Tunisia - Power Project

CIRCULATING COPY RESTRICTED TO BE RETURNED TO REPORTS DESK Report No. P-1050 FILE COPY This report is for official use only by the Bank Group and spccifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. Thc Bank Group does not accept responsibility for the accuracy or complctencss of thc report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE SOCIETE TUNISIENNE DE L'ELECTRICITE ET DU GAZ WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA March 23, 1972   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE SOCIETE TUNISIENNE DE L'ELECTRICITE ET DU GAZ WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA t. I submit the following Report and Recommendation on a proposed loan to the Societe Tunisienne de l'Electricite et du Gaz (STEG), to be guaranteed by the Republic of Tunisia, for the equivalent of US$12 million to help finance the foreign exchange cost of a power project. The loan would have a term of 20 years, including 3 years of grace, with interest at 7-1/4 percent per annum. PART I - INTRODUCTION 2. Tunisia has received thirteen Bank loans and eight IDA credits amounting to, respectively, US$116.3 million and US$48.7 million, net of cancellations and refundings. The proposed loan would bring the total to US$177 million. About 40 percent of past Bank and IDA lending has been for construction and improvenent of commercial ports, modernization of the rail- way system and improvement of the highway network. This was complemented by lending for a wide range of other activities essential to economic and social progress on the basis of the Government's development planning and priorities. These included aariculture (production cooperatives, agricul- tural credit for cereal production, livestock development and date palm' plantations, and inshore fisheries), industry and tourism through loans to Societe Nationale d'Investissements (SNI), education (primarily for expansion of the secondary school system), population control and water supply. The proposed loan would be the second Bank loan to STEG. The previous loan was for a natural gas pipeline project made in fiscal 1971. 3. IFC has made investments in a fertilizer plant, a developmnent fi- nance company, and a tourism developnent and promotion company. Its loans and equity presently lheld in these enterprises totals US$11.4 million. A summary statement of Bank loans, IDA credits and IDA investments is given in Annex I. 4. Project performance continues to be generally satisfactory. Fol- lowing approval of my memorandum to the Executive Directors of August 21, 1971 (IDA/R71-57) part of the remaining proceeds of the second education credit of 1966 (No. 94) was allocated to finance additional equipment for a number of existing schools and technical assistance in educational plan- ning. Procurement of this equipment is proceeding satisfactorily. An as- sessment of the technical assistance requirements was made in late 1971, and a mission is presently reviewing potential sources of recruitment with the Government.  -2- 5. The Railway project (Loan No. 606/Credit No. 150) of 1969 was ini- tially delayed by the severe floods in late 1969, but is now expected to be completed by the end of 1973, about one year behind the original schedule. A matter of concern is the weak financial position of the railway company (SNCFT), which is due in large part to the technical, financial and commer- cial problems faced by its largest client, the Sfax/Gafsa phosphate mining company. This firm has accumulated considerable arrears vis-a-vis SNCFT and delays in paying freight bills are excessive. A supervision mission due at the end of March 1972 will discuss with the Government suitable arrangements for a short-term solution to SNCFT's problem, pending the outcome of studies on the future of the mining company. 6. After a transition period of nearly two years following the gen- erally unsuccessful attempt to organize most of agriculture and commerce into cooperatives in 1969, the Government is working out a new approach to economic development, as discussed in Part II. In support of this approach the strategy for future Bank Group lending to Tunisia is expected to con- centrate to an increasing extent on three crucial development problems: increase of efficiency in agricultural and industrial production, develop- ment of the human resources potential, and promotion of foreign exchange earning activities. Attendant Bank Group objectives will be to assist the Government in implementing its new economic policies, in institution build- ing and structural reform. 7. A tourism infrastructure project is scheduled for presentation to the Executive Directors before the end of the current fiscal year. Irrigation rehabilitation and urban sewerage projects as well as a fifth loan to SNI are in more preliminary stages of preparation. No IFC invest- ments are presently under active consideration. 8. The proposed project was aDpraised in October 1971. Negotiations were held in Washington in February 1972. The Borrower was represented by Mr. Sadok Bahroun, President Director General of STEG, and the Government of Tunisia, as Guarantor, by Mr. rahar Ennifer, Ministry of Planning. PART II - XiHE ECONOMfY 9. A report entitled "Current Economic Position and Prosnects of Tunisia" (EXA-38a) was distributed to the Executive Directors on August 18, 1971. An economic mission is now in Tunisia and its resort is expected to be issued by August, 1972. A Country Data Sheet is attached as Annex II. A map of Tunisia is also attached. 10. The last economic renort stressed the crucial innortance of fol- lowing through with the new develonment stratecy introduiced bv the Covern- ment in November 1970. The major objectives: increased production, exports and employment are to be achieved rmainly by encoura4ing private initiative,  and, to that end, reducing direct Government involvement in economic de- cisions, decentralizing responsibility for the management of the economy and relaxing administrative regulations. 11. Production developed favorably in 1971 because of better agricul- ture crops, due to good weather, and a very good tourist season. Real GDP has risen by about 8 percent. Because of higher export prices for oil and larger receipts from tourism and workers' remittances, foreign exchange earnings were substantially higher than in 1970, preventing a further widening of the current deficit in the balance of payments despite the continued increase in imports. As capital inflows remained at a high level, the improvement in reserves achieved during the last three years continued. 12. Agriculture is still the dominant sector in the economy, provid- ing nearly half the country's employment, a quarter of merchandise exports and 15 percent of GDP. Food processing industries account for another 5 percent of GDP and a third of value added in manufacturing. After a period of stagnation during the second half of the 1960's, reflecting unfavorable weather conditions and the unsettling effects of changes in the organization of agricultural production, agricultural output increased substantially in 1971 and is expected to grow further in 1972. Past large investments in irrigation works, soil conservation and tree planting provide a basis for continued expansion of production, while domestic and foreign markets could absorb a higher level of output than is presently produced. 13. Manufacturing contributes about 15 percent to GDP. The develop- ment of the sector up to 1969 focused to a large extent on import substitu- tion by state enterprises and processing of minerals for export. Because of the small size of the domestic market and deteriorating world market conditions for phosphates, manufacturing output has grown slowly. Govern- ment control over the investment decisions and management of public enter- prises, and the extensive regulation of trade, foreign exchange, investment and prices also hindered industrial development. 14. In recent years, good opportunities have developed for estab- lishing export industries. The 1969 Association Agreement with the EEC allows most Tunisian industrial exports duty-free access to the Community, while proximity to Europe and substantial labor reserves offer scope for foreign direct investment. Since 1969, measures have been taken to foster competition through greater reliance on the market mechanism, and to make industrial protection more selective in its application to individual in- dustries. More recently, the authorities have prepared legislation provid- ing substantial incentives for domestic and foreign firms to establish export-oriented industries. Efforts are also being made to improve the institutional arrangements for facilitating foreign investment. IFC will assist the Government in developing contacts with industrial organizations abroad. 15. Crude oil production (primarily from the El Borma deposit in the south) was slightly above 4 million tons in 1971. Production has tended to level off since 1969 in the absence of new important oil discoveries.  - 4 - Recently intensified prospecting indicates however that relatively import- ant deposits may exist in the Sfax region and south of El Borma. 16. Tourism started from a low level and expanded rapidly in the 1960's. It has now become a major foreign exchange earner (about $100 million in 1971, corresponding to about 25 percent of total current foreign exchange earnings), source of employment and means of diversifying the econ- omy. Demand is expected to expand further but hotel capacity will remain a major constraint on increased earnings. The Government is drawing up a master plan for tourism development through 1985, and feasibility studies on infrastructure have been completed. 17. To maintain an adequate rate of investment Tunisia will continue to need substantial amounts of external assistance. The main sources of external aid are the members of the Consultative Group for Tunisia. Over the period 1961-70, the country received external financial assistance in the amount of about US$780 million, 86 percent of which was granted by bilateral donor countries and agencies (mainly USAID, Canada, France, Federal Republic of Germany, Italy, Sweden and the Kuwait Fund for Arab Economic Development). Over the past five years, however, the proportion of commitments from multilateral sources (primarily the Bank. Group and, to a lesser extent, the African Development Bank), has increased to 10 percent of the total, compared with 5 percent in the 1961-65 period. Of the aid received, 28 percent was in the form of grants, including agricultural commodities and technical assistance, 30 percent in the form of non-project loans and 42 percent in project loans. The largest share of project loans was for irrigation infrastructure (about USS1O0 million), followed by trans- port and communications (about US$37 million) and tourism (about US$80 mil- lion). 18. The Consultative Group for Tunisia, which met in October 1971, discussed the economic nosition and prospects of the country and welcomed Tunisia's new economic policv objectives. It was avreed that Tunisia would continue to need assistance on concessional terms for a number of years and the members of the Group expressed their willingness to continue providing such aid. 19. Tunisia's foreign debt burden is relatively high: in 1970, the last year for which complete information is available, the debt service ratio was about 22 percent. Restraint over the recent past in short and medium-term borrowing and the availabilitv of foreig*n aid on favorable con- ditions, combined with higher foreign exchange earnings, reduced this ratio below 20 percent in 1971; with prudent debt management it should renain at this lower level in the next few years. Tunisia's continued creditworthiness for borrowing on commercial terms depends however on her continued ability to attract a large proportion of new external assistance oni concessional terms.  -5- PART III - THE PROJECT 20. An appraisal report entitled "Appraisal of First Power Project, Societe Tunisienne de l'Electricite et du Gaz" (No. PU-84a) dated March 7, 1972 is being distributed to the Executive Directors separately. A Loan and Project Summary is attached as Annex III. 21. STEG was created in 1962 to take over the operations of seven foreign privately-owned utility companies nationalized in that year. At the request of the Tunisian Government and the former shareholders, the President of the Bank acted as conciliator in the settlement of compensa- tion and the recommendations that he made in 1968 are being implemented. STEG is wholly owned by the Government, and is responsible for the produc- tion, transmission and distribution of electricity and gas for public con- sumption in the whole country. During its early years, STEG's efforts were concentrated on integrating the seven separate systems and on filling the gaps in supervisory and skilled manpower created when the expatriate staff of the original companies left Tunisia. 22. STEG's main activity is the generation, transmission and distribu- tion of electric power; gas accounts for only 6 percent of total earnings. In 1970, STEG had a total generating capacity of 196 .MnW and supplied 80 percent of all electric energy consumed in Tunisia. The only other power sources are about 28 MW of captive plants serving industrial and mining companies, which are expected to take an increasing share of their future power requirements from STEG. Thermal plants account for 87 percent of STEG's generating capacity, and hydroelectric plants for the remainder. 23. STEG completed the inter-connection of the main consumer areas by a national power grid in 1967. The system contains about 11,000 km of transmission and distribution lines. Sales have increased annually by about 10 percent on the average, from 240 Gwh in 1961 to 577 Gwh in 1970. The principal users of electricity are the industrial, mining and tourist sec- tors in which 1,250 consumers in 1970 absorbed about 70 percent of total sales. The remainder was sold to 283,000 domestic and small irrigation customers who had a relatively low annual consumption averaging about 630 Kwh per customer. About 70 percent of STEG's power sales are in the eco- nomically active and more densely populated northern part of the country, including Tunis, Nabeul, Bizerte and Jendouba. So far, investment in rural electrification has been limited, but STEG is planning to intensify its ac- tivities in this field. 24. During the past three years, the management of STEG, which is com- petent and dynamic, has been able to initiate a systematic expansion of the integrated system and turn its attention to matters of oroanization, management and finance. It has restructured and decentralized the organization and started to improve the accounting system, billing and collections. Considerable pro- gress has already been made in overcoming many of the institutional and or- ganizational problems, but would benefit from the technical assistance to be provided under the proposed loan.  - 6 - 25. STEG is undertaking a six-year expansion program covering the years 1971-1976 at an estimated cost of some $125 million, of which generating plant, transmission and distribution account for about $90 million. The principal components of the program currently under construction are a 60 MW gas-fired steam plant at Rhennouch near Gabes in southern Tunisia, being financed by French credits, and the gas line from El Borma which is being financed by the February 1971 Bank loan of $7.5 million jointly with a $2.5 million loan from the Kuwait Fund. The steam plant and gas pipeline are due for completion on schedule in October 1972. Transmission lines and distribution have been financed under Canadian and USAID credits. Project Description and Financing Arrangements 26. The proposed project comprises the principal facilities under the six-year program to be constructed during 1972-74. As indicated in Annex III, these are the installation of two 20 M; gas turbines near the above-mentioned steam plant at Rhennouch (fuelled by the El Borma gas pipeline which has suf- ficient capacity for both the 60 M4 steam plant and the 40 MI gas turbines) and the expansion of STEG's transmission and distribution systems. Consulting services would be provided for: (i) system stability and the location of fu- ture power plants; (ii) organization and improvement of management information and imaplementation of improved computer procedures; (iii) reorganization of the accounting system; (iv) inventory of transmission and distribution systems: (v) tariffs, with a view to introducing early in 1973 a new and more rational tariff structure; and (vi) expansion of the rural electrification program. 27. Total cost of the project is estimated at US$16.7 million. The proposed loan of US$ 12.0 million would cover the estimated forei5n exchange component and the local expenditures will be financed from STFG's internal cash generation (see Annex III). 28. STEG's financial position is basically sound. The debt/equity ratio was 31:69, as of December 31, 1970 and is expected to increase tem- porarily to 36:64 in 1972 and 1973, the peak of the project construction period, well well within the limit of 45:55 set in the Loan Agreement for the Gas Pipeline project and repeated in the draft Agreement for the pro- posed loan. 29. STEG's operations are characterized by a higzh level of self-fi- nancing of expansion. In 1970 about 31 percent of capital expenditure was financed from cash generated after debt service. Thie rate of self-financing is expected to average about 50 percent over the period 1971 through 1976. During the same period debt service will each year be covered at least twice by internal cash generation. The tariff covenant under Loan No. 724 deter- mined the required level of cash generation in relation to net fixed assets in operation. STEG charges comparatively high rates of depreciation, and under the draft Loan Agreement it is proposed to relate cash generation to average gross fixed assets in order to smooth out the incidence on the re- quired minimum ratio of the commissioning of major new assets. STEG's op- erating return on this basis was 8.5 percent in 1979, the minimum return required in the draft Loan Agreenent, and is projected at not less than 9 percent through 1976.  -7- 30. A cause for some concern has been the amount of STEG's accounts receivable, in particular those of government departments, local authori- ties and state-controlled autonomous enterprises, which had increased materially in 1970. Furthermore, by the end of 1970 a number of the state- owned enterprises had either not paid their current bills at all or were doing so only after excessive delays. 31. For government departments, the payment of current bills has much improved in 1971 as a result of the application of a decree issued in late 1969 providing a satisfactory budgetary mechanism for settlement of current utility bills, and the local authorities are now paying their current bills as they become due. It was agreed during negotiations that electricity bills due from both government departments and the local authorities would continue to be settled in accordance with the provisions of the above-men- tioned decree, or otherwise in accordance with sound commercial practices, and that bills which became due before the end of 1969 and remain unpaid would be settled before the end of 1972. Furthermore, arrangements have been or are being worked out for the settlement of overdue and current utility bills of state enterprises, with the important exception of the Sfax/Gafsa phosphate mining company which, as mentioned in paragraph 5 above, faces serious financial problems. The Government has initiated a detailed study of possible remedies, and in these circumstances it was agreed during negotiations that arrangements satisfactorv to the Bank would be made at the latest by July 1, 1973, both for the settlement of arrears due to STEG from the Sfax/Gafsa company (presently amounting to about US$1.4 million) and for the regular payment of its current bills amounting to about US$1 million a year, which is approximately 5 percent of STEC's annual revenue from the sale of electricity. 32. Goods to be financed from the proceeds of the proposed loan will be procured under international competitive Didding. No domestic suppliers exist for such goods. The power plant will be installed by the suppliers of the equipment under a supplv-and-erect contract. The transmission and distribution system work will be executed partly under supply-and-erect contracts and partly by STEG's own work forces. Bids for the gas turbines have already been invited in accordance with Bank procurement ,uidelines. 33. Disbursements will be made against the CTF cost of imported material and equipment, and against the foreign exchang-e cost of the erection of plant and consulting services. 34. TMe proposed plant will be rcquired to meet the forecast peak sys- tem demand through 1976. A principal factor in the selection of gas tur- bines for installation at this time is their short installation period which will allow some of the older steam plant at Tunis to be put into reserve with savings of almost US$4 million in operating costs from mid-1973 through 1975 from the substitution of gas (presently being flared) for im- ported oil fuel. The short lead time for gas turbines compared to steam  - 8 - plants will also allow STEG the time to determine its future expansion needs and the location o,f new plants taking into account the possible favorable results of the recently intensified exploration of Tunisia's oil resources. 35. Alternative means of meeting the forecast system demand were compared, and STEG's plan to install 40 MW of gas turbines proved to be the least cost alternative. The internal financial rate of return for the project would be in the range of 23 to 25 percent. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 36. The draft Loan Agreement between the Bank and STEG, the draft Guarantee Agreement between the Republic of Tunisia and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a resolution approving the proposed loan are being distributed to the Executive Directors separately. The draft agreements conform to the normal pattern for loans for power projects. Particular attention is drawn to Section 3.04 of the Guarantee Agreement, which provides that'the Guarantor shall take all appropriate measures satisfactory to the Bank to'ensure that all Government agencies and departments, local authorities and the state-owned enterprises shall sett-le their current electricity bills substantially as they become due and shall make progress satisfactory to the Bank towards determining the means of settling their arrears of electricity bills outstanding on the date of the Guarantee Agreement. 37. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 38. I recommend that the Executive Directors approve the proposed loan. Robert S. NcNamara President Attachments W4ashington, D.C. March 23, 1972  AtNNEX I Page 1 of 2 STATEMENT OF BANK IOANS AND IDA CREDITS TO TUNISIA AT FEBRUARY 29. 1972 Loan or Credit Amount (US$ Million) Number Tear Borrower Purpose Bank IDA Undis. 29 1962 Republic of Tunisia Education 4.9 - 380 1964 Republic of Tunisia Port Development 7.0 - 449 1966 Soci6t6 Nationale Development dtlInvestissement Finance Co. 4.7 94 1966 Republic of Tunisia Education 11.9 2.2 484 1967 Republic of Tunisia Cooperative Farms 6.1 1.1 99 1967 Republic of Tunisia Cooperative Farms 3.1 0.6 512 1967 Societe Nationale Development d'Investissement Finance Co. 10.0 0.94 573 1968 Office des Ports Port Development Nationaux Tunisiens 8.5 3.5 581 1969 SONEDE Water Supply 15.0 11.3 606 1969 SNCFT Railways 8.5 8.3 150 1969 Republic of Tunisia Railways 8.5 4.0 S2 1969 Republic of Tunisia Highway Engineering 648 1969 Socift6 Nationale Development dlInvestissement Finance Co. 10.0 4.6 209 1970 Republic of Tunisia Water Supply 10.5 10.5 724 1971 STEG Gas Pipeline 7.5 3.1 238 1971 Republic of Tunisia Population 4.8 4.8 '46 1971 Republic of Tunisia Highway 24.0 23.0 779 1971 Banque Nationale de Agricultural Tunisie Credit 5.0 5.0 263 1971 Republic of Tunisia Agricultural Credit 3.0 3.0 270 1971 Republic of Tunisia Fisheries 2.0* 2.0 798 1971 Soci&te Nationale Developnv.t d$Investissement Finance Co. 10.0* 10.0 Total (less cancellations) 116.3 48.7 of which has been repaid to Bank and others 3.8 Total now outstanding 112.5 Amount sold 2.2 of which has been repaid - 1.5 Total now held by Bank and IDA 111.0 L Total undisbursed 70.8 27.1 97.9 *Not yet effective  A:'.IEX I Page 2 of 2 STATEZE:UT 0r SC rIiJrST Z1TS IiJ TU,1ISIA AT FEBRZUARY 29, 1972 kio'bunt (USi :illiolls) Year Loan 1962 NPI( Ehi-rais 2.0 1.5 3.5 1966 Societe iTationale d'tnveatisse- ment (a-II) .6 .6 1969 CCFITOUR (Tourism) 8.0 1.9 9.9 1970 Societe Xlationale d'Investisse- ment (S;II) .6 .6 Total 10.0 !W.6 14.6 Less sold ard rep,aid 2.9 .3 3.2 I.'ou held 7.1 4.3 1i.4  A:T'!,MC II Pave 1 of 2 TUI,ISIA - COMMlITRY DATA Area 164,COO square ldlometers 63,3CC square miles Population (mid-1970 estimate) 5.1 Ziillion Annual Rate of Crowth (1965-1970) 2.8 percent2 Density 31.0 per mn Gross Donestic Product (1970) 1/ D 565.1 :;dllion Per Capita (1970) 1/ USi211 Annual Rate of Groi.th (1965-1970) c/ 0.U percent per capita Industrial Origin of GDP (1906 Prices) Annual Groith Percent Shares 1595-1970( 2) 2/ 1970 Agriculture -3.9 14W.9 .ining, 7ater and Power 18.6 8.9 . anufacturing 5.3 15.3 Construction and Public .orks 2.0 8.7 Transport and CoriLnunications 1.3 8.3 Services 2.7 25.5 Government i.ages and Salaries 7-4 18.4 GDP at Factor Cost 3.4 100.0 Indirect Taxes less Subsidies 4.1 17.1 CDP at .arket Prices 1U7.1 Mcpenditure on GDP (Current Prices) Private Consumption 3.9 63.8 Public Consumption 10.6 19.9 Gross Lvestment 1.2 22.2 Exports of Goods and iRS 8.7 22.7 less Imports of Goods and NI?S 2.2 -28.6 Expenditure on GDP 7-.9 100.0 Gross Domestic Savings 9.8 16.3 Resource Gap as ', o. Investment (1970) 25.8 ~i'oner, Credit and Prices Annual Crowrth ahd 1970 1965-1970(;J) (D. million) .ioney Supply 9.0 198.0 Time and Saving Deposits 31U.7 56.0 3ank Credit to Government, Het 2.9 91.1 Bank Credit to non-Government Sectors 12.5 271.6 Consu,:er Price Index (1962 100) 2.9 131t.7 'holesale Price Lndox (1962 = 100) 3.1 148.0  ATNNEX II Page 2 of 2- General Government Operations Annual Growth 1970 1965-197o Md iDMillion) Current Revenue 9.8 196.1 Current Expenditure 31.2 173.8 Current Surplus 1.4 22.3 Gross Fixed Capital Formation -0.7 45.7 Other Capital Expenditure 6.8 24.9 Overall Deficit 2.2 48.3 Domestic Financing, Net -22.0 3.0 External Financing, Net 6.6 45.3 Palance of Payments Exports of Goods and Services 10.2 171.4 imports of Goods and Services 4.2 229.4 Current Account Deficit -58.0 Net Public Capital 40.8 Net Private Capital 14.2 Change in Reserves - 7.0 Gross Foreign Reserves (End-1971) US$144 million External Debt 1920 Public Debt outstanding at Year's End ($ Ilillion) 768.0 Debt Service Ratio (%) 22 I'I F Position (US$ Million) Januar. 31, 1972 Quota 52.' Drawings outstanding 13.0 Bank&.DA Position (US$ Million) Februal_ 2 1272 Bank loans (less cancellations) 116.3 Repayments - 5, Total loans outstanding 110.0 IDA credi-ts (less cancellations) _,8.7 Total Bank/IDA 158.7 of which disbursed 60.8 undisbursed 97.9 Excan.e Rate -it P-ar Value - before December 23, 1971 lUS dollar = 0.525 dinar - after December 23, 1971 lUS dollar = 0.484 dinar / At current factor cost andi at the ofcicial rate of exclmange. l/ 1)70 comnarvd to 3-year avarages centered on L9L.5 to r,zmove the effect c exceplionrlly good wo;r.her on agriculture in 1965.  ANNEX III TUNISIA - FIRST POWER PROJECT Loan and Project Summary BORROWER: Societe Tunisienne de 1'Electricite et du Gaz (STEG) GUARANTOR: Republic of Tunisia AMOUNT: US$12 million. The proposed loan would cover the foreign exchange component of the project's cost. TERMS & CONDITIONS: Payable over 20 years including 3 years of grace at 7-1/4 percent interest per annum. PROJECT: The project constitutes 13.4 percent of STEG's 1971-76 power expansion program and consists of 2 x 20 MW gas turbine at Rhennouch, transmission, substation and dis- tribution system expansion in 1972-73, and consulting services. PROJECT COST: (US$ millions) Local Foreign Total 2 x 20 MW gas tur- bines at Rhennouch 1.8 5.1 6.9 Transmission and sub- station expansion 2.1 2.9 5.0 Distribution ex- pansion 0.5 1.0 1.5 Consulting Services 1.2 1.2 Contingencies & price escalation 0.3 1.8 2.1 TOTAL PROJECT COST 4.7 12.0 16.7 FINANCING: Local Foreign Total Internal Cash Generation 4.7 -- 4.7 IBRD -- 12.0 12.0 4.7 12.0 16.7  ANNEX III Page 2 PROCUREMENT ARRANGEMENTS: Goods will be procured through international competitive bidding. ESTIMATED DISBURSEMENTS: (US$ millions) 1973 1974 1975 6.3 4.3 1.4 CONSULTANTS: Electricite de France (EDF), STEG's consultant over many years will continue to advise on opera- ting and technical matters. Peat, Marwick, Mitchell (Paris) will implement continous invoicing and some aspects of financial control. EDF will be engaged to advise on an overall manage- ment information system and the completion of a tariff study. Consultants acceptable to the Bank will be selected to advise on system analysis to improve system stability and the investigation of potential power plant sites for future use and the development of a rural electrification program. RATE OF RETURN: Internal financial rate of return is in the range of 23 percent to 25 percent. APPRAISAL REPORT: Report No. PU-84a of March 7, 1972.  a' ~~~~~~~~~~~~~~~~~~~~~~~~~10' 12' 8- 10- ~~~~~~~~~~~~TUNISIA M e d /I e r r a n e a n S e a SOCIETE TUNISIENNE DE L'ELECTRICITE ET DU GAZ Bizerte(STEG) Menzel Bourguib/ T ELECTRIC POWER SYSTEM El Aroussio \\ ~\Rz fv *A THERMAL GENERATING STATION, EXISTING El Hoor T ouletAEl Aron o I l ondf THERMAL GENERATING STATION, UNDER CONSTRUCTION Fernant c G GAS TURBINES,PROPOSED @ */ \ O HYDRO GENERATING STATION } Mejez Sfo C. 7Jendoubo rJ TRANSMISSION LINES,EXISTING XOSouk Ahras; 4Nebeur \ / ~~~~ TRANSMISSION LINES, PROPOSED . j TRANSMISSION LINE, ALTERNATE ROUTE OIL PIPELINE, EXISTING GAS PIPELINE, EXISTING E36 l oi e( / GAS PIPELINE, UNDER CONSTRUCTION 36'- El Aouinei lsTjruin )~ 0S> /J\oue -INTERNATIONAL BOUNDARY 0 20 40 60 KILOMETERS o 10 20 30 40 kTebessa o~4\ g o 2 o 4 MILES A L G E R I A .7 VOKosserine ,--5 \ I Jebel Onk - / Gobes / ~~~~~~~~~Maknossy Sfa ; < C j Metloaui z r^. Metj ouiLa Skira 3 -, 4- 14 -34- g '- -~~~~ _>~~ '-' -r~~~--9-, ,=-',_57 /t S~~~~Rhennouch ISLE OF DJERBA 3- 5 _ ToZeUr',J crv t '-----_;,,,' R"S t ,-tes ob bona \ ...CHOTT EL DJERID > \1 I 0 oTotoouine I : 529 \ ~ ~ ~~~- zI[\ < F3C \ ; } ar j L I B Y A ElI Borm a Fr' Th I)',k .3, . .... ..7... ..f i , d, - 8- \ 5~~~~~~~~~~~~~~~~~~~~~~~~~~~10- '\2i- 8'~~~~~~~~~~~~~~~~~~~~~ MARCH 1972 IB3RD 3701