Thailand - Second Yanhee Project

RESTRICTED FILE COPYT CT t2 r4 Xpy Report No. TO- 349a 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 The report may not be published nor may it be quoted as representing their views.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 APPRAISAL OF A SECOND YANHEE PROJECT YANHEE ELECTRICITY AUTHORITY THAILAND February 18, 1963 Department of Technical Operations  CURRENCY EQUIVALENTS US $1 = Baht 20  APPRAISAL OF A SECOND YANHEE PROJECT YANHEE ELECTRICITY AUTHORITY THAILAND TABLE OF CONTENTS Page No. SUMMARY i I. INTRODUCTION 1 II. THE BORROWER 1 III. THE PREVIOUS LOAN 2 Provisions of the Previous Loan 2 IV. THE POW4ER MARKET 4 Bangkok Market 4 Up-country Market 5 V. THE PROJECT 6 Cost of the Project 6 Arrangements for Engineering and Construction 7 Schedule of Construction and Expenditures 8 VI. JUSTIFICATION FOR THE PROJECT 8 VII. FINANCIAL ASPECTS 9 Rates 9 Auditors 9 Depreciation 10 Financial Position 10 Financing Plan 11 Estimated Future Earnings 11 Debt Service Coverage 12 Debt/Equity Ratio 13 Debt Limitation Provisions of the Previous Loan 13 VIII. CONCLUSIONS 13  LIST OF ANNEXES Annex 1 - Yanhee Electricity Authority - Actual and Forecast Balance Sheets 1961-70 Annex 2 - Yanhee Electricity Authority - Actual and Forecast Income Statements 1961-70 Annex 3 - Yanhee Electricity Authority - Forecast Sources and Applications of Funds 1962-70 MAP  APPRAISAL OF A SECOND YANHEE PROJECT YAITHEE ELECTRICITY AUTHORITY THAILAND SUNMARY i. The Yanhee Electricity Authority (YEA) has requested a loan of $6.6 million to help finance the cost of transmission line facilities to be built during the next 3 years. The cost of the project is estimated to be equivalent to about $11 million. ii. In 1957 the Bank made a loan of $66 million to YEA to assist in financing the Yanhee Multipurpose Project. The project is now in the final stages of construction with completion expected by the end of 1963. iii. The YEA is a Government-owned organization, created in September 1957 as a condition of the previous loan. It is, in effect, an autonomous organization and its management is competent. Because the YEA did not have an orgrnization initially, the responsibility for carrying out the Yanhee project was delegated to the Royal Irrigation Department. Nevertheless, to be in a position to take over generating facilities owned by other govern- ment agencies, and to expand them as required by conditions of the previous loan, YEA began to acquire staff early in its existence. It negotiated loans with the Export-Import Bank for new steam units in Bangkok and supervised their construction; it became operational in March 1961 when first power sales were made. Its financial position at the end of the first year of full operation (fiscal 1962 ending September 30) is satisfactory. iv. The rate of return is expected to be poor in 1964 when the major investment in the Yanhee project is brought into YEA fixed assets; debt service coverage would also be low. This is to be expected, as its facilities would be only partially utilized. Improvement would be rapid, however, reflecting better utilization of plant investments in succeeding years. By 1970, sound interest and debt service coverage ratios of 3 times and 2 times would be reached, and the rate of return on net fixed assets including work in progress would improve to about 9 percent. v. The proposed method of carrying out the project is satisfactory and the cost estimates should prove reliable. The project would be suitable for a loan of $6.6 million including interest during construction of about t0.4 million, for a term of 20 years including 3 years' grace.  APPRAISAL OF A SECOND YANHEE PROJECT YANHEE ELECTRICITY AUTHORITY THAILAiD I. INTRODUCTION 1. The Yanhee Electricity Authority (YEA), an agency of the Govern- ment of Thailand, has applied to the Bank for a loan of $6.6 million to cover the foreign exchange cost of transmission lines to supplement those now being constructed as part of the Yanhee Multipurpose Project. 1/ The first phase of the Project was financed in part by a Bank loan of $66 million (175 TH) in November 1957. This would be the Bank's second loan to YEA. 2. The transmission lines would include a second high-voltage circuit between Yanhee and Bangkok and extend YEA service to 11 towns, bringing to 24 the communities ?/ outside of Bangkok to be served by the YEA system. The total cost of the project including interest during con- struction is estimated to be the equivalent of about $11 million. This report is based on information supplied by the YEA and on various reports by YEA's consultants. Through successive end-use visits to follow up on construction work, the Bank staff was generally familiar with the proposed works to be included in the project; hence no special appraisal mission was required in this instance. II. THE BORROWER 3. The Yanhee Electricity Authority was established by law in September 1957 to be the sole agency for generation and transmission of electric energy in the most developed and populated area of Thailand. Its service area will extend ultimately to 33 of the 71 provinces in Thailand. It has various rights including the right to determine rates for electric energy, to acquire land - through condemnation if necessary - and to borrow and invest funds. It has a Board of Directors consisting of a Chairman and not less than four nor more than six other members, exclusive of the General Manager, who is an ex-officio member of the Board. The chairman and Directors are appointed for six-year terms by the Council of Ministers, one half being reappointed or replaced every three years. The Board appoints the General Manager subject to the approval of the Council. 4. The YEA was created as a condition of the first Bank loan. Since it did not have an organization at the time, arrangements were made for YEA to delegate to the Royal Irrigiation Department (RID) authority to carry 2/ The dam has been named Bhumiphol Dam but the project is still referred to as the "Yanhee Project". g/ Ten communities are to be served through lines being constructed under the previous loan; eleven more would be connected as part of the proposed project and three were connectel into the YEA system through lines built by others.  - 2 - out the first phase of the Yanhee Project. The RID is presently administering the construction of the project and also performing some of the construction work and support functions with its own forces. 5, At the time of the 14an it was planned that the YEA would be staffed and become an operational entity by assimilating existing generating facil- ities and personnel in Bangkok, and by constructing interim facilities. The YEA organization would thus be ready to take over, operate and carry out the balance of the Yanhee program on completion of the Yanhee Project. In accordance with this plan, the YEA became an operational entity in March 1961 and now supplies all bulk energy in the Bangkok area. The physical facilities which YEA has for meeting this responsibility include about 36 M4W of diesel capacity and 115 MW of steam capacity. III. THE PREVIOUS LOAN 6. The previous loan was made to cover the foreign exchange cost of the first phase of the Yanhee Multipurpose Development. The total cost of the first phase was estimated to be $100 million. It included: a 154 meter high concrete arch dam on the Ping River to create a reservoir with a capacity of 12,200 million cubic meters; a power plant with an initial capaci..y of two 70 MW units (ultimate capacity 560 MW); a 230 kv single circuit transmission line to Bangkok; substations; and 69 kv transmission lines to serve 10 towns between the dam and Bangkok. Construction started late in 1958. The project is expected to be substantially completed by the end of 1963. 7. When the Bank appraised the project early in 1957, the physical construction period was expected to be about 5 years. One additional year was allowed for design review, bid inTitation, analysis of bids and con- tractor mobilization. The project was expected to become revenue earning by early 1963. The physical construction period has been about as expected. However, delays in starting construction have led to the present estimate of early 1964 for first commercial operation. Above average rainfall in the fall of 1963 could advance the date of first operation but there is also the possibility of below average rainfall. In the latter case signifi- cant amounts of power production could not be expected until the 1964 nmonsoon, or early in YEA's fiscal year 1965. 8. Recent estimates indicate that the projectts cost will exceed the original estimate by about 10%. The overrun is on the local currency side. Foreign exchange still available in the loan appears adequate to complete the project. Provisions of the Previous Loan 9. Two important provisions of the Yanhee loan required that: (a) a single retail distribution agency be created in Bangkok to rebuild the Bangkok distribution system so as to be able to market bulk power to be supplied by YEA; and (b) the YEA would construct interim thermal power  facilities of not less than 30 MW nor more than 50 MW to meet load growth in Bangkok prior to completion of the Yanhee Project. 10. At the time, the responsibility for the electric system in Bangkok was divided between two non-interconnected and separately managed power utilities. Generation was from six separate stations which in turn were not interconnectcd. Fuel costs and losses were exceedingly high and system reliability low. It was recognized that the 30 MW to 50 MW of additional capacity could do little more than prevent the system from becoming hope- lessly overloaded. Nevertheless, in the light of facts available at that time, it was thought to be imprudent to plan for greater capacity having regard to the expectation that Yanhee would be in operation by the end of 1962. It was important, also, to hold the cost of the investment by YEA to a minimum. 11. The first condition was met by merging the two utilities into one new organization called the Metropolitan Electricity Authority (MEA). With the assistance of a U.S. Development Loan Fund loan of $20 million, the PlEA is rebuilding and modernizing the Bangkok distribution system. Tbh main power distribution centers in Bangkok, formerly the sites of the isolated generating facilities, have all been properly interconnected and work has proceeded fairly well on rebuilding low voltage distribution lines and customer connections. The system will be adequate to handle the expected power requirements of the city when the first phase of the Yanhee project is completed. 12. The second condition could not be met until all aspects of interim and long range generation requirements had been examined. This was done oy competent consultants in 1958. At that time the generating capacity in Bangkok consisted of small diesel and old steam units totalling about 75 MW. The consultants concluded that potential savings in fuel costs would almost pay for a high efficiency steam unit in the pre-Yanhee period. The need for high efficiency (a re-heat plant) dictated that the size be at least 60 MW and a longer range view of the integrated system indicated a size about equal to a Yanhee unit (70 MW). A single unit 75 MW plant was finally selected and, with Bank agreement, financing was arranged through an Ex-Im Bank credit of t14 million in April 1959. This unit was substantially completed and in commercial operation by the end of March 1961. Except for boiler cleaning in October 1961, it has been in continuous operation since. 13. Late in 1960 the YEA engaged management and engineering consultants to help set up its operating procedures and accounts. The consultants were also given the assignment of studying and making recommendations on the technical operation of the system, particularly up to the time Yanhee would be ready for commercial operation and for the first several years thereafter. They concluded that, based on recorded variations from the previously calcu- lated runoff of the Ping River at Yanhee, full power output of the first two Yanhee units might not be achieved until 1965, and hence the single new 75 NW unit plus the miscellaneous plants (about 75 MW) taken over from MEA, lacking reserve capacity, would be inadequate to provide reliable service in the interim period. This was vieved with particular apprehension  by the Government and YEA because of the growing expectation on the part of the public that electric service would not continue to be subject to the frequent and prolonged interruptions which occured previously. In view of these developments, the Bank approved YEA's requests for permission to add another identical boiler and a second complete 75 Mg unit (also to be financed by the Ex-In Bank) to its installations in Bangkok. 14. A third provision of the Yanhee loan required the Government to provide adequate distribution systems in the 13 provincial areas outside of Bangkok to which Yanhee power would be made available initially. To do this the Government in 1960 created the Provincial Electricity Authority (PEAS. It was made responsible for generation 2/ and distribution of electric energy in most areas and towns outside the metropolitan Bangkok area. However, in spite of Bank efforts, including an offer to consider a loan for the provincial work, the PEA has not yet developed into an organization capable of planning and carrying out the utility responsibilities for which it was created. While existing provincial systems will be capable of connection into the YEA system, the benefits of reliable central station service cannot be fully utilized by the ultimate consumers until distribution systems are improved and expanded. 15. The Government has recently acc-epted an offer by Germany to provide four advisers to PEA for a period of two years. They have now arrived in Thailand and may be able to provide the management and technical guidance that PEA requires. IV. THE POWER MARKET 16. The YEA service area will include two distinct markets: the Bangkok metropolitan area as one and the "up-country towns" as the other. The relative importance of the two is illustrated by the fact that present estimates indicate the Bangkok area will account for over 90% of all sales through 1970. Bangkok Market 17. The demand for power as measured at the generating plantsincreased from about 22 MW in 1950 to 115 MW in September 1962, or an average of about 15% per year. During this period, until May 1961, when the first YEA 75 MW steam plant went into operation, it was common practice to shed load during peak hours, black out sectiomsof the city, depress voltage and frequency and refuse or discourage service requests. As a consequence, by 1960 about 55 MW of captive capacity had been installed by various industrial and commercial enterprises. Use of energy was also restricted by a rate structure which, contrary to normal practice, gave no incentive to large power users. One rate was used for all customers. This was about 3t US cents per kwh for the first 50 kwh per month and about 5 US cents per kwh there- after. g/ PEAts generation facilities are to be shut down as YEA service becomes available.  - 5 - 18. Records of YEA's first 18 months of operation indicate that demand is not increasing as rapidly as YEAts consultants had forecast in recent surveys. Therefore, for the purpose of this report, the consultants' fore- cast has been scaled down. The figures in this report assume increases of about 15% during each of the next two years, decreasing to 8% per year from 1967 on. The average rate of increase between 1962 and 1970 would be about 10%. Up-country Market 19. A power market survey was made for most of Thailand by consultants supplied through a U.S. ICA program in 1959 and 1960. The survey indicated that municipal, industrial and commercial power loads outside the Bangkok area are generally served by diesel electric generators with poorly constructed and inadequate distribution systems not built to permit expansion. Often the plants are operated to furnish power for lighting only a few hours a day. Industrial users have generally provided their own power sources where warranted by the size of the operation. 20. Present loads are low in the towns to be served from the YEA system. In Chiengmai, the second largest city in Thailand, the load in 1960 was only about 2.7 NW. Generation in that year was about 5 million kwh for a load factor of only 21%. It should be noted that the utility system was relatively good compared to many others in the YEA service area. 21. There was undoubtedly a larger market potential in the Chiengmai area than indicated by the 1960 generation figures considering the size of the city (about 70,000) and population of Chiengmai province (about 800,000). However, how the Chiengmai and other up-country markets will grow will depend on the initiative of PEA. As the ability and initiative of PEA has yet to be demonstrated, a conservative estimate of up-country load growth is necessary. 22. Load growth and sales estimates for the rural areas as well as for Bangkok are summarized below. YEA System DemandlJand Sales Forecast Bangkok Area "Up-country Area" Demand Sales Demand Sales Total Sales Year (W (kwh millions) (MW) (kwh millions) (kwh millions) 1961 (YEA in operation only part of year) 1962 107 480 480 1963 125 550 550 1964 I4" 630 _ _ 630 1965 161 705 8 26 731 1966 177 775 17 51 826 1967 191 835 21 65 900 1968 205 900 23 70 970 1969 222 970 25 76 1,046 1970 240 1,050 27 82 1,132 I/ Net demand not including system losses or station service.  - 6 - 23. Although the estimates for the Bangkok area are not much below the Bank's 1957 forecasts, the present estimates for the up-country area are much more conservative. V. THE PROJECT 24. The proposed project would include: a second 230 kv circuit between Yanhee and Bangkok; 115 kv and 69 kv lines to areas southeast and southwest of Bangkok, extending down both sides of the Gulf of Thailand; and also lines originating at Yanhee and extending in an easterly direction. The main elements of the project would be: (a) Installation of a second 230 kv circuit between Yanhee and Bangkok (452 km). Provisions for the circuit have been made on double circuit steel towers now under construction. (b) Construcbion of a 115 kv transmission line from Bangkok to Cholburi and of a 69 kv transmission line from Cholburi to Sattaheop and Rayongto the southeast (227 km). The line would be operated initially at 69 kv. (c) Construction of 69 kv transmission lines from Bangkok to Nakorn Pathom, Rajburi and Petchburi to the southwest (156 km), and from Yanhee to Tak, Sukhothai, Pitsanuloke, Pichit and Uttradit in the north (335 km). (d) Extensions of existing substations and construction of others so that, at each of the above terminal towns, voltage at 11 kv would be avail- able for distribution into the surrounding area. (e) The proposed project would also include a 69 kv transmission line from Yanhee to Mae Sawd on the Burma border (95 km), but this line would not be built unless arrangements for a proposed zinc mine and smelting plant near Mae Sawd were finalized. 25. The stringing of the second 230 kv circuit must be phased into the present work schedule. Consequently, the YUA has been advised that foreign exchange costs would be reimbursed when and if the proposed loan is made, should it be necessary to proceed with the work before the loan would become effective. However, no disbursements will be made for the 115 kv and 69 kv line extensions until the Bank was satisfied that PEA had made adequate arrangements, including a determination of construction priorities, for distribution systems in the 11 communities to be connected. Cost of the Project 26. The project is estimated to cost about $10.9 million of which $6.6 million including interest during construction of about $0.4 million would be foreign exchange. The estimate is summarized below:  ___-- -Thousands_of dollars---------- Foreign Local Exchange Currencvr Total Second 230 kv circuit 2,280 380 29660 230 kv substation work 660 190 850 115 kv circuits 460 680 1,140 69 kv circuits 920 1,630 2,550 69 kv substations 1,190 600 1,790 Subtotal 52510 3,480 8,990 Design, supervision and administration 350 270 620 Contingencies 350 550 900 Interest during construction 390 - 390 Subtotal 1,090 820 1,910 TOTAL 6,600 4,300 10,900 27. The Contractor building the first 230 kv circuit and towers hao made a favorable offer, in lire with the original contract, to install the second 230 kv circuit. This work, therefore, will be performed as an extension of the first contract at costs more favorable than could be expected from a Contractor selected as a result of new tenders. It is thus possible for the installation of the second circuit to be coordinated with the work underway without interference. Other work is similar to that which YEA forces are presently doing. Since good pricing data were avail- able the cost estimates should prove reliable. Contingencies have accord- ingly been kept low, about 10% on foreign costs over and above those for the second 230 kv circuit, and about 15% on the estimated local cost components. Contracts for materials (except those to be supplied by the 230 kv line contractor) would be awarded after international bidding. Arrangements for Engineering and Construction 28. No engineering design would be necessary for the second 230 kv circuit as it would simply duplicate the first circuit. 29. Design criteria, material specifications and layouts for 69 kv lines now under construction were prepared by Yanhee project consultants. This basic work would be utilized by YEA forces in preparing the detailed layouts for 115 kv and 69 kv lines and substations. Construction would be by YEA forces assisted by personnel supplied by consultants. Most of the engineering would be performed by YEA, but the proposed loan would include funds for foreign personnel to augment and supervise the YEA staff in both engineering and construction.  - 8 _ Schedule of Construction and Expenditures 30. The project would be carried out over three years as follows: Construction 230 kv facilities - by the end of 1963 115 kv facilities - by the end of 1964 69 kv facilities - by the end of 1965 Expenditures ------Thousands of dollars