India - Upper Indravati Hydro Project

 Upper Indravati hydro project Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Hydro; Major Sector: Electric Power & Other Energy; ProjectID: P009805 India: Upper Indravati Hydro Project (Loan 2278-IN and Credit 1356-IN) The Implementation Completion Report (ICR) on the India: Upper Indravati Hydro Project (Loan 2378-IN and Credit 1356- IN, approved in FY83) was prepared by the South Asia Regional Office. An IBRD Loan for US$156.4 million equivalent and an IDA Credit for SDR156.0 million equivalent were approved on May 10, 1983. The only loan disbursement was for about US$0.4 million in payment of the front-end fee to the Bank, and the remainder of US$156 million was canceled at the time the loan was closed, on December 31, 1991, six months after the original closing date. However, the credit was fully disbursed, and was closed on June 30, 1995, four years after the original closing date. The ICR includes comments from the Borrower. The objectives of the project were to: (i) provide low cost power to help meet the growing electricity needs of Orissa and the Eastern Region of India; and (ii) divert waters from the Indravati to the Hati river to provide for the irrigation of 128,000 hectares of cultivable land. The project comprised the construction of a 600 MW power station and a storage reservoir requiring one masonry dam (Indravati), one masonry and earthfill composite dam (Muran), two earth dams (Kapur and Podagad), and eight dykes. The objectives of the project have not been met. The IBRD loan was closed virtually undisbursed, because the borrower did not satisfy the Bank in relation to concerns about the quality of engineering and construction and the safety of the dams under construction in a timely manner. The closing date for the IDA credit was extended to finance resettlement of about 17,000 people, consulting services for an assessment of the soundness of the engineering and safety of the dams, project management and, following confirmation of the Project's soundness, for some civil works. At the time the credit was closed, the project was about two thirds complete. There has been little progress since then due to lack of funds to continue construction. Nevertheless, after a delayed start, the resettlement of the people affected by the project has progressed satisfactorily, the institutional arrangements for implementation have been reformed and, according to the latest information from the Borrower, there now appears to be enough financing to complete the project. The project is expected to provide electricity at a highly attractive cost, and remains a priority for the Orissa/Eastern region power system. The economic rate of return (ERR) of the project, estimated at 12 percent at appraisal, was not reestimated for the ICR. It is expected to be satisfactory if the project is completed as currently planned in 1998-99, but the benefits foregone, which the ERR does not capture, are likely to be very high, of the order of US$60 million for each year of the 10-year delay. In the interim, the outcome of the project is rated as unsatisfactory and its sustainability as uncertain. The institutional development impact was moderate. While the project did not have any institutional development components, it led to the establishment of an effective Resettlement and Rehabilitation Unit with the Orissa Government. The Bank's performance is rated as unsatisfactory, mainly due to deficiencies of the appraisal and pre- Board decisions in relation to the project management capabilities of the Borrower. These ratings are consistent with those in the ICR, except in the case of ID, rated negligible in the ICR. The Bank threatened to suspend disbursements on three occasions. In each case, it accepted the Orissa Government's assurances of imminent action which later were not followed by real measures. The protracted implementation of this project underlines the critical importance of addressing early on difficult issues such as sedimentation, resettlement and the quality of the management team and of its consultant support. These hard-won lessons have, in part, led to the major reform program supported by the Orissa Power Sector Restructuring Project (Loan 4014-IN, approved on May 14, 1996), whereby the Orissa Hydro Power Corporation (OHPC) was established to take over construction of the project. OHPC has secured financing to complete the project, and the prospects for successful completion of the same are encouraging. The ICR is satisfactory. It provides a carefully structured analysis of the major factors affecting project performance, a candid discussion of the Bank's performance, good documentation of the Borrower's views and draws the appropriate lessons. The project may be audited after completion and the ratings reevaluated at that time.