India - Second Korba Thermal Power Project

Document of The World Bank FOR OMCAL USE ONLY Report No. 11526 PROJECT COMPLETION REPORT INDIA SECOND KORBA THERMAL POWER PROJECT (CREDIT 1172-IN) JANUARY 11, 1993 Energy Operations Division Country Department II South 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 may not otherwise be disclosed without World Bank authorization.  Country Exchange Rates (Yearly Averages) Currency and (Abbreviation) Rupee (Rs) Year Rupees/US$ 1978 (Project Preappraisal Starts) 8.19 1980 (Project Appraisal) 7.86 1981 (Project Approved and Becomes Effective) 8.66 1982 9.46 1983 10.10 1984 11.36 1985 12.37 1986 12.61 1987 12.96 1988 13.92 1989 16.23 1990 17.50 1991 22.74 1992 (Project Completed) 26.20 Government of India Fiscal Year (April 1 - March 31) Abbreviations CEA Central Electricity Authority cr. crores (ten million Indian Rupees) CHP Coal Handling Plant CMD Chairman and Managing Director EAP Environmental Action Plan GOI Government of India IERR Internal Economic Rate of Return KfW Kreditanstalt fur Wiederaufbau NHPC National Hydro Power Corporation NPTC National Power Transmission Corporation NTPC National Thermal Power Corporation PCR Project Completion Report PFC Power Finance Corporation PMI Power Management Institute SAR Staff Appraisal Report SEB State Electricity Board  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.k Office of the Director-General Operationa Evaluation January 11, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on India Second Korba Thermal Power Proiect (Credit 1172-IN) Attached is a copy of the report entitled "Project Completion Report on India - Second Korba Thermal Power Project (Credit 1172-IN)", prepared by the South Asia Regional Office with Part II contributed by the Borrower. The three 500 MW coal fired thermal units with associated transmission facilities were commissioned some four months later than planned at appraisal and at a cost some 15Z higher in real terms than estimated. With the completion of this project, the Korba power plant achieved its full planned capacity of 2100 MW. After strengthening the coal handling system to take into account higher abrasiveness and lower average heat content of the coal than expected, the plant was able to generate at full rated capacity. In the course of project implementation, NTPC became a strong institution able to plan, design, construct, and operate efficiently large thermal plants and transmission systems. All in all, the project outcome is rated as satisfactory and its sustainability as likely. Institutional development is rated as partial given the limited progress achieved in tackling sector issues at the state level. The Project Completion Report provides an accurate and informative account of project implementation. OED recently audited four of the projects in the sector. It plans to audit the present project together with other completed NTPC operations. 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT INDIA SECOND KORBA THERHAL POWER PROJECT (CREDIT 1172-IN) TABLE OF CONTENTS Pt No. PREFACE ........................................................... I EVALUATION SUMMARY ....o .o..*................................ l PART Is PROJECT REVIEW CRON BANK's PERSPECTIVE.... 1 Project Identityo ....-.-. . -. 1........... ..... I Bac kgroundoeot ...1.o.. o. .. Project Objectives .. .o . . .- . .-. .... .. 1 Project Description...... i...... ..n...... .......-....- 2 Project Design and Organization.. ....... 3 Project Implementation. ...... . ................. 4 Environment, Resettlement and Rehabilitation*...*..**.. 6 Project Results .....aua...8.................4.....#6.. S Project Suatainability. ..................... . .* . . .. . 10 IDA Performance. .......................... ... 10 Borrower Performance .......nce................ 11 Financial Aspcs ................ 11 Project Relationship-............. ......... ...... 12 Consulting Services- r v l c -a.................. 13 Procurement*.*..................... 13 Project Documentation and Data........- 13 PART II: PROJECT REVIEW IRON BORROWER'S PERSPECTIVE ............. 14 PART III: STATISTICAL SUMMARY ................................................. . 20 ANNEXES 1 Ex-post Internal Economic Rate of Returnt... 32 2 Income Statments. ................ ..... .... 33 3 Sources and Applications of Funds...........u 34 4 Balance Shot.........et..00.. 35 This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.   - i - PROJECT COMPLETION REPORT INDIA SECOND KORBA THERMAL POWER PROJECT (CREDIT 1127-IN) Preface This is the Project Completion Report (PCR) for the Second Korba Thermal Power Project in India, for which Credit 1172-IN in the amount of SDR 325.6 million (equivalent to US$400.0 million) was approved on July 7, 1981. On December 5, 1991, the Association cancelled SDR 9.2 million, which were no longer needed for the completion of the project. Thus, the credit amount was reduced to SDR 316.4 million. The credit was closed on December 31, 1991, against the original schedule of December 31, 1989. Total disbursement under this credit was SDR 314,571,172.50. The undisbursed balance of SDR 1,828,827.50 was cancelled on May 19, 1992, when the final disbursement under the Credit was made. Cofinancing in the amount of DM 190 million was provided by Kreditanstalt fur Wiederaufbau (KfW) of Germany. The PCR (Preface, Evaluation Summary, Parts I and III) was jointly prepared by the Energy Operations Divisions, Country Department II (India) of South Asia Regional Office and the Energy Division, Technical Department of Asia Region, and Part II by the Borrower. Preparation of this PCR was started jointly by the Association and the Borrower during the Association's Supervision mission in February 1992, based on the revised guidelines for PCRs and is based, inter alia, on the Staff Appraisal Report (No. 3397a-IN), the Credit and Project Agreements, supervision reports, correspondence between IDA and the Borrower and internal IDA memoranda.   PROJECT COMPLETION REPORT INDIA SECOND KORBA THERMAL POWER PROJECT (CREDIT 1172-IN) Evaluation Summarv Obiective The two main objectives of the project were: (l) to provide the National Thermal Power Corporation (NTPC) assistance to construct three 500 NW coal fired thermal power generating units as the second stage of NTPC's Korb& Thermal Power Project to mitigate power shortages in the Western Region Interconnected system of Inldia and (ii) to assist Government of India (COI) in achieving its objective of further advancing the regional and national integration of the power subsector (Part I, para. 2). Implementation Ex2erience NTPC successfully implemented the project. The first 500 NW unit (Unit No. 4) was comissioned three months ahead of the schedule revised following the award of the contract for the main package in August 1982, and the subsequent two 500 MW units (Units No. 5 and 6) five and six months ahead of this schedule. However, the award of the main package vas delayed because evaluation by NTPC took longer than anticipated (Part I, para. 13). Results The project fully achieved its main objectives through successful completion of three 500 MW units in the second stage of Korba station and associated 400 kV transmission lines. Following this completion, and together with the three 200 NW units built in the first stage, the Korb& Super Theral Power Station became the second (Singrauli being the first) of the 2,000/2,100 MW class coal fired thermal power stations of NTPC, and at the same time, the largest power station in the country (Part I, para-. 16 and 22). The results of the sectoral objectives sought under the project, i.e., long-range planning on a national basis, improvement of sector organization and strengthening of the finances of the institutions involved in the sector, have not been satisfactory (Part I, para. 23). NTPC's financial rate of return on historically valued net fixed assets declined from a high 171 in FY86 and FY87 to 131 in FY91 against the covenanted rate of return of 9 52 The internal economic rate of return (IERR) of the project was about 252 against the estimated figure of about 152. Higher IERR is due to the retail tariffs in the Western Region being relatively higher than those estimated at appraisal (Part I, paras. 27, and 34).  - ii - Sustainability Operational efficiency of NTPC in this power station as well as in other NTPC plants is good and thus contributes to keeping up benefits from the projects NTPC carries out (Part I, para. 28). Insufficient tariffs and an unchecked increase of accounts receivable could endanger such sustainability. The Bank Group, GOI and NTPC have been taking actions to avoid such an occurrence (Part I, para. 29). Findings and Lessons Learned Major findings were as follows: (a) Design and engineering work for the project were successfully carried out in-house by NTPC, based on its experience with earlier projects, with very limited support from outside (Part I, para. 7); (b) NTPC took about one year from opening of bids to finalization of the award for the steam generator package which was on the critical path for implementation; evaluation of the bids by itself took seven months; the Association gave its no-objection in one month; and, compilation by NTPC of data requested by the Association and finalization of the letter of award required another four months -- a period which should have been curtailed by at least three months (Part I, para. 13); (c) Once the main package was awarded, NTPC executed the project competently, with an effective project and construction management system, in advance of the revised program, by effectively building on their past experience and expertise in 200 MW and 500 MW coal fired power units. This enabled NTPC to set up successfully the largest coal fired power plant in the Country having a total capacity of 2,100 MW including three 500 MW units (Part I, para. 13); (d) Completion of the project and final payments required the extension of the closing date of the Credit by 24 months (Part I, para. 13); (e) The Association's and GOI's performance in realizing the sectoral objectives sought under the project were not fully satisfactory. The Association expected that increasing the role of the GOI-owned entities, particularly building up NTPC and emphasizing centralized power planning would lead to more SEB reform. The Bank's support helped NTPC to become India's model utility and, in the process, also helped to improve operational efficiency nationwide. However, the relative autonomy of the States under India's federal structure, limits what can be achieved through involvement exclusively with central agencies (Part I, para. 23); and,  - iii - (f) Despite the fact that NTPC's (cost plus) tariffs are set at levels aimed at ensuring a satisfactory financial viability, the current policy environment in the power sector prevent NTPC from operating on a purely commercial basis and this has reduced its ability to continue implementing its investment program (Part I, paras. 34-36). Major lessons learned from this project are summarized below: (a) Due to the reasons of poor quality of coal with high abrasive nature and a calorific value lower than the one used for the design, the capacity of the Coal Handling Plant (CHP) had to be augmented during implementation of the project. The lesson taken from this was that NTPC designed larger CHP facilities in subsequent projects (Part I, para. 14); (b) Socio-economic issues are being assigned higher priority in preparation/appraisal as well as implementation stages. NTPC should actively pursue consultations with the people affected by its Projects; however NTPC should not limit its involvement in environmental and socio-economic issues to the impact of its power stations, but should act as a catalyst in environmental and rehabilitation and resettlement mitigation measures and monitoring programs for the mines and associated urban and rural development as well (Part I, paras. 19 and 21); (c) In accordance with the emphasis the Association requires from its Borrowers and the implementing agencies, NTPC should also strengthen its environmental assessment and monitoring functions in its headquarters, regional centers and power plants. The central department in charge of these functions should be headed by an Executive Director (Part I, para. 21); (d) Emphasis should be given during the preparation stage on shortening the time necessary for award of the contract on the critical path and for completing the payments promptly (Part I, para. 39); (e) As a precondition for further Bank loans, more emphasis is being given to improving the commercial arrangements between NTPC and its clients. However, this has proved to be difficult to achieve in practice unless the financial performance of the SEBs is improved (Part I, para. 35); (f) To overcome the difficulties mentioned in (e) above, and to enable NTPC to operate on a purely commercial basis, GOI should allow NTPC to sell to other customers the allocated shares of the SEBs which do not comply with their agreements with NTPC. While technical reallocation (by limiting availability of power to a particular SEB) may be difficult to implement, commercial reallocation can be implemented. This can be done by limiting allocations to a defaulting SEB and charging a stiff penalty for drawals exceeding the reduced allocation (Part I, para. 35); and  - iv - (g) As a result of the changes in the overall economic policy environment within which NTPC is operating, its financial policies need reorientation. Under the circumstances, it would be appropriate to change the existing rate of return covenant into a self financing covenant, because it would not only provide a better monitoring mechanism for the Association, but also provide better support to NTPC towards meeting its development challenges (Part I, paras. 34 and 36).  - 1 - PROJECT COMPLETION REPORT INDIA SECOND KORBA THERMAL POWER PROJECT (CREDIT 1172-IN) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE Prolect Identity Name s Second Korba Thermal Power Project Credit Number 1172-IN RVP Unit South Asia Region Country India Sector Energy Subsector Power Background 1. Power shortages of the 1970s and the adverse effect these vere having on the productive sectors of the economy prompted the Government of India (GOI) to intensify its efforts to balance the demand and supply of electricity. The strategy of the GOI was to supplement efforts of State Electricity Boards (SEBs) in increasing installed capacity and the establishment of high voltage transmission lines. Emphasis was put on: (a) accelerating the development of the hydropower potential and large coal fired power plants at both pithead locations and in the proximity of load centers; (b) improving the efficiency of thermal power plants and reducing losses in the transmission and distribution networks; (c) expanding the rural electrification program; and (d) strengthening the organizational and management capabilities of the SEBs. In 1974 GOI decided to proceed with the construction of the first stage of four large thermal power stations of 600 MW each at Singrauli, Korba, Ramagundam and Farakka, located near coal fields and supplying bulk power to the beneficiaries through interconnected 400 kV transmission systems. GOI established in 1975 two power generating companies, the National Thermal Power Corporation (NTPC) and the National Hydro Power Corporation (NHPC) to construct and operate large thermal and hydro power stations and associated transmission systems. IDA/Bank financed the first stage of 600 MW at each plant and its associated transmission. In addition, IDA/Bank also financed the second stage of Singrauli (1,400 MW), Korba (1,500 MW), Ramagundam (1,500 MW) and Farakka (1,000 MW). The feasibility study of the second stage of the Korba project was prepared by NTPC in 1980 and the project appraisal was made by the Association in 1981. The credit was approved in July 1981. The agreements were signed in February 1982 and the Credit was declared effective on May 5, 1982. Prolect Obiectives 2. The primary objective of the project was to provide NTPC with assistance needed to assume its envisaged role, including the mitigation of power shortages in the Western Power Region of India. Sectoral objectives of the project were Bank Group's assistance to GOI in the power sector in such areas as introduction of long-range system planning on a national basis, improvement of the sector organization and training and strengthening of the finances of the institutions involved in the sector.  -2- Project Description 3. The Second Korba Thermal Power Project (Credit 1172-IN) formed part of NTPC's second stage thermal power development located on the right bank of the Hasdeo River in the Bilaspur District of Madhya Pradesh, just downstream of an existing barrage at Darri and consists of the installation of three 500 MW mine-mouth thermal power generating units and associated facilities, including the following components: (a) Three 1,725 tons/hour boilers and three 500 MW turbo-generating units complete with all auxiliaries and ancillary electrical and mechanical equipment including switchyard; and (b) 400 kV Alternating Current (AC) Transmission System consisting of about 2,100 circuit kms of lines (as compared to about 1,100 circuit kms of lines envisaged in SAR) 1/ and associated electrical and mechanical equipment including switchyard. 4. In US dollar terms, the total actual cost was US$961.3 million, of which US$388.7 million equivalent was provided by IDA under Credit 1172-IN, US$93.6 million equivalent by KfW and US$479.0 million equivalent from domestic sources. 1/ 400 kV transmission lines consist of the following circuits: (Circuit kms) Koradi-Satpura 149 (170) Satpura-Indore 293 (230) (Note: Figures in Indore-Asoj 288 (230) parentheses represent Korba-Bhilai II 192 (190) the line length at the Bhilai-Koradi 272 (262) time of appraisal. Korba-Bhilai III 211 * *: Subsequently added) Bhilai-Chandrapur 686 * Total 2,091 (1,082) *The Bhilai-Koradi-II, single circuit line was envisaged to be terminated in MSEB's 400 kV switchyard at Koradi Thermal Power Station; however, owing to space constraints at Koradi switchyard, it was subsequently envisaged that this line should be terminated at Chandrapur instead of Koradi. In this connection, the studies carried out by Central Electricity Authority (CEA) to review the transmission system associated with super thermal power stations also established that in respect of Korba, the prescribed reliability criteria could be met by providing a 400 kV AC double circuit line in the Bhilai- Chandrapur section, due to increased power flow over the transmission system beyond Bhilai because of less power off-take than anticipated at Bhilai substation (on account of lower growth of load demand at Bhilai) and the installation of captive power plant at Bhilai Steel Plant. In view of the various considerations, as above, it was decided that a double circuit line from Bhilai to Chandrapur with associated substation at Chandrapur, would be constructed instead of Bhilai-Koradi-II single circuit line.  5. The three 500 MW turbo-generators and high pressure piping manufactured in Germany were financed by KfW. The balance of the plant and transmission system was financed by the Association and from domestic sources. 6. Since August 1991, the transmission facilities implemented under the project are being managed by the National Power Transmission Corporation (NPTC) under a Power of Attorney in their favor issued by NTPC. NPTC, a GOI- owned entity responsible for the implementation and operation and maintenance of the transmission systems was incorporated in October 1989. Between September 1991 and March 1992, the Bank communicated with GOI on the modalities of the transfer of assets from NTPC to NPTC, assessed the management and operational capabilities of NPTC and with its telex of April 2, 1992, informed GOI, NTPC and NPTC that it agreed in principle to such transfer. However, at the time of preparation of this PCR, NTPC was still the legal implementing agency of the project. Project Design and Organization 7. As in the case of the first stage, the expansion phase of the Korba Development comprised a number of major works and required careful coordination to ensure efficient progress. NTPC had already acquired adequate experience in the area of station design and engineering of 200 MW units at Singrauli, Korba, Ramagundam and Farakka and was in the process of installing two units of 500 MW capacity at Singrauli for which a foreign consultant was employed to assist in the design, preparation of specification, evaluation of bids etc. Therefore, appointment of a consultant for doing such works was not necessary and pre-award engineering works such as basic engineering, preparation of specification and bidding documents, evaluation of bids, etc. were done in-house by NTPC. A foreign consultant (a UK firm) was employed to review the basic design prepared by NTPC. A local consultant was engaged to assist the NTPC staff for detailed design and engineering. B. Under the first Korba project, GOI agreed to take necessary steps to make available adequate coal supplies for the 2,100 MW power plant. Quantity- wise coal supply has so far been adequate and has not hindered the operation of all units. However, quality-wise it was not up to the design values (para. 14). 9. At the time of appraisal for the first stage, NTPC had adopted a two-tier organizational structure--one at the central/corporate level and the other at the project sites. Technical services, contract and procurement services and quality assurance, etc. were centralized. For each of four power plants, a project organization group under the control of a General Manager was organized to manage the implementation of the particular project. 10. NTPC was reorganized, subsequently, after the appraisal of the first stage to have a three tier organizational structure: corporate, regional and project levels, respectively. 11. NTPC's Board of Directors, which consists of twelve members, is responsible for establishing internal policies. The Corporation is headed by a Chairman and Managing Director (CMD), who is assisted by five full-time functional Directors, namely, Director (Projects), Director (Operation), Director (Technical), Director (Finance) and Director (Personnel). At the Corporate Office, corporate planning, central procurement and vigilance functions are headed by Executive Directors reporting to the CMD. For the  purpose of the administration and execution of work at the sites, the Corporation is divided into five regions (North, West, East, South and National Capital) with headquarters at present located at Allahabad, Nagpur, Patna, Hyderabad and Delhi, respectively. These regions are under the control of Regional Executive Directors who are responsible for the implementation and operation and maintenance of power plants in their respective regions 2/. Every power plant and regional transmission unit is headed by a General Manager. The new structure has the advantage of optimizing the span of control of the CMD and provides for decentralization of line responsibility while retaining centralized systems in areas such as long-term planning, basic engineering, procurement of critical equipment and spares, quality assurance, coordination with the World Bank and other financing agencies, inspection, etc. 12. As NTPC's activities become complex and more geographically dispersed, further adjustments in control will be required to maintain a high level of operational efficiency. This will in turn require some reorientation of technical and management skills as well as adjustments in the organizational structure. NTPC appointed the Indian Institute of Management, Ahmedabad, to carry out a detailed diagnostic study covering the relevance of current operational management policies along with a review of organization structure. The consultants' recommendations in respect of diversification, centralization, organizational structure and human resource development, are presently being evaluated for phased implementation. NTPC has also carried out an internal assessment of the need for centralization/decentralization in the day-to-day functioning of the Corporation. This has been partly implemented with reinforcement of the regional headquarters with commercial and operational services. The project engineering and procurement groups at headquarters have also been aligned for executing regional projects. The Corporation underwent an organization change in August l991 when the management of transmission lines and associated enginesring and contracts work was entrusted to the National Power Transmission Corporation (NPTC -- para. 6). NTPC has now updated its corporate plan for the upcoming 15 years. The corporate plan has identified several key thrust areas, viz. equipment procurement, coal and gas supplies, operations and maintenance, commercial, financing, environment and rehabilitation, research and development, technology, human resources development, organization development and diversification. The corporate plan also focusses on the major constraints that may hamper the long-term viability of the Corporation highlighting external and internal financing resource constraints, lack of commercial discipline in the sector, project approval procedures and lack of clarity in the enforcement of environmental protection regulations. NTPC states that some remedial measures have been suggested for the attention of policy making bodies in the sector. Prolect Implementation 13. The implementation of the project consisting of three 500 MW units and the associated 400 kV transmission lines has been successfully completed. The schedule set for commissioning of 500 MW units was five years from the date of main plant award (the zero date) for the first 500 MW unit followed by subsequent 500 MW units at intervals of one year each. At the time of 2/ Until August 1991, the Regional Executive Directors were also responsible for the transmission facilities in their regions (para. 6).  - 5 - appraisal, the estimated commissioning dates were August 1986, August 1987 and August 1988, respectively, based on main plant award date (zero date) of October 1981. It took twelve months from the date of receipt of the offers to the date of the award for the steam generators package, which was on the implementation critical path 3/. Thus the zero date was revised as August 1982. Once the main package was awarded, NTPC executed the project competently, with an effective project and construction management system. Therefore, based on the zero date of August 1982, the commissioning schedules for three units were set up as August 1987, August 1988 and August 1989, respectively. As against this, the first 500 MW unit (Unit No. 4) was commissioned in May 1987, three months ahead of the revised schedule and the subsequent units (No. 5 and 6) in March 1988 and February 1989, which were five and six months ahead of the revised schedule, respectively. However completion of the coal handling plant (CHP; para. 14) and final payments for many contracts required the extension of the closing date of the Credit by 24 months. 14. Due to the poor quality of coal with high abrasiveness and a calorific value lower than the one used in the design, the coal handling plant had to be enlarged during the implementation of the project. Thus the CHP was augmented by installing a track hopper crusher house and associated conveyors which currently allow for the operation of the power station at full capacity, when one of the CHP streams is out of service for maintenance. This augmentation was implemented under the Credit. The experience learned was incorporated by NTPC to design larger CHP facilities in the second stage of the Ramagundam project (3 x 500 MW) and other subsequent projects. 15. During the initial running and the performance tests, some initial defects were observed and have been rectified 4/ and all units were put into commercial operation on the dates shown in Part III 5/. Through its experience of manufacturing the equipment for the Korba project which followed Singrauli, the indigenous manufacturer has accumulated a reliable capability for the design and supply of 500 MW units. 16. Following the completion of its second stage and together with the three 200 MW units built in the first stage, the Korba Super Thermal Power 3/ Twelve months consisted of bid evaluation (seven months), clearance of the evaluation by the Association (one month) and finalization of the letter of award (four months). The last period also included compilation by NTPC of additional details requested by the Association regarding the Joint Deed of undertaking furnished by the collaborator of the recommended bidder, and also on the capacity and the capability of the recommended bidder. 4/ Rectification was made to the forced draft fans (blades failing) for No. 4 unit and minor troubles in the boilers. 5/ Intervals between the synchronization and the date of the commercial operation for three units were ten (10), thirteen (13), and sixteen (16) months, respectively. These delays were mainly due to evacuation problems (high frequency in the system resulted from imbalance between the power generation and transmission systems) and initial defects in equipment and their rectification.  - 6 - Station became the second (Singrauli being the first) of the 2,000/2,100 MW class coal fired thermal power stations of NTPC and at the same time, the largest power station in the country. Environment, Resettlement and Rehabilitation 17. At the time of design and implementation of the project, norms for environment protection and requirements of resettlement and rehabilitation plans were not fully developed. Following the phenomena encountered at the Singrauli area, NTPC had realized that while a large thermal power project like Korba would lead to faster economic development of the surrounding communities, it could also have a negative impact on the balance of ecological systems if sufficient mitigatory measures were not taken. Therefore NTPC designed the project to comply with the then established environmental standards. However, a detailed Environmental Impact Assessment was not prepared as this was not required at the time of appraisal, which was carried out in early 1981. 18. The association of extensive coal reserves and a large water reservoir, created in the Korba area for the purpose of power generation and irrigation, has favored the implementation of several thermal power stations as well as other industries (i.e., aluminum smelting and chemical plant) and development of coal mines. NTPC in its project has taken the necessary measures for environmental protection, commensurate with the requirements at the time of setting up of the project. However, environmental and rehabilitation issues outside the power plant project (i.e., of the coal mine, power plants built and operated by the Madhya Pradesh State Electricity Board, and many industries developed in the area) were not studied. 19. The implementation of the project, including the first (600 MW) and the second phases (1,500 MW) required the acquisition of 3,599.4 acres of land affecting 1,057 families, out of which 560 families were actually displaced. 308 Project Affected People (PAP) were provided with direct employment and 500 were provided employment through contractors. In addition, NTPC has also assisted the displaced families by allocating shops and by providing contract licenses to them. NTPC has also provided civic amenities in the relocation colonies. Immunization and health camps are being organized on a regular basis. Rehabilitation colonies of the villages of Lata, Agarkhar Kohadia and Jamnipali have been provided with approach and internal roads, three schools have been constructed/extended. Smokeless Chullhas (cooking apparatus) were provided to the villagers, and two wells and five hand pumps have been installed for drinking water purpose in these villages. A community center has been constructed in the villages so that the local population can take part in community activities such as rural sports tournaments, cultural activities etc. NTPC townships are generally self-contained and two or three shopping complexes are constructed in each township. In general, preference is given to the PAP in allotment of shops. No records exist at the Bank to show that consultations with the PAP were carried out. NTPC should actively pursue consultations with the people affected by its Projects; however NTPC should not limit its involvement in environmental and socio-economic issues to the impact of its power stations, but should act as a catalyst in environmental and rehabilitation and resettlement mitigation measures and monitoring programs for the mines and associated urban and rural development as well.  - 7 - 20. NTPC has also taken appropriate measures with regard to stack emissions and water effluents. Electrostatic precipitators with efficiency of over 99.5Z have been installed with 500 MW units so as to minimize particulate emissions. The units are provided with stack having a height of over 220 meters thus enabling disposal of particulate matter over a larger radius. Various parameters like air quality (SO2, NO and suspended particulate matter -- SPM), noise and water quality are continuously monitored to ensure that they comply with environmental quality standards. In addition, through a continuous afforestation program approximately one million trees of various species have been planted and this would be expanded in the future, in order to reclaim the ash pond area. Plantation of Terminalia arjuna in the ash pond has shown encouraging results to culture tassar silk worm in the ash disposal area. The area, consisting of two lagoons separated by a dyke, was originally designed for the 200 MW units built during the first stage. If no new disposal area is developed, lagoon I will have been completely filled by mid- 1996 6/. The first site selected by NTPC for a new ash disposal area was not approved by local authorities as it was going to take land from agriculture. NTPC has now obtained clearances for a new site with a storage volume of 45 million m3, 12 km north of the power station. The site is 500 meter to the west of the Hasdeo river and lies 40 to 50 meter higher than the power station. Therefore the erection of a booster pump house is required 7/.With the construction of the new ash pond, NTPC will be able to operate all the units up to their economic lives; i.e., 30 years. The Bank, KfW and NTPC are currently coordinating their respective actions to enable NTPC to complete the new area by mid-1996. The difficulties in finding suitable areas for ash disposal in this project and also in other projects like Singrauli highlight the need for India to utilize the ash and/or to develop on the national level technologies in mining and ash handling which allow backfilling of ash to the mines. 21. As a result of problems encountered and experience gained in the first Bank-financed Singrauli, Korba, Ramagundam and Farakka 200 MW stages, the Bank encouraged NTPC to become more aware of the particular complexities associated with environmental and especially with resettlement issues. The environmental consciousness of NTPC has since been increasing very fast and in the recent projects--e.g. the Talcher Thermal Power Project (Loan 2845-IN)-- the approach to environmental protection and rehabilitation has been more comprehensive right from the beginning. In the Talcher project a detailed environmental impact assessment was prepared prior to beginning the construction work. NTPC recruited staff specialized in social and environmental science and undertook a review of the environmental aspects at the four Bank financed power stations namely Singrauli, Korba, Ramagundam and Farakka, in order to implement corrective measures to adequately rehabilitate and preserve the physical and social environment in those areas affected by these projects. To achieve this, NTPC prepared in 1989, under the then proposed Regional Power Systems project, an Environmental Action Plan (EAP). Aspects related to the Korba project addressed in the EAP are: (a) provision of facilities at Kohadia; (b) shifting persons from Carpara to Kohadia; (c) ash pipeline monitoring; and (d) ash dike plantation. The progress of the EAP 6/ Based on the data obtained during the preparation of this PCR. See paragraph 16 of Part II. 7/ Because it has to avoid protected and inhabitated areas, the pipeline route will be 16 km.  - 8- has been satisfactory. Many activities identified are continuous in nature and are being monitored regularly. However NTPC's environmental unit is understaffed. In accordance with the emphasis the Bank requires from its Borrowers and the implementing agencies, NTPC should also strengthen its environmental assessment and monitoring functions in its headquarters, regional centers and power plants. The central department in charge of these functions should be headed by an Executive Director. A program for strengthening and upgrading NTPC's environmental department (including technical assistance) and mitigatory actions to be taken by NTPC under the EAP to correct outstanding problems in respect to environmental conditions and regulations and resettlement, will be followed up under the proposed NTPC- Power Generation Project. Project Results 22. The project fully achieved its main objective of meeting growing demand of the Western Region through successful completion of additional power generation of 1,500 MW and associated 400 kV transmission lines. The cumulative generation from the second Korba units, from the beginning of commercial operation up to December 31, 1991 (the date at which the credit was closed) was 23,979.2 GWh. The unit-wise details are given in Part III. 23. On the other hand, the results of the sectoral objectives of the Bank Group's assistance to GOI to introduce long-range system planning on a national basis, improvement of sector organization and strengthening of the finances of the institutions involved in the sector have not been satisfactory. This is due to the relative autonomy of the states which limits what can be achieved through involvement exclusively with central agencies. Under India's federal structure, central assistance to the states as budgetary allocations are set by an automatic allocation formula. Therefore, GOI has no direct means to ensure that financial performance of the state utilities improves. Thus the GOI-owned utilities have no option but to enforce financial discipline through means, such as: (a) letters of credit set at the level of its sales to each client; and/or (b) limiting the supply of power to the level of payments received. However, the success has so far been limited. GOI recently amended its strategy to support efficient public utilities by channelling discretionary funds not subject to the automatic allocation formula only to the performing sates. These funds essentially include financing through the recently established Power Finance Corporation and funds from external assistance 8/. These actions would increase GOI's impact on the sector. However, much needs to be done to begin solving the structural problems of the sector, such as the current allocation process 9/, the planning process, the operational efficiency of the power system, the institutional set up of the state utilities and financing needs of the power sector. In addition, issues affecting energy conservation and socio- environmental aspects of power development should be taken up. 8/ GOI's efforts to develop PFC into a viable and effective instrument for promoting improvements in the power sector are supported by the Bank (Loan 3436-IN; Power Utilities Efficiency Improvement Project approved in January 1992), the Asian Development Bank (ADB) under a parallel operation approved in March 1992, and by USAID under a related technical assistance program for PFC's institutional development. 9/ Not only in the power sector but also in coal and natural gas.  - 9 - 24. The estimated cost of the project at appraisal and actual disbursements are given in Part III. Compared with the appraisal cost estimate of Rs 11,097.70 million (excluding Interest During Construction --IDC --, and Working Capital Margin -- WCM) actual costs amounted to Rs. 13,755.83 million representing 24? increase. Rs 871.13 million (7.9?) of the increase was due to price escalation and Rs 1,787.00 million (16.1Z) to the change in scope (para. 25). The price escalation was mostly due to the increase in foreign exchange rate for the dollar which went up from Rs 8.0 per US$ at the time of appraisal to around Rs 26.0 per US$ when the project was completed. The average exchange rate for the period of disbursement from the IDA credit was Rs 17.8 per US$, resulting in a depreciation of about 55Z in the value of Indian Rupees to US dollars. The total project cost estimates expressed in dollar value, however, amounted to US$1,387 million (excluding IDC and WCM) in the appraisal and US$950.83 million actually, resulting in a decrease of 31?, due to the above mentioned substantial depreciation of the rupee against the dollar. 25. The estimated disbursements at appraisal and actual disbursements are given in Part III. The original closing date of the credit was December 31, 1989. The Credit was closed on December 31, 1991. This delay was due to the changes in the project scope for transmission, need to expand CHP, initial delays in procurement and to allow NTPC to have the minor deficiencies, identified during the initial operation, corrected. Aforesaid decline in the value of Indian rupee against US$ and SDR resulted in substantial savings under the credit some of which were utilized for financing additional facilities like CHP augmentation, wagons and procurement of conductors, cables etc. with the Association's concurrence. In accordance with the Association's practice, withdrawal applications against eligible expenditures incurred until December 31, 1991, were accepted until April 30, 1992, and the final disbursement was made on May 19, 1992. The undisbursed balance of SDR 1,828,827.50 was cancelled on this date. Keeping in view the financial difficulties faced by GOI and NTPC at the end of 1991, the Bank agreed in November 1991 to finance under the National Capital Power Project (Ln 2844-IN) eligible expenditures made after December 31, 1991, for those ongoing contracts under Credit 1172-IN. These expenditures are estimated at about SDR 3.1 million (US$4 million equivalent). 26. The allocation of loan into various categories and actual disbursement category-wise are shown in Part III. The original allocation was revised in December 5, 1986 to reflect changes in financing for the erection works. SDR 9.2 million which was no longer necessary for the completion of the project was cancelled, as of December 5, 1991, from the original amount of the credit of SDR 325.6 million. 27. In the SAR, ex-ante internal economic rate of return (IERR) was estimated at about 15 percent, based on measurable economic costs and benefits associated with the 1,500 MW development. The ex-post IERR is about 25 percent as shown in Part III and Annex 1. Higher IERR is due to the retail tariffs in the Western Region being relatively higher than those anticipated at appraisal.  - 10 - Project Sustainability 28. This project is clearly sustainable due to the following reasons: (1) the power station is being operated with a high plant load factor; (2) the demand for its full output is going to exist since power is in short supply; (3) the current tariff is high enough to recover capital and operating costs; (4) the new two-part tariffs, which will be applied beginning mid-1992, will reinforce incentives to operate the plant efficiently and with high availability; and, (5) the SEBs in the Western Region pay their bills to NTPC. 29. However given the sectoral problems, whether NTPC's contribution is sustainable is an issue on which GOI, the Bank and NTPC are all working. NTPC's projected high growth may not be sustainable in the medium to longer term, due to external funding constraints as well as inadequate internal resource mobilization, plus an unchecked increase in accounts receivable from consumers in the Eastern and Northern Regions. Sustainability in terms of meeting the financing requirements of overall sectoral capacity expansion (and efficiency improvements) needed to close the demand/supply gap is highly questionable, but that existing capacity of well designed, constructed and operated plants (such as Korba) should continue to generate sustained economic benefits expected from these power plants. Whether the marginal economic value of power used in subsidized agricultural or domestic consumption exceeds the LRMC and what share of this plant's output finds its way to these end-uses is another question related with the deficiencies existing in the sector. Bank Group Performance 30. The performance of the Association from project preparation through project completion was satisfactory. The Association maintained good relations with the beneficiary throughout the execution of the project and fostered an environment conducive to increased Bank Group involvement with NTPC. To date, the Bank Group has assisted NTPC in implementing a total of 13 projects with a total assistance of about US$4 billion. Through these operations the Bank Group has oeen strengthening the institutional and financial viability of the corporation. It is important to highlight that, during this initial decade of development, NTPC and the Bank Group developed a close relationship, during which the Bank Group has endeavored to support NTPC in each step of its development, in a manner that goes much beyond the substantial financial assistance extended to its expansion plan. However, in response to SEB's continued poor payment records on their bulk power purchases, which were seriously straining NTPC's finances, the Bank has refrained from further commitments to NTPC since mid-1987. Thus the then- proposed Regional Power Systems Project, which was negotiated in December 1989, was not presented to the Board, as GOI and NTPC could not fulfill within a reasonable period the associated conditions of Board presentation. Following NTPC's takeover in January 1992, of the Unchahar Thermal Power Station from the Government of Uttar Pradesh in compensation for arrears of the UPSEB, NTPC's level of current receivables (excluding the amount still to be paid by GOI through Central Appropriations in FY93 and FY94) at the end of February 1992, was about 2 months of sales equivalent. Therefore it is now substantially in compliance with the Bank's financial covenants under the ongoing loans, and the Bank has recently begun preparation work on a new operation with NTPC.  - 11 - 31. The Bank Group has also continued addressing a number of shortcomings of broader concern. The major items are: (a) During the preparation of the recent projects, a more comprehensive and up-front approach towards environmental protection, resettlement and rehabilitation issues has been adopted. In 1988, NTPC appointed consultants to study the environmental impact in the Singrauli Region created by the development of coal mines, building of power plants (by NTPC and UPSEB), and other industrial projects, resettlement of the people affected by these projects, and in- migration of skilled workers and their families. The consultants' findings and recommendations are being reviewed by all interested authorities. NTPC prepared in 1989, within the then proposed Regional Power Systems Project an Environmental Action Plan (EAP) for the Korba, Ramagundam and Farakka power projects. The EAP and follow-up of the recommendations for the Singrauli region will be taken up within the newly proposed NTPC-Power Generation Project; (b) Implementation of an Action Plan to liquidate the accumulation of arrears from SEBs; (c) Development of the Power Management Institute (PMI) to provide specialized training in management and other aspects of the power sector. (This is in progress in as a part of the Talcher Thermal Power Project, Ln. 2845-IN); and (d) Preparation of Model Bidding Documents in order to curtail the period needed to award contracts. Borrower Performance 32. The performance of NTPC was generally commendable and met most of the expectations of the appraisal report. All the three 500 MW units were completed ahead of the revised schedule under the well established control of NTPC project management which successfully overcame numerous difficulties. However, initial delays in finalizing the steam generator contract, which was on the implementation critical path, could have been avoided by NTPC completing its evaluation in shorter time (para. 13) and GOI granting its clearance promptly. 33. As a direct outcome of development of Korba and other subsequent projects, NTPC has made good progress in building up its organization and manpower resources. NTPC has accorded special importance to the training of engineers, and operating staff as well as managerial staff. This success of NTPC's second super thermal power project has been primarily as a result of the implementation of a well planned training program with concentration on pre-operational spheres of activity such as planning, design and construction. Financial Aspects 34. The most salient feature of NTCP's operations was the spectacular growth the corporation experienced. From FY85 to FY91, the value of average net fixed assets increased by 38Z per annum, while electricity sales (GWh) grew with an average of 301 per annum. The pace of NTPC's growth is however declining. Total annual investments increased only by about 17? over the same period and work-in-progress has remained stagnant since FY88. NTPC's return  - 12 - on net average fixed assets in operation (historically valued) declined from a high 17X in FY86 and FY87 to 132 in FY91. The returns achieved are well in excess of the 9.5Z which was required under the loan as a target from FY89. These levels of rate of return did not, however, translate into adequate contributions from internal resources to NTPC's investment program (an average of only about 12Z over the last 5 years). This can be partially explained by NTPC's ambitious expansion program. During the last years, NTPC's rate of return has somewhat declined, because new tariffs have been agreed upon only recently but as they are not yet applied, 500 MW units are effectively billed at 200 MW tariff rates. However, NTPC's level of accounts receivable, throughout the period under review was well above the 2 months level covenanted by the Bank under Ln. 2555-IN, in 1985. The unsatisfactory bill collection performance has not only reduced NTPC's self-financing ratio and tightened its liquidity but, more importantly, has prevented NTPC's traditional lenders, such as the Bank, from extending new loans to finance NTPC's investment program. It also highlights the shortcomings of the rate of return covenant which does not differentiate between income accrued and income actually received. 35. Under the prevailing policy environment in the Indian power sector, NTPC is prevented from operating on a purely commercial basis. Many of the SEBs have not been respecting the commercial terms of the supply contracts, bill collection in the current environment is largely beyond NTPC's control. In order to function as a commercially oriented enterprise, it is essential that NTPC be provided by GOI with the freedom to allocate the power from its new investments based on demand and take into account the past commercial performance of its beneficiaries and their ability to pay for the power allocated to them. In case of non-compliance by any of NTPC's power station beneficiaries with agreed commercial and financial terms of their power supply agreements, NTPC should be allowed to sell its power to other utilities. While technical reallocation (by limiting availability of power to a particular SEB) may be difficult to implement, commercial reallocation can be implemented. This can be done by limiting allocations to a defaulting SEB and charging a stiff penalty for drawals exceeding the reduced allocation. Under the proposed time-slice operation currently under preparation, agreements are being sought from Government to allow NTPC to either cut-off or reallocate power from non-paying customers. 36. GOI has recently indicated that entities such as NTPC would no longer be able to rely on GOI budgetary support, have to start paying out dividends and have to raise their own funds in the capital markets. GOI has realized that this requires a reorientation of NTPC's financial, as well as commercial, policies and practices. The new policies would aim at a greater reliance on funds generated from internal resources and NTPC's ability to raise funds from domestic and international capital markets. The details are currently being discussed in the context of the new operation with NTPC, but it is anticipated that the existing rate of return covenant would be replaced by a self financing ratio. Project Relationship 37. Good relationships were maintained by the Association with the Borrower.  - 13 - Consulting Services 38. The basic design and engineering work for the project were carried out in-house by NPTC and reviewed by a foreign consultant (a UK firm). A local consultant was engaged to carry out the detailed design and engineering of the project. The performance of consultants was satisfactory. Procurement 39. The Bank guidelines were strictly adhered to by NTPC for procurement of 80 contracts involving international competitive bidding. Twenty contracts were awarded to foreign firms for an amount estimated at US$46.6 million. The average procurement time per contract--from the issuance of bid documents to contract award--was nearly 11 months, consisting of around 3 months for bidding and about 7-8 months for bid evaluation. In an effort to speed up procurement, a standard bidding document for supply and erection has been finalized in April 1992 10/. This model bidding document will be used for bidding in World Bank financed projects and is expected to cut down the time lag substantially. The release of final payments is linked to handing over of the equipment or system after successful completion of the performance and guarantee tests. In some major packages some deficiencies and defects were noticed during the tests; final payments could be released only after such problems were successfully and completely rectified. Further emphasis on release of final payments under the contracts would help in restricting the need for extension of the closing dates. NTPC should give this emphasis so that the closing dates of new loan(s) would not need to be extended. Project Documentation and Data 40. The project's legal agreements adequately reflected the Association's interest in satisfactory execution of the project. The staff appraisal report was comprehensive, well prepared and provided a useful framework for the Association and NTPC during the project implementation. The Borrower regularly submitted Quarterly Progress Reports for the project. These have been used for review of physical and financial performance and they were generally used for planning visits of the supervision missions to India, which often included site visits in addition to review meetings at NTPC Corporate Office, New Delhi. 10/ Covering the Instructions to Bidders and General Terms and Conditions of Contract.  - 14 - PROJECT COMPLETION REPORT INDIA SECOND KORBA THERMAL POWER PROJECT (CREDIT 1172-IN) PART-II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE A. Adecuacv and Accuracy of Factual Information in Part III 1. Part III of the PCR prepared by the Bank includes statistical data covering various aspects of construction and operation of the project. The factual information relating to NTPC, contained in this section is generally based on the Staff Appraisal Report (SAR) prepared by the Bank for the project, discussions between Bank and NTPC during various supervision missions and quarterly project progress reports submitted by NTPC. B. Comments on the Analvsis in Part I 2. The analysis made by the Bank under Part-I is comprehensive and has covered important aspects. The analysis is generally in order. Nevertheless, there are certain issues which need to be further examined keeping in view the background of developments as they took place to better appreciate the events. These are as follows: I) Proiect Implementation (reference para 13 of Part I) 3. As per SAR the first 500 MW unit was to be commissioned in five (5) years time followed by subsequent units at an interval of one (1) year each thereafter, from the date of award of the contract for the Main Plant and Equipment. The SAR also mentions estimated commissioning dates as August' 86, August' 87 and August' 88 for 1st, 2nd, and 3rd 500 MW units respectively based on Main Plant Award date (zero date) of October' 81. The reasons for variation between these estimated dates of unit commissioning and the corresponding actual dates need to be understood as also the fact that this delay was not attributable to NTPC. In fact NTPC effectively took all possible steps to minimize this delay by initiating advance procurement action pending signing of the Credit Agreement, which made it possible to award the contract for the main Plant and Equipment within three (3) months after the IDA Credit became effective. (the Credit 1172-IN for Korba was signed in February, 1982 and it became effective only in May' 82, the main plant award was placed in August' 82). 4. One is likely to get an impression as if NTPC took unduly long time in evaluation and award of the contract for the Steam Generator Package, which was on critical path. This is not so. The bids for the Steam Generator (SG) package were opened on 20.8.1981. The evaluation report/award recommendation for the package were forwarded to World Bank on 18.3.1982. While conveying its concurrence on 9.4.1982, World Bank asked for additional details regarding joint deed of undertaking furnished by the collaborator of the recommended bidder and also on the capacity and capability of the recommended bidder. Collection and compilation of these detailed information from several manufacturing set ups and offices of the recommended bidder, spread over the geographical collaborators was done in the most expeditious manner. The above capacity assessment of the bidder to the satisfaction of the World Bank, pre-award  - 15 - discussions and tying up of contract details and award of the contract took about four (4) months time, which is most reasonable for a complex Steam Generator Package for 500 MW units. 5. Based on the zero date of August 1982 (the date of award of Main Plant Contract), the commissioning schedules for the three units (as per SAR) were August' 87, August' 88, and August' 89 respectively, and all the three units were commissioned ahead of schedule by 3 to 6 months. II) Credit Extension (reference para 13 of Part I) 6. The credit was originally scheduled to be closed on 31 December 89, however it was extended by 24 months and was finally closed on 31 December 91. The main reasons for extension in credit closing date are as follows: Augmentation of Coal Handling Plant (CHP) 7. Originally, the Coal Handling Plant was designed with minimum redundancies with a view to keep the project cost low. However, provisions in the layout had been kept to augment the system should the necessity arise. From initial feed back of operations, augmentation of the coal handling system became imperative, more so due to the fact that the quality of coal actually supplied to the plant was worse than that considered in design of the plant. This augmentation included installation of an additional track hopper, crusher house and associated conveyors were provided to allow for the operation of the power station at full capacity, when one of the CHP streams were out of operation for maintenance. Disbursements for the coal handling plant augmentation package which was awarded in November 1988, necessitated extension in the credit closing date. Final Payments 8. For Steam Generator Package (supplied by BHEL and their collaborator Combustion Engineering, USA) some generic defects were noticed and modifications were required to be carried out in the equipment thereby delaying the Performance and Guarantee (P&G) test and consequently the release of final payments also necessitated extension in the credit closing date. III) Procurement (reference para 39 of Part I) 9. The average procurement time from issue of bid documents to contract award was nearly eleven months, consisting of 3-4 months for bidding and about 7-8 months for bid evaluation, including necessary internal approvals, concurrence by the Bank, pre award discussions and award of contract. 10. Keeping in view the fact that the 500 MW units for Singrauli and Korba (which were proceeding almost parallel) were the first ones for NTPC and did involve certain peculiarities and complexities encountered in the bidding process under international competitive bidding system. All these problems were effectively solved by NTPC. Keeping the above in view, the time taken in evaluation of bids and award of the contract, does not seem to be excessive and is comparable with other Bank financed procurement, of course with some exceptions. Nevertheless, NTPC, with its eagerness for a constant improvement, was successful in achieving a declining trend in the subsequent projects. NTPC has also finalized with the Bank a standard bidding document, which is expected to cut down the average procurement time further.  - 16 - IV) Financing Issues Receivables (reference para 34 of Part I) 11. Regarding NTPC's outstanding dues against the sale of power, it may be noted that with a view to limit the accounts receivables to a reasonable level, a covenant was provided first in the Loan Agreement for the Rihand Power Transmission Project and was repeated in subsequent projects viz. the Combined Cycle Power Project, Talcher Thermal Power Project and National Capital Thermal Power Project (NCTPP) requiring NTPC to maintain its accounts receivables at a level not exceeding billing for the two preceding months. The Bank is aware of NTPC's/GOI's continuous efforts to bring down the receivables. As one of the measures GOI decided to recover through Central appropriation an amount of Rs. 1020.50 crs. due to NTPC from SEB's as on May, 1990. In addition to above, as a one time measure, to make a substantial reduction in outstandings, NTPC took over the Feroze Gandhi Unchahar Thermal Power Project (FGUTPP), (2x210 MW) of Uttar Pradesh Rajya Vidyut Utpadan Nigam (a Government of UP undertaking). These measures resulted in the outstandings of NTPC being brought down considerably well within the covenanted line. By acquiring FGUTPP, NTPC has also gained by adding to its portfolio, a productive asset by way of adjustment of its outstandings and surcharge thereon. During the course of discussions, it has also been realized by the Bank that for the size and nature of NTPC's operations the covenant relating to measure of receivable at the level of two (2) months average billing is not realistic and needs a review 11/. Nevertheless, NTPC and the Government of India are constantly endeavoring to keep the bills receivable with in reasonable limits. Return on Investment 12. NTPC's return on net average fixed assets in operation (historically valued) though declined from a high of 17? in FY86 to 13? in FY91, have been substantially higher than the covenanted figures (9.5Z). The main reason for the decline is that in the case of units commissioned later and with higher (500 MW) capacity, though higher capital cost has been incurred, the tariffs charged are still on the basis of capital cost of 200 MW units commissioned in first half of 1980s. With the implementation of revised tariffs (two part tariff system as per K.P. Rao committee report) the declining trend in the rate of return is expected to be arrested. 13. With regard to para 29 of Part-I concerning sustainability of NTPC's medium and long term growth rate and financing requirements of overall sectoral capacity expansion (and efficiency improvements) needed to close the demand/supply gap, the Bank is aware that GOI has taken several measures to augment the resources available for power sector by way of major policy changes which encourages private sector participation, including foreign participation, in the field of generation and /or transmission/distribution of electricity. These measures are expected to provide substantial additionality of funds for the power sector and help in minimizing the demand/supply gap. NTPC's capacity expansion program would also have to be reviewed in the context of these developments and keeping in view NTPC's excellent track record, it is expected that necessary financial support from external financing source including the World Bank, ADB etc. would continue. Further, NTPC could also be able to mobilize necessary resources from domestic capital market and external commercial borrowing . The mingle most important factor to be 11/ This statement is GOI's and NTPC's perspective and does not reflect accurately the Bank's views and position.  - 17 - taken care of in this regard is concerning the outstanding. to be kept within acceptable limit for which all possible actions are being taken by NTPC and GOI, about which the Bank is being fully kept apprised. As regards the sector as a whole also, the various SEBs have taken/are taking several measures including those under OFAPs which, are expected, to go a long way in reducing the several deficiencies. V) Environment, Resettlement and Rehabilitation (reference paras 17, 18. 19, 20 and 21 of Part-I) 14. It has been mentioned in para 16 that environmental and rehabilitation issues outside the power plant project (i.e. of the coal mine, power plants built and operated by the Madhya Pradesh State Electricity Board, and many industries developed in the area) were not studied. It needs to be appreciated that these actions were not in the purview of NTPC. Further, the concerned organizations were obliged to comply with the applicable regulations although the details of the actions taken by them have not been covered (presumably not considered relevant for this Project Completion Report for Korba-II) 15. As per the existing regulations and practices prevailing at the time of implementation of the project, all rehabilitation measures were implemented in consultations with the concerned State Governments. Informal consultations with the Project Affected Persons (PAPs) about the help to be provided by NTPC in rehabilitation and resettlement were also made although formal consultation with the PAPs through Non-Governmental Organizations (NGOs) or other similar forum were not held as this was neither stipulated by the Bank nor was the prevailing practice. Nevertheless, as brought out in para 19, NTPC has taken adequate measures in this regard not only in compliance with the prevailing regulations but also even beyond in so far these were practicable. As far as NTPC's role to act as catalyst for the mines and associated urban and rural development is concerned, NTPC has already taken a lead amongst all the industries in conducting comprehensive EIA studies and adequate Rehabilitation, Resettlement - mitigative measures and in monitoring programs and has been freely exchanging the relevant information with the other industries. What is required perhaps is a little more initiative on the part of these industries and the support of the Government for accelerating the process. 16. With reference to para 20 regarding the requirement of additional ash dyke, it is to be clarified that the existing ash dyke built under Stage-I of the project presently has a capacity which is sufficient to cater to the entire project (2100 MW) up to 1994-95. It has however been examined that the height of the existing dyke can be raised in stages to cater to the requirements of the station up to 1999- 2000. In the meantime, NTPC is exploring the construction of the additional ash dyke which could cater to the balance requirement up to the total plant life, with the financial assistance from the Bank and KfW. 17. As brought out in para 20 of Part-I, the need for utilization of ash has been well recognized by NTPC and towards this end a full fledged Ash Utilization Division has been formed at Corporate Office with Deputy General Manager as its head, reporting to Director (Technical). This division has initiated all necessary actions for maximum possible utilization of ash from NTPC's power stations. The progress made in the case of Korba STPP is as under: i) Characterization of ash has been done to determine its properties to *ssess the suitability of ash for various purposes. ii) Utilization of ash as core embankment material for raising the ash dykes. An estimated quantity of about 300,000 mJ of ash is being utilized at [orba for raising  - 18 - the height of present ash dyke. More quantity of ash is proposed to be utilized for this purpose in the future. iii) Korba STPP employs wet method for ash handling system. It is planned to convert it into dry ash extraction system having storage facilities in a progressive manner, to facilitate utilization of ash in nearby cement manufacturing units and for other applications. iv) Laboratory scale investigations with the assistance of M/s Central Building Research Institute, (CBRI) Roorkee, have been successful for using ash in the manufacturing of ash-lime-sand bricks. 18. Regarding use of ash for back filling of mines, NTPC had taken up with the concerned mining authorities but they have not yet agreed. However, the matter is again being taken up with the Coal India Limited for the use of ash for back filling of either abandoned or active mines. As regards the question of development of the national level technologies in mining and ash handling, which allow back filling of ash to the mines, this aspect will have to be studied in detail by the concerned agencies considering all its implications including the levels of investment required and their possible sources etc. 19. As evident from para 21 of Part-I, NTPC has fulfilled all its obligations in connection with environmental requirements which also establishes that the organization's environmental group was adequately staffed. However, the need for augmenting the unit to cater to the future requirements is well recognized and the same is being adequately addressed under the proposed NTPC-Power Generation Project. VI) Evaluation of the Bank's Performance 20. Korba Thermal Power Project was the second in the series of large thermal power projects (Singrauli being the first project) and the first in the Western Power Region of the country taken up by NTPC for implementation during its first phase of development. The assistance extended by the Bank contributed substantially in bringing the project to fruition. The project was supervised closely and an adequate number of site visits under supervision missions were made. Excellent cooperation existed between the Bank staff and NTPC during the implementation of the project. In fact, this relationship continued to grow and to date the Bank group has extended financial assistance to NTPC to the extent of nearly USS 4 billion for the implementation of 13 projects. With the approval of assistance for the Second Korba project, the Bank Group was involved in the total Korba Project up to its ultimate capacity. Discussions for a series of three Bank loans for a total commitment of US $ 1 billion to support NTPC's investment program during the eight plan period under 'time slice' concept are in progress. VII) Evaluation of the Borrower's Own Performance 21. At the time the second Korba Thermal Power Project was envisaged, it was expected that the project, on completion would contribute significantly to the easing of power shortages in the region. With the satisfactory completion of the project NTPC has been able to achieve this main objective as the generating performance of the units at this station has been satisfactory and the power station is supplying much needed electricity to the Western Region, which continues to suffer from peaking as well as energy shortages. The project has also contributed to the overall development of the area.  - 19 - 22. Right from inception, NTPC had adopted as an organizational objective, achievement of self sufficiency in the design and engineering of large thermal power stations and high voltage transmission lines. This process was started in its first project itself i.e. Singrauli (also financed by the Bank) and NTPC has substantially achieved this goal in the Korba project. For the first time, entire design and engineering for this project were successfully done by NTPC in-house with very limited support from consultants. 23. NTPC has recognized training, both managerial and technical, as one of the important needs for organizational development. It is significant that the Korba and Farakka power projects assisted by the Bank include procurement of a full scope 500 MW thermal power plant training simulator. The Korba project also has a 200 MW training simulator. This has been very useful in training of power plant operators and technicians and has contributed significantly in efficient and reliable operation of NTPC's Power Plants. 24. It has been recognized that NTPC has set for itself a tight time schedule of commissioning 500 MW units within 5 years from the date of order of the main plant equipment. To achieve this objective, NTPC developed its Integrated Project Management and Control System (IPMCS) taking into account the work culture and working environment in which NTPC is operating. The IPMCS has been successfully used by NTPC which is evident from the fact that almost all of its projects were completed in time and in some cases, even ahead of schedule.   - 20 - PROJECT COMPLETION REPORT INDIA SECOND KORBA THERMAL POWER PROJECT (CREDIT 1172-IN) PART III: STATISTICAL SUMMARY Related IDA CREDIT Credit No. Year of Title Purpose Approval Status Comments Credit 793-IN To help reduce April 1978 Closed The project was Korba Thermal Power the power in March successfully shortage in 1986 completed Western Region through the construction of the three 200 MW coal fired thermal power plant with associated 400 kV transmission lines. Prolect Timetable Date Date Date Item Planned Revised Actual Appraisal Mission 10/80 10/80; 01-02/81 Credit Negotiation 05/81 Board Approval 07/07/81 Credit Signature 02/04/82 Credit Effectiveness 03/16/82 Credit Closing 12/31/89 (i) 12/31/90 12/31/91 (ii)12/31/91 Credit Completion 04/30/92  - 21 - Disbursements (in US$ million) Credit 1172-IN IDA Fiscal Year Estimated Actual Actual X of and Semester Cumulative Cumulative Estimated (in US$ million) (in US$ million) 1982 1 2 15 0 1983 1 25 32.0 8.6 2 50 32.7 8.8 1984 1 53 32.7 8.8 2 106 50.7 13.7 1985 1 168 58.1 15.6 2 234 91.3 24.6 1986 1 281 113.5 30.6 2 317 164.5 44.3 1987 1 341 186.9 50.3 2 357 231.6 62.4 1988 1 360 264.9 71.3 2 370 295.8 79.6 1989 1 380 306.7 82.6 2 390 343.6 92.5 1990 1 400 Ia 343.6 92.5 2 - 355.1 95.6 1991 1 - 359.8 96.9 - 366.2 98.6 1992 1 - 366.2 98.6 2 - 371.0 100.0 /a Li The original amount of the credit was SDR 325.6 million (equivalent to US$400 million). On December 5, 1991, SDR 9.2 million (equivalent to US$11.3 million) which was no more needed for the completion of the project was cancelled. The Credit was closed on December 31, 1991. In accordance with the Association's practice, the credit account was left open until April 30, 1992, in order to complete the disbursements for eligible expenditures made until December 31, 1991. On May 19, 1992, the last disbursement was made and the undisbursed balance of SDR 1,828,827.50 (equivalent to US$2.5 million) was cancelled. Thus the total amount disbursed from the Credit was SDR 314,571,172.50 (equivalent to US$371.4 million). This includes the Special Account which was fully documented.  - 22 - Project Implementation Revised Indicators Appraisal Estimate Estimate Actual (1) Installation of: To be commissioned To be commissioned Commissioned in:/a in:/a in:1a lb No. 4 500 MW unit, August 1986 August 1987 May 1987 No. 5 500 MW unit, and August 1987 August 1988 March 1988 No. 6 500 MW unit August 1988 August 1989 February 1989 (2) Installation of To be commissioned Commissioned associated 400 kV in: between June transmission lines March 1986 1983 and Janu- totalling about ary 1990 /c 1,100 km and associated substation /a Commissioning means synchronization. /b Dates of commercial operation were as follows: No. 4 500 MW March 1988 No. 5 500 MW April 1989 No. 6 500 MW June 1990 /c Dates of commissioning of 400 kV lines and associated substation were as follows: Koradi-Satpura November 1986 Korba-Bhilai II June 1983 Satpura-Indore December 1986 Bhilai-Koradi April 1984 Indore-Asoj December 1986 Korba-Bhilai III January 1990 Bhilai-Chandrapur February 1989 Chandrapur Substation March 1989  - 23 - Prolect Costs and Financing A. Comparison of Estimated and Actual Projects Costs SAR Actual SAR Actual (In Rs million) (US$ million) A. Power Plant and Facilities 1. Preliminary and civil works 707.00 2,432.50 88.30 146.93 2. Mechanical works 3,455.70 8,097.73 432.00 573.08 3. Electrical works 626.10 593.64 78.20 43.43 4. Coal transportation system 129.90 137.32 16.20 7.73 Subtotal (A) 4,918.70 11,261.19 614.70 771.17 B. Transmission System 810.80 1,791.54 101.30 135.05 C. Consultant's Services and Studies 67.20 * 8.80 * D. Engineering and Administration etc. 631.80 703.10 78.50 44.61 E. Contingency (physical) 321.60 * 40.40 * F. Contingency (price) 3,171.20 * 396.30 * G. Duties and taxes 1,176.40 * 147.00 * Total Project Cost 11,097.70 13,755.83 1,387.00 950.83 (excluding IDC and WCM) H. Interest during construction (IDC) 724.70 0.00 90.60 0.00 I. Working capital margin 0.00 155.80 0.00 10.45 Total Financing Required 11,822.40 13,911.63 1,477.60 961.28 * Covered under respective package costs.  -24- 3. Project Financing planned (Credit Source n Final Coemnts 1. IDA CATEGORYt (1) Boilers and aux- iliaries and 162,800 176,167 associated erec- tion works (2) Electrical equipment and 48,640 27,622 associated erection works (3) Other power station equip- 41,100 64,751 ment and associated erection works (4) Coal handling and transporta- 9,770 12,614 tlon :quipmnt and assocLated *rections works (5) Transmission equipment and 44.770 28,853 associated erection works (6) Consultant's services and 1.220 96 studies (7) Unallocated Revised sub- 17,100 --- total Cancelled Special Account C') ___ 2,466 Sub-total (Disbursed from 325,600 314,571 IDA Credit) Cancelled - Dec. 5, 1991 -_- 9,2001b - Hay 19, 1992 ___ 1,829 Total -- IDA Credit 325.600 325,600 Equivalent of above 400.000 27.0 386,700 40.4 sub-total (US$O00) 2. RFW (US$'OOO) la 67.100 4.5 93 600L4 9.7 3. Domestic (US$S000) 1.010,500 686.5 478,980 49.9 Total (US$000) 1.477,600 100 961,260 100.0 la~ The cofinancing agreownt between KMY of Federal Republic of Germany was signed on May 23, 1964 in tue amount of DM 190 lIlion (equivalent to VS$67.1 million in 1964) to cover supply and services for three 500 M4W turbo-generator units and high i ressu re piing. lb DR 9.2 million (e ulvalent to US$11.3) was cancelled on December 5, 1991. 7c The undisbursed baLance of SDR 1,626 627.50 was cancelled on Kay 19, 1992. Based on the conversion rate prevailng on dates of actual dieburse nt. The Special Account was fully documeted In the carren of the Special Account. The amount of SR 2.467,686.41, indicated under the Specialciccount category above, represents the exchange rate fluctuation between the MD and the currency of the Special Account from the time of advances to the Special Account to the time of documentation of the Account.  -25- Project Results A. Direct Benefits Estimated at Closing Date/Full Development Indicator (As of December 31, 1991) /a 1. Energy Generation (GWh) Unit 4 (500 MW) 11,273.8 (Since commercial 5 (500 MW) 7,989.7 operation) 6 (500 MW) 4,715.7 Total 23,979.2 2. Power Transmission To the Beneficiaries States of Western Region /a Credit closing date. B. Economic Impact (1) In the appraisal report, the return on investment was calculated for the second phase expansion by 1,500 MW of the first 600 MW stage of the Korba thermal power station to demonstrate the relationship between tariffs and the economic cost of the development. It was defined as the discount rate at which the present worth of the economic cost associated with the development equals the present worth of the economic benefits over the life cycle of the development. The measurable costs included: (e) capital and labor costs involved in the development of generation and transmission facilities; (f) the annual operation and maintenance costs; and (g) fuel costs. The benefits were measured in terms of the revenues to be derived from the sale of electricity. (2) Based on measurable economic costs and benefits associated with the 1,500 MW development, the ex-ante internal economic rate of return (IERR) was estimated at about 15 percent (for economic tariff of Rs 0.28/kWh and consumer surplus of Rs 0.08/kWh) and about 12 percent (for economic tariff of Rs 0.28/kWh only). For PCR, the benefits were calculated by the following two ways: (a) weighted average of sales tariffs of SEBs of Rs 1.06/kWh was applied; (b) total tariff of Rs 1.94/kWh including consumer surplus of Rs 0.88/kWh 10/ was applied. The resultant ex-post IERRs for the 1500 MW development were: (a) about 14?, and (b) about 25Z. Relatively higher level of IERRs is obtained due to relatively higher sales tariffs in the Western Region. Detailed calculation is shown in Annex 1. 10/ The consumer surplus as per SAR for Second Maharashtra Power Project was used as a reference.  -26- (3) Comparison of tariffs in SAR and PCR is summarized below. State Share of regional consumption (1) Average Tariff (Paise/kWh) SAR PCR SAR 1980-81 PCR 1990-91 1991/92 Maharashtra (MSEB) 53 29 28.9 110 Madhya Pradesh (MPEB) 18 29 40.4 83 Gujarat (GEB) 29 17.1 33.3 85 Goa - 10 Unallocated - 14.9 n.a. Weighted average n.a. - financial 32.2 99 106 - economic 28.0 C. Financial Impact (1) Following the commissioning of the first Korba units in 1983/84, most of the power from Korba has been sold to MPEB (472), MSEB (272) and GEB (21Z), the balance was supplied to Goa, Dadara and Nagar Haveli and Daman & Diu. Starting in 1989/90 some power was also supplied to the Northern Region. MSEB and GEB have been among the better NTPC clients and have generally kept their outstanding dues below 2 months of sales equivalent. HPEB has had a less satisfactory payment record and as of February 1992, dues outstanding were equivalent to 3 months of sales equivalent. (2) NTPC's actual and projected financial statements for the period FY85-FY91 are presented in Annexes 2 to 4. The most salient feature of NTCP's operations was the spectacular growth the corporation experienced. From FY85 to FY91, the value of average net fixed assets increased by 38Z per annum, while electricity sales (GWh) grew with an average of 302 per annum. The pace of NTPC's growth is however declining. Total annual investments increased only by about 172 over the same period and work-in-progress has remained stagnant since FY88. In FY90 the value of net assets in operation became larger than work-in-progress. During the period under review, net profits even grew by 412 per annum, but NTPC's return on net average fixed assets in operation (historically valued) declined from a high 172 in FY86 and FY87 to 132 in FY91. The returns achieved are well in excess of the 9.52 which was required under the loan as a target from FY89. GOI's current policy is to set tariffs for NTPC power stations on a cost-plus basis with specific normative operational parameters. NTPC's better financial performance should be largely credited to NTPC having operated the power stations at efficiencies well above the norms and standards used for the purpose of tariff setting. On the other hand, while NTPC's performance was much better than most other public enterprises, the FY91 returns were negative in real terms. Moreover, NTPC's contributions to investments from internal resources was relatively modest and the level of accounts receivable, throughout the period under review was well above the 2 months level covenanted by the Bank under Ln. 2555-IN, in 1985. The following table represents the key operational results forecasted in the appraisal report compared with actuals:  -27- UMCn MU AM ,MS@MOI .,N1A. PWR PIJICtI ......................................... Tow O'lnu 6rib i1 196 1951 197 96 19119 1990 1991 ......... ..... ~........................... ................ ................ ................ ................ ............... ............... ............... Peema.t Actul riOcat ACtua Fa's: Acstu FWw.st ActuLt For.c..t Aetuasl Fomat Acrtu Pru s. Aotual lstriuz tle9 04t i tt) 6;551 8,316 9,3935 12,9 13,21 14,40 17tt 10 17,;33 24,070 24,875 30,651 35,421 36.i 40,306 AvwreSgltk TW,ltl P/1DAi .imor.tfg.) 33 37 33 36 34 40 34 Al 35 46 36 52 36 53 ToAt owating arnum 2,2919 3,436 3,513 5129 4,32 6,453 8,528 6,822 6954 12,5748 11,5 20,573 13,900 24,207 ?otel op.wlng 6xp.s 1376 2,02 2,131 2 .943 2,77 3,522 3,36 4.712 3,342 7,559 8,99 12,567' 1,39 14,577 USA Ppuflt 257 675 336 1.1M 5SW 2,116 625 3,024 880 3,308 1,1164 5.386 1.99 F.009 8aug8 of Pltie On 0 CD g t CZ) 18.28l 10,957 21, "75 14,016 26- 17,209 35.582 23,56 45,041 35,07r 53,332 53,567 57,919 5,412 baca.96.cwnmuls:e.leA,..scz) 88 ~~~~~~138 73 liiX a 1711 73 16" 8x 15 91 110 131 apwtugl Acti. CZ) 808 598 618 568 5811 558 519 558 608 398 808 818 808 8011 COWMINNIM, to Cuwtnztla,o (Aes.Anl X 78 8a -18 121 98 18 ax 258 108 931 138 1CX01 I6L 86d6 Sepilg 0ewr89 2.0 3.3 1.8 4.9 1.71 4.0 1.4 3.9 1.4 2.4 1.3 2.5 1.3 2.5 Idiqtlty maci. 34/68 32/6 3830 363 /6 41/5$9 42/58 45/55 43/57 47/53 47/53 45/55 47/53 4258 434 twvq Ratio. 7.3 1.0 8.0 1.6 5.9 1.6 5.8 1.7 5.2 1.8 4.7 1.1 7.2 1.9 Aes6ew Sm1~eNoM ( ofd) 32 1I" 32 163 32 1I" 32 177 32 175 32 210 3 m (3) As can be seen from the table above, NTPC has in fact outperformed most of the financial targets set in the appraisal report, the exceptions being the much lower level self financing and poor bill collection. While the lower level of self financing can be partly attributed to the much larger size of the investment program than anticipated during appraisal, the level of accounts receivable has consistently been above 5 months and was even 7.7 months of sales equivalent at the end of FY91 11/. The situation would have been worse if the Government had not at times, settled part the outstanding bills on behalf of the SEBs through central appropriations. Also, the increased working capital requirements resulting from the poor bill collection performance, considerably reduced NTPC's ability to contribute to its investment program from its internal resources. NTPC's average self financing ratio from FY87-91 was only about 122 and NTPC was increasingly confronted with tightening liquidity situation. The unsatisfactory bill collection performance has not only reduced NTPC's self-financing ratio, but more importantly, its inability to collect in time, has prevented NTPC's traditional lenders, such as the Bank, to extend new loans to finance new plants in NTPC's investment program. (4) Under the prevailing policy environment in the Indian power sector, whereby the Government determines fixed allocation for supply of power of NTPC plants and NTPC is unable to either cut-off or re-allocate power from non paying customers, NTPC is prevented from operating on a pure commercial basis. Since many of the SEBs have not been respecting the commercial terms of the supply contracts, bill collection in the current environment is largely beyond NTPC's control. Bill collection for power generated from the project has been much better, but most of NTPC sales are presently in the Northern and Eastern Regions, which have also been the major defaulters in terms of payment of bills. 11/ In May 91, GOI decided to settle an amount of Rs.10 billion through central appropriations over a period of four years. In addition, in January 1992, NTPC took over the Unchahar Power Station from UPSEB, NTPC's largest defaulter, with the proceeds to be used to off-set the accumulated arrears. As a result, the average level of NTPC's accounts receivable at the end of February 1992 was about two months of sales equivalent, not taking into account the Rs.5 billion, which is still to be paid by GOI through central appropriations in FY93 and FY94.  -28- FY87 - FY91 Year Ending March 31, 1991 Forecast Z Actual Z (Re million) (Re million) Total Internal Cash Generation 24,843 61 36,518 29 Equity Contributions 2,311 6 35,876 29 Capital Receipts 0 363 0 Loans - 34,404 27 Bonds 18,539 15 Total Borrowings 13,615 33 52,943 42 Total Sources 40,769 100 125,700 100 Total Investments 20,491 50 100,977 80 Total Debt Service 18,110 44 13,483 11 Increase in Working Capital 2,169 5 11,241 9 Total Applications 40,769 100 125,700 100 Contribution to construction 22Z 12Z Debt service coverage 1.4 2.7 (5) During the FY87-FY91 period, NTPC met 42? of its total financing requirements including debt service and increased working capital needs by borrowing. The balance was met equally from internal cash generation and GOI equity contributions. This denotes a heavy reliance on GOI support, particularly if we take into account that a large part of the borrowings were loans made by multilateral and bilateral agencies to GOI which were onlent to NTPC. Although the interest rates were in line with those charged in the domestic capital markets (up to 152 in the period under review), GOI generally took the foreign exchange risk, and the terms (20 years, including 5 years grace) were more favorable than commercial credits. Also, GOI has ploughed all profits back into NTPC's operation, by not requiring any dividends to be paid out. During NTPC's initial period of growth this was a sound policy, but it has also shielded NTPC and its customers from paying the full cost of the power generated by NTPC. GOI has recently indicated that entities such as NTPC would no longer be able to rely on GOI budgetary support, have to start paying out dividends and that it would have to raise its own funds in the capital markets. GOI has realized that this requires a reorientation of NTPC's financial, as well as commercial, policies and practices. The new policies would aim at a greater reliance on funds generated from internal resources and NTPC's ability to raise funds from domestic and international capital markets. The details are currently being discussed in the context of a new operation for NTPC.  -29- Status of Covenants CUVENANT SUUJECT STATUS ProJect Agreement dated June . 1980 PA 2.02 NPTC shall engage CooplTod with consultants to ssist o In the doslgn and ongino ring of the Project. PA 2.04 NPTC shall take out Compild with Insurance on goods Imported for the ProJect. PA 2.05 NTPC shall maintain Complied with appropriate records on the Project and furnish regular progress reports to the Association. PA 2.06 NTPC shall furnish a Being compilied completion report within six months after the closing date of the Project. PA 2.08 NTPC shall properly acquire Complied with all neessxary larcd for the Projoct. PA 2.09 NTPC shall ensuro Coepild with compliance with appropriate environmental standards In execution and operation of the Project. PA 8.04 NTPC shall take out Compild with insurance against risk in uch amounts as will be consistent with appropriate practice. PA 3.05 NTPC will sell to SEEB and EDCOA S8X of power generated by project, under contract satisfactory to the Association. PA 4.02 NTPC shall submit audited 86/88: Compled financial statements and 86/87: Complied auditors report within 7 67/88: Complied months of FY end. 88/89: Complied 89/90: Complied 90/91: Complied PA 4.08 NTPC shall achiev, an Supersoded by covenents annual rate of return of under subsequent NTPC not less than 9.5X from Projecto requiring 7X ROR FY90/91 onwards. In FY84/86 through FY89/90 and 9.5X ROR from FY90/91 to FY94/95 and a satisfactory level thereafter - being complied with .! AM PA 12 GOI to provide by 4/82 Not known lmplementation plan for 6 priority areas for power sector improv emnts. /a Rate of return moens operating lncom (before interest after taxes) as a percontn g of the average of the net fixed assets in operation at the beginning and at the end of the fiscal year  -30- COVENANT SUBJECT STATUS Dovelopmnt Credit Apreement Dated February 4. 1982 CA 2.02 (b) 001 shall maintain a Complied with special Account in Dollars (Opened 3/86 814.7 M) (as amended 8/18/8C) CA 3.01 (b) 00C shall enter into a Complied with subsidiary loan agreement (the actual amount was 12X with NTPC under term per annum) satisfactory to the Association. (Not lses than 11.76X per annum). CA 3.03 GOI shall grant import Complied with permission for goods financed under tho Projoct and make available foreign exchange funds roquired therefore. CA 3.04 001 shall ensure adequate Complied with supply of coal by the tim the first unit In coemissioned. CA 3.05 GOI to furnish to the 85/86: Complied Association not later than 86/87: Complied 6 months after the end of 87/88: Complied the FY the auditor's report 88/89: Complied in respect of the special 89/90: Complied account. (Amended 90/91: Complied 4/16/87). CA 8.06 (b) GOI to submit the 87/88: Complied Association not later than 88/89: Complied 6 months after end of FY 89/90: Complied auditor's opinion In 90/91: Complied regards to the statements of expenditure submitted during the year. (Amended 3/16/87)  -31- Use of Bank Resources A. Staff Inputs Staff inputs in carrying out the various tasks through the project cycle from preparation in FY81 to completion in FY92 were as follows: Tasks Input (Staff-weeks) Project Preparation 7.1 Project Appraisal 32.5 Loan Negotiations 11.0 Loan Processing 10.4 Project Supervision 39.9 Project Completion Report 4.3 Project Administration 1.1 Total 106.3 D. Missions Month/ Number of Days Speciali- Performance Type of Project Cycle Year Persons in Field zation /a Rating Lb Problems /c Through Appraisal Identification Id Preparation LI Preappraisal ld Appraisal 10/80 01-02/81 Supervision 1 02/81 3 25 E, FA, EC 1 Supervision 2 05/83 2 20 E. FA 2 Supervision 3 05/85 2 15 E, FA 1 Supervision 4 09/86 3 19 E, E, FA 1 Supervision 5 09/87 3 10 E, FA, FA 1 Supervision 6 01/88 3 20 E, FA, FA 1 Supervision 7 09/88 3 29 E, FA, EC 1 Supervision 8 07/89 1 11 E 1 Supervision 9 02/90 1 8 E 1 Supervision 10 07/90 1 9 E 1 Supervision 11 07/91 1 E, FA 1 PCR 02/92 1 9 E, FA a E: Engineer, FA: Financial Analyst, EC: Economist. 5 1 - No or minor problem, 2 - Moderate problem, 3 - Major problem. PR: Procurement problems and delays, I - Implementation delays, D - Disbursement delays. /e Identification was made by GOI in 1974. Preparation and preappraisal were made by NTPC in 1978.  linal Iaaa bb..m. 64ooue UsIa f Usa foe Kel-lI 1.6g.Compg~ 3.6636. Ooaalm (@) 620p lUlam/a) M.Coo CaOs/m,) 11.U 7. Amo. Comm. 3 6.1 8.811 C"aPaAl) 4474.94 B. 40MV lami M 2.3 4.6 Uk/wav 400 9. TMD L_a" (S) 18 S.k.flba Vaue" ob tariff of 1.OMJb Coma_r surplus losl oldas 1.04MOjM /a Ilopeadli W.Soaflb Pa., SIablem Tromolola. 6Wb. U, Tebl kd.d a.d Oparabima t1o 70 CobT Cosb of a. Cm Ts"$ Comael.aT ProJes Clapibl T b C alb TO"Tl Caplal SPuppy baam.roblaalao from survla. 1.b f iba Year C_o Ci oil amt Ps COOb Iai TS Cod' so E - ti.r(m4) (04) End-4iarlln.luded lb (es") (incla.aonau 192-6 6.4 3.4 24.9 24.9 240.8 77. 1.4 (1,582.2) (,52.2) 19344 Uo0.6 540.6 62.6 6. 24.7 1. 861.3 (1,54.9) (1.9) 193446 1.61.4 1861.4 2U.S 22.5 26.2 2,241.1 66. (3,311.4) (8.611.4) 19-6 I.34 14. 82.9 82.9 712.4 2.164.9 61.4 (4,177.2) (4,177.2) 1936s-7 1.66.2 1.2 241.6 241.6 7".1 2,769.9 4. (4,267.9) (4.267.9) 11746 1,417.2 16.5 0.9 84.0 &1.04. 257.1 12.7 29.3 670.2 3.2 28.9 1A.4 102.4 6.4 176.5 70.2 (3,419.2) (2.27S.2) 21964 1,29.5 466.S 31.7 200.0 2.073.2 262.0 1.6 29.6 6.6 76.1 3.,04.8 2444.9 2.666.2 2,60.7 4,661.5 73.6 (T76.2) 1,92.4 19169-93 677.2 736.1 6.7 26o.0 1.049.9 9. 15.8 46.7 1l.& 34.3 2.291.4 5,6.1 4260.2 4,866.6 7372.4 *1.1 2,64.8 7,006.2 416-91 (746.6) 1,000.4 6. 316.0 907.7 (6.9) 18.S (41.6) (844.3) 77.4 39. 6 *.,0.. 6,046.1 224. 11.91.6 39. 6,29.7 12,066.2 & MI-92 80.0 1.168.4 ".S 600.0 2,187.7 27.0 13.6 42.6 147.2 60.2 2,407.8 O.e.0 64".8 6540.5 12,519.4 100.0 4,422.7 10.111.3 6I9-98 218.4 1,116.6 62.1 60.e0 2,067.1 21.1 18.6 2.9 146.5 6S.2 2,26.0 8,2e0.0 6 198. 6*,8.1 12,018.4 1w.0 4,211.4 9.861.7 7 199-4 1.468.4 1.110.6 32.1 6e.0 8*,.o 10.1 17.S 167.4 673.1 9.7 4,169.8 6,20.0 6,192.6 6. ",.1 12,018.4 180.0 2,396.9 7.6146.2 W a19946 1,116.6 .1 600.0 1,766.7 17.2 17.2 96.7 1,662.7 *,60.0 6,196.5 3,663.1 12,01.4 100.0 4,662.4 0,122.7 9 19s 1,116.6 62.1 6o.0 17,766.7 17.8 17.2 96.7 1,6.7 3,260.0 6,191.8 4,.1 12,038.4 100.0 4,662.4 10,132.7 10 199-7 1,116.6 62.1 60.o 1,76.7 17.2 17.2 9.7 1,32.7 6,26.0 6,19.1 6,8U.1 12,01.4 100.0 4,662.4 10,1#2.7 1a 1 ,11.6 62.1 600.0 1,786.7 17.2 17.2 96.7 1,662.7 6,230.0 6,19.* 6,6 6.1 12,018.4 100.0 4,662.4 10,132.7 12 l99 eo 1,116.6 62.1 O.0 1.766.7 17.8 17.5 9.7 1,82.7 6,250.0 6,19.5 6,1666.1 12,013.4 100.0 4,632.4 10,1U2.7 18 1990 1,116. 62.1 600.0 1,766.7 17.S 17.2 9.7 1,6.7 8,20.0 6,192.5 6,6.1 12,013.4 100.0 4,662.4 10,182.7 14 2000-01 1116.4 62.1 6o.0 1,766.7 17.2 17.8 96.7 1,662.7 6,260.0 6.1.9. 6,363.1 12u,01.4 100.0 4,62.4 10, U1.7 i8s ,1-0 1,316.6 62.1 600.0 1,763.7 17.8 17.2 96.7 1,662.7 0,260.0 6,193.6 6,5.1 12,0181.4 280.0 4,63.4 10, U1.7 16 266345 1,116.6 62.1 6o.o ,7.7 17.8 17.2 9.7 1,662.7 3,260.0 6,191.3 6,3 6.1 12,013.4 *eo.o 4,662.4 10,1U.7 I7 2006046 1,10. 2.1 6o.0 1,766.7 17.5 17.2 94.7 1,6.7 6,260.0 6,193.5 6,66.1 12,61S.4 100.0 4,662.4 10,113.7 18 100443 1.,1). 6 ".1 600.0 1,766.7 17.2 17.2 9.7 1.63.7 6,230.0 6,19.5 6,568.1 12,012.4 100.0 4,662.4 10,U1.7 19 21005- 1,116.6 2.1 6o.0 1,766.7 17.2 17.2 6.7 1,32.7 S,36.0 6,198.3 6,66.1 12,018.4 1e0.0 4,66.4 10,12.7 20 2006-37 1,116.6 62.1 6o.o 1,766.7 17.2 17.3 96.7 1,66.7 6,20.0 6,198.8 8.1 12,018.4 100.0 4,662.4 10,181.7 31 20074 1,116.6 62.1 600.0 1,763.7 17.8 17.2 9.7 1,6.7 6,260.0 6,.192.8 ,.1 O12,01.4 10o.0 4,662.4 18,12.7 a 2_0- 1e,11.6 62.1 600.0 1,766.7 17.2 17.2 9.7 1,6687 6,210.0 6,.111. 6,.1 12,018.4 10.0 4,662.4 10,3U8.7 216 313101-100 1,116. 62. 600.0 1,7630.7 17.2 17.8 96.7 1,66.7 6,36.0 6,19112.8 6,6.1 12,012.4 100.0 4,6612.4 10.182.? 64666-11 _U1186 6113 600.0 1,766.7 17.S 17.8 "9.7 1,6627 0,2e.e 6,11. 6,665.1 3,012.4 2,1110.0 4,661.4 10,3u.7 3m 0.10 4 0.650 p5.6166up to WW0-W we qe.m9 Im _Ma 1W 11 G* d- Ps ImSm 3 par so of54p -.nd Nowem"- 2 ^g Wfin '_ P8' fi 6_66 _ _ 1 ~'f*.w  SECCOD MOMA TNEML Po1ER CP0OECT 1/ File: PCR.WK1 NATIONAL TNEINAL POWER COPX ATIOH LTD. *7 92 ~~~~~~~~~---------- -- - - - - - --------------- IMdCM STATENhTS (in million of Rupes) Year uring Hacwh 31 196o 1966 197 196 1969 1990 19" ICOH DESCRIPTIO Forecast ActuaI Forecast Actual Forecat ActuaI Forecat Actual Foreca t Actual Forecat ActuaI Forecast Actua Electricity Genratin CGIA) 9,248 14,174 15,921 19,378 27,296 3a,s5 43,965 Less: Au Cops.(&) 932 1,335 1,513 1.845 2,421 3,174 3.659 Electricity Slaes (Cwh) 6,551 8,316 9,893 12,839 13,261 14,406 17,883 17,533 24,070 24,875 30,651 35,421 36,016 40,306 Averag Sulk Tariff (P/"ih) (Genrtion) 33 37 33 3a 34 40 34 41 35 46 36 52 36 53 Operating levewas: Electricity Sales 2,164 3,077 3,310 4,829 4,510 5,736 6.161 7.201 6.461 11U460 10,970 18,376 13,160 21.254 Tranmission Chares 148 284 555 1,176 993 1,691 2,404 Electricity Duty 134 111 203 111 272 a7 366 93 494 179 629 294 740 347 other Inc me 102 70 75 152 116 212 201 Total Operating aeveims 2,299 3,438 3,513 5,294 4,782 6,453 6,526 8,622 8,954 12,748 11,599 20,573 13,900 24,207 Operating Expenrss: Fuel Cost 518 1,252 896 1,952 1,259 2,360 1,799 3,165 2,600 5,285 3,557 a.965 4,461 9,760 operation and aintenance 329 404 445 483 547 616 729 807 964 1,175 1,180 1,745 1,323 2.105 Depreciation 395 265 585 377 694 448 986 579 1,285 912 1,626 1,396 1,873 2X251 Electricity Duty 134 112 203 111 272 87 366 93 494 179 629 294 740 347 f Others* 10 21 11 69 8 147 113 Total Operating Expeses 1,376 2,042 2,131 2,943 2,T77 3,522 3,880 4,712 5,342 7,559 6,992 12,567 ,397 14,577 Operating Inc e Before Interest 922 1,396 1,382 2,350 2,011 2,931 2,647 3,910 3,612 5,189 4,606 8,006 5,503 9,630 Interest Chargeable to Revenue 665 492 1,045 570 1,422 866 2,022 1,248 2,752 1,791 3,422 2,730 3.510 3,472 Profit before Tax 257 904 336 1,781 589 2,065 625 2,662 860 3,398 1,184 5,276 1,993 6,158 Less:Provision for Tax 1 1 0 Profit after Tax 257 904 336 1,780 589 2,064 625 2,662 860 3,398 1,184 5,276 1,993 6.158 Prior Period Incom (Net) (28) 50 53 362 (90) 90 851 Net Profit 257 875 336 1,830 589 2,118 625 3,024 860 3,308 1,184 5,366 1,993 7,009 Average Net Fixed Assets (Historic) 16,281 10,957 21,175 14,016 26,808 17,209 35,582 23,856 45,041 35,078 53,332 53,567 57,919 75,482 Rate of Return on Historic Assets (X) 61 131 7X 171 81 171 7X 161 81 151 9s 151 lOX 131 operating Ratio (X) 60X 59s 611 561 581 55s 591 551 6OX 59s 60X 611. 601 60X * Includes deferred expenses, preliminary expenses, bonds expenses, rebate to customers and contingencies. 1/ The forecast data are taken fro the SAR of the Ramagundam Thermal Power Project. However, no material difference exists with the financial projections presented in the SAR of the Second Korba Power Project.  07-May-92 SECOND KORBA THERMAL POWER PROJECT NATIONAL THERMAL POWER CORPORATION LITD. SOURCES AND APPLICATION OF FUNDS (in milltion of Rupees) Year ending March 31 1985 1985 1986 1986 1987 1987 1988 1988 1989 1989 1990 1990 1991 1991 -- - - - - - - - - -- - - - - - - - - --- - - - - - - - ... .. ......... ................. ..... . .. . ... ...... ........ -- - - - - - - - - - - - - - SOURCES DESCRIPTION Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual SOURCES OF FUNDS Operating Income before Interest 922 1,396 1,382 2,350 2,011 2,931 2,647 3,910 3,612 5,189 4,606 8,006 5,503 9,630 Prior Period Income (Met) 0 (28) 0 50 0 53 0 362 0 (90) 0 90 0 851 Depreciatlon(*) 395 265 614 377 694 448 986 579 1,285 912 1,626 1,396 1,873 2,251 Total Internal Cash Ceneration 1,317 1,632 1,996 2,77 2,705 3,432 3,633 4,851 4,897 6,011 6,232 9,492 7,376 12,732 Equity Contributionr 4,694 4,859 4,257 6,808 2,311 5,909 0 6,879 3,682 6,594 12,812 Capital Receipt 26 0 114 24 87 21 117 Borrowings ... .. .. . Loans Contracted 4,416 5,731 5,865 4,836 11,972 6,712 5,019 Bonds 0 1,634 4,300 4,394 1,499 4,346 4,000 Total Borrowings 3,355 4,416 4,750 7,365 4,594 10,165 5,742 9,230 3,188 13,471 91 11,058 9,019 TOTAL SOURCES 9,366 10,933 11,003 16,950 9,610 19,620 9,375 20,984 8,085 23,251 6,323 27,165 7,376 34,680 APPLICATION OF FUNDS Total lInvestmnt 8,541 10,011 9,795 14,048 7,802 17,806 6,655 17,630 4,243 19,064 1,306 20,397 484 26,079 * Debt Service Interest charoed to Operations 665 492 1,045 570 1,422 866 2,022 1,248 2,752 1,791 3,422 2,730 3,510 3,472 Amortization of Lons 0 - 63 - 217 - 499 - 845 747 1,376 1,087 2,045 1,542 Total Debt Service 665 492 1,108 570 1,639 866 2,521 1,248 3,597 2,538 4,799 3,o17 ,SSS 5,015 Increse (Decreoae) In Working Capital 159 430 101 2,332 168 947 199 2,106 245 1,649 218 2,951 1,337 3,586 Provision for Tea 0 0 0 1 0 1 0 0 0 0 0 0 0 0 TOTAL APPLICATION Of FUNDS 9,366 10,933 11,003 16,950 9,610 19,620 9,375 20,984 8,085 23,251 6,323 27,165 7,376 34,679 Contribution to Construction (Anrual) 2 6S 7S 8a -1 12S 91 14X 8x 252 102 932 132 1002 16S Debt Service Coverag 1.98 3.32 1.80 4.87 1.65 3.96 1.44 3.89 1.36 2.37 1.30 2.49 1.33 2.54 ........................................ (*) bDpreclation pertains to operations  8t813mw TUDL POm mmrmiaTIN LTD. *M - Vw in*dim t"reb 31 1965 1966 1967 19'S 1969 1990 t991 BAAS DESUIPTION Forecast Actut Forecast Actual Foreast Actuat Forecast Actuat Forecast Actual Forecat Actuat Forecat Actual .. .. .... .. ....... .......... .. .... .. .--.... ----- ---- - --- -- -------- ----- ----- ----- ----- - ------ --- ---- ----- ------------ ASSETS Gross Iteck 20,531 13,363 23,774 16,047 33.105 20,689 43,003 30,506 S4,295 44,784 62,495 69,972 66,98 92,422 LessD1procatien 670 476 1285 903 1,979 1,416 2,966 2,069 4,250 3,066 5,876 4,554 7,749 6,877 Net Fixed Assets In opeation 19,861 12,887 22,4a9 15,144 31,127 19,273 40,037 28,439 50,046 41,716 56,619 65,418 59,219 85,546 Capitat Works In Progress 16,149 19.656 22,702 31,069 21,173 44,302 17,933 52,187 10,882 57,062 3,969 52,360 56,039 TOTAL FXED ASSETS 36,010 32,S43 4S,191 6,213 52,300 63,575 57,970 80,626 60,92a 96,77 60,606 117,776 S9,219 141,564 Current Assets Ca hw nd lnar ltnce 11 84 12 448 17 134 22 S,973 27 2 30 291 34 684 Short-tam deposits 395 637 1,053 737 4,544 S,364 1,179 S,279 Reclvables 192 1.626 293 2,284 396 2,826 544 4,058 746 5,961 967 11,561 1,158 15,102 Inventories 205 704 238 940 331 1,322 430 1,742 543 2,639 625 3,632 670 5,414 Lows A Advunes 326 1,972 3,642 783 2,614 1,824 2,031 Other Currnt Assts/Debtors 2 17 2 13 3 148 4 178 4 104 S 125 5 231 Total Current Assets 409 3,151 544 6,293 749 9,127 1,000 13,469 1,320 1S,884 1,627 22,797 3,046 26,7W9 Nisc.Capital ExpudItue 19 19 16 17 l 19 41 TOTAL ASSETS 36,420 35,713 45,735 52,526 53,048 72,718 58,99 94,112 62,248 114,680 62,234 140,594 62,265 170,424 LIMILITIES Equl ty share Capitat Issued 23,659 20,632 27,915 26,685 30,226 32,851 30,226 37,658 30.226 44,073 30,226 49,640 30,226 59,237 sre Deposit 236 990 734 2806 73 1,100 4,314 Retained Earnings 315 1,402 652 3,231 1,241 5,463 1,866 a.511 2.727 11.906 3,910 17,293 5,903 24,420 Total Equity 23,973 22,270 28,s67 30,906 31,468 39,047 32,092 48,975 32,953 56,052 34,136 68,033 36,130 87,971 Total Long-ter Debt 12,390 10,364 17,077 17,79 21,454 27,894 26,696 37124 29,041 49,848 27,755 59,619 25,710 67,296 Current Liabilities 56 3,061 91 3,891 127 5,n8 179 8,014 255 a 780 344 12,742 426 15,158 Total Debt 12.446 13,445 17,168 21,620 21,581 33,671 26,877 45,138 29,296 58,623 28,099 72,561 26,135 82,454 TOTAL EQUITY AM LIAMILITIES 36,420 35,713 45,735 52,526 53,048 72,718 58,969 94,112 62,248 114,680 62,234 140,594 62,265 170,425 Debt:Equity Ratio 34/66 32/68 37/63 36/64 41/59 42/S8 45/55 43/57 47/53 47/53 45/SS 47/53 42/5 43/S5 Current Ratio 7.3 1.0 6.0 1.6 5.9 1.6 5.6 1.7 5.2 1.8 4.7 1.8 7.2 1.9 Accen s 9tvcerel (O of das) 32 184 32 163 32 164 32 177 32 175 32 210 32 233 .. .....................................