Jordan - Sixth Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6075-JO STAFF APPRAISAL REPORT JORDAN SIXTH POWER PROJECT May 5, 1986 Projects Department Europe, Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENC EQUIVALENTS Currency Unit = Jordan Dinars (JD) JD 1.00 = 1,000 fils JD 0.38 =- US$1.00 - JD 1.00 = US$2.63 WEIGHTS AND MEASURES 1 meter = 3.281 feet (ft) 1 kilometer - = 0.621 mile 1 kilogram (kg) = 2.205 pounds (lb) 1 ton (1,000 kg) = 1.102 short ton (sh ton) = 0.984 long ton (lg ton) 1 barrel (bbl; 0.159 m3) = 42 US gallons (gal) 1 kilowatt (kW) = 1,000 Watts 1 Megawatt (MW) = 1,000 kW 1 kilowatt hour (kWh) = 1,000 Watthours (Wh) 1 Gigawatt hour (GWh) = 1,000,000 kWh = lX000 MWh (=106 kWh) 1 kilovolt (kV) = 1,000 volts (VJ 1 kilovolt ampere (kVA) = 1,000 volt amperes (1 kVA) 1 Megavolt ampere (MVA) = 1,000 kVA I kilo litre (103 litres) = 6.28981 American barrels GLOSSARY OF ABBREVIATIONS ATPS - Aqaba Thermal Power Station EDBMS - Energy Data Base Management System EMENA - Europe, Middle East and North Africa ESS - Energy Sector Study HTPS - Hussein Thermal Power Station ICB - International Competitive bidding IDECO - Irbid District Electricity Company IAEA - International Atomic Energy Agency JEA - Jordan Electricity Authority JEPCO - Jordanian Electric Power Company LPG - Liquified Petroleum Gas LRMC - Long-Run Marginal Cost MAED - Model for Analysis of Energy Demand MEMR - Ministry of Energy and Mineral Resources MOP - Ministry of Planning NRA - Natural Resources Authority RSS - Royal Scientific Society SOE - Statement of-Expenditure-, toe - - tons of oil equivalent WASP III - Wien's Automatic System Program Package III Financial Year =.Calendar Year (2851P)  FOR OFFICL USE ONLY JORDAN SIXTH POWER PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. SECTOR BACKGROUND 1.....**.............................. 1 Introduction 1....... .................I Resource Base and Development Prospects. I Energy Consumption ........ . . ....... ...... . ....... 2 Electricity Consumption .... 2 Petroleum Product Pricing . .3 Electricity Tariffs .. .......... ........ 4 Tariff Structure ............... .,. ......... 4 Existing Tariffs and Economic Cost of Supply .....Y... 5 Institution ..- ..** ............ - .... .... 6 II. THE POWER SUBSECTOR ....7 ..................o.....* 7 Subsector Organization .7..... ..... ........ 7 Subsector Development.......... 7 Role of IDA/Bank ....... .... .... 7 General Characteristics of the Electric Power System ... 8 - 'J~~~~eneratiou .......................................... a Transmission .. .... .. .... ... 8 Distribution ........... ....... 9 Supervisory Control Centers .. .. 9. Power System Losses 4......... ..... ........ 9 Manpower Development and Trainino ........g9 MEME *......... ..... .. . ...'.... 9 JFA ..........#s**...... ......10 JEPCO .... ,..... ..... 10 IDECO ............. **......10 Power System Planning ........... ... 10 The report was prepared by Ms. Z. Ladhibi (Engineer), W. Hamlet (Financial Analyst) and S..O'Brien-Kumi (Economist) 1T1his document has |rst icted distribution and may be useD by recipients only in the porfonnance. of their o&hlW duties. Its contents may not otherwise be disclosed without World Bank autbofiation.  Table of Contents (cont'd) Page No. III. THE PROJECT . 12 Project Objectives ....... ...... ..............6..... 12 Project Description * ---..** te.n.. *e--- 12 Status of Project Engineering ........... ........ 12 Project Cost . ..... .e.. 13 Project Financing ............. ............... .. 14 Leuding Arrangement ......... *...............................* 15 Engineering and Consulting Services ................... 15 Project Implementation .................... - 16 Procurement .. ....................... 16 Disbursements - Special Account - Retroactive Financing 20 Environmental Impact . .................................. 20 Project Risks ........*...****a***........eC**e... .aa... 20 IV. FINANCE .**............. 21 Revenue Shortfalls *......... 22 Jordan Electricity Authority ... .23 Accounting . 23 Accounts Receivables 23 Revenue Covenant .... ...... 23 Past Performance and Present Position ................ 24 JEA's Financial Plan and Funds Statement .0.............. 25 Future Performance ....................... * 26 Debt Service Coverage ........ . 26 Auditing ... ,.... 26 Insurance **t*...t**...e*e**ee.e.e..a*................ 27 Monitoring System .............-...*-..-................. 27 Jordanian Electric Power Company ....................... 27 Accounts Receivables ................. ........... e.a...... 27 Revenue Covenant ..................................... 27 Past Performance and Present Position *............ 28 JEPCO's Financing Plan ............................... 29 Future Financial Performance . . ......... 30 Debt Service Coverage ........eee. 30 Auditing ........ eJ** ...... 30 Insurance ....... ....e..e.. ee.e.. *. 31 Monitoring System ............... 31  Table of Contents (cont'd) Page No. IV. FINANCE (cont'd) Irbid District Electricity Company Limited ............. 31 Accounting ....... 31 Accounts Receivables ......* . ......................... 31 Revenue Covenant ..................................... 32 Past Performance and Present Position ................ 32 -- IDECO's Financing Plan ......33 Future Performance ......... 33 - Debt Service Coverage 4......34 Auditing ............ 34 Insurance ........................................ 35 Monitoring System ................................................. 35 V. PROJECT JUSTIFICATION ................... ......... .. 36 A. Electricity Demand ...... ..6., 36 B. Least-Cost Justification .. ................ .. ............ ... 36 C . Rate of Return .......... ..... - 37 Sensitivity Analysis ................................ 38 VI. MAJOR AGREEMENTS REACHED AND RECOMMENDATION ................ -40 ASM 1.1 Jordan Power System - Electricity Demand ...... ............. 43 1.2 Structure of Petroleum Product Prices (April 1986) ......... 44 1.3 Comparison of Domestic Prices of Petroleum Products with Economic Cost of Supply (April 1986) ...................... 46 1.4 Existing Electricity Tariff Structure (April 1986) ......... 47 3.1 Detailed Project Description ............................... 49 3.2 Yearly Breakdown of the Total Project Cost ................. 51 3.3 JEA'S Rural Component - Cost Arranged by Nature of Goods and Services .......... .. 52 3.4 JEPCO's Urban Component - Cost Arranged by Nature of Goods and Services .......... 53- 3.5 JEPCO's Rural Component - Cost Arranged by Nature of Goods and Services ................ - 54 3.6 IDECO's Urban Component Cl - Cost Arranged by Nature of Goods and Services ................ * , .*.. 55 3.7 IDECO's Rural Component C2 - Cost Arranged by Nature of Goods and Services . 56  - iv - Table of Contents (cont'd) Page No. ANNEXES (cont'd) 3.8 Diagnostic (or Audit) of the Power Distribution System - Draft Teri of Reference .... ...*..... , 57 3.9 Estimated Implementation Schedule ....... .............. 60 3.10 JEA's Component - Estimated Procurement S4hedule ...61 3.11 JEPCO's Component - Estimated- Procurement Schedule . 62 3.12 IDECO's Component - Estimated Procurement Schedule ......... 63 3.13 Estimated Disbursement Schedule ...................... 64 3.14 Comparison of Disbursement Profiles ............65 4.1 JEA's Computation of Self-Financing Level for the Combined Power Subsector ...... . *... .......... ...... .o...... ... 66 4.2 JEA's Income Statements for the Years Ended December 31, 1982-1994 .................o*....... 67 4.3 JEA's Balance Sheets for the Year Ended December 31, 1982-1994 ........... ...# ......... 68 4.4 JEA's Sources and Applications of Funds for the Years Ended December 31, 1982-1994. ......... 69 4.5 JEA's Computation of Self-Financing Level. .. 70 4.6 JEPCO's Income and Expense Statements for the Years Ended December 31, 1982-1994 ....... . .......... 71 4.7 JEPCO's Balance Sheets for the Years Ended December 31, - 1982-1994.. , .................72 4.8 JEPCO's Sources and Applications of Funds Statements for the Years Ended December 31, 1982-1994 ............... .73 4.9 JEPCO's Computation of Self-Financing Level .......... 73 4.10 IDECO's Income and Expense Statements for the Years Ended December 31, 1982-1994 ...9 .... .......................... 75 4.11 IDECO's Balance Sheets for the Years Ended December 31, 1982-1994 ................... .............. 76 4.12 IDECO's Sources and Applications of Funds Statements for the Years Ended December 31, 1982-1994 .... 4.... 77 4.13 IDECO's Computation of Self-Financing Level ....... 78 4.14 Notes and Assumptions for Financial Forecasts ............ 79 5.1 Assumptions for Rate of Return (ROR) Calculations ...... 81 5.2 Rate of Return Computations JEA Component ......... . , ..................... 84 JEPCO Component 6............ 85 IDECO Component ................ . *. . ........ .. 86 - Total Project ................. .... 8 6.1 Selected Documents in the Project File . ........ 88 MA? IBRD 19554 -Main-Generation and Transmission System  JORDAN SIXTH POWER PROJECT STAEF APPRAISAL REPORT I. SECTOR-BACKGROUND 1.01- Introduction. The Government's present energy policy and strategy were reviewed by the Bank as part of the Energy Sector Study - and during the preparation of the Energy Development Project (Loan 2371-JO). Subsequent Bank energy missions have also reviewed the sector strategy with the Government. Since Jordan is entirely dependent on imports to meet its commercial energy needs, the policy is aimed at improving the efficiency with which energy is supplied and consumed so as to reduce the relative impact of the oil import bill on the country's balance of payments. 1.02 The strategy developed by the Government and the Bank focuses on: (i) improving efficiency of energy consumption through retrofitting industrial plants, the refinery and loss reduction in the power system, as well as providing advice to non-industrial users of energy on inservation methods; (ii) improving efficiency in handling and distribution of petroleum products by developing an economic storage and pipeline network system; (iii) adopting pricing policies that would ensure economic efficiency and financial viability of energy sector entities; (iv) improving energy planning; (v) economic development of domestic energy resources (oil/gas, solar and wind energy and oil shale); (vi) strengthening energy sector institutions in planning, mwangement and technical areas; and (vii) development of consistent subsectoral least-cost investment programs as a basis of sectoral development. These are being pursued by the Government under the on-going Energy Development Project (Loan 2371-JO) and the current Five-Year Plan. The following section presents a brief overview of recent developments in the sector. 1.03 Resource Base and Development Prospects. Jordan's energy resources consist of oil shale deposits, some tar sands, a small hydropower potential (87 GWh per year), and a few low temperature geothermal sources. To date, no commercially exploitable coal, lignite, uranium or oil and gas reserves are known to exist. With the exception of solar and wind energy, Jordan's endowment of energy is modest. 1.04 Unless a commercial discovery of oil2' or gas is made, the prospects of domestic energy resources making a significant contribution to 1/ Jordan Energy Sector Study (E.S.S) Report No. 4012-JO, February 1983. 2/ Although the hydrocarbon structures have been found in a number of areas where geological surveys have been carried out, drilling results to date' have been disappointing. Recent discoveries in the Hamza field indicate potential production levels of about 70 barrels per day. Jordan's present requirement of crude oil is about 50,000 barrels per day.  -2- meeting the country's commercial energy needs appear bleak in the foreseeable future. However, the participation of the international oil companies in petroleum exploration, as envisaged under the Government's recent program, would greatly improve the probability of commercial discovery -of oil or -gas. - The Government has initiated discussions with three international oil companies on their participation in petroleum exploration. Current and projected levels of international oil prices make the extraction of oil from oil shale deposits uneconomic at the current level of the technology. There is uncertainty about the extent and viability of geothermal resource as a source of energy. The full development of the remaining hydropower potential of 83 GWh per year-L is hampered by issues of riparian rights. With the cwrrent level of energy prices and their future projected levels, solar energy - Jordan's main renewable energy resource - is not likely to make a significant contribution to meeting household and agricultural commercial energy needs unless a significant breakthrough in the technology occurs. The Government, during the current Five-Year Plan, intends to set up an advisory unit under the Royal Scientific Society (RSS) to provide technical information, services and advice on solar and wind energy development. 1.05 Energy Consumption. Gross energy consumption grew at an average rate of about 151 per annum (p.a.) between 1970 and 1980 then the average rate declined to 8% p.a., reaching 2.7 million toe in 1985. The decline in growth rate of consumption is attributable to the slowdown of the economy. GNP growth averaged about 5.7% p.a. between 1980 and 1985 compared to about 121 p.a. growth rate between 1975 and 1980. Despite the slowdown of the economy, energy intensity increased from 1.5 toe/1,000 JD of GNP in 1980 to 1.8 toe/l,000 JD of GNP in 1985 reflecting the commissioning of additional energy intensive industries and expansions to existing ones between 1981 and 1985. Energy intensity in Jordan is high compared to those of similar medium-income countries. The Government is currently undertaking a program of energy conservation in industry, the power system and the refinery on the basis of recomnendations of .-onsultants' energy audit studies carried out under the Energy Development Project (Loan 2371-JO). In addition, the Government has initiated a program of energy conservation in non-industrial sectors by setting up an advisory body within the Ministry of Energy ard Mineral Resources (MMR) to provide technical advice on building and home insulation, heating and cooling. 1.06 Gross consumption of energy- i forecast to grow at about 5S p.a. from 1985 reaching about 3.4 million toe by 1990, based on expected average growth rate of GNP of about 4% p.a. 1.07 Electricity Consumption. Electricity consumption in Jordan grew from about 179 GVh in 1971 to about 1,772 GWh in 1985. The increase was about 192 p.a. from the early 1970s through 1980 and about 152 p.a. between 1980 and ' 1985. This decline was due to the relative slowdown of tLe economy during this period. Presently, about-871 of the total population have access to public electricity supply. 1.08 Electricity consumption, excluding projected sales to Syria of 360 GWh p.a. from 1986 to 1990, is forecast to grow at an average rate of about I_ Currently, only about 4 GWh per year on the Zarqa River is developed.  102 p.a. from 1985, reaching about 2,?26 GWh by 1990 when access to public electricity supply is expected to reach about 100% of the urban population and about 902 of the rural population. Between 1990 and 1994 the growth of demand is expected to average about 61 p.a. and about 5% p.a. thereafter. A summary of actual and projected demand for electricity is provided in Table-l. Details are in Annex 1.1. Table 1 Actual and Prolected Electricity Demand Total Interconnected System Actual Estimate Projected 1971 1 980 1990 1994 Gross Generation (GWh) ^ 230.4 1,070.0 2,156.0 3,791.0 4,377.0 Net Consumption (GWh) ^ 178.7 877.0 1,808.0 3,286.0 3,750.0 Peak Load (MW) Lb 44.1 164.0 420 679 797.0 System Losses () Xc 22.4 18.0 16.1 13.3 l4.34A /a Include sales to Syr a. /b Non-coincident peak dtmand in 1971. From then onwards total system coincident peak demand -is shown. ,c Consists of station use, transmission and distribution losses calculated as percent of gross generation. /d Due to an increase in station use when coal-fired units are introduced in 1991,and expansion of rural electrification. 1.09 Petroleum Product Priciag: During the preparation of the Energy Development Project in 1983, petroleum product prices were on the average about 1131 of the economic cost. As of April 1986, each product WLs priced above its economic cost and the consumption-weighted average price was about 173S of economic cost. This was due to the removal of the subsidy on jet fuel to the national airline (ALIA), reduction in the subsidy on fuel oil, and, mainly, to the recent fall in international oil prices. Despite the recent fall in international oil prices the Government's present policy is to maintain the prevailing retail prices to mobilize resources for the national budget. Due to uncertainties surrounding future international oil prices, the understanding that was reached with the Goverrment under Loan 2371-JO to phase out subsidies on petroleum products over the medium term (1984-1989) has been reaffirmed during the negotiations of the proposed Loan for the Project. Details of the structure of current retail prices are provided in Annex 1.2 and comparison of final consumer prices with economic cost as of April 1986 is provided in Annex 1.3 and Table 2.  -4- Table 2 Comparison of Final Consumer Prices of Petroleum Products with EconomiC Cost of Supply (April 1986) Product (I) Retail Price (U2)t' Economic Cost (3)w (2) As Percent cf (3) (Fils/Litre) (Fils/Litre) Premium Gasoline 210 51 412 Regular Gasoline 181 47 385 Aviation Fuel (a) Alia 80 51 156 (b) Others 125 51 245 Kerosene /C 65 51 127 Diesel Fuel 65 60 108 Fuel Oil (a) Power Plants 52 31 167 (b) Others 50 34 147 White Spirits 4c 154 48 320 LPG (12.5 kg/cylinder) 78 33 236 Wt. Average Price 83 48 173 La Source: MEMR /b Source: Petroleum,Economist, March 1986 and Ministry of Energy and Mineral Resources (MEMR). Economic costs include domestic transportation and distribution costs. /c White spirits are lighter than kerosene and have slightly higher heat values than kerosene. Electricity Tariffs.. 1.10 Tariff Structure. In late 1984 the following-changes were made in electricity tariffs: (i) the introduction of uniform tariff structure for the various consumer categories throughout the country; (ii) differential adjustments in electricity rates which led to an average increase of about 82' in the average revenue per kilowatt-hour sold to final consumers. As a consequence, the average price of the Irbid District Electricity Company (IDECO) to its domestic consumers declined from 64 fils/kWh (US$ 0.17/kWh) to about 50 fils/kWh (US$0.13 kWh) presently. 1.11 The current tariff structure consists of peak kilowatt rates and time-of-day kilowatt-hour rates for bulk supply to the distribution companies and the large industries and for medium industries, increasing block rates for domestic consumers and public buildings, flat kilowatt-hour rates for commercial consumers and a declining block rate for small industrial consumers. In addition, a Fixed charge per month is levied on domestic and small industrial consumers. For large and medium industries, there is also a penalty for poor power factor in addition to the rates. The current tariff structure is provided in Annex 1.4.  1.12 For industrial, water pumping and heating consumers, the existing tariff structure does not provide sufficient incentive to shift part of their demand from peak period to off-peak period. The proposed tariff study to be undertaken by the Government (para. 1.14) would investigate the appropriateness of the current tariff structure-for industrial Consumers and for water pumping and heating and would provide recommendations for necessary modifications to the tariff atructure. 1.13 Existing Tariffs and Economic Cost of SUPPlY. The overall average electricity price is about 38 fils/kWh (US$0.10/kWh) ranging from an average price of about 25 filslkWh (US$ 0.066/kWh) for bulk eupply to large industry to an average of about 55 file/kWh (US$o.14/kwh) for-domestic consumers. Street lighting is free. The economic cost of supply was estimated at about 30 fils/kWh (US$0.08/kWh). The estimate was based on an economic cost of crude oil of JD 5.5 (US$14.4) per barrel to Jordan as of April 1986. The average electricity prices to all consumers with the exception of rural domestic consumers are above their respective economic costs. The average prine to rural domestic consumers is about 90X of economic cost, however, the average for the domestic consumer category, on the whole, is above economic cost (1281). The overall average retail price is now about 125% of the average economic cost of supply. Table 3 shows the comparison of average retail prices with economic cost as of April 1986. Table 3 Comoarison of Existing Average Electricity Prices with Economic Cost of Supply (April 1986) Existing Avg. Rate Economic Cost Consumer Category Fils/kWh Fils/kWh b (2) As Percent Of (3) (1) (2) (3) (4) () Large Industry 25.2 20.5 123 (bulk supply at 132-kV) Medium Industry 27.8 25.8 108 (33 - 6.6 kv) Urban Domestic 55.0 39.7 138 Rural Domestic 53 58.6 90 Wt. Average Domestic 54.6 42.5 128 Small Industry 37.5 30.0 125 Commercial 48.5 29.1 167 Institutions /a 48 28.3 170 Water Pumping 29 24.5 - 118 - Street Lighting 0 " 47.6 0 Wt. Average 38 30.4 125 /a 251 discount granted on monthly bi}l on the published price of 48 fils/kWh. Effective price is 38.4 fils/':Wh which is 1361 of economic cost. /b Based on crude oil price of uj$14.4 per barrel.  -6- 1.14 The Government is initiating an energy pricing study to be financed by USAID that would include: (iM review of the economic cost of electricity supply; and (ii) design of consumer tariffs taking into consideration economic efficiency in electricity consumption. financial viability of the power entities and Government's social policy,. In February 1986, the Bank provided to the Government a draft Terms of Reference for the study which ia expected to be completed by December 1987. During negotiations an understanding was reached with the Government to exchange views with the Bank on the findings of the study and its recommendations and on the steps to be taken for implementing such recommendations. 1.15 Institution. The Government created the Ministry of Energy and Mineral Resources (MEMR) in late 1984 with the responsibility for formulating policies on pricing and development of the energy sector. Since the Ministry is still in its formative stages, the Government recognixes the need to strengthen its capabilities, and a program of training and recruitment is under way to strengthen the Ministry (para. 2.13). With the creation of the Ministry, policy formulation and coordination of sector institutions is expected to improve.  -7- II. THE POWER SUBSECTOR 2.01 Subsector Organization. Several entities including the MEMR, the Jordan Electricity Authority (JEA), the-Jordanian Electric Power Company (JEPCO) and the Irbid District Electricity Company (IDECO), are responsible for the development and the operation of Jordan's power subsector: (i) MEMR is responsible for the development, coordination and pricing policy formulation for the subsector and for regulating the operation of the private enterprises in the power subsector; (ii) JEA, a financially and administratively autonomous Government-owned utility, created in 1967, is responsible for the formulation of plans for the overall development of the power subsector, the construction and operation of generation and transmission facilities for virtually all the publicly supplied electricity, bulk sales to large industries and the distribution companies and for the distribution of electricity in the areas under its jurisdiction. JEA is also responsible for the formulation of the national rural electrification program in consultation with the Ministry of Planning (MOP) and MEMR; (iii) JEPCO, a private company owned by investors, JEA and the municipalities, distributes electricity in the city of Amman and its environs and accounts for about 70% of total electricity sold at the medium- and low-voltage levels in 1985; and (iv) IDECO is a semi-private company owned by JEA, the municipalities of Irbid governorate, and by private investors. IDECO's service covers a concessionary area encompassing the governorates of Irbid and W'fraq with the exception of the Jordan Valley area which is entrusted to JEA. IDECO's sales in 1985 amounted to about 15% of total electricity sold at the medium- and low-voltage levels. 2.02 Subsector Development. Jordan's power subsector grew very rapidly in the decade between 1970 aud 1980 mainly in response to the economic boom experienced during that period (see para. 1.04). Installed generating capacity increased from about 30 MW in 1970 to about 298 MW in 1980 and 692 MW presently. The distribution system has expanded in unison with the growth in generating and transmission capacities. 2.03 The private sector in Jordan has played a significant role in the development of the subsector. JEPCO and IDECO are participating in the development of the power distribution systems. Before the creation of JEA large industries had their own generating plants of total-capacity of 84 MW presently, which have now been connected to the national grid. In addition to meeting their own demand these industries supply electricity to the public system during peak periods when JEA supply is inadequate to meet total system demand. 2.04 Rural electrification has also expanded rapidly. Access to public electricity supply has increased from about 25% of rural population in 1975 to about 85% at present. Within the next five years, access to public electricity supply is expected to reach about 902 of the rural population. 2.05 -Role of IDA/Bank. The World Bank Group has been involved in six operations in the power subsector. The first two were made in the form of credits (386-JO in 1973 for US$10 million and 570-JO in 1975 for US$5 million)  - o~~~8- to support the Government's efforts in initiating the first stages for the development of generation fscilities with 3x33-MW steam power units and lx13-MW gas turbine at the Hussein power station, the reconditioning of-the Marka diesel power station, and a study for the formulation of a plan for the development of the transmission and distribution grids in the southern region. The combined projects completion report for the two Credits (June 1982) states that the projects exceeded the expectations of the appraisal. Loan 1688-JO (1979) of US$15 million financed the development of the national transmission network and the extension of public supply of electricity to 33 villages in the areas served by JEA. The related completion=report (July 1984) indicates that the Project fully accomplished its objectives. Loan 1986-JO (1981) of US$25 million covered parts of the development programs of JEA and JEPCO for the 1981-1984 period. Implementation of the Project has been satisfactorily completed and the related Completion Report is being prepared. Loan 2162-JO (1982) for US$35 million, with cofinancing from a number of bilateral and multilateral institutions, assisted JEA in covering the foreign exchange cost of a 2x130-MW thermal power station at Aqaba with a total cost of about US$250 million. Implementation of the Project is proceeding with only minor delays. Loan 2371-JO (1984) of US$30 million with cofinancing from USAID and EEC covered the foreign exchange cost of parts of the development programs of JEPCO's and IDECO's power distribution system, and other operations, particularly in petroleum exploration, energy conservation and energy planning, that would contribute to the improvement of Jordan's overall energy efficiency. Implementation of the Project is now proceeding satisfactorily after a slow start due to the Government's delay in meeting the effectiveness conditions. The proposed Project would enable the Bank to continue its efforts to achieve the institutional building objectives set under the previous loans and the Energy Sector Study. General Characteristics of the Electric Power System 2.06 Generation: By the end of 1985, JEA's installed generating capacity was 602 MW of which 60.31 (363 MW) was oil-fired steam units installed at the Hussein Thermal Power Station (UTPS), 30.21 (182 MW) was gas turbine plant firing heavy fuel oil and installed at HTPS, Amman South, Marka and Karak, and the remaining 9.5% (57 MW) was diesel generator plants installed at Marka, Karak, Tafila and Aqaba. Three diesel generator units with a total installed capacity of 6 MW are owned and operated by IDECO. The first stage of-a new. oil-fired power station - Aqaba Thermal Power Station (ATPS) - is under construction with Bank's assistance: the 2x130 MW oil-fired units are expected to be commissioned in late 1986 for the first unit, and early 1987 for the second unit. Industries own a total of about 84 MW of installed capacity in steam and diesel units which are connected to the public supply system. 2.07 Transmission: At the end of 1985, the transmission network consisted of (i) 1,320 circuit-km of which 132-kV transmission lines (1,284 km), 230-kV transmission (17 km) and 66-kV subtransmission (17 km) tie-lines with Syria; and (ii) substation capacities totalling 1,370 MVA. The 400-kV transmission line between ATPS and Amman South substation is currently under construction and is expected to be commissioned in 1986. This line will be operated initially at 132 kV.  2.08 Distribution: The distribution networks at the end of 1985 consisted of 34220 km of 33-kV, 1l-kV and 6.6-kV networks, and 8,500 km of 0.4-kV network with substation capacity of 1,670 MVA. 2.09 Supervisory Control Centers: JEA's generation and transmission system and JEPCO's main distribution networks are respectively supervised and controlled by two separate control centers which were introduced in 1983 to . improve the quality of supply and operating efficiency. These centers will be extended along with the development of JEA's generation and transmission network and JEPCO's distribution network. The proposed Project would extend JEPCOs control system by connecting existing control points installed in the past two years to the control center. 2.10 Power System Losses: Total power system losses are presently estimated at about 161 and are expected to show a slight decline in the foreseeable future. The losses consist of auxilliary constunption of about 6.61, transmission losses of about 1.4% and average distribution losses of about 12X. Losses in the distribution systems are about 131 in JEA's system, 191 in IDECO's system and about 10% in JEPCO's system. JEA and IDECO have relatively larger rural distribution than JEPCO. The loss levels in the distribution systems are relatively high when compared to the economically achievable levels of about 6-8X. Consequently, as part of the general power system efficiency improvement program, the Government has initiated, under the on-going Energy Development Project, a Load Research and Management Study, with the assistance of consultants, which would (i) identify the sources and nature of distribution system losses, provide recommendations and an action plan to reduce them, (ii) provide information on consumers characteristics for tariff design, and (iii) propose recommendations on load management. During negotiations the Government agreed to provide the Bank for its comments an action plan for the implementation of the recommendations of such study which is expected to be completed by June 1987 (para. 6.01). Manpower Development and Training 2.11 The labor force employed in the electric power,subsector has grown mainly in the technical and administrative areas to meet the needs of the rapidly expanding subsector. The total labor force has grown from about 3,500 employees in 1980 to about 4,162 in 1984 which is about 11 of the total employed labor force in Jordan. Labor productivity in the power subsector has also grown from 250 MWh sold per employee in 1980 to about 390 MWh sold per employee in 1984. This is a relatively high productivity rate compared to those of other countries in the region. 2.12 MEMR. The Ministry is currently drawing up a training program that would cover all areas of its operations. The emphasis of the training program is on strengthening its capabilities in the areas of planning and pricing. Under the Energy Development Project (Loan 2371-Jo), the European Economic Community (EEC) is financing an expert who is assisting the Ministry as well as providing training to its planning staff in the establishment of an Energy Data Base Management System (EDBMS). The EDBMS would serve as the-main input for the Computer Model for Analysis of Energy Demand (MAED) for energy demand forecasting. The International Atomic Energy Agency (IAEA) and the Bank are providing training and technical advice on use of the MAED model. In  - 10 - addition, through EEC financing, the IAEA is providing training on the integration of the Jordan macroeconomic model-and the energy planning models (MAED and WASP III). In the area of pricing, the staff of the Ministry would participate in the forthcoming energy pricing study which includes provision for training of Jordanian participants. 2.13 JEA. The rapid expansion of electricity supply in Jordan has been accompanied by the structural reorganization and development of JEA based on the recommendations of the management consultants appointed under Credit 386-JO. JEA is well organized and properly managed and has already- proven its capabilities in carrying out its responsibilities satisfactorily. JEA pays due attention to the training of its staff to improve its technical, financial and administrative services. The training is being done overseas or locally at JEA's Training Center located in Amman South. The introduction of hot line work technique included in the Project would involve the training overseas of selected maintenance crews and training personnel for the three entities JEA, JEPCO and IDECO. Recognizing the need for a more comprehensive training facility for the power subsector which would cover all the required servic!s, JEA is working on a proposal from the Japanese Government which would provide Jordan with a much improved training center to be made available to the three power entities: JEA, JEPCO and IDECO. This training center would enhance training of newly recruited peop'e and would provide improvement and upgrading courses for the existing staff in the power entities. 2.14 JEPCO. JEPCO is well organized and its staff, on the whole, are well qualified. However, improvements are still needed in various areas; especially in management, organization and finance and the Bank financed under the Fourth Power Project (Loan 1986-JO) a Management Information System Study (MIS), aimed at identifying the major issues and outlining strategies for addressing thpm. The study was completed in September 1983. JEPCO has started to implement recommendations on financial management. The proposed Project would include implementation of recommendations aimed at addressing the organizational structure with the reorganization of the existing districts, personnel management with a comprehensive definition of functional requirements, job analysis and description and'staffing needs, and operation and maintenance services. 2.15 IDECO. Although IDECO's operations are reasonably well managed considering its size and remoteness, improvements are still needed in its organization and management, particularly in finance and operation and maintenance. Some of these weaknesses are being addressed under the ongoing Energy Development Project (Loan 2371-JO) which represents the first Bank operation with IDECO. A study financed by another donor and currently under way would outline a strategy for strengthening IDECO's capabilities in the area of financial planning. The diagnostic study of the power distribution system included in -the proposed Project would also outline measures for improving IDECO's'efficiency in operations and maintenance. 2.16 Power System Planning. Generation and transmission system planning. is done by'JEA with the assistance of consultants. JEA has presently acquired the WASP III computer model and MAED to improve its planning capability. Assistance in the use of these programs is being provided by the IAEA and the Bank through training and technical advice. Distribution planning is in accordance withAdistribution standards and is done by each of the power  - II - entities separately for theitr various concession areas. Based on a consistent load forecast for tbe subsector prepared by the power entities, JEA's least-cost power generation and transmission programs are combined with distribution progrm to form a least-cost development program for-the subsector.  - 12 - 1II. THE PROJECT 3.01 Project Objectives. The main objectives of the Project are: (i) to 'help improve the efficiency with which energy is-supplied-by expanding electricity supply from the grid to substitute for petroleum products, mainly kerosene for lighting and to a lesser extent diesel fuel for isolated power generation; (ii) to continue the implementation of some major investments that would contribute to the improvement of Jordan's power system efficiency; and (iii) to continue the institutional development objective initiated under the previous loans by providing assistance in introducing new technologies, . reducing system losses and improving the power entities' management, planning and forecasting capabilities. The Project, when completed will initially extend the public electricity supply to about 32,000 new consumers and improve the quality of service to about 73,000 existing consumers. 3.02 Proiect Description. The Project, which is a continuation of the Fourth Power Project (Loan 1986-JO) and the on-going Energy Development Project (Loan 2371-JO), consists of the supply and installation of the necessary equipment and material and the associated engineering services for the implementation of high priority parts of the 1986-1990 national least-cost program for the power subsector. It involves: (a) rehabilitation and extension of the urban distribution network in JEPCO's and IDECO's concession areas with the supply, construction and erection of about 390 km of 11 and 33-kV lines, about 810 km of 380-V lines, about 180 MVA of power and distribution transformer capacity, and three--phase and single-phase consumer connections; (b) electrification of about 95 villages (35 villages in JEA's area, 45 villages in JEPCO's area and 15 villages in IDECO's area), with the supply. construction, and erection of about 510 km of 33-kV and 380-V lines and about 6 MVA of distribution transformer capacity, and single-phase consumer connections; - . (c) consulting services to assist JEPCO and IDECO in Project engineering and construction supervision; _(d) implementation of the recommendations of the management information system study undertaken under the Fourth Power Project (Loan 1986-JO); (e) supply of computer hardware and software and.equipment and tools for operation and maintenance with specialized hot line work equipment and associated training; and; (f) consulting services to undertake a diagnostic study of the -existing power distribution system in Jordan with the objective of defining measures to improve its managerial, operational and technical efficiency. Annex 3.1 gives a detailed description of the Project and Map IBRD 19554 indicates the location of the main Project components. 3.03 Status of Proiect Engineering. JEPCO's and IDECO's programs for the rehabilitation and expansion of the urban distribution networks have been  - 13 - planned-on the basis of studies carried out by their respective staff with the assistance of consultants Kennedy and Donkin (K&D) and Preece Cardew & Rider (P.C.R.). respectively. These studies involve load flows for the 33-kV and 11-kV networks, investigation of distribution areas with voltage drops and proposals of measures for rehabilitation. The methodology and results of these studies have been reviewed by the Bank and found satisfactory. The Bank has reviewed with JEPCO the scope of the work which remains to be done in the upgrading of the 6.6-kV network in Amman, which started in 1982 with the Bank's assistance (Loans 1986-JO and 2371-JO). During negotiations JEPCO agreed to provide to the Bank by December 31, 1986 an action plan to ensure completion of this upgrading operation by 1990 (para.-6.05). 3.04 For the rural electrification component, the Project design constitutes the least-cost alternative for providing electricity service to the concerned villages. The selection of the villages for electrification was based on a ranking study, the methodology of which is acceptable to the Bank. The technical specification of equipment and materials to be used were reviewed and agreed by the appraisal mission. 3.05 JEA's, JEPCO's and IDECO's engineering departments are well staffed and detailed Project design is well advanced (completed for JEPCO's rural subcomponent and underway for the other Project subcomponents). Bidding documents are expected to be issued starting May 1986. 3.06 Project Cost. The total cost of the proposed Project including physical and price contingencies but excluding interest during constructionL' is estimated at about JD 26.80 million (US$71.65 million) of which JD 17.95 million (US$47.95 million) is in foreign exchange. The cost estimates do not include custom duties and taxes from which the power entities are exempt. Details of the cost estimates for the proposed Project are given in Annexes 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7 and summarized in Table 3.1 below. The cost estimates for the Project are based on anticipated January 1986 prices derived from detailed data provided by the power entities and discussed with the Bank and quotations received recently for equipment, materials and services similar to those included in the proposed Project. Total physical contingencies are about 7% of the base cost because of the advanced stage of the design and the repetitive and routine nature of the components for the Project. Price contingencies have been computed assuming a five-year disbursement profile as compared to the seven years relevant Bank standard profile. This is justified by the fact that the power entities are good performers, previous experience in project implementation has been very good and project preparation is well advanced. Specific annual increases for domestic and international prices are as follows: 1986 1987 1988 1989 1990 1991 Local (%) 5 7 7 7 7 7 International (2) 7.2 6.8 6.8 7 7.1 4 1/ Interest is not capitalized for projects for which construction is completed within the year in which construction began: this applies to distribution projects. The interest expense for the proposed Project is treated as an operating expense and is paid from each utility's annual earnings.  - 14 - =Table 3.1 Summary of Project Cost Estimate JD MIllion US$ Million LC PC TC LC FC TC A. JEA's Component Base Cost 0.43 0.98 1.41 1.12 2.59 3.71 Physical Contingencies - 0.03 0.06 0.09 0.08 0.16 0.24 Price Contingencies 0.11 0.27 0.38 0.35 0.65 1.00 Total Cost A 0.57 1.31 1.88 1.55 3.40 4.95 B. JEMCO's Component Base Cost 5.12 10.19 15.31 13.48 26.80 40.28 Physical Contingencies 0.36 0.71 1.07 0.95 1.89 2.84 Price Contingencies 1.39 2.78 4.17 3.97 7.91 11.88 Total Cost B 6.87 13.68 20.55 18.40 36.60 55.00 C. IDECO's Component Base Cost 1.01 2.12 3.13 2.65 5.57 8.22 Physical Contingencies 0.07 0.14 0.21 0.16 0.39 0.55 Price Contingencies 0.28 0.57 0.85 0.79 1.64 2.43 Total Cost C 1.36 2.83 4.19 3.60 7.60 11.20 D. DiManostic Study Base Cost 0.04 0.10 0.14 0.12 0.28 0.40 Physical Contingencies - 0.01 0.01 - 0.02 0.02 Price Contingencies 0.01 0.02 0.03 0.03 0.05 0.08 Total Cost D 0.05 0.13 0.18 0.15 0.35 0.50 E. Total Proiect Cost (A.B+C+D) Base Cost (01/86 prices) 6.60 13.39 19.99 17.37 35.24 52.61 Physical Contingencies 0.46 0.92 1.38 1.19 2.46 3.65 Price Contingencies 1.79 3.64 5.43 5.14 10.25 15.39 TOTAL PROJECT COST 8.85 17.95 Q 23.70 47.95 L1dA 3.07 Project Financing. The proposed Bank loan of US$27.5 million would finance about 382 of the total cost of the proposed Project and 57% of its foreign cost. The remaining US$44.15 million would be covered by the power entities' internal cash generation, customers, contributionsl' and Government contribution. A summary of the Project financing plan is given in Table 3.2 below. 1/ Fees the customer pays to be connected to the network.  - 15 - Table 3.2 Prolect Financing Plan Local Foreign Total 2 --(USS Million Equivalent)-- Proposed IBRD Loan - 27.50 27.50 38.0 JEA and Customers' Contributions 1.55 0.25 1.80 3.0 JPCO and Customers' Contributions- 18.40 16.60 35.00 - 48.8 IDECO and Customers' Contributions 3.60 3.60 7.20 10.0 Government Contribution 0.15 - 0.15 0.2 Total - 23.70 X 33.0 67.0 100.0 3.08 Lending Arrangement. The proposed Bank loan would be made to the Government. An amount of US$0.35 million will be retained by the Government for implementing the diagnostic study of the power distribution system. The remaining US$27.15 million would be on-lent to JEA (US$3.15 million), JEPCO (US$20.0 million) and IDECO (US$4.0 million) on the same terms as the Bank loan. This is reasonable in view of the fact that: (i) the Bank loan represents non-concessionnary funds for JEPCO and IDECO which are responsible for the implementation of the Government's rural electrification program; (ii) the Government is a major shareholder in both companies; and (iii) the three utilities have been able to secure loans for their development programs at interest rates which are substantially lower than the on-lending rate proposed for Bank loans. Execution of the subsidiary loan agreements between the Government and JEA, JEPCO and IDECO shall be a condition of loan effectiveness (para. 6.08). The foreign exchange risks would be borne by the power entities. 3.09 Engineering and Consulting Services. JEPCO and IDECO were assisted by their respective consulting firms K&D and P.C.R.- in preparing the proposed Project. The services provided by K&D involved preliminary design of- the network on the basis of the results of the load flow study, specifications of- the equipment and cost estimate. The services provided by P.C.R. involved only preliminary design for the rehabilitation of the main distribution network in the cities of Irbid and Ramtha. It is important to underscore the fact that the Bank's assistance in manpower development enabled JEPCO's and IDECO's staff to substantially increase their participation in preparing the proposed Project. In addition, and contrary to previous practices, the power entities are expected to increase their involvement in engineering and implementation of the proposed Project and would retain the services of K&D for JEPCO and P.C.R. for IDECO only for specific tasks related to the preparation of the bidding documents, evaluation of bids and supervision of construction. In the case of JEPCO, the Project would therefore include about 340 man-months of consulting services for project engineering and supervision at an estimated total cost of about US$4.20 million, of which about US$1.30 million would be in foreign exchange. In the case of IDECO, the Project would include about 50 man-months of consulting services to implement the Project at an estimated cost of about US$0.6 million and of which about US$0.11 million  - 16 - would be in foreign exchange. With regard to JEA component, the required engineering services will be carried out by force account. In order to ensure the timely implementation of the Project, JEPCO and IDECO agreed during negotiations to provide evidence that the existing contracts with K&D and P.C.R. respectively. have been amended to specifically include the services required for the Project.' 3.10 With regard to JEPCO's component, implementation of the recommendations of the Management Information System Study undertaken under loan 1986-JO (para. 2.14) will involve supply of devices and equipment, such as computer software and hardware,-and will require about 70 man-months of consulting services at an estimated total cost of about US$0.80 million, of which US$0.60 million would be in foreign exchange. These consulting services will assist JEPCO in undertaking specific studies to cover: (i) organization structure with definition of functional responsibilities, job analysis and description, staffing needs and action plan for implementing the recommendations; (ii) review and development of formal consumer services procedures with introduction of up-to-date techniques for customer information systems to provide the capability to respond rapidly to inquiries and complaints; and (iii) review and development of modern materials management system. The TORs related to these studies have been reviewed during negotiations. 3.11 Implementation of the diagnostic study for the existing power distribution system will be the responsibility of the MEMR and will require about 40 man-months of consulting services at an estimated total cost of about US$0.500 million, of which about US$0.350 million would be in foreign exchange. TORs for this study (Annex 3.8) have been finalized and the invitation for bids has been issued in March 1986. 3.12 Proiect Implementation. The Project will be implemented by JEA, JEPCO and IDECO, except for the Diagnostic Study of the power distribution system which will be implemented by the Government through the MEMR. The implementation of the Project which is only part of the extension and rehabilitation of the existing system, is within the capabilities of the entities. The Project implementation schedule is given in Annex 3.9. The preparation of detailed design and tender documents for procurement of goods and services are underway and would be completed by December L986. Installation and erection of the facilities covered under the Project would start in September 1987 and is expected to be completed by December 1990. Upon commissioning, these facilities will be owned, operated and maintained by JEA, JEPCO and IDECO. 3.13 Procurement.^ The goods and services to be procured for the Project have been grouped into 6 packages for JEA's component, 12 packages for JEPCO's component and 9 packages for IDECO's component. Annexes 3.10,'3.11'and 3.12. give the detailed list of these packages and their estimated procurement schedule. The packages proposed for Bank financing are listed in Tables 3.3, 3.4 aiA 3.5 below. All items to be financed by the Bank will be'procured in accordance with the Bank's procurement guidelines.  - 17 - Table 3.3 Contract Packages with IBRD Financing JEA's Component- (In US$ Million) Local Foreign Total Bank Cost Cost -Financing (a) Cable and Conductors 0.75 0.75 (b) Poles, Crossarms, Insulators and Accessories 0.68 0.88 0.88 (c) Transformers & Substation Equipment 0.45 0.45 (d) Consumer Services - 0.23 0.23 (e) Installation & Erection 0.62 0.54 0.54 (f) Hot Line Work Equipment and Computer Software/Hardware Packages - 0.30 0.30 Total 1.30 Table 3.4 Contract Packages with IBRD Financing JEPCO's Component (In US$ Million) Local Foreign Total Bank Cost Cost Financing (a) Cables & Conductors - 3.95 3.95 (b) Poles and Crossarm6 2.60 3.20 3.20 (c) Insulators and Accessories - 1.85 1.85 (d) Transformers - 2.90 2.90 (e) Consumer Services - 1.25 1.25 (f) Extension of Scada System - 1.40 1.40 (g) Equipment & Tools for Operation and Maintenance - 0.55 0.55 (h) Installation & Erection for Rural Component 1.22 0.80 0.80 (i) Autoreclosers - 0.50 0.50 (j) Hot Line Work (Equipment &.Training) - 0.65 0.65 (k) Engineering Services 2.88 1.35 1.35 (1) Management Information System including Computer Software/ Hardware Packages 0.55 1.60 1.60 Total 7.25  - 18 - Table 3.5 Contract Packages with IBRD Fiuancing 'IDECOs Coonent - (n US$ Million) Local -Foreign Total Bank Cost Cost FinancAng (a) Cables and Conductors 1.44 1.44 (b) Insulators and Accessories 0.35 0.35 (c) Transformers and Substations Equipment, incl. Switchgear 1.38 1.38 (d) Consumer Services 0.11 0.11 (e) Autoreclosing Circuit Breakers - 0.07 0.07 (f) Installation & Erection for Rural Component) 0.55 0.38 0.38 (g) Hot Line Work Equipment & Training, and Computer Software/Hardware Packages - 0.27 0.27 Total 4.00 4.00 Items (a) through (e) for JEA's component, (a) through (h) for JEPCO's component and (a) through (e) for IDECO's component will be procured through international competitive bidding (ICB). For procurement of goods through ICB, local suppliers will be allowed a margin of preference equal to the existing rate of custom duty applicable to nonexempt importers or 152 of the c.i.f. price of such goods, whichever is lower. As there are a limited number of suppliers for the specialized equipment such as autoreclosing circuit breakers, hot line works equipment and computer software/hardware packages, and as the amounts involved are also small the procurement for such goods and services will be through limited international bidding (LIB). Consulting services for JEPCO and IDECO and for the Diagnostic Study of the existing Jordan power distribution system will be procured in accordance with the Bank's Guidelines for Use of-Consultants. To complete their respective share of the proposed Project, JEPCO and IDECO will provide the following goods and services which will not be financed by the Bank: (i) JEPCO will arrange financing for the procurement of conductors for the urban subcomponent, substation equipment, and equipment and tools for operation and maintenance which will be procured through ICB. JEPCO will carry out the installation and erection works for the urban subcomponent by force account or local contractors; and (ii) IDECO will arrange financing for the procurement of low-voltage cables, poles and crossarms, and equipment and tools for operation and maintenance which will be procured through ICB. IDECO will also carry out the installation and erection works for the urban subcomponent by.force - account or local contractors. Local procurement procedures have been reviewed and found acceptable to the Bank. All the contracts for works and equipment - and materials to be financed by the Bank and costing over US$250,000 each will be subject to prior Bank review. Other Bank-financed contracts will be subject to post-award review. Table 3.6 below summarizes the procurement arrangements for the Project.  . ~~~- 19 -.- : abie 3.6 - Summary of Procurement Araupexente for the Proiect : (In US$ - i1i-o4_ Total Proiect Element ICB LCB Other Cost A. JEA's Component 3 Contract Packages 2.97 (see Annex 3.10) (2.31) Installation & Erection Works 1.16 (0.5'. 2 Oqntract Packages (Rot Line Worka Equipment and Computer Software/Hardware) 0.304k (0.30) Diesel Units/* 0.30 (0) Engineering Services 0*0.22 (0) B. JEPCO's Component 7 , Contract Packages 26.95 (see Annex 3.11) (15.10) ..i 2 Contract Packages (Autoreclosers & Rot Line Work Equipment) (1.15) Installation & Erection Works 2.02*1 18.50 (0.80) (0) Engineering Services 4.23 (1.35) Management Information System 2.15 (Expert Services and Equipment) (1.60) C. IDECO's Component 5 Contract Packages 5.25 (see Annex 3.12) (3.28) 3 Contract Packages (Autoreclosers & Rot Line Works Equipment E Training and Computer Software/ 0.34 Hardware) (0.34)k Installation Works 0.934