Romania - Riul Mare - Retreat Hydropower Project

COPY ~~~~~~Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-179 8-RO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INVESTMENT BANK OF ROMANIA WITH THE GUARANTEE OF THE SOCIALIST REPUBLIC OF ROMANIA FOR THE RIUL MARE-RETEZAT HYDROPOWER PROJECT March 25, 1976 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its conitents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS 1. Official Rate lei 4.97 US$ 1.00 lei 1.00 = US$ 0.20 2. Tourist Rate lei 12.00 = US$ 1.00 lei 1.00 = US$ o.o8 Conversion Rate for Traded Goods lei 20.00 = US$ 1.00 lei 1.00 = US$ 0.05 FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVFLOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO TRE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO TllE INVESTMENT BANK OF ROMANIA, WITH THE GUARANTEE OF THE SOCIALIST REPUBLIC OF ROMANIA, FOR THE RIUL MARE-RETEZAT HYDROPOWER PROJECT J. I submit the following report and recommendation on a proposed loan to the Investment Bank of Romania, with the guarantee of the Socialist Republic of Romania, for the equivalent of US$50 million, to help finance the foreign exchange cost of a hydropower project. The loan would have a term of 20 years, including 5 years of grace, with interest at 8-1/2 percent per annum. PART I - THE ECONOMY 2. The latest economic memorandum for Romania (818a-RO), was distributed to the Executive Directors on December 29, 1975. Country social and economic data are given in Annex I. 3. Since the founding in 1947 of the People's Republic of Romania, which in 1965 was reconstituted as the Socialist Republic of Romania, economic management has been organized along socialist principles which have included state and cooperative oamership of almost all productive resources, and the absence of private enterprise. Economic activity is directed by means of obligatory development planning, coordinated by the central authorities. Productive enterprises operate within the framework of the development plan which defines the scope of their activity, the outlines of their production and investment goals and their targets for operating efficiency. The Plan is elaborated within a five-year time frame, each year having a separate Annual Plan. The country has just begun its Five-Year Plan for 1976-80. 4. The technical and functional Ministries are the State's chief agents for the administration of economic activity. They are assisted by subordinate units known as Centrals, which coordinate and supervise activities within a common branch or industry without being directly engaged in production. Enter- prises subordinate to the Centrals are responsible for production which is controlled through a system of physical production targets. Production enter- prises generally are not authorized to engage directly in foreign trade and rely on specialized foreign trade enterprises for this purpose. In agri- culture, large State farms and cooperatives are the predominant units of production. 5. Economic development is of paramount concern to the Romanian Government. Rapid indust:rialization is a major objective with priority being given to heavy industry including steel, machine tools and chemicals. To This document has a restricted distribution 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.  -2- achieve their growth objectives, the Romanian authorities have made consider- able efforts to mobilize domestic resources for development and to maintain a high rate of capital formation. In the last Five-Year Plan, planned and actual investment rates of around 30 percent of GNP were the norm. As a con- sequence, consumption has been restrained, and the development of the consumer goods industry has been less strongly emphazised than that of heavy industry. In 1974, heavy industry (led by machine tools, chemicals and ferrous metal- lurgy) accounted for about 58 percent of industrial production. 6. As a result of this strategy, a marked change has been achieved in the structure of Romania's economy. Rapid industrial growth, which over the last decade has averaged more than 13 percent per annum, has expanded the share of the labor force employed in industry (including power and construc- tion) from about 14 percent in 1950 to 38 percent in 1974. During the same period, the share of labor force engaged in agriculture declined from 74 per- cent to around 40 percent; and while agricultural output almost tripled, its share in GNP amounted to only 16 percent in 1974. 7. Notwithstanding the emphasis on industrialization, more than half of the population (about 57 percent in 1974) still lives in rural areas and agriculture remains a key sector of the economy. Apart from supplying food, industrial inputs and the residual labor increment-for industrial growth (which requires an expansion in agricultural productivity), the sector also supplies about 27 percent of the nation's convertible foreign exchange earnings. These earnings, which are largely used to buy imported inputs for industry, have often been jeopardized as a result of unstable production growth in agri- culture. The maintenance of the industrial development program, therefore, is dependent on the performance of the agricultural sector. 8. Romania's population growth is around 1.0 percent per annum. Thus, the impact of rapid economic growth on per capita incomes has been only mar- ginally diluted by the population increase. In the last decade, GNP growth has averaged 9.0 percent per annum, implying a growth of about 8.0 percent per annum of per capita GNP. A preliminary estimate for GNP per capita in 1974 is US$910 (as presented in the 1975 World Bank Atlas). 9. The organization of production in both the urban sector and in agri- culture is such that all labor is employed and there is no open unemployment. There is, however, some labor surplus, mainly in agriculture. Income distri- bution is also relatively equal. In 1974, average monthly wages were 1,663 lei (over $80 equivalent) per month, up 6.4 percent over the previous year. Almost 80 percent of all monthly wages in 1972 were within the range of 900- 2,000 lei and less than 6 percent were under 900 lei. Prices for essential consumer goods and services such as basic foodstuffs, rents and urban trans- port are relatively low and most social services, notably education and health care, are provided without charge. Continuous efforts are made to increase the standard of living. Romania also pursues a positive regional policy which has sought to bring a balanced development of both human and natural resources to all parts of the country.  10. The official exchange rate of lei 4.97 per US51 is used only for accounting purposes. The rate used for tourist transactions is lei 12 per US$1, having been revalued from a rate of lei 14.38 per US81 in October 1974. Under a new system introduced in January 1974, the Prices of all traded goods are converted at a uniform rate of lei 20 per US$1, a rate which is considered by the Romanians as being representative of the cost of convertible foreign exchange. For imported goods, the domestic lei price is found by adding to the foreign price converted at the new rate a tariff rate which varies for different types of goods. The rate of lei 20 per USS1 has also been used to convert national income statistics from lei to dollars. Consequently, this rate has been used as the base rate for calculations in the appraisal. Recent Developments 11. Since the National Party Conference of 1967, which set the stage for major qualitative advances in Romania's economic and social development, there have been important new emphases in Romania's economic management. Measures were taken to Lmprove the institutional basis of planning (e.g. by creating the Centrals to assist in plan administration), to increase the ef- ficiency of economic management and to improve upon the quality of production in industry. In agricu]lture efforts were made to raise productivity and stabilize growth through irrigation, mechanization and the expanded use of chemical fertilizers. lo promote the growth of foreign trade and tech- nical-economic cooperation the Romanian Government has concluded trade and cooperation agreements with a wide range of countries. In this context also, Romania has made positive efforts to expand its multilateral external rela- tions and to pursue full cooperation with the international agencies, includ- ing UN, UNCTAD, UNESCO, FAO, UNIDO and GATT. 12. Measures aimed at continued improvement of the management system include a reorganization (involving a reduction from 217 to 95) in the number of industrial Centrals and a concentration of their planning, control and research functions. The pursuit of purely physical goals in production and trade, while still an important element in the system, is being supplemented by much greater emphasis on productive and investment efficiency, product quality, pricing and foreign competitiveness. To eliminate wasteful invest- ment and production expenditures, a Superior Court of Financial Control has been instituted, among ot:her things, to oversee a new system of financial control. 13. Foreign trade has expanded quite rapidly in recent years both in volume and in regional di'versity. There has also been a tendency to move away from trade on a bilateral. barter basis toward trade involving multilateral payments. During the period 1971-74, total foreign trade grew at about 34 percent per annum in current prices. As a result of both rapid world price increases and expanded vwlume of trade, the total value of trade grew by 38 percent in 1974, with exports growing by 32 percent to US$4.9 billion, and imports increasing by about 47 percent to US$5.1 billion. About 59 percent of 1974 trade was with non-socialist countries as against 50 percent in the  - 4 - previous year, a trend largely explained by the more rapid price increases in non-socialist trade. Overall trade deficits have generally remained small, but in 1974 there was an overall trade deficit of $191 million, while the deficit with the convertible area was over $300 million. In recent years imports from East European Socialist countries have been slightly lower than Romania's exports to that region. In Romania's trade with Western industria- lized countries, on the other hand, exports typically have been much less than imports. These deficits have sometimes been increased by deficits on the invisibles account with Western countries. 14. The structure of Romania's trade with the developed market econo- mies remains essentially unfavorable. Raw materials and agricultural commo- dities, both of which are subject to unstable price and production conditions, comprise about 60 percent of total exports to these countries. At the same time imports from these countries are largely of machines and equipment and other manufactured goods. Because of the present low level of reserves, any instability in export performance, as frequently arises from shortfalls in agri- culture (paragraph 7 above), tends to place the import program in immediate jeopardy, and shortages of convertible currencies would persist even if Romania were to have recurring overall trade surpluses. 15. During July 1975, serious floods caused extensive economic and other damage in Romania with losses to agriculture, transport and national industrial enterprises estimated at about US$800 million. The floods also damaged about 250 local industrial enterprises, housing, and community facilities in 1,300 villages and 65 towns which were flooded. It will take at least one or two years to complete rehabilitation of flood damage and several years for the economy to recover fully. External Assistance 16. The expansion of Romania's imports from the non-socialist industrial countries has led to an increased need to obtain convertible currencies to pay for imports from those countries. Romania has met this need both by borrowing abroad and by mounting a major effort to expand exports and tourism. Gross inflows of convertible currency through medium- and long-term loans were US$1,055 million in 1974, consisting mostly of financial and suppliers' credits with relatively short repayment periods. This represented a net inflow of some $643 million after accounting for the country's repayment obligations. 17. As part of its effort to expand its foreign trade and cooperation relationships, Romania has also taken active steps to attract long-term pri- vate capital. A regulation passed in 1972 defines the conditions under which foreign firms can establish joint ventures with domestic enterprises, prefer- ably in foreign exchange earning/saving industries. By November 1975, six joint venture agreements had been signed, involving direct foreign investment of  -5- about US$10-15 million. Romania also receives medium-term trade credits from U.S. Eximbank and trades under ECGD, COFACE, and HERMES credit guarantees with the United Kingdom, France and the Federal Republic of Germany, respectively. Romania succeeded recently in securing a US$60 million, eight-year loan from Kuwait as part of a general cooperation agreement. In addition, Romania has access to non-convertLble currency investment credits from the International Investment Bank, Moscow, from which it has borrowed $30 million so far. 18. As it stands, therefore, Romania's access to long-term finance in convertible currencies is still very restricted. The IBRD is the only major source of long-term development finance, though Romania is making efforts to improve its access to the major financial markets. The Bank's presence on a significant scale would have a positive influence in this regard, and the Bank might serve as a catalyst for involving other lenders in Romania. This could serve both to increase! the total amount of Bank-sponsored funds available to Romania and to build coutside confidence in the country, thereby enhancing in the long-term its independent access to the world's financial market. Prospects 19. The new Five-Year Plan (1976-80) reflects Romania's continued strategy of rapid growth. Investment rates of 33 to 34 percent of national income are to be maintained, and the major thrust is in industry. While light industry is to continue its growth, the heavy industry branches are to grow more rapidly. Continued emphasis is to be maintained on foreign trade and co- operation, with the aim of securing a continued transfer of technology needed for the modernization and diversification of Romanian industry. Greater em- phasis than in the 1971-75 Plan is to be given to developing the infrastruc- ture in agriculture, particularly with regard to irrigation and drainage and the plans for fertilizer production envisage an increase in supply sufficient to double the 1974 per hectare application by 1980. 20. Romania has good potential for further economic growth. Endowed with important natural resources (fuels, some minerals, timber, rich soils and a favorable climate both for agriculture and tourism) and located con- veniently with respect to its major international markets in the East and West, the country has built a broad industrial infrastructure (power, metal- lurgy, chemicals) which will serve as a base for the expansion of secondary manufacturing sectors Esuch as machine building and consumer durables. Above all, Romania has a hard-working and increasingly skilled population. 21. Economic growth and structural change call for the introduction of new technologies, improvements in the quality of products, more economic use of materials and factor inputs, and reductions in production costs. The in- creasing diversity and complexity of Romania's economic structure require continuing improvements in the efficiency of economic planning and coordina- tion and further refinements in economic management. To keep uP with these changes and requirements, large programs of education and manpower training have been mounted, and efforts are being made to strengthen technical coop- eration with industrialized countries and international organizations.  -6- Creditworthiness 22. At the end of December, 1975 Romania's total medium- and long-term external debt amounted to $2,653 million. Most of these debts ($2,578 mil- lion) were denominated in convertible currencies, the major creditor coun- tries being Germany, France, UK and Italy. While the total debt does not appear excessive in relation to the volume and growth of external trade, average maturities are relatively short and convertible debt service pay- ments are estimated to be in the order of $550 million a year during 1976. The convertible debt service ratio was approximately 16 percent in 1975. 23. The organization of economic activity in Romania, and the pursuit of a development strategy involving high investment/saving rates and rapid in- come growth, ensure Romania's capacity to service external debt if domestic resources can be converted into foreign exchange for that purpose. Moreover, the country's major efforts to expand exports (particularly to convertible currency areas), to attract private joint venture capital and to seek other forms of bilateral convertible currency financing are increasing the foreign exchange available for debt service. Convertible export earnings rose from US$830 million in 1971 to US$2,619 million in 1974. The preferential trade status accorded to Romania by the European Communities in June 1973 should facilitate the further expansion of such exports as should the recent grant- ing of most favored nation status by the U.S. In 1973, the Government also restricted the use of short-term credit facilities from western suppliers in an effort to improve the structure of the country's external debt. Assuming a continuation of present export and debt management policies it can be expected that the debt service ratio will stabilize during the second half of the 1970's. The country's present outward-looking posture, the success of both its domestic growth and foreign trade policies, and its potential for continued development, all support the judgment that Romania is creditworthy for substantial Bank lending. 24. When Romania joined the Bank, most pre-war foreign debts of the country had been settled. The only settlements which were still under dis- cussion at that time concerned claims in the United Kingdom and in the United States. With regard to the settlement of claims against Romania's pre-war debt, the final payments of U.S. claims began in September and will be completed by October 1976, based upon agreements reached in May 1975. Settlement of British claims proved more difficult, but a major breakthrough was achieved during the visit of Prime Minister Wilson to Bucharest in September 1975 and a final agreement was signed in January 1976.  - 7 - PART II - BANK GROUP OPERATIONS IN ROMANIA 25. The proposed loan would be the Bank's eighth operation in Romania, and it would bring total Bank commitments to Romania to $400 million. Bank lending to Romania began in June 1974 with the $60 million loan for the Bacau Fertilizer Project. This operation was followed in July 1974 by the $70 mil- lion loan for the Otelinox Special Steel Project and the $60 million loan for the Turceni Thermal Power Project, and in January 1975 by the $70 million loan for the Giurgiu-Razmiresti Irrigation Project and the $30 million loan for the Sadova-Corabia Agricultural Credit Project. Two loans of $40 million and $20 million were made in November 1975 for the Flood Recovery Project. Initially disbursements under these loans have been slow, but have been expedited in recent weeks; the awarding of contracts under several of these loans is ex- pected to result in further increased disbursement rates during 1976. Annex II contains a summary statement of Bank loans to Romania and notes on the execution of ongoing projects as of February 29, 1976. 26. Foreign exchange, especially in convertible currencies continues to be a major constraint and one of the major objectives of Bank lending continues to be to help alleviateB the country's shortage of foreign exchange by providing long-term external capital and by financing projects which will expand foreign exchange earnings or savings. Bank lending also aims at supporting the Govern- ment's efforts to introduce new industrial technologies to improve the quality of products, and production efficiency, to reduce production costs and to pro- vide for necessary electric power development. Market aspects and marketing, especially for export goods, are also emphasized. Special attention is given to agriculture which iEi heavily dependent upon favorable weather and where productivity levels are still comparatively low. 27. With regard to the prospects for future lending, a further project for irrigation has been appraised and is expected to be ready for considera- tion by the Executive Elirectors soon. The possibilities of financing projects for agricultural credit, anti-friction bearings and heavy machinery are under consideration. 28. In addition to lending, the Bank (through EDI) has assisted Romania by conducting project appraisal training courses for Romanian officials in Belgrade in October 1973, and in Bucharest in January/February and November/ December 1975 and in February/March 1976. This assistance will be continued and expanded to include other sectors. 29. The projects, for which assistance has been committed or is being considered, represent only a small portion of Romania's total need for ex- ternal financing and of its total disbursed convertible debt. However, they will provide a substantlal net addition to the inflow of convertible currency finance, and may set a pattern for obtaining longer term convertible finance from other sources. The disbursed Bank debt outstanding is expected to con- stitute about 11 percenit of Romania's total projected convertible currency debt in 1980; the Bank's share in Romania's debt service payments in 1980 would be about 4 percent.  - 8 - PART III - THE POWER SECTOR IN ROMANIA Energy Resources 30. Romania relies predominantly on domestic sources of primary energy, though in recent years imports of crude oil and coal have become important. The country's single most important source of primary energy is natural gas, accounting for 41 percent of total consumption in 1973. Of the balance, oil accounted for about 30 percent, coke and coal for about 28 percent and hydro- electricity for about 1 percent. 3 31. Total gas production in 1973 was 30 billion m , of which 5 billion m3 was derived from oil. At that time it was expected that production would increase by about 1 billion m3 annually until 1975 with no increase there- after. Known reserves are expected to provide 30-50 years supply of natural gas at these extraction rates. As for crude oil, Romania consumed or pro- cessed about 17 million tons in 1973 of which 13 million tons was from domestic reserves. Domestic crude is generally of very high quality with less than 1.0 percent sulphur content. Of the country's coal reserves about 90 percent consists of relatively low grade lignite (with a combustible content between 35 and 38 percent). Of a total reserve of around 9 billion tons, most of which is in the Oltenia region, about 3 billion is considered economically exploitable. 32. The Government's energy policy aims at diverting Romania's limited gas reserves increasingly towards the use as feedstock for chemical industries, and basing additional power generation on less valuable domestic resources such as lignite and hydro power. This not only increases the value added obtained from gas, but saves scarce foreign exchange for imports of fuel oil which would otherwise be necessary, and lessens the risk of disruptions in raw material supplies. Electrical Energy 33. The installed generating plant at the end of 1974 was 10,676 MW de- livering 43,301 GWh of which 10,218 MW or 96 percent was interconnected. The plant comprises 2,383 MW hydro and 8,293 MW thermal plant, including some small diesel and 109 MW of gas-turbine installations. Of the total 9,500 MW was in charge of the Ministry of Electrical Energy whilst the remainder represented plant installed at industrial works. The transmission system comprised at the end of 1973 196,814 km of lines at all voltages of which 2,131 km at 400 kV, 2,733 km at 220 kV, and 9,976 km at 110 kV. Subtransmission/distribution in the range of 1-60 kV accounted for 76,753 km of lines with the remaining 105,221 km being at less than 1 kV. 34. In 1974, the thermal plant output was 37,902 GWh and was derived from the following fuels: gas and fuel oils 60.0 percent, lignite 9.8 percent, coal 27.4 percent and other fuels including secondary sources 2.8 percent.  - 9 - The largest operating steam units are 315 MW at Craiova and are lignite-fired. Further units of similar size and type (330 MW) are being commissioned at Rovinari and Turceni (Loan No. 1028) in the Oltenia Region. Future thermal development will concentrate on the utilization of indigenous solid fuel and by 1980 some 3,930 MW of lignite fuelled plant will be consuming about 33 million tons p.a. Assuming that after 1980 the second stage of the Turceni project (Loan 1028-.RO) will be commissioned requiring a further 11 million tons p.a., then almost the full potential of Romania's lignite deposits with an estimated life of exploitation of 70 years, will have been committed. 35. Romania's hydro-potential is assessed at 12,300 MW capable of pro- viding 37,000 GWh p.a. from 630 sites, of which 2,400 MW providing 12,300 GWh p.a. is located in five sites on the Danube. At the end of 1975 2,622 MW or 22 percent of the total hydro potential had been developed. The largest hydro- power station in operation is the Iron Gates I on the Danube which was completed in 1972 and which contributes 40 percent to the total 1975 hydro capacity of the country. A further 1,800 MW (15 percent of the resources) is presently either under construction or committed. Of the uncommitted balance of 7,878 MW, about 1,340 MW is located at four sites on the Danube with the Cernavoda scheme (850 MW) being the Largest. The remainder would need to be exploited at a large number of sma'Ll sites with an average capacity of 11 MW; of these only a few would individually contribute appreciably to the system capacity. The Riul Mare Project is the largest of the remaining sites which can be exploited at an acceptable cost while most of the others are presently too expensive to justify development. Future hydro-development will be accelerated as far as economically justified and with the exception of the Danube schemes, hydro development will be best suited to meet the system peaking demands. 36. The first nuclear power generating plant of Romania with a capacity of 440 MW is being constructed and is expected to be commissioned in 1981/82. This would be followed by further plant of 1,090 MW in 1983 and 650 MW in 1985. Negotiations for the supply of equipment, know-how and manufacturing licenses are well underway. Efforts are also being made to search for geo- thermal resources but detailed information is not available. The Market for Elect:ric Energy 37. Electricity supply is available to more than 90 percent of the villages in Romania and 100 percent of the towns and cities. Average annual consumption of electricity per capita was about 1,700 kWh in 1974. Total energy consumption within the country was divided as follows: industry 77 percent, domestic 9 percent, commerce 8 percent, and agriculture 6 percent. Of the country's total electricity production of 43,301 GWh, about 8 percent was exported principally to Czechoslovakia via USSR. 38. Romania presently has some 13,150 villages. In 1960, 3,427 of these had been electrified. In the next five years (1961-65), 617 villages were electrified on average each year. In 1966-70 the rate increased to 815 p.a.  - 10 - Thereafter, as the remainder became increasinRly remote the rate dropped to slightly more than 500 per year. By 1972, 88.5 percent had heen electrified and the balance is being completed at the rate of 500 per vear so that electric Dower is now available to virtuallv all inhabitants of the countrv. Development Program 39. The Government attaches high orioritv to the development of the electric power sector because it considers the development of this sector as an essential element of, and prerequisite for, the develonment of Romania as a whole. State Plans in the past have included investment orojects which substantially increased the production caDacity of the power sector. Also, for the period up to at least 18n further substantial capacity increases are envisaged in order to make the most economical use of the existing Dower resources of the country and match consumption which is estimated to grow by 7 percent for the years 1976-80 followed by a growth of 6 percent to 1985. Total investments to support the planned growth in the power sector over the year 1976-80 amount to lei 62.86 billion (US$3.1 billion equivalent). 40. While in making develoDment plans for the power sector, the devel- opment needs and financial resources of the whole economy are taken into con- sideration, it is the Government's Dolicy to ensure that a substantial Part of the investments in the power sector are financed from funds which are generated in the sector itself. Thus, in the period up to 1985 it is forecast that about 30 percent of the investments in the sector will be financed from funds generated bv power sector enternrises. Consequently, it is also the Government's policy to ensure that prices in the power sector are at a level sufficient to cover operating and administration expenses (including mainten- ance, depreciation and taxes, if any) and to produce a reasonable level of net income. Organization of the Sector 41. The Ministry of Electrical Energy (MEE) administers the sector through a board comprising the minister, three deputv ministers and the various direc- tors of subordinate units. Power production, transmission and distribution facilities are operated by enterDrises of which there are 16 for generation and 17 for distribution, all of which are subordinated to the Industrial Central for Electric Power and Beat (CIEET). The Central serves as a head- office for the enterprises collating and monitoring their investment and Pro- duction plans, supervising their activities and reviewing their finances. 42. The design institutes and the constructien trusts are subordinated to the MEE and are resnonsible for the preoarnrinn, design, construction and supervision of ma,or Deoer projects in Rforanin. including the "iuil \',ire  - 11 - Retezat Project. There are also foreign trade enterprises dealing with the sector which serve as agents in the procurement of equipment from abroad. 43. Each enterprise is headed by a General Assembly of the Working People which is represented by a Working Peoples Committee and an Operating Manage- ment Collective. Executive responsibility is in the hands of the general manager who decides on and supervises the daily operations of the enterprise. Execution of the Riul Mare Project is presently directed by the Cluj Enter- prise which lies more than 150 km away from the Project and it has been de- cided to set up a separate generating enterprise at Hatzeg which will be re- sponsible for the management of the Project. More details about management arrangements under the Project are described in para 50 below. The Borrower 44. The borrower for the proposed loan would be the Investment Bank, which is the specialized agency, under the Ministry of Finance, for invest- ment projects in all sectors of the economy except agriculture (including water resources) and food processing. It has a large technical and economic staff with branch offices in all districts of the country. The Investment Bank's involvement in investment projects commences in the preparation phase of a project; its staff appraises all major investment projects technically and financially and recommends approval or otherwise of their financing to the Council of Ministersi. When a particular project and its financial plan has been approved by the Council of Ministers, all major funds are channeled through the Investment Bank in accordance with the approved financial plan. All pay- ments for the execut:ion of a project have to be authorized by the Investment Bank which keeps separate accounts for each category in the financial plan for every enterprise. It is the Investment Bank's obligation to ensure that a project is executed according to the financial and technical data included in the final technical and economic study approved by the CounciL of Ministers. Its inspectors check whether the project is proceeding according to the schedule approved in the Plan. 45. While the Investment Bank's supervision and control function is thus rather strong during the implementation phase of a project, its functions are much more limited during the operation phase of a project. Although it has the right and obligation to verify that the enterprise is meeting the targets set in the investment plan, it has no legal authority to influence directly the management of thea enterprise or to force the enterprise directly to take operational actions which it considers necessary. In practice, however, it can request such act:Lons very effectively by reporting through the Ministry of Finance to the Govlernment. To ensure that the Hatzeg Enterprise meets the requirements specified in the Loan Agreement (Section 4.01) concerning the operations phase, thej Guarantor will see that the enterprise complies with these requirements (Esee Section 2.03 of the Guarantee Agreement).  - 12 - The Investment Bank is the channel for all sources of major domestic investment financing, but its own funds are still relativelv small. Its prime source of funds is the State Budget. The Guarantee Agreement, therefore, includes a orovision (Section 2.02) that the Guarantor will ensure availability of sufficient funds for the implementation and operation of the Droject. The Guarantor will ensure that the Investment Bank can meet the debt service on the Bank loan. In view of the status of the Investment Bank within the gov- ernment svstem, it is considered sufficient to relv in this resDect on the Guarantee Agreement (Section 2.01). PART IV - THE PROJECT 47. The project was identified in late 1974 and appraised in June 1975 on the basis of a technical and economic studv prepared bv the Government's Institute for Hydroelectrical Studies ard Desigrs (ISPH). Negotiations were held in Washington in January/February 1976. The Romarian delegation was led bv Mr. Diamandonol. President of the Investment Bank. Project Desc ri_ t_ion 48. The Riul Mare Retezat Hydropower Project is the key component of a complex development scheme on the Riul Mare and the Strei rivers. Its detailed analysis, as well as the initiation of corstruction, was included in Romania's Five-Year Plan for 1971-75. Major construction works will span the Period 1976-83. The Project's main components include construction of: (a) a reservoir to be formed by a 173 m high clav cored rock-fill dam across the vallev of the Riul Mare river with 25 secondarv intakes and an 18.4 km long pressure tunnel to convey the water to the power station; (b) a two unit minderground power plant of 335 'RW (Retezat) and a 14 MUl above ground powerhouse (Clopotiva) downstrear of Retezat; (c) transmission lines at 110 kV to connect the Retezat and the Clonotiva power stations and at 220 kV to connect the Retezat power station with the existing svstem (d) roads required for the execution of the project which will later serve general communication purposes. 49. A further power station (Ostrovuil-Mic) doxnstream of Clopotiva is being built and would he completed before commissioning of the project works. This power plant will also serve to reregulate the short duration discharges from the Riul Mare plant. i. Loan and Project Summary is given in Annex III. The Appraisal Report entitled "Appraisal of the Riul Mare-Retezat Hydropower Project' is being distributed to the Executive Directors separatelv.  - 13 - Project Execution 50. Responsibilities for project execution have been delegated to sev- eraL agencies but the Hatzeg Enterprise will have overall responsibility for the coordination of project execution. The Institute of Hydroelectrical Studies and Designs (ISPH) of the Ministry of Electrical Energy and the Design Insti- tute for Studies and Projects for Power Station Equipment (ICPET) of the Minis- try of Heavy Machinery are responsible for basic design and engineering and the technical aspects of b:Ld specification and evaluation. They will also super- vise the construction of civil, electrical and mechanical works. Civil works will be carried out by the Hydropower Construction Trust (TCH); the Electro- Mechanical Construction Trust (TEnM) will perform the erection and commission- ing of the electro-mechaanical plant in the power stations, the transmission works will be undertaken by the Transmission and Substation Construction Trust (TEM) and various other organizations are involved in roads, water sup- ply, forestry, and other related matters. The procurement of equipment and materials required for the project and financed by the Bank loan will be the responsibility of the foreign trade enterprise ROMENERGO and other procurement agencies. Goods and services required for the project and to be supplied from within Romania will be procured directly by the Hatzeg Enterprise with the guidance of the design :Lnstitutes ISPH and ICPET. The Investment Bank will effect a technical and administrative audit during the investment period. ProJect Cost and Financing 51. The total cost of the project is estimated to be the equivalent of US$250.1 million. The foreign exchange component is US$53.8 million or 21.5 percent of the total. The appraisal cost estimates for local works and sup- plies are based on fixed Romanian prices which are unlikely to change signif- icantly and a price contingency of 2 percent is considered adequate. Physical contingency has been allowed at 10 percent on the cost of the project. For directly imported foreign goods as well as the electrical and mechanical equipment for the power stations, a price increase of 7-1/2 percent p.a. during project execution has been assumed. 52. The proposed Bank loan of $50 million is expected to finance about 20 percent of the estimated total project cost and about 93 percent of the project's foreign exchange component. Interest on the Bank loan during con- struction and the remaining project cost would be financed by Romanian sources. For the sector as a whole, the investment program of the Industrial Central over the period 1975-81 requires 87 billion Lei (about US$4.4 billion equiva- lent) of which about 30 percent is expected to be derived from the Power Central's own sources and the balance from the State Budget and external sources.  - 14 - Lending Terms 53. The proposed loan to the Investment Bank would be guaranteed by the Government. It is Romanian practice for the State to invest virtually all funds in such projects through the Investment Bank without formal onlending agreements and to recover investment costs from project beneficiaries through a variety of financial mechanisms including net income transfers from State enterprises, taxes and depreciation payments. For this reason the Investment Bank would not actually relend the Bank loan to the enterprise. However, the enterprise would be the beneficiary of the Bank loan and its provision of funds to the State Budget and Investment Bank would be sufficient to cover the lei equivalent of the debt service on the Bank loan (Section 4.01(h) of the Loan Agreement). Audit 54. Romania has developed a system of auditing primarily to ensure that the investment and production activities of enterprises conform to state plans. Any deviations are brought to the attention of higher authorities. Each en- terprise and the industrial central has its own internal controllers, appointed by the Ministry of Energy with the approval of the Ministry of Finance, who carry out a basic annual audit. As provided under the first power project the Bank would receive annual reports of the Hatzeg Enterprise and the Borrower prepared by the Ministry of Finance (Section 6.01(e) and (f) of the Loan Agreement). Also, a letter supplemental to the Loan Agreement to be delivered by the Guarantor and the Borrower would provide for the Bank to receive annual audit reports by the Ministry of Finance on the accounts and results of the Industrial Central for Electric Power and Heat. The form of presentation of the reports received so far under the first power project was not fully sat- isfactory; consequently, it has been decided that this matter would be subject of further discussions during the Bank's next supervision mission so that the Bank's information requirements in this respect would adequately be met. Procurement 55. In view of the procurement delays and difficulties experienced under the previous power loan for the Turceni Project (see Annex II) a list of goods has been agreed upon from which items to be financed by the Bank loan would be selected; procurement of these goods would follow international competitive bidding in accordance with Bank guidelines and would be coordinated by ROMENERGO. Local suppliers are expected to participate in most of the international com- petitive bids. Since Romanian currency is not freely convertible, international tender documents would state that a conversion rate of US$1:20 lei be used for bid comparison. For purposes of bid comparison, local suppliers would be ac- corded a preference of 15 percent or applicable customs duty, whichever is lower.  - 15 - Disbursements 56. The Bank loan would be disbursed against the foreign currency ex- penditure for imported equipment, components and materials and against the ex-factory cost of locally procured equinment and materials. Disbursements are expected to be completed by' December 1981. A schedule of expected dis- bursements is given in Annex III. Environment 57. The Government has given specific attention to minimizing the nega- tive effects of the project on the richly endowed environment of the area. In fact the project is adjac-ent to a national park which includes a special scientific reserve. As a result of recommendations made in a detailed Govern- ment study on this matter the main pressure tunnel from the water reservoir to the Retezat power plant has been relocated from the right bank of the river to the left in order to avoid negative effects on the national park. The secondary intake tunnel which traverses the national park will be excavated so as to place the adits outside the scientific reserve, and road access will be arranged to cause a minimum of disturbance. Abstraction of water through the secondary intakes has been restricted in accordance with the recommenda- tions of the ecological, study. The appraisal mission considers that these measures are adequate. Justification 58. A power sector planning model developed by Romanians in 1972 in- dicated that additional peaking capacity of 400 MW would be required in the system not later than 1985. The Riul Mare Project (349 MW) is expected to be completed in 1983 and, with its associated down-stream development, is the least-cost alternative from available schemes to fill this need. A comparison with gas-turbine and pumtped-storage alternatives indicates that Riul Mare is the preferred alternativre at discount rates at least up to 10 percent. 59. An internal rate of return on the project has been estimated in accordance with standard Bank methodology for power projects. Benefits have been measured by incremental revenue attributable to the project, and finan- cial costs have been adjusted for taxes and other internal transfers. The resulting 6-1/2 percent rate of return reflects current Romanian tariffs and costs which are set as part of an administered price system under provisions of a 1971 law on prices. The tariffs themselves, which in the past have been adequate to generate a substantial cash contribution to investments in the sector, are considered to be only minimum indicators of the value of the bene- fit attributable to sale of energy. It is likely that increasing real costs of power sector development will lead to higher real tariffs. In this case the rate of return would be commensurately higher. 60. Aside from the output of electric power, other benefits are associ- ated with the Project. River regulation will provide a perennially secure flow in the Riul Mare and Strei rivers, the Gura Apelor reservoir recreational benefits and road works which by extension beyond the Project area will serve to improve communications. Such benefits are judged to be relatively small and would not materially influence the Project's justification.  - 16 - PART V - LEGAL INSTRUMENTS AND AUTRORITY 61. The draft Loan Agreement between the Bank and the Investment Bank, the draft Guarantee Agreement between the Socialist Republic of Romania and the Bank, the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement and the draft resolution approving the proposed loans are being distributed to the Executive Directors separately. The special features of the loan documents are described above. 62. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 63. I recommend that the Executive Director approve the proposed loan. Robert S. McNamara President Attachment Washington, D.C. March 25, 1976  ANNIEX 2. OMSDAA- OM Page 1 of 2 pages AREA POOUIC SIf YT77o0 hm a T wMain .. (mid-1974.) 217 4L Per 1x2of arable land SOCIAL INDICATORS REP PER CAPITA Us$ (ATLAS BASIS) /I 330 /b 890 Li 890 > ,60 Ld 3,390 /d DV4DGRAPH1C r-r-Rthrate (per thouagnd) 19 18.1 L..18 ~. 16.3 ~d 10. 2 Crucde death I.t. (par thousand) 9 9.2 L~. 9 ~j 9.6 d 3 11.8 Infant mortality rate (pa thousand live birtia) 75 38 . 4j13 28.3 20O. L d aif expectancy at birth (years) 66 69fL 68 71.1 71.3 Oe.rep"oduotlc Mrst. Ia0.6 Population growth rat l: 1.1: Population rowth rate. - rba 4 l.a : Age SLMorsM (Percet) 15-6h.6L 66 2 5 L 6.9, 636 j 65 and over 74 i 68~ 0 4 131 Age dependency reio &4 05 0.5 7 13: e Econoic dependency ratio 0.7 - 07 . Urban population as peront of total 32A 4 2 /d.k 39 /e.1 95 /e.m 38.. /0.0 Family planning i No, of acoeptorea cumulative (thou.. * No. of users (% of married w:emn) BEtal labr foroe (theueande) 9,600 lo1,100 o 8,900 ~e 19,600( 2,0 Percentage employed in agriculture 66411 4 15 ~ 77.2 doa Paroentage onemployed 0 0 3.3 ~e 3 /& 11 Pcetof national i-nooa received by hkgboaet 5% 15. o i v Percent of national lnco.e receivd by highoet 2% 4...12 , Percent of national inoce recived by lowest 20% ..7 a Feroemt of national incme received by loweat 1.0% I.. 9~ MIINhOIO _O L D 0I=ERSE ~~ caned by top lIE of ownevo .. .. ~~~~~15.1 % 0sned by Smallest 10% of owners .. 8l..9 L RAmAD NUTRITION Popaion per ph.ysician 780 LZ 830 /e 94.0 Li 51.4 560 0. Popalation per -sring ereoan 300 200 380 4 .0L~8 3 PpulatIon per hospital bad 11.0 120 L8. 170 90L 90ei Per capita calorie eopply ae % of requirmante / 105 118 121. 126 121 Per caPita protein aupply, total (grms per day) 6 81 L 92 92 100 88 Of ,Ahich, anial and polee 21. 28 29 /v 1.2 /. 56 Death rote 1-4. yearn /7 5/i 2.1. 2.5 /e 1.0 EO 0.9 L A&3i-B 1~priary adcol erlm enft ratio 97 l09 91. 107 132 Adjusted cecondary edwol enrollment ratio 4.2 62 1.5 59 61 Teara of ~&ooling provided, firet and msoced lapepl 12 12ylm 12 13 12-15 Votcaonlal enrolleet en % of sec. eaheo esraolnnt 51. 58 ~*72 26 4.8 Aut literary rate % .*.85~ /n 91&& 9 b Average No. of pere-as per rome (urban) ..1.3 Li 1.3 og11 t 0.37/v Percent of ocrpied unite withcout Pipe enter ..88 66 3 Access to electricity (as % of total popuatiton) 4.19 jjg 88 e n 96 ic Pecn f ftral popuclation connected to al.etrilltl . 27 80 i"r per 1003 population 109 15 /d 171 230 d 329d Pa.seeger care per lUJO population1. 230 253 I Electric power consoeption (knit p.c.) P... 153 ,7 ,16 " .617 Neo-print consumption p.c. kg per year 2.1 2.8 L~d 1.2 ~ 5.5d 5 1.5 Una,Pgrnref-eristher to ithe 1atet periods o, to anoont or invirsitil timprature, body w-e17te, aMb tho late.s. year, . Latest periods refer in principle t-o dlArib,utio by age and sam of oatiwal popunlationa. it. y-ar 1956-60 or 1966-70; the latest yea;re in pr-im- /6 protein standrds (reqoiramnwte) for all counctlee en wtab- cipi. to 1960 and 1.970. lInke by USDA EemaKic Research Se-rice provide for a ntc /I The Per Capita amp eatinete ima n market prioo Icr allowance of 60 grass of totai protein per day, and 20 gree of roe- other than 1960, ca1ltratd by th. -. ---4- animal end poanle potein, of which 10 gramsh aould be enimel techniqune as the 1972 World ank Atias, prOtein. Th.ee standard. are einamt, lowu than tose. of 75 /2 Aver,age numimr of daughctere par womn ot reprodur',ive pea of total protein and 23 gesm of anl-a protein as an age. average for the marld, propoeed by PAO in thc. Third World Pond Z) Popolition growth reten arn for the deraeds enetit; in socrer' 1960 end 1970. 1' Sam etodies haey Suggested that crude death ratee of children /4 Ratio of jpcpl.tion coder 15 end 65 and over to Icopul- ages I through 4. ay be used a firn t approwimaticen index of tion of agee 15-61. for age dependency ratio and 1;o labor aelnutritima. force of agea 15-61. for eeoc.osic dependency uti,.. /8 Peroettage moflnad of eooreepndintg population of echool age Zj FAO reference stacadarda represent plWsiological re as defined for each aountry. qul reoentc for aurmel activity end health, tatint: /a lO'l.. /b In 1971 0S$ converted at the rate cf 20 I.d per 08$; /a 1973; /d 1972; /i 1971; If 1970-72; Zi 1970-71; /h 1970-75; A 1962; Z,) 1960-72; A Cities, tomcs end 183 othcer localities haLving urban soici- economic characterintico; a For ithe definition of urban seaU Epi erbo 193p. 129; L.m Population over 2,00; /n Deflaition not available; LL_ 1969, 1& 1966; L R tlne; /r 1 year and over; /a Estinate based cc the resulta of a labor force seaple surrey; b aioo egee Bd.oo ekers to active population; / Hlouseholds; /v 1968; /w Shar e total agriculture land owned by Social soctor; /x Sha:re of total agricultur land caned by private farmers (slze limit 10 hertares); & Includes dentiase; La 1961; Zls Hospital peraconnl; /ob 1969.70; Iac Full-tioe education only; /ad 15 years and over; / F ercentaeV of dwellings; La Total, urban end rural; Za ecnaeo ellnewtoc ie watr aid; ab Regitered only; /a Ratio of population coder 15 and 65 end over to total labor force; a an imelen oati 1 Piment of ealarled ,orkes earning mora than 25oLe percent of salaried worker. eorning lesB than 1:30D Jai . 23.0 orThe Federal Republic of GOsreac has been sameltd en an objective country because it is an industrialiand Suropea country with major trade tisa with Romania. Rh November 13, 1975  ANNEX 1 ECONOMIC INDICATORS Page 2 of 2 pages GROSS NATIONAL PRODUCT IN 1974 ANNUAL RATE OF GROWTH (%. constant prices) US$ Mln. % of GNP 1961-65 1966-70 1974 GNP at Market Prices 19,200 100 9.qLL 7.T/1 12.5L1 Gross Fixed Domestic Investment 6,ooo 31 11.3 11.2 13.3 Exports of Goods 4,874 25 9.0/2 10.9/2 30.4/2 Imports of Goods 5,144 27 10.7/2 12.7/2 16.8/2 LABOR FORCE IN 1974 GOVERNMENT FINANCE Mln. % General Government (lei bill.) % of NNI 1 Agriculture 4.o 4o 1974 1974 1969-73 Industry 3.8 38 Services 2.3 22 Current Receipts 210.1 63.7 63.1 Current Expenditure 207.3 62.9 52.8 Total 10.1 100 Current Surplus 2.8 o.8 2.3 Capital Expenditures n.a. n.a. n.a. BALANCE OF PAYMENTS RETAIL PRICES 1971 1972 1973 1974 (Mln. US $) (1966 = 100) 101.6 101.6 102.4 103.7 1971 1972 1973 1974 MERCHANDISE EXPORTS Exports of goods 2,102 2,884 3,667 4,858 Imports of goods 2,102 2,910 3,424 5,o49 US$ Mln. % Trade balance 0 -26 +243 -191 Capital goods 1,011 21 Net Services -23 -31 -107 -168 Consumer goods 773 16 Foodstuffs 990 20 Balance on goods Intermediate goods 546 11 and services -23 -60 +136 -359 Raw materials 1,554 32 Industrial 1,205 25 Net MLT Capital 5 24 83 643 Agricultural 350 7 Disburse_nts 350 516 589 1,055 Amortization -345 -492 -506 412 Total 4,874 /3 100 Residual Balance -18 -36 +219 +284 RATE OF EXCfAJGE EXTERNAL DEBT, Dec. 31, 1975 /4 US$ Mln. Official Rate: Tourist Rate: Total 2,653 US$ 1.00 = lei 4.97 US$ 1.00 = lei 12.00 of which convertible currencies 2,578 Lei 1.00 = US$ 0.20 Lei 1.00 = US$ 0.08 DEBT SERVICE RATIO FOR 1975 National Income Conversion Rate: % Convertible currencies only 16.0 US$ 1.00 = lei 20 Lei 1.00 = US$ 0.05 IBRD/IDA LENDING, February 29, 1976 (million US$) IBRD IDA Outstanding incl. Undisbursed 350.0 tl Net National Income March 5, 1976 /2 Current Prices EMENA Region /3 Trade statistics differ from Balance of Payments statistics. Does not include interest payment obligations.  ANNEX II Page 1 of 4 pages STATUS OF BANK GROUP OPERATIONS IN ROMANIA A. STATEMENT OF BANK LOANS (As of February 29, 1976) Amount in us$ millions Loan Less Cancellations Number Year Borrower Purpose Bank IDA Undisbursed Ln 1020-RO 1974 Investment Fertilizer 60.0 - 55.7 Bank Ln 1027-RO 1975 Investment Special 70.0 - 70.0 Bank Steel Ln 1028-RO 1975 Investmnent Thermal 60.0 - 49.6 Bank Power Ln 1082-RO 1975 BAFI 1,/ Irrigation 70.0 - 69.2 Ln 1083-RO 1975 BAFI Agriculture and Credit 30.0 - 28.4 Ln 1169-RO 1976 BAFI Flood Recovery 4o.o - 21.3 Ln 1170-RO 1976 Investment Flood Bank Recovery 20.0 - 18.4 Total 350.0 - 312.6 of which has been repaid - Total now outs-tanding 350.0 - Amount sold 1.5 - of which repaid 0.0 1.5 - Total now held by Bank 2 348.5 - Total undisbursed 312.6 - 312.6 B. STATEMENT OF IFC INVESTMENTS (As of February 29, 1976) None 1/ Bank for Agriculture and Food Industry 2/ Excluding exchange adjus,tments  ANNEX II Page 2 of 4 pages C. PROJECTS IN EXECUTION Ln. No. 1020-RO Bacau Fertilizer Project; US$60 million Loan of June 28, 1974; Effectiveness Date: December 31, 1974; Closing Date: December 31, 1978. This loan was approved by the Executive Directors on June 27, 1974. It was signed on June 28 and became effective on December 31, 1974. By agree- ment between the Bank and the Borrower, the project site was changed from Tecuci to Bacau which is more advantageous from the point of view of controll- ing effluents. After a slow start, due mainly to the change of site, lack of familiarity with Bank procurement procedures, and the floods of spring 1975, the project is now proceeding satisfactorily. Ln. No. 1027-RO Otelinox Special Steel Project; US$70 million Loan of July 10, 1974; Effectiveness Date: April 4, 1975; Closing Date: December 31, 1979 This loan was approved by the Executive Directors on July 5, 1974. It was signed on July 10 and became effective on April 4, 1975. Execution of the project has been delayed several months, primarily because of the com- plexity of two large bid packages and because of the Romanians' lack of famil- iarity with international competitive bidding procedures under the Bank's Guidelines. Progress on procurement has been closely monitored by several Bank supervision missions. Bids for the cold mill have been evaluated and the final revisions of the contract for its construction are expected to be submitted to the Bank for approval shortly. Bids for the hot mill are ex- pected in May. Ln. No. 1028-RO Turceni Thermal Power Project; US$60 million Loan of July 10, 1974; Effectiveness Date: November 6, 1974; Closing Date: June 30, 1979 This loan was approved by the Executive Directors on July 5, 1974. It was signed on July 10 and became effective November 6, 1974. Physical execution is proceeding smoothly. The project cost is likely to be US$377 million which is 6.6% above the appraisal estimate and the foreign cost is now likely to be US$100 million which is 12.3% over the appraisal estimate. Delivery times for vital foreign supply components threaten to delay the commissioning of at least the first of the four steam-turbine units. There have been some delays in construction works due to slowness in preparing final designs for some works and in organizing timely delivery of materials and supplies to site. As a result the critical path schedule for execution of the project is being revised. Major problems were experienced with pro- curement following a decision of the Council of Ministers to restrict the value of contracts for thermal power station components and related equip- ment to be awarded after international competitive bidding to US$20.0 million, and to utilize the balance of the loan to finance imported supplies for local manufacturers of thermal power station equipment. Discussions to resolve this matter are in process.  ANNEX II Page 3 of 4 pages Ln. No. 1982-RO Giurgiu-Razmiresti Irrigation Project; US$70 million Loan of February 6, 1975; Effectiveness Date: May 5, 1975; Closing Date: December 31, 1978. This loan was approved by the Executive Directors on January 28, 1975. It was signed on February 6 and became effective on May 5, 1975. The first supervision mission was in June 1975. Construction of two main pumping stations, several pressure puaping stations, power supply lines, canal excavation and lining, and canal st:ructures has begun. The rate of progress is slow, however, because of shortage of construction equipment. International procurement has been delayed because of a delay in appointing consultants to assist with this work. Because of Romania's lack of familiarity with international competitive bidding procedures, bid documents prepared for the project hacd to be revised and bid opening was delayed to April 5. After completion of bid evaluations in spring 1976, project execution and disbursement can be expected to improve. Ln. No. 1083-RO Sadova-Corabia Agricultural Credit Project; US$30 million 'Loan of February 6, 1975; Effectiveness Date: April 29, l975; Closing Date: December 31, 1979. This loan was approved by the Executive Directors on January 28, 1975. It was signed on February 6 and became effective on April 29, 1975. Progress of the project is satisfactory. Contracts for purchasing refrIgerated trucks, building materials, steel products and electrical cables have been awarded. Procurement of chemicals has been initiated. Bids for the premix feed mill have been received and formula testing is being carried out as part of bid evaluation which is scheduled for completion in April. Ln. No. 1169-RO Flood Recovery Project; US$40 million Loan of November 12, 1975; Effectiveness Date: December 2, 1975; Closing Date: June 30, 1979. This loan wEIs approved by the Executive Directors on November 4, 1975. It was signed on November 12 and became effective on December 2, 1975. Project execution is p,roceeding well and disbursements are ahead of schedule. Documentation for international competitive bidding is being combined with that for the Giurgiu-Razmiresti Irrigation Project above. Ln. No. 1170-RO Flood Recovery Project: US$20 million Loan of November 12, 1975; Effectiveness Date: December 2, 1975; Closing Date: March 31, 1977. This loan was approved by the Executive Directors on November 4, 1975. It was signed on November 12 and became effective on December 2, 1975. Disbursements under the loan have been slower than anticipated because of dif- ficulties encountered in Romania in preparing and assembling doclmentation for  ANNEX II Page 4 of 4 pages which retroactive financing is provided. Documentation for international com- petitive bidding under this loan has been combined with that for the Giurgiu- Razmiresti Irrigation Project above, and it is expected that disbursements will improve later in 1976.  ANNEX III Page 1 of 3 pages ROMANIA, - RIUL MARE-RETEZAT HYDROPOWER PROJECT Loan-Project Summary Borrower: Investment Bank, Romania Guarantor: Socialist Republic of Romania Beneficiary: Hatzeg Generating Enterprise Amount: US$50.00 million equivalent, in various currencies. Terms: Amortization in 20 years, including 5 years grace period. Interest rate, 8-1/2 percent per year. Project Description: The Project would comprise the construction of: (a) a reservoir called Gura Apelor to be formed by a clay-cored, rock-fill dam, Tomeasa, 173 m high across l:he valley of the Riul Mare in the neighborhood of Mlount Retezat from which the Project takes its name. I high pressure tunnel 18.4-km long conveys the reservoir releases to the Retezat underground power plant of 335 MW h,aving two units working with a gross head of 583 m. Ihe tailrace of Retezat is also the headrace of the above-ground 14-MW powerhouse, Clopotiva, which uses a head of 25 m. There are 25 secondary intakes which collect water from adjacent streams and drop it into the pressure tunnel or convey it through a tunnel 34 km long to Gura Apelor reservoir; (b) transmission lines at 110 kV will interconnect the Retezat-Clopotiva power stations and 220-kV lines will connect the Retezat power station with the existing system at Burul Mare; (c) rcadworks needed for the execution of the Project are in hand. These will later serve general communication and tourism purposes.  ANNEX III Page 2 of 3 pages Estimated Cost: US$ million equivalent Local Foreign Total Hydropower Stations 163.4 41.6 205.0 Transmission Lines and Roads 7.0 0.2 7.2 Sub-total 170.4 41.8 212.2 Contingencies: Physical 16.2 4.2 20.4 Price 9-7 7.8 17.5 Total Project Cost 196.3 53.8 250.1 Financing Plan: The financing plan of the Industrial Central, in condensed form, for the construction period of the Project 1975-1981 is given below: Lei US$ Million Million Equivalent % Sources of Funds Internal Sources Benefits Reinvested 33,650 1,682.5 38 Depreciation Reinvested 26,425 1,321.3 30 Sales of Scrap etc. 584 29.2 1 Gross Internal Sources 60,659 3,033.0 69 Less: Debt Service (31,199) (1,560.0) (36) Net Internal Sources 29,460 1,473.0 33 External Sources State Budget Allocations 55,763 2,788.2 64 Investment Bank Loans 292 14.6 - Existing IBRD Loans 1,200 60.0 2 Proposed IBRD Loans 1,000 50.0 1 Total External Sources 58,255 2,912.8 67 Total Sources of Funds 87,715 4,385.8 100 Construction Requirements Proposed Riul Mare Project (including interest during construction) 5,225 261.3 6 Other Construction 82,490 4,124.5 9 Total Requirements 87,715 4,385.8 100  ANNEX III Page 3 of 3 pages Estimated Disbursements: (Us$ million) Calendar Years 1976 1977 1978 1979 1980 1981 Annual 4.05 9.20 10.95 13.25 11.75 t).80 Cumulative 4.05 13.25 24.20 37.45 49.20 5().00 Procurement: All items to be financed under the Bank loan will be subject to international competitive bidding under the Bank's Guide- lines for Procurement. For purposes of bid comparison, Romanian suppliers will be accorded a preference of 15 percent or applicable customs duty, whichever is lower. Rate of Return: 6-1/2 percent Appraisal Report: No. 1103-RO Power and Energy Development EMENA Projects Department   [BED ii; PROFILE OF THE CLOPOTIVA AND RETEZAT DEVELOPMENT SCHEME SOCIALIST REPUBLIC OF ROMANIA SEPTE.IER e G--dp -hlcn RiUL MARE-RETEZAT HYDROPOWER PROJECT 01 - Fejwiewln.Flrsn Fu,uree develop,,et -' - - I ~~~~~~~~~~~~~~~~~~~~Dams Dams wile power pluom I ~~~~~~~~~~~~~~~~~~Secndary catcm-n tunel -E,taknen jn/ 1 Ti F 11 . . I --- Head-aoe t,,nel Powert s no / '-.., A 0 Sige lantook .,47 Spot heights n meters -. - ---~~~~~~~~~~~ I m ~~~~~ Peestoce Roaas r_ WWIi Mare-RIeteaat ;.dergrowed nydro power sttion i-- Roileads SiMERIS hyaro power station tiMreesa .-bo,d, j To race - l Ito ores Ricer B.asin o T jMjT ; * |Reseroirs (project snd ftwee) IV* Iena tws bac * --,rs! ; ., .,. , . .. . - - . 2 1- - I i ai ii Project atothmert area . * -National pare DoundOry ................ Coscoae Riul StreN-pdownstream 2l-s0 - -ehe H-N G ARYX / E . Z 29 ioWhZ reor \ / O lrOumeS s51,.,-Sa .................................................. l - ~ ~ ~ ~ ~ iwenwctj F~~~~~~~~~~~, F- installed power -1cenerBa TnN 5nL.rJj' S E. E- Acesage generatio Cascad RtA Mare-dwosrea- No ROMANIA 5T 0 2 4 6 a 10 12 .R js>=Lonwo IONlon \ || >omn _-S f Thsomwl .mre L- r . B / f > t _ b KL TERS mac- M., L N.70ma/E ;bNuttimttoltrtmnpt B=laml>/ Cjb<-t't- / PrO ct EYI5fRn9 THERMAL P/ \u10THRMAL Clapo`iwJ., Cacde RtrI Stee-wpstreaes 9 SOOB.ti- aI R?I Matre ccnflwence - -lim T Stlon s \Seria ; \ fK ., RflJI More-Rete..t / d.S _/tA P. 25CWrs O ti rroasns 220/t 0 KV r,w s,i, I Al ~~~~~~~~~~~~~~~~~~~~HA51DAT H.ri-tmr CM 220/110 XV // ~~~~BARuc MARE URECHE5TI ~ ~ ~ ~ ~ Ic 2 220/110 KV *P-335 Mires - - - - 5. cri/ tiiarX-J ii s,iOMEtE5 3