India - Indira Sarovar Hydroelectric Project

Document of The World Barnk FOR OFFICLAL USE ONLY ReporA No. 14887 IMPLEMENTATION COMPLETION REPORT INDIA INDIRA SAROVAR HYDROELECTRIC PROJECT (LOAN 2416-IN) (CREDIT 1613-IN) (SPECIAL FUND CREDIT SF.20-IN) JULY 24, 1995 Energy and Infrastructure Operations Division South Asia Country Department II This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  COUNTRY EXCHANGE RATES AND ABBREVIATIONS Currency Unit = Rupee (Rs) Exchange rate used in the Staff Appraisal Report Rs 10.0 = US$ 1 Year RuDees/USS SDRIUSS 1983 (Project Preappraisal Starts) 10.10 1.069 1984 (Project Appraisal) 11.36 1.025 1985 (Project Approved and Becomes Effective) 12.37 1.016 1986 12.61 1.174 1987 12.96 1.293 1988 13.92 1.345 1989 16.23 1.282 1990 17.50 1.357 1991 22.74 1.368 1992 25.90 1.410 1993 26.20/30.50 1.397 1994 31.40 1.432 1995 32.30 1.538 Average Rate during project implementation period: US$ 1= Rs. 21.60 Government of India and MPEB Fiscal Year: April 1 - March 31 Measures and EaQuvalents 1 Kilometer = 1,000 meters (m) = 0.6214 miles (mi) lMeter(m) = 30.37 inches(in) 1 Cubic meter (m3) = 1.31 cubic yard (cu yd) = 25.25 cubic feet (cu ft) 1 Hectare (ha) = 10,000 m2 = 2,471 acres (ac) 1 kilogram (kg) = 2.2046 pounds (lb) I ton (t) = I metric ton = 2,200 lb. I Kilocalories (kcal) = 3.968 British thermal unit (Btu) 1 Kilovolt (kV) = 1,000 volts (V) 1 Kilovolt-ampere (kVA) = 1,000 volt-amperes (VA) 1 Megawatt (MW) = 1,000 Kilowatts (kW) = 1 million watts 1 Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours (kWh) ABBREVIATIONS AND ACRONYMS CEA : Central Electricity Authority CWC : Central Water Commission DOE : Department of Environment DOF : Department of Forestry, Government of India DRP : Dam Review Panel GOI : Government of India GOMP : Government of Madhya Pradesh GSI : Geological Survey of India IBRD : International Bank for Reconstruction and Development IDA : International Development Association LRMC : Long Run Marginal Cost MPEB : Madhya Pradesh Electricity Board NHPC : National Hydro-Electric Power Corporation NTPC : National Thermal Power Corporation PAP : Project Affected Persons R&R : Rehabilitation and Resettlement REB : Regional Electricity Board REC : Ruml Electrification Corporation SEB : State Electricity Board  FOR OFFICIAL USE ONLY INDIA INDIRA SAROVAR HYDROELECTRIC PROJECT (LOAN 2416-IN) (CREDIT 1613-IN) AND (SPECIAL FUND CREDIT SF. 20-IN) Table of Contents PREFACE EVALUATION SUM M ARY ................................................1I PART I: PROJECT IMPLEMENTATION ASSESSMENT .................................................4 Evaluation of Project Objectives .................................................4 Project Context .................................................4 Accelerating Power Development and Production .................................................4 Project Achievements .................................................5 Overview ....5.............................................5 Physical Objectives ................................................5 Bodhghat Hydroelectnc Power Plant Component .................................................5 Environment, Resettlement and Rehabilitation .................................................6 Restructuring of the Project .................................................7 Pilot Therm a l Plant Rehabilitation Component .................................................8 Procurement ................................................ 9 MPEB's Financial Perfornance .................................................9 Economic Perfornance ................................................ 10 Macroeconomic Performance ................................................ 10 Institutional Development ................................................ 10 Major Factors Affecting Project Performance ................................................. 10 Factors Within the Scope of Govemment Control ................................................ 10 Factors Within the Scope of GOMP Control .................................................11 Sustainability ................................................. 11 Bank Group Performance ................................................ 12 Borrower Performnance ................................................ 12 Assessment of Outcome ................................................ . 12 M ain Findings and Lessons Learned ..................................................................................................... 13 This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed wiihout World Bank authorization.  PART II: STATISTICAL SUMMARY ..................... 14 Table 1: Summary of Assessments Table 2: Related Bank Loans Table 3: Project Timetable Table 4: Loan and Credits Disbursements Table 5: Key Indicators for Project Implementation Table 6: Studies included in the Project Table 7A: Project Costs Table 7B: Project Financing Table 8: Status of Legal Covenants Table 9: Bank Resources Table 11: Proposals for Private Power Project in Madhya Pradesh Table 1 2A: Detail Implementation Schedule - Pilot Thennal Rehabilitation Table 12B: Detail Implementation Schedule - Data Processing Facilities APPENDIX 1: BORROWER CONTRIBUTION TO THE ICR .22  INDIA INDIRA SAROVAR HYDROELECTRIC PROJECT (LOAN 2416-IN) (CREDIT 1613-IN) AND (SPECIAL FUND CREDIT SF 20-IN) IMPLEMENTATION COMPLETION REPORT Preface This is the Implementation Completion Report (ICR) for the Indira Sarovar Hydroelectric Project"' in India. Ln. 2416-IN in the amount of US$157.4 million, Special Fund Credit SF-20- IN, and IDA Credit 1613-IN, in the amount of SDR134.4 million (US$143 million equivalent), were approved on May 17, 1984. On June 13, 1988, the Bank and the Association canceled US$139,974,974 under Ln.- 2416-IN, and SDR 108,989,000 under SF. 20-IN, following cancellation, upon mutual agreement with GOI, of the hydro-power plant component of the project. Thus, the loan amount and the credit amount were reduced to US$17,425,026 and SDR25,41 1,000, respectively, for the implementation of the remaining components of the project. The loan was closed on June 30, 1993, against the original schedule of September 30, 1991. The credits were closed on June 30, 1994, against the same original schedule. Total disbursements under the loan, the special find credit and the IDA credit were US$9,077,807, SDR510,678 and SDR5,346,361 equivalent respectively. The undisbursed balance of US$8,347,219 equivalent was canceled on November 3, 1993. The undisbursed balances of SDR12,500,322 of SF 20-IN and of SDR7,053,639 of Cr. 1613-IN were canceled on October 31, 1994, and November 16, 1994, respectively, following closing of the loan and the credits. The ICR (Preface, Evaluation Summary, and Parts I and III) was prepared by the Energy and Infrastructure Operations Divisions, Country Department II of the South Asia Regional Office. Part II was prepared by the Borrower. Preparation of this ICR by the Bank and the Borrower commenced during the Bank's completion mission in November 1994. It is based on the revised guidelines for ICRs, the Staff Appraisal Report (No. 4909-IN), the Loan and Project Agreements, the Credit Agreements, supervision reports, correspondence between the Bank and the Borrower, and internal Bank memoranda. I/ The project was formerly called the Bodhgaht Hydroelectric project, but in honor of Mrs. Indira Gandhi, the name was changed to Indira Sarovar Hydroelectric project.  I  INDIA INDIRA SAROVAR HYDROELECTRIC PROJECT (LOAN 2416-IN) (CREDIT 1613-IN) AND (SPECIAL FUND CREDIT SF 20-IN) IMPLEMENTATION COMPLETION REPORT Evaluation Summary Objectives 1. The original objectives of the project were: (i) to assist the Government of India (GOI) in meeting the electricity demand in the State of Madhya Pradesh and in the Western Region of India through the addition of 500 MW of hydro-power capacity; (ii) to assist GOI in achieving more efficient use of existing thermal power stations through the implementation of a pilot program of thermal plant rehabilitation in Madhya Pradesh; and (iii) to improve Madhya Pradesh Electricity Board's (MPEB) operations by expanding and modernizing its data processing facilities. Restructuring of the Project 2. The project became effective on June 18, 1985. The Project's hydro-power component was estimated to cost about US$637.6 million out of a total project cost of US$722.8 million. Following public concern with the environmental and rehabilitation and resettlement (R&R) impacts of the Indira Sarovar dam and the associated hydropower plant, it was agreed with GOI in June 1988 to cancel this component. Consequently, Bank funding was reduced from US$344.2 million to about US$45 million. (About US$299.6 million equivalent, at the current exchange rate, was canceled). The remaining project components included renovation of three aged MPEB thermal power plants, including consultancy services for the same, and upgrading of the data processing facilities in MPEB. Implementation Experience and Results 3. Ln. 2416-IN was closed on June 30, 1993, and the Credits 1613-IN and SF-20-IN were closed on June 30, 1994. Implementation of the physical components of the thermal plant rehabilitation was also delayed because: (a) Central Electricity Authority (CEA) drew out the clearance of the award to a foreign consulting firm for more than two years; (b) several candidate units were available for component inspection much later than planned due to MPEB's inability to shut down the units in the face of pressing demand for power; and (c) the procurement process took significantly longer than planned. The implementation of the software development and training in the data processing facilities component were not financed by the credits. Because of implementation delays, the restructured project was scheduled to be completed only by the end of  - 2 - 1996. The financial covenants provided for MPEB to earn a minimum rate of return of 3% on its investments. This was only accomplished with subsidies from the Government of Madhya Pradesh (GOMP). Since 1991, GOI's policy has been that the agricultural tariff be raised to a minimum of 50 paise/kWh. In February 1994, GOMP abolished the agricultural tariff altogether for pump sets less than 5 HP, in contravention of the stated policy of GOI, even though a government comprising the same political party as in the Center had just taken office in the State of Madhya Pradesh. The Bank therefore, decided not to entertain GOI's request for further extension of the closing date for the Credits. During the first half of 1994, the Bank was engaged in a delicate policy dialogue with GOI on the need to restructure the state power sector. The refusal of extending the closing date of the credits meant to reinforce the Bank's message, that we would not get involved in states which do not apply rational tariff policies. 4. As of credit closing (June 1994), none of the original or restructured project objectives had been achieved. The pilot thermal rehabilitation component was only 40% complete, and the upgrading of the data processing facilities was approximately 60% complete. MPEB is continuing the implementation of these components with its own resources. Main Findings and Key Lessons Learned 5. The State Power Sector in India needs to function on commercial principles. The original objectives of the project were very narrow. The performance of the subject project and other SEB projects has had the Bank to shift its strategy to advocate radical restructuring of the State Power Sector in India. 6. Careful project preparation is key to the success or failure of a project. First, the project was approved, and its implementation started without agreement on the design basis of the dam. The project was processed for a loan before review of the design by experts. The expert committee made various recommendations for changes in the design which CWC contested. MPEB and the Bank agreed on a concrete dam, while the CWC insisted on a rock-fill dam, the design for which was developed by CWC itself, thus resulting in long delays. Second, environmental impacts of the project were assessed and resettlement and rehabilitation plans for the Project Affected Persons (PAP) were detailed, but public consultations were not held nor the required clearances were taken from all stakeholders. The Department of Forestry (DOF) and the PAPs raised objections after project implementation had already started. The lack of resolution on these two key issues led to the cancellation of the hydropower component of the project. 7. Clear definition of the roles and functional responsibilities of concerned government agencies is critical to successful project implementation. CWC and CEA had the responsibility to oversee the implementation of the project, but both got mired in trying to find active roles for themselves in project implementation with the result that the project suffered inordinate delays. 8. Strict adherence to Bank Standard Bidding Documents saves time. Procurement of goods and services under the rehabilitation and data processing upgrade components of the project could be completed very expeditiously owing to the use of the Bank's Standard Bidding Documents, which drastically reduced the review and approval time. The entire procurement process went on  - 3 - very smoothly. The above lessons have been taken into account in recent Bank operations in India. Preparation of bidding documents for major contract packages in accordance with the Bank's Standard Bidding Documents for the Procurement of Works and Goods, is now a condition of loan negotiations. 9. The project implementation delay has been extremely expensive for MPEB. If the projected capacity improvements and efficiency gains are quantified, the loss would equate to roughly one billion rupees a year, or approximately 600 GWh of energy, based on an improvement of 5% in generation efficiency at an average plant load factor of 60%.   - 4 - INDIA INDIRA SAROVAR HYDROELECTRIC PROJECT (LOAN 2416-IN) (CREDIT 1613-IN) AND (SPECIAL FUND CREDIT SF-20-IN) IMPLEMENTATION COMPLETION REPORT PART I: PROJECT IMPLEMENTATION ASSESSMENT EVALUATION OF PROJECT OBJECTIVES Project Context 1. In the 1950s and 1960s, both installed capacity and power generation managed to keep pace with the nation's demand for power, growing at an average annual rate of about 11%. Since 1970, however, the situation deteriorated. Delays in the commissioning of new power plants, operating and maintenance problems which were mostly due to lower than expected coal quality, and insufficient investment under severe budget constraints, led to a critical shortage of power. As of March 1983, India's total installed generating capacity, including non-utility power stations, was about 38,100 MW. As a result of accelerated agricultural development, there was a remarkable growth of power consumption in the rural areas where more than 80% of India's population lived. India's national power plan indicated that over the thirteen-year period from 1981-1994, utility generating capacity should grow at an average annual rate of about 9.5%, to a total of about 106,000 MW. Of this, about 59,000 MW (56%) were to be thermal, 44,000 MW (41%) hydroelectric, and 3,500MW (3%) nuclear. Accelerating Power Development and Production 2. In September 1982, the Central Electricity Authority (CEA) completed a I5-year least- cost expansion plan for the regional power systems in India. The results of the plan indicated that in general, among the different options, the one emphasizing hydroelectric power development was usually the least-cost solution. The Bodhghat Hydroelectric Project, as it was called at that time but later renamed as the Indira Sarovar Hydroelectric Project, was compared with other options, such as a coal-fired thermal power plant, and a gas turbine plant for peaking capacity, and was reconfirmed as the most-preferred solution. 3. The Western Region, in which the project is located, comprises the states of Gujarat, Madhya Pradesh, Maharashtra and the Union Territories of Goa, Daman and Diu, and Dadra and Nagar Haveli. In 1983, the total installed utility capacity in the Western Region was about 10,045 MW, out of which 1,841 MW was shared by MPEB that included as much as 90% in thermal  -5 - power generation by plants owned and operated by MPEB. Although interconnections between states in the region had been established, operations were not yet fully integrated due to operational constraints in Madhya Pradesh. PROJECT ACHIEVEMENTS Overview 4. The primary objectives of the project were not achieved. Due to environmental concerns raised after project implementation had already commenced, the hydroelectric power component of the project was canceled. However, implementation of the remaining sub-components included in the original scope of the project, comprising a pilot program for rehabilitation of MPEB's thermal power plant and upgrading of data processing facilities, continued. But even these sub- components could not be implemented in full due to substantial delays that occurred in project implementation and because the Bank could not accept Government of India's request for a further extension of the loan and credit closing dates owing to unacceptable sectoral policies of GOMP with respect to agricultural tariffs. The remaining work in respect of power plant rehabilitation, as well as the data processing facilities upgrade, continue to be implemented by MPEB with the help of other available resources. Physical Objectives 5. The primary objective of the project was to assist Government of India to expand the country's power supply at least cost by optimizing the development of India's hydroelectric-power potential. The project, located in the Bastar district in the State of Madhya Pradesh, was designed to increase the power generation capacity in the Western Region, and in the State of Madhya Pradesh in particular, through the construction of a 500 MW hydroelectric station on the Indravati river, at Bodhghat. 6. In addition to the primary objective of increasing the generating capacity of the state and the Region, the project was also to support the following objectives: (a) more efficient use of existing plants, through the implementation of a pilot program of thermal plant rehabilitation in Madhya Pradesh and; (b) improving the efficiency of MPEB operations by expanding and modernizing its data processing facilities to cope with commercial and managerial needs of MPEB. Bodhghat Hydroelectric Power Plant Component 7. After site investigations spanning over several years, the project was formally adopted by Government of India in 1979. The Central Water Commission (CWC) was responsible for the civil engineering aspects of the project and CEA for the electrical and mechanical design. Both organizations had experience in similar projects as they had served, for several decades, as the engineers for many hydroelectric-power and irrigation schemes in India. The engineering for the  - 6 - hydroelectric plant, with detailed construction drawings, was completed, albeit a delay of about two years, at a level sufficient to permit invitation of bids. 8. During appraisal in June 1983, the Bank used specialists in geology, hydrology and concrete dams to assist the mission in carrying out the technical review of the project. It was concluded that the project was technically sound and the proposed layout and design of the project was endorsed. However, to ensure design quality and least-cost development, the Bank requested a thorough techno-economic review of the proposed project, pursuant to which MPEB appointed a Dam Review Panel (DRP) in July 1983. The DRP consisted of independent experts to oversee the technical design and construction aspects of the project. The panel, in its first meeting in August 1983, concurred with the general layout of the project, but recommended a number of design modifications, as well as location of the dam, to improve the reliability and economy of the project. A major modification proposed was a change of the gravity rock-fill structure design for the dam to a concrete structure. 9. Based on the DRP recommendations, the Bank requested a change in the dam construction methodology from gravity rock-fill to concrete. The study for this change in design showed that costs vs. benefits would be almost the same; however, the concrete dam would have definite advantages over the rock-fill design in such areas as leakage, earthquake protection, and stability against soil settlement. In particular, the construction period promised to be significantly shorter. MPEB also agreed to change the design of the dam in accordance with the DRP recommendations. CWC, however, continued to advocate the original plan because neither CWC nor local contractors had enough experience in the design of concrete structures. CWC' s overriding interest appeared to be to ensure that the civil works contract, as well as the consultancy thereof, were captured by local contractors only. As a matter of fact, CWC wanted to secure the consultancy contract for itself which caused a serious conflict of interest. CWC's continued opposition to accepting the proposed design changes caused lengthy project delays. In the end, however, CWC relented, but simultaneously, new concerns were raised in respect of the environmental impacts of the project. Environment, Resettlement and Rehabilitation 10. Based on the initial environmental impact assessment (EIA) and an agreed rehabilitation resettlement plan (R&R), the project had been cleared by Government of India's Department of Environment, the Department of Forest and Wildlife, and the Wildlife Wing of Madhya Pradesh State Forest Department, and the Bank. However, when it was thought that the controversy over the design of the dam had been resolved, the Government of India Department of Forest raised fresh environmental concerns. It contended that the forest area to be lost by submergence following the construction of the dam, could not be compensated and that this would inflict unacceptable misery on the Project Affected Persons (PAPs), whose livelihood depended on the forest resources, notwithstanding the fact that much of their operations comprised illegal logging. The project would have affected about five percent of the forest area in the region. The issue to be resolved was whether the reforestation plan proposed by the Government of Madhya Pradesh (GOMP), was adequate to compensate for the forest lost to the project; in particular, could the Sal trees be reproduced artificially (a hardwood used for furniture and construction and  constituting about 20% of the trees projected to be lost). Sal is not an endangered species, but its artificial reproduction has been somewhat unsuccessful. As a consequence of the uncertainties raised by the Government of India Forest Department and the unanswered questions, MPEB suspended the implementation of the entire project in October 1985, just before the award of major civil works contracts was to be made. 11. During appraisal, the Bank accepted Government of India's estimate that 2300 families, 75% of whom were tribals, would be affected by the construction of the dam and the hydroelectric power station. MPEB had prepared the R&R plans setting priorities for the transfer of the PAPs in a sequence consistent with the progress of construction of the project. In 1982, GOMP constituted a rehabilitation committee chaired by the Bastar Divisional Commissioner to implement the R&R plans. This committee was represented by district level officers for Revenue and Tribal Welfare, other concerned departments and elected representatives of the PAPs. MPEB had selected four adjoining tribal areas where state land was available to compensate those affected by the project. Sufficient provision for funding was made in the project estimates for acquisition of land and properties, as well as for the construction of housing and related infrastructure facilities, to relocate and resettle the PAPs. 12. Pursuant to a request from the Department of Forestry (DOF) under agreement with the Bank, in December 1985, MPEB furnished a report on the detailed R&R plan for the PAPs as well as for forest and wild life protection. The report contained considerable details regarding physical works, implementation schedules and cost estimates. The report also proposed a fully staffed unit under the Chief Engineer of Indira Sarovar Project to carry out the proposed plan. However, in the absence of public consultation and the lack of dissemination of information, the PAPs expressed serious concerns with the social and environmental impacts of the project. Also, interdepartmental clearances within the government hierarchy had not been secured. The lack of resolution of this issue led to the cancellation of the hydroelectric power component of the project. Restructuring of the Project 13. In light of the environmental concerns raised by the DOF and the PAPs, Government of India appointed a group of experts to undertake a fresh review of the proposed project, which was completed in late 1986. The findings of the reassessment were submitted to Government of India's Cabinet Committee for a final decision. In mid 1987, the matter was referred to the Prime Minister's Office which commissioned the Secretary of Environment to chair a task force responsible for making a final recommendation. Finally, Government of India canceled the hydroelectric-power component of the project in June 1988, followed by the amendment of the agreements in February 1989. As a consequence, the Bank canceled US$139,974,974 equivalent from Loan 2416-EN, and US$108,989,000 from Special Fund Credit SF20-IN. The remaining components, the thermal plant rehabilitation and upgrading of the data processing facilities, continued to be implemented.  - 8 - Pilot Thermal Plant Rehabilitation Component 14. Recognizing that the rehabilitation of older, derated power plants can restore design capacity as well as efficiency at a much lower cost per kW of installed capacity than new power plants, and in light of the prevailing situation where a number of generating units in the MPEB utility system were suffering from loss of design capacity and performance efficiency, MPEB prepared a tentative rehabilitation plan for its thermal power plants including cost estimates, during appraisal. This assessment was used in defining the scope of the rehabilitation component of the project, and the identification of the rehabilitation programn along with an implementation plan. However, much of the generating equipment as well as the auxiliaries included for rehabilitation, were of foreign origin. The inspection methodology for rehabilitation also required certain special tests and procedures for which local capability was yet to develop. The Bank therefore, required the appointment of consultants with international experience in power plant rehabilitation. Based on Bank procedures for the selection of consultants, Bechtel Overseas Limited was selected. But CEA withheld approval of the consultancy services. The reason for CEA's resolute refusal to approve the contract was that it believed the expertise to be provided under the contract was already available in the country and that CEA itself was qualified to provide the services. Once again, the conflict of interest issues were totally ignored. It was only after the Bank indicated that the loan would otherwise be canceled if the selected consultant's contract was not approved did CEA finally approve Bechtel's contract. Two precious years were lost in this process. 15. In accordance with their terms of reference, Bechtel had responsibility to identify candidate units for rehabilitation based on a thorough analysis of the operating history of the individual generating units and actual performance tests, followed by inspection and metallurgical assessment of the equipment components. The findings helped develop a more definitive identification of equipment repair, replacement or upgrade options, and the finalization of the scope and timing of the rehabilitation program, albeit some delays. Generating units at Satpura, Korba and Amarkantak power stations were included in this rehabilitation program. 16. Implementation of the physical components of the thermal plant rehabilitation was considerably delayed because: (a) some candidate units were offered for component inspection much later than planned due to MPEB's inability to close them in the face of pressing demand for power; and (b) the procurement process took remarkably longer than planned. For example, bids for the consulting services for thermal plant rehabilitation and upgrading of the data processing facilities were invited on January 22, 1986, and February 15, 1986, respectively, while the actual awards were made on May 15, 1991 and December 13, 1991, respectively which was caused by CEA's refusal to approve the appointment of international consultants. The final report by the consultants on the diagnostics was submitted in December 1992, except for one unit in Korba power station (Unit 5), which could not be offered for inspection as scheduled. The consultant's report in respect of this unit was submitted in March 1993. The bidding process for the required equipment, parts and instrumentation proceeded expeditiously and was completed by the end of June 1993, at which time the Loan 2416-IN was closed.  17. The upgrading and expansion of MPEB's data processing facilities was also designed to be carried out with the assistance of qualified consultants in defining the scope and priority of proposed new computer applications or the expansion of existing ones. Additional objectives included formulating a plan to implement the recommendations, including the selection of appropriate computing software and hardware; establishing a training program for MPEB staff; and implementing the expanded data processing system. The selected consultant, TCS, submitted its final report to MPEB in December 1993. However, computer technology is continuously evolving in terms of both hardware and software and this has induced redesign of the system to keep abreast of the state-of-the-art technology. When completed, this system is designed to provide an effective management interface with MPEB's commercial accounting system. Procurement 18. For the pilot thermal rehabilitation and the data processing facilities components, the Bank guidelines were strictly adhered to by MPEB for procurement against twenty contracts involving international competitive bidding. This was facilitated by the use, without exception, of the Bank's Standard Bidding Documents for the Procurement of Goods. All contract awards, however, were won by local firms for an amount estimated at US$12.39 million. The average procurement time per contract--from the issuance of bid documents to contract award--was remarkably rapid and smooth. Detailed implementation schedules until the completion of the project components are shown in Table 12A and 12B in Part III. MPEB's Financial Performance 19. Under the Loan Agreement, MPEB was required to achieve a contribution to investment of not less than 20% of average capital expenditure in FY88 and subsequent years, which was later amended to achieving a 3% ROR. In general, the ROR is a 'profit performance' criterion, and is a useful measure of a mature utility's performance under normal operating conditions. The criterion is not a direct indicator of cash generation. Furthermore, the criterion rapidly loses its significance when the utility is saddled with very high debt service charges and has difficulties with revenue collection, manifested by high levels of accounts receivable. In addition, the criterion has room for manipulation of the result by changing the depreciation rates, and by claiming 'paper' subsidies which invariably are not paid in full, nor in a timely manner. Under these circumstances, the utility could well provide a satisfactory ROR (or 'paper profit'), but be short of cash to pay even its debt service charges. 20. During FYI 984/85, MPEB's financial performance was relatively satisfactory, with a rate of return of 10% and a self financing ratio of 16%. The target self financing ratio of 20% by FY87 was achieved with an increase in tariffs by an average of 12.8% in FY85/86. This situation, however, quickly deteriorated due to inadequate and infrequent tariff increases. During FY89 through FY91, MPEB barely achieved the 3% rate of return, clearing the statutory requirement of the Electricity Supply Act of 1948. But in the FY93 and FY94, GOMP had to provide MPEB with a rural electrification (RE) subsidy of a total of Rs 4.06 billion to enable MPEB to earn the required 3% ROR. The account for FY94/95 have been finalized and GOMP has agreed to provide a RE subsidy of Rs 3.2 billion to enable MPEB to earn the required ROR. The tariff structure itself imposes severe burdens on industrial consumers, while favoring the largest  - 10 - consumer group, i.e., the agricultural consumers. Instead of any effort to correct this situation, and in violation of specific Government of India recommendations to impose a minimum of paise 50/kWh as the tariff for the agricultural sector, GOMP lifted the agricultural tariff on February 1, 1994, and raised the industrial tariff to off-set the loss of revenue. Economic Performance 21. The economic benefits arising from the expansion of hydroelectric power potential was estimated at appraisal as about 11% on the internal rate of return, which was likely to be significantly higher if consumer surplus was fully taken into account and indirect benefits accruing to the Indian economy were considered. However, this exercise was no longer relevant with the cancellation of the hydroelectric power component of the project. 22. The thermal rehabilitation component was designed to serve two objectives, namely, restoration of lost capacity and improvement of thermal efficiency. Both of these could have helped MPEB in generating revenue, if the project components were implemented as planned. The loss, if quantified, would amount roughly to one billion Rupees a year, or approximately 600 GWh per year of energy, based on 5% gain in generation efficiency at an average plant load factor of 60%. Macroeconomic Impact 23. The project would have met the demands of unserved power in the region. Critical shortages of power resulted in frequent load shedding, brownouts and imposition of limits of power consumption by the industry. The cumulative loss suffered by the national economy as a result of the cancellation of the hydroelectric power component of the project has been colossal. Institutional Development 24. The project included a study of electricity metering practices, designed to provide the basis for the formulation of a rational metering policy. MPEB had billing and collection problems stemming from their current metering practices, even though the problems were not as acute as in some other SEB's of India. The study was completed and workshops were held in February 1993 for Phase-I and in July 1993 for Phase-LI to impart training to the MPEB staff. MAJOR FACTORS AFFECTING PROJECT PERFORMANCE Factors Within the Scope of Government Control 25. The hydroelectric power plant design: CWC was about two years behind schedule in completing the design of the rock-fill dam. Since this organization was primarily responsible for designing hydroelectric power projects in India, its accumulated backlog appeared to impact on its performance. Also, CWC's persistent refusal to accept the recommended design change for the dam, which indicated positive benefits, was difficult to explain. Government should have intervened immediately to break the impasse.  - it - 26. Environmental Impacts: The environmental concerns raised by the Department of Forestry after project implementation had already started, indicated a lack of interdepartmental coordination within the Government. This matter should have been fully resolved at project appraisal stage. 27. Power Plant Rehabilitation: CEA took more than two years to approve the consultancy contract for this project sub-component. Its desire to secure the consultancy contract for itself, presented a serious conflict of interest issue. The implementation of power plant rehabilitation was thus unnecessarily delayed for which the economic price to pay has been very heavy. In this case also, Government should have intervened to remove this bottleneck. Factors Within the Scope of Government of Mahya Pradesh Control 28. ROR covenant and agricultural tariff MPEB was able to meet the ROR covenant with increasing Government subsidies. Effective steps to adjust the tariffs to lower cost of supply were not taken in a timely manner. Also, in violation of the Government of India recommendation to have a minimum tariff of 50 paise/kWh for the agricultural sector, MPEB abolished the agricultural tariff completely. This was one of the contributing factors for the refusal by the Bank to entertain Government of India's request for further extension of the loan and credit closing dates. SUSTAINABILITY 29. The power plant rehabilitation component, even though incomplete at the time the loan and the credits were closed, are clearly sustainable because of the inherent benefits it is expected to bring. The generating units included in the rehabilitation scheme will regain lost capacity as well as performance efficiency. The data processing facility upgrade, when completed, will similarly improve MPEB's efficiency in terms of management control and the supervision of commercial accounting operations. 30. Under the legal covenants of the loan and credits, MPEB was also required to raise the level of consumer cash security deposits to reach the equivalent of two months sales by the fiscal year 1989/90. This covenant was satisfied. Bill collection proceeded in a satisfactory manner for new consumers. 31. In order for GOMP to reduce arrears in electricity bill payments of its departments and undertakings, GOMP has decided to pay to MPEB Rs 15 million every month against an average monthly bill of Rs 13 million. However, this measure would not help reduce the receivables within a reasonable time-frame. Even though there is a commitment to restore the agricultural tariffs in a year's time, uncertainty remains. Meanwhile, there are no plans to increase tariffs in the near future to help reduce government subsidies. 32. The implementation by MPEB of the commercial accounting system (CAS) started in April 1985, albeit at a slow pace. The consultants completed their work in August 1986, compared to the original schedule of January 1986. MPEB established a CAS implementation team consisting of experienced accounting staff and consultants to assist in solving problems  - 12 - arising in headquarters and field offices during the period of implementation. However, because of the delay in implementing the data processing facility upgrade, the CAS interface with the system could not be provided. This interface is yet to be accomplished. Bank Group Performance 33. The performance of the Bank in respect of project preparation and appraisal cannot be qualified as satisfactory. Specifically, appraisal was unsatisfactory because the project was processed, negotiated, and presented to the Board for approval without ensuring environmental and design issue clearances from all concerned departments. Also, after cancellation of the hydroelectric component, the Bank should not have waited for as long as two years for CEA to agree to the consultancy contract for power plant rehabilitation. These components should have been canceled as CEA's posturing indicated a total lack of interest in implementing the plant rehabilitation program and the upgrading of MPEB's data processing facilities. However, once these remaining components were finally cleared by the CEA, project implementation by MPEB went on smoothly and expeditiously. The Bank maintained excellent relations with the beneficiary throughout the execution of this part of the project despite some inevitable tensions created by the eventual decision of the Bank not to extend the loan and credit closing dates. Borrower Performance 34. The performance of GOI institutions was inadequate. Both CWC and CEA caused long project delays. The position taken by CWC regarding the design of the dam and the position taken by CEA regarding the consultancy contract were both undermined by conflict of interest. These agencies finally agreed to proceed with project implementation in accordance with agreed principles only after the Bank threatened cancellation of the loan and the credits. Regarding the environmental management requirements, the uncertainty over the construction of the hydroelectric component of the project was the result of inadequate preparation and lack of interdepartmental consultation within the government. Also, adequate public consultation should have been held with the affected communities to convince them of the benefits of the project and gain their confidence. In the end, the environmental concerns raised by the Government of India Department of Forestry and the PAPs led to the costly cancellation of GOMP MPEB the hydroelectric component of the project. 35. GOMP followed inadequate tariff policies which led to the progressive weakening of MPEB's finances. In the end, the politically based decision of canceling agricultural tariffs on pumps of less than 5HP led to the closing of the credit before any component was completed. MPEB attempted to implement the project within the constraints of limited autonomy. ASSESSMENT OF OUTCOME 36. The outcome of the Project is unsatisfactory because it has failed to meet the primary objectives of the project.  - 13 - MAIN FINDINGS AND LESSONS LEARNED 37. The key lessons that emerged from the Project are the following: * The original objectives of the project were very narrow . They reflected the Bank's approach to power sector lending in India at the time. The loan performance of the subject project and other SEB projects has had the Bank to shift its strategy to advocate radical restructuring of the state power sector in India. * Careful project preparation is important to the ultimate success or failure of the Project. The design of the dam was performed by CWC, but the technical parameters and construction methodology were not reviewed by an independent panel of experts. This review was undertaken after project appraisal that resulted in the recommendation by the committee to change the basic design of the dam from rock-fill to concrete structure. This was contested by CWC with resulting uncertainties and long delays. * Environmental assessment and resettlement and rehabilitation plans must be completed and finalized before project appraisal. Even though the EA was done and R&R plans were developed, adequate public consultation was not held with the PAPs, nor were inter- departmental clearances obtained to firm up the plans. DOF raised concerns with regard to the project's environmental impacts after project implementation had already commenced. The lack of resolution over this issue as well as over the design of the dam led to the cancellation of the hydroelectric power component of the Project. * Roles and responsibilities of Stakeholders should be fully defined at the project preparation stage. Overlapping responsibilities created major confusion in the implementation of the project. The responsibilities of CWC and CEA should have been defined and their respective roles as central organizations overseeing project implementation should have been fully delineated to avoid the conflicting positions taken by these agencies. Strict adherence to the Bank's Standard Bidding Documents saves time. Procurements under the rehabilitation and data processing upgrade components were completed very expeditiously. While MPEB has a lot of credit to take for this outcome, it was possible only because MPEB used the Bank's SBD for Goods and for Works which drastically reduced the review and approval cycle of the bidding documents. It is for this purpose preparation of bidding documents in accordance with the Bank's SBD has now been made mandatory in recent Bank operations in India for all contract packages financed by the Bank.  - 14 - PART 11: STATISTICAL TABLES t :- :Tablel:: :ummaryo Asses A. Achievement of Objectives Substantial Partial Negligible Not applicable Macro policies O O O a Sector policies O O a U Financial objectives O a * o Institutional development O * O a Physical objectives O * O O Enviromnental objectives O * O O Public sector management n a o U Private sector development O O O U B. Project Sustainability Likely Unlikely Uncertain * O O C. Bank Performance Highly Satisfactory Satisfactory Deficient Identification O * a Preparation assistance E * O Appraisal O E Supervision E * E Highly D. Borrower Perfonnance satisfactory Satisfactory Deficient Preparation O *