Ghana - Volta River Hydroelectric Project

R E S T R I C T E D RE<TURN r RETURIIED T ARCIIVES DIVSCP R e p o r t N 0. TC-249a REPORTS DlESK WITH][N ONYE EE:K E -'IYPtrvu~m1 was prepared for use within the Bank. It may not be published nor mIiy it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PRELIMINARY APPRAISAL OF THE VOLTA RIVE' HYDROELECTRIC PROJECT GHANA FILE CO PY June 30, 1960 Departraent of Tethnical Operations  CURRENCY EQUIVALENTS U.S. Cents 1 = Ghana Pence 0.857 U.S. $1 = Ghana Shillings 7 Pence 3 U.S. $2. 80 = Ghana I 1 U. S. $2. 8 million = Ghana i 1 million  PvRELIiJNirtY A.PP7,HAISAL OF TIE VOLTA RIVER HYDROELECTiIC PROJECT GHANA TABLE OF CONTENTS Page No. SUTVIiARY i - ii I. INTRODUCTION 1 ,-.,- n \r4 ~ m M4- T' 4 m-r Mr'v rmr AmThMnTTnM A TT7h ,-nT:,j A Trr' nDCr T-nrTI 1 III. POWER MARKET 2 Existing Installation 2 Proposed Transmission Network 2 The Non-Smelter Load in the Accra-Tema Area 3 The Smelter Load 4 Total Demand and Generating Capacity Required 4 IV. THE PROJECT 5 The Volta Basin 5 Description of the Project 5 Engineering and Geological Studies 6 Water Requirements 6 Construction Schedule 7 Cost Estimates 8 Schedule of Expenditure 9 V. FINANCIAL ASPECTS 9 Financing 9 Tariffs 10 Financial Projections 10 Ten-Year Return on the Investment 11 Long-Term Return on the Investment 13 Effect of an 80,000-ton Smelter 14 Effect of a 210,000-ton Smelter 15 General Considerations 16 VI. ECONOMIC ASPECTS 18 VII. CONCLUSIONS AND RECOSMENDATIONS 20  LIST OF ANNEXES 1. Power Demand in Accra-Tema Area: (Estimated Maximum Demand and Plant Capacity; and Estimated Electricity Sales) 2 PowTer Station Tnstalled Capacity and Maximum Demand. 3. Construction Schedule 4. Forecast Summary Income Statements and Cash Flows Based on a Smelter Tariff of 2.5 Mills. 5. Forecast Summary Income Statements and Cash Flows Based on a Smelter Tariff of 3 Mills. 6. Forecast Summary Income Statements and Cash Flows Based on a Smelter Tariff of 3.5 Mills. 7. Alternative Thermal Power Station Costs. 8. Summary Estimate of Ancillary Investments. 9. The Effect of Power Prices on the Cost of Aluminum. I'.) Calcala'tio of Long-Term Rate of Return. Map of Ghana  GHANA PRZLYi!LWARAT APPRAISAL OF TIH. VOLT)1A RI-v_R FIf-ROUS-U.CTRIC PROJi1ECT SUMMARY The Government of Ghana asked the Bank to appraise the Volta River Project as though it were considering financing the project and to indicate the effects of various smelter tariffs on the returns that might be expected from the project. ii. The project comprises the Droposed AKosombo dam, a 539 i{ui power plant (wfvith provision for 294 I.T additional capacity) and trans- mission lines to Accra and Tema to supply power to a proposed aluminum smelter and to the Accra-Tema area. The dam would be 370 feet high above foundation level and 2,100 feet long, creating a reservoir 300 miles in length, with a total storage capacity of 120 million acre-feet. Excluded from the project, as appraised in this report, is a proposed 700 mile transmission netwrork, as the expected power demand it would supply would not justify, for some years, the initial capital cost re- quired. The project has been investigated by consultants, Kaiser ,ngi- neers & Constructors, Inc., of the U.S.A. iii. Based on average rainfall, adequate water from the catchment area in Ghana would be available to operate the initial four unit (589 ISrT) plant. Since water from tributaries of the Volta River rising in neigh- boring territories would be required to operate the project when fully developed (883 1MW), steps should be taken to determine wThether sufficient water could be diverted to affect the project seriously. iv. The project, which would take about four years to construct, is scheduled to be completed by December 1965 but, in view of possible construction difficulties and the chance that two dry years in succes- sion might be experienced during the reservoir filling period, the date of beginning operations has been assumed as January 1, 1967, in this report. v. The project is estimated to cost fG 58.3 million of which the foreign exchange component would be apnroximately fG 40 million. vi. For financing the construction of the project it has been aosumed in this report that the Government's contribution would be fG 30 million and the remainder would be borrowed at 651 interest for a period of 25 years, including a 6 year grace period. vii. The Government has established a secretariat to coordinate general planning of the project. The Government proposes to set up a Volta River Authority to carry out all the steps necessary to construct the project and to operate it after completion. Consulting engineers would design and supervise construction of the project. Expatriate staff would be required for key positions in the proposed Authority.  - ii - viii. The power market would consist of the 120,000 ton aluminum smelter requiring 303 MiW and other consumers (Accra-Tema area) requiring 59 MW in 1967 and 163 MW by 1976. ix. The financial return on the project would not be attractive in the initial years of operation, particularly when the cost of ancillary invP.tm-nt.- is tikPn innto aeeoin1 aowpvv'r_ t.hpe rptirn nve.r t,hp longer run is more substantial and benefits other than financial would accrue to the Government and the economy. It is for the Government to decide whether the longer-term return and benefits outweigh the initial losses and the uncertainties faced in so substantial an inv<stment. x. If the Government decides to proceed with the project, it is recommended that the measures set out in paragraph 82 be taken.  I. INTRODUCTION This report presents an appraisal of the proposed Volta Ri"rer hydroelectric project and has been prepared at the request of the Govern- ment of Ghana. The appraisal is concerned with the technical, financial adf1 ecOnvoc soundncss of the proposPed nr6iect. with the adequacy of the organizational arrangements for its execution and management, and with the assumptions and cost estimates upon which a decision to carry out the project might be based. 2. The nroijet as presented to the Bank would include a dam at the Akosombo site about 60 miles above the mouth of the Volta River; a power plant with 589 Hdl installed; transmission lines to Accra and to the port of Tema, where a proposed aluminum smelter wtould be constructed by VALCO, a consortium of aluminum companies; and a 700 mile transmission network to supply the principal cities, towns and mines of Southern Ghana. 3. Data on the technical features of the project and its estimated cost have been obtained from a comprehensive engineering report prepared by Kaiser Engineers and Constructors, Inc., who are the Government's con- sultants for the project, from a report prepared by Cooper Brothers and Co. on Kaiserts estimated costs, from an engineering report prepared for the Volta River Preparatory Commission by Sir W~illiam Halcrow and Partners and from a field trip made by Bank staff. II. ORGANIZATION TO CONSTRUCT AND OPERATE PROJECT 4. A secretariat with a small non-technical staff has been set up by the Ghana Government to coordinate general planning of the project. The Government proposes to set up a Volta River Authority to carry out all steps necessary to build the project and to operate it after comple- tion. Consulting engineers would design the project and supervise its construction. 5. The successful execution and operation of the project will depend, in large measure, upon the type and character of the authority which the Government establishes to have responsibility for this impor- tant project. The authority should have the freedom, under broad delegations of policy laid down in the legislation establishing it, to make decisions and take the actions necessary for the success of the project. It should have the freedom necessary to conduct its affairs in accordance WTith sound financial and public utility practices. 6. The most successful agencies of this type are governed by a board of directors of several members. It is irmportant that the board, while being responsible for overall policy and programing, should appoint adrministrative and technical staff to Thom the execution ofL work and operation of facilities would be delegated. Qualified senior staff, having the experience nccessary to manage and operate a project of this nature, are not available in Ghana and it iwould therefore be essential to retain expatriate staff for many years. It is important also that the authority should have the power to fix tariffs and otherwise to main- ain a sound fiinancial position.  - 2 - 7. U4hile in some cases authorities of this character are respon- sible for both generation and distribution of po:Jer, it would seem preferable that the responsibilities of the Volta River Authority should be restricted to the generation and transmission of electricity, includ- ing sales to the smelter, and that distribution should be the function of the EThetrinity epnartmPent. ifhich is fully conve'.n