Jordan - Fifth Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3683-JO STAFF APPRAISAL REPORT JORDAN FIFTH POWER PROJECT April 14, 1982 Projects Department Europe, Middle East and North Africa Regional Office 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 = Jordan Dinars (JD) JD 1 = 1,000 fils JD 0.33 = US1.00 JD 1.00 = US$3.00 WEIGHTS AND MEASURES 1 meter (m) = 3.281 feet (ft) 1 kilometer = 0.621 mile 1 square kilometer (km2) 0.386 square mile (mi2) 1 cubic meter (m3) = 35.315 cubic feet (ft3) A1 kilogram (kg) = 2.205 pounds (lb) 1 ton (1,000 kg) = 1.102 short ton (sb ton) 3) 0.984 long ton (lg ton) I barrel (bbl; 0.159 m3) 42 US gallons (gal) 1 kilowatt (kW) = 1,000 Watts 1 Megawatt (MW) = 1,000 kW 1 kilowatt hour (kWh) = 1,000 Wattbours (Wb) 1 Gigawatt hour (GWh) = 1,000,000 kWh = 1,000 MWh (=1O6kWh) 1 kilovolt (kV) = 1,000 volts (V) 1 kilovolt ampere = 1,000 volt amperes (I kVA) 1 Megavolt ampere = 1,000 kVA 1 kilocalorie (kcal) = 3.969 British thermal units (4.2 kilojoules) GLOSSARY OF ABBREVIATIONS CM - Council of Ministers IDECO - Irbid District Electricity Company JAEC - Jordanian Atomic Energy Committee JEA - Jordan Electricity Autbority JEPCO - Jordanian Electric Power Company JFI - Jordan Fertilizer Industries JPRC - Jordanian Petroleum Refinery Company J VA - Jordan Valley Authority LPG - Liquified Petroleum Gas LRAIC - Long Run Average Incremental Cost MIT - Ministry of Industry and Trade NEC - National Energy Committee NPC - National Planning Council NRA - Natural Resources Authority PCR - Preece, Cardew and Rider RSS - Royal Scientific Society kce - kilogram of coal equivalent toe - tons of oil equivalent p.a. - per annum ,iugr/m3 - micrograms per cubic meter Financial Year Calendar Year  FOR OFFICIAL USE ONLY JORDAN FIFTH POWER PROJECT Table of Contents Page No. 1. THE ENERGY AND POWER SECTOR ............................... 1 A. Energy Sector ........................................ I Energy Resources ......1*.. I Overview .......................................... 1 Oil Sbale and Tar Sands ........................ *.. . 1 Hydropower .... I Otber Sources of Energy ......................... .. . 1 Sector Organization ............................... . .. 1 Historical Trend in the Supply and Consumption of Energy .... 3 Per Capita Consumption of Energy. ... 3 Supply of Petroleum Products .............. 4 Consumption of Petroleum Products . .............. 4 Consumption of Electricity .... 5 Forecast of Supply and Consumption of Energy ......... 5 Future Consumption of Petroleum Products .......... 5 Energy Pricing . . ..................... I ............... 5 Petroleum Products ........ . . . .. 5 Electricity Pricing . . ............................. 7 Bulk Tariffs .... 7 Retail Tariffs . . ............................... 7 B. Power Subsector ...................................... 8 Beneficiary .......................................... 8 Historical Development of the Power Suibsector ........ 9 Power System Planning .. 10 Development Program .............. 10 Load Forecast .. 10 Generation ........................................ 11 Transmission Network .. 11 Distribution ...................................... 11 Rural Electrification .. 11 Development Program Costs . . 12 Role of IDA/Bank ..... . . 12 The report was prepared by Messrs. V. Mastilovic (Engineer), C.P. Ranganatban (Financial Analyst), I. Elwan (Economist) and T. 0. Ozkan (Economist) 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 discIDsed without World Bank authorization.  Table of Contents (continued) Page No. II. THE PROJECT ............................................. 13 Objectives ..13 Description ..13 Use of Alternative Fuels ..13 Fuel Supply ..14 Consultants' Services ..14 Project Cost Estimate ..15 Project Financing Plan ..17 Implementation ..18 Procurement ..18 Disbursements ..19 Environmental Aspects. 19 Project Risks ..20 III. FINANCE .20 Accounting ..20 Staffing ..20 Financial Planning ..21 Accounts Receivable ..21 Fuel Price Adjustment ..21 Revenue CVuv+.:ant ...................................... 21 Past Performance and Present Position .22 Financing Plan .22 Future Financial Performance .24 Debt Service Coverage .25 Auditing .25 Insurance .25 Jordanian Electric Power Company (JEPCO) .25 IV. PROJECT JUSTIFICATION .26 A. Load Forecast .26 B. The Least Cost Alternative .26 C. Return on Investment .27 V. AGREEMENTS REACHED AND RECOMMENDATIONS . ........27  Table of Contents (continued) ANNEXES 1.1 - Electricity Tariffs in Jordan 1.2 - JEA Organization Chart 1.3 - Generation, Consumption and Peak Loads 1.4 - JEPCO and IDECO - Basic Statistical Data 1.5 - Generation Installed Capacities 1.6 - Forecast Electric Energy Balances (Total Power System) 1.7 - Forecast Balances of Energy and Capacities (Interconnected System) 1.8 - Forecast of Sales by Consumer Categories 1.9 - JEA's Development Program Costs 2.1 - Description of the Project 2.2 - Project Cost Estimate 2.3 - Power Station Implementation Scbedule 2.4 - Transmission Line Implementation Schedule 2.5 - Description of the Civil Works Contract Package 2.6 - Estimated Schedule of Disbursements 3.1 - Salaries of JEA's Staff During 1975-1981 3.2 - JEA's Employee Turnover in 1978-1981 3.3 - Income Statements 3.4 - Balance Sbeet 3.5 - Sources and Applications of Funds 3.6 - Notes and Assumptions for Financial Forecasts 4.1 - Load Forecast (1981-1995) 4.2 - Return on Investment 5.1 - Selected Documents Available in the Project File mAPS IBRD 16092 IBRD 16093   I. THE ENERGY AND PO'WER SECTOR A. Energy Sec:or Energy Resources 1.01 Overview: Jordan's presently known indigenous energy resources consist of relatively large deposits of oil shale, some tar sands, a small hydro potential, and a few geothermal sources of low surface temperatures. No commercially exploitable coal, lignite, oil, or gas are known to exist. Jordan's endowment of noncommercial and renewable energy, with the exception of solar energy, is modest. 1.02 Oil Shale and Tar Sands: Several oil shale deposits have been discovered in Jordan. The largest deposit is about 1,200 million tons with an oil content of about 115 million tons. As for the other deposits, their size and geological characteristics are currently being determined. Recently, tar sands were discovered; however, at this point: in time very little is known about this new discovery. 1.03 Hydropower; The hydropower potential. is only about 22 MW (54 GWh p.a.), of which 2 MW (4 GWh p.a.) could be developed at the existing King Talal Dam on the River Zarqa, and the remaining 20 MW (50 GWh p.a.) would be exploited when the multipurpose Maqarin Dam on the Yarmouk River is built. 1.04 Other Sources of Energy: Geothermal resources are known to exist in the form of hot springs near the Dead Sea wii:h surface temperatures ranging between 450 and 630 centigrade. At present, the information on the geophysical and geochemical characteristics of these springs is incomplete. There are no immediate plans by the Government to undertake further exploratory work to determine whether the geothermal resources could be used for power generation. Jordan has a good solar regime averaging annually about 3,000 hours of sunshine. The Government is actively promoting the use of solar energy for water heating by supporting research studies and demonstration projects aimed at fostering the domestic production and marketing of solar water heaters. Other sources of renewable energy such as biomass and firewood are modest, and their contribution to the overall energy needs of the rural population is almost insignificant. Sector Organization 1.05 Several entities are involved in the operation and development of Jordan's energy sector. The development of domestic sources of primary energy is entrusted to the Natural Resources Authority (NRA) and the Jordan Valley Authority (JVA). The production and delivery of secondary energy is the responsibility of the Jordan Petroleum Refinery Company (JPRC), the Jordan Electricity Authority (JEA), the Jordanian Electric Power Company (JEPCO), and  - 2 - the Irbid District Electricity Company (IDECO). The planning and coordination of the sector is shared among four bodies; the National Planning Council (NPC), the Ministry of Industry and Trade (MIT), the Council of Ministers (CM) and the Jordanian National Energy Committee (NEC). Energy research involves the Royal Scientific Society (RSS), the Universities of Jordan and Yarmouk, and the Jordanian Atomic Energy Committee (JAEC). 1.06 NRA, a Government agency headed by the Prime Minister, is responsible for all exploration activities in Jordan. Exploration for oil and gas and the assessment of potential uses of oil shale and tar sands are entrusted to NRA's departments of energy and geology. The energy department undertakes oil related geological surveys, negotiates concessional contracts for exploration with foreign companies, and more recently, it has undertaken exploration drilling for oil. The geology department is entrusted with the exploration for all minerals other than those relating to oil and gas. JVA, an autonomous public enterprise, is responsible for the development of the Jordan Valley including the power components at the multipurpose dams of King Talal and Maqarin, and the electrification of the villages in the Valley. However, recently all responsibilities relating to the supply of electricity in the Valley have been contracted to JEA. 1.07 JPRC, a private organization with 6% Government ownership, is responsible for importing and refining oil, and distributing and marketing petroleum products throughout Jordan. Its supply of crude oil is taken from the Trans-Arabian pipeline (Tapline) which was constructed to transport Saudi Arabian crude oil across Jordan into Lebanon for export. 1.08 JEA, a Government-owned utility established in 1967, is mainly responsible for the regulation of the power subsector. These responsibilities involve; the formulation of plans for the overall development of the power subsector; the construction of generation and transmission facilities; the generation and transmission of virtually all the publicly supplied electricity; and the distribution of electricity in the areas under its jurisdiction. JEPCO, a company owned by the public (77%), JEA (13%) and the municipalities (10%), purchases power from JEA and distributes it in an area of about 2,000 km2 covering the city of Amman and its environs. In 1980 JEPCO accounted for about 80% of total electricity sold in Jordan. IDECO, a distribution utility owned by JEA (46.5%), private investors (11%), and some municipalities of the Governorate of Irbid (42.5%), buys power from JEA for distribution in the city of Irbid and the surrounding areas. IDECO's sales in 1980 were about 10% of the electricity sold in Jordan. 1.09 NPC is an autonomous Government agency, created in 1971 to formulate, in collaboration with other agencies, long-term plans for the economic development of Jordan. Recently, the NPC started paying greater attention to the energy sector by undertaking several studies to assist the Government in formulating plans for the optimal'use, development and pricing of Jordan's energy resources (para 1.19). The council has filled an existing gap in the institutional setting of Jordan's energy sector by taking the incentive in commissioning and supervising studies relating to the development of energy. However, since the council does not have the mandate to implement the recommendations of these studies, its effectiveness as an energy planning agency is hampered.  - 3 - 1.10 The department of energy in MIT, created in 1977, is responsible for all energy matters including special studies and coordination of energy development plans. The CM approves all plans relating to the development of the economy, including energy, and the poLicies for the pricing of electricity and petroleum products. 1.11 NEC was formed in 1977 to review all issues relating to the supply and development of energy in Jordan and t'o make recommendations to the CM on energy policy which are based on technical reports and studies prepared by the energy department in MIT. NEC is composed of representatives from all the agencies dealing with energy. 1.12 Solar energy research is entrusted to the RSS and the Universities of Jordan and Yarmouk. RSS is at present involved in commercialization of equipment to use solar energy for meeting the residential demand for hot water. JAEC advises the Government on the use and development of atomic energy. 1.13 The main feature of the organizational structure of Jordan's energy sector is the duplication of responsibilities among the entities in the sector. Although several entities are prasently responsible for the coordination of energy planning, to date, Jordan has no long-term plan for energy that would provide an overall set of consistent national objectives. The five-year plans are essentially an aggregation of the plans formulated independently by enterprises and agencies (JEA, JPRC, NRA, etc.). The responsibilities for managing, operating and developing the energy sector need delineation, and the staffing of the entities entrusted with the formulation and implementation of plans requires strengthening. This would involve the streamlin;-g of the institutional structure of the energy sector and the concentration of human and financial resources in an institution with a definite mandate for developing the sector. In recognizing this need, the 1981-1985 plan calls for the creation of an energy planning agency. However, before such an agency is created, the Government should undertake a detailed review to outline its structure, responsibilities, staffing and budgetary needs. The review should also identify the laws to be altered to consolidate the desired responsibilities and expertise in the proposed agency and eliminate the prevailing duplication of responsibilities and manpower. The Government has agreed to review with the Bank, by not later than June 30, 1983, a plan for strengthening the planning and management of the energy sector and for improving the coordination among the energy-related institutions in Jordan. Historical Trend in the Supply and Consumption of Energy 1.14 Per Capita Consumption of Energy; Jordan's per capita consumption of energy has increased at an average annual rate of about 5.6% between 1960 and 1979; from 197 kce in 1960 to 552 kce in 1979 (average for middle income countries about 1,225 kce). In 1980, 64% of Jordan's population had access to public supply of electricity. The per capita consumption of electricity in 1975 was about 202 kWh compared to 482 kWh for 1980. Thus, by 1980 Jordan had achieved about the same level of per capita consumption of electricity as Egypt had in 1979 or Portugal in 1952. The increase in the consumption of  - 4 - electricity has been largely due to the increased demand by industry, and domestic and small commercial consumers which accounted respectively for 35% and 50% of total sales in 1980. 1.15 Supply of Petroleum Products; Jordan is totally dependent on imported crude oil for its conventional energy requirements. Virtually all the petroleum products consumed are produced domestically at the JPRC refinery at Zarqa. The refinery started its operations in 1960 with a throughput capacity of 1,000 t/day crude oil. The capacity has now reached 12,300 t/day after three expansions in 1970, 1973 and 1981. Jordan's output of petroleum products increased at an average annual rate of about 16% between 1975 and 1980 with the mix of products produced remaining relatively unchanged over that period. In 1980, Jordan imported 1.9 million tons of crude oil and small quantities of LPG and lubricants amounting to 13,000 tons and 5,000 tons respectively. A summary of the energy balance for 1975, 1980, 1985 and 1990 is presented in Table 1. Table 1: Energy Balance ('000 toe) 1975 1980 1985 1990 Supply Crude Oil 870 1,886 2,843 4,080 LPG 0 13 - - Lubricants 6 5 10 15 Total Supply 876 1,904 2,853 4,095 Demand LPG 25 56 75 99 Gasoline 155 270 367 425 Jet Fuel 72 209 245 313 Kerosene 118 160 211 263 Gas Oil/Diesel 239 509 716 1,051 Fuel Oil 184 469 908 1,511 Others 59 94 114 139 Refinery Losses 24 137 217 294 Total Demand 876 1,904 2,853 4,095 1.16 Consumption of Petroleum Products; The average annual rate of growth in the consumption of petroleum products between 1975 and 1980 was about 16.8%, increasing from 876,000 to about 1.9 million tons. Jet fuel had the highest growth rate (23.8%), followed by fuel oil (20.6%), LPG (17.5%), gas oil/diesel (16%), gasoline (11.7%), and kerosene (6.3%). These relatively high growth rates were mainly due to the increased demand for petroleum products by the power subsector and the transportation sector. In 1980, gas oil/diesel had the highest share (26.7%) of all the petroleum products  - 5 - consumed, followed by fuel oil (24.6%), gasoline (14.2%), jet fuel (11.0%) and LPG (2.9%). In 1980, transportation accounted for about 50% of the total petroleum products consumed, industries for 15%, power generation for 17% and households for 13%, leaving about 5% for all mi;cellaneous consumers. 1.17 Consumption of Electricity; Total con;umption of electricity in Jor(ian increased at an average annual rate of about 19.8% from 355.5 GWh in 1975 to about 877 GWh in 1980. Non-coincident maximum demand increased at about 17.4% p.a. from 87.8 MW in 1975 to 196 MW in 1980. Over the same period, the most significant change in sales was the increased share of the sales to domestic and small commiercial consumers, which increased from 37% of total sales in 1975 to about 50% in 1980. The increased share of the low voltage consumers is principally attributed to the extension of public electricity service to the rural areas, and the overall higher consumption by the residential consumers stimulated by the increased remittances from the Gulf after 1973. Forecast of Supply and Consumption of Energy 1.18 Future Consumption of Petroleum Products: The forecast of the consumption of petroleum products between 1980-1990 shows a slowdown in the rate of growth of energy consumption compared to the period 1975-1980. Overall consumption of energy is expected to increase at an average annual rate of about 8.3% between 1980 and 1985 and 7.6% between 1985 and 1990. Growth in demand for fuel oil is projected to remain high (14.1% over 1980-1985 and 10.7% over 1985-1990) due mainly to planned commissioning of new power generation capacities (Aqaba Power Station). Consumption of all other products is expected to grow more slowly than in the past, resulting in an increased share of fuel oil in total demand from 27% in 1980 to 40% in 1990. (Future consumption of electricity is presented in para. 1.35.) Energy Pricing 1.19 Petroleum Products: The prices of petroleum products are set by the Government and revised periodically to reflect higher import costs. The Government taxes motor gasoline, LPG and jet fuel sold to foreign airlines. All other petroleum products are subsidized. The policy of subsidizing the prices of petroleum products used by the transportation, agriculture and industrial sectors is aimed at dampening the effects of the increasing prices paid for imported crude oil from being reflected in the general price level. The subsidy for kerosene, which is used by the residential consumers for lighting, cooking, and water and space heating, stems from the Government's desire to provide these fuels to the low-income consumers at reasonable prices. 1.20 Since 1973, when crude oil prices first rose significantly, the burden on the national budget of the net subsidy for petroleum products continued to increase because of the Government's reluctance to pass on to the consumers the increases in the import bill for oil. By 1978, the subsidy for petroleum products had reached JD 22 million (US$65.0 million). In 1979, the Government decided to reduce the subsidy by gradually closing the gap between the domestic and border prices. The domestic frices were since increased five times; in March and July of 1979, February of 1980, and February and November  - 6 - of 1981. Since 1979, the imported price of oil has increased by about 150% compared to increases in the prices of petroleum products that amounted to 103% for gasoline, 200% for gas oil and 400% for fuel oil. As a result, the net subsidy for petroleum products in 1981 was about US$66.7 million which in relative terms is not much higher than the level of the subsidy in 1978. Table 2 below summarizes the domestic and border prices of petroleum products after the last increase. Table 2; Relationship of Domestic and Border Prices for Petroleum Products (November 1981) US$/ton Domestic Price Border Domestic Tax or as % of Product Price Price (Subsidy) Border Price LPG 390 394 4 101 Gasoline 367 672 305 183 Jet Fuel 336 247 (89) 74 Kerosene 320 228 (92) 71 Gas Oil/Diesel 306 212 (94) 69 Fuel Oil 168 150 (18) 89 Weighted Average 287 274 (13) 95 1.21 Ths bS''i for gas oil/diesel accrues mainly to the owners of the commercial transport vehicles transporting goods and materials within Jordan and from the port of Aqaba to Lebanon, Iraq and Syria. The subsidy for jet fuel benefits the national airline, while the subsidy for fuel oil affects the industry and utilities such as JEA, the cement plant, the Zarqa refinery, etc. These subsidies are implicitly passed on to the consumers through the relatively lower prices paid for goods and services produced by the transport, industrial and agriculture sectors. On the other hand, the subsidy for kerosene accrues explicitly to the consumers who use it for domestic purposes. 1.22 The subsidies for gas oil/diesel, fuel oil and jet fuel are not justified on economic grounds. The optimal policy for pricing energy resources would dictate that domestic prices be set at levels that reflect their real cost to the economy. The Government is aware of the shortcomings of its present pricing policy, but is concerned that by closing the gap between the world and domestic prices for the subsidized petroleum products, large increases in the general price level would be triggered. Therefore, before eliminating the subsidy for these products, the Government is constructing an input/output model to simulate the impact of higher prices for energy on the various sectors of the economy including the prices of intermediate and final products. An energy conservation study by foreign consultants is also expected to start shortly with a view  - 7 - to determining the industries where investment in more energy efficient equipment and processes would enable these indlstries to absorb the higher prices of energy without significantly altering the prices of their output. In addition, the Government is initiating a third study, whose terms of reference have been reviewed by the Bank, for optimally planning and organizing the transportation sector (freight transport, air and sea transport, highway and road network design, et-.). Among the tasks outlined in the terms of reference for this stidy is the assessment of the impact of eliminating the subsidies for gas oil/diesel and jet fuel on the freight road transport subsector and the commercial aviation subsector. The conservation and transportation studies ara expected to be completed within two years. As an interim measure, however, and until the recommendations of the studies are reviewed by the Government and the Bank, an understanding has been reached that the Government will continue its efforts in closing the gap between world and domestic prices for petroleum products. Electricity Pricing: 1.23 JEA sets its own tariffs for sales to bulk consumers (large industries, JEPCO and IDECO) and the low voltage consumers in its jurisdiction. In the areas served by JEPCO and IDECO, tariffs are determined by each utility in consultation with JEA. However, the introduction of new tariffs by JEA, JEPCO or IDECO require Government approval. 1.24 Bulk Tariffs: The bulk tariffs apply only to JEA's sales to the large industrial consumers and the electricity distribution utilities (JEPCO and IDECO). These are based on a time of day structure (peak and off-peak) with no seasonal variation. They also differentiate between consumers in the district of Irbid and those in the other districts. The peak tariff involves a capacity charge of JD 2.41kW for all districts, and an energy charge of 17.5 fils/kWh for Irbid and 18.5 fils/kWh for the other districts. The off-peak tariff involves an erergy charge of 12.5 fils/kWh for Irbid and 13.5 fils/kWh for the other districts. In January 1982, the average economic cost of electricity (based on LRAIC) for bulk sales was about 26.2 fils/kWh compared to an average revenue for sales to JEPCO, IDECO and the large industrial consumers of about 26 fils/kWh. 1.25 Retail Tariffs: The tariff structure for electricity sales to the low voltage consumers is identical for all three utilities (JEA, IDECO and JEPCO). It is based on a uniform block rate i-or each customer category classified according to the end use of electr:-city (domestic, commercial, small industries, water pumping, etc.). However, the tariff level for each category differs slightly among the three uti.ities (Annex 1.1) to reflect tlhe cost incurred by each in providing electr:city service. In January 1982, the average tariff for sale to the low voltage consumer was about 35.6 fils/kWh which was below the average economic cost of supply (based on LRAIC) of about 37.6 fils/kWh.  - 8 - 1.26 Electricity tariffs were at levels that conveyed to consumers the real cost of the resources used in meeting their electricity demand (LRAIC). The tariff have been high enough to enable JEA to cover its costs and provide 25% internal contribution towards the cost of its development program between 1977 and 1980. However, following the increases in the domestic prices of petroleum products, JEA's level of internal cash generation deteriorated because of the Government's reluctance to allow the utility to fully recover the increases in its fuel bill from the consumers of electricity (para. 3.05). In order for JEA to maintain its internal cash generation at the level agreed with the Bank, increases in the average tariff level of 20% for 1983 and 13% in 1984 would be necessary (para. 3.12). 1.27 The uniform block rates for the low voltage consumers are inconsistent with the Government's policy of encouraging conservation and restraining the growth of demand for energy. There are indications that the low voltage consumers' demand for electricity is relatively insensitive to increasing tariffs primarily because the remittances from the Gulf and Saudi Arabia which accrue principally to the households rather than the Government. 1/ As a result, the household's demand for electricity is determined by levels of disposable income that are higher than would otherwise prevail. Therefore, by maintaining uniform block rates for sales to the low voltage consumers, the Government is foregoing revenues which the utilities could mobilize to finance their development program. In addition, by introducing increasing block rates in the structure of electricity tariffs, large domestic and small commercial consumers could be induced to conserve in their use of electricity. The Government and JEA have agreed to complete, by December 31, 1982, an assessment of the effects on the resources mobilized by the power subsector of introducing increasing block rates in the tariff structure '- electricity sales to the low-voltage consumers, to review with the Bank, by December 31, 1982, the recommendations emanating from that assessment, and to implement tariffs and other measures thus determined. B. Power Subsector Beneficiary 1.28 The General Electricity Law provides that JEA should be both financially and administratively independent. JEA has a board of eight directors appointed by the Government, with the Minister of Industry and Trade as the Chairman of the Board. JEA is well organized and properly managed and has already proven its competence in carrying out its responsibilities. Its present organization structure is based on the 1/ After increasing the tariffs by about 50% in 1980, the household consumption of electricity dropped for two months and then resumed its historically high rate of growth.  - 9 - recommendations of the management consultants appointed under Credit 386-JO. Details of the organization are shown in Annex 1.2 (Chart WB 22339). All managerial staff have a university education and several years of experience in power operations3 in Jordan and abroad. 1.29 The Authority has a total staff of 1,387 (September 1981) of which 115 are graduate engineers and 808 are other t'echnical staff . Although JEiA's salaries for the technical staff are appropriate for Jordanian circumstances, the salaries of the financial aid administrative staff need to be reviewed (see para. 3.02). There is a continuous movement of qualified technical staff to the Gulf countries, where salaries are much higher, but the majority of the staff return tD Jordan after two-three years abroad to join JEA or JEPCO, the major employers of the technical staff with power utility experience. JEA pays due attention to the training of its staff. Under the Third Power Project (Loan 1688-JO) JEA prepared a detailed and satisfactory staff training program covering all its training needs. This program, to be implemented by end-1983, will enable JEA to improve its technical, financial and administrative services. Historical Development of the Power Subsector 1.30 National power subsector statistical data for 1971-1980 and details of JEPCO and IDECO data are shown in Annexes 1.3 and 1.4. From 1971 to 1980 total generation (including imports) increased from 230.4 GWh to 1,070 GWh, while electricity consumption rose from 204 GWh to 877 GWh (trend growth rate 19% p.a.). Electricity sales in 1980 are summarized below by customer categories and administrative districts: Customer Category Administrative Districts % Total An7man Irbid Karak Ma'an & Aqaba - _---------------------GWh------------------- Domestic 35 306 240 8 48 10 Industrial 36 321 270 31 9 11 Commercial 12 107 88 9 1 9 Water Pumping 8 76 51 18 1 6 Hospitals and Charities 5 40 32 6 1 1 Street Lighting 1/ 2 16 10 3 1 2 Broadcasting and TV 1 7 6 1 0 0 Others 1 4 - 1 0 3 Total 100 877 697 77 61 42 1/ Street lighting was provided free of charge at the Government's request. 1.31 Industrial consumption has been increasing rapidly in the last several years. The Government is trying to accelerate the development of the relatively undeveloped Central and Southern regions of Jordan by locating future industrial projects there and by electrifying towns and villages. The total electricity losses are around 17% of generation because of still underdeveloped transmission and distribution networks and small inefficient generating units.  - 10 - 1.32 The public power system comprises at present three 33-MW steam units, seven gas turbines and about twenty small diesel generating sets (details in Annex 1.5). The national transmission network comprises 176 km of transmission lines and eight transformer substations witb an installed capacity of 550 MVA. Operation and maintenance of power plants and of the network are satisfactory. JEA is responsible for power distribution in Aqaba, Ma'an, Karak and part of the Jordan Valley and its distribution network consists of 640 km of overhead lines and cables. 1.33 Only 138 of Jordan's 982 villages bave been electrified so far by JEA, JEPCO and IDECO with funding from Government, foreign borrowings and the Rural Electrification Fund established by the Government in 1980 for this purpose. About 50% of the rural population has access to the public power supply. The rural networks are well designed and constructed, and their operation and maintenance are satisfactory. Villagers pay for services and for electricity consumed by them. Power System Planning 1.34 Power system planning in Jordan is, generally, satisfactory. The load forecasts and investment programs are prepared by JEA's planning department with the help of consultants. JEA still depends largely on external consultants' services for its power system planning and analyses. Under the Fourth Power Project (June 1981), JEA has agreed to take appropriate actions to strengthen its planning department to further develop power subsector planning capabilities and inform the Bank of the proposed actions. Development Program 1.35 Load Forecast; The national load forecast for 1981-1990 (Annex 1.6) shows total electricity generation increasing from 1,064 GWh in 1981 to 2,881 GWh in 1987 and 3,812 GWh in 1990, with a growth rate of 12% p.a. The power system is expected to be fully interconnected in 1984. The bigh rate of load growth is mainly due to a rapid increase expected in JEA's direct sales to large industries and otber consumers. Details of the interconnected system's development are given in Annex 1.7. The maximum demand would increase from 194 MW in 1981 to 574 MW in 1987 and 736 MW in 1990, and the available generation capacity from 310 MW in 1981 to 697 MW in 1987 and 1,184 MW in 1990. Except in 1985 when the available capacity margin drops to zero because of no addition of capacity in that year, the capacity margin is reasonable. The system's load factor is expected to remain unchanged at about 57%. The forecast of sales by consumer categories is given in Annex 1.8. The sale to large industries will increase from 12% of total JEA sales in 1981 to 30% in 1987 on account of the establishment of several large industries in Central and Southern Jordan. The load forecast assumes a per capita consumption of some 1,010 kWb in 1987. The forecast is reasonable in relation to Jordan's present stage of development and its general economic prospects. However, some of the new projected industrial loads (Annex 1.8) may be delayed and deviations in respect of other consumers are also possible. These uncertainties are reasonably covered in the load forecast, which includes in addition to the most probable forecast, botb low and higb forecasts.  - 11 - 1.36 Generation: The Hussein steam power station near Amman is being extended by three 66-MW units to be in commercial operation in 1982. When the fourth 66-MW unit is commissioned in 1984, the final extension of this station would be completed. The proposed Project with two 130-MW steam units would be brought into service in 1986. 1.37 Transmission Network: About 300 km of transmission lines and 284 MVA in substation transformer capacities are unde: construction for completion by 1982. During 1983-87, about 500 km of transmission lines and substations with a capacity of 699 MVA are planned to be const:ucted. The 132-kV transmission line from Ma'an to Aqaba will complete the transmission link between the Northern, Central and Southern regions to enable integrated operation of the power system in Jordan. The Jordanian and Sy:ian power systems are connected through a 66-kV transmission line and Jordan has been importing electricity from Syria. A 230-kV line from Irbid to Damascus with a 100-MVA transformer substation at Irbid has been constructed, whi-h would enable synchronous operation of the two power systems. This interconnection would enable better utilization of power system generating facilities in both countries through coordinated operation and maintenance, and also improve reliability of power supply by giving the Jordanian system access to the much larger generation reserve of the Syrian power system. Reserve sharing would allow JEA to reduce its generating capacity by about 50 MW. However, the interconnection has not been brought into operation due to the current political situation. There are no immediate plans for other interconnections between the Jordanian power system and the neighboring systems. 1.38 Distribution; JEA's distribution network expansion, to be implemented in the period 1981-87, includes about 1,497 km of overhead lines and 165 MVA in substation transformer capacity. In the same period, JEPCO plans to construct 24 transformer substations with an installed capacity of 121 MVA and to install 74 km of cables and 36 km of overhead lines as well as to reinforce the existing 33-kV network by adling 130 MVA in power transformer capacity, 25.5 km of 33-kV cables and 9 km of 33-kV overhead lines. JEPCO will also build about 350 new distribution substations in its concession area. Furthermore, JEPCO has started reinforcing the Amman urban distribution system by changing from 6.6 kV to 11 kV. Similarly, IDECO is also reinforcing the distribution network in the city of Irbid. The distribution networks in Jordan are designed by experienced foreign consultants and follow the Western pattern and standards. 1.39 Rural Electrification: JEA has prepared a national plan for electrifying all villages except 100 small and isolated settlements (882 of the total 982) in 1981-1993. At present, 284 villages with a total population of 290,000 are being electrified, and when the work is completed, 422 villages would be electrified or about 43% of the total number of villages having 91% of the total rural population in Jordan. The remaining villages would be electrified in three stages; Stage Number of Villages Period & Housing Schemes 1 140 1984-1986 2 160 1987-1990 3 160 1991-1993  - 12 - With the completion of the third stage, almost all the rural population in Jordan would have access to the public power supply. The Government plays a very active role in rural electrification and assists in its financing by arranging foreign loans. The Governments of Denmark, the UK, the USA and the USSR have provided financial assistance for rural electrification in Jordan. The Government has relent the foreign loans to JEPCO and IDECO through JEA. 1.40 Development Program Costs: JEA's total investment in 1982-1987, excluding interest during construction, is estimated to be about JD 180 million (US$540 million) at late-1981 prices (Annex 1.9). The investment program is reasonable in relation to the forecast demand to be met. In the past, JEA had no major problems in securing financing for its investment programs mainly from Government contributions and foreign borrowings. It is expected that JEA would be able to finance internally about 48% of its investment program. JEPCO's total investment program in 1982-1987 is estimated to cost about JD 40 million (US$120 million), of which about 40% is expected to be financed by internal cash generation, issue of shares and customers' contributions. The Government has secured loans for JEPCO from the European Investment Bank (JD 1.7 million), the USA (JD 2.7 million) and the USSR (JD 1.06 million). Other foreign borrowings and local loans, including Bank Loan 1986-JO, would complete the financing plan for JEPCO's capital investment. IDECO's development program in 1982-1987 is estimated to cost about JD 10 million (US$30 million). Its complete financing has been arranged through self-financing and shares (33%), Government loans (22%), and loans from the UK (JD 2.3 million) and the USSR (JD 2.4 million). The Government regularly reviews the investment requirements for the construction programs of power utilities and arranges to secure the necessary financing from external and internal sources. Role of IDA/Bank 1.41 The World Bank Group has made two credits and two loans to the Government of Jordan for power development. IDA Credit 386-JO (1973) for US$10.2 million together with an equal amount from the Kuwait Fund was used to finance two 33-MW steam power units and one 13-MW gas turbine at the Hussein power station. The power facilities have been completed and are operating satisfactorily. IDA Credit 570-JO (1975) for US$5 million with co-financing from the Arab Fund (US$13.4 million) was used to finance a third 33-MW unit at the Hussein power station, reconditioning of the Marqa diesel power station, and the Southern Jordan Power Development Study. The third unit has been put into commercial operation and Marqa diesel station reconditioned to reach 40-MW output. The combined project completion report for the two credits (June 1981) states that the projects, in fulfilling their roles, have exceeded the appraisal expectations and that the Bank needs to maintain its focus on JEA's autonomy and ability to retain competent professional staff. Loan 1688-JO of 1979 (US$15 million) is being used to finance the transmission network and rural electrification. This Project is nearing completion. Loan 1986-JO (US$25 million) was made in June 1981 for the Fourth Power Project comprising parts of the network development programs of JEA and JEPCO to be implemented in the period 1981-1984. This Project is progressing  - 13 - satisfactorily. The Bank Group lending operations have been instrumental in establishing JEA and in creating a modern power system in Jordan. These operations have also played a catalytic role in attracting investments in the power subsector by both Kuwait and Arab funds. The proposed fifth loan would enable the Bank to continue and expand its efforts towards achieving the institution-building objectives identified under the previous loans. JEA needs to further improve its planning capabilities and strengthen its staff training programs. 1.42 The Bank has assisted JEA and the Government in preparing the Project in a manner that is financially and economically viable and would attract financing from other institutions. Furthermore, the proposed Project would enable the Bank to assist Jordan in connection with the overall structural changes and improvements in the country's energy sector, particularly in energy planning, demand management, fuel pricing policies, strategy for development of indigenous energy resources and institution-building aspects of the energy sector. II. THE PROJECT objectives 2.01 The primary objective of the physical facilities of the Project is to meet the future power demand at least cost to the economy. The Project's further objectives are; the improvement of the quality of power supply services; the acceleration of the country's regional electrification; the continuation of the institution-building efforts to develop JEA as a financially viable and technically efficient entity; and the strengthening of energy sector planning ard coordination activities. Description 2.02 The Project is a part of JEA's power system development program for 1982-1986 and has the following components (details in Annex 2.1): (i) a seawater cooled steam power statior, at Aqaba with its first stage to be commissioned in 1986 consisting of two 130-MW oil-fueled generating units and accessories; (ii) a 400-kV transmission line from Aqaba to Amman, about 320 km long, to be initially operated at 132 kV; and (iii) consultant's services. The Project is expected to be completed by December 31, 1986. use of Alternative Fuels 2.03 The consultants (para. 2.06) have paid particular attention to the selection of fuel(s) for all proposed stages cf the power station expansion to an ultimate capacity of about 1,540 MW in two further stages of 640 MW  - 14 - each and have recommended using heavy distillate fuel oil (a by-product of diesel and gasoline production at the Zarqa refinery) for the initial installation for reasons of availability and cost (although priced at international levels for economic analyses). Development of the infrastructure needed for an alternative coal supply was thoroughly considered, together with its attendant problems of long term contracts with remote suppliers, of unloading, storage and handling of coal, ash and scrubber sludge disposal, and pollution abatement requirements to protect the waters and air quality in the area. The consultants have also studied dual-fired generating units (both heavy fuel oil and coal capable) in the first stage and possible future conversion to the use of coal. Their study did not show economic advantages for these alternative solutions over the heavy fuel oil fired units. However, the overall layout of the power station is so designed as to enable the use of other fuels, particularly coal, in the subsequent stages of expansion, if found appropriate. Fuel Supply 2.04 Two fuel oil storage tanks would be constructed at the power station to permit 60 days' continuous operation of the station at a 75% capacity factor. The fuel oil would be delivered to the site via off-take from a pipeline to be built between the Zarqa refinery and Aqaba. This pipeline would be used for transferring refinery products to industrial consumers in Central and Southern Jordan, and imported crude oil from Aqaba back to the refinery. The power station would be the largest fuel oil consumer to be supplied by the pipeline, both in the Aqaba area and along the pipeline route. The pipeline feasibility study prepared by Williams Bros. of the UK has been approved by the Government. Although not a paz-_ of the Project, the pipeline needs to be brought into operation before the power station is commissioned. The Government has agreed to complete the pipeline between Zarqa and Aqaba not later than March 31, 1986. 2.05 JEA has started discussion with the Aqaba port authorities for the possible utilization of fuel oil unloading facilities at their wharf for unloading of heavy fuel oil by ocean-going tankers, as a stand-by fuel supply arrangement in case of disruption of the supply through the Zarqa-Aqaba pipeline. JEA has agreed to make, by December 31, 1983, arrangements with the Government agency operating the Aqaba industrial port facilities for the utilization of these facilities for the stand-by fuel oil supply to the Aqaba power station. Consultants' Services 2.06 JEA appointed Chas T. Main (USA) as consultants to prepare the feasibility study and detailed designs of the Aqaba power station. JEA has also participated actively in the preparation of the study and designs. The document entitled "Aqaba Thermal Power Station (Feasibility Study and Design Memorandum), Stage 1" demonstrates the Project's feasibility and its economic justification. The study covers in detail the selection of station fuel, unit sizes, steam systems and other major parameters to ensure the most economic and reliable choices.  - 15 - 2.07 JEA has also appointed Preece, Cardew and Rider (PCR) of the UK as consultants for the 400-kV Aqaba-Amman trarismission line. PCR has recommended that JEA construct a 400-kV double circuit line (4 x 200mm2) between Aqaba and Amman for completion in 1986 but to be operated initially at 132 kV and to be upgraded to its rated voltage with the commissioning of a third generating unit. 2.08 The consultants have prepared the basic design documents and have started preparing the Project's bidding documents, which are planned to be completed in early 1982. The consultants have also been actively involved in all discussions with potential Project financiers. JEA needs consultants' assistance in Project design, procurement, supervision of construction and erection, inspection of works and equipment, and the initial operation of the Project facilities. JEA has agreed to continue to employ consultants, with qualifications, experience and conditions of employment satisfactory to the Bank, for engineering services, procurement, supervision of erection and initial operation of the Project. Project Cost Estimate 2.09 The estimated cost of the Project, excluding interest during construction, is JD 108.1 million (US$324.2 million equivalent), of which JD 85.9 million (US$257.7 million) would be in foreign exchange based on the exchange rate of JD 1 = US$3. Annex 2.2 shows in detail the estimated costs of the Project, which are summarized as follows;  - 16 - Local Foreign Total Local Foreign Total -------JD Million ------ -------US$ Million