Malta - Thermal Power and Sea Water Distillation Project

RESTRICTED Report No. TO-320a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THERMAL POWER AND SEA WATER DISTILLATION PROJECT MALTA July 29, 1963 Department of Technical Operations  CURRENCY EQUIVALENT 16= US $2. 80  TABLE OF CONTENTS Page SU4vARY i I. INTRODUCTION 1 II. ELECTRICITY AND WJATER SUP?LIES IN 1NALTA 1 Electricity Supply 2 later Su ;:ply 3 III. THBE ivALTi ELECTRICITY BOARD (IE3) 3 Organization and lfanagement 3 IV. THE PiARK.2axT FOR POUER AND -WATER 4 Power Sales 4 Forecast of Power Sales 5 Growth in Power System Denand 5 New Generating Plant Requirements 6 Wgater Consumption 6 Growth in iater Consumption 6 Water Distillation Plant Requirements 6 V. THE PIROJECT 7 Status of Engineering 8 Construction Schedules 8 Estimated Cost 8 Allocation of investrent between Power and Water Distillation 9 Power - Unit Construction and Generation Costs 10 Water Distillation Costs 10 Water Delivery Costs 11 Total IWTater Production Costs 11 VI. FUTURE EXPANSION PROGRAMI 11 VII. FIMA.-TTCIAL ASPECTS 12 The Dialta Electricity Board 13 Status of the Government Capital 13 Capital Expenditures and Sources of Funds 14 Rates and Estimated Financial Results 15 Auditing Procedures 16 V:II, JUSTIFICATION OF THE PROJECT 16 IX. CO\CLUSIOYS 16  TABLE OF CONTENTS (Cont'd) AREXES 1. Actual and Estimated Sales of Electricity, 1957/58 - 1969/70. 2. Actual and Estimated kwh Generated and System Maximum Demand, 1960/61 - 1969/70. 3. Graph Showing System Maximum Demand and Firm and Installed Generating Capacity, 1958/59 - 1960/70. 4. Detailed Description of the Project. 5. Site Plan of' Malta "B" Thermal Power and Sea Water Distillation Station. 6. Comparison of the Estimated Costs of a 25 IW Power and Distiliation Plant with the Estimated Cost of a 25 DiW Power Plant. 7. Malta "B" Station - Details of lenerating Costs. 8. Details of 'Jater Distillation Costs. 9. Income Statements, 1960/61 - 1969/70. 10. Cash Flow Forecast, 1963/64 - 1969/70. 11. Estimated Balance Theet, 1962/63 - 1969/70. Hap of Malta, Comino and Gozo.  MALTA THEIRMAL POWEJR AND SEA VIATLER DISTIDLATION PROJECT SUNEARY i. This report covers the appraisal of a project of the Malta E-ectricity Board (KEB), consisting of the first stage of the Mlalta "B" thernal power and sea water distillation station, the provision of water Rains from the station to an existing reservoir, and the provision of workshop, office and stores buildings. A Bank loan of US$7-5 million equivalent has been requested to cover the foreign exchange cost of the project, the total cost of which is estimated to be the equivalent of US$jlO.12 million. ii. IEB has been established to take over the assets, liabilities and responsibilities of the Electricity Branch of the Government Water and Electricity Department. The borrower would be the State of Malta, which would in turn relend to MEB. iii. The Mfalta "B" station would have an initial installed generating capacity of 25 PIWT and a water production capacity of one million imperial gallons per day. It is being designed for an ultimate capacity of 100 1"W and a water production of six million imperial gallons per day, and many features, such as the cooling wqater system, would be suitable for the next stage of development. The station would be operated by MEB as an integral unit. Its electrical output would be fed into the MEB distribution system and its output of distilled water would be sold in bulk at cost to the Government 1Water Department. iv. The project is technically sound, the estirated cost is reason- able, construction schedules are realistic, and arrangements for construc- tion are satisfactory. v. The Ordinance which has established MEB and which will govern its operation is satisfactory. vi. The organization planned for DED should be satisfactory. As an interim measure the existing staff of the Electricity Branch of the Electricity and Water Department is being detailed for service with NEB. This staff will have to be strengthened, particularly at top levels, if IEB is to operate efficiently. The Government has agreed to recruit additional staff to strengthen its management. vii. The financial position of NEB is expected to remain sound through 1965/66 without the need for any additional increase in tariffs. An overall tariff increase of about 5% will probably be required in 1966/67. The return on net fixed assets in operation is expected to average about 8% for the period April 1, 1963 to Iifarch 31, 1970. This is satisfactory. 1EB should be able to cover about 3h% of its capital requirements for expansion during this period from internal resources.  - ii - viii, The project is justified by the growing demand for electric power and increased needs for water which can no longer be met from natural sources. There is no alternative method of meeting these demands w-hich would compare favorably on an economic basis. ix. The project is considered suitable for a Bank loan of US87.5 million equivalent, for a period of 20 years, including a grace period of three years on amortization payments.  MKALTA THER14L POT'IE.t? [.UD SEA S ATIE DAT STILLATiON PROJECT I. INT2.0DUCT ION 1. This report covers the appraisal of a project of the Malta Electricity Board (NIB) consisting of the first stage of the Plalta "B" thermal power and sea water distillation station, the provision of wTater mains from the station to Luqa reservoir, and the provision of workshop, office and stores buildings. 2. The station would have an installed generating capacity of 25 11W and a water production capacity of one million gallons j per day. It would be operated as an integral unit and the output of distilled wrater would be sold in bulk at cost by 1VEB to the Government Water Department. 3. The estimrated cost of the project, including interest during construction, is 13.62 million (US$10.12 million). The Bank has been asked to make a loan of 12.68 million (US$7.5 million) to cover the esti- nated foreign exchange cost. 4.. DEB has been established to take over the assets, liabilities and responsibilities of the Electricity Branch of the Government Water and Electricity Department. The borrower would be the State of M.alta, which would in turn relend to WEB. 5. This report is based on information subii-itted to the Bank by the Government of 11alta, and on the findings of a Bank mission which visited Malta in January and February 1962. It has subsequently been updated by more recent information subomitted by the Government. The consideration of the loan was held up pending passage of necessary legislation. II. ELECTRICITY kNTD MiATER SUPPLIES IN MALTA 6. The Maltese Archipelago, a British colony in the hediterranean, has an area of some 120 square miles, and a population of about 330,000. The first public electricity supply system in halta commenced operations in 1894. The public water supply system started operations much earlier. Both electricity supply and water supply were the responsibility of the Government Public Works Department until 1930 when a new department, the Vlater and Electricity Department, was established to take over these functions. 1/ Imperial gallons used throughout this report. One imperial gallon = 1.2 U.S. gallons.  - 2 - 7. The Government decided some years ago that existing arrangements for electricity and water supply were unsatisfactory and in 1960 appointed a committee to exarine and report on the situation. In 1961 the conmittee recommended the establishment of an autonomous statutory authority to take over responsibility for electricity supply and the setting up of a separate government department to be responsible for water supply. 8. The committee's recommendations were accepted by the Government and an Ordinance establishing the l-falta Electricity Board has recently been approved by the Legislative Council. This Ordinance is discussed in Chapter III below. Electricity Supply 9. i1B is the only authority supplying electricity to the public. The Ioyal Navy operates a system which supplies the Naval Dockyard and NTaval, Military and Air Force establishments throughout h,,alta. There are also a few small private diesel generating sets in operation which were installed immediately after the war when public supplies were restricted. 10. The Navy power station, which is situated in the Dockyard, has an installed capacity of about 20 MW. The generating plant consists of two 6-41iW steam units which were installed in 1955 and a number of diesel units9 of various capacities, which are 20 to 25 years old and are due for retire- nent in 1965. The two systems are interconnected by a cable rated at 3 1NVJT, but additional cables are being installed which will more than double the present capacity. J1 PIEB's facilities consist of a 25-1lY steam power station and a distribution system which supplies Lalta and the two small and sparsely populated islands of Comino and Gozo. 12. The power station, which is located underground at h-arsa in allta, has five 5-l,H units, three of which were commissioned in 1953 and the other twzo in 1960. The station was constructed underground for de- fense reasons. 13. Prior to 1953 when the Varsa power station, which operates at 11 kv 3 phase 50 cycles, was commissioned the supply frequency was 100 cycles per second. To enable supplies to be given over the existing dis- tribution system freouency changers were installed but it soon became apparent the s-ysteml rould be inadequate to nmeet increasing loads and the installation of a completely new 11-kv 3-phase 50-cycle distribution system was commenced in 1954 and cormpleted in 1959. The new systerm supplies the islands of Conino and Gozo by subrarine cables. Previously each island had its oim diesel generating plant. Supplies to consu-ers from the new 50-cycle system are given at either 2h0 volts single phase or 415 volts 3 phase instead of at 200 volts single phase from the original 100-cycle system.  - 3- Iatea Supply1 14. The Government Water Department supplies practically all of the water consumed in Malta. There are a few industrial establishments and a nuriber of farms with their own wells and pumping equipment but the amount of water they produce is relatively small. 15. All the water obtained in Pialta is pumped from underground sources. -3ain water percolates through the ground and forms twzo water tables knowm as the Upper WITater Table and the Lower lain Sea Level v.ater Table. The Upper Wlater Table consists of rainwater which has percolated through rock formations and which rests on an impermeable layer of clay. The Lower Wlater Table consists of rainwater which during its descent through rock formations and fissures finds no impermeable layer and floats at sea level on saline water from the sea which saturates the rock at this level. \bout 95% of the island's water supply is punped from the Lower Tater Table. 16. The Depcartnent s Consultants consider the maxinum amount of water which can be obtained economically from natural sources is about 4,300 million gallons per annum. Additional extraction from the Lower TWater Table would increase salinity beyond the acceptable limits. The Consultants state a relatively small amount of additional water, at the mnost 200 million gallons per annum, could be obtained from the Upper WV%ater Table by sinking more wells but the cost of production would be prohibitive, about 144 pence (US$1.68) per 1,000 gallons. 17. As present consumption is about 3,400 million gallons per annum, it will be necessary to find other sources of supply in the near future. III. TE IKALTM CLT;CTR31T B OA.RD (IEB) 18. The Ordinance to establish NEB in its original draft form, although generally acceptable, did not give the Board sufficient freedom to run its own affairs in accordance with sound business and utility practice. It was subsequently amended in accordance with the Bank's suggestions and it has now been approved by the Legislative Council in a form satisfactory to the Bank. Organization and ianagement 19. The Ordinance provides for a Board consisting of not less than five and not more than seven members to be appointed by the ,iinister of Power, one of whom shall be designated by the Minister as Chairran, and of the person holding the office of General lpanager as an ex-officio member. The members will be appointed from persons appearing to the >.iinister to be qualified by reason of having had experience of, and show- ing capacity in, natters relating to public utilities, electricity supply, industry, trade, finance, sc.ence or administration. Plembers, other than the General flanager, will be appointed for a period of three years and  - 4 - will be eligible for reappointment, except that in the case of the first members, tuTo will be appointed for a period of one year, one or two nembers, as the P1linister shall determine, for a period of two years and the remaining members for a period of three years. 20. The Ordinance provides for the Board, with the approval of the Prime Yfinister, to appoint a General Mlanager, at such remuneration and upon such terms as it thinks fit, who shall, subject to the direction of the Board on matters of policy, be charged with the direction of the business of the Board, its administration and organization, the administrative con- trol of its employees, and the exercise of such powers as may from time to time be delegated to him by the Board. 21. Provision is made in the Ordinance for the Board to appoint and employ, at such remuneration and upon such terms as it thinks fit, a Chief Engineer, a Chief Finance Officer, a Secretary and such other staff as may be necessary for the due and ef-ficient discharge of its functions. It also provides that the Board may, from time to time, delegate to the General ianager all or any of these powers in respect of any of its staff other than the Chief Engineer, the Chief Finance Officer and the Secretary. 22. The Ordinance also provides for the existing staff of the Electri- city Branch of the Vfater and Electricity Department to be detailed for service with IFB as an interim measure. The Government realizes this staff will have to be strengthened, particularly at top levels, if AtEB is to oserate effectively and has agreed to recruit an experienced General 1Inager and a Chief Finance Officer. IV. THE hARUET FOR PO0,AR AIND T'ATER Power Sales 23. Sales of electricity by the Water and Electricity Department during the past five years have increased at an average rate of 156% per annum, the averagre rate of increase for the last two years being 11.4% per annum. The total number of consumers supplied has risen from 73,000 in 1957/58 j to 89,000 in 1961/62, an increase of 22%O. 24. Prior to the introduction of a new rate structure in October 1960, sales were only recorded under three main heads, i.e. lighting, power and street lighting. The new structure, which was designed to re- duce charges generally and to stinrulate sales, particularly to domestic and industrial consumers, has four main categories of consumers0 A sunsary of sales broken down into these categories for 1961/62, the first full year of operation with the new rate structure, is as follows: 1/ The fiscal year is April 1 - Niarch 31.  - 5 - Sales During PTRCENTAGE OF Type of Use 1961/62 Total Sales (millions of kwh) Domestic 19.O 36.6 Conrmercial 1h47 28.3 Industrial 13.6 2652 Street Lighting 4,6 8.9 Total 51 9 100l, Forecast of Power Sales 25. The WHater and Electricity Departrentts forecast of sales for the years 1962/63 - 1969/70 is reasonable and acceptable, if anything, it is on the low side, A table showing the estimated sales broken down into categories is attached as Annex 1. A new category, Sales to Baileyr's Dockyrard, has been added, making a total of five mrain categories, This Dockyard, which prior to August 1962 was supplied by the Naval Dockyard Power Station, presently consumes about 12 million kw1h per annum. Con- suTption is expected to progressively increase to 20 million kwh in 1968/69. 26. In Annex 1 the percentage increases per annum, including and excluding sales to Bailey's Docicyard are ehown. The average rate of in- crease per annum. of total sales, during the period 1962/63 - 1969/70, if sales to the Dockyard are included, is 1206%, If sales to the Dock- yrard are excluded, the rate of increase is 10.2%. 27. The high rate of increase in total sales over the past five years has been influenced by the industrial expansion which is taking place in Pialta and by the introduction of the new rate structure. The estimated rate of increase in industrial sales during the period 1962/63 - 1964/65 is nearly 17% per annum. After 1964/65 there are few known comm- mitments for large industrial supplies and the Departrent estimates the rate of increase will drop to about 6% annually. This rate of increase is low and may well be exceeded if the Governmentts plans for continued industrialization mraterialize. The department considers the high rate of increase in domestic and cormercial sales since the introduction of the new rate structure is unlikely to continue. It expects the percentage increase per annum to gradually drop from 14.7% for domestic sales and 12.2% for commiercial sales in 1962/63 to 5.2% and 9.0% respectively in 1969/70. Growth in Power System Demand 28, The maximum demand on the system has increased from 11.9 IXW in 1957/58 to 20i0 P111 in 1961/62 and is expected to reach 45b4 1f'vI in 1969/70. The actual increase per annum has averaged 14.0% and the average increase per annum forecast to 1969/70 is 10.8%.  - 6 - 29. A table showing the actual and estimated kwh generated and system maxirum denrand, based on the actual and estimated sales for the years 1960/61 through 1969/70 is attached as Annex 2. A chart is attached as Annex 3 which shows the curve of system maximum demand in relation to installed and firm generating capacity. By reference to the chart it will be seen that existing firm generating capacity is insufficient! to meet present demands. New generating plant is scheduled to be in operation by 'June 1965 but system demand is expected to exceed installed capacity long before this date. To enable system demands to be ret before the new plant is operating, arrangements were nade in November 1962 for the Naval Dockyard power station to feed up to 4 11J into the system. New Generating Plant Requirements 30. The new thermal power and water distillation station, Malta '"B", which is part of the project proposed for Bank financing, will have two 12e5-I1T sets. The first set is scheduled for completion in June 1965 and the second set in August 1965. The period between January 1963 and the commissionin- of the first set in June 1965 will be critical if system demand increases as expected, as adequate standby plant will not be avail- able and any plant breakdown will result in load shedding. After the second 12.5-41W set is commissioned in August 1965 sufficient firm capacity should be available to meet derand until mid 1967 when DEB plans to have a third set with a capacity of 25 FiW in operation. Tiater Consumption 31. The consumption of water during the last five years has increased at the rate of approximately 100 million gallons per annum, the consumption during 1Q61/62 being about 3,h00 million gallons. The rate of increase has been kept down by highly progressive rates designed to discourage exces- sive consumption, particularly by domestic consumers. The present consump- tion is about 26 gallons per day per person, which, compared with the normally accepted standard in Europe of 40 gallons per day, is low. Growth in -Jater Consurption 32. Estimates of water consumption, prepared by the Consultants, show an average rate of increase of about 5% per annum during the next decade. This is considerably higher than the average rate of about 3% for the past five years. In view of the present low per capital consump- tion and the industrialization which is now taking place in Malta, the estinates are reasonable. 33, Consumption of water, based on these estimates, is expected to reach 4,300 million gallons per annum, the maximum which can be obtained from natural sources, in 1965/66, and rise to about 5,100 million gallons per annum in 1969/70. WIater Distillation Plant Requirements 34. The only practical way of meeting future demands for water in Ialta is to convert sea water to fresh water. This can be carried out by  - 7 - a number of processes but most of them are in the experimental or develop- zental stage. The only process at present in use on a commercial basis for the conversion of large quantities of sea water is the distillation process. The most advanced type of plant using this process is the multi- stage "flash" distiller. 35, The project proposed for 3ank financing includes a one-million- gallon per day multi-stage "flash" distillation plant which will be in- stalled in the i'halta "B" station and operated by steam supplied from the power generating plant. The distillation plant, which is schedaled to be in oper-ation by September 1965, will have an annual output of about 333 million gallons. It will be operated by IEB and its output sold in bulk at cost to the Wlater Department. 36. To meet demands for water up to 1970, MEB plans to have three additional plants of similar capacity in operation by this date. V THE PROJECT 37. The project proposed for Bank financing consists of the first stage of the Malta "B" thermal power and sea wiater distillation station with an installed generating capacity of 25 ENW and a water product'on capacity of one million gallons per day, the provisi on of water mains from the station to Luqa reservoir, and the provision of office, workshop and stores buildings. 38. The station is to b e constructed at Pliarsa, at the head of the Grand Harbor in the city of Valletta. It will be flanked by Church lharf on the harbor side and on the other side by Jesuitls Hill, which has been partly cut away to provide the level ground on which the station would be built. A general site plan of the station is attached as Annex 5, The station would be adjacent to the existing 1i1alta "A" thermal power station which is located underground in Jesuitts Hill. 39. Although the initial capacity of the station would be 25 MW and about one nillion gallons per day water production, it is being de- signed for an ultimate capacity of 1O MIW and a water production of eix million gallons per day and many features, such as the cooling water system, will have sufficient capacity for the next stage of development. 40. The generating plant would consist of two 12.5-141 pass-out turbo-alternators and two 200,000 lbs. per hour boilers. The turbines would be designed to operate with steam conditions of 600 p.s.i. and 850