India - Trombay Thermal Power Project

APPENDIX 4 RETURN TO0 T.O. 27 b RE:PORTS D5ESK RESTRICTED WITHIN iONE WEEK This report is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TECHNICAL REPORT ON THE TROMBAY THERMAL POWER PROJECT INDIA November 12, 1954 Department Of Technical Operations  CURRENCY EQUIVALENTS (rounded figures) One U.S. $ = 4.8 Rupees One Rupee = 21 Cents $ 1 Million m Rs. 4,800,000 Rs. I Million $210,000 One Anna = 1/16 Rupee = 1.3 Cents  Appraisal of Trombay Power Project - India Page I. Summary 1 II. Introduction 2 III. The Bombay Electrical System 2 IV. The Power Market 3 V. Description of the Project 4 VI. Estimated Costs 6 VII.. Construction and Expenditure Schedules 7 VIII.. Method of Financing 8 IX. Indian Electricity Supply Act of 1948 8 X. Power Costs and Selling Price 9 XI. The Tata Power Companies 10 XII. Estimated Financial Results of the Project 12 XIII. Security 3$ XIV. Conclusions and Recommendations 15  j --;w ? < ILC i Y .. ;JJ - INDIA I. SUiLhARY 1. This report coversan appraisal of the Trombay Power Project, submitted by three Tata power companies through the Government of India, as a basis for a loan. 2. The project consists of a thermal power plant to be located in the Bombay area. Thie plant will consist of two similar units with a combined maximum generating capacity of 125,000 kw. Some additional transmission faci- lities and substat-ons are included in the project. The plant will burn prin- cipally waste products from an adjacent oil refinery as fuel. 3. The total estimated cost of the project is about Rs. 132 million (c.27.5 million U.S.). The foreign exchange requirements of the project, in- cluding comrmitment charges and interest during construction are estimated at about Rs. 78 million (416.2 million). Local currency expenditures amount to about Rs. 54 million (41l.3 million). The imported equipment will probably be supplied by Germany, Switzerland, United Kingdom, France, Canada and the United States. 4. Construction of the first unit is under way and it is expected to be in commercial operation by October 1956. The second unit is scheduled to GO into operation in June 1957 and the entire project should be completed by December 1957. 5. A power study of the Bombay area was made early this year by the Bank, and the conclusions reached were forwarded to the Government of India. The results of this study are shown graphically in Annex III. The immediate need for this plant was established and even with the availability of this increased capacity, a shortage of pokier in the Bombay area will again be ex- perienced before additional hydro facilities can be brought into operation. 6. The borrowers will be The Tata Hydro-Electric Power Supply Co., Ltd., The Andhra Valley Power Supply Co. Ltd., and The Tata Power Company Ltd. Thaese companies have a long record of successful operation and are all in a good fi. ancial condition. NIanagement and staff of the companies are competent and capable of executing and operating the proposed projects. The loan will be guaranteed by the Government of India. 7. Thie companies' plan is to finance the project with an IERD loan of the equivalent of Rs. 78 million, an issue oi share capital of Rs. 30 million, rupee borrowings, possibly fur-ther issuance of share capital, and retained earnings. 8. The introduction of a larger amount of thermal power will neces- sitate an increase in tariif rates of about 35% over the 1953/54 rates through the years 1956/57. The rates in later years will be gradually reduced. 9. The companies have, in general, followed a policy of setting tariff rates as high as permitted by the law, and thus have obtained earnings which have enabled them to pay preference and ordinary dividends at adequate rates. T hi s1icy of obtaining maxinum rates will be continued and, even after allow- ing ior an expected revision of the method of computing permitted return, the companies should still be able to show satisfactory financial results.  - 2 - 10. It is recommended that a loan of $16.2 million be granted for this project. Based on the useful lifc of the equipment, the loan should bc for a tarm of 20 years. Considering the construction schedule and the general cash position of the conpanies, a grace period of about h years on anortization payments would be reasonable. II. INTWRDUeTfnN 11. The Government of India, on February 5, 1953, submitted an appli- cation for a loan to the lata Hydro-Electric Group for the foreign currency requirements for the construction of a 125,000 kw thermal power plant, con- sisting of two uni.s, to be located at Trombay, near Bombay. After receiving, during the spring and summer of 1953, the necessary information from the Tata companies, the Bank made an appraisal of the project. the study was finished in August 1953, but no further progress was made because at that time it was not certain that the Bombay State Government would approve the installation of, two 62,500 kw units. A revised application for a loan on a project of one unit was received on i4ovember 9, 1953, and at the same time the Bank was asked to consider the financing of the Koyna Hydroelectric Project for the State of Borm-bay. The Government also requested that a power study be made of the Bombay area. 12. A Bank representative visited India early in 1954 to make the power study, which was submitted to the Government of India in June of this year. The report showed the necessity for the installation of two units at Trombay and on September 15, 19541, the Government of India changed the application to again cover two units at Trornbay. 13. This report is based on data presented by the Tata Power Companies includinc, engineering studies by Ebasco Services, and on information obtained by Bank representatives from officials of the companies and the Central and S tate Governments. 1a. The information on the physical features of thle project, the cost estimates, the methods of financing the project, and the expected financial results, is reasonably firm. III. THE bEi0}Y EUCORiCAL SYSTEW 15. The development of the power industry in the Bombay area was started by Tata in 1915. The first plant, Khopoli (61,500 kt,w), which is owned by The lata iiydro-Electric Coiiipany (1iHYdro'l), started operation in 1915; the second plant, Bhivpari (72,000 kw), owned by 'The L.ndhra Valley Power Com,1pany ("Andhra"), started in 1922; and the third plant, Bhira (132,000 kw), owned by The 'Tata Power Company ("Power"), was completed in 1927. The total hydro capacity at the present time amounts to about 265,500 kw. The runners of the Khopoli units are now being replaced to give an ad- ditiona2 7,500 kcj, which will increase the total Tata generating capacity by the end oi 1955 to 273,000 kw.  - 3 - 16. The Bombay electric system, which originally contained only the Tata hydro installations, now includes a thermal station at Chola jointly owned by the Central Railway and the Bombay otate Governnment. The original installa- tion of 40,000 kw was completed in 1929 by the Railway, and a later addition of 24,000 kw is in operation. The addition has not yet been formally accepted because of various deficiencies. This generating equipment is tied into the Tata transmission system..at. the Kalyan receiving station through two 1-3/4 mile transmission lines. The Railway and Tata have a power interchange agree- ment, effective until 1960. At present, Tata is supplying power to the rail- way during system peak periods and receiving power during the rest of the day. The Central Railway intends to install an additional generating-unit of 18,000 kw and has submitted specifications to manufacturers for bids.