Jordan - First and Second Hussein Thermal Power Projects

Document of The World Bank FLE COPY FOR OFFICIAL USE ONLY Report No. 3875 PROJECT PERFORMANCE AUDIT REPORT JORDAN: FIRST AND SECOND HUSSEIN THERMAL POWER PROJECTS (CREDITS 386-JO AND 570-JO) March 25, 1982 Operations Evaluation 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.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT JORDAN: FIRST AND SECOND HUSSEIN THERMAL POWER PROJECTS (CREDITS 386-JO AND 570-JO) TABLE OF CONTENTS Page No. Preface ......................................................... i Basic Data Sheet (Credit 386-JO) ....................................... ii Basic Data Sheet (Credit 570-JO) ....................................... iv Highlights ........................................................... vi Appendix 1 (Comments from the Government).......................... viii Appendix 2 (Comments from the Utility)................................. ix PROJECT COMPLETION REPORT I. Introduction .................................................. 1 II. Project Preparation and Appraisal ............................ 2 III. Project Implementation, Operation and Cost ............ 4 IV. Operating Performance ........................................ 10 V. Financial Performance ........................................ 10 VI. Management Performance ...................................... 14 VII. Project Justification .................................. 18 VIII. Bank Performance ....................................... 20 IX. Conclusions .....o-. ................................. 23 Annexes: 1. Principal Covenants ............................... . o24 2. Comparison of Estiamted and Actual Cost of Project - Stage I (Credit 386-JO) ............................. 30 3. Comparison of Estimated and Actual Cost of project - Stage II (Credit 570-JO) .............. ........... 31 4. Schedule of Disbursements, Credit 386-JO .............. 32 5. Schedule of Disbursements, Credit 570-JO ............. 33 6. Generation Sales, Etc., Estimates Vs. Actuals - Stage I ....... .......................................... 34 7. Generation Sales, Etc., Estimates Vs. Actuals - Stage II ..................... .................. 35 8. Forecast and Actual Sales (GWh) Per Consumer Category During 1973-79 for JEPCO ...................... .... . 36 9. Forecast and Actual Sales (GWh) Per Consumer Category During 1973-79 for IDECO ...- . ...................... 37 10. Income Statements, Credit 386-JO .................. 38 11. Income Statements, Credit 570-JO ........................ 39 12. Balance Sheets, Credit 570-JO ........................ 40 13. Sources and Applications of Funds, Credit 570-JO ...... 41 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. TABLE OF CONTENTS (continued) Page No. 14. Financial Ratios, Credit 570-JO ...................... 42 15. Organization Chart, Credits 386-JO and 570-JO ......... 43 16. Movement of Basic Salaries During 1975-80 ............. 44 17. Employee Turnover in 1980 ............................. 45 18. Internal Rate of Return on Project, Credit 386-JO ..... 46 19. Internal Rate of Return on Project, Credit 570-JO ..... 47 20. Assumptions in Rate of Return Calculation ....... 48 - 1 - PROJECT PERFORMANCE AUDIT REPORT JORDAN: FIRST AND SECOND HUSSEIN THERMAL POWER PROJECTS (CREDITS 386-JO AND 570-JO) PREFACE This report presents the results of a performance audit of the First and Second Hussein Thermal Power Projects (which became in effect Stages I and II of one project), for which Credits 386-JO of US$10.2 million and 570-JO of US$5.0 million were made to the Hashemite Kingdom of Jordan in May 1973 and July 1975 respectively. The two credits were fully disbursed and closed on December 31, 1980. The report consists of Highlights prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) prepared by the Europe, Middle East and North Africa Regional Office. The PCR takes into account the findings of a project completion mission, which visited Jordan in April 1981, and also the information provided in a draft project completion report prepared by the Jordan Electricity Authority (JEA), the semi-autonomous national electricity authority, which was the beneficiary of the two credits. In accordance with OED's abbreviated procedure, OED staff have reviewed the Appraisal and the President's Reports, the Credit documents, the Minutes of the Board discussions, JEA's draft project completion report, and the PCR; the experience of the two projects was also discussed with IDA staff. On the basis of this limited review, the audit finds that the PCR has discussed adequately the significant aspects of the projects' experience, the implementation delays of the two projects, the institutional development of JEA and IDA's role in this development. Furthermore, the audit finds no reason to disagree with the main conclusions of the PCR. Following normal OED procedures, a draft copy of the audit report was sent to the joint financiers for the projects (Kuwait Fund and Arab Fund), to JEA and to the Government for comments. Those comments which were received have been taken into account in finalizing this report and are also reproduced as Appendices to the Highlights.  PROJECT PERFORMANCE AUDIT REPORT JORDAN: FIRST HUSSEIN THERMAL POWER PROJECT (CREDIT 386-JO) KEY PROJECT DATA Appraisal Actual or Expectation Current Estimate Total Project Cost (US$ million) 24.7 25.3 Overrun (%) - 2.4 Credit Amount (US$ million) 10.2 10.2 Disbursed - 10.2 Cancelled - - Joint Financing - Kuwait Fund (US$ million equivalent) 10.2 10.2 Date Physical Components Completed 03/31/76 08/27/77 Proportion Completed by Above Date (%) - 62 Proportion of time Overrun (%) - 55 Incremental Financial Rate of Return (%) n.a. 14.6/a Financial Performance - Satisfactory/b Institutional Performance - Satisfactory Cumulative and Actual Disbursements (US$ million) As of Dec. 30: 1976 1977 1978 1979 Dec. 1980 (i) Appraisal Estimate 3.9 1.3 3.1 4.6 5.0 (ii) Actual - .5 1.9 4.0 5.0 (ii) as % of (i) - 37 61 87 100 OTHER PROJECT DATA Original Actual or Plan Revisions Estimated Actual First Mention in Files or Timetable - - 1969 Government's Application - First in 1969 and again in Oct. 1972 Negotiations 04/09/73 - 04/09/73 Board Approval 05/22/73 - 05/22/73 Credit Agreement Date - - 05/24/73 Effectiveness Date 08/22/73 - 08/21/73 Closing Date 03/31/77 03/31/78, 12/31/78, 12/31/80 06/30/79, 12/31/79, 06/30/80 Borrower Hashemite Kingdom of Jordan Executing Agency Jordan Electricity Authority Fiscal Year of Borrower January 1 - December 31 Follow-on Project Naute Hussein Thermal Power Project Stage II Credit Number 570-JO Credit Amount (US$ million) 5.0 Credit Agreement Date July 7, 1975 /a Not carried out at the time of appraisal but calculated on project completion (PCR,a parg. 7.3.1). /b The proportion of investment contributed by the net internal cash generation was higher than the appraisal estimate; however, the rate of return on assets was lower than that stipulated in the credit agreements (PCR, paras. 512.3, 5.3.1).  - iii - MISSION DATA Month/ No. of No. of Man- Date of Year Weeks Persons weeks Report Appraisal 11/72 4 2 8 05/73 Total 8 Supervision I 12/73 1 2 2 01/74 Supervision II 06/74 1 2 2 07/74 Supervision III 12/74 1 3 3 01/75 Supervision IV 08/75 1 3 3 09/75 Supervision V 11/75 1 2 2 11/75 Supervision VI 09/76 1 2 2 10/76 Supervision VII 06/77 1 1 1 06/77 Supervision VIII 03/78 1 3 3 03/78 Supervision IX 10/78 1 4 4 11/78 Supervision X 10/79 2 2 4 10/79 Supervision XI 06/80 2 2 4 07/80 Supervision XII 11/80 1 4 4 12/80 Completion 04/81 2 2 4 06/81 Total 38 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Jordanian Dinar (JD) Year: Exchange Rate: Appraisal Year Average (1972) JD1 = US$3.10 Intervening Years Average (1974-76) JD1 = US$3.10 Completion Year Average (1977) JDI = US$3.04  - iv - PROJECT PERFORMANCE AUDIT REPORT JORDAN: SECOND HUSSEIN THERMAL POWER PROJECT (CREDIT 570-JO) KEY PROJECT DATA Appraisal Actual or Expectation Current Estimate Total Project Cost (US$ million) 22.0 23.2 Overrun (%) - 5.5 Credit Amount (US$ taillion) 5.0 5.0 Disbursed - 5.0 Cancelled - - Joint Financing - Arab Fund (US$ million equivalent) 20.6 20.6/a Date Physical Components Completed 06/30/78 10/06/79 Proportion Completed by Above Date (%) - 97 Proportion of time Overrun (%) - 48 Incremental Financial Rate of Return (%) 15 13.5/b Financial Performance - SatisfactoryLc Institutional Perfo-mance Satisfactory Cumulative and Actual Disbursements (US$ million) As of Dec. 30: 1973 1974 1975 1976 1977 1978 1979 1980 (i) Appraisal Estijaate 1.25 5.5 8.3 9.4 10.2 10.2 10.2 10.2 (ii) Actual .80 1.7 5.4 7.6 8.6 8.9 9.6 10.2 (ii) as % of ) 64 31 65 81 84 87 94 100 OTHER PROJECT DATA Original Actual or Plan Revisions Estimated Actual First Mention in Files or Timetable - 06/74 Government's Application - - 10/27/74 Negotiations 05/19/75 - 05/19/75 Board Approval 06/09/75 - 06/09/75 Credit Agreement Date - - 07/07/75 Effectiveness Date 10/15/75 - 11/18/75 Closing Date 12/31/79 06/30/80 12/31/80 Borrower Hashemite Kingdom of Jordan Executing Agency Jordan Electricity Authority Fiscal Year of Borrower January 1 - December 31 Follow-on Project Name Third Power Project Loan Number 1688-JO Loan Amount (US$ million) 15.0 Loan Agreement Da0e May 4, 1979 /a Part of this amount was used to finance substations (PCR para., 3.5.3). /b 22.6% based on appraisal methodology (PCR, para. 7.3.2). /c The proportion of investment contributed by the net internal cash generation was higher than the appraisal estimate; however, the rate of return on assets was lower than that stipulated in the credit agreements (PCR, paras. 5.2.3, 5.3.1).  - v - MISSION DATA Month/ No. of No. of Man- Date of Year Weeks Persons weeks Report Appraisal 11/74 3 2 6 05/75 Total 6 Supervision I 08/75 1 3 3 09/75 Supervision II 11/75 1 2 2 11/75 Supervision III 09/76 1 2 2 10/76 Supervision IV 06/77 1 1 1 06/77 Supervision V 03/78 1 3 3 03/78 Supervision VI 10/78 1 4 4 11/78 Supervision VII 10/79 2 2 4 10/79 Supervision VIII 06/80 2 2 4 07/80 Supervision IX 11/80 1 4 4 12/80 Completion 04/81 2 2 4 06/81 Total 31 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Jordanian Dinar (JD) Year: Exchange Rate: Appraisal Year Average (1974) JD1 = US$3.10 Intervening Years Average (1975-78) JD1 = US$3.11 Completion Year Average (1979) JD1 = US$3.33  - vi - PROJECT PERFORMANCE AUDIT REPORT JORDAN: FIRST AND SECOND HUSSEIN THERMAL POWER PROJECTS (CREDITS 386-JO AND 570-JO) HIGHLIGHTS The two projects, comprising mainly the installation of generating capacity, contributed to the elimination of power shortages, the provision of a reliable power supply and the meeting of energy demand whose growth rate averaged about 26% p.a. over the implementation period. The projects also enhanced the institutional development of the Jordan Electricity Authority (JEA) and the power sector as a whole. The final cost of the two projects was only marginally higher than the corresponding appraisal estimates (PCR, paras. 3.5.2-3.5.4) although their implementation took over a year longer than estimated. Partly because of the implementation delays, JEA had to install some gas turbine generating capacity as an interim measure (PCR, paras. 3.3.1-3.3.5). Energy sales during the period 1975-80 were substantially higher than the appraisal estimate made under the first project and marginally higher than the estimate of the second project, thus reflecting a rapid expansion of the country's economy during that period. The projects were the least cost solution to meet the envisaged power demand, though, in retrospect, their construction should have been advanced by two years (PCR, para. 8.1.1). No incremental financial rate of return (IFRR) was calculated at appraisal for the fijrst project but a calculation carried out after pro- ject completion yielded an actual IFRR of 14.6%. The IFRR on the second project was estimated at 15% at the time of appraisal; a recalculation on the same basis shows an IFRR of about 22.6%. However, after taking account of certain developments in generation and transmission facilities, which were not firmly defined at project appraisal and therefore not taken into account in the appraisal calculation, this IFRR is more appropriately re-estimated at 13.5% (PCR, paras. 7.3.1-7.3.2). The overall financial situation of JEA since the commissioning of the first project in 1977 has been satisfactory, partly because the Gov- ernment converted the debt service payments which were due from JEA into Government equity contributions to JEA (PCR, para. 5.2.3). Between 1977 and 1980, JEA's net internal cash generation contributed a higher proportion to its larger capital expenditure than projected at the time of appraisal (PCR, paras. 5.2.3, 5.3.1). However, mainly because tariff increases were inadequate - vii - to meet rising operating costs, JEA's rate of return on revalued assets through 1979 was well below the 9% stipulated in the credit agreements, although in 1980, after an average 70% tariff increase effective in February of that year, the rate of return increased to 9.7% (PCR, para. 5.3.1.). This rate of return covenant has been replaced by a cash generation covenant in the Loan Agreement for the Fourth Power Project (PCR, para. 5.4.2). JEA was organized on the basis of the recommendations of management consultants. From a small entity with virtually no implementation capacity at the time of appraisal of the first project, JEA has developed into a major State-owned public utility which is well-managed and semi-autonomous; its staff play a large part in the planning, preparation and supervision of new projects (PCR, para. 8.1.2). Presently, JEA is mainly a bulk power supplier, though it is also responsible for distribution and has taken over a few of the smaller distribution utilities (the two major distribution utilities in the country are privately-owned). It has been providing effective technical training, including courses overseas, for its operations and maintenance staff and in 1979 it prepared a sound training program which includes building a technical training center (PCR, para. 6.3.2). JEA, however, has had dif- ficulties in attracting and retaining competent staff, mainly in the financial area, which could be largely resolved by upgrading the status of the head of the financial section and improving the compensation package of the section's staff (PCR, para. 6.4.1). Under the credit agreements, the Government was required to amend the JEA law drafted in 1967 to enable JEA to develop into a semi-autonomous agency of the Government and also to enact a general electricity law by September 30, 1974. However, only one law, "the Temporary Law", has been passed which gives JEA the degree of autonomy recommended by IDA and also some of the authority over the sector which is usually retained by the Government. Accordingly, a general electricity law, governing the operations of the sector, is still desirable (PCR, paras. 6.5.1-6.5.4). The tariff study was carried out in 1976 and its recommendations were implemented in the following year. The present tariff structure, as recommended by the study, includes a fuel cost adjustment clause and is uniform for the whole country. Tariffs were increased by about 70% in February 1980 and they now appear to reflect the economic cost of resources used in meeting the demand (PCR, paras. 5.5.1-5.5.3). The following additional point may be of special interest: - factors which caused project implementation delays were congestion at the port, shortage of equipment and skilled labor for construction, and lack of cooperation between the consultants and the contractor (PCR, paras. 3.3.3-3.3.5). APPENDIX 1 - viii - COMMENTS FROM THE GOVERNMENT 248423 WORLDBANK 21319 NPC J) 23 JANUARY, 1932 ATTN: iMR. SHIV S. KAPUR DIRECTOR OPERATIONS EVALUATION DEPT. 4 SUBJECT: PROJECT PERFRNCE AUDIT EPORT ON FIRST AND SECOND HUSSEIN THERM1AL POWER PROJECTS (CREDIT 336-JO AND 570-JO) AAA REFERENCE IS MADE TO YOUR LETTER DATED NOVEMBER 11, 1981 AND TO YOUR TELEX DATED DECEMBER 22, 1981, AND TO MY TELEX DATED 20 JANUARY 1982. BIE IN GENERAL THE REPORT IS CONSIDERED SATISFACTORY HOWEVER, ON PAGE 24 THE COMMENT UNDER THE CAPTION - ACTION TAKEN - CONCERNING COVENANT SECTION 3.30(A) APPEARS TO BE UNDULY HARSH. THE SAME COMMENT APPLIES TO PORTIONS OF PARA 6.5.2 ON PAGE 17, PARA 6.5.3 ON PAGE 17, PARAS 8.1.3 AND 8.1.4 ON PAGE 22, AND PARAS 9.1.1 AND 9.1.2 ON PAGE 23, AS THEY RELATE TO THE SAME COVENANT. THE IMPLICATIONS IN THE ABOVE REFERENCES FAIL.TO TAKE INTO CONSIDERATION THE PROCESS AND TI4ING Of ARRIVING AT CERTAIN GOVERNMENTAL DECISIONS AND ACTI%t,WH.ICH AFFECT THE GREATER POPORTION OF ITS CITIZENS. I ASSURE YOU -THAT THE SPIRIT OF THE COYtIANT EXISTS. BEST REGARDS. H. ODEH PRESIDENT IIPC. 248423 WORLD IANKE21319 NPC JO  APPENDIX 2 COMMENTS FROM THE UTILITY Page 1of 3 Jordan Eleotriat*Authority P.O. Box 2310 - AMMAN L -<i Coble : SAKA, Telex 21259 JO. (JEASAK ) 815615-19 To[. V TechnicLI Depts. 07104 - 67109 Ref : . -S THE HASHEMITE KINGDOM OF JORDAN Ilk /1/1982 Mr. Shiv S.Kapur Director Operations Evaluation Department The World Bank 1818 H.Street , N.W., Washington D.C. 20433 U . 3 . A . Dear Mr.- Kapur Subject : Project Perforuance Audit On Jordan : First And Second Russe n Thermal Power ro ects ( Credits 386-Jo And 50-Jo) Thank you for your letter of November 11,1981 together with the copy of the first draft of the project performance audit report on Jordan : First and Second Hussein Power Projects supported by credits 386-Jo and 570-Jo . Attached please find JEA's comments on the said draft report hoping that you will take it into consideration when formulating yourfinal report You 419 Directo General M Q/NS APPENDIX 2 Page 2 of 3 - x - JORDAN ELECTRICITY AUTHORITY JEA'S COMMENTS ON : THE WORLD BANK PROJECT PERFORMANCE AUDIT REPORT ON JORDAN FIRST AND SECOND HUSSEIN THERMAL POWER PROJECTS (CREDITS 386-Jo And 570-30) 1. Page -i- , Third paragraph , line 3 JEA's Project Completion Report ," - should be :- " JEA's draft project completion report". 2. Page -iii-, Mission Data , the Man-Weeks Column should be : 8 , 8 , 2 , 2 , 3 , 2 , 2 ,1 , 3 ,4 ,4 ,4 ,4 ,4, and 37 for the total instead of 8 , 8 , 8 , 2 , 2 , 3 3, 2 , 2-, 1 , 3 , 4 , 4 , 4 , 4 , and 38 for the total 3. Page -v- Mission Data , the total of Man-Weeks Column should be 31 instead of 38 4. Page 1 , paragraph 1.3 line (7) , the sentence : " Which will be likned to Amman by 400 KV Lines in 1985" should be :- " which will be linked to Amman initially by 132 KV Lines in 1984 and finally by a 400 KV Lines in 1986". 5. Page -2- paragraph 1.4 - first line, should be " This report is based on a draft project..... completion .......etc. 6. Page 5 , paragraph 3.2, Add the following sentence at the end of the paragraph:- " Repair of the power station roof folowing a structure failure caused by the civil contractor during construction". 7. Page 5 , paragraph 3.3.3 , (i) , replace the word cement in the second line by equip- ment . (ii) add the following sentence at the end of this item:- APPENDIX 2 Page 3 of 3 and delays in cement deliveries to site due to local transport problems ; Add the following two items after item (iii):- (iv) The November 1975 civil structure failure in part past of the power station roof slab; and . ( v) The 1973 Middle East war and oil Embargo which cause the contractors delay in purchasing some of the materials and equipment . 8. Page 6 , paragraph 3.3.4 , line 11 the last sentence should be,:- ," and corrective action was taken and completed in May 1980." 9. Page 6 , paragraph 3.3.5 , the last sentence should be " JEA collected the maintenance bond and.....etc. 10. Page 7 , Paragr:aph 3.4.2 , line 2 " These contracts" should be replaced by " The electro mechanical contract". 11. Page 14 , paragraph 5.5.3 , line 2 replace March by Feb- ruary 12. Page 14 , paragraph 5.5.3 , line 8 , replace " the commer- cial rate for clay time use is 5.7 fils/KWH (US S 0.1 g/KWH), etc by the commercial rate is 45 fils/KWH (US S 0.15/KWH) 13. Page 31 , Annex 3 : The local element of the actual cost of the civil works is JD 592 000 instead JD 580 000 . The totals should be corrected accordingly .  JORDAN ATTACHMENT JORDAN ELECTRICITY AUTHORITY PROJECT COMPLETION REPORT Hussein Thermal Project - Stages I and II Credits 386-JO and 570-JO 1. Introduction 1.1 Prior to 1967 the power sector in Jordan was highly fragmented, consisting of two fairly large private companies supplying power to the cities of Amman and Irbid, a number of small municipal undertakings, and many small local installations on industrial and Government premises; all relying on diesel engines for electrical generation. There was no coordi- nated planning for development of the sector and the service was unreli- able. In order to make good these deficiencies the Government, in early 1967, created the Jordan Electricity Authority (JEA) with a mandate to coordinate development and extend electricity supplies to all areas of the Kingdom, not already included in the licenses of existing undertakings. 1.2 As a first step, JEA with the assistance of consultants planned a major steam power station at Zarqa some 40 km from Amman. The finance for the first 80-MW stage of this project was provided in May 1973 by IDA Credit 386-JO for $10.2 million together with $10.2 million from the Kuwait Fund. The second stage of 33 MW together with some other facilities was financed in July 1975 by IDA Credit 570-JO for $5 million and $20.6 million from the Arab Fund. Since 1975 the Bank has made two loans to the sector-- the first, 1688-JO for $15 million in May 1979 financing part of the cost of a major extension to JEA's 132 kV transmission network; the second, 1986-JO for $25 million in June 1981 to the Jordanian Electric Power Company (JEPCO), a private company distributing electricity in Amman and its neighborhood, ($20 million) and to JEA ($5 million) for expansion of distribution networks and rural electrification. 1.3 Although the Bank Group's direct participation in the financing of the sector has been relatively small (about 7% of total financing), its role in helping the Government to obtain finance from other sources and in guiding the Authority in its formative years has been an important one. JEA is now the principal generating authority in the country with a network of transmission lines connecting all important centers exceptlhe extreme south, which will be linked to Amman by 400 kV lines in 1985. It is a semi-autonomous body operating on commercial lines providing a reliable bulk supply of power to all areas of the country and supplies direct to consumers in rural areas and some small municipalities. During 1977-'80 it has financed an average of 34.5% of its large development program from internally generated funds, and over the last five years (1976-'80) has contributed towards a steady growth in retail sales averaging about 26% per annum. 1/ OED Note: JEA has stated that links to Amman would be initially by 132 kV lines in 1984 and finally by 400 kV lines in 1986 (Appendix 2). - 2 - 1.4 This report is based on a draft project completion report prepared by the beneficiary in December 1980, the Bank's supervision reports and files, and the findings of a project completion mission to Jordan in April 1981. 2. Project Preparation and Appraisal 2.1 Origin and Preparation of the Project 2.1.1 The project originated from a consultant's study financed by USAID, prior to the 1967 war with Israel, of an 88-MW oil fired steam generating station at Zarqa near Amman, which was intended to be run in conjunction with a 46-MW hydroelectric development at north Shuneh on the Yarmuk River in north Jordan. A 132-kV transmission network would have conveyed the power to Jerusalem, Amman, Nablus and Irbid. Site prepara- tions were in progress at Shuneh and materials were arriving on site for construction of the project when war broke out and the hydroelectric proj- ect was abandoned. Following the loss of the West Bank territory, the demand of which was an important part of the justification for the original project, the Government instructed the consultants to revise their pro- posals in the light of the changed circumstances. At about this time JEA was created, and a nucleus of staff appointed. 2.2 Project Appraisal 2.2.1 In 1969, the Government requested the assistance of IDA in financ- ing the revised project. An IDA mission appraised the project in June 1971 shortly after the cessation of the civil disturbances which disrupted the country in 1970/71. The effect of these disturbances on development of the electrical demand was at that time very uncertain and since the justifica- tion for the timing of a change-over from diesel generation to steam was considered to be dependent on a high growth rate, the Association concluded that the changeover would be premature and the project could not be justi- fied. By mid 1972 however, the market had recovered and a sustained high growth rate being forecast, the Government asked IDA and the Kuwait Fund to reconsider the matter. The project was reappraised in November 1972. No major issues delayed processing and Credit Agreement No. 386-JO was signed in May 1973 for $10.2 million with joint financing of an equal amount from the Kuwait Fund. A second Credit No. 570-JO of $5 million towards the cost of an extension of the project was appraised in November 1974 and signed in July 1975. Parallel financing of $20.6 million equivalent was pro- vided by the Arab Fund for this extension and some other works including rehabilitation of the Marqa Diesel Generating Station to be purchased by JEA from JEPCO. -3- 2.3 Project's Role 2.3.1 The project and its extension were the first steps in a long term plan for the creation of a central generating and distributing authority to supply power through a national grid to all the developed areas of the country. 2.4 Project Description 2.4.1 The first and second stages of the project consisted of the following: First Stage (Credit 386-JO) A. Generation 1. Construction of a generating plant at Zarqa, comprising two steam-electric generating units with an aggregate generating capacity of about 66 MW; associated facilities including fuel transfer from the adjacent refinery and storage facilities, a substatior and personnel housing. 2. Installation of a simple cycle package type gas turbine- electric generating unit with a rated generating capacity of about 15 NW at sea level, and associated auxiliary facilities. B. Studies and Training 1. Training abroad of power station staff, administrative and other personnel as necessary. 2. A study of organizational requirements for JEA's expanding activities, including accounting procedures, financial plan- ning and budget control; and implementation of the recommen- dations of this study. 3. (a) A study of JEA's tariff structure required for its operations, and implementation of the recommendations of this study. (b) A study of all electricity tariffs prevailing in Jordan to recommend to the Government the basis for a modern tariff structure to be applied throughout Jordan. Second Stage (Credit 570-JO) A. Generation 1. Addition of a 33-MW steam-electric generating unit at Zarqa; associated facilities including those for fuel transfer from the adjacent refinery and storage facilities, a substation and personnel housing. 2. Reconditioning of the 45-MW diesel-electric power station at Marqa. B. Studies The South Jordan Power Development Study. 2.4.2 An unusual feature of the projects was the provision of dry air cooling of the turbine exhaust steam by means of fan cooled radiators mounted on the roof of the power station turbine hall. This was necessary because of the limited supplies of water in the Amman area. The water supply for the power station comes from six wells in the immediate neighborhood and is estimated to be adequate for a total development of about 300 MW using dry air cooling. 2.4.3 The training and studies included in the project were important to the future operations of JEA which, when the first credit was made, had only a very small nucleus of staff for the operation of its pole manufacturing plant and for the supervision of the projects of JEPCO and IDECO financed by UK credits channeled through JEA. 2.5 Covenants 2.5.1 Annex 1 details the major covenants of the Credit Agreements and Subsidiary Loan Agreements. Both credits were made to the Government and, relent to JEA as executing agent and beneficiary for periods of 25 years including 3 1/2 years' grace. The relending rate for the first credit was 7 1/4% and for the second 8 1/2%. 2.5.2 The main purpose of the covenants was to assist the Government in creating a framework within which JEA could operate as a viable and effi- cient state enterprise on commercial lines. Experience over many years and in many countries shows that this can best be achieved by giving the utility a high degree of autonomy to insulate its decision-making process from political considerations, and to thus enable it to earn a rate of return on its capital assets which will provide sufficient funds to meet expenditures necessary for efficient operation and a reasonable proportion of capital expansion requirements. These objectives have been met, except in the case of the General Electricity Law (para. 6.5.2), and the effi- ciency with which the sector has developed under JEA attests to the justi- fication for seeking to promote these objectives through covenants in the Credit Agreements. 3. Project Implementation, Operation and Cost 3.1 Effective Dates 3.1.1 Credit 386-JO became effective on 21st August 1973, one day before the specified date in the agreement and Credit 570-JO, one month after the - 5 - specified date due to delays in completing the legal documents and obtain- ing the necessary assurances on financing from the Government. 3.2 Revisions 3.2.1 There were no important changes in the project itself. Minor changes to the works included the addition of a 6-inch pipeline from the refinery for diesel fuel required by the gas turbines at Zarqa, a desirable change from steam heat'ng to electrical heating of the 8-inch fuel oil pipeline from the refinery, enlargement of office and workshop buildings and the addition of a small treatment plant for neutralizing harmful chemi- cals discharged from the water treatment plant. In addition, three new wells were drilled to replace one which was found to be dry and two which had collapsed. 3.3 Implementation Stage I (Credit 386-JO) 3.3.1 JEA's consultants had satisfactorily completed most of the design and preparation work ard invited bids for the main electrical/mechanical works before the appraisal of the project and some retroactive financing was provided for this. Contracts for supply and erection of all the prin- cipal items had been awarded either before or within a month or two of the credit becoming effective in August 1973. Commercial operation of the gas turbine was scheduled for August 1974 and for the two steam units, March and April 1976. In fact the gas turbine was 11 months late and the steam units 22 and 21 months late, though the latter were feeding power into the system under restricted operating conditions for a period of about four months prior to acceptance for commercial operation. 3.3.2 Due to delay in completion of the first stage (Credit 386-JO) the JEA was obliged to purchase with its own funds, a second package type gas turbine generator of 20 MW capacity, in order to meet the demand in 1976. A further two gas turbine generators of 20 MW capacity each were added at Marqa Power Station in mid-1978 partly due to the delay in commissioning the third steam unit financed under Credit 570-JO. 3.3.3 The main factors causing delays were: (i) very serious congestion at the port of Aqaba, slowing down deliveries of imported equipment and reinforcing steel; and delays in cement deliveries to site due to local transport problems; (ii) acute shortages of civil contractor's equipment and skilled construction labor; and (iii) some lack of cooperation in the early stages between the consultants and the main electro-mechanical contractor. - 6 - Whilst some congestion at Aqaba and shortages of skilled labor and equip- ment could have been foreseen, because the project's justification assumed a rapid recovery in the country's economy, the extent of the congestion and shortages could not have been anticipated. The original implementation schedule would have been realistic under more stable conditions. Neither the rapid escalation of prices, nor the deficiencies in cooperation between the consultants and the main equipment supplier could have been foreseen in early 1973 when contracts were being signed. Stage II (Credit 570-JO) 3.3.4 Completion was scheduled for 15 August 1978 and apart from an initial delay of about two months in commencing the civil works, due to equipment for the delayed Stage I occupying the site of Stage II, construc- tion work adhered closely to the schedule up to the initial run up of the machine in June 1978. At this point delays developed, initially due to failure of two auxiliary transformers which had to be returned to the makers in Europe for repairs. The machine was first put on load in November 1978 and immediately, under certain load conditions, developed serious resonant vibration in one of the main generator bearings. It was not until December 1979 that the cause was traced to cavities in the con- crete of the bearing foundation, and corrective action was taken.and completed in May 1980. For-about ten months of this thirteen-month period the machine was operated by JEA on a-very limited basis whilst the contractor and the con- sultant carried out a number of tests to locate the source of the trouble. 3.3.5 The main factors causing delay in completion of civil works were the same as for Stage I, since much of the cnnstruction work was con- current. The troubles which later delayed commissioning might have been averted with better supervision on the part of the consultants. These were principally due to poor workmanship on the part of the civil contractor which may be largely attributed to the shortages of skilled labor in Jordan at the time. The civil contractor went bankrupt in August 1980 leaving some minor works unfinished. JEA collected the performance bond and used the proceeds to finish off the works with its own staff. 3.3.6 The Marqa diesel station was purchased in October 1976 from JEPCO as required under Sections 3.03 and 3.04 of Credit 570-JO and subsequently rehabilitated in 1978 and 1979. 3.4 Procurement 3.4.1 For both the Credits 386-JO and 570-JO procurement was made on the basis of international competitive bidding in accordance with the Bank Group's Guidelines. Special efforts were made by the Association to pro- vide technical assistance to JEA by including a Procurement Engineer/ Financial Analyst in two of the supervision missions. This assistance has been of great value to JEA on these and succeeding projects. For the proj- ect under Stage I (Credit 386-JO), the total requirements were split into 17 main tender packages resulting in 11 contracts. All the contracts were on a fixed price basis. - 7 - 3.4.2 The project under Stage II (Credit 570-JO) was executed through three main contracts. The electro-mechanical contract included provisions for.price escalation to cover material and labor rate increases. Through inter- national competitive bidding all the three contracts were awarded to the same firms who were contractors for the respective items under Stage I. 3.5 Costs and Disbursements 3.5.1 A comparison of actual and estimated costs of Stages I and II of the project is set out in Annexes 2 and 3 respectively. Stage I (Credit 386-JO) 3.5.2 The final cost including spare parts is only about 2 1/2% above the estimate in spite of the delay of 22 months in completing the project and the rapid escalation of prices in the four-year period of construc- tion. The principal increases were in capitalized interest, civil works and JEA's administrative costs. In the case of the civil works the con- tractor claimed JD 219,000 for delays caused by lack of cooperation between the consultant and the main electro-mechanical contractor, which delayed foundation drawings. On the other hand, JEA paid about JD 85,000 for repairs to the power station roof following a structural failure caused by the civil contractor's poor workmanship. To some extent the cost of this repair was offset against the contractor's claim. The main cause of the increase in civil works, which was almost entirely in local costs, was the number of change orders issued for additions to the original contract. These included enlarging the office building and warehouse, rerouting pipelines from the refinery, adding a 6-inch diesel fuel pipeline, drilling three new water wells, constructing a cleaning plant for chemical effluent from the water treatment plant, and many minor building services. All of those mentioned except rerouting pipelines at the refinery should have been foreseen by the consultant. At the time JEA had only an embryo con- struction unit which did not foresee these changes. It is unlikely that they would escape the notice of today's JEA Project staff. The increases in engineering and administration costs and capitalized interest were due to the 22 months' delay in commissioning. During the construction period JEA was recruiting staff and training them (partly in the construction of the power station) but it had no operating account to which their salaries and wages or the interest on the loan could be charged until commissioning of the machines and sales commenced. Accordingly, much of the staff's salaries and wages have been charged to the project in this period up to December 1977. Stage II (Credit 570-JO) 3.5.3 The final cost was about 5.4% above the original estimate. As in Stage I foreign costs were below the estimate, allowing for contingencies and price escalation; but local costs were very much higher than esti- mated. Administration costs were inflated for the same reasons as in Stage I, but to a lesser extent as Stage I started operating in December 1977 - 8 - about half way through the construction of Stage II. Reconditioning of Marqa power station, the foreign component of which was to be financed by a loan from the Arab Fund was in fact financed by JEA from its own resources and the Arab Fund money used to finance substations. Additional items which account for the large increase in cost of reconditioning Marqa were: stores and office buildings, an underground fuel tank, and ventilating and fire alarm systems. 3.5.4 All the cost overruns in both stages were in local currency and were financed from JEA's internal resources. 3.5.5 A comparison of the appraisal and actual disbursements are set out in Annexes 4 and 5. The rate of disbursement was below the appraisal esti- mates primarily due to a twentytwo-month delay in commissioning of Stage I for the reasons given in para. 3.3.3 and protracted arbitration proceedings between JEA and the major equipment supplier for both Stages I and II (para. 3.7.2). 3.6 Operations 3.6.1 Commercial operation of the various units was achieved on the following dates (with original contract commissioning dates in parenthesis): Stage I No. 1-15 MW Gas Turbine Unit - July 12, 1975 (8/24/74) No. 1-33 MW Steam Unit - December 31, 1977 (3/01/76) No. 2-33 MW Steam Unit - December 31, 1977 (4/01/76) Stage II No. 3-33 MW Steam Unit - December 31, 1979 (8/15/78) The Gas Turbine experienced only minor teething troubles with burners fail- ing to ignite, which was soon rectified by the manufacturers. The machine with gas oil as fuel operated almost continuously for two years with only short shutdowns at night for routine maintenance until the first steam unit was commissioned. Its thermal efficiency is about 21% and it is now relegated to use as a peaking plant and generates less than 4% of the total of all generation. 3.6.2 Only minor teething problems were experienced in the run-up periods for the steam turbines prior to commercial operation. These were all quickly rectified, except for bearing vibration on No. 3 unit. The cause was located as a defect in the foundation, some five months after limited commercial operations started. It was cured by grouting. All three steam turbines have given trouble-free service since commissioning and provide the base load generatiqn for JEA's grid system. Their thermal efficiency at 29-1/2% to 30% is somewhat lower than that of normally water cooled units of the same size because of the power demand for fans on the - 9 - condenser radiators. These consume about 2-1/2% of the machines output for units 1 and 2 and about 3% for unit 3. Starting and stopping the 9 fans (90 kW each on 1 and 2 machines and 115 kW each on No. 3 machine) asso- ciated with each machine is done manually according to the degree of vacuum in the condensers. This requires considerable skill to achieve maximum efficiency and for the three 66 MW machines now being added to the station, starting and stopping of fans will be automatically regulated according to the condenser pressure to achieve optimum efficiency under all conditions. 3.7 Performance of Consultants, Contractors, Suppliers and Borrower 3.7.1 Consultants During the construction of Stage I, there was some lack of cooperation between the consultants and the main electro-mechanical con- tractor. As a consequence plans urgently needed by the civil contractor were delayed for many months. There were also a number of changes of con- sultants' site staff in this period. However, about the end of Stage I construction the consultant was taken over by one of its overseas subsidi- aries from which time there was a marked improvement. Some responsibility for the troubles which later developed with vibration on the 3 machines may be attributed to inadequate supervision during the paving of the foundation. 3.7.2 Contractors All the main contractors on site were adversely affected by serious congestion at the port of Aqaba and by an acute shortage of skilled local labor for construction work. Both these problems arose from the enormous amount of construction work which was going on in Jordan as the economy of the country recovered from the war and civil disturbances. In addition, two main contractors delayed ordering materials when prices rose sharply following the 1-973 oil embargo, in the hope that they would come down again. All these factors contributed to delays and increased costs for the contractors. The main electro-mechanical contractor resorted to arbitration in September 1977 in an attempt to recover some of his addi- tional costs on the grounds of delays caused by the civil contractors and other circumstances beyond his control. The results of the arbitration were inconclusive but a settlement was reached in September 1979 under which the contractor agreed to drop his claims in return for JEA foregoing its claim for penalties on the grounds of delay in completion. Both the main civil contractor and the gas turbine supplier experienced difficulty with civil subcontractors who had to be replaced in the course of the works. However, in spite of these difficulties the works were completed in a satisfactory manner though the finish of the civil works leaves something to be desired. 3.7.3 Suppliers Equipment supplied was to specification and generally shipped on due dates. Two auxiliary transformers which developed short circuits whilst on test were returned to maker's works for repairs. - 10 - 3.7.4 Borrower Considering that JEA had only a small nucleus of staff at the start of the project in 1973 and virtually all the engineering staff (both graduate engineers and technicians) were recruited since then, their performance as a team has been outstanding. (See paras. 5.2.4, 6.3.1 and 6.4.1 regarding performance of the financial staff.) Initially all staff were engaged on planning and construction, but with the commencement of commercial operation of the steam sets at the end of 1977, the engineering staff at Zarqa was divided into operating staff and planning and construc- tion staff, the latter forming the Thermal Generation Projects Department. With the experience they gained from these two projects and the much larger Stage III 198-MW extension now under construction, they should be able in future years to reduce the JEA's reliance on consultants for planning, design, and supervision of power station construction works. Since 1977 Jordan has enjoyed an adequate, stable and reliable supply of electricity from a properly run and maintained national power system. 4. Operating Performance 4.1 The Market for Power 4.1.1 Comparisons between the sales, GWh generated, maximum demand and load factor forecast in the appraisal reports for Credits 386-JO and 570-JO are shown in Annexes 6 and 7. The forecasts made in December 1972 for the Credit 386-JO appraisal report grossly underestimated the demand and JEA's share of the sector. Actual sales in 1980 were 95% above the estimates and JEA's share 118% above the estimate. At that time there was little evidence to indicate the high rate of growth which was subsequently achieved. Two years later, however, when Credit 570-JO was being appraised in December 1974 conditions were more settled and the estimates of sales made at that time are only about 10% below the actual figures for 1980. 4.1.2 Reference to Annexes 8 and 9 shows that industrial sales including JEA's retail sales to industry were about 13% higher than the 1974 esti- mates for the Amman area and about 18% higher for the Irbid area. Domestic sales exceeded the 1972 and 1974 estimates by 100% and 77% respectively. The unexpected increase in domestic sales and also to a lesser extent the increase in commercial sales, reflects the enormous expansion of Amman city in recent years. Much of the investment in this expansion is said to originate from the West Bank and could not have been foreseen as more than a possibility at the time of the appraisal. 5. Financial Performance 5.1 Financial Forecast at Stage I (Credit 386-JO) 5.1.1 When the appraisal report for Credit 386-JO was drafted in 1973 JEA's only activities were the production of concrete poles and the supervision of JEPCO's and IDECO's projects financed by UK credits relent through JEA. Although pro-forma financial statements employing conventional utility accounting practices were prepared during the Stage I appraisal, - 11 - only sufficient to indicate JEA's possible future financial performance since JEA was then in its formative stage. Consequently, it is not really meaningful to carry out a detailed analysis of the actual financial results with reference to the appraisal estimates for Stage I (C.386-JO). However, for purposes of general comparison, Credit 386-JO appraisal versus actual income statements are included in Annex 10. 5.2 Financial Forecast at Stage II (Credit 570-JO) 5.2.1 The four tables given in Annexes 11 through 14 containing income statements, balance sheets, sources and applications of funds statements and financial ratios for the years 1974-80 reflect JEA's actual results compared with estimates prepared at the time of the appraisal for the Stage II extension of the Hussein Thermal Power Station at Zarqa. 5.2.2 The electricity sales (GWh) were within about 10% of the appraisal estimates. The total operating revenue, except in the year 1976 when it was 27% below the appraisal estimate due to late commissioning of the Stage I project, has been either very close to the estimates or much higher (18.2% in 1977 and 51.9% in 1980) mainly due to the two tariff increases in 1977 and 1980. Although the actual revenue per kWh sold was raised to a level above that of the appraisal estimates by these tariff revisions, the net income (before interest) has been substantially below the appraisal estimates until 1979--by 72.8% in 1976, 19.7% in 1977, 36.1% in 1978, and 43.0% in 1979--due mainly to the inflationary trends of the 1970s. The increase in actual expenses over the estimates during 1977-79 varies between 33% and 46%, and was 101% in 1980 partly due to a large (more than 50%) increase in the price of fuel oil. 5.2.3 Despite unexpected increases in expenses due to the high rate of inflation in the 70's and more recently the enormous increase in fuel oil prices (JD 7.6/ton in 1976 to JD 30/ton in 1980), JEA's internal cash generation has exceeded the appraisal estimates by a very considerable margin--103% in 1977, 145% in 1978 and 80% in 1979--mainly because of a substantial reduction in debt service arising from Government's action in foregoing interest payments and converting foregone repayments of principal as Government's equity contributions. Due to a large tariff increase in 1980 it was 95% above the estimate for 1980. The following table shows the percentage of self-financing achieved compared with the appraisal estimates.. 1977 1978 1979 1980 Internal Cash Generation (ICG) in JD's 1000 - Appraisal Estimate 867 1,406 2,271 3,714 - Actual 1,756 3,453 4,078 7,225 ICG as % of Capital Expenditure - Appraisal Estimate 11.1 12.9 24.6 23.7 - Actual 20.9 20.1 54.6 35.8 - 12 - 5.2.4 Since JEA did not carry out the required revaluation of assets during 1974-80, the period under review (see para. 5.4), appropriate adjustments have been made to the appraisal estimates under Credit 570-JO for purposes of comparing them with the actual balance sheets (see Annex 12). JEA's total net fixed assets including the pole plant and work in progress (totalling JD 715,000 in 1974) were projected to increase to about JD 54.8 million by 1980. In fact, the value of total net fixed assets as of the end of 1980 was 15% higher at JD 63.3 million. Net current assets in earlier years have been on the high side, indicating a need for closer attention to working capital management. JEA is now keeping the matter under close review. The situation is further expected to improve after recruitment of the additional qualified accounting staff agreed with the Bank during the appraisal of the fourth power project. Implementation of the training program for the existing staff agreed with the Bank under the fourth power project should also help. 5.2.5 The balance sheets indicate the major part played by Government during this period in meeting JEA's capital requirements. Government equity contribution as of 1980 was about six times what Government had been expected to contribute at the time of the second stage appraisal partly because of the larger construction requirements. The long term debt as of 1980 was 27% less than forecast in the appraisal report because loan withdrawals have been slower than expected. 5.3 Financial Covenants 5.3.1 Rate of Return. Because tariff increases have not generally kept pace with increased operating costs the rate of return (r.o.r.) had not reached the 9% required by the covenants through 1979; a very large tariff increase in February 1980 raised the r.o.r. to 9.7% in 1980. During 1977-79, it varied between 4.4% and 6.1% but since the net internal cash generation averaged about 25% of construction requirements over the three-year period excluding JEPCO/IDECO loan repayment surplus 1/, the real objective of the covenant, namely, internal generation of a reasonable proportion of JEA's expansion requirements was largely met. 5.3.2 Debt Service Coverage. Since full scale operations did not commence until 1978 debt service coverage did not reach 1.5 until 1979. In 1980 it has exceeded 1.5, the minimum required for incurring any additional debt without the prior approval of the Bank. Because of the large contributions made by Government towards JEA's capital development program, the Debt/Equity ratio has steadily improved from 72/28 in 1974 to 41/59 in 1980. 1/ Loans to JEPCO/IDECO through JEA were on-lent at shorter terms of repayment. - 13 - 5.4 Revaluation cf Assets 5.4.1 Although the definition of net fixed assets in Section 4.03(b)(ii) of the Project Agreement under Credit 386-JO provides that they should be determined in accordance with "sound valuation and depreciation methods" for the denominator of the rate of return calculation, there is no specific reference to revaluation as such. Also the balance sheet projections in the Stage I (Credit 386-JO) appraisal report do not include periodic revaluation of assets. 5.4.2 The appraisal report for Stage II assumed that JEA would carry out periodic revaluation of assets from 1975 onwards and Section 4.03(b)(ii) of the Project Agreement for Credit 570-JO required JEA to "value and revalue assets from time to time in accordance with sound and consistently main- tained methods acceptable to the Association." The Association left it to the discretion of JEA to select the methodology and timing for revaluation of assets but in fact JEA did not revalue its assets. During the Third Power Project (Loan 1688-JO) appraisal JEA argued that since most of its assets were newly installed as of 1978, their book value was not very different from their current value in 1979. Under the Fourth Power Project (Loan 1986-JO of June 1981), the requirement to revalue JEA's assets was dropped as the rate of return covenant was replaced by a cash generation covenant. 5.5 Tariffs 5.5.1 A tariff study as required by Section 2.03 of the Project Agree- ment under Credit 386-JO covering the main supply areas of Amman, Irbid and Karak, financed by the UK and prepared by consultants, under terms of reference acceptable to the Association, was completed in 1976. The study took into account marginal costs of generating, transmitting and distribu- ting electricity and recommended tariffs, including a fuel adjustment clause, to secure a 9% financial rate of return. The first tariff revision (required under Section 3.02 of the Project Agreement under Credit 570-JO) based on consultants' recommendations was approved by the Government after one year's delay in March 1977. This resulted in an average increase in JEA's bulk supply tariffs of about 66% from 7.4 fils per kWh to 12.3 fils per kWh. Retail electricity tariffs for different categories of customers in Amman, Irbid and the Jordan valley served by JEPCO, and IDECO were also raised with effect from. March 1, 1977, commensurate with the increases in the bulk supply tariffs of JEA. 5.5.2 Credit 570-JO (Section 3.02 of the Project Agreement) provided for a further review of electricity tariffs after the revised tariffs had been in effect for about one year to determine if any changes would be required to meet the financial requirements of JEA, JEPCO and IDECO. Government and JEA agreed with the Association that such a review would be completed by December 31, 1977, with any tariff changes to be implemented by March 31, 1979. Another group of consultants who conducted the review concluded that the electricity tariffs effective March 1, 1977 would meet the finan- cial requirements of JEA for 1978 and 1979, that JEPCO's electricity tariffs were adequate for 1978 and would require revision in 1979, and that - 14 - IDECO's electricity tariffs were adequate provided operating costs were carefully controlled. 5.5.3 In compliance with Section 2.04 of the Loan Agreement 1688-JO for the Third Power Project the tariffs were further revised in February 1980. The revised tariff structure is based on the consultant's studies under Credits 386-JO and 570-JO. In order to reduce subsidies and to reflect directly the costs to the economy of meeting electricity supply require- ments, the Government increased rates by about 70%. The new rates are among the highest in the region for some categories of electricity consump- tion; e.g., the commercial rate for daytime use is 45 fils/kWh (USto.15/ kWh), while comparable rates in Israel are 20 fils/kWh and Cyprus 27 fils/ kWh. A fuel adjustment clause is incorporated in the tariffs. Each 100 fils increase in the cost above JD 30/ton for fuel oil and JD 42/ton for diesel oil will result in an electricity rate increase of 0.041 fils/kWh. JEA's long run average incremental cost (LRAIC) for sales to JEPCO and IDECO is about 25.7 fils/kWh and for sale to the large industrial consumers is about 30.9 fils/kWh. Both rates are fairly close to JEA's average pre- vailing tariffs for sale to these consumers. JEA's tariff for sale to low voltage consumers is about 41 fils/kWh which is higher than the average LRAIC of supply of 33.7 fils/kWh. JEPCO's and IDECO's average tariffs for sale to their low voltage consumers are also higher than the LRAIC. From the resource allocation point of view, therefore, average electricity tariffs in Jordan seem to. be conveying to consumers the proper signals about the economic cost of the resources used in meeting their demand. 6. Management Performance 6.1 Management and Organizational Effectiveness 6.1.1 At the time of the first and second stage appraisals JEA was still in its formative stage with a small staff--60 in December 1972 and 135 in December 1974. With the technical assistance provided through the Bank Group's participation in four power generation, transmission, distribution and rural electrification projects it has grown into a semi-autonomous public utility with a total staff of 1,375 (1980). 6.1.2 According to the General Electricity Law passed in 1976, the main responsibilities of JEA are: to prepare plans and programs for the elec- trification of Jordan; to construct power facilities; to carry out rural electrification; to manage the Rural Electrification Fund; to generate, transport and distribute electricity directly or through independent distribution companies (JEPCO and IDECO); and to regulate power consumption in the country. JEA is also authorized to manufacture electrical and other equipment needed for the power system. JEA has a board of eight directors appointed by the Government and the Director General of JEA is an ex-officio member of the Board. 6.1.3 While JEA is responsible for electricity generation, transmission and distribution throughout Jordan, power distribution in the cities of Amman and Irbid is still in the hands of the concessionaire companies, JEPCO and IDECO. JEA has taken over several small organizations, which had been supplying power to remote towns. The present set-up of JEPCO and - 15 - IDECO complementing the activities of JEA in the power subsector appears to be working satisfactorily. 6.1.4 JEA is well organized and properly managed. Its present organiza- tional structure is based on the recommendations of the management consul- tants appointed under Credit 386-JO. Details of the organization are shown in Annex 15 (Chart WB 22339). JEA's Director General, a capable and experienced engineer, is supported by a Chief Engineer and departmental managers. All managerial staff have a university education and several years' experience in power operations in Jordan and abroad. 6.2 Growth 6.2.1 JEA now has a total staff of 1,375 with 681 technical staff, including 114 graduate engineers, and 101 accounting staff including 38 university graduates. At the end of 1980, about 180 positions were vacant. These vacancies are mostly related to new projects to be started in 1981 and reflect rapidly increasing staffing requirements needed to meet JEA's expanding system. 6.2.2 JEA's technical staff salaries are appropriate for Jordanian cir- cumstances. Although there is a continuous movement of qualified technical staff to the Gulf-countries, where salaries are much higher, the majority of the staff does not stay abroad for more than two to three years before they return to Jordan to rejoin JEA or JEPCO, the major employers of technical staff experienced in power supply operations. In some respects this movement of technical staff is beneficial to JEA since it broadens the experience of the staff concerned. However, the salaries of the financial staff are not competitive and need revision to a level sufficiently competitive to attract and retain better qualified and competent staff with public utility experience. For purposes of comparison, the growth during 1975 through 1980 in the basic salaries of technical, financial and admin- istrative staff are indicated in Annex 16. Annex 17 to this report includes a breakdown of employee turnover during 1978-80 in each category. As might be expected with their lower salaries, the highest average annual turnover was among accountants and administrative staff at 21.8% and 25.1% respectively, and the lowest was among the engineers at 11.7%. For JEA, the overall turnover ratio during the same period was 18.3%. 6.3 Staff Recruitment, Training and Development 6.3.1 Although there are vacancies for engineers and technicians on JEA's staff because it is expanding its operations continuously, it has never had any serious problems in finding and retaining suitable Jordanians to fill the posts. Most of the present professional and technician grade staff returned to Jordan to join JEA from similar positions in the Gulf and other Arab states in the years between 1974 and 1977. JEA is having difficulty in recruiting and retaining high grade accountants and seems to underrate the contribution which financial staff should make towards the efficient management of the organization. At the start of operations - 16 - engineering staff were divided into Operating Staff and Projects Staff. The intention is that the Projects staff will be built up to lessen JEA's dependence on external consultants for feasibility studies, design and supervision of new projects. 6.3.2 In the period 1974 through 1980 JEA sent more than 60 engineers and technicians on overseas training courses ranging from 1 month to 9 months' duration. Courses were mainly in operation and maintenance of steam power stations and gas turbines. In addition JEA engineers partici- pated in many inspections and tests at suppliers' works during manufacture of equipment. Since operations began, a continuous program of on-the-job training has been in operation. A more ambitious and sound training pro- gram was prepared in 1979 which is now being updated with assistance from Bank staff. This program provides for the building of a Technical Training Center, probably situated adjacent to the Hussein Thermal Station at Zarqa. For this project, JEA is seeking technical assistance from overseas organizations with proven experience in this field. The program also pro- vides for the upgrading of engineers abroad, as well as the upgrading of administrative and accounting staff at all levels in cooperation with the University of Jordan, the Institute of Public Administration and overseas training. Until such time as the Training Center is in operation, interim arrangements have been made for apprenticeship training of skilled technicians at Hussein power station and at Amman South substation with the cooperation of the Government Vocational Training Corporation, which pro- vides technical assistance at all levels. 6.4 Management Consultants 6.4.1 A well known firm of Management Consultants was appointed in September 1974 to review JEA's organizational structure and procedures and to make recommendations for JEA's reorganization as required by Section 2.04 of the Project Agreement under Credit 386-JO. The study covered all aspects of the reorganization of JEA required to make it an efficient and modern utility. It was completed on time and most of the recommendations were implemented. In this context, it must be mentioned that one of the important recommendations of the first supervision mission for Credit 570-JO in November 1975 was the urgent need to review and set the status of the head of the financial section and the salaries of the financial and accounting managers and staff at a level sufficiently high to attract and retain competent people. This has been repeatedly emphasized by subsequent supervision and appraisal missions but no action has been taken to date. 6.5 Covenants Relating to Sectoral Developments 6.5.1 In 1967 when the Government was in process of creating JEA, two laws were drafted. The first was the "Jordan Electricity Authority Law, 1967." This law (the JEA law) was concerned only with creation of JEA, its duties and powers. The second law was "The Electricity Law, 1967" and was a typical general law governing operations in the sector which would apply to all utilities including JEA. A draft of the Electricity Law was agreed - 17 - with the Ministry of National Economy in March 1967 and was to have been enacted after the enactment of the Jordan Electricity Authority Law, 1967. 6.5.2 The JEA law was passed in 1967 and amended in 1976 as required by covenant 3.02 of Credit 386-JO, to give JEA a greater degree of autonomy. This amended law's title is "Temporary Law No. (8) of 1976 - The General Electricity Law." A footnote adds that, quote: ''a temporary law has the force of Law by virtue of the provisions of the Constitution until amended or repealed by Parliament, which at present is dissolved. Any eventual repeal is not very probable and in any case will be with no retrospective effect." The amended JEA law not only gives JEA the autonomy recommended by IDA but also gives it powers which are usually retained by the Government, such as the issuance and revocation of licenses to other undertakings and the func- tion of an electrical inspectorate. In effect the Government appears to have delegated to JEA the power to regulate the sector and presumably con- siders that by such delegation it has met the requirements of Sections 3.04 of Credit 386-JO and 3.06 of Credit 570-JO for a general law regulating operations in the sector. However, the Government, which still retains the power to review and approve the issue of specific regulations has1got yet permitted JEA to issue appropriate regulations (see para. 6.5.3).- 6.,.3 As it now stands the position is unsatisfactory in two main respects. First, apparently it gives too much authority to JEA. On the one hand it gives the Authority the functions of a government department, and on the other gives it a degree of autonomy which raises questions as to its accountability. Secondly, although on paper JEA seems autonomous, it has not been so in practice. The Chairman of the Board is the Minister of Commerce and Industry and four of the other seven members are government officials and one the Director of the Industrial Development Bank. The remaining two members are the Director General of JEA and the Chairman and General Manager of JEPCO. Whilst in theory the Board could act indepen- dently of government, past events show that it has not. For example, the JEA law requires that the authority should have its own conditions of service but attempts to introduce them have not succeeded and employees' terms of service are the same as those of government employees. Although a fuel price surcharge was introduced into tariffs as a special condition of effectiveness in Credit 570-JO, the Government would not allow JEA to apply it when fuel prices were recently increased. The law requires JEA to make regulations relating to the "generation, transmission, transformation, distribution, consumption and sale of energy in all areas of the Kingdom". So far, however, the Government has not taken any action to make wiring regula- tions for consumers premises drawn up by JEA, applicable to other under- takings. 1/ These are the only regulations so far drafted by JEA. 1/ OED Note: The Government has pointed out that its decisions and actions towards meeting some of the objectives of the covenant have been constrain- ed by the likely effect of these decisions and actions on the majority of its citizens (Appendix 1). - 18 - As things now stand JEA is free to make its own regulations governing its operations and so far its standards appear to be high, but JEPCO and IDECO are bound only by the general provisions of their licenses. 6.5.4 The March 1967 draft General Utility Law appears to be an excel- lent general law for regulation of the Jordan electricity sector and would meet the spirit of the requirements of the covenants in Sections 3.04 of Credit 386-JO and 3.06 of Credit 570-JO. 7. Project Justification 7.1 Project Achievement 7.1.1 Project achievements have been referred to in detail in previous sections of this report and despite the 22-month delay in completing stage I of the project, generally exceed the overall expectations of the appraisal reports. They may be summarized as follows: (a) Shortages of power and suppressed demand have been eliminated in all areas of the country supplied with electricity whilst main- taining an average growth in sales of about 26% per annum over the last five years; (b) A reliable supply of electricity has been maintained for the past three and a half years since commissioning of the first two steam sets; (c) Adequate reserves of plant are available to meet emergencies and to cope with future demand; (d) All the principal centers of population except Aqaba have been linked to a national grid providing increased security and reserves of power to all areas; (e) Tariffs have been increased to a level which is enabling JEA to finance more than 30% of its current development program from revenue; and (f) A large number of staff at all levels have received overseas (UK and Cyprus) and/or on-the-job training and plans are in hand to develop a training center for in-house training of technicians. 7.2 Least Cost Solution 7.2.1 The decision by IDA to finance the first stage of the Hussein Thermal Power Project depended on the justification for a changeover from past diesel generation to steam generation in the future. Hydro resources in Jordan are negligible and the use of gas turbines was ruled out because of their much higher costs of generation, and sensitivity to derating for altitude. Because both capital costs and operating costs of diesel engines - 19 - using the same fuel are lower than those of steam plants the discounting of alternative cost streams reduced to present values will always come out in favor of continued diesel generation as long as these can be kept in reliable operating condition. There are, however, practical limits to the number of diesel engines which can be kept in reliable operating condition in a developing country like Jordan with its limited technical manpower and engineering resources. This view was accepted, though belatedly, by IDA. 7.2.2 Two alternatives were considered. The first was for an immediate changeover and the second deferred the changeover until after the addition of another 98 MW of diesel plant. The comparison was made with three different rates of growth of demand. The rate of growth was considered important in this context because at the time of the changeover about 50% of the existing diesel plant would become surplus to requirements, since steam plant to obtain maximum benefits should operate at the highest possible load factor. The higher the rate of growth, the less impact this obsolete plant would have on the discounted cost streams. 7.2.3 The rates of growth in demand considered were: (i) a low growth rate, i.e., 14.5% up to 1976 followed by about 12% for 1976,to 1980 after which it would continue at 11%.. This represents ar average rate of about 13% per annum; (ii) a high growth rate based on JEA's consultants market survey which forecast about 20% per annum through 1977 and 15% thereafter to 1990; and (iii) an intermediate growth rate averaging about 14% per annum. Discounting the present value of the alternative cost streams showed the equalizing discount rates were as follows: (i) for low growth rate 9.1%; (ii) for intermediate growth rate 13.6%; and (iii) for high growth rate 15.3%. 7.2.4 It is impossible to repeat the above calculations using the actual and current forecast rates of growth in sales because no details are avail- able of the attribution of GWh generated by the various units of plant. However, this is not necessary to confirm the conclusion reached in the appraisal report. The higher rate of growth so far achieved (26% per annum through 1980) and predicted for the future will obviously produce an even higher equalizing discount rate than the 15.3% calculated for the most optimistic assumptions of the appraisal report, the more so as the equaliz- ing discount rate increases more than linearly with increase in growth rate. The decision to change from diesel generation to steam generation at that time was therefore fully justified. - 20 - 7.3 Rate of Return 7.3.1 The appraisal report for Cr. 386-Jo did not give an internal financial rate (IFR) of return for the project but on the basis of the assumptions given in Annex 20 the actual rate of return is 14.6%. Details of the cost streams are given in Annex 18. This is a fair assessment of the minimum IFR since the JEA had no electricity revenue producing assets at the start of the project and all except about 7% of its 1980 sales were in bulk to two distributing companies (one of which purchased about 74% of JEA's total output) and two large industrial consumers. It is assumed that since the two distributing companies were privately owned and operating at a profit, their net income from retail sales would show a satisfactory return on their investment in distribution mains. 7.3.2 The appraisal report for Cr. 570-JO calculated the IFR for Stage II at 15%, but this did not include the purchase price of the Marqa diesel station, nor did it include a major extension of the 132 kV trans- mission to Ghor Safi at the southern end of the Dead Sea. On the basis of the appraisal report the actual rate of return is about 22.6%, but if Marqa purchase price of JD's 5.329 million is included the IFR is 12.0% (Annex 19). This is a very conservative estimate because it attributes the whole of the 1978-1980 transmission and distribution costs to the project whereas in fact JEA installed 72 MW of gas turbine generating plant in this period in addition to the 78 MW of generating plant included in the Stage II IDA project. If the proportion of transmission and distribution expenditure attributable to Stage II were reduced on this account the IFR on Stage II would be about 13.5%. 7.3.3 Combining the cash benefit streams for the two projects gives the following IFR's. Excluding Marqa Purchase Price & Stage II Transmission 18.2% Excluding Marqa Purchase Price but including Stage II Transmission 16.1% Including Marqa Purchase Price but excluding Stage II Transmission 14.4% Including Marqa Purchase Price and Stage II Transmission 12.9% 8. Bank Performance 8.1.1 In 1972/73 when the Stage I project (Cr. 386-JO) was being appraised the method employed for finding the least cost alternative was to compare the equalizing discount rate of two cost streams made up from capital and operating costs of the alternatives, over the life of the proj- ects. This relatively crude yardstick, unless supplemented by subjective judgments or further refinement, can lead to wrong conclusions since it ignores external costs--for example the cost of stoppages to industry or the cost of installing standby plant if one of the alternatives (diesel) is less reliable than the other (steam); or arbitrary increases in the cost of fuel in the comparison between hydro and thermal. This defect was acknow- ledged in the case of Credit 386-JO. In spite of the fact that the method employed showed the diesel alternative to be the least cost alternative, - 21 - the steam alternative was accepted as justified on the grounds that the external costs of diesel supply more than outweighed the apparent benefits of lower capital and operating costs for the power station--the unreliabil- ity of diesel plant in this case being enhanced by the lack of technical expertise and engineering facilities in Jordan. The justification for changing to steam in the appraisal report therefore rested entirely on the timing. The report points out however (para. 5.07) that the result hardly varied whether the changeover was made immediately or after an additional 20 MW or 50 MW or 100 MW of diesel plant was added. The same conclusion would have been reached if the same calculation had been made at the time of the earlier appraisal in 1970. It was not made at that time because the subjective judgment that a changeover at some time was inevitable, was not accepted. The conclusion must be drawn therefore that IDA was not justified in rejecting the proposal in 1970 and the 27 MW of diesel engines installed by the power companies in Jordan in the interval between appraisals could have been avoided. / 1/ OED Note: In late 1970, when an IDA mission visited Jordan to review the proposed project (two 33 MW steam units), the system load growth for the im- mediate future was uncertain and could have been met by the addition of one or two diesel units. The energy demand was difficult to estimate because the economy had been disrupted by the recent civil war and the political situation was still unstable. (Energy sales in 1970 were 2% lower than in 1969.) Furthermore, a 33 MW unit would have imposed a very high risk on the stability of the small power system; in 1969, the maximum system demand was only 37 MW and, even after having assumed a reasonable growth of demand for the next three to four years, the steam unit would have still constituted over 50% of the maximum system demand. Jordan was also uncertain about its sources for ob- taining financing Eor the project at the time. IDA had already in- formed Jordan that it could not make any credit through FY1972; and of the two countries which had been providing financial assistance to Jordan until early 1970, one had withdrawn its assistance and the other had suspended it soon after the civil war. Subsequently, however, the political situation stabilized; the economy achieved a high growth rate and the actual energy growth rate between 1974-1980 was about 26% p.a., which is higher than the 18% p.a. es- timated at the time of appraisal in 1972. Furthermore, the two steam units have given reliable service since their commissioning and thereby have contributed to increased reliability and availability of power supply in the country. While, therefore, the audit agrees with the PCR that, in retrospect, IDA would have been justified in supporting Jordan's proposal to install the steam power station in 1970, IDA's suggestion to defer construction of the steam station was appropriate under the prevailing conditions. - 22 - 8.1.2 Considering that the institution for which IDA made the first credit was newly created and had virtually no implementation capacity at the time of appraisal, the results have been impressive. JEA staff now play a major part in planning, preparation, procurement, and supervision of new projects and operate an efficient countrywide national grid system. 8.1.3 The covenants in the credit agreements were primarily designed to ensure that JEA was started off with sufficient autonomy and financial viability to enable it to operate as an efficient public utility. In the event, JEA has developed into an efficient public utility giving good service to consumers. However, JEA is not fully autonomous and its finan- cial viability is now adversely affected by the Government's refusal to allow fuel price clauses in the tariffs to be automatically implemented. The Government's intention is to increase electricity rates gradually.and thus restrain inflationary pressures, but Government subsidies increase JEA's dependence on the Government and, therefore, are not an acceptable substitute for revenue from consumers. 8.1.4 Engineering supervision of the two projects was of necessity oriented towards helping JEA resolve difficulties with contractors and consultants in the earlier stages and later combined with preparation of the succeeding Bank lending operations. In these circumstances and because JEA was functioning very well, less attention was devoted to pressing the need for strict observance of the covenant relating to the enactment of a General Electricity Law than might have been desirable. The current pro- cedure in supervision reports of listing all covenants and reporting against each what action has been taken to meet them might have initiated more mean- ingful discussions with the Government on the objectives of the covenants. 8.1.5 Relations between IDA staff and the beneficiary were at all times excellent. - 23 - 9. Conclusions 9.1.1 The project's role was to assist the Government in creating an autonomous national electricity authority, to coordinate the development of the sector and to extend reliable electricity supplies to all areas of the Kingdom. In fulfilling this role JEA has exceeded the expectations of the appraisal reports despite the delays in project completion and the obvious limitations on autonomy. It now generates almost all the electrical power sold to the public in Jordan and about 90% of all the electrical power con- sumed in the country, and is well equipped to deal with any foreseeable demands. More specif:ically, the tariff studies carried out under the proj- ect have led to the application of a unified tariff structure throughout the country at levels which provide an adequate financial return on capital investment. Management studies have provided JEA with a modern system of utility accounting and a basis for job evaluation, training and personnel management, as well as creating a management structure suited to JEA's requirements. Only in the field of legislation has the project yet to fully achieve its objectives (paras. 6.6.1 through 6.6.3). 9.1.2 The question arises as to whether the covenants in IDA legal docu- ments adequately meet the Bank's objectives. In this case, the covenants have been met, but entering into agreements, passing laws and approving tariff amendments are of no avail if the Government does not allow the bene- ficiary to implement the laws, the agreements or the tariff increases, as has happened in this case. The Government's actions have not helped JEA to achieve full autonomy and already JEA's financial success is becoming depen- dent on Government subsidies instead of on revenues from approved tariffs. 9.1.3 The question also arises as to whether in a Kingdom the size of Jordan it is appropriate to apply methods (such as autonomy) as a means of ensuring efficiency in parastatal institutions. The Bank might find it worthwhile to take a more pragmatic view and explore other avenues for achieving its objectives in such cases. 9.1.4 With hindsight, the original application for financial assistance in 1969 should not have been rejected. The deferment cost Jordan a con- siderable amount of unnecessary expense in purchase of diesel engines and gas turbines, which could have been avoided if the first application for a credit had not been rejected. 9.1.5 Future lending operations in the Jordan power sector should pay more attention to resolving the legislative requirements. Even if alter- native types of covenants are devised for small countries such as Jordan it would still be desirable to have a general law governing operations in the sector. Europe, Middle East and North Africa Region June 29, 1981 - 24 - ANNEX I Page 1 JORDAN ELECTRICITY AUTHORITY HUSSEIN THERMAL POWER PROJECT - STAGES I & II CREDITS 386-JO AND 570-JO COMPLETION REPORT Principal Covenants Credit 386-JO, Credit Agreement Action Taken 3.01(b) The Borrower shall relend the proceeds of the Credit under a subsidiary loan agreement to be entered into between the Borrower and JEA under terms and conditions which shall have been approved by the Association and which shall, unless the Association shall otherwise agree, provide for JEA (i) to pay to the Borrower a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount so relent and not withdrawn by JEA from time to time, (ii) to pay to the Borrower interest at a rate of 7 1/4% per annum on the principal amount so relent and withdrawn by JEA and outstanding from time to time, and (iii) to repay to the Borrower the principal amount so relent over a period of 25 years from the date of this agreement, including therein a period of grace of three and one-half years. Signed 7/19/73 3.01(c) The Borrower shall relend the proceeds of the Kuwait Fund Loan to JEA. Signed 7/25/73 3.02 The Borrower shall review the JEA Law and propose appropriate legislative action for amending such law so as to allow JEA to develop into an autonomous agency subject only to the direction of the Minister of National Economy of the Borrower in respect of specific matters of national importance. Law No. 8 of 1976 3.03(a) The Borrower shall: initiate appropriate legislative action and shall by September 30, 1974 present its proposal to the Legislature for enactment of a General Elec- tricity Law to regulate the power sector: such law to set out the principles and basic require- Implemented by dele- ments for inter alia generation, transmission gating this authority and distribution of power (including concessions -to JEA. However, and licenses), tariffs, easements, inspection JVA has not yet been - 25 - ANNEX 1 Page 2 Credit 386-JO, Credit Agreement Action Taken and testing, a unified accounting system the given a free hand collection of statistics and the preparation of in issuing appropriate technical information. regulations. 3.03(c) The Borrower shall: formulate such regulations or bylaws as may be necessary to achieve the objectives of said Law including the delegation to JEA of regulatory functions of a Partly in Law No. 8 of technical nature. 1976. 3.04 The Borrower undertakes that it will, not later than June 30, 1975, introduce adequate provisions, satisfacto-ry to the Association, empowering JEA to adjust its charges for the sale of electricity to cover additional operat- ing expenses resulting from variations in the price paid by JEA for residual fuel oil above an average price of JD 7.5 per ton; and, if con- sidered appropriate, will allow the retail Made a condition of charges for the sale of: electricity to be effectiveness in adjusted accordingly. Credit 570-JO. 3.06 Unless the Association shall otherwise agree, the Borrower shall prohibit the declara- tion of payment of dividends by JEA prior to January 1, 1979, unless in the opinion of the Association such a distribution would not be prejudicial to JEA's requirements for financing its expansion program. Observed. 3.07 The Borrower shall take all necessary action to convert all JEA's preliminary expendi- ture financed by the Borrower prior to JEA commencing generation from Zarqa steam turbine units into Government owned equity capital. Said preliminary expenditure shall include the initial financing of wcrking capital provided to JEA by the Borrower, the local expenditure on the Project and on the associated Zarqa Amman Transmission System and any amounts lent by JEA to the Jordanian Electricity Power Company (JEPCO) or Irbid District Electricity (IDECO) with the Borrower's permission, but shall not include loans made to JEA by the Borrower for on-lending. Observed. 3.08 The Borrower shall ensure that the Marqa Power Station or any other appropriate power station, shall be declared a "selected - 26 - ANNEX I Page 3 Credit 386-JO, Project Agreement Action Taken power station" in accordance with the JEA Law See Section 3.03(d) of when the first Zarqa steam-electric unit becomes Credit Agreement for operational. Credit 570-JO. 2.03 JEA shall employ tariff specialists acceptable to the Association under terms of reference and on conditions satisfactory to the Association to study and make recommendations to JEA not later than December 31, 1974, for its wholesale tariff structure, and to the Govern- ment for a retail tariff structure to be imple- Actual Date November mented throughout Jordan. 1975. 2.04 JEA shall employ, not later than April 30, 1974, management consultants acceptable to the Association under terms of reference and on conditions satisfactory to the Association to advice JEA on its organization changes resulting from the project and to make recommendations covering inter alia JEA's financial control, accounting, budgeting and management structure Actual Date September and procedures. 1974. 3.04 JEA shall ensure that the position of its General Manager, Chief Engineer, Chief Accountant and Superintendent in charge of Hussein Power Station shall at all times be filled by qualified and experienced persons and shall consult with the Association regarding appointments to the post of General Manager, and shall inform the Association of the names and qualifications of -individuals filling the remaining posts and prospective appointments Actual Date October thereto. 1975. 3.06 JEA shall submit to the Association for its review the detailed proposals for its pre- liminary reorganization, remuneration schedules and the proposed program for recruitment and training of its staff, including the relevant cost estimates in local and foreign currencies Actual Date October not later than September 30, 1973. 1974. 4.03(a) Except as the Association shall other- wise agree, JEA shall take all necessary steps to establish and maintain tariffs at a level sufficient to yield an annual rate of return of With 1980 tariff revi- not less than 9% on the value of net fixed sion JEA achieved 9.1% assets. rate of return. - 27 - ANNEX 1 Page 4 Credit 570-JO, Credit Agreement Action Taken 3.01(b) The Borrower shall relend the proceeds of the Credit under a subsidiary loan agreement to be entered into between the Borrower and JEA under terms and conditions which shall have been approved by the Association and which shall, unless the Association shall otherwise agree, provide for JEA (i) to pay to the Borrower a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount to relent and not withdrawn by JEA from time to time, (ii) to pay to the Borrower interest at a rate of eight and one- half percent (8-1/2%) per annum on the principal amount so relent and withdrawn by JEA and out- standing from time to time, and (iii) to repay to the Borrower the principal amount so relent over a period of 25 years from the date of this Agreement, including therein a period of grace of three and one-half years. Signed 7/7/75. 3.02(a) Parties to this Agreement have agreed in Section 2.03 of the First Power Project that JEA shall employ tariff specialists acceptable to the Association under terms of reference and on conditions satisfactory to the Association to study and make recommendations to JEA not later than December 31, 1974, for its wholesale tariff structure, and to the Government for a retail tariff structure to be implemented throughout Jordan. The Borrower shall promptly discuss and cause JEA to discuss with the Association the final recommendations of the tariff studies referred to in Section 2.03 of the First Power Actual Date March Project Agreement. 1976. 3.02(b) The Borrower shall cause all necessary actions to be taken to implement the new tariff structure agreed to between the Borrower and the Association following the discussions referred to in paragraph (a) of this Section not later than March 31, 1976. The tariffs shall be f further reviewed and discussed with the Associa- Amended to March 1977, tion not later than June 30, 1977, for imple- December 1977 and mentation of the necessary changes, if any, by March 1978 and finally September 30, 1977. agreed. - 28 - ANNEX 1 Page 5 Credit 570-JO, Credit Agreement Action Taken 3.03(a) The Borrower shall promptly take and cause JEA to take a final decision not later than March 31, 1976, whether the power station at Marqa shall be operated as a "selected station" in accordance with the JEA Law, or whether said power station shall be acquired by Actual Date March JEA. 1976. 3.03(c) If it is decided that the power station at Marqa is to be acquired by JEA, all necessary legal action shall be completed by June 30, 1976, or such other date as the Borrower and the Association shall agree, and the actual transfer of all assets to JEA shall be accomplished by December 31, 1976 or such other date as the Transferred October Borrower and the Association shall agree. 1976. 3.04 The Borrower shall ensure that recondi- tioning of the diesel generating units installed on or before 1970 at the power station at Marqa, shall be accomplished by, or under guidance and Done during 1978 and supervision of JEA. 1979. 3.05 Unless the Association shall otherwise agree, the Borrower shall prohibit the declara- tion or payment of dividends by JEA prior to January 1, 1979, unless in the opinion of the Association such a distribution would not be prejudicial to JEA's requirements for financing its expansion program. Observed. 3.06(a) The Borrower shall: present its pro- posals to the Legislature for enactment of a General Electricity Law to regulate the power sector on or before December 31, 1975 such law to set out the principles and basic requirements for inter alia generation, transmission and dis- tribution of power (including concessions and licenses), tariffs, easements, inspection and testing, a unified accounting system, the col- lection of statistics and the preparation of technical information. 3.06(b) Make available to the Association its See comments under proposals for the said Law sufficiently in Section 3.03(a) of advance for the Association's comments. DCA 386-JO on page 23. - 29 - ANNEX I Page 6 Credit 570-JO, Project Agreement Action Taken 2.02(a) In order to assist JEA in carrying out the Project, JEA shall appoint on or before July 31, 1975, consultants acceptable to the Associa- tion, upon terms and conditions satisfactory to the Association which shall include the require- ment that the study described in Part B of the Project shall be completed within 12 months of Actual Date March the appointment of tte aforesaid consultants. 1976. 4.03(a) Except as the Association shall otherwise agree, JEA shall take all necessary steps to establish arid maintain tariffs at a level sufficient to yield an annual rate of With the 1980 tariff return of not less than 9% on the value of net revision JEA achieved fixed assets. a 9.1% rate of return - 30 - ANNEX 2 JORDAN ELECTRICITY AUTHORITY HUSSEIN THERMAL POWER PROJECT - STAGE I 'CREDIT'386,JO COMIPLETION REPORT Comparison of Estimated and Actual Cost of Project (JD 1,000) Estimate Actual Local Foreign Total Local Foreign Total Steam Electric Plant Civil Works 520 450 970 1,318 552 1,870 Electromechanical Works 420 4,350 4,770 501 3,889 4,390 Spare Parts - - - - 425 425 Gas Turbine Plant 100 680 780 8 709 717 Engineering & Administration 60 350 410 337 370 707 Training - 40 40 - - - Studies 20 50 70 9 42 51 Contingencies Physical 150 350 500 - - - Price 110 310 420 - - - Total Project Cost 1,380 6,580 7,960 2,173 5,987 8,160 May 1981 - 31 - ANNEX 3 JORDAN ELECTRICITY AUTRORITY HUSSEIN THERMAL POWER PROJECT - STAGE II CREDIT 570-JO COMPLETION REPORT Comparison of Estimated and Actual Cost of Project (JD 1,000) Estimate Actual Local Foreign Total Local Foreign Total Steam Electric Plant Civil Works 439 229 668 592 150 742 Electromechanical Works 335 3,481 3,816 558 4,479 5,037 Engineering and Administration 81 322 403 225 230 455 Reconditioning Marga P.S. 97 322 419 1,150 - 1,150 S.Jordan Power Development Study 16 65 81 17 100 117 Contingencies Physical 155 258 413 - - - Price 406 900 1,306 Total Project Cost 1,529 5,577 7,106 2,542 4,959 7,501 May 1981 - 32 - JORDAN AFNEX 4 JORDAN ELECTRICITY AUTHORITY CREDIT 386-JO COMPLETION REPORT SCHEDULE OF DISBURSEMENTS (US$ THOUSANDS) Actual as % IDA Fiscal Appraisal Actual of Appraisal Year and Quarter Estimate Disbursements Estimate 1974 September 30, 1973 1,100 200 18 December 31, 1973 1,250 800 64 March 31, 1974 1,550 1,100 71 June 30, 1974 4,100 1,200 29 1975 September 30, 1974 4,250 1,600 38 December 31, 1974 5,500 1,700 31 March 31, 1975 6,650 1,800 27 June 30, 1975 7,600 2,500 33 1976 September 30, 1975 7,700 4,200 55 December 31, 1975 8,300 5,400 65 March 31, 1976 9,250 5,900 64 June 30, 1976 9,300 6,800 73 1977 September 30, 1976 9,350 7,100 76 December 31, 1976 9,400 7,600 81 March 31, 1977 10,200 7,800 76 June 30, 1977 - 8,200 1978 September 30, 1977 - 8,000 December 31, 1977 - 8,600 March 31, 1978 - 8,700 June 30, 1978 - 8,800 1979 September 30, 1978 - 8,900 December 31, 1978 - 8,900 March 31, 1979 - 9,000 June 30, 1979 - 9,000 1980 September 30, 1979 - 9,000 December 31, 1979 - 9,600 March 31, 1980 - 9,800 June 30, 1980 - 9,800 1981 September 30, 1980 - 9,900 December 31, 1980 - 10,200 May 1981 -33 - ANNEX 5 JORDAN JORDAN ELECTRICITY AUTHORITY CREDIT 570-JO COMPLETION REPORT SCHEDULE OF DISBURSEMENTS (US$ THOUSANDS) Actual as % IDA Fiscal Appraisal Actual of Appraisal Year and Quarter Estimate Disbursements Estimate 1976 December 31, 1975 390 0 0 March 31, 1976 620 0 0 June 30, 1976 850 0 0 1977 September 30, 1976 1,100 500 45 December 31, 1976 1,340 500 37 March 31, 1977 1,780 500 28 June 30, 1977 2,220 600 27 1978 September 30, 1977 2,660 1,000 38 December 31, 1977 3,100 1,900 61 March 31, 1978 3,480 3,200 92 June 30, 1978 3,860 3,400 88 1979 September 30, 1978 4,240 4,000 94 December 31, 1978 4,620 4,000 87 March 31, 1979 4,810 4,100 85 June 30, 1979 5,000 4,100 82 1980 September 30, 1979 - 4,100 - December 31, 1979 - 4,100 - March 31, 1980 - 4,100 - June 30, 1980 - 4,300 - 1981 September 30, 1980 - 4,700 - December 31, 1980 - 5,000 - May 1981 J9PDA JIPDA.N ELECTRICITY AL'MnRIT CREDITS 36-JO ARP 570-JO CtPlETION REPORT Gee-ration, Sales., Etc., EstIats Vs. Actunls - Stag~ I Grid System JEE0 IDO JEA Total JEA JEPC0 IDEO Total System System System JEA Sale to JEA Sales.to sytm Capnolty ye- Rtail Sales Retail Osles Rtafl Sales Retall Sales Generation Generation Gen_entjon _ ratis G>id M . D-d L~ Factor JECO DEO CO ost.ed *C c Reserve 1. . Est. A. Est. Act. ä. Act. Est. Act. E-t. Act. O Act s Act. -t. Ac t. Est. Act. s. Act. Fzst. Act. 1975 201 214 - 22 - 2 2031 238 12 45 227 212 - 30 239 251 54 57 50.0 51.1 12 43 - - 65 65 11 8 1976 224 269 - 33 - 17 224 336 175 178 90 16 - 44 274 324 63 71 49.5 52.1 2t5 155 - 123 77 60 6 1977 231 330 - 45 - 19 251 380 245 427 61 1 - 34 306 453 70 89 51.0 53.7 294 368 - 24 118 14o 48 51 1978 232 399 - 54 - 25 232 460 325 530 21 5 - 26 346 534 77 107 51.0 54.2 327 436 - 42 118 180 1 73 1979 317 478 - 67 - 59 317 566 345 704 42 1 - 33 339 613 91 153 48.5 48.5 3b8 535 - 46 151 189 60 36 1980 356 558 - 74 - 127 356 704 40> 870 34 - - 35 436 F49 103 i14 48.5 56 5 412 b10 - 56 148 257 45 93 * Includes JE0 as Annex 7 of 306-JO appraial report, and 9 M at Irbid fra 1979. Does not include imports avatlable fra Syrim. / Sales to ID0 in 1977 and 1978 include itports fra Syria of 13 GW's respectively. Does not include Imports fra Syria to of 8 GWh In 1979. Includes Irbid by 33 kV line via JE0 System in 1977, 1978 and by 132 kV JEA line 1979-1930. w Includes generation at statIons not connected to Grid Sucn am Aqaba, Ka-ak, Maan. c System axiu= Deands do not in-cude concident-IDEO Generation PMs. Therefore IDD.O GWh generated Save been deducted fr=: total system geeration en calcUating lad tractor. NOTE: 1. Hign lad factor in 1980 believed to be doc to Cement Factory taking supply in Off reak period fra 11:03 p.m. to 7:03 a.c. 2. Estimates taes fras Or. 386-JO Appraisal Report No. 95a-JO, Annex 12. 3. JEA Retail Sale. 1976 tnrogs 1980 include sales in areas not connected to tne Grid. May 19ö1 JORDAN JORDAN ELECTRICITY AUTHORIY CREDIT 386-JO AND 570-JO CMPLETON REPORT Generation, Sales, Etc., Edtimates Vs. Actaals - Stage I # Grid System Grid System .ERO (Wh TDECO Wh JTWA rwh Thtal rwh .T5rpn TTn wh m-+.1 Year Generated Generated Generated Generated * Retail Sales Retail Sales Retail Sales Retail Sales Demand load Factor Est. Act. Est. Act. Est. Act. Est. Act. Est. Act. Est. Act. Est. Act. Est. Act. Est. Act. Est. Act. 1975 235 212 37 3D 40 45 275 257 220 214 29 22 10 2 259 238 62 57 51 47.7 1976 160 161 43 44 197 178 357 324 282 269 37 33 12 17 331 306 82 71 50 49.2 1977 - 12 48 34 457 427 457 453 332 330 41 45 24 19 397 380 104 89 50 48.7 l9t8 - 5 54 2o 5b4 530 584 534 383 399 4b 54 84 25 513 460 131 10f 51 49.1 1979 - 1 8 33 707 704 715 683 432 478 46 67 84 59 562 56b 158 153 51 42. ' 1980 - - 8 33 786 870 794 849 485 558 52 74 84 127 621 704 173 1b4 52 49.0 Average % Annual Increase 23.5% 26.8% 17.0% 21.0% 12.8% 27.5% 52% 130% 19% 24.2% 22.9 23.5 * Estimates total GWh generated includes IDE)CO in 19(9 and 1980 only. # Includes generation at Aqaba, Karak and Maan. Note: 1. Estimates taken from Cr. 570-JO Appraisal Report No. 733a-JO Annexes 3, 5, 14 & 15. 2. JEA Retail Sales 1976 througl950 include sales in areas not connected to the Grid. May 1981 JORDAN ChEDITS 386-JO AND 570-Jo COMPLETION REPORT Forecast and Actual Sales (GWh) Per Consumer Category During 197t3--79 for AEPCO Domestic C-7r-ietal Industrial Charities & Hospital Street Ligti T.V. & B. Casting Total Actual Grid Year Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual with IDECO 1973 53 53.9 26 26.6 44 38.1 18 24.8 5 5.5 4 4.8 151 153.8 - 1974 60/60 -64 29/30 31.6 57/si 41.8 21/27 28.6 6/7 7.3 4/5 5.3 178/173 178.6 - 1975 68/72 76.9 32/35 37.2 65/69 53.4 23/31 33.1 8/8 7.7 4/5 5.3 231/220 213.6 - (55) (215) 197b 77/86 97.6 36/41 4b.3 70/103 74.1 27/38 37.5 9/9 8.5 4/5 5.1 224/282 269.1 302.3 (273) (306) 1977 88/99 152.6 40/47 5o.4 76/127 67 31/44 44.4 11/10 9.3 4/5 5.8 251/332 329.5 374.0 (335) (380) 1978 100/115 196.1 46/54 59.2 82/146 74.9 36/51 52.2 13/11 10.2 i/6 5.9 282/383 398.5 4521 (82) (406) (460) 1979 115/132 233.5 51/61 77.2 89/161 93.7 41/59 56.2 14/13 9.9 4/6 6.2 476.7 534.6 (15) (498) (565) 190 132/153 259.8 57/70 86.3 98/173 123.3 47/68 71.8 17/15 10.7 4/6 6.2 356/485 958.2 632.4 (195) (630) (704) * Includes Water Pumping at special low rate tariff. NOTE: 1. Forecast shown as Cr. 386 Estimate/Cr. 579 Estimate. 2. Industrial Sales in ( ) are total for JEFCO and JEA direct sales in Amman area to Refinery & Cement Factory. Vay 1981 JORDAN CREDITS 386-JO AND 570-JO COMPLETION REPORT Forecast and Actual Sales (GWh) Par Consumer Category During 1973-79 for IDECO Domestic Commercial Industrial Hospital & Charities Street Lighting Total Year Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual 1973 8.6 7.1 1.5 1.5 1.7 1.6 0.6 0.4 1.5 1.4 13.9 12.0 1974 11.7 6.7 1.8 1.3 8.7 2.9 0.7 1.2 1.8 1.4 24.7 13.5 1975 12 9.3 2.1 1.8 12 7.4 0.9 2.1 2.1 1.4 29.1 22.0 1976 14.3 31.9 2.3 2.3 17 15.3 1.0 2.2 2.4 1.5 37.0 33.2 1977 16.7 15.3 2.7 3.3 17.9 19.7 1.1 4.5 2.6 1.7 41.0 44.5 1978 23.5 18.5 3.1 4 18.5 23.5 1.2 5.4 2.7 2.2 46.o 53.6 19'9 25.9 24.9 3.6 6.9 19.5 26.2 1.3 6 2.8 2.9 53.1 66.9 1980 29.9 31.3 4.1 9.1 20.7 24.4 1.4 6.2 2.9 3.2 59.1 74.2 NOTE: 1. Cr. 570 Forecasts for Irbid were the same as for Cr. 386 above. 2. Industrial Sales include water pumping & broadcasting. 10 JORDAN JORDAN ELECTRICITY AUTHORITY CREDIT 386-JO COMPLETION REPORT INCOME STATEMENTS (JD THOUSANDS) -----------1975--------- ------------1976-------- ----------1977----------- -------------1978---- ----------1979-------- Est. % Est. % Est. % Est. % Est. % Aa Actual Diff. A2. Actual Diff. A. Actual Diff. App. Actual Diff. 8. Actual Diff. Generation and Sales Statistics GWh Generated 12.0 55.0 358.3 175.0 178.0 1.7 .245.0 427.0 74.3 325.0 529.0 62.8 345.0 696.0 101.7 GWh Purchased - - - 98.0 - 62.0 13.0 - 20.0 21.0 - 43.0 9.0 - GWh Total 12.0 55.0 358.3 273.0 178.0 (34.8) 307.0 440.0 43.3 345.0 550.0 - 388.0 705.0 81.7 GWh Sales 12.0 45.0 275.0 265.0 173.0 (34.7) 294.0 410.0 39.5 327.0 504.0 59.4 368.0 652.0 77.2 MW Sales - - - - - - - 84.0 - - 85.0 54.1 - 128.0 0 Average Sales Price Fils/kWh 7.5 7.7 6.9 7.5 7.4 - 7.5 12.3 64.0 7.5 13.1 74.7 7.5 13.7 82.7 REVENUES Electricity Sales GWh 90.0 348.0 286.7 1,988.0 1,273.0 (36.0) 2,205.0 3,395.0 54.0 2,452.0 4,384.0 78.8 2,760.0 5,763.0 108.8 Electricity Sales MW - - - - - - - 1,564.0 - - 2,036.0 - - 2,827.0 - Other Electricity Revenues - 102.0 - - 84.0 - - 66.0 - - 179.0 - - 363.0 - Total Operating Revenues TW70T-1357.0 (31.7) 2,205.0 5,025.0 127.9 2,452.0 T 169 2.76.0 ,953.0 224.4 OPERATING EXPENSES Purchases of Electricity - - - 222.0 - - 140.0 95.0 - 46.0 140.0 - 97.0 79.0 - Fuel 55.0 236.0 - 372.0 706.0 - 486.0 1,877.0 - 679.0 2,102.0 - 720.0 2,019.0 - Wages and Salaries I/ - 35.0 - - 152.0 - - 863.0 - - 1,201.0 - - 1,872.0 - Materials and Other Expenses 113.0 27.0 - 582.0 230.0 - 546.0 398.0 - 590.0 482.0 - 607.0 762.0 - Depreciation 510 32.0 - 364.0 25.0 - 381.0 1 059.0 - 381.0 1 5650 - 484.0 2,540. - Total Operating Expenses 219.0 330.0 50.7 1,540.0 1.393.0 ) 1,553.0 4,292.0 7-" 1,696.0 2 1.908.0 7,272.0 281.1 Net Operating Income (129.0) 120.0 - 448.0 14.0 - 652.0 733.0 - 756 0 1,109.0 - 852.0 1,681.0 - Net Profit (Loss) Pole Plant - - - - - - - 4.0 - - 30.0 - - 14.0 - Other Income 223.0 65.0 - 225.0 198.0 - 206.0 317.0 - 182.0 454.0 - 159.0 292.0 - Total Income 94.0 185.0 - 673.0 212.0 - 858.0 1,054.0 - 938.0 1,593.0 - 1,011.0 1,987.0 - Interest Payable 2/ 369.0 145.0 - 636.0 222.0 - 732.0 474.0 - 826.0 917.0 - 889.0 908.0 - Less Interest Charge Capital 369.0 145.0 - 10.0 222.0 - 89.0 474.0 - 194 0 917.0 - 241.0 908.0 - Net Income 94.0 185.0 96.8 47.0 212.0 351.0 215.0 1,054.0 390.2 306.0 1,593.0 420.6 363.0 1,987.0 447.4 Q 1/ In appraisal estimates wages and salaries are included In other expenses. 2/ 9% return on Marqa assets used is treated as Interest payable. May 1981/September 1981 JORDAN JORDA EITRICrTY AUTHORITT C1EDIT 570-JO COMP=RTION REPæR IEGEC STATENNTS (j_THMAInG) . 1775 3 1976 --W- 1977 1978 1979 1980 App.5 p. APp'ip. . ÅA. p. i 3 T 18 41 App. at- Actul Mfl. Rat. Actual DIff. £t. Atual Jiff. Eat. Aet-l DIff. Eat. Acttal Diff. Eat. Actal Dif. Est. Atal Mff Genemtion and Sales Stati.tlcs ---- -- GWh Generated - 40 55 37.5 197 178 (9.6) 857 827 (6 6) 58h 529 (9.k) 707 696 (1.6) 786 870 10.7 GWh Purchased - - - - - . - 13 Y- - 21 -- - 9 - Total Genemted and Pu~aed - - - 0 37.5 IT 178~ (6) li57 42 fT S ¯ -¯) 5 N ~- 75 86 T- GWh Sold - - - 40 45 12.5 188 173 (8.0) 421 410 (2.6) 538 90 (6 3) 65o 652 0 73 791 94 MD Sold-l0< - - - - - - - - 84 - - 85 - - 128 - - 189 - Aravge Ravene FIla/kWh - - - 7.2 7.7 6.9 9.9 7.4 (25.3) 10.1 12 3 21.8 12.0 13.1 9 2 13 4 13.7 2.2 16.2 22.5 39.1 SRATING REVE~ES GWh Sale, evenue - - - 288 388 - 1,861 1,273 - 42.52 '3.395 - 6,456 4,384 - 8.710 5.763 - 11.713 13,832 - MD Salat Revenue - - - - - - - - - 1,564 - - 2,036 - - 2,827 - - 3,835 - Other Eletricity Revnue 0 - - 102 - - 88 - - 66 - 179 - - 363 T Otl operating Rmvena - 12 - W E¯50 562 !7,83 Z197 'T3I) -5 2.2 0.710 ,953 2 11 713 OPERATING EXENE Sale. 33 1 - 125 35 (72.0) 359 152 - 580 631 - 828 1,201 - 922 1,87 - 1,345 2,620 - Fuel - - - 158 '236 49.4 602 706 17.3 1,409 1,877 33.2 1,921 2,102 9.4 2,512 2,019 (19.6) 2,885 7,205 149.7 Puhreased Energy - - - - - - - - 95 - - 14o - - 79 . - - - Y.terial. _/ - 27 - - 230 - - 398 - - 137 - - 255 - - 868 Administration 23 75 - 54 2/ 82 2/ - 98 232 136.7 119 385 189 146 507 287. 186 06 279 Depreciation 3 2 0 4 (20) 286 295 . 8 1 05 8 1 2 1 2 . 15 Total Operating Eapese 3 78 - 377 330 .5) 1,297 &39 ~ 44h2,uh 4 5 23.81.,714 258 "E T2.4 Net Operating Ine (59) (59) - (89) 120 - 562 14 (97.5) 1,313 733 (44.2) 2,330 1,109 (52.4) 3,339 1,681 (49.7) 4,817 3,935 (18.3) Other I.n Nat 3/ 124 111 -3 36 - 218 2 - 1(5 -1 - 142 484 - 150 306 - 139 6% 37.56 Net Ine Before Interest 135 ~53 (U.5) 174 185 ~6~ 3% 212 (7¯) 1~88 i- (i3-7) 33T7 T3M (387-I) % ~ 398 7997)--5 3 -E-3g ) Intereat Expenze _/ 103 - - 292 145 583 _iå - 949 474 - 1,489 917 - 2 122 908 - 2,857 1,107 - Iess Intere.t Cuarged to Conotretion 103 - - 271 145 46.5 164 222 35.4 234 474 66.9 472 917 94.3 1 011 98 - 1,575 - - Net Intereat Carged to Operations - 21 0 - 1 - 19 5 - 665 - 1.017 - - 11111 - 1.282 1.107 (13.7) Net Inc 3 52 (61.5) 153 185 20 9 361 212 (41-3) 823 105 28.1 1,475 1,593 8.0 2.378 1.987 (164) 3.674 3.884 (5.2) RATE OF R1R Averageie. Operating ABaeta 6.5 15.5 138 636 379 (80.4) 6,200 3,830 (38.2) 13,927 11,943 (14.2) 24,825 24,990 0 36,703 36,849 0 53,062 40,749 (23.2) Rate af Return % 0 - - 0 8.0 - 9.1 0.4 (95.6) 9.4 6.1 (35.1) 9.4 4.4 (53.2) 9.1 4.6 (49.5) 9.1 9.7 6.6 -f In appralsal report, aterlais tre ncluded in Generation & Trananision expensea Icludina alarles. 2/ Included n Salaris . "tual" interet realved Included in ather tn ia interest received le "tareat pei f "relent" loa. Actual" Interest expense does not include Interest payable on amount relent r9ee note 3). YV 1981 / Septeber 1981 JORDAN JORDAN ELECTRICITY AOlfOR17" CREDIT 570-J C~MPLETION REPORT BALANCE SHEETM (JD THOUISANDS) 1974 1975 1976 1977 1978 1979 1980 App. App. App. I App. A p. App. Est. Actual Diff. Est. Actual Diff. Est. Actual Diff. st. Actual Diff. Est. Actual Diff. F.t. Actual Diff. Est. Actual Dirf. ASSETS FIUEDASSETS Eleotro Plant In Operation 22 4o 1,315 765 i,444 7,606 17,905 18,443 35,506 36,881 45,105 46,451 73,211 52,675 Les- DeprecIation 12 12 53 34 305 676 1,189 1,696 2,572 3,234 0.633 5,705 7600 8,644 Net Electric Plant- nrealued 10 2 180 1i191 731 132) 10.430 6,930 (o) 10563 16,707 _1 20227 33,67 _19531 0.706 _2 51695 00,031 (15) - Revalued 1 2 - - 11.139 - - 16,710 - - 32,1 - 0, -- , - Work in Progs 2,209 1,538 L) 5490 (15) 4,150 9,746 135 7,157 7,468 4 3,231 6,216 92 7,764 0,119 2670 8098 576 Psls Plant 126 126 0 155 222 43 255 320 25 320 200 (37) 436 209 (52) 594 240 (60) 784 1,375 75 Pes: Depreciatton 0 0 _0 _56 __ 0 77 85 10 108 70 jl3) 1 00 43) 221 (5 311 18 33 Net Pole Plant 84 84 0 3 50 148 235 59 212 130 (39) 285 121 (58) 373 1 165) 466 1.6i 150 Total Fixed A2,30 1,5 T28) 9,3TI) 1, ,911 15 21,932 24,13 31,5 39,984 -6 40,T3T 00 12 50,3'? 63,292 15 Long Tem Inest.ts 4,588 3,031 (34) 4,263 3,971 (7) 2,931 4,958 69 2,611 5,105 96 2,269 4,310 90 1,927 4,592 138 1,585 3,699 133 CURRENT ASSETS Cash 707 1,379 603 1,119 1,180 672 670 651 1,121 2,489 1,343 5,294 3,086 8,110 Accounts Receivable 0 0 24 301 152 1,027 340 3,766 490 2,943 661 3,739 856 4,370 Inventortes 116 101 149 188 271 771 457 1,400 592 1,952 723 3,649 859 4,440 Acrsals, eto. 40 60 40 843 40 861 40 1.021 40 72 40 3,932 40 4495 Total Current Assets 3ý 1,540 _ . 016 2,451 200 1,643 3.431 109 1,5|| 6.838 355 2.243 7,456 232 2.767 16,614 500 4 21,019 3 CURRENT LIABILITIES Aounts PaPyble, t. 6 85 1,317 i 3n 153 i1 090 2 (60) 317 846 167 2.031 3,6881 52 4,440 7_04 2.050 5,49 93 Net Ourrent Assets 07 1,055 7 603 2.110 2_10 551 2999 42 1.187 5,992 405 212 3,775 1,70 2.215 12,170 050 191 15,93 00 Total Asts - 1revalued 7.748 6,136 (21) 12,689 12,445 J2 18,212 24.60 j 25.230 35,42 _8 34 224 48,069 0 44293 61,762 39 13 82,921 02 LIABILITIES - Realued - - - - - - 2 - - 3 i - - - W af Equity 907 1,424 57 1,907 3,086 62 2,907 12,295 323 5,907 19,212 225 5,907 23,295 294 5,907 30,312 413 5,907 35,441 - Realuation Reserve - - - 71 - - 709 - - 2,153 - - 4,707 - - 8,478 - - 13,916 - Other Mesea-s 000 6817 96(9 3) ~ S 27) 17 g153 j 22 397s7 (22) 56 600 1.107 o.o2o 16 o0 Retained a gs & Tot. P-utty - Feol. Reval. Nss. 20) rm 9 ro TO 4018 238 M 2 P - Incl. Realuation Reserve 1.307 1.70, -_ 2.541 - - 4,550 - - 9827 __ 13 886 - 026 29.147 - long Tam eIbt Total L-ng Tern Debt 6.441 4,390 (2) 10,219 8,963 (12) 10,371 11.890 (17) 18,056 14977 (17) 25.065 20-807 (17 32.746 24642 (25' 43,1a2 31,337 (27) Total Equity sd Long Te Debt - EXCluding Revaiation Reserve 770 6.136 (21) I 12,445 2) 10.212 24,868 7 25,730 35442 _J8 282 00,069 o6162 5813 .82921 2 Total Equity and long Ten Debt - Including Reluation sserve - - - 12,760 - - 18,921 - - 27,883 - 38,931 - 52,727 72,329 May 1981/September 1981 JORDA J~RDAN EMECTRICITY AUMIORITY C1RDIT 570-JO CC~EIM_REPORT S=S1ES AiD APPLICATICIS OF FUNDS ( JD THOUAS) ----------1974---------- --------------1975------ -------1976-------- - --1977---------- .-------1978-------- ---------1979--- ----- ------ 1980-------- App. A pp. % App. % App. % App. I App. I App. SOMES Et. Actual Diff. Eat. Actual Diff. Eat. Actual Diff. Est. Actual Diff. Est. Actual Diff. Eot. Actual DIff. Egt. Attoal DIff. Internally Genereted Cash --- ---- ---- Net Operting Inco (59) (59) (8o) 150 574 14 1,330 735 2,353 1,109 3,369 1,68 4,855 3,935 DepMeiatIon 3 2 40 32 246 255 . 852 1,059 1.258 1,538 - 1,791 2,472 -1 2,480 2,862 Other Inc= 194 111 254 65 206 i9B 158 321 139 484 120 306 1 656 Net Cash Generated 138 54 (61) 214 247 15 i,o26 467 (54) 2,340 2,113 (10) 3,750 3,131 (17) 5,280 4,459 (16) 7,436 7,453 0 Custeer Cotributiono 0 0 0 0 0 0 - 0 - 45o - 1,046 - 2.233 Employees' Terinination Fond 11 24 10 65 10 656 10 117 10 78 10 (507) _g 10 1,121 _/ Iæg Ter. Invstment. Deerase 0 _0 35 _0_ 437 _0 343 0 376 78 394 0 416 0 Total Intermally Generated Cash 149 78 (48) 559 312 (44) 2,383 1,123 (53) 2,693 2,230 (17) 4,136 4,427 0 5,684 4,998 (12) 7,862 10,807 37 les r Debt Service 3 141 0 330 443 888 222 1 826 474 2730 974 3,413 92 4i18 82 Net Internal Cash Genemtion 8 _ 875 § (f) ___ 9 (40) 1.756 103 140b 3 145 2,271 4,07 8 80 , 95 Debt & Equity Capital Total Borrowing- 3,320 1,231 (63) 3,8i6 4,871 28 4,457 2,927 (34) 4,562 3,526 (23) 18,520 7,015 (62) 8,972 4,755 (47) 11.727 9,170 (22) Qovernent Equity Contribution 410 927 126 i,0 1,662 66 10000 9.20 _ 3,000 6.917 131 0 4,547 0 7.027 0 5.129 Total Debt & Equity Capital 3.730 2,158 (42) 4.816 6.235 29 5.457 12,136 118 7,562 10,443 38 18,520 11,562 (38) 8.972 11,782 31 11.727 14,299 22 Total Seure, 3.738 2.236 (40) 5.045 6.402 27 6.952 13,037 88 8.429 12,199 45 9926 15.015 51 11,243 15,860 41 15,641 21.524 39 APPLICATIONS Working Capital Requirements (29) 569 (174) 689 (130) 855 634 2,916 (975) (2,047) 2,003 8,399 (224) 3,756 Total Constretion / 1,496 946 (37) 5,219 4,773 (9) 7.082 11,195 58 7,795 8,389 8 10,901 17,150 57 9,2 7,473 (191 15,665 20,203 29 Long Term Investment - Increase 2.271 72 0 940 0 987 0 894 0 (88) 0 (12) 0 (2,35) Total Applications 3738 2,236 (4o) 505 6.402 27 6.952 13.037 88 8.429 12,199 45 9.926 15.015 51 11243 15,&60 4S 15,441 21.524 39 L/ Ineludes pole plant depreciation. 2/ Includes reserve adjustmente. 3/ Do not Onclude aonto capitalzed. /i Tncludes depreciation eadjustments. 5/ Interest during constructlon to included. / Includes retention monev adjustments. May 1981/September 1981 - 42 - ANNEX 14 JORDAN JORDAN ELECTRICITY AUTHORITY CREDIT 570-JO COMPLETION REPORT Financial Ratios Rate of Return Debt Equity Ratio Debt Coverage Ratio Year Forecast Actual Forecast Actual Forecast Actual /1 1974 0.0 - 83/17 72/28 3.3 - 1975 0.0 4.0 80/20 72/28 1.7 - 1976 9.1 0.4 76/24 48/52 2.7 1.0 1977 9.4 6.1 65/35 42/58 1.5 1.1 1978 9.4 4.4 65/35 44/56 1.5 1.4 1979 9.1 4.6 62/38 41/59 1.7 1.1 1980 9.1 9.7 60/40 41/59 1.9 1.9 /1 For purposes of calculating this ratio interest capitalized has not been excluded and the ratio has been calculated in accordance with the requirements 4.04 of the Project Agreement. May 1981/September 1981 JOR,DAN JQN EECTlCTYAUTHM ITY CREDITS 386-JO AND 570-1 COMPLETION REPORT Or anization Chart NOARD OF OAETORS OIRECTOR GENERAL SLPPLIESAND AMINSTRATON CIVIL STANARDSAN IN T E"DNTT O;ECEN AERNNEL POLEPLANT ENGINEERING SPECIF TAN DEPARTMENT OEPARTMENT DEPARTMENT OEPARTMENT ODARTRENT ACJTSTNESADMINISTRATON AOSINISTRATIONS DESIGN SUBSTAT ONSECT ATTSPrAENGINEERING THERSA PER SECI.IWN | TECTON ELON SECTILON SECTION SECTION SCINSSESCINSCiNSCINSA OC LPROJC RESEARCH AND STDIESND D PROTECTION AND CIVIt AOMINISTRATION CNIEFCLERKDTIO PROECTION EXCTONDVLOMNORPRSECTS TELECOMUNICATION ENGINEERING POSER5STATION ECN ETECE SRTET0N E CTION SEO N SECT0N COMPUTER STORES PES LEEG CNMCKARAKPROWER DIH LINESENNEIG MEECTION EMLYESACA8APOWER ELECTOICAL IN AOSDM A ON REEUSINUAC SAiNSlALLATIONAUNO SECDTION CWORKSHOP SETIONE TENOERS LOANS ADM SAPER¥ISION M NPWRDSG ANDREaTSSETIO SATONTECTION A - ECI CI.NKIO PAOWR NTATION AAEA ARE1A 1%. N' H RURAL - 44 - ANNEX 16 JORDAN JORDAN ELECTRICITY AUTHORITY Credits 386-JO and 570-JO COMPLETION REPORT Salaries of JEA's Staff During 1975-80 (JD/Month) Occupation 1975 1976 1977 1978 1979 1980 Engineer-new 138 154 154 189 189 189 Engineer with 5 years experience 164 221 221 257 305 305 Engineer with 10 years experience 196 329 329 377 433 433 Engineer with 15 years experience 213 449 449 449 573 573 Accountant - New 74 81 109 109 131 140 Accountant with 5 years experience 87 93 137 137 162 171 Accountant with 10 years experience 94 102 170 170 204 213 Accountant with 15 years experience 103 115 212 212 255 263 Administrative - New 59 81 102 102 122 131 Administrative with 5 years experience 65 93 128 128 151 160 Administrative with 10 years experience 74 102 159 159 190 199 Administrative with 15 years experience 87 115 198 198 226 246 Clark - new 40 47 59 59 68 77 Clark with 5 years experience 47 56 70 70 90 99 Clark with 10 years experience 55 60 99 99 114 123 Clark with 15 years experience 61 66 123 123 140 147 Services 25 39 51 51 59 68 May 1981 -45 - ANNEX 17 JORDAN JORDAN ELECTRICITY AUTHORITY CREDITS 386-JO AND 570-JO COMPLETION REPORT JEA's Employee Turnover during 1978-80 1978 1979 1980 Average Average Average No. of New Resig- No. of New Resig- No. of New Resig- Employees F,ecruits nations Employees Recruits nations Employees Recruits nations Engineers 93 19 7 102 18 7 112 14 7 Technicians 462 136 64 532 136 68 582 116 60 Accounting Staff 84 33 13 105 36 15 125 24 16 Administrative and Other Staff 330 108 60 369 132 55 216 76 29 Total for JEA 969 296 144 1,108 322 145 1,335 230 112 Turnover Ratio 1978 1979 1980 1978-1980 JEA 22.7 20.1 12.8 18.3 Engineers 14.0 12.3 9.4 11.7 Technicians 21.6 19.2 15.1 18.4 Accounting Staff 27.4 24.3 16.0 21.8 Administrative and Other Staff 25.5 25.3 24.3 25.1 May/October 1981 JORDAN ELECTRICITY AUTHORITY HUSSEIN THERMAL PROJECT - STAGE II CRtDIT 386-jo COMPLETION REPORT Internal Rate of Return on Project (Costs & Benefits and their Present Values in JD's 1000) OPERATING COSTS Total Actual CAPITAL COSTS Other Total Deflated Costs Deflated Share of Tetal Benefit ACTUAL COSTS Deflated Operating Operating Operating to 1973 Revenue Deflated to Years Power Station Transmission Total Cost Deflator Capital Costs Fuel Cost Costs Costs Deflator Costs Values (Benefits) Deflator 1973 Values 1973 587 33 620 620 620 74 920 73 993 .91 899 .82 899 .82 75 3,114 1,310 4,424 .80 3,535 219 62 281 .72 202 3,737 450 .72 324 76 1,707 597 2,304 .69 1,599 420 185 605 .63 381 1,980 657 .63 414 77 472 1,193 1,665 .63 1,056 8o6 579 1,385 .59 817 1,873 2,306 .59 1,360 78 657 657 .59 388 848 953 1,801 .56 1,008 1,396 3,879 .56 2,172 79 313 313 .49 153 728 1,265 1,993 .53 1,056 1,209 4,026 .53 2,134 80 424 424 .43 182 2,932 1,293 4,225 .*7 1,986 2,168 7,506 .47 3,528 81 1,986 1,986 3,528 NOTE Since early 1979 the two 33 MW Steam units have been - perating at the system generation load factor (or higher) and the gas turbine has been operating as peaking plant on a load factor of about 7.51. The equalizing discount rate for the cost/benefit streams over a period of 28 years is 14.64. May 1981 JORDAN ELECTRICITY AUTHORITY HUSSEIN THERMAL PROJECT - STAGE II CREDIT 570-10 COMPLETION REPORT Internal Rate of Return on Project (Costs & Benefits and their Present Values in JD's 1000) CAPITAL COSTS Total Share of ACTUAL COBTS Deflated Other Total Deflated Costs Deflated Actual Total Benefits Marqa Transmission lapital operating Operating Operating to 1975 Revenue Deflated to Te- S-maUi Diatribution Ttal C=t Dcf't= C=t: Fu-1 c* C=t2 C-a .- ts Values (Benefi6s Deflator 1975 Values 1975 45 45 45 45 76 738 738 .87 640 .88 64o .88 77 1,906 1,906 .79 1,505 210 381 591 .82 484 1,989 1,517 .82 1,242 78 3,588 374 3,448 7,410 .74 5,483 244 420 664 .78 517 6,000 1,707 .78 1,328 79 88 319 861 1,268 .62 779 558 1,071 1,629 .74 1,199 1,978 3,410 .74 2,510 1980 216 457 305 978 .54 529 2,569 1,222 3,791 .65 2,472 3,001 7,096 .65 4,627 81 2,474 1,173 3,647 2,378 2,378 6,809 4,438 82 2,388 1,127 3,515 2,292 2,292 6,549 4,27o 83 2,306 1,o84 3,390 2,210 2,210 6,298 4,106 84 2,234 1,045 3,279 2,138 2,138 6,054 3,947 S5 2,167 1,010 3,177 2.071 2,071 5,fo 3,814 86 2,107 978 3,085 2,011 2,011 5,672 3,698 87 2,001 922 2,923 1,096 1,096 5,320 3,469 88 1,894 865 2,759 1,799 1,799 5,047 3,291 89 1,787 809 2,596 1,693 1,693 4,710 3,071 1990 1,680 752 2,432 1,586 1,586 4,363 2,845 91 1,580 699 2,279 1,486 1,486 4,042 2,635 Note: Costs do not include S. Jordan Development Study. Equalizing Discount Rates As above (excluding purchase price of Marqa P.S = 22.6% As above with addition Marqa Purchase Price = 12.O% As above but excluding transmission and including Marqa P.S Purchase Price = 15.6% As above but excluding transmission = 36.9% May 1981 - 48 - ANNEX 20 Page 1 JORDAN ELECTRICITY AUTHORITY HUSSEIN THERMAL PROJECT - STAGES I AND II CREDITS 386-JO AND 570-JO COMPLETION REPORT Assumptions in Rate of Return Calculation Transmission Costs Since the JEA transmission system was delivering 89 MW from the Hussein Station in 1977 it has been assumed that all transmission expendi- tures to the end of that year are attributable to the 78 MW first stage project. All transmission expenditures from the end of 1977 to completion of Stage II project in 1980 have been included in the Stage II cost stream, even though the Stage I transmission was capable of delivering the total output of Stages I and II generating plant. Fuel Costs Actual fuel costs have been used. These were in JD's/ton: Diesel Residual (for Gas Turbines) 1975 7.60 15.56 1976 7.60 15.56 1977 8.00 17.12 1978 8.00 17.86 1979 9.96 27.93 1980 30.00 41.475 The prices of residual oil and diesel fuel charged to JEA prior to 1980 were not economic or commercial rates. The appraisal of the third power project in March 1979 estimated the prices for economic analysis at JD's 21.50 per ton for residual and JD's 36 per ton for diesel. However the assumption is that any increase would have been passed on to the con- sumer in tariffs, and would therefore not affect the net-benefits. This in fact occurred in 1980 when tariffs were increased by about 75%. Other Operating Costs These have been taken from JEA's Income Statements. The project's share of these costs is in the ratio of units generated by the project to total units generated. - 4- ANNEX 20 Page 2 Deflators Capital Costs - The factors used are the disbursement deflators arrived at from the c.i.f. cost of manufactured goods and machinery for export, prepared by the P&B Dept. of the Bank. Operating Costs & Revenue - The factors used are the cost of living indices from 1975 to 1979 published by the Central Bank of Jordan with estimates for 1973, 74 and 80 provided by the Program Department country economist. Distribution Costs No capital or operating costs for distribution have been included because JEA is primarily a bulk supply company. In the last two or three yearrs it has taken over some very small municipal undertakings and embarked on a program of rural electrification. No costs for these devel- opments have been included in the analysis since the project was fully loaded before they were commenced and additional generating plant has since been installed. Their inclusion would not materially affect the rate of return even if included. Marga Diesel Power Station The station was purchased from JEPCO in October 1976 for JD's 5,329,000 and reconditioned at a cost of JD's 1,150,000 during 1978 and 1979. The reconditioning included replacement of one 6 MW diesel by a new machine and completely rebuilding most of the others. The rated capacity is now 45 MW and cost JEA, JD's 144/KW or $470/kW including cost of rehabilitation. This compares with about $600/kW for a new station of similar type. It operates at a load factor of about 37% between the base load steam plant and the gas turbine peaking plan. The assumed life of 11 years from completion of the rehabilitation in 1979 is probably conserva- tive when working under these conditions. Output of Marga Diesel Plant The output of the Marqa diesel station is assumed to reduce each year by 10% of the previous years output, starting with the actual output of 148 GWh in 1980; until 1986 (by which time it would be 79 GWh); and from then on to reduce by 16 GWh per annum until 1991 when its output would be nil. Benefits Benefits in the period up to and including 1980 are assumed to be the actual revenue from JEA's sales multiplied by the ratio of units generated by the project to total units generated by JEA. - 50 - ANNEX 20 Page 3 Benefits from future sales are calculated in the same way but are based on the 1980 yield of 20.5 fils per kWh generated. Future kWh generated are based on JEA's forecast of maximum demand to 1985 which averages about 20% per annum, and an assumed annual increase of 11% there- after. Generating station load factor is assumed to be 54% as in 1979 (1980 was an abnormal year for load factor due to distortions by the Cement company). The JEA forecast of MD is as follows: 1981 - 195 MW 1982 - 255 MW 1983 - 285 MW 1984 - 345 MW 1985 - 405 MW May 1981