Ghana - Volta River Hydroelectric Project

RETURN TO R E S T R I C T E D REPORTS DESK QPY Rpy WITHIN ROe Reort No. ONE W"!EEK_j This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views.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 APPRAISAL OF THE VOLTA RIVER HYDROELECTRIC PROJECT GHANA August 30, 1961 Department of Technical Operations  CURRENCY EQUIVALENTS U.S. Cents 1 = Ghana Pence 0.857 U.S. $1 = Ghana Shillings 7 Pence 3 U. S. $2. 80 = Ghana E I U. S. $2. 8 million = Ghana L1I million  APPRAISAL OF TEE VOLTA RIVER EHYDROE-HLCTRIC PROJZCT GESAN TAR.LE OF CONT'NTS Page No. SURY i I. INTRODUCTION 1 II. BACKGROUND 1 III. TaE BORROCVER 2 IV. TIE POWER MARKET 3 Existing Installations 3 Smelter Demand 4 General Consumer Demand 5 The Demand of the Mines 6 Total Demand and Generating Capacity Required 6 V. TIE PROJECT 7 Description of the Project 7 The Volta Basin 8 Water Requirements 8 Construction Schedule 9 Engineering and Cost Estimates 9 Procurement 11 Schedule of Expenditure 11 VI. FINTANCIAL ASPECTS 11 Financing Plan 11 Smelter Revenues 12 Non-Smelter Revenues 13 Financial Projections 14 Estimated Future Earnings 15 Debt Service Coverages 15 Comparison of Forecast Earnings of Annexes 6 and 7 16 Forecast Cash Position 16 Forecast Results of a Smelter Demand of 370 M4l 17 VII. ECONOMIC ASPECTS 18 VIII. CONCLUSIONTS 19  LIST OF AND=XS 1. Power Station Capacity and Estimated Maximum Demand. 2. PoTger Station Capacity and MIaximum. Demand Smelter demand increased to 315 1T1 beginning April 1972 3. Power Station Capacity and I1iaximum. Demand Smelter demand increased to 315 NVI beginning April 1969 4. Construction Schedule 5. Summary Conclusions of Consultants as to Effect on Project of Water Abstractions from Volta .iiver Tributaries Outside Ghana 6. Forecast Summary Income Statements and Cash Flows 1966-1976 Based on the assuFption that the firm power requirernents of the smelter increase to 315 TI1 beginning April 1972 7. Forecast Summary Income Statements and Cash Flows 1966-1976 Based on the assumption that the firm power requirements of the smelter increase to 315 IT.M; beginning April 1969 8. Economic Aspects of the Volta River Project 9. Calculation of Long-Term Rate of Return 10. A Brief Summary of Valco's iinancial Arrangements Map of Project  APPThAlSAL OF TIH 7OLTA RIV7ER HY72GE.,RC ,2-TRTC PROJECT SUOLMUARY i. The Government of Ghana has asked the Bank to assist in financing the Volta River Hydroelectric Project by extending a loan of the equivalent of ;47 million (bG 16.8 million) to cover a part of the foreign exchange cost of the Project. The total estimated cost of the Project is the equivalent of ":190 million (LG 67.8 million), of which about 6010 would be reqaired in foreign exchange. ii. The Project consists of a dam and power plant at Akosombo, 50 miles above the mouth of the Volta River, and a transmission system to supply power to Accra, the capital, to Tema and to a proposed aluminum smelter to be built nearby and to the main toTqns and villages and the mines of southern Ghana., iii. The Government has passed legislation establishing the Volta River Authority, the Borrower, to carry out all steps necessary to construct the Project and to operate it after completion. iv. The Project, designed and engineered by Kaiser Engineers and Corn- structors, Inc. who would supervise construction, is technically sound and would take about five years to construct. The power station, in which the first unit should be cormmissioned by 1966, would have an initial capacity of 589 HvJ with four units installed and an ultimate capacity of 883 MA.J when completed wgith six units. v. A consortium of aluminum companies (VALCO) headed by the Kaiser Aluninum & Chemical Corporation would be committed to build a large alur;num smelter at Tema to be supplied by power from the Project under a long-term contract. The power from the Project would be consumed by the aluminum snelter, various mining companies and the ElectrLcity Divis-ioio *hich wou24 distribute power to the general consumers in southern Ghana. vi. 'o finance the Project the Government is prepared to invest up to IXG 35 million ($98 million) and is planning to borrow an additional OG 35 million Thich would be sufficient to rieet t'le estimated cost of the Project, including a four-unit installatiQn, and, if required, to meet that part of the estimated cost of a fifth unit which could not be met by internal cash generation. Commitments have been obtained by the Government for the reqa ired loans and these arrangements will be consumated sinultaneously with the proposed Bank loan. vii. Gross income would be modest in the initial years but is forecast to increase steadily as the smelter and non-smelter revenues develop. Although the forecast return on net fixed assets in operation would be negligible in 1967 and only about 3% in 1969, it would reach 6% by 1973 and 9% by 1976. viii. The Project would be suitable for a Bank loan of 'I47 million (AG 16.8 million) Tith a term of 25 years, including a 6-year grace period,  APPAI SAL OF T1E VOLTA RIVER HYDRCELCh CTRIC PIWJECT GFLk1IA I. INTRODUCTION 1. The Government of Ghana has decided to construct the Volta River Hydroelectric Project and has asked the Bank to assist in its financing by extending a loan of LG 16.8 million (Ui9W47 million) to cover a part of the foreign exchange cost of the Project. 2. In 1960 the Government of Ghana asked the Baik to make a prelidi- nary appraisal of the proposed Project. The Bank's conclusions, which were reached after considering the technical, financial and economic soundness of the Project and the adequacy of the organizational arrangerments for its con- struction and operation, were presented in a report titled "Preliminary Appraisal of the Volta River Hydroelectric Project" (TO 249a, June 30, 1960). Since then, negotiations bet-ween representatives of the Government and a consortium of American aluminum companies (VALCO) headed by Kaiser Aluminum & Chemical Corporation have resulted in a cornplex of agreements whereby, inter alia, the consortium would build a large aluminum smelter in Ghana to be supplied by powrer from the Project under a long-term contract and thaus provide the Project with an important source of revenue. See Annex 10 for a brief surmary of VALCO's financial arrangements covering the construction and operation of the proposed smelter. 3. The Project proposed for Bank financing would consist of a dam at Akosombo about 50 miles above the mouth of the Volta River; a power plant with an initial capacity of 589 ISl; trma smission lines to Tema, the seaport where the smelter is to be located, to Accra, the capiti, and a transmission network to supply the main tmons and villages and the mines of southern Ghana. The estimated cost of the Project, with four of the six generating units -Ln- stal led, is the ecpivalent of US21A190 million. The borrower would be the Volta aiver Authority, which is being established to build and operate the Project. h. This report presents an appraisal of the Project. It is based on inforriation obtained from engineering reports and other data prepared by Kaiser Engineers and Constructors, Inc. (KECI), the Government's consulting engineers for the Project; a report prepared by Cooper Brothers & Co., the Government's financial advisers for the Project; a Haster Agreement and Power Contract negotiated and initialed last November by the Government and representatives of YALCO; an engineering; report prepared for the Volta River Preparatory Commission by Sir WJilliam Halcrow and Partners in 1956; a number of field trips to Ghana by Bank staff and discussions with Government officials during their several visits to the Bank in 1960 and 1961. II. BDACKGR_.ONL0T.D 5. The possibility of constructing a large hydroelectric installation. on the Volta River in the general area of the proposed Akosombo site haa been under review for a number of years. As the large size and cost of any possible development were out of proportion to the ri.odest pc:,er dem.and in  - 2 - southern Ghana, the viability of a project would depend on the establishnent of a large power consumina industry. Thus in 1