India - First Phase of the National Capital Power Supply Project

 National capital power supply project Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Thermal; Major Sector: Electric Power & Other Energy; ProjectID: P009854 India: National Capital Power Supply Project - Phase I (Loan 2844-IN) The Implementation Completion Report (ICR) on the India National Capital Power Supply Project - Phase I (Loan 2844-IN, approved in FY87), prepared by the South Asia Regional Office, with Appendix B contributed by one agency of the Borrower. Loan 2844 for US$485 million equivalent to the Government of India was approved on June 17, 1987. The loan was closed on December 31, 1995 after a six-month extension and a restructuring which led to the cancellation of US$162.2 million (33 percent). The project's objectives were: (i) to augment power supply to New Delhi and improve the reliability of transmission and reduce system losses; (ii) to reduce environmental pollution from power generation; (iii)) to identify economic opportunities for improving the quality of coal used in power generation; and (iv) to effect a program of administrative, financial and operational improvements in the Delhi Electric Supply Undertaking (DESU) and to improve the financial performance of the National Thermal Power Corporation (NTPC), primarily by improving its accounts receivable performance. The project components designed to reach these objectives were: (a) construction of a 4x210 MW coal fire power station at Dadri (by NTPC); (b) rehabilitation of the Badarpur coal fired power plant to improve its operating efficiency and reduce its negative environmental impact (by NTPC); (c) construction of a 110 km 400 kV transmission line and related substations (by DESU); and (d) studies to improve the quality of coal used in power generation and to improve the operational and commercial efficiency of the DESU. In 1991, there was a de facto restructuring of the project: the NTPC component was rescoped support improvements in the operation and maintenance of other NTPC plants (through the purchase of spare parts) and to support the completion of two power coal fired power plants that the Bank had helped finance through previous loans and the DESU component of the loan (US$60 million) was canceled because the Government was unable to meet its agreed (and covenanted) obligation to establish an adequate financial recovery plan for this institution The revised project's physical objectives were substantially met. The four generating plants at Dadri were completed with an average delay of about two years and are now operating as planned, although they often operate at below design capacity because the quality of the coal they receive is inferior to what they were designed to use. Following rehabilitation, the Badarpur plant load fact improved from 64 percent to 74 percent, availability improved from 70-75 percent to over 85 percent, energy conversion efficiency improved by 6 percent, and ash collection efficiency increased to 99.5 percent. None of the transmission related components, which were under the auspices of DESU, were implemented. The study on ways to improve the quality of coal used in power generation by mine mouth was carried out, and as a result of the recommendations of this study, a coal benefaction (washing) plant is being built. The institutional objective of strengthening DESU was not achieved, as discussed above. However, NTPC has received adequate tariff increases, and, after much pressure from the Bank, has greatly improved its financial position, particularly with respect to reducing their accounts receivable by adopting adequate commercial policies towards overdue customers. The ICR estimates that the internal economic rate of return (IERR) for the entire "Northern Region" investment program was 18.7 percent, (up from 11 percent at appraisal), but provides no information about the IERR of the major investment components (the generation facilities and the plant rehabilitation). Operations Evaluation Department (OED) concurs with the ICR in rating the outcome of the restructured project as satisfactory, its sustainability as likely, the institutional development as moderate, and the Bank performance as satisfactory. The main lesson from the project this that the appraisal process must pay more attention to the quality of the required raw material inputs (in this case the quality of the coal that was available, to ensure that the technology employed could employ this coal quality. The second lesson is that when a electricity enterprise needs to be financially restructured and also requires tariff increases to become financially viable, then the Bank should insist that the borrower should put in place a satisfactory action plan for securing financial stability before negotiations. A third lesson is that to minimize costly delays in project implementation, it is essential, when awarding contracts, to evaluating a supplier's capability to deliver the goods on time, especially when the supplier is relatively small or is local company with limited capacity. The ICR is satisfactory, but its discussion of future operations focuses on productivity projections instead of operational measures that are being taken to ensure effective future operations. No audit is planned.