Jordan - Seventh Power Project

Document of The World Bank FOR OFFICIAL USE ONLY ,4 U'. ? 93 L? oT Report No. 6496-JO STAFF APPRAISAL REPORT JORDAN SEVENTH POWER PROJECT May 12, 1987 P-ojects Department Europe, Middle East and North Africa Regional Office This document has a restricted distfibution and may be used by recipients only In the performance of their odCW duties. Its cotents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Jordan Dinars (JD) JD 1.00 = 1,000 fils JD 0.35 = US$1.00 JD 1.00 = US$2.85 WEIGHTS AND MEASURES 1 meter = 3.281 feet (ft) 1 kilometer = 0.621 mile 1 kilogram (kg) = 2.205 pounds (lb) 1 microgram (1lpg) lo" gram 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 (Mh) = 1,000 kW 1 kilowatt hour (kWh) = 1,000 Watthours (Wh) 1 Gigawatt hour (GWh) = 1,000,000 kWh = 1,000 MWh (=106 kWh) 1 kilovolt (kV) = 1,000 volts (V) 1 kilovolt ampere (kVA) = 1,000 volt amperes (1 kVA) 1 Megavolt ampere (MVA) = 1,000 kVA 1 kilo litre (103 litres) = 6.28981 American barrels GLOSSARY OF ABBREVIATIONS ATPS - Aqaba Thermal Power Station CTM - Chas T. Main (USA) 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 JPRC - Jordan Petroleum Refining Company LPG - Liquified Petroleum Gas MAED - Model for Analysis of Energy Demand MEMR - Ministry of Energy and Mineral Resources MOP - Ministry of Planning NRA - Natural Resources Authority PCR - Preece Cardew and Rider (USA) SOE - Statement of Expenditure toe - tons of oil equivalent TPC - Aqaba Port Corporation WASP III - Wien's Automatic System Program Package III Financial Year = Calendar Year  FOR OFFICIAL USE ONLY JORDAh SEVENTH POWER PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE ENERGY SECTOR . ..................... ....... . . Introduction ..* * * * * * **....................... 1 Resource Base and Development Prospects .... ............ 1 Energy Sector Institutions ............................. 2 Energy Demand and Supply ........... ... . . . . . . . . . . . . .. 2 Electricity Consumption ......... .................. . 4 Electricity Demand Forecast ......... ................... 5 Energy Pricing ....... ........... ............... 6 Petroleum Products Pricing ... ........................ 6 Electricity Tariffs ... ........................ .. 7 Tariff Structure ...... ............. . 7 Energy Investment ................ .... 8 II. THE POWER SUBSECTOR . ................ ............... . .. . . . . 9 Subsector Organization ..................***....*4 9 The Beneficiary * . . ............... 9 Manpower Development and Training .......... ............ 9 Power Subsector Development ............................ 10 General Characteristics of the Electric Power System ... 10 Generation ..... ............................... 10 Transmission ............. ...... 10 Distribution ..................... 11 Power System Losses . ........................ . .. . .. . . . 11 Power System Planning and Investment Program ........... 11 Role of IDA/Bank ................. 6..6 ......................... 11 III. THE PROJECT .................. . ...... #....... 13 Project Objectives ....,................................ 13 Project Description ....... ............................ . 13 Project Cost *......................................... 13 Project Financing Plan ...... ......... .................. 15 The report was prepared by Ms. Z. Ladhibi (Power Engineer), Mr. W. Hamlet (Financial Analyst), Ms. R. Vedavalli (Senior Economist), Mr. S. O'Brien-Kumi (Economist), Mr. D. Perfrement (Port Engineer) and Mr. G. Fitzpatrick (Consultant). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its co:3tents may not otherwise be disclosed without World Bank authorization.  - ii - Table of Contents (cCat'd) Page No. III. THE PROJECT (cont'd.) Lending Arrangement ................. ... .. ...... 16 Engineering and Consulting Services .................... 16 Project Preparation and Implementation Schedule ........ 17 Procurement ...........#**.. **&..** 17 Disbursements ..................................... 19 Environmental Impact . ......19 Project Risks ... ........ ...................... 20 IV. FINANCE ...................21 Account ing ........ ..................................... 21 Accounts Receivable ............*............................... 21 Past Performance and Present Position ....... .......... 21 Revenue Covenant ............................. ..... 22 JEA's Financial Plan and Funds Statement ............... 22 Future Financial Performance ........................... 23 Debt Service Coverage ............................... *. 24 Auditing ....* ............. ..... 24 Insurance .......................................... 25 Performance Monitoring System ......... .......... 25 V. PROJECT JUSTIFICATION ......... .................... ... 26 Load Forecast ......................................... 26 Least-Cost Analysis .................................... 26 Rate of Return ........................................ 27 VI. AGREEMENTS TO BE REACHED AND RECOMMENDATION ................ 28 ANNEXES 1.1 Consumption of Petroleum Products 1975-1985 ................ 30 1.2 Electricity Coasumption 1975-1995 .......................... 31 1.3 Structure of Petroleum Product Prices (April 1987) ......... 32 1.4 Existing Electricity Tariff Structure (April 1987) ......... 34 3.1 Description of the Project ................................. 36 3.2 Yearly Breakdown of Project Cost Estimate .................. 38 3.3 Project Cost Estimate by Contract Packages ................ 39 3.4 Project Financing Plan ............ 40 3.5 Draft Terms of Re~ference for Technical Assistance to Design the Multipurpose Jetty ......................... 41 3.6 Implementation Schedule .................................... 44 3.7 Estimated Procurement Schedule ..... *00.. 45 3.8 Estimated Disbursement Schedule .................... 46  - iii - Table of Contents (cont'd) Page No. ANNEXES (cont'd) 3.9 Comparison of Disbursement Profiles ........................ 47 3.10 Aqaba Power Station Layout ........................... 48 4.1 Income Statement for the Years Ended December 31, 1983-1995 49 4.2 Balance Sheets for the Years Ended December 31, 1983-1995 .. 50 4.3 Sources and Applications of Funds .......................... 51 4.4 Computation of Self-Financing Level .................... 52 4.5 Notes and Assumptions for Financial Forecasts .............. 53 5.1 Least-Cost Analysis ........................................ 55 5.2 Rate of Return Analysis . .................... .. .......... 63 6.1 Documents and Information in the Project File .............. 65 MAP IBRD 19882 - Main Generation and Transmission System  JORDAN SEVENTH POWER PROJECT STAFF APPRAISAL REPORT I. THE ENERGY SECTOR Introduction 1.01 The Government's energy policy and strategy were reviewed by the Bank as part of the Energy Sector Study 1/ in February 1983 and during the preparation of the Energy Development Project (Loan 2371-JO) in 1983 and the Sixth Power Project (Loan 2710-JO) in 1986. 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 Government's strategy focuses on: (a) efficient use of energy tlhrough demand management, energy conservation and pricing measures; (b) providing economic and diversified energy supplies; (c) adopting pricing policies that would ensure economic efficiency and financial viability of energy sector entities; and (d) improving sector management through: (i) streamlining responsibility for overall er,ergy policy formulation; and (ii) strengthening technical capabilities for energy planning consistent with macro objectives of the economy. These are being pursued by the Government under the ongoing 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. Resource Base and Development Prospects 1.03 Jordan's modest 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. Although hydrocarbon structures have been found to exist in a number of areas where geological surveys have been carried out, drilling results up to date have been rather disappointing. Recent discoveries in the Hamza field indicate potential production levels o, 700 barrels per day compared to Jordan's present requirement of crude oil of about 60,000 barrels/day. 1.04 Unless Jordan discovers oil or gas in commercial quantities, the prospects of indigeneous energy supply appears bleak in the foreseeable future. Preliminary efforts undertaken jointly by the Natural Resources Authority (NRA) and Lurgi and Klockner Anlagen of Germany have established 1/ Jordan Energy Sector Study (ESS) Report No. 4012-JO, February 1983.  oil shale reserves of over I billion tons each at El Lajjun and the Sultani deposits. However, with current and projected levels of international oil prices the extraction of oil from shale deposits is uneconomic at the current level of technology. 1/ The full development of the small remaining hydropower potential of 83 GWh per year 2/ is hampered by issues of riparian rights. Despite Government's efforts to promote solar and i%Lnd energy, rei. .iable energy is not likely to make a significant contribution to meeting domestic, agricultural, and commercial energy requirements. Energy Sector Institutions 1.05 The energy sector is under the jurisdiction of the Ministry of Energy and Mineral Resources (MEMR) created in November 1984. The main energy sector institutions are the Natural Resources Authority (NRA), Jordan Petroleum Refining Company, (JPRC), Jordan Electricity Authority (JEA), Jordan Electric Power Company (JEPCO), and the Irbid District Electricity Company (IDECO). 1.06 MEMR is responsible for formulating overall energy sector policies, including the development of indigenous energy resources, the diversification of energy supply and the rationalization of the use of energy by appropriate pricing policies and promotion of energy conservation measures. MEMR is also responsible for coordination within the energy sector. Each subsector entity prepares its own development plan. For the power subsector, least-cost generation and transmission investment programs are prepared by JEA, while JEPCO, IDECO, and JEA prepare distribution investment plans for their respective supply areas. The generation, transmission, and distribution programs are consolidated by MEMR into a power subsector plan. NRA prepares development plans for domestic energy resources, and JPRC prepares plans for refining, transportation, and distribution of petroleum products. The individual subsector plans are then aggregated into a plan for the energy sector as a whole by MEMR. The sector plan is reviewed by the Ministry of Planning (MOP) as part of the overall national plan preparation process. Since MEMR is still in its formative stages, the Government recognizes the need to strengthen its capabilities, and a program of training and recruitment is under way to strengthen the Ministry. As the Ministry develops, policy formulation and coordination of sector institutions is expected to improve. Energy Demand and Supply 1.07 Over the last decade, Jordan has experienced a relatively high growth in energy consumption. Gross energy consumption increased at an average annual rate of about 14.6% p.a. from 1975 to 1983 (Annex 1.1). The 1/ MEMR is currently examiining the possibility of undertaking a Pilot Plant Test program which would assess the technical feasibility of using Jordanian oil shale. 2/ Currently, only about 4 GWh per year on the Zarqa River is developed.  - 3 - high growth of commercial energy consumption is attributable to rapid population growth, increased access to public electricity supply, establishment and expansion of large energy-intensive industries, such as cement, potash and phosphate, growth of transport, and rising incomes stimulated by remittances fromi Jordanians abroad. However, between 1983 and 1985 the rate of growth in energy cnnsumption declined to 4.42 p.a. Energy intensity - energy consumption per unit of GDP - declined to 1.5 in 1985, compared to 2.3 in 1975 partly reflecting effective demand management and conservation measures and partly the slowdown in economic growth. The Government's major objective in the current plan (1986-1990) and thereafter is to continue to achieve increasing efficiency in energy use. The Government has already completed preliminary energy audit programs in the industrial and transport sectors and has also drawn up an action plan to undertake detailed energy audits and implement energy conservation measures during the 1986-90 plan period. Consequently, with GDP growth rates projected to average 52 p.a. between 1986-95, and with implementation of energy conservation measures, energy intensity is projected to continue to decline to 1.1 by 1995 and energy consumption is expected to increase slowly at about 3.0% p.a. to 1995. 1.08 Over the last plan period (1981-1985), the cost of imported commercial energy amounted to more than 65% of the total merchandise export earnings. Dependence on imported energy would continue in the future unless a significant discovery of oil or gas is made through the ongoing exploration programs. Consistent with energy demand projections in para. 1.07 above, energy imports are projected at about 3.3 million toe in 1990 and at 3.9 million toe in 1995 compared to 2.8 million toe in 1985. Table 1.1 shows commercial energy balance projections.  - 4 - Table 1.1 Energy Balance (in Thousands of Tons Oil Equivalent) Actual Projections 1985 1990 1995 SUPPLY Imports Crude Oii 2484.3 2950.5 3504.3 Fuel Oil 394.6 468.7 556.7 LPG 10.0 11.9 14.1 Less: Stock Variation (69.4) (142.1) (176.6) Total 2819.5 3289.0 3898.5 DEMAND LPG 87.2 116.6 156 1 Gasoline 330.9 363.0 466.8 Jet Fuel 227.4 339.1 251.2 Kerosene 133.0 120.3 108.7 Diesel 736.9 896.6 1090.9 Fuel Oil 962.0 1142.8 1400.0 Others 144.7 156.1 159.8 Refinery Consumption ) 197.4 154.5 265.0 & losses ) Total 2819.5 3289.0 3898.5 Source: MEMR Electricity Consumption 1.09 During the period 1975-1980, total consumption of electricity increased at arn average rate of 26% p.a. Industrial consumption grew at 131 p.a. while domestic and commercial consumption grew very quickly at 26.51 p.a. However, between 1980 and 1985, the overall rate of growth declined to 19% p.a. Due to programs of rapid industrialization, consumption of electricity in the industrial sector grew rapidly at a rate of 24% p.a. during this period, while the growth rate of consumption in the domestic and commercial sectors declined to 16.6% p.a.  -5. Electricity Demand Forecast 1.10 The forecast of electricity demand for the interconnected system was prepared by JEA, in consultation with MEMR, JEPCO and IDECO. Electricity consumption was projected using a model of consumption by sectors and end use. The Bank reviewed the forecast of electricity demand and found it satisfactory. Figure 1.1 Electricity Consumption ( 1975-95) 3- 2.5 - 2- 0.5 0,.1 C4 1975 1980 19851986 1987 1988 198919901991 1992 1993 19941995 zO t {29 D = c p '> IN SL I: Industry, D: Domestic, C: Commercial, WP: Waterpumping IN: Institutions, SL: Streetlighting. Figures for the period 1975-1986 are actual. 1.11 Consistent with projected rates of growth in GDP and industrial production and with Government's energy strategy focussing on demand management and conservation measures, the average rate of growth of electricity consumption is projected to decline trom the historical 19% p.a. in 1980-1985 to about 8% between 1986 and 1990, and 6.2% during 1991-95. Electricity consumption in the industrial sector is forecast to increase at 12.4% p.a. during 1986-90 and only 4.9% p.a. during 1990-95, reflecting partly more efficient energy use and partly the absence of major new industrial plants. The demand forecast and projected sectoral shares are shown in Annex 1.2.  6- Energy Pricina 1.12 Petroleum products pricing. Economic pricing has been one of the main thrusts of the Government's strategy in tihe energy sector. As of July 1986, all petroleum products were priced above their economic levels as detailed in Table 1.2 below. This was due to a reduction in the subsidy on fuel oil and mainly to the recent fall in international oil prices. Furthermore, the currert situation, where prices of petroleum products are above their respective economic cost, prevails despite the Government's decision in June 1986 to pass on to selected consuaers a reduction in oil prices. Tihese selective reductions concerned mainly the large industries and the power subsector and were implemented to promote international competitiveness of local products. Although we consider that the Govetrnment's approach is sound, given the uncertainty surrounding the international oil prices and the possibility of their increase, the Government agreed during negotiations to exchange views with the Bank with regard to its policy on petroleum products retail prices (para. 6.01 and confirmed its policy to maintain these prices at their economic levels. Annex 1.3 indicates the structure of petroleum products prices. Table 1.2 Comparison of Domestic Prices of Petroleum Products with Economic Cost of Supply (April 1987) Retail Economic Retail price Price /a Cost /b as percent of Products (US$/ton) (US$/ton) economic cost Premium Gasoline 788 182 433 Regular Gasoline 684 167 410 Aviation Fuel - Alia 294 156 188 - Others 368 156 236 Kerosene 234 155 143 Diesel Fuel 222 152 146 Fuel Oil - Power Plants 104 97 107 - Others 142 97 146 LPG (12.5 kg/cylinder) 410 138 297 /a Source: MEMR /b Source: Platts Oil Gram Price adjusted to include transportation and liandling costs.  -7- Electricity Tariffs 1.13 Tariff structure. The current tariff structure consists of demand rates and time-of-day kilowatt-hour rates for bulk supply to the distribution companies and large and 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. 1.14 In June 1986, the Government also decided to reduce electricity tariffs to certain consumer categories, in parallel with its decision to pass on to consumers some of the benefits of declining oil prices and to reduce the price of fuel oil to JEA by about 21%. These adjustments in electricity rates led to an average reduction of about 13Z in the average revenue per kilowatt-hour sold to final consumers. As a consequence, the overall average retail price is about 30.0 fils/kWh, which is close to parity with the estimated economic cost of supply as shown in Table 1.3 below. However, because of the effect of uncertain future fuel prices on the power utilities' finances, during negotiations the Government agreed to exchange views periodically with the Bank regarding electricity pricing (para. 6.01) and confirmed its policy to authorize the power entities to take timely actions to reflect changes in the fuel prices in their tariffs. Table 1.3 Comparison of Existing Average Electricity Prices with Economic Cost of Supply (April 1987) Existing Avg. Rate Economic Cost (2) as Consumer Category Fils/kWh Fils/kWh /a Percentage of (3) (1) (2) (3) (4) Large industry (bulk 18.1 24.2 75 supply at 132 kV) Medium industry 22.7 30.6 74 (33 - 6.6 kV) Domestic 39.7 45.5 87 Small industry 25.3 34.2 74 Commercial 46.0 33.1 139 Institutions 35.6 32.3 110 Water pumping 23.0 28.9 80 Street lighting - 55.3 _ Wt. average all categories 30.0 35.2 85 /a Based on Jordan's average crude oil price of US$18 per barrel (April 1987).  - 8 - 1.15 Electricity prices to bulk consumers and medium industry, and small industry are about 75% of their respective economic cost. This situation could lead to uneconomic use of electricity. MEMR is currently initiating an energy pricing study being financed by USAID that includes: (i) a review of the economic cost of electricity supply; and (ii) the design of tariffs taking into consideration economic efficiency in electricity consumption, financial viability of the power entities and Government's s-cial policy. The Bank has assisted in drafting the terms of reference. Unaer the Sixth Power Project (Loan 2710-JO), the Government has agreed to submit to the Bank for its review the results of the study by December 31, 1987 and to provide an action plan for implementing the recommendations. Energy Investment 1.16 The 1986-1990 investment program of about JD 228 million (US$651 million) reflects the emphasis on improving the efficiency of use of energy, while continuing efforts to increase the supply base in the most economic manner. In addition, the program reflects the Government's plan to rely increasingly on the private sector in oil exploration activities. As in the past, power subsector investment would constitute about 662 of total sector investment and would include investment for additional generating transmission and distribution facilities as well as rehabilitation and expansion of the existing distribution system. Table 1.4 below summarizes the content of the revised investment program which has been reviewed by the Bank and found satisfactory. Table 1.4 Energy Investment (1986-1990 Plan) (1985 Prices) Total 1986-1990 (JD Million) Percent of Total Petroleum Exploration 45.0 20.0 Oil Shale 2.7 1.1 Geothermal Exploration 1.8 0.8 Generation Investigations 0.8 0.3 Transportation, Storage, and Distribution of Petroleum Products 16.0 7.0 Energy Conservation in Industries and the Refinery 9.0 3.9 Renewable Energy 1.0 0.4 Energy Planning Studies 0.8 0.3 Power Generation 83.0 36.4 Transmission and Distribution of Electricity 68.1 29.8 TOTAL 228.2 100.0  - 9 - II. THE POWER SUBSECTOR Subsector Organization 2.01 Several entities including MEMR, JEA, JEPCO and IDECO are responsible for the development and operation of Jordan's power subsector: (i) as detailed in para. 1.15, MEMR is responsible for the development, coordination and ricing policy formulation for the subsector arnd 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 surrounding areas and accounted 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 private investors. IDECO's service covers a concessionary area encompassing the governorates of Irbid and Mafraq 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. The Beneficiary 2.02 The General Electricity Law provides that JEA should be both financially and administratively independent. JEA has a board of eight directors six of whom are appointed by the Government, with the Minister of Energy and Mineral Resources as the Chairman of the Board. JEA is well organized and properly managed and has already proven its competence in carrying out its responsibilities. Its organization structure is based on the recommendations of the management consultants appointed under Credit 386-JO (First Power Project). The Authority has a total staff of 1580 of which 130 are graduate engineers and 920 are other technical staff. Manpower Development and Training 2.03 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. Recognizing the need for a more comprehensive training facility for the power subsector, which would cover all the required services, JEA is currently initiating, with the assistance of the Japanese Government, the construction of 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 new recruits and would provide improvement and upgrading courses for the existing staff in the power entities.  - 10 - 2.04 In line with its policy to further develop the technical capability of its staff, and in relation with the Project's specific needs, JEA has included in the packages to be procured for the Project a training component which would ensure that JEA's personnel is well trained and knowledgeable in the safe and efficient operation and maintenance of the project facilities. This training component provides for an estimated 60 man-year of training and consists of interrelated activIties: (i) formal classroom training; (ii) off-site training at manufacturers' shops and at a plant operationally similar to the Aqaba Power Station; and (iii) on the job training. Power Subsector Development 2.05 Jordan's power subsector grew very rapidly between 1970 and 1980 mainly in response to the economic boom experienced during that period. Installed generating capacity increased from about 30 MW in 1970 to about 298 MW in 1980 and 952 MW presently. The distribution system has expanded in unison with the growth in generating and transmission capacities. 2.06 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. Some large industries have their own generating plants, with a total capacity of 84 MW, which have now been connected to the national grid. In addition to meetivu their own demand these industries supply electricity to the public system during peak periods when JEA supply is inadequate to meet total system demand. 2.07 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 90% of the rural population. General Characteristics of the Electric Power System 2.08 Generation: In December 1986, JEA's installed generating capacity was 862 MW of which 72.3% (623 MW) was oil-fired steam units installed a. the Hussein Thermal Power Station (HTPS) and Aqaba Thermal Power Station (ATPS), 21.1% (182 MW) was gas turbine plant firing heavy fuel oil and installed at HTPS, Amman South, Marka and Karak, and the remaining 6.6% (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. Industries own a total of about 84 MW of installed capacity in steam and diesel units which are connected to the public supply system. 2.09 Transmission: Also in December 1986, the transmission network consisted of (i) 1,640 circuit-km of transmission lines, compAising 320 km of 400-kV line between ATPS and Amman-South 1/, 1,286 km of 132-kV lines and two tie-lines with Syria of 17 km each at 230 kV and 66 kV; and (ii) substation capacities totalling 1,370 MVA. 1/ This line will be operated at 132 kV until the commissioning of the proposed project.  - 11 - 2.10 Distribution: The distribution networks at the end of 1986 consisted of 3,480 km of 33-kV, 1-kV and 6.6-kV networks, and 8,960 km of 0.4-kV network with substation capacity of 1,850 MVA. 2.11 Power System Losses: Total power system losses are presently estimated at about 14%, and are expected to show a slight decline in the future. Losses in the distribution system are about 10% which is slightly higher than the economically achievable levels of about 82. As part of the general power system efficiency improvement program, and under the on-going Energy Development Project, the Government has initiated a Load Research and Management Study, with the assistance of consultants. The draft report submitted in June 1986 has identified the sources and nature of power system losses, provided recommendations and an action plan to reduce them. The apFraisal mission reviewed the draft, provided comments, and the report is currently being finalized. During negotiations, the Governmeiut agreed to submit to the Bank by June 30, 1988, an action plan for reducing power system losses over the next five years and to implement the agreed action plan thereafter (para. 6.01). Power System Planning and Investment Program 2.12 Generation and transmission system planning is done by JEA with the assistance of consultants. JEA has presently acquired the WASP III 1/ and MAED 2/ computer models to improve its planning capability. Assistance in the use of these programs is being provided by the International Atomic Energy Agency (IAEA) art the Bank through training and technical advice. Distribution system planning is carried out by each of the power entities seL.arately for their various concession areas at standards which are in most cases, comparable to those found in the industrialized countries. 2.13 JEA's total investment program for the period 1986-1995 is estimated to be about JD 250 million (US$720 million). The investment program is reasonable in relation to the demand forecast. It is expected that JEA would be able to finance internally up to 35% of its long-term investment program. The Government regularly reviews the investment requirements for the construction programs of power utilities and arranges to secure the necessary financing from external and internal sources. sole of IDA/Bank 2.14 The World Bank Group has been involved in seven 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) to support the Government's efforts in initiating the first stages for the development of generation facilities with 3x33-MW steam power units and lx13-MW gas turbine at the Hussein power station, the reconditioning of the Marka diesel power 1/ WASP: Wien Automatic System Program for deriving least-cost power generation investment program. 2/ MAED: Mod'l for Analysis of Energy Demand.  - 12 - 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 (June 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. The Project has been satisfactorily completed and a Completion Report is being prepared by the Borrower. Loan 2162-JO (1982) for US$35 million, with co-financing from a number of bilateral and multilateral institutions, assisted JEA in covering the foreign exchange cost of the first stage of the Aqaba thermal power station which involves the installation of two oil-fired units of 130 MW each, with a total cost of about US$250 million. First operation of the two units took place in May and July 1986 after only minor delays. Loan 2371-JO (1984) of US$30 million with co-financing 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. Loan 2710-JO (June 1986) of US$27.5 million would continue the Bank's efforts to assist the power subsector entities in their development programs through the implementation of some major investments in the distribution system that would contribute to the improvement of Jordan's power system efficiency. The procurement process has been initiated and the loan became effective on December 1, 1986. The proposed Project would assist the Government in serving Jordan's future power demand while meeting its objectives of reducing the country's dependence on imported oil, and enable the Bank to continue its efforts to achieve the institutional building objectives set under the previous loans and the Energy Sector Study.  - 13 - III. THE PROJECT Project Obiectives 3.01 Jordan is virtually totally dependant on imports for meeting its needs for primary energy. The main objectives of the proposed project are: (i) to meet the future power demand at least cost to the economy, and (ii) potentially to reduce the country's dependence on imported oil in power generation by introducing the possibility of substituting oil with coal should the latter prove more economical. The project's further objectives are the improvement of the quality of power supply services and the continuation of the institution-building efforts to further develop JEA as a technically efficient entity. Pro3ect Description 3.02 The proposed project is part of JEA's development program for the period 1988-1995, and would involve: (a) the expansion of the existing bea-water-cooled steam power plant at Aqaba by the addition of 2x130-MW units, initially firing heavy fuel oil and with the boilers and the power station layout suitable for future coal firing (paras. 5.03 and 5.04); (b) upgrading the substations at Aqaba and Amman-South to 400 kV; and (c) the consulting services associated with (a) and (b). Annexes 3.1 and 3.10 give a detailed description of the project and the layout of Aqaba Power Station respectively. Map IBRD 19882 indicates the location of the main project components. Project Cost 3.03 The estimated cost of the proposed project including physical and price contingencies is about JD 96.6 million (US$242.5 million). The total financing required, inclusive of interest during construction, is about JD 102.7 million (US$257.8 million) of which JD 87.5 million (US$219.1 million) would be in foreign exchange. The cost estimates do not include custom duties and taxes from which JEA is exempt. Details of the cost estimates are given in Annexes 3.2 and. 3.3 and summarized in Table 3.1 below. These estimates are based on estimated January 1987 prices derived from bids received for the project and being evaluated by JEA. Given the advanced stage of project design, and given the fact that the project is an extension to an existing power station, physical contingencies are assumed at 102 for the civil works and 71 for the equipment and materials. Price contingencies have been computed assuming an implementation period consistent with the relevant Bank standard profile and specific annual increases for domestic and international prices as follows: 1987 1988 1989 1990 1991 1992 1993 1994 Local (2) 5 5 5 5 5 5 5 5 International (2) 3 1 1 1 3.5 3.5 3.5 3.5  - 14 - Table 3.1 Summary of Project Cost Estimate JD million US$ million Local Foreign Total Local Foreign Total A. POWER STATION Civil Works 4.70 7.04 11.74 13.43 20.10 33.53 Boiler Island 2.66 18.38 21.04 7.60 52.50 60.10 Turbine Island 1.00 23.10 24.10 2.86 66.00 68.86 Switchyard Island 0.18 5.60 5.78 0.51 16.00 16.51 Housing 0.53 0.00 0.53 1.50 0.00 1.50 Engineering Services 1.89 2.87 4.76 5.40 8.20 13.60 TOTAL A 10.96 56.99 67.95 31.30 162.80 194.10 B. AMMAN-SOUTH SUBSTATION Civil Works 0.32 0.21 0.53 0.91 0.60 1.51 Equipment 0.32 3.85 4.17 0.91 11.00 11.91 Engineering Services 0.10 0.08 0.18 0.29 0.22 0.51 TOTAL B 0.74 4.14 4.88 2.11 11.82 13.93 C. TOTAL COST Base Cost (A + B) 11.70 61.13 72.83 33.41 174.62 208.03 Physical Contingencies 0.81 4.31 5.12 2.37 12.25 14.62 Price Contingencies 2.68 15.98 18.66 2.89 16.96 19.85 TOTAL PROJECT COST 15.19 81.42 96.61 38.67 203.83 242.50 Interest During Construction 0.00 6.10 6.10 0.00 15.30 15.30 TOTAL FINANCING REQUIRED ;4;2 UA5 1