Jordan - Fourth Power Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-3033-JO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE HASHEMITE KINGDOM OF JORDAN FOR A FOURTH POWER PROJECT April 21, 1981 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 Financial Year = Calendar Year Currency Unit Jordan Dinars (JD) JD 1 1,000 Fils JD 0.30 US$1.00 JD 1.00 US$3.33 GLOSSARY OF ABBREVIATIONS IDECO Irbid District Electricity Company JEA Jordan Electricity Authority JEPCO Jordanian Electric Power Company JPRC Jordanian Petroleum Refinery Company JVA Jordan Valley Authority K&D Kennedy and Donkin MIT Ministry of Industry and Trade NEC National Energy Council NPC National Planning Council NRA Natural Resources Authority PCR Preece, Cardew and Rider RSS Royal Scientific Society UK United Kingdom mtoe million tons of oil equivalent p.a. per annum  FOR OFFICIAL USE ONLY THE HASHEMITE KINGDOM OF JORDAN FOURTH POWER PROJECT Loan and Project Summary Borrower: The Hashemite Kingdom of Jordan Beneficiaries: Jordan Electricity Authority (JEA), and Jordanian Electric Power Company (JEPCO). Amount: US$25.0 million equivalent. Terms: 17 years, including 4 years of grace at an interest rate of 9.6 percent per annum. Relending Terms: The Government would onlend US$5.0 million to JEA and US$20.0 million to JEPCO on the same terms as those of the Bank loan; JEA and JEPCO would each bear the foreign exchange risk on its respective portion of the loan. Project Description: The Fourth Power Project is an integral part of JEA's and JEPCO's 1981-84 network development pro- grams. The primary objective of the project is to provide adequate transmission and distribution net- work facilities to meet the rapidly growing power needs and to improve the quality of power supply services in Jordan in the most economical way. In addition, the project provides for continued Bank assistance for institution building within JEA, initial assistance to JEPCO and further assistance in developing planning and coordination in the energy sector. The project would comprise: (a) construction of about 160 km of 132-kV transmission lines; (b) construction of five new transformer and extension of five existing tranformer substations, with a total capacity of about 619 MVA; (c) extension of the urban distribution network, including power supply to three low-cost hous- ing developments; (d) electrification of about 20 villages around Amman and 30 villages in the Central and Southern Regions of Jordan; 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.  - 11 - (e) consultants services for project engineering and construction; (f) review of JEPC0's organization and management; (g) training program for JEA's and JEPCO's staff; and (h) consultant services to assist in energy sector development. The project would serve five municipal and indus- trial load centers from the national grid, rein- forcing substation capacity at five important load centers and help electrify about 50 villages with a total of 23,000 inhabitants and three low-cost housing areas being developed for 28,000 inhabitants. No particular project risks are envisaged. Project Costs: Local Foreign Total --------US$ Million-------- Transmission Lines 5.63 8.40 14.03 Substations 4.70 12.53 17.23 Urban Distribution 7.69 11.90 19.59 Rural Electrification 4.31 6.79 11.10 Low Cost Housing 0.57 1.07 1.64 Consultants Services 1.00 1.81 2.81 Organization and Management Study 0.10 0.20 0.30 Training 0.16 0.50 0.66 Energy Sector Development 0.17 0.30 0.47 Total Base Price 24.33 43.50 67.83 Contingencies; Physical 1.33 2.30 3.63 Price 3.74 5.92 9.66 Total 29.40 51.72 81.12  - 111 - Financing Plan: Local Foreign Total -- Ub$ Million-------- A. Project Bank - 25.00 25.00 Government 0.17 0.30 0.47 JEA's Cash Generation 12.84 3.46 16.30 JEPCO's Cash Generation 7.76 0.76 8.52 Kuwait Fund - 18.00 18.00 Customer Contributions 2.80 4.20 7.00 Equity Capital Raised by JEPCO 5.83 - 5.83 bub Total 29.40 51.72 81.12 B. Interest During Construction JEA - 3.01 3.01 JEPCO - 2.45 2.45 Total 29.40 57.18 86.58 Estimated Disbursements: Bank FY 1982 1983 1984 1985 1986 -------------S$ Million ------------ Annual 2.0 8.0 11.0 3.0 1.0 Cumulative 2.0 10.0 21.0 24.0 25.0 Rate of Return; 21 percent Staff Appraisal Report: Report No. 3329-JO, dated April 10, 1981.   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE HASHEMITE KINGDOM OF JORDAN FOR A FOURTH POWER PROJECT 1. I submit the following report and recommendation on a proposed Bank loan to the Hashemite Kingdom of Jordan of US$25 million equivalent to help finance a Fourth Power project. The loan would have a term of 17 years, including 4 years of grace, with interest at 9.6percent per annum. The Government will relend US$5.0 million of the loan to the Jordan Electricity Authority (JEA) and US$20.0 million to the Jordanian Electric Power Company (JEPCO), on the same terms as those of the Bank loan. JEA and JEPCO would each bear the foreign exchange risk on its respective portion of the loan. The project would be cofinanced with the Kuwait Fund which has indicated it would provide a loan of KD 5 million (or US$18 million equivalent). The proposed fourth Bank loan and the Kuwait Fund loan represent the continuing external support that Government receives for the rapidly developing power subsector in Jordan. PART I - THE ECONOMY 2. A report entitled "Country Economic Memorandum on Jordan" (No. 3135-JO, dated December 24, 1980) was distributed to the Executive Directors in January 1981. Country data sheets are attached as Annex 1. 3. Jordan is a country of 2.2 million people (East Bank) with limited natural resources and a traditionally service and trade-oriented economy. It has enjoyed a high rate of growth and made good progress in diversifying commodity production, increasing investment, and promoting exports. This economic performance has taken place in the context of increasing exchange with neighboring countries in the form of trade and labor migration and of expanding financial inflow in the form of remittances of Jordanians working abroad, foreign aid and capital. As a result, almost full employment has been reached, and steadily rising foreign reserves have strengthened the Jordanian Dinar. Recent Economic Developments 4. Renewed stability following the disruptions of 1967-71 created a climate conducive to sustained economic growth during 1975-79, resulting in an average annual growth of CDP of about 10 percent in real terms. This growth was in sharp contrast with that during 1970-74, which was slightly negative. In 1979 GDP per capita reached about $1,020 in current prices while GNP per capita reached $1,200. The upsurge of the economy was due to (a) the rapid growth of the mining and manufacturing sectors; (b) the sharp increase in construction, particularly in housing and large public works;  - 2 - and (c) favorable external factors including influx of Lebanese business activity and booming conditions in the Gulf countries. In agriculture, rainfed production was sharply reduced by a severe four-year drought, but vegetable and fruit production in the irrigated area increased signif- icantly. The private sector showed growing strength especially in promot- ing export-oriented ventures. 5. The overall balance of payments remains strong despite a chronic deficit in merchandise trade. Exports of goods and non-factor services increased by 29 percent annually from 1975 to 1979 (22 percent in constant prices). Significant growth was achieved due to high demand and prices for fruits and vegetables in neighboring countries, booming exports of manufactured goods and sharp increase in receipts from tourism and other non-factor services. Jordanian goods have been able to compete successfully in Middle East markets because of the advantages of Arab Common Market and bilateral agreements, relatively good quality of the products, enterprising marketing and the favorable geographical location. Although the growth in the volume of imports was slower than exports, the resource gap increased in current terms from $560 million in 1975 to about *1,600 million in 1979. Since 1977, most of these deficits were covered by workers' remittances and foreign capital inflows including grants. As a result, the Government-guaranteed external borrowing remained within reasonable limits and borrowing on commercial terms was reduced to a modest level (para. 15). 6. Capital expenditures financed by the Government almost tripled between 1975 and 1979 and were the main cause of the increase in the overall budget deficit from 5 percent of GNP in 1975 to 11 percent in 1979. Domestic revenues expanded in parallel with economic growth and accounted for about 26 percent of GNP in 1979, a rather high ratio by international standards. Current expenditures, excluding defense, were covered by domestic revenues. Defense expenditures were largely financed by foreign assistance. During 1977-79, about 12 percent of capital expenditures were financed from the current budget surplus, 21 percent by foreign grants, 42 percent by foreign loans, and the rest by other domestic resources. Advances from the Central Bank generally declined throughout the period to reach a level of 10 percent of Government outlays in 1979. 7. The main concerns of monetary policy have been mobilizing savings and controlling domestic liquidity. While the savings performance has improved, gross domestic savings have continued to be negative because of the high level of defense expenditures. Although the share of foreign grants used for military imports is not clearly delineated, assuming that in 1979 at least 60 percent of net foreign transfers were used for military imports and were, therefore, excluded from domestic consumption, gross domestic savings would be positive. To promote domestic savings, greater discretion is being allowed to the Central Bank in adjusting interest rates and banking commissions. Increases in deposit rates were effected and have resulted in savings deposits increasing faster than money supply. Between 1977 and 1979, inflation, measured by the cost of living index, increased by 11.5 percent annually.  - 3 - 8. A diversified banking system capable of meeting the financial requirements of fast economic growth was developed during the last decade. The banking system now includes 15 commercial banks and 8 specialized credit and investment institutions. The Amman Stock Exchange, established in 1978, has become an active institution, and the Securities Corporation, created with IFC assistance, is growing in strength. The liberal transfer policy recently followed by the Central Bank has encouraged growth of the financial system, and Amman has started emerging as an international financial center. Medium-Term Prospects 9. The final document of the new National Plan (1981-85) has not yet been published and no official medium term projections are available. The Government's announced strategy is to pursue the objectives of the last decade of economic planning in Jordan, namely to: (a) reduce dependence on external assistance; (b) diversify the economy by increasing commodity production; (c) reduce the budget deficit; and (d) improve the distribution of the benefits of growth. 10. The Bank's medium-term economic projections indicate that the rapid GNP growth achieved in recent years would have to slow down to about 6 percent per annum after 1981 if the trade deficit and dependence on foreign aid are to be significantly reduced. If the trend of expanding exports is maintained and that of imports reduced drastically, the annual external trade deficit could be met by workers' remittances coupled with prudent external borrowing (para. 16). 11. The medium-term prospects for increasing exports and diversifying commodity production are promising. The completion of the major projects now under implementation (phosphate mining, cement, potash, and fertil- izer), together with the enterprise displayed by the private sector should result in significant increases in foreign exchange earnings after 1982. In agriculture, the expected increase in vegetable and fruit exports will be more than offset by growing imports of food, and the agricultural trade deficit will probably increase. In energy, the increasing burden of oil imports has caused concern and made energy planning a priority. 12. Savings from private sources, particularly from workers abroad, should continue to increase, helped by the expanding banking network. A reduction of the budget deficit could also be expected. A working group is at present preparing recommendations on the fiscal system, but a radical structural reform might be socially difficult to implement. Although current expenditure, excluding defense, is expected to grow at a slower pace than the economy, the demands for increased social expenditure and the need for higher wages to retain valuable public servants will not permit significant cuts in expenditure except for investment financing and subsidies for energy and food products.  -4- Social Issues 13. Due to the continuing migration of Jordanians to neighboring countries and the rapid economic growth, the economy has reached almost full employment and pressures have emerged on the demand side. Out of the 750,000 Jordanians estimated to be living abroad, 300,000 are estimated to be working, compared to a total domestic employment of about 447,000. About 70,000 foreigners, mostly unskilled, are working in Jordan. The country has expanded its education and training system rapidly but still needs a comprehensive manpower and training plan to help ensure that: (a) the economy does not suffer from shortages of crucial skills, while meeting prospective demand for skilled workers abroad as far as possible; and (b) the potential labor force is utilized more fully--especially the seasonally idle workers in rainfed areas and women, whose participation, although growing fast, is still low. 14. Social issues are now an acknowledged concern of the Government and this new emphasis would be reflected in the new National Plan (1981- 85). Although the social indicators provide a relatively favorable reading in most sectors, the social services are unevenly distributed across income groups and across provinces. Thus, although health infrastructure is adequate and life expectancy is relatively high (56 years), medical doctors are concentrated in urban centers. In education, while the overall adult literacy rate is high (70 percent in 1978 compared to 40 percent in the Middle East Region), rural areas are short of teachers and school facili- ties are inadequate. Housing remains a problem despite the boom in 1978-80, mainly because housing costs have far exceeded the means of the lower income groups. The Government's concern about these issues has led to the setting up of the new Ministry of Social Affairs in November 1979 to define a coherent social development program. External Assistance 15. Due to large foreign inflows of remittances and transfers, the current account of the balance of payments has shown only moderate deficits since 1977, and the government-guaranteed external debt has remained within reasonable limits. Workers' remittances increased from $150 million in 1975 to $500 million in 1979. Foreign aid exceeded $500 million in 1977 and fell to $410 million in 1978. Following the Baghdad Arab Summit Con- ference in November 1978, which pledged assistance of about $1.2 billion per year until 1983, net foreign aid rose again to a record high of about $1.0 billion in 1979. The external public debt outstanding reached $1.0 billion at the end of 1979; the outstanding debt to IDA was $67 million and to IBRD, $4 million ($85 million and $69 million including undisbursed, respectively). In 1977 and 1978, Jordan borrowed $224 and $100 million respectively on the Eurodollar market, but in 1979, higher foreign aid allowed the borrowing to be further reduced to $39 million. External debt  service payments amounted to $96 million in 1979 or 5.3 percent of total exports of goods and services. 16. Jordan's relative stability and pragmatic economic and social policies have helped to attract large foreign assistance. The continuation of foreign economic assistance at the relatively high levels of recent years obviously depends on international and regional developments. Except for aid related to defense expenditures, the grant component of this foreign assistance is, however, expected to decline over the next few years. Assuming that the investment rate slows down to a level of 24 per- cent of GNP by 1985, the projections indicate a need for external commit- ments of about $600 million each year over the 1981-85 period (compared to an annual average of $410 million for 1977-79). One-third of this borrow- ing is expected to be on concessional terms, somewhat below the ratio in recent years. While bilateral and multilateral sources can be expected to provide the bulk of external resources, Jordan is likely to resort increas- ingly to the financial markets, and this would result in a hardening of loan terms. On these assumptions, the debt service ratio as a percentage of exports of goods and services would reach 8 percent at the end 1981 and is projected not to exceed 10 percent by 1985. PART II - BANK GROUP OPERATIONS 17. Jordan has received five Bank loans totalling $100 million and fifteen IDA credits totalling $85.3 million (net of cancellations) of which twelve have been fully disbursed. Project implementation is generally satisfactory. As of December 31, 1980, disbursements amounted to 79 per- cent of appraisal estimates and 98 percent of revised estimates. The IDA credits have mainly financed physical and social infrastructure projects, such as education, highways, water supply and sewerage, power, irrigation and tourism. With Jordan having attained a stage in its economic develop- ment where it could be considered creditworthy for Bank lending, and having reached a GNP per capita level that exceeded IDA limits, the Third Amman Water Supply and Sewerage Project, approved in March 1978, was the last project financed through an IDA credit. IFC has made four investments in Jordan with total commitments of $32.1 million, consisting of a $244,000 equity participation and a $1.6 million loan to Jordan Ceramic Industries Limited (JCI) in 1974, a $3.1 million equity participation in the promotion of a phosphatic fertilizer project in 1975 including a subsequent $20 million loan and $3.6 million additional equity participation in June 1978 (see para 19), a $667,000 equity participation and a $2.5 million loan to a brick company in December 1978 and $674,000 equity participation in the Jordan Security Corporation in June 1979. Annex II contains a summary statement of Bank loans and IDA credits as of April 1, 1981, and IFC investments as of February 28, 1981, and notes on the execution of ongoing projects.  - 6 - 18. Unlike past Bank Group assistance to Jordan which was largely for infrastructure projects, recent and proposed lending is also directed toward large export-oriented projects with foreign exchange earning poten- tial for which the Bank Group has closely cooperated with the Government in project preparation and in mobilizing large external financial assistance. In addition, the Bank Group has been assisting the Government in implement- ing its social objectives of improving the income and living standards of the rural and urban poor, as enunciated in the Five-Year Plan (1976-80) and which is likely to receive even greater emphasis in the new Five-Year Plan. 19. In line with these overall objectives, the Bank Group has provided technical assistance for developing and implementing a plan for expanding phosphate rock production, and preparing a comprehensive program for a second phase of development of the agricultural potential of the Jordan Valley and for water supply based on the Maqarin Dam. An engineering credit was made in FY1975 to help prepare the project for potash production from the Dead Sea via solar evaporation, for which a loan was approved by the Executive Directors in September 1978. In addition, IFC has assisted the Government in preparing a phosphatic fertilizer project to produce diammonium phosphate (DAP) and triple superphosphate (TSP) for which an IFC loan of $20 million and equity participation of $3.6 million were approved by the Executive Directors in June 1978, in addition to IFC's equity participation of $3.1 million in 1975 (see para 17). Support for the Government's social objectives was provided by loan for the Third Education project that was approved in December 1979, the Cities and Village Development Bank (CVDB) project approved in March 1980 and the Urban Development project approved in July 1980. 20. Projects are under preparation in the education, water supply, industrial and power sectors. In the agriculture sector, we propose to assist in the development of irrigated production in the Jordan Valley and are preparing a rainfed agriculture project to help small farmers increase their yields through improved inputs of seeds and fertilizer as well as through better cultivation practices. 21. At the end of 1979, the Bank Group's share in Jordan's external public debt was estimated at 6.7 percent, and its share in debt service was 1.0 percent. By 1985 the Bank Group's shares in debt outstanding and in debt service are expected to be about 6.0 percent and 6.4 percent respec- tively. PART III - THE ENERGY SECTOR Energy Resources 22. Jordan has no coal deposits or any known reserves of oil or natural gas and is totally dependent on oil imports for its energy needs. The oil is imported via off-take from the Trans-Arabian Pipeline and  - 7 - refined at Zarqa. The only potential indigenous energy resources are oil shale, tar sands, a small hydropower potential, geothermal and solar energy. Studies are currently underway for the utilization of the esti- mated 10,000 million tons of shale rocks for either power generation or direct oil extraction. No program has been formulated yet for developing the tar sands and the hydropower potential is confined to 2 MW at the King Talal Dam and 20 MW at the proposed Maqarin Dam. Prospects for developing the geothermal resources are not bright due to low water temperatures. While efforts to develop solar energy have attained initial success with limited manufacture of solar components, its present and future usage is expected to be limited to water heating. Efforts are also underway to revitalize oil and gas exploration activities which had nearly been abandoned for lack of success. A possible future option to boost Jordan's energy resource base is a hydrolink between the Red Sea and Dead Sea, for which a preliminary study exists, to utilize the 400 meter head for power generation. Policy Issues 23. (a) Overall Planning and Coordination. Jordan lacks a comprehen- sive plan for the management and development of energy resources. Energy- related institutions presently operate within their respective specialties with insufficient coordination. The sector institutions include: the Royal Scientific Society which is responsible for research on solar energy and other renewable energy resources; the Jordan Petroleum Refinery Company which handles the importation of crude oil, its refining, distribution and marketing; and the Natural Resources Authority which is responsible for exploring for all non-renewable energy resources. The power subsector is regulated by the Jordan Electricity Authority which is chaired by the Minister of Industry and Trade. In 1977, the Government set up the National Energy Council (NEC) consisting of the representatives of all the organizations in the energy sector, to set overall policies, commission studies, and monitor their implementation. However, NEC lacks the staff and financial resources to carry out its mandate effectively. The Govern- ment has taken steps in the right direction with the establishment in late 1979 of the Energy Department in the Ministry of Industry and Trade to assist in coordination of energy related institutions and monitor the implementation of the resolutions of the NEC. This Department now has a small professional staff and is beginning to function but it needs to be strengthened if it is to become capable of planning for the sector and coordinating the work of institutions in the sector particularly with respect to the development of indigenous resources.. The Government has agreed to formulate a plan, by June 30, 1982, for strengthening the plan- ning and management of the energy sector and improving the coordination among energy related institutions (Section 3.02 of the Loan Agreement).  - 8 - (b) Energy Pricing. The total cost of imported crude oil rose from $6 million in 1970 (about 1 percent of GNP) to about $360 million in 1980 (12 percent of GNP). Except for gasoline and LPG, prices of petroleum products, especially kerosene and diesel oil, are lower than international prices. The resulting subsidies are a considerable drain on budgetary resources despite significant increases in prices of petroleum products in February 1980 and February 1981. Future increases in prices of petroleum products to eliminate gradually existing subsidies would be one of the issues to be reviewed by the consultants financed under the proposed proj- ect to assist the Government in improving the management of the energy sector. (c) Energy Efficiency and Conservation. As economic activity picked up in the 1970s, the growth in energy consumption (15 percent per annum) has exceeded the growth in GDP (12 percent per annum). In light of the scarcity of energy resources and the long period required for their development, it is imperative that the Government rapidly institute a program for managing the growing energy demand. In addition, efforts should be made to diversify Jordan's use of energy resources (e.g., use of imported coal). 24. The Government is utilizing Bank assistance in studying these issues. A Bank mission visited Jordan in December 1979 to assist the Government in preparing terms of reference for exploiting Jordan's oil shale resources and another mission visited Jordan in February 1980 to undertake a brief review of the energy sector. The Bank would continue its assistance under the proposed project by supporting studies by consultants that would assist the Government in setting policies for energy pricing, demand management, energy conservation as well as a strategy for developing indigenous resources. Power Subsector 25. The power subsector is controlled by the Ministry of Industry and Trade. The General Electricity Law of 1976 defines the principles and basic regulations for the power subsector in Jordan, including procedures for tariff approvals and licensing of new power facilities. Responsibility for electricity generation, transmission, and distribution is divided mainly among the Jordan Electricity Authority (JEA), the Jordanian Electric Power Company (JEPCO) and the Irbid District Electricity Company (IDECO). There are captive plants serving the larger industrial enterprises and small isolated systems serving municipalities and villages. Subsector Institutions 26. JEA was established in 1967 to coordinate the development of the country's power subsector and is entrusted with responsibility under the  - 9 - General Electricity Law for power generation, transmission and dis- tribution and for regulating power consumption in the country. JEA is also authorized to manufacture electrical and other equipment needed by the power system. Under this law, JEA acquired, with Government approval, small inefficient power entities as the national power system developed and has moved progressively to serve previously isolated loads from the national grid. In addition, JEA sets the electricity supply rates charged by other utilities such as JEPCO and IDECO and is in charge of preparing and implementing the national rural electrification plan. 27. JEPCO is largely an investor-owned company distributing power in the Amman area and its activities are governed by a Concession Agreement of 1962 with the Government to supply power to the Amman area for 50 years. In 1980 the ownership of JEPCO was distributed among individuals (68 per- cent), municipalities (7 percent), industrial enterprises (4 percent), JEA (14 percent), and various institutions (7 percent). Prior to the creation of JEA, JEPCO was the largest power generating and distributing enterprise in Jordan. However, JEPCO has since ceased its power generation and purchases all its power from JEA at the 33-kV level. Since JEPCO is responsible for power distribution in the relatively highly developed and densely populated area of the City of Amman and its vicinity, it is the largest power distributor in Jordan (accounting for 80 percent of total sales) and its sound future development is important for the development of the power subsector in Jordan. The proposed Bank loan would be the first direct Bank assistance to JEPCO. 28. IDECO, the third utility, operates a 9-MW diesel plant in Irbid and distributes power in the City of Irbid, some surrounding villages and part of the Jordan Valley and accounts for less than 10 percent of total power consumption in Jordan. JEA owns about 47 percent and the Municipal- ity of Irbid about 43 percent of IDECO, with private investors holding the rest of the shares. Seconded staff from JEA have assisted IDECO to over- come the serious managerial and financial problems that had plagued it in the past. With the Government's assistance, all necessary financing has been secured for IDECO's 1981-85 development program. Power Generation and Demand 29. Total electricity generation in Jordan, including imported power from Syria, increased from 230 GWh in 1971 to 885 GWh in 1979, while con- sumption increased at 18 percent per annum from 204 GWh to 723 GWh during this period. The 1979 peak demand of the interconnected system was 153 MW with an installed capacity of 302 MW. The consumption of electricity in 1979 was as follows: industrial, 39 percent; domestic, 27 percent; com- mercial, 13 percent; water pumping, 7 percent. The remaining 14 percent was consumed primarily for hospitals, street-lighting, broadcasting and television. The 1979 per capita consumption of electricity was 408 kWh (the level attained by Egypt in 1977 and Portugal in 1952) compared to 162 kWh in 1974. About 36 percent of the total population, mostly in the rural areas, still have no access to public electric supply (see para. 33).  - 10 - 30. The power system in Jordan comprises three 33 MW steam units, four gas turbines and about 20 small diesel sets. The Jordan Phosphates Mines Company operates the largest captive plant with 22 MW; about 20 MW is pro- vided by small municipal systems. The national transmission network com- prises 135 km of transmission lines and six transformer substations with installed capacity of 285 MVA. The Jordanian and Syrian power systems were initially connected in 1977 via a 66-kV transmission line. A new 230-kV transmission line would allow better utilization of the power generating facilities of both countries. It would be used to import up to 20 GWh annually from Syria when the interconnection becomes operational and would obviate the need for Jordan to invest in 50 MW of additional generating capacity. 31. The national load forecast shows total systems sales growing at 21 percent per annum from 796 GWh in 1980 to 2,468 GWh in 1985, with maximum demand increasing from 187 MW to 462 MW during this period. The system's load factor is expected to improve from 49 percent in 1980 to 67 percent in 1985, representing better utilization of generating facilities. The pro- portion of JEA's sales to large industries would increase from 9 percent in 1980 to 31 percent in 1985 as several large industrial schemes are com- pleted and become operational. Per capita consumption would rise from about 480 kWh in 1980 to 990 kWh in 1985. About 213 MW of new generating capacity would be added in this period. In addition, commitments would be made for 2 x 120 MW steam units for Aqaba to be commissioned in 1986. About 315 km of 132-kV transmission lines with 629 MVA in substation capa- city is under construction and the construction of 518 km of transmission lines including 583 MVA substation capacity is planned for 1983-86. 32. JEA's portion of the national investment program for 1981-85 is about $553 million (in late 1980 prices) while JEPCO's and IDECO's invest- ment requirements for 1981-1985 are estimated at $121 million and $33 mil- lion, respectively. About 26 percent of JEA's investment requirements would be met from internal resources and the rest from borrowings, much of which are already identified. JEPCO is expected to finance about 25 per- cent of its investment requirement from internal sources. The Government has secured loans for JEPCO from the European Investment Bank, the US and the UbSR. Other foreign and local borrowings, including the proposed Bank loan, are planned to complete the financing plan for JEPCO's investment program. About 70 percent of the investment requirements would be met from borrowings of which 41 percent is still to be identified (para. 46). In order to plan, implement and monitor properly the above programs, JEA and JEPCO would need to strengthen their planning capabilities (see paras. 39 and 43). Rural Electrification 33. Only about 45 percent of the rural population at present has access to electricity. To extend electricity to this segment of the popu- lation, JEA is currently implementing a national rural electrification plan which would by 1983 cover about 84 percent of the rural population. By  - 11 - 1993, when the plan is expected to be completed, only very small and remote villages or temporary settlements would not have access to electricity. Various bilateral aid agencies are assisting in implementing the rural electrification program. USAID has provided funds for the electrification of 37 villages and 2 low-cost housing areas in the Amman district and the USSR would finance the electrification of 100 villages in Irbid district and 32 villages in Amman district. About 20 remote villages would be served by mobile units financed by Denmark, and the UK would finance the electrification of 20 villages in the Irbid district. The proposed project would finance the electrification of about 60 villages in addition to the 39 villages financed under the Third Power project. Tariffs 34. Under existing tariff covenants, JEA is required to maintain tariff levels sufficient to earn a minimum of 9 percent on revalued assets, with revaluation mandatory after December 31, 1981. Agreement was reached during negotiations to change the financial targets to a cash generation covenant (para. 41). JEPCO's tariffs are set so as to cover operating expenses plus interest on debt and to provide at least 7.5 percent dividend on the nominal value of equity shares. The tariffs are based on a study prepared by consultants (North Eastern Electricity Board-U.K.), taking into account the marginal costs of generating, transmitting and distributing electricity, with periodic adjustments for fuel costs. The latest tariff increase was effected in March 1980. Retail tariffs range between 37-52 Fils/kWh for domestic customers, 45-57 Fils/kWh for commercial customers and 39-44 Fils/kWh for small industrial customers consuming less than 2,500 kWh/month. (This is equivalent to a range of from $0.11 cents to $0.19 cents per kWh.) In view of the 50 percent increase in fuel prices in February 1981, which JEA was not allowed to pass on to consumers through the fuel adjustment clause in 1981, JEA is planning a review of its tariffs by the end of July 1981 (para. 41). Role of IDA/Bank in the Power Subsector 35. The proposed loan would be the fourth Bank Group lending operation for power in Jordan and represents the first Bank assistance to JEPCO, the largest power distribution company in Jordan. The first IDA Credit (386-JO) for $10.2 million together with a $10.2 million loan from the Kuwait Fund was used to finance the installation of the two 33-MW steam units and a 13-MW gas turbine at the Hussein Thermal Power Plant (HTPP). The second IDA Credit (570-JO) for $5 million cofinanced with the Arab Fund ($13.4 million) the third 33-MW unit at HTPP, the reconditioning of the Marqa diesel unit and a power development study which provided the basis for the third and the proposed fourth power projects. The first and second projects have been completed and are operating satisfactorily. A project  - 12 - completion report covering both projects is under preparation. The third project, assisted by a $15 million Bank loan (Loan 1688-JO), aims at an expansion of JEA's transmission network and substation capacity as well as the electrification of 39 villages in Central Jordan. All contracts for the project components have been awarded and implementation is proceeding satisfactorily and on schedule. Overall, Bank Group operations in the sub- sector have supported the development of a rapidly expanding and modern power system. Some of the achievements, besides helping to attract other external financing, are assisting in the development of JEA as an efficient and financially viable entity responsible for the entire power subsector, the introduction of a tariff structure based on marginal costs and the pro- gressive interconnection of the Jordan power system into a reliable and economic national grid. However, new challenges have emerged such as the urgent need to strengthen energy sector planning capabilities and usual operating problems have been magnified by the growth of the operations of the power entities and the need to cope with the rapid expansion of the subsector. The proposed project would address these problems. PART IV - THE PROJECT Project History 36. Under the second power project, JEA engaged consultants (Preece Cardew and Rider (PCR)-UK) to prepare a study for the long term development of the power subsector. The proposed project is based on the findings of the study and on a project feasibility report prepared by the same con- sultants in 1980. The project was appraised in October/November, 1980. Negotiations were held in Washington, D.C. between March 23 and 26, 1981. The Government was represented by Dr. Hanna Odeh, President of the National Planning Council, JEA by Dr. Hisham Khatib, Director General of JEA, and JEPCO by Mr. Marwan Bushnaq, Deputy General Manager of JEPCO. A Staff Appraisal Report entitled "Jordan - Fourth Power Project," (No. 3329-JO) dated April 10, 1981 has been distributed separately. Supplementary project data are provided in Annex III. Project Objectives and Description 37. The main objective of the project is to support the expansion of power transmission and distribution facilities to meet the rapidly growing needs of Jordan's burgeoning economy at least cost. The project also aims at improving the quality of power supply, assisting the country's rural electrification program, continuing the institution building efforts to strengthen JEA and to initiate a similar program of assistance for JEPCO. The project would also provide assistance to the Jordanian authorities in the development of the country's energy sector. The major components of the project are: Part A (Jordan Electricity Authority) (i) construction of about 160 km of transmission lines (132-kV) to connect the important economic centers of Aqaba, Quweira,  - 13 - East Ghor, Ashrafiya and Sahab with the national transmission network; (ii) extension and reinforcement of 5 existing transformer substations and construction of 5 new transformer substations with a total installed capacity of about 619 MVA; (iii) electrification of 30 villages in the Central and Southern regions as part of the national rural electrification plan; (iv) consultants' services for assistance in implementing the project; and (v) training of staff. Part B (Jordanian Electric Power Company) (i) extension of the urban distribution network including 13 km of overhead lines, 43 km of cables, about 140 MVA of 33/11-kV power transformers, equipment and materials for about 70 distribution substations and related auxiliaries, and upgrading the existing 6-kV distribution system to 11-kV; (ii) electrification of three low cost housing developments; (iii) electrification of 20 villages around Amman; (iv) consultants' services for assistance in implementing the project; (v) organizational review with special focus on financial manage- ment, accounting procedures and the establishment of a training program; and (v) training of staff. Part C (Ministry of Industry and Trade) Consultants' services to assist the Government in devising policies for energy pricing, demand management, energy conservation and a strategy for developing indigenous energy resources. Project Implementation 38. Part A of the project will be implemented by JEA. JEA's consul- tants(PCR) prepared the project feasibility study, partly financed under the second power project (Credit 570-JO). The consultants have investi- gated the line routes and substation sites and have already started draft- ing the bidding documents. JEA has the necessary experience in carrying out transmission and distribution projects; nevertheless, JEA would con- tinue to need consultants' assistance in procurement and supervision of  - 14 - project implementation and hence during negotiations agreement was reached for JEA to continue to employ consultants whose qualifications, experience and terms of employment will be satisfactory to the Bank (bection 2.02 of the JEA Project Agreement). Part B of the project would be implemented by JEPCO with the assistance of its consultants (Kennedy & Donkin (KD) - U.K.). KD maintains a permanent resident engineer at JEPCO headquarters and would actively assist in all project-related activities. Detailed designs for the urban distribution extensions, low-cost housing, power supply and rural electrification have been prepared. However, JEPCO would continue to need consultants to prepare the bidding documents and to assist in project implementation. During negotiations, JEPCO agreed to continue to employ consultants whose experience, qualifications and terms of employ- ment are satisfactory to the Bank (Section 2.02 of the JEPCO Project Agree- ment). Part C of the project would be implemented by the Ministry of Industry and Trade, with the assistance of qualified energy consultants to be employed by December 31, 1981, under terms of reference drawn up in consultation with the Bank (Section 3.03(a) of the Loan Agreement). It would aim at strengthening the capabilities for energy planning, improving the policies for the management of the demand for energy and formulating a long term program aimed at the exploitation of Jordan's domestic energy resources. Demand management would involve the formulation of policies for the rationalization of energy prices, and programs for energy saving con- sisting of energy audits, interfuel substitution, cogeneration and waste- heat recovery. The formulation of a program for the exploitation of Jordan's domestic energy resources would involve assessing the optimal uses for the existing resources and the exploration for new potential sources of energy. The Government has agreed to provide the Bank with a timetable by December 31, 1982 of actions to be taken to implement the consultants recommendations (Section 3.03(b) of the Loan Agreement). The project is expected to be completed by December 31, 1984. Project Implementing Agencies 39. Organization, Management and Staffing of JEA. JEA oversees the overall development of the power subsector in Jordan (para. 26). JEA has a Board of eight Directors with the Minister of Industry and Trade as Chair- man and the President of the National Planning Council as Vice Chairman. The Director General of JEA, who is appointed by the Board, is responsible for the day-to-day management of JEA. The Director General, a very capable and internationally known engineer, is assisted by the Chief Engineer who oversees all technical departments, including Administration and Finance. JEA's organizational structure is based on proposals of management con- sultants (Peat, Marwick, Mitchell and Co.) appointed under the first power project (Credit 386-JO) and is considered sound. JEA is well managed. All its managerial staff are professionally qualified and have prior experience in power operations in Jordan or abroad. In November 1980, JEA had 1,373 employees including 114 engineers and 681 technical staff. Despite its strong staffing, JEA still depends on external consultants for its power system planning and analysis. However, JEA is endeavoring to develop its internal capabilities in this area. During negotiations JEA agreed to  - 15 - continue to strengthen its Planning Department and to inform the Bank no later than December 31, 1981, of the specific actions to be taken in this regard (section 3.02 of the JEA Project Agreement). JEA has prepared a training program covering its needs up to 1983 and timely implementation is important for JEA to meet the expanding needs of the power subsector. Dur- ing negotiations JEA agreed to begin implementation of a staff training program by September 1, 1981, with details and implementation schedule satisfactory to the Bank (Section 3.03 of the JEA Project Agreement). 40. Financial Performance and Prospects of JEA. JEA's net fixed assets have grown very rapidly from less than a million JD in 1975 to about JD 42 million in 1980. The efficiency of its operations has also improved as reflected in the ratio of kWh generated per employee, which increased from 420,000 in 1977 to 600,000 in 1980. The existing revenue covenant under Credits 368-JO and 570-JO, and Loan 1688-JO requires JEA to maintain tariffs at levels sufficient to yield a minimum annual rate of return of 9 percent on revalued assets, with revaluation not becoming mandatory until December 1981 because of JEA's very limited and new asset base. JEA revalued its end-1980 assets on the basis of an engineering revaluation. Partly because of the inevitable lag in the utilization of capacity and the rapid growth in electricity assets to satisfy the demand, JEA earned a return on the book value of assets of only 6.1 percent in 1977, 4.8 percent in 1978 and 4.6 percent in 1979. However, despite the lower than expected rates of return and the high rate of investment, JEA continued to meet a reasonable portion of its investment requirements from internally generated funds, averaging 24 percent during 1977-79. The Bank, noting that this met the basic objective of the covenant, has accepted this as satisfactory performance. With substantial tariff increases in March 1980, making Jordan's power among the most expensive in the Middle East, JEA's rate of return in 1980 increased to about 8.9 percent of the book value of net fixed assets (see para. 34). With the tariff increase and the expanding transmission and distribution facilities resulting in a larger customer base, JEA is expected to earn a return of 11.6 percent on revalued net fixed assets in 1981. 41. Agreement was reached during negotiations to modify the rate of return covenant under previous power projects to a cash generation covenant. The change in revenue covenant was agreed because the financial objectives of JEA would be maintained and in view of the Government's con- cern that revaluation of JEA's assets under the rate of return covenant might induce other institutions to insist on revaluing their own assets, thereby exacerbating price pressures in the economy. It was agreed that measures will be taken to ensure that JEA would generate from internal sources at least 25 percent of its investment requirements in 1981, 1982 and 1983 and 35 percent in 1984 and thereafter (Section 4.03 of the JEA Project Agreement). JEA would review with the Government at least three months before the end of each fiscal year the adequacy of JEA's projected revenues and the measures to be implemented by JEA to comply with the self-financing ratio in the following fiscal year and consult the Bank prior to the beginning of the following fiscal year, on such measures (Section 4.04 of the JEA Project Agreement). These levels of internal cash generation are considered satisfactory because of the Government decision  - 16 - requiring JEA to absorb in 1981, the 50 percent increase in fuel price implemented in February 1981. This would give JEA sufficient time to undertake a tariff review, scheduled for completion in July 1981, which might lead to a general restructuring of tariffs. For 1981, the Government is considering allowing JEA to keep the Fils 1.00 per kWh it collects for the Rural Electrification Fund and Fils 1.00 per kWh it collects in taxes, or some other equivalent budgetary measures, to compensate partially for the Fils 5.00 per kWh increase (or an aggregate increase of 27 percent) in JEA's operating costs caused by the fuel price increase. To achieve the agreed self-financing ratios in subsequent years, the Government and JEA would take appropriate measures, including restructuring of tariffs, to increase the average revenue per kWh sold by 11 percent in 1982, 15 percent in 1983, 6 percent in 1984 and 14 percent in 1985 (assuming a 3 percent real increase per annum in the price of fuel). With these revenue increases, the comparable rate of return on revalued assets would be 7.6 percent in 1982, gradually increasing to 8.9 percent in 1985. 42. JEA's accounts receivable are satisfactory, amounting to the equivalent of 6 weeks' billings. JEA has so far maintained a prudent capital structure with a debt/equity ratio of less than 1:1; however, in view of the need to limit JEA's borrowing to prudent levels, JEA has agreed not to incur additional debt without the Bank's prior approval unless its debt service coverage ratio was at least 1.5 (Section 4.05 of the JEA Project Agreement). JEA's future financial situation is expected to be satisfactory. JEA is expected to finance almost 26 percent of its 1981-85 development program of $553 million with internally-generated funds. JEA's accounts are audited by a local firm of chartered accountants (Shair & Co.). The auditing arrangements are satisfactory and JEA agreed during negotiations to an audit covenant similar to the one included under the third power project (Loan 1688-JO) (Section 4.02 of the JEA Project Agreement). 43. Organization, Management and Staffing of JEPCO. JEPCO is largely an investor-owned company (para. 27). Its Board consists of eleven members, two of them nominated by the Government and 9 elected by the shareholders. The Board, under the direction of the Chairman and General Manager, decides policy. Day-to-day management is the responsibility of the Deputy General Manager. JEPCO does not have a separate Finance Depart- ment and the financial planning is at present handled by its consultants (Kennedy & Donkin - UK). The accounting section is weak, having no staff with any formal training in accounting or finance. Improvements are needed in JEPCO's organizational structure and operations to enhance the quality of its service and efficiency. An adequate management information system needs to be established and improvements are needed in billing procedures. JEPCO has, therefore, agreed to employ by December 31, 1981, consultants specialized in power utilities to review by December 31, 1982, JEPCO's organization, management practices and billing system and to propose neces- sary changes to be implemented promptly thereafter (Section 3.02 of the  - 17 - JEPCO Project Agreement). At the end of 1980, JEPCO had 1,215 employees of which 782 were in operations. JEPCO has slightly higher salaries than JEA, and has also decided to provide additional monetary and other benefits to be able to retain its professional and skilled staff. JEPCO's training programs are being carried out in cooperation with the Education Ministry and are directed toward training of skilled personnel for overhead line construction, and technical specialties. These programs would need to be expanded to include engineering, accounting and managerial staff. JEPCO has agreed to prepare and send to the Bank by December 31, 1981, a detailed staff training program and to implement the program in accordance with a schedule agreed with the Bank (Section 3.04 of the JEPCO Project Agree- ment). JEPCO has also agreed to prepare and send to the Bank by March 31, 1982 for its review and comments a plan to develop JEPCO's technical and financial planning capabilities and to implement the plan thereafter in consultation with the Bank (Section 3.03 of the JEPCO Project Agreement). 44. Financial Performance and Prospects of JEPCO. JEPCO's Concession Agreement provides for tariffs being maintained at a level to enable JEPCO to earn enough to provide dividends of not less than an average of 7.5 per- cent of the nominal value of the shares over 5-year periods starting in April 1963. If an increase in tariffs is necessary for JEPCO to earn the minimum 7.5 percent, then such an increase cannot exceed a level that would result in a pre-tax return on nominal value of the shares over 16 percent. Between 1977 and 1979, JEPCO earned an average return on net fixed assets of about 11.4 percent before taxes (or 6.1 percent after tax). During this period, JEPCO's debt-equity ratio was less than 1:2 and debt service cover- age was higher than 1.5. However, JEPCO had large accounts payable and its receivables amounted to between 58 and 78 days' billings at the end of 1978 and 1979 respectively, due largely to delinquent Government accounts. The departments are making bona fide efforts to pay their bills. JEPCO con- firmed during negotiations that overdue accounts were significantly reduced in FY80. During negotiations, it was agreed that the Government would cause its Departments to pay all outstanding electricity bills due to JEPCO by September 1, 1981 and thereafter to pay their electric bills within 6 weeks (Section 4.02 of the Loan Agreement). 45. JEPCO's future financial situation is expected to be satis- factory. Between 1981 and 1985, JEPCO is expected to earn between 9 and 16 percent return (7-11 percent after tax) on net unrevalued assets. Earnings per share would range between 17 and 34 percent of the shares' nominal value. The debt service coverage ratio will be more than 1.5 during 1981- 1985. JEPCO's Concession Agreement links tariffs primarily to dividend payments, and hence it is necessary to assure an adequate internal cash generation for financing its investment program. Therefore, during nego- tiations, the Government and JEPCO agreed to adjust JEPCO's tariffs as needed to enable JEPCO to maintain a self-financing ratio of at least 25 percent after dividend payments in 1982 and 1983 and 35 percent thereafter, based on its average capital expenditures for electricity operation for the year in question and the preceding year (Sections 4.03 of the Loan Agree- ment and 4.03 of the JEPCO Project Agreement). JEPCO would review with the Government at least three months before the end of each fiscal year regarding the adequacy of JEPCO's projected revenues and the measures to be  - 18 - implemented by JEPCO to comply with the self-financing ratio in the following fiscal year and consult the Bank prior to the beginning of the following fiscal year on such measures (Section 4.04 of the JEPCO Project Agreement). JEPCO also agreed not to incur any additional debt without agreement with the Bank unless the debt service coverage ratio was at least 1.5 (Section 4.05 of the JEPCO Project Agreement). 46. JEPCO's Investment Program. On the basis of projected tariffs, JEPCO would finance 25 percent of its 1981-85 capital requirements of $120.8 million from internal cash generation. To meet part of its expendi- tures JEPCO has sold about 1 million shares to JEA at JD 1.75 per share. This additional equity capital of JD 1.75 million ($5.8 million) would cover about 5 percent of JEPCO's investment program. About 70 percent of the investment requirements would be met from borrowings, of which 41 per- cent, pertaining primarily to downstream investments in 1985, have not yet been identified. A third of the unidentified portion of the total borrow- ing assumed relates to JEPCO's 1985 construction requirements. JEPCO is expected to identify these sources when it updates its current financing plan. 47. Accounts and Audit. JEPCO's accounts are audited annually by a local firm of chartered accountants (Khadder, Ramadan and Co.). JEPCO has agreed that independent auditors acceptable to the Bank would continue to audit JEPCO's financial statements which would be sent to the Bank within four months after the end of the fiscal year (Section 4.02 of the JEPCO Project Agreement). Project Cost and Financing Plan 48. The estimated cost of the project, excluding interest during con- struction estimated at $5.46 million, is $81.1 million of which $51.7 million (or 64 percent) would be in foreign exchange. The average cost per connected consumer under the rural electrification component is estimated at *600. The project goods and works are exempt from import duties and taxes. Physical contingencies have been assumed at 7 percent for civil works and 5 percent for equipment. Price contingencies have been estimated at 9 percent in 1981, 8.5 percent in 1982 and 7.5 percent during 1983-85. About 300 manmonths of consultants' services would be provided at an estimated average cost per manmonth of about $11,500, including all expenses. 49. The proposed Bank loan of $25 million would be made to the Govern- ment, which coordinates all foreign financing for public sector projects through its National Planning Council. The loan would amount to about 31 percent of the total project costs and about 48 percent of the foreign exchange costs. The Bank loan would be made on standard Bank terms appli- cable to Jordan--17 years including 4 years of grace. The Government would on-lend $5 million to JEA and $20 million to JEPCO on the same terms as the Bank loan, under separate Subsidiary Loan Agreements, with each power entity bearing the foreign exchange risk on its portion of the loan (Section 3.01(c) of the Loan Agreement). Ratification of the Subsidiary Loan Agreements is a condition of loan effectiveness (Section 6.01 of  - 19 - the Loan Agreement). Project financing, aggregating to $7 million with $4.2 million in foreign exchange, would be contributed by the Jordan Valley Authority and Jordan Industrial Estate (Sahab) Corporation. In addition the Kuwait Fund loan of KD 5 million (about $18 million) would be provided to JEA through the Government for the construction of transmission lines and the extension of substations under Part A of the project. The rest of the project costs, including the $5.46 million required to meet interest during construction, would be financed from Government, JEA and JEPCO resources. Disbursements and Procurement 50. The proceeds of the proposed loan would be disbursed against 100 percent of the foreign exchange cost or 100 percent of the local ex-factory cost of locally-manufactured goods for urban distribution, rural electrifi- cation and low-cost housing power supply, and 100 percent of the foreign exchange cost for consultants' services and training. About $2 million would be disbursed in FY82, $8 million in FY83, $11 million in FY84, $3 million in FY85 and $1 million in FY86. Retroactive financing, aggregating no more than $400,000, is proposed to finance foreign expenditures required for consultants' services incurred after January 1, 1981. 51. Procurement for works and goods to be financed by the proposed Bank loan would be through international competitive bidding in accordance with the Bank Guidelines for Procurement. Bidding documents for equipment and works are being prepared by the consultants. Civil works and equipment contracts would be grouped to the extent possible to ensure effective international competition. Local participation is expected in contracts containing construction and erection works and local manufacturing of some equipment for rural electrification and distribution networks is likely. In the evaluation of civil works and equipment bids, a preference equal to 15 percent or actual import duties, whichever is less, would be granted to local manufacturers. Project Justification 52. The proposed project is part of the 1981-84 network development programs of JEA and JEPCO and constitutes an important stage in the development of the Jordan power system. Specifically, the project would serve five municipal and industrial load centers from the national grid, reinforcing substation capacity at five important load centers, and help electrify about 50 villages with a total of 23,000 inhabitants and three low-cost housing areas being developed for 28,000 inhabitants. The project is the least-cost alternative based on a study of technical alternatives of all the project's discrete elements, except for the reinforcement of the 132-kV Amman ring for which no practical technical alternative exists. 53. The rate of return for the entire power subsector program for 1981-85, of which this project forms an integral part, is about 21 per- cent. The rate of return on the rural electrification component, calcu- lated on the basis of quantifiable benefits, is about 9 percent. The rate of return on supplying power to the low-cost housing scheme is about 16 percent.  - 20 - Project Risks and Environmental Aspects 54. No particular project risks are envisaged. The project is likely to have little adverse impact on the environment as it consists of power transmission and distribution and rural electrification. The transmission lines will cross desert and mountainous areas with few inhabitants and little agricultural activity. JEA and JEPCO would pay appropriate atten- tion to the aesthetic appearance of project facilities and their compati- bility with the environment. Possible adverse visual impact will be reduced to a minimum by use of selected types of transmission line poles, including tubular pole design near urban centers, and by suitable routing of overhead lines. In addition, the social environment will be enhanced by bringing public lighting to areas which do not yet have power supply. PART V - LEGAL INSTRUMENTS AND AUTHORITY 55. The draft Loan Agreement between the Hashemite Kingdom of Jordan and the Bank, the draft Project Agreement between the Bank and the Jordan Electricity Authority, the draft Project Agreement between the Bank and the Jordanian Electric Power Company, and the draft Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed separately. Special conditions of the proj- ect are listed in Section III of Annex III. As indicated in the text and in Section III of Annex III of this report, an additional condition of effectiveness is the ratification of the Subsidiary Loan Agreements (Section 6.01 of the Loan Agreement). 56. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 57. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments April 21, 1981 Washington, D.C.  - 21 - ANNEX I Page 1 of6 JORDAN - SOCIAL INDICATORS DATA SHEET JORDAN REFERENCE GROUPS (WEIGHTED AVERAGES LAND AREA (THOUSAND SQ. EM.) - MOST RECENT ESTIMATE) - 'IOTAL 97.7 MIDDLE INCOME AGRIC8LTURAL 14.7 MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 lb 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA & CARIBBEAN GNP PER CAPITA (US$) .. .. 1180.0 818.5 1562.9 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 197.0 306.0 535.0 545.0 1055.9 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 1.7 2.3 3.0 URBAN POPULATION (PERCENT OF TOTAL) 42.7 49.6 54.9 45.7 63.4 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 5.0 STATIONARY POPULATION (MILLIONS) 12.0 YEAR STATIONARY POPULATION IS REACHED 2090 POPULATION DENSITY PER SQ. EM. 17.0 24.0 31.0 40.7 28.1 PER SQ. KM. AGRICULTURAL LAND 133.0 165.0 204.0 598.6 81.7 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.0 45.8 46.6 44.0 41.4 15-64 YRS. 52.0 51.1 50.7 52.5 54.7 65 YRS. AND ABOVE 4.0 3.1 2.7 3.5 3.9 POPULATION GROWTH RATE (PERCENT) TOTAL 3.2 3.0 3.3 2.6 2.7 URBAN 5.0/c 4.5 4.7 4.5 4.1 CRUDE BIRTH RATE (PER THOUSAND) 48.0 49.0 46.0 41.6 34.8 CRUDE DEATH RATE (PER THOUSAND) 20.0 16.0 13.0 13.7 8.9 GROSS REPRODUCTION RATE 3.4 3.5 3.4 2.9 2.5 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. .. 16.2 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 220.0 81.0 94.0 93.5 106.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 92.1 67.0 62.0 103.6 107.4 PROTEINS (GRAMS PER DAY) 57.4 40.0 41.0 69.8 65.6 OF WHICH ANIMAL AND PULSE 13.8 11.0 11.0 17.5 33.7 CHILD (AGES 1-4) MORTALITY RATE 30.0 22.0 16.0 17.5 8.4 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 47.0 52.0 56.0 54.4 63.1 INFANT MORTALITY RATE (PER THOUSAND) .. 86.0 .. .. 66.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. 56.0 62.5 65.9 URBAN .. .. 60.0 82.9 80.4 RURAL .. .. 50.0 45.1 44.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. .. 62.3 URBAN .. .. .. .. 79.4 RURAL .. .. .. .. 29.6 POPULATION PER PHYSICIAN 5900.0 2680.0 1940.0 4688.7 1849.2 POPULATION PER NURSING PERSON 1650.0 1050.0 953.0 1751.5 1227.5 POPULATION PER HOSPITAL BED TOTAL 557.0 960.0 833.0 635.5 480.3 URBAN .. 740.0 RURAL .. 5750.0 ADMISSIONS PER HOSPITAL BED .. 36.5 39.6 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.3 6.1 URBAN 5.5 .. RURAL 5.1 .. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. URBAN .. .. .. RURAL .. .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 17.0 .. .. URBAN 39.2 .. .. RURAL 1.0 .. ..  - 22- ANNEX I Page 2 of 6 JORDAN - SOCIAL INDICATORS DATA SHEET JORDAN REFERENCE GROUPS (WEIGHTED AVERAGZ - MOST RECENT ESTIMATE) MIDDLE INCOHE MOST RECENT NORTH AFRICA & MIDDLE INCCfE 1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA & CARIBBEAN EDUCA [ION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 77.0 73.0jd 83. Od 76.4 99. 7 MALE 94.0 80. O/d 87. o/d 92.2 101.0 FEMALE 59.0 66. Od 79. O/d 59.9 99.4 SECONDARY: TOTAL 25.0 33. 0/d 53. Od 33.3 34.4 MALE 36.0 41. 0/d 60. 07 41.9 33.5 FEMALE 13.0 24. 07d 46. 0/d 24.2 34.7 VOCATIONAL ENROL. (% OF SECONDARY) 3.0 3.07d 4. O/d 9.8 38.2 PUPIL-TEACHER RATIO PRIMARY 34.0 39. Od 36. Od 39.2 30.5 SECONDARY 21.0 23.6O/d 21.O