Tanzania - Second Kidatu Hydroelectric Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4622 PROJECT COMPLETION REPORT TANZANIA: KIDATU HYDROELECTRIC PROJECT SECOND STAGE (LOAN 1306-T-TA) Energy Division East Africa Regional Office November 30, 1982 Revised June 17, 1983 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 TANZANIA KIDATU HYDROELECTRIC PROJECT SECOND STAGE Completion Report Table of Contents Page No. Preface ..................................................... i Basic Data Sheet ............................................ ii Highlights .................................................. v I. INTRODUCTION .......................................... 1 II. PROJECT PREPARATION AND APPRAISAL. 2 Origin, Preparation, Appraisal and Negotiation 2 Project Description ................................... 2 Justification. 4 Covenants. 5 III. PROJECT IMPLEMENTATION, OPERATION AND COSTS ........... 6 Loan Effectiveness and Project Start-up ............... 6 Costs and Related Financing. 7 Cost Increases .9 Cost Savings ............................ 11 Disbursements .............................--. 12 Project Implementation .............................-. 13 Physical Problems .............................-... 13 Administrative Problems ............................ 15 Ecological Aspects .............................-. 16 Performance of Consultants and Contractors .17 Main Contracts ........................................ 18 Important Changes in Original Design .................. 18 IV. INSTITUTIONAL PERFORMANCE .20 Management and Organization Effectiveness ............. 20 Training .......------------------------------ 20 V. FINANCIAL AND RELATED ASPECTS ......................... 21 Financial Arrangements .21 Accounting and Audit .................................. 23 Financial Performance and Compliance with Covenants ... 23 VI. BANK PERFORMANCE .24 Overall Performance and Working Relationships ......... 24 VII. LESSONS LEARNED ....................................... 24 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. Annexes 1. Comparison of Revised Cost Estimates with Appraisal Cost Estimates ........................................ 27 2. Construction Schedules - Mtera Dam and Powerhouse ....... 28 3. Statement of Contracts and Works ........................ 30 4. Internal Rate of Return ................................. 32 5. Comparison of Alternative Programs - Equalizing Discount Rate ......................................... 33 6. Income Statements ....................................... 34 7. Balance Sheets .......................................... 35 8. Funds Flow Statements ................................... 36 9. Comments from the Borrower .............................. 37  - i - TANZANIA KIDATU HYDROELECTRIC PROJECT SECOND STAGE LOAN 1306-T-TA PREFACE The project consisted of the construction of a concrete buttress dam at the Mtera site; installation of two additional 50-MW hydro units at the existing Kidatu powerhouse, the construction of a 220/132-KV transformer station at Morogoro and necessary consulting services and training program. Loan 1306-T-TA for US$30 million was signed in August 1976 and became effective in March 1977. The loan has been completely disbursed and was closed on December 31, 1981. The Project Completion Report (PCR) was prepared by the East African Regional Office - Energy Division, based on the appraisal, president's, supervision and consultant's reports and other documents in the Bank's files and on discussions with the staff of Tanzania Electric Supply Company Limited (TANESCO). The PCR summarizes the main points of the project particularly those which presented difficulties or resulted in specific accomplishments or failures. Following normal procedures, a draft copy of the report was sent to the borrower (TANESCO) and the Guarantor (Government) for their comments. Comments were received from TANESCO and have been reflected in finalizing the report. They have also been reproduced as an attachment to the report (Annex 9). The project was not audited by the Bank's Operations Evaluation Department.   - ii - TANZANIA KIDATU HYDROELECTRIC PROJECT SECOND STAGE - LOAN 1306-T-TA COMPLETION REPORT Basic Data Sheet Key Project Data Original Plan Actual Total Project Cost (US$ million) 1/ 89.0 109 Cost Overrun (%) - 25% Loan Amount (US$ million) Original - Loan 1306-T-TA 30.0 30.0 Disbursed (US$ million) 30.0 30.0 Cancelled (US$ million) - - Joint Financing European Economic Community - EEC (US$ million, supplementary, administered by IDA) - 7.0 Germany - KfW (US$ million) 2/ 31.0 28.1 Swedish International Development Authority - SIDA (US$ million) 18.5 18.5 Date for Completion of Physical Components 10/80 08/81 Proportion Completed by Appraisal Target Date (%) 80% Incremental Financial Rate of Return (%) 23% 18% Financial Performance Unsatisfactory Institutional Performance Satisfactory 1/ Based on the average exchange rate between 1976 and 1981. 2/ The final KfW contribution was US$36 million (para. 3.12).  - iii - Cumulative Estimated and Actual Disbursement (US$ million) 1976 1977 1978 1979 1980 1981 Appraisal Estimate 2.3 7.3 13.1 22.1 28.1 30.0 Actual - 3.1 9.3 17.8 30.0 37.0 Actual as % of estimate 0 42 71 80 107 123 Other Project Data Actual or original Revisions Est. Actual First Mention in Files - - 1966 (together with Kidatu I) Negotiations - - 01/19/76 Board Approval Loan 1306-T-TA 04/01/76 - 07/01/76 Credit (EEC) - - 02/12/80 Loan Agreement Loan 1306-T-TA - - 08/12/76 Credit (EEC) - - 03/20/80 Effectiveness Loan 1306-T-TA 12/01/76 - 03/01/77 Credit (EEC) - - 04/08/80 Closing Date Loan 1306-T-TA 12/31/81 - 12/31/81 Credit (EEC) - - 12/31/81 Borrower Loan 1306-T-TA - - Government of Tanzania Credit (EEC) - - Government of Tanzania Executing Agency - - Tanzania Electric Supply Company Ltd. (TANESCO) Fiscal Year of TANESCO - - Calendar Year Follow-on Project Name - - Tanzania Fourth Power Project (draft green cover SAR circulated 11/10/82)  - iv- Mission Data Month/ No. of No. of Date Year Weeks Persons Manweeks of Report Appraisal 4/ 75 3 5 13.0 06/02/76 Supervision I 10/76 2 2 4.0 12/15/76 II 01/77 1 2 3.0 03/17/77 III 05/77 2 2 4.0 06/17/77 IV 12/77 2 1 3.0 03/14/78 V 07/78 2 2 4.0 08/15/78 VI 03/79 1 1 3.0 05/03/79 VII 12/79 2 2 4.0 01/15/80 VIII 12/80 2 2 4.0 01/30/81 TOTAL 21 42.0 Currency Exchange Data Appraisal US$1 = TSh 8.05 Intervening Years Average 1977 US$1 = TSh 8.1 1978 US$1 = TSh 8.2 1979 US$1 = TSh 8.3 1980 US$1 = TSh 8.4 1981 US$1 = TSh 8.9 1982 US$1 = TSh 9.4   -v - TANZANIA KIDATU HYDROELECTRIC PROJECT SECOND STAGE LOAN 1306-T-TA HIGHLIGHTS Loan 1306-T-TA was for the second phase of the Mtera Hydroelectric Project that was intended to meet forecast demand up to 1987/88. The project's achievements can be rated as an overall success, despite project cost overruns and failure to meet earnings objectives, since it made possible significant savings in oil utilization (estimated 200,000 tons in 1982) which are critical to Tanzania's foreign exclhange requirements. Additionally, the training effort was extremely successful and should assist considerably in operating performance and decrease in reliance on expatriates. A construction cost overrun of TSh 188 million (US$17 million) was experienced due to higher than anticipated costs of civil works and to additional works and studies required during the course of construction. The gross overruns were partially balanced by savings in the costs of mechanical and electrical plant financed mostly by KfW (PCR paras. 3.09 - 3.20). In general institution performance was satisfactory except in the financial area. TANESCO effectively revised and rearranged its practices and method to accommodate the increasing operational load. It effectively utilized a panel of experts to recognize and overcome the difficulties encountered during construction. Tariffs were increased twice, by 40% in June 1976 and by 42% in December 1979, However these increases were insufficient, except for 1980, to enable TANESCO to achieve the required 7% rate of return on revalued net assets in operation. This, combined with an inability to bill and collect accounts efficiently (due, in part, to computer facilities failures), resulted in cash shortages throughout the implementation period. However, this situation was significantly mitigated by lower debt service due to longer grace period, and lesser dividend payments (PCR 4.01-4.03, 5.02, 5.06).   TANZANIA KIDATU HYDROELECTRIC PROJECT SECOND STAGE COMPLETION REPORT I. INTRODUCTION 1.01 The project constituted part of a long-range development program to meet the growing power needs on the interconnected system (coastal grid) and comprised: (a) construction of a concrete buttress dam at Mtera site; (b) installation of two additional 50-MW hydroelectric units at the existing Kidatu powerhouse; 1/ (c) construction of a 220/132-kV transformer station at Morogoro; and (d) engineering/consultancy services and training. 1.02 The project was implemented broadly on schedule and as originally designed. Its actual cost, however, was substantially greater than the appraisal estimate for various reasons (paras. 3.03-3.06 and 3.10) concerning the construction of the main civil work (the dam). 1.03 The original loan of US$30 million (Loan 1306-TA), together with a credit of about US$18 million equivalent from the Swedish International Development Authority (SIDA) and a credit of US$24 million equivalent from Kreditanstalt fur Wiederaufbau (KfW) were intended to finance the total foreign exchange costs and part of the local costs of the project estimated to cost US$90 million equivalent. Actual cost increased to US$110 million. Cost overrun was covered through the increase of KfW funds by about an additional DM 10 million and a supplementary EEC Special Action Credit of US$7 million 2/ (Credit 55 through IDA as administrator, para. 3.12). 1.04 The Mtera dam, the extension of the Kidatu powerhouse by two 50-MW hydroelectric units, and the transmission facilities at Morogoro substation have been operating successfully since 1981 after overcoming some initial operating problems such as oil leakages, wrong relay adjustments, etc. 1.05 The actual growth rates in energy and capacity demand of the grid throughout the period 1976-1981 have been substantially lower than projected during the appraisal due mainly to the declining general economic situation of the country. The commissioning of Kidatu II led to a substantial reduction in the Tanzania Electric Supply Company Ltd's (TANESCO) thermal generation from oil. Calculated oil savings in 1981 is about 175,000 tons and estimated savings in 1982 are 200,000 tons. Yearly oil savings will gradually increase as the system's load builds up and will 1/ The Kidatu powerhouse was originally designed for four 50-MW units. Two 50-MW units were completed in 1975. For further information, please see Project Performance Audit Report (Tanzania Kidatu Hydroelectric Project - First Stage, Loan 715-TA and Loan 715-2TA) of December 19, 1979 No. 2765. 2/ The SIDA, KfW and EEC Special Action credits were channelled through the Government of Tanzania.  - 2 - reach 375,000 tons per annum in the 1990s. Despite the increase in construction costs, Kidatu II is in fact justified as the least cost solution over any tlhermal alternative due to very high fuel prices in the world markets. Mainly because of lower than expected load growth, the recalculated incremental rate of return on the project is 18%, compared to the appraisal estimate of 23%. 1.06 TANESCO's financial performance through 1976 was less than satisfactory. Although the company increased tariffs twice during the project implementation period, these were not sufficient and, as a result, consistently failed to achieve the required minimum rate (7%) of return on revalued net fixed assets in operation, perhaps also due to inappropriate revaluation. This, combined with excessive accounts receivable partly due to serious breakdowns in the computer, partly to delinquent customers, resulted in cash shortages for the company. II. PROJECT PREPARATION AND APPRAISAL Origin, Preparation, Appraisal and Negotiation 2.01 The project was basically a continuation of the First Stage Kidatu Hydroelectric Project, which was appraised in 1970 and jointly financed by the Bank (Loan 715-TA), SIDA and the Canadian International Development Agency (CIDA). The First Stage was completed according to the original schedule, although with substantial cost overruns, and has operated satisfactorily since May 1975. The water intake, headrace tunnel, powerhouse, control room, tailrace tunnel, switchyard, and all related civil works, and the accessories and auxiliaries had been excavated and constructed according to the ultimate design which included provision for the Second Stage (the project). 2.02 The history of the development of the Kidatu Hydroelectric Scheme began almost 15 years ago when the Government asked the Bank for assistance in financing the First Stage. Additional studies needed to determine the best solution among known alternatives and design of detail were completed in July 1968, and the Kidatu development was recommended to be the most economic scheme. The second stage was prepared on the basis of reconnaissance and preappraisal missions in May and December 1974, a report on the geological situation and design by a Bank consultant, and a feasibility study dated February 1975 by TANESCO's engineering consultant. The project was appraised in April 1975. Project Description 2.03 The project components were planned to be constructed at three main sites, i.e. Mtera, Kidatu and Morogoro. The Mtera site construction consisted of the following:  - 3 - (a) A concrete buttress dam 45 m in height and 260 m in length which forms a reservoir with a storage capacity of 3.2 billion J (live capacity) at a drawdown of 8.5 m, which in turn will provide a regulated river flow during dry seasons sufficient for the requirements of the project. A concrete spillway with four radial gates (each 14 m wide and 11.5 m in height) and about 160 m long spillway, a chute, all located on the right bank of the river. The dam is equipped with a bottom outlet (5.5 m x 6 m) for the purpose of regulation of the water; (b) About 34 km of road passing over the dam crest to replace a stretch of the existing Iringa-Dodoma road which was submerged under the reservoir; (c) Employer's village for housing of the operation and maintenance staff and offices, etc. with all necessary water supply and sewerage systems; (d) Temporary camps constructed at four locations, comprised of 97 blocks of houses with independent water supply and sewer systems and with accommodation capacity for about 100 senior staff, including expatriates and over 600 workers/junior staff; (e) A floating boom about 2.3 km in length at about 2 km upstream of the dam to catch the floating debris. The debris to be removed by the boat provided for this purpose; 3/ (f) Bush clearance in the reservoir was done up to about 2.3 km upstream of the dam in the area of about 140 hectares below the full supply level of the reservoir; 3/ and (g) Ecological studies and measures including rehabilitation of relocated people from the areas to be submerged and extension of the Ruaha Game Park boundaries. 3/ 2.04 The Kidatu site consists of the construction of the following: (a) Extension of the existing Kidatu powerhouse by two 50-MW hydroelectric units with vertical Francis-type turbines and generators, ventilation, cooling water, drainage and dewatering system and all necessary civil works, auxiliary equipment, and low and high voltage cables; (b) Penstock intakes by removal of the two temporary concrete plugs and installation of one sliding gate and two cylinder gates (one for each unit) with appurtenant concrete works at the water intake area; (c) Lining of the two existing vertical penstocks with steel and embedding it in concrete; 3/ This item was not included in the original design but adopted on the recommendation of the Bank.  (d) A roadway in the access tunnel; and (e) Extension of the existing pothead yard, the 220-kV switchyard and connecting transmission lines including appurtenant civil works. 2.05 The Morogoro site consists of the construction of the following: (a) Expansion of the existing Morogoro substation for the erection of a 90-MVA transformer of 220/132 kV; and (b) A storage building for TANESCO's regional needs. 3/ Justification 2.06 The existing generating facilities of TANESCO before the construction of the project consisted of a blend of diesel and hydro generating plants with limited pondage provided by Kidatu (125 million m3). The water flow available at Kidatu for power production was very low during the dry months (June-October) of the year. TANESCO needed an additional generating capacity in 1980/81. The Mtera reservoir provides water for power generation during the dry years. Thus, TANESCO successfully met the demand in 1980 and can meet the demand up to 1987/88. 2.07 The alternatives to the project were another hydro scheme or a thermal station. Some alternative hydro schemes were examined by the consultants in a series of studies carried out over the previous ten years; most of them were eliminated without even detailed consideration because they were too remote, too small, or geologically unsatisfactory. The choice was finally narrowed down to three schemes: (a) Pongwe hydro plant on the Wami River; (b) Stiegler's Gorge on the Rufiji River; and (c) the second stage development of Kidatu project (the project). Stiegler's Gorge was eliminated because the site could only be economically developed with much higher capacity than the TANESCO sysem could absorb for many years to come. The Wami scheme had been eliminated by the comparative study which was jointly prepared by two consultants in 1971 because of higher cost. The Second Stage Kidatu scheme was therefore chosen as the preferred hydro development and compared with an alternative thermal development based on a diesel station followed by steam units at Dar es Salaam using residual fuel oil. The possibility of a coal-fired steam power plant was not a realistic alternative at the time of appraisal because there was no information regarding the coal deposits, quality, costs and its exploitation; the coal field was too far from the load centers and transportation was not practical. The alternative of imported coal was eliminated on the grounds that the port facilities were already too overloaded. 2.08 The following three (the most realistic) development alternatives were presented in the appraisal report (Annex 5): 3/ This item was not included in the original design but adopted on the recommendation of the Bank.  - 5 - Alternative 1: The proposed project followed by the Mtera power plant, followed by a coal-fired plant; Alternative 2: Thermal-hydro blend with a postponement of the project by two years; and Alternative 3: a solely thermal alternative. The economic analyses indicated that Alternative 1 (starting with the project) would be preferred over Alternative 2 (thermal-hydro blend) at discount rates up to 14% and that Alternative 3 (all thermal) is the most expensive and would only be economic at discount rates higher than 23%. 2.09 A number of calculations have since been made to determine whether the project would have been selected over the thermal alternative had the cost estimates at completion been known at the time of the investment decision. With the 1980 upward escalation in fuel oil prices, the equalizing discount rate is now estimated to be about 30%. The project remains, therefore, the most attractive alternative. 2.10 The internal rate of return on investment for the project is defined as the discount rate at which the present worth of the estimated capital and operating costs of the project, over its useful life, equals the present worth of attributable revenues. At the time that the project was appraised in 1976, a discounted cash flow calculation regarding the above rate of return was also determined on the basis of the project's estimated costs and sales. In that calculation, average revenue from the project was assumed to be about T4 45 per kWh. A number of calculations have since been made to determine the revised rate of return on investment by taking the actual Kidatu II cost and the actual sales into consideration. With the increased revenues (T4 65 per kWh), rate of return for the scheme is now estimated at 18%, which is lower than the appraisal estimate. Covenants 2.11 The main covenants concerned employment of consultants, rate of return, revaluation of assets, preparation of tariff study and declaration of dividends. Except for the rate of return covenant, all covenants were met. 2.12 In revaluing assets the average of the Dar es Salaam Retail Price Index for Wage Earners and the Cost of Living Index for Middle Grade Civil Servants, with both indices adjusted to include food items, were to be used, but TANESCO has had difficulty in using this formula because thus based the revalued assets were very high and indicated tariff levels in excess of economic power supply to obtain the required rate of return. Therefore, in the proposed Tanzania Fourth Power Project (Mtera), a cash generation covenant is proposed with the option of returning to the rate of return formula when an acceptable reevaluation formula is agreed to.  - 6 - III. PROJECT IMPLEMENTATION, OPERATION AND COSTS Loan Effectiveness and Project Start-up 3.01 After completion of the appraisal mission in April 1975, an issues paper was prepared in May 1975 (dated May 22, 1975) and a decision memorandum in June 1975 (dated June 12, 1975). Negotiations were held from January 19 to 23, 1976. The Bank Board approved the loan (1306-T-TA) on July 1, 1976, with a delay of about three months due to delays in the tariff increase which was the condition of Board presentation. The loan agreement was signed on August 12, 1976 and became effective on March 1, 1977 with a delay of about three months due to the Government's delay in the approval of the agreement and other formalities. However, these delays did not jeopardize the project construction but it may have affected the contractors' offers for the main civil works as explained in the following paragraphs. 3.02 Only three offers were received for the main civil works. The lowest evaluated bid was about 70% higher than the appraisal cost estimate due mainly to very big differences in the unit costs for various works. 3.03 The original cost estimate was prepared by TANESCO's engineering consultant and a cost estimator/consultant in 1975. Estimates were based on detailed quantity analysis and carefully calculated unit costs for various items in the works. The consultant's cost estimate was rechecked by the Bank consultant during the appraisal and increased contingencies (by about 25% physical contingencies and 37% for expected price increases) were added over and above the original consultants' estimate. In spite of all these precautions, a substantial cost overrun occurred. In the opinion of TANESCO and their consultant this substantial higher bid and cost overrun was due to reasons of lack of contractors' interest and competition due to the timing. Although bidding was internationally advertised and followed up by the consultant and 14 contractors registered themselves as prospective bidders and also received bid documents, only three of them gave offers as indicated above. In fact, the contractors' offers were very close to each other and possibly included a very large risk element not aMticipated by the consultant, TANESCO or the Bank. Other possible reasons could be construction difficulties due to the design of the consultant, and special risks such as working conditions for expatriates in Tanzania, which had not been suitably evaluated by the consultant during the preparation of the bid documents and the costs. 3.04 The Bank then suggested that TANESCO employ an independent consultant to make a realistic project cost estimate and analyze the bid results in detail; and also review the bid documents with a view to identifying special risks and making recommendations as to the line of action to be followed. TANESCO employed a cost consultant for this purpose, and solicited yet a third opinion from a similar firm. 3.05 Although initially TANESCO's engineering consultant had thought otherwise, both cost consultants had definitely indicated in their respective reports that the lowest original offer received for the civil  - 7 - works should be considered reasonable with which they then agreed. The primary cost consultant had also made some recommendations regarding modification to some design aspects and extension of the construction program. 3.06 In light of TANESCO's consultant's recommendations, the Bank and SIDA recommended that TANESCO cable the three contractors who have given offers for the construction of the main civil works to obtain alternative offers for (i) a lower standard contractors' camp; (ii) about ten months extension of construction schedule; (iii) a new payment schedule for temporary works; (iv) amended concrete-pouring speed; and (v) use of mild steel instead of high-tensile steel in the webs of the dam. All three contractors submitted their alternative offers with some reductions from their original offers for the same civil works. The original lowest bid contractor kept its lowest position for the alternative offers with a reduction of about 12% from its original offer. TANESCO, with the concurrence of the Bank and SIDA awarded the contract to this contractor accordingly. 3.07 The above contractor successfully completed the project substantially within the construction schedule. The ten-month extension of the schedule did not cause any difficulties because actual power demand in Tanzania had proved to be lower than the appraisal forecast (Annex 2). However, if the Bank and SIDA had recommended rebidding, the project would have not been completed on time and it is very likely that the final costs would have been even higher due to delays caused by rebidding. 3.08 The main civil contractor at Mtera was delayed in mobilization due mainly to late deliveries of equipment at site. However, with pressure by the Bank, the consultant and TANESCO', the contractor was able to recover the initial delays in the working program. There were no other unusual features or events during the project start-up. Costs and Related Financing 3.09 Comparative cost estimates (appraisal and actual) are given in Annex 3. The actual costs of almost all of the contracts were within the appraisal estimates except for the main civil works contracts. Total actual project costs of TSh 919.6 million (US$109 million) were 25% greater than the appraisal estimate of TSh 732 million (US$89 million) (Annex 1). 3.10 Contingency allowances estimated at appraisal were generally sufficient to cover the extra costs due to miscellaneous variations in all works and to price increases except the main civil and mechanical works at Mtera.  - 8 - 3.11 The original financing plan based on appraisal report cost estimate of TSh 732 million is as follows: Financing Agency Funds Allocated (TSh million) IBRD (untied) 246.57 (US$30 million) SIDA( ) 152.15 (SKr 80 million) KfW ( ) 253.97 (DM 60 million) Govt./TANESCO (to cover local costs) 126.00 (US$15.4 million) Total Funds 778.69 (US$94.9 million) 3.12 Funds provided by the above arrangement were in excess of the appraisal cost estimate and the colenders thought that the project can be constructed without any financing risk. However, after receipt of the bids, the financing requirements of the project had gone up considerably and additional financing had been provided for the completion of the project from EEC, KfW and Government/TANESCO as shown below: Financing Agency Funds Received (TSh million) IBRD 251.67 (US$30 million) SIDA 155.29 (SKr 80 million) EEC 58.72 (US$7 million) KfW 236.13 (DM 55 million) a/ Govt/TANESCO 217.82 (US$25.9 million) Total Funds Used 919.63 (US$109.5 million) a/ The final KfW contribution was DM 70 million. There was a surplus of DM 15 million, which was used for the purchase of rural electrification material and some spare parts for the diesel sets, instrumentation of the dam and load-dispatching communication equipment.  -9- Cost Increases 3.13 The main reasons of the cost overruns were: (a) the initial higher contractors' bids for the construction of the main civil works at Mtera site and other increases due to various reasons such as differences in design and actual quantities; (b) additional works incurred during the course of the construction including the implementation of the ecological studies; and (c) contractors' claims. 3.14 Breakdown of the cost overrun is as follows: Bank/SIDA Financed Portion Appraisal Actual -TSh million-- Mtera Dam Civil Works 115.00 410.06 Mtera Employer's Village and Road Relocation 29.00 52.48 Engineering/Administration 42.00 103.01 Contingencies 131.80 - Subtotal 317.80 565.55 KfW Financed Portion Kidatu Civil Works 13.00 66.05 Kidatu Control Equipment 5.00 15.77 Kidatu Switchyard, Connecting Lines and Morogoro Substation 10.00 37.24 Contingencies 17.47 - Subtotal 45.47 119.06 Taxes 25.00 78.85 TOTAL 388.27 763.46 Total Cost Increases: TSh 375.19 million The net cost overrun (total cost increases TSh 375.19 million minus total cost savings TSh 187.56 million) were TSh 187.63 million including the cost increase in the item of "Taxes" of about TSh 53.85 million. 3.15 In addition to general reasons for increases in costs explained above, there were increases due to additional works not included in the original design. Breakdown of these are given below:  - 10 - Additional Works Costs (TSh million) Bush clearing 0.85 Supply of towing and rowing boats 0.65 Supply of steel boom barrier 1.78 Archaeological survey 0.25 Water supply at new village 0.90 4.33 These costs are included in the "Bank and SIDA Financed" portion. 3.16 The main civil contractor had made various claims during the course of construction. Since these were rejected by the consultant on various grounds, on completion of the works the contractor presented a final document in respect of claims under contract. This was divided into: (i) Those items where the contract provides a remedy in the event of a specific breach (late payments), further covering items normally recompensed under the provisions of relevant clause of the contract in respect of works considered for rerating or admeasurement; and (ii) Claims presented pursuant to the provisions of such clauses of the agreement and subject to evaluation by the consultant in order to determine if such claims are deemed a contract risk or a contractor's responsibility. 3.17 The financial implications of the claims under each section were as follows: (i) TSh 6.22 million (ii) TSh 21.86 million Total TSh 28.08 million 3.18 Breakdown of the TSh 6.22 million is as follows: TSh Million - Interest on late payments 1.42 - Concrete rerating 3.24 - Devaluation of Tanzanian currency 1.56 Total 6.22  - 11 - Breakdown of the TSh 21.86 million is as follows: TSh Million - Port congestion and internal delays 1.44 - Shortage of cement in Tanzania 1.08 - Adjustment in price for imported cement 2.43 - Acceleration costs 6.04 - Price adjustment on expatriate salaries and interest on this 10.87 Total 21.86 3.19 On analysis of the claims, the consultant fully expected that arbitration would result in an award in favor of the contractor. A joint meeting was therefore held between the contractor, TANESCO and the consultant and the following amounts were agreed: under (i) TSh 5.80 million (ii) TSh 8.20 million Total TSh 14.00 million The consultant felt that the above settlement figure reflected a fair and reasonable amount, although had the whole issue been presented for arbitration or to a court, including costs the award could well have been considerably in excess of this amount. The TSh 14.0 million is included in "Bank and SIDA Financed Portion" of TSh 410.06 million above (para. 3.15). Cost Savings 3.20 Cost savings were related to the costs of mechanical and electrical plant mostly financed by KfW and to interest during construction. Breakdown of the savings is as follows:  - 12 - Savings ---- TSh million---- Bank/SIDA Financed Portion Appraisal Actual Mtera mechanical works 46.00 26.57 Contingencies - Subtotal 26.57 KfW Financed Portion Kidatu steel linings and gates 19.00 13.56 Kidatu turbine and pipework 37.00 22.36 Kidatu generators 33.00 28.81 Kidatu and Morogoro transformers and Kidatu cables 24.00 31.90 Contingencies 70.53 Subtotal 229.53 123.20 IDC (Total) 106.00 29.97 TOTAL 335.53 153.17 Total Savings: TSh 182.36 million Disbursements 3.21 The following table compares actual with forecast disbursements: Cumulative Disbursements Appraisal Actual ------US$ million------ FY 1976 2.3 1977 7.3 3.1 1978 13.1 9.3 1979 22.1 17.8 1980 28.1 30.0 1981 30.0 37.0 Bank Loan Closing Date 12/31/81 12/31/81 Deviations between appraisal and actual were mainly caused by the extension of the original construction by about 10 months, late mobilization of the main civil contractor, revised cost estimates (cost overruns), and suplementary financing (EEC Special Action fund No. 55 for US$7 million).  - 13 - Project Implementation 3.22 Physical Problems: The bids received for the main civil works were substantially higher than the estimates made at the time of appraisal. Therefore, alternative offers were asked from the bidders and the original construction schedule extended by about 10 months. Other than these there were no unusual features and events except the following: 3.23 Spillway Bridge Slab: During the pouring of concrete in the spillway bridge, slab-formwork settled on the downstream side due to partial failure of one of the screwjacks supporting the pipe columns of the formwork. However, the concreting was completed in this portion after taking immediate measures to prevent any further displacement. The completed bridge was tested by loading the slab and the results indicated some loss of strength in the downstream beam because some shear cracks developed at the ends of the downstream beam of the bridge. The following measures had been taken to increase the strength to its designed level: (i) additional inclined shear reinforcement steel bars were placed at the ends of the beam; (ii) the chipped cracked concrete in the lower portion of both ends of the beam were replaced by high strength "prepacked concrete"; (iii) the neoprene bearings under the beam were replaced and repositioned to reduce the beam span. Standard load tests made after completion of the above remedial measures have shown that the behavior of the beams were elastic and the spillway bridge is safe. The decision by the consultant to retain the bridge slab by shear strengthening instead of demolishing and recasting it had been taken to enable mechanical contractor to continue with erection of the spillway gates so as to achieve timely completion of the project. TANESCO's panel of experts who were supervising the project from time to time also recommended the above remedial measures instead of recasting (para. 4.02). 3.24 Concrete Quality: From one of the periodical reviews of the test results of the moulded specimen of concrete blocks on the dam during construction, it was found that some individual pours of concrete were below specifications, particularly in regard to compressive strength and permeability though the actual strength was still within the acceptable limits from the design's point of view. However, this problem was investigated and rectified immediately. The rectification measures included strict control of water cement ratio and correct assessment of water content in the mix so as to compare favorably with the one provided in the mix design. A very strict sampling and sample cube preparation method was also established to obtain realistic results from the tests. In addition, general improvement on the quality and grading of the aggregate and sand was also made apart from addition of extra cement as a measure of additional precaution. Further, to check on the actual strength of this concrete as placed in the dam blocks, cores were circled out and tested for  - 14 - compression strength and permeability. Schmitt Hammer tests were also conducted on some of the spillway sill blocks. As a result of all these investigations, it was judged that a few of the concrete test results that were lower than specifications do not impair the stability and water tightness of the dam. 3.25 Concrete stoplogs of bottom outlet of the dam: the consultant, in its design of the dam, provided a bottom outlet with a gate to release the reservoir water to the downstream power plants during very dry seasons when the water level in the reservoir is lower than the sill level of the main spillway gates. The consultant's design also provided concrete stoplogs so that the gate can be raised and hooked up during the normal operation of the spillway gates. The main civil contractor had been in trouble during the placing of the concrete stoplogs due to uneven concrete surfaces contiguous to stoplog guides. One of the stoplogs had fallen during the placement and was damaged. There was no aeration provision for the conduit between the stoplogs and the outlet gate. During regulation of water releases this could actuate jutting out of stoplog seals and increase leakage, with possibility of displacement of stoplogs. To avoid any damage due to cavitation to the stoplogs and the bottom outlet structure, the radial gate downstream was closed and the contractor rectified the above damage and replaced the logs. There were also difficulties with the stoplog lifting equipment due to poor design. This also was rectified by changing designs and lifting methods. The above problems have been discussed with the engineering consultants and needed improvements would be made in connection with the Mtera hydropower project construction. In the meantime, no specific risks are expected as water releases through the bottom outlet are not required until reservoir level goes below the dead storage level. 3.26 Seepage on the left bank of the Mtera dam: After completion of the construction of the dam and partial impounding, a seepage of reservoir water from underneath the buttress dam was noted through an investigation hole located in the monolith. When the reservoir level reached to about 80% of the full supply, it increased from 10 liters/min to 45 liters/min. Although this level of seepage is not very important, grouting was carried out through the inclined grout holes from the downstream side. However, the grouting has not been very successful, so the drainage has been further improved by drilling additional holes through the rock underneath some of the monoliths so that water is collected through a pipe and drainage is provided into the bottom outlet channel. Further, some seepage of water has been noted at some points along the left flank downstream of the dam up to about 500 meters. However, there is no evidence of soil particles coming out with the seeping water and seepage is within safe limits. TANESCO regularly measures the seepage of water at selected points and checks water quality for dissolved salts periodically. So far, no unusual or important indications have been seen. 3.27 Kidatu powerhouse - cracks in turbine floor: Some cracks on the turbine floor at unit No. 4 were observed after the commission of the units, and water oozing from them. The consultant did not consider it very important but investigated it further to make its final recommendations. On review TANESCO's panel of experts and the consultant agreed that the cracks which occurred and will occur in the embedment concrete are not harmful and can be controlled by providing proper surface reinforcements and a joint.  - 15 - 3.28 Administrative Problems: There were important project execution problems that persisted almost during the entire construction period. There were port congestion, bad access roads to the Mtera site, fuel and cement shortages, travel restrictions, and also some delays in payments. Although none of these was so important as to interrupt the execution of the project, all created complications for the contractors, the consultant and TANESCO. 3.29 Port congestion: Port congestion remained very acute during most of the construction period. The ships stayed at outer anchorage 3 to 6 weeks. However, all the authorities concerned were approached to obtain priority to the ships carrying the project consignments and this did help to a great extent to get the commodities cleared generally within reasonable times. 3.30 Roads: Particularly access roads to the Mtera and also Kidatu sites were in a very bad shape and this resulted in lots of hazardous situations such as breakdown of transport vehicles and delays in transit of plant and/or equipment and material. Here again, TANESCO did manage to secure some, at least the lowest level, maintenance of these roads from the Ministry of Works and provided the continuation of transportation. 3.31 Fuel shortage: The general fuel shortage in the country became very critical for construction at one stage during 1979-80. However, TANESCO and the consultant warned the contractors in time to build their storage facilities roughly corresponding to about 3 to 4 weeks requirements and disruption in progress was prevented. 3.32 Cement shortage: There was a general shortage of cement in the country because of frequent breakdowns, of various equipment at the cement factory (Wazo Hill and also Tanga). TANESCO with the assistance of its parent ministry, succeeded in securing enough cement on priority basis and also adequate storage (about 1,500 tons) was available at project sites. However, the main civil contractor at Mtera had to import about 3,000 tons of cement from Italy out of the total requirement of about 25,000 tons. 3.33 Travel restrictions: The spread of cholera in the country during the construction period created some difficulties regarding the traveling of expatriate personnel in epidemic areas in Tanzania. However, TANESCO obtained necessary permits for the movement of the contractors? personnel from local authorities. 3.34 Delays in payments: Most of the contracts provided 60 and 45 days' period for provisional payment certificates for civil works and plants respectively. These periods proved to be inadequate particularly for the local and/or foreign component of the payments that were to be made by the external financing agencies. Since most of the finances are arranged between the financing agencies and the Government, various procedures had to be followed which were lengthy due mainly to intermediate commercial banks (sometimes three or four intermediate banks) which were agents of the contractor or financing agency. The contractors sometimes had difficulties in mobilizing sufficient financing to compensate for such delays.  - 16 - Ecological Aspects 3.35 A general ecological review of the Kidatu site and the Mtera reservoir was completed in 1970 (financed by SIDA) in context of the ecological aspects of the development of the Great Ruaha Basin. Following this general review, an in-depth study of some aspects of the ecology was completed in 1972 during the course of construction of the First Stage Kidatu project. These studies did not indicate negative effects which would impair the feasibility of the damming at Kidatu and also at Mtera. A further in-depth study was also completed for the Mtera reservoir on about 35 ecological subsubjects such as vegetation and wildlife, soil erosion and sedimentation, implanting, limnology, disease ecology, relocation, etc. Recommendations resulting from this study were discussed with the Bank and measures were taken to safeguard certain environmental aspects. These are given below (those not included in the original design are detailed in para. 3.57): 3.36 Relocation: The inhabitants of the areas later submerged by the Mtera reservoir were relocated at Migoli village after many investigations regarding the selection of the best area for resettlement. Migoli village is about 27 km from the Mtera dam towards Iringa. About 2,000 persons were resettled at Migoli; apart from some houses, a dispensary, a community hall, house for medical assistance have been constructed through the project funds and additional SIDA funds of about $2.0 million. Water supply, school, etc. mostly financed by SIDA have been provided by the regional authorities. 3.37 Relocation of Iringa-Dodoma road: A stretch of the Iringa-Dodoma road crossing the river about 6 km upstream of the dam was located below the reservoir level. Therefore, about 34 km of this road were relocated and constructed so as to pass over the crest of the dam before impounding the reservoir. The old Iringa-Dodoma bridge about 6 km upstream was demolished. 3.38 Extension of the Ruaha National Park: Extension to the Ruaha National Park was recommended by the Bank with a view to protecting the wild animals which would be attracted by the reservoir. The original boundaries of the park have been expanded to the reservoir by the concerned authorities (ministries and the local government). The entire reservoir area has been declared as the game control area. 3.39 Foreshore agriculture: The water shored in the soil when the lake level sinks will be sufficient for development of foreshore cultivation in part of the area. Regional authorities have still to initiate concrete measures to prepare land use plans and toward research as to the crops that can be grown utilizing holding capacity of the soils. Programs have yet to be worked out for overhead irrigation from the semi-isolated northern appendix (logi) of the reservoir. 3.40 Fisheries: Action initiated by the federal and local authorities has also been taken to tap the fish potential of the lake. Systematic development of fisheries is underway. A minimum yield of 3,000 tons per annum of fish is expected from the reservoir.  - 17 - 3.41 Soil erosion: No action program has been drawn up by the regional authorities for preventive measures against any soil erosion and consequent silting of the reservoir. The inflow of about 8 to 10 million tons per annum of sediment is not significant for the filling of the reservoir by silt soil erosion, but the washing away of agriculturally valuable soil is important. 3.42 Disease control: Health hazards due to bilharzia appear to be certain as is the case with the other natural lakes in the vicinity. Adequate arrangements for hygiene and health education are necessary. No action program has been worked out so far by the regional authorities due to budgetary restrictions and other priorities. 3.43 Aquatic weeds: There is a possible menace of aquatic weeds such as water hyacinth, but necessary preventive measures have not yet been taken. 3.44 Environmental changes between Mtera and Kidatu: Damming at Mtera will have little influence on human or wildlife, particularly in view of the fact that there are only a few settlements at the vicinity of this stretch of the river. The changes in the hydraulic regime will decrease the risk of harmful erosion at the bridges and other places because the regulated flow by the reservoir operation will increase the dry season discharges while cutting the peak flow of March - April. Performance of Consultants and Contractors 3.45 Consultants: The main consultant for this project was retained in April 1975. The consultant prepared the feasibility report, design of the project, bid documents, specification, and carried out bidding, bid evaluation, construction supervision and the project management as it did for the first stage development. The overall performance could be classified as satisfactory. However, considering the consultant's long-standing history of professional association with TANESCO, there were unexpected shortcomings as explained below. 3.46 The consultant's failure to document properly the main civil contract for the Mtera site, in one case, led to some trouble and gave advantage to the contractor to make a claim of TSh 10 million regarding adjustment of expatriate salaries. The consultant had issued an addendum during the bidding that only 50% of expatriate salary adjustments would be covered by the employer. However, this addendum had not been sent to the prospective bidders by registered mail and this change had not been indicated in the corrigenda to the addendum. Although it is believed that all other prospective bidders had received the addendum, the Mtera site contractor told the employer that he did not receive the addendum; thereby, claiming the right to have 100% compensation of expatriate salary increases as originally indicated in the bid documents. 3.47 The consultant's cooperation with the employer's field office was reasonably good but there were some interruptions in coordination. For example, in respect of variation orders, the consultant usually was not punctual in submitting its detailed evaluation of variation in the  - 18 - quantities of works and reratings of unit prices and daily reports for drilling, grouting, drainage and anchors, etc. This created some strain from time to time between the field office of TANESCO and the consultant. 3.48 Detailed geological mapping regarding the geological structure and conditions of the completed foundations before concreting have not been clearly done though this was a principal work of the consultant. These maps are sketchy and somewhat difficult to interpret. 3.49 Contractors: The performance of all the contractors on this project in respect of their tendered works has been reasonably satisfactory. The only local contractor also made strong efforts to complete works as originally scheduled but failed to do so purely due to the difficulties that local contractors have in importing essential plant and materials and spares. However, delays in completion of its works (relocation of the road and construction of the employer's village) did not have any negative effect on the final completion date of the project. The objectives of all the contracts with respect to the original construction program for various works at Mtera, Kidatu and Morogoro sites were generally satisfied. 3.50 The main civil contractor at Mtera took every opportunity to make a claim, though its unit prices offered for the construction of the works were unusually high compared to other contractors doing similar jobs in other countries. Main Contracts 3.51 The main contracts are summarized in Annex 3. The important design changes are summarized below. Important Changes in Original Design 3.52 Before and during appraisal the Bank appraisal team had recommended various design modifications to the original design such as increase of the thickness and a gentler slope of the buttresses, bigger spillway dimensions, etc. After bidding some additional recommendations were made regarding the expansion of construction schedule and method of pouring concrete. During construction many modifications had been done to the final design on the basis of the results of excavations, soil tests, and additional drilling, etc. as usual for this type of construction. However, the most important design modifications are given below. 3.53 In respect of the hydraulic studies as initially done by the consultant for the design of the spillway, the panel of experts pointed out that: (i) model studies dealt more with selection of appropriate cost profile than with important aspects of energy dissipation; (ii) studies did not indicate to what shape the surface between the end of the chute and the river edge should be trimmed to facilitate proper flow conditions.  - 19 - Consultants generally agreed to the suggestions of the panel and repeated hydraulic model tests to ascertain correct velocities of flow, water profiles, and information of hydraulic jump, etc. under various flow conditions and tailwater elevations. 3.54 The consultant's initial design was to leave the spillway chute unlined. Detailed hydraulic model studies and geological investigations showed that the spillway chute should be concrete lined to avoid costly repairs during the operation. 3.55 During the construction, the panel of experts (para 4.02), subsequent to their detection of some significant rock fractures exposed in the near vertical cut walls forming the upstream limits of the excavation, recommended strengthening the left abutment slopes in the vicinity of the dam. These fractures were roughly parallel to the original ground surface and about 1 m to 2.5 m below it and steeply dipping towards the river, which could cause slides in the area immediately upstream and downstream of the abutment. As a remedial measure, the experts recommended providing tensioned rock bolts of high grade steel at critical locations. This was accepted by the consultants and done. About 50 tensioned rock bolts were installed. 3.56 Instrumentation on the dam such as strain gauges, peizometers, reservoir, water level recorders, thermal probes (to monitor concrete temperatures during setting) and devices for the measurement of drainage water pressures, recommended by the panel of experts was generally accepted by the consultants and these were put in place during the construction. 3.57 Moreover, as was mentioned in Chapter 1, the following additional works were accomplished though these were not included in the consultant's original design. (a) A floating boom was constructed about 2.3 km in length at about 2 km upstream of the dam to catch the floating debris; (b) Bush was cleared at negligible cost up to about 2.3 km upstream of the dam in the area of about 140 hectares below the full supply level of the reservoir; (c) The original ecology study recommended that the displaced inhabitants of the project area be resettled at a new village which would be constructed at a new place about 3 km far from the lake. Water supply would be provided by a well. During construction water could not be found at the site selected in the ecological study, and finally the villagers were resettled in the old village of Migoli about 27 km from the Mtera dam towards Iringa.  - 20 - IV. INSTITUTIONAL PERFORMANCE Management and Organizational Effectiveness 4.01 In general, TANESCO has worked with competence and carried out its project preparation, procurement and construction supervision obligations satisfactorily. 4.02 Apart from the consultant, TANESCO was assisted by a part-time "panel of experts" consisting of three civil engineers (these are specialists on design, general civil engineering and concrete structures), one geologist/general civil engineering specialists and one claims advisor. Moreover, two advisors/experts on general construction and planning (one at Mtera site and one at the headquarters of TANESCO) had helped TANESCO to overcome the difficulties encountered during the construction. Costs of the panel and two advisors were covered from the proceeds of the Bank/SIDA joint funds. TANESCO's panel and the advisors/experts' works were useful and satisfactory. 4.03 TANESCO's operations and the workload of the headquarters have about tripled during the last decade. Fortunately, TANESCO has satisfactorily changed and rearranged practices and methods to overcome increasing operational loads. 4.04 The help of the local authorities through the coordination of TANESCO (Regional Development Directors' headquarters staff at Iringa and Dodoma), particularly regarding the implementation of the ecological studies, has also been significant. 4.05 The quarterly reports, prepared by the consultant and TANESCO, and the panel's reports on the progress of the project construction were well prepared and invaluable to the Bank supervisory staff. Training 4.06 TANESCO has developed a sound training program with the appropriate objectives for manpower development through the help of SIDA and the Bank Group for many years. It has now a manpower development and training unit with four full-time officers at headquarters and regional training officers who would follow up training and personnel activities. TANESCO spends about US$1 to 2 million every year for training. 4.07 TANESCO has a technical institute (TTI) at Kidatu where at technician level, electricians, general mechanics and diesel mechanics are being trained. Forty-eight students per year are admitted (16 in each of the three categories) and approximately 42 graduates annually. Since the appraisal about 170 students have graduated from the TTI. The staff consists of one principal, 13 techical instructors and 6 general academic teachers. There are dormitory facilities for about 180 students.  - 21 - 4.08 From 1978 to 1981, through the project loan (1306-T-TA) the Bank financed an overseas management training program for 27 high level TANESCO officials, of whom 21 have remained with TANESCO. This training program was mainly carried out by a training consultant and has substantially increased TANESCO's operational efficiency and improved decision-making practices. This program covered the training of mid management and professional staff in the fields of power planning, design, construction, stock control and supplies, auditing, billing/collection, cost accounting/power company accounting, computer programming, financing/economic analysis, manpower planning and development and statistics. The Bank missions prepared draft terms of reference of each trainee and approved the program as finalized by TANESCO and their training consultant, monitored the program during its implementation, identified weaknesses and improved the program as necessary. The Bank missions also interviewed trainees to evaluate their knowledge supplemented as necessary, and pointed out documents for further self development. 4.09 During the period of 1977-81, an additional 60 TANESCO staff were trained funded by the Government and various international financing organizations other than the Bank Group. TANESCO also has a small commercial school in Dar es Salaam established in 1978, which offers basic courses in accounting, meter reading, storekeeping and procurement. This school has 3 teachers who train about 50 clerks per year. 4.10 In the early 1970s TANESCO employed about 50 expatriates. At the time of the appraisal there were 17; at the time of project completion there were only 6 expatriates, whose work is purely technical. This is largely due to the success of the training programs described above, and is a remarkable achievement. V. FINANCIAL AND RELATED ASPECTS Financial Arrangements 5.01 A comparison of the actual and the estimated financing of the project in millions of Tanzania shillings and US dollars, converted at US$1 = TSh 8.25, the average exchange rate for the loan, and at the appraisal rate of US$1 = TSh 8.05, is given below. The appraisal estimates have been adjusted to reflect the longer implementation period, 1975-1981.  - 22 - Actual Appraisal Estimate Actual over (under) 1975-1981 1975-1981 Appraisal Estimate TS US$ m % TSh m US$m x ThU$m Application of Furnds Kidatu Project 889.7 107.8 35.8 626.0 77.8 32.7 263.7 30.0 Ongoing Projects and Other Construction 1,120.1 135.8 45.1 1,021.5 126.9 53.3 98.6 8.9 2,0C9.8 243.6 80.9 1,647.5 204.7 86.0 362.3 38.9 Interest during Construction 57.7 7.0 2.3 188.7 23.4 9.9 (131.0) (16.4) Total Construction Expenditures 2,067.5 250.6 83.2 1,836.2 228.1 95.9 231.3 22.5 Increase in Working Capital 326.3 39.6 13.2 79.1 9.8 4.1 247.2 29.8 Other 89.5 10.9 3.6 - - 89.5 10.8 Total Application of Funds 2,483.3 301.1 100.0 1,915.3 237.9 100.0 568.0 63.2 Sources of Furxns Internal Cash Generation 1,029.2 124.7 41.4 1,396.0 173.4 72.8 (366.8) (48.7) Less: Debt Service (393.0) (47.6) (15.8) (508.2) (63.1) (26.5) (115.2) (15.5) Dividernds (7.8) (0.9) (0.3) (153.5) (19.1) (8.0) (145.7) (18.2) Net Internal Cash Generation 628.4 76.2 25.3 734.3 91.2 38.4 (105.9) (15.0) IB8D loan 251.7 30.5 10.1 241.5 30.0 12.6 10.2 0.5 SIDA Credit 155.3 18.8 6.3 149.7 18.6 7.8 5.6 0.2 KfW Loan 236.1 28.6 9.5 193.2 24.0 10.1 42.9 4.6 EFE 58.7 7.1 2.4 - - - 58.7 7.1 Existing/Other Loans 526.0 63.8 21.2 353.1 43.9 18.4 172.9 19.9 Total Borrowings 1,227.8 148.8 49.5 937.5 116.5 48.9 290.3 32.3 Equity Contribution 581.3 70.5 23.4 226.7 28.1 11.8 354.6 42.4 Consumer Contribution 45.8 5.6 1.8 16.8 2.1 0.9 29.0 3.5 Total Sources of Funds 2,483.3 301.1 100.0 1,915.3 237.9 100.0 568.0 63.2  - 23 - 5.02 Construction expenditures were above estimate for reasons outlined in paragraphs 3.13 to 3.19. Net internal cash generation provided 23.3% of total financing requirements compared with 38.4% estimated at appraisal (32.2% for 1975-1980). Internal cash generation was significantly lower than forecast (paragraphs 5.05 and 5.06) but lower debt service, reflecting longer grace periods for borrowings on-lent to TANESCO by Government, and small dividend payments, served to offset this. Borrowings, equity contributions by Government and consumer contributions were above appraisal estmates. Working capital increased substantially over the period, reflecting excessive levels of accounts receivable (127 days sales in 1980) and of inventories (including a relatively high proportion of obsolete stocks). Accounting and Audit 5.03 TANESCO's accounting staff are competent and procedures are good. TANESCO has maintained adequate records and, except in FY80 and FY81, has substantially met the audit covenant which requires its financial statements to be audited by independent auditors acceptable to the Bank (the Government-owned Tanzania Audit Corporation, TAC) and submitted to the Bank within five months after the close of the fiscal year. Since 1980, the computer which TANESCO uses to maintain its records has been operating effectively only intermittently and, as a result, billing and other accounting procedures have been severely affected and the audited accounts for the past two years have not been submitted to the Bank as required. Once the new computer, now on order, has been installed, these problems are expected to be resolved. Financial Performance and Compliance with Covenants 5.04 Appraisal estimates and actual Income, Balance Sheets and Funds Flow Statements covering 1975 to 1981 are given in Annexes 6, 7 and 8. 5.05 The following table indicates percentage variations in financial operating performance compared to appraisal estimates. 1975 1976 1977 1978 1979 1980 1981 Electricity Sales - 2 - 9 -18 -14 -13 -12 -19 Ave. Tariff Levels - 1 2 7 -12 -13 6 6 Revenues - 3 - 7 -10 -25 -24 - 7 -14 Operating Expenses 3 3 - 3 - 7 - 4 1 12 (excl. depreciation) Operating Income -12 -16 -17 -40 -41 -12 -32 (before depreciation) Internal Cash Generation -14 -33 -20 -41 -37 - 9 -29 5.06 Revenues were below forecast due to lower than anticipated electricity sales and average tariffs; operating expenses were higher largely because of increases in fuel costs amounting to nearly 23% per annum. During the project implementation period, TANESCO increased tariffs only twice: by 40% in June 1976 and by 42% in December 1979. These tariff  - 24 - adjustments were insufficient to enable TANESCO to achieve the required 7% return on revalued net fixed assets in operation, except in 1980. This, combined with excessive accounts receivable (paragraph 5.02) resulted in cash shortages for the company throughout the period. The current ratio has been positive throughout but is based on inventory figures that contain a significant obsolescence factor. The Debt/Equity Ratio has been more conservative than estimated at appraisal due to larger than expected government equity contribution. Although internal cash generation has been lower than estimated, debt service coverage was in line with the forecast because of reduced debt service (paragraph 5.02). VI. BANK PERFORMANCE Overall Performance and Working Relationships 6.01 The Bank played an important role in the preparation of the projects and in coordination and negotiation between the colenders. The Bank provided a good project construction supervision unit through the panel and the two advisor/experts. TANESCO is very satisfied with the panel and supervision advisors and continued to use them when necessary even after completion of the project. The Bank's environmental expert's input regarding the implementation of the ecological report was very helpful and useful. 6.02 The most important supervisory relationships were those between the Bank and TANESCO and these were generally very good. The Bank supervision missions did help acceleration of the contractor's mobilization and the Bank provided the supplemental loan on time for the continuation of construction. The Bank has systematically guided and encouraged TANESCO's training program and the program's achievements show the effects of proper cooperation between the implementation agency and the Bank. VII. LESSONS LEARNED 7.01 The declining general economic situation of the country, which was not generally predicted, was the main cause for the actual growth rate in energy and capacity demand of the grid from 1976 to 1981 having been substantially lower than projections made during appraisal. The most important lesson relates to the initial cost overrun. In order to prepare realistic cost estimates and a corresponding financing plan, cost estimates should be reviewed by an independent cost consultant as early as possible in the preparation of the project, preferably before the appraisal of the project. Despite this, the tender prices could still be different from the appraisal estimates because it is difficult to assess in advance the contractor's or the supplier's cost of doing business in the country at a particular time.  - 25 - 7.02 Another important lesson is that local indices for the revaluation of assets should be used with caution in Tanzania. To provide a more satisfactory test than a rate of return thus derived, the next project in this context might include a cash covenant instead of a rate of return covenant. However, a comprehensive study still needs to be carried to establish the most suitable method in this regard. 7.03 Ihe other important lessons to be learned could be summarized as follow: (a) The engineering consultant and the employer should be punctilious regarding the proper documentation and punctual mailing of the bid documents not to create additional reasons for contractors' claims; (b) Training is the fundamental means by which technology is transferred to a developing country, thus a training component, including management training should be included in projects; further, the policy for replacement of expatriate personnel by nationals must be fully coordinated with a training program; (c) Careful and knowledgeable supervision is essential and, apart from the main engineering consultant, the services of a panel of experts and also some additional advisors should be provided when necessary; services of the panel and advisors could be part-time and cost of these services will be very minimal; (d) Timely payments are very important for the healthy progress of the project implementation and bid documents should clearly stipulate the timing between the engineer's certificate and the Bank's order for payments to the contractor's intermediate bank agent; (e) The quality of hydraulic model studies is extremely important in such projects. Some small design changes might give the borrower significant advantages during the operation of the project; (f) Instrumentation on the dams and the recording of the initial measurements regarding seepage and the artesian pressures are important and these instruments should be included in the bid documents because unexpected readings can occur even after construction; (g) The exceptionally large ecological component of the project taught that specific supervision of ecological aspects is warranted from time to time by environmentalists. It is also important that institutions should be made aware of the long term objectives of ecological precautions; and (h) The local engineering staff should be made available as counterparts to the main engineering consultant in order to acquire necessary knowledge and experience in designing and building power facilities.   TANZANLA KIDATU HYDROELECTRIC PRWOECT SECOND STAGE Comparison- of Revised Cost Estimates with Appraisal Cost Estimates (In TSh Million) Appraisal Estimate Estimates after Contract Cost to Completion in 1976 Negotiation 1977 August 1981 Contracts/Works Local Foreign Total Local Foreign Total Local Foreign Total Bank/SIDA Financed Portion Mtera dam civil works (CD 1) 27.00 88.00 115.00 111.49 207.06 318.55 143.95 266.11 410.06 Mtera dam mechanical works (CD 2) 5.00 41.00 46.00 4.15 18.80 22.95 4.58 21.99 26.57 Mtera employers village (CD 3) 2.00 - 2.00 14.96 4.22 19.18 includes above CD2 Mtera relocation of road (CD 4) 8.00 19.00 27.00 24.60 6.94 31.54 42.30 10.88 52.48 Training 1.00 2.00 3.00 1.00 2.00 3.00 1.00 2.00 3.00 Enginering/Administration 7.00 35.00 42.00 12.74 75.46 88.20 16.85 86.16 103.01 Contingencies 43.00 94.00 137.00 55.34 95.17 150.51 - - - Subtotal Bank/SIDA Financed Portion 93.00 279.00 279.00 224.28 409.65 633.93 208.68 386.44 595.12 KfW Financed Portion Kidatu civil works (CD 21) 3.00 10.00. 13.00 15.62 46.86 62.48 16.17 49.88 66.05 Kidatu steel linings & gates (CD 22) 1.00 18.00 19.00 1.63 11.27 12.90 1.61 11.95 13.56 Kidatu turbines & pipework (CD 23) 4.00 33.00 37.00 1.28 19.99 21.27 0.81 21.55 22.36 Kidatu generators (CD 24) 3.00 30.Ou 33.00 2.23 25.34 27.57 2.47 26.34 28.81 Kidatu transformers (CD 25 AK) - - - - - - 1.07 12.92 13.99 Morogoro transformers (CD 25 AM) 2.00 22.00 24.Uu 3.66 28.07 31.73 1.06 8.34 9.40 Kidatu 220-kV cables (CD 25 i3) - - - - - - 1.27 7.24 8.51 Kidatu control equipment (CD 26) 1.00 4.0U 5.00 1.72 13.19 14.91 0.23 15.54 15.77 Kidatu switchyard, connecting lines and Morogoro substation (CD 27) 1.00 9.00 10.00 7.67 29.92 37.59 7.01 30.23 37.24 > Contingencies 17.00 71.00 88.00 5.10 26.87 31.97 - - - Subtotal KfW Financed Portion 32.00 197.00 229.00 38.91 201.51 240.42 31.70 183.99 215.69 a Taxes (for all works) 25.00 - 25.00 52.90 - 52.90 78.85 - 78.85 IDC (for IBRD/KfW and amounts) 70.00 36.00 106.00 - 36.00 36.00 - 29.97 29.97 Subtotal 95.00 36.00 131.00 52.90 36.00 88.90 78.85 29.97 108.82 TOTAL 220.00 512.00 732.00 316.09 647.16 963.25 319.23 600.40 919.63  TANZANIA KIDATU HYDROELECTRIC PROJECT SECOND STArE DEVELOPMIENT CONSTRUCTION SCHEDULE IMTERA DAM) ACTIVITIES YEAR OF CONSTRUCTION 7 9s1791go19 TEMPORARY WORK& RIICbI 'C,IKOI,a.p.OE I0oo. RE L CEC.. AT s, IEO2 DODOM. - I INGA -- ROAD E--.RIO MCCHAIJICAE.....ORWS SPILLWVAY CPil~ d ln.,505 OTER NIAWORKS G-5TI.cav 'R SPILLWAY Cmure ..-d 01- 1. .4 ""~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AWR002I75  N A 0 r- - i F X 3t X =~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t lP- - > o X I 0 1 t 0 0 l 1 0 1 f l I 0 41 ~ ~~~ - - -_ - - - ---'.,-,.,,-. ',','''-- - -- -lll ___ I lu l= i Inc00 PWWS Ui -n SI m4EOWG ncdC,d 111 1 1 1~W- ' l I 1 - - - I I pWOdO, di_ r,0 C ISf ~W j ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0- --W-, M..-o ,. Si00 ! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C G.,- 3SflOH)t3AOd IlflY 4 1 J tO NOISN3IX3) 3fl0)HC.S-, NOIiDfMlHSNOD IN tWdO13A3O 3DV15 cINOJ3S VtNVZNVlN  TANZANIA GREAT RUAHA PROJECT - PHASE II Statement of Contracts and Works Tendered Completion Contract No. Sum Cost Scope of the Works CD 1 363,554,247 410,054,611 Temporary Works: Staff camps, labor camp, community center, school, dispensary, police station, post office, and other temporary facilities. Works Ftera Dam: Concrete structure of the buttress type with connecting gravity dam at the right bank, crest length 260 meters, crest width 10 meters and maximum height 45 meters. Road: Relocation of the northern and southern parts of Iringa-Dodoma road (northern part - about 9 km) and southern part (about 3.3 km). Miscellaneous: Civil works pertainirg to floating steel boom, new settlement public facility buildings, etc. DC 2 - Mtera Mechanical Works 24,448,277 26,571,028 Four radial gates with hoists and embedded parts, one 0 bulkhead gate and four sets of embedded parts, one gantry crane with rails and beam, one bottom outlet gate with hoist and one set of embedded parts for concrete stoplogs. CD 3 & 4 - Employers Village & 56,216,233 52,483,851 (a) Fourteen family houses, guest house (2 blocks) with Relocation of Road swimming pool, few employers office (2 blocks), ancillary works (sanitary, electrical installations, etc.) (b) Relocation of southern part of Iringa-Dodoma road (22 kms), access road including bituminous surfacing to the employers village and ancilliary temporary works. CD 5- Bush clearance 0.95 0.85 Bush clearance up to 2.3 km upstream of the dam below x the reservoir level (about 150 hectares). 1.76 1.78 Supply of steel booms. 0 0.64 0.65 Supply of towing and rowing boats. 0.20 0.25 Archaelogical survey/salvage in the submergence area of the Mtera reservoir. 1.20 0.90 Water supply investigations for new settlement.  CD 21 68 ,475,995 66,052,554 Concrete lining of cylinder gate shafts 3 & 4 and removal of temporary concrete walls in intakes 3 & 4, installation of permanent drainage pipes in penstock 3 & 4, concrete structures for installation of generators 3 & 4 together with appurtenant finishes, extension of cable culverts and foundations for connecting lines at pothead, concreting roads in the access tunnels. CD 22 - Penstock Steel Linings 14,100,046 13,562,554 Two penstock steel linings, one sliding gate with and Gates lifting wires on a drum and spares, two cylinder gates with hoists and appurtenant equipment and spares. CD 23 - Turbines and Pipework 22,765,320 22,351,637 Two complete turbine units with governors with all appurtenant equipment, all necessary pipes, valves, supports, etc. for supply of cooling water, two pumps, pipes, valves for dewatering of draft tubes with all appurtenant equipment. CD 24 - Generators 29,072,719 28,809,905 Two complete vertical shaft salient pole generators with excitor and with all appurtenant equipment. CD 25 AK - Transformers for Kidatu 13,968,630 13,993,420 Seven single-phase, set-up generator transformers, complete with all appurtenant equipment for Kidatu power plant (20 MVA, 10.5 kV - 220 kV). CD 25 AM - Transformers for Morogoro 10,368,100 9,394,700 Four single-phase, 30 MVA transformers with all appurtenant equipment plus two 20-MVA regulating transformers all for Morogoro. CD 25 B - 220 kV cables 9,394,986 8,509,631 Six single-phase, 220 kV cables with potheads, including fire protection measures. CD 26 - Generator switchgear, control 16,407,100 15,767,743 Generator switchgear, control equipment, extension of equipment, local power and lighting local power and lighting installation. CD 27 - 220 kV switchyard, connecting 40,088,630 37,237,117 220-kV lightning arresters and pull-off structure for lines, Morogoro S/S the pothead, 220-kV switchyard at Kidatu, 220-kV connecting lines with all civil works, Morogoro substation with civil works.  TANZANIA KIDATU HYDROELECTRIC PROJECT STAGE II PROJECT COMPLETION REPORT Internal Rate of Return (TSh Million) Attributable Operation Deflated 2/ Kidatu Distribution & and Total Years II Transmission Maintenance Cost Benefits 1/ Deflator Cost Benefits Net Benefits -