSION PROJECT {LOAN 2283-IN) PART I: PROJECT REVIEW FROM BAKK'S PERSPECTIVE 1. Protect Identity Name Central Power Transmission Loan No L Loan 2283-IN RVP Unit . South Asia Region Country : India Sector Energy Sub-sector : Power 2. Prolect Backaround 2.1 In India, the responsibility for electricity supply is shared constitutionally between the Government of India (GOI) and the states. In addition, India is one of the few developing countries with a vibrant, if small, private sector presence in public power supply. At independence; private utilities and licensed local authorities, located in urban areas, provided about 80* of public electricity supply. GOI opted to embark on an ambitious electrification program to support the development of power- intensive industries for a rapid industrial development and expansion of irrigation. The Electricity (Supply) Act of 1948 (the Act) created the state electricity boards (SEBs) and entrusted the state governments and the boards with primary responsibility for public power supply. The coordination of SEBs' activities within the national power development policy, and the formulation of longer-term plans for power development is the responsibility of Central Electricity Authority (CEA), established in 195o. 2.2 Between 1960 and 1980, power demand grew twice as fast as the economy, and the generating capacity increased almost five-fold from about 5,600 MW to about 32,000 MW. Yet, for the entire period the country faced power shortages, frequent power interruptions, wide variations in system frequency, and large drops in voltage at the consumer level because SEzs could not fulfill their responsibilities. Though set up as autonomous bodies, SMUs have been under the stringent control of their state governments in vital matters such as changes to tariffs and tariff structure, with the result that they have not developed commercial and financial disciplines, and their financial performance generally has been poor, to the extent of depending on the state governments for operational subsidies. 2.3 In mid-1970s, GOI reoriented its strategy in order to supplement efforts of SEBs in increasing installed capacity and establishing high voltage transmission networks. Emphasis was put on: (a) acceleratizg the development of the hydro power potential and large coal-fired power plants both at pithead and in the proximity of load centers; (b)-improving the efficiency of thermal power plants and reducing loses in the tranmission and distribution  -2- networks; (c) expanding the rural electrification program; and (d} strengthening the organizational and management capabilities of the SEBs. 2.4 GOI established in 1975 two power generating companies, the National Thermal Power Corporation (NTPC) and the National Hydroelectric Power Corporation (NHPC) to construct and operate large thermal and hydro power stations and associated transmission systems. The rapid increase in generation necessitated to expand the transmission networks and also to increase the voltage level to handle the transfer of large blocks of power from generating stations to load centers. Simultaneously, for the first time a need was felt for power planning and development on a regional basis to ensure the optimum utilization of natural resources which are rather unevenly distributed over the country and also for enhancing the reliability and security of the power transmission systems. The country was divided into five contiguous regions (Northern, North Eastern, Eastern, Western and Southern) with a view to build regional integrated grids. Regional Electricity Boards (REBS were established to integrate the operations of each grid through regional load dispatch centers and to improve collaboration among the SEEs. 2.5 By the time the Central -ower Transmission Project was appraised in October 1982, IDA/Bank had financti under nine operations implemented by NTPC, 6,800 MM of pithead coal-fired :hermal power plants (TPPs) in four sites (Singrauli, Korba, Ru-agundam and Farakka) and associated trausmission lines to evacuate the power generated at these power stations into the networks owned and operated by SEBs. The project was the 31st Bank/IDA operation in the sector, and tenth operation with NTPC. As in the previous NTPC projects, India, acting by its President, was the borrower and NTPC the implementing agency. The project was developed from studies conducted by CRA with assistance by Teshmont Inc. consultants from Canada. 2.6 In 1989, G01 established the National Power Transmission Corporation Ltd. (NPTC) to improve the efficiency in power transmission and systems operations, through an extensive restructuring of the transmission sector, and complement its policy initiatives to encourage private generation and competition in power generation. On August 16, 1991, the management of the transmission assets (operation and maintenance of the assets in service and implementation of those still under construction) of NTPC, including the Project, was transferred to NPTC, under a Management Contract signed between the two Corporations. Subsequently, two other GOI-owned utilities (NHPC and the North-Eastern Electric Power eorporation - NEEPCO) which had transmission lines and substations in operation or under construction, signed similar management contracts with NPTC. NPTC was later named Power Grid Corporation of India Ltd. (POWERGRID). On January 8, 1993, an Ordinance providing for all the rights, titles and other interests related to the transmission systems of NTPC, NHPC and NEEPCO, to be transferred to POWRMGRID, with effect fram April 1, 1992, was promulgated by the President of India. The Bank supports the establishment and development of POWERGRID under the US$350 million Loan No. 3577-IN for the POWERGRID System revelopment Project, approved on March 23, 1993. At the time of preparation o. this PCR, the Bank was working on the finalization of the modifications on the Development Credit, Loan and Project Agreements to formalize the transfer of the Bank loans and IDA credits from NTPC and NHPC to POWERGRID, retroactively with effect from April 1, 1992. With regard to Loan 2283-ZN. assets and liabilities for about US$3.4 million remained with NTPC and assets and liabilities for about US$128.12 million have been transferred to POWERGRID. The amounts will be finalized after accounts between NTPC and POWERGRID are settled.  3. Progect Obiectives and Descriittion 3.1 Proiect Ob1ectives. The primary objective of the project w*as to support GOI's strategy to extend and improve power supply through the establishment if centrally owned regional grids and intra-reg:onal corAections leading to the promotion of a national grid. To attain this objective, the pro3ect provided for: (a) an increased capacity of power transmission system from NTPCs Ramagundam TTP in the Southern Region, in order to ensure optimal utilization from the installed thermal and hydro capacities in this region; (b) a strong power transmission tie between the predominantly hydro- based Southern Region and the predominantly thermal-based Western Region; and (c) an asynchronous ir.er-tie between the Northern and the Western Regions in order to permit larger exchanges of power between the two regions to meet the growing system demands while ensuring stability of the systems. As in the previous Bank-financed projects with NTPC, another objective was to improve, in the long run, the operational, institutional and financial performance of the State Electricity Boards (SEBs), by assisting in the development.of a financially sound, and technically and institutionally competent centrally-owned power utility which would serve as a model to SEMs. 3.2 OriQinal Proiect Descrintion. The project, as approved by the Board on May 19, 1983, is detailed in Annex 1 and comprised: (a) construction of 548 km of double circuit and 564 km of single circuit 400 kV transmission lines; (b) construction of three new and extension of five 400/220 kV substations associated with the lines mentioned in (a); (c) construction of a 2x250 MW capacity "back-to-back", high voltage direct current (WSDC) substation at Vindhyachal TPP to provide an asynchronous interconnection between the Northern and the Weetern Regions; (d) technical services, for detailed equipment and system engineering and construction supervision of the HVDC back-to-back interconnection; (e) installation of metering, instrumentation and communication facilities; and (f) installation of power line carrier communication equipment for voice transmission, line protection and data transmission on each 400 kv transmission line. 3.3 Revised ProJect Description. After the loan and project agreements were signed, GOI obtained financing for the HVDC back-to-back  -4 station from Sweden. The Bank welcomed this co-financing and at 301's request, agreed, on January 23, 1985, to reallocate loan funds and thus amend the project description. In 1984, the construction of two large thermal power plant projects (Manguru and Vijayawada projects) to be built in the Southern Region were deferred beyond the Seventh Plan. In addition, CEA and NTPC wanted to avoid forest land and ensure optimum utilization of the facilities with respect to the revised demand and supply scenarioa2. After protracted discussions between the Southern Region SEBs and NTPC, and with the involvement of CEA, a new transmission system configuration was proposed. Therefore, the project components to be built in the Southern Region (major portion of Parts a and b of the project - para. 3.2) underwent major revision. The proposed changes were found by the Bank technically acceptable and justifiable on the basis of the long-term development of the Southern Region. The Bank thus agreed on the new scheme on November 16, 1986. However, 001 finalized the scheme only in August 1987. The final project description is detailed in Annex 2 and summarized as follows: (a) construction of 164 km of double circuit and 1,229 km of single circuit transmission lines; and (b) construction of four new and extension of seven 400/220 kV substations, and of one new switching station associated with the lines mentioned in (a). Parts (c)-(f) of the project were not amended. The new project description was still within the overall objectives of the project as originally approved by the Board. Thus the Management considered that the approval of the Board for the said changes was not necessary. 4. Pro, ect Desion and Organization 4.1 Prolect Desian. Uhlike the previous Bank operations with NTPC, where the loans were made for the constructzion of power generation plants and for the associated transmission lines to evacuate the power generated, this project was solely to strengthen the transmission system. NTPC had already acquired adequate experience in the area of 400 kV transmission line and substation design and engineering during the construction of the transmission lines and substations associated with the Singrauli, Korba, Ramagundam and 2 Changes in the supply scenario came from GOI's decision to delay the Manguru and Vijayawada power projects beyond the Seventh Plan, due to environmental, resettlement and rehabilitation problems (for the IEanguru project) and lack of financial resources. Changes in the demand scenario came from higher priority being allocated to small scale industry and to rural electrification. The Ramagundam-Manguru-Vijaywada transmission line was re-routed via Khammam to minimize the passage through the forests, where manguru is located. The Vijaywada-Nellore-Red Hills (near Madras) coastal transmission line was discarded because of the severe cyclonic conditions in that area, which would have placed a high risk of damage to the envisaged coastal line.  -5s- - Farakka power plant projects. The. basic and detailed engineering work for the 400 kV transmission lines and substations was carried out by NTPC in- house. The detailed engineering of the HVDC back-to-back transmission link component was carried out by NTPC in cooperation with ABS, Sweden, the equipment supplier. NTPC carried out the preparation of specifications, bidding documents, bid evaluation reports and construction supervision of all the components of the project. To ensure smooth implementation, the execution of the project required co-ordination with a number of major agencies including beneficiary SEBs. This coordination was not always without problems (para. 5.2). 4.2 Prgiect Orcanization4. At the time of appraisal, NTPC had already adopted its current three-tier organizational structure at corporate, regional and project levels. The Corporation is headed by a Chairman and Managing Director (CMD), who is assisted by five full time functional directors, namely, Director (Projects), Director (Operations), Director (Technical), Director (Finance) and Director (Personnel). At the Corporate Office, corporate planning and central procurement functions are headed by Executive Directors reporting to the CMD. For the purpose of the administration and execution of work at the sites, the Corporation is divided into five regions (Northern, western, Eastern, Southern and National Capital Regions) with headquarters at present located at Allahabad, Nagpur, Patna, Hyderabad and Delhi, respectively. These regions are under the control of Regional Executive Directors who are responsible for the implementation, operation and maintenance of power plants in their respective regions. Each power plant is headed by a General Manager$. The structure has shown the advantage of optimizing the span of control of the CMD and provided for the decentralization of line responsibility while retaining centralized systems in areas such as long-term planning, basic engineering, procurement of critical equipment and spares, quality assurance, co-ordination with the World Bank and other financing agencies and inspection. Various parts of the Project were located in the Northern, Western and Southern regions and were managed by the -respective regional offices. 5. Project Implementation 5.1 Loan Effectiveness. Loan 2283-IN was approved on May 19, 1983; the Loan and Project Agreements were signed on June 8, 1983. It was expected that the loan would be declared effective by September 9, 1983. Signing of a Subsidiary Loan Agreement between GOt and NTPC, satisfactory to the Bank, and of bulk supply contracts between NTPC and the SEBs for the sale of electricity from the Bank financed Singrauli and Korba power plants, were conditions for loan effectiveness. The Subsidiary Loan Agreement was provided on time. However, delays were experienced in finalizing contractual arrangements with All these coal-fired power plant projects were partly funded under IDA credits and Bank loans. As NTPC was the legal implementing agency of the project during the life of Ln. 2283-IN, NTPC's project organization and management is reviewed in this section. Until August 16, 1991, NTPC'-s regional transmission units were also headed by a General Manager (para. 2.6).  -6- SEBs. This had been originally a condition for loan negotiations but subsequently was made a condition for loan effectiveness. The delays led to postponing twice the loan effectiveness date eventually to March 1984. By that time, NTPC could only sign Memoranda of Understanding (MOU) with the concerned SEBs. The Bank noted some deficiencies'6 in these MOTls, but concluded that they fulfilled the purpose of providing an agreement between NTPC and the relevant SEEs and other institutions7, covering the sale of electricity from the Singrauli and Korba power plants. The loan was declared effective on March 29, 1964, a delay of 6 1/2 months from the date of effectiveness originally determined at signing. 5.2 Project Start-u ad Imolementation Schedule. At appraisal, the project was expected to be completed by March 31, 1988. The construction of the EVDC back-to-back station proceeded satisfactorily. The station which was projected to be commissioned in March 1988, was put into service in end 1987. On the other hand, NTPC could not proceed with the implementation of the 400 kV transmission lines and substations in the Southern Region (major portion of the Project) until firm agreements were reached with the Southern Region SEBs on the cost recovery arrangements for the transmission facilities to be built The deficiencies found by the Bank were summarized as: fi) short remaining validity period of the MOU8, to March 1985; (ii) lack of fixed commitment charge for the SEBs; (iii) lack of definition for profits in tariff calculation; and (iv) lack of calculations of flat rate, variable energy price and transmission charge. NTMC's comments on the above are: (i) MOUs were valid from February 1982 to March 1985; (ii) No coLmitment charges were provided as NTPC was not in a position to assure delivery of shares to SEBs. The tariff in Rs./kWh basis enabled NTPC to earn higher returns as the actual levels of operation were above the normative levels. Absence of fixed commitment charges did not in any way prove detrimental to NTPC's interests; (iii) Profit by way of return on equity was included in the tariffs as an element of fixed charges; and, (iv) Although the calculations did not form part of the MOUs, the tariffs were based on detailed calculations based on the principles and parameters mentioned in the MOUs. Delhi Electric Supply Undertaking (DESU) and the Department of Power of the Union Territory of Goa.  -7 under the Project . In the meantime, the generation and transmission plans for the Southern Region and the description of the project were modified (para. 3.3). The SAR envisaged that the bid documents for the first contracts for all the transmission lines (contract packages for the supply and erection of the line towers) would be issued at the latest by September 1983 and the contracts would be awarded by June 1984. The bid documents for these packages were issued in April 19879, and the first contract was awarded in March 1988 (four years ten months from Board approval). 5.3 Implementation Process. Once project implementation got under way, there were some delays but these were not of significance - minor delays occurred in the design and fabrication of tower parts for Ramagundam-Khammam line, and supply of some 400 kV circuit breakers. The design, procurement and installation of the metering, instrumentation and communications equipment fpara. 3.2, Items d, e-and f) were not given the importance they deserved and their commissionings were delayed substantially to 1990-1992. 5.4 Extensions of the closina Date. The loan was scheduled to be closed on March 31, 1989. Implementation of the project components financed under the loan was really begun in April 1987, almost four years from Board approval. While agreeing to GOIs request to revise the project, the Bank recognized that extension of the loan closing date would be required. A supervision mission estimated in January 1989 that the revised project would only be completed by March 1992, and that completion of the payments would require the extension of the closing date to 1993. However, the Bank reserved the right to review progress under the project and extend the closing date when necessary. The Bank carried out these reviews annually and agreed extending the closing date by one year each time, for a total of 36 months to March 31, 1992. In the meantime, in March 1991, in an effort to accelerate disbursements under the project, the Bank also agreed in principle to finance items of equipment totalling US$27.2 million that were originally planned to be financed by NTPC. The Bank did not extend the closing date of the loan beyond March 31, 1992, but informed GOl that it would be willing to consider to include funding the completion of the ongoing contracts retroactively under the POWERGRI7 -ystem Development Project. The latter project was approved by Even before project negotiations, some of the Southern Region SEBs had questioned NTPC on the utility or the benefit to themselves from the transmission lines being set up under the Ramagundam project, and manifested significant reluctance to agreeing to pay NTPC for the transmission line charges for those lines constructed under the said Ramagundam Project. The discussions/negotiations between NTPC and Southern Region SEBe became protracted partly because these SEBs had not dealt before with a centrally-owned utility in terms of sharing the power generated from the plant, and the cost of that power. It took about four years for the parties involved t.? develop a consensus on NTPC's tariffs. Although NTPC comm.3nted that the last agreement for the Southern Region was signed in April 1985, Bank's files show that this was an issue until th.e March 22 - April 7, 1987, supervision mission. It should be noted that at that time, GOX had not yet granted its full clearance for the new transmission development scheme, which it did in August 1987.  the Board on March 23, 1993 (Loan 3577-IN; para. 2.6) and includes US$23.2 million for the completion of the contracts of the Central Power Transmission Project. Disbursements for these expenditures under Loan 3577-IN would be completed during FY94. 5.5 Procurement. The equipment and materials financed under the loan were split into 71 packages, most of which were procured under international competitive bidding (ICB) procedures in accordance with Bank guidelines. Contractors who supplied transmission line tower structure were in charge of the erection of the towers, insulators and hardware, and stringing of the line conductors, on a supply and erect basis. Suppliers of main equipment for the substatLens were also in charge of the erection of the substations. NTPC procured, always under ICS, the conductors, line material such as insulators and hardware and the electrical equipment including metering and instrumentation and had these equipment erected by the above mentioned contractors. The relatively large number of contracts and the above forms of packaging created a significant workload on NTPC as well as Bank staff to monitor and supervise these contracts. However, the above two characteristics helped NTPC staff to acquire valuable experience in preparing contract documentation, reviewing and evaluating bids, and in managing the engineering of the project, since they were responsible for proper interfacing of project materials and equipment from different suppliers. Most of the said NTPC staff have been transferred to POWERORTD. However, it is noted that the above procurement system applied by NTPC, which required drawing up of specifications for tenders, preparation of bidding documents and carrying out of bid evaluations swamped NTPC staff who at one point had to handle some 1,200 contracts valued at over US$1 billion. On the other hand, dividing the project material/equipment into numerous contract packages, promoted participation from a range of large and medium sized local manufacturers/ suppliers which, in turn, has contributed to the development of local manufacturing industry. 5.6 Of the 71 contracts (total value: US$169 million equivalent) put out for ICB, 12 contracts (valued at US$31 million or about l8* of the total) were awarded to foreign manufacturers/suppliers. Of the two highest value contracts (both for the supply of conductors) one was awarded to a local and the other to a foreign manufacturer/supplier. The local industry was fairly competitive where the size of contract packages was within its manufacturing and/or supply capability. NTPC followed its practice of specifying the qualification requirements of the prospective suppliers on the bidding documents; this was not objected to by the Bank and worked reasonably. 5.7 For all contracts estimated to cost over US$2.5 million equivalent, NTPC submitted for Bank's review and comments the bidding documents and evaluation reports. Bank files show that there were delays in procurement, and on some occasions there was need to amend the bid documents, and also to re-bid in some cases. Based on the available documentation, the average time taken from bid opening to the award of the contract (including Bank acceptance of the proposed award) was generally less than nine months. In an effort to speed up procurement, standard bidding documents will in the future be used by MMPC and POWERGRID. Under the NTPC Power Generation Projectla and Loan 3577-IN for the POWERGRID System Development Project, NTPC to This project was approved on June 29, 1993.  -9 and POWERGRID respectively agreed on standard bidding documents, whose use would reduce the procurement period substantially. NTPC and POWERGRID would also give further emphasis to finishing promptly the payments for the contracts, so that the closing dates of new loan(s) would not need to be extended. 5.8 Prolect Costs (Part III, Table E). The total cost of the original project, including contingencies, taxes and duties, was estimated in the SAR at about Rs. 5,864 million (US$617.3 million equivalent). The actual cost of the revised project was Rs. 5,423 million (US$264.4 million equivalent). In US dollar equivalent, the actual project cost was substantially lower than the appraisal estimate because of the substantial devaluation of the Rupee from Rs.9.5/US$ at appraisal to Rs.25/US$ in March 1992, when the loan was closed. During the implementation period, the weighted average rate was Rs.20.5S/US$. While inflation increased project costs in local currency, the devaluation. resulted in the loan proceeds generating a substantially larger amount in local currency than had been expected. Despite the inflation, in current Rupee terms, the actual project costs were slightly lower than the appraisal estimates. Although a detailed and realistic cost comparison between the appraisal estimates and the actual costs is not possible due to the major changes to some of the transmission lines and the associated substations, it is concluded that costs at appraisal were overestimated. 5.9 Project Financing. The financing plan was changed substantially. The plan estimated at appraisal and the actual plan are summarized in the following table. Financina of the Proiect Sources SAR Actual /a (US$ million) .J(e) (USS million) (.) - - Bank Loan 250.7 41 131.5 50 - GOI (as Equity and Loan) 366.6 59 73.8 28 - Credit from Sweden - - _9.1 22 Total f 17.3 100 264.4 100 /a Excludes US$23.2 million to be disbursed under Loan 3577-IN (para. 2.6). 5.10 Disbursements. The estimated and actual disbursements, and the original and revised allocation of the loan proceeds are given in Part III, Tables E and F, respectively. Due to the fact that the HVDC substation was hived off from Bank financing and the hiatus in the implementation of the lines and substations led to virtually no disbursement of loan proceeds through end 1986. By the time of the original closing date (March 31, 1989), cumulative disbursements were only US$40.5 million, 161 of the original loan amount. The closing date of the loan was extended three times by one year each, to March 31, 1992 (para. 5.4). In December 1991, US$50 million of savings arising mainly of exchange rate variations were cancelled from the loan amount. The loan was closed on March 31, 1992; disbursements were completed on September 8, 1992. The undisbursed balance of US$69.2 million was cancelled on that date. Thus disbursements under the loan were US$131.5 million. India began repaying the proceeds of the loan on September 1, 1988,  -10- and will continue to do so until March 1, 2003. It is noted that by the time tne loan was closed, India had already repaid US$64,666,000, almost half of the loan amount utilized. 6. Environment. Resettlement and Rehabilitation 6.1 The project did not create any significant environmental and resettlement and rehabilitation problems. NTPC selected the line routings so as to minimize infringement on forest land. Where trees had to be felled in order to provide access to the lines, trees of a corresponding number were planted in the vicinity. The question of relocation of people affected by the project did not arise because transmission line routes and substation sites were selected in un-inhabitated areas remote from the population centers. 7. Physical Results 7.1 Proiect Objectives. Overall, the project has achieved its objectives (para. 3.1). The project has been the first major component in the establishment of centrally owned regional grids and intra-regional connections. The power transmission capacity in the Southern Region has been increased in a manner which helps optimal utilization of the installed thermal and hydro capacities in this region and permits for exchanges between the Southern and Western Regions. The asynchronous interconnection between the Northern and the Western Regions is currently used for limited exchanges of power between the two regions and helps the stability of the systems. The project contributed in making NTPC an efficient utility but failed in its sectoral objective in inducing improvements in the operational, institutional and financial performance of SEBs, as seen in the disappointing operational, financial and institutional performances of many SEBs. It is not clear how, if any, NTPC's institutional development helped those performing SEBs, such as the Maharashtra and Andhra Pradesh SEBs whose transmission networks were strengthened by this project. The failure in obtaining improvements at SEBE while supporting the development of NTPC as a model utility can be traced to the fact that the Bank had not fully appreciated the extent of the interference by the state governments in the affairs of SEBs (para. 12.4). 7.2 Phvsical Results. The individual components of the revised project were commissioned at various dates given in Part III, Table D. The 2x250 MW HVDC component was commissioned in end 1987, compared with the appraisal estimate of March 1988, and has been providing for power exchanges between the Northern and Western Regions (each block of 250 MW is capable of operating independently in either direction). The lines and substations in the Southern Region were, at appraisal, projected to be commissioned during the June-December 1987 period. These lines and substations which were delayed awaiting agreement from the SEEs (para. 5.2) and suffered from NTPC's overload in processing contract documents (para. 5.5), were actually commissioned between May 1991 and March 1992. 7.3 Since their commissioning, the project components have in general functioned satisfactorily. The problems which did arise were invariably of a minor nature and were resolved without seriously affecting the transmission of power. The availability of the individual components has been almost 100% in 1992 (Annex 3). However, the average daily power transmitted through some of the lines is short of its design capacity. The reasons for this unitrutilization are: (i) suboptimal operation of generating plant on a  regional basis; and (ii) indifferent or unresponsive generation tariff structure. Generation plants are not operated optimally because individual SEBs do not observe cost merit order in power generation. The tariff structure in effect up to November 1992 did not encourage merit order plant dispatch in the regional grids. The actual NTPC tariff in application since November 1992, is on two part basis as per the recommendations of GOIt's K.P. Rao Committee. This tariff is conducive to the introduction of merit order operation. POWERGRID is pursuing further tariff improvements in transmission. Assistance is being provided under Loan 3577-IN. 7.4 The Ramagundam-Chandrapur double circuit line linking the Southern and Western Regions was intended for use mainly during emergencies in either region. Only one circuit is presently in regular use carrying power (which is only a fraction of the line's load carrying capacity) from the Western Region directly to some of the northern areas of Andhra Pradesh in the Southern Region. The construction of an asynchronous tie (HVDC back-to-back station similar to the one implemented under the project) to be built at Chandrapur is being examined by POWERGRID to help effect large exchanges of power between the two regions in the future and the loading of the Ramagundam-Chandrapur line will increase. When commissioned, this inter-tie will increase the loading of the Chandrapur-Ramagundam double circuit lines. 7.5 The 400 kV transmission system under the project was intended to improve voltage levels and carry electric power over long distances with low losses. However, in practice voltages in the systems drop sometimes to well below the permissible limits (as low as 300 kV). This problem affects adversely those SEBs which are further away from the sources of generation, and is due to the SESs nearer the generation sources who draw higher reactive power (MVARs) from the 400 kV systems. Ways to rectify the situation are for SEBs either to install shunt capacitors or to make it obligatory and enforce the installation of capacitors on all large motors, including irrigation pump motors. Five major grid failures were reported in the Southern Region during the period November 1991 to January 1993. In every one of these occasions, low voltages were prevailing in the regional grid, because SEBs were drawing unusually high MVARs over the 400 kV network. The problem was aggravated because of low generation in certain states. However, NTPC/POWERGRID 400 kV network worked satisfactorily during this period and did not contribute to the grid failures. 8. NTPC's Financial Performance 8.1 NTPC started its commercial operation in February 1982, a few months prior to the appraisal of the project. From 1982 to the present, NTPC's financial performance has been satisfactory, except for the large accounts receivable (para. 8.2). NTPC's financial statements for the period PY85 to FY92 are given in Annexes 4.1-4.3 and a summary for the last five years is given in Table 8.1 below. NTPCIs operating data reflect the growth the Corporation experienced since 1982. Key financial parameters, e.g., assets in operation, revenue from electricity sales, total operating revenues, and operating income before interest, increased some five-fold since 1987. The rate of return on net average fixed assets (historically valued) for this period was high, generally around 151 (between 13* and 17%), well in excess of the 8a between FY8S-PY90 and 9.5S starting from FY91, as was stipulated in the project agreement.  Table 8.1 M' F"'Y"t" A 1so 19 1w0 13 U 19"0 ' 1 tm92 _ _ ~~~~~~. n .ee_ _ _. Fg..s.b 8493. t rewue A.UeWl FNt 849oW1 VW*"*% A493e1 `rmcst AcS Per.o McnI f.r.a.* AInI Aor0ee At,el 6I.s9l.tl sals CtbS) 4.110 11.493 ISt." 13,445 U.40 17.92, 1.&8 8,93M4 24, 85.41 88.411 44,93 40,80 48.m 6,6 Jot. la wUe. b1k 4,5 i,4 1,99 4,47 1,1t2 0,U11 7.142 9.4U7 O."10 . 6,12 4,868 4.,7 33,81 most. $*lJo 1evu 8,07 4,41 4." 5U 5,78 7.,27 7,201 10,7t3 1.1460 i,5108 16,87 191,87 1T4,2U W.1. 45847 lbet. la Isle* 1W. 1"72 4 907 1. 1,45 1145 4,259 4,866 1.1" 4,214 2,9 2.768 1.098 Too$ 0estt.o Ns Ib1 8.21 1 S,440 4,854 5.14 *,M2 6,45 0.145 0,M 1,122 11,740 17,24 90.5M 22,8 24,0 15,99 "89,9 Row. S. 3mp* Req. 1.689 1.105 1.IM 1.178 2,19 8M977 4,11 5,14 7.82 41,09 $,#4 8.194 36.722 _AmSt. Imlwabl* so 1,.8 M 2,.4 447 *,M so 4,0 09 5,08 too" l1.89 16tO 5,1 1.0 19.0 Je. !* An. Soee. M on 79 544 15 S.23 18 1,92 us 5,8 US S,641 280 4 A.aR_1 .s0.C ofOwe) 18 170 M1 2 1n 7 no0 n? 14 n 6 M 1 2 # 14 b,nst SbAU- 1.0 5.0 1.6 5.2 1.0 5.7 11 6.1 1.0 4.7 10 4.1 1.9 * 4.1 1.5 taof rs (3) 17 9 173 is lox S$ sox 73 t5 M in Of 15t eerums RIl*e (3) M 5n 55 573 "S 68 "5 "S six on $0 Ws t.,b.bub)eCook. M -.1 .n 3 M 91 40 123 -2 24# 1 so 173 53 9 b*S k,lwo Ce"" t tn) 4.9 2.0 4.0 1.5 J.9 1.4 2.4 1.3 2.5 1.4 2.0 1.6 2.4 (.)C esad tbo"saes Is 84 is 44 1t 184 # 55,975 45 2 la "S 64 0 1.42 (b) Av.* ftetip Cos Oew.P. 141 14 221 2*14 04 XO N0 844 464 "4 645 93 t8 1,0on 9 .709 (a) Relt Cs)/() 0.08 0." 0.06 2.09 0.09 0.52 0.12 17." 0.10 0.00 0.0 0.51 0.07 0.n7 O." 1.o  _ 13 - 8.2 Bill collection and accounts receivable have been persistent problems for NTPC, because of the poor financial situation of many SEPs. NTPC's accounts receivable increased at a far greater pace than its revenues and operating income in successive years. The receivables, which represented some 5.2 months of billing in 1987. steadily increased to 7.5 months in 1991, compared to less than one month (27 days) projected in the SAR for the entire period. A covenant specifying the level of accounts receivable not to exceed an amount equivalent to the proceeds of its sales of power for the two preceding months, was first introduced for NTPC under Loan 2555-IN for the Rihand Power Transmission Project approved in May 1985, with effect from the end of FY86. The covenant was repeated in three subsequent Bank loans"1, but NTPC has never been able to comply. In 1991, the increase in accounts receivable (over 1990) was some Re 3.53 billion, while the corresponding increases in electricity sales revenue and in total operating revenues were Rs 2.88 billion and Rs 3.63 billion respectively; in practical terms, NTPC collected virtually no additional revenue in FY91, even though it sold an additional 4,800 GWh of energy. In 1986, NTPC internal cash generation barely met its debt service requirements and the increase in working capital (Annex 4.2). A liquidity crisis was averted by the cash received by NTPC from its first issue of medium-term bonds. Since then NTPC has been issuing such medium-term bonds every year, mostly to help finance the expansion of its facilities. The level of its accounts receivable have also been increasing every year in absolute terms as well as a percentage of its annual billings. The funds raised from these bonds have helped NTPC to bridge finance its increasing working capital requirements. 8.3 Increasing bill collection and accounts receivable problems led to several interventions by GOI on behalf of NTPC during the period FY88 to FY92. At each of these interventions, GOl assumed the responsibility to clear some of the arrears from sEBs by transferring to NTPC corresponding amounts from its allocations to the respective states. Such payments are carried out over a period of four years. In February 1992, NTPC acquired the Unchahar power station in lieu of arrears of the Uttar Pradesh SEB. As indicated in Table 8.1 above, NTPC has received over Rs 11 billion from the transfers through the central appropriations from 1988 to January 1993. Combined with other bill collection efforts, NTPC was able to reduce its level of accounts receivable despite the rapid increase in sales. At the end of FY93, the overall level of accounts receivable was 3.3 months of sales equivalent, but excluding the amount still to be paid through the central appropriations, it was 1.4 months of sales equivalent. More encouraging is that during the last three months of FY93, 93% of billing was realized directly from the SUBs. During the negotiations of the NTPC Power Generation Project, agreement was reached that NTPC would maintain the level of its accounts receivable at two months of sales equivalent excluding the amount still to be paid through the central appropriations for which a specific payment schedule was also agreed. 8.4 (00's interventions through the central appropriations helped NTPC avert financial crises and resolve, for limited periods, its accounts receivable problem. These interventions aimed at having NTPC operate efficiently, thus keep the electric energy supply in the country at an La. 2674-TN for the Gas Based Combined Cycle Power Project (FY68); La. 2844-IN for the National Capital Power Project (FY87); and Lu. 2845-IN for the Talcher Thermal Power Project (FY67).  - 14 - adequate level. It is doubtful that GOI'S actions have resulted in SEBs improving their operational efficiency as well as their billing and collection practices from their own customers. What is equally important, but so far received little attention, is the need for energy conservation on the customer (SEBs) side through adoption of appropriate tariffs and tariff structure at SEBS and through end-use efficiencies. 8.5 The accounts receivable as of March 1990 were about Rs 11.5 billion (scme US$500 million equivalent, and represented over six months of current billings). it was around the same time that the Bank took the exceptional step of cancelling the processing of a loan of USS375 million to NTPC for a project which had already been negotiated, primarily because of the inability of NTPC to reduce its accounts receivable. Since October 1992, GOI adopted new investment and comercial policies and electricity tariffs for NTPC. They are designed to introduce better commercial discipline at SEBs, along with improving NTPC's own operational and financial performance, including revenue collection. New two part bulk supply tariffs for NTPC coal fired stations became effective in November 1992. Further reforms in bulk power and transmission tariffs will be studied and implemented under Loan 3577-IN. The process of establishing commercial contracts between the SEBs and the central utilities is cumbersome, but progress is being made with strong Bark support under Loan 3577-IN and the NTPC Power Generation Project. The new commercial policies and bulk power supply agreements should enable NTPC to reach a level of bill collection close to 100% during FY94. 8.6 The legal documents of the Loan adopted a sole covenant on NTPC's financial performance, the conventional rate of return (ROR) on average historic fixel assets in operation. An important objective of this conventional ROR indicator is to serve as a measure of the adequacy of revenues compared to the cost of capital. Therefore, it has more appropriate application with mature utilities, and where the investment, which is not included in the rate base, is a fraction of the utility's net fixed assets in operation (or the rate base). Table 8.1 indicates that throughout the entire project implementation period i.e., FY84-FY92, the projected "Works in Progress" (WIP) was a substantially high proportion of the rate base; through 1987, WIP was higher than the Gross Assets in Operation; for practical purposes the rate base was insignificant relative to the annual investment. A utility could well have a very high rate of return performance but be faced with liquidity crisis, and the computation of other standard financial indicators such as operating ratio would not provide meaningful information"2. One could, readily conclude that such a performance indicator was not appropriate for NTPC at the time. A more appropriate financial indicator under such circumstances is "contribution to the investment", because it targets at generating from internal sources a pre-determined level of funds towards the on-going investment after taking into account debt service and working capital requirements. Under the NTPC Power Generation Project, NTPC agreed that it would produce, starting from FY95, funds from its internal cash generation equivalent to not less than 20% of its capital expenditures on a three-year moving average. The amount for FY94 would be 15% of the average of NTPC's capital expenditures for the FY93-PY95 period. The most recent analysis of NTPC's finances is given in the SAR for the NTPC Power Generation Project (Report -o. 11827-IN; Dated June 4, 1993).  9. Comuliance with Loan Covenants 9.1 The ke'y institutional and cost recovery covenants introduced in the Loan and the Project Agreements and the extent they were complied with are listed in Part III, Table R. 10. Sustainability and Internal Econ0omic Rate of Return 10.1 The project is sustainable, even though at present its components are not yet being fully utilized (paras. 7.3 and 7.4). Sustainability is certainly assured'for the future, as the facilities built under the project are integral components of POWERGRID' s system development program. However, insufficient generation and transmission tariffs and an unchecked increase of NTPC's and POWMRGRID's accounts receivable could endanger such sustainability. The Bank, GOI, MTPC and POWERGRID have been taking actions to avoid such occurrence (paras. 8.5 and 8.6). 10.2 Because of the changes agreed by the parties on the project description, it is not possible to make a reasonable comparison between the internal economic rate of return (IERR) of the original and revised project scopes. The IERR for NTPC/POWERGRID's time-slice investments for the FY84- FY92 period has been estimated at 11%. Under Loan 3577-IN, the IERR for POWERGRID's time-slice investments during the FY93-FY2002 period was estimated as 22%. The difference is explained by improvements in tariff setting parameters"3 and the unusually high inflation encountered in India in late 1980s and early 1990s, which brought down tariff revenues in real terms (Part III, Table G). 11. Bank Performance 11.1 It is difficult to provide a judgement for a project whose description was substantially amended twice, albeit within its original objectives, and was really begun about four years from Board approval. The Bank might have cancelled Loan 2283-IN during the project hiatus in 1984-1987. But it might have lost an opportunity to influence transmission development in India. Instead the Bank opted to continue its dialogue with GOI, CEA, NTPC and POWERGRID on transmission system development and operations. The dialogue has culminated with the recent approval of Loan 3577-IN (para. 2.6). 11.2 On another front, the Bank opted not to suspend disbursements under loans to NTPC, when NTPC fell into default of the accounts receivable covenant and substantial arrears from SEBs began creating problems for this Corporation's financial position and overall future (para. 8.2). Although the accounts receivable covenant was not included in this Loan, the Bank had considerable leverage in refusing to extend the closing date after March 1989, particularly, if the Bank had invoked the accounts receivable covenants in other on-going projects with NTPC. The Bank decided to continue its dialogue to encourage GOI to adopt for NTPC new investment and commercial policies, and electricity tariffs. It alerted GOI and NTPC that the Bank's continued The return on equity for projects started before FY90 was 10%; for those projects started in FY91 and FY92 it was 12%. The return has since been adjusted to 16% for future projects. Depreciation was also increased.  - 16 - funding for their projects would no longer be possible unless actions to correct NTPC*s finances are taken. In 1990, the Bank decided not to present to the Board the then-negotiated Regional Power Systems Project, because GQI and NTPC were unable to fulfill the conditions for Board presentation within a reasonable time period. other multilateral and bilateral agencies followed the Bank in limiting their financing of NTPC projects. All these actions helped GO0 to initiate reforms in the power sector and adopt new investment and commercial policies for NTPC. If the Bank had suspended disburs-nents, it might have lost another opportunity, this time to influence reforms in power generation. In view of GO$'s, POmEGRIDo s and NTPC's recent actions prior to the approval of Loan 3577-IN and negotiations of the NTPC Power Generation Project, the Bank's above decisions bore their fruits. 11.3 Bank's supervision effort was concentrated mainly on the procurement issues, in which area the Bank provided valuable help to NTPC. It covered as well, other important areas such as physical progress including problems in implementation, in disbursements performance, etc. However, visits to the work sites by each mission could not be undertaken because each mission covered supervision of all Bank funded NTPC projects. it is concluded that the Bank's performance under the project was satisfactory. 11.4 Even though contracts amounting to about US$23.2 million equivalent were already committed (but not yet paid) under the project, and there were ample funds still available in the loan account on March 31, 1992, the Bank did not extend the closing date of the loan for a fourth time. Just a year before, the Bank had extended the loan for the third time without stating this was the last extension or any other conditions. At that time the Bank had also agreed on funding contracts which were originally to be financed by NTPC. This might have given GOI and NTPC the impression that the Bank was following the views of the January 1989 mission (para. 5.4). The Bank's 1992 decision not to extend the closing date came as a surprise to GOI and NTPC and increased NTPC's fiscal problems as the utility did not have the local and foreign funds to pay its suppliers and contractors on time. The Bank's action stemmed from (i) its more stringent implementation of the policy on the management of the closing dates; and (ii) its desire to have NTPC reach promptly, an agreement with POWERGRID on the transfer of the transmission assets. 12. Borrower Performance 12.1 The performance of NTPC in the technical and managerial activities was satisfactory. Bank missions have reported delays in preparation of specifications, bidding documents and bid evaluations, and in preparing its quarterly progress reports in a timely manner; these shortcomings, however, have been mainly due to the large workload of NTPC at the time and because the information needs to be collected from various sites which are located in  -17 remote places". The project provided continuing opportunity for NTPC to enlarge its skills and experience in procurement under ICB procedures, in designing the transmission systems and in supervising their implementation and construction. The PCR mission was advised that the services of NTPC staff, involved in implementation of the HMVDC .ibstation, were subsequently used by the supplier, on a consultancy basis, in the installation of {VDC substation in another country. 12.2 The only area where NTPC's performance fell considerably short of expectations was in bill recovery. Maintaining a specific level of accounts receivables was not a condition of this loan and it was only introduced in 1985 under Loan 255$-IN for the Rihand Transmission Project. Substantial arrears by SEBs affected NTPC's financial position adversely. NTPC maintained it had little recourse against the defaulting SE8s, because of its understanding that it could not cut off the power supply-to the defaulting SEES even if it wanted to. At present NTPC is carrying out more systematic and aggressive efforts at all levels of the organization (from the regional managers to the CMD) to obtain letters of credit from SEBs for the appropriate aMounts of energy sales. These actions include seeking the intervention of the Minister of Power in order to collect dues from SEBs. GOT's new commercial policies and new bulk power supply agreements should enable NTPC to reach a level of bill collection close to lo0o during FY94. 12.3 GOT has recently adopted new investment and commercial policies and electricity tariffs allowing NTPC to shut-off or restrict power supply if its clients are in default with their bulk supply agreements. These policies are designed to introduce better commercial discirline at SEBs, along with improving NTPC's own operational and financial performance, including improving revenue collection (para. 8.5). 12.4 There appears to be a difference in the positions of the Bank, GOI and the State Governments. The Bank's position is that the electricity industry provides a service which has to be fully paid for by each customer category (cross-subsidization permitted) through user charges. GOI seems to be moving towards the Bank's position as shown by the measures and incentives taken in recent years including recommendations to the state governments to increase tariffs. The states in general, appear to perceive (sometimes for political purposes) the provision of electricity as a social service and do not allow SEBs to operate independently and in line with commercial practices (para. 2.2). Furthermore, in an economy, where the public perception of a public utility oftn is to provide primarily a social service, the use of a profit criterion as the sole measure of the utility's financial performance is not generating adequate public support. 13. Perfo.,rmance of Consultants and Contractors 13.1 The performance of consultants engaged in the design and construction of HVDC and 400 kV facilities was satisfactory. There was a 14 Furthermore, after the transfer of the management of NTPC's transmission assets to POWERGRID, the information relating to the transmission system are collected from this Corporation. Stabilization of a proper coordination system between the two Corporations has taken some time.  - 18 - positive transfer of technical know-how from these consultants to NTPC staff. Barring a few problems and some minor delays, overall the performance of the contractors/suppliers was also satisfactory. The packaging of contracts in appropriate sizes promoted participation from local manufacturing industry, and the Bank's and NTPC's involvements resulted in improvement in the quality of the product. 14. Proiect RelationshiD 14.1 A good working relationship was maintained between the Bank and GOI and NTPC, and later also with 'OWERGRID. 1S. Prolect Dogumentation and Data 15.1 The project's legal agreements adequately reflected the objectives of the project -nd the Bank's interests. The staff appraisal report provided a relatively useful framework for the Bank and NTPC during project implementation. One of the weaknesses of the SAR was that it did not verify whether there was a full agreement and understanding on the part of the SEEs to pay for the transmission charges (paras. S.l and 5.2). Bank supervision missions appear to have been adequate in terms of their frequency. However, most of the missions had to supervise and/or prepare other projects. It is therefore likely that the missions were not able to make visits to some of project sites. Some of the important project documentation (e.g. supervision mission reports, aide-memoires), project progress reports and annual financial statements was not found in the Bank files.  - 19 - PROJECT COMPLETION REPORT INDIA CENTRAL POWER TRANSMISSION PROJECT (LOAN 2283-IN) PART I:: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Comments by NTPC and Endorsed by the Government of India A. Preface 1. The loan was made to India in May 1983 for on-lending to the National Thermal Power Corporation (NTPC). The two main objectives of the project were: (a) to support GOI's strategy to extend and improve power supply through the establishment of centrally owned regional grids and intra- regional connections leading to the promotion of a national grid; and (b) to improve, in the long run, the operational, institutional and financial performance of the State Electricity Boards (SEBs), by assisting in the development of a financially sound, and technically and institutionally competent centrally-owned power utility which would serve as a model to SEBs. On August 16, 1991, the management of the project was transferred from NTPC to National Power Transmission Corporation Ltd., under a Management contract signed between the two corporations. On January 8, 1993, an ordinance providing for all the rights, titles and other interests related to the transmission systems of NTPC to be transferred to POWERGRID (NPTC was later renamed as Power Grid Corporation of India) was promulgated by the President of India. B. Comments on the Analysis in Part-I 2. The analysis made by the Bank under Part-I is comprehensive and has covered the important aspects. The analysis is generally in order. Nevertheless, there are certain issues which need to be further examined keeping in view the background of developments as they took place to better appreciate the events. These are as follows: Project Start-up and Imnlementation Schedule (reference nara. 5.2 of Part-I} 3. Actual dates of signing of BPSA (Bulk Power Supply Agreement) in Southern region are as follows: APSEB 22.3.1985 KEB 21.3.1985 TNEB 22.3.1985 KSEB 10.4.1985 GQA 17.4.1985 Extensions of the Closing date (reference nara. 5.4 of Part-I) 4. The Bank did not accept GOI's request to cover the expenditure on ongoing contracts under the savings available under other ongoing loans to NTPC after loan closing date till POWERGRID System Development Project loan  - 20 - became effective. The continuity in Bank financing w-- sought on account of certain problems relating to the deemed export benefits to the contractors and also relating to the import license. Procurement (reference nara. 5.7 of Part-I) 5.1 In an effort to speed up procurement and after having extensive discussions, NTPC had finalized with the World Bank a standard bidding document in April 1992. However, the Bank withdrew its "No-Objection" to this standard bidding document in December 1992 and wanted certain modifications to be included. NTPC has now finalized standard bidding documents with the Bank based on the suggested modifications and further discussions. NTPC will use this document for procurement under the recently negotiated loan for NTPC Power Generation Project. This is expected to reduce the procurement time. Further, the proposed NTPC Power Generation Project, negotiated with the Bank in May 1993 would be under time slice concept which would help in bringing about timely disbursements. 5.2 NTPC has started giving further emphasis to finishing promptly the payments to the contractors. Prolect Costs (reference para. 5.8 of Part-I) 6. It has been stated that "that costs at appraisal were over estimated". It is clarified that the basis of costing during the appraisal had been explained in the Staff Appraisal Report. It, inter-alia, states that the estimates for the main items of equipment and material are based on the quotations received since 1980 for similar projects such as the 400 kV links and sub-stations associated with Singrauli, Korba, Ramagundam and Farakka Power Plants with prices updated to mid-1982 price levels. On the other hand, the exchange rate changes have played a major role in bringing down the project cost in dollars terms. Financial Performance (reference nara. 8.2 to 8.5 of Part-f) 7. In the discussions on accounts receivable presented in Section 8 of the Part I, the Bank has included the amount due to NTPC by way of Central Appropriation in the accounts receivables. 0OI has in the past ordered Central Appropriation of plan assistance funds to State sectors for offseting their dues to Central sector agencies like NTPC. Such amounts are being paid to NTPC as per agreed schedules and the Bank had been kept informed about the arrangement since August 1990. Considering that these were committed payments from G01, the amounts were set off against the dues of the SEBs and NTPC's accounts receivable reduced by the total amount of Central appropriation. As has been mentioned in para. 8.3, during the negotiations of the proposed NTPC Power Generation Project, agreement was reached that NTPC would maintain the level of its accounts receivable at two months of sales equivalent excluding the amount still to be paid through the Central appropriations for which a specific payment schedule was also agreed. 8. The Operations Evaluation Department of the World Bank conducted the performance audit of few Bank-funded projects, namely Korba (Credit 793- IN), Ramagundam (Credit 874-IN and Loan 1648-IN), Singrauli-1I (Credit 1027- IN) and Farakka (Credit 1053-IN and Loan 1887-IN). In its report No. 10854  21 - published in February 1993, the Audit Mission has summed up NTPC's financial policy in a paragraph as below: "NTPC has reached its large size (it is India's largest corporate entity in terms of fixed assets) in a record time without jeopardizing or compromising its financial viability, even in spite of the accounts receivable issue. This is a performance that very few utilities in the same situation are able to achieve. The performance is even more impressive since NTPC is stili in a major investment mode. A good part of NTPC's above-par performance is to be credited to GOI's original design (e.g., debt-equity ratio set at a conservative 1:1; tariff formula to pass on all investment, operation, and financial costs.)"1 9. As is common practice in transaction of a commodity like electricity, the agreements allow the beneficiary of its energy supply a period of 30 days from issue of the bills for making payments'. Therefore, outstanding should be reckoned after expiry of this period of 30 days. Bank Performance (reference Daras. 11.2 fi 11.3 of Part-I) 10. It has been stated that the Bank's decision not to present to the Board the then proposed Regional Power System Project because of GOI and NTPC*s inability to fulfil the conditions for Board presentation within a reasonable time period, has helped GOI to promote reforms in the power sector. It is worth mentioning that the sectoral reforms are brought about gradually with time. It is easier to bring out such changes when they are accompanied by large development programmes such as the proposed US$1.2 billion time slice loan operation of World Bank for NTPC Power Generation Project. Comments by POWERGRID and Endorsed by the Government of India Environment. Resettlement and Rebhailitation 11.1 In the context of transmission projects there is no significant impact on environment except in the cases where the transmission lines involve any forest area. The impact of transmission line projects on environment is not considered as severe as in case of thermal, hydel, nuclear power projects. This is primarily because the effect on forest due to laying of tranmission lines is reversible and can be nullified by planting more trees. 11.2 With the worldwide concern over the fast depleting forest reserves, due consideration is given to these aspects at the planning and designing stage itself. While identifying the transmission system for CTP-I, detailed surveys were conducted by the executing agency in association with the state forest authorities to identify most suitable route having minimum infringement on forest land. Where trees had to be felled in order to provide access to the lines, trees of a corresponding number were planted in the vicinity as per guidelines from Ministry of Environment and Forest. 11.3 Sites for construction of the sub-stations were generally selected in uninhabitated areas remote from the population centers. Hence, the -resettlement and rehabilitation-of people did not arise.  - 22 - Final Pavments 12. The loan was originally scheduled to be closed on March 31, 1989. But the project configuration underwent major revision following the reluctance of SEBs to pay the fixed transmission charges associated with this project and also because of changes in load generation scenario in Southern Region than what was envisaged at the planning stage. The revised project configuration was approved in August 1987. Thereafter, Bank decided to extend the loan closing date by one year each time for a total of 36 months to March 1992. The total disbursement of loan till March 1992 was US$131.49 million. Further, the Bank has included funding tne balance portion of the on-going contracts retroactively under the niew POWERGRID System Development Project (Loan No. 3577-IN). Procurement 13. GOI approval for the revised project was accorded in August 1987 and immediately thereafter the exercise for placement of award for tower package (for eight transmission lines) was begun. Awarding took 6 to 8 months to complete. This was possible due to advance planning in preparation of bid document. However, this time could have been further reduced by around a month had the Bank approval been obtained in a period of about 15 days. As regards procurement of domestic goods and services, a comprehensive procurement action plan resulted in cutting down of award time, and hence achieved the completion of project without any delays. Evaluation of the Borrower's Own Performance 14.1 The project has achieved its objectives. With the satisfactory completion of the project, the power transmission capacity, security and reliability in the Southern region has increased. The inter-connection between the Northern and the Western regions is currently used for limited exchange of power between the two regions and helps the stability of the systems. 14.2 Unlike the previous Bank funded power projects, this project was solely for the purpose of transmission system. Since NTPC had already acquired sufficient experience in the area of design and engineering of 400 kV transmission lines and substations, entire basic and detailed engineering work for the 400 kV transmission lines and substations was carried out by NTPC/POWERGRID in-house. 14.3 This project also provided an opportunity for NTPC/POWERGRID to gain valuable experience in procurement under ICB procedures, which was later used for other Bank financed projects. Also the first time introduction of HVDC technology with this project helped NTPC staff to enlarge its skills and to gain valuable experience in the execution of HVDC substation, which was later used, on a consultancy basis, in the installation of HVDC stations in other countries.  - 23 - PROJECT COMPLETION REPORT INDIA CENTRAL POWER TRANSMISSION PROJECT (LOAN 2283-IN) PAMT III- STATTSTICAL SUMMARY A. Related IDA Credits and Bank Loans _r./Loan No - Year of and Title Purose aMoval Status Comments Cr. 685-IN To help reduce the power April 1977 Closed The project Singrauli shortage in the Northern on June was successfully Thermal Power Region through the con- 30, 1984 completed Project struction of the 3x200 NW initial phase of the NTPC's first large coal fired thermal power plant with associated 400 kV transmission lines. Cr. 1027-IN Assist NTPC to mitigate May 1980 Closed The project Second power shortages in the on June was successfully Singrauli Northern Region through 30, 1989 completed. Thermal the construction of Power 2x200 MW and 2x500 MW Project coal-fired units and associated 400 kV transmission lines. Cr. 793-IN To help reduce the power April 1978 Closed The project Korba shortage in Western on March was successfully Thermal Region through the con- 31, 1986 completed. Power struction of the 3x2ao Project MW coal fired thermal power plant with associated 400 kV transmission lines. Cr. 1172-IN To help reduce power July 1981 Closed The project Second Korba shortages in the Western on was successfully Thermal Region through the con- December completed. Power struction of 3x500 MW 31, 1991 Project coal-fired units and associated 400 kV transmission lines.  - 24 - Cr. /Loan No. Year of and Title Puroose A&nroval Statug Comments Ln.1648-IN & To help: (a) solve January Closed The project Cr. 874-IN rationing in the 1979 on was successfully Ramagundam Southern Region by June completed. Thermal Power providing 3x200 MW 30, 1987 Project generating units; (b) assist G0I in achieving its objective of further advancing the regional and ultimately the national integration of the power sub-sector. Loan 2076-IN Alleviation of power December Closed The project Second shortages in the 1981 March was successfully Ramagundam Southern Region through 31, 1992 completed. Thermal the construction of Power 3x200 MW and 3x500 MW Project coal-fired units and associated 400 kV transmission lines. Sectoral Ob,ectives Common to All the Above Prolects In addition to the This purpose above project-wide was not fully objectives, the sectoral attained objective was to assist NTPC become an efficient utility (implementation of projects, operation of power plants, institution- and finance-wide) to form a model to the poor performing SEBs.  -25- B. Project Timetable Date Date 1Item Planned Date Actual -Appraisal Mission October 1982 Credit Negotiation April 18-22, 1983 Board Approval May 19, 1983 Credit Signature June 8, 1983 Credit Effectiveness Sept. 9, March 29, 1984 1983 /a Credit Closing March 31, a) 3/31/90 March 31. 1992 1989 b) 3/31/91 Completion of Disbursements September 8, 1992 /a At Loan signing.  C. DisbursWements (Estimated aqd Actual) (US$ million) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 (a) Estimate 3.5 20.0 90.0 180.0 240.5 2S0.7 250.7 2S0.7 a/ (b) Actual - 0.6 0.6 0.8 19.8 26.1 40.5 84.0 126.7 131.5 Ratio (b)/(aW - 3% 7t 4% 8% 10% 16% 34* I/ US$50 million from the Loan amount was cancelled on December 5, 1991. kl The Final Disbursement was in September 1992.  - 27 - D. Installation and Commissioning of Transmission Lines and Sub-stations/Switchyard (*Y A. Installation of 400 kV AC Transmission Lines Commissioned in Lenath (kml. 1. Ramagundam-Khammam (S/C) March 1992 202 2. Khammam-Vijayawada (S/C) March 1992