Sierra Leone - Third Power Project

Report No. 1183b-SL Appraisal of the Sierra Leone Third Power Project FILE COPY May 17, 1977 Regional Projects Department Western Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank 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.  Currency Equivalents Currency Unit Leone US $1 1.16 Leone 1 Leone US$ 0.86 2 Leone 1 Pound Sterling Units and Measures GWh Gigawatt hour= 1 million kWh kWh Kilowatt hour ton metric ton= 2205 pounds bbl barrel= 42 US gallons Imp. gall. Imperial gallon= 1.2 US gallon 1 long ton of fuel oil = approx. 6.3 bbl mile 1.609 km m8 = cubic meter million m3 810 acre-ft sq. mile 2.59 km2 kW Kilowatt mW Megawatt = 1,000 kW kVA Kilovolt - ampere MVA Megavolt - ampere = 1,000 kVA kV Kilovolt 1,000 volt V volt 1 km 0.62 miles 1 km2 0.386 square miles Abbreviations and Acronyms BADEA Banque Arabe du Developpement Economique en Afrique OvM Oskar von Miller SLEC Sierra Leone Electricity Corp. Fiscal Year April 1 - March 31 Current Fiscal Year FY 78 (April 1, 1977 - March 31, 1978)  FOR OMCL41 USE ONLY SIERRA LEONE Appraisal of the Third Power Project Table of Contents Page No. Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . i-viii 1. INTRODUCTION.. . ............ 1 2. THE SECTOR. 1 General Economic Background ... . . . . . . . . . . . . . 1 The Power Sector .... . . . . . . . . . . . . . . . . . . 2 Sector Background .... . . . . . . . . . . . . . . . . . 2 SLEC's Existing Facilities in Western System . . . . . . . . 3 Existing Facilities in Provinces . . . . . . . . . . . . . . 5 Sector Planning .... . . . . . . . . . . . . . . . . . . 5 Sector Objectives . . . . . . . . . . . . . . . . . . . . . 6 Steps to be Taken .... . . . . . . . . . . . . . . . . . 7 3. THE PROJECT. . . . . . . . . . . . . . . . . . . . . . . . . . 8 Scope of the Project .... . . . . . . . . . . . . . . . . 8 Project Costs . . . . . . . . . . . . . . . . . . . . . . . 9 Project Status . . . . . . . . . . . . . . . . . . . . . . . 11 Project Execution .................... . 12 Proposed IDA Credit . . . . . . . . . . . . . . . . . . . . 13 Project Financing . . . . . . . . . . . . . . . . . . . . . 13 Procurement and Disbursement ............... . 14 Environmental. Impact .... . . . . . . . . . . . . . . . . 15 4. JUSTIFICATION ....................... . 15 General. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Demand and Available Supply ... . . . . . . . . . . . . . 15 Least-Cost Solution . . . . . . . . . . . . . . . . . . . . 17 Return on Investment . . . . . . . . . . . . . . . . . . . . 17 5. THE BORROWER AND THE BENEFICIARIES . . . . . . . . . . . . . . 18 The Borrower . . . . . . . . . . . . . . . . . . . . . . . . 18 Bumbuna Organization .... . . . . . . . . . . . . . . . . 18 SLEC ........................... . 19 Organization and Management ............... . 20 Personnel and Training .................. . 20 Finance Department .................... . 20 Accounts and Audit . . . . . . . . . . . . . . . . . . . . . 21 Billing and Collection .... . . . . . . . . . . . . . . . 22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 22 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- Page No. 6. SLEC FINANCES .... . . . . . . . . . . . . . . . . . . . . 23 Financial Data .... . . . . . . . . . . . . . . . . . . 23 Past Finances and Present Financial Position . . . . . . . 23 Valuation of Assets and Depreciation Policy . . . . . . . 25 Cost of Fuel .26 Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . 27 Financing Plan .28 Future Financial Position .29 7. RECOMMENDATIONS .30 This report has been prepared by Messrs. Alfonso Posada and Ali N. Memon.  LIST OF ANNEXES 1. Existing Facilities of SLEC 2. Description of the Project 3. Project Implementation Schedule 4. SLEC Investment Program FY 1977-82 5. Disbursement Schedule 6. Justification 7. Tariffs 8. Terms of Reference for Accounting Specialists 9. Income Statements (FY 1974-82) - SLEC 10. Income Statements (FY 1974-82) - Provincial Centers 11. Cash Flow Statement (FY 1977-82) - SLEC 12. Balance Sheet (FY 1974-82) - SLEC 13. Notes and Assumptions on Financial Statements 14. Performance Indicators 15. Apportioning of External and Local Financing Map of Sierra Leone-IBRD 12283R   SIERRA LEONE APPRAISAL OF THE THIRD POWER PROJECT SUMMARY AND CONCLUSIONS Introduction i. The Government of Sierra Leone has asked IDA and the Banque Arabe du Developpement Economique en Afrique (BADEA) to help finance (a) urgently needed extension of electric generation and distribution facilities in the capital city, Freetown, and in several provincial centers, and (b) the project preparation for the Bumbuna hydro-electric development which would follow. A US$ 8.2 million IDA credit is proposed for the project. The Government of Sierra Leone would be the Borrower. The Government would administer and itself use part of the proposed IDA credit (US$ 1.1 million) allocated to the preparation of the Bumbuna project and would relend the remainder (US$ 7.1 million) under a subsidiary loan agreement, to the Sierra Leone Electricity Corporation (SLEC), the Government-owned entity responsible for the generation and distribution of electricity in public consumption areas of Sierra Leone. BADEA would lend US$ 5.0 million for the project. Existing Facilities ii. SLEC's power generating facilities in the Western system (Freetown) and in provincial centers, which have been built up mainly with the help of two previous Bank loans, 388-SL in 1964 for US$ 3.8 million and 553-SL in 1968 for US$ 3.9 million, consist of (a) the 19.8 MW King Tom diesel-electric power plant with three low-speed units (all Bank financed) in Freetown and related distribution facilities plus two old thermal power plants with about 3 MW of reliable capacity, and (b) a number of small diesel-electric plants in provincial centers totalling 11.2 MW. In addition SLEC operates a small hydro plant with about 2 MW of seasonally available capacity, owned by the Guma Valley Authority. Institution iii. SLEC, which was created in 1964 as a Government corporation, originally headed by a board of directors and a general manager, developed its activities satisfactorily until 1969 when the entity was troubled by major labor problems ending in the resignation of the management. A new mana- gement took over after some delay, but in 1973 SLEC began to experience serious problems with the King Tom units and extensive load curtailments occured in  - ii - the system supplying Freetown. These problems were compounded by financial difficulties due to the large increases in fuel prices in 1973/74 and un- changed electricity tariffs. Finally, in mid-1974, the Government abolished SLEC's board, transferred the latter's duties to a newly created Ministry of Energy and Power, and hired a German consulting engineering firm, Oskar von Miller (OvM), to manage SLEC for a five-year period; Sierra Leonian counterparts have been appointed (one is still to be confirmed) to take over management from the expatriate team after expiration of the management contract. The arrangement has so far worked reasonably well, but the day- to-day business still has to be cleared with the Minister which restricts SLEC's management autonomy. Assurances have been obtained from Government that the management will have sufficient authority to carry out its respon- sibility effectively. Confirmation of the one local counterpart will be a condition of effectiveness of the proposed credit. Sector Objectives iv. This background sets the following appropriate sector objectives for the period FYs 1977-1980: (a) as soon as possible restore system relia- bility and meet the load in the system supplying Freetown; (b) in the short- run improve system reliability and meet the load in existing provincial systems, giving the extension of supply to new centers a lesser priority; (c) plan, in an orderly way, the next large addition to generating capacity, which would appear to be a hydro-plant at Bumbuna Falls on the Seli River on the basis of feasibility studies that have so far been carried out; (d) create a sector organization capable of properly planning and imple- menting the sector development program of the 1980s; and (e) assure financial viability of the sector. V. The Government's 1974 decision to reorganize SLEC and to improve the entity's finances, by permitting substantial increases in tariffs in 1974, 1975 and 1977, provides a reasonable basis for orderly sector opera- tion and planning. A systematic overhauling of the King Tom units and of the provincial centers' generating units was put into effect by SLEC to im- prove reliability of the electric supply. The Bank group helped prepare proposals for a restructuring of the sector, which would lead toward better sector organization, proper planning of and implementation of the sector's development, particularly that of the Bumbuna hydro-electric scheme, if confirmed to be the most advantageous solution for Sierra Leone's long-term power requirements. However, in the short-run, additional generating capacity will be needed in Freetown to meet expected load growth until Bumbuna is operative, and more generating capacity will also be required in a number of provincial centers to meet load growth or to replace worn-out units. In addition, some rehabilitation and strengthening of distribution systems is urgently needed; the project addresses itself to these matters.  - iii - The Project vi. The principal components of the project proposed for IDA/BADEA financing are (a) the installation by early 1978 of a 9.2 MW low-speed diesel-electric generating unit at the present King Tom power plant as well as the construction of priority 33 kV distribution facilities in Freetown; (b) expansion of generating capacity amounting to 2.3 MW in ten isolated provincial centers; (c) supply of data processing equipment for customers billing, inventory records, and general accounting; (d) technical assistance; and (e) consultants' services required to complete the feasibility study of the Bumbuna hydro-electric scheme and design studies necessary to tender the construction of the hydro plant's first stage. vii. The project is estimated to cost US$ 15.2 million equivalent, with a foreign component of US$ 13.2 million. Project costs include US$ 1.09 million to cover price escalation and US$ 1.13 million for un- expected changes in design and other unforeseen events. The cost of the facilities and services to be executed by SLEC is estimated at US$ 13.68 million with an off-shore component of US$ 12.10 million. The estimated cost for the project preparation of Bumbuna is US$ 1.52 million, of which US$ 1.1 million will be required in foreign exchange. The estimated costs for the extension of the King Tom power plant are actual contract prices awarded under international competitive bidding. Cost for the units in provincial centers represent early 1977 prices. The costs for the 33 kV distribution are based on current quotations and costs of similar work in Western Africa. The cost of the consultants' services for the King Tom extension and the 33 kV distribution are actual contract prices for the former and a firm offer for the latter. The cost estimate of the consultants' services for Bumbuna is based on a mid-1976 estimate updated in early 1977. Procurement viii. Since the prompt installation of the fourth unit at King Tom power plant is urgently needed to improve reliability of the electric supply in Freetown, SLEC with the approval of IDA, and on the basis of tender documents approved by IDA, advertised for bids and, in December 1975 after consultation with IDA, awarded the contracts for both equipment and civil works. The IDA credit would be disbursed against (a) the off-shore components of the contracts for supply of equipment and civil works for the King Tom extension; (b) 50% of the engineering services for this extension; (c) the off-shore cost of data  - iv - processing equipment; and (d) the off-shore costs of the project prepa- ration for the Bumbuna hydro-electric scheme. It is recommended that IDA retroactively finance the off-shore payments to the supplier of the King Tom equipment and to the contractor of the civil works for the King Tom extension; these total about US$ 5.7 million. The amount of retroactive financing prcposed is exceptionally large due to the fact that presentation of the proposed credit to the Executive Directors was postponed until the Governments took steps to implement a satisfactory program to stabilize the economy. The BADEA loan will finance the total cost (both off-shore and on-shore costs) of (a) corrective measures at King Tom; (b) 33 kV distribution; (c) generating units for provincial centers; and (d) consultants' services for the preparation of a master plan for further electrification of provincial centers, for design and construction supervision of the 33 kV distribution, and for improvements of SLEC's financial management and accounting procedures. Project Execution ix. SLEC's in-house consultants, OvM, besides managing the entity, undertook the planning of the King Tom extension and assisted SLEC in the procurement process. The installation of the works will be carried out by the contractors, both Swiss firms, Sulzer (equipment) and Falkenberg & Braun (civil works). SLEC assisted by OvM will supervise the execution of the work. SLEC, also assisted by OvM, will carry out the procurement procedures for the provincial centers' generating units and for the 33 kV distribution system in Freetown; the planning for the latter will be completed by OvM. The installation work will be carried out by contractors under the supervision of SLEC assisted by OvM. The masterplan for further electrification of provincial centers will be prepared by OvM. The services of a foreign specialist will be enlisted to study the causes of the problems with the electric generators of the existing units at King Tom, to plan the remedial measures which are advisable to prevent repetition of the mishaps, and to supervise procure- ment and installation. For the required improvement in SLEC financial management and accounting procedures, SLEC has agreed to appoint financial consultants. These arrangements for project execution are satisfactory. x. SLEC will not be in a position to carry out the project prepara- tion of Bumbuna because its staff is barely able to operate the existing facilities and is fully occupied with routine matters. The Government has therefore taken steps to establish a Bumbuna Project Development Committee under the Chairmanship of the Vice President of the Republic to have general responsibility for directing the preparatory work for the Bumbuna  v project. In this task the Committee will be assisted by a Chief Engineer. The appointment of the Chief Engineer, acceptable to IDA, would be condi- tion of disbursement for the Bumbuna component of the IDA credit. The Committee, with the assistance of the Chief Engineer, will select enginee- ring consultants (in consultation with IDA and with terms of reference approved by IDA) that will undertake the task of completing the feasibi- lity studies, designing the hydro-plant and attending to all other preli- minary activities. Justification xi. The modest improvement in reliability of service achieved by SLEC in the last 18 months induced a number of potential non-residential users to apply for new or additional supply for about 12 MW of connected load. Conservative demand for this load (which is relatively inelastic to electricity prices and, therefore, only slightly influenced by the recent 15% tariff increases deemed necessary to improve SLEC's financial situation), together with a small increase in existing loads, leads to projected increases in peak demand and gross generation of 6.6 MW and 21 GWh, respectively, between FYs 78 and 80, or an average of 10% per year. In later years the growth of demand is assumed to slow down to about 7% per year once the repressed demand has been met. Once the ongoing rehabilita- tion work is completed but before the proposed project is implemented, SLEC's dependable generating capacity would be about 22.8 MW of which only 16.2 MW are firm (largest unit out for scheduled maintenance); this 16.2 MW is of the same order of magnitude as the peak load in FY77. Therefore, additional capacity is needed urgently to meet the projected increase in demand. xii. Additions to generating capacity for provincial centers attend racstly to the replacement of obsolete or worn out equipment and a moderate increase in the supply potential. Nevertheless, in the course of the exe- cution of the proposed project, the Government and SLEC should develop a masterplan that would allow the demand to be met in an orderly way, and particularly in order of priority. xiii. The decision to install a low-speed diesel-electric at King Tom has been made on the basis of both risk considerations and least-cost com- putations. Adoption of the technical alternative with medium-speed units would involve having to deal with a more sophisticated technology, with which SLEC is unfamiliar and would therefore require additional expatriate personnel, and more frequent routine maintenance and overhauls than low- speed units, which are far more rugged. In this case, SLEC maintenance and reliability problems, already very serious, would become almost intole- rable. Moreover, computations indicate that the selected solution is the least-cost alternative for all discount rates up to 15% assuming foreign exchange costs are priced at 30% above market price.  - vi - xiv. Return on investment (considering shadow pricing of foreign exchange costs at 30% over market price) would be between 11% and 13% for the project component concerning the system supplying Freetown and between 4% and 9% for the provincial centers. The low rate of return for the provincial centers component reflects the differing supply con- ditions and the relatively small size of these systems compared with the system supplying Freetown. SLEC Staffing and Management xv. SLEC appears to be substantially overstaffed, mostly at the lower level, while the entity suffers an acute lack of medium-level technicians and accourtants. During negotiations SLEC agreed to freeze total staff at existing levels until a satisfactory staffing and training plan has been agreed with IDA. SLEC also agreed to start implementing its training and staffing proposals by September 30, 1978. xvi. SLEC's financial management (general accounting, data processing, asset valuation, depreciation policy, internal audit, management reporting, puchasing and stores) requires improvement. The proposed project provides for assistance from financial consultants to review, make recommendations and assist in implementing the required improvement; their appointment would be a condition of effectiveness of the proposed credit. SLEC Finances xvii. SLEC is about 15 months behind in the preparation of its accounts. The financial data is only indicative of the orders of magnitude. After several years of a negative or low rate of return, and following (a) a recent 15% tariff increase; and (b) stabilization of fuel price, SLEC is estimated to have earned a 9.7% return during the fiscal year ending March 31, 1977. The Government has recently paid SLEC arrears in bills for Government depart- ments in the second half of FY 77 amounting to about Le 1.0 million. SLEC's present financial position would be sat-sfactory if the Government paid an estimated 0.48 million compensation for operating losses incurred by SLEC on the provincial system during FY 77. Payment of the arrears for provincial losses will be a condition of Credit effectiveness. xviii. SLEC has agreed to revalue its assets before the end of FY 79 to reflect current costs for those assets and to increase depreciation rates to more realistic levels starting FY 78.  - vii - xix. Until recently, the fuel price paid by SLEC was very high. This is explained by an uneconomic local refinery and Government's fuel distri- bution agreements with five oil companies. Since early 1976 the fuel price has been stabilized. In order to ensure that SLEC will not continue to be penalized for the uneconomic refinery and Government's existing agreements with the oil companies, assurance has been obtained from the Government that the current price to SLEC will be maintained at least until December 31, 1977. Thereafter, increases, if any, shall not exceed increases as from that date in the world market price of fuel. xx. SLEC's tariff structure is satisfactory. Agreement was reached that in order to ensure continued financial viability of SLEC, it should earn an annual return of 10% on assets as presently valuated. Upon completion of the asset revaluation exercise, SLEC should earn not less than 8% on revalued assets beginning in FY 80. xxi. It is Government policy to use uniform tariffs throughout the country despite differing supply conditions. In recent years the Government has compensated SLEC for losses on provincial operations at a fixed rate of Le 70,000 per year. Since the actual losses are much larger, the Government has now agreed to compensate SLEC on the basis of actual losses. Payment of the compensation for FY 77 loss is a condition of effectiveness of the proposed Credit. xxii. With the implementation of the above-mentioned measures including financial consultancy work, stabilization of fuel cost, timely tariff adjustments to permit the agreed rate of return, timely payment of electr5-- city bills and compensation for provincial losses by the Government, SLEC is expected to have a satisfactory financial position in the future. Financing Plan xxiii. The proposed IDA Credit, all for foreign cost, would cover about 59% of total off-shore costs of the project. The balance of the off-shore costs financing would be covered by the BADEA loan. The Government will finance the on-shore costs of the project preparation for Bumbuna, and SLEC will finance the on-shore costs of its part of the project. Satisfactory execution of the BADEA loan agreement would be a condition of effectiveness of the IDA Credit.  - viii - xxiv. There is a foreign exchange gap of about US$ 0.7 million over FY 77-80 relating to SLEC's investment program outside of the proposed project. Assurances were obtained from the Government that the required funds will be made available. Conclusion xxv. Based on agreement reached on the conditions set forth in Chapter 7, the project is a suitable basis for an IDA Credit of US$ 8.2 million.  1. INTRODUCTION 1.01 The Government of Sierra Leone has asked IDA and Banque Arabe du Developpement en Afrique (BADEA) to help finance a project comprising (i) key components of the FYs 1977-80 development program of the Sierra Leone Electricity Corporation (SLEC), the government-own;ed entity res- ponsible for the generation and distribution of electricity in public consumption areas of Sierra Leone; and (ii) the project preparation for the Bumbuna hydro-electric development. 1.02 This would be the third Bank group operation in the power sector of Sierra Leone. The first two (Loans 388-SL in 1964 for US$ 3.8 million and 553-SL in 1968 for US$ 3.9 million) helped SLEC finance the installa- tion of the three units at the King Tom power station in Freetown, diesel- electric sets in provincial centers, and expansion of associated distribu- tion facilities. Both operations have been completed, although, the second was accomplished with substantial delay. While the operation of the facilities installed under these loans has been generally successful, the King Tom units have suffered unusually frequent and long outages (see para. 2.09). 1.03 The proposed project was appraised in April 1975 by Messrs. A. Engvall, M. Lhardy and A. Conde. Owing to substantial changes in the load forecast and the need for a reassessment of the reliability of the generating and distribution system, re-appraisal was carried out by Messrs. R. Ribi and H. Busz in November 1975. At the same time Messrs. R.H. Sheehan and E.L. Quartey (Consultant) analysed the power sector and proposed measures to assure (i) the proper operation and expansion of the power system over the next few years; and (ii) the efficient implementation of the Bumbuna development (see para. 2.19). Finally, all significant features of the project were reviewed with the Government and SLEC in April 1976 and again in March/April 1977 by Messrs. A. Posada and A. Memon. 2. THE SECTOR General Economic Background 2.01 The Republic of Sierra Leone covers an area of about 71,700 km2 and has a population of approximately 3 million, of which 300,000 live in or around Freetown, the capital. During the late-60's and early-70's GDP  - 2 - grew relatively rapidly but erratically and after stagnation in 1974, growth has been 2% per annum on the average. Although, the share of mining in GDP has declined, and that of the service and public sectors have substantially increased in recent years, mining (diamonds and iron ore) still provides about two-thirds of the country's export earnings. That portion of GDP generated by agriculture, which sustains about 75% of the population, decreased over the seven-year period ending 1971; and a growth of only 1.6% per annum in the sector has been experienced. During recent years the growth of the country has been constrained by a severe shortage of foreign exchange associated with a deteriorating ex- ternal balance position and an increasing external debt service burden. The First National Development Plan (1975-1979) calls for diversification through increased agricultural production, establishment of processing industries for agricultural products, expansion of mining and resumption of rutile mining. A reliable power supply is a precondition for most of these developments. However, the present poor position of the power sector is a constraint to development. SLEC is unable to meet the demand and frequently has to resort to load shedding; this not only leads to considerable losses in production and revenues but also to the installa- tion of costly and uneconomic captive power plants by private firms. 2.02 Currently, about 25% of Sierra Leone's population live in centers where electricity is available; however, since only 40% of these have a connection (50% in Freetown and 30% in the provinces), only about 10% of the total overall population benefits from public service electri- city. Altogether, the electric supply in Sierra Leone is of very low quality. The Power Sector 2.03 The total installed capacity of the power sector is about 85 MW; the country is served with AC, 50 cycles per second. Except for the Guma Valley Authority (GVA)-owned hydro-plant (2.4 MW), this is all thermal. Of the total capacity, 40 MW is captive plant; the remaining 45 MW, except for the Guma plant, is owned by SLEC. In addition, SLEC operates the Guma plant on behalf of GVA, the energy from which is fed into SLEC's "Western" system, supplying Freetown and its suburbs. Sector Background 2.04 In 1964 SLEC was created as a Government corporation to succeed the Electricity Division of the Ministry of Works. SLEC was vested with the right to supply all electricity to be used throughout the country, and when unable to supply, to licence persons or entities for electricity pro- duction. Originally, SLEC was managed by Sierra Leonean management under  overall direction of a Board of Directors, appointed by the Minister of Works, and representing Government and business. Under this regime, SLEC developed satisfactorily but in 1969 the Corporation was beset with major labor problems, which ultimately led to violence and resignation of the Corporation's management. After a considerably delay, the Government was able to find and designate a new management and the utility's per- formance improved noticeably. In 1973, however, a new decline started when SLEC began to experience increasing difficulties in operating its main generating plant (see Annex 1), and had to resort to frequent and substantial load shedding in its "Western" system. These difficulties were compounded by financial problems arising from the dramatic increase in fuel costs in late-1973 and early-1974 and the failure to adjust tariffs to cover increased costs. Under these circumstances the Corporation's financial position rapidly worsened. The Corporation's operations were financed by short-term government advances which by the end of FY 75 amounted to Le 7.2 million. At that same time, SLEC's management was in disarray with several senior personnel under Government investigation for alleged corrupt practices. 2.05 In mid-1974, the Government dismissed the entire top management and entered into a five-year management contract with the German consulting firm, Oskar von Miller (OvM). Until now this arrangement has worked reasona- bly well. In 1974 and 1975 Government allowed SLEC to substantially increase its tariffs (first by an average of 60% and then by an average of 30%). In January 1977, a further increase in tariffs (averaging 15%) was implemented by SLEC. 2.06 At the time the Government appointed OvM to manage SLEC, the Act establishing SLEC was modified transferring the duties and prerogatives of SLEC's Board to a new Ministry of Energy and Power. 2.07 The performance of SLEC under the Second Power Project (553-SL) has recently been reviewed by Operations Evaluation Department and the Project Performance Audit Report (No. 1610 dated May 27, 1977) has been dis- tributed to the Executive Directors. The Report refers to the same problems as noted in para. 2.04, i.e., the financial and managerial weaknesses of SLEC and the decline in the reliability of the Western System. To the extent that no corrective measures have yet been taken, the proposed Third Power Project would address these problems. SLEC's Existing Facilities in Western System 2.08 Generating facilities supplying SLEC's Western System have a total installed capacity of 34 MW. They comprise (for details see Annex 1):  (i) three diesel-electric units at King Tom (all Bank financed) with a total capacity of 19.8 MW; (ii) three relatively old diesel-electric sets total- ling 2.8 MW and two new 1.5 MW diesel-electric units at the Falconbridge plant; (iii) three old steam turbo-generators with a combined capacity of 5 MW and two small diesel-electric sets capable of producing together about 1.0 MW at the Blackhall Road Plant but unable to operate in parallel with the other larger units; and (iv) the 2.4 MW Guma hydro-plant, which uses water from the Freetown water supply impounding reservoir. For purpose of future planning of the System, besides the King Tom units, only 3 MW (the two new diesel units) at Falconbridge and 2 MW seasonally available at Guma can be considered as dependable generating capacity in the Western System. 2.09 The King Tom units have been unreliable in recent years; this is probably due to deficient initial maintenance and other yet unexplained problems with their electric generators (see Annex 1). SLEC has systema- tically overhauled these units, but even after regular overhauls and maintenance, it is unlikely that their reliability will ever compare with that originally designed. SLEC's older units at both Falconbridge and Blackhall Road, when in a state to run, produce energy at prohibitive cost with fuel alone costing Le 0.07 per kWh (more than double the cost at King Tom). The Guma hydro-plant had been out of order for most of FYs 74 and 75 but was repaired in early FY 76; with increasing water demand in Freetown, the water available for power productior (which is that surplus to water supply demand) is decreasing and will eventually reach a level inadequate for power production. Due to these problems, although, the peak load never exceeded 17 MW, the total installed capacity of 34 MW was inadequate to provide reliable service. 2.10 In the Western System, energy is distributed through a 155 km long 11 kV network, mostly underground, to 114 distribution transformers connected to a 380/220 V overhead low voltage system. Distribution losses and unaccounted for energy at 21% of net generation (gross generation less station use), are high. These losses appear to result mainly from extensive consumer fraud. Better system control has been instituted by SLEC to reduce theft and losses which are expected to come down to about 16% of net generation for FY 77.  -5- Existing Facilities in Provinces 2.11 SLEC supplies electricity to 14 provincial centers; in 1975 total installed capacity (all diesel units) in these centers was 11.2 MW. The largest system, Kemena, has 3 MW and the smallest, Pujehur, 58 kW. Since most of the units are of fast r.p.m. diesel type, those units older than about ten years are of doubtful reliability (see Annex 1). Two of the systems, Lungi and Port Loko, are interconnected by an 11 kV line; 11 kV and 380/220 V are the distribution voltages in these systems. Sector Planning Bumbuna Project 2.12 Although, during the past few years several major studies have been carried out, sector planning has been poor. In 1970/71, Motor Columbus (Switzerland) prepared a study, financed by UNDP, which included a 15-year electricity supply development plan based on a market study and an extensive survey of the hydro-electric potential of Sierra Leone. The study concluded that the first addition to the power generation capacity of the Western System should be the Bumbuna hydro-electric plant on the Seli River in the northeastern part of the country. The 200 km long trans- mission line to Freetown would be sectionalized by at least two substations which would allow the hook-up of nearby provincial systems. The consultants' conclusions were not accepted because of disagreement on the bases used in the analysis (in particular, estimates of industrial demand were considered too high, potential financing excessively high, and capital costs too low). 2.13 After completion of the Motor Columbus study, Italian Consultants Carlo Lotti carried out a feasibility study of the Bumbuna hydro-development project in 1972. The study was financed by an Italian/Canadian consortium of contractors who intended to mobilize financing and to execute the project as a turn-key operation. A project did not materialize, however, because the consultants conceived a very large (55 MW) and very expensive first stage. 2.14 In June 1975 the consulting engineering firm Studio Ing. G. Pietrangeli (Italy) completed a review of the Carlo Lotti study. The task, with which this consultant was entrusted by the Government, was essentially to update the hydrology of the Seli River, the load forecast and to make an economic comparison between alternative schemes to meet the long-term electric power requirements of the Western System and of those provincial centers that could be integrated into a central power supply scheme. Based on its findings, Pietrangeli proposed a staged development of the hydro-  electric potential of the Seli River beginning with a 35 MW hydropower plant at Bumbuna Falls. Seasonal storage of the river flow would be obtained by means of a 320 million m3 reservoir at Yiben, 30 km up- stream. Annual firm generation is estimated at 201 GWh and secondary generation at 49 GWh or, an average of 250 GWh per year. Capital cost of this stage, including transmission to Freetown, would be the equivalent of about US$ 72 million 1/ - (excluding interest during construction) - of which US$ 22 million would be for the Yiben dam and associated access roads. 2.15 With the recent closure of the Marampa Mines 2/, which repre- sents a sizeable reduction in the load estimate for the Bumbuna project service area, there is now a need to re-examine the phasing of the Bumbuna scheme with the object of arriving, if possible, at a lower cost first stage. Essentially, this would be achieved by postponing the con- struction of the Yiben dam for a few years after the Bumbuna plant is built, and by using Bumbuna's headpond (18.9 million m3 useful storage) for daily flow regulation during the dry season in combination with thermal support from the King Tom power plant. Preliminary analysis suggests that this arrangement is technically viable and economically more advantageous. Nevertheless, whatever solution is selected for the first stage of Bumbuna, will have to be compared with transmission from the proposed Mano River power scheme in the border between Sierra Leone and Liberia, which is being studied by consultants under UNDP auspices. Sector Objectives 2.16 The Government's 1974 decision to reorganize SLEC and to improve its finances provide a reasonably firm base for orderly sector operation and planning. As a start, SLEC and OvM prepared a plan for a crash program and followed this with a five-year plan which is mostly aimed at improving re- liability in the Western System on the assumption that energy from Bumbuna would become available in the mid-1980s. SLEC and the Government intend to have OvM further develop this program as soon as decisions on the scope and timing of the Bumbuna project have been taken. 1/ At 1975 prices. 2/ Iron ore mining with power requirement estimated originally by Pietrangeli at 44 GWh per year and 7.2 MW maximum power demand.  2.17 Against the above background, the following appear to be appropriate sector objectives: (i) as soon as possible restore system reliability and meet the load in the Western System; (ii) in the short-run improve system reliability and meet the load in existing provincial systems, giving the extension of supply to new centers second priority; (iii) plan, in an orderly way, the next addition to the generating capacity for the Western System; this next stage of development would appear to be a plant at Bumbuna; such construction would permit the interconnection of several presently isolated provincial systems with the Western System; (iv) create a sector organization capable of properly planning and implementing the sector development program of the 1980s; and (v) improve financial management and assure financial viability of SLEC. Steps Taker. or to be Taken 2.18 The systematic overhauling of the King Tom units (para. 2.09) and of the provincial system's generating sets, and the replacement of the King Tom sea-water cooling system's cast iron pipes, which has been badly affected by corrosion and marine growth, with plastic pipes now being carried out re- presents substantial progress toward achieving objectives (i) and (ii) above. However, in the short-run, new generating capacity will have to be added to the Western System to meet expected load growth until Bumbuna is operative; this would comprise the addition of two diesel-electric units at King Tom, the first in early 1978 and the second in early 1982 (see Attachment 2 of Annex 6). Similarly, additional capacity will be required in a number of provincial centers to meet load growth or to replace worn-out units. Some rehabilitation and strengthening of distribution systems will also be needed in the immediate future.  -8- 2.19 For all practical purposes the King Tom power plant can be considered presently as the sole source of power for the Western System and will continue to be so for a number of years until Bumbuna is built. Therefore, it is advisable to take measures to prevent repetition of the generator outages that have so seriously affected SLEC's operation during the past few years. 2.20 Implementation of the Bumbuna part of the proposed project is the first step towards achievement of objective (iii). The Bank has submitted recommendations for the future institutional set-up of the sector with particular reference to the Bumbuna development. The first step now being taken is the creation of an organization which can control and supervise the project preparation of the Bumbuna hydro-electric scheme (see para. 5.02). The long-term measures indicated in para. 5.03 would facilitate achievement of objective (iv). 2.21 The financial measures described in Chapters 5 and 6 would contribute to the achievement of objectives (v); their implementation should result in an improvement of SLEC's current position and assure internal cash generation adequate to contribute significantly to SLEC's investment program. 3. THE PROJECT Scope of the Project 3.01 SLEC's FYs 1977-82 investment program (see Annex 4) comprises the following key items to be completed in the FYs 1977-80: (i) installation by early-1978 of a 9.2 MW fourth diesel-electric generating unit at the King Tom power plant; (ii) measures to prevent repetition of electric gene- rator outages at King Tom power plant, which entail (a) hiring a specialist to study the cause of these breakdowns and the electric protection schemes of the units, then design and supervise procurement and installation of the additional protective devices required, and (b) procurement of these protective devices;  (iii) installation, by late-1977, of data processing equipment for customers' billing, inventory records, and general accounting; (iv) construction of the first and highest priority stage of a 33 kV distribution in the Western System; (v) installation, by mid-1979, of 2.3 MW in diesel- electric generating units at various provincial centers; and (vi) employment of consultants' services for (a) the procurement, planning, and construction super- vision for (i), (iv) and (v) above, (b) for the preparation of a master plan for the further electrification of provincial centers, and (c) for improvement of SLEC's financial manage- ment and accounting procedures. 3.02 The project proposed for IDA/BADEA financing consists of these six key items of the program, together with the consultants' services required (a) to complete the Pietrangeli study on the feasibility of the Bumbuna hydroplant (para. 2.13), and (b) to design further the first stage of that plant to the detail required for the preparation of tender documents, and to prepare such tender documents. Annex 2 gives a detailed description of the project. Project Costs 3.03 The project is estimated to cost Le 17.68 million (equivalent to US$ 15.20 million) with a foreign exchange component of US$ 13.20 million. The costs, which are summarized below, exclude all taxes and duties on equipment imported for the project since the Government exempts SLEC from these payments.  - 10 - SIERRA LEONE THIRD POWER PROJECT - ESTIMATED COSTS ----in million Leone