Turkey - Sir Hydropower Project

Document of The World Bank FOR OmCIAL USE ONLY Report No. 12650 PROJECT COMPLETION REPORT TURKEY SIR HYDROPOWER PROJECT (LOAN 2750-TU) DECEMBER 30, 1993 Industry and Energy Operations Division Country Department I Europe and Central Asia Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mav not otherwise be disclosed without World Bank authorization.   FOR OFFCIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation December 30, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey Sir Hydropower Prolect (Loan 2750-TU) Attached is the "Project Completion Report on Turkey - Sir Hydropower Project (Loan 2750-TU)" prepared by the Europe and Central Asia Regional Office. Part II of the report, contributed by the Beneficiary, mainly contains details on the timetable of physical implementation of the project. Project objectives were to assist the country in developing indigenous hydroelectric resources; reduce dependency on imported oil; and supplement public investment with private sector participation in expanding Turkey's generation capacity. These objectives were met by the successful completion of the Sir 283 MW hydroelectric plant by Cukurova Elektrik A.S., CEAS, a regional power generation and distribution company owned mainly by local private shareholders, and its related power system studies and manpower training. The implementation of the resettlement program was satisfactory. Financial covenants were complied with. The project was completed 9 months behind original schedule at a cost of US$ 306 million, a 18% cost overrun, mainly due to price increases double the estimated 15% contingency. The Bank financed US$ 132 million and CEAS's internal cash generation covered the balance. The project's rate of return is estimated at 12.9%. The overall project outcome is rated as satisfactory and its sustainability as likely. The institutional development is rated as substantial. The Project Completion Report contains a satisfactory and concise account of the project implementation, its achievements and lessons. The project provides a good example of how to prepare and implement a conventional hydroelectric project with significant private participation and the Government as financial intermediary of a Bank loan. No audit is planned. Attachmentc |rThis document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFYICIAL USE ONLY TURKEY SIR HYDROPOWER PROJECT (LOAN 2750-TU) PROJECT COMPLETION REPORT TABLE OF CONTENTS Page Nos. PREFACE ....... .. . . . .. ........................... i EVALUATION SUMMARY. ii Part I 1. Project Identity .......................... 1 2. Background. 1 3. Project Objectives and Description. 2 4. Project Design and Organization. 3 5. Project Implementation. 4 6. Project Results. 5 7. Bank Performance. 6 8. Performance of the Borrower and Guarantor. 6 9. Consulting Services. 6 10. Findings and Lessons. 7 Part II 1. Summary of Project Implementation prepared by CEAS. 8 Part III 1. Related Bank Loans and Credits ............................... 10 2. Project Timetable .................................... 10 3. Loan Disbursements .................................... 11 4. Project Implementation .................................... 11 5. Project Costs and Financing ................................. 12 6. Project Results .................................... 13 7. Status of Covenants .................................... 15 8. Use of Bank Resources .................................... 17 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   i TURKEY SIR HYDROPOWER PROJECT (LOAN 2750-TU) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Sir Hydropower Project in Turkey, for which Loan 2750-TU in the amount of US$132.0 million was approved on August 26, 1986. The disbursement of the Loan is 100%. The loan was closed on December 31, 1992, The PCR was prepared by the Industry & Energy Operations Division, Country Department I of the Europe & Central Asia Region (Preface, Evaluation Summary, Parts I and III). Part II of the PCR, a summary of project implementation, was prepared by the Borrower, Cukurova Elektrik A.S. (CEAS). Preparation of this PCR is based, inter alia, on the Staff Appraisal Report; the President's Report; the Loan and Guarantee Agreements; supervision reports; project progress reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.  I  ii TURKEY SIR HYDROPOWER PROJECT (LOAN 2750-TU) PROJECT COMPLETION REPORT EVALUATION SUMMARY Introduction 1. This project was the twentieth Bank operation in the power subsector in Turkey and the fifth operation, dating back to 1963, that benefited Cukurova Elektrik A.S. (CEAS) a regional power generation and distribution company majority owned by local private shareholders. As with the previous credits/loans, funds were provided to the Government of Turkey, which onlent them to CEAS. The $132.0 million Bank loan was to finance 100% of the foreign cost of the Sir Hydropower Project, a 282.5 MW development. ObWlectives 2. The project was designed to assist the country in achieving certain policy objectives: develop indigenous hydroelectric resources; reduce dependence on imported oil; and supplement public investment with private sector participation in expanding Turkey's generation capacity (PCR, Part I, para. 3.01). Implementation Experience 3. Approved in 1983 by the State Planning Organization and the Ministry of Energy and Natural Resources, the Sir Hydropower development would double the generating capacity of CEAS and increase, by almost 10 times, the company's net assets. 4. The project was well prepared by CEAS, with the assistance of its engineering consultant, Coyne et Bellier of France. The procurement plan and schedule was rigorously followed. Physical completion of the three turbine units occurred only eight months behind the original schedule, which is an exemplary achievement. 5. CEAS worked closely with the Bank during project preparation and even more closely during project implementation. Issues were identified and dealt with in a straightforward and efficient manner. In essence, there were few surprises during implementation. Results 6. The project was essentially completed on time and within budget, allowing for the relatively high price escalation in Turkey during project implementation.  iii 7. Through April 1993, the Sir Power Plant had generated 1,374 million kWh of electricity, which had a potential revenue value of some $83 million. SustainabilLty 8. As a result of the project, CEAS developed a technical and managerial capability that can be applied to future capital investment projects. CEAS has the experience to operate an efficient power generation capacity. The project proved to be an economically viable undertaking. The new Bank financed project, Berke Hydropower Plant, clearly demonstrates the results achieved. Findings and Lessons 9. This project demonstrated that there is no shortcut to success and that there can be no substitute for good management. In summary, (a) CEAS and its management had a commitment to cost and schedule control, (b) There was close coordination and cooperation between the Bank and the Borrower, (c) There was early and sustained involvement by the Bank, (d) Thorough project preparation was undertaken, and (e) There was early resolution of technical and procurement issues so that project schedules were not adversely affected.  PART I 1. Proiect Identity Project Name Sir Hydropower Project Loan No. 2750-TU RVP Unit Europe & Central Asia Region Country Turkey Sector Energy Subsector : Power Borrower : Republic of Turkey Implementer : Cukurova Elektrik A.S. (CEAS) 2. Background 2.01 In every year from 1971 through Project Appraisal in 1985, the national electricity supply was insufficient to meet demand; the shortfall averaged 9% per annum over the period 1965-1985. As a result imports increased, supply interruptions became more frequent, and a high cost was added to the economy. Total demand was forecast to increase at about 10% per annum to 1990 and at about 8% per annum beyond 1990. 2.02 To meet this increasing demand the country needed to bring on stream three times more capacity in the 1980's than in the 1970's and to sustain that momentum throughout most of the 1990's. To accomplish this, a major coordinated effort was required from all the agencies in the power subsector. 2.03 The Government's Five Year Plan of 1985-89 placed priority on domestic sources of energy, especially hydro and lignite. Another important issue was an increased role for the private sector, particularly in the construction and operation of power plants. 2.04 Law 3096, issued in December 1984, allows utilities and other companies, designated as regional utilities, to construct and operate generating facilities and to have full responsibility for electricity distribution and sales within a designated service area. 2.05 Cukurova Elektrik A.S. (CEAS), a limited liability company subject to the provisions of the Turkish Commercial Code, was granted a concession in 1953 for the supply of electricity in the Cukurova Region of Southern Turkey. CEAS was initially formed to operate the power portion of the multipurpose Seyhan Project, which was partially financed by Bank Loan 63-TU. 2.06 In 1983, CEAS received the approval of the State Planning Organization (SPO) and the Ministry of Energy and Natural Resources (MENR) to construct the Sir Hydropower Project (Loan 2750-TU) and the Duzkesme-Berke Hydropower Project, now known simply as Berke Hydropower Project (Loan 3476-TU). CEAS subsequently applied to become a "regional utility", as provided for under Law 3096 (para. 2.04). By a Government of Turkey (GOT) decree of September 26, 1988, and an "Agreement of Entrustment" from MENR on October 19, 1988, CEAS achieved "regional utility" status.  - 2 - 2.07 The Project was the twentieth Bank operation in the power subsector in Turkey, of which four were credits/loans to GOT with onlending to CEAS. This loan followed the same pattern, namely, a loan to GOT with onlending to CEAS. 3. Proiect Objectives and Description 3.01 As mentioned earlier, GOT was encouraging greater participation of the private sector in power investments (para. 2.03). Through involvement in this Project, the Bank was to serve as a catalyst to enable one of the first power plants in Turkey to be constructed and financed without public funds under the new legislation. Bank involvement was to assist the country in achieving certain policy objectives: (a) developing indigenous hydroelectric resources; (b) reducing the country's dependence on imported oil; (c) encouraging involvement of the private sector to supplement public investment in expanding Turkey's generation capacity to meet the demand; and (d) creating job opportunities in a less developed region (Kahramanmaras) during the project construction period. 3.02 The Project had the following components: (a) thin concrete double curvature arch dam with a gross storage reservoir capacity of 1,120 million m3, an associated powerhouse of 282.5 MW (three 94.5 MW vertical Francis turbine generator units), and a switchyard; (b) transmission line facilities to interconnect the Sir powerhouse with TEK's 380-kV grid, and subtransmission lines and substation facilities to efficiently transmit the Sir generation to the load centers in the CEAS service area; and (c) technical assistance for studies to improve the existing facilities of CEAS, a regional power transmission study including "wheeling" of power over the National Grid System, training, procurement of training equipment, and upgrading of existing computer facilities. (d) Because of the reservoir impoundment, a resettlement program, or provision of indemnification, was required for about 7,000 people then living in the project area, including provision of alternative adequate housing and other community and infrastructure facilities. 3.03 The total cost of the Project, including physical and price contingencies, but excluding interest during construction, was estimated at  - 3 - $241 million, of which $114 was in foreign exchange. Interest during construction was estimated at $18 million, bringing the total financing required to $259 million. 3.04 The Bank loan of $132 million was to finance 100 percent of the foreign cost including the $18 million for interest during construction. The remaining $127 million of total cost were to be covered by $98 million from CEAS' internal cash generation and $29 million from CEAS share capital. 4. Project Design and Organization 4.01 Organization. For the dam and powerhouse, CEAS established a separate Project Manager and associated support staff at its headquarters. This was supplemented by a site organization consisting of a chief site engineer assisted by civil, electrical, and mechanical engineers and surveyors. 4.02 Implementation of the transmission lines and substations and the technical assistance components was the responsibility of CEAS' Project Planning and Construction Divisions. Engineering services were provided by ELTEM-TEK. As the operator of a regional transmission network, CEAS had adequate experience in engineering and supervision during construction and commissioning of transmission facilities, as well as in procuring materials and equipment for subtransmission lines and substations. 4.03 An International Board of Experts was established (a) to advise on design problems arising during construction and commissioning, (b) to review construction progress, and (c) to monitor during construction the safety of the dam and associated structures and the reservoir. The Board was constituted of internationally known experts in the fields of rock mechanics, engineering geology, design and construction of thin concrete arch dams, and powerhouse equipment. 4.02 Design. CEAS appointed Coyne et Bellier (C&B) as international engineering consultants. At Project Appraisal, C&B had completed the detailed engineering and design for the dam and the powerhouse. Final design of the transmission component was dependent on the results of the regional power transmission study. 4.03 Procurement. All Bank-financed procurement for civil works, and supply and installation of material and equipment was to be according to the Bank's Procurement Guidelines. International competitive bidding was to be followed for the major contract packages. The procurement plan and contract packages were typical for a major hydroelectric project. At Project Appraisal contracts had already been awarded for basic infrastructure facilities and some of the preliminary works. Prequalification of the bidders for the main civil works contract had been completed. 4.04 Training. The Sir Hydropower Project was essentially to double CEAS' installed generating capacity. Therefore, training was planned for CEAS staff  - 4 - in the areas of load dispatch, load management, computer system applications, project planning, financial management, and manpower planning. 4.05 Resettlement. Land acquisition and the resettlement plan for 7,000 people were important elements of the overall project design. Without timely execution of these elements the overall project schedule would have been in jeopardy. At Appraisal CEAS had already formed a Real Estate and Expropriation Works Department and had acquired the land required for the start-up phase of the project. Turkish law is quite explicit on the expropriation of land needed for public purposes. CEAS had to work closely with the provincial Directorate of Real Estate and Expropriation to implement a program for the Sir Project. 5. Project Implementation 5.01 Implementation proceeded according to the original schedule with few exceptions. Timely procurement decisions helped adhere to the schedule. For example, the major contracts for civil works, turbine/generator sets, and cranes/hoists were awarded on schedule. 5.02 The initial project schedule, submitted to the Bank in September 1986, called for successive commissioning of the three turbine/generator units in June, August, and December of 1990. A schedule forecast in September 1989 pushed these dates out until April 15, June 15, and August 15, 1991. Actual commissioning occurred on April 17, July 14, and August 24, 1991. 5.03 As is the case with most large civil engineering projects, site conditions frequently change the design, scope, and cost of the project from those envisioned during the feasibility stage. The engineering consultants, assisted by the International Board of Experts, made three significant design changes that had positive effects. Modifications to the design of the concrete arch dam resulted in less material, greater design efficiency, and lower cost. Alternate placement of the powerhouse and switchyard increased efficiency of the power complex and entailed reduced excavation. Soil and rock conditions of the canyon walls necessitated relocation of the spillway from the left bank to the right bank. This change was the most problematic for ultimate project success. 5.04 The overall performance of the civil works contractor Italstrade-Recchi was satisfactory. As is typical of large civil works contracts, disputes arose around quantities, extra work, and additional compensation. By the third quarter of 1987, the contractor was forecasting a three month schedule slippage. In the second quarter of 1988 the forecast slippage had increased to six months. During the first quarter of 1989 the civil works contractor did not provide updated schedules as required and at one point suggested that he would stop work. CEAS and Italstrade-Recchi were able to resolve the conflict through a contract addendum that established new target dates for commissioning and an increased payment to the contractor.  - 5 - 5.05 Although the September 1989 forecast provided for the commissioning of the first unit on April 15, 1991, a plan was prepared to advance that date to February 15. That would have been achieved except that the project was an indirect casualty of the Gulf conflict. Construction activities at the site were shut down for six weeks in January/February 1991. 5.06 The completion of the power system planning and "wheeling" study was completed one year behind the original schedule. Because a cooperative and coordinated effort with TEK was required to implement the study recommendations, namely, connections at both 154-kV and 380-kV, this delay could have had a negative effect on efficiently supplying electricity to the grid. However, because of CEAS changed status as a "regional utility' and because of delays in construction of TEK's 380-kV substation at Andirin, Sir power generation was connected solely to CEAS' 154-kV transmission system, and the concept of wheeling no longer applied. 5.07 The land acquisition/resettlement program was budgeted at $20 million. Landowners were given the option of relocation or indemnification. The vast majority chose indemnification. CEAS worked closely with provincial authorities and village leaders to ensure a satisfactory outcome of this program. The Bank closely monitored resettlement progress and engaged experts in this field on the initial supervision missions. Cultural and antiquity issues were also considered and the measures taken by the governmental authorities and CEAS were acceptable to the Bank. 6. Project Results 6.01 The first power plant in Turkey to be constructed and financed without public funds under new legislation was successfully completed. This project doubled the generating capacity of CEAS, as well as adding significantly to Turkey's overall energy production capability. Electricity was generated only eight months later than originally scheduled. 6.02 CEAS, as Project Manager, successfully implemented a major capital investment project. This positive experience should carry over to the construction of the Berke Hydropower Project (Loan 3476-TU). 6.03 An upgraded computer facility was installed. 6.04 A utility system training program was provided by a foreign utility company, Southern Electric International. 6.05 The land acquisition/resettlement program was satisfactorily completed with little apparent dissatisfaction on the part of the populace or the government.  -6- 7. Bank Performance 7.01 The Bank had an early and sustained involvement in the Sir Project. Close coordination with CEAS led to early resolution of design review and procurement issues. The design review resulted in a substantial cost reduction (about 20%) on civil works. 7,02 The Bank utilized recognized international experts as consultants during early missions to address some of the technical issues. This led to a successful International Board of Experts during project implementation. 7.03 The Bank participated in a working session on procurement in Paris with CEAS and Coyne et Bellier, engineering consultants for the project. This meeting produced a coherent set of bidding documents for the civil works and allowed key procurement dates to be met. Issues that can take months to resolve through correspondence were dealt with in a matter of days. 7.04 Supervision missions were regularly undertaken and staffed with the proper mix of technical specialists. 8. Performance of the Borrower 8.01 Although the Borrower was technically the Government, CEAS, through onlending, functioned in the capacity as Borrower. CEAS demonstrated a sincere commitment to the Project and assigned the necessary resources to successfully complete a major capital investment. 8.02 By establishing a separate Project Management organization, CEAS ensured that daily operational issues of a "regional utility" would not interfere with an investment that would double its generating capacity and increase its net assets by ten-fold. 8.03 Except for minor upsets, CEAS maintained good working relationships with its engineering consultant, its major contractors, and the Bank. Issues were addressed in a timely manner, so that unacceptable schedule delays would not occur. 8.04 CEAS supported the technical assistance components of the project and ensured that key staff participated in the utility management systems training program. 9. Consulting Services 9.01 Performance of the engineering consultants, Coyne et Bellier was very satisfactory. C&B was responsive to the CEAS, the International Board of Experts, and the Bank. 9.02 Satisfactory results were obtained from two other consultants: Power Technologies Inc. for the power system plapning study and Southern Electric  - 7 - International for the data processing strategy plan and the utility management systems training program. 10. Findings and Lessons 10.1 The Sir Hydropower Project was a very successful operation. The keys to success can be summarized as follows: (a) Commitment by the Borrower to cost and schedule control, (b) Well prepared and complete project preparation that was initiated on time and that addressed all aspects of project implementation, (c) Establishment of a separate Project Management organization that had the authority to implement the project with a minimum of outside interference, (d) Early and sustained involvement by the Bank with close coordination and cooperation with the Borrower, and (e) Early resolution of procurement issues so that project schedules were not adversely affected. 10.2 In general, project preparation is key for successful project implementation. Only a good balance between the attention that the Bank devotes to project implementation issues during the preparation phase, and that it devotes to and policy aspects can ensure that an operation is successful. 10.3 In many respects, commitment of the borrower to the Bank's procurement procedures and capacity to implement them is the key to successful project implementation. The success of this project was largely due to the fact that the Bank worked closely with the Borrower in the initial project phase to develop a coherent and consistent project procurement plan and to develop concise and complete bidding documents. This early investment paid large dividends as the project was implemented.  - 8 - PART II CEAS's Comment on PCR 1. Summary of Project Implementation 1.01 Construction ofthe Project (Part A, Dam and Powerhouse) actually started by signing the contract for Consulting Engineering and Construction Supervision Services on May 23, 1985 with Coyne et Bellier, France and Aknil Engineers Consultants, Turkey. The Engineer C&B was responsible for: (i) preparation of the bidding documents; (ii) assisting CEAS in examination and evaluation of the bids received; (iii) inspection of the equipment during manufacture; and (iv) providing advice to CEAS's project team on engineering and technical supervision during construction and commissioning. The preliminary studies and site works such as access roads and bridges, social facilities, energy supply, communication system, service bridge have been completed during the period July 1985 - December 1987. The contract for the construction of the Diversion Tunnel was signed on January 6, 1986 and construction was started actually by January 23, 1986 by local contractor Dogus Construction and Trading Company to complete the works and divert the river on May 23, 1987. However, the contractor was not completed the works in due time and the final river diversion was completed on July 24, 1987. Civil Works contract was awarded to Italstrade-Recchi SPA, Italy, on November 1, 1986, including namely the construction of the arch dam, spillway, powerhouse, tnnels and galleries, drainage and grouting, roads and any auxiliary excavation and concrete required. As mentioned in para 5.04 of Part 1, a dispute between CEAS and the Contractor on quantities, extra works and price escalation had been arisen and resolved by an Addendum to Contract No. 1, dated June 13, 1989. Dates Description July 24, 1987 Diversion of the river through main diversion tunnel April 1990 Powerhouse ready for impounding, i.e. downstream face and tailrace _ completed, draft tube stoplogs in place. May 1990 Bottom outlet available for diversion. June 3, 1990 Diversion of the river through bottom outlet and auxiliary diversion tunnel. Partial impounding up to the bottom outlet. July 1990 Spillway ready for impounding, i.e. concrete completed and gates in place. December 12, 1990 Dam ready for impounding with the end of joint grouting. December 12,1990 Start of impounding (bottom outlet closed). December 23, 1990 Plunge pool ready for impounding, i.e. concrete completed and cofferdams removed.  - 9 - The actual dates of completion for the units are as follows. Unit 1 Unit 2 Unit 3 Section handed over 15/06/89 16/09/89 22/12/89 Draft tube 08/08/89 30/10/89 23/01/90 Beams for overhead crane 21/10/89 05/01/90 17/03/90 Roof over the unit 06/11/89 27/01/90 03/04/90 Spiral casing 29/05/90 15/08/90 17/11/90 Tubine/generator housing 17/04/91 14/07/91 24/08/91 Started operation of units 1.02 Construction ofthe transmission lines and substations (Part B) related with the Sir Project was the responsibility of the Project Planning and Construction Department of CEAS and completed successfully. All the Bank- financed procurement (contract packages TD01-TD09) was done in accordance with the BAnk's Procurement Guidelines. The civil works, steel fabrication and erection, towers fabrication and erection and line stringing were contracted locally. 1.03 Technical Assistance (Part C) including the study for regional power system planning, the study for upgrading the data processing system strategy plan, training for CEAS personnel and procurement of training and computer equipment were completed in conformity with the objectives of the Project.  - 10 - PART III 1. Related Bank Loans and Credits Title Purpose Year Status Comments 34-TU (Credit) Addition of third 18-MW 1963 Closed Cukurova Power unit at Seyhan Hydroelectric in 1965. Project Power Plant. 59-TU (Credit) Construction of Mersin Steam 1964 Closed Second Cukurova Power Station and Kadincik I in 1971. Power Project Hydroelectric Power Plant, with 70 MW of capacity. 63-TU Flood Construction of multipurpose 1952 Completed CEAS was Control, Seyhan Project, with 54 MW of in 1956. initially Irrigation generating capacity. formed to and Power operate the power por- tion of the Seyhan Project. 623-TU Third Construction of Kadincik II 1969 Completed Cukurova Power Hydroelectric Power Plant, in 1974. Project with 50 MW of capacity. 775-TU Fourth Financing for transmission 1971 Completed Cukurova Power lines and cost overruns in 1974. Project related to the Kadincik II Power Plant. 2. Project Timetable Item Date Planned Date Revised Actual Date Identification March 1984 Preparation Appraisal June/July 1985 Loan Negotiations May 28 - July 8, 1986 Board Approval August 26, 1986 Loan Signature Sept. 2, 1986 Loan Effectiveness Nov 1986 Dec. 2, 1986 Project Completion Jan. 31, 1991 Dec. 31, 1991 Loan Closing Dec. 31, 1992 Dec. 31, 1992  - 11 - 3. Loan Disbursements Cumulative Estimated and Actual Disbursements (US$ Millions) 1987 1988 1989 1990 1991 1992 1993 Appraisal Estimate 14.9 35.4 63.4 96.1 119.3 129.6 132.0 Actual 6.2 26.7 43.0 91.6 125.0 131.3 132.0 Actual as % of Estimate - % 41.6 75.4 67.8 95.3 104.8 101.3 100.0 4. Project Implementation Original Actual Schedule Performance Procurement - Contract Award - Civil Works 3Q86 October 16, 1986 - Turbine/generator sets 1Q87 February 2, 1987 - Cranes/hoists 3Q87 March 25, 1987 - Switchyard equipment 2Q87 August 12, 1987 Physical Completion - Diversion tunnel (conc. plug) lQ90 July 1990 - Commission Unit 3 June 1990 April 17, 1991 - Commission Unit 2 August 1990 July 14, 1991 - Commission Unit 1 December 1990 August 24, 1991 Technical Assistance - Power System Study (complete) 1Q87 February 10,1988 - Upgrade computer facilities 2Q88 November 15,1989  - 12 - 5. Project Costs and Financing A. PROJECT COSTS (US$ MILLIONS) APPRAISAL ESTIMATE ACTUAL Local Foreign Total Local Foreign Total A. Dam & Powerhouse Land Acquisition 20.0 - 20.0 13.7 - 13.7 Preliminary Works 14.8 - 14.8 12.6 - 12.6 Civil Works 36.5 22.7 59.2 18.6 33.7 52.3 Hydraulic Equipment 0.6 4.1 4.7 0.6 2.9 3.5 Electromechanical Equipment 9.1 21.3 30.4 1.1 20.4 21.5 Switchyard Equipment 0.8 7.1 7.9 0.1 2.7 2.8 Engineering & Supervision 8.2 5.5 13.7 2.1 6.2 8.3 Base Cost 90.0 60.7 150.7 48.8 65.9 114.7 Physical Contingencies 11.6 7.2 18.8 19.5 6.9 26.4 Price Contingencies 15.8 14.9 30.7 59.9 11.4 71.3 Total - Component A 117.4 82.8 200.2 128.2 84.2 212.4 B. Transmission Lines & Substations Base Cost 7.3 21.6 28.9 33.4 27.9 61.3 Physical Contingencies 0.7 2.2 2.9 4.3 0.9 5.2 Price Contingencies 1.6 5.5 7.1 5.4 0.0 5.4 Total - Component B 9.6 29.3 38.9 43.1 28.8 71.9 C. Technical Assistance Base Cost 0.1 1.5 1.6 0.8 1.8 2.6 Physical Contingencies 0.0 0.1 0.1 0.0 0.0 0.0 Price Contingencies 0.0 0.2 0.2 0.0 0.0 0.0 Total - Component C 0.1 1.8 1.9 0.8 1.8 2.6 D. TOTAL PROJECT COST Base Cost: Components A+B+C 97.4 83.8 181.2 83.0 95.6 178.6 Physical Contingencies 12.3 9.5 21.8 23.8 7.8 31.6 Price Contingencies 17.4 20.6 38.0 65.3 11.4 76.7 TOTAL PROJECT COST 127.1 113.9 241.0 172.1 114.8 286.9 Interest During Construction - 18.1 18.1 1.4 17.3 18.7 TOTAL FINANCING 127.1 132.0 259.1 173.5 132.1 305.6  - 13 - B. PROJECT FINANCING (US$ MILLION) ---------Planned --------- ---------Final----------- Local Foreign Total Local Foreign Total IBRD - 132.0 132.0 - 132.0 132.0 CEAS Internal Cash Generation CEAS Share 98.3 98.3 98.3 144.7 - 144.7 Capital 28.8 - 28.8 28.8 28,8 Total 127.1 132.0 259.1 123.5 132.1 305.6 6. Project Results A. Direct Benefits (1) Job Creation The Sir Dam and Power Plant employs 108 staff, including one manager, three engineers, and twenty-one security personnel. (2) Electricity and Revenue Generation Through April 1993, the Sir Power Plant had generated 1,374 million kWh of electricity. Using a figure of six cents per kWh, potential revenue was $82.5 million for the period. (3) Increase in Generating Capacity The project doubled the generating capacity of CEAS and increased the company's net assets by about ten-fold. (4) Technical and Management Capability CEAS developed the technical and management capability that can be applied to future projects. B. Economic Impact The rate of return analysis in the SAR was carried out on the basis that the project was an integral part of the national 1985-1995 expansion program for the power subsector. The program was estimated to have an economic rate of return of 11.5%, compared to an opportunity cost of capital of 12%. The rate of return for the Sir Hydro Project, as presented in the following table, is estimated to be 12.9%. The key assumptions are: (1) Incremental revenues derived from investment were taken as the benefits of the program. Electricity tariffs correspond to the price at the bus bar, which was taken as 5.5 cents per kWh.  - 14 - (2) Electricity generation for the years 1991 and 1992 is actual. Generation for the period 1993-2021 was estimated according to the hydrology and development of the irrigation project at Menzelet site. The decreasing rate of generation results from an increasing amount of water being diverted for irrigation purposes. (3) The capital costs of the project are actual with the local component multiplied by a conversion factor of 0.8 to reflect shadow prices. Operation and maintenance costs were estimated at 1.0% of cumulative capital costs for generation and transmission. INTERNAL RATE OF RETURN (IRR) LOCAL FOREIGN TOTAL GENERATION O&M REVENUE NET BENEFIT (USD M) (USD M) (USD M) (GWh) (USD M) (USD M) (USD M) 1985 0.80 5.50 0.1289 1986 1987 6.52 6.20 12.72 -12.72 1988 21.55 20.51 42.06 -42.06 1989 17.14 16.31 33.45 -33.45 1990 51.10 48.64 99.74 -99.74 1991 35.12 33.42 68.54 502.77 3.00 27.65 -43.89 1992 6.62 6.30 12.92 697.20 3.00 38.35 22.42 1993 0.74 0.70 1.44 850.00 3.00 46.75 42.31 1994 850.00 3.00 46.75 43.75 1995 850.00 3.00 46.75 43.75 1996 840.00 3.00 46.20 43.20 1997 810.00 3.00 44.55 41.55 1998 785.00 3.00 43.18 40.18 1999 760.00 3.00 41.80 38.80 2000 735.00 3.00 40.43 37.43 2001 710.00 3.00 39.05 36.05 2002 710.00 3.00 39.05 36.05 2003 710.00 3.00 39.05 36.05 2004 710.00 3.00 39.05 36.05 2005 710.00 3.00 39.05 36.05 2006 710.00 3.00 39.05 36.05 2007 710.00 3.00 39.05 36.05 2008 710.00 3.00 39.05 36.05 2009 710.00 3.00 39.05 36.05 2010 695.00 15.00 38.23 23.23 2011 682.00 15.00 37.51 22.51 2012 670.00 3.00 36.85 33.85 2013 660.00 3.00 36.30 33.30 2014 645.00 3.00 35.48 32.48 2015 632.00 3.00 34.76 31.76 2016 620.00 3.00 34.10 31.10 2017 607.00 3.00 33.39 30.39 2018 595.00 3.00 32.73 29.73 2019 582.00 3.00 32.01 29.01 2020 570.00 3.00 31.35 28.35 2021 560.00 3.00 30.80 27.80 INTERNAL RATE OF RETURN - 12.89 %  - 15 - C. Financial Impact CEAS was able to generate sufficient internal cash for the local cost portion of the project. The project had no direct impact on the Government's debt portfolio because no public funds were utilized. The only public assistance took the form of tax reduction, investment incentives, and custom duty exemption. D. Studies (1) Power System Planning This study was to determine the most economic way of transmitting Sir (and later Berke) power generation taking into consideration CEAS future requirements for subtransmission lines and substation facilities; TEK's existing and planned transmission facilities in the vicinity of CEAS service region; and the possibility of "wheeling" power over TEK's transmission lines. The study recommended interconnecting Sir power generation with the TEK system at both 154-kV and 380-kV. However, because of CEAS changed status as a "regional utility" with excessive demand for electricity and construction delays in completing TEK's 380- kV substation at Andirin, Sir power generation was connected solely to CEAS 154-kV system. The concept of "wheeeling" Sir (and Berke) power no longer appears to be applicable. (2) Data Processing Strategy Plan This study, completed by an international utility, was to determine an appropriate data processing strategy for CEAS as a "regional utility" with respect to computer hardware and software applications. The study resulted in $1.3 million foreign cost and $0.7 million local cost investment in upgraded hardware and software. 7. Status of Covenants Loan Deadline Agreement Subject for Compliance Status 2.02(b) Operate a special account for the Complied with. project out of which payments to CEAS' suppliers could be made. 4.01 The dam constructed under the project After project WHEN WAS FIRST should be periodically inspected by completion. INSPECTION DSI or another acceptable agency in DONE AND BY accordance with sound engineering WHOM? IS AN practices, to determine: condition of INSPECTION the structure; quality and adequacy of SCHEDULE IN maintenance; unsafe methods of operation. PLACE???????  - 16 - Project Deadline Agreement Subiect for Compliance Status 4.02 The Borrower will exchange views with Complied with. the Bank in respect of any proposals leading to the restructuring or reorganization of CEAS. (Similar to Covenant 3.04 of Project Agreement.) 2.02 CEAS will submit to the Government December 31 Complied with. and the Bank each year, starting in each year 1986, an updated financing plan for the entire implementation period of the project, and review this plan with the Bank and the Borrower. 2.03 Employ engineering consultants... Complied with. to assist CEAS with the detailed engineering, procurement of material and equipment.. .and the engineering supervision during construction and commissioning of the Sir dam and the powerhouse facilities. 2.03 Maintain ... an international board of Complied with. experts ... to advise CEAS on technical matters during design, construction, and commissioning of the project. 2.04 Furnish to the Bank ... evidence May 31, 1987 Complied with. satisfactory to the Bank that land December 31, 1988 and rights in respect of land required for the project have been acquired. 2.07 Carry out a resettlement program, Complied with. or provision of indemnification as required, for the people currently living in areas to be submerged by the Sir Reservoir, including provision of alternative adequate housing and other community and infrastructure facilities. 2.07 Furnish to the Bank... a detailed December 31, 1987 Complied with. plan of action satisfactory to the Bank for the second and third parts of the resettlement program... and promptly carry out the resettlement program in accordance with this plan. 2.08 CEAS should furnish to the Bank a January 15, 1987 Complied with, power transmission study to be but delayed. completed by consultants ... as well Completed as an implementation timetable. February 1988.  - 17 - Project Deadline Agreement Subject for Compliance Status 2.08 TEK and CEAS should implement the Complied with. recommendations of the transmission Conditions of study in a manner satisfactory to interconnection the Bank. changed. 3.04 CEAS will exchange views with the Bank Complied with. in respect of any proposals leading to the restructuring or reorganization of CEAS. (Similar to Covenant 4.02 of Loan Agreement.) 3.05 Obtain the Bank's approval prior to Complied with. carrying out any major investment in Approval of new power generation facilities, other than investments in this project, or studies to carry out Gezende Project detailed engineering design for any given by Bank. such investment. 4.01 Furnish to the Bank audited annual Nine months Complied with. financial statements and audit after close report not later than nine months of year. after the close of the year. 4.02 Maintain a minimum debt service Complied with. coverage ratio of 1.5. 4.03 Unless the Bank shall otherwise Complied with, agree, the existing arrangements for setting CEAS' tariffs will be maintained. 8. Use of Bank Resources A. Staff Inputs (Staff Weeks) Stage of Planned Revised Final Proiect Cycle HQ Field Q Field HO + Field Comments Thru Appraisal 47.9 Post-Appraisal 73.1 thru Bd Approval Bd Approval 4.6 thru Effectiveness Super-vision 62.4 Total 188.0  - 18 - B. Missions Performance Stage of No. of Days in Specialization Rating Types of Proiect Cycle Month/Year Persons Field Reference a/ Status b/ Problems Identification March 1984 Preparation/ June 1984 3 10 Power EGR, FNA, Pre-Appraisal GEO(CON) Preparation/ Oct/Nov 1984 3 24 Power EGR, FNA, Pre-Appraisal CE(CON) Preparation Jan/Feb 1985 3 28 Power ECR, FNA, Pre-Appraisal FNA(CON) Preparation April 1985 3 21 Power EGR, FNA(2) Pre-Appraisal Appraisal Jun/Jul 1985 4 21 Power EGR, FNA, FNA(CON), ECON Post-Appraisal August 1985 3 5 Power EGR, CE(CON), (Design Review) GEO(CON) Post-Appraisal March 1986 1 6 PROC (Procurement) Supervision I. Oct/Nov 1986 5 28 Power EGR(2), 1 - FNA(2), SOC(CON) II. Jan/Feb 1987 2 14 FNA, SOC(CON) 1 - III. Mar/Apr 1987 2 26 Power EGR, FNA 1 - IV. Jun/Jul 1988 2 24 Power EGR(2) 1 - V. December 1988 2 20 Power EGR(2) 1 - VI. April 1989 1 5 DAM SPEC 1 - VII. September 1989 4 15 Power EGR(2), 1 - CON(2) VIII. August 1990 2 18 Power ECR, CON 1 - IX. September 1991 4 Power EGN, Dam Spec. FNA 1 - a/ Power EGR - Power Engineer b/ 1 - Problem-free  19 - ECON - Economist 2 - Moderate problems FNA - Financial Analyst 3 - Major problems FNA(CON) - Financial Consultant NI - Not Indicated GEO(CON) - Geologist Consultant CE(CON) - Civil Eng. Consultant &/ M - Managerial DAM SPEC - Dam Specialist T - Technical PROC - Procurement F - Financial CON - Consultant NI - Not Indicated SOC(CON) - Sociologist Consultant