India - Private Power Utilities (TEC) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15427 IMPLEMENTATION COMPLETION REPORT INDIA PRIVATE POWER UTILITIES (TEC) PROJECT (LOAN 3239-IN) MARCH 12, 1996 Energy and Infrastructure Operations Division Country Department II South Asia Region 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 AND ABBREVIATIONS Currency Unit = Rupee (Rs.) Rs.1 = Paise 100 RUPEE (Rs.)/US $ EXCHANGE RATES AND CPI (Yearly Averages) Exchange Rate Fiscal Year Rupees/US$ FY 89/90 (SAR) 17.50 FY 90/91 22.74 FY 91/92 26.20 FY 92/93 31.20 FY93/94 31.46 FY 94/95 32.30 Average Rate during project implementation period: US$ I = Rs. 21.60 TEC Fiscal Year: April I - March 31 MEASURES AND EQUIVALENTS I Ton (t) = I metric tonne = 1,000 Kg = 2,204 lbs. 1 Kilovolt = 1,000 volts (V) 1 Kilovolt ampere (kVA) = 1,000 volt-amperes (VA) I Kilowatt-hour (kWh) = 1,000 watt-hours 1 Megawatt-hour (MWh) = 1,000 kilowatt-hours 1 Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours ABBREVIATIONS A-ND ACRONYMS The Act Electricity (Supply) Act of 1948, as amended CAS : Country Assistance Strategy CCGT :Combined Cycle Gas Turbine Plant CEA : Central Electricity Authority FGD : Flue Gas Desulfurization GOI Govemment of India GOM : Govemment of Maharashtra IBRD : Intemational Bank for Reconstruction and Development ICB : Intemational Competitive Bidding ICR : Implementation Completion Report IFC : Intemational Finance Corporation ONGC : Oil and Natural Gas Corporation QA/QC Quality Assurance/Quality Control MSEB : Maharashtra State Electricity Board TEC : Tata Electric Companies  FOR OFFICIAL USE ONLY INDIA PRIVATE POWER UTILITIES (TEC) PROJECT (LOAN 3239-IN) IMPLEMENTATION COMPLETION REPORT Table of Contents PREFACE EVALUATION SUMMARY ........................................................i Introduction .......................................................i Objectives ......................................................i Implementation Experience and Results .......................................................it Summary of Findings, Future Operations, and Key Lessons Learned ................. ................. iii PART 1: PROJECT IMPLEMENTATION ASSESSMENT .......................................................I Statement/Evaluation of Objectives .......................................................1 Achievement of Objective .......................................................2 Overall Results .......................................................2 Major Factors Affecting the Project .......................................................3 Project Sustainability .......................................................5 Bank Performance ......................................................5 Borrower Performance .......................................................5 Cofinancier Performance .......................................................6 Summary Assessment of Outcome ............6..........................................6 Future Operation .......................................................6 Key Lessons Learned .......................................................6 Evaluation of Program Objective Categories .......................................................7 Private Sector Participation .......................................................7 Financial Objectives .......................................................8 Environmental Objectives .......................................................8 This document has a restricted distribution and may be used by recipients only in the performance of their I official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PART II: STATISTICAL TABLES Table 1 - Summary of Assessments Table 2 - Related Bank Loans/Credits Table 3 - Project Timetable Table 4A- Loan Disbursements (IBRD) Table 4B - Loan Disbursements (IFC) Table 5 - Indicators for Project Implementation Table 6 - Key Indicators for Project Operation Table 7A- Project Costs Table 7B- Project Financing Table 8 - Economic Costs and Benefits Table 9 - Status of Legal Covenants Table 10 - Bank Resources: Staff Inputs Table 11 - Bank Resources : Missions APPENDIX-A : Aide-Memoire of the ICR Mission APPENDIX-B Project Review from Borrower's Perspective APPENDIX-C Guarantor and Cofinancier Contribution to the ICR APPENDIX D TEC's Financial Status and Financial Tables APPENDIX E Environmental Objectives  INDIA PRIVATE POWER UTlIES (TEC) PROJECT (LOAN 3239-JN) IMPLEMENTATION COMPLETION REPORT Preface This is the Implementation Completion Report (ICR) for the Private Power Utilities (TEC) Project for the Tata Electric Companies (TEC) in India, for which Loan 3239-IN in the amount of US$ 98 million equivalent was signed on October 3, 1990, and made effective September 30, 1991. The loan closed as stipulated in the Loan Agreement, on June 30, 1995. The loan amount was filly disbursed by December 3, 1995. Cofinancing was provided by the International Finance Corporation (IFC), Switzerland and a conglomerate of local banks led by the Industrial Credit and Investment Corporation of India Ltd. (ICICI). The balance amount was met by the Tata Electric Companies (TEC) from their own intemal resources, and through the issuance of convertible debentures in the domestic financial markets. The ICR was prepared by Mihir Mitra (Consultant) and Argun Ceyhan (Task Manager) of SA2EI of the South Asia Region and reviewed by Jean-Francois Bauer, Division Chief, SA2EI and Kazuko Uchimura, Project Adviser, SA2DR. The Borrower, Guarantor and Cofinanciers provided comments that are included in the appendices to this ICR'. Preparation of this ICR started during the Bank's mission in September 1995. It is based on material in the project file. The implementing agency, TEC, contributed to the preparation of the ICR by providing timely input for the statistical data and by preparing a detailed ICR for its own internal evaluation and archives. This latter ICR was placed in the Project Files. In accordance with South Asia Region's general policy as regards the management of closing dates, the loan was closed as originally scheduled when TEC had incurred eligible expenditures to cover the whole amount of the loan, although one of the components (i.e., Bhira Pumped Storage Scheme) was not completed. Satisfactory completion of this component will be reported to the Board in due course. The Borrower's contribution is given in Appendix B. When received, the Guarantor's and Cofinanciers' contributions will be included in the ICR.   INDIA PRIVATE POWER UTILITIES (TEC) PROJECT LOAN 3239-IN) IMPLEMENTATION COMPLETION REPORT EVALUATION SUMMARY Introduction i. The principal challenge facing the Government of India (GOI) in the power sector lies in improving the balance between expansion and efficiency improvement. Electricity demand in the 1990s, projected to grow at approximately 9% per annum through 2000, continues to remain supply-constrained. To meet the demand and improve supply quality, and given the enormous investment the power sector needed to sustain the demand growth, GOI decided to utilize the private sector's ability to implement major power projects. ii. India is one of the few developing countries with a vibrant, even though small, private sector presence in public power supply. The Tata Electric Companies (TEC) represent the largest electric power utility in the private sector in India and constitute one of the principal power systems in Western India. TEC is composed of three utility companies: (i) The Tata Hydroelectric Power Supply Company Ltd., (ii) The Andhra Valley Power Supply Company Ltd., and (iii) The Tata Power Company Ltd., and the three companies conduct their business basically as one single entity. TEC supplies power to consumers in the highly industrialized area of the metropolitan city of Bombay. The reliability of TEC's power supply and the quality of its service are high. It is a well-managed corporation with strong financial performance and an excellent record of efficient management and operation of its plants. The loan was made to the three companies forming the TEC, under the guarantee of India, acting by its President. The project was cofinanced by the Government of Switzerland, International Finance Corporation (IFC) and the Industrial Credit and Investment Corporation of India Ltd. (ICICI). This was the fifth IBRD loan to TEC, the IBRD-TEC relations dating back to 1954, when the first IBRD loan to the Companies was approved. Objectives iii. The physical objectives of the project were to increase TEC's peak generating capacity2, reduce its dependence on the Maharashtra State Electricity Board (MSEB) for power to serve its consumers, reduce the average cost of generation in increasing the capacity utilization of TEC's existing thermal power plant at Trombay, mitigate the sulphur dioxide emissions (SO2) from the coal and oil burning Trombay Unit 5 3, and improve system reliability and quality of supply in the Bombay area. In order to achieve these objectives, the physical components of the project included: (a) the 2 At appraisal TEC's own generating capacity was 1,613.5 MW, comprising 276 MW from the three hydro stations (Khopoli - 72 MW; Bhira - 132 MW, and, Bhivputi - 72 MW) and 1,337.5 MW from one thermal station with six units (Trombay - Units 1,2 and 3: 3x62.5 MW; Unit 4: 150 MW; and Units 5 and 6: 2x500 MW). 3 Funded under Ln. 1549-IN for the Third Trombay Thermal Power Project, approved in April 1978.  - 11 - addition of a pumped storage (PS) unit at TEC's existing Bhira hydroelectric station to generate 150 MW of additional peak power to meet more of the increasing demand in the Bombay area and also increase the capacity utilization of TEC's existing thermal generating units at Trombay by consumning off-peak thermal power; (b) a 220 kV transmission line to carry this power to TEC's licensed areas; (c) a gas-based combined cycle (CCGT) plant of 180 MW at the Trombay thermal power station to reduce the average cost of generation (this unit would be Trombay Unit 7); (d) a second flue gas desulfurization (FGD) unit to control SO2 emissions from Trombay Unit 5; and (e) review of design and technical specifications and supervision of construction of the Bhira PS scheme, as well as the acquisition of know-how for the FGD facility at Trombay. The institutional and sectoral objectives were to: (i) support increased private sector participation in the supply of power; and (ii) encourage improved tariff structure and load management procedures for TEC's direct consumers. Implementation Experience and Results iv. Project implementation was vitiated by delays, much of which were beyond the control of TEC. Delays of several months were caused by belated environmental clearance by the GOI for the CCGT plant resulting in the loan effectiveness date having to be extended three times and the implementation schedule, as envisaged in the SAR, requiring to be extended accordingly. In 1984, when Trombay Unit 6 was cleared by GOI, GOM and MSEB, the oldest three units of 62.5 MW each4 were scheduled to be retired when Unit 6 was commissioned. Unit 6 was commissioned in 1990, but in view of the peak power shortage still prevailing in the Bombay area, GOM and MSEB agreed to extend Units 1, 2 and 3, until the CCGT plant (Unit 7) came on stream in FY94. GOI required much longer than anticipated at appraisal (in October 1990) to agree on this issue and grant the said environmental clearance. Upon receipt of environmental clearance, the loan was made effective from September 30, 1991. However, physical implementation was speeded up and the loan was closed as per the original schedule on June 30, 1995. The loan amount was fully disbursed by December 3, 1995. v. The overall project implementation results have been satisfactory. Except for the commissioning of the Bhira Pumped Storage Scheme, all other project components have been placed in commercial operation. TEC's peak generating capacity has increased with the commissioning of the CCGT plant, that has also caused the average cost of TEC's generation to decrease because of its significantly higher overall thermal efficiency, the additional FGD unit at Trombay has helped reduce emissions from the Trombay power station. TEC' s system reliability and quality of service have improved. The only physical objective that has not yet been realized is the improvement in capacity utilization of TEC's existing thermal generating units at Trombay, which would occur when the Bhira PS facility is placed in operation. vi. The 150 MW Pumped Storage Unit was mechanically completed and the generator/motor has operated on synchronous condenser mode since March 1995. During wet commissioning tests, a section of the penstock ruptured and caused a serious setback to the project completion targets. Detailed investigation of the causes of failure has been undertaken by experts. Preliminary estimates 4 Units I and 2, were funded under Ln. 106-IN for the Trombay Power Project, approved in November 1954; Unit 3 was funded under Ln. 164-IN for the Second Trombay Power Project, approved in May 1957. Ullit 6 was funded under Ln. 2452-IN for the Fourth Trombay Thermal Project, approved in June 1984.  - 111 - indicate that this facility can be prepared for commissioning tests by March/April 1996. The rating of the project will be revised when the final report is available and an addendum to this ICR will be issued to record the findings as well as the measures taken to resolve the problem. vii. The upgrading of the Bhira-Dharavi transmission line from 1 10 kV to 220 kV was accomplished ahead of schedule; the line was charged at 1 10 kV in June 1994. It was placed in operation at 220 kV in February 1995. viii. The gas turbine unit of the Trombay CCGT plant was placed in operation on schedule in July 1993, but its operation could not be sustained due to non-availability of gas. First synchronization of the CCGT Plant in the combined cycle mode was achieved in December 1994 and upon satisfactory conclusion of its performance test, the plant was placed in commercial operation in June 1995. The plant is able to generate 203 MW. Its operation has been satisfactory. ix. The second flue gas desulfurization unit for Trombay Unit 5 was placed in commercial operation in September 1994 and its performance has since been satisfactory. It is removing 85% of the SO2 from unit 5 flue gas. x. In terms of the long-term sectoral objective, TEC have shown that a private utility is more efficient in implementing, operating and maintaining its facilities, than a publicly-owned utility. In accordance with its commitments, GOM extended TEC's licenses for another ten years5, thus showing to potential investors its seriousness in attracting, dealing and keeping private investments. The burden of taxes/duties on the project was alleviated by virtue of the exemption of customs duties GOI continued to grant to procurement carried out under IBRD loans. While this project cannot act as a model for private sector participation in the future, it nevertheless shows that GOI's and the Bank's strategies to move towards private investments in the power sector are correct. The internal economic rate of return (IERR) computations updated for this ICR show that TEC's tariffs were adjusted to orient consumer surplus from the consumers to the utility (para 1.06). Thus initial steps to fulfill the expectations of the SAR about improving TEC's tariff structure so that TEC's direct consumers are induced to implement demand-side management procedures and projects have been undertaken. Summary of Findings, Future Operations, and Key Lessons Learned xi. The project was implemented generally satisfactorily, albeit some delays as noted above. The physical objectives have been partially met, and full economic benefits of the project would be realized as soon as the Bhira PS scheme starts operation on a commercial basis. In accordance with South Asia Region's portfolio management guidelines, the loan was closed on its original closing date when TEC had incurred eligible expenditures to cover the whole amount of the loan, although the Bhira PS Scheme was not completed. Satisfactory completion of this component will be reported to the Board in due course. xii. The Bank remained closely involved in the implementation of the project, from preparation through completion. Its excellent relations with TEC throughout the execution of the project as well 5 Under Ln.2452-IN for the Fourth Trombay Thermal Power Project, TEC's licenses were extended to August 15, 2004. Under Ln. 3239-IN for the Project, the licenses were extended to August 15, 2014, the maturity date of the Loan.  - iv - as close interaction with TEC officials, helped remove implementation bottlenecks while enhancing the quality of TEC's efficient management. xiii. Future operations of the project are likely to be sustainable. Power continues to remain in short supply throughout India's Western Region and the high-efficiency CCGT plant at Trombay and the Bhira PS scheme, when completed, are expected to contribute in filling the supply- demand gap. Peaking power of up to 150 MW is expected to be provided by the Bhira PS and its operation in the pump-motor mode will improve system operating efficiency by providing off- peak load for TEC's thermal generating units. The additional FGD unit for Trombay Unit 5 employs flue gas clean up technology using sea water to improve air quality in the surrounding areas. xiv. The key findings and lessons learned are: (a) The Bhira PS penstock failure is still under investigation. Available data indicates that because not all the studies were conducted prior to implementation, design requirements which would have been informed by the studies were not fully satisfied. Stringent design quality control in this case appears to have been lacking (para. 1.07). (b) The experience in this project confirms the appropriateness of the Bank's current procedure by which investment projects with significant environmental issues have to obtain all the necessary environmental and other clearances from all concerned central and state government agencies, well ahead of the approval of any loan by the Bank (para. 1.08). (c) Finalizing subcontracts at the time of main contract award, along with complete quality assurance/quality control (QA/QC) plans, saved significant amounts of time and helped accelerate project implementation. Similarly, for major equipment suppliers, linking payment to the furnishing of essential design information required for detailed engineering helped alleviate design coordination problems (para. 1.09). (d) Single turn-key contracts for the main plant and equipment of the various components, especially for the combined cycle technology, proved easier to implement and manage (para. 1.10). (e) It is necessary to evaluate the manufacturing capability as well as the corresponding shop facility of vendors through a thorough prequalification exercise. Substantial delays were experienced because some manufacturers had to refurbish and augment their shop facilities to accommodate the work in hand (para. 1.12).  INDIA PRIVATE POWER UTILITIES (TEC) PROJECT (LOAN 3239-IN) IMPLEMENTATION COMPLETION REPORT PART I. PROJECT IMPLEMENTATION ASSESSMENT A. Statement/Evaluation of Objectives 1.01 Electricity demand in India in the 1990s was projected to grow at an annual average of approximately 9% through the year 2000. This huge demand had caused supply gaps arising from scarcity of public resources on the one hand and frequent breakdown of existing plants on the other owing to nonavailability of spare parts, deteriorating fuel quality and inability of the public sector utilities to take timely outages of the generating units for maintenance. To meet the demand and improve the quality of power supply, the Government of India (GOI) decided to tap the private sector and utilize its ability to implement major power projects. 1.02 India is one of the few developing countries with a vibrant, if small, private sector presence in the public power supply domain. The Tata Electric Companies (TEC) represent the largest electric power utility in the private sector in India. The reliability of TEC's power supply and the quality of its service is extremely high. TEC is a well managed corporation with strong financial performance and an excellent record of operation and technical innovation. The private power utilities are regulated by the Electricity (Supply) Act of 1948, under which the utilities may set their tariffs to recover their full operating costs, depreciation, interest and return on equity . Their individual franchises are defined in licenses granted by their respective state governments, which cover their geographical areas of operation. 1.03 At appraisal, in October 1990, IBRD involvement with India's private power utilities had comprised four loans to TEC for the staged development of the Trombay Power Station near Bombay. This involvement and TEC's efficient project implementation, operation and maintenance of its plants helped GOI to decide to invite and induce private investment into the power sector. Additionally, IBRD and IFC participation also helped mobilize additional financing for the project from the Government of Switzerland and a conglomerate of local banks led by the Industrial Credit and Investment Corporation of India Ltd. (ICICI). 1.04 The project's physical objectives were to: (a) provide additional peak generating capacity to meet more of the increasing demand in the Bombay area and reduce TEC's dependence on the state's grid; (b) increase the capacity utilization of existing thermal generating units at Trombay and add a gas based combined cycle plant, to reduce the average cost of generation; (c) mitigate the sulfur dioxide emissions from the coal and oil burning Trombay Unit No. 5; and (d) improve system reliability and quality of service to consumers. The institutional and sectoral objectives were: (a) support increased private sector participation in the supply of power; and (b) encourage improved tariff structures and load management procedures for TEC's direct consumers. The project was fully consistent with the Bank's lending strategy for the Indian power sector.  -2- B. Achievement of Objectives Overall Results 1.05 The overall objectives of the project were substantially achieved, except for the commissioning of the Bhira PS facility. TEC has been able to increase its peak generating capacity, which will increase further as soon as the Bhira PS facility comes into operation; TEC has been able to reduce its dependence on MSEB, the average cost of generation by TEC is significantly reduced; and TEC's system reliability and the quality of power supply have improved. The air quality in the surrounding areas of the CCGT plant has improved. TEC's technical competence and management capabilities are well recognized. 1.06 Rate of Return. In the SAR, the economic analysis was carried out in computing the estimated internal economic rates of return (IERR) of: (i) the FY90 - FY2000 time-slice of the Western Region development program; and, (ii) the Project. The [ERR for the FY90 - FY2000 time-slice of the Western Region development program was estimated at 7% counting as benefits only the economic value of incremental revenues (using the tariffs as proxy) and 25% when allowance for associated consumer surplus was made. The IERR for the Project was estimated at about 26% (associated consumer surplus considered). For the ICR, the economic analysis for the investment program was updated, considering the commercial operation of the Trombay CCGT Plant at a load factor of 68.5%, as envisaged by the Central Electricity Authority (CEA), and assuming that the Bhira PS Scheme will start operation from April 1996 on the basis of 4 hours every day in the generating mode at full power (Part III, Table 8). The benefits of the investment program relate mainly to the incremental consumption which they make possible. A minimum measure of benefits was derived from the incremental sales revenue based on the average retail tariffs of TEC (Rs. 2.1 1/kWh), representing the minimum willingness to pay for electricity, i.e., without taking into account consumer surplus. On this basis, the IERR achieved for the project is 20.4%. If the savings from the reduced purchase of power from MSEB are also taken as a project benefit, the IRR increases to 26.4%. Comparison of the project IERR estimated in the SAR and the ICR, shows that TEC's tariffs were adjusted to orient the consumer surplus from the consumers to the utility. 1.07 Implementation Experience.- Loan 3239-4N was approved by the Board on June 26, 1990 in the amount of US$ 98.0 million equivalent and the Loan Agreement was signed on October 3, 1990. There were specific conditions of effectiveness of the proposed loan which included, inter alia, the receipt by TEC of all environmental clearances from the GOI and GOM as necessary for the construction of the Trombay CCGT plant. The loan effectiveness date had to be extended three times before the environmental clearance was finally obtained by TEC, upon which, the other conditions having been met, the loan became effective on September 30, 1991 (para. 1.08). Except for the commissioning of the Bhira Pumped Storage scheme, all other project components have been placed in commercial operation (Part III, Table 5). The gas turbine was commissioned in open cycle in July 1993, while the combined cycle module was put into commercial service in March 1995. The 220 kV transmission system was commissioned in June 1994 and the FGD Unit in September 1994. The 150 MW Pumped Storage Unit was mechanically completed and the generator/motor started operation on synchronous condenser mode in March 1995. During wet commissioning tests, a section of the penstock ruptured and caused a serious setback to the  - 3 - project completion targets. Detailed investigation of the causes of failure has been undertaken by experts. Preliminary estimates indicate that this facility can be prepared for commissioning tests by March/April 1996. C. Major Factors Affecting the Project 1.08 Project Start Up. The project experienced an initial delay of almost one year due to: (a) the long time taken by the GOI Ministry of Environment and Forests in providing environmental clearance for the project. In 1984, when Trombay Unit 6 was cleared by GOI, GOM and MSEB, the oldest three units of 62.5 MW each were scheduled to be retired when Unit 6 was commissioned. The unit was commissioned in 1990, but in view of the peak power shortage still prevailing in the Bombay area, agreed to extend these units until the CCGT plant (Unit 7) came on stream in FY94. GOI required much longer than anticipated at appraisal to agree on this issue and grant the said environmental clearance; and, (b) delay by the CEA in clearing the 180 MW CCGT unit. Because of emission limits put by GOM Maharashtra Pollution Control Board, TEC had its engineering consultants determine capacity of the Trombay station making optimum use of coal, oil and available gas. Thus the capacity of 180 MW was defined for the CCGT unit. Clearance of the proposal by GOM and MSEB did not require long time. However, CEA proposed a 410 MW plant to burn all the "firm" gas being used at that time in Trombay's conventional boilers, contending that it was wasteful to burn gas in conventional boilers at 3 5% efficiency when the CCGT unit offered to yield an efficiency of 49%. More particularly, CEA insisted that Trombay had received clearance for the older units to burn coal only. CEA's proposal would have entailed extensive reengineering and careful evaluation of its techno-economic viability. In fact, the proposal would have delayed the project at least by two years for the studies to be completed, and that too without any assurance that they would yield any tangible results. In the end, however, CEA agreed with the project proposal as originally envisioned. 1.09 TEC did its utmost to recover the time lost owing to circumstances beyond its control. Despite the delays, TEC was always in control of the situation, optimally reduced the implementation time table and helped completion of the major elements of the project by expediting construction and commissioning. TEC got excellent results by insisting on the finalization of all subcontracts at the time of main contract award, along with complete QA/QC plans. Also, for major equipment suppliers, linking payment to the furnishing of essential design data required for detailed engineering and design coordination proved to be very helpful in securing timely information and alleviating implementation bottlenecks. The Gas Turbine of the CCGT plant was, in fact, commissioned ahead of schedule, but its operation could not be sustained because of shortage of natural gas supplied by ONGC. 1.10 Procurement. For performance guarantee reasons, the main package for the 180 MW CCGT scheme was procured as a single responsibility contract under international competitive  bidding (ICB) procedures, and on a supply-and-erect basis. The main package was divided into three components: 120 MW gas turbine and generator; waste heat recovery boiler; and 60 MW steam turbine and generator. This contracting strategy proved easier to implement and manage. The Industrial Model for Domestic Preference for goods manufactured in India was applied in accordance with Bank guidelines, as agreed during negotiations. Bidders were required to price each of the components separately to make up the lump sum price. Each such component offered ex-works India had to have a domestic value added of not less than 20% of its price. Those without domestic value added were offered on a CIF basis. For the purpose of providing domestic preference, the CIF price of the component offered from abroad within a bid was increased by the applicable duty, or 15%, whichever was less. 1.11 The turbine-generator/pump-motor set for the Bhira PS was also procured under ICB, on a supply-and-erect basis. The remaining contracts, some including civil works, were procured under local competitive bidding (LCB) procedures. No special preference was accorded to domestic bidders when competing with foreign bidders, state-owned enterprises, small-scale enterprises or enterprises from any given State. No negotiation on the bid price was allowed. 1.12 The CCGT plant contract was won by the least-cost bidder under a joint venture between Siemens of Germany and Bharat Heavy Electricals Limited (BHEL) of India, with Siemens as the main partner. ABB was the other bidder and it made a representation that it had by mistake, included the price of a component (auxiliary air compressor) as extra. However, ABB was not allowed to change the bid and the price of the component was taken into account for the purpose of bid evaluation. Even otherwise, the result of the bid evaluation would not have changed as the devaluation of the Indian Rupee favored the Siemens-BHEL bid because of its significantly larger local component. BHEL, however, had to augment its manufacturing shop facilities to accommodate the fabrication of the very large equipment components, which caused delays in project implementation. 1.13 Prices of components quoted under ICB were about 23% higher than budgeted for financing under the IBRD/IFC loan. They seemed to reflect the existing global market situation consequent upon the Gulf War raging at that time. As the prices for the parts of the contract to be manufactured in India were higher than the estimates, it was agreed that TEC would finance expenditures incurred in the local currency from its own resources, while Bank funds would be used for disbursing against foreign currency expenditures and expected contingencies. 1.14 The contract for Bhira PS was also awarded to the least cost bidder, Sulzer-Siemens. Sulzer, a Swiss company, was the lead partner. Following the award of this contract, and in light of the costs exceeding the budget, GOI and Switzerland decided with TEC's concurrence, that parts of an ongoing Swiss loan to India would be allocated to finance the expenditures in Swiss Francs incurred by the Swiss manufacturer. 1.15 Finalization of subcontracts at the time of main contract award, along with complete QA/QC plans, was insisted upon and compliance with this requirement saved significant time in project implementation. TEC also linked progress payment to the furnishing of essential design data required for the detailed engineering and design of the plant.  -5- D. Project Sustainability 1.16 The achievements of the project are likely to be sustainable. Supply of gas to the Trombay power station is quite good6. TEC will take all the necessary actions to ensure satisfactory operation of the Bhira PS scheme. The Operational Plans to ensure the sustainability the project components have been discussed and agreed with TEC's management during the ICR rnission. These plans are presented in Part III, Table 6. E. Bank Performance 1.17 The performance of the Bank from project preparation through project completion was satisfactory. In particular, the Bank has successfully maintained a good working relations with TEC from identification to loan closing. A total of nine supervision missions were fielded during the project implementation period. Problems encountered were identified, solutions, agreed action plans were developed and advice on problems were provided to those concerned. Suitable follow-up actions were taken as needed and mid-course corrections were made. Interestingly, a hand-held grouting tool, simple to fabricate, light weight (28 kg), easy to operate and ready for instant deployment on small grouting jobs, invented by one of the Bank's engineering staff, was used very effectively on the rehabilitation of the "old" tunnel (built in the 1930s) in Bhira, even though the World Bank is not in the business of designing or manufacturing applications equipment. F. Borrower Performance 1.18 The overall assessment of TEC' s performance is satisfactory. All commitments made during the negotiations and covenants under the loan were fulfilled. The financial performance has remained very strong during the project implementation period. Given the fact that the project included the first gas-based combined cycle power plant in the private sector, it did lay the foundation for TEC to become fully knowledgeable in the state-of-the-art technology in respect of engineering, construction, and commissioning. Despite the favorable outcomes, the deficiencies in project execution relate to delays in completing some of the project components on schedule, including the Bhira PS scheme. Even though much of the problems were beyond TEC's control, such as delays due to GOI's granting the clearances for Trombay CCGT unit (para 1.08), the inadequacy of shop floor facilities to manufacture the waste heat recovery boiler, or heavy monsoon in the case of Bhira PS scheme, there are interesting lessons to learn for the future. For instance, it is assumed that the transient hydraulic analysis of the long penstock under all operating conditions of the pump/turbine unit, and the stringent design quality control dictated by it, were not adequately satisfied in this case, thereby causing the failure of the penstock during wet commissioning tests with the loss of five precious human lives. This hypothesis would be verified by ongoing investigation into the causes of failure of the penstock. The findings may well point towards other lessons to learn. 6 In 1994, TEC suffered from reduced supply due to some problems in the gas fields. The situation has improved since early 1995, and TEC are in a position to operate the CCGT unit at full load.  - 6 - G. Cofinancier Performance 1.19 IFC cofinanced the project to the tune of US$ 68.3 million equivalent. The project was appraised by a joint Bank-IFC mission. IFC staff deferred to the Bank (IBRD) for project supervision. The Government of Switzerland was also provided with Bank supervision reports. The local financial institutions were led by ICICI. ICICI staff participated in meetings Bank preparation and appraisal missions had with TEC. They subsequently appraised the project independently before committing funds. H. Summary Assessment of Outcome 1.20 The physical results of the project have been satisfactory, except for the delay in completing the Bhira PS scheme. The components of the project that have already been completed meet or exceed most of the major objectives. TEC's peak generating capacity has increased with the commissioning of the CCGT plant, which has also caused the average cost of TEC's generation to decrease because of its significantly higher overall thermal efficiency. The additional FGD unit at Trombay has helped reduce emissions from the Trombay power station. TEC's system reliability and quality of service have improved. The only physical objective that has not yet been realized is the improvement in capacity utilization of TEC's existing thermal generating units at Trombay, which would occur when the Bhira PS facility is placed in operation. In terms of the long- term sectoral objective, TEC have shown that a private utility is more efficient in implementing, operating and maintaining its facilities, than a publicly-owned utility. The internal economic rate of return (IERR) computations updated for this ICR show that TEC's tariffs were adjusted to orient consumer surplus from the consumers to the utility (para 1.06). Thus initial steps to fulfill the expectations of the SAR about improving TEC's tariff structure so that TEC's direct consumers are induced to implement demand-side management procedures and projects have been undertaken. 1. Future Operation 1.21 The CEA has specified that the CCGT plant at Trombay should achieve a minimum Plant Load Factor (PLF) of 68.5% and that the overall thermal efficiency of the plant should be 49%, as designed. The PLF equates to a generation of about 1.2 million MWh per annum. The additional FGD system installed at the Trombay plant (Unit 5) should continue to remove SO2 at an efficiency of 85%. The Bhira PS facility, when completed, should run in the generating mode for 4 hours every day during day time, and in the pumping mode for 6 hours every night. J. Key Lessons Learned 1.22 Several specific lessons can be drawn from this project that have both operational and strategic implications for the design of similar projects in the future: (a) The Bhira PS penstock failure is still under investigation. It appears, on the basis of available data, that not all the studies (such as transient hydraulic analysis of a long penstock under all operating conditions of the pump/turbine unit and checking with respect to any risk of hydraulic resonance) were conducted prior to implementation. The result was that design requirements as would have been  - 7 - dictated by the studies were not fully satisfied. Stringent design quality control in this case appears to have been lacking. (b) The experience in this project confirms the appropriateness of the Bank's current procedure for which investment projects withi significant environmental issues i.e., to secure all the necessary environmental and other clearances from all concerned central and state government agencies, well ahead of the approval of any loan by the Bank. (c) Finalizing subcontracts at the time of main contract award, along with complete quality assurance/quality control (QA/QC) plans saved significant amounts of time and helped accelerate project implementation. Similarly, for major equipment suppliers, linking payment to the furnishing of essential design information required for detailed engineering helped alleviate design coordination problems. (d) Single turn-key contracts for the main plant and equipment of the various components, especially for the combined cycle technology, proved easier to implement and manage. (e) It is necessary to evaluate the manufacturing capability as well as the corresponding shop facility of vendors through a thorough prequalification exercise. Substantial delays were experienced because some manufacturers had to refurbish and augment their shop facilities to accommodate the work in hand. (f) Not only the implementing agency, but also other government departments involved in the approval or licensing processes, must be equally alive to the project implementation schedule and work in unison to meet the schedule. Evaluation of Program Objective Categories A. Private Sector Participation 1.23 One of the major objectives of the project was to support increased private sector participation in the supply of power in India. The project has accomplished this objective and TEC has successfully implemented the project, albeit slight delays in implementation. GOI has shown its seriousness in inviting and inducing private investments in the power sector by guaranteeing the IBRD loan for the Project and agreeing to allocation of funds form a line of credit provided by the Government of Switzerland to India. GOM has shown its interest in private power by extending the licenses of TEC and adjusting TEC tariffs in a timely manner. The success of the project is likely to encourage similar participation by private developers in the future and this is consistent with priorities set out in the country assistance strategy. However, it should be noted that this project cannot act as a model for private sector participation in the future because the three companies forming TEC are well established companies with an excellent record. The Project nevertheless shows that GOI's and the Bank's strategies to move towards private investments in the power sector are correct.  -8 - B. Financial Objectives 1.24 At appraisal, the only matter for concern was that most of TEC's debt was in foreign exchange, hence exposing the companies to foreign exchange risk. The SAR projected that debt service coverage would remain above 1.25, and that about 20% of total new investment would be covered by internal cash generation by FY2000. These projections included the effect of fuel cost increases, assumed at 8% p.a., and purchased power cost increases assumed at 10% p.a., which were to be passed on to the consumers through automatic tariff increases. TEC' s financial performance during the project implementation period was significantly better than the appraisal projections, as can be seen from TEC's income statement, balance sheet and sources and application of funds presented in Appendix - D. Overall, TEC's financial position remained solid, with a long-term debt to net worth ratio consistently above 1.5 and a current ratio below 1.2. C. Environmental Objectives 1.25 All the components of the Project were designed to comply with GOI and GOM as well as the applicable environmental policies and guidelines of the World Bank. Operational performances of the components commissioned met the above policies and guidelines. Further information about the components is given in Appendix E. At the time environmental clearance for the Project was given, GOI/GOM mandated that TEC must install a fly ash utilization plant to reduce the environmental impacts of the fly ash discharged by Trombay Unit 5 of 500 MW capacity (built under Ln. 1549-IN for the Third Trombay Thermal Power Project - FY78). Accordingly, TEC installed a Fly Ash Aggregate Plant of 200,000 t/annum capacity to produce cold-bonded light weight aggregates. Although this unit was not part of the Project, all the components of the project were designed to comply with GOI and GOM as well as the applicable environmental policies and guidelines of the World Bank. Information about this unit is also given in Appendix E.  - 9 - PART I: Statistical Tables Table 1: Summary of Assessments A. Achievement of Obiectives Substantial Partial Negligible Not ADDlicable Macroeconomic policies * 0 O O Sector policies * O O O Financial objectives * O 0I O Institutional development * E 0 O Physical objectives O * O O Poverty reduction 0 0 0 U Gender concerns O O 0 U Other social objectives O 0I 0I U Environmental objectives * O 0I 0I Public sector management O O O a Private sector development * O O 0 B. Project Sustainability Likely Unlikely Uncertain U L L C. Bank Performance Highly satisfactory Satisfactory Deficient Identification * OI Preparation assistance * O 0 Appraisal * 0 0 Supervision * LI D. Borrower Performance Highly satisfactory Satisfactory Deficient Preparation * O